India Strategy 4qfy18

April 2018

India Strategy | Get on track please !

India Strategy FY19 earnings growth

Political flux

25%

Monsoon boost Trade war / oil price shocks

Industrial capex revival FY18 earnings growth

11%

Improving macros

Rebound of corporate lenders

More ladders than snakes Research Team ([email protected])

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.

Contents India Strategy – Earnings recovery imminent 4QFY18 Highlights & Ready Reckoner Sectors & Companies Automobiles .......................................... 65-85 Amara Raja Batt. ............................................. 69 Ashok Leyland ................................................. 70 Bajaj Auto ..................................................... 71 Bharat Forge ................................................... 72 Bosch .............................................................. 73 CEAT ................................................................ 74 Endurance Tech. ............................................. 75 Eicher Motors ................................................. 76 Escorts ............................................................ 77 Exide Inds. ....................................................... 78 Hero Motocorp ............................................... 79 Mahindra & Mahindra .................................. 80 Mahindra CIE .................................................. 81 Maruti Suzuki .................................................. 82 Motherson Sumi ............................................. 83 Tata Motors .................................................. 84 TVS Motor ....................................................... 85 Capital Goods.........................................86-102 ABB ............................................................... 89 Bharat Electronics ........................................... 90 BHEL ............................................................. 91 Blue Star.......................................................... 92 CG Consumer Elect.......................................... 93 CG Power & Indl. ............................................. 94 Cummins India .............................................. 95 Engineers India................................................ 96 GE T&D India ................................................... 97 Havells India .................................................... 98 Larsen & Toubro ........................................... 99 Siemens......................................................... 100 Thermax ..................................................... 101 Voltas ............................................................ 102 Cement ................................................ 103-116 ACC ............................................................... 107 Ambuja Cements........................................... 108 Birla Corporation........................................... 109 Dalmia Cement ............................................. 110 Grasim Industries .......................................... 111 India Cements ............................................... 112 JK Cement ..................................................... 113 Ramco Cement.............................................. 114 Shree Cement ............................................... 115 UltraTech Cement ......................................... 116 Consumer ............................................ 117-137 Asian Paints ............................................... 120 Britannia ....................................................... 121 Colgate .......................................................... 122 Dabur ............................................................ 123 Emami ........................................................... 124 Godrej Consumer .......................................... 125 GSK Consumer .............................................. 126 Hind. Unilever ............................................... 127 ITC ................................................................. 128 Jyothy Labs .................................................... 129 Marico ........................................................... 130 Nestle ............................................................ 131 P&G Hygiene ................................................. 132 Page Industries.............................................. 133 Parag Milk Foods........................................... 134 Pidilite Inds. .................................................. 135 United Breweries .......................................... 136 United Spirits ................................................ 137 Financials ............................................. 138-159 Axis Bank ....................................................... 143 Bank of Baroda ........................................... 144 Bank of India ................................................. 145 Canara Bank ............................................... 146 DCB Bank....................................................... 147 Equitas Holdings............................................ 148 Federal Bank ................................................. 149 HDFC Bank .................................................. 150 ICICI Bank ................................................... 151 Indian Bank ................................................... 152 IndusInd Bank ............................................... 153

April 2018

Kotak Mahindra Bank .................................... 154 Punjab National Bank .................................. 155 RBL Bank ........................................................ 156 State Bank ................................................... 157 Union Bank .................................................... 158 Yes Bank ........................................................ 159 NBFC ................................................... 160-177 Bajaj Finance.................................................. 162 Capital First .................................................... 163 Chola. Inv & Fin.............................................. 164 Dewan Housing.............................................. 165 GRUH Finance ................................................ 166 HDFC ........................................................... 167 Indiabulls Housing ......................................... 168 L&T Fin.Holdings ............................................ 169 LIC Housing Fin .............................................. 170 MAS Financial ................................................ 171 M & M Financial ............................................ 172 Muthoot Finance ........................................... 173 PNB Housing .................................................. 174 Repco Home Fin ............................................ 175 Shriram City Union......................................... 176 Shriram Transport Fin. ................................... 177 Healthcare........................................... 178-201 Ajanta Pharma ............................................... 180 Alembic Pharma ............................................ 181 Alkem Lab ...................................................... 182 Aurobindo Pharma ........................................ 183 Biocon............................................................ 184 Cadila Health ................................................. 185 Cipla ........................................................... 186 Divis Labs ....................................................... 187 Dr Reddy’ s Labs ......................................... 188 Fortis Health .................................................. 189 Granules India ............................................... 190 Glenmark Pharma.......................................... 191 GSK Pharma ............................................... 192 IPCA Labs. ...................................................... 193 Jubilant Life ................................................... 194 Laurus Labs .................................................... 195 Lupin .............................................................. 196 Sanofi India .................................................... 197 Shilpa Medicare ............................................. 198 Strides Shasun ............................................... 199 Sun Pharma ................................................... 200 Torrent Pharma ............................................. 201 Infrastructure ...................................... 202-207 Ashoka Buildcon ............................................ 204 IRB Infra ......................................................... 205 KNR Constructions ......................................... 206 Sadbhav Engineering ..................................... 207 Logistics .............................................. 208-212 Allcargo Logistics ........................................... 210 Concor ........................................................... 211 Gateway Distriparks ...................................... 212 Media.................................................. 213-227 D B Corp......................................................... 218 Dish TV........................................................... 219 Ent.Network .................................................. 220 HT Media ....................................................... 221 Jagran Prakashan ........................................... 222 Music Broadcast ............................................ 223 Prime Focus ................................................... 224 PVR ................................................................ 225 Sun TV............................................................ 226 Zee Entertainment......................................... 227 Metals ................................................. 228-243 Hindalco......................................................... 234 Hindustan Zinc ............................................... 235 Jindal Steel & Power ..................................... 236 JSW Steel ....................................................... 237 Nalco ............................................................. 238 NMDC ............................................................ 239

3-49 50-64 65-326 Rain Industries .............................................. 240 SAIL ............................................................... 241 Tata Steel ...................................................... 242 Vedanta ......................................................... 243 Oil & Gas ..............................................244-263 Aegis Logistics ............................................... 250 BPCL .............................................................. 251 GAIL............................................................... 252 Gujarat Gas ................................................... 253 Gujarat State Petronet .................................. 254 HPCL .............................................................. 255 Indraprastha Gas ........................................... 256 IOC ................................................................ 257 Mahanagar Gas ............................................. 258 MRPL ............................................................. 259 Oil India ......................................................... 260 ONGC ............................................................ 261 Petronet LNG ................................................ 262 Reliance Industries ........................................ 263 Retail ...................................................264-269 Jubilant Foodworks ....................................... 267 PC Jeweller .................................................... 268 Titan Company .............................................. 269 Technology ..........................................270-289 Cyient ............................................................ 275 HCL Technologies .......................................... 276 Hexaware Tech.............................................. 277 Infosys ........................................................ 278 KPIT Tech....................................................... 279 L&T Infotech.................................................. 280 Mindtree ....................................................... 281 MphasiS ........................................................ 282 NIIT Tech. ...................................................... 283 Persistent Systems ........................................ 284 Tata Elxsi ....................................................... 285 TCS ................................................................ 286 Tech Mahindra .............................................. 287 Wipro .......................................................... 288 Zensar Tech ................................................... 289 Telecom ...............................................290-298 Bharti Airtel ................................................... 295 Bharti Infratel ................................................ 296 Idea Cellular .................................................. 297 Tata Comm .................................................... 298 Utilities ................................................299-307 CESC .............................................................. 301 Coal India ...................................................... 302 JSW Energy.................................................... 303 NHPC ............................................................. 304 NTPC ............................................................. 305 Power Grid Corp. ........................................... 306 Tata Power .................................................... 307 Others..................................................308-326 Arvind............................................................ 308 Avenue Supermarts....................................... 309 BSE ................................................................ 310 Castrol India .................................................. 311 Delta Corp ..................................................... 312 Indo Count Inds. ............................................ 313 Info Edge ....................................................... 314 Interglobe Aviation........................................ 315 Kaveri Seed.................................................... 316 Manpasand Beverages .................................. 317 MCX............................................................... 318 Navneet Education ........................................ 319 Oberoi Realty ................................................ 320 Quess Corp .................................................... 321 P I Industries.................................................. 322 S H Kelkar ...................................................... 323 SRF ................................................................ 324 Team Lease Serv............................................ 325 UPL ................................................................ 326

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India Strategy | Earnings recovery imminent

India Strategy BSE Sensex: 33,371

S&P CNX: 10,245

Earnings recovery imminent More ladders than snakes

Global Cyclicals drive earnings; Autos and Technology show good recovery As we step into FY19, the clamor for an earnings recovery has become louder. This is particularly because the last three years were characterized by a muted earnings performance due to macro disruptions and several policy changes pertaining to asset quality in the banking sector. Although we expect Nifty earnings to grow by a decent 11% in FY18, it is much below our FY18-beginning estimate of +17% – this can be mainly attributed to the drag from corporate banks (ICICI Bank, Axis Bank and SBI, which together accounted for 62% of the cut in Nifty PAT estimate in a span of a year). However, we believe the worst of the NPA cycle is behind, and with resolution in several key NCLT assets, the earnings picture for BFSI could turn much brighter in FY19. Our consumption recovery theme is also gaining strength – also because the government is expected to be supportive of consumption demand in an electionbusy year. Projection of a normal monsoon in CY18 adds to the cheer. Also, on the investment side, industrial capex is showing signs of recovery. Overall, we expect FY19 to kick-start earnings recovery for India, although the market is likely to be distracted by several macro factors along the way, such as the ongoing global trade conflict, the US Fed rate increase cycle, domestic equity flows and, last but not the least, the domestic political developments in an election-heavy year. Although the path to earning revival is more like a game of snakes-and-ladders than a straight line, we expect more encouraging ladders than slippery snakes in FY19. Also, after the recent correction in the markets and the softening of bond yields, we believe valuations offer enough bottom-up stock-picking opportunities. As far as the 4QFY18 earnings season is concerned, we expect it to be characterized by continued dominance of Cyclicals in the earnings pool, even as Technology makes a smart comeback with double-digit earnings growth. The consumption recovery story continues to gain ground, with discretionary sectors like Auto and Retail expected to post a solid performance. PSU lenders and corporate private lenders are expected to continue dragging the performance owing to higher provisioning requirements, given the multiplicity of factors at play (the RBI February 2018 circular on NPA dispensations, volatility in bond yields, recent issues in public sector banks).  We expect MOSL Universe PAT to grow 11% YoY on a high base (24% earnings growth in 4QFY17). Global cyclicals will drive the performance with 21% YoY profit growth and account for 65% of incremental profits while Defensives are expected to post modest 3% profit growth after five consecutive quarters of profit decline, aided by IT. Profit growth for MOSL Universe excluding PSU Banks and private corporate lenders is expected at 15%. Healthcare, Telecom, PSU Banks and Cement are expected to report muted numbers.

April 2018

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India Strategy | Earnings recovery imminent

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We expect Nifty Sales, EBITDA and PAT to growth 14%, 11% and 14%, respectively. PAT growth of 14%, if delivered, will be highest in 15 quarters. We have revised our Nifty EPS estimates downwards by 2% and 3% for FY18E and FY19E to INR462 and INR 577 vs. INR471 and INR595 earlier, respectively. We are now building in Nifty EPS growth of 11%/25%/21% for FY18/19/20.

Key sectoral trends/highlights 

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April 2018

Autos universe is expected to report 22% YoY PAT growth, aided by modest base (11% YoY decline in base quarter). Tata Motors and Maruti Suzuki will account for roughly 52% of the profit pool. Excluding Tata Motors, Auto universe is expected to post 28% PAT growth, highest in eight quarters. PSU Banks will report a loss of INR 63b (base quarter 4QFY17 reported loss of INR 37b), with only two (BOB and Indian Bank) of the seven PSU Banks in our MOSL Universe expected to post profit. NBFCs are expected to continue their strong run and post another quarter of strong and broad-based growth (30% YoY). All NBFCs, barring LIC HF, are expected to report healthy PAT performance, with Bajaj Finance, MAS Financial, Muthoot Finance, MMFS, SHTF, Shriram City Union and PNB HF particularly standing out. Private Banks are expected to report 4% PAT growth (YoY), dragged by corporate focused banks ICICI Bank (-32% YoY) and Axis Bank (-43% YoY). Excluding ICICI Bank and Axis Bank, private banks profit growth is expected to come in at 22%, in-line with the trend of last eight quarters. Metals will post another quarter of strong performance, with 14% and 31% YoY growth in EBITDA and PAT, respectively. JSW Steel (70%), Vedanta (86%), Rain Industries (2.9x) and Hindalco (46%) are expected to post strong earnings growth, while JSPL is expected to post loss. However, this 30% growth will be the lowest in last five quarters as previous four quarters had triple digit profit growth YoY. Oil & Gas is expected to report 11% YoY PAT growth on a base of 15% growth in the quarter ended Mar’17, driven by RIL( contributing 57% to PAT delta), ONGC and IOC. Among OMCs, only IOC is expected to post strong performance, led by Paradip ramp-up. HPCL and BPCL would post YoY PAT decline due to lower marketing margins Consumer universe is expected to post 11% YoY growth in profits, third consecutive quarter of double-digit PAT growth. Britannia, Page Industries, Nestle, Pidilite, Colgate and United Breweries are expected to post strong set of numbers, posting PAT growth in excess of 17%, whereas Emami and Jyothy Lab will post PAT de-growth. Utilities are expected to report 37% growth in PAT, led by strong performance from Coal India (89% YoY PAT growth) and Power Grid (19.2% YoY PAT growth). Coal India alone will contribute roughly 80% to the PAT delta. Utilities ex Coal India are still expected to post a robust 11% PAT growth in 4QFY18. Technology is expected to report its first double digit PAT growth (10.9%) after eight quarters, with Persistent systems (-16.4%) being the only IT company expected to report PAT de-growth. In 4Q, YoY revenue trajectory is likely to continue to inch up. We expect such acceleration in INFO, TCS and TECHM, and also organically for WPRO - across our top-tier universe

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India Strategy | Earnings recovery imminent

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Telecom universe will report loss. Idea’s loss is expected to remain elevated while Bharti is expected to post 80% YoY decline in profits.

Model portfolio changes Given the multitude of factors at play – both global and domestic – we expect increased volatility in the market. In such an environment, our model portfolio reflects our bias for improving macros, underlying earnings visibility (growth recovery), our long-held thesis of a consumption recovery in CY18 (especially rural), and a tilt toward NBFCs within Financials given the recent softening of bond yields and the continued growth outperformance. Overall, we like Private Financials, Consumer Discretionary (Auto, Specialty Retail and Media), Energy, and selected quality Mid-caps. We have also increased our exposure to private capex plays, beginning 3QFY18. We remain underweight in Metals, given the expectations of growth moderation from the recent outstanding delivery. We also remain underweight in Cement, given our valuation discomfort and the continued earnings disappointment. We have reduced our exposure to Telecom to zero due to the continued elevated competitive intensity and the lack of earnings visibility.  BFSI: Among private banks, we are replacing Federal Bank with IndusInd Bank, as we believe that the latter’s merger with BHAFIN will enable the bank to report strong progression in earnings, while the momentum in the consumer finance business already remains strong. IIB has already received a few approvals, and the merger deal is well on track to get completed over the next few months. Federal Bank, on the other hand, offers value at current levels, but is likely to report only a gradual recovery in its returns profile. The probable extension of the RBI’s asset quality framework on assets worth more than INR20b also remains an overhang. We also marginally reduce the weight in ICICIBC, given the recent news-flow. While we maintain our positive stance on the stock and believe that the bank is in the last phase of the NPL cycle, such developments may lead to an increase in risk aversion and can prolong the recovery cycle. Among PSU Banks, we stick with SBIN. Given the sharp outperformance of HDFC Life, we replace it with Bajaj Finance and further increase our weight in Shriram Transport Finance. We expect Bajaj Finance to deliver multiple years of strong growth, with consistent 20-22% RoE and steady asset quality. The company has a customer base of 25m and is targeting 3x of that over the next five years, which implies 30% loan CAGR over five years.  Consumer: We are replacing ITC with Pidilite in the model portfolio. Given ITC’s current earnings growth profile and recurring concerns around government actions, we do not expect material re-rating. We continue highlighting our expectations of a rural consumption recovery and believe that Emami will be one of the key beneficiaries. It has been impacted by demonetization and GST, given its higher salience of rural and wholesale channels. Titan remains our top consumption pick and the persistent market share gains further drive our comfort, notwithstanding the near-term expensive valuations.  Energy: We remain bullish on upstream plays, given the rally in crude oil prices and maintain our weight in ONGC. We also maintain our weights in RIL, IOC and Petronet.  Autos: We are raising weight in M&M and Maruti (after the recent correction) at the expense of Tata Motors. M&M is the best bet on a rural recovery, as April 2018

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India Strategy | Earnings recovery imminent

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revival in rural markets improves visibility of volumes in the tractor and UV businesses. Maruti’s continued volume growth and expectations of another normal monsoon should drive relative outperformance, in our view. Healthcare: We are replacing Lupin with Cipla, given our expectations of growth outperformance and also the company’s relative high salience of domestic business. Metals and Utilities: We are staying put with Hindalco, and replacing Coal India with Power Grid. Power Grid is trading attractively at 1.4x FY20E P/BV for an RoE of ~16% and a CoE of ~10-11%, with strong visibility of EPS CAGR of ~12% over FY18-22. Cap Goods, Infra and Cement: We retain our incremental positive stance on Private Capex, and replace Siemens with Thermax (recently upgraded to BUY) in our model portfolio. We believe Thermax is the best play on a recovery in industrial capex. We have replaced JK Cement with Shree Cement after the recent correction in the stock. SRCM is likely to deliver EBITDA CAGR of 29% over FY18-20, led by healthy volume growth and pricing improvement (driven by higher realizations in the underlying markets in the north) Mid-Caps: In Mid-caps, we have added Tata Chemicals, UPL, Aegis, Exide and Future Consumer in our portfolio. Tata Chemicals is using its cash cows – soda ash and sodium bicarbonate – to build growth businesses such as consumer and specialty products. As the company scales up its growth businesses and deleverages its balance sheet, we expect its consolidated RoCE to improve considerably, in turn driving a stock re-rating. In Future Consumer, we like the ‘size of prize’ and potential PAT turnaround, with continued strong turnover growth driving outperformance. We believe UPL is one of the best bets on the global agrochemicals industry, as it offers (a) a robust product pipeline, (b) an integrated business model (backward integration of 70-75%), (c) a broad product portfolio covering various crops across seasons, (d) geographical diversification, and (e) scope to gain further market share (from the current ~4%). EXID, being the leader, is well placed to take advantage of the OEM demand recovery and replacement demand. High focus on driving efficiencies in operations through investments in technology and also sourcing of over 40% of lead requirement from the captive smelter would drive stronger profitability visà-vis competition. We expect EXID’s revenue to grow at a CAGR of ~15% over FY18-20, resulting in ~80bp margin expansion and ~23% PAT CAGR. Adjusted for insurance business value, the stock is quite cheap at 15.5x FY20E EPS.

Focus Nifty stocks from 4QFY18 earnings perspective We highlight some of the Nifty companies where we are estimating strongest and muted growth for 4QFY18.

STRONG PERFORMANCE

1. Maruti: Strong volume growth (+11%) coupled with benefit of mix is driving margin expansion of 140bp YoY and 22% EBITDA growth. This coupled with higher other income is driving ~28% YoY PAT growth. 2. Eicher: Strong performance in RE with 27% YoY growth in volumes is driving ~27% growth in S/A PAT. VECV is benefitting from strong tailwind in CVs with ~33% volume growth, driving 170bp YoY margin improvement and ~70% PAT growth. April 2018

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India Strategy | Earnings recovery imminent

3. Bajaj Finance: Bajaj Finance is expected to continue its strong growth trajectory and post a solid 43% earnings growth. Growth will be driven by consumer and rural segments. This will be its 12th consecutive quarter of 30%+ profit growth. 4. Coal India: EBITDA is expected to grow 39% YoY due to 5% volume growth, 7% reduction in cost of production due operating leverage, and 23% increase in Eauction prices. PAT growth is expected to be even higher due to volatility in tax rates. 5. RIL: Led by stronger petchem margins, petchem volumes & sustained strong refining margins, we expect EBITDA to grow 32% YoY & 9% QoQ in the quarter. 6. Titan: Gains from healthy sales growth of around 17% in 4QFY18 will be further boosted at the EBITDA and PAT level by unusually low EBITDA margin in base quarter 4QFY17. 7. Tech Mahindra: EBITDA margin bottomed out in 4QFY17 at 12%, ensuing its recovery thereafter. It should exit FY18 with a strong 17.3% EBITDA margin, +530bp YoY. This is driving the bulk of the profit growth in the company. Dollar revenue growth is estimated to be 10%.

WEAK PERFORMANCE 1. SBI: SBI is expected to post a loss of INR16.5b, compared to a loss of INR24b in the previous quarter, led by elevated provisions as slippages are expected to remain high. 2. ICICI Bank: ICICI Bank is expected to report 32% YoY decline in PAT to INR13.8b, led by elevated credit costs towards meeting PCR for NCLT accounts, as well as high slippages from other stressed accounts 3. Bharti Airtel: Bharti is expected to post a sharp 12% EBITDA decline and 80% drop in PAT. This is on the back of continued ARPU decline in India resulting in 17% fall in India wireless EBITDA.

THREE KEY TRENDS

April 2018

Three key trends to watch out for

1. The bottoming out of macros: GDP| Inflation |Bond yields  FY17 and FY18 are characterized by disruptive reforms/initiatives like demonetization and GST, which took a toll on both macro and micro growth numbers. However, with the impact of demonetization now behind and GSTrelated issues gradually settling down, the macros appear to have bottomed out, in our view. Better-than-expected GDP data for 3QFY18, IIP trends, auto monthly sales numbers and fuel consumption data are all pointing toward a gradual demand pick-up. Broadly speaking, while GDP growth has bottomed out, inflation too has moderated.  In fact, our growth and inflation outlooks have turned more favorable. Following better-than-expected 3QFY18 data and revisions in the previous quarters’ data, our economist, Nikhil Gupta, has revised up our real GVA/GDP growth forecasts for FY18 to 6.4%/6.7% from 6%/6.3% earlier. Furthermore, real GDP is expected to grow 6.9% in FY19, slightly better than 6.8% expected previously. With CPI consistently coming in below our expectations, we have revised down our FY19 forecast from 5.1% to 4.4%.  The RBI, in its recent monetary policy meeting, revised down its 4QFY18 inflation projection to 4.5% from 5.1% earlier, implying inflation of 3.9%-4% in

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India Strategy | Earnings recovery imminent

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March 2018, in line with our forecast of 4%. It also cut its inflation forecasts for 1HFY19/2HFY19 to 4.7%-5.1%/4.4% from 5.1%-5.6%/4.5% earlier. Also, our proprietary Economic Activity Index (EAI) points toward a continued recovery, albeit with monthly volatility. After growing reasonably by ~7% YoY in January 2018, India’s economic activity index (EAI) grew at the four-month slowest pace of 6.3% YoY in February 2018. Nonetheless, it implies average growth of 6.6% in the first two months of 2018, similar to the growth witnessed in 3QFY18. An extremely favorable base is expected to support EAI growth in March 2018. Accordingly, we continue expecting real GDP growth to improve slightly from 7.2% in 3QFY18 to 7.3% in 4QFY18. Another concern – the sharp rise in bond yields – has also been addressed. Bond yields had shot up by more than 100bp from 6.7% to7.8% in 6 months, led by global bond moves and heightened concerns about domestic inflation and fiscal slippage. However, yields have come off 60-70bp over the past month due to the combination of policy moves. The Indian government’s 1HFY19 borrowing calendar has provided some succor. It has planned to borrow only 47.6% of its full-year borrowing target in 1HFY19, much lower than the average 1H borrowing of 60-62% of the full-year borrowing target over the past many years. Furthermore, the borrowing composition, as desired, has tilted toward shortend securities, which is likely to flatten the yield curve. This announcement resulted in a correction of bond yields by 30bp in a day. With the RBI revising its FY19 inflation forecast downward, it added another catalyst for bond yields to cool off.

2. Industrial capex – on a recovery path  Industrial capex in India has been subdued over the past 5-6 years, as reflected in weak capex spends by Indian companies, corroborated by weak orders for equipment suppliers and muted industrial credit growth. However, capex by consumer-oriented sectors like Autos, Telecom, Media, FMCG, Food & Beverages and Consumer Durables/Electronics has remained largely uninterrupted. Capex spend by the private sector has been an Achilles’ heel, impacting investments in the economy. Leveraged balance sheets, low capacity utilization and several macro disruptions in the economy impacted the private investment cycle. Therefore, the burden of investment growth was falling on the government’s shoulders. Government spending on infrastructure, especially on roads and railways, has indeed gone up. However, private capex recovery is the key for sustainable pick-up in investments in the economy.  After many years, we are seeing some early signs of pick-up in industrial capex. Post the cyclical downturn in the core sectors, we are starting to see green shoots of recovery in sectors like Oil & Gas (O&G), Steel, Cement and Fertilizers, with the situation expected to get even better. Private sector capex in the Power sector will be toward renewables; a revival is unlikely in coal-fired plants in the medium term.

April 2018

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India Strategy | Earnings recovery imminent

3. Earnings recovery has been extremely narrow in FY17 and FY18; expected to get broader in FY19 and FY20; Financials to make a comeback in FY19  Earnings growth in FY17 and FY18 has been very narrow. It was led by a few sectors. For example, after growing 14% in FY17, the MOSL Universe earnings are expected to grow at 8% in FY18. Three sectors – PSU Banks, Metals and Oil & Gas – accounted for 17%, 18% and 43% of the earnings delta in FY17, i.e. ~80% of growth was driven by these three cyclicals.  Similarly, in FY18, Metals, Oil & Gas, NBFC and Autos will contribute 46%, 17%, 19% and 20%, respectively, of the earnings delta for the MOSL Universe, i.e. >100%% of growth coming from just four sectors.  Financials’ contribution in earnings growth has come off significantly (from 46% in FY15 to 23% in FY17) owing to a drag in PSU Banks and private corporate lenders. It is expected to decline further to 11% in FY18. FY17 and FY18 have seen a significant increase in gross NPAs and a consequent rise in provisioning requirement for PSU Banks and Private Corporate lenders, resulting in a sharp drop in overall contribution of Financials to earnings growth.  Going forward, we expect financials to make a comeback as asset quality issues bottom out and provisioning pressure fades off. We expect Financials’ contribution in earnings growth to go back to ~40% in FY19 and sustain even in FY20 (largely in line with its weight in Nifty). This will largely be driven by PSU Banks, given the low base of earnings and expected normalization of provisioning costs.  On the contrary, we expect contribution of global cyclicals like Metals and Cyclicals in incremental earnings to moderate. From 49% of incremental earnings in FY18E, we expect Metals’ contribution to drop to 12% in FY19 and 3% in FY20.  For Oil & Gas, we expect the sector’s contribution in MOSL universe earnings growth to come off from 17% to 6% in FY19 and then move up to 12% in FY20.

April 2018

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India Strategy | Earnings recovery imminent

4QFY18 PREVIEW

Global Cyclicals will drive 4QFY18 earnings Technology to make a comeback; Consumption gathering steam 

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After the disruptive 1HFY18 when GST impacted supply chains and earnings performance of corporate India, 3QFY18 provided a relief with relative stability in earnings. 4QFY18 has been characterized by rising volatility and several newsflows pertaining to Banking sector. While the consumption theme is gathering steam (especially rural), even the capex cycle is showing some early signs of revival. Meanwhile, the news-flow pertaining to banking sector, especially PSU Banks and private corporate lenders continue to remain challenging. Feb’18 RBI circular on NPA dispensations and unearthing of fraud in Jewelry sector at a branch of PNB impacted the sentiments. Towards the end of quarter, however RBI has provided relief pertaining to provisions for treasury losses as well as NCLT cases. As we enter FY19, the macros seem to be bottoming out. GDP growth, IIP growth, Auto monthly numbers, fuel consumption data are pointing towards underlying demand improvement in the economy. Even concerns on inflation have moderated after RBI’s downward revision for CPI projections for FY19. Bond yields, which had shot up to 7.8%, have now cooled off to 7.1-7.2% after announcement of government’s 1HFY19 borrowing calendar and downward revision of inflation projections by RBI. Early projections of CY18 monsoon are encouraging with Skymet having predicted a normal monsoon. However, crude oil prices and monthly GST collections remain an area of concern. These could have repercussions on India’s twin deficits (Fiscal and Current Account Deficit) for FY19. On the micro front, things are brightening up. We continue to expect strong earnings recovery in FY19 led by Financials as provisioning bottoms out in PSU lenders along with resolution of few NCLT cases. Our long held thesis of 2HFY18 consumption recovery is panning out, especially in discretionary and rural segments, with commentaries from corporates as well as monthly Auto numbers reaffirming the thesis. This could gather steam in FY19 led by higher MSP price hikes given government’s explicit focus on farm income, third consecutive year of normal monsoon and government spending in a busy election year. Overall, we expect the 4QFY18 earnings season to build on the hopes generated from 3QFY18 performance, notwithstanding the expected volatility in corporate lender’s 4QFY18 earnings performance given several moving parts.

Global Cyclicals to drive earnings in 4QFY18 

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April 2018

The 4QFY18 expected earnings growth of 11% for MOSL Universe will be led by global cyclicals even as Defensives post earnings growth after four consecutive quarters of YoY earnings decline. This 11% earnings growth is expected on a base of 24% earnings growth for our universe in 4QFY17 – the base quarter had strong performance from a) Metals which had posted 3.4x YoY jump in PAT aided by low base of 4QFY16 and b) PSU Banks which had posted substantial YoY reduction in losses fromINR146b in 4QFY16 to INR 37b in 4QFY17. If one were to exclude PSU Banks and Metals, 4QFY17 earnings growth for MOSL Universe stood at 3%. On this base of 3% 10

India Strategy | Earnings recovery imminent

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THREE KEY TRENDS

April 2018

earnings growth, MOSL Universe ex PSU Banks and Metals is expected to post 11.5% YoY earnings growth. For 4QFY18, we expect MOSL Universe revenue to grow 14% YoY (revenue was up 15% YoY in the base quarter), among the highest in 22 quarters. MOSL Universe EBITDA growth is estimated at 11% YoY (on a base of 13% growth), with flat underlying operating margin for MOSL Universe (ex-Financials and OMCs). MOSL Universe PAT is likely to grow 11% YoY (24% PAT growth in 4QFY17) driven by Global Cyclicals like Metals, Oil & Gas & Coal India. Global Cyclicals will drive 72% of the incremental PAT delta for MOSL Universe PAT, with a strong 21% YoY PAT growth. Defensives are expected to post PAT growth of 3% after 5 consecutive quarters of PAT decline. This will be aided by improvement in earnings growth of Technology universe which is expected to post a double digit profit growth after eight quarters. Domestic Cyclicals is expected to post muted 7% YoY PAT growth, dragged by Banks. Nifty earnings are expected to grow 14% YoY, while Nifty ex-OMCs, Metals and PSU Banks is expected to post 12% YoY profit growth.

Three key trends characterizing 4QFY18

1. The bottoming out of macros – GDP, Inflation & Bond yields  FY17 and FY18 are characterized by disruptive reforms/initiatives like demonetization and GST, which took a toll on both macro and micro growth numbers.  However, with the impact of demonetization now behind and GST-related issues gradually settling down, the macros appear to have bottomed out, in our view. Better-than-expected GDP data for 3QFY18, IIP trends, auto monthly sales numbers and fuel consumption data are all pointing toward a gradual demand pick-up. Broadly speaking, while GDP growth has bottomed out, inflation too has moderated.  In fact, our growth and inflation outlooks have turned more favorable. Following better-than-expected 3QFY18 data and revisions in the previous quarters’ data, our economist, Nikhil Gupta, has revised up our real GVA/GDP growth forecasts for FY18 to 6.4%/6.7% from 6%/6.3% earlier. Furthermore, real GDP is expected to grow 6.9% in FY19, slightly better than 6.8% expected previously.  The RBI, in its recent monetary policy meeting, revised down its 4QFY18 inflation projection to 4.5% from 5.1% earlier, implying inflation of 3.9%-4% in March 2018, in line with our forecast of 4%. It also cut its inflation forecasts for 1HFY19/2HFY19 to 4.7%-5.1%/4.4% from 5.1%-5.6%/4.5% earlier.  Also, our proprietary Economic Activity Index (EAI) points toward a continued recovery, albeit with monthly volatility. After growing reasonably by ~7% YoY in January 2018, India’s economic activity index (EAI) grew at the four-month slowest pace of 6.3% YoY in February 2018. Nonetheless, it implies average growth of 6.6% in the first two months of 2018, similar to the growth witnessed in 3QFY18. An extremely favorable base is expected to support EAI growth in March 2018. Accordingly, we continue expecting real GDP growth to improve slightly from 7.2% in 3QFY18 to 7.3% in 4QFY18.

11

India Strategy | Earnings recovery imminent



Another concern – the sharp rise in bond yields – has also been addressed by the recent policy moves of the RBI, and bond yields have cooled off ~60bp from their recent peak.

2. Industrial Capex – on recovery path  Industrial capex in India has been subdued over the past 5-6 years, as reflected in weak capex spends by Indian companies, corroborated by weak orders for equipment suppliers and muted industrial credit growth. However, capex by consumer-oriented sectors like Autos, Telecom, Media, FMCG, Food & Beverages and Consumer Durables/Electronics has remained largely uninterrupted.  Capex spend by the private sector has been an Achilles’ heel, impacting investments in the economy. Leveraged balance sheets, low capacity utilization and several macro disruptions in the economy impacted the private investment cycle. Therefore, the burden of investment growth was falling on the government’s shoulders. Government spending on infrastructure, especially on roads and railways, has indeed gone up. However, private capex recovery is the key for sustainable pick-up in investments in the economy.  After many years, we are seeing some early signs of pick-up in industrial capex. Post the cyclical downturn in the core sectors, we are starting to see green shoots of recovery in sectors like Oil & Gas (O&G), Steel, Cement and Fertilizers, with the situation expected to get even better. Private sector capex in the Power sector will be toward renewables; a revival is unlikely in coal-fired plants in the medium term. 3. Earnings recovery has been extremely narrow in FY17 and FY18; expected to get broader in FY19 and FY20; Financials to make a comeback in FY19  Earnings growth in FY17 and FY18 has been very narrow. It was led by a few sectors. For example, after growing 14% in FY17, the MOSL Universe earnings are expected to grow at 8% in FY18. Three sectors – PSU Banks, Metals and Oil & Gas – accounted for 17%, 18% and 43%, respectively, of the earnings delta in FY17, i.e. ~80% of growth was driven by these three cyclicals.  Similarly, in FY18, Metals, Oil & Gas, NBFC and Autos will contribute 46%, 17%, 19% and 20%, respectively, of the earnings delta for the MOSL Universe, i.e. >100%% of growth coming from just four sectors.  Financials’ contribution in earnings growth has come off significantly (from 46% in FY15 to 23% in FY17) owing to a drag in PSU Banks and private corporate lenders. It is expected to decline further to 11% in FY18.  Going forward, we expect financials to make a comeback as asset quality issues bottom out and provisioning pressure fades off. We expect Financials’ contribution in earnings growth to go back to ~40% in FY19 and sustain even in FY20 (largely in line with its weight in Nifty). This will largely be driven by PSU Banks, given the low base of earnings and expected normalization of provisioning costs.  On the contrary, we expect contribution of global cyclicals like Metals and Cyclicals in incremental earnings to moderate. From 46% of incremental earnings in FY18E, we expect Metals’ contribution to drop to 12% in FY19 and 3% in FY20.

April 2018

12

India Strategy | Earnings recovery imminent



For Oil & Gas, we expect the sector’s contribution in MOSL universe earnings growth to come off from 17% to 6% in FY19 and then move up to 12% in FY20.

Earnings breadth improving; recovery to become more broad-based in FY19 Earnings breadth is expected to improve, with only 25% of MOSL Universe expected to post YoY decline in PAT, the best since September14. However, we note that 4QFY18 earning is driven by few sectors. Metals, Oil & Gas, Utilities (largely Coal India) and Autos account for the entire earnings delta for 4QFY18. The picture remains the same for full year FY18 with Metals alone accounting for 46% of earnings delta for MOSL Universe PAT while Autos & Oil & Gas account for 20% and 17% of the FY18 earnings delta respectively.

Snapshot of sector performance 

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April 2018

Autos are expected to post a solid broad-based 22% PAT growth. Within the universe, CV players should report outperformance. Technology is expected to post healthy set of numbers - (i) 10% EBITDA growth and (ii) double digit PAT growth (11%) after 8 quarters with tier II expected to continue to outperform the tier I IT companies. Metals will have another strong quarter (30% YoY PAT growth), driven by higher LME prices and healthy volumes. Deleveraging in select cases will also drive profit growth. Cement (-2%), Healthcare (-1%) and Telecom (Profit to Loss) are expected to report YoY PAT decline. NBFC should report another strong quarter with broad-based 30% profit growth. Private Banks are expected to post muted 4% profit growth dragged by corporate lenders like ICICI Bank and Axis Bank. We expect PSU Banks universe to post losses of INR 63b vs. loss of INR 37b in base quarter. Infrastructure (19%), Metals (31%), Utilities (37%) and Oil & Gas (11%), are expected to post healthy PAT growth. Defensives’ share in MOSL Universe earnings would continue declining to 32% (35% in 3QFY18, 34% in 4QFY17); the share of Domestic Cyclicals and Global Cyclicals would be at 30% and 38%, respectively. Nifty sales are estimated to grow 14% YoY. PAT is estimated to grow 14%, the highest since June 2014. EBITDA is likely to post 11% YoY growth. Nifty EPS revised downwards for FY18/19: We have revised our estimates downwards by 2% and 3% for FY18E and FY19E to INR462 and INR 577 vs. INR471 and INR595 earlier, respectively. We are now building in earnings growth of 11%/25%/21% for the Nifty for FY18/19/20. For FY18, major earnings upgrades are in Grasim Industries (+34%) and HPCL (+14%) while the major earnings downgrades are in Axis Bank (-13%), SBI (-11%), ICICI Bank (-11%), and Ultratech Cement (-13%). For FY19, the major earnings upgrades are in M&M (+7%) while the major downgrades are Bharti Airtel (-53%), Vedanta (-20%) and Axis Bank (-20%).

13

India Strategy | Earnings recovery imminent

Exhibit 1: Profit growth led by Metals, Autos and NBFC SALES

SECTOR

EBITDA

966 7 222 322 133 270 12 1,264 496 109 47 226 99 283 3 537 276 101 87 49 18 5 2,767

Var % YoY 19 45 18 14 19 27 10 18 18 11 18 10 27 25 20 -13 -22 -16 17 16 10 -25 10.6

Var % QoQ 15 -11 9 13 7 30 22 11 5 2 1 4 76 19 43 1 4 -7 0 8 -9 9 10.1

9.9

2,045

18.4

9.6 8.6

1,604 2,089

12.4 10.8

(No of companies)

Mar18

Var % YoY

Var % QoQ

Mar18

High gr. sectors Retail (3) Utilities (7) Metals (10) NBFC (16) Auto (17) Infrastructure (4) Med/Low gr. sectors Oil & Gas (14) Consumer (18) Others (19) Technology (15) Capital Goods (14) Private Banks (10) Life Insurance (1) PAT de-gr. sectors PSU Banks (7) Telecom (4) Healthcare (22) Cement (10) Media (10) Logistics (3) MOSL (204)

4,250 73 652 1,477 173 1,834 41 7,181 4,333 463 267 961 770 300 87 1,508 374 340 418 274 64 38 12939

14 17 5 10 20 21 10 17 22 8 17 7 15 12 21 2 -2 -10 6 16 10 19 14.2

9 -6 5 3 6 15 24 11 9 4 8 3 43 4 60 0 0 -2 -1 4 -1 19 8.9

8,565

13.9

5,707 9,631

11.2 13.5

MOSL Excl. OMCs, Metals & PSU Bks (184)

Sensex (30) Nifty (50)

April 2018

PAT

EBITDA Margins

PAT Margins

PAT Delta

Sh. %

Chg bp YoY

Chg bp YoY

105 2 30 30 17 24 1 64 27 7 2 17 6 4 0 -49 -26 -19 -1 0 -1 -2 119

39 0 10 11 6 11 0 60 22 6 2 15 5 9 0 1 -5 -1 4 2 1 0 100

96 195 387 72 -91 71 -3 8 -38 57 12 63 126 967 -3 -609 -1,970 -210 186 -1 16 -756 -69

129 199 403 139 325 6 86 -66 -58 40 -48 70 -29 -274 -51 -334 -712 -519 -89 -145 -296 -832 -24

NET PROFIT

463 5 113 130 75 135 5 708 265 74 25 175 60 107 3 11 -63 -7 49 22 7 3 1182

Var % YoY 29 61 37 31 30 22 19 10 11 11 11 11 10 4 3 -81 Loss PL -1 -2 -13 -45 11.2

Var % QoQ 28 4 32 15 6 63 8 0 -13 -1 -5 6 93 2 23 -56 Loss Loss -1 21 -18 15 7.8

10.1

1036

11.8

13.2

90

-23

11.9 11.1

712 945

12.6 14.4

17.1 8.7

29 -53

15 8

Mar18

14

MOSL Universe EBITDA Margin LPA: 19.3%

April 2018

20.5



Source: MOSL Sep-14

10.3 10.4

Mar-16 Jun-16

Source: MOSL

MOSL Universe PAT Margin LPA: 10% Mar-18E

Dec-17

Sep-17

-4.1

-1.6

-5.3

June-17-13.6

Mar-17

Dec-16

Sep-16 -0.8

13.2

Dec-15

3.3

6.0

11.1 14.0

Sep-15

Jun-15

15.5

20.9

10.3

-6.9

11.8 11.4 11.2

88.3

Mar-15

Dec-14

32.2

0.8 8.1 18.9 24.2

7.4 0.2 1.1

5.6

5.2

3.9

65.4

Source: MOSL

10.3

Exhibit 6: 4QFY18 EBITDA margins for MOSL Universe (ex OMCs and Financials) to be highest since June 2016 Jun-14

Jun-12-35.4 Sep-12 -3.2 Dec-12 Mar-13 Jun-13 -9.7 Sep-13 Dec-13 -0.9 Mar-14 Jun-14 Sep-14 -6.7 Dec-14 -9.6 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 -16.5 Jun-16 Sep-16 Dec-16 Mar-17 -6.9 June-17 Sep-17 Dec-17 Mar-18E

Exhibit 4: MOSL Universe earnings growth to come in at 11% on high base

10.3 9.9 9.6 10.2 9.2 9.4 10.4 10.0 9.9 9.6 9.0 9.8 10.2 9.8 9.3 10.8 10.5 10.1 9.4 10.3 9.4 9.9 9.8

18.6 18.3 18.0 18.9 18.1 18.4 18.6 18.5 18.8 18.3 18.2 18.8 20.0 18.6 18.9 20.2 21.2 19.9 20.0 19.9 19.3 20.1 20.4

Mar-18E

Dec-17

Sep-17

June-17 -0.9

Mar-17

Dec-16

Sep-16

Jun-16

Mar-16

3.7

2.8

1.3

4.2

6.7

9.3

12.1

9.7 8.0

8.6 Jun-15 Sep-15 Dec-15

7.8 Mar-15

11.1 10.1

1.0

14.8 11.0 11.9 15.2 14.2

3.7 8.5

2.6

Sep-14

-1.6

16.6

16.5 18.8 10.3 7.7 7.2 12.6 12.0 11.5 14.2 4.6

Dec-14

Jun-14

Dec-17

June-17

Dec-16

Jun-16

-0.4 Dec-14 -10.5 Jun-15 -4.0 -5.6 Dec-15 -4.9

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Exhibit 2: Fifth consecutive quarter of double digit sales growth for MOSL Universe

June-12 Sep-12 Dec-12 Mar-13 June-13 Sep-13 Dec-13 Mar-14 June-14 Sep-14 Dec-14 Mar-15 June-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18

June-12 Sep-12 Dec-12 Mar-13 June-13 Sep-13 Dec-13 Mar-14 June-14 Sep-14 Dec-14 Mar-15 June-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18

India Strategy | Earnings recovery imminent

MOSL Universe: Double digit Sales and PAT growth, defensives PAT to grow at 3% after five quarters of PAT decline Exhibit 3: Sales growth of Defensives inching up gradually

Source: MOSL

Exhibit 5: After 5 consecutive quarter of YoY PAT decline, earnings to grow at 3% for defensives

Source: MOSL

Exhibit 7: 4QFY18 PAT margin for MOSL Universe (ex OMCs and Financials) to stay flattish YoY

Source: MOSL

Share of global cyclicals in MOSL universe earnings pool at 26 quarter high

Earnings growth in 4QFY18 is singularly led by global cyclicals like Metals, Oil & Gas and Coal India. This will result in share of global cyclicals in MOSL earnings pool at 38%, highest since Sep’11.

15

India Strategy | Earnings recovery imminent

 

Auto universe PAT for the quarter at INR 134b will be at all-time high. Technology sector will also post all-time high absolute profits in 4QFY18.

Exhibit 8: Sectoral quarterly PAT trend (INR b) Sector Auto Capital Goods Cement Consumer Financials Private Banks PSU Banks NBFC Healthcare Infrastructure Logistics Media Metals Oil & Gas Oil & Gas Ex OMCs Retail Technology Telecom Utilities Others MOSL Univ MOSL Univ Ex Metals, Oil & PSU Banks

Jun 56 16 19 47 194 70 92 33 32 2 3 6 68 63 107 2 106 15 84 10 723

FY14 Sep Dec 77 86 22 24 11 11 49 54 169 175 72 80 62 61 34 34 42 87 2 2 3 3 6 6 72 77 170 109 140 147 2 2 121 129 13 15 78 88 7 8 842 876

Mar 84 54 18 50 208 85 81 42 45 3 3 5 85 316 135 2 134 24 92 9 1,133

Jun 95 19 18 53 212 82 93 37 47 2 4 5 88 160 122 2 132 23 85 12 957

FY15 Sep Dec 80 80 20 21 14 10 56 59 197 194 85 95 75 61 37 38 51 35 2 2 3 4 6 8 91 78 131 58 126 82 3 2 137 144 27 28 66 76 8 9 890 810

Mar 65 47 16 56 216 100 70 46 39 3 4 6 41 242 129 2 141 29 98 11 1,016

501 538 630 652 615 593 612 662

Jun 102 14 14 57 208 91 76 39 56 3 3 8 48 233 135 2 141 23 89 13 1,012

Jun Auto -9 Capital Goods -43 Cement -31 Consumer 13 Financials 8 Private Banks 29 PSU Banks -6 NBFC 17 Health Care 43 Infrastructure -1 Logistics -6 Media 23 Metals -34 Oil & Gas LP Oil & Gas Ex OMCs -8 Retail 15 Technology 17 Telecom 44 Utilities -7 Others 26 MOSL Univ 88 MOSL Univ Ex Metals, 6

FY14 Sep Dec 45 67 -24 -19 -48 -35 15 15 -4 -7 26 20 -30 -31 11 3 40 133 2 4 -1 9 14 17 6 28 -47 -41 -6 9 3 -12 31 33 41 128 6 -6 -3 3 -10 5 18 26

FY15 Mar Jun Sep Dec 3 70 4 -7 -14 19 -10 -12 -15 -6 28 -11 13 12 14 10 4 9 17 11 20 18 19 19 -9 2 21 0 6 13 7 13 48 45 20 -59 52 19 5 10 22 13 -2 32 2 -2 2 26 -7 30 26 2 -16 154 -23 -47 25 14 -10 -44 12 -5 22 7 38 25 13 11 105 48 105 86 -13 1 -15 -14 3 15 16 10 -1 32 6 -8 11 23 10 -3

Mar -23 -14 -12 13 4 17 -13 10 -12 -6 20 8 -51 -23 -4 1 6 17 6 19 -10 2

Mar 124 46 24 60 -10 83 -146 50 54 2 4 9 30 204 149 2 158 28 93 9 835

655 646 674 747

Exhibit 9: Sectoral quarterly PAT growth trend (%) Sector

FY16 Sep Dec 72 88 16 7 16 16 58 64 201 116 98 106 59 -37 43 44 57 54 3 3 3 3 8 9 57 -13 119 185 120 132 2 3 152 153 26 26 87 88 7 11 881 809

Jun 8 -28 -21 9 -2 10 -18 5 20 16 -8 42 -45 45 11 -13 7 2 5 11 6 6

Jun 92 16 27 65 153 94 11 46 60 3 3 8 34 271 140 2 153 28 87 16 1,015

FY17 Sep Dec 94 59 25 25 22 16 65 65 166 183 94 97 16 32 54 53 62 56 3 3 2 3 8 9 38 54 200 226 148 146 2 3 157 164 24 8 72 81 10 12 948 964

Mar 110 54 22 67 125 102 -37 57 48 4 5 8 99 236 163 2 155 11 83 15 1,043

Jun 64 21 28 65 195 102 34 56 32 4 3 8 68 198 155 3 152 3 85 15 941

FY18 Sep Dec 110 82 32 31 20 18 72 75 185 124 98 104 19 -52 65 70 49 47 3 4 3 2 10 9 78 113 245 303 167 183 3 3 163 162 0 -2 73 86 11 14 1,054 1,070

700 694 651 745 641 713

FY16 Sep Dec Mar Jun -10 10 91 -10 -20 -69 0 20 13 68 49 93 4 7 6 13 2 -40 PL -26 14 12 -16 3 -21 PL PL -86 17 16 8 20 11 53 38 7 60 27 -14 10 4 -32 0 -20 38 6 57 -1 -38 PL -28 -29 -9 219 -16 16 -5 61 15 4 -37 13 -13 33 11 7 12 8 -5 -9 -2 20 31 16 -5 -2 -6 21 -12 21 -1 0 -18 0 9 10 13 7

707

MarE 134 59 22 74 119 105 -63 75 47 5 3 7 130 263 184 4 171 -7 113 17 1,158 829

FY17 FY18 Sep Dec Mar Jun Sep Dec MarE 31 -33 -11 -31 16 39 22 51 274 16 26 31 24 10 39 1 -5 3 -9 11 -2 13 2 11 0 10 16 11 -17 58 LP 28 11 -32 -5 -3 -9 22 9 4 8 3 -73 LP Loss 218 15 PL Loss 24 19 15 21 22 33 30 9 4 -12 -46 -20 -15 -2 -8 27 70 45 10 34 19 -26 -13 26 23 27 -7 -45 2 1 -5 2 29 1 -14 -32 LP 236 99 104 108 31 68 22 16 -27 22 34 11 24 10 9 10 12 26 13 13 -1 1 15 71 38 68 4 7 -2 0 3 -1 11 -6 -68 -59 -90 PL PL PL -17 -8 -11 -3 2 6 37 42 11 65 -3 6 20 12 8 19 25 -7 11 11 11 7 -3 0 -8 3 9 11 Source: MOSL

Note: Comparable Universe, excludes Alkem Labs, Interglobe Aviation, CG Consumer Electricals, Equitas Holding, IDFC Bank, RBL Bank, L&T Infotech, Manpasand, SH Kelkar, Endurance Tech, Gujarat Gas, Music Broadcast, Avenue Supermarts, Quess Corp, Teamlease Service, HDFC Standarad Life, Mahanagar Gas, PC Jeweller, Mas Financials and Laurus Labs.

April 2018

16

India Strategy | Earnings recovery imminent

Exhibit 10: Key assumptions Macro GDP Growth (%) IIP Growth (%) Inflation CPI-RU (%) Currency: USD/INR Oil: Brent (US$/bbl) Repo Rate (%) Interest Rate (%): 1Year CP Rate (Avg) 10Year G Sec (Avg) Sectoral Auto: CV Volume growth (%) Car Volume growth (%) Banking: Loan Growth (%) Cement: Volume growth (%) Capital Goods: L&T order Intake (INRb) Capital Goods: L&T order Intake (% YoY) Metal: Steel (USD/Tonne) Aluminium (USD/Tonne) Zinc (USD/Tonne) Oil & Gas: Under Recoveries (INRb) Singapore GRM (USD/bbl) Technology: $Revenue growth (%)

FY17 7.1

1QFY18 5.7

2QFY18 6.5

3QFY18 7.2

4QFY18E 7.3

FY18E 6.6

FY19E 6.9

4.6 4.5 67.1 49.0 6.38 7.70 6.95 FY17 1.7 10.6 5.9 -1.2

1.9 2.3 64.5 50.1 6.25 7.23 6.71 1QFY18 -17.0 14.0 6.0 -4.0

3.3 3.0 64.3 51.7 6.00 7.01 6.52 2QFY18 17.6 17.6 6.2 5.0

5.9 4.5 64.7 61.4 6.00 7.19 6.97 3QFY18 36.7 11.3 10.7 12.2

4.5 4.9 64.4 66.3 6.00 7.98 7.52 4QFY18E 20.3 12.4 10.0 12.0

4.3 3.6 64.5 57.4 6.00 7.35 6.93 FY18E 14.9 13.7 10.0 6.3

3.6 4.4 66.0 60.0 6.00 7.85 7.60 FY19E 10.3 13.3 12.0 7.0

1,430 5.1 503 1,687 2,366 227 5.7 7.2

264 -11.1 580 1,909 2,589 58 6.4 2.8

342 10.0 592 2,009 2,950 33 8.3 2.8

481 37.9 627 2,097 3,236 63 7.3 1.3

464 -1.9 660 2,000 3,200 101 7.0 1.8

1,496 4.6 620 2,004 2,994 275 7.3 7.9

1,753 17.2 642 2,000 3,800 429 6.0 8.3

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

Interesting sectoral trends Sectoral nuances 

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April 2018

Autos universe is expected to report 22% YoY PAT growth, aided by modest base (11% YoY decline in base quarter). Tata Motors and Maruti Suzuki will account for roughly 52% of the profit pool. Excluding Tata Motors, Auto universe is expected to post 28% PAT growth, highest in eight quarters. PSU Banks will report a loss of INR 63b (base quarter 4QFY17 reported loss of INR 37b), with only two (BOB and Indian Bank) of the seven PSU Banks in our MOSL Universe expected to post profit. NBFCs are expected to continue their strong run and post another quarter of strong and broad-based growth (30% YoY). All NBFCs, barring LIC HF, are expected to report healthy PAT performance, with Bajaj Finance, MAS Financial, Muthoot Finance, MMFS, SHTF, Shriram City Union and PNB HF particularly standing out. Private Banks are expected to report 4% PAT growth (YoY), dragged by corporate focused banks ICICI Bank (-32% YoY) and Axis Bank (-43% YoY). Excluding ICICI Bank and Axis Bank, private banks profit growth is expected to come in at 22%, in-line with the trend of last eight quarters. Metals will post another quarter of strong performance, with 14% and 31% YoY growth in EBITDA and PAT, respectively. JSW Steel (70%), Vedanta (86%), Rain Industries (2.9x) and Hindalco (46%) are expected to post strong earnings growth, while JSPL is expected to post loss. However, this 30% growth will be the lowest in last five quarters as previous four quarters had triple digit profit growth YoY. Consumer universe is expected to post 11% YoY growth in profits, third consecutive quarter of double-digit PAT growth. Britannia, Page Industries, 17

India Strategy | Earnings recovery imminent

Nestle, Pidilite, Colgate and United Breweries are expected to post strong set of numbers, posting PAT growth in excess of 17%, whereas Emami and Jyothy Lab will post PAT de-growth. Utilities are expected to report 37% growth in PAT, led by strong performance from Coal India (89% YoY PAT growth) and Power Grid (19.2% YoY PAT growth). Coal India alone will contribute roughly 80% to the PAT delta. Utilities ex Coal India are still expected to post a robust 11% PAT growth in 4QFY18. Technology is expected to report its first double digit PAT growth (10.9%) after eight quarters, with Persistent systems (-16.4%) being the only IT company expected to report PAT de-growth. In 4Q, YoY revenue trajectory is likely to continue to inch up. We expect such acceleration in INFO, TCS and TECHM, and also organically for WPRO - across our top-tier universe Telecom universe will report loss. Idea’s loss is expected to remain elevated while Bharti is expected to post 80% YoY decline in profits. Oil & Gas is expected to report 11% YoY PAT growth on a base of 15% growth in the quarter ended Mar’17, driven by RIL( contributing 57% to PAT delta), ONGC and IOC. Among OMCs, only IOC is expected to post strong performance, led by Paradip ramp-up. HPCL and BPCL would post YoY PAT decline due to lower marketing margins.

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Exhibit 11: 4QFY18 sectoral PAT growth YoY (%) 61

Exhibit 12: 4QFY18 sectoral PAT growth QoQ (%) 93

37 31 30 22 19 13 11 11 11 11 10 4 3

63 -1 -2

32 23 21 17 15 15 8 8 6 6 4 2 -13

-1 -1 PL Loss

-13-18 Loss Loss

Cap. Goods Auto Utilities Life Ins Cement Sensex Logistics Metals Infra MOSL Univ NBFC Technology Retail Banks - Pvt Consumer Health Care Oil & Gas Media Banks - PSU Telecom

Retail Utilities Metals NBFC Auto Infra Sensex Oil & Gas MOSL Univ Consumer Technology Cap. Goods Banks - Pvt Life Ins Health Care Cement Media Logistics Telecom Banks - PSU

-45

Exhibit 13: 25% of the companies likely to report PAT decline; lowest since March 2011 Earnings Gr. -8

26

15 24

20

-15 -15

21 24 23 26 42 41 14

>15-30% 26

23

-11

32 35 31

42

27

24 22

11

4

13 9

>0-15%

11

18

30 27 25 24 31 34

42 40

9

0

31 38 39

8

9

42 40 37 38 45 36

Ex OMCs (%)

-7

17

12

-3

6

<0% 7

26 35

-11

-3 -9

-3

-13

1

18

-4 1

20

8 10

38 46 36 40 37 34 31 35 44 45 33 30

12

25

9 10 20 18 18 15 20 14 14 9 13 27 18 20 22 24 19 22 27 17 16 17 16 21 11 19 13 22 25 17 24 16 16 22 25 22 17 22 18 23 22 18 22 10 21 20 18 20 25 19 21 18 17 20 20 20 14 12 22 19 19 18 17 24 25 18 16 18 14 20 22 20 23 16 12 26 13 10 14 18 51 44 45 35 41 43 38 32 39 35 31 35 30 26 27 32 21 21 24 25 25 28 26 24 19 26 24 19 20 26 18 21 21 21 25 26 28 29 29 23 17 26 19 24

26

Dec 07 Mar 08 June 08 Sep 08 Dec 08 Mar 09 June 09 Sep 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10 Mar 11 June 11 Sep 11 Dec 11 Mar 12 June 12 Sep 12 Dec 12 Mar 13 June 13 Sep 13 Dec 13 Mar 14 June 14 Sep 14 Dec 14 Mar 15 June 15 Sep 15 Dec 15 Mar 16 June 16 Sep 16 Dec 16 Mar 17 June 17 Sep 17 Dec 17 Mar 18E

% of MOSL Universe companies

>30%

PAT Growth Ex OMCs (%) rd

54% of the companies would grow at >15% YoY, and almost 1/3 (35%) of the Universe would report >30% PAT growth. 28% of the Universe would report PAT de-growth.

April 2018

18

India Strategy | Earnings recovery imminent

Three key macro trends as we step into FY19

THREE KEY TRENDS

1. The bottoming out of macros: GDP| Inflation |Bond yields FY17 and FY18 are characterized by disruptive reforms/initiatives like demonetization and GST, which took a toll on both macro and micro growth numbers. However, with the impact of demonetization now behind and GST-related issues gradually settling down, the macros appear to have bottomed out, in our view. Better-than-expected GDP data for 3QFY18, IIP trends, auto monthly sales numbers and fuel consumption data are all pointing toward a gradual demand pick-up. Broadly speaking, while GDP growth has bottomed out, inflation too has moderated. Exhibit 14: Real GDP growth has bottomed out (%)

Exhibit 15: IIP growth also showing higher prints

Real GDP

10

10

9

IIP growth

% YoY

7.5

8

8 7

5

6 5

3

(% YoY)

4 2 Q3 FY14

Q3 FY15

Q3 FY16

Q3 FY17

Q3 FY18

Exhibit 16: Consumer auto sales continues to report strong momentum (% YoY)

Consumer auto sales (% growth)

24.8

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18

0

3

Exhibit 17: Industrial auto sales stays robust(% YoY) Industrial auto sales (% growth )

75.0 50.0

32.3

25.0 0.0

April 2018

Mar-18

Jan-18

Nov-17

Sep-17

Jul-17

May-17

Mar-17

Jan-17

Nov-16

Sep-16

Jul-16

May-16

-50.0 Mar-16

Mar-18

Jan-18

Nov-17

Sep-17

Jul-17

May-17

Mar-17

Jan-17

Nov-16

Sep-16

Jul-16

May-16

Mar-16

-25.0

19

India Strategy | Earnings recovery imminent

Exhibit 18: Petrol consumption trends remain healthy (% YoY) Petrol sales

Diesel sales

(% YoY)

6.1

(% YoY)

Exhibit 19: Diesel sales trends have stabilized

Exhibit 20: Real rural wage growth has been steady

Feb-18

Dec-17

Oct-17

Aug-17

Jun-17

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

Feb-18

Dec-17

Oct-17

Aug-17

Jun-17

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

9.4

Exhibit 21: Construction activity has made a strong rebound

Real rural wages

(% YoY)

18.0

Construction

2.0

Feb-18

Dec-17

Oct-17

Aug-17

Jun-17

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

Feb-18

Dec-17

Oct-17

Aug-17

Jun-17

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

(% YoY)

In fact, our growth and inflation outlooks have turned more favorable. Following better-than-expected 3QFY18 data and revisions in the previous quarters’ data, our economist, Nikhil Gupta, has revised up our real GVA/GDP growth forecasts for FY18 to 6.4%/6.7% from 6%/6.3% earlier. Furthermore, real GDP is expected to grow 6.9% in FY19, slightly better than 6.8% expected previously. With CPI consistently coming in below our expectations, we have revised down our FY19 forecast from 5.1% to 4.4%. Exhibit 22: Revision in key Economic Indicators; GDP growth revised-up; CPI revised downward Macro indicators Nominal GDPMP Real GDPMP Real GVABP Consumer price index (CPI) Policy repo rate (year-end) INRUSD (average) Current account balance Fiscal balance

Unit % YoY % YoY % YoY % YoY % pa unit % of GDP % of GDP

Actual data FY16 FY17 10.4 10.8 8.2 7.1 8.1 7.1 4.9 4.5 6.75 6.25 65.5 67.1 -1.1 -0.7 -3.9 -3.5

Revised Apr’18 forecasts FY18F FY19F FY20F 11.3 11.6 12.3 6.7 6.9 7.2 6.4 6.7 7 3.6 4.4 4.5 6 6 6 64.4 66 67.7 -1.7 -1.7 -1.7 -3.5 -3.3 -3.1

Previous Jan’18 forecasts FY18F FY19F FY20F 10 11.4 11.9 6.3 6.8 7.4 6 6.4 7 3.8 5.1 4.7 6 6 6 64.6 65.5 65.7 -1.4 -1.5 -1.8 -3.5 -3.2 -3

The RBI, in its recent monetary policy meeting, revised down its 4QFY18 inflation projection to 4.5% from 5.1% earlier, implying inflation of 3.9%-4% in March 2018, in line with our forecast of 4%. It also cut its inflation forecasts for 1HFY19/2HFY19 to 4.7%-5.1%/4.4% from 5.1%-5.6%/4.5% earlier.

April 2018

20

India Strategy | Earnings recovery imminent

Exhibit 23: RBI expects inflation to remain contained in FY19…

Exhibit 24: …and expects GDP growth to pick up from 6.6% in FY18 to 7.4% next year

Source: RBI

Source: RBI

Our proprietary Economic Activity Index (EAI) points toward a continued recovery, albeit with monthly volatility. After growing reasonably by ~7% YoY in January 2018, India’s economic activity index (EAI) grew at the four-month slowest pace of 6.3% YoY in February 2018. Nonetheless, it implies average growth of 6.6% in the first two months of 2018, similar to the growth witnessed in 3QFY18. An extremely favorable base is expected to support EAI growth in March 2018. Accordingly, we continue expecting real GDP growth to improve slightly from 7.2% in 3QFY18 to 7.3% in 4QFY18. Exhibit 25: MOSL’s proprietary EAI posts healthy growth for the fourth consecutive month in February 2018… % YoY

12

3-mma

Exhibit 26: …on account of a surge in investment activity (percentage point) Consumption

Economic Activity Index

Investment

Net exports

EAI

4.2

3

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

-3

Please refer to our earlier report for details

Feb-17

(1.2) (0.6)

0

3.9

5.3

5.2

4.1

(1.1)

(2.6)

3.4 4.1 (1.2) Feb-18

6

Jan-18

9

Dec-17

(pp)

Contribution of different components to EAI’s growth

Another concern – the sharp rise in bond yields – has also been addressed. Bond yields had shot up by more than 100bp from 6.7% to7.8% in 6 months, led by global bond moves and heightened concerns about domestic inflation and fiscal slippage. However, yields have come off 60-70bp over the past month due to the combination of policy moves. The Indian government’s 1HFY19 borrowing calendar

April 2018

21

India Strategy | Earnings recovery imminent

has provided some succor. It has planned to borrow only 47.6% of its full-year borrowing target in 1HFY19, much lower than the average 1H borrowing of 60-62% of the full-year borrowing target over the past many years. Furthermore, the borrowing composition, as desired, has tilted toward short-end securities, which is likely to flatten the yield curve. This announcement resulted in a correction of bond yields by 30bp in a day. With the RBI revising its FY19 inflation forecast downward, it added another catalyst for bond yields to cool off. Exhibit 27: 10-year G-Sec yield has softened ~70bps from the recent peak 8.0 7.5 7.0 6.5

Apr-18

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

Dec-16

Nov-16

Oct-16

Sep-16

6.0

2. Industrial capex – on a recovery path Industrial capex in India has been subdued over the past 5-6 years, as reflected in weak capex spends by Indian companies, corroborated by weak orders for equipment suppliers and muted industrial credit growth. However, capex by consumer-oriented sectors like Autos, Telecom, Media, FMCG, Food & Beverages and Consumer Durables/Electronics has remained largely uninterrupted. Capex spend by the private sector has been an Achilles’ heel, impacting investments in the economy. Leveraged balance sheets, low capacity utilization and several macro disruptions in the economy impacted the private investment cycle. Therefore, the burden of investment growth was falling on the government’s shoulders. Government spending on infrastructure, especially on roads and railways, has indeed gone up. However, private capex recovery is the key for sustainable pick-up in investments in the economy. Exhibit 28: Government’s share of gross projects has increased sharply from FY11 Government

59%

60%

59%

56%

53%

Private

49%

Government (INR b)

46%

42%

38%

Private (INR b)

70,000 60,000 50,000

62%

Source: Company, MOSL

April 2018

40,000 30,000 Jan-18

Jan-17

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

20,000 Jan-10

Mar-18

58%

Mar-17

54%

Mar-16

51%

Mar-15

47% Mar-14

Mar-13

41% Mar-12

40% Mar-11

Mar-10

41%

44%

Source: Company, MOSL

22

India Strategy | Earnings recovery imminent

After many years, we are seeing some early signs of pick-up in industrial capex. Post the cyclical downturn in the core sectors, we are starting to see green shoots of recovery in sectors like Oil & Gas (O&G), Steel, Cement and Fertilizers, with the situation expected to get even better. Private sector capex in the Power sector will be toward renewables; a revival is unlikely in coal-fired plants in the medium term.  Oil & Gas: Capex is being driven by BS-VI emission norm-related upgrades, along with brownfield/greenfield expansions by state oil marketing companies. Additionally, five fertilizer plants are being set up, providing further capex opportunities. We estimate total O&G capex over 2017-21E at INR2.2t (8% CAGR)  Cement sector: Region-wise, utilization has already crossed 80% in north and east India, and is at ~75% in west India and ~55% in south India. Capacity addition is primarily being planned by companies in east India due to strong demand (growing at ~12% YoY). Among the listed companies, UltraTech, Dalmia Bharat and Shree Cement are adding capacities. JSW Cement, an unlisted player, is looking to add ~8MTPA of capacity. Most cement players are evaluating WHRGs to reduce electricity consumption. We estimate cement capex to grow at a CAGR of 9% over FY17-21.  Steel capex: With rising commodity prices and protection of import tariffs, metal companies are announcing capacity addition (FY17-21E capex CAGR of 7%). Tata Steel and JSW Steel have already started work on their respective plants. However, many steel players like Bhushan Steel, Monnet Ispat, Essar Steel and Electrosteel remain under stress, and their assets are in the process of being sold by their lenders under the Insolvency and Bankruptcy (IBC) code.  Power sector capex: Capex in the power sector has largely shifted toward renewables at the cost of coal-fired plants. This is especially true for private sector capex in power. We do not expect any revival in coal-fired capex in the medium term (FY17-21E: -8% CAGR), and see a continued rise in the share of renewables.  Consumer-oriented sectors: Sectors like Autos, FMCG, Consumer durables/electronics and F&B continue to add capacity, given strong end-market demand. However, pharma capex is expected to remain muted over FY17-21 owing to deterioration in the business environment for the sector. Exhibit 29: Refining sector capacity addition and utilization

1 0 0 2 1 1 4 4 8 6 3 6 9 3 6 13 5 7 2 7 7 5 3 5 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E

FY21E

FY19E

16 7 9 FY17

FY15

FY13

FY11

29 7 8 20 4 FY09

5 17 FY07

FY05

FY03

81 75 80 82 81 84 82

87 91 92 92 96 94 94 101 88 102 102 96 89 103 103 100 103 102 104 106 107 FY01

43 2 0 4 9 FY99

Source: Company, MOSL

April 2018

Capacity Utilisation(%)

102 91 92 94 86 81 88 90 72 73 70 68 72 74 76 80 84

Capacity Addittion m tons

Utilisation(%)

74

98

Incremental capacity (Mn ton)

Exhibit 30: Steel sector capacity addition and utilization

Source: Company, MOSL

23

India Strategy | Earnings recovery imminent

Utilisation (%)

81 81 78 86 81 79 81 82 84 90 94 94 88 83 76 76

Capacity Addittion (m tons)

Exhibit 32: Industrial credit growth starting to pick up 50%

35%

68 69 69 66 63 65 68 71 74

35% 20%

2.1%

8 8 8 4 29 5 5 7 1 6 25 27 41 36 12 36 21 17 18 15 16 14 20 15

5%

Dec-16

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E Source: MOSL, Company

Dec-15

-5%

-10%

Dec-17

Exhibit 31: Cement sector capacity addition and utilization

Source: MOSL, Company

3. Earnings recovery has been extremely narrow in FY17 and FY18; expected to get broader in FY19 and FY20; Financials to make a comeback in FY19 









April 2018

Earnings growth in FY17 and FY18 has been very narrow. It was led by a few sectors. For example, after growing 14% in FY17, the MOSL Universe earnings are expected to grow at 8% in FY18. Three sectors – PSU Banks, Metals and Oil & Gas – accounted for 17%, 18% and 43% of the earnings delta in FY17, i.e. ~80% of growth was driven by these three cyclicals. Similarly, in FY18, Metals, Oil & Gas, NBFC and Autos will contribute 46%, 17%, 19% and 20%, respectively, of the earnings delta for the MOSL Universe, i.e. >100%% of growth coming from just four sectors. Financials’ contribution in earnings growth has come off significantly (from 46% in FY15 to 23% in FY17) owing to a drag in PSU Banks and private corporate lenders. It is expected to decline further to 11% in FY18. FY17 and FY18 have seen a significant increase in gross NPAs and a consequent rise in provisioning requirement for PSU Banks and Private Corporate lenders, resulting in a sharp drop in overall contribution of Financials to earnings growth. Going forward, we expect financials to make a comeback as asset quality issues bottom out and provisioning pressure fades off. We expect Financials’ contribution in earnings growth to go back to ~40% in FY19 and sustain even in FY20 (largely in line with its weight in Nifty). This will largely be driven by PSU Banks, given the low base of earnings and expected normalization of provisioning costs. On the contrary, we expect contribution of global cyclicals like Metals and Cyclicals in incremental earnings to moderate. From 46% of incremental earnings in FY18E, we expect Metals’ contribution to drop to 12% in FY19 and 3% in FY20. For Oil & Gas, we expect the sector’s contribution in MOSL universe earnings growth to come off from 17% to 6% in FY19 and then move up to 12% in FY20.

24

India Strategy | Earnings recovery imminent

Exhibit 33: Metals contribution to incremental MOSL Universe PAT growth expected to moderate

Exhibit 34: Oil & Gas contribution to incremental MOSL Universe PAT growth expected to moderate too

46%

43%

18%

17%

12%

12% 6%

3% FY17

FY18

FY19

FY20

FY17

FY18

FY19

FY20

Exhibit 35: Autos contribution to incremental MOSL Universe Exhibit 36: Financials contribution to incremental MOSL PAT growth has been on the higher side in FY18 Universe PAT growth will see a sharp rebound 20%

39%

14% 8%

44%

23% 10%

-6% FY17

FY18

FY19

FY20

FY17

FY18

FY19

FY20

Exhibit 37: Sectoral PAT and PAT delta contribution to MOSL Universe Sector Auto (17) Capital Goods (17) Cement (13) Consumer (18) Financials (38) Private Banks (13) PSU Banks (7) Life Insurance (1) NBFC (17) Healthcare (22) Infrastructure (4) Logistics (3) Media (13) Metals (10) Oil & Gas (14) Excl. OMCs (11) Retail (3) Technology (15) Telecom (4) Utilities (7) Others (25) MOSL (223)

April 2018

PAT (INR B) FY16 FY17 FY18E FY19E 375 343 407 591 88 128 151 182 88 103 92 150 243 261 287 338 551 667 699 1,220 409 406 456 631 -40 45 -34 251 8 9 9 10 174 208 268 328 210 232 187 251 9 11 14 15 13 12 13 16 32 33 35 51 135 228 375 534 773 992 1,047 1,134 636 730 788 914 12 13 19 24 597 644 679 712 97 71 -7 -17 351 325 362 466 89 111 132 177 3,663 4,174 4,494 5,844

Sector-wise PAT Delta (INR B) FY20E FY16 FY17 FY18 FY19 FY20 692 52 -32 64 184 101 215 -22 40 23 31 33 195 15 14 -10 58 45 397 20 18 26 51 59 1,772 -302 116 32 521 552 852 24 -3 50 175 221 504 -346 85 -79 284 254 13 0 1 0 1 3 402 20 34 60 60 74 316 33 22 -45 64 64 15 1 1 3 1 0 19 -1 -1 1 3 2 65 6 2 2 16 14 574 -168 93 147 159 40 1,289 187 219 55 87 156 1,022 110 94 58 126 108 31 -1 1 6 5 6 790 14 47 35 33 78 14 -14 -26 -77 -11 31 517 30 -26 37 104 51 213 -12 22 21 45 36 7,112 -162 511 320 1,350 1,269

Sector-wise PAT Delta (%) FY16 FY17 FY18 FY19 FY20 -32% -6% 20% 14% 8% 14% 8% 7% 2% 3% -9% 3% -3% 4% 4% -13% 4% 8% 4% 5% 187% 23% 10% 39% 44% -15% -1% 16% 13% 17% 214% 17% -25% 21% 20% 0% 0% 0% 0% 0% -13% 7% 19% 4% 6% -20% 4% -14% 5% 5% -1% 0% 1% 0% 0% 1% 0% 0% 0% 0% -4% 0% 1% 1% 1% 104% 18% 46% 12% 3% -116% 43% 17% 6% 12% -68% 19% 18% 9% 9% 1% 0% 2% 0% 0% -8% 9% 11% 2% 6% 8% -5% -24% -1% 2% -19% -5% 12% 8% 4% 7% 4% 6% 3% 3% 100% 100% 100% 100% 100%

25

India Strategy | Earnings recovery imminent

Global Cyclicals to account for 72% of 4QFY18 earnings delta 





Global Cyclicals are expected to post strong earnings growth of 21% YoY (21% growth in base quarter), led by Metals, Oil & Gas and Coal India, and account for 72% of YoY delta in MOSL Universe PAT. Coal India alone contributes 20% of YoY delta in MOSL Universe PAT. Defensives are expected to post 3% YoY PAT growth after 5 quarters of PAT degrowth, buoyed by IT (posting its first double digit growth in 8 quarters), Utilities(11% growth ex Coal India) and Consumer universe posting 11% earnings growth. Telecom (competitive intensity to stay elevated) and Healthcare are expected to continue to drag defensive performance. For 4QFY18, Domestic Cyclicals will report 7% and 7% YoY growth in EBITDA and PAT, respectively, driven by Autos and NBFC, whereas PSU Banks and corporate focused private banks would drag. The PAT growth of 7% is coming on higher base of 92% growth in the quarter ended March 2017.

Exhibit 38: Cyclicals expected to drive earnings growth in FY18 Contribution to 1HFY18 PAT growth (%) 60 51

45

38

Contribution to 2HFY18 PAT growth (%) 20 15 15

30 28 22 15 14 6 6 4 3 2 -30

0 -1 -4 -64

-12

-97 -115

Metals Banks-PSU NBFC Banks-Pvt Capital Goods Others Consumer Technology Media Retail Infrastructure Logistics Life Insurance Cement Utilities Automobiles Oil & Gas Healthcare Telecom

-2 -3

8 7 5 5 4 2 1 1 0

-48 Oil & Gas Metals Automobiles Utilities NBFC Consumer Technology Capital Goods Banks-Pvt Others Retail Infrastructure Cement Life Insurance Media Logistics Healthcare Telecom Banks-PSU

172

Source: MOSL

Source: MOSL

Exhibit 39: Cyclicals growth expected to significantly exceed MOSL Universe average growth in FY18, with likely recovery in Automobiles and Oil & Gas in 2HFY18 102

1HFY18 PAT growth (%)

LP

96 38

29 28 25 25 22 19 16

2HFY18 PAT growth (%) LP

58

51 31 28 26 22 19 22 15 11 10 5 5

7 5 2 2 -1 -2 -6 -7

-1 -6 -9 -32

PL

Banks-PSU Life Insurance Metals Retail NBFC Automobiles Infrastructure Utilities Oil & Gas Others Capital Goods Consumer MOSL Banks-Pvt Technology Cement Media Healthcare Logistics Telecom

PL

Metals Banks-PSU Retail Infrastructure Capital Goods Logistics Others NBFC Life Insurance Media Banks-Pvt Consumer MOSL Technology Utilities Cement Oil & Gas Automobiles Healthcare Telecom

-32

Source: MOSL

Source: MOSL

April 2018

26

India Strategy | Earnings recovery imminent

Defensives to post modest PAT growth after five consecutive quarters of PAT decline 

 



Defensives solely drove MOSL Universe PAT growth over FY14-16. Cyclicals (both domestic and global), on the other hand, were under pressure, resulting in the share of Defensives in aggregate PAT rising to 37% in FY16 from 23% of FY12. Global Cyclicals appear to be the key drivers of PAT growth in FY18, with their share rising to 36% of aggregate PAT by FY18, a 300bp jump v/s FY17. As a result, we expect the share of Cyclicals to increase to 70% by FY18 from 65% in FY17. Key drivers of growth within Cyclicals would be Metals, and Oil & Gas, Financials (Private Banks, and NBFC) and Autos. For 4QFY18, Defensives would report EBITDA growth of 6.1% YoY and PAT growth of 3.3% YoY.

Exhibit 40: Oil & Gas, Metals and Auto to support earnings performance in 4QFY18 27

24

17

17

4

6

7

2

1

2

0 -1

0

-1

-2

1063

-19 -26

1,182

PSU Banks

Telecom

Logistics

Media

Healthcare

Cement

Life Insurance

Infrastructure

Retail

Others

Private Banks

Cap Goods

Consumer

NBFC

Technology

Auto

Oil & Gas

Utilities

Metals

MOSL 4QFY17 PAT (INRb)

1,208

MOSL 4QFY18E PAT (INRb)

30

30

Source: MOSL

Share of Defensives to come off further; Global Cyclicals contribution to see sequential pick-up Exhibit 41: PAT share of Global Cyclicals will see 4pp increase in 4QFY18 100% 27 25

33

75%

25

50% 25%

43

32

37

40

35

41

34

Defensives

28

37

37

35

Global cyclicals

33

33

25

Domestic cyclicals 37

34

40

24

32 40 42 39 35 34 36 35 25 34 26 23

27 27 35 38

34 36 3632 39

36

38 37 30 30

Mar-09 June-09 Sep-09 Dec-09 Mar-10 June-10 Sep-10 Dec-10 Mar-11 June-11 Sep-11 Dec-11 Mar-12 June-12 Sep-12 Dec-12 Mar-13 June-13 Sep-13 Dec-13 Mar-14 June-14 Sep-14 Dec-14 Mar-15 June-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18E

0%

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

April 2018

27

India Strategy | Earnings recovery imminent

Nifty profits expected to post healthy 14% YoY growth Nifty PAT is likely to grow 14% YoY, the highest since 2QFY15 and this will be the third consecutive quarter of double-digit growth. Excluding OMC, PSU Banks and Metals, the Nifty PAT growth stays healthy at 12%. Sales are expected to grow 14% YoY (15% YoY growth in base quarter), again aided by Cyclicals. Excluding OMC’s, Metals and PSU Banks, sales growth remains healthy at 13% YoY. Nifty EBITDA is expected to grow 11%. Excluding OMC’s, PSU Banks and Metals, Nifty EBITDA is expected to post 18% YoY growth. Nifty performance would be driven by Cyclicals like Coal India (driven by price hike), ONGC, Vedanta and Reliance Industries (upstream companies benefit from higher crude prices). 13 Nifty companies (three from Pharma) are expected to post YoY PAT decline.











Exhibit 42: Nifty sales to grow 14% in 4QFY18 30 32

26

25

30

37 35

33

28 26

23

16

22

15

18 22

26

26 21

21

8

16 14

8

LPA: 13%

14 14 14 15 4 4

-8

-8

-4 -5

10 12

14 14

0

-3

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 2Q 3Q 4QE

-12

4 5

4

4 -1

-4

14

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Exhibit 43: 4QFY18 Nifty PAT to post 14% growth, led by Metals, Auto & Oil and Gas 65 38 22

36 16

19

13 12

21

19

11

27

34 16

29

24 4

0

LPA: 10%

24 6

11

5

9 2 8

19 5

0 -6 -12

-2 -15 -20

-1

-7

14 13

7 7

1 -3 -3

14

-8

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 2Q 3Q 4QE

-8 -5

10

12

FY07

April 2018

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

28

India Strategy | Earnings recovery imminent

Exhibit 44: 4QFY18 Nifty EBITDA to grow at 11% YoY 47 35 17

16

25

20

15 18

29

26

37

31 21

13

10 13

6

10

18 3

12

4 5

13 11 14 13 17

6

15

LPA: 12% 5 1 5

2

-2

8 11 8 8

16 2

11 11

-5

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 2Q 3Q 4QE

-5 -8 -10

20

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Exhibit 45: Nifty sectoral 4QFY18 PAT change YoY (%)

April 2018

11

9

10

3

Cement

Banks-Pvt

Consumer

Technology

Metals

Nifty

Agro Chem

Oil & Gas

Auto

NBFC

Utilities

-15 -17

-28

-41

-58 Loss Banks-PSU

14

Media

16

Telecom

17

Infra

21

Cap Goods

25

-2

Retail

Utilities, Auto, NBFC and Oil & Gas to outperform; Telecom, Private Banks and Healthcare to underperform

39

Healthcare

49

29

India Strategy | Earnings recovery imminent

Exhibit 46: Nifty companies’ 4QFY18 performance (INR b) Mar-18 High PAT Gr. (26) Cipla Coal India Vedanta Tech Mahindra Grasim Industries Eicher Motors Bajaj Finserv Titan Company Hindalco Bajaj Finance Hero MotoCorp ONGC IOC IndusInd Bank Maruti Suzuki Indiabulls Housing Mahindra & Mahindra Yes Bank Bajaj Auto HDFC Bank Kotak Mahindra Bank Dr Reddy’ s Labs Power Grid Corp. Reliance Inds. Hind. Unilever UPL HCL Technologies Med/Low PAT Gr. (11) HDFC GAIL Bharti Infratel Wipro Tata Motors Asian Paints ITC Infosys TCS NTPC Negative PAT Gr. (13) State Bank BPCL Larsen & Toubro HPCL Adani Ports Ultratech Cement Sun Pharma Tata Steel ICICI Bank Axis Bank Lupin Zee Entertainment Bharti Airtel Nifty (50)

4,838 39 251 244 80 28 25 77 40 311 23 86 240 1,291 20 209 15 132 21 67 107 25 38 63 1,129 90 58 132 2,093 32 147 36 140 892 45 112 181 318 189 2,700 188 616 416 617 22 87 66 322 59 48 40 16 200 9631

Sales Var % YoY 21 9 8 8 7 -1 32 10 18 11 37 24 10 29 21 14 30 24 26 36 18 15 6 -6 33 9 8 10 8 14 10 2 0 16 14 0 6 7 -7 6 -11 8 14 20 -1 32 -4 -5 -2 2 -6 8 -9 14

Var % QoQ 9 0 16 0 3 -36 10 1 -6 0 -3 17 4 17 7 8 11 14 9 5 4 4 -1 -16 13 5 39 3 9 11 2 -2 2 20 6 12 2 3 -9 7 1 2 45 7 -18 15 0 -4 3 2 0 -10 -1 9

EBITDA Var % Mar-18 YoY 1,064 20 8 55 68 39 72 -1 14 54 9 65 8 41 77 10 4 33 36 3 13 34 14 38 131 18 75 -10 18 12 33 24 14 44 18 43 21 25 13 41 87 20 20 17 8 30 58 1 184 50 19 16 13 21 31 15 472 11 30 9 21 38 16 0 29 4 131 21 8 10 41 5 49 6 86 6 61 5 553 -3 141 -19 26 14 51 19 22 -21 15 -11 14 13 14 17 62 -11 85 67 40 -9 8 -32 4 -8 69 -12 2,089 11

Var % QoQ 5 -4 22 7 10 0 17 1 -14 2 -8 24 5 8 5 10 16 4 6 3 3 10 -1 -13 4 14 75 3 16 12 7 -2 3 53 -12 4 2 4 17 20 20 65 64 33 -26 13 3 9 69 3 9 -27 -8 11

PAT Var % Mar-18 YoY 552 32 4 113 51 89 28 86 10 63 5 59 7 59 8 51 3 49 11 46 6 43 10 37 57 30 48 30 10 28 23 28 10 25 10 25 11 22 10 22 48 21 12 20 4 20 24 19 96 19 13 17 9 16 23 16 280 8 23 14 12 14 7 12 22 12 48 11 5 10 29 7 38 6 69 4 27 3 114 -24 -17 Loss 17 -10 28 -17 14 -22 8 -28 5 -30 9 -30 23 -31 14 -32 7 -43 3 -45 2 -58 2 -80 945 14

Var % QoQ 4 -7 71 28 2 7 40 8 8 -18 -16 22 13 -39 3 28 12 -1 4 3 4 11 -13 7 1 9 50 7 23 17 -5 14 12 322 -7 1 3 5 29 0 Loss -23 83 -27 -24 40 -3 -4 -17 -3 29 -48 -69 9

PAT Contbn Gr. (%) (%) 58 114 0 2 5 20 3 11 1 3 1 2 1 2 1 2 0 1 1 3 1 2 1 2 6 11 5 9 1 2 2 4 1 2 1 2 1 2 1 1 5 7 1 2 0 1 3 3 10 13 1 2 1 1 2 3 30 17 2 2 1 1 1 1 2 2 5 4 1 0 3 2 4 2 7 2 3 1 12 -30 -2 15 2 -2 3 -5 2 -3 1 -3 1 -2 1 -3 2 -9 1 -5 1 -4 0 -2 0 -2 0 -5 100 100

EBITDA margin Var Mar-18 (bp) 22 -19 20 597 27 596 30 -289 17 532 31 1239 33 220 100 0 9 106 12 -90 57 -123 17 173 55 369 6 -254 87 -739 16 135 90 874 13 175 102 -82 19 62 81 84 80 161 20 381 92 670 16 185 21 114 22 231 23 116 23 48 94 -441 14 295 44 -103 21 78 15 67 17 -63 36 167 27 -4 27 -32 32 385 20 -190 75 -740 4 23 12 51 4 -185 66 -746 16 -289 22 382 19 -142 146 5994 82 -1036 19 -711 26 -447 34 -145 22 -53

Note: Bloomberg estimates are used for Bajaj Finserv and Adani Ports.

April 2018

30

India Strategy | Earnings recovery imminent

Intra-sector 4QFY18 earnings divergence (%) Sector gr. HIGH GROWTH SECTORS Retail 61

+30% growth

Sectors

Utilities

37

Metals

31

NBFC

30

Autos

22

Infrastructure

19

15-30% growth

0-15% growth

TPWR: 22, PWGR: 19

NTPC & CESC: 3, NHPC: 2

-Ve earnings growth

Earnings momentum

JUBI: 313, TTAN & PCJL:49 JSW: 158, COAL: 89

SAIL: LP, RINDL: 191,VEDL: 86,JSTL: 70,NMDC: 49,HNDL: 46 SCUF: 1080,SHTF: LTFH: 27, 120,MASFIN: 97, CIFC & IHFL: 25, MMFS: 92,PNBHOUSI: DEWH: 24, 53,MUTH: 52,BAF: GRHF: 16 43,CAFL: 40 ESC: 126,MACA: 68, MSIL: 28,MM: 25, AL: 63,EIM: 59,TVSL: AMRJ & BJAUT: 38,HMCL: 37,BHFC: 32 22,CEAT: 21,ENDU: 20 IRB: 31

NACL: 6 HDFC: 14, REPCO: 12

TTMT: 11, EXID: 6,BOS: 5

SADE: 29

HZ: -16, TATA: -31, JSP: Loss LICHF: -3

MSS: -4

ASBL: -5, KNRC: -14

MEDIUM/LOW GROWTH SECTORS Oil & Gas (Ex OMCs)

7

GUJGA: 115,AGIS: 101,GUJS: 60,ONGC: 30

Consumer

11

UBBL: 930, FCON: LP

Technology

11

Capital Goods

10

Banks - Pvt

4

ZENT: 563,MTCL: 71,TECHM: 63, CYL: 37,TELX & KPIT: 36, LTI: 32 BHEL: 276,TMX: 160,GETD: 122,BLSTR: 62,SIEM: 60,ABB: 56,ENGR: 35 EQUITAS: 505, RBK: 40

IOCL: 30,MAHGL: 26,RIL: 19,PLNG: 15

GAIL: 14, IGL: 12

BRIT: 28,PIDI: 22, UNSP: 13,APNT: PAG & NEST: 18,CLGT & 10,DABUR & GCPL: HUVR: 17,PG: 16 8,SKB & ITC: 7,MRCO: 6

BPCL: -10,HPCL: -22, OINL: -49,MRPL: -60 HMN: -3, JYL: -50

MPHL: 29,HCLT: 16,HEXW: 16

WPRO: 12, NITEC: 11, INFO: 6, TCS: 4

PSYS: -16

HAVL: 20, CROMPTON: 18

BHE: 13, VOLT: 7, KKC: 6

CRG: -12, LT: -17

IIB: 28,YES: 22, HDFCB: 21.KMB: 20

FB: 11, DCBB: 8

ICICIBC: -32, AXSB: -43

INBK: 3

BOI & SBIN: Loss, CBK, PNB & UNBK: PL

BHIN: 12

BHARTI: -80, TCOM: -90,IDEA: Loss

2 7 7

2

PAT DE-GROWTH SECTORS Banks - PSU

Telecom

Loss

BOB: LP

PL

Health Care

-1

FORH: LP,CIPLA: 113,IPCA: 99,JUBILANT: 48,SANL: 44,ALKEM: 31

Cement

-2

GRASIM: 59, SNGI: 52

ACEM: 20

Media

-13

RADIOCIT: 170, HTML: 62, PRIF IN: 60,PVRL: LP

SUNTV: 23

Logistics

-45

April 2018

CDH: 29,ALPM: 22,DRRD: 20

TRP: -12,GRAN: -14,AJP: GNP: 14,GLXO: 11,ARBP: 17,LAURUS: -29,SUNP: 30,SLPA: -38,BIOS: -39, 9,DIVI: 2 STR: -41,LPC: -45 SRCM: 8, DBEL: -3,UTCEM & TRCL: 3, ICEM: -30, ACC: 1 BCORP: Loss DBCL: 8

ENIL: -2,JAGP: -10,Z: 58,DITV: Loss

GDPL: 6

AGLL: -27,CCRI: -50

31

India Strategy | Earnings recovery imminent

EARNINGS FY18-20

FY18 marks bottoming out of earnings; All eyes on FY19 Financial to lead the earnings recovery 



FY18 earnings growth to come in at 11%: We expect FY18 revenue growth for our MOSL Universe to come in at 13% (v/s 0% CAGR in FY14-17). This will be the first year of double-digit revenue growth after three years of flattish sales performance. The topline performance is led by Metals, Oil & Gas, Cement and Autos. Overall, we expect EBITDA margin for MOSL Universe (ex-OMCs, Financials) to stay flat at 20% in FY18. For MOSL Universe, we expect profits to grow 8% YoY. Metals alone account for 46% of the incremental profits followed by Autos (20% of delta), and Oil & Gas (17% of delta). PSU Banks, Healthcare and Cement are key laggards with earnings decline of P to L, 14% and 3% respectively. Corporate lenders to drive Nifty earnings growth of 25% in FY19: Nifty sales are expected to continue the momentum and deliver healthy 14% YoY growth in FY19. Nifty EBITDA and PAT are expected to grow 19% and 26% in FY19 and record 16% and 23% CAGR over FY18-20, respectively. The strong earnings growth of FY19 is expected to be led by corporate lenders like SBI, ICICI and Axis Bank. Excluding these corporate lenders, Nifty earnings growth for FY19E is expected at 19%. Apart from the corporate lenders, Tata Motors, ONGC and Coal India are other key contributors for FY19 Nifty earnings growth.

Exhibit 47: Recovery in Cyclicals to drive robust 19% PAT CAGR (FY17-20E) Sector

Sales Gr. / CAGR (%)

EBIDTA Margin (%)

EBIDTA CAGR (%)

(No of Companies) High PAT CAGR (>20%) Financials (38) PSU Banks (7) Private Banks (13) Life Insurance (1) NBFC (17) Metals (10) Retail (3) Auto (17) Media (13) Others (25) Cement (13) Medium PAT CAGR (10-20%) Capital Goods (17) Utilities (7) Consumer (18) Logistics (3) Infrastructure (4) Healthcare (22) Low PAT CAGR (up to 10%) Oil & Gas (14) Excl. OMCs (11) Technology (15) Telecom (4) MOSL (223) MOSL Excl. OMCs (220) Sensex (30) Nifty (50)

(FY17-20) 12 17 12 19 24 21 7 21 13 11 17 8 11 12 9 12 13 12 10 12 14 15 8 0 12 12 11 11

FY18E 29.5 85.8 79.3 86.8 125.3 83.5 19.8 10.4 13.6 29.0 18.9 18.3 21.8 10.5 31.7 23.6 13.7 31.6 20.2 16.1 13.1 17.2 22.9 30.9 22.3 24.6 27.0 22.8

(FY17-20) 16 16 11 19 18 22 16 29 18 16 21 13 15 19 17 14 12 5 12 10 14 17 8 -1 14.3 14.7 14.2 13.7

April 2018

EBITDA margin change (bp) FY17-20 FY18E 356 17 -207 5 -332 -176 -130 12 -1919 3 145 29 500 65 194 49 196 19 413 6 193 19 281 -10 279 5 195 18 732 11 123 10 -30 8 -560 33 111 -19 -82 1 -8 6 92 8 -17 5 -21 PL 155 8 215 8 262 11 193 11

PAT Gr. / CAGR (%) FY19E 56 74 -841 38 14 23 42 27 45 44 34 63 25 20 29 18 22 4 34 6 8 16 5 LP 30 33 29 26

FY20E (FY17-20) 29 33 45 38 101 124 35 28 26 14 23 25 7 36 26 34 17 26 27 25 20 24 30 24 17 15 18 19 11 17 17 15 15 15 -1 11 26 11 15 7 14 9 12 12 11 7 -179 -42 22 19 22 21 21 20 20 19

PAT delta Share (%) FY17-20 70 38 16 15 0 7 12 1 12 1 3 3 17 3 7 5 0 0 3 13 10 10 5 -2 100 NA NA NA

32

India Strategy | Earnings recovery imminent

FY18 earnings recovery led by three sectors – Metals, Auto and Oil & Gas  For MOSL Universe, we estimate FY18 PAT growth at 8% (after 14% growth in FY17), led by strong performance in Metals, Oil & Gas, Auto and NBFC. Metals, Oil & Gas and Autos contribute 83% of the earnings delta for our universe in FY18E.  Pharma and Telecom are expected to post muted performance, led by sectorspecific headwinds. Exhibit 48: Nifty EPS – expect 19% CAGR over FY17-20E (v/s 5% CAGR over FY12-17) FY17-20E: 18.5% CAGR 25% 11% 417

FY16

FY17

462

FY20E

394

695

577

FY19E

413

FY18E

407

FY15

6%

FY14

347

FY13

FY10

315

FY11

247

FY09

FY03

251

FY08

FY02

236

FY07

FY01

131

184

FY06

92

FY05

78

FY04

73

169

281

369

FY12

FY08-17: 4.5% CAGR FY01-08: 21% CAGR

20%

Nifty EPS estimates revised downwards by 2%/3% for FY18/19 







We have downgraded our estimates for Nifty EPS: -2% for FY18 to INR462 v/s INR471 earlier, -3% for FY19 to INR577 v/s INR595 earlier, and -.2% for FY20 to INR695 v/s INR696 earlier. We are now building in earnings growth of 11%/25%/21% for the Nifty EPS for FY18/19/20. For FY18, major earnings upgrades are in Grasim Industries (+34%) and HPCL (+14%) while the major earnings downgrades are in Axis Bank (-13%), SBI (-11%), ICICI Bank (-11%), and Ultratech Cement (-13%). For FY19, the major earnings upgrades are in M&M (+7%) while the major downgrades are Bharti Airtel (-53%), Vedanta (-20%), and Axis Bank (-20%).

Exhibit 49: Top Nifty companies’ EPS upgrades/downgrades since 3QFY18 review (%) Companies Grasim Industries HPCL UPL BPCL GAIL Dr Reddy’ s Labs State Bank ICICI Bank Ultratech Cement Axis Bank

April 2018

FY18 34 14 6 6 6 -10 -11 -11 -13 -13

Companies ICICI Bank Mahindra & Mahindra State Bank Tech Mahindra HCL Technologies IOC Grasim Industries Vedanta Axis Bank Bharti Airtel

FY19 10 7 4 3 3 -11 -18 -20 -20 -53

33

India Strategy | Earnings recovery imminent

Exhibit 50: Nifty performance - Expect FY17-20 PAT CAGR of 19% Sales (INR b) Company High PAT Gr. (20%+) State Bank Hindalco Axis Bank Tata Motors Bajaj Finance Vedanta Titan Company Eicher Motors IndusInd Bank Kotak Mahindra Bk Bajaj Finserv Dr Reddy’ s Labs Yes Bank Coal India Cipla Tata Steel HDFC Bank Mah. & Mah. Indiabulls Housing Maruti Suzuki Ultratech Cement Med.PAT Gr. (10-20%) Hind. Unilever ICICI Bank Grasim Industries Larsen & Toubro Tech Mahindra Power Grid Corp. Zee Entertainment Reliance Inds. HDFC GAIL Asian Paints ONGC UPL Bajaj Auto ITC NTPC Low PAT Gr. (<10%) Hero MotoCorp Adani Ports Wipro Infosys HCL Technologies TCS Bharti Infratel Sun Pharma IOC BPCL Lupin HPCL Bharti Airtel Nifty (PAT free float)

April 2018

FY18E 11,462 737 1,173 187 2,925 76 886 158 89 75 94 73 144 76 840 154 1,277 402 946 50 803 295 10,704 344 229 153 1,206 307 298 66 4,040 114 530 169 1,575 176 251 408 839 13,706 322 104 547 706 506 1,229 144 260 4,320 2,368 158 2,202 841 35,872

FY19E 12,967 910 1,156 245 3,336 102 1,041 194 107 95 121 85 171 99 942 175 1,279 485 1,051 61 942 371 12,780 394 255 174 1,363 347 350 77 5,311 132 547 200 1,754 196 275 461 943 15,074 361 114 585 784 568 1,374 148 302 4,788 2,616 180 2,402 853 40,821

FY20E 13,412 1,012 1,169 305 3,586 132 1,123 236 129 120 149 97 202 125 1,003 197 691 589 930 76 1,114 429 13,786 448 293 196 1,485 387 389 88 5,567 153 620 236 1,847 222 310 516 1,030 16,395 396 127 636 859 618 1,500 159 352 5,337 2,738 208 2,507 957 43,593

EBIDTA Sales PAT Contbn EBITDA PAT (INR b) PAT YoY (%) Margin (%) to CAGR CAGR CAGR % 17-20 FY18 FY19 FY20 % 17-20 FY18E FY19E FY20E FY18 FY19 FY20 % 17-20 Delta % 10 26 29 32 17 1,072 1,648 2,098 30 54 27 37 63 10 78 79 78 10 24 169 311 903 599 84 405 15 5 12 13 12 5 43 58 60 124 35 4 46 2 19 85 86 88 15 32 64 115 -14 102 80 46 4 10 13 16 16 15 87 192 199 29 122 4 44 7 34 67 69 71 37 26 35 47 40 38 34 37 1 16 28 31 32 19 85 124 145 51 46 16 37 4 22 10 10 10 28 11 14 18 39 27 24 30 0 22 32 33 34 26 22 28 36 32 28 28 29 1 26 88 89 90 26 36 47 60 26 29 28 28 2 22 76 78 79 25 62 79 103 26 27 31 28 3 16 102 104 109 23 29 37 47 26 28 29 28 1 13 17 22 24 26 11 19 25 -5 70 28 27 1 29 101 102 103 30 42 53 69 25 28 29 27 2 9 19 25 28 32 110 164 191 19 48 16 27 5 11 20 20 21 19 17 21 26 36 21 22 26 1 -15 17 18 24 -1 70 83 74 90 19 -11 26 2 21 81 83 84 24 175 220 275 20 25 25 24 6 4 14 15 16 12 47 56 61 45 18 9 23 1 29 122 114 112 23 39 44 54 33 15 22 23 1 18 16 16 17 23 83 105 138 11 27 31 22 3 22 19 21 22 24 21 34 45 -19 60 33 20 1 14 26 26 26 16 1,347 1,626 1,869 9 21 15 15 31 12 21 22 23 19 52 61 72 22 18 18 19 1 10 113 112 113 8 71 116 164 -27 63 41 19 3 -18 22 32 33 -5 22 46 52 -30 106 14 18 1 11 11 12 12 16 68 80 96 15 17 20 17 2 10 15 16 16 15 35 38 44 29 6 16 17 1 15 88 89 89 15 89 108 115 21 22 6 16 2 11 30 33 34 16 12 17 20 -3 35 19 16 0 22 16 15 15 22 362 401 462 21 11 15 16 8 16 93 94 94 15 71 83 97 12 17 17 15 2 9 15 16 15 13 47 51 55 24 9 8 13 1 15 19 19 19 14 21 24 29 2 18 20 13 0 9 40 41 42 18 216 279 302 2 30 8 13 5 11 20 21 21 13 22 24 28 9 10 18 12 0 13 19 19 20 12 43 49 57 5 14 18 12 1 9 38 38 38 11 109 124 139 7 14 12 11 2 8 27 31 32 15 107 125 137 5 17 9 10 2 10 14 13 14 5 1,091 1,105 1,275 -6 1 15 3 6 12 17 16 16 11 37 40 44 10 9 10 9 1 15 66 65 65 13 37 42 49 -4 13 15 8 0 5 20 21 22 8 87 91 102 4 5 12 7 1 8 27 26 26 6 162 154 171 13 -5 11 6 1 10 23 23 23 11 89 92 100 5 4 8 6 1 8 26 26 26 7 258 282 309 -2 9 10 6 2 6 44 42 42 4 26 28 31 -7 10 10 4 0 5 20 25 27 3 32 52 67 -50 63 29 2 0 15 8 7 7 4 196 167 205 -1 -15 23 1 0 11 6 5 5 3 79 81 91 -17 3 13 -1 0 6 19 21 22 1 14 18 24 -45 30 35 -2 0 10 5 4 5 3 60 50 58 -3 -18 16 -2 0 0 36 35 37 0 14 7 22 -67 -49 201 -21 -1 11 21 22 23 13 1,804 2,277 2,743 11 26 20 19 100

34

NIFTY FY18E SBI Tata Motors ONGC Coal India ICICI Bank HDFC Bank Vedanta Reliance Ind. Axis Bank TCS Grasim Inds Maruti Sun Pharma Power Grid NTPC KMB Hindalco ITC Tata Steel Ultratech HDFC Yes Bank L&T IndusInd Bk Bajaj Fin HUL M&M Dr Reddy’s Bajaj Finserv Eicher Mot. Indiabulls HSG Bajaj Auto Adani Ports Zee Ent. Wipro GAIL Lupin Asian Paints Cipla HCL Tech. Hero Moto Titan Co Bharti Infratel BPCL Tech Mah. UPL Bharti Airtel Infosys HPCL IOC NIFTY FY19E

NIFTY FY17 Reliance Ind. Tata Steel HDFC Bank Vedanta Hindalco SBI Tata Motors Infosys Coal India Power Grid M&M KMB Indiabulls HSG HUL L&T GAIL Yes Bank Maruti Tech Mah. HDFC IndusInd Bk Bajaj Fin ITC Bajaj Finserv Eicher Mot. NTPC ONGC Cipla HCL Tech. Wipro Hero Moto Titan Co Bajaj Auto UPL Asian Paints Zee Ent. Dr Reddy’s Adani Ports HPCL Bharti Infratel IOC Ultratech TCS Axis Bank Grasim Inds Lupin BPCL ICICI Bank Bharti Airtel Sun Pharma NIFTY FY18E 63 33 30 29 24 22 19 18 18 16 15 13 9 9 9 9 8 3561.631528 8 8 8 7 7 7 6 5 5 5 5 4 3 3 3 2 2 0 0 1 2 2 2 2 5 5 5 9 12 16 27 30 31

3226

3510

April 2018

4,379

145 106 64 53 45 45 39 39 32 24 23 22 20 20 18 17 15 15 13 13 12 12 12 10 10 9 8 8 8 6 6 6 5 4 4 4 4 4 4 3 3 3 3 2 2 2 7 8 11 29

India Strategy | Earnings recovery imminent

Exhibit 51: Nifty stock absolute FY18E PAT change (INR b)

3,510

Exhibit 52: Nifty stock absolute FY19E PAT change (INR b)

35

India Strategy | Earnings recovery imminent

Key Sectoral Highlights - 4QFY18 SECTOR

Key highlights

Auto

 A low base of last year (particularly in

2Ws), a strong recovery in rural areas and a revival in construction/mining activities drove a sustained recovery in volumes. Our channel checks indicate continued above-average volume growth in rural markets.  During the quarter, 2W volumes grew ~29% YoY and PV volumes increased ~7% YoY (with growth of ~4% in cars and ~25% in UVs). CV volumes (driven by the ban on overloading in key states, the revival in construction/ mining, and the cyclical recovery in LCVs) grew ~32% YoY (LCV +44% YoY, M&HCV +18.5% YoY).  EBITDA margin for our auto OEM (exJLR) universe is likely to expand (+230bp YoY or +20bp QoQ to 14.2%) for the third consecutive quarter, despite RM cost inflation.  Auto aggregate PAT is likely to grow 21.8% YoY (ex JLR 48.3%), led by MSIL, HMCL, EIM and AL.

Capital Goods  We expect order intake for the sector to pick up in 4QFY18, given pick-up in finalization of orders. BHEL is expected to report strong order inflow, given finalization of the 2,400MW thermal power plant. Ordering activity in roads, rail and power T&D remains robust.  Revenue growth is expected to pick up in this quarter, as execution improves post GST implementation.  Margin is expected to improve 130bp YoY to 12.8%, with pick-up in execution driving operating leverage.

Infrastructure  We expect road companies to register healthy revenue growth of 15% (excluding IRB), driven by a pick-up in execution of orders in hand. Execution is expected to pick up after being impacted by GST-related issues. IRB has transferred assets to its InvIT portfolio, which will lead to flattish growth in revenue for the quarter.  Net profitability for the companies is expected to improve by 18% YoY, led by a strong operating performance from Sadbhav and IRB.

April 2018

Sales 20.7

14.6

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) 26.8 21.8 0.7  MSIL: An improvement in mix and healthy volume growth would lead to revenue growth of 14% YoY. EBITDA margin is likely to expand 140bp YoY to 16%, while PAT is expected to rise 28% YoY.  EIM: Consol. revenue growth of ~32% YoY is mainly led by healthy volume growth across RE (+27.4% YoY) and VECV (+33.2% YoY). PAT is expected to grow ~59% YoY, led by a strong improvement in VECV’s operating performance.  AL: Ashok Leyland’s volume growth of ~23% YoY and realization growth of ~6% YoY would translate to revenue growth of ~31% YoY. EBITDA margin is expected to expand 210bp YoY to 13.1%, led by operating leverage, while PAT should increase ~63% YoY.  MM’s volume growth of 25.4% YoY was led by healthy tractor (+41%) and UV sales (+18%). EBITDA margin is expected to expand 180bp YoY to 14.3%. PAT is expected to rise 25% YoY. 27.1 10.5 1.3  Execution from LT is likely to grow 14% in 4QFY18; operating profit is likely to grow 19% YoY. Operating margin is expected to improve 50bp YoY to 12.3%. PAT is expected to decline 17% YoY, as 4QFY17 had a lower tax rate.  Bharat Electronics is likely to report a weak operating performance, despite strong revenue growth of 14% YoY, owing to an adverse revenue mix. Gross margin is expected to shrink 560bp, and PAT is expected to decline 19% YoY.  Havells is expected to report revenue growth of 45% YoY, given contribution from the newly acquired Lloyd. We expect operating margin to contract 90bp YoY, as given the increase in the contribution from the low-margin LLyod business. Net profit is expected to grow 20% YoY.  Sadbhav is expected to deliver a strong operating performance, given healthy revenue growth of 20.5% YoY. Operating profit is likely to increase 24% YoY. Net profit is expected to grow 29% YoY, led by higher other income.  Ashoka is expected to deliver a healthy operating performance, given improved execution (+20% YoY) and better revenue mix-driven operating margin improvement. Expect operating profit growth of 60% YoY.

36

India Strategy | Earnings recovery imminent

Sales

SECTOR

Key highlights

Cement

 We expect the MOSL cement universe

15.6

 We expect aggregate revenue to grow

8.2

Consumer

April 2018

to record volume growth of ~9% YoY in 4QFY18, adjusted for the acquisition impact on UltraTech. We expect (a) pan-India players to report volume growth of 7% YoY, (b) players in North like SRCM to deliver 8% YoY increase in volumes, and (c) south-based companies (DBEL, TRCL and ICEM) to post 8-14% volume growth.  We estimate volume growth at 6% for FY18, as demand in Rajasthan, Tamil Nadu, UP and Bihar was affected by the sand mining issue. With the issue getting resolved now in most major cement-consuming states, demand growth should revive in FY19.  Cement prices should remain flat QoQ, as price declines in north and south were largely offset by a pricing improvement in east and central India. Cement prices declined 1% QoQ in north and 3% QoQ in south. Pricing improvement was the sharpest in central India (+3% QoQ), followed by east (+2% QoQ). Prices in west were flat QoQ. 8.2% YoY and aggregate PAT to grow 11% YoY in 4QFY18. Flat sales expected from ITC (as a result of an unusually high base quarter) and net sales growth of 21% in cigarettes (due to extremely low excise duty in 4QFY17) are likely to drag down overall sector sales growth, which otherwise would have been in double-digits. With all three components of sales –volumes, realization and premiumization – now firing in tandem, overall sales growth, barring ITC, is on a recovery path.  PFAD/palm oil prices declined 14.9%/21.2% YoY in 4QFY18. Ti02 price increase has stabilized (+3.0% YoY), while VAM prices have shown an uptrend. Some other commodities reported a sharp uptrend: mentha prices were up significantly by 46% YoY in 4QFY18, while copra and LLP prices rose 69% YoY and 26% YoY, respectively, in two months ended February 2018. HDPE prices increased 7% YoY.  Aggregate EBITDA is likely to grow 10.9% YoY, with sales growth revival leading to better absorption of costs. EBITDA margin is likely to be 60bp higher YoY.

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) 15.5 -2.1 0.0  Shree Cement’s superior execution capabilities enable it to achieve RoIC of over 50% (FY19E), while its gross block to capacity has been structurally trending downward.  Birla Corp is likely to be profitable due to the strong performance of the acquired subsidiary Reliance Cement. With a 23% market share in the Satna cluster and Reliance Cement’s mineral concession, it has the potential to expand to multiple states.  We believe Dalmia Cement’s deleveraging play and superior volume growth make it attractive for re-rating.

10.9

11.0

0.6

 Britannia, Colgate, Page Industries, United Breweries, P&G Hygiene, Asian Paints and Nestle are all likely to report double-digit sales, EBITDA and PAT growth. In 4QFY18, Britannia, Page Industries, Pidilite, Colgate, P&G Hygiene and Healthcare and Nestle all are likely to report 15% PAT growth. It is likely to be another subdued quarter in terms of earnings growth for Dabur, Emami, Marico and GCPL.

37

India Strategy | Earnings recovery imminent

SECTOR

Key highlights

Sales

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp)

Financials 8.0

-0.3

-3.7

Private Banks  We expect value migration from private 11.9 to PSU banks to continue, with former being better positioned to capture growth with better capitalization. We expect private banks to record 3.9%/1.9% QoQ/YoY PAT growth due to two of the large P banks, ICICI and Axis Bank, recording a significant PAT decline, while HDFC Bank is expected to report 21% YoY PAT growth. Mid-sized private banks are expected to report 20% - 25% PAT growth. PSU Banks  On a sequential basis, we expect profit -1.7 growth to remain muted for stateowned banks, with elevated provisions toward NCLT exposures and fraud accounts in many banks. We expect all PSU banks, with the exception of Indian Bank and BoB, to report losses led by elevated provisions in a muted revenue growth environment. Even as bond yields have increased post 3QFY18 levels, MTM provisioning impact is expected to be softer in 4Q, with RBI allowing banks to spread their losses over four quarters. NBFC  Core housing growth has stabilized post 20.0 RERA implementation, and tier II and III locations are the key growth drivers. For housing finance corporations (HFCs), we expect the share of nonretail loans in the overall portfolio to inch higher.  Growth rates will remain healthy for segments like consumer durables, twowheelers and vehicle finance. M&HCV demand has been strong in the quarter – GoI’s infra push being the key driving factor.  We expect a gradual improvement for microfinance institutions (the most impacted segment post demonetization) in terms of both growth and asset quality. Our interaction with gold financiers suggests that growth is slowly coming back.  Elevated GSec yields could play a spoilsport over the medium term from a spreads perspective. Yields have hardened 100bp+ from their lows six months back. If they sustain at these levels, HFCs would be most impacted. Vehicle financiers have pricing power to maintain margins.

24.7

3.9

 HDFCB, IIB and RBL amongst private banks.

-22.4

Loss

 We prefer SBIN and BOB among PSU banks.

18.6

29.8

 LICHF and PNBHF are key stocks to look out for with regards margins, given the sharp rise in GSec yields over the past six months.  Vehicle financiers, especially CV financiers, are likely to witness a very strong quarter on the growth front.  Repco may disappoint on growth as state-specific issues in Tamil Nadu have not yet been completely resolved.

April 2018

38

India Strategy | Earnings recovery imminent

SECTOR

Key highlights

Healthcare

 Cadila is expected to maintain its







Logistics







Media







April 2018

Sales

6.3 growth momentum in the US business on the back of gLialda and ramp-up of other key products. Granules is expected to report health growth of 14% YoY, led by commissioning of the new facility. The company may witness margin contraction due to higher input cost (witnessed in 3QFY18 also). Sales momentum is expected to continue in Jubilant Lifescience (+29.5%) due to addition of Triad business (was absent in 4QFY17). Laurus Labs’ EBITDA margin is expected to contract due to a lower share of its high-margin business. EXIM originating volume by rail is likely 19.0 to grow in mid-teens in 4QFY18. In JanFeb 2018, EXIM container volumes were up 21% YoY and domestic volumes declined 1% YoY. CCRI is likely to report EXIM handling volume growth of 13% YoY for 4QFY18, led by strong EXIM rail volumes. GDPL is likely to report growth of 3% YoY (flat QoQ) in rail volumes. CFS segment is expected to see volume growth of 15% YoY due to growth from JNPT. We expect ad revenue for our Media 9.7 universe to grow ~9% YoY. Broadcasters are expected to continue their robust (double digit) ad revenue growth, led by a surge in ad spends across national advertisers (mainly FMCG and Auto). Revival of ad spends from local advertisers, together with a low base, should provide impetus to ad revenue of both Print and Radio companies. Furthermore, increased circulation copies/higher contribution from new stations bode well for Print/Radio players.

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) 16.7 -1.2 1.9  Cadila (+ve; US business to witness ~35% YoY growth led by gLialda sales).  Shilpa Medicare (-ve; margin to shrink to 19% from 26.2% in 4QFY17.  Torrent Pharma (+ve; sales to increase on the back of successful integration of Unichem portfolio).  SUNP and LPC (-ve; US business to continue to decline on the back of pricing pressure and regulatory issues).

-25.5

-45.1

-7.6

 We expect CCRI to report better margins QoQ due to strong volume growth in the EXIM segment.  GDPL should see downward pressure on margins led by margin pressure in CFS business and flat margins YoY in rail business.  AGLL is likely to see pressure on margins due to subdued P&E segment performance, while MTO segment is expected to do better.

10.3

-13.0

0.2

 ZEE’s overall revenue should grow at a strong 16% YoY (ex-sports) on the back of 16%/13% YoY (ex-sports) ad/subscription revenue growth. Higher content cost, coupled with the launch of ZEE5, is likely to pressurize EBITDA margin (-450bp YoY) for ZEE.  Shift to commission model and fastpick in digitization process (in Tamil Nadu) are expected to bolster SUN TV’s revenue and margins. SUN TV, too, is expected to report robust 19% YoY revenue growth on the back of 21%/19% YoY growth in ad/subscription revenue.  DB Corp is likely to witness 11% YoY consol. revenue growth, whereas Jagran, due to flat ad revenue growth, should report muted growth.  MBL should report strong revenue/EBITDA growth, while ENIL’s revenues are expected to remain muted due to de-growth at legacy stations.  Expect Dish TV to report meager 1% QoQ ARPU growth and 0.3m net subscriber adds. Management may decide to provide merged numbers with Videocon D2H (as all the merger formalities have been completed).

39

India Strategy | Earnings recovery imminent

Sales

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) 13.6 30.7 0.7  SAIL’s EBITDA will increase 51% QoQ to INR21.7b on higher steel prices.  NMDC’s EBITDA will increase 54% QoQ to INR20.4b on higher iron ore prices (amid supply issues in Odisha) and volumes.

SECTOR

Key highlights

Metals

 Domestic steel prices increased

9.9

Oil & Gas

 Singapore complex GRM stood at

21.9

18.0

11.3

-0.4

 IOCL is expected to report adjusted EBITDA of INR75b (-10% YoY, +8% QoQ) in 4QFY18. Expect GRM of USD5.6/bbl and refinery throughput at 17.1mmt for 4QFY18.  HPCL is expected to report adjusted EBITDA of INR22.4b (-21% YoY, +33% QoQ) in 4QFY18. Expect GRM of USD4.6/bbl and refinery throughput at 4.6mmt for 4QFY18.  BPCL is expected to report adjusted EBITDA of INR32.1b (+45% YoY, flat QoQ) in 4QFY18. Expect GRM of USD5.3/bbl and refinery throughput at 7.3mmt for 4QFY18.

23.5

30.5

13.1

1.1

 Continue to like OMCs: Strong benchmark GRMs and sequentially better marketing margins are expected to benefit OMCs’ (IOCL/BPCL/HPCL) profitability during the quarter. We expect OMCs’ core earnings to improve sequentially in 4QFY18. Among the OMCs, we have a higher preference for IOCL due to its (a) highest diversification, (b) strong free cash flow generation and (c) inexpensive valuations.  Prefer IGL among CGDs: We expect volume growth to continue for CGD players. Spot as well as crude-linked LNG prices have inched up in 4QFY18. However, Gujarat Gas had already taken a price hike of INR2.5/scm in Dec 2017 which would 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.  PLNG – a long-term buy: Visibility on PLNG’s medium/long-term earnings is high, given (a) the huge gas demandsupply gap in India, (b) volume growth, driven by gradual capacity addition, and (c) earnings growth boosted by

sharply during the quarter on seasonally strong demand, supply disruption and weather-related cuts in China.  Base metal prices were also marginally higher on improving global demand and Chinese supply measures.  Ferrous companies will outperform on the back of strong price increases.





Excl. OMCs







April 2018

USD7.0/bbl in 4QFY18 v/s USD7.3/bbl in 3QFY18 and USD6.4/bbl in 4QFY17. We expect marginal inventory gain/loss during the quarter. Average Brent crude price was up 24% YoY and 9% QoQ to USD67/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 GRM of USD11.4/bbl, led by strong benchmark (premium of USD4.4/bbl). The Petchem segment is expected to do better, led by healthy petchem deltas and strong volume growth. Crude oil prices continued their upward trend in 4QFY18 as well. Average Brent crude price was up 24% YoY (9% QoQ) at USD67/bbl. OMCs are likely to post marginal refining inventory gains for the quarter. Domestic oil & gas production has improved, which would be beneficial for the upstream companies. Rise in crude oil price and revived production volume growth for oil and gas would benefit ONGC/OINL. We expect volume growth to continue for CGD players. We might see margin compression (YoY/QoQ) in the industrial segment due to competition from alternative fuels.

40

India Strategy | Earnings recovery imminent

Sales

SECTOR

Key highlights

Retail

 We expect our Retail Universe to

17.3

Technology

 In 4Q, YoY revenue trajectory is likely

6.6

Telecom

 Expect 4QFY18 to witness revenue

April 2018

report healthy revenue growth of 17.3% YoY in 4QFY18. EBITDA is expected to increase by 45.1% YoY and adj. PAT by 61.4% YoY.

to continue to inch up. We expect such acceleration in INFO, TCS and TECHM, and also organically for WPRO - across our top-tier universe.  Corresponding aggregate QoQ growth is pegged at 2.9% (~2% in constant currency and 80-120bp tailwind from cross currency).  We expect aggregate USD revenue growth of 3.5% QoQ across tier-2 IT, 60bp higher than tier-1. While crosscurrency movements will rub off positively across the board, the INR, which is a key determinant of margins, has not moved significantly.  As a result, barring company-specific turnarounds such as TECHM (+110bp QoQ), MTCL (+90bp QoQ) and KPIT (+80bp QoQ), we expect margins to be range-bound.

and EBITDA drop, primarily on account of ARPU downtrading. Further, a cut in international IUC and Jio Phone re-launch (with new price plan of INR49) are only expected to magnify the impact. We expect consol. revenue dip of ~4% QoQ for Bharti/Idea.  Consolidation in the telecom sector, led by shutdown/acquisition of smaller players, should continue to pull down net tenancies. Bharti Infratel is likely to witness 2% QoQ decline in net tenancies due to the exit from smaller operators, pulling down consol. revenue by 2% QoQ.  Tata Comm.’s revenue is expected to grow marginally by 1% QoQ as growth in data revenue is expected to offset the impact of decline in voice segment.

-10.1

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) annual re-gas charge escalation. Poor competition from existing and upcoming terminals and lower LNG prices add to the Buy case for PLNG. 45.1 61.4 1.9  TTAN and PCJ both are expected to deliver healthy top-line growth.  For Jubilant Foodworks (JUBI), we expect sales to increase 22.8% YoY, with same-store sales (SSS) up 20% YoY. Base quarter 4QFY17 had witnessed 7.5% decline in SSS. Thus, a favorable base and initiatives taken by the company should result in highest SSS growth. 9.6 10.9 0.6  We expect INFO to start the year by guiding for 6-8% growth in constant currency (which will be higher in reported dollar), and are currently pegging our estimate at the higher end of that band. Guidance for FY19 will understandably supersede the performance of 4Q.  Apart from quantitative guidance, TCS’ commentary on BFS and margins will be crucial, as softness in both is a downside risk to current valuations. Margin commentary will be crucial, especially given the onsite centricity of recent deal wins.

-16.1

PL

-2.1



  

BHARTI’s India wireless EBITDA is expected to witness steep 17% QoQ decline, pulling down consol. EBITDA by 8% QoQ. Bharti’s Africa EBITDA to grow 1% QoQ led by cost efficiencies. IDEA’s consol. EBITDA likely to decline 15% QoQ. BHIN’s consol. EBITDA to decline 2% QoQ. TCOM to see 1% QoQ overall EBITDA growth on the back of 3% data EBITDA growth, partly offset by a 9% decline in voice EBITDA.

41

India Strategy | Earnings recovery imminent

SECTOR

Key highlights

Utilities

 Power Grid will report earnings

April 2018

growth on continuing strong capitalization momentum.  Coal India EBITDA (ex-OBR) will increase by 22% QoQ on price hike and higher volumes.  NTPC will report muted growth due to drag on account of under recovery in fixed charge.

Sales 4.7

4QFY18E YoY (%) EBITDA PAT Margin Key stocks to watch Chg YoY (pp) 18.2 36.6 3.9  Coal India e-auction and ASQ realization..  Power Grid – capitalization momentum.  NTPC – commercialization guidance.

42

India Strategy | Earnings recovery imminent

Markets lose strength toward year-end

MARKETS & FLOWS

Domestic MFs record highest-ever inflows The Nifty waxed and waned to close just 10.2% higher at 10,114 in FY18. The index had rallied strongly by 20.2% (FY18 YTD) up to January before correcting meaningfully by 4.9% in February and 3.6% in March. Markets witnessed significant volatility over the last two months of FY18 owing to unsupportive global and domestic events (concerns around global interest rate tightening, potential trade conflict, and domestic political uncertainty after the BJP’s muted show in the recent by-polls). In FY18, Brazil (+31%), MSCI EM (+22%), China (+17%), Japan (+13%) and Korea (+13%) were the best performers among the key global markets in local currency terms. On the other hand, the UK (-4%) delivered negative returns. India’s share in the world market cap is at 2.7% (+10bp YoY), above its long-term average of 2.5%. In FY18, the world market cap increased by 14.2% (USD10.1t), while India’s market cap rose 16.8%. Seven sectors outperformed the benchmark in FY18: Real Estate (+39%), Private Banks (+24%), Technology (+17%), NBFC (+14%), Metals (+13%), Capital Goods (+12%) and Consumer (+11%). Healthcare (-14%), PSU Banks (-7%) and Utilities (-7%) were the only negative performers in FY18. Midcaps have struggled over the last few months, resulting in their underperformance versus large-caps. In FY18, midcaps delivered 9% returns, as against +10% by the Nifty. Market breadth was positive in FY18, with 34 Nifty stocks closing higher. Titan (+104%), Bajaj Finance (+51%), Maruti (+47%), HUL (+47%) and Tech Mahindra (+39%) were the top performers. Lupin (-49%), Tata Motors (-30%), Sun Pharma (-28%), Dr Reddy’s (-21%) and SBI (-15%) were the worst performers. In FY18, India recorded highest-ever inflows from domestic MFs of USD22b, which is 2.6x of full-year inflows of USD8.4b in FY17. FII flows remained muted at USD3.2b in FY18, lower than those in FY17 (USD8.3b). DIIs (ex-MFs) saw outflows of USD4.3b in FY18 – the second successive year of outflows. While markets remain volatile, the Nifty P/E is attractively valued at 17.4x, marginally above the historical average of 17.0x. At 2.6x, Nifty P/B is near its historical average. Market-cap-to-GDP at a seven-year high of 86% (FY18E GDP), above its long-term average.







Highest-ever inflows by domestic  MFs, 2.6x of FY17 (USDb)

22.0 

10.1 6.6

4.1

8.4 

1.5 

-0.2 -4.2-3.6

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

-2.3 -4.4





Exhibit 53: Over FY08-18, Indian markets recorded CAGR of 7.9% in local currency terms and 2.8% in USD terms 24

-36

34

-50

74 96

Trend in Nifty

11 12

-9 -21

18

7 0

7

19 10

27

-9

22

-14 21 10

Exhibit 54: Nifty QoQ change (%) — negative return after four consecutive quarters of positive returns QoQ Return (%) 14

6

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

April 2018

Annual Return in USD (%)

-4

-2

5 4

7

8 4 3

4

3 0

-1

-3 -5

-5

-4

Mar-13 June-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

10,114

9,174

7,738

8,491

6,704

5,683

5,296

5,834

5,249

3,021

4,735

3

Annual Return in INR (%)

12

10

CAGR in INR: 7.9% CAGR in USD: 2.8%

43

India Strategy | Earnings recovery imminent

Global equities: India among the bottom-performing markets in FY18 In FY18, Brazil (+31%), MSCI EM (+22%), China (+17%), Japan (+13%) and Korea (+13%) were the best performers among the key global markets in local currency terms. On the other hand, the UK (-4%) delivered negative returns.



Exhibit 55: World equity indices (FY18) – local currency Brazil

Exhibit 56: World equity indices (FY18) – USD (%) Brazil

31

MSCI EM

MSCI EM

22

China (HSCEI)

24

17

22

South Korea

19 19

Japan

13

Japan

South Korea

13

Taiwan

16 16

S&P 500

12

China (HSCEI)

Taiwan

11

S&P 500

India - Nifty

10

India - Nifty

Russia MICEX UK

1

12

10

UK

-4

8

Russia MICEX

0

India’s share in world market cap above historical average

3.0

Average of 2.5% 2.5

1.0

26

25

6.4

1.3

2.2

7.7 29.4

Mkt cap chg 12M (%) 20

2.7

17

3.7

0.5

0.6

Curr Mcap (USD Tr)

17 12

11

11

10

8

Russia

3.3

1.8

Indonesia

India's Contribution to World Mcap (%)

3.5

Exhibit 58: Market cap change in FY18 (%)

UK

Exhibit 57: Trend in India's contribution to world market cap

US



India's share in world market cap is at 2.7% (up 10bp YoY), above its long-term average of 2.5%. In FY18, world market cap has increased by 14.2% (USD10.1t), while India's market cap is up 16.8%.

China



2.0

India

Taiwan

Japan

Brazil

Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 April 2018

Korea

1.6

1.5

44

India Strategy | Earnings recovery imminent

Sector performance: Seven sectors outperformed the benchmark

Real Estate, Pvt. Banks, Technology top outperformers  Seven sectors outperformed the benchmark in FY18: Real Estate (+39%), Private Banks (+24%), Technology (+17%), NBFC (+14%), Metals (+13%), Capital Goods (+12%) and Consumer (+11%).  Healthcare (-14%), PSU Banks (-7%) and Utilities (-7%) were the only negative performers in FY18. Exhibit 59: Sectoral performance—absolute and relative to Nifty (%) MoM Abs. Performance (%) FY18 Relative to Nifty MoM Performance (%) FY18 Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Chg Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Chg Sector 17 17 17 17 17 17 17 17 17 18 18 18 (%) 17 17 17 17 17 17 17 17 17 18 18 18 (%) Real Estate 20 0 6 7 -2 -3 11 6 7 0 -5 -10 39 19 -3 7 1 -1 -2 6 7 4 -5 -1 -6 29 Banks - Pvt 5 8 0 6 -2 0 3 2 3 9 -7 -3 24 3 5 1 0 0 1 -3 3 0 4 -2 0 13 Technology -7 6 -4 6 -4 -1 4 4 5 11 0 -3 17 -9 3 -3 0 -2 0 -1 5 2 7 4 0 6 NBFC 4 0 0 7 -1 -2 1 -2 3 7 -6 2 14 3 -3 1 1 1 -1 -4 -1 0 3 -1 5 3 Metal -4 0 1 9 7 2 9 -6 7 3 -2 -12 13 -6 -4 2 3 8 3 3 -5 4 -1 3 -9 3 Cap Goods 9 -2 -3 5 -4 -1 7 0 4 6 -6 -3 12 7 -5 -2 -1 -2 0 2 1 1 2 -1 0 2 Consumer 2 7 3 -3 1 -4 5 1 4 0 -2 -2 11 0 4 4 -9 2 -3 -1 2 1 -5 3 2 1 Telecom 0 1 3 10 1 -10 26 0 10 -17 -1 -8 10 -1 -3 4 4 3 -9 21 1 7 -21 4 -4 0 Auto 3 6 -3 5 -3 2 5 -1 6 -3 -4 -3 9 2 3 -2 -1 -2 3 0 0 3 -8 1 0 -1 Nifty Midcap 5 -3 1 4 -1 -1 8 2 6 -2 -5 -5 9 4 -7 2 -1 0 0 3 3 3 -6 -1 -1 -1 Oil 7 -1 -7 7 7 -2 12 -4 2 1 -5 -6 8 5 -5 -6 2 9 -1 6 -3 -1 -4 0 -2 -2 Cement 8 -1 -1 9 4 -5 11 -5 2 -1 -4 -7 8 6 -4 0 3 5 -4 5 -4 -1 -5 1 -4 -3 Media 4 -7 -2 4 -6 3 7 3 7 2 -7 -2 5 3 -10 -1 -2 -4 5 1 4 4 -3 -2 1 -5 Utilities 2 -5 0 4 -3 -2 6 -1 3 -3 -4 -4 -7 1 -8 1 -1 -1 -1 1 0 0 -7 1 -1 -17 Banks - PSU 5 -3 -2 13 -11 -8 25 2 -3 0 -17 -2 -7 4 -7 -1 7 -10 -6 20 3 -6 -5 -12 2 -17 Healthcare -2 -10 5 0 -7 3 6 -2 6 -2 -3 -7 -14 -3 -13 6 -6 -6 4 0 -1 3 -6 2 -3 -24 Nifty Chg 1 3 -1 6 -2 -1 6 -1 3 5 -5 -4 10

Breadth positive in FY18; 34 Nifty stocks close higher 

Titan (+104%), Bajaj Finance (+51%), Maruti (+47%), HUL (+47%) and Tech Mahindra (+39%) were the top performers. Lupin (-49%), Tata Motors (-30%), Sun Pharma (-28%), Dr Reddy’s (-21%) and SBI (-15%) were the worst performers.

Titan Co Bajaj Fin. Maruti HUL Tech Mah. Reliance Ind. HDFC Bank IndusInd Bk Bajaj Finserv L&T Tata Steel Indiabulls Hsg Grasim Ind HDFC Kotak Mah.Bk TCS GAIL M&M Bharti Airtel Infosys HCL Tech Eicher Motors ICICI Bank Nifty Hero Moto Hindalco Wipro Zee Ent Asian Paints Adani Ports Axis Bank Bharti Infratel NTPC Vedanta UPL -1 UltraTech -1 BPCL -2 Yes Bank -2 Power Grid -2 HPCL -2 Bajaj Auto -3 Coal India -4 ONGC -8 Cipla -9 ITC -9 IOC SBI -15 Dr Reddy's -21 Sun Pharma -28 Tata Motors -30 Lupin-49

51 47 47 39 34 31 27 27 25 24 24 23 21 20 17 16 15 14 11 11 11 11 10 10 10 9 8 5 4 4 3 2 1 0

104

Exhibit 60: Best and worst Nifty performers for FY18 (%)—~50% companies outperformed the benchmark

April 2018

45

India Strategy | Earnings recovery imminent

Institutional flows: Domestic MFs record highest-ever inflows FII flows moderate; DII (ex-MFs) were sellers for second successive year   

India recorded highest-ever inflows from domestic MFs of USD22b, 2.6x of fullyear inflows of USD8.4b in FY17. FII flows remained muted at USD3.2b in FY18, lower than inflows in FY17 (USD8.3b). DIIs (ex-MFs) saw outflows of USD4.3b in FY18 – the second successive year of outflows.

Exhibit 61: Yearly domestic MF flows in equities (USD b)

Exhibit 62: Quarterly domestic MF flows in equities (USD b) 7.3

22.0

10.1 6.6

4.1

2.72.4

8.4

0.4

Exhibit 63: Yearly FII flows in equities (USD b) 23.4

Exhibit 64: Quarterly FII flows in equities (USD b) 10.4

25.8

25.0

6.6

18.1

13.1

13.7

3.2

8.5

8.3

3.2

4.1

6.2

6.0 3.5

2.3

-0.1

Exhibit 65: Yearly DII ex-MF flows in equity (USD b)

-0.3 -2.6

1.3 0.3

7.4

-0.2 -0.3

2.0

-0.9 -2.0 -2.4 -2.8-3.0

-0.7

April 2018

-4.3 FY18

FY17

FY16

FY15

-10.3 FY14

FY13

FY12

FY11

FY10

FY09

FY08

-8.5

-3.2

-4.9

0.5

-0.1

0.5

-0.6

-0.5 -0.8 -1.5 -1.5 -1.5

-2.2

-3.9

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18

-3.9

-5.3

-4.6

2.5 2.1

Exhibit 66: Quarterly DII ex-MF flows in equity (USD b)

11.6

0.3

1.8

1.21.7

0.2

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18

FY18

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

-10.4

6.6

4.6

-1.5

13.7

1.7

1.01.0

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 June-16 Sep-16 Dec-16 Mar-17 June-17 Sep-17 Dec-17 Mar-18

FY18

FY17

FY16

FY15

FY14

FY13

-4.2 -3.6 FY12

-4.4

4.7 5.3

4.6

-1.0-0.6-0.8 -1.4 -1.3

-0.2 FY11

FY10

-2.3 FY09

2.1

1.5

0.1

1.5

FY08

3.7

4.7

3.9

46

India Strategy | Earnings recovery imminent

Valuations moderate; now at long-period averages While markets remain volatile, the Nifty P/E trades at attractive valuations of 17.4x, marginally above the historical average of 17.0x. At 2.6x, the Nifty P/B is near its historical average. Market-cap-to-GDP at a seven-year high of 86% (FY18E GDP), above its longterm average.





Exhibit 67: 12-month forward Nifty P/E (x)

Exhibit 68: 12-month forward Nifty P/B (x) 3.5 3.0

103 83

10 Year Avg: 15.1%

15.3

95

15.3

Apr-18

Apr-17

Apr-16

Apr-15

Apr-14

88

Average of 78% for the period 81 71 69 64 66

FY12

Exhibit 70: India’s market cap to GDP (%)

18.1 16.7

2.6

FY11

Exhibit 69: 12-month forward Nifty RoE (%)

Apr-11

Apr-08

Apr-18

Apr-17

Apr-16

Apr-15

Apr-14

Apr-13

Apr-12

Apr-11

1.5 Apr-10

9 Apr-09

2.0

Apr-08

13

Apr-10

2.5

Apr-09

17.4

17

10 Year Avg: 2.5x

Apr-13

10 Year Avg: 17.0x

21

Apr-12

25

55

86

80

13.9

FY18E

FY17

FY16

FY15

FY14

FY13

FY10

FY09

FY08

FY07

Apr-18

Apr-17

Apr-16

Apr-15

Apr-14

Apr-13

Apr-12

Apr-11

Apr-10

Apr-09

Apr-08

12.5

Midcaps underperform large-caps; still command premium v/s large caps 



Midcaps have struggled over the last few months, resulting in its underperformance versus large-caps. In FY18, midcaps have delivered 9% returns, as against 10% by Nifty. Midcaps now trade at a 19% premium to the Nifty on a P/E basis.

Exhibit 71: Midcaps underperformed large-caps in last 12 months Nifty Rebased

Nifty Midcap 100 Rebased

130 120

110 109

110 100

April 2018

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

90

47

India Strategy | Earnings recovery imminent

Exhibit 72: Midcaps v/s Nifty P/E (x) – 12-month forward Midcap PE (x) 36.0

Nifty PE (x)

Midcap Vs Nifty PE Prem/(Disc) (%) 85

Nifty Avg: 18.6x Midcap Avg: 19.4x

29.0

Exhibit 73: Midcaps trading at 19% premium to Nifty

55

22.0

20.8

19

17.4

15.0

Average: 4%

25 -5

Apr-18

Dec-17

Apr-17

Aug-17

Dec-16

Aug-16

Apr-16

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Apr-13

Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18

Aug-13

-35

8.0

Sector valuations: It’s a tale of caution and opportunity now  



Technology sector trades at a P/E of 17.2x, a 9% premium to its historical average of 15.8x. Despite the outperformance of the metals sector in FY18, valuations at 5x EV/EBITDA remain reasonable and at a discount of 13% to the long-period average. Consumer, Autos, Private Banks and NBFCs continue to trade at a significant premium to LPAs. Healthcare, PSU Banks and Utilities – the underperforming sectors of FY18 – are trading at a significant discount to LPAs.

Exhibit 74: Sector valuations - Snapshot Sector

PE (x)

Auto Banks – PVT Banks – PSU NBFC Capital Goods Cement Consumer Healthcare Infrastructure Media

16.7 19.7 12.5 24.2 26.8 22.8 38.3 20.5 15.8 25.6

10 Yr Avg 15.2 16.5 12.1 17.9 26.2 19.9 30.9 23.0 13.4 22.8

Metals Oil & Gas Retail Technology Telecom Utilities

9.8 11.5 45.7 17.2 Loss 10.4

12.0 11.5 26.4 15.8 14.2

April 2018

Current

Prem/ Disc (%) 10.1 19.7 3.5 34.8 2.2 14.6 24.0 -10.8 18.3 11.9 -18.2 0.3 73.0 8.8 -26.4

Relative to Nifty P/E (%) 10 Yr Current Avg -5 -12 13 -4 -29 -27 38 5 53 50 30 14 119 82 17 34 -10 -22 46 33 -44 -34 161 -2 -41

-30 -31 53 -7 -14

PB (x)

3.6 2.6 0.7 3.5 3.1 2.8 11.1 3.0 1.9 4.8

10 Yr Avg 3.2 2.2 0.9 2.9 3.6 2.2 9.5 3.9 1.7 4.0

Prem/ Disc (%) 13.6 19.8 -24.4 20.3 -14.0 23.8 16.8 -23.1 8.9 19.3

1.4 1.5 10.1 4.0 2.3 1.4

1.4 1.6 6.6 4.1 2.5 1.7

-0.7 -2.1 52.6 -3.2 -6.1 -19.2

Current

Relative to Nifty P/B (%) 10 Yr Current Avg 37 24 0 -14 -73 -63 34 15 17 40 6 -11 322 280 14 55 -27 -32 84 59 -45 -42 285 51 -12 -48

-44 -38 163 62 -2 -33

48

India Strategy | Earnings recovery imminent

MOSL model portfolio

April 2018

SECTOR WEIGHT / PORTFOLIO PICKS Financials Private HDFC Bank ICICI Bank Yes Bank IndusInd Bank RBL PSU SBI NBFCs HDFC Bajaj Finance Shriram Transport Finance Auto M&M Maruti Motherson Sumi Tata Motors Consumption / Retail Titan Pidilite Inds. Emami United Spirits Energy Reliance Inds ONGC IOC Petronet LNG Cap Goods, Infra & Cement Larsen & Toubro Shree Cement Thermax Technology / Media Infosys Sun TV Healthcare Sun Pharma Cipla Utilities / Metals Hindalco Power Grid Corp. Midcaps Team Lease Sadbhav Engg Future Consumer Oberoi Realty Aegis Logistics UPL Exide Inds. Tata Chemicals Repco Home Fin Cash TOTAL

BSE 100

MOST WEIGHT

33.4 20.3 8.2 3.7 1.2 2.0 0.0 2.5 2.0 10.6 6.4 0.8 0.5 10.8 1.5 2.5 0.5 1.4 12.1 0.8 0.3 0.0 0.0 10.1 6.1 1.1 0.8 0.4 8.5 3.4 0.3 0.0 12.3 4.6 0.0 4.4 1.2 0.6 6.7 0.6 0.9 1.8 0.0 0.0 0.0 0.0 0.0 0.6 0.2 0.3 0.0 0.0 100.0

34.0 20.0 8.0 4.0 3.0 3.0 2.0 3.0 3.0 11.0 5.0 3.0 3.0 12.0 4.0 4.0 2.0 2.0 11.0 4.0 3.0 2.0 2.0 11.0 5.0 2.0 2.0 2.0 9.0 5.0 2.0 2.0 6.0 4.0 2.0 4.0 2.0 2.0 4.0 2.0 2.0 9.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.0 100.0

WEIGHT EFFECTIVE SECTOR RELATIVE TO STANCE BSE100 0.6 Neutral -0.3 Underweight -0.2 Buy 0.3 Buy 1.8 Buy 1.0 Buy 2.0 Buy 0.5 Neutral 1.0 Buy 0.4 Neutral -1.4 Buy 2.2 Buy 2.5 Buy 1.2 Overweight 2.5 Buy 1.5 Buy 1.5 Buy 0.6 Buy -1.1 Underweight 3.2 Buy 2.7 Buy 2.0 Buy 2.0 Neutral 0.9 Neutral -1.1 Buy 0.9 Buy 1.2 Buy 1.6 Buy 0.5 Neutral 1.6 Buy 1.7 Buy 2.0 Buy -6.3 Underweight -0.6 Buy 2.0 Buy -0.4 Neutral 0.8 Buy 1.4 Neutral -2.7 Underweight 1.4 Buy 1.1 Buy 7.2 Overweight 1.0 Buy 1.0 Buy 1.0 Buy 1.0 Buy 1.0 Buy 0.4 Buy 0.8 Buy 0.7 Buy 1.0 Buy 0.00

49

India Strategy | Earnings recovery imminent

Sectors & Companies BSE Sensex: 33,371

S&P CNX: 10,245

April 2018

MOSL Universe: 4QFY18 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 April 2018, unless otherwise stated.

