India Consumption OPIUM for the Masses
(Seventh CPC + OROP + DBT) January 2016
Elara Securities (India) Private Limited Private & Confidential
Table of Content
2
Bountiful rewards: INR 10,917bn over FY17-18E 3
King of good times: top beneficiaries 4
At a glance 5
Trifacta of levers: Pay Commission, OROP and DBT 6
Seventh CPC payout 3.3x bigger 7
DBT: incremental inflows of INR 798bn 8
How will households spend and save incremental income? 9
Winsome Threesome: low inflation, low rates, rising sentiments 10
Retail loans continue to show traction with 15% growth 11
Urban indicators: modest improvement 12
Rural indicators: in search of fresh drivers 15
Top buys
Hindustan Unilever: Proxy play 19
Hero MotoCorp: Getting ready to rev up 22
Maruti Suzuki: Engine of hope 25
Sun TV: Sunny skies 28
Dish TV: Well poised 31
Crompton Greaves: Pure play 34
Raymond: Growing clout 37
Indian Hotels: Shining bright 40
Cox & Kings: Going large 43
Mahindra Holidays: Going global 46
MT Educare: Scaling new highs 49
Career Point: Small cap marvel 52
Prestige Estates Projects: In a sweet spot 55
Brigade Enterprises: Annuity play 58
Appendix 61
Elara Securities (India) Private Limited Private & Confidential
OPIUM for the Masses
3
Bountiful rewards
INR 6,415bn in hand, worth two in the bush: Starting in 2016,
Seventh CPC payouts, OROP and DBT would generate cashflow of INR
6,415bn for India’s consumers, which means 24% hike in incremental
income on average. If we assume a multiplier effect of 1.5-1.9x,
then we arrive at actual spend of INR 10,917bn
Seventh Pay Commission: Incremental payout of INR
5,333bn from the Centre and States is 3.3x bigger than the
Sixth CPC over FY17-18E. With a multiplier of 1.7x, actual
spend would rise to INR 9,067bn
One Rank, One Pension: Ex-service personnel and their
families would receive additional pay and arrears of INR 284bn
over FY17-18E. With a multiplier of 1.9x, actual spend
would almost double to INR 540bn
Direct Benefit Transfer: Incremental money of INR 798bn will
flow into the bank accounts of aggrieved households as subsidy
from the Central government over FY17-18E. With a multiplier
of 1.6x, actual spend would swell to INR 1,310bn
Sabka Saath, Sabka Vikaas: Banks open 200mn first-time
accounts since August 2014 to ensure financial inclusion & lower
pilferage
The New Normal: Inflation cut in half from three years ago;
ditto for food prices. Interest rates down cumulatively by 125bp
since January 2015. These prevailing economic conditions are lifting
consumer sentiments …
Beat that, World! India today remains the fastest-growing economy
globally – we forecast real growth at 7.4% each for FY16 and
FY17 and early gains at 7.9% in FY18
Dole-outs to boost Urban India: Payouts would drive urban
consumption first, followed by a secondary impact on Rural India as
primary drivers are still awaited there
Flavor at a premium: Additional income, some in the form of
arrears, is likely to chase premiumization in product segments. And,
we expect demand for basic items to remain flat
4.7mn federal employees & 5.2mn pensioners and millions of State government workers
Elara Securities (India) Private Limited Private & Confidential
India Consumption – top beneficiaries
4
King of good times
Biggest beneficiaries: travel & leisure, durables, education, real estate and textiles & garmenting
Durables + Discretionary: Additional demand valued at INR 556bn for FY17 and INR 580bn for FY18
Top Picks: Maruti Suzuki, Hero MotoCorp, Crompton Greaves, Dish TV
Staples + Discretionary: Additional demand valued at INR 556bn for FY17 and INR 580bn for FY18
Top Picks: Hindustan Unilever, Sun TV
Real estate: For mid-income households, a major spend will be EMI payouts. Further demand of INR 899bn for FY17 and INR 938bn for FY18
Top Picks: Prestige Estates, Brigade Enterprises
Travel & Leisure: Incremental spend of INR 604bn for FY17 and INR 630bn for FY18
Top Picks: Indian Hotels, Cox & Kings, Mahindra Holidays
Education: Additional demand of INR 433bn for FY17 and INR 451bn for FY18
Top Picks: MT Educare, Career Point
Textiles & Garmenting: Staggered spend of INR 326bn for FY17 and INR 340bn for FY18
Top Picks: Raymond
Elara Securities (India) Private Limited Private & Confidential
At a glance
5
Sector Market size (INR bn)
Basket of beneficiaries Our top pick USP
Travel & Tourism (Discretionary)
2,827 EIH, Hotel Leela, Taj GVK, Thomas Cook India, Sterling Holidays
Indian Hotels Doubled the number of rooms across segments
Cox & Kings Eying education sector to drive growth
Mahindra Holidays Global acquisitions of 30 resorts add to drive membership additions
Automobiles (Discretionary)
2,500 M&M, TVS Motor, Bajaj Auto, Tata Motor, Eicher Motors
Hero MotoCorp Two new Scooter launches and strong positioning in the MC segment
Maruti Suzuki New launch Baleno and expected launches across product groups
FMCG (Staples + Discretionary)
2,500 Asian Paints, Berger Paints, Akzo Nobel, Kansai Nerolac, Pidilite, Whirlpool, IFB
Hindustan Unilever Core consumption to pick up; premiumization to lead to better margin
Media & Entertainment (Discretionary)
543@ Zee Entertainment, Tatasky, Sun Direct, Reliance BIG TV, Videocon
Sun TV Highly undervalued to nearest peer, Zee Entertainment
Dish TV Uptick in subscriber additions, ARPUs , lead to margin expansion of 1,200bp
Textiles & Garmenting (Discretionary)
2,460$ Arvind Mills, Siyaram, Kewal Kiran Clothing
Raymond Recent product overhaul, increased focused on the shirting segment, and premium apparels portfolio revamp
Education (Discretionary)
5,850 Treehouse Education, Navneet Education, NIIT, Zee Learn
MT Educare Lack of quality in core education and shift to organized segment to spur growth
Career Point Earnings to jump from INR 9mn in FY15 to INR 390mn in FY18E
Real Estate (Real Estate Construction & Development)
1,600* Kolte-Patil, Sobha, Puravankara Projects, Mahindra Lifespaces, Godrej Properties
Prestige Estates Market leader in Bangalore, strong portfolio of mid-income housing projects
Brigade Enterprises Strong brand recall and significant presence in affordable housing
Household Durables (Discretionary)
185** Bajaj Electricals, Havells India, TTK Prestige
Crompton Greaves Government’s energy-efficiency push via LEDs and new kitchen appliances product line
Note: *current market size of the top six cities in India; $size of India’s apparels market ; @India’s overall TV industry; **only lighting & fans
Source: World Travel & Tourism Council, 2015E; Real Estate data from Liases Foras Research for six top metro cities which represent 80-85% (by value) of urban housing demand, Kaizen Education (KE) Report, ELCOMA
Elara Securities (India) Private Limited Private & Confidential
Trifacta of levers: Pay Commission, OROP and DBT
6
Seventh Pay Commission payout One Rank One Pension (OROP) Direct Benefit Transfer (DBT)
Note: * subject to a 15-17% median tax rate
Source: Elara Securities Estimate
461
365
596
383
FY10
FY09
Sixth CPC Center States (INR bn)
1,021
1,276
1,634
1,402
FY18
FY17
Seventh CPC
581
217
FY18
FY17
DBT (INR bn)
5,333* 284* 798*
9,067 540 1,310
10,917
1.7x 1.9x 1.6x Multiplier Multiplier
82
82 120
FY18
FY17
OROP Pension Arrears (INR bn)
Elara Securities (India) Private Limited Private & Confidential
Seventh CPC payout 3.3x bigger; basic pay remains skewed
7
Source: CMIE, MGNREGA portal, PMJDY Brochure, 14th Finance Commission report, Elara Securities Estimate
35 80 185 750
2,550
6,660
18,000
2.3 2.3
4.1
3.4
2.6 2.7
0
1
2
3
4
5
0
5,000
10,000
15,000
20,000
1st CPC (1946)
2nd CPC (1959)
3rd CPC (1973)
4th CPC (1986)
5th CPC (1996)
6th CPC (2006)
7th CPC (2016)
2.7x rise dampened expectations of a
flatter pay structure
Minimum basic pay (INR)
0 1 13
170
306
1,021
0
200
400
600
800
1,000
1,200
1st CPC (1946)
2nd CPC (1959)
3rd CPC (1973)
4th CPC (1986)
5th CPC (1996)
6th CPC (2006)
7th CPC (2016)
(INR bn)
3.3x rise in payout
Despite absence of arrears, the payout of Seventh CPC will create a parallel upward shift of the consumption basket, leaving large space for discretionary consumption of low-ticket items. Strong bets on consumer durables/discretionary, travel & leisure, real estate,
education and textiles & garmenting
Relative comparison of payouts over Pay Commission Relative comparison of minimum pay over Pay Commission
Elara Securities (India) Private Limited Private & Confidential
DBT: incremental inflows of INR 798bn, up 56% over FY16-18E
8
Assumptions: Ex-DBT implementation - LPG Pilferage is assumed to be 30%, for all other categories (food, kerosene, fertilizer, NREGA) it is assumed to be 50%
Post DBT implementation, Pilferage in all categories is assumed to be 10%
MGNREGA wages are assumed to be 75% of total allocation till FY17 and 50% in FY18
Source: CMIE, MGNREGA portal, PMJDY Brochure, 14th Finance Commission report, Elara Securities Estimate
Annual subsidy allocation to different schemes (INR bn)
2006- 07
2007- 08
2008- 09
2009- 10
2010- 11
2011- 12
2012- 13
2013- 14
2014- 15
2015- 16BE
2016- 17E
2017- 18E
Food 240 313 438 584 638 728 850 920 1,227 1,244 1,111 1,261
Petroleum 27 28 29 150 384 685 969 854 603 300 300 300
Fertilizer 262 325 766 613 623 700 656 673 710 730 730 700
Total subsidy 529 666 1,232 1,347 1,645 2,113 2,475 2,447 2,539 2,274 2,141 2,261
MGNREGA wages 57 107 182 254 256 249 272 265 231 260 285 200
Benefits allocated by the government
586 773 1,414 1,601 1,902 2,362 2,746 2,712 2,770 2,534 2,426 2,461
Money lost due to pilferage 288 381 701 771 874 1,044 1,179 1,185 1,264 1,117 792 246
After pilferage, money reaching beneficiaries
298 392 713 830 1,028 1,318 1,567 1,527 1,505 1,417 1,634 2,215
Elara Securities (India) Private Limited Private & Confidential
How will households spend and save incremental income?
