India Strategy - Motilal Oswal

September 2018

India Strategy

Investors are advised to refer through important disclosures made at the last page of the Research Report.Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Research Team ([email protected])

Nifty Midcap-100Nifty Smallcap-100

Correction everywhere

Nifty-50 11,739

10,301

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

21,732

19,920

16,004

9,580

7,669

5,756

Liquiditytightening

11,130

Oil price shocks

Currencyweakness

Contents India Strategy – Correction everywhere 3-392QFY19 Highlights & Ready Reckoner 40-53Sectors & Companies 54-320Automobiles ...................................... 54-73 Amara Raja Batt. ............................................. 58 Ashok Leyland ................................................. 59 Bajaj Auto ..................................................... 60 Bharat Forge ................................................... 61 Bosch .............................................................. 62 CEAT ................................................................ 63 Eicher Motors ................................................. 64 Endurance Tech. ............................................. 65 Escorts ............................................................ 66 Exide Inds. ....................................................... 67 Hero Motocorp ............................................... 68 Mahindra & Mahindra .................................. 69 Maruti Suzuki .................................................. 70 Motherson Sumi ............................................. 71 Tata Motors .................................................. 72 TVS Motor ....................................................... 73

Capital Goods.......................................... 74-90 ABB ............................................................... 77 Bharat Electronics ........................................... 78 BHEL ............................................................. 79 Blue Star .......................................................... 80 CG Consumer Elect.......................................... 81 CG Power & Indl. ............................................. 82 Cummins India .............................................. 83 Engineers India................................................ 84 GE T&D India ................................................... 85 Havells India .................................................... 86 Larsen & Toubro ........................................... 87 Siemens........................................................... 88 Thermax ....................................................... 89 Voltas .............................................................. 90

Cement .................................................. 91-104 ACC ............................................................... 95 Ambuja Cements ............................................. 96 Birla Corporation ............................................. 97 Dalmia Bharat ................................................. 98 Grasim Industries ......................................... 99 India Cements ............................................... 100 Ramco Cements ............................................ 101 Sanghi Inds. ................................................... 102 Shree Cement ............................................... 103 Ultratech Cement.......................................... 104

Consumer ............................................ 105-127 Asian Paints ............................................... 109 Britannia ....................................................... 110 Colgate .......................................................... 111 Dabur ............................................................ 112 Emami ........................................................... 113 Future Consumer .......................................... 114 Godrej Consumer .......................................... 115 GSK Consumer .............................................. 116 Hind. Unilever ............................................... 117 ITC ................................................................. 118 Jyothy Labs .................................................... 119 Marico ........................................................... 120 Nestle ............................................................ 121 P&G Hygiene ................................................. 122 Page Industries.............................................. 123 Parag Milk Foods ........................................... 124 Pidilite Inds. .................................................. 125 United Breweries .......................................... 126 United Spirits ................................................ 127

Financials-Banks .................................. 128-150 AU Small Finance .......................................... 134 Axis Bank ....................................................... 135 Bank of Baroda ........................................... 136 DCB Bank....................................................... 137 Equitas Holdings............................................ 138 Federal Bank ................................................. 139 HDFC Bank .................................................. 140 ICICI Bank ................................................... 141 Indian Bank ................................................... 142 IndusInd Bank ............................................... 143

Kotak Mahindra Bank .................................... 144 Punjab National Bank .................................. 145 RBL Bank ........................................................ 146 State Bank ................................................... 147 Yes Bank ........................................................ 148

Life Insurance ................................................... HDFC Stand. Life ............................................ 149 ICICI Pru Life .................................................. 150 ............................................................................ Financials-NBFC ................................... 151-167 Bajaj Finance.................................................. 154 Chola. Inv & Fin. ............................................. 155 GRUH Finance ................................................ 156 HDFC ........................................................... 157 Indiabulls Housing ......................................... 158 L&T Fin.Holdings ............................................ 159 LIC Housing Fin .............................................. 160 M & M Financial ............................................ 161 MAS Financial ................................................ 162 Muthoot Finance ........................................... 163 PNB Housing .................................................. 164 Repco Home Fin ............................................ 165 Shriram City Union......................................... 166 Shriram Transport Fin. ................................... 167

Healthcare ........................................... 168-191 Alembic Pharma ............................................ 171 Alkem Lab ...................................................... 172 Ajanta Pharma ............................................... 173 Aurobindo Pharma ........................................ 174 Biocon ............................................................ 175 Cadila Health ................................................. 176 Cipla ........................................................... 177 Divis Labs ....................................................... 178 Dr Reddy’ s Labs ......................................... 179 Glenmark Pharma .......................................... 180 Granules India ............................................... 181 GSK Pharma ............................................... 182 IPCA Labs. ...................................................... 183 Jubilant Life ................................................... 184 Laurus Labs .................................................... 185 Lupin .............................................................. 186 Sanofi India .................................................... 187 Shilpa Medicare ............................................. 188 Strides Pharma .............................................. 189 Sun Pharma ................................................... 190 Torrent Pharma ............................................. 191

Infrastructure ...................................... 192-197 Ashoka Buildcon ............................................ 194 IRB Infra ......................................................... 195 KNR Constructions ......................................... 196 Sadbhav Engineering ..................................... 197 ............................................................................ Logistics .............................................. 198-202 Allcargo Logistics ........................................... 201 Concor ........................................................... 202

Media .................................................. 203-215 D B Corp ......................................................... 208 Dish TV........................................................... 209 Ent.Network .................................................. 210 Jagran Prakashan ........................................... 211 Music Broadcast ............................................ 212 PVR ................................................................ 213 Sun TV............................................................ 214 Zee Entertainment ......................................... 215

Metals ................................................. 216-232 Hindalco ...................................................... 223 Hindustan Zinc ............................................... 224 JSPL ................................................................ 225 JSW Steel ....................................................... 226 Nalco ............................................................. 227 NMDC ............................................................ 228 Rain Industries ............................................... 229 SAIL ................................................................ 230

Tata Steel ...................................................... 231 Vedanta ......................................................... 232

Oil & Gas .............................................. 233-252 Aegis Logistics ............................................... 239 BPCL ........................................................... 240 GAIL ........................................................... 241 Gujarat Gas ................................................... 242 Gujarat State Petronet .................................. 243 HPCL .......................................................... 244 IOC ............................................................. 245 Indraprastha Gas ........................................... 246 Mahanagar Gas ............................................. 247 MRPL ............................................................. 248 Oil India ......................................................... 249 ONGC ......................................................... 250 Petronet LNG ................................................ 251 Reliance Inds. ................................................ 252

Retail ................................................... 253-257 Jubilant Foodworks ....................................... 256 Titan Company .............................................. 257

Technology .......................................... 258-277 Cyient ............................................................ 264 HCL Technologies .......................................... 265 Hexaware Tech. ............................................. 266 Infosys ........................................................ 267 KPIT Tech. ...................................................... 268 Mindtree ....................................................... 269 MphasiS ........................................................ 270 NIIT Tech. ...................................................... 271 Persistent Systems ........................................ 272 Tata Elxsi ....................................................... 273 TCS ................................................................ 274 Tech Mahindra .............................................. 275 Wipro .......................................................... 276 Zensar Tech ................................................... 277

Telecom ............................................... 278-288 Bharti Airtel ................................................... 285 Bharti Infratel ................................................ 286 Tata Comm .................................................... 287 Vodafone Idea ............................................... 288

Utilities ................................................ 289-297 CESC .............................................................. 291 Coal India ...................................................... 292 JSW Energy .................................................... 293 NHPC ............................................................. 294 NTPC ............................................................. 295 Power Grid Corp. ........................................... 296 Tata Power ................................................ 297

Others.................................................. 298-325 Arvind ............................................................ 298 Avenue Supermarts ....................................... 299 BSE ................................................................ 300 Castrol India .................................................. 301 Coromandel International ............................. 302 Delta Corp ..................................................... 303 Indo Count Inds. ............................................ 304 Info Edge ....................................................... 305 Interglobe Aviation........................................ 306 Kaveri Seed.................................................... 307 MCX ............................................................... 308 Navneet Education ........................................ 309 Oberoi Realty ................................................ 310 P I Industries.................................................. 311 Phoenix Mills ................................................. 312 Quess Corp .................................................... 313 S H Kelkar ...................................................... 314 SRF ................................................................ 315 Tata Chemicals .............................................. 316 Team Lease Serv. ........................................... 317 Trident .......................................................... 318 UPL ................................................................ 319

October 2018 3

India Strategy | Correction everywhere

Correction everywhere Recent macro events raise risk to earnings recovery in 2HFY19 INR weakness driving earnings of IT, Global Cyclicals; Domestic businesses face growth headwinds 2018 is turning out to be a year of sharp volatility and across-the-board

correction in Indian equities – Nifty-50 is down by 12%, Nifty mid-cap index by26% and Nifty small-cap index by 40% from their yearly highs. While FIIs havebeen net sellers of USD3.6b in CY18YTD, DIIs have remained on buying spreewith net flows of USD13.4b in CY18YTD after an inflow of USD14b in CY17. We,however, note that DII flows have moderated in recent months.

Rising crude prices and sharp INR depreciation (-16% in CY18YTD – the worstsince 2011) have impacted investor sentiment of late. Recently, the fear of tightliquidity and higher interest rates is adversely impacting several domestic-oriented sectors, which were the key to FY19 earnings recovery. NBFCs, inparticular, will see downgrades after many years of strong growth, in our view.

The 2QFY19 earnings-report season is likely to mirror the trend of the previousquarter, albeit with a reduced impact of a favorable base. Global Cyclicals likeMetals and Oil & Gas will continue leading from the front and contribute threefourths of incremental profits for the MOSL Universe.

Rural Consumption recovery is expected to continue, with Consumer Staples(FMCG) likely to post fifth straight quarter of double-digit profit growth. NBFCsshould report strong growth in 2QFY19, as most headwinds emerged onlytoward the quarter-end – the impact will be evident in 2HFY19 estimates (NBFCsnow form 6% of MOSL Universe profit pool v/s 1.6% in FY08). IT appears set formulti-quarter-high profit growth, driven by a strong operational performanceand currency tailwinds. We estimate PAT CAGR (FY18-20) of 13% for our ITUniverse (v/s 5% over FY15-18). Although Corporate Lenders are likely to reportanother quarter of subdued earnings, the operational trends are improving.

We expect MOSL Universe PAT to grow 9% YoY. Global Cyclicals are likely todrive performance for the second straight quarter (with 23% YoY profit growth)and account for 81% of incremental profits. Defensives are expected to postmuted profit growth of 7%, aided by IT/Consumer but dragged by Healthcare.Profit growth for MOSL Universe excluding PSU Banks and Private CorporateLenders is estimated at 13%. Auto, Telecom, PSU Banks, Healthcare and Cementare expected to report muted numbers.

We expect Nifty sales, EBITDA and PAT to increase by 24%, 12% and 12% on abase of 12%, 17% and 15% growth, respectively.

Our Nifty EPS estimates for FY19/20 have been cut by 1.5%/2% toINR539/INR674. We are building in Nifty EPS growth of 18%/25% for FY19/20.Recent headwinds pose a significant risk to the 2HFY19 estimates.

Top ideas in this correction LARGE-CAPS: HDFC, ICICI BANK, AXIS BANK, MARUTI, HINDALCO, ASHOK

LEYLAND, TECH MAHINDRA, L&T, TITAN, BRITANNIA MID-CAPS: RBL, SHTF, MINDTREE, EXIDE, TEAMLEASE

India Strategy BSE Sensex: 34,299 S&P CNX: 10,301

October 2018 4


Key sectoral trends/highlights Auto Universe is expected to report a 28% YoY PAT decline on a strong base

(25% YoY growth in base quarter). Timing difference in the festive season isexpected to have influenced volume growth momentum in 2QFY19. ExcludingTata Motors, the Auto Universe is expected to post flattish 2% PAT decline – thehighest in nine quarters. We expect EBITDA margin to shrink 220bp YoY to11.9%, impacted by high commodity costs, a weak INR, and heightenedcompetitive intensity in 2Ws.

Technology is expected to report its second consecutive double-digit PATgrowth (18.4%), with Wipro (1.5% PAT growth) expected to post the most tepidnumbers. The usual second-quarter seasonal strength, coupled with the benefitsfrom a favorable currency, is likely to drive a continued recovery for thetechnology sector. Revenue for Tier-I vendors is likely to increase by 9.4% YoY inconstant currency terms (compared to 7.8% in 1QFY19 and 6.8% in 2QFY18),taking further strides toward entering a double-digit growth trajectory.

Private Banks are expected to report flat PAT growth (-0.1% YoY), dragged byICICI Bank (-76% YoY). Excluding ICICI Bank, Private Banks’ profit growth isexpected to come in at 19.4%.

NBFCs are expected to continue their strong run and post another quarter ofstrong and broad-based growth (30% YoY). All NBFCs, barring Shriram City Unionand Repco Home Finance, are expected to post double-digit growth.

PSU Banks are expected to report profit of INR3b (base quarter 2QFY18reported profit of INR29b), with BOB being the only bank amongst our Universethat is expected to post PAT growth of 2.4%. PNB is expected to post a loss ofINR10b in 2QFY19.

Consumer Universe is expected to deliver 15% YoY growth in profits – the fifthconsecutive quarter of double-digit PAT growth. The entire Consumer Universeis expected to report a strong set of numbers, barring Future Consumer(expected to post a loss), Emami and P&G Hygiene (both expected to post PATde-growth). United Spirits, Page and Jyothi Labs are expected to report 30%+profit growth, while HUL and ITC are estimated to post 22% and 13% growth.

Metals Universe is likely to post another quarter of strong performance, withEBITDA and PAT growth of 27% and 41% YoY, respectively. Tata Steel (148%),JSW Steel (121%) and Nalco (152%) are expected to post strong earningsgrowth, while JSPL is expected to report a loss. Earnings growth is expected tomoderate further in FY19 due to a strong base (triple-digit growth).

Oil & Gas is expected to report 17% YoY PAT growth off a strong base (Sep-17quarter posted PAT growth of 22%), driven by ONGC. Within our MOSLUniverse, RIL and ONGC account for 80% of the Oil & Gas (Ex OMCs) profit pool.

Utilities Universe is expected to report 53% PAT growth, led by a strongperformance from Coal India (10.8x PAT from Sep-18). Coal India alone willcontribute roughly 95% of the PAT delta of Utilities Universe. Utilities ex CoalIndia are expected to post 3% PAT growth in 2QFY19.

Telecom Universe is expected to report a loss. Vodafone Idea’s loss is expectedto remain elevated.

October 2018 5


Model portfolio The correction in broader markets began in early-CY18, even though the Nifty

hit an all-time high in August 2018. The Nifty has corrected 12% from its recenthighs, and mid-and small-cap indices have corrected between 26-40%. This hasmoderated valuations for many high-quality businesses, presenting anopportunity to add names with strong earnings visibility at more reasonablevaluations. Despite the correction, the Nifty trades at 19x FY19 EPS, off from therecent highs but still at a premium to its long-period averages. Rising bond yieldscontinue posing challenges for equity valuations as bond-earnings yield spreadsstay elevated at 2.8%. Against this backdrop, our model portfolio continuesreflecting our bias for earnings visibility and growth. Overall, we continuefavoring Private Financials, Consumer Discretionary, FMCG, IT and select qualityMid-caps.

BFSI: We are replacing Yes Bank with Axis Bank, given the prevailing uncertaintyin the former around management change. In Axis, the recent appointment ofMr Amitabh Chaudhry as MD & CEO has provided much-needed clarity on topmanagement. We expect balance sheet clean-up to complete soon and earningsrecovery to pick up by end-FY19. AXSB has already increased the PCR to 69%(NCLT-1 provisions of 83%), while net stressed assets have declined to 6.7%.AXSB guided for normalization in credit cost in 2HFY19. Within NBFCs, we areraising weights on HDFC after the recent correction. It is best placed in the NBFCspace to navigate the rising interest rates environment (best-in-class liabilitystructure, with 30% funding from public deposits) and now trades at reasonablevaluations adjusted for subsidiaries with 16-17% RoE. We are adding Kotak Bank(KMB) in our model portfolio, as growth commentary remains strong withmanagement guiding for 20%+ growth across key business verticals. We expectKMB to report 21% loan growth over FY18-20. With prudential provisioningmade by the bank in 1QFY19, PCR has improved to ~60%. Subsidiaries have beenperforming well (contributing ~35% of total PAT). Promoter ownership remainsa near-term overhang, though. However, the ~25% correction in the stock pricemakes KMB attractive from a medium- to long-term perspective.

Consumer: We are replacing Emami and UNSP with HUL in our model portfolio.While Emami continues witnessing moderation in demand trends and rising RMheadwinds, UNSP is impacted by rising raw material pressure and elevatedcompetitive intensity in IMFL in an environment of meagre price hikes. On theother hand, HUVR offers a relatively more robust rural story and its guidance ofmodest margin expansion and continued premiumization provides relativelygood earnings visibility.

Autos: We are replacing Bajaj Auto with Ashok Leyland in our model portfolio.Domestic 2W industry volumes and profitability are facing headwinds from anincrease in cost of ownership (led by safety regulations, new insurance norms,etc.) and intensifying competition. BJAUT's profitability would remain underpressure due to a weak mix and limited benefit of the INR in the near term dueto hedges. Ashok Leyland's volumes remain strong with ~35% growth in1HFY19, despite the noise around higher rated load. After gaining market shareprofitably over FY15-18, Ashok Leyland is now shifting its focus towardexpanding and creating new revenue/profit pools. This should likely driverevenue/EBITDA/PAT CAGR of 12%/15%/16% over FY18-22.

October 2018 6


Information Technology: We have raised the weight for Infosys marginally,added Tech Mahindra and replaced Persistent with Mindtree. With dealsbagged over the past few quarters, revenues from the Telecom vertical appearset for revival in Tech Mahindra. Softness in Enterprise expected in 2QFY19 istransient and that too should recover from 3QFY19. Also, the benefits fromcurrency seem to be flowing down to TECHM’s profitability, driving expectationof 290bp EBITDA margin expansion over FY18-20 (to 18.2%). The stock remainsundervalued relative to peers, providing an opportunity for earnings upgradeand re-rating. Performance for PSYS has been clouded by near-term issues,while growth has been accelerating for the rest of the pack. The recentturnaround of MTCL and also momentum visibility (driven by acceleration in topclients) make its growth highest in our coverage universe. Turnaround of itsacquisitions and benefits of INR depreciation would favor margins, driving high-double-digit earnings growth.

Capital Goods: We have raised the weight of L&T further given the attractivevaluations, improved capital allocation and good visibility on orders.

Energy: HPCL moves out of the portfolio after our recent downgrade. Mid-caps: In mid-caps, the significant correction has given us an opportunity to

add some new ideas at relatively more reasonable valuations. We are addingMindtree, Crompton Consumer and TeamLease in our model portfolio. Risingshare of premium fans (~20% in total fan sales vs 7% two years back) will drivemarket share gains for Crompton Consumer along with margin expansion. Ittrades at a 20% discount to Havells, despite RoE being 2x of Havells. TeamLeasehas seen a gradual recovery in volume growth, which should continue throughthe rest of the year, resulting in maintenance of ~25% revenue growth historicaltrend. After the recent correction, long-term opportunities and high growthoffer a good entry opportunity.

October 2018 7


Global Cyclicals will drive earningsMetals, O&G and IT to drive entire incremental PAT for 2QFY19

After a tepid FY18, the 1QFY19 earnings performance was healthy off a lowbase, with MOSL universe earnings growing 14% and Nifty earnings increasingby a respectable 13% (below expectations). Expectations of an earningsrecovery in FY19 hinge on the performance of a few sectors (as earningsrecovery is expected to be narrow, posing a downside risk to estimates). Thedownside risks to estimates have gone up, more so in the last few weeks, giventhe developments around crude, credit tightening and consequent higherinterest rates in the system.

As we head into the 2QFY19 earnings season, the macro challenge hasworsened with the relentless rise in crude oil prices accompanied by currencydepreciation. This, coupled with the liquidity tightening in the financial systemand concerns around ILFS debt default, has soured market sentiment.Moreover, bond yields have hovered around 8-8.1%. These developments canhave meaningful repercussions on corporate earnings going forward. The RBI, inits recent monetary policy, lowered its inflation forecasts for 2QFY19, 2HFY19and 1QFY20. The government has also reduced the borrowing target for 2HFY19by INR700b.This may provide some relief to bond yields, in our view. Monsoonmissed the IMD’s prediction (made at the beginning of the season), with theseason ending with 9% deficit. These developments have taken the sheen offthe strong GDP growth posted in 1QFY19 and the improvement in some microdata points pertaining to consumption. The high frequency data points stillremain patchy and indicate volatile recovery trends.

Overall, we expect the 2QFY19 earnings season to mirror the 1QFY19 trends,albeit with a reduced impact of base-related favorable comps. Global Cyclicalswill continue driving earnings, even as rising commodity costs and higherinterest rates pose downside risks to earnings estimates.

Global Cyclicals to drive earnings in 2QFY19 MOSL Universe is expected to deliver earnings growth of 9% in 2QFY19, led by

Global Cyclicals, even as Domestic Cyclicals are likely to drag the performanceand defensives are likely to post modest growth.

Approximately 31% of MOSL Universe is expected to post a YoY decline in PAT,while 46% of the MOSL Universe is expected to post >15% growth. Consumer,NBFC, Metals, Technology and Oil& Gas are expected to drive 2QFY19 earnings.

In 2QFY19, the contribution of Domestic Cyclicals and Defensives to the profitpool is roughly equal at 32%, whereas Global Cyclicals will contribute 36%.

We expect MOSL Universe revenue to grow 22% YoY in the quarter (revenuegrew 12% YoY in the base quarter).

MOSL Universe EBITDA growth is estimated at 11% YoY, with the operatingmargin ex-Financials and OMCs coming in flattish at 20.3%. MOSL Universe PATis likely to grow 9% YoY (base quarter earnings grew by 14%), driven by GlobalCyclicals like Metals, Oil & Gas and Coal India.

Global Cyclicals are expected to deliver strong earnings growth of 23% YoY (39%growth in base quarter), led by Metals, Oil & Gas and Coal India, and account for81% of YoY delta in MOSL Universe PAT. Coal India alone contributes 36% of YoYdelta in MOSL Universe PAT.

2QFY19 PREVIEW

October 2018 8


Defensives are expected to post 7% YoY PAT growth (base quarter earnings de-grew by 6%), buoyed by IT (posting its highest growth since Jun-14) andConsumer (14% growth), but dragged by Utilities (3% growth ex Coal India) andHealthcare (4% de-growth). Telecom (competitive intensity to stay elevated) isexpected to post another quarter of loss.

For 2QFY19, Domestic Cyclicals will report 1.4% and (1.5%) YoY growth inEBITDA and PAT, respectively, dragged by Auto, PSU Banks and Corporate-focused private banks, while NBFCs are expected to deliver healthy 19% growth.

Earnings breadth to worsen slightly from the previous quarter; Domestic Cyclicals to disappoint Earnings breadth is expected to worsen from 1QFY19, with 31% of MOSL Universe expected to post a YoY decline in PAT. Global Cyclicals like Metals and Oil & Gas are expected to continue the good run and account for 81% of MOSL Universe earnings delta for 2QFY19. Apart from these, IT, FMCG and NBFC are also expected to contribute to incremental earnings in 2QFY19.

Snapshot of sector performance Auto Universe is expected to report 28% YoY PAT decline off a strong base. We

expect EBITDA margin to shrink 220bp YoY to 11.9% due to high commoditycosts, a weak INR and heightened competitive intensity in 2Ws. Excluding TataMotors, Auto Universe is expected to post a 2% YoY earnings decline. We expectMaruti, M&M, Bajaj Auto and Hero Motors to post a YoY decline in PAT.

Technology is expected to post the strongest quarter since Sep-14, withPAT/sales expected to grow at 18.4% (17-quarter high)/16.8 %( 9-quarter high).Tier II is expected to post another quarter of outperformance v/s Tier I. TCS isexpected to account for 45% of incremental PAT of our Technology Universe

Metals will have another strong quarter (41% YoY PAT growth) off a high base.However, growth is expected to moderate going forward in FY19.

Oil & Gas is expected to report 17% YoY PAT growth off a strong base (Sep-17quarter posted PAT growth of 22%), driven by ONGC and IOC. Excluding OMCs,O&G Universe is expected to deliver 26% YoY PAT growth.

Private Banks are expected to report flat PAT growth (-0.1% YoY), dragged byICICI Bank (-76% YoY). Excluding ICICI Bank, Private Banks profit growth isexpected to come in at 19.4%.

NBFCs should report another strong quarter with broad-based 30% profitgrowth. However, we have reduced our estimates for FY19 and FY20 given theunderlying rise in cost of funds and potential pressure on spreads.

PSU Banks are expected to report a profit after three consecutive quarters ofloss, while Telecom is expected to report a loss for the fifth straight quarter.

Consumer Universe profits are expected to grow 15% YoY – the 5th straightquarter of double-digit PAT growth – with a strong performance by HUL/PAG.

Cement (-2.1%) is expected to report a PAT decline, with ACC and Ultratechexpected to report strong numbers. 7 out of 10 companies in our CementUniverse are expected to post YoY PAT decline.

Utilities are expected to report 53% PAT growth, led by a strong performancefrom Coal India (10.8x PAT from Sep-18). Coal India alone will contribute roughly95% of the PAT delta of Utilities Universe. Utilities ex Coal India are expected todeliver 3% PAT growth in 2QFY19.

October 2018 9


Healthcare is expected to post 4.3% PAT decline off a low base (19% PAT declinein 2QFY18). Sun Pharma (20%), Biocon (91%) and Divi’s Lab (35%) are expectedto post a good set of numbers, while Lupin is expected to post 45% YoY PATdecline. 11/21 of our Healthcare Universe is expected to post a YoY PAT decline.

Defensives and Domestic Cyclicals’ share in MOSL Universe earnings would beroughly equal at 32%, while Global Cyclicals would account for 36%. The shareof Domestic Cyclicals reduced to 14% in 4QFY18, driven by a huge loss reportedby PSU Banks, and is now expected to return to normalcy.

Nifty sales are estimated to grow 23.7% YoY – a multi-quarter high. PAT isestimated to grow 11.8% and EBITDA is likely to increase 11.7% YoY.

Nifty EPS cut marginally for FY19/20: Our FY19/20 Nifty EPS estimates havebeen cut by 1.5%/2% to INR539/INR674 (prior: INR547/INR688). We are nowbuilding in earnings growth of 18%/25% for the Nifty for FY19/20. For FY19,major earnings upgrades are in ONGC (18%), GAIL (13%), Tech Mahindra (11%),Wipro (+11%), and JSW Steel (10%), while the major earnings downgrades are inSBI (-39%), Grasim (-36%), Tata Motors (-33%), Axis Bank (-19%) and ICICI Bank (-18%). For FY20, the major earnings upgrades are in JSW Steel (16%), ONGC(15%), Bajaj Auto(11%), Tata Steel(10%) and GAIL (8%), while the majordowngrades are in Grasim (-35%), BPCL (-29%), IOC (-26%), Bharti Infratel (-24%) and Maruti Suzuki (-13%).

Exhibit 1: Profit growth led by IT, Metals and O&G

SECTOR SALES EBITDA NET PROFIT PAT Delta EBITDA Margins

PAT Margins

(NO OF COMPANIES) Sep-18 Var %YoY

Var % QoQ Sep-18 Var %

YoY Var % QoQ Sep-18 Var %

YoY Var % QoQ

PAT Delta Sh. % Sh. % Chg bp YoY Chg bp

YoY High gr. sectors 8,975 30 3 1,656 26 4 883 25 1 176 74 174 -56 -42Utilities (7) 654 11 -6 244 37 1 110 53 6 38 9 38 711 465 Metals (10) 1,483 12 -2 315 27 -3 111 41 -11 32 9 32 247 151 NBFC (14) 165 19 2 126 19 3 80 30 7 19 7 18 -23 403 Media (8) 64 30 -4 21 32 -10 10 30 -4 2 1 2 34 -3Retail (2) 51 20 -4 7 25 5 4 27 3 1 0 1 44 43 Logistics (2) 33 11 6 5 25 15 4 22 15 1 0 1 162 95 Technology (14) 1,051 17 6 249 20 10 193 18 10 30 16 30 66 25 Oil & Gas (14) 4,976 47 5 569 29 9 289 17 -4 43 24 42 -163 -148Consumer (19) 499 12 4 121 15 4 82 15 6 10 7 10 57 36 Med/Low gr.sectors 871 12 1 323 15 1 135 1 9 1 11 1 103 -174Capital Goods (14) 555 12 1 57 15 5 34 4 5 1 3 1 29 -48Private Banks (11) 316 13 1 266 16 0 101 0 10 0 8 0 203 -408PAT de-gr. sectors 3,540 7 2 704 -14 0 174 -30 60 -76 15 -75 -480 -264Infrastructure (4) 30 16 -19 9 9 -18 3 -1 -39 0 0 0 -178 -153Others (22) 369 24 6 60 8 6 27 -1 1 0 2 0 -232 -190Cement (10) 273 15 -10 48 5 -17 20 -2 -30 0 2 0 -172 -125Healthcare (21) 441 9 7 89 2 11 50 -4 11 -2 4 -2 -136 -157Life Insurance (2) 141 18 35 6 -2 -13 6 -5 -5 0 1 0 -80 -108Auto (16) 1,645 5 2 195 -12 3 80 -28 29 -31 7 -31 -220 -222PSU Banks (4) 310 11 -5 209 -25 2 3 -88 LP -26 0 -26 -3,209 -947Telecom (4) 331 -11 -1 88 -24 -7 -15 Loss Loss -15 -1 -15 -467 -454MOSL (198) 13,387 21.9 2.4 2,684 11.4 2.8 1,192 9.3 7.8 101 100 100 -189 -103MOSL Ex Metals, Oil & PSU Banks (170) 6,617 10.3 2.0 1,591 10.3 2.1 788 7.1 7.8 1 -36

Sensex (30) 6,031 16.4 1.5 1,643 11.5 4.4 704 10.3 20.1 -117 -64Nifty (50) 10,270 23.7 2.2 2,115 11.7 3.8 937 11.8 10.0 -220 -97

October 2018 10


MOSL Universe: Double-digit sales growth trajectory intact, PAT growth to moderate slightly, defensives’ PAT to grow at 7% Exhibit 2: Seventh consecutive quarter of double-digit sales growth for MOSL Universe

Source: MOSL

Exhibit 3: Sales growth of Defensives on upward curve at 9%

Source: MOSL

Exhibit 4: Earnings growth to come in at 9% for MOSL Universe (base quarter earnings grew by 14%)

Exhibit 5: Earnings to grow at 7% for defensives on a weak base (decline of 6% in the base quarter)

Exhibit 6: EBITDA margin to stay flattish in 2QFY19

Source: MOSL

Exhibit 7: PAT margin to shrink by 30bp in 2QFY19

Source: MOSL

Share of Defensive and Domestic Cyclicals in MOSL Universe earnings roughly equal in 2QFY19; Global Cyclicals’ share at 36% 2QFY19 earnings are expected to be driven by Global Cyclicals, which are likely

to post 23% growth. The share of Defensives, Domestic Cyclicals and GlobalCyclicals in profit pool stands at 32%, 32% and 36%, respectively.

Technology Universe PAT of INR193b should hit an all-time high.

16 19

10 8 713 12 11

14

5

0

-11-4 -5 -5

3

-2

4 8

15 11 12

15 15

23 22 2419

Jun-

12

Dec-

12

Jun-

13

Dec-

13

Jun-

14

Dec-

14

Jun-

15

Dec-

15

Jun-

16

Dec-

16

June

-17

Dec-

17

June

-18

Dec-

18E

17

11 108 8 9

8 11

9 7

4 1

-1

1 3 5

9 9

13 13

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Jun-

16Se

p-16

Dec-

16M

ar-1

7Ju

ne-1

7Se

p-17

Dec-

17M

ar-1

8Ju

ne-1

8Se

p-18

EDe

c-18

EM

ar-1

9E

-37

68

-4

4

94

-10

6

0

33 5

-6-10

9 2 4

-7

1 7 16 15

-6

14 17

-7

14 9 20

54

Jun-

12

Dec-

12

Jun-

13

Dec-

13

Jun-

14

Dec-

14

Jun-

15

Dec-

15

Jun-

16

Dec-

16

June

-17

Dec-

17

June

-18

Dec-

18E

20 16

-6

10 10 13 13 10 116

-1 -4

-14-6

1 5

11 7

13 16

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Jun-

16Se

p-16

Dec-

16M

ar-1

7Ju

ne-1

7Se

p-17

Dec-

17M

ar-1

8Ju

ne-1

8Se

p-18

EDe

c-18

EM

ar-1

9E

18.6

18

.2

18.0

18.9

18

.2

18.4

18

.4

18.5

18

.8

18.3

18

.2

18.8

20.0

18

.6

18.9

20.3

21.2

20

.0

20.0

19

.9

19.4

20.2

20

.5

20.2

20

.1

20.3

20

.6

20.6

June

-12

Dec-

12

June

-13

Dec-

13

June

-14

Dec-

14

June

-15

Dec-

15

June

-16

Dec-

16

June

-17

Dec-

17

June

-18

Dec-

18E

MOSL Universe EBITDA Margin LPA: 19.2%

10.3 9.8

9.4 10.2

9.3 9.4

10.3 10.0

9.9 9.6

8.9 9.6

10.2 9.8

9.2

10.8

10.4

10.0 9.4

10.3

9.5

9.9

9.9

10.3

9.2

9.6 10.1 10.6

June

-12

Dec-

12

June

-13

Dec-

13

June

-14

Dec-

14

June

-15

Dec-

15

June

-16

Dec-

16

June

-17

Dec-

17

June

-18

Dec-

18E

MOSL Universe PAT Margin LPA: 9.8%

October 2018 11


Exhibit 8: Sectoral quarterly PAT trend (INR b) Sector FY15 FY16 FY17 FY18 FY19

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep

Dec

Mar Auto 95 80 80 64 102 72 88 123 82 88 57 109 71 110 82 116 61 78 108 157

Capital Goods 19 20 22 46 14 16 7 46 16 25 25 55 21 32 31 54 31 33 36 64 Cement 18 14 10 16 14 16 16 24 27 22 16 22 28 20 18 27 28 20 27 38 Consumer 53 56 59 56 57 58 64 60 65 65 64 67 65 72 75 79 78 82 85 88 Financials 188 178 181 204 195 199 127 61 154 157 175 132 187 192 155 -93 116 184 249 287 Private Banks 82 85 95 100 91 98 106 83 94 94 97 102 102 98 104 71 88 97 131 148 PSU Banks 70 57 50 60 65 59 -23 -72 14 9 27 -27 29 29 -18 -241 -51 3 38 53 NBFC 35 35 36 44 37 41 42 48 44 51 50 54 52 61 66 74 75 80 77 81 Healthcare 47 52 36 40 55 56 55 55 60 61 55 48 32 49 48 53 44 48 55 61 Infrastructure 2 2 2 3 3 3 3 2 3 3 3 4 4 3 4 5 5 3 5 4 Logistics 3 3 4 3 3 3 3 4 2 2 2 3 3 3 2 2 3 4 4 4 Media 5 5 8 6 7 8 8 10 7 8 8 8 8 8 7 5 10 10 12 11 Metals 88 91 78 41 48 57 -13 30 34 38 54 99 69 79 113 146 124 111 139 156 Oil & Gas 160 131 58 242 233 119 185 204 270 200 224 236 198 245 303 283 298 287 305 319 Oil & Gas Ex OMCs 122 126 82 129 136 120 132 149 140 148 146 163 155 167 183 187 189 210 245 259 Retail 2 3 2 2 2 2 3 2 2 2 3 2 3 3 3 4 4 4 4 5 Technology 132 137 144 141 141 152 153 158 153 158 164 157 153 163 165 171 174 193 200 206 Telecom 23 27 28 29 23 26 26 28 28 24 8 12 3 0 -2 -3 -14 -15 -15 -12Utilities 85 66 76 98 89 87 88 93 87 72 81 83 85 72 92 118 103 110 111 111 Others 15 14 14 5 16 13 15 16 19 17 17 22 19 18 23 22 23 22 23 24 MOSL Universe 936 876 800 997 1,001 882 824 915 1,008 938 954 1,055 943 1,065 1,118 985 1,085 1,170 1,347 1,517

Exhibit 9: Sectoral quarterly PAT growth trend (%) Sector FY15 FY16 FY17 FY18 FY19

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep(E)

Dec (E)

Mar (E)

Auto 70 4 -7 -23 8 -10 10 92 -20 22 -35 -12 -14 25 45 6 -14 -29 31 35Capital Goods 19 -10 -11 -15 -28 -19 -70 1 20 53 274 17 27 28 25 -2 50 4 18 18 Cement -6 28 -11 -12 -21 13 68 49 93 39 1 -5 3 -8 8 21 1 -2 55 39Consumer 12 14 10 12 9 4 8 7 13 13 1 11 0 10 16 18 20 15 14 12 Financials 11 16 13 8 4 12 -30 -70 -21 -21 38 114 21 22 -11 PL -38 -4 61 LP Private Banks 18 19 19 17 10 14 12 -16 3 -3 -9 22 9 4 8 -30 -14 -1 26 109 PSU Banks 3 20 5 -5 -7 2 PL PL -78 -84 LP Loss 107 211 PL Loss PL -88 LP LP NBFC 12 6 12 10 4 16 16 8 19 24 18 14 20 21 33 36 43 30 16 10 Health Care 37 23 -57 -13 17 8 53 39 8 10 2 -13 -46 -21 -14 10 35 -2 16 16Infrastructure 19 5 10 -6 16 60 27 -14 10 -8 27 70 43 10 33 26 8 -1 8 -15Logistics 12 -7 28 20 -8 12 -31 6 -17 -24 -11 -28 27 28 -25 -9 0 22 111 80 Media 0 -1 32 20 36 47 8 75 3 3 -6 -24 6 -4 -6 -29 31 30 61 97 Metals 30 26 2 -51 -45 -38 PL -28 -29 -33 LP 237 102 108 108 47 81 41 23 7 Oil & Gas 154 -23 -47 -23 46 -9 218 -16 16 68 21 16 -27 22 35 20 50 17 1 13 Oil & Gas Ex OMCs 14 -10 -44 -4 11 -5 61 15 3 24 10 9 10 12 26 15 22 26 34 38 Retail -5 22 7 1 -13 -37 13 -13 33 13 -1 -9 15 71 38 94 48 27 28 19 Technology 25 13 11 6 7 11 7 12 9 4 7 -1 0 3 1 9 14 18 21 20 Telecom 48 105 86 17 2 -5 -9 -2 20 -6 -68 -59 -90 PL PL PL PL Loss Loss Loss Utilities 1 -15 -14 6 5 31 16 -5 -2 -17 -8 -11 -3 0 14 42 22 53 20 -6Others 17 10 14 -54 7 -6 11 191 15 33 9 35 0 8 36 1 25 20 4 11 MOSL Universe 33 5 -7 -11 7 1 3 -8 1 6 16 15 -6 13 17 -7 15 10 21 54

Source: MOSL Note: Comparable Universe, excludes Alkem Lab, Avenue Supermarts, CG Consumer Elect, Endurance Tech, AU Small Finance Bank, Equitas Holdings, Gujarat Gas, HDFC Stand. Life, ICICI Pru Life, Interglobe Aviation, Laurus Labs, Mahanagar Gas, MAS Financial, Music Broadcast, Quess Corp, RBL Bank, S H Kelkar and Team Lease.

October 2018 12


Exhibit 10: Key assumptions Macro FY18 1QFY19 2QFY19E 3QFY19E 4QFY19E FY19E FY20E GDP Growth (%) 6.7 7.7 7.1 6.7 6.3 7.0 7.2 IIP Growth (%) 4.4 5.8 5.0 3.8 3.4 4.3 5.2 Inflation CPI-RU (%) 3.6 4.9 4.1 3.8 4.7 4.3 5.6 Currency: USD/INR 64.5 67.1 70.2 72.5 73.0 70.7 73.4 Repo Rate (%) 6.00 6.25 6.50 6.50 6.50 6.50 6.50 Interest Rate (%): 1Year CP Rate (Avg) 7.34 8.00 8.26 8.38 8.51 8.29 8.26

10Year G Sec (Avg) 6.93 7.73 7.93 8.13 8.22 8.00 7.87 Sectoral FY18 1QFY19 2QFY19E 3QFY19E 4QFY19E FY19E FY20E Auto: CV Volume growth (%) 17.7 61.8 25.2 7.8 10.5 21.7 18.0 Car Volume growth (%) 14.5 25.9 2.5 14.9 14.4 13.8 14.5 Banking: Loan Growth (%) 9.8 12.4 12.1 13.2 12.3 12.3 13.8 Cement: Volume growth (%) 7.5 10.0 7.0 7.0 7.0 7.5 7.5 Capital Goods: L&T order Intake (INRb) 1,529 361 360 430 547 1,698 1,960 Capital Goods: L&T order Intake (% YoY) 6.9 36.7 25.0 -10.6 10.3 11.1 15.4 Metal: Steel (USD/Tonne) 631 748 700 680 680 699 662 Aluminum (USD/Tonne) 2,045 2,259 2,150 2,150 2,150 2,177 2,150 Zinc (USD/Tonne) 3,048 3,124 2,800 2,800 2,800 2,881 2,700 Oil: Brent (US$/bbl) 57.6 74.6 74.2 75.0 75.0 74.7 70.0 Oil & Gas: Under Recoveries (INRb) 236 71 155 165 167 558 671

Singapore GRM (USD/bbl) 7.2 6.1 6.3 6.0 6.0 6.1 6.0 Technology: $Revenue growth (%) 8.2 0.8 3.3 1.3 1.6 8.0 8.0

' * CV volume for Tata Motors and Ashok Leyland; PV Volume for Maruti Suzuki (total volume growth)

Exhibit 11: Sectoral PAT growth YoY in 2QFY19 (%) Exhibit 12: Sectoral PAT growth QoQ in 2QFY19 (%)

Exhibit 13: Approximately 31% of the companies are likely to report PAT decline, while 23% of the companies are expected to post >30% PAT growth

46% of the companies would grow at >15% YoY, and 23% of the Universe would report >30% PAT growth. 31% of the Universe would report PAT de-growth.

53 41 30 30 27 22 18 17 15 10 9 4

0 -1 -2 -4 -5 -28

-88 Loss

Util

ities

Met

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NBF

CM

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LP 29 20 15 11 10 10 8 7 6 6 5 3

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Loss

Bank

s - P

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Car

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35 30 26 27 32 41 43 5138 32 39 35

21 21 24 25 25 28 26 24 19 26 24 19 20 26 18 21 22 21 26 26 28 29 29 23 20 25 32 36 4123

18 1810 14

22 10 17 13 22

21 18 2324 25 18 22 17 17 19 16 18

18 14 20 2220

23 16 13

26 13 19 20 19 1512 16

19 23 1619

23

24 2622 18

14 14 9 9 10 20 18 18

24 19 16 13 27 17 16 17 22 19 24 1622

27 25 25 18

17 22 18 17 20 2220 19

23 15 17

19 24

23 26 42 41

32 35 31 27 3027

25 24 31 34 42 40 31 38 39 42 40 37 38 45 36 26 35 38 47 36 39 37 35 32 34 46 45

33 30 31 21 31

26 20

-8-15

-15-11 23

42

26 22

24 9 13

11 4

18 11

9 6

0 -3

8 12

9 17

7

-7 -9

-3 -3

-11 -13

-60 18

20

3

10 9

-20 810

June

08

Sep

08De

c 08

Mar

09

June

09

Sep

09De

c 09

Mar

10

June

10

Sep

10De

c 10

Mar

11

June

11

Sep

11De

c 11

Mar

12

June

12

Sep

12De

c 12

Mar

13

June

13

Sep

13De

c 13

Mar

14

June

14

Sep

14De

c 14

Mar

15

June

15

Sep

15De

c 15

Mar

16

June

16

Sep

16De

c 16

Mar

17

June

17

Sep

17De

c 17

Mar

18

June

18

Sep

18E

>30% >15-30% >0-15% <0% Ex OMCs (%)

% o

f MO

SL U

nive

rse

com

pani

es

Earnings Gr.

PAT Growth Ex OMCs (%)

October 2018 13


Three macro trends on the economy

A. Expect real GDP growth and inflation to remain subdued in 2HFY19 Real GDP had surged by 8.2% YoY in 1QFY18 – the fastest pace in over two

years. However, high growth was supported a favorable base (growth hadbottomed at 5.7% YoY in 1QFY18 post demonetization). We had highlightedthat this favorable base effect would start fading and growth would come off inthe subsequent quarters. Accordingly, notwithstanding 8.2% growth in 1QFY19,we continue believing that real GDP growth will be ~7% in FY19, much lowerthan the RBI’s projection of 7.4%.

Signs of a sharp deceleration in growth in 2QFY19 are visible. According to ourin-house economic activity index (EAI) for India, real GDP growth averaged 7%in the first two months of 2QFY19, much weaker than 8.5% in 1QFY19 (Exhibit14). We believe that growth would moderate further toward 6% in September2018 due to an unfavorable base. Consequently, we expect real GDP to clock in7%-7.2% YoY growth in 2QFY19 before decelerating further toward 6.5% in2HFY19 (Exhibit 15).

Exhibit 14: Our in-house measure of economic activity (EAI) indicates deceleration in growth in 2QFY19

Exhibit 15: Real GDP growth expected to decelerate sharply in 2QFY19 and 2HFY19

Source: Central Statistics Office (CSO), CEIC, MOSL

Further, notwithstanding sharp acceleration in crude oil prices and a weakerINR, we expect headline inflation to average ~4.1% YoY in FY19. Subdued foodinflation and housing index will help offset higher fuel prices. Core inflation,however, will remain above 5% until March 2019.

B. Capex cycle, however, showing early signs of recovery According to the projects data (click here) released by the Centre for Monitoring

Indian Economy (CMIE), new project announcements increased 12% YoY toINR1.5t in 2QFY19 (Exhibit 16), driven primarily by the consumer goods (+886%YoY, INR25b), metals & mining (+229% YoY, INR361b), information technology(+226% YoY, INR21b) and electricity (+121% YoY, INR314b) sectors. This was thefirst instance of an increase in nine quarters. The increase was driven by theprivate sector; government sector project announcements dropped 2% YoY toINR762b (Exhibit 17).

Stalled projects remain elevated at INR11.5t, accounting for 10.9% of projectsunder implementation. This, however, is lower than the peak levels of 12.2% in

0

3

6

9

12

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

EAI-GDP % YoY 3-mma

7.1 7.7

8.2

7.3

9.3

8.1 7.6

6.8 6.1

5.6 6.3

7.0

7.7 8.2

7.0 6.6 6.4

Q4 FY15 Q4 FY16 Q4 FY17 Q4 FY18 Q4 FY19F

Real GDP(% YoY)

FORECAST

http://institution.motilaloswal.com/emailer/Research/ECO-GDP-20180831-MOSL-ES-PG004.pdf

http://ftp.motilaloswal.com/emailer/Research/AUG_ECO_EAI_PE-20181003-MOSL-ES-PG008.pdf

http://ftp.motilaloswal.com/emailer/Research/ENGG-20181004-MOSL-SU-PG006.pdf

October 2018 14


March 2018. Projects under implementation increased by a muted 2% YoY to INR105t in 2QFY19. Around 63% of the projects under implementation are from the government sector (the highest since June 2006); private sector accounts for 37%. This is reflective of the reluctance of the private sector to invest in new capacity, given (a) a constrained demand scenario and resultant underutilization and (b) over-leveraged balance sheets.

The turnaround in project announcements, along with the increase in capacityutilization levels to a four-year high of 75% in March 2018 (Exhibit 19), is alsoreflected in our in-house estimate of investment activity, which posted double-digit growth for the 10th successive month in August 2018 (Exhibit 18). Whetherthis is driven by a favorable base is something to watch out for.

Exhibit 16: New project announcements exhibit growth (+12% YoY in 2QFY19) after declining for two years

Exhibit 17: Projects under implementation supported by government projects

Source: CMIE, MOSL

Exhibit 18: According to our in-house measure, investment activity witnessed double-digit growth over last 10 months

Exhibit 19: Capacity utilization levels at four-year high in March 2018

Source: RBI, MOSL

C. Fiscal slippages to determine rate actions in FY19 After hiking policy rates by 50bp in 1HFY19, the RBI surprised markets by

maintaining status quo in its fourth bi-monthly monetary policy meeting heldon 5th October 2018. This, however, was in line with our anti-consensus view.The central bank, however, changed its policy stance to ‘tightening’ from‘neutral’ earlier, which may have diluted the impact of keeping status quo oninterest rates.

Furthermore, the RBI revised its 2QFY18 inflation forecast downward to 4%from 4.6% on account of lower-than-expected inflation numbers in July and

-75%

0%

75%

150%

225%

0

2,500

5,000

7,500

10,000

Sep-

07

Sep-

08

Sep-

09

Sep-

10

Sep-

11

Sep-

12

Sep-

13

Sep-

14

Sep-

15

Sep-

16

Sep-

17

Sep-

18

New projects (INR b) YoY %

0

20,000

40,000

60,000

80,000

Sep-

98Se

p-99

Sep-

00Se

p-01

Sep-

02Se

p-03

Sep-

04Se

p-05

Sep-

06Se

p-07

Sep-

08Se

p-09

Sep-

10Se

p-11

Sep-

12Se

p-13

Sep-

14Se

p-15

Sep-

16Se

p-17

Sep-

18

Government(INRb) Private (INRb)

-2

3

8

13

18

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

MOLI: Investment % YoY 3mma

70

72

73

75

76

78

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

Mar

-17

Sep-

17

Mar

-18

Capacity utilisation levels (%)

http://ftp.motilaloswal.com/emailer/Research/ECO-RBI-20181005-MOSL-ES-PG004.pdf

http://ftp.motilaloswal.com/emailer/Research/ECO-RBI-20181005-MOSL-ES-PG004.pdf

October 2018 15


August 2018. Further, the central bank cut its inflation forecast for 2HFY19 sharply to 3.9%-4.5% from 4.8% and for 1QFY20 to 4.8% from 5%. This implies that the RBI expects inflation to average at ~4.3% for full-year FY19, as against 4.8% earlier but still slightly higher than our estimate of 4.1%.

Moreover, notwithstanding higher-than-projected 1QFY19 growth, the RBIretained its FY19 GDP growth at 7.4%, implying slower-than-previously forecastgrowth in the remaining part of FY19. We expect growth to come in at ~7% inFY19, well below the RBI’s (and market’s) projections.

Given our forecast of lower-than-expected inflation and growth, we do notexpect the RBI to hike rates in the remaining part of FY19. However, there is aserious risk of slippages in fiscal deficit targets if the government does not cut itsspending. Accordingly, we believe that fiscal slippage may prompt the RBI tohike rates.

Exhibit 20: Expect CPI headline inflation to stay sub-4% until December 2018…

* All items excluding ‘food & beverages’ and ‘fuel & light’

Exhibit 21: …which will make it difficult for the RBI to hike rates in the remaining part of FY19

Source: CSO, RBI, CEIC, MOSL

Global Cyclicals to account for 81% of 2QFY19 earnings delta Global Cyclicals are expected to post robust earnings growth of 23% YoY on a

strong base (39% growth in base quarter), led by Metals, Oil & Gas and CoalIndia, and account for 81% of YoY delta in MOSL Universe PAT. Coal India alonecontributes 36% of YoY delta in MOSL Universe PAT.

Defensives are expected to deliver 7% YoY PAT growth (base quarter earningsdeclined 6%), buoyed by IT (posting its highest growth since Jun-14) andConsumer (15% growth), but partly dragged by Utilities (3% growth ex CoalIndia) and Healthcare (4% decline).

For 2QFY19, Domestic Cyclicals are expected to report 1.4% and (1.5%) YoYgrowth in EBITDA and PAT, respectively, dragged by Auto, PSU Banks andcorporate-focused private banks, while NBFC Universe is expected to posthealthy 30% growth.

1.0

2.3

3.5

4.8

6.0

7.3

Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Headline CPI Core CPI*(% YoY)

FORECASTS

5.3

5.8

6.3

6.8

7.3O

ct-1

6

Dec-

16

Feb-

17

Apr-

17

Jun-

17

Aug-

17

Oct

-17

Dec-

17

Feb-

18

Apr-

18

Jun-

18

Aug-

18

Oct

-18

Repo Reverse repo MSF

http://institution.motilaloswal.com/emailer/Research/ECO-QEO-20181001-MOSL-ES-PG012.pdf

October 2018 16


Exhibit 22: Cyclicals will continue driving earnings in FY19

Source: MOSL Source: MOSL

Exhibit 23: Global Cyclicals growth expected to significantly exceed MOSL Universe in 1HFY19, with Domestic Cyclicals leading the pack in 2HFY19

Source: MOSL Source: MOSL

Defensives’ growth to moderate slightly Defensives solely drove MOSL Universe PAT growth over FY14-16. Cyclicals

(both domestic and global), on the other hand, were under pressure. As a result,the share of Defensives in aggregate PAT expanded to 37% in FY16 from 23% ofFY12.

Domestic Cyclicals appear to be the key drivers of PAT growth in 2HFY19, withtheir share rising to 33% of aggregate PAT in FY19 (v/s 28% of FY18) andaccounting for 50% of incremental PAT growth.

Consequently, we expect the share of Cyclicals to increase to 71% in FY19 from67% in FY18.

For 2QFY19, Defensives are expected to report EBITDA growth of 6.9% YoY andPAT growth of 7.1% YoY.

60

37 24 22 17 10 5 4 2 1 0 0

0 0 -1 -6 -13 -17

-45

Oil

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Contribution to 1HFY19 PAT growth (%) 45

14 9 9

5 5 3 3 3 2 2 2 1 1 1 0 0

0 -3

Bank

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Contribution to 2HFY19 PAT growth (%)

60 36 36 36 32 30 22 17 16 12 11 11 5

0 -5 -6 -7 -22

-181PL

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1HFY19 PAT growth (%) LP 9376

59 45

37 36 23 21 19 18 14 13 13 13 11 7 6

-4 Loss

Bank

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tal G

oods

Met

als

NBF

CO

ther

sCo

nsum

erLi

fe In

sura

nce

Oil

& G

asU

tiliti

esIn

fras

truc

ture

Tele

com

2HFY19 PAT growth (%)

October 2018 17


Exhibit 24: Oil & Gas and Metals contribute 75% of the earnings delta in 2QFY19

Source: MOSL

Share of Defensives, Domestic Cyclicals and Global Cyclicals almost equal in 2QFY19

Exhibit 25: PAT share of Domestic Cyclicals will be at 34%, up from 31% in 1QFY19 (was impacted by PSBs’ losses)

Defensives includes Consumer, Healthcare, Technology, Telecom and Utilities Global cyclicals includes Metals, Oil & Gas and JLR Domestic cyclicals includes Automobiles, Banks, Capital Goods, Infrastructure, Cement, Media, NBFCs, Real Estate and Retail

Nifty earnings to grow in double-digits at 12% off a strong base Nifty PAT is likely to grow in double digits at 12% YoY off a strong base (15%

growth in 2QFY18). Nifty, excluding Corporate Banks, is expected to deliverprofit growth of 15% off a base of 14% growth.

Excluding OMCs, PSU Banks and Metals, Nifty PAT growth remains healthy at12%.

Sales are expected to grow 24% YoY (12% YoY growth in base quarter), againaided by Global Cyclicals. Excluding OMCs, Metals and PSU Banks, sales growthremains healthy at 18% YoY.

Nifty EBITDA is expected to grow 12%. Excluding OMCs, PSU Banks and Metals,Nifty EBITDA is expected to increase 18% YoY.

13 Nifty companies (4 from Automobiles) are expected to report a YoY decline inPAT.

Bharti Airtel and Tata Motors are expected to post a loss in 2QFY19.

1,19

2

1,09

1

43 38 32 30 19 10 2 1 1 1

0 0 0 0 0 -2 -15 -26 -31

MO

SL 2

QFY

18 P

AT (I

NRb

)

Oil

& G

as

Util

ities

Met

als

Tech

nolo

gy

NBF

C

Cons

umer

Med

ia

Cap

Goo

ds

Reta

il

Logi

stic

s

Infr

a

Priv

ate

Bank

s

Life

Insu

ranc

e

Oth

ers

Cem

ent

Heal

thca

re

Tele

com

PSU

Ban

ks

Auto

MO

SL 2

QFY

19 P

AT (I

NRb

)

40 35 32 32 35 36 33 38 37

35 36 36 33 38 38 32

14 31 34

26 33 41 42 38 34 34 26 24 25 22

25 33 28 27 33

47 34 32

34 27 25 29 36 40 40 42 39 34 34 35 3439

35 34

0%

25%

50%

75%

100%

Mar

-09

June

-09

Sep-

09De

c-09

Mar

-10

June

-10

Sep-

10De

c-10

Mar

-11

June

-11

Sep-

11De

c-11

Mar

-12

June

-12

Sep-

12De

c-12

Mar

-13

June

-13

Sep-

13De

c-13

Mar

-14

June

-14

Sep-

14De

c-14

Mar

-15

June

-15

Sep-

15De

c-15

Mar

-16

June

-16

Sep-

16De

c-16

Mar

-17

June

-17

Sep-

17De

c-17

Mar

-18

June

-18

Sep-

18E

Defensives

Global cyclicals

Domestic cyclicals

Excluding OMC's

October 2018 18


Exhibit 26: Nifty sales to grow 24% in 2QFY19

Exhibit 27: 2QFY19 Nifty PAT to increase 12%, led by Metals, Technology and Oil & Gas

Exhibit 28: Fifth consecutive quarter of double-digit growth in Nifty EBITDA

Exhibit 29: Nifty sectoral 2QFY19 PAT change YoY (%)

25 2330

37 35 33

8

-4-12 -8

15

28 2622

18 22

26 21

26 21

16 14 8 4 4

14 14 14 15

4

-1-8

-4 -5 -3

4

0

4 5

14 10

12 14 1524 24 27

20

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

3QE

4QE

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

LPA: 13%

36

19 13 12

21 11

-8 -5

-20-15

19 27

16

34

24

4 10

0 12

29

6

24

5

-2

11 2

8 9 19

5

-6-12

-1

0

-7

1

-4 -4

7 7

-6

15 15 6

10 12 20

35


3QE

4QE


LPA: 8%

25 20

15 18

26

13

-5 -8 -10-2

29 37

21

31

20

10 136 10

18

3

12 4 5

13 11 14 13

17

6 2

-5

5 15

15

7 11

8 8 2

16 11 14

18 12

20

13


3QE

4QE


LPA: 11%

76 47

29 26 21 18 17 15 15 12 11 4

-1 -2 -7

-39-57 Loss

Util

ities

Met

als

NBF

C

Med

ia

Reta

il

Oil

& G

as

Tech

nolo

gy

Heal

thca

re

Cons

umer

Nift

y

Agro

Che

m

Cem

ent

Bank

s-Pv

t

Cap

Goo

ds

Infr

a

Auto

Bank

s-PS

U

Tele

com

Metals, O&G, NBFCs and Utilities to outperform;

Telecom, PSU Banks and Auto to underperform

October 2018 19


Exhibit 30: Nifty companies’ 2QFY19 performance (INR b) Company Sales EBITDA PAT PAT Contbn EBITDA margin

Sep-18 Var % YoY



YoY Var % QoQ (%) Gr.

(%) Sep-18 Var (bp)

High PAT Growth 5,418 34 4 1,204 33 4 604 39 2 65 172 22 -13Coal India 227 25 -6 63 387 -5 40 976 5 4 36 28 2052 Tata Steel 348 7 -8 73 55 13 25 148 10 3 15 21 653 JSW Steel 202 19 -1 46 45 -10 19 121 -18 2 11 23 406 Axis Bank 49 8 -5 42 11 -4 7 56 -4 1 2 86 300 Bajaj Finance 27 37 3 16 52 1 8 51 0 1 3 62 606 ONGC 301 59 11 168 61 14 70 37 14 7 19 56 67 Bajaj Finserv 82 9 -6 82 9 -6 9 35 6 1 2 100 0 Tech Mahindra 86 13 4 15 35 10 11 34 25 1 3 17 286 IOC 1,379 52 6 75 5 16 49 34 -28 5 13 5 -247Hindalco 325 17 4 39 11 -3 13 27 -15 1 3 12 -66Zee Entertainment 19 18 5 6 22 6 4 26 13 0 1 32 91 Indiabulls Housing 16 29 2 14 28 2 11 25 2 1 2 89 -107HCL Technologies 147 18 6 34 24 6 27 24 13 3 5 23 121 Reliance Inds. 1,364 49 6 212 36 2 101 24 6 11 20 16 -150HDFC 29 12 1 26 10 9 26 23 18 3 5 90 -164Hind. Unilever 96 15 1 21 24 -8 15 22 -3 2 3 22 150 Titan Company 42 20 -6 5 20 5 3 21 3 0 1 12 0 Ultratech Cement 84 28 -3 15 8 -10 5 21 -13 1 1 17 -320TCS 364 19 6 100 23 11 78 21 6 8 14 28 81 IndusInd Bank 22 21 4 19 17 0 11 20 2 1 2 87 -244Sun Pharma 76 15 6 16 25 8 11 19 11 1 2 22 174 HDFC Bank 110 13 2 90 16 4 49 18 7 5 8 82 157 Yes Bank 24 25 6 25 29 0 12 17 -7 1 2 104 319 Med/Low PAT Growth 1,142 13 1 348 13 5 195 9 5 21 17 30 -7Kotak Mahindra Bank 26 13 1 21 19 1 11 14 10 1 1 79 435 ITC 111 8 4 43 15 3 30 13 6 3 4 39 250 Power Grid Corp. 82 13 -2 75 15 5 24 13 10 3 3 92 138 GAIL 174 40 1 23 13 4 15 12 17 2 2 13 -331Eicher Motors 24 10 -7 7 9 -8 6 12 1 1 1 31 -34Dr Reddy’ s Labs 38 8 3 7 6 -7 3 12 -30 0 0 18 -41Infosys 204 16 7 54 14 8 42 11 7 4 4 26 -50UPL 42 12 2 8 16 -2 4 11 -34 0 0 20 63 Cipla 45 10 14 9 10 21 5 9 37 0 0 20 0 Asian Paints 47 10 7 9 7 -2 5 4 -4 1 0 18 -50NTPC 202 2 -12 63 12 2 28 3 -5 3 1 31 275 Wipro 146 9 4 29 6 21 22 1 21 2 0 20 -54Negative PAT Growth 3,710 14 1 563 -17 3 138 -39 90 15 -88 15 -576Mahindra & Mahindra 129 7 -4 20 2 -7 14 -1 12 1 0 15 -74Larsen & Toubro 290 10 3 31 4 6 16 -2 4 2 0 11 -59Bajaj Auto 80 21 8 13 3 5 11 -4 -4 1 0 17 -292Bharti Infratel 36 -1 -2 14 -11 -5 6 -4 -4 1 0 40 -416Grasim Industries 43 5 -11 10 21 -10 6 -7 -9 1 0 22 294 Adani Ports 26 -5 7 16 -9 34 9 -7 33 1 -1 63 -305Hero MotoCorp 90 8 3 14 -5 1 9 -10 0 1 -1 15 -208Maruti Suzuki 221 1 -2 31 -15 -6 20 -19 2 2 -5 14 -269Vedanta 214 -1 -4 57 1 -9 13 -30 -13 1 -6 27 43 BPCL 740 39 3 25 -13 33 16 -30 -28 2 -7 3 -202HPCL 690 45 2 21 -2 14 11 -34 -34 1 -6 3 -143State Bank 206 11 -6 132 -34 10 7 -57 LP 1 -9 64 -4341ICICI Bank 61 7 0 55 11 -5 5 -76 LP 1 -16 91 398 Tata Motors 687 -3 2 60 -33 11 -5 PL Loss 0 -30 9 -388Bharti Airtel 200 -8 0 63 -20 -6 -2 PL Loss 0 -7 32 -463Nifty (50) 10,270 24 2 2,115 12 4 937 12 10 100 100 21 -220Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit; Consensus estimates are used for Adani Ports and Bajaj Finserv

October 2018 20


Exhibit 31: Intra-sector 2QFY19 earnings divergence (%)

Sectors Sector gr.

+30%growth

15-30%growth

0-15%growth

-Ve earningsgrowth

Earnings momentum

HIGH GROWTH SECTORS

Utilities 53 COAL: 976 TPWR: 23 PWGR: 13, NTPC: 3,CESC: 2

NHPC: -17, JSW: -27

Metals 41 SAIL: LP,NACL: 152, TATA: 148,JSTL: 121

HNDL: 27, RINDL: 19 NMDC: 11 HZ: -21,

VEDL: -30,JSP: Loss

NBFC 30 MMFS: 252,LTFH: 56, BAF: 51,GRHF: 47

MASFIN & LICHF: 29,

CIFC & PNBHOUSI: 27,IHFL: 25,

HDFC: 23,SHTF: 22

MUTH: 13, SCUF: 10, REPCO: 7

Media 30 ENIL: 56, DITV: LP

PVRL: 26, Z: 26

SUNTV: 13, RADIOCIT: 6

DBCL: -1, JAGP: -6

Retail 27 JUBI: 60 TTAN: 21

Logistics 23 CCRI: 33 AGLL: -16

Technology 18 MTCL: 120,KPIT: 63

,ZENT: 57,NITEC: 43,TELX: 38,MPHL: 37,TECHM: 34

HCLT: 24,TCS: 21,HEXW: 17

PSYS: 13,CYL: 12, INFO: 11,WPRO: 1

Oil & Gas (Ex OMCs) 16 GUJGA: 54,OINL: 51,

ONGC: 37,IOCL: 34 RIL: 24,

AGIS: 23,IGL: 21

IGL: 21, GAIL: 12,

MAHGL: 4,GUJS: 1

PLNG: -2,MRPL: -16,BPCL: -30,

HPCL: -34

Consumer 15 PAG: 34, JYL: 31,

UNSP: 30

PARAG, HUVR & NEST: 22, BRIT: 21,

SKB: 19,UBBL: 18

CLGT: 15,GCPL: 14, ITC: 13,PIDI: 9,

MRCO: 8, DABUR: 6, APNT: 4

PG: -3, HMN: -9,

FCON: Loss

MEDIUM/LOW GROWTH SECTORS

Capital Goods 4 BHEL: 147, SIEM: 39, GETD: 36

TMX: 19, ABB: 18

KKC: 10, BLSTR: 9,

CROMPTON: 3

HAVL: -1,CRG, LT & VOLT:-2,

ENGR: -21,BHE: -27

Banks - Private -0.1

EQUITAS: 517, AXSB: 56,

AUBANK & RBK: 35

DCBB: 24, IIB: 20,

HDFCB: 18,YES: 17 KMB: 14 FB: -23,

ICICIBC: -76

PAT DE-GROWTH SECTORS

Cement -2 BCORP: 643, ACC: 50 UTCEM: 21

GRASIM & ACEM: -7,DBEL: -23,SRCM: -27,TRCL: -43,ICEM:

-51,SNGI: -77

Healthcare -4BIOS: 91,

JUBILANT: 75, DIVI: 35

SUNP: 19, SLPA: 17

DRRD: 12, CIPLA: 9, GLXO: 5,

IPCA & GNP: 3

GRAN: -3,SANL: -7,TRP: -12,ALPM: -16,CDH: -17,AJP: -

21,ARBP: -26,STR: -27,LAURUS: -

32,ALKEM: -43, LPC: -45

Auto -28 AL: 56, EXID: 38

ENDU: 24, BHFC: 18

BOS: 13,EIM: 12, MSS: 6,ESC: 4,

TVSL: 2

MM: -1,CEAT: -4,BJAUT: -4,HMCL: -

10,AMRJ: -17, MSIL: -19,TTMT: PL

Banks - PSU -88 BOB: 2 INBK: -35, SBIN: -57,PNB: PL

Telecom Loss BHARTI: PL,

BHIN: -4,TCOM: -94, IDEA: Loss

October 2018 21


FY19 earnings recovery faces newer headwinds Normalization of earnings in Financials holds the key FY19 earnings growth to be aided by low base of Financials: We expect FY19

revenue growth for our MOSL Universe to come in at 23% (v/s 5.4% CAGR overFY15-18). This will be the third consecutive year of double-digit revenue growth.The top-line performance is likely to be driven by broad-based growth acrosssectors, with Telecom being the only sector expected to post a decline in sales.We expect EBITDA margin for the MOSL Universe (ex-OMCs, Financials) to expand20bp to 19.2% in FY19. We expect profits to grow 29% YoY for the MOSL Universe,aided by a low base (flat earnings in FY18 due to losses in PSU Banks). Financialsalone account for 46% of incremental profits (34% is contributed by PSU Banks,8% by Private Banks), while Metals, O&G and Technology are expected to form11%, 17% and 9%, respectively. However, as highlighted in earlier sections, webelieve the downside risks to earnings have increased off-late.

Nifty profits to grow 18% in FY19; four companies to account for half ofincremental growth: Nifty sales are expected to continue the momentum anddeliver healthy 22% YoY growth in FY19. Nifty EBITDA and PAT are expected togrow 16% and 18% in FY19, with a CAGR (FY18-20) of 15% and 22%,respectively. In FY19, one sixth of incremental profit growth in the Nifty isexpected to be contributed by corporate lenders like Axis Bank and SBI.Excluding these banks, Nifty profit growth is expected to be 17%, stillsignificantly higher than 7% CAGR over FY14-18. These banks, along with ONGCand RIL, contribute 50% of the PAT delta for FY19 and will hold the key for theanticipated earnings recovery.

Exhibit 32: Nifty expected to post 22% PAT CAGR (FY18-20E)

Sector Sales Gr. / CAGR (%)

EBIDTA Margin (%)

EBIDTA CAGR (%)

EBITDA margin chg (bp) PAT Gr. / CAGR (%) PAT delta

Sh. (%) (No of Companies) (FY18-20) FY19E (FY18-20) FY18-20 FY18 FY19E FY20E (FY18-20) FY18-20 High PAT CAGR (>20%) 14 36.1 17 189 -21 65 44 54 63 Financials (37) 17 68.6 16 -127 -48 162 67 109 46 PSU Banks (7) 14 74.2 13 -121 PL LP 391 LP 29 Private Banks (12) 18 84.7 19 47 -1 23 44 33 12 Life Insurance (2) 20 4.4 15 -36 6 1 26 13 0 NBFC (16) 19 79.7 17 -333 27 23 19 21 5 Media (9) 17 33.9 22 313 -7 31 34 32 1 Logistics (2) 13 14.2 20 168 5 45 20 32 0 Cement (13) 18 19.3 18 0 3 24 33 28 3 Retail (2) 19 11.8 26 122 51 30 26 28 0 Healthcare (21) 15 21.2 23 283 -19 19 32 26 4 Utilities (7) 9 34.8 18 578 7 26 15 20 6 Capital Goods (17) 13 11.1 17 95 15 18 22 20 2 Medium PAT CAGR (15-20%) 12 18.0 16 148 28 18 19 18 19 Auto (16) 12 13.5 17 100 15 7 32 19 6 Metals (10) 7 21.3 14 290 73 34 6 19 6 Consumer (19) 14 24.5 17 123 11 16 19 17 4 Others (23) 23 18.0 22 -34 18 3 32 17 2 Low PAT CAGR (up to 15%) 20 13.6 12 -191 1 14 10 12 18 Oil & Gas (14) 23 11.0 14 -175 6 18 9 13 13 Excl. OMCs (11) 23 14.0 20 -63 6 31 14 22 16 Technology (14) 15 23.9 17 80 5 16 10 13 7 Infrastructure (4) 23 30.5 12 -522 43 9 9 9 0 Telecom (4) 1 27.6 -3 -235 -99 PL Loss PL -2MOSL (212) 16 19.9 15.4 -28.3 -1 29 25 27 100 MOSL Excl. OMCs (209) 15 22.3 16.6 52.1 -1 33 26 30 NA Sensex (30) 14 25.3 15.5 84.6 6 19 30 24 NA Nifty (50) 16 21.0 15.0 -19.1 8 18 25 22 NA

EARNINGS FY19-20

October 2018 22


Exhibit 33: Nifty ex corporate lenders PAT to deliver 17% CAGR over FY18-20

MOSL Universe to post 29% earnings growth in FY19 led by a low base For MOSL Universe, we estimate FY19 PAT growth of 29% (on a flat base of

FY18), led by a recovery in Financials in 2HFY19 and a continued strongperformance in Metals, O&G and Technology. Profit growth for MOSL Universeex OMC, Metals and PSU Banks stands at a robust 19%, significantly higher thanFY14-18 CAGR of 7%.

All sectors – barring Telecom, Infrastructure and Autos – are expected to postdouble-digit PAT growth.

Exhibit 34: Nifty EPS – expect 22% CAGR over FY18-20, significantly higher than the 5% CAGR over FY08-18

Nifty EPS cut marginally for FY19/20 Our FY19/20 Nifty EPS estimates have been cut by 1.5%/2% to INR539/INR674

(prior: INR547/INR688). We are now building in earnings growth of 18%/25% for the Nifty for FY19/20. For FY19, major earnings upgrades are in ONGC (18%), GAIL (13%), Tech

Mahindra (11%), Wipro (+11%), and JSW Steel (10%), while the major earningsdowngrades are in SBI (-39%), Grasim (-36%), Tata Motors (-33%), Axis Bank (-19%) and ICICI Bank (-18%).

For FY20, the major earnings upgrades are in JSW Steel (16%), ONGC (15%),Bajaj Auto(11%), Tata Steel(10%) and GAIL (8%), while the major downgradesare in Grasim (-35%), BPCL (-29%), IOC (-26%), Bharti Infratel (-24%) and MarutiSuzuki (-13%).

3.3

15.7

1.5

10.5

17.6

9.9

17.1 14.4

5.3

13.1

3.3 7.3

10.4

6.1

20.1 21.9

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

Nifty Ex Corp Lenders Nifty-50PAT Growth (%)

73 78 92 131 169 184

236 281 251 247

315 348 369 406 413 394 423 456 539

674

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

FY01-08: 21% CAGR

FY08-18: 5% CAGR

FY18-20E: 22% CAGR

8%

18%

25%

October 2018 23


Exhibit 35: Top Nifty companies’ EPS upgrades/downgrades since 1QFY19 review (%) Companies FY19 Companies FY20 ONGC 18.1 JSW Steel 16.1 GAIL 12.6 ONGC 14.5 Tech Mahindra 10.9 Bajaj Auto 11.2 Wipro 10.6 Tata Steel 9.5 JSW Steel 9.7 GAIL 8.2 ICICI Bank -18.0 Maruti Suzuki -13.3Axis Bank -19.4 Bharti Infratel -23.8Tata Motors -32.5 IOC -26.0Grasim Industries -35.7 BPCL -28.7State Bank of India -39.4 Grasim -35.4

October 2018 24


Exhibit 36: Nifty performance - expect PAT CAGR (FY18-20) of 22%

Sales (INR b) Sales EBIDTA Margin

(%) EBITDA PAT (INR b) PAT YoY (%) PAT Contbn

to

Company FY18 FY19E FY20E

CAGR % 18-

20 FY18 FY19 FY20

CAGR % 18-

20 FY18 FY19E FY20E FY18 FY19 FY20

CAGR % 18-

20 Delta %

High PAT Growth (20%+) 17,753 22,508 24,901 18 23 22 23 19 1,352 1,924 2,627 0 42 37 39 77 State Bank 749 816 962 13 80 71 73 9 -46 43 262 PL LP 513 LP 19 Axis Bank 186 204 244 14 84 84 89 18 3 42 94 -93 1,418 124 484 6 IndusInd Bank 75 110 150 41 89 88 91 43 36 53 75 26 46 43 45 2 Sun Pharma 261 312 362 18 20 22 26 33 32 45 63 -49 39 41 40 2 Dr Reddy’ s Labs 142 157 179 12 16 21 22 30 11 16 20 -11 53 21 36 1 ICICI Bank 230 253 284 11 107 92 94 4 68 52 121 -31 -23 133 34 3 Bajaj Finance 72 98 128 33 68 69 69 34 25 35 45 36 40 27 34 1 ONGC 3,622 4,969 5,156 19 18 20 20 26 259 429 462 -10 65 8 34 12 Grasim Industries 562 690 801 19 22 22 22 19 31 43 55 -2 38 28 33 1 GAIL 537 712 847 26 14 15 13 19 46 68 79 20 47 17 31 2 Bajaj Finserv 87 98 111 12 84 89 93 18 27 35 44 21 29 25 27 1 Coal India 859 942 1,003 8 20 25 28 28 119 167 191 26 40 15 27 4 Titan Company 161 191 231 20 10 11 11 26 11 14 18 40 27 26 27 0 Tata Motors 2,946 3,196 3,509 9 13 12 14 14 78 69 119 16 -11 72 24 2 Reliance Inds. 3,917 5,921 6,538 29 16 14 15 22 361 429 544 21 19 27 23 11 Ultratech Cement 298 365 457 24 20 19 18 19 24 29 35 -11 24 21 23 1 Eicher Motors 89 106 124 18 31 32 32 19 22 26 33 27 20 25 22 1 JSW Steel 701 867 941 16 21 23 21 16 56 88 84 58 57 -5 22 2 NTPC 878 929 1,026 8 26 29 32 19 88 115 131 -11 30 14 22 3 Cipla 152 173 197 14 19 21 21 22 16 19 24 31 14 30 22 0 Yes Bank 77 99 120 25 100 102 103 27 42 52 63 27 24 20 22 1 Hindalco 1,152 1,301 1,532 15 12 12 12 18 42 56 62 121 32 12 22 1

Med. PAT Gr. (10-20%) 8,738 9,877 11,175 13 28 28 29 16 1,457 1,664 1,925 12 14 16 15 28 Hind. Unilever 345 390 444 13 21 22 24 20 53 62 76 25 17 22 19 1 HDFC Bank 401 459 554 18 81 83 85 20 175 207 246 20 18 19 19 4 Kotak Mahindra Bank 95 110 135 19 75 78 79 22 62 71 87 26 14 23 18 2 Larsen & Toubro 1,197 1,338 1,507 12 11 11 12 16 72 83 101 22 14 23 18 2 Mahindra & Mahindra 921 1,053 1,168 13 14 15 16 17 49 59 66 50 20 12 16 1 Asian Paints 168 184 221 15 19 19 19 16 20 22 27 2 11 22 16 0 Zee Entertainment 67 76 87 14 31 32 33 17 14 15 19 -7 11 21 16 0 Maruti Suzuki 798 909 1,050 15 15 14 15 14 81 83 107 7 3 29 15 2 TCS 1,231 1,478 1,674 17 26 27 26 17 258 320 342 -2 24 7 15 5 Vedanta 919 933 1,019 5 22 24 27 16 76 79 100 35 4 27 15 1 Indiabulls Housing 54 63 77 19 113 98 97 10 38 44 51 32 14 16 15 1 ITC 406 450 510 12 38 39 40 14 108 122 139 6 13 14 14 2 Tech Mahindra 308 354 399 14 15 18 18 24 38 43 49 38 14 13 13 1 Bajaj Auto 252 305 345 17 19 17 19 16 44 46 56 7 5 22 13 1 HCL Technologies 506 603 680 16 23 24 23 18 88 103 112 4 17 9 13 1 HDFC 113 122 140 11 93 89 90 10 71 76 89 12 7 17 12 1 Adani Ports 113 111 126 6 62 63 64 7 38 40 47 -3 6 18 12 1 Power Grid Corp. 299 346 389 14 88 89 89 15 87 97 108 16 12 11 12 1 Wipro 545 595 649 9 20 20 21 13 85 91 104 2 7 13 10 1

Low PAT Growth (<10%) 12,267 15,861 16,509 16 13 10 9 -1 741 676 646 7 -9 -4 -7 -6Infosys 705 823 926 15 27 27 27 15 161 168 189 12 5 12 8 2 UPL 174 194 359 44 20 21 21 46 22 24 26 6 6 9 8 0 Hero MotoCorp 322 358 393 10 16 15 15 7 37 36 41 9 -3 14 5 0 HPCL 2,195 2,963 3,082 18 5 4 4 6 72 76 80 -12 6 5 5 0 Tata Steel 1,316 1,463 948 -15 17 20 24 1 82 105 91 108 27 -14 5 0 Bharti Infratel 145 141 143 -1 44 39 36 -10 25 22 19 -8 -15 -10 -12 0 BPCL 2,358 3,140 3,245 17 6 5 4 -8 98 87 69 3 -12 -21 -16 -2IOC 4,215 5,965 6,523 24 10 6 5 -15 226 166 132 11 -27 -21 -24 -6Bharti Airtel 837 815 890 3 36 32 33 -1 16 -7 0 -63 PL LP -97 -1

Nifty (PAT free float) 38,758 48,247 52,585 16 21 19 20 15 1,807 2,134 2,671 8 18 25 22 100

October 2018 25


Exhibit 37: Nifty stock absolute FY19E PAT change (INR b)

Exhibit 38: Nifty stock absolute FY20E PAT change (INR b)

4,26

3

3549

170 88 68 62 48 39 32 32 27 22 22 17 15 14 13 12 12 11 10 10 10 10 9 9 8 7 6 6 6 5 5 5 4 4 3 3 3 2 2 2 2 1 11 4 9 11 16 24 60

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October 2018 26


Key Sectoral Highlights - 2QFY19 2QFY19E YoY (%)

SECTOR Key highlights Sales EBITDA PAT Margin Chg YoY (pp) Key stocks to watch

Auto Healthy rural demand momentum has been partiallyoffset by increased cost ofownership led by higher fuelprices, interest rates and insurance costs, particularly for2W and PV. During the quarter,2W and PV volumes have been influenced by factors such as the Kerala floods and timingdifference in festival season.

During the quarter, while 2Wvolume grew 9% supported byhealthy rural demand, CVvolumes increased 27% (M&HCV+28.2% YoY), unaffected bychange in axle load norms. PVvolumes declined 1.8% (with decline of 1.8% each in cars and UVs).

EBITDA margin for our auto OEM(ex-JLR) universe is likely tocontract after four quarters ofexpansion to 13.6% (-110 bp YoYand -40 bp QoQ), impacted byRM inflation, currency volatilityand heightened competitive intensity in 2Ws.

Auto aggregate PAT is likely todecline 28.3% YoY, led by MSIL,and HMCL.

4.6 -11.8 -28.3 -2.2 MSIL: Revenue growth is expected to be muted at 1.5% YoY as volume declined 1.5% YoY, while realization should grow 3% YoY. EBITDA margin is likely to contract 270 bp YoY to 14.2% and PAT is expected to decline by 18.9% YoY.

AL: Ashok Leyland’s revenues should grow 26.8% led by volume growth of 26% YoY as realization is expected to be flat YoY. EBITDA margin is expected to expand 100bp YoY to 11.1%, led by operatingleverage, while PAT should increase 55.9% YoY.

BJAUT: On the back of healthyvolume growth of 25% YoY,revenues should grow 21.3%, even as realizations decline by 3% due tounfavorable product mix. This willalso drag EBITDA margins to multi-quarter low at 16.8% (-290 bp YoY, -50 bp QoQ).

EIM: Consolidated revenue was up just 9.7% YoY as RE volume grew3.6% YoY impacted by Kerala floodsand workers strike. However, VECVvolume grew healthily by 24.5%—led by healthy CV demand.Consolidated margins should decline 40 bp YoY (-70 bp QoQ) to31.1%.

Capital Goods We expect order intake for the sector to improve in 1QFY19, given pick-up in finalization of orders. LT is expected to book orders worth INR475b (+56% YoY), supported by order finalization in the water and infrastructure segment.

Revenue growth for our coverage universe is expected to register12% growth in this quarter, asdomestic execution for projectspick up.

Margin is expected to improve 30 bp YoY to 10.3%, supported byoperating leverage and costrationalization measures taken by the companies.

12.0 15.2 3.9 0.3 Execution from LT is likely to grow10% in 2QFY19; operating profit islikely to grow 4% YoY. Operatingmargin is expected to decline 60 bp YoY to 10.6%. PAT is expected todecline 2.3% YoY.

ABB is expected to deliver healthyresults for 2QFY19. Revenue is likelyto grow 24% YoY led by betterexecution of orders in hand.Operating profit is expected togrow 37% YoY, whereas net profit is expected to grow 18% YoY.

Thermax is expected to deliverstrong results. With healthy orderbacklog available for execution,revenue is expected to grow 20%YoY in 2QFY19. Operating marginsare expected to decline 30 bp YoYto 8.9% given cost pressure and netprofit is expected to grow 19% YoY.

October 2018 27


2QFY19E YoY (%)


Infrastructure We expect road companies to register healthy revenue growth of 16%, driven by a pick-up in execution of orders in hand. Execution is expected to pick up given all clearances are in place.

Operating margins for companiesunder our coverage universe areexpected to decline 180 bp YoYto 28.5%, given adverse revenuemix for few companies and completion of better profitable orders.

Net profitability for thecompanies is expected to remain flattish YoY given higher tax ratein the quarter as most companiesenjoyed tax benefit under sec80IA.

15.9 9.1 -0.8 -1.8 Ashoka is expected to deliver ahealthy operating performance,given healthy revenue growth of14% YoY. Operating profit is likelyto increase 2.4% YoY. Net profit isexpected to grow 11% YoY. Orderbacklog stands robust, which willenter execution phase from 2HFY19 onwards.

Sadbhav is expected to deliver ahealthy operating performance,given decent execution (+10% YoY).Operating margins is expected toremain stable at 11.5%. PAT isexpected to grow 27% YoY given higher other income.

KNR is expected to deliver weakoperating performance given lowerorder book available for execution.Revenue is expected to decline2.2% YoY, operating profit isexpected to decline 28% YoY given margin compression of 650 bp to15.5% and net profit is expected todecline 55% YoY.

Cement We expect companies under ourcoverage to report volumegrowth of ~15% YoY in 2QFY19.Demand in various regions wasaffected due to monsoons, while the South recorded favorable growth for the quarter. We expect the MOSL Cementuniverse to record volumegrowth of ~15% YoY in 2QFY19.We expect (a) pan-India playersto report volume growth of 6-7%YoY, (b) SRCM to report 13% YoYvolume growth, (c) South-based (DBEL, TRCL and ICEM)companies to post 13-15%volume growth.

ASP should decrease 1% QoQ in 2QFY19, as we estimate a pricechange of (a) +1% QoQ in North India, (b) +0% QoQ in CentralIndia, (c) -5% QoQ in West India,(d) -1% QoQ in East India, and (e)+2% QoQ in South India.

Petcoke and diesel prices haveincreased 5% QoQ. Prices forimported coal have alsoincreased 9% QoQ. We believeprice hikes in various regionswould not be sufficient tomitigate the impact of rising costpressure. EBITDA/ton is likely tobe lower (by INR87 QoQ) for ourcoverage companies.

14.8 4.6 -2.1 -1.7 Shree Cement’s superior execution capabilities would enable it toachieve RoIC in excess of 30%(FY19E), while its gross block-to-capacity has been structurallytrending downward.

UTCEM is likely to be the biggest beneficiary of a likely upturn in the Indian cement cycle over FY18-20,as it commands ~23% market share.

Dalmia Cement’s earnings growthwill be superior to industry growth led by acquisitions and positive operating leverage.

October 2018 28


2QFY19E YoY (%)


Consumer For our Consumer universe, we expect aggregate revenue togrow 12.1% YoY and aggregatePAT to increase 14.6% YoY in 2QFY19. Aggregate EBITDA growth is also likely to come in healthy at 14.7% YoY. Whileoverall sectoral sales and earnings growth appears to be on a recovery path, we note that the 2QFY19 performance will be particularly driven by strongnumbers from the two sectoralbehemoths HUVR and ITC.

Demand revival and sustained rural growth, despite a healthy base of four quarters, has encouraged sectoral players to launch new products and increase ad spends over the past two quarters.

PFAD/palm oil prices declined 15.1%/18.4% YoY in 2QFY19. Ti02 prices resumed uptrend aftersome softening in 1QFY19, whileVAM prices remained at high levels. Mentha prices were up 50% YoY (+32% QoQ) in 2QFY19,while copra and LLP pricesincreased 10% YoY and 25% YoY,respectively, in the two monthsended August 2018. HDPE prices increased 29% YoY.

12.1 14.7 14.6 0.6 We expect ITC’s sales to grow by8% YoY (with mid-single-digitincrease in cigarette volumes on abase of a 6% decline in 2QFY18),EBITDA by 15.4% YoY and PAT by13.3% YoY.

HUVR is likely to continue its strong momentum in 2QFY19 (salesexpected to increase by 15%,volumes by 10%, EBITDA by 23.5%YoY and PAT by 22.4% YoY),outperforming many other smallerplayers in the sector.

BRIT, PAG, NEST and UNSP (led by a decline in interest costs and decentoperating performance), too areexpected to exhibit a strongperformance on the PAT front.HMN is likely to show a subdued performance, while APNT and PIDIshould post moderate profit growth owing to higher crude-related material costs.

Financials 14.2 -2.0 -4.0 -10.7

Private Banks We remain upbeat on the value migration from state-owned banks to private sector banks. We expect incremental slippages to start moderating though credit costs to remain elevated on higher ageing provisions. Elevated funding cost is likely to keep margins under pressure whereas increase in bond yields will further drive MTM losses. Stress in SME/business banking segment would be worthwhile to look at as was highlighted by KMB in the previous quarter.

12.8 15.6 -0.1 2.0 ICICIBC, AXSB and RBL amongstprivate banks.

PSU Banks We expect PSU banks to showmodest profit with the exception of PNB though return ratiosshould remain subdued. Marginsare likely to be under pressure on account of elevated cost offunds. Recent stay order ofSupreme Court on initiation ofinsolvency proceeding forstressed power assets remains a

11.3 -24.6 -88.2 -32.1 We prefer SBIN among PSU banks.Merger developments are an important watch for BoB.

October 2018 29


2QFY19E YoY (%)


key overhang and an important update to watch out for. Further hardening of bond yields may result in higher MTM losses.

The announcement of the merger of BoB, Vijaya and DenaBank came in as a surprise which has opened up discussion forfurther consolidation in the PSUspace.

NBFC Sharp INR depreciation, tightliquidity and rising interest rateshave increased incrementalfunding costs for NBFCs by atleast 50bp on a QoQ basis. Ifyields sustain at these levels,HFCs would be most impacted due to lack of adequate pricingpower. Vehicle financiers,however, have more pricingpower than HFCs. Managementcomments on spreads and diversification of liability/assetside are monitorables.

This would be the second quarterof IND-AS reporting. In thisquarter, restated numbers of2QFY18/FY18 and restated FY18net worth will be the key factors to look forward to.

Our interaction with management suggests thatgrowth in this space remains healthy, led by strong ruraleconomy, base effect and improvement in industrialactivities. However, one has towait and watch to see iftightening liquidity constrainsasset growth. This would have animpact on companies dependenton the festival season – CDfinanciers, car financiers, etc.

Core housing growth remains on a steady path and Tier-II/III locations are the key growth drivers. For housing finance corporations (HFCs), we expect the share of non-retail loans in the overall portfolio to inch higher.

Despite below-normal monsoon,our interactions with companiessuggest that rural economyremains strong and demand forvehicle finance is high. Primarycommercial vehicle sales havebeen strong in 2Q, while car saleshave been tepid due to variousfactors such as high base, Keralafloods, etc. However, overallvehicle financiers should reporthealthy asset quality and growth.

19.3 18.9 30.0 -0.2 LICHF and PNBHF are key stocks tolook out for with regards tomargins, given the sharp rise in GSec yields and liquidity tightening.

Vehicle financiers, especially CVfinanciers, are likely to witness avery strong quarter on the growth front. Car sales, though, have been tepid.

State-specific issues with respect tosand mining persist in Tamil Nadu – hence, we expect Repco to reportanother quarter of subdued growth.

Our top picks remain HDFC, LTFH,PIEL and SHTF.

October 2018 30


2QFY19E YoY (%)


Healthcare After strong 1QFY19, we expect2QFY19 to be subdued with 4.3%YoY decline in PAT.

Revenue and EBITDA are expected to continue growing,albeit at lower pace.

Specifically, we expect US salesto be stable as incrementalbusiness from new launches isexpected to offset decline in base business.

On high base of past year, weexpect companies to delivermoderate YoY growth in domestic formulation segment.

The rupee depreciation againstUSD should benefit, subject toextent of hedging for companies under coverage.

8.9 2.1 -4.3 -1.4 BIOS (+ve; Robust traction in biosimilars to drive strong earningsgrowth)

DIVI (+ve; Strong recovery in earnings on lifting of import alert in Nov-17)

Jubilant (+ve; expect healthygrowth in PAT on increased profitability across segments)

CDH (-ve; Increased competition in potential molecules for the US market may impact profitability)

Logistics EXIM originating container railvolumes increased 14% YoY,while domestic container railvolumes grew 20% YoY in August2018.

Lead distance for EXIM increased~16km MoM, while that fordomestic operations rose 28kmMoM in August, possibly due toadditional volumes from JNPT’sfourth terminal.

11.4 25.4 22.5 1.6 CCRI is likely to report margin improvement on a QoQ basis, ledby healthy volume growth and recent hikes initiated by thecompany.

AGLL’s margins are expected toremain flat QoQ, as improvement in MTO margins is likely to be offsetby a contraction in P&E margins.

Media Broadcasters are expected tocontinue their strong growth momentum. Yet, heavyinvestment in (traditional and digital) content is expected tolimit margin expansion.

Print - Double whammy of (a)subdued revenue growth due toshifting of festive season to3QFY19, and (b) full impact ofhigher newsprint prices would make deeper dents in margins.

Radio – Volume led growth isexpected to be partly offset bythe shift in festive season.

30.3 31.6 30.0 0.3 ZEE’s consolidated revenue shouldgrow at a strong 18% YoY. Yet,increase in (traditional and digital- led) content cost should limitEBITDA margin expansion (+90 bp YoY) to 32.0%.

SUN TV’s high content cost (partly)due to launch of ‘Maya’ is expected to result in 180 bp margin contraction (to 71.6%). This isdespite healthy 12%/15% YoYad/subscription revenue growth.

PVR is likely to report robust 21%YoY consolidated revenue growth (including one-month financials ofrecent SPI acquisition) led by (1)healthy ticketing and F&B revenue,and (2) consolidation of SPICinemas. Yet, expenses foracquisition (of SPI Cinemas) areexpected to limit margin expansion; expect 16.6% (+30 bp YoY).

Metals Domestic steel prices declined QoQ on seasonally weakdemand.

Base metal prices were alsolower on uncertainties due toglobal trade war.

Ferrous companies should outperform on relatively stronger pricing.

12.4 27.2 40.9 2.5 SAIL should report QoQ increase in EBITDA.

Earnings of VEDL could be impacted by the shutdown of its copperplant, and lower zinc and aluminum prices.

October 2018 31


2QFY19E YoY (%)


Oil & Gas Singapore complex GRM atUSD6.0/bbl v/s USD6.0/bbl in 1QFY19 and USD8.3/bbl in 2QFY18. We expect marginalinventory gains during the quarter for the OMCs.

Average Brent crude price was up 45% YoY to USD75/bbl. Weexpect higher realizations tobenefit the upstream companies.ONGC and Oil India should see aYoY increase in EBITDA.

RIL is expected to clock in GRM of USD10.2/bbl due to weaker light-heavy differential. Petchemsegment is expected to do better,led by healthy petchem deltasand strong volume growth.

47.1 28.8 17.3 -1.6 Despite high oil prices and rupeedepreciation, the OMCs-IOCL, BPCLand HPCL have been able to pass on the cost push to consumers and have maintained their marginssequentially.

We continue to prefer IOCL due to(a) high free-cash flow generation,(b) most diversified earnings profileamong OMCs, (c) strong dividendyield and earnings boost from PPproject at Paradeep and Ennore LNG terminal.

Excl. OMCs Domestic oil and gas productionhas declined, but ONGC has beenable to show marginalimprovement in its gasproduction. Rise in crude oilprices and expected volume growth for gas would benefitONGC/OINL.

We expect volume growth tocontinue for CGD players. Wemight see margin compression (YoY/QoQ) in the industrialsegment due to competition from alternative fuels.

47.7 40.0 25.7 -1.1

Retail We expect revenue growth of20.4% YoY for our Retail Universein 2QFY19. EBITDA is expected toincrease by 24.7% YoY and adjusted PAT by 27.1% YoY.

20.4 24.7 27.1 0.4 Titan’s (TTAN) Jewelry segment sales growth is likely to come in at ~25% YoY. In recent quarters, Watch sales have recovered strongly on a like-to-like basis, but the GST rate cut is likely to impact reported sales growth. The company’s overall sales/EBITDA is expected to grow by 20% and PAT by 21.4% YoY. An unusually high operating margin of 12.1% in the base quarter means that operating leverage-led margin expansion may not come through in 2QFY19, despite likely healthy 20% sales growth.

For Jubilant Foodworks (JUBI), we expect sales to increase 22.5% YoYin 2QFY19, with same-store-sales(SSS) growing 22% YoY. We notethat JUBI had recorded SSS growth of 5% in the base quarter 2QFY18.Thus, a favorable base and initiatives undertaken by the company should result in high SSS growth in 2QFY19. With SSS growth well above cost increases, marginsare also expected to expand sharplyby 250 bp YoY, resulting in EBITDA growth of 44.3% YoY and PATgrowth of 59.6% YoY.

October 2018 32


2QFY19E YoY (%)


Technology The usual second-quarterseasonal strength, coupled with benefits from a favorablecurrency, is likely to drivecontinued recovery for the technology sector.

Revenue for Tier-I vendors islikely to increase by 9.4% YoY in constant currency terms (compared to 7.8% in 1QFY19and 6.8% in 2QFY18), takingfurther strides towards entering a double-digit growth trajectory.

Margins at the same time would be uplifted by depreciation in theINR versus the USD, while alsogetting support from theimproving performance.

Polarization in performance continues at 2 levels, within theTier-I, where TCS is expected tooutperform the rest of the pack,and between Tier-I and Tier-II,where the latter would delivermaterially higher YoY numbers(15% YoY in USD revenue forTier-II v/s 7% for Tier-I).

16.8 20.1 18.4 0.7 Compared to the weak start forFY19 (0.9% QoQ CC), we expectacceleration in growth, led byseasonal strength, resulting in 3.5%QoQ CC growth in 2QFY19. In thebackdrop of the recent INRdepreciation, commentary on INFO’s EBIT margin guidance of 22-24% would be keenly watched. Itwas already close to the upper end in 1Q, and INR depreciation would push margins beyond this band in 2Q.

TECHM’s revenue growth is likely tobe soft, impacted by a decline in Enterprise (one-time and not atrend). However, growth in Communications is expected to pick up. Deal wins in Communicationshave been robust, a continuation which should bode well for aprolonged uptick associated withspends on 5G.

Telecom Downtrading in the prepaid category has reduced, butcontinues. Postpaid category -the new turf of competition and Jiophone re-launch [launch ofwhatsapp, youtube apps on Jiophone] continues to takehealthy subscriber share.

This coupled with seasonallyweak quarter and high networkopex/capex is expected toamplify the impact.

-10.7 -24.1 Loss -4.7 Bharti’s India wireless revenue islikely to decline 2% QoQ; Indiawireless EBITDA is expected towitness a steep 15% QoQ decline,dragging down consolidated EBITDA by 6% QoQ.

Idea’s consolidated revenue/EBITDA is likely to decline 5%/32%QoQ. Merger of Vodafone India’sfinancials effective September 2018 with inclusion of settlementcharges and initial low hangingsynergy gains may have a bearing.

BHIN’s rental EBITDA is expected todecline 9% QoQ impacted by27,447 (Vodafone-Idea led) tenancyexits. However, 390 bp uptick in energy margins should reduce theimpact on consolidated margin;expect consolidated EBITDA margin to contract 130 bp QoQ (to 40.1%).

TCOM’s consolidated revenue should grow marginally by 1% QoQ while EBITDA is expected to grow 3% QoQ. This is on the back of 2%/4% data revenue/EBITDA growth.

Utilities Power Grid should reportearnings growth on continuingstrong capitalization momentum.

Coal India EBITDA (ex-OBR)should increase strongly on pricehike and higher volumes.

NTPC should report muted growth due to a drag on accountof under recovery in fixed charge.

Coal India e-auction and ASQ realization.

Power Grid – capitalization momentum.

NTPC – commercialization guidance.

October 2018 33


Volatility is back – Nifty corrects meaningfully in September Mid-caps bear a disproportionate brunt

Until recently, the market seemed to be in good momentum, with the Nifty moving upby a stellar 29% YoY in CY17 and then cruising its way to hit an all-time high in August2018. However, the reappearance of volatility has brought an outright change in thetone of the market, with the benchmark undergoing the biggest correction in 31months in September.

However, thanks to the August euphoria, the market managed to keep its head abovethe water with a positive return in the September quarter. Notably, 2QFY19 wascharacterized by heightened fears of a bitter global trade war, rising crude prices and adepreciating currency.

In CY18YTD, the US (+9%), Brazil (+9%), Russia (+9%), Japan (+6%), India (+3%) andTaiwan (+2%) are among the key global markets trading higher. MSCI EM (-11%), China(-8%), Korea (-6%), and the UK (-2%) are trading lower in local currency terms.

India’s share in world market cap has dropped to its historical average of 2.5%. Overthe last 12 months, the world market cap has increased by 3.8% (USD2.9t), whileIndia’s market cap is down 1.7%.

In the sectoral space, Technology (+39%), Private Banks (+8%), Consumer (+7%) andHealthcare (+1%) are the only positive performers in CY18YTD. Telecom (-38%), RealEstate (-36%), Media (-31%), Autos (-21%), Utilities (-18%), PSU Banks (-18%) andCement (-16%) are the key laggards.

Midcaps have struggled over the last nine months, resulting in theirunderperformance versus large-caps. In CY18YTD, midcaps delivered -19% returns, asagainst +3% returns by the Nifty.

Market breadth remains balanced in CY18YTD, with 22 Nifty stocks trading higher. TCS(+60%), Tech Mahindra (+49%), JSW Steel (+42%), Infosys (+40%) and Reliance (+31%)are the top performers. Tata Motors (-47%), Bharti Airtel (-40%), HPCL (-40%), BhartiInfratel (-33%) and Yes Bank (-32%) are the worst performers.

In CY18YTD, domestic MF flows have remained strong at USD13.9b. FII flows are theweakest in a decade at USD-3.6b. Notably, DII (ex-MFs) outflows moderated toUSD0.5b v/s CY17 outflows of USD4.3b.

While the markets remain volatile, the Nifty P/E is attractively valued at 17.6x, near itshistorical average of 17.1x. At 2.6x, Nifty P/B is near its historical average. Market-cap-to-GDP at 77% (FY19E GDP) is also near its long-term average.

Despite the sharp underperformance of mid-caps, their valuation premium versuslarge-caps is still at 23%.

Exhibit 39: CY18YTD returns positive so far. Over CY08-18, Indian markets recorded CAGR of 14.2%

Exhibit 40: Nifty QoQ change (%) — Positive return for the second consecutive quarter

2,95

9

5,20

1

6,13

5

4,62

4

5,90

5

6,30

4

8,28

3

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6

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-61 84 23 -37 24 -5 29 -8 0 37 -10

CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18YTD

Trend in Nifty

Annual Return in INR (%)

CAGR in INR: 14.2% CAGR in USD: 9.5%

Annual Return in USD (%)

-2

10 6

14

5 4 3

-1-5

0 -3

7 4

-5

12

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8

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6

2

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Mar

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Dec-

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Sep-

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Mar

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Jun-

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Dec-

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7Ju

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Sep-

17De

c-17

Mar

-18

June

-18

Sep-

18

QoQ Return (%)

MARKETS & FLOWS

October 2018 34


In USD terms, India-Nifty is down by 10% in CY18 YTD Among the key global markets, the US (+9%), Brazil (+9%), Russia (+9%), Japan

(+6%), India (+3%) and Taiwan (+2%) are trading higher in CY18YTD. On theother hand, MSCI EM (-11%), China (-8%), Korea (-6%), and the UK (-2%) aretrading lower in local currency terms.

Exhibit 41: World equity indices (CY18YTD) – local currency Exhibit 42: World equity indices (CY18YTD) – USD (%)

India’s share in world market cap drops to historical average India’s share in world market cap has dropped to its historical average of 2.5%.

Over the last 12 months, the world market cap has increased by 3.8% (USD2.9t),while India’s market cap is down 1.7%.

Exhibit 43: Trend in India's contribution to world market cap Exhibit 44: Market cap change over last 12 months (%)

-11

-8

-6

-2

2

3

6

9

9

9

MSCI EM

China (HSCEI)

South Korea

UK

Taiwan

India - Nifty

Japan

Russia MICEX

Brazil

S&P 500

-11

-10

-10

-8

-7

-6

-5

-2

4

9

MSCI EM

India - Nifty

South Korea

China (HSCEI)

Brazil

UK

Russia MICEX

Taiwan

Japan

S&P 500

3.3

1.6

2.5

1.5

2.0

2.5

3.0

3.5

Sep-

08

Sep-

09

Sep-

10

Sep-

11

Sep-

12

Sep-

13

Sep-

14

Sep-

15

Sep-

16

Sep-

17

Sep-

18

India's Contribution to World Mcap (%)

Average of 2.5%

-21-18

-6-2-1

5 7 8 9 15

6.0 0.8 0.5 2.0 3.6 1.2 1.6 6.3 0.6 32.3

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Indo

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Indi

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UK

Taiw

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Kore

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Russ

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Mkt cap chg 12M (%) Curr Mcap (USD Tr)

October 2018 35


Sector performance: Only three sectors outperformed the benchmark Technology makes a comeback, Cyclicals down In the sectoral space, Technology (+39%), Private Banks (+8%), Consumer (+7%)

and Healthcare (+1%) are the only positive performers in CY18YTD. Telecom (-38%), Real Estate (-36%), Media (-31%), Autos (-21%), Utilities (-18%),

PSU Banks (-18%) and Cement (-16%) are the key laggards.

Exhibit 45: Trend in sector performance YoY (%) — Only three sectors outperformed the benchmark Return YoY (%)

Sector CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18YTD Technology -51 133 32 -16 -1 60 17 5 -8 11 39 Pvt - Banks -56 98 36 -26 63 1 61 2 5 47 8 Consumer -14 40 32 10 47 11 18 1 3 32 7 Nifty 50 -52 76 18 -25 28 7 31 -4 3 29 3 Healthcare -33 69 34 -13 39 23 47 15 -13 0 1 NBFC -52 109 38 -27 48 -8 49 -8 4 33 -3Metal -74 234 1 -47 19 -10 8 -31 37 48 -8Oil -55 73 1 -29 13 4 12 -3 27 34 -9Capital Goods -65 104 9 -48 35 -6 50 -9 -3 40 -11Cement -60 84 37 5 41 -14 37 1 17 46 -16PSU - Banks -33 73 33 -39 46 -26 79 -30 9 38 -18Utilities -60 74 -6 -40 11 -15 23 -6 2 20 -18Nifty Midcap100 -59 99 19 -31 39 -5 56 6 7 47 -19Auto -57 204 38 -20 40 7 52 -1 9 32 -21Media -59 94 32 -34 55 6 27 12 6 46 -31Real Estate -82 70 -26 -52 53 -32 8 -14 -6 106 -36Telecom -48 -10 6 -9 -1 26 1 -3 -25 66 -38

Market breadth balanced in CY18YTD; 22 Nifty stocks trading higher TCS (+60%), Tech Mahindra (+49%), JSW Steel (+42%), Infosys (+40%) and

Reliance (+31%) are the top performers. Tata Motors (-47%), Bharti Airtel (-40%), HPCL (-40%), Bharti Infratel (-33%) and

Yes Bank (-32%) are the worst performers.

Exhibit 46: Best and worst Nifty performers for CY18YTD (%)—~38% companies outperformed the benchmark

60 49 42 40

31 27 23 19 12 10 9 9 8 8 8 5 5 5 5 3 3 2 1

-1 -1 -3 -6 -6 -7 -7 -7 -11 -13 -16 -17 -17 -18 -19 -19 -21 -23 -24 -25 -25 -27 -27 -32 -33 -40 -40 -47

TCS

Tech

Mah

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W S

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October 2018 36


Institutional flows: Domestic MF flows remain strong, FII flows weakest in decade In CY18YTD, domestic MF flows have remained strong at USD13.9b. FII flows are

the weakest in a decade at USD-3.6b. Notably, DII (ex-MFs) outflows moderatedto USD0.5b v/s CY17 outflows of USD4.3b.

Exhibit 47: Yearly domestic MF flows in equities (USD b) Exhibit 48: Quarterly domestic MF flows in equities (USD b)

Exhibit 49: Yearly FII flows in equities (USD b) Exhibit 50: Quarterly FII flows in equities (USD b)

Exhibit 51: Yearly DII ex-MF flows in equity (USD b) Exhibit 52: Quarterly DII ex-MF flows in equity (USD b)

3.3

-1.2

-6.1

1.3

-3.9 -3.7

3.9

11.2

7.1

18.4

13.9

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18

YTD

-0.6-0.8 -1.3

0.1

2.7 2.41.5

3.7 3.9

2.1

0.4 1.0

1.0

4.7

1.7

4.6

7.3

4.7 5.3

5.0

2.7

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

June

-16

Sep-

16De

c-16

Mar

-17

June

-17

Sep-

17De

c-17

Mar

-18

Jun-

18Se

p-18

-12.2

17.6

29.3

-0.5

24.5 20.0

16.2

3.3 2.9 7.7

-3.6

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18

YTD

-0.1

6.6

4.1

6.2

3.5 2.3

6.0

0.2

-2.6

-0.3

1.2 1.7

4.6

-4.6

6.6

1.8

-3.2

2.5 2.1

-2.7-1.4

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

June

-16

Sep-

16De

c-16

Mar

-17

June

-17

Sep-

17De

c-17

Mar

-18

Jun-

18Se

p-18

13.6

6.5

1.4

4.7

-7.0-9.3 -8.8

-1.0-1.9

-4.3-0.5

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18

YTD

-0.2

-3.9

-0.9

-2.8 -3.0

-2.0-2.4

1.3

0.3

-0.1

0.5

-0.6

-2.2

0.5

-1.5 -1.5 -0.8 -0.5

-1.5

0.6

0.0

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

June

-16

Sep-

16De

c-16

Mar

-17

June

-17

Sep-

17De

c-17

Mar

-18

Jun-

18Se

p-18

October 2018 37


Valuations moderate, near their long-period averages While the markets remain volatile, the Nifty P/E is attractively valued at 17.6x,

near its historical average of 17.1x. At 2.6x, Nifty P/B is near its historical average. Market-cap-to-GDP at 77%

(FY19E GDP) is also near its long-term average.

Exhibit 53: 12-month forward Nifty P/E (x) Exhibit 54: 12-month forward Nifty P/B (x)

Exhibit 55: 12-month forward Nifty RoE (%) Exhibit 56: India’s market cap to GDP (%)

Mid-caps underperform large-caps; still command premium v/s large-caps Midcaps have struggled over the last nine months, resulting in their

underperformance versus large-caps. In CY18YTD, midcaps delivered -19%returns, as against +3% returns by the Nifty.

Despite the sharp underperformance of mid-caps, their valuation premiumversus large-caps is still at 23%.

Exhibit 57: Mid-caps underperformed large-caps over last 12 months

17.6

9

13

17

21

25

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

Oct

-18

10 Year Avg: 17.1x 2.6

1.5

2.0

2.5

3.0

3.5

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

Oct

-18

10 Year Avg: 2.5x

15.4

12.5

13.9

15.3

16.7

18.1

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

Oct

-18

10 Year Avg: 15.0%

103

55

95 88

71 64 66

81

69

80 85 77

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

Average of 78% for the period

110

94 90

99

108

117

126

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nifty Rebased Nifty Midcap 100 Rebased

October 2018 38


Exhibit 58: Midcaps v/s Nifty P/E (x) – 12-month forward Exhibit 59: Midcaps trading at 23% premium to Nifty

Sector valuations: Premium for growth keeps expanding in an uncertain and volatile market Elevated valuations, coupled with challenging macros and a busy political

calendar, have kept the market range-bound in CY18. Technology sector trades at a P/E of 20.7x, at a 30% premium to its historical

average of 16.0x. 2Q results for the sector are expected to come in bettersequentially on account of seasonal strength. Robust deal wins, an improvingpipeline and a better outlook (especially in BFSI) have been feeding well intogrowth improvement. Additional support is being provided by a sequentialdepreciation of 3.5% in the INR versus the USD. This is likely to absorb anymargin headwinds.

Consumer sector P/E remains above its historical average (30% premium).2QFY19 has seen stable market demand, continuing through 1QFY19. Ruralcontinues to grow ahead of urban (but has still not accelerated to the pace seena few years ago vis-à-vis urban growth). Nevertheless, given the revival, FY19 islikely to be a strong year of new launches.

Exhibit 60: Sector valuations - Snapshot

Sector PE (x) Relative to

Nifty P/E (%) PB (x) Relative to Nifty P/B (%)

Current 10 Yr Avg

Prem/ Disc (%) Current 10 Yr

Avg Current 10 Yr Avg

Prem/ Disc (%) Current 10 Yr

Avg Auto 17.3 15.1 14.8 -2 -13 2.9 3.1 -3.7 13 21 Banks - PVT 20.2 17.2 17.8 15 -1 2.7 2.3 18.0 2 -11Banks - PSU 13.1 10.0 30.7 -26 -43 0.8 0.9 -16.3 -70 -63NBFC 21.1 18.2 16.2 20 6 3.2 2.9 8.9 21 16 Capital Goods 23.5 26.0 -9.7 33 48 2.8 3.4 -19.2 6 35 Cement 22.0 20.3 8.3 25 16 2.5 2.3 13.0 -2 -10Consumer 41.1 31.6 30.0 133 85 12.1 9.8 24.0 365 292 Healthcare 24.8 23.4 6.0 41 36 3.5 3.9 -9.5 35 55 Infrastructure 11.0 13.9 -20.5 -37 -20 1.4 1.8 -25.1 -48 -29Media 19.2 22.1 -13.1 9 29 3.6 4.1 -11.7 38 62 Metals 10.2 11.8 -13.5 -42 -31 1.3 1.3 -0.9 -49 -47Oil & Gas 10.5 11.0 -4.6 -40 -34 1.6 1.5 6.1 -37 -39Retail 31.9 27.4 16.1 81 58 7.7 6.7 13.9 194 168 Technology 20.7 16.0 29.7 18 -6 5.3 4.1 29.2 103 63 Telecom Loss - - 2.0 2.4 -16.8 -25 -4Utilities 10.2 13.9 -26.7 -42 -16 1.2 1.5 -22.4 -54 -38

21.0

17.2

10

16

22

28

34

Oct

-13

Feb-

14Ju

n-14

Oct

-14

Feb-

15Ju

n-15

Oct

-15

Feb-

16Ju

n-16

Oct

-16

Feb-

17Ju

n-17

Oct

-17

Feb-

18Ju

n-18

Oct

-18

Midcap PE (x) Nifty PE (x)

Nifty Avg: 19.1x Midcap Avg: 20.5x

23

-35

-5

25

55

85

Oct

-13

Feb-

14Ju

n-14

Oct

-14

Feb-

15Ju

n-15

Oct

-15

Feb-

16Ju

n-16

Oct

-16

Feb-

17Ju

n-17

Oct

-17

Feb-

18Ju

n-18

Oct

-18

Midcap Vs Nifty PE Prem/(Disc) (%)

Average: 7%

October 2018 39


Sector weight / Portfolio picks BSE 100

Most Weight

Weight relative to BSE100

Financials 32.0 34.0 2.0 Private 19.5 20.0 0.5 HDFC Bank 8.3 7.0 -1.3ICICI Bank 3.9 4.0 0.1 Axis Bank 2.0 4.0 2.0 Kotak Mahindra Bank 2.6 3.0 0.4 RBL 0.0 2.0 2.0 PSU 2.4 3.0 0.6 SBI 2.0 3.0 1.0 NBFCs 10.1 11.0 0.9 HDFC 6.1 6.0 -0.1Shriram Transport Finance 0.3 3.0 2.7 ICICI Prudential Life 0.0 2.0 2.0 Auto 8.6 10.0 1.4 Maruti 1.9 3.0 1.1 M&M 1.5 3.0 1.5 Motherson Sumi 0.4 2.0 1.6 Ashok Leyland 0.3 2.0 1.7 Energy 11.5 10.0 -1.5Reliance Inds 7.8 6.0 -1.8IOC 0.7 2.0 1.3 Petronet LNG 0.3 2.0 1.7 Technology / Media 14.5 10.0 -4.5Infosys 5.5 6.0 0.5 Tech Mahindra 0.9 2.0 1.1 Sun TV 0.0 2.0 2.0 Consumption / Retail 13.1 9.0 -4.1Titan 0.7 4.0 3.3 HUL 2.3 3.0 0.7 Pidilite Inds. 0.3 2.0 1.7 Cap Goods, Infra & Cement 7.3 9.0 1.7 Larsen & Toubro 3.0 5.0 2.0 Shree Cement 0.3 2.0 1.7 Thermax 0.0 2.0 2.0 Healthcare 5.1 5.0 -0.1Sun Pharma 1.3 3.0 1.7 Lupin 0.4 2.0 1.6 Utilities / Metals 6.4 5.0 -1.4Hindalco 0.7 3.0 2.3 Power Grid Corp. 0.9 2.0 1.1 Midcaps 1.5 8.0 6.5 Future Consumer 0.0 1.0 1.0 Mindtree 0.0 1.0 1.0 Teamlease 0.0 1.0 1.0 CG Consumer 0.2 1.0 0.8 Oberoi Realty 0.0 1.0 1.0 UPL 0.5 1.0 0.5 Exide Inds. 0.2 1.0 0.8 Tata Chemicals 0.2 1.0 0.8 Cash 0.0 0.0 0.00 TOTAL 100.0 100.0

MOSL model portfolio

October 2018 40


MOSL Universe: 2QFY19 Highlights

& Ready Reckoner

Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of differences in classification of account heads in the company’s quarterly and annual results or because of differences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 3 October 2018, unless otherwise stated.

Sectors & Companies BSE Sensex: 34,299 S&P CNX: 10,301 September 2018

October 2018 41


MOSL Universe: 2QFY19 aggregate performance highlights Exhibit 61: Quarterly Performance - MOSL Universe (INR b) Sector Sales EBITDA PAT (Nos of Companies) Sep-18 Var % YoY Var % QoQ Sep-18 Var % YoY Var % QoQ Sep-18 Var % YoY Var % QoQ Auto (16) 1,645 4.6 2.1 195 -11.8 2.7 80 -28.3 28.7 Capital Goods (14) 555 12.0 1.3 57 15.2 4.6 34 3.9 5.3 Cement (10) 273 14.8 -9.7 48 4.6 -17.3 20 -2.1 -30.3Consumer (19) 499 12.1 3.8 121 14.7 3.8 82 14.6 6.2 Financials (31) 932 14.2 2.9 607 -2.0 1.1 191 -4.0 56.0 Private Banks (11) 316 12.8 0.8 266 15.6 -0.1 101 -0.1 10.1 PSU Banks (4) 310 11.3 -5.1 209 -24.6 2.0 3 -88.2 LP Life Insurance (2) 141 18.1 34.9 6 -1.7 -13.1 6 -4.8 -5.1 NBFC (14) 165 19.3 2.1 126 18.9 3.1 80 30.0 7.0 Healthcare (21) 441 8.9 7.0 89 2.1 11.3 50 -4.3 10.8 Infrastructure (4) 30 15.9 -18.7 9 9.1 -18.1 3 -0.8 -39.4Logistics (2) 33 11.4 6.2 5 25.4 14.8 4 22.5 15.0 Media (8) 64 30.3 -4.4 21 31.6 -10.2 10 30.0 -3.5Metals (10) 1,483 12.4 -2.5 315 27.2 -3.3 111 40.9 -11.0Oil & Gas (14) 4,976 47.1 5.1 569 28.8 8.9 289 17.3 -3.7 Excl. OMCs (11) 2,168 47.7 6.0 447 40.0 6.5 212 25.7 10.4 Retail (2) 51 20.4 -4.1 7 24.7 4.6 4 27.1 3.0 Technology (14) 1,051 16.8 6.0 249 20.1 10.5 193 18.4 10.5 Telecom (4) 331 -10.7 -1.3 88 -24.1 -6.9 -15 Loss Loss Utilities (7) 654 10.8 -5.8 244 36.9 0.6 110 53.1 6.5 Others (22) 369 23.8 6.3 60 8.4 6.3 27 -1.5 0.9 MOSL (198) 13,387 21.9 2.4 2,684 11.4 2.8 1,192 9.3 7.8 MOSL Excl. OMCs (195) 10,579 16.7 1.9 2,563 12.1 2.1 1,114 10.0 11.8 Sensex (30) 6,031 16.4 1.5 1,643 11.5 4.4 704 10.3 20.1 Nifty (50) 10,270 23.7 2.2 2,115 11.7 3.8 937 11.8 10.0

Exhibit 62: Quarter-wise sales growth (% YoY) Exhibit 63: Quarter-wise net profit growth (% YoY)

Exhibit 64: Sectoral sales growth - quarter ended Sep-18. % Exhibit 65: Sectoral PAT growth - quarter ended Sep-18.%

For Banks: Sales = Net Interest Income, EBITDA = Operating Profits For Life Insurance: Sales = Net Premium, EBITDA = Operating Profits

15.2% 15.4%

22.9% 21.9%

Dec-17 Mar-18 June-18 Sep-18E

17.2%

-6.5%

14.0%

9.3%

Dec-17 Mar-18 June-18 Sep-18E

47

30 22 20 17 16 15 14 12 12 12 11 11 9 5

-11

Oil

& G

as

Med

ia

MO

SL

Uni

v

Ret

ail

Tech

nolo

gy

Infra

Cem

ent

Fina

ncia

ls

Met

als

Con

sum

er

Cap

Goo

ds

Logi

stic

s

Util

ities

Hea

lth C

are

Auto

Tele

com

53 41

30 27 22 18 17 15 9 4

-1 -2 -4 -4 -10

-28

Util

ities

Met

als

Med

ia

Reta

il

Logi

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Tech

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as

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October 2018 42


Annual performance - MOSL universe (INR Billion) Sector Sales (INR B) Chg. YoY (%) EBIDTA (INR b) Chg. YoY (%) PAT (INR b) Chg. YoY (%)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Auto (16) 6,836 7,660 8,639 14.2 12.1 12.8 922 1,032 1,251 10.6 12.0 21.3 394 422 556 15.3 7.1 31.7 Cap. Goods (17) 2,384 2,688 3,022 8.6 12.8 12.4 257 298 355 20.2 15.8 19.2 148 175 212 15.1 18.2 21.5 Cement (13) 1,555 1,849 2,165 29.3 18.9 17.1 302 357 421 27.9 18.2 17.8 105 130 173 3.0 24.1 32.6 Consumer (19) 1,784 2,008 2,319 6.6 12.5 15.5 423 491 578 10.1 16.3 17.6 289 334 395 10.6 15.6 18.5 Financials (37) 3,685 4,246 5,038 11.9 15.2 18.6 2,625 2,914 3,524 5.5 11.0 20.9 355 931 1,551 -48.2 162.5 66.7 Pvt Bnks (12) 1,167 1,356 1,635 15.1 16.2 20.6 1,010 1,148 1,422 8.4 13.7 23.9 410 506 728 -1.3 23.5 43.9 PSU Bnks (7) 1,435 1,607 1,861 2.9 11.9 15.8 1,110 1,193 1,417 -3.5 7.4 18.9 -335 85 418 -849.4 -125 390.6 Life Insur. (2) 502 597 720 21.1 18.9 20.6 25 26 33 46.1 5.9 25.5 27 28 35 6.0 1.3 25.6 NBFC (16) 581 687 822 23.5 18.1 19.7 480 548 652 23.7 14.0 19.0 253 311 370 27.1 23.3 18.8 Healthcare (21) 1,581 1,786 2,099 0.8 13.0 17.5 316 379 479 -11.1 19.8 26.5 183 219 289 -19.2 19.4 32.0Infra. (4) 147 170 224 7.7 15.1 31.9 46 52 58 0.8 11.9 13.1 12 13 14 43.5 9.2 8.7 Logistics (2) 119 135 153 8.8 13.3 13.3 16 19 23 8.5 18.5 21.8 10 15 18 4.7 45.1 20.4 Media (9) 228 277 311 11.8 21.4 12.2 73 94 109 9.7 28.9 16.0 34 45 60 -6.6 30.7 33.7Metals (10) 5,488 6,272 6,227 22.1 14.3 -0.7 1,050 1,338 1,371 29.8 27.5 2.4 398 532 565 73.4 33.8 6.1 Oil & Gas (14) 17,932 25,070 26,952 18.3 39.8 7.5 2,193 2,749 2,826 19.9 25.3 2.8 1,155 1,363 1,485 5.5 18.0 9.0 Excl. OMCs (11) 11,474 16,090 17,272 18.3 40.2 7.3 1,668 2,259 2,401 21.0 35.5 6.3 855 1,118 1,270 5.9 30.8 13.6 Retail (2) 191 226 272 20.8 18.0 20.4 21 27 33 49.3 28.3 23.1 13 17 22 51.1 30.0 26.0 Tech. (14) 3,635 4,270 4,814 4.1 17.5 12.7 837 1,020 1,147 3.3 22.0 12.4 667 773 851 5.0 16.0 10.0 Telecom (4) 1,431 1,349 1,467 -11.7 -5.7 8.7 448 373 425 -16.9 -16.8 13.9 1 -55 -40 PL Loss LP Utilities (7) 2,649 2,870 3,118 8.3 8.4 8.6 826 998 1,153 12.5 20.8 15.5 348 437 503 7.1 25.6 15.2 Others (23) 1,345 1,619 2,045 14.4 20.3 26.3 255 292 381 14.5 14.6 30.3 130 134 177 17.8 3.4 32.0 MOSL (212) 50,991 62,495 68,865 13.5 22.6 10.2 10,609 12,434 14,134 10.6 17.2 13.7 4,241 5,484 6,832 -0.7 29.3 24.6Excl OMCs-209* 44533 53514 59185 12.9 20.2 10.6 10084 11944 13709 10.3 18.4 14.8 3940 5239 6616 -1.1 33.0 26.3Sensex (30) 12,365 14,750 15,971 12.1 19.3 8.3 3,231 3,735 4,308 9.9 15.6 15.3 1,394 1,664 2,158 6.4 19.4 29.6 Nifty (50) 18,139 22,126 24,207 13.9 22.0 9.4 4,028 4,657 5,329 11.6 15.6 14.4 1,807 2,134 2,671 8.2 18.1 25.2 For Banks: Sales = Net Interest Income, EBIDTA = Operating Profits; Note: Sensex & Nifty Numbers are Free Float.; MOSL Excl. OMCs (209)*

Valuations - MOSL universe PE (x) EV / EBIDTA (x) P/BV (x) RoE (%) Div Yld (%) EARN. CAGR

Sector FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 (FY18-FY20) Auto (16) 21.8 20.4 15.5 9.9 7.8 6.2 3.4 3.0 2.7 15.5 15.0 17.4 1.0 18.8 Capital Goods (17) 28.8 24.4 20.1 20.5 16.3 13.2 3.2 2.9 2.5 11.0 12.0 12.5 1.1 19.8 Cement (13) 33.7 27.2 20.5 13.1 10.2 8.3 2.4 2.3 2.1 7.3 8.4 10.1 0.5 28.3 Consumer (19) 50.9 44.0 37.1 30.0 29.2 24.7 13.5 12.2 11.3 26.6 27.7 30.4 1.4 17.0 Financials (37) 68.7 26.2 15.7 N.M N.M N.M 2.4 2.2 2.0 3.5 8.4 12.6 0.8 109.2 Private Banks (12) 31.5 25.5 17.7 N.M N.M N.M 3.3 2.8 2.5 10.4 11.0 13.9 0.7 33.3 PSU Banks (7) -10.1 39.6 8.1 N.M N.M N.M 0.8 0.8 0.7 -8.0 2.0 9.2 0.0 LP Life Insurance (2) 45.4 44.8 35.7 N.M N.M N.M 10.7 9.2 7.8 23.5 20.5 21.9 0.0 12.8 NBFC (16) 27.0 21.9 18.4 N.M N.M N.M 3.8 3.3 2.9 14.2 15.0 15.7 1.4 21.0 Healthcare (21) 33.1 27.7 21.0 17.2 16.3 12.7 4.2 3.7 3.3 12.6 13.5 15.7 0.6 25.6 Infrastructure (4) 11.9 10.9 10.0 8.0 5.8 5.6 1.5 1.4 1.2 12.8 12.5 12.1 0.9 9.0 Logistics (2) 33.3 23.0 19.1 18.9 15.6 12.6 3.0 2.8 2.5 8.9 12.0 13.3 1.2 32.2 Media (9) 28.2 21.5 16.1 16.8 9.7 8.0 3.6 3.3 2.9 12.8 15.4 17.9 0.7 32.2 Metals (10) 13.4 10.0 9.5 7.9 6.5 6.1 1.5 1.4 1.3 11.5 13.8 13.4 3.0 19.2 Oil & Gas (14) 12.3 10.4 9.5 7.1 5.8 5.4 1.8 1.6 1.4 14.9 15.6 15.2 2.6 13.4 Excl. OMCs (11) 14.3 10.9 9.6 7.8 6.1 5.5 1.9 1.7 1.5 13.4 15.4 15.5 1.9 21.9 Retail (2) 65.4 50.3 39.9 47.0 31.7 25.6 14.2 13.8 11.8 21.8 27.4 29.4 0.4 28.0 Technology (14) 24.9 21.4 19.5 13.0 15.1 13.2 6.0 5.6 5.1 24.1 26.0 26.0 3.1 13.0 Telecom (4) 2443 -37 -51.0 9.2 9.5 8.3 1.8 1.9 2.0 0.1 -5.1 -3.9 1.2 PL Utilities (7) 13.6 10.8 9.4 9.5 7.9 7.0 1.9 1.8 1.6 14.2 16.5 17.6 3.5 20.3 Others (23) 26.5 25.6 19.4 15.3 11.6 9.1 3.5 3.1 2.8 13.2 12.2 14.5 1.2 16.8 MOSL (212) 26.0 20.1 16.1 N.M N.M N.M 3.0 2.7 2.4 11.5 13.5 15.1 1.6 26.9 MOSL Excl. OMCs (209) 27.4 20.6 16.3 N.M N.M N.M 3.0 2.8 2.5 11.1 13.4 15.2 1.5 29.6 Sensex (30) 26.1 21.5 16.6 N.M N.M N.M 3.2 2.8 2.5 12.2 13.1 15.2 1.4 24.4 Nifty (50) 23.8 20.1 16.1 N.M N.M N.M 3.1 2.8 2.5 13.0 13.7 15.3 1.6 21.6 N.M.: Not Meaningful.

