nifty highlights - icici direct

ICICI Securities Ltd. | Retail Equity Research

October 6, 2017

Q2FY18 Result Preview

Robust topline growth shaking off GST jitters…

The last three quarters were interspersed with one-time structural

events of demonetisation and GST implementation, which led to

subdued topline growth for sectors characterised by long supply

chains. However, contrary to the expectation of GST putting brakes on

the structural story of strong domestic consumption led growth, post

implementation, Q2FY18E is expected to witness strong topline growth

of 8.8% YoY (ex BFSI and oil & gas) with most sectors warding off the

GST jitters. Re-stocking post GST is expected to accentuate the growth

in this festivity laden quarter

Consumer driven sectors like FMCG & consumer discretionary that

witnessed muted business activity in Q1FY8 amid de-stocking of

channel inventory are expected to exhibit a growth revival in Q2FY18

on account of re-stocking and price revision in items like cigarette, fans,

cables, etc, due to change in tax slab post GST implementation.

Another beneficiary of re-stocking was auto and ancillary that witnessed

strong double digit volume growth of ~12% (vs. 7% in Q1FY18) across

sub-segments (except 3-W). Major sectors like oil & gas and metal &

mining will benefit from higher commodity prices. They may prove to

be key contributors in the topline growth of our coverage universe

However, certain export driven sectors, viz. pharma & IT have been

witnessing a slowdown in business in recent quarters. The same trend

is expected in Q2FY18E. While the IT sector is facing an uncertain

demand environment due to emerging technologies & protectionist

measures across regions, the pharma space is experiencing acute

pricing pressure in US, albeit domestic pharma has experienced

recovery post GST. The telecom sector also continues to witness steep

pricing led competition, leading to sharp decline in financials

The I-direct coverage (ex-BFSI and oil & gas) is likely to witness revenue

growth of 8.8% YoY, primarily driven by sectors like metals & mining

(+20.9% YoY), auto & ancillary (+13.2% YoY) and FMCG (+7.8% YoY).

Operating margins (ex-BFSI and oil & gas) may contract 18 bps YoY to

19.9% while earnings are expected to grow 6.7% YoY. We expect

Sensex EPS to grow at a CAGR of 15.6% in FY17-19E. Going ahead,

H2FY18E may witness a normalisation of the earnings trend as we

expect a recovery in banking sector (moderation in NPA provisioning)

and auto sector to be at the forefront of the trend. Also, support from

cyclical sectors like capital goods and cement will cushion recovery

Exhibit 1: Trend in revenue growth of I-direct coverage universe (ex- BFSI & Oil & Gas)

520,2

62.5

539,8

12.4

552,3

20.3

521,2

77.9

504,8

15.0

548,0

85.7

594,9

69.4

544,0

50.2

554,3

65.0

570,3

65.5

622,9

60.0

569,6

57.6

603,3

79.9

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(|

crore)

-30%

-20%

-10%

0%

10%

20%

30%

40%

Revenues (Ex-BFSI & Oil & Gas) Growth (%)

Source: Company, ICICIdirect.com Research

Trend in Sensex EPS

923

109011651165

1365135913751406

1528

1878

0

200

400

600

800

1000

1200

1400

1600

1800

2000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

(|

)

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%

)

Sensex EPS % growth

Source:

Bloomberg, ICICIdirect.com Research

Research Analyst

Pankaj Pandey

Head – Research

[email protected]


Performance of Sensex companies

In Q2FY18E, total revenue, PAT of Sensex companies (ex SBI & Tata

Motors) is likely to grow 5.5%, 4.9% YoY, respectively. The auto sector

(ex Tata Motors) and metals & mining space have a significant impact

on the topline growth, contributing more than 50% of absolute growth.

Maruti Suzuki and M&M have exhibited strong volume growth as

restocking post GST & new launches have accentuated the festive

growth. Tata Steel’s growth comes on the back of a strong domestic

performance. EBITDA margins (ex SBI & Tata Motors) are expected to

expand as higher commodity prices will be margin accretive for the

metal space

The five companies that top the charts in terms of profitability growth

include Axis Bank (lower provision YoY), Power Grid (higher asset

capitalisation), Cipla (growth in Indian & European business & lower

exposure to US business), Gail India (improved performance of LPG

business) and HDFC Bank (credit growth & steady asset quality)

The bottom five companies include Bharti Airtel (pricing pressure &

spectrum related interest & depreciation), ONGC (higher other income

in Q2FY17), Maruti Suzuki (higher input cost led margin contraction).

The trend of sharp price erosion in the US and absence of meaningful

launches continued for pharma giants like Sun Pharma and Lupin

Exhibit 2: Trend in profitability of Sensex companies…

24.9

4.3

-6.6

-10.1

4.1

-6.1

-0.3

15.8

2.9

15.9

6.9

-6.0

0.9

7.8

0

10000

20000

30000

40000

50000

60000

70000

Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

PAT YoY Growth

0

Top five likely Sensex companies in PAT growth for Q2FY18E Bottom five likely Sensex companies in PAT growth for Q2FY18E

273.6

24.123.3

21.1

20.8

0.0

50.0

100.0

150.0

200.0

250.0

300.0

Axis Bank Power Grid Cipla Gail India HDFC Bank

(%

YoY)

-85.5

-56.7

-36.8

-11.7 -10.4

-100.0

-80.0

-60.0

-40.0

-20.0

0.0

Bharti

Airtel

Sun

Pharma Lupin ONGC

Maruti

Suzuki

(%

YoY)



What we expect our coverage universe to report; emerging trends

From a sectoral perspective, sectors like auto (ex-Tata Motors 22%

YoY), metals & mining (20.9% YoY), oil & gas (17.1% YoY) and cement

(11.7% YoY) are expected to report strong revenue growth backed by

both volume & realisation growth and also led by inorganic growth in

certain auto ancillary & cement companies . However, the telecom

sector is expected to witness a sales decline of 9.9% YoY as post GST

jitters added to the competitive pressure

In the banking space, credit growth remains muted at 6.8% YoY. PSU

banks are expected to continue to see single digit growth of ~5.5% YoY

while private banks continue to clock strong 17.9% YoY growth.

Positive developments in the steel sector and large players evincing

buying interest in companies referred to NCLT under IBC (viz. Essar

Steel, Bhushan Steel & Monnet Ispat) may lead to provisions write-back

in coming quarters. Savings interest rate cut of 50 bps by the largest

bank remained the highlight of the quarter, with other banks following

suit. Accordingly, a decline in interest expense would support NII. A

higher cut in deposit rates, compared to a decline in MCLR, is expected

to result in NII growth of 13.1% YoY and 3.1% QoQ for our coverage

universe. We expect our banking coverage universe PPP to grow 14.9%

YoY and 2.9% QoQ while PAT is seen growing 39% YoY and 8.7% QoQ

For Q2FY18E, overall auto volumes registered strong ~12% YoY

growth mainly due to 1) re-stocking of vehicles by dealers post

implementation of GST and 2) higher inventory build-up across the

dealer network ahead of the festive season. The quarter was among the

best, as all segments reported healthy volume growth. The standout

from the space was the 2-W & tractor segment, which reported robust

growth of ~12% YoY & ~30% YoY, respectively. The PV space

maintained its growth momentum with volumes up ~10% YoY. Further,

a demand revival was seen in 3-W (volumes up ~8% YoY backed by

both domestic & export demand) and CV (volumes up ~15% YoY,

mainly due to a recovery in the M&HCV segment). The quarter was

among the best for most OEMs, which reported healthy YoY and QoQ

volume growth. Thus, we estimate our universe [ex-Tata Motors (TML)]

to report topline growth of ~22% YoY. Further, higher raw material cost

(prices of key commodities viz. steel & aluminium were up 19% YoY

each) is likely to impact EBITDA margins of our universe (ex-TML),

which is expected to decline 170 bps YoY to 14.1%

In the capital goods space in Q2FY18E, EPC companies are expected to

face interim headwinds in execution and elongation of working capital

cycle due to transition of the sub contractor/vendor value chain in the

GST process. This may lead EPC companies to lend support to their

vendor base and, hence, will impact working capital in Q2FY18E. In

turn, the move may lead to some rise in interest cost. However, the

same may be contained till Q2FY18E. We expect EPC companies to

post muted revenue growth of 3.9%YoY (lower execution from sub

contractor will slow execution in Q2FY18E). However, PAT is expected

to grow 9.6% YoY on the back of a margins expansion. For Q2FY18E,

product based companies are expected to report 9.1% YoY revenue

growth. However, pressure on EBITDA margins is likely to continue.

The same is expected to contract 50 bps to 16.1% for the quarter.

Consequently, absolute EBITDA is expected to grow by only 0.8% in

Q2FY18E.

Cement demand is expected to remain muted mainly due to the impact

of monsoon and sand mining issue in many parts of India. Hence, on an

organic basis, we expect companies under our coverage to report flat

to negative volume growth. However, considering the acquisition of


Jaypee by UltraTech, merger of Trinetra Cement by India Cement and

capacity expansion by various companies under our coverage universe,

we expect companies to report optically higher volume growth.

Consequently, we expect companies in our coverage universe to

register volume growth of 10.5% YoY in Q2FY18E. In addition, we

expect realisation to increase 1.4% YoY leading to revenue growth of

11.7% YoY in Q2FY18E. However, higher other expenses (due to

increase in maintenance cost), rise in power (led by higher pet coke

prices) and freight cost may dent EBITDA/t (down 9.7% YoY to | 799/t)

in Q2FY18E

EBITDA margins of the coverage universe (ex-BFSI) are expected to

contract 15 bps to 17.9%. However, on a QoQ basis, margins are

expected to expand 79 bps

On the profitability front, the bottomline of the I-direct coverage

universe (ex-BFSI) is expected to increase 6.8% YoY mainly led by

90.3% YoY growth in the metal & mining sector

Exhibit 4: Trend in profitability of I-direct coverage universe (ex- BFSI)

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

90,000.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

(|

Crore)

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%

)

PAT (Ex BFSI) Growth (%)


Exhibit 3: Trend in EBITDA margins of I-direct coverage universe (ex- BFSI)

15.416.0

17.2

18.518.1 18.2

17.617.1

17.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

(%

)

EBITDA Margin (%)



Defensives: Consumption sectors impacted by GST…

(Sector composition: consumer discretionary, IT, FMCG, healthcare)

Key highlights:

In the past seven years, the defensive sector has never reported

revenue de-growth in any quarter. However, events like demonetisation

& GST rollout have slowed down the topline growth from Q3FY17

onwards. Defensives are expected to post revenue growth of 4.8% YoY

compared to average revenue growth of 10.7% in the previous 12

quarters. Although the FMCG sector continues to witness some

pressure on account of GST in the form of disruption in wholesale

channel & slower rural recovery, the topline growth can be attributed to

price hikes like in cigarette post GST rate revision. In the healthcare

space, a slowdown in the US is likely to overshadow domestic growth,

which is expected to see revival post-GST implementation. The EBITDA

margin of the defensive universe is expected to contract 131 bps YoY

mainly due to margin contraction of 388 bps in the pharma space on

account of sharp price erosion in the US. The ensuing EBITDA, PAT of

the defensive universe is expected to decline 1.2% YoY & 2.6% YoY,

respectively

Tier-1 IT companies are expected to report constant currency (CC)

growth of 0.5-2.8% with HCL Tech leading the pack. Cross currency

could provide strength by ~100-130 bps to reported dollar growth.

Inter-quarter average US$ has depreciated vs. major currencies acting

as a tailwind. US$ has depreciated ~0.3%, 6.7%, 2.2% and 5.2%

against rupee, Euro, GBP and AU$, respectively. Tier-I IT companies are

likely to report average 3.1% growth in $ terms in Q2FY18E. Within tier-

I, HCLT (4.0%) may lead again supported by inorganic contribution

(0.8%) followed by Infosys (3.5%), TCS (3.2%) and Wipro (1.5%). Within

midcaps, we expect sequential dollar revenue growth to be broad

based across companies led by Cyient (5.3%), Persistent (3.9%), TechM

(2.5%) followed by NIIT Tech (2.9%), MindTree (2.5%) and KPIT (2.5%).

Persistent, TechM and NIIT Tech would benefit from the contribution of

acquisitions. On the operating margins front, absence of higher visa

cost and wage hikes for a few companies would provide a cushion to

margins in a seasonally strong Q2

In the first quarter, after implementation of GST, our FMCG universe is

expected to witness some pressure in its performance. This is largely

on account of a) slower rural recovery, b) disruption in the wholesale

channel and c) some chaos related to GST rates and accounting. We

estimate our universe will report revenue growth of 7.8% YoY

supported by FMCG behemoths ITC and HUL, expected to post growth

of 11.6% and 5.5% YoY, respectively. The only company that may

report a sales decline in our universe is Colgate, where we are

expecting a decline of 6.5% YoY, on account of price cuts on account of

lower tax incidence under GST regime. On account of some relief on

the commodity front, rationalisation of ad-ex (for major players) and

price hikes in cigarettes, we expect the EBITDA of our coverage

universe to grow 11.8% YoY. Further, we estimate 8.0% YoY growth in

profit for our coverage

I-direct healthcare universe is expected to register mere ~3% YoY

growth to | 39389 crore undermined by continuous price erosion in the

US base business. We expect US business (selected pack) to decline

11% YoY to | 10452 crore. Almost all players from the universe are

facing intense competition in existing products in the US due to client

consolidation and acceleration in product approvals momentum by the

USFDA. The intensity of price erosion is anywhere between high single

digit to low double digit. On the domestic front, we expect ~10% YoY

growth to | 9334 crore (select pack) as most companies are expecting


normalcy to return in distribution channels. However, due to GST

related changes in accounting and reporting, domestic growth numbers

may witness a marginal negative impact

Exhibit 5: How performance variables of defensives may pan out in Q2FY18E

-20000

0

20000

40000

60000

80000

100000

120000

-41 -38 -35 -32 -29 -26 -23 -20 -17 -14 -11 -8 -5 -2 1 4 7 10

(PAT growth,% YoY)

(EB

ITD

A e

xpansio

n Y

oY,

in b

ps)

Consumer Discretionary IT FMCG Pharma


Note: Size of individual circle represents the Revenue growth (YoY) for the respective sector in Q1FY18E.

Exhibit 6: Trend in revenue growth of defensives over last three years

8.2

11.410.3

9.7

19.5

13.5

18.9

14.5

9.38.3

3.2

1.3

4.8

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

(|

Crore)

0.0

5.0

10.0

15.0

20.0

25.0

(%

)

Defensive universe revenues Y-o-Y(%)


Exhibit 7: Trend in EBITDA margins

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.5

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%

)


Exhibit 8: Trend in profitability

23500

24000

24500

25000

25500

26000

26500

27000

27500

28000

28500

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(|

Crore)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%

)

Net Profit Y-o-Y(%)



Cyclicals: Visible signs of pick-up in capex cycle

(Sector composition: auto, cement, capital goods, power, infrastructure,

real estate, oil & gas and telecom)

Key Highlights

Cyclicals are expected to witness strong growth of 13% YoY after 11

quarters of de-growth. This high growth is expected to be mainly driven

by 17% YoY growth in the oil & gas sector led by higher gross refining

margins reported by oil marketing companies. The power sector is

likely to continue its growth momentum (~7.2% YoY growth) on the

back of generation & capacity addition

We expect the oil & gas sector to report a decent set of numbers in

Q2FY18E. Realisations of upstream oil & gas companies are expected to

grow QoQ on account of 3.3% QoQ growth in average Brent crude oil

prices to US$ 51.7/bbl. Also, increase in oil & gas production is

expected to augur well for upstream companies. On the OMCs front, we

expect strong GRMs supported by high product spreads and inventory

gains with benchmark Singapore GRMs rising from US$6.4/bbl in

Q1FY18 to US$8.3/bbl in Q2FY18. However, marketing volumes are

expected to remain muted. On the gas utility front, we expect stable

growth in volumes due to increase in domestic gas production and

imported LNG. Continued demand from city gas distribution, lower

domestic gas prices and relatively stable spot LNG prices are expected

to bode well for gas utility companies

In the metal space, on a sequential basis, we expect the EBITDA/tonne

of steel players to increase while non-ferrous players are also likely to

report healthy revenues and profitability. On account of an increase in

domestic steel prices and moderation in the prices of coking coal (key

raw material), we expect steel players to report healthy EBITDA/tonne

sequentially. During Q2FY18, majority of base metal prices witnessed

an increase on a YoY and QoQ basis. Average zinc prices during the

quarter were at US$2962/tonne (up 32% YoY, 14% QoQ). Average lead

prices were at US$2331/tonne (up 24% YoY, 8% QoQ). The average

price of aluminium was at US$2010/tonne (up 24% YoY, 6% QoQ) while

average copper prices were at US$6351/tonne (up 33% YoY, 12%

QoQ). We expect higher prices to augment the topline and profitability

of non-ferrous players

Overall, the power generation during April-August 2017 is up 4.6% YoY

while in August 2017 the same was up 7.9% YoY. In terms of segmental

(YTD) basis, thermal generation is up 5% YoY while hydro has seen

moderate growth of 5.8% YoY albeit peak season. On the other hand,

renewable segment witnessed 30.2% YoY growth in generation during

April-July 2017, mainly on the back of strong capacity addition in FY17.

On a segmental basis, central level utilities saw higher than average

PLFs at 70% while that of state and private IPPs meaningfully improved

to 64% and 55%, respectively. On the conventional side, no capacity

addition was reported in Q2FY18E


Exhibit 9: How performance variables of cyclicals may pan out in Q2FY18E

-4

-2

0

2

4

6

-40 -20 0 20 40 60 80 100 120

(PAT growth, % YoY)

(EB

ITD

A M

argin

expansio

n, in

bps)

Capital Goods Power Auto Cement Metals


Exhibit 10: Trend in revenue growth of cyclicals

35.4

19.4

-1.7

-14.2

-7.8

-12.9-11.2

-3.6 -2.8

-10.6

-6.4

-1.0

-10.6

12.1

0

100000

200000

300000

400000

500000

600000

700000

800000

Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

(|

Crore)

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

(%

)

Total Cylical revenues Y-o-Y(%)


Exhibit 11: Trend in EBITDA margins

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%

)


Exhibit 12: Interest costs …

12000

12500

13000

13500

14000

14500

15000

15500

16000

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(|

Crore)

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

(%

)

Interest costs (| cr) Y-o-Y(%)



Apparel

Transition to GST to subdue revenue growth

The transition to GST is progressing gradually while channel partners in

the textile value chain are yet to become fully compliant with the new

tax system. This is likely to result in a disruption in the revenue growth

trajectory for the textile/apparel sector in the near term. Post

implementation of GST, textile companies have seen working capital

getting stretched owing to a delay in getting input credit refunds

inflating the cost of borrowing. Even on the exports front, exporters are

facing working capital crunch as they have to pay Integrated Goods and

Service Tax (IGST) upfront and later claim refund in the form of input

tax credit.

Bumper cotton crop in CS 2017-18 to aid margins, going forward

Average cotton prices (Shankar-6) were firm in the range of ~| 119/kg

during July-August 2017 but prices started to correct (~3.5% to

| 115/kg) as the industry moved closer towards beginning of the new

cotton season, which starts from October. According to ICAI, cotton

acreage is anticipated to expand 10% YoY for the cotton season (CS)

2017-18 to 11.6 million hectare. Assuming the yield to be in the range |

522 kg/ hectare, the output is expected to increase 4.4% YoY to 355

lakh bales vs. 340 lakh bales. Higher supply with stable demand should

translate into cooling off domestic cotton prices aiding the margins of

textile companies from Q3FY18.

Restocking occurring at gradual pace amid upcoming festive season

As per our channel checks, various multi-brand outlets were impacted

in the first half of July as dealers were still familiarising themselves with

the compliance required to switch to GST regime. However, with the

upcoming festive season, restocking is going on at a gradual pace. We

expect companies in our coverage universe to register single digit

revenue growth except for Page Industries. Kewal Kiran and Rupa that

are expected to report subdued revenue growth of 5.9% and 2.2%,

respectively. Vardhman’s textile segment is expected to register

moderate revenue growth of 4.2%, owing to near full capacity

utilisation while the acrylic segment is expected to decline 5% YoY. On

a consolidated basis, Vardhman is expected to register 4.0% growth in

revenues. For Arvind, we expect consolidated revenues to increase 5%

YoY led by 11% growth in the brands and retail segment and 2%

growth in the textiles segment. Page is expected to register revenue

growth of 16.2% YoY, driven by 10.4% volume growth and 7.4%

expansion in blended realisations.

Exhibit 13: Estimates for Q2FY18E: (Apparel) (| Crore)

Revenue EBITDA PAT

Q2FY18E YoY QoQ Q2FY18E YoY QoQ Q2FY18E YoY QoQ

Arvind Ltd 2,444.0 4.8 -1.3 218.7 -3.5 5.7 65.2 -9.1 14.9

Kewal Kiran 162.9 5.9 107.9 32.8 -7.6 349.3 27.4 -7.1 232.8

Page Industries 618.5 16.2 -11.3 119.7 17.5 -12.3 79.7 16.3 -6.6

Rupa & Co. 278.4 2.9 70.3 33.4 -7.5 77.0 20.2 -4.8 118.1

Vardhman Tex 1,556.4 4.0 -0.4 226.2 -27.3 2.6 144.2 -68.2 -3.1

Total 5,060.2 5.8 1.7 630.8 -11.3 6.9 336.7 -47.8 9.2

Change (%) Change (%) Change (%)

Company

Source: ICICIdirect.com Research

Topline & Profitability (Coverage Universe)

4785

4703

5084

4976

5060

0

1000

2000

3000

4000

5000

6000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

(%

)

Revenue EBITDA Margin PAT Margin

Cotton prices (domestic & international)

60

70

80

90

100

110

120

130

140

150

160

Sep-12

Mar-13

Sep-13

Mar-14

Sep-14

Mar-15

Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

|

0.4

0.5

0.6

0.7

0.8

0.9

$

|/kg (LHS) $/ lb

Indian textile exports to US

3212

3401

3665

2199

3640

2328

3087

3316

3605

3582

0

1000

2000

3000

4000

CY2013 CY2014 CY2015 CY2016 YTD CY17

US

$ (

Mn)

Apparel Non-Apparel

Top Pick

Arvind Ltd

Research Analyst

Bharat Chhoda

[email protected]

Ankit Panchmatia

[email protected]

Cheragh Sidhwa

[email protected]


Decline in duty drawback to impact garment exports

According to the data provided by Office of Textile and Apparel

(OTEXA), India’s apparel exports to the US for YTD CY17 declined 0.2%

to US$2328 million while non-apparel exports continued to register

growth of 6.1% to US$2199 million. Recently, The Government of India

has announced new duty drawback rates for garments effective from

October 1, 2017. The duty drawback rate for cotton garments has been

fixed at 2% vs. existing 7.7%. Duty drawback rates on garments of

blended and manmade fibres have been fixed at 2.5% vs. existing 9.5%

and 9.8%, respectively. The new lower rates are expected to negatively

impact the global competitiveness of Indian garment exporters as the

industry is already facing pressure due to rupee appreciation.

Exhibit 14: Company specific view (Apparel)

Company Remarks

Kewal Kiran Traditionally, Q2 is a strong quarter for KKCL as various dealers replenish their

inventory a month prior to the start of the new festive season. However, we expect

revenues to be impacted due to GST compliance related issues at the dealer’s level.

We expect revenues to increase 5.9% YoY to | 162.9 crore led by 2.8% increase in

volumes to 15.2 lakh pieces and 3% increase in realisation to | 1072/piece. Operating

margins are likely to dip 290 bps YoY to 20.1. Subsequently, we expect PAT to decline

7.1% YoY to | 27.4 crore

Page

Industries

We expect Page to continue on its strong revenue growth trajectory and register a

healthy topline growth of 16.2% YoY to | 618.5 crore led by 10.4% volume growth to

42 million pieces and 7.4% realisation growth to | 147/piece. We expect leisure

segment to be the key growth driver by registering YoY volume growth of 24%.

Operating margins are likely to expand 30 bps YoY to 19.4% owing to improved

realisations and positive operating leverage. We expect PAT to increase 16.3% YoY to

| 79.7 crore

Rupa &

Company

We expect Rupa to register subdued revenue growth of 2.9% YoY to | 278.4 crore.

EBITDA margins are likely to contract 130 bps YoY to 12.0% on account of negative

operating leverage while absolute EBITDA is expected to decline 7.5% YoY to | 33.4

crore. On account of a decline in interest expense, we expect PAT de-growth to be

curtailed at 4.8% YoY to | 20.2 crore

Vardhman

Textiles

Consolidated revenues are likely to report moderate growth of 4.0% YoY to | 1556.4

crore. On the segmental front, we expect textiles segment to register subdued growth

rate of 4.2% while the acrylic business is expected to decline 5% YoY. In Q2FY17,

operating margins were abnormally high owing to low cost cotton inventory gains.

However we expect operating margins to be severely impacted in the quarter on

account of high cost cotton inventory. EBITDA margins are expected to contract 630

bps YoY to 14.5%. On account of a 40% stake sale in Vardhman yarn and threads in

Q2FY17 (exceptional income: | 251 crore), PAT was significantly higher at | 454

crore. In the absence of extraordinary income, PAT for Q2FY18 is expected to decline

68% to | 144.2 crore

Arvind Ltd The negative impact of GST, which dented revenues for July, was to an extent

moderated by the revival in August and September. In addition to the same, optimum

utilisation of capacity at the garment facility and lower demand for textiles could result

in a flattish performance for the textile business. We expect textile revenues to grow

2% YoY (vs. an average of 12% over past four quarter). Likewise, on the back of large

base impact of Q2FY17 (growth of 33%), retail revenues are expected to grow 11%

YoY to | 834 crore. The resultant consolidated revenues are expected to grow 5% YoY

to | 2444 crore. The impact of GST on operating expenses is expected to dent EBITDA

margins by 70 bps to 9% with an absolute EBITDA de-growth of 4% YoY to | 219

crore. Increase in interest expenses due to increased working capital requirement may

lead PAT de-growth of 11% YoY to | 65.2 crore


China’s cotton yarn import

80

110

140

170

200

230

260

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Million k

gs

China’s cotton yarn imports have declined 2.7% YoY in

YTDFY18, which would impact revenue growth and

margins of Indian cotton yarn exporters


Auto and auto ancillary

Re-stocking to accentuate growth amid festive cheers!

Overall auto volumes registered strong ~12% YoY growth in Q2FY18

and was mainly due to 1) re-stocking of vehicles by dealers post

implementation of GST and 2) higher inventory build-up across the

dealer network ahead of the festive season. The quarter was among the

best, as all segments reported healthy volume growth. The standout

from the space was the 2-W & tractor segment, which reported robust

growth of ~12% YoY & ~30% YoY, respectively. The PV space

maintained its growth momentum with volumes up ~10% YoY. Further

demand revival was seen in 3-W (volumes up ~8% YoY backed by both

domestic & export demand) & CV (volumes up ~15% YoY; mainly due

to recovery in M&HCV segment). The quarter was among the best for

most OEMs, which reported healthy YoY & QoQ volume growth. Thus,

we estimate our universe [ex-Tata Motors (TML)] to report topline

growth of ~22% YoY, with OEMs & ancillary likely to grow ~23% &

~19%, respectively. We expect Ashok Leyland, Bajaj Auto, Eicher

Motors, Maruti Suzuki and Bharat Forge to post good results. The auto

sector gradually adopted the GST thereby managing the inventory and

other adjustments.

Higher commodity cost to impact margin & profitability!

Average prices of major commodities increased – steel & aluminium

prices up 19% YoY each while lead price up 20% YoY. Thus, on an

overall basis, we expect gross margin to contract, thereby impacting

EBITDA margin of our auto universe (ex-TML), which is expected to

contract ~170 bps YoY to 14.1%, with OEM & ancillary margins likely to

contract 185 bps & 135 bps YoY, respectively. For the I-direct universe,

(ex-TML) profits are expected to decline ~3% YoY, with OEM

profitability likely to remain flat YoY while ancillary profit is expected to

decline ~13% YoY. For TML, new model launch in Land Rover will

support its topline growth while better product mix is expected to drive

JLR margins.

Exhibit 15: Estimates for Q2FY18E: Auto and auto ancillary (| Crore)

Revenue EBITDA PAT


Amara Raja 1531.6 13.8 -1.6 203.4 -11.4 -17.0 107.6 -21.1 -23.0

Apollo Tyre` 3344.7 8.4 -8.3 413.4 -5.7 -13.0 213.7 -17.8 -16.1

Ashok Leyland 6,112.2 32.2 58.9 644.0 20.0 83.0 347.5 18.0 114.6

Bajaj Auto' 6,720.8 11.0 25.0 1,300.9 0.4 23.8 1,108.2 -1.3 20.9

Balkrishna Ind 1023.4 9.7 -3.6 292.8 -4.8 -5.1 188.0 -22.6 0.5

Bharat Forge 1293.5 45.2 24.1 363.3 46.7 22.9 212.5 67.5 31.3

Bosch India 2978.4 14.0 22.2 534.2 13.8 19.0 415.0 -41.0 25.3

Eicher Motors* 2,208.2 32.1 12.1 684.8 43.6 10.8 528.3 27.9 11.4

Exide 2158.0 11.9 -5.6 297.6 1.6 -7.5 179.0 -1.3 -9.8

Hero Motocorp 8,820.2 13.1 9.5 1,439.9 5.2 7.8 1,060.9 5.6 11.5

JK Tyre ` 2092.5 9.1 -5.7 189.3 -51.0 -23.6 10.5 -89.5 -79.4

Mahindra CIE ` 1424.0 13.7 -7.1 193.4 59.8 -5.5 87.2 154.4 -14.1

M & M 13,889.7 30.9 20.0 1,509.0 22.4 19.1 1,237.2 6.4 61.5

Maruti Suzuki 21,934.8 22.9 23.9 3,076.0 1.3 22.2 2,148.6 -10.4 15.9

Motherson` 12932.5 27.6 0.1 1289.1 28.0 1.5 431.3 19.5 -10.4

Tata Motors` 68,486.8 3.9 17.1 8,855.3 26.1 39.6 2,322.3 173.8 -45.5

Wabco India 535.1 15.3 9.9 83.0 21.8 6.4 56.4 19.6 7.2

Total 157,486.3 13.2 15.6 21,369.4 15.3 22.9 10,654.2 12.9 -6.1

Change (%)

Company

Change (%) Change (%)

Source: Company, ICICIdirect.com research ,`Consolidated numbers, *Eicher’s PAT is consolidated, Highlighted rows

depict auto ancillary companies

Topline & Profitability (Coverage universe)

139065

138265

153866

136132

157486

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%

)

| C

rore


Key players & industry volume Sept’17 quarter growth (%)

11.6

10.9

3.8

16.1

16.7

17.6

10.6

8.2

2.0

22.5

15.0

9.1

20.6

17.6

13.4

24.7

36.0

17.6

13.2

43.8

Industry

HMCL

BAL

TVS

HMSI

Maruti

TML

M&M

Hyundai

ALL

YoY QoQ

Average Commodity price movement

Commodity (|/kg) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

Steel 43 36 19.4 41 4.3

Aluminium 129 108 19.2 123 5.1

Rubber 132 134 -1.0 132 0.2

Plastics 76 81 -6.3 83 -8.3

Lead 152 126 20.9 140 8.9

Average Currency movement against INR

Currency Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

USD / INR 64.3 67.0 -4.0 64.5 -0.2

EUR / INR 75.6 74.9 0.9 71.0 6.4

GBP / INR 84.1 88.0 -4.4 82.5 2.0

JPY / INR 0.6 0.7 -11.5 0.6 -0.2

Top Picks

Maruti Suzuki, Eicher Motors & Bharat Forge

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]


Company Remarks

Ashok Leyland The topline is expected to grow ~32.2% YoY to | 6112 crore as overall volumes have

increased ~24% YoY to ~40966 units. The net realisation is expected to grow QoQ

5% on account of a superior product mix (higher M&HCV sales & higher share of

>25T trucks). M&HCV volumes have grown~24% YoY to 31400 units while LCV

volumes are up 18% YoY to 9566 units. We expect EBITDA margins to expand QoQ to

~10.5% on account of positive operating leverage and given there were one-time

costs in Q1FY18. Reported PAT is expected at | 348 crore

Bajaj Auto Revenues are expected to increase 11% YoY to | 6721 crore on account of 3.8% YoY

volume growth to ~1.07 million units & 7.5% YoY expected growth in blended

realisation. After three quarters of de-growth, domestic 2-W volumes are in the green

with 1% YoY growth to ~5.83 lakh units while domestic 3-W volume growth of 12%

YoY to ~84938 units has surpassed management guidance. Export volumes at ~4.03

lakh units have exhibited growth of 6% YoY. EBITDA margins are expected to expand

~210 bps QoQ to 19.4% due to better product mix (higher share of premium 2-W & 3-

W) & positive operating leverage. PAT is expected to decline 1.3% YoY to | 1108 crore

Eicher Motors Eicher’s RE business (motorcycles) has grown ~20.8% YoY to ~202867 units. VECV

(truck business) volumes were at ~15,049 units, up ~12.2% YoY. Revenues may

grow 25.3% YoY to | 2208 crore. EBITDA margins may come in at 31%, down 40 bps

QoQ, due to higher input costs. We expect VECV business margins to expand 80 bps

QoQ to 8.8% as superior product mix (higher M&HCV share) will offset the rise in input

cost. Secondly, positive operating leverage will support higher margins QoQ.