9
% of total income (INR bn)
Normal Rebalanced FY17 ∆ FY18 ∆
Total Income 100.0 100.0 5,343 5,574
Consumption 77.6 69.5 3,713 3,874
Goods 48.5 23.5 1,256 1,310
Food 31.9 0.0 0 0
Clothing 4.3 6.1 326 340
Durables 6.0 10.4 556 580
Ceremonies (weddings & births) 6.3 7.0 374 390
Services 21.8 27.1 1,448 1,510
Travel/ leisure 7.0 11.3 604 630
Education 5.6 8.1 433 451
Health 6.3 7.7 411 429
Housing 2.9 0.0 0 0
Others (includes EMI) 7.3 18.9 1,010 1,053
Savings/investment 22.4 30.5 1,627 1,697
Cash 3.8 0.0 0 0
Banks 10.3 16.8 899 938
Shares/ Equities 0.7 1.1 58 61
Small savings 0.5 0.8 42 44
Life Insurance 2.4 3.9 207 216
Jewellery 1.1 1.9 100 104
Post office 0.7 1.1 60 63
Others 3.0 4.9 259 271
Assumptions:
Food would not see incremental spending.
Monetary expense on rentals will be flat.
Households will keep same amount of cash as before.
The biggest beneficiaries will
be consumer durables/
discretionary, travel &
tourism, real estate,
education and textiles &
garmenting
1,010 1,053
604 630
433 451
326 340
Elara Securities (India) Private Limited Private & Confidential
Winsome threesome: low inflation, low rates, rising sentiments
10
Consumer Price Inflation (CPI) Prevailing rates: LAF repo and base rate Consumer Sentiments Index
10.3
5.0
11.8
5.2
2
4
6
8
10
12
14
FY13 FY14 FY15 FY16E
(%)
Headline CPI Food
7.5
6.8
10.3
9.7
6
7
8
9
10
11
FY13 FY14 FY15 FY16**
(%)
Repo Base Rate*
102.0 102.9 104.0
119.2
80
90
100
110
120
130
FY13 FY14 FY15 FY16**
Current Situation Future Expectations
CPI halves: Consumer price inflation cut in half within three years, from 10.3% in FY13 to 5.0% in FY16E
Better food price management: Sharp disinflation during the same period, from 11.8% to 5.2% in FY16E
Easing interest rate cycle: long-term, rule-based cumulative easing of 125bp since January; banks have passed on half of that
Rise in consumer sentiments: future looks bright
Strong levers in Seventh Pay Commission, OROP and DBT transfers
Source: CSO, Elara Securities Estimate Source: RBI; * Median of Public Sector Banks; ** As of September Source: RBI Consumer Confidence Survey, Sep 29, 2015, ** As of September
Elara Securities (India) Private Limited Private & Confidential
Retail loans continue to show traction with 15% growth
Source: RBI, Elara Securities Research
Sector FY16 YoY credit
growth (%)
FY15 YoY credit
growth (%)
Incremental credit YTD FY16
Incremental credit YTD FY15
Sectoral Composition
(%)
O/s as on 18/Sep/15
(INR bn) (%) (INR bn) (%)
Total credit 7.7 8.7 993 1.6 1,361 2.4 100.0 62,016
Non-food credit 7.9 8.6 957 1.6 1,219 2.2 98.3 60,987
Agriculture & allied activities 12.2 18.8 474 6.2 588 8.8 13.1 8,133
Industry (micro & small, medium and large) 4.6 6.0 (283) (1.1) (23) (0.1) 42.4 26,293
Services 6.0 5.3 (117) (0.8) 156) (1.2) 22.6 14,014
Commercial real estate 1.0 20.3 (16) (1.0) 100 6.6 2.7 1,649
Personal loans 15.0 13.0 883 7.6 810 8.0 20.2 12,547
Housing (including priority sector housing) 17.7 14.8 543 8.6 418 7.8 11.0 6,829
Credit card O/s 22.2 17.4 33 10.7 27 11.1 0.5 337
Vehicle loans (4.8) 17.9 85 6.8 335 31.5 2.1 1,331
Other personal loans 22.8 11.0 195 8.3 85 4.2 4.1 2,557
Priority sector 10.2 15.8 889 4.4 752 4.1 33.8 20,992
Micro & small enterprises 9.5 22.1 120 1.5 342 4.8 13.1 8,124
Manufacturing 4.1 18.2 (126) (3.3) 49 1.4 5.9 3,675
Services 14.4 26.0 246 5.9 293 8.1 7.2 4,449
Housing 4.2 9.4 93 2.9 162 5.4 5.3 3,317
Export credit (17.4) (7.3) (71) (16.6) (53) (11.0) 0.6 355
Food credit (2.3) 11.1 36 3.6 142 15.6 1.7 1,030
Credit cards grow by 22% YoY and and other personal loans by 23% YoY
11
URBAN INDICATORS
Elara Securities (India) Private Limited Private & Confidential
Urban lead indicators – modest improvement
Hiring activity on an uptrend
Source: Naukri job Index, Elara Securities Research
600
800
1,000
1,200
1,400
1,600
1,800
2,000
-10%
0%
10%
20%
30%
40%
50%
Jan-1
0
May-1
0
Sep-1
0
Jan-1
1
May-1
1
Sep-1
1
Jan-1
2
May-1
2
Sep-1
2
Jan-1
3
May-1
3
Sep-1
3
Jan-1
4
May-1
4
Sep-1
4
Jan-1
5
May-1
5
Sep-1
5
(% change YoY)
Income likely to bottom for private workers & professionals
Source: Aon Hewitt survey, Elara Securities Research
Seventh CPC, OROP-led rise: next triggers for govt employees
Source: India Public Finance statistics, Elara Securities Research
3 8
2 10 8 4
14
61
30
1 8
2
12
0
10
20
30
40
50
60
70
50
100
150
200
250
300
350
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
(%) (in '000s)
Cent Govt Salary exp towards an employee (LHS) % increase (RHS)
13
10
12
14 14 14 15
13
7
12 13
11 10 10 10 10.6
5
7
9
11
13
15
17
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
(%)
13
Elara Securities (India) Private Limited Private & Confidential
Premium products: set for a good run
14
Source: Company, SIAM, Elara Securities Research
(40)
(20)
0
20
40
1Q
FY11
2Q
FY11
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Q1FY16
(%)
Real Estate - YoY (%) Volume Growth in 6 Major cities
(10)
0
10
20
30
40
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Q1FY16
Q2FY16
(%) Jubilant Food works - Quarterly Same-Store Sales Growth
(10)
(5)
0
5
10
15
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Q1FY16
Q2FY16
(%)
Like to like volume growth
Shoppers Stop Hypercity
(20)
0
20
40
60
80
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Q1FY16
Q2FY16
Q3FY16 Q
TD
(%)
Volume Growth YoY (%), Premium Bikes
Jubilant FoodWorks sales show mild recovery Shoppers Stop and HyperCity volume tepid
Real estate volume showing a slow recovery Premium bike volume growth sustains for past four quarters
Source: Company, Elara Securities Research Source: Company, Elara Securities Research
Source: Bloomberg, Elara Securities Research
RURAL INDICATORS
15
Elara Securities (India) Private Limited Private & Confidential
Rural India in search of fresh drivers
16
Source: CMIE, Elara Securities Research
Low MSP hikes and a fall in open market price of agri commodities dent farm profitability
Source: CACP, Department of Agriculture & Co-operation, Elara Securities Research
Real rural wage growth in the red now
The government’s target of raising returns from agriculture to 50% of cost from ~20-35% cannot take place without price increase of agri commodities
(5)
0
5
10
15
20
25
FY 0
5
FY 0
6
FY 0
7
FY 0
8
FY 0
9
FY 1
0
FY 1
1
FY 1
2
FY 1
3
FY 1
4
FY15
(% change)
Rural Wage Growth Real Rural Wage Growth CPI-RL
7 9
6 7 9
12 9 8
6
10 8
10 8 6
4
8 10 9 8 9
4 2
- - 3
1 2 1 1 - 1 - 2 3 4
12
3 2 2
7 4 3 2 1
6
2 1 2 1 1 1 4
2 1 4 5
2 4
2 2
0
5
10
15
Paddy
Jow
ar
Bajr
a
Maiz
e
Ragi
Arh
ar
Moong
Ura
d
Cott
on
Gro
undnut
Sunflow
er
Soyabeen
Sesa
mum
Nig
ers
eed
Wheat
Barley
Gra
m
Lentil
Must
ard
Saff
low
er
% CAGR Crop year 2008-15 % change Crop year 2014-15 % change Crop year 2015-16
Poor rains & farm output hurt rural spending in recent times
Source: IMD, Department of Agriculture & Co-operation, Elara Securities Research
Crop year Rainfall % deviation from normal Foodgrain production
All seasons Southwest
Monsoon (June-Sep) mn tonnes (% chg YoY)
2003-04 5 2 213 22 2004-05 (9) (13) 198 (7) 2005-06 (1) (1) 209 5 2006-07 (5) (1) 217 4 2007-08 (1) 5 231 6 2008-09 (10) (2) 234 2 2009-10 (19) (23) 218 (7) 2010-11 2 2 245 12 2011-12 (7) 2 259 6 2012-13 (10) (8) 257 (1) 2013-14 6 6 264 3 2014-15 (12) 257 (3) 2015-16E (14)
Elara Securities (India) Private Limited Private & Confidential
Low rural India wages expose chink in armour
17
Rural wage growth in downward trend
Source: CMIE, Elara Securities Research
Spend stagnates in MGNREGA
Source: MGNREGA, Elara Securities Research
Rural spending by government – some traction seen
Source: Ministry of Rural Development, Elara Securities Research
1 3
9
8
12 1
6 19
19
18
12
5
1
5 6
12
13
20 22
20
16
13
10
0
5
10
15
20
25
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Jul-Sep
2015
(% change)
Men Women
0
20
40
60
80
100
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Budget Actual
(INR BN)
0
10
20
30
40
50
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Budget Actual
(INR BN)
Tractors muted on weak Monsoon and low wages
Source: SIAM, CMIE, Elara Securities Research
-40%
-20%
0%
20%
40%
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16 Q
TD
Volume Growth YoY (%), Tractors
TOP BUYS
18
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 13%
MCap: INR 1,775bn
TP: INR 924
HUVR IN
Proxy play
India’s FMCG industry’s current market size is INR 2,500bn. Industry-wide, sales volume growth is ~5% in FY16 YTD. We expect
incremental money flow of INR 10,900bn over FY17-18E. While discretionary categories in consumption and consumer durables will
get a big fillip, FMCG volume growth rate is expected to grow by ~8% by FY18E. Market leader Hindustan Unilever (HUVR
IN), which has a 30-50% market share across soaps & detergents, personal care and beverages like tea &coffee, in India, is set to