April 2018

50

India Strategy | Earnings recovery imminent

MOSL Universe: 4QFY18 aggregate performance highlights Quarterly Performance - MOSL Universe (INR b) Sector (Nos of Companies) Auto (17) Capital Goods (14) Cement (10) Consumer (18) Financials (34) Private Banks (10) PSU Banks (7) Life Insurance (1) NBFC (16) Healthcare (22) Infrastructure (4) Logistics (3) Media (10) Metals (10) Oil & Gas (14) Excl. OMCs (11) Retail (3) Technology (15) Telecom (4) Utilities (7) Others (19) MOSL (204) MOSL Excl. OMCs (201) Sensex (30) Nifty (50)

Mar-18 1,834 770 274 463 934 300 374 87 173 418 41 38 64 1,477 4,333 1,809 73 961 340 652 267 12,939 10,415 5,707 9,631

Sales Var % YoY 20.7 14.6 15.6 8.2 8.0 11.9 -1.7 21.1 20.0 6.3 9.6 19.0 9.7 9.9 21.9 23.5 17.3 6.6 -10.1 4.7 16.9 14.2 12.7 11.2 13.5

Var % QoQ 15.2 42.7 3.7 4.1 6.1 4.1 -0.1 60.4 5.9 -0.7 23.8 19.2 -0.9 3.3 9.5 8.3 -5.7 2.8 -1.6 5.2 8.2 8.9 8.5 9.6 8.6

Mar-18 270 99 49 109 696 283 276 3 133 87 12 5 18 322 496 373 7 226 101 222 47 2,767 2,643 1,604 2,089

Quarter-wise sales growth (% YoY)

EBITDA Var % YoY 26.8 27.1 15.5 10.9 -0.3 24.7 -22.4 20.0 18.6 16.7 9.5 -25.5 10.3 13.6 18.0 30.5 45.1 9.6 -16.1 18.2 17.7 10.6 11.7 12.4 10.8

Var % QoQ 30.3 76.4 8.5 1.6 10.0 18.5 3.5 43.0 7.0 0.0 22.0 8.8 -9.0 12.7 5.2 0.9 -10.8 3.7 -7.2 9.3 0.5 10.1 9.7 11.9 11.1

PAT Var % YoY Var % QoQ 21.8 63.2 10.5 92.8 -2.1 20.8 11.0 -0.8 -3.7 -2.9 3.9 1.9 Loss Loss 3.0 22.7 29.8 6.2 -1.2 -0.9 18.7 8.3 -45.1 14.8 -13.0 -18.2 30.7 14.7 11.3 -13.2 13.1 0.2 61.4 3.6 10.9 5.8 PL Loss 36.6 31.7 11.0 -5.2 11.2 7.8 11.5 13.0 12.6 17.1 14.4 8.7

Mar-18 135 60 22 74 122 107 -63 3 75 49 5 3 7 130 265 185 5 175 -7 113 25 1,182 1,103 712 945

Quarter-wise net profit growth (% YoY)

15.2%

14.2%

11.8%

11.4%

11.2%

Sep-17

Dec-17

Mar-18E

11.9%

11.0%

-6.9% Sep-17

Dec-17

Jun-17

Mar-18E

Sectoral sales growth - quarter ended Mar-18 (%)

61 10 10 10 8

8

7

6

37 31 22 19 11

5

11 11

11 10 -13

Financials

Cement

Health Care

Cap Goods

Technology

Consumer

Oil & Gas

MOSL Univ

Infra

Auto

Metals

Retail

-45 Utilities

-10

Telecom

Utilities

Health Care

Technology

Financials

Consumer

Infra

Media

Metals

MOSL Univ

Cap Goods

Cement

Retail

Logistics

Auto

Oil & Gas

-1 -2 -4

PL

Telecom

14

Logistics

22 21 19 17 16 15

Sectoral net profit growth - quarter ended Mar-18 (%)

Media

Jun-17

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

April 2018

51

India Strategy | Earnings recovery imminent

Annual performance - MOSL universe (INR Billion) Sector

Sales (INR B) Chg. YoY (%) EBIDTA (INR B) Chg. YoY (%) PAT (INR B) Chg. YoY (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Auto (17) 6,912 7,923 8,644 14.3 14.6 9.1 937 1,213 1,370 11.6 29.5 13.0 407 591 692 18.7 45.1 17.1 Cap. Goods (17) 2,418 2,756 3,053 9.9 14.0 10.8 255 311 351 21.1 22.3 12.8 151 182 215 18.1 20.3 18.3 Cement (13) 1,130 1,326 1,522 -5.8 17.3 14.8 206 276 338 -11.2 33.8 22.3 92 150 195 -10.2 62.8 30.0 Consumer (18) 1,763 2,046 2,358 6.3 16.1 15.2 416 490 572 9.0 17.7 16.7 287 338 397 10.0 17.9 17.4 Financials (38) 3,495 4,249 4,984 11.8 21.6 17.3 2,998 3,657 4,328 7.8 22.0 18.4 699 1,220 1,772 4.8 74.5 45.2 Pvt Bks (13) 1,207 1,470 1,784 14.8 21.8 21.3 1,048 1,290 1,589 10.3 23.1 23.2 456 631 852 12.4 38.3 35.1 PSU Bks (7) 1,445 1,764 1,971 3.5 22.1 11.7 1,146 1,403 1,562 -0.6 22.4 11.3 -34 251 504 -175.6 -841 101.3 Life Ins. (1) 238 294 366 23.5 23.3 24.5 298 360 449 9.1 20.8 24.4 9 10 13 2.8 14.2 25.8 NBFC (17) 605 721 863 24.3 19.1 19.8 506 603 728 25.2 19.3 20.8 268 328 402 28.9 22.6 22.6 Healthcare (22) 1,624 1,876 2,164 0.6 15.5 15.4 328 418 508 -9.1 27.4 21.5 187 251 316 -19.3 34.4 25.5 Infra. (4) 149 170 192 9.0 13.9 13.3 47 52 53 4.2 9.5 2.4 14 15 15 32.6 4.2 -0.8 Logistics (3) 136 155 178 9.9 14.4 14.9 19 23 27 -4.1 22.3 20.9 13 16 19 8.5 22.0 14.6 Media (13) 289 329 372 5.4 13.9 13.1 84 103 121 7.0 23.4 17.7 35 51 65 6.0 44.2 26.5 Metals (10) 5,407 5,881 5,500 20.3 8.8 -6.5 1,068 1,295 1,308 26.5 21.2 1.1 375 534 574 64.7 42.3 7.4 Oil & Gas (14) 16,098 18,577 19,872 20.8 15.4 7.0 2,115 2,326 2,540 23.4 10.0 9.2 1,047 1,134 1,289 5.5 8.3 13.7 Excl. OMCs (11) 9,523 11,320 11,941 21.2 18.9 5.5 1,641 1,888 2,033 29.6 15.0 7.7 788 914 1,022 8.0 15.9 11.8 Retail (3) 291 353 425 21.0 21.3 20.6 30 38 47 40.4 24.8 22.8 19 24 31 48.6 27.2 26.0 Tech.(15) 3,707 4,127 4,528 4.3 11.3 9.7 851 952 1,039 3.5 11.9 9.2 679 712 790 5.4 4.9 11.0 Telecom (4) 1,438 1,435 1,600 -11.3 -0.2 11.5 444 442 529 -17.6 -0.6 19.8 -7 -17 14 PL Loss LP Utilities (7) 2,609 2,907 3,137 6.8 11.4 7.9 828 1,041 1,171 12.9 25.8 12.4 362 466 517 11.4 28.7 10.9 Others (25) 1,391 1,688 1,964 12.8 21.3 16.3 262 328 390 18.5 25.0 19.0 132 177 213 18.6 34.2 20.5 MOSL (223) 48856 55796 60495 12.9 14.2 8.4 10888 12964 14693 10.6 19.1 13.3 4494 5844 7112 7.7 30.0 21.7 Excl. OMCs (220) 42282 48539 52564 11.8 14.8 8.3 10414 12526 14186 10.8 20.3 13.3 4235 5624 6845 8.3 32.8 21.7 Sensex (30) 11586 13442 14092 11.8 16.0 4.8 3132 3773 4222 10.5 20.5 11.9 1403 1809 2194 10.9 28.9 21.3 Nifty (50) 17219 19651 20804 12.3 14.1 5.9 3919 4669 5237 9.9 19.1 12.2 1804 2277 2743 10.9 26.2 20.5 For Banks: Sales = Net Interest Income, EBIDTA = Operating Profits; Note: Sensex & Nifty Numbers are Free Float

Valuations - MOSL universe Sector Auto (17) Capital Goods (17) Cement (13) Consumer (18) Financials (38) Private Banks (13) PSU Banks (7) Life Insurance (1) NBFC (17) Healthcare (22) Infrastructure (4) Logistics (3) Media (13) Metals (10) Oil & Gas (14) Excl. OMCs (11) Retail (3) Technology (15) Telecom (4) Utilities (7) Others (25) MOSL (223) MOSL Excl. OMCs (220) Sensex (30) Nifty (50) N.M. : Not Meaningful.

April 2018

FY18E 25.2 31.6 41.8 45.7 35.5 28.1 -105.4 108.1 27.9 28.9 17.2 27.1 37.1 14.4 12.2 13.3 57.5 18.7 -405 13.7 31.3 24.0 25.0 23.5 22.2

PE (x) FY19E 17.4 26.3 25.7 38.8 20.4 20.3 14.2 94.7 22.8 21.5 16.5 22.2 25.7 10.1 11.3 11.5 45.2 17.9 -155 10.6 23.3 18.5 18.8 18.2 17.8

FY20E 14.8 22.2 19.8 33.0 14.0 15.0 7.1 75.2 18.6 17.1 16.7 19.4 20.3 9.4 9.9 10.3 35.9 16.1 197.4 9.6 19.3 15.2 15.4 15.0 14.7

EV / EBIDTA (x) FY18E FY19E FY20E 10.0 7.9 6.7 20.0 16.5 14.4 19.0 14.2 11.4 30.3 26.0 22.1 N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M 16.2 12.8 10.2 7.6 7.8 8.2 17.9 14.7 11.9 15.6 12.0 9.8 6.3 5.1 4.8 7.2 6.1 5.4 7.7 6.2 5.5 36.2 28.6 23.1 13.2 12.1 10.8 9.4 9.5 7.8 9.6 7.9 7.1 15.0 12.2 10.0 N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M

FY18E 4.5 3.5 3.3 12.4 2.3 2.9 0.8 22.1 4.0 3.6 2.2 2.9 5.3 1.7 1.6 1.6 11.0 4.7 2.4 2.0 4.6 2.9 3.0 3.0 3.0

P/BV (x) FY19E FY20E 3.7 3.1 3.2 3.0 3.0 2.7 11.2 10.3 2.1 1.9 2.6 2.3 0.8 0.7 19.3 16.4 3.5 3.0 3.2 2.7 2.0 1.8 2.7 2.5 4.6 3.9 1.5 1.3 1.5 1.3 1.4 1.3 10.0 9.2 4.1 3.7 2.6 2.6 1.8 1.7 4.0 3.5 2.6 2.4 2.7 2.4 2.7 2.4 2.7 2.4

FY18E 17.7 11.1 7.8 27.1 6.6 10.5 -0.8 20.4 14.4 12.3 12.9 10.9 14.3 11.5 13.2 11.9 19.2 25.2 -0.6 14.6 14.7 12.1 11.9 12.7 13.3

RoE (%) Div Yld (%) EARN. CAGR FY19E FY20E FY17 (FY17-FY20) 21.6 21.2 1.0 26.4 12.3 13.3 1.2 18.9 11.5 13.5 0.6 23.9 28.9 31.1 1.4 15.0 10.5 13.6 1.0 38.5 13.0 15.4 0.9 28.0 5.5 10.1 0.9 124.2 20.3 21.8 0.0 13.9 15.2 16.4 1.4 24.7 14.7 16.0 0.5 10.8 12.0 10.7 1.0 11.1 12.3 13.1 1.7 14.9 17.8 19.4 0.6 24.6 14.6 14.2 4.0 36.1 13.0 13.4 3.0 9.1 12.6 12.8 2.3 11.9 22.2 25.6 0.7 33.5 23.2 23.0 2.0 7.1 -1.7 1.3 1.4 -42.1 17.2 17.7 4.1 16.7 17.1 18.2 1.2 24.2 14.3 15.6 1.7 19.4 14.2 15.6 1.6 20.5 14.6 15.9 1.4 20.1 15.0 16.1 1.5 19.0

52

India Strategy | Earnings recovery imminent

Ready reckoner: Quarterly performance Sector

Automobiles Amara Raja Batt. Ashok Leyland Bajaj Auto Bharat Forge Bosch CEAT Eicher Motors Endurance Tech. Escorts Exide Inds. Hero Motocorp Mahindra CIE Mahindra & Mahindra Maruti Suzuki Motherson Sumi Tata Motors TVS Motor Sector Aggregate Capital Goods ABB Bharat Electronics BHEL Blue Star CG Consumer Elect. CG Power & Indl. Cummins India Engineers India GE T&D India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate Cement ACC Ambuja Cements Birla Corporation Dalmia Bharat Grasim Industries India Cements Ramco Cements Sanghi Inds. Shree Cement Ultratech Cement Sector Aggregate Consumer Asian Paints Britannia Colgate Dabur Emami

April 2018

CMP

Sales (INR m) Var Var Mar-18 % YoY % QoQ

EBITDA (INR m) Var Var Mar-18 % YoY % QoQ

PAT (INR m) Var Var Mar-18 % YoY % QoQ

(INR)

Rating

811 148 2,792 717 19,116 1,599 28,052 1,263 884 233 3,640 221 769 9,024 333 343 649

Buy Buy Buy Buy Neutral Buy Buy Buy Sell Buy Neutral Buy Buy Buy Buy Buy Neutral

15,109 86,412 66,617 14,328 29,916 16,484 24,942 16,723 14,487 23,818 85,736 5,754 131,573 208,623 161,653 892,009 39,994 1,834,182

12.4 30.6 36.0 27.3 16.2 12.0 32.1 21.2 41.7 20.8 24.0 24.0 24.0 13.8 43.3 15.5 40.6 20.7

-2.7 21.5 4.6 3.0 -2.6 4.7 9.9 5.8 20.2 4.6 17.4 2.5 14.5 8.2 12.3 20.3 8.5 15.2

2,327 11,329 12,736 4,327 7,310 1,813 8,274 2,309 1,681 3,118 14,336 647 17,631 33,291 14,690 130,740 3,245 269,803

26.2 55.2 40.6 35.2 3.9 36.9 41.5 21.6 126.0 21.0 38.3 50.1 42.6 24.3 18.4 21.0 100.9 26.8

-3.7 43.7 3.4 3.9 64.0 -3.0 17.0 3.6 15.9 10.3 23.8 11.0 4.2 9.6 16.6 53.0 13.2 30.3

1,212 6,963 9,784 2,371 4,643 964 7,300 1,002 1,089 1,747 9,860 279 10,015 23,007 5,182 48,123 1,747 135,290

22.2 62.7 22.0 31.7 5.4 20.9 58.9 20.0 126.0 6.0 37.4 67.5 24.5 27.9 -3.7 11.3 37.8 21.8

-9.9 54.8 2.7 3.9 66.3 15.8 40.2 4.7 18.5 13.2 22.4 53.7 -1.3 27.9 41.8 321.8 13.2 63.2

1,283 147 85 795 231 80 740 164 400 509 1,330 1,124 1,136 648

Sell Buy Sell Neutral Buy Neutral Buy Buy Neutral Buy Buy Neutral Buy Neutral

25,780 45,228 106,712 14,977 11,650 14,095 12,227 5,221 13,275 24,789 416,408 37,378 18,412 23,560 769,712

18.9 13.4 10.1 8.9 8.3 9.7 3.2 17.9 11.0 45.0 13.7 27.6 23.5 15.8 14.6

-7.2 80.0 61.0 52.3 24.2 19.5 -9.7 10.3 -7.7 26.1 44.9 53.9 64.8 71.4 42.7

2,480 11,837 12,290 1,069 1,608 1,058 1,877 1,069 1,599 3,100 51,419 4,045 2,220 2,926 98,598

44.6 20.8 88.8 41.4 16.1 30.0 10.4 -25.9 45.7 35.0 18.6 45.2 28.2 31.9 27.1

-15.6 165.9 316.0 99.8 38.1 21.4 -4.6 -20.7 119.7 18.2 63.5 48.5 132.6 146.7 76.4

1,380 8,949 8,102 602 1,043 428 1,678 890 1,026 2,056 27,537 2,869 1,598 2,138 60,296

56.1 13.0 275.9 61.8 17.9 -12.5 5.9 34.7 122.4 19.9 -16.7 60.2 159.8 6.7 10.5

-19.5 195.5 428.9 219.8 50.1 -17.3 -2.5 -18.0 96.8 18.6 83.1 50.6 172.8 112.9 92.8

1,551 241 764 2,867 1,086 153 756 122 16,623 3,949

Neutral Neutral Buy Buy Neutral Neutral Buy Buy Buy Buy

34,575 28,601 15,198 25,386 28,355 13,784 11,897 2,974 25,950 87,300 274,020

11.5 12.9 5.7 16.2 -1.4 2.6 17.0 20.6 9.0 32.4 15.6

1.2 6.7 9.4 21.4 -36.0 13.6 12.9 6.4 13.0 15.0 3.7

3,359 5,172 1,600 5,118 8,694 1,770 2,622 714 6,033 14,396 49,479

-1.7 41.7 -31.9 -7.2 65.5 -6.8 7.9 68.7 18.0 12.6 15.5

1.4 1.9 15.4 12.6 -0.5 5.8 15.2 15.5 14.0 13.4 8.5

2,144 2,947 -38 1,683 5,023 238 1,390 400 3,292 4,892 21,971

1.4 19.5 PL -3.1 59.2 -30.4 3.3 52.4 8.1 -29.9 -2.1

18.5 -0.2 Loss 73.3 7.4 56.5 26.0 24.4 12.3 40.2 20.8

1,153 5,093 1,084 337 1,099

Neutral Buy Buy Buy Buy

45,098 25,799 11,439 20,591 6,291

14.1 14.9 10.3 7.5 8.9

5.9 0.8 10.7 4.7 -16.9

7,840 3,983 2,834 4,426 1,886

10.1 29.3 16.0 6.0 5.9

-12.0 2.3 0.3 9.7 -28.7

5,278 2,703 1,673 3,611 1,407

10.0 28.3 17.4 8.2 -3.4

-6.9 2.6 -1.9 8.7 -32.3

53

India Strategy | Earnings recovery imminent

Ready reckoner: Quarterly performance Sector

Future Consumer Godrej Consumer GSK Consumer Hind. Unilever ITC Jyothy Labs Marico Nestle P&G Hygiene Page Industries Pidilite Inds. United Breweries United Spirits Sector Aggregate Healthcare Alembic Pharma Alkem Lab Ajanta Pharma Aurobindo Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Fortis Health Glenmark Pharma Granules India GSK Pharma IPCA Labs. Jubilant Life Laurus Labs Lupin Sanofi India Shilpa Medicare Strides Shasun Sun Pharma Torrent Pharma Sector Aggregate Infrastructure Ashoka Buildcon IRB Infra KNR Constructions Sadbhav Engineering Sector Aggregate Logistics Allcargo Logistics Concor Gateway Distriparks Sector Aggregate Media D B Corp Dish TV Ent.Network

April 2018

CMP

Sales (INR m) Var Var Mar-18 % YoY % QoQ 7,737 45.0 -1.3 25,414 6.8 -2.4 11,819 7.3 14.2 89,864 9.4 4.6 111,528 0.2 12.1 5,097 14.4 18.2 14,612 11.1 -10.0 27,728 12.0 7.1 6,427 12.0 -8.7 5,974 19.7 -3.8 14,122 9.0 -8.5 13,742 23.5 14.8 20,138 -0.6 -11.0 463,419 8.2 4.1

EBITDA (INR m) Var Var Mar-18 % YoY % QoQ 190 633.1 15.3 6,004 10.9 4.9 2,464 13.5 20.8 19,090 15.6 13.6 40,707 5.0 4.3 791 30.4 14.1 2,772 9.8 -8.2 5,862 14.7 -7.4 1,825 18.7 -13.2 1,250 28.3 -3.0 2,762 7.1 -25.4 1,796 77.6 17.7 2,708 2.2 -0.5 109,191 10.9 1.6

PAT (INR m) Var Var Mar-18 % YoY % QoQ 58 LP LP 4,141 8.2 -4.2 1,890 7.5 15.5 13,033 16.6 8.8 28,545 6.9 1.2 543 -50.0 56.4 1,807 5.8 -19.0 3,680 17.7 -13.1 1,156 16.0 -11.9 786 17.7 -5.7 1,891 22.1 -20.2 693 930.3 46.4 1,267 13.3 -14.0 74,164 11.0 -0.8

(INR)

Rating

55 1,106 6,000 1,348 258 389 325 8,361 9,465 22,288 963 977 3,250

Buy Neutral Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Neutral

542 1,910 1,402 593 607 394 571 1,107 2,129 130 550 108 2,152 677 847 514 789 5,147 471 704 510 1,288

Neutral Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Neutral

8,199 14,447 4,992 42,395 10,319 30,715 39,031 10,222 37,506 12,242 22,236 4,142 7,420 7,718 21,257 5,383 39,826 6,396 2,055 7,850 65,821 17,385 417,556

11.3 15.4 4.7 16.4 11.6 23.9 9.0 -3.8 5.5 9.0 -8.3 14.0 -2.8 15.9 29.5 13.7 -6.4 15.7 -8.1 -11.6 -3.6 25.9 6.3

-2.4 -17.0 -15.0 -2.2 -2.5 -5.8 -0.3 -1.5 -1.5 9.2 2.4 0.8 5.4 -10.2 2.8 12.4 0.2 -4.6 10.8 4.8 -0.2 17.7 -0.7

1,822 2,719 1,412 9,570 2,147 7,297 7,845 3,399 7,585 835 3,744 760 1,510 1,559 4,464 1,130 7,515 1,384 390 1,374 14,432 4,053 86,946

36.5 82.2 -17.6 24.1 18.0 57.4 55.0 -5.2 30.0 5.7 -8.9 -3.3 29.6 130.4 46.4 -4.8 -32.0 36.4 -33.5 -12.5 16.8 37.4 16.7

-2.9 -24.4 -28.5 -6.7 -3.2 -13.2 -4.2 4.2 -1.1 61.8 28.9 2.6 6.5 -3.3 7.1 29.4 9.2 3.0 43.7 11.8 3.2 12.9 0.0

1,134 1,790 1,011 6,039 875 4,954 4,330 2,643 3,736 406 2,100 391 960 883 2,211 528 3,330 863 263 598 8,542 1,816 49,402

21.9 30.7 -17.1 8.6 -39.0 28.5 113.1 1.9 19.5 LP 14.3 -14.4 10.5 98.8 48.4 -29.0 -45.1 43.8 -37.7 -40.7 -30.2 -11.8 -1.2

-13.2 -17.3 -31.5 -8.0 -4.8 -8.8 -7.4 17.6 -12.6 LP 100.5 11.7 7.0 -16.4 4.0 51.3 29.2 13.5 60.7 28.4 -2.8 -24.0 -0.9

265 242 285 396

Buy Neutral Buy Buy

7,346 16,416 4,933 12,441 41,136

20.4 0.9 2.3 20.5 9.6

11.5 26.6 13.9 33.1 23.8

1,017 8,338 979 1,353 11,687

59.8 1.5 35.6 23.5 9.5

27.8 23.7 -0.5 28.1 22.0

619 2,718 450 880 4,667

-5.3 31.2 -14.1 28.9 18.7

19.0 8.1 -31.4 42.3 8.3

152 Buy 1,260 Neutral 185 Buy

19,878 15,471 3,078 38,427

45.9 -0.7 0.0 19.0

34.3 6.4 6.0 19.2

994 3,297 575 4,865

-5.9 -33.4 9.9 -25.5

6.5 11.0 1.0 8.8

419 2,115 204 2,737

-26.9 -49.9 6.3 -45.1

20.4 13.3 19.2 14.8

5,754 7,678 1,618

11.3 8.4 -2.2

-3.9 3.7 9.0

1,193 2,254 359

6.3 18.3 2.1

-14.5 12.4 0.8

691 -81 135

7.6 Loss -2.1

-11.6 Loss 3.4

313 72 699

Buy Buy Buy

54

India Strategy | Earnings recovery imminent

Ready reckoner: Quarterly performance Sector

HT Media Jagran Prakashan Music Broadcast PVR Prime Focus Sun TV Zee Entertainment Sector Aggregate Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC Rain Industries SAIL Tata Steel Vedanta Sector Aggregate Oil & Gas Aegis Logistics BPCL GAIL Gujarat Gas Gujarat State Petronet HPCL IOC Indraprastha Gas Mahanagar Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Oil & Gas Sector Aggregate Oil & Gas Excl. OMCs Retail Jubilant Foodworks PC Jeweller Titan Company Sector Aggregate Technology Cyient HCL Technologies Hexaware Tech. Infosys KPIT Tech. L&T Infotech Mindtree MphasiS NIIT Tech. Persistent Systems

April 2018

CMP

Sales (INR m) Var Var Mar-18 % YoY % QoQ 5,894 0.7 -5.7 5,775 2.8 -3.4 762 14.6 0.1 5,839 21.0 4.8 7,451 14.0 22.2 6,947 19.3 1.7 16,462 7.7 -10.4 64,181 9.7 -0.9

EBITDA (INR m) Var Var Mar-18 % YoY % QoQ 908 24.1 -32.6 1,318 -8.5 -19.1 254 53.0 8.9 777 66.2 -22.6 1,919 7.2 50.7 5,009 27.2 1.8 4,315 -8.0 -27.4 18,305 10.3 -9.0

PAT (INR m) Var Var Mar-18 % YoY % QoQ 415 62.4 -55.5 726 -10.5 -14.3 122 170.4 2.4 58 LP -79.8 633 60.1 LP 2,898 22.8 8.5 1,680 -58.1 -47.9 7,276 -13.0 -18.2

(INR)

Rating

86 172 397 1,248 90 894 582

Neutral Buy Buy Buy Buy Buy Buy

208 310 230 302 68 119 384 75 580 284

Buy Neutral Buy Buy Neutral Buy Buy Sell Neutral Buy

310,632 59,657 78,926 201,404 25,759 35,055 36,237 163,020 322,434 243,595 1,476,719

11.1 -4.7 21.7 20.9 1.0 22.1 46.8 28.5 -4.9 8.2 9.9

0.4 0.7 11.1 12.8 7.8 42.0 15.2 6.4 -3.6 0.0 3.3

35,917 34,136 19,535 43,341 4,718 20,446 7,742 21,735 62,251 72,488 322,309

3.0 -8.9 25.9 36.9 10.4 43.0 75.4 LP -11.4 -1.4 13.6

2.0 5.2 21.6 12.5 1.1 53.6 12.7 50.9 9.3 7.2 12.7

10,650 25,775 -2,131 17,204 2,876 13,767 3,673 6,255 23,079 28,406 129,554

45.8 -15.7 Loss 69.6 6.3 49.5 190.9 LP -31.0 86.3 30.7

-17.8 15.6 Loss -6.1 4.4 52.2 8.9 848.7 -4.2 28.5 14.7

263 426 329 844 185 353 174 278 1,012 112 221 178 232 899

Buy Buy Sell Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy

16,304 616,099 147,458 17,967 3,611 617,314 1,290,638 12,226 6,601 140,458 29,986 239,846 66,349 1,128,503 4,333,359 1,809,309

28.6 8.0 9.9 28.3 47.6 19.8 28.6 22.0 25.7 5.3 23.1 10.5 4.2 33.0 21.9 23.5

13.1 1.6 2.3 14.3 3.1 7.4 16.6 3.3 13.5 -0.4 5.1 4.3 -14.5 13.1 9.5 8.3

765 26,270 21,105 2,138 3,077 22,394 75,004 2,764 1,998 7,495 10,539 131,117 8,236 183,547 496,451 372,782

47.3 14.2 38.4 46.1 52.8 -20.6 -10.4 14.1 22.5 -51.8 36.0 18.5 33.6 50.1 18.0 30.5

6.6 65.0 7.1 6.9 3.6 32.7 7.7 5.1 -0.5 -57.2 -13.9 4.7 -2.8 4.4 5.2 0.9

600 16,542 11,959 713 2,031 14,218 48,345 1,726 1,255 3,457 6,029 56,604 5,430 95,687 264,595 185,490

101.5 -10.2 14.1 115.3 60.0 -21.8 29.9 12.5 26.1 -60.3 -48.5 30.4 15.3 18.8 11.3 13.1

12.0 -22.8 -5.3 18.9 11.9 -27.1 -38.7 4.0 1.2 -64.4 -14.5 12.9 2.7 1.3 -13.2 0.2

2,330 Neutral 313 Buy 933 Buy

7,524 24,818 40,384 72,726

22.8 15.0 17.7 17.3

-5.4 -6.2 -5.5 -5.7

1,304 2,456 3,631 7,390

115.5 38.9 33.4 45.1

-4.7 -8.7 -14.0 -10.8

617 1,642 3,033 5,292

313.4 49.2 49.5 61.4

-6.5 0.9 7.6 3.6

680 968 416 1,140 223 1,418 801 855 883 677

10,644 132,016 10,414 181,318 9,328 19,648 14,385 17,412 7,738 7,491

13.1 9.5 8.4 5.9 8.7 17.1 9.1 15.6 7.8 3.0

8.2 3.1 3.6 1.9 2.2 4.3 4.4 4.9 2.3 -5.4

1,455 30,547 1,662 49,266 1,083 3,353 2,293 2,959 1,387 951

16.5 15.3 2.4 5.8 24.4 5.1 22.7 24.1 10.1 -27.0

1.7 3.1 3.9 2.3 9.5 4.3 10.6 7.9 7.0 -30.9

1,078 23,477 1,316 38,097 730 3,373 1,665 2,492 818 704

37.3 15.9 15.5 5.7 35.9 32.4 71.3 28.8 10.7 -16.4

-0.7 7.0 8.6 3.0 18.0 19.2 17.7 15.9 8.0 -23.2

Buy Neutral Neutral Buy Neutral Buy Buy Neutral Neutral Buy

55

India Strategy | Earnings recovery imminent

Ready reckoner: Quarterly performance Sector

CMP

(INR)

Rating

Sales (INR m) Var Var Mar-18 % YoY % QoQ 3,717 14.0 7.6 318,372 7.4 3.0 80,159 7.0 3.1 139,774 -0.1 2.3 8,143 9.6 2.6 960,561 6.6 2.8

Tata Elxsi 1,005 Buy TCS 2,908 Neutral Tech Mahindra 617 Buy Wipro 284 Neutral Zensar Tech 901 Buy Sector Aggregate Telecom Bharti Airtel 402 Buy 200,440 Bharti Infratel 338 Neutral 35,990 Idea Cellular 77 Buy 62,383 Tata Comm 652 Buy 41,594 Sector Aggregate 340,407 Utilities CESC 1,005 Buy 13,160 Coal India 278 Buy 250,505 JSW Energy 79 Sell 18,803 NHPC 29 Buy 20,090 NTPC 170 Buy 189,313 Power Grid Corp. 198 Buy 63,101 Tata Power 84 Sell 97,131 Sector Aggregate 652,104 Others Arvind 403 Neutral 28,296 Avenue Supermarts 1,364 Sell 38,883 BSE 788 Buy 1,500 Castrol India 205 Buy 9,062 Delta Corp 276 Buy 1,535 Indo Count Inds. 98 Neutral 4,975 Info Edge 1,233 Buy 2,315 Interglobe Aviation 1,368 Neutral 59,938 Kaveri Seed 498 Buy 443 MCX 734 Buy 694 Manpasand Beverages 375 Buy 3,910 Navneet Education 148 Buy 3,074 Oberoi Realty 509 Buy 3,139 P I Industries 903 Buy 6,392 Quess Corp 1,006 Buy 18,203 SRF 2,008 Buy 14,385 S H Kelkar 260 Buy 3,075 Team Lease Serv. 2,312 Buy 10,336 UPL 764 Buy 58,964 Sector Aggregate 266,685 PL: Profit to Loss; LP: Loss to Profit; UR: Under Review

April 2018

EBITDA (INR m) Var Var Mar-18 % YoY % QoQ 929 22.6 -0.6 86,348 6.2 4.2 13,879 54.4 9.7 28,913 3.8 2.9 1,096 87.2 3.9 226,120 9.6 3.7

PAT (INR m) Var Var Mar-18 % YoY % QoQ 607 36.3 -3.4 68,590 3.8 5.0 9,575 62.9 1.5 21,612 11.7 11.6 688 562.9 19.8 174,821 10.9 5.8

-8.6 2.2 -23.2 -3.1 -10.1

-1.4 -1.5 -4.2 1.1 -1.6

68,918 15,703 10,377 6,195 101,193

-12.3 -0.1 -51.0 23.3 -16.1

-7.7 -1.7 -15.2 1.1 -7.2

1,637 6,696 -15,760 64 -7,362

-79.9 12.2 Loss -89.6 PL

-69.1 14.4 Loss LP Loss

-16.3 8.1 1.0 47.5 -7.3 -6.0 35.5 4.7

-22.9 15.7 -5.7 34.1 -8.6 -15.9 39.8 5.2

4,963 67,597 5,235 9,036 61,303 57,831 15,752 221,717

143.3 38.7 -10.8 305.1 5.2 1.4 17.0 18.2

58.0 22.0 -10.6 15.2 17.5 -12.9 30.3 9.3

3,033 51,367 625 1,720 27,439 23,989 4,733 112,905

2.8 89.0 158.0 2.1 3.1 19.2 21.7 36.6

96.9 70.9 33.3 -75.0 28.6 6.5 59.7 31.7

14.8 25.0 -7.8 2.7 42.0 -3.0 11.1 23.6 10.0 10.9 43.0 46.5 8.4 5.6 46.9 8.5 14.0 26.5 10.4 16.9

4.6 -5.0 9.3 -6.6 -5.3 8.1 1.9 -3.0 -37.2 13.8 173.2 76.2 -11.9 18.9 14.9 3.0 8.6 12.6 40.6 8.2

2,476 3,110 545 2,590 702 677 764 14,759 -15 241 794 550 1,697 1,553 1074 2,316 569 200 12854 47,017

7.4 49.7 84.5 -1.7 103.9 -24.9 21.0 10.8 Loss 84.0 53.4 96.9 12.0 1.1 53.0 7.4 54.0 36.6 14.3 17.7

-0.3 -26.3 20.4 -15.5 2.1 -2.4 -3.1 -23.7 PL 78.6 196.9 169 -11.9 48.3 18 -8.3 -1.2 11.7 55 0.5

731 1,756 783 1,736 440 356 675 3,689 -26 343 436 390 1,073 1,156 901 1,018 357 217 7145 24,509

-30.3 81.6 30.2 -3.0 286.4 -27.0 105.3 -16.2 Loss 56.9 39.1 131.4 5.4 -14.5 144.1 -11.2 30.2 -43.5 -15.3 11.0

-17.3 -30.3 32.1 -11.7 -1.6 -2.2 -4.0 -51.6 PL 82.9 263.3 228.7 -10.7 43.5 30.6 -22.4 5.8 17.8 13.0 -5.2

56

India Strategy | Earnings recovery imminent

Ready reckoner: Quarterly performance Sector

CMP

(INR)

Rating

NII (INR M) Var Var Mar-18 % YoY % QoQ

Financials Private Banks Axis Bank 503 Buy 48,408 2.4 DCB Bank 168 Neutral 2,524 14.6 Equitas Holdings 148 Buy 2,994 35.2 Federal Bank 92 Buy 9,789 16.2 HDFC Bank 1,916 Buy 107,179 18.4 ICICI Bank 270 Buy 58,678 -1.6 IndusInd Bank 1,830 Buy 20,199 21.1 Kotak Mahindra Bank 1,103 Buy 24,821 14.8 RBL Bank 483 Buy 5,226 48.4 Yes Bank 313 Buy 20,647 25.9 Pvt Banking Sector Aggregate 300,465 11.9 PSU Banks Bank of Baroda 145 Buy 46,494 39.7 Bank of India 108 Neutral 28,388 -18.2 Canara Bank 269 Neutral 27,941 3.2 Indian Bank 307 Buy 16,751 20.9 Punjab National Bank 96 Buy 40,506 10.0 State Bank 250 Buy 188,438 -10.5 Union Bank 97 Neutral 25,276 5.9 PSU Banking Sector Aggregate 373,793 -1.7 Life Insurance HDFC Stand. Life 494 Buy 86,948 21.1 Life Insurance Sector Aggregate 86,948 21.1 NBFC Bajaj Finance 1,832 Buy 22,995 36.8 Capital First 643 Buy 5,582 49.0 Chola. Inv & Fin. 1,517 Buy 8,307 26.0 Dewan Housing 534 Buy 6,508 21.4 GRUH Finance 595 Neutral 2,159 16.4 HDFC 1,830 Buy 32,472 13.8 Indiabulls Housing 1,293 Buy 15,451 29.6 L&T Fin.Holdings 162 Buy 12,854 28.0 LIC Housing Fin 552 Neutral 9,657 -7.1 M & M Financial 473 Buy 13,195 18.7 MAS Financial 607 Buy 811 67.0 Muthoot Finance 417 Neutral 11,016 -4.2 PNB Housing 1,273 Buy 4,375 31.5 Repco Home Fin 573 Buy 1,146 11.5 Shriram City Union 2,222 Buy 8,711 22.1 Shriram Transport Fin. 1,477 Buy 17,543 24.5 NBFC Banking Sector Aggregate 172,782 20.0 Financials Sector Aggregate 933,988 8.0 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

April 2018

OP. PROFITS (INR M) Var Var % Mar-18 % YoY QoQ

NET PROFIT (INR M) Var % Var % Mar-18 YoY QoQ

2.3 0.8 11.7 3.0 3.9 2.8 6.6 3.7 11.8 9.3 4.1

39,769 1,261 880 6,522 87,061 85,485 17,554 19,946 3,767 21,123 283,366

-9.1 9.4 85.6 18.8 19.6 67.2 11.6 17.2 33.7 24.9 24.7

3.2 2.9 111.5 16.2 3.0 69.0 5.4 9.6 13.0 5.5 18.5

7,018 572 417 2,838 48,427 13,772 9,617 11,696 1,819 11,174 107,351

-42.7 8.2 504.9 10.6 21.4 -32.0 27.9 19.8 39.8 22.2 3.9

-3.4 0.3 LP 9.1 4.3 -16.5 2.7 11.1 10.1 3.8 1.9

5.8 13.5 -24.1 3.2 1.6 0.8 -0.8 -0.1

36,111 16,659 20,221 12,390 31,700 140,893 18,475 276,449

30.5 -46.7 -32.0 15.8 -49.1 -18.6 -13.4 -22.4

-1.1 23.0 -28.6 2.5 -25.3 19.9 11.7 3.5

1,743 -8,045 -7,972 3,300 -25,235 -16,518 -10,090 -62,818

LP Loss PL 3.2 PL Loss PL Loss

55.9 Loss PL 8.8 PL Loss Loss Loss

60.4 60.4

3,085 3,085

20.0 20.0

43.0 43.0

2,544 2,544

3.0 3.0

22.7 22.7

-3.0 6.0 5.8 4.0 21.8 10.9 10.7 1.2 7.6 23.2 10.3 4.5 6.5 7.0 -4.9 2.6 5.9 6.1

13,112 3,420 5,055 5,678 1,879 30,450 13,919 10,094 8,345 8,691 579 8,026 4,162 1,027 5,014 13,744 133,194 696,095

33.9 45.8 29.5 23.8 16.5 8.7 43.5 30.4 -6.8 19.8 77.6 -3.6 35.0 13.9 16.0 20.3 18.6 -0.3

-7.9 12.9 7.7 1.1 23.4 11.6 16.1 7.3 3.7 32.6 13.5 3.4 6.8 9.8 -8.0 1.9 7.0 10.0

6,420 42.9 1,005 39.8 2,749 25.2 3,075 23.9 1,276 15.6 23,378 14.4 10,475 24.6 4,002 26.7 5,159 -2.5 4,490 91.8 294 97.4 4,882 51.7 2,330 52.9 564 11.5 1,418 1080.3 3,297 120.3 74,815 29.8 121,893 -3.7

-16.3 15.3 10.3 0.5 55.4 17.4 12.4 4.2 5.1 62.1 16.1 5.3 7.1 16.4 -37.1 -33.5 6.2 -2.9

57

India Strategy | Earnings recovery imminent

Ready reckoner: Full year valuations Sector / Companies

Automobiles Amara Raja Batt. Ashok Leyland Bajaj Auto Bharat Forge Bosch CEAT Endurance Tech. Eicher Motors Escorts Exide Inds. Hero Motocorp Mahindra & Mahindra Mahindra CIE Maruti Suzuki Motherson Sumi Tata Motors TVS Motor Sector Aggregate Capital Goods ABB Bharat Electronics BHEL Blue Star CG Consumer Elect. CG Power & Indl. Cummins India Engineers India GE T&D India Havells India K E C International Larsen & Toubro Siemens Solar Inds. Thermax Va Tech Wabag Voltas Sector Aggregate Cement ACC Ambuja Cements Birla Corporation Dalmia Bharat Grasim Industries India Cements JK Lakshmi Cem. Orient Cement Prism Cement Ramco Cements Sanghi Inds. Shree Cement Ultratech Cement Sector Aggregate

April 2018

CMP (INR)

RECO

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

811 148 2,792 717 19,116 1,599 1,263 28,052 884 233 3,640 769 221 9,024 333 343 649

Buy Buy Buy Buy Neutral Buy Buy Buy Sell Buy Neutral Buy Buy Buy Buy Buy Neutral

28.3 5.4 147.9 20.0 459.1 61.1 27.9 814.4 39.1 8.0 186.1 39.7 9.6 275.1 8.1 25.5 14.1

34.0 7.2 167.8 26.4 582.9 84.7 38.2 1045.3 49.5 9.9 202.0 46.9 12.1 349.0 12.5 56.6 22.4

40.0 9.2 197.2 34.8 694.4 111.7 51.0 1337.1 59.0 12.1 221.3 51.2 15.1 457.0 17.5 58.7 32.4

28.7 27.2 18.9 35.9 41.6 26.2 45.3 34.4 22.6 29.0 19.6 19.4 23.0 32.8 41.1 13.4 45.9 25.2

23.9 20.4 16.6 27.2 32.8 18.9 33.0 26.8 17.9 23.6 18.0 16.4 18.2 25.9 26.6 6.1 28.9 17.4

20.3 16.0 14.2 20.6 27.5 14.3 24.8 21.0 15.0 19.2 16.4 15.0 14.6 19.7 19.0 5.8 20.1 14.8

14.6 13.7 13.5 18.5 23.2 11.5 20.0 26.4 16.4 13.3 11.8 5.4 11.2 19.0 13.4 3.5 25.9 10.0

12.0 10.6 12.0 15.1 19.6 10.4 15.9 20.8 14.3 11.3 11.0 4.6 9.7 15.6 9.7 2.8 17.4 7.9

10.1 8.2 9.8 12.1 16.5 7.9 12.6 16.3 11.5 9.2 9.9 4.5 7.8 11.7 6.9 2.6 12.4 6.7

17.3 24.3 23.9 20.9 15.2 9.8 20.8 36.3 18.3 12.6 34.1 14.6 10.4 19.7 19.2 13.5 25.3 17.7

18.0 27.6 24.6 23.3 17.5 12.4 23.8 35.5 18.7 14.0 32.2 14.8 11.6 21.8 25.4 24.0 32.0 21.6

18.3 29.2 26.0 25.4 18.7 14.5 26.4 34.1 19.0 15.3 30.9 15.2 12.8 24.2 29.3 19.9 35.2 21.2

1,283 147 85 795 231 80 740 164 400 509 406 1,330 1,124 1,072 1,136 494 648

Sell Buy Sell Neutral Buy Neutral Buy Buy Neutral Buy Neutral Buy Neutral Neutral Buy Buy Neutral

19.8 7.1 3.2 16.6 5.1 1.1 23.0 6.3 10.3 11.1 16.2 48.8 19.8 24.4 28.0 33.3 18.0

30.1 7.8 3.6 24.6 6.5 1.9 31.0 6.9 11.3 13.7 18.9 57.2 30.4 29.6 35.1 35.2 21.3

35.0 8.3 4.3 31.2 7.7 3.0 36.8 8.2 12.9 17.0 24.3 68.6 34.6 36.7 43.5 38.6 24.3

64.7 20.8 27.1 47.9 45.4 70.3 32.1 26.0 38.8 45.7 25.1 27.2 56.9 43.9 40.5 14.8 36.0 31.6

42.6 18.9 23.7 32.3 35.7 43.0 23.9 23.8 35.4 37.2 21.5 23.2 37.0 36.2 32.3 14.0 30.4 26.3

36.7 17.7 19.8 25.5 30.2 27.1 20.1 19.9 31.0 30.0 16.7 19.4 32.5 29.2 26.1 12.8 26.7 22.2

36.2 12.1 13.2 24.1 28.9 25.3 25.6 15.0 24.4 28.9 11.6 19.0 32.4 24.7 25.5 7.7 24.9 20.0

23.5 12.1 11.7 19.1 22.9 15.4 19.7 15.5 20.7 23.3 9.7 15.7 23.4 20.6 18.7 6.8 21.7 16.5

20.1 11.2 10.0 15.6 19.9 13.5 16.2 12.2 18.5 18.7 7.3 14.0 20.3 16.8 14.7 6.1 18.6 14.4

11.6 17.8 3.6 20.4 50.2 1.7 16.5 13.9 23.5 18.9 21.7 13.0 9.1 20.0 11.9 17.1 16.9 11.1

15.4 17.6 4.0 28.3 49.9 2.7 20.7 14.1 22.3 20.5 21.1 13.9 12.9 20.6 13.6 16.0 17.6 12.3

15.8 16.9 4.7 33.1 48.5 4.2 22.6 15.6 22.1 22.2 22.3 15.1 13.4 21.5 15.0 15.6 17.6 13.3

1,551 241 764 2,867 1,086 153 440 143 117 756 122 16,623 3,949

Neutral Neutral Buy Buy Neutral Neutral Buy Buy Buy Buy Buy Buy Buy

47.4 63.8 72.9 6.0 8.1 12.7 7.4 42.3 50.5 52.0 72.9 102.2 47.6 97.9 111.8 2.9 6.6 9.4 5.7 15.1 21.2 1.3 3.6 8.3 2.4 4.9 6.5 24.0 29.7 37.8 4.6 8.5 11.3 365.7 473.5 679.2 77.5 123.7 165.0

32.7 39.9 103.0 55.2 22.8 53.0 76.9 106.2 49.2 31.5 26.7 45.5 50.9 41.8

24.3 29.8 18.1 39.3 11.1 23.1 29.1 40.3 24.0 25.5 14.3 35.1 31.9 25.7

21.3 19.0 15.1 28.1 9.7 16.3 20.8 17.3 18.1 20.0 10.8 24.5 23.9 19.8

16.8 23.3 13.0 15.0 17.9 10.3 17.5 15.4 19.4 16.9 12.6 22.1 21.8 19.0

14.1 18.4 8.9 12.9 11.2 8.5 11.6 12.4 14.0 15.0 10.8 17.9 15.7 14.2

11.4 12.3 7.4 10.9 9.9 7.2 9.4 8.7 11.3 12.0 10.0 13.5 12.4 11.4

10.1 6.1 1.7 8.9 6.9 1.7 4.8 2.8 11.9 14.3 9.7 15.4 8.5 7.8

12.9 7.8 9.6 11.3 12.9 3.9 11.7 7.1 21.2 15.6 15.6 17.3 12.5 11.5

14.5 11.2 10.6 14.1 13.0 5.3 14.5 14.9 23.1 17.2 17.5 20.8 15.1 13.5

58

India Strategy | Earnings recovery imminent

Ready reckoner: Full year valuations Sector / Companies

Consumer Asian Paints Britannia Colgate Dabur Emami Future Consumer Godrej Consumer GSK Consumer Hind. Unilever ITC Jyothy Labs Marico Nestle P&G Hygiene Page Industries Pidilite Inds. United Breweries United Spirits Sector Aggregate Healthcare Alembic Pharma Alkem Lab Ajanta Pharma Aurobindo Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Fortis Health Glenmark Pharma Granules India GSK Pharma IPCA Labs. Jubilant Life Laurus Labs Lupin Sanofi India Sun Pharma Shilpa Medicare Strides Shasun Torrent Pharma Sector Aggregate Infrastructure Ashoka Buildcon IRB Infra KNR Constructions Sadbhav Engineering Sector Aggregate Logistics Allcargo Logistics Concor Gateway Distriparks Sector Aggregate

April 2018

CMP (INR)

RECO

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

1,153 5,093 1,084 337 1,099 55 1,106 6,000 1,348 258 389 325 8,361 9,465 22,288 963 977 3,250

Neutral Buy Buy Buy Buy Buy Neutral Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Neutral

21.5 84.2 24.0 7.6 25.0 -0.1 21.3 161.0 24.0 9.0 8.5 6.4 140.0 142.1 297.1 17.6 14.1 32.6

25.4 105.1 28.3 9.0 31.0 0.3 24.4 183.8 28.3 10.2 10.9 7.5 159.1 171.3 415.7 20.6 17.4 56.9

30.5 53.7 45.4 131.5 60.5 48.5 33.8 45.2 38.4 10.5 44.5 37.3 36.9 43.9 35.5 1.1 -546.5 182.0 27.8 51.9 45.4 215.7 37.3 32.7 33.3 56.3 47.7 11.4 28.9 25.4 13.6 46.0 35.6 9.0 50.8 43.1 192.3 59.7 52.6 200.8 66.6 55.3 549.8 75.0 53.6 23.7 54.6 46.7 22.9 69.4 56.1 78.5 99.6 57.1 45.7 38.8

37.8 38.7 32.0 32.1 29.8 48.3 39.8 27.8 40.5 22.6 28.7 36.3 43.5 47.1 40.5 40.6 42.7 41.4 33.0

34.0 40.6 25.9 34.5 33.2 193.8 37.2 26.2 39.8 19.1 27.9 35.5 35.2 40.7 48.5 33.3 29.3 48.8 30.3

28.9 33.3 23.2 29.5 27.1 76.2 32.7 21.8 33.3 16.8 22.9 30.0 31.7 34.4 34.7 30.5 25.3 34.2 26.0

24.1 26.5 19.7 25.3 23.2 34.5 28.6 18.2 28.3 14.9 19.2 25.4 26.7 29.1 26.5 26.3 20.4 25.9 22.1

26.8 33.9 49.9 25.4 30.1 -1.8 24.0 20.7 78.2 22.8 14.3 33.1 43.4 61.2 39.9 24.2 14.9 17.2 27.1

29.4 35.8 55.5 26.7 32.6 4.9 22.8 21.6 89.6 23.8 18.5 35.8 46.2 61.8 44.6 24.5 16.2 22.3 28.9

31.6 40.1 61.9 28.6 36.2 16.6 22.7 23.0 104.1 24.8 21.8 39.3 51.8 60.8 47.7 24.7 18.3 22.4 31.1

542 1,910 1,402 593 607 394 571 1,107 2,129 130 550 108 2,152 677 847 514 789 5,147 510 471 704 1,288

Neutral Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Neutral

24.8 25.6 30.5 65.4 89.5 110.6 54.0 65.8 81.4 43.8 48.7 53.6 7.6 10.9 19.8 16.0 20.1 23.3 21.6 26.2 32.0 32.9 44.0 52.7 67.1 114.1 146.1 1.5 2.8 7.3 30.6 32.9 41.1 6.3 7.9 11.0 38.3 42.6 48.5 21.4 29.2 37.3 47.8 62.6 72.5 19.0 29.1 35.7 31.0 40.2 54.1 141.7 161.8 186.9 13.2 21.5 27.7 13.3 24.3 30.6 14.1 40.8 55.7 48.0 61.3 78.5

21.9 29.2 26.0 13.6 79.7 24.6 26.4 33.7 31.7 88.5 18.0 17.1 56.2 31.6 17.7 27.0 25.4 36.3 38.7 35.4 49.9 26.8 28.9

21.2 21.3 21.3 12.2 55.7 19.6 21.8 25.2 18.7 47.1 16.7 13.6 50.5 23.1 13.5 17.7 19.6 31.8 23.7 19.4 17.3 21.0 21.5

17.8 17.3 17.2 11.1 30.7 16.9 17.8 21.0 14.6 17.8 13.4 9.8 44.4 18.1 11.7 14.4 14.6 27.5 18.4 15.4 12.6 16.4 17.1

14.5 19.3 18.3 8.8 38.1 15.2 15.2 23.1 14.7 17.5 11.5 10.5 34.8 17.8 10.7 14.6 12.2 20.8 20.6 23.9 18.1 15.9 16.2

13.4 15.1 15.3 8.1 28.2 12.8 13.4 17.0 9.7 10.8 11.3 7.7 33.5 13.6 8.5 11.0 10.6 17.0 14.2 17.2 11.0 11.3 12.8

11.2 12.2 12.2 6.9 17.9 11.0 11.1 14.0 7.5 6.7 9.4 5.9 28.9 10.9 7.2 9.3 8.2 14.4 10.9 13.5 8.8 9.4 10.2

22.5 16.4 27.0 24.2 8.9 21.6 12.4 16.0 9.0 1.2 16.4 13.2 19.7 10.5 19.7 14.1 10.1 16.1 8.5 11.0 4.6 17.6 12.3

19.8 19.5 26.2 21.7 11.6 22.8 13.3 20.0 13.9 2.2 15.3 13.9 27.2 13.0 21.4 18.3 12.1 16.8 13.2 17.4 12.1 19.9 14.7

20.1 20.6 25.9 19.6 18.4 22.0 14.1 21.3 15.6 5.6 16.2 17.4 30.9 14.7 20.4 18.8 14.6 17.5 15.3 18.3 14.5 22.3 16.0

265 242 285 396

Buy Neutral Buy Buy

2.1 25.4 16.9 13.9

7.0 24.6 14.0 16.0

8.3 21.3 18.2 17.4

128.0 9.5 16.9 28.4 17.2

37.9 9.8 20.4 24.8 16.5

32.1 11.4 15.7 22.8 16.7

8.7 5.7 9.3 16.3 7.6

8.2 6.5 10.3 13.1 7.8

7.9 7.9 7.5 10.6 8.2

2.2 15.5 23.6 13.5 12.9

6.9 13.4 16.2 13.7 12.0

7.5 10.5 17.8 13.2 10.7

152 Buy 1,260 Neutral 185 Buy

8.2 44.2 6.2

11.4 51.2 10.6

13.2 58.2 12.9

18.5 28.5 29.7 27.1

13.4 24.6 17.5 22.2

11.5 21.7 14.3 19.4

8.5 23.1 5.9 17.9

6.5 19.0 5.1 14.7

5.2 15.2 4.1 11.9

10.8 11.8 6.6 10.9

13.7 12.8 10.7 12.3

14.4 13.6 12.3 13.1

59

India Strategy | Earnings recovery imminent

Ready reckoner: Full year valuations Sector / Companies

Media D B Corp Den Networks Dish TV Ent.Network Hindustan Media HT Media Jagran Prakashan Music Broadcast PVR Prime Focus Siti Networks Sun TV Zee Entertainment Sector Aggregate Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC Rain Industries SAIL Tata Steel Vedanta Sector Aggregate Oil & Gas Aegis Logistics BPCL GAIL Gujarat Gas Gujarat State Petronet HPCL Indraprastha Gas IOC Mahanagar Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Oil & Gas Sector Aggregate Oil & Gas Ex OMCs Retail Jubilant Foodworks PC Jeweller Titan Company Sector Aggregate Technology Cyient HCL Technologies Hexaware Tech. Infosys KPIT Tech. L&T Infotech

April 2018

CMP (INR)

RECO

313 104 72 699 232 86 172 397 1,248 90 16 894 582

Buy Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral Buy Buy

18.3 -2.9 -0.3 7.2 25.9 11.8 10.1 8.3 22.1 2.5 -0.9 27.7 13.0

23.0 0.1 1.6 15.3 28.8 12.1 13.1 13.5 37.3 5.8 0.1 35.8 17.6

27.6 4.0 3.4 28.7 32.4 12.7 16.0 17.8 51.5 7.9 0.6 42.5 21.0

17.1 13.6 11.3 -35.9 1458.3 25.8 -209.6 45.0 21.5 97.5 45.6 24.4 9.0 8.0 7.1 7.3 7.2 6.8 17.1 13.1 10.8 47.5 29.3 22.3 56.4 33.4 24.2 36.7 15.5 11.3 -17.7 125.9 24.6 32.2 25.0 21.0 44.8 33.1 27.7 37.1 25.7 20.3

9.0 8.0 17.3 29.7 2.5 0.7 8.1 21.2 16.9 6.7 8.0 16.3 26.4 15.6

7.3 5.7 7.4 18.1 1.8 -0.2 6.7 15.4 12.9 5.0 6.2 14.0 20.8 12.0

5.9 3.8 5.6 11.6 0.9 -1.3 5.3 11.5 10.2 3.7 5.2 12.0 17.3 9.8

19.6 -6.3 -7.8 3.9 15.1 11.5 14.9 8.3 10.2 11.6 -15.8 26.1 17.4 14.3

21.0 0.2 32.1 7.9 14.6 10.6 18.5 12.2 15.3 18.9 2.4 30.9 20.2 17.8

21.3 8.7 45.0 13.4 14.3 10.1 19.5 14.0 18.0 20.7 11.4 33.1 20.4 19.4

208 310 230 302 68 119 384 75 580 284

Buy Neutral Buy Buy Neutral Buy Buy Sell Neutral Buy

19.2 21.2 -12.7 21.5 -0.2 13.6 25.6 -0.9 58.2 22.8

25.9 27.9 7.7 24.0 5.1 14.0 40.6 4.3 69.4 33.4

26.9 30.3 12.2 23.7 5.3 14.7 44.6 6.5 61.4 38.9

10.8 14.6 -18.1 14.1 -392.5 8.7 15.0 -84.9 9.9 12.5 14.4

8.0 11.1 29.9 12.6 13.3 8.5 9.5 17.3 8.4 8.5 10.1

7.7 10.2 18.8 12.7 13.0 8.1 8.6 11.5 9.4 7.3 9.4

6.2 8.8 10.5 5.0 6.8 5.4 8.6 17.0 3.0 5.7 6.3

5.5 6.6 6.8 4.7 6.3 5.1 6.4 9.6 3.1 4.1 5.1

5.2 5.7 6.1 4.7 6.2 4.9 5.6 7.1 4.2 3.4 4.8

13.8 26.9 -4.0 20.9 -0.3 18.2 24.7 -1.0 16.0 14.1 11.5

16.2 29.8 2.4 19.4 9.8 17.2 29.8 4.8 16.2 19.8 14.6

14.5 27.1 3.7 16.2 9.5 16.5 25.2 6.9 12.7 20.8 14.2

263 426 329 844 185 353 278 174 1,012 112 221 178 232 899

Buy Buy Sell Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy

6.3 40.0 21.0 21.6 12.7 39.5 9.4 20.7 55.9 11.7 18.3 16.8 14.0 61.1

9.5 41.2 22.9 34.7 13.3 32.5 11.1 17.6 53.9 11.4 27.2 21.8 16.0 67.7

12.3 46.5 24.6 44.3 13.9 37.8 12.5 21.7 54.6 12.4 28.1 23.5 18.8 78.0

41.9 10.7 15.7 39.1 14.6 8.9 29.6 8.4 18.1 9.5 12.1 10.6 16.6 14.7 12.2 13.3

27.6 10.3 14.4 24.3 13.9 10.9 25.2 9.9 18.8 9.8 8.1 8.2 14.5 13.3 11.3 11.5

21.5 9.2 13.4 19.1 13.3 9.3 22.2 8.0 18.6 9.0 7.9 7.5 12.3 11.5 9.9 10.3

31.8 9.0 9.7 15.4 8.9 6.3 17.5 4.8 10.8 4.9 6.7 4.0 10.5 10.8 7.2 7.7

18.4 8.2 8.8 12.2 7.7 7.0 14.7 5.0 10.2 4.7 6.0 3.5 9.3 7.7 6.1 6.2

14.2 7.4 8.0 10.2 7.2 6.4 12.8 4.2 9.8 4.0 5.6 3.3 7.3 6.7 5.4 5.5

30.7 24.1 11.9 16.8 15.0 28.2 20.7 18.5 28.0 18.9 7.4 9.6 23.7 13.0 13.2 11.9

35.9 21.6 12.0 23.0 14.0 20.6 20.8 14.4 24.4 16.1 10.5 12.0 22.9 12.8 13.0 12.6

35.0 21.1 12.0 24.2 13.2 20.9 20.2 16.1 22.5 15.5 10.3 12.4 22.9 13.0 13.4 12.8

2,330 Neutral 313 Buy 933 Buy

30.3 15.4 12.5

39.3 19.5 15.9

51.6 24.9 19.8

76.8 20.3 74.4 57.5

59.3 16.0 58.6 45.2

45.1 12.6 47.2 35.9

33.5 11.9 53.3 36.2

27.4 9.2 41.4 28.6

22.1 7.5 33.3 23.1

22.5 16.9 23.4 19.2

29.8 18.4 25.9 22.2

41.7 20.1 30.3 25.6

680 968 416 1,140 223 1,418

37.0 63.4 16.6 65.4 12.5 66.3

38.1 66.3 18.7 71.2 13.5 73.3

42.9 71.6 21.0 79.2 17.5 86.3

18.4 15.3 25.1 17.4 17.8 21.4

17.8 14.6 22.2 16.0 16.5 19.4

15.8 13.5 19.8 14.4 12.8 16.4

12.5 11.1 16.2 11.2 9.7 18.0

10.9 9.6 16.4 10.7 8.5 15.2

9.6 8.7 14.1 9.6 7.4 12.7

17.8 25.7 26.9 24.6 14.9 32.4

16.7 24.4 26.1 23.2 14.0 28.4

17.1 24.0 25.6 23.2 15.6 27.1

Buy Neutral Neutral Buy Neutral Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

60

India Strategy | Earnings recovery imminent

Ready reckoner: Full year valuations Sector / Companies

Mindtree MphasiS NIIT Tech. Persistent Systems TCS Tata Elxsi Tech Mahindra Zensar Tech Wipro Sector Aggregate Telecom Bharti Airtel Bharti Infratel Idea Cellular Tata Comm Sector Aggregate Utilities CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. Tata Power Sector Aggregate Others Arvind Avenue Supermarts BSE Castrol India Coromandel International Delta Corp Indo Count Inds. Info Edge Interglobe Aviation Kaveri Seed MCX Manpasand Beverages Navneet Education Oberoi Realty P I Industries Piramal Enterprises Quess Corp S H Kelkar SRF Tata Chemicals Team Lease Serv. Trident TTK Prestige UPL V-Guard Inds Sector Aggregate UR: Under Review

April 2018

CMP (INR) 801 855 883 677 2,908 1,005 617 901 284

RECO

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E 33.4 41.7 48.8 24.0 19.2 16.4 17.4 14.2 11.8 20.3 24.4 44.0 50.8 54.9 19.5 16.8 15.6 15.6 15.1 13.3 15.3 18.8 44.8 53.1 61.6 19.7 16.6 14.3 9.9 8.5 7.7 16.2 17.8 40.0 50.3 60.2 16.9 13.5 11.3 10.2 7.8 6.7 16.5 20.0 131.8 147.1 161.3 22.1 19.8 18.0 15.8 14.8 13.4 30.7 32.8 36.8 43.6 51.5 27.3 23.1 19.5 16.4 13.9 11.0 36.0 33.8 39.8 42.3 49.3 15.5 14.6 12.5 13.2 10.0 8.4 20.9 20.1 51.9 63.1 82.6 17.4 14.3 10.9 9.9 7.5 5.7 15.0 16.2 17.9 18.8 21.1 15.8 15.1 13.4 10.6 9.9 8.7 17.2 17.0 18.7 17.9 16.1 13.2 12.1 10.8 25.2 23.2

Buy Neutral Neutral Buy Neutral Buy Buy Buy Neutral

402 338 77 652

Buy Neutral Buy Buy

3.6 13.8 -10.9 2.2

1.8 15.3 -12.9 11.0

5.5 16.8 -10.5 22.8

1,005 278 79 29 170 198 84

Buy Buy Sell Buy Buy Buy Sell

86.5 17.8 3.8 2.4 13.0 16.9 4.9

95.2 26.4 3.6 3.0 15.2 20.7 7.3

103.1 30.8 4.0 3.2 16.6 21.9 7.9

11.6 15.7 20.9 11.9 13.1 11.7 17.3 13.7

10.6 10.5 22.1 9.7 11.2 9.6 11.6 10.6

403 1,364 788 205 538 276 98 1,233 1,368 498 734 375 148 509 903 2,497 1,006 260 2,008 717 2,312 68 6,314 764 232

Neutral Sell Buy Buy Buy Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Neutral Buy Neutral

11.3 14.1 18.8 12.6 17.2 23.0 42.6 47.6 52.9 7.0 6.8 7.1 24.1 29.0 30.3 5.7 7.4 10.4 7.4 9.8 11.5 23.4 26.3 33.4 64.7 75.0 100.0 34.2 40.6 47.4 21.3 32.0 36.9 8.8 13.9 18.7 7.7 9.7 11.4 12.5 49.8 46.5 29.9 38.1 44.2 83.1 116.4 147.9 22.1 33.1 41.9 7.9 9.7 12.2 77.4 105.0 138.3 33.7 44.0 50.3 43.3 59.6 88.1 5.7 10.3 12.8 137.8 176.1 203.2 43.0 47.2 55.6 4.5 6.0 6.7

35.5 108.7 18.5 29.3 22.3 48.2 13.3 52.8 21.1 14.6 34.5 42.8 19.3 40.9 30.2 30.0 45.4 32.9 25.9 21.3 53.4 12.0 45.8 17.8 51.8 31.3

28.7 79.1 16.6 30.2 18.5 37.1 10.0 46.9 18.2 12.3 22.9 27.0 15.2 10.2 23.7 21.5 30.4 26.9 19.1 16.3 38.8 6.6 35.8 16.2 39.0 23.3

111.1 219.3 73.0 24.4 22.1 20.1 -7.1 -6.0 -7.4 289.9 59.4 28.5 -405.1 -155.3 197.4

FY20E 24.9 18.6 19.2 23.3 31.3 28.7 20.2 18.5 16.9 23.0

8.6 8.7 14.2 10.3 9.4

8.6 9.3 16.0 8.9 9.5

7.1 8.4 11.1 6.8 7.8

2.1 16.9 -18.4 4.3 -0.6

1.1 19.3 -23.4 20.2 -1.7

3.2 21.6 -24.2 32.1 1.3

9.7 9.1 20.0 9.1 10.2 9.1 10.7 9.6

7.0 8.9 9.1 8.9 11.3 8.7 11.7 9.6

6.7 6.0 9.3 7.3 9.2 7.7 10.3 7.9

6.2 5.2 9.1 6.5 8.0 7.2 9.6 7.1

10.4 47.4 5.9 8.6 10.6 16.6 10.8 14.6

10.4 65.8 5.5 10.3 11.6 17.7 14.5 17.2

10.3 71.2 6.0 10.7 11.8 16.5 14.0 17.7

21.4 59.3 14.9 29.0 17.7 26.6 8.5 36.9 13.7 10.5 19.9 20.1 13.0 10.9 20.4 16.9 24.0 21.3 14.5 14.3 26.2 5.3 31.1 13.7 34.8 19.3

14.1 60.9 18.9 13.6 24.6 6.6 43.9 5.7 11.7 37.9 21.1 12.3 25.7 21.0 13.9 41.5 19.3 13.9 8.2 54.2 6.5 26.7 11.1 35.4 15.0

12.0 46.8 5.7 18.9 12.1 22.2 5.9 40.2 5.2 10.5 24.2 14.2 9.9 7.4 16.7 10.5 26.5 16.4 11.0 7.6 39.4 4.5 22.2 10.0 27.8 12.2

10.2 35.6 3.5 19.2 10.8 16.1 5.0 30.5 3.9 8.7 16.6 10.6 8.3 7.7 14.0 8.7 20.6 12.8 8.8 6.7 26.7 3.5 19.4 8.4 23.0 10.0

8.0 19.0 8.7 69.1 22.5 12.2 15.7 13.7 47.3 23.4 8.1 7.2 24.2 7.2 23.0 8.9 21.7 13.4 13.3 11.3 17.7 10.1 18.0 26.3 26.9 14.7

9.4 22.6 7.7 63.8 23.4 11.9 17.2 14.0 41.3 27.1 12.0 12.3 26.8 25.0 24.3 10.2 21.3 14.9 16.3 11.5 20.1 16.5 20.7 23.6 28.8 17.1

11.7 25.4 8.4 62.3 21.1 14.9 16.8 15.9 51.0 27.4 12.2 15.0 27.1 19.5 23.3 11.6 21.7 16.9 18.7 12.3 23.8 17.9 21.1 23.1 26.0 18.2

61

India Strategy | Earnings recovery imminent

Ready reckoner: Full year valuations Sector / Companies Axis Bank DCB Bank Equitas Holdings Federal Bank HDFC Bank ICICI Bank IDFC Bank IndusInd Bank J&K Bank Kotak Mahindra Bank RBL Bank South Indian Bank Yes Bank Private Bank Aggregate Banks-PSU Bank of Baroda Bank of India Canara Bank Indian Bank Punjab National Bank State Bank Union Bank PSU Bank Aggregate Life Insurance HDFC Stand. Life Life Insurance Aggregate NBFC Aditya Birla Cap Bajaj Finance Capital First Chola. Inv & Fin. Dewan Housing GRUH Finance HDFC Indiabulls Housing L&T Fin.Holdings LIC Housing Fin M & M Financial MAS Financial Muthoot Finance PNB Housing Repco Home Fin Shriram City Union Shriram Transport Fin. NBFC Aggregate Financials Sector Aggregate

CMP (INR) 503 168 148 92 1,916 270 49 1,830 58 1,103 483 24 313

Reco Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy Buy

EPS (INR) PE (x) PB (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E 12.8 24.7 44.0 39.5 20.4 11.4 1.9 1.8 1.5 5.1 9.0 7.8 9.4 10.9 21.7 17.9 15.5 2.0 1.8 1.6 10.6 10.8 1.1 7.0 10.7 131.8 21.1 13.9 2.2 2.0 1.8 1.7 10.0 5.6 6.8 8.5 16.5 13.5 10.7 1.4 1.3 1.2 9.6 10.2 66.8 81.8 102.3 28.7 23.4 18.7 4.0 3.6 3.1 16.2 16.2 11.1 18.1 25.5 24.2 14.9 10.6 1.7 1.6 1.4 7.2 11.1 3.0 3.2 3.8 16.2 15.1 12.7 1.1 1.0 1.0 6.8 6.9 60.4 78.0 100.2 30.3 23.5 18.3 4.6 3.9 3.3 16.6 18.4 8.8 10.0 14.4 6.6 5.8 4.0 0.6 0.6 0.5 9.1 9.9 32.7 41.5 54.1 33.7 26.6 20.4 4.4 3.8 3.2 11.3 13.5 15.4 21.8 29.3 31.4 22.2 16.5 3.1 2.8 2.4 11.9 13.2 1.9 4.1 5.3 12.6 5.8 4.5 0.9 0.8 0.7 6.9 13.7 18.2 23.4 30.2 17.1 13.4 10.4 2.8 2.4 2.0 17.4 19.1 28.1 20.3 15.0 2.9 2.6 2.3 10.5 13.0

145 108 269 307 96 250 97

Buy Neutral Neutral Buy Buy Buy Neutral

3.4 -18.8 -2.4 30.3 -5.7 2.9 -38.8

8.9 6.3 21.9 41.6 0.0 18.7 7.6

15.7 12.1 61.3 47.7 14.3 34.0 17.1

42.6 16.3 -5.7 17.1 -111.5 12.3 10.1 7.4 -16.9 2826.4 87.6 13.4 -2.5 12.8 -105.4 14.2

9.3 8.9 4.4 6.4 6.7 7.4 5.7 7.1

0.9 0.6 0.6 0.9 0.6 1.0 0.5 0.8

0.9 0.6 0.6 0.9 0.6 0.9 0.4 0.8

0.8 0.6 0.5 0.8 0.5 0.8 0.4 0.7

2.0 -7.7 -0.4 9.7 -3.0 -0.3 -16.0 -0.8

5.0 3.0 4.1 12.3 0.0 5.7 3.4 5.5

8.4 5.5 10.8 12.7 7.7 12.5 7.0 10.1

4.6

5.2

6.6

108.1 108.1

94.7 94.7

75.2 75.2

3.3 22.1

2.7 19.3

2.2 16.4

21.7 20.4

21.1 20.3

20.3 21.8

41.4 40.9 18.8 24.8 14.3 60.2 42.8 14.2 24.2 14.2 34.1 32.6 9.5 25.0 17.4 19.3 19.1 27.9 35.5

28.5 29.7 14.4 21.2 11.1 51.2 37.3 12.4 18.1 12.5 24.6 25.1 9.3 18.8 14.7 16.0 14.1 22.8 20.4

20.0 22.1 11.3 17.6 8.8 41.3 31.9 10.1 14.3 10.5 20.6 20.2 8.4 14.4 12.4 13.3 11.7 18.6 14.0

4.0 6.4 2.4 4.6 1.9 18.0 4.9 4.0 2.6 2.2 3.2 4.6 2.1 3.4 2.7 2.6 2.7 4.0 2.3

3.1 5.4 2.1 3.9 1.7 14.8 4.3 3.5 2.3 1.9 3.0 4.0 1.8 3.0 2.3 2.3 2.3 3.5 2.1

2.4 4.5 1.8 3.2 1.4 12.2 3.9 3.1 2.1 1.7 2.7 3.5 1.6 2.6 2.0 2.0 2.0 3.0 1.9

12.6 19.8 13.7 20.2 14.0 32.7 18.3 29.8 13.3 16.6 10.9 20.2 24.5 14.6 16.7 14.2 14.7 14.4 6.6

12.4 19.9 15.6 19.8 15.9 31.7 17.5 30.3 13.7 16.5 12.5 17.0 20.9 17.0 16.9 15.1 17.5 15.2 10.5

13.7 22.3 17.2 20.0 17.5 32.4 17.3 32.4 15.3 17.1 13.8 18.5 20.0 19.2 17.0 15.9 18.1 16.4 13.6

494 Buy

152 1,832 643 1,517 534 595 1,830 1,293 162 552 473 607 417 1,273 573 2,222 1,477

Buy Buy Buy Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Neutral Buy Buy Buy Buy

3.7 5.3 7.6 44.8 61.7 82.8 34.2 44.6 56.8 61.3 71.7 86.2 37.3 48.0 60.5 9.9 11.6 14.4 42.7 49.0 57.3 90.9 104.6 127.4 6.7 9.0 11.3 38.9 44.3 52.6 13.9 19.2 23.0 18.6 24.2 30.0 44.0 44.7 49.8 50.9 67.5 88.1 32.9 39.0 46.0 115.2 138.7 167.3 77.5 104.8 125.9

FY20E 14.3 11.2 13.6 11.7 17.6 14.3 7.8 20.0 12.9 14.9 15.8 15.7 20.8 15.4

UR: Under Review

April 2018

62

India Strategy | Earnings recovery imminent

Sectors & Companies BSE Sensex: 33,371

S&P CNX: 10,245

April 2018

MOSL Universe: 4QFY18 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 April 2018, unless otherwise stated.

April 2018

63

India Strategy | Earnings recovery imminent

THIS PAGE INTENTIONALLY LEFT BLANK

April 2018

64

March 2018 Results Preview | April 2018

Automobiles Company name Amara Raja Batteries Ashok Leyland Bajaj Auto

Volume recovery continues Price increases, operating leverage to drive margin expansion 

Bharat Forge BOSCH



CEAT Eicher Motors Endurance technologies Escort Exide Industries Hero MotoCorp Mahindra & Mahindra Maruti Suzuki Tata Motors TVS Motor Company

 

Volume recovery continued in 4QFY18 as well, with strong volume momentum in 2Ws (+29% YoY), 3Ws (+95%), UVs (+25%) and CVs (+32%). EBITDA margin for our auto OEM (ex-JLR) universe is likely to expand (+230bp YoY or +20bp QoQ to 14.2%) for the third consecutive quarter, with high commodity costs offset by price increases and operating leverage. We have lowered our FY19 EPS estimates for BJAUT (-4%), MSIL (-6%), TVSL (-11%) and TTMT (-6.2%), but increased for AL (+16%), MM (+7%) and ESC (+9%). Our top picks are MSIL, EIM and MSS among large caps, and AL and EXID among midcaps. We also believe that MM is the best play on a rural market recovery.

Volume recovery continues across segments A low base of last year in 2Ws, a strong recovery in rural areas, and a revival in construction/mining activities drove a sustained recovery in volumes. Our channel checks indicate continued above-average volume growth in rural markets. This has resulted in strong 2W demand, which is estimated to have grown at ~29% YoY. On the other hand, CV volumes are driven by the ban on overloading in key states, the revival in construction/ mining activities, and the cyclical recovery in LCVs. CV volumes are estimated to increase ~32% YoY, with LCV growth of ~44% and M&HCV growth of 18.5%. PV demand increased at ~7%, with modest growth of ~4% in cars and ~25% growth in UVs.

Price increase, operating leverage boost margins despite RM cost inflation EBITDA margin for the auto OEM (ex-JLR) universe is likely to expand (+230bp YoY or +20bp QoQ to 14.2%) for the third consecutive quarter, boosted by price increases and operating leverage, despite commodity price inflation. We expect highest margin expansion for TTMT S/A (+540bp), HMCL (+290bp), TVS (+240bp) and AL (+210bp). While we do not expect any company to report YoY contraction in margins, MM’s margins are estimated to contract ~130bp on a QoQ basis due to seasonality.

Demand outlook positive across segments, competitive intensity key Demand outlook for FY19 is positive across segments, driven by a continued rural recovery, initial estimate of normal monsoon, and a pick-up in economic activity. We estimate 10-12% growth for 2Ws, 8-10% for 4Ws, 10-12% for M&HCVs, 12-15% for LCVS and 8-10% for tractors. Key threats to demand are posed by inflationary fuel prices and higher interest rates. While we expect the margins to improve, competitive intensity and commodity inflation could also have their effects.

Valuation and view We have lowered our FY19 EPS estimates for BJAUT (-4%), MSIL (-6%), TVSL (-11%) and TTMT (-6.2%), but increased for AL (+16%), MM (+7%) and ESC (+9%). The demand environment and the changing competitive landscape would be the key determinants of the stock performance. Our top picks are MSIL, EIM and MSS among large caps, and AL and EXID among mid-caps. We also believe that MM is the best play on a rural market recovery. Jinesh Gandhi – Research Analyst ([email protected]); +91 22 6129 1524 Research Analyst: Deep Shah ([email protected]); +91 22 6129 1533; Suneeta Kamath ([email protected]); +91 22 6129 1534 April 2018

65

March 2018 Results Preview | Sector: Automobiles

Exhibit 1: Summary of expected quarterly performance (INR m) Sector

Automobiles Amara Raja Batt. Ashok Leyland Bajaj Auto Bharat Forge Bosch CEAT Eicher Motors Endurance Tech. Escorts Exide Inds. Hero Motocorp Mahindra CIE Mahindra & Mahindra Maruti Suzuki Motherson Sumi Tata Motors TVS Motor Auto Sector Aggregate

CMP (INR)

Reco

811 148 2,792 717 19,116 1,599 28,052 1,263 884 233 3,640 221 769 9,024 333 343 649

Buy Buy Buy Buy Neutral Buy Buy Buy Sell Buy Neutral Buy Buy Buy Buy Buy Neutral

Sales (INR m) Var % Var % Mar-18 YoY QoQ 15,109 86,412 66,617 14,328 29,916 16,484 24,942 16,723 14,487 23,818 85,736 5,754 131,573 208,623 161,653 892,009 39,994 1,834,182

12.4 30.6 36.0 27.3 16.2 12.0 32.1 21.2 41.7 20.8 24.0 24.0 24.0 13.8 43.3 15.5 40.6 20.7

-2.7 21.5 4.6 3.0 -2.6 4.7 9.9 5.8 20.2 4.6 17.4 2.5 14.5 8.2 12.3 20.3 8.5 15.2

EBDITA (INR m) Var % Var % Mar-18 YoY QoQ

Net Profit (INR m) Var % Var % Mar-18 YoY QoQ

2,327 11,329 12,736 4,327 7,310 1,813 8,274 2,309 1,681 3,118 14,336 647 17,631 33,291 14,690 130,740 3,245 269,803

1,212 6,963 9,784 2,371 4,643 964 7,300 1,002 1,089 1,747 9,860 279 10,015 23,007 5,182 48,123 1,747 135,290

26.2 55.2 40.6 35.2 3.9 36.9 41.5 21.6 126.0 21.0 38.3 50.1 42.6 24.3 18.4 21.0 100.9 26.8

-3.7 43.7 3.4 3.9 64.0 -3.0 17.0 3.6 15.9 10.3 23.8 11.0 4.2 9.6 16.6 53.0 13.2 30.3

22.2 62.7 22.0 31.7 5.4 20.9 58.9 20.0 126.0 6.0 37.4 67.5 24.5 27.9 -3.7 11.3 37.8 21.8

-9.9 54.8 2.7 3.9 66.3 15.8 40.2 4.7 18.5 13.2 22.4 53.7 -1.3 27.9 41.8 321.8 13.2 63.2

Exhibit 2: Volume snapshot for 4QFY18 ('000 units) Two wheelers Three wheelers Passenger cars UVs & MPVs Total PVs M&HCV LCV Total CVs Total

4QFY18 6,014 310 726 336 1,062 131 186 316 7,703

4QFY17 4,677 160 698 293 991 111 129 239 6,068

YoY(%) 28.6 93.5 4.0 14.5 7.1 18.5 44.2 32.3 26.9

Exhibit 3: Trend in segment-wise EBITDA margins (%) 4QFY17

1QFY18

3QFY18

2QFY18

3QFY18 5,270 282 671 317 988 107 139 245 6,785

QoQ(%) 14.1 10.0 8.3 5.7 7.5 22.9 33.9 29.1 13.5

FY18 23,143 1,031 2,779 1,262 4,040 385 565 950 29,164

FY17 19,921 784 2,705 1,105 3,810 346 473 819 25,333

YoY(%) 16.2 31.6 2.7 14.1 6.0 11.3 19.4 16.0 15.1

Exhibit 4: Commodity prices remain at higher levels

4QFY18

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

16.6 16.3 15.4 15.8 15.4 15.0 13.814.5 13.513.2

Cars

CVs Source: Company, MOSL

April 2018

110 118 117 123 130

2W

97 107 100 111 121

2.3

130 138 126 135 145

6.4

10.6 7.9 112 122 113 119 124

9.3

Steel

Lead

Alu

Rubber Source: Company, MOSL

66

March 2018 Results Preview | Sector: Automobiles

Exhibit 5: Trend in key currencies v/s INR USD

120

Exhibit 6: QoQ margin (ex-JLR) expands since 1QFY18

GBP

JPY

Aggregate (excld JLR)

Aggregate (incl JLR)

17 14

100

11

Source: Bloomberg, MOSL

Rev 167.8 186.1 22.4 349.0 46.9 56.6 4.7 1045.3 34.0 26.4 582.9 84.7 49.5 38.2 9.9 12.1 12.5

FY19E Old 175.2 185.0 25.1 369.9 43.9 57.9 6.2 1051.4 34.7 26.8 604.8 84.7 45.6 38.5 10.2 12.2 12.5

Chg (%) -4.2 0.6 -10.7 -5.7 6.7 -2.2 -25.1 -0.6 -2.0 -1.3 -3.6 0.0 8.7 -0.9 -3.3 -0.7 0.0

Rev 197.2 202.0 32.4 457.0 51.2 58.7 9.2 1337.1 40.0 34.8 694.4 111.7 59.0 51.0 12.1 15.1 17.5

Exhibit 8: EBITDA margin to expand YoY for third consecutive quarter BJAUT HMCL TVS Motor MSIL MM TTMT (S/A) TTMT (JLR) * TTMT (Cons) Ashok Leyland Eicher (RE) Eicher (VECV) Eicher (Consol) Agg. (ex JLR)

April 2018

Volumes ('000 units) 4QFY18 YoY (%) QoQ (%) 1045 32.7 4.4 2002 23.4 17.1 889 32.0 7.6 462 11.4 7.1 236 25.4 12.4 204 37.6 19.2 180 2.6 12.9 59 227 23

23.3 27.4 33.2

26.0 9.9 42.3

5147

26.2

11.4

4QFY18

2QFY18

4QFY17

2QFY17

Source: Company, MOSL

Exhibit 7: Revised estimates Bajaj Auto Hero MotoCorp TVS Motor Maruti * M&M * Tata Motors * Ashok Leyland Eicher Motors * Amara Raja Bharat Forge * BOSCH Ceat Escorts Endurance Tech* Exide Industries Mahindra CIE Motherson Sumi * Consolidated

4QFY16

2QFY16

4QFY15

2QFY15

4QFY14

2QFY14

4QFY13

2QFY13

8 4QFY12

Mar-18

Dec-17

Sep-17

Jun-17

Mar-17

Dec-16

Sep-16

Jun-16

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

80

EBITDA margins (%) 4QFY18 YoY (bp) QoQ (bp) 19.1 60 -20 16.7 290 90 8.1 240 30 16.0 140 20 13.4 170 -130 9.5 540 100 14.7 20 390 14.7 70 310 13.1 210 200 32.0 70 30 9.9 170 110 32.0 70 30 14.2 230 20

4QFY18 9,784 9,860 1,747 23,007 10,015 5,535 588 48,123 6,963 5,262 2,038 7,300 74,213

FY20E Old 202.9 200.1 33.9 471.3 48.4 58.5 7.7 1333.2 41.4 35.2 730.1 111.7 54.9 51.3 11.6 15.1 17.5

Chg (%) -2.8 0.9 -4.6 -3.0 5.9 0.4 19.4 0.3 -3.4 -1.2 -4.9 0.0 7.4 -0.6 4.3 0.0 0.0

Adj PAT (INR M) YoY (%) QoQ (%) 22.0 2.7 37.4 22.4 37.8 13.2 27.9 27.9 24.5 -1.3 NM -194.4 -13.0 206.4 11.3 322 62.7 54.8 27.9 11.5 69.5 53.5 58.9 40.2 61.3 26.1

67

March 2018 Results Preview | Sector: Automobiles

Mar-18

Feb-18

Jan-18

Dec-17

Mar-18

Jan-18

Source: Bloomberg, MOSL

Nov-17

95 Oct-17

90

Sep-17

105

MOSL Automobiles Index

Aug-17

95

Jul-17

115

Apr-17

100

Mar-17

125

Feb-18

105

Dec-17

Sensex Index

135

Jun-17

Sensex Index

110

Exhibit 10: Relative performance – One year (%)

May-17

Exhibit 9: Relative performance – Three months (%)

Source: Bloomberg, MOSL

Exhibit 11: Comparative valuation Sector / Companies Automobiles Amara Raja Batt. Ashok Leyland Bajaj Auto Bharat Forge Bosch CEAT Endurance Tech. Eicher Motors Escorts Exide Inds. Hero Motocorp Mahindra & Mahindra Mahindra CIE Maruti Suzuki Motherson Sumi Tata Motors TVS Motor Auto Sector Aggregate

April 2018

CMP (INR)

Reco.

811 148 2,792 717 19,116 1,599 1,263 28,052 884 233 3,640 769 221 9,024 333 343 649

Buy Buy Buy Buy Neutral Buy Buy Buy Sell Buy Neutral Buy Buy Buy Buy Buy Neutral

EPS (INR) PE (x) EV/EBIDTA (x) RoE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 28.3 34.0 40.0 5.4 7.2 9.2 147.9 167.8 197.2 20.0 26.4 34.8 459.1 582.9 694.4 61.1 84.7 111.7 27.9 38.2 51.0 814.4 1045.3 1337.1 39.1 49.5 59.0 8.0 9.9 12.1 186.1 202.0 221.3 39.7 46.9 51.2 9.6 12.1 15.1 275.1 349.0 457.0 8.1 12.5 17.5 25.5 56.6 58.7 14.1 22.4 32.4

28.7 27.2 18.9 35.9 41.6 26.2 45.3 34.4 22.6 29.0 19.6 19.4 23.0 32.8 41.1 13.4 45.9 25.2

23.9 20.4 16.6 27.2 32.8 18.9 33.0 26.8 17.9 23.6 18.0 16.4 18.2 25.9 26.6 6.1 28.9 17.4

20.3 16.0 14.2 20.6 27.5 14.3 24.8 21.0 15.0 19.2 16.4 15.0 14.6 19.7 19.0 5.8 20.1 14.8

14.6 13.7 13.5 18.5 23.2 11.5 20.0 26.4 16.4 13.3 11.8 5.4 11.2 19.0 13.4 3.5 25.9 10.0

12.0 10.6 12.0 15.1 19.6 10.4 15.9 20.8 14.3 11.3 11.0 4.6 9.7 15.6 9.7 2.8 17.4 7.9

10.1 8.2 9.8 12.1 16.5 7.9 12.6 16.3 11.5 9.2 9.9 4.5 7.8 11.7 6.9 2.6 12.4 6.7

17.3 24.3 23.9 20.9 15.2 9.8 20.8 36.3 18.3 12.6 34.1 14.6 10.4 19.7 19.2 13.5 25.3 17.7

18.0 27.6 24.6 23.3 17.5 12.4 23.8 35.5 18.7 14.0 32.2 14.8 11.6 21.8 25.4 24.0 32.0 21.6

18.3 29.2 26.0 25.4 18.7 14.5 26.4 34.1 19.0 15.3 30.9 15.2 12.8 24.2 29.3 19.9 35.2 21.2

68

March 2018 Results Preview | Sector: Automobiles

Amara Raja Batteries Bloomberg

AMRJ IN

Equity Shares (m)

170.8

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

139 / 2

52-Week Range (INR)

955 / 665

1,6,12 Rel Perf. (%)

2 / 9 / -22

Financial Snapshot (INR b) Y/E March

2017 2018E 2019E 2020E

Sales

53.2

59.9

69.2

79.4

EBITDA

8.5

9.1

10.9

12.6

NP

4.8

4.8

5.8

6.8

EPS (INR)

28

28.3

34.0

40.0

EPS Gr. (%)

-2.7

0.9

20.3

17.6

BV/Sh. (INR)

152

175

203

235

RoE (%)

20.3

17.3

18.0

18.3

RoCE (%)

19.4

16.5

17.1

17.3

29.0

28.7

23.9

20.3

5.3

4.6

4.0

3.4

16.2

15.0

12.2

10.2

2.6

2.3

1.9

1.6

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

CMP: INR811

TP: INR1000 (+23%)

Buy

We expect AMRJ’s revenue to grow 12.4% YoY (-3% QoQ) to INR15.1b, driven by strong growth in Automotive OEM & replacement segment.  Spot LME lead prices increased marginally by 0.5% QoQ, but 6% YoY in 4QFY18.  EBITDA margin is likely to expand 170bp YoY (-20bp QoQ) to 15.4%.  We expect PAT to increase 22% YoY to INR1.2b.  We maintain our FY19E and FY20E EPS estimates at INR34 and INR40, respectively.  The stock trades at 23.9x FY19E and 20.3x FY20E EPS; Maintain Buy. Key issues to watch  Update on demand environment for OEMs, auto replacement and industrial battery segments.  Update on entry into new segments like e-rickshaw, solar and motive power.  Outlook for raw material cost trend, recent pricing action.  Update on recent capacity expansion plans across product segments.  Update on progress made on product development in lithium ion battery space and plans thereof. 

Quarterly Performance Y/E March (INR m) Net Sales YoY Change (%) RM Cost (% of sales) Staff Cost (% of sales) Other Exp (% of sales) EBITDA Margins (%) Depreciation Interest Other Income PBT Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 13,081 15.0 65.7 5.0 11.9 2,273 17.4 441 14 90 1,908 31.5 1,307 8.0

FY17 2Q 3Q 13,331 13,269 15.8 9.5 63.9 65.0 5.2 5.5 13.7 14.1 2,297 2,040 17.2 15.4 457 469 15 14 120 133 1,945 1,689 29.9 33.5 1,363 1,123 10.4 -17.9

4Q 13,445 17.4 68.0 5.2 13.0 1,844 13.7 499 15 151 1,480 33.0 992 -9.1

1Q 14,975 14.5 70.0 5.4 11.7 1,929 12.9 544 14 137 1,508 33.7 999 -23.6

FY18 2Q 14,275 7.1 66.0 5.2 12.1 2,381 16.7 584 13 122 1,907 33.3 1,272 -6.7

3Q 15,535 17.1 66.9 4.9 12.0 2,416 15.6 587 11 168 1,985 32.3 1,345 19.7

4QE 15,109 12.4 66.7 5.1 12.8 2,327 15.4 656 14 148 1,806 32.9 1,212 22.2

FY17

FY18E

53,172 15.1 65.6 4.7 13.9 8,499 16.0 1,912 58 492 7,022 31.9 4,785 -2.7

59,893 12.6 67.4 4.2 11.6 9,052 15.1 2,371 51 575 7,205 33.0 4,828 0.9

69

March 2018 Results Preview | Sector: Automobiles

Ashok Leyland Bloomberg

AL IN

Equity Shares (m)

2926.5

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

432 / 7

52-Week Range (INR)



152 / 81

1,6,12 Rel Perf. (%)

7 / 15 / 64

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

CMP: INR148





200.2 260.4 308.0 360.6

EBITDA

22.0

28.4

35.6

42.8

NP

12.4

15.9

21.2

26.9

Adj. EPS (INR)

4.2

5.4

7.2

9.2



EPS Gr. (%)

0.2

28.8

33.1

27.1



BV/Sh. (INR)

20.9

23.9

28.5

34.7



RoE (%)

21.4

24.3

27.6

29.2

RoCE (%)

21.8

20.3

23.3

25.2

35.0

27.2

20.4

16.0

7.1

6.2

5.2

4.3

EV/EBITDA (x)

19.4

14.7

11.2

8.8

Div. Yield (%)

1.1

1.4

1.5

1.7

Valuations P/E (x) P/BV (x)



TP: INR179 (+21 %)

Buy

In 4QFY18, volumes increased 23% YoY (+26% QoQ), as M&HCV and LCV sales increased 15% YoY and 59% YoY, respectively, led by continued strong demand supported by overloading ban. We expect realization to increase by 5.9% YoY (-3.6% QoQ), led by BS-4 related price hikes, lower discounts on QoQ basis and mix impact. Net revenue is likely to grow 30.6% YoY (+21.5% QoQ) to INR86.4b, led by volume and realization growth. EBITDA margin is likely to expand 210bp YoY (+200bp QoQ) to 13.1% led by operating leverage. EBITDA should increase 55% YoY (44% QoQ) to INR11.3b. PAT should increase 62.7% YoY (+54.8% QoQ) to INR7.0b. We revised EPS estimates of FY19/FY20 by 16.4%/19.4% to factor for higher volumes (6%/9% in FY19/FY20) and better operating performance. The stock trades at EV/EBITDA of 11.2x FY19E and 8.8x FY20E EBITDA. Maintain Buy.

Key issues to watch  Update on CV demand and discount trends.  Update on LCVs, exports and defence business.  RM cost guidance and price hikes to mitigate the same.  Capex and investment guidance for FY19.

Quarterly Performance

Total Volumes (nos) Growth % Realizations (INR '000) % change Net operating revenues Change (%) RM/sales % Staff/sales % Other exp/sales % EBITDA EBITDA Margin (%) Other Income Interest PBT before EO Item EO Exp/(Inc) PBT Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

April 2018

1Q 31,165 10.7 1,367 -0.9 42,588 9.7 68.7 8.4 11.6 4,820 11.3 385 338 4,154 0 4,154 30.0 2,908 130.0

FY17 2Q 3Q 33,441 32,838 -10.5 6.2 1,382 1,470 4.0 10.5 46,224 48,283 -6.9 17.4 67.8 65.1 8.0 8.2 12.6 10.8 5,365 4,541 11.6 9.4 316 258 339 453 4,146 2,395 0 0 4,146 2,395 29.0 32.5 2,944 1,617 14.5 -25.6

4Q 47,622 8.5 1,390 2.1 66,179 10.8 71.9 6.2 10.8 7,299 11.0 404 423 6,114 3,508 2,605 4,279 -16.5

1Q 28,484 -8.6 1,488 8.9 42,378 -0.5 69.4 10.3 13.0 3,061 7.2 384 366 1,730 126 1,605 30.7 1,199 -58.7

FY18 2Q 3Q 40,985 46,627 22.6 42.0 1,475 1,526 6.7 3.8 60,469 71,132 30.8 47.3 71.3 71.4 8.1 6.9 10.4 10.6 6,118 7,884 10.1 11.1 557 380 410 335 4,826 6,576 0 0 4,826 6,576 30.7 31.6 3,342 4,497 13.5 178.1

4QE 58,735 23.3 1,471 5.9 86,412 30.6 70.6 5.9 10.3 11,329 13.1 380 356 9,948 0 9,948 31.2 6,963 62.7

FY17

FY18E

145,066 3.4 1,380 2.3 200,187 5.7 69.7 7.6 11.6 22,025 11.0 1,363 1,554 16,809 3,508 13,301 8.0 12,360 2.6

174,831 20.5 1,489 7.9 260,390 30.1 70.8 7.4 10.8 28,392 10.9 1,700 1,467 23,081 126 22,955 31.2 15,880 28.5

70

March 2018 Results Preview | Sector: Automobiles

Bajaj Auto Bloomberg

BJAUT IN

Equity Shares (m)

289.4

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

808 / 12

52-Week Range (INR)

3473 / 2695

1,6,12 Rel Perf. (%)

-6 / -18 / -11

Financial Snapshot (INR b) Y/E MAR

CMP: INR2,791 



2017 2018E 2019E 2020E

TP: INR3,550 (+27%)

Buy

Overall volume increased by 32.7% YoY (-4.4% QoQ) to ~1,045k units due to ~34% YoY increase in domestic volume, while export volumes increased by ~31% YoY. Volume growth was led by 3Ws, as domestic 3Wvolumes increased by 144% YoY, while 3W exports grew by 83% YoY. We expect realization to grow by 2.5% YoY (flat QoQ) led by improvement in product mix and price hikes. Consequently, net revenues are expected to increase by 36% YoY (5% QoQ). We expect EBITDA margin to expand by ~60bp YoY (-20bp QoQ) to 19.1%, as margin was impacted by BS-IV related provisioning in 4QFY17. We expect PAT to grow by 22% YoY (2.7% QoQ) to INR9.8b. We have cut our EBITDA margin estimate by 80bp/30bp in FY19/FY20, resulting in EPS declining by 4.2%/2.8% for FY19E/FY20E. The stock trades at 16.6x FY19E and 14.2x FY20E EPS; maintain Buy.

Sales

218

251

275

310

EBITDA

44.2

47.4

53.2

62.9

NP

40.8

42.8

48.6

57.1

Adj. EPS (INR)

141

148

168

197

EPS Gr. (%)

-1.7

4.8

13.5

17.5

BV/Sh. (INR)

589

649

717

802

RoE (%)

26.9

23.9

24.6

26.0

RoCE (%)

24.6

21.6

22.5

33.0

Payout (%)

46.9

52.8

53.7

51.8



19.8

18.9

16.6

14.2

Key issues to watch  Update on demand of new launches.  Export demand outlook and pricing in key currency market.  Comments on 3W demand recovery in domestic market.  Update on EV strategy.

Valuations P/E (x) P/BV (x)

4.7

4.3

3.9

3.5

EV/EBITDA (x)

14.9

13.8

12.0

9.8

Div. Yield (%)

2.0

2.3

2.7

3.0

Quarterly Performance Volumes ('000 units) Growth YoY (%) Realization (INR/unit) Growth YoY (%) Net Sales Change (%) RM/Sales % Staff cost/Sales % Oth. Exp./Sales % EBITDA EBITDA Margins (%) Other Income Interest Depreciation PBT Tax Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

April 2018

1Q 995 -1.8 57,784 4.5 57,480 2.7 67.2 4.7 7.7 11,763 20.5 2,671 2 775 13,657 3,873 28.4 9,784 2.2



 

FY17 2Q 1,032 -2.3 58,676 2.0 60,545 -0.4 67.0 4.3 7.4 12,961 21.4 3,420 7 770 15,605 4,378 28.1 11,228 6.7

3Q 852 -10.5 59,495 2.0 50,669 -8.7 66.8 4.8 7.9 10,439 20.6 3,193 3 772 12,858 3,612 28.1 9,246 (4.7)

4Q 788 -9.7 62,171 1.2 48,973 -8.6 67.8 4.6 9.2 9,060 18.5 2,936 2 757 11,236 3,218 28.6 8,018 (15.5)

1Q 888 -10.7 61,258 6.0 54,424 -5.3 70.0 5.0 7.8 9,384 17.2 4,573 2 753 12,881 3,642 28.3 9,469 (3.2)

FY18 2Q 1,072 3.8 61,408 4.7 65,799 8.7 69.1 4.0 7.2 12,984 19.7 2,964 5 770 15,174 4,055 26.7 11,119 (1.0)

(INR m) FY17

3Q 1,001 17.6 63,600 6.9 63,693 25.7 68.4 4.2 8.3 12,315 19.3 2,269 3 747 13,833 4,309 31.1 9,524 3.0

FY18E 4QE 1,045 3,666 4,007 32.7 (5.8) 9.3 63,725 59,419 62,527 2.5 2.4 5.2 66,617 217,827 250,533 36.0 (3.6) 15.0 68.7 67.1 69.2 4.0 4.6 4.3 8.4 8.0 7.9 12,736 44,384 46,874 19.1 20.4 18.7 2,168 12,220 11,974 0 14 10 794 3,073 3,063 14,110 53,516 55,775 4,326 15,081 16,333 30.7 28.2 29.3 9,784 38,436 39,987 22.0 (2.2) 4.0

71

March 2018 Results Preview | Sector: Automobiles

Bharat Forge Bloomberg

BHFC IN

Equity Shares (m)

465.7

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

334 / 5

52-Week Range (INR)



800 / 511

1,6,12 Rel Perf. (%)

-6 / 10 / 22 

Financial Snapshot (INR b) Y/E Mar

CMP: INR717

2017 2018E 2019E 2020E



TP: INR869 (+21%)

Buy

BHFC’s shipment tonnage is expected to increase by 21.7% YoY (+3.3% QoQ) to 67,169 tons, as demand for class 8 trucks as well as domestic CV was strong, along with strong recovery in oil & gas and industrial segments. Net realization is expected to increase 4.6% YoY (flat QoQ) to ~INR213.3k/ton. As a result, net revenue would increase 27.3% YoY (+3.0% QoQ) to ~INR14.3b. EBITDA margin is likely to expand 180bp YoY (+30bp QoQ) to 30.2%. PAT is expected to increase by 31.7% YoY (+3.9% QoQ) to INR2.4b. We maintain our FY19 and FY20E EPS estimates. The stock trades at 27.2x FY19E and 20.6x FY20E EPS; Maintain Buy.

Sales

64.0

82.1

94.2 108.7

EBITDA

12.5

17.9

22.1

26.8

EPS (INR)

13.1

20.0

26.4

34.8

EPS Gr. (%)

-7.2

52.8

32.1

31.7

BV/Sh. (INR)

88.4 103.3 123.4 150.6



RoE (%)

16.2

20.9

23.3

25.4



RoCE (%)

9.5

13.2

15.8

18.5



54.8

35.9

27.2

20.6

8.1

6.9

5.8

4.8

29.0

19.6

15.7

12.5

5.7

4.3

3.7

3.1

Key issues to watch  Update on FY19 outlook for Class 8 trucks & India M&HCV.  Outlook for oil & gas and mining segments, primarily with regard to price recovery.  Comment on industry-wide supply constraint in domestic CV.  Update on new order wins and ramp-up of past order wins under commercial vehicles, PVs, aerospace and rail.  Update on capex plans and any capacity addition plans.

Valuations P/E (x) P/BV (x) EV/EBITDA(x) EV/Sales (x) Consolidated



Quarterly performance Tonnage Change (%) Realization (INR '000/ton) Change (%) Net operating income Change (%) RM/Sales (%) Staff Cost (% of Sales) Other Exp. (% of Sales) EBITDA EBITDA Margins (%) Non-Operating Income Interest Depreciation EO Exp / (Inc) PBT after EO items Eff. Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

April 2018

(INR m) 1Q 49,098 -5.6 184.2 -15.9 9,044 -20.6 34.4 10.1 28.5 2,444 27.0 256 170 740 0 1,791 31.8 1,221 -37.7

FY17 2Q 46,203 -15.3 192.8 -6.4 8,909 -20.7 34.4 10.1 27.6 2,477 27.8 309 189 726 0 1,870 32.2 1,269 -26.3

3Q 47,083 -7.2 200.4 -4.0 9,437 -11.0 32.6 9.6 30.2 2,606 27.6 208 183 739 0 1,892 32.0 1,286 -22.8

4Q 55,189 5.3 204.0 5.7 11,257 11.3 35.1 9.2 27.3 3,200 28.4 222 185 744 -380 2,872 27.8 1,801 8.7

1Q 55,100 12.2 217.9 18.3 12,008 32.8 35.0 8.9 28.3 3,333 27.8 259 185 774 0 2,633 33.5 1,751 43.4

FY18 2Q 58,659 27.0 214.5 11.2 12,580 41.2 35.0 8.5 27.1 3,694 29.4 366 217 781 0 3,063 33.5 2,037 60.5

FY17

3Q 65,050 38.2 213.8 6.7 13,906 47.4 35.6 8.0 26.4 4,163 29.9 219 143 807 0 3,432 33.5 2,282 77.4

FY18E 4QE 67,169 197,573 245,978 21.7 -5.8 24.5 213.3 195.6 214.7 4.6 -4.7 9.8 14,328 38,647 52,822 27.3 -10.2 36.7 35.2 34.2 35.3 8.1 9.7 8.3 26.5 28.3 27.0 4,327 10,726 15,518 30.2 27.8 29.4 229 995 1,074 185 728 730 806 2949 3,168 0 -380 0 3,565 8,425 12,693 33.5 30.6 33.5 2,371 5,587 8,441 31.7 -16.9 51.1

72

March 2018 Results Preview | Sector: Automobiles

Bosch Bloomberg

BOS IN

Equity Shares (m)

31.4

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

600 / 9

52-Week Range (INR)

25245 / 16990

1,6,12 Rel Perf. (%)

4 / -12 / -27

Y/E Mar

FY17 FY18E FY19E FY20E

Sales

104.4 115.2 132.2 150.8

EBITDA

19.6

21.3

27.2

31.9

NP

14.4

14.0

17.8

21.2

EPS Gr. (%) BV/Sh. (INR)

473.1 459.1 582.9 694.4 -1.8

-3.0

27.0

15.8

15.2

17.5

18.7

23.1

23.0

26.3

27.9

40.4

41.6

32.8

27.5

6.6

6.1

5.5

4.9

28.9

25.0

19.3

16.2

5.4

4.6

4.0

3.4

Valuations

EV/EBITDA(x) EV/Sales (x)

Quarterly performance (S/A) Y/E March (INR Million) Net Sales YoY Change (%) RM Cost (% of sales) Staff Cost (% of sales) Other Expenses (% of sales) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT after EO Expense Tax Tax Rate (%) Reported PAT Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

  

Neutral

Net revenue is expected to grow 16% YoY (-2.6% QoQ) to INR29.9b, led by strong growth in CVs and Tractors. EBITDA margin is expected to decline by 290bp YoY (+990bp QoQ) to 24.4%, impacted by higher import content for BS6 products. EBITDA is projected to grow 4% YoY (+64% QoQ) to INR7.3b. Adjusted PAT is likely to increase 5% YoY to INR4.6b. We cut FY19 EPS by 3.6% and FY20 EPS by 5% to factor in potentially lower margins on BS6 than original estimate. The stock trades at 32.8x FY19E and 27.5x FY20E EPS; Maintain Neutral.

19.1

RoCE (%)

P/BV (x)



TP: INR19,096 (0%)

2,883.1 3,155 3,501 3,912

RoE (%)

P/E (x)





Financial Snapshot (INR b)

EPS (INR)

CMP: INR19,116

1Q 25,418 10.5 51.3 12.8 17.3 4,734 18.6 860 13 1,566 5,428 0 5,428 1,679 30.9 3,749 3,749 -0.7

Key issues to watch  Implementation of BS-VI norms for 2-wheelers and underlying opportunity for Bosch.  Advancement of BS-VI implementation and its impact on Bosch.  Capex plans for BS VI norms.  Further details on EV strategy & competitive positioning in EVs.

FY17 2Q 3Q 26,333 26,927 10.6 8.6 50.1 54.3 13.2 14.4 18.1 20.7 4,911 2,875 18.6 10.7 889 1,294 10 17 1,890 1,427 5,902 2,991 0 0 5,902 2,991 1,673 843 28.3 28.2 4,229 2,148 4,229 2,148 10.8 -23.5

4Q 25,746 2.8 47.6 11.0 14.1 7,037 27.3 1,492 232 1,310 6,624 0 6,624 2,219 33.5 4,405 4,405 -6.8

1Q 26,484 4.2 54.4 12.9 16.2 4,390 16.6 1,062 5 1,295 4,618 0 4,618 1,592 34.5 3,026 3,026 -19.3

FY18E 2Q 28,119 6.8 55.1 12.2 14.5 5,080 18.1 1,108 0 1,290 5,262 0 5,262 1,728 32.8 3,533 3,533 -16.5

3Q 30,719 14.1 52.8 11.1 21.5 4,457 14.5 1,243 27 1,023 4,211 0 4,211 1,419 33.7 2,792 2,792 30.0

FY17 FY18E 4QE 29,916 104,351 115,238 16.2 7.6 10.4 50.0 51.3 50.1 11.9 12.8 13.2 11.2 17.3 18.1 7,310 19,604 21,256 24.4 18.8 18.4 1,522 4,562 4,935 118 272 150 1,292 6,174 4,900 6,962 20,944 21,071 0 0 0 6,962 20,944 21,071 2,320 7,244 7,059 33.3 34.6 33.5 4,643 13,700 14,012 4,643 13,700 14,012 5.4 -9.4 2.3

73

March 2018 Results Preview | Sector: Automobiles

CEAT Bloomberg

CEAT IN

Equity Shares (m)

40.5

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

65 / 1

52-Week Range (INR)

2030 / 1324

1,6,12 Rel Perf. (%)

3 / -12 / 8

  

Financial Snapshot (INR Billion) Y/E March

CMP: INR1,599

2017 2018E 2019E 2020E

Sales

64.4

63.4

70,1

83,3

EBITDA

10.2

9.0

11.0

12.2



3.8

2.5

3.4

4.5



93.3

61.1

EPS Gr. (%)

-16.9

-34.6

BV/Share

597.0 648.7 722.1 819.0

NP EPS (Rs)

84.7 111.7 38.6

16.9

9.8

12.4

14.5

RoCE (%)

13.5

8.5

10.0

11.1

17.1

26.2

18.9

14.3

2.7

2.5

2.2

2.0

11.2

12.6

10.7

8.1

1.1

1.1

1.2

1.0

Valuations P/BV (x) EV/EBITDA (x) EV/Sales (x)

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

Buy

We expect revenue to increase 12% YoY (+5% QoQ) to INR16.5b in 4QFY18. RM cost is expected to increase by 330bp QoQ (-140bp YoY) to 61.5% in 4QFY18. We estimate 90bp QoQ (+200bp YoY) contraction in EBITDA margin to 11%. EBITDA is likely to grow 37% YoY (-3% QoQ) to INR1.8b. We expect adjusted PAT to increase 21% YoY to INR964m. The stock trades at ~18.9x FY19E and 14.3x FY20E EPS. Maintain Buy.

31.9

RoE (%)

P/E (x)

TP: INR1,787 (12%)

1Q 16,462 4.2 14,608 1,854 11.3 302 252 57 1,356 9 1,347 417 30.9 -102 1,033 1,039 -14.7 6.3

Key things to watch for  Movement in raw materials prices.  Growth in replacement market.  Update on capex plans and timeline for capacity additions.

FY17 2Q 15,966 5.1 14,113 1,854 11.6 317 162 37 1,411 0 1,411 430 30.5 -84 1,065 1,065 0.5 6.7

3Q 13,976 -9.3 12,441 1,535 11.0 351 191 57 1,050 0 1,050 262 25.0 -50 838 838 -26.1 6.0

4Q 14,718 -5.8 13,393 1,325 9.0 460 212 36 689 125 564 -45 -7.9 -55 663 798 -24.8 5.4

1Q 16,286 -1.1 15,740 547 3.4 396 226 103 28 4 25 48 192.3 -37 14 11 -99.0 0.1

FY18E 2Q 3Q 15,230 15,742 -4.6 12.6 13,484 13,872 1,747 1,870 11.5 11.9 409 433 237 273 65 66 1,166 1,230 80 10 1,086 1,220 421 475 38.7 38.9 -65 -82 730 826 779 833 -26.8 -0.7 5.1 5.3

4QE 16,484 12.0 14,671 1,813 11.0 462 267 66 1,150 0 1,150 276 24.0 -90 964 964 20.9 5.8

FY17

FY18E

61,122 -1.5 54,554 6,568 10.7 1,431 817 186 4,506 133 4,373 1,064 24.3 -290 3,599 3,700 -17.1 6.1

63,742 4.3 57,766 5,976 9.4 1,700 1,003 300 3,574 93 3,480 1,219 35.0 -273 2,534 2,595 -29.9 4.1

74

March 2018 Results Preview | Sector: Automobiles

Eicher Motors Bloomberg

EIM IN

Equity Shares (m)

27.2

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

763 / 12

52-Week Range (INR)

33484 / 25316

1,6,12 Rel Perf. (%)

3 / -16 / -2

Financial Snapshot (INR b) Y/E Dec Net Income

FY17 FY18E FY19E FY20E 70.3

89.3 107.7 129.4

EBITDA

21.7

28.4

35.1

43.9

Net Profit

16.8

22.2

28.4

36.4

Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR)

616.7 814.4 1,045.3 1,337.1 56.5

32.1

28.4

27.9

1,964 2,525 3,369 4,477

RoE (%)

37.3

36.3

35.5

34.1

RoCE (%)

33.5

33.5

31.2

31.0

0.4

0.5

0.6

0.7

P/E (x)

45.5

34.4

26.8

21.0

P/BV (x)

14.3

11.1

8.3

6.3

EV/EBITDA (x)

28.5

21.4

16.7

12.9

Div. Yield (%)

0.4

0.5

0.6

0.7

Payout (%) Valuations

Quarterly performance (Consolidated) Y/E March Net Operating income Growth (%) EBITDA EBITDA Margins (%) Exceptional Exp/(Inc) Recurring PAT Growth (%)

Standalone (Royal Enfield) Royal Enfield (units) Growth (%) Net Realn (INR/unit) Change - YoY (%) EBITDA Margins (%) Recurring PAT Growth (%)

VECV

Total CV Volumes Growth (%) Net Realn (INR '000/unit) Change - YoY (%) EBITDA Margins (%) Recurring PAT Growth (%) E: MOSL Estimates

April 2018

1Q 15,557 42.0 4,700 30.2 0 3,763 58.6

CMP: INR28,052

TP: INR34,529 (+23%)

Buy

Royal Enfield’s volumes grew by 27.4% YoY (+9.9% QoQ) to 227,041 units, aided by additional capacity amid healthy demand. Net realization is expected to improve by 4.3% YoY (+0.6% QoQ), supported by price hikes and mix. We expect EBITDA margin to expand ~60bp YoY to 32% (+30bp QoQ).  VECV’s volume increased by ~33.2% YoY (+42.3% QoQ). We expect net realization to increase by 6.5% YoY (-1.7% QoQ). Margin is expected to be at 9.9%, up by ~170bp YoY (+110bp QoQ).  Consolidated revenue would increase ~32.1% YoY (+9.9% QoQ) to INR24.9b. Consolidated margin is likely to be 33.2%. Consolidated Adj. PAT is estimated to grow ~59% YoY (+40% QoQ) at INR7.3b.  We are providing INR2.9b for write-off of investment in Polaris JV.  The stock trades at 26.8x FY19E and 21x FY20E EPS. Maintain Buy. Key issues to watch  Outlook on RE demand and order book.  Update on time-line for new launches.  Update on current demand trends for commercial vehicles and discount levels.  Update on capacity addition for RE & VECV. 

FY17 2Q 3Q 17,549 18,348 35.0 42.9 5,422 5,770 30.9 31.4 0 0 4,132 4,182 45.2 50.0

4Q 18,881 23.2 5,848 31.0 0 4,594 33.9

1Q 20,006 28.6 6,207 31.0 0 4,596 22.1

FY18 2Q 3Q 21,673 22,690 23.5 23.7 6,825 7,072 31.5 31.2 0 0 5,180 5,205 25.4 24.5

4QE 24,942 32.1 8,274 33.2 2,900 7,300 58.9

FY17

FY18E

70,334 42.4 21,740 60.9 0 16,780 56.8

89,312 58.7 28,378 31.8 2,900 22,159 65.1

147,483 166,941 173,838 178,228 183,998 202,867 206,586 227,041 666,490 820,492 38.3 30.8 38.2 20.3 24.8 21.5 18.8 27.4 38.8 53.9 105,603 105,576 105,477 105,731 108,691 106,651 109,603 110,263 105,598 108,851 2.7 3.7 3.3 1.5 2.9 1.0 3.9 4.3 2.4 3.1 30.8 31.3 31.8 31.4 31.4 31.9 31.7 32.0 31.3 31.8 3,371 3,962 4,152 4,116 4,943 4,864 4,720 5,262 15,600 19,807 69.6 54.2 64.5 8.5 46.6 22.8 13.7 27.9 48.9 58.7 16,071 32.5 1,331 -9.6 9.1 1,082 40.9

13,408 15.0 1,470 -3.8 7.2 650 -4.0

11,784 -7.1 1,600 1.9 6.9 570 -36.0

17,341 11.5 1,473 10.4 8.2 1,203 1,890.9

11,583 -27.9 1,557 16.9 8.3 650 -39.9

15,013 12.0 1,558 6.0 9.2 950 46.2

16,231 37.7 1,596 -0.2 8.7 1,328 133.0

23,101 33.2 1,569 6.5 9.9 2,038 69.5

58,604 16.2 1,449 -1.1 7.9 3,474 10.1

65,928 40.6 1,571 8.4 9.1 4,966 78.7

75

March 2018 Results Preview | Sector: Automobiles

Endurance Technologies Bloomberg

ENDU IN

Equity Shares (m)

140.7

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

178 / 3

52-Week Range (INR)

1422 / 767

1,6,12 Rel. Perf. (%)

-4 / 23 / 52

CMP: INR1,263 



Financial Snapshot (INR Billion) Y/E March Sales

2017 2018E 2019E 2020E



55.9

64.2

73.3

86.0

EBITDA

7.6

9.0

11.1

13.8

NP

3.3

3.9

5.4

7.2



23.5

27.9

38.2

51.0



9.9

18.8

37.0

33.5

Adj EPS (INR) EPS Gr. (%) BV/Sh. (INR)

TP: INR1,531(+21%)

Buy

We expect 21.2% YoY growth (5.8% QoQ) in consolidated revenue to INR16.7b, led by strong performance in domestic as well as exports segments. Consolidated EBITDA is expected to grow 21.6% YoY (3.6% QoQ), led by healthy growth in the operating performance of both Indian and European operations. EBITDA margin is likely to remain flat YoY (-30bp QoQ) at 13.8% mainly due to RM cost inflation. We expect PAT to grow 20% YoY (+4.7% QoQ) to INR1b. The stock trades at 33x FY19E EPS and 24.8x FY20 EPS. Maintain Buy.

122.9 145.7 175.7 211.3

RoE (%)

20.8

20.8

23.8

26.4

RoCE (%)

15.6

17.4

21.1

24.5

P/E (x)

53.8

45.3

33.0

24.8

P/BV (x)

10.3

8.7

7.2

6.0

EV/EBITDA (x)

23.9

20.2

16.1

12.7

Valuations

Key issues to watch for  Update on supplies to HMSI and Hero MotoCorp.  Update on new products in India.  EU business: Level of ramp-up at new plant in Germany.

Consolidated - Quarterly Y/E March INR m Net Sales YoY Change (%) RM Cost (% of sales) Staff Cost (% of sales) Other Exp. (% of sales) EBITDA Margins (%) Depreciation Interest Other Income Exceptional Item Rep. PBT Eff. Tax Rate (%) Adj. PAT YoY Change (%)

April 2018

1Q 14,402 13.3 58.4 9.8 18.9 1,865 13.0 684 104 89 0 1,166 24.5 880 15.2

FY17 2Q 3Q 14,482 13,193 7.5 2.3 57.8 57.0 8.9 10.5 19.4 19.1 2,008 1,773 13.9 13.4 699 741 81 88 54 69 0 0 1,281 1,014 30.3 26.7 893 743 14.8 13.5

4Q 13,803 4.8 57.4 9.9 18.9 1,898 13.8 781 49 119 0 1,186 29.6 835 3.3

1Q 15,503 7.6 59.0 9.5 17.6 2,136 13.8 742 57 60 0 1,397 30.9 965 9.7

FY18 2Q 3Q 16,204 15,809 11.9 19.8 59.3 57.4 8.6 9.3 18.0 19.2 2,292 2,229 14.1 14.1 768 798 69 47 62 84 0 269 1,517 1,199 34.3 34.8 997 957 11.6 28.8

4QE 16,723 21.2 58.0 9.0 19.2 2,309 13.8 804 60 72 0 1,516 33.9 1,002 20.0

FY17

(INR m) FY18E

55,880 6.8 57.7 9.8 19.0 7,555 13.5 2,905 322 319 0 4,646 28.9 3,303 9.9

64,240 15.0 58.4 9.1 18.5 8,965 14.0 3,113 233 278 269 5,629 33.4 3,746 18.8

76

March 2018 Results Preview | Sector: Automobiles

Escorts Bloomberg

ESC IN

Equity Shares (m)

122.6

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

108 / 2

52-Week Range (INR)

2 / 28 / 53

Financial Snapshot (INR Billion) Sales EBITDA NP

2017 2018E 2019E 2020E 41.5

51.8

58.1

64.2

3.1

5.7

6.8

8.0

1.6

3.5

4.4

5.2

EPS (INR)

19.2

39.1

49.5

59.0

EPS Growth (%)

70.5 103.5

26.5

19.3

BV/Sh (INR)

10.6

18.3

18.7

19.0

RoCE (%)

10.2

18.1

18.7

28.3

Payout (%)

16.9

12.7

16.8

14.1

46.0

22.6

17.9

15.0

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales(x)

4.7

3.6

3.1

2.6

24.3

12.9

10.2

8.0

1.8

1.4

1.2

1.0

Sell

Tractor volumes grew ~57% YoY to 23,568 units. Realizations are estimated to decline ~2% QoQ due to weaker mix.



We expect revenue to grow 42% YoY to INR14.5b in 4QFY18, driven strong tractor volumes.



We expect EBITDA margin to expand 430bp to 11.6%. Consequently, EBITDA should grow 126% YoY to INR1,681m.



PAT should grow by 126% to INR1.1b, restricted by higher tax rate.



We have upgraded our EPS estimates for FY19/20E by 9%/7% to factor in the strong outlook for tractors.



The stock trades at 17.9x/15x FY19/20E EPS. Maintain Sell.

190.1 244.3 285.5 336.2

RoE (%)

TP: INR826 (-6%)



922 / 519

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR884

Key things to watch for  Market share movement and new launches.  Visibility of order book execution in railways division.

Standalone Quarterly Performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 10,480 9.0 9,580 900 8.6 139 85 102 778 58 720 213 29.5 508 548 55.8 5.2

FY17 2Q 3Q 9,827 10,743 20.1 20.5 9,149 9,828 678 915 6.9 8.5 157 167 64 49 71 79 528 777 32 20 496 757 119 221 24.0 29.2 377 536 401 550 269.0 112.5 4.1 5.1

4Q 10,223 29.6 9,480 744 7.3 167 112 183 647 -147 794 203 25.6 591 482 51.1 4.7

1Q 11,632 11.0 10,656 975 8.4 178 80 205 923 0 923 297 32.1 626 626 14.3 5.4

FY18 2Q 3Q 12,117 12,050 23.3 12.2 10,708 10,600 1,409 1,450 11.6 12.0 179 179 84 59 81 82 1,227 1,294 69 -1 1,159 1,295 383 375 33.1 29.0 776 920 822 919 104.8 67.0 6.8 7.6

4QE 14,487 41.7 12,807 1,681 11.6 180 35 90 1,556 0 1,556 467 30.0 1,089 1,089 126.0 7.5

FY17

FY18E

41,274 19.3 38,037 3,237 7.8 631 311 435 2,730 -38 2,768 629 22.7 2,011 1,981 91.3 4.8

50,286 21.8 44,771 5,515 11.0 716 258 458 4,999 68 4,932 1,521 30.8 3,411 3,456 74.5 6.9

77

March 2018 Results Preview | Sector: Automobiles

Exide Industries Bloomberg

EXID IN

Equity Shares (m)

850.0

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

198 / 3

52-Week Range (INR)

250 / 193

1,6,12 Rel Perf. (%)

13 / 6 / -10

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Net Sales

76.2

91.3

105.0

121.1

EBITDA

10.9

12.1

14.5

17.1

Adj. PAT

6.9

6.8

8.4

10.3

Adj. EPS (INR)

8.1

8.0

9.9

12.1

EPS Gr. (%)

10.6

-1.3

23.3

22.6

BV/Sh. (INR)

58.4

63.5

70.8

79.2

RoE (%)

13.9

12.6

14.0

15.3

RoCE (%)

14.2

12.8

14.4

15.8

Valuations

29.5

27.4

22.3

26.4

P/E (x) P/BV (x)

28.7

29.0

23.6

19.2

EV/EBITDA (x)

4.0

3.7

3.3

2.9

Div. Yield (%)

15.8

14.0

11.3

9.2

S/A Quarterly Performance Y/E March Net Sales Growth YoY (%) RM(%) Employee cost (%) Other Exp(%) EBITDA EBITDA Margin(%) Change (%) Non-Operating Income Interest Depreciation PBT after EO Exp Tax Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

April 2018

1Q 20,103 11.3 62.4 6.4 15.6 3,142 15.6 18.4 150 17 491 2,784 824 29.6 1,961 25.9

CMP: INR233

TP: INR286 (+23%)

Buy

We expect revenues to grow 21% YoY to INR23.8b, led by strong OEM and replacement demand, as well as ramp-up in telecom segment for EXID.  Spot LME lead prices increased marginally by 0.5% QoQ, but 6% YoY in 4QFY17.  EBITDA margin is likely to shrink 10bp YoY (+60bp QoQ) to 13%.  PAT is likely to grow by 6% YoY (+13% QoQ) to INR1.75b.  The stock trades at 23.6x FY19E and 19.2x 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, recent pricing action and currency hedges, if any.  Update on technical alliance with China-based Chaowei group for lithium ion battery. 

FY17 2Q 3Q 19,253 17,151 10.4 11.9 61.2 60.5 6.9 7.5 16.9 18.8 2,891 2,273 15.0 13.3 13.3 -5.0 231 374 6 46 506 522 2,611 2,079 793 564 30.4 27.1 1,818 1,515 17.2 9.4

4Q 19,717 11.7 62.7 6.6 17.6 2,578 13.1 -3.2 255 0 544 2,289 641 28.0 1,648 -6.0

1Q 21,029 4.6 62.9 6.8 14.9 3,243 15.4 3.2 132 16 563 2,796 906 32.4 1,890 -3.6

FY18E 2Q 23,713 23.2 67.0 6.2 14.3 2,959 12.5 2.3 139 21 597 2,061 706 34.3 1,630 -10.3

3Q 22,765 32.7 65.5 6.7 15.4 2,826 12.4 24.3 111 9 625 2,302 759 33.0 1,543 1.8

4QE 23,818 20.8 65.6 6.3 15.1 3,118 13.0 21.0 158 14 668 2,595 848 32.7 1,747 6.0

FY17

(INR m) FY18E

76,203 11.3 61.6 6.8 17.3 10,919 14.3 6.8 899 30 2,063 9,725 2,821 29.0 6,904 10.6

91,326 19.8 65.3 6.5 14.9 12,145 13.3 11.2 539 60 2,453 9,754 3,219 33.0 6,815 -1.3

78

March 2018 Results Preview | Sector: Automobiles

Hero MotoCorp Bloomberg

HMCL IN

Equity Shares (m)

199.7

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

727 / 11

52-Week Range (INR)

4200 / 3180

1,6,12 Rel Perf. (%)

4 / -10 / 2

Financial Snapshot (INR b) Y/E March

2017 2018E 2019E 2020E

Sales

284.7 322.1 361.3 395.7

EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR)

46.3

53.4

58.2

63.4

33.8

37.2

40.3

44.3

169.1 186.1 202.0 221.3 6.9

10.0

8.5

9.6

506.3 584.0 671.5 764.6

RoE (%)

35.7

34.1

32.2

30.9

RoCE (%)

34.5

32.9

31.2

30.0

Payout (%)

57.8

55.6

54.1

54.6

21.5

19.6

18.0

16.4

Valuations P/E (x) P/BV (x)

7.2

6.2

5.4

4.8

EV/EBITDA (x)

14.4

12.1

11.0

9.9

Div. Yield (%)

2.3

2.5

2.6

2.9

Quarterly Performance Y/E March Total Volumes ('000 nos) Growth YoY (%) Net Realization Growth YoY (%) Net Op Revenues Change (%) RM Cost (% sales) Staff Cost (% sales) Other Exp (% sales) EBITDA EBITDA Margins (%) Other Income Interest Depreciation PBT Effective Tax Rate (%) Adj. PAT Growth (%) E: MOSL Estimates

April 2018

1Q 1,745 6.1 42,391 1.0 73,989 7.2 67.1 4.5 11.7 12,301 16.6 1,204 15 1,152 12,337 28.4 8,831 18.1

CMP: INR3,640

TP:INR3,922 (+8%)

Neutral

Volume increased by ~23% YoY (17% QoQ) to 2m units, led by healthy rural sentiment.  Realization would be flat YoY and QoQ at INR42,834/unit.  Net revenue should increase by 24% YoY (17% QoQ) to INR85.7b.  EBITDA margin is expected to expand by ~290bp YoY (+90bp QoQ) to 16.7%, over lower base of previous year due to provisioning related to BS-IV transition.  EBITDA is likely to grow 49.7% YoY (+23.8% QoQ) to ~INR14.3b.  We expect PAT to grow 37.4% YoY (+22.4% QoQ) to INR9.9b.  The stock trades at 18x FY19E and 16.4 FY20E EPS; maintain Neutral. Key issues to watch  Update on rural demand.  Update on discounts given.  Update on demand of new launches.  Outlook on exports. 

FY17 2Q 1,823 15.8 42,755 -1.1 77,963 14.5 66.5 4.6 11.4 13,689 17.6 1,524 16 1,193 14,004 28.3 10,042 27.7

3Q 1,473 -12.8 43,202 1.1 63,646 -11.9 64.9 5.9 12.3 10,797 17.0 1,319 15 1,249 10,853 28.9 7,720 -2.7

4Q 1,622 -5.8 42,635 -2.2 69,152 -7.9 68.5 4.7 12.9 9,576 13.8 1,182 15 1,353 9,390 23.6 7,178 -13.9

1Q 1,849 6.0 43,104 1.7 79,716 7.7 67.7 4.7 11.4 12,959 16.3 1,317 16 1,330 12,931 29.3 9,140 3.5

FY18 2Q 2,023 10.9 41,339 -3.3 83,620 7.3 68.1 4.6 9.9 14,557 17.4 1,176 16 1,360 14,357 29.6 10,105 0.6

3Q 1,709 16.0 42,745 -1.1 73,055 14.8 67.4 5.5 11.3 11,580 15.9 1,100 16 1,383 11,282 28.6 8,054 4.3

FY17

(INR m) FY18E

4QE 2,002 6,664 7,583 23.4 0.5 13.8 42,834 42,729 42,481 0.5 -0.4 -0.6 85,736 284,750 322,127 24.0 0.1 13.1 67.7 66.8 67.7 4.7 4.9 4.9 10.9 12.1 10.8 14,336 46,348 53,432 16.7 16.3 16.6 1,032 5,224 4,625 16 61 63 1,397 4,927 5,470 13,954 46,585 52,524 29.3 27.5 29.3 9,860 33,771 37,160 37.4 6.9 10.0

79

March 2018 Results Preview | Sector: Automobiles

Mahindra CIE Bloomberg

MACA IN

Equity Shares (m)

378.4

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

84 / 1

52-Week Range (INR)

270 / 199

1,6,12 Rel Perf. (%)

-5 / -12 / -14

Financial Snapshot (INR b) Y/E Dec

2017 2018E 2019E 2020E

Sales

65.2

68.8

74.2

78.8

8.2

9.4

11.1

12.2

9.6

12.1

15.1

16.8

107.8

26.3

24.8

11.3

EBITDA EPS (Rs) EPS Growth (%) BV/Share (Rs)

98.3 110.4 125.5 142.4

RoE (%)

10.4

11.6

12.8

12.6

RoCE (%)

8.7

10.1

11.5

11.5

23.0

18.2

14.6

13.1

2.2

2.0

1.8

1.6

11.5

9.7

7.8

6.7

1.5

1.3

1.2

1.0

Valuations P/E (x) P/BV (x) EV/EBITDA(x) EV/Sales (x) Consolidated

Quarterly performance Consolidated (INR m) Consolidated Net Sales YoY Change (%) EBITDA Margins (%) PBT before EO exp YoY Change (%) E: MOSL Estimates

April 2018

TP: INR272 (+23%)

Buy

MACA’s standalone revenue is expected to increase by 24% YoY (+2.5% QoQ), led by strong growth for key customers and merger of Gears India.  Standalone EBITDA margin is expected to expand ~190bp YoY (+90bp QoQ) to 11.2% due to favourable mix and operating leverage.  As a result, standalone PAT is expected to grow 67.5% YoY (+53.7% QoQ).  Consolidated revenue is expected to grow by ~5% YoY (-3% QoQ) to INR16.6b.  Consolidated EBITDA margin is expected to expand ~170bp YoY (+30bp QoQ) to 13.7% mainly attributable to improved performance in standalone business. As a result, consol. PBT is expected to grow ~22% YoY (+7% QoQ) to INR1.4b.  The stock trades at 14.6x FY19E and 13.1x FY20E EPS; maintain Buy. Key issues to watch  Outlook for CY18.  Update on new products/customer addition.  Update on new order wins and ramp-up of past orders. 

1Q 15,781 18.9 1,889 12.0 1,170 49.0

CY17 2Q 3Q 15,849 16,494 15 32 1,995 2,052 12.6 12.4 1,233 1,334 58.3 98.5

4Q 17,077 25.2 2,285 13.4 1,330 250.0

1QE 16,570 5.0 2,270 13.7 1,423 21.6

CY18E 2QE 3QE 16,721 17,401 6 6 2,307 2,367 13.8 13.6 1,462 1,530 18.6 14.7

4QE 18,099 6.0 2,500 13.8 1,678 25.8

1Q 4,641 14.8 431 9.3 171 26 29 264 0 264 97 36.9 166 166 -2.1

CY17 2Q 3Q 4,495 4,847 11.2 21.0 427 488 9.5 10.1 182 178 18 13 43 27 269 325 0 0 269 325 93 121 34.4 37.3 176 204 176 204 25.1 86.2

4Q 5,615 39.6 583 10.4 228 33 38 360 69 291 144 49.6 146 181 65.7

1QE 5,754 24.0 647 11.2 230 30 35 422 0 422 144 34.0 279 279 67.5

CY18E 2QE 3QE 5,169 5,525 15.0 14.0 594 681 11.5 12.3 235 235 25 25 38 35 372 456 0 0 372 456 127 155 34.0 34.0 246 301 246 301 39.2 47.8

4QE 6,468 15.2 828 12.8 244 21 42 604 0 604 205 34.0 399 399 95.8

Standalone (INR m) Y/E December Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) E: MOSL Estimates

CMP: INR221

CY17

CY18E

65,200

68,791

8,221

59,347

5,136 89.8

6,093 18.6

CY17

CY18E

19,607 21.7 1,948 9.9 759 98 127 1,217 69 1,148 455 39.6 693 735 28.0

22,916 16.9 2,750 12.0 944 101 150 1,855 0 1,855 631 34.0 1,224 1,224 66.6

80

March 2018 Results Preview | Sector: Automobiles

Mahindra & Mahindra Bloomberg

MM IN

Equity Shares (m)

1206.3

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

928 / 14

52-Week Range (INR)

803 / 613

1,6,12 Rel Perf. (%)

7 / 16 / 8

CMP: INR769 



Financial Snapshot (INR b) Y/E March Sales EBITDA

2017 2018E 2019E 2020E 437.9 488.9 553.1 613.6 47.7

60.2

70.3

79.5

 

NP (incl. MVML)

37.4

42.1

47.9

54.9

Adj. EPS (INR) *

31.5

35.5

40.3

46.2



EPS Gr. (%)

11.9

12.6

13.6

14.7



Cons. EPS (INR)

27.4

39.7

46.9

51.2

BV/Share (INR)

216

242

270

303

RoE (%)

14.2

14.6

14.8

15.2

RoCE (%)

13.3

13.4

13.8

14.3

P/E (x)

24.4

21.7

19.1

16.6

Cons. P/E (x)

Valuations 28.1

19.4

16.4

15.0

P/BV (x)

3.6

3.2

2.9

2.5

EV/EBITDA (x)

9.0

14.7

12.4

9.4

Div. Yield (%)

0.8

1.3

1.3

1.3



TP:INR889 (+16%)

Buy

Overall volumes were up 25.4% YoY (+12.4% QoQ), as tractor and UV volume increased 41% YoY and 18% YoY, respectively. 3W sales increased 43% YoY, supporting overall volume growth. MM’s (including MVML) realization is expected to decline 1.1% YoY (+1.8% QoQ), led by better product mix due to increase in share of tractors. Revenue is likely to increase 24% YoY (14.5% QoQ) to ~INR131.6b. EBITDA margin is expected to expand 180bp YoY (-130bp QoQ) to 14.3%. PAT expected to increase 25% YoY to INR10b. We have upgraded our estimate for FY19/20E by 7%/6% to factor in the stronger outlook for tractors and rural markets. The stock trades at 19.1x FY19E and 16.6x FY20E EPS; Maintain Buy.

Key issues to watch  Outlook for UV and tractor businesses for FY18.  Update on smaller businesses like two-wheelers, commercial vehicles, Ssangyong, etc.  Update on new launches.

* incl. MVML Quarterly Performance (incl MVML) Y/E March Total Volumes (nos) Growth YoY (%) Net Realization Growth YoY (%) RM Cost (% of sales) Staff (% of sales) Oth. Exp. (% of Sales) Total Cost EBITDA EBITDA Margins (%) Other income Interest Depreciation PBT Effective Tax Rate (%) Adj PAT Change (%) E: MOSL Estimates

April 2018

FY17 FY18 FY17 FY18E 1Q 2Q 4Q 1Q 2Q 3Q 4QE 3Q 196,125 187,837 197,457 188,496 201,501 218,437 210,223 236,376 769,617 869,118 14.1 18.4 1.9 3.5 2.7 16.3 6.5 25.4 8.8 12.9 536,631 535,827 527,728 562,989 550,573 550,176 546,632 556,626 544,367 549,532 -2.3 -3.4 -2.3 0.8 2.6 2.7 3.6 -1.1 -0.9 0.9 68.4 66.6 68.0 68.4 68.5 65.9 66.2 67.3 68.1 67.0 6.8 7.4 7.4 6.4 7.0 6.6 7.0 6.4 6.9 6.7 10.6 11.9 11.0 13.5 11.4 11.6 12.1 12.5 11.6 12.0 90,276 86,414 90,051 93,754 96,402 100,946 97,989 113,943 362,398 409,279 14,971 14,234 14,152 12,368 14,539 19,233 16,926 17,631 56,556 68,328 14.2 14.1 13.6 11.7 13.1 16.0 14.7 13.4 13.5 14.3 1,294 6,881 930 2,940 1,282 5,549 1,011 1,402 12,035 9,244 515 550 603 673 499 440 435 456 2,285 1,830 3,484 4,602 3,878 3,782 3,783 3,992 4,052 4,186 14,721 16,012 13,176 15,963 14,239 11,790 11,538 20,350 17,307 14,391 53,597 63,587 27.0 27.5 21.6 25.9 33.4 30.7 24.6 30.4 27.4 29.4 8,949 11,567 8,315 8,043 7,683 14,109 10,147 10,015 37,429 42,142 7.8 18.9 17.0 22.0 22.0 24.5 12.1 12.6 -2.1 -14.2

81

March 2018 Results Preview | Sector: Automobiles

Maruti Suzuki Bloomberg

MSIL IN

Equity Shares (m)

302.1

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

2726 / 42

52-Week Range (INR)

10000 / 6024

1,6,12 Rel Perf. (%)

4 / 8 / 37

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Sales

680.3 794.6 933.2 1,105.2

EBITDA

104.7 123.8 149.4

Adj. PAT Con.adj.EPS EPS Gr. (%) BV/Sh. (INR)

74.2

191.8

81.4 103.6

136.1

248.6 275.1 349.0

457.0

26.9

30.9

1,197 1,365 1,575

36.6

10.6

1,864

RoE (%)

20.3

19.7

21.8

24.2

RoCE (%)

27.3

27.8

30.2

33.4

P/E (x)

36.3

32.8

25.9

19.7

P/CE (x)

27.0

24.6

20.0

15.9

EV/EBITDA (x)

23.4

19.5

15.7

11.8

Div. Yield (%) 0.8 *Consol. & adjusted

0.9

1.2

1.5

Valuations

Quarterly Perf. (INR m) Y/E March Total Volumes (nos) Change (%) Realizations (INR/car) Change (%) Net operating revenues Change (%) RM Cost (% of sales) Staff Cost (% of sales) Other Cost (% of sales) EBITDA EBITDA Margins (%) Depreciation EBIT EBIT Margins (%) Interest Non-Operating Income PBT Effective Tax Rate (%) Adjusted PAT Change (%) E:MOSL Estimates

April 2018

CMP: INR9,024

TP: INR10,685 (+18%)

Buy

Volume grew by 11.4% YoY (+7.1% QoQ) to 461.7k units, led by Baleno, Brezza, newly launched Swift Dzire, and recovery in small cars.  Net realization is likely to improve 2.2% YoY (+1.1% QoQ) to INR451,896 per unit, boosting net revenue by 13.8% YoY (+8.2% QoQ) to INR208.6b. Growth in realization is likely to be driven by improvement in product mix and nil discounts on newly launched products.  We expect margin to expand 140bp YoY (+20bp QoQ) to 16% mainly due to favorable mix and operating leverage.  EBITDA is estimated to grow by 24% YoY (+9.6% QoQ) to INR33.3b.  We expect PAT to increase by 27.9% YoY and QoQ to INR23b.  We cut our FY19/20 EPS estimates by 6%/3% to factor in appreciating JPY.  The stock trades at 25.9x FY19E and 19.7x FY20E EPS. Maintain Buy. Key issues to watch  Update on demand scenario, channel inventory, discounting trends, and new launches.  Clarity on action plan under Suzuki-Toyota partnership.  Update on royalty reduction proposal.  (INR m) 

FY17 FY18 FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 348,443 418,470 387,251 414,439 394,571 492,118 431,112 461,662 1,568,603 1,779,463 2.1 18.4 3.5 15.0 13.2 17.6 11.3 11.4 9.8 13.4 428,899 427,001 436,105 442,367 444,678 442,337 447,290 451,896 433,729 446,536 9.4 8.9 8.7 4.6 3.7 3.6 2.6 2.2 7.9 3.0 149,447 178,687 168,882 183,334 175,457 217,682 192,832 208,623 680,348 794,594 11.7 29.0 12.5 20.3 17.4 21.8 14.2 13.8 18.4 16.8 67.9 67.7 69.3 69.6 70.0 68.8 69.1 69.2 68.7 69.3 3.9 2.9 3.7 3.4 3.7 3.1 3.6 3.3 3.4 3.4 13.4 12.4 12.3 12.4 13.0 11.2 11.5 11.5 12.5 11.8 22,148 30,365 24,882 26,775 23,312 36,775 30,378 33,291 104,710 123,756 14.8 17.0 14.7 14.6 13.3 16.9 15.8 16.0 15.4 15.6 6,380 6,291 6,341 7,010 6,839 6,825 6,890 6,998 26,021 27,552 15,768 24,074 18,541 19,765 16,473 29,950 23,488 26,293 78,689 96,204 10.6 13.5 11.0 10.8 9.4 13.8 12.2 12.6 11.6 12.1 181 197 290 226 313 150 263 174 894 900 4,881 8,189 5,968 4,491 6,827 5,229 2,449 6,483 23,001 20,988 20,468 32,066 24,219 22,850 22,987 35,029 25,674 32,602 99,616 116,292 27.2 25.0 27.9 25.1 32.3 29.1 29.9 29.4 26.1 30.0 14,909 24,043 17,472 17,988 15,564 24,843 17,990 23,007 74,452 81,404 23.4 60.6 47.7 21.9 4.4 3.3 3.0 27.9 41.2 9.3

82

March 2018 Results Preview | Sector: Automobiles

Motherson Sumi Bloomberg

MSS IN

Equity Shares (m)

2105.3

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

700 / 11

52-Week Range (INR)

395 / 247

1,6,12 Rel Perf. (%)

6 / -8 / 21

Y/E Mar

2017 2018E 2019E 2020E

Sales

424.9 571.2 683.2 825.6

EBITDA

42.8

51.7

EPS (Rs)

7.7

8.1

12.5

17.5

EPS Growth (%)

18.2

5.0

54.7

39.6

BV/Share (Rs)

39.3

44.8

53.7

65.7

RoE (%)

25.6

19.2

25.4

29.3

RoCE (%)

14.7

11.8

17.4

21.5

Payout (%)

23.6

26.8

29.1

31.5

43.2

41.1

26.6

19.0

8.5

7.4

6.2

5.1

12.1

14.3

9.7

6.9

1.2

1.3

1.1

0.8

EV/EBITDA(x) EV/Sales (x)

   

Quarterly performance (Cons.) Y/E March

Net Sales YoY Change (%) RM Cost (% of sales) Staff Cost (% of sales) Other Expenses (% of sales) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT after EO Expense Tax Rate (%) Minority Int & Share of profit Adj PAT YoY Change (%) E: MOSL Estimates

April 2018



74.7 100.1

Valuations P/BV (x)





Financial Snapshot (INR b)

P/E (x)

CMP: INR333

1Q 104,504 15.5 61.0 19.2 10.9 9,282 8.9 2,508 847 37 5,964 0 5,964 32.8 983 3,026 15.2

TP: INR437 (+31%)

Buy

We estimate consolidated revenues to grow ~43% YoY, driven by consolidation of PKC, strong growth in S/A business (+18%), PKC (+31%) and SMP (+19.5%). However, we estimate SMR revenues to decline 1%. Consolidated PAT is expected to decline ~4% YoY to ~INR5.2b, impacted by margin decline in S/A and start-up costs in SMRPBV. Standalone EBITDA margin is expected to decline ~190bp YoY (+130bp QoQ) to 18.7% due to impact of copper price inflation. For SMR, we estimate EBITDA margins to improve ~20bp to ~11.4% due to operating leverage. For SMP, we estimate EBITDA margins to improve ~20bp to ~5.9% due to operating leverage. For PKC, we estimate EBITDA margins to improve ~150bp to 7.8% due to partial easing up of supply side constraints. The stock trades at 26.6x FY19E and 19x FY20E EPS; Maintain Buy.