Consolidated PAT is expected at ~| 528 crore

Hero MotoCorp HMCL volumes increased ~13% YoY ~2.02 million units, with de-growth of ~3.7%

YoY in the scooter segment & 13.3% YoY growth in motorcycle segment. Scooter &

motorcycle volumes are expected at ~0.24 million units & ~1.78 million units,

respectively. EBITDA margins are expected to be flat at 16.3% QoQ as the positive

impact of operating leverage will be offset by higher input cost. Topline & PAT are

seen at ~| 8820 & ~| 1061 crore, respectively

M&M Revenues are expected to grow 31% YoY to | 13889 crore on the back of ~9% YoY

volume growth in automotive segment & ~31% YoY growth in farm equipment

segment. Volumes in the automotive segment at 137,524 units have grown on the

back of ~18% YoY growth in the UV segment. Volumes in the tractor segment at

~80,911 units have grown on account of re-stocking. Margins are expected to be flat

QoQ at 10.9% as the operating leverage benefit will be offset by poor product mix. PAT

is expected to grow 6.3% YoY to | 1237 crore

Maruti Suzuki Maruti's volumes have grown ~17.6% YoY to ~4.92 lakh units where the strong

domestic demand of 19.4% YoY is driven by growth in new models, specifically the

newly launched DZire. EBITDA margins are expected to expand 70 bps QoQ to 14% as

operating leverage benefit will offset raw material price increase. Topline is expected

to grow 23% to | 21935 crore. Net ASPs are expected to increase ~1% QoQ due to

product mix. PAT for the quarter is expected at ~| 2149 crore

Tata Motors JLR is expected to clock sales volumes of ~149593 units, up 7.4% YoY, with the

growth attributable to Land Rover models (~70% of JLR volumes) like new model

Velar & new Range Rover. JLR is likely to post topline of ~£6.2 billion (| 63497 crore)

while margins are likely to expand ~160 bps YoY to 11.9% due to a better product

mix. JLR’s PAT is estimated at ~£300 million. Standalone revenues are expected to

increase 30.3% YoY to | 13453 crore due strong volume growth of 13% YoY and

growth in ASP reflecting BSIII to BSIV migration. EBITDA margins are expected at

3.8% due to positive operating leverage. Standalone loss is expected at ~| 551.5

crore


Exhibit 16: Company specific view- OEM

Maruti Suzuki’s sales performance

418

387

414

395

492

20.1

-7.5

7.0

-4.8

24.7

-10

-5

0

5

10

15

20

25

30

0

100

200

300

400

500

600

Q2FY17Q3FY17Q4FY17Q1FY18Q2FY18

(%

)

(000's

)

Sales QoQ growth

Ashok Leyland’s sales performance

33

33

48

28

41

7.3

-1.8

45.0

-40.2

43.8

-60

-40

-20

0

20

40

60

0

10

20

30

40

50

Q2FY17Q3FY17Q4FY17Q1FY18Q2FY18

(%

)

(000's

)

Sales QoQ growth

Eicher Motor’s sales performance

180

186 196

196

218

10.3

3.0

5.3

0.0

11.4

-3

2

7

12

17

22

0

50

100

150

200

250

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

(%

)

(000's

)

Sales QoQ growth


Exhibit 17: Company specific view- Ancillaries

Company Remarks

Amara Raja

Batteries

(ARBL)

Good growth in the automotive segment (OEM + replacement) is likely to drive

ARBL's revenue, which is expected to grow 14% YoY to | 1,532 crore. EBITDA

margins are expected to decline 379 bps YoY to 13.3% as average lead prices (key

raw material) increased 20% YoY & 8% QoQ to |151/kg. PAT is expected to decline

21% YoY to | 108 crore

Apollo Tyres

(APL)

Consolidated revenue is likely to grow 8.4% YoY to | 3,345 crore mainly supported by

its Indian operations. The re-stocking of tyres (post GST) is expected to drive its

replacement segment. Average natural rubber price remained flat (down 1% YoY & up

0.2% QoQ to |132/kg). However, we believe APL will enjoy the benefit of low cost raw

material inventory in Q2FY18. EBITDA margins are likely to expand 403 bps QoQ to

12.4%. PAT is expected to decline 18.4% YoY to | 212 crore

Balkrishna

Industries (BIL)

BIL's revenues are expected to grow 9.7% YoY to | 1,023 crore, with volume likely to

increase 11% YoY to 47,231 MT. The management expects the margin to sharply

recover from Q2FY18 onwards (to its traditional level of 28-30%). Thus, we expect

EBITDA margins to expand 726 bps QoQ (down 436 bps YoY) to 28.6%. PAT is

expected to decline 6.1% YoY to | 188 crore

Bharat Forge Revenues are likely to increase 45% YoY to | 1292 crore. Net domestic revenues are

expected to grow 9.9% QoQ to | 554 crore, mainly driven by M&HCV volume growth.

Export revenues are expected to increase 58% YoY to | 712 crore as class 8 truck

volumes have grown YoY while oil & gas revenues are expected to grow significantly.

EBITDA margins are expected to be almost unchanged QoQ at 28.1%. PAT is likely to

increase 67% YoY to | 163 crore

Bosch Its revenue is expected to increase 14% YoY to | 2,978 crore mainly due to strong

recovery in domestic CV & tractor volumes. Its EBITDA margins are expected at 17.9%

flat YoY and up 140 bps QoQ due to a better product mix (lower share of traded of

goods) & cost efficiencies. Bosch had an exceptional gain from sale of its starter

motor & generator division worth | 281 crore in Q2FY17. Thus, a decline of 41% YoY

to |415 crore in PAT is not comparable YoY

Exide Industries

(EIL)

EIL is expected to post highest ever quarterly revenue (up 12% YoY to | 2,158 crore)

supported by good growth in its automotive segment. Further, despite a price hike in

the past (yet to be fully passed on), higher raw material cost will impact its margin,

which is expected to decline 139 bps YoY & 163 bps QoQ to 13.8%. PAT is expected

to decline marginally by 1% YoY to | 179 crore

JK Tyre (JKTIL) Consolidated revenues are expected to grow 9% YoY to | 2,093 crore primarily driven

by Indian operation. The acquired Cavendish Industries (CIL) has witnessed a

turnaround thereby driving its overall performance. EBITDA margins are expected to

improve 910 bps QoQ to 9% as JKTIL will benefit from lower cost inventory in Q2FY18

(unlike in Q1FY18). Higher interest & depreciation (>8% of sales) is likely to impact

PAT that is expected at | 11 crore

MCIE

Automotive

Its standalone business will largely be driven by production volumes of its top two

clients M&M & TML, which account for ~45% of its revenue. Standalone revenue,

EBITDA & PAT are estimated at ~| 479 crore, ~| 47 crore and ~| 21 crore,

respectively. On a consolidated basis, we expect revenue, EBITDA & PAT of | 1424

crore, | 193 crore and | 87 crore, respectively

Motherson

Sumi

MSSL's consolidated revenues are expected to grow 27.6% YoY to | 12,933 crore. The

result would not be comparable on like-to-like basis, as it would include the

performance of newly acquired PKC group (revenue of ~|1900 crore). Its European

operations (SMR & SMP) are expected to continue with its decent performance.

Consolidated EBITDA margin is likely to expand 100 bps QoQ & 10 bps YoY to 10%.

PAT is expected at | 431 crore

Wabco India

(WIL)

WIL’s revenue is expected to grow 15.3% YoY to | 535 crore mainly due to 1)

recovery in domestic M&HCV production volume up >13% YoY, 2) continued growth

momentum in exports and 3) partly driven by new product launches. EBITDA margins

are likely to improve 83 bps YoY & 50 bps QoQ to 15.5%. Subsequently, PAT is

expected to increase 19.6% YoY to | 56 crore


Hero MotoCorp’s sales performance

1823

1474

1622

1854

2023

4.5

-19.2

10.0

14.3

9.1

-25

-15

-5

5

15

1000

1200

1400

1600

1800

2000

2200


(%

)

(000's

)

Sales QoQ growth


Banking and Financial Institutions

Improvement in credit not yet visible, marginally better CD ratio

Credit growth remained flat at 6.8% YoY as on September 15, 2017.

Deposit growth is seen moderating around 10% YoY as interest rates

decline and demonetisation money flushes out from banks.

Accordingly, the incremental CD ratio has gone up to 51.5% in

September 2017 from lows of 30-40% in the past. For our coverage

universe, credit growth is estimated at 10% YoY. PSU banks are

expected to continue to see single digit growth of ~5.5% YoY while

private banks continue to clock strong 17.9% YoY growth to | 1569368

crore. Retail focused private banks like IndusInd Bank, HDFC Bank, DCB

Bank and even Federal Bank are expected to maintain their strong

growth trajectory of >20% YoY.

Positive trends in steel sector to prevent liquidation risk provisions

Banks have been making additional provisions required to reach 50% in

case of initial 12 accounts referred to NCLT from Q1FY18. In addition,

new list of stressed borrowers would also entail further provisions.

Large banks like PNB & BoB (| 7200 crore exposure in 10 accounts) and

Axis Bank (| 5283 crore in eight accounts) had indicated their exposure

to the 12 accounts is provided for by ~40-50% of the portfolio.

Provisions on a QoQ basis may be largely stable as provision impact

from agri loan slippages in Q1 seems over.

Positive developments in steel sector resulted in large domestic and

international players evincing buying interest in companies referred to

NCLT under IBC (namely Essar Steel, Bhushan Steel & Monnet Ispat).

Any buyout can result in upgradation of status to standard and lower

haircuts may lead to provisions write-back in coming quarters.

Rise in yields, slower quarter to dent other income

Volatility in rupee led by sharp depreciation may impact forex fee

income positively. However, treasury gains were seen muted due to 15

bps rise in 10 year G-Sec to 6.66%. Accordingly, we factor in lower non-

interest income growth for banks in our coverage.

Improving NII to support ageing led higher provisions

Savings interest rate cut of 50 bps by the largest bank remained the

highlight of the quarter, with other banks following suit. Accordingly, a

decline in interest expense would support NII. A higher cut in deposit

rates compared to a decline in MCLR is expected to result in NII growth

of 13.1% YoY and 3.1% QoQ for our coverage universe. We expect our

banking coverage universe PPP to grow at 14.9% YoY and 2.9% QoQ

while PAT is seen growing 39% YoY and 8.7% on a QoQ basis.

We expect fresh NPA accretion to moderate in Q2FY18E. Slippages

from watchlist would be key monitorable. Restructured assets and SDR

is gradually flowing to NPA category. For our coverage universe, we

expect net addition in GNPA at | 7830 crore (| 15154 crore was added

in Q1FY18). Despite moderation in slippages, GNPA ratio is apparently

expected to inch up owing to muted growth in advances.

Within our coverage, mid size banks like Federal Bank, DCB Bank and

City Union Bank are expected to deliver a healthy set of numbers.

Earnings of large private banks like HDFC Bank, IndusInd Bank, Yes

Bank and Kotak Mahindra Bank are expected to continue to remain

strong both on business and earnings growth. Axis Bank’s earnings are

expected to remain stable QoQ but surge 275% YoY, mainly due to

lower provisions (| 2369 crore) in Q2FY18E vs. steep provisions in Q2

last year (| 3622 crore). Large PSBs including PNB and BoB are

expected to report strong PAT growth QoQ with largely stable GNPA.

NBFCs like Bajaj Finance are expected to report stellar PAT growth of

33.3% and expect consistent earnings for HDFC Ltd.

Net interest income (Coverage Universe)

7306

6865

7265

7260

7467

19268

19670

21280

21904

22594

15103

15260

17407

16722

18233

0

10000

20000

30000

40000

50000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(| C

rore)

PSB Private NBFC

PPP (Coverage Universe)

6002

5750

9252

5865

6233

15421

16745

17808

18059

18383

5869

6209 6

605

6308

6804

0

10000

20000

30000

40000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(|

Crore)

NBFC Private PSB

Net Profit (Coverage Universe)

417

547

888

5865

6843

7741

8360

8797

3558

3579

3975

3523

3885

0

2000

4000

6000

8000

10000

12000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(| C

rore)

NBFC Private PSB

Top Picks

Axis Bank

Bank of Baroda

Research Analyst

Kajal Gandhi

[email protected]

Vishal Narnolia

[email protected]

Vasant Lohiya

[email protected]


Exhibit 18: Estimates for Q2FY18E ( | Crore)

NII PPP NP


Bank of Baroda 3548.4 3.6 4.2 2793.5 3.8 5.5 468.6 -15.1 130.5

PNB 3918.8 1.0 1.7 3439.8 3.9 6.9 419.7 -23.6 22.2

Total 7467.2 2.2 2.9 6233.4 3.9 6.3 888.4 -19.3 62.5

Axis Bank 4597.2 1.8 -0.4 4158.5 1.4 -3.1 1198.4 275.6 -8.2

City Union Bank 361.2 19.9 5.5 314.9 33.0 5.5 149.5 20.8 6.5

DCB 242.1 27.2 3.8 127.8 26.7 -6.3 62.6 29.1 -4.0

Federal Bank 853.2 17.5 6.6 564.4 18.8 1.2 240.7 19.6 14.5

HDFC Bank 9793.4 22.5 4.5 7827.5 29.9 4.1 4173.5 20.8 7.2

Indusind Bank 1840.3 26.0 3.7 1586.7 23.8 -0.1 873.2 24.0 4.4

J&K Bank 679.3 5.9 -4.6 345.1 -8.1 -6.3 75.5 LP LP

Kotak Bank 2371.0 18.8 5.6 1728.1 20.0 8.3 1007.7 23.9 10.4

Yes Bank 1855.9 28.3 2.6 1730.1 24.8 1.5 1016.3 26.8 5.3

Total 22593.5 17.3 3.1 18383.1 19.2 1.8 8797.4 50.0 5.2

Total Banks 30060.7 13.1 3.1 24616.5 14.9 2.9 9685.8 39.0 8.7

HDFC 2547.8 19.6 2.4 2823.4 6.4 15.5 1818.0 -0.5 16.7

LIC HF 973.7 12.5 6.7 882.2 11.5 7.2 519.3 5.0 10.5

Rel Cap 5702.0 15.8 17.4 503.9 26.7 37.7 297.7 17.6 25.1

Bajaj Finance 1728.3 41.2 -8.2 1086.9 36.7 -10.2 543.6 33.3 -9.7

Bajaj Finserv 7280.7 22.2 10.6 1507.2 22.3 3.0 706.9 22.8 7.9

Total 18232.5 20.7 9.0 6803.6 15.9 7.9 3885.4 9.2 10.3


Public Sector Banks

Private Banks

NBFCs

LP denotes Not Meaningful



Exhibit 19: Company specific view (Banks)

Bank of Baroda Slippage accretion is expected to continue though the pace is seen moderating

compared to the previous quarter. However, exposure to accounts referred to NCLT

(already classified as NPA) may keep credit cost at 57 bps (76% of PPP). On the

growth front, advances trajectory is anticipated to remain in single digits at 6.1%

YoY to | 375719 crore. The retail segment is expected to grow in double digits

while corporate book seen muted. Absence of treasury gains will not aid

profitability. Overall PAT is seen at | 469 crore; up 130% QoQ

Punjab National

Bank

For PNB, slippages are expected to moderate though overall NPA concern may

continue. Overall asset quality is expected to remain steady with GNPA ratio at

13.5%. Slippage from restructured book and performance on recovery front needs to

be watched. Aging of stressed assets and exposure to accounts referred to NCLT to

keep credit cost higher at ~70 bps (82% of PPP). Credit growth is expected to

remain in single digit at 3.1% YoY to | 405746 crore. Absence of treasury gains and

elevated provision is seen keeping profitability benign with PAT of | 419.7 crore; up

22% QoQ

State Bank of Axis Bank The bank has lower exposure at | 5000 crore to accounts referred to IBC. Further,

even to the fresh set of select companies referred by RBI in August, 2017 the

bank's exposure is only | 1843 crore (fund based) and | 649 crore (non fund based)

to 12 accounts. Around 35% of this exposure is already provided for. Overall asset

quality is expected to be steady like seen in Q1FY18. Slippages from outside the

watch list were higher last quarter. This needs to be watched. Led by retail

segment, advances growth is seen at 10% YoY. Margins are seen stable at ~3.6%

partly aided by savings rate cut. PAT is seen at ~| 1200 crore; up 2.7x YoY (due to

lower base last year) and down 8% QoQ.

City Union Bank Consistent conservative business growth to continue with credit and deposit

growing at 13.3% and 10% YoY, respectively. Margins are expected to hover in the

4.2-4.3% range. NII may grow 20% YoY to | 361 crore with flat QoQ other income.

With the management guiding on no lumpy NPA outlook, expect GNPA and NNPA

ratios to sustain at 1.8% and 0.4%, respectively, leading to contained provisions.

PAT may grow 20.8% YoY to | 149.5 crore

DCB Bank In the absence of treasury gains seen in the previous quarter, sequential growth in

other income is seen staying slower and CI ratio is also seen inching up QoQ at

59.2% vs. 57.2%. However, core operational performance is expected to continue at

healthy trajectory with credit growth at 22.5% YoY to | 17684 crore and

subsequent NII growth at 27.2% YoY to 242 crore. In anticipation of moderation in

slippages, GNPA ratio is seen staying contained at 1.76%. Credit cost is expected

to remain at previous quarter level of ~27% of PPP, healthy growth is seen in PAT

at 29% YoY at | 62 crore

HDFC Bank Decline in interest rates, particularly savings rate to support NII. Overall credit and

deposit may grow at 20% and 15% YoY with NII surging 22.5% YoY to | 9793 crore.

Retail book growth is moderating and is seen at 23% YoY growth while corporate

book may grow 26% YoY. Asset quality is expected to be largely stable after

reporting slippages from farm loans in Q1FY18. We expect stable margins at 4.4%

and PAT growth of 20.8 % YoY to | 4173 crore

Federal Bank Federal Bank has witnessed an improvement in its financials in the last five

quarters. Slippages reduced from> | 500 levels to ~| 250 crore except in the

previous quarter wherein it rose to ~| 400 crore. We expect slippages in Q2FY18

to be lower than seen in Q1FY18. Healthy NII growth of 17.5% YoY to | 853 crore is

expected led by strong credit growth of 23% YoY to | 79565 crore. Margins may

remain steady at 3.2% while PAT of | 241 crore is estimated (up 19.6% YoY)


C-D Ratio (Industry)

77.6

75.874.7

69.9

71.872.4 72.7

90.4

72.8 72.6

28.7 24.841.0

20

40

60

80

100

65

70

75

80

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

(%

)

CD Ratio Incremental CD Ratio (RHS)

Asset Quality (Coverage Universe)

7.2 7.3 7.58.0

4.0 4.0 3.94.3

0.0

2.0

4.0

6.0

8.0

10.0

Q2FY17 Q3FY17 Q4FY17 Q1FY18

(%)

GNPA ratio NNPA ratio

NPA trend (Coverage Universe)

PSB

Bank of Baroda 46373 0.4 19669 0.8

PNB 58121 0.7 34773 0.6

Private Banks

Axis Bank 22251 1.0 9961 2.0

City Union Bank 757 3.0 439 3.0

DCB 311 9.0 161 8.0

Federal Bank 1905 2.0 1114 5.0

HDFC Bank 7350 1.5 1995 -21.1

Indusind Bank 1412 11.0 585 15.0

J&K Bank 5841 3.5 2337 3.1

Kotak Mahindra Bank 3876 4.0 1849 4.0

Yes Bank 1446 6.0 573 5.0

Q2FY18E

GNPA (|

crore)

QoQ

Growth(%)

NNPA (|

crore)

QoQ

Growth(%)

* SBI estimates are for the consolidated entity


Exhibit 20: Company specific view contd. (Banks)

Jammu &

Kashmir Bank

For J&K Bank, moderation is expected in slippages. However, a robust recovery in

Q1FY18 remains unlikely. Therefore, GNPA ratio is expected to inch up to 11.5%.

High proportion of stressed assets and provision on NCLT exposure to keep credit

cost higher at 53 bps (72% of PPP), though lower compared to previous quarters.

Floating provision of | 349 crore and increased PCR at 70.3% provides comfort.

Credit growth is expected to remain flattish at | 47759 crore. With credit cost,

lower than previous quarter and steady operational performance, PAT is seen at |

75 crore

Kotak Mahindra

Bank

Expect continuance of steady performance on both asset quality as well as

earnings. Advances trajectory is expected to remain healthy at 18.5% YoY to |

149328 crore, led by retail segment. With margins seen stable at ~4.5%, NII

growth is expected at 18.8% YoY to | 2371 crore. Stable credit cost at ~15 bps,

with no major impact from exposure to NCLT referred accounts, is seen aiding

profitability. Asset quality is expected to remain steady with GNPA ratio at 2.6%.

The management's commentary on strategy on insurance business needs to

watched

Yes Bank Earnings growth is expected to continue at healthy pace at 26.8% YoY to | 1016

crore, led by 28.3% and 27.2% YoY growth in NII and other income respectively. On

the growth front, the advances trajectory is seen remaining robust at 30.2% YoY to

| 143471 crore. A recent cut in saving interest rates would aid stability in margins

at ~3.6-3.7%, though the impact will be fully visible from Q3FY18 onwards. Asset

quality is seen remaining steady with GNPA ratio at 1.01%, with bias towards

improvement on reversal of ~| 365.9 crore exposure to JP Associate out of total

exposure of | 911 crore

IndusInd Bank We expect IndusInd Bank's overall consistent performance to continue in Q2FY18E.

We expect growth of 25% YoY to | 123836 crore led by corporate finance segment.

In consumer finance, non vehicle segment like LAP and credit cards would continue

to drive growth. Margins are expected to be strong at ~3.8-3.9% range with partial

positive impact of savings rate cut. This would lead to NII growth of 26% YoY to |

1840 crore. PAT of | 873 crore is expected, up 24% YoY while asset quality should

remain largely steady



Exhibit 21: Company specific view (NBFCs)

LIC Housing

Finance

We expect advances growth of ~15.0% YoY (| 150760 crore) to be maintained.

Individual home loans (~96% of the portfolio) are also expected to increase 13.7%

YoY while developer loans traction is expected to be at higher rate YoY. Margins,

which had risen to ~3%, have fallen back to 2.5% levels in Q1FY18 owing to a rise

in NPAs. We expect NPAs to be lower than in Q1FY18. This, in turn, would support

NIMs at ~2.55%. PAT growth of 5% YoY to | 519 crore is estimated

Reliance Capital Demerger and listing of housing finance is over. It still continues to stay in

consolidated financials. NII may grow 26% YoY with strong loan book growth of

>50% in home and ~12% growth in commercial finance. Life insurance and

general insurance are expected to report an improvement in premium growth. AMC

is expected to report PBT of | 150 crore, AUMs are seen flat QoQ led by equity

market corrections and debt yields rising in September. Revenues are seen rising

16% YoY to | 5702 crore led by premium growth. PAT growth is estimated to be |

298 crore rising 18% YoY

HDFC Ltd In case of HDFC Ltd, credit growth is estimated to be steady at 15% YoY to |

316717 crore led by higher traction in corporate loans and ~13% YoY growth in

individual segment (~70% of portfolio). GNPA ratio is expected to be lower than

1.12% in Q1FY18. This would support reported margins at ~3.9-4%. NII growth of

19.6% YoY to | 2548 crore is estimated. Gains on sale of investments would be

muted in Q2FY18 while dividend income of >| 300 crore is expected. PAT is seen

at | 1818 crore, flat YoY and up 17% QoQ

Bajaj Finance For Bajaj Finance Q2 is seasonally a weak quarter compared to Q1 and Q3.

However, led by consumer finance segment, we estimate AUM will increase 34%

YoY to | 70000 crore. Healthy sales by e-commerce companies would support

AUM traction, which along with healthy calculated margins of ~9.5% could lead to

NII growth of 41% YoY | 1728 crore. Asset quality may stay healthy while

provisions are seen lower QoQ. PAT of | 544 crore is expected, up 33% YoY (down

10% QoQ)

Bajaj Finserv Bajaj Finserv’s consolidated revenue is expected to grow at a healthy pace of

22.2% YoY to | 7281 crore, while PBT is seen at | 1507 crore, up 22.3% YoY.

Among segments, AUM of lending business is expected to continue to grow at a

healthy pace of more than 30% YoY. Subsequently, topline and PBT of finance

segment is expected to grow 31.1% and 31.6% YoY, respectively. Seasonality and

higher retention in crop insurance is seen keeping healthy traction in general

insurance premium at 22% YoY. Pick up in rated individual new business premium

seen in Q1FY18, is expected to continue ahead. Total premium (new as well as

renewal) growth in life insurance is expected at 7% YoY. On profitability, PBT is

expected at | 232 crore. Overall PAT is expected at | 707 crore; up 22.8% YoY



Building materials

Re-stocking begins at dealer’s level…

The GST impact continued to weigh on the building materials

segment as significant de-stocking took place at the dealer’s level

during June-July 2017. However, recent media interaction of

various company managements indicates that things have

improved August 2017 onwards & a recovery has been seen.

Further, companies are expected to witness strong growth in

H2FY18E led by improvement in demand, re-stocking at dealer’s

level and implementation of e-way bill from October 1, 2017.

Overall, in Q2FY18E, our building material universe is expected to

post topline growth of 4.0% YoY to | 2674.3 crore.

We believe that in the long term, GST would be positive for

organised players as it would establish a level playing field & help

them gain market share from unorganised players who would now

come under the tax ambit. Currently, the organised segment

accounts for only ~50% in tiles industry and ~25% in plywood

industry, which could significantly rise over the next few years

given the GST implementation.

Tiles universe revenues expected to grow 3.5% YoY...

Our tiles universe is expected to post subdued sales volume

growth of 3.0% YoY to 29.4 MSM as sales would be impacted by

dealer de-stocking in the first half of Q2FY18. Hence, we expect

topline to grow moderately by 3.5% YoY to | 1114.0 crore.

However, we expect EBITDA margins to contract 120 bps YoY to

14.1% due to 200 bps YoY contraction in Kajaria’s EBITDA margins

to 18.0%. Hence, we expect the bottomline to de-grow 1.2% YoY to

| 86.6 crore.

Plywood universe revenues expected to grow 3.0% YoY...

With Century’s revenues expected to grow 5.1% YoY, we expect

the plywood universe’s topline to grow 3.0% YoY to | 921.7 crore.

EBITDA margins are expected to contract 70 bps YoY to 15.0% due

to higher input costs. Consequently, we expect the bottomline of

our plywood universe to de-grow 4.3% YoY to | 80.7 crore.

Exhibit 22: Estimates for Q2FY18E (Tiles) (| crore)

Revenue EBITDA PAT


Kajaria Ceramics 652.8 3.8 4.0 117.5 -6.4 13.3 61.9 -2.7 21.5

Somany Ceramics 461.2 3.1 38.4 39.2 0.3 198.3 24.6 2.7 309.9

Total 1,114.0 3.5 15.9 156.7 -4.8 34.1 86.6 -1.2 51.9

Company



Exhibit 23: Estimates for Q2FY18E (Plywood) (| crore)

Revenue EBITDA PAT


Century Plyboards 482.8 5.1 10.1 72.8 -3.9 19.1 43.6 -11.5 27.8

Greenply Industries 438.9 0.9 12.4 65.8 2.3 35.1 37.1 5.8 21.2

Total 921.7 3.0 11.2 138.5 -1.0 26.2 80.7 -4.3 24.7

Change (%)

Company



Exhibit 24: Estimates for Q2FY18E (Home Improvement) (| crore)

Revenue EBITDA PAT


Shankara Building 638.6 6.1 7.9 41.9 8.3 7.1 19.0 33.9 10.4

Total 638.6 6.1 7.9 41.9 8.3 7.1 19.0 33.9 10.4

Company



Topline & Profitability (Tiles universe)

1076

1025

1279

961

1114

0

300

600

900

1200

1500

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

3.0

6.0

9.0

12.0

15.0

18.0

(%

)


Topline & Profitability (Plywood universe)

894

783 934

829

922

0

250

500

750

1000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

4.0

8.0

12.0

16.0

20.0

(%

)


Sales Volume Trend (Tiles Universe)

16.6

15.9

19.3

16.4

17.2

11.9

11.2

15.6

9.3

12.3

4

8

12

16

20

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(M

SM

)

Kajaria Ceramics Somany Ceramics

Top pick of the sector

Shankara Building Products

Century Plyboards

Research Analyst

Deepak Purswani, CFA

[email protected]

Vaibhav Shah

[email protected]


Exhibit 25: Company specific view (Tiles coverage universe)

Company Remarks

Kajaria Ceramics Though sales in July 2017 were impacted by dealer de-stocking amid GST roll-out,

a recovery at the dealer’s level has started from August onwards. Consequently, we

expect sales volumes to grow moderately at 3.1% YoY to 17.2 million square metre

(MSM). Hence, the topline is expected to grow 3.8% YoY to | 652.8 crore. Further,

we expect EBITDA margins to decline 200 bps YoY to 18.0% due to the high base

effect (the company recorded EBITDA margins of 20% due to lower gas prices in

the base quarter). Consequently, we expect the bottomline to de-grow 2.7% YoY to

| 61.9 crore mainly due to EBITDA margin contraction

Somany

Ceramics

With sales impacted in July 2017 post GST implementation, the management has

mentioned that re-stocking has begun from mid-August onwards. Hence, we expect

Somany to post subdued volume growth of 2.9% YoY to 12.3 MSM. Consequently,

we expect the topline to grow 3.1% YoY to | 461.2 crore. Further, we expect

EBITDA margins to contract 30 bps YoY to 8.5% led by higher raw material costs

(60.9% in Q2FY18E vs. 60.7% in Q2FY17). Consequently, we expect the bottomline

to grow moderately at 2.7% YoY to | 24.6 crore


Exhibit 26: Company specific view (Plywood coverage universe)

Company Remarks

Century Plyboard With a steady improvement in the demand environment, we expect Century to post

a moderate topline growth of 5.1% YoY to | 482.8 crore. Its plywood and allied

division revenues are expected to grow 3.6% YoY to | 336.8 crore while laminates

and allied division segment is expected to post a topline growth of 5.7% YoY to |

103.5 crore. Further, we expect EBITDA margins to contract 140 bps YoY to 15.1%

mainly on account of a 310 bps YoY contraction in plywood & allied division EBIT

margin to 12% due to a hike in raw material costs. Hence, the bottomline is

expected to decline 11.5% YoY to | 43.6 crore led by EBITDA margin contraction

and higher effective tax rate (19% in Q2FY18E vs. 15.6% in Q2FY17)

Greenply

Industries

Greenply is expected to post flattish topline growth of 0.9% YoY at | 438.9 crore as

its plywood division revenues are expected to post 2.3% YoY de-growth to | 303.8

crore due to the impact of de-stocking in July, 2017. However, MDF revenues are

expected to grow strongly at 10.1% YoY to | 136.1 crore as it is not much impacted

due to destocking. Furthermore, we expect EBITDA margins to expand 20 bps YoY

to 15.0% led by 60 bps YoY improvement in plywood division margins to 11%.

Consequently, we expect the bottomline to grow 5.8% YoY to | 37.1 crore


Exhibit 27: Company specific view (Home Improvement coverage universe)

Company Remarks

Shankara Building

Products

We expect Shankara's topline to grow 6.1% YoY to | 638.6 crore led by robust

growth of 20% YoY to | 319.6 crore in its retail division. On the other hand, we

expect channel and enterprise division revenues to decline 5% YoY to | 319.0 crore

in line with the management's plan to reduce channel division revenues. With a

higher share of high margin retail division (50% share in Q2FY18E revenues vs.

44.2% in Q2FY17), we expect EBITDA margins to expand 20 bps YoY to 6.6%.

Overall, we expect its bottomline to grow robustly at 33.9% YoY to | 19.0 crore led

by the strong performance of retail division and lower interest expenses


Major News during Q2FY18 (Building materials)

The company has opened its 117th retail store at

Mysore admeasuring 22100 sq ft

The company has opened its 118th retail store at

Bangalore admeasuring 3000 sq ft

Shankara

Building

Products


Capital Goods

GST transition across EPC value chain to impact execution, working

capital during Q2FY18E

In Q2FY18E, we expect EPC companies to face interim headwinds in

execution and elongation of working capital cycle. The key reason for

the same is transition of sub contractor/vendor value chain in the GST

process. This may lead EPC companies to lend support to their vendor

base. Hence, this may impact the working capital in Q2FY18E. In turn,

the move may lead to some rise in interest cost. However, the same

may be contained till Q2FY18E.

EPC companies to report steady order wins

During Q2FY18E, companies like L&T and KEC International continued

their consistent streak of reporting order wins. L&T, in YTDQ2FY18, has

reported order wins of | 11745 crore (as announced on exchanges, we

have not included L1 position in the trans-harbour order). Orders have

mainly come in from sectors like power T&D, water, hydrocarbons, etc.

KEC continues to impress with order wins as it has won orders to the

tune of | 1024 crore for Q2FY18. On the positive side, Thermax has

reported a | 275 crore EPC order from export market. VA Tech Wabag

has also managed to bag order to the tune of | 386 crore order. Bhel,

on the negative side, failed to report an order win in the power

equipment space.

Margin expansion will drive profitability for EPC companies.

We expect EPC companies to post muted revenue growth of 3.9%YoY

(Lower execution from sub contractor will slow execution in Q2FY18E).

However, PAT is expected to grow by 9.6% YoY on back of expansion

in margins. Except BHEL and Thermax, we expect all EPC companies to

report strong double digit growth in absolute EBITDA. We expect

Bharat Electronics (BEL), Engineers India (EIL), KEC, L&T to report

EBITDA growth of 10.7%, 10.6%, 12% and 25.7% respectively. BHEL on

the other hand is likely to report EBITDA de-growth of 16.2% due to

lower execution and higher fixed costs. EIL, BEL will post robust

revenue growth of 27.4% and 15% YoY respectively on the back of

strong execution of all time high order book of ~| 7500 and ~| 42000

respectively.

Product base companies will put up a moderate show

For Q2FY18E, product based companies are expected to report 9.1%

YoY revenue growth. However, pressure on EBITDA margins is likely to

continue and the same is expected to contract by 50 bps to 16.1% for

the quarter. Consequently, absolute EBITDA is expected to grow by

only 0.8% in Q2FY18E. In terms of individual performance, bearings

companies like SKF, Timken and NRB are expected to report topline

growth of 10.4%, 9.1%, 12.3% respectively on back of healthy overall

growth of ~12% in the automobile segment. Grindwell is also expected

to report 9.4% YoY growth on back of healthy growth of 8% and 12% in

abrasive and ceramic segment, respectively. Operating margins for the

above companies is expected to be stable at 12-17%. For AIA

Engineering and Greaves Cotton, we expect profitability to decline by

18.6% and 9.5% respectively despite sales growth of 14.0% and 0.7%

due to continued marketing of new facility (in case of AIA engineering)

and higher input cost and lower utilization levels (in case of Greaves

Cotton) respectively. KSB pump is also likely to report 6.7% YoY

revenue growth; however profitability is likely to accelerate at 33.7%

YoY due to commissioning of the new facilities coupled with increase in

margins.