post volume growth of ~9% by FY18E (from ~5% currently)
Upgrades to the rescue: We expect consumers to switch to higher-priced products. Premiumization will improve sales mix
and improve margin by 340bp by FY18E. HUVR remains our top pick among large caps in the sector
Valuation
We recommend Buy with a target price of INR 924 based on 35x FY18E P/E
Key risks
Uptick in raw material prices and slow-than-expected pickup in economic growth remain key risks
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 319,722 9.4 54,137 16.9 39,182 3.3 18.1 115.4 100.2 45.3 31.8
FY16E 334,749 4.7 60,752 18.1 42,717 9.0 19.7 103.4 101.7 41.5 28.3
FY17E 372,508 11.3 70,586 18.9 48,918 14.5 22.6 110.9 109.3 36.3 24.2
FY18E 426,336 14.5 82,433 19.3 57,050 16.6 26.4 116.4 115.5 31.1 20.6
Consumer Staples
Hindustan Unilever CMP: INR 820
19
“Our strategy of
delivering consistent and
competitive growth with
sustainable improvement
in operating margin
remains unchanged”
Harish Manwani
Chairman, HUL
Switch to high-priced products to
improve margin
Source: Company, Elara Securities Estimate
0
20
40
0
5
10
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
(%)
Volume growth (LHS) EBITDA margin (RHS) Net profit growth (RHS)
Elara Securities (India) Private Limited Private & Confidential
Key products
SURF EXCEL RIN WHEEL VIM
DOVE LIFEBUOY LUX PEPSODENT
FAIR & LOVELY
CLOSE UP PEARS CLINIC PLUS PONDS SUNSILK
20
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 319,722 334,749 372,508 426,336
YoY (%) 9.4 4.7 11.3 14.5
EBITDA 54,137 60,752 70,586 82,433
YoY (%) 14.1 12.2 16.2 16.8
Margin (%) 16.9 18.1 18.9 19.3
PAT 43,631 42,717 48,918 57,050
YoY (%) 3.3 9.0 14.5 16.6
EPS (INR) 18.1 19.7 22.6 26.4
P/E (x) 45.3 41.5 36.3 31.1
P/B (x) 44.1 41.8 38.7 34.0
ROE (%) 115.4 103.4 110.9 116.4
ROCE (%) 100.2 101.7 109.3 115.5
Pickup in volume growth to ~9% by FY18E following
premiumization of sales mix
Improving sales mix to drive strong margin expansion
10.1%
FY15-18E CAGR
15%
Valuation
21
(INR) FY18E
PAT (INR mn) 57,050
No of shares (mn) 2,163
EPS 26.4
Target P/E (x) 35
Target price 924
CMP 820
Rich valuation justified, given higher
volume growth and earnings
Volume growth of ~9% by FY18E
with margin expansion of 340bp
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 30%
MCap: INR 503bn
TP: INR 3,284
HMCL IN
Getting ready to rev up
India’s two-wheeler (2W) industry grew at a 8% volume CAGR over FY11-15. Rising aspirations and higher disposable income were
the driving force behind this growth. We expect this trend to continue. Scooters led the pack for the 2Ws, with a CAGR of 22% over
FY11-15 while motorcycles grew at a 4% CAGR over FY11-15. We expect the 2W industry to grow by a 9% volume CAGR at
over FY16-18E
Taking point: Hero MotoCorp will be a key beneficiary, with the recent two new launches in the scooter segment and strong
competitive positioning in the motorcycle segment. We expect scooters for Hero to post volume growth of 13% (from 832K in FY15 to
1.2mn by FY18E) and motorcycles of 8% (from 5.8mn in FY15 to 7.2mn by FY18E). Both these segments would receive a boost from
two structural drivers: 2W penetration as a percentage of households in rural areas remains low at 14% vs all-India average of 21%
and a relatively large population of ~110mn, which would eventually migrate to entry-level 2Ws
Valuation
The stock currently trades at 13.5x FY17E P/E, lower than the historical average of ~16.6x. We recommend Buy with a TP of INR
3,284 based on 16.0x weighted average FY17-18E P/E
Key risks
Any technical issues with the new launches as well as competition
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 275,853 9.1 35,422 12.8 25,407 20.5 127.2 41.9 57.6 19.8 13.4
FY16E 284,814 3.2 41,598 14.6 30,443 19.8 152.4 41.5 57.0 16.5 11.1
FY17E 330,978 16.2 48,560 14.7 37,371 22.8 187.1 41.1 56.3 13.5 9.3
FY18E 379,349 14.6 57,143 15.1 43,848 17.3 219.6 38.9 53.6 11.5 7.5
Consumer Discretionary
Hero MotoCorp CMP: INR 2,520
22
“Newly launched Duet
addresses product gap of
being a unisex and metal
body scooter. Dealer
customer relations is
expected to benefit Hero
in the scooterization trend
in rural areas”
Dealer, Junagadh, Gujarat
Hero scooter market share revival
10
15
20
25
Apr-
14
Jun-1
4
Aug-1
4
Oct
-14
Dec-
14
Feb-1
5
Apr-
15
Jun-1
5
Aug-1
5
Oct
-15
(%)
Source: Company, Elara Securities Research
Elara Securities (India) Private Limited Private & Confidential
Key products
Glamour Passion Pro Splendor Ismart
Duet Maestro Edge
23
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
Net sales CAGR of 11% over FY15-18E on strong positioning in
rural areas once the economy recovers
Margin expansion of 230bp over FY15-18E resulting from lower
raw material prices and LEAP program benefits
11.2%
FY15-18E CAGR
15.1%
Risk-reward favourable as target multiple
trades near historical average
Valuation
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
(INR) Weighted average
FY17-18E
EPS 205.3
Multiple (x) 16.0
Target Price 3,284
CMP 2,520
Potential (%) 30
24
FY15 FY16E FY17E FY18E
Volume 6,631,703 6,713,084 7,605,309 8,461,419
YoY (%) 6.2 1.2 13.3 11.3
Scooters 832,008 840,000 1,100,000 1,200,000
Scooters (YoY %) 17.6 1.0 31.0 9.1
Exports 200,017 228,070 360,912 501,368
Exports (YoY %) 53.0 14.0 58.2 38.9
Net sales 275,853 284,814 330,978 379,349
EBITDA 35,422 41,598 48,560 57,143
EBITDA margin (%) 12.8 14.6 14.7 15.1
PAT 25,407 30,443 37,371 43,848
EPS (INR) 127.2 152.4 187.1 219.6
Adj P/E (x) 19.8 16.5 13.5 11.5
EV/EBITDA (x) 13.4 11.1 9.3 7.5
P/B (x) 7.7 6.2 5.0 4.0
Dividend Yield (%) 2.2 2.4 3.0 3.2
ROE (%) 41.9 41.5 41.1 38.9
ROCE (%) 57.6 57.0 56.3 53.6
EPS CAGR of 20% over FY15-18E
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 19%
MCap: INR 1,289bn
TP: INR 5,060
MSIL IN
Engine of hope
India’s passenger vehicles (PV) industry grew at a 6% volume CAGR over FY10-15. Rising aspirations, higher disposable income and
premiumization were the driving force behind this growth. We expect this trend to continue. The entry-level PVs posted a volume
contraction of 2% over FY10-15 while compact hatchbacks and sedans grew at a CAGR of 9% over FY10-15. We expect the
passenger vehicle industry to grow by a 15% volume CAGR over FY16-18E. The Seventh Pay Commission is expected to
boost sales of MSIL as government employees made up ~17% of MSIL sales in FY15 (post implementation of the Sixth Pay
Commission, government employees’ sales contribution increased from 4% in FY08 to ~14% in FY11)
Stands guard: MSIL has managed to gain a 200bp market share in passenger cars in FY15 to 51.9%. Industry’s entry-level car
segment growth has been lacklustre over the past three years, where Maruti has a 70%+ market share, which will improve once the
economy recovers
Valuation
We recommend Buy with a target price of INR 5,060 based on 20x FY17-18E weighted average P/E, owing to a 20%+ ROE and a
37% EPS CAGR over FY15-18E. MSIL is our preferred play among four-wheelers
Key risks
Failure in the premium car market segment and a yen appreciation
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 499,706 14.3 67,830 13.6 37,812 35.9 125.2 14.5 23.0 34.1 17.2
FY16E 574,577 15.0 93,005 16.2 53,614 41.8 177.5 17.6 28.0 24.0 12.3
FY17E 695,027 21.0 116,206 16.7 71,225 32.8 235.8 19.9 31.7 18.1 9.5
FY18E 795,404 14.4 136,867 17.2 87,042 22.2 288.1 20.9 32.3 14.8 7.8
Automobiles
Maruti Suzuki CMP: INR 4,268
25
“New Baleno response has
been encouraging, which
has come as a big relief as
dealers have invested
heavily in NEXA outlets”
Dealer,
Bengaluru, Karnataka
Maruti PV market share resilient
Source: Company, Elara Securities Research
40
42
44
46
48
50
Apr-
14
Jun-1
4
Aug-1
4
Oct
-14
Dec-
14
Feb-1
5
Apr-
15
Jun-1
5
Aug-1
5
Oct
-15
(%)
Elara Securities (India) Private Limited Private & Confidential
Key products
Source: Company
Alto K10 WagonR
Swift Dzire Baleno
26
Elara Securities (India) Private Limited Private & Confidential
Key financials
Volume CAGR of 14% over FY15-18E, led by first-time
buyers, new product launches and entry into new segments
(compact UVs)
Reduction in discounts, cost reduction & localization, operating
leverage as well as stable forex
14%
FY15-18E CAGR
360bp
Valuation
(INR)
Weighted
average FY17-
18E
Weighted avg FY17-18 EPS 253.0
Multiple (x) 20.0
Target Price 5,060
CMP 4,268
Potential (%) 19
27
FY15 FY16E FY17E FY18E
Volume 1,291,912 1,446,910 1,719,857 1,922,255
YoY (%) 11.8 12.0 18.9 11.8
Net sales 499,706 574,577 695,027 795,404
EBITDA 67,830 93,005 116,206 136,867
EBITDA margin (%) 13.6 16.2 16.7 17.2
PAT 37,812 53,614 71,225 87,042
EPS (INR) 125.2 177.5 235.8 288.1
Adj P/E (x) 34.1 24.0 18.1 14.8
EV/EBITDA (x) 17.2 12.3 9.5 7.8
P/B (x) 5.4 4.7 4.0 3.3
Dividend Yield (%) 0.6 0.9 1.3 1.5
ROE (%) 14.5 17.6 19.9 20.9
