India Strategy-july 2014

July 2014

India Strategy

The 'A' team... In action! Research Team ([email protected])

Contents Section A: India Strategy - The 'A' team... In action! ................................................................... 1-60 Section B: 1QFY15 Highlights & Ready Reckoner ..................................................................... 61-72 Section C: Sectors & Companies .............................................................................................. 73-287 1.

2.

3.

4.

Automobiles Amara Raja Batteries Ashok Leyland Bajaj Auto Eicher Motors Exide Industries Hero MotoCorp Mahindra & Mahindra Maruti Suzuki India Tata Motors TVS Motor Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas Cement ACC Ambuja Cement Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement UltraTech Cement

74-87 78 79 80 81 82 83 84 85 86 87 88-100 92 93 94 95 96 97 98 99 100 101-111 104 105 106 107 108 109 110 111

Consumer 112-129 Asian Paints 116 Britannia Industries 117 Colgate Palmolive 118 Dabur India 119 Emami 120 Godrej Consumer Products 121 GSK Consumer 122 Hindustan Unilever 123 ITC 124 Marico 125 Nestle India 126 Pidilite Industries 127 Radico Khaitan 128 United Spirits 129

Punjab National Bank State Bank of India Union Bank

148 149 150

5b. Financials - NBFC 151-160 Bajaj Finance 153 HDFC 154 IDFC 155 LIC Housing Finance 156 M & M Financial Services 157 Power Finance Corporation 158 Rural Electricfication 159 Shriram Transport 160 6.

Healthcare Alembic Pharma Biocon Cadila Healthcare Cipla Divi’s Laboratories Dr Reddy’s Labs. Glenmark Pharma GSK Pharma IPCA Laboratories Lupin Ranbaxy Labs. Sanofi India Sun Pharmaceuticals Torrent Pharma

161-177 164 165 166 167 168 169 170 171 172 173 174 175 176 177

Media D B Corp Dish TV HT Media Jagran Prakashan Sun TV Network Zee Entertainment

178-187 182 183 184 185 186 187

8.

Metals Hindalco Hindustan Zinc Jindal Steel & Power JSW Steel Nalco NMDC Sesa Goa SAIL Tata Steel

188-201 193 194 195 196 197 198 199 200 201

9.

Oil & Gas BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Industries

202-218 207 208 209 210 211 212 213 214 215 216 217 218

7.

10. Real Estate DLF Godrej Properties Indiabulls Real Estate Jaypee Infratech Mahindra Lifespaces Oberoi Realty Phoenix Mills Prestige Estate Projects Sobha Developers

219-230 222 223 224 225 226 227 228 229 230

11. Retail Future Retail Jubilant Food Shoppers Stop Titan Company

231-237 234 235 236 237

12. Technology Cognizant Technology HCL Technologies Hexaware Technologies Infosys KPIT Technologies Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro

238-252 242 243 244 245 246 247 248 249 250 251 252

13. Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Communication

253-261 258 259 260 261

14. Utilities 262-275 CESC 266 Coal India 267 Jaiprakash Power Ventures 268 JSW Energy 269 NHPC 270 NTPC 271 Power Grid Corp. 272 PTC India 273 Reliance Infrastructure 274 Tata Power 275 15. Others Arvind Bata India Castrol India Gujarat Pipavav Port Jain Irrigation Just Dial Kaveri Seeds PVR Sintex Industries Symphony UPL V-Guard Industries

5a. Financials - Banks 130-150 Axis Bank 136 Bank of Baroda 137 Bank of India 138 Canara Bank 139 Federal Bank 140 HDFC Bank 141 ICICI Bank 142 Indian Bank 143 IndusInd Bank 144 ING Vysya Bank 145 Kotak Mahindra Bank 146 Oriental Bank 147 Note: All stock prices and indices for companies as on 4 July 2014, unless otherwise stated Investors are advised to refer through disclosures made at the end of the Research Report.

276-287 276 277 278 279 280 281 282 283 284 285 286 287

India Strategy | The 'A' team... In action!

India Strategy BSE Sensex: 25,962

S&P CNX: 7,752

The 'A' team... In action! Economy, corporate earnings bottoming out 1QFY15 PREVIEW | Domestic earnings showing signs of bottoming out; Aggregate PAT up 14% YoY; Sensex PAT up 20% YoY 









1QFY15 marks the first quarter of domestic businesses showing some rebound from the very low growth witnessed over the last two years. This trend should gather pace over FY15 and we expect strong growth in FY16. 1QFY15 is also the last quarter of impact of weak currency YoY, which favorably impacts all exporters’ earnings. This impact would taper off significantly from 2QFY15. We expect MOSL Universe of 153 companies (excluding RMs) to report aggregate PAT growth of 14% YoY. Sales would grow 13% YoY, while EBITDA growth would be 14%. The fastest growing sectors in 1Q would be Telecom (+41%; aided by low base), Autos (+39%; TTMT growth of 91%), Technology (+21%; last quarter of INR impact), and Private Banks (+20%, remained most consistent across cycle). Sectors with earnings decline would be the domestic cyclicals: Real Estate (32%), Capital Goods (-16%), PSU Banks (-10%) and Cement (-7%). Among these, the PSU Banks would begin showing growth from 2QFY15, while the other three would see growth returning in 3Q/4Q. Margins have bottomed out and are showing signs of recovery. Operating leverage should start picking up, as domestic volumes and business conditions improve. Moreover, interest costs are also at their peak, and would aid growth ahead. Sensex 1QFY15 PAT is likely to grow 20% YoY versus 11% in 4QFY14. This is the highest growth in the last nine quarters. This would be largely fueled by Tata Motors (growing 91% on low base) and ONGC (growth of 53%). Excluding these two, growth would be 13%. Top PAT growth companies would be: Dr Reddy’s (+61%), HDFC Bank (+25%), TCS (+24%), Hero MotoCorp (+24%), and Axis Bank (+18%). ITC and ICICI Bank would grow at 17% each. Top PAT de-growth companies would be largely cyclicals: BHEL (-84%), Mahindra & Mahindra (-19%) and L&T (-5%). Cipla could report 25% earnings decline.

1QFY15 Sensex PAT growth at 20%, higher than LPA of 17%; highest in 9 quarters 25 28

39 42 33

31 30

24 12

43 33 30

44 26

17 19

25 23

20

12

6

-7

LPA:17%

29

26 27 22

15 6

14

11

4 7 0

-2

19

20 11

13 10 14

-4

-15

-25 -21 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 FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

Source: Company, MOSL

July 2014

1

India Strategy | The 'A' team... In action!

ECONOMY | Worst of macro is behind; green shoots are visible; expect GDP to grow at 6.5% in FY16 The Indian economy has faced turbulent times in the last five years with key economic indicators taking a turn for worse. Thus we have seen stagflationary tendency with low growth coupled with high inflation. The twin deficits had breached their sustainable limits. The private capex cycle collapsed with negative consequence on credit offtake and its quality. We may not be out of the woods as yet but the worst seems behind us. Growth has shown a marginal uptick in 4QFY14. More importantly the most cyclical part of growth, viz., industry have shown first signs of growth during Apr-May, registering a growth rate of 4%. Inflation has subsided by the latest count, albeit helped by a favorable base effect. In a short period of time, India has been able to correct its external imbalance and impart stability to its currency. Successive governments have also shown firm commitment to strictly adhere to the fiscal consolidation path despite challenges of meeting revenue targets in a low growth environment. Finally project clearance related governance has improved raising hopes for a pick-up in private capex. Thus, we expect GDP growth to revive to 5.5% in FY15 and further to 6.5% during FY16 from 4.7% in FY14. The period should also see a moderation in inflation with government taking steps to curb food inflation. Interest rates too have peaked out and its decline would act as a booster to the economy.

Source: Government, MOSL

7.2 FY17E

5.5

6.5 FY16E

FY15E

4.7 FY14

FY13

FY12

FY11

FY10

FY04

FY03

4.0

4.5

5.5 FY13

FY11

FY09

FY07

FY05

FY03

FY01

FY99

FY97

FY95

FY93

FY91

FY89

FY87

FY85

0

FY02

4.7

3

4.3

5.0

FY01

6

7.5

6.2

6.7

8.1

9

8.6

GDP gr. (%)

GDP gr. (%)

8.9

Avg 10-yr gr. (%)

12

However, GDP growth has bottomed out 9.3

India's current growth rate is well below its potential growth

6.7



FY09



FY08



9.6



FY07



9.5



7.0



FY06



FY05



Source: Government, MOSL

GOVERNMENT | Historic mandate to NDA put to test; Various actions including Budget see Government’s earnestness for change  

July 2014

The BJP led NDA has won their biggest ever mandate in an election marked with many firsts. Government has taken various measures to live upto the expectations despite challenging economic environment and limited fiscal space. The directions of policy measures by the new government were aimed at reinvigorating growth by focusing on infrastructure, addressing inter-sectoral bottlenecks and faster project clearances.

2

India Strategy | The 'A' team... In action!

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Simultaneously, the government has sought to bring down inflation, particularly food inflation through a variety of administrative and policy measure including by effecting the lowest MSP hikes in a decade. At the same time when it is trying to pump up growth, it has avoided breaching fiscal and external prudent limits. This left headroom only for limited maneuverability for the Government in its maiden budget. It has used the space to effect a consumption and investment boost financed by higher disinvestment and sale of telecom spectrum. While being constrained by the limited fiscal space and inadequate preparation time, Government nonetheless made a beginning towards the reform and development agenda set in its Manifesto. Moreover, government has sought to enhance its own capacity to deliver by rejiging the bureaucracy and improving governance standards. The combination of near term measures and visionary steps are likely to hold India in good stead for a steady recovery of the economy.

Key big-bang announcements by the Modi government Particulars

Impacted sector

Positive

INR125b worth of transmission projects approved

Power

Positive

Approved road projects worth about INR400b

Infrastructure

Positive

Fast track clearances for 3 rail lines for coal linkage

Power

Positive

Railway fares hiked; higher fares for passenger with Fuel adjustment charge

Economy

Positive

7 big-ticket projects of INR210b cleared

Infrastructure

Positive

Gas price deferred for 3 months to consult with all stakeholders

Energy

Negative

Firm resolve to GST implementation

Economy

Positive

FDI in insurance and defence raised from 26% to 49%

Insurance

Positive

24 Airports identified for development as Domestic Air Cargo Terminals

Infrastructure

Positive

PSU Bank consolidation and greater autonomy

Financials

Positive

Transfer of units of debt mutual funds to be taxed at 20% (vs 10% earlier)

Economy

Negative

Conducive tax regime for REITS and Infrastructure Investment Trusts

Infrastructure

Positive

New scheme targeting feeder separate for DISCOMs

Infrastructure

Positive

Online environmental clearances

Infrastructure

Positive

Large number of infrastructure projects announced (16 ports, 8,500kms of road project completion, developing airports in Tier 2 and 3 cities, developing 100 smat cities)

Economy

Positive

Construction under EPC vs. PPP earlier

Infrastructure

Positive Source: Government, MOSL

MARKETS | Beginning of a new cycle; markets at high; valuations at longterm averages 

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



July 2014

India is the top performing markets, with the Sensex delivering 18% return in CY14YTD. The Sensex outperformed its EM peers, both in local currency and USD terms. It currently trades at 16.4x FY15E earnings. Domestic cyclicals outperformed in CYTD. Top performing sectors are Capital Goods (+46%), Retail (45%) and PSU Banks (+40%). Telecom is the only sector, with negative returns. Valuations of Indian equities remain attractive with market cap-to-GDP ratio of 68% (below long-period average of 72%). The Sensex trades at 15.4x which is just below long-period average of 15.5x. FIIs continue to repose faith in Indian equities and pumped USD11.2b in CY14YTD, whereas DIIs witnessed outflows of USD5.5b. 3

India Strategy | The 'A' team... In action!

12-month forward Sensex P/E (x) 27

India’s market cap to GDP (%)

24.6

103

22

82

10 Year Avg: 15.5x 15.4

17

42

12

95

83

88

55

52

Average of 72% for the period 69 68 63 65

10.7

Source: Company, MOSL

FY15E

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Jul-14

Jul-13

Jul-12

Jul-11

Jul-10

Jul-09

Jul-08

Jul-07

Jul-06

Jul-05

Jul-04

7

Source: Company, MOSL

MONSOON | Shortfall in rains, potentially in capital flows too? Key risks monsoon deficit and market readiness for huge capital issuance  

Potential capital supply (INR t) 

1.2 1.7

1.01.25



0.50.6

PSUs



Private Banking & sector Financial (excld Services financials)

   

The deficient rainfall in large parts of the country so far and the threat of El Nino in the second half of the season is a major source of worry for the economy. While deficient monsoon has affected food inflation materially in the past, the previous NDA government did well to contain prices during the two drought years it faced in five years. The government has taken several pre-emptive measures to tackle food inflation this time too, including low MSP hike, release of foodstocks and restrictions on exports. Its not raining money in the capital markets. However, a few companies have been successful in raising rather large sums. There is a very strong pipeline of equity capital raising in the primary capital market emanating from three sources. Disinvestment of USD20b-25b over the next two years Financials to raise USD15b to meet their capital requirement Private sector may come up with another USD20b-25b as an attempt to repair the balance sheets of highly leveraged companies. Such huge capital raising program raises concerns on the absorption capacity of the market and its consequent impact on the secondary market.

Sharp deviation in rainfall has affected agri production Rainfall deviation

20

NDA-I did well to contain food prices despite drought

Change in foodgrain production

20

10

10

0

0 -2

-10

-11

-20

-2

-6 -12

-15

-7 -18 -19 -20

-30

Rainfall deviation

WPI-Food inflation

3

2

-10 -20 -30

FY84

FY87

FY88

FY95

FY99

FY01

FY03

FY10

Source: IMD, MOSL STRATEGY: ECONOMIST:

FY84 FY87 FY88 FY95 FY99 FY01 FY03 FY10

Source: IMD, Government, MOSL

Rajat Rajgarhia ([email protected]) Dipankar Mitra ([email protected])

Sources of exhibits in this section include RBI, CMIE, Bloomberg, IMF, UN, Rogers International, Industry, Companies, and MOSL database

July 2014

4

India Strategy | The 'A' team... In action!

1QFY15 PREVIEW

Domestic earnings showing signs of bottoming out Aggregate PAT up 14% YoY; Sensex PAT up 20% YoY 

 





1QFY15 marks the first quarter of domestic businesses showing some rebound from the very low growth witnessed over the last two years. This trend should gather pace over FY15 and we expect strong growth in FY16. 1QFY15 is also the last quarter of impact of weak currency YoY, which favorably impacts all exporters’ earnings. This impact would taper off significantly from 2QFY15. We expect MOSL Universe of 153 companies (excluding RMs) to report aggregate PAT growth of 14% YoY. Sales would grow 13% YoY, while EBITDA growth would be 14%. The fastest growing sectors in 1Q would be Telecom (+41%; aided by low base), Autos (+39%; TTMT growth of 91%), Technology (+21%; last quarter of INR impact), and Private Banks (+20%, remained most consistent across cycle). Sectors with earnings decline would be the domestic cyclicals: Real Estate (-32%), Capital Goods (-16%), PSU Banks (-10%) and Cement (-7%). Among these, the PSU Banks would begin showing growth from 2QFY15, while the other three would see growth returning in 3Q/4Q. Margins have bottomed out and are showing signs of recovery. Operating leverage should start picking up, as domestic volumes and business conditions improve. Moreover, interest costs are also at their peak, and would aid growth ahead. Sensex 1QFY15 PAT is likely to grow 20% YoY versus 11% in 4QFY14. This is the highest growth in the last nine quarters. This would be largely fueled by Tata Motors (growing 91% on low base) and ONGC (growth of 53%). Excluding these two, growth would be 13%. Top PAT growth companies would be: Dr Reddy’s (+61%), HDFC Bank (+25%), TCS (+24%), Hero MotoCorp (+24%), and Axis Bank (+18%). ITC and ICICI Bank would grow at 17% each. Top PAT de-growth companies would be largely cyclicals: BHEL (-84%), Mahindra & Mahindra (-19%) and L&T (-5%). Cipla could report 25% earnings decline.

Early signs of domestic macroeconomic recovery The macro-economic backdrop for 1QFY15 is showing early signs of recovery as is evident from i) Second consecutive month of growth in IIP (4.7% IIP growth registered in May 2014 is highest in six quarters), ii) Improvement in consumer demand reflected in fourth consecutive double-digit growth in 2W volumes in 1QFY15, iii) Growth in sales volume of Maruti in 1QFY15, after two quarters of de-growth, and iv) Significant improvement in cement dispatches (8.1% expected growth in 1QFY15, a 2-year high). This trend should gather pace during the rest of FY15. 1QFY15 is also the last quarter of YoY impact of a weak INR that benefits the earnings of all exporters. This impact would taper off significantly from 2QFY15.

July 2014

5

India Strategy | The 'A' team... In action!

IIP growth highest in six quarters

Double-digit 2W volume growth 19.6 19.8

2W Volume Chg YoY (%) 12.7 11.9

3.4 1.1

0.4

-0.5 -0.5

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

May-14

Mar-14

Jan-14

Nov-13

Source: Company, MOSL

Cement dispatches at two-year high 10.2

9.0

Source: Company, MOSL

Maruti volumes start growing again

Cement Dispatches YoY (%)

9.8

Maruti Volume YoY Chg (%) 26

8.1

6.1

5.6

5

20

13

5

5.9

4.9

-1

3.3

2.6

-2.4

0.9

-5

-9

2.0 2.3

-10

-4

-5

4QFY14

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Nov-12

-4.6

1QFY15

-2.0

4QFY14

-1.2 -1.3

3QFY14

-2.5

-1.8

3QFY14

-0.6

12.4 10.9

4.9

0.1

2QFY14

1.5

8.7 9.4

9.4

1QFY14

-1.0

2.7

2.6

2.5 0.6

4.7

IIP YoY (%)

3.5

-20

Source: Company, MOSL

1QFY15

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

-28

Source: Company, MOSL

Expect 1QFY15 aggregate PAT to grow 14% YoY; sales to grow 13% YoY 

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July 2014

We expect MOSL Universe of 153 companies (excluding RMs i.e. three major oil refining & marketing companies, IOC, BPCL, and HPCL) to report aggregate 1QFY15 sales growth of 13% YoY. This would be the fourth consecutive quarter of double-digit sales growth, led by Autos, Financials, Healthcare and Technology. EBITDA margins have bottomed out. We estimate 1QFY15 EBITDA margin at 19.7%, up from 19.1% in 4QFY14 and slightly lower than the long-period average of 20.4%. We expect EBITDA margin expansion to continue, aided by the operating leverage available on the back of expected rebound in domestic businesses. Companies within MOSL Universe are likely to report aggregate 1QFY15 PAT growth of 13.7% YoY. This is significantly higher than 8.5% YoY witnessed in 4QFY14 and would be driven by Oil & Gas, Technology, Private Banks, Autos and Consumer, but dragged by PSU Banks and Utilities. However, the expected growth is lower than the long period average of 18%. We expect substantial improvement in FY15 PAT growth, given a lower base in FY14 (PAT growth of 7%) and expected economic recovery in 2HFY15, driven by a stable and reformoriented NDA government.

6

India Strategy | The 'A' team... In action!

Results to reflect mixed performance by cyclical and non-cyclical sectors    

Telecom, Autos, Technology, Metals and Private Banks are likely to report >20% PAT growth. Oil & Gas, Consumer, Healthcare, Utilities and NBFCs are likely to report 10-16% PAT growth. Capital Goods, PSU Banks, Cement and Real Estate should report significant decline in PAT growth. While the overall Financials sector is likely to report a muted 5% PAT growth, Private Banks would outperform, clocking 20% PAT growth YoY, followed by NBFCs with 10.1% PAT growth YoY. PSU Banks are likely to report 10% decline in aggregate PAT, a trend that is continuing for seven quarters now.

1QFY15 performance of MOSL Universe by sector: Mixed bag of cyclicals and non-cyclicals Sector

Sales

(No of Companies)

Jun-14

High growth sectors Telecom (4) Auto (10) Technology (10) Metals (9) Private Banks (8) Med/Low growth sectors Oil Excl. RMs (9) Consumer (14) Healthcare (14) Utilities (10) NBFC (9) Retail (4) PAT de-growth sectors Media (7) Cement (8) PSU Banks (8) Capital Goods (9) Real Estate (9) MOSL Excl. RMs (153) Sensex (30) Nifty Ex BPCL (49)

3,425 382 1,028 638 1,101 166 3,100 1,692 351 243 635 116 63 879 43 195 307 285 47 7,404 4,863 5,503

EBITDA

Var % Var % YoY QoQ 15 10 19 19 12 16 12 12 13 16 11 20 1 6 11 9 13 1 -9 13 14 14

-6 1 -5 1 -14 4 1 1 3 5 -1 6 1 -18 7 -2 2 -41 -9 -5 -7 -6

Jun-14 827 130 143 164 230 141 670 259 74 54 179 97 6 291 12 35 206 23 14 1,788 1,085 1,339

Net Profit

Var % Var % YoY QoQ 20 14 29 23 23 10 14 20 13 13 7 15 13 -1 4 -1 1 3 -26 14 18 15

Jun-14

-2 3 -3 -4 -3 -1 3 -1 6 7 10 0 -3 -20 5 -3 -13 -65 11 -4 -8 -7

398 23 69 126 85 83 411 161 51 37 98 61 2 119 5 17 78 14 5 928 570 712

PAT

Delta

Var % Var % Share % YoY QoQ 25 41 39 21 21 20 13 16 14 11 10 10 8 -11 -6 -7 -10 -16 -32 14 20 15

-4 5 -11 -4 -4 -2 1 -2 3 1 7 -2 -10 -22 6 -11 7 -72 -27 -5 -9 -7

43 3 7 14 9 9 44 17 6 4 11 7 0 13 1 2 8 1 0 100

Share %

EBITDA Margin Chg bp YoY

71 6 17 20 13 12 42 20 6 3 8 5 0 -13 0 -1 -8 -2 -2 100

89 121 106 85 182 -488 33 95 3 -61 -93 -409 106 -237 -177 -183 -794 14 -668 18 75 33 Source: Company, MOSL

Expect double-digit PAT growth in 1QFY15 – second time in eight quarters, but still below LPA of 18% 40

MOSL Universe Quarterly PAT Growth YoY (%) LPA: 18%

10

13

19 11

14

14 7

5

5

8

1

10

13

14

16

Dec-14E

26

Sep-14E

23

25

June-14E

26

20

0

Mar-15E

Mar-14

Dec-13

Sep-13

June-13

Mar-13

Dec-12

Sep-12

June-12

Mar-12

Dec-11

Sep-11

June-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

-13

June-09

Mar-09

-10

-9

Source: Company, MOSL

July 2014

7

India Strategy | The 'A' team... In action!

Sales growth to taper off in 9MFY15 due to INR depreciation and inflation impact; below LPA of 15% 24

25

21

22

MOSL Universe Quarterly Sales Growth YoY (%) LPA: 15% 19

16

3

10

6

5

13

13 11

7

8

9

Mar-15E

June-14E

Mar-14

Dec-13

Sep-13

Sep-12

June-12

Mar-12

Dec-11

Sep-11

June-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Sep-09

June-09

Dec-09

-3

-6

Mar-09

13

13

Dec-14E

21

Sep-14E

23

June-13

19

Mar-13

27

Dec-12

29

Source: Company, MOSL

1QFY15 EBITDA margin (ex Financials & RMs) at 19.7%; expect recovery hereon 23.2 22.3

MOSL Universe EBITDA Margin LPA: 20.4%

FY09

FY10

FY11

FY12

FY13

FY14

4Q

20.6 20.9

3Q

2Q

19.7 20.1

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

19.6 19.5 19.1 19.3 19.4 19.1 19.1 18.7 19.0 19.3

1Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

19.0

4Q

3Q

2Q

18.6

20.0

4Q

20.6 20.5

3Q

21.8 22.0

2Q

20.7

1Q

22.2 22.3 22.3

21.3

FY15E

Source: Company, MOSL

1QFY15 PAT margin (ex Financials & RMs) at 10.3%; relatively flat and below LPA of 11.5% 14.6

FY09

FY10

FY11

FY13

FY14

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

2Q

FY12

4Q

10.9 11.3 10.3 10.0 10.5 10.0 10.1 10.4 10.5 10.3 10.6

3Q

11.4 11.0

1Q

10.7

4Q

11.2

3Q

MOSL Universe PAT Margin LPA: 11.5%

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

4Q

3Q

2Q

1Q

10.8 10.8

13.0 12.6 12.3 12.2 12.5 12.1 11.8 11.7 11.7

1Q

13.3

FY15E

Source: Company, MOSL

Sectoral quarterly PAT trend 

 

July 2014

We estimate aggregate PAT for MOSL Universe (ex RMs) at INR847b, the highest ever in a June-ending quarter, and expect a similar trend in the remainder of FY15. Corporate India earnings continue to do well. We expect 13%+ earnings growth in FY15. Consumer, Financials and Utilities would report record profits in 1QFY15. Technology is also likely to maintain INR100b+ earnings of 3QFY14 and 4QFY14. Telecom would continue to show a rebound, led by Bharti.

8

India Strategy | The 'A' team... In action!

Sectoral quarterly PAT trend (INR b) Sector

2010

2011

Mar Jun Sep Dec

Mar Jun Sep Dec

2012 Mar

Jun

2013

Sep Dec

2014

Mar Jun Sep Dec

Mar Jun

Sep

2015 Dec

Mar

Auto 43 46 49 48 51 49 50 62 79 55 49 47 75 49 71 81 77 69 79 86 93 Capital Goods 44 21 27 31 45 22 27 32 61 25 27 26 54 16 21 24 49 14 19 23 51 Cement 21 20 8 13 23 21 12 18 25 26 20 17 21 18 12 10 19 17 11 16 31 Consumer 25 28 30 32 31 32 36 37 37 40 41 46 44 45 48 52 50 51 56 60 59 Financials 124 142 142 159 135 140 162 176 204 191 190 200 214 212 189 198 220 223 232 250 277 Pvt Banks 32 32 36 42 45 42 46 53 58 55 58 68 72 69 72 80 85 83 87 97 96 PSU Banks 62 79 73 82 53 62 75 84 102 92 83 82 83 87 61 59 73 78 81 87 104 NBFC 31 31 33 35 38 36 40 39 44 44 48 50 59 56 57 60 62 61 64 67 76 Healthcare 16 18 20 18 22 20 23 24 24 24 28 27 30 33 37 38 36 36 41 44 44 Media 4 4 4 4 5 5 4 4 4 4 5 5 4 6 5 6 5 5 6 8 7 Metals 90 79 71 71 95 90 72 63 72 78 57 45 78 65 62 61 76 74 77 74 100 Oil & Gas 178 35 238 177 188 56 38 284 367 -251 342 217 403 95 203 137 346 172 207 227 196 O&G Ex RMs 108 105 143 156 128 150 178 139 139 154 173 166 133 139 174 175 165 161 181 189 163 Real Estate 8 10 11 12 9 8 9 9 10 8 6 8 6 6 5 5 5 4 5 9 8 Retail 1 2 2 2 2 2 2 2 2 2 2 3 2 2 2 2 3 2 3 3 3 Technology 43 41 47 51 51 52 54 65 67 74 76 79 79 88 99 107 109 105 112 117 124 Telecom 34 22 23 21 18 16 15 15 16 12 11 6 6 13 12 12 18 19 20 25 29 Utilities 43 39 39 38 49 43 44 43 50 51 50 49 47 51 53 51 39 56 58 54 55 Others 6 5 4 5 9 7 4 5 8 7 4 6 8 8 6 8 10 10 8 10 12 MOSL Excl RMs 611 583 622 662 673 657 694 695 798 752 739 729 804 751 797 831 881 847 906 966 1054 Note: Comparable Universe, excludes Coal India, Just Dial, Prestige Estate, Bharti Infratel, Alembic Pharma, Sesa Sterlite (due to merger) and Wipro (due to demerger). Source: Company, MOSL

Distribution of PAT growth across sectors continues to improve  

 

Percentage of companies reporting PAT de-growth lowest in 8 quarters. Companies showing PAT de-growth is likely to shrink to 33% of 153 companies in MOSL Universe (44% in 4QFY14). o This would be the lowest level in the last eight quarters and could further shrink to just 13% by the end of FY15 (lowest since December 2006). 39% of companies are likely to report >15% PAT growth, same as in 4QFY14. This would rise to 69% by 4QFY15. Companies with >30% PAT growth would contribute only 18% to aggregate PAT. This is the lowest observed level in a decade. However, we expect the contribution of such companies to reach 45% by the end of FY15.

Percentage of companies reporting PAT de-growth lowest in eight quarters

42 40

Ex RMs (%) -2 7 12 8 14 13 16 19

30

39 39 42 40 35 37 44 33

Jun 12

25 24 31 32 35 31 27 30 27 34

22

13 13

Dec 14E

Mar 15E

Jun 14E

Sep 14E

Mar 14

Sep 13

Dec 13

Jun 13

Dec 12

Mar 13

Mar 12

Sep 11

Dec 11

June 11

Dec 10

Mar 11

Jun 10

Sep 10

Mar 10

Sep 09

Dec 09

24 18 9 18 10 20 18 9 28 14 14 13 24 24 19 27 13 29 17 16 17 21 23 24 17 16 27 22 18 17 23 10 21 22 27 24 25 18 22 18 16 18 15 20 21 20 16 19 51 45 41 43 38 32 39 35 36 32 27 25 24 20 24 24 19 21 21 24 25 25 18 22

Jun 09

Mar 09

Dec 08

Sep 08

June 08

Mar 08

Sep 07

Dec 07

Mar 07

June 07

Dec 06

% of MOSL Universe companies

11 17 14 14 21 24 23 26 11 11 42 41 15 11 14 19 19 24 19 23 26 23 21 11 22 18 18 18 14 10 60 54 52 48 45 44 35 30 26 27

>0-15% <0% 13 11 4 18 11 8 5 0

Sep 12

>30% >15-30% -8 -15 -15 -11 23 15 20 25 24 26 42 26 22 24 9 55 36 34

Earnings Growth

PAT Growth Ex RMs (%) Source: Company, MOSL

July 2014

9

India Strategy | The 'A' team... In action!

Expect Sensex PAT growth of 20%; TTMT, ONGC are key drivers 













Based on our bottom-up estimates of the 30 constituent companies, Sensex PAT is likely to grow 20% YoY versus 11% witnessed in 4QFY14. This is the highest growth in nine quarters, largely fueled by Tata Motors (growing 91% on low base) and ONGC (growth of 53%). Excluding these two companies, the growth would be 13%. Sales growth would remain strong at 14% in 1QFY15, but would start tapering off, as the benefit of INR depreciation would not be available from 2QFY15. Sharp INR depreciation in 2QFY14 had led to double-digit sales growth in subsequent quarters. Nearly 2/3rd of Sensex companies are likely to report double-digit YoY growth, though several would benefit from lower base (Tata Power, Tata Motors, Bharti, etc). Other top PAT growth companies would be Dr Reddy’s (+61%), HDFC Bank (+25%), TCS (+24%), Hero Moto (+24%), Axis Bank (+18%), ITC (+17%), and ICICI Bank (+17%). Top PAT de-growth companies would be largely cyclicals: BHEL (-84%), Mahindra & Mahindra (-19%) and L&T (-5%). Cipla would also report a 25% decline in earnings. Over the next three quarters of FY15, while the Sensex PAT growth would moderate to 12%, this would be led by a stable INR, which would significantly moderate the earnings of all exporters. Many of the domestic businesses would begin to show revival in growth rates in 2HFY15, and would drive Sensex growth in FY16 as well.

1QFY15 Sensex PAT growth at 20%, higher than LPA of 17%; highest in 9 quarters 25 28

39 42 33

31 30

24 12

43 33 30

44 26

17 19

25 23

20

12

6

-7

LPA:17%

29

26 27 22

15 6

14

11

4 7 0

-2

19

20 11

13 10 14

-4

-15

-25 -21 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 FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

Source: Company, MOSL

Expect double-digit growth (14% YoY) in Sensex sales in 1Q; growth would taper off in the rest of FY15

20

27

34 23 21 20

16

22

33 30 32

37 36 38 22

44 32

31 30 19

28

LPA:20% 22 18

23 26 23 25

6

19 17

11 8 6

13 14 12 14 2

5 5 6

-5 -11 -6 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 FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

Source: Company, MOSL

July 2014

10

India Strategy | The 'A' team... In action!

Expect 1QFY15 Sensex EBITDA margin at 22.3%; to improve in rest of FY15, but remain below LPA of 25.2% 36.8

30.0 26.4 25.5 25.4

Sensex Margin LPA: 25.2%

34.1

33.5 33.5

30.3

28.3 28.0

28.5 26.1 26.2 25.2 26.2 24.4 24.0 23.6

24.6 24.124.3 24.8 24.7 23.3 23.9 22.5 21.6 20.1 21.4 20.9 22.4 24.6 23.6 22.5 22.7 21.6 21.9 22.322.6 20.7 20.5 20.5 20.7

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 FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

Source: Company, MOSL

Sensex companies 1QFY15E performance (INR b) Company

Sales Var % Jun-14 YoY

EBITDA Var % Jun-14 YoY

PAT Var % Jun-14 YoY

High PAT Growth (8) 2,429 16 698 24 336 36 Tata Power 96 3 25 20 4 260 Sesa Sterlite 175 22 64 16 12 96 Tata Motors 601 28 90 45 35 91 Bharti Airtel 225 11 75 14 13 82 Dr Reddy’ s Labs 34 23 8 61 5 61 ONGC 213 11 115 36 61 53 Wipro 116 19 27 36 21 29 HDFC Bank 52 18 39 19 23 25 TCS 221 23 64 25 49 24 Hero Motocorp 70 15 8 21 7 24 Tata Steel 338 3 46 24 13 18 Axis Bank 32 13 29 1 17 18 Infosys 127 13 33 11 28 17 ICICI Bank 45 18 44 17 27 17 ITC 84 14 32 14 22 17 Med/Low PAT Growth (10) 2,151 13 355 10 215 5 Maruti Suzuki 112 10 13 12 7 14 HDFC 18 17 20 22 13 13 Coal India 177 7 45 13 42 12 Bajaj Auto 53 7 10 11 8 10 Hind. Unilever 75 10 12 12 10 9 Sun Pharma 38 15 15 6 12 8 NTPC 191 23 39 -8 23 5 State Bank 132 15 85 13 33 2 GAIL 144 12 15 1 8 2 Hindalco 226 15 24 31 4 1 Reliance Inds. 985 12 77 9 53 0 Negative PAT Growth (12) 283 0 31 -10 19 -28 Larsen & Toubro 104 5 12 15 7 -5 Mahindra & Mahindra 95 -2 12 -12 7 -19 Cipla 30 21 6 -14 4 -25 BHEL 55 -14 2 -59 1 -84 Sensex (30) 4,863 14 1,085 18 570 20 Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit

July 2014

PAT Contbn

EBITDA margin

(%)

Gr. (%)

59 1 2 6 2 1 11 4 4 9 1 2 3 5 5 4 38 1 2 7 1 2 2 4 6 1 1 9 3 1 1 1 0 100

96 3 6 18 6 2 23 5 5 10 1 2 3 4 4 3 12 1 2 5 1 1 1 1 1 0 0 0 -8 0 -2 -1 -4 100

Jun-14 (%) Var (bp)

29 175 26 365 36 -169 15 169 33 88 24 555 54 1002 24 293 75 60 29 53 12 55 14 226 88 -1089 26 -57 99 -121 38 13 17 -45 12 26 112 415 25 117 19 71 16 36 39 -314 21 -677 64 -112 10 -113 11 133 8 -23 11 -119 11 97 13 -151 19 -793 3 -317 22 75 Source: Company, MOSL

11

India Strategy | The 'A' team... In action!

Nifty and the dollar divide – performance to reverse from 2Q 





1QFY15 is the last quarter of positive impact on growth from INR depreciation of 2QFY14. We classified the Nifty companies into (1) USD-denominated, and (2) Others. USD-denominated would report PAT growth of 17% YoY. Others would see 12% PAT growth. Sales growth for USD-denominated Nifty would be 18% v/s 8% for Others. Growth divergence would reverse in 9MFY15, with USD-denominated witnessing 3% PAT growth against 21% for Others. Similar impact would be visible in sales growth.

Source: Company, MOSL

Source: Company, MOSL

Mar-15E

Dec-14E

Sep-14E

Mar-14

25.5 17.6 Mar-15E

33.3

24.9 17.0 Dec-14E

33.6

24.1 17.2 Sep-14E

32.0

23.9 16.8 June-14E

32.3

24.1 17.1

32.0

23.5 16.7 Dec-13

Mar-14

31.5

22.7 16.1 Sep-13

30.6

23.6 June-13

31.8

31.3 24.2 16.7 Mar-13

16.1

31.1

30.7 22.9 15.4

23.0 15.2

23.5 15.4 June-12

Sep-12

32.2 24.0 15.1 Mar-12

Dec-12

31.4 23.3 15.5 Dec-11

32.3

32.7

32.2

17.4 25.0

24.7 16.9

Total Nifty Companies $ Deonimated Nifty Companies Balance Nifty Companies

Sep-11

Dec-14E

Mar-15E

Sep-14E

June-14E

Mar-14

Dec-13

Sep-13

June-13

Mar-13

Dec-12

Sep-12

June-12

Mar-12

Dec-11

Sep-11

June-11

June-14E

Nifty EBITDA margin (%)

Total Nifty Companies $ Deonimated Nifty Companies Balance Nifty Companies 39 37 29 31 23 23 21 25 20 24 17 19 9 12 11 11 6 9 9 14 1012 12 11 14 17 18 15 8 27 14 7 9 8 1 5 7 6 4 3 1 0 -2 -3 -4 -1 -3 -10

July 2014

Source: Company, MOSL

June-11

Nifty PAT growth (%)

Dec-13

Sep-13

June-13

Dec-12

Mar-13

Sep-12

June-12

Dec-11

Mar-15E

Sep-14E

Dec-14E

Mar-14

Mar-12

14 10 9 5 6 4 3 3 5 6 7 2 2 1 3 14 14 12 13

Total Nifty Companies $ Deonimated Nifty Companies Balance Nifty Companies 34 28 26 23 24 20 19 16 14 17 16 16 14 14 15 7 16 12 9 12 12 8 6 8 13 9 11 4 5 16 13 16 8 87 3 7 6 10 8 5 5 4 4 5 1 2 0

Sep-11

18 8

Dec-13

Mar-13

Dec-12

Sep-12

June-12

Dec-11

June-11

15 9 10 8 9 4 25 22 24 19 17 12 9 6

Sep-13

19

22 22 21

16

June-13

20 19 17 15

June-14E

33

Mar-12

20

27

Total Nifty Companies $ Deonimated Nifty Companies Balance Nifty Companies

Sep-11

31

Nifty EBITDA growth (%)

June-11

Nifty sales growth (%)

Source: Company, MOSL

12

India Strategy | The 'A' team... In action!

Overall sectoral trends in 1QFY15 earnings 



 

In Consumer, all companies would report PAT growth. At 14%, the overall PAT growth would be marginally higher than 12% and 13% achieved in the previous two quarters. All Private Banks in MOSL Universe would report PAT growth. In contrast, 7 out of 8 PSU Banks within MOSL coverage are likely to witness PAT de-growth (SBI is an exception; likely to report marginal growth in 1Q). PAT would continue to de-grow for the eighth consecutive quarter for Capital Goods and the seventh consecutive quarter for Cement. All Auto companies would post PAT growth, except M&M. In contrast, all Real Estate companies under our coverage would witness PAT de-growth, except for Phoenix Mills, which would report a marginal growth of 0.5%.

1QFY15 sectoral sales growth (%)

1QFY15 sectoral EBITDA growth (%)

19 19 16 15 13 13 12 12 11 11 10

29 23 23 20 9 1

14 14 13 13 13

7

7

1

4

3 -1

Source: Company, MOSL

1QFY15 sectoral PAT growth (%)

33.9

25.7

22.3 21.0 20.9

19.7 18.2

Real Estate

Cement

Cap Goods

Media

15.3 13.9

9.4 8.1

Source: Company, MOSL

Cap. Goods

Retail

Auto

Oil Ex. RMs

Cement

MOSL Ex Fin

Metals

Consumer

Healthcare

Media

Utilities

Real Estate

-32

Telecom

-16

Real Estate

-7

Cap Goods

Media

Financials

Retail

Utilities

Health Care

MOSL Ex. RMs

Consumer

Oil Ex. RMs

Metals

Technology

28.2 27.5

5 -6

Auto

30.5

Technology

8

Cement

21 21 16 14 14 11 10

Telecom

Source: Company, MOSL

1QFY15 sectoral EBITDA margin (%)

41 39

July 2014

Financials

Utilities

Consumer

Health Care

Retail

Telecom

MOSL Ex. RMs

Oil Ex. RMs

Metals

Auto

-26 Technology

Real Estate

Retail

Cap Goods

Cement

Telecom

Utilities

Media

Metals

Oil Ex. RMs

MOSL Ex. RMs

Consumer

Financials

Health Care

Technology

Auto

-9

Source: Company, MOSL

13

India Strategy | The 'A' team... In action!

AUTOS

2Ws: PAT growth to rebound, with TVS and Hero reporting strong growth

JLR continues to form dominant share of Auto PAT Auto Universe PAT (INR b)

2Ws PAT Growth YoY (%) 12 4

66 45 44

Source: Company, MOSL

61

55 53

38

37

1QFY15

4QFY14

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

1QFY14

53

52

45 49 49 54 47 46 59 95 50 47 44 76 46 67 78 72 66

1QFY15

-3

2QFY14

-2

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

10

47 43 50 46 44 41

57

0 -17 -10

1QFY12

19

Share of TTMT PAT (%)

3QFY14

16

4QFY14

18

3QFY14

18

24

2QFY14



1QFY14



1QFY15 PAT growth for our Automobile Universe would be 41%, primarily driven by 91% PAT growth for TTMT. For 2W companies, PAT growth would rebound to 19% in 1QFY15 v/s flat growth in 4QFY14. Within the 2W companies, TVSL would report 85% PAT growth and HMCL would report 24% PAT growth. MSIL is likely to report 14% PAT growth on healthy volume growth of 12.6%. MM would report 19% PAT decline on weak core performance and truck business.

4QFY13



3QFY13

Other sector highlights

Source: Company, MOSL

CAPITAL GOODS 

 



July 2014

Management commentary signals cautious optimism, as the pace of project execution remains tepid. For 1QFY15, we expect de-growth in revenue, EBITDA and PAT across our coverage universe. We expect PAT decline of 14% YoY. Order inflows for 1QFY15 would be muted, as project decisions were delayed by the recently concluded elections. Companies are restructuring their balance sheets and infusing capital to prepare for the next level of growth. ABB continues to invest in localization initiatives, Voltas continues to bid cautiously. Siemens had recently hived off its Metallurgical business to Siemens AG. L&T signed a definitive investment agreement with CPPIB for capital infusion of INR10b in IDPL. GMR has also raised INR20b through a QIP / warrants issue. L&T’s efforts to increase order inflows from overseas operations are gaining momentum (80% of the orders received (INR96.2b) and those disclosed via media releases in 1QFY15 were from international operations). Voltas also expects ordering environment to improve in GCC nations by end-FY15, as the design consultants are being finalized for large projects including Dubai Expo to be held in 2020.

14

India Strategy | The 'A' team... In action!

Book to Bill ratio at 2.4x

EBITDA margin impacted by lower operating leverage BTB (x)

Source: Company, MOSL

1QFY15

3QFY14

1QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

3QFY10

3QFY09

1QFY09

14.7 13.8 14.7 11.6 12.9 13.4 15.9 11.8 14.1 16.6 17.3 14.0 15.4 16.2 16.4 12.5 12.9 12.8 18.3 10.6 12.7 11.9 16.3 7.8 8.6 11.1 14.4 7.5

9.7 1QFY08

3QFY08

9.4 10.1 1QFY07

3QFY07

2,232 2,372 2,589 2,786 2,914 3,065 3,106 3,317 3,330 3,399 3,301 3,153 3,218 3,179 3,015 2,946 3,012 3,046 3,089 3,000 3,096 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15

14.1 16.3

2.58 2.65 2.76 2.99 2.99 3.06 3.08 2.94 2.99 2.91 2.85 2.65 2.37 2.36 2.30 2.21 2.18 2.30 2.37 2.41 2.39

EBITDA Margin (%)

1QFY10

Order book (INR b)

Source: Company, MOSL

FINANCIALS 



State-owned banks: Expect earnings to decline 10% YoY, driven by lower noninterest income and elevated credit cost. However, incremental contribution from topline growth to be healthy; NII to grow 13%+ YoY, driven by better NIM performance (stable QoQ though down 8bp YoY). Sale of loans to ARCs may contain headline GNPA. Private sector banks: NII growth to moderate to 16% YoY due to moderation in loan growth and peak NIMs. Expect opex to reduce, non-interest income to moderate and lead to PPP growth of 10% YoY. Asset quality to be stable and credit cost containment to help earnings to grow 20% YoY. HDFCB PAT growth likely to be strong at 25% YoY.

Healthy PAT growth for Private Banks; YoY decline in PAT for PSU Banks to continue, though pace of decline to moderate (INR b)

58 83

82

83

69

87

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

61

1QFY13

85

80

72

83 73

78

59

1QFY15E

92

72

4QFY14

55

68

PSU Banks

3QFY14

Private Banks

Source: Company, MOSL

July 2014

15

India Strategy | The 'A' team... In action!

CONSUMER   

We expect Consumer to post 13.1% sales growth and 14.1% PAT growth in 1QFY15. Input cost scenario is turning inflationary. We note that few companies have taken pricing action to pass on the impact of raw material inflation. We expect management commentaries to remain soft, and in some cases, get more pessimistic for FY15.

Slight uptick in Consumer PAT growth

12.4

13.3

14.1

3QFY14

4QFY14

1QFY15

16.6 2QFY14

12.4 1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

15.0

17.9

22.9

23.7

22.0 16.4 3QFY12

19.3 2QFY12

1QFY12

15.9

PAT Growth(%)

Source: Company, MOSL

HEALTHCARE 













July 2014

Increasing contribution from low competition products in the US has led to improving sales mix for many Indian generic companies. The gradual shift towards lifestyle ailments in India and increasing penetration in branded export markets has also aided expansion in gross margins. This is being reflected in improving EBITDA margin profile for our coverage. Revenue growth of 16% for the quarter would be driven by continued strong performance in US generics. While domestic formulations market is showing signs of recovery, meaningful uptick is expected from 2HFY15 onwards. While we expect underlying growth for the sector to remain strong, high base of 1QFY14 would impact operational performance for many companies under our coverage. We expect EBITDA margin to contract 60bp YoY. Adjusted PAT growth would be even lower due to higher expected tax rates for most companies. Major companies to be impacted include Cipla (unusually higher margins in 1QFY14), Ranbaxy (cessation of API supplies from Dewas and Paonta Sahib), Sun Pharma, Glenmark and Torrent Pharma (price erosion in base business). Despite the base effect, we expect Dr Reddy’s, Lupin, Cadila, IPCA Labs, Biocon and Alembic Pharma to continue to report strong operational performance, led by improving sales mix and contribution from low competition launches. Both MNCs under our coverage, Sanofi India and GSK Pharma, are likely to report healthy operational performance due to increase in prices of products exiting price control and low base effect of new policy implementation last year. With regards to currency impact, 7% appreciation of USD would yet again aid growth in export markets. However, the MTM impact from liabilities would be miniscule due to largely flat currency movement QoQ.

16

India Strategy | The 'A' team... In action!

Healthcare: Improving sales mix driving margin expansion 23.7

24.2

24.0

4QFY14

21.3

22.0

23.0

3QFY14

20.7

21.6

4QFY13

22.4

23.0

3QFY13

22.1

4QFY12

22.9

3QFY12

EBITDA Margin (%) 23.3

1QFY15E

2QFY14

1QFY14

2QFY13

1QFY13

2QFY12

1QFY12

4QFY11

18.9

Source: Company, MOSL

METALS 



 

Aggregate revenue for our Metals Universe is likely to grow 13% YoY, driven by 10% growth in steel deliveries, 3% improvement in steel realization, and 12% increase in zinc prices. Aggregate EBITDA would increase 23% YoY, driven by higher prices, lower coal costs, and volume growth in steel and aluminum. Aggregate adjusted PAT is likely to grow 26% YoY. Hindalco would be reporting significant growth in alumina and aluminum metal, driven by ramp-up at Utkal refinery, and Hirakud and Mahan smelters. Jindal Power would report higher volumes due to start of power transmission from Tamnar-2 power plant to Tamil Nadu.

Metals: EBITDA to increase 23% YoY

Source: Company, MOSL

OIL & GAS 





July 2014

We estimate 1QFY15 subsidy at INR292b (+15% YoY, -26% QoQ). While lower diesel/LPG losses and INR appreciation contributed to the QoQ decline, the YoY increase was led by higher LPG losses v/s 1QFY14 and INR depreciation. Regional benchmark, Reuters Singapore GRM declined QoQ from USD6.2/bbl to USD5.8/bbl, led by lower LPG and middle-heavy distillate cracks. Refinery profitability (RIL, OMCs, MRPL) would be impacted by lower product cracks, reflected in 7% QoQ decline in benchmark Reuters Singapore GRM. We expect net realization to increase ~USD7/bbl QoQ for ONGC/OINL, as we model lower QoQ subsidy, led by lower gross under-recoveries. 17

India Strategy | The 'A' team... In action!

RIL’s PAT is likely to be flat YoY at ~INR53b, despite higher operating profit, supported by ~7% INR depreciation, due to lower other income. Other income was boosted in 1QFY14 on account of profit on sale of investments. Expect lower QoQ operating profit for Cairn, led by operational hiccups in May and increase of government’s share in profit petroleum.

10

Source: Bloomberg, MOSL

1QFY15

1QFY09

1QFY15

1QFY14

1QFY13

0

1QFY12

0

1QFY11

2

1QFY10

25

1QFY09

4

1QFY08

50

1QFY07

6

1QFY06

75

1QFY05

8

1QFY04

100

Quarterly GRM

1QFY14

110

1QFY13

125

Singapore GRM down 7% QoQ to USD5.8/bbl in 1QFY15

1QFY12

Brent crude price was up 2% QoQ and 6% YoY (USD/bbl)

1QFY11



1QFY10



Source: Bloomberg, MOSL

UTILITIES 





We expect Utilities companies in our coverage to report aggregate revenue growth of 11% YoY and PAT growth of 10% YoY in 1QFY15. PAT growth would be driven mainly by Tata Power, given the benefit of compensatory tariff hike. Also, we expect Coal India and Powergrid to post PAT growth of 12% and 11%, respectively. Given lower than expected volume growth in Coal India, PAT could be lower than our estimate. For NTPC, we expect adjusted PAT growth of 4.5% YoY in the first quarter of new regulation.

Demand growth muted in May 2014, albeit on higher base FY13

7.4%

FY14

FY15

Base deficit continues to be sub-4% 14

Gr (%)

FY15

FY13

FY12

FY14

11

91

89

8 4.4

3.8

86 85

73 78

85 84

85 83

79 77

84 80

80 83

83 84

5

86 87

85 83

84 91

79 83

0.1%

Source: Company, MOSL

July 2014

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sept

Aug

July

June

May

April

2

Source: Company, MOSL

18

India Strategy | The 'A' team... In action!

TELECOM 



YoY earnings rebound to continue, with India business PAT for Bharti/Idea growing 48%/38% YoY. PAT growth for Bharti Infratel should also remain healthy at 22%, led by operating leverage. We expect 13-16% YoY India business EBITDA growth for Bharti/Idea/RCom, supported by wireless RPM and margin expansion.

Telecom: Quarterly PAT (INR b) Bharti (India)

Idea

Bharti Infratel

23.8

19.4 15.8

8.9 2.3 2.1 1QFY13

14.8

14

3.8

4.9

4.5

4.7

13.9

21.9

10.8 5.9

6.8

2.4

2.3

2.5

2.5

2.9

3.6

2.8

4.1

4.7

4.4

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15E

Source: Company, MOSL

MEDIA 



1QFY15E aggregate PAT for our Media Universe is likely to decline ~6% YoY and remain flat QoQ. YoY decline would be led by impact of preference dividend provision for Zee and increased loss for Dish TV due to higher depreciation. While margin pressure and corporate events would drag PAT growth, advertising growth for our universe would remain healthy at 9-16% (except for Sun TV). We expect earnings growth to rebound in 2HFY15.

Media: Quarterly PAT (INR b)

4.2

1QFY13

4.6

2QFY13

5.6

5.2

6.1 5.3

4.9

4.5

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

5.2

1QFY15E

Source: Company, MOSL

July 2014

19

India Strategy | The 'A' team... In action!

Intra-sector 1QFY15 earnings divergence (%) Sectors

Sector Growth (%)

High growth sectors Telecom 41 Auto

39

Technology

21

Metals

21

Banks - Private

20

Utilities

14

10

NBFC

10

Retail

8

PAT degrowth sectors Media -6 Cement

Banks - PSU

-7

-10

Capital Goods

-16

Real Estate

-32

Earnings momentum:

July 2014

15-30% growth

BHARTI: 82, IDEA: 39, TTMT: 91, TVSL: 84, EIM: 71 HCLT: 37

BHIN: 22

JSTL: 111, SSLT: 96, NACL: 31 FB: 104

Medium/Low growth sectors Oil & Gas 17 (ex RMS) Consumer 14

Healthcare

+30% Growth

MRPL: LP, ONGC: 53

HMCL: 24, EXID: 17 WPRO: 29, TCS: 24, INFO: 17 TATA: 18, NMDC: 17 HDFCB: 25, IIB: 24, AXSB: 18, YES: 17, ICICIBC: 17 OINL: 18 GCPL: 27, APNT: 23, SKB: 22, DABUR: 19, BRIT: 18, ITC: 17

IPCA: 113, LPC: 106, DRRD: 61, ALPM: 31

SANL: 28, CDH: 24, BIOS: 23, GLXO: 23

TPWR: 260, PTCIN: 51 IHFL: 28, POWF: 24 FRL: LP, SHOP: 214

0-15% growth

-ve earnings growth (%) RCOM: PL

MSIL: 14, BJAUT: 10, AMRJ: 6 PSYS: 4, TECHM: 0 HZ: 12, HNDL: 1 KMB: 5, VYSB: 5

MM: -19, AL: Loss KPIT: -3, MTCL: -8, HEXW: -13 SAIL: -14, JSP: -19

IGL: 12, GAIL: 2, GUJS: -11, CAIR: -19, RIL: 0 PLNG: -22 PIDI: 13, UNSP: 12, RDCK: 10, HUVR: 9, CLGT: 8, NEST: 5, MRCO: 2, HMN: 0 SUNP: 8 DIVI: -10, GNP: -16, TRP: -16, CIPLA: -26, RBXY: -73 COAL: 12, PWGR: 11, RELI: -13, JPVL: 10, CESC: 10, JSW: -16 NHPC: 7, NTPC: 5 RECL: 13, HDFC: 13, MMFS: -7, SHTF: -9, BAF: 8, LICHF: 4 IDFC: -22 JUBI: 9, TTAN: 6

SUNTV: 10, DBCL: 1, HTML: -4, Z: -12, JAGP: 1 PVRL: -19, DITV: Loss ACEM: 16 SRCM: 7, UTCEM: -8,BCORP: -15, ACC: 3 GRASIM: -47, JPA: -70, ICEM: PL SBIN: 2 BOB: -5, INBK: -6, PNB: -11, CBK: -14, OBC: -16, UNBK: -33, BOI: -35 SIEM: LP, VOLT: 82, TMX: 15, KKC: 8, LT: -5, CRG: -13, ABB: 36 HAVL: 1 BHEL: -84 SHOBA: 13, MLIFE: -2, GPL: -13, PHNX: 1 OBER: -14, PEPL: -17, DLFU: -44, IBREL: -54, JPIN: -85 Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to

Earnings momentum 1

2 3

0 1 2

3

2

1 3

2 3 2

2 3 2 1 5

2

2

0

1

3

3

0 6

8

0

5

4

4

1

2

0

6 2

0 2

2

0

0

0

0 1

0 0

3 0

0

0

4 3 2

3

0

4

2 5

1 7

3

3

2 7

Profit

20

India Strategy | The 'A' team... In action!

FY15-17 estimates

Growth to rebound, led by domestic businesses Expect 16-20% growth in FY15/16  





Aggregate PAT of MOSL Universe (ex. RMs) to grow 16% in FY15; Expect further strengthening in FY16 (20%) and FY17 (18%). The rebound is largely driven by expectation of start of the investment cycle on the back of a stable and reform oriented NDA government. Sales growth of 11% in FY13 and FY14 is expected to moderate to 9% in FY15 before bouncing back to 11% in FY16. Sensex EPS to grow 14% in FY15 to INR1,524, almost same as estimated in 4QFY14 preview. Expect Sensex EPS to accelerate to 20% growth in FY16 (to INR1,836) and a further to 19% in FY17 (to INR2,190). Prominent upgrades in FY15 Sensex EPS are Tata Motors, Maruti, Sun Pharma, Sesa Sterlite and Infosys. Top downgrades drivers include Tata Power, Cipla, HDFC, Reliance Industries, SBI and Hindalco.

Corporate profit to GDP bottomed in FY14; expect 20% PAT growth in FY16 

 

Corporate profitability as % of GDP has declined from a peak of 7.8% in FY08 to 4.3% in FY14 mainly due to slowdown in economic cycle, lack of policy reforms, low level of investments, etc. We expect corporate profitability as % of GDP to rebound to LPA of 5.4% by FY18, implying a PAT CAGR of 20%. Our bottom-up estimates for MOSL Universe also indicate growth pick-up, with 20% PAT growth as early as FY16. This could accelerate further in FY17-18, as GDP growth picks up.

Corporate profit to GDP (%) to move to average in four years

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

4.6

4.3 4.4

4.6

4.9

5.4

FY18E

4.9

3.0

FY03

Profit CAGR FY14-18 of 20%

FY17E

6.2

FY16E

5.6

6.5

FY15E

5.4

6.3

FY14

Average 4.7 of 5.4%

7.8

FY13

7.3

MOSL Universe PAT to grow at 18% CAGR over FY14-17 34

34 29

5

6

20

18

FY17E

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

6

FY15E

12

Long period avg of 19% 16 Bottoming 13

FY14

21

FY13

19

FY16E

28

Source: Company, MOSL

July 2014

21

India Strategy | The 'A' team... In action!

Interest cost at peak; to moderate from FY15 PAT growth has slipped to single-digit in FY13-14, primarily due to slowdown in economy and complete breakdown of investment machinery. Interest cost has also played a very significant role in driving down earnings growth. Interest as a percentage of sales rose from 1.6% in 2006 to 3.2% in 2014. Similarly, interest as % of EBITDA also doubled during this period. Going forward, we expect this to moderate led by the following:  Interest rates are at their peak and we expect some moderation in 2HFY15.  Corporate India has begun the process of asset sales and deleveraging (via capital raising).  Economic growth will help to accelerate sales growth; many idle capacities will be put to use.

17

23

23

16 11

Source: Company, MOSL

2014

11

2013

12

2012

15

13

2011

2004

2003

2014

2013

2012

2011

2010

2009

2008

2007

2006

1.6 1.7

2005

2004

Highest in a decade 19

21

20

2.3

2.0

1.9

2003

2.3

2009

2.5

Interest cost/EBITDA (%)

2008

2.6

3.2 Highest in 2.9 a decade 2.6

2007

Interest/Sales (%) 3.0

Interest cost as percentage of EBITDA rose steeply post FY11

2010

Interest cost as a percentage of sales has peaked

2006



2005



Source: Company, MOSL

Margins have bottomed in FY14; expect mean reversion in FY15-16  

EBITDA margins have bottomed out. Operating leverage should start picking up, as domestic volumes and business conditions improve. Also, interest costs, which are at their peak, would moderate and aid expansion in margins. MOSL Universe PAT margin (%)

20.1

11.9 11.6

11.2

10.3

10.6

10.2 9.6

18.7

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

8.5

Source: Company, MOSL

July 2014

9.8

12.4

11.8

Avg of 11.4%

FY04

FY11

18.5

FY10

FY09

FY07

FY06

FY05

FY04

FY03

18

FY08

18.5

FY16E

19.4

FY15E

20.4

12.7

12.4

11.2 11.0

FY14

20

Avg of 20.5%

21.6

21.2

FY13

21.5

21.4

FY12

21

21.0

12.3

FY03

21.7 21.4

12.7

9.3

FY16E

22.3

23

MOSL Universe PAT Margin Incl. Fin (%)

13.5

FY15E

MOSL Universe EBIDTA Margin Incl. Fin (%)

24

FY14

MOSL Universe EBITDA margin (%)

Source: Company, MOSL

22

India Strategy | The 'A' team... In action!

Expect significant increase in FY15 and FY16 PAT growth to 16% and 20%, respectively

11

11

9

11

10

FY17E

FY07

FY17E

FY16E

FY15E

8

FY16E

25

FY15E

23

19

6

FY14

FY13

FY12

FY11

5

FY10

FY09

FY08

6

28

18

FY12

13

12

FY07

16

20

FY11

21

MOSL Ex RMs Sales growth (%)

36

FY14

MOSL Ex RMs PAT growth (%) 28

FY10

34

Sales growth to remain subdued

FY13

Significant increase in FY15 and FY16 PAT growth

FY09



In FY15 and FY16, we expect the aggregate PAT growth to rebound to 16% and 20%, respectively, led by Auto, Cement, Financials, Metals and Telecom. The rebound is driven by expectation of start of investment cycle on the back of a stable and reform oriented NDA government.

FY08



Source: Company, MOSL

Source: Company, MOSL

FY15/16 sector earnings: Some interesting observations 











July 2014

FINANCIALS: The sector that reported its maiden de-growth of -0.9% in FY14, should see a rebound in PAT growth to 21% in FY15 and 24% in FY16. The growth rebound would be on the back of rebound in credit volume and easing credit cost pressure on PSU Banks. TELECOM: Telecom is expected to continue its earnings growth trajectory on the back of easing competitive pressure after four consecutive years of PAT decline till FY13. We expect the sector to report 58% and 28% PAT growth in FY15 and FY16, respectively. AUTOS: The rebound in FY14 PAT (23% growth), is expected to continue in FY15, with PAT growth of 19%. While Tata Motors, M&M and Maruti led FY14 PAT growth; Bajaj Auto, Hero and Maruti are expected to contribute significantly to FY15 PAT growth. CEMENT: Cement is expected to de-grow in the first two quarters of FY15. However, the growth is expected to rebound in 2HFY15 on the back of expected recovery in the investment cycle. We expect the sector to grow 31% in FY15 and 61% in FY16. HEALTHCARE and TECHNOLOGY: Both these sectors grew at a healthy growth rate of 31-32% in FY14, largely on the back of weaker INR. We expect the growth rate to ease in FY15 to 11-13% owing to a strengthened INR. CAPITAL GOODS: Capital Goods' PAT de-grew significantly in FY14 (-26%), driven by declining earnings of the heavyweights, BHEL and L&T. We expect earnings growth to remain flat in FY15 and post a strong rebound of 40% in FY16.

23

India Strategy | The 'A' team... In action!

Financials, Autos and Oil (ex RMs) contribute >50% to the FY15-17 PAT delta

Source: Company, MOSL

Metals

Oil Ex. RMs

Technology

Utilities

NBFC

Consumer

MOSL Ex RMs

Banks Pvt

Healthcare

Retail

Auto

Telecom

31 29 28 27 23 22 21 19 17 16 13 11 10 7

Banks PSU

37

Media

0

PAT CAGR FY15-17 (%)

Cap Goods

1

46

Real Estate

2

Retail

3

Media

4

Real Estate

Consumer

Healthcare

4

Metals

4

Telecom

5

Cap Goods

6

NBFC

6

Utilities

7

Technology

7

Cement

Banks Pvt

9

Oil Ex. RMs

Auto

12 11

Cement

56

PAT delta (FY15-17): % Share

16

Banks PSU

Sector-wise PAT CAGR FY15-17

Source: Company, MOSL

FY15-17 Estimates: Expect 18% PAT CAGR over FY14-17 Sector (No of Companies) High PAT CAGR (>20%) Cement (13) Real Estate (9) Capital Goods (9) Media (8) Telecom (4) Auto (11) Others (13) Financials (32) Private Banks (10) PSU Banks (12) NBFC (10) Retail (3) Healthcare (14) Medium PAT CAGR (10-20%) Consumer (14) Utilities (10) Oil & Gas (13) Excl. RMs (10) Technology (10) Low PAT CAGR (up to 10%) Metals (9) MOSL Excl. RMs (169) MOSL (172) Sensex (30) Nifty (50)

July 2014

Sales (INR b) FY15E 14,463 1,278 249 1,547 188 1,581 4,968 505 2,902 750 1,707 445 179 1,066

Sales Gr. EBIDTA / CAGR CAGR (%) (%) (FY14-17) (FY14-17) 15 19 16 33 15 23 13 19 13 18 9 13 15 20 17 21 18 19 20 21 18 19 17 17 19 23 13 16

EBIDTA Margin (%)

PAT (INR b)

PAT Gr. / CAGR (%)

PAT delta Sh. (%)

FY15E FY16E FY17E 31 32 33 17 21 24 33 37 39 10 11 12 30 31 32 34 36 36 15 15 16 17 17 18 78 78 80 87 88 88 68 69 71 97 97 97 10 10 10 26 26 26

FY15E 2,022 93 29 101 27 111 342 45 1,097 392 428 276 11 167

FY15E FY16E FY17E (FY14-17) 21 28 26 25 31 61 51 47 19 45 47 37 1 40 33 23 16 32 29 26 58 28 28 37 19 32 23 24 35 27 24 29 21 24 23 23 18 21 23 21 26 30 27 28 17 17 17 17 19 24 23 22 12 23 18 18

FY14-17 67 6 2 4 1 5 11 2 32 11 16 6 0 4

15,033

6

12

20

22

23

1,926

10

13

11

11

27

1,521 2,314 17,726 8,495 2,703

15 9 0 2 11

16 12 11 12 10

21 30 9 15 26

21 31 10 17 26

22 32 11 19 25

227 405 861 748 546

16 9 4 7 11

17 13 13 12 13

16 13 9 9 9

16 12 9 9 11

5 6 10 9 8

4,832

6

11

21

21

21

381

27

8

6

13

6

4,832 34,327 43,558 11,580 13,260

6 10 7 9 9

11 16 15 16 16

21 25 20 22 22

21 26 22 24 24

21 27 23 25 25

381 4,329 4,441 1,352 1,553

27 16 15 15 14

8 20 20 20 21

6 18 18 19 19

13 6 18 100 18 NA 18 NA 18 NA Source: Company, MOSL

24

India Strategy | The 'A' team... In action!

Domestic plays to outperform global plays in terms of PAT growth FY03 318 157 26 102 29 62 18 -4 48 99 72 12 7 1 260 200 170 27 3 61 39 22 579

Domestic Plays Financials Private Banks PSU Banks NBFC Domestic Consumer Auto Ex Tata Motors Telecom Consumer Domestic Non-Consumer Utilities Capital Goods Cement Real Estate Global Plays Cyclical Oil & Gas ex RMs Metals Tata Motors Non-Cyclical Technology Healthcare MOSL Universe ex RMs

PAT (INR b) FY08 FY14 FY17E 1,088 1,946 3,562 366 908 1,676 91 332 587 217 339 709 58 237 379 271 406 763 64 140 275 133 70 182 74 196 306 451 632 1,123 175 371 515 71 100 188 97 71 226 90 24 62 965 1,783 2,546 758 1,145 1,627 434 698 911 303 300 437 21 147 279 207 638 919 158 490 676 49 148 243 2,053 3,730 6,108

PAT Contribution (%) PAT CAGR (%) P/E (x) FY03 FY08 FY14 FY17E FY03-08 FY08-14 FY14-17 FY16 10 Yr Avg 55 53 52 58 27.9 10.2 22.3 27 18 24 27 18.5 16.3 22.7 1.8 1.9 4 4 9 10 29.0 24.0 20.9 2.4 2.3 18 11 9 12 16.2 7.7 27.9 0.9 1.1 5 3 6 6 14.8 26.3 17.0 2.2 2.2 11 13 11 12 34.3 7.0 23.4 3 3 4 5 28.1 14.1 25.2 11.1 11.9 -1 6 2 3 LP -10.1 37.3 18.6 22.6 8 4 5 5 9.3 17.5 16.1 26.6 24.5 17 22 17 18 35.3 5.8 21.1 12 9 10 8 19.4 13.4 11.5 12.5 14.6 2 3 3 3 41.8 5.8 23.3 24.9 20.7 1 5 2 4 68.8 -5.1 46.8 16.2 13.7 0 4 1 1 142.6 -19.7 36.5 19.6 21.5 45 47 48 42 30.0 10.8 12.6 35 37 31 27 30.6 7.1 12.4 29 21 19 15 20.6 8.2 9.3 10.7 12.0 5 15 8 7 62.1 -0.2 13.3 10.6 9.5 0 1 4 5 49.1 38.9 23.8 6.5 10.9 10 10 17 15 27.8 20.6 12.9 7 8 13 11 32.3 20.8 11.3 15.8 17.1 4 2 4 4 17.9 20.2 18.0 20.8 21.9 100 100 100 100 28.8 10.5 17.9 13.5 14.9 Source: Company, MOSL

EBITDA margins across sectors to expand over FY14-16 FY14 Margin (%) 29 28 26 24

21 19 19 16 14 14

10

2,291 1,896 1,426

FY03-08 Chg bps

323 233 194 164 77 69

9

Technology

Consumer

Oil Ex. RMs

Retail

Healthcare

MOSL Ex Fin

Utilities

Cap Goods

Metals

Cement

Real Estate

Auto

132 127 99 91 86 45

Consumer

Cap Goods

Retail

Auto

MOSL Ex Fin

Media

Metals

Telecom

Oil Ex. RMs

Real Estate

-40 Cement

Real Estate

Cement

Oil Ex. RMs

Telecom

MOSL Ex Fin

Cap Goods

Metals

Consumer

Technology

Auto

Retail

257 240 222 197

-831 -972 -1,510 -2,445

Healthcare

FY14-16 Chg bps

431 304

-231 -264 -424

Utilities

479

Utilities

FY08-14 Chg bps 458 273 211 147 145 85 30

Media

-586

FY14-16 EBITDA margin change (bp)

Healthcare

FY08-14 EBITDA margin change (bp)

Telecom

Retail

Cap Goods

Oil Ex. RMs

Auto

Cement

Metals

MOSL Ex Fin

Consumer

Healthcare

Technology

Media

Utilities

Real Estate

Telecom

-167 -175 -323 -351

Technology

33 32

FY03-08 EBITDA margin change (bp)

Media

FY14 EBITDA margin (%)

Source: Company, MOSL

July 2014

25

India Strategy | The 'A' team... In action!

RoEs for domestic cyclicals to rise in FY17; Cement and PSU Banks to lead the rise in RoE RoE (%) Change from FY14 to FY17 10.1 5.8 5.1 5.0 4.6 4.4 4.0 2.7 1.3 1.1

FY03

FY08

FY14

FY17E

Cement Banks PSU Telecom Real Estate Capital Goods Media Consumer Banks Private Auto Metals

8.2 20.1 -2.5 12.4 11.1 24.8 38.5 18.9 19.1 14.5

29.7 18.5 21.5 30.7 25.0 10.9 35.3 14.6 25.9 25.7

8.0 10.2 5.8 4.3 11.8 22.1 35.3 17.3 21.4 9.5

18.1 16.0 10.8 9.3 16.4 26.5 39.4 20.0 22.8 10.6

Utilities NBFC Oil Excl. RMs Healthcare Technology MOSL Excl. RMs Sensex

10.5 21.4 21.9 26.9 36.0 17.8 20.4

13.7 17.7 19.7 18.9 31.4 21.1 22.8

15.0 20.1 14.2 21.8 27.8 14.8 15.9

16.1 1.1 21.1 1.0 13.6 -0.6 20.4 -1.4 22.8 -4.9 17.0 2.2 17.9 2.0 Source: Company, MOSL

Sector Upgrade/Downgrade since January 2014 Sector

Current Est PAT (INR b) FY14 FY15E FY16E

Banks-PSU Cement Automobiles Banks-Private Metals Capital Goods Healthcare Oil Ex RMs NBFC Consumer Technology Retail Utilities Media Real Estate Telecom MOSL Ex RMs

339 71 279 332 300 98 146 698 221 192 490 9 371 23 24 70 3,687

428 93 333 392 381 98 164 748 257 222 546 11 405 27 29 111 4,272

558 149 439 476 412 137 202 836 299 259 618 14 457 35 42 142 5,108

Est gr. in Jan YoY (%) FY15E FY16E

18.1 37.6 15.6 15.5 12.4 1.2 18.1 12.2 13.5 18.5 14.6 18.8 11.1 24.9 28.8 65.3 15.7

13.8 26.3 21.1 18.6 8.4 33.1 19.1 7.1 16.3 16.3 14.1 23.5 10.9 30.9 27.9 29.6 14.9

Est gr. in July YoY (%) FY15E FY16E

26.4 30.5 19.1 18.3 27.0 0.1 12.2 7.2 16.1 15.9 11.4 18.7 9.1 16.3 19.1 58.2 15.9

30.2 60.6 32.0 21.3 8.0 40.2 23.3 11.8 16.5 16.5 13.3 23.6 12.9 32.0 45.3 27.7 19.6

% Upgrade / Downgrade FY15E FY16E

9.2 -9.1 1.5 4.4 4.2 -2.7 -1.7 -2.7 1.2 -1.9 -1.1 -2.8 -7.3 -11.2 -24.9 -17.6 -0.9

24.9 15.6 10.8 6.7 3.9 2.6 1.8 1.5 1.4 -1.7 -1.8 -2.7 -5.7 -10.5 -14.7 -18.8 3.2

Source: Company, MOSL

FY14-17 estimates: Sensex EPS CAGR at 18% 



July 2014

Our bottom-up estimates of earnings of Sensex constituents indicate Sensex EPS CAGR of 18% during FY14-17. This is significantly higher than 8% CAGR witnessed during FY08-14. A large part of PAT growth in FY15 would be driven by rebound in earnings of companies that have delivered negative growth in FY14, namely SBI (PAT down

26

India Strategy | The 'A' team... In action!



21%), L&T (PAT down 19%), Coal India (PAT down 9%), and Tata Power (PAT down 37%). Sensex EPS is likely to increase to 1,524 (up 14%) in FY15 and 1,836 (up 20%) in FY16, from 1,340 in FY14. Key contributors to growth in FY15 Sensex EPS would be SBI (25), HDFC Bank (19), ICICI Bank (17), Tata Steel (14), Tata Motors (12), ONGC (11) and TCS (11).

Sensex performance: Expect FY14-17 PAT CAGR at 18% Sales (INR b) Company High PAT Gr. * Tata Power Bharti Airtel State Bank Maruti Suzuki Larsen & Toubro HDFC Bank Tata Steel Hero MotoCorp Tata Motors ICICI Bank Medium PAT Gr.** Cipla Axis Bank Hindalco ITC HDFC M&M Sun Pharma Bajaj Auto Reliance Inds. TCS ONGC Dr Reddy’s Labs Wipro BHEL Hind. Unilever Coal India NTPC Low PAT Gr. (<10%) Infosys Sesa Sterlite GAIL Sensex (PAT free float) * 20%+; ** 10-20%

July 2014

Sales

FY15 FY16 FY17 CAGR % FY15 FY16 7,746 8,923 10,244 92 97 101 931 1,019 1,098 779 934 1,128 527 630 740 617 765 941 226 276 349 1,450 1,455 1,538 279 322 371 2,656 3,198 3,699 191 227 279 12,398 13,238 13,743 116 134 154 129 151 183 963 1,097 1,146 382 438 499 82 98 116 798 929 801 178 202 227 226 259 293 3,885 3,780 3,685 957 1,099 1,230 1,905 2,040 2,088 145 163 184 476 519 572 332 366 407 313 354 407 729 779 838 781 831 913 1,905 2,150 2,311 527 581 629 778 879 902 601 690 781 22,049 24,311 26,298

13 5 9 19 19 18 24 1 14 17 19 6 15 15 9 15 18 3 12 13 -2 15 6 12 10 1 13 7 8 9 8 8 11 9

Contbn to FY17 CAGR % FY15 FY16 FY17 FY15 FY16 FY17 CAGR% Delta %

EBIDTA Margin (%) EBITDA 26 29 33 63 13 11 81 13 13 16 101 21 20 94 11 37 111 13 44 20 8 30 34 23 23 11 16 26 22 26 27 36 11 23

27 29 35 66 14 11 82 14 14 17 101 22 22 96 11 37 110 14 42 20 10 29 38 24 23 14 17 27 24 25 28 34 12 24

28 29 35 70 15 11 82 14 14 17 102 24 23 96 12 37 109 16 40 20 13 28 38 24 24 15 16 28 26 24 27 32 11 26

19 5 11 23 27 17 26 10 27 19 20 13 18 15 18 15 19 8 8 14 17 11 11 12 12 12 14 14 10 6 8 4 10 15

PAT (INR b)

813 16 53 194 40 45 107 53 29 164 114 1,605 14 68 22 101 60 46 55 37 231 219 307 22 86 25 39 175 98 220 117 64 39 1,352

1,043 17 65 257 52 61 134 62 35 220 139 1,859 19 82 27 117 71 61 65 42 255 251 364 25 97 37 43 191 113 243 130 71 42 1,629

PAT YoY (%)

1,319 29 21 171 82 89 339 37 67 40 82 12 168 26 67 53 41 37 279 11 172 17 2,122 9 23 -1 100 10 41 -13 134 16 84 10 66 6 73 14 48 14 323 5 276 15 382 16 29 2 105 10 48 -32 48 8 210 9 130 -2 246 10 139 8 60 26 46 -4 1,943 15

28 12 24 33 30 37 26 19 23 34 21 16 35 20 19 16 19 32 17 15 10 15 18 15 13 52 11 9 15 10 11 11 7 20

PAT

27 28 50 22 54 1 26 44 4 32 34 14 29 33 3 35 27 3 25 26 6 8 25 2 15 24 1 27 24 10 24 21 5 14 13 47 22 17 1 22 17 3 53 17 1 15 16 3 18 16 2 8 15 2 13 15 2 14 14 1 27 14 7 10 13 6 5 13 8 16 11 1 8 10 2 30 10 1 11 10 1 10 10 4 16 10 2 1 7 3 7 9 2 -15 6 1 11 5 0 19 18 100 Source: Company, MOSL

27

India Strategy | The 'A' team... In action!

Sensex EPS: Expect rebound in FY14-17, with 18% CAGR versus 8% CAGR witnessed during FY08-14 FY93-FY14: 14% CAGR

FY14-17E: 17.8% CAGR FY08-14: 8.2% CAGR

FY17E

FY16E

FY15E

FY13

1,183

FY12

FY11

1,024

FY10

833 820 834

FY09

718

FY08

FY06

450 523

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY94

FY95

81

348 250 266 291 278 280 216 236 272 129 181

FY93

FY96-03: 1% CAGR

1,123

FY07

FY93-96: 45% CAGR

1,524 1,340

FY14

FY03-08: 25% CAGR

2,190

1,836

Source: Company, MOSL

FY15 Sensex EPS estimate remains same, 1.4% upgrade in FY16 



Sensex EPS for FY15 is largely the same at 1,524 (v/s 1,525 in 4QFY14 preview). Individually, top upgrade drivers are Tata Steel, SBI, Maruti, Tata Motors and BHEL. Top downgrade drivers include Tata Power, Cipla, Hindalco, L&T, Sesa Sterlite and Dr Reddy’s. Sensex EPS for FY16 is upgraded by 1.4% to 1,836 from 1,811 in 4QFY14 preview. Top upgrade drivers are SBI, Hindalco, Tata Steel, Maruti and ICICI Bank. Top downgrade drivers include Tata Power, Infosys, Dr Reddy’s, Reliance and Wipro.

FY15E EPS upgrade over last 9 months (INR)

FY16E EPS in an upgrade mode (INR)

FY15 EPS (INR)

FY16 EPS (INR) 20.5

15.9 13.2 1,573

1,586

15.8 1,536

14.5

15.3 1,518

1,476

18.8 14.6

13.8

13.8

16.3

1,525 1,525 1,524

Dec 12 Mar 13 June 13 Sep 13 Dec 13 Mar 14 May 14 June 14

Source: Company, MOSL

July 2014

17.5

1,766

Dec 13

1,836 1,811

1,793

Mar 14

May 14

June 14

Source: Company, MOSL

28

July 2014 -1 -2 -4 -4 -4

Wipro Reliance Ind.

Tata Power

-10 -12 -13 -13 -15

-8 -8 -12

Tata Power

Cipla

Hindalco

L&T

Sesa Sterlite

Dr Reddy’s

-7

Infosys

-3

Bajaj Auto

Reliance Ind.

-4

Dr Reddy’s

-3

Cipla

-2

HDFC

-3

Sesa Sterlite

Infosys

Coal India

Bajaj Auto

Axis Bank

GAIL

M&M

Wipro

HDFC Bank

-3

L&T

-1

-2

HDFC

-1

-2

Coal India

-1

-1

TCS

0

-1

Bharti

0

-1

HUL

1

ITC

Bharti

HUL

TCS

-1

M&M

2

HDFC Bank

2

0

ITC

32 0

Axis Bank

2

1

BHEL

4

1

NTPC

2

Sun Pharma

19

Hero Moto

5

NTPC

2

Tata Motors

7

ONGC

3

Sun Pharma

7

ICICI Bank

3

GAIL

9

Hero Moto

4

ONGC

11

BHEL

7

ICICI Bank

14 14

Tata Motors

9

Maruti

Maruti

SBI

Tata Steel 22

Tata Steel

Hindalco

SBI

India Strategy | The 'A' team... In action!

Sensex companies FY15E EPS Upgrade/Downgrade in last 3 months (%) FY15E EPS Upgrade/Downgrade (%)

0

-20

Source: Company, MOSL

Sensex companies FY16E EPS Upgrade/Downgrade in last 3 months (%) FY16E EPS Upgrade/Downgrade (%)

1

Source: Company, MOSL

29

India Strategy | The 'A' team... In action!

Worst of macro is behind; green shoots are visible

ECONOMY

Expect GDP to grow at 6.5% in FY16 The Indian economy has faced turbulent times in the last five years with key economic



indicators taking a turn for worse. Thus we have seen stagflationary tendency with low growth coupled with high



inflation. The twin deficits had breached their sustainable limits. The private capex cycle collapsed with negative consequence on credit offtake and its quality. We may not be out of the woods as yet but the worst seems behind us.





Growth has shown a marginal uptick in 4QFY14. More importantly the most cyclical part of growth, viz., industry have shown first signs of growth during AprMay, registering a growth rate of 4%.



Inflation has subsided by the latest count, albeit helped by a favorable base effect.



In a short period of time, India has been able to correct its external imbalance and impart stability to its currency.



Successive governments have also shown firm commitment to strictly adhere to the fiscal consolidation path despite challenges of meeting revenue targets in a low growth environment.



Finally project clearance related governance has improved raising hopes for a pick-up in private capex.

Thus, we expect GDP growth to revive to 5.5% in FY15 and further to 6.5% during FY16



from 4.7% in FY14. The period should also see a moderation in inflation with government taking steps to curb food inflation. Interest rates too have peaked out and its decline would act as a booster to the economy.

GDP growth has bottomed; potential to rise ~100bps each year GDP growth has bottomed out, with FY14 seeing marginal recovery, but at 4.7%, well below its potential. However, growth is expected to recover FY15 onwards, particularly driven by industrial revival. Faster project clearances, streamlined environmental processes, addressing inter-sectoral bottlenecks and emphasis on infrastructure are the catalysts.

Source: Government, MOSL

July 2014

7.2 FY17E

5.5

6.5 FY16E

FY15E

FY14

4.5 FY13

FY12

FY11

FY10

FY09

4.0 FY04

FY03

4.7

6.7

8.6

8.9

9.3 6.7

5.5 FY13

FY11

FY09

FY07

FY05

FY03

FY01

FY99

FY97

FY95

FY93

FY91

FY89

FY87

FY85

0

FY02

4.7

3

4.3

5.0

FY01

6

7.5

6.2

FY08

8.1

9

9.6

GDP gr. (%)

GDP gr. (%)

FY07

Avg 10-yr gr. (%)

12

However, GDP growth has bottomed out 9.5

India's current growth rate is well below its potential growth

7.0



FY06



FY05



Source: Government, MOSL

30

India Strategy | The 'A' team... In action!

15.5 FY08

Apr-May 2014 IIP growth at 4%

7.3 FY17E

6.6 FY16E

5.2

-0.1 FY14

FY13

FY12

FY11

FY10

1.1

2.5 FY09

FY06

FY05

FY15E

5.3

2.9

7.9

8.2

12.9

11.7 7.0 FY04

FY03

FY02

FY01

2.7

5.0

5.8

IIP growth (%)

FY07

Deeper downturn in industry, but on the recovery path now

Source: Government, MOSL

Twin deficit concerns behind us; will improve domestic liquidity India is well past its twin deficit problem. Fiscal consolidation has received priority from new government and is set to achieve 3% target by FY17. A sharp correction in CAD has been achieved in a short period through curb in gold imports, stable oil prices and some pick up in exports. These measures restored the confidence in the economy. Thus, capital flows resumed and INR stabilized.

Fiscal deficit 6.0

4.9

4.9 4.6

4.1

3.3

3.6 3.0

-0.3 -1.2-1.0-1.3

-0.6

-1.7 -2.1 -2.3-2.5

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

-4.2-4.7

FY04

FY16E

FY14

FY15E

FY13

FY12

FY11

FY10

-2.3 -2.8-2.6

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

2.5

1.2

FY03

3.9 4.0

0.7

FY02

4.5

5.9

FY01

5.9

Current A/c deficit (% to GDP)

2.3

6.5

FY17E

5.7

6.2

Sharp improvement in CAD in a short period of time

FY17E

Fiscal deficit has corrected sharply and on course for more

FY16E



FY15E



FY14



Source: RBI, MOSL

Source: Government, MOSL

Currency has stabilised with reduced volatility USDINR 6 Month Implied Volatility

17

15.1

12.4

12 7

8.2

Jun-14

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY03

FY04

3.3

2

Source: Bloomberg, MOSL

Inflation has peaked out; expect rate cuts in 4QFY15 

July 2014

CPI inflation as well as the food component within it has come down to single digit levels in recent months.

31

India Strategy | The 'A' team... In action!

Government has taken further measures to curb food inflation, including low MSP hikes, export curb, offloading of food stock and actions on hoarding. Thus, real interest rates (CPI adjusted), that have turned marginally positive after a gap of six years, may widen, giving scope for rate cut.

 

CPI inflation including food has eased from their peak CPI Food Inflation (%)

Recent months have shown further easing in CPI inflation

CPI Inflation (%)

14

CPI Food Inflation

16

12.4

CPI Inflation 14.5

12

11

8

8

9.3

7.7

4

5

Source: Government, MOSL

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

Mar-13

May-13

Jan-13

Nov-12

Jul-12

Sep-12

May-12

Jan-12

FY14

FY15E

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

Mar-12

0

2

Source: Government, MOSL

Real rates have turned positive even taking CPI as reference 5.4

Real interest rate (term deposits - CPI) 3.7 1.8

1.4

1.9

2.1

2.4

1.6

-1.8

-1.6

FY12

-0.9

FY11

0.3

-2.0

-0.9

FY15E

FY14

FY13

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

-5.6

Source: RBI, Government, MOSL

Private credit and investment cycle at a low ebb Bank credit growth has nearly halved from the levels during previous upturn. Sharp drop in credit intensive industrial sectors, particularly Capital Goods, has lowered credit demand. Saving and investment ratios are at levels comparable to the start of the previous upturn. Private investment was particularly affected.

  

Credit growth poised for a moderate recovery IIP - Capital goods

42

Private investments dropped to decadal lows Pvt Investment as % of total investment

Bank credit

46 CAGR 26%

32

Source: RBI, Government, MOSL

July 2014

32

33

35

FY11

FY10

FY09

FY08

FY07

FY06

25

FY05

20

23

FY04

20

FY02

FY16E

FY15E

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

-14

FY01

0

FY03

14

28

26

FY13

40

41

FY12

28

Source: Government, MOSL

32

India Strategy | The 'A' team... In action!

Savings growth has dipped to levels last seen in FY04 Savings rate (%)

37 35

33

32

34

32

34 31

30

29

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY02

FY01

26

FY03

25

24

Source: Government, MOSL

India is firmly on the fiscal consolidation path During the last cycle (FY03 to FY08) sharp growth in revenues helped in fiscal correction. In the current cycle, expenditures had to be cut to meet target. Fiscal headroom provided space for increased subsidy last time, though it was largely within 2% of GDP. This time, it is being brought down to that level. India is clearly on a firm fiscal path, despite challenges on revenue front. Moreover, fiscal goals have remained despite change in government.

  

Subsidies <2% during last cycle, coming back to that level Higher tax collection helped fiscal correction during last cycle again Tax growth 5.7 4.3 3.9

Fiscal deficit to GDP 4.0 3.3 2.5

Subsidy (as % of GDP)

6.0 6.5 4.8 5.7

4.0

4.8 4.6

30

3.9

3.3

20

2.3

2.5

10 1.8

Source: Government, MOSL

FY15BE

FY14RE

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY05

FY01

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY04

1.0

-10

FY03

2.0 1.5

FY06

CAGR: 11%

FY03

CAGR: 23%

FY02

0

Source: Government, MOSL

India's fiscal glide path remained same despite change of government Fiscal deficit (as % of GDP) 8.1

9.6

9.5

9.3

GDP Growth (YoY%) 8.9

8.6

7.0 5.5 4.3

6.5

6.7 6.7

4.5

5.5

6.0

5.7

4.3

3.9

4.0

3.3

2.5

6.0

6.5

4.8

5.7

4.8

4.6

4.1

3.6

3.0

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

5.5

FY01

4.0

4.7

7.2

Source: Government, MOSL

July 2014

33

India Strategy | The 'A' team... In action!

GOVERNMENT Historic mandate to NDA put to test Various actions including Budget see Government’s earnestness for change 

The BJP led NDA has won their biggest ever mandate in an election marked with many firsts.



Government has taken various measures to live upto the expectations despite challenging economic environment and limited fiscal space. The directions of policy measures by the new government were aimed at reinvigorating growth by focusing on infrastructure, addressing inter-sectoral bottlenecks and faster project clearances.



Simultaneously, the government has sought to bring down inflation, particularly food inflation through a variety of administrative and policy measure including by effecting the lowest MSP hikes in a decade.



At the same time when it is trying to pump up growth, it has avoided breaching fiscal and external prudent limits. This left headroom only for limited maneuverability for the Government in its maiden budget. It has used the space to effect a consumption and investment boost financed by higher disinvestment and sale of telecom spectrum.



While being constrained by the limited fiscal space and inadequate preparation time, Government nonetheless made a beginning towards the reform and development agenda set in its Manifesto.



Moreover, government has sought to enhance its own capacity to deliver by rejiging the bureaucracy and improving governance standards.



The combination of near term measures and visionary steps are likely to hold India in good stead for a steady recovery of the economy.

Strongest mandate in three decades; BJP alone crosses 272   

BJP won its highest ever tally of 282 seats in 2014 general elections and the NDA won 336 seats, the highest by any party since 1985. It is only the second time that a non-Congress party has assumed majority in Lower House. Every two in three candidates won with a very convincing 10% or above margin of votes versus one in three in 2009.

First single-largest party in coalition era (since 1984)

Source: Election Commission, MOSL

July 2014

34

India Strategy | The 'A' team... In action!

Highest ever seats for NDA

Source: Election Commission, MOSL

BJP vote share exceeds Congress We had an inkling of change from the sharp increase in the voter turnout ratio, which in the past has been associated with a regime shift. At 66%, this was the highest voter participation ever. For the first time, the vote share of BJP exceeded that of Congress.

  

Higher voter turnout led to a decisive mandate in favour of NDA (%) Non-Congress led alliance

58

58

2014

1999

1998

1996

1991

60

58

57

2009

62

2004

Highest-ever turnout 66

62

1989

1984

1980

1977

1957

1967

45

1962

45

1951

55

1971

61

Sympathy votes 64 60 57 55

Source: Election Commission, MOSL

Source: Election Commission, MOSL

31

30 20

19

10

2014

2009

2004

1999

1998

1996

1991

1989

1984

1980

1977

0 1971

19.3

BJP vote share (%)

40

1967

31.0

Congress vote share (%)

50

1962

1.1 1.7 1.9 2.0 2.5 2.5 3.0 3.2 3.3 3.4 3.8 4.1

BJP exceeds Congress vote share for the first time

1957

17.2

BJP Congress BSP AITC SP CPM AIADMK Ind. TDP YSRC AAP Shiv Sena DMK NOTA Others

1951

No direct link between vote share and seat share for many parties (%)

Source: Election Commission, MOSL

The new government addresses both the urgent and the important 

July 2014

Within a short period of time the government has cleared many big ticket projects some of which were pending for a long time. Most of these relate to bottlenecks in key infrastructure sector. 35

India Strategy | The 'A' team... In action!





At the same time, it sought to put a lid to food inflation by effecting one of the lowest MSP hike in a decade complimented with other measures such as export restriction, release of foodstock and actions against hoarders. The government didn’t shy away from taking tough decision whenever warranted. A case in the point was the Rail fare hike which was necessitated even to meet the FY15 Rail Budget targets.

Modi Sarkar in numbers

7

big ticket projects of value

INR210b

INR125b MSP hikes restricted to only

Largest solar power project of

1.5GW

worth transmission projects approved

1.6%

INR400b

0.15m

3

worth road projects approved

rail linkage on fast track

files in Home Ministry weed out

Rail fares hiked by

8

14.2%

Asian countries present in swearing in

for passengers

6.5%

for freight

Source: Government, MOSL

Key big-bang announcements by the Modi government Particulars

Impacted sector

Positive

INR125b worth of transmission projects approved

Power

Positive

Approved road projects worth about INR400b

Infrastructure

Positive

Fast track clearances for 3 rail lines for coal linkage

Power

Positive

Railway fares hiked; higher fares for passenger with Fuel adjustment charge

Economy

Positive

7 big-ticket projects of INR210b cleared

Infrastructure

Positive

Gas price deferred for 3 months to consult with all stakeholders

Energy

Negative

Firm resolve to GST implementation

Economy

Positive

FDI in insurance and defence raised from 26% to 49%

Insurance

Positive

24 Airports identified for development as Domestic Air Cargo Terminals

Infrastructure

Positive

PSU Bank consolidation and greater autonomy

Financials

Positive

Transfer of units of debt mutual funds to be taxed at 20% (vs 10% earlier)

Economy

Negative

Conducive tax regime for REITS and Infrastructure Investment Trusts

Infrastructure

Positive

New scheme targeting feeder separate for DISCOMs

Infrastructure

Positive

Online environmental clearances

Infrastructure

Positive

Large number of infrastructure projects announced (16 ports, 8,500kms of road project completion, developing airports in Tier 2 and 3 cities, developing 100 smat cities)

Economy

Positive

Construction under EPC vs. PPP earlier

Infrastructure

Positive Source: Government, MOSL

Finance Minister gives a big push to consumption   

July 2014

FM has provided various reliefs on the personal income tax front. This adds to INR222b relief to the taxpayers. The amount constitutes a good 65% of the total budget for MGNREGA. Thus, it can provide a boost to urban consumption of nearly equivalent amount of what MRNREGA has done for rural India. 36

India Strategy | The 'A' team... In action!

Much awaited relief in personal taxation Earlier income slab 0 to 200,000 200,001 to 500,000 500,001 to 1,000,000 Above 1,000,000

Proposed income slab 0 to 250,000 250,001 to 500,000 500,001 to 1,000,000 Above 1,000,000

Tax rate Nil 10% 20% 30% Source: Government, MOSL

Relief to taxpayer through other avenues

FY15 budget allocation (INR b)



FY15 Budget allocation (INRb) 340



222

 

MGNREGA

Income Tax benefits

Annual ceiling under Section 80-IC increased to INR150,000 from INR100,000. Deduction in interest paid on housing loan enhanced to INR200,000 from INR150,000. Employees of private sector eligible for deduction of notified pension scheme upto INR100,000. The tax relief can usher consumption boom in urban areas similar to what MGNREGA has done for rural India.

Extracting growth within a binding fiscal constraint 

Source: Government, MOSL





In his maiden budget, Arun Jaitely has sought to garner additional revenue by way of higher disinvestment and spectrum auction. He plans to spend this on higher transfers to states (possibly with an eye to fasten implementation of GST, as also providing a boost to consumption through relief in personal taxes. The Economic Survey highlighted a few reforms that are likely to shape government’s approach to the direction of the economy. Important among them are simplifying the tax structure (with abolition of surcharge, dividend distribution tax, transaction tax, etc.), reduction in corporate taxes to other emerging market levels, freer movement of agricultural commodities, an improvised PPP framework and finally a more permissive economic regime. A significant tightening of bureaucratic work culture with a strict code has been enforced to streamline delivery. Institutional realignment and oversight of Ministers too are part of this process.

Arun Jaitley focused on higher transfer to states and defence and financed by higher taxes, disinvestment and spectrum sale INR b 450

573

510

426

376

Items that expanded fiscal deficit

185

minus spectrum sale

minus disinvestment

minus income tax

minus service tax

minus corporate tax

add other expenditure

add subsidies

add defence

add interest payments

add states shares of taxes

add net plan rev to states

268

Items that lowered fiscal deficit

5,245 (4.6% of GDP)

Fiscal deficit (FY14BE)

276

5,312 (4.1% of GDP)

Fiscal deficit (FY15BE)

51

minus custom duties

253

minus excise duties

817

640

469

Source: Government, MOSL

July 2014

37

India Strategy | The 'A' team... In action!

Sharp jump in plan assistance to states indicative of GST preparation Assistance to states plan

Revenue expenditure on central plan

5,000

Central assistance to states trebled in FY15. This could be a precursor to GST that called for compensation to states on account of loss of revenue

3,750 2,500 1,250 10% 0 FY13

FY14RE

FY15BE

Source: Government, MOSL

Some unmistakable statements from Economic Survey Investments Govt. Intervention

Improving long term-growth prospects will help revive investment Default setting for government intervention in the economy needs to change from ‘prohibited unless permitted’ to ‘permitted unless prohibited’.

PPP Relook

The present model of infrastructure contracting and financing needs to be rexamined

Policy stability and institutions

Greater policy stability, higher long-term growth and a legal and regulatory framework that strengthens a market economy will help revive investment

Fiscal

A new FRBM Act with teeth is needed

GST

A CenGST could be the first step towards a full GST

DDT Tax rates Cash transfer Capital control Food sector

Taxes clarified as ‘bad’ in public finance theory like cesses, surcharges, transaction taxes, and taxes imposed for ease of collection such as the dividend distribution tax, need to eventually go. It would be desirable to track the median value (of corporate tax) for EMs. This would ensure that India is a competitive destination for investments of global and Indian firms. Cash transfers to poor households, instead of procurement and distribution of cereals, offer savings on the subsidy bill Capital controls under FEMA do not support a rapidly globalizing economy The welfare of both consumers and farmers lies in freeing up agricultural markets in the same way that economic freedom was given to other producers. Source: Government, MOSL

Bureaucracy – Changing times

The value of time

Rule driven conduct Minimum government maximum governance

July 2014

Longer working hours

Work timings have been elongated. In some ministers such as Road Ministry, six days schedule are being followed.

Punctuality

All bureaucrats have to reach on time. Surprise checks are held by ministers to catch defaulters.

Optimal use of time

Lengthy meetings have been replaced by short, seven-slide PowerPoint presentations.

Time bound action

A two-week time limit to reply to queries is strictly enforced.

Time stamp

Every file comes with special mentions on the top-right: 'Must and Time-bound'.

Save time

Delhi Gymkhana Club and the Delhi Golf Club, bureaucracy watering holes, have fallen out of favour.

Strict codes

Notes and memos regarding working guidelines have been a hallmark of government functioning.

Arm’s length principle Leaner bureaucracy

Ministers cannot hire personal staff who have worked in the UPA government. Relatives are banned. Antecedents of all personal staff will be vetted by intelligence agencies. Groups of Ministers have been dissolved, the National Advisory Council put in limbo and the Planning Commission's financial powers transferred to the ministries. Ministers in check, unlike in the previous government where ministers played a very active role. Hence, ministers are not even involved in the decision to let them appoint their personal secretaries. Source: Media reports, MOSL

Oversight over Ministers

38

India Strategy | The 'A' team... In action!

Beginning of a new cycle

MARKETS

Markets at high; valuations at long-term averages 







India is the top performing markets, with the Sensex delivering 18% return in CY14YTD. The Sensex outperformed its EM peers, both in local currency and USD terms. It currently trades at 16.4x FY15E earnings. Domestic cyclicals outperformed in CYTD. Top performing sectors are Capital Goods (+46%), Retail (45%) and PSU Banks (+40%). Telecom is the only sector, with negative returns. Valuations of Indian equities remain attractive with market cap-to-GDP ratio of 68% (below long-period average of 72%). The Sensex trades at 15.4x which is just below long-period average of 15.5x. FIIs continue to repose faith in Indian equities and pumped USD11.2b in CY14YTD, whereas DIIs witnessed outflows of USD5.5b.

World Equity Indices CY14 YTD - Local currency (%) India - Sensex

World Equity Indices CY14 YTD – USD (%) 18

Taiwan

10

India - Sensex Brazil

S&P 500

6

Taiwan

Brazil

6

S&P 500

MSCI EM

13 10 6

MSCI EM

6

Russia MICEX

22

1

6

UK

2 2

UK

-1

South Korea

South Korea

-1

Russia MICEX

-3

Japan

-3

China (HSCEI)

-4

China Japan

-4 -7 Source: Company, MOSL

Source: Company, MOSL

Sectoral performance: Capital Goods, PSU Banks lead the pack  



 

July 2014

All sectors, except Telecom, delivered positive returns in CY14YTD. 14 sectors delivered double-digit returns. Top five performing sectors in CY14YTD include: Capital Goods (+46%), Retail (45%), PSU Banks (+40%), Real Estate (32%) and BSE Mid-cap (32%). Telecom (-1%) is only sector that delivered negative returns. Market breadth has also been good during CY14YTD. o 28 Sensex companies delivered positive returns o 22 Sensex companies delivered double digit returns o 17 Sensex companies’ returns were above the market average (18%) Top five Sensex performers for CY14YTD include: L&T (+47%), Sesa Sterlite (+45%), Maruti (+42%), Axis Bank (+40%), ONGC (+37%). Infosys (-5%) and Wipro (-1%) were only two Sensex companies that delivered negative returns for CY14YTD.

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Sectoral performance for CY14 YTD (%) 46

45

40

33

32

30

29

25

25

25

24

20

18

18

18

13 5

3

Telecom

Technology

Consumer

Media

Health Care

Sensex

Nifty

Oil

Auto

Metal

Pvt - Banks

Utilities

NBFC

Cement

BSE Mid-Cap

Real Estate

PSU - Banks

Retail

Capital Goods

-1

Source: Company, MOSL

Best & worst performers in Sensex for CY14 YTD (%) 47 45 42

40 37 37

36 33

31

27 25

24 23 23 22

18 18 18 17

12 12 11 10 9 9 8 8 7

1

L&T Sesa Sterlite Maruti Axis Bank ONGC SBI Hindalco GAIL Sun Pharma BHEL Coal India HDFC ICICI Bank M&M HDFC Bank Tata Motors Tata Steel SENSEX Hero Moto HUL Bajaj Auto Tata Power TCS NTPC Cipla Reliance Ind. ITC Dr Reddy's Bharti Wipro Infosys

-1 -5

Source: Company, MOSL

Markets have been climbing the ‘wall of worry’ over last three quarters 

 

July 2014

At every step in the NDA’s journey towards a decisive victory, Indian markets have climbed ‘walls of worry’. This began with the appointment of Mr Narendra Modi as the Prime Ministerial candidate on 13 September 2013. Investors continued to have apprehensions that the markets have run ahead of fundamentals. The markets have delivered over 29% returns since the announcement of Mr Narendra Modi as PM candidate.

40

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Wall of worry: Markets scale new highs despite skepticism

Source: Company, MOSL

Market valuations are at long-period averages   

While Indian markets have reached new highs, valuations are still at long-period averages. India’s market cap-to-GDP is at 68%, below the long-period average of 72% and significantly below the peak of 103% achieved in 2008. The Sensex trades at 15.4x which is near its long-period average of 15.5x, but well below the highs of ~21x in January 2008 and 24.6x achieved in December 2007.

12-month forward Sensex P/E (x) 27

12-month forward Sensex P/B (x) 4.8

24.6

4.2 3.9

22 10 Year Avg: 15.5x 15.4

17

10 Year Avg: 2.7x

3.0

2.5

2.1 10.7

July 2014

Jul-14

Jul-13

Jul-12

Jul-11

Jul-08

Jul-07

Jul-06

Jul-05

Jul-04

Jul-14

Jul-13

Jul-12

Jul-11

Jul-10

Jul-09

Jul-08

Jul-07

Jul-06

Jul-05

Jul-04

Source: Company, MOSL

Jul-10

1.6

1.2

7

Jul-09

12

Source: Company, MOSL

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Sensex earnings yield v/s bond yield 1.8

India’s market cap to GDP (%)

1.6

103

1.4

82

1.1

10 Year Avg: 0.87x

0.7

83

Average of 72% for the period 69 68 63 65

88

55

52

42

0.7

95

Source: Company, MOSL

FY15E

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Jul-14

Jul-13

Jul-12

Jul-11

Jul-10

Jul-08

Jul-07

Jul-06

Jul-05

Jul-04

Jul-09

0.5

0.4

Source: Company, MOSL

Market valuations at averages, despite growth acceleration ahead FY14-17E: 18% CAGR FY08-14: 8% CAGR

24.6

18

Average of 14.9x

FY17E

Sensex CAGR -1%

24.6

FY16E

FY14

FY13

1,340 1,123 1,024 1,183

FY12

FY10

FY09

Sensex CAGR 39%

833 820 834

FY08

Sensex P/E (x)

450 523

718

FY07

FY04

FY03

FY02

Sensex CAGR -1%

24.3

24

FY01

FY00

FY99

FY98

Sensex CAGR 14%

FY97

FY96

FY95

30

FY94

FY93

250 266 291 278 280 216 236 272 348 181 129 81

FY06

FY93-96: 45% CAGR

FY05

FY96-03: 1% CAGR

FY11

FY03-08: 25% CAGR

1,836 2,190 1,524

FY15E

FY93-FY14: 14% CAGR

15.4

12

Mar-15 Mar-16 Mar-17

Mar-14

Mar-13

Mar-12

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Mar-04

Mar-02

Mar-01

Mar-00

Mar-99

Mar-98

Mar-97

Mar-96

Mar-95

Mar-94

Mar-93

Mar-03

8.3

6

Source: Company, MOSL

Sectoral performances vary depending upon market cycle 



July 2014

Indian markets have delivered healthy returns over the past 11 years from FY04 to FY14. This period encompasses two big cycles (i) Upcycle - FY04 to FY08 and (ii) Downcycle - FY09 to FY14. During the phase of Upcycle, which was characterized by GDP growth moving from 4% in FY03 to 9.3% in FY08, Cyclicals outperformed the Sensex. Specifically, Capital Goods outperformed the Sensex by 3.2x, Metals by 1.8x, Utilities and Oil & Gas by 1.5x. Consumer, Healthcare and Technology were underperformers, delivering merely half the Sensex returns. 42

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 

In contrast, during the phase of Downcycle, non-cyclicals such as Consumer, Healthcare and Technology outperformed the Sensex. On moderate economic recovery, cyclical and domestic facing sectors are likely to outperform, in our view.

Consumer, Healthcare, Auto and Technology were the outperformers during 2008-2014 75,000 CAGR (%) Consumer

45,000 Level of 20,873 30,000

15,000

Mar-14

Nov-13

Aug-13

Apr-13

Dec-12

Aug-12

May-12

Jan-12

Sep-11

Jun-11

Feb-11

Oct-10

Jun-10

Mar-10

Nov-09

Jul-09

Apr-09

Dec-08

Aug-08

Apr-08

Jan-08

0

17%

57,623 56,974 Healthcare 56,545 Auto 46,122 Technology

13%

35,920 Pvt Banks 28,810 PSU Banks 25,024 Sensex 15,730 Oil & Gas 15,457 Capital Goods 13,303 Metals 11,401 Telecom 9,247 Utilities

9% 5% 3% -4% -5% -7% -9% -12%

17% 17%

Jul-14

60,000

Source: Company, MOSL

Cyclicals gave healthy returns during FY03-FY08 cycle CAGR (%)

75,000 67,113 Capital Goods

92%

53,937 Pvt Banks

83%

37,811 Metals 32,108 Utilities 31,379 Oil & Gas 25,034 PSU Banks 20,873 Sensex 19,283 Auto 13,484 Real Estate 11,089 Healthcare 10,684 Consumer 9,905 Technology

70% 69% 63% 56% 50% 47% 42% 31% 30% 28%

45,000

30,000 Level of 3,081 15,000

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Aug-06

May-06

Feb-06

Nov-05

Aug-05

May-05

Feb-05

Nov-04

Sep-04

Jun-04

Mar-04

Dec-03

Sep-03

Jun-03

Apr-03

0

Jan-08

60,000

Source: Company, MOSL

Sensitivity: Sensex risk-reward is favorable Corporate sector earnings are expected to grow at 18% CAGR over FY14-17. This will bring the growth rates at long period averages, after growing at 8% for the last six years. This will become an important support for market valuations, to also trade at averages. Assuming no change in valuation multiples from current levels, market returns should mirror the earnings growth. July 2014

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Nifty sensitivity

Sensex sensitivity

1,340

25 2,092

15x

-20

6

16

25

18x

-4

27

39

50

20x

7

Current (16.0x) 15x 18x 20x

42 54 Sens ex Va l ues 28,405 30,906 26,580 28,920 31,896 34,704 35,440 38,560

25,024 20,093 24,112 26,791

67 33,535 31,380 37,656 41,840

EPS CAGR (%) EPS FY14

Nifty PE Range (x)

Sensex PE Range (x)

EPS CAGR (%) EPS FY14

2 Year CAGR (%) 15 20 1,772 1,928 Sens ex Return (%)

2 Year CAGR (%) 15 20 538 585 Ni fty Return (%)

406

15x

-18

18x

-2

20x

9

Current (15.9x) 15x 18x 20x

8

18

30

41

28 53

44 57 Ni fty Va l ues 8,541 9,296 8,063 8,775 9,675 10,530 10,750 11,700

7,460 6,094 7,313 8,126

Source: Company, MOSL

25 635

70 10,090 9,525 11,430 12,700

Source: Company, MOSL

Fund flows: FIIs continues to pump money FIIs continue to be net buyers of Indian equities, pumping in USD11.2b in CY14YTD v/s USD20b in CY13. DIIs pulled out USD5.5b. Yearly trend in net FII investments (USD b)

16.9 20.0 11.2

3.7

5.3

5.4

-0.5

5.9

-4.7

-5.5

CY11

CY10

CY09

CY08

CY07

CY06

CY14 YTD

CY13

CY12

CY11

CY10

CY09

CY08

Source: Company, MOSL

Yearly trend in net domestic MF investments (USD b)

Yearly trend in net DII ex-MFs (USD b) 13.6

3.3 1.7

1.3

6.5 3.7 -1.2

-1.2 -3.9

4.7 1.4

0.3

-3.7 -7.0

Source: Company, MOSL

July 2014

CY11

CY10

CY09

CY08

CY07

CY06

CY14 YTD

CY13

CY12

CY11

CY10

CY09

CY08

CY07

CY06

-6.1

-4.3 -9.3

CY14 YTD

3.4

Source: Company, MOSL

CY13

CY07

CY06

CY05

CY04

-12.2

CY13

-10.9 -13.0

CY14 YTD

17.6

CY12

8.6 10.8 8.1

24.5

CY12

29.3 17.8

Yearly trend in net DII investments (USD b)

Source: Company, MOSL

44

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KEY RISKS Shortfall in rains; potentially in capital flows too? Key risks: Monsoon deficit and market readiness for huge capital issuance  

  



The deficient rainfall in large parts of the country so far and the threat of El Nino in the second half of the season is a major source of worry for the economy. While deficient monsoon has affected food inflation materially in the past, the previous NDA government did well to contain prices during the two drought years it faced in five years. The government has taken several pre-emptive measures to tackle food inflation this time too, including low MSP hike, release of foodstocks and restrictions on exports. Its not raining money in the capital markets. However, a few companies have been successful in raising rather large sums. There is a very strong pipeline of equity capital raising in the primary capital market emanating from three sources.  Disinvestment of USD20b-25b over the next two years  Financials to raise USD15b to meet their capital requirement  Private sector may come up with another USD20b-25b as an attempt to repair the balance sheets of highly leveraged companies. Such huge capital raising program raises concerns on the absorption capacity of the market and its consequent impact on the secondary market.

RISK # 1: Weak monsoon raises the spectre of drought Monsoon and agriculture    

Monsoon remains 43% below normal by July 12. The threat of El Nino looms large in the second half. In the past, sharp deviation in rainfall has caused disturbances to foodgrain production. Previous NDA government, however, managed to keep food inflation within tolerable limits despite facing two droughts in close succession.

Fourth worst June rainfall in more than a century (% deviation) 4

-5

-3

-3

-17

-43

2009

1962

1931

1924

1923

-22

-47

-48

1912

1905

1902

-7 -18

-44

1901

3

1965

-9

1926

-13

Final seasonal rainfall 7

2014

June (Rainfall deviation %)

Source: IMD, MOSL

July 2014

45

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Sharp deviation in rainfall has affected agri production Rainfall deviation

20

NDA-I did well to contain food prices despite drought

Change in foodgrain production

20

10

10

0

0 -2

-10

-2

-11

-20

-6 -12

-15

-7 -18 -19 -20

-30

Rainfall deviation

WPI-Food inflation

3

2

-10 -20 -30

FY87

FY88

FY95

FY99

FY01

FY03

FY10

FY84 FY87 FY88 FY95 FY99 FY01 FY03 FY10

Source: IMD, MOSL

Govt. has taken many pre-emptive steps for food inflation

Source: IMD, Government, MOSL

Govt./RBI acting in tandem to bring down food inflation The government is committed to contain it (inflation) because we consider it a serious and sensitive matter

Lowest MSP hike in a decade

State governments urged to delist fruits and vegetables from APMC To release additional foodstock from FCI through PDS Withdraw export incentives for milk and sugar Contingency fund for rainfall Home Minister warns of strict action against hoarders

Jaitley speaks

Minimum Export price for onion and potato; imposes Essential Commodities Act for these

When production of food items is higher than last year and still prices rise, then it means that intermediaries are keeping the stock somewhere Prices of some items had touched Rs. 70-100 per kg last year. Prices are still lower this year. There is no panic situation

Source: Government, MOSL

Dr. Rajan speaks

FY84

Hopefully by the end of the year we think the economy is on course to come down to a CPI inflation rate of about 8 per cent, and by the end of next year to a level of 6 per cent, and we are certainly determined to make sure it follows this glide path. The right answer to inflation is collaboration between the Reserve Bank and the government, both working on the sides they can effect best Source: Media, MOSL

RISK # 2: Capital raising of USD50b over next two years: Will market be able to absorb the supply of equity?

Capital requirements of Corporate India Potential capital supply (INR t) 1.01.25

1.2 1.7

0.50.6

PSUs

July 2014

Private Banking & sector Financial (excld Services financials)

Over the last 2 months, we have seen a significant activity amongst companies to raise capital (Yes Bank, R-Com, Aban, JPA, GMR etc). We believe that this is a beginning of a very strong pipeline of capital raising from all segments (Government, Financials and Corporate Sector). Most of this capital raising is largely to repair balance sheets; Growth capital will be raised only later in FY16. 1. Disinvestment will remain a very active agenda for the Government to get resources for meeting deficit targets. Moreover, SEBI’s norm to lower stake to 75% in all PSUs will also involve stake sales. Over the next two years, the government may divest to raise upto USD20b-25b. This doesn’t include any special stake sale (SUUTI, HZL etc). 2. Financials, in order to raise their capital requirements ahead of economic recovery and Basel 3, will likely raise USD15b over the next two years. 3. Private sector will have to significantly repair their balance sheets, particularly in highly leveraged sectors. In our estimates, this amount could be around USD20b-25b. 46

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The long-term disinvestment achievement rate (actual disinvestment as a proportion of the target) is just 46%

1. Divestment of PSUs: Mobilization of INR975-1,250b over two years We had argued in our thematic report on India PSUs that India’s divestment proceeds were miniscule as compared with rest of the world (~1% of global privatization revenues during FY08-12) and actual divestments of state-owned entities has been way short of the targets (~44% short of target during FY10-14).

Disinvestment in recent years has been way short of the Indian disinvestments are miniscule compared to the global target privatization proceeds 600

Indian disinvestment proceeds as % World's privatization 5.3 revenues

Disinvestment Target (INR b) Disinvestment achieved (INR b)

450

3.6

3.2 300

2.3

1.9 1.1

150

0.9

FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

0

Source: MOSL, Department of Disinvestment

0.1

0.1 0.2

0.2

1.0 0.4 0.3

0.9 0.0

1.5

0.0

FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

0.0

0.9 1.0

Source: MOSL, Privatization Barometer's PB report 2012

Given India’s fiscal situation and track record of the NDA-1 government, disinvestment will remain a key agenda, in our view. Recent guidelines of SEBI making minimum 25% public shareholding mandatory for PSUs as well (to be achieved in next three years), will further necessitate increased divestment.  If accepted by the government, compliance with the new guidelines would supply ~INR 565b from PSUs where the government has more than 75% holding.  Of these, Coal India alone would account for stake sell worth INR365b. Potential mobilization by PSUs (ex-financials) would be ~ INR565b Current Dilution (%) to comply Market Cap government with min 25% public (INR b) shareholding stake (%) Coal India Utilities 2,489 89.7 14.7 NMDC Metals 729 80.0 5.0 NHPC Ltd Utilities 303 86.0 11.0 Neyveli Lignite Utilities 166 90.0 15.0 SAIL Metals 391 80.0 5.0 Hind.Copper Metals 104 90.0 15.0 SJVN Utilities 102 90.0 15.0 MMTC Misc 94 90.0 15.0 Natl. Aluminium Metals 153 80.9 5.9 NBCC Infrastructure 47 90.0 15.0 HMT Auto 39 90.0 15.0 FACT Chem & Fert 27 90.0 15.0 Natl.Fertilizer Chem & Fert 22 90.0 15.0 MOIL Metals 55 80.0 5.0 STC Misc 13 90.0 15.0 RCF Chem & Fert 37 80.0 5.0 ITDC Misc 13 87.0 12.0 ITI Telecom 9 90.0 15.0 Andrew Yule & Co Misc 9 90.0 15.0 Scooters India Auto 3 93.7 18.7 Dredging Corpn. Misc 13 78.6 3.6 Madras Fert. Chem & Fert 4 85.3 10.3 Bharat Electron Capital Goods 175 75.0 0.0 Total Co_Name

July 2014

Sector

Mobilisation if govt dilutes to 75% (INR b) 365 36 33 25 20 16 15 14 9 7 6 4 3 3 2 2 2 1 1 0 0 0 0 565

47

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Government may also divest an additional 5%-10% of stake in top 10 PSUs (where shareholding is <75%, retaining controlling stake of 51%). This can fetch an additional INR408b-683b. We are not yet considering the stake sale in SUUTI or special proceeds like HZL / BALCO, each of which is a sizeable amount. Potential mobilization by top 10 PSUs (ex-fin) @5% and 10% dilution would be INR408b683b (where govt holding is upto 75%) Company Name

Sector

Market Cap (INR b)

ONGC Oil & Gas 3,610 NTPC Utilities 1,308 IOCL Oil & Gas 848 Power Grid Utilities 753 BHEL Cap Goods 643 GAIL (India) Oil & Gas 589 Power Fin Corp NBFC 422 Total

BSE-500 constituents’ net debtto-equity has continuously increased in last 5 years 0.83

0.89 0.85

0.64 0.65 0.68

Current Addl. dilution Addl. dilution Mobilization Mobilization govt of 5% where of 10% where if dilutes if dilutes 5% stake s/h is <75%, s/h is <75%, 10% (INR b) (INR b) (%) but > 51% but >51% 68.9 5.0 180 10.0 361 75.0 5.0 65 10.0 131 68.6 5.0 42 10.0 85 57.9 5.0 38 63.1 5.0 32 10.0 64 56.1 5.0 29 72.8 5.0 21 10.0 42 408 683 Source: MOSL, Capitaline

2. Private sector would need equity capital to optimize their balance sheet BSE-500 constituents’ (ex-Financials, PSUs) net debt-to-equity (d/e) has continuously increased during the last five years (0.85 in FY14 v/s 0.65 in FY10). Our analysis of the private sector’s capital structure indicates a potential equity capital requirement of INR1.2t-INR1.7t to optimize net d/e. Sectors that would need equity capital infusion include Auto, Capital goods, Infrastructure, Utilities, Telecom and Metals.

July 2014

FY14

FY13

FY12

FY11

FY10

FY04

Private sector (excld. financial services) would require capital infusion of ~INR1,200-1,700b Sector (Ex PSUs and Financials) Automobiles Capital Goods Cement Chem & Fert Consumer Diversified Healthcare Infrastructure Media Metals Oil & Gas Real Estate Retail Technology Telecom Textiles Utilities Misc Total

Market cap (INR b) 6,394 3,658 2,152 1,350 8,227 192 5,349 439 918 3,342 4,329 1,060 562 10,511 2,834 575 1,503 3,507 56,902

Net debt (INR b) 848 1,953 256 264 233 118 294 1,055 26 3,283 1,276 372 139 -536 1,468 513 2,310 1,489 15,361

Networth (INR b) 1,731 856 729 377 815 85 1,097 348 180 2,638 2,631 827 172 1,891 1,272 286 972 1,073 17,979

Net debt to equity (x) 0.49 2.28 0.35 0.70 0.29 1.39 0.27 3.03 0.14 1.24 0.48 0.45 0.81 (0.28) 1.15 1.79 2.38 1.39 0.85

Target increase in equity (INR b) 100-150 200-300 50-100

200-250 100-150

100-150 100-150 200-250 150-200 1,200-1,700 Source: MOSL, Capitaline

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3. Financial services sector need INR800b-900b annual equity infusion

Financial services sector would need INR800b-900b of equity infusion over next 2 years

PSU banks would need additional capital of ~INR600b-650b to meet their requirements over next two years. Of this, INR110b is expected to be contributed by the government in FY15 and whereas there would be a sum allocated for FY16 as well. Hence, there may be a supply of INR380-400b in the market in next two years. We have considered PSU banks within our coverage universe and assumed that they will aim to raise it to at least 9%. Private Banks are adequately capitalized at this stage. However, a couple of banks that may contemplate to raise capital in FY15 could be HDFCB (INR100b) and SIB (INR21b). NBFCs are also relatively well capitalized. We estimate requirement of ~INR75b over next 2 years.



INR600b - 650b



INR100b - 150b

INR75b

PSU banks Pvt banks

NBFCs



Source: MOSL, Capitaline

Will market be able to absorb? All put together this could mean a total capital raising of upto USD50b. Part of this money can also be funded via asset sales and sale to strategic partners. However, this would not be significant. It would be interesting to see secondary market reaction and flows to match this pipeline. The highest net institutional buying (FIIs +DIIs) in a single year has been USD 31b in FY08. Markets had absorbed higher capital raising during FY2010-FY2013 Total equity capital raising (INR b) 600

519 459 439 417 373

450

55

1QFY05

192 193 120 172 137 68 95 80 80

389 255

196

168

56

84

303 291 213

109 62 36

429

417

415

103 67

18

28 245 230 0 220 189 116 115 -28 70 39

1QFY15

3QFY14

1QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

3QFY10

1QFY10

3QFY09

1QFY09

3QFY08

1QFY08

3QFY07

1QFY07

3QFY06

-56

1QFY06

3QFY04

0

15 18 22

1QFY04

150

194

3QFY05

300

Sensex return QoQ (%) 515

Source: MOSL

FII and DII flows in past (USD b) FII (USDb) Total

9.8

9.3

14.1

12.1

Total Flows: USD107b FII: USD61b DII: USD46b 0.3 9.5

0.1 9.2

30.8

2.7

28.4

5.1 17.7

FY05

7.6

13.1

Total Institution Flows (USDb) 4.8

20.0

Total Flows: USD46b FII: USD73b DII: USD-27b

30.0

10 5

3.2 10.9

6.4 5.8

23.4 13.1

FY06

FY07

FY08

FY09

13.7

8.5 -4.1

FY10

25.8

25.0

13.1 -10.4

FY04

20.9

DII (USDb)

FY11

-0.9

FY12

-12.7

FY13

15

20

-8.9

FY14

FY15E

FY16E

Source: MOSL

July 2014

49

India Strategy | The 'A' team... In action!

