peerless securities limited |yearly picks 2019 top... · 2018-12-20 · 3 peerless securities...

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Peerless Securities Limited |Yearly Picks 2019

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Equity Market Outlook 2019 Emerging Markets assets are seen valuation upgrade post fall in crude oil prices and weaker US dollar: Volatility in equities to continue in 2019

� Recent fall in Crude oil prices and weak US dollar would be big macro positive for Indian economy. Key to sustainable rally in Indian markets depends on sustainability of low crude oil prices going forward.

� Valuations have fallen in Indian markets sufficiently to compensate for many key uncertainties. Asset

valuations have reverted from the “expensive” territory at start of 2018 to “now appears REASONABLE VALUATION.

� We see recovery in domestic cyclical, credit growth in banking in CY 2019-2020. � FII flows in equities to remain volatile till June 2019, as major players are waiting for election outcome. � Volatility set to increase in India during summer on account of general election outcome. Markets might

be cautious and panic stricken, if election outcome indicate formation of weak coalition government in New Delhi on account of policy uncertainty.

� RBI policy would be data dependant and we see accommodative policy stance in 2019. � US Fed expected to slow down interest rate hikes in 2019 and it would be data dependent. � We are constructive on Indian Markets in 2019 based on current variables.

Key Risks to Markets: � Trade War and hike in tariff could hurt global growth in 2019.

� Fading impacts of tax cuts in US could slow down corporate earning in US and may lead to recession in

US. Narrowing

� Spread of 10 year & 2 year yield in US Bond is an early indicator of economic slowdown ahead.

� Change in US Fed’s current stance of slower rate hike policy.

� Faster than anticipated rate hike in US could hurt equity market valuations in Emerging Markets.

� Unfavourable election outcome in India could drag market valuation.

� Any big rise in crude oil prices would be negative for India.

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Picks for 2019

December 20, 2018

COMPANY SECTOR

CMP

(INR) RATING

MARKET

CAP (INR

CR)

POTENTIAL

TARGET

POTENTIAL

UPSIDE

ICICI Bank Banking 362 BUY 233054 440 21.54%

Tech Mahindra IT 707 ACCUMULATE 69350 800 13.15%

Hindustan Unilever

Limited FMGC 1834 ACCUMULATE 397537 2100 14.50%

Bharti Airtel Telecom 317 BUY 126557 400 26.18%

Godrej Properties Realty 689 BUY 15731 800 16.11%

Apollo Hospitals

Enterprise Health Care 1267 ACCUMULATE 17780 1400 10.50%

(Current prices as on closing prices on December 20, 2018 in NSE)

Note: All price target for next 12 months.

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Improved Asset Quality

Top Management Rejig

Improved Net Earnings

Negligible Impact of IL&FS

Strong Growth Trajectory

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ICICI Bank Limited. Sector: Banking | NSECODE: ICICIBANK

ICICI Bank Limited (Industrial Credit and Investment Corporation of India) headquartered in Mumbai, is engaged in providing a range of banking products and financial services for corporate and retail customers through a variety of delivery channels and specialised subsidiaries.The bank offers a wide range of products and services like commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and treasury products and services.The Bank's business segments are Retail banking, Wholesale banking, Treasury, Other banking, Life insurance, General insurance and Others.

Investment Theme � Better than expected Q2: The bank posted a decline in provisions

and a better asset quality.The net profit declined to Rs.908.9 crore in Q2FY19, which was 55.8% lower than the Rs.2,058.2 crore it reported in Q2FY18.This was mainly due to elevated provisioning and a decline in other income.The core operating profit grew by 10% Y-o-Y to Rs.5285 crore for the present quarter. Gross non-performing assets as a percentage of gross advances were lower at 8.54% against 8.81% in the previous quarter due to fall in slippages.Gross NPA additions (slippages) decreased from Rs 4,036 crore in the quarter ended June 2018 to Rs 3,117 crore in Q2FY19.Net interest income, the difference between interest earned and expended, grew 12.41 percent on year to Rs 6,417.6 crore with good loan growth of 12.8 % Y-o-Y and margin improvement.