29890

30976 45844

27616

31375

0

10000

20000

30000

40000

50000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

(%

)


Trend in quarterly tenders (both PSU + private players)

50,000

100,000

150,000

200,000

250,000

300,000

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

(|

crore)

Q2FY18* = Tenders only for Jul-Aug 2017

Trend in segment wise tenders

353

106 111

175

217

265

49.67

141.82

196.96

20.79

99.31 96.42

0

50

100

150

200

250

300

350

400

Power

Distribution

Water Supply Railways

(|

billion)



L&T

KEC International

Analyst

Chirag Shah

[email protected]

Sagar Gandhi

[email protected]

mailto:[email protected]


Exhibit 28: Estimates for Q2FY18E (Capital Goods) (| Crore)

Revenue EBITDA PAT


AIA Engineering 603.5 14.0 5.9 132.8 -16.4 2.7 90.9 -18.6 3.4

Bharat Electronics 2,064.4 15.0 19.7 374.5 10.7 129.3 377.3 9.0 201.1

BHEL 6,335.3 -4.9 15.1 130.0 -16.2 LP 125.9 15.5 55.7

Engineers India Ltd 431.8 27.4 15.0 103.6 10.6 26.8 103.1 10.0 26.7

Greaves Cotton 442.4 0.7 8.9 61.6 -11.8 11.3 46.5 -9.5 12.9

Grindwell Norton 340.5 9.4 0.8 52.1 14.0 0.4 32.9 13.5 9.6

KEC Internnational 2,229.1 7.5 20.1 207.6 12.0 17.7 82.0 26.1 30.2

KSB Pumps 172.4 6.7 -18.0 17.2 35.8 -27.6 9.9 33.7 -35.9

L&T 15,497.6 5.4 11.2 1,367.2 25.7 41.6 878.8 8.0 8.0

NRB Bearings 201.8 12.3 12.6 32.1 13.3 17.1 18.4 12.5 45.0

Reliance Defence &

Engineering

180.0 83.3 9.2 16.2 41.0 30.0 -92.9 NA NA

SKF India 731.1 10.4 9.7 93.5 11.3 -0.1 66.3 10.0 3.2

Thermax Ltd 912.9 4.8 28.0 79.4 2.7 85.0 62.6 5.0 93.1

Timken India 308.2 9.1 2.8 52.1 9.6 22.9 32.6 9.3 48.9

Va Tech Wabag 924.2 18.9 38.2 72.1 23.3 72.4 31.4 22.3 275.3

Total 31,375.2 5.0 13.6 2,792.0 13.7 53.4 1,865.8 9.6 49.5

Change (%)

Company



Interest costs for EPC companies to rise higher than the revenue

growth,

We expect the interest costs for our coverage universe to increase by

6.5% YoY, which is higher than revenue growth of 3.9% for the

coverage. This is mainly on account of vendor/sub contactor support

given the value chain is still transiting through the implementation

process of GST. From a individual basis, we believe L&T will see a 6%

YoY growth in interest cost while KEC will witness a 5% rise in the

same in Q2FY18E (KEC over the last few quarters was witnessing

declining in interest costs). But going ahead, H2FY18, we expect the

trend in working capital and interest costs to normalise.


Exhibit 29: Company specific view : Capital Goods

AIA Engineering AIA is expected to report strong volume growth of 13.4% YoY to 58938 tonnes in

Q2FY18E. However, with aggressive marketing of new capacities, EBITDA margins

will suffer a decline of 800 bps YoY to 22%, which will lead to absolute PAT of |

132.8 crore vs. |158.7 crore in Q2FY17. Consequently, PAT is expected to decline by

18.6% YoY to | 90.9 crore.

Bharat

Electronics

We expect BEL to report topline growth of 15% YoY to | 2064.4 crore on the back of

continued execution of orders like Integrated Air command and control system, L70

gun upgrade, etc. EBITDA margins are expected at 18.1% for the quarter. PAT for

the quarter is likely to be | 377.3 crore, up 9% YoY mostly due to lower other income

for the quarter (on high base of Q2FY17).

Bhel Bhel has not won any significant power equipment order for Q2FY18E. We expect

revenues to decline by 4.9% YoY to | 6335.3 crore. The key monitorable would be

the movement of orders from non execution to execution category, which is likely to

decide revenue trajectory going ahead. EBITDA margins are expected to contract 20

bps to 2.1%. PAT is expected to grow by 15.5% YoY to | 125.9 crore on the back of

26% YoY jump in other income during Q2FY18E.

Engineers India We expect EIL to report topline growth of 27.4% YoY to | 431.8 crore on the back of

strong growth in both consultancy & LSTK segment. EBITDA margins are expected

at 24% vs. 27.7% YoY due to higher revenue booking in the turnkey segment. PAT is

expected to grow 10% YoY to | 103.1 crore

Greaves Cotton We expect the auto engine segment to report a muted performance for Q2FY18E. On

an consolidated basis, the revenues are expected to marginally grow by 0.7% YoY to

| 442.4 crore. Higher input costs and negative leverage will lead to margin

contraction of 200 bps to 13.9%. Muted sales and margin decline will lead to PAT

coming in at | 46.5 crore, down 9.5% YoY

Grindwell Norton GNL is expected to report topline growth of 9.4% YoY to | 340.5 crore on the back of

expected growth of 8% and 12% in abrasive and ceramic segment respectively.

EBITDA margins are expected to inch up to 15.3% vs.14.7% YoY due to higher

contribution from new high margin products. Accordingly, PAT is expected to grow

13.5% YoY to | 32.9 crore.

KEC International KEC has been witnessing consistent order wins across all business segments. It has

bagged orders of | 1024 crore in Q2FY18E, which makes its visibility even more

robust. However, ongoing transition of the EPC value chain with respect to GST

implementation will impact revenues and working capital in Q2FY18E. Hence, we

expect revenues to grow by 7.5% YoY to | 2229.1 crore. EBITDA margins are

expected to witness expansion of 40 bps YoY to 9.4%. On account of GST issues, we

expect interest costs to grow by 5.7% YoY (support to sub contractor/vendor chain).

Consequently, with margin expansion and normalisation of tax rate, we expect PAT

to grow by 26.1% YoY to | 82 crore.

KSB Pumps KSB Pumps is expected to report healthy performance in Q3CY17E primarily tracking

low base and stability of EBITDA margin profile. Net sales for the quarter are

expected at | 172.4 crore, up 6.7% YoY. Pump segment sales are expected at |

145.1 crore (up 10.8% YoY) while valves segment sales are expected flat at | 27.3

crore. EBITDA margins are expected to expand by 210 bps at 10%. This is largely

tracking double digit margin profile in H1CY17 and exceptionally low base in

Q3CY16. For Q3CY17E, EBITDA is expected at | 17.2 crore while PAT is expected at

| 9.9 crore, up 33.8% YoY

L&T We expect L&T to report muted growth of 5% YoY in revenues at | 15497.6 crore

given transition in the EPC value chain on account of GST implementation. In terms

of order inflows, L&T has announced orders wins of | 11745 crore (we have not

included L1 position in the trans harbour tender). Infrastructure segment revenues

are expected to grow by 13.4% YoY while power segment is expected to witness

49% YoY decline. EBITDA margins is excepted to expand by 140 bps to 8.8%. We

expect net working capital as % of sales deteriorate QoQ due to GST issues. PAT is

expected to grow 8% YoY to | 878.8 crore.



Exhibit 30: Company specific view : Capital Goods (Continued) eses

NRB Bearings NRB is expected to report double digit topline growth of 12.3% YoY to | 201.8 crore,

on the back of strong volume growth of 15% and 10% in two-wheeler and

commercial segment respectively. EBITDA margins are expected at 15.9% for

Q2FY18E vs. 15.8% in Q2FY17. PAT is expected to grow 12.5% YoY to | 18.4 crore.

Reliance Defence Reliance defence is expected to post higher revenues of | 180 crore for Q2FY18E on

the back of revenue booking of patrol boats delivered to Indian Navy in the quarter.

Better execution would lead to EBITDA margin improvement resulting in operating

profit of | 16.2 crore. Accordingly, we expect loss at PAT level to decrease to | 92.9

crore in Q2FY18E.

SKF India SKF is expected to deliver revenue growth of 10.4% YoY to | 731.1 crore. This is due

to mixed volume growth of 15%, 10% and 3.3% in the two-wheeler, commercial

vehicle and passenger segment, respectively. The industrial segment is likely to

witness 7% YoY growth on account of slow offtake of new product offerings in this

segment. We expect SKF to post stable EBITDA margins of 12.8% in Q2FY18E. PAT

is likely to grow 10% YoY to | 66.3 crore

Thermax The company has won a significant export order of $43 million or | 275 crore. This

coupled with decent order wins in Q1FY18 will now add to order backlog accretion

and revenue visibility. For Q2FY18E, we expect revenues to grow by 4.8% YoY to |

912.9 crore. EBITDA margins are expected to remain muted at 8.7% YoY. PAT is

expected to grow by 5% YoY at | 62.6 crore. Key monitorable would be performance

of TBW JV and Chinese subsidiary.

Timken India Timken is expected to report topline growth of 9.1% to | 308.2 crore. Higher single

digit topline growth is expected on the back of continued momentum in exports

growth of 12% YoY. Domestic performance is also likely to witness stable growth of

8% on the back of 10% growth in M&HCV segment in Q2FY18. EBITDA margins are

expected at remain stable at 16.9%. PAT is expected to increase 9.3% YoY to | 32.6

crore

VA Tech Wabag Wabag is expected to report strong topline growth of 18.9% YoY to | 924.2 crore on

the back of healthy execution in both domestic and overseas orders. The EBITDA

margin is expected 7.8% vs. 7.5% YoY. Absolute EBITDA is likely to grow 23.3% YoY

to | 72.1 crore. We expect PAT of | 31.4 crore for the quarter. We expect order

inflows of ~| 500 crore for the quarter.



Cement

Acquisitions, capacity expansion to drive volume growth

We expect cement demand to remain subdued in Q2FY18E mainly due

to the impact of monsoon and sand mining issue in many parts of India.

On the infrastructure side, tendering activities have also remained

lacklustre (down 10.5% YoY in Q1FY18, 7.1% YoY in July-August 2018).

On an organic basis, we expect companies under our coverage to

report flat to negative volume growth. However, considering the

acquisition of Jaypee by UltraTech, merger of Trinetra Cement by India

Cement and capacity expansion by various companies under our

coverage universe, we expect companies to report optically higher

volume growth. Considering this, companies in our coverage universe

are expected to register volume growth of 10.5% YoY in Q2FY18E.

Despite lean demand, prices remain firm YoY

As per our channel checks, prices in the west have improved 8.9% YoY

to | 305/bag mainly due to a healthy price rise in the Gujarat region.

Further, prices in the east have improved 5.4% YoY to | 269 per bag led

by higher infra spend. Prices in central and south are expected to

register growth of 1.4% YoY and 0.3% YoY, respectively, while North is

expected to report a price decline of 1.1% YoY. Overall, realisation at

the pan-India level has increased 3.3% YoY to | 316/bag. We expect

companies in our coverage universe to report 1.4% YoY increase in

realisation to | 4,774.

I-direct universe to report 11.7% YoY topline growth in Q2FY18E

Our coverage universe is expected to report 11.7% YoY increase in

cement revenues led by 10.5% YoY increase in volumes. Company

wise, we expect UltraTech and India Cement to report volume growth

of 21.6% YoY and 11.0% YoY mainly due to inorganic expansion.

However, Star Cement and Heidelberg Cement are expected to report

volume de-growth of 10.0% and 1.0% YoY primarily due to monsoon

and increased competitive intensity. The bottomline of our universe is

expected to decline 10.6% YoY to | 1,437.6 crore led by lower

operating margins and higher tax expenses.

Increased pet coke prices, diesel prices to dent EBITDA/tonne

Q2 being a lean season, cement companies undertake maintenance

work in this quarter, which results in higher other cost. This coupled

with higher pet coke prices (impact of | 80-90/t) and increase in freight

cost is expected to keep EBITDA/t under pressure. Consequently, we

expect companies under our coverage universe to report 9.7% YoY

decrease in EBITDA/tonne to | 799/t.

Exhibit 1: Estimates for Q2FY18E (| Crore)

Revenue EBITDA PAT


ACC^ 2,616.3 5.8 -17.5 234.2 4.0 -48.8 144.6 76.4 -42.4

Ambuja^ 2,087.7 4.2 -24.5 289.0 4.7 -53.5 253.9 -8.4 -39.3

Heidelberg 384.4 0.0 -24.0 49.5 -17.2 -44.7 12.4 -25.1 -65.0

India Cement * 1,407.9 7.7 -2.2 179.8 -19.9 -17.3 25.1 -59.8 -56.3

JK Cement 1,009.2 10.8 2.7 157.1 7.4 -15.8 48.1 16 -37

JK Laxmi Cement 719.4 9.7 -17.2 96.0 2.5 -26.1 19.2 -22.9 -43.3

Mangalam Cement 198.2 4.6 -25.7 22.9 2.4 -49.0 4.6 45.7 -75.9

Ramco Cements 1,033.7 1.7 0.5 286.6 -18.8 -1.3 144.1 -30.4 -7.5

Shree Cement * 2,452.4 8.8 -12.2 596.1 -9.2 -21.4 334.6 14.8 -18.4

Star Cement 332.4 -8.8 -28.6 61.5 4.4 -41.3 13.5 1,889.4 -67.0

UltraTech Cem 6,691.9 24.0 -2.4 1,188.4 8.6 -22.1 437.5 -27.2 -46.7

Total 18,933.5 11.7 -10.4 3,161.1 -1.5 -28.6 1,437.6 -10.6 -38.0

Company


Source: Company, ICICIdirect.com research ^Q3CY17 result


16956

17477

20526

21196

18934

0

4000

8000

12000

16000

20000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

(%

)


All-India quarterly cement dispatches

20

30

40

50

60

70

80

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

million t

onnes

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

%

Cement dispatches (LHS) YoY growth (RHS)

Monthly production growth YoY (%) – Till Aug 2017

-15.8

-5.2

-0.4

-6.3

-2.0

-1.3

9.2

13.5

2.7

10.5

0.7 3

.1

6.2

-13.3

-6.0

11.9

4.3 6.6

0.5

-20.0

-10.0

0.0

10.0

20.0

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2017 2016

2015


Ambuja

Research Analyst

Rashesh Shah

[email protected]

Devang Bhatt

[email protected]


Exhibit 2: Company specific view

Company Remarks

ACC ACC is expected to report volume growth of 5.3% YoY in Q2FY18 mainly led by

capacity expansion in the east (2.8 MT in Jamul). This coupled with realisation

growth of 0.5% YoY is expected to result in topline growth of 5.8% YoY. The

EBITDA/t is expected to decline 1.2% YoY to | 439/t mainly due to higher freight

(driven by rise in diesel prices) and other expenses (led by higher maintenance

cost). Further, PAT is expected to increase by 76.4% YoY mainly led by higher

other income

Ambuja Cement Although monsoon and sand mining issues are expected to impact Ambuja's

volume growth (down 0.3% YoY), we expect the company to report healthy growth

in realisation (up 4.5% YoY) mainly due to a price improvement in key market i.e.

west. EBITDA/tonne is expected to increase 5.1% YoY to | 644/t. However, PAT is

expected to decline 8.4% YoY mainly led by higher tax expenses and lower other

income

UltraTech

Cement

The acquisition of Jaypee Associate is expected to drive UltraTech's volume

growth (up 21.6% YoY). As a result, the topline is expected to grow 24.0% YoY in

Q2FY18E. However, we expect EBITDA/t to decline 10.7% YoY mainly due to lower

EBITDA/t at Jaypee associate (~|400/t vs. UltraTech's organic average of |

1000/t). Further, PAT is expected to decline 27.2% YoY to | 437.5 crore primarily

led by higher interest and depreciation expenses

Shree Cement In Q2FY18E, cement revenues are expected to increase 11.3% YoY driven by 10.1%

YoY rise in volumes and 1.2% YoY increase in realisation. However, we expect

power revenues to decline 17.8% YoY mainly led by 25.7% YoY dip in power

volumes. Shree Cement’s blended EBITDA/t is expected to decline 17.5% YoY

mainly led by a fall in power margins (down from 31.9% to 14.6% in Q2FY18E).

Cement EBITDA/t is expected to decline 12.4% YoY to | 1,140/t due to higher

freight cost. However, PAT is expected to increase 14.8% YoY mainly led by lower

depreciation expenses

India Cement We expect India Cement to report volume growth of 11.0% YoY primarily due to

merger of Trinetra Cements. However, on an organic basis, we expect the

company to report flattish volume growth. Further, we expect EBITDA/tonne to

decline from | 892/t to 645/t in Q2FY18E due to lower margins in Trinetra Cements

and higher power cost. PAT is expected to decline 59.8% YoY driven by higher

depreciation expenses

JK Cement The company's grey cement revenues are expected to increase 12.7% YoY due to

7.7% YoY increase in volumes and 4.7% YoY increase in realisation. In terms of

white cement, revenues are expected to increase 7.1% YoY mainly led by capacity

expansion. The blended EBITDA/t is expected to be flat YoY to | 757/t primarily

due to 29.8% YoY increase in grey cement EBITDA/t was partially offset by 18.6%

YoY decline in white cement EBITDA/t. PAT is expected to increase 16.0% YoY

driven by lower interest expenses

JK Lakshmi

Cement

We expect JK Lakshmi to report a topline growth of 9.7% YoY primarily due to

8.3% YoY increase in volumes (driven by 0.9 MT capacity expansion at Durg) and

1.4% YoY rise in realisation (due to better pricing in east and west). However, we

expect EBITDA/t to decline 5.3% YoY due to higher pet coke prices and freight

cost/t. PAT is expected to decline 22.9% YoY mainly led by higher tax expenses

and lower other income

Mangalam

Cement

Capex (0.75 MT in Aligarh) is expected to result in volume growth of 5.2% YoY in

Q2FY18E. However, realisation is expected to decline by 0.5% YoY mainly led by

poor pricing environment in the north. Further, we expect EBITDA/t to decline 2.7%

YoY to | 449/t mainly led by higher power cost. However, PAT is expected to

increase 45.7% YoY due to lower tax expenses


Sales volume (Coverage Universe)

Million tonnes Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%)

ACC 5.3 5.1 5.3 6.7 -20.8

Ambuja 4.5 4.5 -0.3 6.1 -25.9

UltraTech* 13.6 11.2 21.6 13.2 3.0

Shree Cem 5.0 4.6 10.1 5.9 -14.6

India Cem 2.7 2.4 11.0 2.7 0.3

JK Cement* 2.1 1.9 7.9 2.1 -0.7

JK Lakshmi 1.9 1.7 8.3 2.3 -18.5

Mangalam 0.5 0.5 5.2 0.6 -19.0

Heidelberg 1.0 1.0 -1.0 1.1 -10.0

Star Cement 0.5 0.6 -10.0 0.7 -23.7

Ramco Cement 2.1 2.0 4.0 2.2 -1.8

Total 39.2 35.5 10.5 43.5 -9.9

* blended sales volume (grey & white)

RE

Region-wise cement retail prices

|/50 kg bag Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

North 282 285 -1.1 296 -4.7

East 269 255 5.4 282 -4.7

South 354 353 0.3 365 -2.9

West 305 280 8.9 324 -5.8

Central 300 296 1.4 309 -2.8

North East 389 370 5.1 396 -1.8

Average 316 307 3.3 329 -3.7

Cement Realisations (Coverage Universe)

| per tonne Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%)

ACC 4902 4877 0.5 4915 -0.3

Ambuja 4654 4454 4.5 4667 -0.3

UltraTech 4922 4827 2.0 5020 -2.0

Shree Cem^ 4562 4510 1.2 4703 -3.0

India Cem^ 5257 5391 -2.5 5452 -3.6

JK Cement* 4868 4742 2.6 4988 -2.4

JK Lakshmi 3868 3816 1.4 3949 -2.0

Mangalam 3887 3906 -0.5 4032 -3.6

Heidelberg 3883 3842 1.1 3922 -1.0

Star Cement 6152 6086 1.1 6360 -3.3

Ramco Cement 4635 4778 -3.0 4607 0.6

Average 4774 4709 1.4 4840 -1.4

* Blended realisations (grey cement +white cement), ^ including

excise duty

EBITDA per tonne (Coverage Universe)

| per tonne Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%)

ACC 439 444 -1.2 736 -40.4

Ambuja 644 613 5.1 1013 -36.4

UltraTech* 874 978 -10.7 1182 -26.0

Shree Cem 1140 1301 -12.4 1157 -1.5

India Cem 645 892 -27.8 696 -7.4

JK Cement* 757 761 -0.5 947 -20.0

JK Lakshmi 516 545 -5.3 527 -2.1

Mangalam 449 461 -2.7 642 -30.1

Heidelberg 500 598 -16.4 522 -4.2

Star Cement 1137 980 16.1 2243 -49.3

Ramco Cement^ 1358 1740 -22.0 1351 0.5

Average 799 884 -9.7 1012 -21.1

*blended (grey + white), ^Blended (Cement +Power)



Company Remarks

Heidelberg

Cement

Increase in competitive intensity in the central region (led by ramp up in capacity

utilisation of Jaypee associates) is expected to negatively impact Heidelberg’s

volume growth (down 1.0% YoY). However, 1.1% YoY increase in realisation will

help the company report flat revenue growth in the quarter. We expect EBITDA/t to

dip from | 598/t to | 500/t due to higher fixed cost. In addition, PAT is expected to

decline 25.1% YoY mainly led by a poor performance at the operating level

Star Cements Monsoon is expected to adversely impact Star Cement's volume leading to decline

of 10.0% on YoY basis. Consequently, we expect topline to decline by 8.8% YoY in

Q2FY18E. However, EBITDA/t is expected to increase from | 980/t to | 1,137/t

mainly led by cost rationalisation. Further, PAT is expected to increase from | 0.7

crore to | 13.5 crore mainly due to lower interest expenses and lower minority

interest (due to reverse merger)

Ramco Cement We expect Ramco Cement to register volume growth of 4.0% YoY mainly due to

increased penetration in the eastern region. However, a realisation dip of 3.0% YoY

is expected to limit topline growth to 1.7% YoY. Further, we expect EBITDA/t to

decline 22.0% YoY to | 1,358/t driven by higher power cost (primarily due to higher

pet coke prices and absence of low cost inventory) and freight cost. In addition,

we expect PAT to decline from | 207.0 crore to | 144.1 crore mainly led by higher

tax expenses



Construction & Roads

NHAI confident of achieving yearly target despite slow start…

Owing to land acquisition issues, NHAI has awarded/constructed only

165 km/670 km in Q1FY18. However, NHAI is confident of exceeding its

FY18 awarding/construction target of 6500 km/3500 km. On fund raising

front, NHAI has already raised | 19880 crore including | 8500 crore

from LIC & | 5000 crore from EPFO till August, 2017. NHAI’s board has

approved monetisation of operational highway projects under which, 9

highway projects will be auctioned by October, 2017 end, which would

generate | 6700 crore. NHAI’s fund raising coupled with recent pick-up

in tendering activity should result in strong awarding activity ahead

which bodes well for EPC players.

Tendering activity in road sector improves in July-August 2017…

On the tendering side, there has been a slowdown in Q1FY18 as overall

tenders fell 10.5% YoY to | 1.7 lakh crore while road tenders fell 14.8%

YoY to ~| 62277 crore. On the other hand, during July-August 2017,

the tendering activity in the road division has picked up significantly

with road tenders growing robustly at 46.2% YoY to ~| 40909 crore.

However, overall tenders declined trend with 7.1% YoY decline in July-

August 2018 to ~| 1 lakh crore largely on account of a decline in power

distribution tenders. We believe this could be a temporary blip & should

revive H2FY18E onwards on the back of government’s renewed focus

on infrastructure development.

Road universe revenues to grow 14.2% YoY…

We expect revenues of our road universe to grow 14.2% YoY to

| 3093.1 crore led by 62.6% YoY growth in Ashoka’s revenues to

| 719.7 crore in Q2FY18E. Further, our construction universe is

expected to report moderate growth of 6.7% YoY in revenues to

| 4752.8 crore led by 13.2% YoY growth in NBCC’s topline.

PAT of our road universe to grow robustly by 24.6% YoY…

Our road universe is expected to post PAT growth of 24.6% YoY to

| 300.7 crore led by 37.7% YoY growth in IRB’s bottomline due to lower

depreciation and interest expenses. Our construction universe

bottomline is expected to remain flattish at | 135.5 crore, given the

seasonally weak quarter impacted by heavy monsoon.

Exhibit 4: Estimates for Q2FY18E (Road) (| Crore)

Revenue EBITDA PAT


Ashoka Buildcon 719.7 62.6 -0.4 93.6 34.1 -4.1 59.0 30.1 -4.8

IRB Infra 1,336.7 3.6 -26.4 628.1 -11.4 -23.2 195.8 37.7 -17.7

PNC Infratech 351.7 -2.3 -1.4 45.7 -1.4 -12.2 23.1 -34.4 -22.7

Sadbhav Eng. 685.0 11.3 -27.5 75.4 15.3 -29.4 22.7 22.8 -59.0

Total 3,093.1 14.2 -19.5 842.7 -5.4 -21.5 300.7 24.6 -21.9

Change (%)Change (%) Change (%)

Company


Exhibit 5: Estimates for Q2FY18E (Construction) (| Crore)

Revenue EBITDA PAT


NBCC 1,413.8 13.2 11.6 84.2 16.8 29.8 69.2 2.9 23.7

NCC 2,019.8 3.7 0.3 171.5 0.3 0.3 55.1 7.8 -13.1

Simplex Infra 1,319.2 5.0 -12.7 152.1 -4.8 -12.0 11.2 -37.3 -61.1

Total 4,752.8 6.7 -0.8 407.8 1.2 -0.2 135.5 -0.5 -8.5

Company



Topline & profitability (Road Coverage)

2709 3

263

3621

3841

3093

2000

2500

3000

3500

4000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

(%

)


Topline & profitability (Construction Coverage)

4453

4711 6035

4792

4753

0

1300

2600

3900

5200

6500

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

2.0

4.0

6.0

8.0

10.0

12.0

(%

)


Strong pickup in tendering activity…

27,983

52,459

118,209

129417

62,277

40909

110,018

167,958

215,019

252,700

169,831

102222

0

100,000

200,000

300,000

July-Aug'

16

Q2FY17 Q3FY17 Q4FY17 Q1FY18 July-Aug'

17

(|

crore)

Road Tenders Total Tenders


NCC

Sadbhav Engineering

Research Analyst


[email protected]

Vaibhav Shah

[email protected]


Exhibit 6: Company specific view (Road coverage universe)

Company Remarks

Ashoka Buildcon We expect Ashoka Buildcon to report stellar revenue growth of 62.6% YoY to |

719.7 crore on account of a lower base and strong execution. On a QoQ basis,

revenues are expected to decline 4.1%. Furthermore, we expect EBITDA margin to

contract 280 bps YoY to 13.0% due to high base impact. On the profitability front,

we expect PAT to grow robustly at 30.1% YoY to | 59.0 crore.

Key monitorable: Management guidance on execution and status of real estate

project

IRB Infrastructure We expect topline to grow moderately by 3.6% YoY to | 1336.7 crore as toll

revenues are expected to decline 26.5% YoY to | 412.9 crore following the transfer

of six projects to IRB InVIT. Also, we have not factored in transfer of Amritsar-

Pathankot to IRB InVIT. We expect construction revenues to grow robustly at 26.7%

YoY to | 923.8 crore. Further, we expect EBITDA margins to contract significantly

by 790 bps YoY to 47.0% as the share of comparatively lower margin construction

division has increased from 56.5% in Q2FY17 to 69.1% in Q2FY18E. However, the

bottomline is expected to grow robustly at 37.7% YoY to | 195.8 crore led by lower

depreciation and interest expenses as six projects have moved out from IRB's

balance sheet.

Key monitorable: Management guidance on order inflow

PNC Infratech With strong order inflow during the quarter, PNC's orderbook is at record high of

~| 11000 crore (including L1 orders). However, due to a delay in land acquisition,

the company has been unable to get appointed dates, which are expected to come

through in H2FY18. Consequently, we expect PNC's topline to de-grow 2.3% YoY to

| 351.7 crore. EBITDA margins are expected to expand 10 bps YoY to 13.0%.

However, we expect the bottomline to de-grow 34.4% to | 23.1 crore due to higher

effective tax rate (10% in Q2FY18E vs. 5.2% in Q2FY17).

Key monitorable: Management commentary on execution pick-up

Sadbhav

Engineering

With strong orderbook position at ~| 8600 crore (2.4x its TTM revenues), we

expect Sadbhav Engineering's execution to further improve. Consequently, we

expect Sadbhav's topline to grow robustly by 11.3% YoY to | 685.0 crore in

Q2FY18E. Furthermore, EBITDA margins are expected to expand 40 bps YoY at

11.0%. Consequently, we expect bottomline to grow at 22.8% YoY to | 22.7 crore

led by topline growth and margin expansion.

Key monitorable: Improvement in execution.


Road Coverage Universe

Interest expense* trend

13.9

11.5

10.7

8.8

9.7

6.0

9.0

12.0

15.0

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%)

*Interest Expenses as %age of Sales

Major news during Q2FY18

Ashoka

Buildcon

Ashoka has received extension in concession

period by a year i.e. up to September 9, 2018 for

its Ahmednagar-Aurangabad project from Public

Works Department of Maharashtra.

IRB

Infrastructure

IRB has achieved financial closure of its Udaipur-

Gujarat border six laning BOT project. The total

project cost is | 2088 crore of which equity

contribution in | 627 crore & it has tied up for

debt worth | 1461 crore with average cost of

10.65%

Udaipur Tollway, a wholly-owned subsidiary of

IRB has received the appointed date. Accordingly,

the SPV has started toll collection and also

construction on the Project from September 3,

2017

Sadbhav

Engineering

Sadbhav has won two EPC orders which include

upgradation to 6 lane with paved shoulders of

Sayla - Bamanbore section of NH 8A (38.1 km)

worth | 396 crore and upgradation to 6 lane with

paved shoulders of Bagodara - Limbdi section of

NH 8A (43 km) worth | 504 crore

MMRDA opened bids for four packages to be

awarded under Line 2B, which connects DN

Nagar to Mandale, and another five packages

under Line 4 for the Wadala to Kasarvadavli

stretch. The total project cost of these two lines

is estimated to be over | 25000 crore of which

L&T and Reliance Infrastructure are set to bag

orders worth | 1300 crore each

Road Sector

Media reports indicated that MoRTH (Ministry of

road, transport and highways) is looking to raise

| 15,000 crore by issuing National Highways

Authority of India (NHAI) bonds to the EPFO in

three tranches at an interest rate of 8.3% per

annum. The amount raised will be used for

highway expansion and bypass construction

projects

In an attempt to raise ~| 10 trillion for large

infrastructure projects, the government is looking

at measures including a public listing for state run

National Highways Authority of India (NHAI).

NHAI chairman mentioned that they are waiting

for ratings and once they are declared, they

would be ready to launch IPO and is confident of

launching it this year itself


Exhibit 7: Company specific view (Construction coverage universe)

Company Remarks

NBCC We expect NBCC's topline to grow 13.2% YoY to | 1413.8 crore led by strong

growth of 15.2% YoY to | 1291.9 crore in its PMC division revenues. EBITDA

margins are expected to expand 20 bps YoY to 6.0%. However, we expect

bottomline to grow moderately at 2.9% YoY to | 69.2 crore despite strong topline

growth and margin expansion, due to higher effective tax rate (33.0% in Q2FY18E

vs. 27.7% in Q2FY17)

Key monitorable: Execution ramp up in big ticket re-development projects

Simplex

Infrastructure

The company is looking to raise money via QIP route, which would improve its

working capital position and boost execution in future. However, with stretched

working capital cycle, we expect Simplex Infrastructure's revenues to grow

moderately by 5.0% YoY to | 1319.2 crore. Furthermore, we expect its EBITDA

margins to stay at 11.5%. We expect Simplex's bottomline to de-grow 37.3% YoY to

| 11.2 crore.

Key monitorable: Management commentary on working capital improvement and

debt reduction

NCC Ltd NCC's topline is expected to remain flat YoY at | 2019.8 crore in Q2FY18E led by

moderate execution during the quarter. Furthermore, EBITDA margins are expected

to contract 30 bps YoY to 8.5% led by higher construction expenses (12.4% of sales

in Q2FY18E vs. 11.4% in Q2FY17). Overall, we expect bottomline to grow

moderately by 2.7% YoY to | 55.1 crore.

Key monitorable: Management commentary on debt reduction


Construction Coverage Universe

De-leveraging on top of mind of construction

players…

4.9 5.0

3.6

4.2 4.2

2.0

3.0

4.0

5.0

6.0

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%

)

*Interest Expenses as %age of Sales

Major News during Q2FY18

Infrastructure

sector

Government has cleared the new metro policy,

which will focus on innovative models of

implementation and financing, as well as

standardisation and indigenisation of hardware

and software to create jobs locally

According to a flash report by the Ministry of

Statistics and Programme Implementation, 322

infrastructure projects worth | 150 crore or

above each have seen cost overrun of | 1.71 lakh

crore due to delays and other reasons by March

2017

Media reports indicate that NBCC is in initial and

informal talks with the Finance Ministry as well

as lenders to Jaypee Infratech to complete the

construction of 27 stalled residential projects

with 30000 buyers in Noida and Greater Noida

NBCC has awarded two projects viz:- (i)

Redevelopment of ITPO Complex at Pragati

Maidan to joint venture of Shapoorji Pallonji &

Shapoorji Pallonji Qatar W.L.L for ~| 2150 crores

and (ii) Canal work including cross drainage

structures & design for Gosikhurd National

Project in Bhandara, Maharashtra to Punj Lloyd

for ~| 870.2 crore

NBCC

Media reports indicate NBCC may get orders for

redevelopment of 40 railway stations

NBCC is looking to launch about 1,000 flats for

sale in this festival season including Delhi-NCR in

the price range of | 15 lakh to | 1 crore. It is also

in discussion with the government to develop

affordable housing projects on surplus land with

PSUs

NBCC has received a letter of intent from

Department of Customs and Excise, Government

of India for planning, designing & construction of

office complex and residential quarters at

customs enclave plot, Wadala amounting to ~|

3200 crore on self-revenue generation model


Consumer Discretionary

Post GST re-stocking of inventory to drive sales

Amid the GST impact subsiding gradually, the I-direct consumer

discretionary (CD) universe is likely to record sales growth of ~12%

YoY during Q2FY18 led by volume growth (in the range of 7% to 15%).

The volume growth would be mainly due to restocking of inventory at

the dealer’s level, which was completely drained before the

implementation of GST. Companies that were refraining from taking

price hikes during the period of GST implementation, have taken a price

increase during Q2FY18 to offset higher GST rate (for goods like wire &

cable, fans, paints, plastic furniture). Our dealer check suggests that

decorative paints volume is likely to increase ~6% while industrial

paints is likely to increase ~14% YoY. We believe there would be a

sharp recovery in performance of Symphony after poor performance

during Q1FY18. Company is likely to post sales growth of 18% YoY led

by ~13% YoY volume growth while realisation growth would be largely

on account of lower discounts offered in newly launched products.

Further, sharp growth in industrial paint volume (I-direct estimate:

~14% YoY) would help drive sales growth of Kansai Nerolac during

Q2FY18.