TOP PICKS ACC, AXSB, HDFC, HNDL, INFY, LT, MSIL, ONGC, SBIN, TTMT Many growth opportunities

ACC: Narrowing of profitability gap to drive re-rating

Cement price increases in upturn can positively surprise, driving earnings growth Price Chg (INR/bag)

120

75

0

60

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

4

38

30 20

22

10

6

0

-10

-10

Source: Company, MOSL

FY16E

90

FY14

8

FY12

105

We factor in ~8% CAGR price change over FY14-17E

FY10

12

54

Price Chg (%) - RHS

Cement prices increased by 13.3% CAGR on volume CAGR of over 9%

FY08

Effective Cap. Util. (%)

FY06

Volume Growth (%)

16

FY04

Volume growth to pick up, raising capacity utilization

FY02



FY00



FY98



FY96



Cement volume growth to bounce back sharply, with 8-10% CAGR, against 5% CAGR in the last five years, driven by a focused government and economic recovery. This coupled with slowing capacity addition would drive utilization and cement prices. We estimate ~8% price CAGR over FY14-17 (v/s 2.5% over FY12-14), driving doubling of EBITDA/ton for ACC to ~INR1,140 by CY16. Further potential of upgrades, driven by (a) synergies arising from acquisition by Ambuja adding up to ~INR120/ton, and (b) its own cost cutting initiatives can add another ~INR130/ton by CY16. Healthy B/S and healthy operating leverage to sustain its robust payout strategy of 50%+. Reducing profitability gap with peers should drive re-rating. Trading at a discounted valuation across all parameters: 17.3x FY16E P/E, 10.6x FY16E EV/EVITDA and USD117 EV/ton.

FY94



Source: Company, MOSL

Cost initiatives to lower EBITDA/ton discount to peers (INR)… …driving down valuation discount to peers ACC UTCEM (ex white) 247

ACC

ACEM Gap vs Peers

Ambuja

Ultratech

Shree Cement 207 177

242 162

159

112

159

816 1,122 1,005

572 717 751

614 872 840

985 1,173 1,116

1,360 1,494 1,413

94 17 24 19 17

CY12

CY13

CY14E

CY15E

CY16E

P/E

Source: Company, MOSL

July 2014

10 14 11 9 EV/EBITDA

EV/ton

Source: Company, MOSL

50

India Strategy | The 'A' team... In action!

Axis Bank: Well positioned at the start of the up-cycle 





Axis Bank is strongly positioned to benefit from the up-cycle, as (1) branch network has multiplied 2.4x in last four years, (2) liability and asset side has become more granular, with higher share of retail business and strong capitalization (Tier I of 12.6%). Structural improvement in NIMs has led to best in class RoA of 1.7-1.8%. With improvement in loan growth, we expect earnings growth to be 20%+ and RoE to improve to 18.1% by FY17. The stock trades at 1.9x one-year forward BV (10% discount to LPA). Improvement in economic growth and infra reforms could lead to strong rerating.

Strong expansion, significant improvement in liability mix Branches

67.9

65.7 58.7 53.8 49.7

75.0

CASA + Retail TD (%)

63.3 58.8

57.4

51.9

450

544

644

792

983

339 FY05

FY06

FY07

FY08

FY09

FY10

2,402 1,947

1,622

1,390

FY11

FY12

FY13

FY14

Source: Company, MOSL

2.4

3.2

3.3

3.4

3.3

3.3

19.2

19.1

17.6

1.6

1.6

1.7

1.7

9.4

9.5

12.2 12.6

1.4

3.6 1.1

1.1

1.1

8.9

7.3

6.4

1.2

2.5

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company, MOSL

July 2014

17.4

2.4

3.1

1.5

18.5

0.1

RoA

20.3

0.4

Tier I %

19.3

0.4

RoE

21.0

0.6

Provisions to average assets (%) 0.8 0.7 0.6 0.6 0.6 0.4

18.4

NIM (%)

Highest ever RoA; strong capitalization (%)

18.8

Structurally, NIM has moved to higher levels

10.2

9.3

11.2

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company, MOSL

51

India Strategy | The 'A' team... In action!

HDFC: Beneficiary of housing reforms  

 

Re-balance of AUM mix in favor of corporate loans and maturing retail loans will drive +15% earnings growth in FY15/16. Contribution of dividend income and non-operating income reduced to 9.7% in 4QFY14, down from an average to 15.5% in last 12 quarters. Improving market conditions will positively impact non-interest income. With revival in capex cycle, banks will shift focus to corporate loans, thus ending an era of irrational pricing. Consolidated PAT growth of 20% v/s standalone PAT growth of 12% in FY14. Subsidiaries now contribute 32% of consolidated PAT v/s ~2% in FY09.

Loan book growth to remain at 20% and RoE at 25% RoE (%)

Loan Growth (%) 38

37

26

30

16

15

20

20

21

16

19

19

20

FY15E

FY16E

FY17E

25

FY14

24

FY13

25

FY12

26

FY11

24

FY10

22

FY09

23

FY08

23

FY07

28

Source: Company, MOSL

Recent reforms augur well for HDFC  



The government’s thrust on housing will expand the business pie, and HDFC being the largest player, will be a key beneficiary. Increase in limit for principal repayment to INR0.15m (via 80C) and interest repayment limit to INR0.2m from INR0.15m (U/S 24) will benefit HDFC (due to higher ticket size and focus on salaried segment). Increase in FDI limit in insurance will help HDFC unlock value.

Consolidated PAT growth at 20% v/s standalone PAT growth of 12% SA PAT Gr (%) 40.3

Cons. PAT Gr (%)

39.7

20.6

21.5

19.6

23.8

25.1

16.6

17.6

12.2

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

July 2014

52

India Strategy | The 'A' team... In action!

Hindalco: Free cash flows turned positive     

Aluminum production to grow at 27% CAGR over FY14-17 aided by doubling of captive alumina production. New captive bauxite mine is rich and operational. Novelis to benefit from 20% volume growth, increase in share of Auto to 20% (v/s 9%), recycling from 46% to 80%. Operating cash flows are at inflection, following USD8b capex completion. Peaking of debt and capex will drive equity value.

Novelis’ EBITDA has passed the infection point (USD m)

1,072

961

1,083

1,041

899

1,126

743

616

USD1.7b Return of capital

428

FY08

1,053

FY09

FY10

FY11

USD250m USD250m USD250m Return of Return of Return of capital capital capital

FY12

FY13

FY14

FY15E

FY16E

FY17E

Source: Company, MOSL

CapEx

22

3.2 4.1 2.3 2.7 4.2 6.0 6.2 4.8 4.0 3.2

-89

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Source: Company, MOSL

July 2014

FY17E

-49

FY16E

-17

FY15E

7

FY14

16

138

FY13

26

37

222

FY12

5

55

Equity value (RHS) 280 179

FY11

40

116 127 80 53 40

FY10

46

98

FY09

40

79

98

FY08

125 119

Net Debt / EBITDA

Opr. Cash flow

Ratio (x)

Free Cash flows

Net debt to EBITDA has peaked

INR / share

Free cash flows turned around on peaking of capex (INR b)

Source: Company, MOSL

53

India Strategy | The 'A' team... In action!

Infosys: Strategy in place, focused on execution 





Re-focusing on large commoditized deals has helped INFO improve its deal signings in the segment, closing USD700m in Total Contract Value (TCV) in each of the last two quarters. The uptrend in the deals should gradually reflect in revenue growth, though deal signings need to improve further. Last five quarters have witnessed results of INFO’s efforts towards improving efficiency. While utilization is at peak, we see further leverage if growth accelerates. Lower than industry growth rate and consequent decline in margins have impacted INFO’s valuation, (14x FY16E EPS, compared to 19x for TCS). Given the leverage, low-double digit revenue growth will facilitate high-teens earnings CAGR. We see this translating to 20% annual stock returns, going forward.

Focus on BITS has improved deal wins Deal signings TCV (USD m) 700 700

1QFY15

4QFY14

500

3QFY14

2QFY14

600

1QFY14

4QFY13

3QFY13

731

219

450

Source: Company, MOSL

Cost optimization efforts reflected in margin performance EBIT Margin (%) 78.7

Earnings will be boosted by recovery in growth, a key lever

Utlilization (Excl. trainees) 81.0 78.1

USD Revenue growth (%)

EBIT Margins(%)

29.0

77.8

75.8 25.8

73.0

25.8

25.6

25.3

24.5 23.6

23.6

23.6

25.0

25.5

25.1

15.8

5.8

11.5

8.1

12.0

13.0

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

FY12E

FY13E

FY14E

FY15E

FY16E

FY17E

Source: Company, MOSL

July 2014

Source: Company, MOSL

54

India Strategy | The 'A' team... In action!

L&T: Multi-barreled engine to economic recovery 

  

L&T has significantly increased market share in both India and the Middle East, led by entry into new segments / geographies. This provides a strong base to capitalize on the next leg of the investment cycle. Core RoE has been maintained at 20%+ over the last four years, despite the slowdown. Manufacturing businesses present interesting possibilities; asset turn of 6-8x can contribute 25-30% of revenues v/s 3-4% now. L&T is associated with 125-130 defense products; could be the largest delta in growth profile.

L&T gains meaningful market share in ‘mid to late’ cycle, as share of mega / Greenfield projects increase

Mar-13

Mar-12

5.5

5.5

L&T lost mkt sh 5.9

6.2 Mar-10

5.8 Mar-09

5.2 4.2 Mar-07

Mar-08

4.4 Mar-06

4.8 Mar-05

5.2 Mar-04

6.0 4.8 Mar-02

Mar-03

5.1 Mar-01

Mar-00

Mar-99

Gainedmkt sh

Mar-11

L&T lost market share 6.1

7.8

L&T's Domestic E&C revenues (% of GFCF)

Source: Company, MOSL

July 2014

14.1

15.8

FY15E

FY16E

28.7

24.3 15.5 FY14E

22.9

23.9

34.1 18.0 FY12

FY13 14.4

34.8 16.6 FY11

38.0 17.4

38.4 21.7 FY09

FY10

39.4 22.0 FY08

34.9 24.0 FY07

25.3 18.6 FY06

24.1 18.7 FY05

19.8 19.2 FY04

12.5 FY03 12.2

CY13

CY12

Source: Company, MOSL

Standalone Reported RoE (%)

Core E&C RoE (%)

2.6%

2.2% CY11

1.2% CY08

1.2%

1.1% CY07

CY10

0.9% CY06

0.5%

0.8% CY05

CY09

0.9% CY04

1.5%

L&T Overseas Market share

CY03

Core RoE has remained at respectable levels; attempt to correct capital structure is an important trigger 4.9%

L&T’s market share in Middle East has also increased meaningfully; creating ‘L&T-2’ is a serious attempt

Source: Company, MOSL

55

India Strategy | The 'A' team... In action!

Maruti: Moving from defensive to challenger; waiting to zoom in the up-cycle Robust EPS CAGR of 33% over FY14-17  Improving macro environment, higher disposable income (due to reduction in tax) and improving consumer sentiment to drive PV recovery. MSIL, with is aggressive product launches (~14 launches in 5 years), to gain market share.  It is well-prepared for an eventual demand pick-up, with adequate capacities, strong marketing network and equally exciting new products pipeline.  Margins to expand 280bp by FY17 on operating leverage, reduction in discounts and localization. MSIL to emerge as challenger now with robust product pipeline

1,816 FY17E

1,573 FY16E

1,344 FY15E

1,155

1,018 FY10

FY14

792 FY09

1,171

765 FY08

FY13

675 FY07

1,134

562 FY06

FY12

536 FY05

1,271

473 FY04

FY11

362 FY03

Vol. ('000 units)

Source: Company, MOSL

Margins to expand on lower discounts, higher localization MSIL should trade at a premium (average P/E of 14x on and operating leverage strong EPS CAGR of 33% over FY14-17), with upgrade risk

Source: Company, MOSL

July 2014

FY17E (bull case)

FY17E

173

FY16E

133

FY15E

FY14E

58

82 94

FY13

55 62 42 31 42

FY11

15.5

FY10

14.5

91 82

FY12

0.5 0.5

FY09

11.7

0.5 1.4 1.0

FY08

1.0 1.0

FY07

9.7

1.3 2.9

FY08 +ve Mix -ve Fx Royalty -ve op lev FY13 +ve Fx Localn -ve op lev FY14 Disc. redn Localn +ve Fx +ve Op lev R&D, Export dev. FY17 +ve Op lev Disc. redn FY17 Bull Case

14.6

4.0

1.8

FY06

1.8

223 241

EPS (INR)

FY05

3.7 5.0

Source: Company, MOSL

56

India Strategy | The 'A' team... In action!

ONGC: Largest beneficiary of diesel reforms ONGC will be the largest beneficiary of diesel reforms (expect ~51% cut in under-recoveries to INR690b by FY17). LPG/kerosene price hikes could lower subsidy. We model (a) upstream share @64% v/s last three-year average of 42%, and (b) gas price at USD4.2/5.3/6.3/mmbtu in FY15/16/17 in our base case. After a long trend of flat to declining production, ONGC’s group production is set to grow ~4% by FY17. Realistically, ONGC’s net oil realization could reach USD65/bbl by FY17 and at gas price of USD7/mmbtu, could report EPS of INR50 v/s INR31 in FY14.



  

Net realization set to increase, led by lower under recoveries Net

In USD/bbl

Upstream Discount 117

60 30 4 26

43 5

17 42

38

72

66 33

40

22 44

111

107

108

105

100

63

66

58

46

40

89

88

86

Gross

16

62 36

60 53

48

56

54

55

48

50

41

59

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Source: Company, MOSL

Base Case Gas price at USD7/mmbtu

66.2

Gas price at USD8/mmbtu

9 9 9 10 10 6 8 9 9 9 5 7 8 26 25 25 25 25 25 26 25 26 25 25 26 26 27

46.8

July 2014

35.9

44.7 (RoE: 18%)

FY17E

28.3

47.6 (RoE: 20%)

42.5

31.0

FY14

FY12

FY11

FY10

23.1 22.7 24.5

FY13

30.4

FY09

FY17E

FY16E

FY15E

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

Source: Company, MOSL

50.5 (RoE: 20%)

49.9

Gas @USD8/mmbtu; oil @USD65/bbl

4

28 28 26 28 28 27 26 27 27 26 26 27 28 29

54.1 (RoE: 18%)

53.7

FY16E

64.2

61.4

59.3

58.7

61.2

62.1

Domestic Gas Prodn ONGC Group Prodn.

60.9

61.3

61.9

60.8

57.5

58.6

57.3

Domestic Oil Prodn OVL Prodn

ONGC’s cons EPS can cross INR50 at realistic assumptions

FY15E

After a flat/declining trend, ONGC group production set to grow at ~4% CAGR, led by IOR/EOR project completion (mmtoe)

Source: Company, MOSL

57

India Strategy | The 'A' team... In action!

SBI: Levered to economic growth; RoE to rise 1.7x in three years 





Enviable liability franchise (SA ratio of ~35%), strong capitalization (tier-I of 9.6%+) and lowest net stress loans (6.2%) makes SBI best placed to benefit from an upturn in the economic cycle. Well-provided pension liability and management focus to bring efficiency will lead to modest opex growth over FY14-17. With reversion expected in asset quality, SBI to deliver highest earnings growth of 35%+ over FY14-17. Return ratios to rebound, with RoE reaching 17%+ v/s 10% in FY14. Stock trades at 10% discount to LPA, and could significantly re-rate, as the environment becomes conducive and core parameters improve.

NIMs to improve and credit cost to come down (%) NIM (%)

Provisions to average assets (%)

1.2

3.2

3.2

3.2

1.1

1.1

FY17E

1.4

1.3 3.2

FY14

FY13

FY12

2.6

2.7

FY11

2.8

3.3

3.2

0.6

FY10

FY06

0.7

FY08

0.2

0.7

FY07

0.7

0.9

FY09

3.0

FY05

1.5

1.4

FY16E

3.5

3.4

FY15E

3.8

Source: Company, MOSL

1.5

Source: Company, MOSL

18.0

1.3 1.3 1.3 14.0

1.1

Mar-13

Mar-12

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

10.0

Mar-06

0.0

Mar-05

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

July 2014

17.9

0.8

15,869

7.8

2.3

22.0

Mar-16

9.7

P/B (x) Avg P/BV 1 yr - forward ROE (%)

3.0

Mar-15

42.5

44.8 9.5

14,816

12,496

11,448

10,186

9,231

9,177

8.0

9.8

14,097

9.5

49.4

47.2

41.6

46.9 9.1

9.4

44.8

CASA Ratio

Tier I

13,542

9.4

8.0

9,102

48.4

47.5

41.2

Branches

Expect sharp improvement in RoE; stock trades below LPA

Mar-14

Highest ever capitalization; rapidly rising branch network

Source: Company, MOSL

58

India Strategy | The 'A' team... In action!

Tata Motors: CVs to recover sharply from longest ever slump CV cycle recovery, favorable product lifecycle in JLR to drive 31% EPS CAGR (FY1517)  Lead indicators of CV industry are turning positive. MHCV demand typically rebounds strongly.  Recovery could be sharper this time due to longest ever downturn, and strongest electoral mandate.  Our base case S/A business FY16 SOTP remains at a steep discount of 48% to FY11 levels.  JLR demand remains strong. Easing of capacity constraints (4QFY16) with broadbasing of portfolio to drive strong FCF over FY14-17. Sharp rebound in S/A profitability expected on CV cycle recovery S/A MHCV vol. ('000 units)

S/A margins (%)

250

15.0

200

10.0

150

5.0

100

-

50 -

FY17E

FY16E

FY15E

FY14E

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

(5.0)

Source: Company, MOSL

JLR FCF to improve significantly over FY14-17E JLR vol. gr. (%) 1,090

709 29.1

15.5

12.2

23.3

FY11

FY12

9 53

13.4

FY13 FY14E FY15E FY16E FY17E

Source: Company, MOSL

July 2014

8 71

-3

-76 FY10

803

512 18.3

(3.4)

JLR

FCF (GBP m) 978

868 25.6

Base case S/A SOTP contribution to increase significantly

21 FY10

39 FY11

7 40

53

FY12

S/A 7 20

73

Others 6

6 4

5 13

5 17

97

90

82

78

(3) FY13 FY14E FY15E FY16E FY17E

Source: Company, MOSL

59

India Strategy | The 'A' team... In action!

MOSL model portfolio

July 2014

Sector / Portfolio Picks Financials Private ICICI Bank Axis Bank Yes Bank NBFCs HDFC Shriram Transport LIC Housing PSU SBI Union Bank Cap Goods, Infra & Cement Larsen & Toubro BHEL ACC Auto Tata Motors Maruti Bharat Forge Technology Infosys HCL Tech Tech Mahindra Energy ONGC BPCL Consumer / Retail ITC Jubilant Food Metals Hindalco JSPL Utilities NTPC Healthcare Lupin Telecom Bharti Airtel Others Alembic Pharma Ashok Leyland Bata Dalmia Bharat Dewan Housing IndiaBulls Housing Jain Irrigation Nagarjuna Construction OBC PVR Sobha Developers TVS Motor Voltas Cash Total

BSE-100 27.4 15.2 5.2 2.1 0.6 7.5 4.9 0.5 0.3 4.6 2.8 0.2 10.3 4.5 0.8 0.4 8.3 2.7 1.1 0.3 12.8 4.9 1.3 1.0 11.1 2.8 0.5 11.3 5.8 0.0 4.9 0.7 0.4 4.8 1.0 5.3 0.8 2.0 1.3 1.8 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0

MOSL Wt 29.0 13 6 5 2 9 4 3 2 7 5 2 12.0 6 3 3 10.0 4 4 2 9.0 5 2 2 8.0 5 3 6.0 4 2 4.0 2 2 4.0 4 3.0 3 2.0 2 13.0 1 1 1 1 1 1 1 1 1 1 1 1 1 0.0 100.0

Wt relative to BSE-100 1.6 -2.2 0.8 2.9 1.4 1.5 -0.9 2.5 1.7 2.4 2.2 1.8 1.7 1.5 2.2 2.6 1.7 1.3 2.9 1.7 -3.8 0.1 0.7 1.0 -3.1 2.2 2.5 -5.3 -1.8 2.0 -0.9 1.3 1.6 -0.8 3.0 -2.3 2.2 0.0 0.7 11.2 1.0 0.9 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.00

Sector Stance Overweight Neutral Buy Buy Buy Overweight Buy Buy Buy Overweight Buy Buy Overweight Buy Buy Buy Overweight Buy Buy Buy Underweight Buy Buy Buy Underweight Buy Buy Underweight Buy Buy Neutral Buy Buy Underweight Buy Underweight Buy Neutral Buy Overweight Buy Buy Buy Buy Buy Buy Buy Not Rated Buy Buy Buy Buy Buy

60

June 2014 Results Preview

BSE Sensex: 25,962

S&P CNX: 7,752

4 July 2014

MOSL Universe: 1QFY15 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 4 July 2014, unless otherwise stated.

July 2014

61

MOSL UNIVERSE

MOSL Universe: 1QFY15 aggregate performance highlights (Ex RMs) Quarter-wise sales growth (% YoY)

Quarter-wise net profit growth (% YoY) 13.0%

12.9%

12.9%

13.7%

12.6% 8.5%

8.0% 11.0%

Dec-13

Sep-13

Mar-14

June-14E

Sep-13

Mar-14

Dec-13

June-14E

Sectoral sales growth - quarter ended June 2014 (%) 19

19

16

15

13

13

12

12

11

11

10

9 1

1

7

4

3

Real Estate

Cap Goods

7

Retail

Cement

13

Telecom

Media

13

Utilities

Metals

Oil Ex. RMs

MOSL Ex. RMs

Consumer

Financials

Health Care

Technology

Auto

-9

Sectoral EBITDA growth - quarter ended June 2014 (%) 29

23

23

20

14

14

13

-1

5 -6

-7

Real Estate

Financials

8

Cement

Utilities

10

Cap Goods

Consumer

11

Media

Health Care

Retail

Telecom

MOSL Ex. RMs

Oil Ex. RMs

Metals

Technology

Auto

-26

July 2014

-32

Real Estate

-16

Cap Goods

Cement

Media

Financials

Retail

Utilities

14

MOSL Ex. RMs

14

Consumer

16

Oil Ex. RMs

21

Metals

21

Technology

39

Auto

Telecom

41

Health Care

Sectoral net profit growth - quarter ended June 2014 (%)

62

July 2014

-54

-47

-44

-35

Sintex Inds. Mindtree Just Dial

Reliance Infrastructure Gujarat State Petronet

Ashok Leyland Prestige Estates

-14 -13

Union Bank

Titan Company

Jaypee Infratech

BHEL

DLF

Indiabulls Real Estate

-14

Cipla

89

Indraprastha Gas

Worst 10 by EBITDA growth (%)

Indian Bank

India Cements

Kaveri Seed

-4

-33

Cipla

-73 -30

-6

Union Bank

-84

-12 -10

Bank of India

-85 -31

Jaypee Infratech

-59 -34

Indiabulls Real Estate

Eicher Motors

-32 -14 -11

DLF

82 -35

Grasim Industries

Top 10 by net profit growth (%) -43 -38

Indiabulls Real Estate

84 45

Ranbaxy Labs

Top 10 by EBITDA growth (%) -14

Jaiprakash Associates

47

28

DLF

29

Symphony

-15

Ranbaxy Labs

29

Grasim Industries

29

BHEL

BHEL

30

TVS Motor

Top 10 by sales growth (%)

Jaypee Infratech

30

Tata Motors

33

Tata Motors

36

Godrej Properties

M & M Financial 40

Bharti Airtel

91

Godrej Properties

47

TVS Motor

95

Shopper's Stop

52

Tata Motors

96

Gujarat Pipavav

61

Jain Irrigation

104

Eicher Motors

61

Sesa Sterlite

111

Dr Reddy’ s Labs

64

Federal Bank

113

TVS Motor

66

JSW Steel

Voltas

Nalco

Ashok Leyland 76

IPCA Labs.

Shopper's Stop

Tata Power

MOSL UNIVERSE

Corporate Scoreboard (quarter ended June 2014) Worst 10 by sales growth (%)

116 -4

Worst 10 by net profit growth (%)

260

214

-25

-72

Source: MOSL

63

MOSL UNIVERSE

Annual performance - MOSL universe (INR Billion) SECTOR

Sales Change YoY (%) EBITDA Change YoY (%) PAT Change YoY (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

Auto (11) Capital Goods (9) Cement (13) Consumer (14) Financials (32) Private Banks (10) PSU Banks (12) NBFC (10) Healthcare (14) Media (8) Metals (9) Oil & Gas (13) Excl. RMs (10) Real Estate (9) Retail (3) Technology (10) Telecom (4) Utilities (10) Others (13) MOSL (172) Excl. RMs (169) Sensex (30) Nifty (50)

4,968 5,937 6,624 1,547 1,815 2,151 1,278 1,508 1,763 1,521 1,750 2,020 2,902 3,446 4,135 750 898 1,108 1,707 2,027 2,416 445 521 612 1,066 1,212 1,383 188 216 245 4,832 5,207 5,543 17,726 17,846 17,686 8,495 8,577 8,658 249 283 338 179 213 255 2,703 3,039 3,363 1,581 1,737 1,889 2,314 2,551 2,764 505 589 685 43,558 47,348 50,845 34,327 38,079 41,817 11,580 12,862 13,978 13,260 14,712 15,988

13.6 2.8 14.4 14.2 15.6 16.6 14.7 17.5 11.2 11.9 5.1 -0.8 4.6 12.1 16.9 10.2 9.1 9.4 16.9 5.6 8.9 7.2 7.2

19.5 17.3 18.0 15.0 18.7 19.8 18.7 17.0 13.6 15.1 7.8 0.7 1.0 13.6 19.2 12.4 9.9 10.3 16.7 8.7 10.9 11.1 10.9

11.6 18.5 16.9 15.4 20.0 23.4 19.1 17.5 14.1 13.4 6.5 -0.9 0.9 19.4 19.7 10.7 8.7 8.3 16.3 7.4 9.8 8.7 8.7

738 916 1,080 157 199 256 224 317 422 322 374 435 2,252 2,701 3,291 651 786 976 1,168 1,409 1,723 432 505 592 275 310 360 56 66 79 1,011 1,098 1,163 1,623 1,830 2,014 1,310 1,489 1,636 83 104 133 18 22 26 707 790 855 544 617 682 684 784 882 84 102 121 8,776 10,232 11,798 8,464 9,890 11,420 2,586 3,032 3,546 2,959 3,477 4,070

16.9 3.3 23.4 15.4 15.0 17.0 12.9 18.2 18.0 16.3 17.7 10.6 12.6 15.1 23.3 9.2 13.8 9.6 24.6 13.8 14.3 13.0 12.2

24.1 26.7 41.7 16.2 19.9 20.8 20.6 16.9 12.8 19.3 8.6 12.8 13.7 25.3 24.0 11.7 13.5 14.7 21.3 16.6 16.9 17.3 17.5

17.9 28.7 33.2 16.2 21.9 24.1 22.3 17.2 15.8 18.4 6.0 10.0 9.8 28.1 21.0 8.1 10.4 12.4 18.3 15.3 15.5 16.9 17.1

342 101 93 227 1,097 392 428 276 167 27 381 861 748 29 11 546 111 405 45 4,441 4,329 1,352 1,553

452 141 149 264 1,357 476 558 323 206 35 412 973 836 42 14 618 142 457 57 5,319 5,183 1,629 1,872

555 188 226 306 1,676 587 709 379 243 46 437 1,060 911 62 17 676 182 515 71 6,258 6,108 1,943 2,230

19.0 0.7 30.5 15.7 20.9 18.3 26.4 16.6 12.5 16.3 27.0 4.3 7.2 19.1 18.7 11.4 58.2 9.1 35.2 15.2 16.1 14.7 13.8

32.1 39.8 60.6 16.6 23.7 21.3 30.2 17.1 23.4 32.0 8.0 13.0 11.8 45.3 23.6 13.3 27.7 12.9 27.2 19.8 19.7 20.5 20.5

22.7 33.3 51.0 16.0 23.4 23.3 27.1 17.3 18.3 29.3 6.0 9.0 9.0 47.0 23.0 9.3 28.2 12.7 23.5 17.6 17.9 19.2 19.1

For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; Note: Sensex & Nifty Numbers are Free Float.

Valuations - MOSL universe Sector Auto (11) Capital Goods (9) Cement (13) Consumer (14) Financials (32) Private Banks (10) PSU Banks (12) NBFC (10) Healthcare (14) Media (8) Metals (9) Oil & Gas (13) Excl. RMs (10) Real Estate (9) Retail (3) Technology (10) Telecom (4) Utilities (10) Others (13) MOSL (172) MOSL Excl. RMs (169) Sensex (30) Nifty (50) N.M. : Not Meaningful.

July 2014

FY15E 14.7 34.8 26.1 31.0 12.2 15.8 8.8 12.3 25.6 26.5 11.5 12.1 12.0 28.5 39.4 17.9 23.7 14.1 20.3 16.1 16.1 17.0 16.9

PE (x) FY16E 11.1 24.9 16.2 26.6 9.8 13.0 6.7 10.5 20.8 20.1 10.6 10.7 10.7 19.6 31.8 15.8 18.6 12.5 16.0 13.4 13.5 14.1 14.0

FY17E 9.1 18.7 10.7 22.9 8.0 10.5 5.3 8.9 17.6 15.5 10.0 9.8 9.8 13.4 25.9 14.4 14.5 11.1 12.9 11.4 11.4 11.9 11.8

EV / EBITDA (x) P/BV (x) FY15E FY16E FY17E FY15E FY16E FY17E 6.5 5.0 3.9 3.1 2.5 2.1 20.4 15.3 11.3 3.8 3.4 3.1 12.2 8.4 5.9 2.5 2.3 1.9 21.1 18.0 15.3 11.4 10.2 9.0 N.M N.M N.M 1.8 1.6 1.5 N.M N.M N.M 2.8 2.4 2.1 N.M N.M N.M 1.0 0.9 0.9 N.M N.M N.M 2.5 2.2 1.9 15.4 13.3 11.2 5.2 4.3 3.6 12.3 10.1 8.1 5.9 5.0 4.1 6.2 5.7 5.3 1.2 1.1 1.1 7.1 6.2 5.5 1.6 1.4 1.3 6.9 6.1 5.3 1.6 1.5 1.3 14.9 11.9 9.1 1.4 1.3 1.2 24.9 19.8 16.0 9.5 7.7 6.3 12.4 10.7 9.6 4.7 3.9 3.3 6.8 6.0 5.0 1.9 1.7 1.6 10.2 9.0 8.0 2.1 1.9 1.8 12.2 9.8 8.0 4.2 3.5 2.9 N.M N.M N.M 2.4 2.2 1.9 N.M N.M N.M 2.5 2.2 2.0 N.M N.M N.M 2.7 2.4 2.1 N.M N.M N.M 2.7 2.4 2.1

FY15E 21.1 11.0 9.7 36.6 15.1 17.6 11.6 20.5 20.1 22.4 10.9 13.2 13.8 4.9 24.1 26.1 7.9 15.0 20.6 15.1 15.3 16.1 15.8

RoE (%) Div Yield (%) EARN. CAGR FY16E FY17E FY14 (FY14-FY16) 22.8 22.8 1.3 25.4 13.9 16.4 1.1 18.6 14.0 18.1 1.0 44.8 38.2 39.4 1.6 16.1 16.5 18.3 2.0 22.3 18.5 20.0 1.4 19.8 13.6 16.0 2.3 28.3 20.8 21.1 2.7 16.8 20.6 20.4 0.7 17.8 24.9 26.5 1.4 23.9 10.8 10.6 2.6 17.1 13.5 13.2 2.4 8.6 13.8 13.6 2.2 9.5 6.8 9.3 1.4 31.6 24.3 24.4 0.7 21.1 24.8 22.8 1.6 12.3 9.3 10.8 0.6 42.1 15.6 16.1 6.4 11.0 21.9 22.4 1.1 31.2 16.1 16.8 2.0 17.4 16.3 17.0 2.0 17.9 17.1 17.9 1.7 17.6 16.9 17.6 1.7 17.1

64

MOSL UNIVERSE

Ready reckoner: quarterly performance Sector

CMP (INR) 4.7.14

Reco

Sales Var % Var % Jun-14 YoY QoQ

EBITDA Var % Var % Jun-14 YoY QoQ

Net Profit Var % Var % Jun-14 YoY QoQ

Automobiles Amara Raja Batt. Ashok Leyland Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors TVS Motor Sector Aggregate

496 36 2,299 8,636 159 2,583 1,229 2,643 468 171

Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy

9,831 22,615 52,621 21,731 18,502 70,358 94,991 112,485 600,718 23,881 1,027,732

10.0 -4.3 7.1 30.1 13.8 14.8 -2.1 9.9 28.4 35.7 19.4

10.7 -26.5 6.7 12.9 15.0 9.0 -7.0 -7.0 -8.0 10.8 -5.4

1,635 440 10,089 2,668 2,985 8,205 12,285 13,110 90,026 1,624 143,067

12.4 89.1 11.3 60.5 13.8 20.6 -12.3 12.4 44.8 64.2 29.2

18.7 -76.1 8.3 20.2 36.4 31.1 15.9 5.1 -10.0 17.1 -3.1

1,034 -1,283 8,146 1,580 1,853 6,798 7,333 7,212 35,045 953 68,669

5.7 Loss 10.4 71.1 16.7 23.9 -19.4 14.2 91.1 83.7 39.4

25.1 Loss 6.8 13.6 40.2 22.6 -19.9 -9.9 -17.3 15.9 -10.7

Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate

1,120 263 207 675 1,200 1,742 990 956 215

Neutral Buy Buy Buy Neutral Buy Sell Buy Buy

18,556 54,632 34,969 10,746 11,661 103,554 26,414 8,711 16,242 285,486

6.0 -14.0 10.8 2.4 10.9 5.4 0.0 1.0 1.3 0.9

1.5 -63.0 -7.2 10.6 -11.0 -48.4 -2.4 -37.0 11.0 -40.8

1,322 1,609 1,787 1,909 1,539 11,539 1,636 877 1,023 23,239

22.6 -58.6 23.4 8.7 9.1 15.4 0.3 7.7 66.5 2.7

5.2 -94.1 -5.0 11.7 -13.2 -58.1 -12.2 -34.4 -2.9 -64.6

540 762 525 1,795 1,039 7,041 727 579 738 13,747

36.4 -83.6 -12.6 8.0 0.9 -4.8 LP 15.2 81.8 -16.3

4.5 -96.0 -17.7 26.6 -24.1 -69.9 -17.6 -45.4 -11.7 -71.9

Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Sector Aggregate

1,452 224 418 3,388 116 73 7,276 2,604

Buy Neutral Buy Buy Neutral Buy Buy Buy

29,833 25,053 8,083 12,999 12,624 34,727 16,345 55,830 195,493

6.7 6.8 4.7 13.1 1.9 4.8 13.4 12.6 8.5

0.5 -5.1 3.9 -15.0 16.9 2.1 -1.5 -4.3 -1.7

3,889 5,172 650 1,148 1,342 8,592 4,498 10,203 35,495

-10.3 5.1 -2.7 -43.3 -29.7 9.5 18.4 -2.7 -1.4

6.5 -10.5 17.2 -16.9 81.0 -1.5 5.6 -10.7 -2.8

2,656 3,771 392 1,199 -46 59 3,048 6,186 17,264

2.5 16.3 -14.8 -46.8 PL -71.8 7.2 -8.0 -6.6

-13.9 -15.7 20.3 -3.4 Loss -93.7 34.1 -18.9 -11.4

Consumer Asian Paints Britannia Colgate Dabur Emami Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate

588 1,016 1,664 191 543 809 4,751 624 333 249 4,970 333 112 2,453

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

32,554 15,719 9,798 18,988 4,220 19,784 9,894 74,559 84,482 16,280 23,791 11,874 4,109 25,212 351,263

15.5 12.0 16.0 15.0 10.0 15.0 16.0 9.5 14.0 18.0 7.5 17.0 15.0 15.0 13.1

-0.3 -3.0 6.4 7.3 -5.3 2.8 -8.3 5.1 -8.6 52.2 2.8 30.9 16.9 15.4 2.8

5,209 1,383 1,950 2,791 633 2,611 1,484 12,153 31,934 2,475 5,139 2,553 707 2,773 73,795

17.8 17.2 18.4 5.3 18.0 -3.4 18.5 -3.8 6.9 -46.3 18.3 -21.8 25.1 -21.6 11.9 12.8 14.4 -0.3 9.0 62.8 5.3 5.8 14.0 118.6 15.7 76.6 -0.3 36.8 13.3 5.6

3,379 1,020 1,407 2,222 609 1,653 1,463 9,623 22,061 1,581 2,958 1,754 337 1,323 51,390

22.8 18.2 8.4 19.4 0.3 26.7 21.9 8.7 16.6 1.8 4.8 13.5 10.1 12.0 14.1

13.6 -2.8 1.6 -5.6 -46.5 -29.0 -14.8 15.6 -3.2 46.4 0.9 89.7 270.2 67.3 3.1

July 2014

65

MOSL UNIVERSE

Ready reckoner: quarterly performance Sector

CMP (INR) 4.7.14

Reco

Sales Var % Var % Jun-14 YoY QoQ

EBITDA Var % Var % Jun-14 YoY QoQ

Healthcare Alembic Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Glenmark Pharma GSK Pharma IPCA Labs. Lupin Ranbaxy Labs Sanofi India Sun Pharma Torrent Pharma Sector Aggregate

310 543 1,105 448 1,527 2,679 602 2,548 881 1,088 534 3,270 709 696

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

5,051 8,052 20,131 29,744 5,967 34,343 14,185 6,878 9,583 28,309 27,484 4,929 37,797 10,819 243,274

18.3 15.9 23.0 20.7 15.7 23.1 14.6 8.0 19.0 22.7 2.4 13.3 14.8 11.3 16.4

8.9 11.4 2.3 18.1 -19.1 -1.3 -13.5 14.7 27.8 0.5 11.4 10.8 5.9 11.3 5.1

909 1,771 3,621 5,795 2,130 8,071 2,494 1,277 2,304 6,567 1,714 1,016 14,639 2,057 54,366

27.2 21.2 26.7 -14.2 8.7 61.2 0.8 12.4 34.7 44.4 -34.7 16.2 6.2 -1.1 13.3

-0.4 4.2 1.0 41.6 -17.8 6.4 -22.7 30.8 26.4 2.1 13.7 25.4 4.1 18.8 6.5

Media D B Corp Dish TV HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate

330 62 124 135 667 468 299

Buy Buy Neutral Buy Buy Buy Neutral

5,011 6,356 5,878 4,496 3,601 6,637 11,180 43,159

11.5 9.9 8.7 8.9 7.4 10.3 14.9 10.9

10.3 -0.2 8.1 6.9 14.6 27.6 -3.5 6.6

1,292 1,289 786 1,051 604 3,899 2,944 11,865

-2.7 6.0 0.8 3.1 1.7 10.2 1.0 4.2

23.5 0.0 4.2 33.1 82.1 -2.5 -5.5 4.8

Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate

173 167 325 1,271 59 184 95 305 536

Buy Buy Buy Buy Buy Buy Neutral Buy Buy

226,272 33,373 55,808 111,674 17,237 33,915 110,518 174,543 337,537 1,100,877

14.8 11.8 22.9 19.3 10.5 18.1 7.6 21.5 2.9 11.8

-8.1 -8.4 9.4 -10.6 -6.2 -12.7 -18.2 -16.0 -20.4 -14.2

24,073 17,586 17,656 23,018 2,687 22,482 13,369 63,650 45,587 230,107

31.3 17.0 17.3 31.6 75.6 18.0 38.2 16.2 23.6 22.5

-4.8 0.2 34.4 -7.8 -13.1 -9.0 9.5 -4.5 -9.0 -3.2

Others Arvind Bata India Castrol India Gujarat Pipavav Jain Irrigation Just Dial Kaveri Seed Sintex Inds. Symphony UPL V-Guard Inds Sector Aggregate

245 1,329 344 124 127 1,523 801 98 1,068 352 660

Buy Buy Neutral Buy Buy Buy Buy Buy Buy Buy Buy

17,886 6,440 9,342 1,504 16,350 1,349 9,569 14,603 1,475 27,365 4,612 110,495

20.0 -4.8 12.5 30.0 8.8 14.6 23.3 -3.7 16.0 -10.8 29.0 8.6 30.0 2,340.5 29.4 -26.4 32.7 30.2 11.4 -18.0 13.0 9.2 17.6 -1.3

2,416 1,108 2,085 836 2,419 452 2,232 2,305 429 5,140 387 19,809

July 2014

19.0 -2.7 15.3 68.6 9.4 44.5 52.2 -8.6 16.0 -5.6 24.6 20.9 35.9 3,588.4 43.2 -35.5 42.7 28.0 12.6 -23.6 25.2 9.4 21.4 1.7

Net Profit Var % Var % Jun-14 YoY QoQ 612 31.1 1,149 22.9 2,419 23.7 3,559 -25.1 1,581 -9.5 5,257 60.6 1,082 -15.9 1,167 22.7 1,526 112.6 3,943 69.1 361 -73.0 655 27.9 12,213 8.4 1,247 -16.3 36,769 11.4

771 -502 454 582 133 1,811 1,977 5,226

-0.2 1.7 -4.3 36.5 -18.1 9.2 -37.9 20.8 11.3 -4.2 164.9 26.6 -6.3 34.9 0.9

1.4 Loss -4.4 0.7 -19.4 10.2 -12.0 -6.1

26.4 Loss 30.5 91.4 LP -8.3 -9.2 6.0

4,465 0.8 17,779 11.7 5,655 -18.5 7,574 111.2 2,091 31.0 18,326 16.6 4,525 -14.1 11,753 95.9 13,238 18.1 85,406 20.8

-50.4 -5.5 40.5 -4.9 1.5 -4.4 6.9 -10.9 22.4 -4.3

882 713 1,482 639 709 362 2,192 756 319 2,552 220 10,826

30.4 -6.2 15.0 81.0 5.7 47.8 81.5 -10.3 94.8 -4.5 29.0 5.9 35.5 12,351.7 50.3 -53.1 23.3 15.7 20.0 -36.9 24.6 7.3 29.2 5.2

66

MOSL UNIVERSE

Ready reckoner: quarterly performance Sector

Oil & Gas BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Excl. RMs Real Estate DLF Godrej Properties Indiabulls Real Estate Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Sobha Developers Sector Aggregate

CMP (INR) 4.7.14

Reco

Sales Var % Var % Jun-14 YoY QoQ

EBITDA Var % Var % Jun-14 YoY QoQ

Net Profit Var % Var % Jun-14 YoY QoQ

8,149 -10.0 -87.1 31,727 5.4 -17.5 14,816 1.2 10.8 2,350 -12.7 17.6 5,931LP -89.9 35,328LP -73.7 2,034 5.7 6.7 3,763 123.6 3.7 8,736 25.3 146.5 114,556 36.4 2.8 4,200 5.6 8.6 77,194 9.1 -7.3 308,784 50.7 -40.4 259,376 19.7 -0.8

1,568 25,429 8,210 1,128 -1,595 10,392 974 1,892 7,193 61,250 1,746 53,456 171,645 161,280

4.3 -18.7 1.6 -10.7 Loss LP 11.6 LP 18.1 52.5 -22.5 -0.1 80.8 16.1

-96.1 -16.2 -15.5 23.5 PL -88.9 7.7 -82.3 27.2 25.3 3.2 -5.1 -50.4 -2.3

1,018 343 337 122 213 876 421 721 567 4,617

-43.8 -13.1 -53.6 -85.0 -2.2 -13.9 0.5 -16.8 13.1 -31.7

-53.7 -29.0 -19.1 -7.8 -29.6 13.8 15.6 -24.2 -17.5 -26.8

372 9.3 -83 LP 73 213.7 1,926 5.6 2,288 8.4

48.9 LP -10.4 -12.3 -10.1

601 364 464 95 422 349 365 72 585 422 178 1,032

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

639,124 44,508 144,409 2,637 551,138 1,213,989 8,499 167,048 22,217 213,275 104,379 984,782 4,096,004 1,691,754

8.9 9.5 12.3 -10.9 6.5 10.1 -5.7 9.4 12.2 11.0 23.6 12.4 10.3 12.3

-14.5 -11.8 -0.2 14.4 -14.1 -9.9 -12.1 -12.7 21.7 2.1 0.1 3.5 -7.3 0.6

219 240 95 33 554 259 346 263 491

Buy Neutral Buy Buy Buy Buy Buy Buy Buy

19,645 2,831 3,466 6,623 1,820 2,130 773 4,782 5,149 47,219

-15.1 40.4 -31.8 -13.9 3.4 -2.5 10.8 -4.0 11.5 -9.5

-0.3 -34.0 5.8 -13.4 -3.9 -3.4 -1.7 -20.5 -17.8 -9.3

5,697 594 971 2,318 455 1,193 526 1,195 1,442 14,391

-37.8 46.6 -33.9 -30.8 -11.9 -10.6 10.7 -7.3 3.7 -25.8

57.0 -21.6 -14.1 -9.5 75.4 -4.9 9.5 -2.9 -15.8 10.6

5,075 24,139 6,230 27,969 63,413

28.0 7.0 16.0 -10.0 0.7

17.0 2.9 -15.5 0.4 0.6

787 2,173 343 2,657 5,959

18.0 14.3 46.7 8.5 13.5

41.3 -9.8 -9.7 -5.1 -3.0

Retail Jubilant Foodworks Future Retail Shopper's Stop Titan Company Sector Aggregate

1,303 Buy 136 Under Review 392 Neutral 357 Buy

Technology HCL Technologies Hexaware Tech. Infosys KPIT Tech. Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro Sector Aggregate

1,481 155 3,239 180 853 429 1,100 2,410 2,116 548

Buy Neutral Buy Buy Neutral Neutral Buy Neutral Buy Neutral

84,442 5,953 127,352 6,928 8,358 14,594 4,305 220,675 49,981 115,520 638,108

21.6 10.9 13.0 13.0 29.0 NA 20.5 22.7 21.8 18.7 18.8

1.1 1.1 -1.1 -1.0 1.5 41.7 -3.6 2.4 -1.2 -0.9 1.2

21,918 1,195 32,989 975 1,664 2,512 990 64,401 9,797 27,314 163,755

35.7 -6.1 10.6 0.3 39.7 NA 27.4 25.0 13.3 35.5 22.8

-1.8 5.5 -9.4 -13.7 -6.0 42.6 -18.0 -3.2 -8.6 -3.1 -4.3

16,398 854 27,824 585 1,243 1,684 596 49,488 6,536 20,909 126,117

36.9 -12.7 17.2 -2.7 -8.2 NA 4.3 24.0 0.1 28.8 21.5

1.0 21.5 -7.0 -4.6 26.6 37.9 -11.4 -6.6 8.4 -6.1 -4.2

339 262 135 143

Buy Buy Buy Neutral

224,878 28,745 73,482 54,836 381,941

11.0 9.6 12.4 1.3 9.6

1.2 3.0 4.3 -3.3 1.2

74,616 11,968 23,741 19,195 129,520

14.0 14.4 13.0 12.8 13.7

2.1 3.8 6.5 3.7 3.3

12,563 4,354 6,780 -268 23,430

82.4 21.8 39.0 PL 40.8

30.7 -7.8 15.0 PL 5.2

Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate

July 2014

67

MOSL UNIVERSE

Ready reckoner: quarterly performance Sector

Utilities CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power Sector Aggregate Sector

Financials Private Banks Axis Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Kotak Mahindra Bank Yes Bank Pvt Bkg. Sector Aggregate PSU Banks Bank of Baroda Bank of India Canara Bank Indian Bank Oriental Bank of Commerce Punjab National Bank State Bank Union Bank PSU Bkg. Sector Aggregate NBFC Bajaj Finance HDFC IDFC Indiabulls Housing LIC Housing Fin M & M Financial Power Finance Corp Rural Electric. Corp. Shriram Transport Fin. NBFC Bkg. Sector Aggregate Financials Sector Aggregate

July 2014

CMP (INR) 4.7.14 755 394 23 84 27 159 144 98 791 107

CMP (INR) 4.7.14

Reco Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral

Reco

Sales Var % Var % Jun-14 YoY QoQ

EBITDA Var % Var % Jun-14 YoY QoQ

14,475 176,863 8,549 27,732 17,759 191,265 40,969 32,250 28,775 96,106 634,742

3,375 44,563 6,465 8,879 12,284 39,309 34,569 471 4,525 24,781 179,221

0.8 7.4 8.7 12.2 9.7 22.5 15.2 16.4 -12.2 2.9 10.7

16.2 -11.6 99.0 34.7 58.2 -8.7 4.1 13.2 6.2 8.7 -1.0

5.1 -25.7 12.6 -12.8 9.9 213.0 -3.8 28.5 14.7 LP -7.8 -11.5 13.1 3.8 38.7 -50.7 2.8 -5.5 19.9 36.0 7.2 10.3

Net Interest Income Var % Var % Jun-14 YoY QoQ

Operating Profit Var % Var % Jun-14 YoY QoQ

Net Profit Var % Var % Jun-14 YoY QoQ 1,442 10.1 41,774 11.8 1,022 10.1 3,381 -15.8 7,632 6.6 23,272 4.5 11,750 11.1 443 51.3 3,239 -13.4 3,893 260.1 97,847 10.3

-40.7 -20.9 LP 88.5 LP -7.5 -1.3 -36.4 -35.2 578.2 6.8

Net Profit Var % Var % Jun-14 YoY QoQ

1,935 129 856 1,462 569 662 884 557

Buy Buy Buy Buy Buy Buy Neutral Buy

32,414 5,750 51,972 45,061 8,268 4,777 9,990 8,019 166,250

13.1 12.8 17.6 17.9 21.7 12.3 9.0 21.7 16.3

2.4 -8.0 4.9 3.4 5.8 1.4 3.4 11.4 3.7

28,639 3,748 39,198 44,439 7,172 3,318 6,927 7,210 140,651

0.7 -6.4 18.6 16.5 11.8 1.5 -11.1 6.0 10.0

-11.8 -10.8 3.7 -0.2 -0.3 32.7 14.1 6.0 -0.7

16,558 17.5 2,156 104.1 23,074 25.1 26,573 16.8 4,160 24.2 1,832 4.6 4,234 5.1 4,697 17.2 83,285 19.9

-10.1 -22.2 -0.8 0.2 5.0 31.7 4.0 9.2 -1.7

875 305 448 185 322 980 2,699 228

Buy Neutral Buy Buy Buy Buy Buy Buy

32,602 29,261 24,689 11,728 13,432 42,736 132,172 20,550 307,170

12.8 15.3 24.0 6.9 2.8 9.4 14.8 7.6 13.1

4.4 -4.0 -2.6 8.8 2.6 6.8 2.4 0.1 2.2

23,429 20,400 18,087 7,348 9,763 29,891 85,214 12,263 206,393

-3.8 -6.4 -4.7 -14.5 -10.3 0.5 12.8 -13.1 1.2

-8.6 2.2 -3.9 4.5 -29.4 -5.8 -19.8 -7.1 -12.7

11,063 6,244 6,821 2,997 2,961 11,293 33,055 3,744 78,178

-5.3 -35.2 -13.9 -5.6 -16.2 -11.4 2.0 -33.2 -9.8

-4.4 12.0 11.7 10.5 -4.6 40.1 8.7 -35.3 6.6

2,289 1,009 134 372 327 272 320 374 953

Buy Buy Neutral Buy Buy Neutral Buy Buy Buy

6,433 7.8 17,818 17.1 7,036 2.6 14,678 11.8 5,197 14.3 13,330 116.3 23,114 19.0 18,694 16.0 9,544 5.9 115,845 20.1 589,265 15.3

3.6 -16.8 5.3 11.0 -2.5 74.8 3.0 5.4 4.6 5.5 3.3

3,519 19,928 8,269 6,030 4,915 4,698 22,704 19,700 7,294 97,058 444,102

6.4 21.7 -6.3 27.4 11.4 12.9 18.2 20.4 -0.7 14.5 6.6

3.8 -16.4 -0.8 28.0 -1.6 -13.6 4.8 9.8 5.7 -0.2 -6.6

1,903 13,211 4,323 4,462 3,241 1,781 15,805 13,397 3,117 61,241 222,704

8.3 12.6 -22.4 28.1 4.4 -6.9 24.0 12.8 -8.6 10.1 5.2

4.5 -23.3 67.6 -1.2 -12.4 -42.7 12.9 7.4 5.7 -1.8 1.0

68

MOSL UNIVERSE

Ready reckoner: valuations Sector / Companies Automobiles Amara Raja Batt. Ashok Leyland Bharat Forge Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors TVS Motor Sector Aggregate Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Dalmia Bharat J K Cements JK Lakshmi Cem. Ramco Cements Prism Cement Sector Aggregate Consumer Asian Paints Britannia Colgate Dabur Emami Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate

July 2014

CMP (INR)

Reco

EPS (INR) FY15E FY16E FY17E

PE (x) FY15E FY16E FY17E

EV/EBIDTA (x) FY15E FY16E FY17E

RoE (%) FY15E FY16E FY17E

496 Buy 36 Buy 675 Buy 2,299 Buy 8,636 Buy 159 Neutral 2,583 Buy 1,229 Buy 2,643 Buy 468 Buy 171 Buy

24.1 -0.1 22.5 127.2 222.1 7.6 144.4 76.9 132.5 50.9 10.1

30.1 1.8 32.3 146.1 330.7 9.8 176.9 101.3 172.6 68.3 13.7

36.2 3.5 38.9 166.3 425.9 10.6 203.6 109.9 222.8 86.8 16.4

20.6 -578.7 30.0 18.1 38.9 21.0 17.9 16.0 19.9 9.2 16.9 14.7

16.5 19.9 20.9 15.7 26.1 16.2 14.6 12.1 15.3 6.9 12.5 11.1

13.7 10.3 17.3 13.8 20.3 15.0 12.7 11.2 11.9 5.4 10.4 9.1

12.3 13.7 14.0 12.1 21.4 10.6 13.3 6.0 10.1 3.9 10.5 6.5

9.6 7.1 10.7 10.1 13.5 8.2 10.3 4.9 7.6 2.9 7.7 5.0

7.8 4.5 8.8 8.4 9.7 7.6 8.2 4.9 5.6 2.2 6.2 3.9

27.1 27.5 -0.4 9.9 18.2 22.4 35.0 33.7 26.9 32.3 15.4 17.3 46.3 46.3 17.5 18.6 16.1 17.8 22.3 23.8 29.9 31.6 21.1 22.8

26.9 17.1 22.6 32.0 31.7 18.7 43.0 18.5 19.2 23.9 29.5 22.8

1,120 Neutral 263 Buy 207 Buy 675 Buy 1,200 Neutral 1,742 Buy 990 Sell 956 Buy 215 Buy

13.4 10.0 7.3 24.6 48.3 48.2 14.6 28.0 8.5

20.0 15.2 12.4 30.8 56.0 66.1 19.3 38.5 10.6

30.3 19.8 17.1 38.3 68.2 89.3 26.5 58.3 13.0

83.7 26.2 28.4 27.4 24.8 36.1 67.8 34.2 25.3 34.8

56.0 17.2 16.7 21.9 21.4 26.4 51.4 24.8 20.4 24.9

37.0 13.3 12.1 17.6 17.6 19.5 37.4 16.4 16.5 18.7

38.3 13.6 15.7 22.8 15.5 21.8 32.4 20.1 17.1 20.4

28.9 8.5 11.3 17.7 12.9 17.3 25.8 14.7 13.7 15.3

16.7 6.1 8.7 13.8 10.7 12.7 20.6 9.8 10.9 11.3

10.3 14.4 7.3 10.4 12.4 19.6 25.1 28.5 29.6 28.6 14.1 15.8 11.9 14.7 15.5 19.0 14.0 15.4 11.0 13.9

19.6 12.5 22.8 31.4 29.1 17.8 18.5 24.5 16.8 16.4

1,452 Buy 224 Neutral 418 Buy 3,388 Buy 116 Neutral 73 Buy 7,276 Buy 2,604 Buy 457 Buy 394 Buy 235 Buy 304 Buy 73 Buy

54.4 84.1 119.9 7.0 9.0 12.3 28.7 51.4 77.6 254.7 370.0 586.0 2.9 10.6 19.0 1.5 4.1 5.7 280.2 431.1 610.3 91.3 133.0 189.0 -12.3 24.4 82.2 22.6 45.3 76.2 10.5 17.1 34.3 9.0 15.1 24.1 0.4 6.2 11.2

26.7 32.1 14.6 13.3 40.7 48.2 26.0 28.5 -37.0 17.4 22.3 33.6 177.9 26.1

17.3 24.8 8.1 9.2 11.0 17.8 16.9 19.6 18.7 8.7 13.7 20.1 11.7 16.2

12.1 18.2 5.4 5.8 6.1 12.7 11.9 13.8 5.6 5.2 6.9 12.6 6.5 10.7

17.7 21.6 7.9 5.5 9.9 10.5 13.2 16.2 14.6 8.5 10.4 14.0 12.7 12.2

10.9 15.6 4.3 3.7 6.4 8.8 8.7 11.1 7.9 5.5 6.3 10.1 6.0 8.4

7.0 11.4 2.4 2.4 4.4 7.9 5.8 7.7 4.8 3.4 4.0 7.2 3.9 5.9

12.8 18.5 14.0 16.8 8.3 13.3 9.9 12.6 2.7 8.2 2.4 6.3 19.5 24.5 13.8 17.4 -3.3 6.5 8.7 15.8 9.2 13.8 8.4 12.9 2.0 26.8 9.7 14.0

23.5 20.5 17.2 16.8 13.2 8.4 27.2 20.7 19.2 22.5 23.8 18.1 35.6 18.1

588 1,016 1,664 191 543 809 4,751 624 333 249 4,970 333 112 2,453

15.5 18.7 22.8 38.5 45.6 53.6 43.6 51.0 59.7 6.4 7.5 8.8 19.2 22.8 26.1 27.3 33.4 40.0 138.6 164.7 192.0 18.1 20.1 22.3 12.9 14.9 17.2 8.4 9.9 11.3 128.2 151.5 174.5 10.8 13.0 15.4 8.0 9.2 10.9 42.6 56.0 72.7

37.9 26.4 38.2 29.8 28.4 29.6 34.3 34.5 25.9 29.7 38.8 30.9 14.1 57.6 31.0

31.5 22.3 32.6 25.6 23.8 24.2 28.8 31.1 22.3 25.1 32.8 25.6 12.2 43.8 26.6

25.8 19.0 27.9 21.6 20.8 20.2 24.7 28.0 19.4 22.0 28.5 21.7 10.3 33.8 22.9

24.7 18.4 26.4 23.5 23.4 20.4 30.4 25.2 17.6 18.4 22.4 19.4 9.0 30.9 21.1

20.4 14.9 21.1 20.1 19.3 17.0 24.9 22.1 15.2 15.4 19.3 16.0 7.9 25.7 18.0

16.3 11.9 17.8 16.9 16.7 14.3 20.2 19.2 13.1 13.2 16.5 13.1 6.9 21.2 15.3

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

31.7 32.4 33.1 42.1 41.3 40.3 96.3 99.6 102.6 34.8 33.7 33.2 45.2 46.4 45.1 22.9 23.7 23.6 30.6 30.7 30.3 107.3 110.2 114.7 40.6 43.4 45.8 25.1 24.3 23.1 50.1 54.5 57.3 23.3 23.5 23.2 11.9 12.5 13.3 7.2 8.9 10.8 36.6 38.2 39.4

69

MOSL UNIVERSE

Ready reckoner: valuations Sector / Companies

CMP (INR)

Reco

Healthcare Alembic Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Glenmark Pharma GSK Pharma IPCA Labs. Lupin Ranbaxy Labs Sanofi India Sun Pharma Torrent Pharma Sector Aggregate

310 Buy 543 Sell 1,105 Buy 448 Neutral 1,527 Buy 2,679 Buy 602 Buy 2,548 Neutral 881 Buy 1,088 Buy 534 Buy 3,270 Buy 709 Buy 696 Neutral

Media Dish TV D B Corp Hindustan Media HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate

62 Buy 330 Buy 170 Buy 124 Neutral 135 Buy 667 Buy 468 Buy 299 Neutral

EPS (INR) FY15E FY16E FY17E 16.3 21.7 26.5 23.0 26.8 31.8 46.4 56.8 64.3 17.4 23.4 28.5 65.4 78.8 92.1 127.1 146.4 169.2 26.8 33.7 42.0 61.9 84.8 98.0 48.8 59.6 72.7 41.2 53.0 61.5 9.4 18.1 28.1 125.0 152.8 177.5 26.6 31.1 35.3 36.4 43.1 55.7

-1.1 19.2 17.4 8.8 7.9 17.5 20.9 10.2

0.7 22.7 19.8 10.0 9.4 28.8 25.5 13.0

PE (x) FY15E FY16E FY17E

EV/EBIDTA (x) FY15E FY16E FY17E

RoE (%) FY15E FY16E FY17E

19.0 23.6 23.8 25.8 23.4 21.1 22.4 41.2 18.1 26.4 56.8 26.2 26.6 19.1 25.6

14.3 20.3 19.5 19.1 19.4 18.3 17.9 30.1 14.8 20.5 29.5 21.4 22.7 16.2 20.8

11.7 17.1 17.2 15.7 16.6 15.8 14.3 26.0 12.1 17.7 19.0 18.4 20.1 12.5 17.6

13.2 14.7 17.0 15.0 16.6 13.6 13.0 33.8 12.4 15.4 11.3 15.7 17.4 10.5 15.4

10.0 12.3 12.2 11.5 13.8 11.6 10.9 22.8 10.2 12.5 17.3 12.8 15.5 9.7 13.3

8.0 10.4 10.5 9.4 11.8 9.9 8.4 19.3 8.2 10.4 12.5 10.7 13.8 8.1 11.2

38.9 13.7 25.2 12.4 27.1 19.9 19.8 26.3 27.7 23.8 34.2 19.5 25.7 28.1 20.1

38.3 14.4 30.1 14.6 28.2 19.2 20.0 34.6 26.8 24.7 16.6 21.4 23.7 27.2 20.6

35.2 15.2 27.4 15.3 28.6 18.6 19.7 37.6 26.1 23.4 21.4 22.4 21.8 29.1 20.4

3.5 26.3 22.6 11.4 10.9 41.1 30.5 16.5

-57.4 17.2 9.8 14.1 17.2 38.2 22.4 29.4 26.5

85.1 14.6 8.6 12.3 14.3 23.1 18.3 23.0 20.1

17.9 12.5 7.5 10.8 12.4 16.2 15.4 18.1 15.5

11.8 10.1 4.6 5.2 10.3 12.2 10.4 18.9 12.3

8.8 8.5 3.5 4.2 8.7 9.0 8.9 15.0 10.1

6.0 7.2 2.4 3.2 7.5 6.9 7.6 11.9 8.1

NA 28.6 19.0 10.0 24.2 16.7 24.0 31.5 22.4

NA 29.5 17.9 10.3 25.8 23.2 27.0 31.4 24.9

NA 29.8 17.2 10.4 26.0 26.5 29.2 30.6 26.5

Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate

173 Buy 167 Buy 325 Buy 1,271 Buy 59 Buy 184 Buy 95 Neutral 305 Buy 536 Buy

10.9 12.9 19.8 18.3 18.1 18.7 26.7 35.1 40.3 120.0 115.6 140.1 3.2 4.1 4.1 17.9 18.3 19.6 7.7 7.6 7.2 21.7 24.1 20.4 54.1 64.2 69.2

15.9 9.1 12.2 10.6 18.5 10.3 12.3 14.1 9.9 11.5

13.4 9.2 9.3 11.0 14.3 10.1 12.4 12.7 8.4 10.6

8.8 8.9 8.0 9.1 14.4 9.4 13.1 15.0 7.8 10.0

5.8 5.2 8.7 6.7 7.5 6.2 8.5 4.8 6.5 6.2

5.2 4.3 7.6 6.3 5.3 6.0 7.9 4.3 6.2 5.7

4.9 3.6 6.7 5.6 4.6 5.5 7.4 4.2 5.6 5.3

9.2 19.1 10.3 12.4 6.7 21.5 7.2 8.5 19.3 10.9

10.1 16.5 12.2 10.6 8.2 21.2 6.8 8.8 18.1 10.8

13.8 15.1 12.6 11.5 7.8 20.6 6.1 7.1 16.8 10.6

Others Arvind Bajaj Electrical Bata India Castrol India Gujarat Pipavav Jain Irrigation Just Dial Kaveri Seed Monsanto India Sintex Inds. Symphony UPL V-Guard Inds Sector Aggregate

245 Buy 367 Buy 1,329 Buy 344 Neutral 124 Buy 127 Buy 1,523 Buy 801 Buy 2,241 Buy 98 Buy 1,068 Buy 352 Buy 660 Buy

18.2 23.6 31.3 18.6 23.0 27.5 37.4 47.1 56.2 10.6 11.9 13.5 5.9 7.5 7.4 6.0 10.6 15.0 22.0 29.5 37.7 42.4 58.1 75.0 106.3 136.6 169.6 12.8 17.2 21.8 38.8 50.4 64.4 29.0 33.5 39.2 31.1 41.0 53.0

13.5 19.8 35.5 32.5 21.0 21.2 69.2 18.9 21.1 7.7 27.5 12.1 21.2 20.3

10.4 16.0 28.2 29.0 16.4 12.0 51.7 13.8 16.4 5.7 21.2 10.5 16.1 16.0

7.8 13.3 23.6 25.5 16.6 8.5 40.4 10.7 13.2 4.5 16.6 9.0 12.5 12.9

6.6 9.1 18.9 22.8 15.6 9.9 42.0 11.9 13.5 7.2 17.6 7.2 12.6 12.2

5.4 7.3 14.9 19.7 12.9 7.9 30.3 8.2 9.9 5.3 13.1 6.2 9.9 9.8

4.5 6.0 12.3 17.2 10.5 6.4 22.9 5.6 7.3 4.2 9.7 5.1 7.8 8.0

16.9 23.8 25.9 70.4 18.9 12.1 25.9 45.0 45.2 11.1 42.5 21.5 26.3 20.6

19.0 24.7 26.8 79.4 21.1 18.6 28.1 41.7 42.5 13.1 42.8 20.7 28.2 21.9

21.3 24.7 26.1 97.9 18.3 21.7 28.7 37.5 38.6 14.4 41.5 20.2 29.1 22.4

July 2014

70

MOSL UNIVERSE

Ready reckoner: valuations Sector / Companies Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Gujarat State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Ex RMS

CMP (INR)

EPS (INR) FY15E FY16E FY17E

PE (x) FY15E FY16E FY17E

EV/EBIDTA (x) FY15E FY16E FY17E

RoE (%) FY15E FY16E FY17E

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

33.3 55.8 10.5 30.7 8.8 28.3 28.2 32.4 5.1 64.6 35.9 10.4 79.0

45.3 48.1 52.1 40.4 14.9 15.7 32.9 36.5 10.0 9.9 34.7 40.2 30.9 35.3 37.9 41.5 7.3 7.5 71.7 75.2 42.5 44.7 12.7 16.2 87.1 108.9

18.0 6.5 9.2 15.1 10.7 14.9 12.9 10.8 14.2 9.1 11.8 17.2 13.1 12.1 12.0

13.3 7.0 6.5 14.1 9.5 12.1 11.8 9.2 9.9 8.2 9.9 14.0 11.8 10.7 10.7

12.5 9.0 6.2 12.7 9.6 10.5 10.3 8.4 9.7 7.8 9.4 11.0 9.5 9.8 9.8

9.0 3.6 7.1 10.4 6.2 9.3 6.0 7.5 7.0 6.5 5.3 8.2 10.8 7.1 6.9

7.6 3.5 6.2 8.8 5.6 7.8 5.1 6.6 5.6 5.5 4.5 7.2 9.8 6.2 6.1

6.6 3.5 5.6 7.9 5.7 7.1 4.1 5.5 5.1 5.2 4.4 5.5 6.9 5.5 5.3

219 Buy 240 Neutral 95 Buy 33 Buy 554 Buy 259 Buy 346 Buy 263 Buy 491 Buy

3.7 8.7 9.7 2.6 25.9 13.2 7.6 11.2 26.9

5.9 11.7 12.0 3.2 30.8 21.2 17.4 16.0 34.8

10.3 17.0 16.6 4.2 36.1 33.3 22.1 21.3 40.5

59.6 27.5 9.8 12.8 21.4 19.6 45.6 23.5 18.2 28.5

37.3 20.5 7.9 10.2 18.0 12.2 19.8 16.4 14.1 19.6

21.3 14.1 5.7 7.9 15.3 7.8 15.7 12.4 12.1 13.4

20.8 19.0 12.5 8.4 16.5 13.5 11.6 13.6 9.4 14.9

17.5 14.7 9.6 7.6 12.5 8.3 8.5 10.4 7.9 11.9

13.1 10.4 6.7 6.8 10.4 5.2 6.9 7.8 6.8 9.1

2.2 9.3 5.5 5.8 7.8 9.5 6.1 11.8 11.1 4.9

3.5 11.3 6.5 7.0 8.5 13.7 12.5 14.7 13.2 6.8

5.9 14.6 8.6 8.6 9.1 18.6 14.0 16.6 13.9 9.3

Retail Jubilant Foodworks Shopper's Stop Titan Company Sector Aggregate

1,303 Buy 392 Neutral 357 Buy

25.3 7.8 9.8

35.1 10.0 11.9

47.3 12.4 14.3

51.4 50.0 36.3 39.4

37.1 39.1 30.1 31.8

27.6 31.7 25.0 25.9

24.0 16.2 26.7 24.9

17.3 13.5 21.7 19.8

12.7 11.3 18.0 16.0

22.6 23.8 8.3 9.9 28.4 27.6 24.1 24.3

24.3 11.1 27.0 24.4

Technology HCL Technologies Hexaware Tech. Infosys KPIT Tech. Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro Sector Aggregate

1,481 155 3,239 180 853 429 1,100 2,410 2,116 548

Buy Neutral Buy Buy Neutral Neutral Buy Neutral Buy Neutral

99.6 11.7 204.6 14.7 62.2 35.0 74.7 111.9 138.5 34.9

111.7 13.2 227.6 18.2 73.2 39.7 94.6 128.2 157.4 39.3

122.5 13.4 243.5 20.5 80.0 42.4 113.2 141.0 180.6 42.5

14.9 13.3 15.8 12.3 13.7 12.2 14.7 21.5 15.3 15.7 17.9

13.3 11.8 14.2 9.9 11.6 10.8 11.6 18.8 13.4 13.9 15.8

12.1 11.6 13.3 8.8 10.7 10.1 9.7 17.1 11.7 12.9 14.4

10.1 8.7 10.3 6.7 9.6 9.3 7.8 15.6 9.7 10.9 12.4

8.6 8.2 8.8 5.1 7.8 8.5 6.1 13.6 8.1 9.6 10.7

7.4 7.8 7.9 3.9 6.8 8.1 4.8 12.3 7.3 8.1 9.6

36.0 31.6 28.1 28.7 24.7 23.8 20.5 20.7 28.3 26.9 14.1 15.2 22.4 24.0 36.4 34.4 28.7 25.7 22.9 22.0 26.1 24.8

27.9 26.6 22.3 19.1 24.3 15.4 24.0 30.8 23.8 20.4 22.8

339 Buy 262 Buy 135 Buy 143 Neutral

13.1 9.5 8.2 4.4

16.3 11.7 7.4 11.3

20.6 14.6 7.6 17.9

25.8 27.4 16.4 32.7 23.7

20.8 22.4 18.2 12.7 18.6

16.4 17.9 17.7 8.0 14.5

6.3 10.4 6.4 7.0 6.8

5.5 9.0 6.6 5.5 6.0

4.6 7.8 5.4 4.2 5.0

7.8 9.8 15.0 3.4 7.9

10.3 14.1 10.3 11.1 10.8

Real Estate DLF Godrej Properties Indiabulls Real Estate Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Sobha Developers Sector Aggregate

Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate

July 2014

601 364 97 464 95 422 365 349 72 585 422 178 1,032

Reco

12.0 14.9 14.4 17.2 14.4 10.2 8.8 11.6 11.3 13.7 13.4 13.6 14.2 14.1 12.4 6.3 7.4 8.2 20.6 19.5 19.3 11.2 12.1 12.0 12.1 15.5 14.2 17.9 18.0 17.1 17.1 18.1 17.0 14.6 15.9 17.8 11.2 11.2 12.8 13.2 13.5 13.2 13.8 13.8 13.6

8.9 11.7 11.0 7.6 9.3

71

MOSL UNIVERSE

Ready reckoner: valuations Sector / Companies Utilities CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power Sector Aggregate Sector / Companies Banks-Private Axis Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank J&K Bank Kotak Mahindra Bank South Indian Bank Yes Bank Private Bank Aggregate Banks-PSU Andhra Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Dena Bank IDBI Bank Indian Bank Oriental Bank Punjab National Bank State Bank Union Bank PSU Bank Aggregate NBFC Bajaj Finance Dewan Housing HDFC IDFC Indiabulls Housing LIC Housing Fin M & M Financial Power Finance Corp Rural Electric. Corp. Shriram Transport Fin. NBFC Aggregate Financials Sector Aggregate

July 2014

CMP (INR) 755 394 23 84 27 159 144 98 791 107 CMP (INR)

Reco

Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral

Reco

EPS (INR) FY15E FY16E FY17E 56.8 27.7 1.3 6.5 2.3 11.8 9.4 9.5 54.4 5.8

61.9 30.2 2.9 5.8 2.8 13.7 11.5 13.1 60.7 6.5

66.9 33.3 4.2 5.4 2.9 15.8 13.4 15.2 63.1 7.9

EPS (INR) FY15E FY16E FY17E

PE (x) FY15E FY16E FY17E 13.3 14.2 17.4 13.0 11.9 13.4 15.3 10.3 14.5 18.5 14.1

12.2 13.1 7.8 14.4 9.8 11.6 12.5 7.5 13.0 16.6 12.5

11.3 11.8 5.4 15.5 9.3 10.0 10.7 6.5 12.5 13.6 11.1

PE (x) FY15E FY16E FY17E

EV/EBIDTA (x) FY15E FY16E FY17E 7.8 10.5 9.9 7.0 9.4 10.0 11.1 10.7 8.0 13.6 10.2

7.2 9.1 5.8 7.1 8.8 9.1 9.9 5.8 7.2 12.5 9.0

6.5 7.8 5.1 7.3 8.2 7.8 9.1 4.4 7.1 11.6 8.0

PB (x) FY15E FY16E FY17E

RoE (%) FY15E FY16E FY17E 11.6 11.4 25.2 24.2 6.3 13.9 15.2 12.4 8.5 8.6 11.0 12.0 13.7 15.2 7.0 10.2 6.5 6.9 7.4 7.5 15.0 15.6

11.1 23.4 17.1 10.6 8.6 13.0 16.0 11.1 6.7 7.7 16.1

RoE (%) FY15E FY16E FY17E

1,935 Buy 129 Buy 856 Buy 1,462 Buy 569 Buy 662 Buy 1,604 Buy 884 Neutral 33 Buy 557 Buy

145.3 173.7 212.2 10.6 12.5 15.2 44.5 55.9 70.0 99.1 119.9 148.7 33.4 42.3 54.2 40.3 47.6 56.5 258.4 279.5 305.0 39.4 46.5 56.0 4.2 4.9 5.8 51.1 60.5 75.4

13.3 12.1 19.3 14.8 17.0 16.4 6.2 22.4 7.7 10.9 15.8

11.1 10.4 15.3 12.2 13.4 13.9 5.7 19.0 6.6 9.2 13.0

9.1 8.5 12.2 9.8 10.5 11.7 5.3 15.8 5.6 7.4 10.5

2.1 1.4 4.0 2.1 2.9 1.6 1.2 3.2 1.2 2.0 2.8

1.8 1.3 3.3 1.9 2.5 1.5 1.0 2.8 1.0 1.7 2.4

1.5 1.2 2.7 1.7 2.1 1.4 0.9 2.4 0.9 1.4 2.1

16.6 12.5 22.4 15.7 18.4 10.4 20.2 15.4 16.4 22.4 17.6

17.2 13.2 23.6 16.6 19.9 11.3 19.0 15.7 16.8 19.6 18.5

18.1 14.5 24.5 17.9 21.4 12.2 18.1 16.2 17.3 20.8 20.0

102 875 305 448 407 84 108 185 322 980 2,699 228

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

10.8 12.8 13.4 118.2 149.2 184.6 53.4 66.9 87.2 60.3 82.9 107.8 45.3 61.9 74.2 13.0 15.6 18.9 8.2 10.4 12.4 29.0 36.5 44.2 44.5 54.7 72.5 118.9 157.9 185.3 259.4 344.3 454.4 28.0 34.3 39.2

9.5 7.4 5.7 7.4 9.0 6.5 13.2 6.4 7.2 8.2 10.4 8.2 8.8

8.0 5.9 4.6 5.4 6.6 5.4 10.3 5.1 5.9 6.2 7.8 6.6 6.7

7.6 4.7 3.5 4.2 5.5 4.5 8.7 4.2 4.4 5.3 5.9 5.8 5.3

0.7 1.0 0.7 0.8 0.6 0.7 0.8 0.7 0.7 0.9 1.3 0.8 1.0

0.6 0.9 0.6 0.7 0.6 0.6 0.7 0.6 0.6 0.8 1.1 0.7 0.9

0.6 0.8 0.5 0.6 0.5 0.5 0.7 0.6 0.6 0.7 1.0 0.6 0.9

7.1 14.5 12.9 11.2 7.3 10.6 5.9 11.2 10.0 11.8 13.3 10.0 11.6

8.0 16.3 14.3 14.0 9.3 11.6 7.1 12.8 11.4 14.0 15.6 11.3 13.6

7.9 17.7 16.3 16.2 10.4 12.8 8.0 14.0 13.7 14.5 17.9 11.7 16.0

2,289 Buy 356 Buy 1,009 Buy 134 Neutral 372 Buy 327 Buy 272 Neutral 320 Buy 374 Buy 953 Buy

171.4 198.9 234.2 54.0 64.5 78.5 38.5 45.8 54.0 12.7 13.1 13.5 55.6 66.4 80.3 28.3 33.1 39.6 18.7 21.2 24.8 50.9 60.1 69.8 57.2 66.0 78.4 68.4 82.8 94.6

13.4 6.6 26.2 10.5 6.7 11.5 14.5 6.3 6.5 13.9 12.3 12.2

11.5 5.5 22.0 10.2 5.6 9.9 12.8 5.3 5.7 11.5 10.5 9.8

9.8 4.5 18.7 9.9 4.6 8.3 11.0 4.6 4.8 10.1 8.9 8.0

2.4 1.1 5.1 1.2 1.9 1.9 2.6 1.3 1.5 2.2 2.5 1.8

2.1 0.9 4.6 1.1 1.7 1.6 2.3 1.1 1.3 1.9 2.2 1.6

1.8 0.8 4.1 1.0 1.5 1.4 2.0 0.9 1.0 1.6 1.9 1.5

19.7 17.3 25.5 12.2 31.0 17.6 19.3 21.8 25.3 16.2 20.5 15.1

19.4 17.8 24.2 11.6 32.4 17.8 19.0 21.9 24.1 17.0 20.8 16.5

19.5 18.5 25.3 10.9 33.7 18.4 19.4 21.6 23.8 17.9 21.1 18.3

72

June 2014 Results Preview

Sectors & Companies BSE Sensex: 25,962

S&P CNX: 7,752

4 July 2014

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 4 July 2014, unless otherwise stated.

July 2014

73

June Results Preview | July 2014

Automobiles Revival signs visible; monsoon to watch out

s

MSIL and TTMT top picks; in mid-caps, we like TVSL and AL

Company name Amara Raja Batteries



Ashok Leyland 

Bajaj Auto Eicher Motors



Exide Industries

Post general elections, consumer sentiments have improved with a stable government at the helm. Economic activity has also improved as reflected in the 12-14% rise in freight rates in CY14 YTD, post two years of weakness. Recovery in 2Ws gathers strength, while growth in PVs turns positive. Decline in MHCVs also moderated significantly. Top picks: MSIL and TTMT. We also like TVSL and AL in mid-caps.

Hero MotoCorp



Mahindra & Mahindra

PV demand turns positive; MHCV decline moderates further

Maruti Suzuki



Tata Motors TVS Motor





MSIL upgrades volume guidance to healthy double digit for FY15. With improved consumer sentiments, passenger vehicle demand, particularly for entry level cars, has improved considerably. Lead indicators of CV industry turns positive with freight rates up 12-14% in CY14 YTD Channel checks suggest fleet operators' utilization and consequent freight rates are turning positive over the last four to six months. Recent railways hike in freight movement would further support road freight rates. Recovery in two-wheeler industry continues with double digit growth in 1QFY15. However, expectation of below average monsoon poses a risk to tractors.

Upgrade EPS for TTMT, EXID, BJAUT   

We upgrade FY15E/16E EPS for TTMT by 13.3%/9.7% primarily driven by lower losses in S/A business and margin upgrade for JLR on richer mix. Recovery in demand, particularly in premium motorcycles and 3Ws, drives margin and in turn FY15E/16E EPS upgrades for BJAUT by 6.2%/5.8%. Initial signs of turnaround are visible for Exide’s auto replacement franchise. This, coupled with strong inverter demand (power shortage in northern region), drives 11.7%/27% FY15E/16E EPS upgrade for EXID to INR7.6/9.8 respectively.

Expected quarterly performance summary (INR m) Sector

Amara Raja Batt. Ashok Leyland Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors TVS Motor Sector Aggregate

CMP (INR) 4.7.14 496 36 2,299 8,636 159 2,583 1,229 2,643 468 171

Reco Buy Buy Buy Buy Neutral Buy Buy Buy Buy Buy

Sales Var % Var % Jun-14 YoY QoQ 9,831 22,615 52,621 21,731 18,502 70,358 94,991 112,485 600,718 23,881 1,027,732

10.0 -4.3 7.1 30.1 13.8 14.8 -2.1 9.9 28.4 35.7 19.4

10.7 -26.5 6.7 12.9 15.0 9.0 -7.0 -7.0 -8.0 10.8 -5.4

EBITDA Var % Var % Jun-14 YoY QoQ

Net Profit Var % Var % Jun-14 YoY QoQ

1,635 440 10,089 2,668 2,985 8,205 12,285 13,110 90,026 1,624 143,067

1,034 5.7 25.1 -1,283 Loss Loss 8,146 10.4 6.8 1,580 71.1 13.6 1,853 16.7 40.2 6,798 23.9 22.6 7,333 -19.4 -19.9 7,212 14.2 -9.9 35,045 91.1 -17.3 953 83.7 15.9 68,669 39.4 -10.7 Source: Company, MOSL

12.4 89.1 11.3 60.5 13.8 20.6 -12.3 12.4 44.8 64.2 29.2

18.7 -76.1 8.3 20.2 36.4 31.1 15.9 5.1 -10.0 17.1 -3.1

Jinesh Gandhi ([email protected]); +91 22 3982 5416 / Chirag Jain ([email protected]); +91 22 3982 5418 July 2014

74

June 2014 Results Preview | Sector: Automobiles

Top picks: MSIL and TTMT in large caps; like TVSL and AL in mid-caps  



Demand environment and changing competitive landscape in the auto sector would be the key determinants of stocks’ performance. Prefer MSIL (industry demand recovery, favorable product cycle coupled with margin expansion) and TTMT (cyclical recovery in S/A, JLR demand remains strong) in large caps. In mid-caps, we like TVSL (new launches, scooters and exports to continue to drive growth) and AL (pure play on CVs) in mid-caps.

Revised EPS Estimates (INR) EPS (INR) Rev 131.4 144.4 10.1 132.5 75.1 50.9 222.1 -0.1 24.1 7.6

BJAUT HMCL TVSL MSIL (Consol) MM (Consol) TTMT (Consol) EIM (Consol) AL AMRJ EXID

FY15E Old 123.7 142.4 10.1 117.2 77.9 44.9 226.0 0.1 24.1 6.8

Chg (%) 6.2 1.4 0.0 13.1 -3.6 13.3 -1.7 NA 0.0 11.7

FY16E Old Chg (%) 142.4 5.8 176.3 0.4 13.7 0.0 149.4 15.5 101.6 -2.2 62.3 9.7 340.5 -2.9 1.3 35.0 30.1 0.0 7.7 27.0 Source: MOSL

Rev 150.6 176.9 13.7 172.6 99.4 68.3 330.7 1.8 30.1 9.8

Volume snapshot for 1QFY15 ('000 units) 1QFY15 Two wheelers

1QFY14 YoY (%)

4QFY14 QoQ (%)

FY14

FY13 YoY (%)

4,376

3,947

10.9

4,323

1.2

16,788

15,715

6.8

Three wheelers

203

203

0.3

203

0.0

830

842

-1.4

Passenger cars

542

561

-3.4

627

-13.6

2,338

2,392

-2.3 -1.5

UVs & MPVs

174

178

-1.9

193

-9.4

751

762

Total PVs

716

739

-3.0

820

-12.6

3,089

3,155

-2.1

M&HCV

57

60

-5.6

62

-8.8

222

288

-22.9

107

124

-13.7

117

-8.5

481

585

-17.8

163

184

-11.1

179

-8.6

703

873

-19.5

5,459

5,071

7.6

5,524

-1.2

21,409

20,584

4.0

LCV Total CVs Total

Source: Company, MOSL

Trend in segment-wise EBITDA margins (%) 4QFY13 1QFY15

1QFY14

Source: Company, MOSL

July 2014

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

84

Steel (HRC)

Lead

Aluminium

Rubber

76

96

100 99

100 106

104

100 109

101 103

111

100 108

101 106

100 111

109

CVs

(4.5) (3.0) (2.1)

Cars

7.5 6.8 2.6 4.1 2.0 2.0

10.3 10.2 10.6 12.3

12.7 12.5 12.4 0.0 2W

3QFY13 4QFY14

12.9 13.5 13.7 12.0 12.8

2QFY13 3QFY14

13.2 14.2 13.6 12.5 13.6

1QFY13 2QFY14

Commodity cost (index)

Source: Company, MOSL

75

June 2014 Results Preview | Sector: Automobiles

Trend in key currencies v/s INR USD

Trend in EBITDA margins (%)

Euro

GBP

JPY

170

Aggregate

18

Aggregate (incl JLR)

15

140

12 9

80

6

Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15

110

Source: Company, MOSL

HDFC Bank's base rate trend

Source: Company, MOSL

Trend in fuel prices Petrol (INR/ltr)

HDFC Bank Base Rate 11.0

Diesel (INR/ltr)

75 65

10.0

55

9.0

45

8.0

35

Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14

Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

25

7.0

Source: Company, MOSL

100

100

90

75

Source: Company, MOSL

July 2014

MOSL Automobiles Index

Jul-14

125

Jul-14

110

Jun-14

150

May-14

120

Apr-14

175

Apr-14

Sensex Index

130

Jan-14

MOSL Automobiles Index

Jul-13

Sensex Index

Relative performance – 1-year (%)

Oct-13

Relative performance – 3-month (%)

Source: Company, MOSL

Source: Company, MOSL

76

June 2014 Results Preview | Sector: Automobiles

Comparative Valuation Sector / Companies Automobiles Amara Raja Batt. Ashok Leyland Bharat Forge Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors TVS Motor Sector Aggregate

July 2014

CMP (INR)

Reco

496 Buy 36 Buy 675 Buy 2,299 Buy 8,636 Buy 159 Neutral 2,583 Buy 1,229 Buy 2,643 Buy 468 Buy 171 Buy

EPS (INR) FY15E FY16E FY17E 24.1 -0.1 22.5 127.2 222.1 7.6 144.4 76.9 132.5 50.9 10.1

30.1 1.8 32.3 146.1 330.7 9.8 176.9 101.3 172.6 68.3 13.7

36.2 3.5 38.9 166.3 425.9 10.6 203.6 109.9 222.8 86.8 16.4

PE (x) FY15E FY16E FY17E 20.6 -578.7 30.0 18.1 38.9 21.0 17.9 16.0 19.9 9.2 16.9 14.7

16.5 19.9 20.9 15.7 26.1 16.2 14.6 12.1 15.3 6.9 12.5 11.1

13.7 10.3 17.3 13.8 20.3 15.0 12.7 11.2 11.9 5.4 10.4 9.1

EV/EBIDTA (x) FY15E FY16E FY17E 12.3 13.7 14.0 12.1 21.4 10.6 13.3 6.0 10.1 3.9 10.5 6.5

9.6 7.1 10.7 10.1 13.5 8.2 10.3 4.9 7.6 2.9 7.7 5.0

7.8 4.5 8.8 8.4 9.7 7.6 8.2 4.9 5.6 2.2 6.2 3.9

RoE (%) FY15E FY16E FY17E 27.1 27.5 -0.4 9.9 18.2 22.4 35.0 33.7 26.9 32.3 15.4 17.3 46.3 46.3 17.5 18.6 16.1 17.8 22.3 23.8 29.9 31.6 21.1 22.8 Source:

26.9 17.1 22.6 32.0 31.7 18.7 43.0 18.5 19.2 23.9 29.5 22.8 MOSL

77

June 2014 Results Preview | Sector: Automobiles

Amara Raja Batteries Bloomberg

AMRJ IN

Equity Shares (m)

170.8

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

85 / 1

52-Week Range (INR)

505 / 208

1,6,12 Rel Perf. (%)

14 / 27 / 46

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

34.4

41.1

49.9

58.3

EBITDA

5.6

6.8

8.4

9.8

NP

3.7

4.1

5.1

6.2

EPS (INR)

21.7

24.1

30.1

36.2

EPS Gr. (%)

26.3

11.1

25.2

20.1

RoE (%)

30.6

27.1

27.5

26.9

RoCE (%)

41.7

37.9

38.9

38.3

23.0

20.7

16.5

13.8

6.2

5.1

4.1

3.4

14.8

12.4

9.6

7.8

2.4

2.0

1.6

1.3

CMP: INR496

Buy



Expect AMRJ’s revenue to grow 10% YoY to INR9.8b.



Growth would continue to be driven by replacement segment, while OEM segment is expected to remain weak.



EBITDA margin is expected to improve 40bp YoY to 16.6% (110bp QoQ) as the benefit of pricing action undertaken in 4QFY15 comes with a lag.



Expect PAT growth at 5.7% YoY to INR1b.



Company has guided for double digit revenue and PAT growth for FY15. Maintain Buy.

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

Key issues to watch out

 Update on demand environment for OEMs, Auto replacement and Industrial battery segment.  Outlook on RM cost trend, recent pricing action and currency hedges if any.  Update on capacity expansion plans across product segments.

Quarterly performance Y/E March Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 8,938 28.4 1,454 16.3 145 0 97 1,405 0 1,405 30.4 978 28.5

FY14 2Q 8,071 12.0 1,420 17.6 154 1 74 1,339 0 1,339 29.4 946 31.4

3Q 8,629 13.7 1,503 17.4 157 0 73 1,419 0 1,419 33.0 950 17.4

4Q 8,879 10.5 1,377 15.5 190 6 61 1,243 39 1,204 33.5 826 38.7

1Q 9,831 10.0 1,635 16.6 200 2 55 1,488 0 1,488 30.5 1,034 5.7

FY15E 2Q 3Q 9,443 10,577 17.0 22.6 1,580 1,896 16.7 17.9 250 275 2 2 65 85 1,393 1,704 0 0 1,393 1,704 30.5 30.5 968 1,184 2.4 24.6

4Q 11,570 30.3 1,961 17.0 296 3 95 1,757 0 1,757 30.6 1,220 47.7

FY14

(INR Million) FY15E

34,518 15.8 5,754 16.7 646 7 304 5,406 39 5,367 31.5 3,701 28.2

41,421 20.0 7,072 17.1 1,021 9 300 6,342 0 6,342 30.5 4,407 19.1

78

June 2014 Results Preview | Sector: Automobiles

Ashok Leyland Bloomberg

AL IN

Equity Shares (m)

2,660.7

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

96 / 2

52-Week Range (INR)

2 / 66 / 60 

Financial Snapshot (INR billion) Y/E March

2014

2015E

2016E

2017E

Sales

99.4

112.4

146.5

183.8

1.7

7.3

13.2

18.7

NP

-4.8

-0.2

5.2

9.9

Adj. EPS (INR)

-1.8

-0.1

1.8

3.5

NA

NA

NA

NA

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

16.7

17.7

18.9

21.8

RoE (%)

-10.7

-0.4

9.9

17.1

RoCE (%)

-1.5

11.0

16.8

0.0

4.5 320

27.5

14.3

-20.7

-594.8

20.4

10.6

2.2

2.1

2.0

1.7

EV/EBITDA (x)

83.0

18.8

10.1

Div. Yield (%)

0.0

0.5

1.3

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



39 / 12

1,6,12 Rel Perf. (%)

EBITDA

CMP: INR36







Buy

AL’s volumes are expected to decline by 8% YoY (-23.3% QoQ) for 1QFY15. EBITDA margin expected at 1.9% (v/s 6% in 4QFY14 and 1% in 1QFY14). Sequential decline in margins driven by lower volumes (seasonal). Expect to report a PBT loss of INR1.5b (v/s PBT loss of INR0.16b in 4QFY14). MHCVs in June 2014 witnessed a growth post 23 months of decline driven by early signs of economic recovery and entry into ICV segment (with BOSS truck). We expect AL’s MHCVs volumes to grow 15% YoY during FY15 on economic recovery and a low base. Discounts are on a declining trend over the last four to six months. We upgrade AL’s FY16E EPS to INR1.8 (v/s INR1.3 earlier), mainly driven by margin upgrade to 9% (v/s 7.9%) led by several cost cutting initiatives and discount normalization. Maintain Buy.

Key issues to watch out

 Current demand environment and discounting trend, plant and channel inventory for MHCVs. 6.7 1.3  Industry growth, market share guidance for MHCVs, LCVs for FY15.  Pantnagar volume guidance, RM cost outlook and margin guidance for FY15.  Capex and investment guidance as well as divestment plans.

Quarterly Performance

Total Volumes (nos) Growth % Realizations ('000) % change Net Sales Change (%) RM/Sales % Staff / sales % Oth. Exp./ Sales % EBITDA EBITDA Margins (%) Other Income Interest Depreciation PBT before EO Exp EO Exp/(Inc) PBT Tax Effective Tax Rate (%) Rep. PAT Change (%) Adj. PAT Change (%) E: MOSL Estimates July 2014

1Q 21,721 -21.0 1,088 -0.5 23,638 -21.4 75.5 10.9 12.6 233 1.0 123 1,007 952 -1,603 65 -1,669 -251 15.0 -1,418 -311.6 -1,362 -303.3

FY14 2Q 23,110 -22.6 1,103 -0.1 25,496 -22.6 76.3 10.0 11.5 563 2.2 231 1,244 901 -1,351 -438 -914 -663 72.6 -251 -117.6 -371 -126.0

3Q 18,393 -18.9 1,062 1.1 19,532 -17.9 79.7 12.3 13.0 -969 -5.0 154 1,153 883 -2,851 -923 -1,928 -256 13.3 -1,672 -325.5 -2,473 188.3

4Q 26,048 -24.8 1,181 9.7 30,768 -17.5 75.3 8.0 10.7 1,839 6.0 157 1,126 1,034 -163 -3,761 3,598 -36 -1.0 3,634 142.2 -127 -150.5

1Q 19,981 -8.0 1,132 4.0 22,615 -4.3 76.0 11.1 11.0 440 1.9 129 1,100 975 -1,506 0 -1,506 -223 14.8 -1,283 -9.5 -1,283 -5.8

FY15E 2Q 22,818 -1.3 1,150 4.2 26,244 2.9 74.0 9.9 10.5 1,468 5.6 239 1,050 1,000 -344 0 -344 -49 14.1 -295 17.8 -295 -20.4

3Q 19,079 3.7 1,133 6.7 21,613 10.7 75.5 12.3 10.0 484 2.2 100 1,000 1,000 -1,416 0 -1,416 -209 14.8 -1,207 -27.8 -1,207 -51.2

4Q 43,134 65.6 972 -17.7 41,912 36.2 73.3 5.4 11.4 4,152 9.9 245 1,197 905 2,295 0 2,295 347 15.1 1,948 -46.4 1,948 -1,633.9

FY14

(INR Million) FY15E

87,305 -23.8 1,139 4.6 99,434 -20.3 76.5 10.1 11.8 1,666 1.7 665 4,529 3,770 -5,969 -5,057 -912 -1,206 132.2 294 -93.2 -4,763 NA

105,012 20.3 1,070 -6.0 112,383 13.0 74.4 8.9 10.8 6,621 5.9 713 4,347 3,880 -893 0 -893 -134 15.0 -759 -358.4 -759 -84.1

79

June 2014 Results Preview | Sector: Automobiles

Bajaj Auto Bloomberg

BJAUT IN

Equity Shares (m)

289.4

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

665 / 11

52-Week Range (INR)

CMP: INR2,299 

2,364 / 1,683

1, 6, 12 Rel. Per (%)

00/00/00

 

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

201.5

226.4

258.5

293.5

EBITDA

41.1

47.0

53.8

61.2



NP

32.4

38.0

43.6

49.5



112.0

131.4

150.6

171.1



6.5

17.3

14.6

13.6

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

332.0

399.5

480.4

581.7

RoE (%)

37.0

35.9

34.2

32.2

RoCE (%)

51.8

50.1

47.5

44.6

Payout (%)

52.2

48.6

46.3

40.8

20.5

17.5

15.3

13.4

6.9

5.8

4.8

4.0

EV/EBITDA (x)

14.0

11.8

9.8

8.2

Div. Yield (%)

2.2

2.4

2.6

2.6

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



Buy

BJAUT’s volumes to grow marginally for 1QFY15 by 1% YoY (+5.6% QoQ), after reporting a decline for five consecutive quarters. Volume recovery is primarily led by 22% growth in exports, while domestic sales have declined by 11.4%. Expect realizations to improve by 1% QoQ (+6.2% YoY) led by 380bp QoQ rise in share of exports to 44.7%, partially offset by higher share of Discover. Hence, EBITDA margin to expand 30bp QoQ (+70bp YoY) to 19.2%. Expect PAT to rise 10.4% YoY (+6.8% QoQ) to INR8.1b. We upgrade FY15E/FY16E EPS by 2.8%/2.6% as we increase our volume and margin assumptions on expected revival in demand, particularly in the premium motorcycle space and 3Ws. BJAUT plans to launch an all-new Discover 150cc in August 2014. Maintain Buy.

Key issues to watch out  Update on demand environment, particularly for Discover, at the retail level, and channel inventory.  Details on new launches, update on forex hedges on exports for FY15/FY16.  Update on RE60 launch timeline (for export and domestic market), volume and margin guidance.

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 (%) Rep. PAT Change (%) Adj. PAT Change (%) E: MOSL Estimates

July 2014

(INR Million) 1Q 979.3 -9.2 50,150 11.2 49,111 0.9 69.4 3.7 8.8 9,067 18.5 1,756 1 444 10,378 3,002 28.9 7,377 2.7 7,377 2.7

FY14 2Q 961.3 -8.4 53,831 13.6 51,749 4.1 67.0 3.5 7.8 11,320 21.9 1,242 0 443 12,118 3,746 30.9 8,372 13.0 8,372 13.0

3Q 993.7 -11.9 51,638 7.6 51,312 -5.2 69.5 3.6 5.2 11,352 22.1 2,218 2 460 13,109 4,063 31.0 9,045 10.5 9,045 10.5

4Q 935.8 -4.6 52,707 9.0 49,323 3.9 69.6 3.5 8.2 9,314 18.9 1,848 2 445 10,716 3,090 28.8 7,626 (8.9) 7,626 (0.4)

1Q 988.4 0.9 53,236 6.2 52,621 7.1 69.5 3.6 7.8 10,089 19.2 2,000 3 450 11,637 3,491 30.0 8,146 6.8 8,146 10.4

FY15E 2Q 1,079.2 12.3 53,503 -0.6 57,743 11.6 69.0 3.4 7.4 11,685 20.2 1,600 3 475 12,808 3,842 30.0 8,965 7.1 8,965 7.1

3Q 1,118.9 12.6 53,636 3.9 60,014 17.0 68.5 3.4 7.2 12,589 21.0 2,350 3 500 14,437 4,331 30.0 10,106 11.7 10,106 11.7

4Q 1,012.2 8.2 55,348 5.0 56,023 13.6 68.1 3.7 8.3 11,716 20.9 2,447 3 469 13,691 4,107 30.0 9,584 25.7 9,584 25.7

FY14

FY15E

3,870 (8.7) 52,065 10.3 201,495 0.8 68.9 3.6 7.5 41,052 20.4 7,064 5 1,796 46,316 13,896 30.0 32,420 6.5 32,420 6.5

4,221 9.1 53,642 3.0 226,400 12.4 68.7 3.5 7.7 46,257 20.4 8,397 10 1,894 52,750 15,772 29.9 36,978 14.1 36,801 13.5

80

June 2014 Results Preview | Sector: Automobiles

Eicher Motors Bloomberg

EIM IN

Equity Shares (m)

27.0

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

233 / 4 8,750 / 9 / 15 2/ 50

52-Week Range (INR) 1,6,12 Rel Perf. (%)

 

08

Financial Snapshot (INR billion) Y/E December

2013

2014E

Net Income

68.1

83.1

EBITDA

7.1

Net Profit

3.9



10.2

2015E 110. 8 15.7

2016E 141. 0 20.6

6.0

8.9

11.5

Adj. EPS (INR)

146

222

331

426

EPS Gr. (%)

21.5

52.2

48.9

28.8

BV/Sh. (INR)

760

888

1,161

1,523

RoE (%)

20.7

26.9

32.3

31.7

RoCE (%)

21.8

26.3

34.9

36.3

0.3

0.4

0.5

0.5

Payout (%)

CMP: INR8,636

Valuations P/E (x)

59.2

38.9

26.1

20.3

P/BV (x)

11.4

9.7

7.4

5.7

EV/EBITDA (x)

41.1

25.1

16.6

12.3

Div. Yield (%)

0.3

0.4

0.5

0.5



Buy

Royal Enfield’s (RE) volumes are expected to improve 85% YoY (+15.3% QoQ). Expect margins to remain strong at 23%. Expect VECV’s volumes to decline by 5.5% YoY (+8.47% QoQ), primarily driven by strong surge in exports. VECV’s margins expected to decline 80bp YoY (+100bp QoQ) to 6.8%. Sequential margin improvement on the back of higher volumes, engine plant ramp-up and moderation in CV discounts. Expect 30% YoY (+13% QoQ) growth in consolidated sales. Consolidated margins expected to improve both YoY and sequentially. Consolidated PAT (after minority) to grow by 71% YoY (+13.6% QoQ) to INR1.58b. Maintain Buy.

Key issues to watch out  Ramp-up of Medium Duty engine project, update on commissioning/launch of bus body plant and new HCV range.  Update on current CV demand trends, discount levels and channel inventory.  New launches and timelines under Royal Enfield business.

Quarterly Performance Y/E December Net Op Income Growth (%) EBITDA EBITDA Margins (%) Depreciation EBIT Other income Interest cost PBT after EO item Effective tax rate (%) PAT Minority interest Recurring PAT Growth (%)

(INR Million) CY13 2Q 3Q 16,699 16,834 5.4 13.5 1,662 1,572 10.0 9.3 296 336 1,366 1,237 211 153 12 23 1,565 1,893 19.6 23.1 1,258 1,456 335 382 923 857 21.7 29.9

4Q 16,795 1.6 1,666 9.9 394 1,272 145 38 1,379 12.1 1,212 250 962 32.4

34,737 40,040 48,240 45.3 45.5 60.6 17.7 17.8 19.3 972 526 618 114.4 62.9 87.4

1Q 17,243 1.7 1,705 9.9 275 1,430 444 6 1,868 28.9 1,328 348 979 -10.6

1Q 19,242 11.6 2,220 11.5 477 1,742 553 59 2,237 30.2 1,562 170 1,391 42.0

CY14 2QE 3QE 21,731 21,053 30.1 25.1 2,668 2,626 12.3 12.5 490 510 2,178 2,116 275 280 46 51 2,407 2,345 23.1 23.2 1,851 1,800 271 239 1,580 1,561 71.1 82.1

CY13

CY14E

4QE 21,092 25.6 2,644 12.5 529 2,115 187 -26 2,328 23.8 1,774 301 1,473 53.0

68,098 6.6 7,132 10.5 1,300 5,832 953 79 6,706 21.7 5,254 1,314 3,939 21.5

83,119 424.4 10,157 34.6 2,007 8,150 1,295 129 9,316 25.0 6,986 981.2 6,005 52.4

55,101 72.4 18.6 670 96.2

64,268 85.0 23.1 1,606 65.2

74,138 85.2 23.0 1,257 138.9

77,730 61.1 22.9 1,276 106.6

73,599 33.6 22.5 1,237 84.5

178,118 57.0 19.0 2,898 100.2

296,656 66.6 22.9 5,376 85.5

8,712 -19.8 5.9 542 -23.7

9,603 -23.4 5.8 363 -52.4

10,417 -5.5 6.8 594 -18.9

9,451 0.2 6.4 523 23.2

9,304 6.8 7.4 671 23.9

41,695 -13.2 10.0 4,138 25.4

38,775 -7.0 15.0 2,984 -27.9

Standalone (Royal Enfield) Royal Enfield (units) Growth (%) EBITDA Margins (%) Recurring PAT Growth (%)

VECV (derived) Total CV Volumes Growth (%) EBITDA Margins (%) Recurring PAT Growth (%) E: MOSL Estimates July 2014

12,529 11,027 -12.7 -8.2 8.0 7.6 764 732 -35.3 -8.7

9,428 -12.6 5.6 425 -30.1

81

June 2014 Results Preview | Sector: Automobiles

Exide Industries Bloomberg

EXID IN

Equity Shares (m)

850.0

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

135 / 2

52-Week Range (INR)

CMP: INR159 

162 / 99

1,6,12 Rel Perf. (%)

2 / 11 / -3



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Net Sales

59.6

69.8

80.6

93.1

EBITDA

8.3

10.6

13.2

15.2

Adj. PAT

4.9

6.5

8.3

9.7

Adj. EPS (INR)

5.7

7.6

9.8

11.4

EPS Growth (%)

-6.8

32.5

29.2

15.3

BV/Share (INR)

43.9

49.2

56.6

65.7

RoE (%)

13.1

15.4

17.3

17.3

RoCE (%)

18.8

22.1

24.4

24.4

Payout (%)

31.4

26.3

20.4

19.4

27.8

21.0

16.2

14.0

3.6

3.2

2.8

2.4

EV/EBITDA (x)

13.9

10.6

8.2

6.6

Div. Yield (%)

1.1

1.3

1.3

1.4





Neutral

Expect 13.8% YoY growth in revenue at INR18.5b (+15% QoQ), primarily driven by revival in inverter demand (on power shortage, delay in monsoon). Growth in auto replacement is also expected to be healthy benefiting from the recent initiatives undertaken to improve focus on smaller dealers and improve service turnaround. EBITDA margin expected to remain flat YoY (+260bp QoQ) to 16.1%. Sequential rise in margin to be largely driven by operating leverage and higher share of high margin inverter revenue. PAT expected to rise by 16.7% YoY (+40.2% QoQ) to INR1.9b. We upgrade FY15E/FY16E EPS by 11.7%/27% driven by a) robust growth in inverters, b) market share gains in auto replacement segment from unorganized players, c) faster-than-expected recovery in OEM and industrial demand and d) margin expansion on operating leverage and cost reduction measures. Maintain Neutral.

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

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 Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates

July 2014

1Q 16,263 4.9 64.3 5.8 13.8 2,624 16.1 12.7 62 4 300 2,383 33.3 1,588 4.5

Key issues to watch out

 Update on demand environment for OEMs, Auto replacement and industrial battery segment.  Outlook on RM cost trend, recent pricing action and currency hedges if any.  Update on capacity expansion plans across product segments. FY14 2Q 3Q 14,280 13,014 -5.9 -11.0 65.5 65.1 6.0 6.9 14.5 17.1 2,012 1,426 14.0 10.9 6.9 -13.4 37 49 5 4 313 317 1,731 1,155 31.6 32.9 1,185 775 -1.5 -25.5

4Q 16,086 4.6 66.8 5.4 14.2 2,189 13.6 7.1 98 0 326 1,961 32.6 1,321 -9.8

1Q 18,502 13.8 65.0 4.9 14.0 2,985 16.1 13.8 80 5 336 2,725 32.0 1,853 16.7

FY15E 2Q 3Q 16,740 14,978 17.2 15.1 65.5 65.0 5.7 6.7 14.2 14.0 2,448 2,145 14.6 14.3 21.7 50.5 80 80 5 5 346 356 2,177 1,865 32.0 32.0 1,481 1,268 25.0 63.6

(INR Million) FY14 FY15E 4Q 19,542 21.5 64.6 5.4 14.5 3,017 15.4 37.8 61 5 349 2,724 32.0 1,852 40.2

59,642 -1.8 65.5 6.0 14.8 8,252 13.8 4.5 246 12 1,256 7,230 32.6 4,870 -6.9

69,762 17.0 65.0 5.6 14.2 10,596 15.2 28.4 301 20 1,386 9,491 32.0 6,454 32.5

82

June 2014 Results Preview | Sector: Automobiles

Hero MotoCorp Bloomberg

HMCL IN

Equity Shares (m)

199.7

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

516 / 9 2,775 / 636 -3 / -1 / 22

52-Week Range (INR) 1,6,12 Rel Perf. (%)

CMP: INR2,583 



Financial Snapshot (INR billion) Y/E March

2014

2015E

2016E

2017E

Sales

251.2

278.6

321.6

370.8

EBITDA

33.9

37.1

43.8

51.9

NP

21.1

28.8

35.3

40.7

105.6

144.4

176.9

203.6



-0.4

36.7

22.6

15.1



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

280.4

343.4

421.6

526.4

RoE (%)

39.8

46.3

46.3

43.0

RoCE (%)

52.0

63.8

64.4

60.4

Payout (%)

70.8

55.8

55.2

48.0

24.4

17.9

14.6

12.7

9.2

7.5

6.1

4.9

EV/EBITDA (x)

14.0

12.5

10.3

8.2

Div. Yield (%)

2.5

2.7

3.3

3.3

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





Buy

Expect Hero Moto’s (HMCL) 1QFY15 volumes to rise 10% YoY (+7.9% QoQ) to 1.7m units. Realizations to improve by 1% QoQ (+4.4% YoY) to INR41,000/unit on price hike undertaken in 1QFY15. Margins (adjusted for royalty amortization) to improve 60bp YoY (+200bp QoQ) to 11.7%, with benefits of operating leverage, cost reduction measures and one-time excise duty impact in 4Q. HMCL saved ~INR1.5b (~60bp) through cost reduction measures in FY14 (4QFY14 at ~INR600m), with an exit rate of ~INR250m/month (implied 110bp for FY15). Expect PAT to grow 24% YoY (+22.5% QoQ) to INR6.8b. Management has guided for industry growth of 10-11% in FY15 (v/s 7% growth in FY14). Urban demand recovery (post 2-years of muted growth) along with continued rural demand to drive FY15 growth. Guides for significant ramp-up in exports in FY15, with a target of 250,000 v/s 130,000 in FY14. Maintain Buy.

Key issues to watch out

 Update on demand environment at the retail level, channel inventory, competitive intensity.  Guidance on export plans, new launches together with timelines.  Progress on cost reduction measures and margin outlook.

Quarterly Performance

(INR Million)

Y/E March Total Volumes ('000 nos) Growth YoY (%) Net Realization Growth YoY (%) Net Sales Change (%) RM Cost (% sales) Staff Cost (% sales) Other Exp (% sales) EBITDA EBITDA Margins (%) Adj. EBITDA Margins (%) Other Income Interest Depreciation PBT Effective Tax Rate (%) Adj. PAT Growth (%) E: MOSL Estimates

July 2014

1Q 1,559 -5.1 39,293 4.0 61,268 -1.3 72.7 3.6 9.3 8,825 14.4 11.1 1,449 30 2,744 7,502 26.9 5,486 -10.9

FY14 2Q 1,416 6.3 40,223 4.1 56,965 10.6 71.9 4.0 10.0 8,029 14.1 10.0 1,452 30 2,869 6,583 26.9 4,814 9.3

3Q 1,681 6.9 40,727 4.2 68,459 11.3 73.0 3.6 10.8 8,671 12.7 9.6 1,266 30 2,732 7,174 26.9 5,247 7.5

4Q 1,589 4.2 40,616 2.0 64,557 6.3 72.5 3.7 10.9 8,369 13.0 9.7 1,802 29 2,728 7,414 25.2 5,544 -3.4

1Q 1,715 10.0 41,022 4.4 70,358 14.8 72.5 3.6 9.2 10,305 14.6 11.7 1,750 35 2,800 9,220 26.3 6,791 23.8

FY15E 2Q 1,510 6.6 41,432 3.0 62,574 9.8 72.5 4.2 10.4 8,113 13.0 13.0 1,600 35 750 8,928 26.3 6,577 36.6

3Q 1,815 8.0 41,846 2.7 75,968 11.0 72.5 3.7 10.0 10,498 13.8 13.8 1,700 35 800 11,363 26.3 8,370 59.5

4Q 1,650 3.8 42,222 4.0 69,666 7.9 72.5 3.9 10.1 9,364 13.4 13.4 1,943 20 864 10,423 26.3 7,677 38.5

FY14

FY15E

6,215 2.3 40,425 4.1 251,249 6.5 72.6 3.7 10.3 33,895 13.5 10.1 5,969 118 11,074 28,673 26.4 21,091 -0.4

6,691 7.7 41,634 3.0 278,567 10.9 72.5 3.8 9.9 38,280 13.7 13.0 6,993 125 5,214 39,934 26.3 29,415 39.5

83

June 2014 Results Preview | Sector: Automobiles

Mahindra & Mahindra Bloomberg

MM IN

Equity Shares (m)

615.9

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

757 / 13

52-Week Range (INR)

-4 / 12 / -9 

Financial Snapshot (INR billion) Sales



1,269 / 742

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR1,229

2014 2015E 2016E 432. 509.5

405.1

2017E 602.8



EBITDA

47.2

48.8

61.2

72.6



NP (incl. MVML)

39.1

35.6

43.6

51.6



Adj. EPS (INR)

65.2

59.4

72.9

86.3



7.4

-8.9

22.6

18.4

72.7

76.9 326.

101.3

119.9

284.4

382.9

451.6

RoE (%)

22.1

17.5

18.6

18.5

RoCE (%)

20.3

18.5

20.1

20.6

Payout (%)

25.7

30.4

24.5

20.8

P/E (x)

18.8

20.7

16.9

14.2

Cons. P/E (x)

16.9

16.4

12.4

10.2

4.3

3.8

3.2

2.7

EV/EBITDA (x)

15.2

14.8

11.6

9.4

Div. Yield (%)

1.1

1.2

1.2

1.2

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

Valuations

P/BV (x)

Quarterly Performance Y/E March Total Volumes (nos) Growth YoY (%) Net Realization Growth YoY (%) Net Op. Income Growth YoY (%) RM Cost (% of sales) Staff (% of sales) Oth. Exp. (% of Sales) EBITDA EBITDA Margins (%) Other income Interest Depreciation EO Expense PBT Tax Effective Tax Rate (%) Adj PAT Change (%) E: MOSL Estimates

July 2014

Buy

M&M’s passenger UV volumes to decline 8.3% YoY (down 16.9% QoQ), while tractor volumes are expected to be flat YoY at 1.4% (up 34.6% QoQ). Pick-up volumes to decline 10.2% YoY (down 16.1% sequentially). Considering the merger of M&M’s truck business (MTBL) in 4QFY14, financials are not comparable sequentially on a like-to-like basis. Expect M&M (incl. MVML) revenue to decline 2.1% YoY to INR95b. EBITDA margin to decline 150bp YoY (improve 260bp QoQ). Adjusted PAT estimated at INR7.56b (-16.9% YoY). M&M continues to face pressure on UV business led by weak industry demand and higher competitive pressures. Recent hailstorms and delay in monsoon pose risks to our 5% tractor growth forecast for FY15. Maintain Buy.

Key issues to watch out

 Update on launch of three new UV platforms in CY15.  Update on retail demand environment for auto and tractor division; plant and channel inventory.  Considering competitive launches in FY15/FY16, guidance on auto volumes and margins.  Guidance for FY15 tractor volumes.  Update on Ssangyong business and financial performance.

FY14 1Q 2Q 3Q 4Q 194,962 175,799 207,097 189,431 7.0 -6.7 -1.0 -3.1 497,564 492,631 494,533 539,217 2.1 0.3 1.0 5.6 97,006 86,604 102,416 102,144 9.3 -6.4 0.0 2.3 70.2 68.5 69.0 69.6 5.5 6.2 5.7 6.4 9.9 10.8 10.3 13.6 14,008 12,544 15,325 10,604 14.4 14.5 15.0 10.4 972 3,628 975 1,073 759 892 883 1,078 2,080 2,244 2,235 3,200 528 12,141 13,036 13,182 7,927 3,045 2,759 3,181 -1,750 25.1 21.2 23.8 -22.1 9,097 10,276 10,001 9,149 16.9 5.1 9.3 2.0

1Q 184,578 -5.3 514,636 3.4 94,991 -2.1 70.0 6.2 10.9 12,285 12.9 1,000 975 2,700 9,610 2,278 23.7 7,333 -19.4

FY15E 2Q 3Q 4Q 183,404 220,400 200,545 4.3 6.4 5.9 520,188 523,250 536,743 5.6 5.8 -0.5 95,404 115,324 107,641 10.2 12.6 5.4 69.5 69.8 69.5 6.3 6.1 6.0 11.4 11.0 10.4 12,200 15,135 14,643 12.8 13.1 13.6 4,000 1,000 1,272 925 875 862 2,800 2,850 2,931 12,475 2,957 23.7 9,519 -7.4

12,410 2,941 23.7 9,469 -5.3

12,122 2,870 23.7 9,252 1.1

(INR Million) FY14 FY15E 777,735 816,737 -1.2 5.0 499,104 506,112 2.4 1.4 388,171 413,360 1.2 6.5 69.4 69.7 6.0 6.1 11.2 11.0 52,481

13.5 6,648 3,611 9,760 528 46,286 7,235 15.6 39,051 7.4

54,264 13.1 7,272 3,637 11,281 0 46,618 11,046 23.7 35,573 -8.9

84

June 2014 Results Preview | Sector: Automobiles

Maruti Suzuki Bloomberg

MSIL IN

Equity Shares (m)

302.1

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

798 / 13

52-Week Range (INR)

CMP: INR2,643 

2,663 / 1,217

1,6,12 Rel Perf. (%)

7 / 22 / 36



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

437.0

518.9

621.5

731.5



EBITDA

51.0

68.1

85.5

106.2



Adj. PAT

27.8

39.2

51.4

66.5

Cons. EPS (INR)

94.4

132.5

172.6

222.8



EPS Gr. (%)

40.3

30.3

BV/Sh. (INR)

15.5 694.

806.9



RoE (%)

13.3

16.1

29.1 953.8 1,144. 9 17.8 19.2

RoCE (%)

16.5

19.8

22.1

23.9

Payout (%)

13.0

11.5

11.8

11.4

P/E (x)

28.0

19.9

15.3

11.9

P/CE (x)

16.2

12.4

10.0

8.1

EV/EBITDA (x)

13.9

10.2

7.7

5.7

Div. Yield (%)

0.5

0.6

0.8

0.9

Buy

Volumes have improved by 12.6% YoY (-7.7% QoQ) driven by demand recovery on improved consumer sentiments and a low base (inventory rationalization last year). Expect margins to improve by 30bp to 11.7% QoQ. 4Q had a onetime impact of 120bp of excise duty cut and 60bp impact for prior period employee cost. PAT expected to grow 14.2% YoY (decline 9.9% QoQ) to INR7.2b. Management has upgraded its volume guidance to healthy double digit growth, from the earlier 8-10%. While discounts continued to remain high in 1Q, management guided for normalization from July 2014 onwards. Celerio’s capacity to be increased from July 2014 by 30% to 7,000 units. Maintain Buy.

Valuations

Key issues to watch out

 Update on retail demand scenario, channel inventory, discounting trends and new launches.  Guidance on FY15 volume growth, margins, forex hedges, localization efforts.

Quarterly Performance FY14 1Q 2Q 3Q Total Volumes (nos) 266,434 275,586 288,151 Change (%) -10.0 19.6 -4.4 Realizations (INR/car) 375,144 370,550 368,546 Change (%) 5.4 5.8 1.4 Net Sales 99,951 102,118 106,197 Change (%) -5.1 26.5 -3.1 RM Cost (% of Sales) 71.9 69.4 71.6 Staff Cost (% of Sales) 2.9 3.6 2.8 Other exp. (% of Sales) 13.8 14.4 13.2 EBITDA 11,662 13,214 13,548 EBITDA Margins (%) 11.4 12.6 12.4 Non-Operating Income 2,043 1,010 1,170 Interest 442 434 448 Depreciation 4,802 4,992 5,414 PBT 8,461 8,799 8,856 Tax 2,145 2,097 2,044 Effective Tax Rate (%) 25.3 23.8 23.1 PAT 6,316 6,702 6,811 Adjusted PAT 6,316 6,702 6,811 Change (%) 49.0 194.7 35.9 E:MOSL Estimates;* Including SPIL Merger

(INR Million)

Y/E March

July 2014

4Q 324,870 -5.5 363,780 -4.2 118,181 -9.5 73.4 3.3 13.0 12,475 10.3 4,066 434 5,637 10,470 2,470 23.6 8,000 8,000 -35.5

1Q 299,894 12.6 366,414 -2.3 109,885 9.9 72.0 2.8 13.5 13,110 11.7 2,543 450 5,837 9,366 2,154 23.0 7,212 7,212 14.2

FY15E 2Q 3Q 335,500 330,500 21.7 14.7 370,014 376,315 -0.1 2.1 124,140 124,372 21.6 17.1 71.5 70.5 3.0 2.6 13.2 13.7 15,622 16,875 12.3 13.2 1,510 1,550 450 450 5,987 6,187 10,695 11,788 2,460 2,711 23.0 23.0 8,235 9,077 8,235 9,077 22.9 33.3

4Q 377,680 16.3 393,974 8.3 148,796 25.9 69.4 2.9 12.8 22,507 14.8 3,517 504 6,402 19,118 4,397 23.0 14,721 14,721 84.0

FY14

FY15E

1,155,041 -1.4

1,343,574 16.3

369,206 1.5

377,496 2.2

426,448

507,193

260.8

18.9

71.7 3.1 13.6

70.8 2.8 13.3

50,959 11.7 8,229 1,759 20,844

68,114 13.1 9,120 1,854 24,413

36,586 8,755 23.9

50,968 11,723 23.0

27,831 27,831 16.3

39,245 39,245 41.0

85

June 2014 Results Preview | Sector: Automobiles

Tata Motors Bloomberg

CMP: INR468

TTMT IN

Equity Shares (m)

3,218.9

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

1,508 / 25

52-Week Range (INR)

474 / 273

1,6,12 Rel Perf. (%)

6 / 5 / 27

JLR volumes likely to grow 25.4% YoY (-6.1% QoQ) driven largely by LR (31% growth) as Jaguar has stabilized on a high base (2.5% growth).  EBITDA margin to improve by 120bp YoY (-20bp QoQ) on higher volumes and stronger mix (higher Range Rover/Sport).  S/A volumes to decline 30.7% YoY (-19.3% QoQ) led by 30.5%/31.4% decline in CVs/PVs respectively. Within CVs, MHCVs declined 11%, while LCVs to decline 38%. S/A margins to remain weak at -3.4% (v/s -6.2% in 4QFY14, 2.3% in 1QFY14) on lower volumes. Discounts, though remain high, have been on a declining trend.  Expect 28.4% YoY (-8% QoQ) rise in TTMT’s consolidated revenue. Consolidated margins to rise 170bp YoY (-30bp QoQ). Expect consolidated PAT to rise by 91% YoY (-17.3% QoQ) to INR35b, led by strong JLR performance, but partially offset by higher standalone loss. Maintain Buy. Key issues to watch out  Current JLR demand trends and outlook, particularly China and US.  Order book for new Range Rover and Range Rover Sport and their ramp-up schedule.  Current capacity, details on new capacity addition.  FY15 volume guidance for MHCVs & PVs, channel inventory, discount trends. 

