october 7, 2016 consumption continues to drive...

ICICI Securities Ltd. | Retail Equity Research

October 7, 2016

Q2FY17 Result Preview

Consumption continues to drive earnings revival Q2FY17 performance of the I-direct coverage (ex-BFSI, oil & gas and

metals) companies is expected to be strong with 9.2% revenue growth for our coverage universe. With 15.8% growth (ex-BFSI, oil & Gas and metals), Q2FY17 is expected to be the third consecutive quarter of impressive double digit earnings growth. Strong discretionary demand, mainly aided by a concomitant push of Seventh Pay Commission disbursement, robust rural demand led by normal monsoon & pre-festive inventory pile up at distributor & dealers front, is likely to result in healthy double digit revenue growth for auto, FMCG & consumer discretionary sectors. Simultaneously, capital goods sector is also likely to post better results mainly on the back of a pick-up in execution cycle

On the sectoral front, the auto sector is likely to witness strong growth, mainly led by 20% growth in OEMs largely contributed by 14% volume growth. The price growth in FMCG companies, which was absent in the previous five quarters, has started contributing to topline growth. FMCG companies pulled back promotional offers and even took selective price hikes resulting in healthy double digit topline growth contributed by a mix of volume & prices. However, the consumer discretionary sector is likely to witness ~11-13% volume growth and continued price cuts across categories. The capital goods sector is expected to witness ~150 bps margin expansion mainly due to operating leverage led by a higher pick-up in the execution cycle. On the flip side, the IT sector is likely to witness muted revenue growth due to slow decision making among clients post the Brexit event

While the topline of our coverage universe (ex–BFSI, oil & gas and metals) is expected to grow 9.2%, operating margins (ex–BFSI, oil & gas and Metals) are expected to expand 40 bps to 21.5%. Earnings of our coverage universe (ex-BFSI, oil & gas and metals) are expected to witness 15.8% growth largely contributed by auto, FMCG and capital goods sectors. Going forward, we believe Corporate India is going to witness strong demand from both rural as well as urban India aided by factors such as robust agri growth on the back of well distributed normal monsoons and disbursement of the Seventh Pay Commission. We believe the government’s simultaneous thrust on infrastructure (roads & railways) and rural income levels is also likely to benefit consumer and infrastructure industry growth. We expect Sensex EPS to grow at a CAGR of 16.9% in FY16-18E

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

704,

566.

9

823,

031.

4

898,

016.

7

842,

954.

5

819,

726.

8

828,

133.

1

809,

434.

2

792,

572.

2

765,

854.

8

771,

888.

9

803,

040.

5

821,

721.

5

827,

426.

5

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-30%

-20%

-10%

0%

10%

20%

30%

40%

Revenue (Ex-BFSI) Growth (%)

Source: Company, ICICIdirect.com Research

Trend in Sensex EPS

724923

1090 1165 11651365 1359 1375

1600

1880

0200400600800

100012001400160018002000

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

-5

0

5

10

15

20

25

30

Sensex EPS (|) % growth

Bloomberg, ICICIdirect.com Research Research Analyst

Pankaj Pandey Head – Research [email protected]


Performance of Sensex companies

For the quarter, the average topline of Sensex companies is likely to grow at moderate~3.6% YoY while EBITDA & PAT are expected to report strong growth of ~13.6% & 9.8%, respectively. The strong earnings growth can be attributed to 87.7% growth in Sun Pharma and 73.7% growth in Lupin due to exclusivity sales. Similarly, Gail India is likely to post 67.1% growth in earnings mainly on account of a turnaround in the petrochemical business. The healthy volume growth in passenger car sales on the back of pre-festive season stocking is expected to result in 44.7% growth in Maruti Suzuki’s earnings

On a sectoral basis, with respect to Sensex companies, healthcare, oil & gas and auto companies would be among the top five performing companies based on PAT growth. Hence, the five companies that top the chart in terms of profitability growth include Sun Pharma (~87.7% YoY), Lupin (73.7% growth), Gail India (~67.1% YoY), Maruti Suzuki (~44.7% YoY) and L&T (~26.7% YoY)