Key issues to watch  Update on order book of SMRPBV and PKC.  Update on new plants of SMRPBV.  Update on trends in key businesses.

(INR m) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 101,369 106,041 112,839 131,286 134,313 143,979 161,653 424,934 571,231 10.2 12.3 14.5 25.6 32.5 35.8 43.3 14.2 34.4 60.5 61.7 59.4 60.8 60.6 61.5 63.4 60.6 61.7 18.8 18.8 19.3 19.7 19.8 19.5 18.3 19.0 63.4 10.8 9.3 10.2 10.5 10.3 10.3 9.2 10.3 10.0 10,068 11,093 12,405 11,864 12,504 12,595 14,690 42,847 51,653 9.9 10.5 11.0 9.0 9.3 8.7 9.1 10.1 9.0 2,643 2,733 2,707 3,768 3,978 3,937 3,968 10,591 15,651 980 1,084 838 1,176 771 1,032 1,083 3,749 4,061 45 433 948 39 156 151 130 1,463 475 6,489 7,710 9,808 6,959 7,910 7,777 9,769 29,970 32,415 0 0 974 1,502 48 21 0 974 1,571 6,489 7,710 8,834 5,458 7,862 7,756 9,769 28,996 30,845 32.4 36.9 22.4 33.7 29.5 32.4 30.6 30.4 31.4 774 706 1,887 335 1,168 1,595 1,600 4,350 4,698 3,513 3,813 5,383 3,546 4,386 3,656 5,182 16,039 16,769 -3.8 13.5 42.0 17.2 24.9 -4.1 -3.7 27.5 6.6

83

March 2018 Results Preview | Sector: Automobiles

Tata Motors Bloomberg

TTMT IN

Equity Shares (m)

3396.6

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

1166 / 18

52-Week Range (INR)

487 / 325

1,6,12 Rel Perf. (%)

-5 / -23 / -39

Financial Snapshot (INR b) Y/E March Net Sales

2017 2018E 2019E 2020E 2,697 2,925 3,336 3,586

EBITDA

369.1

367.1

524.1

556.4

NP

67.3

86.7

192.3

199.4

Adj. EPS (INR)

19.8

25.5

56.6

58.7

EPS Gr. (%)

-48.4

28.8

121.8

3.7

BV/Sh. (INR)

171.0

206.6

264.5

324.5

RoE (%)

9.8

13.5

24.0

19.9

RoCE (%)

9.2

7.8

12.8

11.1

Payout (%)

0.0

1.3

0.6

0.6

17.3

13.4

6.1

5.8

P/BV (x)

2.0

1.7

1.3

1.1

EV/EBITDA (x)

3.6

3.9

2.7

2.4

Div. Yield (%)

0.0

0.1

0.1

0.1

Valuations P/E (x)

Quarterly Performance Y/E March (Consolidated) JLR vols. (incl JV) JLR Realizations (GBP/unit) JLR EBITDA (%) S/A vol. (units) S/A Realizations (INR/unit) S/A EBITDA (%) S/A PAT (INR m) Net Op Income Growth (%) EBITDA EBITDA Margins (%) PBT before EO Exp EO Exp/(Inc) PBT after EO Exp Tax rate (%) Adj PAT Growth (%) E: MOSL Estimates

April 2018

1Q 134,334 44,338 12.5 126,839 811,243 6.5 258 650,047 7.6 90,275 13.9 34,718 9,204 25,514 28.2 28,970 (39.0)

CMP: INR343

TP:INR528 (+54%)

Buy

Consolidated revenues are estimated to grow 15.5% YoY, with EBITDA margin expanding 70bp YoY to 14.7%. As a result, adj. PAT is estimated to grow 11% YoY to ~INR48.1b.  We expect JLR’s (incl. JV) volume to be up by 2.6% YoY (+13% QoQ), impacted by weak demand environment in key markets.  Net realization is expected to increase by 3% YoY (-0.2% QoQ), led by better mix. EBITDA margin would expand 20bp YoY (+380bp QoQ) to 14.7%, led by a better mix and lower Fx hedge losses. Higher depreciation would lead to adj. PAT decline of 11% YoY to GBP482m.  S/A volume increased 38% YoY (+19% QoQ), led by 46% growth in LCVs, 18% YoY growth in M&HCV. EBITDA margin is likely to expand 540bp YoY to 9.5%. We expect standalone operations to be PAT positive at INR5.5b (2nd consecutive quarter of positive PAT).  The stock trades at 6.1x FY19E and 5.8x FY20E EPS. Buy. Key issues to watch  Current demand trends for JLR and outlook for key markets.  Update on new launches.  Impact of forex hedge loss.  Update on Chery JV operations and CV business outlook. 

FY17 2Q 3Q 139,227 152,245 45,642 46,200 10.9 10.1 134,397 132,553 765,059 769,912 3.3 1.4 -5,793 -10,452 635,376 639,330 3.3 -9.4 74,298 62,403 11.7 9.8 21,304 13,071 11,311 7,085 9,993 5,986 42.5 144.8 14,788 -2,239 61.1 (107.2)

4Q 175,000 45,746 14.5 148,533 914,725 4.1 -5,369 772,172 -2.9 108,012 14.0 52,011 356 51,655 24.0 43,229 (25.0)

1Q 138,476 47,483 7.9 109,692 829,080 0.0 -4,671 584,934 -10.0 49,648 8.5 -5,145 -42,515 37,370 32.3 3,045 (89.5)

FY18E 2Q 3Q 153,210 159,067 48,137 47,181 11.8 10.9 153,321 171,388 905,798 939,482 7.0 8.5 -2,953 1,880 706,907 741,561 11.3 16.0 89,383 85,435 12.6 11.5 30,099 19,070 -715 -1,220 30,814 20,290 35.4 52.6 24,366 11,408 64.8 (609.6)

FY17 FY18E 4QE 179,593 600,806 630,346 47,081 45,515 47,449 14.7 12.1 11.6 204,356 542,322 638,757 940,480 818,038 912,757 9.5 3.8 7.2 5,535 -21,341 -181 892,009 2,696,925 2,925,410 15.5 -1.2 8.5 130,740 295,887 355,206 14.7 11.0 12.1 57,661 82,002 101,686 0 27,955 -44,449 57,661 54,047 146,135 23.7 60.2 32.4 48,123 46,581 86,696 11.3 -64.3 86.1

84

March 2018 Results Preview | Sector: Automobiles

TVS Motor Company Bloomberg

TVSL IN

Equity Shares (m)

475.1

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

309 / 5

52-Week Range (INR)

795 / 430

1,6,12 Rel Perf. (%)

-2 / -7 / 38

Financial Snapshot (INR b) Y/E March

2017 2018E 2019E 2020E

Sales

121.4

151.4

188.1

226.1

8.6

11.7

18.1

24.6

EBITDA Adj. PAT

5.6

6.7

10.7

15.4

EPS (INR)

11.7

14.1

22.4

32.4

EPS Gr. (%)

14.1

20.4

58.8

44.1

BV/Sh (INR)

50.7

61.2

78.9

105.2

RoE (%)

25.6

25.3

32.0

35.2

RoCE (%)

22.8

25.6

34.6

41.4

Payout (%)

25.6

25.5

21.4

18.6

Valuations P/E (x)

55.3

45.9

28.9

20.1

P/BV (x)

12.8

10.6

8.2

6.2

EV/EBITDA (x)

37.3

27.2

17.4

12.4

Div. Yield (%)

0.4

0.5

0.6

0.8

S/A Quarterly Performance Y/E March (INR m) Motorcycles Scooters Mopeds Three-wheelers Volumes (units) Growth (%) Realization (INR/unit) Growth (%) Net Sales Growth (%) RM (% of sales) Emp cost ( % of sales) Other exp (% of sales) TOTAL EXPENDITURE EBITDA EBITDA Margin(%) Interest Depreciation Other Income PBT before EO Exp Tax rate (%) Adjusted PAT Growth (%) E: MOSL Estimates

April 2018

1Q 282,441 196,314 218,872 17,337 714,964 12.1 40,305 (0.1) 28,817 11.9 72.5 6.3 14.2 26,806 2,011 7.0 98 660 362 1,616 24.5 1,220 21.9

CMP: INR649

TP: INR710 (9%)

Neutral

Volume increased 32% YoY (+7.6% QoQ) to 889.1k units. Scooter and motorcycle volume increased by 22% and 27% YoY, respectively. 3W volumes rose by 68% YoY, while moped volume declined by 7% YoY.  Net realization is likely to increase 6.5% YoY (+1% QoQ) to INR44,981 per unit due to a favourable sales mix and price hikes.  We estimate net sales to grow by ~41% YoY (+8.5% QoQ) to ~INR45b.  EBITDA margin is expected to be 8.1%, an increase of 240bp YoY (+30bp QoQ), as margin was dented in 4QFY17 due to provision related to BS IV transition.  We expect PAT to increase ~38% YoY (+13% QoQ) to INR1.7b.  We have cut our FY19E/20E margin by 50bp/10bp. We have revised downward our FY19E/20E EPS estimate by 11%/5% to factor in lower EBITDA margin and lower other income.  The stock trades at 28.9x FY19E and 20.1x FY20E EPS; Maintain Neutral. Key issues to watch  Update on demand for new launches Apache RR310 and NTorq.  Update on future product actions, including EVs.  Impact on spare parts business post GST.  Update on outlook for exports. 

FY17 2Q 3Q 332,070 247,635 229,455 221,088 233,636 233,758 20,401 16,081 815,562 718,562 20.2 2.4 42,014 41,519 0.5 0.7 34,265 29,834 20.8 3.0 72.3 72.0 5.8 6.4 13.8 14.2 31,498 27,649 2,767 2,185 8.1 7.3 94 115 724 720 392 348 2,340 1,698 24.2 21.9 1,774 1,327 33.4 10.4

4Q 213,642 223,242 221,253 15,435 673,572 2.0 42,230 (0.3) 28,445 1.7 75.1 6.1 13.1 26,830 1,615 5.7 132 775 632 1,340 5.4 1,268 (6.8)

1Q 330,050 257,572 197,449 17,037 802,108 12.2 42,382 5.2 33,995 18.0 74.6 6.1 13.1 31,881 2,114 6.2 107 783 571 1,794 27.8 1,295 6.1

FY18E 2Q 3Q 365,277 313,892 328,333 268,947 229,726 216,478 25,248 26,968 948,584 826,285 16.3 15.0 42,721 44,597 1.7 7.4 40,524 36,850 18.3 23.5 73.4 72.7 5.4 5.7 12.6 13.8 37,021 33,982 3,503 2,868 8.6 7.8 155 122 836 824 456 182 2,968 2,104 28.2 26.6 2,132 1,543 20.2 16.3

4QE FY17 FY18E 346,357 1,072,503 1,355,576 280,066 870,863 1,134,918 233,279 910,519 876,932 29,431 69,254 98,684 889,133 2,923,139 3,466,111 32.0 9.1 18.6 44,981 41,515 43,669 6.5 0.1 5.2 39,994 121,353 151,363 40.6 9.3 24.7 72.9 73.0 73.4 5.6 6.1 5.7 13.4 13.8 13.2 36,749 112,782 139,632 3,245 8,571 11,731 8.1 7.1 7.8 137 440 521 840 2,878 3,284 144 1,734 1,352 2,412 6,987 9,278 27.6 20.1 27.6 1,747 5,581 6,717 37.8 14.1 20.4

85

March 2015 Results2018 Preview Results | Sector: Preview Capital | April Goods 2018 2016 March

Technology Capital Goods Company name ABB Bharat Electronics BHEL Blue Star CG Power Crompton Greaves Consumer Cummins India Engineers India GE T&D

Business activity showing signs of stabilization post GST Capex activity remains weak, though green shoots seen in select pockets Domestic capex cycle weak; exports hamstrung by subdued global demand

The domestic capex cycle appears to have remained weak. New project announcements stood at INR6.6t in FY18, a dip of 52% YoY and the lowest since FY05. Private sector projects fell to their lowest since FY04 to INR3.7t (down 51% YoY) and accounted for 56% of total new projects. Though the near-term outlook remains subdued, we note that policy initiatives and efforts are underway to (i) expedite regulatory approvals, and (ii) establish monetary conditions conducive to industrial revival over the medium term. 

Havells India Larsen & Toubro Siemens Thermax Voltas





We believe investment revival would be triggered by: (i) a 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. Simultaneously, sustained progress in reviving stalled projects is imperative to attract new investments and stimulate aggregate demand. Currently, stalled projects stand at 11.6t, 11.4% of the projects under implementation. By initiating the 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. Indian machinery exports have decelerated due to weak global demand, geopolitical concerns, and currency volatility across markets, among others. Also, volatile crude prices have had an adverse impact on global trade, and thus, investment demand. Project awards in the Middle-East have been muted.

Equipment manufacturers key beneficiaries of ‘Make in India’ initiative ‘Make in India’ is the central government’s initiative to improve the manufacturing sector’s contribution through import substitution and increased exports. The intent is to ensure that customers in the public and private sectors increasingly procure locally-manufactured equipment. Power Grid has mandated T&D players to produce certain components in India for orders tendered out in key high-end technology products, such as SVC/STATCOM, GIS, 765KV transformers and reactors, HTLS conductors, OPGW, and HVDC. In our view, the successful implementation of this initiative should benefit Capital Goods players. Increased imports over the past 5-6 years, particularly from China/South Korea, have been a key concern across several product segments, even where domestic manufacturing capabilities and competitiveness exist. Key beneficiaries include BHEL/Siemens (railways, solar cells, power T&D, defense, etc), L&T/Bharat Electronics (defense), ABB/Alstom/CG Power/Siemens (power T&D, etc) and Thermax (industrial products/power BTG).

Ankur Sharma – Research Analyst ([email protected]); +91 22 6129 1556 Amit Shah – Research Analyst ([email protected]); +91 22 6129 1543 April 2018

86

March 2018 Results Preview | Sector: Capital Goods

Exhibit 1: Summary of expected quarterly performance Sector

Sales (INR M) EBDITA (INR M) Net Profit (INR M) CMP (INR) RECO Mar-18 Var % YoY Var % QoQ Mar-18 Var % YoY Var % QoQ Mar-18 Var % YoY Var % QoQ

Capital Goods ABB Bharat Electronics BHEL Blue Star CG Consumer Elect. CG Power & Indl. Cummins India Engineers India GE T&D India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate

1,283 147 85 795 231 80 740 164 400 509 1,330 1,124 1,136 648

Sell Buy Sell Neutral Buy Neutral Buy Buy Neutral Buy Buy Neutral Buy Neutral

25,780 45,228 106,712 14,977 11,650 14,095 12,227 5,221 13,275 24,789 416,408 37,378 18,412 23,560 769,712

18.9 13.4 10.1 8.9 8.3 9.7 3.2 17.9 11.0 45.0 13.7 27.6 23.5 15.8 14.6

-7.2 80.0 61.0 52.3 24.2 19.5 -9.7 10.3 -7.7 26.1 44.9 53.9 64.8 71.4 42.7

2,480 11,837 12,290 1,069 1,608 1,058 1,877 1,069 1,599 3,100 51,419 4,045 2,220 2,926 98,598

44.6 20.8 88.8 41.4 16.1 30.0 10.4 -25.9 45.7 35.0 18.6 45.2 28.2 31.9 27.1

-15.6 165.9 316.0 99.8 38.1 21.4 -4.6 -20.7 119.7 18.2 63.5 48.5 132.6 146.7 76.4

1,380 8,949 8,102 602 1,043 428 1,678 890 1,026 2,056 27,537 2,869 1,598 2,138 60,296

56.1 13.0 275.9 61.8 17.9 -12.5 5.9 34.7 122.4 19.9 -16.7 60.2 159.8 6.7 10.5

-19.5 195.5 428.9 219.8 50.1 -17.3 -2.5 -18.0 96.8 18.6 83.1 50.6 172.8 112.9 92.8 Source: MOSL

Operating performance to improve post GST implementation Project execution, which had suffered during the GST implementation phase, has stabilized and is now showing signs of pickup. We expect companies from our coverage universe to report 15% YoY growth at aggregate level. With execution picking up, we also expect margins to improve for our coverage universe by 130bp, driven by better operating leverage.

Ordering activity showing initial signs of pickup 



Overall ordering activity has started to see signs of pickup, driven by ordering from the oil and gas sector, with spending for BS-VI emission norms along with brownfield/greenfield refineries and fertilizer projects. Local ordering activity, which had been impacted on account of GST implementation-related issues, has now started to see some pickup. Awarding continues to be supported by government spending and private sector participation remains subdued. Sector-wise, roads, railways, power T&D and defense registered strong tendering activity (fiscal allocations for roads/railways have increased). Exhibit 3: EBITDA margin improved due to cost EBITDA Margin (%)

Source: MOSL, Company April 2018

3QFY18

1QFY18

3QFY17

1QFY17

3QFY16

1QFY16

3QFY15

1QFY15

3QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

13.5 14.5 15.5 16.1 12.0 12.1 12.3 17.9 10.2 12.0 11.3 16.0 8.4 10.0 11.0 14.0 9.9 9.2 10.0 12.0 8.3 7.2 4.3 11.6 8.7 7.8 8.5 10.6 6.6 8.7 9.7

EBITDA Margin (%)

1QFY11

1QFY11

13.5 22.0 14.5 12.8 3QFY11 15.5 21.7 16.1 28.8 1QFY12 12.0 16.4 12.1 16.8 3QFY12 12.3 19.6 17.9 18.2 1QFY13 10.2 20.9 12.0 15.6 3QFY13 11.3 6.6 -5.2 16.0 1QFY14 -3.5 8.4 16.6 10.0 3QFY14 15.3 11.0 14.0 26.3 1QFY15 9.9 11.7 9.2 1.3 3QFY15 -1.0 10.0 12.0 -0.8 1QFY16 -1.4 8.3 2.7 7.2 2.8 3QFY16 4.3 11.6 3.1 1QFY17 8.7 2.4 8.7 7.8 3QFY17 8.5 3.5 10.6 1.2 1QFY18 9.6 6.6 8.7 5.3 9.7 2.9 3QFY18

Engg Sector (revenue growth %)

rationalization steps taken by the companies

1QFY14

Exhibit 2: Constrained growth in revenue

Source: MOSL, Company 87

December 2018 Results Preview | Sector: Capital Goods

Exhibit 5: Order intake growth driven by strong order inflow for L&T 55 -5 3QFY18

Source: MOSL, Company

Exhibit 7: Relative performance – one-year (%)

Sensex Index

110

1QFY18

-17 -22 3QFY17 -24

1QFY17

3QFY16

1QFY16

3QFY15

-13

-2 -1 3QFY14

Source: MOSL, Company

Exhibit 6: Relative performance – three-month (%)

-9

15

20 2

17 1QFY14

Order intake YoY % 31 14 22 18

15 3QFY13

3,934 3,847 3,868 3,797 3,970 3,955 3,871 4,062

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

2,964 2,893 2,958 2,989 3,028 2,943 3,230 3,482 3,594 3,605 3,813 3,717

56 52

58

BTB (x)

2.2 2.1 2.3 2.3 2.4 2.4 2.6 2.9 3.0 2.9 2.8 2.5 2,686 1.7 2.5 2.4 2.4 2.3 2.4 2.3 2.3 2.3

Order book (INR b)

1QFY15

Exhibit 4: Book-to-bill stable at 3.2x

Sensex Index

123

105

116

100

109

95

102

Source: Bloomberg, MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Mar-17

Apr-17

95

Mar-18

Feb-18

Jan-18

Dec-17

90

Source: Bloomberg, MOSL

Exhibit 8: Comparative valuation Sector / Companies Capital Goods ABB Bharat Electronics BHEL Blue Star CG Consumer Elect. CG Power & Indl. Cummins India Engineers India GE T&D India Havells India K E C International Larsen & Toubro Siemens Solar Inds. Thermax Va Tech Wabag Voltas Sector Aggregate

CMP (INR)

RECO

1,283 147 85 795 231 80 740 164 400 509 406 1,330 1,124 1,072 1,136 494 648

Sell Buy Sell Neutral Buy Neutral Buy Buy Neutral Buy Neutral Buy Neutral Neutral Buy Buy Neutral

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 19.8 7.1 3.2 16.6 5.1 1.1 23.0 6.3 10.3 11.1 16.2 48.8 19.8 24.4 28.0 33.3 18.0

30.1 7.8 3.6 24.6 6.5 1.9 31.0 6.9 11.3 13.7 18.9 57.2 30.4 29.6 35.1 35.2 21.3

35.0 8.3 4.3 31.2 7.7 3.0 36.8 8.2 12.9 17.0 24.3 68.6 34.6 36.7 43.5 38.6 24.3

64.7 20.8 27.1 47.9 45.4 70.3 32.1 26.0 38.8 45.7 25.1 27.2 56.9 43.9 40.5 14.8 36.0 31.6

42.6 18.9 23.7 32.3 35.7 43.0 23.9 23.8 35.4 37.2 21.5 23.2 37.0 36.2 32.3 14.0 30.4 26.3

36.7 17.7 19.8 25.5 30.2 27.1 20.1 19.9 31.0 30.0 16.7 19.4 32.5 29.2 26.1 12.8 26.7 22.2

36.2 12.1 13.2 24.1 28.9 25.3 25.6 15.0 24.4 28.9 11.6 19.0 32.4 24.7 25.5 7.7 24.9 20.0

23.5 12.1 11.7 19.1 22.9 15.4 19.7 15.5 20.7 23.3 9.7 15.7 23.4 20.6 18.7 6.8 21.7 16.5

20.1 11.2 10.0 15.6 19.9 13.5 16.2 12.2 18.5 18.7 7.3 14.0 20.3 16.8 14.7 6.1 18.6 14.4

11.6 17.8 3.6 20.4 50.2 1.7 16.5 13.9 23.5 18.9 21.7 13.0 9.1 20.0 11.9 17.1 16.9 11.1

15.4 17.6 4.0 28.3 49.9 2.7 20.7 14.1 22.3 20.5 21.1 13.9 12.9 20.6 13.6 16.0 17.6 12.3

15.8 16.9 4.7 33.1 48.5 4.2 22.6 15.6 22.1 22.2 22.3 15.1 13.4 21.5 15.0 15.6 17.6 13.3

Source: Company, MOSL

April 2018

88

March 2018 Results Preview | Sector: Capital Goods

ABB Bloomberg

ABB IN

Equity Shares (m)

211.9

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

272 / 4

52-Week Range (INR)

CMP: INR1,283 

1744 / 1175

1,6,12 Rel Perf. (%)

-14 / -14 / -14 

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

90.9

115.9

123.2

122.0

EBITDA

7.4

11.2

12.9

15.0

Adj. PAT

4.2

6.4

7.4

9.2

19.8

30.1

35.0

35.5

Adj. EPS (INR) EPS Gr (%)

12.1

52.0

16.2

1.5

BV/Sh (INR)

170.2

195.2

221.0

247.3

RoE (%)

11.6

15.4

15.8

14.4

RoCE (%)

16.2

22.9

23.7

21.7

Payout (%)

22.5

14.7

22.5

22.5

64.7

42.6

36.7

36.1

7.5

6.6

5.8

5.2

EV/EBITDA (x)

21.9

16.6

12.4

9.1

Div. Yield (%)

0.3

0.3

0.6

0.6

Valuations P/E (x) P/BV (x)

 

TP: INR1,240 (-3%)

Sell

During the quarter, ABB has opened its power distribution factory in Nashik, and facility for electrical safety and energy efficiency products in Bangalore. We expect ABB to register 19% YoY growth in revenue, led by 21% growth in the power grid segment, as we anticipate the execution of HVDC order to contribute to revenue. We expect EBITDA margin to improve 170bp to 9.6%, led by better operating leverage. Net profit growth is expected to remain robust at 56% YoY to INR1.4b. Maintain Sell.

Key issues to watch  Management commentary suggests cautious optimism. Continued focus on exports and services to be an important driver of projected strong double-digit revenue and profit growth.  Continued preference for cash generation vis-à-vis profits.

Quarterly Performance Y/E December Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Repoted PAT Adj. PAT Change (%)

April 2018

1Q 21,689 8.3 1,715 -5.2 7.9 376 212 186 1,312 428 32.6 884 884 -5.3

CY17 2Q 3Q 22,237 19,234 6.2 (6.4) 1,473 1,342 29.7 13.4 6.6 7.0 383 389 231 152 326 378 1,185 1,178 435 344 36.7 29.2 751 1,134 751 834 34.9 18.2

4Q 27,794 10.8 2,937 1.4 10.6 432 178 188 2,515 800 31.8 1,715 1,715 5.4

1QE 25,780 18.9 2,480 44.6 9.6 400 200 200 2,080 700 33.7 1,380 1,380 56.1

CY18 2QE 3QE 29,180 27,820 31.2 44.6 2,780 2,570 88.7 91.6 9.5 9.2 350 350 200 200 200 200 2,430 2,220 800 780 32.9 35.1 1,630 1,740 1,630 1,440 117.2 72.7

CY17 4QE 33,129 19.2 3,376 14.9 10.2 419 193 278 3,041 1,108 36.5 1,933 1,933 12.7

CY18E

89,614 114,498 5.3 27.8 7,361 11,206 6.0 52.2 8.2 9.8 1580 1519 773 793 1210 878 6,218 9,771 2,018 3,388 32.5 34.7 4,200 6,383 4,200 6,383 12.1 52.0

89

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

BHE IN

Equity Shares (m)

2457.0

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

360 / 6

52-Week Range (INR)

193 / 138

1,6,12 Rel Perf. (%)

-2 / -16 / -11

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

86.1

112.4

124.8

133.9

EBITDA

15.5

17.4

19.1

20.4

NP

6.3

7.1

7.8

8.3

EPS (INR)

27.2

12.1

10.0

6.8

EPS Gr. (%)

30.6

39.6

44.1

49.0

BV/Sh (INR)

20.6

17.8

17.6

16.9

RoE (%)

18.8

20.1

18.6

17.8

RoCE (%)

86.1

112.4

124.8

133.9

25.4

20.8

18.9

17.7

5.2

3.7

3.3

3.0

20.2

12.7

12.1

11.2

CMP: INR147  

 



Bharat Electronics TP: INR210 (+41%)

Buy

For FY18, BHE plans to pursue business opportunities in solar energy, homeland security, smart cities, smart cards and telecom. For FY18, 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 BHE to register revenue growth of 14% YoY, supported by execution of Akash missile system, IACCS, and ship-borne EW systems. We expect EBITDA margin of 26.2% v/s 24.6% in 4QFY17 on better operating leverage. EBITDA is likely to grow 21% YoY to INR11.8b. PAT is expected to grow 13% YoY to INR8.9b. Maintain Buy.

Valuations P/E (x) P/BV (x) EV/EBITDA (x)

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.

Quarterly Performance Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%)

April 2018

1QE 8,714 -20.8 (467) -699 -5.4 435 0 1,387 486 125 25.7 361 -52.9 361 -52.9

FY17 2Q 17,031 15.9 3,384 87 19.9 455 3 1,714 4,641 1178 25.4 3,463 68.2 3,463 68.2

3Q 20,421 34.3 4,828 74 23.6 455 106 776 5,043 1307 25.9 3,735 33.3 3,735 33.3

4Q 39,877 23.7 9,797 8 24.6 571 9 909 10,125 2208 21.8 7,918 6.3 7,918 6.3

1Q 17,248 97.9 1,633 -450 9.5 561 3 723 1,793 540 30.1 1,253 247.2 1,253 247.2

FY18 2Q 24,762 45.4 5,950 76 24.0 590 0 510 5,870 1746 29.7 4,124 19.1 4,124 19.1

FY17 3Q 25,128 23.1 4,452 -8 17.7 594 0 492 4,350 1322 30.4 3,028 -18.9 3,028 -18.9

4QE 45,228 13.4 11,837 21 26.2 422 0 675 12,090 3141 26.0 8,949 13.0 8,949 13.0

FY18

86,119 112,367 17.5 30.5 17,617 23,872 28 36 20.5 21.2 1,915 2,166 118 3 4,710 2,400 20,294 24,103 4818 6749 23.7 28.0 15,476 17,354 18.4 12.1 15,476 17,354 18.4 12.1

90

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

BHEL IN

Equity Shares (m)

3671.4

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

314 / 5

52-Week Range (INR)

122 / 80

1,6,12 Rel Perf. (%)

-4 / -3 / -35

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

282.2

291.0

8.3

13.4

18.5

24.0

PAT

4.9

11.6

13.2

15.8

EPS (INR)

1.3

3.2

3.6

4.3

EPS Gr. (%)

-169.3

135.9

14.2

14.2

BV/Sh. INR

88.0

89.0

90.1

91.5

1.5

3.6

4.0

4.7

EBITDA

RoE (%) RoCE (%) Payout (%)

CMP: INR85   

319.4 361.9

0.7

2.6

3.0

3.9

59.8

59.8

59.8

59.8

63.8

27.1

23.7

19.8

1.0

1.0

0.9

0.9

25.4

14.8

12.1

10.2

0.9

2.2

2.5

3.0

   

TP: INR80 (-6%)

BHEL Sell

We expect muted revenue growth of 10% YoY, led by lower availability of orders for execution. We expect gross margin to decline 375bp YoY to 41.5%, led by adverse revenue mix. Despite gross margin compression, operating profit is likely to register strong growth of 89% YoY to INR12.3b, as 4QFY17 had provision of INR9.6b related to employee expenses. We estimate net profit at INR8.1b, as against profit of INR2.2b in 4QFY17. During the quarter, BHEL has secured orders worth INR7.4b for nuclear steam generators. It has also bagged an order for setting up a 2,400MW supercritical thermal power project in Jharkhand worth INR117b. BHEL is L1 in 5.2GW of orders. Maintain Sell.

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%) * Consolidated

Key issues to watch  Continued constraints on execution due to operational issues.  Trends in provisions, particularly for liquidated damages on project completion.

Quarterly Performance Y/E March Sales (Net) Change (%) EBITDA Change (%) As a % Sales Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj. PAT Change (%)

April 2018

1Q 56,118 28.7 710 -133.9 1.3 57 2,182 2,493 965 188 19.4 778 129.5 778 129.5

FY17 2Q 3Q 66,645 63,210 12.2 18.7 1,551 2,239 -135.4 -113.9 2.3 3.5 50 263 2,080 2,088 1,961 1,358 1,382 1,246 292 310 21.1 24.9 1,090 935 -160.3 -108.6 1,090 935 -160.3 -108.6

4Q 96,882 -2.9 6,509 -24.9 6.7 3,136 2,139 1,452 2,686 530 19.7 2,156 -57.4 2,156 -57.4

1Q 55,056 -1.9 -883 -224.3 -1.6 657 2,001 4,622 1,080 272 25.2 808 3.9 808 3.9

FY18 FY17 FY18E 2Q 3Q 4QE 62,971 66,264 106,712 282,222 291,002 -5.5 4.8 10.1 10.8 3.1 -954 2,954 12,290 8,270 13,407 -161.5 32.0 88.8 -160.5 62.1 -1.5 4.5 11.5 2.9 4.6 552 610 1,180 3,506 3,000 1,872 1,820 1,858 8,488 7,552 4,850 1,375 1,760 3,189 5,262 1,473 1,898 44,496 6,237 15,462 318 367 2,909 1,320 3,866 21.6 19.3 6.5 21.2 25.0 1,154 1,532 8,102 4,917 11,597 5.9 63.8 275.9 -169.3 135.9 1,154 1,532 8,102 4,917 11,597 5.9 63.8 275.9 -169.3 135.9

91

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

BLSTR IN

Equity Shares (m)

95.6

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

76 / 1

52-Week Range (INR)

7 / -3 / 1

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

44.0

47.8

57.5

65.4

2.4

3.0

3.9

4.8

Adj. PAT

1.2

1.6

2.3

3.0

EPS(INR)

-6.0

36.0

48.2

26.9

EPS Gr. (%)

79.2

83.6

90.0

98.2

BV/Sh. (INR)

14.8

18.5

26.5

32.1

RoE (%)

61.5

61.5

61.5

61.5

RoCE (%)

44.0

47.8

57.5

65.4

2.4

3.0

3.9

4.8

62.3

47.9

32.3

25.5

9.6

9.5

8.8

8.1

31.3

25.3

19.1

15.6

1.0

1.3

1.9

2.4

Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)



845 / 587

1,6,12 Rel Perf. (%)

Net Sales

CMP: INR795

*Consolidated







TP: INR780 (-2%)

Blue Star Neutral

Unitary cooling division (UCP) is likely to report revenue growth of 3% YoY; however, on a like-to-like basis, we expect growth of 18%, given pickup in summer and price hike taken by the company post implementation of new norms. We expect revenue growth of 13% YoY in the MEP segment, given pickup in execution of orders in hand post contract renegotiation, which happened on account of GST implementation. Operating margin is expected to expand 160bp YoY to 7.1%, led by better margins in the MEP segment (+90bp YoY). Operating profit is expected to grow 41% YoY. Volatile crude prices have raised apprehensions over the pace of order awards and execution in the Middle East. Even in the domestic market, new project awards remain constrained. Maintain Neutral.

Key issues to watch  Impact of implementation of new efficiency norms on Blue Star’s market share and sales.  Sustainability of profitability and capital employed in MEP business.

Quarterly performance (Consolidated) FY17 Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT (before MI and sh. of associates) Change (%) Adj PAT Change (%)

April 2018

FY18

FY17

FY18E

1Q 12,117 18.8 791 5.1 6.5 135 92 85 649 145 22.3

2Q 8,911 6.2 422 -4.6 4.7 150 88 81 266 73 27.6

3Q 9,224 17.1 386 9.5 4.2 155 85 11 157 15 9.7

4Q 13,756 17.8 756 25.6 5.5 166 114 37 514 133 25.9

1Q 14,611 20.6 903 14.1 6.2 125 48 37 766 183 23.9

2Q 8,390 -5.8 492 16.6 5.9 158 59 12 288 84 29.3

3Q 9,835 6.6 535 38.8 5.4 172 74 14 303 93 30.7

4QE 14,977 8.9 1,069 41.4 7.1 153 96 38 858 261 30.4

44,008 15.4 2,355 2.0 5.4 606 378 150 1,521 367 24.1

47,812 8.6 3,002 27.5 6.3 608 276 100 2,218 621 28.0

504 35.7 514 38.3

193 -1.3 200 -4.6

142 -10.6 145 -7.0

381 -2.5 372 -6.5

583 15.7 585 13.8

204 5.5 208 4.0

210 48.3 188 29.7

597 56.8 602 61.8

1,165 -0.1 1,165 -0.1

1,585 36.0 1,585 36.0

92

March 2018 Results Preview | Sector: Capital Goods

CG Power and Industrial

Bloomberg

CGPOWER IN

Equity Shares (m)

626.8

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

50 / 1

52-Week Range (INR)

99 / 68

1,6,12 Rel Perf. (%)

0 / -4 / -11

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

61.2

63.4

67.9

75.4

EBITDA

4.7

4.4

4.7

5.7

Adj. PAT

-4.2

-5.9

1.7

2.8

EPS(INR)

NM

NM

NM

64.6

EPS Gr. (%)

65.6

57.0

59.4

63.4

BV/Sh. (INR)

4.2

2.8

6.0

8.5

RoE (%)

6.8

6.0

6.7

8.3

RoCE (%)

NM

7.7

7.7

7.7

Payout (%)

61.2

63.4

67.9

75.4

31.2

-14.6

25.8

20.4

1.4

1.5

1.4

1.4

13.1

14.2

11.9

10.3

0.7

-0.6

0.3

0.4

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

CMP: INR80  

 

 

TP: INR90 (+13%)

Neutral

CG has bagged an INR1.1b order from EESSL for supply of IE3 motors. Management intends to monetize ~INR10b of non-core assets, including additional land at Kanjurmarg, to lower standalone business debt. We expect standalone revenue to grow 9.7% YoY to INR14.1b in 4QFY18. Operating profit is expected to improve 30% YoY to INR1.1b, led by better product mix. EBITDA margin should expand 120bp YoY to 7.5%. We estimate adjusted PAT at INR428m, as against loss of INR489m in 4QFY17. Maintain Neutral.

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

* Consolidated

Quarterly performance (Standalone) Sales Change (%) EBITDA Change (%) As of % Sales (Adj) Depreciation Interest Other Income Exceptional items (reported) PBT Tax Effec. Tax Rate (%) Reported PAT Adj PAT Change (%) E: MOSL Estimates

April 2018

1Q 11,286 46.6 623 -608.1 5.5 238 252 359 -14 493 108 21.9 371 385 236.7

FY17 2Q 3Q 10,848 10,649 -5.7 1.1 846 838 -9.1 52.2 7.8 7.9 227 235 357 471 710 585 -46 -359 971 717 89 -103 9.2 -14.4 836 461 881 820 27.9 8.8

4Q 12,845 6.6 814 3.8 6.3 217 558 350 -579 388 -101 -26.0 -90 489 -52.6

1Q 12,607 11.7 653 4.8 5.2 229 525 428 125 327 142 43.4 310 185 -51.9

FY18 2Q 3Q 12,085 11,794 11.4 10.8 771 871 -8.8 3.9 6.4 7.4 265 262 541 536 615 454 -189 -426 579 527 -2 10 -0.3 1.8 392 92 581 518 -34.1 -36.8

4QE 14,095 9.7 1,058 30.0 7.5 252 574 325 0 557 128 23.1 428 428 -12.5

FY17

FY18

47,614 12.7 3,120 -67 6.6 917 1,638 2,004 -998 2,568 -7 -0.3 1,245 2,575 -3.8

50,579 6.2 2,304 -68 4.6 1,009 2,177 1,875 -490 993 278 28.0 225 715 -72.2

93

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

CMP: INR231

CROMPTON IN

Equity Shares (m)

626.8

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



145 / 2

52-Week Range (INR)

295 / 200

1,6,12 Rel Perf. (%)



1 / 0 / -9



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

39.8

41.4

46.6

52.6

4.9

5.3

6.4

7.3

Adj. PAT

2.9

3.2

4.1

4.8

EPS (INR)

4.7

5.1

6.5

7.7

EPS Gr. (%) BV/Sh. (INR) RoE (%)

146.1

8.9

27.1

18.4

8.6

11.7

14.3

17.3

76.4

50.2

49.9

48.5

RoCE (%)

32.5

28.4

30.8

34.5

Payout (%)

32.7

33.0

50.0

50.0

P/E (x)

49.6

45.5

35.8

30.3

P/BV (x)

27.0

19.9

16.3

13.4

EV/EBITDA (x)

30.8

28.3

23.0

20.0

0.7

0.7

1.4

1.7

TP: INR305 (+32%)

Buy

We expect sales to register growth of 8% YoY, driven by 16% growth in the lighting segment. We expect operating profit of INR1.6b in 3QFY18, an improvement of 16% YoY, and 90bp expansion in EBITDA margin to 13.8%. Net profit is expected to be INR1b in 4QFY18 as against INR885m in 4QFY17, implying a growth of 20.7%. Maintain Buy.

Key issues to watch  Details of segmental sales, as CROMPTON intends to improve sales of its premium category products.  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 fans brand.

Valuations

Div Yield (%)

Crompton

* Consolidated

Crompton: Quarterly Estimates (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adjusted PAT Change (%) Reported PAT Change (%)

April 2018

1Q 10,962 1,573 14.4 28 180 34 1,400 465 33.2 935 935

FY17 2Q 3Q 8,737 8,792 8.5 1,012 972 17.4 11.6 11.1 27 26 161 162 41 50 865 834 286 290 33.1 34.8 579 544 28.3 574 544 32.0

4Q 10,762 7.4 1,386 9.0 12.9 29 153 69 1,273 388 30.5 885 16.6 864 29.8

1Q 10,554 -3.7 1,294 -17.8 12.3 32 162 97 1,198 395 33.0 802 (14.2) 802 (14.2)

FY18 2Q 3Q 9,597 9,382 9.8 6.7 1,207 1,165 19.3 19.8 12.6 12.4 32 32 157 158 35 66 1,054 1,040 346 345 32.8 33.2 708 695 22.3 27.9 708 695 23.3 27.9

4QE 11,650 8.3 1,608 16.1 13.8 32 153 58 1,481 437 29.5 1,043 17.9 1,043 20.7

FY17

FY18

39,759 119.5 4,902 134.0 12.3 110 655 195 4,331 1,399 32.3 2,932 138.7 2,907 166.9

41,438 4.2 5,274 7.6 12.7 128 686 256 4,716 1,524 32.3 3,193 8.9 3,193 9.8

94

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

KKC IN

Equity Shares (m)

277.2

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

205 / 3

52-Week Range (INR)



1096 / 671

1,6,12 Rel Perf. (%)

-6 / -26 / -35

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

CMP: INR740



50.8

50.5

59.6

68.8

EBITDA

8.0

7.3

10.0

12.0



Adj. PAT

7.3

6.4

8.6

10.2



EPS (INR)

26.5

23.0

31.0

36.8

EPS Gr. (%)

-2.6

-13.2

34.7

18.6

BV/Sh. (INR) RoE (%)

135.0 143.9 155.8 170.0 21.2

16.5

20.7

22.6

RoCE (%)

20.0

15.8

19.8

21.7

Payout (%)

52.8

52.8

52.8

52.8

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

27.9

32.2

23.9

20.1

5.5

5.1

4.7

4.4

25.7

28.1

20.4

16.8

1.9

1.6

2.2

2.6



Cummins India

TP: INR1,040 (+41%)

Buy

We expect revenue to increase 3% YoY, supported by growth in the power generation (9% YoY) and distribution & spares (10% YoY) segments. The industrial segment is expected to register 13% YoY growth, led by pick-up in demand from infrastructure side. Pickup in the domestic demand environment and various pricing actions taken by KKC would help strengthen its market leadership position in the MHP and HHP segments. Domestic revenue should grow 7% YoY in 4QFY18. We expect export revenue to register 2% growth on YoY basis to INR3b in 4QFY18, given weak demand in the export market. EBITDA margin is expected to improve 100bp YoY to 15.4%; net profit is expected to register growth of 6% YoY to INR1.7b. Maintain Buy.

Key issues to watch  Performance of the exports segment, considering poor demand conditions in LatAm, Europe and China.

KKC: Quarterly Performance (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adjusted PAT Change (%) Reported PAT Change (%)

April 2018

1Q 12,590 -3.9 2,063 -6.9 16.4 206 21 416 2,252 440 19.5 1,812 (14.3) 1,812 (14.3)

FY17 2Q 12,790 7.1 1,990 -1.4 15.6 209 43 692 2,430 461 19.0 1,969 (0.5) 1,969 (0.5)

3Q 13,550 19.0 2,265 31.1 16.7 225 55 461 2,446 466 19.0 1,981 11.3 1,981 11.3

4Q 11,844 11.1 1,700 -4.9 14.4 208 49 511 1,954 369 18.9 1,585 (5.1) 1,585 (5.1)

1Q 13,408 6.5 1,953 -5.4 14.6 208 42 583 2,286 625 27.4 1,660 (8.4) 2,222 22.6

FY18 2Q 11,539 -9.8 1,675 -15.8 14.5 220 38 536 1,953 424 21.7 1,529 (22.3) 1,529 (22.3)

3Q 13,547 0.0 1,967 -13.2 14.5 237 34 501 2,197 475 21.6 1,722 (13.1) 1,722 (13.1)

4QE 12,227 3.2 1,877 10.4 15.4 316 54 564 2,072 394 19.0 1,678 5.9 1,678 5.9

FY17

FY18

50,773 7.8 8,018 14.6 15.8 848 168 2,080 9,082 1,736 19.1 7,346 (2.8) 7,346 (2.8)

50,510 -0.5 7,261 -13.0 14.4 981 168 2,185 8,298 1,918 23.1 6,380 (13.2) 6,380 (13.2)

95

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

ENGR IN

Equity Shares (m)

673.9

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

110 / 2

52-Week Range (INR)

CMP: INR164 

206 / 141

1,6,12 Rel Perf. (%)

-3 / 5 / 2



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

14.5

18.0

23.8

28.3

EBITDA

3.0

4.6

5.0

6.1

Adj. PAT

2.9

4.0

4.3

5.2

EPS (INR)

4.3

6.3

6.9

8.2

EPS Gr. (%)

3.8

48.1

9.2

19.8

BV/Sh. (INR)

41.2

44.0

47.5

51.7

RoE (%)

10.4

13.9

14.1

15.6

RoCE (%)

10.4

13.9

14.1

15.6

Payout (%)

46.4

46.4

46.4

46.4

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

37.6

25.4

23.3

19.4

3.9

3.6

3.4

3.1

28.0

16.4

14.7

11.5

0.9

1.6

1.7

2.1

Standalone - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 3,419 -12.5 734 21.5 53 1 546 1,226 1,226 422 34.4 804 804 41.4 23.5



Engineers India

TP: INR200 (+22%)

Buy

We expect revenue to increase 18% YoY, supported by growth in turnkey segment execution (24% YoY) and expect consultancy and engineering projects to register 16% growth. Despite strong revenue growth, we expect operating profit to decline 26% YoY, as consultancy and engineering projects segment as well as turnkey project segment included provision write-back of INR570m in 4QFY17, leading to margin expansion in both segments. We expect margins to normalize in 4QFY18. We expect net profit to decline 43% YoY to INR890m, led by normalized tax rate assumed for 4QFY18 (34% as against 19% in 4QFY17). Maintain Buy.

Key issues to watch  Performance of the turnkey project segment, which has seen margin volatility in the recent past.

FY17 2Q 3,389 -24.6 937 27.7 53 0 561 1,446 1,815 508 28.0 1,308 1,042 34.8 30.7

3Q 3,250 -11.8 809 24.9 59 -1 559 1,309 1,309 458 35.0 851 851 37.1 26.2

4Q 4,429 46.8 1,443 32.6 60 30 571 1,924 1,024 363 35.5 660 1,241 59.5 28.0

1Q 3,754 9.8 818 21.8 60 0 456 1,214 1,214 400 32.9 815 815 1.4 21.7

FY18 2Q 4,291 26.6 1,390 32.4 62 1 467 1,794 1,794 602 33.6 1,192 1,192 14.4 27.8

3Q 4,734 45.7 1,349 28.5 59 1 393 1,682 1,682 597 35.5 1,084 1,084 27.4 22.9

4QE 5,221 17.9 1,069 20.5 75 3 350 1,341 1,341 452 33.7 890 890 -28.3 17.0

FY17

FY18E

14,486 -4.1 3,022 20.9 225 32 2,237 5,002 4,102 1,752 42.7 2,351 2,866 3.8 19.8

18,000 24.3 4,625 25.7 255 5 1,666 6,031 6,031 2,050 34.0 3,980 3,980 38.9 22.1

96

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

GETD IN

Equity Shares (m)

256.1

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

102 / 2

52-Week Range (INR)

473 / 318

1,6,12 Rel Perf. (%)

-2 / -2 / 6

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

40.5

48.5

49.5

52.5

2.2

4.2

4.8

5.2

Adj. PAT

1.5

2.6

2.9

3.3

EPS (INR)

5.7

10.3

11.3

12.9

EPS Gr. (%)

325.3

79.8

9.7

14.2

BV/Sh. (INR)

40.3

47.2

54.2

62.3

RoE (%)

12.4

23.5

22.3

22.1

RoCE (%)

15.7

28.6

29.2

30.1

Payout (%)

31.4

31.4

31.4

31.4

P/E (x)

70.3

39.1

35.7

31.2

P/BV (x)

10.0

8.5

7.4

6.5

EV/EBITDA (x)

Valuations

48.3

24.3

20.8

18.7

EV/ Sales (x)

2.7

2.1

2.0

1.9

Div Yield (%)

0.4

0.9

0.9

1.0

CMP: INR400 





GE T&D

TP: INR430 (8%)

Neutral

We expect GETD to register revenue growth of 11% YoY to INR13.3b in 4QFY18. Revenue growth would be driven by execution of the Champa-Kurukshetra pole 3/4 project, which is expected to be commissioned by FY18. We expect operating profit of INR1b in 4QFY18, as against INR722m in 4QFY17. Gross margin is likely to improve 90bp to 28.3% from 27.4% in 4QFY17. GETD is expected to book net profit of INR534m as against INR443m in 4QFY17. Maintain Neutral.

Key issues to watch  Progress in the Champa-Kurukshetra project.

Quarterly Performance Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%)

April 2018

1Q 8,546 11.6 21 -70.3 0.2 217 226 326 -2,425 -455 18.8 -1,970 -2,041.0 360 254.6

FY17 2Q 3Q 8,350 11,652 -4.3 63.2 349 751 -48.7 -241.2 4.2 6.4 220 221 240 343 425 493 314 679 109 236 34.7 34.7 205 443 -43.2 -215.4 205 443 -43.2 -215.4

4Q 11,963 26.9 1,097 81.7 9.2 224 344 177 705 244 34.6 461 70.9 461 70.9

1Q 12,093 41.5 1,055 4,875.9 8.7 224 278 421 974 358 36.8 616 -131.3 616 71.1

FY18E 2Q 3Q 8,700 14,386 4.2 23.5 805 728 130.6 -3.0 9.3 5.1 228 218 225 238 344 630 695 1,099 220 381 31.6 34.7 475 718 131.6 62.0 475 521 131.6 17.6

4QE 13,275 11.0 1,599 45.7 12.0 172 240 362 1,550 525 33.8 1,026 122.4 1,026 122.4

FY17

FY18

40,521 22.7 2,230 -9.0 5.5 873 589 427 1,195 508 42.5 687 0.0 687 2.0

48,453 19.6 4,187 -9.0 8.6 873 589 427 3,152 508 16.1 2,644 0.0 2,644 2.0

97

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

HAVL IN

Equity Shares (m)

625.0

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

318 / 5

52-Week Range (INR)

593 / 434

1,6,12 Rel Perf. (%)

2 / -3 / -3

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

61.4

80.8

97.6 113.5

EBITDA

8.2

10.3

13.1

16.0

Adj. PAT

6.0

7.0

8.5

10.6

Adj. EPS (INR)

9.6

11.1

13.7

17.0

EPS Gr. (%)

17.1

16.5

22.8

24.1

BV/Sh(INR)

52.4

58.8

66.6

76.3

RoE (%)

18.2

18.9

20.5

22.2

RoCE (%)

18.2

19.1

21.1

23.2

Payout (%)

42.8

42.8

42.8

42.8

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

53.1

45.6

37.1

29.9

9.7

8.6

7.6

6.7

35.9

30.1

23.2

18.6

0.7

0.8

1.0

1.2

CMP: INR509 

 

Havells India

TP: INR630 (+24%)

Buy

Standalone revenue is expected to register growth of 45% YoY, driven by revenue contribution from recently-acquired Lloyd (INR5.7b). We expect the cables segment to register 7% YoY growth, led by an improvement in the prices of copper. Lighting segment is expected to register 13% growth, whereas electrical consumer durables segment is expected to register 8% growth. We expect operating margin to decline 90bp YoY to 12.5% on account of increased contribution from low-margin Lloyd business. Net profit is expected to register 20% growth YoY to INR2.1b. Maintain Buy.

Key issues to watch  Commentary on progress of integration of the consumer durables arm of Lloyd Electric with itself.  Commentary on demand scenario across product categories.

Quarterly Performance (Standalone) Y/E March Sales Change (%) Adj EBITDA Change (%) Adj EBITDA margin (%) Depreciation Interest Other Income Extra-ordinary Items PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%)

April 2018

1Q 14,668 17.1 2,004 23.7 13.7 280 16 314 2,022 567 28.0 1,456 36.3 1,456 22.2

FY17 2Q 3Q 14,522 15,060 8.7 13.2 2,034 1,907 7.6 4.0 14.0 12.7 308 301 19 15 323 286 (190) 2,030 1,877 572 537 28.2 28.6 1,458 1,151 22.0 -4.0 1,458 1,340 21.1 13.3

4Q 17,102 17.2 2,296 3.5 13.4 308 71 419 (768) 2,337 622 26.6 947 -74.1 1,715 5.0

1Q 18,605 26.8 1,724 -14.0 9.3 336 34 348 1,703 489 28.7 1,214 -16.6 1,214 -16.6

FY18 2Q 3QE 17,774 19,658 22.4 30.5 2,569 2,622 26.3 37.5 14.5 13.3 349 363 67 55 287 278 210 2,440 2,482 730 748 29.9 30.1 1,710 1,944 17.3 68.9 1,710 1,734 17.3 29.4

4QE 24,789 45.0 3,100 35.0 12.5 313 94 238 2,931 874 29.8 2,056 117.2 2,056 19.9

FY17

FY18E

61,353 14.1 8,241 9.2 13.4 1,196 122 1,343

80,826 31.7 10,257 24.5 12.7 1,361 250 1,150

8,266 2,298 27.8 5,969 17.1 5,969 16.9

9,796 2,841 29.0 6,955 16.5 6,955 16.5

98

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

LT IN

Equity Shares (m)

1399.4

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

1861 / 29

52-Week Range (INR)

CMP: INR1,330 

1470 / 1052

1,6,12 Rel Perf. (%)

3 / 11 / 9



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

1,100 1,206 1,363 1,485

EBITDA

110.7 133.0 160.0 174.0

Adj. PAT *

59.2

68.4

80.1

95.9

EPS (INR)*

42.3

48.8

57.2

68.6

EPS Gr. (%)

43.0

15.5

17.2

19.8

BV/Sh (INR) RoE (%) RoCE (%)

358.8 391.4 430.0 477.0 12.5

13.0

13.9



TP: IN1,670 (+26%)

Buy

LT announced order intake of INR285b in 4QFY18 compared to INR317b in 4QFY17. Order inflow during the quarter has been supported by large as well as base order finalization (>INR15b). Large orders worth INR126b were finalized during the quarter. Domestic order wins were supported by order finalization in the hydrocarbon and infrastructure segments. Overseas order finalization was supported by the infrastructure and power segments. For 4QFY18, we expect revenue growth of 14% YoY to INR416b. We expect operating profit margin to expand 50bp YoY to 12.3%. We expect net profit to decline 17% YoY to INR27.5b, impacted by higher tax rate (29% v/s 9% in 3QFY17). Maintain Buy.

15.1

8.0

8.3

9.8

10.3

33.2

29.2

28.6

27.5

P/E (x)*

31.4

27.2

23.2

19.4

P/BV (x)

4.2

3.7

3.4

3.1

24.8

20.8

17.0

15.3

1.1

1.1

1.2

1.4

Payout (%)



Larsen & Toubro

Valuations

EV/EBITDA (x) Div Yield (%) *Consolidated

Quarterly Perf. (Consol.) Y/E March

Sales Change (%) EBITDA Change (%) Margin (%) Depreciation Interest Other Income Extraordinary Inc/(Exp) Reported PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adjusted PAT Change (%) E: MOSL Estimates

April 2018

Key issues to watch  Net working capital cycle (excluding financial services) stood at 21.5% of revenue in 3QFY18. For FY17, net working capital cycle stood at 18%.

FY17 FY18E FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 217,265 248,562 261,104 366,187 238,109 264,468 287,475 416,408 1,100,110 1,206,478 8.4 7.5 0.7 11.4 9.6 6.4 10.1 13.7 8% 10% 18,890 23,150 25,052 43,351 20,567 29,604 31,440 51,419 110,747 133,050 15.1 8.6 17.8 -3.6 8.9 27.9 25.5 18.6 5.8 20.1 8.7 9.3 9.6 11.8 8.6 11.2 10.9 12.3 10% 11% 4,648 4,602 7,223 7,227 5,513 4,306 4,545 5,551 23,699 19,915 3,248 3,396 3,788 2,966 3,651 3,929 3,625 3,981 13,398 15,185 3,058 4,518 2,743 3,995 3,849 4,013 2,129 3,995 14,010 13,985 0 4,024 0 -2,810 0 1,367 -138 0 1,214 1,230 14,052 19,670 16,784 37,152 15,253 25,382 25,399 45,882 88,874 113,165 5,488 6,807 4,399 3,372 4,597 5,439 7,372 15,052 23,782 32,461 39.1 34.6 26.2 9.1 30.1 21.4 29.0 32.8 22.9 29.0 6,096 14,346 9,724 30,246 8,925 18,199 14,900 27,537 60,412 69,580 45.5 84.3 38.8 29.5 46.4 26.9 53.2 -9.0 43 15 6,096 10,321 9,724 33,056 8,925 16,831 15,037 27,537 59,198 68,350 45.5 40.9 38.8 44.6 46.4 63.1 54.6 -16.7 43 15

99

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

SIEM IN

Equity Shares (m)

356.1

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

400 / 6

52-Week Range (INR)

1470 / 1065

1,6,12 Rel Perf. (%)

-1 / -12 / -25

Financial Snapshot (INR b) Y/E September 2017 2018E 2019E 2020E Net Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr (%) BV/Sh. (INR)

110.1 138.4 143.2 159.7 10.5

15.1

17.1

7.0

10.8

12.3

13.8

19.8

30.4

34.6

38.8

 

We expect SIEM to register 28% YoY revenue growth during the quarter to INR37.4b, led by strong performance by the power & gas and energy management segments. Operating margin is expected to improve by 130bp YoY to 10.8%, and operating profit is expected to register 45% YoY growth. Net profit is expected to register 60% growth YoY to INR2.9b, led by higher other income. Maintain Neutral.

10.9

53.8

13.8

12.3

216.4 235.8 257.9 282.7 9.1

12.9

13.4

RoCE (%)

14.0

19.1

19.9

14.4

Payout (%)

40.9

44.0

30.0

30.0

13.7

56.9

37.0

32.5

29.0

5.2

4.8

4.4

4.0

EV/EBITDA (x)

34.2

23.4

20.3

18.1

Div. Yield (%)

0.8

0.8

0.9

1.0

Valuations P/BV (x)



Key issues to watch  Raw material imports account for 55% of raw material cost; Siemens AG’s network comprises 82% of imports; INR depreciation of 11% YoY v/s EUR could have a negative impact on the margin profile.

Quarterly Performance (Standalone) Y/E September Total Revenues Change (%) EBITDA As % of Revenues Depreciation interest Other Income Extra-ordinary Items PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%)

April 2018

Neutral

18.8

RoE (%)

P/E (x)

CMP: INR1,124 TP: INR1,285 (+14%)

Siemens

1Q 22,933 -0.9 2,336 10.2 483 20 623 0 2,456 849 34.6 1,607 1,607 44.4

(INR Million) FY17 2Q 3Q 29,288 26,508 5.2 1.2 2,786 2,255 9.5 8.5 502 480 21 14 529 731 72 0 2,864 2,492 1,001 863 34.9 34.6 1,863 1,629 1,791 1,629 -4.8 27.1

4Q 31,418 1.7 3,172 10.1 502 22 630 4,230 7,507 1,269 16.9 6,238 2,008 -8.6

1Q 24,295 5.9 2,724 11.2 470 17 705 0 2,942 1,037 35.2 1,905 1,905 18.6

FY18E 2QE 3QE 37,378 35,454 27.6 33.7 4,045 3,805 10.8 10.7 500 500 19 19 889 790 0 0 4,414 4,076 1,545 1,345 35.0 33.0 2,869 2,731 2,869 2,731 60.2 67.7

FY17 FY18 E 4QE 41,317 110,148 138,445 31.5 4.8 28.1 4,524 10,512 15,101 11.0 9.5 10.9 453 1,967 1,924 22 77 77 908 2,547 3,291 0 0 0 4,957 11,170 16,545 1,646 3,982 5,573 33.2 35.6 33.7 3,311 7,188 10,972 3,311 7,034 10,818 64.9 16.6 70.5

100

March 2018 Results Preview | Sector: Capital Goods

Thermax

Bloomberg

TMX IN

Equity Shares (m)

112.6

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

128 / 2

52-Week Range (INR)

CMP: INR1,136 TP: INR1,350 (+19%) 

1375 / 835

1,6,12 Rel Perf. (%)

-4 / 16 / 5



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

44.8

49.6

57.2

71.0

4.3

4.8

6.1

7.7

Adj. PAT

3.1

3.2

4.0

4.9

EPS (INR)

27.2

28.0

35.1

43.5

3.1

25.3

23.9

EPS Gr. (%) BV/Sh. (INR)

8.5 225.4 12.6

11.9

13.6

15.0

RoCE (%)

11.3

12.1

13.5

14.8

Payout (%)

30.3

23.5

20.7

18.3

41.8

40.5

32.3

26.1

5.0

4.6

4.2

3.7

29.3

26.3

20.4

16.1

0.5

0.6

0.6

0.7

Valuations P/BV (X) EV/EBITDA (X) Div Yield (%)

During the quarter, Thermax bagged an INR5b order from a fertilizer company for three natural gas-based co-generation plants of 20MW each. Revenue is likely to grow 24% YoY, supported by execution pickup in the energy segment (+30% YoY) and an improvement in orders available for execution. Operating margin is expected to improve by 50bp to 12%. Ordering activity remains muted in a weak macro environment. We believe ordering activity has remained at the base level, with Thermax announcing a single project worth INR5b. Maintain Buy.

245.7 272.3 306.5

RoE (%)

P/E (X)



Buy

Key issues to watch  Demand environment in domestic and overseas markets.  Sustainability of margins in the chemical (17.3%) and environment (8.1%) segments.

Thermax Consolidated Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%)

April 2018

1Q 9,791 -20.4 804 -21.2 8.2 194 32 231 809 277 34.3 532 (26.4) 490 (10.4)

FY17 2Q 3Q 10,703 9,440 -15.4 -22.6 919 875 -16.8 3.6 8.6 9.3 199 197 24 17 361 252 1,057 913 350 335 33.1 36.7 708 578 (4.8) (5.5) 783 536 32.4 (1.2)

4Q 14,905 -0.2 1,732 30.9 11.6 229 25 297 1,775 598 33.7 1,177 1.9 615 (46.2)

1Q 8,718 -11.0 721 -10.3 8.3 189 16 241 757 284 37.5 473 (11.1) 406 (17.0)

FY18E 2Q 3Q 10,331 11,170 -3.5 18.3 952 955 3.6 9.1 9.2 8.5 189 208 51 25 236 238 947 961 370 378 39.0 39.3 578 583 (18.3) 0.9 568 586 (27.4) 9.3

4QE 18,412 23.5 2,220 28.2 12.1 194 8 361 2,379 784 33.0 1,594 35.5 1,598 159.8

FY17

FY18E

44,831 -18.5 4,330 -3.4 9.7 819 97 1,141 4,554 1,560 34.3 2,230 (20.6) 3,063 8.5

49,641 4,848 12.0 9.8 779 100 1,076 5,044 1,816 36.0 3,158 41.6 3,158 3.1

101

March 2018 Results Preview | Sector: Capital Goods

Bloomberg

VOLT IN

Equity Shares (m)

330.8

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

214 / 3

52-Week Range (INR)

CMP: INR648 

675 / 401

1,6,12 Rel Perf. (%)

7 / 18 / 45



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

60.3

67.1

78.1

89.5

EBITDA

5.8

7.1

8.4

9.6

Adj. PAT

5.1

6.0

7.1

8.0

EPS(INR)

15.5

18.0

21.3

24.3

EPS Gr. (%)

100.0 113.2 129.0 146.9

BV/Sh. (INR)

18.0

16.9

17.6

17.6

RoE (%)

16.5

16.2

16.9

17.0

RoCE (%)

26.2

26.2

26.2

26.2

Payout (%)

60.3

67.1

78.1

89.5

42.0

36.0

30.4

26.7

6.5

5.7

5.0

4.4

36.7

29.4

24.4

21.0

0.5

0.6

0.7

0.8

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)



TP: INR665 (+2%)

Voltas Neutral

Unitary cooling division (UCP) is likely to report revenue growth of 15% YoY, led by pickup in summer and price hike taken by the company post implementation of new energy efficiency norms. We expect revenue growth of 12% YoY in the MEP segment, supported by favorable base in 4QFY17. The key monitorable would be sustainability of margins in the segment. VOLT had booked EBIT margin of 7.1% in 3QFY18 on execution of better margin orders and pickup in execution of domestic orders. Volatile crude prices have raised apprehensions over the pace of order awards and also execution in the Middle East. Even in the domestic market, new project awards remain constrained. Maintain Neutral.

Key issues to watch  Impact of implementation of new energy norms on VOLT’s market share and sales.  Sustainability of profitability in MEP segment and also execution of international orders (50% of orders are from Qatar).

*Consolidated

Quarterly Performance (Consolidated) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extra-ordinary Items PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%)

April 2018

1Q 18,500 18.7 1,995 52.0 10.8 66 48 357 -9 2,248 651 28.9 1,597 55.7 1,587 54.8

FY17 2Q 3Q 9,672 11,805 -7.0 -6.7 687 890 6.4 58.0 7.1 7.5 63 60 33 22 658 597 0 0 1,249 1,405 421 437 33.7 31.1 782 815 20.9 42.2 782 815 20.9 47.9

4Q 20,351 9.7 2,219 22.7 10.9 56 58 386 -2 2,493 496 19.9 2,005 22.1 2,003 45.7

1Q 19,446 5.1 2,123 6.4 10.9 61 35 550 -20 2,596 727 28.0 1,879 17.7 1,859 17.1

FY18 2Q 3QE 10,367 13,747 7.2 16.5 857 1,186 24.8 33.3 8.3 8.6 61 61 22 19 512 170 0 0 1,287 1,277 343 301 26.6 23.6 954 1,004 22.0 23.2 954 1,004 22.0 23.2

4QE 23,560 15.8 2,926 31.9 12.4 67 34 352 0 3,177 1,041 32.8 2,138 6.6 2,138 6.7

FY17

FY18

60,328 5.5 5,791 33.8 9.6 245 160 1,998 11 7,395 2,089 28.2 5,114 38.8 5,103 42.6

67,120 11.3 7,092 22.5 10.6 250 110 1,585 0 8,317 2,412 29.0 5,955 16.4 5,955 16.7

102

March 2018 Results Preview | April 2018

Technology Cement Company name ACC

Affordable housing, infrastructure to drive healthy demand Margins under pressure due to cost push

Ambuja Cements

Volume growth led by affordable housing and infrastructure segments

Birla Corporation

We expect companies under our coverage to report volume growth of ~8% YoY in 4QFY18, adjusting for the acquisition impact on UltraTech. All India demand continues to be healthy, led by pickup in infrastructure, affordable housing, and rural housing in select regions. On a YoY basis, demand is picking up in South, Central and East India.

Dalmia Cement Grasim Industries India Cements Sanghi Industries Shree Cement Ramco Cement UltraTech Cement

Demand growth in the South is strong, led by Andhra Pradesh and Telangana. Demand growth in the East remains healthy, led by housing and infrastructure segments. Central India has also seen strong demand improvement, led by revival of sand mining. Demand in the North is moderate due to the impact of sand mining ban in Rajasthan. However, players have benefitted due to ramp-down of Binani’s assets to less than 50% utilization. Demand growth in the West has been healthy due to pick up in infrastructure projects and favorable base. We expect the MOSL Cement universe to record volume growth of ~8% YoY in 4QFY18, adjusted for the acquisition impact on UltraTech. We expect (a) pan-India players to report volume growth of 7% YoY, (b) North based players like SRCM to report 8%YoY increase in volumes, and (c) South-based (DBEL, TRCL and ICEM) companies to post 9-14% volume growth. We estimate volume growth at 6% for FY18, as demand in Rajasthan, Tamil Nadu, UP and Bihar was affected by sand mining issue. With the issue getting resolved in most major cement-consuming states, demand growth should revive in FY19.

Sequential decline in pricing Cement prices should remain flat QoQ, as price declines in the North and South were largely offset by pricing improvement in East and Central India. Cement prices declined 1% QoQ in the North and 3% QoQ in the South. Pricing improvement was the sharpest in Central India (+3% QoQ), followed by the East (+2% QoQ). Prices in the West remained flat QoQ. ASP should remain flat QoQ in 4QFY18, as we estimate a price change of (a) -1% QoQ in North India, (b) +3% QoQ in Central India, (c) 0% QoQ in West India, (d) +2% QoQ in East India, and (e) -3% QoQ in South India.

Cost push will continue to dent margins Petcoke prices have increased ~31% YoY and 8% QoQ in 4QFY18 due to firm prices globally. Cement companies with low-cost inventory of petcoke for earlier quarters are likely to report QoQ increase in P&F cost. Additionally, increase in diesel prices would result in higher freight cost for the companies on a YoY basis. Diesel prices Abhishek Ghosh ([email protected]); +91 22 6129 1538 Pradnya Ganar ([email protected]); +91 22 6129 1537 April 2018

103

March 2018 Results Preview | Sector: Cement

have increased 13% YoY and ~3% QoQ, which should translate into higher freight cost. EBITDA/ton is likely to be lower by INR22 QoQ for our coverage companies, as the impact of weaker realizations and cost push has been offset by the impact of positive operating leverage.

Top picks: Shree Cement, Ramco Cement, Birla Corp and Dalmia Cement Shree Cement’s superior execution capabilities would enable it to achieve RoIC of over 50% (FY19E), while its gross block to capacity has been structurally trending downward. Ramco Cement is likely to generate strong operating cash flow, which would be used to raise grinding capacity by ~16% over FY17-20. We estimate 8% EBITDA CAGR and 11% PBT CAGR over FY17-20. Birla Corp is likely to be profitable due to the strong performance of the acquired subsidiary, Reliance Cement. With a 23% market share in the Satna cluster and Reliance Cement’s mineral concession, it has the potential to expand to multiple states. We believe Dalmia Cement’s deleveraging play and superior volume growth make it attractive for re-rating. Exhibit 1: Trend in key performance indicators Sector

Cement ACC Ambuja Cements Birla Corporation Dalmia Bharat Grasim Industries India Cements Ramco Cements Sanghi Inds. Shree Cement Ultratech Cement Sector Aggregate

CMP (INR)

RECO

1,551 241 764 2,867 1,086 153 756 122 16,623 3,949

Neutral Neutral Buy Buy Neutral Neutral Buy Buy Buy Buy

Sales (INR M) Var % Var % Mar-18 YoY QoQ

EBDITA (INR M) Var % Var % Mar-18 YoY QoQ

Net Profit (INR M) Var % Var % Mar-18 YoY QoQ

34,575 28,601 15,198 25,386 28,355 13,784 11,897 2,974 25,950 87,300 274,020

3,359 5,172 1,600 5,118 8,694 1,770 2,622 714 6,033 14,396 49,479

2,144 2,947 -38 1,683 5,023 238 1,390 400 3,292 4,892 21,971

11.5 12.9 5.7 16.2 -1.4 2.6 17.0 20.6 9.0 32.4 15.6

1.2 6.7 9.4 21.4 -36.0 13.6 12.9 6.4 13.0 15.0 3.7

-1.7 41.7 -31.9 -7.2 65.5 -6.8 7.9 68.7 18.0 12.6 15.5

1.4 1.9 15.4 12.6 -0.5 5.8 15.2 15.5 14.0 13.4 8.5

1.4 19.5 PL -3.1 59.2 -30.4 3.3 52.4 8.1 -29.9 -2.1

18.5 -0.2 Loss 73.3 7.4 56.5 26.0 24.4 12.3 40.2 20.8

*Ultratech YoY not comparable as financials includes JPA numbers for 4QFY18 and not for 4QFY17

Exhibit 2: MOSL universe volume at 59mt (adjusted growth is 8%YoY) Aggregate Vol (m ton)

Volume growth (%) 19.2

3.2

4.8

8.4

7.7

52

47

52

59 4QFY18

3.9

3QFY18

1.2

4.0

9.3

8.4

2QFY18

0.4

4.2

6.3

8.2

38

42

39

37

38

44

42

38

40

42

44

41

43

50

48

42

45

54

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

(4.8)

4QFY13

(1.3)

8.6

3QFY13

1.8

3.2

5.6

15.7

1QFY18

12.5

Source: Company, MOSL

April 2018

104

March 2018 Results Results Preview Cement June 2017 Preview || Sector: Sector: Cement September

Exhibit 1: Pan-India average cement prices (INR/bag) flat QoQ in 4QFY18

North Average Prices

East Average Prices

West Average Prices

South Average Prices Central Average Prices

288

287

290

304

297

311

301

304

313

305

4QFY18E

292

299

304

323

3QFY18

321

275

274

277

291

2QFY18

287

283

278

281

291

1QFY18

278

281

283

286

300

294

4QFY17

National Average Prices

Source: Company, MOSL

Exhibit 2: Diesel prices up 13%YoY in 4QFY18

Exhibit 3: Petcoke prices increased 31% YoY in 4QFY18

4%

YoY growth in Diesel prices 29% 20% 13% 12% 8% 11% 11%

Retail petcoke prices (INR/tonne) 67% 51% 44% 25% 17%

Diesel price (INR/ltr)

3%

31%

58.8

55.9

58.8

61.4

66.3

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY17

Exhibit 4: MOSL coverage realization declined ~1%QoQ in 4QFY18

8,250 4QFY18

55.0 3QFY17

Source: Company, MOSL

8,000 3QFY18

52.8 2QFY17

7,000 2QFY18

51.5 1QFY17

6,933 1QFY18

45.6 4QFY16

6,293 4QFY17

46.0 3QFY16

6,400 3QFY17

47.1 2QFY16

5,983 2QFY17

49.3

4,583

1QFY16

-21%

Source: Company, MOSL

Exhibit 5: Profitability to decrease 3%QoQ, led by lower realizations

4,028 3,989 4,017 3,873 3,946 4,102 4,241 4,327 4,204 4,377 4,397 4,524 4,408 4,185 4,402 4,553 4,416 4,347 4,675 4,690 4,548 4,516

783 820 790 490 567 738 783 694 584 854 712 717 714 840 971 880 781 774 1,009 877 753 731 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

Aggregate EBITDA (Rs/ton)

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

Realization (Rs/ton)

Source: Company, MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

95 Sep-17

85

MOSL Cement Index

Aug-17

107 Jul-17

91

Jun-17

119

Mar-18

97

Feb-18

131

Jan-18

103

Dec-17

Sensex Index

143

May-17

MOSL Cement Index

Apr-17

Sensex Index

109

Exhibit 7: Relative performance—1 year (%)

Mar-17

Exhibit 6: Relative performance—3 months (%)

Source: Company, MOSL

Source: Bloomberg, MOSL April 2018

105

March 2018 Results Preview | Sector: Cement

Exhibit 8: Trend in key operating parameters ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement Dalmia Bharat JK Lakshmi Cem. Madras Cement Orient Cement Prism Cement Sanghi Industries Sector Agg.

Volume (m ton) 4QFY18 YoY (%) QoQ (%) 7.1 7.0 2.1 6.3 5.0 7.7 15.3 8.8 11.3 3.5 5.8 15.6 3.2 8.9 15.8 6.4 7.7 20.0 5.2 13.7 24.7 2.2 -1.8 6.4 2.6 14.1 14.3 1.8 4.3 32.0 1.6 5.6 20.4 0.7 -4.2 2.0 59 8 13

Realization (INR/ton) 4QFY18 YoY (INR) QoQ (INR) 4452 187.4 -25.0 4525 316.5 -40.0 4795 106.1 6.4 4631 289.7 45.8 4365 -268.0 -85.0 4058 287.8 -61.2 4907 104.5 -130.7 4037 505.3 68.0 4539 89.5 -67.1 3596 152.9 -140.6 4421 -87.8 244.4 4002 823.6 163.9 4,516 169 (31)

4QFY18 476 818 791 457 560 931 989 459 1020 244 776 961 731

EBITDA (INR/ton) YoY (INR) QoQ (INR) -42.2 -3.3 211.8 -46.4 -118.0 -10.0 -252.3 -0.8 -94.5 -53.1 112.6 -72.6 -223.2 -106.3 145.4 11.6 -55.2 24.1 -192.3 -42.2 30.6 175.1 415.6 112.6 (43) (22)

Exhibit 9: Comparative Valuations Sector / Companies Cement ACC Ambuja Cements Birla Corporation Dalmia Bharat Grasim Industries India Cements JK Lakshmi Cem. Orient Cement Prism Cement Ramco Cements Sanghi Inds. Shree Cement Ultratech Cement Sector Aggregate

April 2018

CMP (INR)

RECO

1,551 241 764 2,867 1,086 153 440 143 117 756 122 16,623 3,949

Neutral Neutral Buy Buy Neutral Neutral Buy Buy Buy Buy Buy Buy Buy

EPS (INR) PE (x) PB (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 47.4 6.0 7.4 52.0 47.6 2.9 5.7 1.3 2.4 24.0 4.6 365.7 77.5

63.8 8.1 42.3 72.9 97.9 6.6 15.1 3.6 4.9 29.7 8.5 473.5 123.7

72.9 12.7 50.5 102.2 111.8 9.4 21.2 8.3 6.5 37.8 11.3 679.2 165.0

32.7 39.9 103.0 55.2 22.8 53.0 76.9 106.2 49.2 31.5 26.7 45.5 50.9 41.8

24.3 29.8 18.1 39.3 11.1 23.1 29.1 40.3 24.0 25.5 14.3 35.1 31.9 25.7

21.3 19.0 15.1 28.1 9.7 16.3 20.8 17.3 18.1 20.0 10.8 24.5 23.9 19.8

16.8 23.3 13.0 15.0 17.9 10.3 17.5 15.4 19.4 16.9 12.6 22.1 21.8 19.0

14.1 18.4 8.9 12.9 11.2 8.5 11.6 12.4 14.0 15.0 10.8 17.9 15.7 14.2

11.4 12.3 7.4 10.9 9.9 7.2 9.4 8.7 11.3 12.0 10.0 13.5 12.4 11.4

10.1 12.9 14.5 6.1 7.8 11.2 1.7 9.6 10.6 8.9 11.3 14.1 6.9 12.9 13.0 1.7 3.9 5.3 4.8 11.7 14.5 2.8 7.1 14.9 11.9 21.2 23.1 14.3 15.6 17.2 9.7 15.6 17.5 15.4 17.3 20.8 8.5 12.5 15.1 7.8 11.5 13.5 Source: Company, MOSL

106

March 2018 Results Preview | Sector: Cement

ACC Bloomberg

ACC IN

Equity Shares (m)

188.0

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

291 / 4

52-Week Range (INR)

1869 / 1450

1,6,12 Rel Perf. (%)

-3 / -12 / -5

Financial Snapshot (INR Billion) Y/E Dec Sales

2016

2017 2018E 2019E

108

129

144

162

13

15

18

21

7

9

12

14

EBITDA NP Adj. EPS (INR)

36

47

64

74

EPS Gr. (%)

-4

31

35

16

BV/Sh (INR)

461

479

507

497

8

10

13

15

RoE (%) RoCE (%)

8

10

13

14

88

62

57

114

43

33

24

21

3

3

3

3

21

17

14

11

121

117

110

107

Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (x)

Quarterly Performance (Standalone) Y/E December

Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Item EO Income/(Expense) PBT after EO Item Tax Rate (%) Reported PAT Adjusted PAT Margins (%) YoY Change (%) E: MOSL Estimates

April 2018

1Q 6.60 3.8 4,265 3.8 -2.0 30,997 7.9 27,579 3,418 11.0 1,650 252 1,101 2,617 0 2,617 502 19.2 2,115 2,115 6.8 -9.9

CMP: INR1,551

TP: INR1,710 (10%)

Neutral

 We expect dispatches to grow 7% YoY to 7.06mt in 1QCY18, led by capacity ramp-up of eastern units. Average realizations are 1,450 expected to decline by ~1% QoQ to INR4,452/ton due to pricing drop in underlying markets.  Revenues are expected to increase ~12% YoY to INR34.6b. EBITDA margin is expected to be 9.7%, flat QoQ (-1.3pp YoY).  EBITDA/ton is estimated at INR476 (-INR42 YoY, flat QoQ) due to 6% YoY increase in cost partially offset by 4% YoY increase in realization. PAT is likely to increase marginally by 1.5% YoY to INR2.1b.  The stock trades at a P/E of 24x (CY18E) and 21x (CY19E), EV/EBITDA of 14x (CY18E) and 11x (CY19E), and EV/ton of USD110 (CY18E) and USD107 (CY19E). Maintain Neutral.

Key issues to watch out for  Cement pricing recovery.  Volume growth and demand revival.  Ramp-up of new plant in the East.

CY17 2Q 6.74 10.1 4,509 7.2 5.7 33,125 16.9 28,175 4,951 14.9 1,621 225 1,663 4,768 0 4,768 1,550 32.5 3,218 3,218 9.7 32.7

3Q 5.96 17.6 4,645 6.3 3.0 30,545 23.6 27,015 3,530 11.6 1,551 213 858 2,624 0 2,624 847 32.3 1,777 1,777 5.8 111.3

4Q 6.92 27.0 4,477 2.8 -3.6 34,171 29.7 30,857 3,314 9.7 1,579 334 1,231 2,633 342 2,975 930 31.3 2,045 1,810 5.3 46.8

1QE 7.06 7.0 4,452 4.4 -0.6 34,575 11.5 31,216 3,359 9.7 1,550 250 1,300 2,859 0 2,859 715 25.0 2,144 2,144 6.2 1.4

CY18 2QE 7.08 5.0 4,652 3.2 4.5 35,927 8.5 31,640 4,287 11.9 1,637 250 1,574 3,974 0 3,974 1,196 30.1 2,778 2,778 7.7 -13.7

(INR Million)

CY17

3QE 6.32 6.0 4,802 3.4 3.2 33,483 9.6 28,481 5,001 14.9 1,637 250 1,574 4,688 0 4,688 1,266 27.0 3,423 3,423 10.2 92.6

CY18E 4QE 7.34 26.22 27.79 6.0 14.0 6.0 4,852 4,488 4,688 8.4 6.4 4.5 1.0 39,907 129,310 143,892 16.8 20.1 11.3 34,873 114,097 126,211 5,033 15,213 17,681 12.6 11.8 12.3 1,722 6,401 6,546 250 1,023 1,000 1,847 4,853 6,295 4,907 12,642 16,429 0 342 0 4,907 12,984 16,429 1,259 3,829 4,436 25.7 29.5 27.0 3,648 9,155 11,993 3,648 8,913 11,993 9.1 6.9 8.3 101.6 29.2 34.5

107

March 2018 Results Preview | Sector: Cement

Ambuja Cements Bloomberg

ACEM IN

Equity Shares (m)

1985.7

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

478 / 7

52-Week Range (INR)

291 / 224

1,6,12 Rel Perf. (%)

-3 / -16 / -10

Financial Snapshot (INR Billion) Y/E DEC

2016

2017 2018E 2019E

Sales

91.6 104.5 119.0 137.9

EBITDA

15.8

19.0

24.3

34.1

9.7

12.0

16.1

25.2

NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%)

4.9

6.0

8.1

12.7

-10.6

29.5

34.2

56.8

P/BV (x)

5.1

6.1

7.8

11.2

6.9

6.5

8.3

11.5

29.6

26.0

28.9

3.5

34.8

26.9

20.0

12.8

1.7

1.6

1.5

1.4

EV/EBITDA (x)

18.0

15.3

11.6

7.6

EV/Ton (USD)

154

147

142

131

Quarterly Performance Y/E December

Sales Volume (m ton)* YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Item Extraordinary Inc/(Exp) PBT after EO Exp/(Inc) Tax Rate (%) Reported Profit Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

TP: INR264 (+10%)

Neutral

 We expect dispatches to grow 5% YoY to 6.3mt in 1QCY18, led by volume growth in underlying markets. Average realizations are expected to decline 1% QoQ to INR4,525/ton due to sequentially weak pricing in underlying markets. Revenue is likely to grow 13% YoY (and 7% QoQ) to INR28.6b.  EBITDA margin is expected to be 18% (-0.9pp QoQ, +3.67pp YoY). EBITDA/ton is estimated at INR818 (-INR46 QoQ, +INR212 YoY).  Adjusted PAT is estimated to increase 19.5% YoY to INR2.9b.  The stock trades at a P/E of 20x (CY18E) and 12.8x (CY19E), EV/EBITDA of 11.6x (CY18E) and 7.6x (CY19E), and EV/ton of USD142 (CY18E) and USD131 (CY19E). Maintain Buy.

96.4 101.1 106.8 119.0

Valuations P/E (x)

CMP: INR241

1Q 6.02 0.9 4,208 4.4 -3.7 25,334 5.3 3,651 14.4 1,460 377 1,310 3,124 0 3,124 658 21.1 2,465 2,465 423.7

Key issues to watch out for  Volume growth recovery and outlook.  Cement pricing outlook and sustainability.  Cost curve trend in CY18.

CY17 2Q 6.07 3.8 4,712 9.0 12.0 28,600 13.1 6,510 22.8 1,439 165 560 5,466 0 5,466 1,544 28.2 3,922 3,922 -13.2

3Q 5.02 9.6 4,621 5.0 -1.9 23,196 15.1 3,544 15.3 1,403 313 1,531 3,359 0 3,359 635 18.9 2,724 2,724 10.0

4Q 5.87 15.3 4,565 4.5 -1.2 26,796 20.5 5,076 18.9 1,427 217 481 3,912 572 4,484 1,100 24.5 3,384 2,952 56.3

1QE 6.32 5.0 4,525 7.5 -0.9 28,601 12.9 5,172 18.1 1,435 200 500 4,037 0 4,037 1,090 27.0 2,947 2,947 19.5

CY18E 2QE 3QE 6.49 5.42 7.0 8.0 4,475 4,575 -5.0 -1.0 -1.1 2.2 29,064 24,803 1.6 6.9 5,603 4,497 19.3 18.1 1,435 1,435 375 375 1,004 1,020 4,797 3,707 0 0 4,797 3,707 1,319 945 27.5 25.5 3,478 2,762 3,478 2,762 -11.3 1.4

(INR Million)

CY17

CY18E 4QE 6.58 22.98 24.82 12.1 6.9 8.0 5,556 4,546 4,796 21.7 6.2 5.5 21.4 36,563 104,469 119,031 36.5 8.0 31.0 9,065 18,956 24,338 24.8 18.1 20.4 1,436 5,729 5,741 550 1,072 1,500 1,521 3,591 4,045 8,600 15,745 21,142 0 687 0 8,600 16,432 21,142 1,719 3,937 5,074 20.0 24.0 24.0 6,881 12,496 16,068 6,881 11,973 16,068 133.1 29.5 34.2

108

March 2018 Results Preview | Sector: Cement

Birla Corporation Bloomberg

BCORP IN

Equity Shares (m)

77.0

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

59 / 1

52-Week Range (INR)

1290 / 685

1,6,12 Rel Perf. (%)

-14 / -22 / -9

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

43.5

56.0

63.4

68.3

EBITDA

6.2

7.4

10.4

11.6

NP

2.2

0.6

3.3

3.9

7.4

42.3

50.5

-74.0 470.3

19.2

Adj. EPS (INR)

28.5

EPS Gr. (%)

27.9

BV/Share (INR)

429

426

457

496

RoE (%)

7.1

1.7

9.6

10.6

8.0

RoCE (%) Payout (%)

5.2

7.6

7.8

40.8 160.0

27.4

23.0

26.8 103.0

18.1

15.1

Valuation P/E (x) P/BV (x)

1.8

1.8

1.7

1.5

EV/EBITDA (x)

14.9

12.8

8.4

6.9

EV/Ton (USD)

89

90

83

77

Consolidated Numbers Y/E March

Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) Adj. PAT EO Income/(Expense) Reported PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 2.17 10.8 4,484 21.9 10.0 8,936 16.6 7,632 1,303 14.6 379 225 501 1,200 257 21.4 943 0 943 278.1

CMP: INR 764

TP: INR1,004 (+31%)

Buy

4QFY18 consolidated cement volumes are estimated to increase 6% YoY to 3.5mt, led by ramp-up of reliance assets. Realizations are estimated to increase by 1% QoQ to INR4,631/ton, led by better prices in the central region.  We estimate consolidated cement EBITDA/ton at INR457 (flat QoQ). EBITDA margin is expected to decline by 5.8pp YoY (flat QoQ) to 10.5%.  Consolidated EBITDA is likely to increase 15% QoQ (but decline 32% YoY) to INR1.6b. We expect the company to report a loss of INR38m in 4QFY18 as against a profit of INR1b in 4QFY17.  The stock trades at a P/E of 18.1x (FY19E) and 15.1x (FY20E), EV/EBITDA of 8.4x (FY19E) and 6.9x (FY20E), and EV/ton of USD83 (FY19E) and USD77 (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.

FY17 2Q 2.08 6.1 4,543 7.8 1.3 9,445 18.8 8,151 1,294 13.7 569 527 450 648 -6 -0.9 654 0 654 181.9

3Q 2.49 26.5 4,330 1.3 -4.7 10,765 36.8 9,558 1,208 11.2 809 1,149 209 -541 -128 23.6 -413 0 -413 -343.6

4Q 3.31 50.1 4,341 6.5 0.3 14,374 63.1 12,026 2,349 16.3 797 902 416 1,065 -15 -1.4 1,080 68 1,011 -2.1

1Q 3.28 51.3 4,449 -0.8 2.5 14,588 63.3 12,184 2,404 16.5 832 937 161 796 239 30.0 557 125 470 -50.2

FY18 2Q 2.65 27.5 4,662 2.6 4.8 12,355 30.8 10,587 1,768 14.3 831 1,053 119 3 -12 -421.4 15 0 15 -97.8

(INR Million)

3Q 3.03 21.9 4,585 5.9 -1.7 13,893 29.1 12,506 1,387 10.0 823 958 141 -252 -34 13.4 -218 0 -218 -47.1

4QE 3.50 5.8 4,631 6.7 1.0 15,198 5.7 13,597 1,600 10.5 817 969 144 -42 -3 7.5 -38 0 -38 -103.8

FY17

FY18E

10.04 24.2 4,623 8.8

12.46 24.1 4,848 4.9

43,477 33.0 37,248 6,229 14.3 2,555 2,768 1,465 2,371 108 4.6 2,263 68 2,198 10.5

56,034 28.9 48,874 7,160 12.8 3,303 3,917 565 505 190 37.7 315 125 237 -89.2

109

March 2018 Results Preview | Sector: Cement

Dalmia Cement Bloomberg

DBEL IN

Equity Shares (m)

88.8

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

255 / 4

52-Week Range (INR)

3349 / 1965

1,6,12 Rel Perf. (%)

7 / 0 / 34

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

74.0

85.1

96.7 109.4

EBITDA

19.0

19.6

22.2

25.7

6.5

9.1

NP

3.4

4.6

Adj. EPS(INR)

38.8

52.0

72.9 102.2

EPS Gr. (%)

81.2

34.0

40.3

BV/Sh (INR)

558

608

677

775

RoE (%)

7.2

8.9

11.3

14.1

RoCE (%)

7.3

8.0

9.4

11.0

Payout (%)

6.0

4.5

4.8

4.5

74.0

55.2

39.3

28.1

5.1

4.7

4.2

3.7

EV/EBITDA (x)

17.5

16.1

13.8

11.6

EV/Ton (USD)

176

184

180

174

40.1

Valuation P/E (x) P/BV (x)

Quarterly Performance (Consolidated) Y/E March Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord expense PBT after EO Expense Tax Rate (%) Reported PAT (pre minority) Minority + associate PAT Adj for EO items YoY Change (%) E:MOSL Estimates

April 2018

1Q 3.76 21.7 4,727 -8.7 -3.0 17,775 11.1 5,084 28.6 1,338 2,412 766 2,100 0 2,100 911 43.4 1,189 250 940 78.3

CMP: INR2,867

TP: INR3,300(+15%)

Buy

4QFY18 cement volumes are estimated to increase ~14% YoY to 5.17mt, led by growth in the South and the East. Realizations are estimated to decline ~2.6% QoQ to INR4,907/ton, led by weaker prices in the South, partially offset by healthy prices in the East.  We estimate cement EBITDA/ton at INR989 (-INR106/ton QoQ) due to decline in realization. EBITDA margin is expected to decline 5.1pp YoY and 1.6pp QoQ to 20.2%.  EBITDA is estimated to decrease 7% YoY to INR5.12b, translating into adjusted PAT decline of 3% YoY to INR1.7b.  The stock trades at a P/E of 39.3x (FY19E) and 28.1x (FY20E), EV/EBITDA of 13.9x (FY19E) and 11.6x (FY20E), and EV/ton of USD180 (FY19E) and USD174 (FY20E). Maintain Buy. 

Key issues to watch out for  Volume growth recovery and outlook.  Cement pricing outlook and sustainability.  Update on restructuring timelines.

FY17 2Q 3.42 20.0 5,010 0.6 6.0 17,134 20.8 4,207 24.6 1,587 2,291 796 1,125 0 1,125 662 58.9 463 152 311 149.8

3Q 3.56 20.3 4,837 -3.2 -3.5 17,219 16.4 4,147 24.1 1,887 2,105 676 831 8 823 273 33.2 550 151 405 35.2

4Q 4.55 17.3 4,802 -1.4 -0.7 21,850 15.6 5,517 25.2 1,509 1,998 715 2,724 -139 2,863 704 24.6 2,159 319 1,736 83.2

1Q 3.99 6.1 5,129 8.5 6.8 20,466 15.1 5,566 27.2 1,532 2,117 700 2,617 -267 2,885 889 30.8 1,996 357 1,454 54.7

FY18 2Q 3.64 6.4 5,038 0.5 -1.8 18,337 7.0 4,408 24.0 1,653 1,974 922 1,703 33 1,669 556 33.3 1,113 193 942 202.9

(INR Million) FY17 FY18E 3Q 4.15 16.6 5,037 4.2 0.0 20,905 21.4 4,546 21.7 1,776 1,419 507 1,858 -299 2,157 698 32.3 1,460 279 971 139.9

4QE 5.17 13.7 4,907 2.2 -2.6 25,386 16.2 5,118 20.2 1,721 1,461 571 2,507 0 2,507 629 25.1 1,878 196 1,683 -3.1

15.29 19.5 4,843 -3.3

16.95 10.9 5,019 3.6

74,044 15.5 19,019 25.7 6,027 8,900 2,988 7,080 -131 7,210 2,892 40.1 4,318 870 3,370 574.3

85,093 14.9 19,638 23.1 6,682 6,971 2,700 8,685 -533 9,218 2,771 30.1 6,446 1,024 5,050 49.9

110

March 2018 Results Preview | Sector: Cement

Grasim Industries Bloomberg

GRASIM IN

Equity Shares (m)

657.3

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

714 / 11

52-Week Range (INR)

1300 / 872

1,6,12 Rel Perf. (%)

Y/E March

2017 2018E 2019E 2020E

Sales

360.7 461.5 566.3 653.2

EBITDA

73.9

71.3 121.9 145.7

Adj. PAT

31.7

14.4

Adj. EPS (INR)

67.8

EPS Gr. (%)

28.3 10.8

RoCE (%)

VSF margins are likely to be stable, led by firm VSF prices globally.



Margins for the chemical business are likely to be stable due to shutdown of capacities globally.



Standalone EBITDA should remain stable at INR8.7b.



We estimate adjusted PAT at INR5.02b (+7% QoQ). Maintain Neutral.

65.4

30.8 114.8 140.0 -54.6 272.6

22.0

4.5

15.2

16.0

12.2

6.2

13.0

14.4

7.8

16.2

4.4

3.6

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.

Quarterly Performance (Standalone)

Y/E March FY17 (Standalone) 1Q 2Q 3Q 4Q Net Sales 23,959 24,887 25,260 28,761 YoY Change (%) 23.8 17.4 9.7 13.1 EBITDA 5,078 5,301 5,428 5,254 Margins (%) 21.2 21.3 21.5 18.3 Depreciation 1,104 1,119 1,106 1,133 Interest 231 156 107 83 Other Income 781 3,587 553 304 PBT before EO Items 4,525 7,612 4,769 4,343 Extraordinary Inc/(Exp) 0 0 0 0 PBT after EO Items 4,525 7,612 4,769 4,343 Tax 1,317 1,690 1,455 1,188 Rate (%) 29.1 22.2 30.5 27.4 Reported PAT 3,209 5,923 3,314 3,155 Adj. PAT 3,209 5,923 3,314 3,155 Margins (%) 13.4 23.8 13.1 11.0 E: MOSL Estimates; YoY numbers not comparable due to ABNL merger

April 2018

Neutral

672.3 698.1 807.9 942.9

RoE (%) Payout (%)

53.6

TP: INR1,187(+9%)



-5 / -12 / 12

Financial Snapshot (INR Billion)

BV/Sh. (INR)

CMP: INR1,086

1Q 27,403 14.4 5,553 20.3 1,103 73 658 5,036 0 5,036 1,564 31.1 3,472 3,472 12.7

FY18 2Q 40,373 62.2 7,852 19.4 1,664 427 2,688 8,449 -540 7,909 2,164 27.4 5,745 6,137 15.2

(INR Million)

FY17

3Q 44,283 75.3 8,735 19.7 1,658 295 372 7,154 91 7,245 2,507 34.6 4,739 4,679 10.6

FY18E 4QE 28,355 103,457 140,414 -1.4 15.3 35.7 8,694 21,548 30,834 30.7 20.8 22.0 1,737 4,461 6,161 316 576 1,111 282 4,739 4,000 6,923 21,249 27,561 0 0 -449 6,923 21,249 27,112 1,899 5,649 8,134 27.4 26.6 30.0 5,023 15,600 18,979 5,023 15,600 19,293 17.7 15.1 13.7

111

March 2018 Results Preview | Sector: Cement

India Cements Bloomberg

ICEM IN

Equity Shares (m)

308.2

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

47 / 1

52-Week Range (INR)

226 / 136

1,6,12 Rel Perf. (%)

0 / -22 / -18

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

50.8

51.5

57.8

65.5

EBITDA

8.6

7.1

8.9

10.3

NP

1.7

0.9

2.0

2.9

Adj. EPS (INR)

5.6

2.9

6.6

9.4

-48.5 129.3

41.8

EPS Gr. (%) BV/Sh (INR)

31.3

165.8 167.6 173.0 181.3

RoE (%)

3.4

1.7

3.9

5.3

RoCE (%)

5.1

4.4

5.5

6.6

20.7

40.1

17.5

12.3

27.2

52.9

23.0

16.3

P/BV (x)

0.9

0.9

0.9

0.8

EV/EBITDA(x)

8.9

10.8

8.5

7.1

EV/Ton (USD)

72

72

71

69

Payout (%) Valuations P/E (x)

Quarterly Performance (Standalone) Y/E March Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 2.31 10 5,173 2.5 10.7 12,025 11.9 2,014 16.7 511 825 32 710 0 710 271 38.1 440 440 -9.4 3.7

CMP: INR153

TP: INR148 (-3%)

Neutral

 India Cements’ volumes are expected increase by 9% YoY to 3.16mt in 4QFY18 due to healthy demand from the southern region. We expect realizations to decrease by 2% QoQ to INR4,365/ton due to weak prices in the underlying markets of the South. We estimate revenue at INR13.7b (+3% YoY).  EBITDA is estimated at INR1.8b. EBITDA margin is likely to contract 1.3pp YoY and 0.9pp QoQ to 12.8%, translating into blended EBITDA/ton of INR560 (-INR53 QoQ and –INR 95YoY) led by decrease in realization. PAT is expected to be INR238m in 4QFY18(v/s INR343m in 4QFY17).  The stock trades at a P/E of 23x (FY19E) and 16.3x (FY20E), EV/EBITDA of 8.5x (FY19E) and 7.1x (FY20E), and EV/ton of USD71 (FY19E) and USD69 (FY20E). Maintain Neutral.

Key issues to watch out for  Visibility on demand recovery in the South.  Demand, especially in Tamil Nadu, after resolution of sand mining ban.  Pricing outlook in South India.

FY17 2Q 3Q 2.46 2.65 14 37 5,259 4,784 -5.6 -11.6 1.7 -9.0 13,075 12,679 6.7 19.8 2,244 1,886 17.2 14.9 521 516 876 858 69 31 917 542 0 0 917 542 293 189 31.9 34.8 624 353 624 353 53.9 1,018.4 4.8 2.8

4Q 2.90 19 4,633 -0.9 -3.2 13,436 17.1 1,900 14.1 639 820 17 458 0 458 115 25.1 343 343 -19.6 2.6

1Q 2.66 15 4,857 -6.1 4.8 12,901 7.3 1,856 14.4 630 874 52 404 0 404 140 34.6 264 264 -39.9 2.0

FY18 2Q 3Q 2.70 2.73 10 3 4,696 4,450 -10.7 -7.0 -3.3 -5.2 12,683 12,131 -3.0 -4.3 1,814 1,673 14.3 13.8 632 633 886 924 66 37 362 152 0 0 362 152 125 0 34.6 0.0 237 152 237 152 -62.1 -56.9 1.9 1.3

4QE 3.16 9 4,365 -5.8 -1.9 13,784 2.6 1,770 12.8 622 919 41 271 0 271 32 11.9 238 238 -30.4 1.7

(INR Million) FY17 FY18E 11.00 27.3 4,589 -16.7

11.24 2.2 4,553 -0.8

50,795 5.6 8,610 17.0 2,571 3,605 165 2,600

51,498 1.4 7,113 13.8 2,517 3,602 196 1,189

2,600 867 33.3 1,734 1,734 31.3 3.4

1,189 297 25.0 892 892 -48.5 1.7

112

March 2018 Results Preview | Sector: Cement

Ramco Cements Bloomberg

TRCL IN

Equity Shares (m)

235.6

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

178 / 3

52-Week Range (INR)

840 / 649

1,6,12 Rel Perf. (%)

4/3/0

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

39.3

43.2

48.2

56.6

EBITDA

11.6

10.6

12.0

14.7

6.5

5.7

7.0

8.9 37.8

NP Adj. EPS (INR)

27.3

24.0

29.7

EPS Gr. (%)

24.0

-11.9

23.4

25.8

31.5

25.5

20.0

BV/Sh. (INR) RoE (%) RoCE (%) Payout (%)

27.6 157.1 178.2 203.2 236.3 19.0 14.3 15.6 17.2 14.0 11.6 13.3 15.6 12.8 19.3 15.7 12.4

Valuations P/E (x)

4.5

4.2

3.7

3.2

EV/EBITDA (x)

P/BV (x)

15.1

17.1

14.6

11.8

EV/Ton (USD)

162

170

165

144

Quarterly Performance Y/E March

Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 2.07 14.0 4,563 -11.9 -10.2 9,667 6.9 2,988 30.9 663 291 73 2,106 547 26.0 1,559 1,559 57.1 16.1

CMP: INR756

TP: INR877 (+16%)

Buy

4QFY18 volumes are estimated to grow 14% YoY to 2.6mt, with growth from underlying markets of the South and East. Average realizations are expected to decline by 1.5% QoQ to 4,539/ton due to weaker prices in the South offset by healthy prices in the East.  EBITDA margin is likely to contract 1.9pp YoY (flat QoQ) to 22%. EBITDA/ton (ex-windmill) is estimated at INR1020 ( -INR55YoY, +INR24 QoQ) due to YoY increase in cost.  PAT is estimated to increase 3% YoY to INR1.4b.  The stock trades at a P/E of 25.5x (FY19E) and 20x (FY20E), EV/EBITDA of 14.6x (FY19E) and 11.8x (FY20E), and EV/ton of USD165 (FY19E) and USD144 (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).

FY17 2Q 2.03 18.4 4,790 -1.8 5.0 10,124 15.5 3,493 34.5 667 282 93 2,637 567 21.5 2,070 2,070 45.6 20.4

3Q 1.98 21.9 4,696 -5.5 -2.0 9,374 15.3 2,690 28.7 661 261 273 2,040 542 26.6 1,498 1,498 26.6 16.0

4Q 2.28 9.8 4,450 -12.4 -5.2 10,166 5.7 2,429 23.9 664 201 154 1,718 373 21.7 1,345 1,345 -26.3 13.2

1Q 2.15 4.1 4,607 1.0 3.5 10,165 5.1 2,781 27.4 720 155 176 2,082 524 25.2 1,558 1,558 -0.1 15.3

FY18 2Q 2.15 6.3 4,783 -0.1 3.8 10,633 5.0 2,908 27.3 718 173 103 2,197 511 23.3 1,685 1,609 -22.3 15.1

(INR Million)

3Q 2.27 14.7 4,606 -1.9 -3.7 10,534 12.4 2,276 21.6 730 160 82 1,592 364 22.9 1,227 1,103 -26.4 10.5

4QE 2.60 14.1 4,539 2.0 -1.5 11,897 17.0 2,622 22.0 767 133 105 1,826 437 23.9 1,390 1,390 3.3 11.7

FY17

FY18E

8.35 16.0 4,664 -7.6

9.17 9.9 4,629 -0.8

39,292 10.7 11,561 29.4 2,655 1,035 632 8,502 2,009 23.6 6,493 6,493 25.3 16.5

43,228 10.0 10,586 24.5 2,935 621 466 7,496 1,837 24.5 5,659 5,659 -12.8 13.1

113

March 2018 Results Preview | Sector: Cement

Sanghi Industries Bloomberg

SNGI IN

Equity Shares (m)

251.0

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

31 / 0

52-Week Range (INR)

144 / 68

1,6,12 Rel Perf. (%)

6 / 9 / 61

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

10.0

10.7

13.4

15.5

EBITDA

2.0

2.5

3.4

4.1

NP

0.6

1.1

2.1

2.8

Adj. EPS (INR)

2.9

4.6

8.5

11.3

-15.7

59.3

86.0

32.5

50.6

57.3

67.0

79.8

RoE (%)

5.8

9.7

15.6

17.5

RoCE (%)

7.7

10.4

13.4

13.0

42.5

26.7

14.3

10.8

2.4

2.1

1.8

1.5

15.6

12.4

8.6

6.4

116.8 115.7 109.4

76.6

EPS Gr. (%) BV/Share (INR)

Valuation P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)

CMP: INR122

Buy

TP: INR157 (+29%)

We expect 4QFY18 cement volumes to decline by 4% YoY to 0.74mt due to lower clinker sale. Realizations are expected to increase 4% QoQ to INR4,002/ton due to strong pricing in Gujarat.  Revenue is estimated at INR2.9b (+21% YoY; +6% QoQ) and EBITDA at INR714mn (+69%YoY; +16%QoQ), translating into margin of 24% (+7pp YoY; +2pp QoQ), led by realization improvement. Adjusted PAT is likely to be INR400m (+52% YoY; +24% QoQ).  The stock trades at a P/E of 14.3x (FY19E) and 10.8x (FY20E), EV/EBITDA of 8.6x (FY19E) and 6.4x (FY20E), and EV/ton of USD109 (FY19E) and USD76 (FY20E). Maintain Buy. 

Key issues to watch out for  Volume and pricing recovery for western region.  Update on expansion projects.

Standalone - Quarterly Earning Model Y/E March Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 0.71 0.5 3,807 2.7 8.0 2,707 3.1 2,052 655 24.2 180 187 5 292 54 18.6 238 238 9,408.0 8.8

FY17 2Q 0.57 10.1 3,635 (9.3) (4.5) 2,072 -0.1 1,601 471 22.7 184 182 6 111 26 23.5 85 85 -671.1 4.1

3Q 0.84 29.9 3,239 (11.9) (10.9) 2,721 14.4 2,297 424 15.6 184 191 14 62 16 26.1 46 46 -80.4 1.7

4Q 0.78 (13.6) 3,179 (9.8) (1.9) 2,467 -22.1 2,043 423 17.2 183 82 7 166 -97 -58.4 263 263 -61.7 10.7

1Q 0.67 (6.5) 4,324 13.6 36.0 2,875 6.2 2,215 661 23.0 178 187 21 316 0 0.0 316 316 32.9 11.0

FY18 2Q 0.46 (18.5) 4,427 21.8 2.4 2,056 -0.8 1,589 467 22.7 180 189 11 109 0 0.0 109 109 28.4 5.3

(INR million) FY17 FY18E 3Q 0.73 (13.3) 3,838 18.5 (13.3) 2,796 2.8 2,178 618 22.1 181 173 57 322 0 0.0 322 322 596.7 11.5

4QE 0.74 (4.2) 4,002 25.9 4.3 2,974 20.6 2,260 714 24.0 176 156 18 400 0 0.0 400 400 52.4 13.5

2.89 38.3 3,452 (5.3)

2.60 (10.0) 4,114 19.2

9,975 30.9 7,993 1,982 19.9 731 642 22 631 0 0.0 631 631 -31.1 6.3

10,701 7.3 8,242 2,460 23.0 715 704 107 1,148 0 0.0 1,148 1,148 81.7 10.7

114

March 2018 Results Preview | Sector: Cement

Shree Cement Bloomberg

SRCM IN

Equity Shares (m)

34.8

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

579 / 9

52-Week Range (INR)

2 / -16 / -14



Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

84.3

96.0 119.5 155.1

EBITDA

23.7

24.1

29.9

40.2

NP

13.4

12.7

16.5

23.7

384.4 365.7 473.5 679.2

EPS Gr. (%) BV/Share (INR)

5.4

-4.9

29.5

43.5





2,210 2,527 2,952 3,584

RoE (%)

18.4

15.4

17.3

20.8

RoCE (%)

17.5

14.3

16.4

19.7

Payout (%)

43.8

13.2

10.2

7.1

48.7

45.5

35.1

24.5

Valuation P/E (x)



20560 / 15600

1,6,12 Rel Perf. (%)

Adj. EPS (INR)

CMP: INR16,623 TP: INR19,116(+15%)

P/BV (x)

8.5

6.6

5.6

4.6

EV/EBITDA (x)

26.3

22.7

17.9

13.5

EV/Ton (USD)

312

224

203

179

Quarterly Performance - Shree Cement (S/A) Y/E March Sales Dispat. (m ton) YoY Change (%) Realization (INR/Ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Exp Extra-Ord Expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%)

1Q 5.13 18.0 3,885 11.8 17.4 21,987 27.9 7,308 33.2 1,540 276 979 6,471 0 6,471 1,394 21.5 5,077 5,077 106.1



Buy

We expect 4QFY18 cement volumes to grow 8% YoY to 6.4mt, led by healthy growth in eastern markets. Realizations are expected to decline 1.5% QoQ to INR4,058/ton due to weak pricing in the North. Revenue is estimated at INR25.9b (+9% YoY) and EBITDA at INR6b, translating into margin of 23.2% (+1.8pp YoY; flat QoQ) due to YoY increase in realization. Merchant power sales are expected to be meaningfully lower due to a sharp decline in merchant power rates. We expect power EBITDA to be around INR86m. SRCM should report an EBITDA/ton of INR931 (-INR73 QoQ), led by weaker QoQ realization and cost push. Adjusted PAT is likely to be INR3.3b (+8% YoY). The stock trades at a P/E of 35.1x (FY19E) and 24.5x (FY20E), EV/EBITDA of 17.9x (FY19E) and 13.5x (FY20E), and EV/ton of USD203 (FY19E) and USD179 (FY20E). Maintain Buy.

 Key issues to watch out for

 Volume and pricing recovery for North India.  Update on various expansion projects.  New expansion plans.

FY17 2Q 4.57 9.2 4,064 12.3 4.6 20,519 19.9 7,013 34.2 4,322 293 782 3,180 0 3,180 265 8.3 2,915 2,915 18.3

3Q 4.91 4.5 3,699 7.2 -9.0 18,434 2.2 4,689 25.4 3,176 411 1,356 2,459 21 2,438 83 3.4 2,354 2,375 1.6

4Q 5.93 10.7 3,771 13.9 1.9 23,803 19.1 5,112 21.5 3,109 314 1,510 3,199 0 3,199 154 4.8 3,045 3,045 -51.4

1Q 5.89 14.8 4,205 8.3 11.5 25,714 17.0 7,133 27.7 2,312 329 974 5,466 0 5,466 1,065 19.5 4,401 4,401 -13.3

FY18 2Q 4.88 6.8 4,170 2.6 -0.8 21,368 4.1 5,605 26.2 2,253 380 995 3,968 0 3,968 1,850 46.6 2,118 2,118 -27.4

(INR Million)

3Q 5.33 8.5 4,120 11.4 -1.2 22,962 24.6 5,293 23.1 2,100 207 873 3,859 -403 4,262 928 21.8 3,334 2,930 23.4

4QE 6.39 7.7 4,058 7.6 -1.5 25,950 9.0 6,033 23.2 2,551 180 858 4,161 0 4,161 869 20.9 3,292 3,292 8.1

FY17

FY18E

20.54 10.5 3,825 10.7

22.48 9.5 4,135 8.1

84,292 16.5 23,672 28.1 12,147 1,294 5,077 15,308 0 15,308 1,917 12.5 13,391 13,391 5.4

95,995 13.9 24,064 25.1 9,215 1,096 3,700 17,453 0 17,453 4,712 27.0 12,741 12,741 -4.9

E:MOSL Estimates

April 2018

115

March 2018 Results Preview | Sector: Cement

UltraTech Cement Bloomberg

UTCEM IN

Equity Shares (m)

274.4

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

1084 / 17

52-Week Range (INR)

4594 / 3774

1,6,12 Rel Perf. (%)

-3 / -5 / -13

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

238.9 295.2 371.0 429.0

EBITDA

49.7

56.2

76.5

94.1

NP

26.4

21.3

34.0

45.3

Adj. EPS (INR)

96.1

EPS Gr. (%)

11.3

BV/Share (INR)

872

944 1,037 1,152

RoE (%)

11.6

8.5

RoCE (%) Payout (%)

77.5 123.7 165.0 -19.3

59.5

33.4

12.5

15.1

9.7

7.3

8.8

10.5

12.1

22.5

18.8

17.6

41.1

50.9

31.9

23.9

Valuation P/E (x) P/BV (x)

4.5

4.2

3.8

3.4

EV/EBITDA (x)

21.4

21.1

15.0

11.9

EV/Ton (USD)

247

213

188

184

Quarterly Performance Y/E March

Sales (m ton) YoY Change (%) Blended Realn.(INR/ton) * YoY Change (%) QoQ Change (%) Net Sales EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT after EO Expense Tax Rate (%) Reported PAT Adj PAT YoY Change (%)

1Q 13.19 8.6 4,723 -1.5 3.9 62,295 14,225 22.8 3,027 1,525 1,504 11,177 0 11,177 3,428 30.7 7,749 7,749 28.3

CMP: INR3,949

TP: INR4,799 (+22%)

Buy

 4QFY18 grey cement volumes are estimated at 17.8mt, including JPA’s volumes. While JPA is expected to operate at 70% utilization, standalone UTCEM volumes are expected to grow by 9% YoY. Realizations are estimated to remain flat QoQ at INR4,795/ton, as pricing improvement in Central and East India will be offset by weaker pricing in North and South India.  We estimate EBITDA/ton at INR791 (-INR10QoQ) due to flat realization and cost structure remaining flat QoQ. EBITDA margin is expected to remain stable at 16.5%.  EBITDA is estimated to increase 13% QoQ to INR14.4b, while PAT is estimated to decline 30% YoY to INR4.9b due to higher interest cost and depreciation related to JPA’s acquisition.  The stock trades at a P/E of 32x (FY19E) and 24x (FY20E), EV/EBITDA of 15x (FY19E) and 12x (FY20E), and EV/ton of USD188 (FY19E) and USD184 (FY20E). Maintain Buy. Key issues to watch out for  Volume growth recovery and outlook.  Cement pricing outlook and sustainability.  Update on JPA’s operations.

FY17 2Q 11.18 3.5 4,827 -2.9 2.2 53,966 10,938 20.3 3,139 1,367 2,335 8,767 0 8,767 2,757 31.4 6,011 6,011 31.4

3Q 11.73 2.3 4,781 -0.1 -0.9 56,091 11,135 19.9 3,156 1,293 970 7,655 0 7,655 2,021 26.4 5,634 5,634 6.7

4Q 14.07 2.7 4,689 3.2 -1.9 65,953 12,782 19.4 3,357 1,529 2,401 10,297 137 10,160 3,276 32.2 6,883 6,976 -10.7

1Q 13.19 0.0 5,025 6.4 7.2 66,265 15,601 23.5 3,098 1,285 1,652 12,870 0 12,870 3,963 30.8 8,906 8,906 14.9

FY18 2Q 13.14 17.5 5,001 3.6 -0.5 65,713 13,513 20.6 4,988 3,759 1,680 6,447 0 6,447 2,135 33.1 4,312 4,312 -28.3

(INR Million)

FY17

3Q 15.85 35.1 4,789 0.2 -4.2 75,899 12,691 16.7 4,744 3,472 518 4,993 -1,038 6,031 1,816 30.1 4,215 3,489 -38.1

FY18E 4QE 18.21 48.9 59.1 29.4 1.6 20.9 4,795 4,762 4,888 2.3 -0.8 2.6 0.1 87,300 238,914 295,177 14,396 49,690 56,201 16.5 20.8 19.0 4,742 12,679 17,572 3,379 5,714 11,895 500 6,600 4,350 6,775 37,896 31,085 0 137 -1,038 6,775 37,760 32,123 1,883 11,482 9,797 27.8 30.4 30.5 4,892 26,277 22,325 4,892 26,372 21,604 -29.9 11.3 -18.1

E: MOSL Estimates; YoY not comparable, as financials include JPA numbers for 4QFY18 and not for 4QFY17

April 2018

116

March 2018 Results Preview | April 2018

Consumer Company name Asian Paints

Volume growth recovering, ITC to drag overall numbers Rural sales likely to outpace urban sales for the third consecutive quarter

Britannia Industries Colgate

Strong performance likely from BRIT, Page, UB and Colgate

Dabur

For our Consumer Universe, we expect aggregate revenue to grow 8.2% YoY and aggregate PAT to grow 11% YoY in 4QFY18. Flat sales expected from ITC, as a result of unusually high base quarter, net sales growth of 21% in cigarettes (due to extremely low excise duty in 4QFY17), are likely to drag down overall sector sales growth, which otherwise would have been in double digits. With all three components of sales –volumes, realization and premiumization – now firing in tandem, overall sales growth, barring ITC, is on a recovery path. Aggregate EBITDA is likely to grow 10.9% YoY, with sales growth revival leading to better absorption of costs. EBITDA margin is likely to be 60bp higher YoY.

Emami Future Consumer Godrej Consumer GSK Consumer Hindustan Unilever ITC Jyothy Labs Marico Nestle India Page Industries Pidilite Industries P&GHH United Breweries United Spirits

We expect ITC’s sales to come in flat YoY (with flat cigarette volumes). Cigarette gross sales were up 6% in the base quarter, while net sales were up 21% due to very low excise. Consequently, we expect an 8% YoY decline in cigarette net sales in 4QFY18. Adj. PAT for the company is expected to grow 6.9% YoY. HUVR’s volume growth is likely to be the second highest in 10 quarters at 7%, as rural continues to do well and both CSD/wholesale seem to have normalized for them (sales growth is likely to be at 9.4%). EBITDA margin should expand 110bp YoY. Britannia, Colgate, Page Industries, United Breweries, P&G Hygiene, Asian Paints and Nestle are all likely to report double-digit sales, EBITDA and PAT growth. Best YoY growth in PAT in 4QFY18 is likely to come from Britannia, Page Industries, Pidilite, Colgate, P&G Hygiene and Healthcare and Nestle, all of which are likely to report 15% PAT growth. It is likely to be another subdued quarter on earnings growth for Dabur, Emami, Marico and GCPL.

Sharp increase in copra and mentha prices PFAD/palm oil prices declined 14.9%/21.2% YoY in 4QFY18. Ti02 price increase has stabilized (+3.0% YoY), while VAM prices have shown an uptrend. Some other commodities reported a sharp uptrend: mentha prices were up significantly by 46% YoY in 4QFY18, while copra and LLP prices rose 69% YoY and 26% YoY, respectively, in two months ended February 2018. HDPE prices increased 7% YoY.

Preference for quality and longevity of growth The consumer sector is characterized by rich near-term valuations, given the market’s continued preference for quality with healthy growth. Our framework for earnings visibility, longevity of growth and quality management drives our choices in the sector universe. We continue preferring Britannia, Hindustan Unilever, Emami, Pidilite and Colgate. Within the discretionary pack, we like Page Industries (which has demonstrated robust volume growth even in a weak environment and is poised to do better) and United Breweries (which has started reporting robust numbers again and is an extremely strong long-term earnings play). Krishnan Sambamoorthy – Research Analyst ([email protected]); +91 22 6129 1545 Vishal Punmiya – Research Analyst ([email protected]); +91 22 6129 1547 April 2018

117

March 2018 Results Preview | Consumer

Exhibit 1: Summary of expected quarterly performance Sector

Consumer Asian Paints Britannia Colgate Dabur Emami Future Consumer Godrej Consumer GSK Consumer Hind. Unilever ITC Jyothy Labs Marico Nestle P&G Hygiene Page Industries Pidilite Inds. United Breweries United Spirits Sector Aggregate

CMP (INR)

RECO

1,153 5,093 1,084 337 1,099 55 1,106 6,000 1,348 258 389 325 8,361 9,465 22,288 963 977 3,250

Neutral Buy Buy Buy Buy Buy Neutral Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Neutral

Sales (INR M) Var % Var % Mar-18 YoY QoQ

EBDITA (INR M) Var % Var % Mar-18 YoY QoQ

Net Profit (INR M) Var % Var % Mar-18 YoY QoQ

45,098 25,799 11,439 20,591 6,291 7,737 25,414 11,819 89,864 111,528 5,097 14,612 27,728 6,427 5,974 14,122 13,742 20,138 463,419

7,840 3,983 2,834 4,426 1,886 190 6,004 2,464 19,090 40,707 791 2,772 5,862 1,825 1,250 2,762 1,796 2,708 109,191

5,278 2,703 1,673 3,611 1,407 58 4,141 1,890 13,033 28,545 543 1,807 3,680 1,156 786 1,891 693 1,267 74,164

14.1 14.9 10.3 7.5 8.9 45.0 6.8 7.3 9.4 0.2 14.4 11.1 12.0 12.0 19.7 9.0 23.5 -0.6 8.2

5.9 0.8 10.7 4.7 -16.9 -1.3 -2.4 14.2 4.6 12.1 18.2 -10.0 7.1 -8.7 -3.8 -8.5 14.8 -11.0 4.1

10.1 29.3 16.0 6.0 5.9 633.1 10.9 13.5 15.6 5.0 30.4 9.8 14.7 18.7 28.3 7.1 77.6 2.2 10.9

-12.0 2.3 0.3 9.7 -28.7 15.3 4.9 20.8 13.6 4.3 14.1 -8.2 -7.4 -13.2 -3.0 -25.4 17.7 -0.5 1.6

10.0 -6.9 28.3 2.6 17.4 -1.9 8.2 8.7 -3.4 -32.3 LP LP 8.2 -4.2 7.5 15.5 16.6 8.8 6.9 1.2 -50.0 56.4 5.8 -19.0 17.7 -13.1 16.0 -11.9 17.7 -5.7 22.1 -20.2 930.3 46.4 13.3 -14.0 11.0 -0.8 Source: MOSL

Exhibit 2: 4QFY18 volume growth expectations (%) 4Q15 4.0 8.0 5.0 8.1 12.0 5.0 2.0 6.0 (12.0)

1Q16 12.0 10.0 2.0 8.1 15.0 DD 2.0 6.0 (17.0)

2Q16 7.0 12.0 3.0 5.5 13.5 MSD 0.0 7.0 (14.0)

3Q16 15.0 11.0 1.0 (2.5) 9.3 MSD 0.0 6.0 (5.0)

4Q16 13.0 10.0 3.0 7.0 18.0 MSD 0.0 4.0 0.0

1Q17 11.0 8.0 5.0 4.1 18.0 LDD (6.0) 4.0 3.0

2Q17 12.0 10.0 4.0 4.5 11.0 (MSD) (3.0) (1.0) 4.0

3Q17 2.0 2.0 (12.0) (5.0) 0.2 (8.0) (17.0) (4.0) (1.0)

4Q17 10.0 2.0 (3.0) 2.4 (1.5) 5.0 (1.0) 4.0 0.0

1Q18 4.0 2.0 (5.0) (4.4) (18.0) (9.0) 0.0 0.0 1.0

3.0 5.0 5.0 (1.0) 5.5

6.0 8.0 14.0 4.0 5.0

5.5 11.0 8.0 4.0 3.0

10.5 4.0 21.0 17.0 6.0

8.4 7.0 15.0 10.0 6.0

8.0 7.0 9.0 11.0 9.0

3.0 (6.0) 11.0 8.0 7.8

(4.0) (1.0) (12.0) 6.0 (1.5)

10.0 15.0 10.0 6.0 7.0

(9.0) (9.0) (8.0) (9.0) 0.0

3Q18 6.0 11.0 12.0 13.0 6.0 15.0 15.0 11.0 (2.0)

4Q18E 8.0 12.0 6.0 8.5 8.0 5.0 6.0 7.0 0.0

8.0 9.4 5.0 12.0 15.0 3.0 3.0 8.0 5.0 12.0 0.0 6.0 15.0 23.0 16.0 Source: Company, MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

90 Oct-17

90

MOSL Metals Index

Sep-17

100

Aug-17

95

Jul-17

110

Mar-18

100

Feb-18

120

Jan-18

105

Dec-17

Sensex Index

130

Jun-17

MOSL Metals Index

May-17

Sensex Index

110

2Q18 9.0 5.0 (0.9) 7.2 10.0 15.0 2.5 4.0 (6.0)

Exhibit 4: Relative performance – 1Yr (%)

Apr-17

Exhibit 3: Relative performance – 3m (%)

Mar-17

Quarter Ending Asian Paints (Dom Deco) Britannia (Biscuits) Colgate (Toothpaste) Dabur Emami Godrej Cons. (Soaps) GSK Consumer Hindustan Unilever ITC (cigarette) Marico Domestic Parachute Hair Oil Saffola Pidilite

Source: Bloomberg, MOSL April 2018

118

March 2018 Results Preview | Consumer

Exhibit 5: PFAD prices down 15% YoY and 2% QoQ

Exhibit 6: Palm oil prices down 21% YoY and 5% QoQ

Palm Fatty Acid price (INR/MT)

Palm Oil (Malaysian Ringgit Per Metric Tonne)

39,027

Source: Bloomberg, MOSL

Exhibit 7: Mentha prices up 46% YoY; down 5% QoQ

Mar-18

Nov-17

Jul-17

Nov-16

Mar-17

Jul-16

Mar-16

Nov-15

Jul-15

Nov-14

Mar-15

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

Mar-18

Nov-17

Jul-17

Mar-17

Nov-16

Jul-16

Mar-16

Nov-15

Jul-15

Nov-14

Mar-15

Jul-14

Nov-13

Mar-14

Jul-13

Mar-13

2,394

Source: Bloomberg, MOSL

Exhibit 8: TiO2 prices up 3% YoY and 2% QoQ TiO2 price (INR/kg)

Mentha Oil prices INR / kg

250

Source: Bloomberg, MOSL

Mar-18

Nov-17

Jul-17

Mar-17

Nov-16

Jul-16

Mar-16

Nov-15

Jul-15

Mar-15

Nov-14

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

Mar-18

Nov-17

Jul-17

Mar-17

Nov-16

Jul-16

Mar-16

Nov-15

Jul-15

Mar-15

Nov-14

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

1,430

Source: Bloomberg, MOSL

Exhibit 9: Comparative valuation Sector / Companies Consumer Asian Paints Britannia Colgate Dabur Emami Future Consumer Godrej Consumer GSK Consumer Hind. Unilever ITC Jyothy Labs Marico Nestle P&G Hygiene Page Industries Pidilite Inds. United Breweries United Spirits Sector Aggregate

April 2018

CMP (INR)

RECO

1,153 5,093 1,084 337 1,099 55 1,106 6,000 1,348 258 389 325 8,361 9,465 22,288 963 977 3,250

Neutral Buy Buy Buy Buy Buy Neutral Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Neutral

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 21.5 84.2 24.0 7.6 25.0 -0.1 21.3 161.0 24.0 9.0 8.5 6.4 140.0 142.1 297.1 17.6 14.1 32.6

25.4 105.1 28.3 9.0 31.0 0.3 24.4 183.8 28.3 10.2 10.9 7.5 159.1 171.3 415.7 20.6 17.4 56.9

30.5 53.7 45.4 131.5 60.5 48.5 33.8 45.2 38.4 10.5 44.5 37.3 36.9 43.9 35.5 1.1 -546.5 182.0 27.8 51.9 45.4 215.7 37.3 32.7 33.3 56.3 47.7 11.4 28.9 25.4 13.6 46.0 35.6 9.0 50.8 43.1 192.3 59.7 52.6 200.8 66.6 55.3 549.8 75.0 53.6 23.7 54.6 46.7 22.9 69.4 56.1 78.5 99.6 57.1 45.7 38.8

37.8 38.7 32.0 32.1 29.8 48.3 39.8 27.8 40.5 22.6 28.7 36.3 43.5 47.1 40.5 40.6 42.7 41.4 33.0

34.0 40.6 25.9 34.5 33.2 193.8 37.2 26.2 39.8 19.1 27.9 35.5 35.2 40.7 48.5 33.3 29.3 48.8 30.3

28.9 33.3 23.2 29.5 27.1 76.2 32.7 21.8 33.3 16.8 22.9 30.0 31.7 34.4 34.7 30.5 25.3 34.2 26.0

24.1 26.5 19.7 25.3 23.2 34.5 28.6 18.2 28.3 14.9 19.2 25.4 26.7 29.1 26.5 26.3 20.4 25.9 22.1

26.8 33.9 49.9 25.4 30.1 -1.8 24.0 20.7 78.2 22.8 14.3 33.1 43.4 61.2 39.9 24.2 14.9 17.2 27.1

29.4 31.6 35.8 40.1 55.5 61.9 26.7 28.6 32.6 36.2 4.9 16.6 22.8 22.7 21.6 23.0 89.6 104.1 23.8 24.8 18.5 21.8 35.8 39.3 46.2 51.8 61.8 60.8 44.6 47.7 24.5 24.7 16.2 18.3 22.3 22.4 28.9 31.1 Source: MOSL

119

March 2018 Results Preview | Consumer

Asian Paints Bloomberg

APNT IN

Equity Shares (m)

959.2

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

1106 / 17

52-Week Range (INR)

CMP: INR1,153

5 / -5 / -6

We expect revenue to grow 14% YoY to INR45.1b in 4QFY18, with 8% volume growth in the domestic decorative business.



We note that crude prices are up 24% YoY and 9% QoQ in 4QFY18. The magnitude of price movement in crude derivatives is lower vis-à-vis crude prices.



Gross margins are therefore expected to be down 60bp YoY to 43.3%.



Operating margin is likely to contract by 60bp to 17.4%, with EBITDA growing 10.1% YoY in 4QFY18.

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

152.9 168.5 200.3 235.5

Neutral



1261 / 1032

1,6,12 Rel Perf. (%)

TP: INR1,250 (+8%)

EBITDA

30.2

31.4

37.7

44.8

Adj. PAT

20.2

20.6

24.3

29.3

Adj. EPS (INR)

21.0

21.5

25.4

30.5

EPS Gr. (%)

8.7

2.1

18.2

20.2

BV/Sh.(INR)

79.3

81.2

91.3 102.0



We estimate 10% adj. PAT growth for 4QFY18.

RoE (%)

28.5

26.8

29.4

31.6



RoCE (%)

24.2

22.7

25.5

27.7

The stock trades at 45.4x/37.8x FY19E/20E EPS of INR25.4/INR30.5; maintain Neutral.

Payout (%)

37.8

46.6

51.2

55.7

54.8

53.7

45.4

37.8

Valuations P/E (x) P/BV (x)

14.5

14.2

12.6

11.3

EV/EBITDA (x)

35.6

34.5

28.6

23.9

Div. Yield (%)

0.8

1.0

1.3

1.7

Key issues to watch for  Volume growth trends and demand scenario in urban and rural geographies.  Demand outlook for industrial paints.  Outlook for raw materials/pricing actions.  Quarterly market share trend.

Quarterly Performance (Consolidated) Y/E March Dom Deco Volume Growth % Net Sales Change (%) Raw Material/PM Gross Profit Gross Margin (%) Operating Expenses % of Sales EBITDA Margin (%) Change (%) Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) PAT before Minority Adjusted PAT Change (%) E: MOSL Estimates

April 2018

1Q 11.0 35,870 7.6 18,961 16,910 47.1 8,748 24.4 8,162 22.8 20.3 63 844 719 7,973 2,593 32.5 5,381 5,506 21.4

FY17 2Q 12.0 37,095 8.0 20,637 16,458 44.4 9,404 25.4 7,054 19.0 16.0 59 833 793 6,955 2,200 31.6 4,755 4,893 21.2

3Q 2.0 38,571 0.6 21,691 16,880 43.8 9,310 24.1 7,570 19.6 -3.6 90 845 413 7,048 2,430 34.5 4,617 4,744 -9.0

4Q 10.0 39,525 7.8 22,194 17,330 43.8 10,211 25.8 7,119 18.0 2.1 90 835 701 6,895 2,205 32.0 4,690 4,796 10.1

1Q 4.0 38,152 6.4 21,812 16,340 42.8 9,686 25.4 6,654 17.4 -18.5 80 905 783 6,452 2,160 33.5 4,292 4,382 -20.4

FY18 2Q 9.0 42,652 15.0 25,042 17,610 41.3 9,599 22.5 8,011 18.8 13.6 88 889 534 7,569 2,459 32.5 5,110 5,262 7.5

3Q 6.0 42,605 10.5 24,610 17,995 42.2 9,083 21.3 8,912 20.9 17.7 92 896 497 8,420 2,913 34.6 5,507 5,672 19.6

FY17 FY18 4QE 8.0 8.8 6.8 45,098 151,060 168,508 14.1 5.8 11.5 25,576 83,483 97,041 19,522 67,578 71,467 43.3 44.7 42.4 11,681 37,673 40,050 25.9 24.9 23.8 7,840 29,905 31,417 17.4 19.8 18.6 10.1 8.0 5.1 96 302 356 960 3,357 3,651 827 2,625 2,641 7,610 28,871 30,051 2,384 9,428 9,917 31.3 32.7 33.0 5,226 19,443 20,134 5,278 20,162 20,594 10.0 8.7 2.1

120

March 2018 Results Preview | Consumer

Britannia Industries Bloomberg

BRIT IN

Equity Shares (m)

120.0

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

611 / 9

52-Week Range (INR)

CMP: INR5,093

We expect Britannia’s (BRIT) sales to grow 14.9% YoY to INR25.8b, with base business volumes growing 12% on a favorable base of 2% volume growth.



Wheat and sugar are down YoY. Gross margins are likely to expand 60bp YoY to 38.6% in 4QFY18.



We expect 170bp YoY expansion in operating margin to 15.4%. Estimate 29.3% EBITDA growth and 28.3% adj. PAT growth for the quarter.



The stock trades at 48.5x/38.7x FY19E/20E EPS of INR105.1/INR131.5; maintain Buy. Britannia is one of our top picks in the tier-II consumer space.

5 / 11 / 39

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

89.6

99.0 118.6 142.6

EBITDA

11.9

14.5

18.1

22.6

10.1

12.6

15.8

Adj. PAT Adj. EPS (INR)

8.8 73.7

EPS Gr. (%) BV/Sh.(INR)

7.3

84.2 105.1 131.5 14.3

24.8

25.1

224.7 271.7 315.8 340.3

RoE (%)

36.9

33.9

35.8

40.1

RoCE (%)

31.1

28.9

30.9

35.0

Payout (%)

32.7

35.0

50.0

70.0

69.1

60.5

48.5

38.7

P/BV (x)

22.7

18.7

16.1

15.0

EV/EBITDA (x)

51.1

41.5

33.3

26.5

Div. Yield (%)

0.5

0.6

1.0

1.8

Valuations P/E (x)

Buy



5121 / 3320

1,6,12 Rel Perf. (%)

TP: INR6,180 (+21%)

Key issues to watch for  Pace of rural recovery.  Outlook for raw materials.  Update on dairy business.

Quarterly Performance Y/E March Base business volume growth (%) Net Sales YoY Change (%) COGS Gross Profit Margins (%) Other Operating Exp % of Sales Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%)

E: MOSL Estimates

April 2018

1Q 10.0 21,063 8.5 12,879 8,184 38.9 5,367 25.5 18,246 2,817 13.4 3.5 279 15 739 3,263 1,071 32.8 2,192 13.2

FY17 2Q 10.0 23,612 11.0 14,902 8,709 36.9 5,578 23.6 20,481 3,131 13.3 2.0 289 15 670 3,496 1,156 33.1 2,340 5.8

3Q 2.0 22,648 5.6 14,190 8,458 37.3 5,487 24.2 19,678 2,970 13.1 0.9 303 11 544 3,201 997 31.1 2,204 4.6

4Q 2.0 22,444 5.2 13,915 8,528 38.0 5,448 24.3 19,363 3,081 13.7 6.1 322 13 335 3,081 973 31.6 2,108 5.9

1Q 2.0 22,248 5.6 13,873 8,375 37.6 5,479 24.6 19,352 2,896 13.0 2.8 332 13 741 3,293 1,133 34.4 2,160 -1.5

FY18 2Q 5.0 25,365 7.4 15,840 9,525 37.6 5,836 23.0 21,676 3,689 14.5 17.8 336 14 596 3,934 1,326 33.7 2,609 11.5

3Q 11.0 25,583 13.0 15,745 9,838 38.5 5,946 23.2 21,691 3,892 15.2 31.0 329 26 451 3,989 1,354 33.9 2,635 19.6

4QE 12.0 25,799 14.9 15,849 9,950 38.6 5,967 23.1 21,816 3,983 15.4 29.3 402 2 518 4,097 1,394 34.0 2,703 28.3

FY17

FY18E

6.0 89,623 7.4 55,887 33,736 37.6 21,872 24.4 77,759 11,864 13.2 -5.1 1,193 55 2,424 13,040 4,197 32.2 8,843 7.3

7.5 98,996 10.5 61,307 37,689 38.1 23,228 23.5 84,535 14,461 14.6 21.9 1,399 55 2,306 15,313 5,206 34.0 10,107 14.3

121

March 2018 Results Preview | Consumer

Colgate Bloomberg

CLGT IN

Equity Shares (m)

272.0

CMP: INR1,084 TP: INR1,420 (+31%)

Buy



We expect Colgate’s (CLGT) sales to grow 10.3% YoY to INR11.4b, with 6% toothpaste volume growth.

4 / -4 / -4



Gross margins are expected to expand by 40bp YoY to 63.0%.

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



We estimate EBITDA margin expansion of 120bp YoY to 24.8%. Hence, we have modeled EBITDA growth of 16.0% and adjusted PAT growth of 17.4% for the quarter.



The stock trades at 38.4x/32.0x FY19E/20E EPS of INR28.3/INR33.8; we have a Buy rating on the stock.

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

295 / 5

52-Week Range (INR)

1176 / 970

1,6,12 Rel Perf. (%)

Sales

39.8

42.4

48.2

55.2

EBITDA

9.4

10.9

12.4

14.4

Adj. PAT

5.8

6.5

7.7

9.2

Adj. EPS (INR)

21.2

24.0

28.3

33.8

EPS Gr. (%)

-5.7

12.9

17.9

19.7

BV/Sh.(INR)

46.8

49.3

52.6

56.8

RoE (%)

50.1

49.9

55.5

61.9

RoCE (%)

49.3

48.8

54.4

60.7

Payout (%)

48.8

70.0

70.0

70.0

P/E (x)

51.1

45.2

38.4

32.0

P/BV (x)

23.2

22.0

20.6

19.1

EV/EBITDA (x)

30.9

26.5

23.2

19.7

Div. Yield (%)

1.0

1.5

1.8

2.2

Valuation

Key issues to watch for  Volume growth in toothpaste and market share movement.  Ad spends and competitive intensity in toothpaste, especially from Patanjali.

Quarterly Performance Y/E March Toothpaste Volume Gr % Net Sales YoY Change (%) COGS Gross Profit Gross Margin (%) Other operating Expenses % to sales EBITDA Margins (%) YoY Growth (%) Depreciation Financial other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 5.0 10,131 8.8 3,822 6,309 62.3 4,197 41.4 2,113 20.9 3.7 316 101 1,897 640 33.7 1,257 1.3

FY17 2Q 4.0 10,566 9.5 3,910 6,656 63.0 3,909 37.0 2,748 26.0 8.1 333 113 2,527 714 28.3 1,813 15.6

3Q -12.0 8,746 -8.6 3,159 5,587 63.9 3,446 39.4 2,141 24.5 -10.3 342 109 1,908 630 33.0 1,278 -12.8

4Q -3.0 10,375 2.2 3,877 6,498 62.6 4,055 39.1 2,443 23.5 1.2 341 80 2,182 756 34.6 1,426 -0.5

1Q -5.0 9,781 -3.5 3,584 6,197 63.4 3,979 40.7 2,218 22.7 5.0 373 125 1,970 606 30.8 1,364 8.5

FY18 2Q -0.9 10,849 2.7 3,970 6,879 63.4 3,873 35.7 3,006 27.7 9.4 392 89 2,703 927 34.3 1,776 -2.1

3Q 12.0 10,333 18.2 3,598 6,735 65.2 3,911 37.9 2,824 27.3 31.9 396 90 2,519 812 32.3 1,707 33.5

4QE 6.0 11,439 10.3 4,228 7,211 63.0 4,377 38.3 2,834 24.8 16.0 405 110 2,539 865 34.1 1,673 17.4

FY17

FY18E

-1.5 39,818 2.9 14,768 25,050 62.9 15,606

3.0 42,402 6.5 15,379 27,023 63.7 16,140

9,444

10,882

1,332 403 8,514 2,740 32.2 5,774

1,565 413 9,730 3,211 33.0 6,519

39.2

23.7 0.7

1.2

38.1 25.7 15.2

12.9

122

March 2018 Results Preview | Consumer

Dabur Bloomberg

DABUR IN

Equity Shares (m)

1761.5

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

594 / 9

CMP: INR337

TP: INR430 (+28%)

Buy



We expect sales to grow 7.5% YoY to INR20.6b, led by 8.5% domestic organic volume growth.

6/2/9



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

We expect EBITDA margin to contract 30bp YoY to 21.5% in 4QFY18, with EBITDA growth of 6.0% YoY.



Adjusted PAT is expected to grow 8.2% YoY in the quarter.

Sales

77.0

77.7

91.0 103.9



EBITDA

15.1

15.7

18.7

21.6

Adj. PAT

12.8

13.3

15.9

18.5

The stock trades at 37.3x/32.1x FY19E/20E EPS of INR9.0/INR10.5; maintain Buy.