Financial Snapshot (INR billion) Y/E March

2014

2015E

2016E

2017E

Net Sales

2,328

2,656

3,198

3,699

EBITDA

374.0

426.9

528.5

638.1

NP

147.3

164.0

220.0

279.5

Adj. EPS (INR)

45.8

50.9

68.3

86.8

EPS Gr. (%)

42.6

11.3

34.2

27.0

BV/Sh. (INR)

203.8

254.1

320.6

405.6

RoE (%)

28.5

22.3

23.8

23.9

RoCE (%)

25.7

22.6

25.0

26.2

5.1

4.6

5.1

4.0

10.2

9.2

6.9

5.4

P/BV (x)

2.3

1.8

1.5

1.2

EV/EBITDA (x)

4.4

3.8

2.9

2.1

Div. Yield (%)

0.4

0.4

0.6

0.6

Payout (%) Valuations P/E (x)

Buy

Consolidated Quarterly Performance

JLR vols. (units) Growth (%) JLR EBITDA (%) S/A vol. (units) Growth (%) S/A EBITDA (%) Net Sales Total Op Income Growth (%) EBITDA EBITDA Margins (%) Depreciation Other Income Interest Expenses PBT after EO Exp Tax rate (%) PAT Minority Interest Share in profit of Associate Reported PAT Adj PAT Growth (%) E: MOSL Estimates

July 2014

(INR Million) FY14

Y/E March 1Q 90,620 8.6 15.8 153,172 -19.7 2.3 467,513 467,847 8.0 62,192 13.3 23,477 1,823 9,482 29,270 39.8 17,628 -198 -169 17,261 18,337 -28.5

2Q 101,931 31.6 17.5 151,466 -32.3 2.0 557,012 568,823 31.1 86,351 15.2 27,293 2,321 11,117 47,524 25.1 35,590 -106 -65 35,419 37,469 80.0

3Q 116,357 22.7 19.1 130,337 -36.1 -4.3 635,361 638,768 38.6 99,485 15.6 28,527 1,575 10,012 61,277 21.4 48,191 -85 -58 48,048 49,026 182.7

FY15E 4Q 120,953 4.0 17.2 131,616 -33.0 -6.2 647,158 653,171 16.6 99,998 15.3 31,255 2,548 16,676 50,530 21.7 39,561 -205 -173 39,183 42,382 7.9

1Q 113,633 25.4 17.0 106,160 -30.7 -3.4 0 600,718 28.4 90,026 15.0 32,000 1,350 11,000 48,376 27.7 34,995 -100 150 35,045 35,045 91.1

2Q 113,095 11.0 17.6 145,772 -3.8 2.2 0 634,663 11.6 98,934 15.6 35,000 1,100 9,000 56,034 27.7 40,535 -250 160 40,445 40,445 7.9

3Q 124,678 7.2 17.4 141,071 8.2 1.6 0 675,419 5.7 105,123 15.6 38,000 1,800 7,000 61,923 27.7 44,795 -175 190 44,810 44,810 (8.6)

4Q 130,992 8.3 17.1 245,629 86.6 4.4 0 745,048 14.1 105,875 14.2 37,881 401 6,341 62,055 28.9 44,139 -315 -153 43,672 43,672 3.0

FY14

FY15E

429,861 15.5 17.5 565,873 -30.1 -1.4 2,306,771 2,328,337 23.3 348,377 15.0 110,782 8,286 47,338 188,690 25.3 141,042 -595 -537 139,910 147,276 42.6

482,398 12.2 17.3 625,053 10.46 1.90 0 2,655,848 14.1 399,959 15.1 142,881 4,651 33,341 228,388 28.0 164,465 -840 347 163,972 163,972 11.3

86

June 2014 Results Preview | Sector: Automobiles

TVS Motor Bloomberg

TVSL IN

Equity Shares (m)

475.1

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

81 / 1

52-Week Range (INR)

175 / 28 24 / 92 / 388

1,6,12 Rel Perf. (%) Financial Snapshot (INR Million) Y/E March

2014 2015E 2016E 2017E

Sales

79.6

105.0

128.6

146.8

EBITDA

4.8

7.8

10.1

11.9

Adj. PAT

2.6

4.8

6.5

7.8

EPS (INR)

5.5

10.1

13.7

16.4

EPS Gr. (%)

44.0

84.1

35.5

19.9

BV/Sh (INR)

29.8

37.8

48.8

62.3

RoE (%)

19.7

29.9

31.6

29.5

RoCE (%)

20.3

32.7

36.5

35.7

Payout (%)

29.6

20.8

19.2

17.8

30.3

16.5

12.2

10.1

5.6

4.4

3.4

2.7

EV/EBITDA (x)

17.3

10.2

7.5

6.0

Div. Yield (%)

0.8

1.1

1.4

1.5

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

S/A Quarterly Performance Y/E March Volumes (units) Growth (%) Realization (INR/unit) Growth (%) Net Sales Growth (%) RM (%) Emp cost (%) Other exp (%) EBITDA EBITDA margin (%) Interest Depreciation Other Income PBT before EO Exp EO Exp PBT after EO Exp Total Tax Tax rate (%) Reported PAT Adjusted PAT E: MOSL Estimates

July 2014

1Q 494,494 (4.8) 35,596 (0.1) 17,602 (4.8) 71.1 6.4 16.8 989 5.6 65 314 81 691 0 691 172 24.9 519 519

CMP: INR171  

 



Buy

TVS Motor's (TVSL) volumes have risen 22% YoY (+7.6% QoQ) to 603,153 units. Volume growth has been driven by a robust 53% YoY growth in scooter portfolio. Motorcycle growth has also rebounded with 21% YoY growth in 1Q (v/s 6% growth in FY14). Margins are expected to improve to ~120bp YoY/ 40bp QoQ to 6.8%. 4Q margins had a 50bp impact of one-time excise duty cut. Management has guided for 25% volume growth for FY15 driven by: a) recent success of Jupiter, b) upcoming launch of new Scooty Zest (110cc variant) and c) two motorcycle launches -- Star City Plus (launched in May 2014) and Victor (expected in 3QFY15). Recent launch of Star City Plus received good response from customers. Our channel checks indicate a wait list of two to three weeks. Maintain Buy.

Key issues to watch out  Update on new launches together with timelines.  Regional demand scenario, particularly in southern region, given its high exposure.  Guidance on margins.  Capex outlook, progress update on BMW tie-up.

(INR Million) FY14 2Q 3Q 506,617 519,308 4.2 0.2 39,248 39,622 11.4 14.2 19,884 20,576 16.1 14.4 71.2 71.0 5.9 6.0 17.0 17.0 1,171 1,234 5.9 6.0 52 53 314 327 77 78 882 932 -303 0 1185 932 296 244 33.6 26.1 888 688 586 688

4Q 560,801 10.1 38,440 12.0 21,557 23.3 71.6 5.7 16.3 1,387 6.4 83 361 66 1,009 -301 708 187 18.5 521 822

1Q 603,153 22.0 39,593 11.2 23,881 35.7 71.5 5.7 16.0 1,624 6.8 65 370 81 1,270 0 1270 318 25.0 953 953

FY15E 2Q 3Q 640,500 661,000 26.4 27.3 40,385 40,789 2.9 2.9 25,866 26,961 30.1 31.0 71.3 71.0 5.7 5.7 15.8 15.8 1,888 2,036 7.3 7.5 55 45 380 390 80 80 1,533 1,681 0 0 1533 1681 383 420 25.0 25.0 1,150 1,260 1,150 1,260

4Q 688,455 22.8 41,091 6.9 28,289 31.2 70.8 5.6 15.6 2,260 8.0 44 392 91 1,915 0 1915 479 25.0 1,436 1,436

FY14 2,081,220 2.4 38,256 9.4 79,619 12.0 71.3 6.0 16.8 4,781 6.0 254 1,317 302 3,513 -603 4,116 909 22.1 3,207 2,737

FY15E 2,593,108 24.6 40,491 5.8 104,997 31.9 71.1 5.7 15.8 7,807 7.4 209 1,532 332 6,399 0 6,399 1,600 25.0 4,799 4,799

87

June Results Preview | July 2014

Capital Goods Company Name

Optimism built in… macro support awaited Operational/financial restructuring underway to support macro push

ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas

Cautious optimism prevails, policy support awaited: Managements’ commentary, post 4QFY14 conference call, signaled cautious optimism as pace of project execution continues to be tepid. Overall, ordering activity was restricted to PSUs, while private sector/industrial sector ordering continued to remain lull. Infrastructure / Metal & Mining / Power sectors await macro support for before restarting their capex plans. Several industry players that we have interacted with suggest that the next cycle of Greenfield project ordering can possibly commence by end FY15 / mid FY16.

Focus shifts to margins, better contractual terms: Unexecuted order books of several developers still comprise of legacy projects, which are impacted severely by cost and time overruns. Considering the same, managements sounded cautious and prefer cash profits over revenue growth. Incremental orders bagged in 2HFY14 have been with higher margins and better contractual terms.

Overseas expansion initiatives deliver tangible results: L&T’s efforts to increase order inflows from overseas operations seem to be gaining momentum, as 80% of the orders received (INR96.2b) and those disclosed via media releases in 1QFY15 were from international operations. Also, media reports stated that L&T has emerged as the lowest bidder for construction of Duqm airport in Oman. L&T’s bid for the project was worth RO36.3m (USD94m), while Galfar Engineering & Construction and Mohammed Abdel Mohsen Al Kharafi & Sons were the third lowest bidder. Voltas too expects ordering environment to improve in GCC nations by end FY15, as the design consultants are being finalized for large projects including Dubai Expo to be held in 2020. Expected quarterly performance summary (INR m) Sector

ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate

CMP (INR) 4.7.14 1,120 263 207 675 1,200 1,742 990 956 215

Reco Neutral Buy Buy Buy Neutral Buy Sell Buy Buy

Sales Var % Var % Jun-14 YoY QoQ 18,556 6.0 1.5 54,632 -14.0 -63.0 34,969 10.8 -7.2 10,746 2.4 10.6 11,661 10.9 -11.0 103,554 5.4 -48.4 26,414 0.0 -2.4 8,711 1.0 -37.0 16,242 1.3 11.0 285,486 0.9 -40.8

EBITDA Var % Var % Jun-14 YoY QoQ 1,322 22.6 5.2 1,609 -58.6 -94.1 1,787 23.4 -5.0 1,909 8.7 11.7 1,539 9.1 -13.2 11,539 15.4 -58.1 1,636 0.3 -12.2 877 7.7 -34.4 1,023 66.5 -2.9 23,239 2.7 -64.6

Net Profit Var % Var % Jun-14 YoY QoQ 540 36.4 4.5 762 -83.6 -96.0 525 -12.6 -17.7 1,795 8.0 26.6 1,039 0.9 -24.1 7,041 -4.8 -69.9 727 LP -17.6 579 15.2 -45.4 738 81.8 -11.7 13,747 -16.3 -71.9 Source: Company, MOSL

Satyam Agarwal ([email protected]) / Amit Shah ([email protected]) / Nirav Vasa ([email protected]) July 2014

88

June 2014 Results Preview | Sector: Capital Goods

Operational, financial restructuring underway for next growth levels: Post reporting losses across projects due to time and cost overruns, several companies have hired consultants to streamline organizational policies to realign themselves with existing ground realties. Also, balance sheet restructuring and capital infusion initiatives are in place to prepare for the next level of growth across many companies. While ABB continues to invest in localization initiatives, Voltas continues to bid cautiously. Siemens had recently hived off its Metallurgical business to Siemens AG. After selling its stake in Dhamra port for an EV of INR55b, L&T signed definitive investment agreement with CPPIB for capital infusion of INR10b in IDPL. GMR has also raised INR20b through a QIP / warrants issue.

1QFY15 operational performance to remain muted: For 1QFY15, we expect de-growth in revenue/EBITDA across our coverage universe, with PAT decline of 14% on a YoY basis. Order inflows for 1QFY15 are expected to be muted as project decisions were impacted by ongoing elections. L&T, BHEL and TMX are our top picks. Revenue failed to improve in constrained environment

EBITDA margin impacted by lower operating leverage

Engg Sector (revenue growth %)

14.7 13.8 14.7 11.6 12.9 13.4 15.9 11.8 14.1 16.6 17.3 14.0 15.4 16.2 16.4 12.5 12.9 12.8 18.3 10.6 12.7 11.9 16.3 7.8 8.6 11.1 14.4

14.1 16.3

Source: Company, MOSL

4QFY14

2QFY14

4QFY13

2QFY13

39

-5 -24

-23 -12 -34 -47

-16

-7

-19

2,137 2,232 2,372 2,589 2,786 2,914 3,065 3,106 3,317 3,330 3,399 3,301 3,153 3,218 3,179 3,015 2,946 3,012 3,046 3,089 2,939

-2

2

9

15 58

20

23

41 22

19 25

Order intake YoY %

64

BTB (x)

4QFY14

2QFY14

4QFY13

2QFY13

4QFY12

2QFY12

4QFY11

2QFY11

4QFY10

2QFY10

4QFY09

2QFY09

4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 3QFY11 2QFY11 1QFY11 4QFY10 3QFY10 2QFY10 1QFY10 4QFY09

Source: Company, MOSL

July 2014

4QFY12

Order intake remains subdued

2.64 2.72 2.58 2.65 2.76 2.99 2.99 3.06 3.08 2.94 2.99 2.91 2.85 2.65 2.37 2.36 2.30 2.21 2.18 2.30 2.37

Order book (INR b)

Source: Company, MOSL

20

Book to Bill ratio at 2.4x

2QFY12

4QFY11

2QFY11

4QFY10

2QFY10

4QFY09

2QFY09

4QFY08

9.7 4QFY07

2QFY07

2QFY08

16.2

9.4 10.1 4QFY06

-4.6 4QFY14

2QFY14

4QFY13

2QFY13

4QFY12

2QFY12

4QFY11

2QFY11

4QFY10

2QFY10

4QFY09

2QFY09

4QFY08

2QFY08

4QFY07

2QFY07

4QFY06

-5.9 -3.4 -14.4 -8.6

0.5

19.2 28.0 29.0 27.7 37.8 39.2 37.4 35.5 20.3 34.3 30.7 23.3 30.0 10.2 9.9 4.3 26.2 17.5 25.8 31.4 15.0 14.7 18.4 17.0 19.8 15.4 6.8

EBITDA Margin (%)

Source: Company, MOSL

89

June 2014 Results Preview | Sector: Capital Goods

Monthly Order Finalization (Domestic, INR b) May 2013 - May 2014 INR b

% Share

2013

2014

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-

Feb

Mar

Apr

May

Power Generation

467

24

12

38

28

28

5

16

54

28

1

158

92

6

-

Buildings and Factories

279

14

19

13

21

39

31

9

27

7

23

31

37

11

11

T&D

287

14

9

19

3

58

25

24

32

14

31

5

19

10

38

Water and Waste water

273

14

11

12

17

19

65

35

3

9

18

29

50

5

0

O&G

141

7

18

0

35

41

3

11

8

2

13

5

1

2

1

Railways

107

5

5

67

-

0

0

-

0

1

6

0

18

7

2

Metro rail

77

4

10

14

19

11

11

0

1

-

1

1

4

3

2

141

7

-

4

0

7

22

7

1

17

6

24

11

35

7

43

2

-

3

11

6

9

9

-

-

-

-

5

-

-

9

0

-

-

0

-

-

-

9

0

-

0

-

-

-

104

5

-

0

-

-

-

-

-

6

-

97

-

-

0

Cement

6

0

-

2

2

2

0

-

-

-

-

-

1

-

-

Defence

6

0

-

3

-

-

-

-

-

-

2

-

-

-

1

5

7

5

5

Roads Metals and Mining Airport Ports

Others Total

47 1,986

2

3

0

0

2

2

8

0

1

7

100%

87

176

138

211

173

118

137

86

109

356 243 84 68 Source: Company, MOSL

Company-wise order finalization (TTM, Domestic)

Sector-wise order finalization (TTM, Domestic)

Company Name

Sector Power Gen T&D Buildings and factories Water and waste water Roads O&G Railways Ports Metro rail Others Metals and mining Airport Defence Cement Telecom Total

INR b

% Share

L&T

489

25

PGCIL

127

6

BHEL

145

7

Lanco

73

4

Mcnally Bharat

41

2

SPML

38

2

IVRCL

71

4

Era

16

1

Thermax

20

1

Pratibha Ind

31

2

BGR

16

1

Siemens

15

1

C&C Constructions

19

1

KEC International

17

1

Alstom

47

2

11 6 806 1,986

1 0 41 100

Bajaj Electricals Shriram EPC Others Total

INR B

% Share

467 287 279 273 141 141 107 104 77 47 43 9 6 6 -

24 14 14 14 7 7 5 5 4 2 2 0 0 0 0

1,986

100

Source: MOSL

July 2014

90

June 2014 Results Preview | Sector: Capital Goods

120

140

105

110

90

80 Jul-13

Jul-14

May-14

Jan-14

170

Jun-14

135

Apr-14

MOSL Capital Goods Index

Sensex Index 200

Source: Bloomberg, MOSL

Jul-14

MOSL Capital Goods Index

150

Oct-13

Sensex Index

Relative Performance – 1 Yr (%)

Apr-14

Relative Performance - 3m (%)

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Voltas Sector Aggregate

July 2014

CMP (INR)

Reco

1,120 Neutral 263 Buy 207 Buy 675 Buy 1,200 Neutral 1,742 Buy 990 Sell 956 Buy 215 Buy

EPS (INR) FY15E FY16E FY17E 13.4 10.0 7.3 24.6 48.3 48.2 14.6 28.0 8.5

20.0 15.2 12.4 30.8 56.0 66.1 19.3 38.5 10.6

30.3 19.8 17.1 38.3 68.2 89.3 26.5 58.3 13.0

PE (x) FY15E FY16E FY17E 83.7 26.2 28.4 27.4 24.8 36.1 67.8 34.2 25.3 34.8

56.0 17.2 16.7 21.9 21.4 26.4 51.4 24.8 20.4 24.9

37.0 13.3 12.1 17.6 17.6 19.5 37.4 16.4 16.5 18.7

EV/EBIDTA (x) FY15E FY16E FY17E 38.3 13.6 15.7 22.8 15.5 21.8 32.4 20.1 17.1 20.4

28.9 8.5 11.3 17.7 12.9 17.3 25.8 14.7 13.7 15.3

RoE (%) FY15E FY16E FY17E

16.7 10.3 14.4 19.6 6.1 7.3 10.4 12.5 8.7 12.4 19.6 22.8 13.8 25.1 28.5 31.4 10.7 29.6 28.6 29.1 12.7 14.1 15.8 17.8 20.6 11.9 14.7 18.5 9.8 15.5 19.0 24.5 10.9 14.0 15.4 16.8 11.3 11.0 13.9 16.4 Source: Company, MOSL

91

June 2014 Results Preview | Sector: Capital Goods

ABB Bloomberg

ABB IN

Equity Shares (m)

211.9

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

237 / 4

52-Week Range (INR)

1,200 / 448

1,6,12 Rel Perf. (%)

18 / 43 / 52

CMP: INR1,120 



Financial Snapshot (INR billion) Y/E Dec

2013 2014E 2015E 2016E

Net Sales

77.2

81.1

93.2

112.1

4.7

6.3

8.2

13.9

EBITDA Adj PAT

1.7

2.8

4.2

6.4

Adj EPS (INR)

8.3

13.4

20.0

30.3



Neutral

ABB continues to focus on increased localization and cost optimization, whereby its direct RM costs have dipped to 68% of revenue, from a peak of 81% in 4QCY10. ABB announced plans to collaborate with many Indian universities and also sponsor university programs to look into new materials and manufacturing techniques. ABB’s preference continues to be cash over profits, resulting in lower NWC days at end-CY13. Its NWC fell to 71 days at end4QCY13, from 88 at end-2QCY13. Thus, its net debt position improved to INR3.1b at end-CY13 v/s INR6.3b at end-2QCY13. Maintain Neutral.

EPS Gr (%)

28.7

60.3

49.3

51.5

BV/Sh (INR)

126.4

133.6

144.3

164.1

RoE (%)

6.7

10.3

14.4

19.6

Key issues to watch out

RoCE (%)

11.1

14.7

20.3

26.0

Payout (%)

41.5

40.0

40.0

30.0

70.3

83.7

56.0

37.0

 Management commentary suggested cautious optimism and guided for near term order inflows from short cycle orders, before ordering activity picks up across the industrial segment.  In a recent media interaction, management stated it was confident on explosive growth in rooftop solar power plants, which however is subject to certain policy related issues.

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

4.6

8.4

7.8

6.8

EV/EBITDA (x)

27.1

38.3

28.9

20.8

Div. Yield (%)

0.6

0.6

0.8

0.9

Quarterly Performance Y/E December 1Q Sales 19,700 Change (%) 10.0 EBITDA 1,065 Change (%) 9.2 As % of Sales 5.4 Adjusted EBITDA (%) * 6.5 Depreciation 246 Interest 198 Other Income 14 PBT 636 Tax 210 Effective Tax Rate (%) 33.0 Repoted PAT 426 Adj. PAT 426 Change (%) -10.7 Order Intake 15,310 Order Book 82,290 BTB (x) 1.1 E: MOSL Estimates,*: As reported by ABB

July 2014

(INR Million) CY13 2Q 3Q 17,512 17,859 (7.0) (1.3) 1,079 1,054 1.8 58.8 6.2 5.9 6.3 6.2 260 257 256 270 38 9 601 537 205 180 34.2 33.6 396 356 396 356 -23.3 66.9 17,310 17,620 82,350 82,520 1.1 1.1

4Q 22,039 5.8 1,495 124.4 6.8 7.9 270 288 7 944 360 38.2 583 583 247.8 16,660 77,090 1.0

1Q 18,277 (7.2) 1,257 18.0 6.9 7.6 274 221 11 774 257 33.2 517 517 21.4 19,820 78,760 1.0

CY14 2QE 3QE 18,556 19,938 6.0 11.6 1,322 1,570 22.6 48.9 7.1 7.9

4QE 24,327 10.4 2,109 41.1 8.7

300 260 20 782 243 31.0 540 540 36.4 15,199 75,403 1.0

338 299 17 1,488 444 29.9 1,044 1,044 79.0 29,153 74,850 0.9

310 220 25 1,065 330 31.0 735 735 106.2 20,265 75,730 1.0

CY13

CY14E

77,220 3.3 4,699 29.9 6.1 6.9 1033 1,011 70 2,749 956 34.8 1,793 1,769 -4.1 67,170 77,090 1.0

81,097 5.0 6,258 33.2 7.7 1222 1,000 73 4,110 1,274 31.0 2,836 2,836 60.3 84,437 74,850 0.9

92

June 2014 Results Preview | Sector: Capital Goods

BHEL Bloomberg

BHEL IN

Equity Shares (m)

2447.6

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

643 / 11

52-Week Range (INR)

CMP: INR263 

292 / 100

1,6,12 Rel Perf. (%)

-3 / 34 / 16



Financial Snapshot (INR billion) Y/E March

Net Sales EBITDA Adj PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA Div Yield (%) * Consolidated

2014 2015E 2016E 2017E

391.1 331.8 365.7 406.9 45.2 36.2 49.6 62.8 36.3 24.6 37.3 48.4 14.8 10.0 15.2 19.8 -44.6 -32.3 51.8 29.6 135.0 141.5 151.4 164.3 11.4 7.3 10.4 12.5 16.1 10.8 15.1 18.1 19.1 30.0 30.0 30.0 11.0 1.2 6.7 1.1

26.2 1.9 13.6 1.1

17.2 1.7 8.5 1.7

13.3 1.6 6.1 2.3



Buy

With a slowdown in utility segment, BHEL intends to expand industrial and defence business. In 1QFY15, company invited multiple EoIs with the intent to get access to high-end technology. Major EoIs included for participation in the 765kv reactor package tenders of NTPC. EoIs like technical collaboration STATCOM projects, armored recovery vehicle and defense simulators saw an extension in bid submission deadlines. BHEL was favorably positioned in 3gw of orders, which were expected to be awarded in FY15. However, 1QFY15 saw no major project awards, impacted by the delayed decision making given ongoing elections. Maintain Buy.

Key issues to watch out  Mr Anant Geete was recently appointed as Minister for Heavy Industries. In his initial review, he asked BHEL to venture into power generation. Also, the department of heavy industry intends to set up a JV company for executing projects worth INR75b in the first phase. We await more clarity on these issues.  At end-4QFY14, BHEL’s cash balance increased to INR92.2b v/s INR53.6b at end-2QFY14, aided by increased focus on collections.

Quarterly Performance

(INR Million)

Y/E March Sales (Net) Change (%) EBITDA As a % Sales Adjusted EBITDA Change (%) As a % Sales Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj. PAT Change (%) Order intake Order book (INRb) BTB (x) E: MOSL Estimates

July 2014

1Q 63,526 -23.7 3,886 6.1 3,886 -67.7 6.0 278 2,308 5,385 6,685 2,031 30.4 4,654 -49.5 4,654 -49.5 14,690 1,086 2.4

FY14 2Q 3Q 88,190 84,624 -15.2 -15.7 4,119 9,859 4.7 11.7 6,033 9,859 -68.2 -39.7 6.7 11.7 247 323 2,387 2,416 4,979 2,908 6,465 10,028 1,905 3,080 29.5 30.7 4,560 6,948 -64.2 -41.2 5,899 6,948 -53.7 -41.2 30,010 67,624 1,023 1,006 2.3 2.4

4Q 147,549 -21.7 27,334 18.5 27,334 -41.2 18.5 479 2,718 2,889 27,025 8,519 31.5 18,446 -43.0 18,819 -41.9 163,410 1,016 2.6

1Q 54,632 -14.0 1,609 2.9 1,609 -58.6 2.9 450 2,720 2,650 1,089 327 30.0 762 -83.6 762 -83.6 19,355 1,010 2.7

FY15E 2Q 68,788 -22.0 4,541 6.6 4,541 -24.7 6.6 450 2,750 3,100 4,441 1,332 30.0 3,109 -31.8 3,109 -47.3 82,259 1,024 2.9

3Q 69,392 -18.0 4,519 6.5 4,519 -54.2 6.5 450 2,780 3,050 4,339 1,302 30.0 3,037 -56.3 3,037 -56.3 12,339 967 3.4

4Q 130,927 -11.3 25,560 19.5 25,560 -6.5 19.5 432 2,816 3,454 25,765 8,086 31.4 17,679 -4.2 17,679 -6.1 215,082 999 3.1

FY14

FY15E

383,888 -19.4 45,198 11.8 47,112 -49.8 11.8 1,326 9,829 16,160 50,203 15,535 30.9 34,608 -47.7 36,303 -44.6 280,070 1,016 2.6

323,738 -15.7 36,228 -19.8 36,228 -23.1 -19.8 1,782 11,066 12,254 35,634 11,047 31.0 24,587 -29.0 24,587 -32.3 329,035 999 3.1

93

June 2014 Results Preview | Sector: Capital Goods

Crompton Greaves Bloomberg

CRG IN

Equity Shares (m)

629.7

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

130 / 2

52-Week Range (INR)

CMP: INR207 

219 / 75

1,6,12 Rel Perf. (%)

-7 / 42 / 100

Financial Snapshot (INR billion) Y/E March

Net Sales EBITDA Adj PAT EPS(INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA Div Yield (%) * Consolidated

2014 2015E 2016E 2017E

134.8 148.2 167.3 192.9 6.8 9.4 12.9 16.6 2.6 4.5 7.7 10.7 3.9 7.3 12.4 17.1 26.8 87.8 70.0 38.4 59.5 57.3 67.4 81.7 7.1 12.4 19.6 22.8 5.7 9.4 14.7 18.0 20.0 20.0 20.0 20.0 53.3 3.5 20.5 0.7

28.4 3.6 14.8 0.7

16.7 3.1 10.6 0.9

12.1 2.5 7.9 1.2





Buy

CRG’s Spanish acquisition, ZIV, bagged an order worth INR2.4b from a Spanish utility for supply of 1m meters operating on single and three phases. This is expected to be executed till year 2016. Other orders won by ZIV include the supply of 0.75m meters to Spain’s GNF, which would be executed in the next two years. Earlier, ZIV had won an order for supply of 2m meters from major European utilities. ZIV was acquired by CRG in July 2012 for an enterprise value of Euro150m, of which 50% was funded through internal accruals and remaining 50% via debt. Consolidated debt at end-FY14 was at INR22b, of which INR21.6b is on its subsidiary balance sheet. Incremental orders across subsidiaries hold the key to increasing operating leverage; subsidiaries reported EBITDA margin of just 0.3% and cash loss of 1.8% for FY14. Maintain Buy.

Key issues to watch out  Increase in exports from domestic operations. Key factories commissioned includes HT Motors, Drives, Switchgears, etc which need pre-qualifications.  Performance Improvement in Canada / USA, traction on smart metering initiatives globally, stabilization in Hungary, etc.  Any update on supply chain related issues which impacted appliances business.

Quarterly performance (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales (Adj) Depreciation Interest Other Income PBT Tax Effec. Tax Rate (%) Reported PAT Adj PAT Change (%) E: MOSL Estimates

July 2014

1Q 18,194 9.7 1,524 -3.8 8.4 212 -66 298 1,676 430 25.7 1,246 1,246 3.6

FY14 2Q 3Q 17,658 18,677 5.7 7.0 1,590 1,693 8.2 27.7 9.0 9.1 217 220 -107 -9 295 294 1,775 1,777 427 421 24.1 23.7 1,348 1,355 1,348 1,355 20.7 27.7

(INR Million) 4Q 20,367 -1.1 1,852 30.4 9.1 245 -38 252 1,896 635 33.5 1,261 1,261 17.1

1Q 18,719 2.9 1,624 6.6 8.7 248 -50 275 1,701 499 29.3 1,202 1,202 -3.5

FY15E 2Q 3Q 18,837 20,168 6.7 8.0 1,608 1,841 1.1 8.7 8.5 9.1 250 255 -50 -50 290 300 1,698 1,936 499 499 29.4 25.8 1,199 1,437 1,199 1,437 -11.1 6.0

4Q 22,296 26.3 2,250 41.5 10.1 265 -50 305 2,341 499 21.3 1,842 1,842 36.6

FY14

FY15E

74,896 15.5 6,658 -7.6 8.9 894 -221 1,139 7,125 1,914 26.9 5,211 5,211 3.2

80,019 6.8 7,323 10.0 9.2 1,018 -200 1,170 7,675 1,995 26.0 5,679 5,679 9.0

94

June 2014 Results Preview | Sector: Capital Goods

Cummins India Bloomberg

KKC IN

Equity Shares (m)

277.2

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

187 / 3

52-Week Range (INR)

-1 / 22 / 19

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Net Sales

39.8

44.7

53.9

66.1

7.0

7.8

10.0

12.5

Adj PAT

6.0

6.8

8.5

10.6

EPS (INR)

21.6

24.6

30.8

38.3

EPS Gr. (%)

(9.2)

13.6

25.2

24.6

BV/Sh. (INR)

94.2

101.8

113.9

130.0

RoE (%)

23.9

25.1

28.5

31.4

RoCE (%)

24.0

25.3

28.7

31.6

Payout (%)

70.3

69.0

60.8

58.0

31.2

27.4

21.9

17.6

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)



706 / 365

1,6,12 Rel Perf. (%)

EBITDA

CMP: INR675

7.2

6.6

5.9

5.2

17.2

22.9

17.7

13.8

2.9

2.1

2.4

2.8

 

Buy

Net working capital stood at 83 days in March 2014 (excluding ICDs of INR1.14b to Cummins Technologies), v/s 65 days YoY. The deterioration is largely led by higher inventories and receivables. LHP is the new thrust area for Cummins India. Growth across MHP and HHP segment is however subject to industrial recovery. Macro push in terms of increased pace of project execution across multiple segments would be the key trigger to support growth levels for Cummins India. Maintain Buy.

Key issues to watch out  Any change in guidance; as Cummins can possibly benefit from increased pent up demand.  Any change in competitive scenario, after the implementation of revised CPCB norms with effect from July 2014.  Quantum of improvement in margins, considering the value engineering initiatives and a change in business mix.  Tax rates, given increased production in SEZ.

Quarterly Performance (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adjusted PAT Change (%) Operational Details Domestic Sales Change (%) Exports Change (%) E: MOSL Estimates

July 2014

(INR Million) FY14 2Q 3Q 9,327 10,230 -14.2 -6.1 1,526 1,976 -23.6 -5.3 16.4 19.3 131 133 9 10 558 236 1,944 2,069

4Q 9,716 -15.8 1,709 -11.8 17.6 146 11 315 1,867

1Q 10,746 2.4 1,909 8.7 17.8 150 15 650 2,394

632 27.6 1,662 -8.0 1,662 (8.0)

496 25.5 1,448 -10.0 1,448 (10.0)

597 28.8 1,472 -37.1 1,472 (19.0)

450 24.1 1,418 -24.8 1,418 (5.1)

598 25.0 1,795 8.0 1,795 8.0

548 25.0 1,643 13.4 1,643 13.4

7,550 (8.0) 2,737 (35.0)

6,118 (20.0) 3,020 (0.3)

7,186 (12.6) 2,820 13.3

6,170 (25.8) 3,390 14.5

7,373 (2.3) 3,200 16.9

7,373 20.5 3,400 12.6

1Q 10,493 -16.6 1,756 -24.5 16.7 117 12 668 2,294

FY15E 2Q 3Q 10,013 11,803 7.4 15.4 1,615 2,060 5.8 4.3 16.1 17.5 160 165 15 15 750 300 2,190 2,180

FY14

FY15E

4Q 12,172 25.3 2,257 32.1 18.5 175 15 258 2,325

39,767 -13.4 6,967 -16.5 17.5 528 42 1,777 8,175

44,734 -2.5 7,841 -6.1 17.5 650 60 1,958 9,089

545 25.0 1,635 11.1 1,635 11.1

581 25.0 1,744 23.0 1,744 23.0

2,175 26.6 6,000 (21.5) 6,000 (9.2)

2,272 25.0 6,817 (10.8) 6,817 3.2

7,373 2.6 3,650 29.4

7,373 19.5 4,138 22.1

27,001 (8.4) 11,990 (16.7)

29,493 9.2 14,388 20.0

95

June 2014 Results Preview | Sector: Capital Goods

Havells India Bloomberg

HAVL IN

Equity Shares (m)

124.8

M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

150 / 3

CMP: INR1,200 

1,242 / 586 8 / 23 / 34



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Net Sales 81.9 89.2 97.1 108.1 EBITDA 7.4 9.7 11.3 13.2 Adj PAT 5.7 6.0 7.0 8.5 Adj EPS (INR) 45.6 48.3 56.0 68.2 EPS Gr. (%) 32.7 5.9 15.9 21.9 BV/Sh.(INR) 133.5 163.1 195.6 234.5 RoE (%) 34.2 29.6 28.6 29.1 RoCE (%) 22.6 23.3 23.7 25.1 Payout (%) 49.1 38.8 41.9 42.9 Valuations P/E (x) 26.3 24.8 21.4 17.6 P/BV (x) 9.0 7.4 6.1 5.1 EV/EBITDA 20.4 15.5 12.9 10.7 Div Yield (%) 1.2 1.3 1.7 2.1 * Consolidated





Neutral

Cable and Wire segment revenue increased 21% YoY in 4QFY14 aided by base effect and higher growth levels in flexible cable segment. For FY15, management has guided for 15% YoY growth across Indian business and 5% growth across Sylvania’s operations, with EBITDA margin at ~7%. Growth across Sylvania is subject to sustainable economic growth across EU nations and increased support from banking system, mainly for catering to replacement demand. HAVL is in the process of developing and leveraging several inhouse brands like Reo and Standard. Under the process, it intends to cross sell products (fans sold under the Standard brand were earlier used mainly for cables). Maintain Neutral.

Key issues to watch out  HAVL is promoting Standard as a value-for-money brand across urban India. Earlier, its focus was on leveraging the Havells brand, which has matured, and thus intends to create a secondary brand to attract new customers.  Revenue from Standard increased from INR100m per month to INR250m per month. Await more clarity on Cross-Sell strategy which has been an important driver at HAVL.

Quarterly Performance (Standalone) Y/E March Sales Change (%) Adj EBITDA Change (%) Adj EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) E: MOSL Estimates;

July 2014

1Q 10,513 1.8 1,411 10.1 14.1 156 56 32 1,154 207 18.0 947 18.3 1,029 16.9

(INR Million) FY14 2Q 11,740 21.8 1,690 41.8 14.3 159 61 78 1,554 296 19.1 1,257 44.6 1,253 58.9

3Q 11,844 11.9 1,633 16.7 13.2 161 85 106 1,559 345 22.1 1,215 28.3 1,185 21.4

4Q 13,100 12.0 1,772 20.2 15.4 160 67 141 1,685 316 18.7 1,369 24.8 1,369 27.5

1Q 11,661 10.9 1,539 9.1 13.2 162 50 40 1,367 328 24.0 1,039 9.7 1,039 0.9

FY15E 2Q 3Q 12,540 13,096 6.8 10.6 1,786 1,751 5.7 7.2 14.2 13.4 165 185 50 50 90 125 1,661 1,641 399 394 24.0 24.0 1,262 1,247 0.4 2.7 1,262 1,247 0.7 5.3

4Q 14,375 9.7 2,159 2.6 15.0 169 50 195 2,135 512 24.0 1,623 18.5 1,623 18.5

FY14

FY15E

47,197 11.7 6,500 21.9 13.8 636 269 357 5,951 1,164 19.6 4,787 28.9 5,122 37.7

51,673 9.5 7,234 11.3 14.0 681 200 450 6,803 1,633 24.0 5,170 8.0 5,170 1.0

96

June 2014 Results Preview | Sector: Capital Goods

Larsen & Toubro Bloomberg

LT IN

Equity Shares (m)

926.9

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

1,615 / 27

52-Week Range (INR)

1,775 / 678

1,6,12 Rel Perf. (%)

-1 / 48 / 53

Y/E March

2014 2015E 2016E 2017E

Sales

571.6

623.4

772.8

950.6

EBITDA

66.7

0.0

0.0

105.5

Adj PAT *

39.8

44.5

61.0

82.4

EPS (INR)*

43.2

48.2

66.1

89.3

EPS Gr. (%)

-19.2

11.8

37.0

35.0

BV/Sh (INR)

360.2

401.6

453.9

521.9

RoE (%)

15.5

14.1

15.8

17.8

RoCE (%)

13.1

12.3

13.7

15.6

Payout (%)

28.2

26.9

26.9

26.9

22.4

36.1

26.4

19.5

Valuations P/BV (x) EV/EBITDA (x) Div Yield (%)





Financial Snapshot (INR billion)

P/E (x)*

CMP: INR1,742

2.7

4.3

3.8

3.3

14.4

24.0

19.2

14.3

1.4

0.8

1.0

1.3

* Consolidated



Buy

L&T’s efforts to increase order inflows from overseas operations seem to be gaining momentum, as 80% of the orders received (INR96.2b) and those reported in media in 1QFY15 were from international operations. Major international orders received in 1QFY15 were a) INR45.1b (USD740m) Doha metro order, b) INR28.8b (USD480m) order for EPC work related to two gas-based power plants in Bangladesh, c) INR7.6b order from Saudi Arabia for construction of sub-stations and transmission lines. Also, media reports stated that L&T emerged as the lowest bidder for construction of Duqm airport in Oman. Its bid for the project was worth RO36.3m (USD94m), while Galfar Engineering & Construction and Mohammed Abdel Mohsen Al Kharafi & Sons were the third lowest bidder. Maintain Buy.

Key issues to watch out  Pace of order inflows, especially from domestic customers. Orders worth INR24b reported through press releases.  Management commentary in terms of asset monetization, including Singapore REIT and fund infusion by Canada Pension Fund.

Quarterly Performance (Standalone) Y/E March Net Sales Change (%) EBITDA Change (%) Margin (%) Adjusted EBIDTA Change (%) Adjusted Margin (%) Depreciation Interest Other Income Extraordinary Inc/(Exp) Reported PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Order Intake Order book (INR b) BTB (x)

1Q 98,239 8,917 9.1 9,997 10.2 1,868 2,424 4,871 0 9,496 2,852 30.0 6,643 7,399 224 1,553 2.9

(INR Million) FY14 2Q 3Q 123,084 143,875 11.8 11,857 16,886 34.2 9.6 11.7 12,857 16,886 22.1 10.4 11.7 1,926 1,992 2,379 2,909 4,656 4,329 0 1,044 12,208 17,358 3,562 4,953 29.2 28.5 8,646 12,406 9,346 11,362 22.1 233 217 1,650 1,712 3.1 3.1

4Q 200,791 11.1 29,010 36.2 14.4 27,510 22.0 13.7 2,138 3,049 4,953 4,841 33,616 6,381 19.0 27,235 23,362 46.2 267 1,630 2.9

1Q 103,554 5.4 10,459 17.3 10.1 10,459 4.6 10.1 2,050 2,950 4,600 0 10,059 3,018 30.0 7,041 7,041 -4.8 223 1,749 3.1

FY15E 2Q 3Q 132,169 156,689 7.4 8.9 12,953 16,766 9.2 -0.7 9.8 10.7 12,953 16,766 0.7 -0.7 9.8 10.7 2,100 2,125 2,850 2,700 5,100 5,020 0 0 13,103 16,961 3,800 4,579 29.0 27.0 9,303 12,381 9,303 12,381 -0.5 9.0 255 292 1,872 2,008 3.2 3.4

4Q 224,850 12.0 28,095 -3.2 12.5 28,095 2.1 12.5 2,206 2,500 6,191 0 29,580 6,029 20.4 23,551 23,551 0.8 292 2,076 3.4

FY14

FY15E

565,989 9.7 66,670 21.8 11.8 67,250 18.5 11.9 7,924 10,761 18,809 5,885 72,679 17,748 24.4 54,931 51,469 22.9 941 1,630 2.9

617,263 9.1 68,272 2.4 11.1 68,272 1.5 11.1 8,481 11,000 20,911 0 69,702 17,426 25.0 52,277 52,277 1.6 1,063 2,073 3.4

E: MOSL Estimates

July 2014

97

June 2014 Results Preview | Sector: Capital Goods

Siemens Bloomberg

SIEM IN

Equity Shares (m)

356.1

M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)

353 / 6

Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA

2 / 33 / 51

2013 2014E 2015E 2016E

113.5 110.6 122.4 140.7 4.2 7.1 10.3 12.7 1.7 3.3 5.1 6.8 4.8 9.3 14.6 19.3 -67.7 94.8 57.0 31.9 114.5 119.2 126.5 136.2 4.2 8.0 11.9 14.7 5.1 9.2 13.5 16.6 124.0 49.7 49.7 49.7

129.1 106.6 8.7 8.3 50.1 47.5 Div. Yield (%) 0.5 0.4



1,010 / 414

Financial Snapshot (INR billion) Y/E Sept

CMP: INR990

67.9 7.8 32.0 0.6

51.5 7.3 25.1 0.8



Sell

Siemens India’s product portfolio largely comprises of late cycle products. Order inflow for 2QFY14 was at INR26b v/s INR20b at end-1QFY14, while BTB ration remained stagnant at 1.3x. Recently, SIEM had received a repeat order from BHEL for supply of large gear units and gear components. Earlier, an order for supply of 60 gear units was bagged in 2013. Maintain Sell.

Key issues to watch out  Recently, Siemens AG entered into agreement with Mitsubishi – Hitachi Metals Machinery Inc to set up a JV for operating in metallurgical industry. Hence, SIEM decided to transfer its metal technology business to the new entity.  SIEM had earlier divested several of its business verticals as a part of value unlocking initiatives. Seek more clarity on the same.  In May 2014, Siemens AG had decided to lower its manpower by 11,600 to lower its costs by USD1.4b from CY16. Await more clarity on the impact of this decision across Indian operations.

Quarterly Performance (Standalone) FY13 FY14 1Q 2Q 3Q 4Q 1Q 2Q Total Revenues 24,962 29,556 26,420 32,589 23,939 27,063 Change (%) -0.2 -26.4 -12.5 -3.4 -4.1 -8.4 EBITDA 1,556 614 276 1,753 1,493 1,863 As % of Revenues 6.2 2.1 1.0 5.4 6.2 6.9 Operational EBIDTA 1,841 1,514 1,630 1,905 1,330 1,863 As % of Revenues 7.4 5.1 6.2 5.8 5.6 6.9 Depreciation 588 610 626 678 564 588 Interest Income -87 -84 -39 21 -17 -24 Other Income 69 125 26 134 73 88 Extra-ordinary Items 0 -139 338 -523 0 0 PBT 951 -94 -701 1,752 985 1,338 Tax 314 -115 -213 260 334 456 Effective Tax Rate (%) 33.0 122.2 30.4 14.9 33.9 34.0 Reported PAT 636 21 -488 1,492 651 883 Adjusted PAT 636 299 -218 1,073 651 883 Change (%) 5.8 -91.1 -141.1 162.2 2.3 194.7 Order Intake (INR b) 20 28 26 35 20 26 Order book (INR b) 132 130 130 133 129 122 BTB (x) 1.0 1.1 1.2 1.2 1.2 1.1 E: MOSL Estimates; Adj EBITDA: Adjusted for change in project revenues and cost estimates

(INR Million)

Y/E September

July 2014

3QE 26,414 0.0 1,636 6.2 1,636 6.2 620 -40 110 0 1,086 358 33.0 727 727 -433.8 25 120 1.1

4QE 33,222 1.9 2,088 6.3 2,251 6.8 672 -69 130 0 1,476 464 31.4 1,012 1,012 -5.7 38 125 1.2

FY13

FY14E

113,527 -5.6 4,207 3.7 6,905 6.1 2,502 -189 345 -325 1,537 246 16.0 1,290 1,680 -80.1 102 137 1.2

110,638 -2.5 7,079 6.4 7,079 6.4 2,443 -150 400 0 4,886 1,612 33.0 3,274 3,274 94.9 110 133 1.2

98

June 2014 Results Preview | Sector: Capital Goods

Thermax Bloomberg

TMX IN

Equity Shares (m)

119.2

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

114 / 2

52-Week Range (INR)

0 / 11 / 28 

Financial Snapshot (INR billion)

Net Sales EBITDA Adj PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (X) P/BV (X) EV/EBITDA Div Yield (%)



990 / 526

1,6,12 Rel Perf. (%)

Y/E March

CMP: INR956

2014 2015E 2016E 2017E

51.6 58.5 69.7 88.0 4.3 5.5 6.9 9.5 2.5 3.5 4.7 6.9 20.6 29.6 39.2 57.7 -23.6 43.2 32.7 47.0 172.5 192.7 219.1 263.9 12.7 16.5 19.4 24.2 10.7 14.5 17.4 22.2 39.7 31.7 32.8 22.3 30.2 3.6 15.7 1.1

32.3 5.0 18.9 0.8

24.3 4.4 14.6 1.2

16.6 3.6 10.1 1.2





Buy

With the pace of order finalization under pressure and lower visibility on mega orders (such as the INR17b order bagged from Reliance Ind in FY14), maintaining the pace of order inflows continues to be a challenge. Near term domestic order inflows are expected from base industries, while focus continues on ramping up exports / international business. PBIT margin in the Environment segment declined to 2.6% in 4QFY14. Stabilization in the one-off parameters will be an important monitorable. TMX recently started to market construction chemicals, which would be manufactured at its Jagadia-based factory. The business also has a good export potential. Maintain Buy.

Key issues to watch out  Updates on the recovery seen across EU nations, which are catered to by its subsidiaries.  Management commentary on the pace of order inflows from its domestic customers.

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 (%) Order Book Order Intake BTB (x) E: MOSL Estimates

July 2014

(INR Million) 1Q 8,628 -12.3 814 -15.5 9.4 142 8 81 745 243 32.6 503 -25.2 503 (25.2) 55,300 21,230 1.2

FY14 2Q 10,433 -12.5 937 -23.1 9.0 140 19 75 853 551 64.6 302 -66.9 592 (35.0) 53,080 7,680 1.2

3Q 10,138 -3.2 908 -18.8 9.0 147 23 229 968 301 31.1 666 -12.7 666 (12.7) 56,990 13,650 1.3

4Q 13,825 -5.8 1,337 -20.1 9.7 146 39 351 1,503 444 29.5 1,059 -8.2 1,059 (8.2) 53,890 11,410 1.3

1Q 8,711 1.0 877 7.7 10.1 150 15 115 827 248 30.0 579 15.2 579 15.2 54,588 9,509 1.3

FY15E 2Q 3Q 10,969 11,214 5.1 10.6 1,125 1,160 20.1 27.7 10.3 10.3 155 165 20 30 145 265 1,095 1,230 328 369 30.0 30.0 766 861 154.1 29.2 766 861 29.5 29.2 55,142 57,538 11,622 14,264 1.3 1.3

4Q 16,793 21.5 1,820 36.1 10.8 169 35 351 1,967 590 30.0 1,377 30.0 1,377 30.0 55,651 17,434 1.4

FY14

FY15E

43,022 34.1 4,092 -1.3 9.5 578 88 643 4,069 1,539 37.8 2,530 -11.9 2,530 (11.5) 53,890 53,970 1.3

47,687 54.4 4,981 29.7 10.4 639 100 876 5,118 1,536 30.0 3,583 153.3 3,583 39.8 58,256 52,829 0.3

99

June 2014 Results Preview | Sector: Capital Goods

Voltas Bloomberg

VOLT IN

Equity Shares (m)

330.7

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

71 / 1

52-Week Range (INR)

CMP: INR215

Voltas has a market share of ~21% in India’s room air conditioner market. Company’s focus seems to be on maintaining its market share at the current level. Improvement in margins across project business depends on the pace of project execution across recently-awarded projects (bagged at higher margins) and closure of legacy projects (witnessing cost overruns). Management expects to complete the legacy projects by 2QFY15. NWC at end-4QFY14 fell to 53 days from a peak of 69 at end2QFY13. Maintain Buy.



233 / 63

1,6,12 Rel Perf. (%)

0 / 63 / 136



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Net Sales

Buy

52.7

55.9

64.2

72.9

EBITDA

1.6

2.7

4.4

5.4

Adj PAT

1.8

2.3

3.5

4.3

EPS (INR)

7.4

8.5

10.6

13.0

EPS Gr. (%)

18.7

14.6

24.0

23.3

Key issues to watch out

BV/Sh. (INR)

55.0

61.0

68.4

77.5

RoE (%)

12.3

14.0

15.4

16.8

RoCE (%)

11.6

14.8

16.5

18.2

Payout (%)

39.4

37.2

36.8

36.3

29.3

31.3

25.0

20.0

 Management’s commentary on the status of Sidra project, which is 95% complete and getting commissioned. Await more clarity on its commissioning schedule and time line by which the negotiation process for recovery of cost overruns would start.  Any signs of growth for its Engineering product/service segment, which is dependent on revival of textile capex for its growth and is expanding its product portfolio.  EBIT margin across the engineering products and service segment had increased to 28% in FY14, which was aided by one-time gains of INR215m. Revenues to be impacted given discontinuation of key principals.

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

2.9

3.5

3.1

2.8

20.0

19.0

15.2

12.1

1.1

1.0

1.3

1.6



Quarterly Performance (Consolidated)

(INR Million) FY14

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 (%) Order Book Order Intake BTB - TTM basis (x) E: MOSL Estimates

July 2014

1Q 16,033 -0.8 614 -34.6 3.8 61 179 221 1 595 190 31.9 405 -48.7 406 -47.7 38,110 7,850 1.2

2Q 10,805 -7.2 432 -1.7 4.0 60 55 303 0 620 196 31.7 424 -1.4 424 48.9 43,490 12,089 1.4

3Q 4Q 11,194 14,628 -2.9 -8.4 684 1,054 181.8 26.9 6.1 7.2 60 69 54 65 170 308 -43 -174 783 1,402 164 392 20.9 28.0 619 1,010 -18.7 1,023.3 577 836 237.5 15.5 39,460 36,120 2,399 73 1.4 1.3

FY15E 1Q 16,242 1.3 1,023 66.5 6.3 65 160 200 0 998 259 26.0 738 81.2 738 80.9 33,384 3,362

2Q 10,515 -2.7 486 12.3 4.6 68 50 250 0 618 161 26.0 457 8.1 457 8.1 31,660 4,482

3Q 12,417 10.9 848 24.1 6.8 70 75 175 0 878 228 26.0 650 5.1 650 12.9 30,190 5,603

4Q 16,773 14.7 1,281 21.6 7.6 75 124 229 0 1,312 340 25.9 972 -3.7 972 16.3 37,419 15,054

FY14

FY15E

52,660 -4.8 2,656 -21.1 5.0 248 226 1,002 215 3,399 941 27.7 2,458 18.3 2,242 14.7 36,120 22,410

55,947 6.2 3,638 52.9 6.5 278 409 854 0 3,806 989 26.0 2,817 14.6 2,817 25.6 43,376 28,500

100

June 2014 Results Preview | July 2014

Cement Technology Company name

Demand recovery continues with ~8% growth

ACC

Upgrading FY16 EPS, led by increase in pricing improvement to ~INR20/bag

Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement

Demand recovery continues; expect ~8% growth for our Cement universe Cement demand recovery continued in 1QFY15, driven by strong rural housing demand and partial resolution of sand mining issue. We estimate growth of 8.3% YoY (decline of 4.5% QoQ) for our Cement universe. Capacity utilization would remain stable YoY at ~74% (down 4pp QoQ). Cement dealers across regions indicate improved sentiment and sustenance of demand recovery in 2HFY15.

Pre-monsoon price hikes across markets, estimate INR6/bag QoQ increase While cement prices retraced from the highs of March-April 2014, especially in North India, as the Binani plant commenced operations, blended prices were still higher than in 4QFY14. Overall, we expect weighted average national prices to increase by INR6/bag QoQ (and INR14/bag YoY) in 1QFY15. This includes specific trends of (a) ~INR14/bag QoQ average increase in South India, benefiting from upto ~INR100/bag price increase in June 2014, (b) ~INR6/bag increase in West and Central India, (c) INR3/bag increase in North India, and (d) ~INR4/bag decline in East India. We now factor in INR12.5/INR20/INR20 per bag increase in realizations in FY15/FY16/FY17 on back of ~INR5/bag decline in FY14 (v/s earlier assumption of ~INR12.5/12.5/15 per bag increase).

Profitability stable QoQ; south players to enjoy partial benefits of price hike Profitability is likely to remain stable QoQ, as the benefit of higher price gets offset by freight cost pressure and negative operating leverage, resulting in EBITDA/ton of ~INR731 (down INR73/ton YoY). While players focused on South India would benefit significantly from sharp pricing recovery, weak pricing would impact profitability of players based in North and East India. We estimate EBITDA/ton at INR795/1,075/1,345 for FY15/FY16/FY17, against ~INR673/ton in FY14. Valuation and view While our FY15E EPS has seen downgrades, our assumption of higher pricing change has led to up to 39% upgrade in FY16E EPS. While demand recovery would be gradual, slowing capacity addition coupled with higher capex and opex cost would support cement prices and profitability. Demand recovery would be critical for operating and stock performance. Among large caps, we prefer ACC, UTCEM and SRCM, and DBEL, JKCE, JKLC, and PRSC in mid-caps.

Jinesh Gandhi ([email protected]); +91 22 3982 5416 Sandipan Pal ([email protected]); +91 22 3982 5436 July 2014

101

June 2014 Results Preview | Sector: Cement

Expected quarterly performance summary (INR m)

MOSL cement universe volumes to grow 8% YoY (3% QoQ)

Utilizations fail to improve in a seasonally strong quarter

8.3

6.1

1QFY15E

1.5 4QFY14

3QFY14

3.4 0.4 2QFY14

1QFY14

1.9

1QFY13

4QFY12

-2.0 3QFY13

8.4 2.7

10.4 3QFY12

Volume growth (%)

2QFY13

9.4 2QFY12

2QFY11

1QFY15E

4QFY14

3QFY14

2QFY14

2QFY12

1QFY14

-2

4QFY13

-5

3QFY13

3

2QFY13

0

1QFY13

8

4QFY12

5

3QFY12

13

1QFY12

10

4.3

18

13.8

Volumes (MT) - RHS

MOSL Universe

4.0

IIP Data

15

Net Profit Var % Var % Jun-14 YoY QoQ 2,656 2.5 -13.9 3,771 16.3 -15.7 392 -14.8 20.3 1,199 -46.8 -3.4 -46 PL Loss 59 -71.8 -93.7 3,048 7.2 34.1 6,186 -8.0 -18.9 17,264 -6.6 -11.4

4QFY13

Cement demand recovery apparent in 1QFY15 (%)

1QFY12

Buy Neutral Buy Buy Neutral Buy Buy Buy

EBITDA Var % Var % Jun-14 YoY QoQ 3,889 -10.3 6.5 5,172 5.1 -10.5 650 -2.7 17.2 1,148 -43.3 -16.9 1,342 -29.7 81.0 8,592 9.5 -1.5 4,498 18.4 5.6 10,203 -2.7 -10.7 35,495 -1.4 -2.8

4QFY11

Reco

6.4

ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Sector Aggregate

Sales Var % Var % Jun-14 YoY QoQ 29,833 6.7 0.5 25,053 6.8 -5.1 8,083 4.7 3.9 12,999 13.1 -15.0 12,624 1.9 16.9 34,727 4.8 2.1 16,345 13.4 -1.5 55,830 12.6 -4.3 195,493 8.5 -1.7

3.6

CMP (INR) 4.7.14 1,452 224 418 3,388 116 73 7,276 2,604

3QFY11

Sector

Trend in average quarterly cement price (INR/bag)

100%

2QFY14

3QFY14

4QFY14

1QFY15

1QFY15

3QFY14

1QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

3QFY10

1QFY10

North

East

West

South

Source: Company, MOSL

Relative Performance - 3 months (%) Sensex Index

Central

277 279 289 295 281

293 298 264 266 262

60%

275

259 245 245

70%

289

269 272 316

80%

272 271 281 287

307 308

90%

294 300 281 295

328 324

1QFY14

National Average

Source: Company, MOSL

Relative Performance – 1 year (%)

MOSL Cement Index

130 120 110 100

Jul-14

Jun-14

May-14

Apr-14

90

Source: Bloomberg, MOSL

July 2014

Source: Bloomberg, MOSL

102

June 2014 Results Preview | Sector: Cement

Realization to improve marginally QoQ, as suggested by price Weaker realizations, cost push and weak operating leverage trend to keep profitability under pressure

731

731

4QFY14

1QFY15E

574 3QFY14

805

499

1QFY14

Source: Company, MOSL

2QFY14

780 4QFY13

946 2QFY13

764

1,092 1QFY13

3QFY13

956 4QFY12

812 3QFY12

613

1,019 1QFY12

2QFY12

924

4,369 1QFY15E

605

4,309 4QFY14

4QFY11

4,235 3QFY14

3QFY11

4,160 2QFY14

400

4,302 1QFY14

2QFY11

4,331

4,283 4QFY13

4,499 2QFY13

EBITDA (INR/ton)

3QFY13

4,466 1QFY13

4,207 4QFY12

3,835 2QFY12

4,132

4,038 1QFY12

3QFY12

3,879

3,478 3QFY11

4QFY11

3,262 2QFY11

Realization (INR/ton)

Source: Company, MOSL

Revised EPS estimates (INR)

ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement JK lakshmi Ramco Cement JK Cement Orient Cement Prism Cement Dalmia Cement

Rev 54.4 7.0 91.3 28.7 2.9 280.2 10.5 9.0 22.6 5.3 0.4 -12.3

FY15E/CY14E Old Chg (%) 60.4 -9.9 7.0 -0.3 94.9 -3.7 36.1 -20.6 3.8 -25.7 257.8 8.7 11.4 -7.7 8.4 7.5 18.8 20.2 6.6 -19.5 0.2 106.0 -7.2 71.7

Rev 84.1 9.0 133.0 51.4 10.6 431.1 17.1 15.1 45.3 5.4 6.2 24.4

FY16E/CY15E Old 79.2 8.1 119.9 49.5 8.2 336.9 12.3 13.4 37.0 4.8 5.1 20.4

Chg (%) 6.2 11.6 10.9 3.9 29.1 28.0 38.7 12.2 22.5 12.6 23.3 19.6

Source: MOSL Comparative valuation Sector / Companies Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Dalmia Bharat J K Cements JK Lakshmi Cem. Ramco Cements Prism Cement Sector Aggregate

July 2014

CMP (INR)

Reco

1,452 Buy 224 Neutral 418 Buy 3,388 Buy 116 Neutral 73 Buy 7,276 Buy 2,604 Buy 457 Buy 394 Buy 235 Buy 304 Buy 73 Buy

EPS (INR) FY15E FY16E FY17E 54.4 84.1 119.9 7.0 9.0 12.3 28.7 51.4 77.6 254.7 370.0 586.0 2.9 10.6 19.0 1.5 4.1 5.7 280.2 431.1 610.3 91.3 133.0 189.0 -12.3 24.4 82.2 22.6 45.3 76.2 10.5 17.1 34.3 9.0 15.1 24.1 0.4 6.2 11.2

PE (x) FY15E FY16E FY17E 26.7 32.1 14.6 13.3 40.7 48.2 26.0 28.5 -37.0 17.4 22.3 33.6 177.9 26.1

17.3 24.8 8.1 9.2 11.0 17.8 16.9 19.6 18.7 8.7 13.7 20.1 11.7 16.2

12.1 18.2 5.4 5.8 6.1 12.7 11.9 13.8 5.6 5.2 6.9 12.6 6.5 10.7

EV/EBIDTA (x) FY15E FY16E FY17E 17.7 21.6 7.9 5.5 9.9 10.5 13.2 16.2 14.6 8.5 10.4 14.0 12.7 12.2

10.9 15.6 4.3 3.7 6.4 8.8 8.7 11.1 7.9 5.5 6.3 10.1 6.0 8.4

7.0 11.4 2.4 2.4 4.4 7.9 5.8 7.7 4.8 3.4 4.0 7.2 3.9 5.9

RoE (%) FY15E FY16E FY17E 12.8 14.0 8.3 9.9 2.7 2.4 19.5 13.8 -3.3 8.7 9.2 8.4 2.0 9.7

18.5 16.8 13.3 12.6 8.2 6.3 24.5 17.4 6.5 15.8 13.8 12.9 26.8 14.0

23.5 20.5 17.2 16.8 13.2 8.4 27.2 20.7 19.2 22.5 23.8 18.1 35.6 18.1

103

June 2014 Results Preview | Sector: Cement

ACC Bloomberg Equity Shares (m)

ACC IN 187.9

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

273 / 5

52-Week Range (INR)

1524 / 912

1,6,12 Rel Perf. (%)

-3 / 9 / -16

CMP: INR1,452 



Financial and Valuation Summary (INR b) Y/E Dec Sales EBITDA NP

2013 2014E 2015E 2016E 109.1 116.4 137.0 163.0 13.7 13.8 22.7 33.7 9.1

10.2

15.8

22.5

Adj. EPS (INR) 48.6

54.4

84.1

119.9

EPS Gr. (%)

-29.3

12.1

54.6

42.5

BV/Sh (INR)

416.4

434.9

472.5

545.9

RoE (%)

12.0

12.8

18.5

23.5

RoCE (%) Payout (%)

15.3 60.2

15.7 68.8

24.1 55.3

31.3 38.8

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

30.3 3.5

27.0 3.4

17.5 3.1

12.3 2.7

EV/EBITDA (x) 17.6 EV/Ton (x) 133.2

16.4 124.9

10.7 120.6

6.8 113.0

 



Buy

We expect dispatches to grow 4% YoY (decline 2% QoQ) in 2QCY14 to 6.36m tons. Average realization is likely to grow 2.3% QoQ (+2.5% YoY) to INR4,404/ton. Revenue would grow 6.7% YoY (1% QoQ) to INR29.8b. EBITDA margin would shrink 2.5pp YoY (but expand 0.7pp QoQ) to 13% due to moderate realization growth. We estimate cement EBITDA/ton at INR600 (INR102 lower YoY; INR48 higher QoQ). PAT would grow 2.5% YoY (but decline 14% QoQ) to INR2.65b. We are cutting our CY14 EPS estimate (ex-synergies) by 9.9% to INR54.4, while raising our CY15 EPS estimate by 6.2% to INR84.1 to factor in for deferred recovery and higher pricing in FY15. The stock trades at 16.2x CY15E EPS, and at an EV of 9.9x CY15E EBITDA and USD120/ton. Maintain Buy with a target price of INR1,804 (CY15E EV of USD152/ton).

Key issues to watch for  Volume growth recovery and outlook  Cement pricing outlook and sustainability  Progress in ongoing capex for 5m-ton Jamul expansion  Update on synergies and other guided cost saving measures

Quarterly Performance (Standalone) Y/E December

(INR Million) CY13

CY14

CY13

CY14E

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

Cement Sales (m ton)

6.42

6.12

5.54

5.85

6.48

6.36

5.76

6.28

23.9

24.89

YoY Change (%)

-4.5

1.2

2.6

-1.5

0.9

4.0

4.0

7.4

-0.7

4.0

4,269

4,298

4,235

4,307

4,304

4,404

4,304

4,554

4,278

4,393

YoY Change (%)

0.9

-5.7

-5.9

3.4

0.8

2.5

1.6

5.7

-1.8

2.7

QoQ Change (%)

2.5

0.7

-1.5

1.7

-0.1

2.3

-2.3

5.8

0.0

0.0

29,111

27,952

25,087

26,934

29,671

29,833

26,500

30,444

109,084

116,448

2.4

1.4

3.2

-13.1

1.9

6.7

5.6

13.0

-2.0

6.8

4,468

4,335

2,254

2,626

3,653

3,889

2,110

4,123

13,683

13,776

15.3

15.5

9.0

9.8

12.3

13.0

8.0

13.5

12.5

11.8

1,383

1,387

1,444

1,526

1,366

1,400

1,440

1,448

5,740

5,654

Cement Realization

Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest

108

179

110

120

108

106

106

104

517

425

Other Income

1,205

908

1,023

1,438

1,668

1,000

1,200

1,382

4,573

5,250

PBT before EO Item

4,182

3,677

1,722

2,419

3,848

3,383

1,764

3,953

12,000

12,947

PBT after EO Item

5,861

3,677

1,722

3,178

4,975

3,383

1,764

3,953

14,437

14,075

Tax

1,484

1,086

514

396

988

727

379

861

3,479

2,956

Rate (%)

25.3

29.5

29.8

12.5

19.9

21.5

21.5

21.8

24.1

21.0

Reported PAT

4,377

2,591

1,208

2,781

3,987

2,656

1,384

3,092

10,958

11,119

Adjusted PAT

3,124

2,591

1,208

2,117

3,084

2,656

1,384

3,092

9,108

10,228

Margins (%)

10.7

9.3

4.8

7.9

10.4

8.9

5.2

10.2

8.3

8.8

-19.1

-38.0

-51.4

-11.5

-1.3

2.5

14.6

46.0

-29.5

12.3

YoY Change (%)

E: MOSL Estimates; * Merger of RMC business from 4QCY12

July 2014

104

June 2014 Results Preview | Sector: Cement

Ambuja Cements Bloomberg Equity Shares (m)

ACEM IN 1979.3

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

443 / 7

52-Week Range (INR)

CMP: INR224 

244 / 148

1,6,12 Rel Perf. (%)

-7 / 1 / -15

Financial and Valuation Summary (INR b)



Y/E Dec Sales EBITDA

2013 2014E 2015E 2016E 90.9 99.2 114.6 136.5 15.5 18.7 25.8 35.0



NP

10.5

13.8



Adj. EPS (INR)

17.9

24.3

6.8

7.0

9.0

12.3

EPS Gr. (%)

-32.4

2.9

29.7

36.1

BV/Sh. (INR)

61.2

51.5

56.0

63.8

RoE (%)

11.5

14.0

16.8

20.5

RoCE (%) Payout (%)

16.3 49.9

19.0 55.7

23.7 50.2

28.9 36.9

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

32.7 3.6

31.8 4.3

24.5 4.0

18.0 3.5

EV/EBITDA (x) 19.0 EV/Ton (USD) 173.3

21.0 224.5

14.8 218.0

10.6 211.1



Neutral

We expect dispatches to grow 3% YoY (decline 7% QoQ) to 5.62m tons in 2QCY14. Average realization would grow 3.7% YoY (1.8% QoQ) to INR4,456/ton. We estimate revenue at INR25.1b (up 6.8% YoY, but down 5% QoQ). EBITDA margin would remain flat YoY (decline 1.3pp QoQ) to 20.6%. We estimate EBITDA/ton at ~INR920 (up INR19/ton YoY; down INR38/ton QoQ). Adjusted PAT is likely to grow 16% YoY (decline 16% QoQ) to INR3.8b. We are raising our CY15 EPS estimate (ex-synergies) by 11.6% to factor in higher realizations. Our CY14 EPS estimate is unchanged. Maintain Neutral with a target price of INR247 (CY15E EV of USD160/ton).

Key issues to watch for  Volume growth recovery and outlook  Cement pricing outlook and sustainability  Progress in ongoing mining land acquisition and capex in 4.5m-ton Nagaur (Rajasthan) plant.

Quarterly Performance

(INR Million) CY13

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 (%)

1Q 5.96 -3.6 4,271 0.3 -0.5 25,448 -3.3 5,118 20.1 1,204 132 1,339 5,121 1,741 6,862 1,983 28.9 4,879 3,641 -28.3

2Q 5.46 -3.1 4,297 -5.7 0.6 23,457 -8.6 4,920 21.0 1,223 171 1,051 4,578 0 4,578 1,336 29.2 3,242 3,242 -30.9

CY14 3Q 4.89 2.0 4,103 -9.2 -4.5 20,049 -7.4 2,554 12.7 1,246 178 940 2,070 481 2,551 891 34.9 1,660 1,346 -60.1

4Q 5.29 -1.8 4,142 -3.5 0.9 21,913 -5.3 2,890 13.2 1,228 169 1,019 2,512 1,046 3,558 393 11.0 3,165 2,234 -2.8

1Q 6.03 1.2 4,376 2.5 5.6 26,398 3.7 5,776 21.9 1,197 161 1,414 5,832 948 6,780 1,579 23.3 5,200 4,473 22.9

2QE 5.62 3.0 4,456 3.7 1.8 25,053 6.8 5,172 20.6 1,225 160 1,175 4,962 0 4,962 1,191 24.0 3,771 3,771 16.3

3QE 5.03 3.0 4,356 6.1 -2.2 21,920 9.3 3,224 14.7 1,275 160 1,100 2,889 0 2,889 693 24.0 2,196 2,196 63.1

4QE 5.67 7.1 4,556 10.0 4.6 25,820 17.8 4,522 17.5 1,272 160 1,311 4,400 0 4,400 1,057 24.0 3,343 3,343 49.6

CY13

CY14E

21.60 -1.8 4,207 -4.4 0.0 90,868 46.1 15,482 17.0 4,901 651 4,349 14,280 3,269 17,549 4,603 26.2 12,946 10,464 -32.2

22.36 3.5 4,437 5.5 0.0 99,191 40.2 18,694 18.8 4,969 641 5,000 18,084 948 19,031 4,521 23.8 14,510 13,788 31.8

E: MOSL Estimates

July 2014

105

June 2014 Results Preview | Sector: Cement

Birla Corporation Bloomberg Equity Shares (m)

BCORP IN 77.0

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

32 / 1

52-Week Range (INR)

CMP: INR418 

429 / 191

1,6,12 Rel Perf. (%)

4 / 32 / 46 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP

2014 2015E 2016E 2017E 29.7 33.3 38.5 43.5 2.1 3.2 5.8 8.5 1.3

2.2

4.0

6.0

Adj. EPS (INR) 16.9

28.7

51.4

77.6

EPS Gr. (%)

-51.9

70.1

79.3

50.9

BV/Sh. (INR) 328.0

346.2

386.0

452.0

RoE (%)

5.1

8.3

13.3

17.2

RoCE (%) Payout (%)

6.1 55.5

9.0 36.5

14.0 22.6

18.1 15.0

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

24.8 1.3

14.6 1.2

8.1 1.1

5.4 0.9

EV/EBITDA (x) 11.5 EV/Ton (x) 43.4

7.4 42.6

3.8 39.9

2.1 31.7

 



Buy

We expect volumes to grow 6% YoY (3.9% QoQ) to 1.98m tons in 1QFY15. Average realization is likely to grow 1.6% YoY (decline 1.3% QoQ) to INR3,813/ton. EBITDA margin would shrink 0.7pp YoY (but expand 0.9pp QoQ) to 8%. EBITDA/ton (including non-cement business) is likely to decline by INR29 YoY (but increase by ~INR37 QoQ). We estimate PAT at INR392m, down 14.8% YoY. We are cutting our EPS estimate for FY15 by 21% to factor in lower realizations for the year, but raising our EPS estimate for FY16 by 3.9% to factor in better realizations. The stock trades at 8.1x FY16E EPS, and at an EV of 3.8x FY16E EBITDA and USD40/ton. We maintain Buy, with a target price of INR566 (FY16E EV of USD60/ton).

Key issues to watch for  Volume growth recovery and outlook  Cement pricing outlook and sustainability  Timeline and clarity on Rajasthan Mining permission

Quarterly Performance

(INR Million) FY14

Y/E March Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) Reported PAT EO Income/(Expense) PAT Margins (%) YoY Change (%)

1Q 1.87 14.8 3,864 -3.9 7.9 7,720 17.3 668 8.7 302 207 367 525 66 12.5 460 0 460 6.0 -45.7

2Q 1.85 17.3 3,541 -10.0 -8.3 7,107 13.3 585 8.2 311 249 422 448 32 7.1 416 0 416 5.9 -48.2

FY15E 3Q 1.81 16.5 3,579 -5.4 1.1 7,098 15.9 299 4.2 319 202 323 101 -59 -58.0 160 0 160 2.3 -50.4

4Q 1.91 11.6 3,753 4.8 4.8 7,780 16.9 555 7.1 393 198 485 448 186 41.6 262 -109 326 4.2 -55.1

1Q 1.98 6.0 3,813 -1.3 1.6 8,083 4.7 650 8.0 360 200 400 490 98 20.0 392 0 392 4.8 -14.8

2Q 1.96 6.0 3,713 4.8 -2.6 7,818 10.0 555 7.1 365 205 450 435 87 20.0 348 0 348 4.5 -16.3

3Q 1.95 8.0 3,913 9.3 5.4 8,169 15.1 885 10.8 380 215 350 640 128 20.0 512 0 512 6.3 220.4

4Q 2.06 8.0 4,212 12.2 7.6 9,203 18.3 1,118 12.1 391 222 690 1,194 239 20.0 955 0 955 10.4 193.1

FY14

FY15E

7.43 15.0 3,686 -3.7 0.0 29,705 15.9 2,107 7.1 1,326 856 1,598 1,523 225 14.8 1,298 -109 1,391 4.7 -48.5

7.96 7.0 3,916 6.2 0.0 33,273 12.0 3,208 9.6 1,496 842 1,890 2,759 552 20.0 2,207 0 2,207 6.6 58.7

E: MOSL Estimates

July 2014

106

June 2014 Results Preview | Sector: Cement

Grasim Industries Bloomberg Equity Shares (m)

GRASIM IN 91.7

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

311 / 5

52-Week Range (INR)

CMP: INR3,388 

3755 / 2121

1,6,12 Rel Perf. (%)

-3 / 4 / -13 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 290.0 323.8 380.8 445.1 45.9 52.9 76.0 103.6 27.6

31.9

46.6

73.9

Adj. EPS (INR) 215.1

254.7

370.0

586.0

-26.1

18.4

45.3

58.4

BV/Sh. (INR) 2,354

2,584

2,928

3,485

EPS Gr. (%) RoE (%)

9.1

9.9

12.6

16.8

RoCE (%) Payout (%)

12.9 10.1

14.4 9.5

19.5 7.0

24.2 5.0

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

14.3 1.3

12.1 1.2

8.3 1.1

5.3 0.9

EV/EBITDA (x) 8.4 EV/Ton (x) 106.6

7.5 109.8

5.0 94.8

3.2 76.3

  



Buy

VSF volumes are likely to grow 10% YoY (but decline 14% QoQ) to 85,270 tons. VSF realizations would to decline by ~INR1/kg QoQ to INR118.15/kg. We are assuming price of INR121/kg in FY15 and INR124/kg in FY16. Standalone EBITDA margin is likely to decline 8.8pp YoY (but remain stable QoQ) to 13.3%. EBITDA would decline by 56% YoY (12% QoQ) to INR1.1b, translating into PAT of INR1.2b, down 47% YoY. We cut our consolidated EPS estimate by 13% for FY15 but raise our consolidated EPS estimate by 9.5% for FY16 to factor in deferred realization uptick in FY16 in both cement and VSF. The stock trades at 9.2x FY16E consolidated EPS, and at an EV of 5.4x FY16E EBITDA and USD103/ton. Maintain Buy, with a target price of INR4,173 (FY16-based SOTP).

Key issues to watch for  Outlook on VSF business and strategy to utilize upcoming capacities (~47% capacity growth)  Outlook on cement demand and pricing, and status of capacity addition

Quarterly Performance (Standalone) Y/E March VSF Volume (ton) YoY Change (%) VSF Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Items Extraordinary Inc/(Exp) PBT after EO Items Tax Rate (%) Reported PAT Adj. PAT YoY Change (%)

1Q 77,518 0.7 116,501 -9.0 -2.2 11,489 -7.3 9,464 2,025 17.6 484 78 958 2,420 8 2,429 167 6.9 2,261 2,254 -17.4

(INR Million FY14 2Q 3Q 93,025 97,049 9.0 23.5 121,590 121,590 -4.0 -0.1 4.4 0.0 14,055 14,558 4.5 19.8 11,443 12,613 2,613 1,945 18.6 13.4 530 547 95 134 2,213 492 4,201 1,757 184 27 4,385 1,783 250 522 5.7 29.3 4,135 1,261 3,962 1,242 3.5 -37.3

4Q 99,385 4.4 119,150 0.0 -2.0 15,284 11.0 13,902 1,382 9.0 635 109 835 1,472 72 1,544 242 15.7 1,303 1,242 -41.7

1Q 85,270 10.0 118,150 1.4 -0.8 12,999 13.1 11,850 1,148 8.8 650 120 1,000 1,378 0 1,378 179 13.0 1,199 1,199 -46.8

FY15E 2Q 3Q 102,328 109,665 10.0 13.0 119,150 120,150 -2.0 -1.2 0.8 0.8 15,288 16,047 8.8 10.2 13,794 14,423 1,493 1,625 9.8 10.1 700 720 125 125 2,000 750 2,668 1,530 0 0 2,668 1,530 347 199 13.0 13.0 2,322 1,331 2,322 1,331 -41.4 7.2

4Q 114,736 15.4 125,058 5.0 4.1 17,275 13.0 14,949 2,325 13.5 726 125 1,000 2,474 0 2,474 322 13.0 2,153 2,153 73.4

FY14

FY15E

366,977 9.2 119,854 -3.1 0.0 55,386 6.9 47,422 7,964 14.4 2,196 415 4,497 9,850 291 10,141 1,181 11.6 8,960 8,703 -18.1

411,999 12.3 120,854 0.8 0.0 61,608 11.2 55,017 6,591 10.7 2,796 495 4,750 8,050 0 8,050 2,093 26.0 5,957 5,957 -31.5

E: MOSL Estimates

July 2014

107

June 2014 Results Preview | Sector: Cement

India Cements Bloomberg Equity Shares (m)

ICEM IN 307.2

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

36 / 1

52-Week Range (INR)

1 / 72 / 73

Financial and Valuation Summary (INR b) 2014 2015E 2016E 2017E 44.4 50.0 59.1 69.9 5.4 7.1 10.3 13.6

NP

-0.5

1.0

3.3

5.7

Adj. EPS (INR)

-7.9

2.9

10.6

19.0

-235.7 -136.2

269.8

79.7

133.6

148.7

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

125.4

126.4

-1.3

2.7

8.2

13.2

RoCE (%) Payout (%)

4.2 0.0

6.4 68.9

10.8 32.7

14.8 18.7

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

-14.7 0.9

40.7 0.9

11.0 0.9

6.1 0.8

EV/EBITDA (x) 12.0 EV/Ton (USD) 78.5

9.4 78.1

6.1 72.9

4.2 65.9

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

July 2014



131 / 43

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR116

1Q 2.65 11.3 4,188 -6.2 -0.8 12,384 3.1 1,910 15.4 680 999 25 257 0 257 89 34.6 168 168 -77.5 1.4



  

Neutral

We expect volumes to grow 3% YoY (3% QoQ) to 2.73m tons. Strong uptick in prices in June 2014 should aid 1QFY15 realizations. We expect 0.5% YoY decline (but 5% QoQ increase) in realizations to INR4,209/ton. We estimate EBITDA at INR1.34b, up 81% QoQ. EBITDA margin is likely to shrink 4.8pp YoY (but expand 3.7pp QoQ) to 10.6%, translating into net loss of INR46m (v/s INR480m in 4QFY14). Pure Cement’s EBITDA/ton is likely to increase by ~INR108/ton QoQ to INR375/ton. We are revising our EPS estimates for FY15/FY16 by -26%/+29% to factor in deferred uptick in cement realizations in FY16. The stock trades at 11x FY16E EPS, and at an EV of 6.1x FY16E EBITDA and USD73/ton. Maintain Neutral, with a target price of INR126 (FY16E EV of USD75/ton).

Key issues to watch for  Demand and pricing outlook, especially in South India  Expected timeline and potential cost savings from captive coal block in Indonesia and AP power plant  Timeline and capex plan for TN expansion of 2.6m tons

(INR Million) FY14 2Q 3Q 2.44 2.29 -2.9 -5.2 4,116 4,429 -5.5 1.5 -1.7 7.6 10,859 10,365 -3.3 -4.2 1,276 1,444 11.7 13.9 682 686 988 773 80 19 -314 4 0 0 -314 4 -89 0 28.3 0.0 -225 4 -225 4 -145.9 -98.4 -2.1 0.0

4QE 2.65 -4.4 4,009 -5.0 -9.5 10,801 -9.3 742 6.9 716 778 272 -480 1,091 -1,571 0 0.0 -1,571 -480 -282.2 -4.4

1Q 2.73 3.0 4,209 0.5 5.0 12,624 1.9 1,342 10.6 680 750 30 -58 0 -58 -12 20.0 -46 -46 -127.4 -0.4

FY15E 2Q 3Q 2.56 2.45 5.0 7.0 4,609 4,409 12.0 -0.4 9.5 -4.3 12,483 11,107 15.0 7.2 1,989 1,444 15.9 13.0 700 706 800 825 50 60 539 -27 0 0 539 -27 108 -5 20.0 20.0 431 -22 431 -22 -291.5 -622.1 3.5 -0.2

4Q 2.91 9.5 4,609 15.0 4.5 13,757 27.4 2,373 17.3 710 852 30 841 0 841 168 20.0 673 673 -240.2 4.9

FY14E

FY15E

10.04 -0.2 4,178 -4.2 0.0 44,409 -3.4 5,371 12.1 2,764 3,537 396 -533 1,091 -1,624 0 0.0 -1,624 -533 -130.2 -1.2

10.65 6.1 4,460 6.8 0.0 49,972 12.5 7,148 14.3 2,796 3,227 170 1,296 0 1,296 259 20.0 1,036 1,036 -294.5 2.1

108

June 2014 Results Preview | Sector: Cement

Jaiprakash Associates Bloomberg Equity Shares (m)

JPA IN 2219.1

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

162 / 3

52-Week Range (INR)

90 / 28

1,6,12 Rel Perf. (%)

-16 / 14 / 5

Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

Sales

131.2

147.5

167.6

180.7

32.5

37.8

44.5

48.3

NP

0.9

3.4

9.1

12.7

Adj. EPS (INR)

0.4

1.5

4.1

5.7

EPS Gr. (%)

-81.4

259.2

170.5

40.6

BV/Sh. (INR)

61.7

62.9

66.0

70.5

RoE (%)

0.7

2.4

6.3

8.4

RoCE (%)

6.9

8.1

9.7

10.6

Payout (%)

5.1

22.8

22.8

22.8

Valuations P/E (x)

173.3

48.2

17.8

12.7

1.2

1.2

1.1

1.0

EV/ EBITDA (x) 12.1 Div. Yield (%) 0.1

10.5 0.4

8.8 1.1

7.9 1.6

EBITDA

P/BV (x)

CMP: INR73  

 



Buy

For 1QFY15, we estimate revenue of INR34.7b, EBITDA of INR8.6b, and net profit of INR59m. For Cement, we assume realization of INR4,404/ton against INR4,264/ton in 1QFY14. We expect volumes to grow 8% YoY to 3.9m tons. For the EPC division, we expect revenue to grow 2% YoY to INR12.8b. EBIT margin would be 26%. According to media articles, JPA is also considering sale of its Himachal-based and Rewa cement capacities. Recently, JPA completed its QIP of USD250m, to be utilized towards debt repayment. We expect JPA to post standalone net profit of INR3.4b (up 2.6x) in FY15 and INR9.1b (up 170% YoY) in FY16. The stock trades at 18x FY16E EPS.

Key issues to watch for  Cement realizations and cost  Update on further disinvestment  EPC division profitability and visibility on revenues/order book  Ramp-up in Real Estate division, revenue recognition

Quarterly performance

(INR Million)

Y/E March 1Q 33,149 11.9 7,847 1.7 23.7 1,943 5,900 371

FY14 2Q 31,761 6.5 7,904 2.5 24.9 1,962 6,542 1,245

3Q 31,378 -7.7 7,189 -5.7 22.9 1,968 7,515 441

4Q 34,026 -11.9 8,718 2.5 25.6 1,862 7,564 905

1Q 34,727 4.8 8,592 9.5 24.7 1,875 7,000 375

Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extra-ordinary income PBT 4,327 656 -1,854 275 92 Tax 982 -206 -968 -730 33 Effective Tax Rate (%) 22.7 -31.4 52.2 -265.8 36.0 Reported PAT 3,345 862 -886 1,005 59 Adj PAT 207 851 -885 927 59 Change (%) -85.0 -33.5 -180.3 -22.3 -71.8 E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger

July 2014

FY15E 2Q 3Q 32,086 35,332 1.0 12.6 9,001 9,266 13.9 28.9 28.1 26.2 1,950 2,050 6,750 6,250 390 410 691 249 36.0 442 442 -48.0

1,376 496 36.0 881 881 -199.6

4Q 39,163 15.1 10,918 25.2 27.9 2,086 6,260 413 2,985 1,016 34.0 1,969 1,969 112.5

FY14

FY15E

129,732 -1.8 31,080 -2.1 24.0 7,736 27,521 3,539 4,038 3,400 -737 -21.7 4,138 932 -81.1

147,508 13.7 37,777 21.5 25.6 7,961 26,260 1,588 0 5,144 1,793 34.9 3,351 3,351 259.7

109

June 2014 Results Preview | Sector: Cement

Shree Cement Bloomberg Equity Shares (m)

SRCM IN 34.8

CMP: INR7,276

Buy

We expect 4QFY14 cement volumes to grow 22% YoY (12% QoQ) to 3.86m tons (including clinker) and realizations to grow 9.7% YoY 52-Week Range (INR) 7982 / 3413 (1.6% QoQ) to INR3,925/ton. Moderate rise in realizations and 1,6,12 Rel Perf. (%) -4 / 41 / 26 benefit of positive operating leverage QoQ would lead to Cement business profitability at INR1,139/ton (up INR63/ton QoQ). Financial and Valuation Summary (INR b)  We estimate merchant power sales at 368m units (v/s 536m units Y/E March 2014 2015E 2016E 2017E QoQ and 795m QoQ) at ~INR3.3/unit (v/s INR3.3/unit in 3QFY14 and Sales 58.6 70.7 85.8 102.9 INR3.88/unit in 4QFY13). Power EBITDA contribution would be EBITDA 13.9 18.4 25.4 33.7 INR104m (v/s INR130m in 4QFY13 and INR840m in 3QFY14). Adjusted NP 8.2 9.8 15.0 21.3 PAT would be INR3b (v/s INR2.8b in 4QFY13 and INR2.3b in 3QFY14). Adj EPS (INR) 236.7 280.2 431.1 610.3  We are raising our EPS estimates by 8.7% for FY15 and 28% for FY16 EPS Gr. (%) -17.9 18.4 53.9 41.6 to factor in higher volumes and realizations. BV/Sh. (INR) 1,312 1,562 1,958 2,534  The stock trades at 16.9x FY16E EPS, and at an EV of 8.7x FY15E RoE (%) 19.6 19.5 24.5 27.2 EBITDA and USD162/ton. Buy with a target price of INR8,250 (FY16E RoCE (%) 19.6 22.0 27.2 31.1 Payout (%) 11.9 10.8 8.1 5.7 EV of USD190/ton). Valuations Key issues to watch for P/E (x) 30.7 26.0 16.9 11.9  Volume and pricing outlook for North India P/BV (x) 5.5 4.7 3.7 2.9  Pet coke price trend and update on any forward agreements for EV/EBITDA (x) 17.4 13.2 8.7 5.8 merchant power EV/Ton (USD) 197.7 174.1 161.9 143.2  Update on planned expansion and progress in capex plans M. Cap. (INR b)/(USD b)

253 / 4



Quarterly performance

(INR Million)

Y/E June 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 (%) E:MOSL Estimates

July 2014

1Q 3.04 22.4 3,815 12.2 1.7 12,964 52.2 3,902 30.1 942 543 328 2,745 10 2,736 454 16.6 2,281 2,289 438.0

FY13 2Q 3Q 3.00 3.26 5.2 -6.2 3,724 3,498 4.1 -1.7 -2.4 -6.1 14,281 14,281 19.4 0.3 3,717 4,058 26.0 28.4 818 1,265 563 447 323 572 2,659 2,918 120 1 2,539 2,917 365 176 14.4 6.0 2,174 2,741 2,277 2,741 284.6 85.2

4Q 3.17 -6.0 3,578 -4.6 2.3 14,414 0.4 3,800 26.4 1,332 378 913 3,003 0 3,002 159 5.3 2,843 2,843 -19.1

1Q 3.26 7.2 3,334 -12.6 -6.8 12,475 -3.8 2,494 20.0 1,139 312 740 1,783 11 1,773 50 2.8 1,722 1,732 -24.3

FY14 2Q 3.44 14.7 3,430 -7.9 2.9 13,170 -7.8 2,694 20.5 1,156 309 111 1,339 32 1,308 153 11.7 1,155 1,183 -48.0

3Q 3.84 17.8 3,863 10.4 12.6 16,600 16.2 4,261 25.7 1,667 363 546 2,777 59 2,719 494 18.2 2,225 2,273 -17.1

4QE 3.86 21.8 3,925 9.7 1.6 16,345 13.4 4,498 27.5 1,639 394 804 3,269 -48 3,317 225 6.8 3,093 3,048 7.2

FY13

FY14E

12.46 -16.2 3,628 3.4 0.0 55,671 -4.0 15,378 27.6 4,356 1,931 2,114 11,205 11 11,194 1,155 10.3 10,040 10,049 59.6

14.39 15.5 3,656 0.8 0.0 58,590 5.2 13,947 23.8 5,600 1,378 2,200 9,169 0 9,169 921 10.1 8,248 8,248 -17.9

110

June 2014 Results Preview | Sector: Cement

Ultratech Cement Bloomberg Equity Shares (m)

UTCEM IN 274.0

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

714 / 12

52-Week Range (INR)

CMP: INR2,604 

2868 / 1405

1,6,12 Rel Perf. (%)

-3 / 26 / 3 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP Adj EPS (INR)

2014 2015E 2016E 2017E 200.8 234.6 280.8 334.1 36.2 44.2 62.8 85.9 20.7

25.0

36.5

51.8

75.6

91.3

133.0

189.0

EPS Gr. (%)

-21.2

20.8

45.7

42.1

BV/Sh (INR)

623.5

703.1

823.4

998.4

RoE (%)

12.8

13.8

17.4

20.7

RoCE (%) Payout (%)

14.4 13.5

15.9 12.7

20.9 9.6

26.2 7.4

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

34.5 4.2

28.5 3.7

19.6 3.2

13.8 2.6

EV/EBITDA (x) 18.7 EV/Ton (USD) 191.7

15.5 193.7

10.9 185.5

7.4 171.2

   

Hold

We expect cement volumes to grow 14.7% YoY (but decline 5% QoQ) to 11.57m tons. Realizations are likely to grow 3.1% QoQ (but decline 2.2% QoQ) to INR4,032/ton. White cement volumes and realizations are likely to grow 8.8% YoY and 12% YoY, respectively. RMC volumes and realizations would grow 7.1% YoY and 2% YoY, respectively. We estimate EBITDA/ton at INR871 (down INR55/ton QoQ). EBITDA margin would decline by 2.9pp YoY (and 1.3pp QoQ) to 18.3%. EBITDA is likely to de-grow 3% YoY (and 11% QoQ) to INR10.2b, translating into PAT de-growth of 8% YoY to INR6.2b. We are revising our FY15/FY16 EPS estimates by -3.7%/+10.9% to factor in deferred uptick in realizations. The stock trades at 19.6x FY16E EPS, and at an EV of 10.9x FY16E EBITDA and USD185/ton. Maintain Buy, with a target price of INR2,906 (EV of FY16E USD200/ton).

Key issues to watch for  Volume growth recovery and outlook  Cement pricing outlook and sustainability  Progress and timeline of JPA deal  Update on financial performance of Star Cement, UAE

Quarterly Performance

(INR Million)

Y/E March 1Q 10.09 -2.3

FY14 2Q 3Q 9.23 9.98 -0.6 0.4

4Q 12.18 9.4

Sales (m ton) YoY Change (%) Grey Cement Realn.(INR/ton) * 4,120 3,973 3,936 3,912 YoY Change (%) 0.0 -5.8 -2.8 -2.5 QoQ Change (%) 2.7 -3.6 -0.9 -0.6 Net Sales 49,575 45,021 47,864 58,319 YoY Change (%) -2.3 -4.2 -1.5 8.2 EBITDA 10,491 6,597 7,641 11,429 Margins (%) 21.2 14.7 16.0 19.6 Depreciation 2,521 2,573 2,645 2,785 Interest 660 888 905 739 Other Income 1,882 574 996 1,858 PBT before EO expense 9,192 3,711 5,088 9,763 Extra-Ord expense 0 0 0 -956 PBT after EO Expense 9,192 3,711 5,088 10,719 Tax 2,466 1,070 1,391 2,340 Rate (%) 26.8 28.8 27.3 21.8 Reported PAT 6,726 2,641 3,698 8,379 Adj PAT 6,726 2,641 3,698 7,632 YoY Change (%) -13.6 -52.0 -38.5 5.1 E: MOSL Estimates; * Grey cement realization is our estimate

July 2014

1Q 11.57 14.7 4,032 -2.2 3.1 55,830 12.6 10,203 18.3 2,850 800 1,750 8,303 0 8,303 2,117 25.5 6,186 6,186 -8.0

FY15E 2Q 3Q 10.16 11.18 10.0 12.0 3,932 -1.0 -2.5 49,250 9.4 6,050 12.3 3,000 825 800 3,025 0 3,025 771 25.5 2,254 2,254 -14.7

4,182 6.2 6.4 57,013 19.1 10,437 18.3 3,200 835 1,000 7,402 0 7,402 1,887 25.5 5,514 5,514 49.1

4Q 13.33 9.4

FY14

FY15E

41.5 2.0

46.2 11.5

4,493 3,982 4,179 14.9 -2.9 4.9 7.5 0.0 0.0 72,513 200,779 234,606 24.3 0.3 16.8 17,948 36,160 44,638 24.8 18.0 19.0 3,348 10,523 12,398 855 3,192 3,315 1,600 5,310 5,150 15,345 27,755 34,076 0 -956 0 15,345 28,711 34,076 3,913 7,266 8,689 25.5 25.3 25.5 11,432 21,445 25,386 11,432 20,731 25,386 49.8 -21.9 22.5

111

June 2014 Results Preview | July 2014

Consumer Company name Asian Paints

Deja Vu 4QFY14 Consumer demand sequentially stable

Britannia Industries Colgate Dabur Emami Godrej Consumer GSK Consumer Hindustan Unilever ITC Marico Nestle India Pidilite Industries Radico Khaitan United Spirits

Expect 13% sales growth, 14% PAT growth for our Consumer coverage We expect our Consumer coverage universe to post 13% revenue growth and 14% PAT growth in 1QFY15. Broadly, consumption demand trends remained unchanged sequentially. While consumer sentiments improved post elections, it will reflect with a lag in numbers, in our view. Staples categories continue to see muted demand, while discretionary segment like Paints will see double digit volume growth, in our view. EBITDA is likely to grow 13.3%, with flat margins for our universe. We expect ITC to post 14% sales growth (1% decline in cigarette volumes) and 16.6% PAT growth. HUVR’s sales are likely to grow 10% (volume growth of ~5%), with 40bp EBITDA margin expansion.

Demand revival yet to be seen; weak monsoon could drive Agri commodity inflation Our channel checks and management interactions indicate no meaningful pick-up in demand trends yet. Demand trends remain largely unchanged sequentially across categories and geographies. Like in previous quarters, Decorative Paints continue to witness good momentum with likely double digit volume growth for the category. Monsoon has begun on a weak note with June receiving the scantiest rainfall in a decade and probability of El Nino has been revised up by Skymet, revising the probability of drought to 60% now v/s 25% in April. While we believe that the relevance of monsoon for FMCG consumption is blurring, poor monsoon could raise the prospect of Agri commodity inflation, going forward.

Expected quarterly performance summary (INR m) Sector

Asian Paints Britannia Colgate Dabur Emami Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate

CMP (INR) 4.7.14 588 1,016 1,664 191 543 809 4,751 624 333 249 4,970 333 112 2,453

Reco Neutral Buy Neutral Neutral Buy Neutral Neutral Sell Buy Buy Neutral Neutral Buy Neutral

Sales Var % Var % Jun-14 YoY QoQ 32,554 15,719 9,798 18,988 4,220 19,784 9,894 74,559 84,482 16,280 23,791 11,874 4,109 25,212 351,263

15.5 12.0 16.0 15.0 10.0 15.0 16.0 9.5 14.0 18.0 7.5 17.0 15.0 15.0 13.1

-0.3 -3.0 6.4 7.3 -5.3 2.8 -8.3 5.1 -8.6 52.2 2.8 30.9 16.9 15.4 2.8

EBITDA Var % Var % Jun-14 YoY QoQ 5,209 1,383 1,950 2,791 633 2,611 1,484 12,153 31,934 2,475 5,139 2,553 707 2,773 73,795

17.8 17.2 18.4 5.3 18.0 -3.4 18.5 -3.8 6.9 -46.3 18.3 -21.8 25.1 -21.6 11.9 12.8 14.4 -0.3 9.0 62.8 5.3 5.8 14.0 118.6 15.7 76.6 -0.3 36.8 13.3 5.6

Net Profit Var % Var % Jun-14 QoQ YoY 3,379 1,020 1,407 2,222 609 1,653 1,463 9,623 22,061 1,581 2,958 1,754 337 1,323 51,390

22.8 13.6 18.2 -2.8 8.4 1.6 19.4 -5.6 0.3 -46.5 26.7 -29.0 21.9 -14.8 8.7 15.6 16.6 -3.2 1.8 46.4 4.8 0.9 13.5 89.7 10.1 270.2 12.0 67.3 14.1 3.1 Source: MOSL

Gautam Duggad ([email protected]); +91 22 3982 5404 Manish Poddar ([email protected]); +91 22 3027 8029 July 2014

112

June 2014 Results Preview | Sector: Consumer

Input cost turning inflationary; price hikes in select categories The input costs scenario is turning inflationary, with inflation in copra, palm oil, tea, coffee, sugar, milk, LLP, Caustic Soda and HDPE (packaging) and correction in wheat, safflower oil and mentha oil prices. We note selective pricing actions by HUVR, APNT, Marico, ITC and Dabur to pass on the impact of raw material (RM) inflation. We expect operating margin expansion for APNT, Britannia, HUL, Dabur and GCPL, while UNSP, Nestle, Pidilite and Marico should post margin contraction. Competitive intensity continues to remain high in HPC categories, given the backdrop of muted volume growth.

Downside risks to earnings estimates for FY15E We expect downside risks for our coverage universe for FY15. While we have built a modest volume growth recovery in 2HFY15, if the current trends persist, we expect downside risks to our and consensus estimates.

Sector valuations expensive; prefer to stay selective Continued modest sector demand trends coupled with rich valuations drive our cautious sector stance. We prefer stocks with inbuilt resilience (ITC), special catalyst (Emami – distribution expansion, aggressive new launch calendar), inexpensive valuations (ITC) or turnaround potential (Britannia – margins still have a room for expansion). Pick-up in consumer sentiments could drive urban consumption going forward and benefit urban-oriented plays like Nestle, GCPL and Marico, in our view. Spike in input costs due to deficient monsoon and rise in competitive intensity, leading to irrational pricing, are the key risks and monitorables. 1QFY15 volume growth expectations Quarter Ending Asian Paints Colgate (Toothpaste) Dabur Godrej Consumer Soaps GSK Consumer Hindustan Unilever ITC (cigarette) Marico Parachute Hair Oil Saffola Radico Khaitan

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14E 15.0 15.0 12.0 18.0 -2.0 5.0 13.0 2.0 10.0 12.0 7.0 12.0 11.0 14.0 15.0 15.0 14.0 13.0 11.0 8.0 11.0 11.0 9.0 11.0 7.0 9.0 8.6 10.0 10.8 12.4 12.0 10.5 9.5 12.0 9.0 10.7 9.2 9.4 8.0 9.0 14.0 8.3 8.0

19.0 8.0 9.8 7.5

20.0 12.0 9.1 5.0

17.0 7.0 10.0 5.5

24.0 7.4 9.0 1.5

6.0 4.5 7.0 0.5

2.0 6.0 5.0 1.5

4.0 8.0 6.0 2.5

7.0 7.0 4.0 -2.0

4.0 10.0 5.0 -2.0

6.0 11.0 4.0 -2.0

-4.0 11.0 3.0 -3.0

1.0 8.0 5.0 -1.0

10.0 32.0 15.0 10.1

10.0 26.0 11.0 12.3

13.0 20.0 15.0 9.7

11.1 17.5 3.3 10.5

18.0 25.0 12.0 6.8

9.0 20.0 6.0 9.9

6.0 30.0 4.0 8.2

5.0 24.0 5.0 7.2

4.0 16.0 10.0 7.6

1.0 15.0 7.0 7.2

2.0 8.0 9.0 7.6

10.0 5.0 11.0 3.5

8.0 8.0 10.0 7.0

Impact of input price changes Input LAB Soda Ash Palm Fatty Acid Palm Oil HDPE Sugar Titanium Dioxide Copra

July 2014

Price Trend (Y-o-Y) Unit Up INR/Kg Sideways INR/50Kg UP US$/MT UP MYR/MT Up INR/Kg Up INR/Qtl Sideways INR/Kg Up INR/Qtl

Current Price 123.1 1295 775 2484 123 3326 250 10750

12mon chg % 1.7 21.8 23.0 3.9 24.5 8.0 4.2 133.6

Impact Negative Negative Negative Negative Negative Negative Negative Negative

Companies HUL HUL HUL, Godrej Consumer Britannia, Nestle, HUL, ITC All Companies Britannia, Nestle, GSK Consumer Asian Paints Marico Source: Company, MOSL 113

June 2014 Results Preview | Sector: Consumer

New launches during 1QFY15 Company Marico Emami Godrej Consumer Colgate Hindustan Unilever Hindustan Unilever Emami Hindustan Unilever Jyothy Labs

Brand Parachute Advansed Summer Refresh Fair and Handsome Protekt brand Colgate Maximum Cavity Protection Ponds Men Close Up Diamond Attraction He Axe Signature Collection Re-launched Henko

Category Body Lotion Face Wash Hand Sanitizers, Handwash and Mosquito Repellant Toothpaste Face Wash and Moisturizers Toothpaste Deodorant Deodorant Detergents Source: Company, MOSL

PFAD prices are down 1.3% QoQ

LAB prices up 3.3% YoY LAB Prices (INR/Kg)

PFAD prices (INR/MT) 44,285 33,527

90

84 86

84

121 121

125

102

Source: Company, Bloomberg, MOSL

Copra prices up 135% YoY

114

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

76 86

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

45,506

40,550

40,732

Jun-11

113 111 109

Jun-14

37,560

132

Source: Company, Bloomberg, MOSL

Sugar prices see uptick of 8% QoQ

12,000

10,750

10,000

Sugar Prices

4,000

3,410

3,600

8,000

3,200

6,000 4,000

2,800

2,000

Source: Company, Bloomberg, MOSL

July 2014

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

Jun-11

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Sep-11

2,400 Jun-11

0

Source: Company, Bloomberg, MOSL

114

June 2014 Results Preview | Sector: Consumer

110

100

95

90

80

Jul-13

May-14

Jul-14

110

Jun-14

125

Apr-14

120

MOSL Consumer Index

Source: Bloomberg, MOSL

Jul-14

Sensex Index 140

Apr-14

MOSL Consumer Index

130

Jan-14

Sensex Index

Relative Performance – 1 year (%)

Oct-13

Relative Performance -3 month (%)

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Consumer Asian Paints Britannia Colgate Dabur Emami Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate

July 2014

CMP (INR) 588 1,016 1,664 191 543 809 4,751 624 333 249 4,970 333 112 2,453

Reco

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

EPS (INR) FY15E FY16E FY17E 15.5 18.7 22.8 38.5 45.6 53.6 43.6 51.0 59.7 6.4 7.5 8.8 19.2 22.8 26.1 27.3 33.4 40.0 138.6 164.7 192.0 18.1 20.1 22.3 12.9 14.9 17.2 8.4 9.9 11.3 128.2 151.5 174.5 10.8 13.0 15.4 8.0 9.2 10.9 42.6 56.0 72.7

PE (x) FY15E FY16E FY17E 37.9 26.4 38.2 29.8 28.4 29.6 34.3 34.5 25.9 29.7 38.8 30.9 14.1 57.6 31.0

31.5 22.3 32.6 25.6 23.8 24.2 28.8 31.1 22.3 25.1 32.8 25.6 12.2 43.8 26.6

25.8 19.0 27.9 21.6 20.8 20.2 24.7 28.0 19.4 22.0 28.5 21.7 10.3 33.8 22.9

EV/EBIDTA (x) FY15E FY16E FY17E 24.7 18.4 26.4 23.5 23.4 20.4 30.4 25.2 17.6 18.4 22.4 19.4 9.0 30.9 21.1

20.4 14.9 21.1 20.1 19.3 17.0 24.9 22.1 15.2 15.4 19.3 16.0 7.9 25.7 18.0

RoE (%) FY15E FY16E FY17E

16.3 31.7 32.4 33.1 11.9 42.1 41.3 40.3 17.8 96.3 99.6 102.6 16.9 34.8 33.7 33.2 16.7 45.2 46.4 45.1 14.3 22.9 23.7 23.6 20.2 30.6 30.7 30.3 19.2 107.3 110.2 114.7 13.1 40.6 43.4 45.8 13.2 25.1 24.3 23.1 16.5 50.1 54.5 57.3 13.1 23.3 23.5 23.2 6.9 11.9 12.5 13.3 21.2 7.2 8.9 10.8 15.3 36.6 38.2 39.4 Source: Company, MOSL

115

June 2014 Results Preview | Sector: Consumer

Asian Paints Bloomberg

APNT IN

Equity Shares (m)

959.2

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

564 / 9

52-Week Range (INR)



597 / 376

1,6,12 Rel Perf. (%)

11 / -4 / -5

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

CMP: INR588

2014 2015E 2016E 2017E 127.1 146.5 172.3 203.2 20.0 22.4 26.7 32.9





12.3

14.9

17.9

21.9



Adj. EPS (INR) 12.8

15.5

18.7

22.8



EPS Gr. (%)

10.3

21.1

20.5

21.9

BV/Sh.(INR)

42.1

48.9

57.7

68.8

RoE (%)

30.4

31.7

32.4

33.1

RoCE (%) Payout (%)

40.7 41.4

42.0 45.1

43.0 45.5

44.4 43.9

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

45.9 14.0

37.9 12.0

31.5 10.2

25.8 8.6

EV/EBITDA (x) 27.4 Div. Yield (%) 1.0

24.7 1.4

20.4 1.7

16.3 19.9

Adj. PAT

 

Neutral

We expect Asian Paints to post 15.5% revenue growth to INR32.6b in 1QFY15, with ~10-11% domestic decorative volume growth. Decorative Paints segment demand remained strong despite the macro headwinds. Our company and dealer interactions suggest continued healthy demand in Decoratives, while Industrial demand could revive with a lag. Pricing growth stands at 6% for the quarter. Expect moderate 30bp operating margin expansion to 16%. International business to report mixed performance, with continued outperformance by Middle East and Asia. We estimate PAT growth for 1QFY15 at 22.8% (4.6% de-growth in 1QFY15). The stock trades at 31.5x FY16E EPS of INR18.7. Maintain Neutral.

Key issues to watch for  Volume growth trends and demand scenario in urban and rural geographies.  Outlook on demand in Industrial paints.  Outlook on raw material scenario.

Quarterly performance (Consolidated) Y/E March Volume Growth % * Net Sales Change (%) Gross Profit Gross Margin (%) Operating Expenses % of Sales EBITDA Margin (%) Change (%) Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) PAT before Minority Minority Interest Adjusted PAT Change (%) E: MOSL Estimates

July 2014

1Q 10.0 28,185 11.1 12,048 42.7 7,627 27.1 4,421 15.7 1.0 86 599 503 4,239 1,390 32.8 2,850 98 2,752 -4.6

FY14 2Q 12.0 30,841 18.1 13,176 42.7 8,374 27.2 4,802 15.6 32.9 120 603 760 4,839 1,449 29.9 3,390 122 3,268 36.7

(INR Million) 3Q 7.0 34,126 12.5 13,747 40.3 8,767 25.7 4,980 14.6 0.6 100 633 694 4,941 1,540 31.2 3,401 107 3,294 -1.8

4Q 12.0 32,664 21.4 13,438 41.1 8,994 27.5 4,444 13.6 18.9 117 622 718 4,423 1,336 30.2 3,087 113 2,974 18.4

1Q 11.0 32,554 15.5 13,673 42.0 8,464 26.0 5,209 16.0 17.8 103 671 603 5,039 1,562 31.0 3,477 98 3,379 22.8

FY15E 2Q 11.0 35,929 16.5 15,090 42.0 9,342 26.0 5,749 16.0 19.7 144 675 912 5,842 1,811 31.0 4,031 122 3,909 19.6

3Q 12.0 39,928 17.0 16,370 41.0 10,261 25.7 6,109 15.3 22.7 120 709 867 6,147 1,906 31.0 4,241 107 4,134 25.5

4Q 12.0 38,051 16.5 15,817 41.6 10,516 27.6 5,301 13.9 19.3 129 725 718 5,165 1,601 31.0 3,564 99 3,466 16.5

FY14

FY15E

11.0 125,816 15.0 52,409 41.7 33,762 26.8 18,647 14.8 7.7 422 2,457 2,674 18,442 5,715 31.0 12,727 440 12,288 10.3

11.0 146,462 16.4 60,950 41.6 38,583 26.3 22,368 15.3 20.0 495 2,780 3,101 22,193 6,880 31.0 15,314 426 14,888 21.2

116

June 2014 Results Preview | Sector: Consumer

Britannia Industries Bloomberg

BRIT IN

Equity Shares (m)

119.5

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

121 / 2

52-Week Range (INR)

1,050 / 658

1,6,12 Rel Perf. (%)

8 / -14 / 14

CMP: INR1,016 



Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 62.3 71.5 82.7 98.1 5.2 6.2 7.5 9.3



3.8

4.6

5.5

6.4

Adj. EPS (INR) 32.1

38.5

45.6

53.6

EPS Gr. (%)

63.8

20.0

18.6

17.4



BV/Sh.(INR)

75.3

91.5

110.6

133.0



RoE (%)

42.6

42.1

41.3

40.3

RoCE (%) Payout (%)

61.3 46.2

57.0 50.0

61.7 50.0

61.9 50.0

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

31.7 13.5

26.4 11.1

22.3 9.2

19.0 7.6

EV/EBITDA (x) 22.4 Div. Yield (%) 1.5

18.4 1.9

14.9 2.2

11.9 2.6

Quarterly performance Y/E March Net Sales YoY Change (%) COGS Gross Profit Margins (%) Other Exp % of Sales Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 14,034 14.9 8,374 5,660 40.3 4,492 32.0 12,867 1,168 8.3 79.5 153 34 267 1,249 386 30.9 863 98.6

FY14 2Q 15,945 13.7 9,666 6,278 39.4 4,902 30.7 14,568 1,377 8.6 127.0 157 11 199 1,408 451 32.0 957 109.8

Buy

We estimate Britannia to post sales of INR15.7b, a growth of 12% YoY. Volume growth base is likely to remain in 3-5% band as the discretionary processed foods category remains under pressure. Within the overall Biscuits category, premium creams and cookies segment continue to outperform and hence will likely offset any margin pressure due to low volume growth. We estimate 50bp YoY EBITDA margin expansion to 8.8%, driven by better gross margins and cost savings in overheads. We expect Britannia to maintain its ad-spends given the low volume growth and high competitive intensity characterizing the industry. We model 18% EBITDA and PAT growth. The stock trades at 22x FY16E EPS. It is one of our top pick in tier II consumer space. Maintain Buy.

Key issues to watch for  Volume growth in biscuits.  Outlook on raw material scenario.  Performance of subsidiaries.

3Q 16,144 11.1 9,885 6,259 38.8 4,909 30.4 14,794 1,350 8.4 72.8 160 6 192 1,377 414 30.0 963 69.1

4Q 16,198 9.0 10,172 6,026 37.2 4,712 29.1 14,884 1,314 8.1 13.2 164 4 447 1,593 544 34.2 1,049 19.4

1Q 15,719 12.0 9,353 6,366 40.5 4,983 31.7 14,335 1,383 8.8 18.4 176 23 294 1,478 458 31.0 1,020 18.2

FY15E 2Q 3Q 18,017 18,727 13.0 16.0 10,810 11,330 7,207 7,397 40.0 39.5 5,585 5,749 31.0 30.7 16,396 17,079 1,622 1,648 9.0 8.8 17.8 22.0 180 184 8 4 219 212 1,653 1,671 512 518 31.0 31.0 1,140 1,153 19.2 19.7

(INR Million) FY14 FY15E 4Q 19,006 17.3 11,631 7,375 38.8 5,803 30.5 17,435 1,571 8.3 19.6 183 7 478 1,859 576 31.0 1,283 22.3

62,321 12.4 38,097 24,224 38.9 19,015 30.5 57,113 5,208 8.4 62.8 634 54 1,106 5,626 1,795 31.9 3,832 63.8

71,470 14.7 43,124 28,345 39.7 22,121 31.0 65,245 6,224 8.7 4.2 723 43 1,203 6,661 2,065 31.0 4,596 20.0

117

June 2014 Results Preview | Sector: Consumer

Colgate Bloomberg Equity Shares (m)

CLGT IN 136.0

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

226 / 4

52-Week Range (INR)

CMP: INR1,664 

We expect sales growth of 16% YoY to INR9.8b. Toothpaste volume growth is estimated to be 8-9%, with industry panel data indicating moderation in growth rate for Oral Care category.



We expect 70bp expansion in EBITDA margin at 19.9% on the back of lower ad spends as base quarter saw preemptive higher ad spends ahead of P&G’s Oral B launch in July 2013.



Thus, we model for 18% EBITDA growth in 1QFY15. However, higher tax rate of 600bp should result in muted 8.4% YoY PAT growth.



The stock trades at 32x FY16E EPS. Maintain Neutral.

1,671 / 90 15 / -2 / -11

1,6,12 Rel Perf. (%)

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 35.4 41.2 47.7 55.7 6.6 8.2 10.2 12.0 4.8

5.9

6.9

8.1

Adj. EPS (INR) 35.0

43.6

51.0

59.7

EPS Gr. (%)

-4.3

24.7

16.9

17.1

BV/Sh.(INR)

42.5

48.0

54.4

61.9

RoE (%)

88.0

96.3

99.6

102.6

RoCE (%) Payout (%)

88.1 75.0

96.4 75.0

99.6 75.0

102.7 75.0

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

47.6 39.1

38.2 34.7

32.6 30.6

27.9 26.9

EV/EBITDA (x) 33.0 Div. Yield (%) 1.6

26.4 2.0

21.1 2.3

17.8 2.7

Neutral

Key issues to watch for  Volume growth in Toothpaste and market share movement.  Ad-spends and competitive intensity in Toothpaste.

Quarterly performance

(INR Million)

Y/E March Toothpaste Volume Gr % Net Sales YoY Change (%) COGS Gross Profit Gross Margin (%) Other operating Expenses % to sales Other operating Income EBITDA Margins (%) YoY Growth (%) Depreciation Interest Financial other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 11.0 8,446 14.7 3,283 5,164 61.1 3,662 43.4 151 1,653 19.2 1.7 117 0 171 1,707 409 24.0 1,297 10.5

FY14 2Q 9.0 8,957 15.8 3,621 5,336 59.6 3,923 43.8 50 1,463 16.2 -16.8 117 0 130 1,477 382 25.8 1,095 -24.5

3Q 11.0 8,840 15.9 3,458 5,382 60.9 3,948 44.7 71 1,505 16.9 0.4 121 0 162 1,547 418 27.0 1,129 1.7

4Q 7.0 9,206 13.4 3,659 5,547 60.3 3,595 39.1 67 2,019 21.8 19.7 153 0 39 1,905 521 27.3 1,385 12.4

1Q 10.0 9,798 16.0 3,762 6,035 61.6 4,086 41.7 7,848 1,950 19.9 18.0 137 0 197 2,009 603 30.0 1,407 8.4

FY15E 2Q 11.0

10,408 16.2 4,080 6,328 60.8 4,496 43.2 8,576 1,832 17.6 25.2 146 0 150 1,836 551 30.0 1,285 17.3

3Q 12.5

4Q 11.0

10,298 16.5 3,965 6,333 61.5 4,552 44.2 8,517 1,782 17.3 18.4 144 0 187 1,824 556 30.5 1,268 12.3

10,700 16.2 4,208 6,492 60.7 4,199 39.2 8,407 2,293 21.4 13.6 145 5 155 2,298 713 31.0 1,586 14.5

FY14

FY15E

9.0 35,449 14.9 14,020 21,429 60.4 15,128 42.7 339 6,640 18.6 1.1 507 0 503 6,636 1,881 28.3 4,755 -4.3

11.0 41,204 16.2 16,015 25,188 61.1 17,333

42.1 386 8,242

20.0 24.1 572 5 689 8,354 2,423 29.0 5,931

24.7

118

June 2014 Results Preview | Sector: Consumer

Dabur Bloomberg Equity Shares (m)

DABUR IN 1743.8

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

334 / 6

52-Week Range (INR)

CMP: INR191 

We expect sales growth of 15% to INR19b led by ~8-9% domestic organic volume growth. Unlike the commentaries of other staples, Dabur is still guiding for 8-10% volume growth for FY15.



Project CORE should add incremental growth in a challenging consumption backdrop, in our view.



We expect margin expansion of 40bp to 14.7% led by operating leverage in international business and price hikes to pass on input inflation. We expect ad-spends to remain in 14-14.5% band.



We expect PAT growth of 19.4% to INR2.2b.



The stock trades at 26x FY16E EPS of INR7.5. Maintain Neutral.

196 / 143

1,6,12 Rel Perf. (%)

-1 / -10 / -13

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR)

2014 2015E 2016E 2017E 70.7 82.8 96.0 110.6 11.4 14.0 16.1 18.8 9.2

11.2

13.0

15.4

5.3

6.4

7.5

8.8

EPS Gr. (%)

19.3

22.0

16.5

18.2

BV/Sh.(INR)

15.3

18.5

22.2

26.7

RoE (%)

34.5

34.8

33.7

33.2

RoCE (%) Payout (%)

37.6 42.8

38.8 42.7

40.0 42.7

40.6 42.7

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

36.3 12.5

29.7 10.3

25.5 8.6

21.6 7.2

EV/EBITDA (x) 29.0 Div. Yield (%) 1.2

23.4 1.4

20.1 1.7

16.8 2.0

Key issues to watch out  Domestic volume growth and outlook on rural demand.  Update on Project CORE.  Margin performance in International business.

Quarterly performance (Consolidated) FY14 Y/E March 1Q 2Q 3Q Volume Growth (%) 9.0 10.7 9.0 Net Sales 16,511 17,488 19,043 YoY Change (%) 12.9 14.9 16.8 Total Exp 14,156 14,250 16,117 EBITDA 2,355 3,238 2,925 Margins (%) 14.3 18.5 15.4 YoY Growth (%) 15.2 26.9 14.0 Depreciation 287 236 255 Interest 133 200 72 Other Income 420 280 390 PBT 2,355 3,083 2,988 Tax 484 579 546 Rate (%) 20.6 18.8 18.3 Minority Interest 10 6 -7 Adjusted PAT 1,860 2,498 2,435 YoY Change (%) 20.7 23.5 15.3 E: MOSL Estimates

July 2014

Neutral

4Q 10.0 17,690 15.5 14,790 2,901 16.4 16.6 263 137 437 2,938 582 19.8 -2 2,353 17.4

1Q 8.0 18,988 15.0 16,196 2,791 14.7 18.5 316 133 483 2,825 593 21.0 10 2,222 19.4

FY15E 2Q 3Q 10.0 11.0 20,286 22,471 16.0 18.0 16,432 18,875 3,854 3,595 19.0 16.0 19.0 22.9 259 281 200 72 322 448 3,717 3,691 743 751 20.0 20.4 6 -7 2,968 2,947 18.8 21.0

(INR Million) FY14 FY15E 4Q 12.0 21,023 18.8 17,298 3,726 17.7 28.4 334 144 535 3,782 729 19.3 4 3,049 29.5

10.0 70,732 15.1 59,313 11,419 16.1 2.8 1,042 542 1,527 11,363 2,191 19.3 7 9,165 19.3

10.0 82,768 17.0 68,801 13,966 16.9 22.3 1,190 549 1,787 14,015 2,817 20.1 13 11,185 22.0

119

June 2014 Results Preview | Sector: Consumer

Emami Bloomberg Equity Shares (m)

HMN IN 227.0

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

123 / 2

52-Week Range (INR)

14 / -11 / 26

Financial and Valuation Summary (INR b)

 

2014 2015E 2016E 2017E 18.2 21.3 24.8 29.0 4.4 5.0 6.0 6.8

NP

4.0

4.3

5.2

5.9

EPS (INR)

17.8

19.2

22.8

26.1

EPS Gr. (%)

28.7

7.4

19.0

14.4

BV/Sh. (INR)

39.6

45.3

53.0

62.7

RoE (%)

47.0

45.2

46.4

45.1

RoCE (%) Payout (%)

48.8 45.2

49.7 47.0

51.9 46.2

51.2 45.7

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

30.4 13.7

28.3 12.0

23.8 10.2

20.8 8.7

EV/EBITDA (x) 26.9

23.4

19.3

16.7

1.4 5.5

1.7 4.6

1.9 3.9

Div. Yld (%) EV/Sales (x)

1.2 6.5

Quarterly performance Y/E March 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 (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014



555 / 393

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR543

1Q 6.0 3,837 13.2 1,578 2,259 58.9 1,667 43.4 592 15.4 27.9 57 -15 151 702 95 13.6 607 30.2

FY14 2Q 6.0 4,067 12.8 1,496 2,572 63.2 1,699 41.8 873 21.5 36.3 59 -4 164 983 183 18.6 800 35.1

 

Buy

We expect sales growth of 10% YoY to INR4.2b led by 5% volume growth. Base quarter volumes were impacted by transporter’s strike. We expect 60bp expansion in gross margin to 59.5% due to benign Mentha oil prices. However, higher ad spends necessitated by recent new launches in Deo category should result in 40bp YoY decline in EBITDA margin to 15%, in our view. Thus, we model for 7% YoY EBITDA growth to INR633m. Higher tax rate of 540bp to 19% should result in YoY flat PAT at INR609m. The stock trades at 24x FY16E EPS of INR22.8 and is our top pick in tier II consumer space. Maintain Buy.