Change in product mix coupled with higher base to weigh on margin

The EBITDA margin of I-direct CD universe is expected to decline ~55

bps led by ~150 bps YoY decline in EBITDA margin of Havells India due

to consolidation of Lloyd’s CD business. Despite the price hike, paint

companies are expected to face pressure on gross margin on account

of higher titanium dioxide prices (which were up 19% YoY, down ~8%

QoQ) in Q2FY18. Further, EBITDA margin of Voltas is likely to decline

~110 bps YoY owing to lower profitability from the cooling product

segment as the company has absorbed higher GST rate of ~2

percentage points (pp) during Q2FY18. Finally, I-direct CD universe PAT

is likely to increase ~8% YoY led by ~28% YoY growth in PAT of each

Symphony and Astral Poly.

Structural reforms like GST to benefit CD companies in long run

We expect a strong recovery in demand of consumer goods in H2FY18

as the GST transition period gets over. The discounts offered by

dealers/retailers to clear old inventory have created substantial vacuum

for re-stocking of consumer products. Also, strong fundamentals

coupled with a shift in demand from unorganised to organised category

(due to GST) would benefit organised players in the long run. We

believe CD universe will command premium valuations on sustained

volume growth owing to increasing power availability, good monsoons

and rising disposable income.

Exhibit 8: Estimates for Q2FY18E (Consumer Discretionary) (| Crore)

Company Revenue EBITDA PAT


Asian Paints 4,557.7 7.7 7.8 756.6 6.1 13.7 522.2 5.5 18.5

Astral Poly Technik 504.5 15.5 23.9 70.1 24.1 44.7 38.7 28.5 55.8

Bajaj Electricals 1,038.6 3.3 0.9 46.2 2.1 2.1 21.3 28.1 4.1

Essel Propack 668.0 12.1 14.5 94.4 -15.3 -20.0 49.8 -5.9 42.2

Havells 1,896.9 30.6 2.0 237.1 16.6 37.5 160.5 10.1 32.2

Kansai Nerolac 1,124.4 12.2 -4.2 213.5 7.7 3.0 151.4 8.7 7.5

Pidilite Industries 1,703.2 11.4 2.0 345.2 7.0 7.5 253.7 9.7 12.0

Supreme Industries 976.9 11.2 -15.9 140.8 9.4 -11.3 70.4 6.3 -10.2

Symphony 178.1 18.4 37.3 60.3 17.7 210.3 50.1 27.6 108.5

V-Guard Industries 534.8 8.0 -4.4 52.7 -1.3 61.3 38.6 -1.9 65.9

Voltas Ltd 1,039.6 5.9 -47.2 61.5 -10.4 -71.0 81.9 13.5 -56.4

Total 14,222.7 11.5 -3.7 2,078.4 6.5 3.9 1,438.5 8.3 8.7


Source: Company, ICICIdirect.com Research, Essel Propack PAT is adjusted with one time impact during Q2FY17


12760

13361

15070

14771

14223

0

2000

4000

6000

8000

10000

12000

14000

16000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

4.0

6.0

8.0

10.0

12.0

14.0

16.0

(%

)


EBITDA margin (%) movement

EBITDA margin Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

Asian Paints 16.8 17.8 16.2 15.7 16.6

Kansai Nerolac 19.8 18.0 17.4 17.7 19.0

Pidilite Ind 21.1 20.2 18.4 19.2 20.3

Essel Propack 18.7 16.4 18.9 17.5 17.8

Havells 14.0 12.7 13.4 9.3 12.5

Bajaj Ele 4.5 6.4 5.8 4.4 4.4

V-Guard 10.8 8.4 9.5 5.8 9.8

Voltas 7.0 7.4 10.8 10.8 5.9

Supreme Ind 14.7 16.3 18.9 13.7 14.4

Astral Poly 12.9 14.1 15.4 11.9 13.9

Symphony 34.1 37.3 26.9 15.0 33.9

Titanium dioxide (|/kg) price trend

0

50

100

150

200

250

300

350

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

(|

/kg)

58

60

62

64

66

68

70

(|

vs $

)

TiO2 Price | movement

Top Pick

Symphony

Research Analyst

Sanjay Manyal

[email protected]

Hitesh Taunk

[email protected]


Exhibit 9: Company specific view for Q2FY18E

Company Remarks

Asian Paints APL is likely to record sales growth of ~8% YoY to~| 4558 crore in

Q2FY18 led by 6.5% YoY volume growth. Post GST, restocking of

inventory at dealer’s level helped drive volume growth during Q2. On the

other hand, an increase in raw material prices (TiO2 prices up 23% YoY)

would be partly offset by a price hike to the tune of 1.5% YoY. We believe

the company will record flattish EBITDA margin of 16.6% (vs. 16.8% in

Q2FY17). PAT is expected to see a marginal growth of 6% YoY to ~| 522

crore

Astral Poly Technik Post GST, restocking of inventory is expected to lead to growth in gross

sales of the piping and adhesive division of APTL by 17% and 15% YoY to

| 419 crore and | 150 crore, respectively. This is largely due to

commencement of new capacities. As a result, consolidated sales are

likely to go up ~16% YoY to | 505 crore in Q2FY18E. Better utilisation

level coupled with a change in the product mix is expected to lead to an

expansion in EBITDA margin by ~100 bps YoY to 13.9% in Q2FY18.

Finally, PAT is likely to increase ~29% YoY at ~| 39 crore

Bajaj Electricals BEL is likely to record sales growth of ~3% YoY to ~| 1039 crore during

Q2FY18, led by ~5% YoY increase in sales of consumer durable (CD)

segment (to | 600crore). However, the growth in CD segment would

partly offset by muted performance by E&P segment (to | 438 crore)

during Q2FY18. We believe CD sales would be on the back of lower base

and steady growth in the coverage of dealers (through RREP). Further,

EBITDA margin is likely to flat at ~4.4% owing to flattish sales of the E&P

segment. PAT is likely to grow 28% YoY~| 21 crore supported by ~11%

YoY drop in interest outgo

Essel Propack The company is likely to record sales growth of ~12% YoY to | 668 crore

during Q2FY18E led by 35% YoY growth in Europe regions to | | 119

crore (due to acquisition of Essel Deutschland Gmbh). However, sales

from Amesa and America regions are likely to grow at a moderate rate of

8% YoY to | 277 crore and | 137 crore, respectively, owing to lower

customer offtake. EBITDA margin is likely to decline 90 bps YoY to 17.8%

due to an increase in employee cost. Adjusted PAT is likely to decline 6%

YoY to ~| 50 crore

Havells India Havells is likely to post sales growth of ~31% (including Lloyd) YoY to

~| 1897 crore in Q2FY18E supported by ECD segment, which is

expected to record strong sales growth owing to addition of Lloyd.

However, ex-Lloyd, sales is likely to clock growth of 12% YoY to | 344

crore supported by restocking of consumer goods at the dealer’s level.

Further, a price hike in the industrial products category (owing to higher

GST rate and raw material prices) would help in increase in sales of

industrial product (cable & wire and switchgear) by ~9% YoY. EBITDA

margin is likely to decline ~150 bps YoY to 12.5% owing to Lloyd's lower

margin business. PAT is likely to grow ~10% YoY to ~| 161 crore

Kansai Nerolac The company is likely to record sales growth of ~12% YoY to ~| 1124

crore in Q2FY18E led by volume growth of ~10% YoY. Restocking at

dealer’s level would help drive decorative volume growth while industrial

paint demand is likely to be driven by better-than-expected auto volume

growth. EBITDA margin is likely to decline 80 bps YoY to 19% owing to a

higher base and change in product mix. PAT is likely grow 9% YoY to ~|

151 crore


Volume growth movement of paint companies

0.0

5.0

10.0

15.0

20.0

Q4FY15

Q2FY16

Q4FY16

Q2FY17

Q4FY17E

Q2FY18E

Asian Paints Kansai Nerolac


Exhibit 10: Company specific view for Q2FY18E

Pidilite Industries Pidilite is likely to record consolidated sales growth of ~11% YoY to |

1703 crore in Q2FY18E led by 14% YoY revenue growth in consumer &

bazaar segment to | 1470 crore. We believe a slight pick-up in demand

post GST implementation would help drive the sales growth of consumer

facing products. In the absence of any price hike, the gross margin is

expected to remain flat YoY owing to flattish VAM prices. EBITDA margin

is likely to decline ~80 bps YoY to 20.3% mainly due to higher employee

cost (up 17% YoY). Finally, PAT is likely to increase ~10% YoY to ~| 254

crore supported by higher other income

Supreme Industries Supreme is expected to record sales growth of ~11% YoY to ~| 977

crore in Q2FY18E led by similar volume growth. We believe restocking of

inventory at dealer level would drive the growth of volume of consumer

products. Piping and consumer products segment sales are also likely to

grow 14% and 10% YoY, respectively. Lower operating leverage from

industrial product category may lead to decline in EBITDA margin by 30

bps YoY to 14.4%. Finally, PAT is likely to increase 6% YoY to | 70 crore

Symphony After a below expected Q1 performance owing to higher discounts,

Symphony is likely to post sales growth of 18% YoY to | 178 crore during

Q2FY18E supported by volume growth of 13% YoY. The EBITDA margin is

likely to remain flat at 34% as higher gross margin would partly be offset

by higher other cost. PAT is likely to record growth of 28% YoY to | 50

crore supported by higher sales growth

V-Guard We expect topline growth of ~8% YoY to ~| 535 crore in Q2FY18E led

by ~10% YoY increase in sales of electronics and electricals product to |

150 crore and | 236 crore, respectively. This would be largely led by

stabilisers and pump segments, which are likely to record sales growth of

~15% and ~10% YoY, respectively. However, higher raw material prices

coupled with lower operating leverage of new plants may lead to a

decline in EBITDA margin by ~100 bps YoY at 9.8%. PAT is likely to

remain flat at ~| 39 crore

Voltas We believe Voltas would record sales growth of ~6% YoY to ~| 1040

crore during Q2FY18E supported by increase in sales of UCP and EMPS

segment by ~7% and ~5% YoY to | 380 crore and | 572 crore,

respectively. Being a lean season for air conditioners, Q2 was also

impacted by ~2% higher tax under GST, which Voltas has refrained from

passing on to customers. As a result, despite better EMPS segment

margin overall EBITDA margin is likely to fall ~110 bps YoY to 6% during

Q2FY18E. However, due to lower tax outgo PAT is likely to grow ~14%

YoY to ~| 82 crore



FMCG

Another quarter of GST pain; FMCG behemoths to support growth

In the first quarter after implementation of GST, our FMCG universe is

expected to witness some pressure in its performance. This is largely

on account of a) slower rural recovery, b) disruption in the wholesale

channel and c) some chaos related to GST rates and accounting. We

estimate our universe will report revenue growth of 7.8% YoY

supported by FMCG behemoths ITC and HUL, expected to post growth

of 11.6% and 5.5% YoY, respectively. On account of a price hikes in

cigarettes post GST rate revision, ~12% for ITC and 6.5% YoY for VST,

these companies are expected to report revenue growth of 11.6% and

7.9% YoY, respectively. Nestlé is estimated to report healthy growth of

11.2% YoY. With increasing capacity utilisation and focus on the B2C

segment, Prabhat Dairy is expected to report 28.1% YoY growth in

revenue. Supported by a huge distribution network, we expect HUL’s

revenue to grow 5.5%, with volume growth of ~2%. Marico and Dabur

are expected to report revenue growth of 4.5% and 3.4%, respectively,

on account of domestic growth. The international business will continue

to remain muted for these companies. TGBL, JLL and GSK Consumer

are estimated to report muted revenue growth of 4.5%, 1.7% and 1.4%

YoY. The only company that may report a sales decline in our universe

is Colgate, where we are expecting a decline of 6.5% YoY. This is

largely a factor of price cuts (~7-11% in both toothpaste & toothbrush

categories) on account of lower tax incidence under GST regime.

Rationalisation of ad-ex & mixed movement of commodity to support

EBITDA growth

The commodity price trend for the quarter was mixed. Copra price

continued to strengthen and increased 64.4% YoY (10.0% QoQ). It was

followed by Robusta, which grew 13.7% YoY and crude, which

increased 11.0% YoY. To the relief of companies, palm oil grew only

1.8% YoY while barley prices declined 10.8% YoY. Milk prices also

witnessed ~11% decline since the start of August in Maharashtra. Tea

prices (North India) was marginally better during the quarter. On

account of some relief on the commodity front, rationalisation of ad-ex

(for major players) and price hikes in cigarettes, we expect the EBITDA

of our coverage universe to grow 11.8% YoY, margin expansion of 78

bps YoY. Further, we estimate 8.0% YoY growth in profit for our

coverage universe. Profit for ITC, Nestlé and HUL is estimated to grow

13.2%, 9.1% and 6.0% YoY, respectively.

Exhibit 11: Estimates for Q2FY18E (FMCG) (| crore)

Revenue EBITDA PAT


Colgate Palmolive 1,117.2 -6.5 0.7 267.9 -2.5 20.8 175.0 -3.5 28.3

Dabur India Ltd 2,043.4 3.4 14.2 369.9 -8.2 19.7 334.3 -6.7 26.3

GSK Consumer 1,209.3 1.4 15.6 238.4 -2.8 43.3 190.2 3.5 43.8

HUL 8,796.3 5.5 -3.3 1,656.8 18.0 -11.2 1,161.7 6.0 -9.5

ITC 15,060.0 11.6 9.7 4,147.9 14.3 10.7 2,830.7 13.2 10.6

Jyothy Laboratories 423.2 1.7 13.2 53.5 -15.6 22.6 34.1 -11.2 65.5

Marico Ltd 1,504.0 4.5 -11.1 266.2 5.2 -17.9 188.1 4.2 -20.3

Nestle India 2,609.8 11.2 5.7 529.0 14.5 13.4 293.9 9.1 11.6

Prabhat Dairy 415.7 28.1 15.6 34.5 25.2 22.0 12.3 37.4 110.0

Tata Global 1,699.1 4.5 -0.3 202.2 6.6 -17.2 132.4 -5.2 -6.6

VST Industries 593.5 7.9 5.6 61.8 24.0 -5.3 38.9 10.2 -2.3

Total 35,471.5 7.8 4.6 7,828.0 11.8 4.6 5,391.5 8.0 6.0


Company

Change (%)


Topline & profitability (Coverage Universe)

32892

32242

34920

33923

35471

0

6000

12000

18000

24000

30000

36000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

4.0

9.0

14.0

19.0

24.0

(%

)


Copra price continues to remain elevated (| per kg)

40.0

60.0

80.0

100.0

120.0

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Tea prices (|/kg)

152.1

140.2

116

145.9 145.7142.7

116.2

140.6

147.0

100

110

120

130

140

150

160

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17

Q4FY

17

Q1FY

18

Q2FY

18

Top Picks

ITC

Nestle

Research Analyst

Sanjay Manyal

[email protected]

Tejashwini Kumari

[email protected]


Exhibit 12: Company specific view (FMCG)

Company

Colgate With the reduction of indirect tax incidence from ~24% to 18%, Colgate has taken a

price cut across its oral care portfolio. The price cut has been in the range of 7-11%.

Considering this price cut and slower volume growth due to disruption of the wholesale

channel, we expect the company to post 6.5% YoY de-growth in sales. We expect the

company to maintain its advertisement spend at 13% to sales mainly to protect

volumes. We expect net profit to decline 3.5% to | 175 crore due to the strong earning

growth reported in the base quarter

Dabur We expect Dabur to report 3.4% YoY growth in net sales on account of volume growth

in the domestic market. Domestic revenues are estimated to grow 6.1% YoY led by

volume growth on account of price cuts post GST and some demand recovery.

However, the international business would continue to remain under pressure and

decline ~2% YoY. We expect the company to increase selling expenses to 9.0% vs.

7.6% in same quarter last year. EBITDA margin is expected to contract 230 bps YoY to

18.1% on account of higher raw material and advertisement cost. PAT is estimated to

decline 6.4% YoY to | 334.3 crore

GSK

Consumer

Healthcare

On account of a slower than expected recovery in rural demand and continued impact

on the wholesale channel, we expect revenue (including auxiliary income) to clock

marginal growth of 1.4% YoY. Raw material cost is estimated to be lower for the

quarter at 29.0% of net sales vs. 30.8% in the same quarter last year on account of

lower barley cost and stable sugar prices. We expect the benefit in raw material cost

to be offset by higher spending on advertisement to drive demand at 12.0% for Q2FY18

vs. 10.7% in Q2FY17. Thus, we expect the operating margin to decline 84 bps YoY to

19.7%. PAT for the quarter is expected to grow marginally by 3.4% YoY on account of

lower tax outgo

HUL HUL is expected to witness 5.5% YoY increase in sales, primarily on account of 8% &

6% growth in refreshment & foods segment. Home care & personal care segment is

likely to grow 5% & 3% respectively. With the disruption of the trade channel due to the

transition of GST, we expect volume growth to remain muted during the quarter at

~2% YoY. Operating margins are likely to expand 200 bps to 18.6% mainly due to

lower advertisement spend during the quarter. Further, on account of higher

depreciation (commissioning of manufacturing unit at Assam), PAT for the quarter is

estimated to grow 6.0% YoY

ITC We expect ITC to report 11.6% YoY growth in sales mainly on the back of 9% YoY

growth in cigarette business on account of 12% realisation growth as the company has

taken a price increase after a steep hike in indirect tax incidence. Cigarette volumes

are expected to decline 4% YoY. Further, we estimate 12%, 11% & 16% growth in

FMCG, paperboard and hotels segments. We estimate a 64 bps YoY expansion in

EBITDA margin to 27.5%, primarily on account of ad-ex saving. Thus, net profit is

expected to grow 13.2% YoY to | 2830.7 crore

Jyothy Labs JLL was the worst hit in the previous quarter due to GST transition. We expect the

company to remain under pressure for this quarter as well on account of higher

exposure to the wholesale channel, which is yet to witness a recovery. Thus, we

expect revenues to grow marginally at 1.6% to | 423.2 crore. Further, raw materials

continue to witness uptrend. We believe the company would continue the marketing

spend to support demand. Hence, we estimate EBITDA margin at 12.6% vis-à-vis

15.2% in Q2FY17. PAT is estimated to decline 11.2% YoY to | 34.1 crore against | 38.4

crore in Q2FY17

Marico We expect Marico's performance to be impacted by the slower recovery in rural

demand as well as wholesale channel disruption. We expect the domestic revenue to

grow 5.3% YoY, largely on account of the price hike taken (5-10% in Parachute portfolio

and ~2% hike in Saffola portfolio). The international business is also expected to

remain muted and grow marginally by 1.3% YoY on account of unfavourable currency

movement and political turmoil in concerned countries. On account of rising copra

prices (up 64.4% YoY), lower marketing expense (YoY), we expect flat operating

margins at 17.7%. We estimate PAT will grow marginally by 4.2% YoY to | 188.1 crore



Exhibit 13: Company specific view (FMCG)

Company

Nestlé India Nestlé India is expected to witness 11.2% YoY growth in sales mainly due to

aggressive new launches last year. The company has launched more than 40 products

from January 2016. We believe the swift recovery in the noodles segment would aid

growth during the quarter. With the lower dependency of wholesale network, the

company would be least impacted during the transition period to GST. We estimate a

50 bps YoY uptick in operating margins at 20.1%. Net profit is expected to grow 9.1%

YoY to | 294 crore

Prabhat Dairy On account of increasing capacity utilisation across products, increasing focus on B2C

segment and value added product launches, we expect revenues to grow 28.1% YoY to

| 415.7 crore. Milk procurement prices for the quarter so far are down 11% YoY for the

company while sugar prices are also stable for the quarter. However, we expect the

benefit of raw material to be offset by higher marketing expense as the company

would continue spending on advertisement to build the brand and support new

launches. Thus, we estimate broadly flat operating margin at 8.3% for the quarter. PAT

is expected to grow 37.4% to | 12.3 crore

Tata Global

Beverages

We expect TGBL to report 4.5% YoY growth in revenue. Tea segment is expected to

grow 5.0% YoY on account of only margnal improvement in tea prices. However, on

account of elevated coffee prices (Robusta coffee prices up 13.7% YoY), we expect

coffee segment to report a marginal decline in revenue. EBITDA margin is estimated to

remain flat at 11.9%. However, on account of higher profit from associates in the base

quarter (| 31 crore in Q1FY17), PAT is estimated to decline 5.2% YoY to | 132.4 crore

VST

Industries

We expect 7.9% YoY growth in gross sales to | 593.5 crore led by ~4% growth in

cigarettes sales and ~7% growth in unmanufactured tobacco sales. Cigarettes

volumes are expected to decline 3% mainly due to a steep increase in indirect tax

incidence. Realisation growth is expected at 6.5% YoY mainly due to a change in the

product mix as the company is aggressively pushing sales of premium cigarette brands

'Total' & 'Addition'. Net profit is expected to grow 10.2% YoY to | 38.9 crore



Healthcare

GST impact to normalise but US price erosion continues to weigh

The I-direct healthcare universe is expected to register mere ~3%

YoY growth to | 39389 crore undermined by continuous price erosion

in the US base business. The slowdown in the US is likely to

overshadow domestic growth, which is expected to see a revival

post-GST implementation. We expect the US business (select pack) to

decline 11% YoY to | 10452 crore. Acute pricing pressure in the US in

the base business is likely to sustain for at least the next few quarters.

Almost all players from the I-direct universe are facing intense

competition in existing products in the US due to client consolidation

and acceleration in product approvals momentum by the USFDA. The

intensity of price erosion is anywhere between high single digit to low

double digit. On the domestic front, we expect ~10% YoY growth to

| 9334 crore (select pack) as most companies are expecting normalcy

to be back in distribution channels. However, due to GST related

changes in accounting and reporting domestic growth, numbers may

witness a marginal negative impact.

On the companies’ front, Cadila (due to launch of limited competition

gLialda in the US) and Jubilant Life (due to lower base) are expected

to register strong growth. On the other hand, 11 out of 19 companies

of the I-direct healthcare universe are expected to register negative or

low single digit growth

EBITDA to decline ~13% YoY

EBITDA of the I-direct healthcare universe is expected to decline 13%

YoY to | 8315 crore. EBITDA margins are likely to decline 388 bps

YoY to 21%. Adverse product mix, increase in R&D expenditure and

higher plant related fixed costs are likely to cause sharp margin

erosion for the universe during the quarter

Adjusted net profit to decline 17% YoY

Net profit is expected to decline ~17% YoY to | 4997 crore, mainly

due to subdued operational performance


Revenue EBITDA PAT


Ajanta Pharma 506.4 -1.8 4.2 147.6 -19.4 -2.0 108.6 -22.7 9.1

Alembic Pharma 846.0 -3.8 25.9 152.3 -14.3 25.9 104.8 -12.6 36.1

Aurobindo Pharma 4,188.7 10.9 14.1 1,121.9 20.7 46.5 727.6 24.3 56.2

Biocon 982.2 2.9 2.8 203.3 -15.3 0.6 80.7 -45.0 -4.9

Cadila Healthcare 3,072.4 27.8 29.6 798.8 54.8 92.6 609.0 80.3 131.9

Divi's Lab 958.6 -4.7 -9.7 312.7 7.4 -13.4 228.4 2.0 -13.1

Cipla 4,072.0 8.6 15.8 773.7 13.7 41.9 437.0 23.3 87.3

Dr. Reddys 3,619.4 0.9 9.6 651.5 3.4 21.4 303.5 5.7 58.5

Glenmark 2,359.8 6.1 10.0 465.4 3.7 16.8 263.3 17.8 18.1

Indoco Remedies 291.1 3.6 20.4 41.3 -1.6 55.2 21.4 -3.4 278.6

IPCA Labs 890.8 0.6 20.1 114.9 -10.3 40.8 53.0 5.4 84.8

Jubilant Life Sc. 1,716.1 20.9 4.4 407.7 19.8 14.6 188.6 30.4 14.1

Lupin 4,065.1 -5.3 3.4 833.4 -18.9 4.4 416.0 -36.8 8.1

Natco Pharma 496.4 6.1 25.4 153.7 46.7 41.2 103.0 54.8 50.7

Sunpharma 7,215.7 -12.7 6.2 1,443.1 -54.4 -11.5 967.4 -56.7 -1.1

Syngene International 320.2 5.7 3.3 105.7 0.1 5.4 69.2 -7.3 6.8

Torrent Pharma 1,541.8 7.9 8.5 323.8 -1.9 14.0 205.7 -0.6 25.3

Unichem Laboratories 411.5 11.8 21.2 43.3 9.3 81.9 27.0 31.7 129.0

Apollo Hospitals 1,835.1 12.3 7.2 221.2 -0.3 22.2 82.1 -10.7 51.8

Total 39,389.4 2.5 10.3 8,315.3 -13.4 17.3 4,996.5 -16.6 30.6


Company

Change (%)



38438

38900

38900

35714

39389

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

5000

10000

15000

20000

25000

30000

35000

40000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(%

)

| C

rore


USFDA approvals for July-Sep 2017 (Coverage Universe)

Company Final Tentative

Ajanta Pharma 2 1

Aurobindo Pharma 2 2

Cadila Healthcare 24 5

Cipla 3 1

Dr. Reddy's Labs 0 0

Glenmark Pharma 5 0

Jubilant Life 2 0

Lupin 3 0

Natco 1 0

Sun Pharma 3 0

Unichem Labs 2 0

Source: USFDA, ICICIdirect.com Research

Currency Movement

90

100

110

120

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

USDINR EUROINR RUBINR

BRLINR JPYINR ZARINR

Top picks of sector

Natco Pharma

Jubilant Life

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Harshal Mehta

[email protected]




Ajanta Pharma Revenues are expected to decline 2% YoY, as ~9% growth in domestic formulations

is likely to be offset by 8% decline in the exports business. US sales are likely to

decline due to expected price erosion in the base business. EBITDA margins are

expected to decline 630 bps YoY to 29% mainly due to commissioning of new plants

and adverse currency movement. Net profit is likely to decline 23% YoY due to lower

operational performance

Alembic Pharma Revenues are likely to decline ~4% YoY mainly due to the high base of gAbilify in the

US. Domestic formulations are likely to grow ~10% YoY. EBITDA margins are

expected to decline ~200 bps to 18% on account of higher employee and R&D

costs. Net profit is expected to decline 13% YoY mainly due to lower operational

performance

Apollo Hospitals Standalone sales are likely to grow ~10% YoY mainly due to 12% growth in the

pharmacy business and 8% growth in the healthcare service business. The

pharmacy business is expected to be largely driven by addition of new pharmacies

while the hospital segment is expected to be driven by strong growth in new

hospitals. EBITDA margins are likely to decline 197 bps YoY to at 11.6% mainly due

to losses at the recently commissioned Navi Mumbai hospital and impact of

government regulation on stent pricing. Net profit is expected to fall 19% YoY

Aurobindo

Pharma

Revenues are expected to grow ~11% YoY mainly due to launch of limited

competition gRenvela (nephrology) in the US and strong growth in Europe. EBITDA

margins are likely to improve 217 bps to 26.8% mainly due to gRenvela launch. Net

profit is expected to increase ~24% YoY

Biocon Revenues are likely to grow just ~3% YoY due to expected slowdown in biopharma

segment and below-par growth in Syngene. Biologics, on the other hand, are likely

to do better due to strong growth in insulin segment. EBITDA margins are expected

to decline 445 bps YoY to 21% mainly due commissioning of Malaysian facility. Net

profit is expected to decline 45% YoY

Cadila

Healthcare

Revenues are expected to increase ~28% YoY mainly due to acquisitions and

launched of gLialda (GI) in the US. EBITDA margins are likely to improve 453 bps YoY

to ~26% mainly due to better product mix and limited competition product launch.

Net profit is expected to increase ~80% YoY mainly due to strong operational

performance

Cipla Revenues are expected to increase ~9% YoY mainly due to strong growth in Europe

and domestic formulations. Domestic formulations are expected to grow 10% YoY.

EBITDA margins are expected to be in the range of 17-19%. Net profit is expected to

increase 23% YoY due to a better operational performance, lower depreciation and

Interest cost

Divi's

Laboratories

Revenues are expected to decline ~5% YoY mainly due to capacity constraints and

regulatory concerns. EBITDA margins, however, are likely to be in the range of 32-

33%. Net profit is expected to increase ~2% YoY

Dr Reddy's Revenues are likely to grow mere ~1% YoY mainly due to higher competition in the

base business in the US. Russia and CIS business are expected to grow 20% YoY

mainly due to improvement in base business and Rituximab tender supplies. EBITDA

margins are likely to remain at ~18%

Glenmark

Pharma

Revenues are expected to grow ~6% YoY mainly due to 10% growth in domestic

formulations and 4% growth in the US. LatAm growth is expected to decline 30%

YoY mainly due to stoppage of Venezuela sales. EBITDA margins are likely to remain

at ~20%. Net profit is expected to increase 18% YoY due to low base on account of

higher tax payment in Q2FY17

Indoco

Remedies

Revenues are likely to grow 4% YoY on the back of 5% growth in domestic

formulations. Export formulations are expected to grow just 2% YoY mainly due to

expected decline in US sales. EBITDA margins are likely to remain at 14-15%. Net

profit is expected to decline 3% YoY mainly due to a below expected operational

performance

Expected growth (%) in Domestic formulation

(| crore) Q2FY18E Q2FY17 Var. (%) Q1FY18 Var. (%)

Ajanta 169.4 154.0 10.0 135.0 25.5

Alembic 371.8 338.0 10.0 210.0 77.0

Biocon 137.0 137.0 0.0 130.4 5.1

Cadila 930.5 820.9 13.3 637.6 45.9

Glenmark 742.4 674.9 10.0 616.4 20.4

Indoco 177.3 168.8 5.0 99.7 77.8

Ipca 424.6 404.4 5.0 295.0 43.9

Lupin 1,095.4 995.8 10.0 932.4 17.5

Cipla 1,613.7 1,467.0 10.0 1,271.0 27.0

Dr Reddy's 687.6 625.1 10.0 468.7 46.7

Sun Pharma 2,210.0 2,009.1 10.0 1,760.8 25.5

Torrent 520.8 496.0 5.0 464.0 12.2

Unichem 254.2 227.0 12.0 170.6 49.0

Total 9,334.6 8,517.9 9.6 7,191.6 29.8

Expected growth (%) in the US


Aurobindo 1,956.5 1,735.1 12.8 1,694.9 15.4

Cadila 1,444.9 988.8 46.1 965.0 49.7

Cipla 646.1 660.0 -2.1 646.0 0.0

Glenmark 804.7 771.2 4.3 1,045.0 -23.0

Lupin 1,539.2 1,997.8 -23.0 1,601.8 -3.9

Dr Reddy's 1,433.5 1,613.4 -11.2 1,494.6 -4.1

Sun Pharma 2,339.1 3,714.4 -37.0 2,264.6 3.3

Torrent 287.8 322.0 -10.6 272.0 5.8

Total 10,451.8 11,802.7 -11.4 9,984.0 4.7

Expected growth (%) in Europe


Aurobindo 997.3 813.4 22.6 917.6 8.7

Cadila 64.1 55.7 15.0 60.8 5.4

Glenmark 161.6 134.7 20.0 162.1 -0.3

Dr Reddy's 222.0 177.6 25.0 207.5 7.0

Lupin 133.0 123.1 8.0 123.8 7.4

Torrent 219.5 186.0 18.0 202.0 8.7

Total 1797.5 1490.5 20.6 1673.8 7.4

Expected growth (%) in Latin America


Cadila 65.6 65.6 0.0 50.9 28.9

Glenmark 93.7 133.8 -30.0 84.5 10.8

Torrent 188.4 157.0 20.0 181.0 4.1

Total 347.7 356.4 -2.5 316.4 9.9



Ipca

Laboratories

Revenue growth is expected to remain muted as 5% YoY growth in domestic

formulations is likely to get offset by ~6% decline in export formulations. EBITDA

margins are likely to decline ~156 bps YoY to ~13% mainly due to an adverse

product mix. Net profit is expected to increase ~5% YoY mainly due to higher tax

paid in Q2FY17

Jubilant Life

Science

Revenues are expected grow ~21% YoY mainly due to strong growth in both

Pharma and LSI segments. LSI segment growth is likely to be driven by better

growth in vitamins and advanced intermediates whereas pharma growth is likely to

be driven by the specialty sub-segment. Margins are expected to remain at 24% YoY.

Net profit is expected to grow ~30% on the back of a strong operational

performance and lower interest cost

Lupin Revenues are expected to decline ~6% YoY on the back of 23% YoY decline in the

US mainly due to price erosion in Metformin group (diabetic). Japan sales are

expected to increase 13% YoY mainly due to consolidation of Shionogi portfolio.

EBITDA margins are likely to decline 346 bps to 20.5% YoY mainly due to an adverse

product mix. Net profit is expected to decline ~37% YoY owing to a below expected

operational performance

Natco Pharma Despite higher base of gTamiflu exclusivity, revenues are likely to increase ~6% YoY

mainly due to continuing traction from limited competition products (gTamiflu and

gDoxil) in the US. EBITDA margins are likely to improve to 856 bps YoY to 31%

mainly due to a better product mix. Net profit is expected to grow ~55% YoY

Sun Pharma Revenues are likely to decline 12% YoY mainly due to 37% expected decline in the

US owing to large base and price erosion in the base business. Taro's sales are

expected to decline ~32% YoY. EBITDA margins are expected to decline to 20%

from 38.3% in Q2FY17. Net profit is expected to decline 57% due to a sharp decline

in operational performance

Syngene Revenues are likely to grow just ~6% YoY mainly due to the spillover impact of the

fire incident of Q3FY17 and adverse currency movement. EBITDA margins are

expected to be in the range of 32-34%. Net profit is expected to decline ~7% on the

back of a lower operational performance

Torrent Pharma Revenues are expected to increase ~8% YoY mainly due to 10% growth in the

domestic formulations and 20% growth in Brazil. US sales are expected to decline

13% YoY mainly due to price erosion across portfolio. EBITDA margins are expected

to decline 209 bps YoY to 21% mainly due to an adverse product mix

Unichem Labs Revenues are expected to grow ~12% YoY on the back of 12% growth in developed

market formulation sales owing to strong US sales and 10% growth in domestic

formulations. EBITDA margins are likely to remain at ~11%. Net profit is expected to

grow ~32% mainly due lower taxation


Expected growth (%) in API

e


Aurobindo 784.2 768.8 2.0 625.0 25.5

Alembic 172.2 164.0 5.0 130.0 32.5

Cadila 87.4 83.2 5.0 68.9 26.8

Glenmark 232.4 221.3 5.0 204.8 13.5

Divi's Lab 465.2 489.7 -5.0 402.9 15.5

Indoco 14.3 13.6 5.0 14.9 -4.2

Ipca Labs 203.0 184.5 10.0 171.5 18.4

Lupin 297.7 291.9 2.0 279.3 6.6

Cipla 115.5 110.0 5.0 130.0 -11.2

Dr Reddy's 590.0 578.4 2.0 465.1 26.8

API 52.4 47.6 10.0 86.3 -39.3

Sun Pharma 378.8 371.3 2.0 318.4 18.9

Unichem 25.8 24.5 5.0 21.9 17.4

Total 3418.7 3348.9 2.1 2919.0 17.1


Hotels

Foreign tourists arrival growth to moderate due to lean season

The I-direct hotel coverage universe is expected to report revenue

growth of 1.4% YoY to | 1240.6 crore in Q2FY18 mainly on account of

higher room inventory and marginal rise in ARRs. Foreign tourist

arrivals (FTAs) growth is expected to moderate to 9.7% during the

quarter compared to 13.1% YoY growth in Q2FY16. Further, higher

room inventory is expected to keep occupancy under check. This will

pressurise margins at a pan-India level. Average occupancy levels at

business destinations are expected to remain higher compared to the

last year with improvement of 80-90 bps across destinations. During

the quarter, we expect EIH and TajGVK Hotels to report a better set of

numbers. IHCL, on the other hand, is likely report flattish growth due

to sale of its international property and subdued performance of

international subsidiaries. Overall, we expect our I-direct hotel

coverage universe to report low single digit revenue growth during

the quarter due to company specific reasons.