ROCE (%) 23.0 28.0 31.7 32.3
Owing to a 20%+ ROE and a 37% EPS
CAGR over FY15-18E
EPS CAGR of 37% over
FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 35%
MCap: INR 161bn
TP: INR 572
SUNTV IN
Sunny skies
Rising aspirations, increasing income levels and government payouts mean more money in hand to spend. Incrementally INR
10,900bn will flow into the economy over FY17-18E. We expect this money to be spent on consumer goods and services, which will
drive advertising spend by the industry. The current annual TV industry ad spend growth is in the low teens. We expect this to grow
by ~15% by FY18E. Sun TV (SUNTV IN) with its 33 TV channels and 44 radio stations across South India, remains the strongest TV
network in the region, and we expect a 15% ad revenue CAGR over FY15-18E
Pack leader: Sun TV has 6x the viewership of its closest competitor, Vijay TV, among GECs in Tamil Nadu and the network has
>70% share of viewership in the state. It enjoys a viewership share of 14%, 9% and 18% in Andhra Pradesh, Kerala & Karnataka,
respectively. Apart from an uptick in advertising, the implementation of phases III & IV of cable digitization will bring in higher
subscription revenue as 25mn households are expected to make the switch in the next two years. We expect a 20% net profit
CAGR over FY15-18E
Valuation
We recommend Buy with a target price of 572 based on 17x FY18E P/E. With a ~35% net margin, it is one of the most profitable
businesses in the country
Key risks
Ongoing litigation against the promoter and slow-than-expected ad revenue growth
Key financials
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 23,954 7.7 16,772 70.0 7,820 3.4 19.8 24.3 23.2 21.3 9.3
FY16E 26,735 11.6 18,704 70.0 9,673 23.8 24.5 27.3 26.0 17.2 8.2
FY17E 30,357 13.5 21,374 70.4 11,270 16.6 28.6 28.1 27.0 14.8 7.0
FY18E 35,109 15.7 25,011 71.2 13,495 19.9 34.2 29.5 28.4 12.4 5.8
Consumer Discretionary
Sun TV CMP: INR 423
28
“Advertising looks better
in FY16. Phases III & IV
of digitization will be the
next big driver for
subscription revenue”
SL Narayanan
Group CFO, Sun TV
(15)
0
15
30
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
(%)
Ad revenue growth (%)
Net profit growth (%)
Strong earnings growth ahead
Source: Company, Elara Securities Estimate Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Key products
29
Source: Company
SUN TV GEMINI TV
UDAYA TV SURYA TV
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 23,954 26,735 30,357 35,109
YoY (%) 7.7 11.6 13.5 15.7
EBITDA 16,772 18,704 21,374 25,011
YoY (%) 11.1 11.5 14.3 17.0
Margin (%) 70.0 70.0 70.4 71.2
PAT 7,820 9,673 11,270 13,495
YoY (%) 3.4 23.8 16.6 19.9
EPS (INR) 19.8 24.5 28.6 34.2
P/E (x) 21.3 17.2 14.8 12.4
P/B (x) 5.0 4.4 3.9 3.4
ROE (%) 24.3 27.3 28.1 29.5
ROCE (%) 23.2 26.0 27.0 28.4
Uptick in advertising and pickup in subscription revenue on
digitization to result in strong revenue growth
Pre-movie cost EBITDA increase to be in slightly above
revenue growth
13.6%
FY15-18E CAGR
14.2%
Valuation
30
Low increase in cost of movies to aid in strong earnings
growth
20%
Cheap valuations compared to peer, Zee
Entertainment
(INR) FY18E
PAT (INR mn) 13,495
No of shares (mn) 394
EPS 34.2
Target P/E (x) 17
Target price 572
CMP 423
Trading at 12x FY18E P/E is less
than half of peer Zee Entertainment
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Valuation
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 48%
MCap: INR 104bn
TP: INR 148
DITV IN
Well poised
The Central government has mandated TV households across the country will have to install digital addressable systems by December
2016. So far, ~100mn households have digital cable or DTH. In phases III and IV, another ~75mn households are expected to go
digital by December 2016 (deadline may be rolled forward). DTH, which currently has 50mn users, will be a key beneficiary of this
shift from analog. Dish TV (DITV IN) is expected to add 2-3mn subscribers annually from the current 1.5mn. We expect net profit to
grow from INR 31mn in FY15 to INR 7.4bn over FY15-18E
The party is not over: Broadcasters demand for higher ARPU from MSOs will give a fillip to DTH to raise prices. DITV is expected to
hike price of packs by 5-7% annually. Apart from this, content cost would increase only by ~5-6% because contract renewals with
broadcasters are due only after September 2017. This along with falling DTH license fees would lead to an EBITDA CAGR of 31%
by FY18E
Valuation
We recommend Buy with a target price of INR 148 based on a DCF method
Key risks
Loss of pace in digitization and superior technology-based competition to DTH are key risks
Key financials
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 27,816 10.9 7,331 26.4 31 NA 0.0 NA NA NA 15.7
FY16E 31,032 11.6 10,491 33.8 3,146 NA 3.0 NA NA 33.9 10.4
FY17E 36,737 18.4 12,997 35.4 5,072 61.2 4.8 NA NA 21.0 8.2
FY18E 43,302 17.9 16,496 38.1 7,375 45.4 6.9 NA NA 14.4 6.1
Consumer Discretionary
Dish TV CMP: INR 100
31
“We have room to improve
margin beyond 34% by at
least 300-500bp if license
fees are reduced in line
with TRAI reco and GST
implementation and
operating leverage in our
business” RC Venkateish
Outgoing CEO, Dish TV
(5,000)
0
5,000
10,000
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
(INR mn)
Net profit FCFF
Multiple levers for strong FCF
Source: Company, Elara Securities Estimate Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Dish TV
DishFlix - India’s First Home Video System DISH truHD+ with Recorder
Hi-Definition Set-Top-Box with Recorder
DISH+ with Recorder
Digital Set-Top-Box with Recorder
DISH on Wheels
Enhance your travelling experience Source: Company
32
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 27,816 31,032 36,737 43,302
YoY (%) 10.9 11.6 18.4 17.9
EBITDA 7,331 10,491 12,997 16,496
YoY (%) 17.5 43.1 23.9 26.9
Margin (%) 26.4 33.8 35.4 38.1
PAT 31 3,146 5,072 7,375
YoY (%) (107.6) 9,920.6 61.2 45.4
EPS (INR) 0.0 3.0 4.8 6.9
P/E (x) NA 33.9 21.0 14.4
P/B (x) NA NA 20.5 8.4
Digitization-led rise in subscriber additions and ARPU hike
resulting in strong revenue growth
Margin expansion on operating leverage and cost controls
15.9%
FY15-18E CAGR
31%
Valuation
(INR mn)
Discounted cash flows 92,300
Terminal value 48,010
Net Debt 3,006
Total shareholders value 1,37,304
Target price (INR) 148
CMP (INR) 100
33
Sharp increase in profit and cashflow 517%
FCF generation to improve sharply
Net profit to grow by CAGR of
517% to INR 7.4bn by FY18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Pure play
The government plans to add 770mn LED bulbs in households across the country, with 35mn LED streetlights, 10mn agricultural
pumps powered by solar energy, 160mn fans and 1.8mn ACs over the next four years. This energy-efficiency initiative has attracted
industry stalwarts, such as Crompton Greaves (CRG IN) and peers, who have already struck gold from this exercise. We expect CRG
to grow its consumer business by ~15% worth INR 125bn over FY16-18E, with a stable EBIT margin of 12%
Going solo works like a charm: CRG recently demerged its consumer business (23% of FY15 total revenue). It is expected to
be listed in Q4. The new company will focus on reorganizing its product portfolio, dealer networks and pricing
Follow the money: Lighting revenue grew by 13% in FY13 & 17% in FY14 (vs industry’s 12% each); the segment grew by 7%
in FY15, driven by LEDs. Fans grew by 22% in FY13 & 15% in FY14 (vs industry’s 10% and 15%, respectively); the segment
grew by 14% in FY15. Pumps grew by 13% in FY15 (well ahead of industry’s 5%). In FY14, the industry contracted 10% vs
CRG’s flat growth)
New line of business: CRG recently entered into an alliance with SOGO, an European company, to offer new kitchen appliances;
this segment grew by 14% annually
Valuation: CRG sold its consumer business at INR 58.2bn of equity value, implying per share value of INR 93 (which is 50% of its
CMP); this implies 13.5x September 2017E P/E for its consumer business, which is well below peers at 25x
Key risks: A prolonged delay in revival in the overseas division leading to higher losses, slower capex recovery in India, the euro
depreciation and penalty on termination of the franchisee business
Key Financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
34
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 140,131 2.8 6,424 4.6 1,841 21.2 2.9 4.8 3.8 63.0 20.7
FY16E 141,751 1.2 8,330 5.9 3,468 88.4 5.5 9.4 7.0 33.4 14.5
FY17E 155,688 9.8 11,397 7.3 6,227 79.6 9.9 14.5 11.2 18.6 10.1
FY18E 174,729 12.2 13,823 7.9 8,267 32.8 13.2 16.3 12.7 14.0 7.8
Consumer Durables
Crompton Greaves
As a standalone company,
Crompton Greaves
Consumer Electrical
would be able to pursue
more strategic goals and
thus maximize value for
all its stakeholders.