� Improvement in asset quality: Percentage of gross non-performing assets (NPA) eased to 8.54% in Q2FY19 over 8.81% in Q1FY19. Percentage of net NPA also improved to 3.65% during the period. Net interest income of the private sector lender increased 12.41% Y-o-Y to Rs 6,417.58 crore during the quarter under review. Total expenditure increased to Rs 13,012.41 crore for the present quarter against Rs 11,776.79 crore in the same period last year. The net interest margin stood at 3.33% in Q2FY19. Gross NPA additions decreased from Rs 4,036 crore in the quarter ended June 30, to Rs 3,117 crore during the quarter under review.

� Growth trajectory: The overall loan growth was steady at a 11 quarter high.The domestic loan growth for the quarter was at 16% Y-o-Y driven by retail loans that grew 20% Y-o-Y.Deposits also

Key Financials

Category FY18 FY17 FY16

Net Sales (Cr) 72385 73660 68062

EBITDA (Cr) 25522 27244 24562

PAT (Cr) 6777 9801 9726

Net Profit Margin

(%) 12.33 18.09 18.44

EPS (RS) 10.6 15.3 16.8

Book Value (Rs.) 159 166 149

P/BV(x) 1.8 1.7 1.6

RoNW(%) 6.63 10.11 11.19

RoCE(%) 6.68 7.99 8.07

BUY

Period: 12 Months CMP: INR 362 Target: INR 440 Market Data No. of shares (crs.) 642.046 Free Float (Rs crs.) 226418 Market Cap (Rs crs.) 233054

52 week High Rs 375 52 week Low Rs 256 Avg.Volume 22095362 Promoters Holding 0 FII(%) 45.25 DII(%) 44.26 Beta 1.47

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registered a double-digit growth in Q2, growing 12% Y-o-Y to over Rs 5.58 lakh crore.ICICI Bank’s fee income grew by 17% Y-o-Y in Q2FY19 driven by retail fee income growth of 21% Y-o-Y.As per the bank consolidated assets grew by 11.4 % Y-o-Y to Rs 11.37 lakh crore.It reported an outstanding CASA ratio at 50.8% this quarter and a 15 % Y-o-Y growth in CASA deposits indicating lower cost of funds for the bank.

� Negligible impact of IL&FS crisis:The recent crisis in infrastructure sector and its fallout on the overall liquidity conditions of the non-banking and financial companies (NBFC)also impacted the banking sector.However,ICICI Bank was not much impacted as it has negligible exposure. As per the management the Bank’s exposure to the infrastructure group is through Special Purpose Vehicle and is non-fund based.The Bank’s total exposure to NBFCs is Rs.36,730 crore and constitutes around 5.4% of its outstanding loans.Moreover, the bank’s loan growth to benefit from the business slowdown in the NBFC sector.

India’s second largest lender became profitable even in a turbulent quarter with the challenges related to the management transition getting addressed.ICICI is in the midst of an improvement in the operating environment and is showing healthy signs of earnings normalisation.The fresh slippages were in control and gross stressed assets/watch-list declined sharply. Net earnings improved sharply, led by better margins and steady loan growth.With challenges related to management transition getting addressed, the bank is now focusing on growing its core operating profits.The company is also hoping of early resolution of Insolvency and Bankruptcy Code (IBC) cases.All these will have a positive impact and will strengthen the financial performance of the company in the coming quarters.

Technical Outlook � The stock made a higher base forming triple bottom support

around INR 260 and gave a W pattern bounce back. � Recently it has broken that pattern on the upside and now ready to

make a fresh high as already the stock in longer timeframe has made out of previous top and ready for fresh breakout.

� Supertrend indicator has given positive signal and stock price is in

strong uptrend. Target on the upside of the longer time frame pattern comes to around INR 440.

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Momentum in Telecom Industry

5G- Growth Trajectory

Strong deal wins

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Tech Mahindra Limited. Sector: IT | NSECODE: TECHM Tech Mahindra Limited is an Indian multinational,headquartered at Pune, is provider of information technology (IT), networking technology solutions and Business Process Outsourcing (BPO) to various industry verticals and horizontals. Tech Mahindra Limited is engaged in the business of computer programming, consultancy and related services. The Company operates in various sectors, including telecom business and enterprise solutions business.