GST to impact operating margins leading to sharp rise in taxes in

premium hotel segment

Under GST, the council has fixed 28% tax rate for room tariff above

| 7500/night, which is higher than the existing tax rate of ~21%

(service tax 9% + luxury tax 12%). This will lead to additional cost

burden from Q2FY18 onwards if not passed on to consumers fully.

Among our coverage universe, EIH and IHCL would both be impacted

as majority of their revenue generating properties fall under this

bracket while TajGVK will be least impacted as their average ARR is

below the prescribed rate of | 7500/night in Hyderabad. During the

quarter, we expect margins of I-direct universe to decline 173 bps

QoQ. However, on a YoY basis, EIH may report margin expansion of

350 bps as last year, its margins contracted sharply due to closure of

property in Delhi for renovation.

Select business destinations to drive growth during quarter

Average occupancy levels continue to remain higher at business

destinations compared to leisure destinations during the quarter due

to lean season impact. However, select leisure destinations may

report marginally better occupancy levels during the quarter. In

business destinations, Mumbai, Hyderabad and Chennai registered

higher occupancy compared to the previous year. Among leisure

destinations Jaipur, Kochi and Goa reported marginal improvement in

occupancy during the quarter.

Exhibit 17:�Estimates for Q2FY18E: (Hotels) (| Crore)

Revenue EBITDA PAT


EIH 285.4 4.7 0.3 24.2 76.5 -13.4 3.8 0.5 -66.9

Indian Hotel 887.3 0.3 -2.2 69.5 -1.6 -23.3 -28.1 NA NA

Taj GVK Hotels 67.9 3.6 13.9 15.7 -0.2 16.3 2.3 -33.4 1,518.1

Total 1,240.6 1.4 -0.9 109.3 9.3 -17.2 -22.1 NA NA

Company

Change (%) Change (%)Change (%)



1223 1563

1492

1251

1241

0

200

400

600

800

1000

1200

1400

1600

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%

)


FTAs to grow at 9.7% during Q2FY18E

300

500

700

900

1100

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

(in

'000)

FY15 FY16 FY17 FY18

Trends in average occupancy levels

63

73

77

67

7270 70

55

76

61 6061

65

69

78

58

70

55

72

77

40

50

60

70

80

90

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

(%

)

Business Destinations

Leisure Destinations

Top pick of sector

EIH

Research Analyst

Rashesh Shah

[email protected]

Devang Bhatt

[email protected]



Company Remarks

Indian Hotels Consolidated revenue growth may broadly remain subdued on account of sale

of its key international hotels. Standalone domestic segment growth is

expected to remain better. We expect domestic net revenues to grow 5.0% YoY

to | 539 crore while the international segment may report revenue de-growth of

6.3% YoY. OPM may decline due to GST impact although sale of loss making

units aided by cost control measures would help the company trim margins only

by 20 bps YoY. Lower depreciation and interest cost may narrow down losses

during the quarter

EIH With the stabilisation of room inventory, we expect EIH to report 4.7% YoY

growth in revenues vs. a drop of 8.6% last year. ARR is expected to increase 3%

YoY. Occupancy levels may also remain healthy vs. last year. Margins are likely

to improve sharply by 350 bps YoY on account of low base of last year. Closure

of Delhi property for renovation may lead to some write-offs or exceptional loss

during the quarter

Taj GVK Hotel On the standalone front, we expect revenue growth of 3.6% YoY. OPM margins

may decline 70 bps YoY mainly on account of GST impact. Net profit growth

may decline 33% YoY as the company had reported exceptional gain of | 2.2

crore last year same quarter



Information Technology

Q2FY18: Cross currency to support US$ revenue growth yet again…

Tier-1 IT companies are expected to report constant currency (CC)

growth of 0.5-2.8% with HCL Tech leading the pack. Cross currency

could provide strength by ~100-130 bps to reported dollar growth.

Inter-quarter average US$ has depreciated vs. major currencies acting

as a tailwind. US$ has depreciated ~0.3%, 6.7%, 2.2% and 5.2%

against rupee, Euro, GBP and AU$ respectively. Tier-I IT companies are

likely to report average 3.1% growth in $ terms in Q2FY18E. Within tier-

I, HCLT (4.0%) could lead again supported by inorganic contribution

(0.8%) followed by Infosys (3.5%), TCS (3.2%) and Wipro (1.5%).

Margins to get comfort from currency, absence of higher visa costs…

Absence of higher visa cost and wage hikes for a few companies would

provide a cushion to margins in a seasonally strong Q2. Additionally,

cross currency benefit and operational efficiency with levers of

utilisation and employee pyramid could also aid margins. We expect

EBIT margins to increase 130 bps for TCS (primarily led by absence of

wage hikes and visa cost) while a wage hike would play out for other

Tier-I IT companies resulting in a decline of 30 bps for Infosys (wage

hike deferred from Q1 to Q2), 30 bps decline for Wipro (two month

wage hike) and 40 bps decline for HCLT (partial wage hike).

Broad based growth across midcap IT universe…

Within midcaps, we expect sequential $ revenue growth to be broad

based across companies led by Cyient (5.3%), Persistent (3.9%), TechM

(3.3%) followed by NIIT Tech (2.9%), MindTree (2.5%) and KPIT (2.5%).

Persistent, TechM and NIIT Tech would benefit from the contribution of

acquisitions. Info Edge could witness lower than previous quarter’s

yearly growth owing to softness in Naukri business and near tern

uncertainty in 99 acres while Firstsource may face a decline on the back

of exit from domestic business. Broadly, EBITDA margins may witness

expansion owing to cross currency tailwind accompanied by absence

of visa cost and wage hike in some.

Expectation of Infosys to revise FY18E guidance & HCLT to retain…

In terms of outlook for FY18E, we expect Infosys to cut its annual

revenue guidance from 6.5-8.5% (in CC) to 6-8% (CC) on account of

uncertainties caused by leadership transition while we expect HCL Tech

to maintain its revenue growth guidance (10.5-12.5% in CC). Investor

interest would now be more focused on management commentary for

an improvement in business fundamentals from H2FY18 surrounding a

weakness in the BFSI segment, structural challenges in retail, transition

to digital deals and client decision making.


Revenue EBITDA PAT


Cyient 951.3 4.1 4.9 130.8 2.0 12.8 100.2 3.0 14.1

Eclerx 319.2 -4.3 -4.2 98.6 -22.3 -1.8 73.1 -24.8 -7.9

Firstsource Sol 849.8 -3.9 -3.2 106.2 -5.6 5.4 70.1 -1.6 7.0

HCL Tech 12,594.9 9.3 3.7 2,720.5 8.3 1.5 2,153.1 6.9 -0.8

Infosys 17,633.2 1.9 3.3 4,655.2 -1.6 2.1 3,497.0 -3.0 0.4

InfoEdge 221.5 5.5 -0.4 70.3 1.2 0.1 65.3 -18.5 1.8

KPIT Tech 885.0 6.5 1.7 70.8 -22.5 -10.9 46.3 -17.6 -16.7

Mindtree 1,317.9 1.7 2.2 149.6 -7.7 4.2 119.4 25.9 -1.9

NIIT Technologies 726.5 5.1 2.5 120.6 7.5 8.8 66.7 11.9 30.0

Persistent Systems 754.4 7.2 3.6 111.5 0.7 6.9 75.5 2.7 0.5

TCS 30,452.9 4.0 2.9 8,017.4 -1.2 8.2 6,267.6 -4.8 5.4

Tech Mahindra 7,556.8 5.4 3.0 1,050.4 -1.8 12.4 709.6 10.1 -11.1

Wipro 13,940.1 0.3 2.0 2,697.7 -3.0 -0.2 2,062.0 -0.3 -0.7

Total 88,203.7 3.7 2.9 19,999.7 -0.6 4.6 15,305.7 -1.6 1.5

Change (%)Change (%)

Company

Change (%)


Topline & profitability (Coverage universe)

85037

86031

86408

85745

88204

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%

)


Dollar growth, QoQ

IT Services Q2FY18E Q1FY18 Growth (%)

TCS 4,739.0 4,591.0 3.2

Infosys 2,744.0 2,651.0 3.5

Wipro ^ 2,000.7 1,971.1 1.5

HCL Tech 1,960.0 1,884.0 4.0

Tech Mahindra 1,176.0 1,138.1 3.3

Mindtree 205.1 200.1 2.5

KPIT Technologies 137.7 134.4 2.5

Cyient 148.0 140.6 5.3

NIIT Technologies 113.1 109.9 2.9

Persistent Systems 117.4 113.0 3.9

eClerx 47.1 48.8 (3.5)

BPO (in |)

Firstsource 849.8 877.7 (3.2)

Internet (in |)

Info Edge 221.5 222.4 (0.4)

^ IT services

Top picks of the sector

Persistent Systems

Research Analysts


[email protected]

Deepti Tayal

[email protected]



Company Remarks

TCS Constant currency revenue may grow 2% QoQ while US$ revenues may grow 3.2%

QoQ to $4,739 million owing to cross currency benefit partly offset by a sustained

softness in BFSI and retail. Rupee revenues may grow 2.9% QoQ to | 30,453 crore.

EBIT margins may expand 130 bps QoQ to 24.6% led by absence of wage hike, visa

cost and cross currency benefit. Investor interest: FY18E margin trajectory, deal

pipeline in BFSI, traction on digital business and overall demand outlook

Infosys Constant currency revenues are expected to grow at a lower pace of 2.5% QoQ in a

typical strong quarter taking into account the leadership transition the company has

gone through. US$ revenues may grow 3.5% QoQ to $2,744 million supported by

cross currency while rupee revenue may grow 3.3% to | 17,633.2 crore. EBIT

margins may decline 30 bps QoQ to 23.8% owing to wage hike (deferred from Q1 to

Q2) partially evened out by absence of visa cost and cross currency benefit. Investor

interest: Update on FY18E revenue guidance, margin outlook, discretionary spends

across sectors, traction in new services & software and strategy update post

leadership transition

Wipro Global IT services US$ revenues could grow 1.5% QoQ to $2,000.7 million, in line

with its guided range of $1,962-2,001 million. Global IT services rupee revenue may

grow 1.1% while consolidated revenues may grow 2% to | 13,940 crore. Global IT

services EBIT margins may decline 30 bps QoQ to 16.5% led by two month wage

hike impact aided by currency tailwind. Investor interest: Q3FY18E revenue

guidance, business segments update and triggers to reach industry growth rates by

Q4FY18E

HCL Tech Dollar revenues are expected to grow 4% QoQ to $1,960 million led by organic

growth supported by ~0.8% contribution from acquisitions and IP partnerships.

Rupee revenue could increase 3.7% to | 12,594.9 crore. EBIT margins may decline

40 bps QoQ to 19.7% due to a partial wage hike (spread across Q2 and Q3)

countered by cross currency benefit. Investor interest: Revenue and margin guidance

update and deal closures in IMS segment

Tech Mahindra We expect US$ revenues to grow 3.3% QoQ to $1,176 million led by full quarter

consolidation of HCI acquisition (0.7%) and Comviva seasonality. Rupee revenues

may grow 3% QoQ to | 7,556.8 crore. EBITDA margins may expand 120 bps QoQ to

13.9% owing to revenue growth and productivity enhancements partially offset by

wage hike for people with 0-6 years work experience. Investor Interest: Business

update for FY18E, margin enhancement levers and TCV deal signings

Info Edge We expect revenues to grow 5.5% YoY to | 221.5 crore, lower than previous

quarter’s yearly growth on the back of softness in Naukri business and near term

uncertainty prevailing in the 99 acres. EBITDA margins may increase 10 bps QoQ to

31.7% led by higher marketing spends mainly in Jeevansathi and Shiksha business.

Investor interest: Growth outlook across businesses, traction in Zomato and update

on investee companies

MindTree We expect dollar revenues to increase 2.5% QoQ to $205.1 million led by deal ramp-

ups while those in rupees may grow 2.2% QoQ to | 1,317.9 crore. At 11.4%, EBITDA

margins may expand 30 bps QoQ led by cross currency benefit. Investor interest:

FY18E revenue outlook update, update on acquired entities, margin trajectory, order

book conversion and Digital deal pipeline

Cyient We expect dollar revenues to grow 5.3% QoQ to $148 million led by seasonal

strength in the Rangsons business and momentum in core services business. Rupee

revenues may grow 4.9% QoQ to | 951.3 crore. EBITDA margins may expand 100

bps QoQ to 13.8% led by revenue growth offset by partial wage hike. Investor

interest: Revenue growth outlook, margin trajectory and order book conversion


EBIT margin impact

EBIT margins Q2FY18E Q1FY18 Change (bps)

TCS 24.6 23.4 130

Infosys 23.8 24.1 (30)

Wipro ^ 16.5 16.8 (30)

HCL Tech 19.7 20.1 (40)

EBITDA margins

Tech Mahindra 13.9 12.7 120

Mindtree 11.4 11.1 30

KPIT Technologies 8.0 9.1 (110)

Cyient 13.8 12.8 100

NIIT Technologies 16.6 15.6 100

Persistent Systems 14.8 14.3 50

eClerx 30.9 30.1 80

BPO

Firstsource 12.5 11.5 100

Internet (in |)

Info Edge 31.7 31.6 10

^ IT Services

$/|

40

50

60

70

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

|

|/$

$ vs. global currencies

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Euro/$ GBP/$ AUD/$

Inter-quarter average US$ has depreciated ~0.3%, 6.7%, 2.2%

and 5.2% vs. |, Euro, GBP and AUD respectively.


Company specific view

Company Remarks

Persistent

Systems

We expect dollar revenues to grow 3.9% QoQ to $117.4 million led by digital

business and two month contribution from PARX acquisition (~$1.4 million) partly

offset by seasonal weakness in the IP business. Rupee revenues may grow 3.6%

QoQ to | 754.4 crore. EBITDA margins may expand 50 bps sequentially to 14.8% led

by cross currency benefit offset by minimal wage hike impact. Investor interest:

Revenue outlook, margin enhancement levers, updates on business segments and

top 10 accounts

eClerx Dollar revenues are expected to decline 3.5% to $47.1 million on account of a ramp

down of top three clients. Rupee revenues may decline 4.2% to | 319.2 crore.

EBITDA margins may expand 80 bps QoQ to 30.9% led by cross currency benefit and

absence of wage hike. Investor interest: H2FY18 revenue outlook update, margin

guidance, top clients growth trajectory and deal pipeline

NIIT Tech Dollar revenues may grow 2.9% QoQ to $113 million led by full quarter consolidation

from RuleTek acquisition partly evened out by ramp down of travel client. Rupee

revenues may grow 2.5% QoQ to | 726.5 crore. EBITDA margins may expand 100

bps QoQ to 16.6% led by revenue growth, currency tailwind and absence of wage

hike. Investor interest: Revenue trajectory, margin guidance, demand outlook in

revenue segments and order book conversion

KPIT Tech Dollar revenues may grow 2.5% QoQ to $137.7 million while adjusting for one-off

gain (~$2 million) in Q1, $ revenues are expected to grow 4% QoQ. Rupee revenue

may grow 1.7% QoQ to | 885 crore. EBITDA margins may decline 110 bps QoQ to 8%

owing to wage hike (deferred from Q1 to Q2) partly countered by cross currency

benefit and operational efficiency. Investor Interest: Update on FY18E revenue

guidance, margin profile and traction across business units

Firstsource

Solutions

We expect rupee revenues to decline 3.2% sequentially to | 849.8 crore owing to

exit from domestic business. EBITDA margins may expand 100 bps QoQ to 12.5%

mainly led by exit from low margin domestic business and operational efficiency.

Investor interest: FY18E revenue guidance update, traction in healthcare business,

update on Sky deal and ISGN acquisition and margin momentum



Logistics

Dual (domestic & Exim) buoyancy in rail container volumes…

The Q2FY18 (July-August) tonnage for Indian Railways grew 7% YoY

to 186.5 MT vs. 174.9 MT in the same period (July-August) in the

previous year. Although low contributor, total container traffic, Exim

and domestic, grew 13% YoY each for the first two months of Q2FY18

to 9 MT vs. 7.2 MT in the same period in Q2FY17. The YTD tonnage

(April-August) growth remained robust at 5% YoY to 467.7 MT vs. 446

MT in the same period (April-August) in 2017. Container volumes for

the same period (April-August) grew 12% YoY (9% Exim and 28%

domestic) to 22 MT vs. 19.2 MT in (April-August) in 2017. With a

market leadership of ~73% we believe Concor will be the biggest

beneficiary of robust rail tonnage growth. Also, with initial disruption

(e-way bill, overcapacity, etc) due to GST on road transportation, we

expect Concor to gain market share. We expect Concor volumes to

9% YoY to 853420 TEUs. Domestic volumes are expected to grow

10% YoY to 114400 TEUs while Exim volumes are expected to grow

9%. EBITDA margins of Concor would be optically higher as Q2FY17

included retrospective impact of land prices revision undertaken by

Indian Railways. Subsequently, EBITDA, PAT is expected to grow

35%, 37% YoY to | 308 crore, | 218 crore, respectively.

Continued growth in external trade; upbeat volumes at major ports…

Indian foreign trade continues to exhibit improved growth. Indian

exports for the second quarter (July and August) grew 7% YoY to

$46.3 billion vs. $43.3 in the same period (July and August) in 2017.

However, imports for the same period grew at a faster pace of 18%

YoY to $69.5 billion compared to $58.8 billion in 2017. Although

imbalance was higher (imports exceed exports), volumes handled at

major ports continue to exhibit resilience to domestic weakness.

Container volumes at major ports for the current quarter (July-August)

grew 7% YoY to 1.5 million TEUs compared to 1.4 million TEUs in the

same period in 2017. YTD Q2FY18 volumes at JNPT (the largest port)

grew 8% YoY 818000 TEUs vs. 757000 TEUs in 2017. This was

supported by 5% growth each in Chennai, Tuticorin and Kolkata.

Improved efficiencies in terms of radio-frequency identification (RFID)

of containers, direct port delivery (DPD) facility, etc, led to this growth,

which would, in turn, impact volumes of private ports. In addition to

the aggressive stance of ports in the vicinity, GPPL has also lost a

client in Q1FY18, which would impact the current quarter volumes.

We expect volumes of Gujarat Pipavav port to de-grow 4% YoY to

160000 TEUs.

E-com euphoria returns; festive sale to keep express players busy…

In addition to the discounting strategy adopted by e-commerce

players during Independence Day and Onam, the big festival sale by

e-tail biggies in the last week of September is expected to bring some

cheer to express logistics players. In addition to the same, we would

see manufacturing/industries re-align their logistics contracts to

comply/benefit from GST, which was implemented from July 1. We

believe subdued first half of July (initial implementation hiccups)

would be completely offset by higher movement of goods triggered

before implementation of e-way bill. Gati would continue to lag (2%

de-growth in revenues) in our coverage universe due to softness in its

KWE division. We expect revenue for BlueDart, TCI post 5%, 4%

growth, respectively. However, margins are expected to remain

subdued for these players as they re-align their distribution setup to

embrace GST.

Exhibit 21: Estimates for Q2FY18E: (Logistics) (| crore)


3090

3091

3305

3216

3215

0

400

800

1200

1600

2000

2400

2800

3200

3600

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

5.0

10.0

15.0

20.0

25.0

(%

)


Container Volumes in an uptrend…

715679 693 705 690

707

630

791

752 755 744 758775

0

100

200

300

400

500

600

700

800

900

Aug'1

6

Sep'1

6

Oct'1

6

Nov'1

6

Dec'1

6

Jan'1

7

Feb'1

7

Mar'1

7

Apr'1

7

May'1

7

June'1

7

July

'17

Aug'1

7

('0

00 T

EU

s)

Top Pick

Container Corporation of India

Research Analyst

Bharat Chhoda

[email protected]

Ankit Panchmatia

[email protected]


Revenue EBITDA PAT


Blue Dart 696.4 5.0 4.5 66.2 -11.6 44.3 35.2 -17.9 66.7

Container Corporation 1,467.5 6.4 0.7 308.2 34.7 -5.7 217.5 37.8 -10.6

GATI Ltd 415.7 -2.3 -2.6 24.9 -9.9 37.2 19.7 240.3 7.8

Gujarat Pipavav 165.7 -3.8 -2.0 101.1 2.5 -2.5 58.6 -1.4 5.1

Transport Corp 469.4 4.2 -5.5 42.2 -2.5 -6.7 18.1 -8.2 2.7

Total 3,214.7 4.0 0.0 542.5 14.7 0.5 349.1 22.2 -2.0


Company

Change (%)



Company Remarks

Container

Corporation

Concor’s throughput container volumes are expected to grow 9% YoY (Exim 10%,

domestic 9%) to 853420 TEUs. Rail tonnage for July was negatively impacted by GST

implementation. However, the sharp revival of rail volumes in August and September

supports our YoY growth assumption in volumes. Revenues are expected to grow 6%

YoY to | 1467.5 crore. EBITDA margins in Q2FY17 were impacted by revision of land

value by railways, following which EBITDA margins for Q2FY18 would expand 440

bps YoY to 21% (vs. 16.6% in Q2FY17). EBITDA is expected to grow 35% YoY to | 308

crore. A robust operational performance may result in similar PAT growth, which is

expected at | 217.5 crore

Transport

Corporation of

India

Implementation of GST has resulted in subdued demand from small traders and small

& medium enterprises (SMEs). Moreover, impact of higher diesel prices would impact

profitability in the current quarter. We expect freight segment to grow by a mere 2%

YoY to | 226 crore. Shipping remains seasonally weak in Q2. This may translate to

revenue of | 42 crore (vs. | 58 crore in Q1FY18). Given the contractual nature of

supply chain division (SCS), revenues from the same are expected maintain a

quarterly run rate of ~| 200 crore. Resultant total revenues are expected to grow 3%

YoY to | 469 crore. We expect EBITDA margins to decline 60 bps YoY to 9%. This

may lead to EBITDA de-growth of 3% YoY to | 42.2 crore. Impact of higher

depreciation may be moderated by dividend income from Transystem leading to PAT

of | 18.1 crore

BlueDart Impact of higher crude prices may keep margins subdued. However, B2C division

may accelerate revenues in current quarter. Revenues may grow 5% YoY to | 696.4

crore. EBITDA margins may fall 180 bps YoY to 9.5%. Absolute EBITDA may de-grow

12% YoY to | 66 crore. Continued elevated depreciation of | 11 crore (up 2% YoY) and

lower other income (down 14% YoY) would further impact PAT, which is expected to

de-grow 18% YoY to | 35.2 crore

Gujarat Pipavav

Port

Loss of a liner would impact container volumes, which are expected to de-grow 4% to

160000 TEUs vs. 166000 TEUs in Q2FY17 and 165000 TEUs in Q1FY18. However,

bulk volumes (seasonally strong quarter) may grow 5% YoY to 0.74 MMT. Ancillary

revenues are expected to support overall growth. Overall revenues are expected to de-

grow 4% YoY to | 165.7 crore. Margins are expected to remain sequentially stable

(up 375 bps YoY) at 61% enabling an absolute EBITDA growth of 2.5% YoY to | 101

crore. Higher depreciation coupled with increased taxation would lead to a flattish

PAT of | 58.6 crore

Gati KWE is expected to continue its sluggishness with de-growth 2% YoY to | 281 crore.

However, the recent billion day sale of e-tail giants would lead to higher e-commerce

revenues. In addition to e-commerce revenues, fuel sale would further accelerate

standalone revenues. The resultant standalone revenues are expected to grow 5%

YoY to | 123.2 crore. Kausar would continue to maintain a quarterly run-rate of | 11.5

crore. Subsequently, consolidated revenues are expected to de-grow 2% YoY to |

415.7 crore. Operating margins may decline 50 bps to 6% resulting in EBITDA de-

growth of 10% YoY to | 25 crore with margins of 6%. Core PAT is expected to decline

12% YoY to | 7.3 crore. However, adjusting for exceptional gain (FCCB conversion),

PAT is expected at | 19.7 crore



Media

GST hangover dilutes festive benefits for print sector

The ad revenue growth for print players is expected to be subdued for

the quarter, largely on the back of a GST led ad pullback in July, which

has erased the festive benefits seen in September. DB Corp and Jagran

Prakashan are likely to witness print ad growth of ~5.0% YoY each. In

case of HT Media, the Hindi segment is expected to post ad revenue

growth of 4% YoY while English ad revenues are expected to decline

5% YoY. Circulation revenues for DB Corp are expected to grow 6%

YoY while that of Jagran are expected to grow 1.5% YoY. We expect a

decline of 4% YoY in circulation revenue for HT Media. We note that

Jagran and HT Media have taken cover price cuts in the key markets of

Uttar Pradesh and Bihar to counter competition.

Broadcasters to witness muted ad growth in quarter

The quarter is expected to be muted for broadcasters as GST impact

would weigh on the ad growth environment. Zee is expected to report

ad growth of 2% YoY (underlying growth of ~5%, adjusting for sports

business) while Sun TV is expected to report 3.9% YoY ad growth. TV

Today, on the other hand, is likely to report healthy ad growth of 9.3%

YoY. On the subscription front, Zee is expected to report 13% YoY

decline, largely due to exclusion of sports business and weak

international subscription growth. Sun TV is expected to report healthy

subscription growth of 14.4% YoY, benefiting from traction in cable

subscription revenues.

Relatively weak content to impact multiplexes

Movies such as Toilet EK Prem Katha, Shubh Mangal Saavdhaan,

Judwaa 2, etc, had a good run up in the box office. However, a weaker

than anticipated run of Jab Harry met Sejal, Jagga Jasoos, etc, coupled

with a heavy base quarter (Bajrangi Bhaijaan) led to softer footfalls. We

estimate marginal ATP growth (4% for PVR and 1% Inox on YoY). The

ad revenue growth for both players is expected to be divergent as Inox

is likely to witness ad yield catch-up on a low base. PVR’s ad revenue

growth is expected at 5% YoY while that for Inox is expected at 23.5%

YoY. EBITDA margins for PVR is expected to decline 130 bps YoY, while

for Inox the margin is expected to improve 220 bps YoY, largely driven

by strong growth in ad revenues.

Exhibit 23: Estimates for Q2FY18E- Media (| crore)

Revenue EBITDA PAT


DB Corp 554.5 4.9 -6.7 155.3 3.2 -16.7 91.8 3.7 -16.6

Dish TV 753.9 -3.3 2.0 218.9 -17.2 8.8 -7.3 PL NA

ENIL 127.6 -1.6 22.3 25.9 12.0 55.2 6.8 -15.8 48.4

HT Media 599.1 -0.5 0.0 80.3 59.1 0.5 39.4 27.3 -5.3

Inox Leisure 307.6 3.4 -20.6 34.8 28.0 -53.7 6.0 282.9 NM

PVR 561.3 1.3 -11.8 87.0 -6.5 -22.4 22.4 -23.0 -49.6

Sun TV 663.8 6.1 -15.6 488.6 4.8 9.0 288.6 6.8 14.7

TV Today 147.1 11.2 -2.6 44.1 19.6 -3.8 27.3 20.6 40.6

Zee Ent. 1,585.9 -6.5 3.0 493.2 0.8 1.8 327.2 37.2 30.0

Total 5,892.1 -0.2 -3.9 1,789.4 1.9 -1.2 890.8 5.8 7.3

Change (%)

Company




5906

5978

5585

6130

5892

0

1000

2000

3000

4000

5000

6000

7000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(%

)


PVR & Inox – Footfalls

20.7

18.517.9 18.2

21.0

18.3

15.5

12.7 12.5 13.0

15.8

12.7

0.0

5.0

10.0

15.0

20.0

25.0

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

(m

illion)

PVR Inox

Top pick of sector

Inox Leisure

Research Analysts

Bhupendra.Tiwary

[email protected]

Sameer.Pardikar

[email protected]



Company Remarks

DB Corp DB Corp is expected to post 5% YoY growth in its ad revenues to | 346.8 crore as a

GST led ad pullback in July seemed to have diluted the festive benefits during the

quarter. Subscription revenues at | 125 crore are expected to grow 6% YoY. Radio

revenues at | 32.6 crore are a tad softer owing to GST led ad pullback during the

quarter. We expect margins of 28%, down 50 bps YoY impacted by muted topline

growth

Dish TV Net subscriber addition is expected at ~0.18 million during the quarter. ARPU is

expected to be flattish QoQ at | 148.2 as the competitive intensity has restricted the

company's price hike taking ability. Consequently, we expect a topline of | 753.9

crore, down 3.3% YoY. Content costs are expected to stay under control. We expect

margins at 29%, higher 180 bps sequentially. We expect the company to post losses

of | 7.3 crore

ENIL We expect another weak quarter for ENIL as a GST led ad pullback seemed to have

played spoilsport in a festive quarter. Hence, ENIL is expected to post revenue de-

growth of 1.6% YoY during the quarter to | 127.6 crore. EBITDA margins are expected

to expand to 20.3% in Q2FY18 vs. 17.8% in the base quarter, which was heavy with

marketing expenditure for new stations launch

HT Media The Hindi segment ad revenue is expected to remain subdued at 4.0% YoY growth to

| 176.9 crore despite a strong festive September owing to impact of GST in July.

English ad, on the other hand, is expected to remain a laggard and decline 5.0% YoY

to | 246.8 crore. Circulation revenues are expected at | 72.6 crore, a decline of 4%

YoY owing to competitive pricing in the key states of UP and Bihar. The radio

segment is expected to remain robust with revenues of | 45.8 crore, up 27% YoY

aided by new frequencies in the key cities of Mumbai and New Delhi. The company

has been undertaking several cost rationalisation measures in terms of better

pagination and restructuring of several overheads, which will lead to margins of

13.4%, up 500 bps on a YoY basis

Jagran

Prakashan

In line with its peers, Jagran is expected to post subdued ad growth of ~5% YoY,

clocking print ad revenues of | 354.9 crore, impacted by GST, which has spoiled the

festival led benefits during the quarter. Circulation revenues would remain muted at

1.6% YoY to | 108.8 crore, impacted by cover price cuts in key markets of UP & Bihar

to counter competition. Radio business, however, is expected to witness healthy ad

revenue growth of 12% YoY at | 77.5 crore and radio margins of 33%. Overall,

margins are expected at 26.5%, down 100 bps on a YoY basis, mainly due to a muted

print ad show

Inox Leisure Coming off a heavy base quarter of Q2FY17, which witnessed a blockbuster in the

form of Bajrangi Bhaijaan , Q2FY18 was rather disappointing with big budget movies

such as Jab Harry Met Sejal and Jagga Jasoos witnessing sub-par box office

collections. Consequently, Inox is expected to witness flattish footfall and subdued

1% ATP growth, leading to net box office collections growth of ~3.1% YoY to | 185

crore. Advertisement revenues are expected to witness ~24.3% YoY growth to |

29.6 crore led by yield improvement as well as start studded content slate. We

expect EBITDA margins of 11.3% (up 220 bps YoY), largely aided by healthy ad

revenues




Company Remarks

PVR Q2FY18 was relatively a weak quarter for PVR as the base quarter (Q2FY17) was

marked by blockbusters like Bajrangi Bhaijaan . While the quarter had hit movies such

as Toilet Ek Prem Katha , Shubh Mangal Saavdhaan , key movies such as Jab Harry

Met Sejal and Jagga Jaasoos had a weaker than expected run at the box office.

Consequently, the overall footfalls for the company are expected to decline 1% YoY to

18.3 million. ATPs are expected to grow 4% YoY to | 210, leading to net ticketing

revenues of | 292.4 crore, up 5.2% YoY, largely driven by ATP hike. F&B revenues are

expected to witness growth of 3.6% YoY to | 148.9 crore. Advertising revenues are

expected at | 65.6 crore (up 5% YoY). The EBITDA is expected at | 87.0 crore, with

margins at 15.5% (down 130 bps YoY) owing to a subdued topline performance

Sun TV A GST led ad pull back in July is likely to restrict ad revenues growth for Sun TV in

Q2FY18E, which is expected to post 3.9% YoY ad revenues growth at | 352.6 crore.

Subscription revenues would continue to grow at a healthy pace of 14.4% YoY to |

261.3 crore benefiting from traction in cable subscription revenues. Margins are

expected at 73.6%, down 100 bps YoY owing to muted topline show

TV Today

Network

TV Today is expected to post ~8.2% YoY growth in its broadcasting revenues to |

141.7 crore with ad growth of ~9.3% YoY (partly impacted by a step back owing to

GST). The company is in a sales alliance with ENIL for its radio inventory sale, which

is benefiting it. Radio revenues are expected at | 5.5 crore vs. | 1.3 crore in the base

quarter. Margins are expected at 30% vs. 27.9% in the base quarter, aided by healthy

traction in ad revenues

Zee

Entertainment

The optical growth of Zee is likely to be lower owing to exclusion of sport business.

We expect it to report ad growth of 2% YoY to | 978.3 crore (underlying growth of

~5%). The ad growth would have been higher but for GST led impact in July. The

subscription is likely to decline ~13% YoY to | 507.6 crore, Adjusting for sports, the

underlying growth in subscription is mid single digit, with weak international

subscription restricting the growth. We expect Zee to report margins of 31.1%, up

220 bps. The margin expansion is largely driven by exclusion of sports business,

which was loss making. Key monitorable for the company would be its commentary

on digital spends, going ahead, and subsequent margin guidance



Metals & Mining

� Healthy increase in domestic steel prices augHealthy increase in domestic steel prices augHealthy increase in domestic steel prices augHealthy increase in domestic steel prices augurs well....urs well....urs well....urs well....