Laurent Demortier CEO & MD, Crompton Greaves
(20)
(10)
0
10
20
30
FY12 FY13 FY14 FY15
(%)
CG - Fans CG - Lightning
CG - Pumps Industry - Fans
Industry - Lightning Industry - Pumps
Crompton ahead of the industry
Source: Company, Elara Securities Research
CMP: INR 198 Upside: 8%
MCap: INR 116bn
TP: INR 200
CRG IN
CMP: INR 185
Elara Securities (India) Private Limited Private & Confidential
Key Projects
Fans
Instant water heaters
Lighting
Pumps Home automation
Integrated security systems
LED flood lights LED bulb
Source: Company
35
Elara Securities (India) Private Limited Private & Confidential
Key financials
36
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 140,131 141,751 155,688 174,729
YoY (%) 2.8 1.2 9.8 12.2
EBITDA 6,424 8,330 11,397 13,823
YoY (%) 5.0 29.7 36.8 21.3
Margin (%) 4.6 5.9 7.3 7.9
PAT 1,841 3,468 6,227 8,267
YoY (%) 21.2 88.4 79.6 32.8
EPS (INR) 2.9 5.5 9.9 13.2
P/E (x) 63.0 33.4 18.6 14.0
Dividend yield (%) 0.2 0.3 0.3 0.3
ROE (%) 4.8 9.4 14.5 16.3
ROCE (%) 3.8 7.0 11.2 12.7
Strong revenue levers from consumer durables business
Sharp margin expansion from rise in automation and lighting
businesses
Lower interest outgo to further push up earnings growth
8%
FY15-18E CAGR
29%
65%
At CMP, the consumer business
trades at P/E of 13.5x, well below
peers which trade at an average
P/E of 33x FY16E and 25x FY17E
Valuation (consolidated)
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
(INR) FY18E
PAT (INR mn) 8,267
No of shares (mn) 626.8
EPS 13.2
Target P/E (x) 14.1
Target price 200
CMP 185
Basis Implied
Value (x) Per share
(INR)
Standalone business (Other than consumer business)
P/E 7.5 47
Demerged Consumer business P/E 13.5 93
Subsidiaries business EV/Sales 0.65 46
At CMP 185
Implied valuation at CMP
Consumer business to outgrow the industry by
15% at INR 125bn over FY16-18E across
its products lines – lighting, fans and pumps
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Growing clout
India’s apparels market is estimated to be at INR 2,460bn (USD 41bn). Out of this, men’s wear is the largest segment, with a 42%
share. We expect apparels industry to grow by 12% by FY18E as we estimate INR 666bn of flows to come from the consumption
impulse. Organized retail, which contributes 33% of overall industry, is likely to post a sales CAGR of 16% over FY15-
18E. Raymond (RW IN) plans to register textiles & apparels sales CAGR of 13% over FY15-18E, with a 40bp margin
expansion
Driving change: Management’s recent product revamp in the textiles and apparels markets led to growth of 21% in FY15 vs 8-10%
over FY10-14. This success is led by increased focus on the shirting segment, introduction of Raymond’s premium apparels and
product portfolio revamp. Raymond is currently overhauling its distribution reach, adding new 80 stores annually, refurbishing ~150
key Raymond stores and increasing large, multi-brand distribution network
Valuation
We recommend Buy with a SOTP-based TP of INR 583 based on 7.6x FY18E EV/EBITDA
Key risks
Rising rental yields to decelerate retail expansion
Key financials
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 53,326 17.3 4,459 8.4 1,159 6.1 18.4 7.4 8.5 22.7 8.3
FY16E 57,043 7.0 4,741 8.3 753 (35.1) 11.8 4.6 9.1 35.5 7.8
FY17E 63,757 11.8 5,985 9.4 1,631 116.8 26.1 9.4 12.1 16.0 6.2
FY18E 71,416 12.0 7,054 9.9 2,262 38.7 36.4 11.9 14.1 11.5 5.2
Consumer Discretionary
Raymond
37
“ Apparels brands, Park
Avenue and Color Plus,
have >150 exclusive
brand stores. We will
double our store count
over the next three years”
Sanjay Behl
CEO, Lifestyle Business
EBITDA margin expansion likely
Source: Company, Elara Securities Estimate
0
5
10
15
20
Textile
Appare
l
Garm
enting
Denim
B2B
Shirting
Tools
Auto
sp
are
s
(%)
FY15 FY18E
CMP: INR 198 Upside: 42%
MCap: INR 25bn
TP: INR 583
RW IN
CMP: INR 410
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Key projects
38
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 53,326 57,043 63,757 71,416
YoY (%) 17.3 7.0 11.8 12.0
Textiles & apparels segment revenue 35,560 39,161 45,035 51,791
EBITDA 4,459 4,741 5,985 7,054
YoY (%) (10.1) 6.3 26.2 17.9
Margin (%) 8.4 8.3 9.4 9.9
PAT 1,159 753 1,631 2,262
YoY (%) 5.8 26.8 21.9 38.0
EPS (INR) 18.4 11.8 26.1 36.4
P/E (x) 22.2 34.7 15.6 11.2
EV/EBITDA (x) 8.1 7.7 6.1 5.1
ROE (%) 7.4 4.6 9.4 11.9
ROIC (%) 10.3 10.9 14.8 17.9
Management focus on consumer-led segments, such as
branded textiles and apparels to drive growth
Sharp margin expansion in the range of 550-600bp in apparels
13%
FY15-18E CAGR
17.8%
Attractively priced at just 7.6x FY17E
compared to 12-15x peer valuation
Valuation
(INR mn) FY17E
EBITDA 5,985
Mutiple (x) 7.6
Enterprise value 45,725
Net debt 9,919
Market cap 35,806
No of shares (mn) 61
TP (INR) 583
39
Textiles and sales CAGR of 13%
over FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Shining bright
India’s hospitality industry is on the cusp of a recovery, with occupancy rate improving by 250-300bp to 63% in FY16E and to 66% at
the pan-India level in FY17E for premium hotels. This expansion is expected from the meetings, incentives, conferences and
exhibitions (MICE) segment and corporate & domestic travelers. Indian Hotels (IH IN) is well positioned as it has doubled the number
of rooms in 11 years from 7,942 in FY04 to ~15,751 in FY15, to grab this opportunity. We expect the company to post an
EBITDA CAGR of 25% and a sales CAGR of 11.4% over FY15-18E
Domestic takes off: Standalone EBITDA could improve from INR 3,587mn in FY15 to INR 5,176mn in FY17E based on higher
occupancy and ARR. Expanding products portfolio with light assets (adding more rooms through management contracts)
is expected to post a 23% revenue CAGR to INR 2.6bn over FY15-18E
Valuation
We recommend Buy with a TP of INR 155 on a weighted average EV/Room of INR 25mn for premium rooms, INR 4mn for Ginger and
21x FY18E EV/EBITDA
Key risks
Economic slowdown, threat from ISIS and natural calamities could affect the business
Key Financials
40
Consumer Discretionary
Indian Hotels Upside: 32%
MCap: INR 95bn
TP: INR 155
IH IN
CMP: INR 118
“We plan to re-engineer
our operations, rationalize
cost structure and tighten
our day-to-day
operations”
Rakesh Sarna MD & CEO, Indian Hotels
ARR improvement likely
Source: Company, Elara Securities Estimate
(2)
0
2
4
6
3,000
4,000
5,000
6,000
7,000
FY13
FY14
FY15
FY16E
FY17E
FY18E
(%) (INR mn)
EBITDA (LHS) ARR Growth (RHS)
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 41,886 3.0 4,886 11.7 (252) (2,644.4) (0.3) (1.0) 3.9 (463.6) 27.2
FY16E 47,738 14.0 6,574 13.8 674 (367.6) 0.7 2.5 5.1 173.3 21.1
FY17E 52,545 10.1 7,807 14.9 1,435 112.9 1.5 4.5 6.5 81.4 17.5
FY18E 57,939 10.3 9,436 16.3 2,573 79.3 2.6 7.8 9.0 45.4 14.1
Elara Securities (India) Private Limited Private & Confidential
Key Projects
Source: Company
Taj Hotels & Resorts Vivanta by Taj Gateway Taj
Pierre Boston Taj Campton Place
41
Elara Securities (India) Private Limited Private & Confidential
Key financials
42
Better occupancy to drive sales growth 11.4%
CAGR
25%
Valuation
(INR mn) FY15 FY16E FY17E FY18E
Sales 41,886 47,738 52,545 57,939
EBITDA 4,886 6,574 7,807 9,436
EBITDA Margin (%) 11.7 13.8 14.9 16.3
PAT (252) 674 1,435 2,573
EPS (INR) (0.3) 0.7 1.5 2.6
P/E (x) (463.6) 173.3 81.4 45.4
EV/EBITDA (x) 27.2 21.1 17.5 14.1
P/B (x) 4.3 3.0 3.0 2.8
ROE (%) (1.0) 2.5 4.5 7.8
ROCE (%) 3.9 5.1 6.5 9.0
At CMP, the stock is currently
trading at 13.8x FY18E
EV/EBITDA
Operating leverage to improve margin
EBITDA CAGR of 25% and sales
CAGR of 11.4% over FY15-18E
Better demand to drive occupancy
Source: Company, Elara Securities Estimate
(INR mn) FY18E FY18E
EV/Adj room EV/EBITDA
Valuation Ex-Ginger EBITDA 9,436
Ginger Room Count 2,813 Target EV/EBITDA (x) 21
Target EV/Room 4 Target EV 198,162
Ginger EV (a) 11,251 Target Mcap 159,982
Valuation Premium room
Premium Adjusted Room Count 6,981
Target EV/Room 25
Premium Room EV (b) 174,537
Total EV (a+b) 185,787
Mcap 147,607
Target Price (INR) 149 Target Price (INR) 162
Weightage (%) 50
Weighted Target Price (INR) 155
Upside (%) 32
60
65
70
75
80
3,000
4,000
5,000
6,000
7,000
FY13 FY14 FY15 FY16E FY17E FY18E
(%) (INR mn)
EBITDA (LHS) OR Growth (RHS)
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Going large
India’s travel & tourism is highly unorganized, with a market size of INR 2,827bn. We believe the shift towards an organized market
(currently: ~20%) presents significant opportunity. The sector will receive an additional fillip of 60% from a consumption
impulse of INR 1,234bn by FY18E. Cox & Kings (COXK IN) India business (~24% consolidated sales in FY16E) is expected to
grow at a CAGR of 16% over FY15-18E. The company will post an overall sales CAGR of 3% over FY15-18E
Driver of growth: Cox & Kings is eying opportunities in the education segment (school activities & Summer camps: ~30%) by
expanding brands across Europe. This segment is expected to post a CAGR of ~11% over FY15-18E, led by new centers in Australia
and the baby boom in the UK. Expansion of Germany’s Meininger (~18%) into newer markets would drive growth in the hotel
segment. Meininger has 7,340 beds across 2,092 rooms; management expects to reach 19,000 beds over FY16-18 through the