Investment Theme

� Better than expected Q2 performance: The company reported better than expected Q2 performance,registering a 27.3% rise in net profit on Q-o-Q basis.The net profit was at Rs.1064 crore for the quarter ended September compared to Rs.898 crore.Revenue rose by 4.3% on a sequential basis to Rs.8829.8.However, revenue in dollar terms fell 0.5% from the last quarter.On a sequential basis, the company’s operating margin rose 240 basis points to 15.3%. The company’s cross-currency benefit saw a 80-basis point improvement while the absence of visa costs added 60 basis points to the company’s operating margin in the second quarter.The balance of 140 basis points came from operational improvement, mixed changes in the business, in addition to the wage hike.The company expects the margins to gradually improve over the next two quarters. Ebitda improvement is driven by fundamental changes in terms of automation, new-age deliveries, managing synergy and yields in a better way.

� Segment wise performance:The telecom segment,which constitutes 42% of sales,saw growth revival and grew 4.3% Q-o-Q in USD terms.However, higher than expected de-growth in enterprise business,which constitute about 58% of sales, was down by about 4% Q-o-Q in dollar terms, led to lower than expected growth in overall revenues,mainly due to weakness in its healthcare business.Revival of Telecom and continued momentum in this vertical will boost the company’s future growth prospects.

� Strong deal wins: The strong deal wins especially in the Communication vertical coupled with the company’s 10% plus sequential growth in digital revenues validates the company’s Run, Change and Grow strategy.The communications vertical saw deal wins worth $330 million, a new high in the vertical.The company bagged a Rs270 crore IT Modernisation project from Coal India Limited and has also won a Rs350 crore Enterprise Business System deal from Indian Ports Association.In addition to this,the company also won a deal from a leading American Healthcare Services provider for managing its security services stack. It bagged

Key Financials


Net Sales (Cr) 32189 29918 26933

EBITDA (Cr) 6126 4962 4710

PAT (Cr) 3786 2853 3024

Net Profit Margin

(%) 12.3 9.79 11.41

EPS (RS) 42.7 31.6 33.7

Book Value (Rs.) 219 192.6 169.7

P/BV(x) 3 2.5 2.8

RoNW(%) 20.16 17.11 20.51

RoCE(%) 16.87 14.29 17.72

ACCUMULATE

Period: 12 Months CMP: INR 707 Target: INR 800 Market Data No. of shares (crs.) 98.119 Free Float (Rs crs.) 44702 Market Cap (Rs crs.) 69350 52 week High Rs 780 52 week Low Rs 485 Avg.Volume 3018229 Promoters Holding 35.96 FII(%) 38.51 DII(%) 13.25 Beta 0.74

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a contract from a large Nordic OEM for Device testing services. Tech Mahindra received a contract from a North American Communication Service Provider region for its Enterprise wide testing services, helping bring in project efficiencies’ and optimise cost. The IT firm is also selected by a Tier 1 American Telco, for transforming its business network services.

� 5G-growth opportunity: Tech Mahindra looks at 5G rollouts as huge opportunity and as per the management it is on the right trajectory in its communications vertical as well as to other verticals such as manufacturing and healthcare too.As per the management the growth opportunity from the launch of fifth-generation telecom services will give a big boost to its earnings in the medium term, and that it will be able to sustain its profitability at current levels in the near term.It has also established a new Video Integration & Engineering(VIE) platform. This unit is expected to leverage cutting-edge technology and solutions to cater to the expected heavy demand of video services in 5G ecosystem.The opportunities from the 5G remains massive- estimated at USD 582billion in Telecom, USD 110billion in Media &Entertainment, USD 100billion in Automobiles, USD 150 billion in Healthcare and USD 230 in Manufacturing.

Going forward, large deals announcements, continued momentum in Telecom, sustained margin improvement,5G led uptick along with tapping of synergies across portfolio is expected to translate in revenue growth momentum and will act as margin levers. All these makes Tech Mahindra’s growth trajectory looks much stronger.