For the first five months of FY18 (April-August), Indian finished steel production was at 43.2 million tonne (MT), up 5.9% YoY. Imports during the period were up 15.9% YoY to 3.5 MT while exports were up 57.1% YoY to 3.7 MT. Finished steel consumption witnessed growth of 4.4% YoY to 35.3 MT. Domestic steel prices have gathered strength on account of a cost push as well as increase in international steel prices during the last couple of months. Domestic HRC prices have increased 5-6% on a QoQ basis. The price increase is likely to flow positively toEBITDA, auguring well for domestic steel players. On the cost front,coking coal prices (a key input for steel making) have witnessedmoderation. Coking coal prices, which peaked at US$314/tonne in April2017, have declined to US$191/tonne in September 2017. Themoderation in prices of coking coal augurs well as it is likely to easecost pressure and enable margin expansion.

� NonNonNonNon----ferrous pack shines…ferrous pack shines…ferrous pack shines…ferrous pack shines…

During Q2FY18, the entire non-ferrous pack saw a notable upside. The global refined zinc market reported a deficit of ~203 kilotonne (KT) during the first six months of CY17 (January-June). Demand for refined zinc metal is expected to comfortably exceed supply in 2017. In the past, zinc deficit has augured well for global zinc prices. During the quarter, average zinc prices were up 31.5% YoY and 14.3% QoQ to US$2962/tonne. Average lead prices registered an increase of 24.4% YoY and 8.1% QoQ to US$2331/tonne. During the quarter, aluminium prices increased 24.1% YoY and 5.5% QoQ to US$2010/tonne while copper prices increased 32.9% YoY and 12.1% QoQ to US$6351/tonne.

� Aggregate EBITDA margins to increase QoQ, YoY…Aggregate EBITDA margins to increase QoQ, YoY…Aggregate EBITDA margins to increase QoQ, YoY…Aggregate EBITDA margins to increase QoQ, YoY…

We expect the aggregate topline of the coverage companies to increase 20.9% YoY while the aggregate EBITDA margin is likely to increase 449 bps YoY to 22.3% (vs. 17.8% in Q2FY17 and 21.2% in Q1FY18). We expect the EBITDA/tonne of JSW Steel (standalone operations) to come in at | 9000/tonne and Tata Steel (Indian operations) at | 13500/tonne. Tata Steel Europe is expected to report EBITDA/tonne of US$85/tonne. We expect Novelis to clock an EBITDA/tonne of US$375/tonne.

Exhibit 26:��Estimates for Q2FY18E: (Metals & Mining) (| Crore)

Revenue EBITDA PAT


Coal India 18,340.6 13.1 -4.3 3,028.7 307.8 -14.0 2,310.3 285.0 -1.8

Graphite India 421.8 32.0 20.2 77.9 452.4 119.4 54.4 242.4 84.5

HEG 303.6 59.7 47.9 54.7 192.3 133.7 17.1 LP LP

Hindalco 10,399.6 15.4 6.4 1,295.5 12.0 12.9 447.7 2.0 54.6

Hindustan Zinc 5,442.5 54.4 18.9 2,967.4 42.9 24.5 2,423.0 27.4 29.2

JSW Steel 14,912.4 12.7 1.5 3,467.5 17.2 32.5 1,235.7 87.6 98.0

NMDC 2,488.0 43.1 -12.4 1,219.8 47.7 -18.4 864.5 12.2 -10.8

Vedanta Ltd 19,760.0 24.6 8.1 5,464.6 17.1 12.1 2,110.5 36.5 104.0

Tata Steel 32,468.6 23.1 9.9 5,772.6 94.4 16.1 2,099.4 LP 37.0

Total 104,537.1 20.9 5.1 23,348.6 51.3 10.8 12,562.6 90.3 36.7

Company Change (%) Change (%) Change (%)

Source: Company, ICICIdirect.com Research, Hindalco numbers are of Standalone entity

Topline & profitability (Coverage universe) 86

458

9916

6

1170

24

9944

6

104

537

0.0

5.0

10.0

15.0

20.0

25.0

0

25000

50000

75000

100000

125000

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18E

(%)

| C

rore


Movement of base metal prices on LME (US$ per tonne)

Q2FY18 Q2FY17 YoY Q1FY18 QoQ

Zinc 2,961.9 2,252.6 31.5 2,591.4 14.3

Lead 2,331.2 1,873.2 24.4 2,156.1 8.1

Aluminium 2,010.1 1,620.1 24.1 1,905.4 5.5

Copper 6,351.4 4,778.3 32.9 5,667.8 12.1

Spot coking coal prices ($/tonne)

0

50

100

150

200

250

300

350

400

May

-15

Sep

-15

Jan-

16

May

-16

Sep

-16

Jan-

17

May

-17

Sep

-17

$ / t

onne

Source: Bloomberg, ICICIdirect.com Research

International iron ore prices ($/tonne)

0102030405060708090

100

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr

-17

May

-17

Jun-

17

Jul-1

7

Aug

-17

Sep

-17

$ / t

onne

Source: Bloomberg, ICICIdirect.com Research

Research Analyst

Dewang Sanghavi [email protected]

Akshay Kadam [email protected]



Company Remarks

Coal India

Although a seasonally weak quarter, for Q2FY18, Coal India reported double

digit sales volume growth of 14% YoY. Coal offtake for the quarter was at 132

million tonne (MT) (vs. 115.9 MT in Q2FY17). For the quarter we expect e-

auction volumes to come in at 26.3 MT while e-auction realisations are

expected to increase 20.6% YoY and 2.5% QoQ to |1626/tonne. Coal India's

topline is likely to increase 13.1% YoY. We expect EBITDA margins to come

in at 16.5% (vs. 4.58% in Q2FY17 and 18.4% in Q1FY18). CIL is expected to

clock an EBITDA/tonne of | 230/tonne

Graphite India

Supply side restructuring led by China in the global graphite electrode market

has opened up substantial demand for domestic graphite electrode

manufacturers. The significant change in outlook is likely to have a positive

rub-off on the performance of the domestic graphite electrode players. We

expect GIL's domestic operations to report healthy capacity utilisation of 95%

for Q2FY18E (vs. 75% in Q2FY17 and 95% in Q1FY18). Subsequently, the

topline is likely to increase 32% YoY and 20% QoQ. For the quarter, the

company is expected to report an EBITDA margin of 18.5% (vs. 4.4% in

Q2FY17 and 10.1% in Q1FY18)

HEG

The global graphite electrode market has witnessed notable supply side

restructuring and concurrent improvement on the demand side. The

significant change in outlook is likely to have a positive rub-off on the

performance of domestic graphite electrode players. For Q2FY18E, we expect

HEG to report healthy capacity utilisation of 85% (vs. 65% in Q2FY17 and 70%

in Q1FY18). Subsequently, we expect the topline to increase 60% YoY and

48% QoQ. We expect EBITDA margins to improve 818 bps YoY and 662 bps

QoQ to 18%

Hindustan Zinc

For Q2FY18E, we expect HZL to report EBITDA margins of 54.5% primarily on

the back of strong volume growth and higher zinc prices YoY. The zinc sales

volume is likely to come in at 190000 tonne (up 28.4% YoY). We expect lead

volumes to come in at 40000 tonne (up 25% YoY) while silver volumes are

expected to come in higher at 130000 kg (up 20% YoY). We expect the

increased cost of production to impact profitability. Subsequently, the topline,

EBITDA and PAT is likely to increase 54%, 43% and 27% on a YoY basis,

respectively

JSW Steel

For Q2FY18E, we expect JSW Steel to report healthy EBITDA/tonne of |

9000/tonne for Q2FY18 on the back of increased steel prices domestically as

well as moderation in prices of key raw material i.e. coking coal. The sales

volume is to expected to come in at 3.8 million tonne (MT). We expect the

topline to increase 13% YoY while EBITDA margins are likely to increase 89

bps YoY and 545 bps QoQ to 23.3%

Hindalco

For Q2FY18E, we expect Hindalco's EBITDA margin to remain flattish YoY at

12.5% (Q2FY17: 12.8%). Hindalco's domestic operations are expected to

report aluminium sales of ~330000 tonne and copper sales of ~100000

tonne. On the back of higher metals prices YoY, we expect the topline to

increase 15% YoY. We expect Novelis to report shipments of ~803 kilo tonne

(KT) and an EBITDA/tonne of US$375/tonne


Hindustan Zinc : Sales Volume Trend

Sales Unit Q2 Q3 Q4 Q1 Q2E

Zinc Tonne 148000 211000 217000 190000 190000

Lead Tonne 32000 36000 47000 34000 40000

Silver Kg 108000 117000 135000 110000 130000

FY17 FY18

Tata Steel :: EBITDTA/tonne & Sales

Sales Q2 Q3 Q4 Q1 Q2E

Tata Steel India 2.6 3.0 3.2 2.8 3.1

Tata Steel Europe 2.3 2.4 2.9 2.4 2.6

Tata Steel Group 5.7 6.1 6.8 5.8 6.4

EBITDA/tonne

Tata Steel India 7,297 11,285 13,470 10,786 13,500

Tata Steel Europe 67 38 104 80 85

FY18FY17

Sales volume in Million tonne, Indian EBITDA/tonne in |/tonne, while

European operations EBITDA/tonne in US$/tonne.

JSW Steel :: EBITDA/tonne & Sales

Q2 Q3 Q4 Q1 Q2E

Sales Volume 3.8 3.6 4.0 3.5 3.8

EBITDA/tonne 7,077 7,717 7,586 6,262 9,000

FY17 FY18

Sales volume in Million tonnes and EBITDA/tonne in |/tonne



NMDC

For Q2FY18E, we expect NMDC to report sales volumes of 8.5 million tonne

(MT) (vs. 8.1 MT in Q2FY17 and 9.2 MT in Q1FY18). We expect the topline to

increase 43% YoY on account of higher iron ore realisations on a YoY basis.

We expect the EBITDA margin to come in at 49% (vs. 47.5% in Q2FY17 and

52.6% in Q1FY18)

Vedanta

For Q2FY18E, we expect Vedanta to report a healthy performance marked by

higher base metal prices both YoY and QoQ. The topline is expected to

increase 25% YoY and 8% QoQ while EBITDA is likely to increase 17% YoY

and 12% QoQ. For the quarter, the company is likely to report an EBITDA

margin of 27.7% (vs. 29.4% in Q2FY17, 26.7% in Q1FY18)

Tata Steel

For Q2FY18E, we expect Tata Steel's domestic operations to report a strong

EBITDA/tonne of | 13500/tonne. A strong volume growth coupled with

healthy increase in domestic steel prices is likely to flow down to the EBITDA

directly. For the quarter, Tata Steel's Indian operations reported sales volume

of 3.1 million tonne (MT) up 19% YoY, while European operations reported

sales of 2.6 MT (up 15% YoY). The European operations are expected to clock

an EBITDA/tonne of US$85/tonne (vs. US$67/tonne in Q2FY17 and US$80 in

Q1FY18). The consolidated topline is expected to increase 12.4% YoY. The

consolidated EBITDA margins are expected to come in at 17.8% (vs. 11.3% in

Q2FY17 and 16.8% in Q1FY18)



Oil and gas

No clarity on GST implications for sector

Under GST, oil upstream companies, OMCs and gas utility companies

cannot claim input GST credit on procurement of machinery and

services as majority of the products are excluded from GST regime.

Hence, profitability of companies will have a notable negative impact,

going ahead. The Petroleum Ministry has made several propositions to

the Finance Ministry to bring petroleum products and natural gas under

GST regime. However, clarity on the same is still impending.

Strong product spreads, inventory gains to increase GRMs of OMCs

Singapore GRMs increased QoQ to US$8.3/bbl in Q2FY18 from

US$6.4/bbl in Q1FY18 supported by US refinery shutdowns and higher

product spreads. Crack spreads for gasoline (petrol) increased by

US$2/bbl QoQ to US$17.5/bbl while that of gas oil (diesel) also

increased by US$1.5/bbl QoQ to US$12/bbl. Hence, we expect GRMs of

oil marketing companies (OMCs) to increase QoQ with inventory gains

adding to it. We expect marketing volumes of industry to stay flattish

due to slower growth in products like (kerosene, naphtha, fuel oil).

US Hurricane Harvey pushes Brent crude prices up QoQ

The crude oil market during the quarter witnessed an easing out of the

supply glut in previous quarters on account of less production from US.

Hurricane Harvey in the last week of August weighed on US crude oil

production. Also, Opec countries that decided to extend the production

cut agreement till March 2018, reported better-than-expected

compliance to the agreement. The political instability in Kurdistan also

added to the possibility of supply and export disruptions. In effect,

average Brent oil prices increased 3.3% QoQ from US$50.1/bbl in

Q1FY18 to US$51.7/bbl in Q2FY18 with closing prices at the end of the

quarter at US$56.5/bbl. On account of the same, realisations of

upstream oil companies are expected to increase QoQ.

Gas utility companies to report stable performance QoQ

The quarter continued to see an increase in natural gas production and

imported LNG QoQ that will maintain volume growth for major gas

utility companies in Q2FY18E. City gas distribution companies may

continue to report steady volume growth due to sustainable conversion

to CNG vehicles and relatively stable spot LNG prices.

Exhibit 29: Estimates for Q2FY18E: (Oil and Gas) (| Crore)

Revenue EBITDA PAT


Bharat Petroleum 67,215.3 22.4 0.7 3,231.7 134.0 163.8 1,985.4 52.1 166.7

Castrol India Ltd 829.3 8.9 -4.7 207.5 -2.5 -0.9 140.9 0.8 2.2

Gail India 12,541.9 4.0 8.4 1,798.2 17.2 -5.3 1,119.6 21.1 9.2

Gujarat Gas 1,498.7 21.2 1.4 261.7 23.0 -3.0 111.7 55.6 7.0

GSPL 316.5 22.7 6.8 286.0 26.5 3.6 156.9 20.9 2.9

Gulf Oil 300.3 9.5 7.2 49.6 13.2 0.6 32.7 8.4 -4.6

HPCL 62,314.4 30.3 3.9 2,934.7 132.7 80.3 1,601.9 128.4 73.2

Indraprastha Gas Ltd 1,107.8 14.6 5.6 270.5 10.4 -2.5 161.6 12.1 0.2

Mahanagar Gas Ltd 634.7 10.5 8.9 210.1 30.1 3.4 128.7 25.9 3.5

MRPL 14,913.4 6.6 2.9 1,164.5 48.3 99.8 638.2 53.5 172.7

ONGC 19,047.8 3.5 -0.1 9,903.3 2.7 0.2 4,391.4 -11.7 13.0

Petronet LNG 6,568.8 -0.7 2.1 763.5 5.1 2.6 447.8 -2.6 2.3

Total 187,288.9 17.1 2.4 21,081.3 20.6 22.2 10,916.7 7.3 37.0

Change (%)

Company




159904

180213

189069

182872

187289

0

40000

80000

120000

160000

200000

240000

280000

320000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(%

)


Singapore gross refining margins (GRMs)

8.3

5.1

6.7 6.4 6.4

2

4

6

8

10


Refinin

g m

argin

s (

US

$ p

er b

bl)

Average Brent crude oil prices

45.8

50.1

54.6

50.151.7

20

30

40

50

60


US

$ p

er b

bl

Top pick of sector

Mahanagar Gas Ltd

MRPL

Research Analyst

Mayur Matani

[email protected]

Akshay Gavankar

[email protected]



Company Remarks

BPCL Revenues are expected to increase marginally QoQ to | 67215.3 crore on account of

slower growth on the marketing front. We expect GRMs to increase QoQ to $9.2/bbl in

Q2FY18E from $4.9/bbl in Q1FY18 mainly due to inventory gains and strong spreads of

products like petrol and diesel. Subsequently, PAT is expected to increase 2.6x QoQ to

| 1985.4 crore

Castrol India Revenues are expected to increase 8.9% YoY mainly led by 5.5% YoY increase in net

realisation. Given the GST transition phase, we expect volumes to grow 3.6% YoY.

Gross margins are expected to increase marginally YoY to | 88.6/litre. However,

EBITDA per litre is expected to decline 5.9% YoY to | 43.7 /litre due to higher other

expenses resulting in marginal increase in PAT at | 140.5 crore

Gail We expect a stable performance in terms of profitability with growth of 9.2% QoQ in

Q2FY18E. In terms of gas transmission business, volumes are expected to increase

1.1% QoQ to 101 mmscmd with its EBIT increasing 1.6% QoQ to | 647.1 crore.

Although we expect petchem volumes to grow 45% QoQ, its EBIT may remain subdued

at | 27.3 crore given lower realisations. In LPG liquid hydrocarbon segment, we expect

EBIT to remain flat at QoQ at | 529 crore. However, higher other income QoQ will have

a positive impact on the overall profitability at | 1119.6 crore against | 1025.6 crore in

Q1FY18

GSPL We expect GSPL's gas transmission volumes at 28.5 mmscmd with growth of 6% QoQ

(15.8% YoY) due to better offtake from large industrial customer. Revenues are

expected to increase 6.8% QoQ (22.7% YoY) to | 316.5 crore with transmission tariffs

same as in Q1FY18 at | 1.2 per scm. Subsequently, PAT is expected to increase 2.9%

QoQ and 20.9% YoY to | 156.9 crore

Gujarat Gas Revenues are expected to increase 21.2% YoY on account of strong volume growth of

18.8% YoY at 6.1 mmscmd. However, on a QoQ basis, we expect volume demand to

remain flat in a GST transition phase. Gross margins are expected at | 7.3/scm (|

6.9/scm in Q2FY17) benefiting from regular price hike benefits. Lower tax rates may

lead to PAT growth of 55.6% YoY and 7% QoQ to | 111.7 crore

Gulf Oil

Lubricants

We expect revenues to increase 9.5% YoY mainly on account of higher realisations

YoY. Considering a gradual recovery from GST de-stocking during the quarter, core

volumes are expected to grow 8% YoY (core volume growth was at 7.5% YoY in

Q1FY18). EBITDA per litre is expected to increase by | 1/litre YoY to | 22.6/litre due to

lower other expenses. Subsequently, PAT is expected to increase 8% YoY to | 33 crore

Hindustan

Petroleum

Revenues are expected to increase 3.9% QoQ to | 62314.4 crore mainly due to slower

growth in marketing volumes. We expect refining margins to increase QoQ to $9.1/bbl

in Q2FY18E from $5.9/bbl in Q1FY18, mainly on account of inventory gains and strong

cracks of products like petrol and diesel. Subsequently, PAT is expected to 73.2% QoQ

to | 1601.9 crore

Indraprastha

Gas

We expect IGL's volumes to continue its growth momentum at 11.5% YoY due to

robust CNG vehicles conversions and efforts of the Delhi government for cleaner

environment. Total volumes are expected at ~5.1 mmscmd (CNG: 3.9 mmscmd, PNG:

1.2 mmscmd). We expect gross margins to remain strong YoY at | 10.8 per scm, up |

0.5 per scm led by pricing power and lower domestic gas prices. EBITDA per scm is

expected to remain flat YoY at | 5.8 per scm. On a QoQ basis, higher other expenses

may pull down EBITDA per scm by | 0.5 per scm from | 6.2/scm in Q1FY18. PAT is

expected to grow 12.1% YoY at | 161.6 crore


Gross under-recoveries of petroleum products (QoQ)

37314297

7604

6319

5593

0

2000

4000

6000

8000

10000


| C

rore

* Under-recoveries includes Cash Subsidy under DBTL

Gross under-recoveries of petroleum products (YoY)

763

276197 225

1399

0

400

800

1200

1600

2000

FY14

FY15

FY16

FY17

FY18E

| b

n

Gross under-recoveries

Singapore benchmark product spreads (US$/bbl)

Product Spreads Q2FY17 Q1FY18 Q2FY18 Chg YoY Chg QoQ

Gasoline 13 15.6 17.5 4.7 2.0

Naphtha -2 -1.4 -0.4 1.9 1.0

Jet Kerosene 11 10.8 12.9 2.2 2.1

Gas Oil 10 10.6 12.0 1.9 1.5

LSWR 4 4.3 -0.8 -5.2 -5.2

Fuel Oil -7 -4.1 -3.3 3.2 0.8

LPG -15 -13.4 -7.8 7.6 5.7



Mahanagar

Gas

MGL's volume growth is expected to remain stable at 5.4% YoY due to encouraging

conversion rate of CNG vehicles. We expect volumes of ~2.7 mmscmd (CNG: 2

mmscmd, PNG: 0.7mmscmd). Gross margins are expected to increase to | 15 per scm

vs. | 12.8 per scm YoY on account of higher pricing power and lower domestic gas

prices. Subsequently, PAT is expected to increase 26% YoY to | 128.7 crore

MRPL Reported GRMs for MRPL are expected to increase from $4.7/bbl in Q1FY18 to $9/bbl

in Q2FY18 mainly due to inventory gain of $0.9/bbl and higher petrol and diesel cracks.

However, GRMs are expected to remain below its potential on account of maintenance

shutdown in August, where product cracks were at peak. Throughput is expected at

3.6 MMTPA vs. 4 MMTPA in Q1FY18. PAT is expected to increase 3.7x QoQ to |

638.2crore driven by higher QoQ GRMs

ONGC We expect ONGC's oil & gas production to increase 0.7% and 4.5% QoQ, respectively,

with oil output at 6.5 MMT and gas output at 6.3 MMT in Q2FY18. With the QoQ rise in

crude oil prices, net realisation is expected to increase 2.4% QoQ at $52.2/bbl. We

assume subsidy burden will remain nil, similar to Q1FY18. Subsequently, PAT is

expected to grow 13% QoQ to | 4391.4 crore vs. | 3884.7 crore in Q1FY18 that was

impacted by higher depreciation

Petronet LNG Petronet's topline is expected to grow 2.1% QoQ on account of 6.5% QoQ increase in

volumes to 204.2 trillion British thermal units (tbtu) (3.9 MMT) in Q2FY18 mainly due

to higher regasification volumes. Blended margins are expected to decline 4.5% QoQ

from | 46.4/mmbtu to | 44.3/mmbtu as last quarter margins on spot volumes were

higher than average. On the profitability front, PAT is expected to decline 2.3% QoQ to

| 447.8 crore on account of lower other income



Power

Share of renewable at 18% as of August 2017

The total installed capacity as of August 2017 was at 329226 MW. The

share of renewable has inched up to 18% of overall capacity. The

renewable capacity installed was at 58303 MW, which is clearly ahead of

the installed hydro capacity at 44653 MW. In the interim, on account of

revision of solar PPAs by various SEBs, solar capacity addition has

moderated. However, with developers settling with demands of SEBs,

we expect a gradual pick-up by H2FY18. On the whole, we expect 8000-

10000 MW of solar capacity to be added in FY18E. As of August 2017,

cumulative solar and wind capacity was at 13184 MW and 32634 MW,

respectively. On the conventional side, no capacity addition has been

reported in Q2FY18E so far.

Power generation up 4.6% in YTDFY18

Overall, power generation during April-August 2017 is up 4.6% YoY

while in August 2017, the same was up 7.9% YoY. In terms of segment

(YTD) basis, thermal generation is up 5% YoY while hydro has seen

moderate growth of 5.8% YoY albeit peak season. On the other hand,

renewable segment witnessed 30.2% YoY growth in generation during

April-July 2017, mainly on the back of strong capacity addition in FY17.

Base and peak deficit was at 0.6% and 1.5% in August 2017,

respectively. On an all-India level, PLFs for August 2017 were up 100 bps

at 55%. On a segmental basis, central level utilities saw higher than

average PLFs at 70% while that of state, private IPPs meaningfully

improved to 64%, 55%, respectively.

Merchant prices shoots up in September 2017

Power prices in the spot market recently witnessed a sharp rise, jumping

from | 3.12/kwhr in August 2017 and | 4.11/kwh in early September 2017

to | 9.91/kwh during the last two weeks of September. States started to

rely more on the spot market for short-term power supply instead of

signing PPAs to bring down their costs. The sudden surge in demand

coupled with wind power shortage, maintenance of nuclear plants, fall in

hydro electricity generation, scanty rain and soaring temperature led to a

spike in price.

Performance to come across coverage universe

On the whole, we expect the power coverage universe to report a strong

set of Q2FY18E results as revenues and PAT is expected to grow 7.2%

and 14.8% YoY, respectively, on the back of strong generation and asset

capitalisation trends. In terms of individual performance, Power Grid is

expected to continue to witness a robust operational performance as it is

likely to capitalise assets to the tune of | 7000-8000 crore in Q2FY18E

coupled with 21.6% and 24.1% YoY growth in revenues and PAT,

respectively. During Q2FY18E, NTPC has commercialised assets to the

tune of 2600 MW, which coupled with improvement in PLFs will lead to

generation growth of 7.2% YoY. PAT is also expected to grow 6.3%.

CESC is also expected to witness 10% YoY growth in energy sold. We

have built in revenue and PAT growth of 9.2% and 19.8% YoY,

respectively.


27367

27646

28701

29363

29342

0

5000

10000

15000

20000

25000

30000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

(%

)


Trend in all India sectoral PLF

66

41

49

54

70

55 5564

0

10

20

30

40

50

60

70

80

Central State Private All India

Aug-16 Aug-17

Segment wise break up of total installed capacity

RES

18%

Hydro

14%

Nuclear

2%

Thermal

66%

Data as on August 2017

Top pick of sector

Power Grid

Research Analyst

Chirag Shah

[email protected]



Company

NTPC The company has put capacity to the tune of 2670 MW in commercial operation in

Q2FY18E. We expect NTPC to report strong generation growth of 7% YoY at 64.8 billion

units. Energy sold may also grow 7.1% YoY at 60.5 BUs. We have assumed a decline in

realisation as lower GST on coal will be passed on to consumers in terms of lower tariff.

We have built in tariff of | 3.2 kWHR in Q2FY18E. Hence, we expect NTPC to report

revenue growth of 2.3% YoY at | 19533.8 crore while PAT is expected to grow 6.3% YoY

to | 2337.7 crore

Power Grid We expect the company to continue its strong quarterly performance with

commissioning expected in the range of | 7000-8000 crore during Q2FY18E. We expect

overall revenues to grow 21.6% YoY to | 7606.8 crore. In terms of segmental

performance, we expect the transmission and consultancy segment to post revenue

growth of 22% YoY and 20% YoY, respectively. Consequently, we expect PAT to exhibit

growth of 24.1% YoY to | 2327.9 crore in Q2FY18E

CESC CESC is expected to grow 1.5% YoY in generation to 173 crore units whereas total

energy sold is expected to grow 10% YoY to 238.4 crore units. The energy sales decline

is lower than gross generation as CESC purchases its power from subsidiary, Haldia

Energy. On the whole, we expect revenues to grow 9.2% YoY at | 2201.2 crore. We

have built in realisation of | 8.2/kWHR. Consequently, we expect PAT to increase 19.8%

YoY at | 289.9 crore. Also, operational performance of Spencer’s will be a key

monitorable in Q2FY18E


Exhibit 32: Estimates for Q2FY18E: (Power) (| Crore) es

Revenue EBITDA PAT


CESC 2,201.0 9.2 0.8 607.5 2.8 0.1 289.9 19.8 62.9

NTPC 19,533.8 2.3 -1.7 5,295.9 4.0 5.1 2,337.7 6.3 -10.7

Power Grid Corp 7,606.8 21.6 4.2 6,694.0 14.8 6.0 2,327.9 24.1 11.4

Total 29,341.6 7.2 -0.1 12,597.4 9.4 5.3 4,955.4 14.8 1.4

Company




Real Estate

RERA, GST keeps sales and new launches under pressure…

The demand scenario continues to remain weak in the real estate

sector as a Prop Equity report suggested that housing sales across

top 8 markets have slipped 35% sequentially to 22,699 units in

Q3CY17. Also, new launches have slumped 83% sequentially to

4,313 units amid RERA and GST implementation. Consequently, the

unsold inventory dipped 4% QoQ to 4,46,730 units. However, we

believe, over the long term, RERA would bring back consumer

confidence and also lead to a consolidation in the sector which is

beneficial for organised players.

Office space absorption set to be stable in 2017…

A Cushman & Wakefield report indicates that office space absorption

is set to be stable on the back of corporate commitments. Net

absorption until September, 2017 has been recorded at ~18 msf led

by Bangalore, which registered highest volume of 4.8 msf. Office

space absorption is not only strong but pre-leasing is also at all-time

high, which is indication of sustained demand and occupiers' interest

in commercial spaces. Even, commercial office space vacancy has

almost halved in last 6 years. This gives us sense that commercial

space is recovering & lease rates can firm up in coming years.

Private players to boost affordable housing via new PPP models…

The central government has paved the way for private developers to

provide low cost housing. Ministry of Housing and Urban Poverty

Alleviation has framed a public private partnership policy for

affordable housing to give a much-needed fillip to the Prime Minister

Awas Yojana. Six PPP models have been identified in policy, which

differ on aspects like land ownership, private developer’s risk and

maintenance of houses. We believe this could hasten the

construction of affordable homes in urban areas as well.

Sales volumes of real estate universe to remain subdued…

We expect sales volumes of our universe to remain under pressure

amid RERA transition & GST implementation. Hence, we expect it to

post sales volume of 4.2 lakh sq ft in Q2FY18E. However, given low

interest rate regime & improved consumer sentiment amid festive

season, we expect a recovery in sales volumes H2FY18E onwards.

Topline of real estate coverage universe to grow 52.9% YoY...

Real estate universe revenues are expected to grow significantly by

52.9% YoY to | 747.9 crore on account of robust topline growth of

Sunteck Realty of 167.7% YoY to | 380.4 crore as its Avenue project

is expected to hit revenue recognition threshold. The universe is

expected to post EBITDA margins of 40.3%. However, we expect

our universe’s PAT to decline 1.8% YoY to | 190.2 crore due to 3.9%

de-growth in Sunteck’s PAT to | 93.4 crore.

Exhibit 34: Estimates for Q2FY18E (Real Estate) (| crore)

Revenue EBITDA PAT


Oberoi Realty 260.8 3.5 0.0 130.4 3.6 -3.8 87.8 4.9 -3.9

Mahindra Lifespace 106.7 12.3 -2.3 12.0 106.9 3.2 8.9 -30.0 -16.3

Sunteck Realty 380.4 167.7 185.2 70.7 -44.0 0.0 93.4 -3.9 135.6

Total 747.9 52.9 48.6 213.1 -17.4 -2.2 190.2 -1.8 34.2

Company




311

949

336

409

390

0

250

500

750

1000

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17E

| C

rore

20.0

25.0

30.0

35.0

40.0

45.0

(%

)


311

949

336

409

390

0

100

200

300

400

500

600

700

800

900

1000

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17E

(| crore)

Sales Volume Trend (Coverage Universe)

5.1

2.1

2.1

2.7

2.5

3.2

1.1 1

.4

1.0

1.1

1.7

0.2

0.9

0.4 0.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

H1FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18E

(la

kh s

q f

t)

Mahindra Lifespace

Oberoi Realty

Sunteck Realty

Research Analyst


[email protected]

Vaibhav Shah

[email protected]

http://realty.economictimes.indiatimes.com/tag/commercial

http://realty.economictimes.indiatimes.com/news/commercial


Exhibit 35: Company specific view (Real Estate coverage universe)

Company Remarks

Oberoi Realty Given the impact of RERA and GST and it being a seasonally weak quarter, we

expect Oberoi's sales volumes to de-grow significantly by 40.2% YoY to 1.06 lakh

sq ft. Further, on the financial front, we expect the topline to grow moderately 3.5%

YoY to | 260.8 crore mainly on account of 2.4% YoY growth in revenues from

residential projects to | 169.6 crore. EBITDA margins are expected to remain flat

YoY to 50.0%. Consequently, we expect its bottomline to grow moderately by 4.9%

YoY to | 87.8 crore.

Mahindra

Lifespace

We expect Mahindra Lifespace (MLD) to report flattish sales volume YoY at 2.54

lakh sq ft in Q2FY18E given the seasonally weak quarter. On the financial front, we

expect MLDL's topline to grow 12.3% YoY to | 106.7 crore. Furthermore, we expect

the bottomline to de-grow sharply by 30% YoY to | 8.9 crore despite decent topline

growth mainly on account of higher effective tax rate (28.6% in Q2FY18E vs. 22.8%

in Q2FY17)

Sunteck Realty With the launch of the new phase of Avenue project at attractive price point, we

expect Sunteck's sales volumes to improve sequentially from 0.43 lakh sq ft in

Q1FY18 to 0.6 lakh sq ft in Q2FY18E. On the financial front, we expect the topline to

grow robustly by 167.7% YoY to | 380.4 crore as its Avenue City project in

Goregaon is expected to hit the revenue recognition threshold during the quarter,

thereby boosting revenues. Further, we expect the company to post EBITDA margin

of 41.9% in Q2FY18E. However, despite stellar topline growth, the bottomline is

expected to de-grow 3.9% YoY to | 93.4 crore as in the base quarter, the company

had booked higher one-off other operating income to the tune of | 64.0 crore for

sale of stake in Mulund project.


Major News during Q2FY18

Working on PMO directives, the Ministry of Housing and

Urban Aaffairs has finalised a public private partnership

model to provide affordable housing. A beginning would be

made with land owned by HMT Bearings (Hyderabad

14.48 acre), Hindustan Antibiotics (Pune 62 acre), Heavy

Engineering Corporation (Ranchi 60 acre) and Indian Drugs

and Pharmaceuticals (Gurgaon 10-15 acre).

Maharashtra Housing and Area Development Authority

(Mhada) will soon enter into a joint venture partnership

with private developers and land owners to meet the

target of constructing 20 lakh affordable houses before

2020. The total contribution of private partner towards the

joint venture will be the cost of land as ascertained from

annual statement of rates while Mhada’s contribution will

be the cost of construction, infrastructure development

charges, marketing costs and project management &

administrative cost

Real Estate

Sector

Media reports indicate that the government's flagship

affordable housing scheme is set to get a boost as the

Centre is pushing to free up huge land parcels belonging to

sick and closing public sector enterprises in prime

locations including in Gurgaon, Hyderabad and Pune. The

government has identified at least seven land parcels

totalling over 2,500 acres where housing projects will

come up. About half of the built-up area on these land will

be affordable houses

The Housing and urban affairs secretary has said that

against the original estimate of building ~1.8 crore houses

for the urban poor by 2022, now the government would

need to construct ~1.2 crore houses according to a recent

assessment carried out by states. The earlier estimate

was based on a 2012 projection

Media reports indicate that the government could use the

affordable housing route to help the economy out of the

blues and generate jobs. A stimulus package seems to be

in the works but the specifics are being kept under wraps

The central government has announced a new public-

private partnership (PPP) policy for affordable housing that

allows extending central assistance of up to | 2.5 lakh per

house to be built by private builders even on private lands

The central government has extended the validity of

interest subsidy benefit of about | 2.6 lakh on home loans

under Pradhan Mantri Awas Yojana (Urban) for

beneficiaries belonging to Middle Income Groups (MIG) by

15 more months beyond earlier stipulated one year period

ending December, 2017

Oberoi

Realty

Oberoi Realty is set to acquire GlaxoSmithKline (GSK)

Pharmaceuticals’ 60 acre land parcel at Thane for | 555

crore

Mahindra

Lifespace

Mahindra Lifespace (MLD) has launched phase 2 of its

premium residential project "Windchimes" in Bengaluru.