52-Week Range (INR)

368 / 265

1,6,12 Rel Perf. (%)

Adj. EPS (INR)

7.2

7.6

9.0

10.5

EPS Gr. (%)

1.9

4.5

19.2

16.2

BV/Sh.(INR)

27.5

32.0

35.7

37.6

RoE (%)

28.4

25.4

26.7

28.6

RoCE (%)

24.6

22.2

23.6

25.6

Payout (%)

35.0

35.0

50.0

70.0

P/E (x)

46.5

44.5

37.3

32.1

P/BV (x)

12.2

10.5

9.4

9.0

EV/EBITDA (x)

37.6

35.7

29.5

25.3

Div. Yield (%)

0.8

0.8

1.3

2.2

Valuation

Key issues to watch for  Domestic volume growth and outlook for rural demand.  Pick-up in science-based Ayurveda product launch.  Recovery in wholesale channel.  Margin performance in international business.  Competitive intensity, especially from Patanjali.

Quarterly Performance (Consolidated) Y/E March Domestic Vol Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 4.1 19,522 2.7 16,034 3,488 17.9 10.5 343 118 610 3,637 701 19.3 2,928 12.0

FY17 2Q 4.5 19,816 1.3 15,730 4,087 20.6 2.1 357 166 893 4,456 873 19.6 3,573 6.3

3Q -5.0 18,529 -5.8 15,190 3,339 18.0 -10.6 333 139 831 3,697 753 20.4 2,938 -7.5

4Q 2.4 19,147 -4.7 14,971 4,176 21.8 0.6 395 117 650 4,314 977 22.6 3,337 0.7

1Q -4.4 17,901 -8.3 14,812 3,089 17.3 -11.4 391 133 813 3,378 589 17.4 2,787 -4.8

FY18 2Q 7.2 19,589 -1.1 15,390 4,199 21.4 2.7 401 133 843 4,508 880 19.5 3,619 1.3

3Q 13.0 19,664 6.1 15,630 4,035 20.5 20.8 405 132 663 4,162 833 20.0 3,321 13.1

4QE 8.5 20,591 7.5 16,165 4,426 21.5 6.0 343 128 664 4,619 999 21.6 3,611 8.2

FY17

FY18E

2.0 77,014 -2.1 61,925 15,089 19.6 -0.6 1,429 540 2,984 16,104 3,303 20.5 12,769 2.1

6.0 77,745 0.9 61,997 15,749 20.3 4.4 1,539 526 2,984 16,667 3,300 19.8 13,338 4.5

123

March 2018 Results Preview | Consumer

Emami Bloomberg

HMN IN

Equity Shares (m)

227.0

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

249 / 4

52-Week Range (INR)

CMP: INR1,099

We project Emami’s (HMN) sales to grow ~9% YoY to INR6.3b, with ~8% domestic volume growth on a base of negative volume growth.



Gross margin is likely to remain flattish at 62.2% in 4QFY18. Mentha prices are up sharply by 48% YoY and down 5% QoQ in the quarter.



We expect EBITDA margin to contract 80bp to 30%. EBITDA is likely to grow ~6% YoY to INR1.9b.



PAT before amortization is expected to decline 3.4% YoY to INR1.4b due to a high tax rate of 15.4% (full-year tax rate taken at MAT) compared to 6.9% in the base quarter 4QFY17.



The stock trades at 35.5x/29.8x FY19E/20E EPS of INR31.0/INR36.9; maintain Buy.

4 / -5 / -7

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

24.9

25.5

30.3

34.8

7.6

7.3

9.2

10.7

6.0

5.7

7.0

8.4

26.5

25.0

31.0

36.9

EPS Gr. (%)

4.5

-5.7

23.8

19.1

BV/Sh. (INR)

77.3

89.1 101.2 102.9

RoE (%)

35.8

30.1

32.6

36.2

RoCE (%)

31.0

29.3

37.3

42.9

Payout (%)

33.0

35.2

29.0

24.9

P/E (x)

41.4

43.9

35.5

29.8

P/BV (x)

14.2

12.3

10.9

10.7

EV/EBITDA (x)

33.3

34.0

27.0

23.1

0.8

0.8

0.8

0.8

EPS (INR)

Buy



1428 / 1000

1,6,12 Rel Perf. (%)

TP: INR1,475 (+34%)

Valuations

Div. Yld (%)

Quaterly performance Y/E MARCH Domestic volume Growth (%) Net Sales YoY Change (%) COGS Gross Profit Gross margin (%) Other Expenditure % to sales EBITDA Margins (%) YoY Change Depreciation Interest Other Income PBT Tax Rate (%) PAT before Amortization YoY Change (%) Amortization Reported PAT E: MOSL Estimates

April 2018

1Q 18.0 6,454 20.1 2,287 4,167 64.6 2,695 41.8 1,473 22.8 49.2 106 125 51 1,292 117 9.1 1,175 18.0 609 567

Key issues to watch for  Volume growth and broad consumer demand across categories.  Recovery in wholesale channel.  Outlook for mentha oil prices.  Competitive intensity, especially from Patanjali.

FY17 2Q 11.0 5,728 8.0 1,848 3,880 67.7 2,128 37.1 1,752 30.6 15.1 111 160 87 1,568 230 14.7 1,336 9.6 680 661

3Q 0.2 7,138 -1.5 2,227 4,911 68.8 2,325 32.6 2,585 36.2 3.7 112 127 82 2,428 381 15.7 2,047 4.8 705 1,342

4Q -1.5 5,777 -4.4 2,184 3,594 62.2 1,812 31.4 1,781 30.8 -4.7 140 168 92 1,565 108 6.9 1,456 -6.6 623 833

1Q -18.0 5,411 -16.2 1,967 3,444 63.6 2,642 48.8 802 14.8 -45.6 153 79 65 635 28 4.4 605 -48.5 598 10

FY18 2Q 10.0 6,281 9.7 2,053 4,228 67.3 2,215 35.3 2,013 32.1 14.9 146 104 53 1,817 227 12.5 1,590 19.0 604 987

3Q 6.0 7,566 6.0 2,334 5,233 69.2 2,586 34.2 2,647 35.0 2.4 195 92 55 2,414 338 14.0 2,077 1.4 604 1,471

4QE 8.0 6,291 8.9 2,376 3,916 62.2 2,029 32.3 1,886 30.0 5.9 194 86 57 1,663 256 15.4 1,407 -3.4 593 814

FY17

FY18E

6.9 25,097 4.7 8,546 16,552 65.9 8,960 35.7 7,591 30.2 10.5 469 580 311 6,853 836 12.2 6,014 5.0 2,617 3,403

1.5 25,550 1.8 8,729 16,821 65.8 9,472 37.1 7,348 28.8 -3.2 687 362 230 6,529 849 13.0 5,680 -5.6 2,400 3,280

124

March 2018 Results Preview | Consumer

Future Consumer Bloomberg

FCON IN

Equity Shares (m)

1834.7

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

101 / 2

52-Week Range (INR)

79 / 29

CMP: INR 55

TP: INR 76 (+39%)

Buy



We expect Future Consumer’s (FCON) sales to grow 45% YoY to INR7.7b.

-6 / -15 / 69



Gross margins are expected to expand by 30bp YoY to 14.1%.

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



We estimate EBITDA margin expansion of 200bp YoY to 2.5%. Hence, we have modeled EBITDA growth of 633.1% and adjusted PAT to change from loss to profit for the quarter.



The stock trades at 2.3x/1.6x FY19E/20E EV/sales; we have a Buy rating on the stock.

1,6,12 Rel Perf. (%)

Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR)

21.2

29.7

42.6

59.9

0.1

0.6

1.4

3.1

-0.6

-0.2

0.5

1.9

-0.1

0.3

1.1

-0.4 -43.3

-72.9 -400.3 276.5

5.4

6.0

6.3

7.4

RoE (%)

-8.5

-1.8

4.9

16.6

RoCE (%)

0.2

3.3

7.3

13.9

-147.9 -546.5 182.0

48.3

Valuations P/E (x) P/BV (x) EV/Sales (x) EV/EBITDA (x)

10.2

9.2

8.7

7.4

4.5

3.2

2.3

1.6

982.4 169.6

69.2

31.3

Consolidated - Quarterly Earning Model Y/E March Sales YoY Change (%) Gross Profit Margins (%) Total Expenditure EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 4,671 35.4 662 14.2 4,663 8 -108.5 0.2 77 134 52 -151 7 -4.8 49 -207 -207 -28.7 -4.4

Key issues to watch for  If the pace of topline growth will be sustained  Extent of gross margin expansion.  Flow of gross margin expansion into EBITDA margin.

FY17 2Q 3Q 5,637 5,516 30.3 9.3 746 773 13.2 14.0 5,607 5,484 31 32 -143.0 212.6 0.5 0.6 90 89 106 121 54 65 -112 -113 0 0 0.0 0.0 50 27 -162 -140 -162 -140 -43.5 -31.0 -2.9 -2.5

4Q 5,335 27.1 738 13.8 5,309 26 -517.7 0.5 70 88 80 -52 2 -3.3 47 -101 -101 -66.0 -1.9

1Q 6,623 41.8 924 13.9 6,537 86 945.1 1.3 90 128 58 -74 0 0.0 15 -89 -89 -57.2 -1.3

FY18 2Q 7,505 33.1 1,036 13.8 7,378 128 316.7 1.7 113 121 52 -55 0 0.0 33 -88 -88 -45.6 -1.2

3Q 7,840 42.1 1,076 13.7 7,676 165 416.3 2.1 106 136 46 -31 0 0.0 16 -47 -47 -66.5 -0.6

4QE 7,737 45.0 1,093 14.1 7,547 190 633.1 2.5 61 101 141 168 0 0.0 110 58 58 LP 0.8

FY17

FY18E

21,159 24.3 2,919 13.8 21,062 97 LP 0.5 326 448 250 -427 9 -2.1 174 -610 -610 Loss -2.9

29,705 40.4 4,129 13.9 29,138 568 487.8 1.9 370 486 297 9 0 0.0 174 -165 -165 Loss -0.6

125

March 2018 Results Preview | Consumer

Godrej Consumer Bloomberg

GCPL IN

Equity Shares (m)

681.0

CMP: INR1,106

Neutral

TP: INR1,140 (+3%)



We expect Godrej Consumer’s revenue to rise 6.8% YoY to INR25.4b. Soaps volumes are likely to grow 5% YoY in 4QFY18.

5 / 9 / 19



We estimate operating margin to expand 90bp YoY to 23.6%.

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



Thus, we have modeled 10.9% EBITDA growth, and expect adj. PAT to increase by 8.2% YoY to INR4.1b YoY.



The stock trades at 45.4x/39.8x FY19E/20E EPS of INR24.4/INR27.8. We have a Neutral rating on the stock.

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

753 / 12

52-Week Range (INR)

1125 / 817

1,6,12 Rel Perf. (%)

Sales

92.4

98.1 112.5 127.1

EBITDA

18.9

20.5

23.5

26.8

Adj. PAT

12.9

14.5

16.6

18.9

Adj. EPS (INR)

18.9

21.3

24.4

27.8

EPS Gr. (%)

12.4

12.7

14.4

14.1

BV/Sh.(INR)

77.8

99.8 114.2 130.5

RoE (%)

24.6

24.0

22.8

22.7

RoCE (%)

16.8

16.5

16.3

16.8

Payout (%)

31.2

35.2

41.0

45.0

45.4

39.8

Valuations P/E (x)

58.5

51.9

P/BV (x)

14.2

11.1

9.7

8.5

EV/EBITDA (x)

41.0

37.8

32.8

28.7

Div. Yield (%)

0.5

0.7

0.9

1.1

Quarterly Performance (Consolidated) Y/E March Net Sales YoY Change (%) EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 21,144 6.5 3,806 18.0 21.6 327 326 166 3,330 770 23.1 2,561 18.3

Key issues to watch for  Competitive intensity across categories.  Outlook for international business— demand outlook in Indonesia and margin guidance for LatAm.  Currency guidance.

FY17 2Q 23,563 11.3 4,645 19.7 14.1 358 350 194 4,133 915 22.1 3,220 7.6

3Q 23,916 8.9 5,067 21.2 12.1 363 397 294 4,478 988 22.1 3,494 5.1

4Q 23,805 11.8 5,414 22.7 19.5 369 379 350 4,972 1,145 23.0 3,827 21.4

1Q 21,728 2.8 3,452 15.9 -9.3 374 397 282 2,960 634 21.4 2,327 -9.2

FY18 2Q 24,969 6.0 5,330 21.3 14.7 386 402 286 4,721 1,060 22.5 3,664 13.8

3Q 26,037 8.9 5,721 22.0 12.9 396 386 625 5,467 1,148 21.0 4,322 23.7

4QE 25,414 6.8 6,004 23.6 10.9 394 353 239 5,496 1,309 23.8 4,141 8.2

FY17

FY18E

92,428 9.7 18,932 20.5 16.5 1,416 1,452 1,004 16,912 3,818 22.6 13,103 12.6

98,148 6.2 20,508 20.9 8.3 1,549 1,538 1,432 18,853 4,152 22.0 14,662 11.9

126

March 2018 Results Preview | Consumer

GSK Consumer Bloomberg

SKB IN

Equity Shares (m)

42.1

CMP: INR6,000

TP: INR6,230 (+4%)

Neutral



We expect GSK Consumer to report net sales of INR11.8b, up 7.3% YoY, led by 6% volume growth in HFD. We note that the base is favorable for this quarter, with 1% YoY volume decline in HFD (2.3% YoY growth in sales).

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



We estimate EBITDA margin to expand 110bp YoY to 20.8%.

Sales



Thus, EBITDA and adj. PAT are expected to grow 13.5% and 7.5% YoY, respectively.



The stock trades at 32.7x/27.8x FY19E/20E EPS of INR183.8/INR215.7. We have a Neutral rating on the stock.

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

252 / 4

52-Week Range (INR)

6888 / 4856

1,6,12 Rel Perf. (%)

-10 / 13 / 4

40.1

43.2

48.5

54.8

EBITDA

8.6

8.8

10.2

12.1

Adj. PAT

6.6

6.8

7.7

9.1

Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR)

156.1 161.0 183.8 215.7 -4.5

3.1

14.1

17.4

742.5 812.2 891.8 985.2

RoE (%)

22.2

20.7

21.6

23.0

RoCE (%)

22.2

20.8

21.6

23.0

Payout (%)

44.9

45.0

45.0

45.0

38.4

37.3

32.7

27.8

8.1

7.4

6.7

6.1

EV/EBITDA (x)

25.7

25.7

21.8

18.2

Div. Yield (%)

1.2

1.2

1.4

1.6

Valuation P/E (x) P/BV (x)

Key issues to watch for  HFD volume outlook.  Outlook for category growth and raw materials.  Market share trend.  Guidance on price increases.

Quarterly Performance FY17

Y/E Mar HFD Volume Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q -6.0 9,439 -5.2 7,404 2,035 21.6 -0.6 147 6 592 2,474 868 35.1 1,606 2.9

2Q -3.0 10,803 -1.1 8,351 2,452 22.7 3.0 148 6 578 2,876 1,039 36.1 1,837 -0.1

FY18 3Q -17.0 8,604 -11.5 6,927 1,677 19.5 -9.5 171 6 559 2,059 695 33.8 1,364 -8.3

4Q -1.0 11,019 2.3 8,848 2,171 19.7 1.5 177 9 710 2,695 936 34.7 1,759 8.4

1Q 0.0 9,853 4.4 8,190 1,664 16.9 -18.3 170 5 557 2,045 723 35.3 1,322 -17.7

2Q 2.5 11,153 3.2 8,540 2,614 23.4 6.6 177 6 550 2,981 1,057 35.5 1,924 4.7

3Q 15.0 10,347 20.3 8,307 2,040 19.7 21.7 151 2 642 2,529 892 35.3 1,637 20.0

4QE 6.0 11,819 7.3 9,355 2,464 20.8 13.5 188 8 591 2,860 970 33.9 1,890 7.5

FY17

FY18E

-6.8 39,864 -3.6 31,530 8,335 20.9 -1.0 642 28 2,439 10,104 3,537 35.0 6,566 -4.5

5.5 43,173 8.3 34,391 8,781 20.3 5.4 686 20 2,340 10,415 3,642 35.0 6,773 3.1

127

March 2018 Results Preview | Consumer

Hindustan Unilever Bloomberg

HUVR IN

Equity Shares (m)

2163.9

CMP: INR1,348

Buy

TP: INR1,530 (+13%)



We expect Hindustan Unilever’s revenue to grow 9.4% YoY, with underlying domestic volume growth of 7% in 4QFY18.

4 / 8 / 35



PFAD prices are down 15% YoY (down 2% QoQ) and LAB prices are up 6.7% YoY (up 4% QoQ).

Y/E March

2017 2018E 2019E 2020E



Gross margins are likely to expand 160bp YoY to 52.6%.

Sales

313.0 337.6 387.3 439.7



We expect operating margin to expand by 110bp YoY to 21.2% in 4QFY18, leading to EBITDA growth of 15.6% YoY.



Adj. PAT is likely to grow 16.6% YoY to INR13b in the quarter. The stock trades at 47.7x/40.5x FY19E/20E EPS of INR28.3/INR33.3; maintain Buy.

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

2918 / 45

52-Week Range (INR)

1415 / 899

1,6,12 Rel Perf. (%)

Financial Snapshot (INR b)

EBITDA

60.5

71.4

85.8 100.8

Adj. PAT

42.5

51.9

61.2

72.0

Adj. EPS (INR)

19.6

24.0

28.3

33.3

EPS Gr. (%)

1.9

22.1

17.9

17.8

BV/Sh.(INR)

30.0

31.3

31.8

32.1

RoE (%)

66.5

78.2

89.6 104.1

RoCE (%)

88.5 100.7 118.6 138.7

Payout (%)

84.0

81.4

83.9

84.7

68.7

56.3

47.7

40.5

Valuations P/E (x) P/BV (x)

45.0

43.1

42.4

42.0

EV/EBITDA (x)

47.9

40.7

33.7

28.7

Div. Yield (%)

1.2

1.4

1.8

2.1



Key issues to watch for  Comments on volume growth and consumer demand environment.  Prospects of rural recovery.  Performance of Lever Ayush.

Quarterly performance Y/E March Domestic volume growth (%) Net Sales YoY Change (%) COGS Gross Profit Margin % Operating Exp % to sales EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) Reported Profit E: MOSL Estimates

April 2018

1Q 4.0 81,270 3.6 39,555 41,715 51.3 25,368 31.2 16,347 8.1 20.1 933 60 1,076 16,431 5,411 32.9 11,277 6.1 11,727

FY17 2Q -1.0 78,427 1.4 39,620 38,807 49.5 24,760 31.6 14,046 5.1 17.9 945 49 2,528 15,580 4,807 30.9 10,818 9.3 10,956

3Q -4.0 77,060 -0.7 37,440 39,620 51.4 26,060 33.8 13,560 -5.2 17.6 1,000 50 820 13,330 4,480 33.6 9,199 -10.2 10,380

4Q 4.0 82,130 6.4 40,220 41,910 51.0 25,400 30.9 16,510 12.2 20.1 1,080 60 830 16,200 4,360 26.9 11,180 7.6 11,830

1Q 0.0 85,290 4.9 40,840 44,450 52.1 25,790 30.2 18,660 14.1 21.9 1,140 60 1,130 18,590 5,630 30.3 12,920 14.6 12,830

FY18 2Q 4.0 83,090 5.9 39,290 43,800 52.7 26,980 32.5 16,820 19.7 20.2 1,150 60 2,040 17,650 5,250 29.7 12,360 14.2 12,760

3Q 11.0 85,900 11.5 39,050 46,850 54.5 30,050 35.0 16,800 23.9 19.6 1,210 50 1,520 17,060 3,590 21.0 11,980 30.2 13,260

4QE 7.0 89,864 9.4 42,556 47,308 52.6 28,218 31.4 19,090 15.6 21.2 1,111 96 850 18,732 5,699 30.4 13,033 16.6 13,033

Ind AS FY17 0.8 318,887 2.7 156,835 162,052 50.8 101,588 31.9 60,463 5.1 19.0 3,958 219 5,254 61,541 19,058 31.0 42,474 3.2 44,893

Ind AS FY18 5.5 344,144 7.9 161,736 182,408 53.0 111,038 32.3 71,370 18.0 20.7 4,611 266 5,540 72,032 20,169 28.0 51,863 22.1 51,863

128

March 2018 Results Preview | Consumer

ITC Bloomberg

ITC IN

Equity Shares (m)

12147.4

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

3139 / 48

52-Week Range (INR)

353 / 250

1,6,12 Rel Perf. (%)

0 / -7 / -20

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

396.4 403.3 455.6 510.5

EBITDA

146.0 154.8 175.8 197.9

Adj. PAT

102.0 108.7 123.6 138.9

Adj. EPS (INR)

8.4

9.0

10.2

11.4

EPS Gr. (%)

9.4

6.6

13.7

12.4

BV/Sh.(INR)

37.3

41.1

44.5

47.6

RoE (%)

23.5

22.8

23.8

24.8

RoCE (%)

22.5

22.1

23.0

24.1

Payout (%)

68.1

72.0

78.0

84.0

30.8

28.9

25.4

22.6

6.9

6.3

5.8

5.4

EV/EBITDA (x)

20.0

18.6

16.3

14.3

Div. Yield (%)

2.2

2.5

3.1

3.7

Valuations P/E (x) P/BV (x)

CMP: INR258

TP: INR275 (+6%)

Neutral



We expect net sales to be flattish YoY at INR111.5b, with cigarette volume being flat (base quarter also saw flat volume growth).



We expect cigarette EBIT to grow 2.6% YoY.



We have factored in EBITDA growth of 5% YoY to INR40.7b, with EBITDA margin expansion of ~170bp YoY to 36.5% in 4QFY18.



We expect other FMCG to post revenue growth of 7% YoY.



We estimate adj. PAT growth of 6.9% YoY to INR28.5b.



The stock trades at 25.4x/22.6x FY19E/20E EPS of INR10.2/INR11.4; maintain Neutral.

Key issues to watch for  Trends in cigarette volume.  Demand outlook for FMCG categories and segmental profitability.

Quarterly Performance Y/E March Cigarette Vol Gr (%) Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 3.0 100,540 9.8 65,278 35,262 8.4 35.1 2,613 101 4,205 36,754 12,907 35.1 23,847 10.1

FY17 2Q 4.0 96,607 9.8 60,307 36,300 7.3 37.6 2,684 107 4,754 38,262 13,262 34.7 25,000 10.5

3Q 4Q -1.0 0.0 92,484 111,255 4.3 14.0 57,020 72,502 35,464 38,754 2.1 7.5 38.3 34.8 2,665 2,418 136 -115 6,879 4,021 39,542 40,471 13,075 13,777 33.1 34.0 26,467 26,695 5.7 12.1

1Q 1.0 99,547 -1.0 62,083 37,464 6.2 37.6 2,682 104 4,768 39,446 13,841 35.1 25,605 7.4

FY18 2Q -6.0 97,639 1.1 60,024 37,615 3.6 38.5 2,824 290 4,942 39,443 13,045 33.1 26,398 5.6

FY17 FY18E 3Q 4QE -2.0 0.0 1.5 -1.8 99,522 111,528 400,887 408,236 7.6 0.2 9.6 1.8 60,477 70,821 255,106 253,404 39,045 40,707 145,780 154,831 10.1 5.0 6.3 6.2 39.2 36.5 36.4 37.9 2,908 3,293 10,380 11,707 240 190 230 824 6,269 4,028 19,859 20,007 42,167 41,252 155,030 162,307 13,969 12,707 53,021 53,561 33.1 30.8 34.2 33.0 28,198 28,545 102,009 108,746 6.5 6.9 9.5 6.6

129

March 2018 Results Preview | Consumer

Jyothy Labs Bloomberg

JYL IN

Equity Shares (m)

181.0

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

70 / 1

CMP: INR389

Neutral

TP: INR405 (+4%)



We expect Jyothy Labs’ net sales to grow 14.4% to ~INR5.1b on a base of 4.1% sales growth.

52-Week Range (INR)

441 / 325

1,6,12 Rel Perf. (%)

15 / -8 / 2



Gross margin is likely to expand 40bp YoY to 44.4%.

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



We expect EBITDA margin to grow by ~200bp YoY to 15.5%.



We have thus factored in EBITDA growth of 30.4% YoY to INR791m.



However, adj. PAT in 4QFY18 is likely to decline 50% YoY to INR543m, as there was a net tax write-back in base quarter 4QFY17.



The stock trades at 22.9x/19.3x FY19E/20E EV/EBITDA. We maintain Neutral.

Net Sales

16.8

17.3

20.5

23.9

EBITDA

2.5

2.6

3.2

3.8

Adj PAT

2.0

1.5

2.0

2.5

1.5

1.1

1.5

2.0

11.2

8.5

10.9

13.6

175.7 -24.8

29.3

24.0

Adj PAT for NCD Adj.EPS (INR) EPS Gr. (%) BV/Sh (INR)

59.9

58.1

59.9

64.3

RoE (%)

21.1

14.3

18.5

21.8

RoCE (%)

17.3

11.4

14.3

16.7

34.6

46.0

35.6

28.7

6.5

6.7

6.5

6.1

29.5

27.7

22.9

19.3

1.5

1.8

2.1

2.1

Valuations P/E (x) P/BV (x) EV/EBITDA Dividend Yield (%)

Quarterly Performance Y/E March Net Sales YoY Change (%) Total Sales COGS Gross Profit Margins (%) Total Exp EBITDA EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT after NCI YoY Change (%) E: MOSL Estimates

April 2018

1Q 4,244 5.1 4,248 2,199 2,049 48.2 1,243 807 38.8 19.0 133 143 25 555 120 21.6 445 72.6

Key issues to watch for  Update on new launches and innovations.  Pick-up in Henkel brands’ performance.

FY17 2Q 4,121 5.9 4,121 2,101 2,020 49.0 1,383 637 28.0 15.5 73 164 31 430 119 27.7 320 61.2

3Q 3,839 3.4 3,839 2,089 1,750 45.6 1,243 507 -1.3 13.2 73 144 26 314 108 34.3 215 6.6

4Q 4,457 4.1 4,462 2,502 1,960 43.9 1,354 606 -3.5 13.6 83 99 21 446 -629 -141.1 1,087 778.6

1Q 3,559 -16.1 3,567 1,728 1,840 51.6 1,403 437 -45.9 12.2 141 86 18 228 22 9.5 206 -53.6

FY18 2Q 4,299 4.3 4,299 2,229 2,070 48.1 1,361 709 11.3 16.5 74 119 39 555 98 17.7 476 48.5

3Q 4,312 12.3 4,312 2,230 2,083 48.3 1,390 693 36.8 16.1 78 120 23 517 188 36.4 347 61.5

4QE 5,097 14.4 5,109 2,842 2,266 44.4 1,476 791 30.4 15.5 92 98 43 644 100 15.6 543 -50.0

FY17

FY18E

16,662 4.6 16,671 8,891 7,779 46.7 5,223 2,557 15.1 15.3 363 551 103 1,746 -281 -16.1 2,067 164.4

17,267 3.6 17,287 9,029 8,258 47.8 5,629 2,629 2.8 15.2 384 424 123 1,944 408 21.0 1,536 -25.7

130

March 2018 Results Preview | Consumer

Marico Bloomberg

MRCO IN

Equity Shares (m)

1289.6

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

419 / 6

52-Week Range (INR)

CMP: INR325 

We expect sales to grow 11.1% YoY to INR14.6b, with 5% growth in domestic volumes.



In our opinion, Parachute, VAHO and Saffola should post 3%, 5% and 6% volume growth, respectively.



We observe that copra prices are up 69% YoY (data available till Feb’18), while kardi oil prices are up 28% YoY. We are modeling gross margin contraction of 420bp YoY to 47.4%.



EBITDA is expected to grow at 9.8% YoY, with margin contraction of 20bp YoY to 19% in 4QFY18. Adj. PAT is projected to grow by 5.8% YoY to INR1.8b.



We like MRCO’s franchise, portfolio strength, management quality and multiple growth drivers. Valuations remain fair. The stock trades at 43.1x/36.3x FY19E/20E EPS of INR7.5/INR9.0; maintain Neutral.

348 / 284

1,6,12 Rel Perf. (%)

6 / 0 / -2

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

59.2

63.0

74.0

85.4

EBITDA

11.4

11.6

13.7

16.2

Adj. PAT

8.1

8.2

9.7

11.6

Adj. EPS (INR)

6.3

6.4

7.5

9.0

EPS Gr. (%)

12.1

1.7

18.0

18.8

BV/Sh.(INR)

18.0

20.6

21.6

24.0

RoE (%)

36.7

33.1

35.8

39.3

RoCE (%)

31.5

28.3

30.7

33.6

Payout (%)

47.7

50.1

72.9

61.4

Valuations P/E (x)

51.7

50.8

43.1

36.3

P/BV (x)

18.0

15.8

15.1

13.5

EV/EBITDA (x)

36.4

35.3

30.1

25.4

Div. Yield (%)

0.9

1.0

1.7

1.7

Neutral

TP: INR350 (+8%)

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.

Quarterly Performance Y/E March Domestic volume growth (%) Net Sales YoY Change (%) COGS Gross Profit Gross margin (%) Other Expenditure % to Sales EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest Adjusted PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 8.0 17,523 0.2 8,400 9,123 52.1 5,384 30.7 3,740 21.3 18.2 208 54 275 3,753 1,072 28.6 2 2,679 17.2

FY17 2Q 3.4 14,395 -0.8 6,815 7,581 52.7 5,050 35.1 2,530 17.6 11.4 209 21 247 2,548 740 29.1 2 1,806 18.0

3Q -4.0 14,114 -7.7 6,785 7,328 51.9 4,600 32.6 2,729 19.3 -5.3 218 44 233 2,700 781 28.9 2 1,916 -6.8

4Q 10.0 13,152 2.2 6,365 6,787 51.6 4,262 32.4 2,525 19.2 20.1 273 47 293 2,497 784 31.4 4 1,709 25.5

1Q -9.0 16,815 -4.0 8,782 8,033 47.8 4,790 28.5 3,243 19.3 -13.3 211 35 229 3,226 866 26.8 1 2,359 -11.9

FY18 2Q 8.0 15,363 6.7 8,144 7,219 47.0 4,628 30.1 2,591 16.9 2.4 235 35 214 2,535 679 26.8 6 1,850 2.5

3Q 9.4 16,243 15.1 8,688 7,556 46.5 4,535 27.9 3,021 18.6 10.7 213 39 174 2,943 709 24.1 1 2,233 16.5

4QE 5.0 14,612 11.1 7,580 7,033 48.1 4,261 29.2 2,772 19.0 9.8 277 83 199 2,611 802 30.7 2 1,807 5.8

FY17

FY18E

3.6 59,180 -3.3 28,491 30,690 51.9 19,276 32.6 11,414 19.3 8.1 903 166 1,152 11,497 3,377 29.4 10 8,110 14.4

3.5 63,033 6.5 33,194 29,840 47.3 18,213 28.9 11,627 18.4 1.9 937 192 816 11,315 3,055 27.0 10 8,250 1.7

131

March 2018 Results Preview | Consumer

Nestle India Bloomberg

NEST IN

Equity Shares (m)

96.4

CMP: INR8,361

TP: INR8,275 (-1%)

Neutral



We expect Nestle India’s net sales to grow 12.0% YoY to ~INR27.7b in 1QCY18.

8 / 8 / 16



Gross margins are likely to expand 50bp YoY to 56.3%.

Financial Snapshot (INR b) Y/E December 2016 2017 2018E 2019E



We expect EBITDA margin to expand by 50bp YoY to 21.1%.



EBITDA and adj. PAT are projected to grow by 14.7% YoY (to INR5.9b) and 17.7% YoY (to INR3.7b), respectively.



The stock trades at 43.5x CY19E EPS of INR192.3; maintain Neutral.

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

806 / 12

52-Week Range (INR)

8374 / 6262

1,6,12 Rel Perf. (%)

Sales

90.8

99.5 111.7 127.3

EBITDA

19.7

21.6

24.3

28.5

Adj. PAT

11.9

13.5

15.3

18.5

Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR)

123.7 140.0 159.1 192.3 3.2

13.2

13.6

20.8

312.6 333.0 355.7 385.9

RoE (%)

40.9

43.4

46.2

51.8

RoCE (%)

42.7

44.9

47.4

52.7

Payout (%)

53.4

65.8

66.7

66.3

P/E (x)

67.6

59.7

52.6

43.5

P/BV (x)

26.7

25.1

23.5

21.7

EV/EBITDA (x)

39.7

35.6

31.5

26.5

Div. Yield (%)

0.8

1.0

1.2

1.4

Valuations

Quarterly performance Y/E December 1Q Net Sales 24,757 YoY Change (%) 8.7 COGS 10,939 Gross Profit 13,818 Margin (%) 55.8 Operating Exp 8,708 EBITDA 5,110 Margins (%) 20.6 YoY Growth (%) -7.5 Depreciation 867 Interest 228 Other income 578 PBT 4,593 Tax 1,468 Rate (%) 32.0 Adjusted PAT 3,126 YoY Change (%) 1.8 E: MOSL Estimate; Quarterly adjusted for Ind AS

April 2018

Key issues to watch for  Volume trends and management commentary on demand environment.  Further recovery in sales and market share of Maggi.  Response to new product/variant launches.  Raw material price outlook.

CY17 2Q 23,865 6.9 10,791 13,075 54.8 8,645 4,430 18.6 -6.1 854 229 569 3,915 1,408 36.0 2,507 -11.8

3Q 25,007 7.5 10,847 14,160 56.6 8,388 5,773 23.1 19.2 864 229 564 5,244 1,746 33.3 3,498 17.8

4Q 25,896 15.6 10,693 15,204 58.7 8,873 6,331 24.4 38.7 838 234 629 5,889 1,656 28.1 4,233 50.2

1QE 27,728 12.0 12,113 15,615 56.3 9,753 5,862 21.1 14.7 936 207 693 5,412 1,732 32.0 3,680 17.7

CY18 2QE 27,445 15.0 12,409 15,036 54.8 9,668 5,368 19.6 21.2 923 208 683 4,920 1,574 32.0 3,346 33.5

CY17 3QE 28,758 15.0 12,474 16,284 56.6 9,790 6,495 22.6 12.5 933 208 677 6,031 1,930 32.0 4,101 17.2

4QE 27,744 7.1 11,778 15,966 57.5 9,404 6,562 23.7 3.6 919 227 781 6,196 1,983 32.0 4,214 -0.5

CY18E

99,525 111,674 9.7 12.2 43,262 48,773 56,264 62,901 56.5 56.3 34,620 38,614 21,644 24,287 21.7 21.7 10.1 12.2 3,423 3,711 930 850 2,350 2,834 19,640 22,559 6,139 7,219 31.3 32.0 13,500 15,340 13.2 13.6

132

March 2018 Results Preview | Consumer

Page Industries Bloomberg

PAG IN

Equity Shares (m)

11.2

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

249 / 4

52-Week Range (INR)

CMP: INR22,288 TP: INR27,490 (+23%) 

We expect Page to report net sales of INR5.9b, up 19.7% YoY, led by double digit volume growth. We note that volume growth in men’s innerwear has a high base of 10.5%.



We expect EBITDA margin to grow by 140bp YoY to 20.9%. Thus, EBITDA should grow by 28.3% YoY to INR1.2b.

25779 / 13650

1,6,12 Rel Perf. (%)

Buy

4 / 16 / 41

Financial Snapshot (INR b) Y/E March 2017 2018E 2019E 2020E 21.3

25.4

32.3

41.1



Adj. PAT is likely to post 17.7% YoY growth to INR786m.

EBITDA

4.1

5.2

7.1

9.3

Adj. PAT

2.7

3.3

4.6

6.1



The stock trades at 53.6x/40.5x FY19E/20E EPS of INR415.7/INR549.8; maintain Buy.

Sales

Adj. EPS (INR)

238.7 297.1 415.7 549.8

EPS Gr. %

15.0

24.5

39.9

32.2

FCF to PAT

0.7

1.0

0.5

0.8

BV/Sh.INR

596.9 745.5 932.5 1152.5

RoE (%)

40.0

39.9

44.6

47.7

RoCE (%)

40.4

41.4

47.5

51.7

Payout (%)

43.7

50.0

55.0

60.0

P/E (x)

93.4

75.0

53.6

40.5

EV/EBITDA (x)

60.2

47.6

34.7

26.5

Valuations

Quarterly Performance Y/E MARCH Net Sales YoY Change (%) COGS Gross Profit Gross margin (%) Other Expenditure EBITDA Margins (%) YoY Change Depreciation Interest Other Income PBT Tax Rate (%) PAT YoY Change (%) E: MOSL Estimates

April 2018

27% 1Q 5,686 26.7 2,570 3,116 54.8 2,024 1,092 19.2 8.8 59 39 59 1,053 373 35.5 679 8.5

Key issues to watch for  Performance of kidswear.  Competitive intensity.  Minimum wage hike in Karnataka for textile industry.

25% FY17 2Q 5,344 14.6 2,156 3,188 59.7 2,113 1,075 20.1 6.3 60 40 62 1,037 350 33.8 687 14.0

25%

23%

3Q 5,283 19.2 2,131 3,151 59.7 2,160 991 18.8 19.6 62 45 20 904 275 30.4 629 20.9

4Q 4,989 12.8 1,766 3,223 64.6 2,249 974 19.5 5.3 65 56 103 955 287 30.1 668 17.9

1Q 6,962 22.5 3,187 3,775 54.2 2,410 1,365 19.6 25.0 67 45 40 1,294 441 34.1 853 25.5

FY18 2Q 6,257 17.1 2,651 3,606 57.6 2,321 1,284 20.5 19.5 68 36 49 1,229 389 31.6 841 22.4

3Q 6,210 17.6 2,760 3,450 55.6 2,162 1,289 20.8 30.0 70 41 53 1,231 397 32.2 834 32.6

4QE 5,974 19.7 2,452 3,521 59.0 2,271 1,250 20.9 28.3 76 43 61 1,192 406 34.0 786 17.7

FY17

FY18E

21,301 18.3 8,623 12,678 59.5 8,546 4,132 19.4 9.7 247 180 243 3,948 1,285 32.6 2,663 15.0

25,403 19.3 11,050 14,353 56.5 9,165 5,188 20.4 25.6 280 165 203 4,946 1,632 33.0 3,314 24.4

133

March 2018 Results Preview | Consumer

P&G Hygiene Bloomberg

PG IN

Equity Shares (m)

32.5

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

307 / 5

52-Week Range (INR)

9900 / 6902

1,6,12 Rel Perf. (%)

22.8

23.2

25.9

29.9

EBITDA

6.1

6.6

7.4

8.7

Adj. PAT

4.2

4.3

4.6

5.6

Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR)

22.0

2.3

6.9

We expect PGHH to report net sales of INR6.4b, up 12% YoY.



We estimate EBITDA margin to expand 160bp YoY to 28.4% in 3QFY18 (June ending).



EBITDA and adj. PAT would post 18.7% and 16% YoY growth to INR1.8b and INR1.1b, respectively, in 3QFY18 (June ending).



The stock trades at 66.6x/55.3x FY19E/20E EPS of INR142.1/INR171.3; maintain Neutral.

20.5

465.6 212.2 252.9 302.0 30.8

39.3

61.2

61.8

RoCE (%)

31.3

40.2

62.3

62.8

Valuations P/E (x)

72.8

71.2

66.6

55.3

P/BV (x)

20.3

44.6

37.4

31.3

EV/EBITDA (x)

49.0

46.2

40.8

34.4

EV/Sales (x)

13.0

13.2

11.6

10.0

Standalone - Quarterly Earning Model Y/E June

April 2018

Neutral

129.9 132.9 142.1 171.3

RoE (%)

Net Sales YoY Change (%) Total Expenditure EBITDA Growth Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

TP: INR9,672 (+2%)



3 / 7 / 22

Financial Snapshot (INR b) Y/E June 2016 2017 2018E 2019E Sales

CMP: INR9,465

1Q 6,004 11.5 4,493 1,512 55.9 25.2 127 4 225 1,605 561 34.9 1,044 1,044 50.1 17.4

Key issues to watch for  Segmental growth numbers.  Margin performance.

FY17 2Q 6,432 -2.4 4,146 2,286 5.7 35.5 132 43 208 2,320 814 35.1 1,506 1,506 2.8 23.4

3Q 5,739 5.5 4,201 1,538 15.3 26.8 142 13 232 1,614 618 38.3 996 996 2.6 17.4

4Q 5,029 -5.8 3,718 1,311 -17.7 26.1 197 44 108 1,179 398 33.8 780 780 -28.6 15.5

1Q 6,576 9.5 4,701 1,875 24.0 28.5 128 4 35 1,777 622 35.0

FY18 2Q 7,042 9.5 4,939 2,102 -8.0 29.9 135 5 71 2,033 721 35.5

3QE 6,427 12.0 4,602 1,825 18.7 28.4 157 5 75 1,738 582 33.5

4QE 5,833 16.0 4,264 1,569 19.7 26.9 157 5 85 1,492 500 33.5

1,156 10.6 17.6

1,312 -12.9 18.6

1,156 16.0 18.0

992 27.2 17.0

FY17

FY18E

23,208 2.0 16,560 6,648 9.8 28.6 561 104 726 6,709 2,388 35.6 4,320 4,320 55.8 18.6

25,880 11.5 18,509 7,370 10.9 28.5 740 41 450 7,040 2,422 34.4 4,618 4,618 6.9 17.8

134

March 2018 Results Preview | Consumer

Pidilite Industries Bloomberg

PIDI IN

Equity Shares (m)

512.7

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

CMP: INR963

494 / 8

52-Week Range (INR)

Sales

56.2

60.1

71.3

82.2

EBITDA

12.6

13.4

15.4

17.7

Adj. PAT

8.6

9.0

10.6

12.1

Adj. EPS (INR)

We expect Pidilite’s (PIDI) revenue to grow by 9% YoY, led by 16% volume growth in Consumer and Bazaar segment. Sales growth is likely to be much lower than volume growth because GST reductions have been passed on in all key segments.



EBITDA margin is expected to contract 30bp YoY to 19.6% mainly due to increase in VAM costs.



We expect EBITDA and PAT to grow by 7.1% and 22.1% YoY to INR2.7b and INR1.9b, respectively. Tax rate was unusually high at 38.5% in 4QFY17.



The stock trades at 46.7x/40.6x FY19E/20E EPS of INR20.6/INR23.7. Maintain Buy.

10 / 16 / 26

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

16.7

17.6

20.6

23.7

EPS Gr. (%)

6.7

5.4

17.0

14.9

BV/Sh.(INR)

67.7

78.2

90.0 102.0

RoE (%)

28.1

24.2

24.5

24.7

RoCE (%)

26.2

22.5

23.1

23.4

Payout (%)

24.9

25.5

36.4

42.2

P/E (x)

57.5

54.6

46.7

40.6

P/BV (x)

14.2

12.3

10.7

9.4

EV/EBITDA (x)

38.0

35.4

30.5

26.3

Div. Yield (%)

0.4

0.5

0.8

1.0

Valuations

Buy



972 / 696

1,6,12 Rel Perf. (%)

TP: INR1,115 (+16%)

Key issues to watch for  Volume growth in Fevicol.  Outlook for VAM prices.  Outlook for industrial and construction chemical segments.

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 15,694 6.8 11,754 3,939 25.1 258 35 241 3,887 1,174 30.2 2,713 16.3 17.3

FY17 2Q 3Q 14,177 13,344 7.5 -0.3 10,963 10,477 3,214 2,866 22.7 21.5 303 295 26 30 324 272 3,209 2,814 912 793 28.4 28.2 2,297 2,020 11.9 1.5 16.2 15.1

4Q 12,954 4.9 10,375 2,579 19.9 296 48 286 2,520 971 38.5 1,549 -7.5 12.0

1Q 15,203 -3.1 11,994 3,210 21.1 313 37 432 3,292 1,033 31.4 2,260 -16.7 14.9

FY18 2Q 3Q 15,299 15,429 7.9 15.6 11,538 11,727 3,761 3,703 24.6 24.0 296 292 39 41 337 195 3,763 3,564 1,245 1,193 33.1 33.5 2,518 2,370 9.6 17.3 16.5 15.4

4QE 14,122 9.0 11,360 2,762 19.6 322 42 277 2,674 783 29.3 1,891 22.1 13.4

FY17

FY18E

56,168 4.8 43,570 12,598 22.4 1,151 139 1,123 12,430 3,851 31.0 8,579 6.7 15.3

60,053 6.9 46,618 13,435 22.4 1,223 159 1,240 13,292 4,254 32.0 9,039 5.4 15.1

135

March 2018 Results Preview | Consumer

United Breweries Bloomberg

UBBL IN

Equity Shares (m)

264.4

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

258 / 4

CMP: INR977

TP: INR1,450 (+48%)

Buy



We expect United Breweries’ revenue to grow by 23.5% YoY to INR13.7b.

52-Week Range (INR)

1243 / 716

1,6,12 Rel Perf. (%)

-5 / 11 / 16



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

We build in EBITDA margin expansion of 400bp YoY to 13.1%, and 77.6% EBITDA growth YoY to INR1.8b.



We estimate 930.3% adj. PAT growth in 4QFY18.

Net Sales



The stock trades at 25.3x FY19E EV/EBITDA. Maintain Buy.

47.6

55.2

63.5

73.0

EBITDA

6.7

8.7

10.5

13.0

NP

2.3

3.7

4.6

6.0

8.7

14.1

17.4

22.9

-23.0

62.0

23.9

31.2

EPS (INR) EPS Growth (%) BV/Sh. (INR)

88.3 100.3 115.4 135.2

RoE (%)

10.2

14.9

16.2

18.3

RoCE (%)

9.1

13.1

14.5

16.3

112.5

69.4

56.1

42.7

Valuations P/E (x) P/BV (x)

11.1

9.7

8.5

7.2

EV/EBITDA (x)

39.2

30.2

25.3

20.4

5.5

4.8

4.2

3.6

EV/Sales (x)

Key issues to watch for  Trends in volume and margins.  Price trend and outlook for raw materials.  Traction on premium range of beers.

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 15,642 7.5 12,733 2,909 17.1 18.6 637 148 136 2,260 0 2,260 790 34.9 0 1,471 20.4 9.4

FY17 2Q 3Q 10,368 10,222 -3.3 -6.8 9,156 8,942 1,212 1,280 -10.3 -28.9 11.7 12.5 702 698 141 153 8 330 376 759 0 0 376 759 106 274 28.1 36.1 0 0 271 485 -48.1 -31.9 2.6 4.7

4Q 11,127 -8.4 10,116 1,011 -21.3 9.1 833 144 43 76 0 76 9 11.7 0 67 -87.1 0.6

1Q 16,742 7.0 13,559 3,184 9.4 19.0 649 142 63 2,456 0 2,456 837 34.1 0 1,619 10.1 9.7

FY18 2Q 3Q 12,764 11,971 23.1 17.1 10,545 10,445 2,219 1,526 83.1 19.3 17.4 12.7 650 650 127 93 12 8 1,454 791 0 0 1,454 791 515 317 35.4 40.1 0 0 938 474 246.9 -2.3 7.4 4.0

4QE 13,742 23.5 11,945 1,796 77.6 13.1 769 146 62 943 0 943 249 26.5 0 693 930.3 5.0

FY17 47,359 -2.1 40,947 6,412 -7.3 13.5 2,870 587 516 3,472 0 3,472 1,178 33.9 0 2,293 -23.0 4.8

FY18E 55,219 16.6 46,494 8,725 36.1 15.8 2,718 508 144 5,643 0 5,643 1,918 34.0 4 3,721 62.2 6.7

136

March 2018 Results Preview | Consumer

United Spirits Bloomberg

UNSP IN

Equity Shares (m)

145.3

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

472 / 7

52-Week Range (INR)

CMP: INR3,250

2 / 26 / 47

We expect United Spirits (UNSP) to post flattish revenue of INR20.1b, with a 9% decline in volumes.



We note that molasses prices are down sharply YoY. However, route to market changes are expected to restrict margin expansion for the second consecutive quarter.



We expect EBITDA margin expansion of 30bp YoY to 13.4% and EBITDA to grow 2.2% YoY to INR2.7b.



We estimate adj. PAT of INR1.2b in 4QFY18, up 13.3% YoY.



Maintain Neutral.

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

85.5

80.1

EBITDA

9.8

9.7

14.4

18.5

PAT

3.9

4.7

8.3

11.4

EPS (INR)

26.7

32.6

56.9

78.5

EPS Gr. (%)

87.1

22.1

74.3

38.1

BV/Sh.(INR)

95.7 112.3

133.4 189.9 254.7 350.6

RoE (%)

21.3

17.2

22.3

22.4

RoCE (%)

11.8

11.9

16.7

18.9

0.0

0.0

0.0

0.0

Payout (%) Valuations P/E (x)

Neutral



4003 / 1831

1,6,12 Rel Perf. (%)

TP: INR3,510 (+8%)

121.6

99.6

57.1

41.4

P/BV (x)

24.4

17.1

12.8

9.3

EV/EBITDA (x)

46.8

45.8

30.9

23.4

Key issues to watch for  Trends in volume growth, premiumization and margins.  Price trend and outlook for ENA/molasses.

Quarterly Performance Y/E March (Standalone) Volume Growth % Total Revenues YoY Change (%) Total Exp EBITDA Margins (%) EBITDA growth (%) Depreciation Interest PBT From operations Other income PBT Tax Rate (%) Adj. PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q -0.2 20,405 10.4 18,271 2,134 10.5 24.5 261 1,030 843 241 1,084 253 23.3 831 616.1

FY17 2Q 1.0 20,268 7.1 17,967 2,301 11.4 -20.7 332 885 1,084 339 1,423 445 31.3 978 -4.2

3Q -5.0 24,553 1.9 21,607 2,946 12.0 15.6 313 922 1,711 346 2,057 580 28.2 1,477 86.1

4Q -8.2 20,250 -0.6 17,599 2,651 13.1 142.3 418 853 1,380 253 1,633 515 31.5 1,118 237.8

1Q -18.9 17,818 -12.7 16,244 1,574 8.8 -26.2 321 703 550 309 859 222 25.8 637 -23.4

FY18 2Q -15.9 19,513 -3.7 16,786 2,727 14.0 18.5 326 659 1,742 305 2,047 681 33.3 1,366 39.6

3Q -14.2 22,633 -7.8 19,910 2,723 12.0 -7.6 337 658 1,728 236 1,964 491 25.0 1,473 -0.3

4QE -9.0 20,138 -0.6 17,430 2,708 13.4 2.2 458 600 1,650 254 1,905 638 33.5 1,267 13.3

FY17

FY18

-3.1 85,476 4.4 75,650 9,826 11.5 18.8 1,323 3,690 4,813 995 5,808 1,923 33.1 3,885 87.1

-14.4 80,102 -6.3 70,370 9,732 12.2 -1.0 1,442 2,620 5,670 1,104 6,775 2,032 30.0 4,742 22.1

137

December 2017 Preview 2018 March 2018Results Results Preview| January | April 2018

Technology Financials - Banks Company name Private Banks

Higher provisioning to remain a drag on earnings RBI’s revised asset quality framework adds another layer of uncertainty

Axis Bank DCB Bank



Equitas Holdings Federal Bank HDFC Bank ICICI Bank Kotak Mahindra Bank RBL Bank Yes Bank Public Sector Banks Bank of Baroda Bank of India



Canara Bank Indian Bank Punjab National Bank State Bank of India Union Bank of India Life Insurance HDFC Standard Life Insurance





The key factors expected to impact earnings for the quarter are: (a) tepid corporate loan growth, (b) rising bond yields impacting treasury income, (c) progress on stressed asset resolution under Insolvency and Bankruptcy Code (IBC), (d) stressed asset recognition / provisioning as per RBI’s revised asset quality framework, and, (e) incremental provisioning required for frauds uncovered at many banks. Cost of funds is expected to start increasing hereon for many banks, with deposit rates hardening. We expect trading gains to remain minimal, given increase in bond yields even though the revised government borrowing program has provided some comfort to bond yields. On a sequential basis, we expect profit growth to remain muted for state-owned banks, with elevated provisions towards NCLT exposures and fraud accounts in many banks. Even as bond yields have increased post 3QFY18 levels, MTM provisioning impact is expected to be softer during 4Q, with RBI allowing banks to spread their losses over four quarters. We expect incremental stress addition for corporate banks to remain elevated, with high credit costs weighing down on profitability. Mid-sized private banks would continue to outshine peers due to continued market share gains (loan growth of 4-5x system), stable asset quality, and stable-to-improving margins (sharp fall in bulk deposits). We expect PAT growth of ~25% YoY for IIB, YES and KMB, and over 40% YoY for RBL. We remain upbeat on the value migration from state-owned banks to private sector banks. Within private sector banks, emerging private banks are likely to be the major beneficiaries. Within state-owned banks, we like SBIN and BOB. Among private sector banks, our key picks are HDFCB, IIB, ICICIBC and RBL. Key things to watch for: (a) Banks’ commentary on admission status of the second NCLT list and any color on eventual provisions needed for the same, (b) progress in resolution of key accounts under NCLT’s first list and possible change in expected haircut with recent developments related to their resolution, (c) stake sale in non-core assets and capital raising plans, (d) any comments on pickup in corporate capex, (e) commentary by banks on frauds unfolding in the banking sector and the way ahead from here, and (f) commentary on stressed asset reporting and outlook under RBI’s revised stressed assets framework. In our view, excluding power, most of the highly-levered sector stress exposures are well communicated/recognized by banks. However, RBI’s revised stressed asset guidelines place an additional layer of difficulty for banks in terms of implementation, as large stressed standard assets may be classified as NPA subject to impairment tests

Great start to bids for key NCLT assets, legal challenges notwithstanding 

Among the bigger NCLT first list accounts, Bhushan Steel, Bhushan Power and Steel, and Essar Steel have received active interest from bidders with some of the reported bids entailing significantly lower haircuts than street expectations.

Research Analyst: Nitin Aggarwal ([email protected]); +91 22 6129 1542 | Anirvan Sarkar ([email protected]); +91 22 6129 1544 Alpesh Mehta ([email protected]); +91 22 6129 1526 | Parth Gutka ([email protected]); +91 22 6129 1567 April 2018

138

March 2018 Results Preview | Sector: Financials



While this is an encouraging start, some of the cases have seen disqualification of bidders due to legal reasons and second bids have been invited for the same. While legal hiccups are expected in a first-time phenomenon such as NCLT resolutions, the interest shown by companies in bidding for referred assets augurs well for future resolutions; however, we remain cognizant of the fact that the interest shown by bidders is a function of the quality of the underlying assets, and extrapolating the success of a few good quality asset resolutions to the larger universe of NCLT assets may be erroneous.

Loan growth picking up slowly; corporate credit pickup still some time away 





Loan growth at the system level has picked up to 10%+ after several quarters of mid-single-digit growth. However, corporate credit growth may not happen immediately. While utilization levels are expected to pick up for core sectors, companies are expected to bid for stressed asset sales under NCLT before making greenfield investments. We expect retail growth to continue showing strong traction for private banks and expect mid-sized private banks to grow at 4-5x system during the quarter. After a prolonged period of liquidity following demonetization, systemic deposit growth has finally started stabilizing, as indicated by systemic credit-deposit ratio at ~75%, the highest in seven quarters. With many banks starting to raise deposit rates, cost of funds may have bottomed out. Mid-sized state-owned banks would continue losing market share due to capitalization and asset quality issues. We expect retail-focused banks like HDFCB and KMB to also report strong growth in the corporate segment.

Cost of funds may have bottomed out – yields should follow suit 





We expect NII to be flattish QoQ (rising cost of funds combined with interest reversals) for state-owned banks. For private banks, we expect NII to grow 11% YoY (and 4% QoQ); mid-sized private banks are expected to report ~23% YoY growth. Weak loan growth would be the key reason for moderate revenue growth at the sector level. An increase in CD-ratio for most coverage banks as well as for the system over the last two quarters indicates that liquidity in the system has slowed from the highs witnessed post demonetization. Many banks have raised deposit rates as an attempt to attract more deposits, indicating a possible start of reversal of cost of funds, which has been benign so far. However, most banks have also increased MCLR in February/March; so, NIM is not likely to be impacted meaningfully.

Asset quality stress to stay elevated, RBI’s revised framework adds a level of uncertainty 

April 2018

Factors likely to continue weighing on performance include (a) accelerated resolution under the NCLT route, which would increase credit costs in the near term, (b) banks’ clean-up exercise (expect largely from restructured loans and watch list), (c) further possible slippages from RBI’s impairment test (announced under revised stressed assets framework) for existing standard stressed assets, which may be deemed non-performing.

139

March 2018 Results Preview | Sector: Financials

Performance of SME and agriculture portfolios would be the key thing to watch for, considering the lagged impact of demonetization and loan waivers/drought in some large states. Farm loan waivers in key states such as UP, Maharashtra, Karnataka and Punjab have affected asset quality in the agri segment in the previous quarters, and we await commentary on the subsequent trend in repayments. While RBI’s revised stressed assets framework is expected to address recognition and resolution irregularities and is a positive step in the longer term, in the near term, we expect uncertainty over existing stressed standard assets failing the impairment test and coming under the revised framework.





ICICIBC, HDFCB and SBIN among our top picks Delay in resolution of stressed assets, lack of growth capital and increasing competition from private banks continue to mar the performance of stateowned banks. However, with large-scale capital infusion by the government under the recapitalization program and stake sale in non-core businesses, stateowned banks should finally get back on the growth track. RBI’s revised stressed assets recognition framework and tightened supervision in the wake of frauds in the sector will yield long-term dividends. Meanwhile, mid-sized private sector banks with healthy capital position would continue reporting strong core earnings growth. We expect market share gains to accelerate for them. Our top picks are HDFCB, ICICIBC and SBIN among the large banks. We like RBL amongst the emerging names.

Exhibit 1: State-owned banks—one-year forward P/BV

Exhibit 2: Private sector banks—one-year forward P/BV

1.2

2.0

April 2018

1.3

2.6

0.9 Jun-14

0.5 Mar-13

0.5

0.7 Mar-18

Jun-14

Mar-13

Dec-11

Sep-10

Jun-09

Mar-08

0.3

Sep-15

0.7

Dec-16

0.8

3.0 1.8

Dec-11

0.9

Sep-10

1.3

Max (x) -1SD

2.6 2.2

2.8

1.7

1.8

3.5

Avg (x) +1SD

Mar-18

2.3

P/B (x) Min (x)

Dec-16

Max (x) -1SD

Sep-15

Avg (x) +1SD

Jun-09

P/B (x) Min (x)

Mar-08



140

March 2018 Results Preview | Sector: Financials

Exhibit 3: Expected quarterly performance (INR m) Sector

CMP (INR)

RECO

Sales (INR M) Mar-18 YoY % QoQ %

EBDITA (INR M) Net Profit (INR M) Mar-18 YoY % QoQ % Mar-18 YoY % QoQ %

Private Banks Axis Bank 503 Buy 48,408 2.4 2.3 39,769 -9.1 3.2 DCB Bank 168 Neutral 2,524 14.6 0.8 1,261 9.4 2.9 Equitas Holdings 148 Buy 2,994 35.2 11.7 880 85.6 111.5 Federal Bank 92 Buy 9,789 16.2 3.0 6,522 18.8 16.2 HDFC Bank 1,916 Buy 107,179 18.4 3.9 87,061 19.6 3.0 ICICI Bank 270 Buy 58,678 -1.6 2.8 85,485 67.2 69.0 IndusInd Bank 1,830 Buy 20,199 21.1 6.6 17,554 11.6 5.4 Kotak Mahindra Bank 1,103 Buy 24,821 14.8 3.7 19,946 17.2 9.6 RBL Bank 483 Buy 5,226 48.4 11.8 3,767 33.7 13.0 Yes Bank 313 Buy 20,647 25.9 9.3 21,123 24.9 5.5 Pvt Banking Sector Aggregate 300,465 11.9 4.1 283,366 24.7 18.5 PSU Banks Bank of Baroda 145 Buy 46,494 29.8 5.8 36,111 19.6 -1.1 Bank of India 108 Neutral 28,388 -18.2 13.5 16,659 -46.7 23.0 Canara Bank 269 Neutral 27,941 3.2 -24.1 20,221 -32.0 -28.6 Indian Bank 307 Buy 16,751 20.9 3.2 12,390 15.8 2.5 Punjab National Bank 96 Buy 40,506 10.0 1.6 31,700 -49.1 -25.3 State Bank 250 Buy 188,438 -10.5 0.8 140,893 -18.6 19.9 Union Bank 97 Neutral 25,276 5.9 -0.8 18,475 -13.4 11.7 PSU Banking Sector Aggregate 373,793 -2.4 -0.1 276,449 -22.9 3.5 Banking Sector Aggreagate 674,259 3.5 1.7 559,816 -4.5 10.6 Life Insurance HDFC Standard life* 494 Buy 86,948 21.1 60.4 3,085 20.0 43.0 * For HDFC life Sales represents gross premium, EBITDA represents VNB and PAT represents shareholder's profit

7,018 572 417 2,838 48,427 13,772 9,617 11,696 1,819 11,174 107,351

-42.7 8.2 504.9 10.6 21.4 -32.0 27.9 19.8 39.8 22.2 3.9

-3.4 0.3 -238.7 9.1 4.3 -16.5 2.7 11.1 10.1 3.8 1.9

1,743 12.7 55.9 -8,045 -23.1 -65.6 -7,972 -472.2 -734.0 3,300 3.2 8.8 (25,235) -1,063.6 -1,196.7 -16,518 -52.0 -31.6 -10,090 -1,032.2 -19.3 -62,818 NM NM 44,533 -35.5 -16.0 2,544

3.0

22.7

Exhibit 4: Financials – valuations 66 Rating CMP EPS (INR) FY20E (INR) FY18E FY19E FY20E Private Banks Buy 503 12.8 24.7 44.0 AXSB Neutral 168 7.1 8.9 10.9 DCBB Buy 148 1.1 7.0 10.7 EQUITAS Buy 92 5.6 6.8 8.5 FB Buy 1,916 66.8 81.8 102.3 HDFCB Buy 270 11.1 18.1 25.5 ICICIBC Neutral 49 3.0 3.2 3.8 IDFCBK Buy 1,830 60.4 78.0 100.2 IIB Buy 58 8.8 10.0 14.4 JKBK Buy 1,103 32.7 41.5 54.1 KMB Buy 483 15.4 21.8 29.3 RBK Buy 24 1.9 4.1 5.3 SIB Buy 313 18.2 23.4 30.2 YES PSU Banks BOB IN Buy 145 3.4 8.9 15.7 BOI IN Neutral 108 -18.8 6.3 12.1 CBK IN Neutral 269 -2.4 21.9 61.3 INBK IN Buy 307 30.3 41.6 47.7 PNB IN Buy 96 -5.7 0.0 14.3 SBIN IN Buy 250 2.9 18.7 34.0 UNBK IN Neutral 97 -38.8 7.6 17.1 Life Insurance HDFCLIFE** Buy 494 4.6 5.2 6.6 **RoE represents ROEV and P/BV represents P/EV

April 2018

BV (INR) RoE (%) P/E (x) P/BV (x) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 262.4 82.4 67.1 63.5 473.6 156.9 45.5 397.1 97.4 248.9 155.5 27.1 112.8

287.3 90.9 73.5 69.4 539.2 169.3 48.0 463.3 105.0 289.5 173.4 30.4 132.4

326.7 101.3 83.3 77.1 623.5 188.3 50.9 548.8 117.0 342.8 197.6 34.9 158.2

5.1 9.8 1.7 9.6 16.2 7.2 6.8 16.6 9.1 11.3 11.9 6.9 17.4

9.0 10.3 10.0 10.2 16.2 11.1 6.9 18.4 9.9 13.5 13.2 13.7 19.1

14.3 11.3 13.6 11.7 17.6 14.3 7.8 20.0 12.9 14.9 15.8 15.7 20.8

161.2 182.9 448.7 323.5 168.7 249.0 202.4

167.3 186.1 464.6 355.6 167.0 264.9 235.8

180.2 2.0 195.2 -7.7 519.8 -0.4 392.5 9.7 179.5 -3.0 294.8 -0.3 250.4 -16.0

5.0 3.0 4.1 12.3 0.0 5.7 3.4 21.1

150.7 182.6 219.6

21.7

39.5 23.6 131.8 16.5 28.7 24.2 16.2 30.3 6.6 33.7 31.4 12.6 17.1

11.4 15.5 13.9 10.7 18.7 10.6 12.7 18.3 4.0 20.4 16.5 4.5 10.4

1.9 2.0 2.2 1.4 4.0 1.7 1.1 4.6 0.6 4.4 3.1 0.9 2.8

1.8 1.9 2.0 1.3 3.6 1.6 1.0 3.9 0.6 3.8 2.8 0.8 2.4

1.5 1.7 1.8 1.2 3.1 1.4 1.0 3.3 0.5 3.2 2.4 0.7 2.0

8.4 42.6 16.3 5.5 -5.7 17.1 10.8 -111.5 12.3 12.7 10.1 7.4 7.7 -16.9 2826.4 12.5 87.6 13.4 7.0 -2.5 12.8

9.3 8.9 4.4 6.4 6.7 7.4 5.7

0.9 0.6 0.6 0.9 0.6 1.0 0.5

0.9 0.6 0.6 0.9 0.6 0.9 0.4

0.8 0.6 0.5 0.8 0.5 0.8 0.4

20.3

75.2

3.3

2.7

2.2

108.1

20.4 18.8 21.1 13.5 23.4 14.9 15.1 23.5 5.8 26.6 22.2 5.8 13.4

94.7

141

April 2018 Source: Bloomberg, MOSL Mar-18

Feb-18

Jan-18

Dec-17

90 4QFY18

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

109.7

2QFY18 4QFY18

111.6

3QFY18 108.9

106.1

108.1

105.2 1QFY18

4QFY17

3QFY17

102.1

95.4

1QFY17 2QFY17

93.3

4QFY16

3.5

83.8 4QFY18

91.3

81.0 3QFY18

3QFY16

80.1 2QFY18

91.1

76.6 1QFY18

2QFY16

78.8

4QFY17

87.1

5.7

73.5

3QFY17

1QFY16

10.7

4.7 6.0 10.2

5.1

75.7

2QFY17

85.3

9.0

72.3

1QFY17

4QFY15

10.9

72.5

4QFY16

82.8

10.6

69.9

3QFY16

3QFY15

9.1

68.1

2QFY16

82.9

9.9

66.6

1QFY16

5.9

7.4

11.1

11.2

15.2

12.0

9.1

9.3

10.2

10.6

11.0

10.7

10.8

13.1

Deposits (INR t)

Nov-17

Sensex Index

Oct-17

95 1QFY16

PSU

Sep-17

MOSL Financials Index

Aug-17

100 4QFY15

8.0

Jul-17

105 2QFY15

9.0

65.4

4QFY15

Chg YoY (%)

Jun-17

Exhibit 9: Relative performance—3 months (%)

May-17

6.0 3QFY15

6.5

Apr-17

7.5

2QFY15

Exhibit 7: 10-year G-Sec yield has been fairly volatile (%)

1QFY15

10.1

63.2

3QFY15

Exhibit 5: Loan growth picked up in 4Q

Mar-17

Mar-18

Sensex Index

11.2

11.0

62.7

2QFY15

Loans (INR t)

Feb-18

110

Jan-18

Dec-17

Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

March 2018 Results Preview | Sector: Financials

Exhibit 6: Deposit growth also has shown modest recovery Chg YoY (%)

Exhibit 8: NIMs expected to decline slightly QoQ (%) Private

3.9 4.1 4.1 4.0 4.1 4.0 4.0 4.0 4.0 3.9 3.9 4.1 4.0 3.9 3.83.7

7.0

2.9 2.9 2.8 2.8 2.7 2.7 2.5 2.6 2.6 2.6 2.4 2.7 2.3 2.4 2.5 2.3

Exhibit 10: Relative performance—1 year (%) MOSL Financials Index

143

131

119

107

95

Source: Bloomberg, MOSL

142

March 2018 Results Preview | Sector: Financials

Axis Bank Bloomberg

CMP: INR503

AXSB IN

Equity Shares (m)

2570.3

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

1294 / 20

52-Week Range (INR)

628 / 448

1,6,12 Rel Perf. (%)



-2 / -7 / -11

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%)

180.9 175.8 36.8 3.6 15.4 -55.5 226.5 203.1 6.9 0.6 32.5

187.3 159.0 31.7 3.1 12.8 -17.0 262.4 229.4 5.1 0.5 25.2

244.9 211.5 64.0 3.4 24.7 93.7 287.3 265.2 9.0 0.8 15.8

304.8 267.6 115.1 3.6 44.0 78.2 326.7 301.3 14.3 1.3 10.5

Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)

32.6 2.2 2.5 1.0

39.4 1.9 2.2 0.6

20.4 1.8 1.9 0.8

11.4 1.5 1.7 0.9

 

 

TP: INR650 (+29%)

Buy

We expect AXSB to report ~19% loan growth, driven by continued strong growth in the retail and SME segments. Overall deposit growth is likely to be ~12%, increasing the CD ratio, which should remain elevated at ~96%. Margins are expected to decline slightly QoQ to ~3.3%, as cost of funds has started reversing. Current BB and below rated book stands at INR161b (~3.8% of loans) and is expected to be mostly recognized by FY19. We expect slippages to remain at elevated levels (~5.5% annualized slippage ratio), as the bank proceeds to clean up its balance sheet, leading to high credit costs. We estimate PAT at INR7b (down 43% YoY on a high base) v/s INR7.3b in 3QFY18, weighed down by provisions. AXSB trades at 1.8x FY19E BV and 20.4x FY19E EPS. Buy.

Key issues to watch for  Quantum of corporate slippages from BB and below list, and any revision in the size of the same.

Quarterly Performance

Net Interest Income % Change (Y-o-Y) Other Income Total Income Operating Expenses Operating Profit % Change (Y-o-Y) Provisions Profit before Tax Tax Net Profit % Change (Y-o-Y) Operating Parameters Deposit (INR b) Loan (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

(INR m) 1Q 45,169 11.4 27,383 72,552 27,858 44,694 9.2 21,172 23,522 7,967 15,555 -21.4

FY17 2Q 45,139 11.1 25,397 70,535 29,534 41,002 13.0 36,227 4,774 1,584 3,191 -83.3

3Q 43,337 4.1 34,002 77,339 30,937 46,402 16.4 37,958 8,444 2,649 5,796 -73.4

4Q 47,286 3.9 30,132 77,418 33,670 43,747 -0.5 25,813 17,935 5,684 12,251 -43.1

1Q 46,161 2.2 29,998 76,160 33,248 42,912 -4.0 23,419 19,492 6,436 13,056 -16.1

FY18E 2Q 45,396 0.6 25,855 71,252 33,478 37,773 -7.9 31,404 6,369 2,045 4,324 35.5

FY17

FY18E

3Q 47,315 9.2 25,931 73,246 34,708 38,538 -16.9 28,110 10,428 3,163 7,264 25.3

4QE 48,408 2.4 27,763 76,172 36,403 39,769 -9.1 31,525 8,244 1,225 7,018 -42.7

1,80,931 7.5 1,16,913 2,97,844 1,21,999 1,75,845 9.2 1,21,170 54,676 17,883 36,793 -55.3

1,87,281 3.5 1,09,548 2,96,829 1,37,837 1,58,991 -9.6 1,14,459 44,533 12,870 31,663 -13.9

3,579 3,449 16.3 21.2

3,802 3,532 17.3 18.5

3,708 3,472 9.6 10.1

4,144 3,731 15.8 10.1

3,937 3,855 10.0 11.8

4,164 4,102 9.5 16.1

4,090 4,209 10.3 21.2

4,620 4,440 11.5 19.0

4,144 3,731 15.8 10.1

4,620 4,440 11.5 19.0

96 2.5 40 1.1 58.0

164 4.2 78 2.0 52.6

205 5.2 83 2.2 59.5

213 5.0 86 2.1 59.5

220 5.0 98 2.3 55.7

274 5.9 141 3.1 48.7

250 5.3 118 2.6 52.9

277 5.9 129 2.7 53.6

213 5.0 86.3 2.1 59.5

277 5.9 128.5 2.7 53.6

143

March 2018 Results Preview | Sector: Financials

Bank of Baroda Bloomberg

BOB IN

Equity Shares (m)

2646.4

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

384 / 6

52-Week Range (INR)

207 / 128

1,6,12 Rel Perf. (%)

7 / 0 / -27

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)

135.1 109.8 13.8 2.2 6.0 NA 151.6 111.9 4.0 0.2 27.9

161.7 129.5 8.4 2.4 3.4 -43.1 161.2 113.0 2.0 0.1 31.9

175.8 141.5 23.6 2.5 8.9 161.5 167.3 124.2 5.0 0.3 31.2

195.3 161.3 41.4 2.5 15.7 75.6 180.2 143.4 8.4 0.5 17.8

24.2 1.0 1.3 1.0

42.5 0.9 1.3 0.7

16.3 0.9 1.2 1.9

9.3 0.8 1.0 1.9

CMP: INR145

TP: INR185 (+28%)

After an uptick in loan growth in 3Q, 4QFY18 should register ~11% YoY loan growth (+6% QoQ). Balance sheet recalibration will continue, led by focus on granular retail loans. We expect drilldown in the international book to continue. We expect deposits to decline ~2% YoY (but grow 2% QoQ).  We expect margins to improve to ~2.9%, as interest income reversals continue to moderate.  We expect slippages to remain elevated (6.7% annualized). We expect absolute GNPAs to increase 6% QoQ to ~INR514b.  Fee income growth is expected to pick up, but non-interest income is expected to decline 27% YoY, as the base period had one-off treasury gains from demonetization-related inflows.  PAT is expected to be at INR1.7b v/s INR1.1b in 3QFY18, with increase in credit costs. Return ratios would still remain suboptimal. The stock trades at 0.9x FY19E BV and 16.3x FY19E EPS. Buy. Key issues to watch for  Stress addition, mainly from the international book.  Guidance on loan growth, margins and operating expenses. 

Quarterly Performance

Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Provisions Profit before Tax Tax Net Profit % Change (YoY) Cost/Income Ratio (%) Provisions/Operating Profits (%) Operating Parameters Deposit (INR b) Loan (INR b) Asset Quality Gross NPA (INR B) Gross NPA (%) Net NPA (INR B) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

1Q 33,711 -2.6 14,444 48,155 21,460 26,695 21.2 20,041 6,654 2,418 4,236 -59.7 44.6 75.1

Buy

FY17 2Q 3Q 34,261 31,344 5.6 15.9 15,614 17,750 49,875 49,093 22,973 23,141 26,902 25,952 15.1 52.3 17,958 20,795 8,944 5,157 3,422 2,630 5,521 2,527 343.5 NA 46.1 47.1 66.8 80.1

4Q 33,283 -0.1 19,773 53,056 25,390 27,666 7.5 26,230 1,436 2,425 -989 NA 47.9 94.8

1Q 34,050 1.0 15,512 49,561 23,080 26,481 -0.8 23,681 2,801 767 2,034 -52.0 46.6 89.4

FY18E 2Q 3Q 37,205 43,940 8.6 40.2 17,371 16,730 54,576 60,671 24,158 24,170 30,418 36,501 13.1 40.6 23,294 34,265 7,125 2,236 3,571 1,118 3,554 1,118 -35.6 -55.8 44.3 39.8 76.6 93.9

(INR Million) FY17 FY18E 4QE 46,494 39.7 14,376 60,871 24,760 36,111 30.5 33,579 2,531 788 1,743 -276.3 40.7 93.0

1,35,134 6.1 67,581 2,02,715 92,964 1,09,751 24.5 85,024 24,727 10,896 13,831 NA 45.9 77.5

1,61,689 19.7 63,989 2,25,678 96,167 1,29,511 18.0 1,14,818 14,693 6,244 8,448 -38.9 42.6 88.7

5,622 3,628

5,675 3,541

5,899 3,500

6,017 3,833

5,706 3,776

5,832 3,873

5,733 3,994

5,866 4,235

6,017 3,833

5,866 4,235

430 11.2 207.8 5.7 60.2

429 11.4 193.4 5.5 63.0

426 11.4 190.1 5.4 64.5

427 10.5 180.8 4.7 66.8

462 11.4 195.2 5.2 66.3

463 11.2 195.7 5.1 67.2

485 11.3 198.5 5.0 68.0

547 12.0 238.5 5.4 55.8

427 10.5 180.8 4.7 66.8

547 12.0 238.5 5.4 55.8

144

March 2018 Results Preview | Sector: Financials

Bank of India Bloomberg

BOI IN

Equity Shares (m)

2006.0

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

216 / 3

52-Week Range (INR) 1,6,12 Rel Perf. (%) Financial Snapshot (INR B) Y/E March 2017 2018E NII 118.3 107.8 OP 97.3 76.3 NP -15.6 -28.8 NIM (%) 2.1 1.8 EPS (INR) -14.8 -18.8 EPS Gr. (%) NM 27.4 ROE (%) -6.7 -7.7 ROA (%) -0.3 -0.4 BV/Sh. (INR) 224 183 ABV/Sh. (INR) 68 95 Div. Payout (%) 0.0 NM Valuations P/E(X) NM NM P/BV (X) 0.48 0.59 P/ABV (X) 1.60 1.14

CMP: INR108 

217 / 91 -3 / -28 / -34

2019E 2020E 145.8 165.0 109.1 121.7 12.7 24.3 2.2 2.3 6.3 12.1 -133.5 91.8 3.0 5.5 0.2 0.3 186 195 132 174 47.9 25.0 17.1 0.58 0.82

8.9 0.55 0.62









TP: INR112 (+4%)

Neutral

Continued asset quality strain and capital conservation efforts have led to multiple quarters of muted loan growth. We expect 4QFY18 loan growth at ~2% YoY (+6.5% QoQ). We believe deposit growth will stabilize and expect deposits to stay largely flat (up ~1% YoY). We expect NIM to pick up sequentially to 1.9%, with moderation in interest income reversals. NII is expected to decline by 18% YoY due to sluggish loan book growth and YoY decline in NIM. Non-interest income is likely to be largely flat sequentially (+1.7% QoQ) and decline sharply YoY, given that the base quarter had high treasury gains. Fee income is expected to pick up marginally. We expect stress additions to moderate sequentially, as the previous quarter had divergence-related slippages; recoveries should pick up sharply, as a bulk of the divergence-related amount has been recovered by the bank. We expect operating profit to decline sharply by 47% YoY, led by decline in other income absent treasury gains. BOI trades at 0.6x FY19E BV and 17.1x FY19E EPS. Neutral.

Key issues to watch for  Stress addition trends and outlook for FY18.  Upgrade/recovery trends.  Outlook on balance sheet growth and further capital infusion.

Quarterly Performance

Net Interest Income % Change (Y-o-Y) Other Income Total Income Operating Expenses Operating Profit % Change (Y-o-Y) Provisions Profit before Tax Tax Net Profit % Change (Y-o-Y) Operating Parameters Deposit Growth (%) Loan Growth (%) Deposit (INR b) Loan (INR b) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

(INR m) 1Q 27,752 -4.7 12,384 40,136 23,597 16,539 -3.0 27,702 -11,163 -3,750 -7,414 NM

FY17 2Q 3Q 27,197 28,626 -9.9 5.7 20,106 17,693 47,304 46,319 22,375 21,734 24,928 24,584 70.9 74.5 22,962 23,026 1,966 1,559 698 542 1,268 1,017 NM NM

4Q 34,686 8.8 17,540 52,226 20,951 31,275 113.6 47,362 -16,087 -5,632 -10,455 NM

1Q 25,330 -8.7 16,110 41,440 17,646 23,794 43.9 22,453 1,342 464 877 NM

FY18E 2Q 3Q 29,082 25,012 6.9 -12.6 17,064 10,412 46,146 35,424 23,816 21,881 22,331 13,543 -10.4 -44.9 19,533 48,997 2,798 -35,454 1,007 -12,042 1,791 -23,412 41.2 -2,401.8

FY17

FY18E

4QE 28,388 -18.2 10,593 38,981 22,322 16,659 -46.7 23,684 -7,024 1,020 -8,045 NM

1,18,261 0.9 67,723 1,85,984 88,658 97,326 61.3 1,21,052 -23,726 -8,142 -15,584 NM

1,07,813 -8.8 54,179 1,61,991 85,664 76,327 -21.6 1,14,667 -38,339 -9,550 -28,789 NM

-2.0 -5.2 4,980 3,639

-3.8 -4.8 5,053 3,633

2.6 -5.4 5,426 3,602

5.3 2.0 5,400 3,665

9.2 0.0 5,437 3,640

7.6 0.3 5,437 3,645

-3.1 -2.6 5,260 3,509

1.0 2.0 5,454 3,738

5.3 2.0 5,400 3,665

1.0 2.0 5,454 3,738

518.7 13.4 282.6 7.8 45.5

522.6 13.5 274.7 7.6 47.4

517.8 13.4 255.3 7.1 50.7

520.4 13.2 253.1 6.9 51.4

510.2 13.1 243.7 6.7 52.2

493.1 12.6 235.7 6.5 52.2

642.5 16.9 361.2 10.3 43.8

610.5 15.7 292.0 7.8 52.2

520.4 13.2 253.1 6.9 51.4

610.5 15.7 292.0 7.8 52.2 145

March 2018 Results Preview | Sector: Financials

Canara Bank Bloomberg

CBK IN

Equity Shares (m)

727.0

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

196 / 3

52-Week Range (INR)

CMP: INR269 

463 / 225

1,6,12 Rel Perf. (%)

-5 / -19 / -23



Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) Valuations P/E (x) P/BV (x) P/ABV (x) Div. Yield (%)

98.7 119.7 139.1 161.3 89.1 98.1 117.0 139.6 11.2 (1.6) 15.9 44.6 1.9 2.1 2.2 2.3 18.8 (2.4) 21.9 61.3 NM NM NM NM 471 448.7 464.6 519.8 234 269.2 314.4 403.2 4.2 (0.4) 4.1 10.8 0.2 (0.0) 0.2 0.6 6.4 NM 27.5 9.8 14.3 0.6 1.15 0.4

NM 0.6 1.0 2.0

12.3 0.6 0.9 2.2

4.4 0.5 0.7 2.2



 

TP: INR280 (+4%)

Neutral

We expect slippages to remain elevated. Continued fresh slippages and ageing of NPLs are expected to keep credit costs high (we factor in ~3.1% credit costs in 4QFY18). We expect loan growth to pick up to 11% YoY (+2% QoQ) v/s 13% YoY (+4% QoQ) in 3QFY18. Deposit growth is expected to be ~2% QoQ. We expect NIM to decline ~80bp QoQ to 2.1% (3QFY18 NIM had a 55bp contribution from interest on IT refund). Overall NII should grow ~3% YoY due to sluggish advances growth (1.7% YoY). Non-interest income is expected to decline sharply YoY, as the base quarter had high treasury gains post demonetization. We expect a loss of ~INR8.90, (v/s profit of INR1.3b in 3QFY18, which included INR7b of interest income on IT refund). The bank trades at 0.6x FY19E BV and 12.3x FY19E EPS. Maintain Neutral.

Key issues to watch for  Quantum of loans rescheduled under 5:25, SDR and S4A.  Outlook on balance sheet growth.

Quarterly Performance

Net Interest Income % Change (Y-o-Y) Other Income Total Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Net Profit % Change (Y-o-Y) Operating Parameters Deposit (INR b) Loan ( (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR b) Net NPA (INR b) Gross NPA (%) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

1Q 23,074 -8.3 15,847 38,921 20,732 18,189 -9.2 14,929 3,260 970 2,290 -52.2

FY17 2Q 24,424 -7.7 17,818 42,241 20,834 21,408 10.1 15,857 5,550 1,981 3,569 -32.5

3Q 24,138 8.4 17,917 42,055 22,242 19,813 27.6 14,846 4,968 1,749 3,219 278.8

4Q 27,082 14.1 23,963 51,045 21,316 29,729 80.6 27,087 2,642 500 2,142 NA

1Q 27,132 17.6 21,085 48,218 23,494 24,724 35.9 22,038 2,686 170 2,516 9.9

4,653 3,213 -1.4 -0.9

4,843 3,271 -0.2 1.3

5,103 3,316 4.0 -0.1

4,953 3,420 3.2 5.3

4,859 3,428 4.4 8.4

323.3 214.9 9.7 6.7 50.8

333.2 218.9 9.8 6.7 51.8

343.4 223.0 10.0 6.7 52.5

342.0 216.5 9.6 6.3 55.6

376.6 243.0 10.6 7.1 54.5

FY17

(INR m) FY18E

3Q 36,791 52.4 15,665 52,456 24,142 28,314 42.9 26,736 1,577 320 1,257 -60.9

4QE 27,941 98,718 3.2 1.1 16,411 75,544 44,352 1,74,262 24,131 85,123 20,221 89,140 -32.0 24.7 29,073 72,720 -8,853 16,420 -880 5,200 -7,972 11,220 -472.2 -139.9

1,19,698 21.3 72,522 1,92,221 94,164 98,056 10.0 99,414 -1,357 240 -1,597 -114.2

4,964 3,583 2.5 9.5

5,039 3,731 -1.3 12.5

5,126 4,953 3,796 3,420 3.5 3.2 11.0 5.3

5,126 3,796 3.5 11.0

391.6 251.7 10.5 7.0 54.8

403.1 253.0 10.4 6.8 55.8

443.4 288.4 11.7 7.6 35.0

443.4 288.4 11.7 7.6 35.0

FY18E 2Q 27,834 14.0 19,362 47,196 22,397 24,798 15.8 21,566 3,232 630 2,602 -27.1

342.0 216.5 9.6 6.3 36.7

146

March 2018 Results Preview | Sector: Financials

DCB Bank Bloomberg

DCBB IN

Equity Shares (m)

307.1

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

52 / 1

52-Week Range (INR)

213 / 155

1,6,12 Rel Perf. (%)

6 / -14 / -13

Financial Snapshot (INR B) Y/E MARCH 2017 2018E 2019E 2020E NII OP NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoA (%) Valuations P/E (x) P/BV (x)

8.0 4.2 2.0 7.0 2.3 68.2 10.8 0.9

9.8 5.1 2.4 7.8 10.9 83.1 10.6 0.9

11.6 13.4 6.2 7.2 2.9 3.3 9.4 10.9 21.4 15.2 92.0 102.4 10.8 11.2 0.9 0.9

24.0 2.5

21.7 2.0

17.9 1.8

15.5 1.6

CMP: INR168

TP: INR175 (+4%)

Neutral

Loan growth (23% YoY) and deposit growth (21% YoY) are expected to be significantly above industry average. Growth will be driven by retail; management intends to curb corporate growth below 20%.  Non-interest income is expected to grow ~15% YoY. While fee income is expected to remain healthy, trading gains should moderate, as 4QFY17 had one-off treasury gains from demonetization-related liquidity.  Overall, we expect PPP growth to increase ~9% YoY. We model opex growth of 19% 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 1.3% slippage ratio). We expect PBT growth to increase 6% YoY.  DCBB trades at 1.8x FY19E BV and 17.9x FY19E EPS. 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. 

(INR m)

Quarterly Performance

Net Interest Income % Change (Y-o-Y) Other Income Total Income Operating Expenses Operating Profit % Change (Y-o-Y) Core Operating Profit Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters Deposit (INR b) Loan (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INRb) Gross NPA (%) Net NPA (INRb) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

1Q 1,770 26.1 601 2,372 1,444 927 3.4 755 205 722 252 470 0.3

FY17 2Q 1,903 26.9 616 2,519 1,511 1,009 29.2 893 265 744 259 485 31.3

1Q 2,332 31.7 858 3,189 1,825 1,364 47.1 1,364 355 1,009 357 652 38.7

FY18E 2Q 2,481 30.4 653 3,134 1,890 1,244 23.4 1,244 302 942 353 589 21.5

3Q 2,095 30.5 641 2,736 1,643 1,093 29.7 968 305 787 274 513 24.5

4Q 2,203 30.6 636 2,839 1,685 1,153 18.9 1,112 339 814 286 529 -24.0

3Q 2,505 19.6 749 3,254 2,029 1,225 12.2 1,225 343 883 313 570 11.1

156.8 133.4 18.2 27.9

176.8 144.4 30.4 29.1

188.4 145.8 33.8 24.3

192.9 158.2 29.2 22.4

191.5 162.7 22.2 22.0

205.7 174.0 16.3 20.5

2.3 1.7 1.2 0.9 50.0

2.6 1.8 1.2 0.8 52.7

2.3 1.6 1.1 0.7 52.6

2.5 1.6 1.2 0.8 51.1

2.9 1.7 1.5 0.9 47.7

3.2 1.8 1.6 0.9 50.3

FY17

FY18E

4QE 2,524 14.6 734 3,258 1,996 1,261 9.4 1,261 397 864 292 572 8.2

7,971 28.7 2,495 10,465 6,283 4,182 19.8 3,630 1,115 3,067 1,070 1,997 2.6

9,841 23.5 2,993 12,835 7,740 5,095 21.8 4,439 1,397 3,698 1,315 2,383 19.4

213.0 186.0 13.0 27.5

233.4 194.6 21.0 23.0

192.9 158.2 29.2 22.4

233.4 194.6 21.0 23.0

3.5 1.9 1.6 0.9 54.4

3.7 1.9 1.8 0.9 51.0

2.5 1.6 1.2 0.8 51.1

3.7 1.9 1.8 0.9 51.0

147

March 2018 Results Preview | Sector: Financials

Equitas Holdings Bloomberg

EQUITAS IN

Equity Shares (m)

337.8

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

50 / 1

52-Week Range (INR)

184 / 130

1,6,12 Rel Perf. (%)

4 / -8 / -25

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoA (%) Valuations P/E(X) P/BV (X)

8.7 3.7 1.7 5.6 -9.5 66 9.6 2.2

10.4 12.7 2.4 4.6 0.4 2.4 1.1 7.0 -79.9 526.1 67 74 1.7 10.0 0.4 1.7

26.4 131.4 2.2 2.2

21.0 2.0

15.4 6.8 3.6 10.7 51.2 83 13.6 1.9 13.9 1.8

Quarterly Performance Y/E March

Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit Core Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposits (INR b) Loans (INR b) AUM Growth (%) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR B) Net NPA (INR B) Gross NPA (%) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

1Q 2,043 62.1 230 2,273 1,133 1,140 1,140 51.6 176 964 352 612 61.1

CMP: INR148

TP: 185 (+25%)

Buy

We expect NII growth of 35% YoY due to (a) pickup in loan growth, as MFI book reduction targets have been largely met, and (b) recalibration in the liability side (sufficient availability of funds). AUM growth is expected to be ~10% YoY, as securitized portfolio continues to be run down.  NIM is expected to expand ~100bp QoQ, with quick-paced deposit accretion.  Opex is expected to grow by ~23% YoY (v/s 36% 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. We factor in provisions of INR273m during the quarter, a sharp decline from INR860m in the last quarter, as the company has completely provided on MFI NPAs.  The stock trades at 2x FY19E BV. Maintain Buy. Key issues to watch for  Update on the transition progress.  Commentary on growth and asset quality in MFI. 

FY17 2Q 2,006 34.7 287 2,293 1,408 885 885 18.0 149 736 273 463 17.5

3Q 2,706 73.8 2 2,708 1,663 1,045 1,045 27.9 340 705 256 449 4.2

4Q 2,214 29.9 205 2,419 1,945 474 474 -45.8 365 109 40 69 -85.3

1Q 2,160 5.7 820 2,980 2,286 694 694 -39.1 441 253 98 155 -74.7

FY18E 2Q 3Q 2,588 2,681 29.0 -0.9 49 50 2,637 2,731 2,192 2,315 445 416 445 416 -49.7 -60.2 271 869 174 -453 65 -152 109 -301 -76.5 -167.0

INR million

FY17

FY18E

4QE 2,994 35.2 284 3,278 2,398 880 880 85.6 273 607 189 417 504.9

8,667 44.2 1,140 9,807 6,150 3,657 3,391 14.5 1,029 2,628 922 1,706 2.0

10,423 20.3 1,203 11,626 9,191 2,435 2,169 -33.4 1,854 581 200 380 -77.7

0 57 47.9 NM 42.2

0 57 44.7 NM 26.5

8 59 30.4 NM 17.4

19 58 17.1 NM 15.1

23 61 7.3 NM 6.9

31 64 3.5 NM 13.6

37 72 7.5 386.7 22.2

39 73 10.3 104.5 25.9

19 58 17.1 0.0 15.0

39 73 10.3 104.5 26.0

918 652 1.6 1.1 29.0

1,437 850 2.5 1.2 40.8

1,450 790 2.5 0.8 45.5

2,060 1,050 3.5 1.5 49.0

3,000 1,630 4.9 3.0 45.7

3,702 1,988 5.8 3.2 46.3

3,560 1,160 5.0 1.6 67.4

3,750 1,313 5.0 1.8 65.1

2,060 1,050 3.5 1.8 49.0

3,758 1,312 5.1 1.8 65.1

148

March 2018 Results Preview | Sector: Financials

Federal Bank Bloomberg

FB IN

Equity Shares (m)

1938.6

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

177 / 3

52-Week Range (INR) 1,6,12 Rel Perf. (%) Financial Snapshot (INR B) Y/E Mar 2017 2018E NII 30.5 36.3 OP 19.2 23.5 NP 8.3 10.2 NIM (%) 3.3 3.2 EPS (INR) 4.8 5.6 EPS Gr. (%) 74.1 15.3 BV/Sh. (INR) 50.8 63.5 ABV/Sh. (INR) 47.2 56.8 ROE (%) 9.9 9.6 ROA (%) 0.8 0.8 Payout (%) 26.1 14.3 Valuations P/E(X) 19.1 16.6 P/BV (X) 1.8 1.4 P/ABV (X) 1.9 1.6 Div. Yield (%) 1.2 0.9

CMP: INR92 

128 / 88 -1 / -25 / -10 2019E 43.9 29.0 13.1 3.2 6.8 22.0 69.4 62.4 10.2 0.9 12.4

2020E 52.6 35.1 16.5 3.2 8.5 25.9 77.1 69.3 11.7 0.9 9.9

13.6 1.3 1.5 0.9

10.8 1.2 1.3 0.9

  



TP: INR124 (+35%)

Buy

We expect FB to report ~22% YoY (5% QoQ) loan growth, aided by renewed focus on corporate growth. Traction in SME and retail loans would be maintained. We expect NIM to stay flat QoQ, as any pressure in yields should be supported by benign cost of funds. Other income is likely to grow at 4% YoY, with moderation in treasury gains partly offset by healthy fee income. Overall PPoP growth is expected to be ~19% YoY, led by strong revenue growth and controlled opex (+8% YoY). We expect slippages to moderate during the quarter as the previous quarter had education loan waiver-related slippages of INR710m. GNPA is expected to decline marginally to 2.4%. We expect PAT of INR2.8b v/s INR2.6b in 4QFY17 and ~INR2.6b in 3QFY18. FB trades at 1.3x FY19E BV and 13.6x FY19E EPS. Buy.

Key issues to watch for  Outlook on asset quality.  Strategy on balance sheet growth, particularly corporate growth.

Quarterly Performance

Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposit (INR b) Loan (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

(INR m) 1Q 6,927 14.5 2,370 9,297 5,039 4,259 16.0 1,685 2,574 901 1,673 18.3

FY17 2Q 3Q 7,262 7,914 19.4 30.7 2,616 2,747 9,878 10,661 5,128 5,912 4,750 4,749 41.1 45.9 1,684 1,588 3,066 3,161 1,053 1,104 2,013 2,057 24.8 26.4

811.3 591.2 12.5 19.3

863.0 646.9 17.0 27.2

17.5 2.9 9.9 1.7 43.1

18.2 2.8 10.4 1.6 42.9

4Q 8,424 22.8 2,821 11,245 5,753 5,492 39.2 1,227 4,265 1,699 2,566 2,400.9

1Q 8,007 15.6 3,291 11,298 5,719 5,579 31.0 2,364 3,214 1,113 2,102 25.6

922.4 696.3 23.3 32.0

976.6 733.4 23.4 26.2

958.4 763.1 18.1 29.1

19.5 2.8 11.0 1.6 43.5

17.3 2.3 9.4 1.3 45.5

18.7 2.4 10.6 1.4 43.2

FY18E 2Q 8,989 23.8 2,872 11,861 6,029 5,832 22.8 1,768 4,064 1,427 2,637 31.0

FY17

FY18E

3Q 9,500 20.0 2,286 11,786 6,172 5,614 18.2 1,624 3,990 1,390 2,600 26.4

4QE 9,789 16.2 2,934 12,723 6,201 6,522 18.8 2,441 4,081 1,243 2,838 10.6

30,526 21.7 10,818 41,345 22,095 19,249 35.2 6,184 13,065 4,757 8,308 74.7

36,285 18.9 11,384 47,669 24,122 23,547 22.3 8,198 15,349 5,173 10,176 22.5

972.1 806.5 12.6 24.7

1,005.4 849.5 9.0 22.0

1,162.2 894.7 19.0 22.0

976.6 733.4 23.4 26.2

1,162.2 894.7 19.0 22.0

19.5 2.4 10.7 1.3 45.3

21.6 2.5 11.6 1.4 46.5

21.5 2.4 11.9 1.3 44.6

17.3 2.3 9.4 1.3 45.5

21.5 2.4 11.9 1.3 44.6

149

March 2018 Results Preview | Sector: Financials

HDFC Bank Bloomberg

HDFCB IN

Equity Shares (m)

2685.6

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

5146 / 79

52-Week Range (INR)

2014 / 1425

1,6,12 Rel Perf. (%)

4 / 0 / 22

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

331.4 401.6 484.7 588.8

OP

257.3 325.0 400.7 496.1

NP

145.5 175.3 219.8 274.8

NIM (%)

4.6

4.5

4.5

4.5

EPS (INR)

56.8

66.8

81.8 102.3

EPS Gr. (%)

16.7

17.7

22.5

25.0

BV/Sh. (INR)

335.9 473.6 539.2 623.5

ABV/Sh. (INR)

330.8 449.2 512.8 594.0

RoE (%) RoA (%) Payout (%)

17.9

16.2

16.2

17.6

1.8

1.8

1.9

2.0

23.2

21.1

19.9

17.6

33.7

28.7

23.4

18.7

5.7

4.0

3.6

3.1

Valuations P/E(X) P/BV (X) P/ABV (X)

5.8

4.3

3.7

3.2

Div. Yield (%)

0.6

0.7

0.8

0.9

Quarterly Performance

CMP: INR1,916

Buy

Loan growth would be strong at 22% YoY. Deposit growth would trail loan growth at ~16% YoY, led by CASA inflows.  CoF decline would help to negate the impact of declining yields environment, and we expect HDFCB to report flattish margins at 4.3% (calculated). NII is expected to grow at 18% YoY.  Other income growth is expected to moderate to ~9% YoY, factoring in lower trading gains. Fee income should remain healthy. Tie-up with new banca partners would drive fee income growth.  Opex growth would be lower than total income growth at ~11% YoY, aided by the bank’s strong digital initiatives and focus on cutting excess flab.  Healthy PPoP growth would lead to 20% YoY PAT growth, in line with 20% growth trend exhibited by the bank in the last few years. Asset quality is expected to remain stable, with GNPA at ~1.3%.  HDFCB trades at 3.6x FY19E BV and 23.4x FY19E EPS. Comfort on earnings (~24% CAGR over FY17-20) remains high. Maintain Buy. Key issues to watch for  Performance in retail loan/agri portfolio, especially in CV/CE.  Trends in digital banking/payments and various initiatives; overall B/S growth outlook and economic recovery. 

(INR m)

FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 79,936 83,091 90,551 93,707 97,521 1,03,143 1,07,179 3,31,392 4,01,550 19.6 17.6 21.5 20.4 22.0 24.1 18.4 20.1 21.2 29,010 31,427 34,463 35,167 36,059 38,692 37,641 1,22,965 1,47,558 1,08,945 1,14,518 1,25,014 1,28,874 1,33,580 1,41,835 1,44,819 4,54,357 5,49,108 48,700 48,425 52,220 53,675 55,401 57,322 57,758 1,97,033 2,24,156 60,246 66,093 72,794 75,199 78,179 84,513 87,061 2,57,324 3,24,952 19.5 15.2 26.9 29.2 29.8 27.9 19.6 20.4 26.3 57,411 62,107 70,990 71,885 74,620 81,919 87,061 2,20,859 3,05,303 7,490 7,158 12,618 15,588 14,762 13,514 13,451 35,933 57,315 52,756 58,935 60,176 59,612 63,417 70,999 73,609 2,21,391 2,67,637 18,202 20,281 20,275 20,673 21,907 24,573 25,182 75,894 92,335 34,553 38,653 39,901 38,938 41,510 46,426 48,427 1,45,496 1,75,302 20.4 15.1 18.3 20.2 20.1 20.1 21.4 18.3 20.5

1Q Net Interest Income 77,814 % Change (Y-o-Y) 21.8 Other Income 28,066 Total Income 1,05,881 Operating Expenses 47,689 Operating Profit 58,192 % Change (Y-o-Y) 20.0 Core Operating Profit 55,423 Provisions 8,667 Profit before Tax 49,525 Tax 17,136 Net Profit 32,389 % Change (Y-o-Y) 20.2 Operating Parameters Deposit Growth (%) 18.5 16.7 21.1 17.8 Loan Growth (%) 23.2 18.1 13.4 19.4 Deposit (INR b) 5,738 5,917 6,347 6,436 Loan (INR b) 4,706 4,944 4,950 5,546 Asset Quality Gross NPA (INR B) 49.2 50.7 52.3 58.9 Gross NPA (%) 1.0 1.0 1.1 1.1 Net NPA (INR B) 14.9 14.9 15.6 18.4 Net NPA (%) 0.3 0.3 0.3 0.3 PCR 69.7 70.6 70.1 68.7 E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets

April 2018

TP: INR2,400 (+25%)

17.0 23.4 6,714 5,810

16.5 22.3 6,893 6,049

10.1 27.5 6,990 6,312

16.2 21.5 7,479 6,738

17.8 19.4 6,436 5,546

16.2 21.5 7,479 6,738

72.4 1.2 25.3 0.4 65.1

77.0 1.3 26.0 0.4 66.3

82.3 1.3 27.7 0.4 66.3

88.4 1.3 30.6 0.5 65.3

58.9 1.1 18.4 0.3 68.7

86.6 1.3 30.6 0.5 64.6

150

March 2018 Results Preview | Sector: Financials

ICICI Bank Bloomberg

ICICIBC IN

Equity Shares (m)

6414.0

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

1729 / 27

52-Week Range (INR)

366 / 241

1,6,12 Rel Perf. (%)

NII

217.4 228.7 254.9 292.5

OP

264.9 257.8 285.5 331.3 98.0





71.3 116.4 163.8

NIM (%)

3.3

3.1

3.1

3.1

EPS (INR)

15.3

11.1

18.1

25.5

EPS Gr (%)

0.6

-27.2

63.0

40.8

BV/Sh (INR)*

135.4 136.6 151.1 171.7

ABV/Sh (INR)*

107.9 120.7 135.6 157.1

RoE (%)

10.2

7.2

11.1

14.3

RoA (%)

1.3

0.9

1.3

1.6

13.1

13.3

8.2

5.8

AP/BV (x)

1.1

1.1

1.0

0.9

AP/ABV (x)

1.4

1.2

1.1

0.9

Valuations AP/E (x)



-10 / -9 / -8

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

NP

CMP: INR270

 

TP: INR370 (+37%)

Buy

We expect loan growth to pick up to ~11% YoY (+2% QoQ). Corporate loan growth would be moderate and international loan exposure would continue to decline. Retail loans should continue to exhibit healthy growth. NIM is expected to stay largely flat QoQ at ~3.1% (-40bp YoY), as cost of funds remains favorable. NII is expected to decrease ~2% YoY. Total other income should increase sharply, led by gains from stake sale in ICICI Securities. Gross slippages are expected to increase from 3QFY18 levels and remain high (8.2% slippage ratio). We expect PAT of INR13.8b v/s INR20.2b in 4QFY17 and INR16.5b in 3QFY18. ICICIBC trades at 1x FY19E core BV and 8.2x FY19E EPS. Buy.

Key issues to watch for  Movement of watch-list accounts.  Plans on monetization of stakes in various ventures.  Outlook on asset quality and trend on further relapse from RL.

* BV ADJ FOR INVT IN SUBSIDIARIES

ICICI Bank: Quarterly Performance

Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposit (INR b) Loan (INR b) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

1Q 51,585 0.8 34,293 85,878 33,731 52,147 3.5 25,145 27,002 4,679 22,324 -25.0

FY17 2Q 3Q 52,533 53,634 0.0 -1.6 91,197 39,383 1,43,730 93,017 37,369 37,777 1,06,361 55,239 106.2 -15.8 70,827 27,127 35,534 28,112 4,511 3,694 31,023 24,418 2.4 -19.1

4Q 59,622 10.3 30,172 89,794 38,674 51,120 -28.1 28,982 22,138 1,892 20,246 188.5

1Q 55,898 8.4 33,879 89,778 37,944 51,833 -0.6 26,087 25,746 5,256 20,490 -8.2

(INR m) FY18E FY17 FY18E 2Q 3Q 4QE 57,091 57,053 58,678 2,17,373 2,28,720 8.7 6.4 -1.6 2.4 5.2 51,862 31,669 66,269 1,95,045 1,83,679 1,08,953 88,721 1,24,947 4,12,418 4,12,399 39,088 38,144 39,462 1,47,551 1,54,638 69,865 50,578 85,485 2,64,867 2,57,761 -34.3 -8.4 67.2 11.0 -2.7 45,029 35,696 66,755 1,52,081 1,73,567 24,836 14,882 18,731 1,12,786 84,194 4,254 -1,621 4,959 14,775 12,848 20,582 16,502 13,772 98,011 71,346 -33.7 -32.4 -32.0 0.8 -27.2

4,241 4,494

4,491 4,543

4,653 4,575

4,900 4,642

4,863 4,641

4,986 4,828

5,174 5,054

5,469 5,176

4,900 4,642

5,469 5,176

275.6 5.3 153.1 3.0 44.5

325.5 6.1 164.8 3.2 49.4

380.8 7.2 201.6 4.0 47.1

425.5 7.9 254.5 4.9 40.2

431.5 8.0 253.1 4.9 41.3

444.9 7.9 241.3 4.4 45.8

460.4 7.8 238.1 4.2 48.3

508.0 9.8 269.8 5.2 46.9

425.5 7.9 254.5 4.9 40.2

508.0 9.8 269.8 5.2 46.9

151

March 2018 Results Preview | Sector: Financials

Indian Bank Bloomberg

INBK IN

Equity Shares (m)

480.3

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

147 / 2

52-Week Range (INR)

-1 / 11 / -2

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

51.5

63.0

70.6

82.2

OP

40.0

50.8

53.1

58.1

NP

14.1

14.6

20.0

22.9

EPS (INR)

29.3

30.3

41.6

47.7

EPS Gr. (%)

97.6

3.7

37.2

14.5

BV/Sh. (INR)

301

324

356

392

ABV/Sh. (INR)

247

281

314

351

RoE (%)

10.1

9.7

12.3

12.7

RoA (%)

0.7

0.6

0.7

0.7

23.9

26.1

22.8

22.7

10.5

10.1

7.4

6.4

P/BV (X)

1.0

0.9

0.9

0.8

P/ABV (X)

1.25

1.09

0.98

0.87

2.3

2.6

3.1

3.5

Valuations P/E(X)

Div. Yield (%)



428 / 252

1,6,12 Rel Perf. (%)

Payout (%)

CMP: INR307

   

TP: INR371 (+21%)

Buy

Loan growth is expected to pick up further to ~20% YoY (+3% QoQ), led by balance sheet recalibration. Deposit growth is expected be 17% YoY (3% QoQ). Calculated NIM is expected to be flattish at 3%. NII will grow ~21% YoY on a low base. Overall non-interest income is expected to decline 16% YoY, led by healthy traction in fee income. We expect slippage ratio to remain elevated at 2.3% and credit costs to elevate to 2.1% (1.2% in 3QFY18). INBK trades at 0.9x FY19E BV and 7.4x FY19E EPS. Maintain Buy.

Key issues to watch for  Outlook on business growth and asset quality remain the key factors to monitor.  Quantum of loans rescheduled under the 5/25 scheme.  View on margins with an improvement in liquidity and lower interest rates.

Quarterly Performance

INR m

Y/E March Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposits (INR b) Loans (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR B) Net NPA (INR B) Gross NPA (%) Net NPA (%) PCR (%) E: MOSL Estimates April 2018

1Q 12,363 10.3 4,417 16,780 7,748 9,032 27.4 4,170 4,862 1,788 3,074 42.7

FY17 2Q 3Q 12,783 12,465 18.3 12.2 5,846 5,997 18,629 18,462 8,567 8,250 10,062 10,212 36.8 33.2 4,783 5,403 5,279 4,809 1,228 1,074 4,051 3,735 9.7 671.7

4Q 13,850 22.1 5,854 19,704 9,002 10,702 29.3 8,069 2,633 -565 3,198 278.0

1Q 14,595 18.1 6,521 21,116 8,592 12,524 38.7 7,156 5,368 1,644 3,724 21.1

FY18E 2Q 3Q 15,436 16,228 20.8 30.2 7,146 5,489 22,582 21,717 8,826 9,623 13,756 12,094 36.7 18.4 7,446 9,181 6,310 2,913 1,795 -120 4,515 3,033 11.5 -18.8

FY17

FY18E

4QE 16,751 20.9 4,948 21,699 9,308 12,390 15.8 7,289 5,101 1,801 3,300 3.2

51,461 15.7 22,114 73,575 33,567 40,008 31.9 22,425 17,583 3,526 14,057 97.6

63,010 22.4 24,104 87,114 36,349 50,764 26.9 31,072 19,692 5,120 14,572 3.7

1,774 1,242 1.1 1.5

1,782 1,227 3.2 0.2

1,837 1,220 5.2 -0.7

1,825 1,277 2.4 -1.0

1,915 1,294 7.9 4.2

1,987 1,392 11.5 13.4

2,065 1,483 12.5 21.6

2,135 1,532 17.0 20.0

1,825 1,277 2.4 -1.0

2,135 1,532 17.0 20.0

88.9 55.5 7.0 4.5 37.6

91.9 56.6 7.3 4.6 38.5

96.8 58.0 7.7 4.8 40.1

98.7 56.1 7.5 4.4 43.2

96.5 52.4 7.2 4.1 45.7

96.2 47.5 6.7 3.4 50.7

96.0 49.0 6.3 3.3 48.9

101.6 51.8 6.6 3.4 49.0

98.7 56.1 7.7 4.4 43.2

101.6 51.8 6.6 3.4 49.0

152

March 2018 Results Preview | Sector: Financials

IndusInd Bank Bloomberg

IIB IN

Equity Shares (m)

598.2 1,095 / 17

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

CMP: INR1,830 

1,841 / 1,375

52-Week Range (INR)

10 / 2 / 19

1,6,12 Rel Perf. (%) FINANCIAL SNAPSHOT (INR BILLION)

Y/E MARCH

2017 2018E 2019E 2020E

NII

60.6

75.1

94.8 120.1

OP

54.5

66.4

84.4 108.4

NP

28.7

36.1

46.6

59.9

NIM (%)

4.2

4.2

4.2

4.2

EPS (INR)

48.1

60.4

78.0 100.2

EPS Gr. (%)

18.2

25.7

29.0

BV/Sh. (INR)

345

397 463.3 548.8

28.4

ABV/Sh. (INR)

331

380 446.0 530.3

RoE (%)

15.3

16.6

18.4

20.0

RoA (%)

1.8

1.8

1.9

1.9

38.1

30.3

23.5

18.3

P/BV (X)

5.3

4.6

3.9

3.3

P/ABV (X)

5.5

4.8

4.1

3.5

Valuations P/E (X)







TP: INR2,250 (+23%)

Buy

We expect strong loan growth of ~26% YoY in 4QFY18, significantly ahead of system loan growth. Deposit growth should be strong at 27% YoY. Continued market share gains in VF would remain a key factor to monitor. NIM is likely to stay flattish at ~4.1%. The quantum of CASA retained would be a key factor. We expect non-interest income to grow ~2%, supported by healthy fee income growth. Stronger contribution of third-party distribution fees owing to increased inflows into MFs and insurance industry should continue to support higher third-party distribution fees. Opex growth would remain high at ~15%+ YoY v/s 13% growth in total income. Healthy PPP growth (+12% YoY) and controlled credit costs would keep earnings growth strong at 28%+ YoY. IIB trades at 3.9x FY19E BV and 23.5x FY19E EPS, with best-inclass RoA of ~1.9% and RoE of 17-19%. Buy.

Key issues to watch for  Continued CV/CE growth would be the key for CFD growth.  Corporate asset quality a key monitorable.  Traction in the non-vehicle consumer lending portfolio.

Quarterly Performance

Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposit Growth (%) Loan Growth (%) Deposit (INR b) Loan (INR b) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

1Q 13,564 38.3 9,730 23,294 10,956 12,338 33.7 2,305 10,033 3,419 6,614 26.0

FY17 2Q 14,603 33.4 9,704 24,307 11,491 12,816 27.3 2,139 10,677 3,635 7,042 25.7

3Q 15,784 34.5 10,168 25,952 12,319 13,633 28.5 2,169 11,465 3,959 7,506 29.2

4Q 16,675 31.5 12,113 28,788 13,065 15,722 36.6 4,301 11,421 3,905 7,516 21.2

1Q 17,741 30.8 11,673 29,413 13,528 15,885 28.8 3,100 12,786 4,420 8,365 26.5

31.0 29.7 1,018 937

38.9 26.4 1,123 989

37.9 25.1 1,192 1,028

36.1 27.9 1,266 1,131

31.4 24.3 1,337 1,164

8.6 0.9 3.6 0.4 58.7

9.0 0.9 3.7 0.4 58.9

9.7 0.9 4.0 0.4 58.8

10.5 0.9 4.4 0.4 58.4

12.7 1.1 5.1 0.4 60.0

FY18E 2Q 18,210 24.7 11,876 30,086 13,751 16,335 27.5 2,938 13,398 4,597 8,801 25.0

FY17

(INR m) FY18E

3Q 18,948 20.0 11,868 30,816 14,169 16,647 22.1 2,362 14,285 4,923 9,362 24.7

4QE 20,199 21.1 12,346 32,545 14,991 17,554 11.6 2,795 14,759 5,142 9,617 27.9

60,626 34.2 41,715 1,02,341 47,831 54,510 31.6 10,913 43,597 14,918 28,679 25.4

75,097 23.9 47,764 1,22,861 56,439 66,422 21.9 11,194 55,229 19,082 36,147 26.0

25.9 24.5 1,414 1,232

22.5 25.1 1,461 1,285

26.8 25.5 1,605 1,419

36.1 27.9 1,266 1,131

26.8 25.5 1,605 1,419

13.5 1.1 5.4 0.4 60.1

15.0 1.2 5.9 0.5 60.5

16.0 1.1 6.2 0.4 61.0

10.5 0.9 4.4 0.4 58.4

16.0 1.1 6.2 0.4 61.0

153

March 2018 Results Preview | Sector: Financials

Kotak Mahindra Bank Bloomberg

KMB IN

Equity Shares (m)

1904.5

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

2101 / 32

52-Week Range (INR)

3 / 4 / 14

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

81.3

94.3 121.0 149.0

OP

59.8

71.3

94.2 117.9

NP

34.1

41.3

54.7

Cons. NP

49.4

62.3

79.0 103.1

NIM (%)

4.4

4.2

4.4

4.5

Cons. EPS (INR)

26.8

32.7

41.5

54.1

EPS Gr. (%)

42.3

21.9

26.8

30.5

Cons. RoE (%) RoA (%)



68.5  

207.7 248.9 289.5 342.8 13.8

13.1

14.3

15.8

1.7

1.6

1.8

1.8

41.1

33.7

26.6

20.4

P/BV (X) (Cons.)

5.3

4.4

3.8

3.2

TP: INR1,302 (+18%)

We expect the standalone bank to report 22% loan growth and 19% deposit growth in 4QFY18. NIM is likely to decrease by 13bp QoQ to 4.4%. Overall, we expect NII growth of 15% YoY. CASA retention would be a key driver of NII and NIM. With strong digital initiatives, fast-paced customer acquisition and merger synergies from eIVBL, fee income would be a key growth driver for the bank. We factor in other income growth of 14% in 4Q, 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 ~2.3% and NNPA at 1.1%, led by a high provision coverage ratio. On a reported basis, we expect standalone bank earnings to grow 20% YoY. The stock trades at 3.8x FY19E consolidated BV and 26.6x FY19E consolidated EPS. Maintain Buy.

Quarterly Performance Y/E March Net Interest Income % Change (Y-o-Y) Other Income Net Income % Change (Y-o-Y) Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Loan growth (%) Cost to Income Ratio (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%)

April 2018

1Q 19,191 20.1 7,332 26,523 21.1 13,373 13,150 120.3 1,795 11,355 3,936 7,419 291.1 16.6 50.4 34.7 30.6 2.5 14.7 1.2 52.0

Buy

Key issues to watch for  Guidance on balance sheet growth.  Performance on CASA, fees and growth.  Performance of non-banking subsidiaries and their contribution to overall profit.

Valuations P/E(X) (Cons.)



1133 / 868

1,6,12 Rel Perf. (%)

Cons. BV. (INR)

CMP: INR1,103

FY17 2Q 19,954 18.9 8,311 28,265 23.2 13,864 14,401 37.8 1,978 12,423 4,290 8,133 42.8 12.9 49.1 34.5 31.8 2.5 15.2 1.2 52.3

3Q 20,503 16.1 9,102 29,605 19.0 14,328 15,277 26.8 1,921 13,356 4,558 8,798 38.6 12.1 48.4 34.1

4Q 21,614 16.4 10,027 31,641 24.6 14,620 17,021 42.5 2,674 14,347 4,582 9,765 40.4 14.7 46.2 31.9

1Q 22,456 17.0 9,069 31,525 18.9 15,571 15,954 21.3 2,037 13,917 4,789 9,128 23.0 17.9 49.4 34.4

31.8 2.4 13.8 1.1 56.6

35.8 2.6 17.2 1.3 52.0

37.3 2.6 17.8 1.3 52.3

FY18E 2Q 3Q 23,126 23,937 15.9 16.7 9,539 10,398 32,665 34,335 15.6 16.0 15,417 16,135 17,248 18,201 19.8 19.1 2,165 2,128 15,083 16,073 5,140 5,541 9,943 10,532 22.3 19.7 21.1 23.1 47.2 47.0 34.1 34.5 38.1 2.5 19.2 1.3 49.7

37.1 2.3 17.3 1.1 53.5

(INR Million) FY17 FY18E 4QE 24,821 14.8 11,417 36,238 14.5 16,292 19,946 17.2 2,255 17,691 5,995 11,696 19.8 22.1 45.0 33.9

81,261 17.8 34,772 1,16,033 22.0 56,185 59,848 48.1 8,367 51,481 17,366 34,115 63.2 14.7 48.4 33.7

94,341 16.1 40,422 1,34,763 16.1 63,415 71,348 19.2 8,588 62,760 21,464 41,296 21.1 22.1 47.1 34.2

37.5 2.3 17.6 1.1 53.0

35.8 2.6 17.2 1.3 52.0

37.5 2.3 17.6 1.1 53.0

154

March 2018 Results Preview | Sector: Financials

Punjab National Bank Bloomberg

PNB IN

Equity Shares (m)

2765.4

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

265 / 4

52-Week Range (INR) 1,6,12 Rel Perf. (%)

CMP: INR96 

232 / 91 -3 / -32 / -48

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII 149.9 159.1 201.7 232.6 OP 145.7 139.1 164.6 188.7 NP 13.2 -13.9 0.1 39.7 NIM (%) 2.3 2.2 2.4 2.5 EPS (INR) 6.2 -5.7 0.0 14.3 EPS Gr. (%) NM NM NM NM BV/Sh. (INR) 178 169 167 180 ABV/Sh. (INR) 71 88 112 137 RoE (%) 3.6 -3.0 0.0 7.7 RoA (%) 0.2 -0.2 0.0 0.4 Payout (%) 0.0 NM NM 12.5 Valuations P/E(X) 15.4 NM NM 6.7 P/BV (X) 0.5 0.6 0.6 0.5 P/ABV (X) 1.35 1.09 0.86 0.70 Div. Yield (%) 0.0 1.7 1.9 1.9

 





TP: INR160 (+67%)

Buy

We expect loan growth to pick up (+15% YoY/+7% QoQ). Deposits should grow 8% YoY, reflecting some stickiness in CASA, post inflows after demonetization. NII is likely to grow 1.6% QoQ (and 10% YoY) with uptick in loan book growth and improvement in margins. Overall non-interest income is expected to decline by 35% YoY, as fee income growth should be partly offset by moderation in treasury gains. Stress addition is likely to increase significantly on account of fraud reported (16.3% slippages). We expect credit cost to be ~550bp. Resolutions in key accounts and the fraud reported remains a key trigger. The stock trades at 0.6x FY19E BV. Maintain Buy.

Key issues to watch for  Outlook on asset quality, as net stressed loans remain one of the highest in the industry.  Resolution of the ongoing fraud and its impact.  Trend in loan growth and fee income.  NIMs and CASA performance.

Quarterly Performance

INR m 1Q 36,990 -9.8 23,551 60,541 27,794 32,746 4.6 27,384 5,362 2,299 3,064 -57.5

FY17 2Q 38,799 -10.2 23,879 62,678 29,557 33,120 12.7 25,338 7,783 2,289 5,494 -11.5

3Q 37,308 -9.4 21,398 58,706 30,897 27,809 -4.7 25,622 2,187 116 2,072 306.2

4Q 36,835 33.1 31,028 67,863 5,545 62,318 93.1 57,535 4,783 2,164 2,619 NM

1Q 38,551 4.2 23,318 61,869 29,696 32,173 -1.8 26,087 6,086 2,652 3,434 12.1

5,540 3,916 7.0 2.8

5,749 3,937 6.5 3.4

6,122 3,857 11.6 -1.8

6,217 4,195 12.4 1.7

6,256 3,997 12.9 2.1

567 357 13.8 9.2 36.9

565 357 13.6 9.1 36.7

556 350 13.7 9.1 37.1

554 327 12.5 7.8 40.9

577 346 13.7 8.7 40.1

Y/E March Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposits (INR b) Loans (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR B) Net NPA (INR B) Gross NPA (%) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

FY18E 2Q 40,152 3.5 19,060 59,212 26,421 32,791 -1.0 24,408 8,383 2,777 5,606 2.0

FY17

FY18E

3Q 39,887 6.9 30,820 70,707 28,255 42,452 52.7 44,667 -2,215 -4,516 2,301 11.1

4QE 40,506 10.0 20,025 60,531 28,831 31,700 -49.1 64,091 -32,391 -7,156 -25,235 -1,063.6

1,49,932 -2.1 89,514 2,39,445 93,794 1,45,652 19.2 1,25,536 20,115 6,867 13,248 NM

1,59,096 6.1 93,223 2,52,319 1,13,203 1,39,116 -4.5 1,59,253 -20,137 -6,242 -13,895 -204.9

6,362 4,103 10.7 4.2

6,480 4,521 5.9 17.2

6,745 4,833 8.5 15.2

6,217 4,195 12.4 1.7

6,745 4,833 8.5 15.2

576 346 13.3 8.4 40.0

575 341 12.1 7.6 40.8

693 436 13.6 9.0 37.2

554 327 12.5 7.8 40.9

693 436 13.6 9.0 37.2

155

March 2018 Results Preview | Sector: Financials

RBL Bank Bloomberg

RBK IN

Equity Shares (m)

415.6

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

201 / 3

52-Week Range (INR)

600 / 443

1,6,12 Rel Perf. (%)

2 / -11 / -16

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)

12.2 9.2 4.5 3.0 11.9 113.4 109.8 12.3 1.0 40.6 4.3 4.4 0.4

17.9 23.0 30.2 13.2 17.6 23.2 6.4 9.0 12.2 3.4 3.4 3.4 15.4 21.8 29.3 29.3 41.5 34.7 155.5 173.4 197.6 151.5 169.1 192.7 11.9 13.2 15.8 1.2 1.3 1.3 31.4 3.1 3.2 0.5

22.2 2.8 2.9 0.7

Quarterly Performance Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters Deposit (INR b) Loan (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

16.5 2.4 2.5 0.9

CMP: INR483

TP: INR628 (+30%)

Buy

Loan growth (+35% YoY) and deposit growth (+23% YoY) would be significantly above industry average.  We expect NII to grow 48% YoY, led by strong loan growth and favorable NIM, helped by strong CASA inflows and fall in bulk deposit rates.  Overall non-interest income is expected to grow ~15% YoY, led by strong growth in fee income and digital initiatives. We expect opex growth of 36%, led by continued capacity expansion. However, opex is expected to trail total income growth of 35%, driving 34% YoY increase in PPoP.  Asset quality is expected to remain largely stable in 4QFY18; MFI and agri segment stress is expected to stabilize. Credit costs would largely be under control.  We expect PAT growth of 10% QoQ and 40% YoY. RBK trades at 2.8x FY19E BV and 22.2x FY19E EPS. We await management commentary on asset quality and growth outlook, and maintain our Buy rating. Key issues to watch for  Management commentary on slippages in SME segment.  Update and commentary on balance sheet growth strategy.  CASA ratio and traction on NIMs. 

1Q 2,447 46.8 1,675 4,122 2,277 1,845

FY17 2Q 3,029 59.5 1,691 4,721 2,530 2,191

3Q 3,216 44.6 1,823 5,038 2,687 2,351

4Q 3,522 46.6 2,366 5,887 3,070 2,818

1Q 3,784 54.7 2,569 6,353 3,239 3,114

FY18E 2Q 4,202 38.7 2,411 6,612 3,581 3,032

426 1,419 445 973 61.4

781 1,410 512 899 34.3

362 1,989 703 1,287 58.8

821 1,997 695 1,301 54.6

945 2,169 759 1,410 44.9

258.0 222.6 NA NA

279.6 248.8 37.8 44.0

300.1 267.7 43.9 46.3

345.9 294.5 42.1 38.7

2.5 1.1 1.5 0.7 41.5

2.7 1.1 1.4 0.6 49.8

2.9 1.1 1.4 0.5 51.4

3.6 1.2 1.9 0.6 46.8

FY17 4QE 5,226 48.4 2,713 7,939 4,172 3,767

749 2,283 776 1,506 67.6

3Q 4,673 45.3 2,582 7,255 3,921 3,334 41.8 823 2,511 858 1,653 28.5

354.3 311.1 37.3 39.7

365.7 335.8 30.8 35.0

4.6 1.5 2.5 0.8 45.3

4.9 1.4 2.6 0.8 46.5

(INR m) FY18E

1,010 2,757 937 1,819 39.8

12,213 49.1 7,555 19,768 10,564 9,204 69.7 2,389 6,815 2,354 4,460 52.5

17,884 46.4 10,275 28,160 14,913 13,246 43.9 3,527 9,720 3,331 6,389 43.2

386.2 368.9 28.7 37.8

425.4 397.6 23.0 35.0

345.9 294.5 25.0 35.0

425.4 397.6 23.0 35.0

5.8 1.6 3.6 1.0 38.3

5.4 1.3 2.3 0.6 57.3

3.6 1.2 1.9 0.6 46.8

5.4 1.3 2.3 0.6 57.3

156

March 2018 Results Preview | Sector: Financials

State Bank of India Bloomberg

SBIN IN

Equity Shares (m)

8946.3

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

2240 / 34

52-Week Range (INR)

352 / 233

1,6,12 Rel Perf. (%)



-3 / -6 / -26

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII 753.5 737.2 910.4 1,011. 7 OP 597.0 577.2 718.8 793.6 NP NIM (%) EPS (INR) EPS Gr. (%) Cons. BV (INR) Cons. ABV (INR) RoE (%) RoA (%) Div. Payout (%) Valuations P/E (x) P/BV (x) P/ABV (x) Div. Yield (%)

CMP: INR250

-20.2 -4.8 107.2 255.3 2.8 2.6 2.7 2.7 0.3 -0.6 11.8 27.9 - 135.5 -98.1 -77.2 211.3 249.0 2,186. 264.9 294.8 126.9 166.8 206.9 246.7 -1.2 -0.3 5.7 12.5 -0.1 0.0 0.3 0.7 NM NM 23.9 14.4 NM 0.9 2.0 1.0

NM 1.1 1.4 0.2

21.1 1.1 1.1 1.1

9.0 1.0 0.9 1.6

 





TP: INR362 (+45%)

For historical data, we have done the line-by-line consolidation for the banking business with associate banks (AB) for comparison. Hence, YoY growth numbers will not be strictly comparable. We expect loan growth to be muted (+4% QoQ) but pick up slowly from the previous few quarters. NII is expected to be sequentially flat, as interest reversals are expected to keep yields under pressure and loan growth remains sluggish. Stress additions should continue to be high at 6.5%. Commentary on RBI resolution with respect to large accounts is a key monitorable. We expect credit cost to remain elevated, led by continued stress additions and focus on shoring up PCR. The stock trades at 0.9x FY19E consolidated BV and 13.4x FY19E consolidated EPS. Buy.

Key issues to watch for  Performance and guidance on asset quality.  Outlook and update on ABs’ merger.

Quarterly performance

(INR Million)

Y/E March Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters Deposits (INR b) Loans (INR b) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

Buy

1Q 1,82,450 3.9 87,610 2,70,060 1,32,450 1,37,610 17.7 1,30,370 7,240 3,510 3,730 -91.8 22,974 17,958 1,377 7.4 782.4 4.4 43.2

FY17 2Q 3Q 1,81,190 1,77,690 0.6 1.4 1,01,460 1,15,070 2,82,650 2,92,760 1,42,770 1,48,750 1,39,880 1,44,010 9.3 19.5 1,48,300 1,19,230 -8,420 24,780 -2,840 6,580 -5,580 18,200 -111.7 94.9 23,790 26,028 18,039 18,069 1,598 8.5 923.7 5.1 42.2

1,082 7.2 614.3 4.2 43.2

FY18E 2Q 3Q 1,85,857 1,86,875 2.6 5.2 1,60,170 80,842 3,46,027 2,67,717 1,46,028 1,50,171 1,99,999 1,17,546 43.0 -18.4 1,91,374 1,88,762 8,625 -71,216 -7,198 -47,053 15,823 -24,164 -383.6 -232.8

4Q 2,10,660 10.5 1,22,220 3,32,880 1,59,780 1,73,100 1.0 2,09,320 -36,220 -1,810 -34,410 -359.6

1Q 1,76,060 -3.5 80,057 2,56,117 1,37,376 1,18,741 -13.7 89,295 29,446 9,391 20,055 437.7

25,853 18,690

26,025 18,042

26,232 18,026

1,881 10.0 1077.6 6.0 42.7

1,861 9.8 979.0 5.4 47.4

1,779 9.1 969.8 5.2 45.5

26,512 18,262 1,991 10.4 1023.7 5.6 48.6

FY17 FY18E 4QE 1,88,438 7,53,483 7,37,230 -10.5 299.9 -2.2 1,10,548 4,28,627 4,31,616 2,98,985 11,82,110 11,68,846 1,58,092 5,85,150 5,91,668 1,40,893 5,96,960 5,77,178 -18.6 323.7 -3.3 2,03,818 6,09,844 6,73,249 -62,925 -12,884 -96,071 -46,407 7,355 -91,268 -16,518 -20,239 -4,804 -52.0 22.5 -76.3 26,888 18,931 2,171 11.5 1156.8 6.1 46.7

25,853 18,690 1,779 9.1 969.8 5.2 45.5

26,888 18,931 2,171 11.5 1156.8 6.1 46.7

157

March 2018 Results Preview | Sector: Financials

Union Bank of India Bloomberg

UNBK IN

Equity Shares (m)

1203.4

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

117 / 2

52-Week Range (INR)

-4 / -29 / -49

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E 89.0 96.4 121 123 74.3 75.0 98.9 99.1 5.6 -36.7 9.2 21.1 2.3 2.2 2.5 2.2 8.1 -38.8 7.6 17.1 -58.9 -581.0 -119.5 125.6 311.5 202.4 236 250 119.7 98.8 143 160 2.7 -16.0 3.4 7.0 0.1 -0.8 0.2 0.4 0.0 0.0 15.7 14.1 12.0 0.31 0.8 0.0

NM 0.48 1.0 0.0

12.8 0.41 0.68 1.2

Quarterly Performance Net Interest Income % Change (YoY) Other Income Total Income Operating Expenses Operating Profit % Change (YoY) Core Operating Profit Provisions Profit before Tax Tax Net Profit % Change (YoY) Operating Parameters Deposit (INR b) Loan (INR b) Deposit Growth (%) Loan Growth (%) Asset Quality Gross NPA (INR b) Gross NPA (%) Net NPA (INR b) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018



205 / 86

1,6,12 Rel Perf. (%)

NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)

CMP: INR97

5.7 0.39 0.61 2.5

 

 

TP: INR104 (+7%)

Neutral

Post a few quarters of slowdown, balance sheet growth should pick up, with 5% QoQ and 8% YoY growth in advances. Deposit growth is expected to be ~8% YoY and 3% QoQ. NIM is expected to stay flattish sequentially, with moderation in interest reversals. NII growth is expected to improve to ~6% YoY. Other income is likely to decline sharply due to moderation in trading gains. Flattish opex growth will lead total income decline of 9%, leading to PPoP decline of 13%. Slippages are expected to remain at elevated levels, leading to increase in GNPA to ~14.1% from 13% in the previous quarter. Overall, we expect PAT to decline and the bank to report a loss of INR10.1b v/s loss of INR12.5b in 3QFY18. The stock trades at 0.4x FY19E BV and 12.8x FY19E EPS. Maintain Neutral.

Key issues to watch for  Performance on asset quality—slippage from restructured loans, going forward.  Trends and efforts to improve CASA ratio and NIM.  Update and trends on balance sheet growth.

1Q 21,023 -1.3 10,399 31,421 15,171 16,251 9.2 13,091 13,530 2,721 1,058 1,663 -67.9

FY17 2Q 22,774 8.4 11,394 34,169 15,972 18,197 29.0 13,537 16,203 1,994 227 1,767 -73.2

FY18E 2Q 3Q 23,207 25,483 1.9 19.3 12,173 8,731 35,381 34,214 15,991 17,668 19,390 16,546 6.6 -10.6 14,620 16,486 35,547 32,544 -16,157 -15,998 -850 -3,500 -15,307 -12,499 -966.4 -1,301.8

3Q 21,366 7.0 13,397 34,763 16,250 18,513 38.8 11,573 16,701 1,811 771 1,040 32.4

4Q 23,870 14.5 14,456 38,326 16,986 21,341 51.4 15,521 24,441 -3,101 -4,183 1,082 12.6

1Q 22,426 6.7 14,147 36,573 16,007 20,566 26.6 14,046 17,037 3,529 2,363 1,166 -29.9

3,387 2,569 3.5 3.5

3,615 2,652 9.3 7.7

3,798 2,627 16.0 3.5

3,784 2,865 10.4 7.1

3,758 2,784 10.9 8.4

3,860 2,909 6.8 9.7

272.8 10.2 158.2 6.2 42.0

298.6 10.7 169.5 6.4 43.2

324.0 11.7 182.5 7.0 43.7

337.1 11.2 188.3 6.6 44.1

372.9 12.6 207.8 7.5 44.3

382.9 12.4 194.8 6.7 49.1

FY17

(INR m) FY18E

4QE 25,276 5.9 9,630 34,907 16,431 18,475 -13.4 18,475 36,050 -17,575 -7,485 -10,090 -1,032.2

89,033 7.1 49,646 1,38,679 64,378 74,301 31.7 42,181 70,875 3,426 -2,126 5,552 -58.9

96,392 8.3 44,681 1,41,074 66,097 74,977 0.9 74,977 1,21,178 -46,201 -9,471 -36,730 -761.5

3,985 2,937 4.9 11.8

4,090 3,080 8.1 7.5

3,784 2,865 10.4 7.1

4,090 3,080 8.1 7.5

409.9 13.0 204.3 7.0 50.2

435.3 14.1 219.3 7.1 49.6

337.1 11.2 188.3 6.6 44.1

435.3 14.1 219.3 7.1 49.6

158

March 2018 Results Preview | Sector: Financials

Yes Bank Bloomberg

YES IN

Equity Shares (m)

2282.4

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

714 / 11

52-Week Range (INR)

383 / 275

1,6,12 Rel Perf. (%)

-1 / -17 / -10

Financial Snapshot (INR B) Y/E March 2017 2018E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)

58.0 76.5 99.3 58.4 77.2 100.9 33.3 41.6 53.4 3.4 3.4 3.5 14.6 18.2 23.4 20.8 25.0 28.4 93.7 112.8 132.4 78.5 107.6 127.6 18.9 17.4 19.1 1.8 1.7 1.7 21.5 3.3 4.0 0.8

17.2 2.8 2.9 0.6

13.4 2.4 2.5 1.2

125.1 128.2 68.9 3.5 30.2 28.9 158.2 153.1 20.8 1.7 10.4 2.0 2.0 1.4

CMP: INR313

TP: INR382 (+22%)

Buy

We expect loan growth to be significantly ahead of system average at 39% YoY on the back of refinancing opportunities and strong growth in retail banking.  We expect NIM to improve YoY, helped by lower cost of funds on account of CASA inflows and re-pricing of bulk deposits. Consequently, NII growth is expected to be healthy at 26% YoY, one of the best among peers.  Non-interest income growth is likely to be ~18% YoY, led by strong growth from third-party distribution and processing fees.  We expect opex growth to be 19%, 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 2.4x FY19E BV and 13.4x FY19E EPS. Return ratios also remain strong (RoA of 1.7% and RoE of 19.1%). Maintain Buy. Key issues to watch for  Implementation of retail strategy on assets and liabilities sides.  Performance on asset quality and quantum of loans rescheduled under 5:25 scheme/sale to ARCs. 

Quarterly Performance

Net Interest Income % Change (Y-o-Y) Other Income Total Income Operating Expenses Operating Profit % Change (Y-o-Y) Provisions Profit before Tax Tax Net Profit % Change (Y-o-Y) Operating Parameters Deposit Growth (%) Loan Growth (%) Deposit (INR b) Loan (INR b) Asset Quality Gross NPA (INR B) Gross NPA (%) Net NPA (INR B) Net NPA (%) PCR (%) E: MOSL Estimates

April 2018

(INR m) 1Q 12,516 18.1 9,655 22,171 9,103 13,068 43.9 2,066 11,001 3,683 7,318 32.8

FY17 2Q 14,122 27.4 9,219 23,340 9,481 13,860 36.0 1,617 12,243 4,228 8,015 31.3

FY18E 2Q 3Q 18,851 18,888 33.5 26.8 12,484 14,223 31,335 33,111 12,269 13,093 19,067 20,018 37.6 37.7 4,471 4,213 14,596 15,805 4,569 5,036 10,027 10,769 25.1 22.0

3Q 14,893 28.7 10,165 25,059 10,520 14,538 26.5 1,154 13,384 4,558 8,826 30.6

4Q 16,397 32.1 12,574 28,971 12,061 16,910 38.0 3,097 13,813 4,671 9,141 30.2

1Q 18,089 44.5 11,322 29,411 12,369 17,042 30.4 2,858 14,184 4,529 9,655 31.9

28.6 33.0 1,226 1,059

28.9 37.7 1,280 1,102

30.5 38.8 1,324 1,171

27.9 34.7 1,429 1,323

22.6 32.1 1,502 1,400

23.4 34.9 1,580 1,487

8.4 0.8 3.0 0.3 64.2

9.2 0.8 3.2 0.3 64.8

10.1 0.9 3.4 0.3 66.0

20.2 1.5 10.7 0.8 46.9

13.6 1.0 5.5 0.4 60.0

27.2 1.8 15.4 1.0 43.3

FY17

FY18E

4QE 20,647 25.9 14,804 35,451 14,328 21,123 24.9 4,688 16,434 5,261 11,174 22.2

57,973 26.9 41,568 99,541 41,165 58,375 35.7 7,934 50,441 17,140 33,301 31.1

76,475 31.9 52,832 1,29,308 52,058 77,249 32.3 16,230 61,020 19,395 41,625 25.0

29.7 46.5 1,717 1,715

32.5 38.5 1,893 1,832

27.9 34.7 1,429 1,323

32.5 38.5 1,893 1,832

29.7 1.7 16.0 0.9 46.4

31.4 1.7 17.0 0.9 46.0

20.2 1.5 10.7 0.8 46.9

31.4 1.7 17.0 0.9 46.0

159

March 2018 Results Preview | April 2018

Financials - NBFCs Company name

Vehicle financiers lead the pack

Bajaj Finance

Vehicle financiers could surprise on the upside

Capital First



Chola. Inv & Fin. Dewan Housing



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.



Core housing growth has stabilized post RERA implementation, and tier II and 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. Growth rates will remain healthy for segments like consumer durables, two-wheelers and vehicle finance. M&HCV demand has been strong in the quarter – GoI’s infra push being the key driving factor. Farm loan waivers and normal monsoon have lifted sentiment in the rural economy. The focus on collections has also helped companies ensure strong recoveries. Vehicle financiers are expected to report healthy asset quality and growth. We expect a gradual improvement for microfinance institutions (the most impacted segment post demonetization) in terms of both growth and asset quality. Our interactions with gold financiers suggest that growth is slowly coming back. Elevated G-Sec yields could play a spoilsport over the medium term from a spreads perspective. Yields have hardened 100bp+ from their lows six months ago. If they sustain at these levels, HFCs would be most impacted. Vehicle financiers have pricing power to maintain margins. BAF, CAFL, MASFIN, CIFC and PNBHF are likely to post earnings growth of 25%+ YoY, which is commendable, in our view. Our top picks in this space are HDFC, SHTF, BAF and CIFC.