October 2018 43


Ready reckoner: Quarterly performanceCMP Sales (INR m) EBITDA (INR m) PAT (INR m)

(INR) Rating Sep-18 Var % YoY

Var % QoQ Sep-18 Var

% YoY Var

% QoQ Sep-18 Var % YoY

Var % QoQ

Automobiles Amara Raja Batt. 737 Buy 16,131 13.0 -9.3 2,124 -10.8 -3.6 1,053 -17.2 -6.9Ashok Leyland 119 Buy 76,701 26.8 22.7 8,541 39.6 31.9 5,212 55.9 37.0 Bajaj Auto 2,733 Buy 79,801 21.3 7.6 13,419 3.3 4.7 10,654 -4.2 -4.5Bharat Forge 602 Buy 15,144 20.4 2.3 4,363 18.1 1.8 2,402 17.9 2.5 Bosch 19,684 Neutral 30,368 8.0 -5.5 5,982 17.8 -4.8 4,008 13.4 -7.0CEAT 1,108 Buy 17,363 14.0 1.8 1,667 -4.6 -5.2 751 -3.6 2.1 Eicher Motors 23,171 Buy 23,785 9.7 -6.6 7,409 8.5 -8.5 5,812 12.2 0.9 Endurance Tech. 1,306 Buy 18,324 13.1 -1.5 2,704 18.0 -0.4 1,241 24.5 -0.4Escorts 622 Neutral 12,755 5.3 -15.6 1,333 -5.4 -28.2 851 3.6 -28.8Exide Inds. 258 Buy 27,863 17.5 0.5 3,944 33.3 0.9 2,244 37.6 6.9 Hero Motocorp 2,916 Neutral 90,432 8.1 2.6 13,866 -4.7 0.7 9,116 -9.8 0.3 Mahindra & Mahindra 791 Buy 128,864 7.2 -3.5 19,664 2.2 -6.8 13,899 -1.5 12.0 Maruti Suzuki 7,252 Buy 220,905 1.5 -1.6 31,385 -14.7 -6.3 20,145 -18.9 2.0 Motherson Sumi 243 Buy 151,100 12.5 2.3 14,799 18.3 4.8 4,659 5.9 5.2 Tata Motors 228 Buy 686,681 -2.9 2.4 60,182 -32.7 10.8 -4,570 PL Loss TVS Motor 542 Neutral 48,944 20.8 17.8 3,986 13.8 30.1 2,164 1.5 47.6 Sector Aggregate 1,645,162 4.6 2.1 195,367 -11.8 2.7 79,643 -28.3 28.7

Capital Goods ABB 1,420 Sell 23,750 24.0 -12.4 1,700 26.7 -13.2 980 17.5 -4.1Bharat Electronics 84 Buy 28,415 14.8 35.2 4,715 -20.8 51.9 2,993 -27.4 66.5 BHEL 73 Sell 71,350 13.3 20.2 4,850 LP 68.8 2,850 146.9 83.2 Blue Star 582 Neutral 9,070 8.5 -39.8 490 6.7 -64.1 226 8.6 -70.5CG Consumer Elect. 212 Buy 10,950 14.1 -9.0 1,289 6.8 -22.9 728 2.8 -30.2CG Power & Indl. 45 Neutral 13,071 8.2 10.8 1,021 32.4 12.3 569 -2.1 60.9 Cummins India 669 Buy 13,200 14.4 -0.6 2,070 23.6 -3.6 1,679 9.8 -8.3Engineers India 114 Buy 5,650 31.7 -1.5 975 -29.8 12.9 939 -21.2 8.4 GE T&D India 261 Neutral 9,700 11.5 -16.6 900 11.8 -37.6 645 35.7 -21.4Havells India 611 Buy 19,600 10.3 -24.5 2,528 -1.6 -21.2 1,693 -1.0 -22.7Larsen & Toubro 1,244 Buy 290,000 9.7 2.5 30,750 3.9 5.6 16,450 -2.3 3.9 Siemens 980 Neutral 36,193 15.2 17.8 3,861 21.7 27.7 2,789 38.9 36.4 Thermax 937 Buy 12,420 20.2 20.0 1,111 16.8 60.3 676 19.0 38.1 Voltas 530 Neutral 11,948 15.2 -44.4 1,105 29.0 -54.6 930 -2.5 -49.4Sector Aggregate 555,318 12.0 1.3 57,365 15.2 4.6 34,146 3.9 5.3

Cement ACC 1,502 Buy 33,418 7.2 -13.2 5,287 27.4 -20.8 2,660 49.7 -28.0Ambuja Cements 215 Neutral 25,264 8.9 -16.3 4,454 25.7 -28.4 2,532 -7.1 -49.3Birla Corporation 644 Buy 14,350 16.2 -13.3 1,731 -2.1 -29.9 109 643.4 -86.5Dalmia Bharat 2,258 Buy 21,716 18.4 -8.3 4,457 1.1 -14.9 731 -23.3 -41.2Grasim Industries 970 Neutral 42,573 5.5 -11.1 9,530 21.4 -9.6 5,856 -6.8 -8.9India Cements 100 Neutral 13,905 9.6 2.2 1,447 -20.2 -7.3 117 -50.8 -44.6Ramco Cements 638 Buy 11,220 5.5 -6.9 1,894 -34.9 -19.4 918 -42.9 -26.5Sanghi Inds. 68 Buy 2,187 6.4 -20.4 236 -49.4 -45.5 25 -76.9 -87.3Shree Cement 16,678 Buy 24,618 15.2 -19.8 4,556 -18.7 -29.4 1,549 -26.9 -55.4Ultratech Cement 3,864 Buy 83,787 27.5 -3.2 14,545 7.6 -10.4 5,218 21.0 -12.8Sector Aggregate 273,039 14.8 -9.7 48,138 4.6 -17.3 19,713 -2.1 -30.3

Consumer Asian Paints 1,252 Neutral 46,918 10.0 6.9 8,578 7.1 -1.9 5,460 3.8 -4.4Britannia 5,737 Buy 28,762 13.0 13.1 4,555 20.6 17.0 3,155 21.0 22.2 Colgate 1,088 Buy 11,825 9.0 13.6 3,336 11.0 18.5 2,038 14.8 22.1 Dabur 426 Neutral 22,332 14.0 7.3 4,675 11.3 21.1 3,852 6.4 17.0

October 2018 44


Ready reckoner: Quarterly performance

CMP Sales (INR m) EBITDA (INR m) PAT (INR m)



% YoY Var


Var % QoQ

Emami 496 Buy 6,281 0.0 2.2 1,919 -4.7 55.4 1,453 -8.6 65.2 Future Consumer 40 Buy 9,757 30.0 16.1 234 83.6 16.6 -12 Loss Loss Godrej Consumer 767 Neutral 28,324 13.0 14.4 5,962 9.9 32.8 4,163 13.6 31.1 GSK Consumer 6,706 Neutral 12,826 15.0 15.8 3,070 17.5 33.3 2,298 19.4 29.7 Hind. Unilever 1,622 Buy 95,554 15.0 0.7 20,776 23.5 -7.7 15,124 22.4 -3.5 ITC 295 Neutral 111,393 8.0 4.0 43,409 15.4 3.3 29,902 13.3 6.1 Jyothy Labs 193 Neutral 4,863 16.0 20.0 890 22.7 45.9 555 31.2 71.3 Marico 327 Neutral 17,667 15.0 -12.8 2,803 8.2 -21.0 1,999 8.1 -23.1 Nestle 9,344 Neutral 28,157 12.0 4.3 6,756 14.4 1.6 4,259 21.8 2.7 P&G Hygiene 9,506 Neutral 7,233 10.0 37.9 1,758 -6.2 109.4 1,121 -3.0 151.7 Page Industries 32,577 Neutral 7,368 17.8 -9.6 1,697 32.1 -10.4 1,123 33.6 -9.7 Parag Milk Foods 249 Neutral 5,701 13.0 3.8 593 18.7 -0.7 305 22.4 7.8 Pidilite Inds. 997 Buy 17,135 12.0 -6.6 3,955 5.2 3.6 2,753 9.3 14.6 United Breweries 1,289 Buy 14,343 12.4 -23.1 2,541 14.5 -36.5 1,107 18.0 -50.1 United Spirits 504 Neutral 22,129 13.4 10.0 3,203 17.5 40.3 1,778 30.2 68.7 Sector Aggregate

498,567 12.1 3.8 120,710 14.7 3.8 82,436 14.6 6.2

Healthcare Alembic Pharma 623 Neutral 9,113 15.5 5.7 1,640 -8.4 8.6 1,025 -15.7 13.3

Alkem Lab 2,047 Buy 17,549 -5.9 5.1 2,720 -40.9 27.0 1,840 -42.6 35.1 Ajanta Pharma 1,040 Buy 5,004 -7.4 -2.1 1,351 -26.5 -14.2 1,037 -21.4 -2.0 Aurobindo Pharma 770 Buy 45,340 2.2 6.7 9,295 -16.8 19.3 5,782 -26.0 11.1 Biocon 661 Neutral 12,586 29.9 12.0 2,983 63.7 25.3 1,357 90.6 23.7 Cadila Health 393 Buy 30,409 -6.0 5.1 6,994 -18.4 8.4 4,190 -16.7 -9.0 Cipla 654 Neutral 44,722 9.5 13.5 8,810 9.5 21.3 4,602 8.9 36.8 Divis Labs 1,313 Neutral 10,682 20.0 7.3 3,835 38.3 9.0 2,788 34.8 13.5 Dr Reddy’ s Labs 2,488 Neutral 38,369 8.2 3.1 7,021 5.8 -7.3 3,195 12.2 -29.9 Glenmark Pharma 626 Neutral 25,084 12.8 17.8 4,089 15.1 31.6 2,204 2.9 52.8 Granules India 98 Buy 4,711 20.0 3.9 848 10.2 16.8 346 -2.6 -7.0 GSK Pharma 1,467 Neutral 8,864 6.0 20.5 1,906 -0.8 35.8 1,313 4.9 35.6 IPCA Labs. 655 Buy 9,602 11.1 12.4 1,695 13.8 23.7 996 3.1 12.5 Jubilant Life 697 Buy 20,913 27.4 0.6 4,517 47.6 3.2 2,246 75.2 12.1 Laurus Labs 428 Buy 5,872 9.0 8.9 985 -12.5 22.3 331 -32.0 100.6 Lupin 898 Buy 40,896 3.5 6.1 6,257 -26.7 18.7 2,512 -44.8 23.9 Sanofi India 6,188 Buy 7,468 11.9 9.2 1,714 -6.7 4.2 1,082 -6.9 8.7 Shilpa Medicare 405 Buy 2,101 3.0 6.0 485 -14.3 -11.3 385 16.8 14.5 Strides Pharma 447 Buy 6,617 -14.0 -0.3 913 -8.4 13.0 180 -27.0 LP Sun Pharma 622 Buy 75,512 14.6 5.8 16,386 24.6 7.7 10,898 19.5 10.9 Torrent Pharma 1,649 Neutral 19,155 34.0 2.3 4,902 49.0 2.8 1,798 -11.9 10.3 Sector Aggregate

440,568 8.9 7.0 89,347 2.1 11.3 50,108 -4.3 10.8

Infrastructure Ashoka Buildcon 111 Buy 4,326 14.2 -36.7 518 2.4 -36.3 362 10.7 -43.3

IRB Infra 138 Neutral 14,170 26.2 -7.9 6,561 14.6 -12.1 1,684 11.9 -32.7 KNR Constructions 193 Buy 3,847 -2.2 -30.9 596 -27.7 -45.7 263 -55.4 -64.4 Sadbhav Engineering 219 Buy 7,649 10.4 -16.1 880 11.7 -17.8 426 27.3 -32.8 Sector Aggregate

29,992 15.9 -18.7 8,555 9.1 -18.1 2,736 -0.8 -39.4

Logistics Allcargo Logistics 99 Buy 17,078 10.4 5.1 1,074 2.5 5.2 537 -15.8 1.2

Concor 640 Buy 16,102 12.6 7.5 3,775 33.8 17.9 2,974 33.4 17.8 Sector Aggregate

33,180 11.4 6.2 4,848 25.4 14.8 3,512 22.5 15.0

October 2018 45






% YoY Var


Var % QoQ

Media D B Corp 206 Neutral 6,140 8.0 -2.9 1,346 -3.8 -19.9 782 -0.6 -19.9

Dish TV 57 Buy 16,617 122.0 0.4 5,639 161.0 1.3 897 LP 222.0 Ent.Network 651 Buy 1,293 2.8 6.3 294 3.5 3.6 93 56.3 29.7 Jagran Prakashan 115 Buy 5,866 3.5 -2.6 1,266 -8.7 -22.6 653 -6.1 -23.5 Music Broadcast 319 Buy 822 8.5 8.7 269 11.0 3.2 135 6.3 0.3 PVR 1,225 Buy 6,734 21.2 -3.3 1,118 23.5 -18.5 323 26.4 -38.1 Sun TV 629 Buy 7,658 13.3 -31.6 5,482 10.5 -25.4 3,224 13.3 -21.2 Zee Entertainment 438 Buy 18,678 18.1 5.4 5,970 21.5 5.5 3,932 26.3 13.1 Sector Aggregate

63,808 30.3 -4.4 21,383 31.6 -10.2 10,039 30.0 -3.5

Metals Hindalco 254 Buy 324,971 16.9 3.7 38,692 10.8 -3.5 13,086 26.8 -14.7

Hindustan Zinc 294 Neutral 47,523 -10.5 -10.5 23,103 -23.6 -14.8 17,813 -21.0 -7.1 JSPL 187 Buy 88,842 42.4 -8.7 19,179 39.6 -15.8 -2,334 Loss PL JSW Steel 382 Buy 202,344 19.4 -1.4 46,016 45.4 -9.9 19,381 120.9 -18.1 Nalco 69 Buy 30,052 22.4 1.1 8,429 137.5 -16.6 5,365 152.2 -14.4 NMDC 114 Buy 25,080 3.6 3.6 14,907 16.0 0.8 9,287 10.9 -4.2 Rain Industries 167 Buy 37,667 23.5 -1.0 6,577 -2.4 -5.0 2,930 19.3 -0.6 SAIL 69 Neutral 164,689 20.9 3.5 28,021 173.6 8.8 6,484 LP -10.1 Tata Steel 580 Neutral 348,155 7.2 -8.0 73,364 55.4 13.4 25,347 148.4 10.3 Vedanta 240 Buy 213,613 -1.1 -3.8 57,006 0.6 -9.3 13,356 -29.9 -12.9 Sector Aggregate

1,482,936 12.4 -2.5 315,294 27.2 -3.3 110,716 40.9 -11.0

Oil & Gas Aegis Logistics 186 Buy 12,100 -2.5 19.0 1,000 47.4 15.7 641 23.2 24.2

BPCL 377 Buy 739,837 38.7 3.2 25,344 -12.7 33.3 16,456 -30.2 -28.2 GAIL 382 Neutral 174,205 40.4 0.7 23,289 12.5 3.8 14,732 12.5 17.0 Gujarat Gas 620 Buy 21,317 53.2 20.8 2,419 19.4 -2.7 941 54.0 -22.5 Gujarat State Petronet 182 Buy 3,759 12.3 -3.9 3,239 13.4 -5.8 1,790 1.1 23.9 HPCL 251 Neutral 689,672 45.1 2.0 20,796 -1.6 14.1 11,418 -34.2 -33.6 IOC 158 Buy 1,378,528 52.2 6.5 75,279 4.8 15.6 49,421 33.7 -27.7 Indraprastha Gas 242 Buy 13,266 17.8 3.0 3,189 13.2 8.1 2,040 20.8 16.0 Mahanagar Gas 810 Buy 6,461 21.0 2.2 2,136 6.6 -4.6 1,292 3.5 -8.6 MRPL 72 Neutral 133,799 47.1 -1.3 8,780 -3.3 8.0 4,163 -16.1 9.9 Oil India 221 Buy 35,662 44.2 5.2 14,730 45.5 4.6 9,730 50.6 38.4 ONGC 182 Buy 301,082 58.8 10.6 168,213 60.7 14.2 70,223 36.9 14.3 Petronet LNG 222 Buy 102,791 32.3 12.1 8,785 -2.2 -6.0 5,755 -2.2 -1.9 Reliance Inds. 1,205 Buy 1,363,995 49.1 5.9 211,602 35.9 2.4 100,524 24.2 6.0 Sector Aggregate

4,976,475 47.1 5.1 568,801 28.8 8.9 289,126 17.3 -3.7

Oil & Gas Excl. OMCs

2,168,437 47.7 6.0 447,382 40.0 6.5 211,831 25.7 10.4

Retail Jubilant Foodworks 1,191 Neutral 8,901 22.5 4.1 1,474 44.3 3.8 774 59.7 3.6

Titan Company 795 Buy 41,962 20.0 -5.7 5,063 20.0 4.8 3,378 21.4 2.8 Sector Aggregate

50,864 20.4 -4.1 6,537 24.7 4.6 4,152 27.1 3.0

Technology Cyient 773 Neutral 11,725 21.5 8.6 1,551 10.0 17.9 1,250 12.0 51.6

HCL Technologies 1,094 Neutral 146,724 18.0 5.7 34,329 24.4 6.4 27,220 24.4 13.2 Hexaware Tech. 434 Neutral 12,291 23.8 8.1 2,008 15.8 13.3 1,657 16.7 8.0 Infosys 728 Buy 204,008 16.1 6.7 53,594 14.0 7.8 41,513 11.4 6.9 KPIT Tech. 220 Neutral 10,771 17.6 6.2 1,325 46.9 7.9 982 62.7 18.9 Mindtree 1,073 Buy 17,809 33.7 8.6 2,767 79.6 19.8 2,241 120.3 41.6

October 2018 46






% YoY Var


Var % QoQ

MphasiS 1,160 Neutral 19,297 20.3 6.0 3,507 40.7 9.6 2,712 37.2 5.0 NIIT Tech. 1,204 Neutral 8,954 21.5 8.6 1,505 26.5 15.2 961 43.2 12.0 Persistent Systems 739 Buy 8,706 14.4 4.4 1,369 18.2 -2.3 934 13.0 6.9 Tata Elxsi 1,185 Buy 4,107 20.0 7.5 1,068 27.1 0.2 788 37.6 11.7 TCS 2,162 Neutral 364,394 19.3 6.4 100,367 22.9 10.6 77,907 20.9 6.1 Tech Mahindra 750 Buy 86,047 13.1 4.0 14,968 35.4 10.3 11,202 34.0 24.8 Wipro 328 Neutral 146,052 8.8 4.5 29,441 5.9 20.9 22,216 1.5 20.7 Zensar Tech 325 Buy 9,804 28.6 8.4 1,171 32.4 0.7 955 57.0 16.4 Sector Aggregate

1,050,690 16.8 6.0 248,970 20.1 10.5 192,537 18.4 10.5

Telecom Bharti Airtel 319 Buy 199,808 -8.2 -0.5 63,443 -19.9 -5.7 -2,137 PL Loss

Bharti Infratel 253 Neutral 35,986 -1.4 -2.0 14,430 -10.6 -5.0 6,103 -4.4 -4.3 Tata Comm 488 Buy 39,488 -6.4 0.9 5,731 1.5 3.2 18 -93.8 LP Vodafone Idea 37 Buy 56,002 -25.0 -4.9 4,513 -69.9 -31.6 -19,050 Loss Loss Sector Aggregate

331,284 -10.7 -1.3 88,117 -24.1 -6.9 -15,066 Loss Loss

Utilities CESC 862 Buy 19,632 -6.0 -9.1 5,228 3.5 5.6 2,513 1.7 38.1

Coal India 277 Buy 227,130 25.2 -6.4 62,740 386.8 -5.2 39,694 976.2 4.9 JSW Energy 63 Neutral 21,937 7.1 -7.1 7,882 -10.7 1.5 2,180 -26.6 -4.9 NHPC 23 Buy 23,999 21.7 12.7 14,649 31.4 13.5 8,462 -16.9 14.7 NTPC 167 Buy 202,242 1.9 -11.5 62,549 11.8 2.3 27,896 3.3 -5.3 Power Grid Corp. 189 Buy 81,979 13.0 -1.7 75,236 14.8 5.4 24,348 13.0 10.3 Tata Power 68 Neutral 76,820 0.3 5.0 15,222 -17.7 -14.0 4,696 22.6 112.2 Sector Aggregate

653,739 10.8 -5.8 243,505 36.9 0.6 109,789 53.1 6.5

Others Arvind 316 Neutral 29,473 12.1 3.0 2,594 24.8 5.3 825 28.0 17.6

Avenue Supermarts 1,303 Sell 44,555 27.0 -2.3 4,366 37.4 3.3 2,611 36.7 4.2 BSE 672 Buy 1,196 7.9 0.9 167 -42.0 -13.5 478 -21.8 2.9 Castrol India 144 Buy 8,989 4.4 -11.6 2,017 -20.5 -19.9 1,357 -23.8 -17.3 Coromandel International 391 Buy 48,099 31.9 90.2 6,309 11.1 195.0 3,731 8.9 313.6 Delta Corp 215 Buy 1,941 33.6 3.6 679 3.7 3.8 441 1.8 6.4 Indo Count Inds. 63 UR 5,273 7.0 15.4 770 8.2 20.1 395 10.0 37.1 Info Edge 1,391 Buy 2,756 22.4 6.2 894 0.6 6.0 771 -6.8 -2.4 Interglobe Aviation 778 Neutral 71,028 34.2 9.1 11,708 -24.8 13.5 1,493 -72.9 436.9 Kaveri Seed 527 Buy 849 22.0 -85.4 188 27.3 -90.8 261 24.7 -87.6 MCX 711 Buy 757 12.6 3.9 263 27.6 10.8 316 8.5 13.5 Navneet Education 118 Buy 2,890 57.6 -56.9 722 157.2 -63.4 452 172.1 -64.2 Oberoi Realty 400 Buy 7,356 142.3 -17.2 3,818 133.1 -17.3 2,565 145.9 -17.1 P I Industries 708 Buy 6,272 11.8 3.6 1,325 8.5 12.2 944 17.5 15.6 Phoenix Mills 520 Buy 4,311 16.3 4.3 2,104 17.9 7.7 664 58.9 11.1 Quess Corp 865 Neutral 20,952 50.2 6.4 1,089 38.1 6.3 601 -59.4 10.5 S H Kelkar 215 Buy 2,557 15.2 7.7 376 6.0 10.7 227 20.2 21.3 SRF 1,766 Buy 15,073 17.2 -13.4 2,715 28.7 -12.8 1,127 9.7 -15.8 Tata Chemicals 670 Buy 30,037 11.7 8.5 7,116 11.6 38.0 3,201 24.0 49.6 Team Lease Serv. 2,343 Buy 10,541 20.4 3.2 208 37.7 3.3 228 30.0 4.0 Trident 58 Buy 12,121 8.2 7.2 2,485 43.3 4.8 936 83.9 4.7 UPL 642 Buy 42,255 12.1 2.2 8,324 15.8 -1.7 3,686 11.0 -34.1 Sector Aggregate 369,280 23.8 6.3 60,238 8.4 6.3 27,311 -1.5 0.9 PL: Profit to Loss; LP: Loss to Profit; UR: Under Review

October 2018 47


Ready reckoner: Quarterly performance Sector CMP NII (INR M) OP. PROFITS (INR M) NET PROFIT (INR M)



% YoY Var % QoQ Sep-18 Var %

YoY Var % QoQ

Financials Private Banks AU Small Finance 564 Buy 3,064 39.5 7.0 1,770 22.9 16.2 922 35.2 20.0 Axis Bank 571 Buy 48,845 7.6 -5.5 42,110 11.5 -3.7 6,749 56.1 -3.7 DCB Bank 148 Neutral 2,846 14.7 4.3 1,499 20.5 6.0 729 23.8 4.9 Equitas Holdings 117 Buy 2,686 18.7 5.6 869 116.0 14.3 398 517.0 12.6 Federal Bank 70 Buy 10,008 11.3 2.1 5,704 -2.2 -5.4 2,025 -23.2 -22.9 HDFC Bank 2,031 Buy 110,484 13.3 2.2 90,305 15.5 4.4 49,157 18.4 6.8 ICICI Bank 304 Buy 60,833 6.6 -0.3 55,430 11.4 -4.6 4,970 -75.9 LP IndusInd Bank 1,638 Buy 21,976 20.7 3.5 19,177 17.4 0.3 10,601 20.5 2.4 Kotak Mahindra Bank 1,099 Neutral 26,074 12.7 0.9 20,580 19.3 1.3 11,300 13.6 10.2 RBL Bank 525 Buy 5,790 37.8 4.8 4,138 36.5 -4.3 2,031 34.9 6.9 Yes Bank 213 Buy 23,528 24.8 6.0 24,548 28.7 0.0 11,732 17.0 -6.9 Pvt Banking Sector Aggregate 316,135 12.8 0.8 266,129 15.6 -0.1 100,614 -0.1 10.1 PSU Banks Bank of Baroda 103 UR 45,898 23.4 4.8 31,069 2.1 3.4 3,637 2.4 -31.1 Indian Bank 252 Buy 16,711 8.3 -7.5 12,127 -11.8 -6.5 2,930 -35.1 40.0 Punjab National Bank 65 Neutral 42,015 4.6 -10.5 33,623 2.5 -19.8 -9,964 PL Loss State Bank 271 Buy 205,610 10.6 -5.7 131,983 -34.0 10.2 6,864 -56.6 LP PSU Banking Sector Aggregate 310,235 11.3 -5.1 208,803 -24.6 2.0 3,467 -88.2 LP Life Insurance HDFC Stand. Life 381 Buy 63,419 17.7 26.6 2,996 38.1 -13.5 3,003 25.9 -21.0 ICICI Pru Life 331 Buy 77,506 18.5 42.5 2,633 -25.9 -12.5 3,275 -22.2 16.3 Life Insurance Sector Aggregate 140,926 18.1 34.9 5,629 -1.7 -13.1 6,279 -4.8 -5.1 NBFC Bajaj Finance 2,230 Neutral 26,577 36.8 3.3 16,434 51.7 1.2 8,394 50.7 0.4 Chola. Inv & Fin. 1,201 Buy 8,355 14.2 6.0 5,406 25.6 0.7 2,880 26.8 1.0 GRUH Finance 284 Neutral 1,920 11.3 1.7 1,612 13.4 1.1 1,141 46.8 -0.8 HDFC 1,799 Buy 29,217 11.9 1.1 26,247 9.9 9.3 25,762 22.6 17.6 Indiabulls Housing 944 Buy 15,940 29.4 2.5 14,241 27.9 1.5 10,748 24.8 1.9 L&T Fin.Holdings 128 Buy 15,740 44.8 3.0 12,296 43.6 5.5 5,618 55.9 4.3 LIC Housing Fin 412 UR 9,809 10.5 0.1 9,357 16.1 -1.4 6,305 28.9 11.0 M & M Financial 406 Buy 10,947 20.2 1.6 7,093 25.8 0.5 2,746 252.1 2.1 MAS Financial 507 Buy 850 27.7 3.6 634 30.1 2.8 324 29.1 3.4 Muthoot Finance 407 Neutral 11,188 -2.7 1.4 7,931 -8.8 4.7 5,110 12.5 3.9 PNB Housing 908 Buy 4,364 10.6 0.8 4,220 14.1 0.6 2,631 26.5 2.9 Repco Home Fin 419 Buy 1,152 5.4 0.8 980 -2.9 1.1 597 6.9 -1.9 Shriram City Union 1,644 Buy 9,566 9.6 2.0 5,753 6.3 1.2 2,180 9.9 -5.1 Shriram Transport Fin. 1,079 Buy 19,004 16.4 1.0 14,236 8.2 0.5 5,825 21.6 1.7 NBFC Banking Sector Aggregate 164,628 19.3 2.1 126,440 18.9 3.1 80,261 30.0 7.0 Financials Sector Aggregate 931,924 14.2 2.9 607,001 -2.0 1.1 190,621 -4.0 56.0 PL: Profit to Loss; LP: Loss to Profit; UR: Under Review For Banks: Sales = Net Interest Income, EBITDA = Operating Profits For Life Insurance: Sales = Net Premium, EBITDA = Operating Profits

October 2018 48


Ready reckoner: Full year valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Automobiles Amara Raja Batt. 737 Buy 27.6 28.3 35.5 26.7 26.0 20.8 15.3 13.0 10.4 17.0 15.4 16.9 Ashok Leyland 119 Buy 5.4 7.0 8.9 22.1 17.0 13.4 13.4 8.6 6.3 23.7 26.4 28.4 Bajaj Auto 2,733 Buy 151.3 158.9 194.2 18.1 17.2 14.1 12.8 11.3 8.7 24.2 22.8 24.7 Bharat Forge 602 Buy 18.4 24.1 30.1 32.7 25.0 20.0 19.8 13.5 11.2 19.6 22.1 23.3 Bosch 19,684 Neutral 469.8 560.5 687.6 41.9 35.1 28.6 23.0 21.3 16.8 15.3 16.3 18.1 CEAT 1,108 Buy 64.0 71.8 92.5 17.3 15.4 12.0 11.1 9.2 7.2 10.3 10.6 12.4 Endurance Tech. 1,306 Buy 29.1 37.5 49.3 44.9 34.8 26.5 19.4 16.2 12.9 21.0 22.2 24.5 Eicher Motors 23,171 Buy 799.6 955.6 1199.2 29.0 24.2 19.3 25.1 16.2 13.2 35.2 32.4 31.5 Escorts 622 Neutral 39.5 49.4 57.6 15.7 12.6 10.8 16.6 9.8 8.1 18.3 18.3 18.3 Exide Inds. 258 Buy 8.2 10.2 12.1 31.5 25.4 21.3 13.5 12.8 10.6 12.9 14.4 15.4 Hero Motocorp 2,916 Neutral 185.1 179.6 205.1 15.7 16.2 14.2 12.0 9.3 8.2 33.8 29.2 30.4 Mahindra & Mahindra 791 Buy 41.0 49.4 55.4 19.3 16.0 14.3 5.4 4.6 3.8 14.2 14.9 15.2 Maruti Suzuki 7,252 Buy 266.7 276.0 354.8 27.2 26.3 20.4 19.3 13.9 11.3 18.5 17.6 20.1 Motherson Sumi 243 Buy 8.1 9.8 14.1 30.1 24.7 17.2 14.1 8.6 6.1 19.4 20.6 25.2 Tata Motors 228 Buy 22.9 20.3 35.0 9.9 11.2 6.5 3.3 3.1 2.5 10.1 7.0 11.0 TVS Motor 542 Neutral 13.9 15.9 23.1 38.9 34.1 23.5 27.1 18.5 13.5 25.1 24.1 28.8 Sector Aggregate 21.8 20.4 15.5 9.9 7.8 6.2 15.5 15.0 17.4 Capital Goods ABB 1,420 Sell 19.8 25.7 32.0 71.7 55.2 44.3 36.2 30.8 24.9 11.6 13.6 15.1 Bharat Electronics 84 Buy 5.7 6.2 7.0 14.5 13.4 11.9 17.0 8.2 7.1 18.0 17.5 17.7 BHEL 73 Sell 2.2 3.4 4.3 33.4 21.7 17.2 9.3 6.5 5.7 2.5 3.8 4.7 Blue Star 582 Neutral 14.5 19.9 25.1 40.1 29.2 23.2 28.3 16.7 13.9 17.5 21.8 24.6 CG Consumer Elect. 212 Buy 5.2 6.1 7.4 41.1 34.7 28.5 28.8 21.8 18.7 48.7 43.2 42.2 CG Power & Indl. 45 Neutral 2.9 4.4 5.1 15.5 10.2 8.8 16.6 6.9 5.2 4.5 6.9 7.6 Cummins India 669 Buy 23.5 26.5 31.9 28.4 25.3 21.0 25.5 19.7 16.0 18.3 17.7 19.7 Engineers India 114 Buy 6.3 6.5 7.8 18.2 17.5 14.6 16.5 11.6 8.4 15.7 17.3 18.7 GE T&D India 261 Neutral 7.5 10.5 10.9 34.8 24.8 24.0 34.8 16.2 14.6 17.3 21.2 19.3 Havells India 611 Buy 11.2 13.4 16.4 54.5 45.6 37.3 27.6 29.7 23.6 18.7 19.8 21.3 K E C International 276 Neutral 17.9 20.1 25.7 15.4 13.7 10.7 11.4 6.9 5.4 23.1 21.3 22.1 Larsen & Toubro 1,244 Buy 51.7 59.0 72.3 24.1 21.1 17.2 19.7 17.2 13.6 13.7 14.1 14.4 Siemens 980 Neutral 19.8 25.1 30.0 49.6 39.0 32.6 32.4 23.4 19.9 9.1 10.8 11.9 Solar Inds. 1,065 Neutral 24.4 29.5 38.3 43.7 36.1 27.8 24.4 19.8 15.4 21.9 22.4 24.1 Thermax 937 Buy 20.5 29.7 38.8 45.6 31.6 24.1 29.7 18.7 13.7 8.8 11.8 13.9 Va Tech Wabag 288 Buy 24.1 30.8 35.8 12.0 9.3 8.0 10.3 3.9 3.3 12.4 12.2 14.8 Voltas 530 Neutral 17.3 18.8 21.5 30.6 28.2 24.6 26.6 17.6 15.1 15.9 15.1 15.4 Sector Aggregate 28.8 24.4 20.1 20.5 16.3 13.2 11.0 12.0 12.5 Cement ACC 1,502 Buy 46.9 68.0 87.6 32.0 22.1 17.1 13.6 10.2 8.2 9.7 13.3 15.8 Ambuja Cements 215 Neutral 6.1 6.9 8.3 35.3 31.1 25.8 22.5 17.9 15.7 6.1 6.7 7.7 Birla Corporation 644 Buy 18.9 26.5 71.8 34.0 24.3 9.0 11.4 9.0 7.3 3.8 4.7 12.0 Dalmia Bharat 2,258 Buy 55.7 62.5 101.1 40.5 36.1 22.3 14.1 10.4 8.7 9.0 8.9 13.0 Grasim Industries 970 Neutral 47.3 65.3 83.3 20.5 14.9 11.6 5.5 4.1 2.9 7.0 7.2 8.6 India Cements 100 Neutral 3.3 3.6 5.1 30.5 27.4 19.6 10.8 9.5 7.8 2.0 2.1 2.9 JK Lakshmi Cem. 297 Buy 7.4 8.3 10.6 40.2 35.8 28.1 16.8 10.4 8.9 6.1 6.5 7.8 Orient Cement 91 Buy 2.2 4.2 6.4 42.3 21.6 14.2 13.6 8.3 7.1 4.4 8.2 11.4 Prism Johnson 91 Buy 1.1 3.6 5.7 85.5 25.3 15.8 19.8 11.1 8.9 4.0 15.1 21.0 Ramco Cements 638 Buy 24.0 22.5 31.7 26.6 28.3 20.1 16.8 15.7 11.7 14.5 12.5 15.6 Sanghi Inds. 68 Buy 3.7 4.5 6.3 18.3 15.0 10.9 14.8 12.4 11.1 6.9 6.8 8.7 Shree Cement 16,678 Buy 385.8 363.3 535.8 43.2 45.9 31.1 22.3 20.9 15.6 16.2 13.5 17.4 Ultratech Cement 3,864 Buy 85.7 106.4 122.8 45.1 36.3 31.5 20.3 16.2 13.7 9.4 10.8 10.9 Sector Aggregate 33.7 27.2 20.5 13.1 10.2 8.3 7.3 8.4 10.1

October 2018 49


Ready reckoner: Full year valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Consumer Asian Paints 1,252 Neutral 21.1 23.4 28.5 59.2 53.4 43.9 33.3 33.6 27.5 25.3 25.9 29.6 Britannia 5,737 Buy 83.6 98.6 124.9 68.6 58.2 45.9 39.2 38.8 30.4 32.9 32.6 37.6 Colgate 1,088 Buy 25.2 27.8 32.5 43.2 39.1 33.5 25.5 23.2 20.1 49.0 48.3 54.7 Dabur 426 Neutral 7.8 8.5 10.1 54.8 50.4 42.0 33.7 38.7 32.7 25.9 23.2 24.0 Emami 496 Buy 12.1 13.5 16.2 40.9 36.6 30.5 33.9 27.3 23.0 29.2 28.6 31.3 Future Consumer 40 Buy -0.2 0.1 0.9 -213.4 526.7 44.6 202.7 72.8 31.3 -3.3 1.2 13.6 Godrej Consumer 767 Neutral 14.1 16.3 19.0 54.5 46.9 40.4 36.8 33.4 28.6 24.9 24.8 25.0 GSK Consumer 6,706 Neutral 166.5 197.3 222.1 40.3 34.0 30.2 25.0 23.1 19.5 21.2 22.5 22.7 Hind. Unilever 1,622 Buy 24.5 28.7 34.9 66.3 56.5 46.4 38.9 39.5 32.5 78.1 86.0 102.3 ITC 295 Neutral 8.9 10.0 11.4 33.3 29.4 25.8 19.3 19.5 16.9 22.3 22.9 24.2 Jyothy Labs 193 Neutral 4.9 5.7 7.0 39.3 34.2 27.5 27.3 21.9 18.3 16.0 17.3 20.1 Marico 327 Neutral 6.5 7.1 8.7 50.6 45.8 37.7 36.7 32.1 26.5 34.2 34.0 37.5 Nestle 9,344 Neutral 140.0 181.0 197.8 66.7 51.6 47.2 34.3 31.1 28.5 40.3 48.5 50.3 P&G Hygiene 9,506 Neutral 115.3 156.6 186.4 82.5 60.7 51.0 47.9 37.6 31.5 46.3 50.8 52.2 Page Industries 32,577 Neutral 311.1 406.5 522.3 104.7 80.1 62.4 46.4 52.5 41.2 41.0 43.1 45.4 Parag Milk Foods 249 Neutral 10.4 12.7 16.3 24.0 19.6 15.3 12.0 9.7 8.2 13.0 14.0 15.8 Pidilite Inds. 997 Buy 18.9 19.7 23.5 52.7 50.6 42.4 33.8 32.7 27.7 27.3 26.2 28.3 United Breweries 1,289 Buy 14.9 19.2 24.1 86.5 67.1 53.4 28.1 31.9 26.3 15.7 17.5 18.7 United Spirits 504 Neutral 6.7 9.2 13.2 74.7 54.8 38.3 47.3 31.2 23.4 19.6 19.6 20.3 Sector Aggregate 50.9 44.0 37.1 30.0 29.2 24.7 26.6 27.7 30.4 Healthcare Alembic Pharma 623 Neutral 21.9 25.1 28.2 28.4 24.8 22.1 17.1 16.3 14.3 19.6 19.4 18.7 Alkem Lab 2,047 Buy 58.9 74.0 98.6 34.8 27.7 20.8 22.2 18.4 14.1 15.1 17.0 19.6 Ajanta Pharma 1,040 Buy 53.0 51.5 65.0 19.6 20.2 16.0 18.3 14.3 11.4 26.0 20.4 21.5 Aurobindo Pharma 770 Buy 42.7 44.2 59.1 18.0 17.4 13.0 9.4 11.7 8.8 23.8 20.1 22.0 Biocon 661 Neutral 6.2 10.6 20.9 106.4 62.2 31.6 42.9 29.9 18.6 7.4 11.8 20.6 Cadila Health 393 Buy 17.5 18.0 19.6 22.4 21.9 20.1 14.9 14.4 13.0 22.1 19.5 18.5 Cipla 654 Neutral 20.3 23.2 30.2 32.1 28.1 21.7 16.6 15.3 12.6 11.5 11.7 13.4 Divis Labs 1,313 Neutral 33.0 43.3 52.6 39.7 30.3 25.0 21.4 20.7 17.1 15.5 18.6 20.5 Dr Reddy’ s Labs 2,488 Neutral 64.7 99.3 120.5 38.5 25.1 20.7 15.9 13.3 10.9 8.6 12.5 13.6 Glenmark Pharma 626 Neutral 28.5 29.7 35.6 22.0 21.1 17.6 12.2 13.6 11.4 15.6 14.0 14.6 Granules India 98 Buy 5.7 6.8 8.7 17.3 14.4 11.3 11.9 8.2 6.7 12.2 12.7 15.0 GSK Pharma 1,467 Neutral 19.7 30.7 34.7 74.6 47.8 42.3 32.4 34.6 29.8 16.2 27.5 32.8 IPCA Labs. 655 Buy 19.0 28.4 38.3 34.5 23.1 17.1 18.9 13.3 10.3 9.3 12.7 15.2 Jubilant Life 697 Buy 45.6 63.0 73.3 15.3 11.1 9.5 10.9 7.4 6.1 18.9 21.6 20.7 Laurus Labs 428 Buy 15.8 21.1 31.2 27.0 20.3 13.7 15.2 11.3 8.6 11.9 14.0 17.7 Lupin 898 Buy 32.0 29.2 45.1 28.1 30.8 19.9 12.4 15.6 10.6 10.7 9.4 13.4 Sanofi India 6,188 Buy 141.7 166.8 191.6 43.7 37.1 32.3 20.8 20.2 17.4 16.1 17.2 17.8 Sun Pharma 622 Buy 13.5 18.6 26.3 46.2 33.4 23.6 22.3 20.2 14.7 8.7 11.4 14.6 Shilpa Medicare 405 Buy 12.8 21.2 26.9 31.5 19.1 15.1 24.0 15.1 12.7 10.3 14.4 15.7 Strides Pharma 447 Buy 11.3 12.2 23.4 39.7 36.6 19.1 19.8 13.0 10.5 3.9 4.4 8.0 Torrent Pharma 1,649 Neutral 53.7 48.1 65.0 30.7 34.3 25.4 19.3 16.1 13.5 20.3 16.2 18.9 Sector Aggregate 33.1 27.7 21.0 17.2 16.3 12.7 12.6 13.5 15.7 Infrastructure Ashoka Buildcon 111 Buy -4.2 0.8 2.6 -26.3 140.4 42.4 7.9 6.0 5.0 -30.2 6.8 19.6 IRB Infra 138 Neutral 23.9 23.8 23.5 5.8 5.8 5.9 6.2 5.4 5.8 14.6 12.9 11.5 KNR Constructions 193 Buy 19.4 13.7 16.8 10.0 14.1 11.5 9.4 5.9 4.5 26.5 15.5 16.2 Sadbhav Engineering 219 Buy 12.9 16.0 17.8 17.0 13.7 12.3 18.1 8.4 6.1 12.5 13.8 13.6 Sector Aggregate 11.9 10.9 10.0 8.0 5.8 5.6 12.8 12.5 12.1 Logistics Allcargo Logistics 99 Buy 7.3 8.4 10.5 13.7 11.8 9.5 10.1 6.0 4.9 9.5 10.0 11.3 Concor 640 Buy 17.1 25.8 30.9 37.5 24.8 20.7 21.5 18.4 14.8 9.1 12.9 14.4 Sector Aggregate 33.3 23.0 19.1 18.9 15.6 12.6 8.9 12.0 13.3

October 2018 50


Ready reckoner: Full year valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Media D B Corp 206 Neutral 17.6 18.4 23.1 11.7 11.2 8.9 9.4 6.4 4.9 18.4 17.0 20.0 Dish TV 57 Buy -0.4 1.9 5.5 -140.4 30.2 10.3 11.6 4.6 3.6 -2.1 5.0 13.4 Ent.Network 651 Buy 6.8 13.2 21.6 95.9 49.5 30.1 29.6 18.4 13.5 3.7 6.9 10.4 Hindustan Media 147 Neutral 23.9 20.6 21.9 6.2 7.2 6.7 3.1 -0.9 -1.9 14.0 10.8 10.4 Jagran Prakashan 115 Buy 9.6 11.9 14.9 11.9 9.6 7.7 8.3 4.7 3.5 14.3 17.5 20.4 Music Broadcast 319 Buy 9.1 12.5 16.6 35.1 25.5 19.1 21.5 13.3 10.0 9.0 11.4 14.0 PVR 1,225 Buy 26.7 40.2 50.0 45.9 30.5 24.5 15.7 12.0 10.4 12.2 16.1 16.4 Sun TV 629 Buy 27.7 36.5 41.9 22.7 17.2 15.0 16.0 9.2 7.9 25.2 29.6 31.0 Zee Entertainment 438 Buy 14.6 16.1 19.5 30.1 27.2 22.4 25.9 16.5 13.7 19.6 19.0 19.7 Sector Aggregate 28.2 21.5 16.1 16.8 9.7 8.0 12.8 15.4 17.9 Metals Hindalco 254 Buy 18.9 24.9 27.9 13.4 10.2 9.1 7.5 6.5 5.1 12.8 14.0 13.8 Hindustan Zinc 294 Neutral 21.1 22.0 28.9 13.9 13.4 10.2 8.6 8.0 5.9 26.7 24.0 27.2 JSPL 187 Buy -8.5 -1.0 3.9 -22.0 -191.5 47.5 10.1 7.3 6.3 -2.7 -0.3 1.3 JSW Steel 382 Buy 23.4 36.7 35.0 16.3 10.4 10.9 8.0 7.5 7.6 22.2 29.0 23.1 Nalco 69 Buy 5.1 10.7 9.2 13.6 6.4 7.5 5.6 3.0 3.6 9.5 19.1 15.5 NMDC 114 Buy 13.1 13.9 14.3 8.7 8.2 8.0 5.2 4.7 4.5 17.7 17.4 16.4 Rain Industries 167 Buy 23.7 32.4 34.2 7.0 5.1 4.9 8.6 4.6 4.1 22.9 24.5 21.0 SAIL 69 Neutral 0.3 9.1 6.6 266.8 7.6 10.4 16.4 7.7 9.1 0.3 9.7 6.6 Tata Steel 580 Neutral 71.9 87.0 75.2 8.1 6.7 7.7 6.2 5.9 6.9 17.8 16.9 12.8 Vedanta 240 Buy 20.4 21.1 26.9 11.8 11.4 8.9 7.4 6.1 4.9 12.2 12.0 14.3 Sector Aggregate 13.4 10.0 9.5 7.9 6.5 6.1 11.5 13.8 13.4 Oil & Gas Aegis Logistics 186 Buy 5.9 7.2 10.3 31.5 25.7 18.1 33.0 15.9 11.4 19.4 18.7 22.7 BPCL 377 Buy 49.8 44.0 34.9 7.6 8.6 10.8 8.1 6.8 8.5 29.0 22.2 15.8 GAIL 382 Neutral 20.4 30.0 35.1 18.7 12.7 10.9 10.2 8.5 8.3 11.8 15.9 16.8 Gujarat Gas 620 Buy 21.2 31.5 41.1 29.3 19.7 15.1 15.1 10.0 8.1 16.7 21.4 23.3 Gujarat State Petronet 182 Buy 11.9 16.7 14.9 15.3 10.8 12.2 6.8 4.0 4.2 14.0 17.2 13.4 HPCL 251 Neutral 47.4 50.0 52.6 5.3 5.0 4.8 5.5 3.7 3.9 31.0 27.5 24.9 Indraprastha Gas 242 Buy 9.4 11.0 12.7 25.6 22.0 19.1 17.0 13.0 11.2 20.8 20.2 20.0 IOC 158 Buy 23.9 17.5 13.9 6.6 9.0 11.3 4.5 4.5 5.7 21.0 14.2 10.8 Mahanagar Gas 810 Buy 48.4 51.1 54.9 16.7 15.8 14.8 11.2 8.2 7.1 24.3 22.6 21.4 MRPL 72 Neutral 12.8 9.9 12.7 5.6 7.2 5.6 5.0 3.4 2.1 21.2 14.9 16.9 Oil India 221 Buy 22.2 31.8 30.2 10.0 7.0 7.3 7.3 5.0 5.1 9.4 13.2 11.7 ONGC 182 Buy 20.2 33.4 36.0 9.0 5.4 5.0 5.0 3.0 2.7 13.0 19.8 19.0 Petronet LNG 222 Buy 13.9 16.0 19.0 16.0 13.8 11.7 9.2 7.9 6.0 23.3 23.0 23.5 Reliance Inds. 1,205 Buy 60.9 72.4 91.9 19.8 16.6 13.1 10.2 9.4 7.7 13.0 13.5 14.8 Sector Aggregate 12.3 10.4 9.5 7.1 5.8 5.4 14.9 15.6 15.2 Ex OMCs 14.3 10.9 9.6 7.8 6.1 5.5 13.4 15.4 15.5 Retail Jubilant Foodworks 1,191 Neutral 14.9 22.0 27.5 80.1 54.0 43.3 34.0 26.5 21.7 20.3 25.1 25.5 Titan Company 795 Buy 12.6 16.0 20.2 62.9 49.6 39.3 50.5 33.1 26.6 24.0 27.9 32.6 Sector Aggregate 65.4 50.3 39.9 47.0 31.7 25.6 21.8 27.4 29.4 Technology Cyient 773 Neutral 38.2 40.7 47.5 20.2 19.0 16.3 12.5 11.7 9.5 18.3 17.5 18.2 HCL Technologies 1,094 Neutral 62.6 75.2 82.2 17.5 14.6 13.3 10.9 10.1 8.7 25.0 26.2 25.5 Hexaware Tech. 434 Neutral 16.6 20.2 24.0 26.1 21.4 18.0 16.2 16.5 12.3 26.9 27.8 27.9 Infosys 728 Buy 32.4 38.2 44.2 22.5 19.0 16.5 11.3 13.7 11.6 24.1 26.3 27.9 KPIT Tech. 220 Neutral 12.7 17.7 19.5 17.4 12.4 11.3 9.8 6.4 5.0 15.4 18.3 16.8 Mindtree 1,073 Buy 34.4 51.7 63.2 31.2 20.8 17.0 16.7 14.4 11.2 18.8 28.3 28.8 MphasiS 1,160 Neutral 44.0 55.0 64.7 26.4 21.1 17.9 15.0 17.1 14.0 14.6 20.0 24.0 NIIT Tech. 1,204 Neutral 45.6 64.3 74.4 26.4 18.7 16.2 9.0 10.2 8.1 16.2 21.0 21.4 Persistent Systems 739 Buy 40.4 48.5 59.8 18.3 15.2 12.4 9.9 8.1 6.7 16.7 19.3 23.1

October 2018 51


Ready reckoner: Full year valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E TCS 2,162 Neutral 66.0 84.9 91.0 32.7 25.5 23.8 15.5 20.0 18.4 29.4 35.9 36.6 Tata Elxsi 1,185 Buy 38.7 49.0 56.7 30.6 24.2 20.9 16.3 15.3 12.4 37.6 36.8 29.9 Tech Mahindra 750 Buy 42.7 48.0 54.4 17.6 15.6 13.8 12.9 11.0 9.1 21.5 21.1 20.4 Zensar Tech 325 Buy 10.6 15.7 19.4 30.8 20.7 16.8 10.2 12.9 9.8 15.3 19.8 20.9 Wipro 328 Neutral 17.9 20.8 23.0 18.3 15.8 14.3 10.2 10.3 8.9 17.0 17.3 17.4 Sector Aggregate 24.9 21.4 19.5 13.0 15.1 13.2 24.1 26.0 26.0 Telecom Bharti Airtel 319 Buy 4.1 -1.9 0.0 78.2 -170.6 83271 8.2 8.4 7.3 2.4 -1.1 0.0 Bharti Infratel 253 Neutral 13.6 11.6 10.5 18.5 21.7 24.0 9.0 7.9 8.4 15.6 13.0 12.6 Tata Comm 488 Buy 3.5 0.5 13.4 140.9 1050.2 36.5 10.8 8.8 6.7 9.4 2.6 54.3 Vodafone Idea 37 Buy -9.6 -15.9 -14.4 -3.8 -2.3 -2.5 13.8 22.3 15.2 -16.0 -28.0 -32.8 Sector Aggregate 2443.4 -36.6 -51.0 9.2 9.5 8.3 0.1 -5.1 -3.9 Utilities CESC 862 Buy 75.5 96.2 105.4 11.4 9.0 8.2 7.6 6.3 5.7 9.2 10.9 10.8 Coal India 277 Buy 19.2 26.8 30.8 14.4 10.3 9.0 8.0 5.8 5.1 35.4 77.4 81.7 JSW Energy 63 Neutral 3.0 2.2 4.2 20.9 28.5 14.9 9.0 9.1 8.0 4.6 3.3 6.2 NHPC 23 Buy 2.4 2.5 3.0 9.4 9.4 7.6 10.4 7.4 5.9 8.5 8.3 9.9 NTPC 167 Buy 10.7 13.9 15.9 15.7 12.0 10.5 11.2 9.7 8.3 8.7 10.8 11.6 Power Grid Corp. 189 Buy 16.5 18.6 20.6 11.4 10.2 9.2 8.8 7.8 7.1 16.6 16.7 16.3 Tata Power 68 Neutral 5.3 6.2 7.9 12.7 10.9 8.6 11.8 10.1 9.1 10.7 10.2 11.4 Sector Aggregate 13.6 10.8 9.4 9.5 7.9 7.0 14.2 16.5 17.6 Others Arvind 316 Neutral 12.7 14.1 19.4 24.9 22.4 16.3 13.4 9.8 8.1 8.9 9.3 11.7 Avenue Supermarts 1,303 Sell 12.9 16.7 22.3 100.9 78.0 58.4 60.9 46.7 35.5 18.9 20.1 21.7 BSE 672 Buy 43.5 39.5 47.3 15.5 17.0 14.2 3.3 0.7 7.6 5.6 6.7 Castrol India 144 Buy 7.0 6.8 6.5 20.6 21.3 22.2 18.9 12.8 14.3 69.1 63.5 57.2 Coromandel International 391 Buy 22.7 23.4 27.9 17.2 16.7 14.0 14.3 10.8 9.4 22.1 20.4 21.2 Delta Corp 215 Buy 5.8 6.9 9.4 37.2 31.3 23.0 24.9 18.1 13.4 11.9 10.8 13.4 Indo Count Inds. 63 UR 6.4 7.4 8.4 9.8 8.5 7.4 7.7 5.1 4.5 14.0 14.3 14.4 Info Edge 1,391 Buy 22.5 26.2 32.7 61.9 53.0 42.5 47.3 47.7 36.7 13.4 14.4 16.0 Interglobe Aviation 778 Neutral 58.3 35.3 52.6 13.3 22.1 14.8 5.9 2.4 1.2 41.3 18.9 27.0 Kaveri Seed 527 Buy 32.0 34.2 42.9 16.5 15.4 12.3 11.7 13.0 10.2 20.9 21.4 24.1 MCX 711 Buy 21.2 23.2 33.9 33.6 30.7 21.0 40.0 24.7 15.9 7.9 8.4 11.1 Navneet Education 118 Buy 5.4 7.9 8.9 21.8 14.9 13.2 15.7 9.1 7.9 17.4 22.9 23.1 Oberoi Realty 400 Buy 12.6 24.5 35.8 31.7 16.3 11.2 27.9 11.5 11.7 7.8 12.6 15.2 P I Industries 708 Buy 26.7 30.0 36.5 26.5 23.6 19.4 24.4 17.1 14.0 20.7 19.9 20.7 Piramal Enterprises 2,308 Buy 77.8 78.9 137.6 29.7 29.3 16.8 14.9 12.4 9.9 7.5 5.8 9.7 Phoenix Mills 520 Buy 15.8 17.9 23.7 32.9 29.1 21.9 15.0 13.1 11.1 9.7 8.7 10.2 Quess Corp 865 Neutral 21.8 19.6 34.9 39.7 44.2 24.8 43.1 27.4 17.8 16.5 10.7 16.6 S H Kelkar 215 Buy 7.1 7.6 10.3 30.3 28.1 20.9 23.2 17.1 12.9 12.3 12.3 15.0 SRF 1,766 Buy 79.0 101.8 130.9 22.3 17.3 13.5 15.6 10.1 8.4 13.7 15.7 17.6 Tata Chemicals 670 Buy 48.2 49.0 58.1 13.9 13.7 11.5 8.6 7.1 6.0 24.9 10.8 11.8 Team Lease Serv. 2,343 Buy 43.0 61.5 96.6 54.4 38.1 24.3 51.9 37.7 24.0 17.6 20.7 25.7 Trident 58 Buy 5.3 7.3 8.6 11.0 7.9 6.7 6.9 5.3 4.5 9.2 11.9 13.0 UPL 642 Buy 44.2 46.7 50.6 14.5 13.7 12.7 11.6 8.8 6.9 26.9 23.4 21.2 Sector Aggregate 26.5 25.6 19.4 15.3 11.6 9.1 13.2 12.2 14.5 UR: Under Review

October 2018 52


Ready reckoner: Full year valuations Sector / Companies CMP EPS (INR) PE (x) PB (x) ROE (%) (INR) Reco FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Banks-Private AU Small Finance 564 Buy 10.2 14.0 19.8 55.1 40.2 28.6 7.1 5.2 4.0 13.8 14.9 15.8 Axis Bank 571 Buy 1.1 16.2 35.9 513.6 35.3 15.9 2.3 2.2 1.9 0.5 6.3 12.9 DCB Bank 148 Neutral 8.0 9.6 11.9 18.6 15.5 12.4 1.7 1.6 1.4 10.9 10.9 12.3 Equitas Holdings 117 Buy 0.9 4.9 6.4 125.9 23.6 18.3 1.7 1.6 1.5 1.4 7.2 8.6 Federal Bank 70 Buy 4.8 4.7 5.4 14.8 14.9 13.1 1.1 1.1 1.0 8.3 7.4 7.9 HDFC Bank 2,031 Buy 67.8 77.9 90.7 30.0 26.1 22.4 5.0 3.8 3.3 17.9 16.4 15.8 ICICI Bank 304 Buy 11.1 8.1 18.9 27.4 37.5 16.1 1.9 1.8 1.7 6.8 5.0 11.0 IndusInd Bank 1,638 Buy 60.2 81.8 108.2 27.2 20.0 15.1 4.2 3.6 2.8 16.5 19.3 21.0 Kotak Mahindra Bank 1,099 Neutral 32.5 37.2 45.7 33.8 29.6 24.1 4.1 3.6 3.2 12.5 11.8 13.2 RBL Bank 525 Buy 15.1 20.3 26.6 34.7 25.9 19.7 3.3 3.0 2.2 11.6 12.1 13.4 South Indian Bank 14 Buy 1.9 1.7 3.9 7.6 8.5 3.6 0.5 0.5 0.4 6.6 5.7 12.5 Yes Bank 213 Buy 18.4 22.7 27.2 11.6 9.4 7.8 1.9 1.6 1.4 17.7 18.7 19.1 Private Bank Aggregate 31.5 25.5 17.7 3.3 2.8 2.5 10.4 11.0 13.9 Banks-PSU Bank of Baroda 103 UR -9.8 11.7 19.6 -10.5 8.9 5.3 0.7 0.6 0.6 -5.8 6.9 10.7 Bank of India 81 Neutral -43.2 5.1 8.3 -1.9 15.9 9.8 0.4 0.4 0.4 -17.8 2.5 4.0 Canara Bank 232 Neutral -63.5 19.3 44.2 -3.7 12.0 5.2 0.5 0.5 0.5 -12.2 3.9 8.5 Indian Bank 252 Buy 26.2 24.7 42.3 9.6 10.2 6.0 0.7 0.7 0.6 8.3 7.3 11.6 Punjab National Bank 65 Neutral -50.3 -6.2 10.6 -1.3 -10.4 6.1 0.5 0.6 0.6 -29.5 -4.9 9.3 State Bank 271 Buy -5.3 4.8 29.4 -50.6 56.5 9.2 1.1 1.1 1.0 -3.5 1.0 11.3 Union Bank 68 Neutral -56.5 -4.3 3.5 -1.2 -15.9 19.3 0.3 0.3 0.3 -23.7 -2.1 1.6 PSU Bank Aggregate -10.1 39.6 8.1 0.8 0.8 0.7 -8.0 2.0 9.2 Life Insurance HDFC Stand. Life 381 Buy 5.5 6.8 8.3 68.9 56.3 46.0 5.0 4.2 3.6 25.8 25.9 26.2 ICICI Pru Life 331 Buy 11.3 9.7 12.5 29.3 33.9 26.4 2.5 2.2 1.9 16.1 16.8 16.0 Life Insurance Aggregate 45.4 44.8 35.7 10.7 9.2 7.8 23.5 20.5 21.9 NBFC Aditya Birla Cap 110 Buy 3.8 4.6 6.2 29.4 24.0 17.8 2.8 2.3 1.9 12.4 10.9 12.1 Bajaj Finance 2,230 Neutral 43.4 60.9 77.6 51.4 36.6 28.7 8.3 6.9 5.7 20.4 20.6 21.7 Capital First 504 Buy 33.1 44.2 55.6 15.2 11.4 9.1 1.9 1.7 1.4 13.4 15.7 17.1 Chola. Inv & Fin. 1,201 Buy 62.3 71.8 84.7 19.3 16.7 14.2 3.7 3.1 2.6 20.9 20.2 19.9 GRUH Finance 284 Neutral 5.0 6.6 7.2 57.2 43.2 39.5 16.0 13.1 10.9 31.8 33.3 30.0 HDFC 1,799 Buy 42.3 44.4 51.8 42.5 40.5 34.7 4.8 4.2 3.9 18.6 16.5 15.5 Indiabulls Housing 944 Buy 90.2 102.4 119.0 10.5 9.2 7.9 2.7 2.4 2.1 27.9 27.3 27.9 L&T Fin.Holdings 128 Buy 6.8 11.5 13.4 19.0 11.1 9.6 2.3 1.9 1.6 14.2 18.9 18.6 LIC Housing Fin 412 UR 37.4 48.6 54.3 11.0 8.5 7.6 1.6 1.4 1.2 15.7 17.6 17.2 M & M Financial 406 Buy 17.4 18.7 22.4 23.2 21.7 18.1 2.6 2.4 2.2 12.5 11.5 12.6 MAS Financial 507 Buy 19.2 23.4 28.8 26.4 21.6 17.6 3.8 3.4 2.9 20.7 16.5 17.9 Muthoot Finance 407 Neutral 43.0 50.4 55.5 9.5 8.1 7.3 2.1 1.8 1.5 24.1 23.8 22.4 PNB Housing 908 Buy 49.9 62.9 78.8 18.2 14.4 11.5 2.3 2.1 1.8 13.9 15.2 16.8 Repco Home Fin 419 Buy 32.9 38.8 43.4 12.7 10.8 9.7 2.0 1.7 1.5 16.9 17.2 16.5 Shriram City Union 1,644 Buy 100.8 129.1 151.0 16.3 12.7 10.9 2.0 1.8 1.5 12.7 14.7 15.1 Shriram Transport Fin. 1,079 Buy 69.1 105.0 129.0 15.6 10.3 8.4 1.8 1.6 1.3 12.7 16.3 17.3 NBFC Aggregate 27.0 21.9 18.4 3.8 3.3 2.9 14.2 15.0 15.7 Sector Aggregate 68.7 26.2 15.7 2.4 2.2 2.0 3.5 8.4 12.6

UR: Under Review

October 2018 53


Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of differences in classification of account heads in the company’s quarterly and annual results or because of differences in the way we classify account heads as opposed to the company.

All stock prices and indices as on 3 October 2018, unless otherwise stated.

Sectors & Companies BSE Sensex: 34,299 S&P CNX: 10,301 September 2018

October 2018 54

Earnings growth to slow down amid rising pressures EBITDA margins contract after four consecutive quarters of expansion

Timing difference in festive season would influence volume growth momentum in2QFY19. However, healthy volume growth momentum continued in 2QFY19 in 2Ws(+9%), 3Ws (+35%) and CVs (27%). PVs (including UVs) took a breather in 2QFY19, witha volume decline of 2%, impacted by Kerala floods and rising fuel and financing costs.

EBITDA margin for our OEM (ex-JLR) universe is likely to contract by 110 bp YoY (-40bp QoQ to 13.6%) after four consecutive quarter of margin expansion, impacted byhigh commodity costs, weak INR and heightened competitive intensity in 2Ws. Thebase quarter of 2QFY18 witnessed one of the highest EBITDA margins in over 12 years.

We have lowered our FY19/20E EPS estimates for MSIL (by 11%/13%), TTMT(35%/13%), ESC (7%/13%), EIM (3%/7%), and HMCL (7%/6%). We have raised ourFY19/20E estimates for BJAUT by 3%/11%.

Rural recovery drives 2W sales, CVs unfazed by change in axle load norms: A healthy momentum in rural areas and a pick-up in construction/mining activities drove sustained recovery in volumes. Demand growth in rural markets continues to outpace urban markets. This has translated into strong 2W demand, which is estimated to have grown 9% YoY in 2QFY19. CV volumes grew ~27% driven by growth in infrastructural activities and the cyclical recovery in LCVs. PVs witnessed restraint in demand, with both cars and UVs declining by ~2%.

Margins contract after four consecutive quarters of expansion: EBITDA margin for the auto original equipment manufacturer (OEM) (ex-JLR) universe is likely to contract 110 bp YoY or 40 bp QoQ to 13.6%, impacted by RM inflation, currency depreciation and heightened competitive intensity in 2Ws. The base quarter of 2QFY18 witnessed one of the highest EBITDA margins in over 12 years. We expect YoY margin expansion for TTMT S/A (+270 bp) and AL (+100 bp). We expect YoY margin contraction for BJAUT (-290 bp), MM (-70 bp), HMCL (-210 bp), MSIL (-270 bp), EIM (-70 bp), and TVSL (-50 bp).

Increased cost of ownership, higher fuel prices/interest rates to have a bearing on near-term demand outlook, particularly for 2Ws & PVs: Demand for FY19 is likely to have an overhang of increased cost of ownership led by rising fuel costs, increase in insurance costs and higher cost of financing in the short-term, particularly for 2Ws and PVs. However, for the long-term, our view is positive across segments, driven by healthy rural sales momentum, largely normal monsoon for the third year in a row, and pick-up in economic activity. We estimate 8-10% CAGR for 2Ws, 6-8% for 4Ws, 18-20% for CVs and 10-12% for tractors over FY18-20E.

Valuation and view Near-term headwinds notwithstanding, our preference remains for CVs/PVs over 2Ws due to its stronger volume growth and a stable competitive environment. We have lowered our valuation multiple by 10-15% for all companies under our coverage to factor in the increase in discounting rates and risks to growth. Our top picks in autos are MSIL and MSS among large caps, and AL and EXID among midcaps. We also like MM as it is the best proxy for rural markets.

Company name Amara Raja Batteries

Ashok Leyland

Bajaj Auto

Bharat Forge

BOSCH

CEAT Eicher Motors

Endurance technologies

Escorts

Exide Industries

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki

Motherson Sumi

Tata Motors

TVS Motor Company

Automobiles September 2018 Results Preview | October 2018

Jinesh Gandhi – Research Analyst ([email protected]); +91 22 3982 5416 Research Analyst: Deep Shah ([email protected]); 61291533 Suneeta Kamath ([email protected]); 61291534

October 2018 55

Exhibit 1: Summary of expected quarterly performance (INR m) Sector Sales (INR M) EBDITA (INR M) Net Profit (INR M)

Automobiles CMP (INR) RECO Sep-18 Var %



YoY Var % QoQ

Amara Raja Batt. 737 Buy 16,131 13.0 -9.3 2,124 -10.8 -3.6 1,053 -17.2 -6.9Ashok Leyland 119 Buy 76,701 26.8 22.7 8,541 39.6 31.9 5,212 55.9 37.0 Bajaj Auto 2,733 Buy 79,801 21.3 7.6 13,419 3.3 4.7 10,654 -4.2 -4.5Bharat Forge 602 Buy 15,144 20.4 2.3 4,363 18.1 1.8 2,402 17.9 2.5 Bosch 19,684 Neutral 30,368 8.0 -5.5 5,982 17.8 -4.8 4,008 13.4 -7.0CEAT 1,108 Buy 17,363 14.0 1.8 1,667 -4.6 -5.2 751 -3.6 2.1 Eicher Motors 23,171 Buy 23,785 9.7 -6.6 7,409 8.5 -8.5 5,812 12.2 0.9 Endurance Tech. 1,306 Buy 18,324 13.1 -1.5 2,704 18.0 -0.4 1,241 24.5 -0.4Escorts 622 Neutral 12,755 5.3 -15.6 1,333 -5.4 -28.2 851 3.6 -28.8Exide Inds. 258 Buy 27,863 17.5 0.5 3,944 33.3 0.9 2,244 37.6 6.9 Hero Motocorp 2,916 Neutral 90,432 8.1 2.6 13,866 -4.7 0.7 9,116 -9.8 0.3 Mahindra & Mahindra 791 Buy 128,864 7.2 -3.5 19,664 2.2 -6.8 13,899 -1.5 12.0 Maruti Suzuki 7,252 Buy 220,905 1.5 -1.6 31,385 -14.7 -6.3 20,145 -18.9 2.0 Motherson Sumi 243 Buy 151,100 12.5 2.3 14,799 18.3 4.8 4,659 5.9 5.2 Tata Motors 228 Buy 686,681 -2.9 2.4 60,182 -32.7 10.8 -4,570 PL Loss TVS Motor 542 Neutral 48,944 20.8 17.8 3,986 13.8 30.1 2,164 1.5 47.6 Sector Aggregate 1,645,162 4.6 2.1 195,367 -11.8 2.7 79,643 -28.3 28.7

Exhibit 2: Volume snapshot for 2QFY19 ('000 units) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) 1HFY19 1HFY18 YoY (%)

Two wheelers 6,875 6,306 9.0 6,524 5.4 13,399 11,859 13.0 Three wheelers 339 251 34.8 305 11.1 643.59 438 46.8

Passenger cars 734 748 -1.8 710 3.4 1,444 1,382 4.5 UVs & MPVs 329 336 -1.8 327 0.7 657 609 7.9

Total PVs 1,064 1,083 -1.8 1,037 2.6 2,101 1,990 5.5 M&HCV 116 90 28.2 100 15.5 216 148 46.3 LCV 165 130 26.7 148 11.7 313 241 30.2

Total CVs 281 221 27.3 248 13.3 529 388 36.3 Tractors 188 192 -2.5 219 -14.3 407 370 9.9 Total (ex-Tractor) 8,559 7,861 8.9 8,114 5.5 16,673 14,676 13.6

Exhibit 3: Trend in segment-wise EBITDA margins (%)

Source: Company, MOSL

Exhibit 4: Commodity prices cool-off sequentially


16.3

16.

6

7.9

15.4

15.

4

9.5

15.3

14.

6

8.4

14.5

15.

2

9.6

14.3

14.

6

10.

1

2W Cars CVs

2QFY18 3QFY18 4QFY18 1QFY19 2QFY19

125

130

122

131

122

130

140

132

138

107

147

141

134

140

110

153

139

138

154

117

153

127

128

146

105

Steel Lead Copper Alu Rubber


September 2018 Results Preview | Sector: Automobiles

October 2018 56

Exhibit 5: Trend in key currencies v/s INR

Source: Bloomberg, MOSL

Exhibit 6: Margins (ex-JLR) to contract YoY and QoQ


Exhibit 7: Revised estimates FY19E FY20E

Rev Old Chg (%) Rev Old Chg (%) Bajaj Auto 158.9 153.9 3.3 194.2 174.6 11.2 Hero MotoCorp 179.6 193.4 -7.1 205.1 219.0 -6.3TVS Motor 15.9 15.4 3.1 23.1 22.6 2.2 Maruti * 276.0 311.2 -11.3 354.8 409.2 -13.3M&M * 49.4 50.5 -2.2 55.4 55.2 0.3 Tata Motors * 20.3 31.4 -35.4 35.0 40.3 -13.0Ashok Leyland 7.0 6.7 4.8 8.9 8.7 2.0 Eicher Motors * 955.6 985.7 -3.1 1199.2 1289.3 -7.0Amara Raja 28.3 29.3 -3.4 35.5 36.3 -2.2Bharat Forge * 24.1 23.5 2.3 30.1 29.3 2.6 BOSCH 560.5 584.8 -4.2 687.6 713.4 -3.6Ceat 71.8 76.1 -5.7 92.5 99.2 -6.8Escorts 49.4 52.8 -6.5 57.6 66.2 -13.0Endurance Tech* 37.5 37.1 0.9 49.3 49.1 0.4 Exide Industries 10.2 10.6 -3.7 12.1 12.8 -5.4Motherson Sumi 9.8 10.2 -3.1 14.1 14.6 -3.5* Consolidated

Exhibit 8: EBITDA margin to contract ~110 bp YoY after four consecutive quarters of margin expansion Volumes ('000 units) EBITDA margins (%) Adj PAT (INR M)

2QFY19 YoY (%) QoQ (%) 2QFY19 YoY (bp) QoQ (bp) 2QFY19 YoY (%) QoQ (%) BJAUT 1,339 25.0 9.2 16.8 -290 -50 10,654 -4.2 -4.5HMCL 2,134 5.5 1.4 15.3 -210 -30 9,116 -9.8 0.3 TVS Motor 1,088 14.7 17.2 8.1 -50 80 2,164 1.5 47.6 MSIL 485 -1.5 -1.1 14.2 -270 -70 20,145 -18.9 2.0 MM 229 3.7 -5.1 15.3 -70 -50 13,899 -1.5 12.0 TTMT (S/A) 190 24.2 8.0 9.7 270 40 4,421 62.8 TTMT (JLR) * 123 -19.9 -6.8 7.3 -450 100 -129 -133.5 -51.2TTMT (Cons) 8.8 -390 70 -8,738 -128.4 -66Ashok Leyland 52 26.8 23.3 11.1 100 80 5,212 55.9 37.0 Eicher (RE) 210 3.6 -6.8 31.1 -70 -120 5,031 3.4 -14.9Eicher (VECV) 19 24.5 14.5 9.6 40 40 1,436 51.1 21.7 Eicher (Consol) 31.1 -70 -120 5,812 12.2 0.9 Agg. (ex JLR) 5,747 11.2 5.4 13.6 -110 -40 71,424 5.2 -5.2

80

100

120

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Jun-

16Se

p-16

Dec-

16M

ar-1

7Ju

n-17

Sep-

17De

c-17

Mar

-18

Jun-

18Se

p-18

USD GBP JPY

8

11

14

17

2QFY

13

4QFY

13

2QFY

14

4QFY

14

2QFY

15

4QFY

15

2QFY

16

4QFY

16

2QFY

17

4QFY

17

2QFY

18

4QFY

18

2QFY

19

Aggregate (excld JLR) Aggregate (incl JLR)


October 2018 57

Exhibit 9: Relative performance – three-month (%)


Exhibit 10: Relative performance – one-year (%)


Exhibit 11: Comparative valuation Sector / Companies Mkt Cap CMP RECO EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Automobiles (USD B) (INR)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

Amara Raja Batt. 1.7 737 Buy 27.6 28.3 35.5 26.7 26.0 20.8 15.3 13.0 10.4 17.0 15.4 16.9 Ashok Leyland 4.8 119 Buy 5.4 7.0 8.9 22.1 17.0 13.4 13.4 8.6 6.3 23.7 26.4 28.4 Bajaj Auto 10.9 2,733 Buy 151.3 158.9 194.2 18.1 17.2 14.1 12.8 11.3 8.7 24.2 22.8 24.7 Bharat Forge 3.9 602 Buy 17.7 24.1 30.1 34.1 25.0 20.0 19.8 13.5 11.2 18.8 22.1 23.3 Bosch 8.5 19,684 Neutral 469.8 560.5 687.6 41.9 35.1 28.6 23.0 21.3 16.8 15.3 16.3 18.1 CEAT 0.6 1,108 Buy 64.0 71.8 92.5 17.3 15.4 12.0 11.1 9.2 7.2 10.3 10.6 12.4 Endurance Tech. 2.5 1,306 Buy 29.1 37.5 49.3 44.9 34.8 26.5 19.4 16.2 12.9 21.0 22.2 24.5 Eicher Motors 8.7 23,171 Buy 799.6 955.6 1199.2 29.0 24.2 19.3 25.1 16.2 13.2 35.2 32.4 31.5 Escorts 1.1 622 Neutral 39.5 49.4 57.6 15.7 12.6 10.8 16.6 9.8 8.1 18.3 18.3 18.3 Exide Inds. 3.0 258 Buy 8.2 10.2 12.1 31.5 25.4 21.3 13.5 12.8 10.6 12.9 14.4 15.4 Hero Motocorp 8.0 2,916 Neutral 185.1 179.6 205.1 15.7 16.2 14.2 12.0 9.3 8.2 33.8 29.2 30.4 Mahindra & Mahindra 13.2 791 Buy 41.0 49.4 55.4 19.3 16.0 14.3 5.4 4.6 3.8 14.2 14.9 15.2 Maruti Suzuki 30.2 7,252 Buy 266.7 276.0 354.8 27.2 26.3 20.4 19.3 13.9 11.3 18.5 17.6 20.1 Motherson Sumi 7.1 243 Buy 8.1 9.8 14.1 30.1 24.7 17.2 14.1 8.6 6.1 19.4 20.6 25.2 Tata Motors 10.7 228 Buy 22.9 20.3 35.0 9.9 11.2 6.5 3.3 3.1 2.5 10.1 7.0 11.0 TVS Motor 3.6 542 Neutral 13.9 15.9 23.1 38.9 34.1 23.5 27.1 18.5 13.5 25.1 24.1 28.8 Sector Aggregate

21.8 20.4 15.5 9.9 7.8 6.2 15.5 15.0 17.4

80

90

100

110

120

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Automobiles Index

80

92

104

116

128

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Automobiles Index


October 2018 58

Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 14,975 14,275 15,535 15,807 17,787 16,131 17,709 18,491 60,592 70,118 YoY Change (%) 14.5 7.1 17.1 17.6 18.8 13.0 14.0 17.0 14.0 15.7 RM Cost (% of sales) 70.0 66.0 66.9 68.7 71.5 69.5 68.8 68.6 67.9 69.6 Staff Cost (% of sales) 5.4 5.2 4.9 5.0 4.7 5.3 5.0 4.8 4.2 4.9 Other Exp (% of sales) 11.7 12.1 12.0 13.0 11.4 12.0 12.0 12.4 11.6 13.0 EBITDA 1,929 2,381 2,416 2,107 2,203 2,124 2,524 2,628 8,832 9,479 Margins (%) 12.9 16.7 15.6 13.3 12.4 13.2 14.3 14.2 14.6 13.5 Depreciation 544 584 587 588 630 673 710 731 2,303 2,743 Interest 14 13 11 13 15 10 10 11 51 46 Other Income 137 122 168 237 137 142 149 152 664 580 PBT 1,508 1,907 1,985 1,743 1,695 1,583 1,953 2,038 7,142 7,270 Tax Rate (%) 33.7 33.3 32.3 37.0 33.3 33.5 33.5 33.6 34.0 33.5 Adj PAT 999 1,272 1,345 1,098 1,130 1,053 1,299 1,353 4,713 4,835 YoY Change (%) -23.6 -6.7 19.7 10.7 13.2 -17.2 -3.4 23.2 -1.5 2.6 E: MOSL Estimates


Amara Raja Batteries

CMP: INR737 TP: INR858 (+16%) Buy We expect AMRJ’s revenue to grow 13% YoY (-9.3% QoQ) to

INR16.1b, driven by growth in automotive OEM and the replacement segment.

Spot LME lead prices declined for the second consecutive quarter by 6.2% QoQ in 2QFY19 while they were flat YoY.

EBITDA margin is likely to decline 350 bp YoY (+80 bp QoQ) to 13.2%.

We expect PAT to decline 17% YoY to INR1.05b. We cut FY19/20 estimates by 3.4%/2.2% to factor in the

unfavorable product mix. The stock trades at 26x FY19E and 20.8x FY20E EPS; maintain Buy.

Key issues to watch Update on demand environment for OEMs, auto replacement,

industrial battery segments and price actions. Outlook for raw material cost trend, recent pricing action Update on new agreement signed with Johnson Controls for

advanced lead acid batteries Update on progress made on product development in lithium

ion battery space and plans thereof

Bloomberg AMRJ IN Equity Shares (m) 170.8 M. Cap. (INR b)/(USD b) 126 / 2 52-Week Range (INR) 908 / 665 1,6,12 Rel Perf. (%) -6 / -17 / -11

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E

Sales 53.2 60.6 70.1 81.9 EBITDA 8.5 8.8 9.5 11.7 NP 4.8 4.7 4.8 6.1 EPS (INR) 28 27.6 28.3 35.5 EPS Gr. (%) (2.7) (1.5) 2.6 25.4 BV/Sh. (INR) 152 172 195 224 RoE (%) 20.3 17.0 15.4 16.9 RoCE (%) 19.4 16.3 14.7 16.1 Valuations P/E (x) 26.3 26.7 26.0 20.8 P/BV (x) 4.9 4.3 3.8 3.3 EV/EBITDA (x) 14.7 14.2 13.1 10.4 EV/Sales (x) 2.3 2.1 1.8 1.5

October 2018 59

Quarterly Performance FY18 FY19 FY18 FY19

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Volumes (nos) 28,488 40,986 46,627 58,772 42,127 51,958 48,200 62,912 174,873 205,197

Growth % -8.6 22.6 42.0 23.4 47.9 26.8 3.4 7.0 20.5 17.3 Realizations (INR '000) 1,495 1,475 1,532 1,493 1,484 1,476 1,484 1,492 1,501 1,484

% change 9.4 6.7 4.2 0.2 -0.7 0.1 -3.1 -0.1 8.8 -1.1 Net operating revenues 42,579 60,469 71,412 87,725 62,501 76,701 71,510 93,856 262,479 304,568 Change (%) 0.0 30.8 47.9 23.7 46.8 26.8 0.1 7.0 31.1 16.0 RM/sales % 69.1 71.3 71.0 71.9 69.6 70.5 70.4 70.4 70.9 70.3 Staff/sales % 9.9 8.1 6.6 5.2 7.9 6.7 7.1 5.7 6.9 6.7 Other exp/sales % 13.8 10.4 11.4 11.2 12.1 11.7 11.6 12.3 11.7 12.0 EBITDA 3,061 6,118 7,884 10,327 6,475 8,541 7,804 10,859 27,390 33,679 EBITDA Margins(%) 7.2 10.1 11.0 11.8 10.4 11.1 10.9 11.6 10.4 11.1 Other Income 384 557 380 577 500 575 650 355 1,898 2,080 Interest 366 410 335 201 116 225 175 236 1,312 752 PBT before EO Item 1,730 4,826 6,576 9,299 5,366 7,341 6,679 9,303 22,433 28,751 EO Exp/(Inc) 126 0 0 0 147 0 0 0 126 0 PBT 1,605 4,826 6,576 9,299 5,220 7,341 6,679 9,303 22,307 28,751 Tax 492 1,484 2,079 2,626 1,519 2,129 1,937 2,754 6,681 8,338 Effective Tax Rate (%) 30.7 30.7 31.6 28.2 29.1 29.0 29.0 29.6 30.0 29.0 Adj. PAT 1,199 3,342 4,497 6,674 3,805 5,212 4,742 6,549 15,714 20,413 Change (%) -58.7 13.5 178.1 36.5 217.2 55.9 5.4 -1.9 27.1 29.9 E: MOSL Estimates


Ashok Leyland

CMP: INR119 TP: INR151 (+27 %) Buy In 2QFY19, volumes increased 26.8% YoY (-23.3% QoQ), as

M&HCV and LCV sales increased 22% YoY and 42% YoY, respectively, led by continued strong demand.

We expect realization to remain flat YoY (-0.5% QoQ), led by product mix impact.

Net revenue is likely to grow 26.8% YoY (-22.7% QoQ) to INR76.7b, led by volume and realization growth.

EBITDA margin is likely to expand 100 bp YoY (+70 bp QoQ) to 11.1% led by operating leverage.

EBITDA should increase 39.6% YoY (+31.9% QoQ) to INR8.5b. PAT should increase 55.9% YoY (+37% QoQ) to INR5.2b. We increase FY19/FY20 EPS by 4.8%/2% as we increase volumes

by 6.6%/10.9%. The stock trades at EV/EBITDA of 9.5x FY19E and 7.1x FY20E

EBITDA. Maintain Buy.

Key issues to watch Update on CV demand post implementation of new axle norms

and discount trends Update on LCVs, exports and defense business RM cost guidance and price hikes to mitigate the same Capex and investment guidance for FY19 and FY20

Bloomberg AL IN

Equity Shares (m) 2927.1 M. Cap. (INR b)/(USD b) 348 / 5 52-Week Range (INR) 168 / 105

1,6,12 Rel Perf. (%) -4 / -28 / -18

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 200.2 262.5 304.6 365.1 EBITDA 22.0 27.4 33.7 42.5 NP 12.4 15.8 20.4 26.0 Adj. EPS (INR) 4.3 5.4 7.0 8.9 EPS Gr. (%) 3.0 23.9 29.6 27.3 BV/Sh. (INR) 21.5 24.5 28.4 34.1 RoE (%) 21.4 23.7 26.4 28.4 RoCE (%) 21.8 20.7 23.6 26.1 Valuations P/E (x) 27.4 22.1 17.0 13.4 P/BV (x) 5.5 4.9 4.2 3.5 EV/EBITDA (x) 15.2 11.6 9.5 7.1 Div. Yield (%) 1.3 2.0 2.1 2.2

October 2018 60

Quarterly Performance (INR Million) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Volumes ('000 units) 888 1,072 1,001 1,045 1,227 1,339 1,291 1,220 4,007 5,077 Growth YoY (%) -10.7 3.8 17.6 32.7 38.1 25.0 28.9 16.7 9.3 26.7 Realization (INR/unit) 61,258 61,408 63,600 64,793 60,485 59,577 60,173 60,162 62,806 60,088 Growth YoY (%) 6.0 4.7 6.9 4.2 -1.3 -3.0 -5.4 -7.1 5.7 (4.3) Net Sales 54,424 65,799 63,693 67,733 74,193 79,801 77,683 73,419 251,649 305,095 Change (%) -5.3 8.7 25.7 38.3 36.3 21.3 22.0 8.4 15.5 21.2 RM/Sales % 70.0 69.1 68.4 69.3 71.4 72.0 71.7 71.4 69.4 71.7 Staff cost/Sales % 5.0 4.0 4.2 3.9 4.2 4.1 4.1 4.4 4.2 4.2 Oth. Exp./Sales % 7.8 7.2 8.3 7.4 7.1 7.2 7.3 7.3 7.7 7.2 EBITDA 9,384 12,984 12,315 13,152 12,814 13,419 13,209 12,428 47,290 51,870

EBITDA Margins (%) 17.2 19.7 19.3 19.4 17.3 16.8 17.0 16.9 18.8 17.0 Other Income 4,573 2,964 2,269 3,667 4,044 2,750 3,250 3,325 13,473 13,369 Interest 2 5 3 3 3 3 3 2 13 10 Depreciation 753 770 747 879 700 725 750 795 3,148 2,970 PBT 12,881 15,174 13,833 15,937 16,156 15,441 15,706 14,956 57,602 62,259 Tax 3,642 4,055 4,309 5,138 5,003 4,787 4,869 4,641 17,145 19,300 Effective Tax Rate (%) 28.3 26.7 31.1 32.2 31.0 31.0 31.0 31.0 29.8 31.0 Adj. PAT 9,469 11,119 9,524 10,799 11,152 10,654 10,837 10,315 41,001 42,959 Change (%) (3.2) (1.0) 3.0 34.7 17.8 (4.2) 13.8 (4.5) 6.7 4.8 E: MOSL Estimates


Bajaj Auto

CMP: INR2,733 TP: INR3,454 (+26%) Buy Overall volume increased by 25% YoY (+9.2% QoQ) to ~1,339k

units due to 20.2% YoY increase in domestic volume, while export volumes increased by 33.1% YoY.

Total motorcycle volume increased 22.6% YoY while 3W volume grew 39.3% YoY.

We expect realization to decline by 3% YoY (-1.5% QoQ) led by deterioration in the product mix. Consequently, net sales are expected to increase by 21.3% YoY (+7.6% QoQ) to INR79.8b.

We expect EBITDA margin to contract by 290 bp YoY (-50 bp QoQ) to 16.8%.

We expect PAT to decline by 4.2% YoY (-4.5% QoQ) to INR10.7b. We upgrade FY19/FY20 volume estimates by 8.6%/8.9%. While

we keep FY19 margins unchanged, we upgrade FY20 margins by 120 bp to 18.6%, resulting in EPS increasing by 3.3%/11.2% for FY19E/FY20E.

The stock trades at 17.2x FY19E and 14.1x FY20E EPS; maintain Buy.

Key issues to watch Update on 2W demand outlook from urban and rural areas Price increase in domestic markets across segments Export demand outlook and pricing in key currency market Comments on 3W demand momentum in domestic market Update on EV strategy

Bloomberg BJAUT IN


1,6,12 Rel Perf. (%) 6 / -10 / -29

Financial Snapshot (INR b) Y/E MAR 2017 2018 2019E 2020E

Sales 218 252 305 345 EBITDA 44.2 47.8 51.9 64.3 NP 40.8 43.8 46.0 56.2 Adj. EPS (INR) 141 151 159 194 EPS Gr. (%) -1.7 7.3 5.0 22.2 BV/Sh. (INR) 589 660 737 836 RoE (%) 26.9 24.2 22.8 24.7 RoCE (%) 24.6 22.0 20.7 32.2 Payout (%) 46.9 47.7 45.4 43.3 Valuations P/E (x) 19.4 18.1 17.2 14.1 P/BV (x) 4.6 4.1 3.7 3.3 EV/EBITDA (x) 14.5 12.7 11.3 8.7 Div. Yield (%) 2.0 2.2 2.2 2.6

October 2018 61

S/A Quarterly

(INR Million) FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Tonnage 55,100 58,659 65,050 68,706 66,815 68,044 74,808 78,399 247,515 288,066 Change (%) 12.2 27.0 38.2 24.5 21.3 16.0 15.0 14.1 25.3 16.4 Realization (INR '000/ton) 217.9 214.5 213.8 213.5 221.5 222.6 223.1 224.3 214.8 222.9 Change (%) 18.3 11.2 6.7 4.7 1.6 3.8 4.4 5.1 9.8 3.8 Net operating income 12,008 12,580 13,906 14,666 14,797 15,144 16,691 17,581 53,160 64,213.2 Change (%) 32.8 41.2 47.4 30.3 23.2 20.4 20.0 19.9 37.6 20.8

RM/Sales (%) 35.0 35.0 35.6 36.1 36.1 36.2 36.2 36.1 35.5 36.2 Staff Cost (% of Sales) 8.9 8.5 8.0 7.6 8.3 8.2 7.5 7.3 8.2 7.8 Other Exp. (% of Sales) 28.3 27.1 26.4 27.8 26.6 26.8 26.3 26.3 27.4 26.5

EBITDA 3,333 3,694 4,163 4,177 4,286 4,363 5,007 5,333 15,368 18,990 EBITDA Margins (%) 27.8 29.4 29.9 28.5 29.0 28.8 30.0 30.3 28.9 29.6

Non-Operating Income 259 366 219 342 343 335 335 337 1,187 1,350 Interest 185 217 143 303 253 256 260 260 848 1,029 Depreciation 774 781 807 705 824 830 850 901 3,068 3,405 EO Exp / (Inc) 0 0 0 1,332 0 0 0 0 1,332 0 PBT after EO items 2,633 3,063 3,432 2,179 3,552 3,612 4,232 4,510 11,307 15,906 Eff. Tax Rate (%) 33.5 33.5 33.5 37.4 34.0 33.5 33.5 0.0 37.4 33.5 Rep. PAT 1,751 2,037 2,282 1,003 2,345 2,402 2,815 3,016 7,073 10,578 Change (%) 43.4 60.5 77.4 -51.6 33.9 17.9 23.4 200.6 20.9 49.5 Adj. PAT 1,751 2,037 2,282 2,335 2,345 2,402 2,815 3,016 8,404 10,578 Change (%) 43.4 60.5 77.4 29.7 33.9 17.9 23.4 29.2 50.4 25.9 E: MOSL Estimates


Bharat Forge

CMP: INR602 TP: INR767 (+27%) Buy BHFC’s shipment tonnage is expected to increase by 16% YoY

(+2% QoQ) to 68,044 tons, led by robust demand for class 8 trucks as well as domestic CVs. Further, strong recovery in oil and gas and industrial segments (exports) should also drive BHFC’s tonnage volume.

Net realization is expected to increase 3.8% YoY (flat QoQ) to ~INR222.6k/ton led by the favorable mix. As a result, net revenue should increase 20% YoY (+2% QoQ) to ~INR15.1b.

EBITDA margin is likely to contract ~60 bp YoY (-20 bp QoQ) to 28.8%.

PAT is expected to increase by 18% YoY (+3% QoQ) to INR2.4b. We maintain our earnings estimate for FY19/FY20. The stock trades at 25x FY19E and 20x FY20E EPS; maintain Buy.

Key issues to watch Update on FY19 outlook for Class 8 trucks and India CVs Impact of trade wars on demand and future outlook Update on new order wins and ramp-up of past order wins Update on defense business

Bloomberg BHFC IN


1,6,12 Rel Perf. (%) -3 / -24 / -17

Financial Snapshot (INR b) Y/E Mar 2017 2018 2019E 2020E

Sales 64.0 83.6 95.9 110.2

EBITDA 12.5 17.2 21.5 25.5 EPS (INR) 13.1 18.4 24.1 30.1 EPS Gr. (%) -7.0 40.7 30.7 24.8

BV/Sh. (INR) 88.4 99.9 117.7 140.2 RoE (%) 16.2 19.6 22.1 23.3 RoCE (%) 9.6 11.6 14.6 16.5

Valuations P/E (x) 47.7 33.9 25.9 20.8 P/BV (x) 7.1 6.3 5.3 4.5

EV/EBITDA(x) 25.5 18.6 14.8 12.4 EV/Sales (x) 5.0 3.8 3.3 2.9

Consolidated

October 2018 62

Quarterly performance (S/A) (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 26,484 28,119 30,719 31,580 32,122 30,368 33,177 36,517 116,902 132,183 YoY Change (%) 4.2 6.8 14.1 22.7 21.3 8.0 8.0 15.6 12.0 13.1

RM Cost (% of sales) 54.4 55.1 52.8 53.5 54.4 53.6 53.1 53.0 53.9 53.5 Staff Cost (% of sales) 12.9 12.2 11.1 10.4 10.9 11.6 10.5 11.0 11.6 11.0 Other Expenses (% of sales) 16.2 14.5 21.5 14.2 15.1 15.1 21.0 13.6 16.6 16.2

EBITDA 4,390 5,080 4,476 6,914 6,282 5,982 5,109 8,226 20,933 25,599 Margins (%) 16.6 18.1 14.6 21.9 19.6 19.7 15.4 22.5 17.9 19.4 Depreciation 1,062 1,108 1,243 1,259 939 1,150 1,300 1,423 4,672 4,812 Interest 5 0 27 1 0 0 0 0 33 0 Other Income 1,295 1,290 1,023 1,582 1,147 1,150 1,200 1,251 5,118 4,748 PBT before EO expense 4,618 5,262 4,229 7,236 6,489 5,982 5,009 8,054 21,346 25,535 Extra-Ord expense 0 0 0 939 0 0 0 0 939 0 PBT after EO Expense 4,618 5,262 4,229 6,297 6,489 5,982 5,009 8,054 20,407 25,535 Tax 1,592 1,728 1,419 1,959 2,179 1,974 1,653 2,620 6,699 8,426

Tax Rate (%) 34.5 32.8 33.6 31.1 33.6 33.0 33.0 32.5 32.8 33.0 Reported PAT 3,026 3,533 2,810 4,338 4,310 4,008 3,356 5,434 13,708 17,108 Adj PAT 3,026 3,533 2,810 4,985 4,310 4,008 3,356 5,434 14,339 17,108 YoY Change (%) -19.3 -16.5 30.8 13.2 42.4 13.4 19.4 9.0 4.7 19.3 E: MOSL Estimates


Bosch

CMP: INR19,684 TP: INR20,905 (+6%) Neutral Net revenue is expected to grow 8% YoY (-6% QoQ) to INR30.4b,

as strong growth in CVs would be partially negated by moderate decline in PVs and tractors.

EBITDA margin is expected to expand 160 bp YoY (+10 bp QoQ) to 19.7%, led by operating leverage.

EBITDA is projected to grow 18% YoY (-5% QoQ) to INR6b. Adjusted PAT is likely to increase 13% YoY to INR4b (-7% QoQ). We lower our earnings estimate for FY19/FY20Eby 4% each

mainly to factor for higher commodity costs. The stock trades at 35.1x FY19E and 28.6x FY20E EPS; maintain

Neutral.

Key issues to watch Update on revenue growth in aftermarket business Revenue opportunity in 2Ws in BS VI Outlook for both auto and non-auto demand

Bloomberg BOS IN Equity Shares (m) 31.4 M. Cap. (INR b)/(USD b) 618 / 8 52-Week Range (INR) 22400 / 16990 1,6,12 Rel Perf. (%) -1 / -5 / -19

Financial Snapshot (INR b) Y/E Mar FY17 FY18 FY19E FY20E

Sales 104.4 116.9 132.2 153.9

EBITDA 19.6 20.9 25.6 32.0 NP 14.4 14.3 17.1 21.0 EPS (INR) 473.2 469.8 560.5 687.6

EPS Gr. (%) -1.8 -0.7 19.3 22.7 BV/Sh. (INR) 2,883.1 3,270 3,603 4,010 RoE (%) 15.8 15.3 16.3 18.1

RoCE (%) 23.1 22.8 24.3 27.0 Valuations P/E (x) 41.6 41.9 35.1 28.6

P/BV (x) 6.8 6.0 5.5 4.9 EV/EBITDA(x) 29.8 27.8 22.7 17.9 EV/Sales (x) 5.6 5.0 4.4 3.7

October 2018 63

Consolidated - Quarterly Earning Model (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 14,597 15,230 15,742 16,739 17,063 17,363 17,630 18,354 62,308 70,410 YoY Change (%) -0.7 6.7 12.6 13.7 16.9 14.0 12.0 9.7 8.1 13.0 RM cost (%) 65.8 60.6 58.2 60.3 60.7 62.7 62.8 62.4 61.1 62.2 Employee cost (%) 6.9 7.3 7.1 6.9 7.0 7.0 7.1 7.3 7.0 7.1 Other expenses (%) 23.6 20.6 22.8 21.0 22.1 20.7 20.8 20.9 22.0 21.1 EBITDA 547 1,747 1,870 1,976 1,758 1,667 1,640 1,730 6,139 6,795 Margins (%) 3.7 11.5 11.9 11.8 10.3 9.6 9.3 9.4 9.9 9.7 Depreciation 396 409 433 448 460 470 520 528 1,686 1,978 Interest 226 237 273 238 204 210 255 274 974 943 Other Income 103 65 66 69 37 45 50 63 303 195 PBT before EO expense 28 1,166 1,230 1,359 1,131 1,032 915 991 3,783 4,068 Extra-Ord expense 4 80 10 246 23 0 0 0 340 23 PBT 25 1,086 1,220 1,113 1,108 1,032 915 991 3,443 4,045 Tax Rate (%) 193.1 38.7 38.9 35.7 39.9 34.0 34.0 33.5 38.9 35.5 Minority Interest & P/L of Asso. Cos. -39 -65 -82 -91 -54 -70 -75 -81 -277 -280 Reported PAT 16 730 826 807 720 751 679 739 2,380 2,889 Adj PAT 13 779 833 966 735 751 679 739 2,587 2,904 YoY Change (%) -98.8 -27 -0.7 21.0 5,582 -4 -18.5 -23.4 -30.1 12.3 E: MOSL Estimates


CEAT CMP: INR1,108 TP: INR1,432 (+29%) Buy We expect revenues to increase 14% YoY (+2% QoQ) to INR17.4b in

2QFY19. RM cost % is expected to increase by 200 bp QoQ (+210 bp YoY) to

62.7% in 2QFY19 led by an increase in crude prices, INR depreciation and rising carbon black prices.

We estimate 70 bp QoQ (-190 bp YoY) contraction in EBITDA margin to 9.6%.

EBITDA is likely to decline 5% YoY and QoQ to INR1.7b. We expect adjusted PAT to decline 4% YoY to INR751m. We have revised downward our earnings estimate for FY19 and FY20

by 6% and 7%, respectively, to factor in higher RM costs (mainly crude-linked RM prices and INR depreciation).

The stock trades at 15.4x FY19E and 12x FY20E EPS. Maintain Buy.

Key things to watch for Guidance on RM costs Extent of price increases taken/ planned across segments to

mitigate RM inflation Whether capacity expansion is on track

Bloomberg CEAT IN


1,6,12 Rel Perf. (%) -13 / -39 / -50

Financial Snapshot (INR Billion) Y/E March 2017 2018 2019E 2020E

Sales 57.7 62.3 70.4 84.7

EBITDA 6.6 6.1 6.8 9.2 NP 3.7 2.6 2.9 3.7 EPS (Rs) 91.8 64.0 71.8 92.5

EPS Gr. (%) -18.3 -30.3 12.3 28.8 BV/Share 597.0 644.3 706.2 786.5 RoE (%) 16.6 10.3 10.6 12.4


P/BV (x) 1.9 1.7 1.6 1.4 EV/EBITDA (x) 8.2 8.6 9.2 7.3 EV/Sales (x) 0.9 0.8 0.9 0.8

October 2018 64

Quarterly performance (Consolidated) FY18 FY19 FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Operating income 20,006 21,673 22,690 25,280 25,478 23,785 27,985 29,246 89,650 106,494

Growth (%) 28.6 23.5 23.7 33.9 27.3 9.7 23.3 15.7 27.5 18.8 EBITDA 6,207 6,825 7,072 7,972 8,095 7,409 8,834 9,418 28,076 33,756 EBITDA Margins (%) 31.0 31.5 31.2 31.5 31.8 31.1 31.6 32.2 31.3 31.7 Recurring PAT 4,708 5,180 5,274 6,486 5,761 5,812 6,734 7,742 21,797 26,049

Growth (%) 25.1 25.4 26.1 39.1 22.4 12.2 27.7 19.4 27.2 19.5 Standalone (Royal Enfield) Royal Enfield ('000 units) 184 203 207 227 225 210 240 247 820 922

Growth (%) 24.8 21.5 18.8 27.4 22.5 3.6 16.2 8.8 23.1 12.4 Net Realn (INR '000/unit) 109 107 110 111 113 113 117 119 109 115

Change - YoY (%) 2.9 1.0 3.9 5.4 3.9 6.1 6.4 6.4 3.4 5.8 EBITDA Margins (%) 31.4 31.9 31.7 32.3 32.3 31.1 31.6 31.7 31.9 31.7 Recurring PAT 4,943 4,864 4,720 4,146 5,912 5,031 6,087 6,493 18,674 23,524

Growth (%) 46.6 22.8 13.7 0.7 19.6 3.4 29.0 56.6 19.7 26.0 VECV Total CV Volumes 11,584 15,017 16,231 23,100 16,326 18,696 17,435 24,368 65,932 76,825

Growth (%) -27.9 12.0 37.7 33.2 40.9 24.5 7.4 5.5 12.5 16.5 Net Realn (INR '000/unit) 1,556 1,558 1,596 1,436 1,598 1,550 1,535 1,541 1,524 1,554

Change - YoY (%) 16.9 5.9 -0.2 -2.5 2.7 -0.5 -3.8 7.3 4.4 1.9 EBITDA Margins (%) 8.3 9.2 8.7 9.5 9.2 9.6 9.0 9.9 9.0 9.5 Recurring PAT 670 950 1,328 1,783 1,180 1,436 1,190 2,053 4,731 5,859

Growth (%) -38.1 46.2 133.0 52.4 76.1 51.1 -10.4 15.1 35.8 23.8 E: MOSL Estimates


Eicher Motors

CMP: INR23,171 TP: INR28,057 (+21%) Buy Royal Enfield’s volumes grew by just 3.6% YoY (-6.8% QoQ) to

210,102 units, impacted by Kerala floods and the decline in production led by strike at one of its plant. Net realization is expected to improve by 6.1% YoY (+0.2% QoQ), supported by price hikes and mix. We expect S/A EBITDA margin to contract by 80 bp YoY to 31.1% (-120 bp QoQ).

VECV’s volume increased by 24.5% YoY (+14.5% QoQ). We expect net realization to decline by 0.5% YoY (-3% QoQ). Margin is expected to expand 40 bp YoY and QoQ to 9.6%.

Consolidated revenue would increase 9.7% YoY (-6.6% QoQ) to INR23.8b. Consolidated margin is likely to be 31.1%. Adj. PAT is estimated to grow 12.2% YoY (+0.9% QoQ) at INR5.8b.

We downgrade consolidated EPS by 3.1% for FY19 and by 7% for FY20 as we cut RE’s FY19/20 volume by 2.4%/4.4% and margins by 60/160 bp in FY19/FY20. We increase VECV margins by 20/60 bp.

The stock trades at 24.2x FY19E and 19.3x FY20E EPS. Maintain Buy.

Key issues to watch Outlook on RE demand from metros and tier 1 and tier 2 cities,

and order book trend Inventory levels for RE

Bloomberg EIM IN


1,6,12 Rel Perf. (%) -13 / -26 / -41

Financial Snapshot (INR b) Y/E March FY17 FY18 FY19E FY20E

Net Income 70.3 89.6 106.5 124.3 EBITDA 21.7 28.1 33.8 39.8 Net Profit 17.1 21.8 26.0 32.7 Adj. EPS (INR) 630 800 956 1,199 EPS Gr. (%) 59.7 27.0 19.5 25.5 BV/Sh. (INR) 1,964 2,579 3,329 4,295 RoE (%) 38.1 35.2 32.4 31.5 RoCE (%) 33.3 30.1 28.2 28.0 Payout (%) 0.4 0.5 0.8 0.9 Valuations P/E (x) 36.8 29.0 24.2 19.3

P/BV (x) 11.8 9.0 7.0 5.4 EV/EBITDA (x) 23.3 17.4 14.1 11.2 Div. Yield (%) 0.4 0.5 0.8 0.9

October 2018 65

Consolidated - Quarterly

(INR Million)

Y/E March FY18 FY19E FY18 FY19E INR m 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 15,057 16,204 15,809 17,350 18,604 18,324 18,637 20,262 65,381 75,827 YoY Change (%) 4.5 11.9 19.8 25.7 23.6 13.1 17.9 16.8 17.0 16.0 RM Cost (% of sales) 57.8 59.3 57.4 58.5 58.6 59.4 59.1 58.8 58.8 59.0 Staff Cost (% of sales) 9.8 8.6 9.3 8.5 8.9 8.2 8.8 8.0 8.9 8.5 Other Exp. (% of sales) 18.1 18.0 19.2 18.2 17.9 17.6 17.3 17.6 18.1 17.6 EBITDA 2,139 2,292 2,229 2,573 2,714 2,704 2,768 3,157 9,278 11,343 Margins (%) 14.2 14.1 14.1 14.8 14.6 14.8 14.9 15.6 14.2 15.0 Depreciation 742 768 798 907 820 840 880 891 3,216 3,431 Interest 57 69 47 63 59 52 50 47 235 208 Other Income 56 62 84 77 41 50 56 57 235 204 PBT after EO 1,397 1,517 1,199 1,680 1,876 1,862 1,894 2,276 5,793 7,909

Eff. Tax Rate (%) 30.9 34.3 34.8 30.7 33.6 33.4 33.4 33.1 32.6 33.4 Adj. PAT 965 997 957 1,164 1,246 1,241 1,263 1,522 4,089 5,271 YoY Change (%) 9.7 11.6 28.8 39.3 29.1 24.5 31.9 30.8 23.8 28.9


Endurance Technologies

CMP: INR1,306 TP: INR1,556 (+19%) Buy We expect 13% YoY growth (-1.5% QoQ) in consolidated revenue

to INR18.3b, led by strong performance in standalone operations. We expect European operations to deliver flat revenue growth on YoY basis in constant currency terms.

Consolidated EBITDA is expected to grow 18% YoY (flat QoQ), led by healthy growth in the operating performance of Indian operations.

EBITDA margin is likely to expand 70 bp YoY (+20 bp QoQ) to 14.8%.

We expect PAT to grow 25% YoY (flat QoQ) to INR1.2b. We maintain our EPS estimates for FY19 and FY20. The stock trades at 34.8x FY19E EPS and 26.5x FY20 EPS. Maintain

Buy. Key issues to watch for

Update on new order wins in India and Europe during the quarter Whether ABS launch is on track Update on outlook for European market

Bloomberg ENDU IN Equity Shares (m) 140.7 M. Cap. (INR b)/(USD b) 184 / 3 52-Week Range (INR) 1579 / 966 1,6,12 Rel. Perf. (%) -8 / -5 / 18


Sales 55.9 65.4 75.8 90.1

EBITDA 7.6 9.3 11.3 14.0 NP 3.3 4.1 5.3 6.9 Adj EPS (INR) 23.5 29.1 37.5 49.3

EPS Gr. (%) 10.3 23.8 28.9 31.6 BV/Sh. (INR) 122.9 154.5 183.8 218.3 RoE (%) 20.8 21.0 22.2 24.5


P/BV (x) 10.6 8.5 7.1 6.0 EV/EBITDA (x) 24.9 20.1 16.3 12.9

October 2018 66

Standalone Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 11,632 12,117 12,050 14,361 15,113 12,755 13,981 15,535 50,593 57,384 YoY Change (%) 11.0 23.3 12.2 40.5 29.9 5.3 16.0 8.2 22.6 13.4 Total Expenditure 10,656 10,708 10,600 12,624 13,257 11,422 12,457 13,535 45,057 50,612 EBITDA 975 1,409 1,450 1,738 1,855 1,333 1,524 2,000 5,536 6,771 Margins (%) 8.4 11.6 12.0 12.1 12.3 10.5 10.9 12.9 10.9 11.8 Depreciation 178 179 179 188 206 208 211 228 732 852 Interest 80 84 59 63 29 25 20 15 295 89 Other Income 205 81 82 226 170 175 183 191 653 718 PBT before EO expense 923 1,227 1,294 1,712 1,791 1,275 1,476 1,948 5,162 6,549 Extra-Ord expense 0 69 -1 0 0 0 0 0 68 0 PBT 923 1,159 1,295 1,712 1,791 1,275 1,476 1,948 5,094 6,549 Tax 297 383 375 587 595 424 491 649 1,625 2,158 Rate (%) 32.1 33.1 29.0 34.3 33.2 33.2 33.2 33.3 31.9 33.0 Adj PAT 626 822 919 1,125 1,196 851 985 1,299 3,512 4,387 YoY Change (%) 14.3 104.8 67.0 133.6 90.9 3.6 7.2 15.4 77.3 24.9 Margins (%) 5.4 6.8 7.6 7.8 7.9 6.7 7.0 8.4 6.9 7.6 E: MOSL Estimates


Escorts

CMP: INR622 TP: INR691 (+11%) Neutral Tractor volumes grew 33.3% YoY (-14.1% QoQ) to 21,039 units. Realizations are estimated to decline 0.5% YoY (-1% QoQ) to

INR475.8k/unit due to product mix impact. Consequently revenues should grow 5.3% YoY to INR14.5b in

1QFY19. We expect EBITDA margins to decline 180 bp YoY (-120 bp QoQ)

to 10.5%. EBITDA is expected to decline by 5.4% YoY (-28.2% QoQ) to INR1.3b.

We expect PAT to be at INR851m, growing by 3.6% YoY (-28.8% QoQ).

We have lowered EPS estimates for FY19/20E by 6.5%/13% as we cut tractor volumes by 5%/6% for FY19/20E and also cut FY20 margins by 50 bp to 12.3%.

The stock trades at 12.6x/10.8x FY19/20E EPS. Maintain Neutral.

Key things to watch for Market share movement and new launches in tractor segment Demand momentum in construction equipment segment Visibility of order book execution in railways division

Bloomberg ESC IN Equity Shares (m) 122.6 M. Cap. (INR b)/(USD b) 76 / 1 52-Week Range (INR) 1019 / 581 1,6,12 Rel Perf. (%) -18 / -38 / -21


Sales 41.5 50.6 57.4 63.4

EBITDA 3.1 5.5 6.8 7.8 NP 1.8 3.5 4.4 5.1 EPS (INR) 21.0 39.5 49.4 57.6

EPS Growth (%) 86.3 88.0 24.9 16.6 BV/Sh (INR) 190.1 249.2 290.2 339.3 RoE (%) 11.6 18.3 18.3 18.3

RoCE (%) 11.2 18.3 18.5 27.2 Payout (%) 12.9 12.8 16.8 14.4 Valuations

P/E (x) 29.6 15.7 12.6 10.8 P/BV (x) 3.3 2.5 2.1 1.8 EV/EBITDA (x) 17.0 9.4 7.5 6.1

EV/Sales(x) 1.3 1.0 0.9 0.8

October 2018 67

S/A Quarterly Performance Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 21,029 23,713 22,783 24,594

27,725 27,863 26,656 28,863 91,863 111,106

Growth YoY (%) 4.6 23.2 32.8 25.8 31.8 17.5 17.0 17.4 21.1 20.9 RM (%) 62.9 67.0 65.5 65.2

66.4 65.9 65.4 65.5 65.4 65.8

Employee cost (%) 6.8 6.2 6.7 6.3

5.8 5.8 6.3 5.9 6.5 6.0 Other Exp(%) 14.9 14.3 15.4 14.8 13.6 14.1 14.6 14.6 14.6 14.2 EBITDA 3,243 2,959 2,826 3,380

3,909 3,944 3,656 4,052 12,408 15,561

EBITDA Margin (%) 15.4 12.5 12.4 13.7

14.1 14.2 13.7 14.0 13.5 14.0 Change (%) 3.2 2.3 24.3 34.2 20.6 33.3 29.4 19.9 14.6 25.4 Non-Operating Income 132 139 111 203

42 150 150 145 584 487

Interest 16 21 9 6

11 16 10 18 52 55 Depreciation 563 597 625 674 719 724 732 801 2,459 2,976 PBT after EO Exp 2,796 2,061 2,302 2,903

3,221 3,354 3,064 3,377 10,062 13,016

Tax 906 706 759 1,007

1,122 1,110 1,014 1,114 3,378 4,361 Effective Tax Rate (%) 32.4 34.3 33.0 34.7 34.8 33.1 33.1 33.0 33.6 33.5 Adj. PAT 1,890 1,630 1,543 1,896

2,099 2,244 2,050 2,263 6,961 8,656

Change (%) -3.6 -10.3 1.8 15.4 11.1 37.6 32.9 19.4 0.4 24.3 E: MOSL Estimates


Exide Industries

CMP: INR258 TP: INR312 (+21%) Buy We expect revenues to grow 17.5% YoY to INR28.7b, led by strong

OEM and replacement demand, as well as ramp-up in telecom and new segments such as E-rickshaw and Solar.

Spot LME lead prices declined for the second consecutive quarter by 6.2% QoQ in 2QFY19 while they remained flat YoY.

EBITDA margin is likely to expand 170 bp YoY (+10 bp QoQ) to 14.2%.

PAT is likely to grow by 37.6% YoY (+6.9% QoQ) to INR2.2b. We cut FY19/20 EPS by 3.7%/5.4% as we cut EBITDA margins by

20 bp/50 bp to factor in the unfavorable product mix. The stock trades at 25.4x FY19E and 21.3x FY20E EPS. Maintain

Buy. Key issues to watch Update on demand environment for OEMs, auto replacement

and industrial battery segments post demonetization Market share in autos and non-autos Outlook for raw material cost trend and recent pricing, if any

Bloomberg EXID IN


1,6,12 Rel Perf. (%) -2 / 3 / 9

Financial Snapshot (INR b) Y/E MARCH 2017 2018 2019E 2020E

Net Sales 75.8 91.9 111.1 129.8 EBITDA 10.8 12.4 15.6 18.5 Adj. PAT 6.9 7.0 8.7 10.3 Adj. EPS (INR) 8.2 8.2 10.2 12.1 EPS Gr. (%) 11.1 0.4 24.3 19.3 BV/Sh. (INR) 58.4 63.4 70.5 78.9 RoE (%) 14.0 12.9 14.4 15.4 RoCE (%) 14.3 13.3 15.3 16.3 Valuations P/E (x) 31.7 31.5 25.4 21.3 P/BV (x) 4.4 4.1 3.7 3.3 EV/EBITDA (x) 18.0 16.0 12.8 10.6 Div. Yield (%) 0.9 0.9 1.0 1.2

October 2018 68

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Volumes ('000 nos) 1,858 2,023 1,709 1,997 2,105 2,134 2,035 2,159 7,587 8,433 Growth YoY (%) 6.5 10.9 16.0 23.1 13.3 5.5 19.1 8.1 13.9 11.1 Net Realization 42,950 41,339 42,796 42,880 41,853 42,376 42,673 42,912 42,480 42,454 Growth YoY (%) 1.3 -3.3 -0.9 0.5 -2.6 2.5 -0.3 0.1 -0.7 -0.1 Net Op Revenues 79,805 83,620 73,142 85,640 88,098 90,432 86,839 92,639 322,305 358,008

RM Cost (% sales) 67.7 68.1 67.4 67.6 70.0 70.0 69.5 69.5 67.7 69.8 Staff Cost (% sales) 4.7 4.6 5.5 4.4 4.7 4.7 5.1 4.7 4.8 4.8 Other Exp (% sales) 11.4 9.9 11.3 11.9 9.7 10.0 10.6 11.1 11.1 10.4


Other Income 1,317 1,176 1,100 1,665 1,157 1,050 1,275 1,230 5,258 4,713 Interest 16 16 16 15 21 10 10 9 63 50 Depreciation 1,330 1,360 1,383 1,483 1,482 1,500 1,520 1,524 5,556 6,025 PBT 12,931 14,357 11,282 13,872 13,427 13,406 12,605 13,306 52,442 52,744 Effective Tax Rate (%) 29.3 29.6 28.6 30.3 32.3 32.0 32.0 31.7 29.5 32.0 Adj. PAT 9,140 10,105 8,054 9,674 9,092 9,116 8,571 9,087 36,974 35,866 Growth (%) 3.5 0.6 4.3 34.8 -0.5 -9.8 6.4 -6.1 9.5 -3.0 E: MOSL Estimates


Hero MotoCorp

CMP: INR2,916 TP: INR3,238 (+11%) Neutral Volumes increased by 5.5% YoY (1.4% QoQ) to 2.1 units, led by

healthy rural sentiment. Realization to grow by 2.5% YoY (1.3% QoQ) at INR42,376/unit,

largely led by price hikes. Net revenue should increase by 8.1% YoY (+2.6% QoQ) to

INR90.4b. EBITDA margin is expected to shrink by 210 bp YoY (-30 bp QoQ)

to 15.3%. EBITDA is likely to decline by 4.7% YoY (-0.7% QoQ) to ~INR13.9b. We expect PAT to decline 9.8% YoY (+0.3% QoQ) to INR9.1b. We cut FY19/20 EPS by 7%/6% as we cut margins by 80 bp/60 bp

to factor in higher RM. We also cut volumes by 1% each for FY19/20.

The stock trades at 16.2x FY19E and 14.2 FY20E EPS; maintain Neutral.

Key issues to watch Update on demand trend in rural and urban markets Level of inventory in the system New product launches and the timelines Outlook on exports

Bloomberg HMCL IN Equity Shares (m) 199.7 M. Cap. (INR b)/(USD b) 582 / 8 52-Week Range (INR) 3895 / 2850 1,6,12 Rel Perf. (%) -3 / -28 / -38


Sales 285.0 322.3 358.0 393.5 EBITDA 46.3 52.8 54.1 60.6 NP 33.8 37.0 35.9 41.1 Adj. EPS (INR) 169.1 185.1 179.6 205.1 EPS Gr. (%) 6.9 9.5 -3.0 14.2 BV/Sh. (INR) 506.3 589.3 642.4 707.3 RoE (%) 35.7 33.8 29.2 30.4 RoCE (%) 34.5 32.5 28.0 29.3 Valuations P/E (x) 17.2 15.7 16.2 14.2 P/BV (x) 5.8 4.9 4.5 4.1 EV/EBITDA (x) 11.3 9.6 9.3 8.2 Div. Yield (%) 2.9 3.3 3.6 3.9

October 2018 69

Quarterly Performance (incl MVML) (INR Million) Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Total Volumes (nos) 202,130 220,478 210,223 236,376 240,885 228,590 257,500 263,583 869,118 993,138

Growth YoY (%) 3.1 17.4 6.5 25.4 19.2 3.7 22.5 11.5 12.9 14.3 Net Realization 538,146 545,083 546,632 557,957 554,524 563,736 553,268 558,790 547,421 556,010

Growth YoY (%) 0.3 1.7 3.6 0.2 3.0 3.4 1.2 0.1 1.8 1.6 Net Op. Income 108,775 120,179 114,915 131,888 133,577 128,864 142,467 147,287 475,774 552,195

Growth YoY (%) 3.4 19.4 10.3 25.6 22.8 7.2 24.0 11.7 15.0 16.1 Gross operating income 123,048 120,179 114,915 131,888 0 0 0 0 475,774 604,660

Growth YoY (%) 4.0 5.8 10.3 25.6 -100.0 -100.0 -100.0 -100.0 15.0 27.1 RM Cost (% of sales) 67.8 65.9 66.2 66.2 67.4 67.6 67.0 66.7 66.5 67.2 Staff (% of sales) 7.3 6.6 7.0 6.0 6.3 6.4 6.3 6.3 6.7 6.3 Oth. Exp. (% of Sales) 11.7 11.6 12.1 12.6 10.4 10.7 10.6 11.5 12.0 10.9


Other income 1,283 5,549 1,011 1,659 1,930 5,563 1,113 1,476 9,517 10,081 Interest 509 440 435 499 431 470 490 541 1,882 1,932 Depreciation 3,820 3,992 4,052 4,390 4,295 4,900 5,000 5,182 16,254 19,377 PBT 11,296 20,350 17,307 17,199 18,550 19,856 18,585 18,079 66,152 75,069 Effective Tax Rate (%) 33.4 30.7 24.6 32.9 32.2 30.0 31.5 32.2 30.1 31.4 Adj PAT 7,518 14,109 10,147 11,227 12,406 13,899 12,731 12,266 43,202 51,300

Change (%) -16.0 22.0 22.0 60.4 65.0 -1.5 25.5 9.2 23.0 18.7 E: MOSL Estimates


Mahindra & Mahindra

CMP: INR791 TP: INR1,048 (+33%) Buy Overall volumes were up 3.7% YoY (-5.1% QoQ) to 228.6k units, as

UV and 3W volume increased 4.9% YoY and 30.5% YoY, respectively. Tractor sales declined 4.1% YoY (-22.6% QoQ).

MM’s (including MVML) realization is expected to increase 3.1% YoY (+1.7% QoQ), led by favorable product mix.

Revenue is likely to increase 7.2% YoY (-3.5% QoQ) to INR128.9b. EBITDA margin is expected to contract 70 bp YoY (-50 bp QoQ) to

15.3%. Expect PAT to decline 1.5% YoY (+12% QoQ) to INR13.9b. We have maintained FY19/FY20E EPS. The stock trades at 18.4x FY19E and 16x FY20E EPS; maintain Buy.

Key issues to watch Outlook for UV and tractor businesses for FY19 and FY20 Update on response to the newly launched—Marazoo Update on average discounts per unit during festivals Update on new launches and timelines

Bloomberg MM IN


1,6,12 Rel Perf. (%) -9 / -5 / 10

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 440.5 486.9 561.9 633.2

EBITDA 45.1 62.2 74.9 86.3 NP (incl. MVML) 35.1 43.2 51.3 59.0 Adj. EPS (INR) * 27.4 40.2 43.1 49.6

EPS Gr. (%) 4.1 46.9 18.7 15.0 BV/Share (INR) 226 255 285 321 RoE (%) 12.6 14.2 14.9 15.2

RoCE (%) 11.9 13.0 13.8 14.3 Valuations P/E (x) 26.7 21.8 18.4 16.0 P/BV (x) 3.5 3.1 2.8 2.5 EV/EBITDA (x) 9.8 14.5 11.9 8.9 Div. Yield (%) 0.8 1.3 1.3 1.3

* incl. MVML

October 2018 70

Quarterly Perf. (INR Million) Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Volumes (nos) 394,571 492,118 431,112 461,773 490,479 484,848 489,600 495,233 1,779,574 1,960,160 Change (%) 13.2 17.6 11.3 11.4 24.3 -1.5 13.6 7.2 13.4 10.1 Realizations (INR/car) 444,678 442,337 447,290 458,355 457,907 455,618 457,213 467,052 448,212 459,478 Change (%) 3.7 3.6 2.6 3.6 3.0 3.0 2.2 1.9 3.3 2.5 Net operating revenues 175,457 217,682 192,832 211,656 224,594 220,905 223,851 231,300 797,627 900,650 Change (%) 17.4 21.8 14.2 15.4 28.0 1.5 16.1 9.3 17.2 12.9

RM Cost (% of sales) 70.0 68.8 69.1 67.9 69.0 69.6 69.7 69.6 68.9 69.5 Staff Cost (% of sales) 3.7 3.1 3.6 3.9 3.4 3.5 3.5 3.7 3.6 3.5 Other Cost (% of sales) 13.0 11.2 11.5 13.9 12.6 12.7 12.0 12.9 12.1 12.6


Depreciation 6,839 6,825 6,890 7,025 7,198 7,250 7,400 7,536 27,579 29,384 EBIT 16,473 29,950 23,488 23,125 26,313 24,135 25,665 24,239 95,543 100,352

EBIT Margins (%) 9.4 13.8 12.2 10.9 11.7 10.9 11.5 10.5 12.0 11.1 Interest 313 150 263 224 207 210 210 223 3,457 850 Non-Operating Income 6,827 5,229 2,449 5,950 2,718 4,250 4,750 5,296 20,455 17,014 PBT 22,987 35,029 25,674 26,344 28,824 28,175 30,205 29,312 110,034 116,516 Effective Tax Rate (%) 32.3 29.1 29.9 28.6 31.5 28.5 28.5 31.5 29.8 30.0 Adjusted PAT 15,564 24,843 17,990 20,612 19,753 20,145 21,597 20,066 78,977 81,561 Change (%) 4.4 3.3 3.0 20.5 26.9 -18.9 20.0 -2.6 7.4 3.3 E:MOSL Estimates


Maruti Suzuki

CMP: INR7,252 TP: INR8,909 (+23%) Buy Volume declined by 1.5% YoY (-1.1% QoQ) to 484.8k units. Net realization to improve 3% YoY (-0.5% QoQ) to INR455,618 per

unit, resulting in net revenue increase by 1.5% YoY (-1.6% QoQ) to INR220.9b. Growth in realization is likely to be driven largely by a favorable product mix.

We expect margins to decline 270 bp YoY (-70 bp QoQ) to 14.2% mainly due to higher RM and un-favorable currency impact.

EBITDA is estimated to grow by 14.7% YoY (-6.3% QoQ) to INR31.4b.

We expect PAT to decline by 18.9% YoY (+2% QoQ) to INR20b. We cut our FY19/20 EPS estimates by 11%/13% as we cut volumes

by 1.9%/3.2% and cut EBITDA margins by 90 bp/100 bp, respectively, to factor in currency volatility.


Key issues to watch Update on demand scenario, channel inventory, discounting

trends, and new launches Demand trend in urban and rural areas Clarity on action plan under Suzuki-Toyota partnership

Bloomberg MSIL IN Equity Shares (m) 302.1 M. Cap. (INR b)/(USD b) 2191 / 30 52-Week Range (INR) 10000 / 7211 1,6,12 Rel Perf. (%) -12 / -28 / -23


Sales 680.3 797.6 900.7 1,040.8

EBITDA 103.5 123.1 129.7 154.8 Adj. PAT 73.5 79.0 81.6 105.2 Con.adj.EPS 248.6 266.7 276.0 354.8

EPS Gr. (%) 36.6 7.3 3.5 28.5 BV/Sh. (INR) 1,206 1,382 1,532 1,730 RoE (%) 20.2 18.5 17.6 20.1



*Consol. & adjusted

October 2018 71

Quarterly performance (Cons.) (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 130,774 134,313 143,877 154,078 147,755 151,100 159,288 174,364 562,933 632,507 YoY Change (%) 25.1 32.5 35.7 36.9 13.0 12.5 10.7 13.2 32.8 12.4

RM Cost (% of sales) 61.1 60.6 61.5 60.6 57.6 58.5 58.5 59.2 61.0 58.5 Staff Cost (% of sales) 19.7 19.8 19.5 19.6 21.9 21.0 20.0 19.3 60.6 20.5 Other Expenses (% of sales) 10.5 10.3 10.3 10.1 11.0 10.7 11.1 9.9 10.3 10.7

EBITDA 11,352 12,507 12,493 15,001 14,121 14,799 16,486 20,364 51,226 65,770 Margins (%) 8.7 9.3 8.7 9.7 9.6 9.8 10.4 11.7 9.1 10.4 Depreciation 3,768 3,978 3,937 4,069 4,471 4,500 4,750 5,133 15,752 18,854 Interest 1,176 771 1,032 1,130 1,005 1,168 1,240 1,432 4,108 4,844 Other Income 551 156 253 615 447 175 200 178 1,701 1,000 PBT before EO expense 6,959 7,914 7,777 10,418 9,093 9,306 10,696 13,977 33,067 43,072 Extra-Ord expense 1,502 48 21 207 0 0 0 0 1,777 0 PBT after EO Expense 5,458 7,865 7,756 10,211 9,093 9,306 10,696 13,977 31,290 43,072 Tax 2,343 2,333 2,516 2,877 3,273 2,996 3,444 4,500 10,072 14,214

Tax Rate (%) 33.7 29.5 32.4 27.6 36.0 32.2 32.2 32.2 30.5 33.0 Minority Int & Share of profit 335 1,168 1,595 2,151 1,389 1,650 2,075 3,037 5,249 8,152 Reported PAT 2,780 4,365 3,645 5,184 4,431 4,659 5,177 6,439 15,970 20,706 Adj PAT 3,637 4,399 3,659 5,332 4,431 4,659 5,177 6,439 17,027 20,706 YoY Change (%) 20.2 21.9 -12.0 1.3 21.8 5.9 41.5 20.8 10.2 21.6 E: MOSL Estimates


Motherson Sumi

CMP: INR243 TP: INR345 (+42%) Buy We estimate consolidated revenues to grow 12.5% YoY (+2.3%

QoQ), driven by 12.2% growth in S/A business, PKC (+33.3%), SMP (+12.1%) and SMR (11.4%).

Consolidated PAT is expected to grow 5.9% YoY to INR4.7b, driven by margin expansion at SMP.

Standalone EBITDA margin is expected to decline 270 bp YoY (-20 bp QoQ) to 16.9% due to low revenues.

For SMR, we estimate EBITDA margin expansion of 90 bp YoY (-20 bp QoQ) at 11%.

For SMP, we estimate EBITDA margins to improve 120 bp YoY (+80 bp QoQ) to 7% due to ramp-up of new plants.

For PKC, we estimate EBITDA margins will expand 220 bp YoY (+10 bp QoQ) to 9.6% led by expectation of healthy operating performance.

The stock trades at 24.7x FY19E and 17.2x FY20E EPS; maintain Buy.

Key issues to watch Update on new business wins at PKC Update on ramp-up of new plants at SMRPBV Update on trends in key businesses

Bloomberg MSS IN Equity Shares (m) 2105.3 M. Cap. (INR b)/(USD b) 512 / 7 52-Week Range (INR) 395 / 240 1,6,12 Rel Perf. (%) -13 / -35 / -43

Financial Snapshot (INR b) Y/E Mar 2017 2018 2019E 2020E

Sales 423.8 562.9 632.5 754.9 EBITDA 41.7 51.2 65.8 88.8 NP 16.1 17.0 20.7 29.7 EPS (INR) 7.6 8.1 9.8 14.1 EPS Gr. (%) 17.1 6.0 21.6 43.5 BV/Sh. (INR) 39.3 44.3 51.2 60.9 RoE (%) 25.3 19.4 20.6 25.2 RoCE (%) 14.7 12.2 14.4 18.5 Valuations P/E (x) 31.9 30.1 24.7 17.2 P/BV (x) 6.2 5.5 4.8 4.0 EV/EBITDA(x) 9.5 11.3 8.6 6.1 EV/Sales (x) 0.9 1.0 0.9 0.7

October 2018 72

Quarterly Performance [Consol]

(INR Million) Y/E March FY18 FY19 FY18 FY19E (Consolidated) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE JLR vols. (incl JV) 138,476 153,210 159,067 182,757 131,560 122,665 154,000 201,277 633,510 609,502 JLR Realizations (GBP/unit) 47,483 48,137 47,181 46,547 48,002 48,362 48,483 48,399 47,288 48,328

JLR EBITDA (%) 7.9 11.8 10.9 13.5 6.2 7.3 12.5 15.5 11.2 11.1 S/A vol. (units) 109,692 153,321 171,388 204,356 176,412 190,472 192,250 225,661 638,757 784,795 S/A Realizations (INR/unit) 828,485 905,798 938,766 967,885 952,492 957,255 942,896 954,232 921,030 951,798

S/A EBITDA (%) 0.2 7.0 8.9 6.9 9.3 9.7 9.2 10.1 6.5 9.6 S/A PAT (INR m) -4,631 -2,953 2,158 5,152 11,877 4,421 2,990 7,199 216 26,487 Net Op Income 584,934 706,907 741,561 912,791 670,813 686,681 782,623 1,055,622 2,946,192 3,195,739

Growth (%) -10.0 11.3 16.0 18.2 14.7 -2.9 5.5 15.6 9.2 8.5


PBT before EO Exp 1,168 30,814 20,338 39,480 -25,842 -8,738 28,892 85,861 91,799 80,173 EO Exp/(Inc) -36,202 0 47 16,403 0 0 0 0 -19,751 0 PBT after EO Exp 37,370 30,814 20,290 23,077 -25,842 -8,738 28,892 85,861 111,550 80,173 Tax rate (%) 32.3 35.4 52.6 42.3 16.1 30.0 32.0 27.0 38.9 32.0 Adj PAT 9,712 24,828 12,015 31,271 -19,024 -4,570 24,256 68,291 77,826 68,953

Growth (%) (49.3) 197.2 (422.8) (28.1) (295.9) (118.4) 101.9 118.4 15.7 -11.4 E: MOSL Estimates


Tata Motors

CMP: INR228 TP: INR335 (+47%) Buy Consolidated revenues are estimated to decline 19.9% YoY (-6.8%)

QoQ), with EBITDA margin contracting 380 bp YoY to 8.8%. We estimate second consecutive quarter of consolidated loss of INR4.5b (v/s adjusted profit of INR24.8b).

We expect JLR’s (including JV) volume to decline by 19.9% YoY (-6.8% QoQ), impacted by de-stocking across markets and deferment of purchase in China due to reduction in import duty.

JLR’s net realization is expected to increase by 0.5% YoY (-0.8% QoQ). JLR’s EBITDA margin would contract 450 bp YoY (+110 bp QoQ) to 7.3% led by negative operating leverage. Consequently, we expect PAT loss of GBP104m (v/s loss of GBP210m in 1QFY19 and profit of GBP308m in 2QFY18).

S/A volume increased 24.2% YoY (+8% QoQ), led by 28.2% YoY growth in CVs and 15.2% YoY growth in PVs. EBITDA margin at 9.7% (+40 bp QoQ) should be led by operating leverage. We expect adjusted PAT at INR4.4b (fourth consecutive quarter of positive PAT).

We cut FY19/20 consolidated PAT by 35%/13% as we cut JLR’s volumes by 6%/4.5% and JLR’s EBITDA by 11%/6%, respectively. We raise S/A PAT by 27%/11% as we raise margins by 70 bp each to 9.6%/11%, respectively.

The stock trades at 11.2x FY19E and 6.5x FY20E EPS. Buy. Key issues to watch Current demand trends for JLR and outlook for key markets Demand trend in domestic markets and new product launch Impact of forex hedge loss

Bloomberg TTMT IN Equity Shares (m) 3396.6 M. Cap. (INR b)/(USD b) 773 / 11 52-Week Range (INR) 467 / 220 1,6,12 Rel Perf. (%) -8 / -42 / -60


Net Sales 2,697 2,946 3,196 3,509

EBITDA 369.1 369.7 390.4 479.6 NP 67.3 77.8 69.0 118.9 Adj. EPS (INR) 19.8 22.9 20.3 35.0

EPS Gr. (%) -48.4 15.7 -11.4 72.4 BV/Sh. (INR) 171.0 281.0 301.0 335.7 RoE (%) 9.8 10.1 7.0 11.0


P/BV (x) 1.3 0.8 0.8 0.7 EV/EBITDA (x) 2.6 2.7 2.9 2.2

October 2018 73

S/A Quarterly Performance

(INR Million) Y/E March (INR m) FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY18 FY19E Motorcycles 330,050 365,277 313,892 346,357 387,240 419,666 420,000 404,081 1,355,576 1,630,987 Scooters 257,572 328,333 268,947 280,066 287,887 388,234 357,000 337,523 1,134,918 1,370,644 Mopeds 197,449 229,726 216,478 233,279 217,627 240,728 234,000 234,925 876,932 927,280 Three-wheelers 17,037 25,248 26,968 29,431 35,520 39,746 39,000 39,034 98,684 153,300 Volumes (units) 802,108 948,584 826,285 889,133 928,274 1,088,374 1,050,000 1,015,563 3,466,110 4,082,211 Volumes (units) 802,108 948,584 826,285 889,133 928,274 1,088,374 1,050,000 1,015,563 3,466,110 4,082,211

Growth (%) 12.2 16.3 15.0 32.0 15.7 14.7 27.1 14.2 18.8 17.8 Realization (INR/unit) 42,382 42,721 44,597 44,906 44,746 44,970 45,195 45,053 43,650 44,998

Growth (%) 5.2 1.7 7.4 6.3 5.6 5.3 1.3 0.3 5.0 3.1 Net Sales 33,995 40,524 36,850 39,928 41,537 48,944 47,455 45,755 151,297 183,691

Growth (%) 18.0 18.3 23.5 40.4 22.2 20.8 28.8 14.6 24.7 21.4 RM (% of sales) 74.6 73.4 72.7 73.8 76.2 76.5 76.0 75.7 73.6 76.1 Emp cost ( % of sales) 6.1 5.4 5.7 5.7 5.7 5.1 5.4 5.7 5.7 5.5 Other exp (% of sales) 13.1 12.6 13.8 13.5 10.7 10.3 10.3 10.7 13.2 10.5 Total Expenditure 31,881 37,021 33,982 37,121 38,472 44,959 43,504 42,153 140,005 169,087 EBITDA 2,114 3,503 2,868 2,807 3,065 3,986 3,951 3,602 11,292 14,603 EBITDA Margin (%) 6.2 8.6 7.8 7.0 7.4 8.1 8.3 7.9 7.5 7.9 Interest 107 155 122 183 180 150 140 261 566 731 Depreciation 783 836 824 944 933 950 970 999 3,387 3,852 Other Income 571 456 182 240 173 250 220 298 1,448 941 PBT after EO Exp 1,794 2,968 2,104 1,921 2,124 3,136 3,061 2,640 8,786 10,962

Tax rate (%) 27.8 28.2 26.6 13.8 31.0 31.0 31.0 31.0 24.6 31.0 Adjusted PAT 1,295 2,132 1,543 1,656 1,466 2,164 2,112 1,821 6,626 7,563

Growth (%) 6.1 20.2 16.3 30.6 13.2 1.5 36.9 10.0 18.7 14.2 E: MOSL Estimates


TVS Motor Company

CMP: INR542 TP: INR571 (+5%) Neutral Volume increased 14.7% YoY (+17.2% QoQ) to 1088.4k units.

Scooter, Motorcycle and Mopeds volume increased YoY by 18.2%, 14.9% and 4.8%, respectively. 3W volumes rose by 57.4% YoY.

Net realization is likely to increase 5.3% YoY (+0.5% QoQ) to INR44,970 per unit due to a price hike and better product mix.

We estimate net sales to grow by 20.8% YoY (+17.8% QoQ) to INR48.9b.

EBITDA margin is expected to be 8.1% (-50 bp YoY and +70 bp QoQ).

We expect PAT to increase 1.5% YoY (+47.6% QoQ) to INR2.2b. The stock trades at 34.1x FY19E and 23.5x FY20E EPS; Maintain

Neutral.

Key issues to watch Update on demand from rural and urban areas Exports outlook for 2W and 3W in key markets Response to newly launched Radeon New product launches including EV

Bloomberg TVSL IN Equity Shares (m) 475.1 M. Cap. (INR b)/(USD b) 258 / 4 52-Week Range (INR) 795 / 507 1,6,12 Rel Perf. (%) 3 / -25 / -32


Sales 121.4 151.3 183.7 215.5

EBITDA 8.6 11.3 14.6 19.8

Adj. PAT 5.6 6.6 7.6 11.0

EPS (INR) 11.7 13.9 15.9 23.1

EPS Gr. (%) 14.1 18.7 14.2 45.2

BV/Sh (INR) 50.7 60.6 71.7 88.8

RoE (%) 25.6 25.1 24.1 28.8

RoCE (%) 22.2 23.5 26.4 33.4

Valuations P/E (x) 46.2 38.9 34.1 23.5

P/BV (x) 10.7 8.9 7.6 6.1

EV/EBITDA (x) 31.6 24.0 18.5 13.5

Div. Yield (%) 0.5 0.6 0.7 0.9

October 2018 74

Exhibiting signs of an improvement Capex activity remains weak; green shoots seen in select pockets Smooth order-execution to ensure double-digit revenue growth With structural reforms in place and businesses accustomed to the new system, execution of domestic projects has started showing signs of a pick-up. We expect companies from our coverage universe to register 12% revenue growth at the aggregate level. Industrials and engineering companies are likely to witness healthy revenue growth, backed by smooth execution of projects in hand. For electrical consumer durables companies—1QFY19 was weak due to operational performance of companies like Voltas and Bluestar. The same trend is expected to continue in 2QFY19, given weak demand for the unitary cooling products (UCP) segment. Operating margins to remain stable led by cost rationalization measures Despite multiple headwinds like (a) input price pressure, (b) adverse foreign exchange movement, and (c) high competitive intensity, operating profit at the aggregate level is expected to register 15% YoY growth. Operating profit margin at aggregate level is expected at 10.3% v/s 10% in 2QFY18. Margin improvement/stability is being driven by cost rationalization measures taken by the companies over the last couple of years. Net profit at the sector level is expected to grow 4% YoY. Adverse forex movement to impact MNCs, consumer durable companies Recent INR depreciation of 10% YoY against the USD can potentially have a negative impact on the earnings of companies like Siemens, ABB, GE T&D—these companies rely on its parent company for imports of critical components. Even companies like Voltas, Bluestar can potentially have a negative impact given its reliance on imports for compressor and indoor units from China. Approaching general elections to slow down fresh government orders The domestic private capex cycle has remained weak. Capex activity continues to be supported by government capex in the infrastructure segment. However, with the impending general elections, even government capex is likely to slow down. Ordering activity seen in 1HFY19 is testimony to the weak new-business scenario. The recently released CMIE capex data for 1HFY19 showed new project announcements at -1% YoY. Though the near-term outlook remains subdued, we note that policy initiatives have been taken to (i) expedite regulatory approvals, and (ii) to establish monetary conditions conducive to industrial revival over the medium-term.

We believe investment revival would be triggered by: (i) sustained recovery in consumption demand, and thus, capacity utilization; and (ii) investment push by the public sector, leading to a virtuous cycle of cash flow generation.

Company name

ABB

Bharat Electronics

BHEL

Blue Star

CG Power

CG Consumer Elect.

Cummins India

Engineers India

GE T&D

Havells India

Larsen & Toubro

Siemens

Thermax

Voltas

Technology

September 2018 Results Preview | October 2018

Capital Goods

Ankur Sharma – Research analyst ([email protected]); +91 22 3982 5449 Amit Shah – Research analyst ([email protected]); +91 22 3029 5126

October 2018 75

By initiating GST, labor and energy sector reforms, the Indian government has partly addressed concerns about the pace and extent of reforms. Implementation of substantive reforms is essential for structured investment growth.

Exhibit 1: Summary of expected quarterly performance Sector CMP Sales (INR M) EBDITA (INR M) Net Profit (INR M)

(INR) RECO Sept-18 Var % YoY

Var % QoQ Sept-18 Var

% YoY Var

% QoQ Sept-18 Var % YoY

Var % QoQ

Capital Goods ABB 1,420 Sell 23,750 24.0 -12.4 1,700 26.7 -13.2 980 17.5 -4.1 Bharat Electronics 84 Buy 28,415 14.8 35.2 4,715 -20.8 51.9 2,993 -27.4 66.5 BHEL 73 Sell 71,350 13.3 20.2 4,850 LP 68.8 2,850 146.9 83.2 Blue Star 582 Neutral 9,070 8.5 -39.8 490 6.7 -64.1 226 8.6 -70.5 CG Consumer Elect. 212 Buy 10,950 14.1 -9.0 1,289 6.8 -22.9 728 2.8 -30.2 CG Power & Indl. 45 Neutral 13,071 8.2 10.8 1,021 32.4 12.3 569 -2.1 60.9 Cummins India 669 Buy 13,200 14.4 -0.6 2,070 23.6 -3.6 1,679 9.8 -8.3 Engineers India 114 Buy 5,650 31.7 -1.5 975 -29.8 12.9 939 -21.2 8.4 GE T&D India 261 Neutral 9,700 11.5 -16.6 900 11.8 -37.6 645 35.7 -21.4 Havells India 611 Buy 19,600 10.3 -24.5 2,528 -1.6 -21.2 1,693 -1.0 -22.7 Larsen & Toubro 1,244 Buy 290,000 9.7 2.5 30,750 3.9 5.6 16,450 -2.3 3.9 Siemens 980 Neutral 36,193 15.2 17.8 3,861 21.7 27.7 2,789 38.9 36.4 Thermax 937 Buy 12,420 20.2 20.0 1,111 16.8 60.3 676 19.0 38.1 Voltas 530 Neutral 11,948 15.2 -44.4 1,105 29.0 -54.6 930 -2.5 -49.4 Sector Aggregate 555,318 12.0 1.3 57,365 15.2 4.6 34,146 3.9 5.3

Source: MOSL Ordering activity supported by a select few sectors Overall ordering activity has started to see signs of a pick-up, driven by ordering

from the steel, cement, fertilizers, and oil and gas sectors. Government awarding has been a pillar of support for industrial and engineering

companies. Sector-wise, roads, railways, power T&D and defense registered strong tendering activity (fiscal allocations for roads/railways have increased).

Exhibit 2: Revenue growth picking up driven by domestic

execution

Source: MOSL, Company

Exhibit 3: EBITDA margin improved due to cost rationalization by companies


16.8

19

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18.2

20

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15.6

6.