Key issues to watch out  Volume growth and broad consumer demand for its categories.  Outlook on Mentha oil prices.  Update on Deodorant category entry, SHE acquisition and strategy for new launches, going forward.

3Q 1.5 5,847 6.6 2,045 3,802 65.0 2,034 34.8 1,768 30.2 29.1 62 18 122 1,811 304 16.8 1,507 31.1

4Q -10.0 4,457 -1.2 1,685 2,773 62.2 1,593 35.7 1,180 26.5 18.0 65 25 184 1,275 138 10.8 1,137 21.0

1Q 5.0 4,220 10.0 1,709 2,511 59.5 1,878 44.5 633 15.0 6.9 68 -12 174 751 143 19.0 609 0.3

FY15E 2Q 3Q 5.0 10.0 4,718 6,958 16.0 19.0 1,699 2,366 3,020 4,592 64.0 66.0 2,076 2,574 44.0 37.0 944 2,018 20.0 29.0 8.1 14.1 68 71 -3 26 189 140 1,068 2,061 203 392 19.0 19.0 865 1,669 8.2 10.8

(INR Million) FY14 FY15E 4Q 12.0 5,361 20.3 1,963 3,398 63.4 1,992 37.2 1,406 26.2 19.2 79 55 241 1,512 306 20.2 1,206 6.1

18,208 7.2 6,803 11,405 62.6 6,992 38.4 4,413 24.2 29.2 242 54 622 4,740 721 15.2 4,019 28.0

8.0 21,257 16.7 7,736 13,521 63.6 8,521 40.1 5,000 23.5 13.3 285 66 744 5,393 1,043 19.3 4,349 8.2

120

June 2014 Results Preview | Sector: Consumer

Godrej Consumer Bloomberg Equity Shares (m)

GCPL IN 340.3

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

275 / 5

52-Week Range (INR)

-2 / -27 / -34

Financial and Valuation Summary (INR b)

Adj. PAT



977 / 672

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR809

2014 2015E 2016E 2017E 75.8 88.1 103.4 119.6 11.6 14.1 16.8 19.5

 

7.5

9.3

11.4

13.6

Adj. EPS (INR) 22.2

27.3

33.4

40.0



EPS Gr. (%)

13.0

23.2

22.2

19.9



BV/Sh.(INR)

103.6

119.2

140.9

169.2

RoE (%)

21.4

22.9

23.7

23.6

RoCE (%) Payout (%)

25.9 45.1

28.6 36.6

30.1 30.0

30.3 25.0

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

36.5 7.8

29.6 6.8

24.2 5.7

20.2 4.8

EV/EBITDA (x) 24.9 Div. Yield (%) 1.2

20.4 1.2

17.0 1.2

14.3 1.2

Quarterly performance (Consolidated) Y/E March 1Q Net Sales 17,203 YoY Change (%) 23.9 EBITDA 2,208 Margins (%) 12.8 YoY Growth (%) 11.0 Depreciation 221 Interest 240 Other Income 178 PBT 1,769 Tax 338 Rate (%) 19.1 Minority Int 126 Adj PAT 1,305 YoY Change (%) 6.5 E: MOSL Estimates

July 2014

Neutral

We expect GCPL to post 15% revenue growth to INR19.8b. We expect HI, Hair Color and Soaps business to post 15%, 17% and 10% revenue growth respectively. We expect Soaps business to post lackluster volume growth in low single digits; category volumes have declined in the last two quarters. Indonesia should continue to report double digit constant currency revenue growth aided by recent price hikes to pass on cost inflation. We estimate operating margin expansion of 40bp to 13.2%, driven by higher ad spends in the base. We model 18.3% and 26% EBITDA and PAT growth, respectively. The stock trades at 24x FY16E EPS of INR33.4. Maintain Neutral.

Key issues to watch out  Volume growth trends in soaps. Comments on growth outlook for Household insecticide portfolio.  Competitive intensity in Hair Colors post Marico’s entry in the category.  International business outlook – margin guidance for LatAm, timelines of stake increase in Darling.

FY14 2Q 3Q 19,574 19,789 22.7 16.8 2,954 3,071 15.1 15.5 21.1 9.5 244 225 257 307 172 207 2,562 2,716 470 558 18.3 20.6 142 202 1,950 1,956 22.4 13.6 6,234

4Q 19,240 12.0 3,339 17.4 21.4 128 269 269 3,191 737 23.1 126 2,328 13.4

1Q 19,784 15.0 2,611 13.2 18.3 254 276 204 2,285 480 21.0 152 1,653 26.7

FY15E 2Q 3Q 22,510 23,153 15.0 17.0 3,557 3,820 15.8 16.5 20.4 24.4 281 259 296 354 197 238 3,178 3,446 667 758 21.0 22.0 170 242 2,340 2,446 20.0 25.0

(INR Million) FY14 FY15E 4Q 22,687 17.9 4,100 18.1 22.8 228 286 359 3,944 889 22.5 205 2,850 22.4

75,806 18.6 11,573 15.3 15.9 819 1,074 826 10,238 2,104 20.5 596 7,539 13.0

88,133 16.3 14,088 16.0 21.7 1,022 1,212 999 12,853 2,795 21.7 770 9,289 23.2

121

June 2014 Results Preview | Sector: Consumer

GSK Consumer Bloomberg Equity Shares (m)

SKB IN 42.1

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

200 / 3

52-Week Range (INR)

CMP: INR4,751

5,715 / 0 / -163/8-48

1,6,12 Rel Perf. (%)



We expect GSK to report net sales of INR9.9b, up 16% YoY, driven by 8% volume growth.



While overall consumption environment remains sluggish, GSK’s strategy of driving LUP portfolio and innovation in core product basket should help maintain the volume growth trend.



We estimate 110bp YoY EBITDA margin expansion at 15%, aided by a low base. We estimate YoY PAT growth of 21.9%.



The stock trades at 29x CY15E EPS. Maintain Neutral.

Financial and Valuation Summary (INR b) Y/E Dec Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 36.0 40.9 47.6 56.5 5.0 6.0 7.2 8.7 5.0

5.8

6.9

8.1

Adj. EPS (INR) 119.6

138.6

164.7

192.0

EPS Gr. (%)

15.2

15.9

18.8

16.6

BV/Sh.(INR)

382.7

453.2

537.0

634.6

RoE (%)

31.3

30.6

30.7

30.3

RoCE (%) Payout (%)

52.6 49.1

51.8 49.1

51.1 49.1

45.0 49.1

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

39.9 12.4

34.3 10.5

28.8 8.8

24.7 7.5

EV/EBITDA (x) 37.3 Div. Yield (%) 1.1

30.4 1.2

24.9 1.5

20.2 1.7

Neutral

Key issues to watch out  MFD volume growth.  Outlook on market growth and raw material environment.  Performance of non-MFD portfolio.

Quarterly performance

(INR Million) CY13

Y/E December MFD 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

July 2014

CY14

1Q

2Q

3Q

4Q

10,452 11.2 8,313 2,139 20.5 25.2 200 10 500 2,429 809 33.3 1,620 3.6

9,618 12.8 8,168 1,451 15.1 22.2 200 10 530 1,770 589 33.3 1,181 -1.6

10,600 9.1 8,863 1,737 16.4 15.9 200 10 701 2,228 742 33.3 1,486 1.2

8,863 5.6 9,561 -698 -7.9 -219.4 -1,149 -34 2,959 3,444 -5,075 -147.4 8,519 968.2

1Q 8.0 10,791 14.8 8,898 1,893 17.5 10.8 169 2 887 2,610 893 34.2 1,717 9.8

2QE 9.0 9,894 16.0 8,410 1,484 15.0 25.1 174 1 914 2,223 760 34.2 1,463 21.9

3QE 8.0 11,177 15.0 9,333 1,844 16.5 23.0 179 1 941 2,606 860 33.0 1,746 18.8

4QE 7.0 9,075 8.2 8,264 811 8.9 38.7 28 0 543 1,327 422 31.8 905 13.5

CY13

CY14E

7.5 36,038 17.0 31,060 4,978 13.8 7.3 457 9 3,038 7,551 2,521 33.4 5,031 15.2

8.0 40,937 13.6 34,905 6,032 14.7 6.7 549 4 3,286 8,765 2,935 33.5 5,831 15.9

122

June 2014 Results Preview | Sector: Consumer

Hindustan Unilever Bloomberg Equity Shares (m)

HUVR IN 2162.7

CMP: INR624

Sell

We expect HUL to post 5% volume growth and 10% revenue growth. Consumer demand has remained unchanged sequentially, with no 52-Week Range (INR) 725 / 536 signs of uptick. However, 1QFY15 will likely benefit from a lower base 1,6,12 Rel Perf. (%) -2 / -14 / -30 as 4QFY13 had inventory filling ahead of the transporter’s strike.  Lower base is particularly going to benefit PP. F&L re-launch is Financial and Valuation Summary (INR b) witnessing encouraging response and is sequentially strengthened. Y/E March 2014 2015E 2016E 2017E  Despite input cost inflation in Palm, Coffee, LAB we expect gross Sales 274.1 307.6 347.1 399.0 margin to remain stable due to pricing action. Operating margins are EBITDA 44.8 51.2 58.4 66.9 expected to expand 40bp to 16.3% led by operating leverage. High Adj. PAT 36.4 39.1 43.4 48.2 competitive intensity in Oral Care is expected to keep ASP spends Adj. EPS (INR) 16.8 18.1 20.1 22.3 higher. EPS Gr. (%) 14.1 7.5 10.9 11.2  We expect EBITDA and PAT to grow at subdued 11.9% and 8.7% YoY, BV/Sh.(INR) 15.2 16.9 18.2 19.4 respectively. The stock trades at 31x FY16E EPS of INR20.1. Maintain RoE (%) 122.3 113.0 114.5 118.5 Sell. RoCE (%) 151.0 146.8 153.3 163.7 M. Cap. (INR b)/(USD b)

1,350 / 23

Payout (%)

77.3

77.4

79.8

80.7

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

37.1 41.2

34.5 37.0

31.1 34.3

28.0 32.1

EV/EBITDA (x) 28.9 Div. Yield (%) 2.1

25.2 2.2

22.1 2.6

19.2 2.9



Key issues to watch out  Comments on volume growth and consumer demand environment.  Competitive intensity and comments on F&L/Skin Care business.  Early impact of deficient monsoon, if any.

Quarterly performance

(INR Million)

Y/E March Volume Growth (%) Net Sales (incl service inc) 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 (%) E: MOSL Estimates

July 2014

1Q 4.0 68,090 6.7 34,828 33,262 48.9 22,406 32.9 10,856 12.3 15.9 664 62 1,768 11,897 3,046 25.6 8,851 3.6

FY14 2Q 5.0 68,926 9.2 34,699 34,227 49.7 23,374 33.9 10,853 11.1 15.7 639 63 1,510 11,661 2,831 24.3 8,830 9.6

3Q 4.0 72,234 8.5 36,601 35,633 49.3 23,365 32.3 12,268 12.7 17.0 644 182 1,427 12,868 3,321 25.8 9,547 9.4

4Q 3.0 70,941 9.7 37,308 33,633 47.4 22,857 32.2 10,776 10.9 15.2 658 53 1,506 11,571 3,246 28.1 8,325 6.6

1Q 5.0 74,559 9.5 37,801 36,758 49.3 24,604 33.0 12,153 11.9 16.3 746 75 2,033 13,365 3,742 28.0 9,623 8.7

FY15E 2Q 5.0 76,853 11.5 38,273 38,580 50.2 26,207 34.1 12,373 14.0 16.1 769 75 1,736 13,266 3,781 28.5 9,485 7.4

3Q 6.0 81,624 13.0 40,975 40,649 49.8 26,528 32.5 14,121 15.1 17.3 816 75 1,641 14,870 4,387 29.5 10,483 9.8

4Q 6.0 80,340 13.2 41,694 38,647 48.1 26,112 32.5 12,535 16.3 15.6 518 75 1,661 13,603 4,071 29.9 9,532 14.5

FY14

FY15E

4.0 280,191 26.7 143,436 136,755 48.8 92,003 32.8 44,753 36.0 16.0 2,606 360 6,210 47,997 12,444 25.9 35,553 37.1

5.5 313,376 11.8 158,743 154,633 49.3 103,451 33.0 51,183 14.4 16.3 2,849 301 7,071 55,104 15,980 29.0 39,124 10.0

123

June 2014 Results Preview | Sector: Consumer

ITC Bloomberg Equity Shares (m)

ITC IN 7935.5

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

2,645 / 44

52-Week Range (INR)

387 / 285

1,6,12 Rel Perf. (%)

-4 / -19 / -35

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 328.8 374.1 429.1 489.5 123.0 141.2 162.9 187.0

CMP: INR333   

 

74.2

86.5

100.7

116.8

Adj. EPS (INR) 11.1

12.9

14.9

17.2

EPS Gr. (%)

16.6

16.3

16.1

15.1

BV/Sh.(INR)

28.9

31.7

34.4

37.5

RoE (%)

38.8

40.6

43.4

45.8



RoCE (%) Payout (%)

53.4 76.1

57.0 78.4

61.2 81.9

64.9 81.9



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

30.4 11.5

25.9 10.5

22.3 9.7

19.4 8.9

EV/EBITDA (x) 19.9 Div. Yield (%) 2.1

17.1 2.6

14.7 3.1

12.7 3.6



Buy

We expect ITC to post 1% cigarette volume decline. This will be a sequential improvement over the 2% volume decline of 4Q. Absence of excise duty increase in 4QFY14 (vote-on-account instead of regular budget due to elections) should drive Cigarette margins. We estimate net sales to grow at 4% to INR84.5b, driven by Cigarettes and Paper (largely realization), while Hotels revenue should remain sluggish as macros still remain weak. We expect EBITDA to post 14.5% YoY growth to INR31.9b. Cigarette margins will also be supported by ~22% average price hike implemented post budget. We expect FMCG others to post ~15% revenue growth, with positive segment EBIT of INR250m. We estimate 16.6% PAT growth YoY to INR22.1b. The stock trades at 22x FY16E EPS of INR14.9. Maintain Buy.

Key issues to watch out  Cigarette volume trends and update on 64mm segment.  Demand outlook in FMCG categories and segment profitability.  Signs of pick-up in Hotels business.

Quarterly performance

(INR Million)

Y/E March Cigarette Vol Gr (%) Cigarette-net EBIT Margin (%) Non Cigarette FMCG Loss Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q -2.0 63.4 -189 74,107 10.5 46,194 27,913 17.5 37.7 2,153 170 2,032 27,622 8,709 31.5 18,913 18.1

FY14 2Q -4.0 64.8 -127 78,625 8.8 48,446 30,179 12.2 38.4 2,209 21 2,462 30,412 9,436 31.0 20,976 14.2

3Q -2.0 64.4 104 87,269 13.2 54,426 32,843 14.9 37.6 2,259 91 3,911 34,403 10,550 30.7 23,853 16.3

4Q -3.0 62.6 431 92,385 11.9 60,351 32,034 18.4 34.7 2,378 95 2,667 32,227 9,447 29.3 22,780 18.2

1Q -1.0 64.0 250 84,482 14.0 52,548 31,934 14.4 37.8 2,365 136 2,540 31,973 9,912 31.0 22,061 16.6

FY15E 2Q 3Q 2.0 4.0 65.5 65.0 250 300 91,992 99,486 17.0 14.0 56,667 62,079 35,325 37,407 17.0 13.9 38.4 37.6 2,576 2,786 17 73 3,077 4,888 35,810 39,436 11,101 12,225 31.0 31.0 24,709 27,211 17.8 14.1

4Q 4.0 63.0 300 105,673 14.4 69,072 36,601 14.3 34.6 1,864 78 3,390 38,050 11,360 29.9 26,690 17.2

FY14

FY15E

-2.8 63.8 218 332,386 11.2 209,417 122,969 15.7 37.0 8,999 377 11,071 124,664 38,142 30.6 86,523 16.6

2.5 64.4 1,100 381,633 14.8 240,366 141,267 14.9 37.0 9,591 303 13,895 145,268 44,597 30.7 100,671 16.4

124

June 2014 Results Preview | Sector: Consumer

Marico Bloomberg Equity Shares (m)

MRCO IN 643.8

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

160 / 3

52-Week Range (INR)

-2 / -9 / -14

Financial and Valuation Summary (INR b)

Adj. PAT Adj. EPS (INR)



263 / 196

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR204

2014 2015E 2016E 2017E 47.6 55.2 64.3 74.1 7.4 8.4 9.8 11.1 5.2

5.4

6.4

7.3

8.1

8.4

9.9

11.3

EPS Gr. (%)

34.7

3.9

18.3

14.4

BV/Sh.(INR)

26.0

33.5

40.8

49.1

RoE (%)

31.0

25.1

24.3

23.1

RoCE (%) Payout (%)

40.2 9.9

36.9 9.5

36.1 22.2

35.1 22.9

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

30.8 9.6

29.7 7.4

25.1 6.1

21.9 5.1

EV/EBITDA (x) 21.3 Div. Yield (%) 0.3

18.4 0.3

15.4 0.9

13.2 1.0



  

Buy

We expect sales growth of 18% to INR16.3b, driven by price hikes in Coconut oil portfolio, post sharp inflation in Copra prices. We expect Parachute, Saffola and VAHO portfolio to post 8%, 10% and 8% growth respectively. Copra prices are up 135% YoY and 28% QoQ. Marico has implemented price hikes in Parachute and Saffola. Sunflower, Rice Bran and Kardi Oil prices are benign and down on a YoY basis, while Packaging costs are up % YoY. We estimate a gross margin decline of 350bp YoY and EBITDA margin contraction of 130bp due to margin improvement in international business and savings in ad spends. Expect PAT growth of 1%. Effective tax rate to move up 570bp YoY to 30%, as per management guidance. The stock trades at 25x FY16E EPS of INR9.9. Maintain Buy.

Key issues to watch out  Comments on volume growth trends in key categories.  Raw material outlook.  Margin expansion and guidance in international business.

Quarterly performance Y/E March Domestic organic vol gr (%) 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

July 2014

1Q 10.0 13,797 8.9 6,710 7,086 51.4 4,816 34.9 2,270 16.5 23.5 206 121 167 2,109 512 24.3 44 1,553 23.5

FY14 2Q 4.0 11,154 -3.5 5,594 5,560 49.8 3,905 35.0 1,655 14.8 11.4 168 104 158 1,541 431 27.9 52 1,059 23.3

3Q 3.0 11,984 3.0 6,206 5,778 48.2 3,783 31.6 1,995 16.6 23.6 207 73 204 1,918 501 26.1 63 1,354 32.3

4Q 6.0 10,698 7.3 5,597 5,101 47.7 3,581 33.5 1,520 14.2 26.6 215 68 151 1,388 281 20.2 28 1,080 50.0

1Q 16,280 18.0 8,466 7,814 48.0 5,340 32.8 2,475 15.2 9.0 244 103 200 2,327 698 30.0 48 1,581 1.8

FY15E 2Q 12,938 16.0 6,598 6,340 49.0 4,399 34.0 1,941 15.0 17.3 194 88 190 1,848 555 30.0 57 1,237 16.8

(INR Million) FY14 FY15E 3Q

4Q

13,661 14.0 7,104 6,557 48.0 4,344 31.8 2,213 16.2 10.9 205 62 245 2,191 657 30.0 70 1,464 8.1

12,297 14.9 6,413 5,883 47.8 4,121 33.5 1,762 14.3 15.9 228 61 185 1,658 497 30.0 43 1,117 3.5

47,632 3.9 24,107 23,525 49.4 16,085 33.8 7,439 15.6 16.6 796 365 679 6,957 1,572 22.6 187 5,198 34.7

55,176 15.8 28,581 26,595 48.2 18,205 33.0 8,390 15.2 12.8 871 314 819 8,024 2,407 30.0 219 5,398 3.9

125

June 2014 Results Preview | Sector: Consumer

Nestle India Bloomberg Equity Shares (m)

NEST IN 96.4

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

479 / 8

52-Week Range (INR)

CMP: INR4,970 

5,865 / 36 -1 / -31 / -37

1,6,12 Rel Perf. (%)



Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

2014 2015E 2016E 2017E 90.6 99.1 111.6 127.6 19.7 20.8 23.8 27.4

Adj. PAT

11.6

12.4

14.6

16.8

Adj. EPS (INR) 120.6

128.2

151.5

174.5

EPS Gr. (%)

5.7

6.3

18.2

15.2

BV/Sh.(INR)

245.7

265.8

290.2

319.4

RoE (%)

55.8

50.1

54.5

57.3

RoCE (%) Payout (%)

49.4 47.0

50.6 80.9

62.7 80.8

70.6 80.1

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

37.7 18.5

35.5 17.1

30.0 15.7

26.1 14.2

EV/EBITDA (x) 22.2 Div. Yield (%) 1.1

20.5 2.0

17.6 2.7

15.0 3.4

Quarterly performance Y/E December Net Sales YoY Change (%) COGS Gross Profit Margin (%) Operating Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 22,481 9.8 10,158 12,323 54.8 6,997 5,326 23.7 16.5 821 79 200 4,626 1,512 32.7 3,114 7.9

 



Neutral

We expect Nestle India to report net sales of INR23.8b, up 7.5% YoY; growth to be price-led. Volume growth in Nestle’s core categories continues to remain sluggish, as per our channel checks. We estimate EBITDA margin decline of 40bp YoY at 21.6%, impact of RM inflation in milk. We estimate EBITDA and PAT growth at 5% each to INR5.1b and INR2.95b, respectively. Lower base of CY13 can provide a good platform for sales recovery in CY14. However, underlying recovery in its volume growth will be a function of revival in macro and consumer sentiments, in our view. The stock trades at 30x CY15E EPS. Maintain Neutral.

Key issues to watch out  Volume and management commentary on portfolio rationalization.  Broader consumer demand environment for the industry.

CY13 2Q 3Q 22,132 23,483 11.4 11.0 10,004 10,568 12,128 12,915 54.8 55.0 7,248 7,992 4,880 4,923 22.0 21.0 13.8 11.0 887 835 85 100 249 348 4,157 4,336 1,334 1,416 32.1 32.7 2,823 2,920 16.5 11.0

4Q 22,523 4.6 10,494 12,029 53.4 7,353 4,676 20.8 -5.7 757 101 426 4,244 1,347 31.7 2,897 -1.5

1Q 23,135 2.9 10,707 12,428 53.7 7,572 4,856 21.0 -8.8 839 103 390 4,304 1,374 31.9 2,930 -5.9

CY14 2QE 3QE 23,791 25,476 7.5 8.5 10,849 11,695 12,942 13,781 54.4 54.1 7,804 8,407 5,139 5,374 21.6 21.1 5.3 9.2 975 918 75 75 261 365 4,350 4,746 1,392 1,519 32.0 32.0 2,958 3,227 5 10.5

(INR Million) CY13 CY14E 4QE 26,728 18.7 12,450 14,277 53.4 8,813 5,464 20.4 16.9 911 65 422 4,911 1,666 33.9 3,244 12.0

90,619 9.1 41,224 49,396 54.5 29,715 19,680 21.7 7.8 3,300 365 1,222 17,238 5,609 32.5 11,629 6.9

99,130 9.4 45,701 53,429 53.9 32,596 20,833 21.0 5.9 3,643 318 1,438 18,310 5,951 32.5 12,360 6.3

126

June 2014 Results Preview | Sector: Consumer

Pidilite Industries Bloomberg Equity Shares (m)

PIDI IN 512.6

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

171 / 3

CMP: INR333

Neutral



We expect Pidilite to post 17% revenue growth, led by double digit volume growth in consumer and bazaar segments, while industrial chemicals is expected to remain sluggish as expected improvement in macro environment, post elections, is yet to manifest on ground.

Financial and Valuation Summary (INR b)



Y/E March Sales EBITDA

We expect healthy double digit volume growth in Consumer & Bazaar segment.



EBITDA margin is expected to contract 60bp YoY at 21.5% due to higher RM cost (Vinyl Acetate Monomer).



PAT is expected to register 13.5% YoY growth to INR1.75b.



The stock trades at 25.6x FY16E EPS of INR13. Maintain Neutral.

52-Week Range (INR)

340 / 220

1,6,12 Rel Perf. (%)

8 / -7 / -10

2014 2015E 2016E 2017E 38.8 45.5 53.6 63.8 6.8 8.2 9.8 11.6

Adj. PAT

4.8

5.7

6.8

8.1

Adj. EPS (INR)

9.2

10.8

13.0

15.4

EPS Gr. (%)

5.5

17.9

20.3

18.2

BV/Sh.(INR)

39.8

46.4

55.2

66.4

RoE (%)

23.0

23.3

23.5

23.2

RoCE (%) Payout (%)

29.5 37.6

31.1 39.0

31.5 32.4

31.4 27.4

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

36.3 8.4

30.8 7.2

25.6 6.0

21.7 5.0

EV/EBITDA (x) 24.4 Div. Yield (%) 0.9

19.9 1.1

16.4 1.1

13.4 1.1

Key issues to watch out  Volume growth in Fevicol.  Outlook on VAM prices.  Outlook on industrials and construction chemicals segment.  Progress on Elastomer project, if any.

Quarterly performance

(INR Million) FY14

Y/E March Sales Change (%) Gross Profit Gross Margin % Operating Expenses % of sales EBITDA

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

10,148

9,912

9,649

9,073

11,874

11,547

11,386

10,722

FY14

FY15E

38,782

45,529

11.2

20.7

15.2

19.3

17.0

16.5

18.0

18.2

16.4

17.4

4,681

4,426

4,363

3,864

5,509

5,196

5,181

4,612

17,334

20,498

46.1

44.6

45.2

42.6

46.4

45.0

45.5

43.0

44.7

45.0

2,441

2,580

2,816

2,696

2,957

3,060

3,245

2,996

10,533

12,258

24.1

26.0

29.2

29.7

24.9

26.5

28.5

27.9

27.2

26.9

2,240

1,846

1,547

1,168

2,553

2,136

1,936

1,616

6,801

8,240

EBITDA Margin %

22.1

18.6

16.0

12.9

21.5

18.5

17.0

15.1

17.5

18.1

Change (%)

17.5

25.8

2.2

-5.8

14.0

15.7

25.1

38.3

11.0

21.2

Depreciation

153

168

181

184

168

185

199

203

686

752

Interest

36

38

32

12

29

30

28

14

118

101

Other Income

90

87

70

183

81

78

63

255

429

477

2,140

1,727

1,404

1,155

2,436

1,999

1,771

1,655

6,426

7,865

PBT Tax

595

470

329

230

682

560

496

464

Effective Tax Rate (%)

27.8

27.2

23.4

19.9

28.0

28.0

28.0

28.1

1,546

1,257

1,075

925

1,754

1,439

1,275

1,190

4,803

5,662

16.0

12.5

-6.3

-3.3

13.5

14.5

18.6

28.8

5.5

17.9

Adj PAT Change (%)

1,624 25.3

2,202 28.0

E: MOSL Estimates

July 2014

127

June 2014 Results Preview | Sector: Consumer

Radico Khaitan Bloomberg Equity Shares (m)

RDCK IN 132.6

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

15 / 0

52-Week Range (INR)

CMP: INR112 

We expect Radico to post 15% revenue growth to INR4.1b, led by 7% volume growth.



The premium segment should continue to grow at a faster pace, aided by up-trading and conscious strategy of Radico to drive premiumization in a harsh taxation environment.



We expect flattish operating margins due to inflationary RM prices.



We estimate PAT growth of 10%, with 430bp expansion in tax rates to 27%.



The stock trades at 12.2x FY16E EPS of INR9.2. Maintain Buy.

172 / 89

1,6,12 Rel Perf. (%)

3 / -46 / -16

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 14.5 16.8 19.0 21.6 2.1 2.5 2.8 3.3 0.9

1.1

1.2

1.4

Adj. EPS (INR)

6.8

8.0

9.2

10.9

EPS Gr. (%)

6.3

16.8

15.6

18.5

BV/Sh.(INR)

63.3

69.8

77.4

86.4

RoE (%)

11.3

11.9

12.5

13.3

RoCE (%) Payout (%)

9.7 17.6

10.6 17.6

11.6 17.6

13.2 17.6

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

16.5 1.8

14.1 1.6

12.2 1.4

10.3 1.3

EV/EBITDA (x) 10.8 Div. Yield (%) 1.0

9.3 1.1

8.2 1.2

7.3 1.5

Buy

Key issues to watch out  Update on issues in Tamil Nadu.  Price hikes received, if any, during the quarter.  ENA price trend and outlook.

Quarterly performance

(INR Million)

Y/E March Net sales YoY Change (%) Total Expenses EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 3,573 17.6 2,963 611 17.1 16.5 95 204 85 396 90 22.7 306 21.2

FY14 2Q 3,521 18.5 2,957 564 16.0 14.9 97 198 89 358 78 21.8 280 35.0

3Q 3,909 19.9 3,358 550 14.1 10.4 99 222 90 320 94 29.4 226 2.6

4Q 3,514 6.0 3,114 400 11.4 -0.8 98 224 101 180 89 49.5 91 -45.5

1Q 4,109 15.0 3,403 707 17.2 15.7 109 225 89 462 125 27.0 337 10.1

FY15E 2Q 3Q 4,067 4,534 15.5 16.0 3,408 3,899 659 635 16.2 14.0 16.8 15.3 111 113 218 244 93 95 423 372 118 106 28.0 28.5 304 266 8.6 17.7

4Q 4,093 16.5 3,612 481 11.7 20.1 111 255 95 209 61 29.3 148 62.3

FY14

FY15E

14,517 15.4 12,391 2,126 14.6 10.7 388 848 365 1,255 352 28.0 903 6.3

16,803 15.7 14,322 2,481 14.8 16.7 445 942 371 1,466 410 28.0 1,055

128

June 2014 Results Preview | Sector: Consumer

United Spirits Bloomberg Equity Shares (m)

UNSP IN 145.3

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

357 / 6

52-Week Range (INR)

2,941 / -18 / -34993 /-

1,6,12 Rel Perf. (%)

38

CMP: INR2,453 

We expect United Spirits (UNSP) to post 15% revenue growth to INR25.2b led by a lower base.



Raw material prices continue to remain inflationary and with elections just getting over in 1QFY15, liquor manufacturers did not get requisite price hikes from state governments.



Expect margin contraction of 170bp to 11% driven by combination of gross margin pressure and higher brand spends.



Expect flattish PAT at INR791m. QoQ debt movements and working capital changes will however be key monitorables. Maintain Neutral.

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 96.7 110.7 127.9 145.4 11.0 13.6 16.4 19.6 3.7

6.2

8.1

10.6

Adj. EPS (INR) 25.4

42.6

56.0

72.7

EPS Gr. (%)

83.3

67.5

31.5

29.8

BV/Sh.(INR)

572.7

594.2

627.7

674.5

RoE (%)

4.4

7.2

8.9

10.8

RoCE (%) Payout (%)

7.8 17.7

9.9 11.7

11.3 8.9

13.3 6.9

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

96.5 4.3

57.6 4.1

43.8 3.9

33.7 3.6

EV/EBITDA (x) 35.5 Div. Yield (%) 0.2

28.3 0.2

23.5 0.2

19.4 0.2

Neutral

Key issues to watch out  Volume growth and commentary on Tamil Nadu volumes.  ENA price trend and outlook.  Strategy on further debt reduction, post W&M stake sale, and update on issues on debtors and group debt.

Quarterly performance (Standalone) Y/E March Volume Growth % ENA Price/Case Net Sales YoY Change (%) Total Exp EBITDA Margins (%) Depreciation Interest PBT From operations Other income PBT Tax Rate (%) PAT YoY Change (%) Extraordinary inc/(Exp) Reported PAT E: MOSL Estimates

July 2014

1Q 0 171 21,924 6.6 19,142 2,782 12.7 195 1,595 992 781 1,773 592 33.4 1,181 -18.5 0 1,181

(INR Million) FY14 2Q -1 180 20,387 -8.2 18,334 2,053 10.1 168 1,364 521 891 1,412 470 33.3 943 140.1 0 943

3Q -3.7 189 22,784 4.8 20,727 2,058 9.0 183 1,505 370 731 1,101 313 28.4 788 -2.2 -139 649

4Q 0 193 21,850 6.2 19,823 2,027 9.3 196 1,457 374 826 1,199 408 34.1 791 1.8 0 791

1Q 5.0 180 25,212 15.0 22,439 2,773 11.0 224 1,355 1,194 781 1,975 652 33.0 1,323 12.0 0 1,323

FY15E 2Q 3Q 7 8.0 190 200 23,648 25,974 16.0 14.0 20,811 23,117 2,838 2,857 12.0 11.0 193 210 1,160 1,279 1,485 1,368 909 746 2,394 2,114 790 698 33.0 33.0 1,604 1,416 70.2 79.7 0 0 1,604 1,416

4Q 10 205 25,647 17.4 22,722 2,924 11.4 217 1,509 1,198 674 1,872 702 37.5 1,170 47.9 0 1,170

FY14

FY15E

3 183 86,944 2.2 78,025 8,919 10.3 742 5,920 2,257 3,229 5,486 1,783 32.5 3,703 8.1 0 3,703

8 195 100,481 15.6 89,088 11,392 11.3 844 5,303 5,246 3,109 8,355 2,842 34.0 5,513 48.9 0 5,513

129

June 2014 Results Preview | July 2014 June 2014 Results Preview | Sector: Financials

Financials - Banks Technology Company name



Axis Bank Bank of Baroda Bank of India Canara Bank Federal Bank



HDFC Bank ICICI Bank Indian Bank Indusind Bank ING Vysya Bank



Kotak Mahindra Bank Oriental Bank of Commerce Punjab National Bank State Bank of India Union Bank of India

Post decisive mandate for development focused NDA government at the centre; hopes have increased for the faster economic revival. Our industry interaction suggests that issues faced by infrastructure segment and state-owned banks are being given the top most priority by the new government. Worst for the Indian economy is behind in our view. Our economist expects gradual recovery in GDP growth to 5.5% in FY15 and 6.5%+ in FY16 from 4.8% in FY14. This in turn would lead to improvement in business parameters for banks. Growth improvement coupled with better liquidity conditions and capital markets would lead to acceleration in de-leveraging and deceleration in incremental stress addition. This would result in margin expansion and reduction of credit cost primarily for state owned banks. Positive budget announcement and policy reforms in important sectors would be the key for the further re-rating. Despite the run up in stock prices by 30- 100%+, private banks are still trading at PBV multiple of 15%+ LPA and state-owned banks at a discount of 10% over LPA. Private banks would continue to command premium valuation driven by improved visibility on growth, healthy core operations and return ratios, top managements' continuity, lower asset quality issues, adequate capitalization, strengthening liability franchise and low hanging fruits (ability to capture market share from state-owned banks due to superior service). Our Top picks: ICICIBC, SBIN, HDFCB, PNB, OBC and INBK.

Key takeaways from 1QFY15 results Bulk lenders are expected to be the key beneficiaries with the improvement in systemic liquidity.









Stress addition is likely to be higher QoQ, partially on account of seasonal factors.





For private banks, NIMs are expected to remain stable QoQ and seasonality of fall in NIMs to moderate, with the improvement in ALM and liability profile. Bulk lenders are expected to be the key beneficiaries with the improvement in systemic liquidity. Fee income growth is expected to be moderate as new sanctions are yet to pick up. Retail focused banks are likely to perform better. Operating leverage benefit is expected to continue for private banks. However, higher staff related expenses would dent opex growth for state-owned banks. SBIN performance on opex is expected to surprise positively. Trading income and MTM reversals are likely to be moderate YoY as yields have moved in a narrow range (down only by 5-20bp QoQ) during the quarter. Equity trading gains are expected to be healthy. Stress addition is likely to be higher QoQ, partially on account of seasonal factors. Gradual improvement is expected from 2HFY15. Additional slippages due to formation of JLF on SMA accounts can’t be ruled out. Media reports suggest reduction in referrals to CDR cell and high sale to ARCs. Provisioning to remain elevated driven by NPA provisions and provisions for unhedged forex exposures.

Alpesh Mehta ([email protected]); +91 22 3982 5415 Sohail Halai ([email protected]); +91 22 3982 5430 July 2014

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June 2014 Results Preview | Sector: Financials

Expected quarterly performance summary (INR m) Sector

CMP (INR) 4.7.14

Private Banks Axis Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Kotak Mahindra Bank Yes Bank Pvt Bkg. Sector Aggregate PSU Banks Bank of Baroda Bank of India Canara Bank Indian Bank Oriental Bank of Commerce Punjab National Bank State Bank Union Bank PSU Bkg. Sector Aggregate

Net Profit Var % Var % Jun-14 YoY QoQ

Buy Buy Buy Buy Buy Buy Neutral Buy

32,414 5,750 51,972 45,061 8,268 4,777 9,990 8,019 166,250

13.1 12.8 17.6 17.9 21.7 12.3 9.0 21.7 16.3

2.4 -8.0 4.9 3.4 5.8 1.4 3.4 11.4 3.7

28,639 3,748 39,198 44,439 7,172 3,318 6,927 7,210 140,651

0.7 -6.4 18.6 16.5 11.8 1.5 -11.1 6.0 10.0

-11.8 -10.8 3.7 -0.2 -0.3 32.7 14.1 6.0 -0.7

16,558 17.5 2,156 104.1 23,074 25.1 26,573 16.8 4,160 24.2 1,832 4.6 4,234 5.1 4,697 17.2 83,285 19.9

875 305 448 185 322 980 2,699 228

Buy Neutral Buy Buy Buy Buy Buy Buy

32,602 29,261 24,689 11,728 13,432 42,736 132,172 20,550 307,170

12.8 15.3 24.0 6.9 2.8 9.4 14.8 7.6 13.1

4.4 -4.0 -2.6 8.8 2.6 6.8 2.4 0.1 2.2

23,429 20,400 18,087 7,348 9,763 29,891 85,214 12,263 206,393

-3.8 -6.4 -4.7 -14.5 -10.3 0.5 12.8 -13.1 1.2

-8.6 2.2 -3.9 4.5 -29.4 -5.8 -19.8 -7.1 -12.7

11,063 6,244 6,821 2,997 2,961 11,293 33,055 3,744 78,178

Expect non-core income to be a drag on profitability due to lower trading gains

July 2014

Operating Profit Var % Var % Jun-14 YoY QoQ

1,935 129 856 1,462 569 662 884 557

NII growth for state-owned banks is expected to be at 13% YoY (2% QoQ), while private banks' growth is expected to be at 16% YoY (3% QoQ)

Loan and deposit growth expected to be ~14% YoY

Reco

Net Interest Income Var % Var % Jun-14 YoY QoQ

-10.1 -22.2 -0.8 0.2 5.0 31.7 4.0 9.2 -1.7

-5.3 -4.4 -35.2 12.0 -13.9 11.7 -5.6 10.5 -16.2 -4.6 -11.4 40.1 2.0 8.7 -33.2 -35.3 -9.8 6.6 Source: MOSL

Margins to be stable QoQ; Bulk borrowers to benefit NIMs are expected to be stable for most banks as liquidity condition has eased and short terms rates have declined. 6M/12M CD rates on an average basis for 1QFY15 are stable/lower compared to 9.5/9.5% in 4QFY14 and 9.2/9.2% in 3QFY14. However, for few state-owned banks reported NIMs may be lower due to higher share of interest on IT refunds in 4QFY14. NII growth for state-owned banks is expected to be at 13% YoY (2% QoQ), while private banks' growth is expected to be at 16% YoY (3% QoQ) led by healthy loan growth and stable NIMs.

Lower trading income would lead to weak non-interest income Non-interest income is expected to be a drag on overall profitability of the banks (YoY growth) due to lower share of trading income. In 1QFY14, banks benefitted from sharp volatility in the interest rate which led to sharp increase in trading income. Bond yields have remained in a narrow range and have declined by 5-20bps since end of 4QFY14. Thus, opportunity to earn trading income through bond gains was lower and we expect trading gains for banks to be subdued during the quarter. Some banks with high equity portfolio can benefit from positive capital markets performance during 1QFY15. Core fee-based income growth is expected to be moderate.

Moderate business growth performance Overall business growth is expected to be moderate with loan growth for the industry for the fortnight ended June 13, 2014 at 13.9%. However, deposits growth declined marginally to 13.9%. We expect pick up in loan growth in 2HFY15 driven by improving sentiments and stable interest rates (expect it to decline once inflation

131

June 2014 Results Preview | Sector: Financials

eases out). Retail segment is expected to remain key focus for both private and public sector banks. Stress addition to remain elevated, however aggressive sale to ARC may contain headline GNPA

Elevated credit cost, provisioning on account of un-hedged forex exposure to keep overall provisions high

Asset quality issues to persist; sale to ARCs to the rescue While sentiments have improved and expectation on recovery has firmed up, it would take two/three quarters to translate into ground reality. Hence we continue to build high slippages (at similar levels of 4QFY14) for most of the banks. However, the reprieve for banks would be increasing sale to ARC, which can help contain headline GNPA. For private banks, we expect asset quality to remain stable; however, there may be some rise in restructured pool for corporate lenders.

Provisions to remain high Banks MTM position is unlikely to be altered significantly. This along with elevated credit cost and provisioning on account of un-hedged forex exposure will keep overall provisioning high. Thus, lower non-interest income coupled with high provisions will keep earnings growth subdued for PSU banks. While PPP growth is expected to be flat YoY, PAT is expected to decline 10% YoY. For private banks, credit cost is expected to be stable/rise marginally. We expect NII, PPP and PAT growth of 16% YoY, 10% YoY and 20% YoY, respectively.

Sector strategy Our interactions with banks' management indicate fresh impairment would remain at a high level for next few quarters. Increased recovery efforts and sale of loans to ARCs will help contain headline stressed assets numbers. Budget will be critical as it could materially alter the outlook on medium to long term growth. Also policy reforms in important segments like infrastructure where banks have high exposure would be the key. Kick start in reforms would lead to declining stress on the books, resulting in lower provisioning and higher profitability. Top picks: ICICIBC, SBIN, HDFCB, PNB, OBC and INBK.

July 2014

Despite the recent rally in stocks, valuations for state-owned banks are below LPA and for private banks just above LPA. We prefer banks with i) strong capitalization (risk of dilution low) and liability franchise (emerge stronger in the upturn of economy), ii) managements stability, iii) P&L strength (to absorb credit cost risk), iv) levered to interest rate reversal cycle (earnings cushion) and v) those who have recognized stress upfront (risk of setback remains low). Our top picks are ICICIBC, SBIN, HDFCB, PNB, OBC and INBK.

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June 2014 Results Preview | Sector: Financials

Revision in target prices CMP

Upside on Reco new TP (INR)

EPS (INR)

BV (INR)

TP (INR)

RoA (%)

(INR) Old New FY15 FY16 FY15 FY16 FY15 Private Banks ICICIBC* 1,462 28 Buy 99 120 580 668 1,454 1,865 1.78 HDFCB 856 21 Buy 44 56 215 258 825 1,033 1.97 AXSB 1,935 34 Buy 145 174 932 1,080 1,740 2,592 1.66 KMB* 884 -4 Neutral 39 47 275 318 852 852 1.88 VYSB 662 19 Buy 40 48 402 439 655 791 1.19 FB 129 23 Buy 11 12 89 99 118 158 1.13 J&KBK 1,604 18 Buy 258 280 1,372 1,576 1,891 1,891 1.47 SIB 33 22 Buy 4 5 27 31 31 40 0.96 PSU Banks SBIN (cons)* 2,699 37 Buy 259 344 2,097 2,378 3,240 3,685 0.78 PNB 980 35 Buy 119 158 1,056 1,196 1,320 1,320 0.73 BOI 305 15 Neutral 53 67 437 496 350 350 0.56 BOB 875 37 Buy 118 149 859 974 1,200 1,200 0.73 CBK 448 40 Buy 60 83 562 626 560 626 0.53 UNBK 229 39 Buy 28 34 291 319 290 319 0.47 OBC 322 24 Buy 45 55 460 502 400 400 0.57 INBK 185 45 Buy 29 36 270 298 235 269 0.67 CRPBK 407 1 Neutral 45 62 638 687 275 412 0.32 ANDB 102 13 Neutral 11 13 156 165 66 115 0.35 IDBI 108 12 Neutral 8 10 143 151 76 121 0.38 DBNK 84 17 Neutral 13 16 128 141 56 98 0.53 *Multiples adj. for value of key ventures/Investments; For ICICI Bank BV is adjusted for investments in subsidiaries

FY16 1.84 2.01 1.70 1.89 1.21 1.15 1.37 0.96 0.92 0.84 0.61 0.81 0.62 0.51 0.60 0.72 0.38 0.36 0.42 0.55

Source: Company, MOSL

July 2014

133

July 2014

Source: MOSL, Company

1QFY15E

2.72

2.75

3.82

3.83

3.80

3.84

5 Yr

4QFY14

3QFY14

2.81

3.77

2 Yr

2.81

2.80

13.9

47.6 48.1 50.3 53.5 54.2 56.7 57.6 60.9 60.9

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15

14.0

18.5 17.5 17.0 14.4 13.5 13.9

14.8 15.9 15.0

52.1 54.9 56.3 58.3 61.0 62.3 64.1 64.7 69.0 70.9 73.6 75.0 79.3

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14

79.0

15.9

49.9 3QFY11

1QFY15

16.8

47.1 2QFY11

13.9

13.8

13.1

11.0

15.0 14.4

46.4 1QFY11

14.5

17.8

13.7

Deposits (INR t)

2QFY14

1QFY14

3.77

3.70

3.3

2.88

PSU

4QFY13

3QFY13

3.68

1 Yr

2.99

3.00

3.58

Net Slippage Ratio (%)

2QFY13

3.08

3.64

11

3.29

13.8

46.9

4QFY12

Chg YoY (%)

1QFY13

1.1

3.55

12 Month

4QFY12

1.8

3.39

Net slippage ratio to remain high (%, annualized)

3QFY12

7

3.50

9

3.31

10

3.41

CD rates: Interest remain stable during the quarter (%)

2QFY12

1.1

3.14

15.9 15.1

43.7

3QFY12

Loan growth remains stable

1QFY12

1.9 2.1

1QFY15E

2.0

4QFY14

2.7 2.7

3QFY14

18.7 16.5

41.5

2QFY12

19.5 16.0

39.4

21.5 20.0

24.5

19.2

40.9

37.7

3QFY11 1QFY12

34.3

2QFY11

21.9

4QFY11

34.1

1QFY11

Loans (INR t)

2QFY14

6 Month

1QFY14

1.1

4QFY13

2.0

3QFY13

3.1

2QFY13

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

12

1QFY13

4QFY12

1.7

3QFY12

2QFY12

1QFY12

June 2014 Results Preview | Sector: Financials

Deposit growth moderates Chg YoY (%)

Yield curve declines marginally (%) 18-Jul-13 31-Jul-13 30-Sep-13

30-Dec-13 17-Apr-14 27-Jun-14

11.1

8 9.9

8.7

7.5 10 Yr

NIMs expected to remain stable (%)

Private

Source: MOSL, Company

134

June 2014 Results Preview | Sector: Financials

100

100

90

75

May-14

Jul-13

125

Jul-14

110

Jun-14

150

Apr-14

120

MOSL Financials Index

Source: Bloomberg, MOSL

Jul-14

Sensex Index

175

Apr-14

MOSL Financials Index

130

Oct-13

Sensex Index

Relative Performance - 1Yr (%)

Jan-14

Relative Performance - 3m (%)

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Banks-Private Axis Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank J&K Bank Kotak Mahindra Bank South Indian Bank Yes Bank Private Bank Aggregate Banks-PSU Andhra Bank Bank of Baroda Bank of India Canara Bank Corporation Bank Dena Bank IDBI Bank Indian Bank Oriental Bank Punjab National Bank State Bank Union Bank PSU Bank Aggregate

July 2014

CMP (INR)

Reco

EPS (INR) FY15E FY16E FY17E

PE (x) FY15E FY16E FY17E

PB (x) FY15E FY16E FY17E

RoE (%) FY15E FY16E FY17E

1,935 Buy 129 Buy 856 Buy 1,462 Buy 569 Buy 662 Buy 1,604 Buy 884 Neutral 33 Buy 557 Buy

145.3 173.7 212.2 10.6 12.5 15.2 44.5 55.9 70.0 99.1 119.9 148.7 33.4 42.3 54.2 40.3 47.6 56.5 258.4 279.5 305.0 39.4 46.5 56.0 4.2 4.9 5.8 51.1 60.5 75.4

13.3 12.1 19.3 14.8 17.0 16.4 6.2 22.4 7.7 10.9 15.8

11.1 10.4 15.3 12.2 13.4 13.9 5.7 19.0 6.6 9.2 13.0

9.1 8.5 12.2 9.8 10.5 11.7 5.3 15.8 5.6 7.4 10.5

2.1 1.4 4.0 2.1 2.9 1.6 1.2 3.2 1.2 2.0 2.8

1.8 1.3 3.3 1.9 2.5 1.5 1.0 2.8 1.0 1.7 2.4

1.5 1.2 2.7 1.7 2.1 1.4 0.9 2.4 0.9 1.4 2.1

16.6 12.5 22.4 15.7 18.4 10.4 20.2 15.4 16.4 22.4 17.6

17.2 13.2 23.6 16.6 19.9 11.3 19.0 15.7 16.8 19.6 18.5

18.1 14.5 24.5 17.9 21.4 12.2 18.1 16.2 17.3 20.8 20.0

102 875 305 448 407 84 108 185 322 980 2,699 228

10.8 12.8 13.4 118.2 149.2 184.6 53.4 66.9 87.2 60.3 82.9 107.8 45.3 61.9 74.2 13.0 15.6 18.9 8.2 10.4 12.4 29.0 36.5 44.2 44.5 54.7 72.5 118.9 157.9 185.3 259.4 344.3 454.4 28.0 34.3 39.2

9.5 7.4 5.7 7.4 9.0 6.5 13.2 6.4 7.2 8.2 10.4 8.2

8.0 5.9 4.6 5.4 6.6 5.4 10.3 5.1 5.9 6.2 7.8 6.6

7.6 4.7 3.5 4.2 5.5 4.5 8.7 4.2 4.4 5.3 5.9 5.8

0.7 1.0 0.7 0.8 0.6 0.7 0.8 0.7 0.7 0.9 1.3 0.8

0.6 0.9 0.6 0.7 0.6 0.6 0.7 0.6 0.6 0.8 1.1 0.7

0.6 0.8 0.5 0.6 0.5 0.5 0.7 0.6 0.6 0.7 1.0 0.6

7.1 14.5 12.9 11.2 7.3 10.6 5.9 11.2 10.0 11.8 13.3 10.0

8.0 16.3 14.3 14.0 9.3 11.6 7.1 12.8 11.4 14.0 15.6 11.3

7.9 17.7 16.3 16.2 10.4 12.8 8.0 14.0 13.7 14.5 17.9 11.7

8.8

6.7

5.3

1.0

0.9

0.9 11.6 13.6 16.0 Source: Company, MOSL

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

135

June 2014 Results Preview | Sector: Financials

Axis Bank Bloomberg

AXSB IN

Equity Shares (m)

471.30

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

905.04/15.06

52-Week Range (INR)

1,990/764

1, 6, 12 Rel. Per (%)

-3/29/16

CMP: INR1935  

Financial and Valuation Summary (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%)

2014 2015E 2016E 2017E 119.5 128.5 151.2 183.4 114.6 120.6 144.6 176.3 62.2

68.3

81.6

99.7

3.6

3.4

3.4

3.4

132.3

145.3

173.7

212.2

19.6

9.8

19.6

22.1

ABV/Sh. (INR) 794.7

916.3 1,063.5 1,240.2

RoE (%)

17.4

16.6

17.2

18.1

RoA (%) Payout (%) Valuations P/E(X)

1.7 17.7

1.7 17.5

1.7 17.5

1.7 17.5

14.5

13.2

11.1

9.1

P/BV (X)

2.4

2.1

1.8

1.5

P/ABV (X) Div. Yield (%)

2.4 1.0

2.1 1.1

1.8 1.4

1.6 1.7

  

Buy

Loan growth is expected to be ~17% YoY, whereas deposit growth is expected to be higher at 19% YoY. 1Q is generally weak from NIM perspective as impact of PSL (low yielding), which gets build in 4Q, runs off in ensuing quarters. However, led by benefit of FCNR (B) deposit raised, NIM decline is expected to be moderate QoQ. Fee income growth is expected to improve to ~15% YoY albeit on a lower base as growth in large/mid-corporate and retail fees rebound. Slippages in 4Q were significantly lower than quarterly run-rate. We remain conservative and factor higher slippage ratio and credit cost. While PPP growth is expected to be flat (due to higher trading gains in 1QFY14), lower provisioning would help earnings grow 18%

Key issues to watch out  Provisioning for un-hedged forex exposures  Over last three quarters, profitability of the bank was helped by repatriation of profits from international subsidiaries which could further aid earnings.  Bank had guided for gross stress addition of INR65b for FY15. Any revision in the same remains critical.

Quarterly Performance

Interest Income Interest Expense 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 NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) Core CASA ratio (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (on customer assets, %) July 2014

(INR Million) 1Q 72,778 44,126 28,652 31.4 17,813 46,465 18,030 28,436 44.8 7,123 21,313 7,224 14,089 22.1

FY14 2Q 3Q 76,090 77,891 46,723 48,051 29,367 29,840 26.2 19.6 17,661 16,444 47,028 46,284 19,530 20,134 27,498 26,150 26.2 10.7 6,875 2,025 20,623 24,125 7,000 8,084 13,623 16,041 21.3 19.1

4Q 79,652 47,995 31,658 18.8 22,134 53,792 21,314 32,477 16.0 5,052 27,425 9,002 18,423 18.5

1Q 82,569 50,155 32,414 13.1 17,025 49,439 20,801 28,639 0.7 3,740 24,899 8,341 16,558 17.5

3.6 19.0 17.0 81.7

3.9 3.7 7.1 15.8 83.1 38.9

3.8 3.7 8.4 16.9 78.8 39.4

3.7 3.6 7.3 17.8 80.6 38.0

3.9 3.7 11.2 16.8 81.9 39.0

42.1 2.1 24.9 1.1

48.1 2.4 27.3 1.2

55.0 2.6 30.1 1.3

60.8 2.6 31.5 1.2

33.1 1.3

FY15E 2Q 3Q 85,054 88,055 51,408 53,465 33,646 34,590 14.6 15.9 19,175 21,080 52,821 55,670 22,704 23,160 30,116 32,510 9.5 24.3 5,704 4,048 24,412 28,462 8,178 9,535 16,234 18,927 19.2 18.0

3.7 14.5 19.2 82.1

33.6 1.3

3.7 15.8 19.2 82.9

34.1 1.2

4Q 87,948 60,068 27,880 -11.9 25,933 53,813 24,454 29,359 -9.6 4,469 24,890 8,338 16,552 -10.2

2.8 15.0 18.0 84.0

32.4 1.1

FY14

FY15E

306,412 186,895 119,517 23.6 74,052 193,569 79,008 114,561 23.1 21,075 93,486 31,310 62,177 20.0

343,625 215,096 128,529 7.5 83,213 211,743 91,119 120,624 5.3 17,961 102,663 34,392 68,271 9.8

3.8 3.6 11.2 16.8 81.9 39.0

3.4 15.0 18.0 84.0

60.8 2.6 31.5 1.2

32.4 1.1 136

June 2014 Results Preview | Sector: Financials

Bank of Baroda Bloomberg

BOB IN

Equity Shares (m)

429.42

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

377.16/6.28

52-Week Range (INR)

1,009/429

1, 6, 12 Rel. Per (%)

-3/11/26

CMP: INR875   

Financial and Valuation Summary (INR b) Y/E March NII OP

2014 2015E 2016E 2017E 120 139 167 196 93 106 128 152

NP

45

51

64

79

NIM (%)

2.1

2.1

2.2

2.2

EPS (INR)

105

118

149

185

EPS Gr. (%)

-0.6

12.1

26.3

23.7

BV/Sh. (INR)

768

859

974

1,115

ABV/Sh. (INR)

677

769

889

1,038

ROE (%)

14.4

14.5

16.3

17.7

ROA (%) 0.8 Div. Payout (%) 27.7 Valuations P/E(X) 8.3

0.7 23.2

0.8 23.2

0.8 23.2

7.4

5.9

4.7

P/BV (X)

1.1

1.0

0.9

0.8

P/ABV (X) Div. Yield (%)

1.3 2.5

1.1 2.7

1.0 3.4

0.8 4.2





Buy

Loan and deposit growth is expected to be above industry growth rates of 22% YoY and 20% YoY, respectively. NIMs are expected to be stable at 2.3% QoQ. Fee income is expected to grow at 16% YoY. However lower share of non-core income (trading, recoveries) will translate into 23% YoY decline in non-interest income. Slippages have declined in the past two quarters however, on a conservative basis we factor in higher slippage ratio and credit cost. Further, provisioning for un-hedged forex exposures of corporate will also increase provisioning charge. PPP growth is expected to be weak mainly due to subdued noninterest performance. Provisioning expense is expected to remain elevated hence earnings are expected to decline 5% YoY.

Key issues to watch out  Outlook on asset quality and restructuring: Management has guided for an improvement in asset quality.  Expected sale to ARC.  Improvement in domestic CD ratio which is currently at ~70%.  Change in management with Mr. Mundra set to retire in July 2014.

Quarterly Performance

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported, %) NIM (Calculated, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates

July 2014

1Q 94,869 65,978 28,891 3.3 12,306 41,197 16,836 24,361 8.7 10,179 14,182 2,503 11,679 2.5

FY14 2Q 3Q 4Q 94,735 96,907 102,886 65,787 66,336 71,643 28,948 30,571 31,243 1.1 7.6 11.0 9,739 9,321 13,263 38,687 39,892 44,506 17,596 18,073 18,866 21,090 21,819 25,640 -11.0 -2.7 19.5 8,608 7,619 11,532 12,482 14,201 14,109 801 3,722 2,536 11,681 10,478 11,573 -10.2 3.6 12.5

2.4 2.2 22.0 12.4 31.2 17.7

2.3 2.2 18.8 16.3 32.7 6.4

2.4 2.3 21.5 17.7 32.3 26.2

2.3 2.1 20.0 21.0 31.8 18.0

207.2 6.4 97.6 3.0

215.3 6.3 108.9 3.2

211.7 6.0 119.3 3.3

224.5 5.7 118.8 2.9

1Q 105,678 73,076 32,602 12.8 9,483 42,085 18,656 23,429 -3.8 9,600 13,828 2,766 11,063 -5.3

(INR Million) FY15E FY14 FY15E 2Q 3Q 4Q 109,476 113,611 119,167 389,397 447,932 75,633 78,280 81,838 269,744 308,827 33,843 35,330 37,330 119,653 139,105 16.9 15.6 19.5 5.7 16.3 12,021 12,019 14,783 44,627 48,307 45,864 47,350 52,113 164,281 187,412 19,834 20,844 22,560 71,371 81,894 26,030 26,506 29,553 92,910 105,518 23.4 21.5 15.3 3.2 13.6 10,732 10,318 11,256 37,937 41,907 15,299 16,188 18,297 54,973 63,612 3,060 3,238 3,659 9,562 12,722 12,239 12,950 14,638 45,411 50,889 4.8 23.6 26.5 1.3 12.1

2.1 20.6 22.3

2.2 18.5 18.0

2.2 19.7 19.4

2.2 11.0 15.0

20.0

20.0

20.0

20.0

2.3 2.1 20.0 21.0 31.8 17.4

130.6 2.9

224.5 5.7 118.8 2.9

124.6 3.2

129.6 3.2

131.1 3.1

2.1 11.0 15.0 20.0

130.6 2.9

137

June 2014 Results Preview | Sector: Financials

Bloomberg

BOI IN

Equity Shares (m)

642.26

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

195.31/3.25

52-Week Range (INR)

357/127

1, 6, 12 Rel. Per (%)

-8/3/3

Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

NII

108.3

126.9

147.3

178.2

OP

84.2

95.3

109.4

134.2

NP

27.3

34.4

43.0

56.1

NIM (%)

2.3

2.3

2.3

2.3

EPS (INR)

42.4

53.4

66.9

87.2

EPS Gr. (%)

-7.9

25.9

25.1

30.4

ROE (%)

11.7

12.9

14.3

16.3

ROA (%)

0.5

0.6

0.6

0.7

BV/Sh. (INR)

390

437.2

496.1

572.2

ABV/Sh. (INR) 315 Div. Payout (%) 13.7 Valuations P/E(X) 7.2

359 14.5

430 14.5

522 14.5

5.7

4.5

3.5

P/BV (X)

0.8

0.7

0.6

0.5

P/ABV (X) Div. Yield (%)

1.0 1.6

0.8 2.2

0.7 2.7

0.6 3.6

Bank of India

CMP: INR305   





Neutral

Business growth is expected to be above industry average with loan and deposit growth of 23%+ YoY and 18% YoY, respectively. Factored in NIM (calculated) decline of 15bp+ QoQ as bank had oneoff income of INR3.8b on interest on IT refund in 4QFY14. Fee income is expected to be healthy. However lower trading income and recoveries would lead to steep decline in non-interest income (-27% YoY). While slippages will remain elevated, it is expected to be lower on a sequential basis (4.9% in 4QFY14). Credit cost is also expected to remain high. Provisioning for unhedged forex exposures will increase the provisioning charge. Lower non-interest income would result in 6% YoY decline in PPP. Further higher provisioning expense is expected to translate into 35%+ YoY) decline in earnings.

Key issues to watch out  Outlook on balance sheet growth given weak capitalization levels (CET 1 of less than 7.2%). Further capital infusion and asset monetization plan to increase Tier I ratio.  Bank has been aggressive in offloading loans to ARCs. Hence, quantum of loans sold and future pipeline for asset sale.

Quarterly Performance

Interest Income Interest Expense 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 NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (Reported, %) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates July 2014

(INR Million) 1Q 85,412 60,042 25,370 24.1 11,808 37,178 15,374 21,804 30.3 6,946 14,858 5,217 9,642 8.6

FY14 2Q 3Q 4Q 92,393 97,692 103,604 67,121 70,501 73,131 25,272 27,190 30,473 15.1 17.8 23.1 11,003 10,971 9,137 36,274 38,162 39,610 15,249 16,722 19,649 21,025 21,440 19,961 13.4 15.5 -3.8 12,323 14,037 15,473 8,702 7,402 4,488 2,484 1,544 -1,087 6,218 5,858 5,575 106.0 -27.1 -26.3

2.3 22.4 17.1 31.4 35.1

2.2 29.9 29.4 30.4 28.5

2.2 30.1 27.2 31.0 20.9

2.4 24.9 28.4 30.0 -24.2

162.3 5.2 94.1 3.0

175.0 5.2 98.8 2.9

163.9 4.6 100.2 2.8

135.6 3.6 118.7 3.2

FY14

1Q 104,544 75,283 29,261 15.3 8,586 37,847 17,448 20,400 -6.4 11,846 8,553 2,309 6,244 -35.2

FY15E 2Q 3Q 4Q 108,685 112,929 119,263 379,101 77,825 80,790 84,622 270,796 30,860 32,139 34,640 108,305 22.1 18.2 13.7 20.0 10,546 11,687 13,878 42,918 41,406 43,825 48,518 151,224 18,413 19,063 21,330 66,995 22,993 24,762 27,188 84,229 9.4 15.5 36.2 12.9 12,052 12,418 11,950 48,779 10,941 12,344 15,238 35,451 2,954 3,333 4,114 8,158 7,987 9,011 11,124 27,293 28.5 53.8 99.5 -0.7

2.2 18.4 25.0

2.3 17.1 18.3

2.3 17.0 16.2

2.4 15.0 15.9

27.0

27.0

27.0

27.0

2.3 24.9 28.4 30.0 23.0

134.5 3.1

135.6 3.6 118.7 3.2

122.2 3.2

127.8 3.2

132.0 3.2

FY15E 445,420 318,520 126,900 17.2 44,696 171,596 76,254 95,342 13.2 48,266 47,076 12,711 34,366 25.9 2.3 15.0 15.9 27.0

134.5 3.1

138

June 2014 Results Preview | Sector: Financials

Canara Bank Bloomberg

CBK IN

Equity Shares (m)

461.26

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

212.94/3.54

52-Week Range (INR)

498/190

1, 6, 12 Rel. Per (%)

-2/37/-9

CMP: INR448  

Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

NII

89.4

104.3

125.4

154.0

OP

68.0

75.1

93.7

118.5

NP

24.4

27.8

38.2

49.7

NIM (%)

2.1

2.1

2.2

2.2

EPS (INR)

52.9

60.3

82.9

107.8

-18.5

14.0

37.5

30.0

BV/Sh. (INR) 515.9

562.1

625.7

708.4

ABV/Sh. (INR) 431.8

469.7

539.2

640.8

EPS Gr. (%)

ROE (%)

10.5

11.2

14.0

16.2

ROA (%)

0.5

0.5

0.6

0.7

Div. Payout (%) 24.2 Valuations P/E(X) 8.5

23.2

23.2

23.2

7.4

5.4

4.2

P/BV (X)

0.9

0.8

0.7

0.6

P/ABV (X) Div. Yield (%)

1.0 2.5

1.0 2.7

0.8 3.7

0.7 4.8

  

Buy

Loan growth is expected to be above industry average at 22% YoY, whereas deposit growth is expected to be 13.5% YoY. Reported NIM is expected to decline QoQ, however this is on account of one-off interest income of INR1b booked in 4QFY14. Hence, adjusted NIM is expected to be stable QoQ. Lower trading income will drag overall non-interest income. Core fee based income is expected to be healthy. We expect pressure on asset quality to continue resulting into higher credit cost. Strong NII growth and containment in opex growth will keep the core operating performance healthy. Expect 23% YoY growth in Core PPP.

Key issues to watch out  Outlook on asset quality- slippages, restructuring pipeline and sale to ARCs  Capital raising plans  Business growth outlook, especially on bulk deposit proportion and strategy to improve low cost CASA deposits.

Quarterly Performance

Interest Income Interest Expense 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 NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%)

1Q 92,696 72,785 19,911 8.0 12,383 32,294 13,311 18,983 36.2 9,162 9,821 1,900 7,921 2.2

FY14 2Q 3Q 96,545 100,839 74,633 78,569 21,912 22,270 12.0 12.0 7,730 8,514 29,642 30,784 15,392 14,876 14,250 15,909 11.1 4.9 6,740 10,515 7,509 5,393 1,250 1,300 6,259 4,093 -5.3 -42.4

4Q 105,397 80,045 25,352 21.3 10,700 36,052 17,231 18,821 10.9 10,913 7,908 1,800 6,108 -15.8

2.2 2.0 14.2 10.8 65.4 23.1 19.3

2.2 2.2 16.3 30.3 71.8 24.3 16.6

2.2 2.1 26.2 31.8 70.4 23.1 24.1

2.3 2.3 18.2 24.3 71.6 24.5 22.8

172.7 6.9 73.3 2.9

180.5 6.4 74.8 2.6

184.5 6.4 80.7 2.8

202.5 6.7 75.7 2.5

1Q 107,366 82,677 24,689 24.0 9,391 34,080 15,994 18,087 -4.7 9,342 8,745 1,924 6,821 -13.9

FY15E 2Q 3Q 109,829 113,721 84,568 87,189 25,262 26,532 15.3 19.1 9,622 9,728 34,884 36,260 16,799 17,951 18,085 18,309 26.9 15.1 9,863 9,889 8,222 8,420 1,809 1,852 6,413 6,568 2.5 60.4

(INR million) FY14 FY15E 4Q 119,879 92,108 27,772 9.5 11,945 39,717 19,100 20,617 9.5 10,361 10,256 2,256 8,000 31.0

395,476 306,032 89,444 13.5 39,328 128,772 60,810 67,962 15.4 37,330 30,632 6,250 24,382 -15.1

2.2 13.4 22.9 70.9

2.1 14.5 12.5 70.5

2.2 14.1 15.4 71.2

2.2 15.0 16.0 72.2

22.0

22.0

22.0

22.0

2.2 2.1 18.2 24.3 71.6 24.5 20.4

86.7 2.5

202.5 6.7 75.7 2.5

79.6 2.5

84.4 2.6

85.5 2.5

450,795 346,541 104,255 16.6 40,686 144,941 69,843 75,098 10.5 39,455 35,643 7,841 27,802 14.0

2.2 15.0 16.0 72.2 22.0

86.7 2.5

E: MOSL Estimates July 2014

139

June 2014 Results Preview | Sector: Financials

Bloomberg

FB IN

Equity Shares (m)

854.92

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

112.38/1.87

52-Week Range (INR)

CMP: INR129 

136/44

1, 6, 12 Rel. Per (%)

10/33/29



Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

NII

22.3

24.5

28.6

34.3



OP NP NIM (%)

14.8 8.4 3.3

16.1 9.1 3.3

18.9 10.7 3.3

23.3 13.0 3.3

9.8 0.2

10.6 8.2

12.5 17.2

15.2 21.9



BV/Sh. (INR) 81.3 ABV/Sh. (INR) 78.8 ROE (%) 12.6

89.4 85.6 12.5

98.9 94.3 13.2

110.6 106.5 14.5

ROA (%) Payout (%) Valuations P/E(X)

1.2 23.6

1.1 23.2

1.1 23.2

1.2 23.2

13.1

12.1

10.4

8.5

1.6 1.7 1.5

1.4 1.5 1.6

1.3 1.4 1.9

1.2 1.2 2.4

EPS (INR) EPS Gr. (%)

P/BV (X) P/ABV (X) Div. Yield (%)

Federal Bank



Buy

Business growth is expected to remain muted as bank continues to tread on the path of risk aversion. Loan growth is expected to be 8% YoY and deposit growth to be at 7% YoY. Reported NIM is expected to decline 30bp+ QoQ as one off interest on IT refund is expected to be lower, however adjusted NIM is expected to improve by 10bp QoQ. Fee income growth is expected to be moderate at 12% YoY. However, lower trading income is expected to result into 10% YoY decline in non-interest income. Slippages run-rate is expected to continue at ~2%, however, loans sale to ARCs could contain GNPA increase. We factor credit cost of 50bp for 1QFY15 as against negligible credit cost in last three quarters, but significantly lower than 2.2% in 1QFY14 and aid earnings growth (100%+ YoY)

Key issues to watch out  Outlook on asset quality in the corporate segment. Sale of loans to ARCs.  Strategy on balance sheet growth, with consolidation in corporate segment now largely over.

Quarterly Performance

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates

July 2014

(INR Million) 1Q 16,533 11,437 5,096 3.7 2,158 7,254 3,249 4,005 15.6 2,451 1,554 498 1,057 -44.5

FY14 2Q 3Q 17,144 17,397 11,661 11,941 5,484 5,456 8.4 9.7 1,434 1,563 6,918 7,018 3,378 3,459 3,539 3,559 1.2 -9.7 110 73 3,429 3,486 1,171 1,185 2,258 2,301 5.0 9.2

4Q 18,387 12,136 6,251 30.3 1,784 8,035 3,835 4,200 13.7 550 3,650 877 2,773 24.9

1Q 18,129 12,379 5,750 12.8 1,907 7,657 3,909 3,748 -6.4 667 3,081 924 2,156 104.1

FY15E 2Q 3Q 18,733 19,418 12,658 13,037 6,076 6,381 10.8 17.0 1,951 2,041 8,026 8,422 4,151 4,260 3,875 4,163 9.5 17.0 791 760 3,084 3,403 925 1,021 2,159 2,382 -4.4 3.5

4Q 20,784 14,463 6,320 1.1 2,408 8,728 4,462 4,266 1.6 848 3,418 1,025 2,392 -13.7

FY14

FY15E

69,461 47,175 22,286 12.9 6,938 29,225 14,421 14,804 1.4 2,679 12,125 3,728 8,397 0.2

77,064 52,537 24,527 10.1 8,306 32,833 16,782 16,052 8.4 3,067 12,985 3,896 9,090 8.2

3.1 3.1 12.7 8.5 72.4 29.0

3.3 3.3 14.7 16.3 74.3 30.7

3.2 3.3 11.9 5.4 72.1 30.4

3.6 3.6 3.7 -1.5 72.7 30.8

3.3 7.4 6.8 72.0

3.4 11.0 7.6 72.0

3.4 13.6 14.5 72.7

3.2 15.0 16.0 73.4

3.3 3.3 3.7 -1.5 72.7 30.8

3.3 15.0 16.0 73.4

14.8 3.5

14.7 3.4

12.0 2.8

10.9 2.5

11.4 2.5

11.9 2.6

12.1 2.5

12.2 2.4

10.9 2.5

12.2 2.4

140

June 2014 Results Preview | Sector: Financials

Bloomberg

HDFCB IN

Equity Shares (m)

2,407.70

HDFC Bank

CMP: INR856

Buy

We expect a healthy loan growth of 28% YoY and 9% QoQ driven by improving macro environment and a well balanced portfolio. Deposit 52-Week Range (INR) 858/528 growth is expected to be at 26% YoY and 4% QoQ. 1, 6, 12 Rel. Per (%) -2/2/-6  NIM is expected to remain stable at 4.6% QoQ (though lower by 16bp YoY). Consequently, NII is expected to grow 18% YoY. Financial and Valuation Summary (INR b)  Fee income growth is expected to be at 19% YoY. However, lower Y/E March 2014 2015E 2016E 2017E NII 184.8 225.8 276.0 348.6 income from sale of investments would drag non-interest income OP 143.6 182.2 225.9 285.2 growth lower to 9% YoY. NP 84.8 106.7 134.0 167.8  Asset quality remains best in class with lowest net stressed loans. NIM (%) 4.6 4.6 4.6 4.6 However, with a conservative approach we expect provisions to be at EPS (INR) 35.3 44.5 55.9 70.0 INR4.5b. EPS Gr. (%) 25.0 25.8 25.6 25.2  Strong operating performance coupled with healthy asset quality BV/Sh. (INR) 181.3 215.4 258.2 311.9 would lead to a 25% YoY earnings growth. ABV/Sh. (INR) 178.9 211.0 252.5 305.5 RoE (%) 21.3 22.4 23.6 24.5 Key issues to watch out RoA (%) 1.9 2.0 2.0 2.0  Performance on retail loan portfolio especially in segments like CV Payout (%) 22.7 23.4 23.4 23.4 where commentary from the industry experts has been improving. Valuations  Performance of branches opened in the unbanked areas during P/E (x) 24.2 19.2 15.3 12.2 FY14 and branch expansion strategy for FY15. P/BV (x) 4.7 4.0 3.3 2.7  Capital raising plans P/ABV (x) 4.8 4.0 3.4 2.8 M.Cap. (INR b) /(USD b)

Div. Yield (%)

0.8

1,981.77/32.97

1.0



1.3

1.6

1Q 96,630 52,443 44,187 21.0 19,256 63,443 30,382 33,061 23.6 5,271 27,790 9,351 18,439 30.1

FY14 2Q 3Q 4Q 100,933 105,907 107,886 56,168 59,559 58,359 44,765 46,348 49,527 15.3 16.4 15.3 18,444 21,483 20,014 63,209 67,830 69,541 29,342 28,951 31,747 33,867 38,880 37,794 26.9 24.6 27.6 3,859 3,888 2,861 30,007 34,991 34,933 10,184 11,734 11,667 19,823 23,257 23,266 27.1 25.1 23.1

Quarterly Performance

(INR Million)

Interest Income Interest Expense 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 NIM (Reported,%)* 4.6 4.3 4.2 4.4 NIM (Cal, %)# 4.8 4.8 4.6 4.6 Deposit Growth (%) 17.8 14.2 22.9 24.0 Loan Growth (%) 21.2 16.0 22.9 26.4 CD Ratio (%) 85.3 85.8 85.0 82.5 CASA Ratio (%) 44.7 45.0 41.1 44.8 Tax Rate (%) 33.6 33.9 33.5 33.4 Asset Quality OSRL (INR B) 5.2 5.4 5.9 6.1 OSRL (%) 0.2 0.2 0.2 0.2 Gross NPA (INR B) 27.2 29.4 30.2 29.9 Gross NPA (%) 1.0 1.1 1.0 1.0 E: MOSL Estimates; * Reported on total assets; # Cal. on interest earning assets July 2014

1Q 113,541 61,569 51,972 17.6 20,944 72,915 33,717 39,198 18.6 4,500 34,698 11,624 23,074 25.1

FY15E 2Q 3Q 4Q 119,583 126,086 132,361 65,263 68,526 70,457 54,320 57,560 61,904 21.3 24.2 25.0 22,513 25,942 25,490 76,833 83,502 87,395 34,155 34,727 35,886 42,678 48,775 51,509 26.0 25.5 36.3 5,200 4,750 8,457 37,478 44,025 43,052 12,555 14,748 13,626 24,923 29,277 29,426 25.7 25.9 26.5

FY14

FY15E

411,355 226,529 184,826 16.9 79,196 264,023 120,422 143,601 25.7 15,880 127,721 42,937 84,784 26.1

491,571 265,815 225,756 22.1 94,890 320,645 138,485 182,160 26.9 22,907 159,253 52,554 106,700 25.8

4.6 21.0 26.0 85.9 43.8 33.0

41.1 1.1

4.6 26.0 27.7 86.5

4.6 28.2 27.9 85.6

4.7 21.8 25.0 87.2

4.7 21.0 26.0 85.9

33.5

33.5

33.5

31.7

4.4 4.6 24.0 26.4 82.5 44.8 33.6

41.1 1.1

6.1 0.2 29.9 1.0

32.6 1.0

36.2 1.1

39.4 1.1

141

June 2014 Results Preview | Sector: Financials

ICICI Bank Bloomberg

ICICIBC IN

Equity Shares (m)

1,156.01

CMP: INR1462

Buy

Loan is expected to grow 4% QoQ and 17% YoY. Retail loan growth has picked up over last few quarters, which is expected to remain a 52-Week Range (INR) 1,590/759 key driver of loan growth. 1, 6, 12 Rel. Per (%) -4/12/2  Margins are expected to remain stable QoQ at 3.3% (up 15bp YoY). Financial and Valuation Summary (INR b) Consequently, NII is expected to grow 3% QoQ and 18% YoY. Y/E March 2014 2015E 2016E 2017E  Fee income is expected to grow ~16% YoY, whereas non-interest NII 164.8 190.5 227.3 279.2 income is expected to increase 13% YoY, led by lower contribution OP 165.9 191.8 230.2 285.4 from profit on sale of investments. NP 98.1 114.4 138.5 171.8  GNPA is expected to remain stable QoQ, however, restructuring NIM (%) 3.2 3.3 3.4 3.4 portfolio is likely to increase. Management had guided for EPS (INR) 85 99 120 149 incremental restructuring of INR15b at the end of FY14. Further EPS Gr (%) 17.7 16.6 21.1 24.0 BV/Sh (INR)* 508 580 668 777 provisioning for un-hedged forex exposures will also lead to higher ABV/Sh (INR)* 488.2 556.6 639.7 743.7 provisioning expenses. M.Cap. (INR b) /(USD b)

RoE (%)

1,662.00/27.65

15.2

15.7

16.6

17.9

RoA (%) 1.7 Div. Payout (%) 31.4

1.8 31.3

1.8 31.3

1.9 31.3

Valuations AP/E (x) AP/BV (x)

12.3 2.1

9.9 1.8

7.8 1.5

14.6 2.4

AP/ABV (x) 2.5 2.2 1.9 1.6 Div. Yield (%) 1.6 1.8 2.2 2.8 * BV adj for invt in susbdiaries, Prices adj for sub value



Key issues to watch out  Performance on asset quality and restructuring pipeline  Outlook on domestic loan growth and areas of focus.  Guidance on margins and opex growth – which has been one of the drivers of profitability in recent quarters.

Quarterly Performance Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates

July 2014

1Q 104,207 66,002 38,205 19.7 24,843 63,048 24,906 38,142 29.3 5,932 32,210 9,468 22,742 25.3

FY14 2Q 3Q 4Q 108,133 114,550 114,893 67,698 71,999 71,327 40,435 42,551 43,565 19.9 21.6 14.5 21,665 28,010 29,761 62,100 70,561 73,326 23,221 26,170 28,791 38,879 44,390 44,535 21.8 28.6 23.6 6,248 6,946 7,138 32,631 37,444 37,397 9,110 12,122 10,877 23,521 25,322 26,520 20.2 12.5 15.1

3.3 3.1 8.7 12.3 39.0

3.3 3.3 9.8 15.5 40.3

3.3 3.3 10.7 16.0 39.1

3.4 3.3 13.4 16.7 39.1

59.2 2.0 100.1 3.2

68.3 2.1 100.3 3.1

86.0 2.6 104.0 3.1

105.6 3.1 105.1 3.0

1Q 118,528 73,467 45,061 17.9 27,966 73,027 28,588 44,439 16.5 6,478 37,961 11,388 26,573 16.8

3.3 18.5 16.9

107.8 3.0

(INR Million) FY15E FY14 FY15E 2Q 3Q 4Q 122,539 126,886 132,729 441,782 500,682 75,855 78,510 82,311 277,026 310,143 46,684 48,377 50,417 164,756 190,539 15.5 13.7 15.7 18.8 15.6 29,977 30,750 31,528 104,279 120,221 76,661 79,127 81,945 269,034 310,760 29,621 29,849 30,916 103,089 118,974 47,040 49,278 51,029 165,946 191,786 21.0 11.0 14.6 25.7 15.6 7,598 6,973 7,291 26,264 28,339 39,443 42,305 43,738 139,682 163,447 11,833 12,692 13,122 41,577 49,034 27,610 29,614 30,617 98,105 114,413 17.4 16.9 15.4 17.8 16.6

3.3 15.0 14.2

110.6 3.0

3.3 17.8 14.5

112.1 2.9

3.3 18.9 18.2

112.4 2.8

3.3 3.2 13.4 16.7 39.1 105.6 3.1 105.1 3.0

3.3 18.9 18.2

112.4 2.8

142

June 2014 Results Preview | Sector: Financials

Indian Bank Bloomberg

INBK IN

Equity Shares (m)

464.85

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

83.81/1.39

52-Week Range (INR)

199/61

1, 6, 12 Rel. Per (%)

0/33/26

CMP: INR185   

Financial and Valuation Summary (INR b) Y/E March NII OP NP

2014 2015E 2016E 2017E 44 52 61 73 29 33 39 47 12 13 17 21

NIM (%) EPS (INR) EPS Gr. (%)

2.7 25 -32.2

2.8 29 16.3

2.8 36 25.7

2.8 44 21.3

BV/Sh. (INR) ABV/Sh (INR)

248 210

270 227

298 258

332 289

RoE (%) RoA (%) Div. Payout (%) Valuations P/E (x) P/ BV (x) P/ABV (x) Div. Yield (%)

10.3 0.7 20.8

11.2 0.7 23.2

12.8 0.7 23.2

14.0 0.7 23.2

7.3 0.7 0.9 2.6

6.2 0.7 0.8 3.2

5.0 0.6 0.7 4.0

4.1 0.5 0.6 4.9





Buy

Loan growth is expected to be near industry growth rate at ~15% YoY. We factor ~10bp QoQ improvement in margins. Consequently, NII is expected to grow 9% QoQ and 7% YoY. Fee income is expected to grow in line with loan growth; however, profit on sale of investments is expected to be significantly lower than INR3.1b reported in 1QFY14. Other income is expected to decline 45%+ YoY and impact earnings. We factor in slippage ratio of 3% versus 3.3% in 4QFY14. Further, asset sale to ARCs may help contain headline GNPA,which is currently not factored in our estimates. PPP is expected to decline 14% YoY led by weak non-interest income performance. However, lower base will help PAT (de-growth of 6% YoY versus -31% YoY in 1QFY14 and -7% YoY in 4QFY14).

Key issues to watch out  Business growth outlook.  Comments on capital raising though not an immediate requirement.  Pipeline of sale of assets to ARCs. Outlook on asset quality a key.  Implementation of retail focuses strategy guided by management.

Quarterly Performance

Interest Income Interest Expense 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 NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates

July 2014

(INR Million) 1Q 36,658 25,690 10,968 -4.9 5,297 16,265 7,672 8,593 2.3 3,681 4,912 1,738 3,174 -31.3

FY14 2Q 38,013 27,077 10,937 -2.4 2,769 13,706 6,649 7,056 -22.3 2,250 4,807 1,749 3,058 -38.4

3Q 38,698 27,791 10,907 -4.6 2,426 13,332 7,010 6,323 -15.5 2,379 3,943 1,298 2,645 -20.0

4Q 39,107 28,330 10,777 -2.8 3,241 14,018 6,984 7,034 24.6 5,939 1,095 -1,618 2,713 -7.1

1Q 40,625 28,897 11,728 6.9 2,853 14,582 7,234 7,348 -14.5 3,067 4,281 1,284 2,997 -5.6

FY15E 2Q 42,304 29,908 12,396 13.3 3,732 16,128 7,780 8,348 18.3 3,556 4,792 1,438 3,355 9.7

FY14

FY15E

3Q 44,219 31,030 13,189 20.9 3,162 16,351 8,441 7,909 25.1 2,909 5,000 1,500 3,500 32.3

4Q 46,049 31,626 14,423 33.8 4,332 18,755 9,424 9,331 32.7 4,145 5,186 1,557 3,629 33.8

152,492 108,888 43,604 -3.7 13,717 57,321 28,315 29,006 -1.4 14,249 14,757 3,167 11,589 -26.7

173,197 121,460 51,737 18.7 14,080 65,816 32,880 32,936 14.8 13,674 19,262 5,779 13,484 16.3

2.7 2.9 17.8 15.7 35.4

2.6 2.8 16.4 15.1 36.4

2.7 2.7 16.6 12.1 32.9

2.6 2.6 14.3 15.7 -147.8

2.7 10.7 14.9 30.0

2.8 11.7 18.0 30.0

2.8 13.1 21.6 30.0

3.0 16.0 16.0 30.0

2.7 2.7 14.3 15.7 21.5

2.8 16.0 16.0 30.0

37.2 3.4

41.8 3.8

38.3 3.4

45.6 3.7

49.2 3.9

51.5 3.9

52.4 3.8

52.7 3.7

45.6 3.7

52.7 3.7

143

June 2014 Results Preview | Sector: Financials

Indusind Bank Bloomberg

IIB IN

Equity Shares (m)

526.15

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

302.96/5.04

52-Week Range (INR)

587/318

1, 6, 12 Rel. Per (%)

2/15/-12

CMP: INR569  

Financial and Valuation Summary (INR b)



Y/E March NII

2014 2015E 2016E 2017E 28.9 35.7 44.4 55.7



OP

26.0

32.0

39.8

51.2

NP NIM (%) EPS (INR)

14.1 3.9 26.8

17.6 4.1 33.4

22.2 4.1 42.3

28.5 4.1 54.2

EPS Gr. (%) 32.0 BV/Sh. (INR) 168.1

24.7 195.7

26.7 230.6

28.1 275.3

ABV/Sh. (INR) 165.8 RoE (%) 17.3 RoA (%) 1.8

192.4 18.4 1.8

226.0 19.9 1.9

270.0 21.4 1.9

15.3

17.5

17.5

17.5

21.4

17.2

13.5

10.6

3.4 3.5 0.6

2.9 3.0 0.9

2.5 2.5 1.1

2.1 2.1 1.4

Payout (%) Valuations P/E (X) P/BV (X) P/ABV (X) Div. Yield (%)



Buy

Loan and deposit growth is expected to be above industry average at 25% YoY and 16% YoY, respectively. Margins expected to remain stable at 3.7% QoQ as systemic interest rates have cooled off. Focus on investment banking and forex segment will aid healthy growth of ~25% YoY in fee income. PPP is expected to grow ~12% YoY, however, lower provisions (primarily on account of absence of floating provisions of INR500m) will keep earnings growth strong at 24% YoY. Slippages are expected to rise but will be manageable. NNPA is expected to be contained below 40bp versus 33bp in FY14. Also, credit costs are expected to be stable QoQ at 55bp.

Key issues to watch out  Implementation of planning cycle 3 strategy, with focus on its branch expansion strategy.  Traction in CASA deposit growth.  CV/CE industry performance will be a key for growth and asset quality.  Management succession plan as Mr. Sobti is expected to retire in Jan-15.

Quarterly Performance FY14 2Q 3Q 20,186 21,435 13,186 14,134 6,999 7,301 37.3 26.4 4,167 4,803 11,167 12,104 5,288 5,630 5,879 6,474 40.0 37.1 889 1,262 4,991 5,212 1,688 1,743 3,302 3,469 32.0 29.8

4Q 25,089 15,497 9,592 22.8 6,260 15,852 7,213 8,639 20.1 1,530 7,108 2,414 4,694 18.5

3.7 27.5 25.0

3.7 25.0 25.0

8.7 1.3

9.2 1.3

1Q 4Q 1Q Interest Income 19,122 21,793 22,807 Interest Expense 12,327 13,981 14,540 Net Interest Income 6,795 7,812 8,268 % Change (YoY) 40.4 18.1 21.7 Other Income 4,706 5,229 5,014 Net Income 11,501 13,041 13,281 Operating Expenses 5,085 5,851 6,109 Operating Profit 6,416 7,191 7,172 % Change (YoY) 58.8 32.3 11.8 Other Provisions 1,321 1,206 916 Profit before Tax 5,095 5,985 6,256 Tax Provisions 1,747 2,025 2,096 Net Profit 3,348 3,961 4,160 % Change (YoY) 41.7 28.8 24.2 Operating Parameters NIM (Reported,%) 3.7 3.7 3.7 3.8 3.7 3.7 3.7 3.7 3.7 3.7 NIM (Cal, %) Deposit Growth (%) 23.5 11.1 10.1 11.8 16.3 26.9 27.3 24.2 23.7 24.3 24.9 25.2 Loan Growth (%) CASA Ratio (%) 30.0 31.8 32.2 32.5 Asset Quality OSRL (%) 0.3 0.3 0.3 0.3 5.1 5.5 6.3 6.2 7.2 8.0 Gross NPA (INR b) Gross NPA (%) 1.1 1.1 1.2 1.1 1.2 1.3 E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets

July 2014

(INR Million) FY14 FY15E

FY15E 2Q 3Q 23,690 24,491 14,976 15,350 8,714 9,141 24.5 25.2 5,557 5,963 14,271 15,105 6,374 6,797 7,897 8,307 34.3 28.3 1,486 1,578 6,411 6,729 2,148 2,288 4,263 4,441 29.1 28.0

82,535 53,628 28,907 29.5 18,905 47,812 21,853 25,960 41.1 4,676 21,283 7,203 14,080 32.7

96,077 60,363 35,714 23.5 22,794 58,508 26,493 32,015 23.3 5,510 26,505 8,945 17,559 24.7

3.7 3.9 11.8 24.3 32.5

4.1 25.0 25.0

0.3 6.2 1.1

9.2 1.3

144

June 2014 Results Preview | Sector: Financials

Bloomberg

VYSB IN

Equity Shares (m)

189.72

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

126.59/2.11

52-Week Range (INR)

CMP: INR662 

723/406

1, 6, 12 Rel. Per (%)

-1/-13/-30

Financial and Valuation Summary (INR b)



Y/E March NII

2014 2015E 2016E 2017E 17.5 20.1 23.7 28.2



OP

11.3

13.8

16.4

19.7

NP NIM (%) EPS (INR)

6.6 3.3 34.9

7.6 3.4 40.3

9.0 3.4 47.6

10.7 3.4 56.5

EPS Gr. (%) -11.9 BV/Sh. (INR) 369.5

15.5 401.5

18.1 439.4

18.7 484.4

ABV/Sh. (INR) 365.7 RoE (%) 11.4 RoA (%) 1.1 Payout (%) 20.2 Valuations P/E(X) 18.9

397.4 10.4 1.2 20.3

433.7 11.3 1.2 20.3

478.0 12.2 1.2 20.3

16.4

13.9

11.7

P/BV (X)

1.8

1.6

1.5

1.4

P/ABV (X) Div. Yield (%)

1.8 0.9

1.7 1.1

1.5 1.3

1.4 1.5

ING Vysya Bank





Buy

Loan growth is expected to be below industry growth rate at 11% YoY led by repayment of one large account in 2QFY14; adjusted for this YoY growth would have been 17% YoY. Deposit growth is expected to be lower at 3% YoY primarily helped by capital infusion in 2QFY14. NIM is expected to moderate by 5bp+ QoQ (up 17b YoY). Consequently, NII is expected to grow 12% YoY (largely flat QoQ). Fee income growth is expected to be ~10% YoY. However, lower contribution from non-core income is expected to result into 6% YoY decline in non-interest income. Asset quality performance is expected to remain healthy, though there may be some pressure on account of increased stress in midcorporate and SME segment. PPP growth is expected to be flat whereas earnings are expected to grow 5% YoY.

Key issues to watch out  Branch expansion and trajectory of cost to average assets.  Traction in SA deposits and if any plans to raise SA deposit rates.  Performance of SME and outlook on LAP.

Quarterly Performance Interest Income Interest Expense 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 NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Asset Quality Gross NPA (INR B) Gross NPA (%) Net NPA (%) E: MOSL Estimates

July 2014

(INR Million) 1Q 13,086 8,832 4,254 23.9 2,445 6,699 3,430 3,269 50.3 681 2,588 837 1,751 34.6

FY14 2Q 3Q 13,173 12,733 8,770 8,572 4,403 4,161 19.4 3.3 1,847 2,146 6,250 6,307 3,487 3,564 2,764 2,743 21.4 4.2 181 230 2,583 2,513 820 839 1,763 1,673 17.4 3.1

4Q 13,061 8,348 4,713 11.2 2,234 6,947 4,447 2,500 -12.1 406 2,094 703 1,391 -18.3

1Q 13,500 8,724 4,777 12.3 2,300 7,077 3,758 3,318 1.5 625 2,693 862 1,832 4.6

FY15E 2Q 3Q 13,994 14,527 9,072 9,435 4,922 5,092 11.8 22.4 2,430 2,555 7,352 7,647 4,069 4,200 3,283 3,447 18.8 25.7 500 500 2,783 2,947 891 943 1,892 2,004 7.4 19.7

FY14

FY15E

4Q 15,050 9,760 5,290 12.2 2,868 8,157 4,381 3,776 51.0 776 2,999 880 2,120 52.4

52,051 34,521 17,531 13.9 8,671 26,202 14,927 11,274 13.6 1,498 9,777 3,199 6,578 7.3

57,072 36,992 20,080 14.5 10,153 30,233 16,408 13,824 22.6 2,651 11,173 3,575 7,598 15.5

3.6 3.4 14.1 13.0 80.7 30.2

3.5 3.5 10.7 9.4 82.1 32.5

3.4 3.3 3.4 7.8 87.4 34.7

3.7 3.6 -0.3 12.8 86.9 33.4

3.6 2.7 10.6 86.9

3.6 8.7 16.2 87.8

3.5 16.2 17.8 88.6

3.5 15.0 20.0 90.7

3.5 3.5 -0.3 12.8 86.9

3.5 15.0 20.0 90.7

5.9 1.8 0.19

5.7 1.7 0.19

5.8 1.7 0.21

6.4 1.8 0.28

7.0 1.9 0.29

7.4 1.9 0.28

8.0 1.9 0.28

8.5 1.9 0.26

6.4 1.8 0.28

8.5 1.9 0.26

145

June 2014 Results Preview | Sector: Financials

Kotak Mahindra Bank

Bloomberg

KMB IN

Equity Shares (m)

770.47

CMP: INR884

Neutral

Lending business  For the standalone bank, loan growth is expected to be moderate at 52-Week Range (INR) 972/588 10% YoY and deposit growth at 16% YoY. 1, 6, 12 Rel. Per (%) -2/1/-7  Margins are expected to stable QoQ. Credit cost (including standard asset provisioning) expected to be ~50bp (1.4% in 1QFY14). Financial and Valuation Summary (INR b)  Profit from the lending business is expected to increase 7%+ YoY, led Y/E March 2014 2015E 2016E 2017E NII 37.2 42.1 50.0 62.0 by both standalone bank (expect PAT growth of ~5% YoY) and Kotak OP 25.8 29.0 34.0 42.4 Prime (PAT growth to be healthy at 13% YoY). NP 15.0 17.8 21.5 26.8 Capital Market and Asset Management business NIM (%) 4.6 4.8 4.7 4.7  Profitability of Kotak Securities is expected to be strong YoY basis EPS (INR) 33.0 39.4 46.5 56.0 with improving capital market activities. EPS Gr. (%) 12.6 19.4 18.0 20.5  In Asset Management business, profitability is expected to improve Cons. BV.(INR)236.3 274.6 319.7 374.1 and profit from this business is expected to be INR165m as compared Cons. RoE (%) 15.0 15.4 15.7 16.2 to loss of INR20m reported in 1QFY14. RoA (%) 1.8 1.9 1.9 1.9 M.Cap. (INR b) /(USD b)

681.75/11.34

Payout (%) 2.9 Valuations P/E(X) (Cons.) 27.0

2.9

2.9

2.9

22.6

19.1

15.9

P/BV (X) (Cons.) 3.8 P/ABV (X) (Cons.)3.9 Div. Yield (%) 0.1

3.2 3.3 0.1

2.8 2.8 0.1

2.4 2.4 0.2

Quarterly Performance Y/E March 1Q Kotak Bank (standalone) Net Interest Income % Change (Y-o-Y) Operating Profit % Change (Y-o-Y) Net Profit % Change (Y-o-Y) Other Businesses Kotak Prime Kotak Mah. Investments Kotak Mah. Capital Co Kotak Securities International subs Kotak AMC & Trustee Co. Kotak Investment Advisors Kotak OM Life Insurance Con.adj and MI Conso. PAT % Change (Y-o-Y) E: MOSL Estimates

July 2014

Key issues to watch out  With strong capital base, strategy for loan growth amidst improving sentiments on the economy would be a key.  Asset quality performance in the CV segment.  With improving sentiments in the capital markets, performance of its subsidiary businesses and their contribution to overall profit.

FY14 2Q

3Q

4Q

1Q

FY15E 2Q

(INR Million) FY14 FY15E 3Q

4Q

9,167 27.1 7,788 73.7 4,028 42.6

9,241 21.9 6,065 25.8 3,525 25.7

9,127 10.9 5,847 2.1 3,400 -6.0

9,665 7.0 6,071 -7.1 4,072 -6.7

9,990 9.0 6,927 -11.1 4,234 5.1

10,190 10.3 6,894 13.7 4,314 22.4

10,703 17.3 7,356 25.8 4,475 31.6

11,222 16.1 7,801 28.5 4,806 18.0

37,201 16.0 25,772 19.5 15,025 10.4

42,105 13.2 28,977 12.4 17,829 18.7

1,170 40 40 310 -100 70 10 710 -3 6,275 41.5

1,250 110 -20 400 10 170 40 440 -96 5,829 16.1

1,230 110 70 460 90 120 70 600 -237 5,913 2.4

1,260 160 50 440 60 40 50 650 -149 6,633 -0.3

1,320 105 30 550 20 100 45 675 -55 7,024 11.9

1,380 110 35 500 25 120 50 675 -55 7,154 22.7

1,430 115 40 550 25 130 55 650 -55 7,415 25.4

1,495 113 50 574 25 131 80 629 -60 7,844 18.3

4,915 418 139 1,595 70 410 180 2,390 -492 24,650 12.6

5,625 443 155 2,174 95 481 230 2,629 -225 29,436 19.4

146

June 2014 Results Preview | Sector: Financials

Oriental Bank of Commerce Bloomberg

OBC IN

Equity Shares (m)

299.85

CMP: INR322

Buy

Bank is expected to continue its cautious stance on loan and deposit growth at 12% and 11% (YoY), respectively. However, growth would 52-Week Range (INR) 377/121 gradually pick up with improving macro environment. 1, 6, 12 Rel. Per (%) -11/26/29  NIM is expected to be stable at 2.6% QoQ.  Fee income growth is expected to be ~15% YoY. However, lower Financial and Valuation Summary (INR b) trading income would drag the overall non-interest income lower by Y/E March 2014 2015E 2016E 2017E NII 51 57 66 80 24% YoY. OP 42 42 49 59  Asset quality pressure is expected to continue in 1QFY15, hence we NP 11 13 16 22 factor slippage ratio of 3.3% and credit cost of 1.1%. EPS (INR) 38 45 55 73  Sale to ARCs may help contain rise in GNPA (4.1% in 1QFY15 versus EPS Gr. (%) -16.5 17.2 22.9 32.5 4% in FY14). BV/Sh. (INR) 426 460 502 558  PAT is expected to decline 16% YoY driven by weak PPP performance ABV/Sh. (INR) 342 373 421 477 and high provisions. RoE (%) 9.2 10.0 11.4 13.7 Key issues to watch out RoA (%) 0.5 0.6 0.6 0.7 Div. Payout (%) 23.2 23.2 23.2 23.2  Business growth outlook and de-bulking of liability franchise. Valuations  Outlook on restructuring pipeline and sale of assets to ARCs. M.Cap. (INR b) /(USD b)

98.59/1.64

P/E (x)

8.6

7.3

6.0

4.5

P/BV (x)

0.8

0.7

0.6

0.6

P/ABV (x) Div. Yield (%)

1.0 2.3

0.9 2.7

0.8 3.4

0.7 4.5



Quarterly Performance

(INR Million) 1Q 47,177 34,106

FY14 2Q 3Q 46,758 47,232 33,949 34,927

4Q 49,008 35,921

13,070 16.1 5,381 18,451 7,568 10,883 21.4 5,327 5,555 2,022 3,534 -9.7

12,809 10.7 3,119 15,928 7,677 8,251 -10.4 5,505 2,746 232 2,514 -16.8

12,304 2.2 3,408 15,712 7,128 8,584 -7.3 5,611 2,973 730 2,243 -31.3

13,087 7.8 7,545 20,632 6,795 13,837 46.2 9,307 4,530 1,427 3,103 0.8

2.9 2.8 11.5 12.4 23.5 36.4

2.8 2.7 6.7 9.2 24.5 8.4

2.7 2.6 8.3 8.4 24.2 24.6

2.7 2.6 10.0 8.1 24.3 31.5

102.7 8.0 43.0 3.4

94.1 7.3 48.9 3.8

96.9 7.2 51.8 3.9

106.6 7.6 56.2 4.0

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Rep, %) NIM (Cal,%) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates July 2014

FY14

FY15E

1Q 49,877 36,445

FY15E 2Q 3Q 50,867 52,266 37,025 37,980

4Q 54,422 190,175 39,438 138,904

207,431 150,888

13,432 2.8 4,088 17,520 7,757 9,763 -10.3 5,532 4,231 1,269 2,961 -16.2

13,842 8.1 4,113 17,955 8,016 9,939 20.5 5,402 4,537 1,361 3,176 -39.6

14,286 16.1 4,338 18,624 8,098 10,526 22.6 5,508 5,017 1,505 3,512 10.2

14,983 14.5 6,193 21,176 9,039 12,137 -12.3 6,843 5,294 1,588 3,706 35.7

2.6 10.9 11.5

2.6 14.9 13.2

2.6 13.6 13.5

2.6 14.5 14.9

30.0

30.0

30.0

30.0

2.8 2.6 10.0 8.1 24.3 27.9

58.8 3.6

106.6 7.6 56.2 4.0

58.0 4.1

58.8 4.0

58.9 3.9

51,271 9.1 19,453 70,724 29,169 41,555 12.6 25,751 15,804 4,410 11,394 -14.2

56,543 10.3 18,732 75,275 32,910 42,364 1.9 23,285 19,079 5,724 13,356 17.2

2.6 14.5 14.9 30.0

58.8 3.6

147

June 2014 Results Preview | Sector: Financials

Punjab National Bank

Bloomberg

PNB IN

Equity Shares (m)

362.07

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

360.17/5.99

52-Week Range (INR)

1,068/402

1, 6, 12 Rel. Per (%)

-2/37/25

CMP: INR980  

Financial and Valuation Summary (INR b) Y/E March NII OP NP NIM (%)

2014 2015E 2016E 2017E 161 176 209 245 114 122 149 176 33 3.3

43 3.2

57 3.3

67 3.2

92 -31.3

119 28.7

158 32.8

185 17.4

BV/Sh. (INR) ABV/Sh. (INR)

951 773

1,056 883

1,196 1,050

1,359 1,228

ROE (%) ROA (%) Div. Payout (%) Valuations P/E(X) P/BV (X)

10.2 0.6 12.6

11.8 0.7 11.6

14.0 0.8 11.6

14.5 0.8 11.6

10.7 1.0

8.3 0.9

6.3 0.8

5.4 0.7

1.3 1.0

1.1 1.2

0.9 1.6

0.8 1.9

EPS (INR) EPS Gr. (%)

P/ABV (X) Div. Yield (%)

  

Buy

Loan and deposit growth both is expected to be 16%+ YoY, partially driven by lower base as bank was in consolidation mode last year. Margins are expected to improve 10bp+ QoQ led by lower slippages (translating into lower interest income reversals) and continued benefit on account of reduction in bulk deposits and rising CASA ratio. Fee income is expected to grow 12% YoY. However, weak trading income is expected to result into a decline of 7% YoY in other income. Performance on the slippages has been volatile. We have factored in a slippage ratio of 3.5% and credit cost of 1.2%. PPP is expected to be flat YoY. PAT is expected to decline 11% YoY due to higher provisioning expense.

Key issues to watch out  Balance sheet growth and traction in focus loan segments.  Margins and traction in fee income.  Outlook on asset quality as net stressed loans is one of the highest in the industry.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Asset Quality Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates

July 2014

1Q 104,045 64,970 39,075 5.8 13,421 52,496 22,758 29,738 4.7 10,665 19,073 6,320 12,753 2.4

FY14 2Q 3Q 107,335 109,839 67,180 67,628 40,155 42,211 10.1 13.1 8,993 9,384 49,149 51,596 23,800 24,572 25,348 27,024 0.1 0.8 18,987 15,900 6,361 11,123 1,306 3,569 5,055 7,554 -52.6 -42.1

4Q 111,013 70,995 40,018 6.0 13,969 53,987 22,253 31,734 11.3 21,387 10,347 2,284 8,064 -28.7

1Q 113,979 71,243 42,736 9.4 12,489 55,225 25,334 29,891 0.5 13,758 16,133 4,840 11,293 -11.4

FY15E 2Q 3Q 117,696 121,231 74,205 77,354 43,491 43,876 8.3 3.9 11,380 12,813 54,871 56,689 25,676 26,115 29,195 30,574 15.2 13.1 15,148 15,580 14,047 14,994 4,214 4,498 9,833 10,496 94.5 38.9

FY14

FY15E

4Q 124,747 79,245 45,502 13.7 14,038 59,540 26,944 32,596 2.7 16,295 16,301 4,890 11,411 41.5

432,233 270,773 161,460 8.7 45,767 207,227 93,382 113,845 4.4 66,939 46,905 13,479 33,426 -29.6

477,653 302,048 175,605 8.8 50,720 226,325 104,068 122,257 7.4 60,781 61,476 18,443 43,033 28.7

3.5 3.5 3.0 3.6 33.1

3.5 3.5 1.2 6.5 20.5

3.6 3.6 9.0 9.7 32.1

3.2 3.2 15.3 13.1 22.1

3.3 16.0 16.8 30.0

3.3 15.8 16.3 30.0

3.2 16.1 16.4 30.0

3.2 15.0 15.0 30.0

3.4 3.3 15.3 13.1 28.7

3.2 15.0 15.0 30.0

150.9 4.8

165.3 5.1

166.0 5.0

188.8 5.3

199.5 5.5

207.0 5.5

211.4 5.4

214.9 5.2

188.8 5.3

214.9 5.2

148

June 2014 Results Preview | Sector: Financials

State Bank of India Bloomberg

SBIN IN

Equity Shares (m)

746.57

CMP: INR2699

Buy

Loan and deposit growth to remain healthy at 16% and 14% (YoY), respectively. NIM is expected to be stable at 3.2% QoQ and 52-Week Range (INR) 2,834/1,453 consequently, NII growth to be 15% YoY. 1, 6, 12 Rel. Per (%) -2/33/7  Improving fee based income has been a key focus of the new management and traction is expected to pick up in 1Q. Financial and Valuation Summary (INR b)  We have factored a slippage ratio of 3.5% and credit cost of 1.1% as Y/E March 2014 2015E 2016E 2017E NII 492.8 563.3 680.1 821.7 asset quality stress is expected to continue. Further, provisioning for OP 321.1 381.5 479.6 610.4 un-hedged forex exposures would also dent earnings. NP 108.9 149.7 205.6 269.0  Core operating profit growth is expected to be ~30% YoY driven by NIM (%) 3.2 3.2 3.2 3.2 healthy NII growth, strong fee income performance and operating EPS (INR) 190 259 344 454 cost containment. However, earnings growth is expected to be lower EPS Gr. (%) -27.5 36.6 32.7 32.0 at 3% YoY due to higher provisioning requirement. BV (INR) 1,885 2,097 2,378 2,749 M.Cap. (INR b) /(USD b)

ABV (INR)

1,506

2,001.41/33.30

1,732

2,053

2,528

10.5 0.6 18.4

12.7 0.8 18.4

15.6 0.9 18.3

17.9 1.0 18.3

13.7 1.4

10.0 1.2

7.6 1.1

5.7 0.9

Cons P/ABV (x) 1.7 Div. Yield (%) 1.1

1.5 1.5

1.3 2.0

1.0 2.6

RoE (%) RoA (%) Div. Payout (%) Valuations Cons. P/E (x) Cons. P/BV (x)



Key issues to watch out  Progress and update on new strategy formulated by the management in the last analyst meet.  Outlook on opex control and fee income growth.  Performance on asset quality, pipeline of sale of loans to ARCs and restructuring.

Quarterly Performance

(INR Million)

Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates

July 2014

1Q 317,183 202,065 115,119 3.6 44,743 159,862 84,349 75,513 -7.6 28,659 46,854 14,443 32,411 -13.6

FY14 2Q 3Q 339,217 348,531 216,707 222,367 122,510 126,165 11.4 12.9 32,782 42,148 155,292 168,312 92,175 92,128 63,117 76,185 -14.2 -2.2 30,287 41,496 32,829 34,689 9,079 12,345 23,750 22,343 -35.1 -34.2

4Q 358,576 229,548 129,028 16.5 65,857 194,885 88,606 106,278 36.9 58,911 47,367 16,960 30,407 -7.8

3.2 3.2 14.0 15.7 44.7 30.8

3.2 3.3 14.0 19.0 43.6 27.7

3.2 3.3 16.7 17.5 43.9 35.6

3.1 3.2 15.9 15.7 44.4 35.8

330 3.1 609 5.6

392 3.6 642 5.6

394 3.4 678 5.7

431 3.6 616 5.0

1Q 368,475 236,303 132,172 14.8 42,706 174,878 89,664 85,214 12.8 36,603 48,611 15,555 33,055 2.0

FY15E 2Q 3Q 378,391 393,796 240,304 250,175 138,086 143,621 12.7 13.8 43,664 48,713 181,750 192,334 97,472 98,405 84,278 93,929 33.5 23.3 34,563 40,865 49,715 53,064 15,909 16,981 33,806 36,084 42.3 61.5

FY14

FY15E 4Q 412,968 1,363,508 1,553,630 263,534 870,686 990,316 149,434 492,822 563,314 15.8 11.2 14.3 70,586 185,529 205,668 220,020 678,351 768,982 101,923 357,259 387,464 118,097 321,092 381,517 11.1 3.3 18.8 49,311 159,354 161,342 68,786 161,739 220,175 22,011 52,827 70,456 46,774 108,912 149,719 53.8 -22.8 37.5

3.2 13.7 16.3

3.3 14.5 15.2

3.3 14.0 15.6

3.3 15.0 16.0

32.0

32.0

32.0

32.0

3.2 3.2 15.9 15.7 44.4 32.7

599 4.2

431 3.6 616 5.0

641 4.9

644 4.8

633 4.5

3.2 15.0 16.0 32.0

599 4.2

149

June 2014 Results Preview | Sector: Financials

Union Bank of India Bloomberg

UNBK IN

Equity Shares (m)

630.31

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

147.93/2.46

52-Week Range (INR)

260/97

1, 6, 12 Rel. Per (%)

3/56/0

CMP: INR228  

Financial and Valuation Summary (INR b) Y/E March NII OP NP NIM (%) EPS (INR)

2014 2015E 2016E 2017E 79 88 100 114 52 54.5 59.9 66.7 17 17.7 21.7 24.8 2.5 27

2.5 28.0

2.5 34.3

2.5 39.2

-25.7 267

4.5 291

22.7 319

14.2 351

ABV/Sh. (INR) 208 RoE (%) 10.4

227 10.0

258 11.3

296 11.7

RoA (%) Div. Payout (%) Valuations P/E(X) P/BV (X)

0.5 17.3

0.5 17.4

0.5 17.4

0.5 17.4

8.6 0.9

8.3 0.8

6.7 0.7

5.9 0.7

1.1 1.7

1.0 1.8

0.9 2.2

0.8 2.5

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

P/ABV (X) Div. Yield (%)







Buy

Loan growth expected to be a tad higher than industry average at 17% YoY, whereas deposit growth to be moderate at 12% YoY. Margin is expected to be marginally lower at 2.5% QoQ owing to lower yields on loans and slowing CASA growth impacting cost of funds. Non-interest income expected to decline 19% YoY primarily driven by slowdown in fee income growth to ~10% YoY (19% YoY in 1QFY14) and lower trading income. Asset quality performance remains a key, as slippage ratio is expected to increase to 2.5%. The bank guided for restructuring of INR18b in 1QFY15, which needs to be watched. Earnings are expected to decline 33% driven by weak PPP performance (down 13% YoY) and higher provisioning.

Key issues to watch out  CASA ratio and margins are on a continuous decline. Trends and efforts to improve the same needs to be watched.  Outlook on balance sheet growth, slippages and restructuring.  Strategy to improve fee income performance. (INR Million)

Quarterly performance

Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates

July 2014

1Q 68,573 49,482 19,091 4.8 7,563 26,654 12,536 14,118 11.4 6,816 7,302 1,700 5,602 9.5

FY14 2Q 72,711 53,167 19,545 5.6 6,112 25,656 13,407 12,249 -3.7 9,368 2,882 801 2,081 -62.5

3Q 75,503 55,868 19,635 3.8 6,799 26,434 13,818 12,616 -7.1 6,104 6,512 3,023 3,489 15.4

4Q 76,707 56,185 20,522 3.7 7,743 28,265 15,067 13,198 -21.7 9,205 3,993 -1,797 5,790 -26.7

1Q 78,420 57,870 20,550 7.6 6,140 26,690 14,427 12,263 -13.1 7,271 4,992 1,248 3,744 -33.2

FY15E 2Q 80,650 59,317 21,333 9.2 6,864 28,198 15,455 12,743 4.0 7,148 5,595 1,399 4,196 101.6

FY14

FY15E

3Q 83,516 61,097 22,419 14.2 7,680 30,099 16,034 14,065 11.5 7,796 6,270 1,567 4,702 34.8

4Q 87,074 63,491 23,584 14.9 9,501 33,085 17,698 15,387 16.6 8,606 6,781 1,695 5,086 -12.2

293,494 214,701 78,793 4.5 28,215 107,009 54,828 52,181 -6.5 31,511 20,670 3,708 16,962 -21.4

329,661 241,774 87,886 11.5 30,186 118,072 63,614 54,458 4.4 30,820 23,638 5,910 17,729 4.5

2.6 2.6 22.3 16.0 23.3

2.5 2.5 27.0 25.7 27.8

2.5 2.4 19.1 20.0 46.4

2.6 2.5 12.9 10.1 -45.0

2.5 11.8 17.1 25.0

2.5 7.9 9.7 25.0

2.6 11.9 10.1 25.0

2.6 11.0 12.0 25.0

2.6 2.5 12.9 10.1 17.9

2.5 11.0 12.0 25.0

70.9 3.5

80.6 3.6

87.8 3.9

95.6 4.1

101.0 4.3

103.5 4.3

105.3 4.2

107.3 4.2

95.6 4.1

107.3 4.2

150

June 2014 Results Preview | July 2014

Financials - NBFC Company name

NBFCs: Seasonally weak quarter

Bajaj Finance

Monsoon impact Key monitorable

HDFC



IDFC LIC Housing Finance Mahindra Financial Services Power Finance Corporation Rural Electrification Corporation Shriram Transport Finance







NBFCs under our coverage universe are expected to deliver 10% YoY PAT growth. For retail NBFCs, the quarter will be marred by seasonal weakness, translating into an increase in slippages and margins compression. Lower collection efficiencies due to general elections and weak monsoon will impact the reported asset quality of SHTF and MMFS. However, positive election outcome, improving macro-economic environment, stable liquidity/interest rates led to a sharp rally in stocks. With incremental data points indicating bottoming out of the cycle, growth (moderating over last three to four quarters) and asset quality outlook is expected to improve for NBFCs. Top picks are HDFC, SHTF, LICHF, and POWF. Housing finance companies: HFCs are expected to deliver 15-18% growth on the back of healthy growth in individual segment. Seasonality will impact QoQ asset quality and disbursement growth however margins are expected to be stable YoY. Led by DTL creation on special reserves, tax rate is likely to increase YoY, leading to lower PAT growth v/s PBT growth. On the back of expected improvement in growth, profitability and RoE, we revise HDFC and LICHF’s target price to INR 1185 (FY16 SOTP Based) and INR400 (2x FY16E BV) respectively. Infrastructure finance companies: Outlook on infrastructure financing segment is improving with the new government placing thrust on removing bottlenecks for stalled projects and clearing several new projects. Nevertheless, near term performance is likely to be muted as the initiatives will deliver results with a lag. While the reforms initiated on discoms are showing results and is a relief for state-owned NBFCs like RECL and POWF, fuel availability remains the most critical issue for power sector with a resolution still not in sight. Among infrastructure finance companies, we expect growth to remain healthy for RECL and POWF at +18%. IDFC will likely report a sequential decline in loan book due to rundown of short term loans to the telecom sector. Moreover, due to the transition into a bank, the balance sheet will shrink over the next 12-18 months. Asset finance companies: Retail asset finance companies (AFCs) delivered strong performance both in terms of growth and asset quality during the cycle. Among AFCs under our coverage, we expect BAF to report healthy AUM growth and stable asset quality, with the seasonality factor playing out. While SHTF is likely to deliver lower growth due to underlying stress in the CV segment, margins are likely improve during the quarter; asset quality will remain a key monitorable. While MMFS performed impressively during this cycle, continued challenges in South India, poor monsoon and weak collections during the election period could impact growth in collections and asset quality. MMFS is likely to deliver 18% AUM growth (compared to +30% delivered since last 16 quarters). SHTF is our preferred pick in this segment with a revised target price of INR 1,115 (2.2x FY16 Consol BV). We have also revised BAF’s target price to INR2,685 (2.4x FY16E BV).

Sunesh Khanna ([email protected])/ Alpesh Mehta ([email protected]) July 2014

151

June 2014 Results Preview | July 2014

Expected quarterly performance summary (INR m) CMP (INR) 4.7.14

Reco

2,289 1,009 134 372 327 272 320 374 953

Buy Buy Neutral Buy Buy Neutral Buy Buy Buy

6,433 7.8 17,818 17.1 7,036 2.6 14,678 11.8 5,197 14.3 13,330 116.3 23,114 19.0 18,694 16.0 9,544 5.9 115,845 20.1

MOSL Financials Index

3.8 -16.4 -0.8 28.0 -1.6 -13.6 4.8 9.8 5.7 -0.2

Sensex Index

110

125

100

100

90

75

Jul-13

150

Jul-14

120

Jun-14

175

May-14

6.4 21.7 -6.3 27.4 11.4 12.9 18.2 20.4 -0.7 14.5

1,903 8.3 4.5 13,211 12.6 -23.3 4,323 -22.4 67.6 4,462 28.1 -1.2 3,241 4.4 -12.4 1,781 -6.9 -42.7 15,805 24.0 12.9 13,397 12.8 7.4 3,117 -8.6 5.7 61,241 10.1 -1.8 Source: Company, MOSL

Relative Performance - 1Yr (%)

130

Apr-14

3,519 19,928 8,269 6,030 4,915 4,698 22,704 19,700 7,294 97,058

MOSL Financials Index

Source: Bloomberg, MOSL

Jul-14

Sensex Index

3.6 -16.8 5.3 11.0 -2.5 74.8 3.0 5.4 4.6 5.5

Net Profit Var % Var % Jun-14 YoY QoQ

Apr-14

Relative Performance - 3m (%)

EBITDA Var % Var % Jun-14 YoY QoQ

Jan-14

NBFC Bajaj Finance HDFC IDFC Indiabulls Housing LIC Housing Fin M & M Financial Power Finance Corp Rural Electric. Corp. Shriram Transport Fin. NBFC Bkg. Sector Aggregate

Sales Var % Var % Jun-14 YoY QoQ

Oct-13

Sector

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies NBFC Bajaj Finance Dewan Housing HDFC IDFC Indiabulls Housing LIC Housing Fin M & M Financial Power Finance Corp Rural Electric. Corp. Shriram Transport Fin. NBFC Aggregate

July 2014

CMP (INR)

Reco

2,289 Buy 356 Buy 1,009 Buy 134 Neutral 372 Buy 327 Buy 272 Neutral 320 Buy 374 Buy 953 Buy

EPS (INR) FY15E FY16E FY17E 171.4 198.9 234.2 54.0 64.5 78.5 38.5 45.8 54.0 12.7 13.1 13.5 55.6 66.4 80.3 28.3 33.1 39.6 18.7 21.2 24.8 50.9 60.1 69.8 57.2 66.0 78.4 68.4 82.8 94.6

PE (x) FY15E FY16E FY17E 13.4 6.6 26.2 10.5 6.7 11.5 14.5 6.3 6.5 13.9 12.3

11.5 5.5 22.0 10.2 5.6 9.9 12.8 5.3 5.7 11.5 10.5

9.8 4.5 18.7 9.9 4.6 8.3 11.0 4.6 4.8 10.1 8.9

PB (x) FY15E FY16E FY17E 2.4 1.1 5.1 1.2 1.9 1.9 2.6 1.3 1.5 2.2 2.5

2.1 0.9 4.6 1.1 1.7 1.6 2.3 1.1 1.3 1.9 2.2

RoE (%) FY15E FY16E FY17E

1.8 19.7 19.4 19.5 0.8 17.3 17.8 18.5 4.1 25.5 24.2 25.3 1.0 12.2 11.6 10.9 1.5 31.0 32.4 33.7 1.4 17.6 17.8 18.4 2.0 19.3 19.0 19.4 0.9 21.8 21.9 21.6 1.0 25.3 24.1 23.8 1.6 16.2 17.0 17.9 1.9 20.5 20.8 21.1 Source: Company, MOSL

152

June 2014 Results Preview | Sector: Financials

Bajaj Finance Bloomberg

BAF IN

Equity Shares (m)

50.14

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

CMP: INR2,289

105.61/1.77

52-Week Range (INR)



2,225/966

1, 6, 12 Rel. Per (%)

-1/14/18



Financial and Valuation Summary (INR b) Y/E March NII PPP

2014 2015E 2016E 2017E 22.2 27.7 33.9 41.9 13.5 16.8 20.6 24.6

PAT

7.2

8.6

10.0

11.7

EPS (INR)

 

143

171

199

234

EPS Gr. (%)

21

19

16

18



BV/Sh. (INR)

796

939

1,106

1,301



RoA on AUM (%) 3.4

3.1

2.9

2.7

RoE (%) Payout (%) Valuations

19.5 14.0

19.7 14.0

19.4 14.0

19.5 14.0

P/E (x)

16.0

13.4

11.5

9.8

2.9 0.7

2.4 1.0

2.1 1.2

1.8 1.4

P/BV (x) Div. Yield (%)

Buy

AUM is expected to grow at a healthy pace at +30% YoY, as 1Q is seasonally a strong period due to strong consumer demand (primarily air conditioners). We expect NII to grow at 8% YoY and 4% QoQ. Margins are likely to decline YoY due to changing loan mix towards low yielding mortgage assets. Asset quality is expected to remain stable. As of March 2014, GNPAs were 1.18% and NNPAs were 0.28%. We expect provisions of INR0.8b v/s INR639m during 4QFY13 and INR622m during the last quarter. We expect net profit to grow at 8% YoY to INR1.93b. The stock trades at 2.3x FY15E and 2x FY16E BV. Maintain Buy.