Technical Outlook � The stock has given a long time breakout moving above its previous

high and thereafter, it is consolidating and undergoing consolidation. However, the stock is in uptrend following the upward trending trendline which indicates strength in the stock.

� The stock weekly chart has been showing strength in RSI as we are

seeing that whenever RSI remains above 50-75 range, the stock shows excessive strength which happened during the year 2013 to 2015 and again now it is under same phase. This rally started from year 2017 and still continuing. We therefore expect the rally to continue as historical high also has been broken with strength in RSI.

� We expect price target of INR 800 which is likely to be achieved

around time frame of next 12 months.

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Uptick in Rural Demand

Effective Cost Control Measures

Strong and Selective Acquisitions

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Hindustan Unilever Limited. Sector: FMCG|NSECODE: HINDUNILVR

Hindustan Unilever Limited(HUL) is a subsidiary of Unilever company.Headquartered in Mumbai, it is India’s largest FMCG company.HUL is the market leader in Indian consumer products with presence in over 35 brands and 20 consumer categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream and water purifiers.Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin,Wheel, Fair&Lovely,Pond’s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.

Investment Theme

� Strong Q2 performance amid growing challenges: The FMCG major reported 19.5% Y-o-Y growth in standalone profit to Rs.1525 crore, driven by strong volume growth and operational performance.The consumer staples sector faced pressure due to a rise in input costs on account of higher crude and a weakening rupee, which increased import costs for certain raw materials.Revenue rose nearly 11% on a yearly basis to Rs 9,234 crore.Operating profit increased 20% to Rs 2,012 crore.Margin expanded 170 bps to 21.8% and volume growth stood at 10%.On the operational front, EBITDA grew by 20% to Rs 2,019 crore and margin expanded by 170 basis points to 21.9% compared to year-ago period.

� Demand from rural India:All the three product divisions- home care, beauty and personal care and food delivered double digit growth. And that's driven by the demand from rural India.Rural markets, which accounts for approximately 40% of overall revenue , is growing at 1.25 times of urban.Attributing it to the impact of higher minimum support prices and loan waivers have cumulatively helped push up industry volume growth rates from 3-4% two years ago to 7% levels now.

� Mitigation of material inflation:The consumer staples sector faced pressure due to rise in input costs on account of higher crude and a weakening rupee, which increased import costs for certain raw materials.However, the company’s well established savings programme and leverage in other expenses enabled the company to mitigate material inflation and lead to an expansion of 162 bps in operating margin.An increase in prices of crude and currency depreciation was partially offset by softer prices of vegetable oils and food items. The company hiked prices in the range of 2-3 % in some of its segments. The price hikes are expected to be fully visible in the third quarter of the current fiscal year.

Key Financials


Net Sales (Cr) 35094 32416 31625

EBITDA (Cr) 7845 6573 6313

PAT (Cr) 5237 4490 4137

Net Profit Margin

(%) 15.16 14.07 13.31

EPS (RS) 24.2 20.8 19.1

Book Value (Rs.) 32.8 30 29.1

P/BV(x) 40.8 30.3 29.9

RoNW(%) 74.2 69.18 65.88

RoCE(%) 86.53 81.82 56.92

ACCUMULATE

Period: 12 Months CMP: INR 1834 Target: INR 2100 Market Data No. of shares (crs.) 216 Free Float (Rs crs.) 132905 Market Cap (Rs crs.) 397537 52 week High Rs 1869 52 week Low Rs 1281 Avg.Volume 1475633 Promoters Holding 67.19 FII(%) 12.11 DII(%) 7.32 Beta 0.62

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� Recent acquisitions and its impact: The company’s market growth has trended up, the company still continues to look for selective acquisitions. It acquired Adityaa Milk to its ice-cream portfolio.Adityaa Milk is expected to bring in portfolio and distribution synergies to Kwality Wall’s across Maharashtra, Goa, Karnataka and Kerala. The company is aiming for larger market share of the fragmented ice-cream market in India and this acquisition will also help in closing the market leader gap with Amul in the dairy segment.Another cherry on the cake is the acquisition of GlaxoSmithKline Consumer Healthcare Limited, which will make it the largest listed food company.GSK Consumer will add considerably to the foods business of the company. Food and refreshments segment contributes only 18% of the revenue but with this acquisition the contribution is expected to go upto 28%, and is also expected to contribute significantly to the profit and margin expansions.Moreover,after the merger, the combined revenue of HUL’s food and refreshment is expected to cross Rs.10,000 crore, slightly ahead of its peers like Britannia and Nestle