HFCs – G-Sec yields key monitorable: HFCs under our coverage are likely to post AUM growth in line with past trends. Repco may witness another muted quarter, as state-specific issues in Tamil Nadu are yet to be resolved. We expect the shift toward LAP for LICHF and toward corporate loans (opportunistic in LRD segment) for HDFC to continue. Core retail housing yields are expected to remain under pressure due to intense competition. The benefit of cost of funds is likely to recede, given 100bp+ increase in G-Sec yields over the last six months. G-Sec yield is a key monitorable. AFCs – growth across segments to continue: We expect 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 pick up sequentially, helped by a better rural economy and clarity emerging post GST implementation. Auto OEMs, especially CV players, have delivered decent volume growth in the quarter. Within the 2W segment, we expect market share gains by smaller players like CAFL and LTFH to continue, while SCUF is expected to lose some market share. Gold financiers – recovery taking root: Over the past year, AUM of most gold financiers has been stable. Our interactions with companies suggest that they have witnessed some green shoots of recovery in the past quarter. MFIs – disbursements bouncing back: With stabilization in most states, we expect credit costs to start declining this quarter onward. 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 April 2018 160

March 2018 Results Preview | Sector: Financials

Exhibit 1: Expected quarterly performance summary (INR m) Sector

CMP (INR)

RECO

Mar-18

1,832 643 1,517 534 595 1,830 1,293 162 552 473 607 417 1,273 573 2,222 1,477

Buy Buy Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Neutral Buy Buy Buy Buy

22,995 5,582 8,307 6,508 2,159 32,472 15,451 12,854 9,657 13,195 811 11,016 4,375 1,146 8,711 17,543 172,782

Var % QoQ

36.8 49.0 26.0 21.4 16.4 13.8 29.6 28.0 -7.1 18.7 67.0 -4.2 31.5 11.5 22.1 24.5 20.0

-3.0 6.0 5.8 4.0 21.8 10.9 10.7 1.2 7.6 23.2 10.3 4.5 6.5 7.0 -4.9 2.6 5.9

NBFC Aditya Birla Cap Bajaj Finance Capital First Chola. Inv & Fin. Dewan Housing GRUH Finance HDFC Indiabulls Housing L&T Fin.Holdings LIC Housing Fin M & M Financial MAS Financial Muthoot Finance PNB Housing Repco Home Fin Shriram City Union Shriram Transport Fin. NBFC Aggregate April 2018

CMP (INR)

Reco

152 1,832 643 1,517 534 595 1,830 1,293 162 552 473 607 417 1,273 573 2,222 1,477

Buy Buy Buy Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Neutral Buy Buy Buy Buy

42.9 -16.3 39.8 15.3 25.2 10.3 23.9 0.5 15.6 55.4 14.4 17.4 24.6 12.4 26.7 4.2 -2.5 5.1 91.8 62.1 97.4 16.1 51.7 5.3 52.9 7.1 11.5 16.4 1080.3 -37.1 120.3 -33.5 29.8 6.2 Source: MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Mar-18

Source: Bloomberg, MOSL

Nov-17

90 Oct-17

95

Sep-17

104

Sector / Companies

6,420 1,005 2,749 3,075 1,276 23,378 10,475 4,002 5,159 4,490 294 4,882 2,330 564 1,418 3,297 74,815

MOSL Financials Index

Aug-17

100

Jul-17

118

Mar-17

105

Feb-18

132

Jan-18

Sensex Index

146

110

Dec-17

-7.9 12.9 7.7 1.1 23.4 11.6 16.1 7.3 3.7 32.6 13.5 3.4 6.8 9.8 -8.0 1.9 7.0

Exhibit 3: Relative performance—1 year (%)

MOSL Financials Index

Exhibit 4: Comparative valuation

Net Profit Var % Var % Mar-18 YoY QoQ

Var % QoQ

33.9 45.8 29.5 23.8 16.5 8.7 43.5 30.4 -6.8 19.8 77.6 -3.6 35.0 13.9 16.0 20.3 18.6

Jun-17

Sensex Index

115

13,112 3,420 5,055 5,678 1,879 30,450 13,919 10,094 8,345 8,691 579 8,026 4,162 1,027 5,014 13,744 133,194

May-17

Exhibit 2: Relative performance—3 months (%)

EBDITA Var % Mar-18 YoY

Apr-17

NBFC Bajaj Finance Capital First Chola. Inv & Fin. Dewan Housing GRUH Finance HDFC Indiabulls Housing L&T Fin.Holdings LIC Housing Fin M & M Financial MAS Financial Muthoot Finance PNB Housing Repco Home Fin Shriram City Union Shriram Transport Fin. NBFC Banking Aggregate

Sales Var % YoY

Source: Bloomberg, MOSL

EPS (INR) PE (x) PB (x) RoE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 3.7 5.3 7.6 44.8 61.7 82.8 34.2 44.6 56.8 61.3 71.7 86.2 37.3 48.0 60.5 9.9 11.6 14.4 42.7 49.0 57.3 90.9 104.6 127.4 6.7 9.0 11.3 38.9 44.3 52.6 13.9 19.2 23.0 18.6 24.2 30.0 44.0 44.7 49.8 50.9 67.5 88.1 32.9 39.0 46.0 115.2 138.7 167.3 77.5 104.8 125.9

41.4 40.9 18.8 24.8 14.3 60.2 42.8 14.2 24.2 14.2 34.1 32.6 9.5 25.0 17.4 19.3 19.1 27.9

28.5 29.7 14.4 21.2 11.1 51.2 37.3 12.4 18.1 12.5 24.6 25.1 9.3 18.8 14.7 16.0 14.1 22.8

20.0 22.1 11.3 17.6 8.8 41.3 31.9 10.1 14.3 10.5 20.6 20.2 8.4 14.4 12.4 13.3 11.7 18.6

4.0 6.4 2.4 4.6 1.9 18.0 4.9 4.0 2.6 2.2 3.2 4.6 2.1 3.4 2.7 2.6 2.7 4.0

3.1 5.4 2.1 3.9 1.7 14.8 4.3 3.5 2.3 1.9 3.0 4.0 1.8 3.0 2.3 2.3 2.3 3.5

2.4 4.5 1.8 3.2 1.4 12.2 3.9 3.1 2.1 1.7 2.7 3.5 1.6 2.6 2.0 2.0 2.0 3.0

12.6 19.8 13.7 20.2 14.0 32.7 18.3 29.8 13.3 16.6 10.9 20.2 24.5 14.6 16.7 14.2 14.7 14.4

12.4 19.9 15.6 19.8 15.9 31.7 17.5 30.3 13.7 16.5 12.5 17.0 20.9 17.0 16.9 15.1 17.5 15.2

13.7 22.3 17.2 20.0 17.5 32.4 17.3 32.4 15.3 17.1 13.8 18.5 20.0 19.2 17.0 15.9 18.1 16.4 161

March 2018 Results Preview | Sector: Financials

Bajaj Finance Bloomberg

BAF IN

Equity Shares (m)

573.5

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

1051 / 16

52-Week Range (INR)

CMP: INR1,832 

1989 / 1153

1,6,12 Rel Perf. (%)

12 / -8 / 43 

Financial Snapshot (INR b) Y/E Mar

2017

2018E

2019E

2020E

NII

54.7

75.5

101.7

132.2



PPP

36.4

50.2

70.5

94.0

PAT

18.4

25.7

35.4

47.5

EPS (INR)

32.0

44.8

61.7

82.8

EPS Gr. %

43.6

39.8

37.8

34.2



BV/Sh. INR

167

284

337

407

3.3

3.4

3.6

3.7



RoA (%) RoE (%)

21.6

19.8

19.9

22.3

Payout (%) Valuations

14.0

12.5

12.5

12.5

P/E (x)

57.2

40.9

29.7

22.1

P/BV (x)

10.9

6.4

5.4

4.5

0.2

0.3

0.4

0.6

Div. Yld.%

Quarterly Performance Y/E March

Revenue from operations YoY Growth (%) Interest expenses Net Income YoY Growth (%) Other income Total Income Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit YoY Growth (%) Loan Growth (%) Borrowings Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

1Q 22,864 38.9 8,833 14,031 44.8 147 14,178 5,865 8,312 58.1 1,797 6,515 2,275 4,240 53.8 39.5 40.5 41.4 34.9



TP: INR2,330 (+27%)

Buy

We expect AUM growth of 35% YoY, driven by consumer durables financing, in which the company continues to increase its market share. Rural business too should register strong growth, albeit off a low base. Calculated margins are expected to remain largely stable on YoY basis at 11.5%. With investments in upgradation of systems, C/I ratio is expected to remain largely stable YoY at 43%. Asset quality is likely to remain stable. We expect provisions of INR2.6b as against INR2.5b in 3QFY18 and INR2.9b in 4QFY17. Net profit is likely to grow 43% YoY to INR6.4b. The stock trades at 5.4x FY19E and 4.5x FY20E BV. Maintain Buy.

Key issues to watch for  Architecture of Bajaj Housing Finance.  Incremental customer acquisition.  Asset quality trends, especially in LAP and 2W/3W businesses.  Traction in cross-sell franchise.

FY17 2Q 23,355 39.0 9,562 13,793 40.0 56 13,849 5,932 7,917 40.2 1,654 6,263 2,185 4,078 45.9 37.8 43.4 42.8 34.9

3Q 26,930 30.6 9,802 17,128 30.5 109 17,237 6,939 10,297 33.5 1,797 8,500 2,943 5,557 36.0 32.6 30.2 40.3 34.6

4Q 26,650 39.1 9,837 16,813 51.4 79 16,892 7,099 9,794 51.7 2,897 6,897 2,406 4,492 42.6 36.1 33.0 42.0 34.9

1Q 31,123 36.1 10,780 20,344 45.0 140 20,484 8,413 12,071 45.2 2,817 9,254 3,234 6,020 42.0 38.9 33.4 41.1 34.9

FY18E 2Q 3Q 30,862 35,406 32.1 31.5 11,438 11,709 19,425 23,698 40.8 38.4 161 27 19,586 23,724 8,752 9,494 10,833 14,230 36.8 38.2 2,278 2,468 8,555 11,762 2,986 4,094 5,569 7,668 36.6 38.0 37.8 35.4 22.6 30.0 44.7 40.0 34.9 34.8

FY17 4QE 34,818 30.6 11,823 22,995 36.8 61 23,056 9,944 13,112 33.9 3,241 9,872 3,452 6,420 42.9 36.0 28.7 43.1 35.0

92,723 34.4 38,034 54,690 37.6 260 54,949 25,642 29,047 40.0 8,182 20,865 9,810 18,366 43.6 32.9 33.0 46.9 35.1

(INR m) FY18E

121,282 30.8 45,749 75,533 38.1 389 75,922 36,603 38,930 34.0 10,803 28,126 13,766 25,678 39.8 36.0 28.7 48.5 35.1

162

March 2018 Results Preview | Sector: Financials

Capital First Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

CAFL IN 97.4 63 / 1

CMP: INR643 

902 / 610 -2 / -18 / -28 

Financial Snapshot (INR m) Y/E Mar 2017 2018E 2019E 2020E NII 12.3 18.7 24.2 30.4 PPP 8.1 11.6 15.5 19.8 PAT 2.4 3.3 4.3 5.5 EPS (INR) 24.6 34.2 44.6 56.8 EPS Gr. % 34.2 38.9 30.2 27.5 BV/Sh.INR 234.4 264.9 305.2 357.3 RoA on AUM.% 1.6 1.7 1.8 1.8 RoE (%) 12.0 13.7 15.6 17.2 Payout.% 10.6 9.0 8.0 7.0 Valuations P/E (x) 26.1 18.8 14.4 11.3 P/BV (x) 2.7 2.4 2.1 1.8 Div. Yld.% 0.4 0.5 0.6 0.6

   

TP: INR960 (+49%)

The company is likely to maintain its strong growth trajectory. AUM is likely to grow 5% QoQ and 31% YoY, driven by low base of postdemonetization 4QFY17, and market share gains in the 2W segment. With margin expansion of 100bp YoY, NII is likely to grow 49% YoY to INR5.6b. Cost-to-income ratio is expected to remain largely stable annually at 51%. Asset quality is likely to remain stable. We factor in provisions of INR1.9b as against INR1.7b in 3QFY18 and INR1.3b in 4QFY17. Net profit is likely to grow 40% YoY to INR1b. The stock trades at 2.1x FY19E and 1.8x FY20E BV. Maintain Buy.

Key issues to watch for  Management commentary on growth trends/demand for loans.  Trend in write-offs and overall credit costs.  Guidance on C/I ratio.  Movement in borrowing costs and margins.

Quarterly Performance

(INR Million)

Y/E March Interest Income Fee Income

1Q 5,539 679

FY17 2Q 3Q 6,112 6,415 751 944

4Q 6,549 1,019

1Q 7,213 991

Operating Income 6,218 6,863 7,359 7,568 8,204 YoY Growth (%) 56.1 57.6 48.1 35.6 31.9 Interest expenses 2,760 2,961 3,082 2,803 3,065 Net Income 3,458 3,902 4,277 4,766 5,140 YoY Growth (%) 73.1 74.4 63.0 55.8 48.7 Operating Expenses 1,710 2,066 2,103 2,420 2,738 Operating Profit 1,748 1,837 2,174 2,346 2,402 YoY Growth (%) 72.4 67.7 67.6 58.5 37.4 Provisions and Cont. 995 1,032 1,240 1,264 1,408 Profit before Tax 753 805 934 1,082 994 Tax Provisions 262 229 320 363 323 Net Profit 492 576 614 719 672 YoY Growth (%) 48.5 40.3 37.8 51.4 36.6 AUM Growth (%) 36.1 31.8 25.5 23.6 24.4 Borrowings Growth (%) 46.8 42.0 25.0 18.0 25.5 Cost to Income Ratio (%) 49.4 52.9 49.2 50.8 53.3 Tax Rate (%) 34.7 28.5 34.3 33.6 32.4 E: MOSL Estimates; Quarterly and annual numbers may not match due to reporting styles

April 2018

Buy

FY18E 2Q 3Q 7,928 8,830 983 1,129 8,911 29.8 3,268 5,643 44.6 2,889 2,754 50.0 1,576 1,178 393 785 36.3 28.1 23.4 51.2 33.4

9,959 35.3 3,566 6,393 49.5 3,363 3,030 39.4 1,691 1,339 467 872 42.1 31.8 36.7 52.6 34.9

FY17

FY18E

4QE 9,313 1,369

23,888 4,121

32,301 5,456

10,682 41.1 3,731 6,951 45.8 3,531 3,420 45.8 1,903 1,517 512 1,005 39.8 30.7 35.6 50.8 33.7

28,009 48.8 11,606 16,403 66.5 8,298 8,104 68.1 4,530 3,575 1,174 2,389 43.8 20.4 18.0 50.6 35.1

37,757 34.8 13,630 24,127 47.1 12,521 11,606 43.2 6,578 5,029 1,695 3,334 39.5 33.0 35.6 51.9 35.1

163

March 2018 Results Preview | Sector: Financials

Cholamandalam Inv & Fin Bloomberg

CIFC IN

Equity Shares (m)

156.3

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

156.3

52-Week Range (INR)

CMP: INR1,517 

237 / 4

1,6,12 Rel Perf. (%)

1530 / 964 

Financial Snapshot (INR b) Y/E March

2017

2018E

2019E

2020E

NII

23.5

30.0

34.9

40.9

PPP

13.9

18.2

21.7

26.4

Adj. PAT

6.9

9.6

11.2

13.5

EPS (INR)

46.0

61.3

71.7

86.2

EPS Gr. (%)

26.3

33.3

17.0

20.2

276.0

330.0

393.0

470.0

18.0

20.0

19.0

19.0

2.6

3.0

3.0

3.1

18.0

20.2

19.8

20.0

33.0

24.8

21.2

17.6

P/BV (x)

5.5

4.6

3.9

3.2

Div. Yld. %

0.3

0.4

0.5

0.5

BV (INR) BVPS Gr. % RoAA (%) RoE (%) Valuations P/E (x)

  

 

TP: INR1,750 (+15%)

With strong growth in the VF segment, coupled with gradual improvement in LAP, we expect AUM growth to pick up to 22% in 4QFY18 compared to 20% in the prior quarter. Calculated spreads are expected to be stable sequentially, but up 30bp on a YoY basis, largely due to lower cost of funds. As a result, NII is expected to grow 26% YoY to INR8.3b. Calculated cost-to-income ratio should decline 160bp to 39.7%. We expect C/I ratio to remain at 40-41% for the next few quarters. We believe GNPLs have peaked out and should decline going forward, as the company has started invoking SARFAESI. We expect provisions of INR0.9b (at similar level in 3QFY18 and at INR0.5b in 4QFY17). Net profit is likely to grow 25% YoY to INR2.75b. The stock trades at 3.9x FY19E and 3.2x FY20E BV. Maintain Buy.

Key issues to watch for  Management expectation of growth in home equity.  Asset quality trend, especially in home equity.  Trend in opex, given management’s intent to reduce expense ratio to 2.5% by FY20.

Quarterly Performance Y/E March

FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q Income from Operations 11,017 11,558 11,698 12,069 12,273 12,884 13,758 Interest Expenses 5,481 5,694 5,658 5,476 5,410 5,568 5,903 Net Interest Income 5,536 5,864 6,040 6,594 6,863 7,317 7,855 YoY Growth (%) 13.8 20.6 20.1 22.5 24.0 24.8 30.1 Other Op. and Other Income 68 69 60 65 76 76 76 Net Operating Income 5,604 5,933 6,100 6,659 6,939 7,392 7,931 YoY Growth (%) 14.3 21.0 20.5 22.6 23.8 24.6 30.0 Operating Expenses 2,264 2,527 2,588 2,754 2,777 3,089 3,237 Operating Profit 3,341 3,405 3,512 3,905 4,162 4,304 4,694 YoY Growth (%) 20.4 22.7 17.9 19.1 24.6 26.4 33.7 Provisions & Loan Losses 804 772 1,003 529 981 832 902 Profit before Tax 2,537 2,634 2,509 3,376 3,181 3,472 3,792 Tax Provisions 880 924 884 1,181 1,116 1,199 1,300 Net Profit 1,657 1,709 1,625 2,196 2,066 2,273 2,492 YoY Growth (%) 50.3 41.9 11.5 14.3 24.6 32.9 53.3 AUM Growth (%) 18.3 18.7 16.7 14.6 13.5 14.4 19.5 Disbursement Growth (%) 30.1 21.0 2.7 5.5 6.4 23.6 54.6 NIM on AUM (%) 7.3 7.5 7.5 7.9 7.9 8.2 8.3 Cost to Income Ratio (%) 40.4 42.6 42.4 41.4 40.0 41.8 40.8 Tax Rate (%) 34.7 35.1 35.2 35.0 35.1 34.5 34.3 E: MOSL Estimates; *Quaterly nos and full year nos will not tally due to different way of reporting financial nos

April 2018

Buy

4QE 14,560 6,253 8,307 26.0 81 8,388 26.0 3,333 5,055 29.5 875 4,180 1,431 2,749 25.2 21.6 40.8 8.2 39.7 34.2

FY2017

(INR M) FY2018E

45,790 22,308 23,482 13.4 529 24,011 12.0 10,133 13,878 6.9 3,106 10,771 3,868 6,903 21.4 15.2 13.5 7.6 41.7 35.0

53,097 23,133 29,964 27.6 685 30,650 27.6 12,436 18,214 31.2 3,589 14,625 5,046 9,580 38.8 21.6 31.5 7.9 40.6 34.5

164

March 2018 Results Preview | Sector: Financials

Dewan Housing Finance Bloomberg

DEWH IN

Equity Shares (m)

167 / 3

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

678 / 367

52-Week Range (INR)

1 / -9 / 31

1,6,12 Rel Perf. (%)

CMP: INR534 

167 / 3  

Financial Snapshot (INR m) Y/E March NII PPP Adj. PAT EPS (INR) EPS Gr. % BV (INR) RoAA (%) RoE (%) Payout (%) Valuations P/E (x) P/BV (x) P/ABV (x) Div. Yld. %

2017 15.1 16.2 9.3 29.6 18.5 252 1.2 14.4 15.7

2018E 19.8 21.3 11.7 37.3 25.9 282 1.2 14.0 17.4

2019E 26.5 28.3 15.0 48.0 28.7 321 1.3 15.9 17.4

2020E 33.1 35.3 18.9 60.5 26.0 371 1.3 17.5 17.4

18.0 2.1 2.1 0.7

14.3 1.9 1.9 1.0

11.1 1.7 1.7 1.3

8.8 1.4 1.4 1.7

Quarterly performance Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses YoY Growth (%) Operating Profits YoY Growth (%) Provisions Profit before Tax Tax Provisions Profit after tax YoY Growth (%) Loan growth (%) Borrowings growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

1Q 19,319 14,754 4,565 14.5 275 4,840 15.5 1,361 8.4 3,479 18.6 450 3,029 1,015 2,014 16.2 18.3 20.4 28.1 33.5

   

TP: INR720 (+35%)

Buy

Business growth has been good, despite the implementation of GST and RERA. We expect 34% YoY growth in disbursements off a low base. As a result, AUM is likely to grow 30% YoY. We expect stable margins. As a result, we expect 26% YoY growth in NII in the quarter. Calculated cost-to-income ratio will decline 60bp YoY to 26.6%. We factor in provisions of INR1.1b for 4QFY18 v/s INR1b in 3QFY18. Net profit is likely to grow 24% YoY to INR3.1b. The stock trades at 1.7x FY19E and 1.4x FY20E BV. Maintain Buy.

Key issues to watch for  Growth in non-retail portfolio v/s retail portfolio.  Margin guidance.  Asset quality trends in non-retail and LAP segments.  Guidance on cost structure.

FY17 2Q 3Q 21,227 23,151 16,307 18,001 4,920 5,150 21.0 20.8 451 514 5,371 5,664 18.3 21.6 1,398 1,497 6.1 9.1 3,972 4,167 23.2 26.9 450 450 3,522 3,717 1,196 1,269 2,326 2,448 29.0 31.7 16.0 16.9 38.5 28.0 26.0 26.4 34.0 34.2

4Q 22,835 17,475 5,360 22.6 943 6,303 29.1 1,717 10.8 4,586 37.7 830 3,756 1,273 2,483 30.9 16.7 33.1 27.2 33.9

1Q 23,529 17,869 5,660 24.0 549 6,209 28.3 1,570 15.4 4,640 33.4 830 3,810 1,205 2,605 29.3 19.8 34.4 25.3 31.6

FY18E 2Q 3Q 25,034 25,204 19,034 18,944 6,000 6,260 22.0 21.6 1,108 1,138 7,108 7,398 32.4 30.6 1,698 1,781 21.4 19.0 5,411 5,617 36.2 34.8 1,070 1,000 4,341 4,617 1,408 1,558 2,933 3,060 26.1 25.0 24.6 21.7 10.8 12.7 23.9 24.1 32.4 33.7

FY17 4QE 25,842 19,334 6,508 21.4 1,226 7,733 22.7 2,056 19.8 5,678 23.8 1,024 4,654 1,579 3,075 23.9 25.6 16.3 26.6 33.9

86,531 66,536 19,995 19.8 2,182 22,177 21.4 5,973 8.7 16,204 26.9 2,180 14,024 4,754 9,270 27.1 18.5 33.1 26.9 33.9

(INR M) FY18E 99,609 75,181 24,428 22.2 4,021 28,449 28.3 7,104 18.9 21,345 31.7 3,924 17,421 5,749 11,672 25.9 22.6 23.9 25.0 33.0

165

March 2018 Results Preview | Sector: Financials

Gruh Finance Bloomberg

CMP: INR594

GRHF IN

Equity Shares (m)

364.6

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



217 / 3

52-Week Range (INR)

714 / 368

1,6,12 Rel Perf. (%)



13 / 12 / 38

 

Financial Snapshot (INR b) 2017

2018E

2019E

2020E

NII

5.2

6.7

7.8

9.4

PPP

4.7

6.2

7.2

8.8

PAT

3.0

3.6

4.2

5.2



EPS (INR)

8.1

9.9

11.6

14.4

21.5

21.3

17.7

23.8



EPS Gr. % BV/Sh.INR

27.2

33.1

40.1

48.8

ABV/Sh.INR

Y/E March

27.2

33.1

40.1

48.8

RoA (%)

2.4

2.4

2.4

2.4

RoE (%)

32.5

32.7

31.7

32.4

Payout (%)

34.0

34.0

34.0

34.0

P/E (x)

73.0

60.2

51.1

41.3

P/BV (x)

21.9

17.9

14.8

12.2

0.5

0.6

0.7

0.8



Quarterly performance Y/E MARCH Operating Income Total income Y-o-Y Growth (%) Interest expenses Net Income Operating Expenses Operating Profit Y-o-Y Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit Y-o-Y Growth (%) Int Exp/ Int Earned (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

We expect loan growth to be largely in line with trend at 5% QoQ and 18% YoY. Calculated margins are likely to be largely stable YoY at 5.7%. As a result, NII is likely to grow 16% YoY to INR2.2b. Operating expense growth is expected to be 16%, resulting in 17% YoY growth in PPoP. We expect collections to be high. We expect provisions of INR26m for the quarter. Net profit is likely to grow 18% YoY to INR1.3b. The stock trades at 14.8x FY19E and 12.2x FY20E BV. Maintain Neutral.

FY17 1Q 3,463 3,463 16.7 2,241 1,222 201 1,021 17.5 125 896 294 601 19.6 64.7 16.5 32.8

Neutral

Key issues to watch for  Disbursement growth v/s loan growth.  Outlook on margins.  Management’s plan for geographic expansion.  Guidance on opex.

Valuations

Div. Yld. %

TP: INR550 (-7%)

2Q 3,674 3,674 17.8 2,351 1,323 273 1,050 20.1 91 958 339 619 19.9 64.0 20.7 35.4

(INR Million) FY17 FY18E

FY18E 3Q 3,810 3,810 17.8 2,297 1,513 219 1,294 29.8 327 967 326 640 19.2 60.3 14.5 33.8

4Q 4,161 4,161 12.3 2,307 1,854 241 1,613 23.3 14 1,600 495 1,104 25.8 55.4 13.0 31.0

1Q 3,981 3,981 15.0 2,365 1,617 254 1,362 33.4 279 1,083 361 722 20.0 59.4 15.7 33.3

2Q 4,141 4,141 12.7 2,415 1,726 303 1,422 35.5 228 1,194 417 777 25.5 58.3 17.6 34.9

3Q 4,285 4,285 12.5 2,512 1,773 251 1,522 17.7 242 1,281 459 821 28.3 58.6 14.1 35.9

4QE 4,773 4,773 14.7 2,614 2,159 280 1,879 16.5 26 1,853 577 1,276 15.6 54.8 13.0 31.1

14,871 14,874 16.6 9,196 5,678 935 4,742 23.6 322 4,420 1,454 2,967 21.8 61.8 16.5 32.9

17,176 17,179 15.5 9,905 7,274 1,089 6,186 30.4 775 5,411 1,813 3,598 21.3 57.7 15.0 33.5

166

March 2018 Results Preview | Sector: Financials

HDFC Bloomberg

HDFC IN

Equity Shares (m)

1663.4

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

3044 / 47

52-Week Range (INR)

3 / -2 / 8

Financial Snapshot (INR b) Y/E Mar

2017 2018E 2019E 2020E

NII

99.5

113.7

131.8

153.4

PAT

74.4

116.6

96.3

112.5

Adj. EPS.INR

35.7

39.9

47.7

56.3

EPS Gr. (%)

9.6

12.0

19.5

18.0

BV/Sh. INR

253.0

372.4

429.1

470.4

ABV/Sh. INR

201.2

244.9

304.3

345.5

2.0

1.9

1.9

1.9

Core RoE.%

18.9

18.3

17.5

17.3

Payout (%)

37.1

34.5

42.9

38.9

AP/E (x)

33.2

25.7

18.7

12.7

P/BV (x)

7.2

4.9

4.3

3.9

Valuation

AP/ABV (x)

5.9

4.2

2.9

2.1

Div. Yld (%)

1.0

0.7

1.0

1.0

Quarterly Performance Y/E March Net Interest Income YoY Change (%) Gross fee income Core Income YoY Change (%) Operating Expenses % of core income Comission expenses % of core income Core Operating profits YoY Change (%) Provisions Core PBT YoY Change (%) Profit on Sale of Inv. Dividend income One off expense/Prov Other Income PBT YoY Change (%) Provision for Tax PAT YoY Change (%) E: MOSL Estimates

April 2018



1982 / 1461

1,6,12 Rel Perf. (%)

RoAA (%)

CMP: INR1,830

1Q 22,291 9.3 1,888 24,178 9.2 2,274 9.4 1,369 5.7 20,535 7.3 650 19,885 6.7 9,216 536 -2,750 111 26,997 38.3 8,290 18,707 37.5

  

  

TP: INR2,225 (22%)

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 14% YoY, with calculated margins declining by 25bp YoY. Operating expenses will grow 10% YoY to INR2.1b. 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 INR1b v/s INR1.5b in 4QFY17. We expect reported PAT of INR23.4b in the quarter, manifesting a growth of 14% 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  Loan growth and uptick in corporate loans.  Loan growth in affordable housing segment.  Movement in spreads and margins (on individual loans), and asset quality trends.

FY17 2Q 22,972 14.5 1,966 24,938 14.3 2,048 8.2 1,344 5.4 21,546 14.1 950 20,596 12.1 281 4,580

3Q 25,755 18.0 1,948 27,703 17.2 2,142 7.7 1,011 3.6 24,550 19.5 1,170 23,380 17.7 34 1,783

4Q 28,524 15.5 2,684 31,208 13.1 1,904 6.1 1,300 4.2 28,005 13.8 1,480 26,525 12.1 486 2,246

1Q 25,852 16.0 2,081 27,933 15.5 2,536 9.1 1,704 6.1 23,693 15.4 850 22,843 14.9 21 615

118 25,575 10.1 7,310 18,265 13.9

114 25,312 15.6 8,300 17,012 11.9

125 29,382 -19.3 8,940 20,442 -21.6

109 23,587 -12.6 8,030 15,557 -16.8

FY18E 2Q 3Q 26,108 29,287 13.7 13.7 1,599 2,091 27,707 31,378 11.1 13.3 2,248 2,395 8.1 7.6 1,577 1,691 5.7 5.4 23,882 27,292 10.8 11.2 950 950 22,932 26,342 11.3 12.7 654 52,665 5,381 1,528 -15,750 104 117 29,071 64,902 13.7 156.4 8,060 8,200 21,011 56,702 15.0 233.3

4QE 32,472 13.8 2,136 34,608 10.9 2,096 6.1 2,062 6.0 30,450 8.7 995 29,455 11.0 1,159 2,885 138 33,637 14.5 10,259 23,378 14.4

FY17

(INR M) FY18E

99,542 14.5 8,486 108,029 13.6 8,368 7.7 5,024 4.7 94,637 13.8 4,250 90,387 12.3 10,017 9,144 -2,750 468 107,266 1.6 32,840 74,426 -1.3

113,719 14.2 7,906 121,625 12.6 9,275 7.6 7,033 5.8 105,317 11.3 3,745 101,572 12.4 54,500 10,408 -15,750 468 151,198 41.0 34,549 116,649 56.7

167

March 2018 Results Preview | Sector: Financials

Indiabulls Housing Bloomberg

IHFL IN

Equity Shares (m)

421.3

1,6,12 Rel Perf. (%)



AUM growth is expected to remain robust at 9% QoQ and 28% YoY.

1439 / 922



Total income (including investment income) should grow 24% YoY to INR18.5b.



Expenses (including provisions) are likely to decrease 11% YoY to INR4.6b (off a high base of post-demonetization 4QFY17).



Asset quality is expected to remain stable.



PAT is likely to grow 25% YoY to INR10.5b during the quarter.



The stock trades at 3.5x FY19E and 3.1x FY20E BV. Maintain Buy.

5 / -1 / 18

Financial Snapshot (INR b) Y/E Mar

2017 2018E 2019E 2020E

Net Fin inc 35.3 49.7 60.8 75.8 PPP 45.5 60.6 69.0 84.8 EPS INR 68.6 90.9 104.6 127.4 EPS Gr. % 23.2 32.6 15.0 21.8 BV/Sh. INR 286.0 324.0 367.0 420.0 RoA on AUM (%) 3.4 3.4 3.0 2.8 RoE (%) 25.5 29.8 30.3 32.4 Payout (%) 39.3 50.0 50.0 50.0 Valuations P/E (x) 18.8 14.2 12.4 10.1 P/BV (x) 4.5 4.0 3.5 3.1 P/ABV (x) Div. Yld %

4.5 2.1

4.0 3.5

3.5 4.0

Quarterly Performance Y/E March Income from operations Other Income Total income Y-o-Y Growth (%) Interest expenses Net Income Y-o-Y Growth (%) Operating Expenses Profit before tax Y-o-Y Growth (%) Tax Provisions Net Profit Minority Int Net Profit after MI Y-o-Y Growth (%) AUM Growth (%) C/I Ratio incl provisions (%) Tax Rate (%) E: MOSL Estimates

April 2018

Buy

545 / 8

M. Cap. (INR b)/(USD b) 52-Week Range (INR)

CMP: INR1,292 TP: INR1,630 (+26%)

Key issues to watch for  AUM growth trend and guidance.  Movement in incremental spreads and margins, especially given the sharp home loan rate cuts.  Asset quality trends in the corporate and LAP segments.

3.1 4.9

(INR M) 1Q 23,720 2,255 25,975 28.3 14,109 11,866 33.9 3,116 8,750 26.4 2,401 6,349 -49 6,301 23.2 31.5 26.3 27.4

FY17 2Q 25,098 3,651 28,749 28.0 16,279 12,470 24.6 3,258 9,212 24.3 2,352 6,861 -18 6,843 23.2 29.3 26.1 25.5

3Q 25,859 4,186 30,045 30.2 16,329 13,716 26.8 3,658 10,058 24.9 2,555 7,502 13 7,515 24.7 30.8 26.7 25.4

4Q 29,314 2,935 32,249 21.8 17,391 14,858 15.6 5,160 9,698 9.0 1,325 8,373 32 8,405 24.4 32.9 34.7 13.7

1Q 29,560 2,690 32,250 24.2 17,722 14,528 22.4 3,928 10,600 21.1 2,764 7,836 46 7,882 25.1 33.0 27.0 26.1

FY18E 2Q 30,670 2,755 33,425 16.3 18,355 15,070 20.8 3,935 11,135 20.9 2,615 8,520 91 8,611 25.8 33.1 26.1 23.5

3Q 33,492 7,565 41,057 36.7 19,531 21,525 56.9 5,932 15,594 55.0 3,939 11,655 23 11,677 55.4 31.8 27.6 25.3

FY17 FY18E 4QE 35,871 103,990 129,593 3,024 13,027 16,034 38,895 117,017 145,626 20.6 26.8 24.4 20,419 64,108 76,028 18,475 52,910 69,599 24.3 24.4 31.5 4,556 15,192 18,351 13,919 37,718 51,248 43.5 20.5 35.9 3,494 8,633 12,812 10,425 29,085 38,436 50 -22 210 10,475 29,064 38,226 24.6 24.0 31.5 28.1 32.9 28.1 24.7 25.1 22.9 25.0

168

March 2018 Results Preview | Sector: Financials

L&T Finance Bloomberg

LTFH IN

Equity Shares (m)

1817.2

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

295 / 5

52-Week Range (INR)

CMP: INR162 

214 / 119

1,6,12 Rel Perf. (%)

2 / -23 / 20



Financial Snapshot (INR b) Y/E March

2017

2018E

NII PPP PAT EPS (INR) BV/Sh. INR RoAA (%) RoE (%) Payout (%) Valuation P/E (x) P/BV (x)

31.4 26.7 9.2 5.2 44.3 1.3 12.4 19.8

37.2 36.1 13.3 6.7 61.7 1.7 13.3 15.2

2019E 2020E 43.6 43.5 17.8 9.0 69.3 1.9 13.7 14.9

50.0 51.4 22.5 11.3 79.0 2.1 15.3 14.7

30.9 3.7

24.1 2.6

18.1 2.3

14.3 2.1

Div. Yld (%)

0.6

0.5

0.7

0.9

Quarterly performance Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Other income Total Income YoY Growth (%) Operating Expenses YoY Growth (%) Operating Profits YoY Growth (%) Provisions Profit before Tax Tax Provisions P/L of Associate Company Profit after tax YoY Growth (%) Loan growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

1Q 19,965 11,557 8,408 14.7 342 8,751 13.1 3,222 3.6 5,529 19.4 2,530 2,999 951 26 2,074 8.2 18.2 36.8 31.7



 

TP: INR240 (+48%)

Buy

The company is likely to report strong numbers in the rural and housing finance segment. Performance in the wholesale finance segment is a key monitorable. We expect 22% YoY growth in the focus segments, driven by 33%/47%/11% YoY growth in the rural/housing/wholesale segments. AUM (including de-focused book) is likely to cross INR790b. Total income is likely to grow 33% YoY, driven by loan mix (rural and housing have higher margins than wholesale finance) and increased contribution from non-fund-based businesses. Asset quality is likely to remain stable. We model provisions of INR5.4b, as against INR4.9b in 3QFY18 and INR6.9b in 4QFY17. The stock trades at 2.3x FY19E and 2.1x FY20E BV. Maintain Buy.

Key issues to watch for  Commentary on outlook for rural and housing finance segment.  Competition in the wholesale finance segment, especially renewables.  Asset quality outlook in the builder financing segment.  RoE target post capital infusion.

FY17 2Q 20,876 11,532 9,343 17.4 540 9,883 17.7 3,327 -1.9 6,557 31.0 3,202 3,354 888 15 2,481 16.3 18.5 33.7 26.5

3Q 20,940 11,602 9,338 16.0 679 10,018 17.9 3,154 -1.4 6,864 29.7 3,282 3,582 811 (63) 2,709 28.7 10.4 31.5 34.5

4Q 21,626 11,580 10,046 20.9 755 10,801 22.3 3,063 -10.7 7,738 43.2 6,885 853 -2,286 19 3,158 34.3 14.4 28.4 -267.9

1Q 22,587 12,326 10,261 22.0 1,071 11,332 29.5 3,277 1.7 8,055 45.7 4,587 3,468 378 2 3,092 49.1 17.2 28.9 10.9

FY18E 2Q 3Q 23,838 26,302 12,967 13,596 10,871 12,706 16.4 36.1 1,109 709 11,980 13,415 21.2 33.9 3,419 4,006 2.8 27.0 8,561 9,409 30.6 37.1 4,707 4,928 3,855 4,480 230 636 (22) (4) 3,602 3,841 45.2 41.8 18.8 22.6 28.5 29.9 6.0 14.2

FY17 4QE 27,138 14,284 12,854 28.0 1,553 14,407 33.4 4,313 40.8 10,094 30.4 5,444 4,650 663 15 4,002 26.7 18.7 29.9 14.3

83,406 46,270 37,136 17.3 2,317 39,453 17.9 12,765 -2.8 26,688 31.2 15,899 10,789 364 -3 10,427 87 10.4 32.4 3.4

(INR M) FY18 99,865 53,173 46,692 25.7 4,441 51,133 29.6 15,014 17.6 36,119 35.3 19,665 16,454 1,907 -9 14,556 39.6 19.6 29.4 11.6

169

March 2018 Results Preview | Sector: Financials

LIC Housing Finance Bloomberg

LICHF IN

Equity Shares (m)

505.0

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

279 / 4

52-Week Range (INR)

11 / -20 / -23 

Financial Snapshot (INR b) Y/E March

2017 2018E

2019E

2020E

NII

36.5

36.6

40.5

47.1

PPP

32.4

32.7

36.1

42.2

Adj. PAT

19.3

19.7

22.4

26.6

Adj. EPS INR

38.2

38.9

44.3

52.6

EPS Gr. (%)

16.3

1.8

13.8

18.7

BV/Sh. INR

219.0

251.0

286.0

328.0

1.5

1.3

1.4

1.4

RoE (%)

19.1

16.6

16.5

17.1

Payout (%)

18.8

19.7

19.7

19.7

14.4

14.2

12.5

10.5

Valuations P/E (x)



794 / 478

1,6,12 Rel Perf. (%)

RoAA (%)

CMP: INR552

P/BV (x)

2.5

2.2

1.9

1.7

Div. Yld %

1.1

1.2

1.4

1.6

  

TP: INR610 (+10%)

Neutral

We expect loan growth of 13% YoY, driven primarily by the LAP segment. The share of builder loans is likely to remain ~4% of overall book. Growth in the retail home loan book would be the key monitorable. Calculated margins are likely to remain largely stable at 2.4%, driven by falling loan yields. Operating expenses would decrease 4% YoY, with the C/I ratio increasing 40bp YoY to ~18%. Asset quality is likely to remain stable. We model provisions of INR420m as against INR484m in 3QFY18 and INR893m in 4QFY17. The stock trades at 1.9x FY19E and 1.7x FY20E BV. Maintain Neutral.

Key issues to watch for  Trend in incremental spreads.  Performance of corporate loan book and loans against property.  Management commentary on increasing competitive intensity and margin trends.

Quarterly Performance

(INR M)

Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit YoY Growth (%) Loan Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

1Q 33,263 25,018 8,245 25.1 535 8,780 24.2 1,382 7,399 18.7 1,165 6,234 2,156 4,078 6.7 15.4 15.7 34.6

FY17 2Q 3Q 34,283 35,125 25,626 25,972 8,657 9,154 20.8 22.6 616 362 9,273 9,516 18.8 18.7 1,364 1,407 7,909 8,109 17.3 19.2 303 453 7,606 7,656 2,659 2,663 4,948 4,993 20.2 19.2 14.9 15.3 14.7 14.8 35.0 34.8

4Q 36,096 25,699 10,396 26.6 523 10,919 22.7 1,965 8,954 22.3 893 8,061 2,769 5,292 18.1 15.5 18.0 34.4

1Q 36,332 26,962 9,370 13.6 214 9,583 9.1 1,354 8,229 11.2 1,045 7,185 2,484 4,701 15.3 15.4 14.1 34.6

FY18E 2Q 3Q 36,581 37,124 27,705 28,148 8,875 8,976 2.5 -1.9 586 552 9,461 9,528 2.0 0.1 1,402 1,477 8,059 8,050 1.9 -0.7 578 484 7,481 7,566 2,589 2,655 4,891 4,911 -1.1 -1.6 15.5 15.4 14.8 15.5 34.6 35.1

4QE 38,197 28,540 9,657 -7.1 568 10,225 -6.4 1,880 8,345 -6.8 420 7,925 2,766 5,159 -2.5 12.9 18.4 34.9

FY17

FY18E

138,767 102,315 36,452 23.8 2,036 38,489 21.1 6,118 32,371 19.4 2,813 29,558 10,247 19,311 16.3 15.5 15.9 34.7

148,234 111,356 36,878 1.2 1,919 38,797 0.8 6,114 32,684 1.0 2,527 30,156 10,494 19,662 1.8 12.9 15.8 34.8

170

March 2018 Results Preview | Sector: Financials

Mahindra Financial Services Bloomberg

MMFS IN

Equity Shares (m)

614.0

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

291 / 4

52-Week Range (INR)

CMP: INR473 

524 / 290 13 / 6 / 37



Y/E Mar

2017 2018E 2019E 2020E



NII PPP

33.2 19.3

41.6 25.8

48.6 30.1

55.9 34.4



PAT

4.0

8.5

11.8

14.1

EPS (INR) 7.1 BV/Sh.INR 114.6 ABV/Sh.INR 94.8 RoA on AUM (%) 1.0 RoE (%) 6.4 Payout (%) 39.2 Valuations P/E (x) 66.8 P/BV (x) 4.1 P/ABV (x) 5.0 Div. Yld.% 0.6

13.9 148.6 121.7 1.9 10.9 41.0

19.2 160.0 133.0 2.2 12.5 41.0

23.0 173.6 147.5 2.3 13.8 41.0

34.1 3.2 3.9 1.0

24.6 3.0 3.6 1.4

20.6 2.7 3.2 1.7

1,6,12 Rel Perf. (%)

Financial Snapshot (INR b)

 

TP: INR575 (+22%)

Buy

There has been good traction in vehicle sales in the quarter, which should translate into 17% YoY AUM growth in the quarter. Calculated margins are expected to increase over 30bp, due to lower cost of funds. As a result, we expect 19% NII growth in the quarter. With 16% growth in operating expenses, PPoP growth should be ~20% YoY. GNPL ratio should decline to ~10% as 4Q is a seasonally strong quarter. We factor in INR2b provisions in 4QFY18 v/s INR2b in 3QFY18 and INR3.6b in 4QFY17. The stock trades at 3x FY19E and 2.7x FY20E BV. Maintain Buy.

Key issues to watch for  Management commentary on performance of rural areas.  Commentary on pick-up in the CV cycle.  Asset quality trend in the wake of good monsoons.  Margin and growth trends.  Performance of subsidiaries.

Quarterly Performance

(INR M)

Y/E March Operating Income Other Income Total income YoY Growth (%) Interest Expenses Net Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions Profit before Tax Tax Provisions Net Profit YoY Growth (%) AUM growth (%) Borrowings growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

1Q 13,664 93 13,757 0.5 6,910 6,847 -5.4 3,260 3,587 -22.1 2,245 1,341 472 870 -2.2 10.0 11.1 47.6 35.2

FY17 2Q 3Q 14,916 14,904 241 130 15,157 15,035 5.4 6.7 7,086 7,441 8,071 7,593 2.9 2.7 3,567 3,645 4,504 3,949 -10.5 -11.2 3,042 4,190 1,462 -241 514 -85 948 -156 -35.1 -123.3 14.0 12.9 16.4 15.8 44.2 48.0 35.2 35.2

4Q 18,255 173 18,427 9.1 7,137 11,290 10.8 4,037 7,252 6.7 3,614 3,638 1,298 2,341 -36.8 13.9 17.8 35.8 35.7

1Q 15,924 107 16,031 16.5 7,327 8,704 27.1 3,810 4,894 36.5 4,258 636 162 474 -45.5 13.9 17.8 43.8 25.5

FY18E 2Q 3Q 16,608 18,340 221 124 16,829 18,464 11.0 22.8 7,498 7,629 9,331 10,835 15.6 42.7 3,694 4,282 5,636 6,553 25.1 65.9 4,446 1,989 1,190 4,563 410 1,793 780 2,770 -17.7 -1,871.5 13.8 13.3 16.1 8.8 39.6 39.5 34.5 39.3

4QE 20,832 184 21,016 14.1 7,637 13,379 18.5 4,688 8,691 19.8 2,031 6,659 2,169 4,490 91.8 16.7 14.3 35.0 32.6

FY17

FY18E

61,739 636 62,375 5.6 28,574 33,801 3.5 14,509 19,292 -7.6 13,091 6,202 2,198 4,003 -40.5 0.0 13.9 42.9 35.4

71,703 636 72,340 16.0 30,091 42,248 25.0 16,474 25,774 33.6 12,725 13,050 4,534 8,515 112.7 0.0 8.0 39.0 34.7

171

March 2018 Results Preview | Sector: Financials

MAS Financial Bloomberg

MASFIN IN

Equity Shares (m)

54.7

M. Cap. (INR b)/(USD b) 52-Week Range (INR)

CMP: INR607

33 / 1



701 / 541

1,6,12 Rel Perf. (%)

4/-/

Financial Snapshot (INR b) Y/E Mar

2017 2018E 2019E 2020E

NII 1,721.0 2.5 3.2 3.9 PPP 1,333.0 2.0 2.6 3.2 PAT 646.0 1.0 1.3 1.6 EPS (INR) 15.0 18.6 24.2 30.0 BV/Sh (INR) 66.2 132.9 151.0 173.5 RoA on AUM. % 2.1 2.7 2.8 2.8 RoE (%) 30.5 20.2 17.0 18.5 Valuations P/E (x) 40.4 32.6 25.1 20.2 P/BV (x) 9.2 4.6 4.0 3.5

Quarterly Performance Y/E March Total Income Interest expenses Net Income Growth Y-o-Y (%) Operating Expenses Operating Profits Growth Y-o-Y (%) Provisions Profit before tax Growth Y-o-Y (%) Tax Provisions Net Profit Growth Y-o-Y (%) Int. Exp/Int. Income % Cost to Income Ratio % Prov to Operating Profits % Tax Rate % E: MOSL Estimates

April 2018

   

TP: INR750 (+24%)

Buy

The company is likely to have a stable quarter. We expect AUM growth of 26% YoY, driven by 25% disbursement growth. Loan mix is likely to be largely stable. Calculated margins are expected to expand ~200bp on a YoY basis to 8.6%. As a result, NII growth should come in at 67%. With 45% YoY growth in opex, C/I ratio is likely to decline 400bp to 28.6%. Asset quality is likely to remain stable. We expect provisions to be sequentially stable at INR1.3b. Net profit is likely to grow 97% YoY to INR294m. The stock trades at 4x FY19E and 3.5x FY20E BV. Maintain Buy.

Key issues to watch for  Guidance on growth trends and loan mix.  Asset quality performance.  Management commentary on increasing competitive intensity and margin trends.

1Q 835 389 445

FY17 2Q 866 384 482

3Q 874 385 489

4Q 840 355 485

142 303

143 340

160 329

159 326

70 233

53 286

47 282

96 230

83 149

96 190

97 185

80 149

46.6 32.0 23.2 35.8

44.4 29.6 15.7 33.5

44.0 32.6 14.3 34.4

42.2 32.8 29.6 35.1

1Q 978 375 603 35.3 160 443 46.2 91 352 51.4 122 230 54.3 38.4 26.5 20.5 34.6

FY18E 2Q 3Q 1,061 1,130 396 395 665 735 38.0 50.4 178 225 488 510 43.6 54.9 103 123 385 388 34.3 37.3 134 134 251 253 31.8 36.9 37.3 34.9 26.7 30.6 21.1 24.1 34.8 34.6

FY17 4QE 1,216 406 811 67.0 232 579 77.6 128 451 96.6 157 294 97.4 33.3 28.6 22.1 34.8

3,415 1,513 1,902 604 1,298 267 1,031 357 674 44.3 31.8 20.6 34.6

(INR M) FY18E 4,386 1,572 2,814 47.9 794 2,020 55.6 445 1,576 52.9 547 1,029 52.7 35.8 28.2 22.0 34.7

172

March 2018 Results Preview | Sector: Financials

Muthoot Finance Bloomberg

MUTH IN

Equity Shares (m)

399.5

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

166 / 3

52-Week Range (INR)

526 / 360

1,6,12 Rel Perf. (%)

9 / -18 / -2

Y/E March

2017 2018E 2019E 2020E

NII

33.6

41.5

41.7

46.1

PPP

22.0

30.1

29.3

32.4

PAT

11.8

17.6

17.8

19.9

EPS (INR)

29.5

44.0

44.7

49.8

163.1

196.5

230.3

268.0

4.6

6.3

5.9

6.0

19.4

24.5

20.9

20.0

1.4

2.1

2.1

2.4

14.1

9.5

9.3

8.4

2.6

2.1

1.8

1.6

RoA on AUM (%) RoE (%) Div. Yld. (%) P/E (x) P/BV (x)

Quarterly Performance Y/E March Income from operations Other operating income Total Operating income YoY Growth (%) Other income Total Income YoY Growth (%) Interest Expenses Net Income Operating Expenses Operating Profit YoY Growth (%) Provisions Profit before Tax Tax Provisions Net Profit YoY Growth (%) E: MOSL Estimates

April 2018

   

Financial Snapshot (INR b)

BV/Sh.(INR)

CMP: INR417

1Q 12,712 252 12,964 13.7 44 13,008 13.8 5,571 7,437 3,025 4,413 50.1 176 4,237 1,534 2,703 47.6

  

TP: INR475 (+14%)

Neutral

AUM is expected to grow 6% YoY to INR289b. Margins should contract ~130bp YoY to 15.9% due to the high base in 4QFY17. We expect total income to decline 3% YoY to INR11.4b. Asset quality is likely to be stable in 4QFY18, as collections should be high. We estimate provisions of INR515m as against INR564m in 3QFY18. PAT is expected to grow 51% YoY to INR4.9b. The stock trades at 1.8x FY19E and 1.6x 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.

FY17 2Q 13,497 320 13,817 21.6 45 13,862 21.6 5,937 7,925 3,130 4,795 69.5 171 4,624 1,657 2,967 70.0

3Q 13,225 184 13,409 17.8 56 13,464 18.0 5,970 7,494 3,000 4,495 51.2 39 4,456 1,545 2,911 55.9

4Q 16,962 135 17,096 18.2 36 17,132 18.0 5,460 11,672 3,349 8,323 37.6 2,430 5,893 2,675 3,218 21.3

1Q 13,758 165 13,923 7.4 63 13,986 7.5 5,326 8,660 3,075 5,585 26.6 66 5,518 2,007 3,511 29.9

FY18E 2Q 3Q 16,385 15,227 264 310 16,649 15,537 20.5 15.9 50 130 16,699 15,667 20.5 16.4 4,889 4,689 11,810 10,978 3,114 3,212 8,696 7,766 81.4 72.8 1,170 564 7,526 7,202 2,985 2,565 4,542 4,636 53.1 59.3

4QE 15,619 211 15,830 -7.4 107 15,937 -7.0 4,603 11,335 3,308 8,026 -3.6 515 7,512 2,630 4,882 51.7

FY17

(INR M) FY18E

56,395 891 57,286 17.8 181 57,467 17.9 22,938 34,529 12,503 22,026 48.9 2,816 19,211 7,411 11,799 45.7

60,989 950 61,939 8.1 350 62,289 8.4 19,507 42,782 12,710 30,073 36.5 2,315 27,759 10,187 17,572 48.9

173

March 2018 Results Preview | Sector: Financials

PNB Housing Finance Bloomberg

PNBHOUSI IN

Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

165.6 211 / 3 1715 / 1006 7 / -22 / -6

2017 2018E 2019E 2020E 10.0 15.1 21.0 27.4 9.1 15.1 20.9 27.6 5.2 8.4 11.2 14.6 31.6 50.9 67.5 88.1 329.5 369.8 423.2 492.9 1.4 1.5 1.4 1.3 13.8 14.6 17.0 19.2 22.8 20.9 20.9 20.9 40.3 25.0 18.9 14.5 3.9 3.4 3.0 2.6 0.5 0.7 1.0 1.2

Quarterly performance (INR m) Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Other income Total Income YoY Growth (%) Operating Expenses YoY Growth (%) Operating Profits YoY Growth (%) Provisions Profit before Tax Tax Provisions Profit after tax YoY Growth (%) Loans growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018

  

Financial Snapshot (INR b) Y/E March NII PPP PAT EPS (INR) BV/Sh. (INR) RoAA (%) RoE (%) Payout (%) P/E (x) P/BV (x) Div. Yield (%)

CMP: INR1,273 TP: INR1,750 (+37%)

   

Buy

The company will continue its robust growth trajectory. AUM is expected to grow 12% QoQ and 55% YoY to INR644b. Calculated margins are likely to decline ~40bp YoY/ 14bp QoQ to 2.9%, led by a decline in yields. As a result, total income is expected to grow 37% YoY to INR5.5b. Asset quality is likely to remain largely stable. GNPL ratio in the prior quarter was 0.42%. We estimate provisions of INR594m as against INR561m in 3QFY18. PAT is expected to grow 53% YoY to INR2.33b. The stock trades at 3x FY19E and 2.6x FY20E BV. Maintain Buy.

Key issues to watch for  Management commentary on business growth and steps taken to sustain AUM growth.  Impact of RERA.  Plans of branch expansion.  Movement in yields and margins, with declining cost of funds.

1Q 8,172 6,080 2,092

FY17 2Q 9,130 6,847 2,284

3Q 9,376 6,731 2,645

4Q 10,106 6,779 3,327

457 2,549

572 2,856

611 3,257

654 3,981

797

1,008

870

898

1,752

1,848

2,387

3,083

280 1,472 513 959

-225 2,073 696 1,377

308 2,079 702 1,378

667 2,416 892 1,524

31.3 34.8

35.3 33.6

41.2 26.7 33.7

41.8 22.6 36.9

1Q 10,965 7,529 3,436 64.2 958 4,394 72.4 1,082 35.7 3,312 89.1 481 2,831 984 1,848 92.6 42.4 24.6 34.7

FY18E 2Q 12,225 8,361 3,865 69.2 933 4,798 68.0 1,101 9.2 3,697 100.1 503 3,194 1,114 2,080 51.1 51.2 23.0 34.9

3Q 13,357 9,250 4,107 55.2 1,029 5,136 57.7 1,237 42.2 3,899 63.3 561 3,339 1,164 2,175 57.8 61.1 24.1 34.9

4QE 14,685 10,310 4,375 31.5 1,080 5,455 37.0 1,293 44.0 4,162 35.0 594 3,568 1,239 2,330 52.9 61.1 23.7 34.7

FY17

FY18E

36,785 26,437 10,348 45.3 2,294 12,642 50.6 3,573 41.7 9,069 54.5 1,029 8,040 2,803 5,237 60.0 41.8 28.3 34.9

51,233 35,450 15,783 52.5 4,000 19,783 56.5 4,712 31.9 15,070 66.2 2,138 12,932 4,500 8,432 61.0 61.1 23.8 34.8

174

March 2018 Results Preview | Sector: Financials

Repco Home Finance Bloomberg

REPCO IN

Equity Shares (m)

62.6

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

36 / 1

52-Week Range (INR)

2 / -16 / -32

Financial Snapshot (INR b) 2017 2018E 2019E 2020E

NII

3.7

4.3

4.8

5.5

PPP

3.3

3.8

4.3

5.0

PAT

1.8

2.1

2.4

2.9

29.1

32.9

39.0

46.0

181.8

212.4

248.7

291.5

2.2

2.2

2.3

2.3

17.4

16.7

16.9

17.0

0.0

7.1

7.0

7.0

EPS (INR) BV/Sh. (INR) RoAA (%) RoE (%) Payout (%) Valuation P/E (x)

18.9

16.8

14.2

12.0

P/BV (x)

3.0

2.6

2.2

1.9

Div. Yield (%)

0.4

0.4

0.4

0.5

REPCO: Quarterly performance Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Other income Total Income YoY Growth (%) Operating Expenses YoY Growth (%) Operating Profits YoY Growth (%) Provisions Profit before Tax Tax Provisions Profit after tax YoY Growth (%) Borrowings growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

April 2018



923 / 515

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR573

1Q 2,390 1,550 840 26.5 80 920 26.0 149 -3.5 771 33.9 179 592 196 395 30.8 25.3 16.2 33.2

   

TP: INR740 (+29%)

Buy

Our interactions at the ground level suggest that the issues related to property registration in Tamil Nadu (TN) are being sorted out, but slowly. However, lack of availability of sand still remains an issue. Hence, we expect loan growth to remain subdued at 11% in 4QFY18. Calculated margins are likely to remain stable at 5.1% on account of stable cost of funds. As a result, NII growth will be 12% YoY. C/I ratio is expected to decline almost 150bp YoY to 16.7%. GNPL is expected to improve seasonally. Provisions are expected to be INR164m v/s INR194m in the prior quarter. The stock trades at 2.3x FY19E and 2x FY20E BV. Maintain Buy.

Key issues to watch for  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.

FY17 2Q 2,499 1,597 902 22.0 98 1,000 22.0 163 -6.8 837 29.9 127 710 253 457 17.0 22.6 16.3 35.7

3Q 2,589 1,682 907 16.2 67 974 15.5 163 1.9 811 18.7 96 714 250 464 20.4 21.1 16.8 35.0

4Q 2,663 1,635 1,028 20.7 73 1,102 16.8 200 30.7 902 14.1 116 786 280 506 19.8 15.6 18.2 35.6

1Q 2,587 1,628 959 14.2 71 1,030 12.0 171 14.9 859 11.4 167 692 241 452 14.2 11.7 16.6 34.8

FY18E 2Q 2,715 1,622 1,093 21.2 95 1,188 18.8 179 9.4 1,009 20.6 166 843 285 559 22.3 8.9 15.0 33.7

3Q 2,694 1,623 1,071 18.1 82 1,153 18.3 217 33.0 935 15.3 194 741 256 485 4.4 6.9 18.9 34.6

4QE 2,830 1,683 1,146 11.5 87 1,233 11.9 206 3.1 1,027 13.9 164 862 298 564 11.5 9.0 16.7 34.6

FY17

(INR M) FY18E

10,140 6,463 3,677 21.1 319 3,996 19.8 676 5.1 3,320 23.3 519 2,802 979 1,823 21.4 15.6 16.9 35.0

10,826 6,557 4,269 16.1 334 4,603 15.2 773 14.5 3,830 15.4 691 3,139 1,080 2,059 13.0 0.0 16.8 34.4

175

March 2018 Results Preview | Sector: Financials

Shriram City Union Finance Bloomberg

SCUF IN

Equity Shares (m)

65.9

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

146 / 2

52-Week Range (INR)

CMP: INR2,222 

2648 / 1867

1,6,12 Rel Perf. (%)

13 / 3 / -16



Financial Snapshot (INR b) Y/E March NII PPP PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoA (%) RoE (%) Payout (%) Valuations P/E (x) P/BV (x) Div. Yield (%)

2017 2018E 2019E 2020E 28.5 34.7 39.3 45.5 17.2 20.9 23.5 27.3 5.6 7.6 9.1 11.0 84 115 139 167 5 37 20 21 763 860 977 1121 2.7 3.2 3.4 3.5 11.7 14.2 15.1 15.9 7.0 16.0 16.0 14.0 26.3 2.9 0.7

Quarterly Performance Y/E MARCH

19.3 2.6 0.7

16.0 2.3 0.8

13.3 2.0 0.9

 



TP: INR2,550 (+15%)

We expect no change in disbursements sequentially or annually and model for a disbursement of INR63b, resulting in 16% YoY AUM growth. Calculated spreads should expand 60bp YoY on account of declining cost of funds. Hence, NII growth is expected to grow 22% YoY. Higher growth in operating expenses (32% YoY) is expected to taper PPoP growth to 16% YoY. We expect asset quality to remain largely stable. We factor in provisions of INR2.8b as against INR2b in 3QFY18 and INR4.1b in 4QFY17. The stock trades at 2.3x FY19E and 2x FY20E BVPS. Buy.

Key issues to watch for  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.

FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE Interest Income 10,535 11,153 11,557 11,071 12,175 12,849 13,381 13,066 Interest expenses 3,672 3,802 3,933 3,937 4,019 4,125 4,224 4,355 Net Interest Income 6,863 7,351 7,624 7,134 8,156 8,725 9,157 8,711 Y-o-Y Growth (%) 19.7 22.1 17.7 14.6 18.9 18.7 20.1 22.1 Fees and Other Income 15 3 6 5 17 4 152 13 Net Operating Income 6,878 7,354 7,630 7,139 8,174 8,728 9,308 8,724 Y-o-Y Growth (%) 19.2 22.1 17.8 11.8 18.8 18.7 22.0 22.2 Operating Expenses 2,739 2,829 2,977 2,815 3,197 3,316 3,859 3,710 Operating Profit 4,139 4,525 4,653 4,324 4,976 5,412 5,449 5,014 Y-o-Y Growth (%) 21.3 29.3 19.5 26.2 20.2 19.6 17.1 16.0 Provisions 1,356 1,390 2,242 4,118 1,998 2,372 2,046 2,778 Profit before Tax 2,784 3,135 2,412 206 2,978 3,041 3,404 2,237 Tax Provisions 966 1,090 835 86 1,040 1,058 1,148 819 Net Profit 1,818 2,045 1,577 120 1,939 1,983 2,255 1,418 Y-o-Y Growth (%) 23.1 34.3 -9.5 -78.4 6.6 -3.0 43.0 1,080.3 Int Exp/ Int Earned (%) 34.9 34.1 34.0 35.6 33.0 32.1 31.6 33.3 Cost to Income Ratio (%) 39.8 38.5 39.0 39.4 39.1 38.0 41.5 42.5 Tax Rate (%) 34.7 34.8 34.6 41.6 34.9 34.8 33.7 36.6 E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos

April 2018

Buy

FY17

(INR m) FY18E

43,796 15,344 28,452 19.1 76 28,528 18.2 11,359 17,168 25.8 8,632 8,536 2,976 5,561 5.0 35.0 39.8 34.9

51,471 16,722 34,749 22.1 185 34,934 22.5 14,082 20,852 21.5 9,193 11,659 4,064 7,595 36.6 32.5 40.3 34.9

176

March 2018 Results Preview | Sector: Financials

Shriram Transport Finance Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

SHTF IN 226.9 335 / 5 1543 / 898

CMP: INR1,477  

12 / 33 / 23

Financial Snapshot (INR b) Y/E March 2017 2018E 2019E 2020E Net Inc. 55.2 66.8 76.4 88.1 PPP 43.7 53.1 60.7 70.3 PAT 12.6 17.6 23.8 28.6 EPS (INR) 55.4 77.5 104.8 125.9 EPS Gr. (%) 6.7 39.8 35.3 20.2 BV/Sh (INR) 498 556 642.4 746.2 RoA on AUM (%) 2.0 2.6 3.1 3.2 RoE (%) 11.7 14.7 17.5 18.1 Payout (%) 20.9 17.4 17.4 17.4 Valuations P/E (x) 26.6 18.8 13.9 11.7 P/BV (x) 3.0 2.6 2.3 2.0 Div. Yield (%) 0.7 0.8 1.1 1.3

   

TP: INR1,750 (+25%)

SHTF’s AUM growth is expected to sustain at 18% YoY in 4QFY18. The company will continue to benefit from declining cost of funds, which should help offset yield pressure. We expect calculated NIM on AUM to improve ~40bp YoY to 7.7%. As a result, NII growth is expected to be strong at 25% YoY. Operating expenses are likely to grow 38.5% YoY, resulting in a 200bp+ YoY increase in C/I ratio. Asset quality is expected to remain stable. We factor in INR8.7b provisions v/s INR5.9b in 3QFY18 and INR9.1b in 4QFY17. The stock trades at 2.3x FY19E and 2x FY20E BVPS. Maintain Buy.

Key issues to watch for  CV demand in FY19, volume gain on BS4 to BS6 switch.  Movement in borrowing costs and margins.  Asset quality trends, given impact of GST.

Quarterly Performance Y/E March

FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q Interest Income 24,764 24,626 24,438 24,185 26,198 26,761 27,573 Interest expenses 13,165 13,358 12,825 12,746 12,835 13,082 13,540 Net Interest Income 11,598 11,268 11,613 11,440 13,364 13,679 14,033 YoY Growth (%) 15.5 8.9 1.5 -10.2 15.2 21.4 20.8 Securitisation income 1,876 2,262 2,508 2,647 2,488 2,645 3,061 Net Income (Incl. Securitization) 13,474 13,530 14,121 14,087 15,852 16,324 17,094 YoY Growth (%) 18.6 13.4 6.9 -2.4 17.6 20.6 21.1 Fees and Other Income 167 169 183 240 218 324 221 Net Operating Income 13,641 13,699 14,304 14,327 16,070 16,647 17,315 YoY Growth (%) 18.4 12.8 6.8 -2.1 17.8 21.5 21.1 Operating Expenses 3,341 3,138 2,905 2,903 3,379 3,485 3,828 Operating Profit 10,300 10,561 11,398 11,424 12,691 13,162 13,486 YoY Growth (%) 19.6 15.6 12.7 6.4 23.2 24.6 18.3 Provisions 4,603 4,621 6,105 9,114 5,823 5,879 5,854 Profit before Tax 5,697 5,940 5,293 2,310 6,869 7,283 7,633 Tax Provisions 1,956 2,063 1,834 813 2,382 2,492 2,676 Net Profit 3,741 3,877 3,460 1,496 4,487 4,791 4,956 YoY Growth (%) 16.5 14.7 -7.8 4.0 19.9 23.6 43.3 AUM Growth (%) 23.6 19.1 14.6 8.2 9.1 13.5 18.0 Securitization Inc. / Net Inc. (%) 13.7 16.5 17.5 18.5 15.5 15.9 17.7 Cost to Income Ratio (%) 24.5 22.9 20.3 20.3 21.0 20.9 22.1 Tax Rate (%) 34.3 34.7 34.6 35.2 34.7 34.2 35.1 E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos

April 2018

Buy

FY17 4QE 27,956 13,471 14,485 26.6 3,058 17,543 24.5 223 17,766 24.0 4,022 13,744 20.3 8,655 5,088 1,792 3,297 120.3 18.0 17.2 22.6 35.2

(INR M) FY18E

98,013 108,489 52,094 52,928 45,919 55,561 3.1 21.0 9,293 11,252 55,212 66,813 8.8 21.0 758 986 55,970 67,798 8.7 21.1 12,288 14,714 43,682 53,084 13.8 21.5 24,443 26,211 19,239 26,873 6,666 9,342 12,573 17,531 6.7 39.4 8.2 18.0 16.6 16.6 22.0 21.7 34.6 34.8

177

March 2018 Results Preview | April 2018

Healthcare Niche product approvals to offset regulatory impact on US business; domestic business to recover from GST woes

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 Shasun Sun Pharma Torrent Pharma



We expect our Pharma universe to continue reporting low-single-digit revenue growth, as faster ANDAs approvals and regulatory issues pertaining to the USFDA inspection hurt the US business. A few companies are expected to post a significant decline in EBITDA during the quarter. Having said that, our pharma universe is expected to report robust growth during the quarter, mainly due to a lower base of 4QFY17 (impacted by demonetization). Cadila is expected to continue exhibiting strong growth in the US, led by gLialda launch and ramp-up in key products. Glenmark is expected to decline significantly due to a high base of the year-ago period, which saw the launch of gZetia FTF (launched in 3QFY17, with six months exclusivity). Sun Pharma and Lupin, too, are expected to disappoint due to a fall in the US business, led by pricing pressure in the base business. Sanofi India, Granules, Ipca, Jubilant life and Aurobindo are expected to post mid-double-digit growth. In 4QFY18, the domestic business is expected to report strong growth as the industry bounces back from GST woes and low base of 4QFY17 (impacted by demonetization). Although the US business is under pressure from increased pace of ANDA approvals and regulatory issues, we believe key product approvals will help negate these issues. We maintain our top picks – Sun Pharma, Granules and IPCA.

Exhibit 1: Expected quarterly performance summary (INR m) Sector

Healthcare Alembic Pharma Alkem Lab Ajanta Pharma Aurobindo Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Fortis Health Glenmark Pharma Granules India GSK Pharma IPCA Labs. Jubilant Life Laurus Labs Lupin Sanofi India Shilpa Medicare Strides Shasun Sun Pharma Torrent Pharma Sector Aggregate

CMP (INR)

RECO

542 1,910 1,402 593 607 394 571 1,107 2,129 130 550 108 2,152 677 847 514 789 5,147 471 704 510 1,288

Neutral Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Neutral

Sales (INR M) Var % Var % Mar-18 YoY QoQ

EBDITA (INR M) Var % Var % Mar-18 YoY QoQ

Net Profit (INR M) Var % Var % Mar-18 YoY QoQ

8,199 14,447 4,992 42,395 10,319 30,715 39,031 10,222 37,506 12,242 22,236 4,142 7,420 7,718 21,257 5,383 39,826 6,396 2,055 7,850 65,821 17,385 417,556

1,822 2,719 1,412 9,570 2,147 7,297 7,845 3,399 7,585 835 3,744 760 1,510 1,559 4,464 1,130 7,515 1,384 390 1,374 14,432 4,053 86,946

1,134 1,790 1,011 6,039 875 4,954 4,330 2,643 3,736 406 2,100 391 960 883 2,211 528 3,330 863 263 598 8,542 1,816 49,402

11.3 15.4 4.7 16.4 11.6 23.9 9.0 -3.8 5.5 9.0 -8.3 14.0 -2.8 15.9 29.5 13.7 -6.4 15.7 -8.1 -11.6 -3.6 25.9 6.3

-2.4 -17.0 -15.0 -2.2 -2.5 -5.8 -0.3 -1.5 -1.5 9.2 2.4 0.8 5.4 -10.2 2.8 12.4 0.2 -4.6 10.8 4.8 -0.2 17.7 -0.7

36.5 82.2 -17.6 24.1 18.0 57.4 55.0 -5.2 30.0 5.7 -8.9 -3.3 29.6 130.4 46.4 -4.8 -32.0 36.4 -33.5 -12.5 16.8 37.4 16.7

-2.9 -24.4 -28.5 -6.7 -3.2 -13.2 -4.2 4.2 -1.1 61.8 28.9 2.6 6.5 -3.3 7.1 29.4 9.2 3.0 43.7 11.8 3.2 12.9 0.0

21.9 -13.2 30.7 -17.3 -17.1 -31.5 8.6 -8.0 -39.0 -4.8 28.5 -8.8 113.1 -7.4 1.9 17.6 19.5 -12.6 LP LP 14.3 100.5 -14.4 11.7 10.5 7.0 98.8 -16.4 48.4 4.0 -29.0 51.3 -45.1 29.2 43.8 13.5 -37.7 60.7 -40.7 28.4 -30.2 -2.8 -11.8 -24.0 -1.2 -0.9

Research Analyst: Kumar Saurabh ([email protected]); +91 22 6129 1519; Ankeet Pandya ([email protected]); Tushar Manudhane ([email protected]); +91 022 6129 1536; Rajat Srivastava ([email protected]) April 2018

178

March 2018 Results Preview | Sector: Healthcare

Exhibit 2: 4QFY18 Aggregates Healthcare Universe

YoY Growth (%) EBITDA Adj. PAT 32.8 24.1 11.6 -13.8 -9.2 -4.2 26.9 16.1 16.7 -1.2

Sales 5.0 4.2 -1.2 9.8 6.3

MNC Pharma Big 5 Generics CRAMS Second Tier generics Sector Aggregate

EBITDA Margin (%) 18-Mar 17-Mar CHG (BPS) 21.0 16.6 439 21.5 20.0 141 31.6 34.4 -279 20.3 17.5 273 20.8 19.0 186

18-Mar 13.2 12.3 24.0 10.9 11.8

PAT margin (%) 17-Mar CHG (BPS) 11.2 204 14.9 -256 24.8 -74 10.3 59 12.7 -89

USD/INR remained largely stable during the quarter 



During the quarter, there has been marginal appreciation of ~4% (from 67 in 4QFY17 v/s 64.3 in 4QFY18) in the INR against the USD. The impact of appreciation would be meager on the pharma companies under our coverage as most of them have hedging to some extent. Also, in the last four quarters, the INR has remained more or less stable (appreciated 3.4%) with respect to the USD, and as such, there has not been any meaningful impact on profitability of pharma companies.

Exhibit 3: Relative performance—3 months (%) Sensex Index

111

Exhibit 4: Relative performance—1 year (%)

MOSL Health care Index

Sensex Index

128

MOSL Health care Index

116

104

104

97

92 Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Mar-17

Apr-17

80

Mar-18

Feb-18

Jan-18

Dec-17

90

Source: Bloomberg, MOSL

Exhibit 5: Comparative valuation Sector / Companies Healthcare Alembic Pharma Alkem Lab Ajanta Pharma Aurobindo Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Fortis Health Glenmark Pharma Granules India GSK Pharma IPCA Labs. Jubilant Life Laurus Labs Lupin Sanofi India Sun Pharma Shilpa Medicare Strides Shasun Torrent Pharma Sector Aggregate April 2018

CMP (INR)

RECO

542 1,910 1,402 593 607 394 571 1,107 2,129 130 550 108 2,152 677 847 514 789 5,147 510 471 704 1,288

Neutral Buy Buy Buy Neutral Buy Neutral Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy Neutral

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 24.8 65.4 54.0 43.8 7.6 16.0 21.6 32.9 67.1 1.5 30.6 6.3 38.3 21.4 47.8 19.0 31.0 141.7 13.2 13.3 14.1 48.0

25.6 89.5 65.8 48.7 10.9 20.1 26.2 44.0 114.1 2.8 32.9 7.9 42.6 29.2 62.6 29.1 40.2 161.8 21.5 24.3 40.8 61.3

30.5 110.6 81.4 53.6 19.8 23.3 32.0 52.7 146.1 7.3 41.1 11.0 48.5 37.3 72.5 35.7 54.1 186.9 27.7 30.6 55.7 78.5

21.9 29.2 26.0 13.6 79.7 24.6 26.4 33.7 31.7 88.5 18.0 17.1 56.2 31.6 17.7 27.0 25.4 36.3 38.7 35.4 49.9 26.8 28.9

21.2 21.3 21.3 12.2 55.7 19.6 21.8 25.2 18.7 47.1 16.7 13.6 50.5 23.1 13.5 17.7 19.6 31.8 23.7 19.4 17.3 21.0 21.5

17.8 17.3 17.2 11.1 30.7 16.9 17.8 21.0 14.6 17.8 13.4 9.8 44.4 18.1 11.7 14.4 14.6 27.5 18.4 15.4 12.6 16.4 17.1

14.5 19.3 18.3 8.8 38.1 15.2 15.2 23.1 14.7 17.5 11.5 10.5 34.8 17.8 10.7 14.6 12.2 20.8 20.6 23.9 18.1 15.9 16.2

13.4 15.1 15.3 8.1 28.2 12.8 13.4 17.0 9.7 10.8 11.3 7.7 33.5 13.6 8.5 11.0 10.6 17.0 14.2 17.2 11.0 11.3 12.8

11.2 12.2 12.2 6.9 17.9 11.0 11.1 14.0 7.5 6.7 9.4 5.9 28.9 10.9 7.2 9.3 8.2 14.4 10.9 13.5 8.8 9.4 10.2

22.5 16.4 27.0 24.2 8.9 21.6 12.4 16.0 9.0 1.2 16.4 13.2 19.7 10.5 19.7 14.1 10.1 16.1 8.5 11.0 4.6 17.6 12.3

19.8 19.5 26.2 21.7 11.6 22.8 13.3 20.0 13.9 2.2 15.3 13.9 27.2 13.0 21.4 18.3 12.1 16.8 13.2 17.4 12.1 19.9 14.7

20.1 20.6 25.9 19.6 18.4 22.0 14.1 21.3 15.6 5.6 16.2 17.4 30.9 14.7 20.4 18.8 14.6 17.5 15.3 18.3 14.5 22.3 16.0 179

March 2018 Results Preview | Sector: Healthcare

Bloomberg

AJP IN

Equity Shares (m)

88.5

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

124 / 2

52-Week Range (INR)

2 / 18 / -31

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E 20.0

20.8

24.9

29.7

EBITDA

6.9

6.5

7.7

9.4

NP

5.1

4.8

5.8

7.2

EPS (INR)

57.3

54.0

65.8

81.4

EPS Gro. (%)

21.9

-5.8

21.9

23.6

BV/Sh. (INR)

36.7

27.0

26.2

25.9

RoCE (%)

35.8

26.9

26.1

25.9

24.4

26.0

21.3

17.2

7.9

6.3

5.0

4.0

17.9

18.7

15.6

12.4

EV/Sales (x)

6.2

5.9

4.8

3.9

D. Yield (%)

0.9

0.6

0.7

0.9

EV/EBITDA (x)

Quarterly performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018



  

Valuations P/E (x)



177.2 223.1 279.1 348.2

RoE (%)

P/BV (x)



1818 / 1106

1,6,12 Rel Perf. (%)

Sales

CMP: INR1,402

1Q 4,759 21.6 3,093 1,666 35.0 130 10 55 1,580 0 1,580 385 24.3 0 1,196 1,196 39.0 25.1

Ajanta Pharma

TP:INR1,840 (+31%)

Buy

We expect Ajanta Pharma (AJP) to show 4.7% YoY growth in revenues on a high base of past year. Except domestic formulation segment, we expect a YoY reduction in revenue in all segments. With a pick-up in industry growth, we expect AJP to outperform by growing at 15% YoY due to product launches and better traction in the existing portfolio. We expect a decline in Institutional segment of Africa business, as a considerable amount of allocated business was supplied in 9MFY18 and the company is yet to receive order to supply for CY2018. Though Asia sales are expected to continue at a healthy quarterly run-rate, there would be YoY and QoQ decline due to a high base. On overall basis, we expect EBITDA margin to come in at 28.3% and PAT at INR1b for 4QFY18. The stock trades at 21.3x FY19E EPS. We maintain Buy, with a target price of INR1,840 (25x 12M forward earnings).

Key issues to watch out  Quantum of institutional business to be allocated by Global Fund for next three years.  Traction from recently launched products in US market.

FY17 2Q 5,158 16.8 3,426 1,732 33.6 140 8 67 1,651 0 1,651 345 20.9 0 1,307 1,307 26.3 25.3

3Q 5,331 11.8 3,551 1,780 33.4 153 8 192 1,811 0 1,811 385 21.2 0 1,426 1,426 25.2 26.7

4Q 4,768 12.0 3,054 1,714 35.9 189 9 24 1,540 98 1,442 300 20.8 0 1,142 1,220 11.8 25.6

1Q 4,731 -0.6 3,424 1,307 27.6 134 1 48 1,219 32 1,187 239 20.1 0 948 980 -18.0 20.7

FY18E 2Q 5,404 4.8 3,567 1,837 34.0 146 1 92 1,783 0 1,783 464 26.0 0 1,319 1,319 0.9 24.4

(INR million) FY17 FY18E 3Q 5,870 10.1 3,896 1,975 33.6 150 1 152 1,975 0 1,975 501 25.3 0 1,475 1,475 3.4 25.1

4QE 4,992 4.7 3,580 1,412 28.3 144 1 62 1,329 0 1,329 318 23.9 0 1,011 1,011 -17.1 20.2

20,016 15.3 13,127 6,890 34.4 612 35 337 6,580 98 6,482 1,413 21.8 0 5,068 5,145 24.8 25.7

20,997 4.9 14,466 6,530 31.1 574 4 353 6,306 32 6,274 1,523 24.3 0 4,751 4,775 -7.2 22.7

180

March 2018 Results Preview | Sector: Healthcare

Bloomberg

ALPM IN

Equity Shares (m)

188.5

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

102 / 2

52-Week Range (INR)

645 / 470

1,6,12 Rel Perf. (%)

0 / 2 / -24

CMP: INR542 

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

31.3

31.3

35.9

41.0

EBITDA

6.1

6.9

7.4

8.8

NP

4.0

4.7

4.8

5.7

21.6

24.8

25.6

30.5

EPS Gro. (%)

-43.2

15.0

3.1

19.1

BV/Sh. (INR)

100.8 119.7 139.3 163.7

EPS (INR)

RoE (%)

23.0

22.5

19.8

20.1

RoCE (%)

22.1

21.9

19.5

25.6

25.1

21.8

21.2

17.8

5.4

4.5

3.9

3.3

Valuations P/E (x) P/BV (x) EV/EBITDA (x)

15.4

13.2

12.4

10.3

EV/Sales (x)

3.0

2.9

2.5

2.2

D. Yield (%)

0.9

0.9

0.9

0.9

  

Alembic Pharma

TP:INR555 (+2%)

Neutral

In 4QFY18, we expect Alembic Pharma (ALPM) to post healthy growth in sales by ~11% YoY to INR8.2b. International business is expected to grow ~14% YoY to INR3.1b. India business is expected to post robust growth of 25.5% YoY to INR3.6b due to a low base (4QFY17 was impacted by demonetization and NLEM-related price control). Reported EBITDA is likely to post growth of ~37%YoY to INR1.8b, with EBITDA margin expanding 410bp YoY to 22.2%. We expect reported PAT to increase by 22% YoY to INR1.1b. Given that the 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 will keep growth under check in the near term. Maintain Neutral with a TP of INR555 @20x 1HFY20E EPS (v/s INR540 @20x 1HFY20E EPS.

Key issues to watch out  Contribution of chronic portfolio and growth strategy.  Performance of US operations amid market pressure.  Outlook on future ANDA launches/filings.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 7,270 24.6 5,711 1,559 21.4 194 11 14 1,369 0 1,369 333 24.3 16 1,020 46.2 14.0

FY17 2Q 8,716 -13.1 6,945 1,771 20.3 206 10 12 1,567 0 1,567 332 21.2 49 1,187 -58.8 13.6

3Q 7,699 -16.4 6,253 1,446 18.8 211 8 10 1,237 0 1,237 393 31.8 -17 861 -68.0 11.2

4Q 7,367 17.8 6,032 1,335 18.1 218.4 18.1 20 1,118.3 0.0 1,118 164.9 14.7 23 930 2.2 12.6

1Q 6,482 -10.8 5,468 1,014 15.6 218 9 2 789 0 789 155 19.6 -33 667 -34.6 10.3

FY18E 2Q 7,893 -9.4 6,101 1,792 22.7 257 4 77 1,608 0 1,608 366 22.7 27 1,216 2.4 15.4

3Q 8,400 9.1 6,525 1,875 22.3 264 8 3 1,606 0 1,606 298 18.5 3 1,306 51.6 15.5

4QE 8,199 11.3 6,377 1,822 22.2 284.4 21.5 6 1,521.7 0.0 1,522 388.0 25.5 0 1,134 21.9 13.8

FY17

FY18E

31,308 -0.3 25,199 6,109 19.5 830 51 62 5,290 0 5,290 1,222 23.1 38 4,029 -45.0 12.9

31,333 0.1 24,471 6,862 21.9 1,023 42 88 5,884 0 5,884 1,206 20.5 0 4,678 16.1 14.9

181

March 2018 Results Preview | Sector: Healthcare

Bloomberg

ALKEM IN

Equity Shares (m)

119.6

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

228 / 4

52-Week Range (INR)

2468 / 1578

1,6,12 Rel Perf. (%)

-12 / -2 / -23

CMP: INR1,910 

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

58.5

63.5

EBITDA

10.0 8.9

73.6

84.5

11.9

14.1

16.9

7.8

10.7

13.2

74.6

65.4

89.5

110.6

EPS Gro. (%)

6.0

-12.4

36.9

23.6

BV/Sh. (INR)

373.7

424.4

493.7

579.4

RoE (%)

21.9

16.4

19.5

20.6

RoCE (%)

20.1

14.5

21.8

23.1

25.6

29.2

21.3

17.3

5.1

4.5

3.9

3.3

23.1

19.1

15.5

12.5

NP EPS (INR)

Valuations P/E (x) P/BV (x) EV/EBITDA (x)



 

Alkem Labs

TP: INR2,500 (+31%)

We expect Alkem to post revenue growth of 15.4% YoY to INR14.4b. Domestic business is expected to post strong growth of ~39% YoY to INR12.4b due to lower base in 4QFY17, which was impacted by demonetization and decline in the anti-infective market. International business is expected to grow 7% YoY, of which US business is expected to grow by 17% YoY to INR3.4b. EBITDA margin is expected to expand ~690bp YoY, as margins in 4QFY17 were impacted due to higher R&D cost, ~500 MR additions and muted domestic growth. EBITDA is expected to increase significantly by 82% YoY to INR2.7b in 4QFY18. PAT is expected to increase by ~31% YoY to INR1.8b. We maintain Buy with a TP of INR2,500 @24x Dec 19E PER. We argue for a multiple re-rating, given the superior earnings growth profile (>25% EPS CAGR over FY18-20E), improving return ratios (RoICs to improve to ~30% by FY20E from ~20% in FY18E), net cash balance sheet, and high exposure to the domestic business (~90% of profit comes from the domestic business).

Key issues to watch out

 Update on observations issued by US FDA at Daman and St. Louis facility.  Outlook on future ANDA launches/filings.  Pick-up in chronic business.

Quarterly perf. (Consol.)

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Adj PAT YoY Change (%) Margins (%)

Buy

1Q 7,270 24.6 5,711 1,559 21.4 194 11 14 1,369 0 1,369 333 24.3 16 1,020 46.2 14.0

FY17 2Q 8,716 -13.1 6,945 1,771 20.3 206 10 12 1,567 0 1,567 332 21.2 49 1,187 -58.8 13.6

3Q 7,699 -16.4 6,253 1,446 18.8 211 8 10 1,237 0 1,237 393 31.8 -17 861 -68.0 11.2

4Q 7,367 17.8 6,032 1,335 18.1 218.4 18.1 20 1,118.3 0.0 1,118 164.9 14.7 23 930 2.2 12.6

1Q 6,482 -10.8 5,468 1,014 15.6 218 9 2 789 0 789 155 19.6 -33 667 -34.6 10.3

FY18E 2Q 7,893 -9.4 6,101 1,792 22.7 257 4 77 1,608 0 1,608 366 22.7 27 1,216 2.4 15.4

3Q 8,400 9.1 6,525 1,875 22.3 264 8 3 1,606 0 1,606 298 18.5 3 1,306 51.6 15.5

4QE 8,199 11.3 6,377 1,822 22.2 284.4 21.5 6 1,521.7 0.0 1,522 388.0 25.5 0 1,134 21.9 13.8

FY17

FY18E

31,308 -0.3 25,199 6,109 19.5 830 51 62 5,290 0 5,290 1,222 23.1 38 4,029 -45.0 12.9

31,333 0.1 24,471 6,862 21.9 1,023 42 88 5,884 0 5,884 1,206 20.5 0 4,678 16.1 14.9

E: MOSL Estimates

April 2018

182

March 2018 Results Preview | Sector: Healthcare

Bloomberg

ARBP IN

Equity Shares (m)

585.9

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

348 / 5

52-Week Range (INR)

809 / 504

1,6,12 Rel Perf. (%)

-3 / -22 / -24

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Sales EBITDA

34.3

39.4

43.6

23.0

25.6

28.5

31.4

39.3

43.8

48.7

53.6

EPS Gro. (%)

13.5

11.4

11.2

10.1

160.0 201.2 247.4 298.5

RoE (%)

27.6

24.2

21.7

19.6

RoCE (%)

19.0

18.7

18.2

17.1

15.1

13.5

12.2

11.1

Valuations P/BV (x)

3.7

2.9

2.4

2.0

12.1

10.5

9.1

7.8

EV/Sales (x)

2.8

2.5

2.1

1.8

Dividend Yield (%)

0.4

0.3

0.4

0.4

EV/EBITDA (x)





48.8

NP

P/E (x)



150.9 166.9 185.7 207.7

EPS (INR) BV/Sh. (INR)

CMP: INR593



Aurobindo Pharma TP:INR820 (+38%)

We expect Aurobindo (ARBP) to post 16% YoY sales growth to INR42.4b in 4QFY18. We expect US business (~56% of formulation sales) to grow by ~22% YoY to INR20.1b. Europe and RoW sales are expected to exhibit growth of 8% YoY. API sales are estimated to grow by ~5% YoY. EBITDA margin is likely to expand moderately by ~140bp to 25.6% YoY (flat sequentially). Overall EBITDA is estimated to increase by ~24% to INR10b. We expect adj. PAT at INR6b, compared to INR5.3b in the corresponding quarter last year. Moderate growth in PAT as compared to EBITDA growth is attributed to higher tax rate at 27.2% and depreciation. We continue believing that ARBP is well poised to outperform its peers in the current circumstances, led by its strong US pipeline and diversified product mix (top-25 products account for ~35% of sales). We maintain Buy with a target price of INR820 @ 16x 1HFY20E PER.

Key issues to watch out  Debt reduction during the quarter.  Outlook on the US business (~35-40 launches expected over next 12 months).  Update on observations at Unit-IV.  Growth outlook for FY19E.

Quarterly Performance Consolidated Y/E March Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 37,666 14.2 8,890 23.6 1,062 206 159 7,780 -70 7,851 2,008 25.6 -8 5,850 5,790 21.0 15.4

Buy

(INR Million) FY17 2Q 37,755 12.2 9,293 24.6 1,102 175 83 8,098 -202 8,300 2,240 27.0 3 6,057 5,913 21.8 15.7

3Q 39,062 11.7 8,948 22.9 1,111 143 79 7,774 -158 7,932 2,177 27.4 -31 5,785 5,640 7.4 14.4

4Q 36,417 -2.8 7,713 21.2 1,001 143 218 6,787 310 6,477 1,172 18.1 -19 5,325 5,560 -0.4 15.3

1Q 36,788 -2.3 8,417 22.9 1,312 169 221 7,157 77 7,080 1,910 27.0 -15 5,186 5,226 -9.7 14.2

FY18E 2Q 3Q 44,360 43,362 17.5 11.0 11,174 10,256 25.2 23.7 1,321 1,381 173 189 103 258 9,783 8,945 4 -73 9,779 9,017 1,980 3,069 20.2 34.0 -13 -3 7,812 5,951 7,803 6,564 32.0 2.9 17.6 15.1

FY17

FY18E 4QE 42,395 150,897 166,868 16.4 8.1 10.6 9,570 34,341 39,381 22.6 22.8 23.6 1,290 4,276 5,304 149 667 679 169 538 750 8,300 29,936 34,149 0 -621 0 8,300 30,557 34,149 2,261 7,596 9,220 27.2 24.9 27.0 0 -55 -55 6,039 23,015 24,983 6,039 22,552 25,647 8.6 13.6 8.6 14.2 14.9 15.4

183

March 2018 Results Preview | Sector: Healthcare

Bloomberg

BIOS IN

Equity Shares (m)

600.0

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

364 / 6

52-Week Range (INR)

CMP: INR607 

658 / 295

1,6,12 Rel Perf. (%)

-1 / 75 / 50 

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

40.8

41.2

52.6

71.8

EBITDA

11.4

9.4

12.9

20.1

NP EPS (INR)

6.0

4.6

6.5

11.9

10.2

7.6

10.9

19.8

EPS Gro. (%)

31.8

-25.3

43.1

81.5

BV/Sh. (INR)

80.6

86.0

93.7

107.7

RoE (%)

12.3

8.9

11.6

18.4

RoCE (%)

9.4

7.2

11.5

18.1

59.5

79.7

55.7

30.7

7.5

7.1

6.5

5.6

EV/EBITDA (x)

32.0

38.9

28.2

17.9

Div. Yield (%)

0.4

0.3

0.4

0.8

Valuations P/E (x) P/BV (x)

Quarterly Performance Consolidated

Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest PAT YoY Change (%) Margins (%)

April 2018

1Q 9,920 22.4 7,289 2,631 26.5 661 57 409 2,322 552 23.8 104 1,666 34.6 16.8





TP: INR600 (-1%)

Biocon

Neutral

Biocon is likely to post revenue growth of ~1 2% YoY to INR10.3b, on the back of strong growth in Biologics segment by ~49% YoY, followed by 15% YoY growth in branded formulation segment, partially off-set by 8% YoY decline in small molecule segment. EBITDA is expected to increase ~18% YoY to INR2.1b, with EBITDA margins at 20.8%. We expect PAT to decline to INR875m, primarily due to an increase in depreciation due to commencement of Malaysian facility and higher tax rate of 31% v/s 6.5% in 4QFY17. We have a Neutral rating on the stock with TP of INR600 @ 30x FY20E PER.

Key issues to watch out  Outlook on small molecules and branded formulation segment.  Update on BIOS plans to list biologics business separately.  Growth outlook for FY19E.

FY17 2Q 3Q 9,541 10,444 21.4 26.1 7,141 7,683 2,400 2,761 25.2 26.4 683 703 65 88 384 474 2,036 2,444 417 544 20.5 22.3 152 187 1,467 1,713 51.2 66.3 15.4 16.4

4Q 9,250 -2.1 7,430 1,820 19.7 730 50 653 1,693 110 6.5 150 1,433 -56.6 15.5

1Q 9,337 -5.9 7,416 1,921 20.6 988 161 540 1,312 376 28.7 123 813 -51.2 8.7

FY18E 2Q 3Q 9,686 10,579 1.5 1.3 7,864 8,362 1,822 2,217 18.8 21.0 936 974 138 147 508 339 1,256 1,435 425 361 33.8 25.2 144 155 687 919 -53.2 -46.4 7.1 8.7

(INR Million)

4QE 10,319 11.6 8,172 2,147 20.8 1,032 143 513 1,485 462 31.1 148 875 -39.0 8.5

FY17

FY18E

40,787 18.2 29,421 11,366 27.9 2,772 260 0 8,334 1,616 19.4 760 5,958 28.3 14.6

41,199 1.0 31,814 9,385 22.8 3,930 589 1,900 6,766 1,624 24.0 570 4,572 -23.3 11.1

184

March 2018 Results Preview | Sector: Healthcare

Cadila Healthcare Bloomberg

CDH IN

Equity Shares (m)

1023.7

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

403 / 6

52-Week Range (INR)

-1 / -23 / -23 

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

94.3

117.6

131.8

150.7

EBITDA

19.0

27.1

32.6

37.7

NP

14.5

16.4

20.6

23.8

EPS (INR)

14.2

16.0

20.1

23.3

EPS Gro. (%)

-7.9

12.7

25.5

15.9

BV/Sh. (INR)

68.0

80.1

96.3

115.7

RoE (%)

23.0

21.6

22.8

22.0

RoCE (%)

15.2

13.8

15.6

16.6

27.7

24.6

19.6

16.9

5.8

4.9

4.1

3.4

22.9

15.8

12.8

11.0

Valuations P/BV (x) EV/EBITDA (x)



558 / 361

1,6,12 Rel Perf. (%)

P/E (x)

CMP: INR394







TP:INR555 (+41%)

Buy

Cadila Healthcare's (CDH) 4QFY18 revenue is likely to grow significantly by 24% YoY to INR30.7b, driven by strong growth in the US formulations business (up ~44% YoY to INR14.2b) on the back of launch of gLialda and ramp-up of other key products. Overall export formulations are expected to grow ~46% YoY to INR18.3b, while domestic formulation is likely to grow 10% YoY to INR9.3b. We expect EBITDA to significantly increase by 57% YoY to INR7.3b and margin to expand ~500bp. Adj. PAT is also likely to increase ~95% YoY to INR5.5b on the back of significant margin expansion. We believe CDH has made investments in the right areas, and will start accruing benefits over next 2-3 years. We expect strong EPS growth from FY17-19E (29% CAGR) on the back of Moraiya resolution and strong launch pipeline in US, with better return ratios over next two years. Strong launch momentum and limited-competition launches (like Lialda) should drive strong margin improvement (FY19E EBITDA margin to be ~25%). Maintain Buy with a TP of INR555 @22x 1HFY20E PER.

Key issues to watch out

 Outlook for FY19E.  Update on US business post increased competition in gLialda and Tamiflu. Quarterly Performance

(INR Million)

Y/E March Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBQ before EO Income EO Exp/(Inc) PBQ after EO Income Tax Rate (%) Min. Int/Adj on Consol Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 22,871 -1.2 5,239 22.9 843 140 153 4,409 2 4,407 966 21.9 -121 3,564 -13.0 15.6

FY17 2Q 3Q 23,531 23,111 1.0 -4.8 5,160 4,043 21.9 17.5 864 898 187 66 236 166 4,345 3,245 0 0 4,345 3,245 1,068 504 24.6 15.5 -99 -76 3,376 2,817 -26.5 -27.8 14.3 12.2

4Q 24,782 1.2 4,636 18.7 1,145 99 731 4,123 0 4,123 19 0.5 249 3,855 -0.7 15.6

1Q 21,973 -3.9 2,773 12.6 1,220 219 210 1,544 0 1,544 293 19.0 133 1,384 -61.2 6.3

FY18E 2Q 3Q 32,340 32,596 37.4 41.0 8,571 8,412 26.5 25.8 1,267 1,473 406 135 225 411 7,123 7,215 0 0 7,123 7,215 2,123 1,786 29.8 24.8 33 4 5,033 5,433 49.1 92.9 15.6 16.7

4QE 30,715 23.9 7,297 23.8 1,399 254 183 5,828 0 5,828 791 13.6 -82 4,954 28.5 16.1

FY17

FY18E

94,295 -1.0 19,036 20.2 3,750 450 1,286 16,122 0 16,122 1,289 8.0 47 14,880 3.7 15.8

117,624 24.7 27,053 23.0 5,359 1,014 1,029 21,710 0 21,710 4,993 23.0 88 16,804 12.9 14.3

185

March 2018 Results Preview | Sector: Healthcare

Bloomberg

CIPLA IN

Equity Shares (m)

804.5

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

459 / 7

52-Week Range (INR)

663 / 479

1,6,12 Rel Perf. (%)

Y/E MARCH

2017 2018E 2019E 2020E

Sales

146.3

154.2

174.8

197.5

EBITDA

24.8

30.5

35.5

41.3

NP

12.8

17.3

21.0

25.7

EPS (INR)

15.9

21.6

26.2

32.0

EPS Gro. (%)

-15.5

35.7

21.3

22.3

BV/Sh. (INR)

155.7

173.9

197.0

225.9

RoE (%)

10.2

12.4

13.3

14.1

RoCE (%)

8.1

9.8

11.1

12.2

35.9

26.5

21.8

17.8

3.7

3.3

2.9

2.5

EV/EBITDA (x)

20.0

16.0

13.4

11.1

Div. Yield (%)

0.4

0.4

0.4

0.4

Valuations P/BV (x)

Quarterly Performance

Y/E March

Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT after EO expense Tax Rate (%) Minority Interest Reported PAT One-off upside Adj PAT YoY Change (%) Margins (%)

April 2018

 

0 / -8 / -15

Financial Snapshot (INR Billion)

P/E (x)

CMP: INR571

1Q 36,500 -4.9 6,112 16.7 2,038 315 252 4,011 553 13.8 67.6 3,391 3,391 -47.8 9.3



 

TP: INR600 (+5%)

Neutral

We expect Cipla’s revenues to grow 9% YoY to INR39b in 4QFY18. Export formulation business is expected to report muted growth of ~4% YoY, while domestic business is expected to report robust growth of ~22% YoY. Export API sales are expected to report decline of ~12% YoY to INR1.4b. EBITDA is expected to increase significantly by ~55% YoY with margin expansion of ~600bp. This is primarily due to lower margin in 4QFY17 on back of decline in domestic business and higher R&D expense. We expect reported PAT to increase significantly by 113% YoY to INR4.3b on back of margin expansion. Unlike other large cap peers, Cipla is well poised to deliver robust growth in the US due to a lower base and a significant pick-up in the filing quality and rate (filed 32 ANDAs in FY17 and planning to file 20 in FY18E). We maintain our Neutral rating on the stock with a TP of INR600 @ 20x 1HFY20E PER.

Key issues to watch out  Launch of combination inhaler in the UK market (USD450m market size).  Growth outlook for FY19E.  Sustained strong growth in domestic formulations (38% of sales).

FY17 2Q 3Q 37,510 36,472 8.6 17.4 6,807 6,776 18.1 18.6 2,292 2,577 352 593 272 1,535 4,436 5,141 719 1,283 16.2 25.0 173.6 109.8 3,543 3,748 3,543 -34.7 9.4

Cipla

3,748 8.7 10.3

4Q 35,820 9.7 5,062 14.1 2,322 334 228 2,634 593 22.5 9.3 2,032

1Q 35,251 -3.4 6,465 18.3 2,134 279 1,514 5,566 1,308 23.5 169.6 4,088

2,032 -33.2 5.7

4,088 20.6 11.6

FY18E 2Q 3Q 40,824 39,139 8.8 7.3 8,044 8,187 19.7 20.9 3,022 5,224 420 92 1,133 529 5,735 3,402 1,374 -642 24.0 -18.9 134.7 38.1 4,226 4,006 4,226 19.3 10.4

4,677 24.8 12.0

(INR Million)

4QE 39,031 9.0 7,845 20.1 2,515 238 324 5,415 978 18.1 107.6 4,330

FY17

FY18E

146,300 7.0 24,756 16.9 9,229 1,594 2,287 16,220 3,094 19.1 360.2 12,766

154,244 5.4 30,540 19.8 12,895 1,028 3,500 20,117 3,018 15.0 450.0 16,649

4,330 113.1 11.1

12,766 -30.7 8.7

16,649 30.4 10.8

186

March 2018 Results Preview | Sector: Healthcare

Bloomberg

DIVI IN

Equity Shares (m)

265.5

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

294 / 5

52-Week Range (INR)

1142 / 533

1,6,12 Rel Perf. (%)

11 / 23 / 64

CMP: INR1,107   

Financial Snapshot (INR Billion)



Y/E MARCH

2017 2018E 2019E 2020E

Sales

41.0

37.7

44.2

50.8

EBITDA

14.3

11.9

15.9

19.0

NP

10.6

8.7

11.7

14.0

EPS (INR)

39.9

32.9

44.0

52.7

EPS Gro. (%)

-5.8

-17.7

33.9

19.7

BV/Sh. (INR)

201.8

208.0

232.2

261.2

RoE (%)

22.0

16.0

20.0

21.3

RoCE (%)

21.8

16.0

19.9

21.3

27.7

33.7

25.2

21.0

5.5

5.3

4.8

4.2

EV/EBITDA (x)

20.4

24.9

18.0

14.8

Div. Yield (%)

0.9

1.1

1.5

1.8





Divi’s Laboratories TP:INR1,100 (-1%)

Neutral

Divis Laboratories (DIVI) is likely to register decline in revenues by ~4% YoY to INR10.2b. Adjusted EBITDA is likely to decline ~5% YoY to INR3.4b, with margin contracting slightly by ~45bp. PAT is expected to report muted growth of ~2% YoY to INR2.6b. US FDA, in November 2017 lifted the import alert at DIVI’s Vishakhapatnam-based Unit-2 facility. Though resolution of import alert in record time is a significant positive, we believe that the run-up in the stock already factors most of it. We maintain Neutral, with a target price of INR1,100 (23x 1HFY20E EPS). The stock trades at 21x FY20E earnings.

Valuations P/E (x) P/BV (x)

Quarterly Performance

Y/E March

Net Op Revenue YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Income EO Income PBT Tax Deferred Tax Rate (%) Adj PAT YoY Change (%) Margins (%) Reported PAT

April 2018

1Q 10,060 24.7 4,016 39.9 301 4 184 3,896 0 3,896 878 0 22.5 3,018 23.1 30.0 3,018

Key issues to watch out  Outlook for growth for FY19E.  Ramp-up of new facility.

FY17 2Q 9,918 3.1 3,680 37.1 308 4 226 3,595 0 3,595 565 0 15.7 3,030 2.5 30.5 2,239

3Q 9,600 12.7 3,777 39.3 310 4 215 3,678 0 3,678 996 0 27.1 2,683 8.8 27.9 2,683

4Q 10,631 -2.8 3,585 33.7 314 10 245 3,505 0 3,505 912 0 26.0 2,593 -19.5 24.4 2,593

1Q 8,212 -18.4 2,448 29.8 323 5 297 2,417 0 2,417 652 0 27.0 1,765 -41.5 21.5 1,765

FY18E 2Q 3Q 8,902 10,379 -10.2 8.1 2,772 3,261 31.1 31.4 339 374 8 3 336 170 2,761 3,055 0 0 2,761 3,055 693 808 0 0 25.1 26.5 2,068 2,247 -31.8 -16.3 23.2 21.6 2,068 2,247

(INR Million)

4QE 10,222 -3.8 3,399 33.2 412 8 577 3,554 0 3,554 911 0 25.6 2,643 1.9 25.9 2,643

FY17

FY18E

40,952 7.8 14,350 35.0 1,233 23 859 13,953 0 13,953 3,349 0 24.0 10,604 -4.2 25.9 10,604

37,715 -7.9 11,880 31.5 1,449 23 1,379 11,788 0 11,788 3,065 0 26.0 8,723 -17.7 23.1 8,723

187

March 2018 Results Preview | Sector: Healthcare

Bloomberg

DRRD IN

Equity Shares (m)

170.5

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

363 / 6

52-Week Range (INR)

2788 / 1902

1,6,12 Rel Perf. (%)

-2 / -15 / -34

CMP: INR2,129  

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

140.8 144.2 170.9 201.6

EBITDA

24.2

24.9

38.4

48.0

19.5

24.9

NP

12.0

11.4

EPS (INR)

72.6

67.1 114.1 146.1

EPS Gro. (%)

-45.1

-7.6

70.0

28.0

BV/Sh. (INR)

740

768

871

997





Dr Reddy’s Labs

TP: INR2,575 (+21%)

Neutral

Dr Reddy’s Lab is expected to report moderate growth of ~6% YoY in 4QFY18, with revenue at INR37.5b. US business is likely to grow ~6% YoY to INR16.2b on the back of new launches, while Europe sales are expected to post decline of ~4% YoY. India business is expected to report robust growth of ~16% YoY to INR6.6b. EBITDA is expected to grow by 30% YoY to INR7.6b and margin to expand by ~380bp YoY to 20.2% due to lower base in 4QFY17 (which had lower gross margin (due to pricing pressure) and certain one-off charges). PAT is expected to increase by ~20% YoY to INR3.7b, led by margin expansion. We believe the stock will remain range bound until the time we do not get more visibility about key launches in the US (including Aloxi, Nuvaring, Soboxone, Copaxone 20 & 40mg). We maintain Neutral with a TP of INR2,575 @ 20x 1HFY20E PER.

RoE (%)

9.7

9.0

13.9

15.6

RoCE (%)

6.4

4.8

10.4

12.4

29.3

31.7

18.7

14.6

2.9

2.8

2.4

2.1

15.4

15.0

9.5

7.2

Key issues to watch out

0.5

0.5

0.8

1.0

 Update on USFDA resolution of warning letters for Srikakulam, Duvvada and Miryalaguda API plants.  FY19 outlook for both the generics and PSAI businesses.  Impact of pricing pressure in the US.

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Dividend Yield (%)



Quarterly Performance

(INR Million)

Y/E March Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Amortization Other Income Profit before Tax Tax Rate (%) Reported PAT Minority Interest Net Profit One-off/low-competition PAT in US Adjusted PAT YoY Change (%) Margins (%)

April 2018

1Q 32,345 -13.9 28,572 3,773 11.7 2,681 615 1,707 444 26.0 1,263 0 1,263 0 1,263 -79.8 3.9

FY17 2Q 3Q 35,857 37,065 -10.1 -6.6 29,834 28,539 6,023 8,526 16.8 23.0 2,914 2,924 726 320 3,835 5,922 885 1,221 23.1 20.6 2,950 4,701 0 0 2,950 4,701 0 0 3,244 4,701 -55.1 -18.8 9.0 12.7

4Q 35,542 -5.4 29,708 5,834 16.4 3,204 559 3,189 64 2.0 3,125 0 3,125 0 3,125 -16.9 8.8

1Q 33,159 2.5 30,101 3,058 9.2 2,799 513 772 181 23.4 591 0 591 0 591 -53.2 1.8

FY18E 2Q 3Q 35,460 38,060 -1.1 2.7 28,826 30,393 6,634 7,667 18.7 20.1 2,940 2,971 182 1,249 3,876 5,945 1,027 2,601 26.5 43.8 2,849 3,344 0 0 2,849 3,344 0 -930 2,849 4,274 -12.2 -9.1 8.0 11.2

4QE 37,506 5.5 29,921 7,585 20.2 2,969 492 5,108 1,372 26.9 3,736 0 3,736 0 3,736 19.5 10.0

FY17

FY18

140,809 -9.0 116,654 24,155 17.2 11,722 2,220 14,652 2,614 17.8 12,038 0 12,038 0 12,038 -39.8 8.5

144,185 2.4 119,241 24,944 17.3 11,679 2,436 15,700 5,181 33.0 10,519 0 10,519 0 10,519 -12.6 7.3

188

March 2018 Results Preview | Sector: Healthcare

Bloomberg

FORH IN

Equity Shares (m)

518.0

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

67 / 1

52-Week Range (INR)

CMP: INR130 

231 / 107

1,6,12 Rel Perf. (%)

-17 / -17 / -43



Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

45.7

47.0

52.6

60.5

3.5

3.3

5.6

8.8

4.8

0.7

1.3

3.4

10.3

1.5

2.8

7.3

EBITDA NP EPS (INR) EPS Gro. (%)

-638.2

-85.8

87.8

164.5

BV/Sh. (INR)

111.1

124.6

127.3

134.5

RoE (%)

10.0

1.2

2.2

5.6

RoCE (%)

3.4

-1.9

3.1

5.4

12.6

88.5

47.2

17.8

1.2

1.0

1.0

1.0

21.1

22.0

12.9

8.0

1.6

1.5

1.4

1.2





Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

Fortis Healthcare

TP:INR185 (+42%)

Buy

We expect Fortis to deliver revenue growth of 9% to INR12.2b on the back of steady growth in the core businesses (Hospitals & Diagnostics). EBITDA margin will continue to expand sequentially. We expect hospital EBITDA to grow more than 4x by FY19E (from FY16 base) on back of lower base, coupled with strong high-teen growth in EBITDAC, relatively flattish BT cost (at normalized level) and FHTL transaction. We expect EBITDA margin for the diagnostics business to improve by ~300bp by FY19E on the back of deeper penetration in existing markets, rationalization of low-margin centers, growth in samples tested and higher share from the O&M model. The current deal proposition by Manipal for the hospital business does not provide much upside to the stock. Manipal Hospital has vast experience in the hospital and healthcare business with a string financial track record, which will be beneficial for FORH in the medium-to-long term. Having said that, the deal is unlikely to be approved by shareholders due to lower valuation given to the hospital business. We value the hospital business at 18x FY19E EV/EBITDA and the diagnostics business at 20x FY19E EV/EBITDA with TP of INR185.

Key issues to watch out  Update on deal announcement on merger with Manipal Hospitals.  PAT breakeven of hospitals business. Quarterly performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

FY17

(INR million) FY17 FY18E

FY18E

1Q 11,212 8.4 10,585 626 5.6 476 420 330

2Q 11,957 10.9 10,968 990 8.3 517 461 380

3Q 11,334 8.9 10,211 1,123 9.9 599 748 589

4Q 11,234 3.2 10,444 790 7.0 630 666 361

1Q 11,566 3.2 10,705 861 7.4 590 644 576

2Q 11,972 0.1 10,907 1,065 8.9 607 660 371

3Q 11,207 -1.1 10,691 516 4.6 590 632 426

4QE 12,242 9.0 11,407 835 6.8 563 664 327

45,737 7.8 42,208 3,529 7.7 2,222 2,294 1,660

46,986 2.7 43,710 3,277 7.0 2,350 2,600 1,700

61

393

365

-146

203

169

-280

-65

673

27

0

-9

-4,194

8

6

468

2

0

16

0

61 29 47.3 -130 162 162 -82.6 1.4

402 242 60.2 -154 314 310 -62.6 2.6

4,559 190 4.2 -165 4,533 514 -193.1 4.5

-153 263 -171.7 -41 -375 -354 -61.0 -3.2

197 123 62.1 -151 226 228 41.1 2.0

-299 170 -56.8 -233 -236 497 60.3 4.2

-282 26 -9.2 -117 -191 -189 -136.7 -1.7

-65 -278 428.5 -192 406 406 -214.5 3.3

657 724 110.3 -4,861 4,793 4,792 460.3 10.5

27 40 150.0 -693 680 680 -85.8 1.4

189

March 2018 Results Preview | Sector: Healthcare

Granules India Bloomberg

GRAN IN

Equity Shares (m)

228.7

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

25 / 0

52-Week Range (INR)

CMP: INR108 

157 / 101

1,6,12 Rel Perf. (%)

-5 / -11 / -35



Financial Snapshot (INR Billion)

TP:INR175 (+62%)

Buy

We expect Granules India (GRAN) to post healthy 14% YoY growth in 4QFY18 reported sales to INR4.14b. EBITDA is likely to decrease marginally by ~3% YoY to INR760m due to high input cost. EBITDA margin is also expected to contract by ~330bp YoY to 18.3% due to increase in expense on back of commissioning of new facility. Depreciation is expected to increase due to new facility getting operational. We expect reported PAT to decrease ~14% YoY to INR391m. We believe the stock is poised for multiple re-rating on the back of asset sweating in traditional business, entry in high-value US business and commencement of API sales from Omnichem JV. We maintain our Buy rating with a TP of INR175 @18x 1HFY20E.

Y/E MAR

2017 2018E 2019E 2020E

Sales

14.4

16.4

21.6

27.1

EBITDA

3.0

3.0

4.2

5.5

NP

1.7

1.5

2.0

2.8

EPS (INR)

7.2

6.3

7.9

11.0

EPS Gro. (%)

32.3 -12.4

25.2

38.7

BV/Sh. (INR)

39.5

54.6

59.9

67.0

RoE (%)

21.1

13.2

13.9

17.4

RoCE (%)

17.9

13.9

14.7

18.1

14.9

17.0

13.6

9.8

Key issues to watch out

2.7

2.0

1.8

1.6

12.2

12.1

9.1

7.1

2.5

2.3

1.8

1.5

 New ANDA filings in complex category.  Update on free-cash generation and debt repayment schedule.  Update on JV with Onmichem.

1Q 3,498 8.4 2,813 685 19.6 163 79 30 472 154 32.5 -71 319 390 33.8 11.1

FY17 2Q 3,638 3.1 2,896 742 20.4 185 83 39 513 156 30.4 -51 357 408 28.1 11.2





Valuations P/E (x) P/BV (x) EV/EBITDA (x) D. Yield (%)

Quarterly Performance Y/E March (Consolidated) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Tax Rate (%) Minority Interest & P/L of Asso. Cos. PAT (Ex associate income) Reported PAT YoY Change (%) Margins (%)

April 2018

(INR Million) 3Q 3,595 4.2 2,832 763 21.2 187 84 43 535 176 32.9 -31 359 390 43.5 10.8

4Q 3,634 -2.4 2,848 785 21.6 180 77 0 529 166 31.4 -94 363 457 13.4 12.6

1Q 3,860 10.3 3,090 769 19.9 176 82 4 515 177 34.4 -30 338 368 -5.5 9.5

FY18E 2Q 3Q 3,926 4,107 7.9 14.3 3,156 3,367 769 740 19.6 18.0 186 196 104 82 68 9 547 471 193 169 35.2 35.9 -49 -49 355 302 403 350 -1.2 -10.1 10.3 8.5

4QE 4,142 14.0 3,382 760 18.3 204 90 59 525 181 34.5 -48 344 391 -14.4 9.4

FY17

FY18E

14,353 0.4 11,364 2,988 20.8 715 323 99 2,050 652 31.8 -247 1,398 1,645 44.3 11.5

16,035 11.7 12,996 3,039 19.0 762 359 140 2,058 720 35.0 -175 1,338 1,513 -8.1 9.4

190

March 2018 Results Preview | Sector: Healthcare

Glenmark Pharma Bloomberg

GNP IN

Equity Shares (m)

282.3

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

155 / 2

52-Week Range (INR)

3 / -14 / -47

Financial Snapshot (INR Billion) 2017 2018E 2019E 2020E

Sales

89.7

89.5

97.6 109.6

EBITDA

18.2

15.6

16.2

19.2

NP

11.1

8.6

9.3

11.6

EPS (INR)

39.3

30.6

32.9

41.1

58.0 -22.2

7.7

24.7

EPS Gro. (%) BV/Sh. (INR)

159.2 186.1 215.4 252.8

RoE (%)

24.7

16.4

15.3

16.2

RoCE (%)

19.1

14.8

16.6

18.1

14.0

18.0

16.7

13.4

3.5

3.0

2.6

2.2

10.6

11.9

11.3

9.4

0.5

0.5

0.5

0.5

Valuations P/E (x) P/BV (x) EV/EBITDA (x) D. Yield (%)



930 / 517

1,6,12 Rel Perf. (%)

Y/E MAR

CMP: INR550



 

TP:INR550 (+0%)

Neutral

We expect Glenmark Pharmaceuticals (GNP) to report ~8% YoY decline in overall revenues to INR22.2b. Decline in sales is primarily attributed to decline in the US business (-27.7% YoY) due to Zetia FTF launch in 3QFY17 (6 months exclusivity ended in 1QFY18). The India branded business is likely to post moderate growth of 5% YoY, while LatAm business is expected to decline by ~34% YoY; RoW and Europe businesses are expected to grow 6.2% and 3% YoY, respectively. EBITDA is likely to decrease 9% YoY to INR3.7b and margin to contract marginally by 15bp to 16.8%. Weak cash flow conversion and high net debt remain key concerns. Maintain Neutral with a TP of INR550 @ 15x 1HFY20E EPS. Any big in-licensing deal in innovation business could act as a catalyst.

Key issues to watch out  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.

Quarterly Performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT (incl one-offs) Reported PAT (excl MI) YoY Change (%) Margins (%)

April 2018

1Q 19,095 17.4 3,192 16.7 642 430 1,358 3,477 0 3,477 1,209 34.8 2,268 2,268 24.0 11.9

FY17 2Q 3Q 21,732 24,630 17.9 42.8 3,978 6,929 18.3 28.1 770 625 629 617 491 866 3,070 6,553 0 0 3,070 6,553 876 1,782 28.5 27.2 2,193 4,771 2,193 4,771 9.4 180.8 10.1 19.4

4Q 24,244 11.5 4,110 17.0 689 697 -185 2,539 809 1,730 -107 -6.2 1,837 1,837 23.5 7.6

1Q 23,294 22.0 5,438 23.3 777 709 489 4,441 0 4,441 1,108 24.9 3,334 3,334 47.0 14.3

FY18E 2Q 3Q 22,234 21,715 2.3 -11.8 3,552 2,905 16.0 13.4 752 754 698 705 629 90 2,731 1,537 0 0 2,731 1,537 589 489 21.6 31.8 2,141 1,047 2,141 1,047 -2.4 -78.0 9.6 4.8

4QE 22,236 -8.3 3,744 16.8 739 709 492 2,788 0 2,788 688 24.7 2,100 2,100 14.3 9.4

FY17

FY18E

89,701 18.2 18,211 20.3 2,644 2,373 2,530 15,724 809 15,724 3,827 24.3 11,897 11,897 56.5 13.3

89,479 -0.2 15,640 17.5 3,022 2,821 1,700 11,497 0 11,497 2,874 25.0 8,623 8,623 -27.5 9.6

191

March 2018 Results Preview | Sector: Healthcare

GSK Pharma Bloomberg

GLXO IN

Equity Shares (m)

84.7

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

182 / 3

52-Week Range (INR)

2760 / 2040

1,6,12 Rel Perf. (%)

-8 / -19 / -33

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

29.3

28.7

32.1

36.0

3.5

4.8

5.3

6.1

EBITDA NP EPS (INR)

2.9

3.2

3.6

4.1

34.4

38.3

42.6

48.5

CMP: INR2,152 TP:INR2,500 (+16%)

Neutral

 In 4QFY18, we expect GlaxoSmithKline Pharmaceuticals (GLXO) to report marginal decline of ~3% YoY in revenues to INR7.4b.  EBITDA is expected to increase 26% YoY to INR1.5b, and margin to expand by ~510bp to 20.4% (due to regulatory issues GLXO margin in 4QFY17 came in at 15.3%).  Increase in EBITDA margin will improve adj. PAT to INR960m.  We believe GLXO has strong parent support, superior brand portfolio (competitive advantage), high payout ratio (>100%) and industry-leading return ratios (RoCE of ~30%). At CMP, GLXO trades at 56x FY18E and 50x FY19E, a huge premium to the sector. We, thus, maintain our Neutral rating with a target price of INR2,500 @ 45x FY19E PER.

EPS Gro. (%)

-22.2

11.5

11.2

13.7

BV/Sh. (INR)

236.9

194.8

156.9

156.9

RoE (%)

14.5

19.7

27.2

30.9

RoCE (%)

13.9

17.7

24.2

30.9

62.6

56.1

50.5

44.4

9.1

11.0

13.7

13.7

Key issues to watch out

50.1

36.0

33.5

28.9

1.4

3.3

3.3

3.3

 New product introductions in FY19E.  Market performance of products impacted by DPCO 2013.

Valuations P/E (x) P/BV (x) EV/EBITDA (x) D. Yield (%)

Quarterly performance Y/E March (Standalone) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Other Income PBT before EO Expense Tax Rate (%) Adjusted PAT YoY Change (%) Margins (%) Extra-Ord Expense Reported PAT

April 2018

1Q 6,852 10.2 6,150 702 10.2 54 441 1,090 386 35.4 705 -26.4 10.3 -18 723

FY17 2Q 3Q 7,829 6,893 11.8 -5.4 6,584 6,543 1,245 350 15.9 5.1 66 66 343 319 1,522 603 536 252 35.2 41.8 987 351 -4.5 -57.8 12.6 5.1 -2 -179 988 530

4Q 7,634 11.3 6,469 1,165 15.3 78 351 1,438 570 39.6 869 -3.3 11.4 -259 1,127

1Q 5,868 -14.4 5,874 -6 -0.1 75 340 258 120 46.6 138 -80.4 2.3 -126 264

FY18E 2Q 8,363 6.8 6,442 1,921 23.0 77 96 1,940 688 35.5 1,252 26.8 15.0 -52 1,303

(INR million) FY17 FY18E 3Q 7,039 2.1 5,621 1,418 20.1 134 120 1,404 507 36.1 897 155.7 12.7 0 897

4QE 7,420 -2.8 5,910 1,510 20.4 140 141 1,511 551 36.4 960 10.5 12.9 0 960

29,265 6.8 25,810 3,455 11.8 264 1,463 4,655 1,744 37.5 2,911 -22.2 9.9 -457 3,368

28,690 -2.0 23,847 4,843 16.9 427 696 5,112 1,866 36.5 3,246 11.5 11.3 -178 3,424

192

March 2018 Results Preview | Sector: Healthcare

Bloomberg

IPCA IN

Equity Shares (m)

126.2

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

85 / 1

52-Week Range (INR)

695 / 400

1,6,12 Rel Perf. (%)

1 / 31 / -4

CMP: INR677 



Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

32.1

32.1

35.9

41.7

4.4

4.9

6.5

7.9

EBITDA

2.0

2.7

3.7

4.7

EPS (INR)

NP

16.1

21.4

29.2

37.3

EPS Gro. (%)

52.8

33.2

36.6

27.7

BV/Sh. (INR)

194.6

212.7

237.6

269.3

RoE (%)

8.6

10.5

13.0

14.7

RoCE (%)

7.5

9.3

11.4

12.9

42.1

31.6

23.2

18.1

3.5

3.2

2.8

2.5



 

Valuations P/E (x) P/BV (x)

Ipca Laboratories

TP:INR750 (+11%)

Buy

We expect Ipca Laboratories (IPCA) to post revenue growth of 16% YoY to INR7.7b, mainly due to growth in domestic business and API business by ~29% and ~22% respectively. International generic business is expected to post healthy growth of ~13% YoY to INR2.5b on the back of strong growth in generics business by ~27% YoY, which will be partially off-set by decline in branded business by ~5%. EBITDA is likely to increase significantly by ~130% YoY to INR1.6b, with expansion of ~1000bp in EBITDA margin to 20.2%, primarily due to low base. PAT is expected to increase significantly by ~99% YoY to INR883m, primarily due to margin expansion. We expect PAT CAGR of >30% until FY20, led by steady revenue growth (~14% till FY20E), and a significant improvement in margins (~380bp over two years) on cost-rationalization efforts, significantly lower remediation costs, and a pick-up in the tender and US businesses. We have a Buy rating with TP of INR750.

Key issues to watch out    

Update on resolution of USFDA regulatory issues. Outlook for institutional tender business. Impact of emerging market currency weakness. Outlook for FY19.

Quarterly Performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 8,422 11.1 1,285 15.3 422 65 49 847 81 766 290 34.2 476 557 82.5 5.6

FY17 2Q 3Q 8,720 7,398 16.8 8.1 1,280 1,104 14.7 14.9 429 432 68 57 62 59 845 675 -78 39 923 636 374 222 44.2 32.9 549 414 471 453 31.1 88.4 6.3 5.6

4Q 6,658 6.6 677 10.2 428 44 52 257 0 257 -187 -72.7 444 444 9.6 6.7

1Q 7,130 -15.3 215 3.0 433 56 62 -212 0 -212 -10 4.6 -202 -202 -136.4 -2.8

FY18E 2Q 8,643 -0.9 1,490 17.2 441 64 110 1,096 0 1,096 130 11.9 966 966 104.9 11.2

3Q 8,592 16.1 1,612 18.8 438 56 110 1,228 0 1,228 172 14.0 1,056 1,056 133.0 12.3

4QE 7,718 15.9 1,559 20.2 485 68 119 1,124 0 1,124 242 21.5 883 883 98.8 11.4

FY17

FY18E

32,106 11.3 4,448 13.9 1,730 241 226 2,703 0 2,703 675 25.0 2,028 2,028 62.8 6.3

32,083 -0.1 4,877 15.2 1,797 244 400 3,235 0 3,235 534 16.5 2,702 2,702 33.2 8.4

193

March 2018 Results Preview | Sector: Healthcare

Jubilant Life Sciences

Bloomberg

JUBILANT IN

Equity Shares (m)

155.4

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

132 / 2

52-Week Range (INR)



1039 / 600

1,6,12 Rel Perf. (%)

4 / 23 / -8 

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

58.6

72.5

85.8

95.2

EBITDA

13.5

15.5

18.7

20.9

5.8

7.5

9.8

11.3

EPS (INR)

36.9

47.8

62.6

72.5

EPS Gro. (%)

46.9

29.5

30.9

15.8

BV/Sh. (INR)

220.5

264.4

321.8

388.3

RoE (%)

18.0

19.7

21.4

20.4

RoCE (%)

11.2

12.4

14.3

14.7

22.9

17.7

13.5

11.7

NP

CMP: INR847

  

Valuations P/E (x) P/BV (x)



TP:INR1,110(+32%)

Buy

We expect sales momentum to continue for Jubilant Life Science (JLS) by growing at 29.5% YoY to INR21.2b for the quarter. Considerable part of growth would be due to addition of Triad business, which was absent in 4QFY17. We expect pharmaceutical segment to grow moderately by 4.2% YoY. The pricing pressure in US market is expected to result in subdued growth in pharma segment for JLS. Life science ingredient (LSI) is expected to grow at 15% YoY for the quarter due to higher volume off-take and better pricing. We expect EBITDA margin at 21%, better YoY as well as QoQ, largely due to better profitability in LSI segment. We expect PAT to be at INR2.2b, up 48.4% YoY, for the quarter on a low base of past year. There was a sharp jump in interest and tax outgo in 3QFY17. With debt repayment and lower interest rate, interest outgo has been on a downtrend since 4QFY17. The stock trades at 13.5x FY19E EPS. We maintain Buy, with a target price of INR1,110 (SOTP based).

3.8

3.2

2.6

2.2

12.5

10.6

8.6

7.3

Key issues to watch out

EV/Sales (x)

2.9

2.3

1.9

1.6

D. Yield (%)

0.4

0.5

0.6

0.7

 Outlook on contracts for new radiopharmaceutical products.  Outlook on pricing of products under LSI category.  Impact of pricing pressure on pharma products for regulated market.

EV/EBITDA (x)

Quarterly Performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 14,539 0.6 10,858 3,681 25.3 715 828 44 2,182 0 2,182 542 24.9 24 1,616 1,616 22.5 11.1

FY17 2Q 3Q 14,193 14,916 -2.2 9.1 10,790 11,598 3,403 3,318 24.0 22.2 720 727 800 982 51 51 1,934 1,661 0 0 1,934 1,661 497 480 25.7 28.9 -11 0 1,448 1,181 1,448 1,181 14.5 -4.0 10.2 7.9

4Q 16,414 10.5 13,364 3,050 18.6 752 802 105 1,601 0 1,601 111 6.9 0 1,490 1,490 1,272.3 9.1

1Q 15,961 9.8 12,584 3,376 21.2 725 687 68 2,032 0 2,032 595 29.3 -34 1,471 1,471 -9.0 9.2

FY18 2Q 3Q 16,420 20,678 15.7 38.6 13,359 16,509 3,061 4,168 18.6 20.2 790 818 660 771 71 32 1,682 2,612 0 0 1,682 2,612 427 483 25.4 18.5 -27 3 1,282 2,125 1,282 2,125 -11.4 80.0 7.8 10.3

4QE 21,257 29.5 16,793 4,464 21.0 846 660 83 3,041 0 3,041 827 27.2 3 2,211 2,211 48.4 10.4

FY17

FY18E

60,063 4.5 46,610 13,453 22.4 2,914 3,411 251 7,379 0 7,379 1,630 22.1 -14 5,757 5,757 46.8 9.6

74,315 23.7 59,246 15,073 20.3 3,179 2,778 254 9,370 0 9,370 2,332 24.9 -55 7,093 7,093 23.2 9.5

194

March 2018 Results Preview | Sector: Healthcare

Bloomberg

LAURUS IN

Equity Shares (m)

106.0

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

54 / 1

52-Week Range (INR) 1,6,12 Rel Perf. (%)

CMP: INR514 

634 / 485 -2 / -5 / -13

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Sales 19.0 20.9 25.3 29.2 EBITDA 4.1 4.3 5.7 6.8 NP 1.9 2.0 3.1 3.8 EPS (INR) 17.8 19.0 29.1 35.7 EPS Gro. (%) 43.0 7.0 52.7 22.8 BV/Sh. (INR) 125.8 144.5 173.0 208.0 RoE (%) 17.4 14.1 18.3 18.8 RoCE (%) 13.4 11.1 14.1 14.8 Valuations P/E (x) 28.7 26.8 17.6 14.3 P/BV (x) 4.1 3.5 3.0 2.5 EV/EBITDA 15.3 14.8 11.0 9.2 (x) EV/Sales (x) 3.3 3.0 2.5 2.1 D. Yield (%) 0.1 0.1 0.1 0.1

   

Laurus Labs

TP:INR613 (+20%)

Buy

We expect 13.7% YoY growth in sales to INR5.4b for the quarter, led by better traction in ARV/Oncology API, Synthesis and ingredient business. We also expect revenue from US formulation to kick in from 4QFY18. The YoY growth would be partly offset by declining Hep-C business. Lower share of higher-margin business is expected to result in 400bp YoY reduction in EBITDA margin. Lower margin and higher tax rate are expected to result in 29% YoY reduction in PAT to INR528m for the quarter. The stock trades at 17.6x FY19E EPS. We maintain Buy, with a target price of INR613 (18x 12M forward earnings).

Key issues to watch out  Outlook on ANDA filings and pace of approval.  Outlook on ARV API business and filings for formulation.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 4,165 NA 3,315 850 20.4 248 279 23 346 0 346 80 23.0 10 256 256 NA 6.2

FY17 2Q 5,254 NA 4,151 1,103 21.0 253 247 76 680 0 680 171 25.2 0 508 508 NA 9.7

3Q 5,050 12.2 4,062 988 19.6 263 297 128 555 0 555 81 14.6 0 474 474 17.9 9.4

4Q 4,735 -3.6 3,548 1,187 25.1 267 148 89 861 0 861 118 13.7 0 743 743 39.0 15.7

1Q 4,912 17.9 3,947 965 19.6 298 191 75 552 0 552 163 29.5 0 389 389 51.7 7.9

FY18 2Q 3Q 5,386 4,789 2.5 -5.2 4,260 3,916 1,126 874 20.9 18.2 301 310 195 178 66 99 696 486 0 0 696 486 208 137 29.9 28.2 0 0 488 349 488 349 -4.1 -26.4 9.1 7.3

4QE 5,383 13.7 4,252 1,130 21.0 320 167 70 713 0 713 185 26.0 0 528 528 -29.0 9.8

FY17

FY18E

19,204 104.0 15,076 4,129 21.5 1,031 970 316 2,443 0 2,443 451 18.4 10 1,982 1,982 111.6 10.3

20,470 6.6 16,376 4,095 20.0 1,228 731 311 2,447 0 2,447 693 28.3 0 1,753 1,753 -11.5 8.6

195

March 2018 Results Preview | Sector: Healthcare

Lupin Bloomberg

LPC IN

Equity Shares (m)

451.6

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

356 / 5

52-Week Range (INR)

CMP: INR789 

1465 / 727

1,6,12 Rel Perf. (%)

0 / -29 / -57



Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

174.9

157.8

179.6

208.2

EBITDA

44.9

30.6

36.8

46.4

NP

25.6

14.0

18.2

24.4

EPS (INR)

56.6

31.0

40.2

54.1

EPS Gro. (%)

12.4

-45.2

29.5

34.6

BV/Sh. (INR)

298.9

318.6

348.3

391.9

RoE (%)

20.9

10.1

12.1

14.6

RoCE (%)

13.3

6.8

8.4

10.4

  

Valuations P/E (x)

13.9

25.4

19.6

14.6

P/BV (x)

2.6

2.5

2.3

2.0

EV/EBITDA (x)

9.2

13.0

10.6

8.2

D. Yield (%)

1.1

1.1

1.1

1.1

TP:INR940 (+19%)

We expect Lupin's (LPC) 4QFY18 revenue to decline ~6% YoY to IN39.8b, mainly due to a decline in the US business by ~26% YoY to INR14b. India business is expected to exhibit robust growth of ~27% YoY to INR11.1b, while Japan sales are expected to improve 17.7% YoY to INR5.4b in 4QFY18, aided by currency tailwinds. EBITDA is estimated to decline ~32% YoY to INR7.5b, as margins are expected to come down by ~710bp to 18.9%. Reported PAT is likely to decline 45% YoY to IN3.3b due to decrease in EBITDA margin. LPC has invested ~INR60b toward R&D over FY16-18E (much higher than what it invested in a decade prior to that). GMP compliance is key to monetize this investment. Although the stock faces near-term pressure, key approvals in the US and resolution of the WL status (expected in 12 months) will help create value in 12-18 months. We maintain Buy with a TP of INR940 @ 20x 1HFY20E PER.

Key issues to watch out    

Outlook on US business for FY19E and ANDA launches. Outlook on future ANDA launches and Gavis integration. Update on warning letter for Goa and Indore facility. Outlook on inorganic growth initiatives.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%)

1Q 44,677 41.6 31,596 13,080 29.3 2,027 320 826 11,560 2,734 23.7

Minority Interest Reported PAT Recurring PAT YoY Change (%) Margins (%)

6 8,819 8,820 55.1 19.7

April 2018

Buy

FY17 2Q 3Q 42,905 44,828 28.9 26.1 32,624 32,670 10,281 12,158 24.0 27.1 2,112 2,309 263 459 271 1,036 8,177 10,426 1,589 4,095 19.4 39.3 8 6,580 6,622 58.0 15.4

24 6,307 6,331 19.5 14.1

4Q 42,533 2.0 31,481 11,052 26.0 2,674 406 453 8,425 1,367 16.2

1Q 38,696 -13.4 31,012 7,684 19.9 2,605 439 320 4,959 1,368 27.6

-16 7,074 6,069 -18.9 14.3

-12 3,603 3,581 -59.4 9.3

FY18E 2Q 3Q 39,520 39,756 -7.9 -11.3 30,989 32,873 8,531 6,883 21.6 17.3 2,722 2,804 479 540 740 284 6,070 3,824 1,541 1,608 25.4 42.0 19 4,511 4,550 -30.8 11.5

5 2,211 2,577 -59.3 6.5

FY17

FY18E

4QE 39,826 -6.4 32,311 7,515 18.9 2,796 526 306 4,499 1,096 24.4

174,943 23.1 130,012 44,931 25.7 9,122 1,525 1,065 35,349 9,785 27.7

157,798 -9.8 127,185 30,613 19.4 10,926 1,984 1,650 19,352 5,612 29.0

74 3,330 3,330 -45.1 8.4

72 25,492 25,492 12.3 14.6

85 13,655 13,655 -46.4 8.7

196

March 2018 Results Preview | Sector: Healthcare

Bloomberg

SANL IN

Equity Shares (m)

23.0

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

CMP: INR5,147

118 / 2

52-Week Range (INR)

5995 / 3901

1,6,12 Rel Perf. (%)

3 / 19 / -3

Financial Snapshot (INR Billion) Y/E Dec

2016 2017E 2018E 2019E

Sales

23.7

24.9

28.1

31.0

5.3

5.4

6.2

7.1

3.0

EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%)

3.3

3.7

4.3

129.1 141.7

161.8

186.9

14.2

15.5

BV/Sh. (INR)

754.5 881.8

24.9

9.8

Sanofi India

TP:INR5,600 (+9%)

 We expect Sanofi India's (SANL) revenue to grow ~16 % YoY in 1QCY18 to INR6.4b. 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 also likely to increase significantly by 36% YoY to INR1.4b during this quarter; expect margin expansion by ~330bp.  We expect PAT to increase 44% YoY to INR863m.  We have modeled 9% sales growth, 10% EBITDA growth and 13% earnings growth over CY16-19E. We maintain Buy with a TP of INR5,600 @ 30x CY19E.

962.4 1,068.1

RoE (%)

17.1

16.1

16.8

17.5

RoCE (%)

16.5

16.2

16.4

17.3

Payout (%)

63.5

57.3

50.2

43.5

P/E (x)

39.9

36.3

31.8

27.5

P/BV (x) EV/EBITDA (x) Div. Yield (%)

6.8

5.8

5.3

4.8

21.4

20.7

17.0

14.4

1.3

1.4

1.4

1.4

Valuations

Key issues to watch out  Amortization of goodwill and brands acquired from Universal Medicare.  Clarity on nature of reversal of recently withdrawn NPPA guidelines.

Quarterly Performance

(INR Million)

Y/E December Net Sales YoY Change (%) EBITDA Margins (%) Depreciation

1Q 5,529 1.6 1,015 18.4 253

CY17 2Q 6,006 -1.2 1,154 19.2 255

3Q 6,675 6.9 1,837 27.5 257

4Q 6,704 13.2 1,344 20.0 257

Interest Other Income PBT before EO Items Extra-Ord Expense PBT after EO Items Tax Effective tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

4 159 917 0 917 317 34.6 600 600 -25.6 10.9

0 284 1,183 0 1,183 446 37.7 737 737 -13.6 12.3

0 208 1,788 0 1,788 625 35.0 1,163 1,163 44.3 17.4

11 182 1,258 0 1,258 498 39.6 760 760 50.5 11.3

April 2018

Buy

1QE 6,396 15.7 1,384 21.6 253

CY18E 2QE 3QE 6,673 7,427 11.1 11.3 1,444 1,672 21.6 22.5 255 257

4 200 1,327 0 1,327 465 35.0 863 863 43.8 13.5

0 200 1,389 0 1,389 500 36.0 889 889 20.6 13.3

0 208 1,623 0 1,623 568 35.0 1,055 1,055 -9.3 14.2

CY17

CY18E

4QE 7,594 13.3 1,714 22.6 371

24,914 5.2 5,372 21.6 1,022

28,090 12.7 6,215 22.1 1,136

7 186 1,522 0 1,522 607 39.9 915 915 20.4 12.1

11 807 5,146 0 5,146 1,886 36.6 3,260 3,260 9.8 13.1

11 794 5,862 0 5,862 2,140 36.5 3,722 3,722 14.2 13.3

197

March 2018 Results Preview | Sector: Healthcare

Bloomberg

SLPA IN

Equity Shares (m)

80.0

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

38 / 1

52-Week Range (INR)

749 / 401

1,6,12 Rel Perf. (%)

10 / -25 / -41

2017 2018E 2019E 2020E

Sales

7.8

7.8

9.5

11.6

EBITDA

1.8

1.7

2.3

2.9

NP

1.1

1.1

1.9

2.5

14.0

13.3

24.3

30.6

EPS (INR) EPS Gro. (%)

6.2

-5.0

82.4

25.9

BV/Sh. (INR)

114.4

127.0

152.9

181.9

RoE (%)

14.4

11.0

17.4

18.3

RoCE (%)

11.5

8.4

13.5

15.2

33.6

35.4

19.4

15.4

4.1

3.7

3.1

2.6

22.5

24.0

17.4

13.6

5.0

5.1

4.1

3.4

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

Quarterly Performance 1Q Net Sales 1,672 YoY Change (%) 11.7 Total Expenditure 1,339 EBITDA 333 Margins (%) 19.9 Depreciation 70 Interest 7 Other Income 24 PBT before EO expense 280 Share of p/ (L) in Associate/ JV -62 Extra-Ord expense 0 PBT 342 Tax 80 Rate (%) 36.5 Minority Interest & P/Lof Asso. Cos. -9 Reported PAT 147 Adj PAT 147 YoY Change (%) -5.3 Margins (%) 8.8

April 2018

  

Financial Snapshot (INR Billion) Y/E March

CMP: INR471

 

Shilpa Medicare

TP: INR686 (+46%)

Buy

We expect 8% YoY decline in net sales of Shilpa Medicare (SLPA), on lower development income. We expect US formulation sales momentum to continue due to better traction in approved products. EBITDA margin is expected to decline from 26.2% in 4QFY17 to 19% in 4QFY18 due to lower dossier income. With lowering of sales and decreased EBITDA margin, we expect PAT to decline by 37% YoY to INR263m for the quarter. The stock trades at 19.4x FY19E EPS. We maintain Buy, with a target price of INR686 (25x 12M forward earnings).

Key issues to watch out  Outlook on new ANDA approvals  Outlook on market share in approved products

FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 2,113 1,836 2,237 1,685 2,040 1,855 2,055 21.1 -8.2 13.1 0.8 -3.4 1.1 -8.1 1,624 1,487 1,650 1,344 1,473 1,583 1,665 489 348 587 341 567 272 390 23.2 19.0 26.2 20.2 27.8 14.7 19.0 75 78 78 84 83 92 95 6 7 7 5 5 5 6 37 40 79 52 53 51 50 446 304 581 303 531 226 339 54 -37 -7 28 -76 -8 -6 0 0 45 0 0 0 0 391 340 633 275 607 234 345 124 97 147 90 119 54 70 24.7 36.1 27.8 27.2 26.2 24.7 21.0 -6 -4 -8 0 0 0 0 382 175 390 241 336 164 263 382 175 423 241 336 164 263 52.4 -37.1 7.7 64.0 -12.2 -6.1 -37.7 18.1 9.5 18.9 14.3 16.5 8.8 12.8

(INR Million)

FY17

FY18E

7,858 8.8 6,100 1,758 22.4 300 27 180 1,610 0 45 1,655 447 28.5 -27 1,091 1,123 6.2 14.3

7,635 -2.8 6,066 1,570 20.6 354 21 205 1,400 (62) 0 1,337 333 24.9 0 1,067 1,067 -5.0 14.0

198

March 2018 Results Preview | Sector: Healthcare

Bloomberg

STR IN

Equity Shares (m)

89.4

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

63 / 1

52-Week Range (INR)

1 / -23 / -49

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E 34.8

29.5

34.4

39.9

EBITDA

6.4

4.1

6.8

8.1

NP

2.9

1.3

3.6

5.0

EPS (INR)

32.3

14.1

40.8

55.7

EPS Gro. (%)

77.6

-56.2

188.8

36.7

BV/Sh. (INR)

303.1

315.4

356.2

411.9

RoE (%)

10.8

4.6

12.1

14.5

RoCE (%)

8.3

5.1

8.8

10.2

21.9

50.1

17.3

12.7

2.3

2.2

2.0

1.7

15.1

22.2

13.0

10.4

EV/Sales (x)

2.8

3.1

2.6

2.1

D. Yield (%)

0.0

0.0

0.0

0.0

Valuations P/E (x) P/BV (x) EV/EBITDA (x)



1148 / 641

1,6,12 Rel Perf. (%)

Sales

CMP: INR704

   

Strides Shasun

TP:INR989(+40%)

Buy

We expect sales of INR7.9b for 4QFY18. The YoY numbers are not comparable, as 4QFY17 includes API and domestic formulation sales. API business, which was hived off to Solara, is shown as discontinued operations. Domestic formulation business was sold to Eris Life Sciences in November 2017. We expect marginal improvement on a QoQ basis. We expect EBITDA margin to rise by 100bp QoQ, largely due to new launches in the US market. Accordingly, PAT is expected to rise by 49% QoQ to INR598m for 4QFY18. The stock trades at 17.3x FY19E EPS. We maintain Buy, with a target price of INR989 (SOTP basis).

Key issues to watch out  Pace of ANDA filings and outlook on niche approvals.  Outlook on margin improvement in Australia business.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/Lof Asso. Cos. Reported PAT from Continuing Ops. Adj. PAT from Continuing Ops. YoY Change (%) Margins (%)

April 2018

1Q 7,895 28.8 6,573 1,323 16.8 424 559 208 547 60 487 88 18.1 65 334 383 260.9 4.9

FY17 2Q 9,535 33.3 8,101 1,434 15.0 468 617 658 1,008 0 1,008 152 15.1 114 741 741 106.9 7.8

3Q 7,298 -15.9 5,882 1,416 19.4 309 441 222 888 115 773 235 30.4 1 537 617 4.7 8.4

4Q 8,884 -3.9 7,315 1,569 17.7 529 592 731 1,179 17 1,162 175 15.0 -7 994 1,009 471 11.4

1Q 6,579 -16.7 5,950 629 9.6 356 524 345 93 34 60 10 15.9 31 20 48 -87.5 0.7

FY18 2Q 7,695 -19.3 6,698 997 13.0 384 486 222 350 123 227 33 14.4 53 142 246 -66.7 3.2

3Q 7,490 -19.8 6,262 1,228 16.4 391 498 157 497 63 433 -2 -0.4 32 403 466 -24.4 6.2

4QE 7,850 -11.6 6,476 1,374 17.5 400 450 160 684 0 684 85 12.5 0 598 598 -41 7.6

FY17

FY18E

34,834 11.6 28,406 6,428 18.5 1,872 2,269 1,686 3,973 1,006 2,967 470 15.8 458 2,039 2,886 136.9 8.3

29,620 -15.0 25,389 4,230 14.3 1,536 1,952 884 1,627 219 1,408 121 8.6 117 1,204 1,371 -52.5 4.6

199

March 2018 Results Preview | Sector: Healthcare

Bloomberg

SUNP IN

Equity Shares (m)

2399.3

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

1224 / 19

52-Week Range (INR)

701 / 433

1,6,12 Rel Perf. (%)

-3 / -4 / -38

CMP: INR510 



Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

302.6

259.9

302.4

351.5

EBITDA

87.8

52.6

76.0

95.3

NP

69.6

26.6

51.8

66.7

EPS (INR)

28.9

11.0

21.5

27.7

EPS Gro. (%)

48.0

-61.8

94.8

28.8

BV/Sh. (INR)

152.3

156.3

170.8

191.6

RoE (%)

18.1

8.5

13.2

15.3

RoCE (%)

19.0

7.7

13.6

16.2

19.5

38.7

23.7

18.4

3.3

3.3

3.0

2.7

13.1

21.3

14.2

10.9

0.7

1.2

1.2

1.2







Valuations P/E (x) P/BV (x) EV/EBITDA (x) D.Yield (%)

Sun Pharma

TP:INR675(+32%)

Sun Pharmaceuticals (SUNP) is likely to register decline in revenues by ~4% YoY to INR65.8b, primarily on the back of a decrease in US business by ~16% to INR21.4b. India business is expected to grow ~6% YoY, while the Row and API businesses are expected to grow 3% YoY and 7% YoY, respectively. SUNP’s EBITDA is expected to increase ~17% YoY to INR14.4b, with margin expansion of ~380p to 21.9% primarily due to low base in 4QFY17 on back of one time inventory write-off of USD45m and weak US business revenues. Although we expect increase in EBITDA, PAT is expected to decline 30% YoY to INR8.5b due to lower other income coupled with higher tax rate. We expect the stock to remain under pressure in the near term due to challenges related to growth and margins. We maintain Buy rating with a TP of INR675, based on 24x FY20E.