leasing model
Valuation
We recommend Buy with a TP of INR 436 on a weighted average of 16x FY18E earnings and 8x FY18E EV/EBITDA
Key risks
Adverse macro economy, national calamities and currency fluctuations
Key Financials
43
Consumer Discretionary
Cox & Kings CMP: INR 198
“We are working towards
doubling bed counts at
Meininger over the next
three years. We opened a
second PGL site in
Australia and plan on
raising bed capacity in
PGL Europe & Australia”
Peter Kerkar Promoter & Non-ED
Cox & Kings
Expansion into newer markets to
drive growth
Source: Company, Elara Securities Estimate
38
39
40
41
42
(20)
(10)
0
10
20
30
FY14 FY15 FY16E FY17E FY18E
(%) (%)
PAT Growth (LHS)
EBITDA Margin (RHS)
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 25,691 11.3 10,108 39.3 3,074 17.9 17.4 14.3 11.3 13.8 7.1
FY16E 22,990 (10.5) 9,274 40.3 3,484 13.3 19.7 12.5 11.8 12.1 7.2
FY17E 25,240 9.8 10,270 40.7 4,342 24.6 24.6 13.0 13.0 9.7 6.1
FY18E 28,125 22.3 11,444 40.7 5,051 45.0 28.6 13.0 13.9 8.4 5.1
Upside: 82%
MCap: INR 41bn
TP: INR 436
COXK IN
CMP: INR 239
Elara Securities (India) Private Limited Private & Confidential
Key projects
Source: Company
44
Elara Securities (India) Private Limited Private & Confidential
Key financials
45
3%
CAGR
4%
18% Deleveraging and margin expansion of 140bp to drive an
earnings CAGR of 18% over FY15-18E
Valuation
(INR mn) FY15 FY16E FY17E FY18E
Sales 25,691 22,990 25,240 28,125
EBITDA 10,108 9,274 10,270 11,444
EBITDA Margin (%) 39.3 40.3 40.7 40.7
PAT 3,074 3,484 4,342 5,051
EPS (INR) 17.4 19.7 24.6 28.6
P/E (x) 13.8 12.1 9.7 8.4
EV/EBITDA (x) 7.1 7.2 6.1 5.1
P/B (x) 1.6 1.3 1.1 1.0
ROE (%) 14.3 12.5 13.0 13.0
ROCE (%) 11.3 11.8 13.0 13.9
FY18E
P/E valuation
EPS (INR) 28.6
Target P/E (x) 16.0
Target Price (INR) 458
Weightage (%) 50
EV/EBITDA valuation
EBIDTA (INR mn) 11,444
Target EV/EBIDTA (x) 8
Target EV (INR mn) 91,553
Target Mcap (INR mn) 73,280
Target Price (INR) 415
Weightage (%) 50
Weighted Target Price (INR) 436
Upside (%) 82
At CMP, the stock is trading at an
attractive valuation of 8.4x FY18E P/E
Overall sales CAGR of 3% over
FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Going global
Improving economic conditions, rising incomes and aspirations are driving Indians to seek out exciting vacation destinations. We are
banking on this newfound optimism to drive the travel & leisure industry in India. Mahindra Holidays (MHRL IN) is taking advantage of
this resurgence by driving the time share industry and we expect the company to grow at a 15.6% revenue CAGR over FY15-
18E (from ~12% over FY12-15)
Key drivers: Mahindra Holidays is likely to grow at a healthy pace after acquiring Holiday Club Resort (HCR) with 30 resorts in
Finland, Sweden, and Spain. It plans to focus on increasing membership acquisition (currently ~60% of total revenue) from tier 2 & 3
cities and increasing digital marketing. These recent initiatives will offer its existing customers new and exciting holiday destinations
across Europe. The synergy benefits also will drive up the occupancy rate of resorts of HCR as well as Mahindra Holidays. We expect
an earnings CAGR of ~15% over FY15-18E, assuming membership additions of 15k in FY16E, 16k in FY17E and 17K in FY18E
Valuation
We recommend Buy with a target price of INR 496 based on an average of 28x FY18E P/E and 15x FY18E EV/EBITDA
Key risks
Cheaper international locations and increasing aspirations for international holidaying to impact member addition
Adverse economic scenario could impact the business
Key Financials
46
Consumer Discretionary
Mahindra Holidays
“We are trying to increase
our room count from
2,800 to about 3,400 in
the next 2.5 years with an
investment of INR 6bn”
Kavinder Singh
MD & CEO, Mahindra Holidays
Higher membership addition to
drive growth
Source: Company, Elara Securities Estimate
(45)
(30)
(15)
0
15
30
FY13
FY14
FY15
FY16E
FY17E
FY18E
(%)
Addition of members growth
Total Sales Consolidated growth
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
Upside: 16%
MCap: INR 38bn
TP: INR 495
MHRL IN
CMP: INR 425
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 8,119 (0.5) 1,804 22.2 1,031 18.5 11.6 13.9 15.1 36.6 21.5
FY16E 9,548 17.6 2,231 23.4 1,146 11.1 12.9 15.1 18.3 33.0 17.3
FY17E 11,054 15.8 2,624 23.7 1,371 19.7 15.4 16.4 20.2 27.5 14.6
FY18E 12,526 13.3 2,968 23.7 1,563 14.0 17.6 16.7 21.0 24.2 12.9
Elara Securities (India) Private Limited Private & Confidential
Key Projects
The Royal Court, Jaisalmer Dharamshala Gir, Gujarat
Le poshe Kodaikanal Thekkady, Kerala Emerald Palms, Goa
Source: Company
47
Elara Securities (India) Private Limited Private & Confidential
Key financials
48
Higher membership addition to drive revenue growth 15.6%
CAGR
18%
15%
Valuation
(INR mn) FY15 FY16E FY17E FY18E
Sales 8,119 9,548 11,054 12,526
EBITDA 1,804 2,231 2,624 2,968
EBITDA Margin (%) 22.2 23.4 23.7 23.7
PAT 1,031 1,146 1,371 1,563
EPS (INR) 11.6 12.9 15.4 17.6
P/E (x) 36.6 33.0 27.5 24.2
EV/EBITDA (x) 21.5 17.3 14.6 12.9
P/B (x) 5.2 4.8 4.3 3.8
ROE (%) 13.9 15.1 16.4 16.7
ROCE (%) 15.1 18.3 20.2 21.0
FY18E
P/E based Valuation
EPS (INR) 17.6
Target PE (x) 28
Target Price (INR) 493
Weightage (%) 50
EV/EBITDA
EBIDTA (INR mn) 2,968
Target EV/EBITDA (x) 15
Target EV (INR mn) 44,524
Target Mcap (INR mn) 43,944
Target Price (INR) 495
Weightage (%) 50
Weighted Target Price (INR) 494
Upside (%) 16
At CMP, the stock is trading at 25.1x
FY18E P/E
Earnings CAGR of 15% over
FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Scaling new highs
India’s education sector is a INR 5,850bn entity (USD 90bn) currently, and its tutorial industry forms 8% of this sector, i.e, INR 455bn
or USD 7bn. The tutorial market grew at a 15% CAGR over FY11-15. We expect INR 884bn of inflows from the Consumption impulse
in the education sector by FY18E. Lack of quality in core education will spur growth and drive the shift from the unorganized into the
organized segment. The popularity of tutorials shows India’s propensity to spend 5x more on tutoring than on school fees. MT
Educare (MTEL IN) is well poised to take advantage of this opportunity. If we capture this inflow, then we expect the company
to post a ~20% revenue CAGR over FY15-18E
New maths: The company has addressed scalability issues by acquiring two coaching companies in North and South India (Lakshya
and Gayatri). Currently, ~82,000 students are enrolled in MT Educare’s tutorial classes. At ~20% revenue CAGR, we expect a ~6%
price increase and 14% enrolment growth to 122,000 students
Valuation
We recommend Buy with a target price of INR 223 based on 20x FY18E P/E
Key risks
Better quality of education in schools could reduce the requirement of coaching classes
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 2,270 12.5 466 20.5 251.6 21.2 6.1 20.9 25.5 30.0 15.4
FY16E 2,621 15.4 487 18.6 276.0 9.7 7.1 19.1 23.6 25.8 14.7
FY17E 3,027 15.5 583 19.3 357.0 29.3 9.0 20.5 25.7 20.3 12.3
FY18E 3,475 14.8 698 20.1 439.0 23.0 11.2 21.3 25.7 16.3 10.3
Consumer Discretionary
MT Educare
49
“We have always been
cash rich and will remain
cash rich ”
Mahesh Shetty MD, MT Educare
Focus on quality core education to
drive growth
Source: Company, Elara Securities Estimate
70
80
90
100
110
1,500
2,000
2,500
3,000
3,500
4,000
FY15 FY16E FY17E FY18E
(in'000) (INR mn)
Fees Received No of Students(RHS)
CMP: INR 198 Upside: 27%
MCap: INR 7.2bn
TP: INR 223
MTEL IN
CMP: INR 175
Elara Securities (India) Private Limited Private & Confidential
Key offerings
50
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 2,270 2,621 3,027 3,475
YoY (%) 12.5 15.4 15.5 14.8
EBITDA 466 487 583 698
YoY (%) 10.0 4.4 19.9 19.7
Margin (%) 20.5 18.6 19.3 20.1
PAT 258 281 357 444
YoY (%) 21.2 9.7 29.3 23.0
EPS (INR) 6.1 7.1 9.0 11.2
P/E (x) 30.0 25.8 20.3 16.3
EV/EBITDA (x) 15.4 14.7 12.3 10.3
ROE (%) 20.9 19.1 20.5 21.3
ROCE (%) 25.5 23.6 25.7 25.7
Healthy growth with the introduction of Flip classrooms
improving scale
ROCE-centric growth focus with a consistent 20%-plus return
ratios
15%
FY15-18E CAGR
Valued at 20x FY18E P/E led by steady
growth and healthy ROCE
Valuation
(INR mn) FY18E
Net Profit 444
Multiple (x) 20
Equity Value 8,872
No of Shares (mn) 39.8
TP (INR) 223
51
Revenue CAGR of 20% over
FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Midcap marvel
India’s test preparation segment is a INR 98bn (USD 1.5bn) industry, catering to ~212mn people. It grew at a 20% CAGR over FY11-
15. The engineering vertical dominates this segment. Career Point (CRPT IN) catered to 14,000 students in FY15, and we expect this
number to swell to 25,000 by FY18E. A revenue CAGR of ~30% is expected over FY15-18E, after factoring in Consumption
Impulse growth of 6%
Growth pickup: We expect earnings to jump from INR 9mn in FY15 to 390mn in FY18E. The tutorial segment is now likely to
rebound led by recovery in enrolments with 15% enrolment growth in own classes. The company holds marketable investments of
INR 1.5bn with a book value of INR 440mn, nearly 40% of balance sheet. With no capex requirement, operating cash flow is likely to
directly translate into a healthy FCF
Valuation
We recommend Buy with a target price of INR 322 based on 15x FY18E P/E