The phase 2 of the project comprises 3 and 4 BHK

apartments, ranging in carpet area from 1307 sq ft to 2119

sq ft and priced from | 1.38 crore onwards


Retail

Growth may be stemmed post advancement of revenues in Q1FY18

In Q1FY18, several branded players had resorted to advancement of

EOSS by offering heavy discounts to liquidate their existing stock before

implementation of GST. This translated into robust topline growth for

our retail coverage universe for Q1FY18 (29% growth YoY). The

repercussion of the same is expected to stem revenue growth in

Q2FY18. As per our channel checks, various multi-brand outlets were

impacted in the first half of July as dealers were still familiarising

themselves with the compliance required to switch to the GST regime.

PMLA, another regulatory hurdle for jewellery industry

The jewellery industry was impacted by yet another regulatory

compliance with applicability of Prevention of Money Laundering Act

(PMLA), 2002. As per the government notification, any entity that deals in

precious metals, precious stones, or other high-value goods and has a

turnover of | 2 crore or more in a financial year will be covered under the

PMLA act. The government had already levied measures for PAN card

requirements for transactions above | 200000. However, under PMLA,

the limit has been abridged to | 50000. While Titan has started

complying for the same, it expects the limit to be relaxed since the

threshold is low considering a high value item like gold jewellery.

Though we believe this may dent consumer sentiments in the near term,

over a longer horizon it would be beneficial for Titan as it would further

increase the compliance burden for unorganised players.

Advancement of sales to impact revenues in Q2FY18

We expect Shoppers Stop’s consolidated revenues to report moderate

revenue growth of 5.9% YoY to | 1504.9 crore. Segment per se,

departmental stores and HyperCity is expected to register like to like

(LTL) sales growth of 6% and 3%, respectively. For ABFRL, we expect

lifestyle brands and the Pantaloons division to clock single digit revenue

growth of 7% and 6%, respectively, mainly on account of advancement

of EOSS in June. However, in the absence of Forever 21 revenues in

Q2FY17, we expect overall revenues to grow 15% YoY to | 2153.0 crore.

We expect Trent to be an out-performer among our coverage universe

companies. Trent was among the very few companies that did not

prepone its EOSS period in Q1FY18. We expect Trent to register topline

growth of 17% YoY to | 513.4 crore. Among speciality retailers, we

expect Bata to register moderate revenue growth of 5.3% YoY to | 614.3

crore. For Titan, we expect the jewellery division to be impacted by

advancement of sales in June (| 250-300 crore) in anticipation of higher

GST rate on gems & jewellery. We expect Titan to report topline growth

of 14.4% YoY to | 3015.8 crore.

Exhibit 36: Estimates for Q2FY18E: (Retail) (| Crore)

Revenue EBITDA PAT


Aditya Birla Fashion & Retail 2153.0 14.7 22.3 146.4 -11.2 97.8 46.5 -28.4 LP

Bata India 614.3 5.3 -16.5 56.5 6.2 -40.8 37.9 9.5 -37.3

Shopper Stop 1,504.9 5.9 13.7 46.3 -0.2 66.4 -1.4 NA NA

Titan Company 3,015.8 14.4 -24.3 288.9 10.9 -20.8 204.1 12.9 -14.5

Trent Ltd 526.2 17.3 5.4 35.2 42.2 -39.8 27.4 30.0 -28.2

Total 5,661.2 11.2 -13.5 426.9 11.0 -21.9 267.9 13.5 -16.1

Change (%)

Company




5090 6516

5808

6544

5661

0

1000

2000

3000

4000

5000

6000

7000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

(%

)


Space addition – million square feet ( QoQ)

(0.01)

0.120.03

0.13

0.05

-0.18

-0.13

(0.20)

(0.10)

-

0.10

0.20

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Shoppers Stop

Revenue per sq. ft.

2510

1858

2333 233823001927

23702362

2394

2245

0

500

1000

1500

2000

2500

3000

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Shoppers Stop

Top Pick

Aditya Birla Fashion & Retail

Research Analyst

Bharat Chhoda

[email protected]

Ankit Panchmatia

[email protected]

Cheragh Sidhwa

[email protected]


Negative operating leverage to impact EBITDA margins

With muted overall revenue growth anticipated this quarter, we expect

margins to remain suppressed owing to negative operating leverage

(higher employee and rental expense). The EBITDA margins for

Shoppers Stop, ABFRL and Titan are expected to contract 20 bps, 200

bps and 32 bps, respectively. In case of Trent, Q2 generally witnesses

lower EBITDA margins mainly on account of high discount offering

impacting gross margins negatively. On a YoY basis, we expect Trent’s

EBITDA margins to improve 120 bps YoY to 6.7% but decline 500 bps on

a sequential basis.

Space addition expected to pick up from H2FY18

In Q2FY18, Titan’s jewellery division added four Tanishq stores (7500 sq

ft), while the watches segment opened three World of Titan stores, five

Fastrack and eight Helios stores (8500 sq ft). The eyewear division added

10 Titan Eye plus stores (5000 sq ft) in Q2FY18. With the upcoming

buoyant festive season, the management intends to open stores more

aggressively in H2FY18. For Shoppers Stop, the number of departmental

store was at 80 with no addition on a net basis this quarter. However,

with Amazon’s equity infusion (| 179.3 crore), the company expects to

add five departmental stores in FY18.


Exhibit 37: Company specific view (Retail)

Company Remarks

Bata India We expect Bata to register decent revenue growth of 5.3% YoY to | 614.3 crore.

Disruptions at the dealer level for the first half of July are expected to impact the

performance this quarter. We expect gross margins to improve 50 bps on the back of an

improved product mix. However, higher operating expense and subdued topline growth

will result in negative operating leveraging leading to flattish EBITDA margins at 9.2%. We

expect bottomline to grow 9.5% YoY to | 37.9 crore

Shoppers

Stop

We expect Shoppers Stop to report moderate consolidated revenue growth of 5.9% YoY to

| 1504.9 crore. In the segment per se, departmental stores and HyperCity are expected to

register like-to-like (LTL) sales growth of 6% and 3%, respectively. Advancement of EOSS

in Q1FY18 and supply side challenges post GST are key factors to have stemmed revenue

growth this quarter. We expect consolidated EBITDA margins to decline 20 bps YoY to

3.1%, with EBITDA remaining flattish at | 46.3 crore. Subsequently, consolidated net loss

is expected to widen to | 1.4 crore vs. | 0.3 crore in Q2FY17

Titan

Company

Traditionally, the July-September quarter is considered to be weak due to lack of festive

season and certain inauspicious period. Despite activation of studded jewellery, the

company received a tepid response mainly on account of advancement of sales in June (|

250-300 crore) in anticipation of a higher GST rate. We expect Titan to register revenue

growth of 14.4% YoY to | 3015.8 crore with jewellery division reporting topline growth of

14% YoY. We expect EBITDA margins to decline 32 bps YoY to 9.6% due to lower share of

studded jewellery. On account of absence of exceptional expense (VRS scheme to the

tune of | 3 crore), we expect PAT to register growth of 12.9% YoY to | 204.1 crore

Trent Ltd Trent was one of the very few companies, which did not prepone its EOSS period in June.

We expect Trent to report healthy topline growth of 17% YoY to | 513.4 crore. Q2

generally witnesses lower EBITDA margins mainly on account of high discount offering

impacting the gross margins negatively. On a YoY basis, we expect EBITDA margins to

improve 120 bps YoY to 6.7%. However, it is down 500 bps on a sequential basis. PAT is

expected to increase 30% YoY to | 27.4 crore

ABFRL In the segment per se, we expect lifestyle brands and Pantaloons to clock single digit

revenue growth of 7% and 6%, respectively, mainly on account of advancement of EOSS in

June. However, in the absence of Fast fashion revenues (Forever 21) in Q2FY17, we

expect overall revenues to grow 15% YoY to | 2153.0 crore. EBITDA margins are expected

to decline 200 bps YoY to 6.8%. PAT is expected to decline 28% YoY to | 46.5 crore



Telecom

Regulation, competition to weigh on sector sentiment

Q2FY18 saw a slew of activities both on the regulation and completion

front. The subscriber base of key incumbents like Idea and Vodafone

witnessed a decline of 5.1 million (mn) and 3.8 mn, respectively, in the

first two months of Q2FY18, impacted by churn towards Jio. During

Q2FY18, Jio also launched its much awaited 4G feature phone at a

refundable deposit of | 1500 and unlimited voice tariff starting from |

153/month. The same is likely to put pressure on incumbents’ 2G

subscriber base, albeit news of them partnering with handset maker for

affordable 4G smart phone has partly allayed concerns. Furthermore,

Trai has slashed the interconnect usage charge (IUC) rates for from 14

paisa to 6 paisa, with effect from October 1, 2017. This is likely to impact

the EBITDA estimates for Bharti by 2.1%, 4.1% in FY18E, FY19E,

respectively. For Idea, the impact would be more pronounced, wherein

EBITDA estimates for FY18 and FY19 have been cut by 4.5% and 9.1%,

respectively.

Seasonality and GST to hurt voice business

Voice volumes are expected to be flattish in a seasonally weak quarter,

despite bundled offerings. Realisations are expected to continue to

decline further owing to bundled offerings and GST impact. We expect

flattish voice minutes of 421.9 and 250.4 billion for Airtel & Idea,

respectively. Voice APRM of Idea & Airtel are expected to post a decline

in realisations of 7% and 6% QoQ to 22.6 paisa and 20.7 paisa,

respectively. As a result, we expect Airtel and Idea to post voice revenue

decline of 6% and 7% QoQ to | 8717 crore and

| 5656.9 crore, respectively.

Data realisations continue to slide

There is expected to be an uptick in data consumption as incumbent

telcos have matched Jio’s offer to protect their respective customers’

base. Consequently, Airtel & Idea are expected to post 11.5% & 5.5%

QoQ growth in data volumes to 526.6 & 265.1 billion MB, respectively.

However, realisation would continue to slide given the attractive offer by

incumbents. We expect data realisations to decline 12% QoQ for Airtel

and Idea to 5.25 and 4.8 paisa/MB, respectively. Consequently, data

revenues are expected to decline 1.9% QoQ and 3.1% QoQ to

| 2766.3 crore and | 1321 crore for Airtel and Idea, respectively.

Margins to remain under pressure...

Lower operating leverage during the quarter is expected to impact

margins. Idea is expected to post margins at 20.5%, down 250 bps QoQ.

Consolidated margins for Airtel are seen at 34.8%, down 70 bps QoQ,

impacted by lower operating leverage in Indian mobility business

(margins down 180 bps QoQ).

Exhibit 38: Estimates for Q2FY18E- Telecom (| crore)

Revenue EBITDA PAT


Bharti Airtel 21,603.1 -12.4 -1.8 7,524.4 -20.5 -3.5 212.2 -85.5 -42.2

Bharti Infratel 3,637.3 10.5 3.2 1,606.4 10.8 2.0 669.2 -13.5 0.8

Idea Cellular 7,682.7 -17.4 -5.9 1,575.3 -44.5 -16.0 -1,030.6 PL NA

Sterlite Technologies 809.6 47.0 8.8 178.1 75.1 13.4 74.3 46.1 22.6

Tata Comm 4,390.8 -2.6 1.9 586.8 -11.4 5.0 49.4 23.7 53.3

Total 38,123.5 -9.9 -1.6 11,471.0 -21.0 -4.1 -25.5 PL PL


Company



42323

40520

38628

38752

38124

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18E

| C

rore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

(%

)


MOU trend

368

412

441446

406419

471

507 500

385

350

400

450

500

550


Billion M

inutes

Airtel Idea

Voice ARPM Trend

32.4

29.4

24.3

32.8

29.4

25.8

24.3

22.0 20.7

22.6

20

25

30

35

40

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Voic

e A

RP

M (

in P

ais

a)

Airtel Idea

Research Analysts

Bhupendra Tiwary

[email protected]

Sameer Pardikar

[email protected]


Exhibit 39: Company specific view (Telecom)

Company Remarks

Bharti Airtel Q2, being seasonally weak for telcos, is likely to result in muted voice volumes for

Airtel. Furthermore, wider adoption of bundled packages and GST impact will weigh

on realisations. We expect overall voice volumes at 421.9 billion minutes, flattish

QoQ. Voice realisations, however, are likely to slide to 20.7 paisa (down 6% QoQ),

largely impacted by bundled offerings and GST. Consequently, voice revenues are

expected to decline 6% QoQ to | 8717.2 crore, Data volumes at attractive prices

would continue to find favours, growing 11.5% QoQ to 526.6 billion MB. Realisations,

on the other hand, may decline 12% QoQ to 5.25 paisa/MB, thereby leading to 1.9%

QoQ decline in data revenues to | 2766.3 crore. Given the muted topline, the India

business margins are expected at 34.6%, down 180 bps QoQ. Africa topline and

margins are expected at | 4297.1 crore (up 1.5% QoQ) and 28%, respectively. Overall

margins are expected at 34.8%, down 70 bps QoQ, largely dragged by weak India

business margins

Bharti Infratel We expect net tenancy addition of 4558 in Q2FY18, aided largely by incremental

tenancy demand from Jio as it expands its services. The net add run rate, however,

is lower as key incumbents such as Idea and Vodafone are going slow on their capex

plans. Average tenancy ratio (at the consolidated level) is expected at 2.42x (up 2.6%

QoQ) with total co-locations reaching 222959. Rental realisation growth, however,

would be restricted by rental freeze for existing clients as per the new master service

agreement (MSA). Rental revenues are expected at | 2303.9 crore (up 2.0% QoQ).

We expect energy revenue growth of 5.5% QoQ to | 1333.4 crore, given the higher

usage of diesel on account of power outages as well higher realisations QoQ. Energy

margins are expected at 6.5% during the quarter. EBITDA margins are seen at 44.2%,

decline of 50 bps QoQ. PAT is seen at | 669.2 crore for the quarter. Our estimates are

based on proportionate consolidation of Indus (earlier method)

Idea Cellular Idea's subscriber base continues to face pressure from Jio as it lost 5.1 million

subscribers in the first two months of Q2FY18E. Furthermore, the impact of GST and

seasonality is likely to weigh on Idea's performance in Q2FY18. Overall voice volumes

at 250.4 billion minutes are expected to be flattish while voice realisations would

decline 7% QoQ to 22.6 paisa. Voice revenues, therefore, are expected to decline

7.1% QoQ to | 5656.9 crore. Data realisations would also slip to 4.8 paisa/MB (down

12% QoQ) given the wider adoption of bundled freebies. Data volumes, at 265.1

billion MB, are likely to grow 5% QoQ, thereby restricting data revenue decline to

3.1% QoQ at | 1321 crore. Margins are expected at 20.5%, down 250 bps QoQ, given

the negative operating leverage

Sterlite

Technologies

Sterlite is expected to report 47% YoY growth in topline at | 809.6 crore, on a lower

base as Q2FY17 had witnessed a weak services and projects revenues recognition.

The healthy revenue growth is expected to provide a positive operating leverage.

Consequently, we expect operating margins at 22% (350 bps improvement YoY).

Consequent PAT at | 74.3 crore is expected to grow 46.1% YoY. The bottomline

growth is lower than topline despite superior margins, owing to tax credit, which the

company had availed in Q2FY17

Tata Comm Data segment revenues continue to be driven by growth services. We expect overall

data revenues to grow 2.5% QoQ to | 2846.9 crore. Data margins are expected at

17.5% vs. 17% in Q1FY18. The weakness in the voice business is expected to

continue with voice volumes expected to decline 9.5% YoY to 10.2 billion minutes

while realisations are expected to decline 3.8% YoY leading to voice revenue decline

of 12.9% YoY to | 1543.9 crore. Voice margins are expected at 5.7%, flattish

sequentially. Overall margins are, hence, expected at 13.4%, up 40 bps QoQ. We

expect the company to report PAT of | 49.4 crore



Others


Revenue EBITDA PAT


Cox & Kings 644.8 9.3 -17.5 253.9 40.6 -28.5 51.2 87.1 -62.8

CARE 90.2 11.3 48.9 68.4 14.2 75.4 49.6 14.7 77.9

DRECOR 169.0 4.8 7.0 40.0 256.2 7.1 5.6 LP 40.7

Jet Airways 6,233.0 6.3 0.8 455.0 -11.3 14.0 70.0 -17.5 20.7

Mah. Seamless 484.7 59.0 7.7 69.6 17.1 14.4 44.1 13.7 18.3

Mcleod Russel 473.5 8.7 144.8 251.7 51.4 NA 176.2 33.4 LP

Navneet Publications 204.6 19.4 -63.8 36.0 20.9 -77.8 23.0 23.8 -79.0

Rallis India 590.7 7.6 32.6 115.9 11.3 67.0 75.2 13.1 66.0

Ratnamani Metals &

Tubes

430.4 33.7 46.1 75.0 44.7 59.2 43.7 53.0 89.3

Solar Industries 365.2 11.3 -21.7 73.4 12.0 -27.3 40.7 10.2 -25.7

Swaraj Engines 219.3 22.6 13.0 35.5 21.6 10.1 23.9 23.9 11.3

TTK Prestige 605.5 20.8 57.8 76.3 22.8 61.9 47.7 32.5 -64.8

Talwalkars 105.4 14.0 84.0 63.7 15.4 123.5 33.3 14.5 368.3

United Spirits 2,009.2 -1.4 12.8 181.5 -12.6 15.3 73.2 -11.3 17.8

United Breweries 1,102.7 11.4 -34.1 121.4 0.2 -61.9 31.0 173.5 -80.8

VST Tillers & Tractors

(VSTTIL)

192.7 10.3 6.4 29.3 12.2 19.6 17.8 2.0 -36.6

Wonderla Holidays

(WONHOL)

57.4 14.2 -42.2 12.2 19.9 -72.5 3.7 25.9 -86.1

Total 13,978.3 8.9 0.0 1,958.7 11.7 1.3 810.0 22.5 -13.7

Company



Exhibit 41: Company specific view (Others)

Company Remarks

Cox & Kings Q2 is a seasonally strong quarter for Cox and Kings. The company’s revenue growth

(up 9.3% YoY) to mainly come from Meininger (up 16.0% YoY led by bed additions)

and leisure India revenues (up 12.0% YoY). On the margin front, we expect EBITDA

margin to increase from 31% to 39% in Q2FY18E mainly led by higher margins in

Meininger and leisure India. Further, we expect PAT margins to improve from 5.0%

to 8.0% in Q2FY18E mainly led by better performance at operating level and lower

interest expenses. Adverse movement of currencies in European region poses risk to

profitability growth for the quarter.

CARE On a YoY basis, the traction in CARE's rating revenue is expected at 11% to | 90

crore, which is on the lower side compared to traction witnessed in earlier years

during Q2. This is due to a slowdown in the growth of bank loans and SME rating

segment. However, Q2 being a strong quarter in terms of surveillance fee income,

the QoQ traction in rating income looks strong at 47%. EBITDA margin is expected at

>70% while a PAT of ~| 50 crore is estimated (up 40% QoQ, and 15% YoY).

Dredging

Corporation of

India

The dredging activity at Bangladesh is expected to contribute from the current

quarter following which the revenues are expected to grow by 5% YoY to | 169

crore. On account of higher impact of repair and maintainence charges in Q2FY17,

EBITDA of Q2FY18 would optically qudraple to | 40 crore (vs. | 11 crore in Q2FY17).

Subsequently PAT is expected at | 5.6 crore as compared to a loss of | 14 crore in

Q2FY17




Jet Airways Jet's domestic passenger traffic growth (up 11% YoY) is expected to remain better

than the past five quarters average passenger growth of 4.5% YoY. Domestic traffic

to grow by 11% YoY to 52.9 lacs (v/s Industry growth of 16.1% YoY). Whereas,

international traffic is expected to grow by 6.5% YoY to 21.3 lacs leading to total

passenger growth of 9.7% YoY. Moderation in ATF prices (down 5.1% QoQ, up 2%

YoY) will help to improve margins QoQ by 80bps to 7.3%. However, margins to

remain lower on YoY basis.

Maharashtra

Seamless

For Q2FY18, Maharashtra Seamless is expected to report pipes sales volume of

85375 tonne (up 2% QoQ). The sale of seamless pipes is likely to come in at 72875

tonne (up 1.5% QoQ) while the ERW pipes sales is expected to come in at 12500

tonne (up 4.5% QoQ). We expect the topline to increase 7.7% QoQ while the EBITDA

margins are expected to come in at 14.4% (vs. 19.5% in Q2FY17 and 13.5% in

Q1FY18)

McLeod Russel Mcleod russel is expected to witness a sales growth of 8.7% YoY to | 473.5 crore

mainly due to increase in tea prices in Assam. We estimate flat volume growth of 25

million kg with the average realisation of | 189 per kg. We estimate 10% YoY

increase in domestic tea prices to | 166.5 per kg and 17 million kg sales volumes.

Exports realisation are expected to grow by 5% YoY to | 240 per kg. With the

increase in tea prices operating profit is expected to grow by 51% to | 251.7 crore

and net profit is expected to grow by 33.1% to | 175.8 crore

Navneet

Education

The spillover of revenues of the supplementary books from Q1FY18 to Q2FY18 is

expected to improve the revenues for the current quarter. We expect Navneet to

register a revenue growth of 19.4% YoY to | 204.6 crore, driven by robust growth in

publication segment to the tune of 26% and 6.0% revenue growth in the stationery

segment. EBITDA margins are expected to expand marginally by 22 bps YoY to

17.6% on account of positive operating leverage. Consequently we expect PAT to

grow 23.8% YoY to | 23 crore.

Rallis India Rallis India is expected to report steady performance in a seasonally important

quarter for its base agro-chemical business amidst near normal monsoon 2017 (-5%

of LPA). In Q2FY18E, in the agro-chemical segment we expect sales to grow by

modest 7.8% YoY to | 542.7 crore. While on the Metahelix front, we expect a

modest 6% YoY growth in sales to | 48.0 crore. On the consolidated level, we

expect sales to grow 7.6% YoY to | 590.7 crore while EBITDA margins are expected

at 19.6% up 60 bps YoY. Consequent EBITDA & PAT in Q2FY18E is expected at |

115.9 crore & | 75.2 crore respectively.

Swaraj Engines Swaraj Engines is expected to report strong performance in Q2FY18E primarily

tracking robust tractor sales at parent group i.e. M&M, amidst near normal monsoon

2017 (-5% of LPA). Sales volume is expected to grow by 20% YoY to 26874 units in

Q2FY18E with consequent sales at | 219.3 crore, up 22.6% YoY. EBITDA margins

are expected to be flat at 16.2%. Consequent, PAT in Q2FY18E is expected at | 23.9

crore (up 23.8% YoY)

Solar Industries Solar Industries is expected to post revenue growth of 11.3% YoY to | 365.2 crore.

This is mostly due to weak volume growth of 10.9% in bulk segment, coupled with

15% decline in realizations. Cartridge segment is likely to witness strong volume

growth of 29% amid flat realizations for the quarter. Revenues from overseas

markets are likely to grow 22% YoY due to stable Lira (turkey) and Rand (South

Africa). Naira (Nigeria) and Kwacha (Zambia) have witnessed depreciation of 13%

and 5.5% for the quarter. EBITDA margins are likely to remain stable at 20.1%. PAT

is likely to increase by 10.2% YoY to | 40.7 crore.




TTK Prestige With normalization settling in post GST, we expect TTK to report healthy topline

growth as the stock levels at trade channels are back to the pre-GST levels. We

expect TTK to report revenue growth of 21% YoY to | 605.5 crore driven by strong

sales during the Onam festival. Segment per se, we expect appliances, cookers and

cookware segment to report revenue growth of 25%, 22% and 18% respectively.

EBITDA margins are likely to improve marginally by 20 bps YoY to 12.6% on account

of positive operating leverage. Subsequently, driven by strong operating

performance we expect PAT to grow 32.5% YoY to | 47.7 crore.

Talwalkars

Better Value

Fitness

Q2 is seasonally strong quarter for Talwalkars. The company is expected to report

revenue growth 14.0% YoY mainly led by addition of new gyms and increasing share

of value added services & personal training. In addition, EBITDA margin is expected

to improve 76 bps mainly due to cost rationalisation. Overall net profit during the

quarter is expected to increase 14.5% YoY led by better performance at operating

level.

United Spirits Post clarification of Supreme court regarding its ban on national highways not

applicable to those segments of the roads that are within municipal areas, we

believe that the current quarter would witness higher re-stocking. According to

industry estimates, 85% of the outlets are expected to re-open post this clarification

following which the volumes for USL is expected to revive steeply on QoQ basis. We

expect volumes of 20.7 million cases (vs.18 million cases in Q1FY18) with a net

revenues of | 2009.2 crore. However the negative impact of GST are expected to

dent EBITDA margins to the extent of 100 bps to 9% with an absolute EBITDA of |

181.5 crore. Subsequently PAT is expected at | 73.2 crore

United

Breweries

Revenues for the quarter are expected to benefit from re-stocking activities

undertaken by shops within municipal areas. Moreover, price hikes in key states

would further acclerate the current quarter growth rate. We expect revenues to

grow by 11% YoY to | 1102.8 crore. We incorporate a negative margin impact of 66

bps YoY in EBITDA margins to 11% with an absolute EBITDA of | 121.4 crore.

However lower depreciation coupled with higher other income is expected to result

a PAT growth of 15% YoY to | 31 crore

VST Tillers &

Tractors

VST Tillers and Tractors is expected to report steady performance in Q2FY18E

primarily tracking higher sales volume in the tractor segment and relatively soft

performance in the power tiller segment. In Q2FY18E, tractor sales volume came in

at 3129 units (up 24.8% YoY) while power tillers sales volume came in at 5888 units

(down 8.1% YoY). Consequent net sales is expected at | 192.7 crore (up 10.3%),

EBITDA margins at 15.2% (up 30 bps YoY) and consequent PAT at | 17.8 crore, up

1.7% YoY. PAT growth lags the top line growth on account of lower other income

both YoY & QoQ basis

Wonderla

Holidays

We expect Wonderla to register 14.2% YoY increase in revenues mainly led by

higher ticket prices, while footfalls are expected to decline by 2.2% YoY (due to

monsoon). In terms of margins, we expect EBITDA margins to increase 102 bps YoY

to 21.3% mainly due to low base in the previous year (driven by higher tax

provisions and higher operating cost at new park). However, on a like to like basis

we expect EBITDA margins to contract by 700 bps mainly due to higher GST rates.

Ratnamani

Metals & Tubes

For Q2FY18, We expect Ratnamani's EBITDA margins to increase 133 bps YoY and

143 bps QoQ to 17.4%. RMTL's stainless steel division is expected to report capacity

utilisation of ~65%, while the carbon steel division is likely to report ~71%

utilisation. We expect the topline to increase 34% YoY and 46% QoQ. The EBITDA is

likely to increase 45% YoY and 59% QoQ.


ICICIdirect.com Coverage Universe

Valuation Matrix

x

FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Apparels

Kewal Kiran Clothing Ltd 1,680 1,684 Hold 2,071 69.2 59.0 73.3 24.3 28.5 22.9 20.4 22.4 17.8 32.9 28.8 32.9 23.8 19.5 23.9

Vardhman Textiles Ltd 1,304 1,150 Hold 7,482 179.0 75.2 157.3 7.3 17.3 8.3 7.3 8.2 6.5 13.1 7.5 13.1 23.0 9.0 16.6

Page Industries 19,045 15,115 Hold 21,243 238.7 310.7 402.0 79.8 61.3 47.4 50.1 38.8 29.9 54.0 58.8 63.3 40.0 43.1 45.3

Arvind Limited 385 480 Buy 9,961 12.3 14.0 19.1 31.2 27.6 20.1 13.2 12.2 10.2 11.1 11.5 13.3 9.0 9.6 11.7

Rupa 442 475 Buy 3,515 9.1 11.0 13.4 48.7 40.4 33.1 25.7 22.2 18.7 20.8 22.6 24.7 16.4 17.9 19.5

RoA (%)

Auto

Amara Raja Batteries 704 870 Hold 12,023 28.0 27.5 37.6 25.1 25.6 18.7 16.1 15.6 11.9 25.8 22.9 26.4 18.5 15.8 18.3

Apollo Tyres 242 315 Buy 12,329 21.8 17.2 24.2 11.1 14.1 10.0 8.6 10.2 7.8 13.6 10.2 13.0 15.1 10.8 13.5

Ashok Leyland 124 120 Buy 36,333 4.3 4.4 6.3 28.9 28.2 19.6 13.3 12.3 9.4 23.9 25.1 29.7 25.0 18.8 22.7

Bajaj Auto 3,140 2,780 Hold 90,855 132.3 136.6 164.7 23.7 23.0 19.1 17.6 17.2 13.8 30.3 29.0 30.9 22.5 21.1 22.2

Balkrishna Industries 1,702 1,800 Buy 16,455 74.0 80.2 105.5 23.0 21.2 16.1 13.9 12.7 9.5 23.0 23.9 26.8 20.2 18.4 19.9

Bharat Forge 642 657 Buy 29,900 15.0 19.2 22.6 42.9 33.5 28.4 24.0 16.3 13.8 16.7 23.1 29.5 15.4 18.9 23.8

Bosch 21,050 23,300 Hold 64,246 570.5 488.1 613.2 36.9 43.1 34.3 33.5 31.7 25.6 24.1 23.5 26.3 16.4 15.6 17.6

Mahindra CIE 241 280 Buy 9,112 4.5 9.7 12.9 53.9 24.7 18.7 20.0 13.3 11.0 6.9 10.7 12.9 5.4 10.3 12.1

Eicher Motors 31,247 33,460 Buy 85,062 655.9 828.5 1,026.0 47.6 37.7 30.5 26.4 20.6 16.5 39.4 38.9 36.8 36.0 33.5 31.1

Exide Industries 205 270 Buy 17,438 8.2 8.8 10.5 25.1 23.4 19.6 16.2 13.8 11.6 18.5 19.0 20.3 14.0 13.7 14.8

Hero Motocorp 3,710 4,475 Buy 74,097 169.1 198.3 235.6 21.9 18.7 15.7 15.5 13.1 10.9 44.0 46.0 46.7 33.4 33.9 34.2

JK Tyre & Industries 151 155 Hold 3,420 16.6 0.7 22.1 9.1 212.1 6.8 7.7 11.5 5.6 11.2 5.4 13.9 16.6 0.8 21.1

M&M 1,306 1,630 Buy 81,099 67.0 68.2 83.2 19.5 19.2 15.7 16.8 13.2 10.6 16.4 19.2 21.1 13.7 14.5 15.6

Maruti Suzuki 7,881 8,500 Buy 238,083 242.9 284.5 354.1 32.4 27.7 22.3 22.1 18.5 14.9 26.3 27.5 28.8 20.3 20.7 21.8

Motherson Sumi 341 335 Hold 71,681 7.4 10.7 13.6 46.1 31.8 24.9 17.1 12.6 9.8 16.0 22.3 27.7 19.6 24.7 25.2

Wabco 6,060 6,250 Buy 11,494 112.5 130.2 168.6 53.8 46.5 35.9 29.2 26.0 20.1 23.6 23.1 24.9 16.9 16.7 18.0

Tata Motors 423 490 Buy 134,380 22.3 31.3 44.4 19.0 13.5 9.5 5.6 5.2 3.8 11.6 11.5 15.7 15.0 14.7 20.2

RoA (%)

Aviation

Jet Airways 487 630 Hold 5,532 38.6 50.3 63.1 12.6 9.7 7.7 8.7 7.1 6.4 47.7 47.7 47.7

EV/EBITDA (x)P/E (x) RoCE (%) RoE (%)EPS (Rs)Market CapSector / Company CMP Target Price Rating

CMP as on Oct 6 , 2017, * UR= Under Review

Valuation Matrix

x


Building Materials

Century Plyboard 258 310 Buy 5,734 8.4 8.6 12.2 30.9 29.8 21.2 8.3 6.9 5.5 21.3 18.9 23.3 27.0 23.1 26.1

Kajaria Ceramics 739 755 Hold 11,753 15.9 16.5 22.4 46.5 44.9 33.0 10.0 8.5 7.1 27.1 24.0 27.6 21.5 19.0 21.6

Somany Ceramics 844 815 Hold 3,577 21.7 24.8 32.5 38.9 34.1 26.0 17.9 16.5 13.3 20.3 20.0 22.6 17.7 17.6 19.8

Greenply Industries 271 310 Buy 3,328 11.2 12.4 14.1 24.3 21.9 19.3 14.3 14.3 12.2 17.3 14.6 13.7 17.3 16.2 15.8

Shankara Building Products 1,523 1,725 Buy 3,480 26.4 33.3 46.5 57.7 45.7 32.7 22.1 20.0 16.0 22.9 23.0 26.6 15.3 16.6 19.4

RoA (%)

Capital Goods

VA Tech Wabag 590 765 Buy 3,221 31.1 37.9 46.4 19.0 15.6 12.7 10.6 8.3 6.9 25.4 27.5 28.6 10.2 17.9 18.9

SKF Bearing 1,538 1,800 Buy 8,108 46.3 53.0 61.7 33.2 29.0 24.9 22.7 20.9 17.4 20.7 23.1 23.8 13.5 15.1 15.6

Timken India 765 867 Buy 5,202 14.3 15.9 19.3 53.5 48.0 39.7 29.7 24.0 20.1 22.7 24.2 25.5 16.0 15.7 16.6

NRB Bearing 121 130 Hold 1,173 5.6 6.1 6.8 21.7 19.8 17.7 11.7 10.5 9.5 16.1 17.8 18.1 17.0 16.8 16.7

Grindwell Norton 420 500 Buy 4,652 10.8 12.5 14.4 39.0 33.7 29.2 23.2 18.9 16.2 19.5 21.3 22.4 13.4 14.2 15.0

Thermax 937 990 Buy 11,164 12.2 25.5 31.6 77.0 36.7 29.7 27.8 25.1 20.2 15.4 15.4 17.3 8.4 10.8 12.1