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15.3

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10

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8.7

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12

3QFY

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1QFY

13

3QFY

13

1QFY

14

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14

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15

1QFY

16

3QFY

16

1QFY

17

3QFY

17

1QFY

18

3QFY

18

1QFY

19e

Engg Sector (revenue growth %) EBITDA Margin (%)

15.5

16

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12.0

12

.1

12.3

17

.9

10.2

12.0

11

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7 11.8

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1QFY

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13

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15

3QFY

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1QFY

16

3QFY

16

1QFY

17

3QFY

17

1QFY

18

3QFY

18

1QFY

19e

EBITDA Margin (%)

September 2018 Results Preview | Sector: Capital Goods

October 2018 76

Book-to-bill stable at 2.3x


Exhibit 4: Order intake driven by strong order inflow for L&T






Exhibit 7: Comparative valuation Sector / CMP RECO EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Companies (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Capital Goods ABB 1,420 Sell 19.8 25.7 32.0 71.7 55.2 44.3 36.2 30.8 24.9 11.6 13.6 15.1 Bharat Electronics 84 Buy 5.7 6.2 7.0 14.5 13.4 11.9 17.0 8.2 7.1 18.0 17.5 17.7 BHEL 73 Sell 2.2 3.4 4.3 33.4 21.7 17.2 9.3 6.5 5.7 2.5 3.8 4.7 Blue Star 582 Neutral 14.5 19.9 25.1 40.1 29.2 23.2 28.3 16.7 13.9 17.5 21.8 24.6 CG Consumer Elect. 212 Buy 5.2 6.1 7.4 41.1 34.7 28.5 28.8 21.8 18.7 48.7 43.2 42.2 CG Power & Indl. 45 Neutral 2.9 4.4 5.1 15.5 10.2 8.8 16.6 6.9 5.2 4.5 6.9 7.6 Cummins India 669 Buy 23.5 26.5 31.9 28.4 25.3 21.0 25.5 19.7 16.0 18.3 17.7 19.7 Engineers India 114 Buy 6.3 6.5 7.8 18.2 17.5 14.6 16.5 11.6 8.4 15.7 17.3 18.7 GE T&D India 261 Neutral 7.5 10.5 10.9 34.8 24.8 24.0 34.8 16.2 14.6 17.3 21.2 19.3 Havells India 611 Buy 11.2 13.4 16.4 54.5 45.6 37.3 27.6 29.7 23.6 18.7 19.8 21.3 K E C International 276 Neutral 17.9 20.1 25.7 15.4 13.7 10.7 11.4 6.9 5.4 23.1 21.3 22.1 Larsen & Toubro 1,244 Buy 51.7 59.0 72.3 24.1 21.1 17.2 19.7 17.2 13.6 13.7 14.1 14.4 Siemens 980 Neutral 19.8 25.1 30.0 49.6 39.0 32.6 32.4 23.4 19.9 9.1 10.8 11.9 Solar Inds. 1,065 Neutral 24.4 29.5 38.3 43.7 36.1 27.8 24.4 19.8 15.4 21.9 22.4 24.1 Thermax 937 Buy 20.5 29.7 38.8 45.6 31.6 24.1 29.7 18.7 13.7 8.8 11.8 13.9 Va Tech Wabag 288 Buy 24.1 30.8 35.8 12.0 9.3 8.0 10.3 3.9 3.3 12.4 12.2 14.8 Voltas 530 Neutral 17.3 18.8 21.5 30.6 28.2 24.6 26.6 17.6 15.1 15.9 15.1 15.4 Sector Aggregate 28.8 24.4 20.1 20.5 16.3 13.2 11.0 12.0 12.5

2,95

8 2,

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3,02

8 2,

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3,23

0 3,

482

3,59

4 3,

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3,81

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2,70

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3,92

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3,97

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1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

Order book (INR b) BTB (x)

17

56

52

-2

-1

31

14 22

-5

-2

2 27

15

2 -1

3 -2

0 -6

-9

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34

1QFY

142Q

FY14

3QFY

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1QFY

152Q

FY15

3QFY

154Q

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1QFY

162Q

FY16

3QFY

164Q

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1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

Order intake YoY %

95

100

105

110

115

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Capital Goods Index

75

90

105

120

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Capital Goods Index


October 2018 77

Quarterly Performance Y/E December CY17 CY18 CY17 CY18E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Sales 21,512 22,334 19,154 27,794 25,255 27,127 23,750 32,107 89,614 106,937

Change (%) 7.4 6.6 (6.8) 10.8 17.4 21.5 24.0 15.5 5.3 19.3 EBITDA 1,609 1,478 1,342 2,937 1,890 1,959 1,700 3,947 7,361 9,496 Change (%) -11.0 30.1 8.0 1.4 17.4 32.6 26.7 34.4 3.9 29.0 As % of Sales 7.5 6.6 7.0 10.6 7.5 7.2 7.2 12.3 8.2 8.9 Depreciation 376 383 389 432 356 356 420 551 1580 1683 Interest 212 231 152 178 232 232 100 -3 773 560 Other Income 318 326 378 188 269 236 300 198 1210 1002 PBT 1,339 1,190 1,178 2,515 1,571 1,607 1,480 3,597 6,218 8,255 Tax 440 435 344 800 546 586 500 1,175 2,018 2,807 Effective Tax Rate (%) 32.8 36.5 29.2 31.8 34.8 36.4 33.8 32.7 32.5 34.0 Repoted PAT 900 756 834 1,715 1,025 1,022 980 2,422 4,200 5,448 Adj. PAT 900 756 834 1,715 1,025 1,022 980 2,422 4,200 5,448 Change (%) -3.7 35.8 8.9 5.4 13.9 35.2 17.5 41.2 8.1 29.7

September 2018 Results Preview | Sector: Capital Goods ABB

CMP: INR1,420 TP: INR965 (-32%) Sell During the quarter, ABB launched its most economical charging

solution for electric vehicles, which can be used at home or offices. ABB has showcased the Teraa HP fast-charging system, which can power up a car for 200km in a single eight-minute charge.

We expect 24% YoY growth in revenue, supported by execution ramp-up in the power grid segment, as we expect the execution of HVDC order to contribute to revenue.

We expect EBITDA margin to improve 20 bp to 7.2%. Despite robust revenue growth, operating margin during the quarter is expected to improve marginally given the forex impact—the INR has depreciated during the quarter and ABB is a net importer.

Net profit is expected to grow by a robust 17.5% YoY to INR1.0b. Maintain Sell.

Key issues to watch Forex impact given ABB is net importer and INR has depreciated Management commentary suggests cautious optimism, continued

focus on exports and services—an important driver of projected strong double-digit revenue and profit growth.

Continued preference for cash generation vis-à-vis profits.

Bloomberg ABB IN


1,6,12 Rel Perf. (%) 16 / 3 / -13

Financial Snapshot (INR b) Y/E Dec 2017 2018 2019E 2020E

Net Sales 90.9 108.2 116.6 116.0

EBITDA 7.4 9.5 11.8 14.4

Adj. PAT 4.2 5.4 6.8 9.0

Adj. EPS (INR) 19.8 25.7 32.0 32.3

EPS Gr (%) 8.1 29.7 24.6 0.9

BV/Sh (INR) 170.2 189.2 212.9 236.8

RoE (%) 11.6 13.6 15.1 13.7

RoCE (%) 16.3 20.6 24.1 21.9

Payout (%) 22.2 22.5 22.5 22.5

Valuations

P/E (x) 71.7 55.2 44.3 42.7

P/BV (x) 8.3 7.5 6.7 5.8

EV/EBITDA (x) 24.3 18.5 13.8 10.1

Div. Yield (%) 0.3 0.4 0.5 0.5

October 2018 78

Quarterly Performance Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 17,218 24,762 25,128 36,085 21,021 28,415 28,902 41,774 103,223 120,111 Change (%) 97.6 45.4 23.1 -9.5 22.1 14.8 15.0 15.8 19.9 16.4 EBITDA 1,656 5,950 4,452 7,962 3,105 4,715 5,702 9,798 19,997 23,320 Change (%) -455 76 -8 -19 88 -21 28 23 14 17 As of % Sales 9.6 24.0 17.7 22.1 14.8 16.6 19.7 23.5 19.4 19.4 Depreciation 561 590 594 766 689 620 650 796 2,510 2,755 Interest 3 0 0 10 3 2 2 6 13 13 Other Income 700 510 492 279 89 150 200 361 2,004 800 PBT 1,793 5,870 4,350 7,465 2,502 4,243 5,250 9,357 19,478 21,352 Tax 540 1746 1322 1878 705 1250 1600 2637 5486 6192 Effective Tax Rate (%) 30.1 29.7 30.4 25.2 28.2 29.5 30.5 28.2 28.2 29.0 Reported PAT 1,253 4,124 3,028 5,587 1,797 2,993 3,650 6,720 13,992 15,160 Change (%) 247.2 19.1 -18.9 -29.4 43.4 -27.4 20.5 20.3 -9.6 8.3 Adj PAT 1,253 4,124 3,028 5,587 1,797 2,993 3,650 6,720 13,992 15,160 Change (%) 247.2 19.1 -18.9 -29.4 43.4 -27.4 20.5 20.3 -9.6 8.3

September 2018 Results Preview | Sector: Capital Goods Bharat Electronics

CMP: INR84 TP: INR100 (+19%) Buy For FY19, BHE plans to pursue business opportunities in space

electronics, solar energy, homeland security, smart cards and telecom.

For FY19, BHE’s growth would be driven by radar/missile systems, communication and network-centric systems, tank electronics, gun upgrades, electro-optic systems, and electronic warfare systems.

BHE has planned capacity enhancement and creation of new test facilities for the defense business.

We expect revenue growth of 15% YoY, supported by execution of the EVM order, Akash missile system, IACCS, and ship-borne EW systems.

We expect EBITDA margin of 16.6% v/s 24.0% in 2QFY18, given adverse revenue mix (contribution from low-margin EVM machines). EBITDA is likely to decline 21% YoY at INR4.7b.

PAT is expected to decline 27% YoY to INR3b. Maintain Buy. Key issues to watch Revenue growth: Key orders (Akash missile, intake of INR67b in

FY11-12) are currently under execution for Army and Air Force Operating at 60% capacity utilization; possibility of strong operating

leverage

Bloomberg BHE IN Equity Shares (m) 2436.5 M. Cap. (INR b)/(USD b) 203 / 3

52-Week Range (INR) 193 / 74 1,6,12 Rel Perf. (%) -19 / -51 / -64


Net Sales 86.1 103.2 120.1 136.5

EBITDA 17.6 20.0 23.3 26.5

NP 15.5 14.0 15.2 17.1

EPS (INR) 6.3 5.7 6.2 7.0

EPS Gr. (%) 27.2 -8.8 8.3 12.7

BV/Sh (INR) 30.6 32.0 35.5 39.7

RoE (%) 20.6 18.0 17.5 17.7

RoCE (%) 18.8 18.2 18.4 18.7

Valuations

P/E (x) 25.4 14.5 13.3 11.8

P/BV (x) 5.2 2.6 2.3 2.1

EV/EBITDA (x) 20.2 9.8 8.2 7.1

October 2018 79

Quarterly performance (Consolidated) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales (Net) 55,834 62,971 66,264 101,470 59,355 71,350 73,600 119,518 289,257 323,823 Change (%) -0.5 -5.5 4.8 3.8 6.3 13.3 11.1 17.8 1.7 11.9 EBITDA 2,029 -954 2,954 12,316 2,872 4,850 6,600 9,244 19,329 23,566 Change (%) 185.7 -161.5 32.0 116.6 41.6 NA 123.4 -24.9 82.1 21.9 As a % Sales 3.6 -1.5 4.5 12.1 4.8 6.8 9.0 7.7 6.7 7.3 Interest 657 552 610 726 639 650 800 957 2,546 3,046 Depreciation 2,001 1,872 1,820 2,171 1,761 1,900 1,900 2,395 7,864 7,956 Other Income 1,710 4,850 1,375 1,979 1,786 1,750 1,500 1,459 6,931 6,495 PBT 1,080 1,473 1,898 11,399 2,259 4,050 5,400 7,352 15,850 19,060 Tax 272 318 367 6,827 703 1,200 1,900 2,868 7,784 6,671 Effective Tax Rate (%) 25.2 21.6 19.3 59.9 31.1 29.6 35.2 39.0 49.1 35.0 Reported PAT 808 1,154 1,532 4,572 1,556 2,850 3,500 4,483 8,066 12,389 Change (%) 3.9 5.9 63.8 112.1 92.5 146.9 128.5 -1.9 62.7 53.6 Adj. PAT 808 1,154 1,532 4,572 1,556 2,850 3,500 4,483 8,066 12,389 Change (%) 3.9 5.9 63.8 112.1 92.5 146.9 128.5 -1.9 62.7 53.6 E: MOSL Estimates

CMP: INR73 TP: INR65 (-11%) Sell We expect revenue growth of 13% YoY, led by a pick-up in

execution of orders in hand. We expect gross margin to improve 190 bp YoY to 41.8%, led by

better revenue-mix. BHEL is likely to report operating profit of INR4.8b as against a loss

of INR954m in 2QFY18. The operating loss in 2QFY18 was on account of higher other expenses, given provisions of INR5.4b during the quarter.

We estimate adjusted net profit at INR2.9b as against INR1.1b in 2QFY18.

During the quarter, BHEL has entered into technology collaboration agreement with Babcock Power Environmental Inc (USA) for selective catalytic reduction systems for De-Nox application.

Maintain Sell. Key issues to watch Execution of orders in hand given private sector order backlog is

slow moving Trends in provisions, particularly for liquidated damages on

project completion

Bloomberg BHEL IN Equity Shares (m) 3671.4 M. Cap. (INR b)/(USD b) 269 / 4



Net Sales 284.5 289.3 323.8 362.0

EBITDA 10.6 19.3 23.6 28.9

PAT 5.0 8.1 12.4 15.7

EPS (INR) 1.4 2.2 3.4 4.3

EPS Gr. (%) -165.5 62.7 53.6 53.6

BV/Sh. INR 88.0 88.8 89.9 91.2

RoE (%) 1.5 2.5 3.8 4.7

RoCE (%) 0.7 2.0 3.3 4.0

Payout (%) 59.3 82.8 60.0 60.0

Valuations

P/E (x) 55.1 33.9 22.0 17.4

P/BV (x) 0.8 0.8 0.8 0.8

EV/EBITDA (x) 15.9 8.3 6.9 6.1

Div Yield (%) 1.1 2.4 2.7 3.4

* Consolidated

September 2018 Results Preview | Sector: Capital Goods BHEL

October 2018 80

Quarterly performance (Consolidated) (INR m) FY18 FY19E FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales 15,108 8,357 9,813 13,463 15,078 9,070 10,730 15,078 46,390 49,956 Change (%) 24.9 -6.0 6.9 -1.7 -0.2 8.5 9.3 12.0 5.8 7.7 EBITDA 1,106 459 513 604 1,367 490 645 955 2,659 3,456 Change (%) 44.6 14.3 51.4 -15.9 23.6 6.7 25.7 58.1 19.6 30.0 As of % Sales 7.3 5.5 5.2 4.5 9.1 5.4 6.0 6.3 5.7 6.9 Depreciation 125 158 172 183 161 155 170 172 638 658 Interest 48 59 74 107 121 59 74 37 287 290 Other Income 86 45 36 38 33 40 40 56 170 169 Extra-ordinary Items 0 0 0 -53 -152 0 0 0 53 152 PBT 1,019 288 304 405 1,270 316 442 801 1,850 2,526 Tax 259 84 93 82 325 95 125 205 494 750 Effective Tax Rate (%) 25 29 31 20 26 30 28 26 27 30 MI/Share of profit from JV 1 4 (22) (5) (29) 4 (22) 25 (22) (22) Reported PAT 762 208 188 317 916 226 294 622 1,440 2,058 Change (%) 51.1 7.8 32.9 -16.8 20.3 8.6 56.2 96.3 12.7 37.4 Adj PAT 762 208 188 264 764 226 294 622 1,387 1,906 Change (%) 48.2 4.1 29.9 -29.0 0.3 8.6 56.2 135.5 12.7 37.4

September 2018 Results Preview | Sector: Capital Goods Blue Star

CMP: INR582 TP: INR690 (+19%) Neutral Unitary cooling division (UCP) is likely to report muted revenue

growth of 4% YoY on account of the weak festive season in Kerala post heavy rains, which led to an overall weakness in demand. Blue Star has a strong presence in Kerala.

We expect revenue growth of 12% YoY in the MEP segment, given pick-up in execution of orders in hand post-contract renegotiation, which happened on account of GST implementation.

Operating margin is expected to remain flat YoY at 5.4%, given INR depreciation, input price-rise, recent imposition of import duty on A/Cs and compressors, and inability to increase price given the soft demand. Operating profit is expected to increase 7% YoY.

We expect net profit of INR226m as against INR203m in 2QFY18. Maintain Neutral.

Key issues to watch Impact of import duty hike on the performance of UPC segment Sustainability of profitability and capital employed in MEP

business

Bloomberg BLSTR IN Equity Shares (m) 95.6 M. Cap. (INR b)/(USD b) 56 / 1



Net Sales 43.9 46.4 50.0 55.6

EBITDA 2.2 2.7 3.5 4.1

Adj. PAT 1.2 1.4 1.9 2.4

EPS(INR) 12.9 14.5 19.9 25.1

EPS Gr. (%) -0.7 12.7 37.4 25.6

BV/Sh. (INR) 79.2 87.0 96.2 107.7

RoE (%) 18.0 17.5 21.8 24.6

RoCE (%) 15.5 14.7 17.7 21.0

Payout (%) 58.3 68.9 45.0 45.0

Valuations

P/E (x) 59.0 40.1 29.2 23.2

P/BV (x) 9.6 6.7 6.1 5.4

EV/EBITDA (x) 33.2 22.0 16.8 14.0

Div Yield (%) 1.0 1.7 1.5 1.9

*Consolidated

October 2018 81

Quarterly performance (Standalone) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 12,607 12,085 11,794 14,309 11,798 13,071 12,501 15,899 49,810 53,270 Change (%) 11.7 11.4 10.8 21.6 -6.4 8.2 6.0 11.1 4.6 6.9 EBITDA 653 771 871 1,157 909 1,021 987 1,759 3,452 4,677 Change (%) 4.8 -8.8 3.9 42.2 39.2 32.4 13.3 52.1 -52 -24 As of % Sales (Adj) 5.2 6.4 7.4 8.1 7.7 7.8 7.9 11.1 6.9 8.8 Depreciation 229 265 262 264 257 283 283 308 1,021 1,130 Interest 525 541 536 538 517 500 500 458 2,140 1,975 Other Income 428 615 454 484 375 451 488 564 1,981 1,877 Exceptional items (reported) 125 -189 -426 -4,044 15 0 0 0 -4,534 15 PBT 327 579 527 839 510 689 693 1,558 2,272 3,449 Tax 142 -2 10 212 156 120 120 310 465 706 Effec. Tax Rate (%) 43.4 -0.3 1.8 25.2 30.7 17.4 17.3 19.9 20.5 20.5 Reported PAT 310 392 92 -3,417 368 569 573 1,248 -3,247 2,758 Adj PAT 185 581 518 627 354 569 573 1,248 1,807 2,743 Change (%) -51.9 -34.1 -36.8 31.1 91.0 -2.1 10.6 99.1 -29.8 51.8

September 2018 Results Preview | Sector: Capital Goods CG Power and Industrial

CMP: INR45 TP: INR51 (+13%) Neutral CG has entered into a strategic alliance with Tenaga Switchgear to

expand its market reach and customer base in Malaysia. During the quarter, CG inaugurated Indonesia’s first high-voltage

and extra high-voltage factory. We expect standalone revenue to grow 8.2% YoY to INR13.1b in

2QFY19. Operating profit is expected to improve 325.4% YoY to INR1.0b, led

by better product-mix. EBITDA margin should expand 140 bp YoY to 7.8%.

We estimate adjusted PAT at INR569m as against profit of INR392m in 2QFY18. Maintain Neutral.

Key issues to watch Debt reduction in demerged business through asset sales

Bloomberg CGPOWER IN Equity Shares (m) 626.8 M. Cap. (INR b)/(USD b) 28 / 0



Net Sales 55.2 61.9 65.6 70.0

EBITDA 4.4 4.6 5.6 5.9

Adj. PAT -4.2 -7.2 0.3 2.5

EPS(INR) 2.4 -11.5 0.5 3.9

EPS Gr. (%) -32.6 -578.2 NA 710.3

BV/Sh. (INR) 65.6 43.3 43.7 47.3

RoE (%) 3.5 1.4 7.9 10.4

RoCE (%) 6.4 7.0 8.5 10.2

Payout (%) 25% 7.7 7.7 7.7

Valuations P/E (x) 18.6 -3.9 92.4 11.4

P/BV (x) 0.7 1.0 1.0 1.0

EV/EBITDA (x) 7.4 8.2 6.1 5.2

Div Yield (%) 1.3 -3.2 0.1 0.7

* Consolidated

October 2018 82

Quarterly Performance FY18 FY19E FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 10,554 9,597 9,382 11,263 12,039 10,950 11,000 12,694 40,797 46,683 Change (%) -3.7 9.8 6.7 7.6 14.1 14.1 17.2 12.7 4.6 14.4 EBITDA 1,294 1,207 1,165 1,645 1,673 1,289 1,265 1,989 5,310 6,216 Change (%) -17.8 19.3 19.8 27.5 29.3 6.8 8.6 20.9 9.6 17.0 As of % Sales 12.3 12.6 12.4 14.6 13.9 11.8 11.5 15.7 13.0 13.3 Depreciation 32 32 32 31 31 34 35 34 126 134 Interest 162 157 158 161 152 157 158 170 637 637 Other Income 97 35 66 109 88 50 70 62 308 270 PBT 1,198 1,054 1,040 1,562 1,578 1,148 1,142 1,847 4,854 5,714 Tax 395 346 345 530 535 420 440 484 1,617 1,879 Effective Tax Rate (%) 33.0 32.8 33.2 33.9 33.9 36.6 38.5 26.2 33.3 32.9 Adjusted PAT 802 708 695 1,032 1,043 728 702 1,363 3,238 3,835 Change (%) (14.2) 22.3 27.9 29.0 30.0 2.8 1.0 32.0 14.3 18.5 Reported PAT 802 708 695 1,032 1,043 728 702 1,363 3,238 3,835 Change (%) (14.2) 23.3 27.9 32.4 30.0 2.8 1.0 32.0 14.3 18.5

September 2018 Results Preview | Sector: Capital Goods CG Consumer Elect.

CMP: INR212 TP: INR300 (+42%) Buy We expect sales to grow 14% YoY, driven by 14% growth in the

lighting segment. We expect operating profit of INR1.3b in 2QFY19, an improvement

of 7% YoY, and an 80 bp compression in EBITDA margin to 12%. Margin compression is expected on account of pricing pressure witnessed in the lighting segment given high competitive intensity.

Net profit is expected to be INR728m in 2QFY19 as against INR708m in 2QFY18, implying a growth of 2.8%. Maintain Buy.

Key issues to watch Performance of the lighting segment given pricing cuts taken by

the company in the LED bulb segment to combat competitive intensity in the segment

Ad spends incurred by the company during the quarter, as Crompton intends to position itself as an electrical consumer durables brand as against its current positioning as a ‘fan’ brand

Bloomberg CROMPTON IN Equity Shares (m) 626.8 M. Cap. (INR b)/(USD b) 133 / 2



Net Sales 39.0 40.8 46.7 52.9

EBITDA 4.8 5.3 6.2 7.4

Adj. PAT 2.8 3.2 3.8 4.8

EPS (INR) 4.5 5.2 6.1 7.7

EPS Gr. (%) 169.2 14.3 18.5 26.4

BV/Sh. (INR) 8.6 12.6 15.7 19.7

RoE (%) 73.8 48.7 43.2 43.7

RoCE (%) 31.7 27.9 27.8 32.2

Payout (%) 33.5 33.9 40.7 40.7

Valuations

P/E (x) 47.1 41.2 34.8 28.6

P/BV (x) 24.8 16.9 13.5 10.9

EV/EBITDA (x) 28.7 26.0 21.9 18.8

Div Yield (%) 0.7 0.8 1.2 1.4

* Consolidated

October 2018 83

Quarterly Performance FY18 FY19E FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 13,408 11,539 13,547 12,332 13,280 13,200 14,950 14,539 50,825 56,014 Change (%) 6.5 -9.8 0.0 4.1 -1.0 14.4 10.4 17.9 0.1 10.2 EBITDA 1,953 1,675 1,967 1,731 2,147 2,070 2,550 2,135 7,325 8,947 Change (%) -5.4 -15.8 -13.2 1.8 9.9 23.6 29.7 23.4 -12.3 28.4 As of % Sales 14.6 14.5 14.5 14.0 16.2 15.7 17.1 14.7 14.4 16.0 Depreciation 208 220 237 273 271 270 280 290 938 1,111 Interest 42 38 34 34 36 38 34 41 148 148 Other Income 583 536 501 664 696 536 501 637 2,285 2,370 PBT 2,286 1,953 2,197 2,088 2,536 2,299 2,737 2,442 8,523 10,058 Tax 625 424 475 475 706 620 700 690 2,000 2,716 Effective Tax Rate (%) 27.4 21.7 21.6 22.8 27.8 27.0 25.6 28.2 23.5 27.0 Adjusted PAT 1,660 1,529 1,722 1,612 1,830 1,679 2,037 1,752 6,524 7,342 Change (%) (8.4) (22.3) (13.1) 1.7 10.2 9.8 18.3 8.7 (11.2) 12.6 Extra-ordinary Income (net) 561.2 - - - - - - - 561.2 - Reported PAT 2,222 1,529 1,722 1,612 1,830 1,679 2,037 1,752 7,085 7,342 Change (%) 22.6 (22.3) (13.1) 1.7 (17.6) 9.8 18.3 8.7 (3.6) 3.6

September 2018 Results Preview | Sector: Capital Goods Cummins India

CMP: INR669 TP: INR830 (+24%) Buy We expect revenue to increase 14% YoY, supported by growth in

power generation (13% YoY), exports (+16% YoY), and distribution and spares (20% YoY). Growth in power generation, distribution and exports is supported by the weak base of 2QFY18—whose revenue performance was impacted by GST-led disruption. Domestic revenue should grow 15% YoY in 2QFY19.

We expect export revenue to register 16% growth on YoY basis to INR4.3b in 2QFY19, supported by lower base effect of 2QFY18 and INR depreciation of 10% YoY.

EBITDA margin is expected to improve 120 bp YoY to 15.7%; margin expansion is on the basis of better contribution from the export business given the INR depreciation. Domestic business continues to witness margin pressure given competitive pressure from industry players.

Net profit is expected to register growth of 13% YoY to INR1.7b. Maintain Buy.

Key issues to watch Performance and guidance for the exports segment

Bloomberg KKC IN


1,6,12 Rel Perf. (%) -5 / -18 / -43


Net Sales 50.8 50.8 56.0 65.0

EBITDA 8.0 7.3 8.9 11.0

Adj. PAT 7.3 6.5 7.3 8.8

EPS (INR) 26.5 23.5 26.5 31.9

EPS Gr. (%) -2.6 -11.2 12.6 20.4

BV/Sh. (INR) 135.0 143.8 155.0 168.4

RoE (%) 21.2 18.3 17.7 19.7

RoCE (%) 20.0 16.1 17.0 18.9

Payout (%) 52.8 58.7 49.7 49.7

Valuations

P/E (x) 25.2 28.4 25.3 21.0

P/BV (x) 5.0 4.7 4.3 4.0

EV/EBITDA (x) 23.7 25.4 20.7 16.7

Div Yield (%) 2.1 2.2 1.9 2.3

October 2018 84

Quarterly Performance Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 3,754 4,291 4,734 5,097 5,733 5,650 6,050 7,594 17,876 25,028 YoY Change (%) 9.8 26.6 45.7 15.1 52.7 31.7 27.8 49.0 23.4 40.0 Total Expenditure 2,936 2,901 3,386 4,302 4,870 4,675 4,710 6,591 13,486 20,846 EBITDA 818 1,390 1,349 795 864 975 1,340 1,003 4,390 4,182 Margins (%) 21.8 32.4 28.5 15.6 15.1 17.3 22.1 13.2 24.6 16.7 Depreciation 60 62 59 58 55 65 60 75 238 255 Interest 0 1 1 4 2 1 1 2 6 6 Other Income 456 467 393 479 522 550 500 561 1,795 2,133 PBT before EO expense 1,214 1,794 1,682 1,213 1,328 1,459 1,779 1,488 5,941 6,055 Extraordinary expense/income 0 0 0 -220 0 0 0 0 260 0 PBT 1,214 1,794 1,682 1,433 1,328 1,459 1,779 1,488 5,681 6,055 Tax 400 602 597 303 462 520 540 415 1,902 1,938 Rate (%) 32.9 33.6 35.5 21.2 34.8 35.6 30.4 27.9 33.5 32.0 Reported PAT 815 1,192 1,084 1,129 866 939 1,239 1,073 3,779 4,117 Adj PAT 815 1,192 1,084 909 866 939 1,239 1,073 4,039 4,117 YoY Change (%) 1.4 27.0 27.4 -41.7 6.3 -21.2 14.3 18.0 -2.7 1.9 Margins (%) 21.7 27.8 22.9 17.8 15.1 16.6 20.5 14.1 22.6 16.5


Engineers India

CMP: INR114 TP: INR155 (+36%) Buy During the quarter, EIL booked orders of INR50b that it received

from HPCL Rajasthan Refinery Limited, which includes project management consultants (PMC) as well as engineering, procurement and construction (EPC) jobs.

We expect revenue to increase 32% YoY, supported by growth in turnkey segment execution (120% YoY) and expect consultancy and engineering projects to register muted growth of 2% YoY.

We expect operating profit to register 30% decline YoY, despite 32% growth in revenue, given adverse revenue-mix (higher share of low-margin turnkey projects). Margins in the turnkey segment for 2QFY18 stood at 50.6% given INR374m was received from a customer for a one-time settlement for time extension on a particular project.

We expect net profit to register a 21% YoY decline to INR939m. Maintain Buy.

Key issues to watch Performance of the turnkey project segment, which has seen

margin volatility in the recent past

Bloomberg ENGR IN


1,6,12 Rel Perf. (%) -9 / -39 / -38


Net Sales 14.5 17.9 25.0 35.4

EBITDA 3.9 4.4 4.2 5.3

Adj. PAT 3.7 4.0 4.1 4.9

EPS (INR) 5.4 6.3 6.5 7.8

EPS Gr. (%) 32.9 14.8 4.2 19.3

BV/Sh. (INR) 41.2 33.7 36.9 40.8

RoE (%) 13.3 15.7 17.3 18.7

RoCE (%) 13.3 15.7 17.3 18.8

Payout (%) 46.4 77.6 46.4 46.4

Valuations

P/E (x) 21.1 18.4 17.6 14.8

P/BV (x) 2.8 3.4 3.1 2.8

EV/EBITDA (x) 13.9 10.9 11.2 8.1

Div Yield (%) 1.5 3.5 2.3 2.7

October 2018 85

CMP: INR261 TP: INR275 (5%) Neutral We expect GETD to register revenue growth of 12% YoY to

INR9.7b in 2QFY19. Growth would be driven by a pick-up in the execution of the Champa Kurukshetra (CK) phase II project and through booking of sales, which had slipped in earlier quarters.

We expect operating profit of INR900m in 2QFY19, as against INR805m in 2QFY18. Operating margins are expected to remain stable during the quarter at 9.3%.

Gross margin is likely to see 170 bp decline YoY to 36.1%. 2QFY18 gross margins were higher given closure of the CK phase I project. Even INR depreciation can act as a spoil-sport for the company.

GETD is expected to book net profit of INR645m as against INR475m in 2QFY18. Maintain Neutral.

Key issues to watch Progress in the Champa-Kurukshetra II project, which is

expected to be executed in FY19 Margins during the quarter as INR depreciated 10% YoY and GE

T&D is a net importer

Bloomberg GETD IN


1,6,12 Rel Perf. (%) 1 / -43 / -47


Net Sales 40.5 43.3 44.2 45.7

EBITDA 2.2 2.9 3.9 4.2

Adj. PAT 1.5 1.9 2.7 2.8

EPS (INR) 5.7 7.5 10.5 10.9

EPS Gr. (%) 325.3 30.8 40.5 3.5

BV/Sh. (INR) 40.3 46.5 53.0 59.8

RoE (%) 13.3 17.3 21.2 19.3

RoCE (%) 16.3 22.5 30.0 28.3

Payout (%) 31.4 31.4 31.4 31.4

Valuations

P/E (x) 45.5 34.8 24.8 24.0

P/BV (x) 6.5 5.6 4.9 4.4

EV/EBITDA (x) 32.0 21.9 16.2 14.6

EV/ Sales (x) 1.8 1.4 1.4 1.3

Div Yield (%) 0.7 0.7 1.3 1.3

Quarterly Performance

FY18 FY19 FY18 FY19E

Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 12,093 8,700 14,386 8,139 11,624 9,700 13,500 9,354 43,317 44,178 Change (%) 41.5 4.2 23.5 -32.0 -3.9 11.5 -6.2 14.9 6.9 2.0 EBITDA 1,055 805 728 179 1,442 900 1,000 587 2,853 3,928 Change (%) 4,875.9 130.6 -3.0 -83.7 36.7 11.8 37.4 227.9 -9.0 -9.0 As of % Sales 8.7 9.3 5.1 2.2 12.4 9.3 7.4 6.3 6.6 8.9 Depreciation 224 228 218 229 217 235 240 222 899 914 Interest 278 225 238 141 155 120 120 105 883 500 Other Income 422 344 630 638 192 400 400 577 1,948 1,569 PBT 975 695 1,099 419 1,262 945 1,040 837 3,189 4,084 Tax 358 220 381 141 442 300 350 297 1,101 1,389 Effective Tax Rate (%) 36.7 31.6 34.7 33.7 35.0 31.7 33.7 35.4 34.5 34.0 Reported PAT 617 475 718 278 820 645 690 540 2,088 2,695 Change (%) -131.3 131.6 62.0 -39.7 33.0 35.7 -3.9 94.3 NM 29.1 Adj PAT 617 475 521 305 820 645 690 540 1,919 2,695 Change (%) 71.4 131.6 17.6 -33.8 33.0 35.7 32.4 76.9 30.8 40.5


GE T&D

October 2018 86

CMP: INR611 TP: INR660 (+8%) Buy Standalone revenue is expected to grow 10% YoY, driven by

revenue growth from electrical consumer durables segment (18.2% YoY), and Switchgears (+15% YoY). Lloyd Electric is expected to register 7.5% YoY growth driven by primary channel filling in new markets where it was not present earlier.

We expect the cables segment to register a muted 3.6% YoY growth, impacted by decline in copper prices on QoQ basis.

We expect gross margin to remain stable at 42.2% and operating margin to decline 170 bp YoY to 12.9%—impacted by weak performance in cables and Lloyd Electric.

Net profit is expected to register marginal decline of 1% YoY to INR1.7b. Maintain Buy.

Key issues to watch Commentary on overall demand scenario of the company’s

product portfolio Impact of decline in copper prices on cables and wires’ segment

Bloomberg HAVL IN Equity Shares (m) 625.0 M. Cap. (INR b)/(USD b) 382 / 5

52-Week Range (INR) 729 / 454 1,6,12 Rel Perf. (%) -8 / 12 / 9


Net Sales 61.4 81.4 96.3 109.3

EBITDA 8.2 10.5 12.3 15.2

Adj. PAT 6.0 7.0 8.4 10.2

Adj. EPS (INR) 9.6 11.2 13.4 16.4

EPS Gr. (%) 17.1 17.4 19.5 22.3

BV/Sh(INR) 52.4 59.9 67.6 77.1

RoE (%) 18.2 18.7 19.8 21.3

RoCE (%) 18.2 18.8 19.5 21.5

Payout (%) 42.8 41.7 42.1 41.7

Valuations P/E (x) 63.9 54.5 45.6 37.3

P/BV (x) 11.7 10.2 9.0 7.9

EV/EBITDA (x) 43.7 34.9 29.6 23.6

Div Yield (%) 0.6 0.7 0.8 1.0

Quarterly Performance (Standalone) FY18 FY19E FY18 FY19 Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales 18,605 17,774 19,658 25,349 25,963 19,600 22,450 28,310 81,386 96,323 Change (%) 26.8 22.4 30.5 48.2 39.5 10.3 14.2 11.7 32.7 18.4 Adj EBITDA 1,743 2,569 2,622 3,577 3,208 2,528 3,099 3,562 10,493 12,397 Change (%) -13.0 26.3 37.5 55.8 84.0 -1.6 18.2 -0.4 27.3 18.1 Adj EBITDA margin (%) 9.4 14.5 13.3 14.1 12.4 12.9 13.8 12.6 12.9 12.9 Depreciation 336 349 363 347 350 350 370 382 1,395 1,452 Interest 34 67 55 84 26 30 25 20 240 100 Other Income 348 287 278 257 292 265 270 273 1,170 1,100 Extra-ordinary Items - - 210 (91) - - - - 119.1 0.0 PBT 1,703 2,440 2,482 3,404 3,039 2,413 2,974 3,434 10,028 11,860 Tax 489 730 748 1,055 935 720 900 1,019 3,022 3,574 Effective Tax Rate (%) 28.7 29.9 30.1 31.0 30.8 29.8 30.3 29.7 30.1 30.1 Reported PAT 1,214 1,710 1,944 2,258 2,104 1,693 2,074 2,415 7,125 8,286 Change (%) -16.6 17.3 68.9 138.4 73.3 -1.0 6.7 7.0 32.2 16.3 Adj PAT 1,227 1,710 1,944 2,258 2,189 1,693 2,074 2,415 7,006 8,371 Change (%) -15.7 17.3 45.0 31.7 78.4 -1.0 6.7 7.0 17.4 19.5


Havells India

October 2018 87

Quarterly Perf. (Consol.) Y/E March FY18 FY19E FY18 FY19 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 238,109 264,468 287,475 406,781 282,835 290,000 324,500 434,523 1,196,832 1,333,023 Change (%) 9.6 6.4 10.1 11.1 18.8 9.7 12.9 6.8 9.5% 11.4% EBITDA 20,752 29,604 31,440 53,905 29,133 30,750 32,950 58,601 135,714 151,433 Change (%) 9.9 27.9 25.5 23.0 40.4 3.9 4.8 8.7 21.9 11.6 Margin (%) 8.7 11.2 10.9 13.3 10.3 10.6 10.2 13.5 11% 11% Depreciation 5,513 4,306 4,545 4,924 6,449 5,000 5,000 4,622 19,287 21,071 Interest 3,644 3,929 3,625 4,181 3,648 3,700 3,800 4,060 15,385 15,207 Other Income 3,657 4,013 2,129 4,328 2,440 3,000 3,500 6,328 14,120 15,268 Extraordinary Inc/(Exp) 0 1,367 -138 0 0 0 0 0 1,230 0 Reported PBT 15,253 25,382 25,399 49,127 21,477 25,050 27,650 56,247 115,162 130,423 Tax 4,597 5,439 7,372 14,580 9,346 5,300 8,200 16,281 31,989 39,127 Effective Tax Rate (%) 30.1 21.4 29.0 29.7 43.5 21.2 29.7 28.9 29.0 30.0 Reported PAT 8,926 18,199 14,900 31,675 12,148 16,450 16,350 37,321 73,699 82,269 Change (%) 46.4 26.9 53.2 4.7 36.1 -9.6 9.7 17.8 22 12 Adjusted PAT 8,926 16,831 15,037 31,675 12,148 16,450 16,350 37,321 72,469 82,269 Change (%) 46.4 63.1 54.6 -4.2 36.1 -2.3 8.7 17.8 22 14


Larsen & Toubro

CMP: INR1,245 TP: IN1,570 (+26%) Buy LT announced an order intake of INR338b in 2QFY19 compared to

INR119b in 2QFY18. Order inflow during the quarter was supported by large as well as base order finalization (>INR15b).

Large orders worth INR260b were finalized during the quarter. Domestic order wins were supported by order finalization in the infrastructure segment. Overseas order finalization was supported by infrastructure and power segments.

For 2QFY19, we expect revenue growth of 10% YoY to INR290b. We have factored in 11.2% YoY growth in the E&C segment driven by execution in the domestic segment. We expect operating profit margin to compress by 60 bp YoY to 10.6% in 2QFY19.

We expect net profit to decline by 2.3% YoY to INR16.5b impacted by lower other income (INR3b v/s INR3.9b in 2QFY18). Maintain Buy.

Key issues to watch Net working capital cycle (excluding financial services) stood at 20%

of revenue in 1QFY19. Target is to reach 18% in FY19.

Bloomberg LT IN Equity Shares (m) 1401.7 M. Cap. (INR b)/(USD b) 1744 / 24



Sales 1,093 1,197 1,333 1,496

EBITDA 111.3 135.7 151.4 180.2

Adj. PAT * 59.2 72.5 82.3 100.6

EPS (INR)* 42.2 51.7 58.7 71.8

EPS Gr. (%) 43.0 22.4 13.5 22.3

BV/Sh (INR) 358.3 397.1 436.5 564.4

RoE (%) 12.5 13.7 14.1 14.3

RoCE (%) 8.0 9.4 9.7 11.3

Payout (%) 21.0 30.8 28.8 29.0

Valuations

P/E (x)* 29.5 24.1 21.2 17.3

P/BV (x) 3.9 3.5 3.1 2.9

EV/EBITDA (x) 23.6 20.2 18.3 14.6

Div Yield (%) 0.7 1.3 1.4 1.7

*Consolidated

October 2018 88

Quarterly Performance (Standalone) (INR m)

Y/E September FY17 FY18

FY17 FY18 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

Total Revenues 22,933 29,288 26,508 31,418 24,295 32,834 30,730 36,193 110,148 124,053 Change (%) -0.9 5.2 1.2 1.7 5.9 12.1 15.9 15.2 4.8 14.8 EBITDA 2,336 2,786 2,266 3,172 2,724 3,228 3,023 3,861 10,512 12,838 Change (%) 23.7 -13.4 -1.6 14.9 16.6 15.9 33.4 21.7 3.0 22.1 As % of Revenues 10.2 9.5 8.5 10.1 11.2 9.8 9.8 10.7 9.5 10.3 Depreciation 483 502 480 502 470 490 500 464 1,967 1,924 Interest 20 21 25 22 17 11 4 18 77 50 Other Income 623 529 731 630 705 639 692 848 2,547 2,884 Extra-ordinary Items 0 72 0 4,230 0 0 0 0 0 0 PBT 2,456 2,864 2,492 7,507 2,942 3,366 3,211 4,228 11,170 13,849 Tax 849 1,001 863 1,269 1,037 1,169 1,167 1,439 3,982 4,812 Effective Tax Rate (%) 34.6 34.9 34.6 16.9 35.2 34.7 36.3 34.0 35.6 34.7 Reported PAT 1,607 1,863 1,629 6,238 1,905 2,197 2,044 2,789 7,188 9,037 Adjusted PAT 1,607 1,792 1,629 2,008 1,905 2,197 2,044 2,789 7,034 8,937 Change (%) 44.4 -4.8 27.1 -8.6 18.6 22.6 25.5 38.9 16.6 27.0


Siemens

CMP: INR980 TP: INR990 (+1%) Neutral We expect SIEM to register 15% YoY revenue growth during the

quarter to INR36.2b, led by a strong performance in its power, gas and energy management segments.

Operating margin is expected to improve by 60 bp YoY to 10.7%, and operating profit is expected to register 22% YoY growth.

Net profit is expected to register 39% growth YoY to INR2.8b supported by higher other income (INR848m v/s INR630m in 4QFY18). Maintain Neutral.

Key issues to watch Raw material imports account for 55% of raw material cost;

Siemens AG’s network comprises 82% imports; INR depreciation of 8% YoY v/s EUR could have a negative impact on its margin profile

Bloomberg SIEM IN Equity Shares (m) 356.1 M. Cap. (INR b)/(USD b) 349 / 5

52-Week Range (INR) 1330 / 873 1,6,12 Rel Perf. (%) 4 / -21 / -33

Financial Snapshot (INR b) Y/E September 2017 2018E 2019E 2020E

Net Sales 110.1 124.1 123.5 135.2

EBITDA 10.5 12.8 14.7 16.0

Adj. PAT 7.0 8.9 10.7 11.8

Adj. EPS (INR) 19.8 25.1 30.1 33.1

EPS Gr (%) 10.9 27.0 19.7 10.1

BV/Sh. (INR) 216.4 232.5 251.7 272.8

RoE (%) 9.1 10.8 11.9 12.1

RoCE (%) 14.0 16.0 17.6 12.7

Payout (%) 40.9 44.0 30.0 30.0

Valuations

P/E (x) 49.6 39.0 32.6 29.6

P/BV (x) 4.5 4.2 3.9 3.6

EV/EBITDA (x) 29.3 23.5 20.0 18.1

Div. Yield (%) 0.9 0.8 0.9 1.0

October 2018 89

Thermax Consolidated FY18 FY19E FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 8,718 10,331 11,170 14,430 10,353 12,420 13,600 18,094 44,649 54,467 Change (%) -11.0 -3.5 18.3 -3.2 18.7 20.2 21.8 25.4 22.0 EBITDA 721 952 955 1,382 693 1,111 1,205 1,833 4,009 4,843 Change (%) -10.3 3.6 9.1 -20.2 -3.9 16.8 26.2 32.7 -7.4 20.8 As of % Sales 8.3 9.2 8.5 9.6 6.7 8.9 8.9 10.1 9.0 8.9 Depreciation 189 189 208 239 210 250 250 284 824 994 Interest 16 51 25 37 33 30 10 0 129 73 Other Income 241 236 238 450 310 270 270 484 1,164 1,334 PBT 757 947 961 1,555 761 1,101 1,215 2,033 4,220 5,110 Tax 284 370 378 626 274 420 400 657 1,658 1,751 Effective Tax Rate (%) 37.5 39.0 39.3 40.3 36.0 38.1 32.9 32.3 39.3 34.3 Share of Profit /Loss from JV/Minority -67 -10 2.8 -172 3 -5 (5.0) -13 (251.9) (20.0) Reported PAT 406 568 586 757 490 676 810 1,363 2,311 3,339 Change (%) (17.0) (27.4) 9.3 73.4 20.6 19.0 38.3 80.0 (1.2) 44.5 Adj PAT 406 568 586 757 490 676 810 1,363 2,311 3,339 Change (%) (17.0) (27.4) 9.3 23.1 20.6 19.0 38.3 80.0 (1.2) 44.5


Thermax CMP: INR937 TP: INR1,240 (+33%) Buy Thermax has acquired stake from its JV partner in Thermax

Babcock and Wilcox Energy Solution Private Limited. Revenue is likely to grow 20% YoY, supported by execution pick-

up in the energy segment (+18% YoY) and environment segment (+32% YoY) given improvement in orders available for execution.

Operating profit is expected to register 17% YoY growth to INR1.1b. Operating margin is expected to decline by 30 bp YoY to 8.9%.

Net profit is expected to register 19% YoY growth to INR676m. Maintain Buy.

Key issues to watch Demand environment in domestic and overseas markets

Bloomberg TMX IN Equity Shares (m) 112.6 M. Cap. (INR b)/(USD b) 105 / 1



Net Sales 44.8 44.6 54.5 69.3

EBITDA 4.3 4.0 4.8 6.4

Adj. PAT 2.3 2.3 3.3 4.4

EPS (INR) 20.8 20.5 29.7 38.8

EPS Gr. (%) -17.1 -1.2 44.5 30.8

BV/Sh. (INR) 225.4 241.1 263.0 293.3

RoE (%) 9.6 8.8 11.8 13.9

RoCE (%) 11.3 9.8 11.4 13.3

Payout (%) 31.3 29.2 22.3 18.7

Valuations

P/E (X) 45.1 45.7 31.6 24.2

P/BV (X) 4.2 3.9 3.6 3.2

EV/EBITDA (X) 24.2 26.1 21.8 16.0

Div Yield (%) 0.6 0.6 0.7 0.8

October 2018 90

Quarterly Performance (Consolidated) FY18 FY19E FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 19,446 10,367 13,747 20,484 21,481 11,948 15,619 22,653 64,044 71,697 Change (%) 5.1 7.2 16.5 0.7 10.5 15.2 13.6 10.6 6.2 12.0 EBITDA 2,083 857 1,186 2,532 2,432 1,105 1,402 3,096 6,626 8,002 Change (%) 4.4 24.8 33.3 14.1 16.7 29.0 18.2 22.3 14.4 20.8 As of % Sales 10.7 8.3 8.6 12.4 11.3 9.2 9.0 13.7 10.3 11.2 Depreciation 61 61 61 61 59 65 62 66 244 252 Interest 35 22 19 43 27 25 20 22 119 94 Other Income 590 512 170 438 282 290 250 321 1,741 1,143 Extra-ordinary Items -20 0 0 14 0 0 0 0 6 0 PBT 2,596 1,287 1,277 2,852 2,627 1,305 1,570 3,328 8,011 8,798 Tax 727 343 301 900 762 370 400 1,020 2,270 2,552 Effective Tax Rate (%) 28.0 26.6 23.6 31.6 29.0 28.4 25.5 30.6 28.3 29.0 Reported PAT 1,856 954 1,004 1,927 1,839 930 1,165 2,320 5,724 6,222 Change (%) 16.3 22.0 23.2 -3.9 -0.9 -2.5 16.0 20.4 11.9 8.7 Adj PAT 1,836 954 1,004 1,940 1,839 930 1,165 2,320 5,718 6,222 Change (%) 15.7 22.0 23.2 -3.1 0.2 -2.5 16.0 19.6 12.0 8.8


Voltas

CMP: INR530 TP: INR605 (+14%) Neutral Unitary cooling division (UCP) is likely to report revenue growth of

5% YoY, impacted by a muted demand scenario. We expect revenue growth of 22% YoY in the MEP segment,

supported by swift execution of the orders in hand. Sustainability of margins will be a key challenge in the segment. VOLT had booked EBIT margins of 10.2% in 1QFY19 on execution of better margin orders and pick-up in execution of domestic orders.

We expect operating profit to register 29% YoY growth to INR1.1b despite revenue growth of 15% YoY, as we bake in margin improvement in the MEP segment.

We expect net profit to decline 2% YoY to INR930m given the expected decline in other income (INR290m v/s INR512m in 2QFY18). Maintain Neutral.

Key issues to watch Impact of import duty hike on the performance of the UPC

segment Sustainability of profits in MEP segment

Bloomberg VOLT IN Equity Shares (m) 330.8 M. Cap. (INR b)/(USD b) 175 / 2



Net Sales 60.3 64.0 71.7 79.6

EBITDA 5.8 6.6 8.0 9.1

Adj. PAT 5.1 5.7 6.2 7.1

EPS(INR) 15.5 17.3 18.8 21.5

EPS Gr. (%) 30.1 11.9 8.7 14.6

BV/Sh. (INR) 100.0 118.0 131.7 147.5

RoE (%) 18.0 15.9 15.1 15.4

RoCE (%) 16.5 15.3 14.8 15.1

Payout (%) 26.2 26.8 26.8 26.8

Valuations P/E (x) 34.4 30.7 28.2 24.6

P/BV (x) 5.3 4.5 4.0 3.6

EV/EBITDA (x) 30.0 26.3 21.3 18.4

Div Yield (%) 0.7 0.8 0.8 0.9

*Consolidated

October 2018 91

Pradnya Ganar – Research analyst ([email protected]); +91 22 3980 4322

Profitability to take a hit led by cost pressures Marginal decline in prices for the quarter All India demand except South remains muted We expect companies under our coverage to report volume growth of ~15% YoY in 2QFY19. Demand in various regions was affected due to monsoon while South recorded favorable growth for the quarter.

Demand growth in the South is strong, led by Andhra Pradesh and Telangana. Demand in Kerala was affected due to floods in the region. Demand growth in the East and central remained muted. Demand in the North is moderate due to the impact of sand mining ban in Rajasthan. Demand growth in the West has been affected due to monsoon.

We expect the MOSL Cement universe to record volume growth of ~15% YoY in 2QFY19. We expect (a) pan-India players to report volume growth of 6-7% YoY, (b) SRCM to report 13% YoY volume growth, (c) South-based (DBEL, TRCL and ICEM) companies to post 13-15% volume growth.

We estimate volume growth at 7-8% for FY19, as demand has started picking up post sand mining issues in parts of Rajasthan, Tamil Nadu, UP, and Bihar.

Marginal decline in prices QoQ Cement prices should decrease by a marginal 1% QoQ, as price increase in the North and South will be largely offset by price decline in West and East. Cement prices increased 1% QoQ in the North. Pricing improvement was the sharpest in South India (+2% QoQ), followed by North India (+1% QoQ). Prices in Central remained flat QoQ while that in East declined 1%QoQ. Prices in West declined 5%QoQ due to weaker prices in Maharashtra.

Cost push will continue to dent margins Petcoke prices have increased ~35% YoY and 4% QoQ in 2QFY19 due to firm prices globally. Prices of imported coal have also increased 9%QoQ due to depreciating currency impact. This should result in higher power and fuel cost for the companies. Additionally, increase in diesel prices would result in higher freight cost for the companies. Diesel prices have increased 24% YoY and ~5% QoQ, which should translate into higher freight cost. We believe the price hikes in various regions would not be sufficient to mitiagte the impact of rising costs pressure. EBITDA/ton is likely to be lower (by INR87 QoQ) for our coverage companies.

Company name

ACC

Ambuja Cements

Birla Corporation

Dalmia Cement

Grasim Industries

India Cements

Sanghi Industries

Shree Cement

Ramco Cement

UltraTech Cement

Technology

July 2018 Results Preview | Sector: Cement

Cement

September 2018 Results Preview | Sector: Cement

October 2018 92

Top picks: Shree Cement, UTCEM and Dalmia Cement Shree Cement’s superior execution capabilities would enable it to achieve RoIC of over 30% (FY20E), while its gross block to capacity has been structurally trending downward. UTCEM is likely to be the biggest beneficiary of a likely upturn in the Indian cement cycle over FY18-20, as it commands ~23% market share. We believe Dalmia Cement’s earnings growth will be superior to industry growth, led by acquisitions and positive operating leverage.

Exhibit 1: Trend in key performance indicators Sector CMP Sales (INR M) EBTIDA (INR M) Net Profit (INR M)

(INR) RECO Sep-18 Var % YoY



YoY Var % QoQ

Cement ACC 1,502 Buy 33,418 7.2 -13.2 5,287 27.4 -20.8 2,660 49.7 -28.0 Ambuja Cements 215 Neutral 25,264 8.9 -16.3 4,454 25.7 -28.4 2,532 -7.1 -49.3 Birla Corporation 644 Buy 14,350 16.2 -13.3 1,731 -2.1 -29.9 109 643.4 -86.5 Dalmia Bharat 2,258 Buy 21,716 18.4 -8.3 4,457 1.1 -14.9 731 -23.3 -41.2 Grasim Industries 970 Neutral 42,573 5.5 -11.1 9,530 21.4 -9.6 5,856 -6.8 -8.9 India Cements 100 Neutral 13,905 9.6 2.2 1,447 -20.2 -7.3 117 -50.8 -44.6 Ramco Cements 638 Buy 11,220 5.5 -6.9 1,894 -34.9 -19.4 918 -42.9 -26.5 Sanghi Inds. 68 Buy 2,187 6.4 -20.4 236 -49.4 -45.5 25 -76.9 -87.3 Shree Cement 16,678 Buy 24,618 15.2 -19.8 4,556 -18.7 -29.4 1,549 -26.9 -55.4 Ultratech Cement 3,864 Buy 83,787 27.5 -3.2 14,545 7.6 -10.4 5,218 21.0 -12.8 Sector Aggregate 273,039 14.8 -9.7 48,138 4.6 -17.3 19,713 -2.1 -30.3

Exhibit 2: MOSL universe volume at 52mt, growth of 15%YoY

Source: Company, MOSL Exhibit 3: Pan-India average cement prices (INR/bag) down 1% QoQ in 2QFY19


36 38 40

42 39 41 48 46 40 43 52 50 45 52 59 58 52

1.5 1.5

(9.2)

(0.4)

6.4 8.1

19.4

9.6

3.1 5.3 8.8 7.4

12.3

20.4

13.2 16.7 15.3

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Aggregate Vol (m ton) Volume growth (%)

286

281

277

315

304

292

283

278

274

310

301

289

281

283

275

296

311

289

274

291

289

297

317

293

275

289

275

302

316

291

North Average Prices(INR/bag)

East Average Prices(INR/bag)

West Average Prices(INR/bag)

South Average Prices(INR/bag)

Central Average Prices(INR/bag)

National AveragePrices (INR/bag)



October 2018 93

Exhibit 4: Diesel prices up 24% YoY in 2QFY19


Exhibit 5: Petcoke prices increased 35% YoY in 2QFY19


Exhibit 6: MOSL coverage realization should increase ~1% QoQ in 2QFY19


Exhibit 7: Profitability to decline 10% QoQ, led by cost push on account of increase in fuel prices


Exhibit 8: Relative performance—3 months (%)

Exhibit 9: Relative performance—1 year (%)


51.5 52.8 55.0 58.8 55.9 58.8 61.4 66.3 69.4 72.8

4% 12%

20% 29%

8% 11% 11% 13%

24% 24%

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Diesel price (INR/ltr) YoY growth in Diesel prices

4,583 5,983 6,400 6,293 6,933 7,000 8,000 8,250 9,150 9,480

-21% 3%

44% 67%

51%

17% 25% 31% 32% 35%

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Retail petcoke prices (INR/tonne)YoY growth in Retail petcoke prices

4,31

1

4,18

8

4,35

8

4,39

3

4,51

4

4,40

5

4,19

1

4,38

4

4,55

3

4,42

2

4,35

4

4,69

3

4,69

0

4,56

1

4,63

5

4,67

2

4,72

8

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Realization (Rs/ton)

850

725

979

853

897

879

991

986

902

804

798

1,04

8

891

771

838

870

783

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Aggregate EBITDA (Rs/ton)

95

103

111

119

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Cement Index

75

90

105

120

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Cement Index


October 2018 94

Exhibit 10: Trend in key operating parameters

Volume (m ton) Realization (INR/ton) EBITDA (INR/ton) 2QFY19 YoY (%) QoQ (%) 2QFY19 YoY (INR) QoQ (INR) 2QFY19 YoY (INR) QoQ (INR) ACC 6.3 6.0 -12.7 4882 133.1 10.0 837 140.5 -85.4 Ambuja Cement 5.4 6.7 -16.4 4717 95.8 10.0 832 125.6 -139.3 UltraTech 16.7 27.1 -4.5 5015 14.1 69.4 871 -157.8 -57.2 Birla Corp 3.1 15.1 -13.3 4464 -198.1 -35.0 567 -99.8 -134.1 India Cement 3.1 14.0 0.1 4516 -179.7 91.0 470 -201.6 -37.5 Shree Cement 5.5 13.0 -21.1 4207 37.3 100.0 813 -320.0 -50.6 Dalmia Bharat 4.1 13.0 -8.8 5280 242.1 30.0 1084 -127.5 -78.2 JK Lakshmi Cem. 2.0 7.5 -11.3 4032 -76.8 0.0 316 -188.8 -93.8 Madras Cement 2.4 13.0 -7.0 4577 -206.1 40.0 756 -458.9 -89.7 Orient Cement 1.4 8.0 -11.8 3982 -14.0 -10.0 465 -105.0 -67.9 Prism Cement 1.3 12.0 -24.9 4330 391.0 -50.0 621 170.9 -372.2 Sanghi Industries 0.5 15.0 -20.1 4094 -332.8 -20.0 442 -562.6 -206.9 Sector Agg. 52 15 (11) 4,728 38 56 783 (108) (87)

Exhibit 11: Comparative Valuations Sector / Companies CMP RECO EPS (INR) PE (x) PB (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Cement ACC 1,502 Buy 46.9 68.0 87.6 32.0 22.1 17.1 13.6 10.2 8.2 9.7 13.3 15.8 Ambuja Cements 215 Neutral 6.1 6.9 8.3 35.3 31.1 25.8 22.5 17.9 15.7 6.1 6.7 7.7 Birla Corporation 644 Buy 18.9 26.5 71.8 34.0 24.3 9.0 11.4 9.0 7.3 3.8 4.7 12.0 Dalmia Bharat 2,258 Buy 55.7 62.5 101.1 40.5 36.1 22.3 14.1 10.4 8.7 9.0 8.9 13.0 Grasim Industries 970 Neutral 47.3 65.3 83.3 20.5 14.9 11.6 5.5 4.1 2.9 7.0 7.2 8.6 India Cements 100 Neutral 3.3 3.6 5.1 30.5 27.4 19.6 10.8 9.5 7.8 2.0 2.1 2.9 JK Lakshmi Cem. 297 Buy 7.4 8.3 10.6 40.2 35.8 28.1 16.8 10.4 8.9 6.1 6.5 7.8 Orient Cement 91 Buy 2.2 4.2 6.4 42.3 21.6 14.2 13.6 8.3 7.1 4.4 8.2 11.4 Prism Johnson 91 Buy 1.1 3.6 5.7 85.5 25.3 15.8 19.8 11.1 8.9 4.0 15.1 21.0 Ramco Cements 638 Buy 24.0 22.5 31.7 26.6 28.3 20.1 16.8 15.7 11.7 14.5 12.5 15.6 Sanghi Inds. 68 Buy 3.7 4.5 6.3 18.3 15.0 10.9 14.8 12.4 11.1 6.9 6.8 8.7 Shree Cement 16,678 Buy 385.8 363.3 535.8 43.2 45.9 31.1 22.3 20.9 15.6 16.2 13.5 17.4 Ultratech Cement 3,864 Buy 85.7 106.4 122.8 45.1 36.3 31.5 20.3 16.2 13.7 9.4 10.8 10.9 Cement Sector Aggregate

33.7 27.2 20.5 13.1 10.2 8.3 7.3 8.4 10.1



October 2018 95

Quarterly Performance (Standalone)

(INR Million) Y/E December CY17 CY18 CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Cement Sales (m ton) 6.60 6.74 5.96 6.92 7.11 7.24 6.32 7.52 26.22 28.19 YoY Change (%) 3.8 10.1 17.6 27.0 7.7 7.4 6.0 8.7 14.0 7.5 Cement Realization 4,377 4,718 4,749 4,588 4,631 4,872 4,882 4,925 4,623 4,828 YoY Change (%) 4.0 10.1 6.3 2.7 5.8 3.3 2.8 7.4 7.1 4.4

QoQ Change (%) -2.0 7.8 0.7 -3.4 0.9 5.2 0.2 0.9 Net Sales 31,740 34,529 31,165 34,941 36,246 38,483 33,418 41,154 132,846 149,301 YoY Change (%) 8.1 19.9 23.7 29.5 14.2 11.5 7.2 17.8 20.9 12.4 EBITDA 4,161 6,354 4,150 4,084 4,911 6,677 5,287 7,181 18,749 24,055 Margins (%) 13.1 18.4 13.3 11.7 13.5 17.3 15.8 17.4 14.1 16.1 Depreciation 1,650 1,621 1,551 1,579 1,474 1,481 1,500 1,583 6,401 6,038 Interest 252 225 213 334 193 275 275 304 1,023 1,047 Other Income 357 260 238 462 468 316 400 446 1,317 1,630 PBT before EO Item 2,617 4,768 2,624 2,633 3,712 5,236 3,912 5,740 12,642 18,600 EO Income/(Expense) 0 0 0 342 0 -438 0 0 342 -438 PBT after EO Item 2,617 4,768 2,624 2,975 3,712 4,798 3,912 5,740 12,984 18,162 Tax 502 1,550 847 930 1,261 1,543 1,252 1,756 3,829 5,812 Rate (%) 19.2 32.5 32.3 31.3 34.0 32.2 32.0 30.6 29.5 32.0 Reported PAT 2,115 3,218 1,777 2,045 2,451 3,255 2,660 3,984 9,155 12,350 Adjusted PAT 2,115 3,218 1,777 1,703 2,451 3,693 2,660 3,984 8,813 12,788 Margins (%) 6.7 9.3 5.7 4.9 6.8 9.6 8.0 9.7 6.6 8.6 YoY Change (%) -9.9 32.7 111.3 38.1 15.9 14.8 49.7 133.9 27.7 45.1 E: MOSL Estimates


ACC

CMP: INR1,502 TP: INR1,747 (+16%) Buy We expect dispatches to grow 6% YoY to 6.32m tons in 3QCY18, led

by growth in underlying markets. Average realizations are expected to remain flat QoQ to INR4,882/ton as higher realizations in the South and North will be offset by weaker realizations in East India.

Revenues are expected to increase ~7% YoY to INR33.4b. EBITDA margin is expected to be 15.8%, (-1.5 pp QoQ; +2.5 pp YoY).

EBITDA/ton is estimated at INR837 (-INR 85 QoQ) due to INR 60/t QoQ increase in cost. PAT is likely to increase by 50% YoY to INR2.6b.

The stock trades at a P/E of 22x (CY18E) and 17x (CY19E), EV/EBITDA of 10x (CY18E) and 8x (CY19E), and EV/ton of USD110 (CY18E) and USD104 (CY19E). Maintain Buy.

Key issues to watch out for Cement pricing recovery Volume growth

Bloomberg ACC IN Equity Shares (m) 188.0 M. Cap. (INR b)/(USD b) 282 / 4


Financial Snapshot (INR Billion) Y/E Dec 2016 2017 2018E 2019E Sales 110 132.8 149.3 166.5 EBITDA 15 18.7 24.1 28.5 NP 7 8.8 12.8 16.5 Adj. EPS (INR) 37 46.9 68.0 87.6 EPS Gr. (%) -7 27.7 45.1 28.8 BV/Sh (INR) 470 498.4 527.9 579.5 RoE (%) 8 9.7 13.3 15.8 RoCE (%) 8 10.0 13.0 15.6 Payout (%) 59 64.2 55.0 41.2 Valuations P/E (x) 41 32.0 22.1 17.1 P/BV (x) 3 3.0 2.8 2.6 EV/EBITDA (x) 18 13.4 10.1 8.1 EV/Ton (x) 117 113.4 109.7 104.3

October 2018 96

Quarterly Performance (INR Million) Y/E December CY17 CY18E CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Sales Volume (m ton)* 6.02 6.07 5.02 5.87 6.22 6.41 5.36 6.37 22.98 24.36

YoY Change (%) 0.9 3.8 9.6 15.3 3.3 5.6 6.7 8.6 6.9 6.0 Realization (INR/ton) 4,203 4,703 4,621 4,569 4,602 4,707 4,717 4,781 4,532 4,702

YoY Change (%) 4.2 8.8 5.0 4.5 9.5 0.1 2.1 4.7 5.9 3.8 QoQ Change (%) -3.8 11.9 -1.7 -1.1 0.7 2.3 0.2 1.4

Net Sales 25,302 28,545 23,196 26,819 28,626 30,169 25,264 30,469 104,138 114,527 YoY Change (%) 5.2 12.9 15.1 20.6 13.1 5.7 8.9 13.6 7.6 26.0

EBITDA 3,651 6,510 3,544 5,076 5,071 6,223 4,454 5,818 19,071 21,567 Margins (%) 14.4 22.8 15.3 18.9 17.7 20.6 17.6 19.1 18.3 18.8

Depreciation 1,460 1,439 1,403 1,427 1,393 1,364 1,364 1,360 5,729 5,481 Interest 377 165 313 217 257 192 192 193 1,072 834 Other Income 1,310 560 1,531 481 507 1,911 500 443 3,591 3,361 PBT before EO Item 3,124 5,466 3,359 3,912 3,928 6,578 3,398 4,708 15,861 18,613 Extraordinary Inc/(Exp) 0 0 0 572 0 0 0 0 572 0 PBT after EO Exp/(Inc) 3,124 5,466 3,359 4,484 3,928 6,578 3,398 4,708 16,432 18,613 Tax 658 1,544 635 1,100 1,211 1,586 867 1,270 3,937 4,933

Rate (%) 21.1 28.2 18.9 24.5 30.8 24.1 25.5 27.0 24.0 26.5 Reported Profit 2,466 3,922 2,724 3,384 2,718 4,993 2,532 3,439 12,496 13,681 Adj PAT 2,466 3,922 2,724 2,952 2,718 4,993 2,532 3,439 12,061 13,681

YoY Change (%) 423.7 -13.2 10.0 56.3 10.2 27.3 -7.1 16.5 30.5 13.4 E: MOSL Estimates


Ambuja Cements

CMP: INR215 TP: INR220 (+3%) Neutral We expect dispatches to grow 6.7% YoY to 5.36m tons in 3QCY18,

led by volume growth in underlying markets. Average realizations are expected to increase 0.2% QoQ to INR4,717/ton due to healthy prices in North partially offset by weaker prices in west. Revenue is likely to grow 9% YoY (and -16% QoQ) to INR25.2b.

EBITDA margin is expected to be 17.6% (+2.35pp YoY, -3pp QoQ). EBITDA/ton is estimated at INR832 (-INR139 QoQ, +INR126 YoY).

Adjusted PAT is estimated to decline 7% YoY to INR2.5b. The stock trades at a P/E of 21x (CY18E) and 17x (CY19E),

EV/EBITDA of 11x (CY18E) and 9.7x (CY19E), and EV/ton of USD120 (CY18E) and USD116(CY19E). Maintain Neutral.

Key issues to watch out for Volume growth recovery and outlook Cement pricing outlook and sustainability Cost curve trend in CY18

Bloomberg ACEM IN


1,6,12 Rel Perf. (%) -4 / -19 / -35

Financial Snapshot (INR Billion) Y/E DEC 2016 2017 2018E 2019E

Sales 92.0 104.1 114.5 124.5

EBITDA 16.9 19.1 21.6 23.7

NP 9.2 12.1 13.7 16.5

Adj. EPS (INR) 4.7 6.1 6.9 8.3

EPS Gr. (%) -14.8 30.5 13.4 20.6

BV/Sh. (INR) 97.8 100.9 105.5 111.5

RoE (%) 4.8 6.1 6.7 7.7

RoCE (%) 6.6 6.5 7.0 8.0

Payout (%) 38.9 34.2 34.0 28.2

Valuations P/E (x) 29.7 23.8 21.0 17.4

P/BV (x) 1.4 1.4 1.4 1.3

EV/EBITDA (x) 14.5 13.0 11.0 9.7

EV/Ton (USD) 125 126 120 116

October 2018 97

Consolidated Performance

(INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Cement Sales (m ton) 3.28 2.65 3.03 3.41 3.52 3.05 3.33 3.71 12.37 13.61 YoY Change (%) 51.3 27.5 21.9 4.0 7.3 15.1 10.0 8.8 22.8 10.0 Cement Realization 4,449 4,662 4,585 4,840 4,499 4,464 4,614 4,697 4,548 4,798 YoY Change (%) 6.3 2.6 5.9 10.5 1.1 -4.2 0.6 -3.0 14.3 5.5

QoQ Change (%) 1.5 4.8 -1.7 5.6 -7.1 -0.8 3.4 1.8 Net Sales 14,588 12,355 13,893 16,506 16,559 14,350 16,144 18,258 57,342 65,311 YoY Change (%) 63.3 30.8 29.1 14.8 13.5 16.2 16.2 10.6 31.9 13.9 Total Expenditure 12,184 10,587 12,506 13,999 14,092 12,620 13,998 15,715 49,275 56,425 EBITDA 2,404 1,768 1,387 2,507 2,467 1,731 2,146 2,543 8,066 8,887 Margins (%) 16.5 14.3 10.0 15.2 14.9 12.1 13.3 13.9 14.1 13.6 Depreciation 832 831 823 836 859 860 860 860 3,322 3,439 Interest 937 1,053 958 829 952 955 955 955 3,776 3,817 Other Income 161 119 141 334 232 229 229 230 755 920 Profit before Tax 671 3 -252 1,385 854 145 560 958 1,807 2,551 Tax 239 -12 -34 74 84 36 140 251 267 510 Rate (%) 35.6 -421.4 13.4 5.3 9.8 25.0 25.0 26.2 14.8 20.0 Reported PAT 432 15 -218 1,311 770 109 420 707 1,540 2,041 EO Income/(Expense) 125 0 0 -208 35 0 0 0 -83 0 Adj. PAT 557 15 -218 1,103 805 109 420 707 1,456 2,041 YoY Change (%) -41.0 -97.8 -47.1 2.1 44.6 643.4 -292.4 -35.9 -35.6 40.1 E: MOSL Estimates


Birla Corporation

CMP: INR 644 TP: INR818 (+27%) Buy 2QFY19 consolidated cement volumes are estimated to increase

15% YoY to 3.05m tons, led by ramp-up of Reliance assets. Realizations are estimated to decrease by 0.8% QoQ to INR4,464/ton, led by weaker prices in central and eastern region.

We estimate consolidated cement EBITDA/ton at INR567 (-19% QoQ). EBITDA margin is expected to decline QoQ to 12%.

Consolidated EBITDA is likely to decrease 2% YoY and 30% QoQ to INR1.7b. We expect the company to report PAT of INR109m in 2QFY19 as against INR15m in 2QFY18.

The stock trades at a P/E of 24.3x (FY19E) and 9x (FY20E), EV/EBITDA of 8.2x (FY19E) and 6.6x (FY20E), and EV/ton of USD70 (FY19E) and USD63 (FY20E). Maintain Buy.

Key issues to watch out for Volume growth recovery and outlook Cement pricing outlook and sustainability Update on profitability of acquired subsidiary of Reliance

Bloomberg BCORP IN

Equity Shares (m) 77.0 M. Cap. (INR b)/(USD m) 50 / 1 52-Week Range (INR) 1290 / 629

1,6,12 Rel Perf. (%) -8 / -24 / -44


Sales 43.5 57.3 65.3 72.1

EBITDA 6.2 8.1 8.9 9.9

NP 2.2 1.5 2.0 5.5

Adj. EPS (INR) 28.5 18.9 26.5 71.8

EPS Gr. (%) 27.9 -35.6 40.1 171.1

BV/Share (INR) 429 556 571 631

RoE (%) 7.1 3.8 4.7 12.0

RoCE (%) 8.0 5.6 5.7 7.2

Payout (%) 40.8 58.1 43.8 16.2

Valuation

P/E (x) 25.2 34.1 24.3 9.0

P/BV (x) 1.7 1.2 1.1 1.0

EV/EBITDA (x) 14.3 9.9 8.2 6.6

EV/Ton (USD) 85 76 70 63

October 2018 98

Quarterly Performance (Consolidated) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales Dispatches (m ton) 3.99 3.64 4.15 5.18 4.51 4.11 4.73 5.63 16.96 18.99 YoY Change (%) 6.1 6.4 16.6 13.8 13.0 13.0 14.0 8.7 10.9 11.9 Realization (INR/ton) 5,123 5,038 5,037 5,064 5,250 5,280 5,340 5,393 5,057 5,321

YoY Change (%) 8.4 0.5 4.2 5.6 2.5 4.8 6.0 6.5 4.2 5.2 QoQ Change (%) 6.9 -1.7 0.0 0.5 3.7 0.6 1.1 1.0

Net Sales 20,441 18,337 20,905 26,233 23,676 21,716 25,262 30,369 85,771 101,023 YoY Change (%) 15.0 7.0 21.4 20.3 15.8 18.4 20.8 15.8 15.5 17.8 EBITDA 5,565 4,408 4,543 5,890 5,240 4,457 5,556 6,939 20,415 22,191 Margins (%) 27.2 24.0 21.7 22.5 22.1 20.5 22.0 22.8 23.8 22.0 Depreciation 1,709 1,653 1,814 1,861 1,798 1,810 1,850 1,878 7,037 7,335 Interest 2,117 1,974 1,419 1,539 1,620 1,550 1,550 1,536 7,049 6,256 Other Income 700 922 507 655 432 435 435 440 2,784 1,742 PBT before EO Expense 2,439 1,703 1,818 3,145 2,254 1,532 2,591 3,965 9,112 10,342 Extra-Ord expense -109 33 -299 23 0 0 0 0 -390 0 PBT after EO Expense 2,549 1,669 2,116 3,122 2,254 1,532 2,591 3,965 9,502 10,342 Tax 831 556 673 1,037 773 521 881 1,341 3,067 3,516 Rate (%) 32.6 33.3 31.8 33.2 34.3 34.0 34.0 33.8 32.3 34.0 Reported PAT (pre minority) 1,718 1,113 1,444 2,086 1,481 1,011 1,710 2,624 6,436 6,826 Minority + associate 357 193 279 249 238 280 280 458 1,078 1,256 PAT Adj for EO items 1,252 953 866 1,859 1,243 731 1,430 2,166 4,968 5,570 YoY Change (%) 33.2 206.5 112.6 11.7 -0.8 -23.3 65.1 16.5 -0.2 12.1 E: MOSL Estimates


Dalmia Cement

CMP: INR2,258 TP: INR2,888(+28%) Buy 2QFY19 cement volumes are estimated to increase ~13% YoY to

4.11m tons, led by growth in the South. Realizations are estimated to increase 0.6% QoQ to INR5,280/ton, led by healthy prices in the South.

We estimate cement EBITDA/ton at INR1,084 (-INR128/ton YoY) and EBITDA margin at 20.5% (-3.5pp YoY; -1.6pp QoQ) due to 3% YoY increase in cost.

EBITDA is estimated to increase 1% YoY to INR4.5b, translating into adjusted PAT decline of 23% YoY to INR731m.

The stock trades at a P/E of 36x (FY19E) and 22x (FY20E), EV/EBITDA of 11x (FY19E) and 8.4x (FY20E), and EV/ton of USD142 (FY19E) and USD120 (FY20E). Maintain Buy.

Key issues to watch out for Volume growth recovery and outlook Cement pricing outlook and sustainability Update on restructuring timelines

Bloomberg DBEL IN


1,6,12 Rel Perf. (%) -6 / -29 / -32

Financial Snapshot (INR Billion)

Y/E March 2017 2018 2019E 2020E

Sales 74.2 85.8 101.0 123.7 EBITDA 18.9 20.4 22.2 28.5 NP 2.6 5.0 5.6 9.0 Adj. EPS(INR) 28.7 55.7 62.5 101.1 EPS Gr. (%) 34.2 106.3 12.1 61.9 BV/Sh (INR) 558 673 732 828 RoE (%) 5.3 9.0 8.9 13.0 RoCE (%) 6.3 8.3 8.2 10.3 Payout (%) 8.1 4.2 5.6 4.6 Valuation P/E (x) 78.1 40.5 36.1 22.3 P/BV (x) 4.0 3.4 3.1 2.7 EV/EBITDA (x) 14.3 12.2 11.0 8.4 EV/Ton (USD) 143 146 142 120

October 2018 99

Quarterly Performance (Standalone) (INR Million) Y/E March FY18 FY19 FY18 FY19E (Standalone) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 27,403 40,373 43,838 46,056 47,892 42,573 44,815 43,885 157,885 179,165 YoY Change (%) 14.4 62.2 73.6 60.1 74.8 5.5 2.2 -4.7 52.6 13.5 EBITDA 5,553 7,852 8,896 8,447 10,542 9,530 10,089 9,916 30,802 40,077 Margins (%) 20.3 19.4 20.3 18.3 22.0 22.4 22.5 22.6 19.5 22.4 Depreciation 1,103 1,664 1,658 1,853 1,827 1,827 1,827 1,925 6,277 7,407 Interest 73 427 295 486 588 588 588 560 1,281 2,324 Other Income 658 2,688 212 1,020 1,217 1,250 1,250 1,283 4,523 5,000 PBT before EO Items 5,036 8,449 7,154 7,128 9,343 8,365 8,924 8,714 27,767 35,346 Extraordinary Inc/(Exp) 0 -540 91 -2186.5 0 0 0 0.0 -2,635 0 PBT after EO Items 5,036 7,909 7,245 4,942 9,343 8,365 8,924 8,714 25,131 35,346 Tax 1,564 2,164 2,507 1,210 2,918 2,510 2,677 2,499 7,445 10,604 Rate (%) 31.1 27.4 34.6 24.5 31.2 30.0 30.0 28.7 29.6 30.0 Reported PAT 3,472 5,745 4,739 3,731 6,426 5,856 6,247 6,214 17,687 24,742 Adj. PAT 3,472 6,285 4,648 5,918 6,426 5,856 6,247 6,214 20,322 24,742 Margins (%) 12.7 15.6 10.6 12.8 13.4 13.8 13.9 14.2 12.9 13.8 YoY Change (%) 8.2 6.1 40.3 87.6 85.1 -6.8 34.4 5.0 30.3 21.8 E: MOSL Estimates


Grasim Industries

CMP: INR 970 TP: INR1,069 (+10%) Neutral We expect net sales of INR42.5b; (5%YoY; -11%QoQ) led by 5%YoY

increase in sales of VSF and 11%YoY sales in Chemical business Standalone EBITDA should increase by 21%YoY to INR 9.5bn led by

8%YoY increase in EBITDA for VSF and 41%YoY increase for chemical business. We estimate EBITDA margin at 22.4% (+2.9pp;+0.37QoQ).

We estimate adjusted PAT at INR5.8b (-7% YoY) due to higher depreciation and interest. Maintain Neutral.

Key issues to watch out for Pick-up in cement demand and pricing Outlook on VSF business and strategy to utilize upcoming

capacities globally Outlook on chemical business

Bloomberg GRASIM IN


1,6,12 Rel Perf. (%) -2 / -19 / -31


Sales 360.7 562.0 689.9 800.5

EBITDA 73.9 121.9 151.2 172.1

Adj. PAT 31.7 31.1 42.9 54.8

Adj. EPS (INR) 67.8 47.3 65.3 83.3

EPS Gr. (%) 26.9 -30.2 37.9 27.7

BV/Sh. (INR) 672.3 872.6 932.4 1010.4

RoE (%) 10.8 7.0 7.2 8.6

RoCE (%) 12.2 9.2 8.1 9.1

Payout (%) 7.7 11.3 8.2 6.4

Valuations

P/E (x) 14.3 20.5 14.9 11.6

P/BV (x) 1.4 1.1 1.0 1.0

EV/EBITDA (x) 7.6 9.4 14.6 9.8

October 2018 100

Quarterly Performance (Standalone) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales Dispatches (m ton) 2.66 2.70 2.73 3.08 3.08 3.08 3.11 3.30 11.17 12.57 YoY Change (%) 15 10 3 5 16 14 14 7 1.2 12.5 Realization (INR/ton) 4,857 4,696 4,450 4,524 4,425 4,516 4,646 4,715 4,599 4,553

YoY Change (%) -6.1 -10.7 -7.0 -1.7 -8.9 -3.8 4.4 4.2 0.6 -1.0 QoQ Change (%) 5.6 -3.3 -5.2 1.7 -2.2 2.1 2.9 1.5

Net Sales 12,901 12,683 12,131 13,978 13,607 13,905 14,437 15,581 51,692 57,530 YoY Change (%) 7.3 -3.0 -4.3 4.0 5.5 9.6 19.0 11.5 1.8 11.3 EBITDA 1,856 1,814 1,673 1,585 1,561 1,447 1,655 1,973 6,928 6,636 Margins (%) 14.4 14.3 13.8 11.3 11.5 10.4 11.5 12.7 13.4 11.5 Depreciation 630 632 633 664 616 620 620 620 2,559 2,476 Interest 874 886 924 718 733 733 733 740 3,402 2,939 Other Income 52 66 37 39 55 55 50 55 194 215 PBT before EO expense 404 362 152 242 267 149 352 668 1,161 1,436 Extra-Ord expense 0 0 0 0 0 0 0 0 PBT 404 362 152 242 267 149 352 668 1,161 1,436 Tax 140 125 0 -110 57 33 77 149 155 316 Rate (%) 34.6 34.6 0.0 -45.5 21.2 22.0 22.0 22.3 13.3 22.0 Reported PAT 264 237 152 353 210 117 275 519 1,006 1,120 Adj PAT 264 237 152 353 210 117 275 519 1,006 1,120 YoY Change (%) -39.9 -62.1 -56.9 2.9 -20.5 -50.8 80.2 47.1 -42.0 11.3 Margins (%) 2.0 1.9 1.3 2.5 1.5 0.8 1.9 3.3 1.9 1.9 E: MOSL Estimates


India Cements

CMP: INR100 TP: INR96 (-4%) Neutral India Cements’ volumes are expected increase by 14% YoY to

3.08m tons in 2QFY19 due to healthy demand from the southern region. We expect realizations to increase by 2% QoQ to INR4,516/ton due to price recovery in the underlying markets of the South. We estimate revenue at INR13.9b (+10% YoY).

EBITDA is estimated at INR1.4b. EBITDA margin is likely to contract 3.9pp YoY and 1.06pp QoQ to 10.4%, translating into blended EBITDA/ton of INR470 (-INR202 YoY) led cost push. PAT is expected to be INR117m in 2QFY19 (-51% YoY).

The stock trades at a P/E of 28x (FY19E) and 19.7x (FY20E), EV/EBITDA of 9.5x (FY19E) and 7.8x (FY20E), and EV/ton of USD59 (FY19E) and USD56 (FY20E). Maintain Neutral.

Key issues to watch out for Visibility on demand recovery in the South Pricing outlook in South India

Bloomberg ICEM IN


1,6,12 Rel Perf. (%) -13 / -43 / -60


Y/E March 2017 2018 2019E 2020E

Sales 50.8 51.7 57.5 65.0 EBITDA 8.6 6.9 6.6 7.6

NP 1.7 1.0 1.1 1.6

Adj. EPS (INR) 5.6 3.3 3.6 5.1

EPS Gr. (%) 31.3 -42.0 11.3 39.8

BV/Sh (INR) 165.8 168.8 171.2 175.2

RoE (%) 3.4 2.0 2.1 2.9

RoCE (%) 5.1 4.8 4.1 5.0

Payout (%) 20.7 24.5 32.0 22.9

Valuations P/E (x) 18.6 30.7 27.6 19.7

P/BV (x) 0.6 0.6 0.6 0.6

EV/EBITDA(x) 7.1 9.0 9.5 7.8

EV/Ton (USD) 58 58 59 56

October 2018 101

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales Dispatches (m ton) 2.15 2.15 2.27 2.74 2.61 2.43 2.59 3.16 9.31 10.80 YoY Change (%) 4.1 6.3 14.7 20.2 21.6 13.0 14.0 15.6 11.5 16.0 Realization (INR/ton) 4,607 4,783 4,606 4,571 4,537 4,577 4,717 4,807 4,638 4,668

YoY Change (%) 1.0 -0.1 -1.9 2.7 -1.5 -4.3 2.4 5.1 0.4 0.6 QoQ Change (%) 3.5 3.8 -3.7 -0.8 -0.8 0.9 3.1 1.9

Net Sales 10,165 10,633 10,534 12,519 12,046 11,220 12,318 15,449 43,851 51,034 YoY Change (%) 5.1 5.0 12.4 23.1 18.5 5.5 16.9 23.4 11.6 16.4 EBITDA 2,781 2,908 2,276 2,694 2,350 1,894 2,308 3,288 10,658 9,840 Margins (%) 27.4 27.3 21.6 21.5 19.5 16.9 18.7 21.3 24.3 19.3 Depreciation 720 718 730 754 735 725 725 731 2,922 2,916 Interest 155 173 160 105 114 145 145 144 592 548 Other Income 176 103 82 218 202 200 200 198 579 800 PBT 2,082 2,197 1,592 1,765 1,703 1,224 1,638 2,611 7,636 7,176 Tax 524 511 364 679 453 306 426 681 2,079 1,866 Rate (%) 25.2 23.3 22.9 38.5 26.6 25.0 26.0 26.1 27.2 26.0 Reported PAT 1,558 1,685 1,227 1,086 1,250 918 1,212 1,930 5,557 5,310 Adj PAT 1,558 1,609 1,103 1,374 1,250 918 1,212 1,930 5,644 5,310 YoY Change (%) -0.1 -22.3 -26.4 2.2 -19.8 -42.9 9.9 40.5 -12.8 -5.9 Margins (%) 15.3 15.1 10.5 11.0 10.4 8.2 9.8 12.5 12.9 10.4 E: MOSL Estimates

CMP: INR638 TP: INR767 (+20%) Buy 2QFY19 volumes are estimated to grow 13% YoY to 2.43m tons,

with growth from underlying markets of the South. Average realizations are expected to increase by 1% QoQ to 4,577/ton due to healthy prices in the South offset by weaker prices in Eas.

EBITDA margin is likely to contract 10.46pp YoY (-2.63pp QoQ) to 17%. EBITDA/ton (ex-windmill) is estimated at INR756 (-INR459 YoY, -INR90 QoQ) due to cost push.

PAT is estimated to decrease 43% YoY to INR918m. The stock trades at a P/E of 28x (FY19E) and 20x (FY20E),

EV/EBITDA of 15.2x (FY19E) and 11.5x (FY20E), and EV/ton of USD140 (FY19E) and USD122 (FY20E). Maintain Buy.

Key issues to watch out for Volume growth recovery and outlook Cement pricing outlook and demand sustainability in the South

(AP and Tamil Nadu)


Ramco Cements

Bloomberg TRCL IN Equity Shares (m) 235.6 M. Cap. (INR b)/(USD b) 150 / 2 52-Week Range (INR) 879 / 615 1,6,12 Rel Perf. (%) 1 / -24 / -23

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018 2019E 2020E

Sales 39.3 43.9 51.0 64.3

EBITDA 11.7 10.7 9.8 13.4 NP 6.5 5.6 5.3 7.5 Adj. EPS (INR) 27.2 24.0 22.5 31.7

EPS Gr. (%) 23.7 -11.9 -5.9 40.8 BV/Sh. (INR) 157.1 171.6 189.5 216.5 RoE (%) 19.0 14.5 12.5 15.6



EV/Ton (USD) 162 145 140 122

October 2018 102

Standalone - Quarterly Earning Model

(INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales Dispatches (m ton) 0.67 0.46 0.73 0.62 0.67 0.53 0.84 0.84 2.44 2.88 YoY Change (%) (6.5) (18.5) (13.3) (20.1) 0.5 15.0 15.0 35.1 (15.6) 18.0 Realization (INR/ton) 4,324 4,427 3,838 4,091 4,114 4,094 4,234 4,290 4,209 4,197

YoY Change (%) 13.6 21.8 18.5 28.7 (4.8) (7.5) 10.3 4.9 21.9 (0.3) QoQ Change (%) 36.0 2.4 (13.3) 6.6 0.6 (0.5) 3.4 1.3

Net Sales 2,875 2,056 2,796 2,536 2,748 2,187 3,547 3,593 10,264 12,075 YoY Change (%) 6.2 -0.8 2.8 2.8 -4.4 6.4 26.9 41.7 2.9 17.7 EBITDA 661 467 618 413 434 236 628 687 2,158 1,985 Margins (%) 23.0 22.7 22.1 16.3 15.8 10.8 17.7 19.1 21.0 16.4 Depreciation 178 180 181 185 195 200 202 205 724 801 Interest 187 189 173 173 123 123 123 125 721 494 Other Income 21 11 57 131 83 112 115 137 220 447 PBT before EO expense 316 109 322 186 199 25 418 495 933 1,137 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 316 109 322 186 199 25 418 495 933 1,137 Tax 0 0 0 0 0 0 0 0 0 0 Rate (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Reported PAT 316 109 322 186 199 25 418 495 933 1,137 Adj PAT 316 109 322 186 199 25 418 495 933 1,137 YoY Change (%) 32.9 28.4 596.7 -29.2 -37.1 -76.9 30.0 165.9 47.8 21.9 Margins (%) 11.0 5.3 11.5 7.3 7.2 1.2 11.8 13.8 9.1 9.4


Sanghi Industries

CMP: INR68 TP: INR102 (+50%) Buy We expect 2QFY19 cement volumes to increase 15% YoY to 0.53mt

due to increase in sales in the new markets of Mumbai. Realizations are expected to decline 0.5% QoQ to INR4,094/ton due to weaker prices in west .

Revenue is estimated at INR2.18b (+6% YoY; -20% QoQ) and EBITDA at INR236mn (-49%YoY; -46%QoQ), translating into margin of 10.8% (-11.9pp YoY; -5pp QoQ), led by QoQ realization decline along with cost push. Adjusted PAT is likely to be INR25m (-77% YoY; -87% QoQ).

The stock trades at a P/E of 15x (FY19E) and 10.9x (FY20E), EV/EBITDA of 8.3x (FY19E) and 5.7x (FY20E), and EV/ton of USD55 (FY19E) and USD52 (FY20E). Maintain Buy.

Key issues to watch out for Volume and pricing recovery for western region. Update on expansion projects.

Bloomberg SNGI IN


1,6,12 Rel Perf. (%) -17 / -52 / -51


Sales 10.0 10.3 12.1 14.2

EBITDA 2.0 2.2 2.0 2.6

NP 0.6 0.9 1.1 1.6

Adj. EPS (INR) 2.9 3.7 4.5 6.3

EPS Gr. (%) -15.7 29.5 21.9 38.2

BV/Share (INR) 50.6 64.1 68.6 74.8

RoE (%) 5.8 6.9 6.8 8.7

RoCE (%) 7.7 8.5 6.9 7.6

Valuation

P/E (x) 28.6 18.3 15.0 10.9

P/BV (x) 1.6 1.1 1.0 0.9

EV/EBITDA (x) 11.1 7.9 8.3 5.7

EV/Ton (USD) 83.6 62.2 54.7 51.9

October 2018 103

Quarterly Performance - Shree Cement (S/A) (INR Million) FY18 FY19 FY18 FY19E Y/E March 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales Dispat. (m ton) 5.89 4.88 5.33 6.44 6.99 5.51 6.28 7.81 22.54 26.59 YoY Change (%) 14.8 6.8 8.5 8.7 18.7 13.0 18.0 21.2 9.7 18.0 Realization (INR/Ton) 4,215 4,170 4,132 4,157 4,107 4,207 4,327 4,419 4,171 4,271

YoY Change (%) 8.5 2.6 10.4 7.4 -2.6 0.9 4.7 6.3 6.8 2.4 QoQ Change (%) 8.9 -1.1 -0.9 0.6 -1.2 2.4 2.9 2.1

Net Sales 25,769 21,368 23,027 28,111 30,699 24,618 28,648 36,397 98,331 120,362 YoY Change (%) 17.2 4.1 23.5 15.3 19.1 15.2 24.4 29.5 14.4 22.4 EBITDA 7,133 5,605 5,293 6,294 6,452 4,556 6,203 8,929 24,325 26,140 Margins (%) 27.7 26.2 23.0 22.4 21.0 18.5 21.7 24.5 24.7 21.7 Depreciation 2,312 2,253 2,100 2,330 3,055 3,060 3,060 3,065 8,994 12,240 Interest 329 380 207 437 562 560 560 565 1,353 2,247 Other Income 974 995 873 1,049 936 1,000 1,000 1,064 3,891 4,000 PBT before EO Exp 5,466 3,968 3,858 4,576 3,771 1,936 3,583 6,363 17,868 15,653 Extra-Ord Expense 0 0 -403 0 676 0 0 0 -403 676 PBT 5,466 3,968 4,262 4,576 3,095 1,936 3,583 6,363 18,271 14,977 Tax 1,065 1,850 928 584 301 387 717 1,591 4,427 2,995

Rate (%) 19.5 46.6 21.8 12.8 9.7 20.0 20.0 25.0 24.2 20.0 Reported PAT 4,401 2,118 3,333 3,992 2,795 1,549 2,867 4,772 13,844 11,982 Adj PAT 4,401 2,118 2,930 3,992 3,471 1,549 2,867 4,772 13,441 12,658 YoY Change (%) -13.3 -27.4 24.5 31.1 -21.1 -26.9 -2.2 19.5 0.4 -5.8

E:MOSL Estimates


Shree Cement

CMP: INR16,678 TP: INR19,461 (+17%) Buy We expect 2QFY19 cement volumes to grow 13% YoY to 5.51m

tons, led by healthy growth in underlying markets. Realizations are expected to increase 2.4% QoQ to INR4,207/ton due to better pricing in the North

Revenue is estimated at INR24.6 b (+15% YoY) and EBITDA at INR4.5b, translating into margin of 18.5% (-7.72pp YoY; -2.5ppQoQ) due to cost push.

We expect power EBITDA to be around INR75m. SRCM should report EBITDA/ton of INR813 (-INR50 QoQ), led by

QoQ increase in cost/t. Adjusted PAT is likely to be INR1.5b (-27% YoY).

The stock trades at a P/E of 46x (FY19E) and 31x (FY20E), EV/EBITDA of 20.9x (FY19E) and 15.6x (FY20E), and EV/ton of USD206 (FY19E) and USD194 (FY20E). Maintain Buy.

Key issues to watch out for Volume and pricing recovery for North India Update on various expansion projects New expansion plans

Bloomberg SRCM IN


1,6,12 Rel Perf. (%) -5 / -8 / -25


Sales 85.9 98.3 120.4 147.4

EBITDA 25.1 24.3 26.1 34.2

NP 13.4 13.4 12.7 18.7

Adj. EPS (INR) 384.4 385.8 363.3 535.8

EPS Gr. (%) 5.4 0.4 -5.8 47.5

BV/Share (INR) 2,210 2,554 2,836 3,309

RoE (%) 18.4 16.2 13.5 17.4

RoCE (%) 17.5 13.7 11.3 14.5

Payout (%) 43.8 15.1 17.9 11.9

Valuation

P/E (x) 41.5 43.2 45.9 31.1

P/BV (x) 7.2 6.5 5.9 5.0

EV/EBITDA (x) 21.0 23.0 20.9 15.6

EV/Ton (USD) 263 227 206 194

October 2018 104

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales (m ton) 13.19 13.14 15.85 18.46 17.50 16.71 18.26 19.61 60.64 72.07 YoY Change (%) 0.0 17.5 35.1 31.2 32.7 27.1 15.2 6.2 21.4 19.1 Blended Realn.(INR/ton) * 5,025 5,001 4,789 4,877 4,946 5,015 5,095 5,196 4,913 5,068 YoY Change (%) 6.4 3.6 0.2 4.0 -1.6 0.3 6.4 6.5 3.2 3.2 QoQ Change (%) 7.2 -0.5 -4.2 1.8 1.4 1.4 1.6 2.0 Net Sales 66,265 65,713 75,899 90,025 86,550 83,787 93,037 101,875 297,901 365,248 EBITDA 15,601 13,513 12,691 17,028 16,238 14,545 17,060 22,682 58,833 70,525 Margins (%) 23.5 20.6 16.7 18.9 18.8 17.4 18.3 22.3 19.7 19.3 Depreciation 3,098 4,988 4,744 4,806 4,860 4,988 4,988 5,000 17,636 19,835 Interest 1,285 3,759 3,472 3,348 3,356 3,260 3,260 3,260 11,863 13,136 Other Income 1,652 1,680 518 1,059 731 1,156 1,156 1,157 4,909 4,200 PBT before EO expense 12,870 6,447 4,993 9,934 8,753 7,454 9,968 15,579 34,243 41,753 Extra-Ord expense 0 0 -1,038 2,263 0 0 0 0 1,225 0 PBT after EO Expense 12,870 6,447 6,031 7,671 8,753 7,454 9,968 15,579 33,018 41,753 Tax 3,963 2,135 1,816 2,791 2,769 2,236 2,990 4,530 10,706 12,526 Rate (%) 30.8 33.1 30.1 36.4 31.6 30.0 30.0 29.1 32.4 30.0 Reported PAT 8,906 4,312 4,215 4,880 5,984 5,218 6,977 11,049 22,313 29,227 Adj PAT 8,906 4,312 3,177 7,142 5,984 5,218 6,977 11,049 23,538 29,227 YoY Change (%) 14.9 -28.3 -43.6 2.4 -32.8 21.0 119.6 54.7 -10.9 24.2 E: MOSL Estimates


UltraTech Cement

CMP: INR3,864 TP: INR4,643 (+20%) Buy 2QFY19 grey cement volumes are estimated at 16.4m tons,

including JPA’s volumes. Realizations are estimated to increase 1.4% QoQ to INR5,015/ton, led by pricing improvement in North and South.

We estimate EBITDA/ton at INR871 (-INR57 QoQ) primarily due to cost push. EBITDA margin is expected to contract 1.4pp QoQ to 17.4%.

EBITDA is estimated to increase 8%YoY to INR14.5b resulting in PAT increasing by 21%YoY to INR 5.2bn.

The stock trades at a P/E of 36x (FY19E) and 31x (FY20E), EV/EBITDA of 15.4x (FY19E) and 13.8x (FY20E), and EV/ton of USD179 (FY19E) and USD165 (FY20E). Maintain Buy.

Key issues to watch out for Volume growth recovery and outlook Cement pricing outlook and sustainability Update on JPA’s operations

Bloomberg UTCEM IN


1,6,12 Rel Perf. (%) -5 / -10 / -16


Sales 238.9 297.9 365.2 457.0

EBITDA 49.7 58.8 70.5 83.4

NP 26.4 23.5 29.2 35.5

Adj. EPS (INR) 96.1 85.7 106.4 122.8

EPS Gr. (%) 11.3 -10.9 24.2 21.3

BV/Share (INR) 872.1 944 1,027 1,271

RoE (%) 11.6 9.4 10.8 10.9

RoCE (%) 9.7 8.5 8.8 9.3

Payout (%) 12.1 15.3 21.8 23.6

Valuation

P/E (x) 39.4 45.1 36.3 31.5

P/BV (x) 4.3 4.1 3.8 3.0

EV/EBITDA (x) 20.5 19.7 15.4 13.8

EV/Ton (USD) 236 207 179 165

October 2018 105

Another quarter of double-digit growth on all fronts Rural sales likely to outpace urban sales for fifth consecutive quarter Strong performance likely from HUVR, ITC, BRIT, PAG and NEST For our Consumer universe, we expect aggregate revenue to grow 12.1% YoY and aggregate PAT to increase 14.6% YoY in 2QFY19. Aggregate EBITDA growth is also likely to come in healthy at 14.7% YoY. While overall sectoral sales and earnings growth appears to be on a recovery path, we note that the 2QFY19 performance will be particularly driven by strong numbers from the two sectoral behemoths HUVR and ITC, which account for over 40% of sales and over 50% of EBITDA/PAT of our coverage universe. While HUVR is likely to sustain its multi-quarter strong performance, ITC’s profitability will benefit from a favorable base. Results of other companies are expected to be a mixed bag. For ITC, we expect sales to grow by 8% YoY (with mid-single-digit increase in cigarette volumes on a base of a 6% decline in 2QFY18), EBITDA by 15.4% YoY and PAT by 13.3% YoY. HUVR is likely to continue its strong momentum in 2QFY19 (sales expected to increase by 15%, volumes by 10%, EBITDA by 23.5% YoY and PAT by 22.4% YoY), outperforming many other smaller players in the sector. BRIT, PAG, NEST and UNSP (led by a decline in interest costs and decent operating performance), too, are expected to exhibit a strong performance on the PAT front. HMN and MRCO are likely to show a subdued performance, while APNT and PIDI should post moderate profit growth owing to higher crude-related material costs. 2QFY19-specific trends Demand revival and sustained rural growth, despite a healthy base of four quarters, has encouraged sectoral players to launch new products and increase adspend over the past two quarters. We believe that this trend is likely to continue into the rest of FY19. Rainfall was 9% below normal, and thus, 2018 technically qualifies as a drought year. However, reservoir levels at 74% were still highest in the past four years and marginally ahead of the 10-year-average, mitigating any adverse impact. While the impact of floods in Kerala and the transport strike were not material at a national level, there has been an impact on demand from CSD of late. Mentha prices on a sharp uptrend PFAD/palm oil prices declined 15.1%/18.4% YoY in 2QFY19. Ti02 price resumed uptrend after some softening in 1QFY19, while VAM prices remained at high levels. Mentha prices were up 50% YoY (+32% QoQ) in 2QFY19, while copra and LLP prices increased 10% YoY and 25% YoY, respectively, in the two months ended August 2018. HDPE prices increased 29% YoY.

Company Name

Asian Paints

Britannia Industries

Colgate

Dabur

Emami

Future Consumer

Godrej Consumer

GSK Consumer

Hindustan Unilever

ITC

Jyothy Labs

Marico

Nestle India

Page Industries

Parag Milk Foods Ltd

Pidilite Industries

P&GHH

United Breweries

United Spirits

Consumer

Krishnan Sambamoorthy – Research analyst ([email protected]); +91 22 3982 5428 Vishal Punmiya – Research analyst ([email protected]); +91 22 3980 4261


October 2018 106

Preference for quality and longevity of growth Despite a correction in the stock prices over the past month, consumer names continue commanding rich near-term valuations. Moreover, if the ongoing inflationary trend – caused by higher crude prices and INR depreciation – continues unabated, sales growth and earnings for the sector could be at considerable risk. Our framework for earnings visibility, longevity of growth and quality management drives our choices in the sector universe. We continue preferring BRIT, HUVR and PIDI. We recently downgraded Dabur to Neutral owing to fair valuations. On the discretionary side, we also downgraded PAG, again due to fair valuations after the massive run up over the past 18 months. UBBL, thus, is our only Buy-rated stock in the discretionary space.

Exhibit 1: Summary of expected quarterly performance Sector CMP Sales (INR M) EBDITA (INR M) Net Profit (INR M)

(INR) RECO Sep-18 Var % YoY


% YoY Var


Var % QoQ

Asian Paints 1,252 Neutral 46,918 10.0 6.9 8,578 7.1 -1.9 5,460 3.8 -4.4 Britannia 5,737 Buy 28,762 13.0 13.1 4,555 20.6 17.0 3,155 21.0 22.2 Colgate 1,088 Buy 11,825 9.0 13.6 3,336 11.0 18.5 2,038 14.8 22.1 Dabur 426 Neutral 22,332 14.0 7.3 4,675 11.3 21.1 3,852 6.4 17.0 Emami 496 Buy 6,281 0.0 2.2 1,919 -4.7 55.4 1,453 -8.6 65.2 Future Consumer 40 Buy 9,757 30.0 16.1 234 83.6 16.6 -12 Loss Loss Godrej Consumer 767 Neutral 28,324 13.0 14.4 5,962 9.9 32.8 4,163 13.6 31.1 GSK Consumer 6,706 Neutral 12,826 15.0 15.8 3,070 17.5 33.3 2,298 19.4 29.7 Hind. Unilever 1,622 Buy 95,554 15.0 0.7 20,776 23.5 -7.7 15,124 22.4 -3.5 ITC 295 Neutral 111,393 8.0 4.0 43,409 15.4 3.3 29,902 13.3 6.1 Jyothy Labs 193 Neutral 4,863 16.0 20.0 890 22.7 45.9 555 31.2 71.3 Marico 327 Neutral 17,667 15.0 -12.8 2,803 8.2 -21.0 1,999 8.1 -23.1 Nestle 9,344 Neutral 28,157 12.0 4.3 6,756 14.4 1.6 4,259 21.8 2.7 P&G Hygiene 9,506 Neutral 7,233 10.0 37.9 1,758 -6.2 109.4 1,121 -3.0 151.7 Page Industries 32,577 Neutral 7,368 17.8 -9.6 1,697 32.1 -10.4 1,123 33.6 -9.7 Parag Milk Foods 249 Neutral 5,701 13.0 3.8 593 18.7 -0.7 305 22.4 7.8 Pidilite Inds. 997 Buy 17,135 12.0 -6.6 3,955 5.2 3.6 2,753 9.3 14.6 United Breweries 1,289 Buy 14,343 12.4 -23.1 2,541 14.5 -36.5 1,107 18.0 -50.1 United Spirits 504 Neutral 22,129 13.4 10.0 3,203 17.5 40.3 1,778 30.2 68.7 Sector Aggregate 498,567 12.1 3.8 120,710 14.7 3.8 82,436 14.6 6.2

Source: MOSL

Exhibit 2: 2QFY19 volume growth expectations (%) Quarter Ending 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E Asian Paints (Dom Deco) 7.0 15.0 13.0 11.0 12.0 2.0 10.0 4.0 9.0 6.0 10.0 10.0 5.0 Britannia (Biscuits) 12.0 11.0 10.0 8.0 10.0 2.0 2.0 2.0 5.0 11.0 11.0 11.0 10.0 Colgate (Toothpaste) 3.0 1.0 3.0 5.0 4.0 (12.0) (3.0) (5.0) (0.9) 12.0 4.0 4.0 5.0 Dabur 5.5 (2.5) 7.0 4.1 4.5 (5.0) 2.4 (4.4) 7.2 13.0 7.7 21.0 7.0 Emami 13.5 9.3 18.0 18.0 11.0 0.2 (1.5) (18.0) 10.0 6.0 8.0 18.0 (5.0) Godrej Cons. (Soaps) MSD MSD MSD LDD (MSD) (8.0) 5.0 (9.0) 15.0 15.0 15.0 10.0 0.0 GSK Consumer 0.0 0.0 0.0 (6.0) (3.0) (17.0) (1.0) 0.0 2.5 15.0 8.0 12.0 11.0 Hindustan Unilever 7.0 6.0 4.0 4.0 (1.0) (4.0) 4.0 0.0 4.0 11.0 11.0 12.0 10.0 ITC (cigarette) (14.0) (5.0) 0.0 3.0 4.0 (1.0) 0.0 1.0 (6.0) (2.0) (2.0) 1.0 6.0 Marico Domestic 5.5 10.5 8.4 8.0 3.0 (4.0) 10.0 (9.0) 8.0 9.4 1.0 12.4 8.0 Pidilite 3.0 6.0 6.0 9.0 7.8 (1.5) 7.0 0.0 15.0 23.0 13.0 20.2 9.0


September 2018 Results Preview | Consumer

October 2018 107

Exhibit 3: Relative performance – 3m (%)

Exhibit 4: Relative performance – 1Yr (%)


Exhibit 5: PFAD prices down 15.1% YoY and 2.4% QoQ


Exhibit 6: Palm oil prices down 18.4% YoY and 7.9% QoQ


Exhibit 7: Mentha prices up 50% YoY and 32% QoQ


Exhibit 8: TiO2 prices up 5.7% YoY and 2.3% QoQ


80

90

100

110

120

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Consumer Index

75

90

105

120

135

150

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Consumer Index

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18Palm Fatty Acid price (INR/MT)

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Palm Oil (Malaysian Ringgit Per Metric Tonne)

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Mentha Oil prices INR / kg

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

TiO2 price (INR/kg)


October 2018 108

Exhibit 9: Comparative valuation Sector / Companies CMP RECO EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Asian Paints 1,252 Neutral 21.1 23.4 28.5 59.2 53.4 43.9 33.3 33.6 27.5 25.3 25.9 29.6 Britannia 5,737 Buy 83.6 98.6 124.9 68.6 58.2 45.9 39.2 38.8 30.4 32.9 32.6 37.6 Colgate 1,088 Buy 25.2 27.8 32.5 43.2 39.1 33.5 25.5 23.2 20.1 49.0 48.3 54.7 Dabur 426 Neutral 7.8 8.5 10.1 54.8 50.4 42.0 33.7 38.7 32.7 25.9 23.2 24.0 Emami 496 Buy 12.1 13.5 16.2 40.9 36.6 30.5 33.9 27.3 23.0 29.2 28.6 31.3 Future Consumer 40 Buy -0.2 0.1 0.9 -213.4 526.7 44.6 202.7 72.8 31.3 -3.3 1.2 13.6 Godrej Consumer 767 Neutral 14.1 16.3 19.0 54.5 46.9 40.4 36.8 33.4 28.6 24.9 24.8 25.0 GSK Consumer 6,706 Neutral 166.5 197.3 222.1 40.3 34.0 30.2 25.0 23.1 19.5 21.2 22.5 22.7 Hind. Unilever 1,622 Buy 24.5 28.7 34.9 66.3 56.5 46.4 38.9 39.5 32.5 78.1 86.0 102.3 ITC 295 Neutral 8.9 10.0 11.4 33.3 29.4 25.8 19.3 19.5 16.9 22.3 22.9 24.2 Jyothy Labs 193 Neutral 4.9 5.7 7.0 39.3 34.2 27.5 27.3 21.9 18.3 16.0 17.3 20.1 Marico 327 Neutral 6.5 7.1 8.7 50.6 45.8 37.7 36.7 32.1 26.5 34.2 34.0 37.5 Nestle 9,344 Neutral 140.0 181.0 197.8 66.7 51.6 47.2 34.3 31.1 28.5 40.3 48.5 50.3 P&G Hygiene 9,506 Neutral 115.3 156.6 186.4 82.5 60.7 51.0 47.9 37.6 31.5 46.3 50.8 52.2 Page Industries 32,577 Neutral 311.1 406.5 522.3 104.7 80.1 62.4 46.4 52.5 41.2 41.0 43.1 45.4 Parag Milk Foods 249 Neutral 10.4 12.7 16.3 24.0 19.6 15.3 12.0 9.7 8.2 13.0 14.0 15.8 Pidilite Inds. 997 Buy 18.9 19.7 23.5 52.7 50.6 42.4 33.8 32.7 27.7 27.3 26.2 28.3 United Breweries 1,289 Buy 14.9 19.2 24.1 86.5 67.1 53.4 28.1 31.9 26.3 15.7 17.5 18.7 United Spirits 504 Neutral 6.7 9.2 13.2 74.7 54.8 38.3 47.3 31.2 23.4 19.6 19.6 20.3 Sector Aggregate 50.9 44.0 37.1 30.0 29.2 24.7 26.6 27.7 30.4

Source: MOSL


October 2018 109

Quarterly Performance (Consol.)

(INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Dom Deco Volume Growth % 4.0 9.0 6.0 10.0 10.0 5.0 12.0 10.0 7.3 9.5 Net Sales 38,152 42,652 42,605 44,836 43,903 46,918 46,014 47,589 168,246 184,423 Change (%) 6.4 15.0 10.5 14.7 15.1 10.0 8.0 6.1 11.7 9.6 Gross Profit 16,340 17,610 17,995 19,389 18,980 19,136 19,205 20,199 71,334 77,520

Gross Margin (%) 42.8 41.3 42.2 43.2 43.2 40.8 41.7 42.4 42.4 42.0 Operating Expenses 9,686 9,599 9,083 10,990 10,235 10,558 9,810 11,592 39,358 42,196

% of Sales 25.4 22.5 21.3 24.5 23.3 22.5 21.3 24.4 23.4 22.9 EBITDA 6,654 8,011 8,912 8,399 8,744 8,578 9,395 8,607 31,976 35,324

Margin (%) 17.4 18.8 20.9 18.7 19.9 18.3 20.4 18.1 19.0 19.2 Change (%) -18.5 13.6 17.7 18.7 31.4 7.1 5.4 2.5 7.1 10.5

Interest 80 88 92 91 88 79 83 50 351 299 Depreciation 905 889 896 914 905 1,067 1,075 1,164 3,605 4,211 Other Income 783 534 497 392 617 587 546 469 2,206 2,219 PBT 6,452 7,569 8,420 7,786 8,368 8,019 8,783 7,862 30,227 33,033 Tax 2,160 2,459 2,913 2,877 2,770 2,646 2,898 2,586 10,410 10,901

Effective Tax Rate (%) 33.5 32.5 34.6 37.0 33.1 33.0 33.0 32.9 34.4 33.0 PAT before Minority 4,292 5,110 5,507 4,909 5,599 5,373 5,885 5,276 19,817 22,132 Minority Interest -90 -152 -165 -50 -115 -87 -87 -60 -458 -350 Adjusted PAT 4,382 5,262 5,672 4,959 5,713 5,460 5,972 5,336 20,275 22,482

Change (%) -20.4 7.5 19.6 4.2 30.4 3.8 5.3 7.6 0.6 10.9 E: MOSL Estimates


Asian Paints

CMP: INR1,252 TP: INR1,383 (+10%) Neutral We expect revenue to grow 10% YoY to INR46.9b in 2QFY19, with

mid-single-digit volume growth in the domestic decorative business.

We note that crude prices are up 46% YoY and 1% QoQ in 2QFY19. The magnitude of price movement in crude derivatives is lower vis-à-vis crude prices.

We expect gross margin to contract 50bp YoY to 40.8%.

Operating margin is likely to contract by 50bp to 18.3%, with EBITDA growing 7.1% YoY in 2QFY19.

We estimate 3.8% adjusted PAT growth for 2QFY19.

The stock trades at 53.4x/43.9x FY19E/20E EPS of INR23.4/INR28.5. Maintain Neutral.

Key issues to watch for Volume growth trends and demand scenario in urban and rural

geographies Market share trends Outlook for raw materials/pricing actions Commentary on GST-led price reductions

Bloomberg APNT IN


1,6,12 Rel Perf. (%) -1 / 0 / -6


Sales 150.6 168.2 184.4 220.9

EBITDA 29.9 32.0 35.3 43.0

Adj. PAT 19.9 20.3 22.5 27.3

Adj. EPS (INR) 20.8 21.1 23.4 28.5

EPS Gr. (%) 7.3 1.9 10.9 21.5

BV/Sh.(INR) 79.3 87.7 93.6 98.6

RoE (%) 28.2 25.3 25.9 29.6

RoCE (%) 23.9 21.6 22.5 26.1

Payout (%) 38.3 48.7 64.0 70.2

Valuations

P/E (x) 60.3 59.2 53.4 43.9

P/BV (x) 15.8 14.3 13.4 12.7

EV/EBITDA (x) 39.2 36.9 33.3 27.3

Div. Yield (%) 0.8 1.0 1.4 1.9

October 2018 110

Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Base business volume gr. (%) 2.0 5.0 11.0 11.0 11.0 10.0 6.0 7.0 7.3 8.4 Net Sales 22,637 25,453 25,675 25,375 25,438 28,762 28,114 28,162 99,140 110,476 YoY Change (%) 5.7 6.6 12.5 13.1 12.4 13.0 9.5 11.0 9.5 11.4 COGS 13,873 15,840 15,745 15,613 15,264 17,468 16,959 16,899 61,071 66,590 Gross Profit 8,764 9,613 9,930 9,762 10,175 11,294 11,154 11,263 38,069 43,886 Margins (%) 38.7 37.8 38.7 38.5 40.0 39.3 39.7 40.0 38.4 39.7 Other Operating Exp 5,479 5,836 5,946 5,791 6,281 6,739 6,652 6,748 23,052 26,420

% of Sales 24.2 22.9 23.2 22.8 24.7 23.4 23.7 24.0 23.3 23.9 EBITDA 3,285 3,777 3,984 3,971 3,894 4,555 4,503 4,515 15,017 17,466 Margins (%) 14.5 14.8 15.5 15.6 15.3 15.8 16.0 16.0 15.1 15.8

YoY Growth (%) 3.9 11.4 26.8 28.9 18.5 20.6 13.0 13.7 17.6 16.3 Depreciation 332 336 329 424 356 370 362 492 1,421 1,580 Interest 13 14 26 24 24 14 26 29 76 93 Other Income 352 508 359 444 420 610 431 674 1,664 2,136 PBT 3,293 3,934 3,989 3,968 3,933 4,781 4,547 4,669 15,184 17,929 Tax 1,133 1,326 1,354 1,330 1,352 1,625 1,546 1,573 5,142 6,096 Rate (%) 34.4 33.7 33.9 33.5 34.4 34.0 34.0 33.7 33.9 34.0 Adjusted PAT 2,160 2,609 2,635 2,638 2,581 3,155 3,001 3,096 10,041 11,833 YoY Change (%) -1.5 11.5 19.6 25.2 19.5 21.0 13.9 17.4 13.5 17.8 E: MOSL Estimates


Britannia Industries

CMP: INR5,737 TP: INR6,870 (+20%) Buy We expect Britannia’s (BRIT) sales to grow 13% YoY to INR28.7b,

with base business volumes growing 10% on a base of 5% volume growth.

Wheat prices are up 17.4% YoY, while sugar prices are down 14.4% YoY. Gross margin is likely to expand 150bp YoY to 39.3% in 2QFY19.

We expect 100bp YoY expansion in the operating margin to 15.8%. We estimate 20.6% EBITDA growth and 21% adjusted PAT growth for the quarter.

The stock trades at 58.2x/45.9x FY19E/20E EPS of INR98.6/INR124.9. Maintain Buy. Britannia is one of our top picks in the tier-II consumer space.

Key issues to watch for Pace of growth in erstwhile weak states Direction on future volume growth Outlook for raw materials Update on dairy business

Bloomberg BRIT IN


1,6,12 Rel Perf. (%) -6 / 4 / 17


Sales 90.5 99.1 110.5 131.7

EBITDA 12.8 15.0 17.5 22.3

Adj. PAT 8.8 10.0 11.8 15.0

Adj. EPS (INR) 73.7 83.6 98.6 124.9

EPS Gr. (%) 7.3 13.5 17.8 26.7

BV/Sh.(INR) 224.7 283.7 320.1 343.4

RoE (%) 36.9 32.9 32.6 37.6

RoCE (%) 31.1 27.9 27.5 32.6

Payout (%) 29.9 29.9 50.0 70.0

Valuations

P/E (x) 77.9 68.6 58.2 45.9

P/BV (x) 25.5 20.2 17.9 16.7

EV/EBITDA (x) 53.5 45.2 38.7 30.3

Div. Yield (%) 0.4 0.4 0.9 1.5

October 2018 111

CMP: INR1,088 TP: INR1,420 (+31%) Buy We expect Colgate’s (CLGT) sales to grow 9% YoY to INR11.8b,

with 5% toothpaste volume growth on a low base of 0.9% decline.

Gross margins are expected to expand by 100bp YoY to 64.4%.

We estimate EBITDA margin expansion of 50bp YoY to 28.2%. Hence, we have modeled EBITDA growth of 11% and adjusted PAT growth of 14.8% for the quarter.

The stock trades at 39.5x/33.9x, FY19E/20E EPS of INR27.8/INR32.5. Maintain Buy.

Key issues to watch for Volume growth in toothpaste and market share movement Ad spends and competitive intensity in toothpaste

Bloomberg CLGT IN


1,6,12 Rel Perf. (%) -1 / -7 / -11


Sales 39.8 41.9 45.6 52.2

EBITDA 9.4 11.1 12.5 14.4

Adj. PAT 5.8 6.9 7.6 8.8

Adj. EPS (INR) 21.2 25.2 27.8 32.5

EPS Gr. (%) -5.7 18.6 10.5 16.7

BV/Sh.(INR) 46.8 56.1 59.2 59.5

RoE (%) 50.1 49.0 48.3 54.7

RoCE (%) 49.3 47.9 47.2 53.5

Payout (%) 51.7 95.3 70.0 80.0

Valuation P/E (x) 51.3 43.2 39.5 33.9

P/BV (x) 23.2 19.4 18.6 18.5

EV/EBITDA (x) 31.4 26.5 23.5 20.3 Div. Yield (%) 1.0 2.2 1.8 2.4

Quarterly Perform. (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Toothpaste Volume Gr % -5.0 -0.9 12.0 4.0 4.0 5.0 0.0 8.0 2.5 4.5 Net Sales (incldg. OOI) 9,781 10,849 10,333 10,917 10,413 11,825 10,953 12,440 41,880 45,631 YoY Change (%) -3.5 2.7 18.2 5.2 6.5 9.0 6.0 14.0 5.2 9.0 COGS 3,579 3,970 3,598 3,750 3,550 4,209 3,814 4,421 14,896 15,993 Gross Profit 6,202 6,879 6,735 7,167 6,863 7,617 7,140 8,019 26,983 29,638

Gross Margin (%) 63.4 63.4 65.2 65.7 65.9 64.4 65.2 64.5 64.4 65.0 Other operating Expenses 3,979 3,873 3,911 4,092 4,048 4,281 4,146 4,668 15,855 17,142 EBITDA 2,223 3,006 2,824 3,075 2,815 3,336 2,994 3,351 11,128 12,496 Margins (%) 22.7 27.7 27.3 28.2 27.0 28.2 27.3 26.9 26.6 27.4

YoY Growth (%) 5.2 9.4 31.9 26.6 26.7 11.0 6.0 9.0 18.0 12.3 Depreciation 373 392 396 405 394 427 431 453 1,565 1,705 Financial other Income 120 89 90 85 92 133 154 126 384 504 PBT 1,970 2,703 2,519 2,755 2,513 3,042 2,716 3,024 9,947 11,295 Tax 606 927 812 789 844 1,004 896 984 3,135 3,727 Rate (%) 30.8 34.3 32.3 28.7 33.6 33.0 33.0 32.5 31.5 33.0 Adj PAT 1,364 1,776 1,707 1,966 1,669 2,038 1,820 2,041 6,812 7,568 YoY Change (%) 8.5 -2.1 33.5 37.9 22.4 14.8 6.6 3.8 18.0 11.1 E: MOSL Estimates


Colgate

October 2018 112

Quarterly Perform.(Consol.) (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Domestic Vol Growth (%) -4.4 7.2 13.0 7.7 21.0 7.0 2.0 6.0 6.0 9.0 Net Sales 17,901 19,589 19,664 20,329 20,807 22,332 21,434 22,944 77,483 87,516 YoY Change (%) -8.3 -1.1 6.1 6.2 16.2 14.0 9.0 12.9 0.6 12.9 Gross profit 8,755 9,818 10,141 10,305 10,321 11,081 10,839 11,544 39,019 43,785

Margin (%) 48.9 50.1 51.6 50.7 49.6 49.6 50.6 50.3 50.4 50.0 Total Exp 14,812 15,390 15,630 15,477 16,946 17,657 17,144 17,508 61,309 69,254 EBITDA 3,089 4,199 4,035 4,852 3,861 4,675 4,291 5,436 16,174 18,263 Margins (%) 17.3 21.4 20.5 23.9 18.6 20.9 20.0 23.7 20.9 20.9 YoY Growth (%) -11.4 2.7 20.8 16.2 25.0 11.3 6.3 12.0 7.2 12.9 Depreciation 391 401 405 426 427 437 441 488 1,622 1,793 Interest 133 133 132 132 149 127 125 137 531 538 Other Income 813 843 663 732 737 717 597 640 3,052 2,690 PBT 3,378 4,508 4,162 5,026 4,022 4,829 4,321 5,450 17,074 18,622 Tax 589 880 833 1,053 724 966 864 1,133 3,354 3,687 Rate (%) 17.4 19.5 20.0 20.9 18.0 20.0 20.0 20.8 19.6 19.8 Minority Interest 3 9 7 12 6 10 8 10 31 34 Adjusted PAT 2,787 3,619 3,321 3,962 3,292 3,852 3,449 4,307 13,689 14,901 YoY Change (%) -4.8 1.3 13.1 18.9 18.1 6.4 3.8 8.7 7.2 8.9 E: MOSL Estimates


Dabur

CMP: INR426 TP: INR447 (+5%) Neutral We expect sales to grow 14% YoY to INR22.3b, led by 7%

domestic organic volume growth.

Gross margin should contract by 50bp to 49.6% led by inflation.

We expect EBITDA margin to contract 50bp YoY to 20.9% in 2QFY19, with EBITDA growth of 11.3% YoY.

Adjusted PAT is expected to grow 6.4% YoY in the quarter.

The stock trades at 50.4x/42x FY19E/20E EPS of INR8.5/INR10.1. Maintain Neutral.

Key issues to watch for Domestic volume growth and outlook for rural demand New launch pipeline Margin performance in international business Competitive intensity, especially from Patanjali

Bloomberg DABUR IN


1,6,12 Rel Perf. (%) -2 / 20 / 24


Sales 76.1 77.2 87.5 99.9 EBITDA 15.1 16.2 18.3 21.4

Adj. PAT 12.8 13.7 14.9 17.8 Adj. EPS (INR) 7.2 7.8 8.5 10.1 EPS Gr. (%) 1.9 7.2 8.8 19.8

BV/Sh.(INR) 27.5 32.4 40.5 43.8 RoE (%) 28.4 25.9 23.2 24.0 RoCE (%) 24.4 22.6 20.9 22.1

Payout (%) 31.0 96.5 50.0 70.0 Valuation P/E (x) 58.8 54.8 50.4 42.0


October 2018 113

Quarterly performance \ (INR m) Y/E MARCH FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Domestic volume Growth (%) -18.0 10.0 6.0 8.0 18.0 -5.0 8.0 9.0 1.5 7.5 Net Sales 5,289 6,281 7,552 6,170 6,144 6,281 8,609 7,089 25,306 28,123 YoY Change (%) -18.1 9.7 5.8 8.2 16.2 0.0 14.0 14.9 1.1 11.1 COGS 1,787 2,053 2,195 2,149 2,073 2,084 2,589 2,383 8,098 9,129 Gross Profit 3,501 4,228 5,357 4,021 4,071 4,197 6,020 4,705 17,207 18,993

Gross margin (%) 66.2 67.3 70.9 65.2 66.3 66.8 69.9 66.4 68.0 67.5 Other Expenditure 2,700 2,215 2,710 2,288 2,836 2,278 3,003 2,667 10,013 10,783

% to sales 51.0 35.3 35.9 37.1 46.2 36.3 34.9 37.6 39.6 38.3 EBITDA 802 2,013 2,647 1,733 1,235 1,919 3,017 2,038 7,195 8,210 Margins (%) 15.2 32.1 35.0 28.1 20.1 30.6 35.0 28.8 28.4 29.2

YoY Change -45.6 14.9 2.4 -2.7 54.1 -4.7 14.0 17.6 -5.2 14.1 Depreciation 153 146 195 208 230 146 176 172 673 723 Interest 79 104 92 68 46 47 46 50 343 188 Other Income 65 53 55 22 20 45 66 66 195 197 PBT 635 1,817 2,414 1,479 980 1,772 2,862 1,882 6,374 7,495 Tax 28 227 338 270 103 319 544 383 863 1,349 Rate (%) 4.4 12.5 14.0 18.2 10.5 18.0 19.0 20.4 13.5 18.0 PAT before Amortization 605 1,590 2,077 1,209 879 1,453 2,318 1,499 5,511 6,146 YoY Change (%) -48.5 19.0 1.4 -15.4 45.3 -8.6 11.6 24.0 -7.9 11.5 Amortization 598 604 604 600 607 600 600 593 2,436 2,400 Reported PAT 10 987 1,471 602 267 853 1,718 906 3,070 3,746 E: MOSL Estimates


Emami CMP: INR496 TP: INR620 (+25%) Buy We project Emami’s (HMN) sales to come in flat YoY at INR6.3b in

2QFY19, with 5% domestic volume decline on a base of 10% volume growth.

Gross margin is likely to contract 50bp to 66.8% in 2QFY19. Mentha prices were up sharply by 50% YoY and 32% QoQ in the quarter.

We expect EBITDA margin to contract 150bp to 30.6%. EBITDA is likely to decline by 4.7% YoY to INR1.9b.

PAT before amortization is expected to decline 8.6% YoY to INR1.5b.

The stock trades at 36.6x/30.5x FY19E/20E EPS of INR13.5/INR16.2. Maintain Buy.

Key issues to watch for Volume growth and broad consumer demand across categories Outlook for mentha oil prices Competitive intensity, especially from Patanjali Indications of revival on Kesh King

Bloomberg HMN IN


1,6,12 Rel Perf. (%) -8 / -18 / -24


Sales 24.9 25.3 28.1 32.6 EBITDA 7.6 7.2 8.2 9.7

NP 6.0 5.5 6.1 7.4 EPS (INR) 13.3 12.1 13.5 16.2 EPS Gr. (%) 4.5 -8.5 11.6 20.0

BV/Sh. (INR) 38.7 44.4 50.2 53.5 RoE (%) 35.8 29.2 28.6 31.3 RoCE (%) 31.1 28.2 31.6 37.2

Payout (%) 33.0 21.6 40.6 46.2 Valuations P/E (x) 37.4 40.9 36.6 30.5

P/BV (x) 12.8 11.2 9.9 9.3 EV/EBITDA (x) 30.1 31.2 27.1 22.8 Div. Yld (%) 0.9 0.5 1.1 1.5

October 2018 114

Consol. Quarterly Preview (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales 6,626 7,505 7,845 8,075 8,406 9,757 10,827 11,050 30,050 40,040 YoY Change (%) 41.9 33.1 42.2 51.4 26.9 30.0 38.0 36.8 42.0 33.2 Gross Profit 922 1,036 1,081 1,042 1,179 1,366 1,581 1,680 4,076 5,806 Margins (%) 13.9 13.8 13.8 12.9 14.0 14.0 14.6 15.2 13.6 14.5 EBITDA 86 128 165 168 201 234 314 380 541 1,129 YoY Change (%) 949.1 316.7 418.0 543.0 133.4 83.6 90.1 126.6 458.9 108.6 Margins (%) 1.3 1.7 2.1 2.1 2.4 2.4 2.9 3.4 1.8 2.8 Depreciation 90 113 106 146 123 131 125 137 455 515 Interest 128 121 137 140 159 158 164 145 527 626 Other Income 58 52 46 163 83 87 92 98 325 360 PBT -74 -55 -31 44 2 33 118 196 -115 349 Tax 0 0 0 -25 0 2 8 14 -25 24 Rate (%) 0.0 0.0 0.0 -56.4 0.0 7.0 7.0 7.1 21.7 7.0 MI & Profit/Loss of Asso. Cos. 28 33 16 110 63 43 50 45 216 200 Reported PAT -102 -88 -47 -41 -61 -12 60 137 -306 124 Adj PAT -102 -88 -47 -41 -61 -12 60 137 -306 124 YoY Change (%) -51.0 -45.6 -66.5 -59.6 -40.3 -86.3 -227.3 -436.0 Loss LP Margins (%) -1.5 -1.2 -0.6 -0.5 -0.7 -0.1 0.6 1.2 -1.0 0.3 E: MOSL Estimates


Future Consumer CMP: INR40 TP: INR67 (+68%) Buy We expect Future Consumer’s (FCON) sales to grow 30% YoY to

INR9.8b.

Gross margins are expected to expand by 20bp YoY to 14%.

We estimate EBITDA margin expansion of 70bp YoY to 2.4%. Hence, we have modeled EBITDA growth of 83.6% and adjusted PAT loss to reduce to INR12m from 88m in 2QFY18.

The stock trades at 1.8x/1.3x FY19E/20E EV/sales. We have a Buy rating on the stock.

Key issues to watch for Whether the pace of top-line growth will be sustained Extent of gross margin expansion Flow of gross margin expansion into EBITDA margin

Commentary on working capital

Bloomberg FCON IN


1,6,12 Rel Perf. (%) -21 / -36 / -49


Sales 21.2 30.1 40.0 55.5 EBITDA 0.1 0.5 1.1 2.6 NP -0.7 -0.3 0.1 1.5 EPS (INR) -0.4 -0.2 0.1 0.9 EPS Gr. (%) -39.2 -53.2 -140.5 1,080.9 BV/Sh. (INR) 5.4 6.0 6.3 7.4 RoE (%) -9.1 -3.3 1.2 13.6 RoCE (%) 0.2 2.2 5.4 11.9 Valuations P/E (x) -100.7 -215.0 530.7 44.9 P/BV (x) 7.4 6.6 6.5 5.7 EV/Sales.x 3.3 2.4 1.8 1.3 EV/EBITDA.x 724.5 132.4 64.6 27.8

October 2018 115

Quarterly Perf.(Consol.) (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales (including OOI) 21,773 25,066 26,303 25,289 24,760 28,324 28,933 29,208 98,433 111,226 YoY Change (%) 2.9 6.3 9.5 5.8 13.7 13.0 10.0 15.5 6.2 13.0 EBITDA 3,498 5,427 5,987 6,050 4,491 5,962 6,586 6,911 20,671 23,949 Margins (%) 16.1 21.6 22.8 23.9 18.1 21.0 22.8 23.7 21.0 21.5

YoY Growth (%) -8.7 16.1 15.8 10.9 28.4 9.9 10.0 14.2 8.0 15.9 Depreciation 374 386 396 401 421 405 416 423 1,557 1,665 Interest 397 402 386 422 477 321 309 318 1,607 1,426 Other Income 237 190 359 290 310 171 323 276 1,076 1,079 PBT 2,960 4,721 5,467 5,435 3,853 5,407 6,184 6,445 18,292 21,937 Tax 634 1,060 1,148 1,204 678 1,244 1,422 1,548 3,925 4,892 Rate (%) 21.4 22.5 21.0 22.2 17.6 23.0 23.0 24.0 21.5 22.3 Minority Int -1 -4 -3 -3 -2 0 0 2 -6 0 Adj PAT 2,327 3,664 4,322 4,234 3,177 4,163 4,762 4,895 14,382 16,691 YoY Change (%) -9.2 13.8 23.7 11.3 36.5 13.6 10.2 15.6 10.0 16.1 E: MOSL Estimate


Godrej Consumer

CMP: INR767 TP: INR826 (+8%) Neutral We expect Godrej Consumer’s revenue to rise 13% YoY to

INR28.3b.

We estimate operating margin to contract 60bp YoY to 21% due to unusually high adspend in the quarter owing to spate of new launches.

Thus, we have modeled 9.9% EBITDA growth, and expect adjusted PAT to increase by 13.6% YoY to INR4.2b.

The stock trades at 47x/40.4x FY19E/20E EPS of INR16.3/INR19. We have a Neutral rating on the stock.

Key issues to watch for Competitive intensity across categories Outlook for international business— demand outlook in

Indonesia and margin guidance for LatAm Currency guidance

Bloomberg GCPL IN


1,6,12 Rel Perf. (%) -13 / -4 / 5


Sales 92.7 98.4 111.2 126.3 EBITDA 19.0 20.7 23.9 27.4 Adj. PAT 12.9 14.4 16.7 19.4 Adj. EPS (INR) 12.6 14.1 16.3 19.0 EPS Gr. (%) 12.8 11.4 16.1 16.2 BV/Sh.(INR) 51.9 61.2 70.7 81.1 RoE (%) 24.6 24.9 24.8 25.0 RoCE (%) 16.2 16.2 17.4 18.4 Payout (%) 31.6 33.2 40.8 52.7 Valuations P/E (x) 60.7 54.5 47.0 40.4


October 2018 116

Quarterly Perfor.

(INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

HFD Volume Growth (%) 0.0 2.5 15.0 8.0 12.8 11.0 4.0 7.0 6.4 9.0 Net Sales 9,859 11,153 10,347 11,796 11,071 12,826 11,278 13,403 43,166 48,579 YoY Change (%) 4.4 3.2 20.3 7.0 12.3 15.0 9.0 13.6 8.3 12.5 Gross profit 6,433 7,214 7,123 8,059 7,703 8,809 7,731 9,137 28,839 33,379

Margin (%) 65.2 64.7 68.8 68.3 69.6 68.7 68.5 68.2 66.8 68.7 EBITDA 1,669 2,614 2,040 2,500 2,303 3,070 2,280 3,080 8,834 10,732 Margins (%) 16.9 23.4 19.7 21.2 20.8 23.9 20.2 23.0 20.5 22.1 YoY Change (%) -18.0 6.6 21.7 14.7 38.0 17.5 11.8 23.2 5.9 21.5 Depreciation 170 177 151 145 147 150 144 150 644 591 Interest 5 6 2 8 2 6 3 10 20 20 Other Income 552 550 642 842 607 621 655 756 2,574 2,638 PBT 2,045 2,981 2,529 3,189 2,761 3,535 2,788 3,675 10,744 12,759 Tax 723 1,057 892 1,071 989 1,237 976 1,260 3,743 4,461 Rate (%) 35.3 35.5 35.3 33.6 35.8 35.0 35.0 34.3 34.8 35.0 Adj PAT 1,322 1,924 1,637 2,118 1,772 2,298 1,812 2,416 7,001 8,297 YoY Change (%) -17.7 4.7 20.0 20.4 34.0 19.4 10.7 14.1 6.6 18.5 E: MOSL Estimates


GSK Consumer

CMP: INR6,706 TP: INR6,900 (+3%) Neutral We expect GSK Consumer to report net sales of INR12.8b (+15%

YoY), led by 11% volume growth in HFD. We note that the base is low for this quarter, with volume growth of 2.5% in 2QFY18.

Gross margin is likely to expand 400bp YoY to 68.7% due to low milk costs.

We estimate EBITDA margin to expand 50bp YoY to 23.9%.

Thus, EBITDA and adjusted PAT are expected to grow by 17.5% and 19.4% YoY to INR3.1b and INR2.3b, respectively.

The stock trades at 34x/30.2x FY19E/20E EPS of INR197.3/INR222.1. We have a Neutral rating on the stock.

Key issues to watch for HFD volume outlook Performance of new brands Market share trend Material cost outlook

Bloomberg SKB IN


1,6,12 Rel Perf. (%) -5 / 4 / 18


Sales 39.9 43.2 48.6 54.9

EBITDA 8.4 8.8 10.7 12.5

Adj. PAT 6.6 7.0 8.3 9.3

Adj. EPS (INR) 156.1 166.5 197.3 222.1

EPS Gr. (%) -4.5 6.6 18.5 12.6

BV/Sh.(INR) 742.5 828.7 927.3 1,027.3

RoE (%) 22.2 21.2 22.5 22.7

RoCE (%) 22.2 21.2 22.5 22.8

Payout (%) 44.8 45.1 50.0 55.0

Valuation

P/E (x) 42.9 40.3 34.0 30.2

P/BV (x) 9.0 8.1 7.2 6.5

EV/EBITDA(x) 30.0 27.9 23.1 19.5 Div. Yield (%) 1.0 1.1 1.5 1.8

October 2018 117

Quarterly performance (INR m) Y/E March FY18 FY19E Ind AS Ind AS 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE FY18 FY19E Domestic volume growth (%) 0.0 4.0 11.0 11.0 12.0 10.0 6.0 6.0 6.0 8.5 Net Sales 85,290 83,090 85,900 90,970 94,870 95,554 96,208 103,145 345,250 389,776 YoY Change (%) 4.9 5.9 11.5 10.8 11.2 15.0 12.0 13.4 8.3 12.9 COGS 40,840 39,290 39,050 43,140 43,640 43,750 43,447 48,937 162,320 179,774 Gross Profit 44,450 43,800 46,850 47,830 51,230 51,803 52,761 54,208 182,930 210,002

Margin % 52.1 52.7 54.5 52.6 54.0 54.2 54.8 52.6 53.0 53.9 Operating Exp 25,790 26,980 30,050 27,350 28,720 31,027 32,886 30,287 110,170 122,920 % to sales 30.2 32.5 35.0 30.1 30.3 32.5 34.2 29.4 31.9 31.5 EBITDA 18,660 16,820 16,800 20,480 22,510 20,776 19,874 23,922 72,760 87,082 YoY Change (%) 14.1 19.7 23.9 24.0 20.6 23.5 18.3 16.8 20.3 19.7 Margins (%) 21.9 20.2 19.6 22.5 23.7 21.7 20.7 23.2 21.1 22.3 Depreciation 1,140 1,150 1,210 1,280 1,270 1,150 1,210 1,392 4,780 5,022 Interest 60 60 50 40 70 60 50 40 200 220 Other Income 1,130 2,040 1,520 1,000 1,350 2,040 1,748 1,743 5,690 6,881 PBT 18,590 17,650 17,060 20,160 22,520 21,606 20,362 24,233 73,470 88,721 Tax 5,630 5,250 3,590 6,010 6,640 6,482 6,109 7,386 20,480 26,616 Rate (%) 30.3 29.7 21.0 29.8 29.5 30.0 30.0 30.5 27.9 30.0 Adjusted PAT 12,920 12,360 11,980 14,090 15,670 15,124 14,254 16,847 52,990 62,105 YoY Change (%) 14.6 14.2 30.2 26.0 21.3 22.4 19.0 19.6 24.7 17.2 Reported Profit 12,830 12,760 13,260 13,510 15,290 15,124 14,254 16,847 52,370 62,105 E: MOSL Estimates


Hindustan Unilever

CMP: INR1,622 TP: INR2,025 (+25%) Buy We expect Hindustan Unilever’s revenue to grow 15% YoY, with

underlying domestic volume growth of 10% in 2QFY19.

PFAD prices are down 15% YoY (down 2.4% QoQ) and LAB prices are up 19.1% YoY (up 2.7% QoQ).

Gross margins are likely to expand 150bp YoY to 54.2%.

We expect operating margin to expand by 150bp YoY to 21.7% in 2QFY19, leading to EBITDA growth of 23.5% YoY.

Adjusted PAT is likely to grow 22.4% YoY to INR15.1b.


Key issues to watch for Comments on volume growth and consumer demand

environment Pace of rural recovery Performance of Lever Ayush and WIMI growth

Bloomberg HUVR IN


1,6,12 Rel Perf. (%) 2 / 12 / 22


Sales 318.9 345.3 389.8 444.2

EBITDA 60.5 72.8 87.1 105.4

Adj. PAT 42.5 53.0 62.1 75.6

Adj. EPS (INR) 19.6 24.5 28.7 34.9

EPS Gr. (%) 1.9 24.7 17.2 21.7

BV/Sh.(INR) 30.0 32.7 34.0 34.2

RoE (%) 66.5 78.1 86.0 102.3

RoCE (%) 88.5 100.2 113.6 135.7

Payout (%) 97.9 98.9 100.0 102.7

Valuations

P/E (x) 82.6 66.2 56.5 46.4

P/BV (x) 54.1 49.6 47.7 47.4


October 2018 118

Quarterly Perform.

(INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Cigarette Vol Gr (%) 1.0 -6.0 -3.0 -2.0 1.0 6.0 4.0 3.0 -2.5 3.5 Net Sales 99,547 103,141 97,720 105,867 107,070 111,393 110,424 121,317 406,275 450,204 YoY Change (%) -1.0 6.8 5.7 -4.8 7.6 8.0 13.0 14.6 1.3 10.8 Total Exp 62,083 65,526 58,830 64,427 65,049 67,983 65,373 74,196 250,636 272,602 EBITDA 37,464 37,615 38,891 41,440 42,021 43,409 45,051 47,121 155,639 177,602 Growth (%) 6.2 3.6 9.7 6.9 12.2 15.4 15.8 13.7 6.8 14.1 Margins (%) 37.6 36.5 39.8 39.1 39.2 39.0 40.8 38.8 38.3 39.4 Depreciation 2,682 2,824 2,908 3,040 2,987 3,022 3,111 3,116 11,454 12,236 Interest 104 290 240 232 73 319 264 330 1,096 986 Other Income 4,768 4,942 6,269 5,165 4,039 5,239 6,520 5,222 21,298 21,020 PBT 39,446 39,443 42,012 43,333 42,999 45,307 48,195 48,897 164,388 185,399 Tax 13,841 13,045 13,969 14,006 14,813 15,404 16,386 16,432 56,285 63,036 Rate (%) 35.1 33.1 33.2 32.3 34.4 34.0 34.0 33.6 34.2 34.0 Adj PAT 25,605 26,398 28,043 29,327 28,187 29,902 31,809 32,465 108,104 122,363 YoY Change (%) 7.4 5.6 6.0 9.9 10.1 13.3 13.4 10.7 6.0 13.2 E: MOSL Estimates


ITC

CMP: INR295 TP: INR305 (+3%) Neutral We expect net sales to grow 8% YoY to INR111.4b, with cigarette

volume growth at 6% (base quarter saw 6% volume decline).

We expect cigarette EBIT to grow 12% YoY.

We have factored in EBITDA growth of 15.4% YoY to INR43.4b, and EBITDA margin expansion of 250bp YoY to 39% in 2QFY19.

We expect ‘Other FMCG’ revenue to grow 16% YoY.

We estimate adjusted PAT growth of 13.3% YoY to INR29.9b.

The stock trades at 29.4x/25.8x FY19E/20E EPS of INR10.0/INR11.4; maintain Neutral.

Key issues to watch for Trends in cigarette volumes Demand outlook for FMCG categories and segmental

profitability

Bloomberg ITC IN


1,6,12 Rel Perf. (%) 1 / 6 / -2


Sales 400.9 406.3 450.2 509.8 EBITDA 146.0 155.6 177.6 202.0


BV/Sh.(INR) 37.3 42.1 45.6 48.6 RoE (%) 23.5 22.3 22.9 24.2 RoCE (%) 22.5 21.6 22.2 23.6



October 2018 119

Standalone Quarterly Performance

(INR m) Y/E March FY18 FY19E Consol. Consol. 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE FY18 FY19E Net Sales 3,440 4,193 4,184 4,773 4,053 4,863 4,770 5,441 17,310 20,599 YoY Change (%) -19.0 4.1 12.7 10.2 17.8 16.0 14.0 14.0

19.0

Total Sales (Incldg. OOI) 3,440 4,193 4,184 4,773 4,053 4,863 4,770 5,441 17,459 20,763 COGS 1,728 2,221 2,208 2,531 2,133 2,527 2,470 2,804 8,753 10,293 Gross Profit 1,712 1,972 1,976 2,241 1,920 2,336 2,300 2,637 8,706 10,470 Margins (%) 49.8 47.0 47.2 47.0 47.4 48.0 48.2 48.5 50.3 50.8 Total Exp 1,276 1,247 1,269 1,336 1,310 1,446 1,494 1,631 5,998 7,189 EBITDA 436 725 707 906 610 890 806 1,006 2,708 3,281

EBITDA Growth % -45.9 11.2 37.1 44.4 39.8 22.7 14.0 11.0

21.2 Margins (%) 12.7 17.3 16.9 19.0 15.1 18.3 16.9 18.5 15.6 15.9 Depreciation 141 138 141 146 138 138 141 146 311 345 Interest 86 104 106 127 77 94 95 115 481 457 Other Income 18 38 23 221 22 44 26 35 491 123 PBT 228 521 482 854 417 702 595 780 2,407 2,602 Tax 22 98 110 250 93 147 125 164 619 547 Rate (%) 9.5 18.8 22.7 29.3 22.3 21.0 21.0 21.0 25.7 21.0 Adjusted PAT 206 423 373 604 324 555 470 616 1,789 2,056 YoY Change (%) -52.6 42.3 96.7 -45.1 57.1 31.2 26.2 2.1

14.9

E: MOSL Estimates; Full year numbers on consolidated basis


Jyothy Labs

CMP: INR193 TP: INR201 (+4%) Neutral We expect Jyothy Labs’ net sales to grow 16% to ~INR4.9b on a

base of 4.1% sales growth.

Gross margin is expected to expand 100bp YoY to 48%.

We expect EBITDA margin to grow by 100bp YoY to 18.3%.

We have thus factored in EBITDA growth of 22.7% YoY to INR890m.

Adjusted PAT is expected to grow 31.2% YoY to INR555m.

The stock trades at 21.9x/18.3x FY19E/20E EV/EBITDA. We maintain Neutral.

Key issues to watch for Update on new launches and innovations Pick-up in Henkel brands’ performance

Bloomberg JYL IN


1,6,12 Rel Perf. (%) -2 / -9 / -18


Net Sales 16.8 17.3 20.6 23.6 EBITDA 2.5 2.7 3.3 3.9

Adj PAT 2.0 1.8 2.1 2.6 Adj PAT for NCD 1.5 1.3 1.6 2.1 Adj.EPS (INR) 5.6 4.9 5.7 7.0

EPS Gr. (%) 176.6 -12.4 14.9 24.5 BV/Sh (INR) 30.0 31.5 33.8 36.4 RoE (%) 20.5 16.0 17.3 20.1


P/BV (x) 6.4 6.1 5.7 5.3 EV/EBITDA 15.2 14.0 21.9 18.3 Dividend Yld (%) 1.6 0.3 1.6 2.1

October 2018 120

Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Domestic volume growth (%) -9.0 8.0 9.4 1.0 12.4 8.0 7.0 16.0 3.5 11.0 Net Sales 16,815 15,363 16,243 14,801 20,268 17,667 18,517 17,578 63,222 74,031 YoY Change (%) -4.0 6.7 15.1 12.6 20.5 15.0 14.0 18.8 6.8 17.1 COGS 8,772 8,144 8,688 7,896 11,696 9,896 9,533 8,514 33,500 39,640 Gross Profit 8,043 7,219 7,556 6,905 8,572 7,771 8,984 9,064 29,722 34,391

Gross margin (%) 47.8 47.0 46.5 46.6 42.3 44.0 48.5 51.6 47.0 46.5 Other Expenditure 4,791 4,628 4,535 4,382 5,023 4,969 5,448 6,045 18,336 21,484

% to Sales 28.5 30.1 27.9 29.6 24.8 28.1 29.4 34.4 29.0 29.0 EBITDA 3,251 2,591 3,021 2,523 3,549 2,803 3,536 3,019 11,385 12,907 Margins (%) 19.3 16.9 18.6 17.0 17.5 15.9 19.1 17.2 18.0 17.4

YoY Change (%) -13.1 2.4 10.7 -2.5 9.2 8.2 17.1 19.7 -1.7 13.4 Depreciation 211 235 213 231 224 235 213 170 891 843 Interest 35 35 39 53 53 35 39 44 162 171 Other Income 222 214 174 229 240 214 174 90 839 718 PBT 3,227 2,535 2,943 2,468 3,512 2,747 3,458 2,894 11,172 12,611 Tax 866 679 709 642 913 742 934 816 2,896 3,405 Rate (%) 26.8 26.8 24.1 26.0 26.0 27.0 27.0 28.2 25.9 27.0 Minority Interest 1 6 1 -6 -3 6 1 -3 1 1 Adjusted PAT 2,360 1,850 2,233 1,832 2,601 1,999 2,523 2,081 8,275 9,205 YoY Change (%) -11.9 2.5 16.5 7.2 10.2 8.1 13.0 13.6 2.0 11.2 E: MOSL Estimates


Marico

CMP: INR327 TP: INR363 (+11%) Neutral We expect sales to grow 15% YoY to ~INR17.7b, with 8% growth

in domestic volumes.

We observe that copra prices are up 10% YoY (data available till August 2018), while kardi oil prices are down 1% YoY. We are modeling gross margin contraction of 300bp YoY to 44%.

EBITDA is expected to grow at 8.2% YoY, with margin contraction of 100bp YoY to 15.9% in 2QFY19.

Adjusted PAT is projected to grow by 8.1% YoY to ~INR2b.

We like MRCO’s franchise, portfolio strength, management quality and multiple growth drivers. Valuations remain fair. The stock trades at 45.9x/37.8x FY19E/20E EPS of INR7.1/INR8.7; maintain Neutral.

Key issues to watch for Comments on volume growth trends across key categories Outlook for raw materials Margin expansion and guidance for the international business

Bloomberg MRCO IN


1,6,12 Rel Perf. (%) -3 / -8 / -9


Sales 59.2 63.2 74.0 85.4 EBITDA 11.6 11.4 12.9 15.6

Adj. PAT 8.6 8.3 9.2 11.2 Adj. EPS (INR) 6.6 6.5 7.1 8.7 EPS Gr. (%) 19.5 -2.8 10.5 21.5

BV/Sh.(INR) 18.0 19.7 22.2 23.9 RoE (%) 39.4 34.2 34.0 37.5 RoCE (%) 35.2 31.0 30.6 33.6



October 2018 121

Quarterly performance (INR m) Y/E December CY17 CY18E CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Net Sales 24,919 24,022 25,141 26,015 27,572 26,984 28,157 29,246 100,096 111,960 YoY Change (%) 9.4 7.6 7.3 14.8 10.6 12.3 12.0 12.4 9.5 11.9 COGS 10,939 10,791 10,847 10,693 11,277 10,890 11,585 11,954 43,269 45,706 Gross Profit 13,980 13,232 14,294 15,322 16,296 16,094 16,572 17,292 56,827 66,254 Margin (%) 56.1 55.1 56.9 58.9 59.1 59.6 58.9 59.1 56.8 59.2 Operating Exp 8,708 8,645 8,388 8,873 9,176 9,447 9,816 9,994 34,614 38,433 EBITDA 5,272 4,586 5,906 6,449 7,119 6,648 6,756 7,299 22,214 27,821 Margins (%) 21.2 19.1 23.5 24.8 25.8 24.6 24.0 25.0 22.2 24.8

YoY Growth (%) -4.5 -2.8 17.7 33.8 35.0 44.9 14.4 13.2 9.4 25.2 Depreciation 867 854 864 838 825 817 778 690 3,423 3,110 Interest 228 229 229 234 311 283 267 242 919 1,103 Other income 416 412 430 511 564 602 646 621 1,769 2,434 PBT 4,593 3,915 5,244 5,889 6,547 6,150 6,356 6,988 19,641 26,042 Tax 1,428 1,311 1,746 1,656 2,157 2,003 2,098 2,337 6,141 8,594 Rate (%) 31.1 33.5 33.3 28.1 32.9 32.6 33.0 33.4 31.3 33.0 Adjusted PAT 3,166 2,604 3,498 4,233 4,391 4,147 4,259 4,651 13,500 17,448 YoY Change (%) 5.4 -3.1 17.8 50.2 38.7 59.3 21.8 9.9 13.2 29.2 E: MOSL Estimates


Nestle India

CMP: INR9,344 TP:INR10,403(+11%) Neutral We expect Nestle India’s net sales to grow 12% YoY to ~INR28.1b

in 3QCY18.

Gross margins are likely to expand 200bp YoY to 58.9%.

We expect EBITDA margin to expand by 50bp YoY to 24%.

EBITDA and adjusted PAT are projected to grow by 14.4% YoY (to ~INR6.8b) and 21.8% YoY (to ~INR4.3b), respectively.

The stock trades at 47.2x CY19E EPS of INR198; maintain Neutral.

Key issues to watch for Volume trends and management commentary on demand

environment Response to new product/variant launches Raw material price outlook

Bloomberg NEST IN


1,6,12 Rel Perf. (%) -10 / 4 / 13

Financial Snapshot (INR b) Y/E December 2016 2017 2018E 2019E

Sales 91.4 100.1 112.0 126.5 EBITDA 20.3 22.2 27.8 30.1


BV/Sh.(INR) 340.4 354.8 390.8 395.6 RoE (%) 39.1 40.3 48.5 50.3 RoCE (%) 40.8 41.7 50.1 52.0



October 2018 122


(INR m) Y/E MARCH FY18 FY19E FY18 FY19E


Net Sales 6,962 6,257 6,210 6,084 8,153 7,368 7,455 6,990 25,514 29,966 YoY Change (%) 22.5 17.1 17.6 22.3 17.1 17.8 20.0 14.9 19.9 17.5 COGS 3,187 2,651 2,760 2,275 3,674 3,196 3,276 2,739 10,873 12,885 Gross Profit 3,775 3,606 3,450 3,809 4,479 4,172 4,179 4,250 14,640 17,081

Gross margin (%) 54.2 57.6 55.6 62.6 54.9 56.6 56.1 60.8 57.4 57.0 Other Expenditure 2,410 2,321 2,162 2,341 2,586 2,476 2,520 2,636 9,234 10,218 EBITDA 1,365 1,284 1,289 1,468 1,893 1,697 1,659 1,615 5,407 6,863 Margins (%) 19.6 20.5 20.8 24.1 23.2 23.0 22.3 23.1 21.2 22.9

YoY Change 25.0 19.5 30.0 50.8 38.6 32.1 28.7 10.0 30.8 26.9 Depreciation 67 68 70 76 72 76 78 94 280 320 Interest 45 36 41 44 40 27 31 22 166 120 Other Income 40 49 53 73 72 83 90 99 215 345 PBT 1,294 1,229 1,231 1,421 1,852 1,676 1,640 1,598 5,175 6,767 Tax 441 389 397 479 608 553 541 530 1,705 2,233 Rate (%) 34.1 31.6 32.2 33.7 32.8 33.0 33.0 33.2 33.0 33.0 PAT 853 841 834 942 1,244 1,123 1,099 1,067 3,470 4,534 YoY Change (%) 25.5 22.4 32.6 41.1 45.9 33.6 31.8 13.3 30.3 30.7 E: MOSL Estimates


Page Industries

CMP: INR32,577 TP: INR30,597 (-6%) Neutral We expect Page to report net sales of INR7.4b, up 17.8% YoY, led

by double-digit volume growth. We note that volume growth in men’s innerwear has a low base of 3.6%.

We expect EBITDA margin to expand by 250bp YoY to 23%. Thus, EBITDA should grow by 32.1% YoY to INR1.7b.

Adjusted PAT is likely to post 33.6% YoY growth to INR1.1b.

The stock trades at 80.1x/62.4x FY19E/20E EPS of INR406.5/INR522.3; we maintain Neutral on account of fair valuations.

Key issues to watch for Performance of kidswear Competitive intensity Minimum wage hike in Karnataka for textile industry

Bloomberg PAG IN


1,6,12 Rel Perf. (%) 3 / 38 / 63


Sales 21.3 25.5 30.0 37.4 EBITDA 4.1 5.4 6.9 8.7

Adj. PAT 2.7 3.5 4.5 5.8 Adj. EPS (INR) 238.7 311.1 406.5 522.3 EPS Gr. % 15.0 30.3 30.7 28.5

FCF to PAT 0.8 1.1 0.8 0.8 BV/Sh.INR 596.9 759.6 942.6 1151.5 RoE (%) 40.0 41.0 43.1 45.4

RoCE (%) 40.4 42.9 45.8 48.8 Payout (%) 51.0 52.6 55.0 60.0 Valuations P/E (x) 136.5 104.7 80.1 62.4 EV/EBITDA (x) 88.0 66.8 52.5 41.2

October 2018 123

Standalone - Quarterly Earning (INR m) Y/E June FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE Net Sales 6,576 7,042 5,689 5,247 7,233 7,816 6,684 6,160 24,553 27,895 YoY Change (%) 9.5 9.5 -0.9 4.3 10.0 11.0 17.5 17.4 2.0 13.6 Gross profit 3,804 4,235 3,641 3,387 4,195 4,713 4,291 3,997 15,066 17,197

Margin (%) 57.8 60.1 64.0 64.6 58.0 60.3 64.2 64.9 61.4 61.6 Total Expenditure 4,701 4,939 4,225 4,407 5,476 5,542 4,576 4,342 18,273 19,936 EBITDA 1,875 2,102 1,464 839 1,758 2,275 2,109 1,818 6,280 7,959 Growth 24.0 -8.0 -4.8 -36.0 -6.2 8.2 44.1 116.6 9.8 26.7 Margins (%) 28.5 29.9 25.7 16.0 24.3 29.1 31.5 29.5 25.6 28.5 Depreciation 128 135 137 123 160 160 164 167 524 651 Interest 4 5 4 41 9 9 9 9 53 35 Other Income 35 71 66 68 110 110 110 109 241 439 PBT 1,777 2,033 1,389 744 1,699 2,216 2,046 1,751 5,944 7,712 Tax 622 721 475 298 578 753 696 595 2,116 2,622 Rate (%) 35.0 35.5 34.2 40.1 34.0 34.0 34.0 34.0 35.6 34.0 Reported PAT 3,828 5,090 Adj PAT 1,156 1,312 914 445 1,121 1,462 1,350 1,156 3,828 5,090 YoY Change (%) 10.6 -12.9 -8.2 -42.9 -3.0 11.4 47.7 159.5 38.1 33.0 Margins (%) 17.6 18.6 16.1 8.5 15.5 18.7 20.2 18.8 15.6 18.2 E: MOSL Estimates


P&G Hygiene CMP: INR9,506 TP: INR 9,900 (+4%) Neutral We expect PGHH to report net sales of INR7.2b, up 10% YoY.

We estimate EBITDA margin to contract 420bp YoY to 24.3% in 1QFY19 (June ending), mainly because of high adspend to revitalize sales growth.

EBITDA expected to see a decline of 6.2% YoY to ~INR1.8b and adj. PAT is expected to decline 3% YoY to INR1.1b in 1QFY19 (June ending).

The stock trades at 60.7x/51x FY19E/20E EPS of INR156.6/INR186.4; maintain Neutral.

Key issues to watch for Signs of growth reviving Strategy on advertising Margin performance

Bloomberg PG IN


1,6,12 Rel Perf. (%) 1 / -8 / -2

Financial Snapshot (INR b) Y/E June 2016 2017 2018 2019E

Sales 23.2 24.6 27.9 32.3 EBITDA 6.6 6.3 8.0 9.4

Adj. PAT 4.3 3.7 5.1 6.1 Adj. EPS (INR) 133.1 115.3 156.6 186.4 EPS Gr. (%) 2.5 -13.4 35.9 19.0

BV/Sh. (INR) 211.9 286.8 331.0 384.1 RoE (%) 39.4 46.3 50.8 52.2 RoCE (%) 40.3 47.2 51.5 52.3

Valuations P/E (x) 71.4 82.5 60.7 51.0 P/BV (x) 44.9 33.1 28.7 24.8 EV/EBITDA (x) 46.4 48.3 37.6 31.5 EV/Sales (x) 13.3 12.3 10.7 9.2

October 2018 124

Consol. - Quarterly Perf. (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 4,129 5,045 5,193 5,178 5,494 5,701 5,712 6,043 19,545 22,950 YoY Change (%) 7.7 6.7 16.4 20.9 33.1 13.0 10.0 16.7 12.9 17.4 Gross Profit 1,199 1,415 1,596 1,656 1,668 1,742 1,641 2,052 5,866 7,103 Margin (%) 29.0 28.1 30.7 32.0 30.4 30.6 28.7 34.0 30.0 30.9 Operating Expenditure 914 916 1,008 1,104 1,070 1,149 1,023 1,486 17,621 20,575 EBITDA 285 500 588 551 597 593 618 566 1,924 2,375 YoY Change (%) -10.4 47.9 LP 42.5 109.5 18.7 5.1 2.7 123.8 23.4 Margins (%) 6.9 9.9 11.3 10.6 10.9 10.4 10.8 9.4 9.8 10.3 Depreciation 116 129 136 125 136 142 150 138 506 566 Interest 70 74 108 96 103 70 103 135 349 410 Other Income 15 36 25 43 18 36 25 41 120 120 PBT 115 333 368 374 377 417 390 334 1,190 1,519 Tax 9 84 114 112 94 113 133 116 319 456 Rate (%) 8.1 25.3 30.8 30.0 25.0 27.0 34.0 34.7 26.8 30.0 Adj PAT 105 249 255 262 283 305 258 218 871 1,063 YoY Change (%) 3.0 94.5 LP 8.6 168.6 22.4 1.1 -16.5 405.2 22.1 Margins (%) 2.5 4.9 4.9 5.0 5.1 5.3 4.5 3.6 4.5 4.6 E: MOSL Estimates


Parag Milk foods CMP: INR249 TP: INR274 (+10%) Neutral We expect Parag to report net sales of INR5.7b, up 13% YoY.

Gross margin is likely to expand 250bp YoY to 30.6%.

We estimate EBITDA margin to expand 50bp YoY to 10.4% in 2QFY19.

EBITDA and adjusted PAT would post 18.7% and 22.4% YoY growth to INR593m and INR305m, respectively, in 2QFY19.

The stock trades at 19.6x/15.3x FY19E/20E EPS of INR12.7/INR16.3; maintain Neutral.

Key issues to watch for Volatility of milk prices Margin performance

Bloomberg PARAG IN Equity Shares (m) 84.1 M. Cap. (INR b)/(USD b) 21 / 0



Sales 17.3 19.5 23.0 26.7 EBITDA 0.9 1.9 2.4 2.9

Adj. PAT 0.2 0.9 1.1 1.4 Adj. EPS (INR) 2.1 10.4 12.7 16.3 EPS Gr. (%) -68.1 383.7 22.1 28.4

BV/Sh. (INR) 74.5 84.9 96.1 109.5 RoE (%) 3.6 13.0 14.0 15.8 RoCE (%) 6.4 12.5 13.2 14.5

Valuations P/E (x) 116.1 24.0 19.6 15.3 P/BV (x) 3.3 2.9 2.6 2.3 EV/EBITDA (x) 25.3 11.9 9.6 74.0 EV/Sales (x) 1.3 1.2 1.0 7.9

October 2018 125

Consol. - Quarterly Perf. (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 15,289 15,299 15,429 14,853 18,341 17,135 16,818 16,830 60,784 69,123 YoY Change (%) -2.6 7.9 15.6 14.7 20.0 12.0 9.0 13.3 8.2 13.7 Gross Profit 7,908 8,109 8,243 7,734 9,267 8,911 8,900 8,806 31,908 35,884

Margin (%) 51.7 53.0 53.4 52.1 50.5 52.0 52.9 52.3 52.5 51.9 EBITDA 3,210 3,761 3,703 2,739 3,817 3,955 3,783 3,307 13,412 14,862

YoY change (%) -18.5 17.0 29.2 6.2 18.9 5.2 2.2 20.7 6.5 10.8 Margins (%) 21.0 24.6 24.0 18.4 20.8 23.1 22.5 19.6 22.1 21.5

Depreciation 313 296 292 298 301 296 292 470 1,199 1,359 Interest 37 39 41 38 73 39 41 31 155 184 Other Income 432 337 195 521 321 370 292 518 1,484 1,501 PBT 3,292 3,763 3,564 2,924 3,764 3,990 3,742 3,324 13,542 14,821 Tax 1,033 1,245 1,193 457 1,361 1,237 1,160 1,059 3,927 4,817 Rate (%) 31.4 33.1 33.5 15.6 36.1 31.0 31.0 31.9 29.0 32.5 Adj PAT 2,260 2,518 2,370 2,467 2,404 2,753 2,582 2,265 9,615 10,004 YoY Change (%) -16.7 9.6 17.3 59.3 6.4 9.3 8.9 -8.2 12.1 4.0 Margins (%) 14.8 16.5 15.4 16.6 13.1 16.1 15.4 13.5 15.8 14.5 E: MOSL Estimates


Pidilite Industries

CMP: INR997 TP: INR1,216 (+22%) Buy We expect Pidilite (PIDI) to report revenue of INR17.1b in 2QFY19,

up 12% YoY, led by 9% volume growth in Consumer Bazaar segment.

EBITDA margin is expected to contract 150bp YoY to 23.1%.

We expect EBITDA and PAT to grow by 5.2% and 9.3% YoY to ~INR4b and ~INR2.8b, respectively.


Key issues to watch for Volume growth in Fevicol Outlook for VAM prices Outlook for Industrial and Construction Chemical segments

Bloomberg PIDI IN


1,6,12 Rel Perf. (%) -7 / -5 / 11


Sales 56.2 60.8 69.1 80.5 EBITDA 12.6 13.4 14.9 17.4


BV/Sh.(INR) 67.7 70.4 80.0 85.9 RoE (%) 28.1 27.3 26.2 28.3 RoCE (%) 26.2 25.1 24.0 26.1



October 2018 126

Standalone - Quarterly Perf. (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 16,780 12,764 11,971 14,693 18,659 14,343 14,126 16,093 56,208 63,220 YoY Change (%) 7.3 23.1 17.1 32.0 11.2 12.4 18.0 9.5 18.7 12.5 Gross Profit 8,817 6,907 6,272 7,762 10,095 7,888 7,628 8,399 29,759 34,011

Margin (%) 52.5 54.1 52.4 52.8 54.1 55.0 54.0 52.2 52.9 53.8 Total Expenditure 13,597 10,545 10,445 12,611 14,655 11,802 12,049 13,967 47,197 52,473 EBITDA 3,184 2,219 1,526 2,082 4,004 2,541 2,076 2,125 9,011 10,747 YoY Change (%) 9.4 83.1 19.3 105.9 25.8 14.5 36.0 2.1 41 19.3 Margins (%) 19.0 17.4 12.7 14.2 21.5 17.7 14.7 13.2 16.0 17.0 Depreciation 649 650 650 648 637 735 734 827 2,596 2,933 Interest 142 127 93 114 92 141 104 -76 477 261 Other Income 63 12 8 48 153 13 8 -27 130 147 PBT 2,456 1,454 791 1,368 3,428 1,678 1,247 1,347 6,068 7,699 Tax 837 515 317 459 1,208 570 424 415 2,128 2,618 Rate (%) 34.1 35.4 40.1 33.6 35.3 34.0 34.0 30.8 35 34.0 MI & P/L of Asso. Cos. 0 0 0 0 0 0 0 4 4.3 4 Adj PAT 1,619 938 474 909 2,219 1,107 823 928 3,936 5,077 YoY Change (%) 10.1 246.9 -2.3 1,250.4 37.1 18.0 73.7 2.1 71.6 29.0 Margins (%) 9.6 7.4 4.0 6.2 11.9 7.7 5.8 5.8 7.0 8.0 E: MOSL Estimates


United Breweries

CMP: INR1,289 TP: INR1,661 (+29%) Buy We expect United Breweries’ revenue to grow by 12.4% YoY to

INR14.3b.

We build in EBITDA margin expansion of 30bp YoY to 17.7%, with EBITDA growth of 14.5% YoY to INR2.5b.

We estimate 18% adjusted PAT growth in 2QFY19 to INR 1.1b.

The stock trades at 26.3x FY20E EV/EBITDA. Maintain Buy.

Key issues to watch for Trends in volume and margins Price trend and outlook for raw materials Traction on premium range of beers

Bloomberg UBBL IN


1,6,12 Rel Perf. (%) 0 / 24 / 39


Net Sales 47.6 56.2 63.2 72.7 EBITDA 6.7 9.0 10.7 13.1

NP 2.3 3.9 5.1 6.4 EPS (INR) 8.7 14.9 19.2 24.1 EPS Growth (%) -23.0 71.7 28.8 25.6

BV/Sh. (INR) 88.3 101.7 118.3 139.3 RoE (%) 10.2 15.7 17.5 18.7 RoCE (%) 9.1 14.3 16.2 17.4


EV/EBITDA (x) 51.5 38.1 31.9 26.3 EV/Sales (x) 7.3 6.1 5.4 4.7

October 2018 127

Quarterly Perfor. (INR Million) Y/E March FY18 FY19E FY18 FY19E (Standalone) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Volume Growth % -18.9 -15.9 -14.2 -2.3 1.1 5.4 4.3 2.9 -12.8 3.5 Total Revenues 17,818 19,513 22,633 21,737 20,119 22,129 25,454 24,190 81,701 91,892 YoY Change (%) -12.7 -3.7 -7.8 7.3 12.9 13.4 12.5 11.3 -4.4 12.5 Gross Profit 8,199 9,289 10,719 10,603 9,887 10,977 12,615 12,100 38,810 45,579

Margin (%) 46.0 47.6 47.4 48.8 49.1 49.6 49.6 50.0 47.5 49.6 Total Exp 16,114 16,786 19,910 18,996 17,836 18,926 22,010 20,899 71,806 79,671 EBITDA 1,704 2,727 2,723 2,741 2,283 3,203 3,444 3,291 9,895 12,222 Margins (%) 9.6 14.0 12.0 12.6 11.3 14.5 13.5 13.6 12.1 13.3 EBITDA growth (%) -20.1 18.5 -7.6 5.1 34.0 17.5 26.5 20.1 -1.0 23.5 Depreciation 321 326 337 367 339 342 354 383 1,351 1,419 Interest 703 659 658 591 559 527 494 418 2,611 1,997 PBT From operations 680 1,742 1,728 1,783 1,385 2,334 2,597 2,490 5,933 8,806 Other income 309 305 236 1,210 214 320 319 389 2,060 1,242 PBT 989 2,047 1,964 2,993 1,599 2,654 2,915 2,879 7,993 10,048 Tax 265 681 491 1,142 545 876 962 983 2,579 3,366 Rate (%) 26.8 33.3 25.0 38.2 34.1 33.0 33.0 34.1 32.3 33.5 Adj. PAT 724 1,366 1,473 1,851 1,054 1,778 1,953 1,896 5,414 6,682 YoY Change (%) -12.9 39.6 -0.3 83.6 45.6 30.2 32.6 2.5 26.1 23.4 E: MOSL Estimates

CMP: INR504 TP: INR522 (+4%) Neutral We expect United Spirits (UNSP) to post revenue growth of 13.4%

to INR22.1b, with 5.4% growth in volumes.

We note that molasses prices are down sharply YoY.

Gross margin is thus expected to expand 200bp YoY to 49.6%.

We expect EBITDA margin expansion of 50bp YoY to 14.5% and EBITDA growth of 17.5% YoY to INR3.2b.

We estimate adjusted PAT of ~INR1.8b in 2QFY19, up 30.2% YoY.

Maintain Neutral.

Key issues to watch for Trends in volume growth, premiumization and margins Price trend and outlook for ENA/molasses

Bloomberg UNSP IN


1,6,12 Rel Perf. (%) -10 / -31 / -12


Sales 85.5 81.7 91.9 106.1 EBITDA 9.7 10.2 12.2 15.9

PAT 3.9 4.9 6.7 9.6 EPS (INR) 5.3 6.7 9.2 13.2 EPS Gr. (%) 87.1 26.1 36.4 43.1

BV/Sh.(INR) 26.7 34.5 46.9 64.8 RoE (%) 21.3 19.6 19.6 20.3 RoCE (%) 11.4 11.5 14.4 18.3


P/BV (x) 18.9 14.6 10.7 7.8 EV/EBITDA (x) 10.6 9.2 6.6 4.6


United Spirits

October 2018 128

Elevated cost of funds to keep margins under pressure; profitability to remain muted Resolution of stressed power assets remains a key overhang for corporate banks

Earnings growth to remain under pressure amid multiple headwinds: We expect banking system earnings to remain muted owing to an increase in funding cost, elevated credit costs, and continued bond losses on the treasury and corporate bond portfolio. NIMs are likely to shrink further as the lending portfolio will re-price largely over 2HFY19, while cost of funds has been on a rise and CASA mix has been under pressure across most banks. Resolution of stressed power assets remains an overhang, especially after the recent stay order passed by the Supreme Court asking banks not to initiate insolvency proceedings. We expect private banks to report flattish YoY growth (ex ICICIBC & AXSB to report ~17% YoY growth while mid-sized private banks to report steady 17-35% YoY growth), while PSU banks will likely report modest profits, with the exception of PNB, which is once again likely to report a loss.

Systemic credit growth recovers further; private banks to maintain steady growth momentum: Systemic credit growth has improved to 13% YoY, led by continued traction in retail/working capital loans. We estimate private banks to maintain steady momentum in loan growth and further expand their market shares. According to the unaudited numbers disclosed by Yes Bank, loan growth stands at 61% YoY/12% QoQ to INR2.4t. However, we will closely watch the progression in deposits, as flailing deposit growth and continued pressure on the CASA mix have been exerting pressure on the bank's margins. We note that the credit deposit ratio across several private banks is already stretched.

Elevated funding cost to keep margins under pressure; increase in bond yields to further drive MTM losses: The recent tightness in the wholesale debt market, along with increasing bond yields, could adversely affect the cost of funds for banks, particularly for the ones having a higher proportion of wholesale liabilities. This will exert more pressure on margins and growth trajectory, even as re-pricing of the lending portfolio remains gradual. Banks with a strong liability franchise are much better placed to overcome these challenges and should report relatively stable trends, in our view. Furthermore, with increasing bond yields, banks will need to provide for further MTM losses on corporate /G-sec portfolio, and in the absence of any amortization benefit this quarter, it could materially impact earnings. This is in addition to the INR25b of unamortized losses pending to be recognized across four banks (YES, BoB, INBK and SBIN).

Resolution of power assets remains a key overhang: Corporate banks have significantly increased coverage on NCLT exposure on both the lists (refer Exhibit 13), which will insulate earnings as these cases undergo resolution, while healthy recoveries in certain metal accounts will drive provisioning write-backs as well. However, considering that the Supreme Court has stayed the RBI circular preventing initiation of insolvency proceedings against the power assets, we believe that the resolution of stressed power assets is an important event to watch for in the near term.

PAT (INRb) 2Q FY19E

YoY (%)

QoQ (%)

Pvt Banks AXSB 6.7 56.1 -3.7 DCBB 0.7 23.8 4.9 HDFCB 49.2 18.4 6.8 ICICIBC 5.0 -75.8 NM IIB 10.6 20.5 2.4 KMB 11.3 13.6 10.2 YES 11.7 17.0 -6.9 FB 2.0 -23.2 -22.9 RBK 2.0 34.9 6.9 AUBANK 0.9 35.2 20.0 EQUITAS 0.4 517.0 12.6 Pvt Total 100.6 -0.1 10.1 Ex ICIClBC & AXSB 88.9 17.3 3.9 PSU Banks BOB 3.6 2.4 -31.1 INBK 2.9 -35.1 40.0 PNB -10.0 NM NM SBIN 6.9 -56.6 NM PSU Total 3.5 -88.2 NM Banks Total 104.1 -20.0 156.4 Life Insurance HDFCLIFE 3.0 25.9 -21.0 IPRU 3.3 -22.2 16.3

Technology

December 2017 Results Preview | January 2018


Financials - Banks

Research Analyst: Nitin Aggarwal ([email protected]); +91 22 3982 5540 | Parth Gutka ([email protected]); +91 22 6129 1567 Alpesh Mehta ([email protected]); +91 22 3982 5415 | Yash Agarwal ([email protected]); +91 22 6129 1571

October 2018 129

Other monitorables: (a) Impact on margins due to a rise in cost of funds, (b) commentary on impact of IL&FS default, (c) stress in the SME/business banking segment, as highlighted by KMB in the previous quarter, (d) MTM losses due to a surge in bold yields, (e) trends in overseas business growth and asset quality in the wake of sharp currency depreciation.

NII to grow at 12.8% YoY/11.3% YoY for private/PSU banks; mid-sized private banks to maintain strong traction: We expect private banks to record NII growth of 12.8% YoY, led by strong growth in mid-sized private banks – IIB (~21% YoY), YES (~25% YoY) and RBL Bank (~38% YoY). Amongst PSUs, we expect BoB to report strong ~23% YoY growth in NII, while INBK and SBIN are likely to report modest growth.

Aggregate earnings growth to stay muted: We expect profitability to remain subdued, with private banks reporting flattish YoY growth (ex ICICIBC & AXSB to report ~17% YoY growth) in aggregate earnings. However, mid-sized private banks will continue recording superior PAT growth (~20% YoY/35% YoY/35% YoY for IIB/RBK/AUBANK). PSU banks will report modest profits, with the exception of PNB, which we estimate to again report a loss on account of elevated provisions.

RBK, AXSB, ICICIBC and SBIN among our top picks RBL (BUY): We expect loan book CAGR of 35% over FY18-20, driven by strong

momentum in the bank’s retail portfolio. We believe that the changing loan mix toward high-yielding loans will drive NIM and other income, though increased provisioning toward residual stressed MFI loans will limit the pick-up in earnings growth over FY19. Improving asset mix and re-pricing of the lending portfolio will largely compensate for funding cost pressures. We expect RBL to leverage on BAF's vast customer base by cross-selling various products. With a diverse product portfolio, no legacy issues and capable management, RBL’s earnings growth is expected to accelerate FY20 onward.

AXSB (BUY): We expect balance sheet clean-up to get over by 1HFY19 and earnings to return to normalcy in 2HFY19, as warrant conversion should provide enough capital to support growth thereafter (Tier 1 at ~13.2%). AXSB has already increased the PCR to 69% (NCLT-1 provisions of 83%), which will further curb incremental provisioning requirement. Appointment of Mr. Amitabh Chaudhry has ended the months of speculation on top management change. With an improving outlook on fresh slippages/credit cost, we believe that things are now falling in place and earnings momentum will accelerate over FY18-21.

ICICIBC (BUY): ICICIBC has substantially increased coverage on NCLT exposure (87.9%/60.7% coverage on NCLT list-1/list-2), which will insulate earnings as these cases undergo resolution. Watch-list has declined successively (NSL at multi-year low of 6.8%), while the PCR has increased sharply to 54.8%. Around 80% of the power sector exposure (excluding state electricity boards) is rated A- and above. We derive comfort on asset quality from: (a) bulk of slippages happening from watch-list and OSRL, (b) expected measures by the GoI/RBI for resolution of lumpy stressed loans and (c) relatively low concentration of deeper stressed sectors, such as power, on the watch-list. Retail business matrix remains healthy, with (a) a robust liability franchise (CASA ratio of 50.5% as of 1QFY19), (b) retail contribution to fees at 70%+ and (c) higher share of secured

June 2018 Results Preview | Sector: Financials

September 2018 Results Preview | Sector: Financials

October 2018 130

loans. Recent management change – wherein Mr. Sandeep Bakhshi has been appointed MD & CEO of the bank after Ms. Chanda Kochhar asked for early retirement – significantly reduces the overhang on the stock and should help improve market perception of transparency and governance levels at ICICI Bank. While Mr. Bakhshi presented last quarterly results at ICICIBC, the upcoming results now become much more important as it will give clarity on the bank’s performance and the revised business strategy.

SBIN (BUY): SBIN remains the best play on a recovery in the Indian economy, with NSL at 6.6%, relatively healthy PCR and strong capitalization levels. The bank has made generous provisions against NCLT accounts, which will likely result in write-backs as these cases undergo resolution. Credit cycle is showing recovery signs, as evident in the declining size of watch-list (1.3% of loans) and the lower slippages from the core corporate pool. We expect slippages to moderate, while the resolution of stressed power assets remains an important event to watch for in the near term (69% of power assets for SBIN are rated 'A' or higher). We expect credit cost to decline sharply and RoA to improve to 0.6% by FY20. Subsidiaries are making healthy contribution – SBI MF, SBI Life Insurance, SBI Cards and SBI Cap Securities – have exhibited a robust performance over the last few years. The bank plans to list SBI Cards, SBI General Insurance and SBI MF by FY20, which would lead to further value unlocking for its stakeholders.

Exhibit 1: 2QFY19 expected earnings (INR m) CMP

Sales (INR m) EBITDA (INR m) Net Profit (INR m)

(INR) RECO Sep-18 YoY (%) QoQ (%) Sep-18 YoY (%) QoQ (%) Sep-18 YoY (%) QoQ (%) Private Banks

AU Small Finance 564 Buy 3,064 39.5 7.0 1,770 22.9 16.2 922 35.2 20.0 Axis Bank 571 Buy 48,845 7.6 -5.5 42,110 11.5 -3.7 6,749 56.1 -3.7 DCB Bank 148 Neutral 2,846 14.7 4.3 1,499 20.5 6.0 729 23.8 4.9 Equitas Holdings 117 Buy 2,686 18.7 5.6 869 116.0 14.3 398 517.0 12.6 Federal Bank 70 Buy 10,008 11.3 2.1 5,704 -2.2 -5.4 2,025 -23.2 -22.9 HDFC Bank 2,031 Buy 110,484 13.3 2.2 90,305 15.5 4.4 49,157 18.4 6.8 ICICI Bank 304 Buy 60,833 6.6 -0.3 55,430 11.4 -4.6 4,970 -75.9 NM IndusInd Bank 1,638 Buy 21,976 20.7 3.5 19,177 17.4 0.3 10,601 20.5 2.4 Kotak Mahindra Bank 1,099 Neutral 26,074 12.7 0.9 20,580 19.3 1.3 11,300 13.6 10.2 RBL Bank 525 Buy 5,790 37.8 4.8 4,138 36.5 -4.3 2,031 34.9 6.9 Yes Bank 213 Buy 23,528 24.8 6.0 24,548 28.7 0.0 11,732 17.0 -6.9 Pvt Banking Sector Aggregate

316,135 12.8 0.8 266,129 15.6 -0.1 100,614 -0.1 10.1

Ex AXSB & ICICIBC 2,06,456 16.1 2.8 1,68,589 18.1 2.5 88,896 17.3 3.9 PSU Banks

Bank of Baroda 103 UR 45,898 23.4 4.8 31,069 2.1 3.4 3,637 2.4 -31.1 Indian Bank 252 Buy 16,711 8.3 -7.5 12,127 -11.8 -6.5 2,930 -35.1 40.0 Punjab National Bank 65 Neutral 42,015 4.6 -10.5 33,623 2.5 -19.8 -9,964 NM NM State Bank 271 Buy 205,610 10.6 -5.7 131,983 -34.0 10.2 6,864 -56.6 NM PSU Banking Sector Aggregate 310,235 11.3 -5.1 208,803 -24.6 2.0 3,467 -88.2 NM Banking Sector Aggregate

6,26,370 12.1 -2.2 4,74,932 -9.9 0.8 1,04,083 -20.0 156.4

Life Insurance

HDFC Stand. Life 381 Buy 63,419 17.7 26.6 2,996 38.1 -13.5 3,003 25.9 -21.0 ICICI Pru Life 331 Buy 77,506 18.5 42.5 2,633 -25.9 -12.5 3,275 -22.2 16.3

Note: For HDFC life and IPRU life Sales represents net premium income, EBITDA represents surplus/deficit and PAT represents shareholder's profit #UR represent under review


October 2018 131

Exhibit 2: State-owned banks—one-year forward P/BV

Exhibit 3: Private sector banks—one-year forward P/BV

Exhibit 4: System loan growth has been improving steadily

Exhibit 5: While deposit growth remains modest

Exhibit 6: Contribution of overseas business on a declining trend % overseas business 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 BoB 25.4% 25.0% 24.5% 22.3% 20.9% BoI 22.1% 22.8% 20.8% 17.1% 16.6% SBI 8.3% 8.6% 8.9% 8.6% 7.6% PNB 9.2% 9.5% 9.6% 7.7% 5.9% ICICIBC 10.1% 8.5% 5.2% 8.5% 6.6% USDINR 64.58 65.28 63.87 65.18 68.47

Exhibit 7: Contribution of overseas advances on a declining trend % overseas advances 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 BoB 24.2% 23.9% 24.4% 22.1% 19.1% BoI 22.6% 23.7% 20.0% 14.0% 11.0% SBI 14.8% 15.4% 15.6% 14.7% 13.4% PNB 10.3% 10.3% 10.0% 9.5% 7.7% ICICIBC 15.4% 14.9% 14.0% 12.6% 12.5% USDINR 64.58 65.28 63.87 65.18 68.47

0.8 0.9

1.7

0.5

1.2

0.7 0.3

0.9

1.5

2.1

Sep-

08

Dec-

09

Mar

-11

Jun-

12

Sep-

13

Dec-

14

Mar

-16

Jun-

17

Sep-

18

P/B (x) Avg (x) Max (x)Min (x) +1SD -1SD

2.7

2.3

3.0

0.9

2.7

1.8

0.8

1.8

2.8

3.8

Sep-

08

Dec-

09

Mar

-11

Jun-

12

Sep-

13

Dec-

14

Mar

-16

Jun-

17

Sep-

18

P/B (x) Avg (x) Max (x)Min (x) +1SD -1SD

66.

6

68.

1

69.

9

72.

5

72.

3

75.

7

73.

5

78.

8

76.

6

80.

1

81.

0

86.

5

85.

6

88.

0

9.9

9.1

10.

6

10.

9

9.0

11.

2

5.1

4.7

6.0

5.7

10.

2

9.8

12.

7

13.

1

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19Loans (INR t) Chg YoY (%)

87.1

91.1

91.3

93.3

95.4

102.

1

105.

2

108.

1

106.

1

109.

7

108.

9

114.

7

114.

0

115.

7

11.0

10.6

10.2

9.3

9.1 12

.0

15.2

11.2

11.1

7.4

3.5 6.

1 8.0

8.1

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Deposits (INR t) Chg YoY (%)

Banks have shown run down in their overseas business owing to

discontinuance of LOUs/LOCs; although we expect this trend to

continue, the decline should be moderate considering the recent

depreciation of INR


October 2018 132

Exhibit 8: NIM expected to contract sequentially (%)

Exhibit 9: 10-year G-Sec yield have increased in recent months (%)

Exhibit 10: Higher exposure to corporate bonds could drive MTM losses given significant hardening in bond yields (%)





Exhibit 13: NCLT exposure and provisioning coverage for major banks INRb ICICI BoB SBI BoI UNBK CBK YES NCLT -1 Exposure (INRb) 42.4 58.1 346.0 83.0 63.2 80.0 0.23 PCR towards above 87.9% 64.4% 65.0% NA 63.4% 61.0% 50.0% NCLT -2 Exposure (INRb) 100.7 38.4 284.4 33.0 44.9 50.0 6.5 PCR towards above 60.7% 62.8% 79.0% NA 69.0% 75.0% 43.0% Total Exposure (INRb) 143.1 209.5 630.4 116.0 108.1 130.0 6.7 PCR towards above 68.8% 63.4% 71.0% 81.0% 65.7% 66.0% 43.2%

2.5 2.5 2.3 2.3 2.7 2.7 2.5 2.7 2.4 2.6 2.6 2.5 2.9 2.7

4.1 4.0 4.0 4.0 3.9 3.9 3.9 4.0 3.9 3.9 3.9 3.9 3.8 3.7

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

PSU Private

6

7

8

9

Apr-

13

Sep-

13

Feb-

14

Jul-1

4

Dec-

14

May

-15

Oct

-15

Mar

-16

Aug-

16

Jan-

17

Jun-

17

Nov

-17

Apr-

18

Sep-

18

Govt 10yr bond yield

19.9%

7.6%

22.2%

4.1%

15.3%

7.3%

4.4% 1.8%

4.9%

0.9%

4.0%

2.3%

AXSB

ICIC

BC YES

BoB

PNB

SBIN

% of total investments % of total assets

90

95

100

105

110

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Financials Index

95

105

115

125

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18



October 2018 133

Exhibit 14: Snapshot of change in 3Y bond yield for major NBFCs (%)

3Y Bond Yield 1-year ago 6-month ago 3-month ago Current Change over past 3-month (bps)

HDFC 6.95 7.84 7.98 8.00 0.02 IHFL 7.49 7.93 8.43 9.03 0.60 SHTF 7.31 7.85 8.68 9.21 0.53 BAF 7.09 7.78 8.25 9.04 0.79 LICHF 6.86 7.45 7.88 8.83 0.95 PNBHF 7.20 8.02 8.39 8.96 0.57 GRHF 7.36 7.88 8.04 9.14 1.10 REPCO 7.75 8.47 8.83 9.69 0.86 MMFS 7.30 8.09 8.51 8.79 0.28 CIFC 7.43 7.94 8.70 8.97 0.27 MUTH NA NA 8.72 10.01 1.29 RECL NA NA 8.07 8.51 0.44 POWF 6.97 7.81 8.73 8.84 0.11 SCUF NA 8.50 8.99 9.73 0.74

Exhibit 15: Valuation summary

Mkt Cap CMP

Reco EPS (INR) ABV (INR) ROE (%) PE (x) PABV (x)

(USD B) (INR) FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E

Banks-Private

AUBANK 2.2 564 Buy 14.0 19.8 108.4 141.6 14.9 15.8 40.2 28.6 5.2 4.0 AXSB 20.0 571 Buy 16.2 35.9 220.8 260.3 6.3 12.9 35.3 15.9 2.6 2.2 DCBB 0.6 148 Neutral 9.6 11.9 91.8 102.9 10.9 12.3 15.5 12.4 1.6 1.4 EQUITAS 0.5 117 Buy 4.9 6.4 68.1 72.5 7.2 8.6 23.6 18.3 1.7 1.6 FB 1.9 70 Buy 4.7 5.4 57.2 61.8 7.4 7.9 14.9 13.1 1.2 1.1 HDFCB 72.1 2,031 Buy 77.9 90.7 514.4 582.8 16.4 15.8 26.1 22.4 3.9 3.5 ICICIBC* 26.6 304 Buy 8.1 18.9 127.8 147.9 5.0 11.0 37.5 16.1 1.5 1.3 IIB 13.4 1,638 Buy 81.8 108.2 445.1 575.1 19.3 21.0 20.0 15.1 3.7 2.8 KMB* 28.6 1,099 Neutral 37.2 45.7 199.3 226.9 11.8 13.2 29.6 24.1 3.5 3.1 RBK 3.0 525 Buy 20.3 26.6 170.2 230.6 12.1 13.4 25.9 19.7 3.1 2.3 SIB 0.3 14 Buy 1.7 3.9 22.5 27.7 5.7 12.5 8.5 3.6 0.6 0.5 YES 6.7 213 Buy 22.7 27.2 126.4 150.6 18.7 19.1 9.4 7.8 1.7 1.4 Private Bank Aggregate 176.1 12 11.0 13.9 25.5 17.7 Banks-PSU BOB 3.7 103 UR# 11.7 19.6 110.3 136.8 6.9 10.7 8.9 5.3 0.9 0.8 BOI 1.9 81 Neutral 5.1 8.3 72.2 93.1 2.5 4.0 15.9 9.8 1.1 0.9 CBK 2.3 232 Neutral 19.3 44.2 196.6 288.5 3.9 8.5 12.0 5.2 1.2 0.8 INBK 1.6 252 Buy 24.7 42.3 289.4 327.3 7.3 11.6 10.2 6.0 0.9 0.8 PNB 2.4 65 Neutral -6.2 10.6 3.6 22.9 -4.9 9.3 -10.4 6.1 18.1 2.8 SBIN* 32.9 271 Buy 4.8 29.4 161.9 196.0 1.0 11.3 56.5 9.2 1.2 1.0 UNBK 1.1 68 Neutral -4.3 3.5 86.5 102.7 -2.1 1.6 -15.9 19.3 0.8 0.7 PSU Bank Aggregate 46.1 7 2.0 9.2 39.6 8.1 Lifesurance HDFCLIFE** 10.4 381 Buy 6.8 8.3 89.9 106.9 25.9 26.2 56.3 46.0 4.2 3.6 IPRU** 6.5 331 Buy 9.7 12.5 152.8 177.2 16.8 16.0 33.9 26.4 2.2 1.9 Lifesurance Aggregate 16.9 2 20.5 21.9 44.8 35.7 9.2 7.8 (*) Multiples adj. for value of key ventures/Investments **ABV represents EV, RoE represents ROEV and P/BV represents P/EV #UR represent under review. We will review our TP and rating for BoB shortly


October 2018 134

Quarterly Performance (INRm) INRm FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 3,610 4,103 4,642 5,317 6,003 6,548 7,238 8,050 17,672 27,839 Interest Expense 1,775 1,906 2,137 2,448 3,139 3,484 3,719 3,961 8,267 14,302 Net Interest Income 1,835 2,197 2,504 2,869 2,864 3,064 3,519 4,089 9,405 13,536 % Change (Y-o-Y) 9.1 12.4 24.8 26.7 56.1 39.5 40.5 42.6 20.0 43.9 Other Income 579 926 1,060 1,345 1,031 1,235 1,586 1,814 3,881 5,666 Total Income 2,413 3,122 3,565 4,213 3,894 4,299 5,106 5,903 13,285 19,202 Operating Expenses 1,169 1,682 2,035 2,668 2,370 2,528 2,922 3,417 7,526 11,238 Operating Profit 1,245 1,440 1,529 1,545 1,524 1,770 2,184 2,486 5,759 7,964 % Change (Y-o-Y) 16.0 -8.7 5.5 6.8 22.4 22.9 42.8 60.9 -53.6 38.3 Other Provisions 291 410 329 296 351 384 493 599 1,326 1,826 Profit before Tax 954 1,030 1,200 1,249 1,173 1,387 1,691 1,888 4,433 6,138 Tax Provisions 335 348 411 419 404 465 575 655 1,513 2,099 Net Profit 618 682 789 830 768 922 1,116 1,232 2,920 4,039 % Change (Y-o-Y) -89.5 -3.0 -4.8 6.6 24.2 35.2 41.4 48.4 -12.4 38.3 Asset Quality

GNPA (INRb) 2.2 2.7 2.9 2.7 3.3 3.7 4.2 4.6 2.7 4.6 Net NPA (INRb) 1.5 1.8 1.9 1.7 2.1 2.3 2.6 2.7 1.7 2.7 GNPA (%) 3.0 3.1 2.8 2.0 2.2 2.2 2.2 2.1 2.0 2.1 NNPA (%) 2.1 2.1 1.9 1.3 1.4 1.4 1.3 1.3 1.3 1.3 PCR (Computed, %) 28.6 32.8 34.4 37.2 36.8 38.4 39.5 40.7 37.2 40.7

E: MOSL Estimates


AU Small Finance Bank CMP: INR564 TP: INR760 (+35%) Buy We expect AU Bank to deliver ~8.2% QoQ loan growth, while

deposit growth is expected to be ~9% on a sequential basis. NII is expected to grow 7% QoQ as we expect margins to shrink to

5.7% due to a rise in the cost of funds. Elevated opex due to investment in manpower and technology will

keep operating profit growth at ~23% We estimate PAT at INR922m v/s INR682m in 2QFY18 (growth of

35% YoY). GNPA/NNPA is expected to stay flattish at ~2.2%/1.4%. AU Bank trades at 4.0x FY20E BV. Buy. Key issues to watch for Cost to income ratio remains the key monitorable Slippages in the MSME segment

Bloomberg AUBANK IN Equity Shares (m) 290.0 M. Cap. (INR b)/(USD b) 164 / 2

52-Week Range (INR) 747 / 545 1,6,12 Rel Perf. (%) -16 / -18 / -15 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 7.8 9.4 13.5 18.9 PPP 12.4 5.8 8.0 11.5 PAT 3.3 2.9 4.0 5.8 NIM (%) 9.8 6.6 5.7 5.4 EPS (INR) 50.1 10.2 14.0 19.8 EPS Gr. (%) 4.3 -79.5 36.9 40.8 BV/Sh. (INR) 69.7 79.2 108.4 141.6 RoE (%) 22.3 13.8 14.9 15.8 RoA (%) 10.2 2.0 1.7 1.7 P/E(X) NA 55.1 40.2 28.6 P/BV (X) NA 7.1 5.2 4.0

October 2018 135


(INR m) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Interest Income 46,161 45,396 47,315 47,305 51,668 48,845 53,933 49,075 1,86,177 2,03,522 % Change (Y-o-Y) 2.2 0.6 9.2 0.0 11.9 7.6 14.0 3.7 2.9 9.3 Other Income 29,998 25,855 25,931 27,887 29,250 30,094 30,708 32,780 1,09,671 1,22,831 Total Income 76,160 71,252 73,246 75,191 80,918 78,939 84,641 81,855 2,95,848 3,26,353 Operating Expenses 33,248 33,478 34,708 38,469 37,198 36,829 41,246 40,373 1,39,903 1,55,646 Operating Profit 42,912 37,773 38,538 36,722 43,720 42,110 43,395 41,482 1,55,945 1,70,708 % Change (Y-o-Y) -4.0 -7.9 -16.9 -16.1 1.9 11.5 12.6 13.0 -11.3 9.5 Core Operating Profit 34,670 34,003 36,538 34,572 42,690 42,110 43,395 41,482 1,39,784 1,69,678 Provisions 23,419 31,404 28,110 71,795 33,377 31,056 26,620 19,862 1,54,729 1,10,915 Profit before Tax 19,492 6,369 10,428 -35,073 10,343 11,054 16,775 21,620 1,216 59,793 Tax 6,436 2,045 3,163 -13,186 3,333 4,305 4,754 5,547 -1,541 17,938 Net Profit 13,056 4,324 7,264 -21,887 7,011 6,749 12,022 16,073 2,757 41,855 % Change (Y-o-Y) -16.1 35.5 25.3 NM -46.3 56.1 65.5 NM -92.5 NM Operating Parameters

Deposit (INR b) 3,937 4,164 4,090 4,536 4,471 4,629 5,076 5,307 4,536 5,307 Loan (INR b) 3,855 4,102 4,209 4,397 4,411 4,595 4,930 5,192 4,397 5,192 Deposit Growth (%) 10.0 9.5 10.3 9.5 13.5 11.2 24.1 17.0 9.5 17.0 Loan Growth (%) 11.8 16.1 21.2 17.8 14.4 12.0 17.1 18.1 17.8 18.1 CD Ratio (%) 97.9 98.5 102.9 96.9 98.7 99.3 97.1 97.8 96.9 97.8 Asset Quality

Gross NPA (INR b) 220 274 250 342 327 325 304 295 342 295 Gross NPA (%) 5.0 5.9 5.3 6.8 6.5 6.8 6.0 5.7 6.8 5.7 Net NPA (INR b) 98 141 118 166 149 146 135 130 166 130 Net NPA (%) 2.3 3.1 2.6 3.4 3.1 3.2 2.7 2.5 3.4 2.5 PCR (%) 55.7 48.7 52.9 51.6 54.4 55.2 55.5 56.1 51.6 56.1 E: MOSL Estimates


Axis Bank CMP: INR571 TP: INR750 (+31%) Buy We expect AXSB to report ~12% loan growth, driven by continued

strong growth in the retail and SME segments. Deposit growth is likely to be ~11%, resulting in an elevated CD ratio of ~99%.

Margins are expected to contract on a sequential basis to ~3.3% on account of an increase in cost of funds.

Net stressed loans for the bank has declined to 6.7%, while the bank has already improved its coverage ratio to 69% (Incl. TWO). Though there are some signs of recovery in NPL cycle, we still expect slippages to remain at elevated levels (~4.5% annualized slippage ratio), as the bank proceeds to clean up its balance sheet (this should lead to high credit costs, which is expected to start normalizing from 2HFY19).

We estimate PAT of INR6.7b (growth of 56% YoY on a low base) v/s INR7b in 1QFY19.

AXSB trades at 2.2x FY20E ABV. Buy.

Key issues to watch for Quantum of corporate slippages from BB and below list and any

revision in the size of the stressed assets Bank's strategy on retail and unsecured loans

Bloomberg AXSB IN


1,6,12 Rel Perf. (%) -3 / 5 / -3 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 180.9 186.2 203.5 243.5 OP 175.8 155.9 170.7 216.9 NP 36.8 2.8 41.9 93.9 NIM (%) 3.6 3.1 2.9 2.9 EPS (INR) 15.4 1.1 16.2 35.9 EPS Gr. (%) -55.5 -92.8 NM 122.3 BV/Sh. (INR) 232.8 247.2 263.9 295.2 ABV/Sh. (INR) 200.6 193.8 220.8 260.3 RoE (%) 6.9 0.5 6.3 12.9 RoA (%) 0.6 0.0 0.6 1.0 Valuations P/E(X) 37.1 513.6 35.3 15.9 P/BV (X) 2.5 2.3 2.2 1.9 P/ABV (X) 2.8 2.9 2.6 2.2

October 2018 136

Quarterly Performance (INRm) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 34,050 37,205 43,940 40,023 43,811 45,898 47,772 49,859 1,55,218 1,87,340 % Change (YoY) 1.0 8.6 40.2 11.7 28.7 23.4 8.7 24.6 14.9 20.7 Other Income 15,512 17,371 16,730 16,959 11,478 11,176 14,712 19,219 66,572 56,586 Total Income 49,561 54,576 60,671 56,982 55,289 57,074 62,484 69,079 2,21,789 2,43,926 Operating Expenses 23,080 24,158 24,170 30,327 25,233 26,005 28,167 31,054 1,01,734 1,10,459 Operating Profit 26,481 30,418 36,501 26,655 30,056 31,069 34,317 38,024 1,20,056 1,33,467 % Change (YoY) -0.8 13.1 40.6 -11.7 13.5 2.1 -6.0 42.7 9.4 11.2 Provisions 23,681 23,294 34,265 66,724 21,656 25,519 23,199 22,422 1,47,963 92,797 Profit before Tax 2,801 7,125 2,236 -40,069 8,400 5,550 11,118 15,602 -27,907 40,670 Tax 767 3,571 1,118 -9,046 3,120 1,913 2,489 2,239 -3,589 9,761 Net Profit 2,034 3,554 1,118 -31,023 5,280 3,637 8,629 13,364 -24,318 30,909 % Change (YoY) -52.0 -35.6 -55.8 NM 159.6 2.4 671.9 NM NM NM Operating Parameters Deposit (INR b) 5,706 5,832 5,733 5,913 5,815 5,913 6,290 6,475 5,913 6,475 Loan (INR b) 3,776 3,873 3,994 4,274 4,145 4,223 4,618 4,787 4,274 4,787 Asset Quality Gross NPA (INR B) 462 463 485 565 559 553 552 528 565 528 Gross NPA (%) 11.4 11.2 11.3 12.3 12.5 12.1 11.2 11.0 12.3 11.0 Net NPA (INR B) 195.2 195.7 198.5 234.8 223.8 218.3 231.8 200.7 234.8 200.7 Net NPA (%) 5.2 5.1 5.0 5.5 5.4 5.2 5.0 4.2 5.5 4.2 PCR (%) 57.7 57.7 59.1 58.4 59.9 60.5 58.0 62.0 58.4 62.0 E: MOSL Estimates


Bank of Baroda CMP: INR103 Under Review We expect loan growth to moderate to ~9% YoY. Balance sheet

recalibration will continue, led by a focus on granular retail loans. We expect drill-down in the international book to continue. We expect deposits to grow ~1.4% YoY (~1.7% QoQ).

We expect margins to contract to ~2.6% on account of rising cost of funds.

We expect slippages to moderate but remain at elevated levels (4.8% annualized). We expect GNPA/NNPA to stay moderate at 12.1%/5.2%.

We expect total other income to grow 5% YoY, mainly led by core fee income.

PAT is expected to be at INR3.6b v/s INR5.2b in 1QFY19. Return ratios would still remain sub-optimal. The stock trades at 0.8x FY20E ABV.

Key issues to watch for Movement of the watch-list and stress addition from the

international book Management commentary on the merger and the possible

benefits from the same

Bloomberg BOB IN

Equity Shares (m) 2,651.8

M. Cap. (INR b)/(USD b) 274 / 3.9

52-Week Range (INR) 207 / 96

1,6,12 Rel Perf. (%) -25 / -37 / -40 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 135.1 155.2 187.3 219.7 OP 109.8 120.1 133.5 161.8 NP 13.8 -24.3 30.9 51.9 NIM (%) 2.2 2.3 2.5 2.6 EPS (INR) 6.0 -9.8 11.7 19.6 EPS Gr. (%) NM NM NM 67.9 BV/Sh. (INR) 165.9 157.1 167.6 186.0 ABV/Sh. (INR) 107.2 90.9 110.3 136.8 RoE (%) 4.0 -5.8 6.9 10.7 RoA (%) 0.2 -0.3 0.4 0.6 Valuations P/E(X) 17.3 -10.5 8.9 5.3 P/BV (X) 0.6 0.7 0.6 0.6 P/ABV (X) 1.0 1.1 0.9 0.8

October 2018 137


(INR m) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 2,332 2,481 2,505 2,637 2,730 2,846 3,027 3,267 9,954 11,870 % Change (Y-o-Y) 31.7 30.4 19.6 19.7 17.1 14.7 20.9 23.9 24.9 19.2 Other Income 858 653 749 849 828 868 926 1,008 3,103 3,631 Total Income 3,189 3,134 3,254 3,486 3,558 3,714 3,953 4,275 13,057 15,500 Operating Expenses 1,825 1,890 2,029 2,070 2,144 2,215 2,376 2,494 7,807 9,230 Operating Profit 1,364 1,244 1,225 1,416 1,414 1,499 1,576 1,781 5,250 6,271 % Change (Y-o-Y) 47.1 23.4 12.2 22.8 3.7 20.5 28.6 25.8 25.5 19.4 Provisions 355 302 343 388 332 366 418 626 1,388 1,742 Profit before Tax 1,009 942 883 1,028 1,082 1,133 1,158 1,155 3,862 4,528 Tax Provisions 357 353 313 386 387 404 404 390 1,409 1,585 Net Profit 652 589 570 642 695 729 754 765 2,453 2,943 % Change (Y-o-Y) 38.7 21.5 11.1 21.5 6.6 23.8 32.2 19.2 22.8 20.0 Operating Parameters

Deposit (INR b) 191.5 205.7 213.0 240.1 250.3 261.2 279.7 292.9 240.1 292.9 Loan (INR b) 162.7 174.0 186.0 203.4 212.4 223.9 240.0 252.2 203.4 252.2 Deposit Growth (%) 22.2 16.3 13.0 24.5 30.7 27.0 31.3 22.0 24.5 22.0 Loan Growth (%) 22.0 20.5 27.5 28.6 30.6 28.7 29.1 24.0 28.6 24.0 Asset Quality

Gross NPA (INRb) 2.9 3.2 3.5 3.7 4.0 4.1 4.2 4.1 3.7 4.1 Gross NPA (%) 1.7 1.8 1.9 1.8 1.9 1.8 1.7 1.6 1.8 1.6 Net NPA (INRb) 1.5 1.6 1.6 1.5 1.5 1.6 1.6 1.5 1.5 1.5 Net NPA (%) 0.9 0.9 0.9 0.7 0.7 0.7 0.7 0.6 0.7 0.6 PCR (%) 47.7 50.3 54.4 60.2 61.6 61.5 61.0 62.2 60.2 62.2 E: MOSL Estimates


DCB Bank CMP: INR148 TP: INR170 (+15%) Neutral Loan growth (29% YoY) and deposit growth (27% YoY) are

expected to be high due to low base. Growth will be driven by retail; management intends to curb corporate growth below 20%.

Non-interest income is expected to remain flattish as trading gains should remain moderate.

Overall, we expect PPoP growth to increase to ~21% YoY. We model opex growth of 17% YoY, lower than previous quarters, as the pace of branch addition will slow down. Credit costs may be elevated owing to potential stress in the SME and LAP segments (we factor in ~2% slippage ratio). We expect PAT growth of ~24% YoY.

DCBB trades at 1.4x FY20E ABV. Expensive valuations leave room for limited upside. Maintain Neutral.

Key issues to watch for Management commentary on slippages in SME segment Update and commentary on balance sheet growth strategy CASA ratio and NIM performance

Bloomberg DCBB IN


1,6,12 Rel Perf. (%) -6 / -20 / -34 Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E NII 8.0 10.0 11.9 14.3 OP 4.2 5.2 6.3 7.9 NP 2.0 2.5 2.9 3.7 NIM (%) 4.0 4.0 3.9 3.9 EPS (INR) 7.0 8.0 9.6 11.9 EPS Gr. (%) 2.3 13.8 20.0 24.9 BV/Sh. (INR) 72.3 86.7 95.3 106.8 ABV/Sh. (INR) 69.3 83.3 91.8 102.9 RoE (%) 10.8 10.9 10.9 12.3 RoA (%) 0.9 0.9 0.9 0.9 Valuations P/E (x) 21.2 18.6 15.5 12.4 P/BV (x) 2.1 1.7 1.6 1.4 P/ABV (X) 2.1 1.8 1.6 1.4

October 2018 138

Quarterly Performance INRm Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 2,160 2,263 2,337 2,485 2,544 2,686 2,752 2,894 9,245 10,876 % Change (YoY) 5.7 12.8 -13.6 12.2 17.8 18.7 17.7 16.5 8.1 17.6 Other Income 820 314 326 433 610 677 753 837 1,893 2,877 Total Income 2,980 2,577 2,663 2,918 3,154 3,364 3,504 3,731 11,138 13,754 Operating Expenses 2,263 2,175 2,252 2,244 2,394 2,495 2,556 2,657 8,907 10,102 Operating Profit 717 402 411 674 760 869 949 1,074 2,231 3,652 % Change (YoY) -37.1 -54.6 -60.7 42.2 6.0 116.0 130.8 59.4 -37.1 63.7 Provisions 439 273 869 138 209 281 287 326 1,719 1,103 Profit before Tax 278 129 -458 536 551 587 662 749 512 2,549 Tax 98 65 -152 187 198 190 219 260 198 867 Net Profit 180 64 -306 348 353 398 443 489 314 1,682 % Change (YoY) -70.5 -86.1 NM 404.7 95.7 517.0 NM 40.4 -80.3 435.8 Operating Parameters AUM (INR b) 70.4 73.3 77.2 82.4 89.3 94.0 101.7 106.0 82.4 106.0 Deposits (INR b) 23 31 37 47 57 67 88 101 47 101 Loans (INR b) 61 64 72 78 84 90 97 104 78 104 AUM Growth (%) 7.3 3.5 7.5 14.8 26.9 28.3 31.7 28.6 14.8 28.6 Deposit Growth (%) NM NM 386.7 150.3 153.7 117.1 137.6 115.0 150.3 115.0 Loan Growth (%) 6.9 13.6 22.2 33.7 37.7 39.4 35.2 33.0 33.8 33.0 Asset Quality Gross NPA (INR B) 3,000 3,702 3,560 2,130 2,390 2,521 2,688 2,898 2,130 2,898 Net NPA (INR B) 1,630 1,988 1,350 1,310 1,460 1,510 1,452 1,534 1,320 1,534 Gross NPA (%) 4.9 5.8 5.0 2.7 2.8 2.8 2.7 2.8 2.7 2.8 Net NPA (%) 3.0 3.2 1.9 1.7 1.7 1.7 1.5 1.5 1.7 1.5 PCR (%) 45.7 46.3 62.1 38.5 38.9 40.1 46.0 47.1 38.0 47.1 E: MOSL Estimates


Equitas Holdings CMP: INR117 TP: 160 (+37%) Buy We expect NII growth of ~19% YoY due to (a) pick-up in loan

growth and (b) recalibration in the liability side (sufficient availability of funds). AUM is expected to grow ~28% YoY, as securitized portfolio continues to run down.

NIM is expected to contract by ~40bp QoQ, largely on account of increase in cost of funds.

Opex is expected to grow by 15% YoY (v/s ~31% YoY growth in total income), with moderation in employee and other expenses, as employee additions related to bank transition have largely been made.

Asset quality of UCV and MSME portfolios remains a key monitorable. GNPA ratio to remain stable at 2.8% levels, with a slight improvement in NNPA ratio due to higher PCR.

The stock trades at 1.6x FY20E ABV. Maintain Buy. We revise our TP from INR175 to INR160 based on 2.2x FY20E

ABV. Key issues to watch for Update on the transition progress Commentary on growth and asset quality in MFI

Bloomberg EQUITAS IN

Equity Shares (m) 340.8

M. Cap. (INR b)/(USD b) 40 / 1


1,6,12 Rel Perf. (%) -20 / -30 / -38 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 8.6 9.2 10.9 12.3 OP 3.5 2.2 3.7 4.6 NP 1.6 0.3 1.7 2.2 NIM (%) 11.5 8.5 7.4 6.4 EPS (INR) 5.2 0.9 4.9 6.4 EPS Gr. (%) -15.5 -82.3 433.7 28.9 BV/Sh. (INR) 66 67 71 77 ABV/Sh. (INR) 64 64 68 73 RoE (%) 8.9 1.4 7.2 8.6 RoA (%) 2.0 0.3 1.0 1.0 Valuations P/E(X) 22.2 125.9 23.6 18.3 P/BV (X) 1.8 1.7 1.6 1.5 P/ABV (X) 1.8 1.8 1.7 1.6

October 2018 139

Quarterly Performance FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 8,007 8,989 9,500 9,332 9,801 10,008 9,730 10,176 35,828 39,716 % Change (YoY) 15.6 23.8 20.0 10.8 22.4 11.3 2.4 9.0 17.4 10.9 Other Income 3,291 2,872 2,286 3,142 2,709 2,511 3,370 4,625 11,591 13,214 Total Income 11,298 11,861 11,786 12,474 12,509 12,519 13,100 14,802 47,419 52,930 Operating Expenses 5,719 6,029 6,172 6,588 6,480 6,815 7,094 7,429 24,509 27,818 Operating Profit 5,579 5,832 5,614 5,886 6,029 5,704 6,006 7,373 22,910 25,112 % Change (YoY) 31.0 22.8 18.2 7.2 8.1 -2.2 7.0 25.3 19.0 9.6 Provisions 2,364 1,768 1,624 3,715 1,992 2,466 2,795 3,708 9,472 10,960 Profit before Tax 3,214 4,064 3,990 2,170 4,038 3,238 3,211 3,665 13,439 14,151 Tax 1,113 1,427 1,390 721 1,411 1,212 1,179 1,010 4,650 4,811 Net Profit 2,102 2,637 2,600 1,450 2,627 2,025 2,033 2,655 8,789 9,340 % Change (YoY) 25.6 31.0 26.4 -43.5 25.0 -23.2 -21.8 83.1 5.8 6.3 Operating Parameters

Deposit (INR b) 958.4 972.1 1,005.4 1,119.9 1,112.4 1,151.8 1,226.3 1,332.7 1,119.9 1,332.7 Loan (INR b) 763.1 806.5 849.5 919.6 943.0 980.3 1,030.8 1,121.9 919.6 1,121.9 Asset Quality

Gross NPA (INR b) 18.7 19.5 21.6 28.0 28.7 30.9 31.4 31.6 28.0 31.6 Gross NPA (%) 2.4 2.4 2.5 3.0 3.0 3.1 3.0 2.8 3.0 2.8 Net NPA (INR b) 10.6 10.7 11.6 15.5 16.2 17.0 16.5 17.7 15.5 17.7 Net NPA (%) 1.4 1.3 1.4 1.7 1.7 1.7 1.6 1.6 1.7 1.6 PCR (%) 43.2 45.3 46.5 44.5 43.5 45.0 47.5 43.8 44.5 43.8

E: MOSL Estimates


Federal Bank CMP: INR70 TP: INR100 (+42%) Buy We expect FB to report ~22% YoY (4% QoQ) loan growth, aided by

renewed focus on corporate growth. Traction in SME and retail loans would be maintained. We expect NIM to remain under pressure due to increase in cost of funds.

Other income is likely to decline by 13% YoY due to moderation in treasury gains and fee income.

Overall PPoP is expected to decline with total income growth of ~5% trailing opex growth of 13%, which is likely to be higher on account of recent floods in Kerala.

We expect slippages to elevate during the quarter (3.1% annualized) due to floods in Kerala.

We expect PAT of INR2b v/s INR2.6b in 2QFY18 and INR2.6b in 1QFY19. FB trades at 1.1x FY20E ABV. Buy.

We revise our TP from INR110 to INR100 (1.7x Sept-20 ABV). Key issues to watch for Outlook on asset quality and growth opportunities, especially

post the recent floods in Kerala. Strategy on balance sheet growth, particularly corporate growth

and fee income.

Bloomberg FB IN


M. Cap. (INR b)/(USD b) 139 / 2


1,6,12 Rel Perf. (%) -6 / -31 / -52 Financial Snapshot (INR B) Y/E Mar FY17 FY18 FY19E FY20E NII 30.5 35.8 39.7 43.8 OP 19.2 22.9 25.1 27.7 NP 8.3 8.8 9.3 10.6 NIM (%) 3.3 3.1 2.9 2.6 EPS (INR) 4.8 4.8 4.7 5.4 EPS Gr. (%) 74.1 -1.3 -0.4 13.8 BV/Sh. (INR) 50.8 61.9 65.8 70.3 ABV/Sh. (INR) 47.2 54.3 57.2 61.8 ROE (%) 9.9 8.3 7.4 7.9 ROA (%) 0.8 0.7 0.6 0.5 Valuations P/E(X) 14.6 14.8 14.9 13.1 P/BV (X) 1.4 1.1 1.1 1.0 P/ABV (X) 1.5 1.3 1.2 1.1

October 2018 140

Quarterly Performance FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Interest Income 93,707 97,521 1,03,143 1,06,577 1,08,136 1,10,484 1,17,063 1,23,387 4,00,949 4,59,069 % Change (Y-o-Y) 20.4 22.0 24.1 17.7 15.4 13.3 13.5 15.8 21.0 14.5 Other Income 35,167 36,059 38,692 42,286 38,181 39,919 45,022 53,434 1,52,203 1,76,556 Total Income 1,28,874 1,33,580 1,41,835 1,48,863 1,46,316 1,50,403 1,62,084 1,76,821 5,53,152 6,35,625 Operating Expenses 53,675 55,401 57,322 60,506 59,839 60,098 63,103 69,474 2,26,904 2,52,514 Operating Profit 75,199 78,179 84,513 88,357 86,478 90,305 98,981 1,07,348 3,26,248 3,83,111 % Change (Y-o-Y) 29.2 29.8 27.9 21.4 15.0 15.5 17.1 21.5 26.8 17.4 Core Operating Profit 71,885 74,620 81,919 88,137 89,310 90,305 98,981 1,07,348 3,11,013 3,59,175 Provisions 15,588 14,762 13,514 15,411 16,294 15,328 16,251 19,213 59,275 67,086 Profit before Tax 59,612 63,417 70,999 72,946 70,184 74,977 82,730 88,135 2,66,973 3,16,026 Tax 20,673 21,907 24,573 24,953 24,169 25,820 27,802 31,237 92,106 1,09,029 Net Profit 38,938 41,510 46,426 47,993 46,014 49,157 54,927 56,898 1,74,867 2,06,997 % Change (Y-o-Y) 20.2 20.1 20.1 20.3 18.2 18.4 18.3 18.6 20.2 18.4 Operating Parameter

Deposit Growth (%) 17.0 16.5 10.1 22.5 20.0 21.1 29.3 19.5 22.5 19.5 Loan Growth (%) 23.4 22.3 27.5 18.7 22.0 24.2 23.2 21.8 18.7 21.8 Deposit (INR b) 6,714 6,893 6,990 7,888 8,058 8,349 9,041 9,426 7,888 9,426 Loan (INR b) 5,810 6,049 6,312 6,583 7,086 7,510 7,775 8,018 6,583 8,018 Asset Quality

Gross NPA (INR B) 72.4 77.0 82.3 86.1 95.4 97.3 99.3 94.0 86.1 94.0 Gross NPA (%) 1.2 1.3 1.3 1.3 1.3 1.3 1.3 117.2 1.3 1.2 Net NPA (INR B) 25.3 26.0 27.7 26.0 29.1 29.4 30.2 29.1 26.0 29.1 Net NPA (%) 0.4 0.4 0.4 0.4 0.4 0.4 0.4 36.3 0.4 0.4 PCR 65.1 66.3 66.3 69.8 69.5 69.8 69.6 69.1 69.8 69.1 E: MOSL Estimates


HDFC Bank CMP: INR2,031 TP: INR2,400 (+18%) Buy Loan growth is expected to ~20%, mainly driven by retail loans,

whereas deposit growth is expected to be ~21% YoY led by traction in CASA and bulk deposits.

Calculated margins at 4.1% are expected to contract due to a rise in cost of funds. NII is expected to grow at ~13% YoY.

Other income growth is expected to moderate to ~11% YoY, factoring in lower trading gains. Fee income should remain healthy.

Opex growth would be lower than total income growth at ~8.5% YoY, aided by the bank's strong digital initiatives.

Asset quality is expected to remain stable, with GNPA at ~1.3%. We estimate PAT at INR49.2b (up ~18% YoY.) HDFCB trades at 3.5x FY20E ABV. Buy.

Key issues to watch for Performance in retail loan/agri portfolio, especially CV/CE Trends in digital banking/payments and various initiatives;

overall B/S growth outlook and economic recovery

Bloomberg HDFCB IN


1,6,12 Rel Perf. (%) 5 / -2 / -3 Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E NII 331.4 400.9 459.1 554.0 OP 257.3 326.2 383.1 473.2 NP 145.5 174.9 207.0 246.4 NIM (%) 4.6 4.4 4.1 4.2 EPS (INR) 56.8 67.8 77.9 90.7 EPS Gr. (%) 16.7 19.4 14.9 16.4 BV/Sh. (INR) 335.9 409.6 539.0 611.6 ABV/Sh. (INR) 330.8 387.8 514.4 582.8 RoE (%) 17.9 17.9 16.4 15.8 RoA (%) 1.8 1.8 1.7 1.7 Valuations

P/E(X) 35.8 30.0 26.1 22.4 P/BV (X) 6.0 5.0 3.8 3.3 P/ABV (X) 6.1 5.2 3.9 3.5

October 2018 141


(INR m) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Interest Income 55,898 57,091 57,053 60,217 61,019 60,833 64,613 66,919 2,30,258 2,53,384 % Change (YoY) 8.4 8.7 6.4 1.0 9.2 6.6 13.3 11.1 5.9 10.0 Other Income 33,879 51,862 31,669 56,786 38,518 36,978 39,403 36,651 1,74,196 1,51,551 Total Income 89,778 1,08,953 88,721 1,17,003 99,537 97,812 1,04,016 1,03,570 4,04,455 4,04,935 Operating Expenses 37,944 39,088 38,144 41,863 41,453 42,382 44,598 43,096 1,57,039 1,71,529 Operating Profit 51,833 69,865 50,578 75,140 58,084 55,430 59,419 60,474 2,47,415 2,33,406 % Change (YoY) -0.6 -34.3 -8.4 47.0 12.1 -20.7 17.5 -19.5 -6.6 -5.7 Provisions 26,087 45,029 35,696 66,258 59,713 48,220 36,165 28,116 1,73,070 1,72,213 Profit before Tax 25,746 24,836 14,882 8,882 -1,629 7,210 23,254 32,358 74,346 61,193 Tax 5,256 4,254 -1,621 -1,318 -434 2,240 2,387 4,986 6,571 9,179 Net Profit 20,490 20,582 16,502 10,200 -1,196 4,971 20,867 27,372 67,774 52,014 % Change (YoY) -8.2 -33.7 -32.4 -49.6 NM -75.8 26.5 168.3 -30.9 -23.3 Operating Parameters

Deposit (INR b) 4,863 4,986 5,174 5,610 5,469 5,625 6,125 6,367 5,610 6,367 Loan (INR b) 4,641 4,828 5,054 5,124 5,163 5,290 5,577 5,790 5,124 5,790 Deposit Growth (%) 14.7 11.0 11.2 14.5 12.5 12.8 18.4 13.5 14.5 13.5 Loan Growth (%) 3.3 6.3 10.5 10.4 11.3 9.6 10.3 13.0 10.4 13.0 Asset Quality

Gross NPA (INR b) 431.5 444.9 460.4 540.6 534.6 533.2 531.7 531.5 540.6 531.5 Gross NPA (%) 8.0 7.9 7.8 8.8 8.8 9.5 9.0 9.2 8.8 9.2 Net NPA (INR b) 253.1 241.3 238.1 278.9 241.7 234.6 224.9 213.7 278.9 213.7 Net NPA (%) 4.9 4.4 4.2 4.8 4.2 4.4 4.0 3.7 4.8 3.7 PCR (%) 41.3 45.8 48.3 48.4 54.8 56.0 57.7 59.8 48.4 59.8 E: MOSL Estimates


ICICI Bank CMP: INR304 TP: INR380 (+25%) Buy We expect loan growth to come in at ~10% YoY. Corporate loan

growth would be moderate and international book would continue declining. Retail loans should continue exhibiting healthy growth.

NIM is expected to stay largely flat QoQ at ~3.2%. NII is expected to grow ~7% YoY.

Total other income to decline sequentially by 4% on account of muted treasury gains.

Gross slippages are expected to moderate from FY18 levels, but remain high (3.9% slippage ratio). Net stress loans stand at 6.8% of loans and are expected to decline further as incremental stress addition moderates.

We expect PAT of INR4.8b v/s INR20.6b in 2QFY18 and a loss of INR1.2b in 1QFY19. ICICIBC trades at 1.3x FY20E ABV. Buy.

Key issues to watch for Movement of watch-list accounts Outlook on asset quality and trend on further relapse from

restructured loans Resolution of power assets remains a key monitorable

Bloomberg ICICIBC IN


M. Cap. (INR b)/(USD b) 1953 / 27


1,6,12 Rel Perf. (%) -2 / 4 / -6 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 217.4 230.3 253.4 284.0 OP 264.9 247.4 233.4 267.6 NP 98.0 67.8 52.0 121.3 NIM (%) 3.3 3.2 3.2 3.2 EPS (INR) 16.8 11.1 8.1 18.9 EPS Gr (%) 0.5 -34.3 -26.9 133.3 BV/Sh (INR) 137.9 161.0 166.5 179.8 ABV/Sh (INR) 120.2 115.3 127.8 147.9 Cons. BV/Sh (INR) 179.6 172.1 191.9 218.0 Cons. ABV/Sh (INR) 131.1 126.4 153.2 186.1 RoE (%) 10.3 6.8 5.0 11.0 RoA (%) 1.3 0.8 0.6 1.1 Valuations AP/E (x) 11.3 17.1 23.4 10.0 AP/Cons. BV (x) 1.7 1.8 1.6 1.4 AP/Cons. ABV (x) 2.3 2.4 2.0 1.6 AP/ABV (x) 1.6 1.6 1.5 1.3 *BV ADJ FOR INVT IN SUBSIDIARIES

October 2018 142

Quarterly Performance(INRm) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Interest Income 14,595 15,436 16,228 16,377 18,070 16,711 17,060 17,790 62,636 69,631 % Change (YoY) 18.1 20.8 30.2 18.2 23.8 8.3 5.1 8.6 21.7 11.2 Other Income 6,521 7,146 5,489 4,903 4,398 5,485 5,942 7,030 24,058 22,855 Total Income 21,116 22,582 21,717 21,280 22,468 22,197 23,002 24,820 86,694 92,487 Operating Expenses 8,592 8,826 9,623 9,643 9,492 10,070 10,428 12,574 36,684 42,565 Operating Profit 12,524 13,756 12,094 11,638 12,976 12,127 12,574 12,246 50,010 49,922 % Change (YoY) 38.7 36.7 18.4 8.7 3.6 -11.8 4.0 5.2 25.0 -0.2 Other Provisions 7,156 7,446 9,181 15,463 10,296 8,057 8,601 8,153 39,246 35,106 Profit before Tax 5,368 6,310 2,913 -3,826 2,680 4,070 3,973 4,093 10,764 14,816 Tax 1,644 1,795 -120 -5,145 587 1,140 726 511 -1,826 2,963 Net Profit 3,724 4,515 3,033 1,320 2,093 2,930 3,247 3,582 12,590 11,852 % Change (YoY) 21.1 11.5 -18.8 -58.7 -43.8 -35.1 7.0 171.4 -10.4 -5.9 Operating Parameters

Deposits (INR b) 1,915 1,987 2,065 2,083 2,102 2,156 2,280 2,377 2,083 2,377 Loans (INR b) 1,294 1,392 1,483 1,566 1,584 1,628 1,747 1,837 1,566 1,837 Deposit Growth (%) 7.9 11.5 12.5 14.1 9.8 8.5 10.4 14.1 14.1 14.1 Loan Growth (%) 4.2 13.4 21.6 22.6 22.5 16.9 17.8 17.3 22.6 17.3 Asset Quality

Gross NPA (INR B) 96.5 96.2 96.0 119.9 118.3 121.4 120.0 115.6 119.9 115.6 Net NPA (INR B) 52.4 47.5 49.0 59.6 60.0 60.4 57.6 55.1 59.6 55.1 Gross NPA (%) 7.2 6.7 6.3 7.4 7.2 7.2 6.6 6.3 7.4 6.3 Net NPA (%) 4.1 3.4 3.3 3.8 3.8 3.7 3.3 3.0 3.8 3.0 PCR (%) 45.7 50.7 48.9 50.3 49.3 50.2 52.0 52.3 50.3 52.3 E: MOSL Estimates


Indian Bank CMP: INR252 TP: INR375 (+49%) Buy Loan growth is expected to moderate to ~17% YoY (+3% QoQ), led

by balance sheet recalibration. Deposit growth is expected be 8.5% YoY (~3% QoQ).

Calculated NIM is expected to shrink to 2.95%. NII is expected to grow ~8% YoY.

Overall non-interest income is expected to decline ~23% YoY, led mainly led by treasury losses.

We expect the slippage ratio to remain elevated at 3.4% and the NNPA ratio to decline to 3.7%, improving the coverage ratio to 50.2%.

INBK trades at 0.8x FY20E ABV. Maintain Buy. We revise our TP from INR430 to INR375 (1.1x Sept-20E ABV). Key issues to watch for Outlook on business growth and asset quality remains the key

monitorable. View on margins trajectory.

Bloomberg INBK IN


M. Cap. (INR b)/(USD b) 121 / 2


1,6,12 Rel Perf. (%) -17 / -26 / -19 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 51.5 62.6 69.6 83.2 OP 40.0 50.0 49.9 62.2 NP 14.1 12.6 11.9 20.3 NIM (%) 2.6 2.8 2.7 2.8 EPS (INR) 29.3 26.2 24.7 42.3 EPS Gr. (%) 97.6 -10.4 -5.9 71.3 BV/Sh. (INR) 326 354 372 405 ABV/Sh. (INR) 244 265 289 327 RoE (%) 10.1 8.3 7.3 11.6 RoA (%) 0.7 0.5 0.4 0.7 Valuations P/E(X) 8.6 9.6 10.2 6.0 P/BV (X) 0.8 0.7 0.7 0.6 P/ABV (X) 1.03 0.9 0.9 0.8

October 2018 143

Quarterly Performance (INRm) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 17,741 18,210 18,948 20,076 21,224 21,976 30,783 35,957 74,974 1,09,941 % Change (YoY) 30.8 24.7 20.0 20.4 19.6 20.7 62.5 79.1 23.7 46.6 Other Income 11,673 11,876 11,868 12,085 13,016 12,663 19,551 24,596 47,501 69,827 Net Income 29,413 30,086 30,816 32,161 34,240 34,639 50,335 60,553 1,22,475 1,79,767 Operating Expenses 13,528 13,751 14,169 14,467 15,129 15,463 23,151 28,940 55,914 82,683 Operating Profit 15,885 16,335 16,647 17,694 19,111 19,177 27,184 31,613 66,561 97,085 % Change (YoY) 28.8 27.5 22.1 12.5 20.3 17.4 63.3 78.7 22.1 45.9 Core Operating Profit 13,955 14,585 15,547 16,744 17,741 19,177 27,184 31,613 62,923 92,719 Provisions 3,100 2,938 2,362 3,356 3,500 3,275 4,799 5,564 11,754 17,138 Profit before Tax 12,786 13,398 14,285 14,338 15,611 15,902 22,385 26,049 54,807 79,947 Tax 4,420 4,597 4,923 4,808 5,254 5,300 7,611 9,017 18,747 27,182 Net Profit 8,365 8,801 9,362 9,531 10,357 10,601 14,774 17,032 36,060 52,765 % Change (YoY) 26.5 25.0 24.7 26.8 23.8 20.5 57.8 78.7 25.7 46.3 Operating Parameters Deposit Growth (%) 31.4 25.9 22.5 19.8 18.8 18.0 24.4 26.5 19.8 26.5 Loan Growth (%) 24.3 24.5 25.1 28.2 29.4 28.9 45.0 38.1 28.2 38.1 Deposit (INR b) 1,337 1,414 1,461 1,516 1,589 1,669 1,818 1,918 1,516 1,918 Loan (INR b) 1,164 1,232 1,285 1,450 1,507 1,588 1,864 2,002 1,450 2,002 Asset Quality Gross NPA (INR b) 12.7 13.5 15.0 17.0 17.4 19.5 21.8 25.2 17.0 25.2 Gross NPA (%) 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.3 1.2 1.3 Net NPA (INR b) 5.1 5.4 5.9 7.5 7.6 8.2 7.6 8.4 7.5 8.4 Net NPA (%) 0.4 0.4 0.5 0.5 0.5 0.5 0.4 0.4 0.5 0.4 PCR (%) 60.0 60.1 60.5 56.3 56.2 58.0 65.0 66.8 56.3 66.8 *We have built in a merger with BHAFIN in FY19, which explains the higher than usual growth in 3Q and 4Q E: MOSL Estimates


IndusInd Bank CMP: INR1,638 TP: INR2,250 (+37%) Buy We have made our estimates building in a merger of IIB and

BHAFIN in FY19, which explains the higher than usual PAT growth of 46% in FY19. We expect strong loan growth of ~29% YoY in 2QFY19, significantly ahead of system loan growth. Deposit growth should be strong at 18% YoY. Continued market share gains in Vehicle Finance would remain a key factor to monitor. NIM is likely to stay flattish at ~4.1%.

We expect non-interest income to grow ~7% YoY, supported by healthy fee income growth. Stronger contribution of third-party distribution fees owing to increased inflows into MFs and insurance industry will offset lower treasury gains.

Opex growth would moderate to ~12% YoY v/s 15% growth in total income. Healthy PPP growth (+17% YoY) and controlled credit costs would keep earnings growth strong at 20%+ YoY.

IIB trades at 2.8x FY20E ABV, with best-in-class RoA of ~2.4% and RoE of 21%. Buy.

Key issues to watch for Continued momentum in CV/CE would be key for CFD growth Corporate asset quality a key monitorable

Bloomberg IIB IN


M. Cap. (INR b)/(USD b) 983 / 13

52-Week Range (INR) 2038 / 1573

1,6,12 Rel Perf. (%) -7 / -19 / -18 Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E NII 60.6 75.0 109.9 149.7 OP 54.5 66.6 97.1 135.9 NP 28.7 36.1 52.8 75.4 NIM (%) 4.2 4.2 4.6 4.8 EPS (INR) 48.1 60.2 81.8 108.2 EPS Gr. (%) 18.2 25.2 36.0 32.2 BV/Sh. (INR) 342 394 453.6 582.4 ABV/Sh. (INR) 337 385 445.1 575.1 RoE (%) 15.3 16.5 19.3 21.0 RoA (%) 1.8 1.8 2.1 2.4 Valuations

P/E (X) 34.1 27.2 20.0 15.1 P/BV (X) 4.8 4.2 3.6 2.8 P/ABV (X) 4.9 4.3 3.7 2.8

October 2018 144

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 46,558 47,601 50,092 53,234 54,797 58,282 61,374 63,431 1,97,485 2,37,884 Interest Expense 24,102 24,475 26,155 27,436 28,968 32,208 32,929 33,527 1,02,168 1,27,633 Net Interest Income 22,456 23,126 23,937 25,798 25,829 26,074 28,445 29,904 95,317 1,10,252 % Change (Y-o-Y) 17.0 15.9 16.7 19.4 15.0 12.7 18.8 15.9 17.3 15.7 Other Income 9,069 9,539 10,398 11,516 11,646 11,814 12,441 12,320 40,522 48,221 Net Income 31,525 32,665 34,335 37,314 37,475 37,888 40,886 42,224 1,35,839 1,58,473 % Change (Y-o-Y) 18.9 15.6 16.0 17.9 18.9 16.0 19.1 13.2 17.1 16.7 Operating Expenses 15,571 15,417 16,135 17,134 17,150 17,308 18,766 19,513 64,257 72,737 Operating Profit 15,954 17,248 18,201 20,180 20,325 20,580 22,120 22,711 71,582 85,737 % Change (Y-o-Y) 21.3 19.8 19.1 18.6 27.4 19.3 21.5 12.5 19.6 19.8 Other Provisions 2,037 2,165 2,128 3,069 4,696 3,441 3,775 2,719 9,400 14,631 Profit before Tax 13,917 15,083 16,073 17,110 15,629 17,139 18,345 19,992 62,182 71,105 Tax Provisions 4,789 5,140 5,541 5,870 5,380 5,839 6,274 6,826 21,339 24,318 Net Profit 9,128 9,943 10,532 11,241 10,249 11,300 12,071 13,167 40,843 46,787 % Change (Y-o-Y) 23.0 22.3 19.7 15.1 12.3 13.6 14.6 17.1 19.7 14.6 Loan growth (%) 17.9 21.1 23.1 24.7 24.3 22.3 24.4 22.1 24.7 22.1 Cost to Income Ratio (%) 49.4 47.2 47.0 45.9 45.8 45.7 45.9 46.2 47.3 45.9 Tax Rate (%) 34.4 34.1 34.5 34.3 34.4 34.1 34.2 34.1 34.3 34.2 Asset Quality Gross NPA (INR b) 37.3 38.1 37.1 38.3 39.0 40.0 40.9 41.8 38.3 41.8 Gross NPA (%) 2.6 2.5 2.3 2.3 2.2 2.1 2.0 2.0 2.3 2.0 Net NPA (INR b) 17.8 19.2 17.3 16.7 15.3 15.2 17.8 16.9 16.7 16.9 Net NPA (%) 1.3 1.3 1.1 1.0 0.9 0.8 0.9 0.8 1.0 0.8 PCR (%) 52.3 49.7 53.5 56.5 60.8 62.1 56.5 59.5 56.5 59.5 E: MOSL Estimates


Kotak Mahindra Bank CMP: INR1,099 TP: 1,250 (+14%) Neutral We expect the standalone bank to report ~22% loan growth and

~20% deposit growth in 2QFY19. NIM is likely to remain stable at 4.3%. Overall, we expect NII growth of 13% YoY. CASA retention would be a key driver of NII and NIM.

With strong digital initiatives, fast-paced customer acquisition fee income would be a key growth driver for the bank. We factor in other income growth of 24% in 2Q, driven mostly by healthy fee traction and expect an improving trend in the coming quarters.

We expect asset quality to remain stable, with GNPA at ~2.1% and NNPA at 0.8%, led by a high provision coverage ratio.

On a reported basis, we expect standalone bank earnings to grow ~14% YoY. The stock trades at 3.2x FY20E consolidated BV. Maintain Neutral.

We have revised our TP from INR1,400 to INR1,250 (3.8x FY20E ABV for standalone entity).

Key issues to watch for Guidance on balance sheet growth and trend in customer

acquisition Performance on CASA, fees and growth GNPAs in the MSME segment

Bloomberg KMB IN


M. Cap. (INR b)/(USD b) 2095 / 29


1,6,12 Rel Perf. (%) -7 / -9 / -6 Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E NII 81.3 95.3 110.3 135.1 OP 59.8 71.6 85.7 106.5 NP 34.1 40.8 46.8 59.0 NIM (%) 4.4 4.3 4.1 4.3 EPS (INR) 18.6 21.8 24.6 31.0 EPS Gr. (%) 50.1 17.4 12.6 26.1 BV. (INR) 150.0 196.7 220.3 250.2 ABV. (INR) 138.8 177.6 199.3 226.9 Cons. BV. (INR) 209.1 264.9 301.9 346.7 Cons. ABV. (INR) 197.7 253.5 290.5 334.7 Cons. RoE (%) 13.8 13.9 13.1 14.1 RoE (%) 13.2 12.5 11.8 13.2 RoA (%) 1.7 1.7 1.6 1.7 Valuations

P/E(X) (Cons.) 38.1 32.4 28.8 22.9 P/BV (X) (Cons.) 5.3 4.1 3.6 3.2 P/ABV (X) (Cons.) 5.6 4.3 3.8 3.3 P/ABV (X) 5.1 4.0 3.5 3.1

October 2018 145

Quarterly Performance INR m Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 38,551 40,152 39,887 30,634 46,919 42,015 43,803 46,052 1,49,224 1,78,789 % Change (YoY) 4.2 3.5 6.9 -16.8 21.7 4.6 9.8 50.3 -0.5 19.8 Other Income 23,318 19,060 30,820 15,611 19,592 19,063 14,307 26,966 88,809 79,928 Total Income 61,869 59,212 70,707 46,244 66,511 61,078 58,110 73,017 2,38,033 2,58,717 Operating Expenses 29,696 26,421 28,255 50,718 24,564 27,455 26,906 30,895 1,35,091 1,09,819 Operating Profit 32,173 32,791 42,452 -4,474 41,947 33,623 31,205 42,123 1,02,942 1,48,898 % Change (YoY) -1.8 -1.0 52.7 NM 30.4 2.5 -26.5 NM -29.3 44.6 Other Provisions 26,087 24,408 44,667 2,03,531 57,582 50,196 34,618 30,693 2,98,738 1,73,088 Profit before Tax 6,086 8,383 -2,215 -2,08,005 -15,635 -16,572 -3,413 11,429 -1,95,796 -24,191 Tax 2,652 2,777 -4,516 -73,836 -6,235 -6,608 -1,482 8,277 -72,968 -6,048 Net Profit 3,434 5,606 2,301 -1,34,169 -9,400 -9,964 -1,931 3,152 -1,22,828 -18,143 % Change (YoY) 12.1 2.0 11.1 NM NM NM NM NM NM NM Operating Parameters Deposits (INR b) 6,256 6,362 6,480 6,422 6,303 6,397 6,508 6,551 6,422 6,551 Loans (INR b) 3,997 4,103 4,521 4,337 4,153 4,201 4,398 4,428 4,337 4,428 Deposit Growth (%) 12.9 10.7 5.9 3.3 0.8 0.5 0.4 2.0 3.3 2.0 Loan Growth (%) 2.1 4.2 17.2 3.4 3.9 2.4 -2.7 2.1 3.4 2.1 Asset Quality Gross NPA (INR B) 577 576 575 866 829 839 801 786 866 786 Net NPA (INR B) 346 346 341 487 439 433 404 386 487 386 Gross NPA (%) 13.7 13.3 12.1 20.0 18.3 18.2 16.7 17.8 20.0 17.8 Net NPA (%) 8.7 8.4 7.6 11.2 10.6 10.3 9.2 8.7 11.3 8.7 PCR (%) 40.1 40.0 40.8 43.8 47.1 48.4 49.6 50.9 43.8 50.9 E: MOSL Estimates


Punjab National Bank CMP: INR65 TP: INR74 (+14%) Neutral We expect loan growth to moderate to 2.4% YoY, whereas

deposits growth is expected to be ~0.5% YoY, reflecting some stickiness in CASA.

NII is likely to grow ~5% QoQ (-11% QoQ), in line with loan growth. We expect margins to shrink to ~2.4% due to higher cost of funds.

Overall non-interest income is expected to be flattish YoY, as fee income growth should be offset by moderation in treasury gains.

Stress addition is likely to decrease significantly on account of base effect (due to fraud reported in 4QFY18). We expect credit cost to be ~350bp for FY19.

Resolutions in key accounts and the reported fraud remain a key trigger. The stock trades at 0.6x FY20E BV. Maintain Neutral.

We revise our TP from INR85 to INR75 (0.7x Sept 20E BV). Key issues to watch for Outlook on asset quality, as net stressed loans remain one of the

highest in the industry Progress on the fraud account and its impact NIMs and CASA performance

Bloomberg PNB IN


M. Cap. (INR b)/(USD b) 178 / 2


1,6,12 Rel Perf. (%) -18 / -41 / -65 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 149.9 149.2 178.8 199.6 OP 145.7 102.9 148.9 174.1 NP 13.2 -122.8 -18.1 32.7 NIM (%) 2.3 2.1 2.5 2.7 EPS (INR) 6.2 -50.3 -6.2 10.6 EPS Gr. (%) NM NM NM NM BV/Sh. (INR) 188 141 102 112 ABV/Sh. (INR) 70 6 4 23 RoE (%) 3.6 -29.5 -4.9 9.3 RoA (%) 0.2 -1.7 -0.2 0.4 Valuations P/E(X) 10.4 -1.3 -10.4 6.1 P/BV (X) 0.3 0.5 0.6 0.6 P/ABV (X) 0.9 10.4 18.1 2.8

October 2018 146

Quarterly Performance (INR m) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 3,784 4,202 4,673 5,005 5,527 5,790 6,102 6,510 17,663 23,929 % Change (Y-o-Y) 54.7 38.7 45.3 42.1 46.1 37.8 30.6 30.1 44.6 35.5 Other Income 2,569 2,411 2,582 3,120 3,260 3,203 3,704 4,360 10,682 14,527 Net Income 6,353 6,612 7,255 8,124 8,787 8,994 9,806 10,870 28,345 38,457 Operating Expenses 3,239 3,581 3,921 4,293 4,464 4,855 5,157 5,746 15,034 20,222 Operating Profit 3,114 3,032 3,334 3,831 4,323 4,138 4,650 5,123 13,311 18,235 % Change (Y-o-Y) 68.8 38.4 41.8 36.0 38.8 36.5 39.5 33.7 44.6 37.0 Core Operating Profit 3,114 3,032 3,334 3,831 4,323 4,138 4,650 5,123 11,645 16,903 Other Provisions 945 749 823 1,129 1,404 1,129 1,350 1,413 3,645 5,295 Profit before Tax 2,169 2,283 2,511 2,702 2,920 3,010 3,300 3,711 9,665 12,940 Tax Provisions 759 776 858 921 1,019 979 1,132 1,309 3,315 4,438 Net Profit 1,410 1,506 1,653 1,781 1,900 2,031 2,168 2,402 6,351 8,501 % Change (Y-o-Y) 44.9 67.6 28.5 36.9 34.8 34.9 31.1 34.9 42.4 33.9 Operating Parameters Deposit (INR b) 354.3 365.7 386.2 439.0 449.5 474.1 544.4 579.5 439.0 579.5 Loan (INR b) 311.1 335.8 368.9 402.7 422.0 445.0 508.4 543.6 402.7 543.6 Deposit Growth (%) 37.3 30.8 28.7 26.9 26.9 29.7 41.0 32.0 26.9 32.0 Loan Growth (%) 39.7 35.0 37.8 36.7 35.7 32.5 37.8 35.0 36.7 35.0 Asset Quality Gross NPA (INR b) 4.6 4.9 5.8 5.7 6.0 6.3 6.7 7.1 5.7 7.1 Gross NPA (%) 1.5 1.4 1.6 1.4 1.4 1.4 1.3 1.3 1.4 1.3 Net NPA (INR b) 2.5 2.6 3.6 3.1 3.2 3.3 3.4 3.5 3.1 3.5 Net NPA (%) 0.8 0.8 1.0 0.8 0.8 0.7 0.7 0.6 0.8 0.6 PCR (%) 45.3 46.5 38.3 44.8 47.0 48.1 49.0 51.0 44.8 51.0 E: MOSL Estimates


RBL Bank CMP: INR525 TP: INR700 (+33%) Buy Loan growth (+32% YoY; driven by credit card/MFI business) and

deposit growth (+30% YoY) would be significantly above industry average.

We expect NII to grow ~38% YoY, led by strong loan growth and favorable NIM, helped by strong CASA inflows.

Overall non-interest income is expected to grow ~33% YoY, led by strong growth in fee income and digital initiatives. We expect opex growth of 36%, led by continued capacity expansion. With total income growth of 36%, PPoP is likely to increase by 37% YoY.

Asset quality is expected to remain largely stable in 2QFY19 barring MFI and agri segment. Credit costs would largely be under control.

We expect PAT growth of 7% QoQ and 35% YoY. RBK trades at 2.3x FY20E ABV. We maintain our Buy rating.

Key issues to watch for Management commentary on slippages in SME segment Trend in provisioning expenses, particularly residual credit cost

related to MFI business Update and commentary on balance sheet growth strategy CASA ratio and traction on NIMs

Bloomberg RBK IN


1,6,12 Rel Perf. (%) -9 / 0 / -12 Financial Snapshot (INR B)

Y/E March FY17 FY18 FY19E FY20E

NII 12.2 17.7 23.9 33.6 OP 9.2 13.3 18.2 25.9 NP 4.5 6.4 8.5 12.3 NIM (%) 3.0 3.3 3.5 3.7 EPS (INR) 11.9 15.1 20.3 26.6 EPS Gr. (%) 32.0 27.3 33.9 31.3 BV/Sh. (INR) 113.4 159.3 176.0 235.9 ABV/Sh. (INR) 109.8 152.8 170.2 230.6 RoE (%) 12.3 11.6 12.1 13.4 RoA (%) 1.0 1.1 1.2 1.3 Payout (%) 15.1 15.0 15.0 16.0 Valuations P/E(X) 44.2 34.7 25.9 19.7 P/BV (X) 4.6 3.3 3.0 2.2 P/ABV (X) 4.8 3.4 3.1 2.3

October 2018 147

Quarterly Performance Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 1,76,060 1,85,859 1,86,875 1,99,744 2,17,984 2,05,610 2,05,659 1,86,854 7,48,537 8,16,107

% Change (YoY) -3.5 2.6 5.2 -5.2 23.8 10.6 10.1 -6.5 -0.5 9.0 Other Income 80,057 1,60,161 80,842 1,24,948 66,795 86,347 1,02,046 1,37,298 4,46,007 3,92,486 Total Income 2,56,117 3,46,020 2,67,717 3,24,692 2,84,779 2,91,957 3,07,705 3,24,152 11,94,544 12,08,593 Operating Expenses 1,37,376 1,46,028 1,50,171 1,65,859 1,65,047 1,59,974 1,58,718 1,46,094 5,99,434 6,29,833 Operating Profit 1,18,741 1,99,991 1,17,546 1,58,833 1,19,731 1,31,983 1,48,987 1,78,058 5,95,110 5,78,760 % Change (YoY) -13.7 43.0 -18.4 -8.2 0.8 -34.0 26.7 12.1 0.1 -2.7 Other Provisions 89,295 1,91,374 1,88,762 2,80,961 1,92,283 1,21,770 1,19,030 1,20,544 7,50,392 5,53,626 Profit before Tax 29,446 8,617 -71,216 -122,128 -72,551 10,213 29,958 57,514 -1,55,282 25,134 Tax Provisions 9,391 -7,198 -47,053 -44,947 -23,793 3,349 1,885 24,842 -89,808 6,283 Net Profit 20,055 15,816 -24,164 -77,180 -48,759 6,864 28,073 32,672 -65,475 18,850 % Change (YoY) 436.2 NM NM NM NM -56.6 NM NM NM NM Operating Parameters

Deposits (INR b) 26,025 26,232 26,512 27,063 27,478 27,748 28,031 28,552 27,063 28,552 Loans (INR b) 18,042 18,026 18,262 19,349 18,758 19,135 20,154 20,606 19,349 20,606 Asset Quality

Gross NPA (INR b) 1,881 1,861 1,991 2,234 2,128 2,059 1,932 1,912 2,234 1,912 Gross NPA (%) 10.0 9.8 10.4 10.9 10.7 10.2 9.1 9.3 10.9 9.3 Net NPA (INR b) 1,078 979 1,024 1,109 992 927 825 785 1,109 785 Net NPA (%) 6.0 5.4 5.6 5.7 5.3 4.8 4.1 3.8 5.7 3.8 PCR (%) 42.7 47.4 48.6 50.4 53.4 55.0 57.3 58.9 50.4 58.9 E: MOSL Estimates


State Bank of India Bloomberg SBIN IN


1,6,12 Rel Perf. (%) -5 / 0 / -7 Financial Snapshot (INR B) Y/E March FY17 FY18 FY19E FY20E NII 752.0 748.5 816.1 962.2 OP 594.6 595.1 578.8 701.3 NP -18.1 -65.5 18.9 233.6 NIM (%) 3.0 2.5 2.6 2.7 EPS (INR) -2.3 -7.7 2.1 26.2 EPS Gr. (%) NM NM NM NM BV (INR) 239.8 230.2 231.8 255.6 ABV (INR) 138.8 134.5 161.9 196.0 Cons. BV (INR) 247.8 242.8 244.9 269.5 Cons. ABV (INR) 159.1 152.3 180.6 214.3 RoE (%) -1.1 -3.5 1.0 11.3 RoA (%) -0.1 -0.2 0.1 0.6 Valuations P/E (x) -84.2 -24.9 90.7 7.3 P/BV (x) (Cons.) 1.0 1.0 1.1 1.0 P/ABV (x) (Cons.) 1.6 1.6 1.5 1.3 P/ABV (x) 1.4 1.4 1.2 1.0

CMP: INR271 TP: INR360 (+33%) Buy We expect loan growth to be muted (+2% QoQ) but pick up slowly

from the previous few quarters. NII is expected to decline sequentially, due to higher interest cost

and also due to lower recoveries from w/off accounts. Stress additions should moderate to 2.8% levels as we believe

that most of the stress has been recorded in previous quarters. Developments on the IBC related accounts and resolution of power assets remain a key monitorable.

We expect credit cost to moderate from existing levels, with resolution from NCLT referred accounts to provide some relief. The stock trades at 1.3x FY20E consolidated ABV. Buy.

Key issues to watch for Performance and guidance on asset quality and retail slippages Recoveries from resolution of NCLT accounts Outlook on power sector assets and macro developments on

asset quality

October 2018 148

Quarterly Performance (INR m) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Interest Income 18,089 18,851 18,888 21,542 22,191 23,528 25,406 27,731 77,371 98,857 % Change (Y-o-Y) 44.5 33.5 26.8 31.4 22.7 24.8 34.5 28.7 33.5 27.8 Other Income 11,322 12,484 14,223 14,210 16,941 16,163 17,453 17,353 52,238 67,910 Total Income 29,411 31,335 33,111 35,752 39,133 39,691 42,859 45,085 1,29,609 1,66,767 Operating Expenses 12,369 12,269 13,093 14,398 14,586 15,142 16,961 19,307 52,128 65,997 Operating Profit 17,042 19,067 20,018 21,354 24,547 24,548 25,898 25,777 77,481 1,00,770 % Change (Y-o-Y) 30.4 37.6 37.7 26.3 44.0 28.7 29.4 20.7 32.7 30.1 Provisions 2,858 4,471 4,213 3,996 6,257 6,968 6,168 4,606 15,538 23,999 Profit before Tax 14,184 14,596 15,805 17,358 18,291 17,580 19,730 21,171 61,943 76,771 Tax 4,529 4,569 5,036 5,564 5,687 5,847 6,314 6,719 19,697 24,567 Net Profit 9,655 10,027 10,769 11,794 12,604 11,733 13,417 14,452 42,246 52,205 % Change (Y-o-Y) 31.9 25.1 22.0 29.0 30.5 17.0 24.6 22.5 26.9 23.6 Operating Parameters Deposit Growth (%) 22.6 23.4 29.7 40.5 42.0 41.1 46.3 33.6 40.5 33.6 Loan Growth (%) 32.1 34.9 46.5 53.9 53.4 61.5 46.7 31.5 53.9 31.5 Deposit (INR b) 1,502 1,580 1,717 2,007 2,134 2,230 2,513 2,682 2,007 2,682 Loan (INR b) 1,400 1,487 1,715 2,035 2,147 2,401 2,516 2,676 2,035 2,676 Asset Quality Gross NPA (INR B) 13.6 27.2 29.7 26.3 28.2 33.3 34.9 32.7 26.3 32.7 Gross NPA (%) 1.0 1.8 1.7 1.3 1.3 1.4 1.4 1.2 1.3 1.2 Net NPA (INR B) 5.5 15.4 16.0 13.1 12.6 14.5 14.5 12.5 13.1 12.5 Net NPA (%) 0.4 1.0 0.9 0.6 0.6 0.6 0.6 0.5 0.6 0.5 PCR (%) 60.0 43.3 46.4 50.0 55.3 56.5 58.6 61.9 50.0 61.9 E: MOSL Estimates


Yes Bank CMP: INR213 TP: INR350 (+64%) Buy We expect loan growth to be significantly ahead of the system at

~61% YoY on the back of refinancing opportunities and strong growth in retail banking. Deposits growth is also likely to remain strong at 41% YoY.

We expect NIM to be under pressure due to transient impact of higher cost of funds (re pricing of deposits) and yield on loans. Consequently, NII growth is expected to be healthy at ~25% YoY

Non-interest income growth is likely to be ~30% YoY, led by strong growth from third-party distribution and processing fees.

We expect opex growth to be 23%, as the bank invests in technology to leverage retail base.

Asset quality performance so far has been significantly better than industry; we expect this trend to continue.

YES trades at 1.4x FY20E ABV. Return ratios also remain strong (RoA of 1.4% and RoE of 19.1%). Maintain Buy.

Key issues to watch for Succession planning for Mr. Rana Kapoor post the RBI directions

and the capital raising plans Performance on asset quality (divergence if any) /CASA/margins

Bloomberg YES IN

Equity Shares (m) 2305.7 M. Cap. (INR b)/(USD b) 491 / 7.0 52-Week Range (INR) 404 / 166

1,6,12 Rel Perf. (%) -30 / -40 / -54 Financial Snapshot (INR B) Y/E March 2017 FY18 FY19E FY20E NII 58.0 77.4 98.9 120.3 OP 58.4 77.5 100.8 124.3 NP 33.3 42.2 52.2 62.6 NIM (%) 3.4 3.2 3.1 3.1 EPS (INR) 14.6 18.4 22.7 27.2 EPS Gr. (%) 20.8 26.3 23.0 20.0 BV/Sh. (INR) 96.6 111.8 130.7 153.5 ABV/Sh. (INR) 93.1 107.4 126.4 150.6 RoE (%) 18.9 17.7 18.7 19.1 RoA (%) 1.8 1.6 1.5 1.4 Valuations P/E(X) 14.6 11.6 9.4 7.8 P/BV (X) 2.2 1.9 1.6 1.4 P/ABV (X) 2.3 2.0 1.7 1.4

October 2018 149

Quarterly Performance (INRm)

Policy holder's account FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net premium income 36,615 53,894 54,200 89,000 50,089 63,419 68,781 1,04,297 2,33,710 2,86,586 Growth (%) 15.3% 22.9% 19.5% 24.0% 36.8% 17.7% 26.9% 17.2% 21.3% 22.6% Income from investments 27,722 25,061 42,531 (9,368) 17,967 24,745 26,995 42,771 85,946 1,12,478 Total income 64,874 79,276 96,845 81,346 68,651 89,009 96,620 1,48,623 3,22,359 4,02,903 Commission paid 1,563 2,475 2,625 4,087 1,982 3,001 3,069 5,589 10,749 13,642 Operating expenses 5,638 7,189 7,769 10,998 7,246 7,509 9,044 10,331 31,593 34,130 Surplus/(Deficit) 3,012 2,169 1,797 3,968 3,465 2,996 2,906 3,794 10,946 13,160 Growth (%) 72% -30% 0% 40% 15% 38% 62% -4% 79.9% 20.2% Shareholders' Account Amt. trans. from p/h a/c 2,546 2,012 1,499 3,965 3,200 2,756 2,615 3,949 10,022 12,545 Income from investments 675 537 618 974 788 800 865 1,312 2,803 3,606 Total income 3,351 2,549 2,117 4,939 4,081 3,586 3,512 5,308 12,955 16,282 PBT 3,267 2,450 2,162 3,390 3,918 3,139 3,063 4,336 11,267 14,253 Tax 103 65 89 (79) 116 136 147 223 177 613 PAT 3,164 2,385 2,073 3,468 3,802 3,003 2,916 4,114 11,090 13,640 Growth (%) 28% 9% 15% 40% 20% 26% 41% 19% 24% 23% Other key data (%) AUM - - 1,044.3 1,066.0 1,096.3 1,161.8 1,227.3 1,292.8 1,066.0 1,292.8 EV - - 144.7 152.2 156.9 164.7 172.5 180.4 152.1 180.4


HDFC Standard Life Insurance CMP: INR381 TP: 475 (+25%) Buy We expect net premium income to grow by ~18% YoY, largely

driven by first year premium and single premium. Total commission and operating expense is expected to grow by

9% YoY, largely driven by commission expense to drive new business sales.

We expect surplus to grow by 38% YoY and shareholder PAT to grow by 26% YoY.

We expect the margins to expand further as the share of protection in the overall business goes up further.

HDFCLIFE trades at 3.6x FY20E EV. Maintain Buy. We revise our TP from INR525 to INR475 based on appraisal value

method which corresponds to 4.4x EV. Key issues to watch for Outlook on cost-ratios, persistency and new business growth New business margins given continued increase in share of

protection business Ramp-up of agency channel and the productivity outlook mainly

through use of digital means

Bloomberg HDFCLIFE IN Equity Shares (m) 2,005.4 M. Cap. (INR b)/(USD b) 764 / 10.9

52-Week Range (INR) 547 / 308 1,6,12 Rel Perf. (%) -10 / -31 / NM Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E Net Premiums 192.7 233.7 286.6 353.5 Surplus / Deficit 6.1 10.9 13.2 16.4 Sh. PAT 8.9 11.1 13.6 16.7 New bus.gr- unwtd (%) 32.9 31.7 28.0 26.0 New bus gr - APE (%) 14.9 30.0 24.0 24.2 Total prem gr-unwtd(%) 19.2 21.2 22.8 23.4 Comm/ GWP (%) 4.1 4.6 4.7 4.6 Tot exp ratio (%) 16.3 18.0 16.5 16.4 Solvency ratio (%) 192 192 180 176 NBP margin (%) 22.0 23.2 24.2 24.4 RoE (%) 25.5 25.8 25.9 26.2 RoEV (%) 21.9 22.0 18.6 18.8 Total AUMs (INRb) 917 1066 1293 1586 VNB(INRb) 9.1 12.8 16.6 20.7 EV (INRb) 124.7 152.1 180.4 214.3 Valuations P/EV (x) 6.1 5.0 4.2 3.6 P/EPS (x) 85.2 68.9 56.3 46.0

October 2018 150

Quarterly Performance (INRm)

Policyholder's account (INRm) FY18 FY19E

FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net premium income 48,202 65,395 67,951 86,558 54,378 77,506 79,987 98,154 2,68,107 3,10,025 Growth (%) 37.4% 20.6% 19.3% 15.0% 12.8% 18.5% 17.7% 13.4% 21.0% 15.6% Income from investments 35,177 28,130 65,442 (16,134) 23,212 39,960 42,755 58,517 1,12,615 1,64,444 Total income 83,545 93,693 1,33,568 71,369 78,712 1,17,922 1,23,230 1,55,645 3,82,172 4,75,509 Commission paid 2,162 3,632 3,773 4,466 2,795 3,835 4,103 5,048 14,033 15,781 Operating expenses 4,120 4,921 5,211 6,048 5,952 6,358 6,803 7,052 20,299 26,165 Surplus/(Deficit) 3,965 3,554 3,372 2,740 3,009 2,633 2,831 4,463 13,630 12,853 Growth (%) 74.7% 12.5% 15.2% 15.0% -24.1% -25.9% -16.1% 62.8% 27.0% -5.7% Shareholders' Account Amt. trans. from p/h a/c 3,334 2,850 2,742 1,967 2,464 2,501 2,601 3,325 10,892 10,892 Income from investments 1,038 1,725 2,160 2,473 1,396 1,410 1,455 1,379 7,419 5,640 Total income 4,373 4,578 4,904 4,482 3,864 3,925 4,071 4,728 18,362 16,587 PBT 4,281 4,491 4,810 3,614 2,840 3,580 3,714 5,072 17,189 15,205 Tax 221 279 289 208 24 304 314 575 997 1,216 PAT 4,059 4,212 4,521 3,406 2,816 3,275 3,400 4,497 16,192 13,989 Growth (%) 0% 1% 0% -17% -31% -22% -25% 32% -3.7% -13.6% Key metrics (INRb) AUM 1,265.9 1,305.9 1,383.0 1,395.3 1,426.6 1,485.7 1,544.7 1,603.7 1,395.3 1,603.7 EV 0.0 172.1 0.0 187.9 0.0 73.1 146.2 219.3 187.8 219.3


ICICI Prudential Life Insurance Bloomberg IPRU IN

Equity Shares (m) 1,435.3

M. Cap. (INR b)/(USD b) 475 / 6.8


1,6,12 Rel Perf. (%) -6 / -24 / -34 Financial Snapshot (INR B) Y/E MARCH FY17 FY18 FY19E FY20E Net Premiums 221.6 268.1 310.0 366.1 Surplus / Deficit 10.7 13.6 8.4 11.1 Sh.holder's PAT 16.8 16.2 14.0 18.0 New bus.gr-unwtd (%) 14.7 16.2 13.0 18.0 New bus gr- APE (%) 27.0 16.0 12.5 16.2 Total prem gr-unwtd(%) 16.1 20.3 16.9 18.2 Solvency ratio (%) 289 252 215 197 NBP margin (%) 10.1 16.5 18.0 18.7 RoEV (%) 16.0 16.1 16.8 16.0 Total AUMs (INRb) 1229 1395 1604 1825 VNB(INRb) 6.6 12.9 15.3 18.4 EV (INRb) 162 188 219 254 Valuations P/EV (x) 2.9 2.5 2.2 1.9 P/EPS (x) 2.9 29.3 33.9 26.4

CMP: INR331 TP: INR450 (+36%) Buy We expect net premium income to grow by 19% YoY, with

renewal premium expected to grow by 22% YoY and first-year premium to grow by 16%, mainly due to ULIP dominated business and volatility in the markets.

Total commission and operating expenses are likely to increase by 19% YoY, led by a 6% YoY increase in commission expenses.

We expect surplus to decline by 26% YoY to INR2.6b and PAT in shareholders' account to decline by 22% YoY to INR3.3b.

IPRULIFE trades at 1.9x FY20E EV. Maintain Buy. Key issues to watch for New business growth in ULIP segment due to volatile market

conditions Value of new business and the margin trajectory after reporting

sharp expansion in FY18

October 2018 151

Focus shifts from growth to spreads HFCs most sensitive to margin pressure

Sharp depreciation of the INR, tight liquidity conditions and rising interest rates have led to a rise in incremental funding costs for NBFCs by at least 50bp on a QoQ basis. If yields sustain at these levels, HFCs would be most impacted due to the lack of adequate pricing power and risk aversion from capital market players. On the other hand, vehicle financiers have more pricing power than HFCs. Management comments on spreads and diversification on the liability/asset side will be the key monitorable.

This would be the second quarter of Ind-AS reporting by companies. In this quarter, restated numbers of 2QFY18/FY18 and restated FY18 networth will be the key thing to look forward to.

Our interaction with managements suggests that growth across the space continues to be healthy, helped by a strong rural economy, base effect and an improvement in industrial activities. However, one has to wait and watch to see if tight liquidity/expected RBI measures on ALM mismatch of NBFCs constrain asset growth, going forward. This would have a key impact on companies dependent on the festival season – i.e. CD financiers, car financiers, etc.

Core housing growth remains on a steady path and tier II/III locations are the key growth drivers. For HFCs, we expect the share of non-retail loans in the overall portfolio to inch higher.

Despite lower-than-normal monsoon, our interactions with companies suggest that the rural economy remains strong and demand for vehicle finance is high. Primary commercial vehicle sales have been strong in 2Q, while car sales have been tepid due to various factors such as high base and Kerala floods. However, vehicle financiers are expected to report healthy asset quality and growth.

Factoring in rising cost of funds and tight liquidity conditions (leading to moderation in growth), we cut our earnings estimates by ~4% for FY19 and ~7% for FY20. We also cut our target price for our coverage universe to factor in higher cost of equity. Our top picks in this space are HDFC, SHTF and LTFH.

HFCs – incremental borrowing mix a key monitorable: HFCs under our coverage are likely to report AUM growth in line with past trends. We expect the shift toward LAP for LICHF and toward corporate loans (opportunistic in LRD segment) for HDFC to continue. However, the trend in incremental cost of funds v/s on-book cost of funds remains a key monitorable. Players with multiple banking relationships, strong credit rating and large public deposits should be better placed. We like HDFC due to its best-in-class liability profile and pricing power.

AFCs – 2Q growth strong, but will be a key monitorable: We expect a sturdy performance across asset financiers. Bajaj Finance is likely to report strong AUM and PAT growth. We expect growth for vehicle finance players like SHTF and MMFS to remain robust, helped by a better rural economy and stability post GST implementation. CV players have delivered strong volume growth in the quarter, while growth for car manufacturers has been slightly weak due to issues like high base in prior year (due to GST implementation leading to lower car prices) and Kerala floods. The key thing to watch out for would be management commentary on the ability to raise adequate debt capital at reasonable prices in order to cater to festive season demand.

Financials - NBFCs

Company name

Bajaj Finance

Chola. Inv & Fin.

GRUH Finance

HDFC

Indiabulls Housing

L&T Finance

LIC Housing Fin

M & M Financial

MAS Financial

Muthoot Finance

PNB Housing

Repco Home Fin

Shriram City Union

Shriram Transport Fin.

September 2018 Results Preview | Sector: Financials - NBFCs

Research Analyst: Alpesh Mehta ([email protected]); +91 22 6129 1526 | Piran Engineer ([email protected]); +91 22 6129 1539 Nitin Aggarwal ([email protected]); +91 22 6129 1542 | Shubhranshu Mishra ([email protected]); +91 22 6129 1540

October 2018 152

Weak sentiment to weigh on multiples: Driven by IL&FS default and liquidity tightening, NBFCs have witnessed a sharp rise in incremental cost of funds over the past month. NCD/CP rates have shot up 50-100bp over this time period. This would impact companies that are heavily dependent on market borrowings and that have higher ALM mismatches. As a result, we have cut our FY19 EPS estimate by an average of ~4% and FY20 EPS estimates by an average of ~7% due to lower growth and margins. We have also cut target prices by 3-27% due to higher cost of equity and lower growth assumptions (refer Exhibit 2).