On the other hand, Dr Reddy’s & Cipla from the healthcare sector, banks, telecom and metal companies would be among the bottom five Sensex companies, in terms of performance based on PAT decline. The bottom five includes Dr Reddy’s (down ~57.9% YoY), SBI (down ~38.7% YoY), Cipla (down 30.5%YoY), Bharti Airtel (down ~24.4%) and Coal India (down 16.8%). The dismal earnings growth in Dr Reddy’s would be mainly due to intense competition in the US. Continued high provision is expected to result in a 38.7% dip in SBI’s earning

Exhibit 2: Trend in profitability of Sensex companies…

11.1

22.126.3 24.9

4.3

-7.0-10.3

4.1-1.1

-4.4

14.7

0.3

9.8

2000025000300003500040000450005000055000600006500070000

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-15-10-5051015202530

(%)

PAT YoY Growth

Top five likely Sensex companies in PAT growth for Q2FY17E Bottom five likely Sensex companies in PAT growth for Q2FY17E

87.773.7 67.1

44.726.7

0

20

40

60

80

100

Sun Pharma LUPIN Gail India MarutiSuzuki

L&T

(% Y

oY)

-16.8

-24.4-30.5-38.7

-57.9-70

-60

-50

-40

-30

-20

-10

0

Dr Reddy State Bankof India

Cipla Bharti Airtel Coal India

(% Y

oY)



What we expect our coverage universe to report; emerging trends

From a sectoral perspective, sectors like auto (14.6% YoY), oil & gas (16.5% YoY) and FMCG (~12.2% YoY) are expected to report stronger than average revenue growth. However, our IT coverage universe is expected to witness subdued 9% growth due to a challenging macro environment post Brexit. Similarly, the metals & mining sector would continue to report dismal (de-growth of 4.4% YoY) numbers mainly on account of muted volumes from Coal India

Our auto converge universe is expected to witness strong 14.6% YoY growth, aided by a revival in rural sentiment due to normal monsoon, pre-festive inventory stocking by dealers & positive impact of Seventh Pay Commission. The biggest beneficiary of the healthy demand boost would be market leaders in the 2-W & 4-W (HMCL & MSIL respectively) space posting highest ever monthly volumes in September 2016. Segment wise, the overall 2-W & 4-W space reported phenomenal growth of ~15% YoY & ~16% YoY, respectively. Higher base effect & slower fleet activity impacted M&HCV volumes, which offset LCV growth, thus leading to CV volumes remaining flat in Q2FY17. The export overhang in the 3-W space led to a volume decline. On the back of a revival in rural sentiment and normal monsoons, tractor volumes also registered strong growth of ~23% YoY. We expect the I-direct auto universe (ex-TML) to register topline growth of ~16% YoY, with OEMs & ancillary likely to grow ~20% & ~10%, respectively

Our healthcare universe revenues are expected to grow ~9.1% YoY to | 38020 crore led by growth in the US and India. Similarly, normalised currency impact in most emerging markets (EMs) along with price hikes in Brazil and launches of new products across EMs are likely to support overall growth. US sales from the select pack are expected to grow ~12% to | 10119 crore on the back of 1) rupee depreciation vis-à-vis US$ (~3% YoY), 2) exclusivity sales (gGleevec by Sun, gGlumetza by Lupin), 3) consolidation of acquisitions and 4) incremental product launches & price hikes (gFortamet by Lupin). On the domestic formulations front, despite continued NLEM/FDC issues growth is likely to be 10% YoY to | 8244 crore (select pack) on the back of favourable seasonality benefit, volume growth and new launches