In the near term, the demand is expected to be stable. The company is strongly focussing on strengthening its core and driving excellence in execution so that it is able to deliver competitive and profitable growth.Its calibrated price rise will help to mitigate the headwinds such as increase in crude oil prices and currency depreciation, that may impact the company with a lag.The company’s market development and premiumisation initiatives are helping it to deliver stronger set of results.HUL (with acquisitions) will further be able to increase penetration with a focus on rural markets and emerging channels while expanding its offerings in the fast-growing premium segment. It believes that customer development will be a growth multiplier, given its network.

Technical Outlook � The stock has been in its long term uptrend after it broke past its

consolidative phase in July 2018 and thereafter is moving up with formation of higher top higher bottom formation. The stock made a classical V pattern breakout recently with strong volumes indicating further upmove in medium term.

� Pattern target on the upside implying Fibonacci extension study

comes to INR 2100 which is of equitant V pattern breakout height on the upside. Momentum indicators ADX, MACD are showing strength and price is set to move up .

� We expect price to rally and our target price comes to INR 2100 in

long term time frame of around next 12 months.

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Bottoming Out of ARPU

SIM Consolidation

TDSAT Approval for Predatory Pricing

Strong Business Growth in Africa

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Bharti Airtel Limited. Sector: TELECO |NSECODE: BHARTIARTL Bharti Airtel Limited (commonly shortened to Airtel) is an Indian global telecommunications services company based in New Delhi.In India, the Company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high-speed home broadband, DTH and enterprise services, including national and international long-distance services to carriers.In the rest of the geographies, it offers 2G, 3G and 4G wireless services and mobile commerce.Bharti Airtel subsidiaries include Airtel India, Airtel Payments Bank Limited,Airtel Sri Lanka, Airtel Africa,Wynk,Robi and Telenor India. .

Investment Theme

� Q2-Surprise profit on deferred tax gain: India’s second

largest telecom network reported a net profit of Rs 119 crore in Q2FY19 because of a deferred tax gain of Rs 2633 crore, without which the company would have posted a loss. Revenue rose 1.7% sequentially to Rs 20423 crore, operating profit fell 7.7% to Rs 6244crore. Operating margin narrowed 300bps Q-o-Q to 30.5%. The voice usage per customer stood at 694 minutes against 701 minutes in the previous quarter.The mobile data traffic grew to 2758 billion MBs in the quarter, growth of 225% Y-o-Y.Bharti Airtel has only been posting profit for the past two quarters due to its deferred tax gains. And that shows how the price war triggered by Reliance Jio Infocomm Ltd. is still hurting rivals. Airtel, too, lowered its tariffs to retain subscribers.That has impacted the average revenue it earns from a user every month. Airtel’s Average revenue per user (ARPU) has declined 28.80% to Rs 101 from the quarter ended September 30.Bharti Airtel’s margin in India was also impacted by a rise in diesel prices, a rapid network rollout and higher tower rentals due to the exits by Vodafone India and Idea Cellular Ltd.

� Africa remainrobust: Airtel’s Africa business,however,continues

to do well. Revenue from the region rose 6.87% over the previous quarter to Rs 5647.2crore and command a higher margin in Africa at 37.1%. The management indicated that six large global investors have agreed to invest US$1.25 bn into Airtel Africa for a 28.4% stake, at post money equity valuation of approximately US$4.4 billion. The company intends to use part of the proceeds for Africa business debt reduction as well as expansion. The macroeconomic factors remain favourable in Africa during the quarter was aided by elevated crude oil and commodity prices, which led to overall market growth.It must be noted,Africa’s fund infusion and improved business outlook remains a saving grace and is a key source to partially fund the capex spending amid the competitive scenario in India and also indicated to floor Airtel Africa’s IPO