Key risks
Regulatory intervention and any change in IIT & NIT entrance eligibility criteria
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 779 19.4 98 12.6 3 (109.2) 3.2 0.1 1.2 41.1 23.3
FY16E 863 10.8 257 29.7 117 3,672.8 9.4 3.4 5.6 14.1 8.9
FY17E 1,076 24.7 420 39.1 246 109.4 16.1 6.6 9.2 8.2 5.5
FY18E 1,308 21.6 603 46.1 390 58.6 23.5 9.2 11.9 5.6 3.8
Consumer Discretionary
Career Point
52
“ By FY17E, we will
touch ~30% margin,
which is sustainable for
our kind of business”
Pramod Maheshwari MD, Career Point
0
250
500
750
1,000
FY15 FY16E FY17E FY18E
(INR mn)
Tutorials Service
Residential Campus
Formal Education Division
Healthy FCF
Source: Company, Elara Securities Estimate
CMP: INR 198 Upside: 146%
MCap: INR 2.7bn
TP: INR 322
CRPT IN
CMP: INR 131
Elara Securities (India) Private Limited Private & Confidential
Key offerings
53
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
Steady recovery in the tutorial segment with improvement in
formal education
Sharp operating leverage led by capacity
19%
FY15-18E CAGR
Valued at just 15x FY18E PAT
Valuation
(INR mn) FY18E
Net Profit 389.5
Multiple (x) 15.0
Market cap 5,842.8
No of shares (mn) 18.1
TP (INR) 322.2
54
253%
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 779 863 1,076 1,308
YoY (%) 19.4 10.8 24.7 21.6
Tutorial Segment 494 645 787 938
Formal Segment 32 59 86 109
Hostel Segment 123 160 203 261
EBITDA 98 257 420 603
YoY (%) 1.5 161.2 63.8 43.6
Margin (%) 12.6 29.7 39.1 46.1
PAT 9 117 246 390
YoY (%) (109.2) 3,672.8 109.4 58.6
EPS (INR) 3.2 9.4 16.1 23.5
P/E (x) 41.1 14.1 8.2 5.6
EV/EBITDA 23.3 8.9 5.5 3.8
ROE (%) 0.1 3.4 6.6 9.6
ROIC (%) 0.8 4.9 11.9 21.0
Revenue CAGR of 30% over
FY15-18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 198 Upside: 65%
MCap: INR 71bn
TP: INR 313
PEPL IN
In a sweet spot
Among tier-1 six cities, 40% of demand comes from the Mumbai and National Capital Region (NCR) regions. However, with an
average price of >INR 10mn per apartment, the Southern region with a lower price tag of INR 6-8mn offers more value for money.
According to Liases Foras, the current market size of the top six cities in India is INR 1,600bn. Of this, Bengaluru makes up 15-20% of
demand. Prestige Estates Projects has lined up ~14mn sq ft of launches in H2FY16 (five in Bengaluru and one in
Mangalore). We expect these new and ongoing projects to drive sales of 18mn sq ft worth INR 122bn over FY16-18E
Bengaluru office market in an upswing: Bengaluru is on track to achieve annual absorption of more than 10mn sq ft in
CY15E, and we expect these levels to sustain over CY16-17. PEPL’s rental income to rise by ~60% to INR 5.3bn by FY18E
from INR 3.3bn in FY15
Valuation
We recommend Buy with a SOTP-based TP of INR 313 based on 1.0x FY17E NAV of INR 117bn. With the Bengaluru residential
market seeing stable demand and the office market exhibiting strong signs of a recovery, we believe PEPL is well placed to ride the
dual benefits of focus on mid-income residential projects and having a strong portfolio of operational rental assets
Key risks
Longer-than-anticipated slowdown in the Bengaluru property market and tepid leasing activity
Key financials
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 34,198 34.2 9,939 29.1 3,324 5.8 8.9 11.8 13.6 21.4 10.6
FY16E 39,964 16.9 10,891 27.3 4,214 26.8 11.2 11.2 12.3 16.9 10.1
FY17E 47,110 17.9 14,506 30.8 5,137 21.9 13.7 14.1 14.6 13.9 7.8
FY18E 53,716 14.0 16,253 30.3 7,088 38.0 15.6 14.7 14.8 12.2 7.2
Real Estate
Prestige Estates Projects CMP: INR 190
55
“The company is on track
to launch 14mn sq ft of
projects in FY16 with five
developments in
Bengaluru and one in
Mangalore”
Irfan Razack MD, Prestige Estates Projects
Uptake in sales bookings
Source: Company, Elara Securities Estimate
5.0
5.5
6.0
6.5
7.0
30,000
35,000
40,000
45,000
FY14
FY15
FY16E
FY17E
FY18E
(msf) (INR mn)
Sales Value (LHS) Area sold (RHS)
Elara Securities (India) Private Limited Private & Confidential
Key ongoing projects
White Meadows, Bengaluru Bella Vista, Chennai
Kingfisher Towers, Bengaluru Sheraton Hotel, Bengaluru
56
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 34,198 39,964 47,110 53,716
YoY (%) 34.2 16.9 17.9 14.0
EBITDA 9,939 10,891 14,506 16,253
YoY (%) 38.0 9.6 33.2 12.0
Margin (%) 29.1 27.3 30.8 30.3
PAT 3,324 4,214 5,137 7,088
YoY (%) 5.8 26.8 21.9 38.0
EPS (INR) 8.9 11.2 13.7 15.6
P/E (x) 21.4 16.9 13.9 12.2
P/B (x) 1.9 1.7 1.5 1.4
ROE (%) 11.8 11.2 14.1 14.7
ROCE (%) 13.6 12.3 14.6 14.8
Strong revenue levers from pickup in rental income and
ongoing projects
Margin profile to improve as rental income grows
16.2%
FY15-18E CAGR
17.8%
Attractively priced at a discount of 37% to
net asset value with 12.5x FY18E P/E
Valuation
(INR) FY17E
NAV (INR mn) 117,286
No of shares (mn) 375.0
Target price 313
CMP 190
57
PEPL’s rental income to grow by
60% to INR 5.3bn in FY18E
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
CMP: INR 149 Upside: 70%
Mcap: INR 17bn
TP: INR 254
BRGD IN
Annuity play
Bengaluru is fast turning into a Mecca for mid-income consumers, with attractively priced apartments in the range of INR 6-8mn. Its
appeal lies in the fact that it houses companies from key sectors, such as information technology & biotechnology, and sunshine
sectors such as e-Commerce and the start-ups. The city is likely to absorb 15-20% of new demand by FY18E. Brigade Enterprises
(BRGD IN) has lined up ~5mn sq ft of launches in H2FY16 (primarily in Bengaluru). We expect new and ongoing projects
to drive sales of 9mn sq ft worth INR 50bn over FY16-18E
Office space to drive demand: Brigade has a ready portfolio of marquee rental and hospitality assets at Bengaluru. This makes
the company a proxy for revival in the city’s rental market over the next three years. We expect rental income to grow by
53% from INR 1.6bn in FY15 to INR 2.3bn in FY18E, owing to ramp-up in occupancy in existing portfolio and addition of
1mn sq ft of rental assets by FY18E
Valuation
We recommend Buy with a SOTP-based TP of INR 254 on 1.0x FY17E NAV of INR 29bn. Of this, the operational rental and hospitality
assets would contribute 70% of NAV
Key risks
Sustained slowdown in the Bengaluru property market and weak leasing activity
Key Financials
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 13,108 38.5 3,830 29.2 952 3.5 8.4 7.1 12.3 17.6 7.8
FY16E 17,438 33.0 5,353 30.7 1,372 44.1 12.2 9.7 13.7 12.2 5.7
FY17E 21,333 22.3 6,879 32.2 2,096 52.7 18.6 13.5 16.2 8.0 4.4
FY18E 26,098 22.3 7,711 29.5 2,314 10.4 20.5 13.3 16.8 7.3 3.7
Real Estate
Brigade Enterprises
58
“During H2FY16, we
expect to launch 5mn sq ft
of residential projects
apart from 2mn sq ft in
commercial as well as
hospitality segments”
Suresh Kris,
CFO, Brigade Enterprises
Healthy sales bookings
Source: Company, Elara Securities Estimate
2.0
2.5
3.0
3.5
10,000
12,500
15,000
17,500
20,000
FY14
FY15
FY16E
FY17E
FY18E
(msf) (INR mn)
Sales Value (LHS)
Sales Bookings (RHS)
Note: pricing as on 7 January 2016; Source: Company, Elara Securities Estimate
Elara Securities (India) Private Limited Private & Confidential
Key operational projects
World Trade Centre, Bengaluru Orion Mall, Bengaluru
Sheraton Hotel, Bengaluru Grand Mercure Hotel, Bengaluru
59
Source: Company
Elara Securities (India) Private Limited Private & Confidential
Key financials
60
(INR mn) FY15 FY16E FY17E FY18E
Net Sales 13,108 17,438 21,333 26,098
YoY (%) 38.5 33.0 22.3 22.3
EBITDA 3,830 5,353 6,879 7,711
YoY (%) 28.3 39.7 5.1 (8.4)
Margin (%) 29.2 30.7 32.2 29.5
PAT 952 1,372 2,096 2,314
YoY (%) 3.5 44.1 52.7 10.4
EPS (INR) 8.4 12.2 18.6 20.5
P/E (x) 17.6 12.2 8.0 7.3
P/B (x) 1.2 1.1 1.0 0.9
ROE (%) 7.1 9.7 13.5 13.3
ROCE (%) 12.3 13.7 16.2 16.8
Rise in rental income, three operational hotels and robust
residential sales driving top line
Margin expansion as rental income grows
25.8%
FY15-18E CAGR
26.3%
Valuation
(INR) FY17E
NAV (INR mn) 28,617
No of shares (mn) 112.7
Target price 254
CMP 149
Attractively priced at a discount of 40% to
net asset value with 0.9x FY18E P/B
Operational asset equity value at
INR 179 per share
Note: pricing as on 7 January 2016; Source: Elara Securities Estimate
APPENDIX
61
Elara Securities (India) Private Limited Private & Confidential
Pradhan Mantri Jan Dhan Yojna
62
PMJDY - the speed of money transfers and money into accounts seems to accelerate, as zero balance accounts have fallen sharply. We believe this
will pick up as more schemes come under its purview
Source: PMJDY Portal, Elara Securities Research
30
40
50
60
70
80
90
Oct
-14
Nov-1
4
Dec-
14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-1
5
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
(%)
Overall Public Sector Banks Reginal Rural Bank Private Banks
% of Zero Balance accounts under PMJDY
0
5
10
15
20
25
30
35
0
50
100
150
200
250
300
Oct
-14
Nov-1
4
Dec-
14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-1
5
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
(%) (INR bn)
Balance In Accounts (INR bn) % increase in money in accounts (MoM)
Elara Securities (India) Private Limited Private & Confidential