Key issues to watch out  Business growth momentum, as the company has been growing its AUMs at 30%+ rate for the past 16 quarters.  Margin trends, as changing product mix is exerting some pressure on margins.  Asset quality trends in CE and two-wheeler business.  Performance of new businesses such as rural lending and lifestyle financing.

Quarterly performance

(INR Million)

Income from operations Other Operating Income Operating Income YoY Growth (%) Interest expenses

1Q 8,837 446 9,283 32.4 3,314

FY14 2Q 3Q 8,742 10,274 875 429 9,617 10,703 30.7 29.7 3,821 4,097

Net Income YoY Growth (%) Total Income Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions

5,969 36.4 6,010 2,703 3,307 38.8 639 2,669 911

5,796 31.5 5,819 2,769 3,050 25.2 523 2,527 857

Net Profit YoY Growth (%) Loan Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

1,757 26.7 32.8 45.3 34.1

1,670 29.8 29.0 47.8 33.9

Y/E March

July 2014

FY15E 2Q 3Q 10,851 12,479 727 753 11,578 13,231 20.4 23.6 4,891 5,375

FY14

FY15E

4Q 14,933 498 15,430 44.1 6,052

37,886 2,429 40,314 30.3 15,732

48,696 2,681 51,376 27.4 21,021

4Q 10,032 679 10,711 28.7 4,501

1Q 10,434 703 11,136 20.0 4,703

6,607 31.1 6,722 2,979 3,743 29.9 795 2,948 1,007

6,211 22.8 6,450 3,061 3,389 19.6 622 2,768 947

6,433 7.8 6,683 3,164 3,519 6.4 800 2,719 816

6,687 15.4 6,787 3,250 3,538 16.0 1,000 2,538 761

7,856 18.9 7,946 3,207 4,739 26.6 1,000 3,739 1,122

9,378 51.0 9,539 4,493 5,047 48.9 1,005 4,041 1,747

24,582 30.2 25,001 11,511 13,071 26.2 2,578 10,493 3,722

30,355 23.5 30,956 14,114 16,241 24.3 3,805 12,436 4,446

1,941 20.8 32.2 45.1 34.2

1,821 11.2 37.2 49.3 33.5

1,903 8.3

1,776 6.3

2,617 34.8

2,294 26.0

49.2 34.5

48.6 35.5

40.8 36.5

47.9 37.5

7,190 21.6 37.2 46.8 35.5

8,592 19.5 27.0 46.5 35.7

153

June 2014 Results Preview | Sector: Financials

HDFC Bloomberg

HDFC IN

Equity Shares (m)

1,566.94

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

1,579.94/26.48

52-Week Range (INR)

1,011/632

1, 6, 12 Rel. Per (%)

6/3/-17

Financial and Valuation Summary (INR b) Y/E March NII PAT

2014 2015E 2016E 2017E 70.0 82.0 98.2 116.3 54.4 60.0 71.4 84.3

CMP: INR1005     

Adj. EPS (INR) 29.7

32.6

39.0

46.0

BV/Sh. (INR) 179.1

197.0

219.0

245.4

ABV/Sh. (INR) 125.6

143.2

165.2

191.6

2.6

2.4

2.5

2.5



Core RoE (%) Payout (%) Valuations AP/E (x) P/BV (x)

25.6 46.8

25.5 47.6

24.2 46.4

25.3 46.4



25.9 5.6

22.3 5.1

17.2 4.6

14.6 4.1

AP/ABV (x) Div. Yield (%)

6.1 1.4

5.1 1.6

4.1 1.8

3.5 2.1

RoAA (%)

Quarterly performance Y/E March Interest Income Interest Expense Net Interest Income YoY Change (%) Profit on Sale of Inv. Other operating income Net Operating Income YoY Change (%) Other Income Total Income Operating Expenses Pre Provisioning Profit YoY Change (%) Provisions PBT YoY Change (%) Provision for Tax PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 52,844 37,633 15,211 16.6 0 2,726 17,936 16.0 80 18,016 1,635 16,381 15.4 300 16,081 16.5 4,350 11,731 17.1



Buy

HDFC’s loan growth (net of selldowns) is likely to remain healthy at +16% YoY and 4% QoQ. Spreads should largely be stable at 2.3% levels. HDFC has not changed the home loan rates during the quarter. NII is likely to remain strong at INR17.8b, registering a growth of 17% YoY. Non-interest income is likely to grow at 45% YoY on the back of increase in dividend income from subsidiaries. Barring seasonal increase, asset quality remained healthy over the past several quarters and the trend is likely to continue. In 4QFY14, GNPAs were 0.69% on 90-day overdue basis. We model provisions of INR500m v/s INR300m seen in 1QFY14. Creation of DTL on special reserves will increase the tax rate to 32% The stock trades at 5.1x FY15 AP/ABV and 4.6x FY15E AP/AEPS (price adjusted for value of other businesses and book value adjusted for investments made in those businesses). Maintain Buy

Key issues to watch out  Loan growth and movement in spreads (on individual loans).  Asset quality trends  Dividend income from subsidiaries

FY14 2Q 56,245 40,457 15,789 27.1 868 2,347 19,003 12.3 80 19,083 1,720 17,363 12.3 150 17,213 13.5 4,550 12,663 11.0

3Q 58,418 40,798 17,620 14.5 346 1,434 19,400 12.8 111 19,511 1,684 17,827 12.5 250 17,577 13.8 4,800 12,777 12.1

4Q 62,816 41,406 21,410 8.1 1,276 2,111 24,797 11.4 275 25,072 1,241 23,831 12.2 300 23,531 12.1 6,300 17,231 10.8

1Q 61,812 43,994 17,818 17.1 750 3,250 21,818 21.6 100 21,918 1,990 19,928 21.7 500 19,428 20.8 6,217 13,211 12.6

FY15E 2Q 65,590 46,413 19,177 21.5 900 2,900 22,977 20.9 120 23,097 1,790 21,307 22.7 500 20,807 20.9 6,658 14,149 11.7

(INR Million) FY14 FY15E 3Q 67,814 48,270 19,544 10.9 1,200 2,100 22,844 17.8 150 22,994 2,190 20,804 16.7 600 20,204 14.9 6,465 13,739 7.5

4Q 73,769 48,346 25,423 18.7 1,640 2,615 29,678 19.7 177 29,855 1,370 28,485 19.5 714 27,771 18.0 8,904 18,867 9.5

230,323 160,294 70,030 13.3 2,490 8,617 81,136 12.4 547 81,683 6,281 75,403 12.2 1,000 74,403 13.2 20,000 54,403 12.2

268,985 187,023 81,962 17.0 4,490 10,865 97,317 19.9 600 97,917 7,340 90,578 20.1 2,314 88,263 18.6 28,244 60,019 10.3

154

June 2014 Results Preview | Sector: Financials

IDFC Bloomberg

IDFC IN

Equity Shares (m)

1,516.83

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

205.45/3.44

52-Week Range (INR)



147/76

1, 6, 12 Rel. Per (%)

-2/2/-27

Financial and Valuation Summary (INR b) Y/E March NII PPP

2014 2015E 2016E 2017E 27.2 27.5 27.2 26.5 31.9 32.8 33.7 34.5

Cons. PAT

18.0

19.3

19.9

20.4

EPS (INR)

11.9

12.7

13.1

13.5

EPS Gr. (%)

-1.9

7.0

3.2

2.8

BV/Sh. (INR)

99.2

108.7

118.4

128.4

ABV/Sh. (INR) 89.5

98.9

108.7

118.7

2.6

2.8

3.0

3.3

Core RoE (%)

13.1

12.8

11.9

11.2

Payout (%) Valuations P/E (x)

25.5

25.6

25.6

25.6

11.2

10.5

10.1

9.9

RoAA (%)

CMP: INR133

P/BV (x)

1.3

1.2

1.1

1.0

P/ABV (x) Div. Yield (%)

1.2 2.0

1.1 2.1

1.0 2.2

0.9 2.2

 

  

Neutral

IDFC has consciously moderated its loan growth in the wake of new banking licence. Loan growth is likely to decline 2% on a YoY basis and 5% QoQ due to closure of short term loans. We expect margins to decline 5bp on a YoY basis, translating into sub 2% YoY growth in NII. Other operating income is expected to decline sequentially due to lower loan related fees. However, we expect revenue from fixed income and broking to improve sequentially. Cost to income ratio on a 12-month rolling basis is likely to remain stable at 15%. Asset quality is expected to remain stable; we model provisions of INR2b v/s INR592m in 1QFY14 and INR4.8b during the last quarter. The stock trades at 1.1x FY15E and 1x FY16E ABV. Maintain Buy.

Key issues to watch out  Loan growth guidance in the wake of run-down of book due to transition to bank.  Asset quality trends and restructured book.  Movement in spreads and asset quality trends.

* Adj for value of subs

Quarterly performance FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Net interest income 6,860 6,860 6,640 6,680 7,036 6,782 6,586 6,504 % Change (YoY) 10.8 6.7 0.8 3.9 2.6 -1.1 -0.8 -2.6 Infra Loans 6,310 6,420 6,100 6,050 6,402 6,172 5,993 5,918 Treasury 550 440 540 630 633 610 593 585 Other operating income 2,715 1,061 996 2,296 2,000 2,155 2,335 2,419 Asset management 930 1,040 870 1,170 1,100 1,200 1,350 1,422 IB and Broking 130 80 190 370 200 225 225 236 Fixed Income 1,390 -180 -300 110 300 305 310 305 Loan related/others 265 121 236 646 400 425 450 456 Principal investments 630 960 890 580 550 650 900 1,190 Other Income 6 6 22 146 5 10 15 20 Net Income 10,211 8,886 8,548 9,703 9,591 9,597 9,836 10,132 % Change (YoY) 32.3 4.5 2.2 -4.3 -6.1 8.0 15.1 4.4 Operating Expenses 1,384 1,375 1,315 1,364 1,322 1,432 1,738 1,766 Operating profit 8,826 7,512 7,233 8,339 8,269 8,165 8,098 8,366 % Change (YoY) 34.6 3.4 2.9 -2.8 -6.3 8.7 12.0 0.3 Provisions 592 501 365 4,825 2,000 1,500 1,000 444 PBT 8,234 7,011 6,868 3,513 6,269 6,665 7,098 7,922 Tax 2,627 2,099 1,811 848 1,881 2,000 2,129 2,362 PAT 5,607 4,912 5,057 2,666 4,388 4,666 4,969 5,560 Less: Consol Adjustments 34 44 50 86 65 65 65 55 Consol PAT 5,573 4,868 5,007 2,579 4,323 4,601 4,904 5,505 % Change (YoY) 46.7 2.3 10.0 -50.9 -22.4 -5.5 -2.1 113.4 E: MOSL Estimates, * FY11 asset mgmt fees includes carry income which is clubbed in principal investments in FY10

July 2014

(INR Million) FY14

FY15E

27,040 5.5 24,880 2,160 7,068 4,010 770 1,020 1,268 1,880 180 37,348 7.5 5,438 31,910 8.4 6,283 25,627 7,385 18,242 215 18,027 -1.8

27,216 0.6 24,972 2,243 6,353 4,180 840 -70 1,403 2,020 179 36,728 -1.7 5,375 31,352 -1.7 7,691 23,661 6,638 17,023 246 16,777 -6.9

155

June 2014 Results Preview | Sector: Financials

LIC Housing Finance Bloomberg

LICHF IN

Equity Shares (m)

504.66

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

165.38/2.77

52-Week Range (INR)

CMP: INR324 

353/152

1, 6, 12 Rel. Per (%)

-7/27/1



Financial and Valuation Summary (INR b)

Buy

LICHF’s loan growth is likely to remain healthy at +17% YoY on the back of healthy retail growth and some uptick in developer segment. Individual loan segment is likely to grow by +17% YoY and 3% QoQ, while the developer segment is expected to grow +6% YoY. Share of builder loan is likely to remain below 3% of overall book. We expect margins to remain flat on a YoY basis at 2.3%. During the quarter, LICHF did not revise rates, despite competitive pressures. Barring seasonal uptick, asset quality is likely to remain stable. We model provisioning reversal of INR150m (v/s provisioning reversal of INR223m in 4QFY14). Creation of DTL on special reserves will increase the tax rate to 32% We expect net profit to grow at 4% YoY to INR3.2b. The stock trades at 1.9x FY15E and 1.6x FY16E BV. Maintain Buy.

Y/E March NII PPP

2014 2015E 2016E 2017E 19.0 22.8 26.6 31.8 18.5 21.9 25.6 30.6

Adj. PAT

12.0

14.3

16.7

20.0

Adj. EPS (INR) 23.8

28.3

33.1

39.6

EPS Gr. (%)

17.4

18.9

16.9

19.6

BV/Sh (INR)

149.2

172.0

198.7

230.6



1.5

1.5

1.4

1.4



RoE (%)

17.2

17.6

17.8

18.4



Payout (%)

20.0

20.3

20.3

20.3

Valuations P/E (x)

13.6

11.5

9.8

8.2

2.2 1.4

1.9 1.6

1.6 1.8

1.4 2.2

Key issues to watch out  Asset quality in the developer category; outlook on performance in the developer portfolio.  Margin trends - margins have been under pressure for the past few quarters. Though margins bounced back in the last quarter, sustaining/improving them will be key.

RoAA (%)

P/BV (x) Div. Yield (%)

 

Quarterly performance

(INR Million)

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 (%) Borrowings Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates

July 2014

1Q 21,303 16,755 4,547 29.7 477 5,024 25.6 613 4,411 26.8 171 4,240 1,135 3,105 36.3 22.1 22.6 12.2 26.8

FY14 2Q 3Q 22,237 23,120 17,703 18,543 4,534 4,577 28.2 23.8 787 644 5,321 5,221 30.7 24.4 744 733 4,577 4,488 34.9 27.4 341 -75 4,237 4,563 1,136 1,297 3,101 3,266 27.6 38.2 20.4 18.9 20.6 20.3 14.0 14.0 26.8 28.4

4Q 24,074 18,743 5,331 15.7 705 6,037 19.0 1,043 4,993 21.0 -223 5,216 1,516 3,700 17.0 17.4 19.3 17.3 29.1

1Q 24,971 19,774 5,197 14.3 450 5,647 12.4 732 4,915 11.4 150 4,765 1,525 3,241 4.4 17.2 16.8 13.0 32.0

FY15E 2Q 26,122 20,565 5,558 22.6 600 6,158 15.7 882 5,276 15.3 150 5,126 1,640 3,486 12.4 17.2 15.1 14.3 32.0

3Q 26,863 20,976 5,887 28.6 700 6,587 26.2 930 5,657 26.1 150 5,507 1,762 3,745 14.7 17.3 16.0 14.1 32.0

4Q 27,742 21,587 6,155 15.5 1,067 7,222 19.6 1,143 6,079 21.7 147 5,932 1,898 4,034 9.0 18.2 18.5 15.8 32.0

FY14

FY15E

90,733 71,744 18,989 23.7 2,613 21,602 24.6 3,133 18,470 27.2 215 18,255 5,083 13,172 28.7 17.4 19.3 14.5 27.8

105,698 82,901 22,798 20.1 2,817 25,615 18.6 3,687 21,928 18.7 597 21,331 6,826 14,505 10.1 18.2 18.5 14.4 32.0

156

June 2014 Results Preview | Sector: Financials

Mahindra Financial Services Bloomberg

MMFS IN

Equity Shares (m)

568.76

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

163.21/2.74

52-Week Range (INR)

356/213

1, 6, 12 Rel. Per (%)

-14/-38/-31

Financial and Valuation Summary (INR b) Y/E March NII PPP PAT EPS (INR)

2014 2015E 2016E 2017E 27.3 33.1 37.6 42.8 18.5 22.9 25.7 28.9 8.9

10.6

12.0

14.0

CMP: INR275  





15.7

18.7

21.2

24.8

EPS Gr. (%)

0.4

19.0

13.4

16.9



BV/Sh. (INR)

90.4

103.9

119.2

137.1



ABV/Sh. (INR) 83.8

95.4

108.2

123.2

RoA on AUM (%) 3.1

3.0

2.9

3.0

18.6 28.3

19.3 28.1

19.0 28.1

19.4 28.1

17.5 3.0

14.7 2.6

12.9 2.3

11.1 2.0

3.3 1.4

2.9 1.6

2.5 1.9

2.2 2.2

RoE (%) Payout (%) Valuations P/E (x) P/BV (x) P/ABV (x) Div. Yield (%)

Neutral

MMFS’ AUM growth is likely to moderate to 19% YoY and 3% QoQ on the back of +10% sequential decline in disbursements. We expect NII to grow at 17% YoY to INR7.3b. Margins are likely to decline 25bp on a YoY basis to 8.9%; margins stood at 9.7% during the last quarter. Asset quality is likely to remain weak as collections were impacted due to the elections. MMFS is likely to report GNPAs of above 5% v/s 4.2% during 1QFY14. We expect provisions of INR2b v/s INR1.2b during 1QFY14 and INR0.7b during the last quarter. We expect net profit to decline 7% YoY to INR1.8b. The stock trades at 2.9x FY15E and 2.5x FY16E ABV. Maintain Neutral.

Key issues to watch out  Asset quality trends as the last quarter was an election period.  Margin and growth trends.

Quarterly performance Y/E March

(INR Million) FY14 FY15E FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Operating Income 10,925 12,031 12,658 13,602 13,330 14,130 14,978 16,244 49,216 58,682 Other Income 60 96 53 104 150 150 150 147 314 597 Total income 10,985 12,127 12,711 13,706 13,480 14,280 15,128 16,391 49,530 59,279 YoY Growth (%) 30.9 30.5 27.0 21.8 22.7 17.8 19.0 19.6 27.2 19.7 Interest Expenses 4,761 5,253 5,891 5,975 6,154 6,400 6,560 6,436 21,880 25,551 Net Income 6,224 6,875 6,820 7,732 7,326 7,880 8,567 9,955 27,650 33,728 Operating Expenses 2,064 2,250 2,528 2,293 2,628 2,508 2,648 3,089 9,134 10,873 Operating Profit 4,160 4,625 4,292 5,439 4,698 5,372 5,919 6,866 18,516 22,855 YoY Growth (%) 28.1 27.6 13.2 16.4 12.9 16.2 37.9 26.2 20.7 23.4 Provisions 1,252 1,262 1,796 748 2,000 1,800 1,500 1,559 5,058 6,859 Profit before Tax 2,907 3,363 2,496 4,691 2,698 3,572 4,419 5,307 13,459 15,997 Tax Provisions 995 1,151 854 1,584 917 1,214 1,503 1,804 4,585 5,439 Net Profit 1,912 2,212 1,641 3,107 1,781 2,358 2,917 3,503 8,873 10,559 YoY Growth (%) 18.7 17.9 -18.0 -2.4 -6.9 6.6 77.7 12.7 2.3 19.0 AUM growth (%) 34.8 30.2 27.1 23.1 19.1 16.0 15.6 16.0 23.1 16.0 Cost to Income Ratio (%) 33.2 32.7 37.1 29.7 35.9 31.8 30.9 31.0 33.0 32.2 Provi./Operating Profits (%) 30.1 27.3 41.9 13.7 42.6 33.5 25.3 22.7 27.3 30.0 Tax Rate (%) 34.2 34.2 34.2 33.8 34.0 34.0 34.0 34.0 34.1 34.0 E: MOSL Estimates; We have not included EO inc. of INR154m in 4QFY13 for presentation purpose; According taxes have been adj.

July 2014

157

June 2014 Results Preview | Sector: Financials

Power Finance Corporation Bloomberg

POWF IN

Equity Shares (m)

1,320.04

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

417.53/7.00

52-Week Range (INR)

CMP: INR318 

344/97

1, 6, 12 Rel. Per (%)

-1/76/98 

Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

NII

79.2

95.0

112.7

131.6

PPP Adj. PAT

80.3 56.0

96.4 67.2

114.4 79.4

133.6 92.1

Adj. EPS (INR) 42.4

50.9

60.1

69.8

EPS Gr. (%)

24.0

20.0

18.1

16.1

BV/Share (INR)214.8

252.4

296.9

348.7

3.2

3.3

3.2

3.1

RoE (%)

21.3

21.8

21.9

21.6

Payout (%)

25.5

25.5

25.5

25.5

Valuations P/E (x)

7.5

6.2

5.3

4.6

1.48 2.8

1.26 3.4

1.07 4.1

0.91 4.7

Adj. RoAA (%)

P/BV (x) Div. Yield (%)

 



Loan growth is expected to remain healthy at 18% YoY. On a sequential basis, loans and borrowings are expected to grow by 5% and 7% respectively. NII is expected to grow at a healthy 19% YoY on the back of healthy loan growth. We expect MTM loss of INR500m during the quarter, compared with a gain of INR160m incurred in 4QFY14. We expect NIM to remain flat at 4.75% YoY. Barring a couple of accounts, asset quality at large remained healthy. However, it will remain a key monitorable given issues related to fuel linkages. The stock trades at 1.3x FY15E and 1.1x FY16E BV. Maintain Buy.

Key issues to watch out  Growth trends and asset quality performance against the backdrop of challenging fuel linkages issues hurting power generation companies.  Movement in spreads and yields on assets.  Overall disbursement trends and disbursements to SEBs for transnational finance. (INR Million)

Quarterly performance Y/E March Interest Income Interest Expenses Net Interest Income YoY Gr % Other Income Net Operational Income YoY Gr % Exchange gain/(loss) Total Net Income YoY Gr % Operating Expenses YoY Gr % Operating Profit YoY Gr % Adjusted PPP (For Forex) YoY Gr %



Buy

1Q 49,590 30,160 19,430 39.4 100 19,530 39.2 -1,070 18,460 39.2 319 11.8 18,141 39.8 19,211 39.8

FY14 2Q 52,230 31,120 21,110 43.1 220 21,330 43.1 -1,350 19,980 36.2 721 105.6 19,259 34.5 20,609 41.6

3Q 54,180 32,570 21,610 28.8 140 21,750 28.9 -290 21,460 30.8 402 3.4 21,058 31.4 21,348 29.5

4Q 54,990 32,560 22,430 29.0 100 22,530 28.7 160 22,690 28.9 869 103.9 21,822 27.1 21,662 26.8

1Q 57,465 34,351 23,114 19.0 50 23,164 18.6 -500 22,664 22.8 460 44.1 22,204 22.4 22,704 18.2

FY15E 2Q 59,878 36,240 23,638 12.0 50 23,688 11.1 -500 23,188 16.1 565 -21.6 22,623 17.5 23,123 12.2

Provisions 910 1,370 510 1,910 1,200 1,400 PBT 17,231 17,889 20,548 19,912 21,004 21,223 YoY Gr % 33.0 24.7 35.9 15.3 21.9 18.6 Tax 5,230 5,159 5,206 5,800 5,566 5,624 Tax Rate % 30.4 28.8 25.3 29.1 26.5 26.5 PAT 12,001 12,730 15,343 14,112 15,438 15,599 YoY Gr % 23.5 22.7 37.2 9.0 28.6 22.5 Adjusted PAT (For Forex) 12,746 13,691 15,559 13,998 15,805 15,966 YoY Gr % 23.8 29.8 35.0 8.7 24.0 16.6 E: MOSL Estimates; Quarterly and annual numbers may vary due to differences in classification

July 2014

FY14

FY15E

3Q 62,393 38,052 24,341 12.6 50 24,391 12.1 -500 23,891 11.3 715 78.0 23,176 10.1 23,676 10.9

4Q 68,134 44,271 23,863 6.4 100 23,963 6.4 -1,000 22,963 1.2 914 5.3 22,049 1.0 23,049 6.4

210,990 126,410 84,580 35.2 560 85,140 34.5 -2,550 82,590 33.3 2,310 59.3 80,280 32.7 82,830 0.0

218,865 130,601 88,264 19.9 510 88,774 4.3 -1,980 86,794 5.1 2,654 14.9 84,139 4.8 86,323 4.2

1,500 21,676 5.5 5,744 26.5 15,932 3.8 16,299 4.8

1,497 20,552 3.2 5,446 26.5 15,106 7.0 15,841 13.2

4,700 75,580 26.6 21,395 28.3 54,185 22.6 55,994 23.8

4,990 79,149 4.7 21,731 27.5 57,419 6.0 59,053 5.5

158

June 2014 Results Preview | Sector: Financials

Rural Electrification Bloomberg

RECL IN

Equity Shares (m)

987.46

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

365.21/6.12

52-Week Range (INR)

381/146

1, 6, 12 Rel. Per (%)

9/50/52

CMP: INR369  

Financial and Valuation Summary (INR b) Y/E March

2014 2015E 2016E 2017E

NII PPP

67.7 68.4

79.7 80.6

92.0 93.3

109.2 110.8

PAT

46.8

55.7

64.3

76.3

EPS (INR)

48.9

57.2

66.0

78.4

EPS Gr. (%)

26.4

17.0

15.5

18.7



BV/Sh. (INR) 204.0

248.1

299.0

359.4



RoAA (%) RoE (%) Payout (%) Valuations P/E (x) P/BV (x) Div. Yield (%)

3.6

3.5

3.4

3.4

25.6 23.2

25.3 23.2

24.1 23.2

23.8 23.2

7.5

6.5

5.6

4.7

1.8 2.6

1.5 3.1

1.2 3.5

1.0 4.2



Buy

Loan growth is expected to remain healthy at +17% YoY and +4.5% QoQ. RECL’s margins stood at 4.9% (the highest in last four years) led by an improvement in yields, while it also maintained a tight leash on cost of funds. However, in the current quarter, we factor 10bp moderation in margins. Barring a couple of accounts, asset quality at large remained healthy. However, it will remain a key monitorable given the uncertain macro environment. We model provisions of INR1b during the quarter. We expect PAT to grow by 15% YoY to INR13.2b. The stock trades at 1.5x FY15E and 1.2x FY16E BV. Maintain Buy.

Key issues to watch out  Growth trends and asset quality performance against the backdrop of a challenging macro environment.  Movement in spreads and yield on assets.  Overall disbursements trends and disbursements to SEBs for transnational finance.

Quarterly performance FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q Interest Income 39,141 41,672 43,290 43,962 45,720 47,092 48,504 Interest Expenses 23,020 25,194 25,938 26,234 27,026 28,095 29,207 Net Interest Income 16,121 16,478 17,352 17,728 18,694 18,996 19,297 YoY Gr (%) 42.8 30.1 23.2 26.2 16.0 15.3 11.2 Other Operational Income 675 432 476 464 500 600 700 Net Operational Income 16,796 16,910 17,828 18,192 19,194 19,596 19,997 YoY Gr (%) 39.9 28.3 23.8 23.2 14.3 15.9 12.2 Other Income 130 140 290 470 300 300 300 Total Net Income 16,926 17,050 18,118 18,662 19,494 19,896 20,297 YoY Gr (%) 39.1 27.9 24.6 25.1 15.2 16.7 12.0 Operating Expenses 564 514 599 715 660 665 665 YoY Gr (%) 23.8 -12.1 18.3 9.0 17.0 29.4 11.0 % to Income 3.3 3.0 3.3 3.8 3.4 3.3 3.3 Operating Profit 16,362 16,536 17,519 17,947 18,834 19,231 19,632 YoY Gr % 39.7 29.8 24.8 25.8 15.1 16.3 12.1 Provisions 560 340 754 1,475 1,000 1,100 1,100 PBT 15,802 16,196 16,765 16,472 17,834 18,131 18,532 YoY Gr (%) 34.9 27.1 21.6 24.7 12.9 11.9 10.5 Tax 4,343 5,088 4,484 4,560 4,658 4,733 4,833 Tax Rate (%) 27.5 31.4 26.7 27.7 26.1 26.1 26.1 PAT 11,459 11,108 12,281 11,912 13,175 13,399 13,699 YoY Gr (%) 31.8 17.3 20.2 24.1 15.0 20.6 11.5 E:MOSL Estimates; Quarterly and annual numbers would not match due to differences in classification

(INR Million)

Y/E March

July 2014

4Q 51,789 29,111 22,679 27.9 739 23,418 28.7 334 23,751 27.3 825 15.4 3.5 22,927 27.7 1,133 21,793 32.3 6,374 29.2 15,419 29.4

FY14

FY15E

168,064 100,385 67,679 30.0 2,116 69,795 28.0 1,028 70,823 28.4 2,392 8.6 3.4 68,431 29.2 3,120 65,311 26.5 18,474 28.3 46,837 22.7

193,106 113,439 79,666 17.7 2,539 82,205 17.8 1,234 83,439 17.8 2,815 17.7 3.4 80,624 17.8 4,333 76,291 16.8 20,599 27.0 55,692 18.9

159

June 2014 Results Preview | Sector: Financials

Shriram Transport Finance Bloomberg

SHTF IN

Equity Shares (m)

226.88

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

213.68/3.58

52-Week Range (INR)

1,021/465

1, 6, 12 Rel. Per (%)

-6/16/4

CMP: INR939  

Financial and Valuation Summary (INR b)



Y/E March Net Inc. PPP

2014 2015E 2016E 2017E 36.5 40.5 47.4 57.0 28.6 31.3 36.6 44.3

PAT

12.6

14.4

17.4

21.3



Cons.PAT

13.6

15.5

18.7

21.4

EPS (INR)

55.7

63.3

76.9

93.9

EPS Gr. (%)

-7.1

13.6

21.4

22.1

Cons.EPS (INR) 60.1

68.4

82.8

94.6

Cons.EPS Gr.(%) -7.1

13.9

21.0

14.3

BV/Sh. (INR)

364.6

418.6

484.3 564.4

Cons. BV (INR) 374.9

434.0

505.6 586.4

RoA on AUM (%) 2.2

2.2

2.4

2.5

16.3

16.2

17.0

17.9

Payout (%) 14.5 Valuations P/Cons. EPS (x) 15.6

14.5

14.5

14.5

13.7

11.3

9.9

2.2 0.8

1.9 1.0

1.6 1.2

RoE (%)

P/Cons. BV (x) Div. Yield (%)

2.5 0.7

Quarterly performance Y/E March

 

AUM likely to grow at 3.2%/2% YoY/QoQ. We expect disbursements to decline 6% YoY and increase 12% QoQ. Calculated margins on AUM are expected to improve YoY at 7.2%. Hence, NII (including securitization income) should grow 6% YoY. While incremental data points indicate a revival in CV cycle, given the weak monsoon and election period, asset quality continues to be a key monitorable. We factor higher provisions of INR2.8b v/s INR2.4b in 1QFY14 and INR2.5b reported during the last quarter. We expect PAT to decline 8.6% YoY to INR3.1b. The stock trades at 2.1x FY15E and 1.8x FY16E consolidated BV. Maintain Buy.

Key issues to watch out  Business growth, momentum and management commentary on the same.  Movement in borrowing costs and margins.  Asset quality trends, given a weak CV cycle.

FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Interest Income 13,856 15,598 16,832 16,379 17,034 17,630 18,071 17,674 Interest expenses 8,702 9,836 10,434 10,011 10,411 10,828 11,044 10,355 Net Interest Income 5,154 5,762 6,398 6,368 6,623 6,803 7,027 7,319 YoY Growth (%) 90.7 41.0 36.3 26.4 28.5 18.1 9.8 14.9 Securitisation income 3,859 3,262 2,919 2,756 2,921 3,097 3,282 3,460 Net Income (Incl. Sec.) 9,013 9,024 9,318 9,124 9,544 9,899 10,309 10,780 YoY Growth (%) 12.3 4.0 4.1 2.2 5.9 9.7 10.6 18.1 Fees and Other Income 823 419 171 242 400 400 400 621 Net Operating Income 9,837 9,443 9,488 9,367 9,944 10,299 10,709 11,401 YoY Growth (%) 12.7 5.0 2.6 -1.4 1.1 9.1 12.9 21.7 Operating Expenses 2,488 2,185 2,421 2,467 2,650 2,600 2,750 3,007 Operating Profit 7,348 7,258 7,067 6,900 7,294 7,699 7,959 8,394 YoY Growth (%) 8.3 2.0 -2.5 -7.5 -0.7 6.1 12.6 21.7 Provisions 2,503 2,533 2,800 2,458 2,825 2,725 2,625 2,582 Profit before Tax 4,845 4,725 4,268 4,442 4,469 4,974 5,334 5,812 Tax Provisions 1,435 1,457 1,254 1,493 1,352 1,505 1,614 1,758 Net Profit 3,410 3,268 3,014 2,950 3,117 3,470 3,721 4,054 YoY Growth (%) 6.0 -3.2 -12.9 -17.0 -8.6 6.2 23.5 37.4 AUM Growth (%) 25.2 22.0 14.7 6.9 3.2 3.2 7.1 11.2 Securitisation Inc. / Net Inc. (%) 39.2 34.5 30.8 29.4 29.4 30.1 30.6 30.4 Cost to Income Ratio (%) 25.3 23.1 25.5 26.3 26.6 25.2 25.7 26.4 Tax Rate (%) 29.6 30.8 29.4 33.6 30.3 30.3 30.3 30.3 E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos

July 2014

Buy

FY14

(INR Million) FY15E

62,664 38,982 23,683 42.8 12,796 36,479 5.3 1,655 38,134 4.4 9,561 28,573 -0.3 10,293 18,280 5,638 12,642 -7.1 6.9 33.6 25.1 30.8

70,410 42,638 27,772 17.3 12,761 40,533 11.1 1,821 42,354 11.1 11,007 31,347 9.7 10,757 20,591 6,229 14,362 13.6 11.2 30.1 26.0 30.3

160

June 2014 Results Preview | July 2014

Healthcare Company name

Aggregate core EBITDA to grow 13%, adj. PAT to grow 11% INR depreciation to aid operations; higher taxes to impact PAT growth

Alembic Pharmaceuticals Biocon

Expect aggregate core EBITDA to grow 13% YoY

Cadila Health

For 1QFY15, we expect core sales growth of 16% YoY and core EBITDA growth of 13% YoY for our Healthcare Universe (excluding one-offs). Adjusted PAT is likely to grow 11% YoY, mainly due to higher taxes. High base effect would impact operational performance for most companies.

Cipla Divi's Laboratories Dr Reddy’ s Labs Glenmark Pharma GSK Pharma Ipca Laboratories Lupin Ranbaxy Labs Sanofi India Sun Pharma Torrent Pharmaceuticals

Higher contribution from recently launched products in the US and better sales mix would drive growth for Dr Reddy’s, Lupin, Cadila Healthcare, and Alembic Pharma. Increasing contribution from branded business is likely to drive operational performance for IPCA Labs. Biocon is likely to report high growth due to lower R&D expenses. Both MNCs under our coverage, Sanofi India and GSK Pharma, would report healthy operational performance due to increase in prices of products exiting price control and low base. Favorable currency movement should favorably impact operating performance for the rest of our Healthcare Universe. A sequentially flat INR against the USD may lead to insignificant MTM impact from monetary forex liabilities. Yet, due to higher taxes, adjusted PAT would grow slower than core EBITDA.

Expected quarterly performance summary (INR m) Sector

CMP (INR) 4.7.14 310 543 1,105 448 1,527 2,679 602 2,548 881 1,088 534 3,270 709 696

Sales Var % Var % Reco Jun-14 YoY QoQ Alembic Pharma Buy 5,051 18.3 8.9 Biocon Sell 8,052 15.9 11.4 Cadila Health Buy 20,131 23.0 2.3 Cipla Neutral 29,744 20.7 18.1 Divis Labs Buy 5,967 15.7 -19.1 Dr Reddy’s Labs Buy 34,343 23.1 -1.3 Glenmark Pharma Buy 14,185 14.6 -13.5 GSK Pharma Neutral 6,878 8.0 14.7 IPCA Labs. Buy 9,583 19.0 27.8 Lupin Buy 28,309 22.7 0.5 Ranbaxy Labs Buy 27,484 2.4 11.4 Sanofi India Buy 4,929 13.3 10.8 Sun Pharma Buy 37,797 14.8 5.9 Torrent Pharma Neutral 10,819 11.3 11.3 Sector Aggregate 243,274 16.4 5.1 Note: Above numbers exclude one-offs to aid comparison of core operations.

EBITDA Var % Var % Jun-14 YoY QoQ 909 27.2 -0.4 1,771 21.2 4.2 3,621 26.7 1.0 5,795 -14.2 41.6 2,130 8.7 -17.8 8,071 61.2 6.4 2,494 0.8 -22.7 1,277 12.4 30.8 2,304 34.7 26.4 6,567 44.4 2.1 1,714 -34.7 13.7 1,016 16.2 25.4 14,639 6.2 4.1 2,057 -1.1 18.8 54,366 13.3 6.5

Expected quarterly performance summary (Incl. upside from one-off opportunities, INR m)) Sector CMP Sales EBDITA (INR) Var % Var % Var % RECO Jun-14 Jun-14 4.7.14 YoY QoQ YoY Glenmark Pharma 602 Buy 14,484 17.0 -13.9 2,792 12.9 Lupin 1,088 Buy 29,775 23.0 -2.4 7,593 42.2 Sun Pharma 709 Buy 43,328 24.4 7.2 19,064 24.6 Torrent Pharma 696 Neutral 12,815 31.8 4.6 3,454 66.1

Var % QoQ -22.4 -6.0 6.8 -1.3

Net Profit Var % Var % Jun-14 YoY QoQ 612 31.1 -0.2 1,149 22.9 1.7 2,419 23.7 -4.3 3,559 -25.1 36.5 1,581 -9.5 -18.1 5,257 60.6 9.2 1,082 -15.9 -37.9 1,167 22.7 20.8 1,526 112.6 11.3 3,943 69.1 -4.2 361 -73.0 164.9 655 27.9 26.6 12,213 8.4 -6.3 1,247 -16.3 34.9 36,769 11.4 0.9 Source: MOSL

Jun-14 1,351 4,823 15,310 2,444

Net Profit Var % YoY 5.0 20.3 -220.0 64.0

Var % QoQ 213.6 -12.8 -3.5 0.2

Alok Dalal ([email protected]) / Hardick Bora ([email protected]) July 2014

161

June 2014 Results Preview | Sector: Healthcare

1QFY15 Aggregates excluding one-offs Healthcare Universe Aggregates

Sales

MNC Pharma Big 5 Generics CRAMS Second Tier generics Sector Aggregate

10.1 16.5 15.7 17.5 16.4

YoY growth (%) EBITDA Adj PAT 14.1 12.4 8.7 16.4 13.3

Jun-14

EBITDA Margin Jun-13 CHG (BP)

Net Profit Margin Jun-14 Jun-13 CHG (BP)

24.5 19.4 18.8 67 15.4 13.6 178 10.3 23.3 24.2 -84 16.1 17.0 -90 -9.5 35.7 38.0 -228 26.5 33.9 -737 17.3 19.4 19.6 -17 11.8 11.9 -2 11.4 22.3 23.0 -61 15.1 15.8 -69 Source: MOSL; Big-5 Generics include Sun, Ranbaxy, Cipla, Dr Reddy's and Lupin.

Core 1QFY15 performance: Key highlights We expect Dr Reddy’s, Lupin, Cadila Healthcare, IPCA Labs, Biocon, and Alembic Pharma to record strong operational performance. We attribute the following company-specific reasons for this performance:  Dr Reddy’s: We expect Dr Reddy’s to report strong growth of 61% in core EBITDA, driven by a robust 33% growth in US base business and higher contribution from low competition launches like gDacogen, gReclast, gVidaza. The company will also benefit from low base effect. We expect core EBITDA margin to expand 550bp YoY to 23.5%.  Lupin: Lupin is likely to witness 44% YoY growth in core EBITDA, as improving product mix in the US started driving up margins post 2QFY14.  Cadila Healthcare: Uptick in recent launches and contribution from authorized generics opportunities is likely to result in 50% growth in US sales. EBITDA margin is likely to expand 50bp YoY due to benefit of operating leverage and improving sales mix.  IPCA Labs: We expect sales growth momentum to continue, aided by 27% growth in export formulations. Improving sales mix aided by higher contribution from branded exports could result in EBITDA margin expansion of 280bp YoY.  Biocon: Slowdown in R&D activity is yet again likely to result in lower R&D expenses. As such, we expect Biocon’s EBITDA margin to expand 100bp YoY.  Alembic Pharma: We expect revenue to grow 18% YoY, driven by increasing contribution from recent launches in the US generics market. With improving business mix, EBITDA could grow 27%.  MNCs: We expect GSK Pharma and Sanofi India to report healthy operational performance due to price increases in products exiting price control and low base effect.

Key developments Sun Pharma announced acquisition of 100% stake in Ranbaxy for USD4b  The transaction would be an all-stock deal, resulting in 16.3% dilution for Sun Pharma shareholders. Promoter stake would reduce to 54.7%. Ranbaxy shareholders would receive 0.8 shares of Sun Pharma for each Ranbaxy share. Consequently, Daiichi Sankyo would become the largest shareholder in Sun Pharma, with a stake of 9%.  This transaction would make Sun Pharma the largest pharma company in India, the largest Indian pharma company in the US, and strengthen its presence in emerging markets.  The transaction is likely to be closed by the end of 2014. The acquisition would add to Sun Pharma’s cash earnings per share in the first full year. Sun Pharma expects to realize revenue and operating synergies of USD250m by the third year post closing of the transaction. July 2014

162

June 2014 Results Preview | Sector: Healthcare

Ranbaxy’s exclusive copy to finally see light of day  Ranbaxy received FDA approval for its generic version of Diovan on 26 June 2014. This approval paves the way for the company to exercise its 180-day exclusivity on the USD2.2b opportunity.  We estimate that the product could generate one-off sales of ~USD100m and INR7/share of one-time profit for Ranbaxy over the exclusivity period. Our expectation is based on the assumption that Novartis will introduce an authorized generic version through its generics unit, Sandoz.  This development also increases the likelihood of Ranbaxy capitalizing on other FTF opportunities – gValcyte and gNexium.

INR depreciation to aid operations; minor MTM impact from forex liabilities On an average, in 1QFY15, the INR depreciated 7% YoY against the USD. We expect companies with largely unhedged net exports to realize the benefit of favorable currency at the EBITDA level. Companies that are likely to benefit the most include Alembic Pharma, Biocon, Cadila, Divi’s Labs, IPCA, and Dr Reddy’s. The INR/USD exchange rate has remained flat QoQ. There would be no significant MTM impact for companies with large forex liabilities.





Currency movement (INR/USD) 74 67 60 53

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

May-13

Apr-13

46

Source: Bloomberg, MOSL

Comparative Valuation Sector / Companies Healthcare Alembic Pharma Biocon Cadila Health Cipla Divis Labs Dr Reddy’s Labs Glenmark Pharma GSK Pharma IPCA Labs. Lupin Ranbaxy Labs Sanofi India Sun Pharma Torrent Pharma Sector Aggregate

July 2014

CMP (INR)

Reco

310 Buy 543 Sell 1,105 Buy 448 Neutral 1,527 Buy 2,679 Buy 602 Buy 2,548 Neutral 881 Buy 1,088 Buy 534 Buy 3,270 Buy 709 Buy 696 Neutral

EPS (INR) FY15E FY16E FY17E 16.3 21.7 26.5 23.0 26.8 31.8 46.4 56.8 64.3 17.4 23.4 28.5 65.4 78.8 92.1 127.1 146.4 169.2 26.8 33.7 42.0 61.9 84.8 98.0 48.8 59.6 72.7 41.2 53.0 61.5 9.4 18.1 28.1 125.0 152.8 177.5 26.6 31.1 35.3 36.4 43.1 55.7

PE (x) FY15E FY16E FY17E 19.0 23.6 23.8 25.8 23.4 21.1 22.4 41.2 18.1 26.4 56.8 26.2 26.6 19.1 25.6

14.3 20.3 19.5 19.1 19.4 18.3 17.9 30.1 14.8 20.5 29.5 21.4 22.7 16.2 20.8

11.7 17.1 17.2 15.7 16.6 15.8 14.3 26.0 12.1 17.7 19.0 18.4 20.1 12.5 17.6

EV/EBIDTA (x) FY15E FY16E FY17E 13.2 14.7 17.0 15.0 16.6 13.6 13.0 33.8 12.4 15.4 11.3 15.7 17.4 10.5 15.4

10.0 12.3 12.2 11.5 13.8 11.6 10.9 22.8 10.2 12.5 17.3 12.8 15.5 9.7 13.3

8.0 10.4 10.5 9.4 11.8 9.9 8.4 19.3 8.2 10.4 12.5 10.7 13.8 8.1 11.2

RoE (%) FY15E FY16E FY17E 38.9 38.3 35.2 13.7 14.4 15.2 25.2 30.1 27.4 12.4 14.6 15.3 27.1 28.2 28.6 19.9 19.2 18.6 19.8 20.0 19.7 26.3 34.6 37.6 27.7 26.8 26.1 23.8 24.7 23.4 34.2 16.6 21.4 19.5 21.4 22.4 25.7 23.7 21.8 28.1 27.2 29.1 20.1 20.6 20.4 Source:

163

June 2014 Results Preview | Sector: Healthcare

Alembic Pharmaceuticals Bloomberg

ALPM IN

Equity Shares (m)

188.5

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

58 / 1

52-Week Range (INR)

CMP: INR310 

317 / 118

1,6,12 Rel Perf. (%)

21 / 23 / 87



Financial Snapshot (INR billion) Y/E March 2014 2015E 2016E 2017E Sales

18.6

22.0

26.8

31.8

EBITDA

3.6

4.5

5.9

7.1

NP

2.4

3.1

4.1

5.0

EPS (INR)

12.5

16.3

21.7

26.5

EPS Gr. (%)

42.7

30.4

32.8

22.3

BV/Sh. (INR)

35.8

48.1

65.0

85.7

RoE (%)

40.0

38.9

38.3

35.2

RoCE (%)

43.2

42.9

42.7

40.4

24.8

19.0

14.3

11.7

 



Valuation P/E (x) P/BV (x) EV/EBITDA (x)

8.7

6.5

4.8

3.6

16.6

13.2

10.0

8.0

3.2

2.7

2.2

1.8

EV/Sales (x)



Buy

We expect sales to grow 18% YoY to INR5.1b, led by 60% growth in international generics. While the domestic formulations business is likely to grow 10% YoY, total API revenues would be flat. EBITDA is likely to grow 27% YoY to INR909m, with EBITDA margin up 130bp to 18%, aided by recently launched products in the US generics market and improving sales mix in domestic formulations. We expect adjusted PAT to grow just 31% YoY to INR612m, primarily driven by strong operational performance. We believe ALPM has a focused management team in place and has stepped into its next phase of high growth. The strong improvement in operational performance over the last few quarters, we believe, is but an undertone of this transformation. Business mix is likely to improve further, with higher contribution from US generics and specialty therapies in India, while low-margin APIs and acute therapies may continue to face slowdown. The stock trades at 19x FY15E and 14.3x FY16E EPS. Maintain Buy.

Key issues to watch for  Upside from Micardis HCT launch  Outlook for domestic formulations and US generics business Quarterly Performance (Consolidated) 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 (%)

1Q 4,272 16.5 3,557 715 16.7 95 15 0 605 0 605 139 22.9 0 466 466 51.3 10.9

FY14 2Q 3Q 4,864 4,857 19.5 31.5 3,937 3,834 927 1,022 19.1 21.1 99 101 26 35 2 2 805 888 0 0 805 888 189 229 23.4 25.8 0 0 616 659 616 659 45.1 36.6 12.7 13.6

4Q 4,640 22.7 3,727 913 19.7 110 23 28 808 0 808 195 24.1 0 613 613 40.4 13.2

1Q 5,051 18.3 4,142 909 18.0 115 25 5 774 0 774 163 21.0 0 612 612 31.1 12.1

FY15E 2Q 3Q 5,730 5,627 17.8 15.9 4,526 4,411 1,203 1,215 21.0 21.6 125 130 30 35 5 5 1,053 1,055 0 0 1,053 1,055 221 222 21.0 21.0 0 0 832 834 832 834 35.0 26.5 14.5 14.8

(INR Million) FY14 FY15E 4Q 5,610 20.9 4,425 1,185 21.1 136 44 5 1,010 0 1,010 212 21.0 0 798 798 30.2 14.2

18,632 22.5 15,055 3,577 19.2 405 98 32 3,106 0 3,106 751 24.2 0 2,355 2,355 42.5 12.6

22,018 18.2 17,505 4,513 20.5 506 134 20 3,893 0 3,893 818 21.0 0 3,075 3,075 30.6 14.0

E: MOSL Estimates

July 2014

164

June 2014 Results Preview | Sector: Healthcare

Biocon Bloomberg

BIOS IN

Equity Shares (m)

200.0

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

109 / 2

52-Week Range (INR)

554 / 277

1,6,12 Rel Perf. (%)

15 / -12 / 59

CMP: INR543   

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

28.5

32.3

38.5

45.6

EBITDA

6.5

7.2

8.8

10.5

Net Profit

4.1

4.6

5.4

6.4

20.7

23.0

26.8

31.8

Adj. EPS (INR) EPS Gr. (%)

26.5

11.2

16.5

18.8

BV/Sh. (INR)

151.3

167.6

186.5

209.1

RoE (%)

13.7

13.7

14.4

15.2

RoCE (%)

11.7

11.6

12.2

13.2

Payout (%)

28.1

29.3

29.3

29.3

26.3

23.6

20.3

17.1

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

3.6

3.2

2.9

2.6

EV/EBITDA (x)

15.5

14.7

12.3

10.4

Div. Yield (%)

0.9

1.1

1.2

1.5

 



Sell

We expect sales to grow 16% YoY to INR8b, led by 26% growth in CRO division. The Biopharma division is likely to grow 13%. We estimate licensing income at INR74m (INR76m in 1QFY14). EBITDA is likely to grow 21% YoY to INR1.8b, with EBITDA margin expanding 100bp to 22%. BIOS’ R&D activity has been moderating since 3QFY14, which is likely to result in lower R&D spend YoY. We expect adjusted PAT to grow just 23% YoY to INR1.1b, in line with operational performance. Key growth drivers for FY15/FY16 would be (1) traction in insulin initiative in RoW, (2) ramp-up in CRO division, (3) contribution from immuno-suppressant supplies, and (4) branded formulations. However, high R&D costs and long-term capex in the near term would put pressure on profitability and return ratios. The stock trades at 23.6x FY15E and 20.3x FY16E earnings. Option values for the future include separate listing of Contract Research business and potential out-licensing of the Oral Insulin NCE by BMS. Return ratios are likely to remain subdued, with both RoE and RoCE in the 13-14% range from FY13 to FY15. Maintain Sell.

Key issues to watch for  Update on initiatives to out-license Anti-CD6  Progress on product registration for Rh-Insulin in Europe/US  Outlook for listing of Syngene

Quarterly Performance (Consolidated) FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q Net Sales 6,948 7,339 7,000 7,230 8,052 8,052 7,734 YoY Change (%) 21.7 23.9 10.4 14.7 15.9 9.7 10.5 Total Expenditure 5,486 5,650 5,320 5,530 6,280 6,240 6,033 EBITDA 1,462 1,689 1,680 1,700 1,771 1,812 1,702 Margins (%) 21.0 23.0 24.0 23.5 22.0 22.5 22.0 Depreciation 483 500 510 540 560 575 590 Interest 4 3 0 10 24 24 24 Other Income 284 187 190 230 285 290 300 PBT 1,259 1,373 1,360 1,380 1,472 1,503 1,388 Tax 297 319 260 190 294 301 278 Rate (%) 23.6 23.2 19.1 13.8 20.0 20.0 20.0 Minority Interest 27 31 50 60 29 30 31 PAT 935 1,023 1,050 1,130 1,149 1,172 1,079 YoY Change (%) 18.7 14.2 14.5 69.0 22.9 14.6 2.8 Margins (%) 13.5 13.9 15.0 15.6 14.3 14.6 14.0 Licensing income 76 34 40 0 74 73 73 YoY Change (%) -45.3 -54.5 -2.1 113.2 81.3 Contract research 1,546 1,881 1,830 1,880 1,942 2,060 2,020 YoY Change (%) 26.3 45.7 31.0 13.3 25.6 9.5 10.4 E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements

(INR Million)

Y/E March

July 2014

4Q 8,456 17.0 6,537 1,919 22.7 666 25 315 1,543 309 20.0 33 1,202 6.4 14.2 73 2,082 10.7

FY14

FY15E

28,517 17.5 21,986 6,531 22.9 2,033 17 891 5,372 1,066 19.8 168 4,138 -18.7 14.5 150 -39.0 7,137 28.1

32,294 13.2 25,090 7,204 22.3 2,391 97 1,190 5,906 1,181 20.0 123 4,602 11.2 14.3 292 94.6 8,104 13.5

165

June 2014 Results Preview | Sector: Healthcare

Cadila Healthcare Bloomberg

CDH IN

Equity Shares (m)

204.7

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

226 / 4

52-Week Range (INR)

16 / 17 / 8 

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

72.2

82.4

97.8

111.4

EBITDA

12.0

14.4

19.5

22.7

8.2

9.5

11.6

13.2

Adj. EPS (INR)

40.1

46.4

56.8

64.3

EPS Gr. (%)

25.6

15.8

22.3

13.2

BV/Sh. (INR)

168.0

200.5

247.6

300.1

RoE (%)

25.2

25.2

30.1

27.4

RoCE (%)

18.7

20.8

26.0

26.9

Payout (%)

26.5

28.9

29.2

29.2

27.6

23.8

19.5

17.2

6.6

5.5

4.5

3.7

EV/EBITDA (x)

20.3

17.0

12.2

10.5

Div. Yield (%)

0.8

1.0

1.5

1.7

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



1,144 / 631

1,6,12 Rel Perf. (%)

Net Profit

CMP: INR1,105

 

  

Buy

We expect revenue to grow 23% YoY to INR20.1b, led by 50% YoY growth in the US formulations. Total export formulations would grow 37% YoY to INR8.6b. Domestic formulations would grow 10% YoY to INR6.9b, impacted by the new drug policy. EBITDA is likely to grow 27% YoY to INR3.6b, with EBITDA margin inching up 50bp YoY, aided by improving sales mix in the US. Adjusted PAT is likely to grow 24% YoY to INR2.4b, slower than EBITDA due to higher taxes. We believe CDH has made investments in the right areas and will unlock value at the appropriate time. We expect FY15 to be a year of recovery for CDH. New launches in the US would be an important trigger for the company for FY15. We estimate 17% EPS CAGR over FY14-17, with improving return ratios over the next three years. The stock trades at 23.8x FY15E and 19.5x FY16E EPS. Maintain Buy.

Key issues to watch for  Update on US launches from the Moraiya facility  Outlook for recovery in domestic formulations  Progress on improvement in balance sheet

Quarterly Performance (Consolidated) Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT after EO Income Tax Rate (%) Min. Int/Adj on Consol Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation sales YoY Change (%) US sales YoY Change (%)

1Q 16,371 5.7 13,513 2,858 17.5 466 278 125 2,239 203 9.1 80 1,956 1,956 0.4 11.9 6,252 7.5 3,874 7.9

FY14 2Q 17,468 12.9 14,863 2,605 14.9 518 319 248 2,017 101 5.0 82 1,834 1,834 92.9 10.5 6,263 4.1 4,730 28.7

(INR Million) 3Q 18,717 16.7 15,764 2,953 15.8 496 301 239 2,360 408 17.3 92 1,860 1,894 84.1 10.1 5,883 3.2 6,316 61.1

4Q 19,685 22.1 16,100 3,586 18.2 528 271 162 2,812 348 12.4 72 2,392 2,529 -3.7 12.8 6,247 9.4 6,783 74.7

1Q 20,131 23.0 16,510 3,621 18.0 550 250 125 2,946 442 15.0 85 2,419 2,419 23.7 12.0 6,877 10.0 5,792 49.5

FY15E 2Q 20,156 15.4 16,483 3,673 18.2 575 275 150 2,973 446 15.0 87 2,440 2,440 33.1 12.1 7,015 12.0 6,145 29.9

3Q 20,535 9.7 16,993 3,542 17.2 600 250 125 2,817 423 15.0 87 2,307 2,307 21.8 11.2 6,765 15.0 6,795 7.6

4Q 21,614 9.8 18,091 3,523 16.3 617 236 191 2,861 429 15.0 91 2,341 2,341 -7.4 10.8 7,184 15.0 7,287 7.4

FY14

FY15E

72,240 13.6 60,239 12,001 16.6 2,012 1,170 775 9,422 1,060 11.3 326 8,036 8,207 25.2 11.4 24,645 6.1 21,703 44.0

82,436 14.1 68,078 14,359 17.4 2,342 1,011 591 11,597 1,739 15.0 350 9,507 9,507 15.8 11.5 27,841 13.0 26,019 19.9

E: MOSL Estimates

July 2014

166

June 2014 Results Preview | Sector: Healthcare

Cipla Bloomberg

CIPLA IN

Equity Shares (m)

802.9

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

360 / 6

52-Week Range (INR)

453 / 367

1,6,12 Rel Perf. (%)

10 / -10 / -20

CMP: INR448 

We expect revenue to grow 21% YoY to INR29.7b.



The domestic formulations business would grow 14% YoY to INR12.9b, while export formulations revenue would grow 39% YoY to INR14.4b, aided by consolidation of Cipla Medpro.



EBITDA is likely to decline 14% YoY to INR5.8b, with EBITDA margin likely to contract 7.9% YoY to 19.5% from a high base.



We expect adjusted PAT to decline 25% YoY to INR3.6b on account of higher depreciation and lower other income.



We believe the next few quarters would remain an investment phase, the benefits of which would come through only in FY16.



The stock trades at 25.8x FY15E and 19.1x FY16E EPS. Maintain Neutral.

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

101.0

116.5

134.4

153.8

EBITDA

21.3

23.5

29.7

34.9

Net Profit

14.2

14.0

18.8

22.9

Adj. EPS (INR)

17.6

17.4

23.4

28.5

EPS Gr. (%)

23.8

-1.5

34.7

21.8

BV/Sh. (INR)

125.1

140.1

160.9

186.5

RoE (%)

14.1

12.4

14.6

15.3

RoCE (%)

17.4

16.0

18.7

19.8

Payout (%)

13.5

13.5

11.2

10.2

25.4

25.8

19.1

15.7

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

3.6

3.2

2.8

2.4

EV/EBITDA (x)

17.4

15.3

11.7

9.6

Div. Yield (%)

0.4

0.4

0.5

0.6

Neutral

Key issues to watch for  Update on launch of inhalers in Europe  Improvement in profitability at Cipla Medpro

Quarterly Performance

(INR Million)

Y/E March Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT after EO expense Tax Rate (%) Minority Interest Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation sales YoY Change (%) Export formulations YoY Change (%)

1Q 24,639 25.8 6,754 27.4 789 408 691 6,249 1,500 24.0 0.0 4,749 4,749 80.4 19.3 11,039 17.6 10,344 27.7

FY14 2Q 3Q 25,124 25,808 14.6 24.6 5,642 4,673 22.5 18.1 914 912 450 333 756 524 5,034 3,952 1,358 987 27.0 25.0 95.7 122.2 3,581 2,843 3,581 2,843 1.3 -16.1 14.3 11.0 10,398 10,443 11.4 13.0 12,190 13,520 17.3 39.5

4Q 25,195 28.1 4,093 16.2 1,050 341 775 3,477 753 21.7 116.9 2,607 2,607 -2.6 10.3 9,080 16.7 12,820 34.4

1Q 29,744 20.7 5,795 19.5 1,100 350 400 4,745 1,186 25.0 65.0 3,559 3,559 -25.1 12.0 12,906 16.9 14,362 38.8

FY15E 2Q 3Q 28,501 28,944 13.4 12.2 5,677 5,864 19.9 20.3 1,125 1,150 350 350 400 400 4,602 4,764 1,151 1,191 25.0 25.0 65.0 140.0 3,387 3,433 3,387 3,433 -5.4 20.7 11.9 11.9 11,958 12,009 15.0 15.0 14,140 15,177 16.0 12.3

4Q 29,299 16.3 6,199 21.2 1,200 350 400 5,049 1,262 25.0 140.0 3,647 3,647 39.9 12.4 10,351 14.0 16,356 27.6

FY14

FY15E

101,003 22.0 21,330 21.1 3,726 1,457 2,654 18,800 4,634 24.6 282.5 14,166 14,166 23.8 14.0 41,242 14.9 48,874 29.6

116,489 15.3 23,535 20.2 4,575 1,400 1,600 19,160 4,790 25.0 410.0 13,960 13,960 -1.5 12.0 47,224 14.5 60,036 22.8

E: MOSL Estimates; Note: Quarterly numbers 2QFY14 onwards and annual numbers are consolidated

July 2014

167

June 2014 Results Preview | Sector: Healthcare

Divi's Laboratories Bloomberg

DIVI IN

Equity Shares (m)

132.7

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

203 / 3

52-Week Range (INR)

1,546 / 905

1,6,12 Rel Perf. (%)

19 / -2 / 25

CMP: INR1,527 



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

25.3

29.0

34.6

40.6

EBITDA

10.1

11.6

13.9

16.2

7.7

8.7

10.5

12.2

58.3

65.4

78.8

92.1

Net Profit Adj. EPS (INR) EPS Gr. (%)

28.5

12.2

20.5

16.9

BV/Sh. (INR)

223.3

259.2

298.6

344.7

RoE (%)

28.3

27.1

28.2

28.6

RoCE (%)

36.0

34.6

36.1

36.6

Payout (%)

40.2

45.0

50.0

50.0

26.2

23.4

19.4

16.6

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

 

  

6.8

5.9

5.1

4.4

EV/EBITDA (x)

20.1

17.3

14.6

12.6

Div. Yield (%)

1.3

1.6

2.2

2.6

Buy

We expect revenue to grow 16% YoY to INR6b on increased capacity utilization at new the SEZ unit and favorable currency impact. Growth would be driven by both CCS and API businesses. EBITDA is likely to grow 9% YoY to INR2.1b, with 230bp YoY decline in margins as contribution of generics in near term is likely to remain higher. We expect PAT to decline 10% YoY to INR1.6b due to lower other income (forex gain of INR430m in 1QFY14). DIVI expects FY15 revenue to grow more than 20%, with EBITDA margin sustaining at 40%. Revenue growth would be aided by capacity utilization at DSN SEZ. We estimate 17% revenue, EBITDA, PAT CAGR over FY14-16, with EBITDA margin stabilizing at ~40%. We expect the balance sheet to continue strengthening, and expect dividend payout to go up from 40% in FY14 to 45% in FY15. The stock trades at 23.4x FY15E and 19.4x FY16E EPS. Buy.

Key issues to watch for  Ramp-up at Vizag SEZ  Outlook for growth beyond FY15

Quarterly Performance FY14 1Q 2Q Net Op Revenue 5,159 5,659 YoY Change (%) 10.1 19.7 Total Expenditure 3,200 3,182 EBITDA 1,959 2,477 Margins (%) 38.0 43.8 Depreciation 209 225 Interest 4 4 Other Income 547 376 PBT 2,293 2,624 Tax 546 574 Rate (%) 23.8 21.9 Reported PAT 1,747 2,049 Adj PAT 1,747 2,049 YoY Change (%) 4.4 73.7 Margins (%) 33.9 36.2 E: MOSL Estimates; Quarterly numbers are standalone

(INR Million)

Y/E March

July 2014

3Q 6,874 28.9 4,015 2,859 41.6 233 4 98 2,721 531 19.5 2,190 2,190 51.8 31.9

4Q 7,380 13.6 4,788 2,592 35.1 254 9 120 2,449 518 21.2 1,931 1,931 6.2 26.2

1Q 5,967 15.7 3,837 2,130 35.7 260 4 160 2,027 446 22.0 1,581 1,581 -9.5 26.5

FY15E 2Q 6,453 14.0 3,807 2,646 41.0 270 4 160 2,532 557 22.0 1,975 1,975 -3.6 30.6

3Q 7,830 13.9 4,432 3,398 43.4 285 4 160 3,270 719 22.0 2,550 2,550 16.4 32.6

4Q 8,751 18.6 5,303 3,448 39.4 305 4 160 3,299 726 22.0 2,573 2,573 33.3 29.4

FY14

FY15E

25,072 17.2 15,185 9,887 39.4 921 21 1,140 10,086 2,169 21.5 7,917 7,917 31.5 31.6

29,000 15.7 17,379 11,622 40.1 1,120 14 640 11,127 2,448 22.0 8,679 8,679 9.6 29.9

168

June 2014 Results Preview | Sector: Healthcare

Dr Reddy’s Labs Bloomberg

DRRD IN

Equity Shares (m)

170.1

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

456 / 8

52-Week Range (INR)

2,940 / 2025

1,6,12 Rel Perf. (%)

11 / -17 / -13

Y/E March

2014 2015E 2016E 2017E

Sales

132.2

145.2

162.9

183.5

31.2

33.5

38.3

44.0

Net Profit

21.2

21.6

24.9

28.8

124.5

127.1

146.4

169.2

EPS Gr. (%)

54.5

2.1

15.1

15.6

BV/Sh. (INR)

533.8

639.9

763.9

907.5

RoE (%)

23.3

19.9

19.2

18.6

RoCE (%)

18.0

17.9

17.9

18.1

Payout (%)

16.7

17.6

17.6

17.6

21.5

21.1

18.3

15.8

Adj. EPS (INR)



  



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

5.0

4.2

3.5

3.0

EV/EBITDA (x)

14.9

13.6

11.6

9.9

Div. Yield (%)

0.7

0.7

0.8

0.9

Buy

We expect 20% YoY growth in core revenue for 1QFY15 to INR34.2b. Growth would be led by 27% YoY growth in US revenue and 22% YoY growth in Russia/CIS. Revenue growth would be restricted by 12% growth in domestic formulations and 13% growth in PSAI segment. Core EBITDA is likely to grow 49% YoY to INR80b due to base effect and improving product mix in the US. Consequently, we expect EBITDA margin to expand 450bp YoY to 23.5%. PAT could see a growth of 46% YoY to INR5.2b, slower than EBITDA growth due to higher taxes. Adjusted for one-off contribution from gActos in 1QFY14, core sales should grow 23%, while core EBITDA and PAT grow 61%. Though FY15 is likely to be a muted year for DRRD, we believe accelerated launches in the US in FY16 could drive strong double-digit growth in FY16. The stock trades at 21.1x FY15E and 18.3x FY16E core earnings. Maintain Buy.





Financial Snapshot (INR billion)

EBITDA

CMP: INR2,679

Key issues to watch for  View on pipeline of products in the US  FY16 outlook for both generics and PSAI businesses

Quarterly Performance - IFRS

(INR Million)

Y/E March

FY14

FY15E

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

28,449

33,575

35,338

34,809

34,343

35,894

37,666

37,323

132,171

145,226

YoY Change (%)

12.0

16.5

23.3

4.2

20.7

6.9

6.6

7.2

13.7

9.9

Total Expenditure

23,051

25,119

25,576

27,223

26,273

27,100

29,379

29,000

100,969

111,752

5,398

8,456

9,762

7,586

8,071

8,794

8,286

8,323

31,202

33,474

19.0

25.2

27.6

21.8

23.5

24.5

22.0

22.3

23.6

23.0

1,603

1,733

1,793

1,956

1,800

1,850

1,900

2,096

7,085

7,646

342

972

735

437

300

300

300

302

2,486

1,203

4,137

7,695

8,704

6,067

6,571

7,244

6,687

6,529

26,602

27,031

Gross Sales

EBITDA Margins (%) Amortization Other Income Profit before Tax Tax

528

792

2,521

1,252

1,314

1,449

1,337

1,306

5,093

5,406

Rate (%)

12.8

10.3

29.0

20.6

20.0

20.0

20.0

20.0

19.1

20.0

Net Profit

3,609

6,903

6,183

4,815

5,257

5,795

5,349

5,224

21,510

21,625

335

0

0

0

0

0

0

0

335

0

3,273

6,903

5,686

4,815

5,257

5,795

5,349

5,224

21,174

21,625

YoY Change (%)

23.8

97.9

56.5

22.9

60.6

-16.0

-5.9

8.5

54.8

2.1

Margins (%)

11.5

20.6

16.1

13.8

15.3

16.1

14.2

14.0

16.0

14.9

One-off/low-competition PAT in US Adjusted PAT

E - MOSL Estimates

July 2014

169

June 2014 Results Preview | Sector: Healthcare

Glenmark Pharma Bloomberg

CMP: INR602

GNP IN

Equity Shares (m)

271.2

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



163 / 3

52-Week Range (INR)

640 / 489

1,6,12 Rel Perf. (%)

7 / -8 / -29 

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

59.8

68.4

79.8

94.0

EBITDA

12.9

14.6

17.4

22.1

Net Profit

4.6

7.3

9.1

11.4

Adj. EPS

16.8

26.8

33.7

42.0

EPS Gr. (%)

-8.8

59.9

25.5

24.8

110.0

135.7

168.0

212.8

15.3

19.8

20.0

19.7

RoCE (%)

17.7

17.4

19.3

21.6

Payout (%)

11.6

11.9

9.7

7.2

35.8

22.4

17.9

14.3

BV/Sh. (INR) RoE (%)



 

Valuations P/E (x)



P/BV (x)

5.5

4.4

3.6

2.8

EV/EBITDA(x)

14.6

13.0

10.9

8.4

Div. Yield (%)

0.3

0.5

0.5

0.5

Buy

We expect Glenmark Pharmaceuticals (GNP) to post 15% YoY growth in core revenue (excluding one-offs and R&D income) to INR14.2b, led primarily by high growth in emerging markets and APIs. Reported sales would grow 17% YoY to INR14.5b. The branded business is likely to grow 20% YoY, while the generics segment would grow just 5% due to slowdown in the US. We expect R&D licensing income of INR299m from Sanofi (nil in 1QFY14). Core EBITDA is likely to be flat YoY at INR2.5b, with core EBITDA margin down 240bp YoY, impacted by adverse sales mix. Reported EBITDA would grow 13% YoY to INR2.8b. Adjusted PAT is likely to decline 16% YoY to INR1.1b, mainly due to higher depreciation. Reported PAT is likely to grow 5% YoY. We expect GNP to gradually reduce its net debt over FY14-16, resulting in improvement in D/E from 1.1x in FY14 to 0.7x by FY16. We also expect gradual improvement in return ratios. The stock trades at 22.4x FY15E and 17.9x FY16E EPS. Maintain Buy.

Key issues to watch for  Product pipeline for US  Update on free cash generation and debt repayment schedule  Progress of NCE/NBE pipeline

Quarterly performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%)

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

12,379

14,630

16,012

16,817

14,484

16,000

18,488

19,419

FY14

FY15E

59,839

68,391

19.0

16.6

15.9

25.9

17.0

9.4

15.5

15.5

19.4

14.3

2,474

3,153

3,644

3,598

2,792

3,299

4,148

4,328

12,870

14,566

20.0

21.6

22.8

21.4

19.3

20.6

22.4

22.3

21.5

21.3

Depreciation

349

605

611

603

620

650

680

700

2,168

2,650

Interest

464

485

473

464

500

500

500

500

1,886

2,000

37

138

56

97

80

80

80

82

328

322

1,698

2,201

2,617

2,628

1,752

2,229

3,048

3,210

9,144

10,238

0

0

0

2,175

0

0

0

0

2,175

0

1,698

2,201

2,617

453

1,752

2,229

3,048

3,210

6,969

10,238

392

628

474

19

385

490

670

706

1,513

2,252

23.1

28.5

18.1

4.1

22.0

22.0

22.0

22.0

21.7

22.0

1,306

1,573

2,143

434

1,367

1,738

2,377

2,504

5,456

7,986

19

30

-19

3

16

16

16

16

33

64

1,287

1,330

2,130

1,520

1,082

1,722

2,361

2,383

4,964

7,549

154.1

-6.6

35.3

2.2

-15.9

29.5

10.9

56.8

-0.5

52.1

10.4

9.1

13.3

9.0

7.5

10.8

12.8

12.3

8.3

11.0

Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT (incl one-offs) Minority Interest Adj PAT (excl one-offs) YoY Change (%) Margins (%) E: MOSL Estimates

July 2014

170

June 2014 Results Preview | Sector: Healthcare

GSK Pharma Bloomberg

GLXO IN

Equity Shares (m)

84.7

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

216 / 4

52-Week Range (INR)

3,054 / 2,175

1,6,12 Rel Perf. (%)

-1 / -39 / -36

CMP: INR2,548   

Financial Snapshot (INR billion) Y/E Dec

2013 2014E 2015E 2016E

Sales

25.2

27.2

31.2

35.9

EBITDA

5.0

5.9

8.7

10.3

Net Profit

4.8

5.2

7.2

8.3

Adj. EPS (INR)

56.2

61.9

84.8

98.0

EPS Gr. (%)

-29.8

10.3

36.9

15.7

BV/Sh. (INR)

238.1

235.8

244.7

260.9

RoE (%)

23.6

26.3

34.6

37.6

RoCE (%)

34.8

39.3

51.6

56.0

101.5

101.3

87.5

81.4

P/E (x)

45.4

41.2

30.1

26.0

P/BV (x)

10.7

10.8

10.4

9.8

EV/EBITDA (x)

39.3

33.8

22.8

19.3

Div. Yield (%)

2.0

2.2

2.6

2.7

Payout (%)

 



Neutral

We expect GLXO to report 8% YoY growth in 2QCY14 sales to INR6.9b. EBITDA is likely to grow 12% YoY to INR1.3b, with EBITDA margin expanding 70bp YoY to 18.6% on a low base. Growth and profitability would remain impacted by supply chain issues highlighted in CY13 and price revisions taken due to fresh price control implemented last year. We expect adjusted PAT to grow 23% YoY to INR1.2b, faster than EBITDA due to lower taxes. GLXO deserves premium valuations due to strong parentage (giving access to large product pipeline), brand-building ability, and likely positioning in the post patent era. It is one of the few companies with the ability to drive reasonable growth without any major capital requirement, leading to high RoCE of 45-50%. At 41.2x CY14E and 30.1x CY15E EPS, current valuations adequately reflect the recovery in business over this period. Maintain Neutral.

Valuations

Key issues to watch for  Update on supply chain related issues  Market performance of products impacted by DPCO 2013

Quarterly Performance

(INR Million)

Y/E December

CY13

CY14

CY13

CY14E

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

6,321

6,369

6,205

6,306

5,999

6,878

7,037

7,290

25,202

27,204

YoY Change (%)

1.5

-2.3

-7.2

-4.0

-5.1

8.0

13.4

15.6

-3.1

7.9

Total Expenditure

4,693

5,232

5,126

5,190

5,023

5,601

5,392

5,322

20,240

21,337

EBITDA

1,629

1,137

1,080

1,116

977

1,277

1,645

1,968

4,961

5,867

25.8

17.9

17.4

17.7

16.3

18.6

23.4

27.0

19.7

21.6

Depreciation

42

50

50

58

43

44

44

43

199

174

Other Income

817

454

455

544

549

508

509

609

2,269

2,175

2,404

1,541

1,485

1,603

1,483

1,741

2,111

2,535

7,029

7,869

Net Sales

Margins (%)

PBT before EO Expense Tax

698

590

468

518

517

575

696

836

2,274

2,624

Rate (%)

29.1

38.3

31.5

32.3

34.9

33.0

33.0

33.0

32.4

33.4

Adjusted PAT

1,706

951

1,017

1,085

966

1,167

1,414

1,698

4,755

5,244

YoY Change (%)

-8.1

-44.0

-37.8

-31.3

-43.4

22.7

39.0

56.6

-29.8

10.3

Margins (%)

27.0

14.9

16.4

17.2

16.1

17.0

20.1

23.3

18.9

19.3

Extra-Ord Expense Reported PAT

16

-201

8

-84

0

0

0

0

371

0

1,690

1,151

1,010

1,169

966

1,167

1,414

1,698

4,384

5,244

E: MOSL Estimates

July 2014

171

June 2014 Results Preview | Sector: Healthcare

Ipca Laboratories Bloomberg

IPCA IN

Equity Shares (m)

126.2

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

111 / 2

52-Week Range (INR)

CMP: INR881 

907 / 609

1,6,12 Rel Perf. (%)

6 / 1 / -5



Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

32.8

37.9

45.2

53.4

EBITDA

8.1

9.3

11.3

13.7

Net Profit

4.8

6.2

7.5

9.2

Adj. EPS (INR)

37.9

48.8

59.6

72.7

EPS Gr. (%)

47.4

28.8

22.1

22.0

BV/Sh. (INR)

155.3

196.8

247.4

309.2

RoE (%)

27.2

27.7

26.8

26.1

RoCE (%)

29.4

31.5

31.4

31.3

Payout (%)

15.4

15.0

15.0

15.0

23.3

18.1

14.8

12.1

5.7

4.5

3.6

2.9

EV/EBITDA (x)

14.2

12.4

10.2

8.2

Div. Yield (%)

0.7

0.8

1.0

1.2

Valuation P/E (x)

 





P/BV (x)

Buy

We expect revenue to grow 19% YoY to INR9.6b, led by 27% growth in export formulations. Domestic formulations would grow 16% YoY on a low base, while total API sales would grow 12% YoY. EBITDA is likely to grow 35% YoY to INR2.3b, aided by 280bp YoY expansion in EBITDA margin to 24%. This would be driven by higher contribution from international formulations. We expect adjusted PAT to grow 113% YoY to INR1.5b, boosted by higher other income (forex loss in 1QFY14). We expect significant ramp-up in IPCA's international formulations revenue, led by 36% CAGR in US generics and 33% CAGR in US business over FY13-16. Domestic formulations growth is likely to be maintained at 16%. We expect IPCA to clock EPS CAGR of 24% over FY14-17 on the back of 18% revenue CAGR, aided by 80-100bp EBITDA margin expansion and reversal of MTM losses. The stock trades at 18.1x FY15E EPS and 14.8x FY16E EPS. Buy.

Key issues to watch for  Ramp-up at recently approved Indore SEZ for US  Outlook for institutional tender business after FY14

Quarterly Performance

(INR Million)

Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

8,056

8,467

8,330

7,496

9,583

9,775

9,373

9,126

FY14

FY15E

32,818

37,857

27.0

9.8

18.8

11.6

19.0

15.5

12.5

21.7

16.7

15.4

1,710

2,345

2,173

1,823

2,304

2,441

2,293

2,255

8,106

9,292

21.2

27.7

26.1

24.3

24.0

25.0

24.5

24.7

24.7

24.5

241

252

256

260

300

310

320

336

1,031

1,266

71

57

54

63

72

71

70

72

269

285

-435

-346

30

244

315

320

100

102

-500

837

PBT after EO Expense

963

1,690

1,893

1,745

2,247

2,380

2,003

1,949

6,306

8,578

Tax

245

396

502

375

539

571

481

468

1,524

2,059

25.4

23.4

26.5

21.5

24.0

24.0

24.0

24.0

24.2

24.0

718

1,295

1,391

1,370

1,708

1,808

1,522

1,481

4,782

6,520

67.0

3.5

58.3

81.7

138.0

39.7

9.4

8.1

47.4

36.3

Other Income

Rate (%) Reported PAT YoY Change (%) Margins (%) Domestic formulation

8.9

15.3

16.7

18.3

17.8

18.5

16.2

16.2

14.6

17.2

2,504

2,762

2,463

1,966

2,904

3,204

2,857

2,280

9,694

11,245

YoY Change (%)

11.7

5.1

15.8

10.2

16.0

16.0

16.0

16.0

10.4

16.0

Export formualtions

3,300

3,626

3,818

3,732

4,176

4,297

4,266

4,402

14,476

17,141

YoY Change (%)

47.0

6.9

20.3

19.2

26.5

18.5

11.7

18.0

21.2

18.4

E: MOSL Estimates

July 2014

172

June 2014 Results Preview | Sector: Healthcare

Lupin Bloomberg

LPC IN

Equity Shares (m)

447.5

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

487 / 8

52-Week Range (INR)

CMP: INR1,088 

1,102 / 742

1,6,12 Rel Perf. (%)

13 / -8 / -6

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

109.3

125.3

146.2

167.4

EBITDA

26.5

31.2

37.7

43.9

Rep. PAT

18.4

19.8

24.0

28.0

Rep.EPS (INR)

41.0

44.1

53.6

62.5

Adj. PAT

13.8

18.5

23.8

27.6

Adj. EPS (INR)

30.8

41.2

53.0

61.5

EPS Gr. (%)

33.4

33.4

28.8

16.0

BV/Sh. (INR)

154.6

191.6

237.0

289.9

RoE (%)

22.8

23.8

24.7

23.4

RoCE (%)

40.1

36.2

35.9

34.4

Payout (%)

16.0

15.9

15.3

15.0

35.3

26.4

20.5

17.7

7.0

5.7

4.6

3.8

EV/EBITDA (x)

18.3

15.4

12.5

10.4

Div. Yield (%)

0.6

0.6

0.6

0.7

 

 



Buy

We expect revenue to grow 23% YoY to INR30b, driven mainly by 27% YoY growth in advanced market formulations. Domestic formulations would grow 16% YoY, while RoW markets are likely to grow 23%. Core revenue excluding one-off upsides from generic Tricor, Trizivir and Niaspan is likely to grow 23% YoY to INR28.3b. EBITDA would grow 42% YoY to INR7.6b, with EBITDA margin expanding by 340bp YoY to 25.5%. Core EBITDA would be INR6.6b, with core EBITDA margin at 23.2%, up 350bp YoY, aided by improving sales mix in the US. Reported PAT is likely to grow 20% to INR4.8b, while adjusted PAT is likely to grow 69% to INR3.9b on a low base. Key growth drivers for FY15/FY16 would be strong product pipeline for the US, and higher contribution from oral contraceptives. Growth in India formulations is likely to rebound to 16% in FY15. The stock trades at 24.7x FY15E and 20.5x FY16E EPS. Maintain Buy.

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

Key issues to watch for  Outlook on future launches in the US  Revival in constant currency sales growth in I’rom  Outlook on domestic formulations business post DPCO 2013

Quarterly Performance (Consolidated) Y/E March

(INR Million) 4Q 30,516 20.3 8,080 26.5 743 122 742 7,957 2,327 29.2 0 100 4,115 37.2 13.5

1Q 29,775 23.0 7,593 25.5 700 45 500 7,348 2,425 33.0 0 100 4,808 106.2 16.1

FY15E 2Q 3Q 29,156 32,841 10.8 10.1 6,793 8,374 23.3 25.5 725 750 45 45 500 500 6,523 8,079 2,153 2,666 33.0 33.0 0 0 100 100 4,268 5,311 26.2 32.7 14.6 16.2

FY15E

Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) EO Exp/(Inc) Minority Interest Recurring PAT YoY Change (%) Margins (%)

FY14 2Q 3Q 26,315 29,830 17.5 21.0 6,232 7,343 23.7 24.6 606 637 49 42 1,178 714 6,755 7,379 2,582 2,542 38.2 34.4 0 0 111 76 3,383 4,001 22.9 42.3 12.9 13.4

FY14

1Q 24,207 9.1 5,340 22.1 624 54 565 5,226 2,172 41.6 -1,000 44 2,331 30.7 9.6

4Q 33,578 10.0 8,462 25.2 787 45 500 8,130 2,683 33.0 0 100 5,345 29.9 15.9

110,866 17.2 28,029 25.3 2,610 267 2,164 27,317 9,622 35.2 -1,000 331 13,831 33.7 12.5

125,350 13.1 31,222 24.9 2,962 180 2,000 30,081 9,927 33.0 0 400 19,732 42.7 15.7

Advanced mkt formulations YoY Change (%) Emerging mkt formulations YoY Change (%)

13,917 17.7 7,861 -2.3

14,183 20.8 9,270 12.3

18,712 25.8 8,889 10.2

17,669 27.0 9,253 17.7

15,726 10.9 10,509 13.4

20,631 10.3 9,938 11.8

64,760 22.0 34,966 9.2

73,172 13.0 39,763 13.7

17,948 22.5 8,909 16.3

19,649 9.5 10,132 13.7

E: MOSL estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters

July 2014

173

June 2014 Results Preview | Sector: Healthcare

Ranbaxy Labs Bloomberg

RBXY IN

Equity Shares (m)

423.1

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

226 / 4

52-Week Range (INR)

538 / 254

1,6,12 Rel Perf. (%)

16 / -13 / 25

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales* EBITDA* Adj. PAT Rep. EPS Adj. EPS EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA Div. Yield (%)

133.8 10.9 3.9 -24.9 9.3 -53.8 69.2 13.5 9.6 25.1

128.6 23.7 4.0 32.9 9.4 0.9 96.2 34.2 22.1 62.2

128.2 15.5 7.6 18.1 18.1 92.3 108.6 16.6 12.7 32.3

141.9 21.2 11.9 28.1 28.1 55.1 130.9 21.4 16.7 20.9

52.2 7.0 25.8 0.4

51.7 5.0 21.6 1.0

26.9 4.5 16.0 1.0

17.3 3.7 11.6 1.0

 



 



Reporting period changed to March ending; FY14E figures are 15 months; *Estimates include upside from FTF

CMP: INR534

Buy

We expect a muted 2% YoY growth in sales to INR27.5b, impacted by slowdown in US generics and APIs. EBITDA is likely to decline 35% YoY to INR1.7b due to discontinuation of operations at Dewas and Paonta Sahib. Also, consent decree related costs continue to impact profitability. We estimate reported PAT at INR344m compared to INR5.2b in the corresponding quarter last year. PAT adjusted for forex impact is likely to decline 73% YoY to INR361m due to subdued operational performance and higher tax rate. Operational pressure in the near term would be overcome by the monetization of key FTF opportunities. Moreover, SUNP’s track record in turning around acquisition targets gives us the confidence that RBXY’s core margins can expand to industry average of 18-20% over the next five years. The stock trades at 51.7x FY15E and 26.9x FY16E core EPS. We maintain Buy.

Key issues to watch for  Timeline for resolving US FDA issues under the consent decree  Improvement in core EBITDA margins  Launch timeline for Divan and Valcyte

Quarterly performance

(INR Million)

Y/E March

FY14

FY15E

FY14

FY15E

27,023

133,797

128,607

9.5

7.4

-3.9

9,307

3,065

10,912

23,657

24.9

11.3

8.2

18.4

920

925

936

4,276

3,691

540

575

616

2,735

2,256

305

347

-1,855

1,232

8,112

1,860

2,045

18,942

2Q

3Q

4Q

5Q

1Q

2Q

3Q

4Q

26,834

28,016

28,940

24,668

27,484

36,661

37,439

-16.9

4.1

6.7

-0.2

2.4

30.9

29.4

2,625

1,938

2,602

1,508

1,714

9,571

9.8

6.9

9.0

6.1

6.2

26.1

Depreciation

763

849

915

953

910

Interest

488

503

543

689

525

-1,378

-297

-209

-225

280

300

-3

289

935

-360

559

8,411

4,863

4,202

1,539

-657

0

0

0

0

9,129

0

-4,866

-3,913

-603

296

559

8,411

8,112

1,860

-7,084

18,942

Net Income YoY Change (%) EBITDA Margins (%)

Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Minority Interest Reported PAT (incl one-offs) Adj PAT (excl. one-offs) YoY Change (%) Margins (%)

311

570

981

1,099

140

2,103

2,028

465

3,314

4,735

-6.4

-14.6

-162.6

370.5

25.0

25.0

25.0

25.0

-46.8

25.0

-5,177

-4,483

-1,585

-802

419

6,308

6,084

1,395

-10,398

14,206

64

58

5

-66

75

70

75

73

120

293

-5,241

-4,542

-1,589

-737

344

6,238

6,009

1,322

-10,519

13,913

1,337

644

1,200

136

361

1,238

1,000

1,378

3,941

3,976

-50.6

-68.8

0.0

-78.1

-73.0

92.1

-16.7

911.8

-53.8

0.9

5.0

2.3

4.1

0.6

1.3

3.4

2.7

5.1

2.9

3.1

E: MOSL Estimates; FY14E figures are 15 months; We assume all exclusivities to flow through in 2QFY15

July 2014

174

June 2014 Results Preview | Sector: Healthcare

Sanofi India Bloomberg

CMP: INR3,270

SANL IN

Equity Shares (m)

23.0

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



75 / 1

52-Week Range (INR)

3,540 / 2,280

1,6,12 Rel Perf. (%)



-7 / -7 / -2

Financial Snapshot (INR billion) Y/E Dec

2013 2014E 2015E 2016E

Sales

18.1

20.6

23.6

26.9

EBITDA

4.0

4.5

5.3

6.2

Net Profit

2.4

2.9

3.5

4.1

Adj. EPS (INR)

104.1

125.0

152.8

177.5

EPS Gr. (%)

35.7

20.1

22.3

16.1

BV/Sh. (INR)

580.3

641.5

713.2

792.1

RoE (%)

17.9

19.5

21.4

22.4

RoCE (%)

26.3

28.1

30.9

32.4

Payout (%)

45.9

51.0

53.1

55.5

31.4

26.2

21.4

18.4

5.6

5.1

4.6

4.1

EV/EBITDA (x)

18.2

15.7

12.8

10.7

Div. Yield (%)

1.4

1.7

2.1

2.6

 

 

Buy

We expect revenue to grow 13% YoY in 2QCY14 to INR4.9b, led by the export formulations business. EBITDA is likely to grow 16% YoY to INR1b, with EBITDA margin expanding 50bp due to increasing contribution from exports and price increases in key products. We expect PAT to grow 28% YoY to INR655m. Growth is likely to be higher than EBITDA due to higher other income and lower taxes. We believe SANL is witnessing a phase of change in margin profile, led by (a) pricing benefit under new DPCO, and (b) discontinuation of some loss-making projects that had hurt margins in the past. We expect increasing momentum in earnings growth over the next few years. The stock trades at 26.2x CY14E and 21.4x CY15E EPS. Maintain Buy.

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

Key issues to watch for  Amortization of goodwill and brands acquired from Universal Medicare  Impact of Drug Price Control Order (DPCO), 2013

Quarterly Performance

(INR Million)

Y/E December

CY13

CY14

CY13

CY14E

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

3,881

4,351

4,974

4,883

4,449

4,929

5,689

5,532

18,089

20,598

12.3

10.8

19.6

15.5

14.6

13.3

14.4

13.3

21.1

13.9

720

874

1,246

1,147

810

1,016

1,368

1,269

3,987

4,462

18.6

20.1

25.1

23.5

18.2

20.6

24.0

22.9

22.0

21.7

223

227

234

247

240

245

250

255

931

990

3

1

0

0

2

1

1

1

4

5

Other Income

163

145

153

118

215

200

200

200

579

815

PBT before EO Items

657

791

1,165

1,018

783

970

1,316

1,213

3,631

4,282

Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest

Extra-Ord Expense

0

0

0

-254

0

0

0

0

-254

0

PBT after EO Items

657

791

1,165

1,272

783

970

1,316

1,213

3,885

4,282

Tax

213

279

396

191

266

315

428

394

1,079

1,403

32.4

35.3

34.0

18.8

34.0

32.5

32.5

32.5

27.8

32.8

444

512

769

1,081

517

655

889

818

2,806

2,879

Effective tax Rate (%) Reported PAT Adj PAT

444

512

769

827

517

655

889

818

2,552

2,879

YoY Change (%)

10.7

26.4

49.9

84.6

16.4

27.9

15.6

-1.0

34.7

12.8

Margins (%)

11.4

11.8

15.5

16.9

11.6

13.3

15.6

14.8

14.1

14.0

E: MOSL Estimates

July 2014

175

June 2014 Results Preview | Sector: Healthcare

Sun Pharma Bloomberg

SUNP IN

Equity Shares (m)

2,071.2

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

1,468 / 25

52-Week Range (INR)

714 / 476

1,6,12 Rel Perf. (%)

14 / -2 / 4

CMP: INR709

We expect sales to grow 24% YoY to INR43.3b, driven by 28% growth in US revenues. Domestic formulations would grow 18% YoY, while RoW markets could grow 31%. Core sales are likely to grow 15% YoY to INR37.8b. EBITDA is likely to grow 25% YoY to INR19.1b. We expect EBITDA margin to remain flat YoY at 44% on a high base, aided primarily by Doxil and Cymbalta one-off sales. Core EBITDA margin is likely to decline 310bp YoY to 38.7%, with core EBITDA at INR14.6b. We estimate reported PAT at INR15.3b compared to net loss of INR12.8b last quarter. Adjusted PAT is likely to grow 8% YoY to INR12.2b, impacted by higher tax outgo. We believe that operational outperformance in the near term will be driven by recent price increases taken in certain products at Taro. Consolidation of RBXY’s business and its subsequent turnaround would be growth drivers in the longer run. The stock trades at 26.6x FY15E and 22.7x FY16E core EPS. Buy.





Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

160.0

178.1

201.9

227.2

EBITDA

71.2

78.4

84.8

90.8

Rep. PAT

32.0

61.9

70.4

78.1

Rep.EPS (INR)

15.5

29.9

34.0

37.7

Adj. PAT Core EPS ( ) EPS Gr. (%)

48.6

55.1

64.5

73.2

23.5

26.6

31.1

35.3

59.0

13.5

17.0

13.4

BV/Sh. (INR)

90.8

116.6

145.9

177.7

RoE (%)

28.7

25.7

23.7

21.8

RoCE (%)

26.2

34.2

31.0

28.1

Payout (%)

18.4

12.3

12.5

14.2

30.2

26.6

22.7

20.1

7.8

6.1

4.9

4.0

EV/EBITDA (x)

19.5

17.4

15.5

13.8

Div. Yield (%)

0.4

0.5

0.6

0.7

Buy



  

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

Key issues to watch for  Outlook on competitive landscape for Taro’s products  Sustainability of price increases at URL Pharma

Quarterly Performance (Consolidated) Y/E March Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Net Other Income PBT before EO Exp EO Exp/(Inc)

(INR Million) FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

34,822

41,921

42,866

40,436

42,871

44,474

45,123

43,724

FY14

FY15E

160,044

176,192

31.0

57.8

50.3

31.6

23.1

6.1

5.3

8.1

42.4

10.1

15,306

18,284

19,751

17,856

18,006

19,346

19,629

17,483

71,196

74,463

44.0

43.6

46.1

44.2

42.0

43.5

43.5

40.0

44.5

42.3

978

1,005

1,050

1,061

1,080

1,100

1,130

1,150

4,094

4,460

735

1,079

1,535

2,050

1,740

1,790

1,890

1,997

5,399

7,415

15,063

18,358

20,236

18,844

18,665

20,036

20,388

18,330

72,501

77,419

25,174

0

0

0

0

0

0

0

25,174

0

PBT

-10,111

18,358

20,236

18,844

18,665

20,036

20,388

18,330

47,327

77,419

Tax

1,511

2,760

2,438

1,199

3,173

3,406

3,466

3,116

7,908

13,161

10.0

15.0

12.0

6.4

17.0

17.0

17.0

17.0

10.9

17.0

-11,622

15,598

17,798

17,645

15,492

16,630

16,922

15,214

39,419

64,258

Rate (%) Profit after Tax Share of Minority Partner Reported PAT One-off upsides

1,139

1,975

2,487

1,774

1,393

1,802

1,884

1,673

7,375

6,751

-12,761

13,623

15,311

15,871

14,100

14,827

15,038

13,541

32,044

57,506

1,145

1,938

2,722

2,843

3,097

1,218

1,218

1,218

8,647

6,751

11,269

11,686

12,589

13,028

11,002

13,609

13,820

12,323

48,572

50,755

YoY Change (%)

98.4

51.2

57.3

42.5

-2.4

16.5

9.8

-5.4

59.0

4.5

Margins (%)

32.4

27.9

29.4

32.2

25.7

30.6

30.6

28.2

30.3

28.8

Adj Net Profit

E: MOSL Estimates; * Quarterly no. don’t match with annual no. because of reinstatement of financials

July 2014

176

June 2014 Results Preview | Sector: Healthcare

Torrent Pharmaceuticals Bloomberg

TRP IN

Equity Shares (m)

169.2

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

118 / 2

52-Week Range (INR)

8 / 24 / 32 

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

41.8

52.8

60.4

69.2

EBITDA

9.5

12.9

13.6

15.9

Net Profit Adj. EPS ( ) EPS Gr. (%)

5.2

6.2

7.3

9.4

31.0

36.4

43.1

55.7

11.4

17.6

18.4

29.1

BV/Sh. (INR)

115.0

144.0

173.3

209.8

RoE (%)

31.0

28.1

27.2

29.1

RoCE (%)

36.3

29.9

23.8

26.3

Payout (%)

29.8

35.1

35.1

35.1

22.5

19.1

16.2

12.5

6.1

4.8

4.0

3.3

12.2

10.5

9.7

8.1

1.4

1.9

1.9

2.4

Valuation P/BV (x) EV/EBITDA ( ) Div. Yield (%)



724 / 386

1,6,12 Rel Perf. (%)

P/E (x)

CMP: INR696







We expect 32% YoY growth in 1QFY15 reported sales to INR12.8b over a high base, led by ~3x growth in US business due to one-off launches. Domestic formulations would grow 16% YoY, while export formulations are likely to grow 52% YoY. Core sales (excluding one-offs) are likely to grow 11% YoY. Reported EBITDA would grow 66% YoY to INR3.5b, with EBITDA margin expanding 560bp YoY, aided by one-off opportunities. Core EBITDA would remain flat at INR2b, with core EBITDA margin declining 240bp YoY. We expect reported PAT to grow 64% YoY to INR2.4b, in line with operational performance. Adjusted PAT would decline 16% YoY to INR1.2b, impacted by higher interest costs. We expect 17% CAGR in core earnings over FY14-16, slower than the 27% growth witnessed over the last two years. However, the stock trades at 19.1x FY15E and 16.2x FY16E EPS, which is at 18-20% premium over its last 5-year average valuations. Maintain Neutral.

Key issues to watch for  Sustained recovery in domestic formulations  Performance of Brazilian operations amidst market pressures  Outlook for US business

Quarterly performance 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 Minority Interest Adj PAT YoY Change (%) Margins (%) Dom. formulations sales YoY Change (%) Intl. formulations sales YoY Change (%)

Neutral

1Q 9,720 26.7 2,080 21.4 210 80 80 1,870 0 1,870 380 20.3 1,490 0 1,490 46.3 15.3 3,120 12.3 5,390 28.0

FY14 2Q 3Q 4Q 9,720 10,150 12,250 26.9 27.3 40.6 1,790 2,150 3,500 18.4 21.2 28.6 220 210 230 150 160 200 100 100 100 1,520 1,880 3,170 0 0 0 1,520 1,880 3,170 390 300 730 25.7 16.0 23.0 1,130 1,580 2,440 0 0 0 1,130 1,324 924 17.4 17.9 -22.3 11.6 13.0 7.5 2,970 2,970 2,560 9.6 14.9 17.4 5,720 6,390 8,820 31.1 42.3 67.7

1Q 12,815 31.8 3,454 27.0 250 200 90 3,094 0 3,094 650 21.0 2,444 0 1,247 -16.3 9.7 3,619 16.0 8,195 52.0

FY15E 2Q 3QE 4Q 13,532 13,252 13,191 39.2 30.6 7.7 2,986 3,188 3,252 22.1 24.1 24.7 450 500 550 560 560 580 90 85 80 2,066 2,213 2,202 0 0 0 2,066 2,213 2,202 434 465 462 21.0 21.0 21.0 1,632 1,749 1,740 0 0 0 1,457 1,573 1,568 28.9 18.8 69.6 10.8 11.9 11.9 4,632 4,632 4,157 56.0 56.0 62.4 7,530 7,765 7,889 31.6 21.5 -10.6

(INR Million) FY14 FY15E 41,840 30.3 9,520 22.8 870 590 380 8,440 0 8,440 1,800 21.3 6,640 0 4,869 3.5 11.6 11,620 13.5 26,320 43.5

52,790 26.2 12,881 24.4 1,750 1,900 345 9,576 0 9,576 2,011 21.0 7,565 0 5,845 20.1 11.1 17,040 46.6 31,379 19.2

E: MOSL Estimates; Consolidation of Elder Pharma brands from 2QFY15

July 2014

177

June 2014 Results Preview | July 2014

Media Technology Company name

Expect a moderate start to the fiscal

D B Corp

Earnings momentum to accelerate in the second half

Dish TV India

Expect double digit ad revenue growth: We expect double digit ad revenue growth of 11-16% for all media companies barring Sun TV which has been impacted by the YoY correction in the ad inventory and market share loss. While ad growth is expected to be particularly strong at ~16% for ZEE, growth momentum is also likely to remain healthy (9%-13%) for print despite impact of lower government spends due to ‘model code of conduct’ pre-election.

HT Media Jagran Prakashan PVR Sun TV Zee Entertainment

Muted earnings growth due to margin contraction: EBITDA margin is expected to decline across the board for all our coverage universe companies except Sun TV. EBITDA margin for ZEE is expected to decline ~360bp YoY due to high base of nonsports margin (we model 1QFY15E non-sports margin of 31.6% vs 35.1% in 1QFY14 and 28.7% in 4QFY14. We expect Sun TV to report the highest earnings growth of ~10% YoY. Among print companies, while DB Corp/Jagran are expected to report flat earnings, we expect 4-5% YoY decline for HT Media/HMVL. For Dish TV, we expect net loss to increase YoY largely led by increased depreciation. Subscriber additions to increase QoQ for Dish TV: We expect DTH subscriber additions to increase QoQ for Dish TV led by market share gains. We model ~0.6m gross additions during the quarter as compared to ~0.4m in 4QFY14. Firm progress in phase I gross billing for MSOs: While there have been initial hiccups in the implementation of digitization mandate, MSOs have successfully implemented package wise billing and collection in phase-1 cities as well as some phase II markets. This provides better visibility on monetization for MSOs ahead of upcoming phase III/IV digitization deadline of December 2014. Digitization remains a strong theme for broadcasting; earnings revival to continue for regional print: With the new government at the center, most industry participants expect ad growth acceleration in 2HFY15/FY16. Digitization remains a strong theme for broadcasting and distribution stocks as government is expected to be largely committed to the timelines. Expected quarterly performance summary (INR m) Sector

D B Corp Dish TV HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate

CMP (INR) 4.7.14 330 62 124 135 667 468 299

Reco Buy Buy Neutral Buy Buy Buy Neutral

Sales Var % Var % Jun-14 YoY QoQ 5,011 6,356 5,878 4,496 3,601 6,637 11,180 43,159

11.5 9.9 8.7 8.9 7.4 10.3 14.9 10.9

10.3 -0.2 8.1 6.9 14.6 27.6 -3.5 6.6

EBITDA Var % Var % Jun-14 YoY QoQ 1,292 1,289 786 1,051 604 3,899 2,944 11,865

-2.7 6.0 0.8 3.1 1.7 10.2 1.0 4.2

23.5 0.0 4.2 33.1 82.1 -2.5 -5.5 4.8

Net Profit Var % Var % Jun-14 YoY QoQ 771 -502 454 582 133 1,811 1,977 5,226

1.4 Loss -4.4 0.7 -19.4 10.2 -12.0 -6.1

26.4 Loss 30.5 91.4 LP -8.3 -9.2 6.0

Shobhit Khare ([email protected]); +91 22 3982 5428 July 2014

178

June 2014 Results Preview | Sector: Media

Media coverage: Quarterly snapshot 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 YoY (%) QoQ (%) Advertisement Revenue (INR b) Zee 4.5 5.3 5.1 4.8 5.3 5.8 6.8 5.8 6.1 16 6 Sun TV 2.8 2.8 3.3 3.1 3.1 2.7 3.0 3.1 3.3 4 6 Dish TV NM NM NM NM NM NM NM NM NM NM NM DB Corp 2.7 2.6 3.2 2.8 3.3 3.1 3.8 3.2 3.6 11 15 Jagran Prakashan 2.2 2.2 2.4 2.3 2.9 2.8 3.2 2.9 3.2 9 8 HT Media 3.7 3.6 4.1 3.8 4.1 3.9 4.5 4.2 4.5 11 9 HMVL 1.2 1.1 1.2 1.1 1.3 1.3 1.4 1.3 1.5 13 13 Subscription Revenue (INR b) ZEEL 3.6 3.9 4.1 4.5 4.2 4.6 4.6 4.6 4.6 9 0 Sun TV 1.5 1.5 1.6 1.6 1.8 1.9 2.0 2.0 2.1 20 4 Dish TV 4.6 4.7 4.9 5.0 5.3 5.3 5.6 5.6 6.0 13 6 DB Corp 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.9 12 3 Jagran Prakashan 0.6 0.7 0.7 0.8 0.9 0.9 0.9 0.9 1.0 10 7 HT Media 0.5 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 9 1 HMVL 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 9 1 Total Revenue (INR b) ZEEL 8.4 9.5 9.4 9.6 9.7 11.0 11.9 11.6 11.2 15 -4 Sun TV 4.3 4.3 4.9 4.7 6.0 4.7 5.1 5.2 6.6 10 28 Dish TV 5.2 5.3 5.6 5.6 5.8 5.9 6.2 6.4 6.4 10 0 DB Corp 3.8 3.8 4.4 4.0 4.5 4.4 5.2 4.5 5.0 12 10 Jagran Prakashan 3.2 3.2 3.5 3.4 4.1 4.1 4.6 4.2 4.5 9 7 HT Media 4.9 5.1 5.5 5.0 5.4 5.3 5.8 5.4 5.9 9 8 HMVL 1.6 1.6 1.6 1.6 1.8 1.8 1.9 1.8 2.0 12 10 EBITDA (INR b) ZEEL 2.3 2.2 2.6 2.4 2.9 3.1 2.9 3.1 2.9 1 -6 Sun TV 3.2 3.3 3.8 3.5 3.5 3.4 3.7 4.0 3.9 10 -3 Dish TV 1.6 1.6 1.4 1.2 1.2 1.5 1.5 1.3 1.3 6 0 DB Corp 0.76 0.86 1.19 0.94 1.33 1.08 1.55 1.05 1.29 -3 24 Jagran Prakashan 0.79 0.78 0.91 0.54 1.02 0.92 1.10 0.79 1.05 3 33 HT Media 0.67 0.57 0.87 0.72 0.78 0.64 0.95 0.75 0.79 1 4 HMVL 0.28 0.29 0.29 0.29 0.40 0.41 0.37 0.34 0.37 -7 10 EBITDA Margin (%) ZEEL 27.7 22.8 27.8 25.1 30.0 28.2 24.5 26.9 26.3 -361bps -55bps Sun TV 75.9 75.9 77.5 73.7 58.8 72.4 73.2 76.9 58.7 -1bps -1816bps Dish TV 29.9 29.2 24.7 21.6 21.0 25.0 23.3 20.2 20.3 -75bps 4bps DB Corp 20.3 22.7 27.2 23.6 29.6 24.6 29.9 23.0 25.8 -377bps 276bps Jagran Prakashan 24.8 24.3 26.1 15.8 24.7 22.2 24.1 18.8 23.4 -131bps 460bps HT Media 13.7 11.1 16.0 14.3 14.4 12.0 16.3 13.9 13.4 -104bps -50bps HMVL 17.7 18.0 17.6 18.9 22.0 23.2 19.6 18.2 18.3 -372bps 7bps Adj. PAT (INR b) ZEEL 1.58 1.88 1.94 1.80 2.25 2.36 2.14 2.18 1.98 -12 -9 Sun TV 1.64 1.52 1.90 1.78 1.64 1.56 1.86 1.98 1.81 10 -8 Dish TV -0.32 -0.21 -0.45 -0.44 -0.30 -0.16 -0.28 -0.33 -0.50 NA NA DB Corp 0.44 0.49 0.71 0.55 0.76 0.60 0.94 0.61 0.77 1 26 Jagran Prakashan 0.39 0.49 0.46 0.28 0.58 0.46 0.68 0.30 0.58 1 91 HT Media 0.41 0.33 0.53 0.40 0.48 0.21 0.67 0.35 0.45 -4 31 HMVL 0.21 0.22 0.21 0.23 0.30 0.25 0.29 0.27 0.29 -5 6

July 2014

179

June 2014 Results Preview | Sector: Media

1QFY15 ad revenue growth (YoY, %) 16 13 11

11

9 4

ZEEL

HMVL

DB Corp

HT Media

Jagran

Sun TV

Source: Company, MOSL

1QFY15 subscription/circulation growth (YoY, %) 20 13

Sun TV

12

Dish TV

10

DB Corp

Jagran Prakashan

9

9

HT Media

ZEEL

Source: Company, MOSL

Industry DTH subscriber base and additions trend DTH subscribers (m)

Quarterly subscriber adds (m)

5.6 3.1 1.0 1.2

2.9

2.3

3.4

3.6 2.0 2.2 2.5

2.0 2.4 1.8 2.3

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

4QFY10

3QFY10

2QFY10

1QFY10

4QFY09

3QFY09

11 13 15 17 19 21 24 26 32 36 39 41 44 46 48 51 55 57 59 61 63

8

2QFY09

1QFY09

7

3.5

2.7 2.0 2.1 2.2 1.8 2.2 2.5

Source: TRAI, MOSL

Newsprint: USD prices stable; softening in Rupee terms Newsprint price INR (LHS)

Newsprint price - USD (RHS)

800

43,000

Jun-14

Nov-13

Apr-13

Sep-12

Feb-12

200

Jul-11

15,000

Dec-10

350

May-10

22,000

Oct-09

500

Mar-09

29,000

Aug-08

650

Jan-08

36,000

Source: Bloomberg, MOSL

July 2014

180

June 2014 Results Preview | Sector: Media

110

110

100

95

90

80 Jul-13

Jul-14

May-14

Jan-14

125

Jun-14

120

Apr-14

MOSL Media Index

Sensex Index 140

Source: Bloomberg, MOSL

Jul-14

MOSL Media Index

130

Oct-13

Sensex Index

Relative Performance - 1Yr (%)

Apr-14

Relative Performance - 3m (%)

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Media Dish TV D B Corp Hindustan Media HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate

July 2014

CMP (INR)

Reco

62 Buy 330 Buy 170 Buy 124 Neutral 135 Buy 667 Buy 468 Buy 299 Neutral

EPS (INR) FY15E FY16E FY17E -1.1 19.2 17.4 8.8 7.9 17.5 20.9 10.2

0.7 22.7 19.8 10.0 9.4 28.8 25.5 13.0

3.5 26.3 22.6 11.4 10.9 41.1 30.5 16.5

PE (x) FY15E FY16E FY17E -57.4 17.2 9.8 14.1 17.2 38.2 22.4 29.4 26.5

85.1 14.6 8.6 12.3 14.3 23.1 18.3 23.0 20.1

17.9 12.5 7.5 10.8 12.4 16.2 15.4 18.1 15.5

EV/EBIDTA (x) FY15E FY16E FY17E 11.8 10.1 4.6 5.2 10.3 12.2 10.4 18.9 12.3

8.8 8.5 3.5 4.2 8.7 9.0 8.9 15.0 10.1

6.0 7.2 2.4 3.2 7.5 6.9 7.6 11.9 8.1

RoE (%) FY15E FY16E FY17E NA NA 28.6 29.5 19.0 17.9 10.0 10.3 24.2 25.8 16.7 23.2 24.0 27.0 31.5 31.4 22.4 24.9

NA 29.8 17.2 10.4 26.0 26.5 29.2 30.6 26.5

181

June 2014 Results Preview | Sector: Media

Bloomberg

CMP: INR330

DBCL IN

Equity Shares (m)

183.4

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

60.6/1.0

52-Week Range (INR)

345/211

1, 6, 12 Rel. Per (%)

4/-10/5

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 18.6 21.1 23.8 26.7 5.00 5.89 6.75 7.64

Adj. Net Profit 2.92

3.52

4.16

4.83

Adj. EPS (INR) 15.9

19.2

22.7

26.3

Adj. EPS Gr. (%) 33.7

20.6

18.3

16.0

BV/Sh (INR)

62.5

71.5

82.2

94.5

RoE (%)

26.8

28.6

29.5

29.8

RoCE (%) 23.5 Div. Payout (%) 53.3

24.3 53.0

25.6 53.0

26.3 53.0

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

20.8 5.3

17.2 4.6

14.6 4.0

12.5 3.5

EV/EBITDA (x) 12.2 Div. Yield (%) 2.2

10.1 2.6

8.5 3.1

7.3 3.6

D B Corp

Buy



We expect print advertising revenue to grow 11% YoY to INR3.61b.



We expect circulation revenue to grow 12% YoY to INR0.86b.



DB’s aggregate revenue is likely to increase 12% YoY to INR5b.



We estimate 1QFY15 EBITDA of INR1.29b, down 3% YoY. We expect EBITDA margin to decline 380bp YoY to 25.8%.



Net profit is expected at INR0.77b, up 1% YoY.



The stock trades at a P/E of 17.2x FY15 and 14.6x FY16. Buy.

Key things to watch-out: YoY ad growth (we expect 11%), EBITDA margin (we expect 25.8%).

Quarterly Performance (Consolidated)

(INR Million) FY14

Y/E March Sales YoY (%) Operating Expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) PAT Minority Interest Adj PAT YoY (%) Revenue break-up (INRm) Ad revenue (print) Circulation revenue Radio Event management Others Total revenue

July 2014

1Q 4,494 19.2 3,166 1,328 73.7 29.6 158 25 45 1,191 430 36.1 761 0 761 74.3 3,253 767 172 15 288 4,494

2Q 4,380 15.8 3,303 1,077 25.1 24.6 159 23 39 934 332 35.6 602 0 602 23.8 3,099 796 175 18 292 4,380

FY15E 3Q 5,182 18.1 3,631 1,551 30.2 29.9 161 13 74 1,451 506 34.9 945 0 945 33.8

3,751 830 238 11 352 5,182

4Q 4,542 14.1 3,495 1,046 11.4 23.0 165 14 81 948 338 35.6 610 0 610 10.5 3,151 839 214 10 328 4,542

1Q 5,011 11.5 3,719 1,292 -2.7 25.8 166 18 60 1,169 397 34.0 771 0 771 1.4 3,611 860 197 12 331 5,011

2Q 4,946 12.9 3,758 1,188 10.3 24.0 166 18 30 1,033 351 34.0 682 0 682 13.3 3,502 893 201 14 336 4,946

3Q 5,950 14.8 3,957 1,994 28.5 33.5 169 18 40 1,846 628 34.0 1,218 0 1,218 29.0 4,332 931 274 9 404 5,950

4Q 5,201 14.5 3,780 1,421 35.8 27.3 176 18 56 1,284 436 34.0 847 0 847 38.8 3,629 941 246 8 378 5,201

FY14

FY15E

18,598 16.8 13,595 5,003 33.1 26.9 643 75 239 4,524 1,606 35.5 2,917 0 2,917 33.7

21,108 13.5 15,213 5,895 17.8 27.9 677 73 186 5,331 1,813 34.0 3,519 0 3,519 20.6

13,254 3,232 799 53 1,260 18,598

15,074 3,625 918 43 1,449 21,108

182

June 2014 Results Preview | Sector: Media

Dish TV India Bloomberg

DITV IN

Equity Shares (m)

1,064.90

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

66.1/1.1

52-Week Range (INR)

9/-16/-33

Financial and Valuation Summary (INR b) 2014 2015E 2016E 2017E 24.3 27.5 31.8 36.0 5.5 6.4 8.3 11.2

Adj. NP

-1.1

-1.2

0.8

3.7

Adj. EPS (INR)

-1.1

-1.1

0.7

3.5

Adj. EPS Gr. (%) NA

NA

NA

NA

-4.0

-3.3

0.2

BV/Sh (INR) RoE (%)

-2.9 NA

NA

NA

NA

RoCE (%) -5.3 Div. Payout (%) NA

-2.7 NA

16.6 NA

54.3 NA

NA NA

NA NA

85.1 NA

17.9 NA

EV/EBITDA (x) 13.6 EV/Sub (INR) 6,579

11.8 5,842

8.7 5,161

6.0 4,417

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

Buy



We expect DITV’s revenue to increase 10% YoY and remain flat QoQ at INR6.36b.



Subscription revenue is expected to increase 6% QoQ to INR5.96b.



We expect gross additions of 0.6m and net additions of 0.35m.



EBITDA margin is expected to remain flat QoQ at 20.3%.



Net loss is expected to increase 65% YoY to INR502m led by higher depreciation charges.



The stock trades at EV/EBITDA of 11.8x FY15 and 8.7x FY16. Buy.

64/40

1, 6, 12 Rel. Per (%)

Y/E March Net Sales EBITDA

CMP: INR62

Key things to watch-out: Quarterly gross adds (we expect 0.6m), ARPU (we expect INR171), and EBIDTA margin (we expect 20.3%).

Quarterly Performance

(INR Million) 1Q 5,784 11.2 4,567 1,217 -21.8 21.0 1,444 354 277 -304 -304 -6.0 10.8 167

FY14 2Q 5,926 11.1 4,447 1,479 -5.0 25.0 1,504 345 211 -160 -160 -24.9 11.0 165

3Q 6,238 11.8 4,785 1,454 5.5 23.3 1,534 301 97 -284 -284 -36.6 11.2 169

4Q 6,369 14.7 5,080 1,289 7.4 20.2 1,491 326 201 -327 -327 -25.1 11.4 166

5,268 300 216 5,784

5,345 260 321 5,926

5,641 210 387 6,238

5,643 530 196 6,369

Y/E March Sales YoY Change (%) Operating expenses EBITDA YoY Change (%) EBITDA margin (%) Depreciation Interest Other Income PBT Adjusted net profit YoY Change (%) Net Subs (m) ARPU (INR/month) Revenue break-up (INR m) Subscription revenue Lease rentals Others Total revenue E: MOSL Estimates

July 2014

1Q 6,356 9.9 5,067 1,289 6.0 20.3 1,605 330 143 -502 -502 65.2 11.8 171

FY15E 2Q 6,706 13.2 5,101 1,605 8.5 23.9 1,661 333 144 -245 -245 53.2 12.0 176

3Q 7,110 14.0 5,507 1,604 10.3 22.6 1,719 336 146 -306 -306 7.6 12.5 182

5,959 113 285 6,356

6,300 113 294 6,706

6,696 113 302 7,110

FY14

FY15E

4Q 7,359 15.5 5,492 1,867 44.9 25.4 1,770 345 149 -99 -99 -69.6 12.8 182

24,258 12.0 18,745 5,513 -4.9 22.7 5,973 1,327 660 -1,127 -1,127 -10.0 11.4 165

27,531 13.5 21,166 6,365 15.5 23.1 6,756 1,344 582 -1,153 -1,153 2.3 12.8 178

6,927 113 319 7,359

21,897 930 1,431 24,258

25,881 450 1,200 27,531

183

June 2014 Results Preview | Sector: Media

HT Media Bloomberg

HTML IN

Equity Shares (m)

235.0

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

29.1/0.5

52-Week Range (INR)

129/70

1, 6, 12 Rel. Per (%)

1/32/-3

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 22.01 23.94 26.01 28.23 3.12 3.38 3.62 3.81

Adj. Net Profit 1.70

2.02

2.31

2.63

7.4

8.8

10.0

11.4

Adj. EPS Gr. (%) 3.6

18.6

14.5

13.9

BV/Sh (INR)

92.4

103.5

116.1

Adj. EPS (INR)

RoE (%)

82.7 9.4

10.0

10.3

10.4

RoCE (%) 12.1 Div. Payout (%) 4.4 Valuations P/E (x) 16.8 P/BV (x) 1.5

12.3 4.3

12.4 4.3

12.3 4.3

14.1 1.3

12.4 1.2

10.8 1.1

EV/EBITDA (x)* 7.5 Div. Yield (%) 0.3 * Proportionate

6.1 0.3

5.1 0.3

4.0 0.4

CMP: INR124

Neutral



We expect HT Media to post revenue of INR5.9b, up 9% YoY.



We expect ad revenue to grow 11% YoY to INR4.53b.



We expect circulation revenue to increase 9% YoY to INR0.66b.



EBITDA margin is expected to decline ~100bp YoY to 13.4%.



Net profit is expected to decline 4% YoY to INR0.45b.



The stock trades at a P/E of 14.1x FY15 and 12.4x FY16. Neutral.

Key things to watch-out: YoY English ad growth (we expect 9% YoY growth), Hindi ad growth (we expect 13% YoY growth), EBITDA margin (we expect 13.4%).

Quarterly performance (Consolidated) Y/E March Revenue YoY (%) Operating expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) PAT Minority Interest Reported PAT Adj PAT YoY (%) Ad revenue growth (%) -English -Hindi Circulation revenue growth (%) -English -Hindi E: MOSL Estimates

July 2014

1Q 5,409 10.4 4,630 779 16.5 14.4 219 137 276 699 183 26.2 516 41 475 475 16.7 10 8 14 16 25 12

(INR Million) FY14 2Q 3Q 5,347 5,813 4.7 6.3 4,703 4,865 644 948 13.9 8.4 12.0 16.3 223 200 174 164 570 357 816 941 177 193 21.7 20.5 639 747 57 74 582 673 207 673 -37.7 27.6 6 9 4 6 11 16 14 18 11 18 15 18

4Q 5,438 8.7 4,685 754 5.1 13.9 216 174 421 785 363 46.2 422 74 348 348 -13.2 10 6 20 14 15 14

1Q 5,878 8.7 5,092 786 0.8 13.4 220 174 340 731 205 28.0 527 72 454 454 -4.4 11 9 13 9 10 9

FY15E 2Q 5,782 8.1 5,029 754 17.1 13.0 225 172 357 714 200 28.0 514 84 430 430 107.3 11 9 13 9 10 9

3Q 6,345 9.2 5,372 973 2.7 15.3 229 171 375 948 265 28.0 682 79 603 603 -10.4 11 9 13 9 10 9

4Q 5,930 9.0 5,060 870 15.4 14.7 240 169 396 857 240 28.0 617 84 533 533 53.2 11 9 13 9 10 9

FY14

FY15E

22,007 7.4 18,883 3,124 10.5 14.2 858 649 1,624 3,240 916 28.3 2,324

23,936 8.8 20,554 3,382 8.3 14.1 914 686 1,467 3,250 910 28.0 2,340 319 2,021 2,021 19 11 9 13 9 10 9

2,078 1,704 2 9 6 15 15 17 15

184

June 2014 Results Preview | Sector: Media

Jagran Prakashan Bloomberg

JAGP IN

Equity Shares (m)

311.3

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

42.0/0.7

52-Week Range (INR)

140/78

1, 6, 12 Rel. Per (%)

6/34/33

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 17.0 18.7 20.7 22.6 3.8 4.4 5.1 5.6

Adj. Net Profit

2.0

Adj. EPS (INR)

2.5

2.9

3.4

6.4

7.9

9.4

10.9

Adj. EPS Gr. (%) 37.7

22.6

19.6

15.8

BV/Sh (INR)

30.7

34.1

38.9

45.1

RoE (%)

21.3

24.2

25.8

26.0

RoCE (%) 16.7 Div. payout (%) 72.3 Valuations P/E (x) 21.0 P/BV (x) 4.4

17.0 59.4

18.6 49.7

19.4 42.9

17.2 4.0

14.3 3.5

12.4 3.0

EV/EBITDA (x) 11.6 Div. Yield (%) 2.9

9.8 3.0

8.3 3.0

7.1 3.0

Quarterly Performance Y/E March Sales YoY (%) EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income Exceptional item PBT Tax Effective Tax Rate (%) Reported net profit Extra-ordinary item Adjusted net profit YoY (%)

July 2014

CMP: INR135

Buy



We expect advertising revenue to grow 9% YoY to INR3.16b.



We expect circulation revenue to grow 10% YoY to INR0.95b.



Jagran’s aggregate revenue is likely to increase 9% YoY to INR4.5b.



We estimate 1QFY15 EBITDA of INR1.05b. We expect EBITDA margin of 23.4%.



Adjusted earnings are expected at INR0.58b, up 1% YoY.



The stock trades at a P/E of 17.2x FY15 and 14.3x FY16. Buy.

Key things to watch-out: YoY ad growth (we expect 9%, EBITDA margin (we expect 23.4%).

FY14

(INR Million) FY14 FY15E

FY15E

1Q 4,131 30.1 1,019 29.3 24.7 181 71 -12

2Q 4,137 28.4 918 17.5 22.2 190 78 -55

3Q 4,552 30.5 1,099 20.6 24.1 198 95 75

755 177 23.5 578 0 578 48.1

595 139 23.3 456 0 456 -6.2

881 204 23.2 677 0 677 46.8

4Q 4,207 22.7 790 46.1 18.8 220 101 458 101 826 274 33.2 552 248 304 7.5

1Q 4,496 8.9 1,051 3.1 23.4 222 85 100

2Q 4,548 9.9 1,097 19.5 24.1 225 84 60

3Q 5,035 10.6 1,324 20.5 26.3 228 82 90

4Q 4,642 10.3 957 21.2 20.6 230 84 112

844 261 31.0 582 0 582 0.7

848 263 31.0 585 0 585 28.4

1,104 342 31.0 762 0 762 12.6

755 234 31.0 521 0 521 71.4

17,027 27.9 3,826 26.6 22.5 789 345 466 101 3,057 795 26.0 2,263 248 2,015 24.4

18,720 4,429

905 335 362 0 3,551 1,101 2,450 0 2,450 21.6

185

June 2014 Results Preview | Sector: Media

Sun TV Bloomberg

SUNTV IN

Equity Shares (m)

394.1

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

184.4/3.1

52-Week Range (INR)

CMP: INR468 

We expect Sun TV’s revenue to increase 10% YoY to INR6.6b including revenue from IPL.