Key issues to watch out  Update on resolution of USFDA warning letter and 483 observations on Halol.  Outlook for FY19E.  Launch of Tildrakizumab and other key products.

Quarterly Performance Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Net Other Income PBT before EO Exp EO Exp/(Inc) PBT Tax Rate (%) PAT (pre Minority Interest) Minority Interest Reported PAT One-off upsides Adj Net Profit YoY Change (%)

April 2018

Buy

(INR Million) 1Q 80,067 18.4 53,220 26,847 33.5 3,160 2,588 26,275 0 26,275 3,527 13.4 22,748 2,411 20,337 0 20,337 265.8

FY17 2Q 77,640 13.0 50,974 26,666 34.3 3,038 5,668 29,295 0 29,295 4,417 15.1 24,879 2,528 22,351 0 22,351 117.3

3Q 76,832 8.5 54,595 22,237 28.9 3,068 1,851 21,020 0 21,020 3,729 17.7 17,291 2,573 14,718 0 14,718 3.9

4Q 68,252 -10.6 55,895 12,357 18.1 3,382 4,913 13,888 0 13,888 443 3.2 13,445 1,208 12,237 0 12,237 -28.6

1Q 61,667 -23.0 51,131 10,535 17.1 3,466 847 7,916 9,505 -1,589 1,618 20.4 -3,207 1,042 -4,249 0 5,256 -120.9

FY18E 2Q 65,901 -15.1 52,747 13,153 20.0 3,587 1,577 11,144 0 11,144 1,114 10.0 10,030 908 9,121 0 9,121 -59.2

3Q 65,982 -14.1 51,999 13,984 21.2 3,393 889 11,479 0 11,479 7,487 65.2 3,992 338 3,654 -5,130 8,784 -75.2

4QE 65,821 -3.6 51,390 14,432 21.9 3,654 688 11,465 0 11,465 1,212 10.6 10,253 1,711 8,542 0 8,542 -30.2

FY17

FY18E

302,642 7.1 214,892 87,751 29.0 12,648 15,376 90,479 0 90,479 12,116 13.4 78,363 8,719 69,644 0 69,644 28.9

259,370 -14.3 207,267 52,104 20.1 14,100 3,500 41,504 0 41,504 11,431 27.5 30,073 4,000 26,073 0 26,073 -62.6

200

March 2018 Results Preview | Sector: Healthcare

Torrent Pharmaceuticals

Bloomberg

TRP IN

Equity Shares (m)

169.2

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

233 / 3.6

52-Week Range (INR)

1572 / 1144

1,6,12 Rel Perf. (%)

5 / 5 / -24

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

58.6

60.2

77.2

87.7

EBITDA

13.8

13.9

19.7

22.8

9.3

8.1

10.4

13.3

55.2

48.0

61.3

78.5

-7.7 -12.9

27.6

28.0

NP EPS (INR) EPS Gro. (%) BV/Sh. (INR)

257.1 287.7 326.9 377.0

RoE (%)

23.8

17.6

19.9

22.3

RoCE (%)

18.6

12.0

18.6

19.9

23.4

26.8

21.0

16.4

5.0

4.5

3.9

3.4

16.8

16.4

11.3

9.4

1.3

1.1

1.4

1.8

Valuations P/E (x) P/BV (x) EV/EBITDA (x) D. Yield (%)

Quarterly Performance

Y/E March INR m Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 15,070 -22.6 4,370 29.0 680 490 260 3,460 0 3,460 540 15.6 2,920 2,920 -35.0 19.4

CMP: INR1,288

TP:INR1,400 (+9%)

Neutral

 We expect TRP to post ~26% YoY growth in 4QFY18 reported sales to INR17.4b. US business is expected to increase ~7% YoY, while India business is expected to witness 70% YoY growth on the back of integration of Unichem’s domestic portfolio.  Reported EBITDA is likely to increase 37% YoY to INR4.1b, with increase in EBITDA margin by ~200bp YoY.  Although EBITDA is expected to increase, we expect PAT to decline by ~21% YoY to INR1.8b due to increase in interest expense by 118% to INR1.3b and higher tax rate at 23.8% v/s 15.6% in 4QFY17.  Due to high interest cost, the Unichem deal will take three years to turn EPS-accretive (additional interest cost burden of IN2.5-2.7b). Although TRP remains one of the better plays on India’s growth story (because of a chronic heavy portfolio and one of the best margins), the lack of growth catalysts in the near term will keep the stock range bound. Our TP is INR1,400@20x 1HFY20E PER.

Key issues to watch out  Contribution of Unichem portfolio and growth strategy.  Performance of Brazilian operations amid market pressure.  Outlook on future ANDA launches.

FY17 2Q 3Q 14,060 14,130 -27.8 -8.2 3,300 3,160 23.5 22.4 690 730 510 480 430 500 2,530 2,450 0 0 2,530 2,450 460 160 18.2 6.5 2,070 2,290 2,070 2,290 -53.9 -34.2 14.7 16.2

4Q 13,810 -7.9 2,950 21.4 970 580 1,040 2,440 0 2,440 380 15.6 2,060 2,060 -42.3 14.9

1Q 13,480 -10.6 2,970 22.0 800 560 1,050 2,660 0 2,660 780 29.3 1,880 1,880 -35.6 13.9

FY18E 2Q 3Q 14,290 14,770 1.6 4.5 3,290 3,590 23.0 24.3 840 940 510 800 780 740 2,720 2,590 0 0 2,720 2,590 680 2,010 25.0 77.6 2,040 580 2,040 2,390 -30.1 15.5 14.3 16.2

(INR Million)

4QE 17,385 25.9 4,053 23.3 1,031 1,267 630 2,385 0 2,385 568 23.8 1,816 1,816 -20.7 10.4

FY17

FY18E

58,570 -12.3 13,774 23.5 3,070 2,060 2,230 10,874 0 10,874 1,540 14.2 9,334 9,334 -49.9 15.9

60,185 2.8 13,903 23.1 3,611 3,137 3,200 10,355 -1,810 12,165 4,038 39.0 8,126 8,126 -12.9 13.5

201

March2016 2018Results ResultsPreview Preview || Sector: Sector: Capital Infrastructure March Goods

Infrastructure Company name

Road sector at an inflexion point

Ashoka Buildcon

Awarding as well as construction activity at new high in FY18

IRB Infra

Over the past few years, the Indian government has shown the resolve to tackle issues prevailing in the infrastructure sector (related to land acquisition, environment/forest clearances, model concession agreement amendment, etc), with signs of activity improvement already evident since FY17.

KNR Constructions Sadbhav Engineering

Activity in the road sector picked up significantly in FY18 and awarding as well as construction activity reached new peaks, with awarding of 47km/day (up 5% YoY) and construction of 27km/day (up 19% YoY). Awarding activity was equally distributed between EPC projects (51%) and HAM projects (47%), and the balance 2% was awarded on BoT basis. We expect the momentum to continue in FY19 as well, given that large part of the orders under Bharatmala Pariyojna (34,800km, INR5.3t) is yet to be awarded. NHAI intends to award contracts of 3,000km in 1QFY19 (which could not be awarded in FY18 due to non-availability of land).

Bharatmala program provides strong medium-term visibility The recent announcement of the Bharatmala program augurs well for the sector, with the government planning to incur INR7t over the next few years. Bharatmala has been launched as an umbrella program, with a primary focus on optimizing efficiency of movement of goods and people across the country. This program envisages a corridor approach instead of the existing package-based approach that has resulted in skewed development. Under the Bharatmala project, the government plans to invest INR5.4t to build 34,800km of roads – phase-I includes projects worth INR3.5t for 24,800km, for which awarding will be done over the next two years and project completion is expected over the next five years. DPR preparation for projects of 9,000km is already undertaken.

Opportunities abundant for incumbent players With robust capex planned by both central and state governments (INR7t construction opportunity), we see abundant business opportunities for incumbent players in the sector. This will ensure competition remains moderate and profitability improves. We believe 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, Sadbhav Engineering, and Ashoka Buildcon.

Amit Shah ([email protected]); +91 22 6129 1543 Ankur Sharma ([email protected]); +91 22 6129 1556 April 2018

202

March 2018 Results Preview | Sector: Infrastructure

Exhibit 1: Summary of expected quarterly performance Sector CMP (INR)

Reco

265 242 285 396

Buy Neutral Buy Buy

Infrastructure Ashoka Buildcon IRB Infra KNR Constructions Sadbhav Engineering Sector Aggregate

Sales (INR M) Var Var Mar-18 % YoY % QoQ

EBITDA (INR M) Var Var Mar-18 % YoY % QoQ

7,346 16,416 4,933 12,441 41,136

1,017 8,338 979 1,353 11,687

20.4 0.9 2.3 20.5 9.6

11.5 26.6 13.9 33.1 23.8

59.8 1.5 35.6 23.5 9.5

Net Profit (INR M) Var Var Mar-18 % YoY % QoQ

27.8 23.7 -0.5 28.1 22.0

619 2,718 450 880 4,667

-5.3 31.2 -14.1 28.9 18.7

19.0 8.1 -31.4 42.3 8.3

Source: MOSL

Exhibit 2: India road awarding reached a new peak in FY18

Exhibit 3: Roads completed also at all-time highs in FY18

with 47km/day awarding

(27km/day)

Awarded km (per day)

47

45

27

Construction km (per day) 23

29

27

FY14

FY15

9

FY15

FY16

FY17

FY18

FY12

FY13

FY16

Source: MOSL, Company

Exhibit 5: Relative performance – one-year (%)

100

85

90 Mar-18

Feb-18

Jan-18

Source: Bloomberg, MOSL

Nov-17

91

Oct-17

110

Aug-17

97

MOSL Infrastructure Index

Jul-17

120

Jun-17

103

Mar-17

130

Dec-17

109

May-17

Sensex Index

MOSL Infrastructure Index

Apr-17

Sensex Index

FY18

Source: MOSL, Company

Sep-17

Exhibit 4: Relative performance – three-month (%)

FY17

Mar-18

FY14

Feb-18

FY13

12

Jan-18

FY12

12

Dec-17

5

17

16

14

22

Source: Bloomberg, MOSL

Exhibit 6: Comparative valuation Sector / Companies Capital Goods Ashoka Buildcon IRB Infra KNR Constructions Sadbhav Engineering Sector Aggregate

CMP (INR)

RECO

265 242 285 396

Buy Neutral Buy Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 2.1 25.4 16.9 13.9

7.0 24.6 14.0 16.0

8.3 21.3 18.2 17.4

128.0 9.5 16.9 28.4 17.2

37.9 9.8 20.4 24.8 16.5

32.1 11.4 15.7 22.8 16.7

8.7 5.7 9.3 16.3 7.6

8.2 6.5 10.3 13.1 7.8

7.9 7.9 7.5 10.6 8.2

2.2 15.5 23.6 13.5 12.9

6.9 13.4 16.2 13.7 12.0

7.5 10.5 17.8 13.2 10.7

Source: Company, MOSL

April 2018

203

March 2018 Results Preview | Sector: Infrastructure

Ashoka Buildcon Bloomberg

ASBL IN

Equity Shares (m)

187.1

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

50 / 1

52-Week Range (INR)

29.8

34.1

39.6

46.0

EBITDA

8.9

10.3

11.6

12.1

Adj. PAT

-0.1

0.4

1.3

1.5

Adj. EPS (INR)

-0.5

2.1

7.0

8.3

EPS Gr (%)

NM

NM

238.0

18.1

BV/Sh (INR)

89.3

98.4

105.2

113.6

RoE (%)

NM

2.2

6.9

7.5

RoCE (%)

9.5

9.8

10.3

10.0

P/E (x)

NM

128.1

37.9

32.1

P/BV (x)

3.0

2.7

2.5

2.3

EV/EBITDA (x)

10.4

9.3

8.5

8.2

Div. Yield (%)

0.8

0.8

0.8

0.8

Valuations



We expect revenue growth of 20% YoY, led by overall pickup of the orders in hand.



We expect operating margin to expand 340bp to13.8% and operating profit to improve 60% YoY to INR1b.



Net profit is expected to decline 5.3% YoY to INR619m, given an increase in depreciation charges and higher tax rate on expiry of 80IA benefit. 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.

Quarterly Performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest PBT before EO expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 4,683 -1.4 4,088 596 12.7 123 76 478 478 170 35.5 308 308 -32.7 6.6

Buy

Order inflow during the quarter was robust, with ACL bagging HAM project worth INR55b and ABL winning EPC projects worth INR14.8b in the Road sector.

18 / 38 / 24

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

TP: INR290 (+10%)



281 / 172

1,6,12 Rel Perf. (%)

Net Sales

CMP: INR265

FY17 2Q 3Q 4,428 5,240 -5.3 18.2 3,730 4,620 698 620 15.8 11.8 130 107 80 90 578 538 578 538 124 110 21.4 20.5 454 428 454 428 44.1 88.3 10.3 8.2

4Q 6,100 10.6 5,463 636 10.4 147 181 740 740 87 11.7 654 654 -343.7 10.7

1Q 7,228 54.3 6,253 975 13.5 113 129 824 824 205 24.9 619 619 100.9 8.6

FY18E 2Q 3,787 -14.5 3,281 506 13.4 130 116 368 368 41 11.2 327 327 -28.0 8.6

(INR Million) FY17 FY18E 3Q 6,589 25.7 5,794 796 12.1 144 128 690 690 170 24.6 520 520 21.6 7.9

4QE 7,346 20.4 6,329 1,017 13.8 170 189 792 792 172 21.8 619 619 -5.3 8.4

21,170 9.2 17,854 3,316 15.7 507 474 2,334 2,334 492 21.1 1,842 1,842 62.0 8.7

25,450 20.2 21,656 3,793 14.9 558 562 2,674 2,674 588 22.0 2,085 2,085 13.2 8.2

204

March 2018 Results Preview | Sector: Infrastructure

Bloomberg

IRB IN

Equity Shares (m)

351.5

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

85 / 1

52-Week Range (INR)

272 / 194

1,6,12 Rel Perf. (%)

9 / 9 / -11

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

282.2

291.0

8.3

14.2

PAT

4.9

EPS (INR)

1.3

EPS Gr. (%) BV/Sh. INR RoE (%) RoCE (%)

EBITDA

311.2 354.9 15.5

22.5

10.8

8.6

12.7

2.9

2.3

3.5

NM

119.0

-19.9

-19.9

88.0

88.9

89.6

90.7

1.5

3.3

2.6

3.8

0.7

2.5

1.7

3.0

67.9

31.0

38.7

26.3

1.0

1.0

1.0

1.0

27.8

15.2

15.1

11.5

0.9

1.9

1.5

2.3

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

CMP: INR242

IRB

TP: INR240 (-1%)

Neutral



IRB is expected to register flattish revenue growth of 1% YoY to INR16.4b on account of transfer of BoT projects to InvIT.



EBITDA is expected to register growth of 1.4% YoY to INR8.3b.



EBITDA margin is expected to improve 30bp YoY to 51%.



PAT is expected to improve 31% YoY to INR2.5b led by higher other income and lower tax rate for the quarter.



IRB won orders worth INR89b in the HAM and BoT segments.

Key issues to watch  Execution timelines for the recently-won HAM projects.  Impact on the EPC margins of the company once execution of lower-margin HAM projects starts.

* Consolidated

Quarterly Performance (INR m) Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Min Int & P/Lof Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 15,173 36.8 7,434 7,740 51.0 2,207 3,282 308 2,558 0 2,558 740 28.9 0 1,818 1,818 10.4 12.0

FY17 2Q 12,906 12.3 5,816 7,090 54.9 2,274 3,396 336 1,757 0 1,757 335 19.1 0 1,422 1,422 -4.6 11.0

3Q 14,109 5.8 6,674 7,435 52.7 1,803 3,389 298 2,541 0 2,541 699 27.5 0 1,842 1,842 8.6 13.1

4Q 16,271 5.9 8,053 8,218 50.5 2,264 3,260 289 2,983 0 2,983 911 30.5 0 2,072 2,072 37.1 12.7

1Q 18,169 19.7 9,991 8,178 45.0 1,816 2,854 535 4,044 0 4,044 1,665 41.2 0 2,379 2,379 30.8 13.1

FY18E 2Q 3Q 11,227 12,962 -13.0 -8.1 5,503 6,222 5,724 6,740 51.0 52.0 1,260 1,212 2,356 2,366 424 455 2,532 3,616 1,041 0 3,573 3,616 1,225 1,100 34.3 30.4 2 2 2,346 2,514 1,503 2,514 5.7 36.5 13.4 19.4

4QE 16,416 0.9 8,078 8,338 50.8 1,418 3,588 376 3,707 0 3,707 987 26.6 2 2,718 2,718 31.2 16.6

FY17

FY18E

58,459 14.0 27,976 30,483 52.1 8,548 13,327 1,232 9,839 0 9,839 2,685 27.3 8 7,146 7,146 11.8 12.2

58,774 0.5 29,793 28,981 49.3 5,706 11,165 1,790 13,899 0 13,899 4,977 35.8 6 8,916 8,916 24.8 15.2

205

March 2018 Results Preview | Sector: Infrastructure

Bloomberg

KNRC IN

Equity Shares (m)

140.6

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

40 / 1

52-Week Range (INR)

EBITDA NP EPS (INR)

15.4

18.0

20.0

27.8

2.3

3.6

3.2

4.3

1.7

2.4

2.0

2.6

12.0

16.9

14.0

18.2

EPS Gr. (%)

4.3

41.2

-17.3

30.2

BV/Sh (INR)

63.7

79.3

93.0

111.0

RoE (%)

20.7

23.6

16.2

17.8

RoCE (%)

16.8

19.0

15.0

17.4

23.8

16.9

20.4

15.7

4.5

3.6

3.1

2.6

17.9

10.9

12.1

8.9

Valuations P/E (x) P/BV (x) EV/EBITDA (x)



Operating profit is expected to grow 36%, led by margin improvement of 490bp YoY to 19.8%.



Operating margin improvement is expected to be led by the Madurai and Thirvanthpuram projects, which are in advanced stages of completion.



Net profit is expected to decline 14% YoY on account of higher tax rate assumption for the quarter at 28% as against -9% in 4QFY17. Maintain Buy.

Key issues to watch

 Management commentary on order inflow for the year and ahead.

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 3,032 77.1 2,595 437 14.4 132 43 59 321 265 19 7.1 246 302 101.6 10.0

Buy

We expect revenue growth of 13.3% YoY to INR4.9b, driven by execution of key projects like Hubli Hospet, Madurai and Thiruvanthpuram.

-4 / 32 / 33

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

TP: INR375 (+32%)



349 / 190

1,6,12 Rel Perf. (%)

Net Sales

CMP: INR285

KNR

FY17 2Q 3Q 3,735 3,823 72.2 74.9 3,175 3,246 560 577 15.0 15.1 146 166 56 66 132 102 490 447 490 338 51 31 10.3 9.3 439 307 439 415 -20.6 26.6 11.8 10.9

4Q 4,821 63.0 4,099 722 15.0 195 54 10 483 483 -41 -8.6 524 524 -9.5 10.9

1Q 4,807 58.6 3,962 845 17.6 244 52 123 672 672 -4 -0.6 676 676 123.7 14.1

FY18 2Q 3Q 3,933 4,332 5.3 13.3 3,109 3,348 825 984 21.0 22.7 235 371 43 49 27 61 574 624 574 624 -17 -33 -2.9 -5.2 591 657 591 657 34.5 58.1 15.0 15.2

(INR million) FY17 FY18E 4QE 4,933 2.3 3,954 979 19.8 387 56 92 628 628 178 28.3 450 450 -14.1 9.1

15,411 70.7 13,115 2,296 14.9 639 219 303 1,741 1,576 60 3.8 1,516 1,675 -17.2 10.9

18,006 16.8 14,373 3,633 20.2 1,238 199 303 2,499 2,499 125 5.0 2,374 2,374 41.7 13.2

206

March 2018 Results Preview | Sector: Infrastructure

Bloomberg

SADE IN

Equity Shares (m)

171.5

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

68 / 1

52-Week Range (INR)

33.2

38.2

46.1

55.8

EBITDA

3.6

4.3

5.3

6.6

Adj. PAT

1.9

2.4

2.7

3.0

EPS(INR)

11.0

13.9

16.0

17.4

EPS Gr. (%)

42.3

27.1

14.9

8.6

BV/Sh. (INR)

96.8 109.3 123.9 139.9

RoE (%)

12.0

13.5

13.7

13.2

RoCE (%)

7.9

9.0

10.3

12.2

36.1

28.4

24.7

22.8

4.1

3.6

3.2

2.8

23.3

17.6

14.1

11.4

0.3

0.3

0.3

0.3

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

Buy

Sadbhav Infrastructure has received orders worth INR41.2b in the HAM segment whereas Sadbhav Engineering has bagged another INR1b order in the EPC segment.



We expect revenue of INR12.4b (up 20.5% YoY), led by smooth execution of orders in hand.



EBITDA is expected to grow 23% YoY to INR1.4b. EBITDA margin is expected to improve 30bp YoY to 10.9% on better revenue mix.



Adjusted PAT at INR880m is expected to register 29% growth YoY.

1 / 26 / 19

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

TP: INR460 (+16%)



439 / 262

1,6,12 Rel Perf. (%)

Net Sales

CMP: INR396

Sadbhav Eng

Key issues to watch  Improvement in working capital cycle and overall quality of balance sheet.

*Consolidated

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

April 2018

1Q 8,070 -2.7 7,201 868 10.8 254 172 48 489 2 0.5 487 487 20.0 6.0

FY17 2Q 3Q 6,156 8,648 -17.5 14.8 5,503 7,710 654 938 10.6 10.8 253 250 221 243 8 60 187 505 1 -19 0.8 -3.7 185 524 185 524 -50.2 89.7 3.0 6.1

4Q 10,329 20.4 9,233 1,096 10.6 243 355 218 716 33 4.7 682 682 38.7 6.6

1Q 9,444 17.0 8,376 1,068 11.3 245 322 39 540 -15 -2.8 555 555 14.0 5.9

FY18E 2Q 3Q 6,931 9,351 12.6 8.1 6,143 8,295 788 1,056 11.4 11.3 251 247 215 285 5 74 327 598 -8 -20 -2.6 -3.4 335 618 335 618 80.8 17.9 4.8 6.6

(INR Million) FY17 FY18 4QE 12,441 20.5 11,088 1,353 10.9 262 376 232 947 68 7.1 880 880 28.9 7.1

33,203 4.2 29,647 3,556 10.7 1,000 992 333 1,897 18 1.0 1,878 1,878 22.1 5.7

38,166 14.9 33,902 4,264 11.2 1,005 1,198 350 2,412 24 1.0 2,388 2,388 27.1 6.3

207

March 2018 Results Preview | April 2018

Logistics Company name

EXIM originating rail volumes remain healthy

Allcargo

Lead distance for EXIM cargo reduced

Concor



Gateway Distriparks





EXIM originating container rail volume grew 21% YoY in January-February 2018, indicating strong volume growth for the quarter. Domestic container volumes declined by 1% YoY in January-February 2018. CCRI is likely to report better margins QoQ, led by strong volume growth. Margins for GDPL are unlikely to improve meaningfully due to increasing competitive intensity in the CFS segment. CCRI should witness strong QoQ improvement in earnings, led by robust rail volumes during 4QFY18. AGLL’s earnings are expected to increase QoQ, led by improvement in MTO segment.

EXIM originating container volumes grew 21% YoY in January-February 

 

EXIM originating volume by rail is likely to grow in mid-teens in 4QFY18. In January-February 2018, EXIM container volumes were up 21% YoY and domestic volumes declined 1% YoY. CCRI is likely to report EXIM handling volume growth of 13% YoY in 4QFY18, led by strong EXIM rail volumes. GDPL is likely to report a growth of 3% YoY (flat QoQ) in rail volumes. CFS segment is expected to see volume growth of 15% YoY due to growth from JNPT.

Margins to improve for CCRI   

We expect CCRI to report better margins QoQ due to strong volume growth in the EXIM segment. GDPL should see downward pressure on margins, led by margin pressure in CFS business and flat margins YoY in rail business. AGLL is likely to see pressure on margins due to subdued P&E segment performance; MTO segment is expected to do better.

Lower leads to hurt margins 

Lead distance for EXIM trade by rail has declined by 4% YoY for JanuaryFebruary 2018 due to higher container movement from the Mundra and Pipavav ports than from JNPT. Lead distance for domestic volumes remained flat YoY for January-February 2018; however, it declined 1% YoY for February 2018.

Exhibit 1: Expected quarterly performance summary Sector

Logistics Allcargo Logistics Concor Gateway Distriparks Logistics Sector Aggregate

CMP (INR)

Reco.

152 1,260 185

Buy Neutral Buy

Sales (INR m) Var % Var % Mar-18 YoY QoQ 19,878 15,471 3,078 38,427

45.9 -0.7 0.0 19.0

34.3 6.4 6.0 19.2

EBDITA (INR m) Var % Var % Mar-18 YoY QoQ 994 3,297 575 4,865

-5.9 -33.4 9.9 -25.5

6.5 11.0 1.0 8.8

PAT (INR m) Var % Var % Mar-18 YoY QoQ 419 2,115 204 2,737

-26.9 20.4 -49.9 13.3 6.3 19.2 -45.1 14.8 Source: MOSL

Abhishek Ghosh ([email protected]); +91 22 6129 1538 Pradnya Ganar (Pradnya.Ganar @motilaloswal.com); +91 22 6129 1537 April 2018

208

March 2018 Results Preview | Sector: Logistics

Robust EXIM originating rail volumes – up 24% YoY in February 2018 Exhibit 1: EXIM volumes up 24% YoY in February 2018

46 45 28

28

21

20 18

16 16

8

(1) (1)

3.2

2.9

3.5

3.3

3.5

3.5

3.4

3.9

3.7

3.5

3.4

3.7

3.8

3.6

0.95

0.91

1.05

0.92

0.93

0.91

0.80

0.87

0.86

0.85

0.90

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

(4)

Source: Indian Rail, MOSL

Exhibit 3: EXIM lead distance declined 5% YoY in February 2018

0.90

27

Feb-18

(0)

20 19 18 16 13 18

0.94

2

7

YoY (%)

Jan-18

0

17

Domestic tonnes originating (million) 24

0.98

4

10

YoY (%)

Dec-17

EXIM tonnes originating (million)

Exhibit 2: Domestic volumes down 1% YoY in February 2018

Source: Indian Rail, MOSL

Exhibit 4: Domestic lead distance declined 1% YoY in February 2018 Domestic average lead (kms) 0

1

2

832

805

813

829

861

810

798

813

809

820

821

791

1,312

1,304

1,378

1,350

1,377

1,356

1,360

1,313

1,333

1,378

1,308

1,349

1,335

1,285

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

(1)

Mar-17

(4) (1)

836

(6) (4)

Feb-17

(3)

844

(3) (4) (6) (4) (7)

YoY (%)

Jan-17

EXIM average lead (kms) YoY (%) 0 (4) (3) (5) (5) (7) (6) (7) (7) (5) (7) (8) (9) (11)

Source: Indian Rail, MOSL

9.0

8.8

8.0 7.3 7.2 6.0

40% 25%

7.5

4.5 3.1 4.0

2.4

April 2018

1.2

1.2

1.8

Jan-18

Nov-17

Nov-16

Sep-16

Jul-16

May-16

Mar-16

-0.2 Jan-16

Sep-15

Feb-18

Dec-17

Oct-17

Aug-17

Jun-17

Apr-17

Feb-17

Dec-16

Oct-16

Aug-16

Jun-16

Apr-16

Feb-16

Oct-15

Dec-15

Aug-15

Source: CEIC, MOSL

Nov-15

0.8

-35%

7.1

4.0

2.2

-20%

4.8 4.1

4.4 3.22.8

Sep-17

-5%

5.2

3.5

Jul-17

10%

5.0 5.1 4.2

May-17

Import - YoY (%)

55%

Mar-17

Export - YoY (%)

Exhibit 6: IIP was up ~7.5% YoY in January 2018

Jan-17

Exhibit 5: India’s imports up 14% YoY, exports up 1% YoY in February 2018

Source: Indian Rail, MOSL

Source: CEIC, MOSL

209

March 2018 Results Preview | Sector: Logistics

Allcargo Bloomberg

AGLL IN

Equity Shares (m)

245.7

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

37 / 1

52-Week Range (INR)

55.7

65.0

73.9

83.7

EBITDA

4.6

4.0

4.9

5.5

NP

2.4

2.0

2.8

3.2

9.8

8.2

11.4

13.2

EPS Growth (%)

-1.2

-16.5

38.6

16.3

BV/Share (INR)

72.9

79.1

87.3

96.6

RoE (%)

13.7

10.8

13.7

14.4

RoCE (%)

12.1

9.5

11.8

12.5

P/E (x)

15.5

18.5

13.4

11.5

2.1

1.9

1.7

1.6

EV/EBITDA (x)

8.8

9.6

7.2

5.8





We estimate MTO volumes at 147k TEU (+16% YoY, +2% QoQ) and We estimate ~6% EBITDA CAGR and ~10% PAT CAGR over FY17-20, and expect return ratios to improve from ~13.7% in FY17 to ~14.4% in FY20, driven by margin expansion and reduction in capex intensity in the business.



The stock trades at a P/E of 13.4x (FY19E) and 11.5x (FY20E), and at an EV/EBITDA of 7.2x (FY19E) and 5.8x (FY20E). Maintain Buy.

Key issues to watch for  (a) Volume data, and (b) set up of logistics park in Jhajjar.

Y/E March

April 2018

We expect AGLL to report EBITDA of INR 994m (-6% YoY, +7%

CFS volumes at 92k TEU (+20% YoY, +28% QoQ).

Consolidated - Quarterly Earning Model Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Min. Interest & P& L of Asso. Cos. Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

Buy

INR419m (-27% YoY, +20% QoQ) in 4QFY18.

Valuations P/BV (x)

TP: INR198 (+30%)

QoQ), led by improvement in MTO segment. We expect PAT of

-13 / -17 / -22

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

EPS (INR)



229 / 145

1,6,12 Rel Perf. (%)

Sales

CMP: INR152

1Q 13,989 -5.2 1,332 9.5 436 75 59 880 0 880 256 29.1 624 -14 610 -24.6 4.4

FY17 2Q 3Q 14,084 14,114 -3.1 6.4 1,261 993 9.0 7.0 434 407 75 78 80 183 832 691 10 0 822 691 178 211 21.7 30.6 643 480 1 12 652 492 5.4 -15.2 4.6 3.5

4Q 13,628 -1.6 1,056 7.7 386 96 149 724 0 724 131 18.1 593 -20 572 -10.6 4.2

1Q 14,834 6.0 1,030 6.9 399 83 159 707 0 707 76 10.8 630 -19 611 0.2 4.1

FY18 2Q 3Q 15,472 14,799 9.9 4.9 1,047 933 6.8 6.3 398 397 71 71 51 49 629 515 0 0 629 515 6 199 1.0 38.7 623 315 15 32 638 348 -2.1 -29.3 4.1 2.3

(INR Million) FY17 FY18E 4QE 19,878 45.9 994 5.0 392 68 41 574 0 574 131 22.7 444 -25 419 -26.9 2.1

55,816 -0.8 4,642 8.3 1,662 324 471 3,127 10 3,117 776 24.9 2,340 -22 2,414 -3.7 4.3

64,984 16.4 4,004 6.2 1,586 293 300 2,425 0 2,425 412 17.0 2,013 3 2,016 -16.5 3.1

210

March 2018 Results Preview | Sector: Logistics

Concor Bloomberg

CCRI IN

Equity Shares (m)

243.7

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

307 / 5

52-Week Range (INR)

-2 / -11 / 13

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

56.1

58.9

67.8

79.2

EBITDA

12.5

12.4

15.1

18.7

9.3

10.8

12.5

14.2

EPS (INR)

38.0

44.2

51.2

58.2

EPS Gr. (%)

-2.6

16.3

15.9

13.5

BV/Sh (INR)

363.0

386.5

413.1

443.3

RoE (%)

10.8

11.8

12.8

13.6

RoCE (%)

10.5

11.5

12.5

13.3

Payout (%)

57.7

48.1

48.1

48.1

33.2

28.5

24.6

21.7

3.5

3.3

3.1

2.8

EV/EBITDA (x)

23.2

23.4

19.0

15.2

Div. Yield (%)

1.3

1.4

1.6

1.8

Valuations P/E (x) P/BV (x)

Container Corporation Y/E March

Net Sales YoY Change (%) EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018



1500 / 985

1,6,12 Rel Perf. (%)

NP

CMP: INR1,260 TP: INR1,386(10%)

1Q 13,392 -5.7 2,619 19.6 -9.0 841 0 692 2,470 0 2,470 685 27.7 1,785 1,785 -13.7 13.3

   

Neutral

We expect CCRI to report net sales of INR15.5b (-1% YoY, +6% QoQ), led by (a) volume growth of 13% YoY, and (b) 12% YoY decrease in realizations. We expect EXIM volumes to improve 13% YoY and expect domestic volumes to grow 10% YoY. We estimate EBITDA at INR3.3b (-33% YoY, +11% QoQ) and adjusted PAT at INR2.1b (-50% YoY, +13% QoQ). The stock trades at a P/E of 24.6x (FY19E) and 21.7x (FY20E), and at an EV/EBITDA of 19x (FY19E) and 15.2x (FY20E). CCRI remains a direct play on the upcoming dedicated freight corridor (DFC) project, which will multiply its asset turnover and significantly improve profitability. Maintain Neutral.

Key issues to watch for  EXIM and domestic volumes, and realizations.  Progress on MMLPs and DFC projects.

FY17 2Q 3Q 13,603 13,143 -9.4 -6.4 2,274 2,605 16.7 19.8 -28.1 -6.9 860 921 2 1 763 845 2,175 2,529 0 0 2,175 2,529 596 669 27.4 26.4 1,578 1,860 1,578 1,860 -32.4 -9.7 11.6 14.2

4Q 15,579 -2.3 4,950 31.8 6.2 877 32 593 4,634 865 3,768 411 10.9 3,358 4,223 37.9 27.1

1Q 14,568 8.8 3,267 22.4 24.8 953 0 936 3,251 0 3,251 817 25.1 2,434 2,434 36.4 16.7

FY18 2Q 3Q 14,302 14,536 5.1 10.6 2,821 2,971 19.7 20.4 24.1 14.0 969 995 0 0 954 727 2,805 2,702 0 -1,485 2,805 4,187 576 1,297 20.5 31.0 2,229 2,891 2,229 1,866 41.2 0.3 15.6 12.8

(INR Million) FY17 FY18E 4QE 15,471 -0.7 3,297 21.3 -33.4 1,151 36 620 2,729 0 2,729 614 22.5 2,115 2,115 -49.9 13.7

56,061 -5.3 12,469 22.2 -6.8 3,518 37 2,892 11,806 865 10,941 2,361 21.6 8,580 9,259 -2.6 16.5

58,876 5.0 12,355 21.0 -0.9 4,068 37 5,738 13,989 375 13,614 3,304 24.3 10,310 10,594 14.4 18.0

211

March 2018 Results Preview | Sector: Logistics

Gateway Distriparks Bloomberg

GDPL IN

Equity Shares (m)

108.6

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

20 / 0

52-Week Range (INR)

CMP: INR185 

-10 / -27 / -38



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

11.6

11.7

13.4

EBITDA

2.2

2.2

2.6

3.2

0.7

0.7

1.2

1.4

6.8

6.2

10.6

12.9

EPS Gr. (%)

EPS (INR)

-32.3

-18.1

90.3

16.8

BV/Sh (INR)

93.6 7.3

6.6

10.7

12.3

RoCE (%)

10.0

9.1

12.4

14.6

We estimate EBITDA at INR575m (+10% YoY, +1% QoQ) and EBITDA +19% QoQ).

 

The stock trades at a P/E of 17.5x (FY19E) and 14.3x (FY20E), and at an EV/EBITDA of 7.8x (FY19E) and 6.3x (FY20E. GDPL remains a direct play on the upcoming dedicated freight corridor project, which will multiply its asset turnover and

95.5 102.3 108.3

RoE (%)

We expect GDPL to report net sales of INR3b (flat YoY, +6% QoQ),

margin at 18.7%. We estimate adjusted PAT at INR204m (+6% YoY,

15.3

NP

Buy

led by growth in CFS business.

292 / 170

1,6,12 Rel Perf. (%)

TP: INR231 (+25%)

significantly improve profitability. Maintain Buy.

Valuations 27.2

29.7

17.5

14.3

P/BV (x)

P/E (x)

2.0

1.9

1.8

1.7

EV/EBITDA (x)

9.5

9.6

7.8

6.3

Div. Yield (%)

3.8

2.0

1.8

3.1

Key issues to watch for  Volume growth, realization and per TEU profitability.

Quarterly Performance

Y/E March (Consolidated) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) PBT Tax Rate (%) PAT before minority / profit of assoc. YoY Change (%) Margins (%) Less: Minority/Add: Profit of Asso. Reported PAT Adj PAT YoY Change (%) Margins (%)

1Q* 2,782 5.9 2,227 555 19.9 349 124 35.6 225 13.0 8.1 39 186 186 -47.8 6.7

FY17 2Q* 2,857 10.1 2,276 581 20.3 379 127 33.6 252 -15.0 8.8 79 173 173 -43.5 6.0

3Q* 2,876 7.7 2,289 587 20.4 403 146 36.2 257 -11.9 8.9 54 203 203 -34.3 7.1

4Q* 3,077 19.5 2,554 523 17.0 332 109 32.8 223 -5.6 7.3 31 192 192 -27.5 6.2

1Q* 2,661 -4.4 2,211 450 16.9 229 49 21.5 180 -20.1 6.8 47 133 133 -28.7 5.0

FY18 2Q* 3Q* 3,023 2,904 5.8 1.0 2,436 2,335 587 569 19.4 19.6 364 309 74 52 20.4 16.7 290 258 15.2 0.3 9.6 8.9 107 87 183 171 183 171 5.8 -15.8 6.0 5.9

(INR Million) FY17 FY18E 4QE 3,078 0.0 2,504 575 18.7 354 75 21.1 280 25.2 9.1 76 204 204 6.3 6.6

11,592 10.7 9,346 2,246 19.4 1,463 506 34.6 957 -6.5 8.3 203 754 754 -31.2 6.5

11,667 0.6 9,486 2,180 18.7 1,257 250 19.9 1,007 5.2 8.6 317 691 691 -8.4 5.9

E: MOSL Estimates, *Indicates addition of Rail and CFS details as provided and not actual consolidated number

April 2018

212

March 2018 Results Preview | Sector: Media

Media Company name

Broadcasters to continue outpacing overall sector growth

D B Corp

Print and Radio to bounce back, led by revival in local ad spending

Dish TV India HT Media

Rebound by local advertisers to stimulate overall growth

Jagran Prakashan

With the waning GST impact, 4QFY18 witnessed healthy ad spends from local advertisers following the recovery in spends by national advertisers in 3Q. We expect most media companies (including print and radio) to post ad recovery from 4QFY18, as ad spends across sectors gain momentum. Furthermore, the favorable base (demonetization impact in 4QFY17) should be supportive.

MBL ENIL Prime Focus PVR Sun TV Zee Entertainment

Ad revenue for media sector to grow 9% YoY We expect ad revenue for our Media universe to grow 9% YoY. Broadcasters are likely to continue their previous quarter’s trend of double-digit growth mainly on the back of increased ad spends by national advertisers, led by increased launches across the FMCG and auto space (contributing 55-60% of total ad revenue). We expect Zee to garner 16% YoY growth in ad revenue ex-sports and Sun TV to register 21% YoY ad revenue growth. Print and radio companies, mainly dependent on local advertisers, have fragmented ad revenue across sectors. Amongst print companies, we expect DB Corp to register 14% YoY ad revenue growth, mainly driven by low base and revival in ad spends. Jagran, however, is expected to report flat YoY ad revenue due to high base of ad spends attributed to the UP elections in 4QFY17. Within the radio pack, higher contribution from new stations coupled with revived volumes in existing stations should drive growth. We expect 15% YoY ad revenue growth for MBL, but a 2% YoY decline for ENIL. This is mainly due to the price hike strategy of ENIL, which we believe continues to hurt volume growth at legacy stations.

Monetization of digitization to continue driving subscription revenue For Zee, subscription revenue is expected to decline 3% YoY; however, ex-sports, it is expected to grow 13%, as we expect renewal of subscription contracts with distributors to augur well. Sun TV’s subscription revenue should grow at a healthy 19% primarily on the back of (1) digitization in Tamil Nadu, which got hastened with the recent blackout of analog signals, and (2) improving APRU. Dish TV is expected to see a meager 250k net subscriber addition, with flat ARPUs. Print companies, Jagran and DB Corp should see 7% YoY growth in circulation revenue. Dish TV’s ARPU and subscriber growth would remain under pressure given the intense competition in the sector. We expect meager 1% QoQ ARPU growth and 0.3m net subscriber additions. The headline numbers, however, could vary depending on the management’s call to merge Videocon D2H financials, as all merger formalities have been completed in March 2018. Aliasgar Shakir – Research analyst ([email protected]); +91 022 6129 1565 Hafeez Patel – Research analyst ([email protected]); +91 22 6129 1568 April 2018

213

March 2018 Results Preview | Sector: Media

Expect aggregate EBITDA to witness healthy 9% YoY growth Aggregate EBITDA for our Media universe is expected to grow 9% YoY. For Zee, we expect overall revenue to grow at a healthy 8% (ex-sports: 16%). However, higher cost towards Zee5 launch and increase in original content hours should pressurize EBITDA margins. We expect ~450bp YoY dip in EBITDA margin to 26.2% and 8% YoY decline in EBITDA. Sun TV should see strong 19% YoY revenue growth. This coupled with the shift to commission model (from the earlier private partnership model) should lead to robust 27% EBITDA growth, and 450bp EBITDA margin expansion. Jagran’s overall revenue is expected to register muted 3% YoY growth on flat ad revenues, whereas DB Corp should garner a healthy 11% YoY growth (backed by 14% YoY ad revenue growth). ENIL should see 2% revenue decline on weak revenue growth, primarily at legacy stations, while MBL is likely to grow by a healthy 15%, led by higher utilization at both new and legacy stations. Dish TV’s steady revenue performance coupled with cost efficiencies should provide impetus to 12% QoQ EBITDA growth. Exhibit 1: Media coverage: Quarterly snapshot 1Q Advertisement Revenue (INR b) MBL ENIL ZEE SUN TV Jagran Prakashan DB Corp HT Media HMVL Total Growth (YoY) Subscription Revenue (INR b) ZEE SUN TV Dish TV Jagran Prakashan DB Corp HT Media HMVL Total Growth (YoY) Total Revenue (INR b) MBL ENIL ZEE SUN TV Dish TV Jagran Prakashan DB Corp HT Media HMVL Prime Focus Total Growth (YoY) April 2018

FY16 2Q 3Q

4Q

1Q

FY17 2Q 3Q

4Q

1Q

2Q

FY18 3Q

4QE

YoY (%) QoQ (%)

0.5 1.0 7.7 3.5 2.9 3.1 4.4 1.7 24.8 10%

0.6 1.2 8.3 3.3 3.3 3.1 4.5 1.7 25.8 16%

0.6 1.4 9.2 3.3 3.7 3.9 5.1 1.8 29.1 15%

0.6 1.5 8.5 3.1 3.2 3.2 4.7 1.7 26.5 14%

0.6 1.1 9.1 3.4 3.5 3.7 4.5 1.8 27.8 12%

0.7 1.3 9.6 3.4 3.4 3.3 4.3 1.7 27.6 7%

0.7 1.5 9.6 3.0 3.7 4.0 4.7 1.7 28.8 -1%

0.7 1.7 8.5 2.9 3.3 3.1 4.1 1.7 26.0 -2%

0.7 1.0 9.7 3.3 3.6 3.9 4.3 1.8 28.3 2%

0.8 1.3 9.9 3.5 3.4 3.5 4.0 1.6 27.8 1%

0.8 1.5 12.0 3.6 3.6 3.8 4.5 1.8 31.5 9%

0.8 1.6 9.7 3.5 3.3 3.5 4.0 1.8 28.3 9%

15 -2 15 21 0 14 -2 5 9

0 9 -19 -1 -6 -6 -12 3 -10

4.6 2.3 6.8 1.0 1.0 0.7 0.5 17.0 13%

4.8 2.3 6.9 1.0 1.1 0.7 0.5 16.9 8%

5.2 2.4 7.1 1.0 1.1 0.8 0.5 17.8 8%

5.9 2.5 7.0 1.1 1.1 0.8 0.5 18.9 9%

5.3 2.7 7.3 1.1 1.2 0.8 0.6 18.8 11%

5.8 2.8 7.3 1.1 1.2 0.8 0.5 19.5 15%

5.9 2.8 6.9 1.1 1.2 0.8 0.6 19.4 9%

5.6 2.8 6.2 1.1 1.2 0.7 0.6 18.2 -4%

4.8 3.1 6.9 1.1 1.2 0.8 0.6 18.5 -2%

5.0 3.2 7.0 1.1 1.3 0.7 0.5 18.8 -4%

5.0 3.2 6.9 1.1 1.3 0.7 0.5 18.8 -3%

5.4 3.3 7.0 1.2 1.3 0.7 0.5 19.5 7%

-3 19 14 7 7 -4 -3 7

8 2 2 6 -1 4 12 4

0.5 1.0 13.3 6.9 7.4 4.8 4.7 5.9 2.2 5.2 51.8 19%

0.6 1.2 13.8 5.7 7.5 5.2 4.8 6.0 2.3 4.5 51.4 15%

0.6 1.4 15.9 5.7 7.7 5.8 5.9 6.8 2.4 4.7 56.9 15%

0.6 1.5 15.2 5.6 8.0 5.3 5.1 6.3 2.3 4.7 54.6 11%

0.6 1.1 15.7 7.6 7.8 5.6 5.7 6.1 2.4 5.3 58.0 12%

0.7 1.3 17.0 6.3 7.8 5.5 5.4 6.0 2.3 4.7 56.9 11%

0.7 1.5 16.4 5.9 7.5 6.0 6.3 6.5 2.3 5.1 58.2 2%

0.7 1.7 15.3 5.8 7.1 5.6 5.2 5.9 2.3 6.5 56.0 3%

0.7 1.0 15.4 7.9 7.4 5.9 5.9 6.0 2.4 5.1 57.8 0%

0.8 1.3 15.8 6.8 7.5 5.7 5.7 5.6 2.1 5.5 56.6 -1%

0.8 1.5 18.4 6.8 7.4 6.0 6.0 6.3 2.3 6.1 61.5 6%

0.8 1.6 16.5 6.9 7.7 5.8 5.8 5.9 2.4 7.5 60.8 8%

15 -2 8 19 8 3 11 1 3 14 8

0 9 -10 2 4 -3 -4 -6 5 22 -1

214

March 2018 Results Preview | Sector: Media

1Q

FY16 2Q 3Q

4Q

1Q

FY17 2Q 3Q

EBITDA (INR b) MBL 0.1 0.2 0.3 0.2 0.2 0.3 0.3 ENIL 0.4 0.4 0.5 0.4 0.3 0.2 0.4 ZEE 3.1 3.6 4.3 4.1 4.5 4.9 5.2 SUN TV 4.1 4.3 4.4 4.2 4.4 4.7 4.4 Dish TV 2.4 2.6 2.7 2.6 2.6 2.7 2.4 Jagran Prakashan 1.3 1.5 1.7 1.4 1.6 1.5 1.9 DB Corp 1.2 1.1 1.9 1.2 1.8 1.5 2.0 HT Media 0.6 0.7 1.2 0.8 0.6 0.5 1.1 HMVL 0.5 0.5 0.6 0.5 0.6 0.5 0.4 Prime Focus 1.2 0.5 0.7 0.8 1.0 0.7 1.2 Total 15.0 15.2 18.2 16.1 17.6 17.5 19.2 Growth (YoY) 21% 19% 20% 18% 18% 15% 5% EBITDA Margin (%) MBL 31.5 28.8 39.2 36.0 30.5 41.7 36.6 ENIL 34.8 32.6 32.6 26.2 26.6 17.8 25.3 ZEE 23.7 26.0 27.1 27.0 28.8 28.9 31.5 SUN TV 59.0 75.9 76.3 74.5 57.4 74.6 74.6 Dish TV 32.0 33.9 34.4 32.6 34.0 34.1 31.8 Jagran Prakashan 28.0 28.3 29.9 25.6 27.6 27.6 31.0 DB Corp 25.3 22.7 32.1 22.7 31.5 27.9 31.6 HT Media 10.1 11.0 17.8 12.1 10.5 8.4 17.0 HMVL 24.3 23.1 25.1 23.0 23.8 22.0 17.8 Prime Focus 23.7 11.8 15.3 17.5 19.3 15.9 24.1 Average 29.2 29.4 33.0 29.7 29.0 29.9 32.1 Growth (YoY, bps) 281 154 170 102 -25 47 -85 PAT (INR b) MBL 0.1 0.1 0.2 0.2 0.1 0.1 0.1 ENIL 0.3 0.3 0.3 0.2 0.2 0.1 0.2 ZEE 1.8 1.9 2.3 2.3 2.2 2.4 2.5 SUN TV 2.0 2.2 2.2 2.4 2.3 2.7 2.4 Dish TV 0.5 0.9 0.7 4.8 0.4 0.7 0.1 Jagran Prakashan 1.8 0.9 0.9 0.8 0.8 0.9 1.0 DB Corp 0.6 0.6 1.1 0.6 1.0 0.9 1.2 HT Media 0.2 0.4 0.7 0.4 0.2 0.3 0.9 HMVL 0.4 0.5 0.5 0.4 0.5 0.5 0.4 Prime Focus -2.1 -0.2 -0.2 -2.4 1.0 -0.4 0.2 Total 5.6 7.4 8.7 9.7 8.8 8.2 9.0 Growth (YoY) 2% 35% 14% 78% 56% 11% 4% ZEE’s Ad/Subscription revenue for previous quarters includes sports business. ZEE’s 4QFY17 and 2QFY18 PAT excludes exceptional gain from sports business.

FY18 3Q

4Q

1Q

2Q

4QE

YoY (%) QoQ (%)

0.2 0.4 4.7 3.9 1.9 1.4 1.1 0.7 0.6 1.8 16.7 3%

0.2 0.2 4.8 4.5 2.0 1.6 1.9 0.8 0.5 1.0 17.5 0%

0.2 0.3 4.9 5.0 2.2 1.4 1.4 1.0 0.5 1.2 18.1 3%

0.2 0.4 5.9 4.9 2.0 1.6 1.4 1.3 0.6 1.3 19.7 3%

0.3 0.4 4.3 5.0 2.3 1.3 1.2 0.9 0.7 1.9 18.2 9%

53 2 -8 27 18 -9 6 24 14 7 9

9 1 -27 2 12 -19 -14 -33 12 51 -8

24.9 21.3 30.7 67.6 26.9 25.6 21.7 12.5 24.4 27.4 28.3 -144

31.5 16.0 31.4 57.0 27.2 27.3 31.4 13.3 21.5 20.1 27.7 -131

31.9 22.6 31.0 73.4 28.9 24.5 24.6 18.6 21.5 22.1 29.9 3

30.6 24.0 32.3 72.0 27.1 27.2 23.3 21.5 25.3 20.9 30.4 -169

33.3 22.2 26.2 72.1 29.4 22.8 20.7 15.4 27.1 25.8 29.5 120

836bps 94bps -447bps 452bps 245bps -281bps -97bps 290bps 265bps -162bps 120bps

269bps -180bps -613bps 9bps 228bps -441bps -257bps -614bps 177bps 487bps -94bps

0.0 0.1 0.1 0.0 2.9 2.5 2.4 2.5 -0.3 -0.1 0.8 0.9 0.6 1.1 0.3 0.4 0.4 0.4 0.4 0.0 7.7 7.9 -21% -10%

0.1 0.1 4.6 2.8 -0.2 0.7 0.8 0.7 0.4 0.2 10.2 23%

0.1 0.1 3.2 2.7 0.0 0.8 0.8 1.2 0.5 -0.1 9.4 4%

0.1 170 2 0.1 -2 3 1.7 -43 NM 2.9 23 9 -0.3 -8 NM 0.7 -10 -14 0.7 8 -12 0.4 62 -67 0.5 29 11 0.6 64 NM 7.6 -1 -19 -1% Source: Company, MOSL

Exhibit 3: 4QFY18E subscription/circulation revenue growth (YoY, %)

Exhibit 2: 4QFY18E ad revenue growth (YoY, %)

19

21 15

14

15

14

7

7

5

0 ZEE SUN TV Jagran

-2 DB HT HMVL Corp Media

MBL

-2 ENIL

ZEE’s ad revenue includes sports business for 4QFY17 Source: Company, MOSL April 2018

-3 ZEE

SUN TV Dish TV Jagran DB Corp

-4 HT Media

-3 HMVL

ZEE’s subscription revenue includes sports business for 4QFY17 Source: Company, MOSL 215

March 2017 2018 Results Results Preview Preview || Sector: Sector: Media Media September

Exhibit 4: 4QFY18 estimated total revenue growth (YoY, %)

8

19

8

3

11

1

3

15

14 -2

ZEE

SUN TV Dish TV

Jagran

DB Corp HT Media HMVL

MBL

ZEE’s subscription revenue includes sports business for 4QFY17

ENIL

Prime Focus

Source: Company, MOSL

Exhibit 5: Media universe quarterly revenue and EBITDA margin

26

28

31

29

Consol Revenue (INR b) 33 30 29 29 29

EBITDA margin (%) 32 30 28 28

30

30

29

4QFY18E

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

43.5 44.8 49.6 49.1 51.8 51.4 56.9 54.6 58.0 56.9 58.2 56.0 57.8 56.6 61.5 60.8

Source: Company, MOSL

Exhibit 6: Media universe quarterly PAT and growth PAT (INR b)

5.5

5.6

7.4

8.7

9.7

8.8

8.2

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

PAT for ZEE excludes exceptional gain from sports business

April 2018

-10

9.0

7.7

7.9

4

-1

10.2

9.4

7.6 4QFY18E

7.6

-21

3QFY18

5.5

23

2QFY18

5.5

4

1QFY18

-9

4QFY15

11

4QFY17

14

3QFY15

2

-4

2QFY15

-7

56

1QFY15

16

35

3QFY17

78

YoY growth (%)

Source: Company, MOSL

216

March 2018 Results Preview | Sector: Media

Exhibit 7: Expected quarterly performance summary (INR m) Sector

Media D B Corp Dish TV Ent.Network HT Media Jagran Prakashan Music Broadcast PVR Prime Focus Sun TV Zee Entertainment Sector Aggregate

CMP (INR)

RECO

313 72 699 86 172 397 1,248 90 894 582

Buy Buy Buy Neutral Buy Buy Buy Buy Buy Buy

Sales (INR M) Var % Var % Mar-18 YoY QoQ

EBDITA (INR M) Var % Var % Mar-18 YoY QoQ

5,754 7,678 1,618 5,894 5,775 762 5,839 7,451 6,947 16,462 64,181

1,193 2,254 359 908 1,318 254 777 1,919 5,009 4,315 18,305

Exhibit 8: Relative performance-3m (%) Sensex Index

111

11.3 8.4 -2.2 0.7 2.8 14.6 21.0 14.0 19.3 7.7 9.7

-3.9 3.7 9.0 -5.7 -3.4 0.1 4.8 22.2 1.7 -10.4 -0.9

6.3 18.3 2.1 24.1 -8.5 53.0 66.2 7.2 27.2 -8.0 10.3

Net Profit (INR M) Var % Var % Mar-18 YoY QoQ

-14.5 12.4 0.8 -32.6 -19.1 8.9 -22.6 50.7 1.8 -27.4 -9.0

691 -81 135 415 726 122 58 633 2,898 1,680 7,276

7.6 -11.6 Loss Loss -2.1 3.4 62.4 -55.5 -10.5 -14.3 170.4 2.4 LP -79.8 60.1 LP 22.8 8.5 -58.1 -47.9 -13.0 -18.2 Source: MOSL

Exhibit 9: Relative performance-1 Yr (%)

MOSL Media Index

Sensex Index

128

MOSL Media Index

116

104

104

97

92

Source: Bloomberg, MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Mar-17

Apr-17

80

Mar-18

Feb-18

Jan-18

Dec-17

90

Source: Bloomberg, MOSL

Exhibit 10: Comparative valuations Sector / Companies Media D B Corp Den Networks Dish TV Ent.Network Hindustan Media HT Media Jagran Prakashan Music Broadcast PVR Prime Focus Siti Networks Sun TV Zee Entertainment Sector Aggregate

April 2018

CMP (INR)

RECO

313 104 72 699 232 86 172 397 1,248 90 16 894 582

Buy Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral Buy Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 18.3 -2.9 -0.3 7.2 25.9 11.8 10.1 8.3 22.1 2.5 -0.9 27.7 13.0

23.0 0.1 1.6 15.3 28.8 12.1 13.1 13.5 37.3 5.8 0.1 35.8 17.6

27.6 17.1 13.6 4.0 -35.9 1458.3 3.4 -209.6 45.0 28.7 97.5 45.6 32.4 9.0 8.0 12.7 7.3 7.2 16.0 17.1 13.1 17.8 47.5 29.3 51.5 56.4 33.4 7.9 36.7 15.5 0.6 -17.7 125.9 42.5 32.2 25.0 21.0 44.8 33.1 37.1 25.7

11.3 25.8 21.5 24.4 7.1 6.8 10.8 22.3 24.2 11.3 24.6 21.0 27.7 20.3

9.0 8.0 17.3 29.7 2.5 0.7 8.1 21.2 16.9 6.7 8.0 16.3 26.4 15.6

7.3 5.7 7.4 18.1 1.8 -0.2 6.7 15.4 12.9 5.0 6.2 14.0 20.8 12.0

5.9 3.8 5.6 11.6 0.9 -1.3 5.3 11.5 10.2 3.7 5.2 12.0 17.3 9.8

19.6 -6.3 -7.8 3.9 15.1 11.5 14.9 8.3 10.2 11.6 -15.8 26.1 17.4 14.3

21.0 21.3 0.2 8.7 32.1 45.0 7.9 13.4 14.6 14.3 10.6 10.1 18.5 19.5 12.2 14.0 15.3 18.0 18.9 20.7 2.4 11.4 30.9 33.1 20.2 20.4 17.8 19.4 Source: MOSL

217

March 2018 Results Preview | Sector: Media

D B Corp Bloomberg

DBCL IN

Equity Shares (m)

183.7

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

57 / 1

52-Week Range (INR)

395 / 290

1,6,12 Rel Perf. (%)

-4 / -24 / -29

Y/E MARCH

2017 2018E 2019E 2020E

Net Sales

22.6

23.4

25.6

27.8

EBITDA

6.4

5.9

6.9

7.9

Adj. Net Profit

3.7

3.4

4.2

5.1

Adj. EPS (INR)

20.4

18.3

23.0

27.6

Adj. EPS Gr. (%)

28.3

-10.4

25.8

20.1

BV/Sh (INR)

86.7 100.2 118.3 141.1

RoE (%)

25.1

19.6

21.0

21.3

RoCE (%)

23.7

18.9

20.5

20.8

Div. Payout (%)

48.7

26.3

20.9

17.4

Valuations 15.3

17.1

13.6

11.3

P/BV (x)

3.6

3.1

2.6

2.2

EV/EBITDA (x)

8.8

9.2

7.3

5.9

Div. Yield (%)

2.6

1.3

1.3

1.3

Consolidated - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

  

Financial Snapshot (INR Billion)

P/E (x)

CMP: INR313

1Q 5,746 21.4 3,934 1,812 31.5 211 34 41 1,608 0 1,608 568 35.3 0 1,040 1,040 62.0 18.1

  

TP: INR420 (+34%)

Buy

We expect print ad revenue to grow 14% YoY to INR3.5b, primarily due to low base and revival in local ad spends. Circulation revenue is likely to grow 7% YoY to INR1.3b, led by the circulation drive. DBCL’s aggregate revenue is likely to grow 11% to INR5.7b, as print ads, which account for 60-65% of overall revenue, are expected to pick up during the quarter. We expect EBITDA to reach INR1.1b (+6% YoY) and margin to dip ~100bp YoY to 20.7% on account of higher newsprint cost. We estimate net profit at INR691m, up 8% YoY. The stock trades at 13.6x FY19E and 11.3x FY20E EPS. Maintain Buy.

Key things to watch for  Ad revenue (we expect 14% YoY growth).  EBITDA margin (we expect 20.7%).

FY17 2Q 5,391 12.7 3,885 1,505 27.9 216 6 41 1,325 0 1,325 440 33.2 0 885 885 55.9 16.4

3Q 6,273 6.3 4,290 1,982 31.6 218 30 36 1,771 0 1,771 590 33.3 0 1,181 1,181 6.6 18.8

4Q 5,171 1.5 4,049 1,122 21.7 218 5 51 950 0 950 309 32.5 0 642 642 6.2 12.4

1Q 5,943 3.4 4,079 1,864 31.4 220 16 70 1,698 0 1,698 597 35.1 0 1,101 1,101 5.9 18.5

FY18 2Q 5,683 5.4 4,284 1,399 24.6 229 20 57 1,207 0 1,207 421 34.8 0 787 787 -11.1 13.8

FY17 3Q 5,986 -4.6 4,590 1,396 23.3 232 11 39 1,191 0 1,191 410 34.4 0 781 781 -33.9 13.0

4QE 5,754 11.3 4,561 1,193 20.7 232 26 117 1,053 0 1,053 362 34.4 0 691 691 7.6 12.0

22,580 10.1 16,158 6,422 28.4 863 74 170 5,654 0 5,654 1,907 33.7 0 3,748 3,748 28.3 16.6

(INR m) FY18E 23,366 3.5 17,514 5,852 25.0 913 73 283 5,149 0 5,149 1,789 34.8 0 3,359 3,359 -10.4 14.4

218

March 2018 Results Preview | Sector: Media

Dish TV India Bloomberg

DITV IN

Equity Shares (m)

1065.9

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

77 / 1

52-Week Range (INR)

110 / 64

1,6,12 Rel Perf. (%)

2017 2018E 2019E 2020E

Net Sales

30.1

30.0

34.2

38.2

EBITDA

9.7

8.4

11.2

13.6

Adj. NP

1.1

-0.4

1.7

3.6

Adj. EPS (INR)

1.0

-0.3

1.6

3.4

-84.2 -133.6 -565.3 109.9 4.6

4.0

RoE (%)

25.1

-11.9

33.2

46.0

RoCE (%)

18.0

6.6

15.8

23.4

5.6

P/E (x)

70.4 -209.6

45.0

21.5

P/BV (x)

15.7

17.2

12.5

7.9

8.6

10.2

7.4

5.6



 

Quarterly Performance

Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA EBITDA margin (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adjusted PAT YoY Change (%) PAT margin (%) E: MOSL Estimates

April 2018



9.0

Valuations

EV/EBITDA (x)





Y/E March

BV/Sh (INR)



3 / -9 / -41

Financial Snapshot (INR Billion)

Adj. EPS Gr.(%)

CMP: INR72

1Q 7,786 5.7 5,139 2,647 34.0 1,649 526 115 587 0.0 587 189 32.2 (15.3) 414 414 -22.1 5.3

TP: INR101 (+39%)

Buy

We expect DITV’s overall revenue to grow 4% QoQ to INR7.7b. Subscription revenue is likely to grow 2% QoQ to INR7b on the back of net subscriber adds. We expect net subscriber additions of 0.3m in 4QFY18. The headline numbers, however, could vary depending on the management’s call to merge Videocon D2H financials, as all merger formalities have been completed in March 2018. ARPU is likely to remain steady due to intense competition offsetting the gains from increasing HD share. We expect ARPU to grow by a meager 1% QoQ to INR145. EBITDA is likely to grow 12% QoQ to INR2.3b and margin is expected to expand 230bp QoQ to 29.4% primarily on the back of revenue, with cost remaining steady. We expect DITV’s net loss to widen to INR81m. The stock trades at EV/EBITDA of 7.4x FY19E and 5.6x FY20E. Maintain Buy.

Key things to watch for  Quarterly net subscriber adds (we expect 0.3m).  ARPU (we expect 1% QoQ growth to INR145).  EBIDTA margin (we expect 29.4%).

FY17 2Q 7,793 3.6 5,136 2,657 34.1 1,683 574 174 574 0.0 574 -116 (20.3) (13.7) 704 704 -19.1 9.0

3Q 7,480 -3.0 5,104 2,376 31.8 1,718 613 153 198 0.0 198 114 57.6 (20.2) 104 104 -84.8 1.4

4Q 7,086 -11.4 5,180 1,906 26.9 1,728 573 104 -291 0.0 -291 -7 2.4 0.0 -284 -284 NM -4.0

1Q 7,389 -5.1 5,377 2,012 27.2 1,822 590 98 -302 0.0 -302 -162 53.8 (22.7) -117 -117 NM -1.6

FY18 2Q 7,486 -3.9 5,325 2,161 28.9 1,899 611 77 -272 0.0 -272 -93 34.3 (17.1) -162 -162 NM -2.2

FY17 3Q 7,408 -1.0 5,403 2,005 27.1 1,847 502 158 -186 0.0 -186 -150 80.7 (28.3) -8 -8 NM -0.1

4QE 7,678 8.4 5,424 2,254 29.4 1,864 584 112 -81 0.0 -81 0 0.0 0.0 -81 -81 NM -1.1

30,144 -1.5 20,415 9,729 32.3 6,631 2,239 475 1,334 0.0 1,334 241 18.1 0.0 1,093 1,093 -84.2 3.6

(INR m) FY18E

29,961 -0.6 21,529 8,432 28.1 7,432 2,286 445 -840 0.0 -840 -405 48.2 (68.1) -367 -367 NM -1.2

219

March 2018 Results Preview | Sector: Media

Entertainment Network Bloomberg

ENIL IN

Equity Shares (m)

47.7

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

33 / 1

52-Week Range (INR)

CMP: INR699 

1008 / 664

1,6,12 Rel Perf. (%)

-1 / -19 / -26



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

5.6

5.4

6.7

8.2

EBITDA

1.3

1.2

1.7

2.6

Adj. NP

0.5

0.3

0.7

1.4

11.4

7.2

15.3

28.7

-37.2 113.8

86.9

Adj. EPS (INR) Adj. EPS Gr. (%)

-49.5

BV/Sh (INR)

179.3 185.9 200.0 227.5

RoE (%)

6.6

3.9

7.9

13.4

RoCE (%)

4.9

3.2

6.7

11.8

61.2

97.5

45.6

24.4

Valuation P/E (x) P/BV (x) EV/EBITDA (x)

3.9

3.8

3.5

3.1

27.3

29.0

18.7

12.0

Standalone - Quarterly Earning Model

Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Net Interest cost PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 1,107 9.0 813 294 26.6 85 -33 243 0 243 78 32.0 165 165 -36.3 14.9

   

TP: INR820 (+17%)

Buy

We expect ENIL’s standalone revenue to decline 2% YoY to INR1.6b, pulled down by muted growth at legacy stations, partly offset by higher contribution from new stations. ENIL’s 35 legacy stations are expected to see a 7% YoY drop to INR1.4b. This is primarily due to the price hike strategy wherein the ad inventory cap is likely to continue outweighing the yield improvement. Its 17 new stations (batch-1 of phase-3) are expected to contribute INR237m (15% of revenue). Standalone EBITDA is likely to grow 2% YoY to INR359m and margins are expected to expand 90bp YoY. PAT is expected to decline 2% YoY to INR135m. The stock trades at an EV/EBITDA of 18.7x FY19E and 12x FY20E. Maintain Buy.

Key things to watch for  Growth in advertisement revenue in new and old stations.

FY17 2Q 3Q 1,296 1,506 11.5 4.9 1,065 1,125 231 381 17.8 25.3 140 147 -22 -4 114 239 0 0 114 239 35 76 30.5 31.7 79 163 79 163 -70.7 -43.3 6.1 10.8

4Q 1,655 12.4 1,303 352 21.3 164 -1 188 0 188 50 26.7 138 138 -31.6 8.3

1Q 1,044 -5.8 877 167 16.0 156 -15 25 42 68 23 34.2 44 17 -89.9 1.6

FY18 2Q 3Q 1,257 1,484 -3.0 -1.5 973 1,128 284 356 22.6 24.0 159 161 -9 -5 134 201 0 0 134 201 74 70 55.5 34.9 60 131 60 131 -24.5 -19.8 4.7 8.8

4QE 1,618 -2.2 1,259 359 22.2 167 -6 199 0 199 64 32.0 135 135 -2.1 8.3

FY17

(INR m) FY18E

5,565 9.4 4,306 1,259 22.6 536 -60 783 0 783 238 30.4 545 545 -46.5 9.8

5,403 -2.9 4,237 1,167 21.6 643 -35 558 42 601 231 38.5 370 342 -37.2 6.3

220

March 2018 Results Preview | Sector: Media

HT Media Bloomberg

HTML IN

Equity Shares (m)

230.5

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

20 / 0

52-Week Range (INR)

119 / 78

1,6,12 Rel Perf. (%)

-3 / -16 / -9

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Net Sales

CMP: INR86   

24.5

23.7

24.5

25.4

EBITDA

3.0

4.1

4.0

3.9

Adj. NP

1.7

2.7

2.8

2.9



Adj. EPS (INR)

7.4

11.8

12.1

12.7



Adj. EPS Gr. (%)

-1.8

59.3

2.6

4.9

BV/Sh (INR)

96.8 108.2 119.8 131.9

RoE (%)

7.9

9.7

10.2

10.5

RoCE (%)

9.7

11.5

10.6

10.1

Div. Payout (%)

6.9

4.3

4.2

4.0

11.7

7.3

7.1

6.8

0.9

0.8

0.7

0.7

EV/EBITDA (x)

10.0

6.3

5.4

4.5

Div. Yield (%)

0.5

0.5

0.5

0.5

Valuations P/E (x) P/BV (x)

Consolidated - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Mi & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 6,147 4.5 5,504 643 10.5 295 247 478 579 0 579 186 32.2 168 224 224 -9.5 3.6



TP: INR98 (+14%)

Neutral

We expect consolidated revenue to grow by a meager 1% YoY to INR5.9b. Ad revenue is likely to decline 2% YoY to INR4b, primarily due to weak English ad revenue. English ad revenue is expected to decline ~7% YoY to INR2.1b, mainly impacted by digital medium. However, 5% YoY growth in Hindi ad revenue to INR1.8b should partly offset the impact on overall ad revenue. We expect circulation revenue to decline 4% YoY to INR0.7b. EBITDA is likely to grow 24% to INR0.9b and margin is expected to increase 290bp YoY to 15.4%, primarily on the back of savings in discretionary cost. Net profit is likely to come in at INR0.4b (+62% YoY). The stock trades at 7.1x FY19E and 6.8x FY20E EPS. Maintain Neutral.

Key things to watch for  English ad revenue (we expect ~7% YoY de-growth).  Hindi ad revenue (we expect 5% growth).  EBITDA margin (we expect 15.4%).

FY17 2Q 6,022 0.2 5,518 505 8.4 304 245 780 736 0 736 224 30.5 202 309 309 -16.1 5.1

3Q 6,499 -4.6 5,394 1,105 17.0 312 241 549 1,100 0 1,100 36 3.3 150 914 914 32.9 14.1

4Q 5,853 -7.3 5,122 731 12.5 337 218 488 665 0 665 225 33.8 184 256 256 -40.7 4.4

1Q 5,990 -2.5 5,191 799 13.3 320 194 531 817 0 817 239 29.2 162 415 415 85.5 6.9

FY18 2Q 5,606 -6.9 4,561 1,045 18.6 317 199 435 965 -31 997 219 22.0 116 662 638 106.3 11.4

3Q 6,254 -3.8 4,907 1,347 21.5 307 194 645 1,491 0 1,491 121 8.1 126 1,244 933 2.1 14.9

4QE 5,894 0.7 4,987 908 15.4 329 202 465 841 0 841 292 34.7 134 415 415 62.4 7.0

FY17

FY18E

24,521 -2.0 21,538 2,983 12.2 1,248 951 2,295 3,079 0 3,079 671 21.8 705 1,703 1,703 -1.9 6.9

23,745 -3.2 19,646 4,099 17.3 1,273 788 2,076 4,114 -31 4,145 871 21.0 538 2,737 2,712 59.3 11.4

221

March 2018 Results Preview | Sector: Media

Jagran Prakashan Bloomberg

JAGP IN

Equity Shares (m)

326.9

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

56 / 1

52-Week Range (INR)

209 / 156

1,6,12 Rel Perf. (%)

5 / -10 / -19

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

CMP: INR172   

22.8

23.3

26.0

28.6



EBITDA

6.4

5.9

7.1

8.3



Adj. Net Profit

3.5

3.1

4.1

5.0

Adj. EPS (INR)

10.7

10.1

13.1

16.0

-11.5

-5.3

30.5

21.5

BV/Sh (INR)

65.9

63.1

72.1

83.9

RoE (%)

18.4

14.9

18.5

19.5

RoCE (%)

15.9

14.1

17.1

18.1

0.0

35.8

27.4

22.6

16.2

17.1

13.1

10.8

P/BV (x)

2.6

2.7

2.4

2.0

EV/EBITDA (x)

7.9

8.1

6.3

5.0

Div. Yield (%)

0.0

1.7

1.7

1.7

Net Sales

Adj. EPS Gr. (%)

Div. Payout (%) Valuations P/E (x)

Consolidated - Quarterly Earning Model Y/E March

Total Revenue from Operations YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 5,644 17.3 4,086 1,558 27.6 302 102 93 1,248 0 1,248 407 32.6 3 838 838 -11.6 14.9



TP: INR215 (+25%)

Buy

We expect advertising revenue to remain flat at INR3.3b on account of high base in 4QFY17 (led by UP elections). However, driven by an increase in the circulation copies, circulation revenue is likely to grow 7% YoY to INR1.1b. We estimate Radio revenue to grow 15% to INR0.8b and EBITDA to grow 53% to INR0.3b. Aggregate revenue is expected to grow 3% to INR5.8b. Increase in newsprint cost is likely to impact EBITDA. We expect EBITDA decline of 9% YoY to INR1.3b and EBITDA margin at 22.8% (-280bp YoY). PAT is expected to fall 11% to INR0.7b. The stock trades at 13.1x FY19E and 10.8x FY20E EPS. Maintain Buy.

Key things to watch for  Ad revenue (we expect flat YoY growth).  EBITDA margin (we expect 22.8% margin).

FY17 2Q 5,548 6.8 4,018 1,531 27.6 308 78 112 1,257 0 1,257 396 31.5 8 853 853 5.9 15.4

3Q 6,016 4.4 4,151 1,866 31.0 329 89 78 1,526 0 1,526 546 35.8 7 973 973 4.3 16.2

4Q 5,620 6.1 4,180 1,441 25.6 351 81 128 1,137 0 1,137 327 28.7 0 811 811 1.2 14.4

1Q 5,913 4.8 4,301 1,613 27.3 328 72 120 1,333 0 1,333 446 33.5 21 866 866 3.3 14.6

FY18 2Q 5,665 2.1 4,279 1,386 24.5 340 74 125 1,098 0 1,098 375 34.2 27 695 695 -18.5 12.3

FY17 3Q 5,981 -0.6 4,352 1,629 27.2 343 76 108 1,318 0 1,318 446 33.8 25 848 848 -12.9 14.2

4QE 5,775 2.8 4,457 1,318 22.8 330 79 130 1,040 0 1,040 313 30.2 0 726 726 -10.5 12.6

22,829 8.4 16,434 6,395 28.0 1,289 350 412 5,168 0 5,168 1,675 32.4 17 3,475 3,475 -2.4 15.2

(INR m) FY18E 23,335 2.2 17,389 5,945 25.5 1,340 301 484 4,788 0 4,788 1,580 33.0 73 3,135 3,135 -9.8 13.4

222

March 2018 Results Preview | Sector: Media

Music Broadcast Bloomberg

RADIOCIT IN

Equity Shares (m)

57.1

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

23 / 0

52-Week Range (INR)

458 / 333

1,6,12 Rel Perf. (%)

3 / -2 / -2

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

2.7

3.0

3.5

4.0

EBITDA

0.9

1.0

1.3

1.6

Adj. NP

0.4

0.5

0.8

1.0

Adj. EPS (INR)

6.4

8.3

13.5

17.8

Adj.EPS Gr (%)

-26.1

29.9

62.3

31.4

BV/Sh. (INR)

9.7

8.3

12.2

14.0

RoCE (%)

8.6

8.7

12.0

14.0

Valuations P/BV (x) EV/EBITDA (x)

61.7

47.5

29.3

22.3

4.1

3.8

3.4

2.9

23.5

21.5

15.6

11.7

Standalone - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018



  

TP: INR469 (+18%)

Buy

We expect revenue to grow 15% YoY to INR762m on the back of waning GST impact (providing impetus to revival in ad spends across sectors) and higher utilization at new stations. EBITDA is expected to rise 53% YoY to INR254m; margin is likely to expand 836bp YoY to 33.3%. We expect PAT to grow 170% YoY to INR122m, led by higher EBITDA. The stock trades at EV/EBITDA of 15.6x FY19E and 11.7x FY20E. Maintain Buy.

96.1 104.4 118.0 135.8

RoE (%)

P/E (x)

CMP: INR397

1Q 628 38.0 437 192 30.5 45 41 11 116 0 116 40 34.5 76 76 -27.5 12.1

Key things to watch for  Growth in utilization in new and old stations.  Yield improvement at legacy stations.

FY17 2Q 692 24.7 403 289 41.7 45 41 8 211 0 211 68 32.2 143 116 7.4 16.8

3Q 728 12.3 462 266 36.6 50 50 9 175 0 175 73 41.6 102 102 -52.5 14.0

4Q 666 12.7 500 166 24.9 56 59 17 68 0 68 23 33.3 45 45 -75.7 6.8

1Q 703 11.9 481 222 31.5 64 39 47 166 0 166 57 34.6 108 108 42.3 15.4

FY18 2Q 758 9.5 516 242 31.9 67 38 50 187 0 187 60 32.0 127 127 9.7 16.8

3Q 762 4.7 529 233 30.6 65 39 43 172 0 172 53 30.9 119 119 16.4 15.6

4QE 762 14.6 508 254 33.3 63 42 37 186 0 186 64 34.6 122 122 170.4 16.0

FY17

(INR m) FY18E

2,714 20.7 1,802 913 33.6 197 190 44 570 0 570 203 35.7 367 367 32.7 13.5

2,985 10.0 2,034 951 31.9 259 158 177 711 0 711 235 33.0 476 476 29.9 15.9

223

March 2018 Results Preview | Sector: Media

Prime Focus Bloomberg

PRIF IN

Equity Shares (m)

298.9

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

27 / 0

52-Week Range (INR)

135 / 81

1,6,12 Rel Perf. (%)

-10 / -7 / -11

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Net Sales

CMP: INR90    

21.5

24.2

27.7

31.9

EBITDA

4.8

5.4

6.5

7.7

Adj. Net Profit

0.4

0.7

1.7

2.6



Adj. EPS (INR)

1.2

2.5

5.8

7.9



Adj.EPS Gr. (%)

NM 100.6 137.5

36.4

BV/Sh (INR)

18.6

23.8

37.9

46.7

RoE (%)

7.6

11.6

18.9

20.7

RoCE (%)

8.5

10.2

13.6

15.7

73.6

36.7

15.5

11.3

P/BV (x)

4.8

3.8

2.4

1.9

EV/EBITDA (x)

8.4

7.0

5.0

3.7

Valuations P/E (x)

Consolidated - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income ESOP expense Foreign exchange gain/(loss) PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 5,262 1.5 4,246 1,016 19.3 690 303 13 6 10 40 -1,019 1,059 6 0.6 31 1,022 9 -97.1 0.2

TP: INR130 (+44%)

Buy

We expect consolidated revenue to grow 14% YoY to INR7.5b, primarily on the back of creative business. Given the strong offering pipeline, we expect creative business to grow at 12% YoY to INR6b. Further, the Tech business is likely to reach INR1.1b, growing at 24% YoY, driven by client additions and contract renewals. We expect EBITDA to reach INR1.9b, up 7% YoY, and margin to dip ~160bp to 25.8% due to higher operating cost. We estimate net profit at INR633m, up 60% YoY. The stock trades at an EV/EBITDA of 5x FY19E and 3.7x FY20E. Maintain Buy.

Key things to watch for  Consolidated revenue (we expect 14% YoY growth).  EBITDA margin (we expect 25.8%).

FY17 2Q 4,665 4.0 3,925 740 15.9 701 325 172 53 -96 -264 41 -305 90 -29.3 -34 -361 -308 -3.8 -6.6

3Q 5,072 8.3 3,849 1,223 24.1 653 229 8 113 8 244 0 244 -38 -15.4 55 227 227 -220.1 4.5

4Q 1Q 6,537 5,135 40.4 -2.4 4,748 4,102 1,790 1,033 27.4 20.1 502 645 421 376 52 85 84 115 -336 22 498 2 9 0 489 2 32 -28 6.5 -1,212.4 71 21 387 10 395 10 -122.7 4.8 6.0 0.2

FY18 2Q 5,473 17.3 4,265 1,207 22.1 708 362 65 139 149 211 0 211 -8 -3.9 41 178 178 LP 3.2

3Q 6,096 20.2 4,823 1,273 20.9 758 453 26 42 -25 21 0 21 91 432.2 16 -87 -87 -138.2 -1.4

4QE 7,451 14.0 5,532 1,919 25.8 709 449 29 43 55 801 0 801 152 19.0 17 633 633 60.1 8.5

FY17

(INR m) FY18E

21,536 13.3 16,767 4,769 22.1 2,546 1,279 245 256 -414 519 -968 1,487 90 6.0 123 1,274 365 LP 1.7

24,154 12.2 18,722 5,432 22.5 2,821 1,641 205 340 200 1,035 0 1,035 207 20.0 95 733 733 101.2 3.0

224

March 2018 Results Preview | Sector: Media

PVR Bloomberg

PVRL IN

Equity Shares (m)

46.7

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

58 / 1

52-Week Range (INR)

1660 / 1145

1,6,12 Rel Perf. (%)

-2 / -3 / -25

Y/E MARCH

2017 2018E 2019E 2020E

Net Sales

21.2

23.4

27.5

32.9

EBITDA

3.1

3.8

5.1

6.2

Adj. Net Profit

1.0

1.0

1.7

2.4

Adj. EPS (INR)

20.5

22.1

37.3

51.5

-3.8

7.8

68.7

37.9

BV/Sh (INR) RoE (%)

10.4

10.2

15.3

18.0

RoCE (%)

9.5

9.3

12.4

14.8

7.0

8.2

6.5

4.7

60.8

56.4

33.4

24.3

6.0

5.5

4.8

4.0

23.4

19.4

14.5

11.5

0.2

0.2

0.3

0.3

Valuations P/BV (x) EV/EBITDA (x) Div Yield (%)

Quarterly Performance Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018





TP: INR1,760 (+41%)

Buy

We expect revenue to grow 21% YoY to INR5,839m in 4QFY18 on account of screen additions and strong content pipeline. Margins are likely to expand ~360bp to 13.3%. We expect EBITDA to grow 66% to INR777m. We expect PAT to reach INR58m in 4QFY18. The stock trades at 33.4x FY19E and 24.3x FY20E EPS. Maintain Buy.

206.5 226.8 261.7 310.8

Payout (%) P/E (x)





Financial Snapshot (INR Billion)

Adj. EPS Gr. (%)

CMP: INR1,248

1Q 5,622 15.7 4,557 1,065 19.0 331 193 165 707 26 681 249 36.6 428 444 -3.0 7.6

Key things to watch for  Growth in sponsorship revenue.  Number of screen additions.

FY17 2Q 3Q 5,438 5,309 14.6 6.1 4,634 4,509 804 800 14.8 15.1 346 345 194 204 175 111 440 363 0 0 440 363 149 127 33.8 35.1 291 239 291 239 -8.7 -23.5 5.4 4.5

4Q 4,826 18.4 4,358 467 9.7 363 216 171 60 15 45 45 99.8 -0.5 -0.5 NM 0.0

1Q 6,366 13.2 5,246 1,120 17.6 376 208 164 700 0 700 258 36.8 445 445 0.1 7.0

FY18 2Q 3Q 5,554 5,573 2.1 5.0 4,649 4,569 905 1,003 16.3 18.0 347 375 207 212 42 32 393 449 6 0 387 449 140 154 36.1 34.2 252 289 255 289 -12.3 20.8 4.5 5.2

4QE 5,839 21.0 5,062 777 13.3 517 226 56 90 0 90 31 34.8 58.4 58.4 NM 1.0

FY17

FY18E

21,194 14.6 18,058 3,136 14.8 1,384 806 623 1,569 41 1,528 570.0 37.3 958 984 -8.0 4.5

23,354 10.2 19,547 3,807 16.3 1,660 903 311 1,555 0 1,555 520.9 33.5 1,034 1,034 5.0 4.4

225

March 2018 Results Preview | Sector: Media

Sun TV Bloomberg

SUNTV IN

Equity Shares (m)

394.1

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

352 / 5

52-Week Range (INR)

1097 / 652

1,6,12 Rel Perf. (%)

-1 / 11 / 1

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

25.6

EBITDA

28.4

33.6

CMP: INR894  



38.5

17.4

19.4

23.4

26.9

Adj. Net Profit

9.8

10.9

14.1

16.7

Adj. EPS (INR)

24.9

27.7

35.8

42.5

Adj. EPS Gr. (%)

14.1

11.6

29.1

18.7



102.1 110.2 121.7 135.3



BV/Sh (INR) RoE (%)

26.0

26.1

30.9

33.1

RoCE (%)

26.0

26.1

30.9

33.1

Div. Payout (%)

46.5

70.8

67.7

67.9

36.0

32.2

25.0

21.0

8.8

8.1

7.3

6.6

EV/EBITDA (x)

19.4

17.2

14.0

12.0

Div. Yield (%)

1.1

1.9

2.3

2.8



TP: INR1,225 (+37%)

Buy

We expect Sun TV’s standalone revenue to grow 19% YoY to INR6.9b. Advertising and broadcasting revenue is expected to witness 21% YoY jump to INR3.5b, on the back of (1) transition to commission model, (2) waning GST impact, and (3) low base. We expect subscription revenue to grow 19% YoY to INR3.3b primarily led by fast pick-up in the digitization in Tamil Nadu coupled with improving ARPU. Sun TV’s standalone EBITDA is estimated to grow 27% YoY to INR5b and margins to expand 450bp to 72.1%. PAT is expected to grow 23% YoY to INR2.9b. The stock trades at 25x FY19E and 21x FY20E EPS. Maintain Buy.

Valuations P/E (x) P/BV (x)

Standalone - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 7,608 10.4 3,244 4,364 57.4 1,008 1 216 3,571 0 3,571 1,240 34.7 0 2,331 2,331 19.0 30.6

Key things to watch for  Ad revenue growth (expect 21% YoY growth).  Subscription revenue growth (expect 19% YoY growth).

FY17 2Q 6,255 10.2 1,592 4,663 74.6 1,030 2 488 4,119 0 4,119 1,415 34.4 0 2,704 2,704 21.7 43.2

3Q 5,894 2.8 1,497 4,397 74.6 1,107 7 389 3,673 0 3,673 1,272 34.6 0 2,401 2,401 11.0 40.7

4Q 5,825 3.1 1,889 3,936 67.6 767 2 374 3,541 0 3,541 1,182 33.4 0 2,359 2,359 5.4 40.5

1Q 7,863 3.4 3,380 4,484 57.0 1,035 1 371 3,819 0 3,819 1,302 34.1 0 2,516 2,516 8.0 32.0

FY18 2Q 6,759 8.1 1,798 4,961 73.4 1,027 1 372 4,306 0 4,306 1,459 33.9 0 2,847 2,847 5.3 42.1

FY17 3Q 6,833 15.9 1,912 4,920 72.0 1,145 1 291 4,066 0 4,066 1,397 34.3 0 2,670 2,670 11.2 39.1

4QE 6,947 19.3 1,938 5,009 72.1 957 3 360 4,408 0 4,408 1,511 34.3 0 2,898 2,898 22.8 41.7

25,583 6.8 8,221 17,361 67.9 3,911 13 1,466 14,904 0 14,904 5,109 34.3 0 9,794 9,794 14.2 38.3

(INR m) FY18E 28,402 11.0 9,028 19,374 68.2 4,163 5 1,394 16,599 0 16,599 5,669 34.1 0 10,931 10,931 11.6 38.5

226

March 2018 Results Preview | Sector: Media

Zee Entertainment Bloomberg

Z IN

Equity Shares (m)

960.4

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

559 / 9

52-Week Range (INR)

6 / 5 / -2

Financial Snapshot (INR Billion) 2017 2018E 2019E 2020E

Net Sales

64.3

66.1

76.5

87.7

EBITDA

19.3

20.0

25.3

29.7

Adj. NP

12.9

12.5

16.9

20.2

Adj. EPS (INR)

13.4

13.0

17.6

21.0

Adj. EPS Gr. (%) BV/Sh (INR) (INR) RoE (%)

52.5

-2.9

35.4

19.3

69.3

80.2

94.2 111.6

22.4

17.4

20.2

20.4

RoCE (%)

20.7

15.7

18.9

20.4

Div. Payout (%)

13.0

21.6

20.5

17.2

P/E (x) P/BV (x)

43.4

44.6

33.0

27.6

8.4

7.2

6.2

5.2

EV/EBITDA (x)

28.6

26.6

20.8

17.2

Div. Yield (%)

0.4

0.4

0.5

0.5

Valuations

  





Consolidated - Quarterly Earning Model Y/E March

Total Revenue from Operations YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Fair Value through P&L gain/(loss) PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018



619 / 477

1,6,12 Rel Perf. (%)

Y/E MARCH

CMP: INR582

1Q 15,717 18.5 11,185 4,532 28.8 251 75 734 -1,132 3,808 0 3,808 1,626 42.7 13 2,169 2,169 -9.0 13.8

TP: INR705 (+21%)

Buy

We expect advertising revenue to grow 15% YoY to INR9.7b. Exsports, ad revenue is expected to grow 16% YoY. Low base coupled with revived ad spending should bode well. Subscription revenue is likely to decline 3% YoY to INR5.4b. However, excluding sports, it is expected to grow 13% YoY. Total revenue is expected to grow 8% YoY to INR16.5b. Ex-sports, revenue is likely to grow 16% YoY. Yet, higher content cost coupled with the launch of ZEE5 is expected to pressurize EBITDA. We expected consolidated EBITDA to witness 8% YoY decline to INR4.3b and margin to contract 450bp YoY to 26.2%. PAT is expected to de-grow ~89% YoY to INR1.7b. However, excluding the exceptional gain of INR12.2b from sale of sports business in 4QFY17, on an adjusted basis, PAT is expected to decline ~58% YoY. The stock trades at 33x FY19E and 27.6x FY20E EPS. Maintain Buy.

Key things to watch for  Ad revenue (expect 16% YoY growth ex-sports).  Subscription revenue (expect 13% YoY growth ex-sports).

(INR m) FY17 2Q 3Q 16,954 16,391 23.0 3.4 12,062 11,233 4,892 5,158 28.9 31.5 336 249 86 90 432 525 -829 -714 4,074 4,630 0 0 4,074 4,630 1,634 2,081 40.1 44.9 56 41 2,383 2,508 2,383 2,508 -9.9 -6.1 14.1 15.3

4Q 15,280 0.4 10,593 4,688 30.7 316 1,122 549 470 4,269 -12,234 16,504 1,464 8.9 -116 15,156 4,006 180.1 26.2

1Q 15,402 -2.0 10,559 4,844 31.4 311 147 1,011 -532 4,864 0 4,864 2,344 48.2 4 2,516 2,516 16.0 16.3

FY18 2Q 3Q 15,821 18,381 -6.7 12.1 10,909 12,437 4,912 5,944 31.0 32.3 411 505 3 24 2,031 480 -148 -419 6,381 5,477 -1,346 0 7,727 5,477 1,832 2,260 23.7 41.3 -16 -4 5,912 3,222 4,885 3,222 104.9 28.5 30.9 17.5

4QE 16,462 7.7 12,147 4,315 26.2 453 1,089 123 0 2,896 0 2,896 1,217 42.0 0 1,680 1,680 -58.1 10.2

FY17

FY18E

64,342 10.7 45,073 19,269 29.9 1,152 1,372 2,240 -2,205 16,780 -12,234 29,014 6,805 23.5 -7 22,216 12,852 52.3 20.0

66,065 2.7 46,051 20,014 30.3 1,679 1,262 3,646 -1,099 19,619 -1,346 20,965 7,652 36.5 -16 13,329 12,474 -2.9 18.9

227

March 2018 Results Preview | Sector: Metals

Metals Company name

Ferrous companies to outperform on higher realization

Hindalco

JSPL, SAIL and NMDC set to report strong earnings growth

Hindustan Zinc Jindal Steel & Power JSW Steel Nalco NMDC SAIL Tata Steel Vedanta

Steel product prices increase sharply Steel product prices rose sharply in 4QFY18, driven by seasonally strong demand, higher exports, disruption at some of the domestic mills, and strong global prices amid Chinese winter shutdowns. Domestic long product prices increased ~21% QoQ (or ~INR6,700/t) and flat product prices were up ~13% QoQ (or INR5,000/t). Domestic iron ore prices were also higher (up by ~28% QoQ or INR600/t, for NMDC’s fines) due to strong demand and disruption in mining activity in Odisha. Base metal prices have increased modestly – aluminum LME is up ~3% QoQ to USD2,174/t, zinc is up ~6% QoQ to USD3,419/t and lead is up ~2% QoQ to USD2,529/t. Alumina was down ~13% QoQ at USD376/t. Steel volumes for the four companies under our coverage universe are expected to increase 1% QoQ/5% YoY, led by JSPL. Tata Steel’s volumes declined ~9% QoQ due to shut-down. Aluminum volumes are expected to increase 3% QoQ on ramp-up at Vedanta. Strong earnings growth driven by ferrous companies We expect our Metals coverage universe to continue reporting strong earnings growth, with EBITDA increasing 14% QoQ/16% YoY. Combined PAT would increase by 10% QoQ/59% YoY. Ferrous companies are expected to outperform on the back of higher realizations. Ferrous companies to outperform led by strong increase in realization NMDC’s EBITDA is expected to increase by 54% QoQ to INR20.4b, led by higher prices and a recovery in volumes as the rail infrastructure issue was resolved. SAIL’s EBITDA is likely to increase by ~51% QoQ to INR21.7b on higher steel prices. We expect ~INR2,000 QoQ increase in EBITDA/t to INR5,700. JSP’s EBITDA is expected to increase by ~22% QoQ to INR19.5b on higher steel margins, partly offset by weakness in the power business due to coal availability. JSW Steel’s EBITDA is expected to increase by ~13% QoQ to INR43.3b on favorable steel spreads (EBITDA per ton of INR9,900). Tata Steel’s EBITDA is expected to increase ~9% QoQ to INR62.2b as higher spreads in India (margin at ~INR15,000/t) and EU (~USD90/t) are partly offset by lower India volumes. Base metals to report modest earnings growth Vedanta’s EBITDA is expected to increase by ~7% QoQ to INR72.5b, aided by oil and aluminum, which are benefiting from both higher volumes and realization QoQ. Hindalco’s EBITDA is expected to increase modestly by ~2% QoQ to INR35.9b due to the impact of LME hedges and cost increases. Nalco’s EBITDA is likely to be flat QoQ as higher volumes and LME are offset by lower alumina prices.

Sanjay Jain – Research analyst ([email protected]); +91 22 6129 1523 Dhruv Muchhal – Research analyst ([email protected]); +91 22 6129 1549 April 2018

228

March 2018 Results Preview | Sector: Metals

Exhibit 1: Expected quarterly performance summary Sector

Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC Rain Industries SAIL Tata Steel Vedanta Sector Aggregate

Sales (INR m) Var % Var % Mar-18 YoY QoQ

CMP (INR)

Reco

208 310 230 302 68 119 384 75 580 284

Buy Neutral Buy Buy Neutral Buy Buy Sell Neutral Buy

310,632 59,657 78,926 201,404 25,759 35,055 36,237 163,020 322,434 243,595 1,476,719

11.1 -4.7 21.7 20.9 1.0 22.1 46.8 28.5 -4.9 8.2 9.9

0.4 0.7 11.1 12.8 7.8 42.0 15.2 6.4 -3.6 0.0 3.3

EBDITA (INR m) Var % Var % Mar-18 YoY QoQ

Net Profit (INR m) Var % Var % Mar-18 YoY QoQ

35,917 34,136 19,535 43,341 4,718 20,446 7,742 21,735 62,251 72,488 322,309

10,650 25,775 -2,131 17,204 2,876 13,767 3,673 6,255 23,079 28,406 129,554

3.0 -8.9 25.9 36.9 10.4 43.0 75.4 LP -11.4 -1.4 13.6

2.0 5.2 21.6 12.5 1.1 53.6 12.7 50.9 9.3 7.2 12.7

45.8 -15.7 Loss 69.6 6.3 49.5 190.9 LP -31.0 86.3 30.7

-17.8 15.6 Loss -6.1 4.4 52.2 8.9 848.7 -4.2 28.5 14.7

Exhibit 2: India import parity HRC prices Quaterly average

Avg. is up INR4988 QoQ

46,500 42,000 37,500 33,000

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

28,500 Feb-17

Average domestic HRC steel price up INR4,988/t QoQ

HRC Mumbai (INR/t)

Spot

Exhibit 3: China steel spreads with raw materials Chinese steel mills product spreads at multi-year highs

HRC

490

Rebar

410 330 250 170 Feb-18

Nov-17

Aug-17

May-17

Feb-17

Nov-16

Aug-16

May-16

Feb-16

Nov-15

Aug-15

May-15

Feb-15

Nov-14

Aug-14

May-14

Feb-14

Nov-13

Aug-13

May-13

90

Source: MOSL, Company

Domestic steel consumption up ~7% YoY in January and February

Exhibit 4: Domestic steel demand growth – trailing 12-month (YoY %) 10.0 8.0 6.0 4.0

Cons. (mt)

Trailing 12m Growth (%) 8.1 3.9

2.0 0.0 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18

-2.0

Source: MOSL, Company April 2018

229

March 2018 Results Preview | Sector: Metals

India’s remains a net exporter of steel

Exhibit 5: India net steel imports – kt Net steel imports (kt)

1,000 500 0 -500

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18

-1,000

Source: MOSL, Company

2.6

3.2

2.7 2.3

2.9

3.8

2.4

2.7 2.1

2.3

2.7

2.8 2.2

3QFY16

4QFY16

1QFY17

3.3

3.8

3.6

4.0

3.6

3.3

3.4

2.6

3.0

11.4

12.0

12.1

3.9

4.0

4.1

3.0

3.5

3.8

3.8

3.2

2.8

3.1

3.3

3.0 4QFY18

3.1

10.8

3QFY18

3.1

10.9

2QFY18

3.1

2QFY16

3.3

9.1

JSW Steel

1QFY18

8.5

1QFY16

9.0

4QFY15

8.8

SAIL

4QFY17

9.4

10.8

JSP 11.5

3QFY17

Tata Steel

2QFY17

Exhibit 6: India steel – sales volumes (mt)

10.1 3.5

Source: MOSL, Company

Exhibit 7: India steel – EBITDA/ton (INR) Average

20,000

Tata Steel

SAIL

JSW Steel

JSP

15,000 10,000 5,000 0 -5,000 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

-10,000

Source: MOSL, Company

1,381

1,339

1,240

1,116

1,256

1,070

993

909

1,003

913

989

1,012

1,117

1,134

Nalco Hindalco VEDL NMDC JSP JSW Steel

4QFY18

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

SAIL 4QFY15

1,600 1,400 1,200 1,000 800 600 400 200 0

3QFY15

Revenue (INR b)

Exhibit 8: Revenue of coverage universe

Tata Steel

Source: MOSL, Company April 2018

230

March 2018 Results Preview | Sector: Metals

300 250 200 150 100 50 0 -50

242

203 209 192 132 137

114

113

151 156

189

183

209

Nalco

247

Hindalco VEDL NMDC

69

JSP JSW Steel 3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

SAIL 1QFY15

EBITDA (INR b)

Exhibit 9: EBITDA of coverage universe

Tata Steel

Source: MOSL, Company

Exhibit 10: Quarterly average aluminum prices – USD/ton

Premium QoQ 0% 3% -22% 13% 40% -3% -24% -10% 20% -8% -49% -48% -9% 3% 8% 19% 27% -1% 1% 2%

Jan-18

Oct-17

Jul-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

3,000

Source: MOSL, Company, Bloomberg

April 2018

YoY growth (%)

3,600

48 42 36 30 24 18 12 6 0 Jan-18

4,200

YoY

Oct-17

4,800

Production

3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4

Jul-17

YoY growth (%)

'000 tons

22.0 17.0 12.0 7.0 2.0 -3.0 -8.0 -13.0

Apr-17

YoY

5,400

Jan-17

Production

Alumina Avg. QoQ YoY 376 -13% 11% 431 29% 41% 335 13% 43% 295 -13% 17% 341 12% 56% 305 30% 31% 235 -7% -20% 253 15% -25% 219 -6% -36% 233 -20% -34% 293 -13% -9% 336 -2% 6% 343 -3% 4% 355 11% 10% 322 2% 1% 317 -3% -3% 328 2% -4% 323 1% -1% 318 -3% 1% 327 -4% 3% Source: MOSL, Company

Exhibit 12: China aluminum production trend

Oct-16

Exhibit 11: Global aluminum production trend

Aluminum total price Avg. QoQ YoY 2,268 3% 16% 2,200 5% 23% 2,103 4% 24% 2,027 4% 21% 1,954 10% 20% 1,783 5% 12% 1,696 1% 0% 1,672 3% -15% 1,627 2% -25% 1,588 -6% -33% 1,692 -14% -29% 1,963 -10% -10% 2,177 -9% 8% 2,380 0% 18% 2,391 10% 18% 2,172 7% 4% 2,022 0% -10% 2,015 -1% -10% 2,029 -2% -6% 2,081 -7%

YoY -8% 29% 21% 17% -8% -21% -25% -50% -70% -78% -75% -47% 20% 68% 63% 52% 29% 1% -1%

Jul-16

Avg. 94 94 91 117 103 73 76 100 111 93 100 198 377 414 404 374 313 246 248 246

Apr-16

YoY 18% 23% 24% 21% 22% 14% 2% -11% -16% -24% -20% -2% 5% 11% 12% -2% -15% -11% -7% -7%

Jan-16

4QFY18 3QFY18 2QFY18 1QFY18 4QFY17 3QFY17 2QFY17 1QFY17 4QFY16 3QFY16 2QFY16 1QFY16 4QFY15 3QFY15 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14

Aluminum QoQ 3% 5% 5% 3% 8% 6% 3% 4% 1% -6% -10% -2% -8% -1% 11% 5% -3% -1% -3% -8%

Oct-15

Avg. 2,174 2,105 2,011 1,910 1,851 1,710 1,620 1,570 1,516 1,495 1,591 1,765 1,800 1,966 1,987 1,798 1,708 1,768 1,780 1,834

m tons

Quarter

Source: MOSL, Company, Bloomberg

231

March 2018 Results Preview | Sector: Metals

Exhibit 13: LME aluminum and inventories 2.5

Mar-18

Feb-18

Jan-18

1.0 Dec-17

1,400 Nov-17

1.3 Oct-17

1.5

1,550 Sep-17

1,700

Aug-17

1.8

Jul-17

1,850

Jun-17

2.0

May-17

2.3

2,000

Apr-17

2,150

Mar-17

USD/t

Spot

m tons

Inventories (RHS)

2,300

Source: MOSL, Bloomberg

Exhibit 14: Other base metals quarterly average prices – USD/ton Quarter 4QFY18 3QFY18 2QFY18 1QFY18 4QFY17 3QFY17 2QFY17 1QFY17 4QFY16 3QFY16 2QFY16 1QFY16 4QFY15 3QFY15 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13

April 2018

Avg. 3,419 3,235 2,955 2,596 2,778 2,513 2,253 1,875 1,581 1,616 1,892 2,183 2,083 2,235 2,311 2,073 2,029 1,906 1,859 1,840 2,032 1,946 1,885 1,927

Zinc QoQ 6% 9% 14% -6% 11% 12% 17% 19% -2% -15% -13% 5% -7% -3% 11% 2% 6% 3% 1% -9% 4% 3% -2% -5%

YoY 23% 29% 31% 35% 65% 56% 22% -14% -24% -28% -18% 5% 3% 17% 24% 13% 0% -2% -1% -5% 0% 3% -15% -14%

Avg. 6,982 6,819 6,345 5,662 5,831 5,277 4,772 4,726 4,672 4,892 5,259 6,043 5,818 6,624 6,995 6,787 7,040 7,153 7,073 7,147 7,931 7,908 7,705 7,869

Copper QoQ 2% 7% 12% -3% 11% 11% 1% 1% -4% -7% -13% 4% -12% -5% 3% -4% -2% 1% -1% -10% 0% 3% -2% -5%

YoY 20% 29% 33% 20% 25% 8% -9% -22% -20% -26% -25% -11% -17% -7% -1% -5% -11% -10% -8% -9% -5% 6% -14% -14%

Avg. 2,529 2,491 2,332 2,166 2,276 2,149 1,873 1,718 1,744 1,681 1,714 1,942 1,806 2,000 2,181 2,095 2,105 2,111 2,101 2,053 2,301 2,198 1,974 1,973

Lead QoQ 2% 7% 8% -5% 6% 15% 9% -1% 4% -2% -12% 8% -10% -8% 4% 0% 0% 0% 2% -11% 5% 11% 0% -6%

YoY 11% 16% 25% 26% 31% 28% 9% -12% -3% -16% -21% -7% -14% -5% 4% 2% -8% -4% 6% 4% 10% 11% -20% -23%

Silver (Rs/kg) Avg. QoQ YoY 38,518 0% -7% 38,571 0% -7% 38,659 -3% -16% 39,766 -4% 0% 41,447 0% 16% 41,273 -10% 19% 45,851 15% 32% 39,726 12% 7% 35,595 2% -4% 34,804 0% -5% 34,651 -7% -19% 37,194 0% -11% 37,167 1% -17% 36,694 -14% -20% 42,691 2% -7% 41,862 -7% -7% 44,935 -3% -20% 46,099 0% -23% 46,077 3% -17% 44,837 -20% -18% 55,927 -7% 1% 59,949 8% 11% 55,755 2% -5% 54,406 -2% -5% Source: MOSL, Company

232

March 2018 Results Preview | Sector: Metals

Mar-18

Feb-18

Mar-18

Feb-18

Jan-18

Source: Bloomberg, MOSL

Jan-18

90 Dec-17

90

Nov-17

100

Oct-17

95

Sep-17

110

MOSL Metals Index

Aug-17

100

Jul-17

120

Mar-17

105

Dec-17

Sensex Index

130

Jun-17

MOSL Metals Index

Apr-17

Sensex Index

110

Exhibit 16: Relative performance – one year (%)

May-17

Exhibit 15: Relative performance – three months (%)

Source: Bloomberg, MOSL

Exhibit 17: Comparative valuation Sector / Companies Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC Rain Industries SAIL Tata Steel Vedanta Metals Sector Aggregate

April 2018

CMP (INR)

RECO

208 310 230 302 68 119 384 75 580 284

Buy Neutral Buy Buy Neutral Buy Buy Sell Neutral Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 19.2 21.2 -12.7 21.5 -0.2 13.6 25.6 -0.9 58.2 22.8

25.9 27.9 7.7 24.0 5.1 14.0 40.6 4.3 69.4 33.4

26.9 30.3 12.2 23.7 5.3 14.7 44.6 6.5 61.4 38.9

10.8 14.6 -18.1 14.1 -392.5 8.7 15.0 -84.9 9.9 12.5 14.4

8.0 11.1 29.9 12.6 13.3 8.5 9.5 17.3 8.4 8.5 10.1

7.7 10.2 18.8 12.7 13.0 8.1 8.6 11.5 9.4 7.3 9.4

6.2 8.8 10.5 5.0 6.8 5.4 8.6 17.0 3.0 5.7 6.3

5.5 6.6 6.8 4.7 6.3 5.1 6.4 9.6 3.1 4.1 5.1

5.2 5.7 6.1 4.7 6.2 4.9 5.6 7.1 4.2 3.4 4.8

13.8 26.9 -4.0 20.9 -0.3 18.2 24.7 -1.0 16.0 14.1 11.5

16.2 14.5 29.8 27.1 2.4 3.7 19.4 16.2 9.8 9.5 17.2 16.5 29.8 25.2 4.8 6.9 16.2 12.7 19.8 20.8 14.6 14.2 Source: MOSL

233

March 2018 Results Preview | Sector: Metals

Hindalco Bloomberg

HNDL IN

Equity Shares (m)

2227.2

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

463 / 7

52-Week Range (INR)

CMP:INR208 

284 / 180

1,6,12 Rel Perf. (%)

-12 / -20 / -4

Financial Snapshot (INR Billion) Y/E March Sales

2017 2018E 2019E 2020E 1,001.8

1,173

1,156

1,169

124.4

139.4

146.6

144.7

19.1

42.7

57.7

59.9

8.6

19.2

25.9

26.9

EPS Gr(%)

-28.5

123.8

35.1

3.8

BV/Sh. (INR)

129.9

147.8

172.6

198.4

RoE (%)

7.4

13.8

16.2

14.5

RoCE (%)

7.3

8.7

9.7

9.7

15.0

8.5

6.3

6.1

24.3

10.8

8.0

7.7

EBITDA NP Adj. EPS (INR)

Payout (%) Valuations P/E (x) P/BV

1.6

1.4

1.2

1.0

EV/EBITDA (x)

7.5

6.1

5.5

5.2

Div. Yield (%)

0.5

0.7

0.7

0.7

Quarterly Performance (Standalone) Y/E March

Aluminium (sales, kt) Copper (sales, kt) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Total Tax % Tax Reported PAT Adjusted PAT Novelis adj. EBITDA (USDm) E: MOSL Estimates

April 2018

1Q 291 62 75,973 -11.4 11,325 14.9 5,996 3,382 2,184 4,131 -2 4,129 1,189 28.8 2,941 2,987 268

 

TP:INR340 (+64%)

Buy

Standalone: We expect standalone EBITDA to decline 15% QoQ to INR11.2b on (a) lower copper Tc/Rcs, (b) impact of cost increase and LME hedging dragging the aluminum segment and (c) higher transfer price of alumina from Utkal. Copper EBITDA is likely to decline 12% QoQ to INR3.5b, while aluminum EBITDA would decline by 16% QoQ to INR7.7b. Including Utkal aluminum, EBITDA will increase by 7% QoQ to INR12.4b. Aluminum volumes are expected to increase 2% QoQ to 333kt, while copper volumes are expected to decline 7% QoQ to 95kt. Novelis: We expect Novelis to report adjusted EBITDA of USD313m, growth of 7% YoY. Adjusted EBITDA/t is estimated at USD388 (v/s USD383 in 3QFY18). Volumes are expected to increase by 3% YoY to 813kt.

Key issues to watch for  Lower margins in aluminum.  Foreign exchange rate impact at Novelis.

FY17 FY18 2Q 3Q 4Q 1Q 2Q 3Q 4QE 320 310 328 299 329 325 333 106 97 114 105 93 102 95 90,123 93,136 110,261 97,700 103,082 110,228 105,258 1.0 14.3 27.2 28.6 14.4 18.4 -4.5 11,564 11,852 13,472 11,477 13,899 13,117 11,160 12.8 12.7 12.2 11.7 13.5 11.9 10.6 5,943 5,879 5,411 4,878 4,836 4,828 4,353 3,516 3,580 3,802 3,792 3,804 3,822 3,806 3,364 2,200 2,226 2,563 1,872 2,994 1,594 5,469 4,593 6,485 5,371 7,131 7,460 4,596 857 -3 -1,044 -1,055 -1,153 6,326 4,593 6,482 4,327 6,076 6,307 4,596 1,929 1,390 1,457 1,431 2,146 2,552 1,287 35.3 30.2 22.5 26.6 30.1 34.2 28.0 4,397 3,204 5,025 2,896 3,930 3,755 3,309 3,954 3,204 4,689 3,502 4,649 4,864 2,996 270 255 292 289 302 305 313

(INR Million)

FY17

FY18E

FY19E

1,249 379 369,366 7.6 48,135

1,286 395 416,269 12.7 49,653

1,309 380 427,311 2.7 51,908

23,229 14,280 10,052 20,679 852 21,531 5,964 27.7 15,567 14,951 1,085

18,895 15,223 9,023 24,559 -3,252 21,307 7,416 34.8 13,890 16,010 1,209

15,131 15,244 5,509 27,041 27,041 7,571 28.0 19,469 19,469 1,266

234

March 2018 Results Preview | Sector: Metals

Hindustan Zinc Bloomberg

HZ IN

Equity Shares (m)

4225.3

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

1309 / 20

52-Week Range (INR)

340 / 227

1,6,12 Rel Perf. (%)

0 / -7 / -5

Financial Snapshot (INR Billion) Y/E March 2017 2018E Sales 173.0 218 EBITDA 97.4 120.7 NP 83.2 89.4 Adj. EPS (INR) 19.7 21.2 EPS Gr(%) 7.5 BV/Sh. (INR) 72.9 84.5 RoE (%) 24.4 26.9 RoCE (%) 29.4 34.5 Payout (%) 179.3 45.4 Valuations P/E (x) 14.6 13.6 P/BV (x) 12.0 11.4 EV/EBITDA (x) 0.0 9.0 Div. Yield (%) 10.2 2.8

2019E 262 152.8 117.7 27.9 31.7 102.3 29.8 39.8 36.0

2020E 277 163.2 128.2 30.3 8.9 121.7 27.1 35.6 36.0

10.3 8.7 6.6 2.9

9.5 8.1 5.6 3.2

Quarterly Y/E March

Zinc refined (kt) Lead refined (kt) Silver (tonnes) Zinc LME (USD/t) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales Finance cost DD&A Other Income PBT (before EO item) EO exp. (income) PBT (after EO item) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %)

April 2018

1Q 120 23 88 1,918 25,306 -30.3 11,309 -42.5 44.7 712 3,644 6,101 13,053 -5 13,059 2,680 20.5 10,379 10,374 -53.4

CMP:INR307 







TP: INR342 (+11%)

Neutral

We expect HZL’s EBITDA to increase 5% QoQ (down 9% YoY) to INR34.1b, on higher zinc and silver volumes, despite marginally lower realization. LME zinc is up 6% QoQ to USD3,419/t, but due to hedges the effective LME for HZL will be down ~2% QoQ. Lead is broadly flat QoQ at USD2,488/t. Refined zinc sales are expected to increase 5% QoQ to 209kt. Lead is expected to decline 10% QoQ to 41kt. Silver volumes are expected to increase 14% QoQ to 150t. PAT is expected to increase 16% QoQ to INR25.7b on higher other income.

Key issues to watch for  Decline in global zinc prices.  Production issues.

FY17 2Q 148 32 107 2,252 35,257 -12.6 20,767 2.6 58.9 712 4,317 7,702 23,440 0 23,440 4,421 18.9 19,019 19,019 -11.4

3Q 211 36 117 2,518 49,799 45.2 27,834 88.3 55.9 451 4,589 5,882 28,676 0 28,676 5,477 19.1 23,199 23,199 28.1

4Q 217 47 135 2,777 62,602 99.9 37,480 186.5 59.9 142 5,321 4,811 36,829 0 36,829 6,259 17.0 30,570 30,570 42.2

1Q 190 34 110 2,589 45,760 80.8 23,840 110.8 52.1 1,370 3,600 5,300 24,170 0 24,170 5,410 22.4 18,760 18,760 80.8

FY18 2Q 193 40 146 2,950 53,090 50.6 30,240 45.6 57.0 840 3,940 4,870 30,330 -2,910 33,240 7,790 23.4 25,450 22,540 18.5

3Q 200 45 132 3,236 59,220 18.9 32,440 16.5 54.8 170 4,810 2,980 30,440 0 30,440 8,140 26.7 22,300 22,300 -3.9

4QE 209 41 150 3,179 59,657 -4.7 34,136 -8.9 57.2 0 5,105 3,596 32,626 0 32,626 6,852 21.0 25,775 25,775 -15.7

FY17

FY18E

696 138 447 2,366 172,964 21.6 97,390 43.7 56.3 2,017 17,871 24,496 101,998 -5 102,003 18,837 18.5 83,166 83,161 -0.7

792 160 538 3,048 217,727 25.9 120,656 23.9 55.4 2,380 17,455 16,746 117,566 -2,910 120,476 28,192 23.4 92,285 89,375 7.5

235

March 2018 Results Preview | Sector: Metals

Jindal Steel & Power Bloomberg

JSP IN

Equity Shares (m)

914.9

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

210 / 3

52-Week Range (INR)

-6 / 54 / 75

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

216.2

271.7

359.1

386.1

EBITDA

46.6

62.9

95.4

100.9

Adj. PAT

-19.1

-11.6

7.0

11.2

Adj. EPS (INR)

-20.9

-12.7

7.7

12.2

-39.1 -160.5

58.8

BV/Sh. (INR)



294 / 103

1,6,12 Rel Perf. (%)

EPS Gr (%)

CMP: INR230

14.8 328.5

313.9

321.2

RoE (%)

-7.9

-4.0

2.4

3.7

RoCE (%)

1.0

2.7

5.9

6.4

Payout (%)

0.0

0.0

0.0

0.0

-11.0

-18.1

29.9

18.8



 

TP: 362 (+58%)

Buy

Standalone: We estimate standalone EBITDA to increase 49% QoQ to INR13.7b. Steel sales volumes would increase 30% QoQ to 1,200kt. Realization is expected to be higher, while EBITDA per ton would increase 15% QoQ to INR11,232/t. Jindal Power: Jindal Power’s EBITDA is expected to decline 50% QoQ to INR1.8b due to low coal availability. Generation volumes would be lower by 37% QoQ to 1,918MU. Oman: We expect EBITDA to increase ~3% QoQ to INR4.3b on higher steel prices and favorable cost. Consolidated EBITDA is likely to increase 22% YoY to INR19.5b.

333.0

Valuations P/E (x)

0.7

0.7

0.7

0.7

EV/EBITDA (x)

P/BV

14.3

10.7

6.8

6.1

Div. Yield (%)

0.0

0.0

0.0

0.0

Quarterly Performance (Consolidated) Y/E March

Net Sales Change (YoY %) Total Expenditure EBITDA Change (YoY %) As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Total Tax % Tax Reported PAT MI - Loss/(Profit) Associate Adjusted PAT Change (YoY %)

April 2018

1Q 46,962 -1.2 37,121 9,841 -3.3 21.0 8,529 9,171 312 -7,548 -6,257 -13,805 -1,410 10.2 -12,395 -1,560 14 -4,564 34.5

Key issues to watch for  Ramp-up of Angul.  Power demand growth.

FY17 2Q 48,609 -3.6 40,125 8,484 -13.1 17.5 8,716 9,986 7 -10,211 0 -10,211 -2,739 26.8 -7,473 -2 11 -7,460 317.8

3Q 55,812 21.5 43,045 12,767 132.0 22.9 8,353 10,274 3 -5,856 0 -5,856 -1,306 22.3 -4,551 -458 18 -4,074 -38.7

4Q 64,861 27.7 49,340 15,521 73.1 23.9 8,642 10,059 90 -3,090 2,534 -556 428 -76.9 -984 -505 -16 -3,029 -37.4

1Q 59,364 26.4 45,837 13,527 37.5 22.8 9,006 9,622 0 -5,101 0 -5,101 -887 17.4 -4,214 -334 10 -3,871 -15.2

FY18 2Q 62,393 28.4 48,659 13,734 61.9 22.0 9,268 9,977 14 -5,496 -1,497 -6,994 -1,999 28.6 -4,995 -497 19 -2,982 -60.0

(INR Million)

3Q 71,048 27.3 54,983 16,065 25.8 22.6 9,670 9,632 10 -3,227 0 -3,227 -457 14.2 -2,770 -67 43 -2,660 -34.7

4QE 78,926 21.7 59,391 19,535 25.9 24.8 9,609 10,707 1 -780 0 -780 555 -71.1 -1,335 -23 100 -1,212 -60.0

FY17

FY18E

216,243 11.1 169,631 46,613 35.5 21.6 34,240 39,490 411 -26,706 -3,723 -30,429 -5,027 16.5 -25,402 -2,524 27 -19,128 14.8

271,731 25.7 208,870 62,861 34.9 23.1 37,552 39,938 25 -14,604 -1,497 -16,101 -2,787 17.3 -13,314 -921 171 -10,725 -43.9

236

March 2018 Results Preview | Sector: Metals

JSW Steel Bloomberg

JSTL IN

Equity Shares (m)

2417.2

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

731 / 11

52-Week Range (INR)

321 / 184

1,6,12 Rel Perf. (%)

1 / 15 / 48

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

556.0 695.2 762.0 787.3

EBITDA

122.6 138.4 156.1 156.2

Adj. PAT

35.8

52.0

58.0

57.4

Adj. EPS (INR)

14.8

21.5

24.0

23.7

45.3

11.5

-1.0

EPS Gr(%) BV/Sh. (INR)

93.7 112.5 135.2 157.6

RoE (%)

17.3

20.9

19.4

16.2

RoCE (%)

7.9

8.8

9.6

8.8

18.4

6.5

5.8

10.8

20.4

14.0

12.6

12.7

Payout (%) Valuation P/E (x) P/BV

3.2

2.7

2.2

1.9

EV/EBITDA (x)

10.2

9.0

7.9

7.8

Div. Yield (%)

0.7

0.4

0.4

0.7

Quarterly Performance (Consolidated) Y/E March

Net Sales Change (YoY %) EBITDA Change (YoY %) EBITDA (INR per ton) EBITDA (USD per ton) Interest Depreciation Other Income PBT (before EO Item) EO Items PBT (after EO Item) Total Tax % Tax Reported PAT MI (Profit)/Loss Share of P/(L) of Ass. Adjusted PAT Change (YoY %)

April 2018

1Q 117,080 1.1 32,694 100.9 9,907 146 9,358 8,315 334 15,356 15,356 4,507 29.4 10,848 112 130 11,090 -1,076.8

CMP: INR302    

TP: INR334 (+11%)

Buy

Consolidated EBITDA is expected to increase 13% QoQ / 37% YoY to INR43.3b on higher steel prices. Standalone steel sales would increase 3% QoQ to ~4.1mt. Standalone EBITDA/t is expected at INR9,866 per ton, increasing 10% QoQ on higher realization, partly offset by increase in cost. Adjusted consolidated PAT is estimated to decline 6% QoQ to INR17.2b on a normalized tax rate (was 5% in 3Q).

Key issues to watch for  Steel price hikes and impact of coking coal.  Domestic steel demand growth.

FY17 2Q 3Q 132,278 140,126 21.3 61.1 29,586 28,669 71.1 221.5 7,745 7,942 115 117 9,646 9,201 8,915 9,146 296 333 11,320 10,655 11,320 4,734 41.8 6,587 -117 795 7,265 557.5

10,655 3,511 32.9 7,145 13 143 7,300 -529.2

4Q 166,562 55.7 31,649 73.5 8,012 119 9,476 8,779 558 13,953

1Q 146,990 25.5 26,170 -20.0 7,720 116 9,450 8,190 410 8,940

13,953 3,992 28.6 9,961 57 125 10,143 515.1

8,940 2,840 31.8 6,100 140 6,240 -43.7

FY18 2Q 3Q 168,180 178,610 27.1 27.5 30,360 38,510 2.6 34.3 7,667 9,556 118 150 9,500 9,230 8,510 8,520 390 420 12,740 21,180 -2,640 12,740 18,540 4,450 940 34.9 5.1 8,290 17,600 30 -210 70 140 8,390 18,313 15.5 150.8

(INR Million)

4QE 201,404 20.9 43,341 36.9 10,571 163 9,281 8,455 457 26,062 26,062 8,811 33.8 17,251 -117 70 17,204 69.6

FY17

FY18E

556,046 32.8 122,598 101.9 8,295 124 37,681 35,154 1,521 51,284

695,184 25.0 138,381 12.9 8,928 138 37,461 33,675 1,677 68,922 -2,640 66,282 17,041 25.7 49,241 -297 420 50,147 40.1

51,284 16,743 32.6 34,541 64 1,193 35,798

237

March 2018 Results Preview | Sector: Metals

Nalco Bloomberg

NACL IN

Equity Shares (m)

1932.9

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

132 / 2

52-Week Range (INR)

98 / 61

1,6,12 Rel Perf. (%)

3 / -21 / -21

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

75.4

92.2

92.9

94.1

EBITDA

10.8

15.0

16.6

17.0

NP

7.2

-0.3

9.9

10.2

Adj. EPS (INR)

3.7

-0.2

5.1

5.3

EPS Gr(%)

37.9 -104.7

NM

2.6

BV/Sh. (INR)

52.8

53.7

56.9

50.6

RoE (%)

7.2

-0.3

9.8

9.5

RoCE (%)

7.9

11.9

12.9

12.6

60.5

59.7

41.0

40.0

19.1 -408.7

13.8

13.5

Payout (%)

CMP: INR86 

  

TP: INR84 (-2%)

Neutral

We expect EBITDA to be flat QoQ at INR4.7b as higher volumes and aluminum realization are offset by lower alumina realization and higher cost. Aluminum LME is up 3% QOQ to USD2,162/t. Alumina realization is expected to decline 13% QoQ to USD368/t. Aluminum volumes are expected to increase by 2% QoQ to 112kt. Alumina sales would increase by 38% QoQ to 353kt. PAT is estimated to increase 4% QoQ to INR2.9b.

Valuations P/E (x) P/BV

1.3

1.4

1.3

1.2

EV/EBITDA (x)

9.5

7.3

6.7

6.5

Div. Yield (%)

3.9

2.5

2.5

2.5

Quarterly Performance Y/E March

Alumina Production ('000 tons) Aluminium Prod. ('000 tons) Aluminium Sales ('000 tons) Alumina Sales ('000 tons) Avg LME Aluminium (USD/ton) NSR premiums (USD/ton) Alumina NSR (USD/ton) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales Interest Depreciation Other Income PBT (before EO Item) Extra-ordinary Income PBT (after EO Item) Total Tax % Tax Reported PAT Adjusted PAT

April 2018

1Q 524 94 82 291 1,570 290 257 15,490 3.9 1,946 -13.0 12.6 5 1,188 1,336 2,089 0 2,089 739 35.4 1,350 1,350

Key issues to watch for  Availability of coal for captive power plant.  LME price trend, utilization of smelter.

FY17 2Q 444 94 99 290 1,619 132 266 18,461 1.7 1,723 -49.2 9.3 6 1,353 1,369 1,733 0 1,733 521 30.1 1,212 1,212

3Q 566 99 99 311 1,710 196 277 19,881 21.6 2,852 109.2 14.3 6 1,177 759 2,428 -371 2,057 618 30.0 1,439 1,699

4Q 573 101 109 403 1,851 275 323 25,497 36.0 4,275 79.1 16.8 10 1,086 620 3,798 -30 3,768 1,084 28.8 2,684 2,705

1Q 526 101 89 259 1,910 323 314 18,027 16.4 2,275 16.9 12.6 4 1,170 859 1,960 0 1,960 670 34.2 1,289 1,289

FY18 2Q 509 105 113 380 2,011 239 334 24,548 33.0 3,355 94.7 13.7 4 1,123 810 3,037 162 3,199 853 26.7 2,346 2,227

(INR Million)

3Q 516 111 110 256 2,097 269 422 23,888 20.2 4,668 63.7 19.5 5 1,243 766 4,186 6,784 10,969 3,752 34.2 7,218 2,754

4QE 566 112 112 353 2,162 250 368 25,759 1.0 4,718 10.4 18.3 0 1,152 704 4,269 0 4,269 1,393 32.6 2,876 2,876

FY17

FY18E

2,107 388 389 1,295 1,687 223 260 79,329 16.4 10,796 15.1 13.6 17 4,804 4,083 10,058

2,117 429 424 1,248 2,045 270 360 92,222 16.3 15,016 39.1 16.3

10,058 2,962 29.4 7,097 7,097

13,465 6,668 49.5 6,797 6,797

4,689 3,138 13,465

238

March 2018 Results Preview | Sector: Metals

NMDC Bloomberg

NMDC IN

Equity Shares (m)

3163.9

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

376 / 6

52-Week Range (INR)

163 / 103

1,6,12 Rel Perf. (%)

-7 / -6 / -23

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

88.3

112.4

115.0

120.7

EBITDA

44.9

62.8

65.5

69.0

Adj. PAT

31.5

43.2

44.4

46.5

Adj. EPS (INR)

10.0

13.6

14.0

14.7

EPS Gr(%)

11.7

37.0

2.9

4.7

BV/Sh. (INR)

71.2

78.5

85.3

92.8

RoE (%)

13.5

18.2

17.2

16.5

RoCE (%)

11.5

17.8

16.8

16.2

Payout (%)

74.9

46.6

51.3

49.0

11.9

8.7

8.5

8.1

CMP: INR118    

TP: INR215 (+81%)

Buy

NMDC’s EBITDA is expected to increase 54% QoQ to INR20.4b due to higher realization and volumes. Iron ore sales volumes are expected to increase 24% QoQ to 10mt, as evacuation issues are resolved. Domestic iron ore realization is expected to increase 15% QoQ to INR3,419/t on price hikes. Adjusted PAT is expected to increase 52% QoQ to INR13.8b.

Key issues to watch for  Increase in global iron ore prices.  Stronger-than-expected iron ore demand.

Valuation P/E (x) P/BV

1.7

1.5

1.4

1.3

EV/EBITDA (x)

7.2

5.4

5.1

4.9

Div. Yield (%)

4.3

4.5

5.1

5.1

Quarterly Performance Y/E March

Production (m tons) Sales (m tons) Avg Dom. NSR (USD/t) Avg Dom. NSR (INR/t) Lumps % (production) Net Sales EBITDA As % of Net Sales EBITDA per ton (USD) EBITDA per ton (INR/t) Interest Depreciation Other Income PBT (before EO Item) Extra-ordinary item PBT (after EO Item) Total Tax % Tax Reported PAT Adjusted PAT

April 2018

1Q 7.6 7.8 32 2,160 36 17,207 8,164 47.4 16 1,050 81 560 3,452 10,975 0 10,975 3,862 35.2 7,113 6,619

FY17 2Q 6.3 8.0 31 2,093 36 17,392 8,258 47.5 15 1,030 15 544 2,735 10,434 0 10,434 2,727 26.1 7,708 6,293

3Q 9.7 10.1 35 2,403 36 24,979 14,226 57.0 21 1,415 53 551 1,559 15,180 -5,972 9,208 3,257 35.4 5,952 9,156

4Q 10.4 9.8 43 2,871 36 28,717 14,295 49.8 22 1,463 59 307 1,343 15,273 -2,961 12,312 7,193 58.4 5,119 9,211

1Q 8.5 9.2 46 2,938 36 28,415 16,206 57.0 27 1,765 82 467 1,286 16,944 -1,258 15,686 5,994 38.2 9,692 11,316

FY18 2Q 7.2 8.3 43 2,836 36 24,213 12,852 53.1 24 1,549 102 620 1,099 13,229 -823 12,406 3,963 31.9 8,443 8,835

(INR Million)

3Q 8.6 8.1 45 2,967 36 24,690 13,314 53.9 25 1,652 112 772 1,111 13,542 234 13,776 4,910 35.6 8,866 9,044

4QE 10.0 10.0 51 3,419 36 35,055 20,446 58.3 31 2,041 0 631 799 20,613 0 20,613 6,596 32.0 14,017 13,767

FY17

FY18E

35.6 35.6 36 2,410 36 88,294 44,944 50.9 19 1,262 208 1,962 9,088 51,862 -8,933 42,929 17,038 39.7 25,891 31,279

35.6 35.6 47 3,040 36 112,374 62,818 55.9 27 1,767 2,489 4,294 64,623 64,623 21,463 33.2 43,160 43,160

239

March 2018 Results Preview | Sector: Metals

Rain Industries Bloomberg

RINDL IN

Equity Shares (m)

336.4

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

129 / 2

52-Week Range (INR)

476 / 92

1,6,12 Rel Perf. (%)

8 / 115 / 235

Financial Snapshot (INR Billion) Y/E March

2016 2017E 2018E 2019E

Sales

93.2

113.9

133.9

146.1

EBITDA *

13.5

23.1

28.6

30.8

NP

3.2

8.6

13.1

14.5

Adj. EPS (INR)

9.6

25.5

38.9

43.0

1.2

165.2

52.3

10.7

BV/Sh. (INR)

EPS Gr (%)

89.6

112.7

149.2

189.9

RoE (%)

10.9

25.2

29.7

25.4

RoCE (%)

12.7

21.3

26.2

26.4

Payout (%)

15.6

9.4

6.2

5.6

45.5

17.2

11.3

10.2

CMP:INR384     

TP: INR480 (+25%)

Buy

We expect EBITDA to increase 13% QoQ to INR7.7b on higher volumes. Carbon business EBITDA per ton will increase 1% QoQ to USD135/t. Chemical business EBITDA per ton will increase from USD58/t QoQ to USD60/t. Cement business EBITDA per ton will decline 13% QoQ to INR450/t. Adj. PAT will increase 9% QoQ to INR3.6b.

Key issues to watch for  Environment measures in China.  Global aluminum production growth.

Valuation P/E (x)

4.9

3.9

2.9

2.3

EV/EBITDA, x*

P/BV

15.6

9.0

6.9

6.1

Div. Yield (%)

0.2

0.5

0.5

0.5

Quarterly Performance (Consolidated) Y/E December

Net Sales Change (YoY %) EBITDA As % of Net Sales Carbon EBITDA USD/t Chemical EBITDA USD/t Cement EBITDA INR/t Interest Depreciation Other Income PBT (before EO Inc.) EO Income(exp) PBT (after EO Inc.) Total Tax % Tax Reported PAT Less: Min. Int. & assc. Adjusted PAT Change (YoY %)

April 2018

1Q 24,680 14 4,414 17.9 3,746 76 544 135 124 232 1,536 1,366 206 1,718 -670 1,048 400 38.2 647 55 1,263 331.5

CY17 2Q 26,371 4 4,678 17.7 4,002 82 465 120 211 379 1,483 1,295 475 2,375 0 2,375 819 34.5 1,556 41 1,515 8.0

3Q 30,508 36 6,738 22.1 6,336 118 133 38 269 533 1,463 1,335 256 4,195 0 4,195 1,662 39.6 2,534 78 2,456 29.2

4Q 31,448 32 6,872 21.9 6,412 133 198 58 262 515 1,465 1,260 198 4,345 -302 4,043 868 21.5 3,175 103 3,374 136.8

1QE 36,237 47 7,742 21.4 7,213 135 254 60 276 450 1,163 1,237 290 5,632 0 5,632 1,915 34.0 3,717 44 3,673 190.9

CY18E 2QE 3QE 36,642 37,706 39 24 7,173 7,268 19.6 19.3 6,644 6,654 130 125 254 338 60 80 276 276 450 450 1,163 1,163 1,204 1,182 311 270 5,117 5,193 0 0 5,117 5,193 1,740 1,766 34.0 34.0 3,377 3,427 41 41 3,336 3,386 120.2 37.9

(INR Million)

4QE 38,291 22 7,142 18.7 6,529 120 338 80 276 450 1,163 1,221 270 5,028 0 5,028 1,710 34.0 3,319 60 3,259 -3.4

CY17

CY18E

113,007 21 22,702 20.1 20,496 103 1,340 90 866 411 5,947 5,256 1,134 12,633 -973 11,661 3,749 32.1 7,912 285 8,599 72.7

148,876 32 29,325 19.7 27,040 127 1,183 70 1,103 450 4,652 4,843 1,141 20,970 0 20,970 7,130 34.0 13,840 186 13,654 58.8

240

March 2018 Results Preview | Sector: Metals

SAIL Bloomberg

SAIL IN

Equity Shares (m)

4130.4

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

309 / 5

52-Week Range (INR)

-5 / 34 / 7

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

445.0

568.7

666.1

689.5

0.7

44.7

83.0

106.9

-26.3

-3.6

17.8

26.8

-6.4

-0.9

4.3

6.5

NP Adj. EPS (INR) EPS Gr(%)



101 / 53

1,6,12 Rel Perf. (%)

EBITDA

CMP: INR74

-37.1

-86.1 -589.8



TP: 71 (-3%)

Sell

SAIL’s EBITDA is expected to increase ~51% QoQ to INR21.7b. Volumes would increase 1% QoQ to 3.8mt. EBITDA per ton would increase by ~INR2000/t to INR3,278/t on higher steel prices and operating leverage gains from higher volumes. PAT will increase from INR659m in 3QFY18 to INR6.2b in 4QFY18.

50.2

BV/Sh. (INR)

89.7

87.8

91.6

97.6

RoE (%)

-6.9

-1.0

4.8

6.9

RoCE (%)

-2.9

2.2

6.1

8.7

-11.6

-83.9

17.1

11.4

0.8

0.8

0.8

0.8

EV/EBITDA (x) 1,067.0

17.3

9.6

7.1

0.0

0.0

0.0

Payout (%)

Key issues to watch for  Commissioning of Bhilai capacity and steel prices.

Valuation P/E (x) P/BV Div. Yield (%)

0.0

Quarterly Performance Y/E March (Standalone) Production (m tons) Change (YoY %) Sales (m tons) Change (YoY %) Realization (INR per ton) Change (YoY %) Net Sales Change (%) NSR to RM Spread (INR/t) EBITDA Change (YoY %) EBITDA per ton (INR) EBITDA per ton (USD) Interest Depreciation Other Income PBT (after EO Inc.) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %)

April 2018

1Q 3.4 10.1 2.8 4.1 32,993 -6.6 92,381 -2.8 21,555 2,338 -386.2 835 12 5,941 6,002 893 -9,254 -3,899 42.1 -5,355 -5,042 56.8

FY17 2Q 3Q 3.5 3.3 30.6 9.2 3.6 3.3 31.4 13.8 31,182 34,237 -7.7 11.1 112,256 112,982 21.3 26.4 15,462 17,625 1,114 -428 -114.5 -96.9 310 -130 5 -2 6,028 6,108 6,659 6,699 682 688 -12,531 -12,536 -5,215 -4,587 41.6 36.6 -7,316 -7,948 -6,358 -7,956 -18.1 -48.0

4Q 3.6 0.4 3.4 -8.6 36,827 22.1 126,905 11.6 16,797 -2,644 -76.5 -767 -11 7,202 7,439 3,094 -14,188 -6,475 45.6 -7,713 -7,715 -37.3

1Q 3.2 -5.8 3.0 8.1 38,242 15.9 115,796 25.3 18,065 -839 -135.9 -277 -4 5,879 6,947 893 -12,872 -4,859 37.7 -8,014 -7,951 57.7

FY18 2Q 3Q 3.7 3.6 4.7 8.9 3.5 3.8 -1.7 14.2 38,467 40,646 23.4 18.7 136,174 153,237 21.3 35.6 19,776 20,773 9,143 14,402 720.5 -3,468.1 2,583 3,820 40 59 6,435 6,745 7,622 7,596 486 1,195 -7,403 823 -2,013 391 27.2 47.5 -5,391 432 -3,224 659 -49.3 -108.3

(INR Million)

4QE 4.2 15.8 3.8 10.3 42,900 16.5 163,020 28.5 22,635 21,735 -922.0 5,720 88 6,563 7,698 546 8,019 1,764 22.0 6,255 6,255 -181.1

FY17

FY18E

13.8 11.5 13.1 8.6 33,814 4.7 444,524 13.8 17,653 380 -101.1 29 0 25,278 26,800 5,356 -48,509 -20,176 41.6 -28,332 -27,066 -29.8

14.7 6.0 14.1 7.5 40,191 18.9 568,226 27.8 20,444 44,441 11,582.6 3,143 48 25,622 29,863 3,120 -11,434 -4,716 41.2 -6,718 -4,655 -82.8

241

March 2018 Results Preview | Sector: Metals

Tata Steel Bloomberg

TATA IN

Equity Shares (m)

1203.1

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

697 / 11

52-Week Range (INR)

CMP: INR579 

747 / 404

1,6,12 Rel Perf. (%)

-12 / -13 / 15

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

1,123

1,277

1,279

691

170

216

228

164

EBITDA Adj. PAT Adj. EPS (INR) EPS Gr(%)

37

70

83

74

38.0

58.2

69.4

61.4

394.2

53.4

19.1

-11.5

BV/Sh. (INR)

330

398

457

509

RoE (%)

15.7

16.0

16.2

12.7

RoCE (%)

9.4

11.9

11.7

9.7

-27.0

21.4

13.1

17.4

15.2

9.9

8.3

9.4

Payout (%)





TP: 778 (+34%)

Neutral

India: We expect Tata Steel’s standalone EBITDA to decline 2% QoQ to INR45.3b on lower volumes even as margins are higher. Sales volume is down 9% QoQ to 3mt due to shutdown at Kalinganagar. EBITDA per ton is estimated to increase ~INR1,000 QoQ to INR15,087/t on higher realization. Europe: EU sales volumes would increase 10% QoQ to 2.7mt. Margins are estimated to increase to USD92/t on healthy steel spreads. Consolidated EBITDA is expected to increase 9% QoQ to INR62.2b. Adjusted PAT is expected to decrease 4% QoQ to INR23.1b.

Key issues to watch for  Imports from China and global iron ore prices.

Valuation P/E (x) P/BV

1.8

1.5

1.3

1.1

EV/EBITDA (x)

7.7

6.0

5.5

6.6

Div. Yield (%)

1.4

1.4

1.4

1.4

Quarterly Performance (Consolidated) Y/E March

Sales (k tons) Change (YoY %) Net Sales Change (YoY %) EBITDA Change (YoY %) (% of Net Sales) EBITDA(USD/tss) Interest Depreciation Other Income PBT (before EO Inc.) EO Income(exp) PBT (after EO Inc.) Total Tax % Tax Reported PAT Adj. PAT (after MI & asso)

April 2018

1Q 5,410 -14.5 252,298 -16.7 32,420 16.9 12.8 90 10,707 12,417 1,367 10,662 -35,231 -24,568 7,405 69.4 -31,973 3,400

FY17 2Q 3Q 5,650 6,110 -10.2 -4.1 263,710 279,565 -10.0 -0.3 29,700 35,393 62.3 356.3 11.3 12.7 79 86 13,511 13,874 14,677 13,797 1,084 1,301 2,597 9,022 634 284 3,230 9,306 3,634 6,984 139.9 77.4 -403 2,322 -1,127 2,035

4Q 6,830 -1.6 338,960 14.9 70,252 218.6 20.7 154 12,631 15,892 1,522 43,250 -45,199 -1,948 9,760 22.6 -11,708 33,435

1Q 5,830 7.8 295,568 17.2 49,740 53.4 16.8 132 13,437 15,011 1,555 22,846 -6,289 16,557 7,405 32.4 9,152 15,352

FY18 2Q 3Q 6,450 6,560 14.2 7.4 324,641 334,466 23.1 19.6 47,207 56,969 58.9 61.0 14.5 17.0 112 134 13,499 13,273 14,733 14,751 2,532 2,259 21,507 31,205 -147 -11,235 21,359 19,969 11,380 9,508 52.9 30.5 9,980 10,461 10,205 24,100

(INR Million)

4QE 6,454 -5.5 322,434 -4.9 62,251 -11.4 19.3 151 13,694 15,113 1,932 35,377 35,377 12,325 34.8 23,052 23,079

FY17

FY18E

24,000 -7.4 1,134,532 -3.2 167,764 121.2 14.8 104 50,723 56,784 5,274 65,531 -79,512 -13,981 27,782 42.4 -41,762 37,742

25,294 5.4 1,277,109 12.6 216,168 28.9 16.9 132 53,903 59,608 8,277 110,934 -17,672 93,263 40,618 36.6 52,645 72,736

242

March 2018 Results Preview | Sector: Metals

Vedanta Bloomberg

VEDL IN

Equity Shares (m)

3717.0

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

1056 / 16

52-Week Range (INR)

356 / 218

1,6,12 Rel Perf. (%)



-10 / -17 / -7

Financial Snapshot (INR Billion) Y/E March

CMP:INR284

2017 2018E 2019E 2020E



Sales

722.3

886

1,041

1,123

EBITDA *

175.5

198.2

258.5

286.2

NP

56.3

84.8

124.2

144.6

Adj. EPS (INR)

15.1

22.8

33.4

38.9

50.7

46.4

16.4

162.7

159.9

176.8

196.8

RoE (%)

9.7

14.1

19.8

20.8



RoCE (%)

12.4

14.0

18.4

19.4



154.2

111.5

37.5

37.4

18.8

12.4

8.5

7.3

EPS Gr (%) BV/Sh. (INR)

Payout (%)

 

TP: INR346 (+22%)

Buy

We expect VEDL’s EBITDA to increase 7% QoQ (down 1% YoY) to INR72b, driven by oil, aluminum and iron ore. Adjusted PAT is estimated to increase 28% QoQ to INR28.4b on higher other income and lower tax rate. Aluminum: EBITDA is expected to increase by 16% QoQ to INR7.1b, driven by higher LME (up ~USD65/t) and volumes (up 4% QoQ to 444kt), partly offset by higher costs. Zinc India: EBITDA is expected to increase 5% QoQ to INR34.1b on higher zinc and silver volumes. Power: EBITDA is expected to decline 17% QoQ to INR4.9b off a stronger base. Copper: EBITDA is expected to increase 7% QoQ to INR3.2b. Oil & Gas: EBITDA is expected to increase 17% QoQ to INR15.8b on higher oil prices and volumes.