The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara Securities (India) Private Limited or any of its affiliates is committed to provide independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Elara Securities (India) Private Limited or any of its affiliates have not independently verified all the information given in this Note and expressly disclaim all liability for any errors and/or omissions, representations or warranties, expressed or implied as contained in this Note. The user assumes the entire risk of any use made of this information. Elara Securities (India) Private Limited or any of its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for or solicit investment banking or other business from any company referred to in this Note. Each of these entities functions as a separate, distinct and independent of each other. This Note is strictly confidential and is being furnished to you solely for your information. This Note should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This Note 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 Elara Securities (India) Private Limited or any of its affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. Upon request, the Recipient will promptly return all material received from the company and/or the Advisors without retaining any copies thereof. The Information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This Information is subject to change without any prior notice. Elara Securities (India) Private Limited or any of its affiliates reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Elara Securities (India) Private Limited is under no obligation to update or keep the information current. Neither Elara Securities (India) Private Limited nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This Note should not be deemed an indication of the state of affairs of the company nor shall it constitute an indication that there has been no change in the business or state of affairs of the company since the date of publication of this Note. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited.
Elara Securities (India) Private Limited was incorporated in July 2007 as a subsidiary of Elara Capital (India) Private Limited.
Elara Securities (India) Private Limited is a SEBI registered Stock Broker in the Capital Market and Futures & Options Segments of National Stock Exchange of India Limited (NSE) and in the Capital Market Segment of BSE Limited (BSE).
Elara Securities (India) Private Limited’s business, amongst other things, is to undertake all associated activities relating to its broking business.
The activities of Elara Securities (India) Private Limited were neither suspended nor has it defaulted with any stock exchange authority with whom it is registered in last five years. However, during the routine course of inspection and based on observations, the exchanges have issued advise letters or levied minor penalties on Elara Securities (India) Private Limited for minor operational deviations in certain cases. Elara Securities (India) Private Limited has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has the certificate of registration been cancelled by SEBI at any point of time.
Elara Securities (India) Private Limited offers research services primarily to institutional investors and their employees, directors, fund managers, advisors who are registered or proposed to be registered.
Details of Associates of Elara Securities (India) Private Limited are available on group company website www.elaracapital.com
Elara Securities (India) Private Limited is maintaining arms-length relationship with its associate entities.
Research Analyst or his/her relative(s) may have financial interest in the subject company. Elara Securities (India) Private Limited does not have any financial interest in the subject company, whereas its associate entities may have financial interest. Research Analyst or his/her relative does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Elara Securities (India) Private Limited does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Associate entities of Elara Securities (India) Private Limited may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relative or Elara Securities (India) Private Limited or its associate entities does not have any other material conflict of interest at the time of publication of the Research Report.
Disclosures & Confidentiality for non U.S. Investors
63
Elara Securities (India) Private Limited Private & Confidential
India
Elara Securities (India) Pvt. Ltd.
Indiabulls Finance Centre, Tower 3, 21st Floor,
Senapati Bapat Marg, Elphinstone Road (West)
Mumbai – 400 013, India
Tel : +91 22 6164 8500
Europe
Elara Capital Plc.
29 Marylebone Road,
London NW1 5JX,
United Kingdom
Tel : +4420 7486 9733
USA
Elara Securities Inc.
36W 44th Street, 803, New York, NY 10036, USA
Tel :+1-212-430-5870
Asia / Pacific
Elara Capital (Singapore) Pte.Ltd.
30 Raffles Place
#20-03, Chevron House
Singapore 048622
Tel : +65 6536 6267
Disclaimer for non U.S. Investors The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these “forward-looking statements” and financial information.
Disclaimer for U.S. Investors
Research Analyst or his/her relative(s) has not served as an officer, director or employee of the subject company.
Research analyst or Elara Securities (India) Private Limited or its associate entities have not received any compensation from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities have not managed or co-managed public offering of securities for the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company or third party in connection with the Research Report in the past twelve months.
Disclosures for U.S. Investors The research analyst did not receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited. Elara Capital Inc.’s affiliate did not manage an offering for Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited. Elara Capital Inc.’s affiliate did not receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited in the last 12 months. Elara Capital Inc.’s affiliate does not expect to receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited in the next 3 months.
64
Elara Securities (India) Private Limited Private & Confidential
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Elara Securities (India) Private Limited
CIN: U74992MH2007PTC172297
SEBI RA Regn. No.: INH000000933
Member (BSE, NSE)
Regn Nos: CAPITAL MARKET SEBI REGN. NO.: BSE: INB
011289833, NSE: INB231289837 DERIVATIVES SEBI REGN.
NO.: NSE: INF 231289837
CLEARING CODE: M51449.
Website: www.elaracapital.com Investor Grievance Email ID:
Team Details
Harendra Kumar Managing Director [email protected] +91 22 6164 8571 Vishal Purohit Co-Head Institutional Equities [email protected] +91 22 6164 8572 Sales Deepak Sawhney India [email protected] +91 22 6164 8549 Kalpesh Parekh India [email protected] +91 22 6164 8513 Nishit Master India [email protected] +91 22 6164 8521 Prashin Lalvani India [email protected] +91 22 6164 8544 Sushil Bhojwani India [email protected] +91 22 6164 8512 Parin Vora North America [email protected] +91 22 6164 8558 Sales Trading & Dealing Manan Joshi India [email protected] +91 22 6164 8555 Manoj Murarka India [email protected] +91 22 6164 8551 Sanjay Joshi India [email protected] +91 22 6164 8554 Vishal Thakkar India [email protected] +91 22 6164 8552
Research Aarthisundari Jayakumar Analyst Pharmaceuticals [email protected] +91 22 6164 8510 Aashish Upganlawar Analyst FMCG, Media [email protected] +91 22 6164 8546 Abhishek Karande Analyst Technical & Alternate Strategy [email protected] +91 22 6164 8562 Adhidev Chattopadhyay Analyst Infrastructure, Real Estate [email protected] +91 22 6164 8526 Aliasgar Shakir Analyst Mid caps, Telecom [email protected] +91 22 6164 8516 Ashish Kejriwal Analyst Metals & Mining, Railways [email protected] +91 22 6164 8505 Ashish Kumar Economist [email protected] +91 22 6164 8536 Deepak Agrawala Analyst Power, Capital Goods [email protected] +91 22 6164 8523 Jay Kale, CFA Analyst Auto & Auto Ancillaries [email protected] +91 22 6164 8507 Rakesh Kumar Analyst Banking & Financials [email protected] +91 22 6164 8559 Ravi Menon Analyst IT Services [email protected] +91 22 6164 8502 Ravi Sodah Analyst Cement [email protected] +91 22 6164 8517 Sumant Kumar Analyst Agri, Travel & Hospitality, Paper [email protected] +91 22 6164 8503 Swarnendu Bhushan Analyst Oil and gas [email protected] +91 22 6164 8504 Bhawana Chhabra Sr. Associate Strategy [email protected] +91 22 6164 8511 Durgesh Poyekar Sr. Associate Oil and gas [email protected] +91 22 6164 8541 Manuj Oberoi Sr. Associate Banking & Financials [email protected] +91 22 6164 8535 Harshit Kapadia Associate Power, Capital Goods [email protected] +91 22 6164 8542 Priyanka Sheth Editor [email protected] +91 22 6164 8568 Gurunath Parab Production [email protected] +91 22 6164 8515 Jinesh Bhansali Production [email protected] +91 22 6164 8537
65
Elara Securities (India) Private Limited Private & Confidential
Notes
66
Elara Securities (India) Private Limited Private & Confidential
Notes
67
Elara Securities (India) Private Limited Private & Confidential