Advertising and broadcasting revenue is expected to grow 4% YoY to INR3.27b.



We expect domestic subscription revenue to grow 21% YoY to INR1.78b.



Sun TV’s EBITDA is estimated to grow 10% YoY to INR3.9b.



PAT is expected grow 10% YoY to INR1.81b.



The stock trades at a P/E of 22.4x FY15 and 18.3x FY16. Buy.

488/324

1, 6, 12 Rel. Per (%)

5/2/-12

Buy

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA Adj. Net Profit

2014 2015E 2016E 2017E 21.0 23.9 27.3 30.8 14.6 16.7 19.3 22.0 7.0

8.2

10.1

12.0

Adj. EPS (INR) 17.9

20.9

25.5

30.5

Adj. EPS Gr. (%) 3.0

16.9

22.2

19.4

BV/Sh (INR)

80.5

86.9

94.5

104.2

RoE (%)

22.6

24.0

27.0

29.2

RoCE (%) 44.6 Div. Payout (%) 52.2 Valuations P/E (x) 26.2 P/BV (x) 5.8

47.2 59.9

50.8 60.8

53.2 59.1

22.4 5.4

18.3 5.0

15.4 4.5

EV/EBITDA (x) 12.1 Div. Yield (%) 2.0

10.4 2.7

8.9 3.3

7.6 3.8

Key things to watch-out: YoY ad and broadcasting growth (we expect 4%), QoQ domestic subscription growth (we expect 4% growth)

Quarterly Performance (Standalone) 1Q* 6,019 41.4 3,537 9.5 58.8 1,174 7 134 2,489 845 33.9 1,644 1,644 0.1

3Q* 5,083 4.6 3,720 -1.1 73.2 1,061 23 149 2,785 927 33.3 1,858 1,858 -2.2

4Q* 5,202 10.1 4,000 14.8 76.9 1,123 6 132 3,003 1,027 34.2 1,976 1,976 11.3

3,140 290 1,060 420 1,109 6,019

2,683 323 1,084 492 82 4,664

3,030 330 1,130 540 53 5,083

3,080 310 1,210 510 92 5,202

Y/E March Revenue YoY (%) EBITDA YoY (%) As of % Sales Depreciation and Amortization Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj PAT YoY (%) Revenue Breakup (INR m) Advertising and Broadcast International DTH Domestic Cable Films, IPL, and Others Total

July 2014

(INR Million) FY14 2Q* 4,664 7.6 3,377 2.6 72.4 1,176 9 378 2,570 879 34.2 1,692 1,560 2.9

FY14

FY15E

1Q 6,637 10.3 3,899 10.2 58.7 1,373 8 158 2,676 864 32.3 1,811 1,811 10.2

FY15E 2Q 5,340 14.5 3,853 14.1 72.2 1,381 12 190 2,650 856 32.3 1,794 1,794 15.0

3Q 5,952 17.1 4,377 17.7 73.5 1,252 18 228 3,335 1,077 32.3 2,258 2,258 21.5

4Q 5,957 14.5 4,556 13.9 76.5 1,327 7 269 3,491 1,128 32.3 2,363 2,363 19.6

20,968 15.4 14,634 6.3 69.8 4,533 45 792 10,847 3,678 33.9 7,170 7,038 3.0

23,885 13.9 16,686 14.0 69.9 5,334 45 845 12,151 3,925 32.3 8,226 8,226 16.9

3,266 336 1,239 546 1,250 6,637

3,031 356 1,267 591 95 5,340

3,515 370 1,321 643 105 5,952

3,442 380 1,414 607 114 5,957

11,933 1,253 4,484 1,962 1,336 20,968

13,254 1,441 5,241 2,386 1,564 23,885

186

June 2014 Results Preview | Sector: Media

Zee Entertainment Bloomberg

Z IN

Equity Shares (m)

960.4

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

287.2/4.8

52-Week Range (INR)

305/208

1, 6, 12 Rel. Per (%)

5/-18/10

CMP: INR299 

We expect advertising revenue to increase 16% YoY to INR 6.15b.



We estimate subscription revenue growth of 9% YoY to INR4.63b.



Total revenue is expected to increase by 15% YoY driven by sports as well as non-sports segments.



EBIDTA margin is expected to decline 360bp YoY to 26.3%, primarily led by decline in non-sports margins.



Adj PAT is expected to decline 12% YoY to INR1.98b, impacted by preference dividend outlay.



The stock trades at a P/E of 29.4x FY15 and 23x FY16. Neutral.

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 44.2 48.5 57.8 67.6 12.0 14.5 17.9 21.9

Adj. Net Profit

8.9

9.8

12.5

15.9

Adj. EPS (INR)

9.3

10.2

13.0

16.5

Adj. EPS Gr. (%) 23.2

9.4

28.2

26.7

BV/Sh (INR)

28.3

36.1

46.8

61.0

RoE (%)

26.9

31.5

31.4

30.6

RoCE (%) 31.1 Div. Payout (%) 21.6 Valuations P/E (x) 32.2 P/BV (x) 10.9

31.9 17.5

33.9 14.0

35.1 11.3

29.4 8.5

23.0 6.5

18.1 5.0

EV/EBITDA (x) 22.7 Div. Yield (%) 0.7

18.3 0.7

14.6 0.7

11.5 0.7

Quarterly Performance Y/E March 1Q Advertsing Revenue Subscription Revenue Other Sales and Services Net Sales Change (%) Prog, Transmission & Direct Exp Staff Cost Selling and Other Exp EBITDA Change (%) As of % Sales Depreciation Finance cost Other Income PBT Tax Effective Tax Rate (%) PAT Minority Interest/Associates Provision for preference dividend Adj PAT after Minority Interest Change (%) Subscription revenue (INR m) Domestic International Total Subscription revenue

July 2014

Neutral

Key things to watch-out: YoY ad growth (we expect 16%), sports loss (we expect INR 167m).

FY14 2Q

3Q

4Q

1Q 6,149 4,631 400 11,180 14.9 5,118 1,068 2,050 2,944 1.0 26.3 120 30 550 3,344 1,070 32.0 2,274 -5 303 1,977 -12.0 1Q 3,558 1,073 4,631

5,301 4,241 191 9,733 15.5 4,108 956 1,754 2,915 25.0 30.0 87 22 722 3,528 1,289 36.5 2,239 -8

5,833 4,581 599 11,013 15.5 5,041 992 1,875 3,105 42.6 28.2 91 34 549 3,529 1,166 33.0 2,363 0

6,843 4,565 476 11,884 26.6 6,095 959 1,923 2,907 11.3 24.5 135 32 380 3,121 985 32.0 2,136 0

5,824 4,635 1,129 11,588 20.2 5,444 998 2,030 3,116 28.6 26.9 189 70 155 3,012 850 32.7 2,162 -14

2,246 42.0 1Q 3,168 1,073 4,241

2,363 25.9 2Q 3,350 1,231 4,581

2,136 10.1 3Q 3,322 1,243 4,565

2,176 21.2 4Q 3,344 1,292 4,636

FY15E 2Q 6,533 4,996 414 11,943 8.4 5,220 1,108 2,070 3,544 14.2 29.7 125 31 561 3,950 1,264 32.0 2,686 -5 303 2,388 1.1 2Q 3,765 1,231 4,996

(INR Million) FY14 FY15E 3Q

4Q

7,254 5,129 428 12,811 7.8 5,429 1,071 2,184 4,127 42.0 32.2 130 31 572 4,538 1,452 32.0 3,086 -5 303 2,788 30.5 3Q 3,886 1,243 5,129

6,764 5,349 438 12,551 8.3 5,326 1,116 2,211 3,898 25.1 31.1 195 30 593 4,267 1,365 32.0 2,902 -6 303 2,605 19.7 4Q 4,057 1,292 5,349

23,800 18,022 2,395 44,217 19.5 20,688 3,906 7,582 12,042 26.2 27.2 502 158 1,806 13,190 4,291 32.5 8,900 -21 8,921 24.0 FY14 13,184 4,839 18,023

26,699 20,105 1,681 48,485 9.7 21,092 4,364 8,516 14,514 20.5 29.9 569 122 2,277 16,099 5,152 32.0 10,948 -21 1,210 9,758 9.4 FY15E 15,266 4,839 20,105

187

June 2014 Results Preview | July 2014

Metals Company name

Marginal improvement in demand

Hindalco

Steel & aluminum business margins improving

Hindustan Zinc



Jindal Steel & Power JSW Steel



Nalco NMDC



Sesa Sterlite SAIL



Tata Steel

Indian steel demand improved marginally in April and May 2014. There are high expectations of stronger demand in 2HFY15. Primary steel mills in India should benefit from a stable steel pricing and lower coking coal costs. Non-integrated steel mills have to bear higher iron ore costs. NMDC is a beneficiary of firm iron ore pricing. Non-ferrous companies are benefiting from stronger aluminum prices and production ramp-up at new projects. During the quarter, we raised target prices by removing discounts to CWIPs in view of improving demand and near completion of these projects and raise the target EV/EBITDA multiple to 6.5x (v/s 6x). Hindalco, Tata Steel and JSW Steel are our top picks.

Steel: demand improves marginally; margins to be strong Indian steel demand improved marginally during 1QFY15. According to JPC data, the 12-month moving average in May 2014 was significantly better at 2%. The long product pricing was strong during the seasonally weak months of April and May due to various input (such as iron ore) and supply side issues and improved demand sentiments. June however was a bit lackluster. There is high expectation of stronger demand in 2HFY15. Apparent steel consumption growth (%) has hit the bottom

2.4

2

-0.3 0.4

0.6

0.3

Apr-14

2.2

Mar-14

2.5

Feb-14

2.5

Dec-13

2.6

Nov-13

2.2

Oct-13

2.8

Sep-13

2.8

12m Moving Avg. growth

Aug-13

4.2

Jul-13

4.2

Jun-13

5.7

8

May-13

Apparent Consumption growth

14

2.0

-4

India again turned into a net importer of steel in April and May

May-14

Jan-14

Apr-13

Mar-13

Feb-13

-10

India’s monthly steel trade (kt) Export

1000

Import

750 500 250

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

0

Source: JPC

Sanjay Jain ([email protected]); +91 22 3982 5412 July 2014

188

June 2014 Results Preview | Sector: Cement

Average Mumbai TMT prices were up INR856/t QoQ as per SteelMint data, while import parity prices of HRC were down by INR2,217/t QoQ, as per our estimate. We rely on import parity prices for flat product market as it is difficult to get a true picture of producers’ prices due to the practice of discounts. As a combined effect of opposite movement in long and flat product prices, we expect average realization to remain stable QoQ for steel companies -- Tata, SAIL and JSPL. JSW Steel however may witness some downward pressure as its product mix is skewed towards flat products and exports. Export prices were weaker QoQ. Product mix improvements should aid JSW Steel offset some pricing headwind. Import parity prices of HRC were down by INR2,217/t QoQ

HRC import parity prices (USD/t) HRC Mumbai

42,000 39,600 37,200 34,800 32,400

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

30,000

Source: MOSL

Average Mumbai TMT prices were up INR856/t QoQ

Long product prices (INR/t) TMT (Mumbai)

38,000 36,000 34,000 32,000

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

30,000

Source: MOSL, SteelMint

Indian iron ore prices moved up due to a shortage as 26 mines were closed in Odisha in the third week of May, while demand was strong. Weaker international seaborne prices had no impact on domestic pricing. NMDC increased iron ore prices in June; it benefited from higher iron ore prices, while JSW Steel bore the extra costs. JSW Steel has started importing iron ore for its Dolvi plant to substitute the dwindling supplies from Odisha. Continued operation of Essar Steel’s slurry pipeline aided NMDC to post strong deliveries.

July 2014

189

June 2014 Results Preview | Sector: Cement

Prices of iron ore fines ex-mines basis (INR/t) Fines 63% (Odisha)

NMDC Fines

3,400 2,900 2,400 1,900

Jul-14

Apr-14

Jan-14

Oct-13

Aug-13

May-13

Mar-13

Dec-12

Jul-12

Sep-12

1,400

Source: MOSL, SteelMint

Primary steel producers were in an advantageous position due to weakening of coking coal prices and closure of iron ore mines in Odisha. Tata Steel and SAIL’s iron ore mines in Odisha too were shut for two weeks on Supreme Court’s order. Steel production at the two mills was not interrupted due to availability of other mines and inventories. Falling coking coal prices and stronger USD/INR rate too would have helped primary mills on the cost side. Stable steel pricing and lower costs should aid Tata, SAIL and JSW Steel post stronger margins. Steady decline in coking coal prices and weaker USD against INR is helping Indian blast furnaces on the cost side

Coking coal prices (USD/t) on FoB Australia basis Spot coking coal (fob Australia) 180 160 140 120

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Sep-12

Nov-12

100

Source: MOSL

Margins are expected to be stronger on a combined effect of stable steel pricing and lower coking coal costs

EBITDA per ton (INR) Average

Tata Steel

SAIL

JSW Steel

JSPL

20,000 15,000 10,000 5,000

1QFY15E

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

4QFY11

3QFY11

2QFY11

1QFY11

4QFY10

3QFY10

2QFY10

1QFY10

0

Source: MOSL

July 2014

190

June 2014 Results Preview | Sector: Cement

Non-ferrous: stronger prices to aid aluminum smelters The earnings of Indian aluminum smelter will get a boost from stronger total aluminum prices. Hindalco has been ramping up metal production at Hirakud and Mahan smelters and alumina and bauxite production at Utkal and Baphlimali in Odisha. SSLT too has started to ramp up production at new capacities of 325ktpa at Korba and at first of the four lines of total 1.25mtpa at Jharsuguda. Zinc realization should be stable as stronger LME will offset lower INR/USD rate. Silver prices are down 7% QoQ.

Top picks – Hindalco, Tata Steel and JSW Steel Indian metal companies witnessed significant re-rating, with a change of Indian political leadership, as optimism is the undertone for a revival of demand and fast projects clearance. The perceived IRR of capital work in progress (CWIP) has changed. Thus, we have done away with the practice of discounting CWIP. Further, we have raised the target EV/EBITDA multiple to 6.5x (v/s 6x) to factor high growth ahead. Hence, we see meaningful upside in most metal stocks. During 1QFY15, we upgraded Tata Steel, JSW Steel and JSPL to Buy and SAIL to a Neutral. Maintain a Buy on Hindalco, SSLT and Nalco. Hindalco, Tata Steel and JSW Steel are our top picks. Summary of SOTP valuation S.N. Company

CMP

Mkt Cap Reco. (INR b)

SOTP (INR/sh.)

Upside (%)

FY15

FY16

FY17

FY15

FY16

FY17

1

Hindalco

173

357

Buy

179

222

280

4

28

62

2

SSLT

305

904

Buy

236

343

359

-23

13

18

3

Nalco

59

152

Buy

58

70

74

-2

19

26

4

JSPL

325

297

Buy

422

411

485

30

27

49

5

Tata steel

536

521

Buy

539

645

724

1

20

35

6

SAIL

95

392

Neutral

126

116

100

33

22

5

7

NMDC

184

730

Buy

210

220

242

14

20

32

Quarterly average of base metal prices on LME (3M contract) (USD/T) Quarter

Zinc

Copper

Lead

Silver (INR/kg)

Avg.

QoQ

YoY

Avg.

QoQ

YoY

Avg.

QoQ

YoY

Avg.

QoQ

YoY

1QFY15

2,073

2%

13%

6,787

0%

-5%

2,095

0%

2%

41,862

-7%

-7%

4QFY14

2,029

6%

0%

7,040

-2%

-11%

2,105

0%

-8%

44,935

-3%

-20%

3QFY14

1,906

3%

-2%

7,153

1%

-10%

2,111

0%

-4%

46,099

0%

-23%

2QFY14

1,859

1%

-1%

7,073

-1%

-8%

2,101

2%

6%

46,077

3%

-17%

1QFY14

1,840

-9%

-5%

7,147

-10%

-9%

2,053

-11%

4%

44,837

-20%

-18%

July 2014

191

June 2014 Results Preview | Sector: Cement

Quarterly average of base metal prices on LME (3M contract) (USD/T) Quarter

Aluminum

Alumina

Premium

Aluminum total price

Avg.

QoQ

YoY

Avg.

QoQ

YoY

Avg.

QoQ

YoY

Avg.

QoQ

YoY

1QFY15

1,798

5%

-2%

317

-3%

-3%

289

31%

61%

2,088

8%

4%

4QFY14

1,708

-3%

-15%

328

2%

-4%

221

19%

23%

1,929

-1%

-12%

3QFY14

1,768

-1%

-11%

323

1%

-1%

185

0%

6%

1,953

-1%

-10%

2QFY14

1,780

-3%

-7%

318

-3%

1%

186

3%

4%

1,966

-2%

-6%

1QFY14

1,834

-8%

-7%

327

-4%

3%

180

1%

28%

2,014

-8%

-5%

Expected quarterly performance summary (INR m) Sector

CMP (INR) 4.7.14 173 167 325 1,271 59 184 95 305 536

Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate

Reco Buy Buy Buy Buy Buy Buy Neutral Buy Buy

Sales Var % Var % Jun-14 YoY QoQ 226,272 14.8 -8.1 33,373 11.8 -8.4 55,808 22.9 9.4 111,674 19.3 -10.6 17,237 10.5 -6.2 33,915 18.1 -12.7 110,518 7.6 -18.2 174,543 21.5 -16.0 337,537 2.9 -20.4 1,100,877 11.8 -14.2

Relative Performance - 3m (%) Sensex Index

EBITDA Var % Var % Jun-14 YoY QoQ 24,073 31.3 -4.8 17,586 17.0 0.2 17,656 17.3 34.4 23,018 31.6 -7.8 2,687 75.6 -13.1 22,482 18.0 -9.0 13,369 38.2 9.5 63,650 16.2 -4.5 45,587 23.6 -9.0 230,107 22.5 -3.2

Net Profit Var % Var % Jun-14 YoY QoQ 4,465 0.8 -50.4 17,779 11.7 -5.5 5,655 -18.5 40.5 7,574 111.2 -4.9 2,091 31.0 1.5 18,326 16.6 -4.4 4,525 -14.1 6.9 11,753 95.9 -10.9 13,238 18.1 22.4 85,406 20.8 -4.3

Relative Performance - 1Yr (%) MOSL Metals Index

Sensex Index

150

250

135

210

MOSL Metals Index

170

120

130

105

90

90

Source: Bloomberg, MOSL

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Jul-14

Jun-14

May-14

Apr-14

50

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate

July 2014

CMP (INR)

Reco

173 Buy 167 Buy 325 Buy 1,271 Buy 59 Buy 184 Buy 95 Neutral 305 Buy 536 Buy

EPS (INR) FY15E FY16E FY17E 10.9 12.9 19.8 18.3 18.1 18.7 26.7 35.1 40.3 120.0 115.6 140.1 3.2 4.1 4.1 17.9 18.3 19.6 7.7 7.6 7.2 21.7 24.1 20.4 54.1 64.2 69.2

PE (x) FY15E FY16E FY17E 15.9 9.1 12.2 10.6 18.5 10.3 12.3 14.1 9.9 11.5

13.4 9.2 9.3 11.0 14.3 10.1 12.4 12.7 8.4 10.6

8.8 8.9 8.0 9.1 14.4 9.4 13.1 15.0 7.8 10.0

EV/EBIDTA (x) FY15E FY16E FY17E 5.8 5.2 8.7 6.7 7.5 6.2 8.5 4.8 6.5 6.2

5.2 4.3 7.6 6.3 5.3 6.0 7.9 4.3 6.2 5.7

4.9 3.6 6.7 5.6 4.6 5.5 7.4 4.2 5.6 5.3

RoE (%) FY15E FY16E FY17E 9.2 10.1 19.1 16.5 10.3 12.2 12.4 10.6 6.7 8.2 21.5 21.2 7.2 6.8 8.5 8.8 19.3 18.1 10.9 10.8

13.8 15.1 12.6 11.5 7.8 20.6 6.1 7.1 16.8 10.6

192

June 2014 Results Preview | Sector: Metals

Hindalco Bloomberg Equity Shares (m)

HNDL IN 2,064.8

CMP: INR173

Buy

Standalone: net sales to increase 29% YoY: We expect net sales to increase 29% YoY to INR75b due to higher sales volumes in both 52-Week Range (INR) 179 / 83 Aluminum and Copper segment. Aluminum sales volumes are 1,6,12 Rel Perf. (%) 3 / 21 / 39 expected to increase 28% YoY, while copper sales volumes are likely to increase 25% YoY. Financial and Valuation Summary (INR b)  Standalone EBITDA to increase 58% YoY to INR7.6b: Aluminum Y/E March 2014 2015E 2016E 2017E EBITDA per ton is expected to increase by ~USD29 QoQ to USD445/t. Sales 877.0 962.7 1,097.1 1,146.0  Novelis’ EBITDA to increase 13% YoY to USD246m: We expect EBITDA 82.9 104.7 122.8 136.4 Novelis’ shipments to increase 7% YoY to 758kt, while EBITDA per ton NP 25.7 22.5 26.7 40.8 is expected to increase 6% YoY to USD325/ton. Adj. EPS (INR) 12.5 10.9 12.9 19.8  Reiterate Buy: Consolidated EBITDA is expected to increase at 18% EPS Gr(%) -26.6 -12.6 18.7 52.9 CAGR over FY14-17E due to increase in production of aluminum BV/Sh. (INR) 113.3 122.5 133.8 151.9 (Mahan & Aditya), alumina (Utkal), bauxite (Baphlimali mine) and RoE (%) 11.6 9.2 10.1 13.8 Novelis’ FRP -- as a benefit of the just completed USD8b capex. Stock RoCE (%) 4.6 5.5 6.5 7.8 Payout (%) 13.2 15.0 12.7 8.3 trades at attractive valuations. Maintain Buy. M. Cap. (INR b)/(USD b)

Valuations P/E (x) P/BV

357 / 6

13.9 1.5

15.9 1.4

13.4 1.3

8.8 1.1

EV/EBITDA (x) 10.5 Div. Yield (%) 0.8

8.2 0.8

6.9 0.8

5.9 0.8

Quarterly Performance (Standalone) Y/E March Alumina (Production, kt) Aluminium (sales, kt) Copper (sales, kt) Avg LME Aluminium (USD/T) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales EBITDA - Aluminium EBITDA-Copper Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) % Tax Reported PAT Adjusted PAT Novelis Shipments (kt) Novelis adj. EBITDA (USDm) E: MOSL Estimates

July 2014

1Q 348 130 68 1,834 58,379 -3.2 4,785 3.3 8.2 3,515 1,270 1,487 1,831 2,249 3,716 2,030 5,746 27.0 4,741 3,116 708 218



Key issues to watch out  Production ramp-up at recently-commissioned projects of Utkal alumina and Mahan aluminum smelter.  Progress on Mahan coal block.  Production ramp-up at Aditya smelter.

FY14 2Q 334 132 77 1,780 63,049 2.3 5,398 4.8 8.6 2,550 2,848 1,832 1,964 2,798 4,401

3Q 355 151 85 1,770 72,732 5.8 6,295 8.2 8.7 2,838 3,457 1,652 1,998 2,042 4,688

4,401 18.9 3,571 3,691 718 228

4,688 28.7 3,340 3,931 721 203

4Q 318 186 92 1,707 84,351 20.6 8,441 31.2 10.0 4,798 3,643 2,146 2,441 2,125 5,979 -3,960 2,019 -7.7 2,482 5,014 753 250

1Q 321 166 85 1,805 75,340 29.1 7,579 58.4 10.1 4,441 3,138 3,677 3,467 1,906 2,341 2,341 25.4 1,746 1,746 758 246

FY15E 2Q 3Q 324 328 173 199 85 85 1,850 1,900 76,721 80,785 21.7 11.1 8,157 9,297 51.1 47.7 10.6 11.5 5,019 6,159 3,138 3,138 3,636 4,656 3,475 4,288 1,736 1,683 2,782 2,036 2,782 19.0 2,253 2,253 768 250

2,036 38.9 1,244 1,244 808 266

FY14 4Q 331 218 85 1,950 83,978 -0.4 10,354 22.7 12.3 7,216 3,138 4,618 4,300 1,624 3,060 3,060 27.1 2,230 2,230 843 278

1,355 599 322 1,773 278,510 6.9 24,919 13.1 8.9 13,701 11,219 7,117 8,233 9,214 18,784 -1,930 16,854 16.1 14,134 16,064 2,900 899

INR million FY15E 1,304 756 340 1,876 316,824 13.8 35,386 42.0 11.2 22,836 12,550 16,587 15,529 6,950 10,220 10,220 26.9 7,472 7,472 3,177 1,041

193

June 2014 Results Preview | Sector: Metals

Hindustan Zinc Bloomberg Equity Shares (m)

HZ IN 4,225.3

CMP: INR167

Buy

Net sales to increase 12% YoY: We expect net sales to increase 12% YoY to INR33.4b, largely driven by prices. Prices on LME have 52-Week Range (INR) 184 / 94 increased by 12% YoY to USD2,065/t for zinc and by 2% for lead to 1,6,12 Rel Perf. (%) -6 / 2 / 31 USD2,104. Silver prices are down 5% YoY. USD/INR rate too has increased 7%, aiding the realization. Volumes are largely flat. Financial and Valuation Summary (INR b)  EBITDA to increase 17% YoY: We expect EBITDA to increase 17% YoY Y/E March 2014 2015E 2016E 2017E to INR17.6b, largely due to stronger LME. Sales 136.4 144.0 151.3 155.1  Maintain Buy: Company has guided for only marginal growth in EBITDA 69.7 76.6 79.6 80.1 volume in FY15 as it is making a transition to underground mining in NP 68.9 77.2 76.6 79.0 Rampur Agucha. Zawar and Kayad mines will provide additional Adj. EPS (INR) 16.3 18.3 18.1 18.7 volumes. We expect EBITDA to post 5% CAGR over FY14-17E on EPS Gr(%) -0.4 12.1 -0.8 3.1 higher sales volumes. The stock trades at attractive EV/EBITDA and BV/Sh. (INR) 88.6 102.7 116.8 131.4 P/BV valuations. Maintain Buy. RoE (%) 19.8 19.1 16.5 15.1 M. Cap. (INR b)/(USD b)

RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)

705 / 12

22.0 25.1

21.5 22.4

19.9 22.6

18.1 21.9

10.2 1.9

9.1 1.6

9.2 1.4

8.9 1.3

6.5 2.1

5.2 2.1

4.3 2.1

3.6 2.1



Key issues to watch out  Rampur Agucha mine is making a transition from open pit to underground mining. HZL toned down its volume growth guidance in the last 12 months. We await a new guidance.

Quarterly Performance

(INR Million)

Y/E March 1Q Production (integrated only) Zn refined (000 tons) Pb refined (000 tons) Silver (tons) 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 Change (YoY %) Avg LME Zinc (USD/T) Avg LME Lead (USD/T) Silver (USD/oz) E: MOSL Estimates

July 2014

173 27 86 29,842 8.6 15,031 50.4 109 1,843 5,403 18,481 795 19,275 2,671 13.9 16,605 15,920 0.7 1,840 2,053 21.5

FY14 2Q 195 29 92 35,591 24.2 18,834 52.9 80 1,865 2,669 19,558 -612 18,946 2,544 13.4 16,403 16,932 10.0 1,859 2,101 19.7

3Q

4Q

1Q

196 25 81 34,501 8.6 18,238 52.9 100 2,097 4,240 20,280

175 29 78 36,427 -6.8 17,552 48.2 203 2,041 5,887 21,195

175 31 87 33,373 11.8 17,586 52.7 203 1,817 5,107 20,674

20,280 3,053 15.1 17,227 17,227 6.8 1,897 2,111 19.7

21,195 2,383 11.2 18,812 18,812 -13.8 2,035 2,111 20.5

20,674 2,894 14.0 17,779 17,779 11.7 2,065 2,104 20.5

FY15E 2Q

3Q

4Q

186 32 89 35,645 0.2 19,040 53.4 203 1,817 5,158 22,179

192 32 90 36,589 6.1 19,581 53.5 203 1,817 5,424 22,986

203 33 92 38,357 5.3 20,417 53.2 203 1,817 5,544 23,942

22,179 3,105 14.0 19,074 19,074 12.7 2,100 2,100 20.5

22,986 3,218 14.0 19,768 19,768 14.7 2,100 2,100 20.5

23,942 3,352 14.0 20,590 20,590 9.5 2,100 2,100 20.5

FY14

FY15E

739 110 358 136,360 7.4 69,654 51.1 492 7,846 18,198 79,514 183 79,697 10,651 13.4 69,046 68,887 -0.4 1,908 2,094 20.2

757 128 358 143,964 5.6 76,623 53.2 810 7,266 21,233 89,781 89,781 12,569 14.0 77,211 77,211 12.1 1,908 2,094 21.0

194

June 2014 Results Preview | Sector: Metals

Jindal Steel & Power Bloomberg Equity Shares (m)

JSP IN 914.9

CMP: INR325

Buy

Standalone net sales to increase 11% YoY: We expect net sales to increase 11% YoY to INR38b driven by 15% growth in steel volumes 52-Week Range (INR) 350 / 182 and 11% growth in Pellet sales. JSPL recently doubled the pellet 1,6,12 Rel Perf. (%) -6 / 3 / 16 capacity to 9mtpa and increased the steel capacity at Angul.  Standalone EBITDA to increase 2%: Margins are expected to improve Financial and Valuation Summary (INR b) 179bp QoQ to 28.1% due to better steel prices. EBITDA will increase Y/E March 2014 2015E 2016E 2017E 2% YoY. Higher interest and depreciation will erode earnings. Sales 200.0 244.5 288.0 336.2  Jindal Power: Tamnar-II has started supplying power to Tamil Nadu EBITDA 60.8 76.7 90.7 104.6 state. This has helped power volumes to increase 23% YoY to 2.5b Adj. PAT 22.1 24.4 32.1 37.0 kwh. Adj. EPS (INR) 24.1 26.7 35.1 40.3  Maintain Buy: Consolidated EBITDA is expected to clock a CAGR of EPS Gr(%) -35.2 10.6 31.4 15.0 20% over FY14-17E aided by capacity expansion at Angul, Oman and BV/Sh. (INR) 247.1 271.3 302.9 339.7 Tamnar-II. Stock trades at a discount to the replacement cost. We RoE (%) 10.2 10.3 12.2 12.6 expect the stock to get re-rated as PPA and FSA for Tamnar-II unsold RoCE (%) 7.9 8.5 9.4 10.5 Payout (%) 7.7 7.0 5.3 4.6 capacity gets into place. Maintain Buy. M. Cap. (INR b)/(USD b)

Valuations P/E (x) P/BV

297 / 5

13.4 1.3

12.2 1.2

9.3 1.1

8.0 1.0

EV/EBITDA (x) 10.7 Div. Yield (%) 0.5

8.7 0.5

7.6 0.5

6.7 0.5

1Q

July 2014

Key issues to watch out  Utkal B1 coal block for coal gasification project at Angul.  Stabilization of coal gasification, DRI and steel melt shop at Angul.  Transmission line connectivity to Southern grid. This will help Jindal Power to sell/generate more.

(INR Million)

Quarterly Performance (Standalone) Y/E March Sales volume Steel (000 tons) Pellets (000 tons) CPP (M kwh) Jindal Power (M kwh) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before EO item) PBT (after EO item) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %) JPL Power Sales (MU) JPL PAT Adj consol PAT Change (YoY %) E: MOSL Estimates



665 551 384 2,000 34,252 2.8 10,477 30.6 2,318 3,036 63 5,185 3,185 796 25.0 2,389 4,389 -4.6 2,000 3,217 6,943 -27.6

FY14 2Q 740 639 116 1,952 36,556 1.9 10,833 29.6 3,337 3,036 56 4,516 3,516 950 27.0 2,567 3,567 -38.7 1,952 3,006 5,521 -38.5

3Q

4Q

1Q

765 525 300 1,968 37,767 -1.2 12,098 32.0 3,667 2,985 9 5,456 5,456 1,800 33.0 3,656 3,656 -29.8 1,968 2,666 5,615 -35.3

766 320 290 1,751 36,865 -12.5 9,715 26.4 4,050 3,157 1,341 3,849 3,849 -459 -11.9 4,308 4,308 -25.4 1,751 2,182 4,025 -53.2

765 610 377 2,469 37,858 10.5 10,655 28.1 4,299 3,548 193 3,001 3,001 840 28.0 2,160 2,160 -50.8 2,469 3,410 5,655 -18.5

FY15E 2Q 813 830 295 2,587 40,675 11.3 11,408 28.0 4,712 3,888 89 2,898 2,898 811 28.0 2,087 2,087 -41.5 2,587 3,544 5,683 2.9

3Q

4Q

893 932 185 2,824 43,656 15.6 12,182 27.9 4,780 3,912 234 3,724 3,724 1,043 28.0 2,681 2,681 -26.7 2,824 3,814 6,506 15.9

940 1,189 97 2,824 46,640 26.5 12,960 27.8 4,849 3,935 1,537 5,713 5,713 1,600 28.0 4,113 4,113 -4.5 2,824 3,814 6,602 64.0

FY14

FY15E

2,935 2,035 1,090 7,671 145,440 -2.7 43,123 29.7 13,371 12,214 1,469 19,006 16,006 3,087 19.3 12,919 15,919 -29.8 7,984 11,070 22,104 -36.6

3,324 3,561 1,415 10,704 168,829 16.1 47,205 28.0 18,640 15,283 2,053 15,335 15,335 4,294 28.0 11,041 11,041 -30.6 10,704 14,582 24,446 10.6

195

June 2014 Results Preview | Sector: Metals

JSW Steel Bloomberg Equity Shares (m)

JSTL IN 241.7

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

307 / 5

CMP: INR1,271

Buy

Standalone (S/A) net sales to increase 19% YoY: We expect S/A net sales to increase 19% YoY to INR112b, driven by 14% growth in 52-Week Range (INR) 1,325 / 452 volumes and 5% growth in realization. 1,6,12 Rel Perf. (%) -5 / 3 / 74  S/A EBITDA to increase 32% YoY: We expect EBITDA to increase 32% YoY to INR23b, driven by growth in volume and expansion of margins. Financial and Valuation Summary (INR b) EBITDA per ton is expected to increase 9% YoY to INR7,937/t. Y/E March 2014 2015E 2016E 2017E  Subsidiaries: JSW Coated remains the key driver of EBITDA for Sales 512.2 548.9 558.5 599.9 subsidiaries. Weak iron ore and coking coal prices would depress the EBITDA 91.7 106.8 108.6 119.3 operating performance of US and Chile mining assets. Adj. PAT 8.3 29.0 27.9 33.9  Maintain Buy: JSW Steel is India’s most efficient steel producer with Adj. EPS (INR) 34.4 120.0 115.6 140.1 lowest conversion cost. Despite challenges in sourcing iron ore and EPS Gr(%) -30.8 249.0 -3.7 21.3 headwind of slower domestic demand, it has been able to improve BV/Sh. (INR) 907.5 1,031.3 1,156.9 1,283.1 margins and grow volumes. Although we expect volume CAGR at ~5RoE (%) 4.1 12.4 10.6 11.5 6% over FY14-17E, the upside risk remains in view of underutilized RoCE (%) 10.3 10.8 10.5 11.2 Payout (%) 80.2 10.4 10.8 9.8 capacities. Maintain Buy. Valuations P/E (x) P/BV

37.0 1.4

10.6 1.2

11.0 1.1

9.1 1.0

EV/EBITDA (x) 8.0 6.7 6.3 5.6 Div. Yield (%) 0.9 0.9 0.9 0.9 Note: JSW Ispat included in FY14 and FY15



Key issues to watch out  The impact of iron ore imports in view of supply shrinkage in Odisha.  The impact of weaker international prices on exports.

Quarterly Performance (Standalone) Y/E March Sales ('000 tons) Change (YoY %) Realization (INR per ton) Change (YoY %) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales 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 Preference Dividend Adjusted PAT Change (YoY %) Consolidated adj PAT E: MOSL Estimates

July 2014

1Q 2,550 20.9 36,699 -14.4 93,582 3.5 17,491 -1.3 18.7 6,859 122 6,418 6,439 723 5,357 -8,529 -3,173 -965 30.4 -2,208 70 3,586 -48.1 1,110

FY14 2Q 3Q 3,130 3,080 44.2 41.9 36,695 38,846 -10.2 1.7 114,857 119,645 29.5 44.3 22,340 23,032 46.5 75.3 19.4 19.3 7,137 7,478 115 121 6,890 7,192 6,852 6,904 1,208 607 9,806 9,543 -8,394 1,412 9,543 400 3,021 28.3 31.7 1,013 6,521 70 70 6,623 6,443 33.1 119.3 2,356 2,318

4Q 3,100 27.6 40,288 5.4 124,894 34.4 24,963 47.1 20.0 8,052 130 6,902 7,064 773 11,771

1Q 2,900 13.7 38,508 4.9 111,674 19.3 23,018 31.6 20.6 7,937 133 7,040 7,205 781 9,554

11,771 3,752 31.9 8,019 70 7,964 43.5 2,528

9,554 1,911 20.0 7,643 70 7,574 111.2 5,656

FY15E 2Q 3Q 3,100 3,150 -1.0 2.3 37,733 37,733 2.8 -2.9 116,971 118,857 1.8 -0.7 24,658 25,451 10.4 10.5 21.1 21.4 7,954 8,080 136 138 7,181 7,324 7,349 7,496 789 797 10,917 11,428 10,917 2,183 20.0 8,734 70 8,664 30.8 6,753

11,428 2,286 20.0 9,142 70 9,073 40.8 7,167

(INR Million) FY14 FY15E 4Q 3,250 4.8 37,733 -6.3 122,631 -1.8 28,567 14.4 23.3 8,790 150 7,471 7,646 805 14,255 14,255 2,851 20.0 11,404 70 11,334 42.3 9,436

11,860 33.6 38,194 -4.5 452,977 27.6 87,826 39.2 19.4 7,405 122 27,401 27,259 3,311 36,476 -16,923 19,553 6,208 31.8 13,345 279 24,616 20.8 8,313

12,400 4.6 37,914 -0.7 470,132 3.8 101,694 15.8 21.6 8,201 139 29,015 29,695 3,171 46,155 46,155 9,231 20.0 36,924 279 36,645 48.9 29,012

196

June 2014 Results Preview | Sector: Metals

Nalco Bloomberg Equity Shares (m)

NACL IN 2,577.2

CMP: INR59

Buy

Net sales to increase 10% YoY to INR17b: We expect net sales to increase 10% YoY to INR17b driven by 20% growth in alumina sales, 52-Week Range (INR) 64 / 24 7% weaker INR/USD rate and stronger metal premiums. However, 1,6,12 Rel Perf. (%) 1 / 35 / 67 LME is down 2% YoY and metal volumes are down 5% YoY due to ramp-down of smelters. Financial and Valuation Summary (INR b)  EBITDA to increase 76% YoY to INR2.7b: EBITDA is expected to Y/E March 2014 2015E 2016E 2017E increase 76% YoY to INR2.7b driven by higher volumes of alumina and Sales 67.8 72.8 78.5 80.3 better margins. Margins are expanding due to better realization and EBITDA 9.3 12.2 15.9 15.8 lower cost. Nalco has minimized purchase of imported coal to contain NP 6.8 8.3 10.7 10.6 costs, even though this strategy has affected metal volumes. Adj. EPS (INR) 2.6 3.2 4.1 4.1  Maintain Buy: We believe alumina prices are likely to increase over EPS Gr(%) 14.2 22.1 29.4 -0.7 next few years gradually due to shortage of bauxite post the export BV/Sh. (INR) 47.3 49.1 51.8 54.4 ban from largest supplier, Indonesia. Nalco will be a key beneficiary RoE (%) 5.6 6.7 8.2 7.8 due to its captive source. Successful start of Utkal E coal block can RoCE (%) 7.5 9.1 11.3 10.7 Payout (%) 58.7 45.6 35.2 35.5 significantly reduce power cost and help ramp up metal volumes. M. Cap. (INR b)/(USD b)

Valuations P/E (x) P/BV

153 / 3

22.6 1.3

18.5 1.2

14.3 1.1

14.4 1.1

EV/EBITDA (x) 10.6 Div. Yield (%) 2.1

7.5 2.1

5.3 2.1

4.6 2.1



Key issues to watch out  Aluminum production has been affected due to constraints in supply of linkage coal from MCL and lower LME prices. Nalco is operating at 25-30% lower capacity and the trend is likely to continue due to limited linkage coal supply.  Utkal E coal block remains the key to profitability of the idle smelter capacity.

Quarterly performance

(INR Million)

Y/E March Aluminium Sales ('000 tons) Alumina Sales ('000 tons) Avg LME Aluminium (USD/ton) NSR premiums (USD/ton) Alumina Exports (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 Change (YoY %) E: MOSL Estimates

July 2014

1Q 85 283 1,834 327 325 15,606 -10.7 1,530 -49.7 9.8

FY14 2Q 3Q 75 78 374 313 1,780 1,770 314 327 316 313 17,382 16,439 8.1 -2.9 2,677 2,043 -l/p11.9 15.4 12.4

1,245 1,787 2,072

1,286 1,228 2,619

1,308 1,208 1,943

2,072 476 23.0 1,597 1,597 -28.4

2,619 827 31.6 1,792 1,792 3,648.7

1,943 633 32.6 1,310 1,310 10.2

FY15E 2Q 3Q 80 81 328 406 1,850 1,900 407 399 324 333 16,775 18,793 -3.5 14.3 2,367 3,226 -11.5 57.9 14.1 17.2

4Q 82 372 1,707 399 305 18,382 -1.6 3,093 -26.7 16.8

1Q 80 338 1,805 469 316 17,237 10.5 2,687 75.6 15.6

4Q 81 446 1,950 400 341 20,040 9.0 3,954 27.8 19.7

1,409 1,354 3,037 -494 2,543 819 32.2 1,725 2,059 -16.3

1,416 1,805 3,075

1,424 1,241 2,185

1,431 1,220 3,015

1,438 1,367 3,883

3,075 984 32.0 2,091 2,091 31.0

2,185 699 32.0 1,486 1,486 -17.1

3,015 965 32.0 2,050 2,050 56.5

3,883 1,243 32.0 2,641 2,641 28.2

FY14

FY15E

320 1,342 1,773 368 315 67,809 -2.0 9,342 3.0 13.8

322 1,518 1,876 419 328 72,844 7.4 12,234 31.0 16.8

5,247 5,577 9,672 -494 9,178 2,755 30.0 6,424 6,769 14.2

5,708 5,633 12,158 12,158 3,891 32.0 8,268 8,268 22.1

197

June 2014 Results Preview | Sector: Metals

NMDC Bloomberg Equity Shares (m)

NMDC IN 3,964.7

CMP: INR184

Buy

Iron ore sales to increase 17% YoY: We expect net sales to increase 17% YoY (-13% QoQ) to INR34b due to 1% higher realization and 17% 52-Week Range (INR) 196 / 93 growth in tonnage to 8.5mt. NMDC achieved iron ore sales of 5.65mt 1,6,12 Rel Perf. (%) -8 / 8 / 48 in the first two months of the quarter aided by start of a slurry pipeline. Financial and Valuation Summary (INR b)  EBITDA to increase 18% YoY: We expect EBITDA to increase 18% YoY Y/E March 2014 2015E 2016E 2017E to INR22.5b, in-line with growth in volumes. EBITDA per ton is Sales 120.6 132.2 137.1 149.4 expected to be marginally higher at INR2,645/t. EBITDA 77.7 85.5 88.3 97.5  Domestic tailwinds are stronger than global headwinds: We Adj. PAT 63.9 71.1 72.5 77.9 continue to believe that iron ore supply is getting tighter in India, Adj. EPS (INR) 16.1 17.9 18.3 19.6 which will improve the pricing power for iron ore fines. We expect EPS Gr(%) -3.6 11.2 2.0 7.4 NMDC to deliver ~10% volume CAGR during FY14-17E. The stock BV/Sh. (INR) 75.6 82.4 88.4 95.2 trades at attractive valuations and dividend yield of 5-6%. Maintain RoE (%) 22.6 21.5 21.2 20.6 Buy. RoCE (%) 22.6 21.5 21.1 20.6 M. Cap. (INR b)/(USD b)

Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)

729 / 12

61.4

62.0

67.2

65.5

11.4 2.4

10.3 2.2

10.1 2.1

9.4 1.9

7.0 4.6

6.2 5.2

6.0 5.7

5.5 6.0



Key issues to watch out  Progress on steel plant project.  Uninterrupted operations of Essar Steel’s slurry pipeline.  Naxal activities in Chhattisgarh.  Operations of Pellet plant in Karnataka.

Quarterly Performance

(INR Million)

Y/E March Production (m tons) Sales (m tons) Avg Dom. Realisation (USD/t) Avg Dom. Realisation (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 (after EO Item) Total Tax % Tax Reported PAT Adjusted PAT E: MOSL Estimates

July 2014

1Q 6.9 7.3 67 3,735 37 28,706 19,052 66.4 47 2,627 0 364 5,209 23,897 8,176 34.2 15,722 15,722

FY14 2Q 5.9 6.5 53 3,290 34 24,799 14,936 60.2 37 2,296 0 348 5,384 19,972 6,788 34.0 13,184 13,184

3Q 7.3 7.3 58 3,580 36 28,232 19,028 67.4 42 2,591 0 362 5,077 23,743 8,070 34.0 15,673 15,673

4Q 9.9 9.4 62 3,827 37 38,845 24,697 63.6 42 2,627 19 431 5,275 29,523 10,356 35.1 19,166 19,166

1Q 8.5 8.5 63 3,759 36 33,915 22,482 66.3 44 2,645 0 442 4,910 26,950 8,624 32.0 18,326 18,326

FY15E 2Q 3Q 7.5 8.5 7.5 8.5 64 63 3,759 3,664 36 36 29,654 32,674 19,099 21,258 64.4 65.1 44 43 2,547 2,501 0 0 453 464 5,140 5,319 23,786 26,113 7,612 8,356 32.0 32.0 16,175 17,757 16,175 17,757

4Q 9.5 9.5 62 3,626 36 36,002 22,613 62.8 41 2,380 0 476 5,526 27,664 8,852 32.0 18,811 18,811

FY14

FY15E

30.0 30.5 60 3,634 36 120,582 77,713 64.4 42 2,548 19 1,504 20,945 97,136 33,391 34.4 63,745 63,745

34.0 34.0 63 3,698 36 132,246 85,452 64.6 43 2,513 19 1,834 20,896 104,495 33,444 32.0 71,051 71,051

198

June 2014 Results Preview | Sector: Metals

Sesa Sterlite Bloomberg Equity Shares (m)

SSLT IN 2,964.8

CMP: INR305

Buy

Net sales to increase 22% YoY: Stronger zinc, lead, aluminum, oil prices and weaker USD/INR rate is the key driver of revenue. The 52-Week Range (INR) 318 / 119 revenue was hit last year (1QFY14) due to shutdown of a copper 1,6,12 Rel Perf. (%) -1 / 29 / 81 smelter. Copper production was restored in 2QFY14. Working interest in oil production increased 5.6%, driven by 9% growth in Rajasthan Financial and Valuation Summary (INR b) block production. Volumes for all other businesses are largely flat. Y/E March 2014 2015E 2016E 2017E  EBITDA to increase 16% YoY: EBITDA to increase 16% driven by Sales 725.9 777.8 879.2 901.9 better product realization on lower cost of production of aluminum. EBITDA* 174.6 196.2 215.3 207.6 PBT to increase 26% YoY due to higher EBITDA and other income. PAT NP 50.9 64.2 71.4 60.5 will increase 96% YoY to INR11.7b. Adj. EPS (INR) 17.2 21.7 24.1 20.4  Maintain Buy: We have raised LME assumption for zinc by USD100 to EPS Gr(%) -27.4 -15.0 40.1 -5.8 USD2,100. We roll over the target to FY16 estimates and raise BV/Sh. (INR) 113.9 139.2 165.6 188.5 EV/EBITDA multiple to 6.5x (v/s 6x). In anticipation of successful RoE (%) 7.3 8.5 8.8 7.1 minority buyout in HZL, the holding company discount too is RoCE (%) 10.8 11.5 11.7 11.2 Payout (%) 22.1 18.9 21.9 31.5 removed. Thus, the SOTP has increased to INR343/share. Maintain Valuations Buy. M. Cap. (INR b)/(USD b)

P/E (x) P/BV

905 / 15

17.8 1.2

14.1 1.2

12.7 1.1

15.0 1.0

EV/EBITDA (x)* 8.0 Div. Yield (%) 1.1

6.8 1.1

6.0 1.5

5.8 1.8

Note: Sesa-Sterlite merged entity basis; *(attrib.)



Key issues to watch out  Status of Balco’s coal mine and restoration of factory permission for the expansion project.  Progress of TSPL project.  Ramp-up of 1.25mtpa Jharsuguda Phase-II project.

Quarterly Performance (Adjusted Proforma) Y/E March 1Q 143,610 -22.2 88,820 54,790

FY14 2Q 3Q 180,260 194,140 1.3 13.7 110,710 128,490 69,550 65,650 2.3 5.5 38.6 33.8 14,730 15,300 20,520 20,930 4,870 3,900 39,170 33,320 1,730 820 40,900 34,140 5,010 -1,390 12.2 -4.1 35,890 35,530

Net Sales Change (YoY %) Total Expenditure EBITDA Change (YoY %) As % of Net Sales 38.2 Interest 15,710 D&A 18,870 Other Income 6,680 PBT (before EO item) 26,890 Extra-ordinary Income PBT (after EO item) 26,890 Total Tax 3,100 % Tax 11.5 Reported PAT 23,790 Profit from Associates Minority interest 17,790 20,140 16,980 Adjusted PAT 6,000 14,020 17,730 Change (YoY %) -76.1 10.9 7.4 E: MOSL Estimates; C: Company's adjusted proforma reporting

July 2014

(INR Million) FY15E 2Q 3Q 191,684 200,856 6.3 3.5 120,459 129,340 71,225 71,517 2.4 8.9 37.2 35.6 16,937 17,205 22,811 23,694 9,598 9,896 41,075 40,514

4Q 210,756 1.4 137,670 73,086 9.7 34.7 17,544 24,603 10,124 41,063

FY14

FY15E 777,840 7.2 498,361 279,478 8.9 35.9 68,509 93,539 39,123 156,554

70,787 64,225 26.1

4Q 207,840 10.4 141,190 66,650 14.0 32.1 15,370 23,930 7,640 34,990 -1,970 33,020 3,280 9.9 29,740

1Q 174,543 21.5 110,893 63,650 16.2 36.5 16,822 22,431 9,505 33,902 33,902 5,309 15.7 28,592

41,075 5,898 14.4 35,177

40,514 5,719 14.1 34,795

41,063 4,615 11.2 36,448

725,850 1.1 469,210 256,640 1.7 35.4 61,110 84,250 23,090 134,370 580 134,950 10,000 7.4 124,950

18,520 13,190 -4.3

16,840 11,753 95.9

18,264 16,913 20.6

17,932 16,863 -4.9

17,751 18,697 41.7

73,430 50,940 -29.8

156,554 21,542 13.8 135,012

199

June 2014 Results Preview | Sector: Metals

SAIL Bloomberg Equity Shares (m)

SAIL IN 4,130.4

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

391 / 7

52-Week Range (INR)

CMP: INR95 

Net sales to increase 8% YoY to INR110b: We expect net sales to increase 8% YoY to INR110b driven largely by corresponding growth in volumes. The average steel realization will benefit positively on QoQ basis due to stronger long product prices. However, weaker flat product prices will affect the realization negatively.



EBITDA to increase 38% YoY to INR13b: EBITDA is expected to increase 38% YoY to INR13b due to margin expansion. Margins are expected to expand on the benefit of lower coking coal prices.



Maintain Neutral: Post a hiatus of seven years with stagnation, steel production is expected to grow at an accelerated pace on the benefit of addition of two new blast furnaces at Roorkela and Burnpur. Margins are expected to expand benefiting from lower coking coal prices, operating leverage and demand improvement. Lower IRR on new capacities has stretched the valuations. Maintain Neutral.

113 / 38

1,6,12 Rel Perf. (%)

-10 / 9 / 62

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR)

2014 2015E 2016E 2017E 471.2 499.1 562.2 636.5 45.9 78.2 90.8 99.7 19.1

31.9

31.5

29.8

4.6

7.7

7.6

7.2

-23.0

66.7

-1.0

-5.4

BV/Sh. (INR) 105.0

110.3

115.6

120.5

4.5

7.2

6.8

6.1

4.9 36.2

7.2 30.3

7.1 30.6

6.7 32.4

20.5 0.9

12.3 0.9

12.4 0.8

13.1 0.8

EV/EBITDA (x) 13.4 Div. Yield (%) 2.1

8.5 2.1

7.9 2.1

7.4 2.1

EPS Gr(%) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV

Neutral

Key issues to watch out  Ramp-up of steel production at Roorkela steel plant.  Commissioning of BOF at ISP, Burnpur.

Quarterly Performance (Standalone) Y/E March Sales (m tons) Change (YoY %) Realization (INR per ton) Change (YoY %) Net Sales Change (%) EBITDA Change (YoY %) EBITDA per ton (INR) EBITDA per ton (USD) Interest Depreciation Other Income PBT (before EO Inc.) EO Income(exp) PBT (after EO Inc.) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %) E: MOSL Estimates

July 2014

1Q 2.6 4.8 39,190 -9.1 102,679 -4.7 9,673 -36.2 3,692 66 1,918 3,929 2,262 6,088 -879 5,209 700 13.4 4,509 5,270 -37.9

(INR Million) FY14 2Q 3Q 3.0 3.0 15.3 7.8 38,260 38,647 -7.5 -0.4 115,355 114,587 6.6 7.4 8,669 11,320 -21.9 -0.6 2,875 3,818 46 62 2,165 2,468 3,988 4,087 1,527 2,088 4,043 6,853 9,881 199 13,924 7,052 2,121 1,726 15.2 24.5 11,804 5,326 3,427 5,176 -31.4 5.5

4Q 3.5 8.4 38,931 1.0 135,092 9.6 12,208 35.1 3,518 57 3,126 5,163 1,751 5,671 389 6,060 1,535 25.3 4,525 4,235 -12.6

1Q 2.9 9.5 38,508 -1.7 110,518 7.6 13,369 38.2 4,658 78 3,200 5,230 863 5,802 5,802 1,276 22.0 4,525 4,525 -14.1

FY15E 2Q 3Q 3.3 3.2 8.3 8.4 37,733 37,733 -1.4 -2.4 123,197 121,310 6.8 5.9 16,807 19,693 93.9 74.0 5,148 6,125 88 105 3,389 3,574 5,519 5,805 834 808 8,733 11,121 8,733 1,921 22.0 6,812 6,812 98.7

11,121 2,447 22.0 8,675 8,675 67.6

4Q 3.7 7.2 37,733 -3.1 140,365 3.9 24,025 96.8 6,458 110 3,917 6,448 782 14,442 14,442 3,177 22.0 11,265 11,265 166.0

FY14

FY15E

12.1 9.1 38,750 -3.9 467,714 4.9 41,870 -10.3 3,469 57 9,676 17,167 7,628 22,654 9,590 32,245 6,081 18.9 26,164 18,382 -20.9

13.1 8.3 37,903 -2.2 495,390 5.9 73,893 76.5 5,654 96 14,080 23,002 3,287 40,098 40,098 8,822 22.0 31,276 31,276 70.1

200

June 2014 Results Preview | Sector: Metals

Tata Steel Bloomberg Equity Shares (m)

TATA IN 971.4

CMP: INR536

Buy

Tata Steel India (TSI): We expect net sales to increase 9% YoY to INR103b driven by 5% growth in realization and 3% growth in sales 52-Week Range (INR) 579 / 195 volume. EBITDA is expected to increase 15% YoY to INR32.7b aided by 1,6,12 Rel Perf. (%) -5 / 6 / 69 expansion in steel EBITDA per ton by 12% YoY to INR15,067.  Overseas subsidiaries: We expect Tata Steel Europe (TSE) and other Financial and Valuation Summary (INR b) South East Asia subsidiaries to report EBITDA per ton of USD52. TSE Y/E March 2014 2015E 2016E 2017E volumes are expected to increase 3% YoY to 3.2mt. Sales 1,486 1,450 1,455 1,538  Maintain Buy: Tata Steel is likely to benefit from a jump in volumes of EBITDA 164 191 199 218 its high margin Indian business aided by completion of the new Adj. PAT 34 53 62 67 3mtpa Kalinganagar Greenfield project (KPO). The margins of Indian Adj. EPS (INR) 35.5 54.1 64.2 69.2 business are likely to remain resilient despite global headwinds. TSE EPS Gr(%) 2,162.2 52.5 18.6 7.8 and other overseas subsidiaries too are likely to meet capex from its BV/Sh. (INR) 235 326 381 442 own cash flows. Valuations are attractive. Maintain Buy. RoE (%) 15.7 19.3 18.1 16.8 M. Cap. (INR b)/(USD b)

RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)

521 / 9

9.7 25.6

11.1 16.3

11.1 15.6

11.4 14.5

15.1 2.3

9.9 1.6

8.3 1.4

7.7 1.2

7.7 1.5

6.5 1.5

6.2 1.7

5.6 1.7



Key issues to watch out  Free cash flow generation at TSE.  Progress at KPO.  Iron ore supply to Indian business in view of the recent temporary mines closure in Odisha.

Quarterly Performance (Standalone) Y/E March 1Q 2,005 26.1 94,554 28,343 30.0 13,493 241 4,664 4,596 1,442 20,525

(INR Million) FY14 2Q 3Q 4Q 2,038 2,066 2,407 17.8 9.5 5.6 99,210 101,434 121,912 29,379 29,359 41,088 29.6 28.9 33.7 13,284 13,010 15,920 214 210 258 4,366 4,529 4,646 5,510 4,565 4,616 3,257 2,648 530 22,760 22,913 32,355 -1,418 22,760 22,913 30,937 7,173 7,726 11,151 31.5 33.7 36.0 15,587 15,188 19,786 15,587 15,188 21,204

1Q 2,075 3.5 103,105 32,717 31.7 15,067 252 4,693 4,662 1,449 24,811

FY15E 2Q 3Q 4Q 2,238 2,266 2,407 9.8 9.7 107,805 109,175 115,659 33,967 35,124 39,085 31.5 32.2 33.8 14,186 14,506 15,284 242 248 261 4,740 4,787 4,835 4,709 4,756 4,804 3,273 2,661 532 27,791 28,243 29,979

FY14

FY15E

Steel Sales ('000 tons) 8,516 8,986 Change (YoY %) 13.8 5.5 Net Sales 417,110 435,744 EBITDA 128,169 140,894 (% of Net Sales) 30.7 32.3 Steel EBITDA(INR/tss) 14,134 14,881 Steel EBITDA(USD/tss) 234 253 Interest 18,206 19,055 Depreciation 19,287 18,931 Other Income 7,876 7,916 PBT (before EO Inc.) 98,553 110,823 EO Income(exp) -1,418 PBT (after EO Inc.) 20,525 24,811 27,791 28,243 29,979 97,135 110,823 Total Tax 6,964 8,188 9,171 9,320 9,893 33,013 36,572 % Tax 33.9 33.0 33.0 33.0 33.0 34.0 33.0 Reported PAT 13,561 16,624 18,620 18,923 20,086 64,122 74,252 Adjusted PAT 13,561 16,624 18,620 18,923 20,086 65,540 74,252 Consolidated Financials Net Sales 328,048 366,449 367,358 424,281 337,537 358,244 352,209 401,636 1,486,136 1,449,627 EBITDA 36,880 37,054 40,065 50,111 45,587 46,721 40,004 58,297 164,110 190,609 Rep. PAT (before MI & asso.) 11,423 9,510 4,995 10,712 13,597 13,937 5,236 23,024 35,499 55,794 Adj. PAT (after MI & asso) 11,213 9,168 5,028 10,817 13,238 13,589 4,965 22,600 36,278 54,392 TSE Sales (000 tons) 3,140 3,460 3,190 4,070 3,234 3,564 3,286 4,192 13,860 14,276 TSE EBITDA(USD/tss) 44 26 43 33 57 53 21 69 36 51 E: MOSL Estimates; tss=ton of steel sales; 1HFY12 numbers don't reconcile with FY12 due to revised format under Schedule 6

July 2014

201

June 2014 Results Preview | July 2014 June 2014 Results Preview | Sector: Oil & Gas

Oil & Gas

1QFY15 Preview: Policy action to guide stock performance

Company name

Operationally, likely to be subdued; to watch out for subsidy sharing

BPCL Cairn India



GAIL

1QFY15 oil PSU profitability will largely depend on the subsidy sharing and given the large variance in the quarterly sharing it will not be indicative of the full year profit performance.



Gujarat State Petronet

To watch for key policy directions in the upcoming budget as well as government decision on the gas price hike which has been postponed by three months

HPCL Indraprastha Gas

Likely lower subsidy to increase ONGC/OINL net realization on QoQ basis

IOC



MRPL 

Oil India ONGC Petronet LNG



Reliance Industries 



Expect net realization to increase ~USD7/bbl QoQ for ONGC/OINL, as we model lower QoQ subsidy led by lower gross under recoveries. As in earlier quarters, oil PSUs’ profitability would depend on the subsidy sharing, but at the same time will not be indicative of full year profitability given the quarterly variations. Refinery profitability (RIL, OMCs, MRPL) would be impacted by lower product cracks, reflected in 7% QoQ decline in benchmark Reuters Singapore GRM. RIL’s PAT is likely to be flat YoY at ~INR53b, despite higher operating profit supported by ~7% INR depreciation, due to lower other income which was boosted in 1QFY14 on account of profit on sale of investments. Expect lower QoQ operating profit for Cairn, led by operational hiccups in May and increase of government’s share in profit petroleum.

GRM down 7% QoQ to USD5.8/bbl in 1QFY15, crude up QoQ and YoY 



Regional benchmark, Reuters Singapore GRM declined QoQ from USD6.2/bbl to USD5.8/bbl, led by lower LPG and middle-heavy distillate cracks. Bunching up of annual refinery maintenance shutdowns globally had boosted 4QFY14 GRM. Brent crude average is up 6% YoY and 2% QoQ to USD110/bbl, led by constant geo-political tensions in Ukraine and the Middle East. QoQ decline in LightHeavy differentials would lower the premium for complex refiners.

Expected quarterly performance summary Sector

BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Excl. RMs

CMP (INR) 4.7.14 601 364 464 95 422 349 365 72 585 422 178 1,032

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

Sales Var % Var % Jun-14 YoY QoQ 639,124 44,508 144,409 2,637 551,138 1,213,989 8,499 167,048 22,217 213,275 104,379 984,782 4,096,004 1,691,754

8.9 9.5 12.3 -10.9 6.5 10.1 -5.7 9.4 12.2 11.0 23.6 12.4 10.3 12.3

-14.5 -11.8 -0.2 14.4 -14.1 -9.9 -12.1 -12.7 21.7 2.1 0.1 3.5 -7.3 0.6

EBITDA Var % Var % Jun-14 YoY QoQ

Net Profit Var % Var % Jun-14 YoY QoQ

8,149 -10.0 -87.1 31,727 5.4 -17.5 14,816 1.2 10.8 2,350 -12.7 17.6 5,931LP -89.9 35,328LP -73.7 2,034 5.7 6.7 3,763 123.6 3.7 8,736 25.3 146.5 114,556 36.4 2.8 4,200 5.6 8.6 77,194 9.1 -7.3 308,784 50.7 -40.4 259,376 19.7 -0.8

1,568 4.3 -96.1 25,429 -18.7 -16.2 8,210 1.6 -15.5 1,128 -10.7 23.5 -1,595 Loss PL 10,392 LP -88.9 974 11.6 7.7 1,892 LP -82.3 7,193 18.1 27.2 61,250 52.5 25.3 1,746 -22.5 3.2 53,456 -0.1 -5.1 171,645 80.8 -50.4 161,280 16.1 -2.3 Source: Company, MOSL

Harshad Borawake ([email protected]) / Nitish Rathi ([email protected]) July 2014

202

June 2014 Results Preview | Sector: Oil & Gas

QoQ subsidy fall led by lower diesel and LPG losses; gas price hike decision postponed 







We estimate 1QFY15 subsidy at INR292b (+15% YoY, -26% QoQ). While lower diesel/LPG losses and INR appreciation contributed to the QoQ decline, the YoY increase was led by higher LPG losses v/s 1QFY14 and INR depreciation. We model (a) continued monthly diesel price hikes, and (b) no change in LPG/kerosene prices, leading to ~46% cut in gross under-recoveries from INR1.4t in FY14 to INR750b by FY16. For subsidy sharing in FY15/FY16, we model OMCs’ share at ~2% (similar to FY14), upstream at 64%/64% (v/s 48% in FY14) and lower government share at 34%/34% (v/s 51% in FY14), as we expect the government to take maximum benefit of lower subsidy. Any variation in this will impact our estimates for oil PSUs. We do not model any gas price hike in our FY15 estimates, but model gas price in FY16/FY17 at ~USD5.3/6.3/mmbtu for ONGC/OINL and USD7/mmbtu for RIL.

Valuation and view  



We would watch for (a) subsidy sharing and its likely rationalization (b) decision on gas price hike, and (c) deregulation of petroleum products. We prefer ONGC/OINL in upstream (significant earnings growth opportunity led by higher gas price and lower subsidy) and BPCL among OMCs (strong balance sheet and E&P potential). We maintain Neutral on GAIL due to headwinds for gas availability. We maintain Neutral on Cairn India, as any ramp-up in production will take time. We reiterate Neutral on RIL, as the next earnings growth phase is still some time away – we believe FY17, when its new core business/E&P projects commission.

Comparative valuation Sector / Companies Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Gujarat State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Ex RMS

July 2014

CMP (INR) 601 364 97 464 95 422 365 349 72 585 422 178 1,032

Reco

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

EPS (INR) FY15E FY16E FY17E 33.3 55.8 10.5 30.7 8.8 28.3 28.2 32.4 5.1 64.6 35.9 10.4 79.0

45.3 48.1 52.1 40.4 14.9 15.7 32.9 36.5 10.0 9.9 34.7 40.2 30.9 35.3 37.9 41.5 7.3 7.5 71.7 75.2 42.5 44.7 12.7 16.2 87.1 108.9

PE (x) FY15E FY16E FY17E 18.0 6.5 9.2 15.1 10.7 14.9 12.9 10.8 14.2 9.1 11.8 17.2 13.1 12.1 12.0

13.3 7.0 6.5 14.1 9.5 12.1 11.8 9.2 9.9 8.2 9.9 14.0 11.8 10.7 10.7

12.5 9.0 6.2 12.7 9.6 10.5 10.3 8.4 9.7 7.8 9.4 11.0 9.5 9.8 9.8

EV/EBIDTA (x) FY15E FY16E FY17E 9.0 3.6 7.1 10.4 6.2 9.3 6.0 7.5 7.0 6.5 5.3 8.2 10.8 7.1 6.9

7.6 3.5 6.2 8.8 5.6 7.8 5.1 6.6 5.6 5.5 4.5 7.2 9.8 6.2 6.1

RoE (%) FY15E FY16E FY17E

6.6 12.0 14.9 14.4 3.5 17.2 14.4 10.2 5.6 8.8 11.6 11.3 7.9 13.7 13.4 13.6 5.7 14.2 14.1 12.4 7.1 6.3 7.4 8.2 4.1 20.6 19.5 19.3 5.5 11.2 12.1 12.0 5.1 12.1 15.5 14.2 5.2 17.9 18.0 17.1 4.4 17.1 18.1 17.0 5.5 14.6 15.9 17.8 6.9 11.2 11.2 12.8 5.5 13.2 13.5 13.2 5.3 13.8 13.8 13.6 Source: MOSL, Company

203

June 2014 Results Preview | Sector: Oil & Gas

GRM down 7% QoQ; crude up 2% QoQ, Arab L-H spread declines QoQ Brent crude price was up 2% QoQ and 6% YoY (USD/bbl)

Premium of Brent over WTI dropped to USD6.8/bbl in 1QFY15 108 110

125 100

25 20

9.2 6.8

15

75

10

50

Source: Bloomberg, MOSL

1QFY15

1QFY14

1QFY15

13.6

15.3

16.5

16.9

(10.2)

(1.6) Fuel Oil

(36.4)

Jet/Kero

1QFY09 1QFY10 1QFY11 1QFY12 1QFY13 1QFY14 1QFY15

4QFY14

Diesel

0

LPG

(34.5)

2

3QFY14

(2.1)

4

(7.7)

6

Gasoline

22 11 0 -11 -22 -33

2QFY14

11.3

1QFY14

Quarterly GRM

8

1QFY13

GRM decline was led by LPG, mid-heavy distillate cracks (USD/bbl)

11.5

10

Source: Bloomberg, MOSL

Naphtha

Singapore GRM down 7% QoQ to USD5.8/bbl in 1QFY15 (USD/bbl)

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

1QFY07

1QFY06

1QFY04

1QFY15

1QFY14

1QFY13

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

1QFY07

(5)

1QFY06

0

1QFY05

-

1QFY04

25

1QFY05

5

Source: Bloomberg, MOSL

Source: Bloomberg, MOSL

Arab L-H differential declined QoQ in 1QFY15 (USD/bbl) Arab L-H

11

Brent - Dubai

Our key assumptions

9



7 5



3 1

1QFY15

1QFY14

1QFY13

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

1QFY07

1QFY06

1QFY05

1QFY04

(1)

Our crude price assumptions for FY15/16/17 are USD108/105/100/bbl and USD100/bbl over long term. We expect regional benchmark Singapore Reuters GRM to remain in the USD6-8/bbl range for the near term.

Source: Bloomberg, MOSL

July 2014

204

June 2014 Results Preview | Sector: Oil & Gas

Except for PVC, petchem margins declined QoQ in 1QFY15 (INR/kg) (RIL Basic prices - INR/kg) PE PP PVC POY 1QFY13 91.9 92.1 61.8 92.4 2QFY13 91.2 91.9 63.5 93.8 3QFY13 89.4 92.2 62.0 94.0 4QFY13 93.0 97.9 63.5 97.3 1QFY14 92.5 95.9 63.3 95.0 2QFY14 104.4 109.7 72.8 107.2 3QFY14 107.6 109.8 72.3 103.4 4QFY14 112.3 113.0 74.3 97.9 1QFY15 109.0 107.7 77.0 97.7 QoQ (%) -3.0% -4.7% 3.6% -0.2% YoY (%) 17.8% 12.3% 21.6% 2.9%

PSF 95.8 96.2 98.3 101.4 96.3 107.9 106.0 100.9 97.6 -3.3% 1.4%

PE 43.3 40.3 37.9 40.6 44.3 46.6 48.4 53.9 51.6 -4.3% 16.4%

Simple Spreads PP 43.5 41.0 40.7 45.4 47.7 51.9 50.6 54.6 50.3 -7.9% 5.4%

Int.Spreads POY PSF 54.0 57.4 53.3 55.7 53.2 57.5 55.8 59.9 56.9 58.1 61.4 62.1 56.3 58.9 51.4 54.4 52.0 51.8 1.1% -4.8% -8.7% -10.9%

PVC 13.3 12.6 10.6 11.1 15.2 15.0 13.1 15.9 19.6 23.5% 29.6%

Source: Company, MOSL

Polymer spreads over naphtha increased YoY (INR/kg) PE

PP

POY/PSF spreads continue to decline YoY (INR/kg)

PVC

POY

80

60

PSF

60 40 40 20

20

Source: Bloomberg, Company

1QFY15

1QFY14

1QFY13

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

1QFY07

1QFY06

1QFY04

1QFY05

0

1QFY15

1QFY14

1QFY13

1QFY12

1QFY11

1QFY10

1QFY09

1QFY08

1QFY07

1QFY06

1QFY05

1QFY04

0

Source: Bloomberg, Company

1QFY15 under-recoveries down QoQ at INR292b; we model upstream share at INR588b/480b/443b in FY15/16/17 (INR b) FY09 Fx Rate (INR/USD) 46.0 Brent (USD/bbl) 85 Product-wise Gross Under recoveries (INR b) Auto Fuel s 575 Domes ti c Fuel s 458 Total 1,033 Sharing of Gross Under recoveries (INR b) Government 713 Ups trea m 329 OMC's (9) Total 1,033 Sharing of Gross Under recoveries (%) Government 69 Ups trea m 32 OMC's (1) Total 100 Sharing within Upstream Sharing (INR b) ONGC 282 OIL 30 GAIL 18 Total 329

FY10 47.5 70

FY11 45.6 86

FY12 47.9 114

FY13 54.5 111

144 316 461

375 405 780

812 573 1,385

915 696 1,610

260 145 56 461

410 303 67 780

829 552 0 1,385

56 31 12 100

53 39 9 100

116 15 13 144

249 33 21 303

FY14 60.6 108

FY15E 59.0 108

FY16E 58.0 105

FY17E 58.0 100

628 770 1,399

186 732 918

0 750 750

0 691 691

1,000 600 10 1,610

707 671 21 1,399

312 588 18 918

255 480 15 750

235 443 14 691

60 40 0 100

62 37 1 100

51 48 2 100

34 64 2 100

34 64 2 100

34 64 2 100

445 74 32 550

494 79 27 600

564 88 19 671

496 78 14 588

405 63 11 480

374 58 11 443

Source: Company, MOSL

July 2014

205

June 2014 Results Preview | Sector: Oil & Gas

Petrol and diesel price difference (INR/liter) 35

Diesel under-recoveries fell to INR1.6/liter in June 2014 Diesel Under recovery (INR/ltr)

19.86

25 20

8.6 6.5 6.4

10.3 11.3

30

15.76

15 10

3.8 3.7 4.9 6.3 8.1 9.5 9.3 10.2 12.1 14.5 10.5 10.2 9.6 9.7 10.0 10.5 10.0 9.2 8.5 7.4 8.3 8.4 7.2 5.9 5.5 6.8 4.4 2.8 1.6 3.4

32.27

13.74

11.85

11.33

Source: PPAC, MoPNG, MOSL

110

FY13

Jul-14

Jun-14

Apr-14

May-14

Mar-14

FY14

1QE

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

4Q

3Q

2Q

FY12

FY15

189.0

190.9

186.4

175.5

172.8

168.6

170.0

125.1

125.3

125.1

118.0

44.7

8

124.9

116.1

14

171.8

RIL

137.6

Singapore GRM

20

167.1

Cairn’s Rajasthan production likely to average 189kbpd

Expect RIL premium to Singapore GRM at ~USD2.7/bbl Premium/ (discount)

Jan-14

70

1QE FY15

1Q

FY14

117 119 119 116 110 106 105 99 99 95 96 95 95

40

107 33 74

4Q

109

108 62 46

3Q

FY13

64 45

2Q

103

114 63

40

1Q

63

51

4Q

110 62 48

3Q

110

110 63 47

2Q

63 47

1Q

122 44

4Q

111 45 67

3Q

33

77

83

2Q

116

48

1Q

121

39 70

4Q

73

79

63 16 65 24

2Q

3Q

81

109

Transmission volume (mmscmd)

1Q 48 33

89

Subsidy Burden

FY12

FY11

Source: PPAC, MoPNG, MOSL

GAIL transmission volumes under pressure (mmscmd)

Expect ONGC’s net realization estimated at USD40/bbl

Net Realization

Feb-14

Dec-13

Nov-13

Oct-13

Sep-13

Jul-13

Aug-13

Jul-14

Jun-13

Jul-12

Apr-13

Jul-10

May-13

Jul-08

Feb-13

0 Jul-06

Mar-13

5

2

Source: Company, MOSL

95

90

80

Source: Bloomberg, MOSL

1QFY15E Jul-14

100

Jul-14

110

Jun-14

110

May-14

125

Apr-14

120

MOSL Oil & Gas Index

Jan-14

Sensex Index 140

Apr-14

MOSL Oil & Gas Index

130

July 2014

3QFY14

Relative Performance - 1Yr (%)

Jul-13

Sensex Index

Source: Company, MOSL

Oct-13

Relative Performance - 3m (%)

1QFY14

FY14 FY15

3QFY13

FY13

1QFY13

FY12

3QFY12

FY11

1QFY12

FY10

3QFY11

FY09

1QFY11

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

-4

Source: Bloomberg, MOSL 206

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas Gas

BPCL Bloomberg

BPCL IN

Equity Shares (m) M.Cap. (INR b) /(USD b)

723.08 433.34/7.24

52-Week Range (INR)

650/256

1, 6, 12 Rel. Per (%)

0/58/30

Financial Snapshot (INR billion) Y/E March 2014 2015E 2016E 2017E Sales 2,643 2,665 2,714 2,660 EBITDA 92.1 70.3 77.1 82.2 Adj. PAT 39.1 24.1 32.7 34.8 Adj. EPS (INR) 54.1 33.3 45.3 48.1 EPS Gr. (%) 107.9 -38.4 35.9 6.3 BV/Sh.(INR) 266 288 318 350 RoE (%) 21.7 12.0 14.9 14.4 RoCE (%) 15.5 10.5 12.5 12.9 Payout* (%) 35.4 35.1 33.6 34.0 Valuation P/E (x) 11.1 18.0 13.3 12.5 P/BV (x) 2.3 2.1 1.9 1.7 EV/EBITDA (x) 7.7 9.0 7.6 6.6 Div. Yield (%) 2.8 1.6 2.2 2.3 *Based on standalone

CMP: INR601 





  

Buy

Quarterly profitability of the OMCs (BPCL, HPCL, IOC) has remained dependent on the subsidy sharing, which is ad-hoc, than on business fundamentals. For 1QFY15, we model upstream sharing at 60%, government sharing at 31%, and OMC sharing at 9%. The final picture will only be clear when the government finalizes subsidy sharing for 1QFY15. We model marginal sharing by OMCs for FY15 (2% / INR18b), with the rest being shared by upstream (64% / INR587b) and the government (34% / INR312b). For FY16/FY17, we model OMCs’ share at ~2%, with the rest being shared by upstream and the government. 1QFY15 gross under-recoveries have declined by 26% QoQ due to lower under-recoveries in diesel (led by price hikes), LPG and kerosene (led by lower international prices). We peg refinery throughput at 5.9mmt for 1QFY15 against 6.1mmt in 4QFY14 and 5.6mmt in 1QFY14. We expect BPCL to report net profit of INR1.57b in 1QFY15 v/s INR1.51b in 1QFY14 and INR40.7b in 4QFY14. BPCL trades at 13.2x FY16E EPS and at 0.7x FY16E BV, adjusted for investments. E&P upsides from Mozambique and Brazil are the key medium-term triggers for BPCL. Buy.

Key issues to watch for  (a) Updates on Mozambique/Brazil reserves, (b) Subsidy sharing, (c) GRM, and (d) Forex changes. Quarterly Performance (Standalone) Y/E March Net Sales Change (%) EBITDA % of Sales Depreciation Interest Other Income PBT Tax Tax rate (%) PAT Change (%) Adj. PAT Adj. EPS Key Assumption (INR b) Gross under recovery Upstream sharing Govt. sharing Net Under/(Over) recovery As a % of Gross E: MOSL Estimates July 2014

(INR Million)

FY14 1Q 2Q 3Q 4Q 587,053 617,574 647,342 747,366 7.7 8.6 3.8 12.8 9,054 16,806 -9,492 63,224 1.5 2.7 -1.5 8.5 5,305 5,382 5,592 6,189 5,253 3,244 3,045 2,048 3,695 4,839 2,842 4,581 2,191 13,020 -15,288 59,567 688 3,708 -4,399 18,884 31.4 28.5 28.8 31.7 1,503 9,311 -10,889 40,684 nm -81.5 nm -15.2 1,503 9,311 -10,889 40,684 2.1 12.9 -15.1 56.3 61 37 19 5 8.9

88 42 44 2 2.4

99 40 25 34 34.5

97 38 96 -37 nm

FY15E FY14 FY15E 1Q 2Q 3Q 4Q 639,124 594,785 631,674 673,915 2,599,335 2,539,497 8.9 -3.7 -2.4 -9.8 8.3 -2.3 8,149 13,393 17,686 18,259 79,592 57,487 1.3 2.3 2.8 2.7 3.1 2.3 5,924 5,976 5,956 5,995 22,468 23,851 3,105 3,042 3,006 2,988 13,591 12,141 3,228 3,906 3,906 3,228 15,957 14,267 2,347 8,281 12,630 12,503 59,490 35,762 780 2,751 4,195 4,153 18,881 11,879 33.2 33.2 33.2 33.2 31.7 33.2 1,568 5,530 8,435 8,350 40,609 23,883 4.3 -40.6 nm -79.5 53.7 -41.2 1,568 5,530 8,435 8,350 40,609 23,883 2.2 7.6 11.7 11.5 56.2 33.0 70 42 22 7 9.2

56 34 21 1 2.0

48 29 20 -1 nm

38 31 9 -2 nm

345 156 184 5 1.5

212 136 72 4 1.9

207

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil& & Gas Gas

Cairn India Bloomberg

CAIR IN

Equity Shares (m)

1,907.63

CMP: INR364

Neutral

We expect CAIR’s 1QFY15 Rajasthan production to decline marginally QoQ to 189kbpd v/s 191kbpd in 4QFY14 and 173kbpd in 1QFY14, as 52-Week Range (INR) 385/284 CAIR faced some issues with its turbines in May 2014. 1, 6, 12 Rel. Per (%) -1/-11/-10  We estimate CAIR’s 1QFY15 net sales at INR44.5b (v/s INR50.5b in 4QFY14 and INR40.6b in 1QFY14). Despite flat Rajasthan production Financial Snapshot (INR billion) and higher realization, we expect net sales to decline due to higher Y/E March 2014 2015E 2016E 2017E expected profit petroleum. We estimate EBITDA at INR31.7b v/s Sales 187.6 180.1 183.9 178.7 INR38.4b in 4QFY14 and INR30b in 1QFY14. EBITDA 140.8 130.3 124.9 112.4 Adj. PAT 124.3 104.5 97.7 75.7  We estimate forex loss (~3.6% INR appreciation over USD) of Adj. EPS (INR) 65.2 55.8 52.1 40.4 INR276m v/s profit of INR6.8b in 1QFY14 and loss of INR2.4b in EPS Gr. (%) 3.3 -14.4 -6.5 -22.6 4QFY14. We model in Brent crude price of USD108/105/100/bbl in BV/Sh.(INR) 301 343 381 409 FY15/16/17 and long-term price of USD100/bbl, and take a quality RoE (%) 23.6 17.2 14.4 10.2 discount of 12% for CAIR. RoCE (%) 22.9 18.2 15.1 12.8 Payout (%) 22.5 24.6 24.6 24.6  The stock trades at 6.8x FY16E EPS of INR52. Maintain Neutral. M.Cap. (INR b) /(USD b)

Valuation P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)

5.4 1.2 3.5 3.4

688.56/11.51

6.3 1.0 3.3 3.3

6.8 0.9 3.3 3.0

8.7 0.9 3.2 2.4



Key issues to watch for  In the medium-term : (a) Update on PSC extension, (b) Production ramp-up, and (c) Reserve updates, with 100-well exploration program ongoing in Rajasthan. With increasing cash balance on the balance sheet, clarity on utilization would be positive.  During the quarter: (a) Net realization, (b) Forex fluctuations and guidance or production ramp-up and reserve upgrades.

Quarterly Performance (Consolidated) FY14 1Q 2Q 3Q 4Q Net Sales 40,629 46,499 50,000 50,489 Change (%) -8.5 4.7 16.9 15.7 EBITDA 30,099 35,325 36,922 38,439 % of Net Sales 74.1 76.0 73.8 76.1 % Change -13.8 2.3 12.4 18.0 Exploration w/off 1,001 513 1,003 1,608 D,D&A 5,193 5,465 5,948 6,367 Interest 105 110 91 109 Other Income (Net) 1,251 1,109 1,403 4,070 Forex Fluctuations 6,820 4,292 -1,290 -2,431 PBT 31,871 34,637 29,992 31,995 Tax 599 787 1,152 1,641 Tax rate* (%) 2.4 2.6 3.7 4.8 Adj. PAT 31,272 33,851 28,840 30,354 YoY Change (%) -18.3 45.8 -8.6 18.4 PAT 31,272 33,851 28,840 30,354 Adj. EPS 16.4 17.7 15.1 15.9 Key Assumptions and Cain's share in production (kboepd) Exchange rate (INR/USD) 55.9 62.5 62.0 62.0 Brent Price (USD/bbl) 102.8 110.6 109.2 107.7 Ravva & Cambay Prodn 10.6 10.0 10.4 9.2 Rajasthan Prodn 121.0 122.8 130.5 133.6 Total 131.6 132.9 140.8 142.8 E: MOSL Estimates; * Excluding forex fluctuations, includes MAT credit.

(INR Million)

Y/E March

July 2014

1Q 44,508 9.5 31,727 71.3 5.4 890 5,786 20 2,737 -276 27,491 2,062 7.4 25,429 -18.7 25,429 13.3 59.8 109.7 9.2 132.3 141.5

FY15E 2Q 3Q 46,625 45,659 0.3 -8.7 34,142 33,141 73.2 72.6 -3.3 -10.2 1,290 1,980 5,571 5,571 20 20 2,776 2,808 0 0 30,037 28,378 2,253 2,128 7.5 7.5 27,785 26,249 -17.9 -9.0 27,785 26,249 14.5 13.7 59.0 108.0 9.2 126.0 135.2

59.0 107.0 9.2 126.0 135.2

FY14

FY15E

4Q 43,309 -14.2 31,278 72.2 -18.6 2,888 5,320 20 2,914 0 25,964 912 3.5 25,052 -17.5 25,052 13.1

187,617 7.1 140,784 75.0 4.4 4,124 22,974 415 7,834 7,390 128,496 4,178 3.4 124,318 4.8 124,318 65.1

180,101 -4.0 130,289 72.3 -7.5 7,048 22,249 80 11,235 -276 111,870 7,355 6.6 104,515 -15.9 104,515 54.7

58.2 107.3 9.2 123.0 132.1

60.6 107.6 10.1 127.0 137.0

59.0 108.0 9.2 126.8 136.0 208

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas

GAIL Bloomberg

GAIL IN

Equity Shares (m)

1,268.48

CMP: INR464

Neutral

We expect GAIL to report PAT of INR8.2b (up 1.6% YoY; down 16% QoQ). We model GAIL’s subsidy sharing at INR3.5b in 1QFY15 v/s 52-Week Range (INR) 470/273 INR7b in 1QFY14 and INR5b in 4QFY14. Expect full year GAIL’s subsidy 1, 6, 12 Rel. Per (%) 17/13/6 sharing at INR14b (v/s INR19b in FY14). Financial Snapshot (INR billion)  Subsidy sharing assumption: For FY15/16/17, we model upstream Y/E March 2014 2015E 2016E 2017E share at 64/60/60%. For GAIL, we have assumed a sharing of Sales 572.5 600.7 689.9 781.0 INR14b/11b/9b in FY15/16/17 v/s INR19b in FY14. EBITDA 64.4 67.8 80.0 85.3 Adj. PAT 40.3 38.9 41.7 46.3  We model gas transmission volumes at 95mmscmd, flat QoQ, v/s Adj. EPS (INR) 31.8 30.7 32.9 36.5 99mmscmd in 1QFY14. Segmental EBIT (pre-subsidy) is expected to EPS Gr. (%) 0.2 -3.5 7.2 11.0 decrease by 6.8% QoQ and 18% YoY. BV/Sh.(INR) 214 234 256 279  The stock trades at 11.6x FY16E EPS of INR32.9. Though we like the RoE (%) 17.0 13.7 13.4 13.6 RoCE (%) 17.0 15.0 15.6 16.3 management's strategy to build network to enable gas sourcing, we Payout (%) 32.3 35.0 35.0 35.0 remain Neutral due to medium-term earnings concern led by likely Valuations under-utilization of its new network on account of headwinds to P/E (x) 12.0 12.5 11.6 10.5 incremental gas availability. P/BV (x) 1.8 1.6 1.5 1.4 M.Cap. (INR b) /(USD b)

EV/EBITDA (x) Div. Yield (%)

9.2 2.2

581.79/9.73

9.3 1.9

8.1 2.2

7.2 2.4



Key issues to watch for  (a) Subsidy sharing, (b) Transmission volumes, and (c) Cost of natural gas for consumption in LPG and Petrochemicals.

Quarterly Performance

(INR Million)

Y/E March 1Q 128,556 15.9 14,642 11.4 2,808 612 1,018 12,241 4,159 34.0 8,082 -28.7 6.4

Net Sales Change (%) EBITDA % of Net Sales Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT Change (%) EPS (INR) Key Assumptions Gas Trans. volume (mmsmd) 99 Petchem sales ('000MT) 121 Segmental EBIT Breakup (INRm) Natural Gas Transmission 5,538 LPG Transmission 550 Natural Gas Trading 3,025 Petrochemicals 4,383 LPG & Liq.HC (pre-subsidy) 6,891 Unallocated; GAILTEL -255 Total 20,132 Less: Subsidy -7,000 Total 13,132 E: MOSL Estimates July 2014

FY14 2Q 3Q 4Q 139,446 159,806 144,643 22.7 28.1 16.6 14,055 22,317 13,370 10.1 14.0 9.2 2,888 3,008 3,057 1,082 913 1,056 2,798 2,661 5,136 12,883 24,507 14,393 3,726 7,713 4,673 28.9 31.5 32.5 9,157 13,345 9,720 -7.1 3.9 60.3 7.2 10.5 7.7

1Q 144,409 12.3 14,816 10.3 2,892 1,100 1,250 12,074 3,864 32.0 8,210 1.6 6.5

FY15E 2Q 3Q 4Q 146,696 152,625 156,951 5.2 -4.5 8.5 15,775 17,024 20,210 10.8 11.2 12.9 2,952 3,770 3,909 1,150 1,350 1,423 2,689 2,450 1,517 14,362 14,354 16,395 4,596 4,593 5,246 32.0 32.0 32.0 9,766 9,761 11,149 6.7 -26.9 14.7 7.7 7.7 8.8

FY14

FY15E

572,451 20.9 64,384 11.2 11,762 3,662 11,614 64,023 20,271 31.7 40,303 0.5 31.8

600,681 4.9 67,826 11.3 13,523 5,023 7,906 57,186 18,299 32.0 38,886 -3.5 30.7

95 108

96 109

95 107

95 115

96 125

96 175

101 215

96 445

97 630

5,762 426 4,870 3,909 4,707 17 19,691 -6,987 12,704

4,112 597 5,054 3,356 7,624 292 21,035 -13 21,022

2,604 579 2,854 1,965 9,979 250 18,231 -5,000 13,231

4,275 581 3,578 2,630 5,695 0 16,759 -3,500 13,259

5,303 609 3,968 3,188 6,403 0 19,472 -3,500 15,972

5,395 606 3,884 2,238 7,452 0 19,574 -3,500 16,074

5,011 566 3,498 2,288 9,996 0 21,358 -3,500 17,858

18,016 2,153 15,803 13,612 29,201 304 79,089 -19,000 60,089

19,984 2,362 14,927 10,345 29,545 0 77,163 -14,000 63,163

209

June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas June

Gujarat State Petronet Bloomberg

GUJS IN

Equity Shares (m)

562.74

CMP: INR94

Buy

We expect GSPL to report net sales of INR2.6b and PAT of INR1.1b (down 17% YoY; up 15% QoQ). 52-Week Range (INR) 104/47  We build 8% increase in gas transmission volumes QoQ to 1, 6, 12 Rel. Per (%) 19/37/34 22.5mmscmd in 1QFY15 (v/s 22.1mmscmd in 1QFY14 and 20.8mmscmd in 4QFY14), as Asian spot LNG prices have dropped Financial Snapshot (INR billion) QoQ. Y/E March 2014 2015E 2016E 2017E  GSPL had won the bids for three cross-country pipelines (MehsanaSales 10.5 11.5 12.3 12.3 Bhatinda, Bhatinda-Srinagar, Mallavaram-Bhatinda), and was awaiting EBITDA 9.3 10.1 10.9 10.8 Adj. PAT 4.2 5.0 5.6 5.6 environmental clearances and other approvals. We await current Adj. EPS 7.4 8.8 10.0 9.9 status and clarity on the timelines and other details regarding these EPS Gr. (%) -22.1 18.6 12.8 -1.0 pipelines. BV/Sh.(INR) 59 66 75 84  We build gas transmission volumes of 23.5/25.5/28mmscmd in RoE (%) 13.4 14.2 14.1 12.4 FY15/16/17 and model average tariff at INR1,295/mscm for FY15. The RoCE (%) 17.0 17.5 17.2 15.5 Payout (%) 12.2 15.7 13.2 11.7 stock trades at 9.3x FY16E EPS of INR10. Maintain Neutral. M.Cap. (INR b) /(USD b)

Valuation P/E (x) P/BV (x) EV/EBITDA Div. Yield (%)

12.7 1.6 6.8 1.1

52.03/0.87

10.7 1.4 6.2 1.1

9.5 1.3 5.6 1.1

Quarterly Performance Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Transmission Vol. (mmscmd) Implied tariff (INR/mscm) E: MOSL Estimates

July 2014

1Q 2,961 10.6 2,691 90.9 9.2 458 380 139 1,992 729 36.6 1,263 1 2.2 22.1 1,411

9.6 1.1 5.7 1.1



Key issues to watch for  Transmission volumes, and  Tariff

FY14 2Q 2,770 1.4 2,508 90.6 -0.5 470 367 141 1,812 671 37.1 1,141 -14 2.0 21.2 1,365

3Q 2,439 -6.4 2,057 84.4 -12.0 462 353 151 1,394 520 37.3 873 -27 1.6 20.2 1,291

4Q 2,304 -35.8 1,999 86.7 -38.8 449 319 155 1,384 471 34.0 914 -43 1.6 20.8 1,210

1Q 2,637 -10.9 2,350 89.1 -12.7 470 320 125 1,684 556 33.0 1,128 -11 2.0 22.5 1,240

FY15E 2Q 3Q 2,859 2,979 3.2 22.2 2,540 2,625 88.8 88.1 1.3 27.6 490 510 322 310 139 125 1,866 1,929 616 637 33.0 33.0 1,250 1,292 10 48 2.2 2.3 23.0 24.0 1,305 1,305

(INR Million) FY14 FY15E 4Q 3,024 31.2 2,633 87.1 31.7 516 313 132 1,934 639 33.0 1,296 42 2.3 24.5 1,330

10,473 -9.7 9,255 88.4 -12.6 1,839 1,418 585 6,583 2,391 36.3 4,191 -22 7.4 21.1 1,322

11,499 9.8 10,149 88.3 9.7 1,986 1,265 521 7,419 2,448 33.0 4,970 19 8.8 23.5 1,295

210

June & Gas Gas June2014 2014Results ResultsPreview Preview||Sector: Sector: Oil Oil &

HPCL Bloomberg

HPCL IN

Equity Shares (m)

338.63

CMP: INR422

Buy

Quarterly profitability of the OMCs (BPCL, HPCL, IOC) has remained dependent on the subsidy sharing, which is ad-hoc, than on business 52-Week Range (INR) 463/158 fundamentals. For 1QFY15, we model upstream sharing at 60%, 1, 6, 12 Rel. Per (%) -5/61/35 government sharing at 31%, and OMC sharing at 9%. The final picture will only be clear when the government finalizes subsidy sharing for Financial Snapshot (INR billion) 1QFY15. Y/E March 2014 2015E 2016E 2017E  We model marginal sharing by OMCs for FY15 (2% / INR18b), with the Sales 2,231 2,162 2,167 2,149 rest being shared by upstream (64% / INR587b) and the government EBITDA 52.1 43.6 45.5 48.3 Adj. PAT 17.3 9.6 11.8 13.6 (34% / INR312b). For FY16/17, we model OMCs’ share at ~2%, with Adj. EPS (INR) 51.1 28.3 34.7 40.2 the rest being shared by upstream and the government. EPS Gr. (%) 91.6 -44.7 22.7 15.9  1QFY15 gross under-recoveries declined 26% QoQ due to lower BV/Sh.(INR) 438 456 479 505 under-recoveries in diesel (led by price hikes), LPG and kerosene (led RoE (%) 12.1 6.3 7.4 8.2 by lower international prices). RoCE (%) 8.2 6.1 6.9 7.6 Payout (%) 35.5 35.2 35.1 35.2  We peg refinery throughput at 3.85mmt for 1QFY15 (v/s 4.4mmt in Valuations 4QFY14 and 3.4mmt in 1QFY14). QoQ decline would be led by P/E (x) 8.2 14.9 12.1 10.5 planned turnaround at Mumbai refinery in May 2014. P/BV (x) 1.0 0.9 0.9 0.8  We expect HPCL to report net loss of INR1.6b in 1QFY15 v/s net loss EV/EBITDA (x) 7.3 7.2 5.5 5.0 of INR14.6b in 1QFY14 and profit of INR46b in 4QFY14. Div. Yield (%) 3.7 2.0 2.5 2.9  HPCL trades at 11.3x FY16E EPS and at 0.9x FY16E BV. Buy. Key issues to watch for  (a) Subsidy sharing, (b) GRM, and (c) Forex changes. M.Cap. (INR b) /(USD b)

140.23/2.34



Quarterly Performance (Standalone) Y/E March

FY14 1Q 2Q 3Q 4Q 517,639 518,602 553,945 641,268 17.4 7.0 5.0 4.7 -6,879 10,142 -9,912 58,730 -1.3 2.0 -1.8 9.2 nm -54.9 nm -42.3 5,100 5,426 5,566 5,793 4,668 3,962 4,432 1,985 2,042 2,435 2,570 3,958 0 0 0 0 -14,605 3,189 -17,339 54,910 0 0 0 8,817 0.0 0.0 0.0 16.1 -14,605 3,189 -17,339 46,092 nm -86.3 nm -40.0 -43.1 9.4 -51.1 136.0

Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other income Exceptional Item PBT Tax Rate (%) PAT Change (%) Adj. EPS Key Assumptions (INR b) Gross under recovery 58 82 92 92 Upstream sharing 35 39 37 57 Govt. subsidy 18 41 23 69 Net Under recovery 5 2 32 -34 Net Sharing (%) 9 2 35 nm E: MOSL Estimates; * 1QFY14 net sales includes receivables from ONGC

July 2014

(INR Million) FY15E FY14 FY15E 1Q 2Q 3Q 4Q 551,138 494,256 538,744 577,702 2,231,454 2,161,840 6.5 -4.7 -2.7 -9.9 8.0 -3.1 5,931 10,253 13,579 13,795 52,081 43,559 1.1 2.1 2.5 2.4 2 2 nm 1.1 nm -76.5 -24.3 19.6 5,800 6,100 6,250 6,328 21,884 24,478 4,041 3,743 3,677 3,478 15,046 14,939 2,315 2,795 2,795 2,315 11,004 10,220 0 0 0 0 0 0 -1,595 3,205 6,446 6,305 26,155 14,361 0 1,065 2,141 1,565 8,817 4,770 0.0 33.2 33.2 24.8 33.7 33.2 -1,595 2,140 4,305 4,740 17,338 9,591 nm -32.9 nm -89.7 91.6 -44.7 -4.7 6.3 12.7 14.0 51.1 28.3 69 42 21 6 9

56 34 21 1 2

51 31 22 -1 nm

41 33 9 -2 nm

325 168 152 5 nm

216 139 74 6 nm

211

June & Gas Gas June2014 2014Results ResultsPreview Preview||Sector: Sector: Oil Oil &

Indraprastha Gas Bloomberg Equity Shares (m) M.Cap. (INR b) /(USD b) 52-Week Range (INR) 1, 6, 12 Rel. Per (%)

IGL IN 140.00 51.15/0.86 390/236 6/12/-5

Financial Snapshot (INR billion) Y/E March 2014 2015E 2016E 2017E Sales 39.2 34.9 39.9 44.6 EBITDA 7.8 8.2 9.0 10.3 Adj. PAT 3.6 3.9 4.3 4.9 Adj. EPS 25.8 28.2 30.9 35.3 EPS Gr. (%) 2.1 9.1 9.5 14.5 BV/Sh.(INR) 126 147 170 196 RoE (%) 22.2 20.6 19.5 19.3 RoCE (%) 28.4 26.7 25.6 25.6 Payout (%) 21.3 21.3 22.7 22.6 Valuation P/E (x) 14.1 13.0 11.8 10.3 P/BV (x) 2.9 2.5 2.2 1.9 EV/EBITDA 6.7 6.0 5.1 4.1 Div. Yield (%) 1.5 1.6 1.9 2.2

CMP: INR365  



 

Buy

We expect IGL to report 1QFY15 volume of 3.9mmscmd and PAT of INR974m (up 11.6% YoY; down 7.7% QoQ). Earlier in February 2014, the ministry had announced 100% domestic gas allocation to CNG/PNG consumption. The government has deferred the gas price hike, which would have led to higher CNG prices. Any gas price hike will negate the benefit of 100% domestic gas allocation to CNG/PNG. IGL's volume growth has averaged lower at 6% in the last four quarters, with ~3% in CNG (75% of total volumes) and 10% in PNG v/s FY09-13 average of ~20%. We model total volumes of 4.3/4.6mmscmd in FY15/FY16. We expect 1QFY15 CNG volumes to grow 4% YoY to 2.9mmscmd and PNG volumes to grow 10% YoY to 1mmscmd. The stock trades at 11.4x FY16E EPS of INR31. Post the High Court quashing PNGRB's tariff cut order, PNGRB approached the Supreme Court, and the hearing is still on. We maintain Neutral due to lack of clarity in predicting earnings for IGL and await the Supreme Court decision.

Key issues to watch for  Supreme court verdict in case against PNGRB  EBITDA margin  Sales volume Quarterly performance (INR million) Y/E MARCH Net Sales Change (%) EBITDA EBITDA (Rs/scm) % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT PAT (Rs/scm) Change (%) EPS (INR) Gas Volumes (mmscmd) CNG PNG Total YoY Change (%) CNG PNG Total E: Mosl Estimates July 2014

1Q 9,015 18.6 1,924 5.7 21.3 7.3 532 128 51 1,315 442 33.6 873 2.6 2.6 6.2

FY14 2Q 3Q 10,090 10,404 18.1 19.7 2,001 1,942 5.7 5.6 19.8 18.7 -2.9 3.8 548 558 98 119 49 80 1,404 1,345 476 450 33.9 33.5 928 895 2.6 2.6 -6.5 3.6 6.6 6.4

4Q 9,665 9.6 1,906 5.5 19.7 3.1 558 96 80 1,332 427 32.1 905 2.6 8.3 6.5

1Q 8,499 -5.7 2,034 5.7 23.9 5.7 571 94 90 1,459 485 33.2 974 2.7 11.6 7.0

FY15E 2Q 8,919 -11.6 2,107 5.6 23.6 5.3 599 88 100 1,521 505 33.2 1,016 2.7 9.5 7.3

FY14

FY15E

3Q 8,743 -16.0 2,019 5.5 23.1 3.9 606 87 100 1,426 474 33.2 952 2.6 6.5 6.8

4Q 8,779 -9.2 2,083 5.7 23.7 9.3 628 84 132 1,502 499 33.2 1,003 2.8 10.8 7.2

39,174 16.4 7,773 5.6 19.8 2.7 2,195 441 259 5,395 1,795 33.3 3,600 2.6 1.7 25.7

34,939 -10.8 8,242 5.6 23.6 6.0 2,403 353 422 5,908 1,962 33.2 3,945 2.7 9.6 28.2

2.77 0.95 3.71

2.87 0.97 3.84

2.80 0.97 3.77

2.83 1.01 3.85

2.88 1.04 3.92

3.00 1.07 4.07

2.92 1.07 3.99

2.92 1.13 4.05

2.82 0.98 3.79

2.93 1.08 4.01

3.7 7.5 4.6

2.3 10.0 4.2

(0.2) 6.9 1.5

2.4 3.6 2.7

4.0 10.0 5.5

4.5 10.0 5.9

4.5 10.0 5.9

3.0 11.5 5.2

2.0 6.9 3.2

4.0 10.4 5.6

212

June2014 2014Results ResultsPreview Preview||Sector: Sector: Oil Oil & Gas June Gas

IOC Bloomberg

IOCL IN

Equity Shares (m)

2,427.95

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

831.70/13.90

52-Week Range (INR)

385/186

1, 6, 12 Rel. Per (%)

-6/47/22

CMP: INR349 

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

4,873

4,404

4,389

4,219

EBITDA

159.7

198.9

218.6

247.7

Adj. PAT

70.9

78.7

91.9

100.8

Adj. EPS (INR)

29.2

32.4

37.9

41.5

EPS Gr. (%)

59.3

11.1

16.8

9.6

BV/Sh.(INR)

280

301

325

366

RoE (%)

10.8

11.2

12.1

12.0

RoCE (%)

8.9

10.9

12.2

13.3

46.9

37.9

38.7

36.2

Payout (%) Valuation P/E (x)



 

12.0

10.8

9.2

8.4

P/BV (x)

1.2

1.2

1.1

1.0

EV/EBITDA (x)

9.7

6.8

6.0

5.0

Div. Yield (%)

2.5

2.9

3.4

3.4

Quarterly Performance Y/E March 1Q Net Sales 1,102,332 Change (%) 14.1 EBITDA -13,994 % of Net Sales -1.3 % Change nm Depreciation 13,858 Interest 14,702 Other Income 11,621 PBT -30,932 Tax 0 Rate (%) nm Adj. PAT -30,932 Change (%) nm Extraordinary Items 0 PAT -30,932 Adj. EPS -12.7 Gross under recovery (INR b) 136 Upstream sharing 82 Govt. sharing 43 Net Under recovery 12 E: MOSL Estimates

July 2014





Quarterly profitability of the OMCs (BPCL, HPCL, IOC) has remained dependent on the subsidy sharing, which is ad-hoc, than on business fundamentals. For 1QFY15, we model upstream sharing at 60%, government sharing at 31%, and OMC sharing at 9%. The final picture will only be clear when the government finalizes subsidy sharing for 1QFY15. We model marginal sharing by OMCs for FY15 (2% / INR18b), with the rest being shared by upstream (64% / INR587b) and the government (34% / INR312b). For FY16/FY17 we model OMCs’ share at ~2%, with the rest being shared by upstream and the government. 1QFY15 gross under-recoveries have declined 26% QoQ due to lower under-recoveries in diesel (led by price hikes), LPG and kerosene (led by lower international prices). We peg refinery throughput at 13mmt for 1QFY15 v/s 13.6mmt in 4QFY14 and 13.1mmt in 1QFY14. We expect IOCL to report net profit of INR10.4b in 1QFY15, v/s loss of INR30.9b in 1QFY14 and profit of INR93.9b in 4QFY14. IOCL trades at 9.0x FY16E EPS and at 1.1x FY16E BV. Buy.

Key issues to watch for  (a) Update on Paradeep refinery project, (b) Subsidy sharing, (c) GRM, and (d) Forex changes.

FY14 2Q 3Q 4Q 1,098,595 1,174,152 1,346,688 3.8 1.9 4.8 31,224 -5,983 134,479 2.8 -0.5 10.0 -65.5 nm -18.6 14,342 14,535 14,866 13,542 12,619 9,981 13,500 23,524 13,331 16,839 -9,614 122,963 0 0 29,064 0.0 nm 23.6 16,839 -9,614 93,899 -82.5 nm -35.3 0 0 0 16,839 -9,614 93,899 6.9 -4.0 38.7 183 86 92 4

Buy

206 83 52 72

204 96 185 -77

1Q 1,213,989 10.1 35,328 2.9 nm 15,960 13,789 9,483 15,061 4,669 31.0 10,392 nm 0 10,392 4.3 153 92 47 14

(INR Million) FY15E FY14 FY15E 2Q 3Q 4Q 1,053,912 1,178,325 1,139,583 4,721,766 4,585,809 -4.1 0.4 -15.4 5.8 -2.9 42,967 52,813 50,383 145,725 195,047 4.1 4.5 4.4 3.1 4.3 37.6 nm -62.5 39.1 33.8 16,120 16,430 16,697 57,601 59,703 12,600 12,150 11,700 50,844 49,932 11,983 12,983 8,069 61,976 59,837 26,230 37,215 30,055 99,256 108,562 8,131 11,537 9,317 29,064 33,654 31.0 31.0 31.0 29.3 31.0 18,099 25,679 20,738 70,192 74,908 7.5 nm -77.9 40.2 6.7 0 0 0 0 0 18,099 25,679 20,738 70,192 74,908 7.5 10.6 8.5 28.9 30.9 125 75 48 3

112 67 48 -3

98 78 23 -4

729 347 372 11

488 312 166 10

213

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas Gas

MRPL Bloomberg

MRPL IN

Equity Shares (m)

1,752.60

M.Cap. (INR b) /(USD b) 1, 6, 12 Rel. Per (%) Financial Snapshot (INR billion) Y/E March

2014E 2015E 2016E

Sales

718.1

751.9

758.5

10.0

28.0

33.7

6.0

8.9

12.8

3.4

5.1

7.3

-175.0

48.6

43.5

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

40

44

50

RoE (%)

8.9

12.1

15.5

RoCE (%)

4.4

13.3

18.3

17.4

Payout (%)

0.0

23.0

24.0

23.4

P/E (x)

21.1

13.3

9.9

9.7

P/BV (x) EV/EBITDA ( ) Div. Yield (%)

1.8

1.5

1.4

1.2

10.8

6.4

5.1

4.6

0.0

1.5

2.1

2.1

Valuation

Quarterly Performance Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT b/f forex/exceptional Forex gain/(loss) Exceptional items PBT Tax Rate (%) PAT Change (%) EPS GRM (USD/bbl) Throughput (mmt) E: Mosl Estimates

July 2014

Buy

We expect MRPL to report PAT of INR1.9b (v/s loss of INR4.5b in 1QFY14 and loss of INR10.7b in 4QFY14). We estimate EBITDA at 81/26 INR3.8b (v/s INR1.7b in 1QFY14 and INR3.6b in 3QFY14). -5/46/63  Regional benchmark Reuters Singapore GRM is down 6% QoQ to USD5.8/bbl from USD6.2/bbl, led by decrease in cracks of LPG and middle-heavy distillates (diesel, jet/kerosene, and FO). Medium-term 2017E GRM outlook continues to be subdued due to overcapacity and 736.5 sluggish global demand. Expect GRM to be subdued (occasional 33.8 spurts) due to occasional bunching up of shutdowns. 13.1  On the operational front, we expect refinery throughput at 3.35mmt. 7.5  For MRPL, we model in GRM of USD5.1/5.9/bbl for FY15/FY16. The 2.5 stock trades at 9.2x FY16E EPS, and at an EV of 5.1x FY16E EBITDA. 56 Neutral. 14.2

127.3/2.1

52-Week Range (INR)

CMP: INR72

1Q 152,659 19.2 1,683 1.1 nm -1,688 -779 293 -491 -5,166 1,118 -4,539 0 nm -4,539 nm -2.6 2.9 3.3



Key issues to watch for  (a) GRM, (b) Forex fluctuations, (c) Inventory changes  Commissioning schedule of the expanded capacity in FY15, which is likely to improve margin profile for MRPL.

FY14 2Q 3Q 187,623 186,547 15.0 3.7 7,305 -2,585 3.9 -1.4 nm nm -1,761 -1,845 -926 -928 335 1,005 4,953 -4,353 -2,495 1,889 0 0 2,458 -2,464 -100 -13 4.1 -0.5 2,358 -2,477 -80.1 nm 1.3 -1.4 5.0 -0.6 3.7 3.8

4Q 191,275 2.9 3,630 1.9 nm -1,771 -582 1,612 2,890 5,753 0 8,642 2,028 -23.5 10,670 nm 6.1 3.2 3.8

1Q 167,048 9.4 3,763 2.3 124 -1,805 -650 1,434 2,742 0 0 2,742 -850 31.0 1,892 nm 1.1 3.5 3.4

FY15E 2Q 3Q 192,124 191,290 2.4 2.5 7,050 8,225 3.7 4.3 -3 nm -2,693 -3,155 -1,500 -2,500 1,048 663 3,905 3,232 0 0 0 0 3,905 3,232 -1,211 -1,002 31.0 31.0 2,695 2,230 14.3 nm 1.5 1.3 5.1 5.8 3.9 3.9

(INR million) FY14 FY15E 4Q 201,440 5.3 8,950 4.4 147 -4,209 -2,355 679 3,066 0 0 3,066 -951 31.0 2,116 -80.2 1.2 6.0 4.2

718,105 9.3 10,032 1.4 21.0 -7,064 -3,214 3,245 2,998 -19 1,118 4,097 1,915 -46.7 6,012 -179.3 3.4 2.6 14.6

751,903 4.7 27,988 3.7 179.0 -11,861 -7,005 3,825 12,946 0 0 12,946 -4,013 31.0 8,933 48.6 5.1 5.1 15.3

214

June Gas June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas

Oil India Bloomberg

OINL IN

Equity Shares (m)

601.14

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

354.67/5.93

52-Week Range (INR)

633/415

1, 6, 12 Rel. Per (%)

-1/0/-31

CMP: INR585  

Financial Snapshot (INR billion) Y/E March

2014 2015E 2016E 2017E

Sales

91.3

107.9

120.2

123.5

EBITDA

35.5

49.0

57.9

59.5

Adj. PAT

29.8

38.8

43.1

45.2

Adj. EPS (INR)

49.6

64.6

71.7

75.2

EPS Gr. (%)

-16.9

30.3

11.0

4.8

BV/Sh.(INR)

344

379

419

460

RoE (%)

14.9

17.9

18.0

17.1

RoCE (%)

16.7

18.6

19.6

19.0

Payout (%)

50.5

45.4

45.4

45.4

11.8

9.1

8.2

7.8

1.7

1.5

1.4

1.3

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

9.3

6.5

5.5

5.2

Div. Yield (%)

3.7

4.3

4.8

5.0



 

Buy

We expect Oil India to report PAT of INR7.2b (v/s INR6.1b in 1QFY14 and INR5.7b in 4QFY14). We estimate EBITDA at INR8.7b (up 25% YoY and 146% QoQ). We estimate gross realization at USD108.7/bbl v/s USD101.9/bbl in 1QFY14 and USD106.6/bbl in 4QFY14, and net realization at USD45.7/bbl v/s USD45.9/bbl in 1QFY14 and USD37.4/bbl in 4QFY14. Subsidy sharing assumption: For FY15/FY16, we model upstream sharing at INR587/480b, and Oil India's share at 13.2% of upstream. We model Oil India’s share at INR23.2b in 1QFY15. Our Brent price assumption is USD108/105/100/bbl for FY15/16/17 and USD100/bbl for long term. The stock trades at 8.2x FY16E EPS of INR71.7. We remain positive on Oil India due to ongoing diesel reforms and scheduled gas price hike that will drive earnings. Valuations are attractive; Buy.

Key issues to watch for  (a) Subsidy sharing, (b) DD&A charges, and (c) Oil & Gas production volumes.

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 Tax Rate (%) PAT Change (%) Adj. PAT Adj. EPS (INR) Key Assumptions (USD/bbl) Exchange rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) *Standalone; E: MOSL Estimates

July 2014

1Q 19.8 -15.1 7.0 35.2 -36.4 2.7 0.0 4.7 9.0 2.9 32.2 6.1 -34.5 6.1 10.1 56.0 101.9 56.0 45.9 19.8

FY14 2Q 27.1 13.0 13.3 49.0 15.8 4.7 0.0 4.7 13.3 4.3 32.2 9.0 -5.3 9.0 15.0 62.5 108.3 56.0 52.3 22.3

3Q 26.1 8.0 11.7 44.8 3.8 2.2 0.3 4.5 13.6 4.6 33.6 9.0 -4.0 9.0 15.0

4Q 18.3 -23.2 3.5 19.4 -59.8 2.2 0.3 7.2 8.2 2.5 31.0 5.7 -26.0 5.7 9.4

1Q 22.2 12.2 8.7 39.3 25.3 2.5 0.3 4.8 10.7 3.5 33.0 7.2 18.1 7.2 12.0

62.0 108.1 56.0 52.1 21.7

61.9 106.6 69.2 37.4 23.5

59.8 108.7 63.0 45.7 23.2

FY15E 2Q 27.2 0.3 12.6 46.2 -5.4 2.9 0.3 4.8 14.3 4.7 33.0 9.6 5.8 9.6 15.9 59.0 107.0 48.6 58.4 18.8

FY14

FY15E

3Q 29.8 14.4 14.5 48.5 24.0 3.0 0.3 4.9 16.1 5.3 33.0 10.8 19.5 10.8 18.0

4Q 28.7 57.1 13.2 46.0 272.1 3.7 0.3 7.7 16.9 5.6 33.0 11.3 99.6 11.3 18.8

91.3 -4.2 35.5 38.9 -16.5 11.8 0.7 21.1 44.1 14.3 32.4 29.8 -16.9 29.8 49.6

107.9 18.3 49.0 45.4 38.0 12.0 1.1 22.1 58.0 19.1 33.0 38.8 30.3 38.8 64.6

59.0 106.0 42.3 63.7 16.7

58.2 106.3 46.9 59.4 18.9

60.6 106.2 59.3 47.1 87.4

59.0 107.0 50.2 56.8 77.6

215

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil& & Gas Gas

ONGC Bloomberg

ONGC IN

Equity Shares (m)

8,555.5

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

3,610 / 60

52-Week Range (INR)

472 / 234

1,6,12 Rel Perf. (%)

-2 / 28 / 3

CMP: INR422  

Financial Snapshot (INR billion) Y/E March

2,014 2015E 2016E 2017E

Sales

1,732

1,905

2,040

2,088

EBITDA

570

656

774

788

Adj. PAT

264

310

368

386

Adj. EPS (INR)

31.0

35.9

42.5

44.7

9.9

17.7

18.5

5.1

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

199

222

249

277

RoE (%)

16.6

17.1

18.1

17.0

RoCE (%)

14.6

14.7

15.6

14.9

Payout (%)

35.4

35.8

35.7

36.6

13.6

11.8

9.9

9.4

2.1

1.9

1.7

1.5

6.1

5.3

4.5

4.4

2.3

2.6

3.1

3.3



 

Valuation P/E (x) P/BV (x) EV/EBITDA ( ) Div. Yield (%)

Buy

We expect ONGC to report adjusted PAT of INR61.2b in 1QFY15 (v/s INR40.2b in 1QFY14 and INR48.9b in 4QFY14). We estimate EBITDA at INR115b (v/s INR84b in 1QFY14 and INR112b in 4QFY14). We estimate gross realization at USD108.7/bbl v/s USD101.9/bbl in 1QFY14 and USD106.6/bbl in 4QFY14, and net realization at USD45.7/bbl v/s USD45.9/bbl in 1QFY14 and USD37.4/bbl in 4QFY14. Subsidy sharing assumption: For FY15/FY16, we model upstream sharing at INR587b/480b, and ONGC's share at 84.6% of upstream. We expect ONGC to share INR141b in 1QFY15. Our Brent price assumption is USD108/105/100/bbl for FY15/16/17 and at USD100/bbl for long term. The stock trades at 9.9x FY16E consolidated EPS of INR42.5. We remain positive on ONGC due to ongoing diesel reforms, scheduled gas price hike, and likely production increase in FY15, which will drive earnings. Maintain Buy.

Key issues to watch for  (a) Subsidy sharing, (b) DD&A charges, and (c) Oil & Gas production volumes.

Quaterly performance (Standalone) Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) D,D & A Interest Other Income PBT Tax Rate (%) PAT Change (%) Adjusted PAT Adj. EPS Key Assumptions (USD/bbl) Fx rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates

July 2014

(INR Billion)

1Q 192.2 -4.3 84.0 43.7 -23.9 39.0 0.0 12.9 57.8 17.7 30.6 40.2 -33.9 40.2 4.7

FY14 2Q 223.1 12.8 120.0 53.8 16.8 45.0 0.0 15.9 90.9 30.3 33.3 60.6 2.8 60.6 7.1

3Q 207.4 -1.2 122.1 58.9 8.7 44.0 0.0 27.7 105.8 34.6 32.7 71.3 28.1 68.3 8.0

4Q 208.8 -2.4 111.5 53.4 8.3 59.7 0.0 18.0 69.8 20.9 29.9 48.9 44.2 48.9 5.7

55.9 102.9 62.7 40.2 126.2

62.5 109.0 64.2 44.8 138.0

62.0 108.2 62.2 46.0 137.6

61.9 106.7 73.9 32.8 162.0

1Q 213.3 11.0 114.6 53.7 36.4 41.3 0.0 13.5 86.8 25.5 29.4 61.2 52.5 61.2 7.2

FY15E 2Q 3Q 235.4 251.2 5.5 21.1 130.0 141.6 55.2 56.4 8.3 16.0 44.2 47.2 0.0 0.0 14.2 14.4 100.0 108.7 29.4 32.0 29.4 29.4 70.6 76.8 16.4 7.7 70.6 76.8 8.2 9.0

59.8 109.7 69.9 39.8 148.7

59.0 108.0 55.6 52.4 120.0

59.0 107.0 48.4 58.6 106.3

FY14

FY15E

4Q 221.3 6.0 116.6 52.7 4.6 60.3 0.0 8.5 64.8 19.1 29.4 45.7 -6.4 45.7 5.3

831.6 1.1 437.6 52.6 2.1 187.7 0.0 74.5 324.3 103.4 31.9 220.9 5.6 218.0 25.5

921.2 10.8 502.7 54.6 14.9 193.1 0.0 50.7 360.2 105.9 29.4 254.3 15.1 254.3 29.7

58.2 107.3 58.3 49.0 121.0

60.6 106.7 65.7 40.9 563.8

59.0 108.0 58.0 50.0 496.0

216

June Gas June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas

Petronet LNG Bloomberg

PLNG IN

Equity Shares (m)

750.0

CMP: INR178

Buy

We expect Petronet to report PAT of INR1.7b (down 22.5% YoY; up 3% QoQ) primarily due to high depreciation and high interest burden 52-Week Range (INR) 190 / 103 post commissioning of the Kochi plant in August 2013. We estimate 1,6,12 Rel Perf. (%) 10 / 22 / 10 EBITDA at INR4.2b (up 5.6% YoY; up 9% QoQ).  We have built in Dahej LNG volumes at 2.6mmt in 1QFY15. Financial Snapshot (INR billion)  Asian spot LNG prices (for August delivery) have dropped to Y/E March 2014 2015E 2016E 2017E ~USD11.5/mmbtu, the lowest since March 2011 (Fukushima nuclear Sales 377.5 442.0 389.6 454.9 crisis). EBITDA 15.0 18.2 21.4 25.4  Near term earnings growth is stunted by lower utilization at Kochi Adj. PAT 7.1 7.8 9.5 12.2 terminal, but as and when the pipeline issues get sorted out, expect Adj. EPS (INR) 9.5 10.4 12.7 16.2 meaningful earnings growth. The stock trades at 14x FY16E EPS Gr. (%) -38.0 9.2 22.8 27.4 consolidated EPS of INR12.7. Maintain Buy. BV/Sh.(INR) 67.0 75.1 85.0 97.6 M. Cap. (INR b)/(USD b)

134 / 2

RoE (%)

15.0

14.6

15.9

17.8

RoCE (%)

16.2

16.8

18.0

20.6

Payout (%)

19.1

22.2

22.2

22.2

18.8

17.2

14.0

11.0

2.7

2.4

2.1

1.8

EV/EBITDA (x)

10.1

8.4

7.4

5.7

Div. Yield (%)

0.9

1.1

1.4

1.7

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



Key issues to watch for  (a) Ramp-up at Kochi Kochi terminal, (b) Spot volumes, and (c) Marketing margin on spot volumes.  Petronet LNG earnings are largely protected due to take-or-pay contracts with the offtakers. Early completion of KochiMangalore-Bangalore pipeline and lower spot prices would provide earnings upside.