Valuation P/E (x) P/BV

1.7

1.8

1.6

1.4

EV/EBITDA, x*

8.2

7.5

5.5

4.7

Div. Yield (%)

6.8

7.5

3.7

4.3

Quarterly Performance (Consolidated) Y/E March

Net Sales Change (YoY %) EBITDA Copper Aluminum Iron ore Power Zinc-India Zinc-International Oil&Gas Others Finance cost DD&A Other Income PBT (before EO item) EO exp. (income) PBT (after EO item) Total Tax % Tax Reported PAT Profit from Asso. Minority interest Adjusted PAT Change (YoY %)

April 2018

1Q 144,371 -15.2 34,396 4,379 2,660 3,730 3,870 11,309 2,490 7,937 -1,978 13,931 14,920 10,935 16,480 0 16,480 4,914 29.8 11,567 0 5,417 6,150 -56.4

Key issues to watch for  Progress on ramp-up of 1.25mtpa smelter.  Movement in base metal prices.

FY17 2Q 3Q 158,596 194,171 -4.2 30.5 46,674 59,964 3,779 4,479 4,200 6,520 1,050 4,710 4,030 4,452 20,767 27,834 3,390 2,020 10,391 10,837 -934 -887 14,503 15,082 15,289 15,203 12,521 9,160 29,403 38,840 0 0 29,403 38,840 6,623 8,968 22.5 23.1 22,780 29,872 2 -20 10,261 11,188 12,521 18,663 50.1 -1,124.9

4Q 225,113 40.9 73,501 4,312 9,900 3,870 4,565 37,480 1,380 11,210 784 15,035 16,037 9,208 51,637 1,144 50,493 20,604 40.8 29,889 -8 15,775 15,249 34.8

1Q 182,850 26.7 48,740 2,130 5,280 400 1,100 23,840 3,210 13,850 -1,070 15,920 13,860 10,550 29,510 0 29,510 6,810 23.1 22,700 0 7,450 15,250 148.0

FY18 2Q 3Q 215,900 243,610 36.1 25.5 56,690 67,630 3,920 2,970 4,570 6,100 -40 2,310 3,660 5,950 30,240 32,440 3,890 4,460 11,760 13,590 -1,310 -190 13,840 13,060 14,260 15,490 8,760 5,730 37,350 44,810 -1,860 1,580 39,210 43,230 9,350 13,640 23.8 31.6 29,860 29,590 0 0 8,950 9,060 19,050 22,110 52.1 18.5

(INR Million)

4QE 243,595 8.2 72,488 3,180 7,057 3,115 4,933 34,136 4,228 15,839 13,001 15,645 7,500 51,342 51,342 14,092 27.4 37,250 15 8,859 28,406 86.3

FY17

FY18E

722,250 12.4 213,319 16,926 23,057 13,224 16,425 95,302 9,261 40,132 -1,008 58,550 62,915 45,806 137,660 1,144 136,516 37,783 27.7 98,733 -27 43,584 56,266 -73.8

885,955 22.7 245,548 12,200 23,007 5,785 15,643 120,656 15,788 55,039 -2,570 55,821 59,255 32,540 163,012 -280 163,292 43,892 26.9 119,400 15 34,319 84,816 50.7

243

March March2018 2018Results ResultsPreview Preview ||Sector: Sector:Oil Oil&&Gas Gas

Oil & Gas Company name

GRMs up YoY (down QoQ); crude prices increase YoY/QoQ

Aegis Logistics

Marketing margins expand

BPCL



GAIL Gujarat Gas



Gujarat State Petronet HPCL Indraprastha Gas



IOC Mahanagar Gas MRPL Oil India

Singapore complex GRM stood at USD7.0/bbl in 4QFY18 v/s USD7.3/bbl in 3QFY18 and USD6.4/bbl in 4QFY17. We expect marginal inventory gain during the quarter. Average Brent crude price was up 24% YoY and 9% QoQ to USD67/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 GRM of USD11.4/bbl, led by strong benchmark (premium of USD4.4/bbl). The Petchem segment is expected to do better, led by healthy petchem deltas and strong volume growth.

Brent up 24% YoY and 9% QoQ; upstream subsidy nil in 4QFY18

ONGC



Petronet LNG Reliance Industries 

Crude oil price continued to trend upward in 4QFY18. Average Brent crude price was up 24% YoY (+9% QoQ) at USD67/bbl. OMCs are likely to witness marginal inventory gain for the quarter. We do not build in any net under-recovery either for the OMCs or for the upstream companies.

GRM at USD7.0/bbl, up from USD6.4/bbl in 4QFY17  

Reuters Singapore Complex GRM was up 9% YoY (-3% QoQ) to USD7.0/bbl in 4QFY18 v/s USD7.3/bbl in 3QFY18 and USD6.4/bbl in 4QFY17. PE, PP and PVC delta improved sequentially. POY and PSF spreads were up 11%/6% QoQ. RIL would benefit from healthy deltas and strong volumes growth during the quarter.

Exhibit 1: Expected quarterly performance summary Sector

Oil & Gas Aegis Logistics BPCL GAIL Gujarat Gas Gujarat State Petronet HPCL IOC Indraprastha Gas Mahanagar Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Oil & Gas Sector Aggregate Oil & Gas Excl. OMCs

CMP (INR)

Reco

263 426 329 844 185 353 174 278 1,012 112 221 178 232 899

Buy Buy Sell Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy

Sales (INR M) Var Var Mar-18 % YoY % QoQ 16,304 616,099 147,458 17,967 3,611 617,314 1,290,638 12,226 6,601 140,458 29,986 239,846 66,349 1,128,503 4,333,359 1,809,309

28.6 8.0 9.9 28.3 47.6 19.8 28.6 22.0 25.7 5.3 23.1 10.5 4.2 33.0 21.9 23.5

13.1 1.6 2.3 14.3 3.1 7.4 16.6 3.3 13.5 -0.4 5.1 4.3 -14.5 13.1 9.5 8.3

EBDITA (INR M) Var Var Mar-18 % YoY % QoQ

Net Profit (INR M) Var Var Mar-18 % YoY % QoQ

765 26,270 21,105 2,138 3,077 22,394 75,004 2,764 1,998 7,495 10,539 131,117 8,236 183,547 496,451 372,782

600 16,542 11,959 713 2,031 14,218 48,345 1,726 1,255 3,457 6,029 56,604 5,430 95,687 264,595 185,490

47.3 14.2 38.4 46.1 52.8 -20.6 -10.4 14.1 22.5 -51.8 36.0 18.5 33.6 50.1 18.0 30.5

6.6 65.0 7.1 6.9 3.6 32.7 7.7 5.1 -0.5 -57.2 -13.9 4.7 -2.8 4.4 5.2 0.9

101.5 12.0 -10.2 -22.8 14.1 -5.3 115.3 18.9 60.0 11.9 -21.8 -27.1 29.9 -38.7 12.5 4.0 26.1 1.2 -60.3 -64.4 -48.5 -14.5 30.4 12.9 15.3 2.7 18.8 1.3 11.3 -13.2 13.1 0.2 Source: MOSL

Swarnendu Bhushan – Research Analyst ([email protected]); +91 22 6129 1529 Abhinil Dahiwale – Research Analyst ([email protected]); +91 22 6129 1566 April 2018

244

March 2018 Results Preview | Sector: Oil & Gas

Marketing margins improve in 4Q 



In 3QFY18, OMCs could not take price hikes in auto fuels due to Gujarat elections. However, since then, they have steadily increased auto fuel prices. As a result, gross marketing margins have improved from INR2.2/lit and INR2/lit on petrol and diesel in 3QFY18 to INR3.2/lit and INR3.4/lit respectively in 4QFY18.

Domestic gas production has revived 



After almost a decade of negative-to-flat growth, domestic gas production has grown 2.47% YoY in 11MFY18 v/s 3% YoY decline in FY17. We expect domestic gas production to grow 10-15% annually over the next five years. Domestic crude oil production declined by 0.84% YoY in 11MFY18. Production for ONGC grew 0.41% YoY to 20.4mmt during 11MFY18; OIL’s production grew 4.37% YoY to 3.1mmt during 11MFY18.

LNG imports have grown 

LNG imports grew at 16% in FY17 primarily due to expansion of Dahej from 10mmtpa to 15mmtpa. LNG imports increased by 6% YoY in 11MFY18. LNG imports grew at 19.7% YoY in Jan-Feb 2018 due to base effect. We expect similar growth in Mar 2018 as well.

Valuation and view 









April 2018

Continue to like OMCs: Strong benchmark GRMs and sequentially better marketing margins are expected to benefit OMCs’ (IOCL/BPCL/HPCL) profitability during the quarter. We expect OMCs’ core earnings to improve sequentially in 4QFY18. Among the OMCs, we have a higher preference for IOCL due to its (a) highest diversification, (b) strong free cash flow generation and (c) inexpensive valuations. Yet another good quarter for RIL: RIL is expected to clock GRM of USD11.4/bbl, led by strong benchmark (premium of USD4.4/bbl). Petchem segment is expected to benefit from healthy deltas and strong volume growth. Prefer IGL among CGDs: We expect volume growth to continue for CGD players. Spot as well as crude linked LNG prices have inched up in 4QFY18. However, Gujarat Gas had already taken a price hike of INR2.5/scm in Dec 2017 which would 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. PLNG – a long-term buy: 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 add to the buy case for PLNG. ONGC appears attractive: Higher oil prices result in higher realizations. However, we believe if oil prices sustain above USD70/bbl, then the threat of subsidy sharing returns in both ONGC and OINL. ONGC has been showing growth in its oil and gas production unlike OINL. We prefer ONGC as its (a) cost efficiency would result in a decline in opex, (b) gas production is likely to grow 10-15% annually for the next 3-4 years, (c) oil production is set to increase marginally, (d) it has no subsidy burden, and (e) valuations are attractive. 245

March 2018 Results Preview | Sector: Oil & Gas

Mar-18

Feb-18

Mar-18

Feb-18

Jan-18

Jan-18

90 Dec-17

90

Nov-17

100

Oct-17

95

MOSL Oil & Gas Index

Aug-17

110

Jul-17

100

Jun-17

120

Sensex Index

Mar-17

105

Dec-17

130

Sep-17

MOSL Oil & Gas Index

110

Apr-17

Sensex Index

Exhibit 3: Relative performance - 1Yr (%)

May-17

Exhibit 2: Relative performance - 3m (%)

Source: Bloomberg, MOSL

Exhibit 4: Comparative valuations Sector / Companies Oil & Gas Aegis Logistics BPCL GAIL Gujarat Gas Gujarat State Petronet HPCL Indraprastha Gas IOC Mahanagar Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Oil & Gas Ex OMCs

April 2018

CMP (INR) 263 426 329 844 185 353 278 174 1,012 112 221 178 232 899

Reco

Buy Buy Sell Buy Neutral Buy Buy Buy Buy Neutral Buy Buy Buy Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 6.3 40.0 21.0 21.6 12.7 39.5 9.4 20.7 55.9 11.7 18.3 16.8 14.0 61.1

9.5 41.2 22.9 34.7 13.3 32.5 11.1 17.6 53.9 11.4 27.2 21.8 16.0 67.7

12.3 46.5 24.6 44.3 13.9 37.8 12.5 21.7 54.6 12.4 28.1 23.5 18.8 78.0

41.9 10.7 15.7 39.1 14.6 8.9 29.6 8.4 18.1 9.5 12.1 10.6 16.6 14.7 12.2 13.3

27.6 10.3 14.4 24.3 13.9 10.9 25.2 9.9 18.8 9.8 8.1 8.2 14.5 13.3 11.3 11.5

21.5 9.2 13.4 19.1 13.3 9.3 22.2 8.0 18.6 9.0 7.9 7.5 12.3 11.5 9.9 10.3

31.8 9.0 9.7 15.4 8.9 6.3 17.5 4.8 10.8 4.9 6.7 4.0 10.5 10.8 7.2 7.7

18.4 8.2 8.8 12.2 7.7 7.0 14.7 5.0 10.2 4.7 6.0 3.5 9.3 7.7 6.1 6.2

14.2 7.4 8.0 10.2 7.2 6.4 12.8 4.2 9.8 4.0 5.6 3.3 7.3 6.7 5.4 5.5

30.7 24.1 11.9 16.8 15.0 28.2 20.7 18.5 28.0 18.9 7.4 9.6 23.7 13.0 13.2 11.9

35.9 35.0 21.6 21.1 12.0 12.0 23.0 24.2 14.0 13.2 20.6 20.9 20.8 20.2 14.4 16.1 24.4 22.5 16.1 15.5 10.5 10.3 12.0 12.4 22.9 22.9 12.8 13.0 13.0 13.4 12.6 12.8 Source: MOSL

246

March 2018 Results Preview | Sector: Oil & Gas

Brent up 19% QoQ (23% YoY), GRM strong, light/heavy spread widens Exhibit 5: Brent crude price up 24% YoY and 9% QoQ at USD67/bbl Brent Crude Price (USD/bbl)

Exhibit 6: Premium of Brent over WTI declined QoQ to USD4.1/bbl in 4QFY18 Brent less WTI (USD/bbl) 32

140

24

105

16

70

8 0

0

-8 1QFY05 4QFY05 3QFY06 2QFY07 1QFY08 4QFY08 3QFY09 2QFY10 1QFY11 4QFY11 3QFY12 2QFY13 1QFY14 4QFY14 3QFY15 2QFY16 1QFY17 4QFY17 3QFY18

1QFY05 4QFY05 3QFY06 2QFY07 1QFY08 4QFY08 3QFY09 2QFY10 1QFY11 4QFY11 3QFY12 2QFY13 1QFY14 4QFY14 3QFY15 2QFY16 1QFY17 4QFY17 3QFY18

35

Source: Bloomberg, MOSL

Source: Bloomberg, MOSL

Exhibit 7: Reuters Singapore GRM rose 9% YoY (-3% QoQ) to an average of USD7.0/bbl in 4QFY18

Exhibit 8: YoY GRM increase led by higher Diesel and Jet/Kero cracks 3QFY17

Reuters Singapore GRM (USD/bbl) 10

4QFY17

1QFY18

Source: Bloomberg, MOSL

Arab L-H

6





4 1

Fuel Oil

Our crude price assumptions are USD66.3/bbl for 4QFY18, USD57.4/bbl for FY18 and USD60/bbl for FY19/20. We expect the regional benchmark Singapore Reuters GRM to remain strong in the near term and settle at ~USD6/bbl over the the medium-to-long term.

1QFY18

1QFY17

1QFY16

1QFY15

1QFY14

1QFY13

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

-1 1QFY07

Jet/Kero

Source: Reuters, MOSL

9

1QFY06

4QFY18

Our key assumptions

Exhibit 9: Crude differentials improved YoY in 4QFY18 Brent - Dubai

Diesel

1QFY05 4QFY05 3QFY06 2QFY07 1QFY08 4QFY08 3QFY09 2QFY10 1QFY11 4QFY11 3QFY12 2QFY13 1QFY14 4QFY14 3QFY15 2QFY16 1QFY17 4QFY17 3QFY18

0

LPG

2

Naphtha

4

Gasoline

6

1QFY05

3QFY18

20 10 0 -10 -20 -30

8

In USD/bbl

2QFY18

Source: Bloomberg, MOSL

April 2018

247

March 2018 Results Preview | Sector: Oil & Gas

Exhibit 10: Polymer spreads declined YoY/QoQ (INR/kg) PE 109.0 113.0 109.3 90.7 102.3 95.8 88.8 85.6 92.4 91.4 88.8 89.1 89.4 85.1 85.8 91.1 6.2% 2.3%

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 QoQ (%) YoY (%)

PP 107.7 110.3 107.0 84.3 100.3 85.8 76.7 70.4 81.5 83.9 82.7 87.4 85.4 84.3 89.5 94.8 5.9% 8.5%

RIL Basic prices (INR/kg) PVC POY 77.0 97.7 79.4 102.9 70.0 92.7 63.7 80.6 70.1 84.8 65.5 79.0 65.0 73.0 62.3 71.5 68.1 74.4 69.2 74.1 70.8 74.1 75.9 83.0 73.9 85.0 71.4 84.5 70.9 87.1 73.9 92.7 4.2% 6.4% -2.6% 11.7%

PSF 97.6 103.6 92.4 79.8 84.0 80.5 77.5 74.0 79.7 79.3 79.3 89.5 82.2 83.0 91.7 94.8 3.5% 6.0%

Exhibit 11: Polymer spreads up QoQ (INR/kg): PE/PP/PVC spreads up 12.5%/11.6%/11.1% QoQ PE

80

PP

PVC

Naphtha 57.6 55.9 40.2 30.5 35.6 29.4 29.2 22.8 27.4 26.0 27.1 33.5 28.9 30.0 36.4 35.6 -2.3% 6.4%

PE 51.4 57.1 69.1 60.1 66.7 66.4 59.6 62.8 65.0 65.5 63.7 55.6 60.5 55.1 49.3 55.5 12.5% -0.2%

Simple Spreads PP 50.1 54.4 66.8 53.8 64.7 56.4 47.6 47.6 54.1 57.9 55.6 53.8 56.4 54.3 53.0 59.1 11.6% 9.8%

Exhibit 12: POY spreads up 11% QoQ; PSF spreads up 6.3% QoQ (INR/kg) POY

80

60

70

40

60

20

50 40

Source: Bloomberg, Company, MOSL

Exhibit 13: Petrol-diesel price difference (INR/liter)

PSF

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

0

Int. Spreads POY PSF 51.8 51.7 58.5 59.2 61.0 60.7 56.6 55.8 56.8 56.0 56.1 57.5 50.2 54.7 53.8 56.3 53.1 58.3 53.9 59.2 53.0 58.2 56.7 63.2 62.5 59.6 61.0 59.5 58.4 63.0 64.7 66.9 10.9% 6.3% 14.2% 5.8% Source: Company, MOSL

PVC 19.5 23.5 29.8 33.2 34.5 36.1 35.8 39.5 40.7 43.3 43.7 42.4 45.0 41.4 34.5 38.2 11.1% -9.8%

Source: Bloomberg, Company

Exhibit 14: Petrol/diesel gross margin trend (INR/liter)

35

Diesel

2.4 2.3 2.9 1.9 2.6 2.0 3.2 3.1 2.6 2.4 2.7 2.5 2.7 2.7 3.1 2.6 1.9 2.3 3.2 3.1 2.2 2.0 3.2 3.4

Petrol - Diesel price difference (INR/ltr)

Petrol

25 15

Dec-17

Jun-17

Dec-16

Jun-16

Dec-15

Jun-15

Dec-14

Jun-14

Jun-13

Dec-13

Jun-12

Dec-12

Dec-11

Jun-11

Dec-10

5

Source: IOCL, MOSL

April 2018

1QFY16

3QFY16

1QFY17

3QFY17

*4QFY18 gross margins are indicative

1QFY18

3QFY18

Source: IOCL, MOSL

248

March 2018 Results Preview | Sector: Oil & Gas

Exhibit 15: With almost nil subsidy, model ONGC’s net realization for 4QFY18 at USD68.1/bbl

RIL KG-D6

Gross Realization

GSPL 114 106 110

6 5 6 3QFY18

4QFY18

6 2QFY18

FY18

7 1QFY18

FY17

3Q

8 4QFY17

1Q

8 3QFY17

3Q

2QFY17

FY16

1Q

1QFY17

FY15

3Q

4QFY16

1Q

3QFY16

FY14

3Q

2QFY16

1Q

1QFY16

FY13

3Q

4QFY15

1Q

13 13 12 12 12 11 11 10 9 3QFY15

3Q

GAIL India

64 66 64 58 59 56 59 52 48 43 46 44 43 46 40 31 34 35 29 22 24 23 23 24 24 25 24 25 25 26 23 27

1QFY15

1Q

PLNG

97 95 96 101 103 102 100 91 94 86 87 90

97

2QFY15

Subsidy Burden

110 63 47 110 63 47 110 62 48 114 63 51 103 63 40 109 64 45 108 62 46 107 74 33 109 62 47 102 61 41 76 40 36 56 56 64 59 5 49 2 51 44 44 35 35 46 46 48 48 52 52 55 55 51 51 51 51 61 61 68 68

Net Realization

Exhibit 16: Expect higher LNG volumes in 4QFY18 (mmscmd) and stable production in RIL’s KG-D6

Source: Company, MOSL

Source: Company, MOSL

Exhibit 17: Expect RIL’s GRM at USD11.4/bbl in 4QFY18 (USD/bbl) Singapore GRM

8.7

8.3

2.9

3.5

5.8

4.8

10.1

10.4

1.5

2.4

7.3

10.6

11.5 3.5

4.3

Premium / (Disc) 11.5

10.8

10.1

3.0

6.5

5.0

1.0 8.6

6.3

8.0

6.3

8.0

7.8 5.1

5.0

RIL GRM 11.5

11.9

4.1

5.1

5.5

6.7

6.4

6.4

10.8

12.0 3.7

8.3

11.6

11.4

4.3

4.4

7.3

7.0

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: MOSL, Company

Exhibit 18: Lower GRMs for OMCs in 4QFY18 (USD/bbl)

5.3 6.1 4.6

7.2 6.5 6.2

4.9

7.6 8.0

4.3 5.9

8.0 5.3 8.9

5.0 7.7

6.4

4.6 4.3 3.2

6.1 6.8 10.0

7.5

8.0

BPCL

6.6

6.7 3.0

7.9

6.2 6.0

0.8 2.7

8.6 10.8

7.5 3.6

2.1

8.8

2.4

HPCL

(7.7) (1.0)

2.1 (2.0)

2.3 2.0

3.4

8.6

IOC

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: MOSL, Company

April 2018

249

March 2018 Results Preview | Sector: Oil & Gas

Aegis Logistics Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR)

AGIS IN 334.0 88 / 1 300 / 170

1,6,12 Rel Perf. (%)

7 / 7 / 22

CMP: INR263 

 Financial snapshot (INR b) Y/E March 2017 2018E 2019E 2020E Sales

39

52

67

87

EBITDA

2

3

5

6

Adj. PAT

1

2

3

4

Adj. EPS (INR)

4

6

10

12 28

EPS Gr.%

6

74

52

BV/Sh.INR

18

23

30

40

RoE (%)

21.7

30.7

35.9

35.0

RoCE (%)

18.5

24.6

30.3

31.3

Payout (%)

22.4

22.4

22.4

22.4

Valuation P/E (x)

73.0

41.9

27.6

21.5

P/BV (x)

14.6

11.5

8.7

6.6

EV/EBITDA (x)

43.5

32.3

18.4

14.2

0.3

0.5

0.7

0.9

Div. Yld (%)

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 7,393 -1.6 472 6.4 60 42 16 385 68 17.7 42 275 275 8.9 3.7

  

TP: INR303 (+15%)

Buy

AGIS is an attractive play on India’s rising LPG consumption. Recently commissioned Haldia LPG terminal will drive the next leg of growth for the LPG segment. Liquids segment is expected to remain a cash cow for the company and will grow in line with capacity addition. We estimate AGIS’ EBITDA at INR765m (+47% YoY, +7% QoQ), led by ramp-up of Haldia and Pipavav LPG terminal in 4QFY18. We estimate PAT at INR600m (+101% YoY, +12% QoQ) for 4QFY18. AGIS trades at 21.5x FY20E EPS of INR12.3 and 14.2x 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.

FY17 2Q 3Q 6,760 12,481 36.3 136.0 462 605 6.8 4.8 61 61 42 38 15 9 374 515 99 93 26.4 18.1 26 46 250 376 250 376 -6.2 25.5 3.7 3.0

4Q 12,678 190.1 519 4.1 60 41 14 433 112 25.7 24 298 298 -5.6 2.3

1Q 8,560 15.8 566 6.6 57 34 16 491 23 4.6 29 440 440 59.8 5.1

FY18E 2Q 3Q 12,409 14,421 83.6 15.5 678 717 5.5 5.0 63 90 34 49 14 14 595 592 36 28 6.0 4.7 39 29 521 535 521 535 108.5 42.5 4.2 3.7

4QE 16,304 28.6 765 4.7 86 53 19 644 39 6.0 6 600 600 101.5 3.7

FY17

(INR m) FY18E

39,311 77.6 2,057 5.2 241 162 54 1,708 372 21.8 137 1,198 1,198 5.7 3.0

51,694 31.5 2,727 5.3 296 170 62 2,323 125 5.4 103 2,095 2,095 74.9 4.1

250

March 2018 Results Preview | Sector: Oil & Gas

BPCL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR)

CMP: INR426

BPCL IN 1966.9 838 / 13 550 / 400



-2 / -17 / -11



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



Sales



1,6,12 Rel Perf. (%)

2,013

2,368

2,616

2,738

EBITDA

135

132

134

150

Adj. PAT

95

79

81

91



Adj. EPS (INR)

48.3

40.0

41.2

46.5

EPS Gr.%

97.8

-2.8

-14.9

16.3



BV/Sh.INR

156.7

175.8

204.5

236.7



RoE (%)

32.4

24.1

21.6

21.1

RoCE (%)

16.2

12.6

11.7

12.1

Payout (%)

52.4

52.2

30.4

30.7

P/E (x)

8.8

10.7

10.3

9.2

P/BV (x)

2.7

2.4

2.1

1.8

EV/EBITDA (x)

8.4

8.9

8.8

7.9

Div. Yld (%)

5.1

4.2

2.5

2.9

We expect BPCL’s core earnings to improve YoY/QoQ, led by strong GRMs and better marketing margins in 4QFY18. We model nil subsidy-sharing for OMCs; subsidy in 4QFY18 would be entirely borne by the government. We peg BPCL’s refinery throughput at 7.5mmt for 4QFY18 v/s 7.3mmt in 3QFY18 and 6.0mmt in 4QFY17. We model GRM of USD5.3/bbl and total inventory gains of INR5.9b for BPCL in 4QFY18. We expect BPCL to report adjusted EBITDA of INR32.1b (+45% YoY, flat QoQ) in 4QFY18. We estimate PAT at INR16.5b (-10% YoY, -23% QoQ) for 4QFY18. BPCL trades at 9.2x FY20E EPS of INR46.5 and 1.8x FY20E BV (adjusted for investments), with ~5% dividend yield. Maintain Buy.

 (a) Inventory and forex change impact, (b) GRM, (c) Kochi refinery expansion and (d) update on Mozambique/Brazil E&P blocks.

Standalone - Quarterly Earning Model Y/E March

April 2018

Buy

Key issues to watch for

Valuation

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) EBITDA adj. for inventory and one-offs Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Key Assumptions Refining throughput (mmt) Reported GRM (USD/bbl) Marketing sales volume excld exports (mmt) Marketing GM incld inv (INR/litre) E: MOSL Estimates

TP: INR554 (+30%)

1Q 469,387 -9.9 428,532 40,855 8.7 28,025 4,315 1,111 1,986 37,415 11,210 30.0 26,205 26,205 11.0 5.6

(INR Million) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 446,927 535,427 570,365 571,258 533,252 606,164 616,099 2,022,106 2,326,772 -3.4 15.1 31.0 21.7 19.3 13.2 8.0 7.3 15.1 433,257 500,775 548,242 559,008 497,976 574,281 583,954 1,910,807 2,215,219 13,670 34,652 22,123 12,250 35,276 31,882 32,145 111,299 111,553 3.1 6.5 3.9 2.1 6.6 5.3 5.2 5.5 4.8 17,300 20,112 23,001 26,345 28,436 15,922 26,270 88,438 96,973 4,524 4,836 5,238 5,892 6,404 6,774 7,303 18,913 26,373 1,024 1,349 1,475 1,789 2,348 2,002 2,400 4,959 8,539 10,367 4,024 6,624 6,566 8,004 7,274 2,358 23,001 24,202 18,489 33,978 22,033 11,136 34,528 30,380 24,800 110,428 100,843 5,437 9,771 3,616 3,690 10,952 8,943 8,258 30,035 31,843 29.4 28.8 16.4 33.1 31.7 29.4 33.3 27.2 31.6 13,052 22,719 18,417 7,446 23,576 21,437 16,542 80,393 69,001 13,052 23,147 18,417 7,446 23,576 21,437 16,542 80,393 69,001 26.2 49.8 -13.0 -71.6 80.6 -7.4 -10.2 13.9 -14.2 2.9 4.3 3.2 1.3 4.4 3.5 2.7 4.0 3.0

6.2 6.1

6.4 3.1

6.8 5.9

6.0 6.0

6.4 4.9

7.0 8.0

7.3 7.9

7.5 5.3

25.4 5.3

28.2 7.2

9.7 4.8

8.9 3.3

9.8 4.4

9.3 4.2

10.0 3.1

9.8 4.3

10.7 3.8

9.6 4.1

37.7 3.7

40.1 3.7

251

March 2018 Results Preview | Sector: Oil & Gas

GAIL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

GAIL IN 2249.4 741 / 11 389 / 260 -1 / -5 / 2

CMP: INR329 

 Financial snapshot (INR b) Y/E March 2017 2018E 2019E 2020E Sales

480.7

529.8

547.4

619.8

EBITDA

63.2

80.5

85.7

91.7

Adj. PAT

38.2

47.3

51.4

55.4

Adj. EPS (INR)

17.0

21.0

22.9

24.6

EPS Gr. (%)

71.4

23.9

8.8

7.7

BV/Sh.(INR)

169.6

182.8

197.1

212.6

RoE (%)

9.6

11.9

12.0

12.0

RoCE (%)

8.7

10.2

10.3

10.3

50.1

37.3

37.3

37.3

19.4

15.7

14.4

13.4

P/BV (x)

1.9

1.8

1.7

1.5

EV/EBITDA (x)

8.3

8.9

8.4

7.8

Div. Yield (%)

2.0

2.0

2.2

2.3

Payout (%) Valuations P/E (x)

 



TP: INR285 (-14%)

We expect GAIL to report adj. PAT of INR11.9b (+14% YoY and -5% QoQ). We model nil subsidy sharing for GAIL in 4QFY18 (v/s nil in 4QFY17 and 3QFY18). We expect marginal improvement in gas transmission led by higher LNG import as well as domestic gas production. We estimate EBITDA at INR21b in 4QFY18 v/s INR15b in 4QFY17 and INR19.7b in 3QFY18. Segmental EBIT (pre-subsidy) is expected to be INR19b (+27% YoY), led by a turnaround in petchem division profitability and likely higher gas transmission profitability. GAIL trades at 13.4x FY20E EPS of INR24.6. Maintain Sell.

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.

Quarterly Performance Y/E March Net Sales Change (%) EBITDA % of Net Sales Depreciation Interest Other Income Extraordinary item* PBT Tax Rate (%) PAT Adj PAT Change (%) EPS (INR) Key Assumptions Gas Trans. volume (mmsmd) Petchem sales ('000MT) E: MOSL Estimates

April 2018

Sell

(INR Million) FY17 FY18E FY17 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 106,866 118,582 121,079 134,217 114,065 124,097 144,143 147,458 480,743 -14.6 -15.8 -9.5 15.4 6.7 4.7 19.0 9.9 -6.9 15,732 15,155 17,015 15,250 18,994 20,694 19,699 21,105 63,152 14.7 12.8 14.1 11.4 16.7 16.7 13.7 14.3 13.1 3,354 3,563 3,579 3,471 3,451 3,425 3,668 3,724 13,968 1,774 1,198 1,601 220 1,014 926 479 1,019 4,794 1,362 3,361 3,002 4,981 1,158 2,929 3,027 1,757 12,705 4,893 0 0 -7,880 0 0 0 0 -2,987 16,858 13,755 14,836 8,659 15,687 19,273 18,580 18,120 54,108 3,506 4,508 5,007 6,058 5,431 6,177 5,957 6,161 19,079 20.8 32.8 33.7 70.0 34.6 32.0 32.1 34.0 35.3 13,352 9,247 9,829 2,602 10,256 13,096 12,622 11,959 35,029 8,459 9,247 9,829 10,482 10,256 13,096 12,622 11,959 38,016 99.4 109.9 48.0 36.1 21.3 41.6 28.4 14.1 65.4 3.8 4.1 4.4 4.7 4.6 5.8 5.6 5.3 16.9 96 110

101 136

103 146

102 186

100 131

106 175

109 176

110 158

100 578

FY18E 529,763 10.2 80,491 15.2 14,267 3,437 8,872 0 71,660 23,726 33.1 47,934 47,934 26.1 21.3 106 640

252

March 2018 Results Preview | Sector: Oil & Gas

Gujarat Gas Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR)

GUJGA IN 137.7 116 / 2 974 / 722

1,6,12 Rel Perf. (%)

-1 / -8 / 0

CMP: INR844 

 Financial snapshot (INR b) Y/E March 2017 2018E 2019E 2020E Sales

50.9

62.4

78.3

88.8

EBITDA

7.4

8.9

11.0

12.8

PAT

2.2

3.0

4.8

6.1

EPS (INR)

16.1

21.6

34.7

44.3

EPS Gr. (%)

7.0

34.3

61.1

27.5

BV/Sh.(INR)

119.5

137.0

165.2

201.2

RoE (%)

14.0

16.8

23.0

24.2

RoCE (%)

14.4

15.9

20.4

23.8

Payout (%)

18.7

18.7

18.7

18.7

52.6

39.1

24.3

19.1

Valuations P/E (x) P/BV (x)

   

TP: INR1,066 (+26%)

GUJGA has seen pick up in industrial volumes in 4QFY18. We expect volume of 6.6mmscmd, and EBITDA/scm at INR3.6 led by price hike taken in Dec 2017 in industrial segment. We expect 4QFY18 PNG industrial/commercial volumes at 4.7mmscmd (+9% YoY, +4% QoQ), and PNG household volumes at 0.5mmscmd (-4% YoY, +2% QoQ). We expect CNG volumes at 1.3mmscmd (+9% YoY, +4% QoQ). We expect GUJGA to report EBITDA of INR2.1b (+46% YoY, +7% QoQ) for 4QFY18. We expect GUJGA to report PAT of INR713m (+115% YoY, +19% QoQ). We model total volumes of 6.2/7.1/8.0mmscmd and EBITDA/scm of INR3.9/4.3/4.4 in FY18/FY19/FY20. The stock trades at 19.1x FY20E EPS of INR44.3. Maintain Buy.

Key issues to watch for 7.1

6.2

5.1

4.2

EV/EBITDA (x)

18.6

15.6

12.2

10.2

Div. Yield (%)

0.3

0.4

0.6

0.8

 PNG and CNG volumes  EBITDA/scm  Gas cost

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT YoY Change (%) Margins (%) Total volume (mmscmd) CNG PNG - Industrials/commercial PNG - Households EBITDA (INR/scm) E: MOSL Estimates

April 2018

Buy

1Q 12,247 -26.7 2,173 17.7 632 534 62 1,070 321 30.0 748 27.7 6.1 5.1 1.1 3.5 0.4 4.7

FY17 2Q 3Q 12,370 12,309 -21.3 -17.1 2,094 1,709 16.9 13.9 645 653 541 539 52 75 959 593 265 170 27.6 28.6 695 423 150.3 31.5 5.6 3.4 5.2 5.3 1.2 1.2 3.6 3.7 0.4 0.5 4.4 3.5

4Q 14,002 1.6 1,463 10.4 643 476 71 415 84 20.2 331 -63.9 2.4 6.1 1.2 4.3 0.6 2.7

1Q 14,780 20.7 2,698 18.3 666 496 78 1,615 571 35.4 1,044 39.4 7.1 6.1 1.3 4.4 0.4 4.8

FY18E 2Q 3Q 13,914 15,713 12.5 27.7 2,027 1,999 14.6 12.7 683 688 499 487 89 91 934 915 323 315 34.6 34.4 611 600 -12.1 41.9 4.4 3.8 5.7 6.3 1.3 1.3 4.0 4.5 0.5 0.5 3.8 3.5

(INR Million) FY17 FY18E 4QE 17,967 28.3 2,138 11.9 718 472 116 1,065 351 33.0 713 115.3 4.0 6.6 1.3 4.7 0.5 3.6

50,927 -16.6 7,440 14.6 2,672 2,090 371 3,050 839 27.5 2,210 7.0 4.3 5.4 1.2 3.8 0.5 3.8

62,374 22.5 8,862 14.2 2,754 1,954 374 4,528 1,560 34.5 2,968 34.3 4.8 6.2 1.3 4.4 0.5 3.9

253

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Gujarat State Petronet Bloomberg

GUJS IN 563.0

Equity Shares (m) M. Cap. (INR b)/(USD b)

104 / 2

52-Week Range (INR)

236 / 154

CMP: INR185 

-6 / -12 / 0



Y/E March

2017 2018E 2019E 2020E



Sales

1,6,12 Rel Perf. (%) Financial snapshot (INR b) 10.3

13.4

14.4

14.5

EBITDA

8.9

11.7

12.5

12.5

Adj. PAT

5.0

7.1

7.5

7.8

Adj. EPS (INR)

8.8

12.7

13.3

13.9

EPS Gr. (%)

11.5

43.8

4.9

4.5

BV/Sh.(INR)

79.8

89.6 100.0 110.9

RoE (%)

11.6

15.0

14.0

13.2

RoCE (%)

9.9

12.5

11.7

11.2

22.6

22.2

22.0

21.9

21.0

14.6

13.9

13.3

Payout (%)





TP: INR191 (-17%)

Neutral

We expect GUJS to report net sales of INR3.6b and PAT of INR2.0b (+60% QoQ, +12% YoY). We model transmission volume at 35mmscmd (+50% YoY, +4% QoQ), led by increased gas demand from power sector, and transmission tariff at INR1,127/mscm (-6% YoY, flat QoQ). GUJS had won the bids for three cross-country pipelines (MehsanaBhatinda, Bhatinda-Srinagar, Mallavaram-Bhilwara). We await clarity on the current status, timelines and other details regarding these pipelines. We build in gas transmission volumes of 31.7mmscmd for FY18 and 32mmscmd for FY19/20, and model tariff at INR1,200/mscm for FY19/20. The stock trades at 13.3x FY20E EPS of INR13.9. Maintain Neutral.

Valuations P/E (x) P/BV (x)

2.3

2.1

1.8

1.7

EV/EBITDA (x)

11.9

8.8

7.7

7.2

Div. Yield (%)

0.9

1.3

1.4

1.4

Quarterly Performance Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT Adj. PAT Change (%) EPS (INR) Transmission Vol. (mmscmd) Implied adj. tariff (INR/mscm) E: MOSL Estimates

April 2018

1Q 2,579 -0.5 2,330 90.4 2.6 430 167 147 1,881 668 35.5 1,213 1,213 8 2.2 25.1 1,073

Key issues to watch for  Transmission volumes and tariffs  Progress on the three pipelines  Commissioning of GSPC/Adani’s Mundra terminal

FY17 2Q 2,564 -0.7 2,245 87.6 -3.8 436 148 304 1,965 666 33.9 1,298 1,298 7 2.3 24.6 1,079

3Q 2,668 3.4 2,275 85.3 0.6 465 165 177 1,822 636 34.9 1,186 1,186 -9 2.1 26.2 1,095

4Q 2,446 5.5 2,013 82.3 -1.6 460 116 273 1,710 441 25.8 1,270 1,270 28 2.3 23.4 1,197

1Q 2,963 14.9 2,760 93.1 18.4 430 106 164 2,389 864 36.2 1,525 1,525 26 2.7 26.9 1,157

FY18E 2Q 3,348 30.6 2,855 85.3 27.2 438 90 278 2,605 836 32.1 1,770 1,770 36 3.1 31.6 1,112

(INR Million) FY17 FY18E 3Q 3,502 31.3 2,971 84.8 30.6 442 55 121 2,595 779 30.0 1,816 1,816 53 3.2 33.5 1,123

4QE 3,611 47.6 3,077 85.2 52.8 460 72 357 2,902 871 30.0 2,031 2,031 60 3.6 35.0 1,127

10,256 1.8 8,864 86.4 -0.5 1,791 596 901 7,378 2,411 32.7 4,966 4,966 7 8.8 24.8 1,111

13,425 30.9 11,663 86.9 31.6 1,770 323 920 10,490 3,349 31.9 7,142 7,142 44 12.7 31.7 1,130

254

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

HPCL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

HPCL IN 1525.5 539 / 8 493 / 324 -4 / -24 / -9

CMP: INR353  

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



Sales

1,870 2,202 2,402 2,507



EBITDA

105.8 104.8 100.2 114.8 

Adj. PAT

62.1

60.3

49.6

57.7

Adj. EPS (INR)

40.7

39.5

32.5

37.8

EPS Gr. (%)

66.6

(2.9) (17.8)

16.5



133.4 147.5 168.6 193.1



BV/Sh.(INR) RoE (%)

32.4

28.2

20.6

20.9

RoCE (%)

18.8

15.1

10.8

11.1

Payout (%)

67.4

64.3

35.1

35.1

P/E (x)

8.7

8.9

10.9

9.3

P/BV (x)

2.6

2.4

2.1

1.8

EV/EBITDA (x)

6.7

7.4

8.1

7.3

Div. Yield (%)

6.5

6.2

2.8

3.2

Valuations

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) EBITDA adj. for inventory and one-offs Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT YoY Change (%) Margins (%) Key Assumptions Refining throughput (mmt) Core GRM (USD/bbl) Marketing sales volume incl exports (mmt) Marketing GM incld inv (INR/litre) E: MOSL Estimates

April 2018

1Q 448,495 -12.9 411,534 36,961 8.2 21,567 6,108 1,250 2,665 32,268 10,534 32.6 21,734 72.5 4.8

TP: INR536 (+52%)

Buy

We expect HPCL’s core earnings to decline YoY/QoQ, led by lower core GRMs in 4QFY18. We model nil subsidy-sharing for OMCs; subsidy in 4QFY18 would be entirely borne by the government. We peg HPCL’s refinery throughput at 4.6mmt for 4QFY18 v/s 4.6mmt in 4QFY17 and 4.5mmt in 3QFY18. We model GRM of USD4.6/bbl and total inventory gains of INR5.5b for HPCL in 4QFY18. We expect HPCL to report adjusted EBITDA of INR22.4b (-21% YoY, +33% QoQ) in 4QFY18. We estimate PAT at INR14.2b (-22% YoY, -27% QoQ) for 4QFY18. HPCL trades at 9.3x FY20E EPS of INR37.8 and 1.8x FY20E BV (adjusted for investments), with ~5% dividend yield. Maintain Buy.

Key issues to watch for  GRM  Impact of forex and inventory change

(INR Million) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 421,025 485,556 515,248 534,685 475,226 574,743 617,314 1,870,324 2,201,967 0.0 12.9 25.3 19.2 12.9 18.4 19.8 5.3 17.7 408,416 455,903 486,388 518,405 446,170 543,157 589,442 1,762,241 2,097,175 12,609 29,653 28,860 16,280 29,056 31,585 27,871 108,083 104,792 3.0 6.1 5.6 3.0 6.1 5.5 4.5 5.8 4.8 18,593 18,398 28,203 32,164 21,183 16,873 22,394 86,761 92,613 6,160 6,336 6,749 6,671 6,804 6,799 7,068 25,353 27,342 1,164 530 2,268 1,430 1,563 899 1,581 5,212 5,473 5,469 2,878 4,047 5,703 5,194 4,743 2,105 15,060 17,744 10,755 25,666 23,890 13,883 25,882 28,631 21,326 92,578 89,722 3,741 8,143 5,702 4,636 8,535 9,134 7,108 28,120 29,412 34.8 31.7 23.9 33.4 33.0 31.9 33.3 30.4 32.8 7,013 17,523 18,188 9,247 17,347 19,497 14,218 64,458 60,310 -356.9 60.9 24.9 -57.5 147.4 11.3 -21.8 82.5 -6.4 1.7 3.6 3.5 1.7 3.7 3.4 2.3 3.4 2.7

4.5 4.8

4.0 4.2

4.7 3.9

4.6 8.5

4.5 8.8

4.6 5.6

4.5 6.1

4.6 4.6

17.8 5.4

18.3 6.3

8.9 4.7

8.0 3.5

9.3 3.9

8.9 4.0

9.3 3.2

8.7 3.8

9.4 3.1

9.2 4.3

35.1 4.0

36.6 3.6

255

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Indraprastha Gas Bloomberg

IGL IN 700.0

Equity Shares (m) M. Cap. (INR b)/(USD b)

195 / 3

52-Week Range (INR)

344 / 194

1,6,12 Rel Perf. (%)

-7 / -11 / 26

  

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Sales

38.1

45.5

51.5

57.7

9.6

10.7

12.4

13.8

EBITDA

CMP: INR278

Adj. PAT

6.2

6.6

7.7

8.8

Adj. EPS (INR)

8.8

9.4

11.1

12.5

EPS Gr. (%)

46.9

6.9

17.7

13.2

BV/Sh.(INR)

41.8

48.9

57.6

66.6

RoE (%)

21.0

20.7

20.8

20.2

RoCE (%)

19.8

19.6

19.8

19.4

Payout (%)

22.7

21.3

18.1

24.0

31.7

29.6

25.2

22.2

6.7

5.7

4.8

4.2

EV/EBITDA (x)

19.6

17.5

14.7

12.8

Div. Yield (%)

0.7

0.7

0.7

1.1

  

TP: INR416 (+49%)

Buy

We expect IGL to report volumes of 5.46mmscmd, and assume EBITDA/scm at INR5.6 for 4QFY18. We expect 4QFY18 CNG volumes at 4.07mmscmd (+12% YoY, +5% QoQ) and PNG volumes at 1.39mmscmd (+17% YoY, +1% QoQ). We expect IGL to report EBITDA of INR2.8b (+14% YoY, +5% QoQ) for 4QFY18. We expect IGL to report PAT of INR1.7b (+29% YoY, +4% QoQ). We model total volumes of 5.2/5.8/6.5mmscmd and EBITDA/SCM at ~INR5.9/SCM in FY18/FY19/FY20. The stock trades at 22.2x FY20E EPS of INR12.5. Maintain Buy.

Valuation P/E (x) P/BV (x)

Quarterly performance Y/E MARCH Net Sales Change (%) EBITDA EBITDA (Rs/scm) % of Net Sales % Change Depreciation Interest Other Income PBT before EO EO PBT after EO Tax Rate (%) PAT Adj. PAT EPS (INR) Gas Volumes (mmscmd) CNG PNG Total YoY Change (%) CNG PNG Total E: MOSL Estimates

April 2018

1Q 8,970 -0.3 2,570 6.5 28.7 32.7 466 0 106.5 2,211 0 2,211 731 33.1 1,480 1,480 2.1

Key issues to watch for  Increase in volumes  EBITDA/SCM

FY17 2Q 9,624 -0.3 2,575 6.1 26.8 37.0 483 0 251.4 2,344 -167 2,177 735 33.8 1,442 1,552 2.2

3Q 9,467 2.1 2,554 6.0 27.0 38.0 479 0 152.4 2,227 -83 2,144 696 32.5 1,448 1,504 2.1

4Q 10,019 13.1 2,422 5.6 24.2 36.2 244 12 208.8 2,375 -300 2,075 734 35.4 1,341 1,535 2.2

1Q 10,492 17.0 2,773 6.2 26.4 7.9 439 4 178.8 2,509 0 2,509 897 35.7 1,613 1,613 2.3

FY18E 2Q 3Q 11,261 11,839 17.0 25.1 2,816 2,631 5.9 5.4 25.0 22.2 9.4 3.0 450 453 4 4 249.7 325.5 2,612 2,499 0 0 2,612 2,499 923 840 35.3 33.6 1,689 1,659 1,689 1,659 2.4 2.4

(INR Million) FY17 FY18E 4QE 12,226 22.0 2,764 5.6 22.6 14.1 486 0 336.2 2,615 0 2,615 889 34.0 1,726 1,726 2.5

38,081 3.5 10,121 6.1 26.6 35.9 1,671 12 719.1 9,157 -550 8,607 2,896 33.7 5,711 6,076 8.7

45,818 20.3 10,984 5.8 24.0 8.5 1,828 11 1,090.2 10,235 0 10,235 3,549 34.7 6,686 6,686 9.6

3.31 1.02 4.34

3.47 1.11 4.58

3.48 1.13 4.61

3.65 1.19 4.84

3.70 1.20 4.90

3.91 1.30 5.22

3.89 1.37 5.26

4.07 1.39 5.46

3.48 1.11 4.59

3.90 1.32 5.21

11.7 17.7 13.0

11.9 13.3 12.3

13.2 20.1 14.8

15.7 25.8 18.1

11.8 17.2 13.1

12.9 17.6 14.0

11.9 21.2 14.2

11.6 16.8 12.9

13.2 19.2 14.6

12.0 18.2 13.5

256

March 2018 Results Preview | Sector: Oil & Gas

IOC Bloomberg

IOCL IN 9478.7

Equity Shares (m) M. Cap. (INR b)/(USD b)

1650 / 25

52-Week Range (INR)

231 / 165

1,6,12 Rel Perf. (%)

-7 / -20 / -20

Y/E MARCH

2017 2018E 2019E 2020E

Sales

3,553 4,320 4,788 5,337

EBITDA

340

366

333

386

Adj. PAT

198

196

167

205

21

21

18

22

EPS Gr. (%)

101

-1

-15

23

BV/Sh.(INR)

108

116

128

142

RoE (%)

21

18

14

16

RoCE (%)

15

13

11

13

64.1

62.9

34.4

34.4

8.3

8.4

9.9

8.0

Payout (%) Valuations P/E (x) P/BV (x)

1.6

1.5

1.4

1.2

EV/EBITDA (x)

6.6

5.9

6.3

5.3

Div. Yield (%)

6.4

7.0

3.0

3.7

Standalone - Quarterly Earning Model Y/E March

  

Financial snapshot (INR b)

Adj. EPS (INR)

CMP: INR174

   

TP: INR261 (+50%)

Buy

We expect IOCL’s core earnings to improve YoY, led by strong GRMs and healthy marketing margins in 4QFY18. We model nil subsidy-sharing for OMCs; subsidy in 4QFY18 would be entirely borne by the government. We peg IOCL’s refinery throughput at 17.0mmt for 4QFY18 v/s 17.1mmt in 4QFY17 and 18.2mmt in 3QFY18 –Paradip refinery was under shutdown in Feb-Mar 2018. We model GRM of USD5.6/bbl and total inventory gains of INR14b for IOCL in 4QFY18. We expect IOCL to report adjusted EBITDA of INR75b (-10% YoY, +8% QoQ) in 4QFY18. We estimate PAT at INR48b (+30% YoY, -39% QoQ) in 4QFY18. IOCL trades at 8.0x FY20E EPS of INR22 and at 1.2x FY20E BV. Dividend yield is 6-7%. Maintain Buy.

Key issues to watch for    

Utilization of Paradip refinery GRM Capex plans Forex/inventory changes

(INR Million) FY17 FY18E

FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE Net Sales 856,553 800,435 931,019 1,003,375 1,054,342 905,667 1,106,669 1,290,638 3,591,382 4,357,317 YoY Change (%) -15.3 -5.1 13.0 28.0 23.1 13.1 18.9 28.6 3.7 21.3 Total Expenditure 720,652 748,519 848,541 959,289 1,002,427 831,935 973,982 1,201,638 3,277,001 4,009,982 EBITDA 135,901 51,916 82,478 44,086 51,915 73,732 132,687 88,999 314,381 347,335 Margins (%) 15.9 6.5 8.9 4.4 4.9 8.1 12.0 6.9 8.8 8.0 EBITDA adj. for inventory and one-offs 65,840 62,044 71,745 83,756 92,335 69,172 69,657 75,004 283,385 306,169 Depreciation 14,350 15,048 15,541 17,290 17,213 16,970 17,151 17,145 62,230 68,479 Interest 6,800 6,147 9,967 11,541 7,180 7,726 6,549 6,860 34,454 28,315 Other Income 5,637 14,347 4,938 20,593 12,276 5,878 13,534 7,518 45,515 39,206 PBT 120,388 45,069 61,907 35,849 67,878 54,914 122,522 72,513 263,212 317,827 Tax 37,698 13,850 21,958 -1,358 22,393 17,951 43,690 24,169 72,148 108,203 Rate (%) 31.3 30.7 35.5 -3.8 33.0 32.7 35.7 33.3 27.4 34.0 Reported PAT 82,690 31,219 39,949 37,206 45,485 36,963 78,832 48,345 191,064 209,625 Adj PAT 82,690 31,219 39,949 37,206 26,767 36,963 78,832 48,345 191,064 191,104 YoY Change (%) 35.2 -456.2 52.3 85.5 -67.6 18.4 97.3 29.9 84.9 0.0 Margins (%) 9.7 3.9 4.3 3.7 2.5 4.1 7.1 3.7 5.3 4.4 Key Assumptions Refining throughput (mmt) 16.1 15.6 16.4 17.1 17.5 16.1 18.2 17.0 65.2 68.8 Core GRM (USD/bbl) 3.6 4.2 5.1 6.9 6.6 6.9 7.9 5.6 6.4 9.1 Domestic sale of refined products (mmt) 19.3 17.3 19.0 18.5 19.8 18.0 19.7 19.3 74.1 76.8 Marketing GM/litre net of inv gain (INR/litre) 3.5 3.8 4.0 4.0 5.1 3.9 2.9 3.7 3.8 3.9 E: MOSL Estimates

April 2018

257

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Mahanagar Gas Bloomberg

MAHGL IN 89.3

Equity Shares (m) M. Cap. (INR b)/(USD b)

90 / 1

52-Week Range (INR)

1345 / 875

1,6,12 Rel Perf. (%)

-1 / -12 / 1

Y/E MARCH

2017 2018E 2019E 2020E

Sales

20.3

23.0

24.5

27.1

6.4

8.1

7.8

7.9

Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR)

  

Financial Snapshot (INR b)

EBITDA

CMP: INR1,012

3.9

5.0

4.8

4.9

44.0

55.9

53.9

54.6

26.5

27.0

-3.6

1.2

  

TP: INR1,228 (+21%)

Buy

We expect MGL to report volumes of 2.79mmscmd, and assume EBITDA/scm at INR8.0 for 4QFY18. We expect 4QFY18 CNG volumes at 2.01mmscmd (+5% YoY, flat QoQ) and PNG volumes at 0.77mmscmd (+11% YoY, +5% QoQ). We expect MGL to report EBITDA of INR2.0b (+22% YoY, -1% QoQ) for 4QFY18. We expect MGL to report PAT of INR1.3b (+26% YoY, +1% QoQ). We model total volumes of 2.70/2.86/3.10mmscmd and EBITDA/SCM at INR8.2/7.5/7 in FY18/FY19/FY20. The stock trades at 18.6x FY20E EPS of INR54.6. Maintain Buy.

188.4 210.5 231.7 253.3

RoE (%)

24.5

28.0

24.4

22.5

RoCE (%)

24.3

27.8

24.2

22.4

Payout (%)

60.5

60.5

60.5

60.5

23.0

18.1

18.8

18.6

5.4

4.8

4.4

4.0

EV/EBITDA (x)

13.7

10.7

10.7

10.3

Div. Yield (%)

2.2

2.8

2.7

2.7

Valuation P/E (x) P/BV (x)

Key issues to watch for  Increase in volumes  EBITDA/SCM

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA EBITDA/SCM Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Sales Volumes (mmscmd) CNG PNG - Domestic PNG - Industry/ Commercial PNG - Total Total Volumes E: MOSL Estimates

April 2018

1Q 4,834 -5.9 3,311 1,524 6.7 31.5 216 5 123 1,425 498 34.9 927 927 19.1 19.2 1.86 0.29 0.35 0.64 2.50

FY17 2Q 5,209 -3.4 3,594 1,615 6.8 31.0 231 1 150 1,533 511 33.3 1,022 1,022 40.9 19.6 1.93 0.29 0.37 0.67 2.60

3Q 5,043 -2.1 3,372 1,672 7.1 33.1 247 5 124 1,544 554 35.9 990 990 30.2 19.6

4Q 5,253 3.0 3,622 1,631 6.9 31.1 257 -1 130 1,505 510 33.9 995 995 17.9 18.9

1Q 5,309 9.8 3,276 2,033 8.7 38.3 246 2 120 1,904 661 34.7 1,243 1,243 34.1 23.4

1.88 0.31 0.37 0.68 2.56

1.92 0.32 0.37 0.70 2.62

1.89 0.32 0.36 0.68 2.57

FY18E 2Q 5,338 2.5 3,335 2,003 8.1 37.5 259 0 139 1,883 635 33.7 1,248 1,248 22.1 23.4 1.99 0.33 0.38 0.71 2.70

(INR Million) FY17 FY18E 3Q 5,814 15.3 3,805 2,009 8.0 34.6 268 0 141 1,883 643 34.1 1,240 1,240 25.2 21.3

4QE 6,601 25.7 4,603 1,998 8.0 30.3 292 5 197 1,898 643 33.9 1,255 1,255 26.1 19.0

20,340 -2.1 13,898 6,442 6.9 31.7 951 10 527 6,007 2,072 34.5 3,934 3,934 26.5 19.3

23,046 13.3 14,995 8,052 8.2 34.9 1,064 7 597 7,577 2,582 34.1 4,995 4,995 27.0 21.7

2.01 0.34 0.39 0.73 2.74

2.01 0.38 0.39 0.77 2.79

1.90 0.30 0.37 0.67 2.57

1.98 0.34 0.38 0.72 2.70

258

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

MRPL Bloomberg

MRPL IN 1752.7

Equity Shares (m) M. Cap. (INR b)/(USD b)

196 / 3

52-Week Range (INR)



146 / 106

1,6,12 Rel Perf. (%)

-3 / -18 / -8

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

CMP: INR112

 

432.1 475.1 518.8 532.4

TP: INR119 (+7%)

Reuters Singapore’s GRM is up +9% YoY (-3% QoQ) at USD7.0/bbl. We model MRPL’s GRM at USD5.2/bbl (v/s USD6.8/bbl in 3QFY18 and USD8.1/bbl in 4QFY17). We expect refinery throughput at 4.1mmt v/s 4.5mmt in 3QFY18 and 4.2mmt in 4QFY17. We expect MRPL to report EBITDA of INR7.5b (v/s INR17.5b in 3QFY18). We estimate adjusted PAT at INR3.5b (v/s INR9.7b in 3QFY18). For MRPL, we model GRM of USD6.4/bbl in FY19/20. The stock trades at 9x FY20E EPS of INR12.4 and EV of 4.4x FY19E EBITDA. Maintain Neutral.

EBITDA

47.1

39.9

39.2

40.2

Adj. PAT

25.9

20.5

20.0

21.7

Adj. EPS (INR)

14.8

11.4

12.4

(2.5)

8.3

BV/Sh.(INR)

11.7 (20.7) 95.1 (20.7) 57.5 66.4

75.2

84.7

RoE (%)

31.4

18.9

16.1

15.5

Key issues to watch for

RoCE (%)

19.6

13.7

13.0

13.2

Payout (%)

34.7

23.4

23.4

23.4

 GRM  Forex fluctuations  Inventory changes

P/E (x)

7.6

9.5

9.8

9.0

P/BV (x)

1.9

1.7

1.5

1.3

EV/EBITDA (x)

5.1

5.3

5.0

4.4

Div. Yield (%)

5.4

2.1

2.0

2.2

EPS Gr. (%)

Valuation

Standalone - Quarterly Earning Model Y/E March

Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Key Assumptions Refining throughput (mmt) Core GRM (USD/bbl) E: MOSL Estimates

April 2018

1Q 84,288 -25.5 12,206 14.5 1,703 1,459 2,295 11,340 0 11,340 4,155 37 7,185 7,185 36.0 8.5 3.7 5.3



Neutral

FY17 2Q 3Q 4Q 1Q 99,690 114,753 133,349 102,624 -2.5 30.1 43.5 21.8 7,855 11,476 15,540 5,827 7.9 10.0 11.7 5.7 1,681 1,702 1,703 1,637 1,115 1,395 1,219 1,074 926 636 375 204 5,984 9,015 12,993 3,320 0 0 -15,973 0 5,984 9,015 28,966 3,320 1,826 3,355 9,542 980 31 37 33 30 4,159 5,660 19,424 2,340 4,159 5,660 8,713 2,340 -146.5 91.8 -35.5 -67.4 4.2 4.9 6.5 2.3 4.0 5.5

4.4 5.1

4.2 8.1

4.0 7.1

(INR Million) FY18E FY17 FY18E 2Q 3Q 4QE 90,965 141,020 140,458 432,079 475,068 -8.8 22.9 5.3 9.0 9.9 9,082 17,495 7,495 47,076 39,900 10.0 12.4 5.3 10.9 8.4 1,701 1,720 1,767 6,788 6,825 1,053 1,159 1,135 5,188 4,422 828 202 593 4,232 1,827 7,156 14,819 5,185 39,332 30,480 259 0 0 -15,973 259 6,898 14,819 5,185 55,305 30,221 2,118 5,110 1,728 18,877 9,936 31 34 33 34 33 4,780 9,709 3,457 36,428 20,285 4,959 9,709 3,457 25,907 20,459 19.2 71.5 -60.3 98.3 -21.0 5.5 6.9 2.5 6.0 4.3 3.5 5.3

4.5 6.8

4.1 5.2

16.3 6.0

16.1 6.1

259

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Oil India Bloomberg Equity Shares (m)

OINL IN 1202.3

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

266 / 4

52-Week Range (INR)

259 / 172

CMP: INR221 

-3 / -12 / -11



Y/E MARCH

2017 2018E 2019E 2020E



Sales

93.6

105.2

113.9

115.8

EBITDA

29.6

40.3

45.8

46.5

1,6,12 Rel Perf. (%) Financial snapshot (INR b)

Adj. PAT

27.0

22.1

32.7

33.7

Adj. EPS (INR)

22.5

18.3

27.2

28.1

EPS Gr. (%)

7.2

-18.3

48.1

3.3

BV/Sh.(INR)

242.0

251.7

266.1

281.0

RoE (%)

5.7

7.4

10.5

10.3

RoCE (%)

6.4

5.8

7.9

7.7

96.5

46.9

46.9

46.9

17.2

12.1

8.1

7.9

P/BV (x)

0.9

0.9

0.8

0.8

EV/EBITDA (x)

9.7

7.2

6.0

5.6

Div. Yield (%)

4.5

3.2

5.0

5.0

Payout (%)

 

TP: INR260 (+18%)

Buy

We estimate gross and net realization at USD65.5/bbl, with no subsidy sharing burden. However, other expenditure in 3QFY18 was much lower. We expect this to normalize in 4QFY18. We estimate EBITDA at INR10.5b (+77% YoY and -4% QoQ). We expect OINL to report adjusted PAT of INR6.0b (v/s INR7.1b in 3QFY18 and INR0.2b in 4QFY17). Our Brent price assumption is USD57.4/bbl for FY18 and USD60/bbl for FY19/20. The stock trades at 7.9x FY20E EPS of INR28.1. Maintain Buy.

Key issues to watch for  DD&A charges  Oil & gas production volumes

Valuations P/E (x)

Quarterly Performance

(INR Billion)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) D,D&A Interest OI (incl. Oper. other inc) PBT before exceptionals Exceptional item PBT after exceptionals Tax Rate (%) PAT Change (%) Adj. EPS (INR) Key Assumptions (USD/bbl) Exchange rate (INR/USD) Gas Price (USD/bbl) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b)

April 2018

1Q 22.2 -19.2 8.6 38.8 -20.4 2.3 1.0 2.4 7.7 0.0 7.7 2.8 36.2 4.9 -36.2 4.1

FY17 2Q 23.3 -2.8 8.4 35.9 8.6 2.5 1.0 3.9 8.8 0.0 8.8 2.9 33.7 5.8 -14.0 4.8

3Q 23.8 7.1 6.6 28.0 7.1 2.8 1.0 3.2 6.1 0.0 6.1 1.5 25.1 4.5 18.8 3.8

4Q 24.4 28.3 5.9 24.4 0.2 3.3 1.0 8.7 10.4 11.5 -1.1 -1.3 -12.5 0.2 -95.9 9.7

66.9 3.4 43.1 43.1 -

67.0 3.4 44.6 44.6 -

67.4 2.8 49.2 49.2 -

67.2 2.8 52.5 52.5 -

1Q 23.3 5.0 8.7 37.5 1.3 2.9 1.0 1.5 6.4 0.0 6.4 1.9 29.4 4.5 -8.9 3.7

FY18E 2Q 24.7 6.1 10.1 40.9 21.0 3.2 1.1 3.3 9.1 0.0 9.1 2.7 29.3 6.5 11.3 5.4

3Q 28.5 20.0 12.2 42.9 84.2 3.6 1.0 2.1 9.8 0.0 9.8 2.7 28.0 7.1 55.1 5.9

64.5 2.8 48.4 48.4 -

64.3 2.8 50.1 50.1 -

64.8 3.2 59.4 59.4 -

FY17

FY18E

4QE 30.0 23.1 10.5 35.1 77.2 3.9 0.8 3.1 9.0 0.0 9.0 3.0 33.0 6.0 3,022.1 5.0

93.6 1.1 29.6 31.6 -3.6 10.9 4.0 18.3 33.0 11.5 21.5 6.0 18.1 15.5 -32.8 22.5

106.6 13.8 41.6 39.1 40.8 13.6 3.9 10.1 34.3 0.0 34.3 10.3 29.9 24.0 55.2 20.0

64.4 3.2 65.5 65.5 -

67.1 3.1 47.3 47.3 -

64.5 3.0 55.9 55.9 -

260

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

ONGC Bloomberg Equity Shares (m)

ONGC IN 12833.3

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

2280 / 35

52-Week Range (INR)

213 / 155

1,6,12 Rel Perf. (%)

-4 / -2 / -16

Y/E March

2017 2018E 2019E 2020E

Sales

1,421 1,575 1,754 1,847

EBITDA

471

635

721

769

Adj. PAT

211

216

279

302

Adj. EPS (INR)

16.4

16.8

21.8

23.5

20.8

2.3

29.6

8.2

BV/Sh.(INR)

10.1

9.6

12.0

12.4

RoCE (%)

8.5

8.5

10.1

10.3

52.5

64.9

64.9

64.9

10.8

10.6

8.2

7.5

P/BV (x)

1.0

1.0

1.0

0.9

EV/EBITDA (x)

5.4

4.0

3.5

3.3

Div. Yield (%)

4.2

5.2

6.8

7.4

Valuation P/E (x)

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Key Assumptions (USD/bbl) Fx rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates

April 2018



 

TP: INR222 (+25%)

Buy

We estimate gross and net realization at USD68.1/bbl, as we expect the entire subsidy to be borne by the government. We estimate EBITDA at INR131b (v/s INR67b in 3QFY18 and INR125b in 4QFY17), led by a rise in realization. We expect ONGC to report adjusted PAT of INR57b in 4QFY18 (v/s INR50b in 3QFY18 and INR43.4b in 4QFY17). Our Brent price assumption is USD57.4/bbl for FY18 and USD60/bbl for FY19/20. The stock trades at 7.6x FY20E EPS of INR23.5, with implied dividend yield of ~5%. Maintain Buy.

172.4 178.2 185.9 194.1

RoE (%) Payout (%)





Financial snapshot (INR b)

EPS Gr. (%)

CMP: INR178

1Q 176,704 -21.5 83,942 92,761 52.5 36,997 2,920 10,668 63,512 0 63,512 21,186 33.4 42,325 42,325 -21.2 24.0 66.9 46.1 0.0 46.1 0.0

Key issues to watch for  DD&A charges  Oil & gas production volumes  Development plan for KG Basin

(INR Million) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 182,866 199,338 217,140 190,735 189,649 229,959 239,846 776,048 850,189 -11.1 9.2 33.7 7.9 3.7 15.4 10.5 0.1 9.6 87,476 96,440 149,889 91,929 84,957 104,711 108,729 417,746 390,326 95,391 102,898 67,252 98,807 104,692 125,247 131,117 358,302 459,863 52.2 51.6 31.0 51.8 55.2 54.5 54.7 46.2 54.1 34,529 47,039 53,875 45,204 48,389 58,614 57,920 172,440 210,127 3,034 3,062 3,202 2,769 3,274 3,099 2,500 12,217 11,643 12,920 9,727 45,195 8,544 19,315 11,265 14,205 78,511 53,329 70,748 62,524 55,371 59,378 72,343 74,800 84,902 252,155 291,422 0 0 0 0 0 0 0 0 0 70,748 62,524 55,371 59,378 72,343 74,800 84,902 252,155 291,422 20,999 19,001 11,969 20,530 21,036 24,653 28,298 73,155 94,516 29.7 30.4 21.6 34.6 29.1 33.0 33.3 29.0 32 49,749 43,523 43,402 38,847 51,307 50,147 56,604 179,000 196,905 49,749 43,523 43,402 38,847 51,307 50,147 56,604 179,000 196,905 2.7 3.3 -0.3 -8.2 3.1 15.2 30.4 -8.3 10.0 27.2 21.8 20.0 20.4 27.1 21.8 23.6 23.1 23.2 67.0 47.9 0.0 47.9 0.0

67.4 50.1 0.0 50.1 0.0

67.2 54.9 0.0 54.9 0.0

64.5 51.0 0.0 51.0 0.0

64.3 51.2 0.0 51.2 0.0

64.8 60.6 0.0 60.6 0.0

64.4 68.1 0.0 68.1 0.0

67.1 49.8 0.0 49.8 0.0

64.5 57.7 0.0 57.7 0.0

261

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Petronet LNG Bloomberg

PLNG IN 1500.0

Equity Shares (m) M. Cap. (INR b)/(USD b)

348 / 5

52-Week Range (INR)

275 / 198

1,6,12 Rel Perf. (%)

-2 / -6 / 1

CMP: INR232   

Financial snapshot (INR b) Y/E March

2017 2018E 2019E 2020E

Sales

246.2 286.0 289.5 332.9

EBITDA

25.9

33.1

36.1

43.1

Adj. PAT

17.1

21.0

24.0

28.3

Adj. EPS (INR)

11.4

14.0

16.0

18.8

EPS Gr. (%)

102.7

23.0

14.3

17.9

BV/Sh.(INR)

54.0

64.0

75.5

89.1

RoE (%)

23.2

23.7

22.9

22.9

RoCE (%)

20.2

21.3

21.6

22.9

Payout (%)

25.7

28.1

28.1

28.1

20.4

16.6

14.5

12.3

 

TP: INR317 (+37%)

Buy

We model Dahej LNG volumes at 199tbtu, with 105% utilization, and Kochi LNG volumes at 8.8tbtu, with 14% utilization in 4QFY18. We expect PLNG to report PAT of INR5.4b (+15% YoY, +3% QoQ) and EBITDA of INR8.2b (+34% YoY, -3% QoQ) for 4QFY18. 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-orpay contracts. The stock trades at 12.3x FY20E EPS of INR18.8. Maintain Buy.

Key issues to watch for  Utilization at Dahej terminal  Progress on Kochi-Mangalore pipeline  Spot volumes and marketing margin on spot volumes

Valuation P/E (x) P/BV (x)

4.3

3.6

3.1

2.6

EV/EBITDA (x)

13.9

10.7

9.4

7.4

Div. Yield (%)

1.1

1.4

1.7

1.9

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT YoY Change (%) Margins (%) Key Assumptions Regas volume (tbtu) Sales volume (tbtu) E: MOSL Estimates

April 2018

1Q 53,373 -36.3 6,425 12.0 806 556 494 5,556 1,777 32 3,779 115.8 7.1 50.1 118.1

FY17 2Q 3Q 66,144 62,993 -12.3 22.4 7,264 6,071 11.0 9.6 860 1,009 554 517 915 550 6,765 5,095 2,170 1,121 32 22 4,596 3,975 84.7 122.8 6.9 6.3 60.7 128.2

75.3 116.1

4Q 63,651 4.9 6,163 9.7 1,016 469 1,508 6,186 1,478 24 4,708 96.8 7.4

1Q 64,351 20.6 7,442 11.6 1,027 465 707 6,658 2,282 34 4,376 15.8 6.8

71.1 108.9

80.5 111.1

FY18E 2Q 3Q 77,702 77,571 17.5 23.1 8,987 8,474 11.6 10.9 1,039 1,039 465 367 1,019 414 8,504 7,482 2,616 2,194 31 29 5,888 5,288 28.1 33.0 7.6 6.8 79.0 141.0

92.0 131.0

(INR Million) FY17 FY18E 4QE 66,349 4.2 8,236 12.4 1,118 306 944 7,757 2,327 30 5,430 15.3 8.2

246,160 -9.3 25,923 10.5 3,691 2,097 3,466 23,602 6,545 28 17,057 102.7 6.9

285,973 16.2 33,139 11.6 4,222 1,601 3,084 30,400 9,419 31 20,981 23.0 7.3

94.3 113.6

257.1 471.2

345.8 496.8

262

March 2018 2018 Results Results Preview Preview || Sector: Sector: Oil Oil & & Gas Gas March

Reliance Industries Bloomberg

RIL IN 5918.0

Equity Shares (m) M. Cap. (INR b)/(USD b)

5319 / 82

52-Week Range (INR)

990 / 648

1,6,12 Rel Perf. (%)

-3 / 7 / 20

Y/E March

2017 2018E 2019E 2020E

Net Sales

3,054 4,040 5,311

5,567

EBITDA

462

641

782

847

Net Profit

299

362

401

462

Adj. EPS (INR)

50.5

61.1

67.7

78.0

0.5

20.9

10.9

15.2

445.6 496.8 563.7

632.3

BV/Sh. (INR) RoE (%)

12.1

13.0

12.8

13.0

RoCE (%)

7.2

8.1

8.1

8.7

12.5

14.8

13.2

0.0

17.8

14.7

13.3

11.5

2.0

1.8

1.6

1.4

16.2

11.6

8.7

7.6

2.4

1.8

1.3

1.2

Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018





Financial snapshot (INR b)

EPS Gr. (%)

CMP: INR899

  

TP: INR1,134 (+26%)

Buy

We expect RIL to report GRM of USD11.4/bbl v/s USD11.6/bbl in 3QFY18 and USD11.5/bbl in 4QFY17. We model a premium of USD4.4/bbl over benchmark GRM of USD7.0/bbl (up 9% YoY –but down 3% QoQ). Petchem 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 INR183b v/s INR176b in 3QFY18 and INR122b in 4QFY17. We expect RIL to report consolidated PAT of INR95b (up 18% YoY and 1% QoQ). RIL trades at 11.5x FY20E adjusted EPS of INR78. Core segment performance is expected to be strong going forward. Positive developments in the telecom business would drive growth further for the company. Maintain Buy.

Key issues to watch for    

GRM Petchem margins Progress on remaining core expansions Update on telecom venture

(INR Million) FY17 FY18E

FY17 FY18 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 649,900 761,610 794,080 848,230 834,710 914,810 998,100 1,128,503 3,053,820 3,876,123 -15.2 8.3 17.6 42.1 28.4 20.1 25.7 33.0 11.4 26.9 537,790 650,150 679,070 725,950 709,170 759,160 822,220 944,956 2,592,960 3,235,506 112,110 111,460 115,010 122,280 125,540 155,650 175,880 183,547 460,860 640,617 17.3 14.6 14.5 14.4 15.0 17.0 17.6 16.3 15.1 16.5 27,250 27,740 27,930 33,540 30,370 42,870 45,300 42,693 116,460 161,233 12,060 8,830 12,040 5,560 11,190 22,720 20,950 13,795 38,490 68,655 23,780 23,930 27,360 19,360 32,250 23,310 22,180 11,168 94,430 88,908 96,580 98,820 102,400 102,540 116,230 113,370 131,810 118,227 400,340 479,637 0 0 0 0 0 0 0 0 0 0 96,580 98,820 102,400 102,540 116,230 113,370 131,810 118,227 400,340 479,637 25,810 27,030 27,160 22,010 25,440 32,400 37,750 22,830 102,010 118,420 26.7 27.4 26.5 21.5 21.9 28.6 28.6 19.3 25.5 24.7 0 0 0 0 0 0 -390 -290 0 -680 70,770 71,790 75,240 80,530 90,790 80,970 94,450 95,397 298,330 361,607 70,770 71,790 75,240 80,530 90,790 80,970 94,450 95,687 298,330 361,897 17.5 11.6 3.9 11.5 28.3 12.8 25.5 18.8 10.1 21.3 10.9 9.4 9.5 9.5 10.9 8.9 9.5 8.5 9.8 9.3

263

March 2018 Results Preview | April 2018

Retail Company name

Double-digit sales growth likely again for sector players

Jubilant Foodworks

EBITDA and PAT to grow significantly

PC Jeweller Titan Company

All three companies under our coverage likely to report strong numbers We expect our Retail Universe to report healthy revenue growth of 17.3% YoY in 4QFY18. EBITDA is expected to increase by 45.1% YoY and adj. PAT by 61.4% YoY. For Titan (TTAN), despite a high base (43% sales growth in 4QFY17), the jewelry segment sales are likely to come in healthy and in line with management expectations. Sales in the watches segment are also recovering, according to management commentary in the last earnings call. We forecast healthy sales and EBITDA growth of 17.7% YoY, while PAT growth is likely to be 49.5% YoY in 4QFY18. As the blended EBITDA margin in the base quarter was unusually low at 7.9%, we expect higher PAT growth relative to sales growth. Lower tax rates YoY are also likely to boost PAT. PC Jeweler (PCJ) is expected to report another quarter of healthy sales (+20% YoY) in the domestic jewelry business, despite a high base. Thus, despite a likely decline in exports because of the impact on new indirect taxes in the Gulf region, overall sales growth is likely to be ~18%. With faster growth in the domestic business (led by healthy same-store sales growth), the EBITDA margin for PCJ is likely to expand 170bp YoY to 9.9% in 4QFY18. Consequently, EBITDA is expected to grow by an impressive 38.9% YoY and adj. PAT by 49.2% YoY. For Jubilant Foodworks (JUBI), we expect sales to increase 22.8% YoY, with samestore sales (SSS) up 20% YoY. Base quarter 4QFY17 had witnessed a 7.5% decline in SSS. Thus, a favourable base and initiatives undertaken by the company should result in high SSS growth. With SSS growth well above cost increases, the margins are expected to expand sharply by 740bp YoY, resulting in more than doubling of EBITDA and quadrupling of PAT from that in the year-ago period, when PAT had declined 46.3% YoY. We prefer the jewelry plays given huge growth opportunity for organized players We continue maintaining our Buy rating on both TTAN and PCJ. In FY17, TTAN and PCJ accounted for only ~8% 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 and PCJ are the dominant players in terms of scale and trust. Earnings CAGR is likely to be very impressive for both companies at around 30% over FY17-20. While we like JUBI’s business model with strong earnings growth potential on a recovery, poor visibility of double-digit SSSG beyond the near term (which is aided by a weak base), as well as expensive valuations of 59.3x FY19E EPS and 45.1x FY20E EPS (despite 70% EPS CAGR assumption over FY17-20), makes us vary of turning constructive.

Krishnan Sambamoorthy – Research Analyst ([email protected]); +91 22 6129 1545 Vishal Punmiya – Research Analyst ([email protected]); +91 22 6129 1547 April 2018

264

March 2018 Results Preview | Sector: Retail

Exhibit 1: Summary of expected quarterly performance

7,524 24,818 40,384 72,726

22.8 15.0 17.7 17.3

-5.4 -6.2 -5.5 -5.7

Exhibit 2: Tanishq’s LTL sales grew 12% in 3QFY18

115.5 38.9 33.4 45.1

4.0 (5.0)3.0

75.0

18.0

15.0

28.0

12.0 (2.0) (21.0) (24.0)

49.0 49.0 37.0 15.0

(11.0) (10.0) 25.0

4.0

(32.0)

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

6.0

6.0

(10.0) 3QFY14

313.4 -6.5 49.2 0.9 49.5 7.6 61.4 3.6 Source: Company, MOS

Source: Company, MOSL

3QFY18

(8.0) (12.0) (25.0) (40.0)

617 1,642 3,033 5,292

Jewelry volume growth (%) 52.0 51.0

30.0

-4.7 -8.7 -14.0 -10.8

Exhibit 3: Tanishq’s jewelry grammage grew 6% in 3QFY18

Tanishq- LTL Growth (%)

68.0 6.0 (15.0) (13.0)

1,304 2,456 3,631 7,390

2QFY18

Neutral Buy Buy

1QFY18

2,330 313 933

Retail Jubilant Foodworks PC Jeweller Titan Company Sector Aggregate

Net Profit (INR M) Var % Var % Mar-18 YoY QoQ

4QFY17

RECO

EBDITA (INR M) Var % Var % Mar-18 YoY QoQ

3QFY17

CMP (INR)

Sales (INR M) Var % Var % Mar-18 YoY QoQ

2QFY17

Sector

Source: Company, MOSL

Exhibit 4: Gold prices up 4.5% YoY in 4QFY18

28,751 1QFY18

30,188

28,892 4QFY17

4QFY18

29,137 3QFY17

29,248

31,066 2QFY17

3QFY18

29,539 1QFY17

4.5

28,983

27,805 4QFY16

(12.8) (10.2)

0.4

2QFY18

25,780

(2.7)

(6.8)

3QFY16

3.9

(5.7)

25,810

26,561 3QFY15

13.0

2QFY16

27,690 2QFY15

10.2

26,793

28,401 1QFY15

3.5

(2.9)

1QFY16

29,924

(4.9)

Gold price change YoY (%)

26,867

4.3

20.4

4QFY15

(0.1)

4QFY14

Average gold price (INR/10 gm)

(6.7)

Source: Company, MOSL

Exhibit 5: JUBI’s SSS is expected to grow 20% in 4QFY18 SSS Growth (%)

Exhibit 6: Domino’s is expected to add 13 stores in 4QFY18

6.5 5.5 17.8

552 576 602 632 679 726 761 797 838 876 911 950 990 1,026 1,049 1,081 1,107 1,117 1,125 1,125 1,127 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

(3.3) (7.5)

4.2 (3.2)

(2.6) (3.4) (2.4) (5.3)

1.9 6.6 4.6 3.2 2.0 2.9

16.1 7.7 6.3 6.6

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Dominos stores

Source: Company, MOSL

April 2018

Source: Company, MOSL

265

March 2018 Results Preview | Sector: Retail

Exhibit 7: Relative performance – three months (%) Sensex Index

Exhibit 8: Relative performance – one-year (%)

MOSL Retail Index

Sensex Index

240

113

MOSL Retail Index

210

106

180

99

Source: Bloomberg, MOSL

Exhibit 9: Comparative valuation Sector / Companies Retail Jubilant Foodworks PC Jeweller Titan Company Sector Aggregate

April 2018

CMP (INR)

RECO

2,330 313 933

Neutral Buy Buy

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Mar-18

Feb-18

Jan-18

Jun-17

90 May-17

85

Mar-17

120 Dec-17

92

Apr-17

150

Source: Bloomberg, MOSL

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 30.3 15.4 12.5

39.3 19.5 15.9

51.6 24.9 19.8

76.8 20.3 74.4 57.5

59.3 16.0 58.6 45.2

45.1 12.6 47.2 35.9

33.5 11.9 53.3 36.2

27.4 9.2 41.4 28.6

22.1 7.5 33.3 23.1

22.5 16.9 23.4 19.2

29.8 18.4 25.9 22.2

41.7 20.1 30.3 25.6

266

March 2018 Results Preview | Sector: Retail

Jubilant Foodworks Bloomberg

JUBI IN

Equity Shares (m)

65.8

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

153 / 2

52-Week Range (INR)

CMP: INR2,330

18 / 59 / 100

Financial Snapshot (INR b)

Neutral



We expect JUBI’s revenue to grow by 22.8% YoY to INR7.5b in 4QFY18.



SSSG is likely to be 20% for the quarter on a base of 7.5% decline.



We anticipate addition of 13 Domino’s stores this quarter.

2396 / 818

1,6,12 Rel Perf. (%)

TP: INR2,185 (-6%)

Y/E March

2017 2018E 2019E 2020E



Gross margin is likely to contract by 220bp to 74.7%.

Sales

25.8

29.5

34.2

40.0

2.4

4.5

5.5

6.6



We expect EBITDA margin to expand by 750bp YoY to 17.3%, and EBITDA to grow by 115.5% YoY to INR1.3b.

EBITDA Adj. PAT

0.6

2.0

2.6

3.4

10.6

30.3

39.3

51.6



We estimate adj. PAT to grow by 313.4% YoY to INR617m.

EPS Gr. (%)

-28.0 186.2

29.6

31.3

BV/Sh.(INR)

122.1 134.8 132.1 123.7



The stock trades at 59.3x/45.1x FY19E/20E EPS of INR39.3/INR51.6. Maintain Neutral.

Adj. EPS (INR)

RoE (%)

8.7

22.5

29.8

41.7

RoCE (%)

8.9

23.6

29.4

40.3

23.6

36.3

89.0

96.8

219.9

76.8

59.3

45.1

Payout (%) Valuations P/E (x) P/BV (x)

19.1

17.3

17.6

18.8

EV/EBITDA (x)

63.2

33.6

27.5

22.2

Div. Yield (%)

0.1

0.5

1.5

2.1

Quarterly Standalone Performance Y/E March

No of Stores LTL Growth (%) Net Sales YoY Change (%) Gross Profit Gross Margin (%) Other Expenses EBITDA EBITDA Growth % Margins (%) Depreciation Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

April 2018

1Q 1049 -3.2 6,089 6.7 4,675 76.8 4,098 577 -14.2 9.5 326 31 282 92 32.7 190 -31.1

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.

FY17 2Q 3Q 1081 1107 4.2 -3.3 6,655 6,588 13.3 3.9 4,979 4,938 74.8 74.9 4,336 4,297 643 641 6.4 -11.9 9.7 9.7 366 381 43 35 320 295 104 95 32.5 32.2 216 200 -1.3 -31.9

4Q 1117 -7.5 6,128 -0.9 4,710 76.9 4,104 605 -15.1 9.9 438 36 203 53 26.4 149 -46.3

1Q 1125 6.5 6,788 11.5 5,183 76.4 4,387 796 37.8 11.7 462 30 364 125 34.4 238 25.6

FY18 2Q 1125 5.5 7,266 9.2 5,388 74.1 4,366 1,022 59.0 14.1 326 36 733 248 33.8 485 124.8

3Q 1127 17.8 7,952 20.7 5,926 74.5 4,557 1,369 113.7 17.2 393 33 1,009 349 34.6 660 230.6

4QE 1140 20.0 7,524 22.8 5,619 74.7 4,315 1,304 115.5 17.3 455 77 926 309 33.3 617 313.4

FY17 1117 -2.5 25,833 7.2 19,526 75.6 17,115 2,411 -11.3 9.3 1,554 147 1,004 305 30.4 699 -34.4

FY18E 1140 12.5 29,530 14.3 22,116 74.9 17,625 4,490 86.2 15.2 1,636 177 3,031 1,031 34.0 2,001 186.2

267

March 2018 Results Preview | Sector: Retail

PC Jeweller Bloomberg

PCJL IN

Equity Shares (m)

394.2

M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

123 / 2 -4 / -17 / 38

Standalone - Quarterly Earning Model Y/E March

April 2018

1Q 16,645 10.2 2,658 16.0 14,588 2,057 22.0 12.4 50 636 101 1,472 406 27.6 1,066 31.2 6.4

TP: INR520 (+66%)

Buy



We expect PCJ’s revenue to grow by 15% YoY in 4QFY18 to INR24.8b, led by strong SSSG in the domestic business.



Store additions are likely to be lower this quarter than earlier expectations.



Gross margins are likely to expand 150bp YoY to 13.7%.



We expect EBITDA margin to expand by 170bp YoY to 9.9%, and EBITDA to grow by 38.9% YoY to INR2.5b.



We estimate adj. PAT to grow by 49.2% to INR1.6b.



The stock trades at 16x/12.6x FY19E/20E EPS of INR19.5/INR24.9. Maintain Buy.

601 / 195

Financial Snapshot (INR b) Y/E March FY17 FY18E FY19E FY20E Sales 84.8 103.6 124.1 149.9 EBITDA 7.6 10.4 12.7 15.5 NP 4.2 6.1 7.7 9.8 EPS (Rs) 10.7 15.4 19.5 24.9 EPS Growth (%) 5.7 44.4 26.6 27.6 BV/Share (Rs) 85.0 98.0 113.9 134.0 RoE (%) 14.6 16.9 18.4 20.1 RoCE (%) 16.9 17.8 18.8 20.2 Valuation P/E (x) 29.3 20.3 16.0 12.6 P/BV (x) 3.7 3.2 2.7 2.3 EV/EBITDA (x) 15.6 11.6 9.3 7.5 EV/Sales (x) 1.4 1.2 0.9 0.8

Sales YoY Change (%) Gross Profit Margins (%) Total Expenditure EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

CMP: INR313

Key issues to watch for:  Pace of shift from unorganized to organized.  Outlook and same-store sales growth guidance.

FY17 2Q 21,746 30.2 2,419 11.1 19,959 1,787 -8.9 8.2 55 710 504 1,527 457 30.0 1,069 16.3 4.9

3Q 21,074 -3.4 2,601 12.3 19,307 1,767 -20.6 8.4 56 699 139 1,150 81 7.0 1,070 -27.4 5.1

4Q 21,581 15.3 2,644 12.3 19,813 1,769 6.7 8.2 59 702 508 1,515 415 27.4 1,101 39.7 5.1

1Q 21,185 27.3 3,060 14.4 18,853 2,332 13.4 11.0 49 596 215 1,901 543 28.6 1,358 27.4 6.4

FY18 2Q 26,223 20.6 3,497 13.3 23,438 2,785 55.9 10.6 49 764 207 2,178 672 30.9 1,506 40.8 5.7

3Q 26,449 25.5 3,695 14.0 23,760 2,689 52.2 10.2 53 816 455 2,276 649 28.5 1,627 52.1 6.2

4QE 24,818 15.0 3,412 13.7 22,363 2,456 38.9 9.9 60 500 450 2,346 704 30.0 1,642 49.2 6.6

FY17

FY18E

81,046 12.1 10,322 12.7 73,667 7,379 -2.0 9.1 220 2,747 1,252 5,664 1,359 24.0 4,305 7.8 5.3

98,676 21.8 13,663 13.8 88,414 10,262 39.1 10.4 211 2,676 1,327 8,701 2,568 29.5 6,133 42.5 6.2

268

March 2018 Results Preview | Sector: Retail

Titan Company Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

TTAN IN 887.8 828 / 13 963 / 456

Quarterly Performance Y/E March

April 2018

1Q 28,026 4.3 25,157 2,869 43.8 10.2 263 88 134 2,652 468 17.7 2,184 44.1

TP: INR1090 (+16%)

Buy



We expect TTAN’s revenue to increase 17.7% YoY to INR40.3b.



We factor in EBITDA growth of 33.4% YoY for 4QFY18, with underlying margin expansion of 100bp YoY to 9% off a low base in 4QFY17.



Adj. PAT is expected to grow by 49.5% YoY to INR3.0b.



The stock trades at 58.6x/47.2x FY19E/20E EPS of INR15.9/INR19.8. Maintain Buy.

17 / 50 / 91

Financial Snapshot (INR b) Y/E March 2017 2018E 2019E 2020E Sales 129.8 157.7 194.5 235.5 EBITDA 11.6 15.5 19.7 24.4 Adj. PAT 7.0 11.1 14.1 17.5 Adj. EPS (INR) 9.0 12.5 15.9 19.8 EPS Gr. (%) 18.5 38.8 27.0 24.1 BV/Sh.(INR) 48.0 59.1 63.8 66.6 RoE (%) 20.6 23.4 25.9 30.3 RoCE (%) 21.0 24.0 26.5 31.0 Payout (%) 39.7 50.0 70.0 85.0 Valuation P/E (x) 103.3 74.4 58.6 47.2 P/BV (x) 19.4 15.8 14.6 14.0 EV/EBITDA (x) 70.6 52.6 41.2 33.1 Div. Yield (%) 0.4 0.7 1.2 1.8

Net Sales YoY Change (%) Total Exp EBITDA EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

CMP: INR933

Key issues to watch for:  Pace of shift from unorganized to organized.  Update on Prevention of Money Laundering Act (PMLA) regulations, specifically for the jewellery sector.

FY17 2Q 26,799 1.0 24,157 2,643 44.4 9.9 278 120 107 2,351 660 28.1 1,691 15.6

3Q 39,484 16.2 35,998 3,486 24.0 8.8 289 79 166 3,283 952 29.0 2,331 3.1

4Q 34,297 43.4 31,576 2,721 30.3 7.9 224 82 273 2,687 658 24.5 2,029 8.6

1Q 39,851 42.2 36,202 3,649 27.2 9.2 295 108 283 3,529 1,038 29.4 2,491 14.1

FY18 2Q 34,731 29.6 30,750 3,981 50.6 11.5 310 145 446 3,972 1,189 29.9 2,783 64.6

3Q 42,748 8.3 38,524 4,224 21.2 9.9 349 109 213 3,979 1,159 29.1 2,820 21.0

FY17 FY18E 4QE 40,384 129,789 157,715 17.7 16.6 21.5 36,753 118,234 142,230 3,631 11,555 15,485 33.4 32.4 34.0 9.0 8.9 9.8 242 1,105 1,196 75 377 437 308 705 1,250 3,622 10,777 15,101 589 2,760 3,975 16.3 25.6 26.3 3,033 8,017 11,127 49.5 12.8 38.8

269

March 2018 Results Preview | Sector: Technology March 2018 Results Preview | Sector: Technology

Technology

Our recent IT sector update

Looking on expectantly Gradual growth uptick, tier-2’s outperformance to sustain Expect the gradual, albeit marginal, growth uptick to continue

Company Name Cyient HCL Tech Hexaware Infosys KPIT Tech L&T Infotech Mindtree Mphasis NIIT Tech Persistent Tata Elxsi TCS TechM Wipro Zensar

 Our recent report on the sector discussed the cyclical impetus in CY18 that is likely to drive some revenue acceleration in FY19, even as the structural challenges prevail. A strong exit from FY18 will only fuel that thesis further, especially given the usual weakness associated with 4Q, with client focus on freezing budgets for the best part of 4Q’s first month and a half.  “Strong”, therefore, should be taken in that context – whereby sequential growth will be contained, but YoY trajectory may continue to inch up. We expect such acceleration in INFO, TCS and TECHM, and also organically for WPRO – across our top-tier universe. Corresponding aggregate QoQ growth is pegged at 2.9% (~2% in constant currency and 80-120bp tailwind from cross currency). TCS, with its recent deal wins, and HCLT, with anticipated IMS recovery, should lead the pack at 2-2.2% QoQ CC revenue growth.

Tier-2’s outperformance to sustain (ex-PSYS)  We expect aggregate USD revenue growth of 3.5% QoQ across tier-2 IT, 60bp higher than tier-1, despite modeling 5% QoQ decline in PSYS revenues (post the company’s update of anticipated 8m decline in IP revenues).  This will be led by: [1] Cyient (+8.8% QoQ), where boost will come from Rangsons, [2] LTI (+4% QoQ), which should continue delivering on its expectation of better 2H v/s 1H, and [3] MTCL (+4.3% QoQ), where the revenue performance is expected to be similar to 3Q. While ZENT should continue demonstrating recovery on multiple fronts (US, IMS, Digital Consumer), the focus away from MVS and products in IMS may weigh on overall revenue.

Margin movement to be range-bound, except for TECHM, PSYS, MTCL and KPIT While cross-currency movements will rub off positively across the board, the INR, which is a key determinant of margins, has not moved significantly. As a result, barring company-specific turnarounds such as TECHM (+110bp QoQ), MTCL (+90bp QoQ) and KPIT (+80bp QoQ), we expect margins to be range-bound. Performance will be the worst at PSYS, given the softness in IP-led revenues, which flow directly down to profits.

Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 April 2018

270

March 2018 Results Preview | Sector: Technology

Watch out for INFO’s guidance, TCS’ margin outlook and sector’s commentary on deals, BFS  Guidance for FY19 will understandably supersede the performance of 4Q, and all eyes will be on INFO come 13th April. We expect INFO to start the year by guiding for 6-8% growth in constant currency (which will be higher in reported dollar), and are currently pegging our estimate at the higher end of that band.  Traditional pain points of 1Q seasonality no longer hold for WPRO, and with weaker areas such as Healthcare and Communications having seen their bottom, there is a good reason to expect better 1Q guidance than earlier years. However, there is a risk of offset from client-specific factors like the Energy account in 3Q. We expect 1QFY19 guidance of 1-3% QoQ CC.  Apart from quantitative guidance, TCS’ commentary on BFS and margins will be crucial, as softness in both is a downside risk to current valuations.

Opportunities despite valuation catch-up; we prefer INFO, TECHM, CYL, ZENT and PSYS  Post the sector’s outperformance to the index by as much as 19% since November 2017, valuations are not cheap, as reflected by the fact that: [1] IT index's discount to Sensex has almost been eliminated to 2.3%, compared to 10year average of ~8%, and [2] almost all companies in our coverage universe are trading above their 10-year average.  That said, given the benchmarks in valuation set by similar growth companies such as CTSH and ACN, we believe that there are bottom-up opportunities to capitalize on momentum improvement. Our top picks are a function of [1] tactical opportunities from valuation mismatches, which should catch up gradually with performance (INFO, CYL), and [2] a turnaround of revenue/margin trajectory, making a case for both earnings growth and valuation multiples (TECHM, ZENT, PSYS). Exhibit 1: Expected quarterly performance summary Sector Technology Cyient HCL Technologies Hexaware Tech. Infosys KPIT Tech. L&T Infotech Mindtree MphasiS NIIT Tech. Persistent Systems Tata Elxsi TCS Tech Mahindra Wipro Zensar Tech Sector Aggregate

April 2018

CMP (INR)

RECO

680 968 416 1,140 223 1,418 801 855 883 677 1,005 2,908 617 284 901

Buy Neutral Neutral Buy Neutral Buy Buy Neutral Neutral Buy Buy Neutral Buy Neutral Buy

Sales (INR M) Var Var Mar-18 % YoY % QoQ 10,644 13.1 8.2 132,016 9.5 3.1 10,414 8.4 3.6 181,318 5.9 1.9 9,328 8.7 2.2 19,648 17.1 4.3 14,385 9.1 4.4 17,412 15.6 4.9 7,738 7.8 2.3 7,491 3.0 -5.4 3,717 14.0 7.6 318,372 7.4 3.0 80,159 7.0 3.1 139,774 -0.1 2.3 8,143 9.6 2.6 960,561 6.6 2.8

EBDITA (INR M) Var Var Mar-18 % YoY % QoQ 1,455 16.5 1.7 30,547 15.3 3.1 1,662 2.4 3.9 49,266 5.8 2.3 1,083 24.4 9.5 3,353 5.1 4.3 2,293 22.7 10.6 2,959 24.1 7.9 1,387 10.1 7.0 951 -27.0 -30.9 929 22.6 -0.6 86,348 6.2 4.2 13,879 54.4 9.7 28,913 3.8 2.9 1,096 87.2 3.9 226,120 9.6 3.7

Net Profit (INR M) Var Var Mar-18 % YoY % QoQ 1,078 37.3 -0.7 23,477 15.9 7.0 1,316 15.5 8.6 38,097 5.7 3.0 730 35.9 18.0 3,373 32.4 19.2 1,665 71.3 17.7 2,492 28.8 15.9 818 10.7 8.0 704 -16.4 -23.2 607 36.3 -3.4 68,590 3.8 5.0 9,575 62.9 1.5 21,612 11.7 11.6 688 562.9 19.8 174,821 10.9 5.8

271

March 2018 Results Preview | Sector: Technology

Exhibit 2: Double-digit growth driven by cross-currency tailwinds; everyone in single-digits on a CC basis Company TCS Infosys Wipro HCLT TECHM Aggregate

4QFY18E 4,946 2,817 2,063 2,051 1,245 13,122

Company TCS Infosys Wipro HCLT TECHM Aggregate

4QFY18E 27.1 27.2 20.7 23.1 17.3 24.5

Revenue (USD m) 4QFY17 YoY (%) 3QFY18 4,452 11.1 4,787 2,569 9.7 2,755 1,955 5.5 2,013 1,817 12.9 1,988 1,131 10.1 1,209 11,924 10.1 12,752 EBITDA Margin (%) 4QFY17 YoY (bp) 3QFY18 27.4 (30) 26.8 27.2 27.1 19.9 80 20.6 22.0 120 23.1 12.0 530 16.3 23.8 70 24.3

QoQ (%) 3.3 2.3 2.5 3.2 3.0 2.9

4QFY18E 318 181 140 132 80 852

QoQ (bp) 30 10 10 110 30

4QFY18E 69 38 22 23 10 161

Revenue (INR b) YoY (%) 3QFY18 QoQ (%) 7.4 309 3.0 5.9 178 1.9 (0.1) 137 2.3 9.5 128 3.1 7.0 78 3.1 6.1 830 2.7 PAT (INR b) 4QFY17 Yoy (%) 3QFY18 QoQ (%) 66 3.8 65 5.0 36 5.7 37 3.0 19 11.7 19 11.6 23 0.8 22 7.0 6 62.9 9 1.5 151 7.1 153 5.4 Source: Company, MOSL 4QFY17 296 171 140 121 75 803

Exhibit 3: Tier-II in significantly better shape on revenue growth Company Persistent Systems Hexaware KPIT Tech. Mindtree Mphasis Cyient NIIT Tech Zensar LTI Aggregate

4QFY18E 116 162 145 223 260 165 120 127 305 1,624

Company Persistent Systems Hexaware KPIT Tech. Mindtree Mphasis Cyient NIIT Tech Zensar LTI Aggregate

4QFY18E 12.7 16.0 11.6 15.9 17.0 13.7 17.9 13.5 17.1 15.4

Revenue (USD m) 4QFY17 YoY (%) 3QFY18 109 6.7 123 145 11.8 156 128 13.0 141 196 14.3 214 222 17.5 252 141 17.3 152 104 15.4 115 112 13.2 123 254 20.1 294 1,410 15.2 1,569 EBITDA margin (%) 4QFY17 YoY (bp) 3QFY18 17.9 (520) 17.4 16.9 (90) 15.9 10.1 150 10.8 14.2 180 15.1 15.8 120 16.5 13.3 40 14.6 17.6 40 17.1 7.9 560 13.3 19.0 (200) 17.1 15.2 30 15.5

QoQ (%) (5.0) 3.6 2.8 4.3 3.4 8.8 4.4 3.2 4.0 3.5

4QFY18E 7.5 10.4 9.3 14.4 17.4 10.6 7.7 8.1 19.6 105.2

QoQ (bp) (470) 80 90 50 (90) 80 20 (10)

4QFY18E 0.7 1.3 0.2 1.7 2.5 1.1 0.8 0.7 2.7 11.7

Revenue (INR b) YoY (%) 3QFY18 QoQ (%) 3.0 7.9 (5.4) 8.4 10.0 3.6 8.7 9.1 2.2 9.1 13.8 4.4 15.6 16.6 4.9 13.1 9.8 8.2 7.8 7.6 2.3 9.6 7.9 2.6 17.1 18.8 4.3 11.3 101.7 3.5 PAT (INR b) 4QFY17 YoY (%) 3QFY18 QoQ (%) 0.8 (16.4) 0.9 (23.2) 1.1 15.5 1.2 8.6 0.1 150.1 0.2 45.3 1.0 71.3 1.4 17.7 1.9 28.8 2.2 15.9 0.8 37.3 1.1 (0.7) 0.7 10.7 0.8 8.0 0.1 562.9 0.6 19.8 2.5 6.7 2.8 (3.9) 9.2 28.0 11.1 5.5 Source: Company, MOSL 4QFY17 7.3 9.6 8.6 13.2 15.1 9.4 7.2 7.4 16.8 94.5

Exhibit 4: Improvement from the seasonally weak 3Q (QoQ, CC %) 1QFY16 8.0

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

6.0 4.0 2.0

2.1

1.0

0.0

2.2

1.9

1.5

2.7

3.4 1.7

1.5

2.0

1.7

0.0

1.3

0.9

1.5

-2.0 TCS

INFO

WPRO

HCLT

TECHM Source: Company, MOSL

April 2018

272

March 2018 Results Preview | Sector: Technology

Exhibit 5: YoY traction seen improving for TCS, INFO and TECHM (Revenue YoY CC, %) Revenue YoY CC (%) 2QFY17 3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

22.6 18.9 14.7 5.9 6.0 8.1 12.6 12.1 11.0 8.1 5.0 5.6

1QFY17

15.8 13.6 9.2 8.1 11.4 13.1 14.1 16.1 12.3 10.3 10.6 9.1

4QFY16

8.3 8.4 6.0 7.6 9.5 7.2 6.3 5.3 3.5 2.9 3.2 3.0

3QFY16

10.8 14.0 12.4 15.0 12.0 8.9 7.4 5.3 6.4 4.6 5.8 7.4

2QFY16

15.8 12.0 9.8 10.3 9.9 6.8 8.4 7.3 6.1 6.9 6.1 7.4

1QFY16

TCS

INFO

WPRO

HCLT

TECHM Source: Company, MOSL

80 50 50

50

LTI

MPHL

TECHM

HCLT

WPRO

TCS

4QFY18

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

-50

INFO

0

130 70

60

30

20 PSYS

100

110

NITEC

80

100

120

CYL

110

150

HEXW

200

Cross currency tailwind (bp) 150

Wipro HCL Tech Tech Mahindra Incremental revenue (USD m)

KPIT

Infosys

MTCL

TCS

ZENT

Exhibit 6: Significant cross-currency tailwinds this quarter

Source: Company, MOSL

Exhibit 7: YoY margin improvement seen in HCLT, WPRO and TECHM (EBITDA margin, %) 1QFY16

2QFY16

27.8

28

27.4

3QFY16

4QFY16 28.0

27.1

1QFY17

27.2

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

27.2 22.2

24

22.0

23.1 20.6

20

19.9

20.7 17.3

16.9

16 12 TCS

Infosys

HCL Tech

Wipro

Tech Mahindra Source: Company, MOSL

Exhibit 8: Upward traction seen in all Tier-II vendors other than PSYS, HEXW and KPIT (revenue growth, YoY, USD, %) 2QFY17

11.8

3QFY17 13.0

4QFY17 14.3

1QFY18 17.5

2QFY18 17.3

3QFY18

4QFY18 20.1 15.4

13.2

6.7

Persistent Systems

Hexaware

KPIT Tech.

Mindtree

Mphasis

Cyient

NIIT Tech

Zensar

LTI Source: Company, MOSL

April 2018

273

March 2018 Results Preview | Sector: Technology

Exhibit 9: 4QFY18 currency highlights (INR) Rates (INR) EUR GBP 79.0 89.6 80.8 91.6

AUD 50.6 50.2

Change (QoQ) EUR GBP AUD 3.7% 4.2% 1.7% -0.7% -1.3% -2.4% Source: Company, MOSL

USD -0.6% -2.5%

Exhibit 10: 4QFY18 currency highlights (in USD) EUR 1.23 1.23

Average Closing

Rates (USD) GBP 1.39 1.40

AUD 0.79 0.77

Exhibit 11: Cross currencies: Assumed rates v/s actual Guided at Infosys Wipro Actual (Average)

EUR 1.09 1.18 1.23

GBP 1.30 1.33 1.39

AUD 0.75 0.76 0.79

Change (%) Infosys Wipro

EUR 12.7% 4.1%

GBP 7.0% 4.6%

AUD 4.8% 3.4%

Company

Rating

TCS Infosys Wipro HCL Tech TechM Mphasis LTI Mindtree KPIT Tech Cyient Hexaware NIIT Tech Persistent Zensar

Neutral Buy Neutral Neutral Buy Neutral Buy Buy Neutral Buy Neutral Neutral Buy Buy

April 2018

FY18E 131.8 65.4 17.9 63.4 40.2 44.0 66.3 33.4 12.5 37.0 16.6 44.8 40.0 51.9

EPS (INR) FY19E FY20E 147.1 161.3 71.2 79.2 18.8 21.1 66.3 71.6 42.8 49.8 50.8 54.9 73.3 86.3 41.7 48.8 13.5 17.5 38.1 42.9 18.7 21.0 53.1 61.6 50.3 60.2 63.1 82.6

FY18E 22.1 17.4 15.8 15.3 15.3 19.5 21.4 24.0 17.8 18.4 25.1 19.7 16.9 17.4

Mar-18

Feb-18

Jan-18

Jan-18

Source: Bloomberg, MOSL

Nov-17

90 Oct-17

95

Sep-17

100

Exhibit 14: Comparative valuation

INR/USD nm -0.2% Source: Company, MOSL

MOSL Technology Index

Aug-17

100

Jul-17

110

Mar-17

105

Mar-18

120

Feb-18

110

Dec-17

Sensex Index

130

Jun-17

MOSL Technology Index

Apr-17

Sensex Index

INR/USD nm 64.49 64.34

Exhibit 13: Relative performance—1Yr (%)

May-17

Exhibit 12: Relative performance—3m (%) 115

Change (QoQ) GBP AUD 4.8% 2.2% 3.7% -1.7% Source: Company, MOSL

EUR 4.3% 2.7%

Dec-17

Average Closing

USD 64.34 65.18

Source: Bloomberg, MOSL P/E (x) FY19E 19.8 16.0 15.1 14.6 14.4 16.8 19.4 19.2 16.5 17.8 22.2 16.6 13.5 14.3

FY20E 18.0 14.4 13.4 13.5 12.4 15.6 16.4 16.4 12.8 15.8 19.8 14.3 11.3 10.9

FY18E 30.7 24.6 17.2 25.7 20.9 15.3 32.4 20.3 14.9 17.8 26.9 16.2 16.5 15.0

RoE (%) FY19E 32.8 23.2 17.0 24.4 20.1 18.8 28.4 24.4 14.0 16.7 26.1 17.8 20.0 16.2

FY20E 31.3 23.2 16.9 24.0 20.2 18.6 27.1 24.9 15.6 17.1 25.6 19.2 23.3 18.5

FY18-20E CAGR (%) USD rev. EPS 8.9 10.6 8.7 10.1 6.9 8.6 8.9 6.3 10.5 11.3 11.2 11.7 13.9 14.1 11.8 20.8 7.5 18.0 12.6 7.6 12.8 12.6 9.6 17.2 10.9 22.7 12.7 26.1

274

March March 2018 2018 Results Results Preview Preview || Sector: Sector: Technology Technology

Cyient Bloomberg

CYL IN

Equity Shares (m)

113.0

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

77 / 1

52-Week Range (INR)

698 / 459

1,6,12 Rel Perf. (%)

2017 2018E 2019E 2020E

Sales

36.1

39.2

45.5

51.2

4.9

5.5

6.0

6.7

EPS (INR) EPS Gr. (%) BV/Sh. (INR)

3.7

4.2

4.3

4.8

30.6

37.0

38.1

42.9

(0.2)

20.9

3.0

12.4

16.2

17.8

16.7

17.1

RoCE (%)

15.9

17.1

16.2

16.6

Payout (%)

34.3

48.0

48.0

48.0

22.4

18.5

18.0

16.0

Valuation P/BV (x) EV/EBITDA (x) Div yld (%)

3.6

3.3

3.0

2.7

14.3

12.4

10.9

9.5

1.5

2.6

2.7

3.0

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util incl. trainees (%) Attrition (%) Offshore rev. (%) E: MOSL Estimates

April 2018

 

188.7 207.9 227.8 250.0

RoE (%)

P/E (x)





Y/E June

PAT



9 / 28 / 34

Financial Snapshot (INR b)

EBITDA

CMP: INR680

1Q 125 3.1 8,349 15.0 35.0 22.0 1,090 13.1 10.4 116 25.5 740 -12.3 -1.1 6.6 12,082 73.5 19.9 40.7



TP: INR675 (-1%)

Buy

We expect CYL’s USD revenue to grow 8.8% QoQ in 4QFY18. In the core services business, CYL’s revenue is expected to increase by 2.5% QoQ. Due to appreciation in EUR/USD and AUD/USD, we expect a cross-currency tailwind of 150bp for CYL. Rangsons is expected to see strong growth and achieve its 15% growth guidance for the year by clocking USD22m in revenue (up 81% QoQ) during the quarter. Margins are expected to contract 90bp QoQ to 13.7% on higher incremental revenue from Rangsons (lower-margin business). PAT estimate for the quarter is INR1,078m (-0.7% QoQ), primarily because of margin contraction and a higher ETR compared to the previous quarter. The stock trades at 18x FY19E and 16x FY20E EPS. Maintain Buy.

Key issues to watch for  Update on trajectory of top customer.  Revenue outlook and visibility for FY19.  Health and performance expectations of top customers.

FY17 2Q 3Q 137 136 9.5 -0.5 9,136 9,171 18.4 17.3 34.4 34.0 20.4 20.6 1,283 1,228 14.0 13.4 11.5 10.7 184 309 22.6 25.8 973 940 31.5 -3.4 -1.2 8.3 8.7 8.4 12,286 12,155 78.0 78.3 22.7 22.6 40.1 40.4

4Q 141 3.8 9,410 15.3 34.4 21.1 1,249 13.3 10.6 264 18.1 785 -16.5 -7.0 7.0 12,048 77.4 15.6 39.2

1Q 141 0.0 9,070 8.6 34.9 22.1 1,160 12.8 9.9 350 31.2 876 11.6 18.4 7.8 12,201 74.1 16.6 40.4

FY18 2Q 3Q 150 152 6.5 1.3 9,654 9,834 5.7 7.2 35.4 35.6 20.8 21.1 1,410 1,431 14.6 14.6 11.9 11.8 407 273 28.0 18.3 1,116 1,086 27.4 -2.7 14.7 15.5 9.9 9.7 12,537 12,799 75.9 78.6 14.2 16.8 41.2 42.8

4QE 165 8.8 10,644 13.1 33.9 20.2 1,455 13.7 11.3 312 26.0 1,078 -0.7 37.3 9.6 13,109 78.0

FY17

(INR m) FY18E

538 14.0 36,065 16.5 34.4 21.0 4,848 13.4 10.8 874 24.2 3,699

608 13.1 39,202 8.7 34.9 21.0 5,456 13.9 11.2 1,342 25.8 4,156

7.4 32.9 12,048

12.4 37.0 13,109

42.6

275

March 2018 Results Preview | Sector: Technology

HCL Technologies Bloomberg

HCLT IN

Equity Shares (m)

1412.9

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

1368 / 21

52-Week Range (INR)

1042 / 797

1,6,12 Rel Perf. (%)

5/4/0

Y/E JUNE

2017 2018E 2019E 2020E

Sales

467.2

505.9

567.6

618.1

EBITDA

103.1

114.6

130.1

139.6

84.6 59.8

89.0 63.4

92.4 66.3

100.1 71.6

EPS (INR)

  

Financial Snapshot (INR b)

PAT

CMP: INR968

EPS Gr. (%)

49.2

6.0

4.5

8.1

BV/Sh. (INR)

239.0

256.0

283.5

311.6

RoE (%)

27.5

25.7

24.4

24.0

RoCE (%)

25.3

23.1

22.8

22.4

Payout (%)

40.1

20.5

48.3

50.3

P/E (x)

16.4

15.4

14.8

13.7

P/BV (x) EV/EBITDA (x) Div yld (%)

4.1

3.8

3.5

3.1

12.1

11.3

9.7

9.9

2.4

1.3

3.3

3.7

Valuation

   

TP: INR950 (-2%)

Neutral

We expect HCLT’s USD revenue to grow 3.2% QoQ and 2% QoQ on a constant currency basis. Growth during the quarter will be a function of a pick-up in IMS, some moderation in ERD and a seasonal drop in IP revenue. With this, we expect HCLT to close the year with USD revenue growth of 12.6%, which would translate into ~10.8% CC growth, at the lower end of its 10.5-12.5% guidance. EBIT margins are likely to expand by 20bp to 19.8% because of lower amortization related to the IP partnerships. With this, we expect 19.8% EBIT margin for FY18, within the 19.520.5% guidance range. Adjusted PAT estimate for the quarter is INR23.5b (+7% QoQ), also aided by higher other income. The stock trades at 14.8x FY19E and 13.7x FY20E EPS. Maintain Neutral.

Key issues to watch for  Traction in IMS and Engineering Services; organic growth outlook for FY19.  Operating margin movement.  Traction in Digital and update on IP partnerships.

HCL Tech Quarterly Performance (US GAAP, INR Million) Y/E March

Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA (INRm) EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT before EOI QoQ (%) YoY (%) EPS Headcount Util excl. trainees (%) Attrition (%) Fixed Price (%) E: MOSL Estimates

April 2018

FY17 FY18E FY17 FY18E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 1,691 1,722 1,745 1,817 1,884 1,928 1,988 2,051 6,975 7,851 6.5 1.9 1.4 4.1 3.7 2.3 3.1 3.2 11.9 12.6 113,360 115,190 118,140 120,530 121,490 124,340 128,080 132,016 467,220 505,926 15.9 14.1 14.2 12.7 7.2 7.9 8.4 9.5 14.2 8.3 34.4 33.6 33.9 33.7 33.7 34.0 34.3 35.8 33.9 34.5 12.1 11.8 11.7 11.8 11.6 11.8 11.2 12.6 11.8 11.8 25,210 25,110 26,280 26,490 26,810 27,590 29,640 30,547 103,090 114,587 22.2 21.8 22.2 22.0 22.1 22.2 23.1 23.1 22.1 22.6 20.6 20.1 20.4 20.0 20.1 19.7 19.6 19.8 20.3 19.8 2,530 2,350 2,310 2,150 2,690 2,980 2,640 3,438 9,340 11,748 21.0 21.1 21.5 11.5 20.0 20.4 20.9 20.5 18.8 20.5 20,430 20,150 20,710 20,250 21,710 21,880 21,940 23,477 84,570 89,007 6.1 -1.4 2.8 -2.2 7.2 0.8 0.3 7.0 14.6 10.5 7.9 5.2 6.3 8.6 5.9 15.9 13.5 5.2 14.5 14.3 14.7 16.5 15.1 15.7 15.7 16.8 59.8 63.4 107,968 109,795 111,092 115,973 117,781 119,040 119,291 123,091 115,973 123,091 85.8 85.3 84.6 85.7 85.7 86.0 85.8 85.7 83.1 83.9 17.8 18.6 17.9 16.9 16.2 15.7 15.2 60.9 61.3 63.2 61.6 59.8 60.4 60.8

276

March 2018 Results Preview | Sector: Technology

Hexaware Technologies Bloomberg

HEXW IN

Equity Shares (m)

301.8

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

125 / 2

52-Week Range (INR)

420 / 200

1,6,12 Rel Perf. (%)

23 / 51 / 82

Financial Snapshot (INR b) Y/E DEC

2016 2017E 2018E 2019E

Sales

35.3

39.4

44.8

51.1

5.7

6.6

7.4

8.4

4.2 13.7

5.0 16.6

5.6 18.7

6.3 21.0

EPS Gr. (%)

5.8

21.2

12.7

12.5

BV/Sh. (INR)

56.3

66.0

76.3

87.7

RoE (%)

26.5

26.9

26.1

25.6

RoCE (%)

24.2

24.6

25.3

25.3

Payout (%)

38.6

23.5

41.6

37.0

30.2

24.9

22.1

19.7

EBITDA PAT EPS (INR)

Valuation P/E (x) P/BV (x) EV/EBITDA (x)

7.3

6.3

5.4

4.7

20.4

17.7

15.9

13.6

1.3

1.0

1.9

1.9

Div yld (%)

CMP: INR416  







TP: INR340 (-18%)

Neutral

We expect USD revenue to increase by 3.6% and CC revenue to grow by 3%. Ramp-down in key customers is now behind, and we expect the company to start delivering towards its stated outlook for CY18, which requires a CQGR of 3% through the year. We expect stability in EBITDA margins at 16% (+10bp QoQ). Pressure from customer ramp-downs, wage hikes and transition costs impacted margins in the two quarters before this. Our PAT estimate for the quarter is INR1,316m, up 8.6% from the previous quarter, on the back of revenue growth, stable margins and higher other income. The stock trades at 22.1x CY18E and 19.7x CY19E earnings. Neutral.

Key issues to watch for  Large deal pipeline and traction post the increased S&M spend.  Health of top customers.  Margin outlook now that the revenue pressures are behind.

Quarterly Performance (Indian GAAP)

(INR m)

Y/E Dec Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Utilization (%) Attrition (%) Offshore rev. (%) E: MOSL Estimates

April 2018

1Q 144.7 4.2 9,605 17.1 34.1 17.2 1,623 16.9 15.3 28 23.8 1,139 -6.3 35.3 3.8 12,734 78.9 14.9 35.5

CY17 2Q 152.6 5.5 9,836 13.1 33.7 17.4 1,598 16.2 14.6 146 22.9 1,224 7.4 22.5 4.1 13,098 80.8 13.8 35.3

3Q 154.0 0.9 9,931 9.8 35.2 17.7 1,734 17.5 15.8 178 18.9 1,420 16.0 27.5 4.7 13,488 79.7 13.7 34.6

4Q 156.1 1.4 10,048 6.8 32.8 16.9 1,599 15.9 14.3 132 23.0 1,211 -14.7 -0.4 4.0 13,705 80.9 13.1 34.9

1QE 161.8 3.6 10,414 8.4 32.4 16.4 1,662 16.0 14.4 154 20.5 1,316 8.6 15.5 4.4 14,489 78.0 33.9

CY18 2QE 3QE 168.5 176.8 4.1 4.9 11,037 11,583 12.2 16.6 33.6 33.8 17.0 16.5 1,837 2,004 16.6 17.3 15.2 15.9 89 66 20.5 20.5 1,402 1,515 6.6 8.1 14.6 6.7 4.7 5.0 15,037 15,821 79.0 79.0 34.5

34.6

4QE 179.4 1.5 11,754 17.0 32.3 16.5 1,861 15.8 14.4 62 20.5 1,398 -7.8 15.4 4.6 16,291 77.0 34.0

CY17

CY18E

607 15.7 39,420 11.5 33.9 17.3 6,554 16.6 15.0 484 22.0 4,994

687 13.0 44,788 13.6 33.0 16.6 7,364 16.4 15.0 371 20.5 5,630

19.7 16.6 13,705 81.4

12.7 18.7 16,291 79.9

35.1

34.2

277

March 2018 Results Preview | Sector: Technology

Infosys Bloomberg

INFO IN

Equity Shares (m)

2285.6

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

2606 / 40

52-Week Range (INR)

1220 / 862

1,6,12 Rel Perf. (%)

0 / 20 / 1

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

684.9

705.7

783.5

859.3

EBITDA

186.1

190.1

207.2

223.6

PAT

143.8

162.2

154.1

171.4

62.8

65.4

71.2

79.2

EPS (INR) EPS Gr. (%)

6.4

4.2

8.9

11.2

BV/Sh. (INR)

302

278.3

323.5

359.2

RoE (%)

22.0

24.6

23.2

23.2

RoCE (%)

22.0

24.6

23.2

23.2

Payout (%)

40.9

45.0

47.7

47.9

17.1

16.4

15.1

13.6

3.6

3.9

3.3

3.0

11.1

11.0

9.3

8.4

2.4

3.0

3.2

3.5

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

Quarterly Performance (IFRS) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Attrition (%) Offshore rev. (%) (IT Serv) Fixed Price (%) E: MOSL Estimates

April 2018

1Q 2,501 2.2 167,820 16.9 38.7 12.2 44,470 26.5 24.1 7,530 28.4 34,360 -4.5 13.4 15.0 197,050 81.1 21.0 43.0 45.7

CMP: INR1,140   

 



TP: INR1,250 (+10%)

Buy

In 3QFY18, while INFO kept its annual guidance unchanged at 5.56.5%, it cited expectations of a better 4Q compared to 3Q. In line with this, we expect CC revenue growth of 1.5% in 4QFY18 versus 0.8% in the previous quarter. We expect EBITDA margin to expand by 20bp QoQ to 24.5%. Execution on profitability has been above expectations over the last few quarters, primarily driven by higher utilization. However, we expect the improvement to slow down as this lever has peaked out. With this, we expect full-year EBIT margin at 24.3%, above the mid-point of the profitability guidance range of 23-25%. Our PAT estimate is INR38.1b (+3% QoQ), adjusted for the USD225m exceptional reversal of income tax expense provision in the previous quarter. The stock trades at 15.1x FY19E and 13.6x FY20E earnings. Buy.

Key issues to watch for  Update on internal stability of the company and strategy under the new leadership.  Commentary around contribution of newly-launched services, and revenue scale and growth from products and solutions.  Commentary around macro, verticals, margins and pricing. (INR m) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 2,587 2,551 2,569 2,651 2,728 2,755 2,817 10,208 10,951 3.4 -1.4 0.7 3.2 2.9 1.0 2.3 7.4 7.3 173,100 172,730 171,200 170,780 175,670 177,940 181,318 684,850 705,708 10.7 8.6 3.4 1.8 1.5 3.0 5.9 9.7 3.0 39.1 39.7 39.7 38.8 38.7 38.5 38.4 39.3 38.6 11.8 12.2 12.5 12.1 11.9 11.4 11.2 12.2 11.6 47,330 47,670 46,580 45,610 47,020 48,170 49,266 186,050 190,066 27.3 27.6 27.2 26.7 26.8 27.1 27.2 27.2 26.9 24.9 25.1 24.6 23.7 24.2 24.3 24.5 24.7 24.3 7,600 8,200 7,460 8,140 8,830 9,620 7,770 30,790 34,360 28.8 28.1 27.0 28.2 27.4 2.9 27.0 28.0 21.1 36,060 37,080 36,030 34,880 37,260 36,970 38,097 143,830 162,237 4.9 2.8 -2.8 -3.2 6.8 -0.8 3.0 6.1 7.0 0.2 1.5 3.3 -0.3 5.7 6.6 12.8 15.8 16.2 15.8 15.3 16.3 16.2 17.6 62.8 65.4 199,829 199,763 200,364 198,553 198,440 201,691 209,447 200,364 209,447 83.1 82.4 82.6 84.5 85.1 85.4 89.3 82.8 86.4 20.0 18.4 17.1 21.0 21.4 18.7 43.0 43.5 43.3 43.4 44.4 45.2 47.1 49.5 49.4 49.3 50.4 51.4

278

March 2018 Results Preview | Sector: Technology

KPIT Technologies Bloomberg

KPIT IN

Equity Shares (m)

200.2

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

45 / 1

52-Week Range (INR)

5 / 76 / 59

Financial Snapshot (INR b) Y/E MAR

2017 2018E 2019E 2020E

Sales

33.2

36.3

39.6

43.2

3.5

3.8

4.2

4.5

PAT

2.1

2.5

2.7

3.5

11.9

12.5

13.5

17.5

EPS Gr. (%)

-15.3

5.1

7.8

29.2

BV/Sh. (INR)

79.2

89.9 103.4 120.8

RoE (%)

14.3

14.9

14.0

15.6

RoCE (%)

15.9

16.1

16.5

18.7

Payout (%)

16.8

16.0

14.8

11.5

18.7

17.8

16.5

12.8

EPS (INR)



236 / 105

1,6,12 Rel Perf. (%)

EBITDA

CMP: INR223

  





TP: INR250 (+12%)

Neutral

Post the seasonal weakness witnessed in 3Q, we expect growth to bounce back for KPIT in 4QFY18. We are modeling CC revenue growth of 2% and USD revenue growth of 2.8% QoQ. This would lead to a 9.3% growth for KPIT in FY18, which is a stark improvement compared to 3.1% delivered in the previous year. Like in the previous quarters, we expect growth to be driven by the Automotive & Engineering. Given intense profitability pressures faced by KPIT over the past few quarters, and revival of organic revenue growth, we expect 80bp QoQ improvement in EBITDA margin in 4QFY18 to 11.6%. Our PAT estimate of INR730m (+18% QoQ), is a function of sequential improvement in operating performance and higher other income. KPIT trades at 16.5x FY19E and 12.8x FY20E earnings. Maintain Neutral.

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)

2.8

2.5

2.2

1.8

11.5

10.3

8.6

7.5

0.9

0.9

0.9

0.9

Quarterly Performance (Indian GAAP) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income Interest ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Offshore rev. (%) Fixed Price (%) E: MOSL Estimates

April 2018

1Q 120 -3.5 8,032 5.9 28.9 18.3 855 10.7 8.3 116 56 24.3 551 -37.8 24.0 2.8 11,288 68.1 41.5 28.5

Key issues to watch for  Growth in IES, Engineering Services and top client.  Update on the deal with Birlasoft.  Plan to recoup profitability.

FY17 2Q 3Q 123 123 3.0 -0.4 8,310 8,307 2.3 2.2 29.5 29.0 18.5 18.8 914 846 11.0 10.2 8.6 7.9 49 29 14 66 25.1 23.1 562 475 2.0 -15.5 -25.2 -35.4 2.8 3.7 11,666 11,881 69.2 67.8 43.2 43.0 28.0 33.7

4Q 128 4.4 8,585 2.1 29.2 19.0 870 10.1 7.3 12 0 15.3 537 13.1 -39.3 2.7 12,110 68.3 43.0 35.8

1Q 134 4.8 8,704 8.4 26.6 17.6 788 9.1 6.9 121 26 23.4 555 3.3 0.9 2.8 12,261 68.8 43.9 34.8

FY18E 2Q 3Q 142 141 5.7 -0.7 9,160 9,128 10.2 9.9 28.1 30.7 18.2 19.9 902 989 9.9 10.8 7.8 8.6 114 25 26 24 24.4 21.3 603 619 8.7 2.6 7.4 30.3 3.0 3.1 11,946 12,211 70.2 70.8 42.3 42.1 36.2 38.0

4QE 145 2.8 9,328 8.7 31.1 19.5 1,083 11.6 9.4 123 24 25.0 730 18.0 35.9 3.7 12,805 73.0 42.7

FY17

(INR m) FY18E

494 0.8 33,234 3.1 29.1 18.7 3,486 10.5 8.0 207 136 22.2 2,125

562 13.7 36,320 9.3 29.2 18.8 3,769 10.4 8.2 383 100 23.6 2,508

-24.5 11.9 12,110 68.3 42.7

18.1 12.5 12,805 70.7 42.7

279

March 2018 Results Preview | Sector: Technology

L&T Infotech Bloomberg

LTI IN

Equity Shares (m)

172.0

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

244 / 4

52-Week Range (INR)

1543 / 696

1,6,12 Rel Perf. (%)

2 / 69 / 85

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Sales

65.0

72.7

85.7

97.6

EBITDA

12.3

12.3

15.2

17.8

PAT

9.7

11.6

12.8

15.1

55.5

66.3

73.3

86.3

5.9

19.5

10.5

17.9

179.7

230.1

285.7

351.4

EPS (INR) EPS Gr. (%) BV/Sh. (INR)

CMP: INR1,418  

 



TP: INR1,400 (-1%)

Buy

LTI witnessed exceptionally strong growth of 8.5% QoQ in the previous quarter, although 2.2% of it was pass-through. Continued momentum, led by ramp-up in recent deal wins is expected to drive 4% USD revenue growth and 3.5% CC growth in 4QFY18. With strong execution throughout the year, LTI is expected to close FY18 with 16.4% YoY growth. We expect EBITDA margin to remain steady at 17.1%, as the company reinvests any gains in developing capabilities and augments its sales function. Our PAT estimate for the quarter is INR3.4b, which is higher sequentially by 19.2%. We have adjusted our PAT estimate for the one-time USD10m hit that LTI would be taking in the quarter in relation to an issue with one of its customers. The stock trades at 19.4x FY19E and 16.4x FY20E earnings. Buy.

RoE (%)

37.6

32.4

28.4

27.1

RoCE (%)

40.3

30.2

32.4

31.2

Payout (%)

29.7

20.0

20.0

20.0



25.6

21.4

19.4

16.4

7.9

6.2

5.0

4.0

19.1

19.4

15.5

12.9

1.2

0.9

1.0

1.2

Key issues to watch for  Deal wins and visibility on continuity of traction next year.  Outlook on top clients and their contribution to growth.  Growth in Digital.

Valuation P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util incl. trainees (%) Attrition (%) Offshore rev. (%)

1Q 231 0.6 15,550 16.6 35.3 15.7 3,050 19.6 16.9 372 21.2 2,359 3.2 35.1 13.5 19,292 77.4 19.5 51.9

FY17 2Q 240 3.7 16,020 9.1 35.4 16.4 3,044 19.0 16.1 365 21.0 2,326 -1.4 21.3 13.3 21,074 78.7 18.5 51.2

3Q 245 2.3 16,667 12.1 34.3 16.2 3,020 18.1 15.3 597 21.2 2,481 6.7 10.5 14.2 20,605 78.1 18.1 52.3

4Q 254 3.7 16,772 7.7 35.8 16.8 3,190 19.0 16.5 503 22.3 2,547 2.7 11.4 14.6 21,023 78.3 16.9 51.3

1Q 259 2.0 16,707 7.4 33.8 17.0 2,799 16.8 14.4 1,084 23.4 2,673 4.9 13.3 15.3 22,321 77.7 14.7 53.2

FY18E 2Q 3Q 271 294 4.4 8.5 17,509 18,837 9.3 13.0 33.9 33.3 17.1 16.2 2,943 3,215 16.8 17.1 14.5 14.9 1,017 883 23.2 23.4 2,730 2,829 2.1 3.6 17.4 14.0 15.6 16.2 22,554 23,394 79.6 80.3 15.0 14.6 53.4 53.8

4QE 305 4.0 19,648 17.1 34.1 17.0 3,353 17.1 15.6 1,330 23.4 3,373 19.2 32.4 19.3 24,314 81.0 54.8

FY17

(INR m) FY18E

970 9.3 65,009 11.2 35.2 16.3 12,303 18.9 16.2 1,837 21.4 9,711

1,129 16.4 72,701 11.8 33.8 16.8 12,310 16.9 14.9 4,314 23.4 11,605

5.9 55.5 21,023 7807.5

19.5 66.3 24,314 79.7

48.3

53.8

E: MOSL Estimates

April 2018

280

March March2018 2018 Results ResultsPreview Preview ||Sector: Sector:Technology Technology

MindTree Bloomberg

MTCL IN

Equity Shares (m)

167.7

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

134 / 2

52-Week Range (INR)

873 / 433

1,6,12 Rel Perf. (%)

 

1 / 62 / 65

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Sales EBITDA PAT EPS (INR)

52.4 7.2 4.2 24.9

54.4 7.3 5.3 33.4

62.6 9.4 6.9 41.7

70.0 11.0 8.0 48.8

EPS Gr. (%) -30.6 BV/Sh. (INR) 153.0 RoE (%) 16.8 RoCE (%) 20.1 Payout (%) 40.2 Valuation P/E (x) 32.2 P/BV (x) 5.2 EV/EBITDA (x) 17.3 Div Yld (%) 1.2

34.2 159.2 20.3 20.7 38.9

24.8 182.8 24.4 26.3 36.0

17.0 209.9 24.9 27.7 36.9

24.0 5.0 16.6 1.6

19.2 4.4 12.7 1.9

16.4 3.8 10.6 2.2

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util incl. trainees (%) Attrition (%) Offshore rev. (%) Fixed Price (%)

CMP: INR801

1Q 199 2.1 13,276 35.8 37.0 22.3 1,951 14.7 10.8 198 24.2 1,235 -7.1 -3.7 7.4 16,110 71.4 16.5 40.5 48.7







TP: INR725 (-10%)

Buy

MTCL has been seeing a recovery in its organic growth trajectory. With this trend continuing, we expect revenue growth of 4% QoQ in 4QFY18 on a constant currency basis. Because of crosscurrency tailwinds of 30bp, we expect USD revenue growth of 4.3%. With organic momentum returning, and margin levers of utilization, offshoring and pricing improvement remaining intact, we expect EBITDA margin expansion of 80bp QoQ to 15.9%. Our PAT estimate for the quarter is INR1.7b, which implies 17.7% QoQ growth. The increase is led by improved operating performance and higher other income. The stock trades at 19.2x FY19E and 16.4x FY20E earnings. Buy.

Key issues to watch for  Update on the health of top clients, and outlook for next year.  Margin trajectory, going forward, given improvement in organic growth and in acquired entities.  Deal wins during the quarter and growth in Digital.

FY17 2Q 3Q 193 192 -3.0 -0.4 12,954 12,953 10.8 6.7 34.2 34.1 21.7 20.7 1,621 1,740 12.5 13.4 8.6 9.5 170 144 26.0 25.2 948 1,031 -23.2 8.8 -40.1 -31.7 5.6 6.1 16,219 16,099 71.4 71.3 16.4 16.1 40.8 39.8 50.6 52.5

4Q 196 1.8 13,181 -0.2 34.0 19.8 1,869 14.2 10.3 -95 22.8 972 -5.7 -26.9 5.8 16,470 70.9 15.1 39.5 52.8

1Q 200 2.3 12,895 -2.9 34.9 23.8 1,435 11.1 7.3 368 28.6 931 -4.2 -24.6 7.2 16,561 73.2 14.0 42.0 52.9

FY18E 2Q 3Q 206 214 3.0 3.9 13,316 13,777 2.8 6.4 32.4 35.1 20.8 20.0 1,541 2,074 11.6 15.1 8.0 11.7 598 59 24.9 15.2 1,247 1,415 34.0 13.5 31.5 37.2 7.4 8.6 16,910 17,200 73.2 72.8 13.0 12.6 42.4 42.1 55.5 56.4

4QE 223 4.3 14,385 9.1 36.0 20.1 2,293 15.9 12.7 368 24.0 1,665 17.7 71.3 10.1 17,795 74.0 42.3

FY17

(INR m) FY18E

780 9.0 52,364 11.7 34.8 21.1 7,181 13.7 9.8 417 24.6 4,186

844 8.2 54,373 3.8 34.6 21.1 7,343 13.5 10.0 1,393 22.9 5,258

-30.6 24.9 16,470 71.3

25.6 33.4 17,795 73.3

40.2

42.2

E: MOSL Estimates

April 2018

281

March 2018 Results Preview | Sector: Technology

Mphasis Bloomberg

MPHL IN

Equity Shares (m)

210.2

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

180 / 3

52-Week Range (INR)

933 / 522

1,6,12 Rel Perf. (%)

2 / 32 / 38

  

Financial Snapshot (INR b) Y/E MAR

2017 2018E 2019E 2020E

Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA(x) Div yld (%)

60.8 9.7 8.2 38.9 12.9 292.4 13.2 12.4 43.7

65.4 10.5 8.5 44.0 13.0 257.6 15.3 14.5 50.1

72.7 11.7 9.8 50.8 15.6 282.0 18.8 18.0 43.3

81.0 13.1 10.6 54.9 8.0 306.9 18.6 18.3 45.6

21.1 2.8 15.0 2.1

18.7 3.2 13.5 2.7

16.2 2.9 11.8 2.7

15.0 2.7 10.3 3.0

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Net Additions HP Channel rev. (%) Fixed Price (%)

CMP: INR855

1Q 224 -0.3 15,167 1.5 28.1 12.0 2,445 16.1 15.2 572 27.7 2,043 6.4 23.2 9.7 22,374 50 23.4 19.8



  

TP: INR800 (-6%)

Neutral

The HP channel has seen six consecutive quarters of steady performance. We expect this trend to continue in 4QFY18 as well. Additionally, growth would be supported by continued traction in Direct International and stability in Digital Risk. We expect CC revenue growth of 2.9% QoQ and cross-currency tailwinds of 50bp, leading to USD revenue growth of 3.4% QoQ. The company is on an improving trajectory on a YoY basis, as growth would improve to 15.6% YoY in 4QFY18 from -0.7% YoY in 4QFY17. We expect EBIT margin to expand by 50bp to the higher end of its guided band of 14-16%. Our PAT estimate is INR2.5b (+15.9% QoQ). Higher PAT is led by improved operating performance and translation gains. The stock trades at 16.2x FY19E and 15x FY20E EPS. Neutral.

Key issues to watch for  Outlook for Digital Risk. given an interest rate cycle reversal.  Strategy changes, roadmap under the new leadership, and outlook for FY19E  Top customer outlook and consequent impact on the Direct International channel.

FY17 2Q 3Q 224 224 -0.2 -0.3 15,176 15,361 -2.6 1.3 28.1 27.8 11.8 12.3 2,463 2,396 16.2 15.6 15.3 14.7 711 617 27.5 28.5 2,166 2,044 6.0 -5.6 14.0 17.7 10.3 9.7 22,284 22,018 -90 -266 23.9 24.0 19.1 20.6

4Q 222 -0.9 15,059 -0.7 28.7 12.8 2,384 15.8 14.6 485 27.5 1,934 -5.4 0.7 8.8 21,979 -39 24.4 19.3

1Q 231 4.2 15,360 1.3 27.3 12.4 2,295 14.9 13.8 469 26.9 1,872 -3.2 -8.4 9.1 21,878 -101 25.8 21.3

FY18E 2Q 3Q 242 252 4.9 3.8 16,047 16,607 5.7 8.1 27.5 27.6 12.1 11.1 2,493 2,742 15.5 16.5 14.4 15.5 375 354 25.4 26.0 1,977 2,150 5.6 8.8 -8.7 5.2 10.2 11.1 22,183 22,335 305 152 26.1 26.0 22.6 24.8

4QE 260 3.4 17,412 15.6 29.1 12.1 2,959 17.0 16.0 647 26.5 2,492 15.9 28.8 12.9 21,773 -562

FY17

(INR m) FY18E

894 -3.5 60,763 -0.2 28.2 12.2 9,688 15.9 15.0 2,385 27.8 8,188

985 10.2 65,426 7.7 27.9 11.9 10,489 16.0 14.9 1,845 26.1 8,492

13.0 38.5 21,979 -345

3.7 44.0 21,773 -206

E: MOSL Estimates

April 2018

282

March 2018 Results Preview | Sector: Technology

NIIT Technologies Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b)

NITEC IN 61.2 54 / 1

52-Week Range (INR)

1012 / 420

1,6,12 Rel Perf. (%)

3 / 55 / 92

Financial Snapshot (INR b) Y/E MARCH 2017 2018E 2019E 2020E Sales 27.8 29.8 33.0 36.1 EBITDA 4.6 5.0 5.6 6.2 PAT 2.6 2.8 3.3 3.8 EPS (INR) 38.0 44.8 53.1 61.6 EPS Gr. (%) -16.9 17.9 18.5 15.9 BV/Sh. (INR) 286.5 280.8 314.7 328.2 RoE (%) 13.7 16.2 17.8 19.2 RoCE (%) 15.7 15.8 17.5 18.3 Payout (%) 32.9 31.2 30.1 26.0 Valuations P/E (x) 23.2 19.7 16.6 14.3 P/BV (x) 3.1 3.1 2.8 2.7 EV/EBITDA 9.8 10.1 8.6 7.7 (x) Div Yld (%) 1.4 1.6 1.8 1.8

Quarterly Performance (IFRS) Y/E March

Revenue (USD m) Ex. forex QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) Minority Interest PAT QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Attrition (%) Offshore rev. (%) Fixed Price (%)

April 2018

1Q 99 -2.2 6,707 4.6 35.1 19.9 1,015 15.1 10.3 83 10.4 46.0 285 -63.9 -51.4 5.1 9,022 79.8 13.4 39.0 46.0

CMP: INR883 









TP: INR800 (-9%)

Neutral

We expect 2.5% QoQ CC revenue growth for NITEC in 4QFY18. Traction is expected to continue despite a negative impact of the ramp-down of Morris to the tune of USD1.5m. Growth would be supported by Digital and ramp-up of new deal wins. The company would have a tailwind of 70bp because of crosscurrency movements, leading to USD revenue growth of 3.2% QoQ. We expect EBITDA margin to expand by 80bp QoQ to 17.9% because of a better mix of revenue and improved operational efficiencies. Our PAT estimate is INR818m (+8% QoQ). While the operational performance supports decent growth in PAT, it would be further boosted by other higher income. The stock trades at 16.6x FY19E and 14.3x 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.