The I-direct capital goods coverage universe is expected to report strong 9.6% revenue growth mainly on account of a pick-up in execution. Moreover, order inflows in Q2FY17E (July-August 2016) have already crossed Q1FY17 awards. On other hand, tenders worth | 110080 crore have been invited for bidding across various segments of capital goods, infrastructure sector. YTDFY17E, tenders worth | 299000 crore have been issued (Source: Projectstoday.com). L&T witnessed strong order inflows of | 16900 crore (announced on exchanges). In the power transmission EPC space, KEC continues to report order inflows to the tune of | 1900 crore. Other EPC players like VA Tech Wabag, Thermax and BEL did not announce any orders in Q2FY17E

In our oil & gas coverage universe, domestic gas production is expected to witness higher production QoQ from domestic fields in the backdrop of lower production from ONGC in the previous quarter. However, gas production is expected to decline YoY. We expect higher dependence on LNG from global markets to continue, with incremental demand arising mainly from the power and fertiliser sector. Hence, gas transportation companies are expected to report increased volumes YoY. Profitability of city gas distribution (CGD) companies is expected to remain strong YoY due to lower gas prices


On the other hand, the metal & mining sector continued to witness negative revenue growth of 4.4% YoY mainly on account of bleak volumes from Coal India. During Q2FY17, while prices of key raw materials witnessed an up-tick, prices of finished products were flattish to marginally lower. Among key raw materials, spot coking prices witnessed a sharp increase, especially in September 2016. The steep increase in spot coking coal prices was primarily on account of China cutting its coal production days to 276 days from 330 days earlier. As majority of steel producers had adequate coking coal inventory, they are likely to be insulated from the impact on cost in Q2FY17

EBITDA margins of the coverage universe (ex-BFSI) are expected to expand 100 bps to 16.7% compared to 15.7% in corresponding quarter. However, operating margins (ex–BFSI, Oil and Gas & Metals) are expected to expand 40 bps to 21.5%.

On the profitability front, the bottomline of the I-direct coverage universe (ex-BFSI) is expected to grow 21.3% YoY mainly due to 71.3% growth in the oil & gas sector mainly due to the low base effect in the corresponding quarter

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

10,00020,00030,00040,00050,00060,00070,00080,00090,000

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-15.0-10.0-5.00.05.010.015.020.025.0

(%)

PAT (Ex BFSI) Growth (%)


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

14.9 14.417.0 17.8

15.7 16.7

22.0

18.516.7

0

5

10

15

20

25

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(%)

EBITDA Margin (%)



Defensives: IT sector weighs down on defensives growth… (Sector composition: consumer discretionary, IT, FMCG, healthcare) Key Highlights:

Defensives are expected to post moderate revenue growth of 9.5% YoY compared to moderate 11.7% growth in Q1FY17. This is mainly due to dismal results of the IT sector for the quarter, which has weight of 51% within defensives. The EBITDA margin of the defensive universe is expected to contract 50 bps YoY and increase 20 bps QoQ to 23.7%. The ensuing EBITDA, PAT of the defensive universe is expected to increase 7.2% YoY and 6.9% YoY, respectively

Our IT coverage universe is expected to grow 9% YoY. We expect tepid dollar revenue growth due to slow decision making among clients post the Brexit event in a seasonally strong Q2 for tier-1 IT companies. We expect constant currency (CC) revenues of frontline IT companies to grow 0.2-3% in Q2FY17E. However, cross currency headwind is expected to impact dollar revenues by 40-100 bps. Inter-quarter, the average US$ has appreciated ~1.2% vs. the euro, ~8.4% vs. GBP and depreciated 1.6% vs. AU$. Consequently, we expect tier-I IT companies to report average 1.2% growth in dollar terms. Our midcap IT coverage universe could report a mixed set of results. While Persistent and Cyient could surprise positively, MindTree is expected to report weak results after issuing profit warning. Within midcaps, we expect Persistent (3.6% QoQ growth), NIIT Technologies (3%), Cyient (2.6%), and Firstsource (2.4%) to lead. TechM (1.5%), KPIT (0.2%) could be soft while MindTree (-1.5%) could be weak (in line with mid-quarter guidance)