Exhibit 1: Summary of change in PAT estimates PAT (INR m) OLD NEW CHANGE

FY19E FY20E FY19E FY20E FY19E FY20E

HDFC 79,697 95,145 76,041 88,743 -5% -7%

LICHF 25,284 29,515 24,519 27,435 -3% -7%

IHFL 45,387 53,995 43,668 50,739 -4% -6%

PNBHF 11,173 13,565 10,480 13,133 -6% -3%

GRUH 4,553 5,150 4,797 5,244 5% 2%

REPCO 2,556 2,871 2,428 2,717 -5% -5%

STF 24,833 30,743 23,832 29,269 -4% -5%

BAF 36,073 47,691 35,038 44,652 -3% -6%

LTFH 23,537 27,639 22,955 26,673 -2% -3%

SCUF 9,030 10,454 8,518 9,962 -6% -5%

MMFS 12,461 14,862 11,498 13,756 -8% -7%

CIFC 11,772 13,993 11,233 13,251 -5% -5%

MAS 1,336 1,676 1,280 1,576 -4% -6%

MUTH 20,496 23,228 20,166 22,221 -2% -4%

Source: MOSL

Exhibit 2: Summary of change in TP

Company Rating Old TP (INR)

New TP (INR)

% Change

BAF Neutral 2,400 2,200 -8%

CIFC Buy 1,700 1,525 -10%

GRUH Neutral 300 285 -5%

H D F C Buy 2,335 2,255 -3%

IBHFL Buy 1,650 1,225 -26%

LICHF Under Review 600

LTFH Buy 240 175 -27%

MAS Buy 780 650 -17%

MMFS Buy 600 500 -17%

Muthoot Neutral 490 425 -13%

PNBHF Buy 1,520 1,215 -20%

REPCO Buy 710 553 -22%

SCUF Buy 2,500 2,000 -20%

SHTF Buy 1,650 1,400 -15%

Source: MOSL



October 2018 153

Exhibit 3: Expected quarterly performance summary (INR m) Sector CMP NII (INR M) OP. PROFITS (INR M) NET PROFIT (INR M)



% YoY Var % QoQ Sep-18 Var %

YoY Var % QoQ

NBFC Bajaj Finance 2,230 Neutral 26,577 36.8 3.3 16,434 51.7 1.2 8,394 50.7 0.4 Chola. Inv & Fin. 1,201 Buy 8,355 14.2 6.0 5,406 25.6 0.7 2,880 26.8 1.0 GRUH Finance 284 Neutral 1,920 11.3 1.7 1,612 13.4 1.1 1,141 46.8 -0.8 HDFC 1,799 Buy 29,217 11.9 1.1 26,247 9.9 9.3 25,762 22.6 17.6 Indiabulls Housing 944 Buy 15,940 29.4 2.5 14,241 27.9 1.5 10,748 24.8 1.9 L&T Fin.Holdings 128 Buy 15,740 44.8 3.0 12,296 43.6 5.5 5,618 55.9 4.3 LIC Housing Fin 412 UR 9,809 10.5 0.1 9,357 16.1 -1.4 6,305 28.9 11.0 M & M Financial 406 Buy 10,947 20.2 1.6 7,093 25.8 0.5 2,746 252.1 2.1 MAS Financial 507 Buy 850 27.7 3.6 634 30.1 2.8 324 29.1 3.4 Muthoot Finance 407 Neutral 11,188 -2.7 1.4 7,931 -8.8 4.7 5,110 12.5 3.9 PNB Housing 908 Buy 4,364 10.6 0.8 4,220 14.1 0.6 2,631 26.5 2.9 Repco Home Fin 419 Buy 1,152 5.4 0.8 980 -2.9 1.1 597 6.9 -1.9 Shriram City Union 1,644 Buy 9,566 9.6 2.0 5,753 6.3 1.2 2,180 9.9 -5.1 Shriram Transport Fin. 1,079 Buy 19,004 16.4 1.0 14,236 8.2 0.5 5,825 21.6 1.7 NBFC Banking Sector Aggregate 164,628 19.3 2.1 126,440 18.9 3.1 80,261 30.0 7.0 Financials Sector Aggregate 931,924 14.2 2.9 607,001 -2.0 1.1 190,621 -4.0 56.0

Source: MOSL





Exhibit 6: Comparative valuation Sector / Companies CMP EPS (INR) PE (x) PB (x) ROE (%) (INR) Reco FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E NBFC Bajaj Finance 2,230 Neutral 43.4 60.9 77.6 51.4 36.6 28.7 8.3 6.9 5.7 20.4 20.6 21.7 Capital First 504 Buy 33.1 44.2 55.6 15.2 11.4 9.1 1.9 1.7 1.4 13.4 15.7 17.1 Chola. Inv & Fin. 1,201 Buy 62.3 71.8 84.7 19.3 16.7 14.2 3.7 3.1 2.6 20.9 20.2 19.9 GRUH Finance 284 Neutral 5.0 6.6 7.2 57.2 43.2 39.5 16.0 13.1 10.9 31.8 33.3 30.0 HDFC 1,799 Buy 42.3 44.4 51.8 42.5 40.5 34.7 4.8 4.2 3.9 18.6 16.5 15.5 Indiabulls Housing 944 Buy 90.2 102.4 119.0 10.5 9.2 7.9 2.7 2.4 2.1 27.9 27.3 27.9 L&T Fin.Holdings 128 Buy 6.8 11.5 13.4 19.0 11.1 9.6 2.3 1.9 1.6 14.2 18.9 18.6 LIC Housing Fin 412 UR 37.4 48.6 54.3 11.0 8.5 7.6 1.6 1.4 1.2 15.7 17.6 17.2 M & M Financial 406 Buy 17.4 18.7 22.4 23.2 21.7 18.1 2.6 2.4 2.2 12.5 11.5 12.6 MAS Financial 507 Buy 19.2 23.4 28.8 26.4 21.6 17.6 3.8 3.4 2.9 20.7 16.5 17.9 Muthoot Finance 407 Neutral 43.0 50.4 55.5 9.5 8.1 7.3 2.1 1.8 1.5 24.1 23.8 22.4 PNB Housing 908 Buy 49.9 62.9 78.8 18.2 14.4 11.5 2.3 2.1 1.8 13.9 15.2 16.8 Repco Home Fin 419 Buy 32.9 38.8 43.4 12.7 10.8 9.7 2.0 1.7 1.5 16.9 17.2 16.5 Shriram City Union 1,644 Buy 100.8 129.1 151.0 16.3 12.7 10.9 2.0 1.8 1.5 12.7 14.7 15.1 Shriram Transport Fin. 1,079 Buy 69.1 105.0 129.0 15.6 10.3 8.4 1.8 1.6 1.3 12.7 16.3 17.3 NBFC Aggregate 27.0 21.9 18.4 3.8 3.3 2.9 14.2 15.0 15.7

80

88

96

104

112

Jun-

18

Jul-1

8

Aug-

18

Sep-

18


75

90

105

120

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18




October 2018 154

BAF: Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue from operations 28,329 30,862 35,406 34,931 39,365 41,687 45,161 47,484 127,480 173,697

YoY Growth (%) 23.9 32.1 31.5 31.1 39.0 35.1 27.6 35.9 37.5 36.3 Interest expenses 10,729 11,438 11,709 12,286 13,636 15,111 16,701 18,175 46,216 63,623 Net Income 17,600 19,425 23,698 22,645 25,728 26,577 28,460 29,309 81,264 110,074

YoY Growth (%) 25.4 40.8 38.4 34.7 46.2 36.8 20.1 29.4 48.6 35.5 Other income 10 161 27 48 49 60 60 70 239 239 Total Income 17,610 19,586 23,724 22,693 25,777 26,637 28,520 29,379 81,503 110,312 Operating Expenses 7,433 8,752 9,494 8,940 9,536 10,203 10,917 12,016 32,719 42,672 Operating Profit 10,177 10,833 14,230 13,753 16,241 16,434 17,603 17,363 48,545 67,402

YoY Growth (%) 22.4 36.8 38.2 40.4 59.6 51.7 23.7 26.3 67.1 38.8 Provisions and Cont. 3,051 2,278 2,468 2,311 3,268 3,400 3,500 3,066 10,349 13,234 Profit before Tax 7,126 8,555 11,762 11,442 12,973 13,034 14,103 14,297 38,196 54,168 Tax Provisions 2,517 2,986 4,094 3,966 4,615 4,640 5,021 5,094 13,471 19,369 Net Profit 4,609 5,569 7,668 7,476 8,359 8,394 9,082 9,203 24,963 35,038

YoY Growth (%) 8.7 36.6 38.0 66.4 81.3 50.7 18.4 23.1 35.9 40.4 Loan Growth (%) 39.0 37.8 35.4 39.6 35.3 36.5 38.9 30.0 40.7 30.0 Borrowings Growth (%) 33.4 22.6 30.0 25.0 25.9 41.1 46.0 38.4 30.9 32.2 Cost to Income Ratio (%) 42.2 44.7 40.0 39.4 37.0 38.3 38.3 40.9 40.3 38.8 Tax Rate (%) 35.3 34.9 34.8 34.7 35.6 35.6 35.6 35.6 35.1 35.1 E: MOSL Estimates; FY18 diff. in qtr vs yearly no. on account of IND AS reporting; 1Q/4QFY18 as per IND AS; 2Q/3Q as per I GAAP


Bajaj Finance

CMP: INR2,230 TP: INR2,200 (-1%) Neutral We expect AUM growth of 37% YoY in 2QFY19, driven by consumer

durables financing, in which the company continues to increase its market share.

Calculated margin is expected to remain unchanged YoY at 11.1%. C/I ratio is expected to come in at 38%. The YoY comparison would

be inaccurate due to migration to Ind-AS accounting. Asset quality is likely to remain stable. We expect provisions of

INR3.4b in 2QFY19, as against INR3.3b in 1QFY19 and INR2.5b in 2QFY18.

Under Ind-AS, upfront booking of gain on securitization would increase reported earnings.

The stock trades at 6.9x FY19E and 5.7x FY20E BV. We maintain a Neutral rating, given rich valuations.

Key issues to watch for Ind-AS impact on earnings Incremental cost of funds Asset quality trends, especially in LAP and 2W/3W businesses Traction in cross-sell franchise

Bloomberg BAF IN


M. Cap. (INR b)/(USD b) 1282 / 18

52-Week Range (INR) 2995 / 1514

1,6,12 Rel Perf. (%) -11 / 14 / 5

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 54.7 72.3 97.9 127.6 PPP 36.4 48.8 67.6 87.5 PAT 18.4 25.0 35.0 44.7 EPS (INR) 31.9 43.4 60.9 77.6 EPS Gr. (%) 43.6 35.9 40.4 27.4 BV/Sh. (INR) 156 269 323 391 RoA (%) 3.3 3.3 3.5 3.5 RoE (%) 22.4 20.4 20.6 21.7 Payout (%) 14.6 10.1 10.0 10.0 Valuations P/E (x) 69.8 51.4 36.6 28.7 P/BV (x) 14.3 8.3 6.9 5.7 Div. Yield (%) 0.2 0.2 0.3 0.3

October 2018 155

CIFC: Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Income from Operations 12,887 12,884 13,758 15,547 15,900 16,854 17,528 18,829 53,953 69,112 Interest Expenses 6,326 5,568 5,903 7,198 8,018 8,499 8,924 9,806 23,079 35,248 Net Interest Income 6,561 7,317 7,855 8,349 7,882 8,355 8,604 9,023 30,875 33,864

YoY Growth (%) 18.5 24.8 30.1 26.6 20.1 14.2 9.5 8.1 28.5 9.7 Other Op. and Other Income 76 76 76 77 72 70 70 69 304 279 Net Operating Income 6,637 7,392 7,931 8,427 7,954 8,425 8,674 9,093 31,179 34,144

YoY Growth (%) 18.4 24.6 30.0 26.5 19.8 14.0 9.4 7.9 28.3 9.5 Operating Expenses 2,315 3,089 3,237 3,779 2,584 3,019 3,502 3,858 12,895 12,962 Operating Profit 4,322 4,304 4,694 4,647 5,370 5,406 5,172 5,235 18,284 21,181

YoY Growth (%) 29.4 26.4 33.7 19.0 24.3 25.6 10.2 12.6 29.1 15.8 Provisions & Loan Losses 1,080 832 902 116 983 975 975 967 3,451 3,900 Profit before Tax 3,242 3,472 3,792 4,532 4,388 4,431 4,197 4,268 14,833 17,282 Tax Provisions 1,145 1,199 1,300 1,531 1,535 1,551 1,469 1,493 5,092 6,049 Net Profit 2,097 2,273 2,492 3,001 2,853 2,880 2,728 2,774 9,741 11,233

YoY Growth (%) 26.5 32.9 53.3 36.7 36.0 26.8 9.5 -7.5 35.5 15.3 AUM Growth (%) 12.8 14.4 19.5 25.5 29.6 28.5 26.0 21.3 25.5 21.3 NIM on AUM (%) 7.6 8.2 8.3 8.2 7.2 7.3 7.2 7.1 8.1 7.2 Cost to Income Ratio (%) 34.9 41.8 40.8 44.8 32.5 35.8 40.4 42.4 41.4 38.0 Tax Rate (%) 35.3 34.5 34.3 33.8 35.0 35.0 35.0 35.0 34.3 35.0 E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos; FY19 numbers under Ind-AS


Cholamandalam Inv & Fin

CMP: INR1,200 TP: INR1,525 (+27%) Buy With strong growth in the VF segment, coupled with gradual

improvement in LAP, we expect AUM growth to pick up to 29% in 2QFY19.

We believe GNPLs have peaked out and should decline going forward, as the company has started invoking SARFAESI. We expect provisions of INR1b (v/s INR1b in 1QFY19).

Large part of the off balance sheet transactions is through securitization. Hence, PBT impact is likely to be neutral. Since securitized assets are considered to be on balance sheet, ROAs are likely to come down.

The stock trades at 3.1x FY19E and 2.6x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Management expectation of incremental cost of funds Asset quality trend, especially in home equity Trend in opex, given management’s intent to reduce expense

ratio to 2.5% by FY20

Bloomberg CIFC IN Equity Shares (m) 156.4 M. Cap. (INR b)/(USD b) 188 / 3


Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Total Income 23.5 31.2 34.1 40.6 PPP 14.2 18.3 21.2 25.5 Adj. PAT 7.2 9.7 11.2 13.3 EPS (INR) 46.0 62.3 71.8 84.7 EPS Gr. (%) 26.3 35.5 15.3 18.0 BV (INR) 272 324 388 464 BVPS Gr. (%) 16 19 20 20 RoAA (%) 2.6 2.7 2.4 2.3 RoE (%) 18.2 20.9 20.2 19.9 Valuations P/E (x) 26.1 19.3 16.7 14.2

P/BV (x) 4.4 3.7 3.1 2.6

Div. Yield (%) 0.5 0.5 0.5 0.6

October 2018 156

Quarterly performance (INR m) Y/E MARCH FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total income 4,044 4,141 4,285 4,843 4,522 4,725 4,962 5,583 16,872 19,791

Y-o-Y Growth (%) 16.8 12.7 12.5 16.4 11.8 14.1 15.8 15.3 13.4 17.3 Interest expenses 2,370 2,415 2,512 2,533 2,634 2,806 2,946 3,378 9,825 11,763 Net Income 1,674 1,726 1,773 2,310 1,888 1,920 2,016 2,205 7,047 8,028 Operating Expenses 263 303 251 233 293 307 323 373 1,041 1,296 Operating Profit 1,411 1,422 1,522 2,077 1,595 1,612 1,693 1,832 6,006 6,732

Y-o-Y Growth (%) 38.2 35.5 17.7 28.7 13.0 13.4 11.2 -11.8 26.6 12.1 Provisions and Cont. 113 228 242 14 38 70 70 72 385 250 Profit before Tax 1,298 1,194 1,281 2,063 1,557 1,542 1,623 1,760 5,621 6,482 Tax Provisions 339 416 459 758 406 401 422 456 1,994 1,685 Net Profit 959 778 822 1,305 1,151 1,141 1,201 1,303 3,627 4,797

Y-o-Y Growth (%) 59.4 25.5 28.3 18.2 20.0 46.8 46.2 -0.1 22.3 32.3 Int Exp/ Int Earned (%) 58.6 58.3 58.6 52.3 58.3 59.4 59.4 60.5 58.2 59.4 Cost to Income Ratio (%) 15.7 17.6 14.1 10.1 15.5 16.0 16.0 16.9 14.8 16.1 Tax Rate (%) 26.1 34.9 35.8 36.7 26.1 26.0 26.0 25.9 35.5 26.0 E: MOSL Estimates; Note: FY19 estimates are as of Ind-AS


Gruh Finance

CMP: INR283 TP: INR285 (+1%) Neutral We expect loan growth to be largely in line with trend at 3% QoQ

and 14% YoY. Amortization of origination income and expenses is likely to have a

positive impact on earnings. Credit cost under ECL is expected to be significantly lower than

current charge on balance sheet. DTL-related reversals to reserves (if allowed) will push up

networth. We expect PAT of INR1.14b in the quarter. The stock trades at 13.0x FY19E and 10.8x FY20E BV. Maintain

Neutral. Key issues to watch for Disbursement growth v/s loan growth Outlook on increment cost of funds Management’s plan for geographical expansion Guidance on opex

Bloomberg GRHF IN


M. Cap. (INR b)/(USD b) 207 / 3


1,6,12 Rel Perf. (%) -8 / -13 / -3

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 5.2 6.4 7.3 8.1 PPP 4.7 6.0 6.7 7.5 PAT 3.0 3.6 4.8 5.2 EPS (INR) 4.1 5.0 6.6 7.2 EPS Gr. (%) 21.5 21.9 32.3 9.3 BV/Sh. (INR) 13.6 17.7 21.7 26.1 RoA (%) 2.4 2.5 2.8 2.7 RoE (%) 32.5 31.8 33.3 30.0 Payout (%) 34.4 33.3 33.0 33.0 Valuations P/E (x) 69.6 57.1 43.2 39.5 P/BV (x) 20.8 16.0 13.0 10.8 Div. Yield (%) 1.0 1.2 0.8 0.8

October 2018 157

HDFC: Quarterly Performance (INR M) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 81,660 81,449 84,744 89,219 92,431 96,950 100,732 105,175 335,477 395,288 Interest Expense 57,543 55,341 55,457 57,109 63,527 67,733 69,785 72,623 222,350 273,667 Net Interest Income 24,117 26,108 29,287 32,110 28,904 29,217 30,947 32,553 113,127 121,620

YoY Change (%) 8.2 13.7 13.7 12.6 19.8 11.9 5.7 1.4 13.6 7.5 Gross fee income 1,279 1,599 2,091 2,378 1,420 1,620 1,770 1,952 8,148 6,761 Core Income 25,396 27,707 31,378 34,487 30,323 30,837 32,716 34,505 121,275 128,381

YoY Change (%) 5.0 11.1 13.3 10.5 19.4 11.3 4.3 0.0 12.3 5.9 Operating Expenses 3,497 2,248 2,395 2,321 5,096 3,250 3,348 3,328 9,578 15,022 % of core income 13.8 8.1 7.6 6.7 16.8 10.5 10.2 9.6 7.9 11.7 Commission expenses 1,024 1,577 1,691 1,729 1,205 1,340 1,394 1,422 6,700 5,360 % of core income 4.0 5.7 5.4 5.0 4.0 4.3 4.3 4.1 5.5 4.2 Core Operating profits 20,875 23,882 27,292 30,438 24,022 26,247 27,975 29,755 104,997 107,999

YoY Change (%) 1.7 10.8 11.2 8.7 15.1 9.9 2.5 -2.2 10.9 2.9 Provisions 1,636 950 950 1,000 197 300 325 378 3,750 1,200 Core PBT 19,238 22,932 26,342 29,438 23,825 25,947 27,650 29,377 101,247 106,799

YoY Change (%) -3.3 11.3 12.7 11.0 23.8 13.1 5.0 -0.2 12.0 5.5 Profit on Sale of Inv. 18 654 52,665 3,006 2 10,000 700 730 56,347 12,000 Dividend income 683 5,381 1,528 3,411 6,191 60 1,800 4,085 11,146 12,137 One off expense/Prov

-15,750 -800

-16,550

Other Income 109 104 117 117 113 125 125 151 447 514 PBT 20,049 29,071 64,902 35,172 30,132 36,132 30,275 34,343 152,637 131,450

YoY Change (%) -25.7 13.7 156.4 19.7 50.3 24.3 -53.4 -2.4 42.3 -13.9 Provision for Tax 5,979 8,060 8,200 6,710 8,800 10,370 8,689 9,867 31,000 37,726 PAT 14,070 21,011 56,702 28,462 21,332 25,762 21,586 24,476 121,637 93,724

YoY Change (%) -24.8 15.0 233.3 39.2 51.6 22.6 -61.9 -14.0 63.4 -22.9 E: MOSL Estimates; FY19 estimates are under Ind-AS


HDFC

CMP: INR1,800 TP: INR2,255 (+25%) Buy We estimate AUM growth of 19% YoY, in line with the trend in

the prior quarters. We expect the pick-up in corporate loan growth to sustain.

NII is expected to grow 12% YoY. Operating expenses will grow 45% YoY to INR3.3b (not strictly

comparable due to Ind-AS transition). Asset quality has remained healthy over past several quarters,

and the trend is likely to continue. Asset quality in the corporate loan book would be a key monitorable.

We estimate provisions at INR300m v/s INR197m in 1QFY19. We expect reported PAT of INR25.7b in the quarter, manifesting

growth of 23% YoY. The stock trades at 2.9x FY19E AP/ABV and 2.1x FY20E AP/ABV

(price adjusted for value of other businesses and book value adjusted for investments made in those businesses). Buy.

Key issues to watch for Ind-AS impact on earnings Treasury management going forward Loan growth and uptick in corporate loans Movement in spreads and margins (on individual loans)

Bloomberg HDFC IN


M. Cap. (INR b)/(USD b) 3015 / 41

52-Week Range (INR) 2051 / 1638

1,6,12 Rel Perf. (%) 0 / -10 / -13

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 99.5 113.1 121.6 140.3 PAT 74.4 121.6 93.7 103.7 Adj. EPS (INR) 36.2 40.7 45.2 49.9 EPS Gr. (%) 11.1 12.4 11.2 10.5 BV/Sh. (INR) 253.0 373.6 428.6 462.5 ABV/Sh. (INR) 201.2 246.9 304.6 338.5 RoAA (%) 2.0 1.9 1.7 1.7 Core RoE (%) 19.2 18.6 16.5 15.5 Payout (%) 37.1 32.0 46.4 46.4 Valuation AP/E (x) 32.1 24.7 19.3 14.1 P/BV (x) 7.1 4.8 4.2 3.9 AP/ABV (x) 5.8 4.1 2.9 2.1 Div. Yield (%) 1.0 1.1 1.0 1.2

October 2018 158

Quarterly Performance (INR m) Y/E March FY18 FY19E

FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Income from operations 30,165 30,670 33,492 36,897 38,903 40,459 42,482 44,718 131,224 166,561 Other Income 2,718 2,755 7,565 2,775 1,811 1,900 2,100 2,190 15,812 8,000 Total income 32,882 33,425 41,057 39,672 40,713 42,359 44,582 46,907 147,036 174,561

Y-o-Y Growth (%) 26.6 16.3 36.7 23.0 23.8 26.7 8.6 18.2 25.7 18.7 Interest expenses 18,408 18,355 19,531 20,930 23,351 24,519 26,051 27,668 77,224 101,589 Net Income 14,475 15,070 21,525 18,742 17,362 17,840 18,530 19,240 69,812 72,972

Y-o-Y Growth (%) 22.0 20.8 56.9 26.1 19.9 18.4 -13.9 2.7 31.9 4.5 Operating Exp (Incl Prov) 3,856 3,935 5,932 6,315 3,337 3,599 3,870 4,291 20,037 15,097 Profit before tax 10,619 11,135 15,594 12,427 14,024 14,241 14,661 14,948 49,775 57,875

Y-o-Y Growth (%) 21.4 20.9 55.0 28.1 32.1 27.9 -6.0 20.3 32.0 16.3 Tax Provisions 2,571 2,615 3,939 2,182 3,538 3,560 3,665 3,706 11,307 14,469 Net Profit 8,049 8,520 11,655 10,245 10,487 10,681 10,996 11,243 38,468 43,406 Minority Int/Profit from associates 46 91 23 59 60 67 67 68 219 262 Net Profit after MI 8,095 8,611 11,677 10,304 10,547 10,748 11,063 11,311 38,687 43,668

Y-o-Y Growth (%) 28.5 25.8 55.4 22.6 30.3 24.8 -5.3 9.8 33.1 12.9 AUM Growth (%) 33.0 33.1 31.8 34.3 33.4 31.9 33.1 26.0 34.3 26.0 C/I Ratio (%) 13.9 13.7 12.4 11.7 15.5 16.0 16.3 17.4 12.7 16.3 Tax Rate (%) 24.2 23.5 25.3 17.6 25.2 25.0 25.0 24.8 23.1 25.0 E: MOSL Estimates; Note: FY19 numbers as of Ind-AS


Indiabulls Housing

CMP: INR944 TP: INR1,225 (+30%) Buy AUM growth is expected to remain robust at 5% QoQ and 32% YoY.

Total income (including investment income) should grow 18% YoY to INR17.8b.

Operating profits will grow 15% YoY INR15b in this quarter.

We expect provisions of INR 750m in 2QFY19 vs. INR650m in 1QFY19.

PAT is likely to grow 25% YoY to INR10.7b during the quarter.

The stock trades at 2.4x FY19E and 2.1x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings. AUM growth trend and guidance. Movement in incremental spreads and margins. Asset quality trends in the corporate and LAP segments.

Bloomberg IHFL IN


M. Cap. (INR b)/(USD b) 403 / 5


1,6,12 Rel Perf. (%) -18 / -35 / -38

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Net Fin inc 35.3 54.1 62.5 76.5 PPP 45.5 61.0 61.1 74.1 PAT 29.1 38.5 43.7 50.7 EPS (INR) 68.6 90.2 102.4 119.0 EPS Gr. (%) 23.2 31.5 13.5 16.2 BV/Sh. (INR) 296 352 399 453 RoA on AUM (%) 3.4 3.4 3.1 2.9 RoE (%) 25.0 27.9 27.3 27.9 Payout (%) 39.3 46.6 45.0 45.0 Valuations P/E (x) 13.8 10.5 9.2 7.9 P/BV (x) 3.2 2.7 2.4 2.1 P/ABV (x) 3.2 2.7 2.4 2.1 Div. Yield (%) 3.8 4.4 4.9 5.7

October 2018 159

LTFH: Quarterly performance

(INR M) Y/E March FY18 FY19E

FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 23,010 23,838 26,302 27,483 30,410 31,931 33,049 34,684 100,634 130,074 Interest Expenses 12,703 12,967 13,596 14,373 15,132 16,191 16,839 18,611 53,639 66,772 Net Interest Income 10,307 10,871 12,706 13,111 15,279 15,740 16,210 16,073 46,995 63,302

YoY Growth (%) 22.6 16.4 36.1 30.5 48.2 44.8 27.6 22.6 26.5 34.7 Other income 1,262 1,109 709 1,901 1,375 1,000 900 1,424 4,981 4,699 Total Income 11,570 11,980 13,415 15,012 16,653 16,740 17,110 17,497 51,976 68,001

YoY Growth (%) 32.2 21.2 33.9 39.0 43.9 39.7 27.5 16.6 31.7 30.8 Operating Expenses 3,565 3,419 4,006 4,671 5,003 4,444 4,487 4,647 15,661 18,581

YoY Growth (%) 10.7 2.8 27.0 52.5 40.3 30.0 12.0 -0.5 22.7 18.6 Operating Profits 8,005 8,561 9,409 10,341 11,650 12,296 12,623 12,850 36,315 49,420

YoY Growth (%) 44.8 30.6 37.1 33.6 45.5 43.6 34.2 24.3 36.1 36.1 Provisions 4,433 4,707 4,928 4,746 4,359 5,000 5,000 5,049 18,814 19,408 Profit before Tax 3,571 3,855 4,480 5,595 7,292 7,296 7,623 7,801 17,501 30,012 Tax Provisions 204 230 636 1,504 1,894 1,678 1,753 1,733 2,574 7,058 P/Lof Associate Company (225) (22) (4) (31) (15) - - - -281 -15 Profit after tax 3,143 3,602 3,841 4,060 5,384 5,618 5,870 6,068 15,209 22,969

YoY Growth (%) 51.5 45.2 41.8 28.5 71.3 55.9 52.8 49.5 45.9 51.0 Loan growth (%) 19.7 18.8 22.6 25.3 24.3 25.6 25.6 19.9 27.3 19.9 Cost to Income Ratio (%) 30.8 28.5 29.9 31.1 30.0 26.5 26.2 26.6 30.1 27.3 Tax Rate (%) 5.7 6.0 14.2 26.9 26.0 23.0 23.0 22.2 14.7 23.5 E: MOSL Estimates


L&T Finance

CMP: INR129 TP: INR175 (+36%) Buy The company is likely to report strong numbers in the rural and

housing finance segments. Performance in the wholesale finance segment is a key monitorable.

We expect 26% YoY growth in the loan book, driven by strong growth in the rural/housing/wholesale segments. AUM (including de-focused book) is likely to cross INR900b.

NII should grow 45% YoY to INR15.7b with margins largely stable sequentially.

With expense growth of 30% YoY, PPoP should grow 44% YoY to INR12.3b.

Asset quality is expected to remain stable. We factor in provisions of INR5.0b v/s INR4.4b in the prior quarter.

PAT is likely to grow 56% YoY to INR5.6b in the quarter. The stock trades at 2.0x FY19E and 1.7x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Commentary on outlook for rural and housing finance segments Competition in the wholesale finance segment, especially

renewables Asset quality outlook in the builder financing segment

Bloomberg LTFH IN


M. Cap. (INR b)/(USD b) 255 / 3


1,6,12 Rel Perf. (%) -22 / -29 / -49

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Total Income 30.3 51.7 68.0 82.0 PPP 26.7 36.4 49.4 59.2 PAT 9.2 13.5 23.0 26.7 EPS (INR) 5.2 6.8 11.5 13.4 BV/Sh. (INR) 44.3 56.2 66.2 78.0 RoAA (%) 1.3 1.7 2.3 2.2 RoE (%) 12.4 14.2 18.9 18.6 Payout (%) 17.7 17.1 13.9 11.6 Valuation P/E (x) 24.6 19.0 11.2 9.6 P/BV (x) 2.9 2.3 2.0 1.7 Div. Yield (%) 0.6 0.8 1.1 1.0

October 2018 160

LICHF: Quarterly Performance (INR M) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 36,269 36,581 37,124 38,467 40,050 41,419 42,913 44,184 148,440 168,566 Interest Expenses 26,982 27,705 28,148 28,431 30,249 31,611 33,033 34,071 111,266 128,964 Net Interest Income 9,286 8,875 8,976 10,036 9,800 9,809 9,880 10,113 37,174 39,603

YoY Growth (%) 12.6 2.5 -1.9 -3.5 5.5 10.5 10.1 0.8 2.0 6.5 Fees and other income 214 586 552 874 460 455 455 476 2,225 1,846 Net Income 9,500 9,461 9,528 10,911 10,260 10,264 10,335 10,589 39,399 41,449

YoY Growth (%) 8.2 2.0 0.1 -0.1 8.0 8.5 8.5 -2.9 2.4 5.2 Operating Expenses 915 1,402 1,477 2,242 769 907 1,079 1,294 6,036 4,049 Operating Profit 8,586 8,059 8,050 8,669 9,492 9,357 9,256 9,295 33,364 37,399

YoY Growth (%) 16.0 1.9 -0.7 -3.2 10.6 16.1 15.0 7.2 3.1 12.1 Provisions and Cont. 2,040 578 484 281 1,608 600 600 537 3,384 3,345 Profit before Tax 6,546 7,481 7,566 8,387 7,884 8,757 8,656 8,758 29,980 34,055 Tax Provisions 1,749 2,589 2,655 2,994 2,205 2,452 2,424 2,455 9,988 9,535 Net Profit 4,797 4,891 4,911 5,393 5,679 6,305 6,232 6,303 19,992 24,519

YoY Growth (%) 17.6 -1.1 -1.6 1.9 18.4 28.9 26.9 16.9 3.5 22.6 Loan Growth (%) 15.4 15.5 15.4 15.1 14.7 14.7 15.7 13.0 15.1 14.7 Cost to Income Ratio (%) 9.6 14.8 15.5 20.5 7.5 8.8 10.4 12.2 15.3 9.8 Tax Rate (%) 26.7 34.6 35.1 35.7 28.0 28.0 28.0 28.0 33.3 28.0 E: MOSL Estimates


LIC Housing Finance

CMP: INR412 Under Review We expect loan growth of 15% YoY, driven primarily by the LAP

segment. The share of builder loans is likely to remain at ~5% of overall book. Growth in the retail home loan book would be the key monitorable.

Calculated margins are likely to remain stable YoY at 2.3%, driven by falling loan yields.

Operating expenses would fall by 35% YoY (due to Ind-AS migration), with the C/I ratio falling ~600bp YoY to ~9%.

Asset quality is likely to remain stable. We model provisions of INR600m, as against INR578m in 2QFY18.

The stock trades at 1.4x FY19E and 1.2x FY20E BV. Under Review. Key issues to watch for Ind-AS impact on earnings Trend in incremental CoF and spreads Performance of corporate loan book and loans against property Management commentary on increasing competitive intensity

and margin trends

Bloomberg LICHF IN


M. Cap. (INR b)/(USD b) 208 / 3


1,6,12 Rel Perf. (%) -14 / -34 / -51

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 36.5 37.0 39.6 43.7 PPP 32.4 33.0 37.4 41.3 Adj. PAT 19.3 18.9 24.5 27.4 Adj. EPS (INR) 38.2 37.4 48.6 54.3 EPS Gr. (%) 16.3 -2.1 29.7 11.9 BV/Sh (INR) 219 257 295 338 RoAA (%) 1.5 1.3 1.5 1.4 RoE (%) 19.1 15.7 17.6 17.2 Payout (%) 18.8 21.1 20.9 20.9 Valuations P/E (x) 10.8 11.0 8.5 7.6 P/BV (x) 1.9 1.6 1.4 1.2 Div. Yield (%) 1.5 1.7 2.1 2.4

October 2018 161

Quarterly Performance (INR M) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Operating Income 14,980 16,608 18,340 20,600 19,258 20,029 20,930 22,000 66,295 82,218 Other Income 107 221 124 138 138 148 158 236 592 681 Total income 15,087 16,829 18,464 20,738 19,397 20,177 21,088 22,236 66,887 82,898

YoY Growth (%) 9.7 11.0 22.8 12.5 28.6 19.9 14.2 7.2 7.2 23.9 Interest Expenses 7,553 7,498 7,629 7,550 8,488 9,082 9,717 10,098 30,995 37,385 Net Income 7,534 9,331 10,835 13,188 10,909 11,095 11,371 12,138 35,892 45,513

YoY Growth (%) 10.0 15.6 42.7 16.8 44.8 18.9 4.9 -8.0 6.2 26.8 Operating Expenses 3,274 3,694 4,282 4,927 3,849 4,003 4,163 4,359 14,233 16,373 Operating Profit 4,260 5,636 6,553 8,261 7,060 7,093 7,208 7,779 21,659 29,140

YoY Growth (%) 18.8 25.1 65.9 13.9 65.8 25.8 10.0 -5.8 12.3 34.5 Provisions 1,269 4,446 1,989 1,572 2,938 2,900 2,900 2,847 5,681 11,585 Profit before Tax 2,991 1,190 4,563 6,688 4,122 4,193 4,308 4,932 15,979 17,556 Tax Provisions 977 410 1,793 2,443 1,432 1,446 1,486 1,692 5,907 6,056 Net Profit 2,014 780 2,770 4,245 2,691 2,746 2,822 3,240 10,072 11,499

YoY Growth (%) 131.5 -17.7 -1,871.5 81.4 33.6 252.1 1.9 -23.7 151.6 14.2 AUM growth (%) 13.9 13.8 13.3 19.5 26.1 23.3 22.4 19.5 19.6 19.2 Borrowings growth (%) 17.8 16.1 8.8 14.1 19.9 21.7 28.8 22.4 8.0 9.7 Cost to Income Ratio (%) 43.5 39.6 39.5 37.4 35.3 36.1 36.6 35.9 39.7 36.0 Tax Rate (%) 32.7 34.5 39.3 36.5 34.7 34.5 34.5 34.3 37.0 34.5 E: MOSL Estimates


Mahindra Financial Services

CMP: INR406 TP: INR500 (+23%) Buy There has been good traction in vehicle sales in the quarter,

which should translate into 23% YoY AUM (adj.) growth in the quarter.

Margins are expected to contract over 30bp QoQ due to a rise in CoF. We expect 19% YoY NII growth in the quarter.

With 8% YoY growth in operating expenses, PPoP growth should grow 26% YoY.

We factor in INR2.9b provisions in 2QFY19 v/s INR4.5b in 2QFY18 and INR2.9b in 1QFY19.

The stock trades at 2.4x FY19E and 2.2x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Management commentary on performance of rural areas Asset quality trend in the wake of good monsoon Margin and growth trends Performance of subsidiaries

Bloomberg MMFS IN


1,6,12 Rel Perf. (%) -10 / -22 / -19

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 33.2 35.3 44.8 52.5 PPP 19.3 21.7 29.1 34.1 PAT 4.0 10.1 11.5 13.8 EPS (INR) 7.1 17.4 18.7 22.4 BV/Sh.(INR) 114.6 156.6 169.9 185.7 ABV/Sh (INR) 94.8 134.1 153.9 170.5 RoA on AUM (%) 1.0 2.3 2.1 2.1 RoE (%) 6.4 12.5 11.5 12.6 Payout (%) 47.1 32.1 29.3 29.3 Valuations P/E (x) 57.3 23.3 21.7 18.1 P/BV (x) 3.5 2.6 2.4 2.2 P/ABV (x) 4.3 3.0 2.6 2.4 Div. Yield (%) 0.6 1.0 1.2 1.4

October 2018 162

Quarterly Performance (INR M) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Income 1,041 1,061 1,130 1,135 1,288 1,353 1,420 1,549 4,368 5,610 Interest expenses 489 396 395 352 468 503 543 652 1,632 2,167 Net Income 552 665 735 783 820 850 877 897 2,735 3,443

Growth Y-o-Y (%) 24.0 38.0 50.4 61.3 48.5 27.7 19.2 14.6 43.8 25.9 Operating Expenses 175 178 225 179 203 215 228 246 757 892 Operating Profits 377 488 510 604 617 634 649 652 1,979 2,552

Growth Y-o-Y (%) 24.4 43.6 54.9 85.2 63.7 30.1 27.1 7.9 52.4 29.0 Provisions 76 103 123 148 137 140 150 152 449 579 Profit before tax 301 385 388 456 480 494 499 499 1,529 1,973

Growth Y-o-Y (%) 29.4 34.3 37.3 98.8 59.4 28.6 28.7 9.5 48.4 29.0 Tax Provisions 127 134 134 157 167 171 172 171 552 681 Net Profit 174 251 253 299 313 324 327 328 978 1,292

Growth Y-o-Y (%) 16.8 31.8 36.9 100.6 79.6 29.1 28.9 9.8 45.1 32.2 Int. Exp/Int. Income % 47.0 37.3 34.9 31.0 36.3 37.2 38.3 42.1 37.4 38.6 Cost to Income Ratio % 31.7 26.7 30.6 22.9 24.7 25.3 26.0 27.4 27.7 25.9 Prov to Operating Profits % 20.1 21.1 24.1 24.4 22.2 22.1 23.1 23.4 22.7 22.7 Tax Rate % 42.1 34.8 34.6 34.5 34.7 34.5 34.5 34.3 36.1 34.5 E: MOSL Estimates


MAS Financial

CMP: INR507 TP: INR650 (+28%) Buy The company is likely to have a stable quarter. We expect AUM

growth of 28% YoY. Loan mix is likely to be largely stable. Margins are expected to remain similar at 7.4% due to re-pricing

of borrowings. As a result, total income is expected to grow 28% YoY to

INR850m. We estimate provisions of INR140m as against INR103m in

2QFY18. PAT is expected to grow 29% YoY to INR324m.The stock trades at

3.4x FY19E and 2.9x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Guidance on growth trends and loan mix Asset quality performance Management commentary on increasing competitive intensity

and margin trends

Bloomberg MASFIN IN


1,6,12 Rel Perf. (%) -9 / -23 /-


NII 1.7 2.5 3.0 3.7

PPP 1.3 2.1 2.6 3.1

PAT 0.6 1.0 1.3 1.6

EPS (INR) 15.0 19.2 23.4 28.8

BV/Share (INR) 66.2 132.8 150.3 171.9

RoA on AUM (%) 2.1 2.7 2.7 2.6

RoE (%) 30.5 20.7 16.5 17.9

Valuations

P/E (x) 33.7 26.4 21.7 17.6

P/BV (x) 7.7 3.8 3.4 2.9

October 2018 163

Quarterly Performance (INR M) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Income from operations 13,758 16,385 15,227 15,223 16,053 16,454 16,537 16,617 60,593 65,661 Other operating income -106 264 310 287 176 225 250 299 755 950 Total Operating income 13,652 16,649 15,537 15,510 16,229 16,679 16,787 16,916 61,348 66,611

YoY Growth (%) 5.3 20.5 15.9 -9.3 18.9 0.2 8.0 9.1 7.1 8.6 Other income 121 50 130 571 101 130 150 188 872 570 Total Income 13,773 16,699 15,667 16,080 16,330 16,809 16,937 17,105 62,220 67,180

YoY Growth (%) 5.9 20.5 16.4 -6.1 18.6 0.7 8.1 6.4 8.3 8.0 Interest Expenses 5,121 4,889 4,689 4,495 5,016 5,266 5,372 5,445 19,195 21,099 Net Income 8,652 11,810 10,978 11,585 11,314 11,543 11,565 11,659 43,025 46,081 Operating Expenses 3,103 3,114 3,212 3,664 3,738 3,612 3,694 3,721 13,093 14,765 Operating Profit 5,550 8,696 7,766 7,921 7,577 7,931 7,871 7,938 29,932 31,316

YoY Growth (%) 25.8 81.4 72.8 -4.8 36.5 -8.8 1.4 0.2 35.9 4.6 Provisions 126 1,170 564 596 27 70 90 106 2,456 292 Profit before Tax 5,424 7,526 7,202 7,324 7,550 7,861 7,781 7,832 27,477 31,025 Tax Provisions 1,975 2,985 2,565 2,810 2,634 2,751 2,723 2,749 10,335 10,858 Net Profit 3,449 4,542 4,636 4,514 4,916 5,110 5,057 5,083 17,142 20,167

YoY Growth (%) 27.6 53.1 59.3 40.3 42.5 12.5 9.1 12.6 45.3 17.6 E: MOSL Estimates


Muthoot Finance

CMP: INR407 TP: INR425 (+4%) Neutral AUM is expected to grow 15% YoY to INR316b. We expect total income to increase 1% YoY to INR16.8b. Asset quality is likely to be stable in 2QFY19. We estimate provisions of INR70m as against INR27m in 1QFY19. PAT is expected to grow 13% YoY to INR5.1b. The stock trades at 1.8x FY19E and 1.5x FY20E BV. Maintain

Neutral. Key issues to watch for Management commentary on business growth and steps taken to

sustain AUM growth Plan of branch expansion Movement in yields and margins, with declining cost of funds Progress in gold auctions

Bloomberg MUTH IN


M. Cap. (INR b)/(USD b) 163 / 2


1,6,12 Rel Perf. (%) 8 / -11 / -30


NII 33.6 41.3 44.6 49.2

PPP 22.0 30.0 31.3 34.5

PAT 11.8 17.2 20.2 22.2

EPS (INR) 29.5 43.0 50.4 55.5

BV/Sh.(INR) 163.1 194.0 229.2 267.9

RoA on AUM (%) 4.6 6.2 6.6 6.5

RoE (%) 19.4 24.1 23.8 22.4

Div. Yld. (%) 1.5 2.5 3.1 3.4

P/E (x) 13.8 9.5 8.1 7.3

P/BV (x) 2.5 2.1 1.8 1.5

October 2018 164

PNBHF: Quarterly performance

(INR M)

Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 10,885 12,306 13,357 14,686 15,326 17,011 18,883 21,034 51,234 72,254 Interest Expenses 7,505 8,361 9,250 10,168 10,998 12,647 14,418 16,492 35,284 54,555 Net Interest Income 3,380 3,945 4,107 4,518 4,328 4,364 4,465 4,541 15,950 17,699

YoY Growth (%) 61.6 72.8 55.2 35.8 28.0 10.6 8.7 0.5 54.1 11.0 Other income 717 853 1,029 1,016 1,158 1,200 1,250 1,295 3,615 4,902 Total Income 4,097 4,798 5,136 5,534 5,486 5,564 5,715 5,836 19,565 22,601

YoY Growth (%) 60.8 68.0 57.7 39.0 33.9 16.0 11.3 5.5 54.8 15.5 Operating Expenses 962 1,101 1,237 1,663 1,293 1,345 1,399 1,428 4,963 5,464

YoY Growth (%) 20.6 9.2 42.2 85.2 34.4 22.1 13.1 -14.1 38.9 10.1 Operating Profits 3,136 3,697 3,899 3,871 4,193 4,220 4,316 4,408 14,603 17,137

YoY Growth (%) 79.0 100.1 63.3 25.6 33.7 14.1 10.7 13.9 61.0 17.4 Provisions 681 503 561 444 440 350 450 485 2,189 1,726 Profit before Tax 2,454 3,194 3,339 3,427 3,753 3,870 3,866 3,923 12,414 15,412 Tax Provisions 754 1,114 1,164 1,223 1,195 1,238 1,237 1,262 4,254 4,932 Profit after tax 1,701 2,080 2,175 2,205 2,558 2,631 2,629 2,661 8,160 10,480

YoY Growth (%) 77.3 51.1 57.8 44.7 50.4 26.5 20.9 20.7 55.8 28.4 Loans growth (%) 42.4 51.2 61.1 48.0 45.2 41.1 35.6 42.1 48.0 45.2 Cost to Income Ratio (%) 23.5 23.0 24.1 30.0 23.6 24.2 24.5 24.5 25.4 24.2 Tax Rate (%) 30.7 34.9 34.9 35.7 31.8 32.0 32.0 32.2 34.3 32.0 E: MOSL Estimates; Note: FY19 numbers as of Ind-AS


PNB Housing Finance

CMP: INR908 TP: INR1,215 (+34%) Buy The company will continue its robust growth trajectory. AUM is

expected to grow 9% QoQ and 46% YoY to INR747b. Calculated margins are likely to contract ~20bp YoY to 2.4%. As a result, total income is expected to grow 16% YoY to INR5.6b. We estimate provisions of INR350m, as against INR503m in

2QFY18. PAT is expected to grow 27% YoY to INR2.6b. The stock trades at 2.1x FY19E and 1.8x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Management commentary on incremental cost of funds Plans of branch expansion Movement in yields and margins, with declining cost of funds

Bloomberg PNBHOUSI IN


M. Cap. (INR b)/(USD b) 151 / 2


1,6,12 Rel Perf. (%) -26 / -37 / -55

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 10.0 15.5 17.2 21.8 PPP 9.1 14.8 17.1 21.7 PAT 5.2 8.3 10.5 13.1 EPS (INR) 31.6 49.9 62.9 78.8 BV/Sh. (INR) 329 389 439 501 RoAA (%) 1.4 1.6 1.4 1.3 RoE (%) 13.8 13.9 15.2 16.8 Payout (%) 22.8 21.7 21.6 21.6 P/E (x) 27.4 18.2 14.4 11.5

P/BV (x) 2.6 2.3 2.1 1.8

Div. Yield (%) 0.7 1.0 1.2 1.6

October 2018 165

REPCO: Quarterly performance

(INR M) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 2,686 2,715 2,694 2,774 2,827 2,911 2,999 3,085 10,869 11,822 Interest Expenses 1,630 1,622 1,623 1,610 1,684 1,759 1,839 1,913 6,485 7,194 Net Interest Income 1,056 1,093 1,071 1,164 1,143 1,152 1,160 1,173 4,384 4,628

YoY Growth (%) 25.7 21.2 18.1 13.2 8.2 5.4 8.3 0.7 19.2 5.6 Other income 55 95 82 59 45 55 70 76 291 246 Total Income 1,111 1,188 1,153 1,223 1,188 1,207 1,230 1,248 4,675 4,874

YoY Growth (%) 20.8 18.8 18.3 11.0 6.9 1.6 6.7 2.0 17.0 4.3 Operating Expenses 168 179 217 214 219 227 235 247 778 928

YoY Growth (%) 13.0 9.4 33.0 6.9 30.3 27.0 8.0 15.4 15.2 19.2 Operating Profits 943 1,009 935 1,009 969 980 995 1,002 3,897 3,946

YoY Growth (%) 22.3 20.6 15.3 12.0 2.8 -2.9 6.5 -0.8 17.4 1.3 Provisions 88 166 194 143 47 75 75 72 591 268 Profit before Tax 855 843 741 866 923 905 920 930 3,306 3,678 Tax Provisions 296 285 256 300 314 308 313 316 1,137 1,251 Profit after tax 560 559 485 566 609 597 607 614 2,169 2,428

YoY Growth (%) 41.6 22.3 4.4 11.9 8.8 6.9 25.3 8.4 19.0 11.9 Loan growth (%) 13.1 10.1 9.6 10.3 11.9 10.8 12.1 11.2 10.1 11.1 Cost to Income Ratio (%) 15.1 15.0 18.9 17.5 18.4 18.8 19.1 19.8 16.6 19.0 Tax Rate (%) 34.6 33.7 34.6 34.6 34.0 34.0 34.0 34.0 34.4 34.0 E: MOSL Estimates; Note: FY19 numbers are based on Ind-AS accounting


Repco Home Finance

CMP: INR420 TP: INR553 (+32%) Buy Our interactions at the ground level suggest that the lack of

availability of sand still remains an issue. Hence, we expect loan growth to remain largely unchanged at 11% YoY in 2QFY19.

Calculated margins are likely to shrink 45bp YoY to 4.7% on account of a decline in loan yields. NII growth will be 2% YoY.

C/I ratio is expected to increase ~400bp YoY to 18.8%. Provisions are expected to be INR75m (flat sequentially). The stock trades at 1.7x FY19E and 1.5x FY20E BV. Maintain Buy. Key issues to watch for Ind-AS impact on earnings Sand price trends in TN Competitive environment and prepayments by borrowers Business outlook, loan growth, and share of home loans and LAP Movement in borrowing costs and margins Asset quality trends in the LAP segment

Bloomberg REPCO IN




1,6,12 Rel Perf. (%) -14 / -35 / -49

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 3.7 4.3 4.6 5.2 PPP 3.3 3.8 3.9 4.4 PAT 1.8 2.1 2.4 2.7 EPS (INR) 29.1 32.9 38.8 43.4 BV/Sh. (INR) 182 207 244 284 RoAA (%) 2.2 2.2 2.3 2.3 RoE (%) 17.4 16.9 17.2 16.5 Payout (%) 8.3 8.0 7.0 7.0 Valuation P/E (x) 13.9 12.7 10.8 9.7

P/BV (x) 2.2 2.0 1.7 1.5

Div. Yield (%) 0.5 0.5 0.6 0.6

October 2018 166

QUARTERLY PERFORMANCE INR m Y/E MARCH FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Interest Income 12,274 12,849 13,381 12,428 14,017 14,507 14,979 15,625 50,358 59,127 Interest expenses 4,040 4,125 4,224 4,310 4,640 4,941 5,287 5,664 16,677 20,533 Net Interest Income 8,234 8,725 9,157 8,118 9,377 9,566 9,691 9,960 33,681 38,594 Y-o-Y Growth (%) 20.0 18.7 20.1 13.8 13.9 9.6 5.8 22.7 18.4 14.6 Fees and Other Income 16 4 152 10 17 20 25 38 658 100 Net Operating Income 8,250 8,728 9,308 8,128 9,394 9,586 9,716 9,998 34,339 38,694 Y-o-Y Growth (%) 20.0 18.7 22.0 13.9 13.9 9.8 4.4 23.0 18.4 12.7 Operating Expenses 3,209 3,316 3,859 3,251 3,709 3,833 3,962 4,220 13,624 15,723 Operating Profit 5,041 5,412 5,449 4,877 5,685 5,753 5,755 5,778 20,715 22,971 Y-o-Y Growth (%) 21.8 19.6 17.1 12.8 12.8 6.3 5.6 18.5 17.4 10.9 Provisions 1,968 2,372 2,046 4,122 2,154 2,400 2,600 2,712 10,537 9,866 Profit before Tax 3,073 3,041 3,404 756 3,532 3,353 3,155 3,066 10,178 13,105 Tax Provisions 1,072 1,058 1,148 285 1,236 1,174 1,104 1,073 3,531 4,587 Net Profit 2,001 1,983 2,255 470 2,296 2,180 2,051 1,992 6,647 8,518 Y-o-Y Growth (%) 10.0 -3.0 43.0 291.5 14.8 9.9 -9.1 323.7 19.5 28.1 Int Exp/ Int Earned (%) 32.9 32.1 31.6 34.7 33.1 34.1 35.3 36.3 33.1 34.7 Cost to Income Ratio (%) 38.9 38.0 41.5 40.0 39.5 40.0 40.8 42.2 39.7 40.6 Tax Rate (%) 34.9 34.8 33.7 37.8 35.0 35.0 35.0 35.0 34.7 35.0 E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos; Note: FY19 numbers on Ind-AS basis


Shriram City Union Finance

CMP: INR1,645 TP: INR2,000 (+22%) Buy We expect 22% YoY AUM growth led by healthy growth in SME

segment. Spreads should contract 100bp YoY on account of declining yields.

Hence, NII growth is expected to be 10% YoY. Faster growth in operating expenses (16% YoY) is expected to

drive 6% YoY PPoP growth. We expect asset quality to remain largely stable. We factor in

provisions of INR2.4b, as against INR2.4b in 2QFY18 and INR2.2b in 1QFY19.

The stock trades at 1.8x FY19E and 1.5x FY20E BVPS. Buy. Key issues to watch for Ind-AS impact on earnings Trends in asset quality in each segment Business growth and momentum, and management

commentary on the same Impact of GST Performance of the housing finance subsidiary

Bloomberg SCUF IN


M. Cap. (INR b)/(USD b) 108 / 1

52-Week Range (INR) 2454 / 1549

1,6,12 Rel Perf. (%) -10 / -34 / -34

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E NII 28.5 33.7 38.6 45.3 PPP 17.6 20.7 23.0 27.1 PAT 5.6 6.6 8.5 10.0 EPS (INR) 84 101 129 151 EPS Gr. (%) 5 20 28 17 BV/Sh. (INR) 763 822 934 1067 RoA (%) 2.7 2.8 3.0 3.0 RoE (%) 11.7 12.7 14.7 15.1 Payout (%) 7 21 14 12 Valuations P/E (x) 19.5 16.3 12.7 10.9 P/BV (x) 2.2 2.0 1.8 1.5 Div. Yield (%) 0.9 1.1 0.9 0.9

October 2018 167

SHTF: Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3Q 4Q Interest Income 31,159 26,761 27,573 29,502 37,325 38,444 39,790 41,920 114,996 157,478 Interest expenses 15,522 13,082 13,540 14,633 18,515 19,440 20,412 22,186 56,777 80,553 Net Interest Income 15,637 13,679 14,033 14,869 18,810 19,004 19,377 19,734 58,218 76,925

YoY Growth (%) 34.8 21.4 20.8 30.0 20.3 38.9 38.1 32.7 26.8 32.1 Securitization income 0 2,645 3,061 3,206 0 0 0 0 8,912 0 Net Income (Incl. Securitization) 15,637 16,324 17,094 18,076 18,810 19,004 19,377 19,734 67,131 76,925

YoY Growth (%) 16.1 20.6 21.1 28.3 20.3 16.4 13.4 9.2 21.6 14.6 Fees and Other Income 28 324 221 1,717 74 75 75 76 2,289 300 Net Operating Income 15,665 16,647 17,315 19,792 18,884 19,079 19,452 19,810 69,419 77,225

YoY Growth (%) 14.8 21.5 21.1 38.1 20.5 14.6 12.3 0.1 24.0 11.2 Operating Expenses 3,516 3,485 3,828 4,193 4,723 4,842 4,965 5,157 15,022 19,688 Operating Profit 12,149 13,162 13,486 15,599 14,161 14,236 14,488 14,653 54,397 57,538

YoY Growth (%) 18.0 24.6 18.3 36.6 16.6 8.2 7.4 -6.1 24.5 5.8 Provisions 5,107 5,879 5,854 13,666 5,330 5,275 5,200 5,068 30,506 20,873 Profit before Tax 7,042 7,283 7,633 1,934 8,830 8,961 9,288 9,586 23,892 36,665 Tax Provisions 2,442 2,492 2,676 488 3,101 3,136 3,251 3,344 8,098 12,833 Net Profit 4,600 4,791 4,956 1,446 5,729 5,825 6,037 6,241 15,794 23,832 YoY Growth (%) 23.0 23.6 43.3 -3.4 24.5 21.6 21.8 331.6 25.6 50.9 AUM Growth (%) 10.4 13.5 18.0 22.5 22.3 21.7 20.7 36.1 22.5 22.3 Securitization Inc. / Net Inc. (%) 0.0 15.9 17.7 16.2 0.0 0.0 0.0 0.0 12.8 0.0 Cost to Income Ratio (%) 22.4 20.9 22.1 21.2 25.0 25.4 25.5 26.0 21.6 25.5 Tax Rate (%) 34.7 34.2 35.1 25.2 35.1 35.0 35.0 34.9 33.9 35.0 E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos


Shriram Transport Finance

CMP: INR1,080 TP: INR1,400 (+30%) Buy SHTF’s AUM growth is expected to sustain at 22% YoY in 2QFY19. However, due to increasing margin pressure, NII growth is

expected to be strong at 15% YoY. Operating expenses are likely to grow 39% YoY, resulting in a

~400bp increase in C/I ratio to 25%. We factor in INR5.3b NPL provisions v/s INR5.8b in 2QFY18 and

INR5.3b in 1QFY19. The stock trades at 1.6x FY19E and 1.3x FY20E BVPS. Maintain

Buy. Key issues to watch for Ind-AS impact on earnings CV demand in FY19, volume gain on BS4 to BS6 switch Movement in borrowing costs and margins Asset quality trends, given impact of GST

Bloomberg SHTF IN


M. Cap. (INR b)/(USD b) 245 / 3


1,6,12 Rel Perf. (%) -11 / -35 / -13

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Net Inc. 55.2 67.3 76.9 89.1 PPP 43.7 54.9 57.5 66.6 PAT 12.6 15.7 23.8 29.3 EPS (INR) 55.4 69.1 105.0 129.0 EPS Gr. (%) 6.7 24.7 52.0 22.8 BV/Sh (INR) 491 600 690 801 RoA on AUM (%) 2.0 2.0 2.4 2.5 RoE (%) 11.8 12.7 16.3 17.3 Payout (%) 20.9 16.8 13.9 13.9 Valuations P/E (x) 19.4 15.6 10.3 8.4 P/BV (x) 2.2 1.8 1.6 1.3 Div. Yield (%) 0.7 0.9 1.2 1.4

October 2018 168

Gradual uptrend expected in the US business However, high base to affect overall earnings growth

Revenues to post modest growth; PAT to decline on low base We expect our pharma universe to report healthy revenue growth of ~9% YoY in 2QFY19; however, PAT is seen declining by ~4% YoY during the quarter. Post GST implementation, the domestic formulation segment witnessed channel re-filing, which aided growth in 2QFY18. On this high base, we expect lower YoY growth of ~9% in 2QFY19 on aggregate basis for companies under our coverage. Twelve companies are expected to report better-than-average growth in revenue and PAT for the quarter.

Gradual improvement expected in US sales We expect 2QFY19 to be the second consecutive quarter of YoY growth in aggregate US sales after five quarters of YoY decline. Thus, we expect gradual improvement in US sales for companies under our coverage—Cadila Healthcare (CDH) and Lupin being exceptions. With the intensity of price erosion declining from high double-digit to high single-digit, the US business is expected to continue reporting decent growth during the quarter, despite ongoing base business erosion. Potential approvals should help negate this issue for few companies. During the quarter, CDH received maximum number of abbreviated new drug application (ANDA) approvals (16), while Strides Pharma (STR) received a single approval.

Amongst stocks under coverage, Torrent Pharma is expected to report the highest growth of ~34% YoY, primarily due to the integration of its Unichem business, followed by Biocon (+30% YoY) due to the launch of Pegfilgrastim in the US market. Our top picks – Aurobindo Pharma and Alkem Lab.

Exhibit 1: Expected quarterly performance summary (INR m) Sector / Companies CMP Sales (INR m) EBITDA (INR m) PAT (INR m)

Healthcare (INR) Rating Sep-18

Var % YoY

Var % QoQ

Sep-18 Var

% YoY Var

% QoQ Sep-18

Var % YoY

Var % QoQ

Alembic Pharma 623 Neutral 9,113 15.5 5.7 1,640 -8.4 8.6 1,025 -15.7 13.3 Alkem Lab 2,047 Buy 17,549 -5.9 5.1 2,720 -40.9 27.0 1,840 -42.6 35.1 Ajanta Pharma 1,040 Buy 5,004 -7.4 -2.1 1,351 -26.5 -14.2 1,037 -21.4 -2.0 Aurobindo Pharma 770 Buy 45,340 2.2 6.7 9,295 -16.8 19.3 5,782 -26.0 11.1 Biocon 661 Neutral 12,586 29.9 12.0 2,983 63.7 25.3 1,357 90.6 23.7 Cadila Health 393 Buy 30,409 -6.0 5.1 6,994 -18.4 8.4 4,190 -16.7 -9.0 Cipla 654 Neutral 44,722 9.5 13.5 8,810 9.5 21.3 4,602 8.9 36.8 Divis Labs 1,313 Neutral 10,682 20.0 7.3 3,835 38.3 9.0 2,788 34.8 13.5 Dr Reddy’ s Labs 2,488 Neutral 38,369 8.2 3.1 7,021 5.8 -7.3 3,195 12.2 -29.9 Glenmark Pharma 626 Neutral 25,084 12.8 17.8 4,089 15.1 31.6 2,204 2.9 52.8 Granules India 98 Buy 4,711 20.0 3.9 848 10.2 16.8 346 -2.6 -7.0 GSK Pharma 1,467 Neutral 8,864 6.0 20.5 1,906 -0.8 35.8 1,313 4.9 35.6 IPCA Labs. 655 Buy 9,602 11.1 12.4 1,695 13.8 23.7 996 3.1 12.5 Jubilant Life 697 Buy 20,913 27.4 0.6 4,517 47.6 3.2 2,246 75.2 12.1 Laurus Labs 428 Buy 5,872 9.0 8.9 985 -12.5 22.3 331 -32.0 100.6 Lupin 898 Buy 40,896 3.5 6.1 6,257 -26.7 18.7 2,512 -44.8 23.9 Sanofi India 6,188 Buy 7,468 11.9 9.2 1,714 -6.7 4.2 1,082 -6.9 8.7 Shilpa Medicare 405 Buy 2,101 3.0 6.0 485 -14.3 -11.3 385 16.8 14.5 Strides Pharma 447 Buy 6,617 -14.0 -0.3 913 -8.4 13.0 180 -27.0 LP Sun Pharma 622 Buy 75,512 14.6 5.8 16,386 24.6 7.7 10,898 19.5 10.9 Torrent Pharma 1,649 Neutral 19,155 34.0 2.3 4,902 49.0 2.8 1,798 -11.9 10.3 Sector Aggregate

440,568 8.9 7.0 89,347 2.1 11.3 50,108 -4.3 10.8


Company name

Alembic Pharma Ajanta Pharma Alkem Lab Aurobindo Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Fortis Health Glenmark Pharma GSK Pharma IPCA Labs. Jubilant Life Lupin Sanofi India Shilpa Medicare Strides Pharma Sun Pharma Torrent Pharma

Healthcare


Research Analyst Tushar Manudhane [email protected] +91 22 6129 1536; Kumar Saurabh ([email protected]) +91 22 6129 1519 Rajat Srivastava [email protected] +91 22 6129 1557; Ankeet Pandya [email protected]+91 22 6129 1552

October 2018 169

Exhibit 2: 2QFY19 Aggregates Healthcare Universe YoY Growth (%) EBITDA Margin (%) PAT margin (%) Sales EBITDA Adj. PAT Sep-18 Sep-17 CHG (BPS) Sep-18 Sep-17 CHG (BPS) MNC Pharma 8.6 -3.7 -0.8 22.2 25.0 -283 14.7 16.1 -139 Big 5 Generics 5.9 -4.4 -9.5 19.9 22.1 -216 11.5 13.5 -197 CRAMS 9.7 12.5 12.9 33.1 32.2 84 24.4 23.7 71 Second Tier generics 12.2 9.1 -1.0 19.6 20.2 -57 10.0 11.4 -134 Sector Aggregate 8.9 2.1 -4.3 20.3 21.3 -136 11.4 12.9 -157

Currency depreciation to have positive impact on P&L During the quarter, there has been a depreciation of ~10% (from 64.3 in 2QFY18 v/s 70.2 in 2QFY19) in the INR against the USD—exports to regulated markets should see some positive benefit. Extent of hedging, raw material imports and foreign currency servicing would decide the quantum of benefits. Currency depreciation adversely impacts companies having foreign currency borrowings. This will; however, vary depending on the hedging policy of the respective companies.

Exhibit 3: 63 ANDA approved for companies under coverage

Exhibit 4: We expect 3% YoY growth in aggregate US sales for the quarter




16 13

9

4 4 4 3 2 2 2 1 1 1 1

CDH

ARBP

CIPL

A

AJP

LPC

TRP

DRRD

GNP

PEN

L

SUN

P

ALKE

M

GRAN

LAU

RUS

STR

Anda Approvals 2QFY19

5.4 7.5

(13.3) (17.6) (14.2)

(14.3)

(0.4) 1.8 3.1

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E

US sales growth (%)

94

100

106

112

118

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Health care Index

94

102

110

118

126

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18Sensex Index MOSL Health care Index

September 2018 Results Preview | Sector:Healthcare

October 2018 170

Exhibit 7: Comparative valuation Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Healthcare (INR)


Alembic Pharma 623 Neutral 21.9 25.1 28.2 28.4 24.8 22.1 17.1 16.3 14.3 19.6 19.4 18.7 Alkem Lab 2,047 Buy 58.9 74.0 98.6 34.8 27.7 20.8 22.2 18.4 14.1 15.1 17.0 19.6 Ajanta Pharma 1,040 Buy 53.0 51.5 65.0 19.6 20.2 16.0 18.3 14.3 11.4 26.0 20.4 21.5 Aurobindo Pharma 770 Buy 42.7 44.2 59.1 18.0 17.4 13.0 9.4 11.7 8.8 23.8 20.1 22.0 Biocon 661 Neutral 6.2 10.6 20.9 106.4 62.2 31.6 42.9 29.9 18.6 7.4 11.8 20.6 Cadila Health 393 Buy 17.5 18.0 19.6 22.4 21.9 20.1 14.9 14.4 13.0 22.1 19.5 18.5 Cipla 654 Neutral 20.3 23.2 30.2 32.1 28.1 21.7 16.6 15.3 12.6 11.5 11.7 13.4 Divis Labs 1,313 Neutral 33.0 43.3 52.6 39.7 30.3 25.0 21.4 20.7 17.1 15.5 18.6 20.5 Dr Reddy’ s Labs 2,488 Neutral 64.7 99.3 120.5 38.5 25.1 20.7 15.9 13.3 10.9 8.6 12.5 13.6 Glenmark Pharma 626 Neutral 28.5 29.7 35.6 22.0 21.1 17.6 12.2 13.6 11.4 15.6 14.0 14.6 Granules India 98 Buy 5.7 6.8 8.7 17.3 14.4 11.3 11.9 8.2 6.7 12.2 12.7 15.0 GSK Pharma 1,467 Neutral 19.7 30.7 34.7 74.6 47.8 42.3 32.4 34.6 29.8 16.2 27.5 32.8 IPCA Labs. 655 Buy 19.0 28.4 38.3 34.5 23.1 17.1 18.9 13.3 10.3 9.3 12.7 15.2 Jubilant Life 697 Buy 45.6 63.0 73.3 15.3 11.1 9.5 10.9 7.4 6.1 18.9 21.6 20.7 Laurus Labs 428 Buy 15.8 21.1 31.2 27.0 20.3 13.7 15.2 11.3 8.6 11.9 14.0 17.7 Lupin 898 Buy 32.0 29.2 45.1 28.1 30.8 19.9 12.4 15.6 10.6 10.7 9.4 13.4 Sanofi India 6,188 Buy 141.7 166.8 191.6 43.7 37.1 32.3 20.8 20.2 17.4 16.1 17.2 17.8 Sun Pharma 622 Buy 13.5 18.6 26.3 46.2 33.4 23.6 22.3 20.2 14.7 8.7 11.4 14.6 Shilpa Medicare 405 Buy 12.8 21.2 26.9 31.5 19.1 15.1 24.0 15.1 12.7 10.3 14.4 15.7 Strides Pharma 447 Buy 11.3 12.2 23.4 39.7 36.6 19.1 19.8 13.0 10.5 3.9 4.4 8.0 Torrent Pharma 1,649 Neutral 53.7 48.1 65.0 30.7 34.3 25.4 19.3 16.1 13.5 20.3 16.2 18.9 Sector Aggregate

33.1 27.7 21.0 17.2 16.3 12.7 12.6 13.5 15.7

October 2018 171

Consolidated - Quarterly Earning Model

Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 4,731 5,404 5,870 5,303 5,110 5,004 5,658 5,747 21,308 21,518 YoY Change (%) -0.6 4.8 10.1 11.2 8.0 -7.4 -3.6 8.4 6.5 1.0 Total Expenditure 3,424 3,567 3,896 3,908 3,535 3,653 4,096 4,194 14,794 15,478 EBITDA 1,307 1,837 1,975 1,395 1,575 1,351 1,562 1,553 6,514 6,040 Margins (%) 27.6 34.0 33.6 26.3 30.8 27.0 27.6 27.0 30.6 28.1 Depreciation 134 146 150 166 172 155 158 149 596 634 Interest 1 1 1 1 2 0 0 0 4 2 Other Income 48 92 152 52 81 100 80 105 343 366 PBT before EO expense 1,219 1,783 1,975 1,280 1,483 1,296 1,484 1,508 6,258 5,770 Extra-Ord expense 32 0 0 0 0 0 0 0 32 0 PBT 1,187 1,783 1,975 1,280 1,483 1,296 1,484 1,508 6,226 5,770 Tax 239 464 501 335 425 259 274 253 1,539 1,212 Rate (%) 20.1 26.0 25.3 26.2 28.7 20.0 18.5 16.8 24.7 21.0 Minority Interest & P/L of Asso. Cos. 0 0 0 0 0 0 0 0 0 0 Reported PAT 948 1,319 1,475 945 1,058 1,037 1,209 1,255 4,687 4,559 Adj PAT 980 1,319 1,475 945 1,058 1,037 1,209 1,255 4,718 4,559 YoY Change (%) -18.0 0.9 3.4 -22.5 7.9 -21.4 -18.0 32.8 -8.3 -3.4 Margins (%) 20.7 24.4 25.1 17.8 20.7 20.7 21.4 21.8 22.1 21.2

September 2018 Results Preview | Sector:Healthcare Ajanta Pharma

CMP: INR1,040 TP:INR1,560 (+50%) Buy We expect Ajanta Pharma (AJP) sales to decline 7% YoY to INR5b,

largely due to a significant slowdown in Africa Insti-Anti Malaria business. Overall, we expect its Africa business to decline 36% YoY due to lower supply of Inst-Anti Malaria drugs. The Global Fund is yet to procure drugs from companies, which were selected under the tender mode for this business.

We expect this decline to be offset by moderate growth of 12% YoY in the branded generics business of Africa.

The domestic formulation business is expected to grow at a moderate 5% YoY to INR1.8b on a high base of 2QFY18.

Growth momentum is expected to continue in the Asia business at 35% YoY to INR1.4b on account of a low base, increased traction in the existing molecules and new product launches.

On an overall basis, we expect EBITDA margin to come in at 27% and PAT at INR1b for 2QFY19.

The stock trades at 20x FY19E EPS. We maintain Buy, with a target price of INR1,560 (24x 12M forward earnings).

Key issues to watch out Commencement of anti-malaria medicine supply to Global Fund. ANDA Filing rate, new approval and traction from recently

launched products in the US market.

Bloomberg AJP IN Equity Shares (m) 88.5 M. Cap. (INR b)/(USD b) 92 / 1



Y/E MARCH 2017 2018 2019E 2020E

Sales 20.0 21.3 21.5 26.2

EBITDA 6.9 6.6 6.0 7.5 NP 5.1 4.7 4.6 5.8 EPS (INR) 57.3 53.0 51.5 65.0

EPS Gro. (%) 21.9 -7.5 -2.7 26.2 BV/Sh. (INR) 177.2 230.8 274.7 329.9 RoE (%) 36.7 26.0 20.4 21.5


P/BV (x) 5.9 4.5 3.8 3.2 EV/EBITDA (x) 13.3 13.8 14.7 11.6 EV/Sales (x) 4.6 4.3 4.1 3.3 Dividend Yield (%)

1.2 0.0 0.7 0.9

October 2018 172

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 6,482 7,893 8,400 8,533 8,625 9,113 9,484 9,047 31,310 36,269 YoY Change (%) -10.8 -9.4 9.1 15.8 33.1 15.5 12.9 6.0 -0.1 15.8 Total Expenditure 5,468 6,101 6,525 6,801 7,115 7,472 7,492 6,644 24,877 28,724 EBITDA 1,014 1,792 1,875 1,732 1,510 1,640 1,992 2,403 6,433 7,546 Margins (%) 15.6 22.7 22.3 20.3 17.5 18.0 21.0 26.6 20.5 20.8 Depreciation 218 257 264 316 276 300 304 336 1,055 1,217 Interest 9 4 8 13 16 22 52 119 34 209 Other Income 2 77 3 6 1 23 23 44 70 91 PBT before EO expense 789 1,608 1,606 1,410 1,219 1,341 1,658 1,992 5,415 6,211 Extra-Ord expense 0 0.0 0 0 0 0.0 0 0 0 0 PBT 789 1,608 1,606 1,410 1,219 1,341 1,658 1,992 5,415 6,211 Tax 155 366 298 385 315 295 365 399 1,204 1,375 Rate (%) 19.6 22.7 18.5 27.3 25.9 22.0 22.0 20.0 22.2 22.1 MI & P/L of Asso. Cos. -33 27 3 87 -1 21 21 42 83 83 Adj PAT 667 1,216 1,306 938 905 1,025 1,272 1,550 4,128 4,753 YoY Change (%) -34.6 2.4 51.6 0.8 35.7 -15.7 -2.6 65.3 2.5 15.1 Margins (%) 10.3 15.4 15.5 11.0 10.5 11.3 13.4 17.1 13.2 13.1 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Alembic Pharma

CMP: INR623 TP:INR540 (-13%) Neutral In 2QFY19, we expect Alembic Pharma (ALPM) to report healthy

~16% YoY growth in sales to INR9.1b, led by both international segment and the API segment. International business is expected to grow ~29% YoY to INR3.4b. India business should report muted growth of ~3% YoY to INR4b due to high base of 2QFY18. (Inventory re-stocking post GST implementation led to higher YoY growth in 2QFY18).

EBITDA is likely to decline by ~8% YoY to INR1.6b, primarily due to higher R&D spends and increased other operating expenses.

We expect PAT to decline by ~16% YoY to INR1b. Given that recent investments in oncology, derma and opthal

filings are expected to fetch returns only from FY20 and beyond, high R&D expense, depreciation and pricing pressure in the US should keep growth under check in the near-term. Maintain Neutral with a TP of INR540 (18x 12-month forward EPS of INR30).

Key issues to watch out for Contribution of chronic portfolio and growth strategy Performance of US operations amid market pressure Outlook for FY19E and future ANDA launches/filings

Bloomberg ALPM IN Equity Shares (m) 188.5

M. Cap. (INR b)/(USD b) 117 / 2 52-Week Range (INR) 664 / 412 1,6,12 Rel Perf. (%) 10 / 7 / 9


Y/E MARCH 2017 2018 2019E 2020E

Sales 31.3 31.3 36.3 40.8

EBITDA 6.1 6.4 7.5 8.6

NP 4.0 4.0 4.7 5.2

EPS (INR) 21.4 21.9 25.1 28.2

EPS Gro. (%) -43.7 2.5 14.7 12.2

BV/Sh. (INR) 100.8 117.8 136.9 159.0

RoE (%) 22.8 19.6 19.4 18.7

RoCE (%) 22.1 17.3 16.1 21.2

Valuations

P/E (x) 29.1 28.4 24.8 22.1 P/BV (x) 6.2 5.3 4.6 3.9

EV/EBITDA (x) 15.3 15.7 13.3 11.7

EV/Sales (x) 3.0 3.2 2.8 2.5

October 2018 173

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues 12,952 18,649 17,405 15,132 16,695 17,549 18,679 19,206 64,312 72,128 YoY Change (%) -12.5 13.8 17.4 20.9 28.9 -5.9 7.3 26.9 9.9 12.2 EBITDA 944 4,605 3,598 1,420 2,142 2,720 3,456 4,283 10,566 12,601 Margins (%) 7.3 24.7 20.7 9.4 12.8 15.5 18.5 22.3 16.4 17.5 Depreciation 306 346 375 403 425 420 425 430 1,430 1,699 Net Other Income 169 62 101 74 0 -3 -3 -6 406 -12 PBT before EO Exp 807 4,321 3,324 1,091 1,718 2,297 3,028 3,848 9,542 10,891 PBT 807 4,321 3,324 1,091 1,718 2,297 3,028 3,848 9,542 10,891 Tax 169 1,046 1,515 145 345 436 575 604 2,876 1,960 Rate (%) 20.9 24.2 45.6 13.3 20.1 19.0 19.0 15.7 30.1 18.0 PAT (pre Minority Interest) 638 3,274 1,809 946 1,373 1,861 2,453 3,244 6,667 8,931 Minority Interest -78 68 92 -8 11 21 21 31 75 85 Reported PAT 716 3,207 1,716 671 1,362 1,840 2,432 3,213 6,309 8,846 Adj Net Profit 716 3,207 2,164 953 1,362 1,840 2,432 3,213 7,040 8,846 YoY Change (%) -70.0 13.4 -7.3 -30.4 90.3 -42.6 12.3 237.1 -21.1 25.7

September 2018 Results Preview | Sector: Healthcare Alkem Labs

CMP: INR2,047 TP: INR2,475 (+21%) Buy We expect Alkem to post a revenue decline of ~6% YoY to

INR17.5b, largely on account of 10% YoY contraction in domestic formulations (71% of total sales). International business is expected to grow 20% YoY, with the US business (+35% YoY; INR4.1b) expected to continue reporting strong growth.

Higher employee cost, R&D spends and low base of past year is expected to result in 920 bp YoY contraction in EBITDA margin. Absolute EBITDA is expected to decline by ~41% YoY to INR2.7b.

With lower margins and decline in sales, PAT is expected to decline by ~43% YoY to INR1.8b.

We maintain Buy with a target price of INR2,475 (24x 12M forward earnings). We remain positive on ALKEM due to: (a) new launches in the US business, (b) sustained outperformance in the domestic formulations business, and (c) gradual increase in the share of its chronic portfolio, which should enable improvement in profitability and strong earnings CAGR (>25% over FY18-20).

Key issues to watch out for Outlook on future ANDA launches/filings Pick-up in chronic business Product launches in domestic formulation segment

Bloomberg ALKEM IN


M. Cap. (INR b)/(USD b) 245 / 3

52-Week Range (INR) 2468 / 1742

1,6,12 Rel Perf. (%) 0 / -1 / -4


Y/E March 2017 2018 2019E 2020E

Sales 58.5 64.3 72.1 82.8

EBITDA 10.0 10.6 12.6 16.0

NP 8.9 7.0 8.8 11.8

EPS (INR) 74.6 58.9 74.0 98.6

EPS Gro. (%) 6.0 -21.1 25.7 33.2

BV/Sh. (INR) 373.7 406.8 464.2 540.6

RoE (%) 21.9 15.1 17.0 19.6

RoCE (%) 20.1 13.0 18.9 21.8

Valuations

P/E (x) 27.4 34.8 27.7 20.8

P/BV (x) 5.5 5.0 4.4 3.8

EV/EBITDA (x) 24.8 23.5 18.8 14.4

October 2018 174

Quarterly Performance Consolidated (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 36,788 44,359 43,361 40,491 42,503 45,340 48,024 47,393 164,998 183,259 YoY Change (%) -2.3 17.5 11.0 11.2 15.5 2.2 10.8 17.0 9.3 11.1 EBITDA 8,416 11,173 10,256 8,040 7,792 9,295 11,045 12,185 37,885 40,317 Margins (%) 22.9 25.2 23.7 19.9 18.3 20.5 23.0 25.7 23.0 22.0 Depreciation 1,312 1,321 1,381 1,566 1,545 1,550 1,550 1,541 5,580 6,186 Interest 169 173 189 247 295 280 214 76 777 865 Other Income 221 103 258 438 437 125 125 113 1,020 800 PBT before EO expense 7,156 9,782 8,944 6,665 6,389 7,590 9,406 10,681 32,548 34,066 Extra-Ord expense 77 4 -73 159 682 0 0 0 168 682 PBT 7,080 9,778 9,017 6,506 5,707 7,590 9,406 10,681 32,380 33,384 Tax 1,910 1,980 3,069 1,224 1,155 1,822 2,399 2,800 8,183 8,176 Rate (%) 27.0 20.2 34.0 18.8 20.2 24.0 25.5 26.2 25.3 24.5 Minority Interest -15 -13 -3 -3 -3 -14 -14 -24 -34 -55 Reported PAT 5,185 7,812 5,950 5,285 4,555 5,782 7,022 7,905 24,231 25,263 Adj PAT 5,241 7,815 6,566 5,414 5,203 5,782 7,022 7,905 25,021 25,723 YoY Change (%) -9.7 32.0 2.9 -2.7 -0.4 -26.1 6.8 45.6 10.9 2.8 Margins (%) 14.2 17.6 15.1 13.4 12.2 12.7 14.6 16.6 15.2 14.0 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Aurobindo Pharma

CMP: INR770 TP:INR910 (+18%) Buy We expect Aurobindo (ARBP) to post muted growth of 2% YoY to

INR45.3b in 2QFY19. Slowdown in growth is primarily due to higher sales of g-Renvela in 2QFY18.

We expect the US business (~56% of formulation sales) to remain flat YoY to INR21b. Europe and rest-of-the-world (RoW) sales are expected to grow 9% YoY, while active pharmaceutical ingredient (API) sales are estimated to remain muted.

EBITDA margin is expected to contract by ~470 bp YoY to 20.5% (higher margin in 2QFY18 on back of higher g-Renvela sales). Absolute EBITDA is expected to decline by ~17% YoY to INR9.3b.

We expect PAT to decline by ~26% YoY to INR5.8b on back of muted revenue growth and margin contraction.

We remain positive on the stock due to its strong growth in the US, despite a high base. Robust pace of approvals (49 in FY18), a strong ANDA pipeline (112) pending for approval, consistency in regulatory compliance, and an improving EU business operating margin (on increased manufacturing from India facilities) are the key drivers for ARBP’s growth in its focus markets. Re-iterate Buy with TP of INR910 (12- month forward P/E multiple of 15x).

Key issues to watch out for Debt reduction during the quarter Outlook on the US business (35-40 launches expected over next

12 months) Growth outlook for next 12-18 months

Bloomberg ARBP IN


M. Cap. (INR b)/(USD b) 451 / 6


1,6,12 Rel Perf. (%) 17 / 22 / -6


Y/E March 2017 2018 2019E 2020E

Sales 150.9 165.0 183.3 251.9

EBITDA 34.3 37.9 40.3 56.2

NP 23.0 25.0 25.9 34.6

EPS (INR) 39.3 42.7 44.2 59.1

EPS Gro. (%) 13.5 8.7 3.5 33.8

BV/Sh. (INR) 160.0 199.4 240.0 296.6

RoE (%) 27.6 23.8 20.1 22.0

RoCE (%) 19.0 17.4 15.3 15.9

Valuations

P/E (x) 19.6 18.0 17.4 13.0

P/BV (x) 4.8 3.9 3.2 2.6

EV/EBITDA(x) 12.1 11.2 10.3 7.8

EV/Sales (x) 2.8 2.6 2.3 1.7

October 2018 175

Quarterly Performance Consolidated (INR Million) Y/E March FY18 FY19E FY18 FY19E


Net Sales 9,337 9,686 10,579 11,700 11,240 12,586 14,053 16,008 41,297 53,887 YoY Change (%) -5.9 1.5 1.3 25.7 20.4 29.9 32.8 36.8 5.3 30.5 Total Expenditure 7,416 7,864 8,362 9,370 8,860 9,603 10,667 11,527 33,006 40,656 EBITDA 1,921 1,822 2,217 2,330 2,380 2,983 3,387 4,481 8,291 13,231 Margins (%) 20.6 18.8 21.0 19.9 21.2 23.7 24.1 28.0 20.1 24.6 Depreciation 988 936 974 950 990 1,250 1,350 1,453 3,851 5,043 Interest 161 138 147 170 180 175 178 174 615 707 Other Income 540 508 339 670 690 580 530 400 2,062 2,200 PBT 1,312 1,256 1,435 1,880 1,900 2,138 2,389 3,254 5,887 9,681 Tax 376 425 361 410 520 571 633 696 1,569 2,420 Rate (%) 28.7 33.8 25.2 21.8 27.4 26.7 26.5 21.4 26.7 25.0 Minority Interest 123 144 155 170 180 210 250 248 594 888 PAT 813 687 919 1,300 1,200 1,357 1,506 2,310 3,724 6,373 Adj PAT 815 712 1,022 1,142 1,097 1,357 1,506 2,310 3,690 6,270 YoY Change (%) -44.4 -51.5 -40.4 -10.1 34.6 90.6 47.4 102.4 -38.1 69.9 Margins (%) 8.7 7.1 8.7 11.1 10.7 10.8 10.7 14.4 9.0 11.8 E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements

September 2018 Results Preview | Sector: Healthcare

Biocon

CMP: INR661 TP: INR625 (-5%) Neutral Biocon (BIOS) is likely to report robust revenue growth of ~30%

YoY to INR12.6b on strong ~80% YoY growth in Biologics, followed by 20% YoY growth in Small Molecules. Branded formulation is expected to grow 17% YoY, while Research Services is likely to grow 15% YoY.

With increased share of higher margin products, EBITDA margin is expected to expand ~490 bp YoY to 23.7%. EBITDA is likely to grow ~64% YoY to INR2.98b, led by strong sales growth and better margins.

We expect PAT of INR1.4b as against INR712m in 2QFY18. We remain positive on BIOS as it continues building a healthy

pipeline of biosimilars for the regulated markets. Moreover, these biosimilars are relatively complex in nature and provide a strong entry barrier, enabling the company to deliver better growth in revenue and profitability. We maintain Neutral given limited upside from current levels with TP of INR625 (30x 12-month forward earnings).

Key issues to watch out for Outlook on traction in biosimilars in regulated market Update on BIOS plans to list biologics business separately Growth outlook for FY19E

Bloomberg BIOS IN


M. Cap. (INR b)/(USD b) 396 / 5


1,6,12 Rel Perf. (%) 14 / 1 / 82


Y/E March 2017 2018 2019E 2020E

Sales 39.2 41.3 53.9 74.6

EBITDA 9.8 8.3 13.2 21.0

NP 6.0 3.7 6.3 12.5

EPS (INR) 10.2 6.2 10.6 20.9

EPS Gro. (%) 31.8 -39.2 71.1 96.5

BV/Sh. (INR) 80.6 86.3 93.9 108.6

RoE (%) 13.4 7.4 11.8 20.6

RoCE (%) 9.4 6.2 9.7 15.5

Valuations

P/E (x) 64.7 106.4 62.2 31.6

P/BV (x) 8.2 7.6 7.0 6.1

EV/EBITDA (x) 40.4 47.7 29.9 18.6

EV/Sales (x) 10.1 9.6 7.3 5.2

October 2018 176

Quarterly Performance (Consolidated) (INR Million)


1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues 21,973 32,340 32,475 32,502 28,937 30,409 33,320 31,545 119,364 124,211 YoY Change (%) -3.9 37.4 40.5 31.2 31.7 -6.0 2.6 -2.9 26.6 4.1 EBITDA 2,773 8,571 8,433 8,704 6,450 6,994 7,997 7,749 28,475 29,190 Margins (%) 12.6 26.5 26.0 26.8 22.3 23.0 24.0 24.6 23.9 23.5 Depreciation 1,220 1,267 1,469 1,440 1,418 1,479 1,479 1,541 5,388 5,917 Interest 219 406 134 154 350 355 325 303 911 1,333 Other Income 210 225 410 287 1,013 257 257 188 1,132 1,716 PBQ before EO Income 1,544 7,123 7,240 7,397 5,695 5,417 6,450 6,093 23,308 23,655 EO Exp/(Inc) 0 0 0 0 0 0 0 0 0 0 PBT after EO Income 1,544 7,123 7,240 7,397 5,695 5,417 6,450 6,093 23,308 23,655 Tax 293 2,123 1,786 1,442 1,203 1,300 1,548 1,508 5,644 5,559 Rate (%) 19.0 29.8 24.7 19.5 21.1 24.0 24.0 24.7 24.2 23.5 Min. Int/Adj on Consol 133 33 4 112 113 73 73 33 282 293 Adj PAT 1,384 5,033 5,458 6,067 4,605 4,190 4,975 4,618 17,946 18,389 YoY Change (%) -61.2 49.1 93.8 57.4 232.7 -16.7 -8.8 -23.9 20.6 2.5 Margins (%) 6.3 15.6 16.8 18.7 15.9 13.8 14.9 14.6 15.0 14.8 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Cadila Healthcare

CMP: INR393 TP:INR440 (+12%) Buy Cadila Healthcare's (CDH) 2QFY19 revenue is expected to decline

by ~6% YoY to INR30.4b. Decline in revenues is primarily due to lower US sales (-17.3% YoY), as 2QFY18 revenues included exclusive g-Lialda sales.

Overall export formulations business is expected to decline by ~13% YoY to INR16.5b, while domestic formulations business is likely to increase by 8% YoY to INR9.7b.

Margins are expected to decline by ~350 bp to 23% on lower share of higher margin products. This should lead to a decline in EBITDA by ~18% YoY to INR6.99b. Adjusted PAT is also likely to decline ~17% YoY to INR4.2b.

We continue valuing CDH at a P/E multiple of 22x on 12-month forward earnings, which is at a 10% discount to the three-year average – this is to factor in a moderation in India business growth. We are positive on CDH, given its strong launch momentum in the US market and consistency in regulatory compliance. Maintain Buy with TP of INR440.

Key issues to watch out for Strategies for better-than-industry growth in domestic

formulation segment Update on growth in US business post competition in existing

potential molecules

Bloomberg CDH IN Equity Shares (m) 1023.7

M. Cap. (INR b)/(USD b) 402 / 5 52-Week Range (INR) 515 / 333 1,6,12 Rel Perf. (%) 4 / -8 / -32


Y/E MARCH 2017 2018 2019E 2020E

Sales 94.3 119.4 124.2 138.9 EBITDA 19.0 28.5 29.2 32.6 NP 14.9 17.9 18.4 20.0

EPS (INR) 14.5 17.5 18.0 19.6 EPS Gro. (%) -5.8 20.6 2.5 8.9 BV/Sh. (INR) 68.0 85.4 98.4 112.9

RoE (%) 23.0 22.1 19.5 18.5 RoCE (%) 15.2 14.0 13.0 13.2 Valuations


EV/Sales (x) 4.6 3.7 3.4 3.1

September 2018 Results Preview | Sector: Healthcare Cadila Healthcare

Bloomberg CDH IN Equity Shares (m) 1023.7

M. Cap. (INR b)/(USD b) 402 / 5 52-Week Range (INR) 515 / 333 1,6,12 Rel Perf. (%) 4 / -8 / -32


Y/E MARCH 2017 2018 2019E 2020E

Sales 94.3 119.4 124.2 138.9 EBITDA 19.0 28.5 29.2 32.6 NP 14.9 17.9 18.4 20.0

EPS (INR) 14.5 17.5 18.0 19.6 EPS Gro. (%) -5.8 20.6 2.5 8.9 BV/Sh. (INR) 68.0 85.4 98.4 112.9



EV/Sales (x) 4.6 3.7 3.4 3.1

October 2018 177

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues 35,251 40,824 39,139 36,980 39,390 44,722 45,233 43,253 152,200 172,598 YoY Change (%) -3.4 8.8 7.3 3.2 11.7 9.5 15.6 17.0 4.3 13.4 EBITDA 6,465 8,044 8,187 5,569 7,264 8,810 9,635 10,019 28,271 35,728 Margins (%) 18.3 19.7 20.9 15.1 18.4 19.7 21.3 23.2 18.6 20.7 Depreciation 2,134 3,022 5,224 2,848 2,410 2,630 2,720 2,820 13,228 10,580 Interest 279 420 92 352 351 256 256 161 1,142 1,024 Other Income 1,514 1,133 529 400 551 500 500 599 3,577 2,150 Profit before Tax 5,566 5,735 3,402 2,769 5,054 6,424 7,158 7,637 17,477 26,274 Extra-Ord (expense)/income 0 0 0 775 1,150 0 0 0 775 1,150 PBT after EO expense 5,566 5,735 3,402 1,994 6,204 6,424 7,158 7,637 16,702 27,424 Tax 1,308 1,374 -642 462 1,737 1,702 1,861 1,829 2,501 7,130 Rate (%) 23.5 24.0 -18.9 16.7 34.4 26.5 26.0 24.0 14.3 27.1 Minority Interest 169.6 134.7 38.1 -254.2 -45.7 120.0 120.0 285.7 88.2 480.0 Reported PAT 4,088 4,226 4,006 1,786 4,513 4,602 5,177 5,522 14,113 19,814 Adj PAT 4,088 4,226 4,677 3,336 3,363 4,602 5,177 5,522 16,335 18,664 YoY Change (%) 20.6 19.3 24.8 64.2 -17.7 8.9 10.7 65.5 31.2 14.3 Margins (%) 11.6 10.4 12.0 9.0 8.5 10.3 11.4 12.8 10.7 10.8 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Cipla

CMP: INR654 TP: INR620 (-5%) Neutral We expect Cipla’s revenue to grow ~10% YoY to INR44.7b in

2QFY19. Export formulations business is expected to report healthy growth

of ~11% YoY, while domestic business is expected to report growth of ~8% YoY. Export API sales are expected to increase 10% YoY to INR2.3b.

EBITDA margin is expected to remain stable YoY. Absolute EBITDA is expected to increase by ~10% YoY to INR8.8b led by revenue growth.

We expect PAT to increase ~9% YoY to INR4.6b. CIPLA is well poised to deliver robust growth in the US on the back

of a pick-up in complex approvals/subsequent launches and a sustained outperformance in India sales. We maintain Neutral with TP of INR620 (19x 12-month forward earnings).

Key issues to watch out for Outlook on traction in complex ANDAs launched in the US

market Outlook on B2B business in the US market Number of product launches in domestic formulation segment

Bloomberg CIPLA IN


M. Cap. (INR b)/(USD b) 526 / 7


1,6,12 Rel Perf. (%) 8 / 6 / -2


Y/E MARCH 2017 2018 2019E 2020E

Sales 146.0 152.2 172.6 196.9

EBITDA 24.4 28.3 35.7 42.0

NP 12.4 16.3 18.7 24.2

EPS (INR) 15.5 20.3 23.2 30.2

EPS Gro. (%) -17.7 31.2 14.3 29.8

BV/Sh. (INR) 155.7 176.7 197.3 224.4

RoE (%) 9.9 11.5 11.7 13.4

RoCE (%) 7.9 8.6 9.9 11.7

Valuations

P/E (x) 42.2 32.1 28.1 21.7

P/BV (x) 4.2 3.7 3.3 2.9

EV/EBITDA (x) 22.9 19.7 15.3 12.6

EV/Sales (x) 3.8 3.7 3.2 2.7

October 2018 178


1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Op Revenue 8,212 8,902 10,379 10,880 9,953 10,682 11,417 12,118 39,128 44,170 YoY Change (%) -18.4 -10.2 8.1 2.3 21.2 20.0 10.0 11.4 -4.5 12.9 EBITDA 2,448 2,772 3,261 3,865 3,519 3,835 4,121 4,426 12,617 15,901 Margins (%) 29.8 31.1 31.4 35.5 35.4 35.9 36.1 36.5 32.2 36.0 Depreciation 323 339 374 388 416 460 480 504 1,425 1,860 Interest 5 8 3 -2 6 10 13 24 13 54 Other Income 297 336 170 482 218 280 305 327 1,134 1,130 PBT before EO Income 2,417 2,761 3,055 3,961 3,314 3,645 3,933 4,226 12,313 15,118 EO Income 0 0 0 0 270 0 0 0 0 270 PBT 2,417 2,761 3,055 3,961 3,584 3,645 3,933 4,226 12,313 15,388 Tax 652 693 808 1,345 923 857 944 970 3,543 3,693 Deferred Tax 0 0 0 0 0 0 0 0 0 0 Rate (%) 27.0 25.1 26.5 33.9 25.7 23.5 24.0 23.0 28.8 23.6 Adj PAT 1,765 2,068 2,247 2,616 2,456 2,788 2,989 3,256 8,770 11,489 YoY Change (%) -41.5 -31.8 -16.3 0.9 39.1 34.8 33.0 24.4 -17.3 31.0 Margins (%) 21.5 23.2 21.6 24.0 24.7 26.1 26.2 26.9 22.4 26.0 Reported PAT 1,765 2,068 2,247 2,616 2,662 2,788 2,989 3,256 8,770 11,695

E: MOSL Estimates; Quarterly numbers are standalone

September 2018 Results Preview | Sector: Healthcare Divi’s Laboratories

CMP: INR1,313 TP:INR1,270 (-3%) Neutral Divis Laboratories (DIVI) is likely to register robust revenue

growth of 20% YoY to INR10.7b in 2QFY19. Sales in 2QFY18 were largely impacted due to an import alert issued by the USFDA.

With the absence of remediation cost, margins are also expected to expand ~480 bp YoY to 35.9%, with ~38% YoY growth in EBITDA to INR3.8b.

PAT is expected to increase by ~35% YoY to INR2.8b on the back of better revenue growth and margin expansion.

We remain positive on DIVI’s as it is a strong play in the Contract Research and Manufacturing Services (CRAMS) business. With the resolution of its regulatory issues, we expect DIVI’s business to step back on the growth track. Also, with the reduction in its remediation-related costs, DIVI’s is all set to improve its profitability. We value DIVI at 23x 12-month forward EPS of INR55 to arrive at a price target of INR1,270.

The stock trades at ~25x FY20E earnings. Key issues to watch out Outlook on ramp-up of new facility Benefit from increased API prices on account of supply shortage

due to environment-led slowdown in production from Chinese companies

Bloomberg DIVI IN


M. Cap. (INR b)/(USD b) 348 / 5


1,6,12 Rel Perf. (%) 9 / 10 / 38


Y/E MARCH 2017 2018 2019E 2020E

Sales 41.0 39.1 44.2 50.8

EBITDA 14.3 12.6 15.9 19.0

NP 10.6 8.8 11.5 14.0

EPS (INR) 39.9 33.0 43.3 52.6

EPS Gro. (%) -5.8 -17.3 31.0 21.5

BV/Sh. (INR) 201.8 223.2 242.1 271.0

RoE (%) 22.0 15.5 18.6 20.5

RoCE (%) 21.8 15.4 18.5 20.4

Valuations

P/E (x) 32.9 39.7 30.3 25.0

P/BV (x) 6.5 5.9 5.4 4.8

EV/EBITDA (x) 24.3 27.6 21.9 18.1

EV/Sales (x) 8.5 8.9 7.9 6.8

October 2018 179

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Sales 33,159 35,460 38,060 35,349 37,207 38,369 42,627 38,806 142,028 157,009 YoY Change (%) 2.5 -1.1 2.7 -0.5 12.2 8.2 12.0 9.8 0.9 10.5 Total Expenditure 30,101 28,826 30,393 29,839 29,632 31,347 34,315 29,371 119,137 124,665 EBITDA 3,058 6,634 7,667 5,510 7,575 7,021 8,312 9,435 22,891 32,344 Margins (%) 9.2 18.7 20.1 15.6 20.4 18.3 19.5 24.3 16.1 20.6 Amortization 2,799 2,940 2,971 3,030 3,110 3,100 3,120 2,446 11,762 11,776 Other Income 513 182 1,249 1,268 542 228 228 115 3,212 1,114 Profit before Tax 772 3,876 5,945 3,748 5,007 4,150 5,421 7,104 14,340 21,681 Tax 181 1,027 2,601 726 446 954 1,518 2,285 4,535 5,204 Rate (%) 23.4 26.5 43.8 19.4 8.9 23.0 28.0 32.2 31.6 24.0 Reported PAT 591 2,849 3,344 3,022 4,561 3,195 3,903 4,819 9,805 16,477 Minority Interest 0 0 0 0 0 0 0 0 0 0 Adjusted PAT 591 2,849 4,274 3,022 4,561 3,195 3,903 4,819 10,735 16,477 YoY Change (%) -53.2 -12.2 -9.1 -3.3 671.7 12.2 -8.7 59.5 -13.0 53.5 Margins (%) 1.8 8.0 11.2 8.5 12.3 8.3 9.2 12.4 7.6 10.5 E - MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Dr Reddy’s Labs

CMP: INR2,488 TP: INR2,170 (-13%) Neutral Dr Reddy’s Laboratories is expected to report growth of ~8% YoY

in 2QFY19 revenue to INR38.4b. US business is likely to grow by ~9% YoY to INR15.5b on new

launches. Europe sales are expected to grow ~8% YoY to INR2.6b. India business should grow ~5% YoY to INR6.7b.

Margins are expected to remain flat during the quarter at 18.3% as we expect improved gross margin to get off-set by higher Selling, general and administrative expense (SG&A) spend. EBITDA is likely to grow ~6% YoY to INR7b.

PAT is expected to grow ~12% YoY to INR3.2b, higher than EBITDA, on back of lower tax rate at 23% v/s 26.5% in 2QFY18.

We maintain Neutral, with TP of INR2,170 @18x FY20E PER, due to limited upside from current levels. Regulatory issues and delayed launches are likely to remain an overhang for the stock over the medium-term.

Key issues to watch out for Update on resolution of USFDA warning letters for Srikakulam,

Duvvada and Miryalaguda API plants Update on data to be submitted related to g-Copaxone Update on litigation related to g-Suboxone

Bloomberg DRRD IN Equity Shares (m) 165.8

M. Cap. (INR b)/(USD b) 413 / 6 52-Week Range (INR) 2687 / 1888 1,6,12 Rel Perf. (%) 3 / 9 / -9


Y/E MARCH 2017 2018 2019E 2020E

Sales 140.8 142.0 157.0 178.9

EBITDA 24.2 22.9 32.3 38.5

NP 12.0 10.7 16.5 20.0

EPS (INR) 72.6 64.7 99.3 120.5

EPS Gro. (%) -45.1 -10.9 53.5 21.4

BV/Sh. (INR) 740 757 833 936

RoE (%) 9.7 8.6 12.5 13.6

RoCE (%) 6.4 4.8 9.1 10.3

Valuations

P/E (x) 34.3 38.5 25.1 20.7

P/BV (x) 3.4 3.3 3.0 2.7

EV/EBITDA (x) 17.9 18.9 13.3 10.9

EV/Sales (x) 3.1 3.0 2.7 2.3

October 2018 180

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Revenues (Core) 23,294 22,234 21,715 22,479 21,294 25,084 25,019 27,303 89,722 98,700 YoY Change (%) 22.0 2.3 -11.8 -7.3 -8.6 12.8 15.2 21.5 0.0 10.0 EBITDA 5,438 3,552 2,905 2,949 3,106 4,089 3,878 4,393 14,845 15,466 Margins (%) 23.3 16.0 13.4 13.1 14.6 16.3 15.5 16.1 16.5 15.7 Depreciation 777 752 754 735 794 790 781 759 3,019 3,123 Interest 709 698 705 744 790 750 740 680 2,856 2,961 Other Income 489 629 90 1,015 495 450 500 605 2,222 2,050 PBT before EO Expense 4,441 2,731 1,537 2,485 2,017 2,999 2,857 3,559 11,193 11,432 Extra-Ord Expense 0 0 0 0 -1,250 0 0 0 0 -1,250 PBT after EO Expense 4,441 2,731 1,537 2,485 3,267 2,999 2,857 3,559 11,193 12,682 Tax 1,108 589 489 968 937 795 760 932 3,155 3,424 Rate (%) 24.9 21.6 31.8 39.0 28.7 26.5 26.6 26.2 28.2 27.0 Reported PAT 3,334 2,141 1,047 1,516 2,330 2,204 2,097 2,627 8,039 9,258 Adj PAT (excl one-offs) 3,334 2,141 1,047 1,516 1,442 2,204 2,097 2,627 8,039 8,370 YoY Change (%) 47.0 -2.4 -78.0 -17.5 -56.7 2.9 100.2 73.2 -27.5 4.1 Margins (%) 14.3 9.6 4.8 6.7 6.8 8.8 8.4 9.6 9.0 8.5 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Glenmark Pharma

Bloomberg GNP IN


M. Cap. (INR b)/(USD b) 177 / 2


1,6,12 Rel Perf. (%) 1 / 6 / -10


Y/E MAR 2017 2018 2019E 2020E

Sales 89.7 89.7 98.7 110.8

EBITDA 18.2 14.8 15.5 18.3

NP 11.1 8.0 8.4 10.0

EPS (INR) 39.3 28.5 29.7 35.6

EPS Gro. (%) 58.0 -27.5 4.1 20.0

BV/Sh. (INR) 159.2 183.0 212.2 244.2

RoE (%) 24.7 15.6 14.0 14.6

RoCE (%) 19.1 14.4 15.6 15.5

Valuations

P/E (x) 15.9 22.0 21.1 17.6

P/BV (x) 3.9 3.4 2.9 2.6

EV/EBITDA (x) 11.8 14.1 13.6 11.4

EV/Sales (x) 2.4 2.3 2.1 1.9

CMP: INR626 TP: INR550 (-12%) Neutral We expect Glenmark Pharmaceuticals (GNP) to report healthy

growth of ~12.8% YoY to INR25.1b. This can be attributed to growth across geographies. US business is expected to increase by ~11% YoY, and Europe business is expected to exhibit 25% YoY growth. India branded business is likely to post decent growth of 10% YoY.

EBITDA margins are expected to remain largely flat (+30 bp YoY) to 16.3%. Absolute EBITDA is expected to grow by ~15% YoY to INR4.1b on back of revenue growth.

We expect PAT to grow at a lower rate than EBITDA (+~3% YoY) to INR2.2b, primarily due to lower other income and higher tax rate.

We maintain Neutral, with a TP of INR550. Any big in-licensing deal in innovation business could act as a positive catalyst.

Key issues to watch out for New ANDA filings in complex category Update on free-cash generation and debt repayment schedule Progress of NCE/NBE pipeline and potential out-licensing

prospects

October 2018 181


(Consolidated) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 3,860 3,926 4,107 5,038 4,532 4,711 4,847 5,651 16,918 19,740 YoY Change (%) 10.3 7.9 14.3 38.7 17.4 20.0 18.0 12.2 17.9 16.7 Total Expenditure 3,090 3,156 3,367 4,602 3,806 3,863 3,926 4,513 14,134 16,108 EBITDA 842 769 740 436 726 848 921 1,137 2,784 3,632 Margins (%) 21.8 19.6 18.0 8.7 16.0 18.0 19.0 20.1 16.5 18.4 Depreciation 176 186 196 204 245 250 300 302 762 1,098 Interest 82 104 82 62 65 100 175 250 331 590 Other Income 4 68 9 97 147 30 30 10 108 217 PBT before EO expense 515 547 471 267 563 528 475 596 1,800 2,162 Tax 177 193 169 95 191 182 166 196 634 735 Rate (%) 34.4 35.2 35.9 35.6 34.0 34.5 35.0 32.8 35.2 34.0 (Profit)/Loss of JV/Asso. Cos. -30 -49 -49 -32 -146 -60 -70 -24 -160 -300 PAT (Ex associate income) 338 355 302 172 372 346 309 401 1,166 1,427 Reported PAT 368 403 350 204 518 406 379 424 1,326 1,727 YoY Change (%) -5.5 -1.2 -10.1 -55.3 40.7 0.5 8.3 107.6 -19.4 30.2 Margins (%) 9.5 10.3 8.5 4.1 11.4 8.6 7.8 7.5 7.8 8.7 E: MOSL Estimates

September 2018 Results Preview | Sector: Healthcare Granules India

Bloomberg GRAN IN




1,6,12 Rel Perf. (%) -8 / -18 / -29


Y/E MAR 2017 2018 2019E 2020E

Sales 14.4 16.9 19.7 23.8

EBITDA 3.0 2.8 3.6 4.6

NP 1.7 1.4 1.7 2.2

EPS (INR) 7.2 5.7 6.8 8.7

EPS Gro. (%) 32.3 -21.8 20.2 28.0

BV/Sh. (INR) 39.5 51.4 55.5 60.3

RoE (%) 21.1 12.2 12.7 15.0

RoCE (%) 17.9 11.3 11.8 13.8

Valuations

P/E (x) 13.6 17.3 14.4 11.3

P/BV (x) 2.5 1.9 1.8 1.6

EV/EBITDA (x) 9.3 11.1 8.7 7.0

EV/Sales (x) 1.9 1.8 1.6 1.4

CMP: INR98 TP: INR130 (+33%) Buy We expect Granules India’s (GRAN) to post strong 20% YoY sales

growth in 2QFY19 to INR4.7b on the back of commercialization of new API and PFI facility.

EBITDA margin is likely to contract by ~160 bp YoY to 18%, primarily due to higher raw material costs. Absolute EBITDA is expected to increase by ~10% YoY to INR848m on back of revenue growth.

Although we expect growth in EBITDA, PAT is likely to remain flat (~+0.5% YoY) to INR406m. This is mainly due to higher depreciation (+34%) with the commissioning of the new facility.

We believe GRAN’s capex cycle is close to completion, and its efforts should start delivering hereon. Management expects margin recovery in coming quarters on ramp-up of new capacity utilization, passing on of high RM costs, and key launches in the US. Maintain Buy with a TP of INR130 (15x FY20E EPS).

Key issues to watch out for New ANDA filings in complex category Update on free-cash generation and debt repayment schedule Update on JV with Onmichem

October 2018 182

Quarterly performance (INR million) Y/E March FY18 FY19E FY18 FY19E (Standalone) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 6,071 8,363 7,039 7,486 7,357 8,864 7,743 9,087 28,957 33,051 YoY Change (%) -11.4 6.8 2.1 -1.9 21.2 6.0 10.0 21.4 -1.1 14.1 Total Expenditure 5,874 6,442 5,621 5,938 5,953 6,959 6,040 7,106 23,898 26,057 EBITDA 197 1,921 1,418 1,549 1,404 1,906 1,703 1,981 5,058 6,994 Margins (%) 3.2 23.0 20.1 20.7 19.1 21.5 22.0 21.8 17.5 21.2 Depreciation 75 77 134 94 114 120 125 142 380 501 Interest 0 0 0 2 2 0 0 0 2 2 Other Income 137 96 120 183 178 250 400 672 545 1,500 PBT before EO Expense 258 1,940 1,404 1,636 1,466 2,036 1,978 2,511 5,222 7,991 Tax 120 688 507 581 497 723 673 904 2,043 2,797 Rate (%) 46.6 35.5 36.1 35.5 33.9 35.5 34.0 36.0 36.2 35.0 Adjusted PAT 138 1,252 897 1,056 969 1,313 1,306 1,607 3,329 5,194 YoY Change (%) -80.4 26.8 155.7 21.5 603.0 4.9 45.6 52.2 14.4 56.0 Margins (%) 2.3 15.0 12.7 14.1 13.2 14.8 16.9 17.7 11.5 15.7 Extra-Ord Expense/(Income) -126 -52 0 0 83 0 0 0 -178 83 Reported PAT 264 1,303 897 1,056 886 1,313 1,306 1,607 3,507 5,111 E: MOSL Estimates: Quarterly - Standalone; Full Year - Consolidated


GSK Pharma

CMP: INR1,467 TP:INR1,444(-2%) Neutral In 2QFY19, we expect GlaxoSmithKline Pharmaceuticals (GLXO) to

report moderate growth of 6% YoY in revenue to INR8.9b. EBITDA margin is likely to contract by ~150 bp YoY to 21.5% on

low base of other expenses in 2QFY18. Absolute EBITDA is expected to decline by ~6% YoY to INR1.9b.

PAT is expected to grow by ~5% YoY to INR1.3b, despite decline in EBITDA due to higher other income for the quarter.

We believe GLXO has strong support from its parent, superior brand portfolio (competitive advantage), high payout ratio (>100%) and industry-leading return ratios. We maintain Neutral with a TP of INR1,444 (40x 12-month forward EPS of INR36).

Key issues to watch out for New product introductions in FY19E Market performance of products impacted by DPCO 2013

Bloomberg GLXO IN


M. Cap. (INR b)/(USD b) 248 / 3

52-Week Range (INR) 1812 / 1020

1,6,12 Rel Perf. (%) -9 / 28 / 4


Y/E MARCH 2017 2018 2019E 2020E

Sales 29.3 29.0 33.1 37.3

EBITDA 3.5 5.1 7.0 8.1

NP 2.9 3.3 5.2 5.9

EPS (INR) 17.2 19.7 30.7 34.7

EPS Gro. (%) -22.2 14.4 56.0 13.2

BV/Sh. (INR) 118.5 121.4 111.4 105.8

RoE (%) 14.5 16.2 27.5 32.8

RoCE (%) 13.9 16.4 26.3 32.0

Valuations

P/E (x) 85.4 74.6 47.8 42.3

P/BV (x) 12.4 12.1 13.2 13.9

EV/EBITDA (x) 69.2 46.6 34.6 29.8

EV/Sales (x) 8.2 8.1 7.3 6.5

October 2018 183

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues (Core) 7,130 8,643 8,592 7,828 8,539 9,602 9,429 9,017 32,836 36,587 YoY Change (%) -15.3 -0.9 16.1 17.6 19.8 11.1 9.7 15.2 2.3 11.4 EBITDA 172 1,490 1,612 1,099 1,370 1,695 1,660 1,604 4,547 6,330 Margins (%) 2.4 17.2 18.8 14.0 16.0 17.7 17.6 17.8 13.8 17.3 Depreciation 433 441 438 432 445 450 480 530 1,777 1,905 Interest 56 64 56 65 49 55 58 64 240 226 Other Income 62 110 110 114 136 120 95 79 418 430 PBT before EO Expense -255 1,096 1,228 717 1,012 1,310 1,217 1,089 2,948 4,628 Extra-Ord Expense -43 0 0 0 230 0 0 0 -43 230 PBT after EO Expense -212 1,096 1,228 717 782 1,310 1,217 1,089 2,991 4,398 Tax -10 130 172 204 127 314 304 296 511 1,041 Rate (%) 3.8 11.9 14.0 28.4 12.5 24.0 25.0 27.2 17.3 22.5 Reported PAT -202 966 1,056 513 655 996 913 793 2,480 3,357 Adj PAT -246 966 1,056 513 885 996 913 793 2,394 3,587 YoY Change (%) N/A 104.9 133.0 15.6 N/A 3.1 -13.5 54.6 22.3 35.4 Margins (%) -2.8 11.2 12.3 6.6 7.7 10.4 9.7 8.8 7.6 9.2 E: MOSL Estimates. Quarter - Standalone; Full year - Consolidated


Ipca Laboratories

Bloomberg IPCA IN




1,6,12 Rel Perf. (%) -7 / -11 / 18


Y/E MARCH 2017 2018 2019E 2020E

Sales 32.1 32.8 36.6 42.3

EBITDA 4.4 4.5 6.3 8.0

NP 2.0 2.4 3.6 4.8

EPS (INR) 16.1 19.0 28.4 38.3

EPS Gro. (%) 52.8 18.1 49.8 34.6

BV/Sh. (INR) 194.6 213.0 235.7 268.2

RoE (%) 8.6 9.3 12.7 15.2

RoCE (%) 7.5 8.6 11.3 13.6

Valuations

P/E (x) 40.8 34.5 23.1 17.1

P/BV (x) 3.4 3.1 2.8 2.4

EV/EBITDA (x) 21.3 20.4 14.4 11.2

EV/Sales (x) 2.9 2.8 2.5 2.1

CMP: INR655 TP:INR850 (30%) Buy We expect Ipca Laboratories’ (IPCA) revenue to grow ~11% YoY to

INR8.4b, largely led by ~16% growth in international formulation business and ~10% YoY growth in API business. Domestic formulation is expected to report muted growth of ~5% YoY.

Institutional business is expected to grow by ~127% YoY to INR500m (primarily on low base).

EBITDA margin is likely to increase by ~50 bp YoY to 17.7%, with EBITDA growing by ~14% YoY to INR1.7b.

IPCA is likely to report PAT growth of ~3% YoY to INR996m, lower growth than EBITDA, on back of higher tax rate at 24% v/s 11.9% in 2QFY18.

We remain positive on IPCA due to (a) the gradual revival in revenue growth, (b) stronger improvement in margins (~500 bp over two years) led by lower remediation cost, and (c) pick-up in the tender and US businesses (subject to resolution). We maintain Buy with a TP of INR850 @ 21x 12-month forward earnings.

Key issues to watch out for Update on resolution of USFDA regulatory issues Outlook for institutional tender business Impact of emerging market currency weakness

October 2018 184

Consolidated - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 15,961 16,420 20,678 22,520 20,787 20,913 22,165 24,066 75,578 87,931 YoY Change (%) 9.8 15.7 38.6 37.2 30.2 27.4 7.2 6.9 25.8 16.3 Total Expenditure 12,584 13,359 16,509 17,941 16,411 16,396 17,289 19,129 60,394 69,224 EBITDA 3,376 3,061 4,168 4,579 4,376 4,517 4,876 4,937 15,188 18,706 Margins (%) 21.2 18.6 20.2 20.3 21.1 21.6 22.0 20.5 20.1 21.3 Depreciation 725 790 818 907 880 900 910 926 3,240 3,616 Interest 687 660 771 725 727 680 500 435 2,843 2,342 Other Income 68 71 32 229 95 30 40 50 400 215 PBT before EO expense 2,032 1,682 2,612 3,176 2,864 2,967 3,506 3,625 9,505 12,961

Extra-Ord expense 0 0 0 910 0 0 0 0 910 0 PBT 2,032 1,682 2,612 2,266 2,864 2,967 3,506 3,625 8,595 12,961 Tax 595 427 483 742 860 743 840 798 2,247 3,241 Rate (%) 29.3 25.4 18.5 32.7 30.0 25.0 24.0 22.0 26.1 25.0 Minority Interest & P/L of Asso. Cos. -34 -27 3 -25 0 -22 -22 -44 -83 -88 Reported PAT 1,471 1,282 2,125 1,549 2,004 2,246 2,689 2,871 6,428 9,809 Adj PAT 1,471 1,282 2,125 2,221 2,004 2,246 2,689 2,871 7,100 9,809 YoY Change (%) -9.0 -11.4 80.0 49.0 36.2 75.2 26.5 29.3 23.3 38.2 Margins (%) 9.2 7.8 10.3 9.9 9.6 10.7 12.1 11.9 9.4 11.2

Bloomberg JUBILANT IN Equity Shares (m) 155.4 M. Cap. (INR b)/(USD b) 108 / 1



Y/E MARCH 2017 2018 2019E 2020E

Sales 58.6 75.6 85.8 95.9

EBITDA 13.5 15.2 18.7 21.0

NP 5.8 7.1 9.8 11.4

EPS (INR) 36.9 45.6 63.0 73.3

EPS Gro. (%) 46.9 23.3 38.2 16.4

BV/Sh. (INR) 220.5 262.3 320.0 387.2

RoE (%) 18.0 18.9 21.6 20.7

RoCE (%) 11.2 12.1 14.5 14.9

Valuations

P/E (x) 18.8 15.3 11.1 9.5

P/BV (x) 3.2 2.7 2.2 1.8

EV/EBITDA (x) 10.7 9.3 7.4 6.2

EV/Sales (x) 2.5 1.9 1.6 1.4

D. Yield (%) 0.4 0.5 0.8 0.9

CMP: INR697 TP:INR1,020 (+46%) Buy We expect Jubilant Life Sciences to deliver strong growth of 27%

YoY to INR21b on account of the addition of Triad business to the existing portfolio. We expect sales to be stable sequentially.

We expect pharmaceutical segment growth to be muted at 2.4% YOY with the ongoing pricing pressure in the US and zero ANDA approvals for the company during the quarter.

The Life Science Ingredients business is expected to have flattish sales on a sequential basis due to the current stabilization of pricing environment for key chemicals and intermediates.

We expect EBITDA margin at 21.6%, improving 300 bp YoY and a stable QoQ.

We expect PAT to be at INR2.2b, up 75% YoY for the quarter on low base of past year. The stock trades at 11x FY19E EPS. We maintain Buy, with a target price of INR1,020 (SOTP-based).

Key issues to watch out Outlook on contracts for new radiopharmaceutical products Product-pricing outlook under Life Science Ingredients (LSI)

category Impact of pricing pressure on pharma products for regulated

market


Jubilant Life Sciences

October 2018 185

Consolidated - Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 4,912 5,386 4,789 5,602 5,390 5,872 6,005 6,662 20,690 23,928 YoY Change (%) 17.9 2.5 -5.2 18.3 9.7 9.0 25.4 18.9 7.7 15.7 Total Expenditure 3,947 4,260 3,916 4,434 4,585 4,887 4,666 4,903 16,557 19,040 EBITDA 965 1,126 874 1,169 806 985 1,339 1,758 4,133 4,888 Margins (%) 19.6 20.9 18.2 20.9 14.9 16.8 22.3 26.4 20.0 20.4 Depreciation 298 301 310 346 382 378 375 376 1,254 1,511 Interest 191 195 178 233 223 220 178 140 796 761 Other Income 75 66 99 51 26 50 100 183 292 359 PBT before EO expense 552 696 486 641 226 437 886 1,425 2,374 2,975 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 552 696 486 641 226 437 886 1,425 2,374 2,975 Tax 163 208 137 190 61 106 222 354 698 744 Rate (%) 29.5 29.9 28.2 29.7 27.0 24.2 25.1 24.9 29.4 25.0 Minority Interest & P/L of Asso. Cos. 0 0 0 0 0 0 0 0 0 0 Reported PAT 389 488 349 451 165 331 664 1,071 1,676 2,231 Adj PAT 389 488 349 451 165 331 664 1,071 1,676 2,231 YoY Change (%) 51.7 -4.1 -26.4 -39.3 -57.5 -32.0 90.2 137.5 -15.4 33.1 Margins (%) 7.9 9.1 7.3 8.0 3.1 5.6 11.1 16.1 8.1 9.3


Laurus Labs CMP: INR428 TP:INR552(+28%) Buy We expect 9% YoY growth in sales to INR5.8b for the quarter, led

by better traction in Oncology API and Synthesis business. The base business of ARV APIs is expected to be flattish for the

quarter at INR3.8b. Lower share of higher margin business and increased raw

material cost is expected to result in 400 bp YoY reduction in EBITDA margin to 16.8%.

However, we expect EBITDA margin to better sequentially due to some benefits of backward integration.

PAT is expected to decline 32% YoY to INR331m, on account of reduced EBITDA margins and higher depreciation cost.

The stock trades at 19.8x FY19E EPS. We maintain Buy, with a target price of INR552 (18x 12-month forward earnings).

Key issues to watch out Outlook on ANDA filing, pace of approval and subsequent

launches Outlook on ARV API business and filings for formulation

Bloomberg LAURUS IN




1,6,12 Rel Perf. (%) 5 / -25 / -31


Sales 19.0 20.7 23.9 28.1 EBITDA 4.1 4.1 4.9 6.4 NP 1.9 1.7 2.2 3.3 EPS (INR) 17.8 15.8 21.1 31.2 EPS Gro. (%) 43.0 -10.9 33.1 47.7 BV/Sh. (INR) 125.8 140.2 160.9 191.4 RoE (%) 17.4 11.9 14.0 17.7 RoCE (%) 13.4 9.7 10.7 13.0 Valuations P/E (x) 23.5 26.4 19.8 13.4 P/BV (x) 3.3 3.0 2.6 2.2 EV/EBITDA (x) 12.9 13.0 11.1 8.4 EV/Sales (x) 2.8 2.6 2.3 1.9 Dividend Yield (%)

0.1 0.1 0.1 0.1

October 2018 186

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 38,696 39,520 39,756 40,338 38,559 40,896 45,207 44,479 158,041 169,141 YoY Change (%) -13.4 -7.9 -11.3 -5.2 -0.4 3.5 13.7 10.3 -9.7 7.0 Total Expenditure 31,012 30,989 32,873 33,251 33,290 34,639 37,251 35,208 126,566 140,387 EBITDA 7,684 8,531 6,883 7,088 5,270 6,257 7,956 9,271 31,475 28,754 Margins (%) 19.9 21.6 17.3 17.6 13.7 15.3 17.6 20.8 19.9 17.0 Depreciation 2,605 2,722 2,804 2,728 2,590 2,750 2,800 3,017 10,859 11,157 Interest 439 479 540 585 687 580 480 420 2,044 2,167 Other Income 320 740 284 1,449 1,842 450 375 333 1,504 3,000 PBT 4,959 6,070 3,824 5,223 3,835 3,377 5,051 6,167 20,076 18,430 Tax 1,368 1,541 1,608 -1,632 1,811 844 1,263 1,242 2,885 5,160 Rate (%) 27.6 25.4 42.0 -31.2 47.2 25.0 25.0 20.1 14.4 28.0 EO Exp/(Inc) 0 0 0 14,644 0 0 0 0 14,644 0 Minority Interest 11 -21 0 47 -4 21 21 47 36 85 Reported PAT 3,581 4,550 2,216 -7,835 2,028 2,512 3,767 4,878 2,512 13,185 Recurring PAT 3,581 4,550 2,577 10,436 2,028 2,512 3,767 4,878 21,145 13,185 YoY Change (%) -59.4 -30.8 -59.3 72.0 -43.4 -44.8 46.2 -53.3 -17.1 -37.6 Margins (%) 9.3 11.5 6.5 25.9 5.3 6.1 8.3 11.0 13.4 7.8 E: MOSL estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters


Lupin

CMP: INR898 TP:INR950 (+6%) Buy We expect Lupin (LPC) to report muted growth of ~4% YoY in its

2QFY19 revenue to IN32.6b primarily due to ~15% YoY decline in the US business (~29% of total sales).

India business is expected to exhibit decent growth of ~8% YoY to INR12.5b, while Japan sales are expected to improve ~17% YoY to INR5.6b in 2QFY19, aided by currency tailwinds.

EBITDA is expected to decline during the quarter to INR6.3b; with, EBITDA margin declining ~630bp YoY to 15.3%, primarily due to lower gross margin and higher other operating expenses.

PAT is likely to decline by ~45% YoY on back of decline in margin, higher interest expense and lower other income.

We note that the near-term outlook is subdued as key approvals for the US market are back-ended. We expect it to be granted in 2HFY19. Thus, prices may remain range bound until meaningful approvals kick in. Resolution of the warning letter at its Goa and Indore sites is also the key event to watch out for in 2HFY19. We maintain Buy with a target price of INR950 (18x 12-month forward earnings).

Key issues to watch out for Update on traction in Solosec brand for the US market Update on warning letter for Goa and Indore facility Outlook on inorganic growth initiatives

Bloomberg LPC IN


M. Cap. (INR b)/(USD b) 406 / 6


1,6,12 Rel Perf. (%) 3 / 6 / -27


Y/E March 2017 2018 2019E 2020E

Sales 174.9 158.0 169.1 195.6

EBITDA 44.9 31.5 28.8 41.3

NP 25.6 21.1 13.2 20.4

EPS (INR) 56.6 46.8 29.2 45.1

EPS Gro. (%) 12.4 -17.4 -37.6 54.5

BV/Sh. (INR) 298.9 300.3 319.3 353.9

RoE (%) 20.9 15.6 9.4 13.4

RoCE (%) 13.3 4.9 7.0 9.7

Valuations

P/E (x) 15.9 19.2 30.8 19.9

P/BV (x) 3.0 3.0 2.8 2.5

EV/EBITDA (x) 10.3 14.7 15.6 10.6

EV/Sales (x) 2.6 2.9 2.6 2.2

October 2018 187

Quarterly Performance (INR Million) Y/E December CY17 CY18E CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Net Sales 5,529 6,006 6,675 6,704 6,177 6,836 7,468 7,731 24,914 28,212 YoY Change (%) 1.6 -1.2 6.9 13.2 11.7 13.8 11.9 15.3 5.2 13.2 EBITDA 1,015 1,154 1,837 1,344 1,344 1,645 1,714 1,697 5,372 6,400 Margins (%) 18.4 19.2 27.5 20.0 21.8 24.1 23.0 21.9 21.6 22.7 Depreciation 253 255 257 257 254 254 257 371 1,022 1,136 Interest 4 0 0 11 0 0 0 11 11 11 Other Income 159 284 208 182 226 208 208 148 807 790 PBT before EO Items 917 1,183 1,788 1,258 1,316 1,599 1,665 1,463 5,146 6,043 Extra-Ord Expense 0 0 0 0 0 0 0 0 0 0 PBT after EO Items 917 1,183 1,788 1,258 1,316 1,599 1,665 1,463 5,146 6,043 Tax 317 446 625 498 491 603 583 529 1,886 2,206

Effective tax Rate (%) 34.6 37.7 35.0 39.6 37.3 37.7 35.0 36.2 36.6 36.5 Reported PAT 600 737 1,163 760 825 996 1,082 934 3,260 3,837 Adj PAT 600 737 1,163 760 825 996 1,082 934 3,260 3,837 YoY Change (%) -25.6 -13.6 44.3 50.5 37.5 35.1 -6.9 22.9 9.8 17.7 Margins (%) 10.9 12.3 17.4 11.3 13.4 14.6 14.5 12.1 13.1 13.6 E: MOSL Estimates


Sanofi India

CMP: INR6,188 TP:INR6,590 (+6%) Buy We expect Sanofi India's (SANL) revenue to grow ~12% YoY in

3QCY18 to INR7.5b. High growth of brands like Lantus, Allegra, Amaryl M, Enterogermina, Avila, Vaxlgrip and Cardace, and new product launches should drive SANL’s revenue growth.

EBITDA is likely to decline by ~7% YoY to INR1.7b. We expect margin contraction of ~450 bp, primarily on the back of high base seen in 3QCY17, due to channel re-filing post GST implementation.

We expect PAT to decline by ~7% YoY to INR1.1b. Maintain Buy with a TP of INR6,590 (32x 12-month forward EPS). Key issues to watch out for Amortization of goodwill and brands acquired from Universal

Medicare Clarity on nature of reversal of recently withdrawn NPPA

guidelines Number of product launches in focus therapy categories

Bloomberg SANL IN


M. Cap. (INR b)/(USD b) 142 / 2

52-Week Range (INR) 6840 / 4022

1,6,12 Rel Perf. (%) 2 / 12 / 35


Y/E Dec 2016 2017 2018E 2019E

Sales 23.7 24.9 28.2 31.2

EBITDA 5.3 5.4 6.4 7.3

Net Profit 3.0 3.3 3.8 4.4

Adj. EPS (INR) 129.1 141.7 166.8 191.6

EPS Gr. (%) 24.9 9.8 17.7 14.8

BV/Sh. (INR) 754.5 881.8 967.4 1,077.8 RoE (%) 17.1 16.1 17.2 17.8

RoCE (%) 16.5 16.2 16.9 17.6

Payout (%) 63.5 57.8 48.7 42.4

Valuations

P/E (x) 47.9 43.7 37.1 32.3

P/BV (x) 8.2 7.0 6.4 5.7

EV/EBITDA (x) 25.9 25.1 20.2 17.4

EV/Sales (x) 5.8 5.4 4.6 4.1

October 2018 188

Quarterly Performance (INR Million) FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 1,685 2,040 1,855 2,345 1,982 2,101 2,215 2,377 7,925 8,675 YoY Change (%) 0.8 -1.5 1.1 3.8 17.6 3.0 19.4 1.4 1.1 9.5 Total Expenditure 1,339 1,473 1,583 1,870 1,434 1,616 1,679 1,803 6,266 6,532 EBITDA 346 567 272 475 547 485 536 574 1,659 2,143 Margins (%) 20.5 27.8 14.7 20.3 27.6 23.1 24.2 24.2 20.9 24.7 Depreciation 84 83 92 108 103 108 110 113 367 434 Interest 5 5 5 10 6 4 4 2 26 15 Other Income 52 53 51 68 44 65 70 92 223 271 PBT before EO expense 308 531 226 424 482 438 492 552 1,490 1,964 Share of p/ (L) in Associate/ JV 28 -76 -8 -16 -55 80 130 145 (72) 300 Extra-Ord expense 0 0 0 0 0 0 -338 1 0 -338 PBT 336 455 218 409 428 518 960 696 1,418 2,602 Tax 90 119 54 102 96 132 240 179 365 648 Rate (%) 26.8 26.2 24.7 25.0 22.5 25.5 25.0 25.8 25.8 24.9 Minority Interest & P/L of Asso. Cos 6 6 10 3 -5 1 1 3 24 0 Reported PAT 240 330 154 304 336 385 719 514 1,029 1,954 Adj PAT 240 330 154 304 336 385 466 514 1,029 1,701 YoY Change (%) 86.4 -3.7 -7.8 -23.5 40.1 16.8 202.5 69.0 -0.7 65.3 Margins (%) 14.2 16.2 8.3 13.0 17.0 18.3 21.0 21.6 13.0 19.6

CMP: INR405 TP: INR620 (+53%) Buy We expect sales to remain flat at INR2b for the quarter on YoY

basis. US formulation sales momentum is expected to continue due to

better traction in approved oncology products. We expect EBITDA margin for the company to shrink 470 bp YoY to

23% on high base of past year. We expect PAT to come in at INR385m growing 17% YoY. The stock trades at 19x FY19E EPS. We maintain Buy, with a target

price of INR620 (23x 12-month forward earnings).

Key issues to watch out Clarity on compliance of API facility at Raichur Outlook on new approvals and subsequent launches Market dynamics in approved products

Bloomberg SLPA IN




1,6,12 Rel Perf. (%) -13 / -22 / -45


Y/E March 2017 2018 2019E 2020E

Sales 7.8 7.9 8.7 10.7

EBITDA 1.7 1.6 2.1 2.5

NP 1.0 1.0 1.7 2.2

EPS (INR) 12.9 12.8 21.2 26.9

EPS Gro. (%) -2.0 -0.7 65.3 26.6

BV/Sh. (INR) 114.4 133.1 155.8 180.8

RoE (%) 13.3 10.3 14.4 15.7

RoCE (%) 10.6 8.0 11.8 13.1

Valuations

P/E (x) 31.2 31.5 19.0 15.0

P/BV (x) 3.5 3.0 2.6 2.2

EV/EBITDA (x) 19.9 21.1 15.5 13.0

EV/Sales (x) 4.4 4.3 3.8 3.1


Shilpa Medicare

October 2018 189

Consolidated - Quarterly Earning Model Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 6,579 7,695 7,490 6,642 6,635 6,617 7,562 8,425 28,394 29,238 YoY Change (%) -16.7 -19.3 -19.8 -1.9 0.8 -14.0 1.0 26.9 3.0 3.0 Total Expenditure 5,950 6,698 6,262 5,776 5,827 5,704 6,427 7,012 24,428 24,969 EBITDA 629 997 1,228 865 808 913 1,134 1,414 3,965 4,269 Margins (%) 9.6 13.0 16.4 13.0 12.2 13.8 15.0 16.8 14.0 14.6 Depreciation 356 384 391 443 429 360 375 366 1,540 1,529 Interest 524 486 498 455 441 455 442 450 1,962 1,788 Other Income 345 222 157 218 106 135 145 169 941 556 PBT before EO expense 93 350 497 185 44 233 462 767 1,403 1,507 Extra-Ord expense 34 123 63 217 49 0 0 0 436 49

PBT 60 227 433 -31 -5 233 462 767 967 1,458 Tax 10 33 -2 -40 -43 29 59 144 97 190 Rate (%) 15.9 14.4 -0.4 125.8 837.3 12.5 12.8 18.8 10.1 13.0 Minority Interest & P/L of Asso. Cos. 31 53 32 52 79 24 35 13 168 150 Reported PAT from Continuing Ops. 20 142 403 -44 -41 180 368 611 702 1,118 Adj. PAT from Continuing Ops. 48 246 466 105 -41 180 368 611 1,094 1,118 YoY Change (%) -87.5 -66.7 -24.4 -88.5 -185.3 -27.0 -21.0 481.5 -64.6 2.1 Margins (%) 0.7 3.2 6.2 1.6 -0.6 2.7 4.9 7.2 3.9 3.8

CMP: INR447 TP:INR481(+8%) Buy We expect sales at INR6.6b for 2QFY19. The YoY numbers are not comparable as 2QFY18 includes API and

domestic formulation sales. API sales are hived off to Solara and domestic formulation sales

were sold to Eris Life Sciences in November 2017. We expect 80 bp YoY and 160 bp QoQ improvement in margins due

to superior product-mix. Accordingly, PAT is expected at INR180m for 2QFY19 against

INR246m in 2QFY18. The stock trades at 36.6x FY19E EPS. We maintain Buy, with a target

price of INR481 (SOTP basis).

Key issues to watch out Pace of ANDA filing and outlook on niche approvals Outlook on margin improvement in the Australia business Outlook on institutional as well as branded generic business in

Africa

Bloomberg STR IN




1,6,12 Rel Perf. (%) -4 / -43 / -61


Sales 34.8 28.4 29.2 33.0 EBITDA 6.4 4.0 4.3 5.2 NP 2.9 1.0 1.1 2.1 EPS (INR) 32.3 11.3 12.2 23.4 EPS Gro. (%) 77.6 -65.1 8.4 92.0 BV/Sh. (INR) 303.1 274.5 284.4 301.8 RoE (%) 10.8 3.9 4.4 8.0 RoCE (%) 8.3 5.1 5.3 6.6 Valuations P/E (x) 13.9 39.7 36.6 19.1 P/BV (x) 1.5 1.6 1.6 1.5 EV/EBITDA (x) 11.5 16.8 14.7 11.9

EV/Sales (x) 2.1 2.3 2.2 1.9


Strides Pharma

October 2018 190

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues 61,667 65,901 65,982 67,110 71,388 75,512 78,195 86,644 260,659 311,739 YoY Change (%) -23.0 -15.1 -14.1 -1.7 15.8 14.6 18.5 29.1 -13.9 19.6 Total Expenditure 51,131 52,747 51,999 52,936 56,175 59,126 60,836 66,971 208,813 243,107 EBITDA 10,535 13,153 13,984 14,174 15,214 16,386 17,359 19,673 51,846 68,632 Margins (%) 17.1 20.0 21.2 21.1 21.3 21.7 22.2 22.7 19.9 22.0 Depreciation 3,466 3,587 3,393 4,552 4,016 3,750 3,650 3,584 14,998 15,000 Interest 1,094 1,574 953 1,554 1,309 900 800 991 5,176 4,000 Net Other Income 1,941 3,151 1,842 5,688 2,851 2,850 3,150 3,149 12,623 12,000 PBT before EO Exp 7,916 11,144 11,479 13,756 12,739 14,586 16,059 18,248 44,295 61,632 EO Exp/(Inc) 9,505 0 0 0 0 0 0 0 9,505 0 PBT -1,589 11,144 11,479 13,756 12,739 14,586 16,059 18,248 34,790 61,632 Tax 1,618 1,114 7,487 -1,767 1,639 2,188 2,409 4,550 8,452 10,786 Rate (%) 20.4 10.0 65.2 -12.8 12.9 15.0 15.0 24.9 19.1 17.5 PAT (pre Minority Interest) -3,207 10,030 3,992 15,523 11,101 12,398 13,650 13,698 26,338 50,847 Minority Interest 1,042 908 338 2,434 1,275 1,500 1,500 1,725 4,722 6,000 Reported PAT -4,249 9,121 3,654 13,090 9,825 10,898 12,150 11,973 21,616 44,847 One-off upsides 0 0 -5,130 3,890 0 0 0 0 -1,240 0 Adj Net Profit 5,256 9,121 8,784 9,200 9,825 10,898 12,150 11,973 32,361 44,847 YoY Change (%) -74.2 -59.2 -40.3 -24.8 86.9 19.5 38.3 30.1 -9.9 -21 Margins (%) -6.9 13.8 5.5 19.5 13.8 14.4 15.5 13.8 8.3 14.4


Sun Pharma

CMP: INR622 TP:INR790(+27%) Buy Sun Pharmaceuticals (SUNP) is likely to register a healthy 15% YoY

growth in revenue to INR75.5b, primarily on the back of a growth in the US and RoW markets.