Key Financials


Net Sales (Cr) 83936 95588 96619

EBITDA (Cr) 30318 35318 33968

PAT (Cr) 1122 3196 5826

Net Profit Margin

(%) 1.34 3.34 6.03

EPS (RS) 2.8 9.5 15.2

Book Value (Rs.) 196 185.9 180

P/BV(x) 2.3 2.1 2.1

RoNW(%) 1.58 5.63 9.1

RoCE(%) 0.63 2.23 3.63

BUY

Period: 12 Months CMP: INR 316 Target: INR 400 Market Data No. of shares (crs.) 400 Free Float (Rs crs.) 42113 Market Cap (Rs crs.) 126557 52 week High Rs 547 52 week Low Rs 276 Avg.Volume 6508196 Promoters Holding 67.14 FII(%) 18.32 DII(%) 12.72 Beta 0.97

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whose proceedings will be used for de-leveraging and growth of business.

� Bottoming out phase of ARPU: Airtel ARPU has nearly halved to Rs 101 from a industry high of Rs 196 nine quarters ago and this quarter its declined 28.8% to Rs 101.However, the management feels that ARPU decline has bottomed out and now can only move up, given the present industry structure as well as content partnership that will help the company to uplift ARPU.The management also indicated that it has largely held on market share in high ARPU post-paid customer segment despite pricing pressure from downgrading.

� TDSAT ruling and SIM consolidation:TDSAT(Telecom Disputes Settlement and Appellate Tribunal)ruled that Trai cannot impose penalty for predatory pricing and discounted tariffs. This came as a relief for Bharti Airtel and other players and will be able to fiercely compete with rival Reliance Jio Infocomm Limited.Customers used dual SIMs to take advantage of difference in price points and quality of services across geographies. Now that both price and service quality are similar across operators, need for multiple connections is no longer critical.The telecom sector could see subscriptions drop by up to 60 million in the next six months or so.The shift to one SIM will be good for the industry as telcos can see actual penetration levels and strategise their expansion plans accordingly to ensure customers remain active and keep billing, Bharti Airtel recently introduced packs with minimum recharges of Rs 35, Rs 65 and Rs 95 with a 28-day validity period.

Going forward, the company is striking an optimistic outlook on ARPU and capital expenditure. It may raise capital and expects pricing trends to be stable leading to a reduction in the company’s selling, general & administrative expenses.To remain competitive it is considering to launch budget VoLTE smartphones and to compete with Jio(which only operates on VoLTE network).

Technical Outlook

� The stock has been falling and it came to its very strong support

zone around INR 280-290 zone where it made multiple support zone. This zone is also multi-year support zone and whenever price came around this zone, the stock bounced backed strongly on multiple times in last five years.

� Currently also the stock rebounded from INR 280 and made double bottom type formation. Moreover, it has taken Donchian channel support in weekly chart and there is high possibility of upmove whenever price comes to its support zone of Donchian and multiple support zone.Technical indicator RSI has shows strong positive divergence and MACD has given positive crossover indicating price to move up. We expect price to move to its Donchian resistance level which will be around INR 400.

� Our price target of INR 400 is likely to achieved in time frame of

around next 12 months.

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Better Debt Management

Strong Volume Growth

Negligible Impact of NBFC Crisis

Asset Light Business Model

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Godrej Properties Limited. Sector: Realty |NSECODE: GODREJPROP Godrej Properties Limited is a leading real estate company with its head office in Mumbai. A subsidiary of Godrej Industries Limited, the company is operational in twelve major cities across India.The Company is engaged in construction and real estate development.Currently, the business focuses on residential, commercial and township developments. They undertake the projects through in-house teams and by partnering with companies with domestic and international operations.The realty firm has successfully delivered 18 million sq ft of real estate in the past five years. It had about 145 million sq ft of developable area across India.