FY17 2Q 103 4.2 6,929 2.2 35.3 18.8 1,145 16.5 11.9 29 24.9 54.0 590 107.0 -13.6 9.7 8,868 81.0 12.9 39.0 46.0

3Q 101 -2.4 6,938 2.2 36.0 19.2 1,162 16.7 12.1 59 25.3 48.0 624 5.8 -15.8 10.6 8,809 80.0 12.9 40.0 48.0

4Q 104 3.1 7,176 4.8 36.2 18.6 1,260 17.6 13.2 -12 13.4 72.0 739 18.4 -6.5 12.6 8,853 81.0 12.7 41.0 48.0

1Q 107 2.9 7,089 5.7 35.4 19.8 1,108 15.6 11.2 58 34.7 42.0 513 -30.6 80.0 8.7 8,963 81.2 12.1 40.0 49.0

FY18E 2Q 3Q 113 115 5.3 2.1 7,372 7,565 6.4 9.0 35.0 36.4 18.9 19.3 1,190 1,296 16.1 17.1 11.5 13.0 87 5 21.8 16.5 61.0 70.0 671 757 30.8 12.8 13.7 21.3 11.4 12.3 9,022 9,081 79.5 79.0 11.4 11.4 39.0 39.0 48.0 46.0

4QE 119 3.2 7,738 7.8 36.9 19.0 1,387 17.9 13.9 94 24.0 72.0 818 8.0 10.7 13.3 9,391 79.0

FY17

(INR m) FY18E

408 0.5 27,750 3.5 35.7 19.1 4,582 16.5 11.9 159 18.6 220.0 2,238 -20.1

454 11.3 29,764 7.3 36.0 19.2 4,981 16.7 12.4 244 23.9 245.0 2,759 23.3

38.0 8,853 80.4

45.7 9,391 79.7

39.8

39.3

283

March 2018 Results Preview | Sector: Technology

Persistent Systems Bloomberg

PSYS IN

Equity Shares (m)

80.0

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

54 / 1

52-Week Range (INR)

-17 / -3 / 3

Financial Snapshot (INR b) Y/E MARCH 2017 2018E 2019E 2020E 28.8

30.3

34.4

38.3

EBITDA

4.7

4.5

5.7

6.6

Adj. PAT

3.1

3.2

4.0

4.8

37.7

40.0

50.3

60.2

EPS Gr. (%)

1.4

6.1

25.9

19.6

BV/Sh.(INR)

244.5

Adj. EPS (INR)

17.0

16.5

20.0

23.3

RoCE (%)

16.7

16.0

15.7

19.3

Payout (%)

23.9

32.5

27.8

26.6

18.0

16.9

13.5

11.3

2.8

2.7

2.6

2.5

Valuations P/BV (x) EV/EBITDA (x)

9.6

9.6

7.6

6.5

Div. Yield (%)

1.3

1.9

2.1

2.4

Quarterly Performance (IFRS) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Attrition (%) IP rev. proportion (%)







TP: INR900 (+33%)

Buy

We expect 5% QoQ decline in revenue for PSYS in 4QFY18. It recently guided for a decline to the tune of USD8m in its IP portfolio. This decline has been greater than the earlier expected impact of a seasonal decline in IBM IoT revenue. The decline in IP revenue would also result in a corresponding hit on profitability, because of which we are baking in a contraction of 470bp in EBITDA margin to 12.7%. Our PAT estimate for the quarter is INR704m, down 23.2% QoQ. The PAT decline is caused by the sharp drop in both revenue and profitability. The stock trades at 13.5x FY19E and 11.3x FY20E earnings. Buy.

254.1 264.8 267.8

RoE (%)

P/E (x)



878 / 558

1,6,12 Rel Perf. (%)

Sales

CMP: INR677

1Q 104.8 4.3 7,018 3.6 40.2 34.7 19.6 1,058 15.1 10.2 253 24.3 733 -9.3 9.0 9.2 9,389 75.3 16.7 28.2

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.  Outlook on IP revenue after the hit in 4QFY18.

FY17 2Q 105.2 0.4 7,040 0.3 29.7 35.5 19.8 1,108 15.7 10.5 243 25.3 735 0.3 2.3 9.2 9,305 74.2 15.9 27.8

3Q 110.0 4.6 7,455 5.9 25.9 36.3 20.4 1,187 15.9 10.7 318 26.7 819 11.4 5.7 10.2 9,229 78.9 15.8 28.4

4Q 109.0 -0.9 7,271 -2.5 7.4 36.1 18.2 1,302 17.9 12.5 143 19.9 842 2.8 4.2 9.1 9,460 77.8 15.7 27.6

1Q 113.0 3.6 7,280 0.1 3.7 34.3 20.0 1,044 14.3 9.0 368 26.3 751 -10.8 2.5 9.4 9,401 77.2 15.5 27.2

FY18E 2Q 118.1 4.5 7,613 4.6 8.1 34.4 19.2 1,158 15.2 10.2 336 25.9 826 10.0 12.4 10.3 9,246 78.6 15.5 26.0

3Q 122.5 3.8 7,919 4.0 6.2 36.7 19.4 1,375 17.4 12.4 193 22.0 917 10.9 11.9 11.5 9,109 79.9 14.7 26.8

4QE 116.4 -5.0 7,491 -5.4 3.0 31.6 18.9 951 12.7 7.5 373 25.0 704 -23.2 -16.4 8.8 9,240 79.5 21.6

FY17

(INR m) FY18E

429 22.0 28,784

470 9.6 30,302

24.5 35.7 19.5 4,653 16.2 11.0 958 24.1 3,129

5.3 34.3 19.4 4,527 14.9 9.8 1,269 24.7 3,197

5.2 37.7 9,460 76.5

2.2 40.0 9,240 78.3

28.0

25.4

E: MOSL Estimates

April 2018

284

March 2018 Results Preview | Sector: Technology

Tata Elxsi Bloomberg

TELX IN

Equity Shares (m)

62.3

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

63 / 1

52-Week Range (INR)

1123 / 644

1,6,12 Rel Perf. (%)

-2 / 19 / 24

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

CMP: INR1,005 

 

12.3

13.8

15.8

18.4

EBITDA

2.9

3.4

4.0

4.7



Adj. PAT

1.8

2.3

2.7

3.2



Adj. EPS (INR)

28.1

36.8

43.6

51.5

EPS Gr. (%)

13.2

30.8

18.4

18.2

BV/Sh.(INR)

89.8

RoE (%)

37.1

36.0

33.8

28.7

RoCE (%)

37.1

36.0

33.8

43.3

Payout (%)

34.2

32.7

34.6

27.8

P/E (x)

35.7

27.3

23.0

19.5

P/BV (x)

11.2

8.8

7.0

4.6

EV/EBITDA (x)

20.5

16.7

13.9

11.0

Div. Yield (%)

0.8

1.0

1.2

1.8

Buy

Growth on a YoY basis has been picking up for the last three quarters, and has increased from 9.3% in 1QFY18 to 11.4% in 3QFY18. We expect this trend to continue, resulting in 14% YoY growth in 4QFY18 to INR3,717m. EBITDA margin at 25% is expected to contract by 210bp QoQ, but expand by 180bp YoY to 25%. PAT at INR607m is expected to see an increase of 36.3% YoY. The stock trades at 23x FY19E and 19.5x FY20E earnings. Buy.

114.5 143.0 216.2

Valuations

Quarterly Performance (IFRS) Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Other Income PBT before EO expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%)

TP: INR1,236 (+23%)

1Q 2,959 21.5 2,268 691 23.3 67 8 632 632 215 34.0 417 417 16.7 14.1

Key issues to watch for  Addition of new customers and subsequent realization.  JLR’s contribution to revenue.  Outlook on growth and profitability for the next year.

FY17 2Q 3,042 15.4 2,267 775 25.5 64 -26 685 685 231 33.6 455 455 19.3 14.9

3Q 3,102 13.2 2,389 713 23.0 69 24 668 668 226 33.9 441 441 8.4 14.2

4Q 3,260 10.9 2,503 758 23.2 68 -21 669 669 224 33.4 445 445 8.3 13.6

1Q 3,232 9.3 2,498 734 22.7 65 79 749 749 251 33.6 497 497 19.3 15.4

FY18E 2Q 3Q 3,422 3,455 12.5 11.4 2,581 2,520 840 935 24.6 27.1 64 63 89 68 864 940 864 940 292 313 33.8 33.2 572 628 572 628 25.9 42.2 16.7 18.2

4QE 3,717 14.0 2,788 929 25.0 82 58 905 905 299 33.0 607 607 36.3 16.3

FY17

(INR m) FY18E

12,330 14.7 9,398 2,932 23.8 269 -48 2,615 2,615 862 33.0 1,753 1,753 12.6 14.2

13,830 12.2 10,386 3,444 24.9 273 288 3,459 3,459 1,167 33.7 2,292 2,292 30.8 16.6

E: MOSL Estimates

Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 April 2018

285

March March2018 2018 Results ResultsPreview Preview ||Sector: Sector:Technology Technology

TCS Bloomberg

TCS IN

Equity Shares (m)

1970.4

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

5730 / 88

52-Week Range (INR)

-2 / 13 / 9

Financial Snapshot (INR b) Sales



3255 / 2255

1,6,12 Rel Perf. (%)

Y/E MAR

CMP: INR 2,908 TP: INR2,700 (-7%)

2017 2018E 2019E 2020E

 

1,179.7 1,228.7 1,374.1 1,499.9

Neutral

Revenue growth for TCS is expected to pick up in 4QFY18 to 2.2% QoQ in CC terms from 1.3% in the previous quarter, led by rampup of recently-won deals. With cross-currency tailwinds of 110bp, we expect USD revenue growth of 3.3% QoQ. Our EBIT margin estimate for 4Q stands at 25.5% (+30bp QoQ), led by currency benefits. However, we expect margins to take a hit 1QFY19 onwards, as lower margin deals start to hit profitability, in addition to the usual headwinds of visa expenses and wage hikes. Our PAT estimate stands at INR68.6b (+5% QoQ), led by sequential growth in operating parameters and higher other income. The stock trades at 19.8x FY19E and 18x FY20E earnings. Neutral.

EBITDA

323.1

325.0

360.3

390.5

PAT

262.9

257.8

281.7

308.7

EPS (INR)

133.4

131.8

147.1

161.3

8.3

-1.2

11.6

9.6

448.3

418.3

482.1

550.5

RoE (%)

32.6

30.7

32.8

31.3

RoCE (%)

32.4

26.8

25.3

25.3



Payout (%)

35.2

109.3

47.0

47.9

P/E (x)

21.8

22.1

19.8

18.0

P/BV (x) EV/EBITDA (x) Div. yield (%)

6.5

7.0

6.0

5.3

16.3

16.1

14.3

12.9

1.6

5.0

2.4

2.7

Key issues to watch for  Outlook on BFS and Retail.  Traction in new Digital initiatives (automation/solutions).  Margin expectations for the next year, given multiple headwinds.

EPS Gr. (%) BV/Sh. (INR)

Valuation

Quarterly Performance (IFRS) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount CC QoQ rev gr (%) Attrition (%) E: MOSL Estimates

April 2018

1Q 4,362 3.7 293,050 14.2 43.9 17.1 78,380 26.7 25.1 9,630 24.0 63,179 -0.4 10.7 32.1 362,079 3.1 13.6



(INR m) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 4,374 4,387 4,452 4,591 4,739 4,787 4,946 17,575 19,063 0.3 0.3 1.5 3.1 3.2 1.0 3.3 6.2 8.5 292,840 297,350 296,420 295,840 305,410 309,040 318,372 1,179,660 1,228,662 7.8 8.7 4.2 1.0 4.3 3.9 7.4 8.6 4.2 44.8 44.5 45.0 42.8 43.6 43.5 44.0 44.5 43.5 17.1 16.8 17.6 17.8 16.9 16.7 16.9 17.1 17.0 81,110 82,290 81,330 74,120 81,640 82,880 86,348 323,110 324,988 27.7 27.7 27.4 25.1 26.7 26.8 27.1 27.4 26.5 26.0 26.0 25.7 23.4 25.1 25.2 25.5 25.7 24.8 10,520 11,850 9,890 9,320 8,120 8,640 9,582 41,890 35,662 23.8 23.6 23.1 24.2 23.7 24.3 24.3 23.6 24.1 65,860 67,780 66,080 59,450 64,460 65,310 68,590 262,899 257,810 4.2 2.9 -2.5 -10.0 8.4 1.3 5.0 8.8 10.9 4.2 -5.9 -2.1 -3.6 3.8 8.6 -1.9 33.4 34.4 33.5 30.4 33.7 34.1 35.8 133.4 131.8 371,519 378,497 387,223 385,809 389,213 390,880 400,685 387,223 400,685 1.0 2.0 1.0 2.0 1.7 1.3 3.3 8.4 8.5 12.9 12.2 11.5 11.6 11.3 11.3 9.9

286

March March 2018 2018 Results Results Preview Preview || Sector: Sector: Technology Technology

Tech Mahindra Bloomberg

TECHM IN

Equity Shares (m)

984.7

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

607 / 9

52-Week Range (INR)

3 / 27 / 24

Financial Snapshot (INR b) Y/E MARCH

2017 2018E 2019E 2020E

Sales

291.4 307.3 346.5 386.7

EBITDA

41.8

46.9

56.9

63.6

Adj. PAT

28.4

35.4

37.6

43.8

Adj. EPS (INR)

32.0

39.8

42.3

49.3

EPS Gr. (%)

-8.8

24.4

6.5

16.4

18.4

20.9

20.1

20.2

RoCE (%)

15.2

17.0

16.4

16.8

Payout (%)

29.1

30.2

23.6

24.4

19.3

15.5

14.6

12.5

Valuation P/BV (x)

3.3

3.1

2.7

2.3

EV/EBITDA (x)

12.6

11.4

8.9

7.4

Div. Yield (%)

1.5

1.9

1.6

1.9

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income Interest expense ETR (%) PAT excl. BT amort & EOI QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Attrition (%) Offshore rev. (%) E: MOSL Estimates

April 2018

 

 

TP: INR700 (+14%)

Buy

We expect 3% QoQ growth in USD revenue in 4QFY18, led by 1.5% CC organic growth, and 150bp benefit from cross-currency movements. Organic growth is expected to be a function of flat revenue in LCC, strength in Enterprise and some seasonal support from Comviva. We expect EBITDA margin to expand by 100bp QoQ to 17.3%, led by seasonal strength in Comviva, completion of rationalization in LCC and better operational efficiencies. Expect PAT to increase by 1.5% QoQ to INR9.6b, despite higher margins, led by lower other income and higher ETR. The stock trades at 14.6x FY19E and 12.5x FY20E earnings. Buy.

187.9 197.9 228.9 264.6

RoE (%)

P/E (x)



652 / 358

1,6,12 Rel Perf. (%)

BV/Sh.(INR)

CMP: INR617

1Q 1,032 0.9 69,209 10.0 29.5 14.6 10,290 14.9 12.0 1,519 274 25.9 6,561 -23.5 5.4 7.4 107,216 78.0 21.0 36.6

Key issues to watch for  Performance of the Telecom segment and expectations around top customer performance.  Comments on profitability, including LCC.  TCV of deal wins in the Enterprise segment.

FY17 2Q 3Q 4Q 1,072 1,116 1,131 4.0 4.1 1.4 71,674 75,575 74,950 8.3 12.8 8.9 30.6 30.7 26.9 15.7 15.0 14.9 10,701 11,865 8,987 14.9 15.7 12.0 11.5 12.4 8.2 1,387 1,552 2,378 345 349 318 30.8 20.2 28.2 6,447 8,560 5,879 -1.7 32.8 -31.3 -17.9 12.8 -31.5 7.3 9.6 6.6 111,743 117,095 117,693 78.0 77.0 77.0 19.0 18.0 17.0 36.5 36.1 35.7

1Q 1,138 0.6 73,361 6.0 28.0 15.3 9,347 12.7 9.4 4,106 370 25.4 7,985 35.8 21.7 9.0 115,990 77.0 17.0 36.3

FY18E 2Q 3Q 4QE 1,179 1,209 1,245 3.6 2.5 3.0 76,064 77,760 80,159 6.1 2.9 7.0 29.3 30.8 32.8 14.7 14.5 15.5 11,057 12,647 13,879 14.5 16.3 17.3 11.0 12.7 13.5 3,222 2,250 1,980 386 341 294 25.3 21.8 24.0 8,362 9,431 9,575 4.7 12.8 1.5 29.7 10.2 62.9 9.4 10.6 10.8 117,225 115,241 121,376 81.0 83.0 82.5 16.0 17.0 35.9 34.2 33.0

FY17

(INR m) FY18E

4,351 7.8 291,408 10.0 29.4 15.1 41,843 14.4 11.0 6,836 1,286 26.0 27,447

4,772 9.7 307,344 5.5 30.3 15.0 46,930 15.3 11.7 11,558 1,391 24.1 35,353

-12.0 31.9 117,693 77.5

28.8 39.8 121,376 80.8

36.2

34.8

287

March March2018 2018 Results ResultsPreview Preview ||Sector: Sector:Technology Technology

Wipro Bloomberg

WPRO IN

Equity Shares (m)

4925.5

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

1398 / 22

52-Week Range (INR)

335 / 242

1,6,12 Rel Perf. (%)

-1 / -6 / 0

CMP: INR284 

 Financial Snapshot (INR b) Y/E MAR

2017 2018E 2019E 2020E

Sales

550.4 547.0 585.1 636.3

EBITDA

108.8 111.5 123.2 137.2

PAT

83.3

86.8

91.1 102.4

EPS (INR)

16.9

17.9

18.8

21.1

-6.3

5.9

5.0

12.4

EPS Gr. (%) BV/Sh. (INR)





105.9 101.8 120.6 129.7

TP: INR300 (+6%)

Neutral

In the previous quarter, Wipro had guided for 1% to 3% QoQ CC growth for 4Q. The guidance embedded meaningful revenue impact from insolvency of a customer, whereby it also took ~USD50m one-time provision on costs in the previous quarter. We expect growth to be at the lower end of the guided range at 1.5%. A cross-currency tailwind of 100bp would lead to USD revenue growth of 2.5% QoQ. We expect EBIT margin in IT Services to remain steady at 17.3% (+10bp QoQ) because of low organic growth at a time when operational efficiencies have played out over the last few quarters. Our PAT estimate is INR21.6b (+11.6% QoQ). However, adjusting for the one-time provisioning in the previous quarter, 4Q PAT would decline 4.1% QoQ on account of lower other income and higher ETR. The stock trades at 15.1x FY19E and 13.4x FY20E earnings. Neutral.

RoE (%)

16.9

17.2

17.0

16.9

RoCE (%)

13.6

13.6

14.8

15.5

5.8

0.0

0.0

47.3



16.8

15.8

15.1

13.4

2.7

2.8

2.4

2.2

10.8

11.5

9.7

8.5

0.3

0.0

0.0

3.5

Key issues to watch for  Revenue growth guidance for 1QFY19.  Commentary on Healthcare and Communications verticals.  Commentary on large deal wins and ramp-up schedule.

Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)

Quarterly Performance (IFRS) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA margin (%) IT Serv. EBIT (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Util excl. trainees (%) Attrition (%) Offshore rev. (%) Fixed Price (%)

1Q 1,931 2.6 135,992 -0.2 11.1 29.1 13.0 26,528 19.5 17.8 16.1 4,848 22.9 20,518 -8.2 -6.2 4.2 173,863 79.7 16.5 45.6 56

(INR m) FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 1,916 1,903 1,955 1,972 2,014 2,013 2,063 7,705 8,061 -0.8 -0.7 2.7 0.9 2.1 0.0 2.5 4.9 4.6 137,657 136,878 139,875 136,261 134,234 136,690 139,774 550,402 546,959 1.2 -0.6 2.2 -2.6 -1.5 1.8 2.3 10.0 6.4 2.6 0.2 -2.5 -0.1 -0.1 7.4 -0.6 28.9 29.4 28.0 28.7 29.5 30.1 30.9 28.9 29.8 13.2 13.0 11.9 12.8 12.6 13.4 14.0 12.8 13.2 26,539 27,878 27,844 26,683 27,788 28,104 28,913 108,789 111,488 19.3 20.4 19.9 19.6 20.7 20.6 20.7 19.8 20.4 17.8 18.3 17.7 16.8 17.3 17.2 17.3 17.9 17.2 15.8 16.4 16.1 16.0 16.8 16.7 16.8 16.1 16.6 4,958 5,120 5,328 5,079 5,728 5,054 4,388 20,254 20,249 22.2 23.3 24.2 22.3 22.7 19.2 22.5 23.2 21.7 20,672 21,094 19,340 20,765 21,917 19,371 21,612 83,326 86,840 0.8 2.0 -8.3 7.4 5.5 -11.6 11.6 -7.5 -5.6 -13.5 1.2 6.0 -8.2 11.7 -6.3 4.2 4.3 4.4 4.0 4.3 4.5 4.0 4.5 16.9 17.9 174,238 179,129 181,482 166,790 163,759 162,553 167,468 181,482 167,468 82.8 81.9 84.8 82.1 82.5 81.9 81.9 77.4 77.5 16.6 16.3 16.3 15.9 15.7 15.9 46.1 46.5 47.2 46.4 46.8 46.5 45.9 46.4 46.4 56.4 57.7 58.3 58.2 57.7 57.7

E: MOSL Estimates

April 2018

288

March March2018 2018 Results ResultsPreview Preview ||Sector: Sector:Technology Technology

Zensar Technologies Bloomberg

ZENT IN

Equity Shares (m)

45.4

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

41 / 1

52-Week Range (INR)

1000 / 730

1,6,12 Rel Perf. (%)

3 / 14 / -14

Financial Snapshot (INR b) Y/E MAR 2017 2018E 2019E 2020E Sales 30.6 31.1 36.1 40.6 EBITDA 3.8 3.8 4.8 5.9 PAT 2.3 2.3 2.8 3.7 EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)

52.1 51.9 63.1 82.6 -24.1 -0.3 21.6 30.9 325.9 363.9 414.1 477.5 17.2 15.0 16.2 18.5 23.2 18.8 22.1 24.1 23.0 22.8 17.6 19.9 17.3 2.8 9.7 1.3

17.4 2.5 9.7 1.3

14.3 2.2 7.3 1.2

10.9 1.9 5.6 1.8

Quarterly Performance (IFRS) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT QoQ (%) YoY (%) EPS (INR) Headcount Utilization (%) Offshore rev. (%)

1Q 114 3.1 7,554 7.2 29.1 15.4 1,037 13.7 12.3 198 32.6 741 5.4 -2.8 16.4 8,238 79.8 31.2

CMP: INR 901

TP: INR1,100 (+22%)

Buy



We expect revenue of USD127m, representing growth of 3.2% QoQ. This would translate into 1.9% QoQ CC growth, a crosscurrency tailwind of 30bp for ZENT.



Growth would be a function of strength in Digital, recovery in the US and portfolio rationalization.



We expect EBITDA margin to expand by 20bp QoQ to 13.5%. This would mark the return of ZENT’s profitability to levels seen before the margin shocker in 4QFY17, where EBITDA margin had touched a low of 7.9%.



Our PAT estimate is INR688m, up 19.8% QoQ on account of translation gains.



The stock trades at 14.3x FY19E and 10.9x FY20E earnings. Buy.

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.

FY17 2Q 3Q 116 118 1.8 1.3 7,703 7,865 1.8 3.9 30.1 30.2 15.6 16.4 1,111 1,085 14.4 13.8 12.8 12.3 70 201 29.6 30.2 704 800 -5.0 13.7 -22.9 11.9 15.6 17.7 8,316 8,564 80.1 79.5 33.8 33.5

4Q 112 -4.9 7,433 -0.4 27.7 19.9 585 7.9 6.2 -228 45.5 104 -87.0 -85.2 2.3 8,524 79.2 34.5

1Q 114 2.2 7,367 -2.5 27.6 17.4 748 10.2 7.7 203 32.0 472 354.7 -36.3 10.5 8,567 83.2 37.5

FY18E 2Q 119 3.8 7,626 -1.0 28.8 17.2 884 11.6 9.3 194 26.8 608 29.0 -13.6 13.5 8,414 85.9 37.5

3Q 123 3.4 7,937 0.9 30.1 16.8 1,054 13.3 11.3 49 33.7 574 -5.7 -28.3 12.7 8,597 84.8 37.0

4QE 127 3.2 8,143 9.6 30.2 16.7 1,096 13.5 11.2 161 28.0 688 19.8 562.9 15.2 8,897 81.0 35.3

FY17

(INR m) FY18E

459 1.4 30,556 3.1 29.3 16.8 3,819 12.5 10.9 241 31.6 2,349

482 4.9 31,073 1.7 29.2 17.0 3,781 12.2 9.9 607 30.0 2,342

-24.1 52.1 8,524 79.7 33.2

-0.3 51.9 8,897 83.7 36.8

E: MOSL Estimates

April 2018

289

March 2018 Results Preview | April 2018

Telecom Company name

Another dismal quarter…

Bharti Airtel

…primarily led by continued ARPU downtrading

Bharti Infratel Idea Cellular Tata Communications

There appears to be no solace for the Telecom sector. 4QFY18 consolidated EBITDA is likely to decline 8% QoQ for Bharti and 15% QoQ for Idea. RJio’s EBITDA should improve 12% on 10% revenue growth. Bharti Infratel’s EBITDA should decline 2% QoQ, hit by tenancies. TCOM should see 1% EBITDA growth. 





ARPU continues its downward spiral: 4QFY18 saw fresh round of undercutting by telcos, with lower price plans focusing on market share gains v/s profitability to gain the 15% revenue market share still lying with smaller operators. We expect ARPU downtrading of 7-8% for Bharti/Idea and 5% for RJio. Cut in international IUC from INR0.53/minute to INR0.30/minute (applicable from February 2018) is likely to impact the EBITDA of the incumbents, Bharti and Idea, by 1-1.5%. JioPhone impact: In January 2018, RJio re-launched its Jiophone at a new price point of INR49 (in addition to INR150 earlier), targeting the low ARPU subscribers. Further, our channel checks indicate that RJio is expected to add 6m-8m monthly Jiophone subscribers, thus eating into the feature phone market of incumbents.

Expect India wireless revenue to decline ~4% QoQ We expect Bharti’s India wireless revenue to decline 4% QoQ (and 51% YoY) to INR102.8b in 4QFY18. Idea’s consolidated revenue should drop 4% QoQ (and 23% YoY) to INR62.4b. This is largely due to APRU downtrading, as the incumbents try matching RJio’s offerings. Bharti’s consolidated revenue is expected to decline 1.4% QoQ (and 9% YoY) to INR200.4b, as the rest of the businesses – Africa, passive infrastructure and enterprise segment – too are expected to remain subdued. RJio is likely to see 10% revenue growth, with robust subscriber growth partly offset by ARPU decline.

ARPUs to decline further We expect Bharti/Idea’s ARPUs to decline 7%/8% QoQ to INR114/INR104. This should be partly aided by ~3% average subscriber growth to 294m/192m. RJio’s ARPU is expected to decline 5% QoQ to INR145 on account downward revision in price plans. With average ARPU of INR125-145 (post GST) for its popular plans, average subscriber base is likely to grow 16% QoQ to 173m.

EBITDA continues to plunge 4QFY18 is likely to witness a plunge in EBITDA due to continued revenue decline, coupled with increase in network cost. Bharti’s India wireless EBITDA is expected to witness a steep 17% QoQ (and 39% YoY) decline to INR29b. Idea’s consolidated EBITDA too is expected to fall 15% QoQ (and 51% YoY) to INR10.4b. Bharti’s consolidated EBITDA is likely to fall 8% QoQ (and 12% YoY) to INR68.9b. Aliasgar Shakir – Research analyst ([email protected]); +91 022 6129 1565 Hafeez Patel – Research analyst ([email protected]); +91 22 6129 1568 April 2018

290

March 2018 Results Preview | Sector: Telecom

Bharti’s India wireless EBITDA margin is likely to shrink ~440bp QoQ (and 870bp YoY) to 28.2%, while Idea’s consolidated EBITDA margin is expected to contract 220bp QoQ (9pp) to 16.6%. Bharti’s other segments like Africa, passive infrastructure and enterprise may remain subdued, leading to consolidated EBITDA margin contraction of 240bp QoQ (-150bp YoY) to 34.4%.

Bharti’s Africa business EBITDA likely to remain steady We expect Bharti’s Africa revenue to remain flat QoQ (grow 2% YoY) at INR51.5b. Africa EBITDA margin is expected to continue its upward trajectory, with 20bp sequential improvement to 35.4% led by cost efficiencies; EBITDA should grow 1% QoQ (and 41% YoY) to INR18.2b.

Bharti Infratel: Tenancy exits to limit EBITDA growth Bharti Infratel is expected to witness ~3,720 (2% QoQ) tenancy cuts in 4QFY18 on a consolidated basis to 209,756 co-locations. Shutdown by smaller players continues to put down tenancies. We expect consolidated revenue to decline 2% QoQ (but grow 2% YoY) to INR36b on muted rentals and energy revenue growth.

Tata Communications: EBITDA to grow 1% QoQ Revenue should grow 1% QoQ to INR41.6b on the back of 2% data revenue growth to INR29.5b, partly offset by 2% decline in voice revenue to INR12.1b. EBITDA should grow 1% QoQ to INR6.2b on the back of 3% data EBITDA growth to INR5.5b, partly offset by a 9% voice EBITDA decline to INR671m. Our view: We expect ARPU to continue to remain under pressure for the next 3-4 quarters until the larger players take away share from the smaller players. As all three big players (Bharti, Vodafone-Idea and RJio) reach a position of similar market share and financial & network capabilities, ARPU recovery should set in, driving EBITDA and FCF growth. Exhibit 1: Expected quarterly performance summary Sector CMP (INR) RECO Telecom Bharti Airtel Bharti Infratel Idea Cellular Tata Comm Sector Aggregate

April 2018

402 338 77 652

Buy Neutral Buy Buy

Sales (INR M) EBDITA (INR M) Net Profit (INR M) Mar-18 Var % YoY Var % QoQ Mar-18 Var % YoY Var % QoQ Mar-18 Var % YoY Var % QoQ 200,440 35,990 62,383 41,594 340,407

-8.6 2.2 -23.2 -3.1 -10.1

-1.4 -1.5 -4.2 1.1 -1.6

68,918 15,703 10,377 6,195 101,193

-12.3 -0.1 -51.0 23.3 -16.1

-7.7 -1.7 -15.2 1.1 -7.2

1,637 6,696 -15,760 64 -7,362

-79.9 12.2 Loss -89.6 PL

-69.1 14.4 Loss LP Loss

291

March 2018 Results Preview | Sector: Telecom

Exhibit 2: Industry wireless subscriber and net additions trend (m) Wireless Subsriber (m) 1200 1150 1100 1050 1000 950 900

21 7 9 7

1

-3

4

-1

Wireless Subsriber net additions (m) 29

21

28

23

14

-5

6 4 6 6

5

0 -1 -3 -5

-15

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18

-16

Source: TRAI, MOSL

Source: Company, MOSL

April 2018

9.1

3QFY18

2QFY18

24.3 18.6 4QFY18E

30.2 47.8 41.1 3QFY18

2QFY18

1QFY18

31.0 16.7 22.7 109.8 4QFY17

1.3 -3.5 3QFY17

2QFY17

73.5 61.4

Vodafone - India

65.9

Idea

99.1 83.8

1312

FY18

1QFY17

3Q

7.7 13.2 6.5 12.7 15.4 9.8

571 567

784 439 384 2Q

472 253 238 1Q

4Q

3Q

2Q

158 93 101 178 107 110 172 109 105 225 127 129 1Q

FY17

Bharti (India)

710

Vodafone - India

Source: Company, MOSL

Exhibit 6: Player-wise QoQ wireless traffic growth trend (%)

4QE

Idea

1106

Bharti (India)

3.5

3.6 1.7

5.4 7.3 3.1 15.5

0.7

Source: Company, MOSL

4QFY18E

10.3 11.3 10.7 8.4

FY18

Exhibit 5: Player-wise QoQ data traffic trend (b Mb)

13.1 10.8

Vodafone - India

4QFY17

-4

3QFY17

4QE

3Q

2Q

1Q

4Q

3Q

2Q

1Q

0

-0.5 2QFY17 -1.9 -2.0

2.2

8

1QFY17 -1.3

512

12 4

FY17

Idea

16

308

495 283

437 255

251

381

Bharti (India)

Vodafone - India

422

Idea

231

330 210

313 196

315 199

Bharti (India)

Exhibit 4: Player-wise QoQ wireless traffic growth trend (%)

1QFY18

Exhibit 3: Player-wise QoQ wireless traffic trend (b min)

Source: Company, MOSL

292

March 2018 Results Preview | Sector: Telecom

Exhibit 7: Player-wise QoQ ARPU trend (INR)

Idea

Vodafone - India

0.9 0.8

Source: Company, MOSL

4QFY18E

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

104 4QE

FY18

2QFY17

113 3Q

-0.4 -4.0 -4.4 -3.1 -8.4 -9.4 -7.5 -8.4 -9.2 -9.9 -2.0 -0.5 -1.1 -6.3 -7.7 -6.6 -15.2 -13.0 -13.1 -7.0 -8.3

130 2Q

FY17

1QFY17

141 1Q

123

142 4Q

114 114

132

141 145

142 154

158

156 3Q

158

173 2Q

171 172

176

Bharti (India)

Vodafone - India

180

188

Idea

1Q

196

Bharti (India)

Exhibit 8: Player-wise QoQ wireless traffic growth trend (%)

Source: Company, MOSL

Exhibit 9: Aggregate India wireless revenue and growth trend (QoQ, %)

3QFY18

2QFY18

1QFY18

4QFY17

3QFY17

2QFY17

-1

1QFY17

2

4QFY16

1

Agg. India wireless revenue growth (QoQ, %) 8 7 4 2 0 -3 -6 -9 -10

3QFY16

3QFY15

2QFY15

1QFY15

-1

2QFY16

5

1QFY16

6

600 500 400 300 200 100 0

4QFY15

Agg. India wireless revenue

Source: TRAI, MOSL

Exhibit 10: Relative Performance-3m (%) Sensex Index

108

Exhibit 11: Relative Performance-1 Yr (%)

MOSL Telecom Index

Sensex Index

MOSL Telecom Index

143

100

131

92

119

84

107

Source: Bloomberg, MOSL

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

95 Mar-17

Mar-18

Feb-18

Jan-18

Dec-17

76

Source: Bloomberg, MOSL

Exhibit 12: Comparative valuation Sector / Companies Telecom Bharti Airtel Bharti Infratel Idea Cellular Tata Comm Sector Aggregate

April 2018

CMP (INR)

RECO

402 338 77 652

Buy Neutral Buy Buy

EPS (INR) PE (x) EV/EBIDTA (x) ROE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 3.6 1.8 5.5 111.1 13.8 15.3 16.8 24.4 -10.9 -12.9 -10.5 -7.1 2.2 11.0 22.8 289.9 -405.1

219.3 22.1 -6.0 59.4 -155.3

73.0 8.6 20.1 8.7 -7.4 14.2 28.5 10.3 197.4 9.4

8.6 9.3 16.0 8.9 9.5

7.1 2.1 1.1 3.2 8.4 16.9 19.3 21.6 11.1 -18.4 -23.4 -24.2 6.8 4.3 20.2 32.1 7.8 -0.6 -1.7 1.3 Source: Company, MOSL

293

March 2018 Results Preview | Sector: Telecom

Exhibit 13: Wireless KPIs Wireless SUBS (m) Bharti (India) Idea Vodafone - India Avg. Wireless Subs (m) Bharti (India) Idea Vodafone - India ARPU (INR/month) Bharti (India) Idea Vodafone - India MOU/Sub (INR) Bharti (India) Idea Vodafone - India Wireless traffic (B min) Bharti (India) Idea Vodafone - India Data traffic (B Mb) Bharti (India) Idea Vodafone - India

FY15 4Q

1Q

FY16 2Q 3Q

4Q

1Q

FY17 2Q 3Q

4Q

1Q

FY18 2Q 3Q

4QE

YoY (%)

QoQ (%)

226 158 184

231 162 185

235 167 188

243 172 194

251 175 198

256 176 199

260 179 201

266 185 205

274 190 209

281 189 212

282 182 207

290 189 213

298 196

8.8 3.5

2.6 4.0

222 155 182

228 160 185

233 165 187

239 170 191

247 174 196

253 176 199

258 178 200

263 182 203

270 187 207

277 189 211

281 186 210

286 185 210

294 192

9.0 2.6

2.8 3.7

198 179 184

198 180 184

193 173 178

192 174 175

194 179 177

196 180 176

188 173 171

172 156 158

158 142 142

154 141 141

145 130 132

123 113 114

114 104

-27.5 -26.7

-7.0 -8.3

418 400 321

424 408 327

404 383 316

405 387 316

415 387 317

414 379 314

406 368 306

419 385 308

471 412 336

507 441 NA

518 459 NA

575 509 NA

580 534

23.3 29.7

1.0 5.0

278 185 174

290 196 181

282 189 177

290 196 181

308 202 186

315 199 187

313 196 184

330 210 189

381 231 211

422 251 NA

437 255 NA

495 283 NA

512 308

34.2 33.2

3.5 9.1

87 55 64

102 63 75

115 72 83

134 81 94

147 82 94

158 93 101

178 107 110

172 109 105

225 127 129

472 253 238

784 439 384

4Q

1Q

2Q

1,106 1,312 482.8 18.6 571 710 459.1 24.3 567 Source: Company, MOSL

Exhibit 14: Quarterly financials (pro forma) FY15 4Q Revenue (INR b) Bharti (ex Africa) Bharti (consolidated) Idea Vodafone - India EBITDA (INR b) Bharti (ex Africa) Bharti (consolidated) Idea EBITDA Margin (%) Bharti (ex Africa) Bharti (consolidated) Idea PAT (INR b) Bharti (consolidated) Idea EPS (INR) Bharti (consolidated) Idea

FY16 3Q

FY17 3Q

FY18 3Q

YoY (%)

QoQ (%)

168.0 174.3 174.7 177.3 185.1 193.0 193.5 179.8 168.9 171.1 165.7 151.9 149.0 230.2 235.9 237.5 239.8 249.6 255.5 246.5 233.4 219.3 219.6 217.8 203.2 200.4 84.2 87.9 86.9 90.1 94.8 94.9 93.0 86.6 81.3 81.7 74.7 65.1 62.4 104.0 105.5 103.9 105.1 108.8 108.9 106.5 99.7 92.2 92.4 85.7 74.5

-11.8 -8.6 -23.2

-1.9 -1.4 -4.2

68.0 80.9 30.6

69.6 82.2 29.8

69.6 82.3 30.6

70.8 84.1 31.3

76.8 91.1 36.2

81.9 95.5 30.9

82.0 94.4 28.4

72.4 84.8 21.7

65.7 78.6 21.2

64.2 77.6 18.8

62.8 79.2 15.0

56.6 74.7 12.2

50.7 68.9 10.4

-22.8 -12.3 -51.0

-10.5 -7.7 -15.2

40.5 35.1 36.4

39.9 34.9 33.9

39.8 34.7 35.2

39.9 35.1 34.7

41.5 36.5 38.1

42.5 37.4 32.6

42.4 38.3 30.5

40.3 36.3 25.0

38.9 35.8 26.1

37.5 35.3 23.0

37.9 36.4 20.1

37.3 36.8 18.8

34.0 -487bps -325bps 34.4 -145bps -237bps 16.6 -945bps -216bps

12.6 9.4

21.1 8.5

15.4 8.1

11.1 7.6

13.2 5.8

14.6 2.2

14.6 0.9

5.0 -3.8

3.7 -3.3

3.7 -8.1

3.4 -11.1

3.1 -12.8

1.6 -15.8

-56.2 NA

-46.5 NA

3.1 2.6

5.3 2.4

3.8 2.2

2.8 2.1

3.3 1.6

3.7 0.6

3.7 0.3

1.3 -1.1

0.9 -0.9

0.9 -2.3

0.9 -3.1

0.8 -3.6

0.4 -3.6

-56.2 NA

-46.5 NA

1Q

2Q

4Q

1Q

2Q

4QE

Source: Company, MOSL

April 2018

294

March 2018 Results Preview | Sector: Telecom

Bloomberg

BHARTI IN

Equity Shares (m)

3997.3

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

1606 / 25

52-Week Range (INR)

565 / 333

1,6,12 Rel Perf. (%)

-4 / -2 / 6

CMP: INR402 

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Net Sales

954.7 841.0 853.1 957.4

EBITDA

353.3 300.4 302.1 356.2

Adj. NP

44.4

Adj EPS(INR)

11.1

3.6

Adj EPS Gr.(%)

-9.5

-67.5

BV/Sh (INR)

14.4

7.3

22.0

1.8

5.5

168.8 170.5 171.1 175.4 6.6

2.1

1.1

3.2

RoCE (%)

5.3

3.8

3.2

4.3

12.7

40.8

65.7

21.9

36.1 111.1 219.3

73.0

Valuations P/E (x) P/BV (x)

2.4

2.4

2.3

2.3

EV/EBITDA (x)

7.4

8.9

8.9

7.3

Div. Yld (%)

0.2

0.2

0.2

0.2

Consolidated - Quarterly Earning Model Y/E March Gross Revenue YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Net Finance cost Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest Reported PAT Adj PAT YoY Change (%) Margins (%)



-49.3 200.6

RoE (%) Div. payout (%)



1Q 2,55,465 7.9 1,59,985 95,480 37.4 50,402 19,399 2,787 28,466 3,536 24,930 10,089 40.5 222 14,619 16,724 70.7 6.5

 

Bharti Airtel

TP: INR581 (+45%)

Buy

We expect consolidated revenue to decline 1.4% QoQ (and 9% YoY) to INR200.4b. Given the continued ARPU downtrading on account of the renewed competition from RJIo, we expect India wireless revenue to decline 4.4% QoQ (and 21% YoY) to INR102.8b. Africa revenue is expected to remain flat QoQ at INR51.5b. Consolidated EBITDA margin is likely to contract 240bp QoQ to 34.4%, led by 440bp contraction in India wireless margin to 28.2%, partly offset by 20bp expansion in Africa EBITDA margin to 35.4%. Consolidated net profit is expected to fall 46% QoQ (and 56% YoY) to INR1.6b. We expect India wireless ARPU to decline 7% QoQ (and 28% YoY) to INR114. Bharti trades at an EV/EBITDA of 8.9x FY19E and 7.3x FY20E. Maintain Buy.

Key monitorables  Consolidated revenue (expect 1.4% decline QoQ).  India wireless revenue (expected to decline 4.4% QoQ).  Consolidated EBITDA margin (expected at 34.4%; -240bp QoQ).  India wireless EBITDA margin (expected at 28.2%; -440bp QoQ).

FY17 2Q 3Q 4Q 2,46,515 2,33,357 2,19,346 3.4 -3.0 -12.1 1,52,113 1,48,542 1,40,746 94,402 84,815 78,600 38.3 36.3 35.8 49,560 48,350 49,418 19,057 19,356 19,162 1,568 3,487 2,494 27,353 20,596 12,514 66 2,040 6,055 27,287 18,556 6,459 11,136 11,841 1,753 40.8 63.8 27.1 1,544 1,678 972 14,607 5,037 3,734 14,646 5,775 8,146 25.9 -54.6 -45.5 5.9 2.5 3.7

1Q 2,19,581 -14.0 1,41,997 77,584 35.3 48,192 18,274 3,698 14,816 503 14,313 8,136 56.8 2,504 3,673 3,890 -76.7 1.8

FY18 2Q 3Q 2,17,769 2,03,186 -11.7 -12.9 1,38,549 1,28,498 79,220 74,688 36.4 36.8 46,873 48,375 23,266 20,882 3,907 2,950 12,988 8,381 1,786 2,395 11,202 5,986 5,341 379 47.7 6.3 2,431 2,549 3,430 3,058 4,364 5,301 -70.2 -8.2 2.0 2.6

4QE 2,00,440 -8.6 1,31,522 68,918 34.4 50,341 16,940 2,950 4,587 0 4,587 1,835 40.0 1,116 1,637 1,637 -79.9 0.8

FY17

(INR m) FY18E

9,54,683 -1.1 6,01,386 3,53,297 37.0 1,97,730 76,974 10,336 88,929 11,697 77,232 34,819 45.1 4,416 37,997 44,421 -9.5 4.7

8,40,976 -11.9 5,40,566 3,00,410 35.7 1,93,781 79,362 13,505 40,772 4,684 36,088 15,691 43.5 8,600 11,798 14,445 -67.5 1.7

E: MOSL Estimates

April 2018

295

March 2018 Results Preview | Sector: Telecom

Bharti Infratel Bloomberg

BHIN IN

Equity Shares (m)

1896.7

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

641 / 10

52-Week Range (INR)

482 / 319

1,6,12 Rel Perf. (%)

1 / -23 / -9

CMP: INR338  

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Net Sales

134.2 144.3 147.9 159.4



EBITDA

59.0

63.6

61.7

66.5

Adj. NP

27.5

25.6

28.2

31.1

AdjEPS INR

14.9

13.8

15.3

16.8

Gr. (%)

25.3

-6.9

10.4

10.0

BV/Sh (INR)

83.7

80.2

78.0

77.4



RoE (%)

16.2

16.9

19.3

21.6



RoCE (%)

13.2

14.6

14.6

16.5

Payout (%)

We expect consolidated revenue to decline 2% QoQ (but grow 2% YoY) to INR36b. Consolidation in the sector is likely to continue pressurizing tenancies. We expect 2% QoQ decline in tenancies leading to 2% QoQ decline in consolidated rental revenue to INR22.1b. We expect energy and other reimbursements to remain flat QoQ at INR13.9b. We expect consolidated EBITDA too to decline 2% QoQ to INR15.7b. Though rental EBITDA margin is expected to drop 90bp QoQ to 65.5%, 190bp expansion in energy EBITDA margin to 8.8% would enable consolidated EBITDA margin of 43.6%. We expect PAT to rise 14% QoQ to INR6.7b. Bharti Infratel trades at EV/EBITDA of 9x FY19E and 8.4x FY20E. Maintain Neutral.

Key monitorables 22.8

24.4

22.1

20.1

P/BV (x)

4.0

4.2

4.3

4.4

EV/EBITDA (x)

9.6

8.8

9.0

8.4

Div. Yld (%)

4.7

4.4

4.4

4.3

Consolidated Quarterly Performance Y/E March Revenue from operations YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

Neutral

125.0 125.8 114.0 103.6

Valuations P/E (x)

TP: INR380 (+12%)

1Q 32,106 6.9 18,159 13,947 43.4 5,648 -1,281 352 9,932 0 9,932 2,369 23.9 7,563 7,563 71.0 23.6

 Consolidated net co-location deletions (we expect ~3,720 QoQ tenancy deletions in 4QFY18).  Consolidated revenue per sharing operator (expected to remain flat QoQ).

FY17 2Q 3Q 32,919 34,007 8.3 9.5 18,421 19,206 14,498 14,801 44.0 43.5 5,629 5,664 -2,472 -947 333 357 11,674 10,441 0 0 11,674 10,441 3,936 4,237 33.7 40.6 7,738 6,204 7,738 6,204 30.8 25.3 23.5 18.2

4Q 35,204 10.6 19,481 15,723 44.7 5,684 287 414 10,166 0 10,166 4,200 41.3 5,966 5,966 -17.0 16.9

1Q 35,239 9.8 19,489 15,750 44.7 5,905 -627 474 10,946 0 10,946 4,307 39.3 6,639 6,639 -12.2 18.8

FY18 2Q 3Q 36,482 36,553 10.8 7.5 20,336 20,571 16,146 15,982 44.3 43.7 5,941 5,895 -109 510 401 495 10,715 10,072 0 0 10,715 10,072 4,331 4,218 40.4 41.9 6,384 5,854 6,384 5,854 -17.5 -5.6 17.5 16.0

4QE 35,990 2.2 20,287 15,703 43.6 6,045 -489 0 10,146 0 10,146 3,450 34.0 6,696 6,696 12.2 18.6

FY17

(INR m) FY18E

1,34,237 8.9 75,268 58,969 43.9 22,626 -4,414 1,455 42,212 0 42,212 14,742 34.9 27,470 27,470 22.2 20.5

1,44,264 7.5 80,683 63,581 44.1 23,786 -715 1,370 41,879 0 41,879 16,306 38.9 25,573 25,573 -6.9 17.7

296

March 2018 Results Preview | Sector: Telecom

Idea Cellular Bloomberg

IDEA IN

Equity Shares (m)

3600.5

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

279 / 4

52-Week Range (INR)

-5 / -4 / -20

Financial Snapshot (INR Million) Y/E March

2017 2018E 2019E 2020E

Net Sales

355.8 284.3 258.8 292.6

EBITDA

102.8

56.8

49.9

72.3

Adj. NP

-4.0

-47.4

-56.1

-45.8

-1.1

-10.9

-12.9

-10.5

-116.2 880.5

18.5

-18.3

Adj.EPSGr(%) BV/Sh(INR)

68.6

61.4

48.5

46.7

RoE (%)

-1.7

-18.4

-23.4

-24.2

RoCE (%)

1.6

-2.4

-3.2

-2.0

Payout (%)

0.0

0.0

0.0

0.0

Valuations P/E (x)

-69.9

-7.1

-6.0

-7.4

P/BV (x)

1.1

1.3

1.6

1.7

EV/EBITDA(x)

7.4

14.3

17.2

11.9

Div. Yield (%)

0.0

0.0

0.0

0.0



We expect ARPU to decline 8% QoQ (and 27% YoY) to INR104, impacted by downward revision in price plans (by RJio).



EBITDA margin is expected to contract ~220bp QoQ/9.5pp YoY to 16.6% due to plunge in revenue.



We expect Idea’s net loss to widen to INR15.8b v/s INR12.8b in 3QFY18.



Idea trades at an EV/EBITDA of 17.2x FY19E and 11.9x FY20E. Maintain Buy.

Key monitorables  Consolidated revenue (expect 4.2% decline QoQ).  Blended ARPU (we expect INR104, 8% QoQ fall).  EBITDA margin (we expect 220bp contraction QoQ).

Y/E March

April 2018

1Q 94,866 7.9 63,917 30,949 32.6 19,192 1,035 9,429 3,363 1,158 34.4 0 2,205 -74.2 2.3

Buy

We expect consolidated revenue to decline 4.2% QoQ (and 23.2% YoY) to INR62.4b.

Consolidated - Quarterly Earning Model Gross Revenue YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Share in Profits from Associates Net Finance Costs PBT Tax Rate (%) Minority Interest Reported PAT YoY Change (%) Margins (%) E: MOSL Estimates

TP: INR91 (+17%)



118 / 72

1,6,12 Rel Perf. (%)

AdjEPS (INR)

CMP: INR77

FY17 2Q 93,002 7.0 64,629 28,374 30.5 19,543 1,057 8,726 1,161 247 21.3 0 914 -88.7 1.0

3Q 86,627 -3.9 64,711 21,916 25.3 19,653 1,144 9,494 -6,087 -2,248 36.9 0 -3,839 NM -4.4

FY18 4Q 81,261 -14.3 60,062 21,199 26.1 19,885 983 9,366 -7,069 -3,792 53.6 0 -3,277 NM -4.0

1Q 81,665 -13.9 62,911 18,754 23.0 20,679 818 11,539 -12,646 -4,497 35.6 0 -8,149 NM -10.0

2Q 74,655 -19.7 59,639 15,016 20.1 21,143 843 11,829 -17,113 -6,047 35.3 0 -11,066 NM -14.8

3Q 65,096 -24.9 52,862 12,234 18.8 21,415 818 11,490 -19,853 -7,008 35.3 0 -12,845 NM -19.7

FY17

(INR m) FY18E

4QE 62,383 3,55,758 2,84,267 -23.2 12.7 -20.1 52,006 2,52,995 2,27,418 10,377 1,02,763 56,849 16.6 28.9 20.0 23,326 78,272 86,563 834 4,218 3,313 11,408 37,342 46,266 -23,522 -8,633 -72,666 -7,762 -4,636 -25,314 33.0 53.7 34.8 0 0 0 -15,760 -3,997 -47,352 NM NM NM -25.3 -1.1 -16.7

297

March 2018 Results Preview | Sector: Telecom

Tata Communications Bloomberg

TCOM IN

Equity Shares (m)

285.0

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

186 / 3

52-Week Range (INR)

CMP: INR652

Tata Communications’ revenue is expected grow 1% QoQ (decline 3% YoY) to INR41.6b on steady data revenues, offsetting the impact of muted voice revenue.



Data revenue is likely to grow 2% QoQ (6% YoY) to INR29.5b whereas voice revenue is expected to decline 2% QoQ (and 20% YoY) to INR12.1b.



Core EBITDA is expected to grow 1% QoQ to INR6.2b on the back of data EBITDA, and Core EBITDA margin should remain flat at 14.9%. Data EBITDA is expected to grow 3% QoQ to INR5.5b.



The stock trades at an EV/EBITDA of 9.8x FY19E and 7.5x FY20E. Maintain Buy.

4 / -12 / -22

Financial Snapshot (INR Million) Y/E March

2017 2018E 2019E 2020E

Net Sales

176.2 168.0 174.8 190.5

EBITDA

24.1

23.6

27.9

33.9

Adj. NP

2.8

0.6

3.1

6.5

2.2

11.0

22.8

AdjEPS (INR) Adj.EPSGr. (%)

10.0 192.1

BV/Sh(INR)

55.9

RoE (%) RoCE (%)

-77.4 388.0 108.3 48.8

59.8

82.6

46.1

4.3

20.2

32.1

9.9

-39.1

5.3

8.3

P/E (x)

65.6 289.9

59.4

28.5

P/BV (x)

11.7

13.4

10.9

7.9

EV/EBITDA(x)

11.4

11.7

9.8

7.5

Div. Yield (%)

0.7

0.7

0.7

0.7

Valuations

Cons. Quarterly Earning Model Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Exceptional expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

April 2018

1Q 44,569 -14.0 37,849 6,720 15.1 4,660 933 954 2,081 0 2,081 734 35.3 -6 1,353 1,353 212.5 3.0

Buy



773 / 570

1,6,12 Rel Perf. (%)

TP: INR750 (+15%)

Key monitorables  Data revenue performance (we expect 2% QoQ growth).  Data EBITDA margin (we expect flat EBITDA margin of 18.7%).

FY17 2Q 3Q 45,091 43,601 -12.1 -14.5 38,466 37,910 6,625 5,691 14.7 13.1 4,644 4,677 960 999 728 909 1,750 924 0 0 1,750 924 899 923 51.4 99.9 -5 -7 856 7 856 7 1,321.3 -96.6 1.9 0.0

4Q 42,937 -16.5 37,914 5,024 11.7 4,677 780 1,012 578 10,633 -10,055 -192 1.9 -49 -9,815 616 NM 1.4

1Q 43,100 -3.3 37,514 5,586 13.0 4,447 761 444 822 0 822 461 56.0 39 322 322 -76.2 0.7

FY18 2Q 3Q 42,176 41,146 -6.5 -5.6 36,531 35,019 5,645 6,128 13.4 14.9 4,837 4,728 877 896 292 740 223 1,244 2,134 0 -1,911 1,244 588 1,050 -30.8 84.4 1 92 -2,500 101 291 -37 NM -597.3 0.7 -0.1

FY17 4QE 41,594 -3.1 35,399 6,195 14.9 5,403 853 158 98 0 98 32 33.0 1 64 64 -89.6 0.2

1,76,197 -2.9 1,52,138 24,059 13.7 18,658 3,672 3,603 5,332 10,633 -5,301 2,364 -44.6 -25 -7,640 2,832 NM 1.6

(INR m) FY18E 1,68,017 -4.6 1,44,462 23,554 14.0 19,415 3,387 1,634 2,387 2,134 253 2,131 843.8 134 -2,012 641 NM 0.4

298

March 2018 Results Preview | Sector: Utilities

Utilities Company name

Coal India and Power Grid to outperform

CESC

Coal India to benefit from price hike

Coal India

Within our Utilities Universe, we expect Coal India to outperform, led by the price hike benefit. We estimate its EBITDA (ex-OBR) to increase 22% QoQ/39% YoY to INR67.5b on the price hike benefit. Dispatches have increased 5% YoY/QoQ to 159mt. We expect higher growth (~7% YoY) in FSA volumes, while e-auction volumes are expected to be broadly flat. FSA realizations are estimated to decline 3% YoY, while e-auction realization is estimated to be broadly flat QoQ. We expect PAT to increase 89% YoY/71% QoQ to INR51.4b.

JSW Energy NHPC NTPC Power Grid Corp. Tata Power

Power Grid’s PAT is expected to increase by ~19% YoY to INR23.9b, led by growth in regulated equity. We estimate capitalization of INR84.9b, taking full-year capitalization to ~INR280b. NTPC’s adj. PAT is expected to increase by ~3% YoY to INR27.4b due to under-recoveries at some of its plants. Regulated equity is expected to increase by ~15% YoY to INR507b. Commercial capacity is unchanged QoQ. 1.6GW of capacity was commissioned during the quarter. CESC’s growth is likely to be muted as tariff approval is delayed. JSW Energy’s EBITDA is expected to decline 11% YoY/34% QoQ to INR5.2b on lower generation at merchant plants and lower hydro power generation. NHPC’s PAT is expected to increase ~2% YoY to INR1.7b. Tata Power’s PAT is expected to increase 15% YoY to INR4.4b on higher coal prices. Modest growth in conventional electricity generation: All-India electricity generation grew 7%/4% in January/February. Conventional electricity generation grew ~6%/3% YoY. YTD February electricity generation growth (including renewables) was 5.2% YoY. ST prices seasonally higher: Short-term (ST) prices on IEX were down 2% QoQ to INR3.5/kWh. IEX day-ahead volumes were up 12% YoY to 10.6bu in 4QFY18. Exhibit 1: Expected quarterly performance summary (INR m) Sector

CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. Tata Power Sector Aggregate

CMP (INR)

Reco

Mar-18

1,005 278 79 29 170 198 84

Buy Buy Sell Buy Buy Buy Sell

13,160 250,505 18,803 20,090 189,313 63,101 97,131 652,104

Sales Var % YoY -16.3 8.1 1.0 47.5 -7.3 -6.0 35.5 4.7

Var % QoQ -22.9 15.7 -5.7 34.1 -8.6 -15.9 39.8 5.2

EBDITA Var % Mar-18 YoY 4,963 143.3 67,597 38.7 5,235 -10.8 9,036 305.1 61,303 5.2 57,831 1.4 15,752 17.0 221,717 18.2

Var % QoQ 58.0 22.0 -10.6 15.2 17.5 -12.9 30.3 9.3

Mar-18 3,033 51,367 625 1,720 27,439 23,989 4,733 112,905

PAT Var % YoY 2.8 89.0 158.0 2.1 3.1 19.2 21.7 36.6

Var % QoQ 96.9 70.9 33.3 -75.0 28.6 6.5 59.7 31.7

Sanjay Jain – Research analyst ([email protected]); +91 22 6129 1523 Dhruv Muchhal – Research analyst ([email protected]); +91 22 6129 1549 April 2018

299

March 2018 Results Preview | Sector: Utilities

Mar-18

Mar-18

Feb-18

Jan-18

Source: Bloomberg, MOSL

Feb-18

90 Jan-18

90

Dec-17

98 Nov-17

94

Oct-17

106

Sep-17

98

MOSL Utilities Index

Aug-17

114

Mar-17

102

Jul-17

106

Dec-17

Sensex Index

122

Jun-17

MOSL Utilities Index

Apr-17

Sensex Index

Exhibit 3: Relative performance—1Yr (%)

May-17

Exhibit 2: Relative performance—3m (%)

Source: Bloomberg, MOSL

Exhibit 4: Comparative valuation Sector / Companies Utilities CESC Coal India JSW Energy NHPC NTPC Power Grid Corp. Tata Power Sector Aggregate

April 2018

CMP (INR)

Reco

1,005 278 79 29 170 198 84

Buy Buy Sell Buy Buy Buy Sell

EPS (INR) PE (x) EV/EBIDTA (x) RoE (%) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E 86.5 17.8 3.8 2.4 13.0 16.9 4.9

95.2 26.4 3.6 3.0 15.2 20.7 7.3

103.1 30.8 4.0 3.2 16.6 21.9 7.9

11.6 15.7 20.9 11.9 13.1 11.7 17.3 13.7

10.6 10.5 22.1 9.7 11.2 9.6 11.6 10.6

9.7 9.1 20.0 9.1 10.2 9.1 10.7 9.6

7.0 8.9 9.1 8.9 11.3 8.7 11.7 9.6

6.7 6.0 9.3 7.3 9.2 7.7 10.3 7.9

6.2 5.2 9.1 6.5 8.0 7.2 9.6 7.1

10.4 47.4 5.9 8.6 10.6 16.6 10.8 14.6

10.4 65.8 5.5 10.3 11.6 17.7 14.5 17.2

10.3 71.2 6.0 10.7 11.8 16.5 14.0 17.7

300

March 2018 Results Preview | Sector: Utilities

CESC Bloomberg

CESC IN

Equity Shares (m)

133.2

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

134 / 2

52-Week Range (INR)

2 / -5 / 6

Financial Snapshot (INR Million) Y/E MARCH FY17 FY18E FY19E FY20E EBITDA

139.0

146.5

156.3

164.6

31.6

36.2

37.7

39.1

6.9

11.5

12.7

13.7

EPS (INR)

51.9

86.5

95.2

103.1

EPS Gr. (%)

14.7

66.8

10.0

8.4

NP

BV/Sh. (INR )

797.4

871.9

RoE (%)

6.5

10.4

10.4

10.3

RoCE (%)

7.3

8.3

8.5

8.5

19.3

11.6

10.5

9.7

Payout (%)



1189 / 812

1,6,12 Rel Perf. (%)

Sales

CMP: INR1005

 

TP: INR1,391 (+38%)

Buy

We expect CESC’s standalone PAT to increase 2.8% YoY to INR3.03b, driven by savings in transmission and distribution losses, partly offset by delay in approval of tariff for FY18. Regulated equity is estimated to grow by 6.7% YoY/1.3% QoQ to INR40.1b. Spencer EBITDA should improve with a better performance after initial GST hiccups, and transitory impact due to regulatory issues in certain states in 3Q. The company expects to turn PAT positive in 4QFY18. Buy.

955.1 1,046.2

VALUATION

19.2

11.5

10.5

9.7

Key issues to watch for

P/BV (x)

1.3

1.1

1.0

1.0

EV/EBITDA (x)

8.8

7.5

7.1

6.6

Div. Yield (%)

1.0

1.0

1.0

1.0

 Performance of Spencer.  Progress on demerger.

P/E (x)

Quarterly performance

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Regulatory (inc)/exp PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%)

April 2018

1Q 20,120 18.1 5,110 32.4 25.4 960 1,150 260 620 2,640 900 34.1 1,740 1,740 14.5

FY17 2Q 3Q 20,160 16,200 13.8 5.3 5,910 3,150 34.9 5.7 29.3 19.4 990 980 1,160 1,080 320 300 600 -960 3,480 2,350 1,060 830 30.5 35.3 2,420 1,520 2,420 1,520 24.1 35.7

4Q 15,720 6.3 2,040 -57.1 13.0 1,160 1,090 590 -3,410 3,790 840 22.2 2,950 2,950 19.0

1Q 21,840 8.5 6,070 18.8 27.8 1,050 1,210 400 1,940 2,270 490 21.6 1,780 1,780 2.3

FY18E 2Q 3Q 20,880 17,060 3.6 5.3 5,050 3,140 -14.6 -0.3 24.2 18.4 1,080 1,090 1,260 1,210 350 430 -90 -700 3,150 1,970 680 430 21.6 21.8 2,470 1,540 2,470 1,540 2.1 1.3

4QE 13,160 -16.3 4,963 143.3 37.7 1,072 1,286 167 -1,150 3,921 889 22.7 3,033 3,033 2.8

FY17

FY18E

72,200 12.2 16,210 1.4 22.5 4,090 4,480 1,470 -3,150 12,260 2,380 19.4 9,880 8,630 22.1

72,940 1.0 19,223 18.6 26.4 4,292 4,966 1,347 0 11,311 2,489 22.0 8,823 8,823 2.2

301

March 2018 Results Preview | Sector: Utilities

Coal India Bloomberg

COAL IN 6207.4

Equity Shares (m) M. Cap. (INR b)/(USD b)

1728 / 27

52-Week Range (INR)

317 / 234 -9 / -3 / -17

1,6,12 Rel Perf. (%)

Financial Snapshot (INR Million) Y/E MARCH 2017 2018E 2019E 2020E Net Sales

782.2

EBITDA

840.3

CMP: INR278  



941.6 1,002.9

149.1

171.8

251.9

292.8



NP

92.7

110.4

163.9

190.9



Adj.EPS (INR)

14.9

17.8

26.4

30.8

-34.0

19.2

48.4

16.5

EPS Gr. (%)

TP: INR397 (+43%)

We expect Coal India’s EBITDA (ex-OBR) to increase ~22% QoQ to INR67.6b on price hike benefit and higher volumes. Dispatches are up 5% YoY to 159.1mt. FSA volumes are estimated to increase 6.8% YoY to 124mt on strong power sector demand. E-auction volumes would be flat YoY at ~28mt. FSA realization is estimated to decline 3% YoY to INR1,338/ton on grade slippage impact, after factoring for the price hike. E-auction realization is estimated to be flat QoQ at INR1,974/t. PAT is estimated to increase ~71% QoQ to INR51.4b. Buy.

BV/Sh. (INR)

39.5

37.5

40.1

43.2

RoE (%)

37.8

47.4

65.8

71.2

RoCE (%)

32.2

46.0

67.3

73.0

163.0

111.3

90.0

90.0

18.4

15.4

10.4

8.9

Key issues to watch for

6.9

7.3

6.8

6.3

8.8

8.0

5.6

4.9

7.3

6.0

7.2

8.4

 E-auction volumes and realization.  Global coal prices.

Payout (%)

Buy

Valuation P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)

Quarterly Performance

(INR m)

Y/E March Sales Change (%) Adj. EBITDA As of % Sales Depreciation OBR Interest Other Income PBT Tax Tax Rate (%) Reported PAT Adjusted PAT Change (%)

April 2018

1Q 184,219 -5.6 44,879 24.4 6,672 2,331 890 11,306 46,293 15,641 33.8 30,653 30,653 -19.1

FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 162,125 204,146 231,716 191,617 181,483 216,433 250,505 782,206 840,325 -7.3 4.2 8.3 4.0 11.9 6.0 8.1 0.3 7.4 8,851 46,673 48,719 34,151 12,888 55,405 67,597 149,121 170,327 5.5 22.9 21.0 17.8 7.1 25.6 27.0 19.1 20.3 6,921 7,011 8,498 6,699 7,146 7,511 8,025 29,101 29,380 1,425 8,124 14,843 -1,069 578 9,226 3,444 26,722 12,180 970 1,107 1,151 1,209 1,007 974 385 4,117 3,575 14,125 11,167 18,558 12,066 6,107 8,409 9,082 55,156 35,663 13,661 41,598 42,784 39,378 10,264 46,102 64,824 144,337 160,855 7,660 12,754 15,606 15,860 6,576 16,052 13,457 51,660 51,944 56.1 30.7 36.5 40.3 64.1 34.8 20.8 35.8 32.3 6,001 28,845 27,179 23,518 3,689 30,050 51,367 92,677 108,911 6,001 28,845 27,179 23,518 3,689 30,050 51,367 92,677 108,911 -76.2 -21.7 -35.9 -23.3 -38.5 4.2 89.0 -34.9 17.5

302

March 2018 Results Preview | Sector: Utilities

JSW Energy Bloomberg

JSW IN

Equity Shares (m)

1640.1

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

130 / 2

52-Week Range (INR)

98 / 60 0 / -1 / 12

1,6,12 Rel Perf. (%)

Financial Snapshot (INR Million) Y/E MARCH 2017 2018E 2019E 2020E Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR )

826.3

815.4

845.6

918.0

33.2

28.6

29.0

31.3

6.3

6.2

5.9

6.5

3.8

3.8

3.6

4.0

-51.5

-0.9

-5.6

10.5

63.2

64.6

65.8

67.3

RoE (%)

6.3

5.9

5.5

6.0

RoCE (%)

8.6

7.8

7.5

7.5

52.1

52.6

55.7

50.4

Payout (%)

CMP: INR79   

TP: INR53 (-33%)

Sell

We estimate JSW Energy’s EBITDA to decline 11% YoY to INR5.2b on lower generation at Hydro and merchant power plants. Vijaynagar PLF is estimated at 45% v/s 77% in the previous year. Imported coal prices are estimated to be broadly flat QoQ at USD84/t. Sell.

VALUATION 21.0

21.2

22.5

20.3

P/BV (x)

P/E (x)

1.3

1.2

1.2

1.2

EV/EBITDA (x)

8.5

9.6

9.4

9.1

Div. Yield (%)

2.5

2.5

2.5

2.5

Consolidated performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense PBT Tax Rate (%) MI and Associates Reported PAT Adj PAT YoY Change (%)

April 2018

1Q 24,500 16.3 13,328 11,173 45.6 2,398 4,293 416 4,899 4,899 1,248 25.5 -14 3,665 3,665 32.1

Key issues to watch for  International coal prices.  Short-term power market prices.

FY17 2Q 3Q 20,470 19,043 -19.1 -28.1 10,843 12,468 9,627 6,575 47.0 34.5 2,471 2,444 4,356 4,229 516 505 3,316 407 3,316 407 1,167 249 35.2 61.2 -25 -56 2,174 214 2,174 214 -42.3 -93.3

4Q 18,621 -30.6 12,752 5,869 31.5 2,379 3,970 732 253 253 22 8.6 -11 242 242 -92.1

1Q 22,316 -8.9 13,628 8,688 38.9 2,428 3,963 1,025 3,323 3,323 1,114 33.5 36 2,173 2,173 -40.7

FY18E 2Q 3Q 20,490 19,932 0.1 4.7 11,667 14,079 8,824 5,853 43.1 29.4 2,449 2,407 3,910 3,406 1,705 879 4,170 920 4,170 920 1,202 198 28.8 21.5 -1 254 2,969 469 2,969 469 36.6 119.1

(INR Million) FY17 FY18E 4QE 18,803 1.0 13,568 5,235 27.8 2,417 3,351 994 461 461 60 13.0 -224 625 625 158.0

82,634 -17.1 49,391 33,244 40.2 9,692 16,848 2,170 8,875 8,875 2,685 30.3 -106 6,295 6,295 -51.2

81,541 -1.3 52,942 28,600 35.1 9,700 14,629 4,604 8,874 8,874 2,574 29.0 66 6,235 6,235 -1.0

303

March 2018 Results Preview | Sector: Utilities

NHPC Bloomberg

NHPC IN

Equity Shares (m)

10259.3

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

298 / 5

52-Week Range (INR)

35 / 26 6 / -2 / -21

1,6,12 Rel Perf. (%)

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

86.2

90.6

106.2

EBITDA

48.4

51.7

66.4

74.8

30.3

25.1

30.7

32.8

EPS (INR)

3.0

2.4

3.0

3.2

25.6

-17.2

22.2

7.0

BV/Sh. (INR )

28.3

28.6

29.4

30.3

RoE (%)

10.0

8.6

10.3

10.7

RoCE (%)

7.0

6.4

7.8

9.1

98.9

88.3

72.3

71.3

P/E (x)

9.9

11.7

9.5

8.9

P/BV (x)

1.0

1.0

1.0

0.9

Div. Yield (%)

8.4

6.3

6.3

6.7

Payout (%) Valuation

Consolidated performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Rate regulated activity PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT

April 2018

TP: INR36 (+26%)

Buy



We expect PAT to increase 2% YoY to INR1.7b.



Other income is expected to decline from INR5.7b in 3Q to INR1.3b in 4Q as the base is stronger due to dividend from subsidiaries and late payment surcharge. Buy.

117.3

NP EPS Gr. (%)

CMP: INR29

1Q 21,968 9.7 8,403 13,565 61.8 3,384 2,751 1,633 1,379 10,443 0 10,443 1,864 17.9 8,578 8,578

Key issues to watch for  Commissioning of on-going projects.

FY17 2Q 3Q 24,034 13,086 2.5 -4.3 8,438 6,841 15,595 6,244 64.9 47.7 3,422 3,551 2,794 2,688 8,779 1,750 1,085 1,340 19,243 3,095 0 0 19,243 3,095 3,696 948 19.2 30.6 15,547 2,147 15,547 2,147

4Q 13,624 -16.9 11,394 2,231 16.4 3,527 2,499 2,426 3,336 1,966 0 1,966 282 14.3 1,684 1,684

1Q 23,275 6.0 9,412 13,863 59.6 3,536 2,409 1,053 2,010 10,980 0 10,980 2,354 21.4 8,627 8,627

FY18E 2Q 3Q 19,717 14,979 -18.0 14.5 8,567 7,137 11,150 7,843 56.5 52.4 3,505 3,469 2,356 2,279 5,194 5,688 1,426 1,710 11,908 9,492 0 0 11,908 9,492 1,722 2,613 14.5 27.5 10,186 6,879 10,186 6,879

(INR Million) FY17 FY18E 4QE 20,090 47.5 11,054 9,036 45.0 3,358 2,164 1,271 -1,098 3,688 0 3,688 1,968 53 1,720 1,720

72,712 -1.1 35,076 37,636 51.8 13,884 10,732 14,587 7,140 34,746 0 34,746 6,790 19.5 27,956 27,956

78,062 7.4 36,170 41,892 53.7 13,868 9,208 13,205 4,047 36,068 0 36,068 8,656 24.0 27,412 27,412

304

March 2018 Results Preview | Sector: Utilities

NTPC Bloomberg

NTPC IN 8245.5

Equity Shares (m) M. Cap. (INR b)/(USD b)

1398 / 21

52-Week Range (INR)

188 / 153

1,6,12 Rel Perf. (%)

6 / -5 / -9

Financial Snapshot (INR Million) Y/E MARCH 2017 2018E 2019E 2020E Net Sales

817.2

838.9

943.0 1,029.8

EBITDA

218.3

227.8

289.1

329.3

NP

101.9

107.1

125.1

136.8

12.4

13.0

15.2

16.6

5.1

5.0

16.9

9.3

Adj.EPS (INR) EPS Gr. (%)

118.7

126.4

135.6

145.0

RoE (%)

BV/Sh. (INR)

10.9

10.6

11.6

11.8

RoCE (%)

6.6

6.5

7.2

7.7

38.7

34.7

33.0

36.2

13.5

12.8

11.0

10.0

1.4

1.3

1.2

1.1

EV/EBITDA (x)

11.3

11.5

9.4

8.2

Div. Yield (%)

2.7

3.0

3.6

3.9

Payout (%) Valuation P/E (x) P/BV (x)

Quarterly Performance (standalone) Y/E March

Sales Change (%) EBITDA Other income PBT Tax PAT Change (%) Adj. PAT Change (%) A. Core PAT Core RoE (%) a. Base RoE - 15.5% b. PLF incentive c. Others B. Other income Key metrics Regulated Equity Commercial cap.(MW) Coal-based PLF (%)

April 2018

1Q 188,585 10.3 52,139 1,579 30,761 7,066 23,695 4.1 24,047 5.7 22,827 21.9 15,582 1,530 5,715 1,220

CMP: INR170 

 

TP: INR214 (+26%)

Buy

We expect adjusted PAT to increase ~3% YoY to INR27.4b, as growth in regulated equity is offset by under-recovery on account of lower DC at a few plants. Installed capacity is unchanged QoQ. It commissioned ~1.6GW in standalone and 600MW in JV in the quarter. Regulated equity is expected to increase by 15% YoY to INR507b. Buy.

Key issues to watch for  PLF for coal-based projects and generation loss.  Core RoE and incentives.  Impact of shift in GCV determination.

(INR m)

FY17 FY18E FY17 FY18E 2Q 3Q 4Q 1Q 2Q 3Q 4QE 193,979 193,959 204,167 201,076 198,518 207,151 189,313 782,734 796,058 8.1 10.9 11.4 6.6 2.3 6.8 -7.3 53,914 52,260 58,248 52,684 55,933 52,177 61,303 216,200 222,097 1,906 2,502 4,702 6,626 2,616 3,135 4,796 10,689 17,173 32,580 30,819 30,080 34,654 32,228 25,848 35,750 123,879 128,480 7,621 6,131 9,286 8,472 7,842 2,240 8,312 30,026 26,865 24,960 24,687 20,794 26,182 24,386 23,608 27,439 93,853 101,614 -17.9 -7.5 -25.5 10.5 -2.3 -4.4 32.0 -12.9 8.3 23,410 22,448 26,606 25,742 28,387 21,336 27,439 96,227 102,903 -0.7 0.0 0.5 7.0 21.3 -5.0 3.1 1.0 6.9 22,138 20,536 23,121 20,757 26,337 19,046 23,712 88,298 89,852 21.0 19.4 21.4 18.9 22.7 15.3 18.7 20.7 19.0 16,337 16,428 16,765 17,058 17,972 19,245 19,623 65,113 73,899 30 0 1,470 549 660 450 1,524 3,030 3,183 5,771 4,108 4,885 3,150 7,705 -650 2,565 20,155 12,769 1,272 1,912 3,485 4,985 2,050 2,290 3,726 7,930 13,051

420,146 423,072 424,822 440,489 439,927 487,680 505,625 507,196 440,489 507,196 39,552 39,602 39,602 40,522 40,749 43,619 44,492 44,492 40,522 44,492 81.4 74.7 77.2 81.2 79.1 76.6 76.9

305

March 2018 Results Preview | Sector: Utilities

Power Grid Corporation Bloomberg

PWGR IN 5231.6

Equity Shares (m) M. Cap. (INR b)/(USD b)

1038 / 16

52-Week Range (INR)

226 / 189 2 / -10 / -10

1,6,12 Rel Perf. (%)

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

257.0

298.2

350.3

388.5

EBITDA

226.6

262.7

310.6

344.6

73.1

88.6

108.2

114.7

NP EPS (INR)

14.0

16.9

20.7

21.9

EPS Gr. (%)

25.1

21.3

22.1

6.0

BV/Sh. (INR )

95.3

108.5

124.8

141.7

RoE (%)

15.6

16.6

17.7

16.5

RoCE (%)

7.3

8.2

8.8

8.8

21.0

22.5

22.1

24.1

14.0

11.6

9.5

8.9

2.1

1.8

1.6

1.4

Payout (%) Valuation P/E (x) P/BV (x) EV/EBITDA (x)

9.6

8.7

7.7

7.1

Div. Yield (%)

1.3

1.6

1.9

2.1

Quarterly Performance Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%)

April 2018

1Q 60,691 29.4 53,675 29.8 88.4 17,573 15,178 1,902 22,827 4,819 21.1 18,008 18,008 32.8

CMP: INR198  

TP: INR287 (+45%)

Buy

We estimate PAT to grow by 19% YoY to INR23.9b, driven by growth in regulated equity. We estimate capitalization of INR84.9b in the quarter, with fullyear capitalization at INR280b. We estimate capex of INR41b, with full-year capex at INR220b. Buy.

Key issues to watch for  Capitalization/capex guidance for FY18.  Details on competitively bid projects.  Development on green energy projects, state JVs, etc.

FY17 2Q 3Q 62,296 65,010 28.5 22.1 55,788 58,220 30.3 22.8 89.6 89.6 18,769 19,653 15,876 16,426 2,507 2,866 23,650 25,006 4,888 5,706 20.7 22.8 18,762 19,300 18,762 19,458 33.2 21.1

4Q 67,120 16.9 57,015 12.9 84.9 20,633 15,558 3,424 24,247 5,083 21.0 19,164 20,131 28.3

1Q 71,814 18.3 62,699 16.8 87.3 21,311 17,624 2,085 25,848 5,324 20.6 20,524 21,386 18.8

FY18E 2Q 3Q 72,528 75,070 16.4 15.5 65,560 66,364 17.5 14.0 90.4 88.4 22,350 23,186 18,673 19,555 2,397 2,781 26,934 26,405 5,523 5,996 20.5 22.7 21,410 20,408 21,539 22,517 14.8 15.7

FY17

INR million FY18E

4QE 63,101 257,165 285,634 -6.0 24.4 11.1 57,831 226,715 252,454 1.4 24.0 11.4 91.6 88.2 88.4 10,106 76,628 76,953 19,116 63,038 74,968 1,486 8,649 8,749 30,095 95,698 109,281 6,106 20,496 22,949 20.3 21.4 21.0 23,989 75,202 86,332 23,989 76,169 89,431 19.2 28.0 17.4

306

March 2018 Results Preview | Sector: Utilities

Tata Power Bloomberg

TPWR IN

Equity Shares (m)

2705.0

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

228 / 4 2 / 3 / -17

1,6,12 Rel Perf. (%)

Financial Snapshot (INR Million) Y/E MARCH 2017 2018E 2019E 2020E 279.0

312.9

324.7

341.8

EBITDA

58.5

64.6

69.3

71.9

NP

14.0

12.9

19.6

21.3

EPS (INR) EPS Gr. (%)

5.2

4.8

7.3

7.9

83.8

-7.5

51.9

8.6

BV/Sh. (INR )

43.5

46.3

53.8

58.6

RoE (%)

11.9

10.6

14.5

14.0

RoCE (%)

6.8

5.5

6.3

6.4

Payout (%)

0.0

27.2

17.9

16.5

16.1

17.4

11.4

10.5

P/BV (x)

1.9

1.8

1.5

1.4

Div. Yield (%)

0.0

1.6

1.6

1.6

Valuation P/E (x)

Consolidated performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Rate regulated activity PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & P/L of Asso. Cos. Reported PAT Adj PAT

April 2018



102 / 76

52-Week Range (INR)

Sales

CMP: INR83

1Q 68,383 -24.9 52,028 16,355 23.9 4,393 7,915 -477 -2,721 849 0 849 1,449 170.6 1,324 725 725

 

TP: INR74 (-11%)

Sell

We expect Tata Power’s adj. PAT to increase ~15% QoQ (up 51% YoY) to INR4.5b, driven by an increase in coal prices, offset by higher losses at Mundra. We expect fuel cost under-recovery at Mundra of INR0.8/kWh, driven by higher coal prices. We estimate PAT of coal companies to increase by ~43% YoY to INR3.6b, driven by higher realization. Sell.

Key issues to watch for  Cost control at Mundra.  Performance at Delhi.

FY17 2Q 3Q 72,089 66,837 -23.8 -27.6 57,473 52,809 14,616 14,029 20.3 21.0 4,476 5,318 7,243 7,010 1,029 -792 -3,064 1,523 862 2,432 0 0 862 2,432 -1,117 706 -129.6 29.0 1,383 4,356 3,362 6,082 3,362 6,082

4Q 71,668 -23.2 58,201 13,467 18.8 5,698 8,973 2,262 -1,832 -775 -6,515 -7,289 -1,496 20.5 3,169 -2,625 3,890

1Q 69,686 1.9 51,375 18,311 26.3 5,857 9,286 313 -2,438 1,044 0 1,044 2,630 252.0 3,224 1,638 1,638

FY18E 2Q 3Q 76,573 69,499 6.2 4.0 58,075 57,412 18,498 12,087 24.2 17.4 5,900 5,972 9,814 8,455 1,331 911 -2,641 1,459 1,474 30 -1,488 3,151 -15 3,181 1,553 1,263 39.7 3,909 4,197 2,342 6,115 3,830 2,965

(INR Million) FY17 FY18E 4QE 97,131 278,977 312,890 35.5 -5.4 12.2 81,379 220,510 248,241 15,752 58,467 64,648 16.2 21.0 20.7 5,964 19,886 23,693 7,921 31,140 35,475 -232 2,022 2,322 0 -6,095 -3,620 1,635 3,369 4,183 0 -6,515 1,663 1,636 -3,145 5,846 935 -458 6,380 57 14.6 109.1 3,783 10,142 15,112 4,483 7,455 14,578 4,483 13,969 12,915

307

March 2018 Results Preview | Sector: Retail

Arvind Bloomberg

ARVND IN

Equity Shares (m)

258.2

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

104 / 2

52-Week Range (INR)

478 / 354

1,6,12 Rel Perf. (%)

Y/E MARCH

2017 2018E 2019E 2020E

Net Sales

92.4 106.4 122.5 138.1

EBITDA

9.4

9.1

11.0

13.0

Adj. Net Profit

3.3

2.9

3.6

4.9

Adj. EPS (INR)

12.4

11.3

14.1

18.8

1.2

-8.4

23.8

34.1

BV/Sh (INR) RoE (%)

10.3

8.0

9.4

11.7

8.8

7.2

7.7

9.1

23.5

32.0

34.5

32.1

30.9

33.7

27.2

20.3

2.8

2.6

2.5

2.3

EV/EBITDA (x)

14.6

15.5

12.8

10.8

Div. Yield (%)

0.6

0.8

1.0

1.3

Valuations P/E (x) P/BV (x)

Neutral

We expect revenue to grow 14.8% YoY to INR28,296m in 4QFY18.



EBIDTA margin is likely to contract 60bp YoY to 8.8%. EBIDTA is likely to grow by 7.4% YoY to INR2476m.



We estimate adj. PAT to decline 22% YoY to INR831m from INR1,048m. Neutral.

138.1 145.2 154.5 167.3

RoCE (%) Div. Payout (%)

TP: INR402



-1 / 4 / -13

Financial Snapshot (INR Billion)

Adj. EPS Gr. (%)

CMP: INR403

Quarterly Performance Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) MI & Profit/Loss of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

1Q 21,041 17.8 18,597 2,445 11.6 691 891 166 1,029 -2 1,027 317 30.9 -23 733 734 28.3 3.5

Key things to watch for  Movement of currency and cotton prices.  Performance of textile and apparel business.

FY17 2Q 23,311 19.1 20,988 2,323 10.0 719 731 221 1,094 -63 1,031 270 26.1 -5 766 813 21.3 3.3

3Q 23,355 14.8 20,995 2,359 10.1 734 676 109 1,059 -27 1,031 280 27.1 20 732 752 -18.3 3.1

4Q 24,648 10.4 22,342 2,306 9.4 827 585 284 1,178 -89 1,089 131 12.0 -11 969 1,048 7.8 3.9

1Q 24,750 17.6 22,680 2,070 8.4 863 614 163 756 -69 686 135 19.7 -16 568 623 -15.1 2.3

FY18E 2Q 3Q 26,285 27,058 12.8 15.9 24,162 24,573 2,123 2,484 8.1 9.2 833 933 620 671 256 122 926 1,003 45 106 970 1,108 237 112 24.4 10.1 0 -6 734 1,002 677 883 -16.7 17.5 2.8 3.7

(INR Million)

FY17 4QE 28,296 14.8 25,820 2,476 8.8 950 700 258 1,084 0 1,084 271 25.0 0 813 813 -22.4 2.9

FY18E

92,355 106,380 15.3 15.2 82,922 97,232 9,433 9,149 10.2 8.6 2,971 3,580 2,884 2,608 780 798 4,358 3,759 -181 220 4,178 3,539 997 755 23.9 21.3 19 19 3,200 2,803 3,338 2,976 5.9 -10.8 3.5 2.6

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

308

March 2018 Results Preview | Sector: Retail

Avenue Supermarts Bloomberg

DMART IN

Equity Shares (m)

624.1

M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

We expect revenue to grow 125% YoY to INR 38,8830m in 4QFY18.

1393 / 628



EBIDTA margin is likely to expand 130bp YoY to 8%. EBIDTA is likely to grow by 50% YoY to INR3,110m.



We estimate PAT to grow 82% YoY to INR1,756m from INR967m. Sell.

6 / 18 / 104

94.2 16.8 48.8 0.4

Sell



119.0 150.9 190.5 242.6 9.8 13.5 18.1 23.8 4.8 7.8 10.8 14.4 7.7 12.6 17.2 23.0 34.5 63.6 37.4 33.4 61.6 70.3 82.4 98.5 17.9 19.0 22.6 25.4 14.2 16.1 21.4 25.4 0.0 30.0 30.0 30.0 154.1 19.2 67.2 0.0

TP: INR920 (-33%)

851 / 13

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Net Sales EBITDA Adj. Net Profit Adj. EPS (INR) Adj. EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Div. Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)

CMP: INR1364

68.6 14.3 36.5 0.5

Key things to watch for  Store additions during the quarter.  Like-to-like store sales growth.

51.4 12.0 27.7 0.6

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 26,524 24,176 2,348 8.9 288 281 49 1,828 0 1,828 643 35.2 0 1,184 1,184 4.5

FY17 2Q 27,787 25,459 2,328 8.4 305 319 80 1,785 0 1,785 628 35.2 0 1,156 1,156 4.2

3Q 33,394 30,511 2,883 8.6 314 310 85 2,344 0 2,344 825 35.2 0 1,519 1,519 4.5

4Q 31,106 40.6 29,029 2,077 6.7 354 308 99 1,515 0 1,515 548 36.2 0 967 967 47.4 3.1

1Q 35,981 35.7 32,949 3,032 8.4 337 243 228 2,680 0 2,680 932 34.8 0 1,748 1,748 47.6 4.9

FY18E 2Q 3Q 35,083 40,948 26.3 22.6 31,904 36,731 3,179 4,217 9.1 10.3 351 393 109 110 212 137 2,930 3,851 0 0 2,930 3,851 1,020 1,334 34.8 34.6 0 0 1,910 2,518 1,910 2,518 65.2 65.8 5.4 6.1

4QE 38,883 25.0 35,773 3,110 8.0 450 100 100 2,660 0 2,660 905 34.0 0 1,756 1,756 81.6 4.5

FY17

FY18E

118,977 38.6 109,165 9,812 8.2 1,278 1,220 286 7,600 0 7,600 2,683 35.3 129 4,788 4,788 49.5 4.0

150,897 26.8 137,361 13,535 9.0 1,567 562 677 12,083 0 12,083 4,143 34.3 103 7,837 7,837 63.7 5.2

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

309

March 2018 Results Preview | Sector: Exchanges

BSE Bloomberg

BSE IN

Equity Shares (m)

54.8

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

43 / 1

52-Week Range (INR)

5.2

4.7

5.1

5.5

EBITDA

1.0

1.1

1.3

1.5

PAT



We estimate EBITDA margin of 36.3%, up 1,820bp YoY and 340bp QoQ. Stability in costs, combined with an increase in revenue from sources other than depository, is expected to drive margins higher.



PAT at INR783m is expected to grow at 30.2% YoY. Buy.

2017 2018E 2019E 2020E

Net Sales

2.4

2.4

2.6

2.9

EPS (INR)

41.0

42.6

47.6

52.9

EPS Gr (%)

68.4

4.0

11.6

11.2

BV / Sh (INR)

495

492

618

628

P/E (x)

22.7

7.2

19.5

17.6

P / BV (x)

1.9

1.9

1.5

1.5

RoE (%)

8.3

8.7

7.7

8.4

RoCE (%)

13.7

11.2

10.0

10.6

Consolidated - Quarterly Earning Model Y/E March Revenue from operations YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Investment income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

1Q 1,285 24.7 947 338 26.3 118 2 552 770 136 634 110 17.4 87 437 549 135.3 42.8

Buy

We expect revenue to decline by 7.8% YoY to INR1,500m, primarily because of the absence of income from depository services, adjusted for which there would be growth.

0 / -26 / -31

Financial Snapshot (INR Billion)

TP: INR1,070 (+36%)



1178 / 726

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR788

Key things to watch for  Volume movement and market share dynamics post pricing strategy change  Performance in non-equity segments  Update on operations in and prospects of INX

FY17 2Q 3Q 1,392 1,323 30.4 14.1 935 989 456 334 32.8 25.3 126 135 4 3 630 514 957 711 72 0 885 711 127 76 14.4 10.7 118 106 640 529 701 529 44.0 62.2 50.4 40.0

4Q 1,628 17.8 1,332 296 18.2 161 2 684 817 0 817 93 11.4 122 601 601 2.7 36.9

1Q 1,174 -8.6 868 306 26.1 101 2 410 613 0 613 118 19.2 -2 497 497 -9.5 42.4

FY18E 2Q 3Q 1,232 1,373 -11.5 3.8 848 920 384 453 31.2 33.0 109 112 4 3 460 354 731 693 5 8 727 686 126 162 17.4 23.6 -68 -63 668 587 672 592 -4.2 12.0 54.6 43.1

4QE 1,500 -7.8 955 545 36.3 113 2 425 856 24 832 129 15.5 -60 762 783 30.2 52.2

FY17

(INR m) FY18E

5,223 11.5 4,203 1,020 19.5 540 10 2,785 3,255

4,723 -9.6 3,618 1,105 23.4 435 10 2,048 2,708

3,255 406 12.5 435 2,414 2,414 42.3 46.2

2,708 535 19.8 -190 2,363 2,363 -2.1 50.0

Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 April 2017

310

March 2018 Results Preview | Sector: Oil & Gas

Castrol (India) Bloomberg

CSTRL IN 989.1

Equity Shares (m)

203 / 3

M. Cap. (INR b)/(USD b) 52-Week Range (INR)

227 / 172

1,6,12 Rel Perf. (%)

4 / 9 / -17

CMP: INR205

Sales EBITDA

2016

We expect revenue to grow 3% YoY (-7% QoQ) to INR9.1b, led by volumes at 51.2m liters (+2% YoY, -3% QoQ) and realization at INR177/liter (+1% YoY, -1% QoQ).



We expect CSTRL to report EBITDA of INR2.6b (-2% YoY, -16% QoQ). EBITDA margin would be 28.6%, lower than 29.8% in 1QCY17.



We estimate net profit at INR1.7b (-3% YoY, -12% QoQ).



The stock trades at 28.9x CY19E EPS of INR7.1. Maintain Buy.

2017 2018E 2019E

33.6

35.8

36.8

37.6

9.9

10.3

10.0

9.7

PAT

6.7

6.9

6.7

7.0

EPS (INR)

6.8

7.0

6.8

7.1

EPS Gr. (%)

5.8

2.9

-2.8

4.0

BV/Sh.(INR)

9.9

10.3

11.0

11.7

RoE (%)

86.3

69.1

63.8

62.3

RoCE (%)

86.4

69.2

63.9

62.4

Payout (%)

97.4

81.5

90.0

90.0

30.0

29.2

30.0

28.9

Valuations P/E (x) P/BV (x)

20.7

19.9

18.7

17.4

EV/EBITDA (x)

19.5

18.8

18.8

19.1

Div. Yield (%)

2.7

2.3

2.5

2.6

Quarterly Performance Y/E December

Net Sales YoY Change (%) Total Expenditure EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 8,822 3.5 6,189 2,633 4.7 29.8 123 3 185 2,692 902 34 1,790 3.8 20.3

Buy



Financial Snapshot (INR b) Y/E Dec

TP: INR247 (+21%)

Key issues to watch for (a) Volume growth. (b) Operating margin expansion. (c) Launch of new products. (d) Competitive pressure from other players.

CY17 2Q 8,704 -10.1 6,609 2,095 -33.4 24.1 118 1 155 2,131 752 35 1,379 -33.3 15.8

3Q 8,614 13.1 6,078 2,536 19.1 29.4 111 2 333 2,756 974 35 1,782 27.5 20.7

4Q 9,703 24.5 6,637 3,066 41.7 31.6 103 6 164 3,121 1,154 37 1,967 26.3 20.3

1QE 9,062 2.7 6,473 2,590 -1.7 28.6 115 3 200 2,672 935 35 1,736 -3.0 19.2

CY18E 2QE 9,328 7.2 6,673 2,655 26.7 28.5 128 4 224 2,747 961 35 1,785 29.5 19.1

(INR Million) CY17 CY18E 3QE 8,888 3.2 6,672 2,216 -12.6 24.9 125 4 210 2,297 804 35 1,493 -16.2 16.8

4QE 9,537 -1.7 7,027 2,510 -18.1 26.3 108 4 229 2,626 919 35 1,707 -13.2 17.9

35,843 6.7 25,513 10,330 3.8 28.8 455 12 837 10,700 3,782 35 6,918 2.5 19.3

36,816 2.7 26,845 9,970 -3.5 27.1 476 15 863 10,342 3,620 35 6,722 -2.8 18.3

Swarnendu Bhushan – Research Analyst ([email protected]); +91 22 6129 1529 Abhinil Dahiwale – Research Analyst ([email protected]); +91 22 6129 1566 April 2017

311

March 2018 Results Preview | Sector: Others

Delta Corp Bloomberg

DELTA IN

Equity Shares (m)

267.1

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

74 / 1

CMP: INR276

TP: INR332 (+20%)

Buy



We expect revenue to grow 42% YoY to INR1,535m, driven by traction in Goa casinos and ramp-up of online business.

-20 / 35 / 18



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

EBITDA margin is likely to expand 1,390bp to 45.7%, and EBITDA is expected to grow 104% YoY to INR702m on a low base.



Net profit is likely to increase 287% YoY to INR440m.

Net Sales

4.5

5.9

7.7

9.7

EBITDA

1.6

2.5

3.2

4.4



We maintain our target price at INR332/share. Buy.

Adj. Net Profit

0.7

1.5

2.0

2.8

Adj. EPS (INR)

3.1

5.7

7.4

10.4

52-Week Range (INR)

401 / 139

1,6,12 Rel Perf. (%)

Adj. EPS Gr. (%) BV/Sh (INR)

125.5

87.7

25.7

39.7

39.7

59.4

65.4

74.1

RoE (%)

8.1

12.2

11.9

14.9

RoCE (%)

8.7

11.7

11.9

22.2

13.2

25.0

21.0

16.2

81.9

43.6

33.6

24.1

6.3

4.2

3.8

3.4

EV/EBITDA (x)

53.0

32.2

26.0

18.8

Div. Yield (%)

0.1

0.5

0.5

0.6

Div. Payout (%) Valuations P/E (x) P/BV (x)

Quarterly Performance Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 1,087 34.6 671 415 38.2 91 87 9 246 -46 292 85 29.2 4 202 170 2,539.9 15.6

Key things to watch for  Company strategy w.r.t increase in annual license fee.  Goa - move from offshore to onshore - policy to be announced by Goa government.  Daman - grant of casino license  Sikkim -commencement of new airport.

FY17 2Q 3Q 1,343 1,036 43.8 3.4 776 723 567 313 42.2 30.2 93 89 87 82 11 11 399 152 2 5

4Q 1,081 5.3 737 344 31.8 87 94 19 182 0

1Q 1,286 18.4 833 453 35.2 89 70 37 332 -18

397 91 22.9 -16 322 323 494.1 24.1

181 64 35.4 3 114 114 -29.3 10.5

350 127 36.1 1 223 211 24.4 16.4

147 40 27.2 6 101 105 -9.4 10.1

FY18E 2Q 3Q 1,453 1,622 8.2 56.6 798 935 655 687 45.1 42.4 94 94 22 3 86 79 624 669 0 0 624 194 31.1 -2 433 433 33.8 29.8

669 225 33.6 -3 447 447 327.8 27.6

(INR Million)

FY17

FY18E

4QE 1,535 42.0 834 702 45.7 100 5 70 667 0

4,547 21.2 2,907 1,640 36.1 361 350 49 978 -42

5,896 29.7 3,398 2,498 42.4 372 100 280 2,306 -18

667 227 34.0 0 440 440 286.4 28.7

1,020 280 27.4 2 738 707 126.5 15.6

2,324 779 33.5 2 1,543 1,531 116.5 26.0

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

312

March 2018 Results Preview | Sector: Textiles

Indo Count Industries Bloomberg

ICNT IN

Equity Shares (m)

197.4

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

19 / 0

52-Week Range (INR)

Sales EBITDA NP

2017 2018E 2019E 2020E 22.6

18.8

21.7

24.1

4.3

2.8

3.5

3.9

2.6

1.5

1.9

2.3

13.0

7.4

9.8

11.5

EPS Gr. (%)

-10.7

-43.2

32.5

17.8

BV/Sh. (INR)

42.9

51.2

62.3

75.1

RoE (%)

34.8

15.7

17.2

16.8

RoCE (%)

26.5

14.0

16.2

24.3

P/E (x)

7.5

13.3

10.0

8.5

P/BV (x)

2.3

1.9

1.6

1.3

EPS (INR)

Valuations

EV/EBITDA (x)

5.4

7.8

6.1

5.2

EV/Sales (x)

1.0

1.2

1.0

0.9

Neutral

We expect revenue to de-grow 3% YoY (+8% QoQ) to INR4,975m in 4QFY18, as India’s import share in US terry towel market declined 17.6% in January 2018, and the bed sheet market has remained flattish.



India’s share in US terry towel imports decliCned 20% in 3QFY18; bed sheet share also declined 5% during the same period.



EBITDA margin is likely to contract 400bp YoY to 13.6%, and EBITDA is likely to de-grow 25% YoY to INR677m.



PAT is expected to de-grow 27% YoY to INR356m in 4QFY18. Neutral.

1 / -6 / -62

Financial Snapshot (INR Billion)

TP: INR104 (+6%)



210 / 82

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR98

Key things to watch for  Movement in cotton prices.  Change in India’s market share in US made-ups textile and apparel imports.

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 4,926 7.6 3,824 1,103 22.4 80 98 0 924 321 34.8 603 603 15.6 12.2

FY17 2Q 3Q 5,763 5,029 0.0 0.4 4,599 4,009 1,164 1,020 20.2 20.3 73 79 116 91 0 0 975 849 348 287 35.7 33.8 627 562 627 562 21.5 -27.3 10.9 11.2

4Q 5,129 -0.1 4,228 901 17.6 79 89 0 733 245 33.4 488 488 -28.1 9.5

1Q 4,318 -12.4 3,665 653 15.1 75 82 0 496 177 35.6 320 320 -47.0 7.4

FY18E 2Q 3Q 4,928 4,600 -14.5 -8.5 4,216 3,907 711 693 14.4 15.1 76 77 88 58 0 0 548 558 189 194 34.5 34.7 359 364 359 364 -42.8 -35.2 7.3 7.9

4QE 4,975 -3.0 4,298 677 13.6 80 57 0 540 183 34.0 356 356 -27.0 7.2

FY17

FY18E

22,578 7.0 18,294 4,285 19.0 331 421 0 3,532 965 27.3 2,567 2,567 -10.7 11.4

18,828 -16.6 16,042 2,787 14.8 312 299 0 2,176 718 33.0 1,458 1,458 -43.2 7.7

Sumant Kumar ([email protected]); +91 22 6129 1569 Aksh Vashishth ([email protected]); +91 22 6129 1553 April 2017

313

March 2018 Results Preview | Sector: Technology

Info Edge Bloomberg

INFOE IN

Equity Shares (m)

126.4

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

156 / 2

1863

1458 / 800

1,6,12 Rel Perf. (%)

-3 / 9 / 39

CMP: INR1220   

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

8.0

9.1

10.4

12.1

EBITDA

2.3

3.1

3.7

4.7

NP EPS (Rs) EPS Gr. (%) BV/Share

2.0

2.6

3.2

4.1

15.7

23.4

26.3

33.4

38.2

49.0

12.5

27.1

162.7 177.6 196.7 222.9

RoE (%)

10.2

13.7

14.0

15.9

RoCE (%)

10.2

13.7

14.0

15.9

77.6

52.1

46.3

36.4

7.5

6.8

6.2

5.5

EV/EBITDA (x)

56.5

42.9

35.6

27.0

EV/Sales (x)

16.0

14.9

12.7

10.5

Valuations P/E (x) P/BV (x)

Quarterly Performance (Standalone) Y/E March

Revenues YoY (%) Salary costs Ad and Promotion costs Other Expenses Operating Profit Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax ETR (%) PAT bef. Minority EOI Adjusted PAT YoY (%) E: MOSL Estimates

1Q 1,976 13.1 963 258 277 478 24.2 243 60 661 217 32.9 444 0 444 54.9



 

TP: INR1550 (27%)

Buy

We expect standalone revenue to grow 11.1% YoY to INR2.3b. Recruitment segment (~75% of business) is estimated to grow 13% YoY to INR1.8b. We estimate real estate portal 99acres.com’s revenue at INR302m (10% YoY) and that of matrimonial portal Jeevansathi.com at INR178m (up 25% YoY). 99acres.com should see better growth as demonetization now gets captured in the base and RERA-led uncertainty has been waning. Our EBITDA margins estimate for the quarter stands at 33% compared to 34.7% in the previous quarter, and 30.3% in 4QFY17. Consequently, we expect PAT of INR675m, up 105.3% YoY. Buy.

Key things to watch for  Situation around the RERA-led uncertainty and consequent impact on 99acres.com.  Traction in the recruitment business from segments other than IT.  Commentary around monetization in Zomato.com.

FY17 2Q 3Q 2,100 1,861 20.6 7.3 915 938 221 184 269 268 695 471 33.1 25.3 248 250 62 63 881 658 254 187 28.8 28.4 627 471 174 0 801 471 136.0 116.7

4Q 2,084 8.0 936 217 300 632 30.3 113 56 689 320 46.5 369 -40 329 -15.6

1Q 2,225 12.6 991 254 276 703 31.6 264 54 913 270 29.6 642 0 642 44.8

FY18E 2Q 3Q 2,252 2,272 7.2 22.1 938 954 176 256 251 273 888 788 39.4 34.7 262 220 53 53 1,097 956 270 253 24.6 26.5 786 534 -41 -169 827 703 3.2 49.1

4Q 2,315 11.1 979 289 283 764 33.0 241 54 951 276 29.0 675 0 675 105.3

FY17

FY18E

8,021 12.6 3,752 881 1,114 2,275 28.4 855 241 2,889 978 33.9 1,911 134 2,045 65.7

9,063 13.0 3,861 975 1,083 3,144 34.7 986 214 3,916 1,069 27.3 2,637 -210 2,427 18.7

Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 April 2017

314

March 2018 Results Preview | Sector: Aviation

InterGlobe Aviation INDIGO IN

Bloomberg

383.9

Equity Shares (m)

525 / 8

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

CMP: INR1,368

5 / 20 / 19

1,6,12 Rel Perf. (%)

We expect INDIGO to report revenue of INR60b in 4QFY18 (+24% YoY, -3% QoQ) and EBITDAR of INR14.8b (+11% YoY, -24% QoQ).



We model ticket yield at INR3.51 (+2.3% YoY, -5% QoQ) and RPK at 14.7b (+20% YoY). Any deviation in yield would have a meaningful impact on our estimates.



We model ATF at INR61.7/liter (+11.5% YoY, +9.4% QoQ) for 4QFY18 and expect INDIGO to report net profit of INR3.7b.



We model ASK at 76b/92b in FY19/FY20 v/s 54b in FY17, and RPK at 68b/81b in FY19/FY20 v/s 46.3b in FY17, driven by an increase in fleet size.



The stock trades at 13.7x FY20E EPS of INR100 and at an EV of 8.1x FY20E adjusted EBITDAR. Maintain Neutral.

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

185.8 232.0 292.8 352.0

EBITDA

21.4

33.3

34.8

46.7

NP

16.6

24.8

28.8

38.4

EPS (INR)

43.2

64.7

75.0 100.0

-16.6

49.6

15.9

EPS Gr. (%)

33.4

BV/Sh (INR)

98.5 175.2 187.7 204.4

RoE (%)

51.0

47.3

41.3

51.0

RoCE (%)

31.4

36.7

45.0

57.7

Payout (%)

89.1

83.3

83.3

83.3

P/E (x)

31.6

21.1

18.2

13.7

P/BV (x)

13.9

7.8

7.3

6.7

Adj.EV/EBITDAR(x)

13.7

10.3

9.6

8.1

2.3

3.3

3.8

5.1

Valuations

Div. Yield (%)

Quarterly performance Y/E March Net Sales YoY Change (%) Fuel cost Employee cost Other expenses Total Expenditure EBITDAR Margins (%) Net Rentals EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT EPS YoY Change (%) E: MOSL Estimates

1Q 45,789 8.7 13,674 4,789 12,046 30,509 15,279 33.4 7,127 8,152 17.8 1,148 1,163 1,626 7,467 1,549 20.7 5,918 15.4 -8.8

Neutral



1377 / 1005

52-Week Range (INR)

TP: INR1,400 (+2%)

Key issues to watch for  Induction of new aircraft in the fleet.  Fuel costs and their impact on yields.

FY17 2Q 41,669 17.7 15,524 5,080 11,388 31,992 9,677 23.2 7,721 1,956 4.7 1,189 610 1,608 1,765 367 20.8 1,398 3.6 24.1

3Q 49,865 16.0 16,712 5,273 13,471 35,457 14,409 28.9 8,164 6,245 12.5 1,184 759 1,719 6,022 1,149 19.1 4,873 12.7 -25.9

4Q 48,482 18.5 17,734 5,339 12,087 35,160 13,322 27.5 8,242 5,080 10.5 1,052 777 2,938 6,190 1,786 28.9 4,403 11.5 -24.0

1Q 57,529 25.6 17,929 5,843 14,250 38,022 19,507 33.9 8,537 10,970 19.1 983 770 2,026 11,243 3,132 27.9 8,111 21.1 37.1

FY18 2Q 52,910 27.0 16,781 6,004 14,550 37,335 15,574 29.4 8,193 7,382 14.0 1,025 857 2,146 7,645 2,130 27.9 5,516 14.4 294.5

(INR Million) FY17 FY18E 3Q 61,779 23.9 20,465 6,137 15,820 42,422 19,357 31.3 9,442 9,915 16.0 1,074 844 2,719 10,716 3,096 28.9 7,620 19.9 56.4

4QE 59,938 185,805 232,156 23.6 15.1 24.9 22,532 63,644 77,708 6,600 20,482 77,708 16,047 48,992 60,667 45,179 133,118 162,958 14,759 52,687 69,198 24.6 28.4 29.8 9,624 31,254 35,796 5,135 21,433 33,402 8.6 11.5 14.4 1,153 4,573 4,235 837 3,308 3,308 2,051 7,891 8,942 5,196 21,443 34,801 1,507 4,852 9,864 29.0 22.6 28.3 3,689 16,592 24,937 9.6 43.2 65.0 -16.2 -17.0 50.3

Abhinil Dahiwale ([email protected]); +91 22 6129 1566 Swarnendu Bhushan ([email protected]); +91 22 6129 1529 April 2017

315

Mar 2018 Results Preview | Sector: Agri

Kaveri Seed Bloomberg

KSCL IN

Equity Shares (m)

69.1

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

34 / 1

52-Week Range (INR)

CMP: INR498

We expect revenue to grow 10% YoY to INR443m in 4QFY18. We expect growth to be driven by continuous focus on non-cotton business.



We expect EBITDA margin of -3.3% v/s -67.4% in 4QFY17 and EBITDA of INR-15m v/s INR-272m in 4QFY17.



We expect adjusted PAT of INR-26m in 4QFY18 as against INR306m in the year-ago period. Buy.

3 / -10 / -22

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

7.0

7.8

8.9

10.2

EBITDA

1.4

2.3

2.7

3.2

NP

1.3

2.3

2.7

3.1

19.1

34.2

40.6

47.4

EPS Gr. (%)

-21.4

79.5

18.5

17.0

BV/Sh (INR)

146.8 139.4 159.5 186.6

EPS (INR)

RoE (%)

13.6

23.4

27.1

27.4

RoCE (%)

16.0

24.7

28.7

29.0

Payout (%)

32.2

52.6

50.3

43.0

26.1

14.6

12.3

10.5

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

3.4

3.6

3.1

2.7

23.6

14.1

11.7

9.7

0.6

2.9

3.3

3.3

Buy



708 / 433

1,6,12 Rel Perf. (%)

TP: INR664 (+33%)

Key things to watch for  Outlook of monsoon and corn acreage in rabi season.  Market share movement in major markets of Gujarat and Maharashtra.

Quarterly Performance Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 4,940 -8.4 3,357 1,583 32.0 78 0 54 1,559 1,559 15 1.0 0 1,544 1,544 -29.6 31.3

FY17 2Q 678 2.2 644 34 5.0 72 0 170 132 132 60 45.6 0 72 72 NM 10.6

3Q 679 -2.7 644 34 5.0 69 0 101 66 -527 30 -5.7 0 -557 69 -40.9 10.2

Sumant Kumar ([email protected]); +91 22 6129 1569 Aksh Vashishth ([email protected]); +91 22 6129 1553 April 2017

4Q 403 -1.9 675 -272 -67.4 66 0 18 -320 -912 -40 4.4 0 -872 -306 NM -75.9

1Q 5,906 19.6 3,837 2,069 35.0 63 2 43 2,046 2,046 22 1.1 0 2,024 2,024 31.1 34.3

FY18E 2Q 3Q 696 706 2.7 4.1 549 609 147 97 21.2 13.8 61 57 1 0 164 16 250 56 250 56 41 1 16.5 2.6 0 0 209 54 209 54 191.7 -21.9 30.0 7.7

4QE 443 10.0 458 -15 -3.3 60 0 48 -27 -27 -1 4.2 0 -26 -26 -91.5 -5.8

FY17

FY18E

7,050 -1.6 5,654 1,395 19.8 302 2 344 1,435 843 70 8.3

7,780 10.4 5,469 2,311 29.7 254 5 280 2,332 2,332 70 3.0

773 1,316 -55.1 18.7

2,262 2,262 71.8 29.1

316

March 2018 Results Preview | Sector: Consumer

Manpasand Beverages Bloomberg

MANB IN

Equity Shares (m)

114.4

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

43 / 1

52-Week Range (INR)

Net Sales

7.2

9.6

14.2

18.6

EBITDA

1.4

1.8

2.8

3.6

Adj. Net Profit

0.7

1.0

1.6

2.1

Adj. EPS (INR)

6.3

8.8

13.9

18.7

43.8

38.2

58.4

34.6

BV/Sh (INR)

7.3

7.2

12.3

15.0

RoCE (%)

8.4

8.4

14.3

17.3

12.3

24.6

24.6

24.6

58.6

42.4

26.8

19.9

Valuations P/E (x) P/BV (x)



EBIDTA margin is likely to expand 137bp to 20.3% and EBIDTA is likely to grow by 53.3% YoY to INR794m.



We estimate PAT to grow 39% YoY to INR436m from INR313m. Buy.

100.8 107.4 117.9 132.0

RoE (%) Div. Payout (%)

Buy

We expect revenue to grow 43% YoY to INR 3,910m in 4QFY18, based on healthy growth in Mango Sip and Fruits Up, and increased traction in recently launched Jeera Sip and Siznal. Additionally, sales through Parle-tie up will contribute to ~5% of revenues.

-2 / -26 / -6

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

TP: INR467 (+25%)



512 / 336

1,6,12 Rel Perf. (%)

Adj. EPS Gr. (%)

CMP: INR375

3.7

3.5

3.2

2.8

EV/EBITDA (x)

28.8

22.4

14.8

11.1

Div. Yield (%)

0.2

0.5

0.7

1.0

Quarterly Performance Y/E March

Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 2,369 63.1 1,917 453 19.1 149 1 17 320 33 10.4 0 286 286 82.5 12.1

Key things to watch for  Progress on performance of tie-ups.  Performance of new product launches.  Update on commissioning of new plants.

FY17 2Q 3Q 1,025 1,025 34.6 11.6 803 819 222 205 21.7 20.0 171 177 8 2 17 60 61 86 7 13 10.8 15.6 0 0 54 72 54 72 24.5 49.2 5.3 7.1

4Q 2,734 28.6 2,217 518 18.9 241 1 85 361 48 13.2 0 313 313 22.5 11.5

1Q 3,015 27.2 2,451 563 18.7 237 4 98 421 62 14.7 0 359 359 25.3 11.9

FY18E 2Q 3Q 1,258 1,431 22.8 39.7 1,043 1,164 215 267 17.1 18.7 169 175 9 6 64 53 102 139 12 19 12.0 13.9 0 0 89 120 89 120 65.3 65.5 7.1 8.4

(INR Million)

4QE 3,910 43.0 3,116 794 20.3 330 1 50 513 77 15.0 0 436 436 39.1 11.1

FY17

FY18E

7,171 34.8 5,773 1,398 19.5 738 12 179 827 101 12.2 0 726 726 43.8 10.1

9,614 34.1 7,775 1,839 19.1 868 0 197 1,167 163 14.0 0 1,004 1,004 38.2 10.4

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

317

March 2018 Results Preview | Sector: Exchanges

MCX Bloomberg

MCX IN

Equity Shares (m)

51.0

-3 / -37 / -50



Volumes at MCX have seen a strong pick-up after four quarters of YoY decline post demonetization.

2017 2018E 2019E 2020E



That drives our revenue expectation of INR694m, which is an increase of 13.8% YoY.



Consequently, EBITDA margins are expected to expand by 1,590bp YoY to 29%.



We expect PAT to increase by 57% YoY to INR343m. Buy.

1258 / 665

1,6,12 Rel Perf. (%) Financial Snapshot (INR Billion) Sales

2.6

2.6

3.1

3.6

EBITDA

0.8

0.7

1.3

1.6

NP

1.3

1.1

1.6

1.9

24.8

21.3

32.0

36.9

6.2

-14.3

50.5

15.4

EPS Gr. (%) BV/Sh.(INR)

266.4 259.4 275.7 329.2

RoE (%)

10.2

8.1

12.0

12.2

RoCE (%)

10.0

7.8

11.6

11.9

Payout (%)

70.7 113.7

75.5

65.5

29.1

22.6

19.6

Valuations P/E (x) P/BV (x)

Buy

Total volumes at MCX traded during the quarter stood at INR15t, up 17.3% QoQ and 20.9% YoY.

37 / 1

52-Week Range (INR)

EPS (INR)

TP: INR1,050 (+43%)



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

Y/E March

CMP: INR734

34.0

2.7

2.8

2.6

2.2

EV/EBITDA (x)

30.5

35.3

20.1

15.9

Dividend yield

2.5

3.3

3.3

3.3

Quarterly Performance Sales Q-o-Q Gr. (%) Staff Costs Other expenses Depreciation EBIT Margins (%) Other Income PBT bef. Exceptional items Tax Rate (%) PAT Q-o-Q Gr. (%) EPS (INR) Total volumes (INR t) Q-o-Q Gr. (%) Y-o-Y Gr. (%) E: MOSL Estimates

1Q 676 18.7 143 265 49 219 32.4 308 527 152 28.9 375 30.3 6.5 16.0 7.3 17.7

Key things to watch for  Expectations of volume revival.  Pace of reforms under SEBI.  Strategy around new opportunities.

FY17 2Q 652 7.8 144 257 42 209 32.1 302 511 134 26.3 376 0.5 7.4 16.4 2.3 10.3

3Q 686 5.1 198 296 45 148 21.5 312 459 119 26.0 339 -9.9 6.7 13.9 -15.2 6.4

4Q 626 -8.7 160 335 49 82 13.1 243 325 106 32.6 219 -35.5 4.3 12.4 -10.3 -16.5

1Q 592 -5.5 178 282 48 84 14.2 277 361 98 27.2 263 20.0 5.1 12.0 -3.4 -24.8

FY18E 2Q 3Q 673 610 13.6 -9.4 178 169 288 306 48 35 158 101 23.6 16.5 243 156 401 256 110 68 27.3 26.7 292 188 11.0 -35.6 5.7 3.7 14.1 12.8 17.0 -8.8 -14.0 -7.6

4QE 694 13.8 169 284 40 201 29.0 257 458 114 25.0 343 82.9 6.7 15.0 17.3 20.9

FY17

FY18E

2,641 12.4 644 1,116 186 695 26.3 1,164 1,857 512 27.5 1,346 221.7 26.4 58.7

2,568 -2.8 693 1,158 171 546 21.3 931 1,478 391 26.5 1,087 -17.0 21.3 53.9

4.1

-8.1

Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 April 2017

318

March 2018 Results Preview | Sector: Others

Navneet Education Bloomberg

NELI IN

Equity Shares (m)

233.6

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

35 / 1

52-Week Range (INR)

194 / 128

1,6,12 Rel Perf. (%)

11.8

12.3

14.4

16.3

EBITDA

2.8

2.7

3.4

3.9

Adj. Net Profit

1.7

1.8

2.3

2.7

Adj. EPS (INR)

7.3

7.7

9.7

11.5

Adj. EPS Gr. (%)

61.9

4.8

26.8

17.6

BV/Sh (INR)

29.7

33.6

38.9

45.3

RoE (%)

26.7

24.2

26.8

27.2

RoCE (%)

23.9

20.3

23.3

24.6

Div. Payout (%)

48.4

58.7

41.2

48.8

19.3

18.4

14.5

12.3

4.7

4.2

3.6

3.1

EV/EBITDA (x)

12.2

12.3

9.5

8.0

Div. Yield (%)

1.6

1.6

1.8

2.2

Valuations P/E (x) P/BV (x)

TP: INR194 (+31%)

Buy



We expect revenue to grow 47% YoY to INR3,074m in 4QFY18,



EBIDTA margin is likely to expand 460bp YoY to 17.9% and EBIDTA is likely to grow by 97% YoY to INR550m.



We estimate PAT to grow 131% YoY to INR390m from INR169m. Buy.

12 / -14 / -23

Financial Snapshot (INR Billion) Y/E MARCH 2017 2018E 2019E 2020E Net Sales

CMP: INR148

Key things to watch for  New series launches under Indiannica.  Syllabus change in Maharashtra and Gujarat

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

1Q 5,602 8.5 3,853 1,749 31.2 60 23 76 1,743 0 1,743 607 34.8 0 1,136 1,136 15.5 20.3

FY17 2Q 3Q 1,725 1,566 47.0 38.6 1,443 1,363 282 203 16.3 13.0 62 65 0 1 61 55 281 193 0 0 281 193 95 66 33.9 34.3 0 0 186 126 186 126 69.8 68.3 10.8 8.1

4Q 2,098 11.9 1,819 279 13.3 64 11 40 244 0 244 75 30.8 0 169 169 80.1 8.0

1Q 5,652 0.9 4,028 1,624 28.7 53 26 123 1,668 0 1,668 572 34.3 0 1,097 1,097 -3.4 19.4

FY18E 2Q 3Q 1,834 1,744 6.3 11.4 1,553 1,540 281 205 15.3 11.7 56 62 16 1 47 44 256 186 0 0 256 186 89 67 34.9 36.1 0 0 166 119 166 119 -10.5 -6.1 9.1 6.8

4QE 3,074 46.5 2,524 550 17.9 75 8 33 500 0 500 110 22.0 0 390 390 131.4 12.7

FY17

FY18E

11,813 24.0 9,001 2,813 23.8 284 43 152 2,638 0 2,638 827 31.3 0 1,811 1,811 50.7 15.3

12,304 4.2 9,650 2,654 21.6 245 51 246 2,603 0 2,603 816 31.3 0 1,787 1,787 -1.3 14.5

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

319

March 2018 Results Preview | Sector: Real Estate

Oberoi Realty Bloomberg

OBER IN

Equity Shares (m)

339.5

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

173 / 3

52-Week Range (INR)

CMP: INR509

We expect sales volumes to decline 2% YoY to 132,500sf in the quarter, primarily on account of decreased traction in Mulund (Eternia and Enigma) and 360 West projects.



In case of annuity portfolio, the primary driver would be increased occupancy to 55% from 30% YoY in respect of its Commerz II project.



We estimate sales of INR3,139m, up 8% YoY.



We expect EBITDA margin to expand by 180bp YoY to 54.1%.



We estimate net profit of INR1,073m, up 5% YoY.



We maintain our target price at INR612.

2 / 16 / 26

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Sales

11.1

12.3

39.8

36.3

EBITDA

5.7

6.6

21.8

20.0

Net Profit

3.8

4.2

16.9

15.8

EPS (INR)

11.2

12.5

49.8

46.5

11.7 300.0

-6.7

EPS Gr. (%)

-13.1

BV/Sh (INR)

168.6 178.8 219.7 257.8

RoE (%)

6.8

7.2

25.0

19.5

RoCE (%)

6.1

6.0

18.2

15.3

44.2

39.6

9.9

10.6

2.9

2.8

2.2

1.9

EV/EBITDA (x)

30.3

27.6

8.0

8.4

EV/ Sales (x)

15.5

14.8

4.4

4.6

Buy



577 / 339

1,6,12 Rel Perf. (%)

TP: INR612 (+20%)

Valuations P/E (x) P/BV (x)

Key things to watch for  Launch plan for monetizing Thane land parcel.  Action plan to increase sales momentum for its Mulund Projects (Eternia and Enigma).

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

1Q 3,200 52.2 1,534 1,666 52.1 123 14 103 1,631 0 1,631 553 33.9 -10 1,088 1,088 36.8 34.0

FY17 2Q 2,520 32.1 1,262 1,258 49.9 124 13 127 1,248 0 1,248 417 33.4 -6 837 837 12.5 33.2

3Q 2,521 -67.8 1,259 1,262 50.1 125 15 125 1,247 0 1,247 407 32.6 -7 847 847 -60.1 33.6

4Q 2,895 25.8 1,381 1,515 52.3 123 14 125 1,502 0 1,502 492 32.8 -8 1,018 1,018 50.3 35.2

1Q 2,607 -18.5 1,252 1,355 52.0 124 16 96 1,312 0 1,312 405 30.9 -7 914 914 -16.1 35.0

FY18E 2Q 3,035 20.5 1,398 1,638 54.0 128 16 50 1,544 0 1,544 509 33.0 -9 1,043 1,043 24.6 34.4

3Q 3,562 41.3 1,636 1,926 54.1 122 18 42 1,828 0 1,828 635 34.8 -10 1,202 1,202 41.9 33.7

4QE 3,139 8.4 1,443 1,697 54.1 130 30 65 1,602 0 1,602 538 33.6 -9 1,073 1,073 5.4 34.2

FY17

FY18E

11,137 -21.3 5,436 5,701 51.2 495 56 479 5,629 0 5,629 1,869 33.2 -31 3,791 3,791 -12.7 34.0

12,344 10.8 5,728 6,616 53.6 503 80 252 6,285 0 6,285 2,088 33.2 -35 4,232 4,232 11.6 34.3

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 Darshit Shah – Research analyst ([email protected]); +91 22 6129 1546 April 2017

320

March 2018 Results Preview | Sector: Staffing

Quess Corp Bloomberg

QUESS IN

Equity Shares (m)

146.5

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

147 / 2

52-Week Range (INR)

1199 / 688

1,6,12 Rel Perf. (%)

1 / 16 / 30

CMP: INR1006

FY17 FY18E FY19E FY20E

Sales

43.1

61.0

81.3

96.9

EBITDA

2.4

3.5

5.3

6.6

NP

1.3

3.2

5.0

6.3

EPS (Rs)

9.9

22.8

34.1

43.1

EPS Growth (%)

40.4 130.7

49.6

26.6

BV/Share (Rs)

73.8 180.1 224.8 280.5

P/E (x)

102.8

44.6

29.8

We expect revenue of INR18.2b for Quess in 4QFY18, signifying growth of 47% YoY.



Inorganic additions that would add to YoY growth in the quarter include Monster, TBSS, Greenpiece and Vedang Cellular. Excluding these, growth is expected to be 28% YoY.



Additionally, incremental revenue from the smart city implementation is expected to add 5pp more to growth.



EBITDA margins at 5.9% are expected to be higher by 20bp YoY because of margin-accretive acquisitions.



Our PAT estimate is INR901m, up 144% YoY. Buy.

23.5

P/BV (x)

13.7

5.6

4.5

3.6

EV/EBITDA (x)

56.0

40.4

27.7

21.6

3.1

2.3

1.8

1.5

EV/Sales (x) RoE (%)

21.0

22.3

21.7

22.0

RoCE (%)

13.8

19.0

19.5

20.4

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

Buy



Financial Snapshot (INR Billion) INR million

TP: INR1300 (+29%)

1Q 9,910 35.7 9,382 528 5.3 60 92 7 382 0 382 135 35.4 0 247 247 37.1 2.5

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.

FY17 2Q 3Q 10,177 10,668 26.9 17.7 9,626 10,071 551 597 5.4 5.6 69 72 98 123 57 60 441 462 0 0 441 462 140 130 31.7 28.1 0 -4 301 337 301 337 65.9 95.2 3.0 3.2

4Q 12,395 24.4 11,693 702 5.7 73 157 30 502 0 502 130 25.8 3 369 369 5.5 3.0

1Q 12,973 30.9 12,221 752 5.8 75 164 35 548 0 548 151 27.6 10 387 387 56.7 3.0

FY18E 2Q 3Q 13,953 15,840 37.1 48.5 13,164 14,930 789 909 5.7 5.7 83 122 155 171 168 126 719 742 0 0 719 742 -764 53 -106.3 7.1 2 0 1,481 690 1,481 690 391.6 104.8 10.6 4.4

4QE 18,203 46.9 17,129 1,074 5.9 125 175 130 904 0 904 0 0.0 3 901 901 144.1 4.9

FY17

(INR m) FY18E

43,149 25.6 40,771 2,378 5.5 275 471 154 1,787 0 1,787 534 29.9 -1 1,254 1,254 41.8 2.9

60,968 41.3 57,444 3,524 5.8 406 665 459 2,913 0 2,913 -293 -10.1 15 3,192 3,192 154.5 5.2

Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 April 2017

321

March 2018 Results Preview | Sector: Agri

PI Industries Bloomberg

PI IN

Equity Shares (m)

136.6

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

123 / 2

52-Week Range (INR)

4 / 15 / -3

Financial Snapshot (INR Billion) Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR)

2017 2018E 2019E 2020E 22.8

23.2

26.5

30.4

5.5

5.6

6.9

8.0

4.6

4.1

5.2

6.1

33.4

29.9

38.1

44.2

46.4

-10.5

27.3

16.2

118.3 141.4 171.6 207.9

RoE (%)

32.8

23.0

24.3

23.3

RoCE (%)

31.0

22.6

24.3

29.5

27.0

30.2

23.7

20.4

7.6

6.4

5.3

4.3

21.0

20.1

15.9

13.3

5.1

4.8

4.2

3.5

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

TP: INR1061 (+18%)

Buy



We expect revenue to grow 5.6% YoY to INR6,392m, aided by growth of 7% in agri-input business and 5% in CSM business.



We estimate 110bp margin contraction to 24.3%, and expect EBITDA to remain flat at INR1,553m.



We estimate adjusted PAT at INR1,156m, as against INR1,352m in 4QFY17. Buy.

1035 / 674

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR903

Key things to watch for  CSM growth and order book.  New launches and tie-ups.

Standalone - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 6,834 15.4 4,734 2,100 30.7 178 16 113 2,019 0 2,019 306 15.2 1,713 1,713 99.5 25.1

FY17 2Q 3Q 5,719 4,878 20.0 -4.5 4,161 3,845 1,558 1,033 27.2 21.2 181 183 13 12 134 133 1,497 972 0 0 1,497 972 205 33 13.7 3.4 1,293 939 1,293 939 126.8 32.6 22.6 19.3

4Q 6,056 3.6 4,519 1,537 25.4 185 31 -21 1,299 0 1,299 -53 -4.0 1,352 1,352 40.8 22.3

1Q 5,848 -14.4 4,227 1,621 27.7 197 14 126 1,535 0 1,535 218 14.2 1,318 1,318 -23.1 22.5

FY18E 2Q 5,611 -1.9 4,389 1,222 21.8 205 12 123 1,127 0 1,127 324 28.7 803 803 -37.8 14.3

3Q 5,377 10.2 4,330 1,048 19.5 211 14 160 982 0 982 177 18.0 806 806 -14.2 15.0

4QE 6,392 5.6 4,839 1,553 24.3 220 12 124 1,445 0 1,445 289 20.0 1,156 1,156 -14.5 18.1

FY17

FY18E

23,487 8.5 17,259 6,228 26.5 727 72 358 5,788 0 5,788 491 8.5 5,296 5,296 71.0 22.5

23,228 -1.1 17,785 5,443 23.4 834 52 532 5,090 0 5,090 1,007 19.8 4,083 4,083 -22.9 17.6

Sumant Kumar ([email protected]); +91 22 6129 1569 Aksh Vashishth ([email protected]); +91 22 6129 1553 April 2017

322

March 2018 Results Preview | Sector: Others

S H Kelkar Bloomberg

SHKL IN

Equity Shares (m)

144.6

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

38 / 1

52-Week Range (INR)

CMP: INR260

We expect revenue to grow 14% YoY to INR3,075m in 4QFY18, led by a rebound in FMCG demand and available cross-selling opportunities post CFF acquisition.



EBIDTA margin is likely to expand 480bp YoY to 18.5%, and EBIDTA is likely to grow by 54% YoY to INR569m.



We estimate adj. PAT to grow 30% YoY to INR357m from INR274m. Buy.

-8 / -4 / -25

Financial Snapshot (INR Billion) Y/E MARCH

2017 2018E 2019E 2020E

Net Sales

10.6

10.6

12.3

14.1

EBITDA

1.7

1.9

2.3

2.9

Adj. Net Profit

1.0

1.1

1.4

1.8

Adj. EPS (INR)

7.2

7.9

9.7

12.2

Adj. EPS Gr. (%)

43.5

9.1

22.4

26.6

BV/Sh (INR)

56.1

61.4

68.3

77.0

RoE (%)

13.7

13.4

14.9

16.9

RoCE (%)

19.0

19.8

21.8

24.8

Div. Payout (%)

28.9

28.9

28.9

28.9

37.9

34.8

28.4

22.5

4.9

4.5

4.0

3.6

EV/EBITDA (x)

24.0

20.5

17.3

13.6

Div. Yield (%)

0.6

0.6

0.8

1.1

Valuations P/E (x) P/BV (x)

Buy



333 / 237

1,6,12 Rel Perf. (%)

TP: INR318 (+22%)

Key things to watch for  Supply side issues with disruptions in Germany, US, China.  CFF acquisition – cross-selling opportunities.  Complete shift of ingredients from Netherlands to manufacturing plants in India.

Quarterly Performance

(INR Million)

Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & Profit/Loss of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 2,768 25.2 2,294 474 17.1 44 17 32 444 0 444 169 38.1 0 275 275 41.0 9.9

FY17 2Q 3Q 2,453 2,494 9.8 1.9 2,032 2,099 420 395 17.1 15.9 49 48 22 2 25 19 375 364 0 0 375 364 132 110 35.1 30.2 0 243 243 246.2 9.9

0 254 254 16.4 10.2

4Q 2,698 -6.5 2,328 370 13.7 53 10 40 346 0 346 71 20.7

1Q 2,529 -8.6 2,102 427 16.9 58 6 38 401 0 401 133 33.1

0 274 274 12.5 10.2

0 268 268 -2.5 10.6

FY18E 2Q 3Q 2,219 2,831 -9.5 13.5 1,865 2,255 355 576 16.0 20.3 57 58 11 7 12 7 298 517 0 101 298 416 110 144 36.8 34.7 0 189 189 -22.4 8.5

0 272 338 33.0 11.9

FY17

FY18E

4QE 3,075 14.0 2,506 569 18.5 60 6 20 523 0 523 176 33.6

10,412 6.5 8,762 1,650 15.9 194 52 115 1,520 0 1,520 482 31.7

10,655 2.3 8,729 1,926 18.1 234 30 76 1,739 101 1,638 563 34.3

-10 357 357 30.2 11.6

0 1,038 1,038 42.8 10.0

-10 1,086 1,152 11.0 10.8

Chintan Modi – Research analyst ([email protected]); +91 22 6129 1554 April 2017

323

March 2018 Results Preview | Sector: Diversified

SRF Bloomberg

SRF IN

Equity Shares (m)

57.4

CMP: INR2,008

Execution of deferred order book is expected to deliver revenue growth of 8.5% YoY to INR14.3b.

8 / 22 / 9



We expect packaging film business to deliver growth of over 18%, followed by growth of 6% in the chemicals & polymers business.

2017 2018E 2019E 2020E



We expect EBITDA margin to remain flattish at 16.1%, with growth of 7% in EBITDA to INR2,316m. Adjusted PAT is expected to decline 11.2% YoY to INR1,018m. Buy.

115 / 2

52-Week Range (INR)

2045 / 1420

1,6,12 Rel Perf. (%) Financial Snapshot (INR Billion) Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR)

48.2

55.0

64.8

74.4

9.7

9.5

12.0

14.5

4.4

6.1

8.1

4.9 85.9

77.4 105.0 138.3

12.8

-9.9

35.6

31.7

544.6 602.1 683.9 798.9

RoE (%)

16.6

13.3

16.3

18.7

RoCE (%)

17.7

16.7

20.7

25.2

23.4

25.9

19.1

14.5

3.7

3.3

2.9

2.5

13.8

14.4

11.2

8.9

2.8

2.5

2.1

1.7

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

Buy



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

Y/E March

TP: INR2,351 (+17%)

Key things to watch for  Outlook on specialty chemicals.  Margins in Technical Textiles and Packaging segments.

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 12,994 6 10,032 2,962 22.8 696 281 62 2,047 0 2,047 501 24.5 1,546 1,546 37.5 11.9

FY17 2Q 12,154 5 9,756 2,397 19.7 700 240 70 1,526 0 1,526 298 19.5 1,228 1,228 12.0 10.1

3Q 11,330 3.4 9,018 2,313 20.4 709 269 64 1,400 45 1,355 271 20.0 1,084 1,120 10.1 9.9

Sumant Kumar ([email protected]); +91 22 6129 1569 Aksh Vashishth ([email protected]); +91 22 6129 1553 April 2017

4Q 13,258 19.1 11,101 2,157 16.3 730 228 259 1,459 -185 1,644 352 21.4 1,292 1,147 7.0 8.6

1Q 13,884 6.9 11,793 2,091 15.1 758 271 203 1,266 0 1,266 228 18.0 1,038 1,038 -32.8 7.5

FY18E 2Q 3Q 12,864 13,971 5.8 23.3 10,754 11,444 2,110 2,527 16.4 18.1 768 770 305 239 152 209 1,189 1,727 0 0 1,189 1,727 162 415 13.6 24.0 1,028 1,312 1,028 1,312 -16.3 17.2 8.0 9.4

4QE 14,385 8.5 12,069 2,316 16.1 770 237 210 1,519 0 1,519 501 33.0 1,018 1,018 -11.2 7.1

FY17

FY18E

48,218 5.0 38,524 9,694 20.1 2,834 1,018 455 6,296 -276 6,572 1,422 21.6 5,150 4,934 14.4 10.2

55,014 14.1 45,551 9,462 17.2 3,059 1,026 710 6,087 0 6,087 1,644 27.0 4,444 4,444 -9.9 8.1

324

March 2018 Results Preview | Sector: Staffing

TeamLease Services Bloomberg

TEAM IN

Equity Shares (m)

17.1

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

40 / 1

52-Week Range (INR)

CMP: INR2312

We expect revenue growth of 26.5% YoY to INR10.3b. This marks a significant pick-up from 12.7% YoY growth seen in the previous quarter.



We note that in the previous quarter, volume addition was backended, which will get fully realized in 4Q, resulting in strong growth.



EBITDA margin is expected to be 1.9%, flat QoQ and up 10bp YoY.



Our PAT expectation of INR217m (-43.5% YoY) factors in a zero tax rate owing to benefits from Section 80JJJAA of the Income Tax Act. However, the decline is because the company realized exceptionally high benefits in 4QFY17 (ETR of -104%). Buy.

16 / 35 / 120

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

30.4

36.8

46.6

57.5

0.4

0.7

0.9

1.3

0.7

0.7

1.0

1.5

38.8

43.3

59.6

88.1

EPS Growth (%)

167.6

11.6

37.5

47.9

BV/Share (Rs)

222.9 266.2 325.8 413.9

EPS (Rs)

P/E (x)

60.5

P/BV (x)

10.5

8.8

7.2

5.7

EV/EBITDA (x)

86.4

57.8

40.1

27.3

1.3

1.0

0.8

0.6

RoE (%)

19.2

17.7

20.1

23.8

RoCE (%)

19.0

17.7

19.9

23.6

EV/Sales (x)

54.2

39.4

26.6

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 6,878 21.4 6,816 62 0.9 10 2 61 110 0 110 37 33.4 0 74 74 48.7 1.1

Buy



2537 / 982

1,6,12 Rel Perf. (%)

TP: INR2700 (+17%)

Key issues to watch for  Expectations around a GST-led pick-up in the general staffing business.  Momentum in the IT staffing business.  Penetration of other HR services in existing customers and new accounts.

FY17 2Q 3Q 7,226 8,147 12.3 29.1 7,140 7,999 86 148 1.2 1.8 10 10 3 3 70 37 143 171 0 0 143 171 52 56 36.7 32.7 0 0 90 115 90 115 57.9 132.1 1.2 1.4

4Q 8,168 23.0 8,022 146 1.8 13 3 57 188 0 188 -196 -103.9 0 384 384 318.7 4.7

1Q 8,530 24.0 8,399 130 1.5 20 2 58 166 0 166 2 1.3 0 164 164 122.7 1.9

FY18E 2Q 3Q 8,756 9,181 21.2 12.7 8,605 9,002 151 179 1.7 1.9 20 24 3 8 44 42 173 189 0 0 173 189 -3 5 -1.5 2.5 0 0 176 184 176 184 94.4 60.1 2.0 2.0

4QE 10,336 26.5 10,136 200 1.9 24 7 48 217 0 217 0 0.0 0 217 217 -43.5 2.1

FY17

(INR m) FY18E

30,418 21.4 29,976 442 1.5 43 11 224 612 0 612 -50 -8.2 0 663 663 167.3 2.2

36,802 21.0 36,142 660 1.8 88 21 193 745 0 745 4 0.6 0 741 741 11.7 2.0

Sagar Lele – Research analyst ([email protected]); +91 22 6129 1531 Ashish Chopra – Research analyst ([email protected]); +91 22 6129 1530 April 2017

325

March 2018 Results Preview | Sector: Agrochemicals

UPL Bloomberg

UPLL IN

Equity Shares (m)

505.0

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

386 / 6

52-Week Range (INR)

CMP: INR764

We expect revenue to grow 10.4% YoY to INR58.9b in 4QFY18, driven by robust growth of 15% in ROW market, followed by 12% growth in North America.



We expect Latin America to post moderate growth of 6.5%, with India and Europe business growing at 10% each.



We expect EBITDA margin to expand 70bp YoY to 21.8% and EBITDA to increase 14% YoY to INR12,854m.



We expect adjusted PAT to de-grow 15.3% to INR7,145m on account of higher tax rate of 25% in 4QFY18 v/s 7.2% in 4QFY17. Buy.

9 / -10 / -8

Financial Snapshot (INR Billion) Y/E March

2017 2018E 2019E 2020E

Sales

163.1 175.8 196.1 222.3

EBITDA

32.2

35.8

40.7

47.0

NP

19.9

21.7

23.8

28.1

EPS (Rs)

39.5

43.0

47.2

55.6

81.5

8.9

9.7

17.9

EPS Gr. (%) BV/Share

146.5 180.7 218.2 262.4

RoE (%)

30.0

26.3

23.6

23.1

RoCE (%)

22.4

19.3

18.9

19.3

19.4

17.8

16.2

13.7

5.2

4.2

3.5

2.9

13.0

11.5

10.0

8.4

2.6

2.4

2.1

1.8

Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

Buy



902 / 675

1,6,12 Rel Perf. (%)

TP: INR945 (+24%)

Key things to watch for  Acreages and growth in Brazil.  New launches and share of branded products.

Consolidated - Quarterly Earning Model Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Exchange difference on trade rec./payable PBT before EO expense Extra-Ord expense PBT Tax Rate (%) Minority Interest & P/L of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates

1Q 35,100 7.2 28,110 6,990 19.9 1,690 1,600 870

FY17 2Q 35,406 15.7 29,010 6,396 18.1 1,540 1,800 820

3Q 39,190 18.1 31,610 7,580 19.3 1,620 1,830 1,290

4Q 53,410 20.4 42,160 11,250 21.1 1,870 2,130 1,460

1Q 37,230 6.1 29,730 7,500 20.1 1,580 800 1,010

FY18E 2Q 37,700 6.5 30,510 7,190 19.1 1,650 1,820 760

FY17 3Q 41,940 7.0 33,650 8,290 19.8 1,690 1,110 1,190

(INR M) FY18E

4QE 58,964 163,106 175,834 10.4 15.8 7.8 46,110 136,050 140,000 12,854 27,056 35,834 21.8 16.6 20.4 2,125 6,720 7,045 2,543 7,360 6,273 1,340 6,720 7,045

248

921

320

890

590

420

1,130

0

4,440

4,300

4,322 280 4,042 440 10.9 0 3,602 4,180 18.3 11.9

2,955 560 2,395 430 18.0 320 1,645 3,586 86.8 10.1

5,100 -20 5,120 470 9.2 60 4,590 4,915 47.7 12.5

7,820 -10 7,830 560 7.2 -120 7,390 8,435 91.3 15.8

5,540 190 5,350 480 9.0 140 4,730 5,010 19.9 13.5

4,060 310 3,750 750 20.0 630 2,370 3,320 -7.4 8.8

5,550 70 5,480 -140 -2.6 -120 5,740 6,320 28.6 15.1

9,526 0 9,526 2,382 25.0 0 7,145 7,145 -15.3 12.1

17,415 810 16,605 1,900 11.4 190 14,515 15,233 -372.2 9.3

26,816 0 26,816 3,472 12.9 570 22,775 22,775 49.5 13.0

Sumant Kumar ([email protected]); +91 22 6129 1569 Aksh Vashishth ([email protected]); +91 22 6129 1553 April 2017

326

Motilal Oswal India Strategy Gallery

Explanation of Investment Rating Investment Rating BUY SELL NEUTRAL UNDER REVIEW NOT RATED

Expected return (over 12-month) >=15% < - 10% > - 10 % to 15% Rating may undergo a change We have forward looking estimates for the stock but we refrain from assigning recommendation

Capital Goods

NOT E S

*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.

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Disclosure of Interest Statement  Analyst ownership of the stock

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In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient 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. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. 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.:022-38281085. 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.IRDA Corporate Agent-CA0541. 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

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