We expect the US business to grow ~18% YoY to INR23.6b. RoW and API businesses are likely to grow 17% YoY and 10% YoY, respectively. India business is expected to grow 8% YoY to INR23.98b due to the high base of last year.

Margins are expected to expand by ~170 bp YoY to 21.7%. Absolute EBITDA is expected to report robust growth of ~25% YoY to INR16.4b.

Adjusted PAT is expected to increase by ~20% YoY to INR10.9b. Incremental generics business from new launches, which should

be higher than base business erosion, increased traction in specialty products and sustained outperformance in the domestic formulation business, should drive growth. We maintain Buy, with a TP of INR790.

Key issues to watch out Outlook on new product launches and ANDA filings Launch of key products from Halol facility Update on traction in specialty products

Bloomberg SUNP IN Equity Shares (m) 2399.0

M. Cap. (INR b)/(USD b) 1492 / 20 52-Week Range (INR) 679 / 435 1,6,12 Rel Perf. (%) 2 / 14 / 9


Y/E MARCH 2017 2018 2019E 2020E

Sales 302.6 260.7 311.7 361.6

EBITDA 87.8 51.8 68.6 92.2

NP 62.9 32.4 44.8 63.3

EPS (INR) 26.1 13.5 18.6 26.3

EPS Gro. (%) 33.2 -48.5 38.6 41.2

BV/Sh. (INR) 152.3 158.4 170.0 189.3

RoE (%) 18.1 8.7 11.4 14.6

RoCE (%) 19.0 8.1 11.3 15.0

Valuations

P/E (x) 23.8 46.2 33.4 23.6

P/BV (x) 4.1 3.9 3.7 3.3

EV/EBITDA (x) 16.1 28.2 20.2 14.7

EV/Sales (x) 4.7 5.6 4.4 3.7

October 2018 191

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E INR m 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Revenues 13,740 14,290 14,770 17,220 18,720 19,155 19,016 19,127 60,020 76,019 YoY Change (%) -8.8 1.6 4.5 24.7 36.2 34.0 28.7 11.1 2.5 26.7 EBITDA 2,970 3,290 3,590 3,640 4,770 4,902 4,701 5,392 13,490 19,765 Margins (%) 21.6 23.0 24.3 21.1 25.5 25.6 24.7 28.2 22.5 26.0 Depreciation 800 840 940 1,510 1,500 1,519 1,519 1,543 4,090 6,082 Interest 560 510 800 1,210 1,220 1,250 1,240 1,166 3,080 4,876 Other Income 1,050 780 740 420 270 400 850 980 2,990 2,500 PBT before EO Expense 2,660 2,720 2,590 1,340 2,320 2,532 2,792 3,663 9,310 11,307 Extra-Ord Expense 0 0 -1,810 -500 0 0 0 0 -2,310 0 PBT after EO Expense 2,660 2,720 4,400 1,840 2,320 2,532 2,792 3,663 11,620 11,307 Tax 780 680 2,010 -940 690 734 810 932 2,530 3,166 Rate (%) 29.3 25.0 77.6 -70.1 29.7 29.0 29.0 25.4 27.2 28.0 Reported PAT 1,880 2,040 580 2,280 1,630 1,798 1,982 2,731 6,780 8,141 Adj PAT 1,880 2,040 2,390 2,780 1,630 1,798 1,982 2,731 9,090 8,141 YoY Change (%) -35.6 -30.1 15.5 21.4 -13.3 -11.9 -17.1 -1.8 -2.6 -10.4 Margins (%) 13.7 14.3 16.2 16.1 8.7 9.4 10.4 14.3 15.1 10.7 E: MOSL Estimates


Torrent Pharmaceuticals

CMP: INR1,649 TP:INR1,430 (-13%) Neutral We expect Torrent Pharmaceuticals (TRP) to post ~34% YoY

growth in 2QFY19 reported sales to INR19.2b. US business is expected to increase ~41% YoY on low base, and India business is expected to witness 35% YoY growth on integration of Unichem’s domestic portfolio.

Reported EBITDA is likely to increase 49% YoY to INR4.9b, with increase in EBITDA margin by ~250 bp YoY.

Although EBITDA is expected to increase, we expect PAT to decline by ~12% YoY to INR1.8b due to increase in interest expense by 145% to INR1.3b and higher depreciation.

We remain positive on Torrent due to its sustained outperformance in domestic formulations, turnaround of the Unichem portfolio and healthy pipeline for the US market. However, we maintain Neutral given the limited upside from current levels. We maintain Neutral with a TP of INR1,430 (20x 12-month forward PER).

Key issues to watch out for Contribution of Unichem portfolio and growth strategy Performance of Brazilian operations amid market pressure Outlook on future ANDA launches in the US market

Bloomberg TRP IN Equity Shares (m) 169.2

M. Cap. (INR b)/(USD b) 279 / 4 52-Week Range (INR) 1872 / 1206 1,6,12 Rel Perf. (%) -3 / 20 / 18


Y/E MARCH 2017 2018 2019E 2020E

Sales 58.6 60.0 76.0 86.4

EBITDA 13.8 13.5 19.8 22.9

NP 9.3 9.1 8.1 11.0

EPS (INR) 55.2 53.7 48.1 65.0

EPS Gro. (%) -7.7 -2.6 -10.4 35.0

BV/Sh. (INR) 257.1 273.1 322.1 363.6

RoE (%) 23.8 20.3 16.2 18.9

RoCE (%) 18.6 10.6 10.8 12.4

Valuations

P/E (x) 29.9 30.7 34.3 25.4

P/BV (x) 6.4 6.0 5.1 4.5

EV/EBITDA (x) 21.2 24.3 16.1 13.5

EV/Sales (x) 5.0 5.5 4.2 3.6

October 2018 192

Execution remains on track, expect muted profitability

Ordering driven by states, NHAI ordering subdued Ordering activity in the road sector has been driven by states, while NHAI ordering remains muted. Marquee projects like Mumbai Nagpur Expressway/Purvanchal Expressway and coastal road have been ordered out by the state government and execution is expected to begin soon, as both the projects are awarded on an EPC basis. All projects put together have provided EPC opportunity of INR470b.

FY19 has seen a slow start in terms of awarding fresh projects, given the changes in top management of the NHAI. However, awarding activity is expected to gain traction from 2HFY19, given that the government has set a massive target to award 20,000km and construct 16,420km in FY19.

After strong awarding, execution to be key focus area Post record awarding of road projects in FY18, the focus has now shifted to successful execution of those projects. Key monitorables at this juncture remain the financial closure and physical land availability for timely execution of these projects.

Execution for coverage universe to increase 16% YoY We expect execution for our coverage universe to increase 16% YoY. Barring KNR, all companies are expected to deliver healthy execution. KNR is likely to be hurt by lower order book available for execution.

Operating margin to shrink due to adverse revenue mix; expect muted net profit growth We expect operating margins for our coverage universe to contract at the aggregate level, given the adverse revenue mix and the moderation in profitability (as only a few high-margin orders have seen completion). Net profit is likely to decline by a muted 0.8% YoY, given that most of the companies would now start paying tax after the expiry of tax holiday under section 80IA.

Opportunities abundant for incumbent players With financial closure becoming stringent and banks being selective in extending credit to companies, we believe that the sector will see consolidation. Companies with a healthy balance sheet would benefit the most. Stringent financial closure would also lead to moderation in competition, and thus, improvement in pricing and margins of the financially strong players.

Robust capex is being planned by both the central and state governments (INR7t construction opportunity). We believe that the best way to play the road sector capex theme is through EPC players that have a strong execution record and a healthy balance sheet. Our top picks are KNR and Ashoka Buildcon.

Company name

Ashoka Buildcon

IRB Infra

KNR Constructions

Sadbhav Engineering

March 2016 Results Preview | Sector: Capital Goods September 2018 Results Preview | Sector: Infrastructure

Infrastructure

Amit Shah – Research Analyst ([email protected]); +91 22 6129 1543 Ankur Sharma – Research Analyst ([email protected]); +91 22 6129 1556

October 2018 193

Exhibit 1: Summary of expected quarterly performance Sector Sales (INR M) EBITDA (INR M) Net Profit (INR M)

CMP (INR)

Reco Sep-18 Var

% YoY Var

% QoQ Sep-18

Var % YoY

Var % QoQ

Sep-18 Var

% YoY Var

% QoQ

Infrastructure Ashoka Buildcon 111 Buy 4,326 14.2 -36.7 518 2.4 -36.3 362 10.7 -43.3 IRB Infra 138 Neutral 14,170 26.2 -7.9 6,561 14.6 -12.1 1,684 11.9 -32.7 KNR Constructions 193 Buy 3,847 -2.2 -30.9 596 -27.7 -45.7 263 -55.4 -64.4 Sadbhav Engineering 219 Buy 7,649 10.4 -16.1 880 11.7 -17.8 426 27.3 -32.8 Sector Aggregate

29,992 15.9 -18.7 8,555 9.1 -18.1 2,736 -0.8 -39.4

Source: MOSL

Exhibit 2: India road awarding reached a new peak in FY18 –

at 47km/day


Exhibit 3: Roads completed also at all-time highs in FY18 –

at 27km/day






Exhibit 6: Comparative valuation Sector / Companies CMP RECO EPS (INR) PE (x) EV/EBIDTA (x) ROE (%)

(INR)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Infrastructure Ashoka Buildcon 111 Buy -4.2 0.8 2.6 -26.3 140.4 42.4 7.9 6.0 5.0 -30.2 6.8 19.6 IRB Infra 138 Neutral 23.9 23.8 23.5 5.8 5.8 5.9 6.2 5.4 5.8 14.6 12.9 11.5 KNR Constructions 193 Buy 19.4 13.7 16.8 10.0 14.1 11.5 9.4 5.9 4.5 26.5 15.5 16.2 Sadbhav Engineering 219 Buy 12.9 16.0 17.8 17.0 13.7 12.3 18.1 8.4 6.1 12.5 13.8 13.6 Sector Aggregate

11.9 10.9 10.0 8.0 5.8 5.6 12.8 12.5 12.1


27

5 9

22

29

45 47

FY12 FY13 FY14 FY15 FY16 FY17 FY18

Awarded km (per day)

14 16

12 12

17

23

27


Construction km (per day)

70

80

90

100

110

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Infrastructure Index

70

84

98

112

126

140

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Infrastructure Index

September 2018 Results Preview | Sector: Infrastructure

October 2018 194

Quarterly performance Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 7,063 3,787 6,589 7,023 6,837 4,326 9,908 11,955 24,464 33,026 YoY Change (%) 50.8 -14.5 25.7 15.1 -3.2 14.2 50.4 70.2 19.6 35.0 Total Expenditure 6,138 3,281 5,844 6,216 6,025 3,808 8,712 10,684 21,529 29,228 EBITDA 925 506 746 807 813 518 1,196 1,271 2,935 3,798 Margins (%) 13.1 13.4 11.3 11.5 11.9 12.0 12.1 10.6 12.0 11.5 Depreciation 113 130 144 144 136 146 146 157 532 586 Interest 129 116 128 113 171 87 198 205 485 661 Other Income 92 108 166 612 366 204 204 204 978 978 PBT before EO expense 774 368 640 1,163 871 489 1,056 1,113 2,895 3,529 PBT 774 368 640 1,163 871 489 1,056 1,113 2,895 3,529 Tax 205 41 170 109 232 127 274 284 524 918 Rate (%) 26.5 11.2 26.5 9.3 26.7 26.0 26.0 25.5 18.1 26.0 Reported PAT 569 327 470 1,054 639 362 781 830 2,371 2,612 Adj PAT 569 327 470 1,054 639 362 781 830 2,371 2,612 YoY Change (%) 84.7 -28.0 9.9 61.2 12.3 10.7 66.2 -21.3 28.6 10.2 Margins (%) 8.1 8.6 7.1 15.0 9.3 8.4 7.9 6.9 9.7 7.9

September 2018 Results Preview | Sector: Infrastructure Ashoka Buildcon

CMP: INR111 TP: INR160 (+45%) Buy We expect revenue growth of 14% YoY, led by a pick-up in orders in

hand. Revenue growth is expected to pick up meaningfully in 2HFY19 once all five HAM projects won recently enter execution phase.

We expect operating margin to contract 140bp to 12.0% and operating profit to improve 2% YoY to INR518m.

Net profit is expected to grow 10% YoY to INR362m. Maintain Buy. Key issues to watch Equity contribution arrangement from ABL for the recently won

HAM projects Execution timelines for the recently won HAM projects

Bloomberg ASBL IN


1,6,12 Rel Perf. (%) -13 / -45 / -24

Financial Snapshot (INR b)

Y/E March 2017 2018 2019E 2020E

Net Sales 29.7 36.0 42.7 55.7

EBITDA 9.5 11.4 12.0 14.0

Adj. PAT -2.2 -1.2 0.2 0.7

Adj. EPS (INR) -8.0 -4.2 0.8 2.6

EPS Gr (%) NM NM -NM 231.2

BV/Sh (INR) 16.7 11.3 12.0 14.7

RoE (%) NM NM 6.8 19.6

RoCE (%) 12.0 13.9 13.9 15.1

Valuations

P/E (x) NM NM 138.8 41.9

P/BV (x) 6.6 9.8 9.1 7.5

EV/EBITDA (x) 8.0 6.8 6.2 5.2

Div. Yield (%) 1.2 1.2 1.2 1.2

October 2018 195

Quarterly performance Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 18,169 11,227 12,962 13,822 15,380 14,170 15,767 20,976 56,941 66,292 YoY Change (%) 19.7 -13.0 -8.1 -15.1 -15.4 26.2 21.6 51.8 -2.6 16.4 Total Expenditure 9,991 5,503 6,659 7,234 7,913 7,609 8,388 11,307 30,147 34,834 EBITDA 8,178 5,724 6,740 6,588 7,467 6,561 8,199 9,669 26,794 31,458 Margins (%) 45.0 51.0 52.0 47.7 48.5 46.3 52.0 46.1 47.1 47.5 Depreciation 1,816 1,260 1,212 1,152 1,345 1,160 1,290 1,717 5,440 5,425 Interest 2,854 2,356 2,366 2,090 2,477 3,120 3,472 5,528 9,667 14,597 Other Income 535 424 455 499 453 350 390 445 1,687 1,638 PBT before EO expense 4,044 2,532 3,616 3,845 4,098 2,631 3,826 2,869 13,373 13,074 Extra-Ord expense 0 1,041 0 0 0 0 0 0 0 0 PBT 4,044 3,573 3,616 3,845 4,098 2,631 3,826 2,869 13,373 13,074 Tax 1,665 1,225 1,100 1,447 1,597 947 1,082 1,033 5,444 4,716 Rate (%) 41.2 34.3 30.4 37.6 39.0 36.0 28.3 36.0 40.7 36.1 Reported PAT 2,379 2,348 2,516 2,398 2,501 1,684 2,744 1,836 7,924 8,350 Adj PAT 2,379 1,504 2,516 2,398 2,501 1,684 2,744 1,836 7,924 8,350 YoY Change (%) 30.8 5.8 36.6 15.7 5.1 11.9 9.0 -23.4 10.9 5.4 Margins (%) 13.1 13.4 19.4 17.3 16.3 11.9 17.4 8.8 13.9 12.6

CMP: INR138 TP: INR165 (+17%) Neutral IRB’s revenue is expected to increase 26% YoY to INR14.2b, purely

driven by growth in the construction segment. EBITDA is expected to grow 15% YoY to INR6.6b. EBITDA margin is expected to shrink 470bp YoY to 46.3%. PAT is expected to improve 12% YoY to INR1.7b. Maintain Neutral.

Key issues to watch Execution timelines for the recently won HAM projects Impact on EPC margins of the company once execution of lower-

margin HAM projects starts

Bloomberg IRB IN Equity Shares (m) 351.5 M. Cap. (INR b)/(USD b) 49 / 1



Y/E March 2017 2018 2019E 2020E

Net Sales 58.5 56.9 66.3 84.7

EBITDA 30.5 26.8 31.5 33.7

PAT 7.1 8.4 8.3 8.3

EPS (INR) 20.3 23.9 23.8 23.5

EPS Gr. (%) 11.8 17.5 -0.5 -1.2

BV/Sh. INR 152.9 174.0 192.9 214.1

RoE (%) 14.0 14.6 12.9 11.5

RoCE (%) 8.9 8.9 9.7 8.5

Valuations

P/E (x) 6.9 5.9 5.9 6.0

P/BV (x) 0.9 0.8 0.7 0.7

EV/EBITDA (x) 6.7 5.5 5.7 6.2

Div Yield (%) 2.9 2.9 2.9 2.9

* Consolidated

September 2018 Results Preview | Sector: Infrastructure IRB

October 2018 196

Quarterly performance Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 4,807 3,933 4,332 6,244 5,564 3,847 4,353 6,484 19,317 20,247 YoY Change (%) 58.6 5.3 13.3 29.5 15.7 -2.2 0.5 3.8 25.3 4.8 Total Expenditure 3,962 3,109 3,348 5,036 4,465 3,251 3,678 5,399 15,455 16,793 EBITDA 845 825 984 1,207 1,099 596 675 1,085 3,861 3,454 Margins (%) 17.6 21.0 22.7 19.3 19.7 15.5 15.5 16.7 20.0 17.1 Depreciation 244 235 371 491 360 328 328 295 1,341 1,310 Interest 52 43 49 88 72 54 62 98 231 286 Other Income 123 27 61 183 178 78 89 68 393 413 PBT before EO expense 672 574 624 811 844 293 374 759 2,682 2,271 PBT 672 574 624 811 844 293 374 759 2,682 2,271 Tax -4 -17 -33 14 104 29 37 170 -39 341 Rate (%) -0.6 -2.9 -5.2 1.7 12.3 10.0 10.0 22.3 -1.5 15.0 Reported PAT 676 591 657 798 740 263 337 590 2,721 1,930 Adj PAT 676 591 657 798 740 263 337 590 2,721 1,930 YoY Change (%) 123.7 34.5 58.1 52.1 9.5 -55.4 -48.7 -26.1 61.8 -29.1 Margins (%) 14.1 15.0 15.2 12.8 13.3 6.8 7.7 9.1 14.1 9.5

September 2018 Results Preview | Sector: Infrastructure KNR

CMP: INR193 TP: INR275 (+43%) Buy We expect revenue to decline marginally by 2.2% YoY to INR3.8b

on account of lower order book available for execution. Operating profit is expected to decline 28%, led by margin

contraction of 550bp YoY to 15.5% (as high margin-orders have seen completion on execution front).

Net profit is expected to decline 55% YoY on account of higher tax rate assumption for the quarter at 10% as against -2.9% in 2QFY18. Maintain Buy.

Key issues to watch Management tie-up for equity infusion required in the newly won

HAM projects

Bloomberg KNRC IN


1,6,12 Rel Perf. (%) -11 / -40 / -21


Y/E March 2017 2018 2019E 2020E

Net Sales 15.4 19.3 20.2 28.0

EBITDA 2.3 3.9 3.5 4.2

NP 1.7 2.7 1.9 2.4

EPS (INR) 12.0 19.4 13.7 16.8

EPS Gr. (%) 4.3 61.8 -29.1 22.3

BV/Sh (INR) 63.7 82.3 95.3 111.8

RoE (%) 20.7 26.5 15.5 16.2

RoCE (%) 16.8 19.5 14.0 15.5

Valuations

P/E (x) 19.2 11.9 16.8 13.7

P/BV (x) 3.6 2.8 2.4 2.1

EV/EBITDA (x) 14.5 8.8 8.9 7.0

October 2018 197

Quarterly performance Y/E March FY18 FY19E FY18 FY19E INR million 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 9,444 6,931 9,351 11,045 9,114 7,649 10,668 12,827 36,770 40,258 YoY Change (%) 17.0 12.6 8.1 6.9 -3.5 10.4 14.1 16.1 10.7 9.5 Total Expenditure 8,376 6,143 8,295 9,804 8,044 6,769 9,442 11,253 32,618 35,508 EBITDA 1,068 788 1,056 1,240 1,070 880 1,227 1,574 4,151 4,750 Margins (%) 11.3 11.4 11.3 11.2 11.7 11.5 11.5 12.3 11.3 11.8 Depreciation 245 251 247 236 241 246 246 252 979 986 Interest 322 215 285 345 257 229 267 410 1,167 1,163 Other Income 39 5 74 39 108 45 74 67 157 294 PBT 540 327 598 698 681 449 787 979 2,163 2,896 Tax -15 -8 -20 0 46 22 39 37 -44 145 Rate (%) -2.8 -2.6 -3.4 -0.1 6.8 5.0 5.0 3.7 -2.0 5.0 Reported PAT 555 335 618 699 634 426 748 943 2,207 2,751 Adj PAT 555 335 618 699 634 426 748 943 2,207 2,751 YoY Change (%) 14.0 80.8 17.9 2.4 14.3 27.3 21.0 35.0 17.5 24.7 Margins (%) 5.9 4.8 6.6 6.3 7.0 5.6 7.0 7.4 6.0 6.8

September 2018 Results Preview | Sector: Infrastructure Sadbhav Eng

CMP: INR219 TP: INR300 (+35%) Buy We expect revenue of INR7.6b (up 10% YoY), led by smooth

execution of orders in hand. EBITDA is expected to grow 12% YoY to INR880m. EBITDA margin

is expected to remain stable YoY at 11.5%. Adjusted PAT is likely to grow 27% YoY to INR426m, led by higher

other income (INR45m v/s INR5m in 2QFY18). Maintain Buy. Key issues to watch Improvement in working capital cycle and overall quality of

balance sheet

Bloomberg SADE IN Equity Shares (m) 171.5 M. Cap. (INR b)/(USD b) 38 / 1



Y/E March 2017 2018 2019E 2020E

Net Sales 33.2 35.1 40.3 55.2

EBITDA 3.6 4.2 4.8 6.5

Adj. PAT 1.9 2.2 2.8 3.1

EPS(INR) 11.0 12.9 16.0 17.8

EPS Gr. (%) 42.3 17.5 24.7 11.3

BV/Sh. (INR) 96.8 108.8 123.5 139.9

RoE (%) 12.0 12.5 13.8 13.6

RoCE (%) 7.9 8.4 9.9 13.1

Valuations

P/E (x) 20.1 17.1 13.7 12.3

P/BV (x) 2.3 2.0 1.8 1.6

EV/EBITDA (x) 14.8 12.3 9.7 7.0

Div Yield (%) 0.5 0.5 0.5 0.5

*Consolidated

October 2018 198

Healthy growth in both EXIM and domestic segments Margins to improve for CCRI, remain stable for AGLL

EXIM originating container rail volumes increased 14% YoY, while domestic container rail volumes grew 20% YoY in August 2018.

Lead distance for EXIM increased ~16km MoM, while that for domestic operations rose 28km MoM in the month of August, possibly due to additional volumes from JNPT’s fourth terminal.

CCRI is likely to report margin improvement on a QoQ basis, led by healthy volume growth and recent hikes initiated by the company.

AGLL’s margins are expected to remain flat QoQ, as the improvement in MTO margins is likely to be offset by a contraction in P&E margins.

Originating container rail volumes grow 14% for EXIM, 20% for domestic After growing by a robust 23% YoY in July, EXIM originating container rail

volumes increased 14% YoY in August 2018. Domestic originating container rail volumes grew 16% YoY in July 2018 and 20%

YoY in August 2018. CCRI is likely to report EXIM handling volume growth of 12% YoY for 2QFY19, led

by strong EXIM rail volumes. Lead distance for EXIM increased ~16km MoM, while that for domestic

operations rose 28km MoM in August, possibly due to additional volumes from JNPT’s fourth terminal.

Margins to improve for CCRI We expect CCRI’s EXIM volumes to grow by 13% YoY and domestic volumes to

increase by 12% YoY in 2QFY19. We have assumed QoQ margin improvement of INR400/TEU for CCRI’s EXIM

segment due to the price hikes taken in May 2018.

AGLL – MTO, CFS margins to remain healthy, P&E remains a drag We expect AGLL’s net sales to improve by 10% YoY, led by a 13% YoY increase in

MTO volumes and global freight rates firming up. Margins for MTO and CFS should remain stable QoQ. P&E segment would continue remaining a drag due to poor profitability.

Exhibit 1: Expected quarterly performance summary CMP Sales (INR m) EBITDA (INR m) PAT (INR m)

Logistics (INR) Rating Sep-18

Var % YoY

Var % QoQ

Sep-18 Var

% YoY Var

% QoQ Sep-18

Var % YoY

Var % QoQ

Allcargo Logistics 99 Buy 17,078 10.4 5.1 1,074 2.5 5.2 537 -15.8 1.2 Concor 640 Buy 16,102 12.6 7.5 3,775 33.8 17.9 2,974 33.4 17.8 Sector Aggregate

33,180 11.4 6.2 4,848 25.4 14.8 3,512 22.5 15.0

Source: MOSL

Logistics Company name

Allcargo

Concor

Pradnya Ganar – Research analyst (Pradnya.Ganar @motilaloswal.com); +91 22 6129 1537


October 2018 199

EXIM originating rail volumes up by a robust 14% YoY in August 2018

Exhibit 1: EXIM volumes up 14% YoY in Aug 2018

Source: Indian Rail, MOSL

Exhibit 2: Domestic volumes up 20% YoY in Aug 2018


Exhibit 3: EXIM lead distance declined 4% YoY in Aug 2018


Exhibit 4: Domestic lead distance declined 4% YoY in Aug 2018


Exhibit 5: India’s imports up 28% YoY, exports up 17% YoY in Aug 2018

Source: CEIC, MOSL

Exhibit 6: IIP was up ~6% YoY in August 2018

Source: CEIC, MOSL

3.4

3.9

3.7

3.5

3.4

3.7

3.8

3.6

4.2

3.7

4.0

3.9

4.2

4.4

7 20 19 18 16 13

18 24 20 13 15 12

23 14

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

EXIM tonnes originating (million) YoY (%)

0.81

0.86

0.86

0.85

0.90

0.98

0.94

0.90

1.08

0.88

0.97

1.03

0.94

1.03

9 15 16

(4)

20 18

(1) (1) 2 (4)

4 13 16 20

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Domestic tonnes originating (million) YoY (%)

820

810

798

813

809

820

821

791

804

800

780

788

765

781

(5) (6) (7) (7) (5) (4) (3) (5) (3) (1) (4) (5) (7) (4)

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

EXIM average lead (kms) YoY (%)

1,34

4

1,32

8

1,33

3

1,37

8

1,30

8

1,34

9

1,33

5

1,28

5

1,29

4

1,21

0

1,22

5

1,24

8

1,24

9

1,27

7

(4) (5) (4) 1

(4) (1) 2 (1) (6)

(10) (11) (8) (7) (4)

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Domestic average lead (kms) YoY (%)

25%

-2%

30%

13%

9%

1%

0%

5%

20%

16%

30%

17%

19%

9%

21%

21%

27%

14%

8%

4%

16%

24%

29%

28%

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Export - YoY (%) Import - YoY (%)

4 5

2 4

1

4 3 3

0 1

5 4

2

9 7 7 7

5 5 4

7 6

Oct

-16

Dec-

16

Feb-

17

Apr-

17

Jun-

17

Aug-

17

Oct

-17

Dec-

17

Feb-

18

Apr-

18

Jun-

18

Aug-

18

IIP YoY growth (%)

September 2018 Results Preview | Sector: Logistics

October 2018 200

Exhibit 7: Relative performance – three months (%)


Exhibit 8: Relative performance – one year (%)


Exhibit 9: Comparative valuation Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Logistics (INR)


Allcargo Logistics 99 Buy 7.3 8.4 10.5 13.7 11.8 9.5 10.1 6.0 4.9 9.5 10.0 11.3 Concor 640 Buy 17.1 25.8 30.9 37.5 24.8 20.7 21.5 18.4 14.8 9.1 12.9 14.4 Sector Aggregate

33.3 23.0 19.1 18.9 15.6 12.6 8.9 12.0 13.3

95

100

105

110

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Logistics Index

85

93

101

109

117

125

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Logistics Index


October 2018 201


(INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 14,834 15,472 14,799 15,363 16,250 17,078 17,084 18,989 60,469 69,401 YoY Change (%) 6.0 9.9 4.9 12.7 9.5 10.4 15.4 23.6 8.3 14.8 EBITDA 1,030 1,047 933 739 1,021 1,074 1,208 1,016 3,748 4,318 Margins (%) 6.9 6.8 6.3 4.8 6.3 6.3 7.1 5.4 6.2 6.2 Depreciation 399 398 397 397 397 400 400 549 1,591 1,746 Interest 83 71 71 75 79 75 75 21 299 250 Other Income 159 51 49 155 51 50 50 149 414 300 PBT before EO expense 707 629 515 422 596 649 783 595 2,273 2,623 Extra-Ord expense 0 0 0 69 0 0 0 0 69 0 PBT 707 629 515 354 596 649 783 595 2,204 2,623 Tax 76 6 199 231 86 130 157 205 513 577 Rate (%) 10.8 1.0 38.7 65.3 14.4 20.0 20.0 34.4 23.3 22.0 Reported PAT 630 623 315 123 510 519 626 390 1,692 2,046 Min. Interest & P& L of Asso. Cos. -19 15 32 -6 21 19 19 -30 22 27 Adj PAT 611 638 348 185 531 537 645 360 1,782 2,073 YoY Change (%) 0.2 -2.4 -29.3 -67.6 -13.2 -15.8 85.6 94.3 -23.1 16.3 Margins (%) 4.1 4.1 2.3 1.2 3.3 3.1 3.8 1.9 2.9 3.0 E: MOSL Estimates


Allcargo

CMP: INR 99 TP: INR136 (+38%) Buy We expect AGLL to report EBITDA of INR1.07b (+3% YoY, +5% QoQ)

– the MTO and CFS segments are expected to exhibit an improvement, but P&E segment is likely to incur an EBIT loss. We expect PAT of INR537m (-16% YoY, +1% QoQ) in 2QFY19.

We estimate MTO volumes of 162k TEU (+13% YoY, -7% QoQ) and CFS volumes of 83k TEU (+27% YoY, +1% QoQ).

We estimate ~17% EBITDA CAGR and ~20% PAT CAGR over FY18-20, and expect return ratios to improve from ~9.5% in FY18 to ~11.3% in FY20, driven by margin expansion.

The stock trades at 11.7x/9.4x FY19E/20E P/E and FY19E/20E EV/EBITDA of 5.9x/4.9x. Maintain Buy.

Key issues to watch for (a) Volume data and (b) set up of a logistics park in Jhajjar.

Bloomberg AGLL IN Equity Shares (m) 245.7 M. Cap. (INR b)/(USD b) 24 / 0 52-Week Range (INR) 229 / 97 1,6,12 Rel Perf. (%) -9 / -43 / -57 Financial snapshot (INR b)

Y/E March 2017 2018 2019E 2020E

Sales 55.8 60.5 69.4 77.8 EBITDA 4.6 3.7 4.3 5.1 NP 2.3 1.8 2.1 2.6 EPS (INR) 9.4 7.3 8.4 10.5 EPS Growth (%) -6.0 -23.1 16.3 24.3 BV/Share (INR) 72.9 80.0 88.2 98.3 RoE (%) 13.1 9.5 10.0 11.3 RoCE (%) 11.7 8.4 9.2 10.3 Valuations P/E (x) 10.5 13.6 11.7 9.4 P/BV (x) 1.4 1.2 1.1 1.0 EV/EBITDA (x) 5.9 6.9 5.9 4.9

October 2018 202


(INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 14,568 14,302 14,536 15,587 14,983 16,102 16,016 19,017 58,992 65,966 YoY Change (%) 9.9 5.1 10.6 11.7 2.8 12.6 10.2 22.0 9.4 11.8 EBITDA 3,267 2,821 2,971 3,466 3,202 3,775 3,592 4,391 12,524 14,959 Margins (%) 22.4 19.7 20.4 22.2 21.4 23.4 22.4 23.1 21.2 22.7 YoY Change (%) 24.7 24.1 14.0 21.4 -2.0 33.8 20.9 26.7 21.0 19.4 Depreciation 953 969 995 1,010 1,022 1,150 1,000 1,148 3,927 4,320 Interest 0 0 0 0 0 1 1 0 1 1 Other Income 936 954 727 409 1,321 1,450 1,600 1,757 3,026 6,128 PBT before EO expense 3,251 2,805 2,702 2,864 3,500 4,074 4,192 5,000 11,623 16,766 Extra-Ord expense 0 0 -1,485 -690 0 0 0 0 -2,175 0 PBT 3,251 2,805 4,187 3,554 3,500 4,074 4,192 5,000 13,797 16,766 Tax 817 576 1,297 618 977 1,100 1,132 983 3,307 4,192 Rate (%) 25.1 20.5 31.0 17.4 27.9 27.0 27.0 19.7 24.0 25.0 Reported PAT 2,434 2,229 2,891 2,936 2,524 2,974 3,060 4,017 10,490 12,575 Adj PAT 2,434 2,229 1,406 2,247 2,524 2,974 3,060 4,017 8,316 12,575 YoY Change (%) 36.4 41.2 -24.4 6.6 3.7 33.4 117.6 78.8 9.4 51.2 Margins (%) 16.7 15.6 9.7 14.4 16.8 18.5 19.1 21.1 14.1 19.1 E: MOSL Estimates


Concor

CMP: INR640 TP: INR778 (+22%) Buy We expect CCRI to report net sales of INR16b (+13% YoY, +7%

QoQ), led by volume growth of 13% YoY. Realization is expected to increase 2% QoQ on account of recent price hike initiated by the company.

We expect EXIM volumes to improve 13% YoY and domestic volumes to grow 12% YoY.

We expect EXIM realizations to improve by 4% QoQ and domestic realization to improve 1% QoQ, resulting in a net realization increase of 2% QoQ.

We estimate EBITDA at INR3.7b (+34% YoY, +18% QoQ) and adj. PAT at INR2.9b (+33% YoY, +18% QoQ).

The stock trades at 24.8x/20.7x FY19E/20E P/E and FY19E/20E EV/EBITDA of 18.4x/14.8x. Buy.

Key issues to watch for EXIM and domestic volumes, and realizations. Progress on MMLPs and DFC projects.

Bloomberg CCRI IN Equity Shares (m) 487.4 M. Cap. (INR b)/(USD b) 312 / 4 52-Week Range (INR) 750 / 582 1,6,12 Rel Perf. (%) 6 / -7 / -18 Financial snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 53.9 59.0 66.0 75.7 EBITDA 10.4 12.5 15.0 18.4 NP 7.3 8.3 12.6 15.1 EPS (INR) 15.0 17.1 25.8 30.9 EPS Gr. (%) -22.9 13.4 51.2 19.7 BV/Sh (INR) 181.5 192.9 206.3 222.5 RoE (%) 8.5 9.1 12.9 14.4 RoCE (%) 8.6 9.4 12.6 14.1 Payout (%) 51.9 47.8 47.8 47.8 Valuations P/E (x) 42.6 37.5 24.8 20.7 P/BV (x) 3.5 3.3 3.1 2.9 EV/EBITDA (x) 27.2 22.2 18.4 14.8 Div. Yield (%) 1.2 1.3 1.6 1.9

October 2018 203

Heavy content investments to limit growth for broadcasters… …while festive season shifting to 3Q expected to trim growth for print Broadcasters—ZEE is expected to continue its strong growth momentum. Yet, heavy

investment in (traditional and digital) content is expected to limit margin expansion. Sun TV’s ad growth might be moderate at 12% YoY, due to the potential impact of Kerala floods and weak viewership share trajectory.

Print—Double whammy of (a) subdued revenue growth due to festive season shifting to 3QFY19, and (b) full impact of higher newsprint prices deeply denting margins.

Radio—Volume led growth at existing stations coupled with higher contribution from new stations is expected to fuel growth, which will partly be offset by shift in the festive season.

Distribution—Dish TV’s merger synergies remain the mainstay for sustaining healthy margins. For PVR–despite mounting pressure on spend per head (SPH), volumes and GST benefits should drive food and beverage (F&B) revenue. PVR’s consolidated revenue should be robust; however, (SPI Cinemas) acquisition expenses are expected to limit margin expansion.

Broadcasters to see healthy ad growth; but margins to remain under check Broadcasters are expected to continue their strong double-digit ad revenue growth momentum. (a) ~200 bp sequential uptick in network viewership to ~20% (as per our channel checks), (b) contribution from digital (ZEE5), (c) premiers of few recently released movies such as Dhadak, Parmanu, Veere Di Wedding, and (d) low (GST-led) base in 2QFY18 are expected to drive strong 19% YoY growth in ZEE’s ad revenue. Low base of GST impact in the corresponding period augurs well for SUN TV also, however, the benefits would partly be offset due to impacted Kerala-genre ad revenues (hurt by Kerala floods). Nevertheless, we expect SUN TV to register healthy 12% YoY ad revenue growth.

Digitization remains a key catalyst for an uptick in broadcaster’s subscription revenue. We expect healthy 13% YoY growth in ZEE’s subscription revenue on the back of an uptick in catch-up revenue and Phase-3 monetization. Sun TV too is expected to register strong 15% subscription revenue growth driven by Tamil Nadu-led digitization.

ZEE’s consolidated revenue should grow at a strong 18% to INR18.7b. This is mainly on the back of (a) healthy ad and subscription revenue growth, and (b) fillip from the premier of the movie ‘Dhadak’. Yet, increase in content cost due to (a) amortization of the existing ZEE5 content as well as fresh investment in original content, (b) movies released during the quarter, and (c) investment in traditional content should limit EBITDA margin expansion. We expect EBITDA margin to inch up 90 bp to 32% and EBITDA to grow 22% YoY (to INR6.0b). SUN TV is expected to register healthy 13% YoY revenue growth. However, higher than proportionate increase in content cost – partly due to launch of new content—‘Maya’ during the quarter is expected to result in 180 bp margin contraction to 71.6%; expect 10% YoY EBITDA growth to INR5.5b.

Company name

D B Corp

Dish TV India

Jagran Prakashan

MBL

ENIL

PVR

Sun TV

Zee Entertainment

September 2018 Results Preview | Sector: Media

Media

Aliasgar Shakir – Research analyst ([email protected]); +91 022 6129 1565 Hafeez Patel – Research analyst ([email protected]); +91 22 6129 1568

October 2018 204

Print marred by higher newsprint prices; festive revenues likely to shift to 3Q Print companies are likely to report subdued print ad revenue growth impacted by the shifting of the festive season to 3QFY19 vis-à-vis the split of festive season between 2Q and 3Q during the previous year. Consequently, we expect 1%/8% YoY print ad revenue growth for Jagran/DB Corp.

In response to the newsprint price increase, yield improvement remained in focus as Jagran curtailed volume via pagination as well as through circulation copies. DB Corp in select regions – Bihar continued its circulation expansion strategy. This should drive 5%/9% YoY circulation revenue growth for Jagran and DB.

Jagran/DB Corp should register consolidated revenue growth of 4%/8% YoY. Subdued revenue growth coupled with the nearly-full impact of high priced newsprint inventory is expected to pressurize EBITDA margins of print companies. We expect EBITDA margin of Jagran/DB Corp to drop 290 bp/270 bp YoY to 21.6%/21.9%, respectively. Radio Companies expect modest growth Similar to print, radio companies’ growth in ad volumes from new stations is offset by the part-festive season-led high base. We expect 8%/3% revenue growth for Music Broadcast/ENIL. Moderate growth for ENIL is likely on account of free commercial time (FCT) business revenue growth expected to be partly offset by ~20% YoY decline in non-FCT revenue. Despite moderate revenue growth, lower contribution from margin dragging non-FCT business should result in a steady 22.7% EBITDA margin for ENIL. We expect MBL to witness a modest 75 bp YoY margin expansion to 32.7% on the back of operating leverage—driven by higher contribution from new stations. Distribution: Dish TV—expect to maintain last quarter’s high base We expect Dish TV to maintain its high average revenue per user (ARPU) base achieved in 1QFY19 – up 1% QoQ, on higher share of HD subscribers and better product pricing. This coupled with 0.3m net subscriber addition should lead to a modest 2% QoQ subscription revenue growth to INR15.2b. Dish TV’s merger synergies should continue in sustaining healthy QoQ EBITDA margin with consolidated revenue expected to remain flat QoQ (INR16.6b). We expect margin to remain steady QoQ at ~34%. PVR growth to continue; margin capped PVR is likely to report robust 21% YoY consolidated revenue growth (including one month financials of recent SPI Cinemas acquisition) on the back of (1) strong ticketing revenue - led by launch of new screens, uptick in overall admits and modest 2% YoY average ticket price (ATP) growth, (2) healthy double-digit F&B revenue growth, despite ~5% YoY decline in SPH due to GST benefits, and (3) consolidation of SPI Cinemas. However, expenses on account of the acquisition (of SPI cinemas) is expected to limit margin expansion; we expect EBITDA margin to expand a meager 30 bp YoY, reaching 16.6%.

October 2018 205

Exhibit 1: Media coverage: Quarterly snapshot FY17 FY18 FY19

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE YoY (%) QoQ (%) Advertisement Revenue (INR b)

Music Broadcast 0.6 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.8 8 9 Entertainment Network (India) 1.1 1.3 1.5 1.7 1.0 1.3 1.5 1.6 1.2 1.3 3 6 ZEE Entertainment 9.1 9.6 9.6 8.5 9.7 9.9 12.0 10.5 11.5 11.8 19 3 SUN TV 3.2 3.1 2.8 2.7 3.0 3.3 3.4 3.4 3.6 3.7 12 2 Jagran Prakashan 3.5 3.4 3.7 3.3 3.6 3.4 3.6 3.1 3.6 3.4 1 -5 DB Corp 3.7 3.3 4.0 3.1 3.9 3.5 3.8 3.4 4.1 3.8 8 -8 PVR 0.5 0.6 0.8 0.5 0.7 0.7 0.9 0.7 0.7 0.7 8 3 Aggregate MOSL universe 21.7 22.0 23.0 20.4 22.6 22.8 25.8 23.4 25.5 25.5 12 0 Growth (YoY) 15% 11% 2% 1% 4% 4% 12% 15% 13% 12%

Subscription/Circulation Revenue (INR b)

ZEE Entertainment 5.3 5.8 5.9 5.6 4.8 5.0 5.0 5.5 5.2 5.7 13 9 SUN TV 2.7 2.8 2.8 2.8 3.1 3.2 3.2 3.5 3.5 3.7 15 4 Jagran Prakashan 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 5 2 DB Corp 1.2 1.2 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.4 9 3 Dish TV 7.3 7.3 6.9 6.2 6.9 7.0 14.4 13.8 14.9 15.2 116 2 Aggregate MOSL universe 17.5 18.0 18.0 16.9 17.2 17.6 25.1 25.1 26.1 27.1 54 4 Growth (YoY) 11% 15% 9% -4% -2% -3% 39% 49% 52% 54% Total Revenue (INR b)

Music Broadcast 0.6 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.8 8 9 Entertainment Network (India) 1.1 1.3 1.5 1.7 1.0 1.3 1.5 1.6 1.2 1.3 3 6 ZEE Entertainment 15.7 17.0 16.4 15.3 15.4 15.8 18.4 17.3 17.7 18.7 18 5 SUN TV 7.6 6.3 5.9 5.8 7.9 6.8 6.8 7.2 11.2 7.7 13 -32 Jagran Prakashan 5.6 5.5 6.0 5.6 5.9 5.7 6.0 5.5 6.0 5.9 4 -3 DB Corp 5.7 5.4 6.3 5.2 5.9 5.7 6.0 5.7 6.3 6.1 8 -3 Dish TV 7.8 7.8 7.5 7.1 7.4 7.5 16.1 15.3 16.6 16.6 122 0 PVR 5.6 5.4 5.3 4.8 6.4 5.6 5.6 5.8 7.0 6.7 21 -3 Aggregate MOSL universe 49.9 49.4 49.6 46.1 50.6 49.0 61.1 59.0 66.8 63.8 30 -4 Growth (YoY) 15% 14% 3% 2% 2% -1% 23% 28% 32% 30%

EBITDA (INR b)

Music Broadcast 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.3 11 3 Entertainment Network (India) 0.3 0.2 0.4 0.4 0.2 0.3 0.4 0.4 0.3 0.3 3 4 ZEE Entertainment 4.5 4.9 5.2 4.7 4.8 4.9 5.9 5.1 5.7 6.0 22 6 SUN TV 4.4 4.7 4.4 3.9 4.5 5.0 4.9 5.2 7.3 5.5 10 -25 Jagran Prakashan 1.6 1.5 1.9 1.4 1.6 1.4 1.6 1.2 1.6 1.3 -9 -23 DB Corp 1.8 1.5 2.0 1.1 1.9 1.4 1.4 1.0 1.7 1.3 -4 -20 Dish TV 2.6 2.7 2.4 1.9 2.0 2.2 5.0 4.0 5.6 5.6 160 1 PVR 1.1 0.8 0.8 0.5 1.1 0.9 1.0 0.9 1.4 1.1 23 -19 Aggregate MOSL universe 16.5 16.6 17.2 14.2 16.3 16.2 20.5 18.0 23.8 21.4 32 -10 Growth (YoY) 20% 15% 4% -2% -1% -2% 19% 28% 46% 32%

EBITDA Margin (%)

Music Broadcast 30.5 41.7 36.6 24.9 31.5 31.9 30.6 36.0 34.4 32.7 75bp -174bp Entertainment Network (India) 26.6 17.8 25.3 21.3 16.0 22.6 24.1 22.1 23.3 22.7 13bp -60bp ZEE Entertainment 28.8 28.9 31.5 30.7 31.4 31.0 32.3 29.3 31.9 32.0 91bp 4bp SUN TV 57.4 74.6 74.6 67.6 57.0 73.4 72.0 72.9 65.6 71.6 -182bp 600bp Jagran Prakashan 27.6 27.6 31.0 25.6 27.3 24.5 27.2 22.0 27.1 21.6 -289bp -556bp DB Corp 31.5 27.9 31.6 21.7 31.4 24.6 23.3 17.3 26.6 21.9 -269bp -465bp Dish TV 34.0 34.1 31.8 26.9 27.2 28.9 30.8 26.1 33.6 33.9 507bp 31bp PVR 19.0 14.8 15.1 9.7 17.6 16.3 18.2 16.1 19.7 16.6 30bp -311bp Margins MOSL universe 33.0 33.6 34.7 30.7 32.3 33.2 33.5 30.6 35.7 33.5 34bp -214bp Growth (YoY, bp) 141 40 42 -105 -76 -41 -125 -11 339 34

PAT (INR b)

Music Broadcast 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.2 0.1 0.1 6 0 Entertainment Network (India) 0.2 0.1 0.2 0.1 0.0 0.1 0.1 0.1 0.1 0.1 56 1 ZEE Entertainment 2.2 2.4 2.5 2.9 2.5 3.1 3.7 2.3 3.3 3.9 26 20 SUN TV 2.3 2.7 2.4 2.4 2.5 2.8 2.7 2.9 4.1 3.2 13 -21 Jagran Prakashan 0.8 0.9 1.0 0.8 0.9 0.7 0.8 0.6 0.9 0.7 -6 -24 DB Corp 1.0 0.9 1.2 0.6 1.1 0.8 0.8 0.6 1.0 0.8 -1 -20 Dish TV 0.4 0.7 0.1 -0.2 -0.1 -0.2 -1.6 1.2 0.3 0.9 LP 222 PVR 0.4 0.3 0.2 0.0 0.4 0.3 0.3 0.3 0.5 0.3 26 -38 Aggregate MOSL universe 7.5 8.1 7.7 6.7 7.4 7.7 7.0 8.1 10.2 10.0 30 -2 Growth (YoY) -1% 13% -4% -40% 0% -4% -9% 22% 37% 30%


ZEE’s 4QFY17 and 2QFY18 PAT excludes exceptional gain from sports business. Dish TV’s 3QFY18 -2QFY19E performance represents merged figures. Thus, not comparable on YoY basis

October 2018 206

Exhibit 2: 2QFY19E ad revenue growth (YoY, %)


Exhibit 3: 2QFY19E subscription/circulation revenue growth (YoY, %)

*Dish TV - QoQ growth Source: Company, MOSL

Exhibit 4: 2QFY19E total revenue growth (YoY, %)

*Dish TV - QoQ growth Source: Company, MOSL

Exhibit 5: MOSL Media universe quarterly revenue and EBITDA margin trend


Exhibit 6: MOSL Media universe quarterly aggregate PAT growth trend

Aggregate PAT is adjusted for exceptional gain from sports business for ZEE and includes merged figures for Dish TV (3QFY18- 2QFY19E) Source: Company, MOSL

19 12 1 8 8 3 8

ZEE SUN TV Jagran DB Corp MBL ENIL PVR

13 15 5 9 2

ZEE SUN TV Jagran DB Corp Dish TV*

18 13 4 8 8 3 0 21

ZEE SUN TV Jagran DB Corp MBL ENIL Dish TV* PVR

43.4 43.4 48.1 45.4 49.9 49.4 49.6 46.1 50.6 49.0 61.1 59.0 66.8 63.8

32 33

34

32 33 34

35

31 32

33 33

31

36 34

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E

Aggregate Revenue (INR b) Aggregate EBITDA margin (%)

7.5 7.1 8.0 11.2 7.5 8.1 7.7 6.7 7.4 7.7 7.0 8.1 10.2 10.0

51 42 10

146

-1 13 -4 -40

0 -4 -9 22 37 30

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E

Aggregate PAT (INR b) YoY growth (%)


October 2018 207


Media (INR) Rating Sep-18

Var % YoY

Var % QoQ

Sep-18 Var

% YoY Var

% QoQ Sep-18

Var % YoY

Var % QoQ

D B Corp 206 Neutral 6,140 8.0 -2.9 1,346 -3.8 -19.9 782 -0.6 -19.9 Dish TV 57 Buy 16,617 122.0 0.4 5,639 161.0 1.3 897 LP 222.0 Ent.Network 651 Buy 1,293 2.8 6.3 294 3.5 3.6 93 56.3 29.7 Jagran Prakashan 115 Buy 5,866 3.5 -2.6 1,266 -8.7 -22.6 653 -6.1 -23.5 Music Broadcast 319 Buy 822 8.5 8.7 269 11.0 3.2 135 6.3 0.3 PVR 1,225 Buy 6,734 21.2 -3.3 1,118 23.5 -18.5 323 26.4 -38.1 Sun TV 629 Buy 7,658 13.3 -31.6 5,482 10.5 -25.4 3,224 13.3 -21.2 Zee Entertainment 438 Buy 18,678 18.1 5.4 5,970 21.5 5.5 3,932 26.3 13.1 Sector Aggregate

63,808 30.3 -4.4 21,383 31.6 -10.2 10,039 30.0 -3.5

Exhibit 8: Relative performance-3m (%)


Exhibit 9: Relative performance-1 Yr (%)


Exhibit 10: Comparative valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Media (INR)


D B Corp 206 Neutral 17.6 18.4 23.1 11.7 11.2 8.9 9.4 6.4 4.9 18.4 17.0 20.0 Dish TV 57 Buy -0.4 1.9 5.5 -140.4 30.2 10.3 11.6 4.6 3.6 -2.1 5.0 13.4 Ent.Network 651 Buy 6.8 13.2 21.6 95.9 49.5 30.1 29.6 18.4 13.5 3.7 6.9 10.4 Hindustan Media 147 Neutral 23.9 20.6 21.9 6.2 7.2 6.7 3.1 -0.9 -1.9 14.0 10.8 10.4 Jagran Prakashan 115 Buy 9.6 11.9 14.9 11.9 9.6 7.7 8.3 4.7 3.5 14.3 17.5 20.4 Music Broadcast 319 Buy 9.1 12.5 16.6 35.1 25.5 19.1 21.5 13.3 10.0 9.0 11.4 14.0 PVR 1,225 Buy 26.7 40.2 50.0 45.9 30.5 24.5 15.7 12.0 10.4 12.2 16.1 16.4 Sun TV 629 Buy 27.7 36.5 41.9 22.7 17.2 15.0 16.0 9.2 7.9 25.2 29.6 31.0 Zee Entertainment 438 Buy 14.6 16.1 19.5 30.1 27.2 22.4 25.9 16.5 13.7 19.6 19.0 19.7 Sector Aggregate

28.2 21.5 16.1 16.8 9.7 8.0 12.8 15.4 17.9

Source: MOSL

80

88

96

104

112

Jun-

18

Jul-1

8

Aug-

18

Sep-

18Sensex Index MOSL Media Index

75

90

105

120

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Media Index


October 2018 208

Consolidated quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue from operations 5,927 5,683 5,986 5,603 6,324 6,140 6,733 5,756 23,199 24,953 YoY Change (%) 3.2 5.4 -4.6 8.3 6.7 8.0 12.5 2.7 2.7 7.6 Total Expenditure 4,063 4,284 4,590 4,624 4,644 4,794 5,042 4,951 17,561 19,430 EBITDA 1,864 1,399 1,396 979 1,680 1,346 1,691 805 5,638 5,523 Margins (%) 31.4 24.6 23.3 17.5 26.6 21.9 25.1 14.0 24.3 22.1 Depreciation 220 229 232 243 243 246 246 248 924 982 Interest 16 20 11 20 18 13 13 9 67 54 Other Income 70 57 39 72 68 97 89 101 238 355 PBT 1,698 1,207 1,191 789 1,488 1,184 1,521 649 4,885 4,842 Tax 597 421 410 218 512 403 517 199 1,645 1,630 Rate (%) 35.1 34.8 34.4 27.6 34.4 34.0 34.0 30.6 33.7 33.7 MI & P/L of Asso. Cos. 0 0 0 0 0 0 0 0 0 0 Reported PAT 1,101 787 781 571 976 782 1,004 450 3,240 3,211 Adj PAT 1,101 787 781 571 976 782 1,004 450 3,240 3,211 YoY Change (%) 5.9 -12.0 -33.9 -11.1 -11.4 -0.6 28.5 -21.2 -13.8 -0.9 Margins (%) 18.6 13.8 13.0 10.2 15.4 12.7 14.9 7.8 14.0 12.9 E: MOSL Estimates


D B Corp

CMP: INR206 TP: INR231 (+12%) Neutral We expect print’s ad revenue to grow at a moderate 8% YoY to

INR3.8b, primarily led by some revival in local ad spends. Circulation revenue is likely to grow 9% YoY to INR1.4b, led by

circulation drive and yield improvement. Consolidated revenue is likely to grow 8% to INR6.1b mainly on the

back of print’s ad revenue. However, higher than proportionate increase in newsprint prices is

likely to impact EBITDA. Consequently, despite moderate revenue growth, we expect EBITDA to decline 4% YoY to INR1.3b and margins to contract 270 bp YoY to 21.9%.

We estimate net profit of INR0.8b, down 1% YoY. The stock trades at 11.2x FY19E and 8.9x FY20E EPS. Maintain

Neutral.

Key things to watch for Ad revenue (we expect 8% YoY growth) EBITDA margin (we expect 270bp YoY contraction to 21.9%)

Bloomberg DBCL IN Equity Shares (m) 183.7 M. Cap. (INR b)/(USD b) 38 / 1 52-Week Range (INR) 389 / 195 1,6,12 Rel Perf. (%) -4 / -42 / -61


Y/E MARCH 2017 2018 2019E 2020E

Net Sales 22.6 23.1 25.0 27.0

EBITDA 6.4 5.6 5.5 6.6

Adj. Net Profit 3.8 3.2 3.2 4.0

Adj. EPS (INR) 20.4 17.6 18.4 23.1

Adj. EPS Gr. (%) 28.6 -13.8 4.3 25.7

BV/Sh (INR) 86.7 104.9 100.8 118.1

RoE (%) 25.1 18.4 17.0 20.0

RoCE (%) 23.7 18.0 16.8 19.7

Div. Payout (%) 48.7 27.3 26.2 20.9

Valuations

P/E (x) 10.1 11.7 11.2 8.9

P/BV (x) 2.4 2.0 2.0 1.7

EV/EBITDA (x) 5.7 6.2 6.1 4.6

Div. Yield (%) 4.0 2.0 2.0 2.0

October 2018 209

Consolidated quarterly performance (INR m)


1Q* 2Q* 3Q 4Q 1Q 2QE 3QE 4QE

Revenue from operations 7,389 7,486 16,143 15,324 16,556 16,617 17,004 18,329 46,342 68,507 YoY Change (%) -5.1 -3.9 115.8 116.3 124.1 122.0 5.3 19.6 53.7 47.8 Total Expenditure 5,377 5,325 11,165 11,317 10,989 10,978 11,196 11,697 33,181 44,860 EBITDA 2,012 2,161 4,978 4,007 5,568 5,639 5,808 6,632 13,160 23,647 EBITDA margin (%) 27.2 28.9 30.8 26.1 33.6 33.9 34.2 36.2 28.4 34.5 Depreciation 1,822 1,899 3,525 3,471 3,608 3,688 3,688 3,769 10,717 14,754 Interest 590 611 1,434 1,329 1,775 1,124 1,124 1,597 3,964 5,620 Other Income 98 77 242 127 157 295 295 311 542 1,058 PBT -302 -272 261 -667 342 1,122 1,291 1,578 -979 4,331 Tax -162 -93 1,944 -1,849 87 224 258 297 -130 866 Rate (%) 53.8 34.3 743.8 277.3 25.4 20.0 20.0 18.8 13.3 20.0 MI & P/L of Asso. Cos. (22.7) (17.1) (45.5) (30.4) (23.9) 0.0 0.0 0.0 (98.6) (23.9) Reported PAT -117 -162 -1,637 1,213 279 897 1,032 1,281 -750 3,489 Adjusted PAT -117 -162 -1,637 -257 279 897 1,032 1,281 -750 3,489 YoY Change (%) NM NM NM NM LP LP LP LP NM LP PAT margin (%) -1.6 -2.2 -10.1 -1.7 1.7 5.4 6.1 7.0 -1.6 5.1 E: MOSL Estimates; *Note: 1QFY18 and 2QFY18 figures represent Dish TV’s pre-merger financial performance and thus are not comparable with 1QFY19 and 2QFY19


Dish TV India

CMP: INR57 TP: INR80 (+40%) Buy We expect DITV’s overall revenue to remain flat QoQ at INR16.6b. Subscription revenue is likely to grow 2% QoQ to INR15.2b on the

back of ARPU growth and net subscriber adds. High base should limit ARPU growth to a meager 1% QoQ to

INR216. We expect the DITV to register 0.3m net subscriber adds. EBITDA margin is likely to witness a 30 bp QoQ expansion to 33.9%

mainly led by operational cost synergies. We expect consolidated EBITDA to grow 1% QoQ to INR5.6b.

We expect DITV to report net profit of INR0.9b. The stock trades at EV/EBITDA of 4.6x FY19E and 3.6x FY20E.

Maintain Buy.

Key things to watch for Quarterly net subscriber adds (we expect 0.3m) ARPU (we expect 1% QoQ growth to INR216) EBITDA margin (we expect 30bp expansion to 33.9%)

Bloomberg DITV IN Equity Shares (m) 1841.3 M. Cap. (INR b)/(USD b) 105 / 1



Y/E March 2017 2018 2019E 2020E

Net Sales 30.1 46.3 68.5 75.0 EBITDA 9.7 13.2 23.6 27.0 Adj. NP 0.8 -0.8 3.5 10.2

Adj. EPS (INR) 0.8 -0.4 1.9 5.5 Adj. EPS Gr.(%) -88.1 -152.9 LP 192.4 BV/Sh (INR) 3.7 36.6 38.5 44.0

RoE (%) 21.1 -2.1 5.0 13.4 RoCE (%) 19.6 5.2 8.7 12.2 Valuations P/E (x) 74.2 NM 30.2 10.3

P/BV (x) 15.4 1.6 1.5 1.3 EV/EBITDA (x) 6.4 9.2 4.6 3.6

October 2018 210

Standalone quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 1,045 1,257 1,479 1,594 1,216 1,293 1,804 2,066 5,371 6,380 YoY Change (%) -5.6 -3.0 -1.8 -3.5 16.4 2.8 22.0 29.6 -3.4 18.8 Total Expenditure 873 973 1,123 1,240 932 999 1,365 1,502 4,205 4,799 EBITDA 172 284 356 354 284 294 439 564 1,166 1,580 Margins (%) 16.4 22.6 24.1 22.2 23.3 22.7 24.3 27.3 21.7 24.8 Depreciation 156 159 161 158 152 170 170 189 635 681 Net Interest cost -10 -9 -6 -17 -18 -13 -13 -8 -41 -53 PBT before EO expense 25 134 201 213 150 137 282 384 573 953 Extra-Ord expense 42 0 0 0 0 0 0 0 42 0 PBT 68 134 201 213 150 137 282 384 615 953 Tax 23 74 70 96 58 44 90 113 263 305 Rate (%) 34.2 55.5 34.9 45.0 38.5 32.0 32.0 29.4 42.8 32.0 Reported PAT 45 60 131 117 92 93 192 271 352 648 Adj PAT 17 60 131 117 72 93 192 271 324 627 YoY Change (%) -89.9 -24.5 -19.8 -15.2 331.4 56.3 46.9 131.3 -40.5 93.7 Margins (%) 1.6 4.7 8.8 7.3 5.9 7.2 10.6 13.1 6.0 9.8 E: MOSL Estimates

CMP: INR651 TP: INR851 (+31%) Buy We expect standalone revenue to grow 3% YoY to INR1,293m,

pulled down by subdued non-FCT business. Standalone EBITDA is likely to grow at 4% YoY to INR294m. Despite

moderate revenue growth, low contribution from margins dragging non-FCT business is expected to limit margin impact at 22.7%.

PAT is expected to grow 56% YoY to INR93m, mainly driven by EBITDA.

The stock trades at an EV/EBITDA of 19.4x FY19E and 14.3x FY20E. Maintain Buy.

Key things to watch for Growth in advertisement revenue in old and new stations Yield improvement at legacy stations

Bloomberg ENIL IN Equity Shares (m) 47.7 M. Cap. (INR b)/(USD b) 31 / 0 52-Week Range (INR) 894 / 610 1,6,12 Rel Perf. (%) 1 / -15 / -34


Y/E March 2017 2018 2019E 2020E

Net Sales 5.6 5.4 6.4 7.5 EBITDA 1.3 1.2 1.6 2.0

Adj. NP 0.5 0.3 0.6 1.0 Adj. EPS (INR) 11.4 6.8 13.2 21.6 Adj. EPS Gr. (%) -49.5 -40.5 93.7 64.4

BV/Sh (INR) 179.3 185.5 197.9 218.4 RoE (%) 6.6 3.7 6.9 10.4 RoCE (%) 4.9 3.1 6.0 9.0

Valuation P/E (x) 57.0 95.8 49.5 30.1 P/BV (x) 3.6 3.5 3.3 3.0

EV/EBITDA (x) 25.5 27.4 19.4 14.3


Entertainment Network

October 2018 211

Consolidated quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Revenue from Operations 5,913 5,665 5,981 5,480 6,026 5,866 6,783 6,236 23,040 24,911 YoY Change (%) 4.8 2.1 -0.6 -2.5 1.9 3.5 13.4 13.8 0.9 8.1 Total Expenditure 4,301 4,279 4,352 4,276 4,390 4,600 4,737 4,826 17,208 18,553 EBITDA 1,613 1,386 1,629 1,204 1,636 1,266 2,046 1,410 5,832 6,358 Margins (%) 27.3 24.5 27.2 22.0 27.1 21.6 30.2 22.6 25.3 25.5 Depreciation 328 340 343 350 307 361 361 415 1,361 1,444 Interest 72 74 76 49 31 37 37 43 271 148 Other Income 120 125 108 113 49 121 121 291 467 582 PBT 1,333 1,098 1,318 918 1,346 989 1,769 1,244 4,667 5,348 Tax 446 375 446 290 463 336 602 384 1,557 1,785 Rate (%) 33.5 34.2 33.8 31.6 34.4 34.0 34.0 30.9 33.4 33.4 MI & P/L of Asso. Cos. 21 27 25 37 29 0 0 0 111 29 Reported PAT 866 695 848 590 854 653 1,168 860 2,999 3,534 Adj PAT 866 695 848 590 854 653 1,168 860 2,999 3,534 YoY Change (%) 3.3 -18.5 -12.9 -27.2 -1.4 -6.1 37.7 45.7 -13.7 17.9 Margins (%) 14.6 12.3 14.2 10.8 14.2 11.1 17.2 13.8 13.0 14.2 E: MOSL Estimates


Jagran Prakashan

CMP: INR115 TP: INR156 (+36%) Buy We expect print advertising revenue to grow marginally by 1% YoY

to INR3.4b due to shifting of the festive season to 3QFY19 v/s split of the festive season in 2Q/3QFY18.

Circulation revenue is likely to grow at moderate 5% YoY to INR1.1b, mainly on the back of yield improvement. We expect radio revenue to grow 8% to INR0.8b.

Consolidated revenue is expected to grow 4% YoY to INR5.9b. However, increase in printing cost (led by spurt in newsprint prices)

is likely to more than offset the benefit of revenue growth. We expect 290 bp YoY EBITDA margin contraction to 21.6%, with 9% YoY EBITDA decline to INR1.3b.

PAT is expected to decline 6% YoY to INR0.7b. The stock trades at 9.6x FY19E and 7.7x FY20E EPS. Maintain Buy.

Key things to watch for Ad revenue (we expect 1% YoY growth) EBITDA margin (we expect 290bp dip to 21.6%)

Bloomberg JAGP IN Equity Shares (m) 311.4 M. Cap. (INR b)/(USD b) 36 / 0 52-Week Range (INR) 192 / 112 1,6,12 Rel Perf. (%) 0 / -41 / -51


Y/E MARCH 2017 2018 2019E 2020E

Net Sales 22.8 23.0 24.9 27.1 EBITDA 6.4 5.8 6.4 7.4

Adj. Net Profit 3.5 3.0 3.5 4.4 Adj. EPS (INR) 10.6 9.6 11.9 14.9 Adj. EPS Gr. (%) 8.8 -9.5 23.8 24.7

BV/Sh (INR) 65.9 65.5 67.4 78.6 RoE (%) 18.4 14.3 17.5 20.4 RoCE (%) 15.9 14.1 16.9 19.5

Div. Payout (%) 0.0 37.4 30.2 24.2 Valuations P/E (x) 10.8 11.9 9.6 7.7 P/BV (x) 1.7 1.8 1.7 1.5


October 2018 212

Standalone quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 703 758 762 759 757 822 928 910 2,982 3,417 YoY Change (%) 11.9 9.5 4.7 14.1 7.6 8.5 21.9 19.8 9.9 14.6 Total Expenditure 481 516 529 486 496 554 581 587 2,012 2,218 EBITDA 222 242 233 274 261 269 347 322 971 1,199 Margins (%) 31.5 31.9 30.6 36.0 34.4 32.7 37.4 35.5 32.5 35.1 Depreciation 64 67 65 67 67 67 67 67 263 269 Interest 39 38 39 34 14 7 7 1 150 30 Other Income 47 50 43 54 24 24 45 67 194 161 PBT 166 187 172 227 204 218 318 321 752 1,061 Tax 57 60 53 65 69 83 110 105 235 367 Rate (%) 34.6 32.0 30.9 28.4 33.7 38.0 34.6 32.9 31.2 34.6 Reported PAT 108 127 119 163 135 135 208 215 517 694 Adj PAT 108 127 119 163 135 135 208 215 517 694 YoY Change (%) 42.3 9.7 16.4 261.3 24.5 6.3 74.9 32.5 41.1 34.1 Margins (%) 15.4 16.8 15.6 21.4 17.8 16.5 22.4 23.7 17.3 20.3 E: MOSL Estimates


Music Broadcast CMP: INR319 TP: INR455 (+43%) Buy We expect revenue to grow 8% YoY to INR822m. Though the ad

spends seem to have recovered, shift of festive season to 3QFY19 has trimmed incremental growth.

EBITDA is expected to grow 11% YoY to INR269m; overall margin is likely to expand 75 bp YoY to 32.7%.

We expect PAT to grow 6% YoY to INR135m. The stock trades at EV/EBITDA of 14.6x FY19E and 11.0x FY20E.

Maintain Buy.

Key things to watch for Growth in utilization of new and old stations Yield improvement at legacy stations

Bloomberg RADIOCIT IN Equity Shares (m) 57.1 M. Cap. (INR b)/(USD b) 18 / 0 52-Week Range (INR) 458 / 282 1,6,12 Rel Perf. (%) 6 / -28 / -32


Y/E March 2017 2018 2019E 2020E

Sales 2.7 3.0 3.4 3.9 EBITDA 0.9 1.0 1.2 1.5 Adj. NP 0.4 0.5 0.7 0.9

Adj. EPS (INR) 6.4 9.1 12.5 16.6 Adj.EPS Gr (%) -26.1 41.1 37.7 33.3 BV/Sh. (INR) 96.1 105.1 110.2 126.8



October 2018 213

Consolidated quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 6,366 5,554 5,573 5,849 6,963 6,734 7,534 7,491 23,341 28,722 YoY Change (%) 13.2 2.1 5.0 21.2 9.4 21.2 35.2 28.1 10.1 23.1 Total Expenditure 5,246 4,649 4,557 4,905 5,591 5,616 6,088 6,053 19,323 23,347 EBITDA 1,120 905 1,015 944 1,372 1,118 1,447 1,438 4,018 5,375 Margins (%) 17.6 16.3 18.2 16.1 19.7 16.6 19.2 19.2 17.2 18.7 Depreciation 376 347 386 394 401 434 434 480 1,537 1,750 Interest 208 207 212 210 208 227 196 282 837 914 Other Income 164 42 32 75 43 29 28 13 313 113 PBT before EO expense 700 393 449 415 805 486 844 689 1,958 2,824 Extra-Ord expense 0 6 0 0 0 0 0 0 6 0 PBT 700 387 449 415 805 486 844 689 1,952 2,824 Tax 258 140 154 153 283 163 283 218 704.4 946.1 Rate (%) 36.8 36.1 34.2 36.9 35.2 33.5 33.5 31.6 36.1 33.5 Reported PAT 445 252 302 263 521 323 561 472 1,248 1,878 Adj. PAT 445 255 302 263 521 323 561 472 1,251 1,878 YoY Change (%) 0.1 -12.3 -17.2 NM 17.3 26.4 85.7 79.6 27.1 50.1 Margins (%) 7.0 4.5 5.4 4.5 7.5 4.8 7.5 6.3 5.3 6.5 E: MOSL Estimates


PVR

CMP: INR1,225 TP: INR1,700 (+39%) Buy We expect robust 21% YoY consolidated revenue growth (including

one month financials of recent SPI acquisition) to INR6.7b on account of (1) strong ticketing revenue growth – led by screen additions and marginal 2% YoY increase in ATP, (2) (volume-led) double-digit growth in F&B revenue (despite cut in SPH), and (3) consolidation of SPI cinemas.

Despite strong growth, margins are likely to expand a meager 30 bp YoY to 16.6% impacted by expenses for acquisition of SPI cinemas. We expect EBITDA to grow 23% YoY to INR1.1b.

We expect adjusted PAT to grow 26% YoY to INR323m. The stock trades at 33.9x FY19E and 27.3x FY20E EPS. Maintain

Buy.

Key things to watch for Number of screen additions Increase in ATP Growth in sponsorship revenue

Bloomberg PVRL IN Equity Shares (m) 46.7 M. Cap. (INR b)/(USD b) 57 / 1



Y/E MARCH 2017 2018 2019E 2020E

Net Sales 21.2 23.3 28.7 34.0

EBITDA 3.1 4.0 5.4 6.9

Adj. Net Profit 1.0 1.2 1.9 2.4

Adj. EPS (INR) 20.5 26.7 40.2 50.0

Adj. EPS Gr. (%) -3.8 29.9 50.6 24.5

BV/Sh (INR) 206.5 230.1 267.8 351.8

RoE (%) 10.4 12.2 16.1 16.4

RoCE (%) 9.5 10.4 12.9 12.8

Payout (%) 7.0 9.0 6.0 4.8

Valuations

P/E (x) 66.4 51.1 33.9 27.3

P/BV (x) 6.6 5.9 5.1 3.9

EV/EBITDA (x) 22.5 17.4 13.2 11.4

Div Yield (%) 0.1 0.1 0.1 0.1

October 2018 214

Standalone quarterly performance

(INR m)

Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 7,863 6,759 6,833 7,170 11,204 7,658 7,778 8,383 28,625 35,023 YoY Change (%) 3.4 8.1 15.9 23.1 42.5 13.3 13.8 16.9 11.9 22.4 Total Expenditure 3,380 1,798 1,912 1,946 3,857 2,176 2,170 2,217 9,036 10,420 EBITDA 4,484 4,961 4,920 5,224 7,347 5,482 5,608 6,166 19,589 24,603 Margins (%) 57.0 73.4 72.0 72.9 65.6 71.6 72.1 73.6 68.4 70.2 Depreciation 1,035 1,027 1,145 1,190 1,468 1,116 1,116 1,116 4,397 4,817 Interest 1 1 1 9 3 3 3 3 11 11 Other Income 371 372 291 368 390 522 522 654 1,402 2,089 PBT 3,819 4,306 4,066 4,393 6,267 4,885 5,011 5,701 16,584 21,864 Tax 1,302 1,459 1,397 1,496 2,175 1,661 1,704 1,956 5,654 7,496 Rate (%) 34.1 33.9 34.3 34.0 34.7 34.0 34.0 34.3 34.1 34.3 Reported PAT 2,516 2,847 2,670 2,898 4,091 3,224 3,308 3,745 10,930 14,368 Adj. PAT 2,516 2,847 2,670 2,898 4,091 3,224 3,308 3,745 10,930 14,368 YoY Change (%) 8.0 5.3 11.2 22.8 62.6 13.3 23.9 29.3 11.6 31.5 Margins (%) 32.0 42.1 39.1 40.4 36.5 42.1 42.5 44.7 38.2 41.0 E: MOSL Estimates


Sun TV

CMP: INR629 TP: INR950 (+51%) Buy We expect Sun TV’s standalone revenue to grow 13% YoY to

INR7.7b. Advertising revenue is expected to witness a 12% YoY jump to

INR3.7b. The benefit of low base (impacted by GST) is likely to be partly offset by impact of Kerala floods.

We expect subscription revenue to grow 15% YoY to INR3.7b primarily led by digitization in Tamil Nadu.

However, higher content cost is expected to contract EBITDA margin by 180 bp YoY to 71.6%. Standalone EBITDA should grow 10% YoY to INR5.5b.

PAT is expected to grow 13% YoY to INR3.2b. The stock trades at 17.2x FY19E and 15.0x FY20E EPS. Maintain

Buy.

Key things to watch for Ad revenue growth (expect 12% YoY growth) Subscription revenue growth (expect 15% YoY growth)

Bloomberg SUNTV IN Equity Shares (m) 394.1 M. Cap. (INR b)/(USD b) 248 / 3 52-Week Range (INR) 1097 / 567 1,6,12 Rel Perf. (%) -13 / -38 / -33


Y/E March 2017 2018 2019E 2020E

Net Sales 25.6 28.6 35.0 39.6 EBITDA 17.4 19.6 24.6 27.8

Adj. Net Profit 9.8 10.9 14.4 16.5 Adj. EPS (INR) 24.9 27.7 36.5 41.9 Adj. EPS Gr. (%) 14.1 11.6 31.5 14.9

BV/Sh (INR) 102.1 117.7 128.8 141.8 RoE (%) 26.0 25.2 29.6 31.0 RoCE (%) 26.0 25.3 29.6 31.0



October 2018 215

Consolidated quarterly performance

(INR m) Y/E March FY18 FY19

FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Total Revenue from Operations 15,403 15,821 18,381 17,253 17,720 18,678 20,701 19,231 66,857 76,330 YoY Change (%) -2.0 -6.7 12.1 12.9 15.0 18.1 12.6 11.5 3.9 14.2 Total Expenditure 10,559 10,909 12,437 12,191 12,064 12,708 14,024 13,194 46,095 51,991 EBITDA 4,844 4,912 5,944 5,062 5,657 5,970 6,677 6,036 20,761 24,339 Margins (%) 31.4 31.0 32.3 29.3 31.9 32.0 32.3 31.4 31.1 31.9 Depreciation 311 411 505 594 576 582 582 582 1,821 2,321 Interest 147 3 24 1,274 53 0 0 451 1,448 504 Other Income 1,011 2,031 480 881 498 569 569 569 4,404 2,206 Fair Value through P&L gain/(loss) -532 -148 -419 1,032 -213 0 0 0 -68 -213 PBT before EO expense 4,864 6,381 5,477 5,106 5,312 5,957 6,665 5,573 21,829 23,507 Extra-Ord expense 0 -1,346 0 0 0 0 0 0 -1,346 0 PBT 4,864 7,727 5,477 5,106 5,312 5,957 6,665 5,573 23,175 23,507 Tax 2,376 1,832 1,739 2,805 2,071 2,025 2,266 1,895 8,409 8,257 Rate (%) 48.8 23.7 31.7 54.9 39.0 34.0 34.0 34.0 36.3 35.1 MI & P/L of Asso. Cos. 4 -16 -4 -9 -23 0 0 0 -25 -23 Reported PAT 2,484 5,912 3,743 2,310 3,264 3,932 4,399 3,678 14,791 15,272 Adj PAT 3,016 3,113 4,162 1,278 3,477 3,932 4,399 3,678 14,001 15,485 YoY Change (%) 39.0 30.6 65.9 -68.1 15.3 26.3 5.7 187.7 -7.0 10.6 Margins (%) 19.6 19.7 22.6 7.4 19.6 21.0 21.2 19.1 20.9 20.3 E: MOSL Estimates


Zee Entertainment

CMP: INR438 TP: INR600 (+37%) Buy We expect advertising revenue to grow at a robust 19% YoY to

INR11.8b on the back of an uptick in network viewership, contribution from ZEE5 and a low base (impacted by GST).

Subscription revenue is likely to grow 13% YoY to INR5.7b. Total revenue should grow 18% YoY to INR18.7b on the back of

robust ad revenue growth. Yet, higher content cost on account of amortization of ZEE5

content, coupled with investment in traditional and movie content is expected to limit EBITDA margin expansion. We expect EBITDA margin to inch up by 90 bp to 32%; consolidated EBITDA is likely to grow 22% YoY to INR6.0b.

Adjusted for one-offs - INR1.3b exceptional gain from sale of sports business and INR1.6b other income on equity revaluation in 2QFY18, PAT is expected to surge 26% YoY to INR3.9b mainly on the back of strong EBITDA growth.


Key things to watch for Ad revenue (expect 19% YoY growth) Subscription revenue (expect 13% YoY growth)

Bloomberg Z IN Equity Shares (m) 960.5 M. Cap. (INR b)/(USD b) 421 / 6 52-Week Range (INR) 619 / 415 1,6,12 Rel Perf. (%) -5 / -33 / -31


Y/E MARCH 2017 2018 2019E 2020E

Net Sales 64.3 66.9 76.3 87.3 EBITDA 19.3 20.8 24.3 28.5 Adj. NP 12.8 14.0 15.5 18.8

Adj. EPS (INR) 13.4 14.6 16.1 19.5 Adj. EPS Gr. (%) 52.4 -7.0 10.6 21.3 BV/Sh (INR) (INR)

69.7 78.7 91.0 107.0

RoE (%) 22.4 19.6 19.0 19.7 RoCE (%) 20.2 16.5 17.6 19.7 Div. Payout (%) 13.0 22.6 22.6 18.4



October 2018 216

Seasonal and global trade war concerns drive a weaker 2Q Our top picks are HNDL, JSTL, JSP and NMDC

Steel prices seasonally weak, base metal prices lower in 2Q Steel: Domestic steel product prices were seasonally weak. Long steel product prices declined ~5% QoQ to ~INR38,300/t, while flat product prices were steady at ~INR45,600/t. Aggregate steel volumes for the companies under our coverage increased ~4% QoQ, as government spending, growth in autos and durables continued keeping the demand momentum strong. Domestic iron ore prices were trending higher. Currency depreciation is likely to offset the benefit of lower benchmark coking coal prices. Base metals: Prices were down across major commodities due to the uncertainty around global trade war, appreciation of USD against major currencies, and expectation of slowing demand in China. All-in aluminum prices are down ~8% QoQ to USD2,157/t (LME is down 9% QoQ to USD2,058/t). Zinc prices fell sharply by ~18% QoQ to USD2,541/t due to weak demand and commissioning of new supply. Lead prices were also down ~12% QoQ to USD2,108/t. Alumina prices increased ~5% QoQ to USD547/t due to supply disruption and rising cost of Chinese producers.

Ferrous companies to outperform Aggregate EBITDA for our metals coverage universe would be down ~2% QoQ (+36% YoY) to INR287b and adj. PAT will be down ~11% QoQ (+69% YoY) to INR91b. Steel companies would relatively outperform, driven by growth at Tata Steel and SAIL. Tata Steel’s EBITDA is expected to increase by ~13% to INR73b, led by consolidation of Bhushan Steel. India EBITDA per ton is expected to decline ~INR900 to INR16,154. SAIL’s EBITDA is expected to increase ~9% QoQ to INR28b, led by marginally higher volumes and EBITDA per ton expansion of ~INR300 QoQ to INR8,122. JSW Steel (standalone) and JSP are expected to see EBITDA per ton contraction of ~INR1,000 and ~INR2,000, respectively. HNDL and NACL will be impacted by lower LME. Vedanta’s QoQ performance will also be weak due to lower aluminum and zinc LME, partly offset by higher crude prices. Estimates and TP change (Exhibit 15 to 17) We have cut our LME aluminum assumption from USD2,175 to USD2,100 for FY19 and from USD2,150 to USD2,000 for FY20. Our USDINR estimate is raised from 68.1 to 70.7 for FY19 and from 68.5 to 73.4 for FY20. The change in estimates is presented in Exhibits 15-17. Top picks – HNDL, JSTL, JSP and NMDC Metal stocks have de-rated over the last few months on risk-off trade due to uncertainties of a trade war. Trade restrictions could impact commodity flows in the near term, influencing commodity prices in an unpredictable manner. However, in the medium-to-long term, we believe that the cost economies would start to play out again. Structurally efficient companies in terms of low capital and operating cost, access to cheap raw material and a strong balance sheet would be well placed.

Company name

Hindalco

Hindustan Zinc

Jindal Steel & Power

JSW Steel

Nalco

NMDC

SAIL

Tata Steel

Vedanta

Metals

September 2018 Results Preview | Sector: Metals

Sanjay Jain – Research analyst ([email protected]); +91 22 3982 5412 Dhruv Muchhal – Research analyst ([email protected]); +91 22 3027 8033

October 2018 217

Indian metal stocks are also likely to benefit from strong domestic demand tailwinds. Our top picks are HNDL, JSTL and NMDC. We also like JSP which would benefit from capacity addition and a strong steel cycle – though the leverage is high. We also have a Buy rating on NACL and VEDL.

Exhibit 1: Expected quarterly performance summary CMP Sales (INR m) EBITDA (INR m) PAT (INR m)



% YoY Var


Var % QoQ

Metals Hindalco 254 Buy 324,971 16.9 3.7 38,692 10.8 -3.5 13,086 26.8 -14.7

Hindustan Zinc 294 Neutral 47,523 -10.5 -10.5 23,103 -23.6 -14.8 17,813 -21.0 -7.1 JSPL 187 Buy 88,842 42.4 -8.7 19,179 39.6 -15.8 -2,334 Loss PL JSW Steel 382 Buy 202,344 19.4 -1.4 46,016 45.4 -9.9 19,381 120.9 -18.1 Nalco 69 Buy 30,052 22.4 1.1 8,429 137.5 -16.6 5,365 152.2 -14.4 NMDC 114 Buy 25,080 3.6 3.6 14,907 16.0 0.8 9,287 10.9 -4.2 Rain Industries 167 Buy 37,667 23.5 -1.0 6,577 -2.4 -5.0 2,930 19.3 -0.6 SAIL 69 Neutral 164,689 20.9 3.5 28,021 173.6 8.8 6,484 LP -10.1 Tata Steel 580 Neutral 348,155 7.2 -8.0 73,364 55.4 13.4 25,347 148.4 10.3 Vedanta 240 Buy 213,613 -1.1 -3.8 57,006 0.6 -9.3 13,356 -29.9 -12.9 Sector Aggregate

1,482,936 12.4 -2.5 315,294 27.2 -3.3 110,716 40.9 -11.0

Exhibit 2: India domestic HRC prices

Exhibit 3: China steel spreads with raw materials


28,500

33,500

38,500

43,500

48,500

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

HRC

Mum

bai (

INR/

t)

Spot Quaterly average

90

190

290

390

490

Nov

-13

Feb-

14

May

-14

Aug-

14

Nov

-14

Feb-

15

May

-15

Aug-

15

Nov

-15

Feb-

16

May

-16

Aug-

16

Nov

-16

Feb-

17

May

-17

Aug-

17

Nov

-17

Feb-

18

May

-18

Aug-

18

HRC Rebar

Average domestic HRC steel price was unchanged QoQ

in 2QFY19

Chinese steel mills product spreads at multi-year highs


October 2018 218

Exhibit 4: Domestic steel demand growth – trailing 12 months (YoY %)


Exhibit 5: India’s net steel imports – kt


Exhibit 6: India steel – sales volumes (mt)


Exhibit 7: India steel – EBITDA/ton (INR)


8.6

-2.5

0.0

2.5

5.0

7.5

10.0

Feb-

14Ap

r-14

Jun-

14Au

g-14

Oct

-14

Dec-

14Fe

b-15

Apr-

15Ju

n-15

Aug-

15O

ct-1

5De

c-15

Feb-

16Ap

r-16

Jun-

16Au

g-16

Oct

-16

Dec-

16Fe

b-17

Apr-

17Ju

n-17

Aug-

17O

ct-1

7De

c-17

Feb-

18Ap

r-18

Jun-

18Au

g-18

Cons. (mt) Trailing 12m Growth (%)

-1,000

-500

0

500

1,000

Jan-

12Ap

r-12

Jul-1

2O

ct-1

2Ja

n-13

Apr-

13Ju

l-13

Oct

-13

Jan-

14Ap

r-14

Jul-1

4O

ct-1

4Ja

n-15

Apr-

15Ju

l-15

Oct

-15

Jan-

16Ap

r-16

Jul-1

6O

ct-1

6Ja

n-17

Apr-

17Ju

l-17

Oct

-17

Jan-

18Ap

r-18

Jul-1

8

Net steel imports (kt)

2.3 2.3 2.7 2.2 2.6 3.0 3.2 2.8 3.1 3.3 3.0 3.0 3.2 2.7 2.9 3.8

2.8 3.6 3.3 3.4 3.0 3.5 3.8 3.7 3.3 3.5 3.1 2.6

3.3 3.3

3.8 3.6 4.0 3.5

3.9 4.0 4.2 3.8 3.9

9.0 8.5 10.8

9.1 10.9 10.8 11.5

10.1 11.4 12.0 12.2 11.3 11.7

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Tata Steel SAIL JSW Steel JSP

-10,000

-4,000

2,000

8,000

14,000

20,000

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

161Q

FY17

2QFY

173Q

FY17

4QFY

171Q

FY18

2QFY

183Q

FY18

4QFY

181Q

FY19

2QFY

19

Average Tata Steel - India SAIL JSW Steel JSP

Domestic steel consumption up ~9% YoY in

trailing 12 months

India turned into a net exporter of steel again in

August 2018


October 2018 219

Exhibit 8: Revenue of coverage universe


Exhibit 9: EBITDA of coverage universe


Exhibit 10: Quarterly average aluminum prices – USD/ton

Quarter Aluminum Premium Aluminum total price Alumina

Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY Avg. QoQ YoY 2QFY19 2,058 -9% 2%

99 -1% 8%

2,157 -8% 3%

547 5% 63%

1QFY19 2,254 4% 18% 100 6% -14% 2,354 4% 16% 523 36% 77% 4QFY18 2,159 3% 17%

95 0% -8%

2,254 2% 16%

383 -14% 13%

3QFY18 2,105 5% 23%

94 3% 29%

2,200 5% 23%

446 33% 46% 2QFY18 2,011 5% 24%

91 -22% 21%

2,103 4% 24%

335 13% 43%

1QFY18 1,910 3% 21% 117 13% 17% 2,027 4% 21% 295 -13% 17% 4QFY17 1,851 8% 22%

103 40% -8%

1,954 10% 20%

341 12% 56%

3QFY17 1,710 6% 14%

73 -3% -21%

1,783 5% 12%

305 30% 31% 2QFY17 1,620 3% 2%

76 -24% -25%

1,696 1% 0%

235 -7% -20%

1QFY17 1,570 4% -11% 100 -10% -50% 1,672 3% -15% 253 15% -25% 4QFY16 1,516 1% -16%

111 20% -70%

1,627 2% -25%

219 -6% -36%

3QFY16 1,495 -6% -24%

93 -8% -78%

1,588 -6% -33%

233 -20% -34% 2QFY16 1,591 -10% -20%

100 -49% -75%

1,692 -14% -29%

293 -13% -9%

1QFY16 1,765 -2% -2% 198 -48% -47% 1,963 -10% -10% 336 -2% 6%


1,012 989 913 1,003 909 993 1,070

1,256 1,111

1,235 1,333

1,474 1,429 1,397

0

400

800

1,200

1,600

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Reve

nue

(INR

b)

Nalco

Hindalco

VEDL

NMDC

JSP

JSW Steel

SAIL

Tata Steel

132 137 114 69

113 151 156 183

242 191 211

247 303 292 287

-100

0

100

200

300

400

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

EBIT

DA (I

NR

b)

Nalco

Hindalco

VEDL

NMDC

JSP

JSW Steel

SAIL

Tata Steel


October 2018 220

Exhibit 11: Global aluminum production trend

Source: MOSL, Company, Bloomberg

Exhibit 12: China aluminum production trend

Source: MOSL, Company, Bloomberg

Exhibit 13: LME aluminum and inventories

Source: MOSL, Bloomberg

Exhibit 14: Other base metals quarterly average prices – USD/ton

Quarter Zinc

Copper

Lead

Silver (Rs/kg)

Avg. QoQ YoY

Avg. QoQ YoY

Avg. QoQ YoY

Avg. QoQ YoY 2QFY19 2,541 -18% -14%

6,102 -11% -4%

2,108 -12% -10%

37,549 -5% -3%

1QFY19 3,112 -9% 20%

6,868 -1% 21%

2,385 -5% 10%

39,423 2% -1% 4QFY18 3,410 5% 23%

6,959 2% 20%

2,521 1% 11%

38,509 0% -7%

3QFY18 3,235 9% 29%

6,819 7% 29%

2,491 7% 16%

38,571 0% -7% 2QFY18 2,955 14% 31%

6,345 12% 33%

2,332 8% 25%

38,659 -3% -16%

1QFY18 2,596 -6% 35%

5,662 -3% 20%

2,166 -5% 26%

39,766 -4% 0% 4QFY17 2,778 11% 65%

5,831 11% 25%

2,276 6% 31%

41,447 0% 16%

3QFY17 2,513 12% 56%

5,277 11% 8%

2,149 15% 28%

41,273 -10% 19% 2QFY17 2,253 17% 22%

4,772 1% -9%

1,873 9% 9%

45,851 15% 32%

1QFY17 1,875 19% -14%

4,726 1% -22%

1,718 -1% -12%

39,726 12% 7% 4QFY16 1,581 -2% -24%

4,672 -4% -20%

1,744 4% -3%

35,595 2% -4%

3QFY16 1,616 -15% -28%

4,892 -7% -26%

1,681 -2% -16%

34,804 0% -5% 2QFY16 1,892 -13% -18%

5,259 -13% -25%

1,714 -12% -21%

34,651 -7% -19%

1QFY16 2,183 5% 5%

6,043 4% -11%

1,942 8% -7%

37,194 0% -11%


-12.0

-6.0

0.0

6.0

12.0

3,000

3,600

4,200

4,800

5,400

Jul-1

6

Oct

-16

Jan-

17

Apr-

17

Jul-1

7

Oct

-17

Jan-

18

Apr-

18

Jul-1

8

YoY

grow

th (%

)

'000

tons

Production YoY

0

12

24

36

48

1.4

1.7

2.0

2.3

2.6

2.9

Apr-

16

Jul-1

6

Oct

-16

Jan-

17

Apr-

17

Jul-1

7

Oct

-17

Jan-

18

Apr-

18

Jul-1

8

YoY

grow

th (%

)

m to

ns

Production YoY

0.2

0.6

1.0

1.4

1.8

1,700

1,925

2,150

2,375

2,600

2,825

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

m to

ns

USD

/t

Inventories (RHS) Spot


October 2018 221

Exhibit 15: Ferrous – change in estimates and TP

EBITDA (INR b)

Adj. PAT (INR b)

TP Comments

2QFY19E FY19E FY20E 2QFY19E FY19E FY20E

Tata Steel Old 72 289 213

25 102 83

632

New 73 296 223

25 105 91

647 Change

2% 5%

2% 10% 2%

JSW Steel Old 48 182 173 21 81 73 385

Higher margins in India and including recent acquisition in US New 46 198 199

19 88 84

447

Change

8% 15%

10% 16% 16%

SAIL Old 27 125 113 6 36 27 85

New 28 126 112

6 37 27

79 Change

1% -1%

2% -2% -7%

JSP Old 22 90 95 0 2 4 327

New 19 87 94

-2 -1 4

315 Change

-4% 0%

-4%

NMDC Old 14 64 69 9 43 46 178

New 15 65 68

9 44 45

177 Change

2% -2%

2% -2%

-1%


Exhibit 16: Aluminum - change in estimates and TP

EBITDA (INR b)

Adj. PAT (INR b)

TP

Comments 2QFY19E FY19E FY20E

2QFY19E FY19E FY20E

Hindalco (Consol)

Old 37 153 183

12 54 60

322 USDINR, offset by lower LME New 39 158 191

13 56 62

338

Change

4% 4%

3% 3%

5%

Nalco Old 8 33 28

5 20 18

107

New 8 33 28

5 20 18

107 Change

0% 0%

0% 0%

0%


Exhibit 17: Others - change in estimates and TP

EBITDA (INR b)

Adj. PAT (INR b)

TP

Comments 2QFY19E FY19E FY20E

2QFY19E FY19E FY20E

HZL

Old 29 123 142

22 94 111

295 USDINR New 23 122 156

18 93 122

317

Change

-1% 10%

-1% 10%

7%

VEDL 66 280 330

18 80 101

276

USDINR, offset by lower LME aluminum

57 276 333

13 79 100

257 Change

-1% 1%

-2% 0%

-7%




Exhibit 19: Relative performance – one year (%)


85

92

99

106

113

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Metals Index

74

88

102

116

130

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Metals Index


October 2018 222

Exhibit 20: Comparative valuation Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Metals Hindalco 254 Buy 18.9 24.9 27.9 13.4 10.2 9.1 7.5 6.5 5.1 12.8 14.0 13.8 Hindustan Zinc 294 Neutral 21.1 22.0 28.9 13.9 13.4 10.2 8.6 8.0 5.9 26.7 24.0 27.2 JSPL 187 Buy -8.5 -1.0 3.9 -22.0 -191.5 47.5 10.1 7.3 6.3 -2.7 -0.3 1.3 JSW Steel 382 Buy 23.4 36.7 35.0 16.3 10.4 10.9 8.0 7.5 7.6 22.2 29.0 23.1 Nalco 69 Buy 5.1 10.7 9.2 13.6 6.4 7.5 5.6 3.0 3.6 9.5 19.1 15.5 NMDC 114 Buy 13.1 13.9 14.3 8.7 8.2 8.0 5.2 4.7 4.5 17.7 17.4 16.4 Rain Industries 167 Buy 23.7 32.4 34.2 7.0 5.1 4.9 8.6 4.6 4.1 22.9 24.5 21.0 SAIL 69 Neutral 0.3 9.1 6.6 266.8 7.6 10.4 16.4 7.7 9.1 0.3 9.7 6.6 Tata Steel 580 Neutral 71.9 87.0 75.2 8.1 6.7 7.7 6.2 5.9 6.9 17.8 16.9 12.8 Vedanta 240 Buy 20.4 21.1 26.9 11.8 11.4 8.9 7.4 6.1 4.9 12.2 12.0 14.3 Sector Aggregate 13.4 10.0 9.5 7.9 6.5 6.1 11.5 13.8 13.4


October 2018 223

Quarterly Performance (Standalone+Utkal) (INR Million)

Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Aluminium (sales, kt) 299 329 325 321 300 327 328 338 1,274 1,294 Copper (sales, kt) 105 93 102 108 82 85 100 100 408 367 Exchange USD/INR 64.5 65.0 64.8 64.3 67.0 70.2 72.5 73.0 64.7 70.7 Avg LME Aluminium (USD/T) 1,909 2,009 2,097 2,162 2,250 2,050 2,050 2,050 2,044 2,100 Net Sales 97,770 103,120 110,440 116,810 106,700 111,390 124,242 127,199 428,140 469,530 EBITDA 14,540 16,290 16,090 15,940 18,660 15,651 17,818 18,594 62,860 70,723

Aluminium 11,320 11,070 11,880 12,650 15,310 12,367 13,929 14,700 46,920 56,306 USD/t 587 518 564 612 762 538 585 595 570 616

Copper 3,220 5,220 4,210 3,290 3,350 3,284 3,889 3,894 15,940 14,417 Interest 6,030 5,720 5,400 5,000 4,640 4,737 4,700 4,673 22,150 18,750 Depreciation 4,590 4,600 4,620 5,350 4,800 4,582 4,569 4,573 19,160 18,524 Other Income 2,070 1,960 2,510 2,140 850 645 675 545 8,680 2,716 PBT (before EO item) 5,990 7,930 8,580 7,730 10,070 6,978 9,224 9,893 30,230 36,165 EO item -1,040 -940 -1,150 -3,130 PBT (after EO item) 4,950 6,990 7,430 7,730 10,070 6,978 9,224 9,893 27,100 36,165 Total Tax 1,310 2,290 2,590 1,570 2,730 2,024 2,675 2,869 7,760 10,297

% Tax 26.5 32.8 34.9 20.3 27.1 29.0 29.0 29.0 28.6 28.5 Reported PAT 3,640 4,700 4,840 6,160 7,340 4,954 6,549 7,024 19,340 25,867 Adjusted PAT 4,680 5,640 5,990 6,160 7,340 4,954 6,549 7,024 22,470 25,867 Novelis Shipments (kt) 785 802 796 805 797 818 812 821 3,188 3,252 Novelis adj. EBITDA (USDm) 289 302 305 319 332 318 315 319 1,215 1,284 E: MOSL Estimates


Hindalco

CMP:INR254 TP:INR338 (+33%) Buy Standalone (incl. Utkal): We expect EBITDA to decline 16% QoQ

to INR15.6b on lower LME aluminum. Aluminum EBITDA is expected to decline 19% QoQ to INR12.4b, while copper EBITDA is expected to fall 2% QoQ to INR3.3b. Aluminum LME is down ~USD200/t QoQ to USD2,050/t, driving the decline in EBITDA.

Aluminum volumes will increase 9% QoQ to 327kt and copper will increase 4% QoQ to 85kt.

Novelis: We expect Novelis to report adjusted EBITDA of USD318m, down 4% QoQ. Adjusted EBITDA/t is estimated at USD388 (v/s USD417 in 1QFY19). Volumes are expected to increase by 3% QoQ to 818kt. Buy.

Key issues to watch for Lower margins in aluminum Foreign exchange rate impact at Novelis

Bloomberg HNDL IN


1,6,12 Rel Perf. (%) 13 / 14 / -10


Sales 1,002 1,152 1,301 1,532 EBITDA 124.4 138.2 158.2 191.2

NP 19.1 42.1 55.5 62.1 Adj. EPS (INR) 8.6 18.9 24.9 27.9 EPS Gr(%) -28.5 120.5 32.0 11.9

BV/Sh. (INR) 129.9 166.1 189.6 215.8 RoE (%) 7.1 12.8 14.0 13.8 RoCE (%) 8.2 9.3 10.2 10.6


P/BV 1.9 1.5 1.3 1.1 EV/EBITDA (x) 8.1 6.8 6.1 5.7 Div. Yield (%) 0.5 0.6 0.6 0.6

October 2018 224

Quarterly Performance INR million Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Zinc refined (kt) 190 193 200 210 170 168 200 216 793 754 Lead refined (kt) 34 40 45 50 42 48 51 55 169 196 Silver (tonnes) 110 146 132 167 141 162 170 183 555 656 Zinc LME (USD/t) 2,589 2,950 3,236 3,180 3,108 2,541 2,800 2,800 3,048 2,816 Net Sales 45,760 53,090 59,220 62,770 53,100 47,523 60,930 66,133 220,840 227,686 Change (YoY %) 80.8 50.6 18.9 0.3 16.0 -10.5 2.9 5.4 27.7 3.1 EBITDA 23,840 30,240 32,440 36,200 27,130 23,103 34,554 37,594 122,720 122,380 Change (YoY %) 110.8 45.6 16.5 -3.4 13.8 -23.6 6.5 3.8 26.0 -0.3

As % of Net Sales 52.1 57.0 54.8 57.7 51.1 48.6 56.7 56.8 55.6 53.7 Finance cost 1,370 840 170 450 150 0 0 0 2,830 150 DD&A 3,600 3,940 4,810 4,590 3,870 4,545 4,590 4,636 16,940 17,642 Other Income 5,300 4,870 2,980 4,860 2,990 3,991 4,108 3,725 18,010 14,813 PBT (before EO item) 24,170 30,330 30,440 36,020 26,100 22,548 34,071 36,682 120,960 119,402 EO exp. (income) 0 -2,910 0 510 0 0 0 0 -2,400 0 PBT (after EO item) 24,170 33,240 30,440 35,510 26,100 22,548 34,071 36,682 123,360 119,402 Total Tax 5,410 7,790 8,140 10,460 6,920 4,735 7,155 7,703 31,800 26,513

% Tax 22.4 23.4 26.7 29.5 26.5 21.0 21.0 21.0 25.8 22.2 Reported PAT 18,760 25,450 22,300 25,050 19,180 17,813 26,916 28,979 91,560 92,888 Adjusted PAT 18,760 22,540 22,300 25,560 19,180 17,813 26,916 28,979 89,160 92,888 Change (YoY %) 80.8 18.5 -3.9 -16.4 2.2 -21.0 20.7 13.4 7.2 4.2


Hindustan Zinc

CMP:INR294 TP: INR317 (+8%) Neutral We expect HZL’s EBITDA to decline 15% QoQ (-24% YoY) to

INR23.1b on lower realization, partly offset by lower cost. LME zinc (adjusting for hedges) is expected to decline 18% QoQ to

USD2,541/t. Lead is down 11% QoQ to USD2,108/t. Mine metal production is expected to be broadly flat QoQ at

215kt. PAT is expected to be down 7% QoQ to INR17.8b (-30% YoY).

Neutral. Key issues to watch for Decline in global zinc prices Production issues

Bloomberg HZ IN


1,6,12 Rel Perf. (%) 5 / -13 / -21

Financial Snapshot (INR Billion) Y/E March 2017 2018 2019E 2020E Sales 173.0 221 228 269 EBITDA 97.4 122.7 122.4 155.8 NP 83.2 89.2 92.9 121.9 Adj. EPS (INR) 19.7 21.1 22.0 28.9 EPS Gr.(%) 7.2 4.2 31.3 BV/Sh. (INR) 72.9 85.0 97.8 114.5 RoE (%) 24.4 26.7 24.0 27.2 RoCE (%) 29.4 35.5 32.7 35.7 Payout (%) 179.3 45.5 42.0 42.0 Valuations P/E (x) 11.8 11.0 10.6 8.0 P/BV (x) 9.7 9.2 8.9 7.0 EV/EBITDA (x) 0.0 8.2 7.9 5.8 Div. Yield (%) 12.7 3.4 3.3 4.4

October 2018 225

Quarterly Performance (Consolidated) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 59,364 62,393 71,048 86,923 97,282 88,842 102,451 104,565 279,727 393,140 Change (YoY %) 26.4 28.4 27.3 34.0 63.9 42.4 44.2 20.3 29.4 40.5 Total Expenditure 45,837 48,659 54,983 65,558 74,516 69,663 80,107 82,161 215,036 306,447 EBITDA 13,527 13,734 16,065 21,365 22,766 19,179 22,344 22,403 64,691 86,692 Change (YoY %) 37.5 61.9 25.8 37.7 68.3 39.6 39.1 4.9 38.8 34.0

As % of Net Sales 22.8 22.0 22.6 24.6 23.4 21.6 21.8 21.4 23.1 22.1 Interest 9,006 9,268 9,670 10,714 9,729 10,320 10,537 10,478 38,657 41,065 Depreciation 9,622 9,977 9,632 9,599 10,399 11,433 11,925 12,005 38,830 45,763 Other Income 0 14 10 5 0 8 8 9 29 25 PBT (before EO item) -5,101 -5,496 -3,227 1,057 2,637 -2,566 -110 -72 -12,767 -111 Extra-ordinary Income 0 -1,497 0 -4,376 0 0 0 0 -5,874 0 PBT (after EO item) -5,101 -6,994 -3,227 -3,319 2,637 -2,566 -110 -72 -18,641 -111 Total Tax -887 -1,999 -457 944 1,538 399 1,000 723 -2,398 3,661

% Tax 17.4 28.6 14.2 -28.4 58.3 -15.6 -909.5 -1008.5 12.9 -3293.7 Reported PAT -4,214 -4,995 -2,770 -4,263 1,099 -2,966 -1,110 -795 -16,243 -3,772 MI - Loss/(Profit) -334 -497 -67 -1,166 -709 -603 -782 -654 -2,064 -2,749 Associate 10 19 43 17 0 28 24 26 87 78 Adjusted PAT -3,871 -2,982 -2,660 1,295 1,808 -2,334 -305 -115 -8,218 -945 Change (YoY %) -15.2 -60.0 -34.7 -142.8 -146.7 -21.7 -88.5 -108.9 -57.0 -88.5


Jindal Steel & Power

CMP: INR194 TP: 315 (+69%) Buy Standalone: We estimate standalone EBITDA to decline 20% QoQ

to INR13.2b on lower steel prices and higher raw material cost. EBITDA per ton will be down ~INR2000 to INR10,514. Volumes will be flat QoQ at ~1.25mt.

Jindal Power: Jindal Power’s EBITDA is expected to decline 4% QoQ to INR3b on lower generation. Generation will be down 11% QoQ to 2.25BU.

Oman: We expect EBITDA of INR4b, down ~12% QoQ. Consolidated EBITDA is likely to decline 16% QoQ to INR19.2b.

Buy. Key issues to watch for Ramp-up of Angul Power demand growth

Bloomberg JSP IN


1,6,12 Rel Perf. (%) -8 / -27 / 15


Sales 216.2 279.7 393.1 395.2 EBITDA 46.6 64.7 86.7 94.4

Adj. PAT -19.1 -8.2 -0.9 3.8 Adj. EPS (INR) -20.9 -8.5 -1.0 3.9 EPS Gr (%) 14.8 -59.4 -88.5 -503.4

BV/Sh. (INR) 328.4 308.4 307.4 310.9 RoE (%) -7.9 -2.7 -0.3 1.3 RoCE (%) 1.0 3.2 5.0 5.8

Payout (%) 0.0 0.0 0.0 0.0 Valuations P/E (x) -9.3 -22.9 -198.7 49.3


October 2018 226

Quarterly Performance (Consolidated) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 148,285 169,475 178,610 204,500 205,190 202,344 226,004 233,668 700,870 867,206 Change (YoY %) 26.7 28.1 27.5 22.8 38.4 19.4 26.5 14.3 26.0 23.7 EBITDA 27,465 31,655 38,510 49,230 51,050 46,016 49,205 51,588 146,860 197,859 Change (YoY %) -16.0 7.0 34.3 55.6 85.9 45.4 27.8 4.8 19.8 34.7 EBITDA (INR per ton) 8,102 7,994 9,556 11,666 13,329 11,952 11,857 12,138 9,402 12,305 EBITDA (USD per ton) 121 126 150 181 199 170 164 166 146 174 Interest 9,450 9,500 9,230 8,830 8,870 8,849 8,657 8,464 37,010 34,839 Depreciation 8,190 8,510 8,520 8,650 9,050 8,600 8,687 8,768 33,870 35,105 Other Income 410 390 420 450 580 198 137 36 1,670 951 PBT (before EO Item) 10,235 14,035 21,180 32,200 33,710 28,766 31,998 34,391 77,650 128,865 EO Items -1,295 -1,295 -2,640 10,960 5,730 PBT (after EO Item) 8,940 12,740 18,540 43,160 33,710 28,766 31,998 34,391 83,380 128,865 Total Tax 2,840 4,450 940 14,440 10,530 9,822 10,904 11,392 22,670 42,648

% Tax 31.8 34.9 5.1 33.5 31.2 34.1 34.1 33.1 27.2 33.1 Reported PAT 6,100 8,290 17,600 28,720 23,180 18,944 21,094 22,999 60,710 86,217 MI (Profit)/Loss

30 -210 1,170 270 315 386 535 990 1,507

Share of P/(L) of Ass. 140 70 140 70 210 123 136 135 420 603 Adjusted PAT 6,624 8,774 18,313 26,709 23,660 19,381 21,616 23,669 60,420 88,326 Change (YoY %) -40.3 20.8 150.8 163.3 257.2 120.9 18.0 -11.4 68.8 46.2


JSW Steel

CMP: INR381 TP: INR447 (+17%) Buy Consolidated EBITDA is expected to decline 10% QoQ to INR46b

(+45% YoY) on seasonally weak quarter and some increase in raw material cost.

Standalone steel sales would be broadly flat QoQ (-2% YoY) at 3.85mt.

Standalone EBITDA/t is expected at INR11,417 per ton, down ~INR1,000/t QoQ, due to lower steel prices.

Adjusted consolidated PAT is expected to decline 18% QoQ to INR19.4b (+121% YoY). Buy.

Key issues to watch for Steel price hikes and impact of coking coal. Domestic steel demand growth.

Bloomberg JSTL IN


1,6,12 Rel Perf. (%) 3 / 18 / 38


Sales 556.0 700.9 867.2 941.4 EBITDA 122.6 146.9 197.9 199.0

Adj. PAT 35.8 56.4 88.3 84.3 Adj. EPS (INR) 14.9 23.4 36.7 35.0 EPS Gr(%) 56.9 56.6 -4.5

BV/Sh. (INR) 94.4 116.2 136.4 166.7 RoE (%) 17.4 22.2 29.0 23.1 RoCE (%) 7.9 9.6 12.7 11.1



October 2018 227

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Aluminium Prod. ('000 tons) 101 105 111 112 110 112 112 112 429 446 Alumina Sales ('000 tons) 259 380 256 440 320 322 303 353 1,335 1,299 Avg LME Aluminium (USD/ton) 1,910 2,011 2,097 2,162 2,250 2,050 2,050 2,050 2,045 2,100 NSR premiums (USD/ton) 323 239 269 190 269 190 190 190 256 210 Alumina NSR (USD/ton) 314 334 422 413 560 550 450 450 371 503 Net Sales 18,027 24,548 23,888 28,632 29,733 30,052 28,081 29,917 95,094 117,783 Change (YoY %) 16.4 33.0 20.2 12.3 64.9 22.4 17.6 4.5 19.9 23.9 EBITDA 2,270 3,549 4,668 6,297 10,111 8,429 6,791 7,779 16,783 33,111 Change (YoY %) 16.6 106.0 63.7 47.3 345.5 137.5 45.5 23.5 55.5 97.3

As % of Net Sales 12.6 14.5 19.5 22.0 34.0 28.0 24.2 26.0 17.6 28.1 Interest 4 4 5 6 6 0 0 0 20 Depreciation 1,170 1,123 1,243 1,268 1,217 1,169 1,224 1,219 4,804 4,829 Other Income 859 810 766 573 621 704 704 704 3,008 2,732 PBT (before EO Item) 1,954 3,231 4,186 5,597 9,509 7,964 6,271 7,263 14,968 31,013 Extra-ordinary Income 6 -32 6,784 -1,336 910 0 0 0 5,421 PBT (after EO Item) 1,960 3,199 10,969 4,261 10,419 7,964 6,271 7,263 20,388 31,013 Total Tax 670 853 3,752 1,690 3,549 2,600 2,047 2,371 6,964 10,566

% Tax 34.2 26.7 34.2 39.7 34.1 32.6 32.6 32.6 34.2 34.1 Reported PAT 1,289 2,346 7,218 2,571 6,871 5,365 4,224 4,893 13,424 20,447 Adjusted PAT 1,287 2,127 2,756 3,685 6,270 5,365 4,224 4,893 9,855 20,447


Nalco

CMP: INR69 TP: INR107 (55%) Buy We expect EBITDA to decline 17% QoQ to INR8.4b (+138% YoY)

on lower aluminum LME and alumina realization. Aluminum LME is down ~USD200/t QoQ to USD2,050/t. Alumina

is expected to be down USD10/t to USD550/t. Aluminum volumes are expected to increase 7% QoQ to 112kt.

Alumina sales would increase 1% QoQ to 322kt. Adj. PAT is expected to decline 14% QoQ to INR5.4b. Buy. Key issues to watch for Availability of coal for captive power plant LME price trend, utilization of smelter

Bloomberg NACL IN


1,6,12 Rel Perf. (%) -1 / -7 / -28


Sales 75.4 95.1 117.8 116.5 EBITDA 10.8 16.8 33.1 28.4

NP 7.2 9.9 20.7 17.8 Adj. EPS (INR) 3.7 5.1 10.7 9.2 EPS Gr(%) 37.9 37.0 110.5 -14.3

BV/Sh. (INR) 52.8 54.3 58.3 60.3 RoE (%) 7.2 9.5 19.1 15.5 RoCE (%) 7.9 12.9 25.7 20.9



October 2018 228

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Production (m tons) 8.5 7.2 8.6 11.3 6.9 6.6 10.0 10.8 35.6 34.2 Sales (m tons) 9.2 8.3 8.1 10.5 6.8 6.6 10.0 10.8 36.1 34.2 Avg Dom. NSR (USD/t) 46 43 45 55 53 57 43 43 48 50 Avg Dom. NSR (INR/t) 2,938 2,836 2,975 3,644 3,541 3,800 2,859 2,859 3,128 3,265 Net Sales 28,415 24,213 24,690 38,830 24,220 25,080 29,467 31,685 116,149 110,453 EBITDA 16,206 12,852 13,314 20,826 14,788 14,907 17,866 17,425 63,198 64,987

As % of Net Sales 57.0 53.1 53.9 53.6 61.1 59.4 60.6 55.0 54.4 58.8 EBITDA per ton (USD) 27 24 25 30 32 34 27 24 27 29 EBITDA per ton (INR/t) 1,765 1,549 1,652 1,976 2,162 2,259 1,787 1,617 1,752 1,899 Interest 82 102 112 76 108 0 0 0 371 108 Depreciation 467 620 772 702 616 738 756 775 2,560 2,885 Other Income 1,286 1,099 1,111 1,702 1,251 508 587 706 5,197 3,052 PBT (before EO Item) 16,944 13,229 13,542 21,749 15,316 14,677 17,697 17,356 65,464 65,046 Extra-ordinary item -1,258 -823 234 -3,463 -550 0 0 0 -5,309 PBT (after EO Item) 15,686 12,406 13,776 18,286 14,766 14,677 17,697 17,356 60,155 65,046 Total Tax 5,994 3,963 4,910 7,226 5,013 4,697 5,663 5,554 22,093 20,927

% Tax 38.2 31.9 35.6 39.5 34.0 32.0 32.0 32.0 36.7 32.2 Reported PAT 9,692 8,443 8,866 11,060 9,753 9,980 12,034 11,802 38,062 44,119 Adjusted PAT 10,721 8,370 8,568 13,762 9,691 9,287 11,197 10,982 41,421 44,119


NMDC

CMP: INR114 TP: INR177 (+55%) Buy NMDC’s adj. EBITDA is expected to come in flat QoQ at ~INR15b

as impact of lower volumes is likely to be offset by higher prices. Iron ore sales volumes are expected to decrease 4% QoQ to 6.6mt

on lower offtake from Karnataka by JSW Steel. Domestic iron ore realization is expected to increase 7% QoQ to

INR3,800/t. Adjusted PAT is expected to decrease 4% QoQ to INR9.3b. Buy. Key issues to watch for Increase in global iron ore prices Stronger-than-expected iron ore demand

Bloomberg NMDC IN


1,6,12 Rel Perf. (%) 8 / -12 / -19


Sales 88.3 116.1 110.5 119.4 EBITDA 44.9 63.2 65.0 67.9

Adj. PAT 31.5 41.4 44.1 45.3 Adj. EPS (INR) 10.0 13.1 13.9 14.3 EPS Gr(%) 11.7 31.5 6.5 2.7

BV/Sh. (INR) 71.2 77.0 83.7 90.8 RoE (%) 13.5 17.7 17.4 16.4 RoCE (%) 11.5 17.1 16.6 15.7



October 2018 229

Quarterly Performance (Consolidated) (INR Million) Y/E December CY17 CY18 CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Net Sales 24,680 26,371 30,508 31,448 33,062 38,033 37,667 36,383 113,007 145,144 Change (YoY %) 14 4 36 32 34 44 23 16 21 28 EBITDA 4,414 4,678 6,738 6,872 6,409 6,924 6,577 6,077 22,702 25,987

As % of Net Sales 17.9 17.7 22.1 21.9 19.4 18.2 17.5 16.7 20.1 17.9 Carbon EBITDA 2,759 2,924 5,042 5,726 5,524 5,519 5,349 4,787 16,451 21,179

USD/t 61 66 103 130 128 114 105 100 90 111 ACM EBITDA 1,531 1,543 1,427 884 908 1,216 1,014 1,014 5,385 4,152

USD/t 199 187 168 116 127 146 130 130 168 134 Cement EBITDA 124 211 269 262 189 117 214 276 866 796

INR/t 232 379 533 515 339 205 350 450 411 338 Interest 1,536 1,483 1,463 1,465 1,180 1,118 1,163 1,163 5,947 4,624 Depreciation 1,366 1,295 1,335 1,260 1,230 1,316 1,182 1,219 5,256 4,946 Other Income 206 475 256 198 61 93 270 212 1,134 636 PBT (before EO Inc.) 1,717 2,375 4,196 4,345 4,060 4,583 4,502 3,907 12,633 17,053 EO Income(exp) -670 0 0 -302 0 0 0 0 -973 0 PBT (after EO Inc.) 1,047 2,375 4,196 4,043 4,060 4,583 4,502 3,907 11,661 17,053 Total Tax 400 819 1,662 868 1,403 1,546 1,531 1,328 3,749 5,808

% Tax 38.2 34.5 39.6 21.5 34.6 33.7 34.0 34.0 32.1 34.1 Reported PAT 647 1,556 2,534 3,175 2,657 3,038 2,972 2,578 7,912 11,245 Less: Min. Int. & assc. 55 41 78 103 145 90 41 85 285 361 Adjusted PAT 1,262 1,515 2,457 3,374 2,512 2,948 2,930 2,494 8,599 10,884

Change (YoY %) 331.3 8.0 29.2 136.8 99.0 94.6 19.3 -26.1 72.7 26.6


Rain Industries

CMP:INR167 TP: INR241 (+45%) Buy We expect EBITDA to decline 5% QoQ to INR6.6b as higher

volumes are offset by lower margins. Carbon business EBITDA per ton will decline 8% QoQ to USD105/t

on cost pressure. Advance chemical business EBITDA per ton will decline from

USD146/t in 2QCY18 to USD USD130/t in 3QCY18. Cement business EBITDA per ton will be higher at INR350/t. Adj. PAT will decline 1% QoQ to INR2.9b. Buy. Key issues to watch for Environment measures in China. Global aluminum production growth.

Bloomberg RINDL IN


1,6,12 Rel Perf. (%) -8 / -65 / -19

Financial Snapshot (INR Billion) Y/E December 2016 2017 2018E 2019E

Sales 92.6 113.0 145.1 157.4 EBITDA * 15.3 22.7 26.0 26.1

NP 2.4 8.0 10.9 11.5 Adj. EPS (INR) 7.0 23.7 32.4 34.2 EPS Gr (%) -26.2 238.1 36.4 5.7

BV/Sh. (INR) 89.6 117.3 147.2 179.0 RoE (%) 7.9 22.9 24.5 21.0 RoCE (%) 12.7 19.7 22.8 23.2


P/BV 0.7 3.2 1.1 0.9 EV/EBITDA, x* 5.6 8.7 4.6 4.1 Div. Yield (%) 1.5 0.5 1.2 1.2

October 2018 230

Quarterly Performance (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Production (m tons) 3.2 3.7 3.6 3.6 3.6 3.6 4.3 4.4 14.1 15.9

Change (YoY %) -5.8 4.7 8.9 -0.4 12.9 -2.7 20.2 22.8 1.8 13.2 Sales (m tons) 3.0 3.5 3.8 3.7 3.3 3.5 4.2 4.3 14.1 15.2

Change (YoY %) 8.1 -1.7 14.2 8.6 8.0 -2.5 11.4 14.9 7.1 8.1 Realization (INR per ton) 38,242 38,467 40,646 45,519 48,631 47,736 45,675 45,990 40,877 46,866

Change (YoY %) 15.9 23.4 18.7 23.6 27.2 24.1 12.4 1.0 20.9 14.7 Net Sales 115,796 136,174 153,237 170,378 159,072 164,689 191,835 197,757 575,585 713,353 Change (%) 25.3 21.3 35.6 34.3 37.4 20.9 25.2 16.1 29.5 23.9 NSR to RM Spread (INR/t) 18,065 19,776 20,773 25,226 28,993 26,338 25,222 25,050 21,124 26,237 EBITDA 260 10,242 15,501 25,996 25,764 28,021 35,844 36,556 51,999 126,186 EBITDA per ton (INR) 86 2,893 4,112 6,945 7,877 8,122 8,534 8,501 3,693 8,290 Interest 5,879 6,435 6,745 9,169 7,554 9,629 9,802 9,957 28,228 36,942 Depreciation 6,947 7,622 7,596 8,485 8,136 9,256 9,561 9,862 30,649 36,815 Other Income 893 486 1,195 2,270 978 542 540 538 4,845 2,596 PBT (before EO Inc.) -11,672 -3,329 2,355 10,612 11,052 9,678 17,020 17,274 -2,034 55,025 EO Income(exp) -101 -2,975 -434 -2,046 -2,774

-5,556 -2,774

PBT (after EO Inc.) -11,773 -6,304 1,922 8,566 8,278 9,678 17,020 17,274 -7,589 52,251 Total Tax -4,859 -2,013 391 3,708 2,874 3,194 5,617 5,700 -2,773 17,385

% Tax 41.3 31.9 20.3 43.3 34.7 33.0 33.0 33.0 36.5 33.3 Reported PAT -6,915 -4,292 1,531 4,858 5,404 6,484 11,404 11,574 -4,817 34,866 Adjusted PAT -6,855 -2,266 1,876 6,019 7,215 6,484 11,404 11,574 -1,291 36,717

Change (YoY %) 36.0 -64.4 -123.6 -178.0 -205.2 -386.2 507.8 92.3 -95.2 -2,944.6


SAIL

CMP: INR69 TP: 79 (+15%) Neutral SAIL’s EBITDA is expected to increase 9% QoQ to INR28b on

higher volumes and steady steel prices. Volumes would increase 5% QoQ to 3.5mt. Steel prices are expected to be flat QoQ, despite the weak market.

EBITDA per ton would increase ~INR300/t QoQ to INR8,122/t. Adj. PAT will decrease ~11% QoQ to INR6.5b on higher interest

and depreciation due to capitalization of assets. Neutral. Key issues to watch for Commissioning of Bhilai capacity and steel prices

Bloomberg SAIL IN


1,6,12 Rel Perf. (%) -7 / -17 / 13


Sales 445.0 575.6 713.8 729.1 EBITDA 0.7 52.2 126.5 112.6

NP -26.3 1.1 37.4 27.4 Adj. EPS (INR) -6.4 0.3 9.1 6.6 EPS Gr(%) -37.1 -104.0 3,423.4 -27.0

BV/Sh. (INR) 89.7 89.4 97.6 103.8 RoE (%) -7.1 0.3 9.7 6.6 RoCE (%) -2.9 3.4 11.2 9.0

Payout (%) Valuation P/E (x) -11.0 272.1 7.7 10.6

P/BV 0.8 0.8 0.7 0.7 EV/EBITDA (x) 1,042.3 14.2 5.9 6.4

October 2018 231

Quarterly Performance (Consolidated) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 295,568 324,641 334,466 361,323 378,328 348,155 357,926 378,401 1,315,998 1,462,810

Change (YoY %) 17.2 23.1 19.6 6.6 28.0 7.2 7.0 4.7 16.0 11.2 EBITDA 49,740 47,207 56,969 64,989 64,677 73,364 74,477 83,215 218,905 295,732

Change (YoY %) 53.4 58.9 61.0 -7.5 30.0 55.4 31 28 30.5 35.1 (% of Net Sales) 16.8 14.5 17.0 18.0 17.1 21.1 20.8 22.0 16.6 20.2

EBITDA(USD/tss) 132 112 134 158 152 166 161 170 134 162 Interest 13,437 13,499 13,273 14,809 16,701 19,047 19,548 19,280 55,018 74,576 Depreciation 15,011 14,733 14,751 15,122 18,056 19,205 19,588 19,645 59,617 76,494 Other Income 1,555 2,532 2,259 2,749 3,473 3,772 3,017 3,738 9,095 13,999 PBT (before EO Inc.) 22,846 21,507 31,205 37,808 33,392 38,884 38,357 48,028 113,365 158,661 EO Income(exp) -6,168 -447 -11,156 113,761 -3,465

95,991 -3,465

PBT (after EO Inc.) 16,679 21,060 20,049 151,569 29,926 38,884 38,357 48,028 209,357 155,196 Total Tax 7,405 11,380 9,508 5,761 11,037 13,603 13,398 16,723 34,054 54,762

% Tax 32.4 52.9 30.5 15.2 33.1 35.0 34.9 34.8 30.0 34.5 Reported PAT 9,273 9,680 10,541 145,808 18,890 25,281 24,958 31,305 175,303 100,434 Adj. PAT (after MI & asso) 15,352 10,205 24,100 32,633 22,976 25,347 25,005 31,317 82,290 104,645


Tata Steel

CMP: INR580 TP: INR647 (+12%) Neutral India: We expect Tata Steel’s standalone EBITDA to be flat QoQ at

INR51.3b as higher volumes are offset by lower margin. Volumes would increase ~7% QoQ to 3.17mt, while EBITDA per ton would decline by ~INR900/t to INR16,154/t on lower steel prices.

Europe: EU sales volumes would decline 4% QoQ to 2.3mt. Margins are estimated to decline to USD56/t.

Consolidated EBITDA is expected to increase 13% QoQ to INR73.4b aided by inclusion of Bhushan Steel. Adjusted PAT is expected to increase 10% QoQ to INR25.3b. Neutral.

Key issues to watch for Imports from China and global iron ore prices

Bloomberg TATA IN


1,6,12 Rel Perf. (%) 3 / -8 / -22


Sales 1,123 1,316 1,463 948 EBITDA 170 219 296 223

Adj. PAT 40 82 105 91 Adj. EPS (INR) 40.7 71.9 87.0 75.2 EPS Gr(%) 429.9 76.5 21.0 -13.5

BV/Sh. (INR) 330 476 554 618 RoE (%) 16.9 17.8 16.9 12.8 RoCE (%) 9.4 11.6 13.1 10.3

Payout (%) -27.0 6.4 14.0 17.9 Valuation P/E (x) 14.5 8.2 6.8 7.8


October 2018 232

Quarterly Performance (Consolidated) (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE EBITDA 48,740 56,690 67,630 78,370 62,840 57,006 74,978 81,001 251,430 275,826

Copper 2,130 3,920 2,970 4,070 -870 -824 -749 -681 13,090 -3,123 Aluminum 5,280 4,570 6,100 13,100 12,590 5,989 5,662 5,746 29,050 29,987 Iron ore 400 -40 2,310 1,930 1,630 1,170 1,274 2,189 4,600 6,263 Power 1,100 3,660 5,950 5,970 4,250 4,289 3,604 4,058 16,680 16,201 Zinc-India 23,840 30,240 32,440 36,200 27,130 23,103 34,554 37,594 122,720 122,380 Zinc-Int 3,210 3,890 4,460 2,590 850 423 3,890 4,269 14,150 9,433 Oil&Gas 13,850 11,760 13,590 15,090 18,520 21,056 24,695 25,511 54,290 89,783 Steel

1,800 2,048 2,315

6,163

Others -1,070 -1,310 -190 -580 -1,260

-3,150 -1,260 Change (YoY %) 41.7 21.5 12.8 6.6 28.9 0.6 10.9 3.4 17.9 9.7

As % of Net Sales 26.7 26.3 27.8 28.4 28.3 26.7 30.9 31.9 27.4 29.6 Finance cost 15,920 13,840 13,060 14,240 15,460 15,305 15,152 14,100 57,060 60,018 DD&A 13,860 14,260 15,490 16,830 17,960 17,780 17,603 17,215 60,440 70,558 Other Income 10,550 8,760 5,730 9,930 4,180 5,907 5,848 7,692 34,970 23,626 PBT (before EO item) 29,510 37,350 44,810 57,230 33,600 29,827 48,071 57,379 168,900 168,877 EO exp. (income) 0 -1,860 1,580 -8,190 0 0 0 0 -8,470 0 PBT (after EO item) 29,510 39,210 43,230 65,420 33,600 29,827 48,071 57,379 177,370 168,877 Total Tax 6,810 9,350 13,640 25,740 11,120 9,813 15,815 18,812 55,540 55,560

% Tax 23.1 23.8 31.6 39.3 33.1 32.9 32.9 32.8 31.3 32.9 Reported PAT 22,700 29,860 29,590 39,680 22,480 20,014 32,255 38,567 121,830 113,316 Profit from Asso. 0 0 0 0 0 0 0 -8 0 -8 Minority interest 7,450 8,950 9,060 8,730 7,150 6,658 10,061 10,851 34,190 34,720 Adjusted PAT 15,250 19,050 22,110 22,760 15,330 13,356 22,194 27,708 79,170 78,588 Change (YoY %) 148.0 52.1 18.5 49.3 0.5 -29.9 0.4 21.7 40.7 -0.7


Vedanta

CMP:INR240 TP: INR257 (+7%) Buy We expect VEDL’s EBITDA to decline 9% QoQ to INR57b, driven by

aluminum and zinc. , partly offset by crude oil. Adjusted PAT is estimated to decline 13% QoQ to INR13.3b.

Aluminum: EBITDA is expected to decline 52% QoQ to INR5.9b on lower LME and higher alumina cost.

Zinc India: EBITDA is expected to decrease 15% QoQ to INR23.1b on lower realization.

Power: EBITDA is expected to be flat QoQ at INR4.3b. Copper: Will remain impacted by closure. Oil & Gas: EBITDA is expected to increase 14% QoQ to INR21b on

currency benefit. Buy. Key issues to watch for Progress on ramp-up of 1.25mtpa smelter. Movement in base metal prices.

Bloomberg VEDL IN Equity Shares (m) 3717.0 M. Cap. (INR b)/(USD b) 892 / 12



Sales 722.3 919 933 1,019

EBITDA * 175.5 203.3 227.0 272.6 NP 56.3 75.8 78.6 100.1 Adj. EPS (INR) 15.1 20.4 21.1 26.9

EPS Gr (%) 34.6 3.7 27.4 BV/Sh. (INR) 162.7 170.7 180.7 196.6 RoE (%) 9.7 12.2 12.0 14.3

RoCE (%) 12.4 14.5 14.9 17.1 Payout (%) 154.2 124.9 41.6 41.0 Valuation P/E (x) 11.4 11.0 8.6 11.4

P/BV 1.4 1.3 1.2 1.4 EV/EBITDA, x* 6.5 5.9 4.7 6.5

Div. Yield (%) 9.1 3.2 4.0 9.1

October 2018 233

GRMs down 26% YoY; Brent up 45% YoY Marketing margins remain strong; marginal inventory gains for OMCs

Reuters Singapore Complex GRM was down 26% YoY (+2% QoQ) to USD6.0/bbl in 2QFY19 v/s USD8.3/bbl in 2QFY18 and USD6.1/bbl in 1QFY19. We expect marginal inventory gains for oil marketing companies (OMCs) during 2QFY19.

Average Brent crude price was up 45% YoY and 1% QoQ at USD75/bbl. We expect higher realizations to benefit the upstream companies. ONGC and Oil India should see a YoY increase in EBITDA.

RIL is expected to clock in a gross refining margin (GRM) of USD10.2/bbl due to flat benchmark GRM and sequential decline in light-heavy differential. Petchem segment is expected to do better, led by healthy petchem deltas and strong volume growth YoY.

Brent up 45% YoY and 1% QoQ; upstream subsidy nil in 2QFY19 Crude oil price continued its upward trend in 2QFY19. Average Brent crude price

was up 45% YoY (+1% QoQ) at USD75/bbl. OMCs should witness marginal inventory gains for the quarter.

We have not built in any net under-recoveries either for the OMCs or for upstream companies.

SG GRM at USD6.0/bbl, down from USD8.3/bbl in 2QFY18 Reuters Singapore Complex GRM was down 26% YoY (+2% QoQ) to USD6.0/bbl

in 2QFY19 v/s USD8.3/bbl in 2QFY18 and USD6.1/bbl in 1QFY19. PE, PP and PVC delta: 0.3%/-3.3%/-2.2% QoQ. POY and PSF spreads were up

4.8% and 4.6% QoQ, respectively. RIL should benefit from healthy deltas and strong volume growth during the quarter.

Exhibit 1: Expected quarterly performance summary Sector/Companies CMP Sales (INR m) EBITDA (INR m) PAT (INR m)

Oil & Gas (INR) Rating Sep-18 Var % YoY


% YoY Var


Var % QoQ

Aegis Logistics 186 Buy 12,100 -2.5 19.0 1,000 47.4 15.7 641 23.2 24.2 BPCL 377 Buy 739,837 38.7 3.2 25,344 -12.7 33.3 16,456 -30.2 -28.2 GAIL 382 Neutral 174,205 40.4 0.7 23,289 12.5 3.8 14,732 12.5 17.0 Gujarat Gas 620 Buy 21,317 53.2 20.8 2,419 19.4 -2.7 941 54.0 -22.5 Gujarat State Petronet 182 Buy 3,759 12.3 -3.9 3,239 13.4 -5.8 1,790 1.1 23.9 HPCL 251 Neutral 689,672 45.1 2.0 20,796 -1.6 14.1 11,418 -34.2 -33.6 IOC 158 Buy 1,378,528 52.2 6.5 75,279 4.8 15.6 49,421 33.7 -27.7 Indraprastha Gas 242 Buy 13,266 17.8 3.0 3,189 13.2 8.1 2,040 20.8 16.0 Mahanagar Gas 810 Buy 6,461 21.0 2.2 2,136 6.6 -4.6 1,292 3.5 -8.6 MRPL 72 Neutral 133,799 47.1 -1.3 8,780 -3.3 8.0 4,163 -16.1 9.9 Oil India 221 Buy 35,662 44.2 5.2 14,730 45.5 4.6 9,730 50.6 38.4 ONGC 182 Buy 301,082 58.8 10.6 168,213 60.7 14.2 70,223 36.9 14.3 Petronet LNG 222 Buy 102,791 32.3 12.1 8,785 -2.2 -6.0 5,755 -2.2 -1.9 Reliance Inds. 1,205 Buy 1,363,995 49.1 5.9 211,602 35.9 2.4 100,524 24.2 6.0 Sector Aggregate

4,976,475 47.1 5.1 568,801 28.8 8.9 289,126 17.3 -3.7

Excl. OMCs

2,168,437 47.7 6.0 447,382 40.0 6.5 211,831 25.7 10.4 Source: MOSL

Oil & Gas

September 2018 Results Preview | Sector: Oil & Gas

Company name Aegis Logistics BPCL GAIL Gujarat Gas Gujarat State Petronet HPCL Indraprastha Gas IOC Mahanagar Gas MRPL Oil India ONGC Petronet LNG Reliance Industries

Swarnendu Bhushan – Research Analyst ([email protected]); +91 22 6129 1529

October 2018 234

Marketing margins stay healthy OMCs have been taking price hikes regularly to pass on the increase in oil prices,

as well as the INR depreciation. As a result, gross marketing margins stood at INR2.0/lit for petrol and INR2.8/lit

for diesel in 2QFY19. Gross margins stood at INR1.9/lit for petrol and INR2.5/lit for diesel in 1QFY19, and INR3.2/lit for petrol and INR3.1/lit for diesel in 2QFY18.

Domestic gas production seeing a revival Domestic oil production declined by 4.6% YoY in July-Aug 2018. In the same

period, ONGC’s oil production declined by 6.4% YoY, while Oil India witnessed 1% YoY decline.

Country’s gas production also declined by 2.3% during July-Aug 2018. However, after almost a decade, due to culmination of numerous projects, ONGC witnessed 2.5% YoY increase in its gas production, while Oil India showed a decline of 8.5% YoY in the same period.

LNG imports have grown LNG imports grew 7% in FY18. We have limited data for LNG imports during the

quarter. In July 2018, LNG imports grew by 28.8%.

Valuation and view PLNG – accumulate for the long-term: Visibility on PLNG’s medium/long-term

earnings is high, given (a) the huge gas demand-supply gap in India, (b) volume growth, driven by gradual capacity addition, and (c) earnings growth boosted by annual re-gas charge escalation. Poor competition from existing and upcoming terminals and lower LNG prices are additional positives for PLNG. The recent stock price correction offers an excellent opportunity to accumulate the stock, in our view.

Prefer IGL among CGDs: We expect volume growth to continue for city gas distribution (CGD) players. Spot as well as crude-linked LNG prices are up YoY in 2QFY19; the INR has also depreciated. However, Indraprastha Gas (IGL), Mahanagar Gas (MGL), and Gujarat Gas (GUJGA) have already taken price hikes in 2QFY19, which should take care of the increased cost. We prefer IGL among CGD players due to (a) higher longevity of volume growth compared to MGL, and (b) higher share of CNG v/s PNG, supporting stable EBITDA/SCM. The recent stock price correction offers an excellent opportunity to add, in our view.

Continue to like OMCs: We expect inventory gains to be much lower than what was seen in 1QFY19. Core GRM is expected to be similar to that in 1QFY19. We expect OMCs’ core earnings to improve sequentially in 2QFY19. Among the OMCs, we have a higher preference for Indian Oil Corporation (IOCL) due to (a) it having the highest diversification, (b) its strong free cash flow generation, and (c) its inexpensive valuations.