The FMCG universe is estimated to report healthy net sales growth of 12.2% YoY mainly driven by strong growth in ITC and Nestlé with a revival in cigarette volumes and a strong comeback of Maggi noodles, respectively. We estimate volume growth of 5-9% for Dabur, Colgate, Marico, HUL and ITC (FMCG). The pullback of promotional offers & selective price increases would reflect in marginal pricing growth of our coverage universe. However, some commodities like copra are still down 23% YoY resulting in 10-16% price cuts in Parachute’s coconut oil portfolio. We maintain our positive outlook on the FMCG sector backed by the expected turnaround in rural demand. We are optimistic on the sector on account of a) normal monsoon after two consecutive years of deficit rainfall and b) the government’s thrust on increasing rural income levels by focusing on the agri economy with initiatives like ~22% increase in MNREGA spend to ~| 43800 crore in FY17E

I-direct healthcare universe revenues are expected to grow ~9.1% YoY to | 38020 crore led by growth in the US and India. Similarly, normalised currency impact in most emerging markets (EMs) along with price hikes in Brazil and launches of new products across EMs are likely to support overall growth. Venezuela issues, however, would continue to impact Dr Reddy’s (DRL) and Glenmark. US sales from the select pack are expected to grow ~12% to | 10119 crore on the back of 1) rupee depreciation vis-à-vis US$ (~3% YoY), 2) exclusivity sales (gGleevec by Sun, gGlumetza by Lupin), 3) consolidation of acquisitions and 4) incremental product launches & price hikes (gFortamet by Lupin). However, increased competition in existing products especially in gAbilify, gNexium and price erosions elsewhere may partly offset overall US growth. On the domestic formulations front, despite continued NLEM/FDC issues, growth is likely to be 10% YoY to | 8244 crore (selected pack) on the back of favourable seasonality benefit over and above volume growth and new launches. We expect EBITDA of the I-direct healthcare universe to grow ~9% YoY to | 9772 crore on a


higher base. EBITDA margins are likely to remain strong at ~26% YoY due to a better product mix

Exhibit 5: How performance variables of defensives may pan out in Q1FY17E

0

5

10

15

20

25

30

-10000 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000

(PAT growth,% YoY)

(EBI

TDA

expa

nsio

n Yo

Y, in

bps

)

Consumer Discretionary IT Pharma FMCG

Source: Company, ICICIdirect.com Research Note: Size of individual circle represents the Revenue growth (YoY) for the respective sector in Q2FY16E.

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

20.1 19.9 21.023.0

8.2

11.4 10.39.1

15.9

10.0

14.8

11.79.6

500025000450006500085000

105000125000145000165000185000

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

0

5

10

15

20

25

Defensive universe revenues Y-o-Y(%)


Exhibit 7: Trend in EBITDA margins

15

20

25

30

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17E

Q2FY

17E

(%)


Exhibit 8: Trend in profitability

5000

10000

15000

20000

25000

30000

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-10

0

10

20

30

40

50

Net Profit Y-o-Y(%)



Cyclicals: Visible signs of pick-up in capex cycle

(Sector composition: auto, cement, capital goods, power, infrastructure, real estate, oil & gas and telecom)

Key Highlights

Cyclicals are expected to witness strong 9.5% YoY growth in Q2FY17E after two consecutive years of subdued performance. This high growth is expected to be contributed by 16.5% growth in the oil & gas sector mainly on account of expected better results from oil marketing companies and gas utilities. Similarly, the capital goods sector is also likely to grow 9.6% led by a pick-up in the execution cycle

Our oil & gas coverage universe revenues are expected to grow 16.5% YoY mainly led by better results of oil marketing companies and gas utilities. In Q2FY17, operational Singapore gross refining margins (GRMs) stayed flat QoQ at $5.1/bbl. However, we expect reported GRMs of refineries to decline QoQ due to absence of inventory gains. On an operational basis, we witnessed a decline in spreads of light distillates like gasoline, LPG, naphtha, etc, while spread of lower distillates, mainly fuel oil, increased in Q2FY17E. The gas oil (diesel) spreads increased marginally QoQ