Investment Theme � Multi-fold rise in Q2: Godrej Properties remains one of the

preferred stocks in Indian realty universe.The company has reported a multi-fold rise in second quarter consolidated net profit to Rs 20.6 crore YoY. The growth was largely driven by higher revenue, tax reversal and other income.Consolidated revenue during the quarter grew by 25.6% to Rs 393.2 crore compared to year-ago.At operating level,the company witnessed a de-growth in consolidated EBITDA at Rs.11.6 crore due to rising finance cost and cost of sales.

� Better sales and volume growth: Godrej Properties sales

performance have been good despite overall slowdown in the property market and thus has helped the company to achieve a better debt management.The company has reduced its net debt by 51 % in last one year to Rs 1539 crore and net debt-equity ratio has also reduced to 0.6 from 2.08 during the period under review.The average borrowing cost stood at 7.88% as against 8.1% a year-ago. As per the management this year the company witnessed the best ever growth in terms of value and volume of real estate.The company have well diversified portfolio and aided by debt reduction, have ventured into affordable housing where growth is currently the highest.

� Least impacted by NBFC crisis:The ongoing liquidity crisis in the

non-banking finance company (NBFC) space may have hit the prospects of small realty players, but the bigger entities like Godrej Properties with deep pockets and better cash flows are unfazed. It has in fact opened up a big window of opportunity for them to acquire land parcels aggressively.As per the management,the availability of funds through the company’s private placement and low gearing ratio gives it an opportunity to scale up the project portfolio over the next twelve months.In a highly competitive real estate business environment the well capitalised players like Godrej

Key Financials


Net Sales (Cr) 2390 1701 2252

EBITDA (Cr) 497 371 266

PAT (Cr) 228 175 143

Net Profit

Margin (%) 12.11 11.06 6.75

EPS (RS) 10.8 9.6 7.5

Book Value (Rs.) 103 92 81

P/BV(X) 7 4.2 3.6

RoNW(%) 10.48 10.32 8.98

RoCE(%) 8.53 8.32 5.4

BUY


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Properties are better equipped to ride this storm and continue to deliver.The sector will also witness large scale consolidations and will provide the well capitalised players with economies of scale.

� Joint Venture with Hero Cycles Limited: The company has

entered into Joint Venture with Hero Cycles for their property in Gurgaon. The impact of joint venture with Hero Cycles on near-term financials would be limited and the JV should be seen in the context of company’s stated asset-light business model.

� Impact of various regulations: The implementation of various

regulations like RERA, GST and other reforms have improved the transparency and answerability in the sector, thereby catching the attention of institutional investors who are looking at Indian real estate with renewed dynamism.It has also brought back consumer confidence and a platform where developers with deep pockets, commitment to corporate governance and transparency will sustain their operations while non-serious players will be weeded out.

In the backdrop of all these developments the company expects a strong financial growth in the coming quarters.With the Indian real estate industry witnessing a turnaround,the company is well poised among its peers.The company expects the pace of project additions to accelerate and with the number of important launches in pipeline the sales will witness strong growth.Its ‘Asset Light Business Model’,where the company generally ties up with land owners to develop projects, helps the company to have a better risk management and enables the company to undertake more projects without having to invest large amount towards additional acquisitions. All these will help the company to scale new heights.

Technical Outlook � The stock has been in strong up move since Jan 2017 and The stock

has been in strong up move since Jan 2017 and thereafter it took sharp downmove. However it took support around INR 500 where double bottom support took place and price recovered strongly .

� The support level around INR 500 also happened to be 200

wema(weekly exponential moving average) and price then broke out of the downward trend line which lasted of around last 4 months. This shows that the stock price has now moved and price is likely to retrace on upside at least till 61.8% Fibonacci up move which happens to be INR 742. Stock price has also shown clear positive divergence on RSI in weekly chart and given MACD crossover indicating continuation of upmove and strength.

� We expect that target price is 71.8% Fibonacci retracement upmove

of weekly high and close of last fall and our price target in 12 months come to INR 800.