Quarterly Performance

(INR Million)

Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Dahej Gas Volumes (mmt) Kochi Gas Volumes (mmt) Avg. Dahej Regas (INR/mmbtu) E: MOSL Estimates

July 2014

1Q 84,442 20.1 3,978 4.7 -13.0 467 240 152 3,423 1,170 34.2 2,253 -16.8 3.0 2.6 41.8

FY14 2Q 3Q 4Q 94,935 93,821 104,278 25.8 11.4 23.2 3,639 3,499 3,868 3.8 3.7 3.7 -29.8 -33.8 -11.0 597 1,017 1,000 386 783 786 161 216 308 2,818 1,916 2,389 1,000 560 696 35.5 29.2 29.1 1,818 1,356 1,693 -42.2 -57.4 -30.9 2.4 1.8 2.3 2.4 2.4 2.3 0.0 0.0 0.0 41.4 39.8 45.8

1Q 104,379 23.6 4,200 4.0 5.6 1,098 760 265 2,607 860 33.0 1,746 -22.5 2.3 2.6 0.1 42.1

FY15E 2Q 3Q 110,882 116,696 16.8 24.4 4,529 4,767 4.1 4.1 24.5 36.2 1,098 1,098 725 750 249 249 2,955 3,168 975 1,045 33.0 33.0 1,980 2,122 8.9 56.6 2.6 2.8 2.8 2.9 0.1 0.1 42.1 42.6

4Q 110,070 5.6 4,685 4.3 21.1 1,221 733 202 2,932 967 33.0 1,964 16.0 2.6 2.8 0.1 42.7

FY14

FY15E

377,476 20.0 14,984 4.0 -22.7 3,081 2,196 838 10,545 3,426 32.5 7,119 -38.0 9.5 9.7 0.1 42.2

442,028 17.1 18,180 4.1 21.3 4,515 2,968 965 11,661 3,848 33.0 7,813 9.7 10.4 11.2 0.3 42.4

217

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Oil Oil & & Gas Gas

Reliance Industries Bloomberg

RIL IN

Equity Shares (m)

3,231.9

CMP: INR1032

Neutral

We estimate GRM at USD8.5/bbl v/s USD8.4/bbl in 1QFY14 and USD9.3/bbl in 4QFY14. On the petchem front, we expect decrease of 52-Week Range (INR) 1,143 / 765 5% QoQ in EBIT, as polymer and polyester spreads have declined 1,6,12 Rel Perf. (%) -9 / -5 / -14 QoQ. Financial Snapshot (INR billion)  We expect average KG-D6 volume of ~13mmscmd v/s 13.7mmscmd Y/E March 2014 2015E 2016E 2017E in 4QFY14. Sales 3,901 3,885 3,780 3,685  We expect RIL to report PAT of INR53.5b in 1QFY15 v/s INR53.5b in EBITDA 309 329 363 495 1QFY14 and INR56.3b in 4QFY14. Adj. PAT 220 231 255 323  RIL trades at 13.1x FY16E adjusted EPS of INR87.1. RIL's new Adj. EPS (INR) 75.2 79.0 87.1 108.9 EPS Gr. (%) 4.7 5.3 10.3 26.6 refining/petchem projects are likely to add to earnings from BV/Sh.(INR) 674 739 814 898 FY16/FY17, but medium-term outlook on core business remain weak, RoE (%) 11.7 11.2 11.2 12.8 with RoE reaching sub-12%. Maintain Neutral. RoCE (%) 11.1 10.7 10.9 13.3 M. Cap. (INR b)/(USD b)

Payout (%) Valuation P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)

3,335 / 56

16.4

16.4

16.3

16.4

15.2 1.5 10.9 0.9

14.4 1.4 10.8 1.0

13.1 1.3 9.8 1.1

10.5 1.1 7.0 1.3

Quarterly Performance (Standalone) Y/E March



Key issues to watch for  (a) GRM, (b) Petchem margin, and (c) KG-D6 production.

FY14 2Q 3Q 1,037.6 1,035.2 14.9 10.3 78.5 76.2 7.6 7.4 1.9 -9.0 22.3 21.4 8.1 7.9 20.6 23.1 68.7 69.9 13.8 14.8 20.1 21.2 54.9 55.1 2.1 0.2 18.8 18.9

1Q Net Sales 876.5 Change (%) -4.6 EBITDA 70.8 % of Net Sales 8.1 Change (%) 4.9 Depreciation 21.4 Interest 8.1 Other Income 25.4 PBT 66.6 Tax 13.1 Rate (%) 19.7 Adj. PAT 53.5 Change (%) 19.7 Adj. EPS (INR) 18.3 Key Assumptions (USD/bbl) Fx Rate (INR/USD) 56.0 62.1 62.0 KG-D6 Gas Price (USD/mmbtu) 4.2 4.2 4.2 Brent Price (USD/bbl) 103 111 110 RIL GRM 8.4 7.7 7.6 Singapore GRM 6.6 5.4 4.3 Premium/(disc) to Singapore 1.8 2.3 3.3 KG-D6 Gas Prodn (mmscmd) 14.8 14.0 12.4 Segmental EBIT Breakup (INRb) Refining 29.5 31.7 31.4 Petrochemicals 18.9 25.0 21.2 E&P 3.5 3.6 5.4 Others 0.8 0.4 0.9 Total 52.8 60.8 59.0 E: MOSL Estimates; Segmental EBIT includes non-interest other income

July 2014

FY15E 2Q 3Q 976.8 974.8 -5.9 -5.8 79.8 83.9 8.2 8.6 1.7 10.1 21.6 22.9 8.2 8.3 21.3 21.6 71.3 74.3 15.0 15.6 21.0 21.0 56.4 58.7 2.6 6.4 19.3 20.1

4Q 951.9 13.1 83.3 8.8 6.5 22.8 8.0 20.4 72.9 16.6 22.8 56.3 0.8 19.3

1Q 984.8 12.4 77.2 7.8 9.1 22.1 8.0 21.0 68.1 14.6 21.5 53.5 -0.1 18.3

62.0 4.2 110 9.3 6.2 3.1 13.7

59.8 4.2 110 8.5 5.8 2.7 13.0

59.0 4.2 108 8.8 5.9 2.9 13.0

39.5 21.0 3.8 2.0 66.3

34.9 20.0 4.3 0.4 59.6

36.0 21.5 4.2 1.0 62.7

(INR Billion) FY14 FY15E 4Q 949.0 -0.3 88.6 9.3 6.3 23.7 8.2 22.6 79.2 16.2 20.4 63.0 11.9 21.6

3,901.2 8.3 308.8 7.9 0.3 87.9 32.1 89.4 278.2 58.3 21.0 219.8 4.7 75.2

3,885.4 -0.4 329.5 8.5 6.7 90.3 32.7 86.4 292.9 61.4 21.0 231.5 5.3 79.2

59.0 4.2 107 9.0 6.1 2.9 13.0

59.0 4.2 107 9.2 6.6 2.6 13.0

60.5 4.2 109 8.2 5.6 2.6 13.8

59.2 4.2 108 8.9 6.1 2.8 13.0

37.0 22.5 5.2 0.9 65.5

37.6 25.2 5.3 1.2 69.4

132.2 86.1 16.3 4.2 238.8

145.6 89.2 18.9 3.5 257.2

218

June 2014 Results Preview | July 2014

Real Estate Technology Company name

Expect weaker presales in 1QFY15

DLF

Enquiries up, but conversions yet to improve; gearing to go up QoQ

Godrej Properties

Core operations to remain subdued

Indiabulls Real Estate

We expect presales momentum to moderate QoQ to sub-normal levels in 1QFY15. This is largely due to lack of real uptick in buyer sentiment and lower new launches by developers. High pent-up demand is evident in the rise in enquiries. However, conversions are yet to take-off. We expect a slew of new launches by several developers in 2HFY15, which should drive up presales.

Jaypee Infratech Mahindra Lifespaces Oberoi Realty Phoenix Mills

Revenue booking mixed bag, cash flow sub-par, leverage to move up

Prestige Estate Projects

P&L performance is likely to be mixed and would hinge on one-off impact from big threshold crossing in select cases. Major uptick in margins is unlikely, as the overhang of legacy projects is yet to ease. Weak presales in recent quarters should limit improvement in operating cash flows. We expect gearing to go up QoQ for DLF (negative FCFE; no asset sales), IBREL, Oberoi (land purchases; weak presales), Godrej Properties, and Prestige (higher capex).

Sobha Developers

Adopted strategies to decide on quantum of recovery benefits Over the downcycle of FY12-14, real estate players have made mixed efforts to gain scale or build strengths. We expect the quantum of operating recovery to hinge upon (1) regional mix (anticipate relative outperformance of MMR, NCR), (2) scope to improve leverage (gap with normalcy), and (3) readiness to derive benefits (approvals, execution, etc).

Valuations mimic mid-cycle optimism Post the run-up following the election results, realty stock prices factor in consensus optimism on demand recovery cycle, and improvement in regulatory and funding framework. However, actual improvement in on-ground operations would be evident only after 9-12 months. Current stock prices already factor in mid-cycle operational normalcy. Visibility of peak cycle dynamics would be the next re-rating trigger. The markets would watch for favorable policy decisions (REIT, infrastructure status, interest rate cuts, easier approval cycles, etc) and parallel macroeconomic improvement substantiating the optimism. We prefer Phoenix Mills, Oberoi, and IBREL. Expected quarterly performance summary Sector

DLF Godrej Properties Indiabulls Real Estate Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Sobha Developers Sector Aggregate

CMP (INR) 4.7.14 219 240 95 33 554 259 346 263 491

Reco Buy Neutral Buy Buy Buy Buy Buy Buy Buy

Sales Var % Var % Jun-14 YoY QoQ 19,645 2,831 3,466 6,623 1,820 2,130 773 4,782 5,149 47,219

-15.1 40.4 -31.8 -13.9 3.4 -2.5 10.8 -4.0 11.5 -9.5

-0.3 -34.0 5.8 -13.4 -3.9 -3.4 -1.7 -20.5 -17.8 -9.3

EBITDA Var % Var % Jun-14 YoY QoQ 5,697 594 971 2,318 455 1,193 526 1,195 1,442 14,391

-37.8 46.6 -33.9 -30.8 -11.9 -10.6 10.7 -7.3 3.7 -25.8

57.0 -21.6 -14.1 -9.5 75.4 -4.9 9.5 -2.9 -15.8 10.6

Net Profit Var % Var % Jun-14 YoY QoQ 1,018 343 337 122 213 876 421 721 567 4,617

-43.8 -13.1 -53.6 -85.0 -2.2 -13.9 0.5 -16.8 13.1 -31.7

-53.7 -29.0 -19.1 -7.8 -29.6 13.8 15.6 -24.2 -17.5 -26.8

Sandipan Pal ([email protected]); +91 22 3982 5436 July 2014

219

June 2014 Results Preview | Sector: Real Estate

Trend in launch and presales (msf) PAN India

96 73

67

91 85

70 73

85

85

460

111

110

94

91

73

55

48

56 61 53 57 52 48 62 67 62 69 57 62 58 53 65 68

4,800

300

4,000

220

3,200 2,400

4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 3QCY13 4QCY13 1QCY14

1QCY14

4QCY13

3QCY13

2QCY13

1QCY13

4QCY12

3QCY12

2QCY12

1QCY12

4QCY11

3QCY11

2QCY11

1QCY11

4QCY10

3QCY10

5,600

380

140

2QCY10

Realizations (INR/sf)

Sales value (INR b)

Sales (msf)

208 231 202 238 212 223 196 210 266 309 277 328 247 318 308 273 361 382

Launch (msf)

Trend in presales (INR b) and realizations (INR/sf) PAN India

Source: LF, MOSL

Source: LF, MOSL

FY14 witnessed worst run for NCR and Mumbai, while Bangalore maintained resilience We expect presales to remain subdued across regions (including Bangalore) in 1QFY15 on the back of lower launch. Enquiries have improved but conversion is yet to take to take place

FY11 NCR Centric developers DLF Unitech Anantraj JPIN Mumbai Centric developers IBREL HDIL ORL Bangalore Centric developers Sobha PEPL Puravankara Diversified MAHLIFE GPL

Office spaces leasing (msf) – overall marginal QoQ rise NCR

Mumbai

Bangalore

FY12

149 59 43 5 41 79 48 21 10 31 11 14 7 17 7 10

137 53 38 7 39 40 19 11 10 45 17 21 7 19 6 13

FY13 102 38 28 3 32 39 30 9 70 22 31 17 24 4 20

FY14 1Q 34 24 5 1 4 19 16 3 1 19 6 10 3 5 1 4

2Q 12 7 3 0 2 8 6 1 1 21 6 11 4 3 1 3

3Q 13 6 4 1 2 6 5 1 1 18 5 9 4 5 1 3

4Q 10 3 4 1 2 6 4 1 1 18 6 6 6 10 1 9

FY14 69 41 15 4 10 40 31 6 3 76 23 36 16 23 4 19

Bank loan to developers stood at INR1.5t as on April-14 Loan (INR b)

Growth (%)

1,600

3.8

1,200

2.5

800

8

1.3

400

0

0.0

0

Source: DTZ, MOSL

July 2014

24 16

-8

Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13

1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 3QCY13 4QCY13 1QCY14

5.0

Source: RBI, MOSL

220

June 2014 Results Preview | Sector: Real Estate

125

120

110

100

95

80 Jul-13

Jul-14

May-14

Jan-14

140

Jun-14

140

Apr-14

MOSL Real Estate Index

Sensex Index 160

Source: Bloomberg, MOSL

Jul-14

MOSL Real Estate Index

155

Oct-13

Sensex Index

Relative Performance - 1Yr (%)

Apr-14

Relative Performance - 3m (%)

Source: Bloomberg, MOSL

Comparative valuations Sector / Companies Real Estate DLF Godrej Properties Indiabulls Real Estate Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Sobha Developers Sector Aggregate

July 2014

CMP (INR)

Reco

219 Buy 240 Neutral 95 Buy 33 Buy 554 Buy 259 Buy 346 Buy 263 Buy 491 Buy

EPS (INR) FY15E FY16E FY17E 3.7 8.7 9.7 2.6 25.9 13.2 7.6 11.2 26.9

5.9 11.7 12.0 3.2 30.8 21.2 17.4 16.0 34.8

10.3 17.0 16.6 4.2 36.1 33.3 22.1 21.3 40.5

PE (x) FY15E FY16E FY17E 59.6 27.5 9.8 12.8 21.4 19.6 45.6 23.5 18.2 28.5

37.3 20.5 7.9 10.2 18.0 12.2 19.8 16.4 14.1 19.6

21.3 14.1 5.7 7.9 15.3 7.8 15.7 12.4 12.1 13.4

EV/EBIDTA (x) FY15E FY16E FY17E 20.8 19.0 12.5 8.4 16.5 13.5 11.6 13.6 9.4 14.9

17.5 14.7 9.6 7.6 12.5 8.3 8.5 10.4 7.9 11.9

13.1 10.4 6.7 6.8 10.4 5.2 6.9 7.8 6.8 9.1

RoE (%) FY15E FY16E FY17E 2.2 9.3 5.5 5.8 7.8 9.5 6.1 11.8 11.1 4.9

3.5 11.3 6.5 7.0 8.5 13.7 12.5 14.7 13.2 6.8

5.9 14.6 8.6 8.6 9.1 18.6 14.0 16.6 13.9 9.3

221

June 2014 Results Preview | Sector: Real Estate

DLF Bloomberg

DLFU IN

Equity Shares (m)

1,781.62

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

385.72/6.42

52-Week Range (INR)

243/120

1, 6, 12 Rel. Per (%)

-5/5/-11

CMP: INR219 



Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR)

2014 2015E 2016E 2017E 83.0 87.3 92.0 107.6 24.9 28.5 34.0 44.7 6.5

6.5

10.4

18.3

3.6

3.7

5.9

10.3

-13.4

1.2

59.7

75.2

BV/Sh. (INR) 157.3

158.6

162.2

170.2

2.3

2.2

3.5

5.9

RoCE (%) Payout (%)

6.3 64.4

6.0 63.7

6.9 39.9

8.8 22.2

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

60.3 1.4

59.6 1.4

37.3 1.3

21.3 1.3

EV/EBITDA (x) 22.7 Div. Yield (%) 0.9

20.2 0.9

17.0 0.9

12.7 0.9

EPS Gr. (%) RoE (%)



 

Buy

We expect a stable quarter, with potential uptick in margins to 29%. In 4QFY14, margins were 18%, impacted by one-offs pertaining to the Aman Resort transaction. We see 1QFY15 revenue at INR19.6b (down 15% YoY, flat QoQ), as several of its newer projects are yet to cross the required threshold. We estimate EBITDA at INR5.7b (down 38% YoY) and PAT at INR1b (v/s INR2.2b in 4QFY14, including profit from the Aman Resort deal). Slowdown in Gurgaon and lack of major launches are likely to keep overall presales subdued. We estimate presales of INR5b and leasing velocity of 0.3msf. Gearing may increase by INR3b-4b QoQ in the absence of any major divestment and continued weakness in cash flows. The stock trades at 37.3x FY16E EPS, 1.3x FY16E BV, and at 12% discount to our NAV estimate of INR250. Maintain Buy.

Key issues to watch for  Guidance on launch plan and presales target of FY15-16  Trend in operating cash flows and clarity over further divestments  Status of further CMBS plan

Quarterly performance

(INR Million)

Y/E March

FY14 2Q 3Q 19,561 20,584 -4.1 57.1 5,948 6,120 -20.3 603.2 30.4 29.7 1,660 1,561 6,091 6,331 2,685 5,318 1,680 -574 855 -1,925 50.9 0.0

FY15E

4Q 25,756 30.8 8,535 135.2 33 1,712 5,474 2,000 3,348 910 27.2

82,980 6.8 24,852 -5.4 29.9 6,629 24,633 14,916 5,207 -836 -16.1

87,309 5.2 28,533 14.8 32.7 6,662 22,874 9,000 7,996 1,999 25.0

Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Pre MI Change (%)

1,996 (29.5)

825 (35.1)

1,352 (44.7)

1,871 495.1

878 (56.0)

468 (43.2)

2,213 63.7

2,438 30.3

6,044 -11.2

5,997 -0.8

1,812 1,812 (38.1) 1.8 24.3 13,425 0.4

1,001 1,001 (27.8) 0.9 7.3 8,022 0.6

1,453 1,453 (49.0) 0.6 6.0 9,836 0.1

2,197 2,197 LTP 0.4 3.1 7,045 0.6

1,018 1,018 (43.8) 0.6 5.0 8,500 0.3

608 608 (39.2) 0.7 5.2 8,000 0.2

2,353 2,353 62.0 1.5 18.0 12,000 0.7

2,559 2,559 LTP 1.8 17.9 10,178 0.8

6,462 6,462 (9.2) 3.8 40.7 10,796 1.7

6,538 6,538 1.2 4.5 46.1 10,251 2.0

July 2014

1Q 19,645 -15.1 5,697 -37.8 29 1,600 6,000 3,000 1,097 219 20

FY14

1Q 23,141 5.3 9,156 -14.2 39.6 1,782 5,914 1,391 2,909 913 31.4

Reported PAT Adj. PAT Change (%) Presales (msf) Presales (INR b) Realization (INR/sf) Leasing (msf) E: MOSL Estimates

4Q 19,695 -11.5 3,629 -50.0 18 1,627 6,297 5,522 1,193 -678 -56.9

FY15E 2Q 3Q 18,335 23,573 -6.3 14.5 6,051 8,251 1.7 34.8 33 35 1,650 1,700 5,800 5,600 2,000 2,000 601 2,951 132 738 22.0 25.0

222

June 2014 Results Preview | Sector: Real Estate

Bloomberg

GPL IN

Equity Shares (m)

199.25

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

48.85/0.81

52-Week Range (INR)

CMP: INR240

We estimate revenue at ~INR2.8b (up 40% YoY), EBITDA at INR594m (margin at 21%), and PAT at INR343m (down 12% YoY). Margins would remain subdued on low-margin commercial asset sales.



The Panvel project has witnessed decent response during initial marketing. Barring this, there has been no new launch. Quarterly presales would be sub-par.



The stock trades at 20.5x FY16E EPS and 2.2x FY16E BV, and close to its SOTP value of INR245. Maintain Neutral.

-9/18/-36

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA NP EPS (INR)

2014 2015E 2016E 2017E 11.8 14.2 18.2 24.6 2.8 3.5 4.6 6.5 1.6

1.7

2.3

3.4

8.0

8.7

11.7

17.0

EPS Gr. (%)

-9.3

8.4

34.1

45.4

BV/Sh (INR)

90.5

98.0

108.5

123.8

9.9

9.3

11.3

14.6

9.0 14.5

8.4 13.4

9.9 10.0

12.1 10.3

29.9 2.7

27.5 2.5

20.5 2.2

14.1 1.9

EV/EBITDA (x) 14.4 Div. Yield (%) 0.8

12.3 0.8

9.5 0.8

6.7 1.2

RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

Neutral



262/154

1, 6, 12 Rel. Per (%)

Godrej Properties

Key issues to watch for  Progress in approvals in planned launches and demand momentum in major markets  Leasing progress in BKC commercial  Trend in cash flow and leverage

Quarterly Performance (Consolidated)

Total Revenue Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) PAT before MI Minority Reported PAT Change (%) Presales (msf)** Presales (INR b) Realizations (INR/sf) E: MOSL Estimates ** GPL's share

July 2014

1Q 2,016 -11 1,610 406 1 20.1 12 8 427 812 299 36.8 514 -119 395 130.1 0.5 4.2 8,715

(INR million) FY14 2Q 3Q 3,065 2,420 32 -9 2,257 1,565 808 854 12 14 26.4 35.3 14 15 8 8 139 120 925 950 319 347 34.5 36.6 606 603 -263 -229 343 374 5.1 5.3 0.4 0.4 2.8 3.3 6,455 8,527

4Q 4,292 38 3,534 758 -23 17.7 16 20 65 787 146 18.6 641 -157 483 -9.1 1.0 8.8 8,566

1Q 2,831 40.4 0 594 46.6 21.0 16 17 100 661 218 33.0 443 -100 343 -13.1 0.3 2.5 8,333

FY15E 2Q 3Q 3,680 3,114 20 29 0 0 957 810 18 -5 26.0 26.0 16 17 20 20 100 100 1,021 873 337 288 33.0 33.0 684 585 -105 -105 579 480 69.0 28.4 0.4 1.0 3.5 8.0 8,750 8,000

4Q 4,530 6 3,371 1,159 53 25.6 17 20 200 1,322 436 33.0 885 -558 327 -32.4 1.3 11.0 8,462

FY14

FY15E

11,792 13.7 8,966 2,826 -1.1 24.0 58 45 750 3,474 1,111 32.0 2,363 -768 1,594 15.2 2.3 19.1 8,197

14,155 20.0 10,635 3,520 24.5 24.9 66 77 500 3,877 1,279 33.0 2,597 -868 1,729 8.4 3.0 25.0 8,333

223

June 2014 Results Preview | Sector: Real Estate

Bloomberg

IBREL IN

Equity Shares (m)

424.87

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

41.68/0.69

52-Week Range (INR)

CMP: INR95

We are factoring in revenue of INR3.4b (stable QoQ), EBITDA of INR971m (margin of 28%), and PAT of INR337m. Major revenue scaleup from Blu (Worli) project is likely in 2HFY15.



Presales would mimic the last three quarters’ subdued momentum, as new launch in Gurgaon took place towards the end of the quarter.



London entry should raise gearing to the extent of initial payment (v/s expected peak debt addition of INR13b-14b for this project).



The stock trades at 37% discount to our NAV estimate of INR160, and at 7.5x FY16E EPS and 0.5x FY16E BV. Maintain Buy with a target price of INR145.

-15/15/15

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 17.4 19.3 22.5 28.5 5.4 5.9 7.4 9.9

NP

2.2

3.9

4.8

6.7

EPS (INR)

5.9

9.7

12.0

16.6

28.5

66.1

23.6

37.5

BV/Sh. (INR) 162.1

168.2

175.9

182.4

EPS Gr. (%) RoE (%)

3.3

5.5

6.5

8.6

RoCE (%) Payout (%)

6.0 59.8

5.8 34.2

6.9 32.2

8.9 30.1

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

16.2 0.6

9.3 0.6

7.5 0.5

5.7 0.5

EV/EBITDA (x) 12.1 Div Yield (%) 3.1

12.7 3.1

9.7 4.2

6.8 5.2

Buy



109/45

1, 6, 12 Rel. Per (%)

Indiabulls Real Estate

Key issues to watch for  Progress in planned launches in NCR and Chennai  Sales momentum in Central Mumbai projects  Cash flow and leverage trends

Quarterly Performance (Consolidated) Y/E March Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT (Pre Minority and associates) Change (%) Reported PAT Change (%) Presales (msf) Presales (INR b) Realizations (INR/sf) E: MOSL Estimates

July 2014

1Q 5,083 136.8 1,467 85.4 28.9 55 491 165 1,087 385 35.4 702 144.4 726 92 1.6 15.9 10,205

(INR million) FY14 2Q 3Q 4,506 4,497 31.6 35.7 1,687 1,119 39.5 -14.8 37.4 24.9 46 49 526 661 201 129 1,316 538 452 235 34.4 43.7

4Q 3,276 -20.5 1,130 -17.6 34.5 59 535 142 678 243 35.8

863 136.9 812 152 0.7 6.4 9,333

436 -27.7 417 -20 0.5 3.6 6,766

303 -39.5 284 -46 0.6 4.8 7,778

1Q 3,466 -31.8 971 -33.9 28.0 60 550 150 511 174 34.0

FY15E 2Q 3Q 4,236 6,740 -6.0 49.9 1,271 2,224 -24.7 98.7 30.0 33.0 60 60 575 600 150 150 786 1,714 267 686 34.0 40.0

337 -52.0 337 -54 0.5 3.5 7,000

519 -40 519 -36 0.7 5.0 7,143

1,028 240 1,028 263 1.2 12.0 10,000

FY14

FY15E

4Q 4,814 46.9 1,467 29.8 30.5 60 622 150 935 294 31.4

17,362 33.5 5,404 15 31 210 2,213 637 3,619 1,315 36.3

19,257 10.9 5,933 10 31 240 2,347 600 3,946 1,420 36.0

641 47.2 641 54 1.2 11.1 9,170

2,238 28.5 2,238 29 3.4 31 9,047

3,920 75.1 3,920 75 4 32 8,752

224

June 2014 Results Preview | Sector: Real Estate

Jaypee Infratech Bloomberg

JPIN IN

Equity Shares (m)

1,388.93

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

47.99/0.80

52-Week Range (INR)

CMP: INR33 

We estimate revenue at INR6.6b (down 14% YoY), EBITDA at INR2.3b (down 31% YoY), margin at 35%, and PAT at INR122m (down 85% YoY).



We have assumed INR2b of land revenue (from INR15b of divestment concluded in 1QFY14), and INR430m of Expressway revenue.



We expect presales momentum to remain subdued.



The stock trades at 12.8x FY16E EPS and 0.7x FY14E BV. Maintain Buy.

42/14

1, 6, 12 Rel. Per (%)

-13/21/-4

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 32.7 33.2 37.4 35.6 14.8 13.0 13.9 15.4

Adj PAT

6.9

Adj EPS (INR)

3.0

3.6

4.5

5.0

2.2

2.6

3.2

EPS Gr. (%)

-46.2

-56.9

19.1

25.7

BV/Sh. (INR)

44.5

43.6

45.0

47.0

RoE (%)

11.6

4.9

5.8

7.0

RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

10.9 23.4

9.1 54.3

9.6 45.6

10.3 36.3

6.6 0.7

15.3 0.8

12.8 0.7

10.2 0.7

8.4 3.0

9.2 3.0

8.4 3.0

7.6 3.0

EV/EBITDA (x) Div. Yield (%)

Buy

Key issues to watch for  Traffic growth and toll revenue trend in expressway  Response to parcel-3, Agra launches, and overall market outlook  Any further divestment plan and deleveraging  Clarity on forest approval hurdle in Noida Expressway projects

Quarterly Performance

(INR million)

Y/E March Sales Change (%)

FY14

FY15E

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Consl

Consl

7,692

7,966

9,878

7,651

6,623

9,141

10,553

11,043

33,187

37,360

13.4

13.0

5.9

-20.2

-13.9

14.7

6.8

44.3

1.4

12.6

3,352

3,541

3,571

2,561

2,318

3,291

4,010

4,327

13,025

13,946

Change (%)

23.2

-1.2

-15.5

-39.6

-30.8

-7.1

12.3

68.9

-11.8

7.1

As of % Sales

43.6

44.4

36.1

33.5

35.0

36.0

38.0

39.2

39.2

37.3

86

67

30

32

70

100

140

172

214

482

2,315

2,212

2,265

2,148

2,136

2,225

2,181

2,359

8,940

8,900

74

51

4

5

50

50

60

27

134

187

PBT

1,025

1,313

1,280

386

162

1,016

1,750

1,823

4,005

4,751

Tax

215

275

268

255

41

254

437

456

1,013

1,188

Effective Tax Rate (%)

21.0

21.0

21.0

65.9

25.0

25.0

25.0

25.0

25.3

25.0

Reported PAT

810

1,038

1,012

132

122

762

1,312

1,367

2,992

3,563

Change (%)

-61.4

-42.6

-34.7

-91.1

-85.0

-26.6

29.7

936.7

-56.9

19.1

810

1,038

1,012

132

122

762

1,312

1,367

2,992

3,563

-61.4

-42.6

-34.7

-91.1

-85.0

-26.6

29.7

936.7

-56.9

19.1

1.0

0.5

0.6

1.2

1.0

0.5

0.6

1.2

3.3

5.6

EBITDA

Depreciation Interest Other Income

Adj PAT Change (%) Presales (msf) Presales (INR b) Realizations (INR/sf)

4.0

1.8

2.4

1.8

4.0

1.8

2.4

1.8

10.1

16.2

4,098

3,600

3,803

1,545

4,098

3,600

3,803

1,545

3,048

2,866

E: MOSL Estimates

July 2014

225

June 2014 Results Preview | Sector: Real Estate

Mahindra Lifespaces Bloomberg

MLIFE IN

Equity Shares (m)

40.85

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

22.25/0.37

52-Week Range (INR)

603/327

1, 6, 12 Rel. Per (%)

16/16/-2

CMP: INR554 



Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 7.1 7.9 9.6 10.7 1.7 2.2 2.8 3.3

Adj PAT Adj EPS (INR)

1.0

1.1

1.3

1.5

24.6

25.9

30.8

36.1

EPS Gr. (%)

-28.9

5.3

19.0

17.2

BV/Sh.(INR)

308.9

331.7

360.9

398.2

8.0

7.8

8.5

9.1

7.7 26.2

8.9 23.6

10.8 19.4

11.9 15.3

22.5 1.8

21.4 1.7

18.0 1.5

15.3 1.4

EV/EBITDA (x) 21.1 Div. Yield (%) 0.9

16.5 0.9

12.5 0.9

10.5 0.9

RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

  

Buy

For 1QFY15, we estimate consolidated revenue at INR1.8b (flat YoY), margins at ~25%, EBITDA at INR446m (down 14% YoY), and PAT at INR207m. Presales would remain at sub-normal levels in the absence of any new launch after Nova (Chennai) in 4QFY14. We expect most of its planned launches (Alibaug, NCR, Mumbai, Chennai, and Bangalore) in 2HFY15. In 1QFY15, the company launched its affordable housing brand “Happinest”. It has concluded the Byculla land deal. Its share of sales proceeds was INR3.25b, which should result in sequential moderation in leverage. Demand for DTA/SEZ at Jaipur would be awaiting positive developments on taxation during the impending budget. The stock trades at 18x FY16E EPS and 1.5x FY16E BV.

Key issues to watch for  Progress in approvals relating to recent acquisitions  Any further acquisitions and trend in gearing level  Leasing progress in Jaipur DTA, and clarity on possible re-sizing  Progress of land acquisition in North Chennai SEZ

Quarterly Performance

(INR million)

Y/E March

FY14

FY15E

FY14

FY15E

7,053

7,912

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1,761

1,962

1,436

1,894

1,820

1,899

1,978

2,215

45.6

51.6

14.1

-47.7

3.4

-3.2

37.7

17.0

-4.5

12.2

517

493

434

259

455

494

534

682

1,702

2,165

As % of Sales

29.3

25.1

30.2

13.7

25.0

26.0

27.0

30.8

24.1

27.4

Change (%)

45.9

24.6

32.5

-80.7

-11.9

0.2

23.0

163.1

-29.6

27.2

Sales Change (%) EBITDA

Depreciation Interest Other Income PBT

24

24

25

27

27

30

36

40

101

133

168

158

143

33

150

170

190

202

502

712

70

114

125

200

100

120

140

140

509

500

395

425

391

399

378

414

448

581

1,609

1,821

Tax

132

201

88

88

125

137

148

192

509

601

Effective Tax Rate (%)

33.5

47.4

22.5

22.1

33.0

33.0

33.0

33.0

31.6

33.0

PAT before minority

263

224

303

311

253

277

300

389

1,100

1,220

43.4

-10.0

46.7

-66.3

-3.5

24.0

-0.9

25.1

-29.6

10.9

45

29

11

9

40

30

20

71

94

161

Reported PAT

218

195

292

303

213

247

280

320

1,006

1,059

Sales volume (msf)

0.2

0.2

0.3

0.2

0.15

0.2

0.4

0.3

0.9

1.0

Sales value (INR b)

0.7

0.7

1.3

1.0

0.7

0.8

1.5

1.4

3.7

4.4

4,300

4,500

4,226

4,261

4,300

4,000

4,286

4,366

4,314

4,311

Change (%) Minority Interest

Realizations (INR/sf) E: MOSL Estimates

July 2014

226

June 2014 Results Preview | Sector: Real Estate

Oberoi Realty Bloomberg

OBER IN

Equity Shares (m)

328.23

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

86.01/1.43

52-Week Range (INR)

0/-15/-10

Financial and Valuation Summary (INR b)

Adj PAT Adj EPS (INR)

2014 2015E 2016E 2017E 8.0 11.8 19.4 28.6 4.3 6.5 11.1 16.7 3.1

4.3

7.0

10.9

9.5

13.2

21.2

33.3

EPS Gr. (%)

-38.4

39.7

60.0

57.2

BV/Sh (INR)

133.9

144.8

163.7

193.5

RoE (%)

7.3

9.5

13.7

18.6

10.7 24.7

13.2 17.7

18.1 11.0

25.4 10.5

27.4 1.9

19.6 1.8

12.2 1.6

7.8 1.3

EV/EBITDA (x) 18.6 Div. Yield (%) 0.8

13.5 0.8

8.3 0.8

5.2 1.2

RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)



276/154

1, 6, 12 Rel. Per (%)

Y/E March Net Sales EBITDA

CMP: INR259

 





Buy

We estimate revenue at INR2.1b (down 3% YoY), EBITDA at INR1.2b (margins of 56%), and PAT at INR876m (down 14% YoY). Esquire recognition should drive strong revenue booking in 2HFY15. Post payment for Borivali land, net debt would be INR8b-9b. Overall enquiries have improved in Mumbai but not translated into presales yet. We expect the weak sales and collections run-rate to continue in 1QFY15, driven mainly by the Goregaon project. Ritz Carton has come up as a hotel operator in the Worli project during the quarter, which should now pave the way for launch of the branded residential section. The stock trades at 12.2x FY16E EPS, 1.6x FY15E BV, and at 12% discount to our NAV estimate of INR297.

Key issues to watch for  Launch timelines for Mulund, Oasis (with hotel operator now in), and JVLR projects  Leasing visibility in Commerz II  Sales momentum in Esquire (Goregaon) and Grande (Andheri)  Clarity on approval timeline for Borivli land

Quarterly Performance (Consolidated) Y/E March FY14 1Q 2Q 3Q Total Revenue 2,184 1,890 1,705 Change (%) 9.3 -26.7 -40.4 EBITDA 1,335 861 898 Change (%) 17.2 -42.5 -47.4 As of % Sales 61 46 53 Depreciation 69 68 68 Interest 1 1 1 Other Income 210 127 154 PBT 1,476 919 983 Tax 457 278 303 Effective Tax Rate,% 31.0 30.2 30.8 Reported PAT 1,018 642 681 Change (%) 1.0 -48.4 -49.4 Presales (msf) 0.05 0.04 0.03 Presales (INR b) 0.9 0.8 0.6 Realization (INR/sf) 18,887 20,844 20,268

4Q 2,206 -27.4 1,254 -29.5 57 67 1 79 1,265 496 39.2 770 -47.0 0.05 1.1 23,851

1Q 2,130 -2.5 1,193 -10.6 56 69 1 210 1,334 457 34.3 876 -13.9 0.05 1.0 20,000

FY15E 2Q 3Q 2,012 4,734 6.5 177.6 1,127 2,509 30.9 179.4 56 53 68 68 1 1 127 154 1,185 2,594 278 303 23.4 11.7 908 2,292 41.5 236.7 0.06 0.20 1.2 2.5 20,000 12,500

(INR million) FY14 FY15E 4Q 2,959 34.1 1,695 35.1 57 149 1 721 2,265 1,102 48.7 1,163 51.1 0.29 5.2 17,931

7,985 -23.8 4,348 -29.0 54.5 272 3 571 4,640 1,533 33.0 3,107 -38.4 0.2 3.4 21,023

11,835 48.2 6,524 50.0 55 332 308 601 6,481 2,140 33.0 4,341 39.7 0.60 9.9 16,500

E: MOSL Estimates

July 2014

227

June 2014 Results Preview | Sector: Real Estate

Bloomberg

PHNX IN

Equity Shares (m)

144.85

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

47.80/0.80

52-Week Range (INR)

333/185

1, 6, 12 Rel. Per (%)

20/25/7

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR)

2014 2015E 2016E 2017E 14.5 17.1 22.5 24.4 6.8 7.2 9.6 11.3 1.3

1.1

2.5

3.2

8.9

7.6

17.4

22.1

52.7

-14.5

129.7

26.7

BV/Sh. (INR) 119.0

124.2

139.3

157.9

7.5

6.1

12.5

14.0

RoCE (%) Payout (%)

12.3 29.0

11.2 30.9

15.3 13.4

18.0 15.9

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

39.0 2.9

45.6 2.8

19.8 2.5

15.7 2.2

EV/EBITDA (x) 12.1 Div. Yield (%) 0.6

11.6 0.6

8.5 0.6

6.9 0.9

EPS Gr. (%) RoE (%)

Phoenix Mills

CMP: INR345

Buy



We estimate High Street Phoenix's (HSP) 1QFY15 revenue at INR773m (up 11% YoY), EBITDA at INR526m (margin of 68%), and PAT at INR421m (up 0.5% YoY). We expect rentals to post 10-12% YoY growth to ~INR580x, in line with growth in consumption.



Market City and hotels businesses should report stable performance QoQ, with no major change in leasing and occupancies.



Clarity on new hotel operator’s timeline is yet to emerge.



The stock trades at 19.8x FY16E EPS, 2.5x FY16E BV, and at 14% discount to our NAV estimate of INR400.

Key issues to watch for  Sales momentum in Phase II projects in Market City  Progress in residential launch in Bangalore  Improvement in operating cash flow, which could lead to deleveraging  Update on proposed stake purchases in Market City projects  Update on new hotel operator

Quarterly Performance (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Pre MI Change (%) Adj. PAT Change (%) E: MOSL Estimates

July 2014

1Q 698 11.5 475 20.4 68 65 72 215 553 135 24 418 36.7 418 36.7

(INR million) FY14 2Q 707 6.4 479 9.2 68 65 97 172 488 123 25 365 10.6 365 10.6

3Q 756 9.0 497 4.9 66 59 146 197 489 111 23 378 10.8 378 10.8

4Q 787 9.0 480 0.2 61 65 129 216 501 137 27 364 0.7 364 0.7

1Q 773 10.8 526 10.7 68 65 125 225 561 140 25 421 0.5 421 0.5

FY15E 2Q 806 14.0 548 14.6 68 65 125 200 558 139 25 418 14.6 418 14.6

3Q 839 11.0 562 13.1 67 65 130 200 567 142 25 425 12.5 425 12.5

4Q 872 10.8 569 18.4 65 65 140 200 564 141 25 423 16.2 423 16.2

FY14

FY15E

Consol 14,485 208.3 6,784 157.8 46.8 1,055 3,451 391 2,669 909 34.1 1,760 114.7 1,285 52.7

Consol 17,116 18.2 7,157 5.5 41.8 1,286 3,513 500 2,857 943 33.0 1,914 8.8 1,098 -14.5

228

June 2014 Results Preview | Sector: Real Estate

Prestige Estate Projects Bloomberg

PEPL IN

Equity Shares (m)

350.00

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

84.54/1.41

52-Week Range (INR)

Adj PAT

Most projects are likely to cross revenue threshold in 2HFY15. For 1QFY15, we estimate revenue at INR4.8b (down 4% YoY), margins at 25%, translating to EBITDA of INR1.2b, and PAT at INR721m (down 17% YoY).



Buying momentum was weaker in 1QFY15 in Bangalore. Its lone launch at Falcon City witnessed decent booking of 25-30% of 6msf. We expect overall presales of INR6b. Scale up in capex momentum in the annuity segment is likely to result in sequentially higher leverage.



The stock trades at 16.4x FY16E EPS, 2.4x FY16E BV, maintain Buy.

19/43/35

Financial and Valuation Summary (INR b) 2014 2015E 2016E 2017E 25.5 30.7 35.6 42.9 7.2 8.8 11.3 14.6 3.1

3.9

5.6

7.4

Adj EPS (INR)

9.0

11.2

16.0

21.3

EPS Gr (%)

9.9

24.6

43.4

32.4

BV/Sh(INR)

85.1

94.6

108.9

128.4

RoE (%)

10.5

11.8

14.7

16.6

RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

12.2 19.5

13.2 15.7

16.1 10.7

19.0 8.1

29.3 3.1

23.5 2.8

16.4 2.4

12.4 2.1

EV/EBITDA (x) 16.6 Div. Yield (%) 0.6

13.6 0.6

10.4 0.6

7.8 0.6

Buy



265/105

1, 6, 12 Rel. Per (%)

Y/E March Net Sales EBITDA

CMP: INR263

Key issues to watch for  Outlook for Bangalore residential market and leasing momentum  Execution progress in ongoing projects, collections, etc  Cash flow dynamics, land acquisition (acquired 8acre premium land for INR3.45b) and debt movement

Quarterly Performance (Standalone)

Total Revenue Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj PAT Change (%) Presales (msf) Presales (INR b) Realization (INR/sf) Leasing (msf) E: MOSL Estimates

July 2014

1Q 4,983 127 1,289 83.2 25.9 80 257 310 1,263 396 31.4 867 867 75.8 1.8 10.2 5,779 0.16

FY14 2Q 4,753 97 1,187 63.7 25.0 83 265 288 1,126 350 31.1 776 776 69.9 1.8 10.7 5,839 0.48

(INR Million) 3Q 4,305 -13 1,319 -7.4 30.6 85 348 295 1,180 375 31.7 806 806 -12.5 1.6 9.4 6,066 0.22

4Q 6,012 7 1,231 -6.8 20.5 108 390 579 1,312 361 27.5 951 951 6.9 1.0 6.0 6,068 0.24

1Q 4,782 -4.0 1,195 -7.3 25.0 100 400 350 1,045 324 31.0 721 721 -16.8 0.9 6.0 6,667 0.2

FY15E 2Q 5,285 11 1,348 13.6 25.5 105 425 350 1,168 362 31.0 806 806 3.8 1.4 9.0 6,429 0.25

3Q 6,795 58 1,835 39.1 27.0 105 450 400 1,680 537 32.0 1,142 1,142 41.8 2.0 12.8 6,375 0.50

4Q 8,305 38 2,166 75.9 26.1 105 425 400 2,036 674 33.1 1,362 1,362 43.2 2.4 15.4 6,410 0.55

FY14 Consol 25,492 30.9 7,203 24.4 28 893 2,290 975 4,995 1,750 35.0 3,245 3,143 9.9 6.1 36.3 5,916 1.1

FY15E Consol 30,667 20.3 8,778 21.9 29 989 2,445 800 6,144 2,027 33.0 4,116 3,916 24.6 6.7 43.1 6,438 1.5

229

June 2014 Results Preview | Sector: Real Estate

Sobha Developers Bloomberg

SOBHA IN

Equity Shares (m)

98.06

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

47.94/0.80

52-Week Range (INR)

581/214

1, 6, 12 Rel. Per (%)

3/23/11

Financial and Valuation Summary (INR b) Y/E March Net Sales EBITDA

2014 2015E 2016E 2017E 21.7 23.4 27.5 31.7 6.0 6.5 7.9 9.2

Adj PAT EPS (INR)

2.4

2.6

3.4

4.0

24.0

26.9

34.8

40.5

EPS Gr. (%)

8.2

12.4

29.3

16.4

BV/Sh (INR)

233.7

251.2

276.7

306.7

RoE (%)

10.6

11.1

13.2

13.9

RoCE (%) Payout (%) Valuation P/E (x) P/BV (x)

14.8 29.2

14.9 29.7

16.8 23.0

18.0 22.2

20.5 2.1

18.2 2.0

14.1 1.8

12.1 1.6

EV/EBITDA (x) 10.1 Div. Yield (%) 1.4

9.4 1.6

7.9 1.6

6.8 1.8

CMP: INR491  

 



Buy

We estimate revenue at INR5.1b (up 12% YoY), EBITDA at INR1.4b (margin of 28%) and PAT at INR567m (up 13% YoY). There have been no new launches in 1Q, though the company had launched three projects towards the end of 4QFY14 in Bangalore, Coimbatore and Cochin, which would be the key presales drivers. However, on the back of weaker momentum, presales are likely to remain subnormal at INR5b. Payment of INR1.6b to Puravankara for the land deal concluded in 4QFY14 and another INR0.6b towards an acquisition in Pune in 1QFY15 should increase net debt QoQ. The stock trades at 14.1x FY15E EPS, 1.8x FY15E BV, and at 14% discount to our NAV estimate of INR570.

Key issues to watch for  Outlook for Bangalore residential market  Timeline and approval status for new launches  Execution progress in ongoing projects, collections  Cash flow dynamics, land acquisition and debt movement  Spending in commercial assets

Quarterly Performance (Consolidated)

Sales Change (%) EBITDA Margin % Depreciation Interest Other Income PBT Tax Effective Tax Rate,% Net PAT Reported PAT Change (%)

1Q 4,616 7 1,390 30 165 396 14 843 342 41 501 501 11

FY14 2Q 3Q 5,408 5,443 30 27 1,433 1,490 26.5 27.4 172 172 434 446 37 12 864 884 298 301 34 34 566 583 566 583 13 11

4Q 6,267 7 1,712 27.3 181 458 40 1,113 427 38 687 687 -1

1Q 5,149 12 1,442 28.0 190 400 20 872 305 35 567 567 13

FY15E 2Q 3Q 5,149 6,085 -5 12 1,390 1,704 27.0 28.0 200 220 430 440 20 20 780 1,064 273 372 35 35 507 691 507 691 -10 19

(INR Million) FY14 FY15E 4E 7,021 12 2,003 28.5 233 449 25 1,346 471 35 876 876 27

21,734 17 6,025 27.7 690 1,734 103 3,704 1,368 37 2,336 2,350 8

23,403 8 6,539 27.9 843 1,719 85 4,061 1,421 35 2,640 2,641 12

Presales (msf)

0.9

1.0

0.7

0.9

0.8

0.8

1.2

1.3

3.6

4.1

Presales (INR b)

6.0

6.3

5.0

6.1

4.8

5.5

8.0

9.1

23.4

27.4

6,548

6,326

6,784

6,568

6,389

6,548

6,667

6,928

6,540

6,675

Realization (INR/sf) E: MOSL Estimates

July 2014

230

June 2014 Results Preview | July 2014

Retail Company name

Improving sentiment to reflect in numbers with a lag

Future Retail

Retail companies gearing up for expected demand recovery

Jubilant Foodworks

Aggregate PAT for our Retail universe to grow 8.4% YoY We expect our Retail universe to post sales growth of 0.7% YoY, EBITDA growth of 13.5% YoY, and PAT growth of 8.4% YoY. The flattish revenues would largely be an impact of 10% decline in Titan’s revenues, owing to higher base. During the quarter, the Jewelry sector witnessed major relief, with the RBI withdrawing its ban on ‘Gold on Lease’ scheme, which it enforced in August 2013 as a part of the various measures it took to control gold imports.

Shoppers Stop Titan Company

Consumer sentiment picking up selectively The Retail sector continues to bear the impact of a weak macro-led spending slowdown in the discretionary segment. While there has been modest improvement in urban consumer sentiment, post elections, our interactions with Retail managements do not suggest broad recovery in same store sales (SSS) growth yet. We expect the improved sentiment to reflect with a lag in 2HFY14. Jubilant Foodworks is likely to post another muted quarter, though better QoQ, with 2% SSS growth, aided by a weak base. Future Retail’s SSS numbers would be impacted by higher base in the Value division. Titan’s Jewelry segment revenues are likely to decline 15% due to high base. We expect Shoppers Stop to report 6-7% SSS growth.

Space expansion plans unchanged; preparing ground for demand recovery Retail companies are gearing up for the expected demand recovery and continuing with space expansion plans. Shoppers Stop opened one store during the quarter while we expect Jubilant to have opened 35-40 stores (in line with its annual guidance of 150 store openings). Titan should add at least 100ksf of space in Jewelry, notwithstanding the near-term demand and regulatory challenges pertaining to its Golden Harvest Scheme.

Regulatory breather for Jewelers During the quarter, the RBI withdrew the ban on ‘Gold on Lease’ scheme, which it had implemented in August 2013 to discourage gold imports. Titan had resorted to international hedging, as volumes and liquidity on domestic exchanges were not sufficient. While this did not impact Titan’s P&L, it has had to resort to debt, as inventory had to be funded with upfront payment. With the withdrawal of the ban, Titan and TBZ are reverting to ‘Gold on Lease’. This is a key positive for the sector, as it will allow Jewelry companies to proceed with their expansion plans without resorting to high cost debt on the balance sheet. Interest cost including LC charges works out to 3.5-5% for ‘Gold on Lease’ against 10%+ for a regular loan. Expected quarterly performance summary (INR m) Sector

Future Retail Jubilant Foodworks Shopper's Stop Titan Company Sector Aggregate

CMP (INR) 4.7.14

Reco

136 Under Review 1,303 Buy 392 Neutral 357 Buy

Sales Var % Var % Jun-14 YoY QoQ 24,139 5,075 6,230 27,969 63,413

7.0 28.0 16.0 -10.0 0.7

2.9 17.0 -15.5 0.4 0.6

EBITDA Var % Var % Jun-14 YoY QoQ 2,173 787 343 2,657 5,959

14.3 18.0 46.7 8.5 13.5

-9.8 41.3 -9.7 -5.1 -3.0

Net Profit Var % Var % Jun-14 YoY QoQ -83 LP 372 9.3 73 213.7 1,926 5.6 2,288 8.4

LP 48.9 -10.4 -12.3 -10.1

Gautam Duggad ([email protected]) / Manish Poddar ([email protected]) July 2014

231

June 2014 Results Preview | Sector: Media

Play urban consumption recovery theme; Titan and Jubilant top picks We expect urban consumer sentiment to pick up progressively, and drive footfalls and conversion for both traditional and specialty retailers. We prefer Titan Industries and Jubilant Foodworks, as both business models have meaningful operating leverage. Even a minor improvement in SSS performance can result in earnings upgrade, in our view. From a long-term perspective, both categories are still scratching the surface, as far as per capita consumption and penetration of branded jewelry and QSR categories are concerned, and represent a secular longterm play on rising aspirations of the Indian middle class. Shoppers Stop – LTL growth moderated to HSD

16

LTL Sales Gr (%)

22

21

14

13

Jubilant Foodworks’ SSS growth has decelerated sharply

11

13

10

7

36.7

10

12

26.7

16 6

5

30.1

26.2

22.3

19.8

8

16.1 7.7

1

-1

6.3 6.6

Source: Company, MOSL

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

Mar-14

Dec-13

Jun-13

Sep-13

Dec-12

Mar-13

Sep-12

Jun-12

Mar-12

Dec-11

Jun-11

Sep-11

Dec-10

Mar-11

Sep-10

Jun-10

Mar-10

-2.6 -3.4

Source: Company, MOSL

Gold prices increased 4.3% YoY 35.9 28.4

28.2

32.3 20.0 8.0

-2.1

-0.1 1QFY15

4.3

-4.1

4QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

4QFY12

3QFY12

2QFY12

1QFY12

-6.3

3QFY14

12.2

2QFY14

18.6

Source: Company, MOSL

Source: Company, MOSL

July 2014

93

726

142 152 96 100 105 110 112 118 123 128 132

4QFY14

4QFY11

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Sep-12

90

679

3QFY14

68

2QFY14

67

1QFY14

65

632 576 602 552 489 515 439 465 378 392 411

4QFY13

55

61

Cities

3QFY13

55

60

Stores

2QFY13

54

12

15

1QFY13

52

Jun-12

Sep-11

Mar-12

43

51

Dec-11

41

49

12

15

4QFY12

12

15

3QFY12

12

10

Jun-11

10

12

Dec-12

12

Hypercity 14 13

2QFY12

Shoppers Stop

Jubilant Foodworks: Expected to add 35 stores in 1QFY15

1QFY12

Shoppers Stop: One store added in 1QFY15

Source: Company, MOSL

232

June 2014 Results Preview | Sector: Media

Sensex Index 125

115

110

100

95

85

80

Jul-13

Jul-14

May-14

Apr-14

MOSL Retail Index

Jan-14

130

Jun-14

140

Source: Bloomberg, MOSL

Jul-14

MOSL Retail Index

145

Oct-13

Sensex Index

Relative Performance - 1Yr (%)

Apr-14

Relative Performance - 3m (%)

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Retail Jubilant Foodworks Shopper's Stop Titan Company Sector Aggregate

July 2014

CMP (INR)

Reco

1,303 Buy 392 Neutral 357 Buy

EPS (INR) FY15E FY16E FY17E 25.3 7.8 9.8

35.1 10.0 11.9

47.3 12.4 14.3

PE (x) FY15E FY16E FY17E 51.4 50.0 36.3 39.4

37.1 39.1 30.1 31.8

27.6 31.7 25.0 25.9

EV/EBIDTA (x) FY15E FY16E FY17E 24.0 16.2 26.7 24.9

17.3 13.5 21.7 19.8

12.7 11.3 18.0 16.0

RoE (%) FY15E FY16E FY17E 22.6 8.3 28.4 24.1

23.8 9.9 27.6 24.3

24.3 11.1 0.0 24.4

233

June 2014 Results Preview | Sector: Retail

Future Retail Bloomberg Equity Shares (m)

FRL IN 231.8

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

32 / 1

52-Week Range (INR)

148 / 63

1,6,12 Rel Perf. (%)

-2 / 49 / 9

CMP: INR136 

For 1QFY15, results would be comparable on a YoY basis.



We expect Future Retail to report sales of INR24.2b, up 7% YoY.



Same store sales (SSS) growth in the Value segment would be 3%. In the base quarter, SSS growth in the Value segment was 10.7%.



We estimate EBITDA at INR2.1b (9.0% EBITDA margins, up 60bp YoY).



We expect interest cost to decrease 5% QoQ to INR1.5b. Net debt stands at INR62b.



We expect adjusted PAT of INR -83m.



Our stock recommendation is Under Review

Financial and Valuation Summary (INR b) Y/E March Sales

2013 180.2

2014 2015E 2016E 115.7 98.3 105.7

EBITDA

16.1

10.4

8.9

9.9

Adj. PAT

0.7

7.7

0.1

0.6

Adj. EPS (INR)

1.2

-1.6

0.5

2.7

BV/Sh.(INR)

33

141

141.2

143.8

RoE (%)

2.9

-1.5

0.3

1.9

RoCE (%)

14.2

6.8

5.9

6.6

Payout (%)

0.0

0.0

0.0

0.0

Valuations P/E (x)

108.4

-77.9

276.7

48.1

P/BV (x)

3.9

0.9

0.9

0.9

EV/EBITDA (x) 14.0

10.0

11.4

10.2

0.0

0.0

0.0

Div. Yield (%)

0.0

Under Review

Key issues to watch for  Same store performance – commentary on consumer demand  Progress on debt reduction and inventory optimization

Quarterly performance

(INR Million) FY14

Y/E March Net sales YoY Change (%) Total Expenses EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 23,360 -22.8 21,580 1,780 7.6 -35.9 -730 -1,160 30 -80 0 0.0 -80 -166.6

2Q 22,560 -23.9 20,659 1,901 8.4 -31.2 -786 -1,288 59 -115 38 33.1 -77 -298.0

3Q 23,167 -24.3 21,123 2,044 8.8 -22.8 -798 -1,439 59 -133 52 38.8 -81 65.1

FY15E 4Q 23,233 -26.7 20,964 2,269 9.8 -18.3 -843 -1,493 80 14 -104 762.0 -91 -296.3

5Q 23,451 0.4 21,043 2,408 10.3 35.3 -881 -1,553 51 25 -8 30.6 18 -122.1

1Q 24,139 7.0 21,967 2,173 9.0 14.3 -890 -1,475 70 -122 -39 32.0 -83 7.7

2Q 24,557 7.0 22,347 2,210 9.0 8.1 -899 -1,401 71 -18 -6 32.0 -12 -84.8

3Q 24,627 6.0 22,361 2,266 9.2 -0.2 -907 -1,331 88 115 37 32.0 78 -186.5

4Q 24,934 6.3 22,661 2,273 9.1 -5.6 -876 -1,283 70 185 61 32.9 124 599.9

FY14

FY15

115,771

98,258 -15.1 89,336 8,921 9.1 -14.2 -3,571 -5,490 300 160 53 33.0 107 -134.5

105,369 10,402 9.0 -4,038 -6,932 279 -289 23 -7.8 -311

234

June 2014 Results Preview | Sector: Retail

Jubilant Foodworks Bloomberg Equity Shares (m)

JUBI IN 65.4

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

85 / 1

52-Week Range (INR)

1,390 / 939

1,6,12 Rel Perf. (%)

0 / -21 / -16

Financial and Valuation Summary (INR b) Y/E March Sales

2014 2015E 2016E 2017E 17.2 22.8 30.2 39.2

CMP: INR1,303  



EBITDA

2.5

3.5

4.7

6.3

Adj. PAT

1.3

1.7

2.3

3.1

Adj. EPS (INR) 19.2

25.3

35.1

47.3



EPS Gr. (%)

-4.3

31.9

38.5

34.7



BV/Sh.(INR)

87.0

112.3

147.4

194.7



RoE (%)

22.1

22.6

23.8

24.3

RoCE (%)

30.8

31.6

33.8

34.8

Payout (%)

0.0

0.0

0.0

0.0

Valuations P/E (x)

67.8

51.4

37.1

27.6

P/BV (x)

15.0

11.6

8.8

6.7

EV/EBITDA (x) 32.9

24.0

17.3

12.6

0.0

0.0

0.0

Div. Yield (%)

0.0

Buy

We expect revenue to grow 28% YoY to INR5.1b. Like-to-like (LTL) sales growth would be 2%, aided by low base. While consumer sentiment has improved post elections, it is yet to reflect in on-the-ground consumer spending in discretionary categories. We expect back-ended recovery in 2HFY15. We expect 130bp contraction in EBITDA margin to 15.5% due to low operating leverage and costs related to Dunkin operations. Dominos has tactically tweaked its promotion strategy to ensure better footfalls on weekdays and lean store timings (lunch). We estimate 9.3% PAT growth at INR372m. We expect addition of 35-40 stores during the quarter. The stock trades at 37x FY16E EPS of INR35.1. Buy.

Key issues to watch for  Comments on demand outlook for QSR and Pizza space as well as competition  Performance of Dunkin Donuts and margin guidance  Changes in expansion and capex strategy, if any

Quarterly performance

(INR Million) FY14

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

July 2014

1Q 602 6.3 3,965 26.1 2,937 74.1 2,270 667 16.4 16.8 179 22 510 170 33.3 340 5.1

2Q 632 6.6 4,367 27.6 3,195 73.2 2,542 653 11.3 15.0 179 24 498 165 33.2 332 2.8

FY15 3Q 679 -2.6 4,566 18.5 3,349 73.3 2,675 674 0.3 14.8 196 24 502 166 33.1 336 -10.9

4Q 726 -3.4 4,337 18.6 3,267 75.3 2,710 557 -9.1 12.8 213 24 368 118 32.1 250 -23.7

1Q 761 2.0 5,075 28.0 3,781 74.5 2,994 787 18.0 15.5 260 28 555 183 33.0 372 9.3

2Q 795 5.0 5,720 31.0 4,222 73.8 3,335 887 35.8 15.5 260 30 657 217 33.1 439 32.2

3Q 835 10.0 6,141 34.5 4,532 73.8 3,580 952 41.2 15.5 284 29 698 223 32.0 474 41.2

4Q 876 12.0 5,855 35.0 4,408 75.3 3,549 859 54.3 14.7 330 33 562 191 34.1 370 48.4

FY14

FY15

726 1.6 17,235 22.4 12,748 74.0 10,197 2,551 4.4 14.8 767 93 1,877 619 33.0 1,258 -6.9

876 22,792 32.2 16,943 74.3 13,459 3,484 36.6 15.3 1,133 120 2,471 815 33.0 1,656 31.6

235

June 2014 Results Preview | Sector: Retail

Shoppers Stop Bloomberg Equity Shares (m)

SHOP IN 82.2

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

32 / 1

52-Week Range (INR)

1.5

2.0

2.4

2.9

Adj. PAT

0.4

0.6

0.8

1.0

Adj. EPS (INR)

4.6

7.8

10.0

12.4

EPS Gr. (%)

-5.6

70.7

27.9

23.3

BV/Sh.(INR)

87.3

93.8

101.5

110.9

RoE (%)

5.3

8.3

9.9

11.1

RoCE (%)

8.4

11.6

13.2

14.9

Payout (%)

19.1

15.0

20.0

20.0

Valuations P/E (x)

85.4

50.0

39.1

31.7

4.5

4.2

3.9

3.5

EV/EBITDA (x) 21.5

16.2

13.5

11.3

0.3

0.5

0.6

Div. Yield (%)



We estimate EBITDA margin at 5.5%, up 120bp YoY, led by better operating leverage.



HyperCITY should continue to report losses, in our view.



It has added one Shoppers Stop department stores during 1QFY15.



The stock trades at 39x FY16E EPS (standalone). Maintain Neutral.

2014 2015E 2016E 2017E 27.1 31.4 36.0 41.6

EBITDA

P/BV (x)

We expect revenue to grow 16% YoY to INR6.2b. Same store sales (SSS) growth would be 6-7%. Discretionary consumption demand remains sluggish despite improvement in consumer sentiment, post elections.

-10 / -29 / -30

Financial and Valuation Summary (INR b)

0.2

Neutral



459 / 318

1,6,12 Rel Perf. (%)

Y/E March Sales

CMP: INR392

Key issues to watch for  Comments on same store performance  Margin outlook  Guidance on HyperCITY breakeven

Quarterly performance

(INR Million) FY14

Y/E March LTL Sales Gr % Deptt Stores Net Sales YoY Change (%) Total Exp EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

FY15E

FY14

FY15

1Q 12.0 60 5,371 20.2 5,137 234 69.4

2Q 15.5 61 7,252 25.1 6,854 398 36.7

3Q 5.5 65 7,118 17.8 6,592 526 16.2

4Q 8.4 67 7,375 18.1 6,995 379 -0.9

1Q 6.0 68 6,230 16.0 5,887 343 46.7

2Q 8.0 72 8,593 18.5 8,060 533 34.0

3Q 10.0 74 8,221 15.5 7,604 617 17.2

4Q 10.0 75 8,355 13.3 7,828 527 38.9

11.0 67 27,115 20.2 25,578 1,537 21.6

8.5 75 31,399 15.8 29,380 2,019 31.4

4.3 133 98 32 34 11 32.2 23 86.1

5.5 167 98 33 166 66 40.1 99 55.2

7.4 140 115 32 303 130 42.8 173 1.4

5.1 178 108 37 131 50 38.1 81 -46.6

5.5 146 128 41 110 37 34.0 73 213.7

6.2 184 127 43 265 90 34.0 175 76.0

7.5 154 150 42 355 121 34.0 234 35.0

6.3 205 126 48 245 83 34.0 162 99.4

5.7 618 419 134 634 257 40.6 377 -5.6

6.4 689 530 174 974 331 34.0 643 70.7

236

June 2014 Results Preview | Sector: Retail

Titan Company Bloomberg Equity Shares (m)

TTAN IN 887.8

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

317 / 5

52-Week Range (INR)

CMP: INR357 

362 / 203

1,6,12 Rel Perf. (%)

7 / 33 / 22 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

10.2

12.2

14.7

17.4

Adj. PAT

7.5

8.7

10.5

12.7

Adj. EPS (INR)

8.6

9.8

11.9

14.3

EPS Gr. (%)

5.7

14.0

20.5

20.5

BV/Sh.(INR)

27.7

34.6

42.9

52.9

RoE (%)

31.1

28.4

27.6

27.0

RoCE (%)

38.7

36.9

36.6

36.3

Payout (%)

30.0

30.0

30.0

30.0

Valuations P/E (x)

41.3

36.3

30.1

25.0

P/BV (x)

12.9

10.3

8.3

6.7

EV/EBITDA (x) 30.7

26.6

21.6

18.0

0.8

1.0

1.2

Div. Yield (%)



2014 2015E 2016E 2017E 108.7 124.3 146.6 174.1

0.7





Buy

We expect sales de-growth of 10% YoY to INR28b. The base quarter had 67% volume growth in the Jewelry division due to gold price correction. Jewelry revenue is likely to decline 15% YoY; Watches should see 8% growth. During the quarter, the RBI withdrew the ban on ‘Gold on Lease’ scheme, which it had implemented in August 2013. Consequently, Titan and other jewelers are switching back to the ‘Gold on Lease’ route of inventory funding. We estimate margin expansion of 160bp YoY due to mix improvement in Jewelry (the base quarter had seen pick-up in investment-led coin demand due to price correction). Watch segment margins would benefit from low base. The stock trades at 30.1x FY16E EPS of INR11.9. Buy.

Key issues to watch for  Comments on consumer demand in Jewelry and Watches  Expansion plans  Update on Golden Harvest Scheme

Quarterly performance

(INR Million) FY14

Y/E March Net Sales YoY Change (%) Total Exp EBITDA EBITDA Growth % Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates

July 2014

1Q 31,077 40.9 28,627 2,449 15.6 7.9 146 170 382 2,515 691 27.5 1,825 16.9

2Q 23,290 2.3 20,672 2,617 4.9 11.2 149 200 304 2,573 706 27.4 1,867 3.6

FY15E 3Q 26,505 -11.1 24,136 2,369 -4.4 8.9 157 274 514 2,452 673 27.5 1,779 -12.8

4Q 27,868 7.5 25,068 2,800 13.6 10.0 204 227 421 2,789 594 21.3 2,195 18.7

1Q 27,969 -10.0 25,312 2,657 8.5 9.5 171 213 447 2,721 794 29.2 1,926 5.6

2Q 27,482 18.0 24,514 2,968 13.4 10.8 174 249 355 2,900 847 29.2 2,053 10.0

3Q 33,926 28.0 30,533 3,393 43.2 10.0 183 342 601 3,468 1,013 29.2 2,456 38.0

4Q 34,939 25.4 31,242 3,698 32.1 10.6 209 341 495 3,643 899 24.7 2,744 25.0

FY14

FY15

108,739 8.1 98,504 10,236 7.1 9.4 656 871 1,621 10,329 2,664 25.8 7,666 5.7

124,316 14.3 111,601 12,715 24 10.2 737 1,146 1,899 12,731 3,553 27.9 9,179 19.7

237

June 2014 Results Preview | July 2014 June 2014 Results Preview | Sector: Technology

Technology Technology Technology Company name

1QFY15 Preview: Growth to remain polarized…

Cognizant Technology

…in a seasonally strong quarter amid healthy demand environment

HCL Technologies Hexaware Technologies Infosys



Expect TCS to lead growth, CTSH and HCLT to follow, MTCL to lead in tier-II



INR appreciation and visa cost to impact margins across the board



Expect INFO to maintain guidance, WPRO to guide for growth acceleration (double digit YoY in 2Q)

KPIT Technologies MindTree Consulting Mphasis Persistent Systems TCS Tech Mahindra Wipro



Watch out for INFO’s guidance, commentary by peers on margins

Polarized growth in seasonally strong quarter 1Q is a seasonally strong quarter for the industry. However, we expect polarized growth in our coverage universe, with the seasonality reflecting in TCS (+5.5% QoQ), CTSH (+5.1% QoQ), HCLT (+4.3% QoQ) and MTCL (+4.9% QoQ). Company-specific issues are likely to keep growth relatively muted at INFO (+2.2% QoQ), WPRO (+1.2% QoQ), TECHM (+1.8% QoQ) and PSYS (-0.4% QoQ). Aggregate growth in our coverage universe would be +3.5% QoQ in tier-I and +3.2% QoQ in tier-II.

Margins to decline across the board, irrespective of wage hikes While 1Q margins are sequentially lower primarily due to wage hikes, only 4 of the 10 coverage companies have wage hikes becoming effective in 1QFY15. Yet, we expect operating margins to decline across the board, primarily on [1] ~3% QoQ appreciation in INR (impacting margins by 75-150bp), and [2] visa costs incurred in 1Q. Cross-currency movements are likely to boost revenue growth by 40-60bp QoQ across the top-tier, but unlikely to offset margin headwinds meaningfully.

Expect INFO to retain guidance, WPRO to guide for YoY growth acceleration INFO guided for 7-9% YoY growth for FY15, implying a CQGR of 2-3%. We expect the company to retain that band despite the ongoing flux and inward focus. WPRO is likely to guide for USD revenue growth of 2.5-4.5% QoQ for 2QFY15, implying 9.511.5% YoY growth. Expected quarterly performance summary (INR m) Sector

HCL Technologies Hexaware Tech. Infosys KPIT Tech. Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro Sector Aggregate

CMP (INR) 4.7.14 1,481 155 3,239 180 853 429 1,100 2,410 2,116 548

Reco Buy Neutral Buy Buy Neutral Neutral Buy Neutral Buy Neutral

Sales Var % Var % Jun-14 YoY QoQ 84,442 21.6 1.1 5,953 10.9 1.1 127,352 13.0 -1.1 6,928 13.0 -1.0 8,358 29.0 1.5 14,594 NA 41.7 4,305 20.5 -3.6 220,675 22.7 2.4 49,981 21.8 -1.2 115,520 18.7 -0.9 638,108 18.8 1.2

EBITDA Var % Var % Jun-14 YoY QoQ 21,918 35.7 -1.8 1,195 -6.1 5.5 32,989 10.6 -9.4 975 0.3 -13.7 1,664 39.7 -6.0 2,512 NA 42.6 990 27.4 -18.0 64,401 25.0 -3.2 9,797 13.3 -8.6 27,314 35.5 -3.1 163,755 22.8 -4.3

Net Profit Var % Var % Jun-14 YoY QoQ 16,398 36.9 1.0 854 -12.7 21.5 27,824 17.2 -7.0 585 -2.7 -4.6 1,243 -8.2 26.6 1,684 NA 37.9 596 4.3 -11.4 49,488 24.0 -6.6 6,536 0.1 8.4 20,909 28.8 -6.1 126,117 21.5 -4.2 Source: MOSL

Ashish Chopra ([email protected]) / Siddharth Vora ([email protected]) July 2014

238

June 2014 Results Preview | Sector: Technology

Watch out for TCS’ growth, and peers’ commentary on 2Q rebound and margin trajectory TCS’ outlook of growth acceleration in FY15 along with normal seasonality in 2H implies strong ask rate in 1H, making it imperative to deliver a strong 1Q. Anything below 4.5% QoQ will mean a steep ask rate to meet estimates. Guidance at INFO and WPRO will be crucial. While the changes in INFO will be afforded more time, strong guidance is more crucial for WPRO. After a quarter of margin decline across the board, outlook on sustainable profitability and levers to offset potential currency risks will be keenly watched.

Limited upsides in near term; prefer TECHM, INFO, HCLT, PSYS Outlook of a sanguine FY15 is reflected across rich valuations, with the exceptions of laggards like INFO and WPRO in tier-I and KPIT in tier-II. However, a slow start to the year will make it difficult to beat the industry outlook, and necessitates a rebound in 2Q for most companies before a seasonally weak 2H. We prefer TECHM, INFO and HCLT in the top tier. Upside in the near term may be limited at TECHM, but expectations for INFO run low, leaving room for surprise. Strong growth visibility keeps us sanguine on HCLT. In tier-II, we prefer PSYS, given its operations in cuttingedge technologies, pricing power and relationships with the largest ISVs. We also like KPIT, given the likely turnaround in earnings performance from improvement in SAP profitability, better growth, and discontinuation of lower-rate hedges. TCS to lead polarized growth

Source: Company, MOSL

WPRO and TECHM only players to show incremental revenue decline sequentially

Source: Company, MOSL

July 2014

239

June 2014 Results Preview | Sector: Technology

Decline in PSYS and lower growth in KPIT due to internal reasons

Source: Company, MOSL

Aggregate tier I revenue growth at 3.5%; margin to decline by 149bp Revenues (USD m) Company

Revenues (INR b)

1QFY15E

1QFY14

Yoy (%)

4QFY14

QoQ (%)

1QFY15E

1QFY14

Yoy (%)

4QFY14

QoQ (%)

TCS

3,696

3,165

16.8

3,503

5.5

221

180

22.7

216

2.4

Infosys

2,138

1,991

7.4

2,092

2.2

125

113

11.0

129

-2.8

Wipro

1,741

1,588

9.6

1,720

1.2

116

97

18.7

117

-0.9

HCLT

1,419

1,228

15.6

1,361

4.3

84

69

21.6

83

1.1

840

724

16.0

825

1.8

32.7

25.7

27.2

32.5

0.7

9,835

8,696

13.1

9,501

3.5

578

485

19.3

577

0.3

Tech Mahindra Aggregate

EBITDA margin (%) Company

PAT (INR b)

1QFY15E

1QFY14

YoY (%)

4QFY14

QoQ (%)

1QFY15E

1QFY14

YoY (%)

4QFY14

QoQ (%)

TCS

29.2

28.6

50

30.9

-170

49

40

23.9

53

-6.6

Infosys

25.7

26.5

-70

28.3

-250

27

24

14.8

30

-8.9

Wipro

23.6

20.7

290

24.2

-50

21

16

28.8

22

-6.1

HCLT

25.9

23.3

270

26.7

-80

16

12

36.7

16

0.8

Tech Mahindra

19.6

21.1

-150

21.2

-159

6.5

6.5

0

6.0

8

Aggregate

26.3

25.4

93

27.8

-149

121

98

22.5

127

-5.4

Aggregate tier II revenue growth to be lower at 3.2% QoQ and margin decline to be higher than tier I at 160bp Revenues (USD m) Company

1QFY15E

Persistent Systems Hexaware KPIT Cummins Mindtree Aggregate

72 100 116 139 428

Company Persistent Systems Hexaware KPIT Cummins Mindtree Aggregate

1QFY15E 23.0 20.1 14.1 19.9 18.9

1QFY14

YoY (%)

4QFY14

63 14.8 73 95 5.5 96 109 7.0 114 118 18.4 133 384 11.4 415 EBITDA margin (%) 1QFY14 YoY (%) 4QFY14 21.7 120 27.0 23.7 -360 19.2 15.9 -180 16.1 18.4 150 21.5 19.6 -70 20.5

Revenues (INR b) QoQ (%)

1QFY15E

1QFY14

-0.4 4.4 2.5 4.9 3.2

4.3 6.0 6.9 8.4 26

3.6 5.4 6.1 6.5 22

QoQ (%) -400 80 -210 -160 -160

1QFY15E 0.6 0.9 0.6 1.2 3.3

YoY (%)

4QFY14

20.5 4.5 10.9 5.9 13.0 7.0 29.0 8.2 18.5 26 PAT (INR b) 1QFY14 YoY (%) 4QFY14 0.6 4 0.7 1.0 -13 0.7 0.6 -3 0.5 1.4 -8 1.0 3.5 -6 2.9

QoQ (%) -3.6 1.1 -1.0 1.5 -0.2 QoQ (%) -11.4 21.5 13.6 26.6 14.1

Source: Company, MOSL

July 2014

240

June 2014 Results Preview | Sector: Technology

1QFY15 currency highlights (INR) Rates (INR) EUR GBP 81.9 100.7 82.1 102.3

USD 59.8 60.1

Average Closing

AUD 55.8 56.5

Change (QoQ) EUR GBP AUD -3.1% -1.5% 0.8% -0.6% 2.6% 2.2% Source: Company, MOSL

USD -3.2% 0.4%

1QFY15 currency highlights (in USD) Rates (USD) GBP 1.68 1.70

EUR 1.37 1.37

Average Closing

Change (QoQ) EUR GBP AUD 0.1% 1.7% 4.0% -0.8% 2.1% 1.4% Source: Company, MOSL

AUD 0.93 0.94

Crossed currencies: Assumed rates v/s actual Guided at Infosys Wipro Actual (Average)

EUR 1.38 1.37 1.37

GBP 1.67 1.66 1.68

AUD 0.93 0.90 0.93 INR/USD

Change (%)

EUR

GBP

AUD

Infosys Wipro

-0.6% 0.1%

0.8% 1.4%

0.3% 3.7%

INR/USD 60.00 61.62 59.78

Impact on USD revenue -0.4% 0.03% -3.0% 0.58% Source: Company, MOSL

EPS estimates (INR): MOSL v/s consensus 1QFY15 Infosys TCS

FY15

FY16

Upside/Downside to Consensus

MOSL 48.7

Consensus 47.5

MOSL 199.0

Consensus 206.4

MOSL 215.5

Consensus 233.1

1QFY15 2.6%

FY15 -3.6%

FY16 -7.5%

25.3

25.5

105.9

110.7

121.4

127.0

-0.8%

-4.4%

-4.4%

Wipro

8.5

8.7

34.9

35.9

39.3

40.2

-2.7%

-2.7%

-2.1%

HCL Tech

23.1

22.9

93.3

99.1

103.5

111.1

1.0%

-5.9%

-6.8%

Tech Mahindra

30.5

30.5

138.5

138.5

157.4

158.5

0.2%

0.0%

-0.7%

Cognizant

0.59

0.56

2.4

2.5

2.9

2.9

5.2%

-5.2%

-0.9%

Persistent Systems

14.9

17.2

74.7

78.5

94.6

91.6

-13.3%

-4.9%

3.2%

Mindtree

11.7

14.5

62.2

55.3

73.2

68.0

-19.4%

12.5%

7.7%

KPIT Cummins

2.9

3.4

14.7

15.8

18.2

18.4

-12.3%

-6.9%

-0.8%

Hexaware

2.8

2.9

11.7

12.0

13.2

13.6

-2.1%

-2.3%

-3.5%

Mphasis

8.0

8.8

35.0

38.1

39.7

41.2

-8.7%

-8.0%

-3.8%

Comparative valuations Sector / Companies Technology HCL Technologies Hexaware Tech. Infosys KPIT Tech. Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro Sector Aggregate

July 2014

CMP (INR) 1,481 155 3,239 180 853 429 1,100 2,410 2,116 548

Reco

Buy Neutral Buy Buy Neutral Neutral Buy Neutral Buy Neutral

EPS (INR) FY15E FY16E FY17E 99.6 11.7 204.6 14.7 62.2 35.0 74.7 111.9 138.5 34.9

111.7 13.2 227.6 18.2 73.2 39.7 94.6 128.2 157.4 39.3

122.5 13.4 243.5 20.5 80.0 42.4 113.2 141.0 180.6 42.5

PE (x) FY15E FY16E FY17E 14.9 13.3 15.8 12.3 13.7 12.2 14.7 21.5 15.3 15.7 17.9

13.3 11.8 14.2 9.9 11.6 10.8 11.6 18.8 13.4 13.9 15.8

12.1 11.6 13.3 8.8 10.7 10.1 9.7 17.1 11.7 12.9 14.4

EV/EBIDTA (x) FY15E FY16E FY17E 10.1 8.7 10.3 6.7 9.6 9.3 7.8 15.6 9.7 10.9 12.4

8.6 8.2 8.8 5.1 7.8 8.5 6.1 13.6 8.1 9.6 10.7

7.4 7.8 7.9 3.9 6.8 8.1 4.8 12.3 7.3 8.1 9.6

RoE (%) FY15E FY16E FY17E 36.0 31.6 28.1 28.7 24.7 23.8 20.5 20.7 28.3 26.9 14.1 15.2 22.4 24.0 36.4 34.4 28.7 25.7 22.9 22.0 26.1 24.8

27.9 26.6 22.3 19.1 24.3 15.4 24.0 30.8 23.8 20.4 22.8

241

June 2014 Results Preview | Sector: Technology

Cognizant Technology Bloomberg

CTSH US

Equity Shares (m)

608.45

M.Cap. (USD b)

30.3

52-Week Range (INR)

2013 2014E 2015E 2016E 8.8 10.4 12.2 14.0

EBITDA

1.9

2.1

2.6

3.0

PAT

1.2

1.5

1.8

2.0

EPS (USD)

2.0

2.4

2.9

3.3

EPS Gr. (%)

16.2

18.9

20.9

15.7

BV/Sh. (USD)

10.0

12.6

15.5

18.9

RoE (%)

22.4

21.1

20.5

19.5

RoCE (%)

29.0

27.1

26.5

25.6

24.8

20.9

17.3

14.9

5.0

4.0

3.2

2.6

14.6

12.2

9.6

7.5

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



  

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount Util excl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014



54/32

Financial Snapshot (INR m) Y E Dec Sales

CMP: USD50

Not Rated

For 2QCY14, CTSH had guided revenues of USD2,500m-2,530m, implying QoQ growth of 3.2-4.4%. We expect CTSH to beat the higher end of its guidance and post 5.1% QoQ growth to USD2,547m. CTSH retained its CY14 revenue growth guidance of ‘at least’ USD10.3b, +16.5% YoY (16.1% organic). CTSH’s 2QCY14 guidance implies: [1] limited likelihood of significant beat to start-of-the-year guidance, unlike CY13, [2] deceleration in YoY growth, and [3] CY14 growth likely to match TCS’ organic growth at best. We expect EBITDA margin of 20.7%, flat QoQ. Our SGA estimate is 20%, same as the last quarter. We expect net income of USD361m, +3.5% QoQ, and net margin of 14.2%, -20bp QoQ. The stock trades at 20.9x CY14E and 17.3x CY15E EPS. Not Rated.

Key issues to watch for  Any upgrade to full year outlook after strong Accenture commentary  Commentary on margins and competitive intensity

(USD Million) CY13

1Q 2,021 3.7 40.6 20.4 408 20.2 18.1 11.3 24.6 284 14.1 1.9 16.6 162,700 67.0 49.0

2Q 2,161 7.0 41.1 19.5 469 21.7 19.7 -6.4 28.5 300 13.9 5.7 19.2 164,300 70.0 49.0

CY14

3Q 2,306 6.7 40.0 19.2 480 20.8 19.0 1.8 27.2 320 13.9 6.4 15.4 166,400 75.0 49.0

4Q 2,355 2.2 40.1 19.1 494 21.0 19.0 3.3 28.1 324 13.8 1.5 16.3 171,400 74.0 49.0

1Q 2,422 2.8 40.9 20.0 505 20.8 19.0 13.2 26.3 349 14.4 7.6 22.8 178,600 76.0 49.0

2QE 2,547 5.1 40.7 20.0 526 20.7 18.8 11.6 26.5 361 14.2 3.5 20.2 185,500 75.0 48.1

3QE 2,683 5.4 40.3 20.0 545 20.3 18.5 12.3 26.5 373 13.9 3.4 16.8 193,900 75.5 48.3

4QE 2,755 2.7 40.1 20.0 555 20.1 18.3 16.5 26.5 383 13.9 2.5 18.0 199,300 74.0 47.8

CY13

CY14E

8,843 20.4 40.5 19.5 1,850 20.9 19.0 10.0 27.2 1,229 13.9

10,408 17.7 40.5 20.0 2,131 20.5 18.6 53.6 26.4 1,466 14.1

16.9 171,400 71.6 49.0

19.3 199,300 75.1 48.3

242

June 2014 Results Preview | Sector: Technology

HCL Technologies Bloomberg

HCLT IN

Equity Shares (m)

706.5

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

1,046/17.5

52-Week Range (INR)

1,589/756

1, 6, 12 Rel. Per (%)

+2/-3/+52

CMP: INR1480



Financial Snapshot (INR b) Y/E June

2014E 2015E 2016E 2017E

Sales

329.4

359.1

409.5

466.0

EBITDA

86.4

84.5

91.9

101.1

PAT

61.7

66.4

74.2

82.1

EPS (INR)

87.2

93.3

103.5

114.2

EPS Gr. (%)

52.9

6.9

11.0

10.4

BV/Sh. (INR)

279.9

355.1

432.5

520.6

RoE (%)

41.5

34.0

29.8

26.9

RoCE (%)

35.0

29.0

26.3

24.1

Payout (%)

17.2

17.8

23.4

21.3

17.0

15.9

14.3

13.0

Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)

5.3

4.2

3.4

2.8

11.0

10.7

9.4

8.0

1.0

1.1

1.6

1.6

HCL Tech Quarterly Performance (US GAAP) Y/E June FY14 1Q 2Q Revenue (USD m) 1,270 1,321 QoQ (%) 3.5 4.0 Revenue (INR m) 79,610 81,840 QoQ (%) 14.6 2.8 YoY (%) 30.7 30.4 GPM (%) 39.0 38.4 SGA (%) 12.7 12.5 EBITDA 20,930 21,250 EBITDA Margin (%) 26.3 26.0 EBIT Margin (%) 23.8 23.7 Other income -1,200 -470 ETR (%) 20.2 21.0 PAT 14,160 14,950 PAT margin (%) 17.8 18.3 QoQ (%) 18.2 5.6 YoY (%) 63.9 58.3 Headcount 87,196 88,332 Util excl. trainees (%) 82.0 82.7

July 2014



 





Buy

We expect USD revenue growth of 4% QoQ to USD1,416m. Traction in IMS would remain strong, with our estimate of 6.6% QoQ to USD499m. We expect Software Services revenue of USD854m, +2.7% QoQ. In INR terms, our revenue estimate is INR84.3b, +0.9% QoQ. Realized currency rate is likely to decline 3% QoQ. EBITDA margin is likely to decline 90bp QoQ to 25.8% due to impact of deferred wage hikes and INR appreciation. PAT estimate for the quarter is INR16,319m, flattish QoQ. We estimate forex losses of INR479m and other income (excluding forex losses) at INR1,601m. TPI suggested a positive outlook for broader market in 1HFY14, with a stronger industry pipeline and global market increase of ~5%. We expect HCLT to continue its healthy deal signing momentum. The stock trades at 15.9x FY15E and 14.3x FY16E EPS. Maintain Buy.

Key issues to watch for  TCV of deals signed during the quarter  Growth in Software Services segment  Commentary on margins

3Q 1,361 3.0 83,490 2.0 30.0 38.9 12.1 22,320 26.7 24.7 -70 20.9 16,240 19.5 8.6 59.4 90,190 83.4

4QE 1,419 4.3 84,442 1.1 21.6 38.6 12.6 21,881 25.9 23.8 850 22.0 16,369 19.4 0.8 36.7 92,390 84.3

1Q 1,468 3.5 85,904 1.7 7.9 37.3 13.0 20,903 24.3 22.3 661 21.0 15,634 18.2 -4.5 10.4 95,290 83.8

FY15E 2Q 3Q 1,519 1,571 3.4 3.4 88,102 91,139 2.6 3.4 7.7 9.2 36.4 36.1 12.9 12.9 20,651 21,178 23.4 23.2 21.4 21.2 1,458 2,315 21.0 21.0 16,028 17,071 18.2 18.7 2.5 6.5 7.2 5.1 98,440 101,690 85.5 85.6

4Q 1,634 4.0 93,931 3.1 11.2 36.1 12.9 21,794 23.2 21.1 2,558 21.0 17,705 18.8 3.7 8.2 105,240 85.2

FY14E

(INR Million) FY15E

5,372 14.6 329,382

6,192 15.3 359,076

28.0 38.7 12.5 86,381 26.2 24.0 -890 21.1 61,719 18.7

9.0 36.4 12.9 84,527 23.5 21.5 6,993 21.0 66,438 18.5

53.3 92,390 79.3

7.6 105,240 78.8

243

June June2014 2014 Results Preview | Sector: Technology

Hexaware Technologies Bloomberg

HEXW IN

Equity Shares (m)

300.32

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

42.8/0.72

52-Week Range (INR)

180/86

1, 6, 12 Rel. Per (%)

-2/-6/+52

Financial Snapshot (INR b) Y/E Dec

2013 2014E 2015E 2016E

Sales

22.9

24.1

26.1

28.6

5.1

4.9

5.2

5.4

EBITDA PAT

3.8

3.5

4.0

4.0

EPS (INR)

12.6

11.7

13.2

13.4

EPS Gr. (%)

15.6

-7.1

12.4

1.8

BV/Sh. (INR)

39.9

43.5

48.1

52.6

RoE (%)

31.6

28.1

28.7

26.6

RoCE (%)

33.9

29.5

28.1

26.7

Payout (%)

85.8

66.5

59.2

58.2

12.4

13.3

11.8

11.6

P/BV (x)

3.9

3.6

3.2

3.0

EV/EBITDA (x)

7.7

8.5

8.0

7.7

Div yld (%)

7.1

5.1

5.1

5.1

CMP: INR156

We estimate revenue growth of 4.4% QoQ to USD100m. In Rupee terms, we expect revenue growth of 1.1% QoQ to INR5.95b. There were delays in client ramp-ups and few project completions for top clients, which resulted in a weak 4QCY13 and revenue decline of 4.3% QoQ in 1QCY14 as well. We model EBITDA margin uptick of 90bp QoQ to 20.1% in 2QCY14 despite INR appreciation. Our estimate is on the back of strong revenue growth and consequent uptick in blended utilization (+160bp QoQ). We expect SGA to increase by 50bp QoQ to 18%. Our PAT estimate for the quarter is INR854m, +21.5% QoQ. Our implied PAT margin estimate is 14.3%, +240bp QoQ. Large deal progression at HEXW had taken a hit over the past few quarters. The deal pipeline had shrunk to 2-3 from 4-6 large deals in 4QCY13. Large deal wins are critical for better CY14 over CY13. HEXW has discontinued giving any guidance on revenues and margins post Barings’ acquisition of promoter stake. While 4QCY13 was a positive surprise on dividends, 1QCY14 was a big miss on operating performance. The stock trades at 13.3x CY14E and 11.8x CY15E earnings. Neutral.

 



 



Valuations P/E (x)

Neutral



Key issues to watch for  Upgrades to Peoplesoft 9.2 among clients  Large deal pipeline and traction

(INR Million)

Quarterly Performance (Indian GAAP)

Y/E December Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount Utilization (%) Offshore rev. (%) E: MOSL Estimates

July 2014

CY13

1Q 94 1.8 5,077 1.1 15.8 0.4 0.2 979 19.3 0.2 72 0.2 793 15.6 19.8 -10.3 8,670 70.6 47.7

2Q 95 0.7 5,366 5.7 7.3 0.4 0.2 1,273 23.7 0.2 142 0.2 979 18.2 23.5 10.0 8,700 70.9 47.5

CY14

3Q 99 4.3 6,211 15.7 22.4 0.4 0.2 1,478 23.8 0.2 254 0.2 988 15.9 0.9 17.6 8,950 71.8 46.4

4Q 100 1.3 6,200 -0.2 23.4 0.4 0.2 1,394 22.5 0.2 214 0.2 1,032 16.6 4.5 55.9 8,845 74.6 46.7

1Q 96 -4.3 5,889 -5.0 16.0 0.4 0.2 1,133 19.2 0.2 220 0.3 703 11.9 -31.9 -11.3 8,952 72.9 47.1

2QE 100 4.4 5,953 1.1 10.9 0.4 0.2 1,195 20.1 0.2 160 0.2 854 14.3 21.5 -12.7 9,163 74.5 47.3

3QE 103 2.5 6,053 1.7 -2.5 0.4 0.2 1,283 21.2 0.2 85 0.2 957 15.8 12.1 -3.1 9,373 74.5 47.2

4QE 105 2.5 6,204 2.5 0.1 0.4 0.2 1,331 21.5 0.2 72 0.2 1,008 16.3 5.3 -2.3 9,583 74.5 47.0

CY13

CY14E

388 6.4 22,854

404 4.1 24,100

17.3 0.4 0.2 5,124 22.4 0.2 682 0.2 3,792 16.6

5.5 0.4 0.2 4,942 20.5 0.2 537 0.2 3,523 14.6

15.7 8,845 71.7 47.0

-7.1 9,583 74.9 47.1

244

June June2014 2014 Results Preview | Sector: Technology

Infosys Bloomberg

INFO IN

Equity Shares (m)

571.4

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

1,839/30.8

52-Week Range (INR)

CMP: INR3219 

3,847/2,393

1, 6, 12 Rel. Per (%)

0/-29/-2 

Financial Snapshot (INR b) Y/E Mar

2014 2015E 2016E 2017E

Sales

501.3

526.7

580.9

628.5

EBITDA

136.3

139.5

153.2

160.6

PAT

108.7

113.7

123.2

130.4

EPS (INR)*

186.3

199.0

215.5

228.2

EPS Gr. (%)

13.0

6.8

8.3

5.9

BV/Sh. (INR)

832

949

1,071

1,205

RoE (%)

24.9

24.1

22.7

21.2

RoCE (%)

28.1

24.6

24.0

22.3

Payout (%)

33.1

35.2

37.1

35.1

17.3

16.2

14.9

14.1





Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)

3.9

3.4

3.0

2.7

11.3

10.5

9.2

8.4

2.0

2.2

2.5

2.5



Buy

For FY15, INFO guided USD revenue growth at 7-9%, implying CQGR of 2-3%. For 1QFY15, we expect INFO to grow its revenues by 2.3% QoQ to USD2,140m. In CC terms, we expect revenue growth of 1.8%, and cross currency to have a positive impact of 50bp QoQ. In FY14, INFO started by guiding 6-10% YoY growth, which got upgraded through the course of the year. However, our current estimate for the full year FY15 is 8.2% growth, at the midpoint of its guidance, given the inward focus that we expect in the first half of the year under the new management. We expect EBITDA margin to decline by 240bp QoQ to 25.9%. The decline in operating margins is due to 7% offshore and 2% onsite wage hikes effective from April 1st, impacting OPM by 250-300bp, in addition to ~3% sequential INR appreciation. We expect continued cost efficiencies to partially offset the headwinds. Our other income estimate for the quarter is INR8.4b, similar to 4Q. Our PAT estimate is INR27.8b, down 7% QoQ on the back of weak revenues and decline in margins. The stock trades at 16.2x FY15E and 14.9x FY16E earnings. Buy.

Key issues to watch for  Commentary on organization changes and new focus areas, if any  Revenue guidance for FY15 and growth trajectory  Deal signings in BITS and commentary on margins

Infosys 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 PAT margin (%) QoQ (%) YoY (%) Headcount Util excl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014

1Q 1,991 2.7 112,670 7.8 17.2 37.9 11.4 29,830 26.5 23.6 5,770 26.8 23,740 21.1 -0.8 3.7 157,263 75.9 46.8

FY14 2Q 2,066 3.8 129,650 15.1 31.5 37.9 11.8 33,890 26.1 23.6 5,100 26.4 26,260 20.3 10.6 10.8 160,227 77.8 47.5

3Q 2,100 1.6 130,260 0.5 25.0 38.9 11.1 36,200 27.8 25.0 7,310 27.9 28,750 22.1 9.5 21.4 158,404 78.0 48.9

4Q 2,092 -0.4 128,750 -1.2 23.2 39.8 11.5 36,420 28.3 25.5 8,510 27.6 29,920 23.2 4.1 25.0 160,405 78.0 48.9

1Q 2,140 2.3 127,352 -1.1 13.0 37.5 11.6 32,989 25.9 23.1 8,449 26.5 27,824 21.8 -7.0 17.2 163,468 80.2 49.2

FY15E 2Q 3Q 2,209 2,260 3.2 2.3 131,417 132,206 3.2 0.6 1.4 1.5 38.1 38.0 11.5 11.5 34,917 35,088 26.6 26.5 23.8 23.8 6,630 7,164 26.5 26.5 27,881 28,376 21.2 21.5 0.2 1.8 6.2 -1.3 166,848 170,674 80.7 80.3 49.5 49.7

(INR Million) FY14 FY15E 4Q 2,319 2.6 135,689 2.6 5.4 38.4 11.5 36,554 26.9 24.2 7,411 26.5 29,613 21.8 4.4 -1.0 175,359 80.3 50.0

8,249 11.5 501,330

8,928 8.2 526,663

24.2 38.6 11.4 136,340 27.2 24.5 26,690 27.2 106,480 21.2

5.1 38.0 11.5 139,549 26.5 23.7 29,655 26.5 113,693 21.6

13.0 160,405 77.4 48.0

6.8 175,359 80.4 49.6

245

June June2014 2014 Results Preview | Sector: Technology

KPIT Technologies Bloomberg

KPIT IN

Equity Shares (m)

194.88

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

34.3/0.57

52-Week Range (INR)

189/116

1, 6, 12 Rel. Per (%)

0/-23/+4

CMP: INR173 

Financial Snapshot (INR b) Y/E Mar

2014 2015E 2016E 2017E

Sales

26.9

30.0

34.3

38.8

4.2

4.8

5.7

6.3

EBITDA PAT

2.4

2.9

3.6

4.1

EPS (INR)

12.6

14.7

18.2

20.5

EPS Gr. (%)

19.0

16.9

24.1

12.7

BV/Sh. (INR)

64.1

78.8

97.0

117.5

RoE (%)

20.5

20.5

20.7

19.1

RoCE (%)

27.7

26.3

26.5

25.1

8.0

10.2

8.2

7.3

13.7

11.7

9.5

8.4

P/BV (x)

2.7

2.2

1.8

1.5

EV/EBITDA (x)

7.4

6.3

4.7

3.6

Div yld (%)

0.6

0.9

0.9

0.9

Payout (%)







Valuations P/E (x)



Buy

KPIT’s revenue growth in 1QFY15 is unlikely to be spectacular due to change in scope of work in a deal with an account in Telematics. Also, the large SAP deal in the utilities space remains on hold, pending go-ahead from authorities. We are modeling revenue growth of 2.5% QoQ to USD116.4m. In rupee terms, our revenue estimate is INR6,928m. During the quarter, margins face headwinds from: [1] wage hike (~250bp impact), [2] INR appreciation (25-30bp EBITDA sensitivity), and [3] visa costs. However, the margins may not decline to that extent, given that SAP should be near breakeven, compared to 4-5% loss in 4Q (~100bp offset). Our EBITDA margin estimate for the quarter is 14.1%, down 100bp QoQ. Our GPM estimate is 29.9%, -210bp QoQ, and SGA estimate is 15.8%, -10bp QoQ. Our PAT (before extraordinary items) estimate is INR584m, +13.6% QoQ, mainly due to marginal gains on forex, compared to INR239.2m loss in 4QFY14. KPIT trades at 11.7x FY15E and 9.5x FY16E earnings. Maintain Buy.

Key issues to watch for  Growth in top account (Cummins) and SAP  Growth trajectory in the remainder of the year vis-à-vis guidance  Margin performance and outlook; commentary on cash generation

Quarterly Performance (Indian GAAP) Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income Interest ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount Util excl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014

1Q 109 3.1 6,132 7.6 13.9 31.5 15.7 972 15.9 13.9 59 63 29.0 601 9.8 17.5 23.7 8,456 73.4 45.8

FY14 2Q 112 3.1 7,028 14.6 23.9 33.6 18.1 1,088 15.5 13.4 23 74 24.9 667 9.5 11.0 64.1 8,816 72.9 45.4

3Q 110 -2.3 6,779 -3.5 20.4 32.8 17.4 1,042 15.4 13.4 18 79 28.2 608 9.0 -8.9 1.5 9,136 71.3 47.2

4Q 114 3.6 7,001 3.3 22.9 32.0 15.9 1,130 16.1 14.2 -174 71 27.7 515 7.4 -15.3 0.6 9,296 70.9 45.7

1Q 116 2.5 6,928 -1.0 13.0 29.9 15.8 975 14.1 12.0 31 59 27.0 585 8.4 13.6 -2.7 9,505 71.3 45.8

FY15E 2Q 3Q 124 131 6.6 5.5 7,324 7,728 5.7 5.5 4.2 14.0 30.3 31.9 15.5 15.3 1,084 1,284 14.8 16.6 12.7 14.5 15 16 59 59 27.0 27.0 645 789 8.8 10.2 10.2 22.3 -3.4 29.7 9,835 10,199 72.0 73.0 44.6 44.6

(INR Million) FY14 FY15E 4Q 136 4.1 8,048 4.1 14.9 33.0 15.2 1,433 17.8 15.7 22 59 27.0 895 11.1 13.5 73.9 10,508 74.0 44.8

444 8.3 26,940

508 14.3 30,028

20.3 32.5 16.8 4,233 15.7 13.7 -74 287 28.2 2,391 8.9

11.5 31.3 15.4 4,777 15.9 13.8 84 234 27.0 2,913 9.7

19.1 9,296 72.1 46.0

21.8 10,508 72.6 44.9

246

June June2014 2014 Results Preview | Sector: Technology

MindTree Bloomberg

MTCL IN

Equity Shares (m)

83.53

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

71.8/1.2

52-Week Range (INR)

+9/-13/+74 

Financial Snapshot (INR Million) Y/E Mar

2014 2015E 2016E 2017E

Sales

30.3

35.1

40.7

46.1

6.1

7.0

8.4

9.1

PAT



925/403

1, 6, 12 Rel. Per (%)

EBITDA

CMP: INR862

4.5

5.2

6.1

6.7

EPS (INR)

53.8

62.2

73.2

80.0

EPS Gr. (%)

31.7

15.5

17.7

9.3

BV/Sh. (INR)

195.5

243.8

299.6

359.8

RoE (%)

30.5

28.3

26.9

24.3

RoCE (%)

35.5

33.1

32.1

28.4

Payout (%)

23.2

19.3

20.5

21.3

16.0

13.9

11.8

10.8







Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)

4.4

3.5

2.9

2.4

10.7

9.0

7.3

6.3

1.5

1.4

1.7

2.0



Neutral

We model 1QFY15 revenue at USD139m, growth of 4.9% QoQ. The company guided for better growth than 4QFY14’s 4.5%. Hi-tech should also contribute to growth during the quarter, while IT Services continue to see traction. In rupee terms, our revenue estimate stands at INR8.36b, +1.5% QoQ. Our estimate for EBITDA margin is 19.9%, down 160bp QoQ. We estimate GPM at 39.9%, -100bp QoQ, and SGA at 20%, +60bp QoQ. Investments at the front end, visa expenses and appreciation in INR drive reduced margin estimate for the quarter. Our PAT estimate for the quarter is INR1,243m, which implies a PAT margin of 14.9%, and significant PAT growth of 26.6% QoQ. We model INR49m of forex gains versus losses of INR426m in 4QFY14, driving significant delta in PAT. MTCL has signed deals of TCV USD133m last quarter, taking total deal signings of last four quarters to USD500m+, and providing good visibility for FY15 growth outlook. The stock trades at 13.9x FY15E and 11.8x FY16E earnings. Neutral.

Key issues to watch out  Performance and outlook of the Hi-tech vertical  Deal wins during the quarter  Outlook on FY15 revenue growth

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount Util incl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014

1Q 118 4.2 6,477 5.8 15.0 41.0 22.6 1,191 18.4 15.6 735 22.4 1,354 20.9 71.6 52.1 12,239 69.6 61.3

FY14 2Q 3Q 124 127 5.4 2.5 7,696 7,906 18.8 2.7 29.1 34.0 42.2 40.8 21.4 21.3 1,598 1,541 20.8 19.5 18.2 16.8 248 -189 23.0 22.6 1,287 885 16.7 11.2 -4.9 -31.2 78.3 -10.4 12,941 12,992 65.9 67.4 58.6 57.2

4Q 133 4.5 8,237 4.2 34.5 40.9 19.4 1,770 21.5 18.8 -298 21.4 982 11.9 11.0 24.5 12,926 68.5 56.2

1Q 139 4.9 8,358 1.5 29.0 39.9 20.0 1,664 19.9 17.4 163 23.0 1,243 14.9 26.6 -8.2 13,926 70.0 54.4

FY15E 2Q 146 5.0 8,631 3.3 12.2 38.9 19.0 1,713 19.9 17.3 114 23.0 1,241 14.4 -0.2 -3.6 14,276 71.0 55.3

(INR Million) FY14 FY15E 3Q 151 3.0 8,890 3.0 12.5 39.4 19.0 1,812 20.4 17.9 201 23.0 1,377 15.5 11.0 55.6 14,476 70.0 53.9

4Q 156 3.4 9,189 3.4 11.6 39.2 19.0 1,857 20.2 17.7 129 23.0 1,355 14.8 -1.6 38.0 14,976 71.0 54.2

502 15.1 30,316

592 18.0 35,069

28.4 41.2 21.1 6,100 20.1 17.4 496 22.0 4,508 14.9

15.7 39.3 19.2 7,047 20.1 17.6 608 23.0 5,216 14.9

33.0 12,926 67.8 58.2

15.7 14,976 70.5 54.4

247

June June2014 2014 Results Preview | Sector: Technology

Mphasis Bloomberg

MPHL IN

Equity Shares (m)

210.14

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

91.3/1.5

52-Week Range (INR)

CMP: INR 435 

465/362

1, 6, 12 Rel. Per (%)

-1/-21/-23

Financial Snapshot (INR b) Y/E Mar Sales

2014

2015E 2016E 2017E

25.9

60.2

63.9

66.8

4.4

10.3

11.2

11.8

EBITDA PAT

3.1

7.4

8.3

8.9

EPS (INR)

14.7

35.0

39.7

42.4

EPS Gr. (%)*

-0.1

-0.8

13.3

7.0

BV/Sh. (INR)

243

254

268

285

RoE (%)*

14.8

14.1

15.2

15.4

RoCE (%)*

16.7

15.5

16.2

16.3

Payout (%)

47.6

60.0

55.5

51.9

P/E (x)*

12.3

12.4

11.0

10.3

P/BV (x)

1.8

1.7

1.6

1.5

EV/EBITDA

7.0

6.5

5.6

5.0

Div yld (%)

3.9

4.8

5.1

5.1

Valuations





 

*Annualised values for 5m FY14E

Neutral

For MPHL, the HP channel is likely to decline ~6% in 1QFY15 and is in line with the company’s initial forecast of 20% volume decline for HP in FY15. Direct Channel mature market is likely to grow 1% QoQ, while the emerging market would remain flat for the quarter. The weak performance would be further magnified by the decline in Digital Risk revenue during the quarter (~15% QoQ decline). We model revenue decline of 4.4% QoQ to USD246m. Hedge loss during the quarter is likely to be INR60m. We estimate INR revenue at INR14.6b for USD/INR exchange rate of INR59.5. MPHL has 100bp tailwind for margins, as hedge losses are likely to decline from INR139m in 2QFY14 to INR60m in 1QFY15. The decline in Digital Risk revenue sets off the potential gains from hedges and we expect EBIT margin to be 15%, -10bp QoQ. We expect PAT to be INR1.68b; our PAT margin estimate is 11.5%, 40bp QoQ. The stock trades at 12.4x FY15E and 11x FY16E EPS. Maintain Neutral.

Key issues to watch for  Outlook for Digital Risk and HP channel  Deal wins resulting from incremental investments in S&M

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income Interest Expense ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount Net Additions HP Channel rev. (%)

July 2014

5M FY14 Jan-14 Mar-14* 255 170 -1.9 -0.2 15,640 10,299 -1.9 -1.2 24.4 -26.7 28.2 28.5 10.8 11.4 2,636 1,761 16.9 17.1 15.0 15.1 279 221 68 43 26.8 29.4 1,870 1,221 12.0 11.9 -1.7 -2.1 1.4 -30.8 34,394 34,168 -1180 -226 37.0 36.0

Jun 14 246 -3.1 14,594 -5.5 -5.2 27.8 10.5 2,512 17.2 15.0 168 40 27.5 1,684 11.5 -8.1 -12.6 33,948 -220

FY15E Sep 14 254 3.2 14,938 2.4 -6.3 27.1 10.5 2,469 16.5 14.4 319 40 27.5 1,757 11.8 4.4 -7.6 33,998 50

Dec-14 258 1.5 15,160 1.5 -3.1 27.2 10.3 2,559 16.9 14.7 409 40 27.5 1,884 12.4 7.2 0.8 34,048 50

Mar-15 264 2.2 15,491 2.2 50.4 27.9 10.2 2,741 17.7 15.5 440 40 27.5 2,033 13.1 7.9 11.0 34,223 175

5M FY14 424 -0.6 25,939

(INR Million) FY15E 1,022 0.4 60,183

7.4 0.3 0.1 4,397 17.0 0.2 500 -111 0.0 3,091 11.9

-3.3 0.3 0.1 10,281 17.1 0.1 1,337 -160 0.0 7,358 12.2

-58.4 34,168 -1406 36.8

138.0 34,223 55

248

June June2014 2014 Results Preview | Sector: Technology

Persistent Systems Bloomberg

PSYS IN

Equity Shares (m)

40.00

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

CMP: INR1062

42.50/0.72

52-Week Range (INR)

1,220/477

1, 6, 12 Rel. Per (%)

-6/-14/+79

Financial Snapshot (INR b) Y/E Mar

2014 2015E 2016E 2017E

Sales

16.7

18.8

22.1

26.0

4.3

4.7

5.6

6.5

EBITDA Adj. PAT

2.5

3.0

3.8

4.5

Adj. EPS (INR)

62.3

74.7

94.6

113.2

EPS Gr. (%)

32.9

19.9

26.6

19.7

RoE (%)

22.3

22.4

24.0

24.0

RoCE (%)

16.0

18.1

18.4

19.6

Payout (%)

19.3

22.8

25.4

21.2





 

Valuations P/E (x)

17.0

14.2

11.2

9.4

P/BV (x)

3.4

2.9

2.4

2.0

EV/EBITDA (x)

8.2

7.2

5.6

4.4

Div. Yield (%)

1.1

1.6

2.3

2.3



Buy

We expect revenue to remain flattish at USD72.4m (v/s 4QFY14 revenue of USD72.6m). Soft revenue growth outlook for the quarter is due to [1] seasonally strong 4Q for IP-led revenue, and [2] some deferment of work to 2Q due to the delay in issuance of visas. In Rupee terms, we expect revenue at INR4,305m, down 3.6% QoQ. 1Q margins will be faced with headwinds of up to 350-400bp from: [1] visa-related costs (USD1m, implies 140bp impact), [2] ~3% QoQ INR appreciation (150bp impact), [3] investments in the front end towards building enterprise customer base and selling own IPs, and [4] QoQ decline in non-linear IP-led revenue. We expect EBITDA margin of 23%, -400bp QoQ. Our GPM estimate is 40.4%, -240bp QoQ, and SGA estimate is 16.9%, +120bp QoQ Our PAT estimate for the quarter is INR596m, -11.8% QoQ. Our estimate for other income is INR76.6m, compared to loss of INR19m in the previous quarter. The stock trades at 14.2x FY15E and 11.2x FY16E earnings. Buy.

Key issues to watch for  Growth and outlook in the traditional Product Engineering Services  Commentary on potential of winning large deals  Commentary on IP and Platform business growth

Quarterly Performance (IFRS) Y/E March 1Q 63 1.5 3,573 7.0 18.8 0.4 0.2 777 21.7 0.2 263 0.3 571 16.0 10.0 37.3 7,144

FY14 2Q 68 8.6 4,324 21.0 32.3 0.4 0.2 1,122 26.0 0.2 -24 0.3 608 14.1 6.5 36.1 7,457

3Q 70 2.2 4,328 0.1 30.0 0.4 0.2 1,197 27.7 0.2 -70 0.3 642 14.8 5.6 29.7 7,602

4Q 73 3.9 4,467 3.2 33.8 0.4 0.2 1,207 27.0 0.2 -19 0.3 672 15.0 4.7 29.5 7,857

1Q 72 -0.4 4,305 -3.6 20.5 0.4 0.2 990 23.0 0.2 77 0.3 596 13.8 -11.4 4.3 8,066

Util excl. trainees (%)

70.0

71.7

72.9

69.2

74.9

IP rev. proportion (%) E: MOSL Estimates

15.1

19.1

17.8

19.6

17.3

Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income ETR (%) PAT PAT margin (%) QoQ (%) YoY (%) Headcount

July 2014

FY15E 2Q 77 6.9 4,563 6.0 5.5 0.4 0.2 1,049 23.0 0.2 99 0.3 659 14.4 10.6 8.4 8,325

(INR Million) FY14 FY15E 3Q 81 5.1 4,797 5.1 10.8 0.4 0.2 1,184 24.7 0.2 124 0.3 779 16.2 18.3 21.4 8,584

4Q 87 7.2 5,141 7.2 15.1 0.4 0.2 1,428 27.8 0.2 109 0.3 955 18.6 22.5 42.1 8,893

76.0

76.1

18.1

18.5

274 15.2 16,692

318 16.1 18,806

28.9 0.4 0.2 4,303 25.8 0.2 150 0.3 2,493 14.9

12.7 0.4 0.2 4,651 24.7 0.2 409 0.3 2,988 15.9

32.9 7,857

19.9 8,893

76.7

77.2

75.9

19.8

18.0

18.5

249

June June2014 2014 Results Preview | Sector: Technology

TCS Bloomberg

TCS IN

Equity Shares (m)

1,958.73

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

4,695/78.6

52-Week Range (INR)

+6/-11/+26

 

Financial Snapshot (INR Million) Y/E Mar

2014 2015E 2016E 2017E

Sales

818.1

946.7 1,080.5 1,229.9

EBITDA

251.3

270.6

304.4

345.7

PAT

191.2

207.4

237.8

273.3

EPS (INR)

97.6

105.9

121.4

139.5

EPS Gr. (%)

37.0

8.5

14.7

14.9

BV/Sh. (INR)

282.5

326.9

399.1

489.5

RoE (%)

39.7

34.8

33.4

31.4

RoCE (%)

47.6

41.4

39.2

36.5

Payout (%)

32.8

34.9

34.6

30.1

24.6

22.6

19.7

17.2

Valuations P/BV (x)



2,427/1,465

1, 6, 12 Rel. Per (%)

P/E (x)

CMP: INR2397

8.5

7.3

6.0

4.9

EV/EBITDA (x)

18.0

16.4

14.3

12.3

Div. yield (%)

1.3

1.5

1.8

1.8

 



Neutral

We expect TCS to grow its revenues by 5.5% QoQ in 1QFY15 to USD3,696m. Our CC revenue growth estimate is 5%, and we assume a 50bp impact from cross currency. In INR terms, our revenue estimate is INR220.7b, +2.4% QoQ. We expect EBITDA margin to decline 170bp QoQ to 29.2%. Our GPM estimate is 46.6%, -140bp, and SGA estimate is 17.4%, +30bp. Factors contributing towards margin decline are: [1] wage hikes: ~200bp impact, [2] appreciation in INR: 100bp. High growth should help partially offset the impact from headwinds. Our estimate for other income stands at INR4.9b, of which interest income is INR4.3b. Our PAT estimate for the quarter is INR49.5b, down 6.6% on account of INR appreciation, lower operating margin, and little impact from forex hedges compared to INR2b gains in 4QFY14. The stock trades at 22.6x FY15E and 19.7x FY16E EPS. Neutral.

Key issues to watch for  1QFY15 growth and ask rate implied to accelerate full-year growth  Roadmap on investments following some appreciation in the INR and full-year margin outlook  Trends in Digital Technologies and TCS’ progress

TCS 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 PAT margin (%) QoQ (%) YoY (%) Headcount Util excl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014

1Q 3,165 4.1 179,871 9.5 21.0 47.2 18.6 51,532 28.6 27.0 4,477 23.2 39,922 22.2 11.0 21.7 277,586 82.7 48.5

FY14 2Q 3Q 3,337 3,438 5.4 3.0 209,772 212,940 16.6 1.5 34.3 32.5 49.0 49.3 17.3 17.9 66,390 66,866 31.6 31.4 30.2 29.7 -963 5,386 25.0 24.0 46,483 51,797 22.2 24.3 16.4 11.4 32.4 45.8 285,250 290,713 83.4 84.3 48.1 47.8

4Q 3,503 1.9 215,511 1.2 31.2 48.0 17.1 66,534 30.9 29.1 6,990 24.0 52,967 24.6 2.3 47.3 300,464 83.8 47.4

1Q 3,696 5.5 220,675 2.4 22.7 46.6 17.4 64,361 29.2 27.6 4,923 24.0 49,458 22.4 -6.6 23.9 310,849 85.5 47.6

FY15E 2Q 3Q 4,036 4,157 9.2 3.0 236,099 241,107 7.0 2.1 12.6 13.2 45.6 45.4 17.2 17.2 66,901 68,112 28.3 28.2 26.7 26.6 4,284 4,470 24.0 24.0 50,698 51,691 21.5 21.4 2.5 2.0 9.1 -0.2 323,124 333,430 85.6 85.2 45.0 44.8

(INR Million) FY14 FY15E 4Q 4,290 3.2 248,842 3.2 15.5 45.5 16.9 71,269 28.6 27.0 6,526 24.0 55,558 22.3 7.5 4.9 341,427 85.2 44.8

13,443 16.2 818,094

16,180 20.4 946,723

29.9 48.4 4.0 251,322 30.7 29.1 15,891 23.9 191,168 23.4

15.7 45.8 17.2 270,642 28.6 27.0 20,203 24.0 207,406 21.9

37.1 300,464 83.6 47.9

8.5 341,427 85.3 45.5

250

June 2014 Results Preview | Sector: Technology

Tech Mahindra Bloomberg

TECHM IN

Equity Shares (m)

214.1

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

488.8/8.24

52-Week Range (INR)

2,164/965

1, 6, 12 Rel. Per (%)

+8/-9/+62

Financial Snapshot (INR b) Y/E Mar

2014 2015E 2016E 2017E

Sales

188.3

211.5

240.4

264.5

41.8

44.3

50.0

51.0

EBITDA Adj. PAT

CMP: INR 2104 

 

25.8

30.2

34.4

39.4

121.0

138.5

157.4

180.6

EPS Gr. (%)

30.4

14.5

13.7

14.7

BV/Sh.(INR)

440.7

558.1

697.9

861.5

RoE (%)

36.4

28.7

25.7

23.8

RoCE (%)

34.7

30.1

27.8

25.6

Payout (%)

16.6

10.1

10.8

9.4



17.4

15.2

13.4

11.7



P/BV (x)

4.8

3.8

3.0

2.4

EV/EBITDA (x)

9.6

8.7

7.2

6.5

Div. Yield (%)

1.0

0.7

0.8

0.8

Adj. EPS (INR)



Valuations P/E (x)

Buy

Revenue growth in 1Q will be subdued for TECHM due to: [1] strong base of Comviva revenue in 4Q, [2] contribution from one-off projects in 4Q, and [3] 1-month impact from discontinuation of BT amortization. Total impact is USD10m+. We expect revenue growth of 1.8% QoQ to USD840m. In INR terms, our revenue estimate is INR49.98b, -1.2% QoQ. Impact from acquisition of MES is likely from 3QFY15. Margins are facing 200bp+ headwind from the following factors: [1] visa expenses due to skew of applications towards H1B (v/s L1B), [2] ~3% INR appreciation, [3] transition costs in the Network deal, which currently has an inverted pyramid. Impact from hedges/forex on other income will be relatively muted compared to losses amounting to INR3.08b in 2HFY14. Our estimate for other income is INR714.5m. Our PAT estimate is INR6,536m, which implies growth of 8.4% QoQ, primarily due to heavy forex losses in 4QFY14. TECHM trades at 15.2x FY15E and 13.4x FY16E EPS. Maintain Buy.

Key issues to watch for  Deals TCV following healthy deal signings activity in FY14  Outlook on profitability for the remainder of the year  FY15 growth outlook v/s NASSCOM  Large deals progress in the Enterprise business

Quarterly Performance Y/E March Revenue (USD m) QoQ (%) Revenue (INR m) QoQ (%) YoY (%) GPM (%) SGA (%) EBITDA EBITDA Margin (%) EBIT Margin (%) Other income Interest expense ETR (%) PAT excl. BT amort & EOI PAT margin (%) QoQ (%) YoY (%) Headcount Util excl. trainees (%) Offshore rev. (%) E: MOSL Estimates

July 2014

1Q 724 3.7 41,032 8.9 21.7 37.4 16.3 8,645 21.1 18.2 2,073 223 25.0 6,528 15.9 8.1 28.8 83,063 76.0 49.0

FY14 2Q 3Q 758 791 4.7 4.4 47,715 48,985 16.3 2.7 35.4 33.5 39.6 38.7 16.3 15.5 11,110 11,363 23.3 23.2 20.7 20.3 380 -457 241 112 28.3 26.9 6,848 6,422 14.4 13.1 4.9 -6.2 62.1 123.0 85,234 87,399 75.0 75.0 49.0 48.0

4Q 825 4.3 50,581 3.3 34.3 35.8 14.6 10,718 21.2 18.4 -867 97 25.1 6,030 11.9 -6.1 -0.2 89,441 74.0 47.0

1Q 840 1.8 49,981 -1.2 21.8 34.6 15.0 9,797 19.6 16.6 715 78 24.0 6,536 13.1 8.4 0.1 90,101 73.9 47.6

FY15E 2Q 3Q 870 913 3.6 4.9 51,349 53,859 2.7 4.9 7.6 9.9 35.6 36.5 14.6 14.6 10,793 11,788 21.0 21.9 18.2 19.1 890 842 78 78 26.0 26.0 7,438 8,079 14.5 15.0 13.8 8.6 8.6 25.8 92,648 96,077 75.7 76.6 48.2 48.1

4Q 954 4.5 56,293 4.5 11.3 35.7 14.6 11,892 21.1 18.4 873 78 26.0 8,184 14.5 1.3 35.7 98,845 77.5 48.3

FY14

(INR Million) FY15E

3,098 17.7 188,313

3,577 15.5 211,482

31.4 37.9 15.7 41,836 22.2 19.4 1,129 673 26.4 25,828 13.7

12.3 35.6 14.7 44,270 20.9 18.1 3,320 311 26.0 30,237 14.3

41.8 89,441 75.0 48.2

17.1 98,845 76.0 48.1

251

June 2014 2014 Results Results Preview Preview || Sector: Sector: Technology Technology June

Wipro Bloomberg

WPRO IN

Equity Shares (m)

2,467.24

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

1,334/22.3

52-Week Range (INR)

+6/-4/+54 

Financial Snapshot (INR b) Y/E Mar

2014 2015E 2016E 2017E

Sales

434.3

476.1

519.1

572.3

EBITDA

97.1

110.0

120.9

137.9

PAT

78.0

86.0

96.9

104.8

EPS (INR)

31.7

34.9

39.3

42.5

EPS Gr. (%)

27.0

10.3

12.7

8.2

BV/Sh. (INR)

139.9

165.5

193.3

224.3

RoE (%)

24.9

22.9

22.0

20.4

RoCE (%)

22.5

22.9

22.1

22.1

Payout (%)

25.3

22.9

25.4

23.5

17.1

15.5

13.8

12.7

3.9

3.3

2.8

2.4

12.4

10.7

9.5

8.0

1.5

1.5

1.8

1.8

Valuations









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



611/341

1, 6, 12 Rel. Per (%)

P/E (x)

CMP: INR542

Div Yld (%)



Neutral

WPRO guided for revenues of USD1,715m-1,755m in 1QFY15, implying growth of -0.3% to +2% QoQ. We expect growth of 1.5% QoQ to USD1,741m. Our CC revenue growth estimate is 1.2% QoQ, and we model 30bp positive impact from cross currencies. Our overall rupee revenue estimate is INR115.8b, -0.6% QoQ, and we assume 2% appreciation in realized INR rate for the company. Our overall operating profit margin estimate is 21.6%, +10bp QoQ. Our GPM estimate is 33.1%, -20bp QoQ, and our SGA estimate stands at 11.5%, -10bp QoQ. In IT Services, we expect EBIT margin of 23.7%, -80bp QoQ. The decline is a function of wage hikes effective June 1st (one month impact) and appreciation in INR. Our estimate for other income is INR2.3b, including INR0.94b of forex losses. We expect PAT of INR21b, down 5.5% QoQ on the back of weak revenue growth and headwinds to profitability. We expect WPRO to guide for USD revenue growth of 2.5-4.5% QoQ for 2QFY15. The stock trades at 15.5x FY15E and 13.8x FY16E earnings. Buy.