I-direct capital goods coverage universe is expected to report strong 9.6% revenue growth mainly on account of a pick-up in execution. Order inflows/awards in Q2FY17E (July-August 2016) have already crossed the Q1FY17 awards. On the other hand, tenders worth | 110080 crore have been invited for bidding across various segments of the capital goods and infrastructure sector. In YTDFY17E, tenders worth | 299000 crore have been issued (Source: Projectstoday.com). From our coverage universe, L&T witnessed strong order inflows to the tune of | 16900 crore (announced on exchanges). In the power transmission EPC space, KEC continues to report order inflows to the tune of | 1900 crore. In the product segment of bearing companies, we expect companies like SKF India, Timken India and NRB Bearings to report double digit topline growth between 10% and 15%. This is on the back of strong volume growth in Q2FY17 in the automobile segment, viz. 8%, 10% and 12% growth in CVs, LCVs and 2W segments, respectively. We also expect the margin expansion to continue on account of higher utilisation and stable gross margins

Exhibit 9: How performance variables of cyclicals may pan out in Q2FY17E

050

100150200250300350400

-20 0 20 40 60 80 100

(PAT growth, % YoY)

(EBI

TDA

Mar

gin

expa

nsio

n, in

bps

)

Capital Goods Power Auto Cement Metals



Exhibit 10: Trend in revenue growth of cyclicals

0.6

15.3 16.2

35.2

19.3

-1.8

-14.1-7.9 -8.6 -8.0

0.3 2.0

9.5

50000

150000

250000

350000

450000

550000

650000

750000

850000Q2

FY14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-20

-10

0

10

20

30

40

Total Cylical revenues Y-o-Y(%)


Exhibit 11: Trend in EBITDA margins

0

5

10

15

20

25

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17E

Q2FY

17E

(%)


Exhibit 12: Interest costs …

1000

3000

5000

7000

9000

11000

13000

15000

17000

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| c

rore

)

-15-10-50510152025303540

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


Exhibit 13: Trend in EBITDA/interest ratio…

16.0 15.5

11.813.6

14.716.2

14.2 13.6

18.6

16.3 15.814.5

16.7

02468

101214161820

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E



Apparel Subdued consumer sentiment to keep revenue growth moderate

Revenue growth is likely to remain moderate on account of subdued consumer behaviour at the retail level. Except for Page Industries (22% YoY growth) and Kewal Kiran, all other companies in the coverage universe are likely to register single digit growth. Page’s revenue growth is expected to be driven by 17.2% YoY volume growth and 5.4% YoY realisation growth. Kewal Kiran, Arvind and Rupa are likely to register YoY revenue growth of 10%, 9%, 7% respectively. In the last two years, Arvind’s brands business has been growing in excess of 20%. We expect the momentum to continue and the brands & retail business to grow 25% YoY due to new store addition and product basket extension. Vardhman Textiles is expected to register a revenue decline of 8.8% YoY on account of sale of stake in Vardhman Yarns and Threads. We expect our overall apparel coverage universe to post YoY revenue growth of 4.2%.

Higher cotton prices to negatively impact margins Average cotton prices have increased ~30% YoY in Q2FY17, which is likely to impact margins for all companies in the coverage universe except for Vardhman Textiles that is likely to report a margin expansion of 16 bps YoY on account of low priced cotton inventory as it usually tends to buy its yearly cotton requirement by March-April every year. In March-April 2016, cotton prices were around | 95/kg and have increased to ~| 125-130 level by September 2016. Arvind, Page, Kewal Kiran & Rupa’s EBITDA margins are expected to decline 70 bps, 108 bps, 84 bps and 100 bps YoY, respectively. In spite of revenue growth, coverage universe EBITDA is expected to remain flat with marginal growth of 0.2% YoY to | 735 crore. We expect coverage universe PAT (excluding exceptional income) to grow by 6.0% YoY. However including exceptional income, coverage universe PAT growth would be ~70.0% YoY. Coverage universe PAT growth (including exceptional income) is expected to be driven by higher net profit of Vardhman Textiles owing to extraordinary income of | 210 crore on stake sale of Vardhman Yarns & Threads.