Yet another good quarter for RIL: RIL is expected to clock in a GRM of USD10.2/bbl, led by sequentially weaker light-heavy differential. Petchem segment is expected to benefit from healthy deltas and strong volume growth.

ONGC appears attractive: Higher oil prices result in higher realizations for upstream companies. ONGC has been showing growth in its oil and gas production, unlike OINL. We prefer ONGC, as (a) its cost efficiency should result in a decline in opex, (b) gas production is likely to grow ~8-10% annually for the


October 2018 235

next 3-4 years, (c) oil production is set to increase marginally, (d) it has no subsidy burden so far, and (e) valuations are attractive.

Exhibit 2: Relative performance - 3m (%)

Exhibit 3: Relative performance - 1Yr (%)


Exhibit 4: Comparative valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Oil & Gas (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Aegis Logistics 186 Buy 5.9 7.2 10.3 31.5 25.7 18.1 33.0 15.9 11.4 19.4 18.7 22.7 BPCL 377 Buy 49.8 44.0 34.9 7.6 8.6 10.8 8.1 6.8 8.5 29.0 22.2 15.8 GAIL 382 Neutral 20.4 30.0 35.1 18.7 12.7 10.9 10.2 8.5 8.3 11.8 15.9 16.8 Gujarat Gas 620 Buy 21.2 31.5 41.1 29.3 19.7 15.1 15.1 10.0 8.1 16.7 21.4 23.3 Gujarat State Petronet 182 Buy 11.9 16.7 14.9 15.3 10.8 12.2 6.8 4.0 4.2 14.0 17.2 13.4 HPCL 251 Neutral 47.4 50.0 52.6 5.3 5.0 4.8 5.5 3.7 3.9 31.0 27.5 24.9 Indraprastha Gas 242 Buy 9.4 11.0 12.7 25.6 22.0 19.1 17.0 13.0 11.2 20.8 20.2 20.0 IOC 158 Buy 23.9 17.5 13.9 6.6 9.0 11.3 4.5 4.5 5.7 21.0 14.2 10.8 Mahanagar Gas 810 Buy 48.4 51.1 54.9 16.7 15.8 14.8 11.2 8.2 7.1 24.3 22.6 21.4 MRPL 72 Neutral 12.8 9.9 12.7 5.6 7.2 5.6 5.0 3.4 2.1 21.2 14.9 16.9 Oil India 221 Buy 22.2 31.8 30.2 10.0 7.0 7.3 7.3 5.0 5.1 9.4 13.2 11.7 ONGC 182 Buy 20.2 33.4 36.0 9.0 5.4 5.0 5.0 3.0 2.7 13.0 19.8 19.0 Petronet LNG 222 Buy 13.9 16.0 19.0 16.0 13.8 11.7 9.2 7.9 6.0 23.3 23.0 23.5 Reliance Inds. 1,205 Buy 60.9 72.4 91.9 19.8 16.6 13.1 10.2 9.4 7.7 13.0 13.5 14.8 Sector Aggregate 12.3 10.4 9.5 7.1 5.8 5.4 14.9 15.6 15.2 Ex OMCs 14.3 10.9 9.6 7.8 6.1 5.5 13.4 15.4 15.5

Source: MOSL

94

104

114

124

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Oil & Gas Index

94

102

110

118

126

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Oil & Gas Index


October 2018 236

Brent up 45% YoY (1% QoQ), GRM down 26% YoY, L-H spread narrows QoQ

Exhibit 5: Brent crude price up 45% YoY and 1% QoQ at USD75/bbl


Exhibit 6: Premium of Brent over WTI declined QoQ to USD5.8/bbl in 2QFY19


Exhibit 7: Reuters Singapore GRM down 26% YoY (2% QoQ) to USD6.1/bbl in 2QFY19


Exhibit 8: LPG & FO cracks have shown improvement while others have declined QoQ

Source: Reuters, MOSL

Exhibit 9: Crude differentials declined QoQ


0

35

70

105

140

1QFY

054Q

FY05

3QFY

062Q

FY07

1QFY

084Q

FY08

3QFY

092Q

FY10

1QFY

114Q

FY11

3QFY

122Q

FY13

1QFY

144Q

FY14

3QFY

152Q

FY16

1QFY

174Q

FY17

3QFY

182Q

FY19

Brent Crude Price (USD/bbl)

(8)

0

8

16

24

1QFY

054Q

FY05

3QFY

062Q

FY07

1QFY

084Q

FY08

3QFY

092Q

FY10

1QFY

114Q

FY11

3QFY

122Q

FY13

1QFY

144Q

FY14

3QFY

152Q

FY16

1QFY

174Q

FY17

3QFY

182Q

FY19

Brent less WTI (USD/bbl)

0

2

4

6

8

10

1QFY

054Q

FY05

3QFY

062Q

FY07

1QFY

084Q

FY08

3QFY

092Q

FY10

1QFY

114Q

FY11

3QFY

122Q

FY13

1QFY

144Q

FY14

3QFY

152Q

FY16

1QFY

174Q

FY17

3QFY

182Q

FY19

Reuters Singapore GRM (USD/bbl)

(30)

(20)

(10)

0

10

20Ga

solin

e

Nap

htha LP

G

Dies

el

Jet/

Kero

Fuel

Oil

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19

(1)

1

3

5

7

9

1QFY

054Q

FY05

3QFY

062Q

FY07

1QFY

084Q

FY08

3QFY

092Q

FY10

1QFY

114Q

FY11

3QFY

122Q

FY13

1QFY

144Q

FY14

3QFY

152Q

FY16

1QFY

174Q

FY17

3QFY

182Q

FY19

Brent - Dubai Arab L-HIn USD/bbl

Our key assumptions Our crude price assumptions are USD75/bbl for

2QFY19, USD75/bbl for FY19 and USD70/bbl for FY20.

We expect the regional benchmark Singapore Reuters GRM to remain strong in the near-term and settle at ~USD6/bbl over the medium-to long-term.


October 2018 237

Exhibit 10: Intermediate spreads improved YoY/QoQ (INR/kg) RIL Basic prices (INR/kg) Simple Spreads Int. Spreads

PE PP PVC POY PSF Naphtha PE PP PVC POY PSF

1QFY15 109.0 107.7 77.0 97.7 97.6 57.6 51.4 50.1 19.5 51.8 51.7 2QFY15 113.0 110.3 79.4 102.9 103.6 55.9 57.1 54.4 23.5 58.5 59.2 3QFY15 109.3 107.0 70.0 92.7 92.4 40.2 69.1 66.8 29.8 61.0 60.7 4QFY15 90.7 84.3 63.7 80.6 79.8 30.5 60.1 53.8 33.2 56.6 55.8 1QFY16 102.3 100.3 70.1 84.8 84.0 35.6 66.7 64.7 34.5 56.8 56.0 2QFY16 95.8 85.8 65.5 79.0 80.5 29.4 66.4 56.4 36.1 56.1 57.5 3QFY16 88.8 76.7 65.0 73.0 77.5 29.2 59.6 47.6 35.8 50.2 54.7 4QFY16 85.6 70.4 62.3 71.5 74.0 22.8 62.8 47.6 39.5 53.8 56.3 1QFY17 92.4 81.5 68.1 74.4 79.7 27.4 65.0 54.1 40.7 53.1 58.3 2QFY17 91.4 83.9 69.2 74.1 79.3 26.0 65.5 57.9 43.3 53.9 59.2 3QFY17 88.8 82.7 70.8 74.1 79.3 27.1 63.7 55.6 43.7 53.0 58.2 4QFY17 89.1 87.4 75.9 83.0 89.5 33.5 55.6 53.8 42.4 56.7 63.2 1QFY18 89.4 85.4 73.9 85.0 82.2 28.9 60.5 56.4 45.0 62.5 59.6 2QFY18 85.1 84.3 71.4 84.5 83.0 30.0 55.1 54.3 41.4 61.0 59.5 3QFY18 85.8 89.5 70.9 87.1 91.7 36.4 49.3 53.0 34.5 58.4 63.0 4QFY18 91.1 94.8 73.9 92.7 94.8 35.6 55.5 59.1 38.2 64.7 66.9 1QFY19 99.7 99.3 77.0 99.8 100.0 41.3 58.5 58.1 35.8 67.4 67.6 2QFY19 103.6 101.2 80.0 105.8 105.8 47.1 56.5 54.1 32.9 68.9 68.9 QoQ (%) 3.9% 1.9% 3.8% 6.0% 5.8% 8.6% 0.3% -3.3% -2.2% 4.8% 4.6% YoY (%) 21.7% 20.1% 12.0% 25.3% 27.5% 56.0% 2.9% 0.0% -20.2% 13.1% 15.9%


Exhibit 11: Polymer spreads (INR/kg): PE/PP/PVC spreads +0.3%/-3.3%/-2.2% QoQ

Source: Bloomberg, Company, MOSL

Exhibit 12: POY spreads up 4.8% QoQ; PSF spreads up 4.6% QoQ (INR/kg)

Source: Bloomberg, Company

Exhibit 13: Petrol-diesel price difference (INR/liter)

Source: IOCL, MOSL

Exhibit 14: Petrol/diesel gross margin trend (INR/liter)

Source: IOCL, MOSL

0

20

40

60

80

1QFY

11

4QFY

11

3QFY

12

2QFY

13

1QFY

14

4QFY

14

3QFY

15

2QFY

16

1QFY

17

4QFY

17

3QFY

18

2QFY

19

PE PP PVC

40

50

60

70

80

1QFY

11

4QFY

11

3QFY

12

2QFY

13

1QFY

14

4QFY

14

3QFY

15

2QFY

16

1QFY

17

4QFY

17

3QFY

18

2QFY

19

POY PSF

5

15

25

35

Dec-

10

Jul-1

1

Feb-

12

Sep-

12

Apr-

13

Nov

-13

Jun-

14

Jan-

15

Aug-

15

Mar

-16

Oct

-16

May

-17

Dec-

17

Jul-1

8

Petr

ol -

Dies

el p

rice

diff

eren

ce (I

NR/

ltr)

2.4

2.9

2.6

3.2

2.6

2.7

2.7

3.1

1.9

3.2

2.2

3.2

1.9

2.0

2.3

1.9

2.0

3.1

2.4

2.5

2.7

2.6

2.3

3.1

2.0

3.4

2.5

2.8

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Gross margin (INR/liter) Petrol Diesel


October 2018 238

Exhibit 15: With almost nil subsidy, model ONGC’s net realization for 2QFY19 at USD74.6/bbl


Exhibit 16: Expect higher LNG volumes in 1QFY19 (mmscmd) and stable production in RIL’s KG-D6


Exhibit 17: Expect RIL’s GRM at USD10.2/bbl (USD/bbl)


Exhibit 18: Inventory gains to support GRMs for OMCs in 2QFY19 (USD/bbl)


47

47

48

51

40

45

46

33 47

41

36

56

59

49

44

35 46

48

52

55

51

51

61

67

74

75

63

63

62

63

63

64

62

74 62

61

40

0 5

2 0 0

0 0 0 0 0 0 0 0 0 0

110

110

110

114

103 109

108

107

109

102

76

56 64

51

44

35

46

48

52

55

51

51 61

67 74

75

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q


Net Realization Subsidy Burden Gross Realization

13 13 12 11 12 12 11 10 9 8 8 7 6 6 5 4 4 4

40 43 40 27

36 45 41 44 48 54 55 51 55 63 64 61 63 62

97 91 94 86 87 90 97 95 96 101 103 102 100 106 109 106 107 110

22 24 23 23 24 24 25 24 25 25 26 23 27 32 34 34 36 35

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

192Q

FY19

RIL KG-D6 PLNG GAIL India GSPL

8.0 6.3

8.0 7.8 5.0 5.1

6.7 6.4 6.4 8.3 7.3 7.0 6.0 6.1

2.4 4.3 3.5 3.0

6.5 5.0 4.1 5.1 5.5

3.7 4.3 4.0 4.5 4.1

10.4 10.6 11.5 10.8 11.5

10.1 10.8 11.5 11.9 12.0 11.6 11.0 10.5 10.2

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19

Singapore GRM Premium / (Disc) RIL GRM

2.3

(2.0

)

(7.7

)

8.8

10.8

0.8

6.0

3.0

10.0

4.3

7.7

8.9

4.3

8.0

12.3

9.1

10.2

7.1

2.0

2.1

(1.0

)

7.5

8.6

2.7

7.9

7.5

6.8

3.2

6.4

8.0

5.9

7.6

9.0

7.1

7.2

4.9

3.4

1.5

1.5

7.9

8.6

3.9

7.7

6.3

6.1

3.1

5.9

6.0

4.9

8.0

7.9

6.5

7.5

4.9

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

IOC HPCL BPCL


October 2018 239

Consolidated - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 8,560 12,409 14,421 12,519 10,169 12,100 13,700 16,807 47,910 52,775 YoY Change (%) 15.8 83.6 15.5 -1.3 18.8 -2.5 -5.0 34.2 21.9 10.2 EBITDA 566 678 717 699 864 1,000 1,015 996 2,660 3,875 Margins (%) 6.6 5.5 5.0 5.6 8.5 8.3 7.4 5.9 5.6 7.3 Depreciation 57 63 90 133 121 138 151 163 343 573 Interest 34 34 49 36 65 25 26 28 152 145 Other Income 16 14 14 40 12 25 30 25 84 92 PBT 491 595 592 570 690 862 868 830 2,248 3,250 Tax 23 36 28 24 98 190 191 183 110 661 Rate (%) 4.6 6.0 4.7 4.2 14.2 22.0 22.0 22.0 4.9 20.3 MI & P/L of Asso. Cos. 29 39 29 63 75 31 30 31 160 168 Reported PAT 440 521 535 483 516 641 647 616 1,978 2,421 Adj PAT 440 521 535 483 516 641 647 616 1,978 2,421 YoY Change (%) 59.8 108.5 42.5 62.1 17.5 23.2 20.9 27.6 65.1 22.4 Margins (%) 5.1 4.2 3.7 3.9 5.1 5.3 4.7 3.7 4.1 4.6 E: MOSL Estimates


Aegis Logistics

CMP: INR186 TP: INR310 (+66%) Buy AGIS is an attractive play in India’s rising LPG consumption. Its

recently-commissioned Haldia LPG terminal is expected to drive the next leg of growth for the LPG segment.

Liquids segment is expected to remain a cash-cow for the company and should grow in line with capacity addition.

We estimate AGIS’ EBITDA at INR1bn (+47% YoY; +16% QoQ), led by a ramp-up of Haldia and Pipavav LPG terminals.

We estimate PAT at INR641m (+23% YoY; +24% QoQ). AGIS trades at 19.0x FY20E EPS of INR10.3 and 12.0x FY20E

EV/EBITDA. Maintain Buy.

Key issues to watch for (a) Ramp-up of Pipavav and Haldia LPG terminal, (b) Capacity

addition in the liquids segment, (c) Clarity on the commissioning of two new LPG terminals.

Bloomberg AGIS IN Equity Shares (m) 334.0 M. Cap. (INR b)/(USD b) 62 / 1 52-Week Range (INR) 300 / 185 1,6,12 Rel Perf. (%) -7 / -37 / -35 Financial snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 39.3 47.9 52.8 74.8 EBITDA 2.1 2.7 3.9 5.2 Adj. PAT 1.2 2.0 2.4 3.4 Adj. EPS (INR) 3.6 5.9 7.2 10.3 EPS Gr.% 6.1 64.5 22.4 42.1 BV/Sh.INR 25.1 36.1 41.6 49.2 RoE (%) 17.9 19.4 18.7 22.7 RoCE (%) 16.4 17.7 17.4 21.6 Payout (%) 22.4 25.3 25.3 25.3 Valuation P/E (x) 51.8 31.5 25.7 18.1

P/BV (x) 7.4 5.2 4.5 3.8

EV/EBITDA (x) 31.0 23.9 15.9 11.4

Div. Yld (%) 0.4 0.7 0.9 1.2

October 2018 240

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 571,258 533,252 606,164 652,393 716,967 739,837 841,163 847,091 2,363,067 3,145,059 YoY Change (%) 21.7 19.3 13.2 14.4 25.5 38.7 38.8 29.8 16.9 33.1 EBITDA 12,250 35,864 31,882 36,715 45,803 29,273 22,974 23,207 116,712 121,257 Margins (%) 2.1 6.7 5.3 5.6 6.4 4.0 2.7 2.7 4.9 3.9 EBITDA adj. for inventory and one-offs 26,345 29,024 15,922 32,235 19,013 25,344 22,974 23,207 103,526 77,181 Forex loss -292 588 -840 -500 7,050 Depreciation 5,892 6,406 6,774 7,413 7,392 7,437 7,437 7,437 26,485 29,701 Interest 1,789 2,348 2,002 2,194 3,018 2,328 2,328 2,328 8,333 10,002 Other Income 6,274 8,004 6,434 8,329 5,480 5,164 5,164 5,164 29,041 20,971 PBT 11,136 34,526 30,380 35,938 33,823 24,672 18,374 18,606 110,935 102,525 Tax 3,690 10,952 8,943 9,202 10,890 8,216 6,118 6,196 32,787 31,420 Rate (%) 33.1 31.7 29.4 25.6 32.2 33.3 33.3 33.3 29.6 30.6 Reported PAT 7,446 23,574 21,437 26,736 22,933 16,456 12,255 12,410 78,148 71,105 Adj PAT 7,446 23,574 21,437 26,736 22,933 16,456 12,255 12,410 78,148 71,105 YoY Change (%) -71.6 80.6 -5.6 45.2 208.0 -30.2 -42.8 -53.6 -5.9 -9.0 Margins (%) 1.3 4.4 3.5 4.1 3.2 2.2 1.5 1.5 3.3 2.3 Key Assumptions Refining throughput (mmt) 6.4 7.0 7.3 7.9 7.7 7.6 7.2 7.2 28.5 29.8 Reported GRM (USD/bbl) 6.9 6.5 4.9 5.6 4.2 3.9 6.5 6.5 6.0 5.2 Marketing sales volume excld exports (mmt) 10.0 9.8 10.7 10.7 11.0 10.2 11.1 11.2 41.2 43.4 Marketing GM incld inv (INR/litre) 3.1 4.3 3.8 4.6 4.9 3.9 3.4 3.4 3.9 3.7 E: MOSL Estimates


BPCL

CMP: INR377 TP: INR393 (+4%) Buy We expect BPCL’s core earnings to improve QoQ (decline YoY),

primarily due to poorer core refining margins. We model nil subsidy-sharing for OMCs; subsidy in 2QFY19 would

be entirely borne by the government. We peg BPCL’s refinery throughput at 7.6mmt for 2QFY19 v/s

7.7mmt in 1QFY19 and 7.0mmt in 2QFY18. We model core GRM of USD4/bbl and total inventory gains of

INR3.9b for BPCL in 2QFY19. We expect BPCL to report adjusted EBITDA of INR25.3b (-13% YoY;

+33% QoQ) in 2QFY19. We estimate PAT at INR16.5b (-30% YoY; -28% QoQ) for 2QFY19. BPCL trades at 7.3x FY20E EPS of INR50.4 and 1.5x FY20E BV, with

~5% dividend yield. Maintain Buy.

Key issues to watch for (a) Inventory and forex change impact, (b) GRM, (c) Kochi refinery

expansion, and (d) update on Mozambique/Brazil E&P blocks.

Bloomberg BPCL IN Equity Shares (m) 1966.9 M. Cap. (INR b)/(USD b) 742 / 10 52-Week Range (INR) 550 / 324 1,6,12 Rel Perf. (%) 11 / -20 / -36 Financial conso snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 2,013 2,358 3,140 3,245

EBITDA 137 152 156 127

Adj. PAT 95 98 87 69

Adj. EPS (INR) 48.3 49.8 44.0 34.9

EPS Gr.% 17.5 3.0 -11.6 -20.8

BV/Sh.INR 156.7 186.2 211.1 231.3

RoE (%) 32.4 29.0 22.2 15.8

RoCE (%) 16.2 13.7 11.3 8.1


P/BV (x) 2.4 2.0 1.8 1.6

EV/EBITDA (x) 7.5 7.2 7.3 9.1

Div. Yld (%) 5.7 5.6 4.3 3.3

October 2018 241

Quarterly Performance (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3Q 4Q Net Sales 114,065 124,097 144,143 154,307 172,986 174,205 171,433 193,383 536,612 712,007 Change (%) 6.7 4.7 19.0 15.0 51.7 40.4 18.9 25.3 11.6 32.7 EBITDA 18,994 20,694 19,699 16,953 22,436 23,289 25,422 36,021 76,339 107,168 % of Net Sales 16.7 16.7 13.7 11.0 13.0 13.4 14.8 18.6 14.2 15.1 Depreciation 3,451 3,425 3,668 3,608 3,789 3,406 3,406 3,690 14,151 14,291 Interest 1,014 926 479 333 441 750 800 859 2,751 2,850 Other Income 1,158 2,929 3,027 2,756 1,196 2,856 3,122 4,288 9,870 11,463 Extraordinary item* 0 0 0 277 0 0 0 0 277 0 PBT 15,687 19,273 18,580 16,044 19,403 21,989 24,338 35,761 69,584 101,490 Tax 5,431 6,177 5,957 5,835 6,810 7,256 8,031 11,801 23,400 33,899 Rate (%) 34.6 32.0 32.1 36.4 35.1 33.0 33.0 33.0 33.6 33.4 PAT 10,256 13,096 12,622 10,209 12,593 14,732 16,306 23,960 46,184 67,591 Adj PAT 10,256 13,096 12,622 10,060 12,593 14,732 16,306 23,960 46,035 67,591 Change (%) 21.3 41.6 28.4 -4.0 22.8 12.5 29.2 138.2 21.1 46.8 EPS (INR) 4.5 5.8 5.6 4.5 5.6 6.5 7.2 10.6 20.4 30.0 Key Assumptions Gas Trans. volume (mmsmd) 100 106 109 106 107 110 110 110 105 109 Petchem sales ('000MT) 131 175 176 191 166 200 200 234 673 800 E: MOSL Estimates


GAIL

CMP: INR382 TP: INR385 (+1%) Neutral We expect GAIL to report adjusted PAT of INR14.7b (+12% YoY and

+17% QoQ). We model nil subsidy-sharing for GAIL in 2QFY19. We expect marginal improvement in gas transmission, led by higher

LNG imports as well as domestic gas production. Expect the petrochemicals division to drive profitability during the

quarter for the company. We estimate EBITDA at INR23.3 in 2QFY19 v/s INR20.7b in 2QFY18

and INR22.4b in 1QFY19. Segmental EBIT (pre-subsidy) is expected at INR22.7b (+16% YoY,

+6% QoQ), led by a turnaround in the petchem division and higher gas transmission.

GAIL trades at 10.9x FY20E EPS of INR35.1. Maintain Neutral.

Key issues to watch for (a) Petchem profitability, (b) profitability in the gas trading

business, (c) progress of pipeline projects, (d) pending tariff revisions for key pipelines, and (e) visibility on placement of US contracts.

Bloomberg GAIL IN Equity Shares (m) 2255.1 M. Cap. (INR b)/(USD b) 861 / 12 52-Week Range (INR) 399 / 299 1,6,12 Rel Perf. (%) 10 / 8 / 2

Financial snapshot (INR b) Y/E March 2017 2018 2019E 2020E

Sales 480.7 536.6 712.0 847.2 EBITDA 63.2 76.3 107.2 107.2 Adj. PAT 38.2 46.0 67.6 79.2 Adj. EPS (INR) 16.9 20.4 30.0 35.1 EPS Gr. (%) 71.4 20.5 47.0 17.1 BV/Sh.(INR) 169.2 182.1 200.9 222.9 RoE (%) 9.6 11.8 15.9 16.8 RoCE (%) 8.7 10.2 13.8 14.4 Payout (%) 50.1 37.1 37.3 37.3 Valuations P/E (x) 22.5 18.7 12.7 10.9

P/BV (x) 2.3 2.1 1.9 1.7

EV/EBITDA (x) 9.4 10.5 7.6 7.4

Div. Yield (%) 1.7 1.7 2.4 2.9

October 2018 242

Standalone - Quarterly Earning Mode (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 14,780 13,914 15,713 17,336 17,651 21,317 22,828 23,351 61,743 85,147 YoY Change (%) 20.7 12.5 27.7 23.8 19.4 53.2 45.3 34.7 21.2 37.9 EBITDA 2,698 2,027 1,999 2,227 2,486 2,419 2,621 2,663 8,951 10,189 Margins (%) 18.3 14.6 12.7 12.8 14.1 11.3 11.5 11.4 14.5 12.0 Depreciation 666 683 688 682 707 785 785 785 2,718 3,060 Interest 496 499 487 479 486 320 320 320 1,961 1,445 Other Income 78 89 91 99 584 89 89 89 357 851 PBT 1,615 934 915 1,165 1,878 1,404 1,605 1,648 4,629 6,535 Tax 571 323 315 506 664 463 530 544 1,715 2,201 Rate (%) 35.4 34.6 34.4 43.4 35.3 33.0 33.0 33.0 37.0 33.7 Reported PAT 1,044 611 600 660 1,214 941 1,076 1,104 2,914 4,334 YoY Change (%) 39.4 -12.1 41.9 99.0 16.3 54.0 79.3 67.4 32.0 48.7 Margins (%) 7.1 4.4 3.8 3.8 6.9 4.4 4.7 4.7 4.7 5.1 Total volume (mmscmd) 6.1 5.7 6.3 6.8 6.4 6.8 7.0 7.2 6.2 6.8

CNG 1.3 1.3 1.3 1.4 1.4 1.5 1.5 1.6 1.3 1.5 PNG - Industrials/commercial 4.4 4.0 4.5 4.7 4.6 4.8 5.0 5.1 4.4 4.9 PNG - Households 0.4 0.5 0.5 0.7 0.4 0.4 0.5 0.5 0.5 0.4

EBITDA (INR/scm) 4.8 3.8 3.5 3.7 4.2 4.0 4.2 4.2 4.0 4.2 E: MOSL Estimates


Gujarat Gas

CMP: INR620 TP: INR998 (+61%) Buy GUJGA is expected to see a pick-up in industrial volumes in 2QFY19.

We expect volumes of 6.6mmscmd, and EBITDA/scm at INR4.0. We expect 2QFY19 PNG industrial/commercial volumes at

4.7mmscmd (+17% YoY; +2% QoQ), and PNG household volumes at 0.4mmscmd (-6% YoY; +3% QoQ). We expect CNG volumes at 1.5mmscmd (+16% YoY; +3% QoQ).

We expect GUJGA to report EBITDA of INR2.4b (+19% YoY; -3% QoQ) for 2QFY19.

GUJGA should report PAT of INR941m (+54% YoY; -23% QoQ). We model total volumes of 6.7/7.4mmscmd and EBITDA/scm of

INR4.2/4.5 in FY19/FY20. The stock trades at 15.5x FY20E EPS of INR41.1. Maintain Buy.

Key issues to watch for PNG and CNG volumes EBITDA/scm Gas cost

Bloomberg GUJGA IN Equity Shares (m) 137.7 M. Cap. (INR b)/(USD b) 85 / 1 52-Week Range (INR) 974 / 608 1,6,12 Rel Perf. (%) -12 / -35 / -43 Financial snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 50.9 61.7 85.1 98.5

EBITDA 7.4 9.0 10.2 12.1

PAT 2.2 2.9 4.3 5.7

EPS (INR) 16.0 21.2 31.5 41.1

EPS Gr. (%) 6.9 32.0 48.7 30.4

BV/Sh.(INR) 119.5 134.1 159.7 193.1

RoE (%) 14.0 16.7 21.4 23.3

RoCE (%) 14.3 16.5 19.5 23.1

Payout (%) 22.3 22.9 18.7 18.7 Valuations

P/E (x) 38.7 29.3 19.7 15.1

P/BV (x) 5.2 4.6 3.9 3.2

EV/EBITDA (x) 14.5 11.9 10.0 8.1

Div. Yield (%) 0.5 0.6 0.8 1.0

October 2018 243

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 2,963 3,348 3,502 3,504 3,912 3,759 3,539 7,379 13,318 18,590 YoY Change (%) 14.8 29.8 31.3 43.2 32.0 12.3 1.1 110.6 29.6 39.6 EBITDA 2,760 2,855 2,971 2,892 3,438 3,239 3,029 6,662 11,478 16,369 YoY Change (%) 18.3 26.3 30.6 43.7 24.6 13.4 2.0 130.4 29.2 42.6 Margins (%) 93.1 85.3 84.8 82.5 87.9 86.2 85.6 90.3 86.2 88.1 Depreciation 430 438 442 440 448 465 465 488 1,750 1,866 Interest 106 90 55 103 579 310 300 259 354 1,449 Other Income 164 278 121 171 54 207 207 610 735 1,078 PBT 2,389 2,605 2,595 2,520 2,466 2,671 2,471 6,525 10,108 14,132 Tax 864 836 779 946 1,021 881 815 2,153 3,424 4,693 Rate (%) 36 32 30 38 41 33 33 33 34 33 Reported PAT 1,525 1,770 1,816 1,574 1,444 1,790 1,656 4,372 6,685 9,439 YoY Change (%) 25.8 36.3 53.1 23.9 -5.3 1.1 -8.8 177.8 34.6 41.2 Margins (%) 51.5 52.9 51.8 44.9 36.9 47.6 46.8 59.2 50.2 50.8 Key Operating Parameters Transmission Volume (mmscmd) 26.9 31.6 33.5 34.1 36.5 35.0 33.0 31.5 31.5 34.0 Implied Tariff (INR/mscm) 1,157 1,112 1,123 1,126 1,141 1,141 1,141 2,568 1,129 1,467 E: MOSL Estimates


Gujarat State Petronet

CMP: INR182 TP: INR218 (+20%) Buy We expect GUJS to report net sales of INR3.8b and PAT of INR1.8b

(+1%YoY; +24% QoQ). We model transmission volume at 35mmscmd (+11% YoY; -4%

QoQ), led by increased gas demand from the power sector, and transmission tariff at INR1,141/mscm (+3% YoY; flat QoQ).

We await clarity on the current status, timelines and other details regarding Mehsana-Bhatinda, Bhatinda-Srinagar, Mallavaram-Bhilwara pipelines.

We build in gas transmission volumes of 34/30mmscmd for FY19/20, and model tariff at INR1,467/mscm for FY19/20.

The stock trades at 12.2x FY20E EPS of INR14.9. Maintain Buy.

Key issues to watch for Transmission volumes and tariffs Progress on the three pipelines

Bloomberg GUJS IN Equity Shares (m) 563.8 M. Cap. (INR b)/(USD b) 102 / 1



Sales 10.3 13.3 18.6 16.4 EBITDA 8.9 11.5 16.4 14.4 Adj. PAT 5.0 6.7 9.4 8.4

Adj. EPS (INR) 8.8 11.9 16.7 14.9 EPS Gr. (%) 11.5 34.6 41.2 -11.2 BV/Sh.(INR) 80 89.8 104.5 117.2

RoE (%) 11.6 14.0 17.2 13.4 RoCE (%) 10.5 11.6 14.7 11.9 Payout (%) 20.5 17.8 12.6 14.2

Valuations P/E (x) 20.6 15.3 10.8 12.2

P/BV (x) 2.3 2.0 1.7 1.5


October 2018 244

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 534,685 475,226 574,743 608,101 676,289 689,672 786,928 792,435 2,192,754 2,945,323 YoY Change (%) 19.2 12.9 18.4 18.0 26.5 45.1 36.9 30.3 17.2 34.3 EBITDA 16,280 29,056 31,585 30,069 37,284 23,214 19,211 19,409 106,990 99,118 Margins (%) 3.0 6.1 5.5 4.9 5.5 3.4 2.4 2.4 4.9 3.4 EBITDA adj. for inventory and one-offs 32,030 21,136 16,815 28,499 18,234 20,796 19,211 19,409 98,480 66,450 Depreciation 6,671 6,804 6,799 7,254 7,064 7,946 7,946 7,946 27,528 30,902 Forex loss -1,122 -200 -2,743 843 5,377 0 0 0 -3,222 Interest 1,430 1,563 899 1,776 1,909 1,493 1,493 1,493 5,667 6,389 Other Income 4,582 4,994 2,000 3,427 3,056 3,352 3,352 3,352 15,002 13,112 PBT 13,883 25,882 28,631 23,624 25,990 17,127 13,124 13,321 92,019 74,939 Tax 4,636 8,535 9,134 6,145 8,798 5,708 4,374 4,440 28,449 23,320 Rate (%) 33.4 33.0 31.9 26.0 33.9 33.3 33.3 33.3 30.9 31.1 Reported PAT 9,247 17,347 19,497 17,479 17,192 11,418 8,750 8,881 63,571 51,619 YoY Change (%) -55.9 147.4 22.6 -3.9 85.9 -34.2 -55.1 -49.2 4.3 -18.8 Margins (%) 1.7 3.7 3.4 2.9 2.5 1.7 1.1 1.1 2.9 1.8 Key Assumptions Refining throughput (mmt) 4.5 4.6 4.5 4.6 4.5 4.7 4.4 4.4 18.3 18.0 Core GRM (USD/bbl) 8.8 5.5 6.1 6.6 3.7 3.9 6.3 6.3 6.7 5.0 Marketing sales volume incl exports (mmt) 9.3 8.8 9.4 9.5 9.7 9.1 9.8 9.8 36.9 38.4 Marketing GM incld inv (INR/litre) 3.2 3.8 3.1 4.4 4.6 3.7 3.1 3.1 3.6 3.6 E: MOSL Estimates


HPCL

CMP: INR251 TP: INR203 (-19%) Neutral We expect HPCL’s core earnings to decline YoY, led by lower core

GRMs in 2QFY19. We model nil subsidy-sharing for OMCs; subsidy in 2QFY19 would

be entirely borne by the government. We peg HPCL’s refinery throughput at 4.7mmt for 2QFY19 v/s

4.5mmt in 1QFY19 and 4.6mmt in 2QFY18. We model core GRM of USD3.9/bbl and total inventory gains of

INR2.4b for HPCL in 2QFY19. We expect HPCL to report adjusted EBITDA of INR20.8b (-2% YoY;

+14% QoQ) in 2QFY19. We estimate PAT at INR11.4b (-34% YoY; -34% QoQ) for 2QFY19. HPCL trades at 6.0x standalone FY20E EPS of INR40.7 and 1.2x

FY20E BV, with ~7% dividend yield. Recommend Neutral. Key issues to watch for GRM Impact of forex and inventory change

Bloomberg HPCL IN Equity Shares (m) 1524.2 M. Cap. (INR b)/(USD b) 383 / 5 52-Week Range (INR) 484 / 234 1,6,12 Rel Perf. (%) 5 / -37 / -57

Financial snapshot (Stand.) (INR b) Y/E MARCH 2017 2018 2019E 2020E Sales 1,870 2,193 2,945 3,039

EBITDA 105.8 106.7 99.1 78.5

Adj. PAT 62.1 60.3 51.6 34.5

Adj. EPS (INR) 40.7 39.6 33.9 22.6

EPS Gr. (%) 66.6 (2.8) (14.5) (33.2)

BV/Sh.(INR) 133.5 157.1 173.0 184.8

RoE (%) 32.4 27.2 20.5 12.6

RoCE (%) 18.8 15.8 12.1 7.6


P/BV (x) 1.9 1.6 1.5 1.4

EV/EBITDA (x) 5.2 5.3 6.1 8.3

Div. Yield (%) 9.1 6.8 4.9 3.7

October 2018 245

Quarterly performance (INR Million) Y/E MARCH FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 10,492 11,261 11,839 12,329 12,874 13,266 13,246 12,491 45,921 51,878 Change (%) 17.0 17.0 25.1 23.1 22.7 17.8 11.9 1.3 20.6 13.0 EBITDA 2,773 2,816 2,631 2,754 2,951 3,189 3,215 2,916 10,973 12,271

EBITDA (INR/scm) 6.2 5.9 5.4 5.7 5.8 5.9 5.9 5.8 5.8 5.9 % of Net Sales 26.4 25.0 22.2 22.3 22.9 24.0 24.3 23.3 23.9 23.7 % Change 7.9 9.4 3.0 21.7 6.4 13.2 22.2 5.9 10.2 11.8 Depreciation 439 450 453 470 473 500 502 495 1,813 1,970 Interest 4 4 4 6 6 0 0 0 17 6 Other Income 179 250 326 267 262 370 400 310 1,021.3 1,340.1 PBT before EO 2,509 2,612 2,499 2,545 2,735 3,059 3,113 2,731 10,165 11,636 EO 0 0 0 160 0 0 0 0 160 0 PBT after EO 2,509 2,612 2,499 2,705 2,735 3,059 3,113 2,731 10,325 11,6386 Tax 897 923 840 957 976 1,019 1,037 909 3,617 3,940 Rate (%) 35.7 35.3 33.6 35.4 35.7 33.3 33.3 33.3 35.0 33.9 PAT 1,613 1,689 1,659 1,747 1,759 2,040 2,077 1,822 6,708 7,696 Adj. PAT 1,613 1,689 1,659 1,644 1,759 2,040 2,077 1,822 6,604 7,696

PAT (INR/scm) 3.6 3.5 3.4 3.6 3.5 3.8 3.8 3.6 2.8 3.4 Change (%) 9.0 17.1 14.6 30.3 9.1 20.8 25.2 4.3 17.5 14.7 EPS (INR) 2.3 2.4 2.4 2.3 2.5 2.9 3.0 2.6 9.4 11.0 Gas Volumes (mmscmd)

CNG 3.70 3.91 3.89 3.98 4.13 4.36 4.33 4.08 3.87 4.23 PNG 1.20 1.30 1.37 1.38 1.42 1.48 1.56 1.51 1.31 1.49

Total 4.90 5.22 5.26 5.36 5.55 5.84 5.89 5.59 5.18 5.72 YoY Change (%)

CNG 11.8 12.9 11.9 10.2 11.6 11.4 11.4 2.6 11.6 9.2 PNG 17.2 17.6 21.2 14.8 18.3 13.6 13.6 9.6 17.7 13.6

Total 13.1 14.0 14.2 11.3 13.2 12.0 12.0 4.4 13.1 10.3 E: MOSL Estimates


Indraprastha Gas

CMP: INR242 TP: INR373 (+54%) Buy We expect IGL to report volumes of 5.84mmscmd, and assume

EBITDA/scm at INR5.9 for 2QFY19. We expect 2QFY19 CNG volumes at 4.36mmscmd (+11% YoY; +6%

QoQ) and PNG volumes at 1.48mmscmd (+14% YoY; +5% QoQ). We expect IGL to report EBITDA of INR3.2b (+13% YoY; +8% QoQ)

for 2QFY19. We expect IGL to report PAT of INR2.0b (+21% YoY; +16% QoQ). We model total volumes of 5.7/6.5mmscmd and EBITDA/SCM at

~INR5.9/SCM in FY19/FY20. The stock trades at 14.6x FY20E EPS of INR12.7. Maintain Buy. Key issues to watch for Increase in volumes EBITDA/SCM

Bloomberg IGL IN


1,6,12 Rel Perf. (%) -10 / -21 / -33


Sales 38.1 45.9 51.9 61.1

EBITDA 9.6 11.0 12.3 13.8 Adj. PAT 6.0 6.6 7.7 8.9 Adj. EPS (INR) 8.6 9.4 11.0 12.7

EPS Gr. (%) 44.3 9.2 17.6 14.3 BV/Sh.(INR) 41.8 50.2 58.9 68.1 RoE (%) 21.0 20.8 20.3 20.0


P/BV (x) 5.8 4.8 4.1 3.6 EV/EBITDA (x) 16.9 14.7 13.0 11.2

Div. Yield (%) 3.5 0.8 0.8 1.2

October 2018 246

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 1,054,342 905,667 1,106,669 1,173,685 1,294,750 1,378,528 1,653,060 1,653,052 4,240,364 5,979,389 YoY Change (%) 23.1 13.1 18.9 17.0 22.8 52.2 49.4 40.8 18.1 41.0 EBITDA 51,915 76,362 132,687 116,973 143,808 93,906 70,312 70,528 377,938 378,554 Margins (%) 4.9 8.4 12.0 10.0 11.1 6.8 4.3 4.3 8.9 6.3 EBITDA adj. for inventory and one-offs 92,335 71,802 69,657 82,553 65,148 75,279 70,312 70,528 316,348 224,013 Depreciation 17,213 16,970 17,151 19,336 17,879 19,655 19,655 19,655 70,670 76,844 Forex loss -6,120 2,630 -6,310 6,760 18,050 Interest 7,180 7,726 6,549 13,029 10,311 6,016 6,016 6,016 34,484 28,358 Other Income 6,156 5,878 7,224 2,481 5,853 5,891 5,891 5,891 21,739 23,527 PBT before EO 39,798 54,914 122,522 80,329 103,422 74,127 50,533 50,748 294,522 296,880 PBT 67,878 54,914 122,522 80,329 103,422 74,127 50,533 50,748 322,603 296,880 Tax 22,393 17,951 43,690 28,148 35,110 24,707 16,843 16,914 112,182 93,574 Rate (%) 33.0 32.7 35.7 35.0 33.9 33.3 33.3 33.3 34.8 31.5 Reported PAT 45,485 36,963 78,832 52,181 68,311 49,421 33,690 33,834 210,421 203,306 Adj PAT 26,767 36,963 78,832 52,181 68,311 49,421 33,690 33,834 192,105 203,306 YoY Change (%) -67.6 18.4 97.3 40.2 155.2 33.7 -57.3 -35.2 6.7 5.8 Margins (%) 2.5 4.1 7.1 4.4 5.3 3.6 2.0 2.0 4.5 3.4 Key Assumptions Refining throughput (mmt) 17.5 16.1 18.2 17.2 17.7 18.1 18.0 18.0 69.0 71.8 Core GRM (USD/bbl) 6.6 6.9 6.1 6.1 3.4 5.1 6.0 6.0 6.4 5.1 Domestic sale of refined products (mmt) 19.8 18.0 19.7 19.7 20.5 18.7 20.5 20.4 77.1 80.1 Marketing GM per litre (INR/litre) 4.5 4.1 4.0 5.1 5.2 3.6 3.0 3.0 4.4 3.7 E: MOSL Estimates


IOC

CMP: INR158 TP: INR164 (+4%) Buy We expect IOCL’s core earnings to improve marginally YoY, led by

higher refining throughput and petrochemical segments in 2QFY19. We model nil subsidy-sharing for OMCs; subsidy in 2QFY19 would

be entirely borne by the government. We peg IOCL’s refinery throughput at 18.1mmt for 2QFY19 v/s

17.7mmt in 1QFY19 and 16.1mmt in 2QFY18. We model core GRM of USD5.1/bbl and total inventory gains of

INR18.6b for IOCL in 2QFY19. We expect IOCL to report adjusted EBITDA of INR75.3b (+5% YoY;

+16% QoQ) in 2QFY19. We estimate PAT at INR49.4b (+34% YoY; -28% QoQ) in 2QFY19. IOCL trades at 8.0x FY20E EPS of INR19.3 and at 1.2x FY20E BV.

Dividend yield is 7%. Maintain Buy. Key issues to watch for Utilization of Paradip refinery GRM Capex plans Forex/inventory changes

Bloomberg IOCL IN


1,6,12 Rel Perf. (%) 8 / -18 / -38

Financial snapshot (Cons.) (INR b) Y/E MARCH 2017 2018 2019E 2020E

Sales 3,553 4,215 5,965 6,523

EBITDA 340.1 416.1 371.0 299.0

Adj. PAT 203.9 226.3 166.3 131.7

Adj. EPS (INR) 21.5 23.9 17.5 13.9

EPS Gr. (%) 83.8 11.0 (26.5) (20.8)

BV/Sh.(INR) 107.7 120.1 126.2 130.8

RoE (%) 21.2 21.0 14.2 10.8

RoCE (%) 15.0 14.4 10.3 7.8

Payout (%) 62.4 56.3 64.5 65.0

Valuations P/E (x) 7.3 6.6 9.0 11.4

P/BV (x) 1.5 1.3 1.3 1.2

EV/EBITDA (x) 6.1 5.1 5.7 7.2

Div. Yield (%) 7.0 7.3 6.2 5.1

October 2018 247

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 5,309 5,338 5,814 5,870 6,323 6,461 6,551 6,222 22,330 25,561 YoY Change (%) 9.8 2.5 15.3 11.7 19.1 21.0 12.7 6.0 9.8 14.5 Total Expenditure 3,276 3,335 3,805 4,108 4,084 4,325 4,519 4,292 14,524 17,225 EBITDA 2,033 2,003 2,009 1,762 2,239 2,136 2,032 1,930 7,806 8,336 EBITDA/SCM 8.7 8.1 8.0 7.0 8.6 8.1 7.6 7.7 7.9 8.0 Margins (%) 38.3 37.5 34.6 30.0 35.4 33.1 31.0 31.0 35.0 32.6 Depreciation 246 259 268 339 295 340 356 397 1,112 1,388 Interest 2 0 0 1 1 0 0 0 3 1 Other Income 120 139 141 174 153 158 162 183 574 657 PBT 1,904 1,883 1,883 1,595 2,096 1,954 1,838 1,716 7,265 7,603 Tax 661 635 643 548 684 662 623 582 2,487 2,551 Rate (%) 34.7 33.7 34.1 34.3 32.6 33.9 33.9 33.9 34.2 33.6 Reported PAT 1,243 1,248 1,240 1,048 1,413 1,292 1,215 1,134 4,779 5,052 Adj PAT 1,243 1,248 1,240 1,048 1,413 1,292 1,215 1,134 4,779 5,052 YoY Change (%) 34.1 22.1 25.2 5.3 13.6 3.5 -2.0 8.3 21.5 5.7 Margins (%) 23.4 23.4 21.3 17.8 22.3 20.0 18.5 18.2 21.4 19.8 Sales Volumes (mmscmd) CNG 1.89 1.99 2.01 2.05 2.12 2.09 2.11 1.87 1.99 2.05 PNG - Domestic 0.32 0.33 0.34 0.35 0.36 0.36 0.38 0.47 0.34 0.39 PNG - Industry/ Commercial 0.36 0.38 0.39 0.39 0.39 0.41 0.43 0.43 0.38 0.42 PNG - Total 0.68 0.71 0.73 0.74 0.75 0.77 0.80 0.90 0.72 0.81 Total Volumes 2.57 2.70 2.74 2.80 2.87 2.87 2.91 2.77 2.70 2.85 E: MOSL Estimates


Mahanagar Gas

CMP: INR810 TP: INR1,098 (+36%) Buy We expect MGL to report volumes of 2.87mmscmd, and assume

EBITDA/scm at INR8.1. We expect 2QFY19 CNG volumes at 2.09mmscmd (+5% YoY; -1%

QoQ) and PNG volumes at 0.77mmscmd (+9% YoY; +3% QoQ). We expect MGL to report EBITDA of INR2.1b (+7% YoY; -5% QoQ) for

2QFY19. We expect MGL to report PAT of INR1.3b (+4% YoY; -9% QoQ). We model total volumes of 2.85/3.09mmscmd and EBITDA/SCM at

INR8.0/8.0 in FY19/FY20. The stock trades at 14.8x FY20E EPS of INR55. Maintain Buy. Key issues to watch for Increase in volumes EBITDA/SCM

Bloomberg MAHGL IN


1,6,12 Rel Perf. (%) 0 / -28 / -40


Sales 20.3 22.3 25.6 28.9 EBITDA 6.4 7.8 8.3 9.0


BV/Sh.(INR) 186.3 212.1 241.1 272.2 RoE (%) 23.4 24.3 22.6 21.4 RoCE (%) 23.3 24.3 22.6 21.4



October 2018 248

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 102,624 90,965 141,020 149,907 135,578 133,799 173,205 174,391 484,516 616,973 YoY Change (%) 21.8 -8.8 22.9 12.4 32.1 47.1 22.8 16.3 12.1 27.3 EBITDA 5,827 9,082 17,495 10,444 8,131 8,780 9,526 9,584 42,848 36,020 Margins (%) 5.7 10.0 12.4 7.0 6.0 6.6 5.5 5.5 8.8 5.8 Depreciation 1,637 1,701 1,720 1,617 1,704 2,108 2,108 2,108 6,674 8,028 Interest 1,074 1,053 1,159 1,118 1,106 775 775 775 4,405 3,431 Other Income 204 828 202 771 558 347 347 347 2,005 1,600 PBT before EO expense 3,320 7,156 14,819 8,479 5,879 6,244 6,990 7,048 33,774 26,161 Extra-Ord expense 0 259 0 0 262 0 0 0 259 262 PBT 3,320 6,898 14,819 8,479 5,617 6,244 6,990 7,048 33,515 25,899 Tax 980 2,118 5,110 3,058 1,998 2,081 2,330 2,349 11,266 8,758 Rate (%) 30 31 34 36 36 33 33 33 34 34 Reported PAT 2,340 4,780 9,709 5,421 3,620 4,163 4,660 4,699 22,249 17,142 Adj PAT 2,340 4,959 9,709 5,421 3,788 4,163 4,660 4,699 22,421 17,315 YoY Change (%) -67.4 19.2 71.5 -37.8 61.9 -16.1 -52.0 -13.3 -13.5 -22.8 Margins (%) 2.3 5.5 6.9 3.6 2.8 3.1 2.7 2.7 4.6 2.8 Key Assumptions

Refining throughput (mmt) 3.98 3.53 4.49 4.31 3.85 3.70 4.00 4.00 16.31 15.55 Core GRM (USD/bbl) 7.07 5.33 6.82 6.48 4.79 4.96 5.80 5.80 6.43 5.34 E: MOSL Estimates

CMP: INR72 TP: INR90 (+26%) Neutral We model MRPL’s GRM at USD5.0/bbl (v/s USD4.8/bbl in 1QFY19

and USD5.3/bbl in 2QFY18). We expect refinery throughput at 3.7mmt v/s 3.85mmt in 1QFY19

and 3.53mmt in 2QFY18. We expect MRPL to report EBITDA of INR8.8b (v/s INR8.1b in

1QFY19). We estimate adjusted PAT at INR4.2b (v/s INR3.6b in 1QFY19).

For MRPL, we model GRM of USD5.3/6.0/bbl in FY19/20. The stock trades at 5.5x FY20E EPS of INR12.7 and EV of 2.4x FY20E EBITDA. Maintain Neutral.

Key issues to watch for GRM Forex fluctuations Inventory changes


MRPL

Bloomberg MRPL IN


1,6,12 Rel Perf. (%) -3 / -44 / -59

Financial snapshot (INR b) Y/E MARCH 2017 2018 2019E 2020E

Sales 432.1 484.5 617.0 659.9

EBITDA 47.1 42.8 36.0 40.1

Adj. PAT 25.9 22.4 17.4 22.3

Adj. EPS (INR) 14.8 12.8 9.9 12.7

EPS Gr. (%) (13.3) (13.3) (22.2) 28.1

BV/Sh.(INR) 57.5 63.0 70.6 80.3

RoE (%) 31.4 21.2 14.9 16.9

RoCE (%) 19.6 15.7 12.3 14.2

Payout (%) 34.7 27.4 23.4 23.4

Valuation

P/E (x) 4.8 5.6 7.2 5.6

P/BV (x) 1.2 1.1 1.0 0.9

EV/EBITDA (x) 3.6 3.8 3.8 2.4

Div. Yield (%) 8.4 4.1 2.8 3.6

October 2018 249

Quarterly Performance (INR Billion) Y/E March FY18 FY19E

FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 23.3 24.7 28.5 30.0 33.9 35.7 37.3 38.5 106.6 145.4 Change (%) 5.0 6.1 20.0 23.1 45.4 44.2 30.6 28.5 13.8 36.4 EBITDA 8.7 10.1 12.2 8.0 14.1 14.7 15.7 16.1 39.1 60.6 % of Net Sales 37.5 40.9 42.9 26.7 41.5 41.3 42.2 41.8 36.7 41.7 Change (%) 1.3 21.0 84.2 34.6 61.1 45.5 28.5 101.0 32.2 55.0

D,D&A 2.9 3.2 3.6 3.0 3.4 3.4 3.5 3.5 12.7 13.8 Interest 1.0 1.1 1.0 1.1 1.1 0.8 0.8 1.8 4.2 4.5 OI (incl. Oper. other inc) 1.5 3.3 2.1 7.9 1.3 4.0 4.0 6.3 14.8 15.6

PBT before exceptional 6.4 9.1 9.8 11.8 10.9 14.5 15.5 17.1 37.1 58.0 Exceptional item 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBT after exceptional 6.4 9.1 9.8 11.8 10.9 14.5 15.5 17.1 37.1 58.0 Tax 1.9 2.7 2.7 3.1 3.8 4.8 5.1 5.7 10.4 19.4 Rate (%) 29.4 29.3 28.0 26.5 35.2 33.0 33.0 33.0 28.1 33.4 PAT 4.5 6.5 7.1 8.7 7.0 9.7 10.4 11.5 26.7 38.6 Change (%) -8.9 11.3 55.1 4,387.3 56.2 50.6 47.3 32.5 72.3 44.8 Adj. EPS (INR) 3.7 5.4 5.9 7.2 5.8 8.1 8.6 9.6 22.2 32.1 Key Assumptions (USD/bbl) Exchange rate (INR/USD) 64.5 64.3 64.8 64.4 67.0 70.2 72.5 73.0 64.5 70.7 Gas Price (USD/bbl) 2.8 2.8 3.2 3.2 3.2 3.2 3.2 3.2 3.0 3.2 Gross Oil Realization 48.4 50.1 59.4 64.9 72.0 73.7 73.8 73.8 55.7 73.3 Oil sales (mmt) 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 3.3 3.2 Gas sales (bcm) 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 2.4 2.4 Net Oil Realization 48.4 50.1 59.4 64.9 72.0 73.7 73.8 73.8 55.7 73.3


Oil India

CMP: INR221 TP: INR257 (+16%) Buy We estimate gross and net realization at USD73.7/bbl, with no

subsidy-sharing burden. We estimate EBITDA at INR14.7b (+46% YoY and +5% QoQ). We expect OINL to report adjusted PAT of INR9.7b (v/s INR7.0b in

1QFY19 and INR6.5b in 2QFY18). Our Brent price assumption is USD75/bbl for FY19 and USD70/bbl

for FY20. The stock trades at 7.3x FY20E EPS of INR30.2. Maintain Buy.

Key issues to watch for Depreciation, depletion and amortization (DD&A) charges Oil & gas production volumes

Bloomberg OINL IN


1,6,12 Rel Perf. (%) 12 / -8 / -21

Financial snapshot (INR b) Y/E MARCH 2017 2018 2019E 2020E

Sales 93.6 106.6 146.9 144.8


EPS Gr. (%) 7.2 -1.2 43.3 -5.0 BV/Sh.(INR) 242.0 232.1 249.1 265.3 RoE (%) 5.7 9.4 13.2 11.7

RoCE (%) 3.5 4.8 7.7 6.8 Payout (%) 96.5 56.1 56.1 56.1 Valuations P/E (x) 9.8 10.0 6.9 7.3

P/BV (x) 0.9 1.0 0.9 0.8 EV/EBITDA (x) 9.8 7.9 5.0 5.1

Div. Yield (%) 4.7 4.7 6.7 6.4

October 2018 250

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 190,735 189,649 229,959 239,698 272,128 301,082 317,017 319,148 850,041 1,209,376 YoY Change (%) 7.9 3.7 15.4 10.4 42.7 58.8 37.9 33.1 9.5 42.3 EBITDA 98,807 104,692 125,247 113,822 147,321 168,213 191,793 193,417 442,568 700,743 Margins (%) 51.8 55.2 54.5 47.5 54.1 55.9 60.5 60.6 52.1 57.9 Depreciation 45,204 48,389 58,614 62,813 50,266 63,619 56,260 56,260 215,020 226,405 Interest 2,769 3,274 3,099 5,942 7,486 4,559 4,559 4,559 15,085 21,164 Other Income 8,544 19,315 11,265 37,337 6,499 8,000 22,272 22,272 76,461 59,043 PBT 59,378 72,343 74,800 82,405 96,068 108,035 153,246 154,870 288,925 512,218 Tax 20,530 21,036 24,653 23,253 34,629 37,812 51,077 51,618 89,472 175,136 Rate (%) 34.6 29.1 33.0 28.2 36.0 35.0 33.3 33.3 31.0 34 Adj PAT 38,847 51,307 50,147 59,151 61,439 70,223 102,169 103,252 199,453 337,082 YoY Change (%) -8.2 3.1 15.2 36.3 58.2 36.9 103.7 74.6 11.4 69.0 Margins (%) 20.4 27.1 21.8 24.7 22.6 23.3 32.2 32.4 23.5 27.9 Key Assumptions (USD/bbl) Fx rate (INR/USD) 64.5 64.3 64.7 64.3 67.0 70.2 72.5 73.0 64.5 70.7 Gross Oil Realization 51.0 51.2 60.6 66.7 74.2 74.6 74.7 74.7 57.4 63.2 Subsidy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Oil Realization 51.0 51.2 60.6 66.7 74.2 74.6 74.7 74.7 57.4 63.2 Crude oil sold (mmt) 6.0 5.8 5.9 5.9 5.8 5.7 5.9 5.9 23.7 23.3 Gas sold (bcm) 4.8 4.9 5.0 4.8 4.9 5.1 5.0 5.0 19.5 20.0 VAP sold (tmt) 769 849 908 820 856.0 858.1 858.1 858.1 3,346.0 3,430.3 Subsidy (INR b) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 E: MOSL Estimates


ONGC

CMP: INR182 TP: INR230 (+27%) Buy We estimate gross and net realization at USD74.6/bbl, as we

expect the entire subsidy to be borne by the government. We estimate EBITDA at INR168b (v/s INR147b in 1QFY19 and

INR104.7b in 2QFY18), led by a rise in realization. We expect ONGC to report adjusted PAT of INR70b in 2QFY19 (v/s

INR61.4b in 1QFY19 and INR51.3b in 2QFY18). Our Brent price assumption is USD75/bbl for FY19 and USD75/bbl

for FY20. The stock trades at 5.0x consolidated FY20E EPS of INR36.0, with

implied dividend yield of ~7%. Maintain Buy. Key issues to watch for DD&A charges Oil & gas production volumes Development plan for KG Basin

Bloomberg ONGC IN


1,6,12 Rel Perf. (%) 9 / -6 / -8

Financial snapshot (Cons.) (INR b) Y/E March 2017 2018 2019E 2020E

Sales 3,257 3,622 4,969 5,156 EBITDA 580 643 974 1,021

Adj. PAT 288 259 429 462 Adj. EPS (INR) 22.4 20.2 33.4 36.0 EPS Gr. (%) 64.9 -9.9 65.5 7.9

BV/Sh.(INR) 151 159 179 200 RoE (%) 14.7 13.0 19.8 19.0 RoCE (%) 11.1 9.2 14.4 14.9



October 2018 251

Standalone - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 64,351 77,702 77,571 86,362 91,692 102,791 106,153 102,409 305,986 403,045 YoY Change (%) 20.6 17.5 23.1 35.7 42.5 32.3 36.8 18.6 24.3 31.7 EBITDA 7,442 8,987 8,474 8,221 9,344 8,785 8,785 8,062 33,124 34,976 Margins (%) 11.6 11.6 10.9 9.5 10.2 8.5 8.3 7.9 10.8 8.7 Depreciation 1,027 1,039 1,039 1,013 1,022 1,050 1,050 1,151 4,117 4,273 Interest 465 465 367 335 300 145 144 0 1,630 589 Other Income 707 1,019 414 1,034 990 1,000 1,000 1,258 3,174 4,248 PBT 6,658 8,504 7,482 7,908 9,012 8,590 8,591 8,169 30,551 34,362 Tax 2,282 2,616 2,194 2,681 3,142 2,835 2,835 2,696 9,773 11,508 Rate (%) 34.3 30.8 29.3 33.9 34.9 33.0 33.0 33.0 32.0 33.5 Adj PAT 4,376 5,888 5,288 5,227 5,870 5,755 5,756 5,473 20,778 22,854 YoY Change (%) 15.8 28.1 33.0 11.0 34.1 -2.2 8.9 4.7 21.8 10.0 Margins (%) 6.8 7.6 6.8 6.1 6.4 5.6 5.4 5.3 6.8 5.7 Key Assumptions

Regas volume (Tbtu) 81 79 92 85 97 92 92 86 336 366 Sales volume (Tbtu) 111 141 131 128 123 124 124 123 511 493 E: MOSL Estimates


Petronet LNG

CMP: INR222 TP: INR303 (+36%) Buy We model Dahej LNG volumes at 207tbtu, with 109% utilization,

and Kochi LNG volumes at 8tbtu, with 13% utilization in 2QFY19. We expect PLNG to report PAT of INR5.8b (-26% YoY; -2% QoQ) and

EBITDA of INR8.9b (-17% YoY; -6% QoQ) for 2QFY19. PLNG’s long-term growth would depend on Dahej’s ramp-up and

Kochi terminal’s pipeline connectivity. As against 15mmt capacity, PLNG has ~16mmt long-term take-or-

pay contracts. The stock trades at 11.7x FY20E EPS of INR19.0. Maintain Buy. Key issues to watch for Utilization at Dahej terminal Progress on Kochi-Mangalore pipeline Spot volumes and marketing margin on spot volumes

Bloomberg PLNG IN Equity Shares (m) 1500.0 M. Cap. (INR b)/(USD b) 333 / 5



Sales 246.2 306.0 403.0 476.8 EBITDA 25.9 33.1 35.0 42.4 Adj. PAT 17.1 20.8 24.1 28.5

Adj. EPS (INR) 11.4 13.9 16.0 19.0 EPS Gr. (%) 86.8 21.8 15.8 18.4 BV/Sh.(INR) 54.0 64.8 74.7 86.5

RoE (%) 23.2 23.3 23.0 23.5 RoCE (%) 19.0 21.1 22.2 23.3 Payout (%) 25.7 38.0 38.0 38.0

Valuation P/E (x) 19.5 16.0 13.8 11.7

P/BV (x) 4.1 3.4 3.0 2.6


October 2018 252

Consolidated - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 834,710 914,810 998,100 1,169,150 1,287,560 1,363,995 1,613,546 1,633,147 3,916,770 5,920,979 YoY Change (%) 28.4 20.1 25.7 37.8 54.3 49.1 61.7 39.7 28.3 51.2 EBITDA 125,540 155,650 175,880 184,690 206,610 211,602 214,556 219,982 641,760 841,471 Margins (%) 15.0 17.0 17.6 15.8 16.0 15.5 13.3 13.5 16.4 14.2 Depreciation 30,370 42,870 45,300 48,520 51,730 55,645 58,634 61,429 167,060 225,860 Interest 11,190 22,720 20,950 25,660 35,500 32,545 34,258 35,115 80,520 133,846 Other Income 32,250 23,310 22,180 22,030 17,780 19,802 19,802 19,802 99,770 81,712 PBT 116,230 113,370 131,810 132,540 137,160 143,214 141,466 143,240 493,950 563,477 Tax 25,440 32,400 37,750 37,870 42,410 42,690 39,646 40,181 133,460 135,438 Rate (%) 21.9 28.6 28.6 28.6 30.9 29.8 28.0 28.1 27.0 24.0 Reported PAT 90,790 80,970 94,450 94,590 94,850 100,524 101,820 103,060 360,800 428,719 YoY Change (%) 28.3 12.8 25.5 17.5 4.5 24.2 7.8 9.0 20.9 18.8 Margins (%) 10.9 8.9 9.5 8.1 7.4 7.4 6.3 6.3 9.2 7.2 E: MOSL Estimates


Reliance Industries

CMP: INR1,205 TP: INR1,484 (+23%) Buy We expect RIL to report GRM of USD10.2/bbl v/s USD10.5/bbl in

1QFY19 and USD12.0/bbl in 2QFY18. We model a premium of USD4.1/bbl over benchmark GRM of USD6.1/bbl.

Petrochemical segment is expected to do better due to healthy deltas and strong volume growth in the segment.

We expect RIL to report consolidated EBITDA of INR211b v/s INR207b in 1QFY19 and INR156b in 2QFY18.

We expect RIL to report consolidated PAT of INR100.5b (up 24% YoY and +6% QoQ).

RIL trades at 13.4x FY20E EPS of INR92. Core segment performance is expected to be strong, going forward. Positive developments in the telecom business should drive growth further for the company. Maintain Buy.

Key issues to watch for GRM Petrochemical margins Progress on remaining core expansions Update on telecom venture

Bloomberg RIL IN Equity Shares (m) 5922.0 M. Cap. (INR b)/(USD b) 7138 / 97

52-Week Range (INR) 1329 / 786 1,6,12 Rel Perf. (%) 5 / 26 / 36

Financial conso snapshot (INR b) Y/E March 2017 2018 2019E 2020E

Net Sales 3,054 3,917 5,921 6,538 EBITDA 462 642 841 955 Net Profit 299 361 429 544

Adj. EPS (INR) 50.5 60.9 72.4 91.9 EPS Gr. (%) 0.5 20.7 18.8 27.0 BV/Sh. (INR) 445 496 576 663

RoE (%) 12.1 13.0 13.5 14.8 RoCE (%) 7.2 8.8 10.5 11.5 Payout (%) 13.0 10.7 16.6 14.1


EV/EBITDA (x) 20.1 13.9 10.4 8.5 EV/Sales (x) 3.0 2.3 1.5 1.2

October 2018 253

Double-digit sales growth likely again for sector players EBITDA, PAT to grow strongly

The two companies under our coverage likely to report strong numbers We expect revenue growth of 20.4% YoY for our Retail Universe in 2QFY19. EBITDA is expected to increase by 24.7% YoY and adj. PAT by 27.1% YoY. Titan’s (TTAN) Jewelry segment sales growth is likely to come in at ~25% YoY. In the recent quarters, Watches sales have recovered strongly on a like-to-like basis, but the GST rate cut is likely to impact reported sales growth. The company’s overall sales/EBITDA are expected to grow by 20% and PAT by 21.4% YoY. An unusually high operating margin of 12.1% in the base quarter means that operating leverage-led margin expansion may not come through in 2QFY19, despite likely healthy 20% sales growth. For Jubilant Foodworks (JUBI), we expect sales to increase 22.5% YoY in 2QFY19, with same-store-sales (SSS) growing 22% YoY. We note that JUBI had recorded SSS growth of 5% in the base quarter 2QFY18. Thus, a favourable base and initiatives undertaken by the company should result in high SSS growth in 2QFY19. With SSS growth well above cost increases, margins are also expected to expand sharply by 250bp YoY, resulting in EBITDA growth of 44.3% YoY and PAT growth of 59.6% YoY.

Huge growth opportunity and visibility drive our preference for TTAN We maintain our Buy rating on TTAN. In FY18, TTAN accounted for just over 6% of the INR2t jewelry market. Regulations governing the segment, including identity proofs for all transactions over INR 200,000, GST implementation and crackdown on black money, have tilted trade decisively in favor of organized players, among which TTAN is a dominant player in terms of scale and trust. Earnings CAGR is likely to be very impressive for the company at 27.5% over FY18-20. Moreover, the recent share price correction provides an attractive entry opportunity, with valuations also dipping below 40x FY20E EPS. We like JUBI’s business model with strong earnings growth potential on a recovery. However, with poor visibility of double-digit SSSG beyond the near term (which is aided by a weak base), fair valuations of 44.2x FY20E EPS (despite 36% EPS CAGR assumption over FY18-20) make us vary of turning constructive. We, thus, maintain our Neutral rating on the stock.

Company name

Jubilant Foodworks

Titan Company

Retail


Krishnan Sambamoorthy – Research Analyst ([email protected]); +91 22 6129 1545 Vishal Punmiya – Research Analyst ([email protected]); +91 22 6129 1547

October 2018 254

Exhibit 1: Summary of expected quarterly performance Sector / Companies CMP Sales (INR m) EBITDA (INR m) PAT (INR m)

Retail (INR) Rating Sep-18 Var % YoY


% YoY Var


Var % QoQ

Jubilant Foodworks 1,191 Neutral 8,901 22.5 4.1 1,474 44.3 3.8 774 59.7 3.6 Titan Company 795 Buy 41,962 20.0 -5.7 5,063 20.0 4.8 3,378 21.4 2.8 Sector Aggregate 50,864 20.4 -4.1 6,537 24.7 4.6 4,152 27.1 3.0

Source: Company, MOS

Exhibit 2: Tanishq’s LTL sales grew 2% in 1QFY19


Exhibit 3: Tanishq’s jewelry grammage declined 2.6% in 1QFY19


Exhibit 4: Gold prices up 3.7% YoY in 2QFY19


Exhibit 5: JUBI’s SSS are expected to grow 22% in 2QFY19


Exhibit 6: Dominos expected to have added 20 stores in 2Q


(13.0)

68.0

(8.0) (25.0)

(12.0) (40.0)

30.0

(5.0) 3.0

4.0

15.0

52.0 51.0

18.0 12.0

17.0 2.0

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

Tanishq- LTL Growth (%)

(24.0)

75.0

25.0

(11.0) (10.0)

(10.0)

28.0 15.0 6.0

(32.0)

4.0

37.0 49.0 49.0

6.0 6.0 (2.6)

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

Jewelry volume Growth %

(4.9) (12.8) (10.2)

(5.7) (6.8) (2.9)

3.5 10.2

20.4 13.0

3.9 (2.7)

(6.7) 0.4

4.5 7.5 3.7

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

Average gold price (INR/10 gm) Gold price change YoY (%)

6.3

6.

6

(2.6

) (3

.4)

(2.4

) (5

.3)

1.9

6.

6

4.6

3.

2

2.0

2.

9

(3.2

) 4.

2

(3.3

) (7

.5)

6.5

5.

5

17.8

26

.5

25.9

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

SSS Growth (%)

602

632

679

726

761

797

838

876

911

950

990

1,02

6 1,

049

1,08

1 1,

107

1,11

7 1,

125

1,12

5 1,

127

1,13

4 1,

144

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

1QFY

182Q

FY18

3QFY

184Q

FY18

1QFY

19

Dominos stores

September 2018 Results Preview | Sector: Retail

October 2018 255





Exhibit 9: Comparative valuation Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Retail (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Jubilant Foodworks 1,191 Neutral 14.9 22.0 27.5 80.1 54.0 43.3 34.0 26.5 21.7 20.3 25.1 25.5 Titan Company 795 Buy 12.6 16.0 20.2 62.9 49.6 39.3 50.5 33.1 26.6 24.0 27.9 32.6 Sector Aggregate 65.4 50.3 39.9 47.0 31.7 25.6 21.8 27.4 29.4

85

92

99

106

113

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Retail Index

94

129

164

199

234

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Retail Index


October 2018 256

Quarterly Standalone Perf.

Y/E March FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE FY18 FY19E No of Stores 1125 1125 1127 1134 1144 1164 1184 1204 1134 1204 LTL Growth (%) 6.5 5.5 17.8 26.5 25.9 22.0 10.0 5.0 13.9 15.5 Net Sales 6,788 7,266 7,952 7,798 8,551 8,901 8,946 8,436 29,804 34,833 YoY Change (%) 11.5 9.2 20.7 27.3 26.0 22.5 12.5 8.2 17.1 16.9 Gross Profit 5,183 5,388 5,926 5,794 6,373 6,600 6,621 6,279 22,290 25,873

Gross Margin (%) 76.4 74.1 74.5 74.3 74.5 74.1 74.0 74.4 74.8 74.3 Other Expenses 4,387 4,366 4,557 4,516 4,952 5,126 5,171 4,932 17,826 20,181 EBITDA 796 1,022 1,369 1,278 1,421 1,474 1,450 1,347 4,464 5,692 EBITDA Growth % 37.8 59.0 113.7 111.1 78.5 44.3 6.0 5.4 81.0 27.5 Margins (%) 11.7 14.1 17.2 16.4 16.6 16.6 16.2 16.0 15.0 16.3 Depreciation 462 326 393 378 366 374 432 502 1,559 1,674 Other Income 30 36 33 127 71 73 70 175 227 389 PBT 364 733 1,009 1,027 1,126 1,173 1,088 1,020 3,132 4,407 Tax 125 248 349 346 380 399 370 350 1,068 1,498 Rate (%) 34.4 33.8 34.6 33.7 33.7 34.0 34.0 34.3 34.1 34.0 Adjusted PAT 238 485 660 681 747 774 718 670 2,064 2,909 YoY Change (%) 25.6 124.8 230.6 355.8 213.2 59.7 8.8 -1.6 173.5 40.9 E: MOSL Estimates


Jubilant Foodworks

CMP: INR1,191 TP: INR1,220 (+2%) Neutral We expect JUBI’s revenue to grow 22.5% YoY to INR8.9b in

2QFY19.

SSSG is likely to be 22% for the quarter on a base of 5.5% growth.

We anticipate addition of 20 Dominos stores in 2QFY19.

Gross margin is likely to remain flat at 74.1%.

We expect EBITDA margin to expand by 250bp YoY to 16.6%, and EBITDA to grow by 44.3% YoY to ~INR1.5b.

We estimate adj. PAT to grow by 59.7% YoY to INR774m.

The stock trades at 54x/43.3x FY19E/20E EPS of INR22/INR27.5. Maintain Neutral.

Key issues to watch for: Demand outlook for QSR and pizza space, as well as competition Benefits of cost-saving efforts Performance of Dunkin Donuts and margin guidance

Bloomberg JUBI IN Equity Shares (m) 131.6 M. Cap. (INR b)/(USD b) 157 / 2

52-Week Range (INR) 1575 / 697 1,6,12 Rel Perf. (%) -15 / -6 / 53


Sales 25.8 30.2 34.8 40.8


EPS Gr. (%) -27.9 180.4 48.2 24.8 BV/Sh.(INR) 61.1 73.3 87.9 107.9 RoE (%) 8.7 20.3 25.1 25.5


P/E (x) 224.6 80.1 54.0 43.3 P/BV (x) 19.5 16.2 13.6 11.0 EV/EBITDA (x) 64.6 34.8 26.6 21.8 Div. Yield (%) 0.1 0.2 0.6 1.0

October 2018 257

Quarterly Performance Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 40,673 34,969 43,631 41,072 44,510 41,962 54,102 50,506 161,198 191,081 YoY Change (%) 45.1 30.5 10.5 13.3 9.4 20.0 24.0 23.0 23.5 18.5 Gross Profit 9,939 9,310 11,427 12,069 12,177 11,801 14,981 15,179 44,336 54,138

Margin (%) 24.4 26.6 26.2 29.4 27.4 28.1 27.7 30.1 27.5 28.3 EBITDA 3,649 4,219 4,224 4,355 4,829 5,063 5,509 5,647 16,447 21,047 EBITDA Growth % 27.2 59.6 21.2 70.3 32.3 20.0 30.4 29.7 42.3 28.0 Margins (%) 9.0 12.1 9.7 10.6 10.8 12.1 10.2 11.2 10.2 11.0 Depreciation 295 310 349 360 407 419 437 442 1,314 1,705 Interest 108 145 109 167 109 160 120 187 529 575 Other Income 283 208 213 185 361 208 213 209 889 991 PBT 3,529 3,972 3,979 4,013 4,674 4,692 5,165 5,227 15,492 19,758 Tax 1,038 1,189 1,159 893 1,388 1,314 1,446 1,385 4,279 5,532 Rate (%) 29.4 29.9 29.1 22.3 29.7 28.0 28.0 26.5 27.6 28.0 Adjusted PAT 2,491 2,783 2,820 3,120 3,286 3,378 3,719 3,842 11,213 14,226 YoY Change (%) 14.1 64.6 21.0 72.2 31.9 21.4 31.9 23.2 39.9 26.9 E: MOSL Estimates

CMP: INR795 TP:INR1,070(+35%) Buy We expect TTAN’s revenue to increase 20% YoY to ~INR42b.

Gross margin is expected to expand 150bp YoY to 28.1%.

We factor in EBITDA growth of 20% YoY for 2QFY19, with underlying margin expansion to be flat YoY at 12.1%.

Adj. PAT is expected to grow by 21.4% to INR3.4b.

The stock trades at 49.6x/39.3x FY19E/20E EPS of INR16/INR20.2. Maintain Buy.

Key issues to watch for: Pace of shift from unorganized to organized trade Proportion of jewelry sales being driven by SSSG

Bloomberg TTAN IN Equity Shares (m) 887.8 M. Cap. (INR b)/(USD b) 705 / 10 52-Week Range (INR) 1006 / 584 1,6,12 Rel Perf. (%) -6 / -23 / 18

Financial Snapshot (INR b) Y/E March 2017 2018 2019E 2020E Sales 132.6 161.2 191.1 231.1 EBITDA 11.6 16.4 21.0 26.2 Adj. PAT 8.0 11.2 14.2 18.0 Adj. EPS (INR) 9.0 12.6 16.0 20.2 EPS Gr. (%) 18.5 39.9 26.9 26.2 BV/Sh.(INR) 48.0 57.3 57.4 66.5 RoE (%) 20.6 24.0 27.9 32.6 RoCE (%) 21.0 24.7 28.6 33.3 Payout (%) 39.7 36.3 50.0 55.0 Valuation P/E (x) 88.0 62.9 49.6 39.3 P/BV (x) 16.6 13.9 13.8 11.9 EV/EBITDA (x) 60.0 42.6 33.1 26.6 Div. Yield (%) 0.5 0.6 1.0 1.4


Titan Company

October 2018 258

September 2018 Results Preview | Sector: Technology

Two propitious strokes – one of order, the other of luck

The usual second-quarter seasonal strength, coupled with the benefits from a favorable currency, is likely to drive a continued recovery for the technology sector.

Revenue for Tier-I vendors is likely to increase by 9.4% YoY in constant currency terms (compared to 7.8% in 1QFY19 and 6.8% in 2QFY18), taking further strides toward entering a double-digit growth trajectory.

INR depreciation and an improved performance are likely to act as margin tailwinds, driving stronger EBITDA growth. Also, with lower hedge gains being more than offset by sharp translation gains, PAT growth would come in even better.

Growth and profitability trends are likely to be polarized, with USD revenue/EBITDA/PAT growth expected to be at 7%/18%/18% YoY for Tier-I and 15%/37%/45% YoY for Tier-II.

Bottoming cyclical pressures will feed into valuation multiples favorably, while supportive currency movements will underpin earnings growth, in our view.

Expect uptrend in growth to continue The continued upward trajectory reinforces the outlook for Indian technology

services. Considering the improving demand outlook, resonated in a pick-up in deal wins and more-so in commentary across verticals (especially in the crucial ones like BFSI) and supported by seasonal strength, we expect Tier-I to deliver CC revenue growth of 9.4% YoY for 2QFY19, as against 7.8% in 1QFY19 and 6.8% in 2QFY18.

TCS is expected to deliver double-digit growth (12% YoY CC) this quarter. Other Tier-I vendors are expected to exhibit 150-300bp improvement in YoY growth rates in 2QFY19. For WPRO and HCLT, organic growth is expected to linger in the low-to-mid single-digit range.

Currency support on margins While the last year was characterized by moderate growth and profitability

improvement (mainly led by efficiency enhancement), we believe better revenue growth and the near-term benefits of currency depreciation are likely to continue fueling margin expansion.

We expect EBITDA margins to expand 100bp YoY to 24.6% in 2QFY19. On a sequential basis, too, the pressures of wage hikes and visa expenses are largely behind, likely driving margin expansion of 60bp QoQ.

YoY margin expansion is likely to be the sharpest for TECHM (+290bp), followed by HCLT (+120bp) and TCS (+80bp). INFO and WPRO are likely to see YoY contraction in margins by 50bp – the former impacted by investments and the latter by multiple vertical/client/internal issues.

Translation gains to further boost bottom line Sharp INR depreciation in 2QFY19 (4% QoQ) should lead to a reduction in hedge

gains, or hedge losses, depending on the cover and rate for various companies. However, on a closing basis, the INR has depreciated by 5% QoQ – this should result in very strong translation gains for the sector on the net monetary asset position denominated in foreign currency, further boosting PAT growth.

Company Name Cyient

HCL Tech

Hexaware

Infosys

KPIT Tech

Mindtree

Mphasis

NIIT Tech

Persistent

Tata Elxsi

TCS

TechM

Wipro

Zensar

Technology


Ashish Chopra – Research analyst ([email protected]); +91 22 3982 5424 Research analyst: Sagar Lele ([email protected]); +91 22 3982 5585 | Anmol Garg ([email protected])

October 2018 259

September 2018 Results Preview | Sector: Technology The quarter, thus, gets defined by two strokes – one of operational upgrades,

and the other of currency – both working in favor of better numbers.

Watch out for INFO’s guidance; reflection of BFS commentary in numbers INFO should continue guiding for 6-8% YoY growth in constant currency. We

expect INFO to raise its margin guidance by 50bp, considering the more benign currency and the pre-determined nature of its investments.

We expect TCS to continue its outlook of gradually accelerating revenue growth, thanks to the recent deal wins. The company should also retain its EBIT margin guidance of 26-28%.

We expect WPRO’s revenue growth to improve sequentially, especially given the recent deal wins. We are assuming a guidance of 1-3% QoQ CC for 3QFY19, hinged on commencement of revenue from the Alight deal.

Tier-II outperformance likely to continue These trends would also be exhibited in Tier-II providers, but to a larger extent,

because of (a) company-specific factors resulting in mid-teens growth for several vendors over the last year and (b) higher exposure to the US as a geography (and currency) leading to a larger pass-through of benefits associated with the depreciation of the INR against the USD.

Our expectations for USD revenue/EBITDA/PAT growth for the Tier-II coverage universe stand at 15/37/45% YoY, which signify another quarter of outperformance relative to Tier-I companies.

Valuation and view In our view, bottoming cyclical pressures and improved capital allocation are

factors that will feed into valuation multiples favorably. Moreover, currency will keep earnings growth ticking further. That said, many stocks demonstrating the impact on earnings and increasing payouts already appear expensive. We remain selective on our picks, looking at both performance improvement and valuation comfort.

Amongst the Tier-I, we prefer (i) INFO where valuations are expected to catch up with that of TCS as the performance gap narrows, now that INFO is also on the path to being free of past internal issues and (ii) TECHM because of the likelihood of it benefitting from a 5G-related spend uptick in the Communications vertical. WPRO appears to be an attractive tactical bet as it has been seeing a resolution of the several issues it had been facing.

Amongst the Tier-II vendors, we prefer (i) MTCL where organic growth has resurrected sharply and the outlook amongst key customers continues to beam positivity, (ii) ZENT where restructuring led by the new leadership has finally started bearing fruit, placing growth in the mid-teens, like that for peers, and (iii) PSYS where underperformance (which will also continue in 2Q) has led to a considerable discount compared to peers, but strength in Digital and upside risks from recent investments (IBM IoT and other partnerships) have the potential to bring it back on the growth path.

October 2018 260

September 2018 Results Preview | Sector: Technology Exhibit 1: Expected quarterly performance summary Sector

Sales (INR M) EBDITA (INR M) Net Profit (INR M)

Technology CMP (INR) RECO Sep-18 Var %



YoY Var % QoQ

Cyient 759 Neutral 11,725 21.5 8.6 1,551 10.0 17.9 1,250 12.0 51.6 HCL Technologies 1,098 Neutral 146,724 18.0 5.7 34,329 24.4 6.4 27,220 24.4 13.2 Hexaware Tech. 431 Neutral 12,291 23.8 8.1 2,008 15.8 13.3 1,657 16.7 8.0 Infosys 744 Buy 204,008 16.1 6.7 53,594 14.0 7.8 41,513 11.4 6.9 KPIT Tech. 222 Neutral 10,771 17.6 6.2 1,325 46.9 7.9 982 62.7 18.9 Mindtree 1,075 Buy 17,809 33.7 8.6 2,767 79.6 19.8 2,241 120.3 41.6 MphasiS 1,163 Neutral 19,297 20.3 6.0 3,507 40.7 9.6 2,712 37.2 5.0 NIIT Tech. 1,168 Neutral 8,954 21.5 8.6 1,505 26.5 15.2 961 43.2 12.0 Persistent Systems 757 Buy 8,706 14.4 4.4 1,369 18.2 -2.3 934 13.0 6.9 Tata Elxsi 1,163 Buy 4,107 20.0 7.5 1,068 27.1 0.2 788 37.6 11.7 TCS 2,256 Neutral 364,394 19.3 6.4 100,367 22.9 10.6 77,907 20.9 6.1 Tech Mahindra 761 Buy 86,047 13.1 4.0 14,968 35.4 10.3 11,202 34.0 24.8 Wipro 331 Neutral 146,052 8.8 4.5 29,441 5.9 20.9 22,216 1.5 20.7 Zensar Tech 321 Buy 9,804 28.6 8.4 1,171 32.4 0.7 955 57.0 16.4 Technology Sector Aggregate

1,050,690 16.8 6.0 248,970 20.1 10.5 192,537 18.4 10.5

Exhibit 2: Across-the-board revenue acceleration; margins to benefit from INR depreciation Revenue (USD m) Revenue (INR b) Company 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) TCS 5,191 4,739 9.5 5,051 2.8 364 305 19.3 343 6.4 Infosys 2,906 2,728 6.5 2,831 2.7 204 176 16.1 191 6.7 Wipro 2,028 2,014 0.7 2,026 0.1 146 134 8.8 140 4.5 HCLT 2,090 1,928 8.4 2,055 1.7 147 124 18.0 139 5.7 TECHM 1,226 1,179 3.9 1,224 0.1 86 76 13.1 83 4.0 Aggregate 13,440 12,588 6.8 13,187 1.9 947 816 16.1 895 5.8 EBITDA Margin (%) PAT (INR b) Company 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) TCS 27.5 26.7 80 26.5 110 78 64 20.9 73 6.1 Infosys 26.3 26.8 (50) 26.0 30 42 37 11.4 36 14.9 Wipro 20.2 20.7 (50) 17.4 270 23 21 6.6 22 2.9 HCLT 23.4 22.2 120 23.2 20 27 22 24.4 24 13.2 TECHM 17.4 14.5 290 16.4 100 11 8 34.0 9 24.8 Aggregate 24.6 23.9 60 23.5 100 180 153 17.8 164 9.7


October 2018 261

September 2018 Results Preview | Sector: Technology Exhibit 3: Tier-II in significantly better shape on revenue growth Revenue (USD m) Revenue (INR b) Company 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) 2QFY19E 2QFY18 YoY (%) 1QFY19 QoQ (%) Persistent Systems 124 118 5.0 124 0.3 8.7 7.6 14.4 8.3 4.4 Hexaware 175 154 13.7 168 4.0 12.3 9.9 23.8 11.4 8.1 KPIT Tech. 153 142 8.1 151 1.9 10.8 9.2 17.6 10.1 6.2 Mindtree 254 206 23.0 242 5.0 17.8 13.3 33.7 16.4 8.6 Mphasis 276 242 13.8 269 2.7 19.3 16.0 20.3 18.2 6.0 Cyient 167 150 11.3 161 3.9 11.7 9.7 21.5 10.8 8.6 NIIT Tech 128 115 11.6 124 3.5 9.0 7.4 21.5 8.2 8.6 Zensar 140 119 17.8 135 3.5 9.8 7.6 28.6 9.0 8.4 Aggregate 1,743 1,517 14.9 1,692 3.0 122.3 98.2 24.5 114.1 7.1

EBITDA margin (%) PAT (INR b) Company 2QFY19E 2QFY18 Persistent Systems 15.7 15.2 50 16.8 (110) 0.9 0.8 13.0 0.9 6.9 Hexaware 16.3 17.5 (110) 15.6 70 1.7 1.4 16.4 1.5 7.9 KPIT Tech. 12.3 9.9 240 12.1 20 0.3 0.2 46.3 0.2 18.4 Mindtree 15.5 11.6 400 14.1 140 2.2 1.0 120.3 1.6 41.6 Mphasis 5.4 5.2 20 5.0 40 2.7 2.0 37.2 2.6 5.0 Cyient 13.2 14.6 (140) 12.2 100 1.3 1.1 12.0 0.8 51.6 NIIT Tech 16.8 16.1 70 15.8 100 1.0 0.7 43.2 0.9 12.0 Zensar 11.9 11.6 30 12.9 (90) 1.0 0.6 57.0 0.8 16.4 Aggregate 12.9 11.6 130 12.5 40 15.3 10.6 45.1 12.9 18.5


Exhibit 4: Seasonal strength to favor 2Q growth (CC revenue growth, QoQ %)


Exhibit 5: YoY traction seen improving across the board


1.0

3.9

0.9

2.8

5.0

1.7 2.2

0.3 0.9

2.3

4.0 3.5

1.3 2.5

1.5

-2.0

0.0

2.0

4.0

6.0

8.0

TCS INFO WPRO HCLT TECHM

3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19

9.8

12.4

6.0

9.2

14.7

10.3

15.0

7.6

8.1

5.9

9.9

12.0

9.5

11.4

6.0

6.8

8.9

7.2

13.1

8.1

8.4

7.4

6.3

14.1

12.6

7.3

5.3

5.3

16.1

12.1

6.1

6.4

3.5

12.3

11.0

6.9

4.6

2.9

10.3

8.1

6.1

5.8

3.2

10.6

5.1

7.2

6.4

2.6

8.2

5.9

8.6

6.0

1.3

8.9

5.3

11.0

7.4

2.3

10.6

4.4

TCS INFO WPRO HCLT TECHM

Revenue YoY CC (%)


October 2018 262

September 2018 Results Preview | Sector: Technology Exhibit 6: Significant cross-currency headwinds this quarter


Exhibit 7: YoY margin improvement seen across Tier 1


Exhibit 8: Upward traction seen in all Tier-II vendors other than PSYS, CYL and KPIT (USD revenue growth, YoY %)


-50

0

50

100

150

200

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

TCS Infosys Wipro HCL Tech Tech Mahindra

(120)

(80)

(120)

(80)

(140)

(70) (70) (80) (50)

(80) (100)

(200)

(40)

TCS

INFO

WPR

O

HCLT

TECH

M

MPH

L

MTC

L

KPIT

HEXW CY

L

ZEN

T

NIT

EC

PSYS

27.4 27.2

22.0 19.9

27.5 26.3

23.4

20.2

17.4

12

16

20

24

28

TCS Infosys HCL Tech Wipro Tech Mahindra


12 14 15

7 8 10 11

2 5

14

8

23

14 11 12

18

PSYS HEXW KPIT MTCL MPHL CYL NITEC ZENT


Incremental revenue (USD m)

October 2018 263

September 2018 Results Preview | Sector: Technology Exhibit 9: 2QFY19 currency highlights (INR) Rates (INR) Change (QoQ) USD EUR GBP AUD USD EUR GBP AUD Average 70.1 81.5 91.4 51.3 4.5% 2.1% 0.2% 1.1% Closing 72.5 84.0 94.6 52.3 5.9% 5.4% 5.1% 3.5%


Exhibit 10: 2QFY19 currency highlights (in USD)

Rates (USD) Change (QoQ)

EUR GBP AUD EUR GBP AUD Average 1.16 1.30 0.73 -2.4% -4.2% -3.3% Closing 1.16 1.30 0.72 -0.7% -1.3% -2.4%


Exhibit 11: Relative performance—3m (%)


Exhibit 12: Relative performance—1Yr (%)


Exhibit 13: Comparative valuation Sector / Companies Mkt Cap CMP RECO EPS (INR) EPS Growth (%) PE (x) ROE (%) Technology (USD B) (INR)


Cyient 1.2 759 Neutral 38.2 40.7 47.5 24.8 6.4 16.6 19.8 18.7 16.0 18.3 17.5 18.2 HCL Technologies 21.4 1,098 Neutral 62.6 75.2 82.2 4.5 20.1 9.4 17.5 14.6 13.4 25.0 26.2 25.5 Hexaware Tech. 1.8 431 Neutral 16.6 20.2 24.0 21.2 22.1 18.7 26.0 21.3 17.9 26.9 27.8 27.9 Infosys 46.9 744 Buy 32.4 38.2 44.2 3.1 18.1 15.5 23.0 19.5 16.9 24.1 26.3 27.9 KPIT Tech. 0.6 222 Neutral 12.7 17.7 19.5 6.1 39.8 10.3 17.5 12.5 11.4 15.4 18.3 16.8 Mindtree 2.5 1,075 Buy 34.4 51.7 63.2 38.0 50.4 22.4 31.3 20.8 17.0 18.8 28.3 28.8 MphasiS 3.4 1,163 Neutral 44.0 55.0 64.7 13.2 24.8 17.8 26.4 21.2 18.0 14.6 20.0 24.0 NIIT Tech. 1.0 1,168 Neutral 45.6 64.3 74.4 19.8 41.2 15.7 25.6 18.2 15.7 16.2 21.0 21.4 Persistent Systems 0.8 757 Buy 40.4 48.5 59.8 7.2 20.1 23.2 18.8 15.6 12.7 16.7 19.3 23.1 TCS 122.6 2,256 Neutral 66.0 84.9 91.0 -1.0 28.6 7.2 34.2 26.6 24.8 29.4 35.9 36.6 Tata Elxsi 1.0 1,163 Buy 38.7 49.0 56.7 37.7 26.6 15.6 30.0 23.7 20.5 37.6 36.8 29.9 Tech Mahindra 10.3 761 Buy 42.7 48.0 54.4 33.6 12.4 13.3 17.8 15.8 14.0 21.5 21.1 20.4 Wipro 20.6 331 Neutral 17.9 20.8 23.0 7.7 16.3 10.3 18.5 15.9 14.4 17.0 17.3 17.4 Zensar Tech 1.0 321 Buy 10.6 15.7 19.4 1.3 49.0 23.4 30.4 20.4 16.5 15.3 19.8 20.9 Sector Aggregate

5.0 16.0 10.0 25.6 22.1 20.0 24.1 26.0 26.0

94

99

104

109

114

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Technology Index

94

109

124

139

154

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Technology Index

October 2018 264



1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 141 150 152 165 161 167 171 175 608 674 QoQ (%) 0.0 6.5 1.3 8.3 -2.3 3.9 2.3 2.5 13.0 10.9 Revenue (INR m) 9,070 9,654 9,834 10,618 10,800 11,725 12,390 12,790 39,176 47,704 YoY (%) 8.6 5.7 7.2 12.8 11.9 19.2 16.7 18.4 8.6 21.8 GPM (%) 34.9 35.4 35.6 34.8 34.3 34.3 34.6 35.7 35.2 34.7 SGA (%) 22.1 20.8 21.1 20.8 22.1 21.1 20.5 20.7 21.2 21.1 EBITDA 1,160 1,410 1,431 1,492 1,316 1,551 1,748 1,910 5,493 6,525 EBITDA Margin (%) 12.8 14.6 14.6 14.1 12.2 13.2 14.1 14.9 14.0 13.7 EBIT Margin (%) 9.9 11.9 11.8 11.6 9.5 10.9 11.9 12.7 11.3 11.3 Other income 350 407 273 409 170 417 123 156 1,439 865 ETR (%) 31.2 28.0 18.3 21.3 27.2 23.2 23.0 23.0 24.4 23.8 PAT 876 1,116 1,086 1,181 825 1,250 1,173 1,318 4,291 4,566 QoQ (%) 11.6 27.4 -2.7 8.7 -30.1 51.6 -6.2 12.4 YoY (%) 18.4 14.7 15.5 50.4 -26.1 15.1 -0.7 59.7 16.0 6.4 EPS (INR) 7.8 9.9 9.7 10.5 7.4 11.2 10.5 11.8 38.2 40.7 Headcount 12,201 12,537 12,799 13,087 13,851 14,281 14,681 14,881 13,087 14,881 Util incl. trainees (%) 74.1 75.9 78.6 76.7 75.0 77.0 75.0 77.0 Attrition (%) 16.6 14.2 16.8 16.9 16.9

Offshore rev. (%) 40.4 41.2 42.8 44.0 41.9 43.0 43.0 43.0 E: MOSL Estimates


Cyient

CMP: INR759 TP: INR780 (+3%) Neutral We expect CYL’s USD revenue to grow 3.9% QoQ in 2QFY19. In

the core services business, CYL’s revenue is expected to increase by 3.0% QoQ (3.8% QoQ CC) v/s flat growth in the previous quarter.

In Rangsons, post a weak 1Q, we expect a pick-up in revenue to USD20m (+11% QoQ), aiding consolidated growth.

Margins are expected to expand 100bp QoQ to 13.2%. We expect the headwinds of wage hike and investments in the NBA program to be more than offset by INR depreciation and an improvement in margins in Rangsons.

Our PAT estimate of INR1.3b represents an increase of 52% QoQ, led by seasonal strength in Services, normalization in Rangsons, INR depreciation and steep translation gains.

The stock trades at 18.0x FY19E and 15.4x FY20E EPS. Maintain Neutral.

Key issues to watch for Update on trajectory of top customer Health and performance expectations of top customers Outlook for Rangsons

Bloomberg CYL IN

Equity Shares (m) 113 M.Cap.(INRb)/(USDb) 83.8 / 1.2 52-Week Range (INR) 887 / 501

1, 6, 12 Rel. Per (%) 10/-2/28

Financial Snapshot (INR b) Y/E June 2017 2018 2019E 2020E

Sales 36.1 39.2 47.7 55.5

EBITDA 4.9 5.5 6.5 7.8 PAT 3.7 4.3 4.6 5.3 EPS (INR) 30.6 38.2 40.7 47.5

EPS Gr. (%) (0.2) 24.8 6.4 16.6 BV/Sh. (INR) 188.7 208.9 232.8 260.7 RoE (%) 16.2 18.3 17.5 18.2


P/BV (x) 3.9 3.5 3.1 2.8 EV/EBITDA (x) 15.3 13.5 11.0 8.9

Div yld (%) 1.4 1.8 1.8 1.8

October 2018 265



16.8%

(INR Million) Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 1,884 1,928 1,988 2,038 2,055 2,090 2,154 2,206 7,838 8,505

QoQ (%) 3.7 2.3 3.1 2.5 0.8 1.7 3.1 2.4 12.4 8.5 Revenue (INR m) 1,21,490 1,24,340 1,28,080 1,31,790 1,38,780 1,46,724 1,56,167 1,61,059 5,05,700 6,02,730 YoY (%) 7.2 7.9 8.4 9.3 14.2 18.0 21.9 22.2 8.2 19.2 GPM (%) 33.7 34.0 34.3 35.0 34.4 34.7 36.1 36.1 34.3 35.4 SGA (%) 11.6 11.8 11.2 12.0 11.1 11.3 12.0 12.8 11.7 11.9 EBITDA (INRm) 26,810 27,590 29,640 30,360 32,260 34,329 37,637 37,431 1,14,400 1,41,657 EBITDA Margin (%) 22.1 22.2 23.1 23.0 23.2 23.4 24.1 23.2 22.6 23.5 EBIT Margin (%) 20.1 19.7 19.6 19.6 19.7 19.9 20.7 19.8 19.8 20.0 Other income 2,690 2,980 2,640 2,800 2,960 5,050 -223 749 11,110 8,537 ETR (%) 20.0 20.4 20.9 22.1 20.6 20.6 20.6 20.6 20.9 20.6 Adjusted PAT 21,710 21,880 21,940 22,290 24,040 27,220 25,454 25,973 87,820 1,02,687 QoQ (%) 7.2 0.8 0.3 1.6 7.9 13.2 -6.5 2.0

YoY (%) 6.3 8.6 5.9 10.1 10.7 24.4 16.0 16.5 3.8 16.9 EPS 15.1 15.7 15.7 16.0 17.3 20.1 18.7 19.1 62.6 75.2 Headcount 1,17,781 1,19,040 1,19,291 1,20,081 1,24,121 1,26,471 1,29,821 1,33,071 1,20,081 1,33,071 Util excl. trainees (%) 85.7 86.0 85.8 85.9 85.5 86.7 87.7 88.7 83.7 84.1 Attrition (%) 16.2 15.7 15.2 15.5 16.3

Fixed Price (%) 59.8 60.4 60.8 61.6 62.0 E: MOSL Estimates


HCL Technologies

CMP: INR1,098 TP: INR1,100 (+0%) Neutral We expect HCLT’s revenue to grow by 2.5% QoQ on a CC basis,

aided by revenue from new IP deals and the integration of Actian. Pressures from seasonality in IP and continued weakness in India

are expected to weigh on organic growth in the quarter. Organic growth for the quarter is expected to be at 1.4% QoQ CC,

similar to that achieved in the previous quarter. Integration of Actian is expected to add 110bp to this, taking CC growth to 2.5% QoQ and USD growth to 1.7% QoQ (80bp cross-currency headwind).

EBIT margin is likely to inch up by 20bp QoQ to 19.9%, with IP seasonality and wage hikes offsetting most of the INR depreciation benefits. With this, we expect 20% EBIT margin for FY19, within the 19.5-20.5% guidance range.

Adjusted PAT is likely to grow by 13% QoQ to INR27.2b. The stock trades at 14.6x FY19E and 13.3x FY20E EPS. Maintain

Neutral. Key issues to watch for Organic growth outlook Trajectory in IMS Traction in Digital and update on IP partnerships

Bloomberg HCLT IN

Equity Shares (m) 1,413

M.Cap.(INRb)/(USDb) 1515.2 / 20.9


1, 6, 12 Rel. Per (%) 11/2/9

Financial Snapshot (INR b) Y/E JUNE 2017 2018 2019E 2020E

Sales 467.2 505.7 602.7 679.8

EBITDA 103.1 114.4 141.7 158.1

PAT 84.6 87.8 102.7 111.9

EPS (INR) 59.8 62.6 75.2 82.2

EPS Gr. (%) 49.2 4.5 20.1 9.4

BV/Sh. (INR) 237.0 264.5 305.9 339.9

RoE (%) 27.5 25.0 26.2 25.5

RoCE (%) 25.3 22.6 24.3 24.4

Payout (%) 40.1 12.8 12.6 48.6

Valuation P/E (x) 18.3 17.5 14.6 13.3

P/BV (x) 4.6 4.1 3.6 3.2

EV/EBITDA (x) 13.8 12.5 9.6 8.4

Div yld (%) 2.2 0.7 0.9 3.7

October 2018 266


Quarterly Performance (Indian GAAP)

INR Million Y/E Dec CY17 CY18E CY17 CY18E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Revenue (USD m) 144.7 152.6 154.0 156.1 162.2 168.3 175.1 179.7 607 685 QoQ (%) 4.2 5.5 0.9 1.4 3.9 3.8 4.0 2.6 15.7 12.8 Revenue (INR m) 9,605 9,836 9,931 10,048 10,490 11,367 12,291 13,029 39,420 47,177 YoY (%) 17.1 13.1 9.8 6.8 9.2 15.6 23.8 29.7 11.5 19.7 GPM (%) 34.1 33.7 35.2 32.8 32.9 31.8 32.3 32.5 33.9 32.4 SGA (%) 17.2 17.4 17.7 16.9 17.4 16.2 16.0 16.0 17.3 16.3 EBITDA 1,623 1,598 1,734 1,599 1,626 1,773 2,008 2,156 6,554 7,563 EBITDA Margin (%) 16.9 16.2 17.5 15.9 15.5 15.6 16.3 16.5 16.6 16.0 EBIT Margin (%) 15.3 14.6 15.8 14.3 14.1 14.0 14.8 15.1 15.0 14.5 Other income 28 146 178 132 204 327 260 11 484 802 ETR (%) 23.8 22.9 18.9 23.0 20.0 20.0 20.5 20.5 22.0 20.3 PAT 1,139 1,224 1,420 1,211 1,343 1,534 1,657 1,574 4,994 6,108 QoQ (%) -6.3 7.4 16.0 -14.7 10.9 14.2 8.0 -5.0 YoY (%) 35.3 22.5 27.5 -0.4 17.9 25.3 16.7 30.0 19.7 22.3 EPS (INR) 3.8 4.1 4.7 4.0 4.5 5.1 5.5 5.2 16.6 20.2 Headcount 12,734 13,098 13,488 13,705 14,619 15,357 16,135 16,601 13,705 16,601 Utilization (%) 78.9 80.8 79.7 80.9 81.3 78.2 77.0 77.0 81.4 80.2 Attrition (%) 14.9 13.8 13.7 13.1 13.4 14.4

Offshore rev. (%) 35.5 35.3 34.6 34.9 34.6 34.8 34.5 34.6 35.1 34.6 E: MOSL Estimates


Hexaware Technologies

CMP: INR431 TP: INR460 (+7%) Neutral We expect USD revenue to increase by 4% QoQ, impacted by

cross-currency headwinds to the tune of 50bp. HEXW has been witnessing a pick-up in growth since 4QCY18,

when it got past its client-specific issues. We expect a continual of that trend in this quarter as well.

EBITDA margin at 16.3% embeds an expansion of 70bp, primarily with strong revenue growth, INR depreciation and the absence of visa expenses more than offsetting offshore wage hikes.

Our PAT estimate for the quarter is INR1,657m, up 8% from the previous quarter, on the back of the strong operational performance and currency benefits.

The stock trades at 20.8x CY18E and 17.6x CY19E earnings. Neutral.

Key issues to watch for Large deal pipeline and traction Health of top customers Margin outlook given recent currency movement

Bloomberg HEXW IN

Equity Shares (m) 302

M.Cap.(INRb)/(USDb) 127.2 / 1.8


1, 6, 12 Rel. Per (%) 9/4/45

Financial Snapshot (INR b) Y/E DEC 2016 2017 2018E 2019E

Sales 35.3 39.4 47.2 56.6

EBITDA 5.7 6.6 7.6 9.8

PAT 4.2 5.0 6.1 7.3

EPS (INR) 13.7 16.6 20.2 24.0

EPS Gr. (%) 5.8 21.2 22.1 18.7

BV/Sh. (INR) 56.3 66.0 79.2 93.2

RoE (%) 26.5 26.9 27.8 27.9

RoCE (%) 24.2 24.6 25.3 28.1

Payout (%) 38.6 23.5 38.4 32.3

Valuation P/E (x) 30.8 25.4 20.8 17.6

P/BV (x) 7.5 6.4 5.3 4.5

EV/EBITDA (x) 20.9 18.1 15.5 11.6

Div yld (%) 1.3 0.9 1.9 1.9

October 2018 267


Quarterly Performance (IFRS) Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 2,651 2,728 2,755 2,805 2,831 2,906 2,928 2,956 10,939 11,621 QoQ (%) 3.2 2.9 1.0 1.8 0.9 2.7 0.7 1.0 7.2 6.2 Revenue (INR m) 1,70,780 1,75,670 1,77,940 1,80,830 1,91,280 2,04,008 2,12,247 2,15,808 7,05,220 8,23,342 YoY (%) 1.8 1.5 3.0 5.6 12.0 16.1 19.3 19.3 3.0 16.7 GPM (%) 38.8 38.7 38.5 38.6 38.0 38.3 39.1 39.5 38.6 38.7 SGA (%) 12.1 11.9 11.4 11.4 12.0 12.0 12.0 12.0 11.7 12.0 EBITDA 45,610 47,020 48,170 49,310 49,730 53,594 57,443 59,314 1,90,100 2,20,081 EBITDA Margin (%) 26.7 26.8 27.1 27.3 26.0 26.3 27.1 27.5 27.0 26.7 EBIT Margin (%) 23.7 24.2 24.3 24.7 23.7 24.1 25.0 25.4 24.3 24.6 Other income 8,140 8,830 9,620 5,340 7,260 7,632 6,351 6,226 31,930 27,469 ETR (%) 28.2 27.4 2.9 26.3 26.2 27.0 27.0 27.0 20.9 26.8 PAT 34,880 37,260 36,970 36,900 38,820 41,513 43,348 44,606 1,61,030 1,68,287 QoQ (%) -3.2 6.8 -0.8 -0.2 5.2 6.9 4.4 2.9 YoY (%) 1.5 3.3 -0.3 2.4 11.3 11.4 17.3 20.9 12.0 4.5 EPS (INR) 7.6 8.1 8.1 8.5 8.3 9.5 10.0 10.4 32.4 38.2 Headcount 1,98,553 1,98,440 2,01,691 2,04,107 2,09,905 2,17,528 2,19,372 2,21,768 2,04,107 2,21,768 Util excl. trainees (%) 84.5 85.1 85.4 85.1 86.1 89.4 84.6 84.0 85.5 85.7


Infosys

CMP: INR744 TP: INR875 (+18%) Buy Compared to the weak start to FY19 (0.9% QoQ CC growth in 1Q),

we expect acceleration now, led by seasonal strength and an improvement in verticals like BFS, resulting in 3.5% QoQ CC growth for 2QFY19.

Cross-currency headwinds are expected to result in 2.7% QoQ growth in USD terms.

EBIT margin is expected to expand by 40bp QoQ to 24.1%, led by INR depreciation, partly offset by wage hikes and variable pay.

With margins expected at the higher end of its guided range and most pressures for the year behind, we expect INFO to raise its annual EBIT margin guidance by 50bp.

Our PAT estimate is INR41.5b (+7% QoQ), primarily led by higher growth and margin expansion.

The stock trades at 19.6x FY19E and 16.3x FY20E earnings. Buy.

Key issues to watch for Update on internal stability of the company and strategy under

the new leadership. Outlook for verticals like BFS and Retail. Commentary around margins in lieu of new investments and

recent currency depreciation.

Bloomberg INFO IN

Equity Shares (m) 4,571

M.Cap.(INRb)/(USDb) 3179.5 / 43.9


1, 6, 12 Rel. Per (%) 9/18/47


Sales 684.9 705.2 823.3 925.8

EBITDA 186.1 190.1 220.1 253.2

PAT 143.8 161.0 168.3 188.7

EPS (INR) 31.4 32.4 38.2 44.2

EPS Gr. (%) 6.4 3.1 18.1 15.5

BV/Sh. (INR) 151 143 147.1 169.5

RoE (%) 22.0 24.1 26.3 27.9

RoCE (%) 22.0 24.1 26.3 27.9

Payout (%) 40.9 45.4 104.1 43.0

Valuations P/E (x) 23.9 23.2 19.6 17.0

P/BV (x) 5.0 5.2 5.1 4.4

EV/EBITDA (x) 16.3 16.2 13.1 11.1

Div Yield (%) 1.7 2.2 2.3 2.5

October 2018 268



(INR Million) Y/E March FY18 FY19E FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 134 142 141 150 151 153 154 157 568 616 QoQ (%) 4.8 5.7 -0.7 6.5 0.2 1.9 0.7 1.8 14.8 8.5 Revenue (INR m) 8,704 9,160 9,128 9,664 10,138 10,771 11,198 11,478 36,656 43,586 YoY (%) 8.4 10.2 9.9 12.6 16.5 17.6 22.7 18.8 10.3 18.9 GPM (%) 26.7 28.1 30.7 31.3 32.0 32.1 32.4 32.8 29.3 32.3 SGA (%) 17.6 18.2 19.9 19.9 19.9 19.8 19.5 19.1 18.9 19.6 EBITDA 795 902 989 1,099 1,229 1,325 1,454 1,562 3,785 5,570 EBITDA Margin (%) 9.1 9.9 10.8 11.4 12.1 12.3 13.0 13.6 10.3 12.8 EBIT Margin (%) 6.9 7.8 8.6 8.7 9.4 9.7 10.5 11.1 8.0 10.2 Other income 121 114 25 191 162 268 7 42 450 479 Interest 26 26 24 29 54 52 49 47 104 201 ETR (%) 23.4 24.4 21.3 16.5 25.0 22.5 22.5 22.5 21.1 22.5 PAT 555 603 619 838 826 982 877 985 2,616 3,670 QoQ (%) 3.3 8.7 2.6 35.4 -1.5 18.9 -10.6 12.3 YoY (%) 0.9 7.4 -15.9 56.0 48.7 62.7 41.7 17.5 9.7 40.3 EPS (INR) 2.8 3.0 3.1 3.8 3.9 4.8 4.3 4.8 12.7 17.7 Headcount 12,261 11,946 12,211 12,527 12,951 13,311 13,520 13,729 12,527 13,729 Util excl. trainees (%) 68.8 70.2 70.8 73.0 71.2 75.5 74.3 74.5 70.7 73.9 Offshore rev. (%) 44.8 43.2 43.0 44.5 43.2 44.6 44.3 44.4 43.9 44.1 Fixed Price (%) 34.8 36.2 38.0 38.4 39.6 E: MOSL Estimates


KPIT Technologies

CMP: INR222 TP: INR320 (+44%) Neutral We expect revenue to increase by 2.7% QoQ in constant currency

terms. As seen in recent quarters, we expect the strength in Engineering to be partly weighed upon by weakness in IT services.

In USD terms, revenue is expected to grow by 1.9% QoQ, implying cross-currency headwinds of 80bp.

We expect margins for KPIT to expand sequentially by 20bp to 12.3%. We expect this to be a function of wage hikes (-230bp), absence of one-time expenses from 1Q (+100bp), INR depreciation (+120bp) and operational efficiencies (+30bp).

Our PAT estimate of INR982m (+19% QoQ) is a function of higher other income, led by translation gains.

KPIT trades at 12.5x FY19E and 11.4x FY20E earnings. Neutral. Key issues to watch for Growth in PES and top client Update on the deal with Birlasoft Levers on further recouping of profitability

Bloomberg KPIT IN


M.Cap.(INRb)/(USDb) 41.9 / 0.6


1, 6, 12 Rel. Per (%) -21/-12/60


Sales 33.2 36.7 43.6 48.8

EBITDA 3.5 3.8 5.6 6.4

PAT 2.4 2.6 3.7 4.0

EPS (INR) 12.0 12.7 17.7 19.5

EPS Gr. (%) -15.0 6.1 39.8 10.3

BV/Sh. (INR) 79.3 91.1 110.4 130.6

RoE (%) 16.1 15.4 18.3 16.8

RoCE (%) 15.9 15.8 20.8 20.8

Payout (%) 16.7 15.8 11.3 10.2

Valuations P/E (x) 18.6 17.5 12.5 11.4

P/BV (x) 2.8 2.4 2.0 1.7

EV/EBITDA (x) 11.4 10.2 6.5 5.1

Div yld (%) 0.9 0.9 0.9 0.9

October 2018 269




1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 200 206 214 226 242 254 259 265 847 1,019 QoQ (%) 2.3 3.0 3.9 5.5 6.8 5.0 2.0 2.6 8.6 20.4 Revenue (INR m) 12,895 13,316 13,777 14,640 16,395 17,809 18,761 19,374 54,628 72,339 YoY (%) -2.9 2.8 6.4 11.1 27.1 33.7 36.2 32.3 4.3 32.4 GPM (%) 34.9 32.4 35.1 36.5 36.6 38.0 39.0 39.8 34.8 38.4 SGA (%) 23.8 20.8 20.0 20.4 22.5 22.5 22.0 21.0 21.2 22.0 EBITDA 1,435 1,541 2,074 2,355 2,310 2,767 3,190 3,635 7,405 11,902 EBITDA Margin (%) 11.1 11.6 15.1 16.1 14.1 15.5 17.0 18.8 13.6 16.5 EBIT Margin (%) 7.3 8.0 11.7 13.1 11.5 13.1 14.7 16.5 10.1 14.1 Other income 368 368 8 464 279 735 163 293 1,208 1,469 ETR (%) 28.6 28.9 15.6 28.7 26.8 27.0 27.0 27.0 25.6 27.0 Adj. PAT 931 1,017 1,364 1,695 1,582 2,241 2,129 2,547 5,007 8,499 QoQ (%) -4.2 9.3 34.1 24.3 -6.7 41.6 -5.0 19.6 YoY (%) -24.6 7.3 32.3 74.4 70.0 120.3 56.1 50.2 19.6 69.7 EPS (INR) 7.2 7.4 8.6 11.1 9.6 13.6 12.9 15.5 34.4 51.7 Headcount 16,561 16,910 17,200 17,723 18,990 19,890 20,510 20,870 17,723 20,870 Util incl. trainees (%) 73.2 73.2 72.8 73.8 75.4 75.0 73.0 73.5 73.3 74.2 Attrition (%) 14.0 13.0 12.6 12.5 12.2



MindTree

CMP: INR1,075 TP: INR1,260 (+17%) Buy 1QFY19 was particularly strong for MTCL with 8.2% QoQ CC

growth. Growth on that base is expected to moderate slightly, but still remain strong.

With this, we expect CC revenue growth of 5.7% QoQ; cross-currency headwinds of 70bp would mean USD revenue growth lands at 5.0% QoQ in 2QFY19.

EBITDA margin is expected to expand by 140bp QoQ to 15.5%, primarily because of INR depreciation, absence of wage hikes and absence of the Stanford endowment (60bp).

Our PAT estimate for the quarter is INR2.24b, which implies sequential growth of 42%. MTCL’s higher sensitivity to INR/USD movement on operating margins, lower outstanding hedges and translation gains should benefit bottom-line growth in this quarter.


Key issues to watch for Update on the health of top clients, and trajectory expected

through the rest of the year Margin trajectory, going forward, given improvement in organic

growth and in acquired entities Deal wins during the quarter and growth in Digital

Bloomberg MTCL IN


M.Cap.(INRb)/(USDb) 169.7 / 2.3


1, 6, 12 Rel. Per (%) 6/24/108


Sales 52.4 54.6 72.3 86.8

EBITDA 7.2 7.4 11.9 15.0

PAT 4.2 5.0 8.5 10.4

EPS (INR) 24.9 34.4 51.7 63.2

EPS Gr. (%) -30.6 38.0 50.4 22.4

BV/Sh. (INR) 153.0 166.7 198.5 240.1

RoE (%) 16.8 18.8 28.3 28.8

RoCE (%) 20.1 20.6 33.8 36.4

Payout (%) 40.2 32.0 29.0 28.5

Valuation P/E (x) 42.4 30.7 20.4 16.7

P/BV (x) 6.9 6.3 5.3 4.4

EV/EBITDA (x) 23.2 21.9 13.3 10.3

Div Yld (%) 0.9 1.0 1.4 1.7

October 2018 270



1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 231 242 252 264 269 276 279 285 989 1,109 QoQ (%) 4.2 4.9 3.8 5.0 1.7 2.7 1.2 2.0 10.7 12.1 Revenue (INR m) 15,360 16,047 16,607 17,445 18,202 19,297 20,045 20,573 65,459 78,117 YoY (%) 1.3 5.7 8.1 15.8 18.5 20.3 20.7 17.9 7.7 19.3 GPM (%) 27.3 27.5 27.6 28.5 28.9 30.9 29.4 30.0 27.7 29.8 SGA (%) 12.4 12.1 11.1 10.7 11.2 12.7 12.8 12.8 11.5 12.4 EBITDA 2,295 2,493 2,742 3,095 3,201 3,507 3,327 3,531 10,625 13,566 EBITDA Margin (%) 14.9 15.5 16.5 17.7 17.6 18.2 16.6 17.2 16.2 17.4 EBIT Margin (%) 13.8 14.4 15.5 16.8 16.6 17.2 15.7 16.3 15.1 16.4 Other income 469 375 354 422 449 428 94 192 1,620 1,163 ETR (%) 26.9 25.4 26.0 26.0 24.7 27.5 27.5 27.5 25.4 26.8 PAT 1,872 1,977 2,150 2,507 2,583 2,712 2,338 2,558 8,507 10,191 QoQ (%) -3.2 5.6 8.8 16.6 3.0 5.0 -13.8 9.4 YoY (%) -8.4 -8.7 5.2 29.6 38.0 37.2 8.7 2.0 3.9 19.8 EPS (INR) 9.1 10.2 11.1 12.3 13.4 14.1 12.1 13.8 44.0 55.0 Headcount 21,878 22,183 22,335 22,264 22,566 22,855 23,350 23,795 22,264 23,795 Net Additions -101 305 152 -71 302 289 495 445 285 1531 HP Channel rev. (%) 25.8 26.1 26.0 27.0 27.4


CMP: INR1,163 TP: INR1,050 (-1%) Neutral Strong growth in both HP channel and Direct channel is expected

to drive 3.4% QoQ CC growth for MPHL in 2QFY19. Cross-currency headwinds of 70bp would pull USD revenue

growth down to 2.7% QoQ. This would mark another quarter of strong YoY growth at 13.8%. We expect EBIT margin to expand by 60bp to 17.2%, slightly

higher than the guided band of 15-17%. Our PAT estimate is INR2.7b (+5% QoQ). Higher PAT would be led

by an improved operating performance and higher other income (led by translation gains).

The stock trades at 21.2x FY19E and 18.0x FY20E EPS. Neutral.

Key issues to watch for Outlook for Digital Risk Strategy changes, roadmap under the new leadership, and

outlook for FY19 Traction in Direct International channel and the Blackstone

portfolio

Bloomberg MPHL IN


M.Cap.(INRb)/(USDb) 226.7 / 3.1


1, 6, 12 Rel. Per (%) 1/29/77


Sales 60.8 65.5 78.1 90.0

EBITDA 9.7 10.6 13.6 16.3

PAT 8.2 8.5 10.2 12.0

EPS (INR) 38.9 44.0 55.0 64.7

EPS Gr. (%) 12.9 13.2 24.8 17.8

BV/Sh. (INR) 292.4 283.6 243.7 283.9

RoE (%) 13.2 14.6 20.0 24.0

RoCE (%) 12.4 13.8 19.0 23.7

Payout (%) 43.7 45.4 146.1 43.3

Valuations P/E (x) 29.9 26.5 21.2 18.0

P/BV (x) 4.0 4.1 4.8 4.1

EV/EBITDA(x) 22.5 19.2 15.6 12.1

Div yld (%) 1.5 1.7 6.9 2.4


Mphasis

October 2018 271


Quarterly Performance (IND-AS) (INR Million) Y/E March FY18 FY19E FY18 FY19E (Consolidated) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Rev. (USD m) Ex. forex & bought outs 110 115 117 122 124 128 130 134 464 517 QoQ (%) 5.5 4.4 1.7 4.7 1.7 3.0 1.8 3.2 13.6 11.6 Revenue (INR m) 7,089 7,372 7,565 7,888 8,249 8,954 9,388 9,765 29,914 36,356 YoY (%) 5.7 6.4 9.0 9.9 16.4 21.5 24.1 23.8 7.8 21.5 GPM (%) 35.4 35.0 36.4 36.6 34.1 35.2 36.1 37.2 35.9 35.7 SGA (%) 19.8 18.9 19.3 18.6 18.2 18.4 18.4 18.4 19.1 18.4 EBITDA (INRm) 1,108 1,190 1,296 1,418 1,307 1,505 1,658 1,837 5,012 6,307 EBITDA Margin (%) 15.6 16.1 17.1 18.0 15.8 16.8 17.7 18.8 16.8 17.3 EBIT Margin (%) 11.2 11.5 13.0 14.1 12.1 13.0 13.9 15.0 12.5 13.5 Other income 58 87 5 148 209 212 169 117 298 707 ETR (%) 34.7 21.8 16.5 22.8 24.9 25.0 25.0 25.0 23.5 25.0 Minority Interest 42.0 61.0 70.0 112.0 46.0 72.3 75.1 76.3 285.0 269.6 PAT 513 671 757 861 858 961 1,027 1,110 2,802 3,956 QoQ (%) -30.6 30.8 12.8 13.7 -0.3 12.0 6.9 8.1 25.2 41.2 YoY (%) 80.0 13.7 21.3 16.5 67.3 43.2 35.7 29.0 EPS (INR) 8.7 11.4 12.3 14.0 14.0 15.6 16.7 18.1 46.4 64.3 Headcount 8,963 9,022 9,081 9,423 9,764 9,944 10,044 10,344 9,423 10,344 Util excl. trainees (%) 81.2 79.5 79.0 79.5 80.1 80.0 79.0 80.0 79.8 79.8 Attrition (%) 12.1 11.4 11.4 10.5 10.1

Offshore rev. (%) 40.0 39.0 39.0 39.0 36.0

39.2 35.9 Fixed Price (%) 49.0 48.0 46.0 46.0 47.0 E: MOSL Estimates


NIIT Technologies

CMP: INR1,168 TP: INR1,100 (-6%) Neutral Minus the seasonal impact of GIS and ramp down of Morris,

NITEC saw strong growth across verticals in 1Q. We expect this trend to continue, leading to 5% QoQ CC growth in 2QFY19.

However, cross-currency headwinds would shave off 200bp of this growth, resulting in 3.0% QoQ growth in USD terms.

We expect EBITDA margin to expand by 100bp QoQ to 16.8% in the absence of wage hikes, visa expenses and revenue pressures. The benefit of INR depreciation would be limited though, since hedge losses would be booked in revenue.

Our PAT estimate is INR961m (+12% QoQ), primarily led by strength in the operating performance.

The stock trades at 17.6x FY19E and 15.2x FY20E earnings. Neutral. Key issues to watch for Traction in Digital and the international business Progress on development of strategy under new leadership Deal wins and outlook for the year

Bloomberg NITEC IN


M.Cap.(INRb)/(USDb) 67.3 / 0.9


1, 6, 12 Rel. Per (%) -12/17/83


Sales 27.8 29.9 36.4 42.3

EBITDA 4.6 5.0 6.3 7.5

PAT 2.6 2.8 4.0 4.6

EPS (INR) 38.0 45.6 64.3 74.4

EPS Gr. (%) -16.9 19.8 41.2 15.7

BV/Sh. (INR) 286.5 288.5 323.2 371.3

RoE (%) 13.7 16.2 21.0 21.4

RoCE (%) 15.9 16.2 19.2 20.3

Payout (%) 32.9 32.9 29.5 29.6

Valuations

P/E (x) 29.7 24.8 17.6 15.2

P/BV (x) 3.9 3.9 3.5 3.0

EV/EBITDA (x) 13.8 12.3 9.6 7.5

Div Yld (%) 1.1 1.3 1.7 1.9

October 2018 272


Quarterly Performance (IFRS)

(INR Million) Y/E March FY18 FY19E FY18 FY19E (Consolidated) 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 113.0 118.1 122.5 117.0 123.6 124.0 128.4 130.3 471 506 QoQ (%) 3.6 4.5 3.8 -4.6 5.7 0.3 3.5 1.6 9.7 7.6 Revenue (INR m) 7,280 7,613 7,919 7,525 8,343 8,706 9,306 9,515 30,337 35,870 QoQ (%) 0.1 4.6 4.0 -5.0 10.9 4.4 6.9 2.3 YoY (%) 3.7 8.1 6.2 3.5 14.6 14.4 17.5 26.4 5.4 18.2 GPM (%) 34.3 34.4 36.7 34.6 35.6 34.3 35.4 36.4 35.0 35.4 SGA (%) 20.0 19.2 19.4 19.9 18.8 18.1 17.7 18.0 19.6 18.4 EBITDA 1,044 1,158 1,375 1,111 1,400 1,369 1,601 1,748 4,687 6,119 EBITDA Margin (%) 14.3 15.2 17.4 14.8 16.8 15.7 17.2 18.4 15.5 17.1 EBIT Margin (%) 9.0 10.2 12.4 9.2 12.0 11.1 12.8 14.1 10.2 12.5 Other income 368 336 193 294 187 283 123 112 1,190 704 ETR (%) 26.3 25.9 22.0 25.1 26.4 25.0 25.0 25.0 24.7 25.3 PAT 751 826 917 737 873 934 986 1,087 3,231 3,880 QoQ (%) -10.8 10.0 10.9 -19.6 18.5 6.9 5.6 10.2 YoY (%) 2.5 12.4 11.9 -12.5 16.3 13.0 7.6 47.5 3.3 20.1 EPS (INR) 9.4 10.3 11.5 9.2 10.9 11.7 12.3 13.6 40.4 48.5 Headcount 9,401 9,246 9,109 8,976 8,902 8,958 9,289 8,976 8,976 9,345 Util excl. trainees (%) 77.2 78.6 79.9 81.2 80.7 82.5 80.5 81.2 79.2 80.3 Attrition (%) 15.5 15.5 14.7 14.7

IP rev. proportion (%) 27.2 26.0 26.8 22.3 27.4 25.3 26.4 22.3 25.6 26.1 E: MOSL Estimates


Persistent Systems

CMP: INR757 TP: INR950 (+25%) Buy We expect 0.7% QoQ CC growth in revenue for PSYS in 1QFY19.

This would be a function of strength in Digital, offset by pressure in IP revenue and in revenue from IBM IoT.

With this, we also expect flattish margin trends (+10bp QoQ to 16.9%) despite the INR depreciation.

Pressure in IP revenue and wage hikes are expected to result in a contraction of EBITDA margin to the tune of 110bp, despite INR depreciation. Management had cited a 250bp impact because of wage hikes.

Our PAT estimate for the quarter is INR934m, up 6.9% QoQ, primarily because of higher other income (increased translation gains).

The stock trades at 15.7x FY19E and 12.7x FY20E earnings. Buy. Key issues to watch for Performance and outlook for top clients in ISV (ex-IBM) Commentary on traction with Enterprise customers and

potential of winning large deals in Digital Outlook on sustainable profit margins in the near-to-medium

term

Bloomberg PSYS IN Equity Shares (m) 80 M.Cap.(INRb)/(USDb) 62.8 / 0.9

52-Week Range (INR) 915 / 629 1, 6, 12 Rel. Per (%) -1/4/6

Financial Snapshot (INR b) Y/E MARCH 2017 2018 2019E 2020E Sales 28.8 30.3 35.9 41.3

EBITDA 4.7 4.7 6.1 7.3

Adj. PAT 3.1 3.2 3.9 4.8

Adj. EPS (INR) 37.7 40.4 48.5 59.8

EPS Gr. (%) 1.4 7.2 20.1 23.2

BV/Sh.(INR) 244.5 254.1 264.8 267.8

RoE (%) 17.0 16.7 19.3 23.1

RoCE (%) 16.7 16.0 15.9 18.6

Payout (%) 23.9 24.8 28.9 26.8

Valuations

P/E (x) 20.2 18.8 15.7 12.7

P/BV (x) 3.1 3.0 2.9 2.8

EV/EBITDA (x) 11.0 10.7 8.1 6.7

Div. Yield (%) 1.2 1.3 1.8 2.1

October 2018 273


Consolidated - Quarterly Earning Model (INR Million) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 3,232 3,422 3,455 3,754 3,820 4,107 4,230 4,399 13,863 16,557 YoY Change (%) 9.3 12.5 11.4 15.1 18.2 20.0 22.4 17.2 12.4 19.4 Total Expenditure 2,498 2,581 2,520 2,803 2,755 3,039 3,130 3,255 10,403 12,180 EBITDA 734 840 935 951 1,065 1,068 1,100 1,144 3,460 4,377 Margins (%) 22.7 24.6 27.1 25.3 27.9 26.0 26.0 26.0 25.0 26.4 Depreciation 65 64 63 61 61 66 68 70 254 265 Other Income 79 89 68 196 78 215 87 230 432 610

PBT before EO expense 749 864 940 1,086 1,083 1,217 1,119 1,304 3,639 4,722 PBT 749 864 940 1,086 1,083 1,217 1,119 1,304 3,639 4,722 Tax 251 292 313 383 378 429 395 460 1,227 1,667 Rate (%) 33.6 33.8 33.2 35.3 34.9 35.3 35.3 35.3 33.7 35.3 Reported PAT 497 572 628 703 705 788 724 844 2,400 3,061 Adj PAT 497 572 628 703 705 788 724 844 2,400 3,061 YoY Change (%) 19.3 25.9 42.2 58.0 41.7 37.6 15.4 20.1 37.0 27.5 Margins (%) 15.4 16.7 18.2 18.7 18.5 19.2 17.1 19.2 17.3 18.5 E: MOSL Estimates


Tata Elxsi

CMP: INR1,163 TP: INR1,500 (+29%) Buy Growth on a YoY basis has been picking up for the last four

quarters, and has increased from 9.3% in 1QFY18 to 18.2% in 1QFY19.

We expect this trend to continue, resulting in 20% YoY growth to INR4,107m in 2QFY19.

EBITDA margin is expected to contract by 190bp QoQ, but expand by 140bp YoY to 26%.

PAT is expected to grow 19.2% YoY to INR788m. The stock trades at 23.3x FY19E and 20.2x FY20E earnings. Buy.

Key issues to watch for Addition of new customers and subsequent realization JLR’s contribution to revenue Outlook on growth and profitability for the year

Bloomberg TELX IN

Equity Shares (m) 62 M.Cap.(INRb)/(USDb) 71.8 / 1 52-Week Range (INR) 1492 / 795

1, 6, 12 Rel. Per (%) -12/7/27

Financial Snapshot (INR b) Y/E MARCH 2017 2018 2019E 2020E Sales 12.3 13.9 16.6 19.2

EBITDA 2.9 3.5 4.4 5.1

Adj. PAT 1.8 2.4 3.1 3.5

Adj. EPS (INR) 28.1 38.7 49.0 56.7

EPS Gr. (%) 13.2 37.7 26.6 15.6

BV/Sh.(INR) 89.8 116.2 150.2 228.6

RoE (%) 37.1 37.6 36.8 29.9

RoCE (%) 37.1 37.6 36.8 46.2

Payout (%) 34.2 31.1 30.7 38.3

Valuations

P/E (x) 40.7 29.6 23.3 20.2

P/BV (x) 12.8 9.8 7.6 5.0

EV/EBITDA (x) 23.6 19.3 14.8 12.0

Div. Yield (%) 0.7 0.9 1.1 1.6

October 2018 274


Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Revenue (USD m) 4,591 4,739 4,787 4,972 5,051 5,191 5,246 5,350 19,089 20,837 QoQ (%) 3.1 3.2 1.0 3.9 1.6 2.8 1.1 2.0 8.6 9.2 Revenue (INR m) 2,95,840 3,05,410 3,09,040 3,20,750 3,42,610 3,64,394 3,80,299 3,90,545 12,31,040 14,77,848 YoY (%) 1.0 4.3 3.9 8.2 15.8 19.3 23.1 21.8 4.4 20.0 GPM (%) 42.8 43.6 43.5 43.5 42.5 43.6 44.1 44.4 43.4 43.7 SGA (%) 17.8 16.9 16.7 16.5 16.1 16.0 16.2 16.5 17.0 16.2 EBITDA 74,120 81,640 82,880 86,520 90,710 1,00,367 1,06,050 1,08,734 3,25,160 4,05,861 EBITDA Margin (%) 25.1 26.7 26.8 27.0 26.5 27.5 27.9 27.8 26.4 27.5 EBIT Margin (%) 23.4 25.1 25.2 25.4 25.0 26.1 26.4 26.4 24.8 26.0 Other income 9,320 8,120 8,640 9,820 12,080 8,356 11,554 8,831 35,900 40,821 ETR (%) 24.2 23.7 24.3 24.1 24.5 24.5 24.5 24.5 24.1 24.6 PAT 59,450 64,460 65,310 69,040 73,400 77,907 84,440 84,299 2,58,260 3,20,045 QoQ (%) -10.0 8.4 1.3 5.7 6.3 6.1 8.4 -0.2

YoY (%) -5.9 -2.1 -3.6 4.5 23.5 20.9 29.3 22.1 -1.8 23.9 EPS (INR) 15.2 16.8 17.1 18.0 19.2 20.8 22.5 22.5 66.0 84.9 Headcount 3,85,809 3,89,213 3,90,880 3,94,998 4,00,875 4,09,651 4,16,680 3,94,998 3,94,998 4,25,013 CC QoQ rev gr (%) 2.0 1.7 1.3 2.5 4.1 3.0 1.0 2.5 8.6 9.2 Attrition (%) 11.6 11.3 11.3 11.0 11.7 E: MOSL Estimates


TCS

CMP: INR 2,256 TP: INR2,050 (-9%) Neutral Barring BFS (which only showed growth in the last quarter), all

segments for TCS were growing in healthy single-digits or double-digits YoY.

On the back of USD 1.6b deal win in BFSI alone, we expect high growth momentum from the largest revenue contributing vertical.

Execution of recent deal wins and seasonal strength would ensure maintenance of revenue growth trends, in our view. We expect 4% QoQ CC growth in 2QFY19 (2.8% QoQ in USD terms).

Our EBIT margin estimate for 2Q stands at 26.1% (+100bp QoQ), primarily led by INR depreciation, and as most margin headwinds are now behind.

Our PAT estimate stands at INR77.9b (+6% QoQ), led by sequential growth in operating parameters.

The stock trades at 26.4x FY19E and 24.7x FY20E earnings. Neutral.

Key issues to watch for New deal wins and outlook on continual of traction seen so far Traction in new initiatives (Digital/automation/solutions) Margin expectations for the next year

Bloomberg TCS IN Equity Shares (m) 3,941 M.Cap.(INRb)/(USDb) 8363.5 / 115.4

52-Week Range (INR) 2273 / 1213 1, 6, 12 Rel. Per (%) 13/43/60


Sales 1,179.7 1,231.0 1,477.8 1,674.3 EBITDA 323.1 325.2 405.9 441.8 PAT 262.9 258.3 320.0 341.5

EPS (INR) 66.7 66.0 84.9 91.0 EPS Gr. (%) 8.3 -1.0 28.6 7.2 BV/Sh. (INR) 224.1 228.3 238.0 250.2

RoE (%) 32.6 29.4 35.9 36.6 RoCE (%) 32.0 28.8 35.0 35.6 Payout (%) 35.2 101.5 129.4 70.1

Valuation P/E (x) 33.7 34.1 26.4 24.7

P/BV (x) 10.0 9.9 9.5 9.0 EV/EBITDA (x)

26.1 25.2 20.2 18.5 Div. yield (%) 1.0 3.0 4.9 2.8

October 2018 275


Tech Mahindra Quarterly Performance27.6%


1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 1,138 1,179 1,209 1,244 1,224 1,226 1,246 1,293 4,771 4,989 QoQ (%) 0.6 3.6 2.5 2.9 -1.6 0.1 1.7 3.7 9.6 4.6 Revenue (INR m) 73,361 76,064 77,760 80,545 82,763 86,047 90,342 94,366 3,07,730 3,53,518 YoY (%) 6.0 6.1 2.9 7.5 12.8 13.1 16.2 17.2 5.6 14.9 GPM (%) 28.0 29.3 30.8 31.9 30.7 31.9 33.0 34.0 30.0 32.5 SGA (%) 15.3 14.7 14.6 14.3 14.3 14.5 14.5 13.8 14.7 14.5 EBITDA 9,347 11,057 12,638 14,119 13,569 14,968 16,682 18,385 47,161 63,604 EBITDA Margin (%) 12.7 14.5 16.3 17.5 16.4 17.4 18.5 19.5 15.3 18.0 EBIT Margin (%) 9.4 11.0 12.7 13.8 13.0 13.9 15.1 16.3 11.8 14.6 Other income 4,106 3,222 2,250 4,513 1,114 3,164 546 1,007 14,091 5,831 Interest expense 370 386 341 527 305 253 253 252 1,624 1,063 ETR (%) 25.4 25.3 21.8 18.6 21.2 24.0 24.0 24.0 22.4 23.4 PAT excl. BT amort & EOI 7,985 8,362 9,422 12,221 8,979 11,202 10,505 12,129 37,990 43,287 QoQ (%) 35.8 4.7 12.7 29.7 -26.5 24.8 -6.2 15.5

YoY (%) 21.7 29.7 10.1 107.9 12.4 34.0 11.5 -0.8 38.3 13.9 EPS (INR) 9.0 9.4 10.6 13.7 10.1 12.6 11.8 13.6 42.6 48.0 Headcount 1,15,990 1,17,225 1,15,241 1,12,807 1,13,552 1,14,690 1,18,134 1,12,807 1,12,807 1,22,118 Util excl. trainees (%) 77.0 81.0 83.0 84.0 81.0 84.7 83.0 84.0 81.1 83.1 Attrition (%) 17.0 16.0 17.0 18.0 19.0

Offshore rev. (%) 36.3 35.9 34.2 33.0 33.4 35.8 34.7 33.0 34.8 34.6 E: MOSL Estimates


Tech Mahindra

CMP: INR761 TP: INR880 (+16%) Buy Revenue for 2QFY19 is expected to increase by 1.5% sequentially

on a constant currency basis (+0.1% QoQ in USD terms). We expect strength in Communications to be weighed upon by

some softness in Enterprise (on the back of a high base formed over the past couple of quarters).