KEC International 308 345 Buy 7,907 12.8 14.9 19.2 24.0 20.7 16.1 9.6 8.4 7.1 17.0 18.1 19.9 17.4 17.2 18.6

Greaves Cotton 134 176 Hold 3,281 7.3 8.4 9.8 18.3 16.1 13.7 14.5 12.9 10.6 28.7 31.6 34.6 21.2 22.5 24.7

AIA Engineering 1,384 1,421 Hold 13,054 43.9 40.9 54.7 31.5 33.8 25.3 22.4 22.7 16.6 28.3 23.8 27.5 22.1 18.2 20.8

Larsen & Toubro 1,142 1,430 Buy 159,956 33.9 42.0 48.6 33.7 27.2 23.5 26.0 21.9 0.9 13.9 16.2 18.2 11.4 13.3 14.4

Bharat Electronics Ltd 166 194 Hold 40,811 6.8 7.3 7.9 24.4 22.7 21.2 20.1 17.4 15.9 26.0 25.1 23.5 19.5 18.4 17.4

Engineers India Ltd 148 182 Buy 9,967 4.9 6.8 8.3 30.2 21.8 17.8 22.5 16.5 12.1 15.7 18.9 20.6 11.7 15.0 16.6

RoA (%)

cement

India cements 183 232 Buy 5,636 5.4 7.8 10.1 33.6 23.5 18.1 9.7 8.5 8.0 7.1 7.9 8.2 3.3 4.5 5.6

Ambuja 280 305 Buy 55,529 4.9 5.2 6.9 57.4 54.1 40.8 33.4 33.7 23.0 7.4 7.7 10.5 5.1 5.3 6.8

Ultratech 3,924 4,750 Buy 107,730 95.8 88.1 125.8 41.0 44.5 31.2 21.8 21.9 15.6 13.0 9.6 12.9 11.0 9.5 12.3

Heidelberg cement 120 140 Hold 2,723 3.4 3.8 6.0 35.7 31.9 19.9 14.1 13.2 10.1 10.8 11.7 15.9 7.9 8.5 13.2

JK Lakshmi 394 495 Hold 4,630 7.0 9.6 20.0 56.5 40.8 19.7 17.7 13.8 9.7 7.5 9.5 14.1 5.9 7.7 13.8

Jk cement 978 1,265 Buy 6,836 37.1 44.7 53.3 26.3 21.9 18.3 14.7 12.5 10.8 12.6 13.9 15.7 14.5 14.4 15.1

Mangalam cement 368 425 Buy 982 12.9 11.7 38.2 28.6 31.5 9.6 11.7 10.7 5.6 10.2 10.3 20.0 6.8 5.9 16.3

Shree cement 18,738 19,700 Hold 65,278 384.8 442.6 576.3 48.7 42.3 32.5 25.1 22.0 16.4 17.7 19.0 21.2 17.4 16.9 18.4

ACC 1,737 2,050 Buy 32,620 37.0 44.8 60.8 47.0 38.7 28.6 23.2 22.2 16.4 11.1 12.8 15.4 8.5 9.3 11.6

Star Cement 104 135 Hold 4,379 4.1 4.8 3.9 25.5 21.5 26.6 13.1 12.0 12.1 13.8 14.7 13.0 14.0 14.7 11.0

The Ramco Cement 707 822 Buy 16,837 27.3 25.9 30.1 25.9 27.3 23.5 15.3 15.5 13.4 12.7 11.2 12.0 17.4 15.2 15.6

RoA (%)

Construction

NBCC 216 220 Hold 19,418 3.9 4.6 6.9 55.3 46.9 31.3 42.5 35.9 23.0 31.4 32.9 42.0 21.0 21.9 27.9

NCC Limited 86 110 Buy 4,764 4.1 4.7 5.9 21.1 18.2 14.4 9.5 8.8 7.7 14.6 13.6 14.7 6.6 6.9 8.1

Simplex Infrastructure 479 550 Buy 2,369 24.3 27.7 44.2 19.7 17.3 10.8 8.2 7.4 6.2 11.8 12.7 14.7 7.9 8.2 11.6

RoE (%)Market Cap

EPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%)Sector / Company CMP Target Price Rating

CMP as on Oct 6 , 2017 * UR= Under Review

Valuation Matrix


Consumer Discretionery

Havells India 506 540 Buy 31,661 8.6 11.5 15.3 58.6 43.9 33.1 34.7 28.1 21.0 23.0 26.0 28.9 17.4 20.4 22.2

Voltas Ltd 527 600 Buy 17,429 15.5 17.2 22.6 34.1 30.6 23.4 30.3 28.7 20.0 21.5 23.3 27.1 15.5 17.8 19.9

Asian Paints Ltd 1,160 1,181 Hold 111,277 21.4 22.5 27.5 54.1 51.7 42.2 36.1 34.8 28.0 32.9 29.5 31.4 26.9 24.9 26.3

Kansai Nerolac 483 495 Buy 26,027 9.4 10.6 12.2 51.4 45.8 39.7 34.7 30.9 26.5 26.2 27.7 28.0 18.0 19.2 19.4

Bajaj Electricals Ltd 368 380 Buy 3,731 10.8 13.1 19.0 34.1 28.1 19.4 15.2 14.4 10.5 16.7 17.8 22.5 12.4 14.0 17.5

Symphony Ltd 1,320 1,430 Buy 9,234 23.7 30.5 37.7 55.8 43.3 35.0 41.1 30.9 24.7 48.4 47.7 54.2 36.1 36.1 40.9

Essel Propack Ltd 265 270 Hold 4,159 12.5 16.2 16.1 21.2 16.3 16.4 10.7 8.2 8.0 17.6 19.5 18.2 17.4 17.2 15.2

V-Guard Ltd 190 165 Hold 8,085 3.6 3.6 4.4 53.3 52.4 42.9 34.7 34.9 28.5 32.3 28.6 29.1 23.8 22.1 22.5

Pidilite Industries 800 890 Buy 40,996 16.8 17.4 20.8 47.5 46.0 38.5 31.7 30.8 25.9 33.0 31.4 32.8 24.9 23.7 24.8

Supreme Industries 1,100 1,285 Buy 13,977 33.7 36.3 40.4 32.6 30.3 27.3 18.5 17.7 15.3 30.0 30.7 33.3 25.3 26.4 26.2

Astral Poly Technik Ltd 723 720 Buy 8,653 12.1 15.9 20.6 59.8 45.3 35.1 30.2 23.7 18.9 21.3 21.8 23.3 17.2 17.4 18.5

RoA (%)

FMCG

Hindustan Unilever 1,200 1,180 Hold 259,824 20.8 25.1 28.1 57.7 47.8 42.8 40.9 32.9 29.3 74.9 91.1 87.6 66.6 76.2 72.1

Colgate Palmolive 1,087 1,150 Hold 29,568 21.2 22.8 28.6 51.2 47.7 38.1 30.7 29.1 23.4 64.1 65.8 70.1 45.3 46.1 49.3

Dabur India 316 320 Hold 55,602 7.2 7.4 8.0 43.5 42.4 39.5 36.1 36.1 33.9 28.0 25.5 25.4 26.4 23.3 22.5

GSK Consumer Healthcare 5,000 5,960 Buy 21,027 156.1 167.2 186.2 32.0 29.9 26.9 23.2 22.0 19.2 30.8 28.9 29.8 21.0 20.2 20.7

ITC 266 320 Buy 323,753 8.4 8.9 9.9 31.7 29.9 26.8 23.9 23.5 21.1 32.9 31.6 34.3 22.5 21.9 23.8

Jyothy Laboratories 401 370 Hold 7,276 11.1 9.8 10.6 36.0 40.9 37.7 25.5 26.8 21.9 28.1 24.5 27.6 30.9 25.3 25.1

Marico 312 340 Hold 40,237 6.3 6.9 8.5 49.6 45.5 36.8 35.1 32.9 27.0 44.6 42.8 46.2 34.9 33.8 36.8

McLeod Russel 161 160 Hold 1,762 7.8 9.0 8.8 20.6 17.8 18.3 24.1 14.4 16.0 6.2 7.1 6.6 3.3 3.6 3.4

Nestle India 7,321 7,600 Buy 70,586 103.9 129.4 157.8 70.5 56.6 46.4 31.1 29.1 24.5 34.9 36.0 45.3 36.2 39.3 45.2

Tata Global Beverages 210 195 Buy 13,225 7.2 7.8 8.1 29.1 26.7 25.8 12.9 11.9 11.6 8.8 9.6 9.5 7.2 7.8 7.8

VST Industries 2,864 3,450 Buy 4,423 103.8 123.1 143.6 27.6 23.3 19.9 18.4 15.3 13.2 43.7 46.4 48.5 29.9 32.5 34.4

Prabhat dairy 134 145 Buy 1,308 4.8 6.3 9.3 27.9 21.3 14.5 11.6 10.7 8.8 8.0 9.2 11.6 5.1 6.7 9.6

RoA (%)

Hospital

Apollo Hospital 1,063 1,180 Hold 14,792 15.9 6.9 19.5 66.9 154.8 54.6 24.1 23.9 17.8 6.0 5.8 8.9 6.0 2.5 6.7

RoA (%)

Hotels

EIH 136 170 Buy 7,799 1.9 2.1 3.1 73.5 66.1 43.5 30.1 24.4 17.9 6.4 5.5 8.7 4.7 4.1 6.1

Indian Hotels 108 130 Hold 11,344 -0.6 0.9 1.4 NM 125.6 76.0 24.1 20.4 18.6 5.4 5.6 6.4 -3.7 2.0 3.9

Taj GVK 186 190 Buy 1,167 0.6 1.3 2.4 287.3 147.3 76.5 20.7 19.6 17.0 6.7 7.1 8.6 1.4 3.4 4.7

Sector / Company CMP Target Price Rating Market CapEPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)


Valuation Matrix


IT

Cyient 510 545 Hold 5,741 30.5 35.2 41.7 16.7 14.5 12.2 9.7 7.6 6.5 19.7 20.7 21.6 16.2 16.8 17.6

eClerx Services 1,243 1,145 Sell 4,955 86.4 80.4 88.2 14.4 15.4 14.1 10.0 10.8 9.6 34.5 28.9 29.4 29.1 23.9 23.7

Firstsource Solutions 42 40 Buy 2,888 4.1 4.0 4.2 10.3 10.5 10.0 7.0 6.3 5.6 11.7 11.7 11.9 13.8 11.9 11.1

HCL Technologies 907 930 Hold 129,414 60.0 59.7 66.1 15.1 15.2 13.7 10.4 9.8 8.5 30.3 30.6 33.3 26.6 25.5 27.1

Infosys 917 975 Hold 210,666 62.8 64.7 69.6 14.6 14.2 13.2 9.6 9.8 8.6 28.8 31.2 30.1 20.8 22.4 21.5

KPIT Technologies 127 140 Hold 2,515 10.6 9.9 13.8 12.0 12.8 9.3 6.1 6.2 4.5 16.3 14.9 18.6 15.4 11.7 14.3

MindTree 479 470 Hold 8,047 24.9 26.9 33.3 19.2 17.8 14.4 9.8 10.2 7.7 21.2 24.2 28.1 16.2 18.8 21.8

NIIT Technologies 564 575 Hold 3,464 43.5 44.7 52.3 13.0 12.6 10.8 2.4 2.2 1.6 30.0 27.8 30.1 15.0 13.9 14.5

Persistent Systems 642 700 Buy 5,134 37.6 38.8 47.9 17.1 16.5 13.4 9.4 8.6 6.8 20.7 19.4 21.4 15.9 14.6 16.0

Tata Consultancy Services 2,448 2,400 Hold 482,361 133.4 133.3 148.9 18.3 18.4 16.4 13.6 13.6 11.6 38.0 37.6 35.7 29.8 29.5 27.4

Tech Mahindra 455 450 Hold 44,428 31.7 32.4 38.2 14.4 14.1 11.9 8.4 7.6 6.2 19.4 17.3 18.4 17.1 15.5 16.2

Wipro Technologies 286 285 Hold 139,285 17.5 18.1 20.2 16.4 15.8 14.2 4.3 5.3 4.1 16.8 17.3 16.8 16.3 17.0 16.2

InfoEdge 1,062 1,100 Buy 12,889 16.9 20.2 23.7 63.0 52.7 44.7 50.1 37.5 31.3 13.4 17.3 18.7 10.5 11.6 12.5

RoA (%)

Logistics

Blue Dart Express 4,117 5,000 Buy 9,768 58.9 61.3 85.6 69.9 67.2 48.1 29.2 26.4 21.4 32.2 29.9 34.4 32.6 25.6 30.9

Container Corporation of India 1,332 1,370 Buy 32,456 42.5 35.8 46.7 31.3 37.2 28.5 22.7 20.4 15.4 12.5 12.4 15.0 9.4 9.3 11.2

Gati Ltd 110 150 Buy 1,195 3.3 4.3 5.1 33.0 25.5 21.4 13.1 11.4 8.2 7.7 10.8 11.5 5.1 7.5 8.2

Gujarat Pipavav Port 142 165 Buy 6,848 5.1 6.0 7.4 27.8 23.6 19.3 15.3 13.5 10.8 14.0 67.9 83.1 9.2 11.5 12.5

Transport Corporation of India 268 335 Buy 2,053 8.6 12.7 18.2 31.2 21.1 14.7 15.3 12.1 9.4 10.7 15.1 19.3 10.2 13.1 17.1

Dredging Corporation of India 570 570 Hold 1,595 2.7 16.6 31.7 214.6 34.2 18.0 20.1 15.4 11.8 1.1 2.1 3.2 0.5 2.7 4.9

RoA (%)

Media

Sun TV Limited 781 920 Buy 30,766 26.1 29.3 36.7 29.9 26.6 21.3 17.7 15.7 12.3 37.2 38.2 41.5 25.6 26.1 28.2

DB Corp Ltd 379 430 Buy 6,971 20.4 23.4 26.6 18.6 16.2 14.2 10.8 9.2 7.9 32.2 32.3 31.7 23.5 23.3 22.6

Dish TV Limited 72 75 Hold 7,643 1.0 0.5 1.5 69.9 144.8 48.6 9.0 8.9 7.6 20.8 17.4 24.4 22.3 9.8 22.5

Entertainment Network Limited 809 890 Hold 3,857 11.6 13.1 23.1 69.9 61.7 35.0 33.4 27.9 19.0 9.3 9.5 15.4 6.4 6.4 10.8

HT Media Limited 98 78 Sell 2,276 7.3 7.1 7.7 13.4 13.8 12.7 9.6 8.5 7.4 10.9 10.5 10.4 7.6 6.9 7.0

Inox Leisure Ltd 229 325 Buy 2,206 3.2 6.3 9.3 71.8 36.1 24.5 17.9 13.0 10.1 7.3 12.1 15.1 5.5 9.9 12.8

Jagran Prakashan Limited 179 210 Buy 5,845 10.6 12.2 14.2 16.8 14.6 12.6 8.8 7.9 6.9 20.1 20.3 21.0 16.1 16.2 17.0

PVR Limited 1,302 1,440 Hold 6,087 20.5 26.7 37.3 63.6 48.8 34.9 19.0 17.2 13.5 13.7 15.2 18.2 10.2 11.6 14.0

Zee Entertainment Enterprises Ltd 522 580 Hold 50,087 23.1 13.8 18.6 22.5 37.8 28.1 23.9 22.6 18.0 21.2 22.3 24.5 15.0 13.7 16.0

TV Today Network Limited 365 305 Buy 2,177 18.1 19.2 24.2 20.2 19.0 15.1 11.3 8.7 6.9 24.7 26.6 26.7 16.3 17.4 17.4

RoE (%)Market Cap



Valuation Matrix


Metals, Mining & Pipes

Tata Steel 688 700 Buy 66,854 42.2 61.6 72.3 16.3 11.2 9.5 7.1 5.9 5.1 9.0 11.4 11.7 10.8 16.9 17.0

JSW Steel 255 240 Buy 61,724 14.3 20.8 22.0 17.8 12.3 11.6 3.8 3.6 3.5 13.4 13.9 13.5 15.3 18.8 16.9

NMDC 122 145 Buy 38,536 8.2 11.5 13.0 14.9 10.5 9.4 9.3 6.6 5.8 18.6 20.7 21.2 11.5 14.2 14.5

Hindalco 249 260 Buy 55,821 8.4 19.2 25.0 29.4 12.9 9.9 8.1 7.1 6.2 6.9 8.7 9.7 4.1 8.8 10.0

Vedanta Ltd 326 325 Hold 121,273 15.1 28.6 37.3 21.6 11.4 8.8 7.1 6.0 5.0 12.1 14.5 16.2 9.3 15.4 17.2

Hindustan Zinc 320 335 Buy 135,168 19.7 24.2 28.1 16.3 13.2 11.4 10.7 8.2 6.1 26.9 34.2 33.7 27.0 27.4 26.3

Graphite India 473 350 Buy 9,232 3.6 11.1 21.8 131.0 42.7 21.7 211.6 26.9 13.3 -0.3 15.2 27.3 3.8 11.4 19.1

HEG 1,134 925 Buy 4,532 -12.5 18.8 56.2 NM 60.4 20.2 45.3 15.8 7.5 1.3 10.1 22.9 -5.7 7.9 19.2

Maharashtra Seamless 446 400 Hold 2,988 21.7 28.7 32.4 20.5 15.6 13.7 8.8 6.4 5.2 5.3 8.9 9.4 5.2 6.4 6.7

Coal India 276 265 Hold 171,324 14.7 16.7 17.9 18.8 16.5 15.4 16.8 15.0 13.6 33.5 49.7 48.9 37.8 36.8 35.9

Ratnamani Metals and Tubes 897 1,050 Buy 4,192 30.9 33.8 41.3 29.0 26.5 21.7 15.7 13.9 12.0 17.8 18.4 19.9 12.2 12.0 13.1

RoA (%)

MidCap

Rallis India 229 300 Buy 4,455 15.3 9.4 11.6 15.0 24.4 19.8 15.1 13.5 11.1 19.9 21.6 23.6 15.6 15.2 17.0

Swaraj Engines 2,021 2,570 Buy 2,510 55.4 69.0 80.2 36.5 29.3 25.2 21.7 17.9 15.1 31.2 36.4 39.8 24.3 28.4 31.2

VST Tillers & Tractors 2,173 2,200 Hold 1,877 83.0 99.8 100.1 26.2 21.8 21.7 17.0 14.7 12.5 19.2 21.1 19.8 14.2 15.8 14.1

KSB Pumps 725 850 Buy 2,524 18.8 19.7 25.6 38.6 36.8 28.3 23.3 21.5 16.7 10.6 10.4 13.0 10.1 9.9 11.9

RoA (%)

Oil & Gas

GAIL 448 440 Buy 75,737 15.5 25.9 27.9 28.8 17.3 16.1 12.0 9.8 9.7 12.4 13.8 13.5 9.2 10.7 10.7

Gulf Oil 773 827 Hold 3,841 24.4 26.5 29.4 31.7 29.2 26.3 20.9 19.4 16.8 36.6 38.3 38.7 34.2 32.0 29.4

HPCL 441 425 Hold 67,223 40.7 34.8 36.5 10.8 12.7 12.1 8.3 8.4 7.9 20.1 15.4 15.2 30.5 23.2 21.9

IGL 1,435 1,300 Hold 20,090 40.8 46.8 50.4 35.2 30.6 28.5 20.3 17.3 15.6 24.0 24.0 22.3 17.3 17.0 15.8

MRPL 127 150 Buy 22,188 20.8 11.5 14.0 6.1 11.0 9.0 6.1 6.2 5.4 31.7 16.9 19.7 20.3 17.9 19.2

ONGC 174 178 Hold 223,298 13.9 14.4 16.1 12.5 12.1 10.8 5.8 4.6 4.0 12.7 13.4 14.1 9.6 9.8 10.5

Petronet LNG 242 240 Buy 36,338 11.4 12.2 13.9 21.3 19.8 17.4 14.5 11.8 10.7 23.1 27.0 31.1 16.8 18.6 20.2

Castrol 362 375 Hold 17,903 13.6 12.4 13.4 26.5 29.2 27.1 16.7 18.7 17.3 198.1 244.4 288.8 113.3 136.7 159.2

GSPL 196 174 Buy 11,022 8.8 12.4 13.1 22.2 15.8 14.9 12.2 8.6 8.0 14.2 18.6 17.7 9.1 12.1 11.2

Gujarat Gas 910 890 Buy 12,529 16.2 34.5 44.5 56.2 26.4 20.4 19.8 13.2 11.1 10.4 16.5 18.6 12.0 22.0 23.2

BPCL 486 485 Hold 105,480 40.9 33.8 42.0 11.9 14.4 11.6 - - - 20.5 18.0 17.2 27.1 21.1 26.4

Mahanagar Gas Ltd 1,122 1,206 Buy 11,083 39.8 51.2 53.6 28.2 21.9 20.9 16.6 12.5 11.8 30.4 34.5 32.0 18.5 21.6 19.8



Valuation Matrix


Others

Reliance Defence and Engineering 52 68 Hold 3,806 NA NA NA 303.8 155.9 114.9 -1.8 -1.3 -1.1 -39.9 -18.3 -18.9

Talwalkars 266 315 Hold 791 22.0 30.6 36.5 12.1 8.7 7.3 6.6 5.7 4.6 13.0 15.1 17.3 13.3 15.2 15.5

Cox and Kings 280 290 Hold 4,937 3.5 8.3 10.2 80.1 33.7 27.4 9.7 7.3 6.1 8.0 10.9 12.4 2.6 5.6 6.2

Solar Industries India Ltd 930 820 Hold 8,416 20.6 23.9 27.2 45.1 38.9 34.2 25.7 21.3 18.9 20.4 22.0 22.0 20.1 19.9 19.4

United Spirits 2,367 2,700 Buy 34,396 6.4 27.5 49.4 369.8 86.1 47.9 38.3 38.6 25.9 16.6 29.9 36.5 5.2 20.4 27.9

United Breweries 859 820 Hold 22,703 8.7 12.6 16.3 99.0 68.0 52.8 33.4 26.9 22.2 15.8 19.5 21.9 9.8 12.8 14.4

Wonderla Holidays 368 430 Buy 2,079 5.8 13.3 17.2 63.7 27.7 21.3 26.4 13.7 11.2 10.9 20.1 23.1 7.5 15.0 16.6

Navneet Education Ltd. 164 195 Buy 3,839 7.3 8.3 9.7 22.5 19.9 16.9 14.2 13.1 11.0 31.4 30.7 32.0 24.6 23.7 24.1

RoA (%)

Pharma

Sun Pharma 529 445 Hold 126,848 29.0 10.5 20.0 18.2 50.1 26.5 11.6 21.3 15.9 19.8 9.7 12.3 19.0 9.0 11.2

Ajanta Pharma 1,173 1,420 Buy 10,324 56.6 51.8 67.1 20.7 22.6 17.5 15.9 17.1 13.0 41.8 30.5 31.5 33.2 24.5 25.3

Lupin 1,035 1,070 Hold 46,768 56.6 40.4 52.6 18.3 25.6 19.7 11.5 14.2 11.3 16.6 12.2 15.3 18.9 12.2 14.0

Aurobindo Pharma 745 745 Hold 43,622 39.4 45.8 40.6 18.9 16.3 18.3 13.3 10.8 11.9 24.4 25.2 19.3 24.2 22.7 16.8

Biocon 349 380 Hold 20,937 11.0 7.6 13.6 31.8 45.7 25.7 20.4 21.6 14.3 11.9 10.0 16.0 13.6 8.8 14.0

Cadila Healthcare 497 440 Hold 50,890 14.5 19.4 22.8 34.2 25.6 21.8 28.8 20.0 16.2 13.1 17.3 19.8 21.4 23.5 22.9

Cipla 586 525 Hold 47,191 12.5 21.6 26.1 46.8 27.1 22.5 20.1 16.6 13.6 7.7 12.6 14.2 8.0 12.5 13.4

Dr Reddy's Lab 2,383 2,400 Hold 39,516 72.7 71.7 126.2 32.8 33.2 18.9 17.7 16.3 10.6 6.1 6.6 11.9 9.5 8.8 13.8

Divi's Lab 866 665 Hold 22,996 39.3 34.9 41.5 22.0 24.8 20.9 15.1 16.1 13.4 25.0 20.4 21.4 19.5 15.5 16.3

Glenmark 613 730 Hold 17,293 43.1 40.7 40.3 14.2 15.1 15.2 9.8 10.5 10.4 18.9 16.5 15.4 25.5 18.6 15.7

Indoco 221 180 Hold 2,039 8.4 5.4 12.2 26.5 41.0 18.1 13.6 16.2 10.0 8.4 6.0 12.1 12.0 7.3 14.6

Ipca Lab 524 410 Hold 6,614 15.4 12.4 25.5 34.0 42.3 20.5 16.4 19.4 12.4 8.7 6.9 12.5 7.9 6.1 11.3

Jubilant Life 659 845 Buy 10,489 36.1 46.9 58.4 18.2 14.0 11.3 10.5 8.7 7.2 13.3 15.4 17.4 16.8 18.1 18.6

Natco 994 1,065 Buy 17,326 27.0 26.4 15.8 36.8 37.7 62.8 26.1 25.8 39.0 33.0 28.1 16.0 28.8 23.2 12.6

Torrent Pharma 1,265 1,260 Hold 21,406 55.2 48.9 66.2 22.9 25.8 19.1 15.9 16.5 12.8 18.9 17.8 20.8 21.5 16.7 19.3

Unichem lab 262 235 Hold 2,382 12.0 12.5 19.4 21.8 21.0 13.5 13.4 13.6 8.8 11.8 11.0 15.6 10.2 9.8 13.4

Alembic Pharma 500 570 Hold 9,431 21.2 19.7 28.8 23.6 25.4 17.4 15.2 17.2 11.5 25.3 19.2 23.9 21.0 16.9 20.8

Syngene International 491 490 Hold 9,822 14.3 14.3 17.4 34.2 34.2 28.2 24.2 22.6 17.4 16.8 16.2 17.8 20.3 17.2 17.4

RoA (%)

Power

CESC 1,036 1,104 Buy 13,730 56.3 81.3 87.5 18.4 12.7 11.8 7.7 6.5 5.7 11.5 12.8 13.3 8.4 10.4 10.1

Power Grid Corporation 205 255 Buy 107,038 14.4 17.4 20.8 14.2 11.8 9.8 10.6 9.6 8.6 8.8 9.1 9.5 15.3 15.9 16.3

NTPC 177 176 Buy 145,532 12.8 13.9 14.5 13.8 12.7 12.2 10.8 10.8 10.7 8.8 8.7 8.3 11.0 11.1 10.7

RoE (%)Market Cap



Valuation Matrix


Real Estate

Oberoi Realty 423 435 Hold 14,365 11.2 20.1 25.3 37.9 21.1 16.7 25.0 12.7 10.3 8.6 15.0 17.0 6.7 11.0 12.4

Mahindra Lifespace 467 605 Buy 2,578 24.9 21.5 30.1 18.8 21.7 15.5 50.7 34.1 21.0 4.7 5.0 6.3 6.0 5.4 7.1

Sunteck Realty Ltd 330 285 Buy 4,152 17.3 21.1 26.9 19.0 15.7 12.3 10.8 8.8 6.4 12.9 15.2 18.5 11.6 12.6 14.2

RoA (%)

Retail

TTK Prestige 6,100 5,300 Sell 7,101 129.3 219.1 171.0 47.2 27.8 35.7 33.3 27.6 23.2 18.5 20.2 22.6 17.6 25.1 17.4

Shopper Stop 510 650 Buy 4,255 -2.4 5.3 9.7 NM 96.4 52.7 25.5 19.5 15.9 5.6 9.3 11.4 -2.6 4.8 8.1

Titan Industries 598 630 Hold 53,107 8.6 11.8 15.0 69.7 50.6 39.9 43.9 36.0 28.9 33.0 33.5 34.7 17.7 20.6 21.7

Bata India 740 880 Buy 9,505 12.4 17.9 22.0 59.9 41.4 33.5 31.7 24.9 20.2 29.5 37.6 39.6 12.0 15.3 16.5

Trent Ltd. 318 310 Buy 10,576 2.0 3.1 4.1 156.4 101.3 76.8 80.9 57.4 47.3 7.4 9.4 11.0 3.8 8.2 11.0

Aditya Birla Fashion & Retail 161 210 Buy 12,454 0.7 1.4 2.6 232.5 114.1 62.0 33.0 27.2 21.6 7.5 9.7 12.8 5.6 10.2 15.8

RoA (%)

Road

IRB Infrastructure 209 240 Hold 7,335 21.5 25.5 26.1 9.7 8.2 8.0 7.4 6.0 4.2 6.2 6.4 7.4 13.6 14.2 13.0

Ashoka Buildcon 195 210 Buy 3,656 -0.5 -3.4 0.8 NM NM 237.5 9.2 8.4 7.4 5.2 5.2 6.2 -0.5 -3.5 0.9

PNC Infratech 149 155 Buy 3,822 8.2 6.9 10.3 18.2 21.5 14.4 15.4 12.7 8.6 14.2 12.8 17.4 9.8 10.4 13.6

Sadbhav Engineering 287 350 Buy 4,923 11.0 13.6 12.4 26.2 21.1 23.2 18.0 14.4 12.1 10.5 11.2 12.7 11.5 12.7 10.5

RoA (%)

Telecom

Bharti Airtel 1,000 450 Buy 202,521 9.5 3.1 7.1 105.2 322.7 140.3 7.2 8.4 7.8 8.4 5.9 7.0 7.6 1.9 4.2

Bharti Infratel 400 410 Hold 73,910 14.9 15.7 17.7 26.9 25.5 22.6 12.4 11.2 10.3 20.1 23.2 24.8 17.7 19.1 21.4

Idea Cellular 74 85 Hold 26,528 -1.1 -11.1 -10.6 NM NM NM 7.6 12.2 11.5 3.3 -1.8 -1.4 -1.6 -19.3 -22.5

Tata Communications 706 670 Hold 20,124 43.3 12.5 21.1 16.3 56.4 33.5 11.2 10.3 8.5 6.1 7.4 10.3 17.2 20.8 28.9

Sterlite Technologies Ltd. 223 230 Buy 8,913 5.1 6.8 8.8 44.0 32.7 25.2 18.8 14.4 11.6 16.1 19.9 21.8 22.9 25.2 26.3



Valuation Matrix


Banks

IndusInd Bank 1,686 1,650 Hold 100,983 48.0 58.6 74.6 35.2 28.8 22.6 5.7 4.9 4.3 1.8 1.8 1.9 15.0 15.9 17.6

Yes Bank 365 360 Hold 83,555 14.9 19.7 25.6 24.5 18.5 14.3 6.1 3.8 3.2 1.8 1.8 1.9 19.0 18.7 20.3

Bank of Baroda 141 200 Buy 32,546 6.0 10.2 19.1 23.6 13.8 7.4 0.8 0.8 0.8 0.2 0.3 0.6 3.4 5.8 10.3

City Union Bank 164 180 Buy 10,827 7.6 9.1 10.5 21.5 18.1 15.5 3.5 3.0 2.6 1.5 1.6 1.6 15.3 15.7 15.9

Punjab National Bank 136 180 Buy 28,866 6.2 14.4 21.3 21.8 9.4 6.4 0.8 0.7 0.7 0.2 0.4 0.5 3.3 7.1 9.8

Axis Bank 504 585 Buy 120,767 15.4 23.3 40.0 32.8 21.6 12.6 2.3 2.2 2.0 0.6 0.9 1.3 6.8 9.6 14.7

DCB Bank 187 200 Hold 5,751 7.0 8.7 10.9 26.6 21.5 17.1 3.2 2.6 2.0 0.9 1.0 1.1 11.1 12.0 12.3

Federal Bank 117 140 Buy 22,762 4.8 5.8 7.8 24.2 20.2 14.9 2.7 2.5 1.8 0.8 0.9 1.0 9.6 10.5 11.7

HDFC Limited 1,735 1,910 Buy 276,414 46.8 51.6 58.7 37.0 33.6 29.6 8.1 7.5 6.8 2.4 2.3 2.3 21.0 21.1 21.6

Jammu & Kashmir Bank 74 105 Buy 4,126 -31.3 7.8 11.9 NM 9.6 6.2 0.6 0.7 0.7 -2.0 0.5 0.7 -27.0 7.2 10.1

Kotak Mahindra Bank 1,037 970 Hold 197,414 18.5 23.4 29.7 55.9 44.3 34.9 8.2 7.1 6.2 1.7 1.8 2.0 13.2 14.5 16.2

LIC Housing Finance 660 750 Hold 33,308 38.3 46.2 56.4 17.2 14.3 11.7 3.6 3.0 2.5 1.4 1.4 1.5 19.1 19.1 19.4

Reliance Capital 550 854 Buy 13,898 42.7 53.9 69.0 12.9 10.2 8.0 0.9 0.9 0.8 1.5 1.6 1.9 6.7 7.9 9.7

CARE 1,373 1,750 Buy 4,044 51.4 59.9 69.3 26.7 22.9 19.8 8.1 7.1 6.2 36.4 36.5 38.0 30.4 31.0 31.2

HDFC Bank 1,800 1,840 Hold 464,651 56.8 70.2 86.6 31.7 25.6 20.8 6.4 5.2 4.6 1.9 1.9 2.1 17.9 19.1 21.0

Bajaj Finserv Limited 5,296 6,000 Buy 84,274 142.2 202.2 253.9 37.3 26.2 20.9 6.3 5.3 4.4 1.9 2.2 2.4 15.5 18.5 19.2

Bajaj Finance Limited 1,904 2,025 Buy 109,759 33.9 44.3 57.4 56.1 43.0 33.2 14.8 11.4 6.7 3.3 3.3 3.3 21.6 19.1 18.5

Sector / Company CMP Target Price Rating Market CapEPS (Rs) P/E (x) P/BV(x) RoA (%) RoE (%)


Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]

Disclaimer

ANALYST CERTIFICATION

We /I, Pankaj Pandey, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the

subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and

has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of

which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form,

without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the

information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been

suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity

to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed.

This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other

financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently

evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities

whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure

Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not

predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other

assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services

in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies

mentioned in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive

any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research

Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Pankaj Pandey Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the

month preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Pankaj Pandey Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction.

The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of

and to observe such restriction.

ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC. This report is prepared based on publicly available information.

ICICI Securities has received an investment banking mandate from Government of India for disinvestment in Bharat Heavy Electricals Limited. This report is prepared based on publicly available

information.

ICICI Securities has received an investment banking mandate for disinvestment in NMDC Ltd. The report is prepared on the basis of publicly available information.

nifty highlights - icici direct

Documents