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Divesment of Pharmacy Business

Cost Control Measures

Risisng Occupancy

Forays to Kerela

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Apollo Hospitals Enterprise Limited. Sector: Health Care|NSECODE: APOLLOHOSP Apollo Hospitals Enterprise Limited is an Indian hospital chain based in Chennai, India. It is Asia’s foremost integrated healthcare services provider and has a robust presence across the healthcare ecosystem,including Hospitals, Pharmacies, Primary Care & Diagnostic Clinics. The Group also has Telemedicine units, Health Insurance Services, Global Projects Consultancy, Medical Colleges, Medvarsity for E-Learning, Colleges of Nursing and Hospital Management and a Research Foundation. In addition, 'ASK Apollo' - an online consultation portal and Apollo Home Health provide the care continuum.

Investment Theme

� Margin improvement in Q2: Revenues grew by 12.9% to 2090 crore on the back of 16.4% YoY growth in pharmacy business to 963.7 crore and 10.1% YoY growth in healthcare business to 1126.6 crore.EBITDA margins improved 39 bps YoY to 12.3% mainly due to lower expenditure. This is a third straight quarter of steady growth and margin gains.The management expects FY19-20 to see the full impact of rising occupancy and cost control.However, net profit was lower mainly due to lower other income and higher tax rate.Net profit grew 11.4% to 79 crore.The Q2 had an all-round improvement.

� Divestment of Pharmacy business:Apollo Hospitals have planned to demerge its front-end retail pharmacy business into a separate entity called Apollo Pharmacies (APL), which in turn, will be a wholly-owned subsidiary of Apollo Medicals (AMPL).As per the management the proposed reorganisation would not have a material impact on the financials of Apollo as the backend business related to the standalone pharmacies which represent 85% of the business economics will continue to be held by Apollo.The proposed move will help Apollo become compliant with the prescribed foreign direct investment (FDI) limits and further grow its pharmacy retail business.

� The company forays to Kerala: Apollo Hospitals have forayed into Kerela by signing an Operations and Management contract of a 250 bedded super speciality hospital with Adlux Group in the town of Angamalay.This will add to development of medical value tourism, as it will provide easy access, especially to patients from West Asia.

Key Financials


Net Sales (Cr) 7195 6327 5478

EBITDA (Cr) 842 800 809

PAT (Cr) 233 285 369

Net Profit

Margin (%) 3.24 4.52 6.82

EPS (RS) 16.8 20.5 26.6

Book Value (Rs.) 265.5 257 246

P/BV(X) 4 4.5 5.4

RoNW(%) 6.31 7.96 10.77

RoCE(%) 8.77 8.68 6.3

ACCUMULATE


22


The company’s margin improvement was visible across segments. The major aspect was a clear cut hint of near completion of the long capex cycle and an asserted focus on improvement in margins and return ratios. With the hint of capex marginalisation, the company will be able to focus on asset optimisation. The company owns one of the best integrated business models in the healthcare space with strong management pedigree.With the proposed pharmacy reorganisation, the path is clear for an out and out unlocking in the future.

Technical Outlook

� The stock after undergoing long term downward phase broke out of

the pattern. This occurred after the stock underwent through downward parallel channel formation. Thus the stock after completing its corrective phase has started its upmove.

� Price also moved above its 40mema(monthly exponential moving

average) and whenever such moved happened, it showed that new bull market upmove has started. This time too, price moved above its 40mema with strong volumes inticating upmove in medium term.

� We expect price target of around INR 1400 which comes to

Fibonacci retracement target of 78.6% of the last fall.

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Disclaimer

RATING PARAMETER

BUY We expect the stock to deliver more than 15% returns over the next 12months

ACCUMULATE We expect the stock to deliver 6% - 15% returns over the next 12months

REDUCE We expect the stock to deliver 0% - 5% returns over the next 12months

SELL We expect the stock to deliver negative returns over the next 12months

NOTE: Target prices are for a period of 12-month perspective. Returns stated in the rating parameter are for our internal benchmark.

TECHNICAL CALL RATING PARAMETER

BUY A condition that indicates a good time to buy a stock. The exact circumstances of the signal will be determined by the indicator that an

analyst isusing.

SELL A condition that indicates a good time to sell a stock. The exact circumstances of the signal will be determined by the indicator that an

analyst isusing.An instruction to the broker to buy or sell stock when it trades beyond a specified price. They serve to either protect your

profits or limit your losses.

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