With wage hikes behind and business mix improving (apart from support from INR depreciation), we expect EBITDA margin expansion of 100bp QoQ to 17.4%.

We expect PAT to increase by 24.8% QoQ to INR11.2b, led by both operational performance and currency benefits on translation gains.


Key issues to watch for Health of LCC Traction in Enterprise and deal wins Expectations around a 5G-led pick-up in Telecom

Bloomberg TECHM IN


1, 6, 12 Rel. Per (%) 8/7/48


Sales 291.4 307.7 353.5 399.3


EPS Gr. (%) -8.8 33.6 12.4 13.3 BV/Sh.(INR) 187.9 213.4 249.2 289.7 RoE (%) 18.4 21.5 21.1 20.4


P/BV (x) 4.0 3.5 3.0 2.6 EV/EBITDA (x) 15.5 13.8 10.0 8.2

Div. Yield (%) 1.2 1.8 1.3 1.6

October 2018 276


Quarterly Performance (IFRS)


1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE IT Services Revenue (USD m) 1,972 2,014 2,013 2,062 2,026 2,028 2,013 2,083 8,060 8,191 QoQ (%) 0.9 2.1 0.0 2.4 -1.7 0.1 -0.7 3.5 4.6 1.6 Overall Revenue (INR m) 1,36,261 1,34,234 1,36,690 1,37,686 1,39,777 1,46,052 1,52,738 1,56,194 5,44,871 5,94,761 QoQ (%) -2.6 -1.5 1.8 0.7 1.5 4.5 4.6 2.3 YoY (%) 0.2 -2.5 -0.1 -1.6 2.6 8.8 11.7 13.4 -1.0 9.2 GPM (%) 28.7 29.5 30.1 29.0 28.2 32.4 33.7 34.1 29.3 32.2 SGA (%) 12.8 12.6 13.4 13.8 13.9 15.3 14.9 14.9 13.2 14.8 EBITDA 26,683 27,788 28,104 26,610 24,343 29,441 33,370 34,740 1,09,185 1,21,894 EBITDA Margin (%) 19.6 20.7 20.6 19.3 17.4 20.2 21.8 22.2 20.0 20.5 IT Serv. EBIT (%) 16.8 17.3 17.2 16.0 15.6 17.3 19.1 19.5 16.8 18.0 EBIT Margin (%) 16.0 16.8 16.7 15.2 14.3 17.1 18.8 19.2 16.2 17.4 Other income 5,079 5,728 5,054 3,796 4,319 3,812 3,771 3,098 19,657 15,000 ETR (%) 22.3 22.7 19.2 18.7 24.1 22.5 22.5 22.5 20.8 22.8 PAT 20,824 21,895 22,534 20,086 18,407 22,216 25,099 25,587 85,339 91,365 QoQ (%) 7.4 5.1 2.9 -10.9 -8.4 20.7 13.0 1.9 YoY (%) 1.1 5.6 6.6 3.5 -11.6 1.5 11.4 27.4 4.2 7.1 EPS (INR) 4.3 4.5 4.0 4.1 4.6 4.9 5.6 5.7 17.9 20.8 Headcount 1,66,790 1,63,759 1,62,553 1,63,827 1,64,659 1,67,774 1,70,659 1,73,544 1,63,827 1,73,544 Util excl. trainees (%) 82.1 82.5 81.9 83.4 85.2 85.2 85.2 85.2 78.0 78.0 Attrition (%) 15.9 15.7 15.9 16.6 17.0

Offshore rev. (%) 46.4 46.8 46.5 47.3 47.1 46.0 46.0 46.0 46.8 46.3 Fixed Price (%) 58.2 57.7 57.7 58.7 58.9 E: MOSL Estimates


Wipro

CMP: INR331 TP: INR300 (-9%) Neutral Wipro’s revenue growth guidance for 2QFY19 (0.3 to 2.3% QoQ

CC) was impacted by continued restructuring in India/Middle East, uncertainty in HPS and pressure in Utilities.

Our expectation for the quarter stands at the mid-point of the guided range, at 1.3% QoQ CC. Cross-currency headwinds of 120bp are likely to result in 0.1% QoQ growth in USD revenue.

We expect EBIT margin in IT Services to expand by 170bp to 17.3% led by INR depreciation (100bp), absence of one-time restructuring expenses (40bp) and improvement in operational efficiencies (30bp).

Our PAT estimate is INR22.2b (+21% QoQ). This would be led by the sharp improvement in profitability in both Services and Products.

The stock trades at 13.7x FY19E and 12.4x FY20E earnings. Neutral. Key issues to watch for Revenue growth guidance for 3QFY19 Commentary on the verticals of Healthcare and Communications Outlook on profitability once the revenue decline stabilizes

Bloomberg WPRO IN

Equity Shares (m) 4,512 M.Cap.(INRb)/(USDb) 1466.7 / 20.2 52-Week Range (INR) 339 / 254

1, 6, 12 Rel. Per (%) 16/5/-2


Sales 550.4 544.9 594.8 648.8


EPS Gr. (%) -8.5 7.7 16.3 10.3 BV/Sh. (INR) 105.9 107.2 127.1 138.0 RoE (%) 16.9 17.0 17.3 17.4



Div Yld (%) 0.3 0.0 0.0 3.5

October 2018 277



1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue (USD m) 114 119 123 127 135 140 142 145 482 561 QoQ (%) 2.2 3.8 3.4 3.3 6.6 3.5 1.7 1.9 5.0 16.4 Revenue (INR m) 7,367 7,626 7,937 8,147 9,047 9,804 10,295 10,561 31,077 39,707 YoY (%) -2.5 -1.0 0.9 9.6 18.6 23.5 26.4 16.7 1.7 27.8 GPM (%) 27.6 28.8 30.1 29.4 30.7 28.4 29.9 30.5 29.0 29.9 SGA (%) 17.4 17.2 16.8 17.6 16.5 16.5 16.0 15.7 17.2 16.5 EBITDA 748 884 1,054 961 1,163 1,171 1,429 1,561 3,647 5,324 EBITDA Margin (%) 10.2 11.6 13.3 11.8 12.9 11.9 13.9 14.8 11.7 13.4 EBIT Margin (%) 7.7 9.3 11.3 10.1 10.8 10.0 12.0 12.9 9.6 11.5 Other income 203 194 49 268 238 415 -18 40 714 674 ETR (%) 32.0 26.8 33.7 28.8 27.8 28.0 28.0 28.0 30.2 27.9 PAT 472 608 574 726 821 955 821 951 2,380 3,547 QoQ (%) 354.7 29.0 -5.7 26.5 13.0 16.4 -14.1 15.9 YoY (%) -36.3 -13.6 -28.3 599.7 34.9 66.4 13.0 15.9 1.3 49.0 EPS (INR) 2.1 2.7 2.5 3.2 3.6 4.2 3.6 4.2 10.6 15.7 Headcount 8,567 8,414 8,597 8,905 9,122 9,242 9,492 9,417 8,905 9,417 Utilization (%) 83.2 85.9 84.8 83.8 85.8 83.0 80.5 81.0 84.4 82.6 Offshore rev. (%) 37.5 37.5 37.0 37.3 35.4 32.9 31.8 31.7 37.3 32.9


Zensar Technologies

CMP: INR 321 TP: INR375 (+17%) Buy We expect revenue of USD140m, representing growth of 3.5%

QoQ. This would translate into 4.5% QoQ CC growth, a cross-currency headwind of 100bp for ZENT.

Growth would be a function of strength in Digital, a recovery in the US and ramp-up of recent deal wins.

We expect EBITDA margin to contract by 100bp QoQ to 11.9% due to effects of wage hikes, partially offset by INR depreciation and the absence of client-related bankruptcy costs.

Our PAT estimate is INR955m, up 16% QoQ, on account of higher forex gains (translation gains).


Key issues to watch for Traction in Digital, large deals and other new initiatives Margin outlook, given restructuring of IMS business Progress on revival of revenue growth post US turnaround

Bloomberg ZENT IN


1, 6, 12 Rel. Per (%) -3/47/75

Financial Snapshot (INR b) Y/E MAR 2017 2018 2019E 2020E Sales 30.6 31.1 39.7 45.5 EBITDA 3.8 3.6 5.3 6.7 PAT 2.3 2.4 3.5 4.4 EPS (INR) 10.4 10.6 15.7 19.4 EPS Gr. (%) -24.1 1.3 49.0 23.4 BV/Sh. (INR) 65.2 73.2 85.4 100.6 RoE (%) 17.2 15.3 19.8 20.9 RoCE (%) 23.2 18.2 24.4 27.3 Payout (%) 23.0 20.9 19.0 18.5 Valuations P/E (x) 32.4 31.9 21.4 17.4 P/BV (x) 5.2 4.6 3.9 3.4 EV/EBITDA (x) 19.0 19.8 13.2 10.1 Div Yld (%) 0.7 0.7 0.9 1.1

October 2018 278

The battle of survival continuesPostpaid downtrading and Jiophone-led setback are the key hurdles

After nearly a year of hostile environment (since RJio’s commercial launch),downtrading in the prepaid category seems to have reduced. However, the postpaidcategory now appears to have emerged as the new turf of competition anddowntrading is clearly evident in this category. Further, re-launch of Jiophone (nowcompatible with whatsapp, youtube apps) at an attractive purchase price of INR501and the launch of JioPhone 2 are a worrisome for incumbents. This, coupled withseasonal weakness and high network opex/capex, is likely to impact the fortunes ofthe telecom industry.

Bharti is expected to report its first-ever quarter of net loss (INR2.1b) in 2QFY19, ledby a continued decline in EBITDA (-6% QoQ). Despite merger synergies, Idea isexpected to report a 32% QoQ decline in EBITDA due to intense competition. Mergerwith Vodafone India’s financials effective Sept’18 (with inclusion of settlementcharges and initial low-hanging synergy gains) may also impact Idea’s performance.We, thus, do not hazard a guess.

RJio’s EBITDA is likely to increase 15% QoQ to INR36.2b, primarily led by strong 15%QoQ subscriber growth, partly offset by cost escalation.

Bharti Infratel’s consol. EBITDA is likely to decline 5% QoQ, while TCom’s EBITDA isexpected to grow 3% QoQ.

Jio’s postpaid offerings and Jiophone re-launch - prolonging competitive pressure Our channel checks indicate that Jiophone is continually gaining traction, led by (i) an enticing purchase price of INR501, (ii) attractive price plans and (iii) compatibility with popular apps like WhatsApp and YouTube. Consequently, the incumbents are witnessing a higher churn among the sub INR30-40 APRU subscribers. On the contrary, the launch of Jiophone 2 – the advanced version of Jiophone – is witnessing a lukewarm response. Downtrading, albeit marginal, still continues in the prepaid market, but it is now also seen in the postpaid category. This offers limited incentive for RJio to increase pricing, given the healthy traction in subscriber growth.

No solace on the ARPU front Pressure on APRU continues mounting due to seasonal weakness, downtrading in the postpaid category, Jiophone-led churn (of low ARPU subscribers) and marginal (yet continued) downtrend in the prepaid category. We expect Bharti/Idea’s ARPU to decline sharply by 8%/4% QoQ to INR97/INR96. Bharti’s ARPU decline is accentuated by the impact of low-ARPU Telenor subscribers (driving only 6% QoQ average subscriber growth). Idea remains vulnerable to RJio’s aggressive undercutting strategy – we expect a 1% QoQ decline in its average subscriber base. RJio’s ARPU is expected to remain flat QoQ at INR135.

Company name

Bharti Airtel

Bharti Infratel

Vodafone Idea

Tata Communications

Telecom September 2018 Results Preview | October 2018

Aliasgar Shakir – Research analyst ([email protected]); +91 022 6129 1565 Hafeez Patel – Research analyst ([email protected]); +91 22 6129 1568

October 2018 279

Intensifying competition, seasonal weakness to hurt India wireless revenue for incumbents Marred by intense competition and seasonal weakness, we expect Bharti’s India wireless revenue to decline 2% QoQ (-16% YoY) to INR102.7b. Modest 2-3% QoQ growth in Africa, enterprise and digital biz, however, is likely to provide some support. We, thus, expect a marginal 0.5% QoQ (-8% YoY) drop in Bharti’s consolidated revenue to INR199.8b. Continuous loss in the subscriber market share, coupled with APRU downtrading, should lead to 5% QoQ (-25% YoY) decline in Idea’s revenue to INR56.0b. RJio, on the contrary, is expected to continue its strong growth momentum; expect 15% QoQ (+51% YoY) growth in revenue to INR92.9b, led by robust (15%) average subscriber growth.

India wireless EBITDA – a mixed bag Bharti’s India wireless EBITDA is expected to decline 15% QoQ (-44% YoY) to INR23.5b due to (a) 2% QoQ revenue decline and (b) 7% QoQ increase in network cost, partly offset by Telenor merger synergies. However, a modest uptick in Africa biz and other verticals should arrest the decline in Bharti’s consolidated EBITDA – we expect a 6% QoQ decline (-20% YoY) to INR63.4b. The double whammy of a steep 5% QoQ decline in revenue and rising opex is expected to outweigh the merger synergies for Idea. Consequently, we expect Idea’s EBITDA to decline by 32% QoQ (-70% YoY). RJio, however, should report 15% QoQ growth in EBITDA to INR36.2b on the back of strong revenue growth, partly offset by a rise in operating expenses (network cost to increase by 15% QoQ).

Bharti’s India wireless EBITDA margin is likely to contract ~340bp QoQ (-1,150bp YoY) to 22.9%. However, support from the high-margin Africa and enterprise businesses should limit Bharti’s consolidated EBITDA margin contraction to 31.8% (-170bp QoQ). Idea’s consolidated EBITDA margin is expected to contract 310bp QoQ to 8.1%. RJio’s EBITDA margin is expected to remain steady at 38.9%.

Rising network cost – another hurdle: Vodafone/Idea-led steep decline intenancies (consequent higher rental sharing) and soaring crude/diesel prices areexpected to result in higher network costs for telcos. We expect Bharti’sconsolidated/RJio’s network cost to rise 5%/15% QoQ. Idea is expected to reporta meager 1% QoQ decline in network cost, as merger synergies would largely beoffset by the impact of higher network cost.

Bharti’s Africa EBITDA margin to stabilize We expect Bharti’s Africa revenue to grow 2% QoQ to INR53.7b, mainly on the back of subscriber growth. A lean cost base is expected to limit Africa’s high base margin expansion; expect EBITDA margin to remain steady at 35.2% and EBITDA to grow 2% QoQ to INR18.9b.

Bharti Infratel: EBITDA continues to decline Bharti Infratel should see the impact of (a) exit of 27,447 tenancies by Vodafone-Idea since Sept-18 (this should have a one month impact of INR60-65m on Bharti Infratel’s consol. revenue) and (b) impact of 6,650 discontinued tenants (exited in

September 2018 Results Preview | Sector: Telecom

October 2018 280

1QFY19, revenue impact of INR20-25m per month). This should be partly offset by higher rental rates for lower tenancy. Subsequently, we expect rental revenue to decline 6% QoQ to INR20.7b. However, 4% QoQ growth in energy revenue (led by higher diesel prices) should limit consolidated revenue decline to 2% QoQ (to INR36.0b). Consol. EBITDA is expected to decline 5% QoQ to INR14.4b, with the margin likely to contract 130bp QoQ to 40.1%. Since the clean-up of smaller player tenancies is largely over, we expect consol. co-location exits of (Vodafone-Idea led) 27,447 (tenancies to reach ~1,73,331).

Tata Communications: Data EBITDA to support overall growth Data revenue is expected to increase 2% QoQ to INR29.3b, primarily led by growth in the services segment (+4% QoQ). However, this will partly be offset by a 1% QoQ decline in voice revenue (INR10.2b), leading to marginal 1% QoQ growth in consol. revenue to INR39.5b. Consol. EBITDA is likely to grow 3% QoQ to INR5.7b on the back of 4% QoQ data EBITDA growth (INR5.0b), partly offset by a 1% QoQ decline in voice EBITDA (INR0.7b). Narrowing losses in the growth segment should result in ~40bp QoQ expansion in the data EBITDA margin to 17.2%, leading to a 30bp QoQ jump in consol. EBITDA margin to 14.5%.

Our view: Competition in the telecom sector continues unabated – rather it is intensifying in the postpaid category. This, coupled with pressure exerted by Jiophone (including Jiophone 2), is expected to keep ARPUs at suppressed levels, making the dent deeper in incumbents’ margins. We believe RJio’s aggressive strategy of undercutting incumbents to gain subscriber market share would continue for a few more quarters. Until then, the merger synergies should provide some solace to the incumbents. However, as the flux gets settled, we believe ARPU accretion should kick in, driving EBITDA and FCF growth.


Telecom (INR) Rating Sep-18 Var % YoY


% YoY Var


Var % QoQ

Bharti Airtel 319 Buy 199,808 -8.2 -0.5 63,443 -19.9 -5.7 -2,137 PL Loss Bharti Infratel 253 Neutral 35,986 -1.4 -2.0 14,430 -10.6 -5.0 6,103 -4.4 -4.3Tata Comm 488 Buy 39,488 -6.4 0.9 5,731 1.5 3.2 18 -93.8 LP Vodafone Idea 37 Buy 56,002 -25.0 -4.9 4,513 -69.9 -31.6 -19,050 Loss Loss Sector Aggregate 331,284 -10.7 -1.3 88,117 -24.1 -6.9 -15,066 Loss Loss


October 2018 281

Exhibit 1: Industry wireless subscriber and net additions trend (m)

Source: TRAI, MOSL

Exhibit 2: Player-wise QoQ ARPU trend (INR)


Exhibit 3: Player-wise QoQ ARPU growth trend (%)


Exhibit 4: Player-wise QoQ wireless traffic trend (b min)


Exhibit 5: Player-wise QoQ wireless traffic growth trend (%)


1,03

4

1,02

9

1,05

0

1,07

8

1,10

0

1,12

7

1,15

0

1,16

4

1,17

0

1,17

5

1,18

1

1,18

7

1,18

7

1,18

6

1,18

3

1,17

8

1,16

2

1,16

7

1,15

2

1,15

7

1,18

3

1,12

5

1,13

1

1,14

6

1,15

7

-1 -521 29 21 28 23 14 6 4 6 6 0 -1 -3 -5 -16

5 -15

5 27

-58

6 15 11

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec-

16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Wireless Subsriber (m) Wireless Subsriber net additions (m)

196

188

172

158

154

145

123

116

105

97 18

0

173

156

142

141

132

114

105

100

96

176

171

158

142

141

132

114

105

102

156

154

137

135

135

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

FY17 FY18 FY19

Bharti (India) Idea Vodafone - India RJio

-15-12

-9-6-303

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E


150250350450550650

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

FY17 FY18 FY19


-4048

12162024

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E



October 2018 282

Exhibit 6: Player-wise QoQ data traffic trend (b Mb)


Exhibit 7: Player-wise QoQ data traffic growth trend (%)


Exhibit 8: Aggregate India wireless revenue and growth trend (QoQ, %)

Source: TRAI, MOSL

Exhibit 9: Relative performance – 3M (%)


Exhibit 10: Relative performance – 1Y (%)


Exhibit 2: Comparative valuations Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Telecom (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Bharti Airtel 319 Buy 4.1 -1.9 0.0 78.2 -170.6 83271 8.2 8.4 7.3 2.4 -1.1 0.0Bharti Infratel 253 Neutral 13.6 11.6 10.5 18.5 21.7 24.0 9.0 7.9 8.4 15.6 13.0 12.6 Tata Comm 488 Buy 3.5 0.5 13.4 140.9 1050.2 36.5 10.8 8.8 6.7 9.4 2.6 54.3 Vodafone Idea 37 Buy -9.6 -15.9 -14.4 -3.8 -2.3 -2.5 13.8 22.3 15.2 -16.0 -28.0 -32.8Sector Aggregate 2443.4 -36.6 -51.0 9.2 9.5 8.3 0.1 -5.1 -3.9

Source: MOSL

0

1500

3000

4500

6000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

FY17 FY18 FY19


020406080

100

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19E


6

-15

1 2 -1

2 4 8

-3

-10-6

0

7

-9

1

0

200

400

600

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

Agg. India wireless revenue (INR b)

Agg. India wireless revenue growth (QoQ, %)

85

92

99

106

113

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Telecom Index

75

95

115

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Telecom Index


October 2018 283

Exhibit 11: Wireless KPIs FY16 FY17 FY18 FY19 YoY QoQ

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE (%) (%) Wireless Subs (m) Bharti (India) 231 235 243 251 256 260 266 274 281 282 290 304 345 346 22.6 0.4 Idea 162 167 172 175 176 179 185 190 189 182 189 195 188 190 4.3 1.3 Vodafone - India 185 188 194 198 199 201 205 209 212 207 213 223 220 RJio 109 123 139 160 187 215 245 77.0 13.9 Avg. Wireless Subs (m) Bharti (India) 228 233 239 247 253 258 263 270 277 281 286 297 324 345 22.7 6.4 Idea 160 165 170 174 176 178 182 187 189 186 185 192 191 189 1.8 -1.1 Vodafone - India 185 187 191 196 199 200 203 207 211 210 210 218 RJio 116 131 149 173 201 230 75.8 14.6 ARPU (INR/month) Bharti (India) 198 193 192 194 196 188 172 158 154 145 123 116 105 97 -33.0 -8.0Idea 180 173 174 179 180 173 156 142 141 130 113 105 100 96 -27.3 -4.1Vodafone - India 184 178 175 177 176 171 158 142 141 132 114 105 102 RJio 156 154 137 135 135 -14.0 0.0 MOU/Sub (INR) Bharti (India) 424 404 405 415 414 406 419 471 507 518 575 670 700 672 29.7 -4.0Idea 408 383 387 387 379 368 385 412 441 459 509 577 609 591 28.7 -3.0Vodafone - India 327 316 316 317 314 306 308 336 NA NA NA NA RJio 625 697 716 744 744 19.1 0.0 Wireless traffic (B min) Bharti (India) 290 282 290 308 315 313 330 381 422 437 495 593 684 696 59.2 1.7 Idea 196 189 196 202 199 196 210 231 251 255 283 330 350 335 31.4 -4.1Vodafone - India 181 177 181 186 187 184 189 211 NA NA NA NA NA RJio 246 311 372 449 514 109.4 14.6 Data usage/sub (Mb) Bharti (India) 706 765 843 859 904 1,000 972 1,331 2,611 4,087 5,349 6,585 7,864 8,245 101.8 4.8 Idea 599 615 653 641 674 694 703 957 2,204 3,805 4,742 6,065 7,309 8,000 110.3 9.5 Vodafone - India 357 393 438 454 489 529 522 654 1,165 1,865 2,743 3,691 RJio 9,620 9,600 9,700 10,649 12,247 27.3 15.0 Data traffic (B Mb) Bharti (India) 102 115 134 147 158 178 172 225 472 784 1,106 1,540 2,151 2,438 211.1 13.4 Idea 63 72 81 82 93 107 109 127 253 439 571 818 1,018 1,145 161.0 12.4 Vodafone - India 75 83 94 94 101 110 105 129 238 384 567 808 1,059 RJio 3,780 4,301 5,044 6,420 8,461 123.8 31.8



October 2018 284

Exhibit 12: Quarterly financials (pro forma) FY16 FY17 FY18 FY19 YoY

(%) QoQ (%) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE

Revenue (INR b) Bharti (ex-Africa) 174 175 177 185 193 193 180 169 171 166 152 147 148 146 -11.8 -1.2Bharti (consolidated) 236 237 240 250 255 247 233 219 220 218 203 196 201 200 -8.2 -0.5Idea 88 87 90 95 95 93 87 81 82 75 65 61 59 56 -25.0 -4.9Vodafone - India 105 104 105 109 109 106 100 92 92 86 74 71 71 RJio 61 69 71 81 93 51.2 14.6 EBITDA (INR b) Bharti (ex-Africa) 70 70 71 77 82 82 72 66 64 63 57 52 49 45 -29.0 -8.4Bharti (consolidated) 82 82 84 91 95 94 85 79 78 79 75 69 67 63 -19.9 -5.7Idea 30 31 31 36 31 28 22 21 19 15 12 14 7 5 -69.9 -31.6RJio 14 26 27 31 36 150.8 14.9 EBITDA Margin (%) Bharti (ex Africa) 39.9 39.8 39.9 41.5 42.5 42.4 40.3 38.9 37.5 37.9 37.3 35.3 32.9 30.5 -738bp -239bp Bharti (consolidated) 34.9 34.7 35.1 36.5 37.4 38.3 36.3 35.8 35.3 36.4 36.8 35.3 33.5 31.8 -463bp -174bp Idea 33.9 35.2 34.7 38.1 32.6 30.5 25.0 26.1 23.0 20.1 18.8 23.6 11.2 8.1 -1205bp -314bp RJio 23.5 38.2 37.8 38.8 38.9 1546bp 12bp PAT (INR b) Bharti (consolidated) 21 15 11 13 15 15 5 4 4 3 3 1 1 -2 NM NM Idea 9 8 8 6 2 1 -4 -3 -8 -11 -13 -10 3 -19 NM NM RJio -3 5 5 6 6 LP 6.0 EPS (INR) Bharti (consolidated) 5.3 3.8 2.8 3.3 3.7 3.7 1.3 0.9 0.9 0.9 0.8 0.2 0.2 -0.5 NM NM Idea 2.4 2.2 2.1 1.6 0.6 0.3 -1.1 -0.9 -2.3 -3.1 -3.6 -2.5 0.6 -4.4 NM NM RJio 0.0 -0.1 0.1 0.1 0.1 0.1 LP 6.0



October 2018 285

Consolidated quarterly performance (INR m) Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue 2,19,581 2,17,769 2,03,186 1,96,343 2,00,800 1,99,808 2,03,707 2,10,537 8,36,879 8,14,852 YoY Change (%) -14.0 -11.7 -12.9 -10.5 -8.6 -8.2 0.3 7.2 -12.3 -2.6Total Expenditure 1,41,997 1,38,549 1,28,498 1,27,044 1,33,542 1,36,365 1,38,753 1,42,004 5,36,088 5,50,664 EBITDA 77,584 79,220 74,688 69,299 67,258 63,443 64,954 68,533 3,00,791 2,64,188 Margins (%) 35.3 36.4 36.8 35.3 33.5 31.8 31.9 32.6 35.9 32.4 Depreciation 48,192 46,873 48,375 48,991 51,452 53,183 54,530 56,228 1,92,431 2,15,393 Net Finance cost 18,274 23,266 20,882 18,293 21,266 18,484 18,484 18,484 80,715 76,718 Other Income 3,698 3,907 2,950 2,401 2,610 2,235 2,235 1,860 12,956 8,940 PBT before EO expense 14,816 12,988 8,381 4,416 -2,850 -5,989 -5,825 -4,318 40,601 -18,983Extra-Ord expense 503 1,786 2,395 3,247 3,621 0 0 0 7,931 3,621 PBT 14,313 11,202 5,986 1,169 -6,471 -5,989 -5,825 -4,318 32,670 -22,604Tax 8,136 5,341 379 -3,021 -11,267 -2,396 -2,330 -1,727 10,835 -17,720Rate (%) 56.8 47.7 6.3 -258.4 174.1 40.0 40.0 40.0 33.2 78.4Minority Interest 2,504 2,431 2,549 3,361 3,823 -1,457 -1,417 -1,050 10,845 -101Reported PAT 3,673 3,430 3,058 829 973 -2,137 -2,078 -1,541 10,990 -4,783Adj PAT 3,890 4,364 5,301 -410 -1,711 -2,137 -2,078 -1,541 16,291 -7,467YoY Change (%) -76.7 -70.2 -8.2 -105.0 NM NM NM NM -63.3 NM Margins (%) 1.8 2.0 2.6 -0.2 -0.9 -1.1 -1.0 -0.7 1.9 -0.9

E: MOSL Estimates


Bharti AirtelCMP: INR319 TP: INR420 (+32%) Buy We expect consolidated revenue to decline 0.5% QoQ (-8% YoY)

to INR199.8b, and consolidated EBITDA to fall 6% to INR63.4b. India wireless revenue is likely to drop 2% QoQ to INR102.7b with

India wireless EBITDA drop of 15% QoQ to INR23.5b We expect India wireless ARPU to decline 8% QoQ to INR97 on

prepaid and postpaid downtrading, Jiophone impact and fullquarter consolidation of Telenor ARPUs.

Africa revenue and EBITDA is expected to grow 2% QoQ toINR53.7b/INR18.9b.

We expect Bharti to report net loss of INR2.1b. Bharti trades at an EV/EBITDA of 8.7x FY19E and 7.6x FY20E.

Maintain Buy.

Key monitories Consolidated revenue (expect 0.5% QoQ de-growth) Consolidated EBITDA (expect 6% QoQ de-growth) India wireless revenue (expected to decline 2% QoQ) India wireless EBITDA (expect 15% QoQ decline)

Bloomberg BHARTI IN Equity Shares (m) 3997.3 M. Cap. (INR b)/(USD b) 1274 / 17 52-Week Range (INR) 565 / 316 1,6,12 Rel Perf. (%) -10 / -29 / -32


Net Sales 954.7 836.9 814.9 890.5 EBITDA 353.3 300.8 264.2 297.7

Adj. NP 44.4 16.3 -7.5 0.0

Adj EPS(INR) 11.1 4.1 -1.9 0.0

Adj EPS Gr.(%) -9.5 -63.3 -145.8 -100.2BV/Sh (INR) 168.8 173.9 172.8 172.8

RoE (%) 6.6 2.4 -1.1 0.0

RoCE (%) 5.3 4.6 0.7 2.2

Div. payout (%) 12.7 43.8 0.0 0.0 Valuations P/E (x) 28.7 78.3 NM NM

P/BV (x) 1.9 1.8 1.8 1.8

EV/EBITDA (x) 6.3 7.5 8.7 7.6 Div. Yld (%) 0.3 0.3 0.0 0.0

October 2018 286

Consolidated quarterly performance (INR m)



Revenue from operations 35,239 36,482 36,553 36,622 36,735 35,986 33,899 34,033 1,44,896 1,40,652

YoY Change (%) 9.8 10.8 7.5 4.0 4.2 -1.4 -7.3 -7.1 7.9 4.8

Total Expenditure 19,489 20,336 20,571 20,699 21,539 21,556 21,551 21,619 81,095 86,266

EBITDA 15,750 16,146 15,982 15,923 15,196 14,430 12,347 12,414 63,801 54,387

Margins (%) 44.7 44.3 43.7 43.5 41.4 40.1 36.4 36.5 44.0 38.7

Depreciation 5,905 5,941 5,895 5,721 5,389 6,339 6,339 7,288 23,462 25,355

Net Interest expense -530 -109 510 129 -285 -1,156 -1,156 -1,418 0 -4,623

Other Income 571 401 495 956 609 0 0 0 2,423 0

PBT before EO expense 10,946 10,715 10,072 11,029 10,701 9,247 7,164 6,543 42,762 33,655

Extra-Ord expense 0 0 0 500 0 0 0 0 500 0

PBT 10,946 10,715 10,072 10,529 10,701 9,247 7,164 6,543 42,262 33,655

Tax 4,307 4,331 4,218 4,469 4,321 3,144 2,436 2,225 17,325 12,125

Rate (%) 39.3 40.4 41.9 42.4 40.4 34.0 34.0 34.0 41.0 36.0

Reported PAT 6,639 6,384 5,854 6,060 6,380 6,103 4,728 4,319 24,937 21,530

Adj PAT 6,639 6,384 5,854 6,348 6,380 6,103 4,728 4,319 25,232 21,530

YoY Change (%) -12.2 -17.5 -5.6 6.4 -3.9 -4.4 -19.2 -32.0 -8.1 -21.6

Margins (%) 18.8 17.5 16.0 17.3 17.4 17.0 13.9 12.7 17.4 15.3

E: MOSL Estimates


Bharti InfratelCMP: INR253 TP: INR280 (+11%) Neutral We expect consolidated revenue to decline 2% QoQ (-1% YoY) to

INR36.0b. We expect consolidated EBITDA to decline 5% QoQ to INR14.4b

and margins to contract 130bp to 40.1%. We expect (Vodafone-Idea led) 27,447 QoQ cut in tenancies to

1,73,331 co-locations. This is expected to hurt consolidated rentalrevenue (INR20.7b, -6% QoQ). However, soaring diesel pricesshould drive energy and other reimbursement revenue (+4% QoQto INR15.3b), partly offsetting the impact of a decline in rentalrevenue.

The drag in consolidated margins is due to 250bp QoQcontraction in rental EBITDA margin to 65.7%. Energy EBITDAmargin is likely to expand 390bp QoQ to 7.6%.

Adj. PAT is likely to decline 4% QoQ to INR6.1b. Bharti Infratel trades at EV/EBITDA of 7.7x FY19E and 8.2x FY20E.

Maintain Neutral.

Key monitories Consolidated net co-location exits (we expect ~27.5k QoQ

tenancy deletions) Consolidated revenue sharing per operator (expected to grow

2% QoQ)

Bloomberg BHIN IN Equity Shares (m) 1896.7 M. Cap. (INR b)/(USD b) 479 / 7 52-Week Range (INR) 482 / 250 1,6,12 Rel Perf. (%) -6 / -33 / -53


Net Sales 134.2 144.9 140.7 143.2 EBITDA 59.0 63.8 54.4 51.2 Adj. NP 27.5 25.2 21.5 19.5

AdjEPS INR 14.9 13.6 11.6 10.5 Gr. (%) 25.3 -8.1 -14.7 -9.6BV/Sh (INR) 83.7 91.7 87.1 80.2

RoE (%) 16.2 15.6 13.0 12.6 RoCE (%) 13.2 13.7 9.9 9.4 Payout (%) 125.0 120.5 139.5 165.4

Valuations P/E (x) 17.0 18.5 21.7 24.0

P/BV (x) 3.0 2.8 2.9 3.1

EV/EBITDA (x) 7.0 6.6 7.7 8.2 Div. Yld (%) 6.3 5.5 5.5 5.9

October 2018 287

Consolidated - Quarterly Earning Model (INR m) Y/E March FY18 FY19 FY18 FY19E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue 81,665 74,655 65,096 61,373 58,892 56,002 57,783 60,526 2,82,789 2,33,203 YoY Change (%) -13.9 -19.7 -24.9 -24.5 -27.9 -25.0 -11.2 -1.4 -20.5 -17.5Total Expenditure 62,911 59,639 52,862 46,902 52,298 51,489 50,400 48,685 2,22,314 2,02,873 EBITDA 18,754 15,016 12,234 14,471 6,594 4,513 7,382 11,841 60,475 30,331 Margins (%) 23.0 20.1 18.8 23.6 11.2 8.1 12.8 19.6 21.4 13.0 Depreciation 20,679 21,143 21,415 20,854 20,924 21,859 22,412 23,333 84,091 88,528 Share in Profits from Associates 818 843 818 745 598 610 622 635 3,224 2,465 Net Finance Costs 11,539 11,829 11,490 9,742 13,844 11,697 11,697 11,697 44,600 48,934 PBT before EO expense -12,646 -17,113 -19,853 -15,380 -27,576 -28,432 -26,105 -22,554 -64,992 -1,04,667Extra-Ord expense 0 0 0 0 -33,645 0 0 0 0 -33,645PBT -12,646 -17,113 -19,853 -15,380 6,069 -28,432 -26,105 -22,554 -64,992 -71,022Tax -4,497 -6,047 -7,008 -5,758 3,504 -9,383 -8,615 -7,443 -23,310 -21,936Rate (%) 35.6 35.3 35.3 37.4 57.7 33.0 33.0 33.0 35.9 30.9 Reported PAT -8,149 -11,066 -12,845 -9,622 2,565 -19,050 -17,490 -15,111 -41,682 -49,086Adj PAT -8,149 -11,066 -12,845 -9,622 -17,837 -19,050 -17,490 -15,111 -41,682 -69,489YoY Change (%) NM NM NM NM NM NM NM NM NM NM Margins (%) -10.0 -14.8 -19.7 -15.7 -30.3 -34.0 -30.3 -25.0 -14.7 -29.8E: MOSL Estimates


Vodafone Idea CMP: INR37 TP: INR55 (+51%) Buy We expect consolidated revenue to decline 5% QoQ (-25% YoY) to

INR56.0b, led by a decline in APRU as well as a loss in subscribermarket share. Merger with Vodafone India effective Sept’18with inclusion of settlement charges and initial low hangingsynergy gains may have a bearing. We therefore do not hazard aguess.

We expect 4% QoQ decline in ARPU to INR96, impacted bycontinued downtrading.

Consolidated EBITDA at INR4.5b is likely to decline 32% QoQ,mainly due to (1) revenue decline and (2) increasing opex, whichare likely to offset the benefits from merger synergies.

Subsequently, EBITDA margin is expected to contract 310bp QoQto 8.1%.

We expect Idea to report a net loss of INR19.1b.

Idea trades at merged co. EBITDA of 21.4x FY19E and 9.8x FY20E.Maintain Buy.

Key monitories Consolidated revenue (we expect 5% decline QoQ) Blended ARPU (we expect INR96, 4% QoQ drop) EBITDA margin (we expect 310bp contraction QoQ)

Bloomberg IDEA IN Equity Shares (m) 3600.5 M. Cap. (INR b)/(USD b) 132 / 2 52-Week Range (INR) 118 / 36 1,6,12 Rel Perf. (%) -21 / -61 / -67

Financial Snapshot (INR Million)Y/E March 2017 2018 2019E 2020E

Net Sales 355.8 282.8 233.2 259.6 EBITDA 102.8 60.5 30.3 46.3

Adj. NP -4.0 -41.7 -69.5 -63.0AdjEPS (INR) -1.1 -9.6 -15.9 -14.4Adj.EPSGr(%) -116.2 762.5 66.7 -9.4

BV/Sh(INR) 68.6 62.5 51.3 36.8 RoE (%) -1.7 -16.0 -28.0 -32.8RoCE (%) 1.6 -1.8 -4.8 -4.1

Payout (%) 0.0 0.0 0.0 0.0 Valuations P/E (x) NM NM NM NM

P/BV (x) 0.5 0.6 0.7 1.0 EV/EBITDA(x) 6.0 11.0 23.2 15.8 Div. Yield (%) 0.0 0.0 0.0 0.0

October 2018 288

Cons. Quarterly Earning Model

(INR m)

Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 43,100 42,176 41,146 40,086 39,123 39,488 40,436 41,440 1,66,508 1,60,487 YoY Change (%) -3.3 -6.5 -5.6 -6.6 -9.2 -6.4 -1.7 3.4 -5.5 -3.6 Total Expenditure 37,514 36,531 35,019 34,531 33,569 33,757 34,317 34,895 1,43,595 1,36,537 EBITDA 5,586 5,645 6,128 5,555 5,554 5,731 6,119 6,545 22,914 23,949 Margins (%) 13.0 13.4 14.9 13.9 14.2 14.5 15.1 15.8 13.8 14.9 Depreciation 4,447 4,837 4,728 5,052 4,849 5,089 5,089 5,329 19,063 20,356 Interest 761 877 896 910 909 870 863 855 3,445 3,497 Other Income 444 292 740 2,330 244 328 336 419 3,805 1,327 PBT before EO expense 822 223 1,244 1,922 41 99 504 780 4,211 1,423 Exceptional expense 0 2,134 0 1,621 0 0 0 0 3,755 0 PBT 822 -1,911 1,244 301 41 99 504 780 456 1,423 Tax 461 588 1,050 1,451 641 33 166 257 3,549 1,098 Rate (%) 56.0 -30.8 84.4 481.6 1,560.6 33.0 33.0 33.0 778.2 77.1 MI & P/L of Asso. Cos. 39 1 92 60 -15 48 48 112 193 193 Reported PAT 322 -2,500 101 -1,210 -585 18 289 411 -3,286 133 Adj PAT 322 291 -37 411 -585 18 289 411 988 133 YoY Change (%) -76.2 -66.0 -597.3 -48.6 NM -93.8 LP -0.2 -67.2 -86.5 Margins (%) 0.7 0.7 -0.1 1.0 -1.5 0.0 0.7 1.0 0.6 0.1 E: MOSL Estimates


Tata Communications

CMP: INR488 TP: INR670 (+37%) Buy We expect consolidated revenue to grow marginally by 1% QoQ (-

6% YoY) to INR39.5b as growth in data revenue is expected to be offset by muted voice revenue.

Data revenue is likely to grow 2% QoQ to INR29.3b mainly led by growth services segment; expect voice revenue to decline 1% QoQ to INR10.2b.

We expect consolidated EBITDA to grow 3% QoQ to INR5.7b and margin to expand marginally by 30bp to 14.5%. Data EBITDA is expected to grow 4% QoQ to INR5.0b (led by lower losses in Growth segment), while voice EBITDA is likely to decline 1% QoQ to INR0.7b.

The stock trades at EV/EBITDA of 9.4x FY19E and 7.2x FY20E. Maintain Buy.

Key monitories Data revenue performance (we expect 2% QoQ growth) Data EBITDA margin (we expect 40bp EBITDA margin expansion

to 17.2%)

Bloomberg TCOM IN Equity Shares (m) 285.0

M. Cap. (INR b)/(USD b) 139 / 2 52-Week Range (INR) 758 / 483 1,6,12 Rel Perf. (%) -1 / -33 / -44

Financial Snapshot (INR Million) Y/E March 2017 2018 2019E 2020E

Net Sales 176.2 166.5 160.5 173.7 EBITDA 24.1 22.9 23.9 29.6

Adj. NP 3.0 1.0 0.1 3.8 AdjEPS (INR) 10.6 3.5 0.5 13.4 Adj.EPSGr. (%) 210.0 -67.2 -86.6 NM

BV/Sh (NR) 55.9 17.5 18.0 31.4 RoE (%) 49.1 9.4 2.6 54.3 RoCE (%) 9.9 3.8 1.2 6.6

Valuations P/E (x) 46.2 140.9 NM 36.5 P/BV (x) 8.7 27.9 27.2 15.6

EV/EBITDA(x) 9.5 9.7 9.4 7.2 Div. Yield (%) 0.9 0.9 0.9 0.9

October 2018 289

Coal India to benefit from price hikes Valuations at lower end of historical range; we like COAL, PWGR, CESC, NTPC

Electricity generation grew ~6% YoY over July-August 2018. Conventional generation increased by ~4% over this two-month period. For 5MFY19, generation increased by ~5% YoY, slower than our estimated pace for full-year of ~6.3%. Conventional generation rose 3.7% YoY. Coal-based generation grew at a faster rate of 4.5% YoY due to weakness in hydro (-2% YoY) and tepid growth in gas (+2.8% YoY) in 5MFY19. Day-ahead volumes at IEX grew ~17% YoY due to some supply disruptions in 2QFY19. Average day-ahead prices declined 17% QoQ to INR3.9/kWh. Within our Utilities Universe, we expect Coal India to outperform, led by the price hike benefit. We expect EBITDA (ex-OBR) to decline ~5% QoQ (+387% YoY) to INR62.7b, even as volumes are down ~9% QoQ to 139mt. Power Grid’s PAT is expected to increase ~13% YoY to INR24.3b on account of continuing capitalization momentum. NTPC’s adj. PAT is expected to increase ~3% YoY to INR27.9b, led by growth in regulated equity, while reported PAT growth is also expected to be similar at ~4% YoY. NHP’s PAT is expected to decline ~17% YoY to INR8.4b due to lower other income. CESC’s standalone PAT growth will be muted as the regulator has not yet approved tariff hike for FY19. Tata Power’s adj. PAT is expected to improve QoQ on account of lower interest cost, led by repayment of debt from proceeds from the sale of non-core assets. Top picks – Coal India, Power Grid, CESC and NTPC We believe utility stocks have de-rated over the last few months due to the reversal in the interest rate cycle, to which they have a negative correlation. However, at current valuations, the sector is trading at the lower end of its 10-year historical P/E and P/BV range. Valuations are significantly discounting the risk to growth potential. Our top picks are Coal India (benefiting from strong earnings growth, led by price hike and operating leverage), Power Grid (visibility of earnings growth and best-in-class RoE), CESC (high RoE, steady growth in distribution business and value-unlocking through demerger) and NTPC (capitalization-driven double-digit regulated equity and earnings growth). We also like NHPC.

Company name

CESC

Coal India

JSW Energy

NHPC

NTPC

Power Grid Corp.

Tata Power

Utilities September 2018 Results Preview | Sector: Utilities

Sanjay Jain – Research analyst ([email protected]); +91 22 3982 5412 Dhruv Muchhal – Research analyst ([email protected]); +91 22 3027 8033

October 2018 290

Exhibit 1: Expected quarterly performance summary Sector / Companies CMP Sales (INR m) EBITDA (INR m) PAT (INR m)

Utilities (INR) Rating Sep-18 Var % YoY


% YoY Var


Var % QoQ

CESC 862 Buy 19,632 -6.0 -9.1 5,228 3.5 5.6 2,513 1.7 38.1 Coal India 277 Buy 227,130 25.2 -6.4 62,740 386.8 -5.2 39,694 976.2 4.9 JSW Energy 63 Neutral 21,937 7.1 -7.1 7,882 -10.7 1.5 2,180 -26.6 -4.9 NHPC 23 Buy 23,999 21.7 12.7 14,649 31.4 13.5 8,462 -16.9 14.7 NTPC 167 Buy 202,242 1.9 -11.5 62,549 11.8 2.3 27,896 3.3 -5.3 Power Grid Corp. 189 Buy 81,979 13.0 -1.7 75,236 14.8 5.4 24,348 13.0 10.3 Tata Power 68 Neutral 76,820 0.3 5.0 15,222 -17.7 -14.0 4,696 22.6 112.2 Sector Aggregate

653,739 10.8 -5.8 243,505 36.9 0.6 109,789 53.1 6.5

Exhibit 2: Relative performance—3m (%)


Exhibit 3: Relative performance—1Yr (%)


Exhibit 4: Comparative valuation Sector / Companies CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) Utilities (INR) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E CESC 862 Buy 75.5 96.2 105.4 11.4 9.0 8.2 7.6 6.3 5.7 9.2 10.9 10.8 Coal India 277 Buy 19.2 26.8 30.8 14.4 10.3 9.0 8.0 5.8 5.1 35.4 77.4 81.7 JSW Energy 63 Neutral 3.0 2.2 4.2 20.9 28.5 14.9 9.0 9.1 8.0 4.6 3.3 6.2 NHPC 23 Buy 2.4 2.5 3.0 9.4 9.4 7.6 10.4 7.4 5.9 8.5 8.3 9.9 NTPC 167 Buy 10.7 13.9 15.9 15.7 12.0 10.5 11.2 9.7 8.3 8.7 10.8 11.6 Power Grid Corp. 189 Buy 16.5 18.6 20.6 11.4 10.2 9.2 8.8 7.8 7.1 16.6 16.7 16.3 Tata Power 68 Neutral 5.3 6.2 7.9 12.7 10.9 8.6 11.8 10.1 9.1 10.7 10.2 11.4 Sector Aggregate 13.6 10.8 9.4 9.5 7.9 7.0 14.2 16.5 17.6

85

92

99

106

113

Jun-

18

Jul-1

8

Aug-

18

Sep-

18Sensex Index MOSL Utilities Index

75

95

115

135

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Sensex Index MOSL Utilities Index

September 2018 Results Preview | Sector: Utilities

October 2018 291

Quarterly performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 21,840 20,880 17,060 17,950 21,590 19,632 16,432 17,451 77,730 74,606 Change (%) 8.5 3.6 5.3 14.2 -1.1 -6.0 -3.7 -2.8 7.7 -4.0 EBITDA 6,070 5,050 3,140 2,650 4,950 5,228 3,876 5,282 16,530 18,837 Change (%) 18.8 -14.6 -0.3 29.9 -18.5 3.5 23.5 99.3 2.0 14.0 As of % Sales 27.8 24.2 18.4 14.8 22.9 26.6 23.6 30.3 21.3 25.2 Depreciation 1,050 1,080 1,090 1,110 1,110 1,095 1,105 1,080 4,330 4,391 Interest 1,210 1,260 1,210 1,160 1,200 1,228 1,179 1,110 4,840 4,717 Other Income 400 350 430 480 200 317 389 597 1,660 1,503 Regulatory (inc)/exp 1,940 -90 -700 -2,860 500 0 0 0 -2,090 0 PBT 2,270 3,150 1,970 3,720 2,340 3,222 1,981 3,689 11,110 11,232 Tax 490 680 430 800 520 709 436 806 2,400 2,471 Effective Tax Rate (%) 21.6 21.6 21.8 21.5 22.2 22.0 22.0 21.9 21.6 22.0 Reported PAT 1,780 2,470 1,540 2,920 1,820 2,513 1,545 2,882 8,710 8,761 Adjusted PAT 1,780 2,470 1,540 2,920 1,820 2,513 1,545 2,882 8,710 8,761 Change (%) 2.3 2.1 1.3 -1.0 2.2 1.7 0.3 -1.3 0.9 0.6


CESC

CMP: INR867 TP: INR1,292 (+49%) Buy We expect CESC’s standalone PAT to increase 1.7% YoY to INR2.5b,

driven by savings in transmission and distribution losses. The regulator has not yet allowed tariff hike in FY19.

Regulated equity is estimated to increase by ~3% YoY to INR39.8b. Spencer’s performance should continue improving. Buy. Key issues to watch for Performance of Spencer Progress on demerger

Bloomberg CESC IN


1,6,12 Rel Perf. (%) -8 / -22 / -29

Financial Snapshot (INR Million) Y/E MARCH FY17 FY18 FY19E FY20E

Sales 139.0 161.6 165.1 174.1 EBITDA 31.6 34.5 37.3 38.8 NP 6.9 10.0 12.8 14.0

EPS (INR) 51.9 75.5 96.2 105.4 EPS Gr. (%) 14.7 45.5 27.4 9.6 BV/Sh. (INR ) 797.4 841.2 925.4 1,018.8

RoE (%) 6.5 9.2 10.9 10.8 RoCE (%) 7.3 7.9 8.3 8.4 Payout (%) 19.3 13.2 10.4 9.5 VALUATION

P/E (x) 16.7 11.5 9.0 8.2 P/BV (x) 1.1 1.0 0.9 0.9 EV/EBITDA (x)

8.3 7.6 6.7 6.2 Div. Yield (%) 1.2 1.2 1.2 1.2

October 2018 292

Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 191,617 181,483 216,433 269,092 242,609 227,130 239,029 232,785 858,624 941,553 Change (%) 4.0 11.9 6.0 16.1 26.6 25.2 10.4 -13.5 9.8 9.7 Adj. EBITDA 34,151 12,888 55,405 100,646 66,160 62,740 71,543 51,493 203,089 251,935 As of % Sales 17.8 7.1 25.6 37.4 27.3 27.6 29.9 22.1 23.7 26.8 Depreciation 6,699 7,146 7,511 9,308 7,452 7,266 7,637 8,824 30,664 31,180 OBR -1,069 578 9,226 24,847 8,835 217 3,468 103 33,583 12,623 Interest 1,209 1,007 974 1,127 1,103 842 815 851 4,318 3,611 Other Income 12,066 6,107 8,409 20,002 12,100 4,831 6,651 13,265 46,583 36,846 EO Income/(Expense) 0 0 0 -73,844 0 0 0 0 -73,844 0 PBT 39,378 10,264 46,102 11,521 60,869 59,245 66,274 54,980 107,264 241,368 Tax 15,860 6,576 16,052 -1,420 23,025 19,551 21,870 10,353 37,067 74,800 Tax Rate (%) 40.3 64.1 34.8 -1.7 37.8 33.0 33.0 18.8 34.6 31.0 Reported PAT 23,518 3,689 30,050 12,942 37,843 39,694 44,403 44,627 70,198 166,568 Adjusted PAT 23,518 3,689 30,050 61,686 37,843 39,694 44,403 44,627 118,942 166,568 Change (%) -23.3 -38.5 4.2 127.0 60.9 976.2 47.8 -27.7 28.3 40.0


Coal India

CMP: INR272 TP: INR354 (+30%) Buy We expect Coal India’s EBITDA (ex-OBR) to decline 5% QoQ

(+387% YoY) to INR62.7b due to lower volumes, partly offset by lower employee cost.

Dispatches are up 6% YoY/-9% QoQ to 139mt. FSA volumes are estimated to increase 10% YoY to 115mt due to strong power sector demand. E-auction volumes would be down 14% YoY at ~20mt.

FSA realization is estimated to increase 8% YoY to INR1,325/ton, led by the benefit of price hike.

E-auction realization is estimated to be flat QoQ at INR2,400/t. PAT is estimated to increase ~5% QoQ/~10x YoY to INR39.7b.

Buy.

Key issues to watch for E-auction volumes and realization Global coal prices

Bloomberg COAL IN


M. Cap. (INR b)/(USD b) 1717 / 23


1,6,12 Rel Perf. (%) 3 / -9 / -13

Financial Snapshot (INR Million) Y/E MARCH 2017 2018 2019E 2020E

Net Sales 783.7 858.6 941.6 1,002.9 EBITDA 150.6 203.1 251.9 292.8 NP 94.2 118.9 166.6 191.4

Adj.EPS (INR) 15.2 19.2 26.8 30.8

EPS Gr. (%) -32.9 26.3 40.0 14.9

BV/Sh. (INR) 39.5 32.0 34.7 37.7 RoE (%) 38.4 35.4 77.4 81.7 RoCE (%) 32.7 58.4 98.2 102.0

Payout (%) 160.3 103.3 90.0 90.0 VALUATION P/E (x) 17.9 14.2 10.1 8.8 P/BV (x) 6.9 8.5 7.8 7.2


October 2018 293

Consolidated performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 22,316 20,490 19,932 17,751 23,606 21,937 21,627 22,528 80,490 89,697 YoY Change (%) -8.9 0.1 4.7 -4.7 5.8 7.1 8.5 26.9 -2.6 Total Expenditure 13,628 11,667 14,079 13,536 15,843 14,055 16,196 17,378 52,909 63,472 EBITDA 8,688 8,824 5,853 4,215 7,762 7,882 5,430 5,150 27,580 26,225 Margins (%) 38.9 43.1 29.4 23.7 32.9 35.9 25.1 22.9 34.3 29.2 Depreciation 2,428 2,449 2,407 2,377 2,899 2,700 2,700 2,762 9,661 11,061 Interest 3,963 3,910 3,406 3,235 3,130 3,200 3,300 3,362 14,513 12,992 Other Income 1,025 1,705 879 1,039 673 921 475 443 4,649 2,513 PBT before EO expense 3,323 4,170 920 -358 2,407 2,904 -95 -531 8,056 4,685 Extra-Ord expense 0 0 0 4,179 0 0 0 0 4,179 0 PBT 3,323 4,170 920 -4,537 2,407 2,904 -95 -531 3,876 4,685 Tax 1,114 1,202 198 19 236 726 -24 233 2,532 1,171 Rate (%) 33.5 28.8 21.5 -0.4 9.8 25.0 25.0 -43.8 65.3 25.0 MI and Associates 36 -1 254 275 -121 -2 35 -27 564 -114 Reported PAT 2,173 2,969 469 -4,831 2,292 2,180 -106 -738 780 3,628 Adj PAT 2,173 2,969 469 -634 2,292 2,180 -106 -738 4,959 3,628 YoY Change (%) -40.7 36.6 119.1 -361.9 5.5 -26.6 -122.6 16.4 -21.2 -26.8


JSW Energy

CMP: INR63 TP: INR72 (+14%) Neutral We expect JSW Energy’s EBITDA to increase 2% QoQ (-11% YoY) to

INR7.9b due to higher coal prices and lower generation at Ratnagiri and Vijaynagar.

Revenue should be down 7% QoQ (increase of 7% YoY) to INR21.9b. Generation should increase ~5% YoY/QoQ to 6.4bu.

PAT is expected to decline 5% QoQ/27% YoY to INR2.2b. Neutral.

Key issues to watch for International coal prices Short-term power market prices

Bloomberg JSW IN


M. Cap. (INR b)/(USD b) 104 / 1


1,6,12 Rel Perf. (%) -5 / -29 / -31


Sales 826.3 804.9 897.0 980.3 EBITDA 33.2 27.6 26.2 32.2 NP 6.3 5.0 3.6 6.9 EPS (INR) 3.8 3.0 2.2 4.2 EPS Gr. (%) -51.5 -21.2 -26.8 91.1 BV/Sh. (INR ) 63.2 67.7 67.4 69.2 RoE (%) 6.3 4.6 3.3 6.2 RoCE (%) 8.6 7.7 6.5 7.9 Payout (%) 52.1 66.1 90.4 47.3 VALUATION

P/E (x) 16.5 20.9 28.6 14.9 P/BV (x) 1.0 0.9 0.9 0.9 EV/EBITDA (x) 7.6 8.5 9.1 8.0 Div. Yield (%) 3.2 3.2 3.2 3.2

October 2018 294

Standalone performance

(INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 23,275 19,717 14,979 11,369 21,290 23,999 20,951 14,580 69,340 80,819 YoY Change (%) 6.0 -18.0 14.5 -16.6 -8.5 21.7 39.9 28.2 -4.6 16.6 Total Expenditure 9,412 8,567 7,137 7,793 8,386 9,350 8,318 8,151 32,909 34,205 EBITDA 13,863 11,150 7,843 3,576 12,904 14,649 12,633 6,429 36,431 46,615 Margins (%) 59.6 56.5 52.4 31.5 60.6 61.0 60.3 44.1 52.5 57.7 Depreciation 3,536 3,505 3,469 3,549 3,726 4,200 4,200 4,325 14,059 16,450 Interest 2,409 2,356 2,279 2,179 2,212 3,000 3,000 3,219 9,223 11,432 Other Income 1,053 5,194 5,688 2,975 1,129 2,500 2,500 3,168 14,910 9,298 Rate regulated activity 2,010 1,426 1,710 2,053 1,431 1,000 1,000 2,053 7,198 5,485 PBT before EO expense 10,980 11,908 9,492 2,877 9,527 10,949 8,933 4,106 35,257 33,515 PBT 10,980 11,908 9,492 2,877 9,527 10,949 8,933 4,106 35,257 33,515 Tax 2,354 1,722 2,613 983 2,151 2,487 1,983 670 7,671 7,292 Rate (%) 21.4 14.5 27.5 34.2 23 23 22.2 16 21.8 21.8 Reported PAT 8,627 10,186 6,879 1,894 7,376 8,462 6,950 3,436 27,587 26,223 Adj PAT 8,627 10,186 6,879 1,894 7,376 8,462 6,950 3,436 27,587 26,223 YoY Change (%) 0.6 -34.5 220.4 12.5 -14.5 -16.9 1.0 81.4 -1.3 -4.9


NHPC

CMP: INR23 TP: INR33 (+43%) Buy We expect standalone revenue to increase ~22% YoY/13% QoQ to

INR23.9b on higher generation and commissioning of Kishanganga. Generation is expected to increase 6% YoY to 9.1BU. We expect PAT to decline 17% YoY to INR8.5b, led by lower other

income. Other income is expected to decline 52% YoY to INR2.5b. Buy.

Key issues to watch for Commissioning of ongoing projects

Bloomberg NHPC IN


M. Cap. (INR b)/(USD b) 235 / 3


1,6,12 Rel Perf. (%) -3 / -29 / -33


Sales 86.2 77.5 92.9 107.9 EBITDA 48.4 42.0 53.4 65.7 NP 30.3 25.0 25.2 31.0

EPS (INR) 3.0 2.4 2.5 3.0 EPS Gr. (%) 25.6 -17.3 0.5 23.3 BV/Sh. (INR ) 28.3 29.3 30.1 31.2


P/E (x) 9.9 9.4 9.4 7.6 P/BV (x) 1.0 0.8 0.8 0.7

Div. Yield (%) 10.2 10.0 7.9 6.4

October 2018 295

Quarterly Performance (Standalone) (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 201,076 198,518 207,151 234,000 228,637 202,242 222,122 216,673 840,057 869,674

Change (%) 6.6 2.3 6.8 14.6 13.7 1.9 7.2 -7.4

EBITDA 52,684 55,933 52,177 62,097 61,149 62,549 65,776 66,860 222,203 256,334

Other income 6,626 2,616 3,135 5,176 1,364 2,340 2,804 5,563 17,553 12,071 PBT 34,654 32,228 25,848 36,883 31,712 34,070 34,004 38,605 128,925 138,391

Tax 8,472 7,842 2,240 7,627 5,831 8,809 8,794 9,837 25,493 33,271 PAT 26,182 24,386 23,608 29,256 25,881 25,260 25,211 28,768 103,432 105,120

Change (%) 10.5 -2.3 -4.4 40.7 -1.1 3.6 6.8 -1.7 10.2 1.6 Adj. PAT 25,388 27,015 27,797 28,000 29,472 27,896 27,847 30,496 108,200 115,711

Change (%) 5.6 15.4 23.8 5.2 16.1 3.3 0.2 8.9 12.4 6.9 A. Core PAT 23,178 24,988 25,354 24,601 28,366 26,118 25,716 26,337 98,005 106,536

Core RoE (%) 21.1 21.6 20.4 19.4 22.3 20.2 19.1 18.7 20.6 19.7 a. Base RoE @15.5% 17,058 17,972 19,245 19,662 19,732 20,031 20,816 21,779 73,938 82,358 b. PLF incentive 549 660 450 1,200 1,270 586 400 284 2,859 2,540 c. Others 5,571 6,356 5,658 3,739 7,364 5,500 4,500 4,274 21,208 21,639

B. Other income 2,210 2,027 2,443 3,399 1,105 1,779 2,131 4,159 10,195 9,174 Key metrics

Regulated Equity 439,927 487,680 505,625 509,207 509,207 524,673 549,691 574,361 509,207 574,361 Commercial cap.(MW) 40,749 43,619 44,492 44,500 44,500 45,300 46,350 47,150 44,500 47,150 Coal-based PLF (%) 79.1 76.6 76.9 79.0 78.0 0.0 0.0 0.0


NTPC

CMP: INR169 TP: INR195 (+15%) Buy We expect adjusted PAT to increase by ~3% YoY to INR27.8b. Core

PAT is expected to increase by ~5% YoY. Other income is expected to be lower by ~12% YoY.

Installed capacity has increased by 800MW to 45.3GW on commercialization of Kudgi U-III.

Regulated equity is expected to increase ~8% YoY to INR524.6b. Buy.

Key issues to watch for PLF for coal-based projects and generation loss Core RoE and incentives Impact of shift in GCV determination

Bloomberg NTPC IN


M. Cap. (INR b)/(USD b) 1380 / 19


1,6,12 Rel Perf. (%) 6 / -9 / -16


Net Sales 817.2 877.6 928.6 1,026.4 EBITDA 218.3 229.8 272.7 324.3 NP 98.7 88.0 114.7 131.2

Adj.EPS (INR) 12.0 10.7 13.9 15.9 EPS Gr. (%) 1.8 -10.9 30.3 14.4 BV/Sh. (INR) 118.7 125.6 133.1 141.8


P/E (x) 14.1 15.9 12.2 10.6 P/BV (x) 1.4 1.3 1.3 1.2


October 2018 296

Quarterly Performance (S/A) INR million Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 72,509 72,528 74,050 79,699 83,365 81,979 85,465 88,892 299,597 339,700 Change (%) 19.5 16.4 14.1 17.3 15.0 13.0 15.4 11.5 16.2 13.4 EBITDA 62,699 65,560 66,364 66,826 71,365 75,236 78,067 77,915 261,449 302,582 Change (%) 16.8 17.5 14.0 17.2 13.8 14.8 17.6 16.6 15.3 15.7 As of % Sales 86.5 90.4 89.6 83.8 85.6 91.8 91.3 87.7 87.3 89.1 Depreciation 21,311 22,350 23,186 24,065 24,506 25,399 26,349 27,060 90,913 103,313 Interest 17,624 18,673 19,555 20,055 21,406 21,151 22,150 21,274 75,907 85,981 Other Income 2,085 2,397 2,781 2,876 3,006 2,135 2,477 1,280 10,139 8,897 PBT 25,848 26,934 26,405 25,582 28,458 30,820 32,045 30,861 104,769 122,184 Tax 5,324 5,523 5,996 5,536 6,053 6,472 6,729 6,404 22,379 25,659 Effective Tax Rate (%) 20.6 20.5 22.7 21.6 21.3 21.0 21.0 20.8 21.4 21.0 Reported PAT 20,524 21,410 20,408 20,047 22,405 24,348 25,315 24,456 82,390 96,525 Change (%) 14.0 14.1 5.7 4.6 9.2 13.7 24.0 22.0 9.6 17.2 Adjusted PAT 21,386 21,539 22,517 21,133 22,076 24,348 25,315 24,456 86,575 96,196 Change (%) 18.8 14.8 15.7 5.0 3.2 13.0 12.4 15.7 13.7 11.1


Power Grid Corporation

CMP: INR192 TP: INR253(+32%) Buy We estimate adj. PAT to grow by 13% YoY to INR24.3b, driven by

growth in regulated equity. We estimate capitalization of INR70b in the quarter, with full-year

capitalization at INR280b. Buy.

Key issues to watch for Capitalization/capex guidance for FY19 Details on competitively bid projects Development on green energy projects, state JVs, etc.

Bloomberg PWGR IN


M. Cap. (INR b)/(USD b) 989 / 13


1,6,12 Rel Perf. (%) 4 / -13 / -23


Sales 257.0 299.4 345.6 388.9 EBITDA 226.6 263.1 307.7 346.6 NP 74.5 86.5 97.2 107.7

EPS (INR) 14.2 16.5 18.6 20.6 EPS Gr. (%) 27.5 16.1 12.4 10.7 BV/Sh. (INR ) 95.3 104.0 118.2 133.7

RoE (%) 15.9 16.6 16.7 16.3 RoCE (%) 7.2 7.5 8.1 8.4 Payout (%) 21.0 23.6 24.0 25.6

VALUATION

P/E (x) 13.5 11.6 10.3 9.3 P/BV (x) 2.0 1.8 1.6 1.4


October 2018 297

Consolidated performance (INR m) Y/E March FY18 FY19 FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 69,686 76,573 69,499 78,952 73,134 76,820 77,336 79,267 293,312 306,557 YoY Change (%) 1.9 6.2 4.0 10.2 4.9 0.3 11.3 0.4 5.1 4.5 Total Expenditure 51,375 58,075 57,412 64,075 55,426 61,598 60,894 65,420 229,743 243,679 EBITDA 18,311 18,498 12,087 14,878 17,708 15,222 16,442 13,847 63,570 62,878 Margins (%) 26.3 24.2 17.4 18.8 24.2 19.8 21.3 17.5 21.7 20.5 Depreciation 5,857 5,900 5,972 6,454 6,006 6,000 6,000 6,126 23,981 24,132 Interest 9,286 9,814 8,455 8,975 10,130 8,947 8,500 7,380 37,230 34,956 Other Income 313 1,331 911 641 898 1,400 750 1,552 4,327 4,600 Rate regulated activity -2,438 -2,641 1,459 -425 -1,748 0 0 0 -4,099 -1,748 PBT before EO expense 1,044 1,474 30 -335 722 1,675 2,692 1,893 2,587 6,642 Extra-Ord expense 0 -1,488 3,151 11,323 14,496 0 0 1,875 10,308 16,371 PBT 1,044 -15 3,181 10,988 15,218 1,675 2,692 3,768 12,895 23,013 Tax 2,630 1,553 1,263 -965 1,556 1,000 1,200 796 1,643 4,552 Rate (%) 252.0

39.7 -9 10 44.6 21 12.7 19.8

MI & P/L of Asso. Cos. 3,224 3,909 4,197 2,085 3,047 4,021 3,653 4,336 13,514 14,687 Reported PAT 1,638 2,342 6,115 14,037 16,709 4,696 5,145 7,308 24,766 33,148 Adj PAT 1,638 3,830 2,965 2,714 2,213 4,696 5,145 5,433 14,458 16,777


Tata Power

CMP: INR68 TP: INR75 (+10%) Neutral We expect Tata Power’s adj. PAT to increase ~23% YoY (up 112%

QoQ) to INR4.7b, driven by the benefit from lower interest cost and repayment of debt from proceeds from the sale of non-core assets.

We expect marginally EBITDA positive at Mundra. Coal JV’s PAT is expected to increase led by higher coal prices. Neutral.

Key issues to watch for Cost control at Mundra Performance at Delhi

Bloomberg TPWR IN


M. Cap. (INR b)/(USD b) 183 / 2


1,6,12 Rel Perf. (%) -6 / -28 / -27


Sales 279.0 293.3 306.6 320.0 EBITDA 58.5 63.6 62.9 65.2 NP 14.0 14.5 16.8 21.3

EPS (INR) 5.2 5.3 6.2 7.9 EPS Gr. (%) 83.8 3.5 16.0 26.9 BV/Sh. (INR ) 43.5 56.4 65.6 72.4


P/E (x) 13.2 12.7 11.0 8.6 P/BV (x) 1.6 1.2 1.0 0.9

Div. Yield (%) 0.0 0.0 1.9 1.9

October 2018 298

Cons. - Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Gross Sales 25,942 26,285 27,082 30,950 28,610 29,473 31,394 34,543 112,542 124,020 YoY Change (%) 23.3 12.8 16.0 25.5 10.3 12.1 15.9 11.6 21.6 10.2 Total Expenditure 23,850 24,206 24,696 28,033 26,147 26,880 28,537 31,088 102,892 112,652 EBITDA 2,092 2,078 2,386 2,917 2,463 2,594 2,857 3,454 9,650 11,284 Margins (%) 8.1 7.9 8.8 9.4 8.6 8.8 9.1 10.0 Depreciation 863 833 933 964 917 890 1,000 1,040 3,593 3,847 Interest 614 620 671 674 733 670 660 636 2,579 2,699 Other Income 141 256 121 141 136 180 90 200 626 606 PBT before EO expense 755 881 903 1,420 949 1,214 1,287 1,978 4,104 5,344 Extra-Ord expense 69 0 0 8 86 0 0 0 -227 86 PBT 686 881 903 1,412 863 1,214 1,287 1,978 3,877 5,258 Tax 135 237 112 262 222 388 412 653 746 1,675 Rate (%) 19.7 26.8 12.4 18.5 25.8 32.0 32.0 33.0 19.2 31.9 MI & P/L of Asso. Cos. 16 0 0 5 3 0 0 69 27 72 Reported PAT 567 645 791 1,146 643 825 875 1,256 3,158 3,595 Adj PAT 590 645 791 1,152 702 825 875 1,256 3,287 3,654 YoY Change (%) -19.5 -15.9 8.0 17.9 19.0 28.0 10.6 9.0 0.1 11.1 Margins (%) 2.3 2.5 2.9 3.7 2.5 2.8 2.8 3.6 2.9 2.9 E: MOSL Estimates


ArvindCMP: INR316 TP: INR413 (31%) Neutral We expect revenues to grow 12% YoY to INR29,473m in 2QFY19,

marred primarily by intense competitive pressure in the denims segment.

EBIDTA margin is likely to expand 90 bp YoY to 8.8%; EBIDTA is likely to grow 25% YoY to INR2,594m.

We estimate a 28% YoY increase in adjusted PAT to INR825m. To factor in increased margin pressure in the Denim segment, we cut our estimated PAT by 5%/3% for FY19/FY20.

Key issues to watch for Demerger of branded apparels, engineering and other

businesses Impact on movement of currency and cotton prices SSG in retail business

Bloomberg ARVND IN Equity Shares (m) 258.4 M. Cap. (INR b)/(USD b) 82 / 1

52-Week Range (INR) 478 / 307 1,6,12 RelPerf. (%) -14 / -30 / -29

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018 2019E 2020E Net Sales 92.6 112.5 124.0 140.3 EBITDA 9.4 9.6 11.3 13.5


BV/Sh (INR) 138.1 146.4 157.4 173.8 RoE (%) 10.6 8.9 9.3 11.7 RoCE (%) 8.5 8.0 7.8 9.3



Chintan Modi – Research analyst ([email protected]);+91 22 6129 1554 Lopa Thakkar – Research analyst ([email protected])

October 2018 299

Ashish Chopra – Research Analyst ([email protected]) Sagar Lele – Research Analyst([email protected])


Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenue from operations 1,099 1,108 1,301 1,386 1,185 1,196 1,183 1,166 4,894 4,730 YoY Change (%) 22.7 20.0 49.7 25.0 7.8 7.9 -9.1 -15.9 28.9 -3.4 Total Expenditure 896 820 947 1,107 992 1,029 926 1,014 3,770 3,961 EBITDA 203 288 354 279 193 167 257 152 1,124 769 Margins (%) 18.5 26.0 27.2 20.1 16.3 14.0 21.7 13.1 23.0 16.3 Depreciation 101 109 112 133 115 135 116 135 455 501 Interest 2 4 3 2 2 3 2 3 10 10 Investment income 513 556 454 572 479 581 581 581 2,095 2,222 PBT before EO expense 614 731 694 716 555 610 720 596 2,754 2,481 Extra-Ord expense 0 5 7 14 28 -6 -5 -6 26 10 PBT 614 726 686 702 527 617 725 602 2,728 2,471 Tax 118 126 162 149 70 148 127 148 555 494 Rate (%) 19.2 17.4 23.6 21.2 13.3 24.1 17.5 24.7 20.3 20.0 MI & P/L of Asso. Cos. 2 68 60 69 58 42 36 42 -199 -179 Reported PAT 498 668 584 622 515 511 634 496 2,372 2,156 Adj PAT 496 612 538 568 465 478 604 464 2,213 2,012 YoY Change (%) 44.5 19.5 25.0 16.2 -6.3 -21.8 12.2 -18.3 12.9 -9.1 Margins (%) 45.1 55.2 41.4 41.0 39.2 40.0 51.1 39.8 45.2 42.5 E: MOSL Estimates

September 2018 Results Preview | Sector: Exchanges

BSE

CMP: INR672 TP: INR 950(+41%) Buy We expect operating revenues from BSE to grow 9.4% YoY to

INR1.21b (excluding revenues from cash operations).

Turnover in cash equities during the quarter was down 22% YoY, driving our expectations of a 20% decline in transaction revenues to INR281m. Revenue from corporate services is expected to grow 6.5% YoY to INR565m. Other sources are assumed at INR350m v/s INR161m in the same quarter last year – the significant growth was driven by (1) contribution from monetization of BSE Star MF platform, and (2) a lower base of income from rent / training / infrastructure in 2QFY18.

We project total expenses to increase by 25.5% YoY to INR1.029, driving our EBITDA margin estimate of 14%, down 12 pp YoY. This reflects operating leverage in the business model.

We expect PAT of INR511m, down 23.2% YoY impacted by lower operating profit for the quarter.

Key issues to watch for Revenues from star MF platform Commentary on commodity derivatives launched recently

Bloomberg BSE IN


1,6,12 RelPerf. (%) -3 / -23 / -47


Net Sales 5.3 4.9 4.7 5.2 EBITDA 1.1 1.1 0.8 1.0 PAT 2.4 2.4 2.2 2.6 EPS (INR) 41.0 43.5 39.5 47.3 EPS Gr (%) 68.4 6.0 -9.1 19.9 BV / Sh (INR) 495 574 701 710 P/E (x) 16.4 5.2 17.0 14.2 P / BV (x) 1.4 1.2 1.0 0.9 RoE (%) 8.3 7.6 5.6 6.7 RoCE (%) 13.7 10.7 8.5 9.6

October 2018 300

Quarterly Performance (INR m) Y/E December CY17 CY18E CY17 CY18E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Net Sales 8,822 8,704 8,614 9,703 9,271 10,172 8,989 9,963 35,843 38,395 YoY Change (%) 3.5 -10.1 13.1 24.5 5.1 16.9 4.4 2.7 6.7 7.1 Total Expenditure 6,189 6,609 6,078 6,637 6,528 7,655 6,972 7,249 25,513 28,404 EBITDA 2,633 2,095 2,536 3,066 2,743 2,517 2,017 2,714 10,330 9,991 YoY Change (%) 4.7 -33.4 19.1 41.7 4.2 20.1 -20.5 -11.5 3.8 -3.3 Margins (%) 29.8 24.1 29.4 31.6 29.6 24.7 22.4 27.2 28.8 26.0 Depreciation 123 118 111 103 143 132 135 138 455 548 Interest 3 1 2 6 7 3 4 1 12 15 Other Income 185 155 333 164 228 173 210 252 837 863 PBT 2,692 2,131 2,756 3,121 2,821 2,555 2,088 2,827 10,700 10,291 Tax 902 752 974 1,154 1,003 913 731 919 3,782 3,602 Rate (%) 34 35 35 37 36 36 35 33 35 35 PAT 1,790 1,379 1,782 1,967 1,818 1,642 1,357 1,908 6,918 6,689 YoY Change (%) 3.8 -33.3 27.5 26.3 1.6 19.1 -23.8 -3.0 2.5 -3.3 Margins (%) 20.3 15.8 20.7 20.3 19.6 16.1 15.1 19.1 19.3 17.4 E: MOSL Estimates


Castrol (India)

CMP: INR145 TP: INR226 (+56%) Buy We expect revenues to grow 4% YoY (and -12% QoQ) at INR9.0b,

led by volumes of 50.5m liters (+3% YoY, -11% QoQ) and

realization of INR178/liter (+2% YoY, flat QoQ).

We expect CSTRL to report EBITDA of INR2.0b (-20% YoY, -

20%QoQ). EBITDA margin would be 22.4%, lower than 24.7%

reported in 2QCY18.

We estimate net profit at INR1.4b (-24% YoY, -17% QoQ).

The stock trades at 22.5x CY19E EPS of INR6.5. Maintain Buy.

Key issues to watch for Volume growth Operating margin expansion Launch of new products Competitive pressure from other players

Bloomberg CSTRL IN


1,6,12 RelPerf. (%) -2 / -38 / -35


Sales 33.6 35.8 38.4 39.9


EPS Gr. (%) 5.8 2.9 -3.3 -4.4 BV/Sh.(INR) 9.9 10.3 11.0 11.6 RoE (%) 86.3 69.1 63.5 57.2



Div. Yield (%) 3.8 3.3 3.5 3.3

Swarnendu Bhushan – Research Analyst([email protected])

October 2018 301

Sumant Kumar – Research Analyst ([email protected]) Aksh Vashishth – Research Analyst ([email protected])

Quarterly Performance (INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var Consolidated 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 22,609 36,469 26,949 23,714 25,285 48,099 28,982 25,440 109,467 127,803 48,099 0 YoY Change (%) 12.1 3.6 20.6 5.0 11.8 31.9 7.5 7.3 9.1 16.8 31.9 Total Expenditure 20,916 30,790 23,765 22,023 23,146 41,790 26,200 24,080 97,198 115,214 41,790 EBITDA 1,693 5,679 3,184 1,691 2,139 6,309 2,782 1,360 12,269 12,589 6,309 0 Margins (%) 7.5 15.6 11.8 7.1 8.5 13.1 9.6 5.3 11.2 9.9 13.1 Depreciation 249 249 248 234 256 272 254 257 976 1,039 272 Interest 441 413 422 506 644 640 300 396 1,783 1,980 640 Other Income 125 180 125 155 88 180 162 212 584 642 180 PBT before EO expense 1,128 5,197 2,638 1,106 1,328 5,577 2,390 919 10,094 10,213 5,577 0 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 0 PBT 1,128 5,197 2,638 1,106 1,328 5,577 2,390 919 10,094 10,213 5,577 0

Tax 396 1,769 916 374 423 1,846 796 306 3,452 3,370 1,846 Rate (%) 35.1 34.0 34.7 33.8 31.8 33.1 33.3 33.2 34.2 33.0 33.1 Minority Interest & P/L of Asso. Cos. 6 3 1 -3 3 0 0 0 6 3 0 Reported PAT 727 3,425 1,721 735 902 3,731 1,594 614 6,636 6,840 3,731 0 Adj PAT 727 3,425 1,721 735 902 3,731 1,594 614 6,636 6,840 3,731 0 YoY Change (%) 870.0 60.5 53.9 -49.0 24.2 8.9 -7.4 -16.6 39.1 3.1 8.9 Margins (%) 3.2 9.4 6.4 3.1 3.6 7.8 5.5 2.4 6.1 5.4 7.8 E: MOSL Estimates

September 2018 Results Preview | Sector: Fertilizers

Coromandel International Bloomberg CRIN IN


1,6,12 RelPerf. (%) 1 / -35 / -26


Sales 100.3 109.5 127.8 136.2

EBITDA 9.8 12.3 12.6 14.5 NP 4.8 6.6 6.8 8.1 EPS (INR) 16.4 22.7 23.4 27.9




CMP: INR391 TP: INR557 (+43%) Buy We expect revenues to grow 31.9% YoY to INR48,099m in 2QFY19

driven by fertilizer volume growth of 29% YoY, 6% growth in crop protection business and 8% growth in other allied businesses.

The stellar volume growth in fertilizer is expected to be driven by healthy growth of 32% in NPK volumes and 62% growth in urea volumes.

EBITDA margin is likely to contract 250 bp to 13.1% due to a continuous rise in phosphoric acid prices, and EBITDA is likely to grow 11% YoY to INR6,309m.

Consequently, adjusted PAT is expected to grow 8.9% YoY to INR3,731m in 2QFY19.

Key issues to watch for Phosphoric acid price scenario. Update on capacity expansion of phosphoric acid plant

October 2018 302

Consolidated - Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 1,286 1,453 1,622 1,716 1,873 1,941 1,989 2,092 6,077 7,905 YoY Change (%) 18.4 8.2 56.6 58.7 46% 34% 23% 22% 33.7 30.1 Total Expenditure 833 798 935 1,041 1,219 1,262 1,233 1,276 3,606 4,988 EBITDA 453 655 687 675 654 679 756 816 2,470 2,917 Margins (%) 35.2 45.1 42.4 39.3 34.9 35.0 38.0 39.0 40.7 36.9 Depreciation 89 94 94 94 94 97 97 98 371 386 Interest 70 22 3 8 2 8 8 8 104 32 Other Income 37 86 79 84 83 55 45 35 286 200 PBT before EO expense 332 624 669 656 641 629 696 745 2,281 2,698 Extra-Ord expense -18 0 0 8 0 0 0 0 -10 0

PBT 350 624 669 648 641 629 696 745 2,292 2,698 Tax 127 194 225 191 225 189 209 224 737 837 Rate (%) 36.1 31.1 33.6 29.5 35.0 30.0 30.0 30.0 32.2 31.0 MI & P/L of Asso. Cos. 1 -2 -3 -4 -3 0 0 0 -1 -1 Reported PAT 223 433 447 453 414 441 487 522 1,555 1,863 Adj PAT 211 433 447 458 414 441 487 522 1,548 1,863 YoY Change (%) 24.4 33.8 327.8 302.3 96% 2% 9% 14% 118.9 20.3 Margins (%) 16.4 29.8 27.6 26.7 22.1 22.7 24.5 24.9 25.5 23.6 E: MOSL Estimates

September 2018 Results Preview | Sector: Others

Delta Corp CMP: INR215 TP: INR281 (+30%) Buy We expect revenue to grow 34% YoY to INR1,941m in 2QFY19,

driven by traction in Goa casinos and ramp-up of online business.

EBITDA margin is expected to contract by 1010 bp YoY to 35% on the back of lower margins in online business. At 35% EBITDA, margins will be flat QoQ. EBITDA is expected to grow 4% YoY to INR679m in 2QFY19.

On the back of a sharp drop in EBITDA margins, adjusted net profit is expected to grow by just 2% YoY to INR441m in 2QFY19.

Fine print of land-based casino policy is not yet announced on account of Mr. Parrikar’s (Chief Minister of Goa) inability to attend office due to health issues; however, broad contours of the policy has already been announced.

We have reduced our target P/E multiple to 30x (earlier 32x) and thus, revise our target price to INR281/share and maintain Buy.

Key issues to watch for Impact on margins due to competitive intensity in online

business Management update on timelines for announcement of land-

based policy

Bloomberg DELTA IN Equity Shares (m) 267.6 M. Cap. (INR b)/(USD b) 58 / 1


Financial Snapshot (INR Billion) Y/E MARCH 2017 2018 2019E 2020E Net Sales 4.5 6.1 7.9 9.6 EBITDA 1.6 2.5 2.9 3.9


BV/Sh (INR) 39.7 62.9 65.5 74.3 RoE (%) 8.1 11.9 10.8 13.4 RoCE (%) 8.7 11.5 10.9 19.4




October 2018 303



(INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 4,318 4,928 4,600 4,237 4,569 5,273 5,152 4,831 18,083 19,824 5,273 0 YoY Change (%) -12.4 -14.5 -8.5 -17.4 5.8 7.0 12.0 14.0 -13.3 9.6 7.0 Total Expenditure 3,665 4,216 3,907 3,642 3,928 4,503 4,328 4,096 15,430 16,855 4,503 EBITDA 653 711 693 596 641 770 824 734 2,653 2,969 770 0 Margins (%) 15.1 14.4 15.1 14.1 14.0 14.6 16.0 15.2 14.7 15.0 14.6 Depreciation 75 76 77 77 79 82 80 82 305 323 82 Interest 82 88 58 99 91 85 70 82 327 328 85 Other Income 0 0 0 0 0 0 0 0 0 0 0 PBT before EO expense 496 548 558 420 471 603 674 570 2,021 2,318 603 0 PBT 496 548 558 420 471 603 674 570 2,021 2,318 603 0 Tax 177 189 194 152 183 208 233 197 711 820 208 Rate (%) 35.6 34.5 34.7 36.1 38.9 34.5 34.5 34.5 35.2 35.4 34.5 Reported PAT 320 359 364 268 288 395 442 374 1,311 1,498 395 0 Adj PAT 320 359 364 268 288 395 442 374 1,311 1,498 395 0 YoY Change (%) -47.0 -42.8 -35.2 -45.1 -9.9 10.0 21.3 39.4 -42.5 14.3 10.0 Margins (%) 7.4 7.3 7.9 6.3 6.3 7.5 8.6 7.7 7.2 7.6 7.5 E: MOSL Estimates

September 2018 Results Preview | Sector: Textiles

Indo Count Industries

CMP: INR63 Under Review We expect revenues to grow 7% to INR5,273m in 2QFY19 given

the expected onset of re-stocking by US retailers.

The inventory level of US clothing and clothing accessories’ retailers has stabilized post a continuous decline during April 2017 to January 2018, which should aid the gradual recovery in volume off-take.

EBITDA margin is likely to expand 20 bp YoY to 14.6%, and EBITDA is likely to grow 8% YoY to INR770m.

Consequently, adjusted PAT is expected to grow 10% YoY to INR395m in 2QFY19.

Key issues to watch for Re-stocking by US retailers Utilization improvement in bed linen

Bloomberg ICNT IN


1,6,12 RelPerf. (%) -14 / -44 / -52


Sales 22.6 19.6 21.1 22.7

EBITDA 4.3 2.6 3.0 3.2 NP 2.3 1.3 1.5 1.7 EPS (INR) 11.8 6.4 7.4 8.4

EPS Gr. (%) -7.6 -45.7 15.8 13.8 BV/Sh. (INR) 42.9 48.4 54.6 61.9 RoE (%) 31.5 14.0 14.3 14.4



October 2018 304


Quarterly Performance (Standalone)

Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Revenues 2,225 2,252 2,272 2,407 2,595 2,756 2,791 2,918 9,155 11,060 YoY (%) 12.6 7.2 22.1 15.5 16.7 22.4 22.9 21.2 14.1 20.8 Salary costs 991 938 954 1,048 1,106 1,119 1,133 1,146 3,931 4,504 Ad and Promotion costs 254 176 256 478 376 469 474 496 1,164 1,815 Other Expenses 276 251 273 287 270 275 277 286 1,088 1,108 Operating Profit 703 888 788 593 843 894 906 990 2,973 3,632 Margins (%) 31.6 39.4 34.7 24.7 32.5 32.4 32.5 33.9 32.5 32.8 Other Income 264 262 220 225 236 188 194 206 971 825 Depreciation 54 53 53 56 53 54 56 57 215 220 PBT bef. Extra-ordinary 913 1,097 956 763 1,026 1,027 1,045 1,139 3,729 4,237 Provision for Tax 270 270 253 197 236 257 261 285 991 1,039 ETR (%) 29.6 24.6 26.5 25.8 23.0 25.0 25.0 25.0 26.6 24.5 PAT bef. Minority 642 786 534 -137 630 771 784 854 1,825 3,039 EOI 0 -41 -169 -703 -160 0 0 0 -913 -160 Adjusted PAT 642 827 703 566 790 771 784 854 2,738 3,198 QoQ (%) 95.3 28.7 -15.0 -19.5 39.6 -2.4 1.7 8.9 YoY (%) 44.8 3.2 49.1 72.1 22.9 -6.8 11.5 50.9 31.4 16.8 EPS (INR) 5.2 6.4 4.3 -1.1 5.1 6.3 6.4 7.0 14.9 24.8 E: MOSL Estimates


Info Edge

CMP: INR1391 TP: INR1550 (11%) Buy We expect standalone revenue to grow 22% YoY to INR2.75b. Recruitment segment (~70% of business) is estimated to grow

18.5% YoY to INR1.95b. We estimate real estate portal 99acres.com’s revenue at

INR440m (35% YoY) and that of matrimonial portal Jeevansathi.com at INR207m (up 17% YoY).

99acres.com should see better growth led by a more buoyant real estate market, and more clarity on RERA.

Our EBITDA margin estimate for the quarter stands at 32.4% similar to the previous quarter, and a 700 bp decline YoY. Margins are negatively impacted by an increase in advertising expenses.

Consequently, we expect PAT of INR771m, decline of 6.8% YoY.

Key issues to watch for Outlook on 99acres.com given emerging clarity on RERA Traction in the recruitment business from segments other than IT Commentary around monetization in Zomato.com

Bloomberg INFOE IN

Equity Shares (m) 126.4 M. Cap. (INR b)/(USD b) 176 / 2 1863 1694 / 1015

1,6,12 RelPerf. (%) -10 / 5 / 14


Sales 8.0 9.2 11.1 13.0

EBITDA 2.3 3.0 3.6 4.6 NP 2.0 1.8 3.0 4.0 EPS (Rs) 17.1 22.5 26.2 32.7

EPS Gr. (%) 50.8 31.3 16.8 24.6 BV/Share 162.7 172.9 191.1 216.6 RoE (%) 11.1 13.4 14.4 16.0



October 2018 305

Quarterly performance (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 57,529 52,910 61,779 57,991 65,120 71,028 82,300 84,135 230,209 302,583 YoY Change (%) 25.6 27.0 23.9 19.6 13.2 34.2 33.2 45.1 23.9 31.4

Fuel cost 17,929 16,781 20,465 23,677 27,480 29,142 29,505 29,620 78,853 115,748 Employee cost 5,843 6,004 6,137 6,566 6,536 8,238 8,431 8,831 24,550 32,036 Other expenses 14,250 14,550 15,820 16,519 20,791 21,940 23,651 24,311 61,139 90,693

Total Expenditure 38,022 37,335 42,422 46,762 54,807 59,321 61,588 62,762 164,542 238,477 EBITDAR 19,507 15,574 19,357 11,229 10,313 11,708 20,712 21,373 65,667 64,106 Margins (%) 33.9 29.4 31.3 19.4 15.8 16.5 25.2 25.4 28.5 21.2 Net Rentals 8,537 8,193 9,442 9,931 10,424 10,806 13,573 14,047 36,102 48,849 EBITDA 10,970 7,382 9,915 1,298 -110 902 7,140 7,325 29,565 15,257 Margins (%) 19.1 14.0 16.0 2.2 -0.2 1.3 8.7 8.7 12.8 5.0 Depreciation 983 1,025 1,074 1,286 1,553 1,414 1,414 1,247 4,369 5,627 Interest 770 857 844 927 1,087 385 380 397 3,398 2,248 Other Income 2,026 2,146 2,719 2,577 3,064 3,000 2,585 2,984 9,469 11,632 PBT 11,243 7,645 10,716 1,662 314 2,103 7,931 8,665 31,267 19,013 Tax 3,132 2,130 3,096 486 36 610 2,300 2,513 8,843 5,458 Rate (%) 27.9 27.9 28.9 29.2 11.3 29.0 29.0 29.0 28.3 28.7 Reported PAT 8,111 5,516 7,620 1,176 278 1,493 5,631 6,152 22,424 13,555 EPS 21.1 14.3 19.8 3.1 0.7 3.9 14.6 16.0 58.3 35.3 YoY Change (%) 37.1 294.5 56.4 -73.3 -96.6 -72.9 -26.1 423.0 35.1 -39.6 E: MOSL Estimates

September2018 Results Preview | Sector: Aviation

InterGlobe Aviation

CMP: INR808 TP: INR736 (-9%) Neutral We expect INDIGO to report revenues of INR71b in 2QFY19 (+34%

YoY, +9% QoQ) and EBITDAR of INR11.7b (-25% YoY, +14% QoQ).

We model revenue passenger kilometer (RPK) for the quarter at 17.4b (+37% YoY).

We model ATF at INR70.7/liter (+41% YoY) for 2QFY19 and expect INDIGO to report net profit of INR1.5b.

We model Available Seat Kilometer (ASK) at 80.7b/96.3b in FY19/FY20 v/s 64b in FY18, and RPK at 70.6b/84.3b in FY19/FY20 v/s 56b in FY18, driven by an increase in its fleet size.

The stock trades at 15.4x FY20E EPS of INR52.6 and at an EV of 7.3xFY20E adjusted EBITDAR. Maintain Neutral.

Key issues to watch for Induction of new aircraft in the fleet Fuel costs and their impact on yields

Bloomberg INDIGO IN


1,6,12 RelPerf. (%) -11 / -51 / -44


Sales 185.8 230.2 302.6 377.5

EBITDA 52.7 65.7 64.1 84.4

NP 16.6 22.4 13.6 20.2

EPS (INR) 43.2 58.3 35.3 52.6

EPS Gr. (%) -16.6 35.1 -39.6 49.1

BV/Sh (INR) 98.3 184.1 190.0 198.8

RoE (%) 51.0 41.3 18.9 27.0

RoCE (%) 31.4 31.0 21.9 30.9

Payout (%) 128.0 77.5 83.3 83.3

Valuations

P/E (x) 18.7 13.8 22.9 15.4

P/BV (x) 8.2 4.4 4.3 4.1

Adj.EV/EBITDAR(x) 9.6 7.9 8.9 7.3

Div. Yield (%) 5.7 4.7 3.1 4.6

Swarnendu Bhushan([email protected]);

October 2018 306


Quarterly - Standalone

(INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 5,906 696 706 416 5,819 849 944 616 7,724 8,228 849 0 YoY Change (%) 19.6 2.7 4.1 3.4 -1.5 22.0 33.6 48.1 15.3 6.5 22.0 Total Expenditure 3,837 549 609 549 3,784 661 790 747 5,544 5,982 661 EBITDA 2,069 147 97 -133 2,035 188 154 -131 2,180 2,246 188 0 Margins (%) 35.0 21.2 13.8 -32.1 35.0 22.1 16.3 -21.2 28.2 27.3 22.1 Depreciation 63 61 57 52 53 65 81 61 234 260 65 Interest 2 1 0 0 0 1 1 0 4 3 1 Other Income 43 164 16 14 168 150 10 8 237 336 150 PBT before EO expense 2,046 250 56 -172 2,150 272 82 -184 2,179 2,319 272 0 PBT 2,046 250 56 -172 2,150 272 82 -184 2,179 2,319 272 0 Tax 22 41 1 11 44 11 7 -5 76 57 11 Rate (%) 1.1 16.4 2.3 -6.5 2.0 4.0 8.5 2.5 3.5 2.5 4 Reported PAT 2,024 209 54 -184 2,106 261 75 -179 2,103 2,262 261 0 Adj PAT 2,024 209 54 -184 2,106 261 75 -179 2,103 2,262 261 0 YoY Change (%) 31.1 169.9 53.0 -39.9 4.1 24.7 37.8 -2.3 57.5 7.5 25 Margins (%) 34.3 30.0 7.7 -44.2 36.2 30.7 7.9 -29.1 27.2 27.5 30.7 E: MOSL Estimates

September2018 Results Preview | Sector: Agri

Kaveri Seed

CMP: INR527 TP: INR729 (+38%) Buy We expect revenues to grow 22% YoY to INR849m in 2QFY19. We

estimate cotton seed sales at 0.5m packets, compared to 0.4m in 2QFY18. Growth is expected to be delivered by cotton (22% YoY) and maize business (18% YoY).

We expect EBITDA margin to expand by 90 bp to 22.1% driven by non-cotton business, while EBITDA is expected to grow 27% YoY to INR188m.

Consequently, we expect adjusted PAT to post a growth of 24.7% YoY aided by lower tax rate of 4% v/s 16.4% in 2QFY18, and to stand at INR261m in 2QFY19.

Key issues to watch for Growth in maize business Ramp-up of vegetable seeds business

Bloomberg KSCL IN


1,6,12 RelPerf. (%) -11 / -3 / -13


Sales 7.0 8.2 8.2 10.0

EBITDA 1.4 2.2 2.2 2.8 NP 1.3 2.1 2.3 2.8 EPS (INR) 19.1 32.0 34.2 42.9

EPS Gr. (%) -21.4 67.8 7.0 25.4 BV/Sh (INR) 146.9 153.2 167.0 189.5 RoE (%) 13.6 20.9 21.4 24.1



Div Yield (%) 0.6 2.7 3.1 3.1

October 2018 307


MCX Quarterly Performance

FY18 FY19E FY18 FY19E


Sales 592 673 610 706 729 757 776 807 2,580 3,070 Q-o-Q Gr. (%) -5.5 13.6 -9.4 15.8 3.2 3.9 2.5 3.9 -2.3 19.0 Staff Costs 178 178 169 155 180 182 184 186 680 731 Other expenses 282 288 306 310 311 312 313 314 1,186 1,135 Depreciation 48 48 35 36 37 41 41 41 167 159 EBIT 84 158 101 205 201 223 239 267 548 1,045 Margins (%) 14.2 23.6 16.5 29.0 27.6 29.4 30.8 33.0 21.2 34.0 Other Income 277 243 156 242 100 211 228 233 917 772 PBT bef. Exceptional items 361 401 256 447 301 433 467 500 1,465 1,817 Tax 98 110 68 107 22 117 125 132 383 396 Rate (%) 27.2 27.3 26.7 24.0 7.4 27.0 26.7 26.4 26.2 21.8 PAT 263 292 188 340 279 316 342 368 1,081 1,421 Q-o-Q Gr. (%) 20.0 11.0 -35.6 80.9 -17.9 13.5 8.2 7.6 -17.4 31.4 EPS (INR) 5.1 5.7 3.7 6.7 1.2 6.9 7.3 7.8 21.2 27.9 Total volumes (INR t) 12.0 14.1 12.8 15.0 16.5 17.2 17.7 18.3 53.9 69.7 Q-o-Q Gr. (%) -3.4 17.0 -8.8 17.3 9.5 4.4 3.0 3.5 Y-o-Y Gr. (%) -24.8 -14.0 -7.6 20.9 37.1 22.3 38.3 22.0 -8.1 29.3

September 2018 Results Preview | Sector: Exchanges

MCX

CMP: INR711 TP: INR1,000(+41%) Buy Total volumes at MCX traded during the quarter stood at

INR17.2t, up 4.4% QoQ and 22.3% YoY.

Volumes since 4QFY18 have seen a strong pick-up after four quarters of YoY decline, post demonetization. This drives our revenue expectation of INR757m, which is an increase of 12.5% YoY.

Consequently EBIT margins are expected to expand by 590 bp YoY to 29.4%.

We expect PAT to increase by 9% YoY to INR316m.

Key issues to watch for Pick-up in Options and steps taken to enhance liquidity Pace of reforms under SEBI Strategy around new opportunities

Bloomberg MCX IN


1,6,12 RelPerf. (%) -7 / -11 / -48


Sales 2.6 2.6 3.1 3.5

EBITDA 0.8 0.7 1.2 1.5 NP 1.3 1.1 1.2 1.7 EPS (INR) 24.8 21.2 23.2 33.9

EPS Gr. (%) 6.2 -14.6 9.4 46.3 BV/Sh.(INR) 266.4 269.9 284.0 329.2 RoE (%) 10.2 7.9 8.4 11.1



Dividend yield 2.5 2.9 3.4 3.4

October 2018 308

Standalone - Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 5,652 1,834 1,744 2,126 6,700 2,890 1,906 1,694 11,356 13,190 YoY Change (%) 0.9 6.3 11.4 1.3 18.5 57.6 9.3 -20.3 -3.9 16.1 Total Expenditure 4,028 1,553 1,540 1,888 4,726 2,167 1,639 1,525 9,008 10,057 EBITDA 1,624 281 205 238 1,974 722 267 169 2,348 3,133 Margins (%) 28.7 15.3 11.7 11.2 29.5 25.0 14.0 10.0 20.7 23.8 Depreciation 53 56 62 64 57 67 69 70 235 263 Interest 26 16 1 17 42 30 10 20 60 102 Other Income 123 47 44 79 71 45 45 45 292 206 PBT before EO expense 1,668 256 186 236 1,946 670 233 124 2,345 2,973 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 1,668 256 186 236 1,946 670 233 124 2,345 2,973 Tax 572 89 67 84 683 228 79 42 812 1,032 Rate (%) 34.3 34.9 36.1 35.8 35.1 34.0 34.0 34.0 34.6 34.7 Minority Interest & P/L of Asso. Cos. 0 0 0 0 0 -10 -10 -10 0 -30 Reported PAT 1,097 166 119 151 1,263 452 164 92 1,533 1,971 Adj PAT 1,097 166 119 151 1,263 452 164 92 1,533 1,971 YoY Change (%) -3.4 -10.5 -6.1 -10.3 15.2 172.1 37.9 -39.1 -15.4 28.6 Margins (%) 19.4 9.1 6.8 7.1 18.9 15.7 8.6 5.4 13.5 14.9 E: MOSL Estimates


Navneet EducationCMP: INR115 TP: INR160 (+39%) Buy We expect revenue to grow 57.6% YoY to INR2,890m in 2QFY19.

The robust growth will be driven by change in syllabus of standard tenth in Maharashtra.

EBIDTA margin is likely to expand 970 bp YoY to 25% and EBIDTA is likely to grow by 160% YoY to INR722m; primarily due to higher contribution of supplementary books business.

Typically, 1Q is the largest quarter in Publishing / supplementary book business, but due to licensing issues in the industry there were certain delays in 1QFY19. Due to this, we expect spillovers in 2QFY19.

We estimate PAT to grow 172% YoY to INR452m from INR166m. Maintain Buy.

Key issues to watch for New- series launch under Indiannica Stationery segment performance, especially orders from exports Guidance on syllabus change in Maharashtra and Gujarat from

FY20

Bloomberg NELI IN Equity Shares (m) 233.6 M. Cap. (INR b)/(USD b) 27 / 0


Financial Snapshot Consolidated(INR Billion) Y/E MARCH 2017 2018 2019E 2020E Net Sales 11.8 12.0 14.3 15.7 EBITDA 2.8 2.2 3.1 3.5

Adj. Net Profit 1.7 1.3 1.8 2.1 Adj. EPS (INR) 7.3 5.4 7.9 8.9 Adj. EPS Gr. (%) 61.9 -26.1 45.7 12.8

BV/Sh (INR) 29.7 32.2 36.5 40.5 RoE (%) 26.7 17.4 22.9 23.1 RoCE (%) 23.9 14.4 19.9 22.0




October 2018 309

Consolidated - Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 2,607 3,035 3,562 3,450 8,883 7,356 4,888 4,902 12,654 26,028 YoY Change (%) -18.5 20.5 41.3 19.1 240.7 142.3 37.2 42.1 13.6 105.7 Total Expenditure 1,252 1,398 1,636 1,616 4,266 3,538 2,410 2,436 5,901 12,650 EBITDA 1,355 1,638 1,926 1,834 4,617 3,818 2,478 2,466 6,753 13,379 Margins (%) 52.0 54.0 54.1 53.1 52.0 51.9 50.7 50.3 53.4 51.4 Depreciation 124 128 122 118 106 115 116 120 491 457 Interest 16 16 18 19 49 40 35 30 69 154 Other Income 96 50 42 79 71 150 100 80 266 401 PBT before EO expense 1,312 1,544 1,828 1,776 4,533 3,813 2,427 2,396 6,459 13,168 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 1,312 1,544 1,828 1,776 4,533 3,813 2,427 2,396 6,459 13,168 Tax 405 509 635 357 1,450 1,258 801 791 1,907 4,299 Rate (%) 30.9 33.0 34.8 20.1 32.0 33.0 33.0 33.0 29.5 32.6 Minority Interest & P/L of Asso. Cos. -7 -9 -10 -11 -11 -11 -11 -11 -36 -44 Reported PAT 914 1,043 1,202 1,429 3,094 2,565 1,637 1,616 4,588 8,913 Adj PAT 914 1,043 1,202 1,429 3,094 2,565 1,637 1,616 4,588 8,913 YoY Change (%) -16.1 24.6 41.9 40.4 238.6 145.9 36.2 13.1 21.0 94.3 Margins (%) 35.0 34.4 33.7 41.4 34.8 34.9 33.5 33.0 36.3 34.2 E: MOSL Estimates

September 2018 Results Preview | Sector: Real Estate

Oberoi Realty CMP: INR400 TP: INR568 (+42%) Buy We expect sales volumes to jump 8% YoY to 1,87,600sf in the

quarter on account of increased traction across projects.

We expect revenues to grow to INR7,356m, up 142% YoY—the jump is primarily driven by Eternia project achieving revenue recognition threshold.

We expect EBITDA margin to contract by 210 bp YoY to 51.9% primarily on account of Skycity where margins are lower.

We estimate net profit of INR2,565m, up 146% YoY.

We have increased the discounting rate to from 12% to 13% and cap rate from 8% to 9%. We maintain Buy, with a revised target price of INR568

Key things to watch for Launch plan for monetizing Thane land parcel, Exquiste III, 5th

tower launch in Skycity. Response to subvention schemes launched and future action

plan

Bloomberg OBER IN Equity Shares (m) 363.6 M. Cap. (INR b)/(USD b) 145 / 2


Financial Snapshot (INR Billion) Y/E MARCH 2018 2019E 2020E

Sales 12.7 26.0 26.6

EBITDA 6.8 13.3 13.6

Net Profit 4.6 8.9 13.0

EPS (INR) 12.6 24.5 35.8

EPS Gr. (%) 21.2 94.1 46.3

BV/Sh (INR) 167.6 220.7 250.1

RoE (%) 7.8 12.6 15.2

RoCE (%) 6.4 10.7 9.3

Valuations

P/E (x) 39.3 20.3 13.8

P/BV (x) 3.0 2.2 2.0

EV/EBITDA (x) 27.3 13.3 13.4

EV/ Sales (x) 14.6 6.8 6.8


October 2018 310



(INR m)

Y/E March FY18 FY19 FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE (%) Net Sales 5,532 5,611 5,377 6,251 6,056 6,272 6,119 7,199 22,771 25,646 6,272 0 YoY Change (%) -13.4 3.1 10.2 3.2 9.5 11.8 13.8 15.2 0.0 12.6 11.8

Total Expenditure 4,227 4,389 4,330 4,904 4,875 4,947 4,761 5,466 17,850 20,048 4,947 EBITDA 1,304 1,222 1,048 1,347 1,181 1,325 1,358 1,733 4,921 5,598 1,325 0

Margins (%) 23.6 21.8 19.5 21.5 19.5 21.1 22.2 24.1 21.6 21.8 21.1 Depreciation 197 205 211 212 220 230 225 258 826 933 230 Interest 14 12 14 18 17 10 8 7 59 42 10 Other Income 126 123 161 191 102 125 181 201 600 609 125 PBT before EO expense 1,219 1,127 983 1,307 1,046 1,210 1,306 1,669 4,636 5,232 1,210 0

Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 0 PBT 1,219 1,127 983 1,307 1,046 1,210 1,306 1,669 4,636 5,232 1,210 0

Tax 218 324 177 253 229 266 265 339 971 1,099 266 Rate (%) 17.9 28.7 18.0 19.3 21.9 22.0 20.3 20.3 20.9 21.0 22.0 Reported PAT 1,001 803 806 1,054 817 944 1,041 1,330 3,665 4,133 944 0

Adj PAT 1,001 803 806 1,054 817 944 1,041 1,330 3,665 4,133 944 0 YoY Change (%) -21.1 -20.8 -14.1 -22.0 -18.4 17.5 29.1 26.2 -20.2 12.8 17.5

Margins (%) 18.1 14.3 15.0 16.9 13.5 15.1 17.0 18.5 16.1 16.1 15.1 E: MOSL Estimates

September2018 Results Preview | Sector: Agri

PI IndustriesBloomberg PI IN


1,6,12 RelPerf. (%) -1 / -30 / -20


Sales 22.8 22.8 25.6 30.0

EBITDA 5.5 4.9 5.6 6.8 NP 4.6 3.7 4.1 5.0 EPS (INR) 33.4 26.7 30.0 36.5

EPS Gr. (%) 47.0 -20.2 12.4 21.7 BV/Sh. (INR) 118.3 139.6 161.6 190.2 RoE (%) 32.8 20.7 19.9 20.7



CMP: INR708 TP: INR875 (+24%) Buy We expect revenue to grow 11.8% YoY to INR6,272m, aided by a

strong growth of 15% in CSM business . The growth in agri-input business is expected to be 8% YoY.

We estimate a 70 bp margin contraction to 21.1% on account of pressure in raw material supply-situation implying higher cost. We expect EBITDA to grow 8.5% YoY to INR1,325m.

We estimate adjusted PAT to grow 17.5% YoY to INR944m in 2QFY19 aided by lower tax rate of 22% v/s 28.7% in 2QFY18 (deferred tax expense of INR80m in 2QFY18).

Key issues to watch for Execution of CSM order book New launches and tie-ups

October 2018 311

Consolidated - Quarterly Earning Model (INR m)

Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Gross Sales 3,959 3,706 4,166 4,366 4,132 4,311 4,605 4,722 16,198 17,769 YoY Change (%) -10.5 -24.5 -4.6 -3.9 4.4 16.3 10.5 8.2 -11.2 9.7 Total Expenditure 2,199 1,922 2,099 2,205 2,178 2,207 2,339 2,427 8,424 9,152 EBITDA 1,760 1,785 2,067 2,161 1,953 2,104 2,266 2,295 7,774 8,617 Margins (%) 44.5 48.2 49.6 49.5 47.3 48.8 49.2 48.6 48.0 48.5 Depreciation 475 510 485 513 499 510 525 530 1,983 2,064 Interest 901 857 883 836 846 865 882 891 3,476 3,483 Other Income 156 149 106 145 170 140 120 95 556 525 PBT before EO expense 541 567 806 957 778 869 979 969 2,871 3,595 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 541 567 806 957 778 869 979 969 2,871 3,595 Tax 267 267 218 7 235 287 343 339 758 1,204 Rate (%) 49.3 47.1 27.0 0.7 30.2 33.0 35.0 35.0 26.4 33.5 MI & P/L of Asso. Cos. -151 -118 -64 25 -54 -81 -98 -111 -308 -344 Reported PAT 426 418 652 926 597 664 734 741 2,422 2,736 Adj PAT 426 418 652 926 597 664 734 741 2,422 2,736 YoY Change (%) -1.1 -23.1 46.5 255.5 40.3 58.9 12.5 -19.9 44.2 13.0 Margins (%) 10.8 11.3 15.7 21.2 14.5 15.4 15.9 15.7 15.0 15.4 E: MOSL Estimates

September 2018 Results Preview | Sector: Real Estate

Phoenix MillsCMP: INR511 TP:720 INR (+41%) Buy We estimate sales of INR4,311m, up 16% YoY. Retail segment,

which is the largest contributor to revenues, is expected to grow 12%.

We expect EBITDA margin to expand by 60 bp YoY to 48.8%.

We estimate net profit at INR664m, up 59% YoY.

We maintain our target price at INR720.

Key things to watch for Launch plan for new land parcels and under construction malls

acquired under CPPIB platform Sales velocity in Kessaku project and occupancy in HSP

Bloomberg PHNX IN Equity Shares (m) 153.1 M. Cap. (INR b)/(USD b) 80 / 1


Financial Snapshot (INR Billion) Y/E MARCH 2018 2019E 2020E

Sales 16.2 17.7 21.0

EBITDA 7.8 8.6 10.1

Net Profit 2.4 2.7 3.6

EPS (INR) 15.8 17.9 23.7

EPS Gr. (%) 44.2 13.0 32.8

BV/Sh (INR) 186.3 223.3 244.0

RoE (%) 9.7 8.7 10.2

RoCE (%) 7.9 7.0 7.6

Valuations

P/E (x) 32.3 28.6 21.5

P/BV (x) 2.7 2.3 2.1

EV/EBITDA (x) 14.0 13.5 11.5

EV/ Sales (x) 6.7 6.5 5.5


October 2018 312

Sagar Lele – Research Analyst ([email protected]) Ashish Chopra – Research Analyst ([email protected])

Consolidated - Quarterly Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 12,973 13,953 15,840 18,908 19,684 20,952 21,154 21,154 61,673 82,942 YoY Change (%) 30.9 37.1 48.5 52.5 51.7 50.2 33.5 11.9 42.9 34.5 Total Expenditure 12,221 13,164 14,930 17,814 18,659 19,862 19,927 19,884 58,129 78,332 EBITDA 752 789 909 1,093 1,025 1,089 1,227 1,269 3,544 4,610 Margins (%) 5.8 5.7 5.7 5.8 5.2 5.2 5.8 6.0 5.7 5.6 Depreciation 75 83 183 285 299 301 301 301 626 1,203 Interest 164 155 177 252 261 269 269 269 747 1,068 Other Income 35 168 126 240 156 155 218 218 569 746 PBT before EO expense 548 719 675 797 621 674 874 916 2,739 3,086 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 PBT 548 719 675 797 621 674 874 916 2,739 3,086 Tax 151 -764 74 31 93 67 74 74 -507 309 Rate (%) 27.6 -106.3 11.0 3.9 14.9 10.0 8.5 8.1 -18.5 10.0 MI & P/L of Asso. Cos. 10 2 -9 8 -16 5 5 5 12 0 Reported PAT 387 1,481 610 758 544 601 795 837 3,235 2,777 Adj PAT 387 1,481 610 758 544 601 795 837 3,235 2,777 YoY Change (%) 56.7 391.6 81.2 127.2 40.6 -59.4 30.3 10.5 165.5 -14.2 Margins (%) 3.0 10.6 3.9 4.0 2.8 2.9 3.8 4.0 5.2 3.3 E: MOSL Estimates

September2018 Results Preview | Sector: Staffing

Quess Corp

CMP: INR865 TP: INR980 (+13%) Neutral We expect revenue of INR21b for Quess in 2QFY19, signifying a

growth of 50% YoY.

This includes the full integration of TBSS, HCL Care, Greenpiece, Vedang Cellular and Monster.

Excluding these, revenue growth is expected at 28% YoY, which would be organic; primarily driven by strength in the segments of People and Services, and Integrated Facilities Management.

EBITDA margins at 5.2% are expected at similar level to that of 1QFY19.

Our PAT estimate is INR639m, down 59% YoY primarily because of (i) lower operating margins, (ii) higher depreciation, (iii) higher interest costs, and (iv) changes in the tax rate.

Key things to watch for Integration of recently acquired entities Restructuring of operations in the industrials segment Organic growth momentum, and traction in the general staffing

business post-GST

Bloomberg QUESS IN


1,6,12 RelPerf. (%) -5 / -22 / -10

Financial Snapshot (INR Billion) INR million FY17 FY18 FY19E FY20E

Sales 43.1 61.7 82.9 104.3

EBITDA 2.4 3.5 4.6 6.9

NP 1.3 3.1 2.8 5.0

EPS (Rs) 10.1 21.8 19.6 34.9

EPS Growth (%) 43.9 115.7 -10.4 78.6

BV/Share (Rs) 115.1 217.1 241.6 285.3

P/E (x) 85.5 39.7 44.2 24.8

P/BV (x) 7.5 4.0 3.6 3.0

EV/EBITDA (x) 47.0 35.8 28.2 18.3

EV/Sales (x) 2.6 2.1 1.6 1.2

RoE (%) 15.1 16.5 10.7 16.6

RoCE (%) 11.4 14.6 10.5 15.2

October 2018 313

- Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 2,343 2,219 2,831 2,851 2,374 2,557 3,080 3,305 10,430 11,304 YoY Change (%) -15.3 -9.5 13.5 15.2 1.3 15.2 8.8 15.9 -1.6 8.4 Total Expenditure 1,929 1,865 2,255 2,580 2,035 2,181 2,556 2,743 8,808 9,507 EBITDA 414 355 576 271 340 376 524 562 1,622 1,797 Margins (%) 17.7 16.0 20.3 9.5 14.3 14.7 17.0 17.0 15.6 15.9 Depreciation 58 57 58 65 68 75 75 74 238 285 Interest 6 11 7 16 15 14 10 10 40 49 Other Income 51 12 7 154 23 35 37 39 216 130 PBT before EO expense 401 298 517 344 280 322 476 517 1,560 1,593 Extra-Ord expense 0 0 101 28 0 0 0 0 -129 0 PBT 401 298 416 316 280 322 476 517 1,432 1,593 Tax 133 110 144 119 100 108 160 174 506 542 Rate (%) 33.1 36.8 34.7 37.6 35.7 33.6 33.6 33.6 35.3 34.0 Minority Interest & P/L of Asso. Cos. 0 0 0 -16 -7 -13 -15 -18 -16 -53 Reported PAT 268 189 272 213 187 227 331 361 942 1,105 Adj PAT 268 189 338 231 187 227 331 361 1,025 1,105 YoY Change (%) -2.5 -22.4 33.0 -15.9 -30.2 20.2 -2.0 56.5 -2.2 7.8 Margins (%) 11.4 8.5 11.9 8.1 7.9 8.9 10.7 10.9 9.8 9.8 E: MOSL Estimates


S H KelkarCMP: INR207 TP: INR257 (+24%) Buy We expect revenue to grow 15% YoY to INR2,557m in 2QFY19, led

by a rebound in FMCG demand and lower base.

EBIDTA margin is likely to contract 130 bp YoY to 14.7%, and EBIDTA is likely to grow by 6% YoY to INR376m, on the back of continued raw material supply disruption.

We estimate adjusted PAT to grow to INR227m compared to INR189m. Maintain Buy.

Key issues to watch for Supply side issues with disruptions in Germany, US, China CFF acquisition – cross-selling opportunities Shift of ingredients from Netherlands to manufacturing plants in

India

Bloomberg SHKL IN Equity Shares (m) 144.6 M. Cap. (INR b)/(USD b) 31 / 0

52-Week Range (INR) 314 / 192 1,6,12 RelPerf. (%) 1 / -26 / -31


Net Sales 10.6 10.4 11.3 13.3

EBITDA 1.7 1.6 1.8 2.4

Adj. Net Profit 1.0 1.0 1.1 1.5

Adj. EPS (INR) 7.2 7.1 7.6 10.3

Adj. EPS Gr. (%) 43.5 -2.2 7.8 34.6

BV/Sh (INR) 56.1 59.3 64.7 72.0

RoE (%) 13.7 12.3 12.3 15.0

RoCE (%) 19.0 16.9 15.9 20.1

Div. Payout (%) 28.9 28.9 28.9 28.9

Valuations

P/E (x) 30.8 29.2 27.1 20.1

P/BV (x) 4.0 3.5 3.2 2.9

EV/EBITDA (x) 19.5 19.3 17.1 12.8

Div. Yield (%) 0.8 0.8 0.9 1.2


October 2018 314



(INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 12,933 12,864 13,971 16,123 17,413 15,073 16,295 19,303 55,890 68,084 15,073 0 YoY Change (%) -0.5 5.8 23.3 21.6 34.6 17.2 16.6 19.7 15.9 21.8 17.2 Total Expenditure 10,835 10,754 11,444 13,332 14,300 12,358 12,979 15,480 46,828 55,117 12,358 EBITDA 2,098 2,110 2,527 2,790 3,112 2,715 3,317 3,823 9,062 12,967 2,715 0 Margins (%) 16.2 16.4 18.1 17.3 17.9 18.0 20.4 19.8 16.2 19.0 18.0 Depreciation 758 768 770 861 886 885 863 915 3,158 3,549 885 Interest 271 305 239 425 443 435 415 668 1,239 1,961 435 Other Income 196 152 209 130 38 160 225 383 1,151 806 160 PBT before EO expense 1,266 1,189 1,727 1,634 1,823 1,555 2,264 2,622 5,817 8,263 1,555 0 Extra-Ord expense 0 0 0 0 0 0 0 0 0 0 0 PBT 1,266 1,189 1,727 1,634 1,823 1,555 2,264 2,622 5,817 8,263 1,555 0 Tax 228 162 415 395 484 428 650 753 1,200 2,314 428 Rate (%) 18.0 13.6 24.0 24.2 26.6 27.5 28.7 28.7 20.6 28.0 27.5 Reported PAT 1,038 1,028 1,312 1,239 1,338 1,127 1,614 1,870 4,617 5,949 1,127 0 Adj PAT 1,038 1,028 1,312 1,239 1,338 1,127 1,614 1,870 4,617 5,949 1,127 0 YoY Change (%) -32.8 -16.3 17.2 -4.1 28.9 9.7 23.0 50.9 -10.3 28.9 9.7 Margins (%) 8.0 8.0 9.4 7.7 7.7 7.5 9.9 9.7 8.3 8.7 7.5 E: MOSL Estimates

September2018 Results Preview | Sector: Diversified

SRF

CMP: INR1,766 TP: INR2,225 (+26%) Buy Revenues is expected to grow 17.2% YoY to INR15,073m in

2QFY19. We expect recovery in specialty chemicals only in 2HFY19 and margin pressure in BOPP in the near-term.

We expect technical textile business to post a growth of 5% YoY, chemicals and polymers business to deliver 13% growth and packaging film business to post a growth of 35% YoY in 2QFY19.

We expect EBITDA margins to expand 160 bp to 18% on account of EBIT margin expansion of 150 bp (to 13.4%) in technical textile, and 220 bp (to 14.3%) in packaging film business. However, the margin in chemicals business is expected to contract 20 bp (to 12.9%) on account of rise in raw material costs.

EBITDA is likely to grow 29% YoY to INR2,715m. However, PAT growth is expected to be contained at 9.7% to INR1,127m on account of higher depreciation, interest cost and tax rate (deferred tax gain of INR165m in 2QFY18).

Key issues to watch for Margin pressure situation in BOPP Recovery in agrochemicals sector

Bloomberg SRF IN


M. Cap. (INR b)/(USD b) 103 / 1

52-Week Range (INR) 2443 / 1531

1,6,12 RelPerf. (%) -5 / -20 / -3


Sales 48.2 55.9 68.1 76.3

EBITDA 9.7 9.1 13.0 15.3 NP 5.1 4.6 5.9 7.6 EPS (INR) 88.1 79.0 101.8 130.9




October 2018 315

Sumant Kumar – Research Analyst ([email protected]) Aksh Vashishth – Research Analyst([email protected])


(INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 24,517 26,902 25,739 25,551 27,691 30,037 28,335 27,994 102,709 114,057 30,037 0 YoY Change (%) -23.7 -20.4 5.8 1.7 12.9 11.7 10.1 9.6 -0.7 11.0 11.7 Total Expenditure 19,740 20,523 20,114 20,426 22,535 22,921 21,898 21,839 80,802 89,193 22,921 EBITDA 4,778 6,379 5,626 5,124 5,157 7,116 6,437 6,154 21,907 24,864 7,116 0 Margins (%) 19.5 23.7 21.9 20.1 18.6 23.7 22.7 22.0 21.3 21.8 23.7 Depreciation 1,263 1,292 1,286 1,339 1,351 1,315 1,355 1,455 5,180 5,476 1,315 Interest 755 751 894 855 887 750 510 522 3,256 2,669 750 Other Income 187 498 172 738 817 750 795 834 1,595 3,196 750 PBT before EO expense 2,947 4,834 3,618 3,668 3,735 5,801 5,367 5,011 15,066 19,914 5,801 0 Extra-Ord expense 0 0 -596 -48 0 0 0 0 -643 0 0 PBT 2,947 4,834 4,213 3,715 3,735 5,801 5,367 5,011 15,709 19,914 5,801 0 Tax 759 1,365 -1,874 351 1,258 1,624 1,116 1,040 601 5,038 1,624 Rate (%) 25.8 28.2 -44.5 9.5 33.7 28.0 20.8 20.7 3.8 25.3 28.0 Minority Interest & P/L of Asso. Cos. 461 887 633 221 338 976 518 548 2,202 2,379 976 Reported PAT 1,726 2,582 5,455 3,143 2,140 3,201 3,732 3,424 12,906 12,497 3,201 0 Adj PAT 1,726 2,582 4,594 3,100 2,140 3,201 3,732 3,424 12,287 12,497 3,201 0 YoY Change (%) -12.8 43.2 132.7 21.0 23.9 24.0 -18.8 10.4 39.7 1.7 24.0 Margins (%) 7.0 9.6 17.8 12.1 7.7 10.7 13.2 12.2 12.0 11.0 10.7

September 2018 Results Preview | Sector: Chemicals

Tata Chemicals CMP: INR670 TP: INR956 (+43%) Buy We expect revenue to grow 11.7% YoY to INR30,037m in 1QFY19

led by a growth of 13.6% in TCNA, 6.7% growth in standalone business and 10.2% growth each in TCEHL and TCAHL.

TCNA is expected to witness healthy earnings backed by currency depreciation, however, margins of the subsidiary are likely to be suppressed on account of a 4% expected rise in constant currency realization while EBITDA/MT remains flat at USD54/MT.

EBITDA margin is likely to remain flat at 23.7% as the US business and Rallis offset margin expansion in Africa, Europe and India. We expect a margin expansion of 50 bp in the standalone business, and of 30 bp each in TCEHL and TCAHL. TCNA and Rallis are expected to witness a margin contraction of 90 bp each.

EBITDA is likely to grow 11.6% YoY to INR7,116m. Consequently, adjusted PAT is expected to grow 24% YoY to INR3,201m in 2QFY19 driven by higher other income of INR750m v/s INR498m in 2QFY18.

Key issues to watch for Scaling up the consumer business Revival in Africa and the US business post subdued 1QFY19

Bloomberg TTCH IN


1,6,12 RelPerf. (%) -6 / -13 / -9


Sales 103.5 102.7 114.1 125.4

EBITDA 20.9 21.9 24.9 27.7 NP 8.8 12.3 12.5 14.8 EPS (INR) 34.5 48.2 49.0 58.1




October 2018 316

Consolidated - Quarterly Earning Model Y/E March FY18 FY19E FY18 FY19 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 8,530 8,756 9,181 9,775 10,213 10,541 11,113 12,084 36,241 43,951 YoY Change (%) 24.1 21.2 12.7 19.6 19.7 20.4 21.1 23.6 19.2 21.3 Total Expenditure 8,399 8,605 9,002 9,547 10,012 10,332 10,860 11,764 35,553 42,968 EBITDA 130 151 179 227 202 208 254 320 688 984 Margins (%) 1.5 1.7 1.9 2.3 2.0 2.0 2.3 2.6 1.9 2.2 Depreciation 20 20 24 28 27 25 25 25 92 100 Interest 2 3 8 11 11 10 10 10 25 41 Other Income 58 44 42 12 52 52 52 52 157 209 PBT 166 173 189 200 217 224 268 334 729 1,052 Tax 2 -3 5 -15 -3 0 0 0 -10 -3 Rate (%) 1.3 -1.5 2.5 -7.4 -1.2 0.0 0.0 0.0 -1.4 -0.3 MI & P/L of Asso. Cos. 0 0 0 0 0 2 3 4 0 9 Adj PAT 164 176 184 215 219 228 274 342 739 1,063 YoY Change (%) 158.5 99.5 99.9 -35.1 33.8 30.0 48.9 58.7 28.4 43.9 Margins (%) 1.9 2.0 2.0 2.2 2.1 2.2 2.5 2.8 2.0 2.4 Headcount 1,59,261 1,62,090 1,77,283 1,81,323 1,91,635 2,04,368 2,23,616 2,35,003 1,81,323 2,35,003 Revenue composition (%) General staffing 96% 95% 92% 90% 88% 88% 89% 88% 93% 89% Specialized staffing 3% 3% 6% 7% 8% 8% 8% 9% 5% 8% Other HR services 1% 2% 2% 2% 3% 4% 3% 3% 2% 3% E: MOSL Estimates

September2018 Results Preview | Sector: Staffing

TeamLease Services

CMP: INR2343 TP: INR3500 (+49%) Buy Revenue growth is expected to continue picking up, at 20% YoY to

INR10.5b.

We expect this to be a function of 12% YoY growth in Staffing And Allied Services, 230% YoY growth in Specialized Staffing and 100% YoY growth in Other HR services.

The upward trajectory on margins too is expected to continue, we estimate a 30 bp expansion YoY in EBITDA margin to 2.0%.

We do not expect any change in margins sequentially as some recent contracts have lower realization.

Our PAT expectation of INR228m (30% YoY) factors in a zero tax rate owing to benefits from Section 80JJJAA of the Income Tax Act.

Key issues to watch for Outlook on headcount growth in the General Staffing business Momentum in the IT staffing business Penetration of other HR services in existing customers and new

accounts

Bloomberg TEAM IN


1,6,12 RelPerf. (%) -1 / -7 / 28


Sales 30.4 36.2 44.0 54.6

EBITDA 0.4 0.7 1.0 1.5

NP 0.6 0.7 1.1 1.7

EPS (Rs) 33.6 43.0 61.5 96.6

EPS Growth (%) 131.8 28.0 42.9 57.0

BV/Share (Rs) 222.9 265.9 327.5 424.1

P/E (x) 69.7 54.4 38.1 24.3

P/BV (x) 10.5 8.8 7.2 5.5

EV/EBITDA (x) 103.9 55.2 37.8 24.1

EV/Sales (x) 1.3 1.0 0.8 0.7

RoE (%) 16.6 17.6 20.7 25.7

RoCE (%) 16.5 17.9 21.1 25.7

Sagar Lele – Research Analyst ([email protected]) Ashish Chopra – Research Analyst([email protected])

October 2018 317



(INR m) Y/E March FY18 FY19E FY18 FY19E FY19 Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE (%) Net Sales 11,658 11,203 10,937 11,850 11,312 12,121 12,205 13,237 45,575 48,875 12,121 0 YoY Change (%) 1.5 -2.4 -2.4 -6.1 -3.0 8.2 11.6 11.7 -1.5 7.2 8.2 Total Expenditure 9,361 9,469 8,937 9,682 8,941 9,636 9,923 10,771 37,383 39,271 9,636 EBITDA 2,297 1,734 2,000 2,168 2,371 2,485 2,282 2,466 8,192 9,604 2,485 0 Margins (%) 19.7 15.5 18.3 18.3 21.0 20.5 18.7 18.6 18.0 19.7 20.5 Depreciation 1,023 1,022 1,013 982 944 960 1,130 1,098 4,041 4,132 960 Interest 334 319 252 277 280 275 275 247 1,182 1,078 275 Other Income 201 357 316 -29 85 50 280 234 942 649 50 PBT before EO expense 1,141 751 1,050 880 1,232 1,300 1,157 1,355 3,911 5,043 1,300 0 Extra-Ord expense -96 0 0 0 416 0 0 0 0 416 0 PBT 1,237 751 1,050 880 816 1,300 1,157 1,355 3,911 4,628 1,300 0 Tax 348 242 320 371 224 364 319 388 1,277 1,296 364 Rate (%) 28.1 32.2 30.5 42.2 27.4 28.0 27.6 28.6 32.7 28.0 28.0 Minority Interest & P/L of Asso. Cos. 0 0 0 0 0 0 0 0 6 0 0 Reported PAT 889 509 730 509 592 936 838 967 2,640 3,332 936 0 Adj PAT 820 509 730 509 894 936 838 967 2,628 3,631 936 0 YoY Change (%) 4.6 -36.4 -7.1 -48.9 8.9 83.9 14.8 90.1 -21.8 38.2 83.9 Margins (%) 7.0 4.5 6.7 4.3 7.9 7.7 6.9 7.3 5.8 7.4 7.7 E: MOSL Estimates

September 2018 Results Preview | Sector: Textiles

Trident

CMP: INR58 TP: INR86 (+48%) Buy We expect revenue to grow 8.2% YoY to INR12,121m in 2QFY19

driven by 8% growth in textiles segment and 9% growth in paper and chemicals segment.

EBITDA margin is likely to expand significantly by 500 bp to 20.5% driven by ramping up of towel and bedsheet utilization. EBIT margin in paper is expected to remain healthy at 36% (flattish QoQ, contraction of 130 bp YoY), while in textiles segment EBIT margin is expected to increase significantly by 480 bp to 8.7%.

EBITDA is likely to grow 43.3% YoY to INR2,485m. Consequently, adjusted PAT is expected to grow 83.9% YoY to INR936m in 2QFY19, aided by a lower tax rate of 28% v/s 32.2% in 2QFY18 (deferred tax expense of INR80m in 2QFY18).

Key things to watch for Re-stocking by US retailers Utilization improvement of bed linen and towel segment

Bloomberg TRID IN


1,6,12 RelPerf. (%) -8 / -24 / -56


Sales 46.3 45.6 48.9 52.4

EBITDA 8.9 8.2 9.6 10.2 NP 3.4 2.6 3.6 4.3 EPS (INR) 6.7 5.3 7.3 8.6




October 2018 318

Cons.: Quarterly Earning Model (INR m) Y/E March FY18 FY19E FY18 FY19E FY19E Var 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 2QE % Net Sales 37,230 37,700 41,940 56,910 41,340 42,255 46,785 64,043 173,780 194,422 42,255 0 YoY Change (%) 6.1 6.5 7.0 6.5 11.0 12.1 11.6 12.5 6.5 11.9 12.1

Total Expenditure 29,730 30,510 33,650 44,730 32,870 33,930 37,240 49,746 138,620 153,787 33,930 EBITDA 7,500 7,190 8,290 12,180 8,470 8,324 9,544 14,297 35,160 40,635 8,324 0

Margins (%) 20.1 19.1 19.8 21.4 20.5 19.7 20.4 22.3 20.2 20.9 19.7 Depreciation 1,580 1,650 1,690 1,840 1,750 2,091 2,170 2,180 6,760 8,191 2,091 Interest 800 1,820 1,110 4,100 1,750 1,750 850 3,278 7,830 7,628 1,750 Other Income 1,010 760 1,190 1,180 1,230 760 1,240 1,270 4,140 4,500 760 Exch. difference on trade rec./payable 590 420 1,130 -2,030 500 0 0 0 110 500 0

PBT before EO expense 5,540 4,060 5,550 9,450 5,700 5,243 7,764 10,109 24,600 28,816 5,243 0 Extra-Ord expense 190 310 70 60 40 0 0 0 630 40 0

PBT 5,350 3,750 5,480 9,390 5,660 5,243 7,764 10,109 23,970 28,776 5,243 0 Tax 480 750 -140 1,660 520 891 1,398 1,795 2,750 4,604 891

Rate (%) 9.0 20.0 -2.6 17.7 9.2 17.0 18.0 17.8 11.5 16.0 17.0

MI & P/L of Asso. Cos. 140 630 -120 370 40 666 -75 430 1,020 1,061 666

Reported PAT 4,730 2,370 5,740 7,360 5,100 3,686 6,442 7,884 20,200 23,111 3,686 0 Adj PAT 5,010 3,320 6,320 7,650 5,590 3,686 6,442 7,884 22,300 23,601 3,686 0 YoY Change (%) 19.9 -7.4 28.6 -9.5 11.6 11.0 1.9 3.1 5.5 5.8 11.0

Margins (%) 13.5 8.8 15.1 13.4 13.5 8.7 13.8 12.3 12.8 12.1 8.7 E: MOSL Estimates

September2018 Results Preview | Sector:Agrochemicals

UPL

Bloomberg UPLL IN


1,6,12 RelPerf. (%) -4 / -24 / -34


Sales 163.1 173.8 194.4 358.6

EBITDA 32.2 35.2 40.6 75.4 NP 21.1 22.3 23.6 25.8 EPS (Rs) 41.7 44.2 46.7 50.6

EPS Gr. (%) 55.5 5.9 5.7 8.3 BV/Share 146.5 181.6 218.2 263.4 RoE (%) 31.7 26.9 23.4 21.2



CMP: INR642 TP: INR749 (+17%) Buy We expect revenue to grow 12.1% YoY to INR42.3b in 2QFY19,

driven by robust growth of 15% in North America.

We expect India and Europe to post a growth of 12% each with Latin America and rest-of-the-world (RoW) business growing at 10% and 15%, respectively.

We expect EBITDA margin to expand 60 bp YoY to 19.7% and EBITDA to increase 15.8% YoY to INR8,324m.

Consequently, we expect adjusted PAT to grow 11% to INR3,686m driven by higher depreciation and lower tax rate of 17% v/s 20% in 2QFY18 (deferred tax expense of INR190m in 2QFY18).

Key things to watch for Impact of currency movement in Brazil and India New launches and share of branded products

Motilal Oswal India Strategy Gallery

October 2018 319


Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10% NEUTRAL > - 10 % to 15% UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation *In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures: The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL*) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and BSE Limited (BSE), Multi Commodity Exchange of India (MCX) & National Commodity & Derivatives Exchange Ltd. (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more securities in the subject company at the end of the month immediately preceding the date of publication of the Research Report. MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in the past 12 months.

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have: a) managed or co-managed public offering of securities from subject company of this research report, b) received compensation for investment banking or merchant banking or brokerage services from subject company of this research report, c) received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report. d) Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

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Terms & Conditions: This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement Companies where there is interest Analyst ownership of the stock No A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views.

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For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: [email protected], Contact No.:022-30801085.

Registration details of group entities: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products *MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.

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