Key issues to watch out  Revenue growth guidance for 2QFY15  Commentary on large deal wins and ramp-up schedule  Outlook on growth in Americas

Wipro Quarterly Performance (IFRS) Y/E March

FY14 2Q

1Q Revenue (USD m) QoQ (%) Revenue (INR m)

3Q

4Q

1Q

FY15E 2Q

(INR Million) FY14 FY15E 3Q

4Q

1,588

1,631

1,678

1,720

1,741

1,800

1,858

1,920

6,618

7,319

0.2

2.7

2.9

2.5

1.2

3.4

3.2

3.3

6.4

10.6

434,269

476,128

97,294

107,727

112,713

116,535

115,520

115,800

120,068

124,740

QoQ (%)

1.3

10.7

4.6

3.4

-0.9

0.2

3.7

3.9

GPM (%)

30.9

31.1

32.2

33.3

33.0

31.7

32.5

33.4

32.0

32.7

SGA (%)

12.8

12.3

12.0

11.6

11.5

11.7

11.6

11.6

12.2

11.6

EBITDA

20,151

22,845

25,923

28,180

27,314

25,597

27,497

29,642

97,099

110,050

EBITDA Margin (%)

20.7

21.2

23.0

24.2

23.6

22.1

22.9

23.8

22.4

23.1

IT Serv. EBIT (%)

20.0

22.5

23.0

24.5

23.6

22.0

23.1

24.2

22.6

23.3

EBIT Margin (%)

18.1

18.8

20.2

21.7

21.5

20.0

20.9

21.8

19.8

21.1

2,918

4,949

3,518

3,627

2,342

1,772

3,528

3,682

15,012

11,325

16,233

19,321

20,147

22,265

20,909

19,199

22,058

23,816

77,966

85,983

16.7

17.9

17.9

19.1

18.1

16.6

18.4

19.1

18.0

18.1

QoQ (%)

3.0

19.0

4.3

10.5

-6.1

-8.2

14.9

8.0

YoY (%)

10.8

28.4

26.8

41.3

28.8

-0.6

9.5

7.0

27.1

10.3

147,281

147,216

146,402

146,053

149,068

153,583

158,098

162,813

146,053

162,813

73.3

74.3

74.3

76.5

75.0

75.0

75.0

75.0

75.1

75.2

46.4

46.5

46.5

46.7

45.9

46.5

Other income PAT PAT margin (%)

Headcount Util excl. trainees (%) Offshore rev. (%) Rev Guidance (USDm)

July 2014

46.1

45.8

45.9

45.9

1575-

1620-

1660-

1712-

1715-

1610

1650

1690

1745

1755 252

July2014 2014 June 2014 Results Preview |4July June 2014 Results Preview | Sector: Telecom

Telecom Steady quarter; expect no major surprises Company name

Watch for next round of spectrum auction, 4G rollout plans

Bharti Airtel

Expect moderate uptick in traffic; YoY growth likely to decelerate further: During 1QFY15, we expect average wireless traffic (Bharti/Idea/RCom/Vodafone) to grow 2% QoQ as compared to 4.3% QoQ in 4QFY14 and 2.3% QoQ in 1QFY14. On a YoY basis, traffic growth deceleration is likely to continue, with expected growth of only 4.6% YoY. Idea is likely to lead, with ~10% YoY traffic growth.

Bharti Infratel Idea Cellular Reliance Communications

Blended RPM likely to increase by 1.5-2% QoQ: Post 5-6% RPM increase up to 4QFY14 (v/s 4QFY13), we expect RPM for GSM incumbents to improve by 1.5-2% QoQ, supported by marginal increase in voice realizations as well as data growth. Industry continues to expect gradual improvement in voice RPMs in FY15, although the rate of increase could be lower than FY14. EBITDA margin to improve QoQ for Bharti/Idea: We expect EBITDA margin for India business to improve by 60-65bp QoQ for Bharti/Idea, led by operating leverage from traffic growth as well as RPM improvement. Bharti Africa – expect margins to be under pressure: Performance of Bharti Africa is likely to remain muted due to (1) cross currency impact, and (2) increased marketing investments impacting margins. We model 1.5% revenue growth but a 1.4% decline in EBITDA for Bharti Africa on a QoQ basis. However, PAT loss in Africa is likely to decline QoQ due to lower finance costs (one-off finance costs in 4QFY14). Subscriber additions volatile: Subscriber additions became volatile in CY14. Monthly additions increased to 8.5m during January-February 2014 (v/s 5.2m in 4QCY13) but declined to 2m per month in March-April 2014. VLR subscriber base stood at 780m as of April 2014, implying an active subscriber penetration of ~63%. Watch for next round of spectrum auction, 4G rollout plans: February spectrum auction concluded with aggressive uptake from incumbents, mostly for data spectrum. Key events to watch would be the next round of spectrum auction, likely to be scheduled in 2HFY15. 4G launch plan of Reliance JIO as well as GSM incumbents that have secured 1,800 MHz band contiguous spectrum across many circles would also be critical. Reliance JIO estimates its investments at INR700b and intends to launch services in a phased manner during 2015.

Expected quarterly performance summary (INR m) Sector

Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate

CMP (INR) 4.7.14 339 262 135 143

Reco Buy Buy Buy Neutral

Sales Var % Var % Jun-14 YoY QoQ 224,878 11.0 1.2 28,745 9.6 3.0 73,482 12.4 4.3 54,836 1.3 -3.3 381,941 9.6 1.2

EBITDA Var % Var % Jun-14 YoY QoQ 74,616 14.0 2.1 11,968 14.4 3.8 23,741 13.0 6.5 19,195 12.8 3.7 129,520 13.7 3.3

Net Profit Var % Var % Jun-14 YoY QoQ 12,563 82.4 30.7 4,354 21.8 -7.8 6,780 39.0 15.0 -268 PL PL 23,430 40.8 5.2

Shobhit Khare ([email protected]); +91 22 3982 5428 July 2014

253

June 2014 Results Preview | Sector: Telecom

Valuation and view: During FY14-16, we expect 13%/17%/14% EBITDA CAGR for Bharti/Idea/RCom, led by 5%/10%/4% traffic CAGR and 2.5-4% RPM CAGR in the India wireless business (including data). We reiterate Buy on Bharti (trades at 5.8x proportionate FY16E EV/EBITDA), Idea (6.6x FY16E EV/EBITDA), and Bharti Infratel (7.5x FY16E EV/EBITDA). We have Neutral rating on RCom (6.1x FY16E EV/EBITDA). Wireless subscriber net additions (m) 10

8

7 8

2

6

5

-5

-2 -1

-2 -2

5 6 5 7

3 3 2 2 -1

10 1 3

-6

-14 -21

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

-26

Source: TRAI, MOSL

QoQ wireless traffic growth (%)

2

1

3 1

-4 -3

1QFY14

4QFY13

4 0

9

4

2 0

1

2 3 1

-5 -3

2QFY14

-3 -6

-3

2QFY13

1QFY13

-2

2 2

1

4

3

1QFY15E

3 5

3QFY13

5

5

3

Vodafone-India

4QFY14

5 8

4

4

RCOM

3QFY14

Idea

Bharti (India)

Source: Company, MOSL

Trend in wireless RPM (INR) Bharti

47

Idea

Vodafone-India

RCOM

45 43 41

1QFY15E

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

2QFY13

1QFY13

39

Source: Company, MOSL

July 2014

254

June 2014 Results Preview | Sector: Telecom

Aggregate traffic growth and RPM trend for wireless majors QoQ traffic growth (%) 5

4

QoQ RPM growth (%)

0

4

2

3 0

0

2

3

1

-2

1

2

1 -1

1QFY15E

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY13

-4

2QFY13

1QFY13

-3

Source: Company, MOSL

Aggregate India wireless revenue growth (YoY, %) 12

12

12

11

10 8

1QFY15E

4QFY14

3QFY14

1QFY14

4QFY13

3QFY13

2QFY14

7

6

2QFY13

1QFY13

8

Source: Company, MOSL

Comparative valuation Sector / Companies

CMP (INR)

Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate

Reco

EPS (INR) FY15E FY16E FY17E

339 Buy 262 Buy 135 Buy 143 Neutral

13.1 9.5 8.2 4.4

16.3 11.7 7.4 11.3

20.6 14.6 7.6 17.9

Relative Performance - 3m (%) Sensex Index

PE (x) FY15E FY16E FY17E 25.8 27.4 16.4 32.7 23.7

20.8 22.4 18.2 12.7 18.6

EV/EBIDTA (x) FY15E FY16E FY17E

16.4 17.9 17.7 8.0 14.5

6.3 10.4 6.4 7.0 6.8

5.5 9.0 6.6 5.5 6.0

4.6 7.8 5.4 4.2 5.0

RoE (%) FY15E FY16E FY17E 7.8 8.9 10.3 9.8 11.7 14.1 15.0 11.0 10.3 3.4 7.6 11.1 7.9 9.3 10.8 Source: MOSL

Relative Performance - 1Yr (%) MOSL Telecom Index

120

Sensex Index

MOSL Telecom Index

140 125

110

110 100

95

90

Source: Bloomberg, MOSL

July 2014

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Jul-14

Jun-14

May-14

Apr-14

80

Source: Bloomberg, MOSL

255

June 2014 Results Preview | Sector: Telecom

Wireless KPIs EOP Wireless Subs (m) Bharti (India) Idea RCOM Vodafone - India AV. Wireless Subs (m) Bharti (India) Idea RCOM Vodafone - India ARPU (INR/month) Bharti (India) Idea RCOM Vodafone - India MOU/Sub Bharti (India) Idea RCOM Vodafone India (reported) Vodafone India (adj) Revenue per min (p) Bharti (India) Idea RCOM Vodafone India (reported) Vodafone India (adj) Wireless traffic (B min) Bharti (India) Idea RCOM Vodafone India (reported) Vodafone India (adj)

July 2014

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14 1QFY15E

YoY (%) QoQ (%)

187 117 155 154

186 115 135 153

182 114 119 147

188 122 123 152

191 125 127 155

193 127 116 156

198 129 118 160

206 136 112 167

209 139 114 169

9.5 11.3 -10.5 9.2

1.8

184 115 154 152

187 116 145 153

184 115 127 150

185 118 121 150

190 123 125 154

192 126 122 155

196 128 117 158

202 132 115 163

207 137 113 168

9.4 11.5 -9.7 9.3

2.7

185 156 98 174

177 148 102 169

185 158 119 176

193 167 128 187

200 174 119 196

192 164 121 191

195 169 125 193

196 173 128 192

197 174 132 194

-1.7 0.1 11.4 -0.8

0.3

433 379 228 324 433

417 359 236 313 418

435 384 271 329 438

455 406 291 344 459

455 398 282 346 461

437 368 277 334 445

434 376 288 334 446

437 397 296 335 447

432 392 305 335 446

-5.0 -1.4 7.9 -3.3 -3.3

-1.1

42.7 41.2 43.1 53.6 40.2

42.6 41.2 43.2 53.9 40.4

42.6 41.1 43.8 53.6 40.2

42.4 41.1 43.9 54.3 40.7

44.0 43.7 42.0 56.6 42.5

44.0 44.7 43.5 57.2 42.9

44.8 44.9 43.5 57.7 43.3

44.9 43.6 43.1 57.3 43.0

45.6 44.4 43.3 58.1 43.6

3.5 1.5 3.2 2.6 2.6

1.4

239 131 105 148 197

234 126 102 144 192

241 132 103 148 197

253 143 105 155 207

258 147 106 160 213

251 139 102 156 207

255 145 102 158 211

265 157 102 164 219

269 4.0 1.5 162 9.8 3.0 103 -3.0 0.8 169 5.6 2.5 225 5.6 2.5 Source: Company, MOSL

2.4 1.3 1.6

3.9 -2.1 2.7

0.6 3.5 1.3

-1.2 3.0 -0.2 -0.2

1.9 0.5 1.5 1.5

256

June 2014 Results Preview | Sector: Telecom

Quarterly financial (proforma) 1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

127 186 55 53 79

127 188 53 52 78

131 194 56 53 79

134 196 61 54 84

141 203 65 54 90

141 213 63 54 89

144 219 66 54 91

149 222 70 57 94

152 225 73 55 98

8.0 11.0 12.4 1.3 8.4

40.4 54.9 14.4 16.5

40.9 57.0 14.2 16.4

41.5 57.7 14.7 16.5

45.2 60.6 17.5 16.7

49.3 65.4 21.0 17.0

49.1 68.3 19.7 18.9

52.0 70.9 20.6 18.5

54.9 73.1 22.3 18.5

57.0 74.6 23.7 19.2

15.6 14.0 13.0 12.8

3.8

31.9 29.6 26.1 31.0

32.3 30.3 26.8 31.5

31.6 29.8 26.4 31.2

33.9 30.9 28.9 30.9

34.9 32.3 32.1 31.4

34.8 32.0 31.2 35.0

36.0 32.3 31.1 34.2

36.8 32.9 31.7 32.7

37.4 33.2 32.3 35.0

248bp 88bp 17bp 357bp

55bp 30bp 65bp 235bp

15.8

13.9

8.9

10.8

14.8

14.0

19.4

23.8

21.9

7.6

7.2

2.8

5.1

6.9

5.1

6.1

9.6

12.6

2.3

2.4

2.3

3.8

4.9

4.5

4.7

5.9

6.8

1.9

1.3

1.1

-2.4

1.3

2.7

1.5

2.0

-0.3

48.3 82.4 39.0 -120.6

Bharti

2.0

1.9

0.7

1.3

1.8

1.3

1.5

2.4

3.1

Idea RCOM

0.7

0.7

0.7

0.9

1.4

1.3

1.4

1.8

1.9

0.9

0.6

0.6

-1.2

0.6

1.3

0.7

1.0

-0.1

26.5

25.5

12.0

18.8

12.6

10.4

17.8

20.3

20.0

Idea

4.1

9.7

6.5

13.3

4.3

8.8

10.2

12.9

RCOM

3.7

4.2

4.2

3.4

2.1

3.6

3.3

4.7

Revenue (INR b) Bharti (India) Bharti (consolidated) Idea RCOM Vodafone - India (implied) EBITDA (INR b) Bharti (India) Bharti (consolidated) Idea RCOM EBITDA Margin (%) Bharti (India) Bharti (consolidated) Idea RCOM

4QFY14 1QFY15E

YoY (%) QoQ (%) 2.3 1.2 4.3 -3.3 4.0

2.1 6.5 3.7

PAT (INR b) Bharti (India)

Bharti (consolidated) Idea RCOM

-7.7 30.7 15.0 -113.1

EPS (INR)

74.5 37.1 -120.8

30.7 7.7 -113.3

Capex (INR b) Bharti (India)

July 2014

59.3 -1.4 132.7 10.0 -22.8 98.4 4.1 -12.5 Source: Company, MOSL

257

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Telecom Telecom

Bharti Airtel Bloomberg Equity Shares (m)

BHARTI IN 3,997.0

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

1,353 / 23

52-Week Range (INR)

374 / 279

1,6,12 Rel Perf. (%)



-9 / -22 / -21 

Financial Snapshot (INR Million) Y/E MARCH

2014 2015E 2016E

Net Sales

857.5 931.2 1,019.4 1,098.2

EBITDA

277.8 311.7

Adj. Net Profit

27.7

52.5

65.1

82.3

Adj. EPS (INR)

7.0

13.1

16.3

20.6

Adj. EPS Gr. (%) 17.0

87.2

23.9

26.4

161.8 174.7

190.3

209.7

BV/Sh (INR)

CMP: INR339

352.4

2017E 381.9 

We expect consolidated revenue to grow 11% YoY and 1.2% QoQ to INR224.9b. We expect India revenue to grow 8% YoY to INR152.5b and Africa business revenue to grow 9% YoY to USD1.16b. Consolidated EBITDA margin is likely to expand ~30bp QoQ, led by India business. India mobile revenue should grow 7% YoY to INR124.7b, driven by 4% YoY (1.5% QoQ) traffic growth and 3.5% YoY (1.4% QoQ) wireless RPM growth. We estimate EBITDA margin for the mobile business at 35.3%, up 40bp QoQ. Cross-currency fluctuations and marketing investments are likely to impact performance in Africa. We model 1.5% QoQ revenue growth and 1.4% decline in EBITDA for Bharti Africa. Consolidated net profit is likely to increase 82% YoY to INR12.6b. The stock trades at proportionate EV/EBITDA of 6.7x FY15E and 5.8x FY16E. Maintain Buy.

RoE (%)

4.7

7.8

8.9

10.3



RoCE (%)

5.0

6.2

7.0

7.8



Div. payout (%)

10

10

10

10

48.2

25.8

20.8

16.4

P/BV (x)

2.1

1.9

1.8

1.6

EV/EBITDA (x)

7.5

6.7

5.8

4.9

Div. Yield (%)

0.2

0.4

0.5

0.6

1Q 202,639 9.2 65,449 19.3 8.0 32.3 11,676 3,075 38,470 18,377 9,685 8,693 -1,804 6,889 -9.6

FY14 2Q 3Q 4Q 213,244 219,385 222,193 9.9 13.3 13.5 68,321 70,934 73,066 15.1 22.8 20.6 4.4 3.8 3.0 32.0 32.3 32.9 16,111 10,682 9,911 833 1,738 104 39,394 39,188 39,444 13,649 22,802 23,816 8,635 16,569 13,562 5,015 6,233 10,253 106 -131 -637 5,120 6,101 9,616 -29.0 115.1 89.1

Valuations P/E (x)

Buy

Key issues to watch out for  RPM growth (we expect 1.4% QoQ), mobile traffic in India business (we expect 1.5% QoQ growth), and Africa business financials (we expect 1.4% QoQ EBITDA decline).

Quarterly Performance

INR Million)

Y/E March Revenue YoY Growth (%) EBITDA YoY Growth (%) QoQ Growth (%) Margin (%) Net Finance Costs Share of JV/associate/others Depreciation & Amortization Profit before Tax Income Tax Expense / (Income) Profit after Tax Minority interest Reported Net Profit / (Loss) YoY Growth (%) India - Mobile ARPU (INR/month) QoQ Growth (%) India - Mobile MOU/sub/month QoQ Growth (%) Consolidated net debt (INR b) India - Mobile Traffic (B Min) QoQ Growth (%) India - Mobile RPM (p/min) QoQ Growth (%) Africa - Revenue (USD m) Africa - EBITDA (USD m) Africa - EBITDA margin (%)

July 2014

200 3.8 455 -0.1 593 258 2.1 44.0 3.9 1,062 283 26.7

192 -4.1 437 -4.0 620 251 -2.7 44.0 0.0 1,119 301 26.9

195 1.3 434 -0.5 582 255 1.5 44.8 1.9 1,165 300 25.8

196 0.9 437 0.6 611 265 3.8 44.9 0.3 1,145 290 25.3

1Q 224,878 11.0 74,616 14.0 2.1 33.2 9,431 1,406 40,462 26,128 12,844 13,284 -721 12,563 82.4 197 0.3 432 -1.1 583 269 1.5 45.6 1.4 1,162 286 24.6

FY15E 2Q 3Q 4Q 227,900 235,481 242,913 6.9 7.3 9.3 75,635 78,992 82,435 10.7 11.4 12.8 1.4 4.4 4.4 33.2 33.5 33.9 10,089 10,165 10,410 1,421 1,436 1,444 41,378 42,860 44,240 25,588 27,403 29,229 12,984 13,262 13,869 12,604 14,141 15,361 -721 -721 -721 11,883 13,419 14,640 132.1 120.0 52.2 193 -2.0 418 -3.2 556 264 -1.7 46.1 1.2 1,197 303 25.3

197 2.2 422 1.0 646 271 2.4 46.7 1.2 1,231 324 26.3

202 2.7 429 1.5 617 279 2.9 47.2 1.1 1,254 329 26.2

FY14

FY15E

857,460 11.5 277,770 19.4

931,171 8.6 311,677 12.2

32.4 48,379 5,750 156,496 78,644 48,450 30,194 -2,467 27,727 21.8

33.5 40,095 5,707 168,941 108,348 52,958 55,390 -2,884 52,506 89.4

194

198

436

426

611 1,030

617 1,082

44.5

46.4

4,491 1,174 26.1

4,844 1,241 25.6

258

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Telecom Telecom

Bharti Infratel Bloomberg Equity Shares (m)

BHIN IN 1,888.7

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

494 / 8

52-Week Range (INR)

2 / 25 / 36

Financial Snapshot (INR Million)

EBITDA

2014 2015E 2016E 2017E 108. 119. 133. 147. 3 44.0 49.6 56.5 63.6

Adj. Net Profit

15.2

18.0

22.0

27.5

Adj. EPS (INR)

8.0

9.5

11.7

14.6

Adj. EPS Gr. (%)

43.9

18.7

BV/Sh (INR)

95.5

98.2

22.4 101.

Net Sales

RoE (%)

8.6

9.8

11.7

25.0 105. 6 14.1

RoCE (%)

7.4

8.2

9.5

11.3

64.0

72.1

71.4

71.9

32.6

27.4

22.4

17.9

Div. payout (%) Valuation P/E (x) P/BV (x)

2.7

2.7

2.6

2.5

EV/EBITDA (x)

10.1

8.8

7.5

6.5

Div. Yield (%)

2.0

2.6

3.2

4.0

Buy



We expect revenue to grow 9.6% YoY to INR28.75b.



Revenue from rent is likely to grow 2.7% QoQ, while we expect energy and other reimbursements to grow 3.6% QoQ.



We expect EBITDA to grow 3.8% QoQ to INR11.97b. EBITDA margin is likely to expand ~30bp QoQ.



We expect 21.8% YoY increase in reported PAT to INR4.35b, led by 14.4% YoY EBITDA growth.



Bharti Infratel trades at an EV/EBITDA of 8.8x FY15E and 7.5x FY16E. Buy.

275 / 126

1,6,12 Rel Perf. (%)

Y/E MARCH

CMP: INR262

Key issues to watch out for  Consolidated co-location additions (we expect ~4,000),  Trend in consolidated sharing revenue per sharing operator (we expect 0.3% QoQ increase).

Quarterly Performance

(INR Million)

Y/E March Sales YoY Change (%) Operating expenses EBITDA YoY Change (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adjusted net profit YoY Change (%)

1Q 26,220 8.5 15,757 10,463 18.1 39.9 5,528 1,044 1,556 5,447 1,871 34.3 3,576 67.6

FY14 2Q 3Q 26,837 27,311 5.0 4.0 16,108 16,028 10,729 11,283 12.0 14.9 40.0 41.3 5,326 5,252 1,335 792 569 917 4,637 6,156 1,863 2,051 40.2 33.3 2,774 4,105 12.0 61.6

4Q 27,899 4.3 16,373 11,526 14.7 41.3 5,153 826 1,445 6,992 2,268 32.4 4,724 64.4

1Q 28,745 9.6 16,777 11,968 14.4 41.6 5,359 908 970 6,670 2,316 34.7 4,354 21.8

61 39

60 40

FY15E 2Q 3Q 29,581 30,378 10.2 11.2 17,306 17,781 12,275 12,597 14.4 11.6 41.5 41.5 5,573 5,796 908 908 1,060 1,150 6,853 7,042 2,380 2,445 34.7 34.7 4,474 4,597 61.3 12.0

FY14

FY15E

4Q 31,177 11.7 18,447 12,730 10.4 40.8 6,025 905 1,225 7,026 2,439 34.7 4,586 (2.9)

108,267 5.4 64,266 44,001 14.9 40.6 21,259 3,997 4,487 23,232 8,053 34.7 15,179 51.7

119,882 10.7 70,311 49,570 12.7 41.3 22,754 3,630 4,405 27,591 9,580 34.7 18,012 18.7

60 40

61 39

60 40

Revenue mix Rent revenue mix (%) Energy & other reimb. (%)

July 2014

61 39

60 40

61 39

60 40

60 40

259

June June2014 2014Results ResultsPreview Preview||Sector: Sector: Telecom Telecom

Idea Cellular Bloomberg Equity Shares (m)

IDEA IN 3,595.3

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

485 / 8

52-Week Range (INR)

CMP: INR135 

We expect Idea’s consolidated revenue to grow 12.4% YoY (4.3% QoQ) to INR73.5b .



We expect Idea to report mobile traffic growth of 3% QoQ (9.8% YoY). RPM should improve 1.9% QoQ, led by voice as well as data.



ARPU is likely to increase 0.6% QoQ to INR174.



EBITDA margin should expand 65bp QoQ to 32.3%. We estimate EBITDA loss in new circles at INR1.7b.



We expect net profit to grow 39% YoY (15% QoQ) to INR6.78b.



Idea trades at an EV/EBITDA of 6.4x FY15E and 6.6x FY16E. Buy.

188 / 125

1,6,12 Rel Perf. (%)

-5 / -41 / -39

Buy

Financial Snapshot (INR Million) Y/E MARCH

2014 2015E 2016E 2017E

Net Sales

265.2

301.4 335.3 373.0

EBITDA

83.3

98.4 113.1 128.4

Adj. Net Profit

19.7

29.6

26.7

27.5

Adj. EPS (INR)

5.9

8.2

7.4

7.6

Adj. EPS Gr. (%)

94.1

38.7

-9.7

2.9

BV/Sh (INR)

49.8

64.0

70.8

77.9

RoE (%)

12.7

15.0

11.0

10.3

RoCE (%)

7.2

8.2

7.9

7.9

Div. Payout (%)

7.9

7.9

7.9

7.9

22.8

16.4

18.2

17.7

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

2.7

2.1

1.9

1.7

EV/EBITDA (x)

7.8

6.4

6.6

5.4

Div. Yield (%)

0.3

0.5

0.4

0.4

Key issues to watch out for  RPM trajectory (we expect RPM to increase 1.9% QoQ)  Mobile traffic (we expect 3% QoQ growth)  EBITDA loss in new circles (we expect INR1.7b).

Quarterly Performance (Consolidated)

(INR Million)

Y/E March 1Q Gross Revenue YoY Growth (%) QoQ Growth (%) EBITDA YoY Growth (%) QoQ Growth (%) Margin (%) Net Finance Costs Depreciation & Amortization Profit before Tax Income Tax Exp. / (Income) Adj Net Profit / (Loss) YoY Growth (%) QoQ Growth (%) Margin (%) Mobile ARPU (INR/month) QoQ Growth (%) Mobile MOU/sub/month QoQ Growth (%) Mobile Traffic (B Min) QoQ Growth (%) Mobile RPM (INR) QoQ Growth (%)

July 2014

65,388 18.8 7.9 21,013 46.4 20.1 32.1 2,211 11,353 7,450 2,572 4,878 108.2 27.0 7.5 174 4.2 398 -2.0 147 2.8 0.44 6.3

FY14 2Q 63,233 19.0 -3.3 19,715 38.6 -6.2 31.2 1,949 10,795 6,971 2,495 4,476 86.5 -8.2 7.1 164 -5.7 368 -7.5 139 -5.8 0.45 2.2

3Q

4Q

1Q

66,131 18.5 4.6 20,557 39.5 4.3 31.1 1,575 11,666 7,316 2,638 4,678 104.6 4.5 7.1 169 3.0 376 2.2 145 4.1 0.45 0.5

70,438 16.2 6.5 22,302 27.5 8.5 31.7 1,966 11,380 8,956 3,058 5,898 53.5 26.1 8.4 173 2.4 397 5.6 157 8.6 0.44 -2.9

73,482 12.4 4.3 23,741 13.0 6.5 32.3 2,043 11,457 10,242 3,462 6,780 39.0 15.0 9.2 174 0.6 392 -1.2 162 3.0 0.44 1.9

FY15E 2Q 71,620 13.3 -2.5 22,658 14.9 -4.6 31.6 1,571 11,466 9,621 3,252 6,369 42.3 -6.1 8.9 166 -4.9 370 -5.7 156 -3.5 0.45 1.1

3Q

4Q

75,635 14.4 5.6 24,777 20.5 9.4 32.8 1,323 12,202 11,253 3,803 7,449 59.3 17.0 9.8 171 3.3 376 1.6 162 4.0 0.45 1.3

80,701 14.6 6.7 27,200 22.0 9.8 33.7 1,200 12,437 13,564 4,584 8,979 52.2 20.5 11.1 178 4.2 387 2.9 171 5.5 0.46 1.3

FY14

FY15E

265,190 18.1

301,438 13.7

83,337 38.8

98,376 18.0

31.4 7,701 45,194 30,442 10,763 19,679 94.7

32.6 6,136 47,561 44,679 15,102 29,578 50.3

7.4 167 7.0 381 1.2 588 10.4 0.44 5.7

9.8 172 2.7 381 0.1 652 10.9 0.45 2.6

260

June June2014 2014Results ResultsPreview Preview| |Sector: Sector:Telecom Telecom

Reliance Communications Bloomberg Equity Shares (m)

RCOM IN 2,064.0

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

295 / 5

52-Week Range (INR)

Net Sales EBITDA

2014 2015E 2016E 2017E 218.8 228.4 248.5 269.9 72.8

84.2

95.4 108.0

Adj. Net Profit

7.5

10.8

27.8 44.3

Adj. EPS (INR)

3.6

4.4

11.3 17.9

Adj. EPS Gr. (%)

286.7

BV/Sh (INR)

135.0 142.0 153.3 171.2

19.9 157.5 59.4

RoE (%)

2.6

3.4

7.6

11.1

RoCE (%)

4.3

3.9

6.0

8.3

Div. Payout (%)

0.0

0.0

0.0

0.0

Valuations P/E (x)

We expect revenue to decline 3.3% QoQ to INR54.8b, led by decline in global segment revenue, which had a one-off component in 4QFY14. On a YoY basis, we expect revenue to grow 1.3%.



RPM is likely to increase 0.5% QoQ to INR0.43.



We expect wireless traffic to grow 0.8% QoQ to 103b minutes.



Consolidated EBITDA is likely to grow 3.7% QoQ to INR19.2b.



We expect RCom to report proforma net loss of INR268m.



RCom trades at an EV/EBITDA of 7.6x FY15E and 6.1x FY16E. Neutral.

-5 / -16 / -27

Financial Snapshot (INR Million)

39.2

32.7

12.7

8.0

P/BV (x)

1.1

1.0

0.9

0.8

EV/EBITDA (x)

9.6

7.6

6.1

4.8

Div. Yield (%)

0.0

0.0

0.0

0.0

Neutral



164 / 106

1,6,12 Rel Perf. (%)

Y/E MARCH

CMP: INR143

Key issues to watch out for  RPM trend (we expect 0.5% QoQ growth)  Traffic growth (we expect 0.8% QoQ).

Quarterly Performance (Consolidated) Y/E March Gross Revenue YoY Growth (%) QoQ Growth (%) EBITDA YoY Growth (%) QoQ Growth (%) Margin (%) Net Finance Costs Depreciation & Amortization Profit before Tax Income Tax Expense / (Income) Adjusted Net Profit / (Loss) YoY Growth (%) Margin (%) Reported Net Profit / (Loss) Wireless ARPU (INR/month) QoQ Growth (%) Wireless MOU/sub/month QoQ Growth (%) Wireless Traffic (B Min) QoQ Growth (%) Wireless RPM (INR) QoQ Growth (%) E: MOSL Estimates

July 2014

1Q 54,116 1.7 0.1 17,010 3.1 2.0 31.4 6,870 8,831 1,309 7 1,302 -32.0 2.4 1,082 119 -7.1 282 -2.9 106 1.0 0.42 -4.3

(INR Million) FY14 2Q 3Q 53,942 54,034 3.7 1.9 -0.3 0.2 18,856 18,454 15.1 11.6 10.9 -2.1 35.0 34.2 6,758 7,493 9,365 9,477 2,733 1,484 12 30 2,721 1,454 105.7 27.2 5.0 2.7 6,750 1,084 121 125 1.7 3.9 277 288 -1.8 3.8 101 102 -4.9 0.7 0.43 0.44 3.6 0.1

4Q 56,708 4.9 4.9 18,516 11.0 0.3 32.7 9,071 17,665 -8,220 -10,258 2,038 -183.7 3.6 1,559 128 1.9 296 2.8 102 0.5 0.43 -0.9

1Q 54,836 1.3 -3.3 19,195 12.8 3.7 35.0 7,941 11,527 -273 -5 -268 -120.6 -0.5 -643 132 3.5 305 3.0 103 0.8 0.43 0.5

FY15E 2Q 3Q 56,403 57,667 4.6 6.7 2.9 2.2 20,521 21,474 8.8 16.4 6.9 4.6 36.4 37.2 6,724 5,998 11,550 11,573 2,247 3,903 45 78 2,202 3,825 -19.1 163.1 3.9 6.6 1,827 3,450 133 134 0.6 0.6 305 305 0.0 0.0 105 107 1.7 2.0 0.44 0.44 0.6 0.6

FY14 4Q 59,526 5.0 3.2 22,977 24.1 7.0 38.6 5,705 12,150 5,122 102 5,019 146.3 8.4 4,644 135 0.6 305 0.0 109 1.9 0.44 0.6

FY15E

218,800 4.2

228,433 4.4

72,843 10.2

84,175 15.6

33.3 30,192 45,338 -2,687 -10,209 7,522 286.7 3.4 10,482 125 14.4 291 15.7 412 -1.0 0.43 -1.1

36.8 26,369 46,800 11,006 220 10,786 43.4 4.7 10,411 135 6.5 298 4.7 445 3.0 0.45 1.7

261

June 2014 Results Preview | July 2014

Utilities Company name

Clarity on regulatory issues still some time away

CESC

Prefer CPSUs; NTPC and CESC our top picks

Coal India

Expect aggregate revenue growth of 11% YoY, PAT growth of 10% YoY: We expect Utilities companies under our coverage to report aggregate revenue growth of 11% YoY and aggregate PAT growth of 10% YoY in 1QFY15. Given the benefit of compensatory tariff hike, we believe Tata Power would be the main growth driver. We estimate PAT growth at 12% YoY for Coal India and 11% YoY for Powergrid. For NTPC, we project adjusted PAT growth of 4.5% YoY in the first quarter of new regulation.

Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corporation PTC India

Generation growth muted, coal project PLF remains low: In April-May 2014, all India generation grew 9% YoY, led by heat wave felt during both months. Generation grew 12% YoY in April, followed by 7% growth in May. Delayed monsoon could have led to higher generation growth for June 2014. Overall PLF for April-May 2014 was flat YoY at 56%. While reported PLF was flat, coal project PLF declined from 70.3% in the corresponding period last year to 68.8%. Gas-based generation de-grew 20% YoY and PLF stood at 24%, lower than 36% in the corresponding period last year. YoY growth of 11% in coal-based generation was the key driver of overall generation growth. Nuclear and hydropower grew 15% YoY and 12% YoY, respectively in April-May 2014.

Reliance Infrastructure Tata Power

Power deficit declines below 4% for May 2014, peak deficit remains low: Power demand for May 2014 was flat YoY partly due to higher base, but declined by 2.4% QoQ. Power demand for April 2014, however, grew 2.6% YoY. Power supply increased 7% YoY in April-May 2014 against demand growth of 3.6% YoY, leading to base deficit below 4% v/s 6% for the same period last year. The southern region registered significant improvement, with deficit reducing to 5.4% from 12.4% last year. The improvement was partly led by lower demand, while supply is looking up. Expected quarterly performance summary (INR m) Sector

CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power Sector Aggregate

CMP (INR) 4.7.14 755 394 23 84 27 159 144 98 791 107

Reco Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral

Sales Var % Var % Jun-14 YoY QoQ

EBITDA Var % Var % Jun-14 YoY QoQ

14,475 0.8 176,863 7.4 8,549 8.7 27,732 12.2 17,759 9.7 191,265 22.5 40,969 15.2 32,250 16.4 28,775 -12.2 96,106 2.9 634,742 10.7

3,375 44,563 6,465 8,879 12,284 39,309 34,569 471 4,525 24,781 179,221

16.2 -11.6 99.0 34.7 58.2 -8.7 4.1 13.2 6.2 8.7 -1.0

5.1 12.6 9.9 -3.8 14.7 -7.8 13.1 38.7 2.8 19.9 7.2

-25.7 -12.8 213.0 28.5 LP -11.5 3.8 -50.7 -5.5 36.0 10.3

Net Profit Var % Var % Jun-14 YoY QoQ 1,442 41,774 1,022 3,381 7,632 23,272 11,750 443 3,239 3,893 97,847

10.1 11.8 10.1 -15.8 6.6 4.5 11.1 51.3 -13.4 260.1 10.3

-40.7 -20.9 LP 88.5 LP -7.5 -1.3 -36.4 -35.2 578.2 6.8

Nalin Bhatt ([email protected]); +91 22 3982 5429 July 2014

262

June 2014 Results Preview | Sector: Utilities

Imported coal prices lower QoQ; ST prices look up: Imported coal prices averaged at USD75/ton in 1QFY15 against USD81/ton in 1QFY14 and USD79/ton in 4QFY14. Post the increase in 3QFY14, global coal prices have again softened. There could be marginal benefit to importers, as the INR has appreciated QoQ to INR60/USD. Shortterm price at IEX has looked up QoQ and the 1QFY15 average stood at INR3.6/unit. This is owing to the heat wave in April-May 2014. Valuation and view: The Utilities sector has witnessed several regulatory initiatives to address concerns on SEBs, fuel supply pacts and PPAs. It would take a while before clarity on several issues emerges. We continue to prefer CPSUs, which are relatively better positioned on these fronts. Our top picks are NTPC and CESC. May 2014 generation growth up due to heat wave

8 2

2

46

8

224

6

3

57 -4

446

6

13 7 8

12

7

54

0

0

-2

State Sector

Private Sector

82 70 58 46

May-14

Jan-14

Mar-14

Nov-13

Jul-13

Sep-13

Mar-13

May-13

Jan-13

Nov-12

Jul-12

Sep-12

Mar-12

May-12

Jan-12

Nov-11

Jul-11

Sep-11

Centre Sector

94

27

73 72 70 74 71 73 73 71 77 75 79 76 75 73 72 78 73 76 78 68 80 77 84 76 80 78 82 79 77 82 79 87 84 87 89

14 14 99 8 5

Gr (YoY, %)

Jul-11 Sep-11 Nov-11 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

All India Generation (BUs)

Centre sector coal PLF remains robust (%)

Source: CEA

Power demand growth remains muted FY13

FY14

FY15

Source: CEA

Base deficit remains below 4% for May 2014 Gr (%)

7.4%

14

FY15

FY12

FY13

FY14

11

91

89

8 0.1%

79 83 84 91 85 83 86 87 83 84 80 83 84 80 79 77 85 83 85 84 73 78 86 85

5

4.4

3.8

2 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

April May June July Aug Sept Oct Nov Dec Jan Feb Mar

Source: CEA FY15

FY12

Source: CEA

ST prices remain muted, though up QoQ (INR/unit) FY13

FY14

5.3

Peak deficit too trends lower

Source: CEA

3.6

3.1

2.9

3.5 3QFY13

2.5

3.5 2QFY13

3.2

3.1 1QFY13

2.7

3.4 4QFY12

2.9

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

3QFY12

4QFY11

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

July 2014

2QFY12

2.3

2

3QFY11

4.1

2QFY11

4.9

1QFY11

5

3.6

3.1

8

3.1

11

1QFY12

4.6

14

Source: CEA

263

June 2014 Results Preview | Sector: Utilities

RB Index* prices decline QoQ (USD/ton) Avg RB Index (USD/ton)

INR witness marginal appreciation

YoY

QoQ

QoQ (%)

130

60%

68

110

35%

60

YoY (%)

INR/USD 63 62 62 60

51 50

55 55 54 54 57

30% 20%

10%

52

70

-15%

44

0%

-40%

36

-10%

* 6000Kcal, FoB South Africa

10%

Source: Bloomberg

Source: RBI

Relative Performance - 1Yr (%) Sensex Index 135

120

120

105

105

90

90

Oct-13

Jul-13

Jul-14

May-14

MOSL Utilities Index

Jan-14

135

Jun-14

150

Source: Bloomberg, MOSL

Jul-14

MOSL Utilities Index

Sensex Index 150

Apr-14

Relative Performance - 3m (%)

Apr-14

46 46 45 45 44 46

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15

50

91 88 104 121 121 117 107 105 96 88 86 85 81 73 83 79 75

90

Source: Bloomberg, MOSL

Comparative valuation Sector / Companies Utilities CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infra Tata Power Sector Aggregate

July 2014

CMP (INR) 755 394 23 84 27 159 144 98 791 107

Reco

Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral

EPS (INR) FY15E FY16E FY17E 56.8 27.7 1.3 6.5 2.3 11.8 9.4 9.5 54.4 5.8

61.9 30.2 2.9 5.8 2.8 13.7 11.5 13.1 60.7 6.5

66.9 33.3 4.2 5.4 2.9 15.8 13.4 15.2 63.1 7.9

PE (x) FY15E FY16E FY17E 13.3 14.2 17.4 13.0 11.9 13.4 15.3 10.3 14.5 18.5 14.1

12.2 13.1 7.8 14.4 9.8 11.6 12.5 7.5 13.0 16.6 12.5

11.3 11.8 5.4 15.5 9.3 10.0 10.7 6.5 12.5 13.6 11.1

EV/EBIDTA (x) FY15E FY16E FY17E 7.8 10.5 9.9 7.0 9.4 10.0 11.1 10.7 8.0 13.6 10.2

7.2 9.1 5.8 7.1 8.8 9.1 9.9 5.8 7.2 12.5 9.0

6.5 7.8 5.1 7.3 8.2 7.8 9.1 4.4 7.1 11.6 8.0

RoE (%) FY15E FY16E FY17E 11.6 25.2 6.3 15.2 8.5 11.0 13.7 7.0 6.5 7.4 15.0

11.4 24.2 13.9 12.4 8.6 12.0 15.2 10.2 6.9 7.5 15.6

11.1 23.4 17.1 10.6 8.6 13.0 16.0 11.1 6.7 7.7 16.1

264

June 2014 Results Preview | Sector: Utilities

Generation, PLF for various projects Capacity

May-14

May-13

YTDFY15

YTDFY14

(MW)*

Generation

PLF (%)

Generation

PLF (%)

Generation

PLF (%)

Generation

PLF (%)

- Mundra

4,620

3,074.8

89.5

2,521.8

73.4

5,901.7

87.3

5,045.3

74.6

- Tirora

2,640

1,311.7

66.8

0.0

0.0

2,460.2

63.7

733.1

37.9

- JP 1 & 2

455

74.0

22.3

70.5

21.2

127.0

19.1

154.9

23.3

- Gautami

464

-

0.0

0.0

0.0

0.0

0.0

0.0

0.0

1,270

275.6

35.2

142.4

34.2

546.1

65.6

111.9

34.9

- Chennai

200

89.7

61.4

91.5

62.7

200.0

68.5

170.1

58.2

- Vemagiri

370

0.0

0.0

2.3

0.8

0.0

0.0

177.5

32.9

2,200

794.5

98.3

758.5

102.0

1,627.7

99.0

1,488.9

101.7

- Dahanu

500

380.2

102.2

356.7

95.9

752.9

102.9

741.4

101.3

- Samalkot (AP)

220

25.2

15.7

33.0

20.5

25.2

7.8

70.5

21.9

- Goa

48

21.7

61.9

21.7

61.9

34.3

49.0

45.6

65.1

- Kochi

174

119.3

93.9

0.0

0.0

222.4

87.5

46.9

18.5

1,200

866.3

97.0

792.3

88.7

1,648.4

93.8

1,159.2

66.0

1,580

586.4

43.6

822.0

65.8

1,138.2

43.0

1,609.4

65.8

441

238.6

89.1

200.4

74.8

479.1

90.9

431.3

81.8

- Mundra UMPP

4,000

2,204.5

74.6

2,152.4

72.3

4,348.1

74.3

3,898.4

66.6

- Maithon

1,050

581.0

74.3

598.6

76.6

1,187.7

77.3

1,181.9

76.9

500

287.9

96.7

244.3

82.1

559.4

95.5

439.6

75.1

1,148

213.4

25.5

194.0

23.2

416.3

24.8

369.9

22.1

- Rajwest

1,080

660.2

82.1

590.3

73.5

1,279.8

80.9

1,060.0

67.0

- Karnataka/Ratnagiri

2,060

1,308.1

85.3

1,430.6

93.3

1,300.6

103.3

1,305.6

103.7

CESC

1,285

822.2

86.1

815.9

85.3

1,631.5

86.7

1,612.6

85.7

716

134.5

25.7

146.7

28.1

293.7

28.1

304.3

29.1

Adani Power

GVK

GMR - Barge Mounted

JPL - Chattisgarh Rel Infra

Rel Power - Rosa Tata Power - Trombay - TISCO (Jamshedpur)

Torrent Power - Existing - Sugen JSW Energy

Lanco Infratech - Kondapali - Amarkantak

600

218.9

49.0

209.6

46.9

410.4

46.7

400.9

45.6

- UPCL

1,200

702.9

78.7

674.5

75.6

1,396.0

79.5

1,353.4

77.0

- Anpara

1,200

741.6

83.0

563.1

63.1

1,467.2

83.5

1,105.4

62.9

1,140

318.6

37.5

268.1

66.7

592.9

35.5

513.3

64.9

2,400

704.3

39.4

1,204.8

67.5

KSK - Wardha Sterlite - Jharsuguda

July 2014

1,598.1 45.5 2,065.6 58.8 Source: CEA, *Monitored capacity by CEA

265

June 2014 Results Preview | Sector: Utilities

CESC Bloomberg Equity Shares (m)

CESC IN 125.6

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

95 / 2

52-Week Range (INR)

CMP: INR755 

764 / 271

1,6,12 Rel Perf. (%)

20 / 44 / 77 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA Net Profit

2014 2015E 2016E 2017E 54.5 62.3 69.2 75.8 13.7 14.5 15.2 16.0 6.5

7.1

7.8

8.4

Adj. EPS (INR) 51.9

56.8

61.9

66.9

EPS Gr. (%)

5.4

9.5

8.8

8.2

BV/Sh (INR)

464.8

515.9

572.0

633.2

RoE (%)

11.8

11.6

11.4

11.1

RoCE (%) Payout (%)

10.3 15.4

10.0 14.1

9.9 12.9

9.9 12.0

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

14.5 1.6

13.3 1.5

12.2 1.3

11.3 1.2

8.8 1.1

8.1 1.1

7.5 1.1

6.7 1.1

EV/EBITDA (x) Div. Yield (%)







Buy

We expect revenue of INR14.5b, flat YoY, and EBITDA of INR3.4b, up 5% YoY. Reported PAT is likely to grow 10% YoY to INR1.4b, largely on the back of capacities commissioned in FY14. We estimate generation of 2.4BU and sales of 3.5BU in 1QFY15. PLF is likely to be flat YoY. Spencers has expanded its hypermarket presence by adding 9 stores in FY14. As at the end of FY14, it had 34 stores against 25 as at the end of FY13. Growth in area under operations was muted, rising from 0.88msf as at the end of FY13 to 1.07msf as at the end of FY14. This was due to closure of small format stores. Same store sales (SSS) grew 6% in FY14 to INR1,383/sf/month. CESC has synchronized one of its units at 600MW Dhariwal project and is selling infirm power. CoD will be announced shortly. The second unit is likely to be synchronized shortly. We expect CESC to post standalone PAT (ex Spencers) of INR7.1b in FY15 (up 10%) and INR7.8b in FY16 (up 9%).

Key issues to watch for  Performance of Spencers – SSS growth, store EBITDA  Details on commissioning and operations of Chandrapur  Capex on Haldia project

Quarterly Performance - Standalone (excl Spencers Retail) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) E: MOSL Estimates

July 2014

1Q 14,360 1.1 3,210 10.7 22.4 840 900 190 1,660 350 21.1 1,310 1,310 4.8

FY14 2Q 16,320 21.4 3,760 20.9 23.0 840 1,030 270 2,160 450 20.8 1,710 1,710 25.7

3Q 12,070 16.1 2,930 10.2 24.3 850 990 260 1,350 280 20.7 1,070 1,070 5.9

4Q 12,460 -17.6 4,540 -0.7 36.4 860 770 170 3,080 650 21.1 2,430 2,430 -5.1

(INR Million) 1Q 14,475 0.8 3,375 5.1 23.3 800 1,000 250 1,825 383 21.0 1,442 1,442 10.1

FY15E 2Q 3Q 15,560 15,690 -4.7 30.0 3,610 3,640 -4.0 24.2 23.2 23.2 850 900 1,030 990 300 350 2,030 2,100 426 441 21.0 21.0 1,604 1,659 1,604 1,659 -6.2 55.0

4Q 17,360 39.3 4,593 1.2 26.5 1,028 1,045 448 2,968 535 18.0 2,433 2,433 0.1

FY14

FY15E

54,450 3.9 14,330 8.2 26.3 3,390 3,690 1,000 8,250 1,730 21.0 6,520 6,520 5.5

62,346 14.5 15,218 6.2 24.4 3,578 4,065 1,348 8,923 1,785 20.0 7,138 7,138 9.5

266

June 2014 Results Preview | Sector: Utilities

Coal India Bloomberg

COAL IN

Equity Shares (m)

6,316.4

CMP: INR394

Neutral

We expect revenue to grow 7% YoY to INR177b and EBITDA to grow 13% YoY to INR44.6b, largely driven by volume growth. Reported PAT 52-Week Range (INR) 424 / 238 is likely to grow 12% YoY to INR41.8b. 1,6,12 Rel Perf. (%) -4 / 17 / -2  We had estimated production of 110m tons (growth of 7% YoY) and dispatches of 122m tons (growth of 6% YoY) in 1QFY15. However, Financial and Valuation Summary (INR b) actual production was 108m tons and dispatches were 120m tons. Y/E March 2014 2015E 2016E 2017E  The RB Index has softened from USD79/ton in 4QFY14 to USD75/ton, Sales 688.1 729.2 779.0 837.5 which along with marginal INR appreciation could have bearing on EBITDA 159.6 188.7 210.7 238.3 COAL’s market-linked realization. We expect e-auction realization to NP* 159.9 174.9 190.7 210.3 be flat QoQ at INR2,175/ton. EPS (INR)* 25.3 27.7 30.2 33.3  We expect COAL to report consolidated PAT of INR174.9b in FY15 (up EPS Gr. (%) -9.5 9.4 9.0 10.3 BV/Sh. (INR) 67.1 78.2 90.3 103.6 9%) and INR190.7b in FY16 (up 9%). The stock trades at 13.1x FY16E RoE (%)** 27.0 25.2 24.2 23.4 earnings. M. Cap. (INR b)/(USD b)

2,489 / 42

RoCE (%) Payout (%)

52.1 130.0

58.2 55.0

54.1 60.0

51.8 60.0

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

15.6 5.9

14.2 5.0

13.1 4.4

11.8 3.8

EV/EBITDA (x) 12.3

10.5

9.1

7.8

Div. Yield (%) 7.6 3.5 4.6 5.1 EV/ Sales (x) 2.9 2.7 2.5 2.2 *Adjusted EPS, **RoE is adjusted for OB reserves accounts, as applicable under IFRS



Key issues to watch for  Volume mix, realization trend, and guidance for FY15  Modalities of coal import  News flows on price hike

Quarterly Performance Y/E March 1Q Sales 164,724 Change (%) -0.2 EBITDA 39,579 Change (%) -17.8 As of % Sales 24.0 Depreciation 4,757 Interest 74 Other Income 22,196 EO Income/(Expense) -50 PBT 56,894 Tax 19,585 Effective Tax Rate (%) 34.4 Reported PAT 37,310 Adjusted PAT* 37,360 Change (%) -16.6 E: MOSL Estimates; *Pre Exceptional

July 2014

(INR Million) FY14 2Q 3Q 154,115 169,281 5.8 -2.3 27,940 41,037 -2.4 -4.3 18.1 24.2 4,949 4,417 80 96 21,828 21,825 -91 -111 44,647 58,237 14,124 19,297 31.6 33.1 30,524 38,940 30,615 39,052 -0.5 -16.6

4Q 199,980 0.5 51,076 -29.2 25.5 5,841 330 23,845 267 69,017 24,674 35.9 44,343 52,840 -14.3

1Q 176,863 7.4 44,563 12.6 25.2 4,850 75 22,250 0 61,888 20,113 32.5 41,774 41,774 11.8

FY15E 2Q 3Q 161,075 184,282 4.5 8.9 27,125 49,082 -2.9 19.6 16.8 26.6 5,000 5,100 85 100 22,500 22,750 0 0 44,540 66,632 14,476 21,655 32.5 32.5 30,065 44,977 30,065 44,977 -1.8 15.2

4Q 206,971 3.5 67,893 32.9 32.8 5,219 115 23,238 0 85,797 27,742 32.3 58,056 58,056 9.9

FY14

FY15E

688,100 0.7 159,632 -11.7 23.2 19,964 580 89,694 14 228,795 77,679 34.0 151,116 159,866 -9.5

729,191 6.0 188,663 18.2 25.9 20,169 375 90,738 0 258,857 83,986 32.4 174,871 174,871 9.4

267

June 2014 Results Preview | Sector: Utilities

Jaiprakash Power Ventures Bloomberg Equity Shares (m)

JPVL IN 2,938.0

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

67 / 1

52-Week Range (INR)

27 / 9

1,6,12 Rel Perf. (%)

-11 / -4 / -4

CMP: INR23  

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP EPS (INR)

2014 2015E 2016E 2017E 28.7 44.6 102.6 108.4 20.2 32.4 58.0 59.7 1.1

3.9

8.6



12.3

Buy

We expect revenue to grow 9% YoY to INR8.5b, EBITDA to grow 10% YoY to INR6.5b, and PAT to grow 10% YoY to INR1b. We expect generation of 1.5BU (flat YoY) from Karcham Wangtoo and 775MU (higher than 481MU in 4QFY14 and 301MU in 1QFY14) from Bina. Vishnuprayag would be operational during the quarter and we estimate generation at 525MU (against 438MU in 1QFY14). JPVL’s board has sought extension of approval from shareholders to raise INR30b funds through various options (QIP/ECB with right of conversion into shares / FCCBs/ ADRs/ GDRs/ FPO, preference shares, etc), hitherto valid up to July 2014. Cost of the Bara project is revised from INR108b to INR136b. We expect JPVL to post net profit of INR3.9b in FY15 and INR8.6b (up 122%) in FY16. The stock trades at 7.8x FY16E EPS.

0.4

1.3

2.9

4.2

EPS Gr. (%)

(71.6)

261.2

122.9

43.3



BV/Sh. (INR)

21.6

19.8

22.4

26.6



1.7 5.0

6.3 7.7

13.9 12.1

17.1 13.2

62.7

17.4

7.8

5.4

P/BV (x) 1.1 EV/EBITDA (x) 15.3

1.2 9.9

1.0 5.8

0.9 5.1

Key issues to watch for  Commissioning of Nigrie power project  Fund raising, conclusion of divestment of hydropower projects  Plans to divest other projects

1Q 7,863 44.2 5,882 20.0 74.8 1,082 3,506 48 1,343 414 30.8 929 929 -49.2

FY14 2Q 3Q 9,692 4,924 7.0 15.3 7,610 2,766 -6.2 3.2 78.5 56.2 1,075 1,073 3,574 3,601 74 214 3,036 -1,694 517 -166 17.0 9.8 2,519 -1,529 2,519 -1,529 -31.2 56.6

RoE (%) RoCE (%) Valuations P/E (x)

Quarterly Performance (standalone) Y/E MARCH Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT (Pre Exceptional) Change (%) E: MOSL Estimates

July 2014

4Q 4,296 14.7 2,066 26.2 48.1 1,236 3,672 294 -2,549 -828 32.5 -1,721 -1,721 76.9

1Q 8,549 8.7 6,465 9.9 75.6 1,250 3,700 120 1,635 613 37.5 1,022 1,022 10.1

FY15E 2Q 3Q 11,388 10,800 17.5 119.3 9,151 6,956 20.2 151.5 80.4 64.4 1,300 1,600 3,800 5,500 175 200 4,226 56 1,585 21 37.5 37.5 2,641 35 2,641 35 4.8 -102.3

(INR Million) FY14 FY15E 4Q 12,581 192.8 8,665 319.5 68.9 2,228 6,761 268 -55 7 -13.3 -62 -62 -96.4

26,775 18.9 18,324 5.7 68.4 4,466 14,352 630 135 -63 -46.5 198 198 -94.4

43,319 61.8 31,237 70.5 72.1 6,378 19,761 763 5,862 2,226 38.0 3,636 3,636 1,735.4

268

June 2014 Results Preview | Sector: Utilities

JSW Energy Bloomberg Equity Shares (m)

JSW IN 1,640.1

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

138 / 2

52-Week Range (INR)

87 / 34

1,6,12 Rel Perf. (%)

CMP: INR84 

0 / 35 / 54 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

2014 2015E 2016E 2017E 87.1 95.0 94.1 82.6 32.5 30.9 27.7 24.7

NP

10.3

10.6

Adj. EPS (INR)

9.5

8.9

6.3

6.5

5.8

5.4

EPS Gr. (%)

-2.4

2.5

-9.9

-7.0

BV/Sh. (INR)

40.2

44.8

49.0

52.9

RoE (%)

16.2

15.2

12.4

10.6

RoCE (%) Payout (%)

14.6 31.7

15.1 25.0

13.0 25.0

11.9 25.0

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

13.3 2.1

13.0 1.9

14.4 1.7

15.5 1.6

6.7 2.4

7.0 1.9

7.1 1.7

7.3 1.6

EV/EBITDA (x) Div. yield (%)

 



Neutral

We expect consolidated revenue to grow 12% YoY to INR27.7b, EBITDA to decline 4% YoY to INR8.8b, and PAT to decline 16% YoY to INR3.4b. We estimate generation at 5.5BU (including coal and lignite capacity), flat YoY. We assume that JSWEL would monetize its entire banked energy inventory in 1Q and estimate sales at 5.6BU. We have assumed short-term realization of INR4.3/unit, marginally lower YoY. We expect fuel cost to be INR2.55/unit (coal based). Media articles indicate that JSWEL is exploring inorganic growth options, including acquisition of Lanco’s Udupi project and JPVL’s projects. We expect JSWEL to report consolidated PAT of INR10.6b in FY15 (up 3%) and INR9.5b in FY15 (down 10%). The stock trades at 14.4x FY16E earnings.

Key issues to watch for  ST realization, fuel mix and cost for 1QFY15, and guidance for FY15  RajWest project: lignite mine clearance  Inorganic growth opportunities

Quarterly Performance (Consolidated) Y/E March Total Operating Income Change (%) EBITDA Change (%) Depreciation Interest Other Income Extraordinary items PBT Tax Effective Tax Rate (%) Reported PAT Share of profit from Assoc Minority interest Exceptional Income/ (Expense) Reported PAT (Post MI) Adjusted PAT Change (%) E: MOSL Estimates

July 2014

1Q 24,718 12.8 9,226 58.1 2,008 2,747 453 1,872 3,052 870 28.5 2,182 46 -5 1,872 2,141 4,013 105.9

(INR Million) FY14 2Q 20,246 -2.5 8,378 45.2 2,032 2,927 549 1,675 2,293 569 24.8 1,724 61 37 685 1,626 2,311 43.1

3Q 21,505 -9.1 7,995 -4.5 2,065 3,365 472 183 2,855 753 26.4 2,101 60 9 183 2,032 2,215 -40.4

4Q 20,583 -10.5 6,913 -13.1 1,995 3,021 548 47 2,398 643 26.8 1,755 -1 10 47 1,746 1,793 -45.9

1Q 27,732 12.2 8,879 -3.8 2,100 2,950 450 0 4,279 899 21.0 3,381 0 0 0 3,381 3,381 -15.8

FY15E 2Q 3Q 21,826 21,959 7.8 2.1 7,016 7,524 -16.3 -5.9 2,150 2,200 2,900 2,700 700 550 0 0 2,666 3,174 533 722 20.0 22.8 2,133 2,452 0 0 0 0 0 0 2,133 2,452 2,133 2,452 -7.7 10.7

4Q 23,445 13.9 7,505 8.6 2,226 2,456 687 0 3,511 882 25.1 2,629 0 0 0 2,629 2,629 46.6

FY14

FY15E

87,054 -2.6 32,514 16.4 8,100 12,059 2,022 3,777 10,600 2,836 26.8 7,764 166 51 2,787 7,547 10,334 -2.4

94,961 9.1 30,925 -4.9 8,676 11,006 2,387 0 13,630 3,036 22.3 10,595 0 0 0 10,595 10,595 2.5

269

June 2014 Results Preview | Sector: Utilities

NHPC Bloomberg Equity Shares (m)

NHPC IN 12,300.7

CMP: INR27

Neutral

We expect revenue to grow 10% YoY to INR17.8b and PAT to grow 7% YoY to INR7.6b. NHPC is likely to generate 6.6BU as compared to 52-Week Range (INR) 30 / 15 6.4BU in 1QFY14, led by commissioning of capacities in FY14. 1,6,12 Rel Perf. (%) 1 / 20 / 10  Against capacity addition of 807MW in FY14, as at the end of FY14, total projects under construction stood at 3.3GW. Most of these Financial and Valuation Summary (INR b) projects are likely to commission in FY16 (160MW), FY17 (330MW) Y/E March 2014 2015E 2016E 2017E and FY19 (2.8GW). Hence, near-term growth option remains limited. Sales 66.0 72.9 76.2 79.8  Starting work on Subanshiri Lower and TLDP IV is crucial, as interest EBITDA 42.3 47.3 48.5 49.8 and O&M cost for the project was charged off to P&L in FY14 and can NP 25.6 28.9 30.8 32.5 be capitailized only after construction begins. Adj. EPS (INR) 2.0 2.3 2.8 2.9  We expect NHPC to report consolidated PAT of INR28.9b in FY15 (up EPS Gr. (%) 20.2 13.6 21.1 5.4 14%) and INR30.8b in FY16 (up 21%). The stock trades at 9.8x FY15E BV/Sh. (INR) 26.5 27.9 29.3 30.7 earnings. RoE (%) 7.5 8.5 8.6 8.6 M. Cap. (INR b)/(USD b)

337 / 6

RoCE (%) Payout (%)

8.1 33.5

8.8 36.0

9.0 37.8

9.2 39.5

Valuations P/E (X) P/BV (X)

13.5 1.0

11.9 1.0

9.8 0.9

9.3 0.9

EV/EBITDA (X) 10.2 Div. Yield (%) 2.4

8.7 3.0

8.1 3.3

7.5 3.7



Key issues to watch for  Cost approval for commissioned projects  Status update on resuming construction work on Subanshiri Lower and TLDP IV

Quarterly Performance (Standalone) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) E: MOSL Estimates

July 2014

1Q 16,194 13.9 10,707 18.4 66.1 2,760 1,160 2,486 9,272 2,073 22.4 7,199 7,160 11.0

(INR Million) FY14 2Q 3Q 16,500 11,234 -6.9 11.2 10,187 6,237 -15.4 1.7 61.7 55.5 2,825 3,156 1,203 1,512 3,002 2,736 9,161 4,307 2,085 1,713 22.8 39.8 7,076 2,594 7,747 2,594 6.5 7.3

4Q 11,228 2.1 -3,745 -161.9 -33.4 3,367 6,349 6,558 -6,902 172 -2.5 -7,074 -7,081 -347.4

1Q 17,759 9.7 12,284 14.7 69.2 3,000 1,250 2,350 10,384 2,752 26.5 7,632 7,632 6.6

FY15E 2Q 18,793 13.9 12,993 27.5 69.1 3,175 1,275 2,600 11,143 2,897 26.0 8,246 8,246 6.4

3Q 13,466 19.9 7,266 16.5 54.0 3,675 1,400 2,800 4,991 1,323 26.5 3,669 3,669 41.5

4Q 13,325 18.7 6,749 -280.2 50.7 3,987 1,516 2,959 4,206 1,311 31.2 2,895 2,895 -140.9

FY14

FY15E

55,370 4.3 23,593 -29.0 42.6 12,108 10,224 14,570 15,831 6,043 38.2 9,788 10,420 -45.2

63,343 14.4 39,292 66.5 62.0 13,837 5,441 10,709 30,723 8,282 27.0 22,441 22,441 115.4

270

June 2014 Results Preview | Sector: Utilities

NTPC Bloomberg Equity Shares (m)

NTPC IN 8,245.5

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

1,308 / 22

52-Week Range (INR)

169 / 111

1,6,12 Rel Perf. (%)

-8 / -4 / -24

Financial and Valuation Summary (INR b) Y/E March Sales

2014 2015E 2016E 2017E 716.0 780.9 830.8 912.8

EBITDA

177.6

173.3

195.6

235.8

NP

99.3

97.6

112.6

130.4

Adj EPS (INR)

12.0

11.8

13.7

15.8

EPS Gr. (%)

10.4

-1.7

15.3

15.8

BV/Sh. (INR) 104.1

110.5

117.8

126.4

RoE (%)

12.0

11.0

12.0

13.0

RoCE (%)

11.2

9.8

10.5

11.7

Payout (%)

47.2

46.1

46.1

46.1

Valuations P/E (x)

12.7

12.9

11.2

9.7

P/BV (x)

1.5

1.4

1.3

1.2

EV/EBITDA (x)

9.9

10.0

9.1

7.8

Div. Yield (%)

3.6

3.1

3.6

4.1

CMP: INR159  

 





Buy

We expect PAT to grow 5% YoY to INR23.3b, led by the addition of projects and higher generation for few projects (85%+ PLF). Generation would grow 13% YoY, led by higher power generation from coal projects (up 14% YoY to 61BU). Gas-based generation is likely to decline 10% YoY to 3.3BU. The capacity addition target for FY15 stands at 1.8GW. Addition of two units of Koldam project can provide upside. NTPC is scouting for inorganic growth opportunities and we understand that the board has constituted a committee to explore such opportunities. News flows on this front need to be monitored. NTPC has contested against the latest tariff regulation enunciated by Central Electricity Regulatory Commission (CERC) in Delhi High Court. The next hearing is on 27 July 2014. We expect NTPC to report PAT of INR97.6b in FY15 (down 2%) and INR112.6b in FY16 (up 15%).

Key issues to watch for  PLF for coal-based projects and generation loss  Updates on captive coal block development  Developments on regulatory front and possible impact

Quarterly Performance (Standalone) Y/E March

FY14 1Q 2Q 3Q 4Q 1Q Sales 156,129 162,723 187,794 209,381 191,265 Change (%) -2.2 0.9 19.0 27.2 22.5 EBITDA 42,653 41,088 46,301 44,418 39,309 Change (%) 17.5 -2.7 15.9 13.7 -7.8 As of % Sales 27.3 25.3 24.7 21.2 20.6 Depreciation 9,423 9,679 10,243 12,076 12,100 Interest 6,174 6,205 6,010 5,677 6,500 Other Income 7,459 7,871 7,747 6,998 8,750 EO Inc./(Exp.) 0 0 0 0 0 PBT 34,514 33,075 37,795 33,663 29,459 Tax 9,244 8,146 9,182 2,727 6,186 Effective Tax Rate (%) 26.8 24.6 24.3 8.1 21.0 Reported PAT 25,270 24,929 28,613 30,935 23,272 Adjusted PAT 22,263 21,989 29,896 25,161 23,272 Change (%) -8.4 11.8 18.2 21.8 4.5 E: MOSL Estimates; # Adj profit based on the calculations provided by the management

July 2014

(INR Million) FY15E 2Q 3Q 193,243 199,177 18.8 6.1 41,543 43,024 1.1 -7.1 21.5 21.6 12,400 12,550 6,750 7,250 7,750 8,850 0 0 30,143 32,074 6,631 7,056 22.0 22.0 23,511 25,018 23,511 25,018 6.9 -16.3

4Q 197,238 -5.8 45,059 1.4 22.8 12,806 7,902 8,889 0 33,239 7,392 22.2 25,847 25,847 2.7

FY14

FY15E

716,026 11.3 173,482 10.1 24.2 41,422 24,066 31,052 0 139,047 29,299 21.1 109,747 99,308 10.4

780,923 9.1 168,934 -2.6 21.6 49,856 28,402 34,239 0 124,915 27,266 21.8 97,648 97,648 -1.7

271

June 2014 Results Preview | Sector: Utilities

Power Grid Corporation Bloomberg Equity Shares (m)

PWGR IN 5,231.6

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

753 / 13

52-Week Range (INR)

146 / 87

1,6,12 Rel Perf. (%)

11 / 19 / 0

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP

2014 2015E 2016E 2017E 152.3 176.0 208.6 241.0 129.4 149.6 178.3 206.1 43.4

49.3

60.1

70.2

8.3

9.4

11.5

13.4

EPS Gr. (%)

-7.1

13.5

21.9

16.8

BV/Sh. (INR )

65.9

72.0

79.5

88.2

RoE (%)

14.3

13.7

15.2

16.0

RoCE (%) Payout (%)

8.6 33.8

8.4 35.0

9.1 35.0

9.3 35.0

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

15.9 2.0

14.0 1.8

11.5 1.7

9.8 1.5

EV/EBITDA (x) 11.2 Div. Yield (%) 1.9

10.7 2.1

9.6 2.6

8.8 3.0

EPS (INR)

CMP: INR144   

 

Buy

We expect PAT to grow 11% YoY to INR11.8b, mainly led by capitalization. We expect PWGR to capitalize INR42.5b in 1QFY15. Our capitalization assumption is on the back of INR18b capitalization announced by the company in early April 2014. We estimate Consultancy revenue at INR1.8b and Telecom revenue at INR800m. We estimate PBT contribution of ~INR1b from Consultancy and Telecom. PWGR has recently emerged successful in its bid for NRSS XXXI Transmission Project. We expect PWGR to report PAT of INR49.3b in FY15 (up 13.5%) and INR60.1b in FY16 (up 22%). The stock trades at 11.5x FY16E EPS and 1.7x FY16E BV.

Key issues to watch for  Capitalization / capex guidance for FY15  Details on existing and recently won competitively bid projects  Developments on green energy projects, state JVs, etc

Quarterly Performance

(INR Million)

Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extraordinary Inc / (Exp) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT (Pre Exceptional) Change (%) E: MOSL Estimates

July 2014

1Q 35,565 23.1 30,557 24.0 85.9 9,644 7,599 803 60 14,177 3,747 26.4 10,431 10,571 16.6

FY14 2Q 39,816 29.0 33,709 26.3 84.7 9,660 8,014 1,228 0 17,263 4,815 27.9 12,447 10,436 3.6

3Q 36,833 9.6 31,041 6.2 84.3 9,903 7,874 1,160 0 14,425 3,995 27.7 10,431 10,561 -4.6

4Q 39,341 16.6 33,309 17.7 84.7 10,750 8,189 2,496 0 16,865 5,107 30.3 11,758 11,899 8.9

1Q 40,969 15.2 34,569 13.1 84.4 11,000 8,500 1,250 0 16,319 4,569 28.0 11,750 11,750 11.1

FY15E 2Q 3Q 42,862 45,200 7.6 22.7 36,512 38,550 8.3 24.2 85.2 85.3 11,600 12,250 9,300 10,100 1,100 1,400 0 0 16,712 17,600 4,679 5,016 28.0 28.5 12,033 12,584 12,033 12,584 15.3 19.2

4Q 47,003 19.5 40,017 20.1 85.1 12,543 10,899 1,462 0 18,037 5,118 28.4 12,920 12,920 8.6

FY14

FY15E

151,527 19.2 128,583 18.1 84.9 39,957 31,675 5,687 0 62,638 17,663 28.2 44,974 43,439 5.0

176,035 16.2 149,649 16.4 85.0 47,393 38,799 5,212 0 68,669 19,383 28.2 49,287 49,287 13.5

272

June 2014 Results Preview | Sector: Utilities

PTC India Bloomberg Equity Shares (m)

PTCIN IN 296.0

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

29 / 0

52-Week Range (INR)

4 / 37 / 64

Financial and Valuation Summary (INR b)

NP*



104 / 35

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR98

2014 2015E 2016E 2017E 123.1 142.1 164.8 191.1 3.6 1.8 3.0 3.5 3.6

2.8

3.9

4.5

Adj. EPS (INR) 12.2

9.5

13.1

15.2

EPS Gr. (%)

82.0

-22.1

37.5

16.0

BV/Sh. (INR)

84.7

88.1

93.1

99.0

RoE (%)

12.1

7.0

10.2

11.1

RoCE (%) Payout (%)

15.0 23.5

7.7 45.0

12.3 45.0

13.7 45.0

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

8.0 1.2

10.3 1.1

7.5 1.1

6.5 1.0

EV/EBITDA (x)

6.6

10.7

5.8

4.4

EV/ Sales (x) Div. yield (%) *Consolidated

0.2 2.4

0.2 2.8

0.1 4.2

0.1 4.9

  



We expect revenue to grow 16% YoY to INR32.3b and PAT to grow 51% YoY to INR443m. Volumes would grow 5% YoY to ~8.5BU. We estimate adjusted trading margin at 5.25paise/kwh. For Simhapuri/Meenaxi tolling business, we expect sales volume of 500MU and PBT spread of INR0.25/unit, marginally down QoQ. Higher rebate and surcharge income had boosted PAT in FY14. Booking of rebate and surcharge for 1QFY15 would remain key monitorables, in our view. We expect PTCIN to report consolidated PAT of INR2.8b in FY15 (down 22%) and INR3.9b in FY16 (up 38%). The stock trades at 7.5x FY16E earnings.

Key issues to watch for  Trading volumes and margin guidance for FY15, and commissioning of projects  Simhapuri and Meenakshi business volumes and PBT contribution  Cash utilization policy

Quarterly Performance (Standalone) Y/E March

FY14 FY15E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Power Traded (MUs) 8,068 10,450 7,808 7,176 8,500 11,500 9,300 8,693 Sales 27,704 31,402 27,515 28,487 32,250 40,158 35,844 33,891 Change (%) 39.4 12.4 46.5 29.6 16.4 27.9 30.3 19.0 EBITDA 340 679 1,156 955 471 488 472 418 Change (%) 8.6 19.2 285.8 86.5 38.7 -28.1 -59.2 -56.2 As of % Sales 1.2 2.2 4.2 3.4 1.5 1.2 1.3 1.2 Depreciation 11 11 10 10 11 12 12 13 Interest 4 3 2 18 3 2 3 2 Other Income 81 189 154 120 175 185 195 211 Extraordinary Income/(Expense) 3 1 42 8 0 0 0 0 PBT 410 854 1,339 1,053 633 659 652 614 Tax 114 235 432 349 190 198 195 184 Effective Tax Rate (%) 27.8 27.5 32.2 33.2 30.0 30.0 30.0 30.0 Reported PAT 296 619 908 689 443 461 456 430 Adjusted PAT 293 618 866 696 443 461 456 430 Change (%) 27.8 38.7 297.0 84.7 51.3 -25.4 -47.3 -38.3 E: MOSL Estimates, % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards

July 2014

Buy

(INR Million) FY14

FY15E

33,502 115,107

37,993 142,143

3,129 84.1 2.7 42 28 543 -39 3,642 1,130 31.0 2,512 2,473

1,849 -40.9 1.3 48 10 766 0 2,557 767 30.0 1,790 1,790

273

June 2014 Results Preview | Sector: Utilities

Reliance Infrastructure Bloomberg Equity Shares (m)

RELI IN 263.0

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

208 / 3

52-Week Range (INR)

CMP: INR791 

820 / 308

1,6,12 Rel Perf. (%)

3 / 67 / 86 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

2014 2015E 2016E 2017E 113.6 118.6 129.2 133.8 19.1 18.0 19.1 18.8

NP

15.9

14.3

16.0

16.6

Adj.EPS (INR) EPS Gr. (%)

60.5

54.4

60.7

63.1

-7.3

-10.0

11.6

3.8

BV/Sh. (INR)

811

855

908

962

ROE (%)

7.8

6.5

6.9

6.7

ROCE (%) Payout (%)

8.2 12.5

7.4 15.5

8.5 13.9

8.4 13.4

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

13.1 1.0

14.5 0.9

13.0 0.9

12.5 0.8

EV/EBITDA (X) 10.9 Div. yield (%) 0.8

8.0 0.9

7.2 0.9

7.1 0.9



 

Buy

We expect revenue to decline 12% YoY to INR28.8b, due to lower revenue from EPC division. We estimate EPC revenue at INR11.8b against INR16.5b in 1QFY14. PAT would decline 13% YoY to INR3.2b. RELI announced commercial operation of its maiden Metro project in Mumbai. Also, it announced completion of its 10th road project – Trichy-Karur in Tamil Nadu. This completes the commissioning of all its six projects in Tamil Nadu. Operations have commenced at its first 5m-ton cement plant in Madhya Pradesh (built at a cost of INR30b). We estimate annual revenue contribution from the project at INR30b. EPC revenue in FY15/16 may get impacted due to prolonged delays in the large projects of Chittrangi, Krishnapattnam and Tilaiya. We expect RELI to report standalone PAT of INR14.3b in FY15 (down 10%) and INR16b in FY16 (up 12%).

Key issues to watch for  Performance of EPC division and order book position  Performance of infrastructure business

(INR Million)

Quarterly Performance (Standalone) Y/E March

FY14 1Q 2Q 3Q Sales 32,789 28,318 25,363 Change (%) -4.9 -19.1 -26.6 EBITDA 4,401 4,768 5,149 Change (%) -4.3 5.1 5.1 As of % Sales 13.4 16.8 20.3 Depreciation 828 847 873 Interest 2,172 2,316 2,440 Other Income 3,141 3,004 3,027 PBT 4,542 4,608 4,862 Tax (incl contingencies) 800 1,150 1,180 Effective Tax Rate (%) 17.6 25.0 24.3 Reported PAT 3,742 3,458 3,682 PAT (Pre Exceptionals) 3,742 3,458 3,682 Change (%) 14.4 -16.5 -1.8 E: MOSL Estimates; Quarterly nos. are on standalone basis

July 2014

4Q 27,099 -30.9 4,790 -6.6 17.7 873 3,034 3,074 3,957 -1,040 -26.3 4,997 4,997 -16.6

1Q 28,775 -12.2 4,525 2.8 15.7 1,000 2,225 2,650 3,950 711 18.0 3,239 3,239 -13.4

FY15E 2Q 3Q 29,750 30,775 5.1 21.3 4,750 5,275 -0.4 2.4 16.0 17.1 1,025 1,075 2,275 2,300 2,850 3,000 4,300 4,900 774 882 18.0 18.0 3,526 4,018 3,526 4,018 2.0 9.1

4Q 30,526 12.6 4,731 -1.2 15.5 1,068 2,327 2,968 4,304 775 18.0 3,529 3,529 -29.4

FY14

FY15E

113,569 -20.7 19,108 -0.3 16.8 3,421 9,962 12,245 17,969 2,090 11.6 15,879 15,879 -7.4

119,826 5.5 19,281 0.9 16.1 4,168 9,127 11,468 17,454 3,142 18.0 14,312 14,312 -9.9

274

June 2014 Results Preview | Sector: Utilities

Tata Power Bloomberg Equity Shares (m)

TPWR IN 2,705.5

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

290 / 5

52-Week Range (INR)

CMP: INR107 

115 / 66

1,6,12 Rel Perf. (%)

-3 / 8 / -4 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR)

2014 2015E 2016E 2017E 86.3 91.8 96.5 101.0 25.5 26.9 28.2 29.2 5.8

15.7

17.5

21.3

2.9

5.8

6.5

7.9

EPS Gr. (%)

(26.2)

101.8

11.8

21.5

BV/Sh. (INR)

52.7

56.0

59.0

62.4

7.4

7.4

7.5

7.7

RoCE (%) Payout (%)

8.4 33.2

8.8 34.8

8.9 34.4

9.0 30.3

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

44.0 2.0

18.5 1.9

16.6 1.8

13.6 1.7

EV/EBITDA (x) 13.4 Div. yield (%) 1.2

13.6 1.2

12.5 1.2

11.6 1.2

RoE (%)

Quarterly Performance (Standalone) Y/E March Units Generated Total Operating Income Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Consolidated Adjusted PAT Change (%) E: MOSL Estimates

July 2014

1Q 3,897 26,075 14.2 7,420 97.4 28.5 1,360 2,363 1,799 5,496 1,926 35.0 3,570 3,527 -14.8 1,081 -64.7



 

Neutral

We expect standalone PAT to decline 25% YoY to INR2.6b and consolidated PAT to grow 2.6x YoY to INR3.9b, including past arrears/benefit from compensatory tariff. Generation from TPWR’s 2,021MW (Mumbai region) capacity in AprilMay 2014 was 1.6BU, down 20% YoY. Mundra UMPP generation for the period stood was 4.4BU and PLF was 74%. Maithon generation was 1.2BU at a PLF of 77%. Global coal prices have corrected to USD75/ton from USD79/ton in 4QFY14. This, along with marginal appreciation in INR could put pressure on realization. TPWR has entered into an option with Bakrie group to sell 5% stake in KPC mines at USD250m. We expect TPWR to report consolidated PAT of INR15.7b in FY15 (up 102%) and INR17.5b in FY16 (up 12%). The stock trades at 18.5x FY15E earnings.

Key issues to watch for  Contribution of Maithon/Mundra UMPP project  Update on Mundra UMPP tariff revision case  Sales / realization for KPC/Arutmin mines

FY14 2Q 3,404 21,995 -12.7 6,023 14.1 27.4 1,396 1,620 463 3,470 852 24.6 2,618 2,703 -9.0 2,525 22.4

(INR Million) FY14 FY15E

FY15E 3Q 3,212 20,079 -21.2 7,118 25.2 35.4 1,484 2,143 -93 3,397 886 26.1 2,511 1,307 1.8 1,602 -41.9

4Q 2,670 18,121 -18.2 4,982 -14.0 27.5 1,631 2,556 1,754 2,548 1,706 67.0 842 1,338 51.2 574 -57.1

1Q 4,365 22,750 -12.8 6,730 -9.3 29.6 1,380 2,300 900 3,950 1,304 33.0 2,647 2,647 -25.0 3,893 260.1

2Q 3,744 22,350 1.6 6,710 11.4 30.0 1,410 2,325 750 3,725 1,192 32.0 2,533 2,533 -6.3 3,854 52.7

3Q 3,597 22,745 13.3 6,705 -5.8 29.5 1,425 2,350 800 3,730 1,212 32.5 2,518 2,518 92.6 3,859 140.9

4Q 3,477 23,981 32.3 6,740 35.3 28.1 1,452 2,351 787 3,724 1,201 32.2 2,523 2,523 88.5 4,045 604.7

13,183 86,270 -9.8 25,543 24.5 29.6 5,871 8,682 3,922 14,912 5,371 36.0 9,541 8,875 -4.3 5,782 -37.3

15,183 91,826 6.4 26,885 5.3 29.3 5,667 9,326 3,237 15,129 4,908 32.4 10,220 10,220 15.2 15,651 170.7

275

June 2014 Results Preview | Sector: Textiles

Arvind Bloomberg

ARVND IN

Equity Shares (m)

258.0

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

63 / 1

52-Week Range (INR)

18 / 45 / 197

Financial and Valuation Summary (INR b)

NP

2014 2015E 2016E 2017E 68.6 83.4 100.4 119.0 9.3 11.7 14.5 17.4 3.5

4.7

6.1

8.1

EPS (INR)

13.7

18.2

23.6

31.3

EPS Gr. (%)

42.5

32.5

30.1

32.4

BV/Sh. (INR) 100.1

114.8

133.7

160.3

14.6

16.9

19.0

21.3

RoCE (%) 15.1 Div Payout (%) 20.1 Valuations P/E (x) 16.0 P/BV (x) 2.2

16.3 19.4

18.5 19.8

20.6 15.0

12.1 1.9

9.3 1.6

7.0 1.4

RoE (%)

EV/EBITDA (x)

7.8

6.6

5.4

4.5

Div Yield (%) EV/Sales (x)

1.1 1.1

1.4 0.9

1.8 0.8

1.8 0.7

Buy



We expect ARVND’s revenue to grow 20% YoY (decline 4.8% QoQ) to INR17.9b, driven primarily by Brands and Retail.



EBITDA margin is likely to remain flat YoY at 13.5% (expand 30bp QoQ), with EBITDA expected at INR2.4b.



We expect PAT to grow 30.4% YoY (de-grew 6% QoQ) to INR882m.



The stock is trading at 6.6x FY15E and 5.4x FY16E EV/EBITDA. Maintain Buy with a target price of INR270, valuing it at 7x FY16E EV/EBITDA.

247 / 65

1,6,12 Rel Perf. (%)

Y/E March Sales EBITDA

CMP: INR245

Key issues to watch out  USD realization for exports.  Margin expansion in Brands and Retail.

Quarterly Performance (Consolidated) Y/E March Net Sales

(INR Million) FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

14,905

17,182

17,743

18,791

17,886

20,876

21,558

22,815

FY14

FY15E

68,621

83,359

YoY Change (%)

28.9

29.7

26.3

33.6

20.0

21.5

21.5

21.4

29.7

21.5

Total Expenditure

12,876

14,854

15,200

16,309

15,471

17,954

18,407

19,658

59,239

71,689

2,029

2,328

2,543

2,482

2,416

2,922

3,151

3,157

9,382

11,670

13.6

13.6

14.3

13.2

13.5

14.0

14.6

13.8

13.7

14.0

Depreciation

531

562

577

582

715

683

701

707

2,252

2,765

Interest

820

905

835

986

805

939

905

1,072

3,545

3,770

Other Income

187

186

99

180

203

202

108

196

652

709

PBT before EO expense

866

1,047

1,230

1,094

1,098

1,502

1,652

1,573

4,237

5,843

Extra-Ord expense

118

40

6

0

0

0

0

0

164

0

PBT

749

1,007

1,224

1,094

1,098

1,502

1,652

1,573

4,073

5,843

EBITDA Margins (%)

Tax Rate (%) MI & Profit/Loss of Asso. Cos. Reported PAT YoY Change (%) Margins (%)

76

111

206

155

220

300

330

315

548

1,169

10.1

11.0

16.8

14.2

20.0

20.0

20.0

20.0

13.4

20.0

-3

-4

-4

-2

-3

-4

-4

-2

-13

-13

676

900

1,022

941

882

1,206

1,325

1,261

3,539

4,688

108.3

39.0

35.6

24.1

30.4

33.9

29.7

34.0

42.5

32.5

4.5

5.2

5.8

5.0

4.9

5.8

6.1

5.5

5.2

5.6

E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

276

June 2014 Results Preview | Sector: Consumer

Bata India Bloomberg

BATA IN

Equity Shares (m)

64.3

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

85 / 1

52-Week Range (INR)

11 / 3 / 20

Financial and Valuation Summary (INR b)

NP

2013 2014E 2015E 2016E 20.7 23.4 27.1 31.5 3.2 3.8 4.7 5.5 2.0

2.4

3.0

3.6

EPS (INR)

30.8

37.4

47.1

56.2

EPS Gr. (%)

14.9

21.6

25.9

19.4

BV/Sh.(INR)

130.7

157.7

193.1

237.8

RoE (%)

25.7

25.9

26.8

26.1

RoCE (%) Payout (%)

38.2 25.8

38.6 27.9

40.1 24.6

39.0 20.6

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

42.8 10.1

35.2 8.4

28.0 6.8

23.4 5.5

EV/EBITDA (x) 22.6

18.9

14.9

12.3

0.7 3.5

0.8 3.1

0.8 2.6

Dividend yield EV/Sales (x)

0.5 4.0

Buy



We expect revenue to grow 12.5% YoY (30% QoQ) to INR6.4b in 2QCY14. Same store sales (SSS) growth is likely to sustain at ~9%.



EBITDA margin is likely to expand 40bp YoY to 17.2% (3.9% QoQ). EBITDA is likely to grow 15% to INR1.1b in 2QCY14.



We expect PAT to grow 15% YoY (and 81% QoQ) to INR713m.



The stock is trading at 35.2x CY14E and 28.0x CY15E EPS. Maintain Buy with a target price of INR1,400, valuing the stock at 30x CY15E earnings.

1,360 / 765

1,6,12 Rel Perf. (%)

Y/E Dec Sales EBITDA

CMP: INR1,329

Key issues to watch out  Stores added during the quarter.  Impact of ad campaign on revenue.  SSS growth.

Quarterly Performance (Consolidated) Y/E December Net Sales

(INR Million) CY13

CY14

1Q

2Q

3Q

4Q

1Q

2QE

3QE

4QE

4,538

5,725

4,844

5,544

4,954

6,440

5,522

6,431

CY13

CY14E

20,651

23,387

YoY Change (%)

11.8

13.6

14.3

8.9

9.2

12.5

14.0

16.0

12.1

13.3

Total Expenditure

3,910

4,764

4,212

4,547

4,297

5,332

4,722

5,209

17,433

19,593

628

961

633

997

657

1,108

801

1,222

3,218

3,794

13.8

16.8

13.1

18.0

13.3

17.2

14.5

19.0

15.6

16.2

131

141

156

164

136

150

160

170

592

616

EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax

2

2

2

6

3

2

2

2

13

10

69

78

89

78

74

100

110

115

313

394

564

895

563

905

592

1,056

749

1,165

2,926

3,561

0

0

0

107

0

0

0

0

107

0

564

895

563

798

592

1,056

749

1,165

2,819

3,561

180

276

187

276

198

343

243

373

919

1,157

Rate (%)

32.0

30.8

33.2

34.6

33.5

32.5

32.5

32.0

32.6

32.5

Reported PAT

384

619

376

522

394

713

505

792

1,901

2,404

Adj PAT

384

619

376

591

394

713

505

792

1,973

2,404

YoY Change (%)

6.6

17.6

17.3

16.2

2.6

15.0

34.5

33.9

15.0

21.9

Margins (%)

8.5

10.8

7.8

10.7

7.9

11.1

9.2

12.3

9.6

10.3

E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

277

June 2014 Results Preview | Sector: Oil & Gas

Castrol Bloomberg

CSTRL IN

Equity Shares (m)

494.6

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

170 / 3

52-Week Range (INR)

CMP: INR344 

We estimate EBITDA margin at 22.3% against 22.2% in 2QCY13 and 17.7% in 1QCY14.



We expect revenue to grow ~9% YoY, led by 9% increase in realizations and flat volumes.



Net profit would grow ~6% YoY to INR1.5b.



The stock trades at 24.4x CY15E EPS. Though we remain positive on CSTRL's long-term prospects, the ongoing headwinds would keep near-term earnings subdued. Maintain Neutral.

365 / 282

1,6,12 Rel Perf. (%)

10 / -12 / -29

Neutral

Financial and Valuation Summary (INR b) Y/E Dec Sales EBITDA Adj. PAT

2013 2014E 2015E 2016E 31.7 34.1 36.9 39.6 6.7 7.7 8.6 9.6 4.9

5.4

6.0

6.7

Adj. EPS (INR) 10.0

11.0

12.2

13.5

EPS Gr. (%)

10.2

9.9

11.0

13.6

BV/Sh.(INR)

14.8

11.4

13.1

14.7

RoE (%)

71.4

71.4

83.6

97.9

RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

94.2 79.4

93.2 85.1

114.3 86.2

132.8 86.4

29.8 20.1

27.1 26.0

24.4 22.7

25.5 23.4

EV/EBITDA (x) 20.8 Div. Yield (%) 2.4

18.2 2.7

16.2 3.0

17.2 2.9

Quarterly performance Y/E December

CY13 1Q 2Q Volumes (m litres) 50.1 54.1 Realizations (INR/ ltr) 156 159 Net Sales 7,814 8,588 YoY Change (%) 0.0 0.9 Net Raw Material 4,429 4,638 Employee Expenses 335 385 Other Operating Expenses 1,366 1,659 Total Expenditure 6,130 6,682 EBITDA 1,684 1,906 YoY Change (%) 7.4 12.5 Margins (%) 21.6 22.2 Depreciation 71 73 Interest 5 3 Other Income 245 226 PBT before EO Item 1,853 2,056 Extraordinary Inc/(Exp) 198 PBT 1,853 2,254 Tax 610 718 Rate* (%) 32.9 31.9 Reported PAT 1,243 1,536 Adj. PAT 1,243 1,401 YoY Change (%) 1.1 15.9 Margins (%) 15.9 16.3 Adj. EPS 2.5 2.8 Equity 495 495 *Adjusted for exceptional item, E: MOSL Estimates

3Q 44.8 161 7,196 -0.2 4,091 432 1,212 5,735 1,461 20.2 20.3 79 1 197 1,578 30 1,608 563 35.0 1,045 1,026 19.7 14.3 2.1 495

4Q 47.8 169 8,063 6.4 4,727 308 1,338 6,373 1,690 1.5 21.0 82 8 303 1,903

1Q 48.8 167 8,151 4.3 4,882 391 1,436 6,709 1,442 -14.4 17.7 84 4 177 1,530

CY14 2QE 54.0 173 9,342 8.8 5,346 370 1,541 7,257 2,085 9.4 22.3 84 4 212 2,208

1,903 641 33.7 1,262 1,262 7.0 15.7 2.6 495

1,530 528 34.5 1,002 1,002 -19.4 12.3 2.0 495

2,208 726 32.9 1,482 1,482 5.7 15.9 3.0 495

(INR Million) CY13 CY14E 3QE 45.0 178 8,010 11.3 4,500 390 1,362 6,252 1,758 20.3 22.0 85 4 247 1,916

4QE 48.5 182 8,839 9.6 4,922 360 1,574 6,855 1,983 17.4 22.4 85 5 279 2,172

1,916 630 32.9 1,286 1,286 25.4 16.0 2.6 495

2,172 714 32.9 1,459 1,459 15.6 16.5 2.9 495

196.8 160.9 31,661 1.4 17,885 1,460 5,575 24,920 6,741 9.8 21.3 305 17 971 7,390 228 7,618 2,532 33.2 5,086 4,932 10.2 15.6 10.0 495

196.3 174.9 34,342 8.5 19,650 1,511 5,913 27,073 7,268 7.8 21.2 338 17 914 7,826 7,826 2,598 33.2 5,228 5,228 6.0 15.2 10.6 495

Harshad Borawake ([email protected]) / Nitish Rathi ([email protected]) July 2014

278

June 2014 Results Preview | Sector: Infrastructure

Gujarat Pipavav Port Bloomberg

GPPV IN

Equity Shares (m)

483.4

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

60 / 1

52-Week Range (INR)

CMP: INR124 

128 / 42

1,6,12 Rel Perf. (%)

-3 / 66 / 135



Financial and Valuation Summary (INR b) Y/E December 2013 2014E 2015E 2016E Sales

5.2

6.4

7.4

8.7

EBITDA

2.6

3.7

4.4

5.3

NP

1.8

2.8

3.6

3.6

EPS (INR)

3.6

5.9

7.5

7.4

EPS Gr. (%)

137.2

62.3

27.7

-1.1

BV/Sh (INR)

29.0

33.2

38.2

43.0

RoE (%)

13.4

18.9

21.1

18.3

RoCE (%) Payout (%)

13.2 0.0

17.8 30.0

19.8 32.4

21.7 36.0

Valuations P/E (x)

34.1

21.0

16.4

16.6

P/BV (x)

4.3

3.7

3.2

2.9

EV/EBITDA (x) 23.6 Div. Yield (%) 0.0

15.8 1.2

13.1 1.6

10.7 1.8







Buy

In 2QCY14, we expect revenue to grow 23% YoY to INR1.5b, EBITDA to grow 52% YoY to INR836m, and net profit to grow 82% YoY to INR639m. Revenue growth would be driven by 15% volume growth in containers and marginal increase in realization. The INR has appreciated marginally during the quarter, and there could be some impact on realization. We expect margin expansion of ~300bp arising from volume growth, given the high fixed cost structure for container cargo. Also, contribution from liquid cargo would aid gross margins. Introduction of a new service, NMG, an India Middle-East service operated jointly by Simatech, X-PRESS Feeders and OEL, with the first call being on 19 September 2013, would aid volumes in CY14/15. We expect GPPL to post standalone net profit of INR2.8b in CY14 (up 62%) and INR3.6b in CY15 (up 28%). The stock trades at 16x CY15E earnings.

Key issues to watch out  Container volume growth and average realization  Reefer volumes and contribution to revenues  Contribution from liquid cargo

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

1Q 1,245 24.0 675 570 45.8 140 95 19 354 0 354 354 354 151.3 28.4

CY13 2Q 3Q 1,220 1,263 19.0 33.9 670 648 549 615 45.0 48.7 151 149 95 98 49 74 352 442 0 0 352 442 352 442 352 442 124.0 440.5 28.9 35.0

4Q 1,452 22.2 617 835 57.5 168 87 27 607 -164 771 771 607 68.7 41.8

1Q 1,562 25.5 647 916 58.6 174 84 55 712 102 610 610 712 101.4 45.6

CY14 2QE 3QE 1,504 1,548 23.3 22.6 668 683 836 866 55.6 55.9 175 180 82 85 60 70 639 671 0 0 639 671 639 671 639 671 81.5 51.9 42.5 43.3

(INR Million) CY13 CY14E 4QE 1,782 22.7 718 1,064 59.7 187 87 34 824 0 824 824 824 35.8 46.3

5,179 24.5 2,611 2,568 49.6 608 374 168 1,754 -164 1,918 1,918 1,754 137.1 33.9

6,396 23.5 2,715 3,681 57.6 716 338 219 2,847 102 2,744 2,744 2,847 62.3 44.5

Nalin Bhatt ([email protected]) July 2014

279

June 2014 Results Preview | Sector: Agri

Jain Irrigation Bloomberg

CMP: INR127

JI IN

Equity Shares (m)

462.4

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

59 / 1

52-Week Range (INR)

NP EPS (INR)

We expect revenue to grow to INR16.3b in 1QFY15, marking a YoY growth at 16% (decline of 11% QoQ), primarily driven by growth in the MIS business.



EBITDA margin is expected at 14.8% (flat YoY, 80bp increase QoQ).



PAT is expected to grow to INR709m (loss of INR603m YoY).



The stock is trading at 22x FY15E and 12.4x FY16E EPS. Maintain Buy with a target price of INR170, valuing it at 16x FY16E earnings.

0 / 59 / 126

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA



131 / 46

1,6,12 Rel Perf. (%)

2014 2015E 2016E 2017E 58.3 70.2 84.1 99.5 7.7 9.7 11.8 14.0 0.7

2.8

4.9

6.9

1.4

6.0

10.6

15.0

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

32.7 47.0

315.8 52.3

77.4 62.0

40.9 75.9

RoE (%) RoCE (%) Valuations P/E (x) P/BV (x)

3.1 10.0

12.1 12.8

18.6 16.3

21.7 19.1

91.5 2.8

22.0 2.5

12.4 2.1

8.8 1.7

EV/EBITDA (x) 12.9

9.9

7.9

6.4

EV/Sales (x)

1.4

1.1

0.9

1.7

Buy

Key issues to watch out  Working capital cycle of domestic MIS business.  Cash generation and debt reduction.  Impact of deficit rainfall.

Quarterly Performance (Consolidated)

(INR Million)

Y/E March Net Sales

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

14,094

12,171

13,746

18,333

16,350

14,362

16,770

22,733

FY14

FY15

58,344

70,249

YoY Change (%)

11.5

22.3

26.6

9.0

16.0

18.0

22.0

24.0

16.1

20.4

Total Expenditure

12,009

10,649

12,036

15,771

13,930

12,617

14,694

19,280

50,464

60,586

2,086

1,523

1,710

2,562

2,419

1,745

2,075

3,453

7,880

9,663

14.8

12.5

12.4

14.0

14.8

12.1

12.4

15.2

13.5

13.8

474

501

513

557

489

517

529

575

2,045

2,110

1,168

1,153

1,174

1,182

1,108

1,094

1,114

1,122

4,677

4,437

58

72

176

-15

70

80

100

100

290

351

502

-60

199

807

892

214

532

1,856

1,448

3,467

1,316

1,000

3

-12

0

0

0

0

2,307

0

PBT

-815

-1,060

196

820

892

214

532

1,856

-859

3,467

Tax

-216

-259

-65

78

178

43

106

371

-462

693

26.5

24.4

-33.1

9.5

20.0

20.0

20.0

20.0

53.7

20.0

5

6

1

-12

5

6

1

-12

0

0

-603

-807

259

753

709

165

425

1,497

-398

2,774

23.8

-280.5

-155.2

39.4

NM

NM

63.8

98.6

53.1

NM

2.6

-0.4

1.9

4.0

4.3

1.2

2.5

6.6

1.1

3.9

EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense Extra-Ord expense

Rate (%) MI & Profit/Loss of Asso. Cos. Reported PAT YoY Change (%) Margins (%) E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

280

June 2014 Results Preview | Sector: Technology

Just Dial Bloomberg

JUST IN

Equity Shares (m)

70.2

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

107 / 2

52-Week Range (INR)

CMP: INR1,523 

We expect revenue to grow 29% YoY (8.6% QoQ) to INR1.3b, largely driven by addition of 13,000 campaigns to 275,000 campaigns during the quarter.



EBITDA margin would decline 120bp YoY (expand 340bp QoQ) to 33.5%, primarily driven by higher advertising expenses.



PAT is likely to grow 29% YoY to INR362m.



The stock is trading at 69.4x CY14E and 51.9x CY15E EPS. Maintain Buy with a target price of INR1,750, valuing the stock at 60x FY16E earnings.

1774 / 620

1,6,12 Rel Perf. (%)

12 / -30 / 104

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP

2014 2015E 2016E 2017E 4.6 5.9 7.5 9.3 1.4 1.8 2.5 3.2 1.2

1.5

2.1

2.6

EPS (INR)

17.2

22.0

29.5

37.7

EPS Gr. (%)

70.2

28.0

33.8

27.9

BV/Sh (INR)

76.2

93.6

116.1

146.8

RoE (%)

25.1

25.9

28.1

28.7

RoCE (%) Payout (%)

34.3 13.5

36.0 21.1

39.0 23.6

39.8 18.5

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

88.9 20.1

69.4 16.3

51.9 13.2

40.5 10.4

EV/EBITDA (x) 54.0

42.0

30.3

22.9

Div Yield (%) EV/Sales (x)

0.3 12.8

0.5 9.9

0.5 7.7

0.2 16.6

Buy

Key issues to watch out  Progress in monetization of new launches (Search Plus) during the quarter.  Guidance on one-time advertising expenditure for new launches.

Quarterly Performance (Standalone)

(INR Million)

Y/E March

FY14

FY15E

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1,046

1,127

1,199

1,242

1,349

1,453

1,546

1,602

4,613

5,945

YoY Change (%)

28.0

28.6

25.9

26.4

29.0

29.0

29.0

29.0

27.2

28.9

Total Expenditure

683

774

865

868

897

1,003

1,121

1,130

3,191

4,138

Net Sales

EBITDA

363

352

333

374

452

451

425

473

1,422

1,807

34.7

31.3

27.8

30.1

33.5

31.0

27.5

29.5

30.8

30.4

Depreciation

42

44

43

44

45

47

45

48

173

183

Other Income

73

87

111

129

95

113

144

169

400

520

PBT

393

394

402

459

502

516

525

594

1,649

2,144

Tax

Margins (%)

113

108

104

118

141

145

147

166

443

600

Rate (%)

29

27

26

26

28

28

28

28

26.8

28.0

Reported PAT

280

287

298

341

362

372

378

428

1,206

1,544

Adj PAT

280

287

298

341

362

372

378

428

1,206

1,544

YoY Adj PAT Change (%)

68.5

84.9

85.7

59.7

29.0

29.7

26.9

25.3

72.3

28.0

Margins (%)

26.8

25.4

24.8

27.5

26.8

25.6

24.4

26.7

26.1

26.0

E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

281

June 2014 Results Preview | Sector: Agri

Kaveri Seeds Bloomberg

KSCL IN

Equity Shares (m)

68.5

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

55 / 1

52-Week Range (INR)

CMP: INR801 

We expect revenue to grow 30% YoY to INR9.6b due to strong growth in cotton segment, driven by market share gains.



Margins are likely to expand 100bp YoY to 23.3%, driven by better margins in cotton due to lower cost of production and higher contribution from single cross corn.



We expect PAT to grow 35.5% YoY to INR2.1b.



The stock is trading at 18.9x FY15E and 13.8x FY16E EPS. Maintain Buy with a target price of INR930, valuing the stock at 16x FY16E earnings.

812 / 280

1,6,12 Rel Perf. (%)

19 / 93 / 110

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP

2014 2015E 2016E 2017E 10.1 13.2 16.9 21.1 2.2 3.0 4.1 5.2 2.1

2.9

4.0

5.1

EPS (INR)

30.5

42.4

58.1

75.0

EPS Gr. (%)

64.8

39.1

37.0

29.1

BV/Sh. (INR)

75.3

113.3

165.5

234.6

RoE (%)

48.6

45.0

41.7

37.5

RoCE (%) Payout (%)

49.6 9.1

46.1 10.4

42.7 10.2

38.4 7.9

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

26.3 10.6

18.9 7.1

13.8 4.8

10.7 3.4

EV/EBITDA (x) 17.0

11.9

8.2

5.6

0.5 2.7

0.6 2.0

0.6 1.4

Div Yield (%) EV/Sales (x)

0.3 3.7

Buy

Key issues to watch out  Impact of monsoon  Mix between single cross and double cross

Quarterly Performance (Standalone)

(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 & Profit/Loss of Asso. Cos. Reported PAT Adj PAT YoY Change (%) Margins (%)

FY14 1Q 7,361 53.5 5,718 1,642 22.3 37 1 37 1,642 0 1,642 25 1.5 0 1,617 1,617 60.6 22.0

2Q 1,032 62.1 906 126 12.2 39 9 12 90 0 90 8 9.2 0 81 81 23.2 7.9

FY15E 3Q 1,326 40.8 943 382 28.8 43 0 32 371 0 371 6 1.5 2 364 364 228.0 27.4

4Q 392 -47.0 332 61 15.4 45 1 16 30 0 30 13 42.4 0 18 18 -84.2 4.5

1Q 9,569 30.0 7,337 2,232 23.3 38 1 56 2,248 0 2,248 56 2.5 0 2,192 2,192 35.5 22.9

2Q 1,414 37.0 1,216 198 14.0 42 0 19 174 0 174 4 2.5 0 170 170 108.5 12.0

3Q 1,790 35.0 1,253 537 30.0 54 0 48 531 0 531 13 2.5 0 518 518 42.4 28.9

4Q 510 30.0 418 92 18.0 56 0 23 59 0 59 1 2.5 0 58 58 226.6 11.3

FY14

FY15E

10,111 42.2 7,899 2,212 21.9 164 2 97 2,143 0 2,143 52 2.4 2 2,090 2,090 65.3 20.7

13,151 30.1 10,126 3,025 23.0 189 1 146 2,980 0 2,980 75 2.5 0 2,906 2,906 39.1 22.1

E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

282

June 2014 Results Preview | Sector: Media

PVR Bloomberg

PVRL IN

Equity Shares (m)

39.6

CMP: INR667

Buy



We expect revenue to grow 7.4% YoY (14.6% QoQ) to INR3.6B in 1QFY15. We estimate footfalls at 16m, ATP at INR179 and F&B SPH at INR60.



EBITDA margin is likely to decline 90bps YoY (expand 620bp QoQ).

Financial and Valuation Summary (INR b)



We expect PAT to de-grow 7.1% YoY to INR133m.

Y/E March Sales EBITDA



The stock is trading at an EV of 11.8x FY15E and 8.7x FY16E EBITDA. We maintain Buy, with a target price of INR760 (10x FY16E EV/EBITDA).

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

26 / 0

52-Week Range (INR)

705 / 317

1,6,12 Rel Perf. (%)

NP

-2 / -22 / 69

2014 2015E 2016E 2017E 13.5 16.0 19.8 23.3 2.2 2.7 3.6 4.4 0.6

0.7

1.2

1.7

EPS (INR)

13.6

17.5

28.8

41.1

EPS Gr (%)

21.4

28.1

65.0

42.7

BV/Sh (INR)

97.1

111.7

136.5

173.6

RoE (%)

10.8

16.7

23.2

26.5

RoCE (%) Payout (%)

11.1 23.6

15.2 16.6

22.0 14.1

26.4 9.9

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

48.9 6.9

38.2 6.0

23.1 4.9

16.2 3.8

EV/EBITDA (x) 15.5

12.2

9.0

6.9

2.1 0.6

1.6 0.8

1.3 0.8

EV/Sales (x) Div Yield (%)

2.5 0.6

Quarterly performance Y/E March (Rs mn) 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 YoY Change (%) Margins (%) E: MOSL Estimates

1Q 3,352 86.3 2,758 594 17.7 182 194 21 238 41 197 57 29.1 4 143 89 4.3

FY14 2Q 3,658 89.8 2,910 748 20.4 209 210 13 342 23 319 42 13.2 -1 275 70 7.5

3Q 3,373 68.7 2,880 493 14.6 209 207 21 99 0 99 -41 -41.1

4Q 3,142 28.4 2,811 332 10.5 344 184 21 -176 -85 -90 -40 44.1

1QE 3,601 7.4 2,997 604 16.8 280 209 25 140 0 140 7 5.0

3 142 55 4.2

59 8 -93 0.3

0 133 -7.1 3.7

FY15 2Q 3Q 4,343 4,340 18.7 28.7 3,455 3,589 889 751 20.5 17.3 320 330 200 180 30 40 399 281 0 0 399 281 20 14 5.0 5.0 0 379 37 8.7

0 267 89 6.2

(INR Million) FY14 FY15E 4Q 3,806 21.1 3,376 430 11.3 340 200 50 -60 0 -60 -3 5.0

13,512 67.8 11,358 2,154 17.5 944 795 76 491 32 523 19 3.7

16,033 18.7 13,326 2,707 16.9 1,287 805 142 756 0 756 38 5.0

0 -57 -786 -1.5

-57 504 0.1 3.7

0 719 35.7 4.5

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

283

June 2014 Results Preview | Sector: Diversified

Sintex Industries Equity Shares (m)

329.5

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

32 / 1

52-Week Range (INR)

107 / 17

1,6,12 Rel Perf. (%)

CMP: INR98 

We expect Sintex's 1QFY15 revenues to grow 29% YoY to INR14.6b, EBITDA to grow 11% YoY to INR2.3b and Adjusted PAT at INR756m.



Growth in revenue YoY would be led by contribution from EPC business was insignificant in 1QFY15. Prefab to register a growth of 20% YoY, margins 25%



Overseas composites to grow 15% YoY, margin 9%. Domestic composites to grow 20% YoY on the back of a weak base.



The stock trades at FY16E P/E of 5.7x and EV/EBITDA of 5.3x. We value Sintex at INR129.

-3 / 142 / 115

Equity Shares (m)

329.5

Financial and Valuation Summary (INR b) Y/E March Net sales EBITDA Adj. PAT

2014 2015E 2016E 2017E 58.6 68.4 80.3 93.5 9.6 11.3 15.0 18.3 3.8

4.2

5.7

7.8

Adj EPS (INR)

12.2

12.8

17.2

21.8

EPS Gr. (%)

-8.1

4.5

34.8

26.3

BV/Sh. (INR) 113.9

123.3

140.1

162.8

RoE (%)

11.4

11.1

13.1

14.4

RoCE (%) Payout (%)

10.9 7.0

10.2 5.8

11.9 7.0

13.0 7.0

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

8.1 0.9

7.7 0.8

5.7 0.7

4.5 0.6

EV/EBITDA (x) Div. Yield (%)

6.8 0.7

7.3 0.7

5.3 0.7

4.2 0.7

Quarterly performance

56

Key issues to watch out  Outlook in monolithic business  Commencement of spinning mill at Gujarat  Operating stabilization of recent acquisitions in Germany and Poland, along with outlook on overseas and domestic composite business.

62.1

Y/E March

FY14 2Q

1Q Operating Income YoY Growth (%) EBITDA EBITDA Margin (%) YoY Growth (%) Depreciation Interest Other Income Extraordinary items Profit before Tax Tax Provisions Tax / PBT PAT before MI & Income from Assoc Min. Int. and Profit from Associate Consolidated PAT Adj. Consolidated PAT YoY Growth (%) E: MOSL Estimates

Buy

56 3Q

4Q

1Q

62.1 FY15E 2Q

(INR Million) 3Q

4Q

FY14

FY15E

11,281 4.4 1,609 14.3 -13.2 564 434 87 -37 661 201 29

13,649 13.9 2,121 15.5 1.8 572 476 5 -84 993 269 27

13,884 -2.7 2,447 17.6 14.4 595 774 335 -41 1,372 535 39

19,831 41.5 3,574 18.0 33.6 817 1,058 95 1 1,796 175 10

14,603 29.4 2,305 15.8 10.7 700 680 80 50 1,055 253 24

16,326 19.6 2,691 16.5 6.1 750 700 100 70 1,411 339 24

17,100 23.2 2,859 16.7 -5.1 800 790 100 140 1,509 362 24

20,358 2.7 3,425 16.8 -6.6 838 825 120 140 2,023 445 24

58,645 14.8 9,642 16.4 25.3 2,548 2,894 774 -161 4,814 1,180 23.7

68,387 16.6 11,281 16.5 17.0 3,088 2,995 400 400 5,998 1,400 25.0

460 6 466 503 -33.5

724 5 729 813 5.3

836 11 847 888 -10.0

1,621 -9 1,612 1,611 -0.9

802 4 806 756 50.3

1,072 4 1,076 1,006 23.8

1,147 4 1,151 1,011 13.9

1,577 3 1,580 1,440 -10.6

3,634 13 3,647 3,808 -8.1

4,599 15 4,614 4,214 10.7

Sandipan Pal ([email protected]) July 2014

284

June 2014 Results Preview | Sector: Consumer Durables

Symphony Bloomberg

SYML IN

Equity Shares (m)

35.0

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

37 / 1

52-Week Range (INR)

4 / 143 / 209

Financial and Valuation Summary (INR b) 2013 2014E 2015E 2016E

Sales EBITDA

3.8 0.8

5.1 1.2

6.5 1.6

8.2 2.1

NP

0.6

1.0

1.4

1.8

EPS (INR)

17.2

28.6

38.8

50.4

EPS Gr. (%)

13.2

66.4

35.8

29.9

BV/Sh (INR)

63.5

79.9

102.7

133.0

RoE (%)

29.2

39.9

42.5

42.8

RoCE (%) Payout (%) Valuations P/E (x) P/BV (x)

43.9

55.4 42.7

57.4 41.2

57.8 40.0

62.0 16.8

37.2 13.3

27.4 10.4

21.1 8.0

EV/EBITDA (x) 37.9

24.0

17.6

13.1

1.0 5.8

1.3 4.4

1.6 3.4

Div. Yld (%) EV/Sales (x)

7.9

Buy



We expect revenue to grow 32.7% YoY (and 30.2% QoQ) to INR1.5b, led by cooler sales on extended summers and strong exports.



EBITDA margin is likely to increase 210bp YoY to 29.1% due to higher contribution from new products and higher share of exports.



We expect PAT to grow 23.3% YoY (18.1% QoQ) to INR319m.



The stock is trading at 37.2x FY15E and 27.4x FY16E EPS. Maintain Buy with a target price of INR1,260, valuing the stock at 25x FY16E earnings.

1114 / 270

1,6,12 Rel Perf. (%)

Y/E June

CMP: INR1,068

Key issues to watch out  Based on our channel checks, volume growth for the quarter could post a positive surprise, given the intensity of summer season and expectation of El Nino condition.  Growth in export market.

Quarterly Performance (Standalone)

(INR Million)

Y/E June

FY13 1Q

Net Sales

FY14

2Q

3Q

4Q

1Q

2Q

3Q

4QE

FY13

FY14E

243

877

852

1,112

721

1,152

1,133

1,475

3,083

4,481

YoY Change (%)

-15.5

56.1

9.0

27.7

196.5

31.4

33.0

32.7

23.3

45.3

Total Expenditure

241

675

605

811

582

842

798

1,046

2,332

3,268

2

202

247

301

139

310

335

429

752

1,213

1.0

23.0

29.0

27.0

19.2

26.9

29.6

29.1

24.4

27.1

Depreciation

4

3

3

3

3

3

3

3

13

11

Interest

1

0

1

3

0

0

0

0

5

0

EBITDA Margins (%)

Other Income

23

45

26

69

51

40

30

30

163

152

PBT before EO expense

21

243

269

363

187

348

362

456

896

1,353

PBT

21

243

269

363

187

348

355

456

896

1,346

Tax

0

82

89

104

52

101

85

137

275

374

Rate (%)

0.0

33.6

33.1

28.7

27.9

29.0

23.8

30.0

30.7

27.8

Reported PAT

21

161

180

259

135

247

270

319

621

971

Adj PAT YoY Change (%) Margins (%)

21

161

180

259

135

247

276

319

621

977

-53.5

44.4

20.3

31.7

557.6

53.1

53.3

23.3

23.6

57.3

8.4

18.4

21.1

23.3

18.7

21.4

24.4

21.6

20.1

21.8

E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

285

June 2014 Results Preview | Sector: Agrochemicals

UPL Bloomberg Equity Shares (m)

UPLL IN 428.6

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

151 / 3

52-Week Range (INR)

CMP: INR352 

359 / 121

1,6,12 Rel Perf. (%)

10 / 52 / 128 

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA

2014 2015E 2016E 2017E 107.7 121.4 136.0 152.4 20.2 23.3 26.1 29.3

NP

10.4

12.4

14.4

16.8

Adj EPS (INR)

24.2

29.0

33.5

39.2

EPS Gr. (%)

33.6

19.9

15.4

17.0

BV/Sh (INR)

122.4

147.4

176.8

211.9

RoE (%)

21.0

21.5

20.7

20.2

RoCE (%) Payout (%)

19.6 16.2

21.3 14.5

21.4 12.5

21.6 10.7

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

14.5 2.9

12.1 2.4

10.5 2.0

9.0 1.7

8.8 0.9

7.4 1.0

6.3 1.0

5.3 1.0

EV/EBITDA (x) Div. Yield (%)

Quarterly Performance (Consolidated) Y/E March 1Q Net Revenues 24,558 YoY Change (%) 10.5 EBITDA 4,566 Margins (%) 18.6 Depreciation 863 Interest 1,358 Other Income 265 PBT before EO Expense 2,609 Extra-Ord Expense 0 PBT after EO Expense 2,609 Tax 683 Rate (%) 26.2 Reported PAT 1,927 Income from Associate Co 200 Adjusted PAT 2,127 YoY Change (%) 4.8 Margins (%) 8.7 E: MOSL Estimates







Buy

We estimate United Phosphorus (UPLL) will report 11% YoY growth in consolidated revenue to INR27.6b. We also estimate 7.5% growth in domestic revenue and 8.6% growth in international revenue. EBITDA margin is expected to improve 20bp YoY to 18.8%, translating into EBITDA growth of 12.6% to INR5.1b. We estimate PAT growth of 20% YoY to INR2.55b, driven by lower interest cost and higher contribution from associates (as it divested stake in the 50% loss-making JV, Sipcam UPL Brasil). UPLL has sold its 50% stake in Sipcam Agro for USD58.5m to the JV partner. Divestment of this JV would free up ~INR3.5b, which we believe would be used for further debt reduction. In our recent meeting with the management, it had indicated its target to reduce gross debt-equity to 0.3-0.4x from the current 0.8x. Current valuation of 11.8x FY15E EPS of INR29 and 10.2x FY16E EPS of ~INR33.5 are very attractive. Maintain Buy with a target price of INR402 (12x FY16E EPS).

Key issues to watch out  Update on season in the US, EU and Kharif crop in India.  Outlook for FY15, especially on increasing probability of El Nino.  Status of integration of DVA Agro, Brazil and expected margin improvement in FY15.

FY14 2Q 23,316 25.6 4,259 18.3 968 1,212 282 2,360 199 2,162 578 26.7 1,584 -38 1,745 45.7 7.5

3Q 26,469 15.3 4,651 17.6 1,043 1,095 501 3,012 397 2,615 521 19.9 2,094 128 2,619 51.0 9.9

4Q 33,388 18.4 6,723 20.1 1,195 1,201 264 4,592 496 4,097 436 10.6 3,661 -58 4,046 29.9 12.1

1Q 27,365 11.4 5,140 18.8 1,020 1,200 270 3,190 0 3,190 893 28.0 2,297 255 2,552 20.0 9.3

FY15E 2Q 3Q 27,203 31,547 16.7 19.2 5,062 5,751 18.6 18.2 1,100 1,150 1,150 1,150 300 500 3,112 3,951 0 0 3,112 3,951 871 1,185 28.0 30.0 2,241 2,766 -50 150 2,191 2,916 25.5 11.3 8.1 9.2

(INR Million) FY14 FY15 4Q 35,325 5.8 7,377 20.9 1,275 1,086 460 5,475 0 5,475 668 12.2 4,808 -21 4,787 18.3 13.6

107,709 17.1 20,196 18.8 4,069 4,866 1,314 12,574 1,092 11,482 2,217 19.3 9,266 232 10,379 29.4 9.6

121,440 12.7 23,330 19.2 4,545 4,586 1,530 15,728 0 15,728 3,617 23.0 12,111 334 12,445 19.9 10.2

Jinesh Gandhi ([email protected]) July 2014

286

June 2014 Results Preview | Sector: Electrical Goods

V-Guard Industries Bloomberg

VGRD IN

Equity Shares (m)

29.8

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

20 / 0

52-Week Range (INR)

CMP: INR660 

We expect revenue to grow 13% YoY (9.2% QoQ) to INR4.6b in 1QFY15. We expect overall growth to be driven by Cables, Electric Water Heaters and Fans.



EBITDA margin would expand 80bp YoY (flat QoQ) to 8.4%, primarily due to lower ad spends during the quarter and lower employee expense.



We expect PAT to grow 24.6% YoY to INR220m, driven by margin expansion.



The stock is trading at 21x FY15E and 15.9x FY16E EPS. Maintain Buy with a target price of INR750, valuing the stock at 18x FY16E earnings.

686 / 403

1,6,12 Rel Perf. (%)

11 / 14 / 6

Financial and Valuation Summary (INR b) Y/E March Sales EBITDA NP EPS (INR)

2014 2015E 2016E 2017E 15.2 18.2 22.2 27.2 1.2 1.6 2.0 2.5 0.7

0.9

1.2

1.6

23.5

31.1

41.0

53.0

EPS Gr. (%)

11.5

32.2

31.9

29.3

BV/Sh (INR)

106.7

129.6

161.3

202.7

RoE (%)

24.2

26.3

28.2

29.1

RoCE (%) Payout %

27.3 22.4

34.2 26.1

38.2 22.6

40.1 21.9

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

27.8 6.1

21.0 5.0

15.9 4.0

12.3 3.2

EV/EBITDA (x) 16.7

12.6

9.9

7.8

1.1 1.1

1.2 0.9

1.5 0.7

Dividend yield EV/Sales (x)

0.7 1.3

Buy

Key issues to watch out  Demand for inverters.  Movement in copper prices.

Quarterly Performance (Standalone)

(INR Million)

Y/E March Net Sales

FY14

FY15E

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

FY14

FY15E

4,082

3,340

3,529

4,224

4,612

4,109

4,412

5,069

15,176

18,208

YoY Change (%)

28.0

6.6

1.1

11.5

13.0

23.0

25.0

20.0

11.6

20.0

Total Expenditure

3,772

3,070

3,238

3,870

4,225

3,739

4,015

4,623

13,950

16,598

309

271

291

354

387

370

397

446

1,225

1,610

7.6

8.1

8.3

8.4

8.4

9.0

9.0

8.8

8.1

8.8

Depreciation

29

29

31

32

35

35

39

39

120

148

Interest

55

48

54

53

58

51

58

56

211

223

EBITDA Margins (%)

Other Income

11

11

12

14

11

12

13

14

48

50

PBT before EO expense

237

205

218

283

305

295

314

365

943

1,288

PBT

237

205

218

283

305

295

314

365

943

1,288

Tax

60

60

43

78

85

83

88

102

241

361

Rate (%)

25.5

29.4

19.5

27.6

28.0

28.0

28.0

28.0

25.6

28.0

Reported PAT

176

145

175

205

220

213

226

263

701

927

Adj PAT

176

145

175

205

220

213

226

263

701

927

-14.6

-19.4

14.2

129.1

24.6

46.8

28.8

28.3

11.5

32.2

4.3

4.3

5.0

4.8

4.8

5.2

5.1

5.2

4.6

5.1

YoY Change (%) Margins (%) E: MOSL Estimates

Niket Shah ([email protected]) / Atul Mehra ([email protected]) July 2014

287

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