New cotton availability may soften cotton price Q3FY17 onwards;

As per Cotton Association of India, cotton output in India is likely to decline by ~ 10% on account of higher than expected damage in the northern states due to the White-Fly attack. The average cotton prices for Q2FY17 have increased by more than 30% resulting in higher input costs in the cotton segment. Cotton based textile companies might experience margin pressure as though cotton yarn prices also increased but the quantum of rise was lower than the quantum of increase in cotton prices. We expect the cotton prices to gradually decline with the arrival of new crop from Q3FY17 onwards.

Exhibit 14: Estimates for Q2FY17E (Apparel) (| Crore)

Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Arvind Ltd 2,296.4 9.5 9.1 271.6 4.5 14.1 98.7 8.5 34.6Kewal Kiran 156.4 10.0 44.5 40.1 6.5 107.1 25.9 7.3 105.4Page Industries 565.3 22.5 -1.2 108.7 16.0 3.3 71.1 17.9 4.6Rupa & Co. 288.0 6.7 30.7 33.0 -1.9 16.3 17.2 -40.9 12.1Vardhman Tex 1,502.7 -8.8 -0.4 282.0 -8.0 -9.7 346.2 176.5 94.2Total 4,808.8 4.2 6.5 735.4 0.5 4.6 559.1 134.3 60.9

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

Source: Company, ICICIdirect.com research

Topline & Profitability (Coverage Universe)

4617

4632

4879

4513

4809

4300

4400

4500

4600

4700

4800

4900

5000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.0

(%)

Revenue EBITDA Margin PAT Margin

Cotton prices (domestic & international)

0

20

40

60

80

100

120

140

160

180

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Rs/kg (LHS) $/ lb

Indian textile exports to US

3041

3212 3401

2072

3665

2322

2854 3087 3316 36

05

-

1,000.0

2,000.0

3,000.0

4,000.0

CY2012 CY2013 CY2014 CY2015 YTD2016(upto July)

US$

(Mn)

Apparel Non-Apparel

Top Pick

Arvind Ltd

Research Analyst

Bharat Chhoda [email protected]


Improvement in process inspection needed to maintain global share

Also India’s Textile exports to USA continued their disappointing performance with YTD CY16 textile exports to USA declining by ~1% YoY compared to a growth of 8.2% YoY in CY15. However, with government focus on boosting employment generation, it recently provided a financial assistance package for supporting the exports in garmenting sector. Government support augurs well for the Indian textile industry, which is expected to make it globally competitive. However, after the Welspun India incident, companies need to strengthen their inspection of sourcing & quality control processes to maintain and/gain market share in the global market.

Exhibit 15: Company specific view (Apparel) Company RemarksKewal Kiran Q2 normally sees higher store openings and revenue growth tends to be driven by

new store additions. We expect the revenues to grow by 10% YoY to | 156.4 crore,driven by volume growth of 9% YoY , while realisation is expected to remain flat at |938 per garment. EBITDA margin is expected to decline by 84 bps YoY 25.6% onaccount of increased raw material costs. EBITDA is likely to grow by 7% YoY to 40.1crore leading to a PAT growth of 7.3% YoY to | 25.9 crore.

Page Industries

Page's Q1FY17 saw revival in revenue growth with aggressive brand promotionactivities. Continuing the momentum, we expect revenue growth of 22.5% YoY to |565.3 crore on the back of 17.2% volume growth and 5.4% realisation growth. Weexpect the menswear segment to grow by 16% and the leisure segment to grow by21%. On the EBITDA margin front we expect the margin to decline by 108 bps to19.2% on the back of higher input and advertisement and brand promotion costs.Driven by steady operational performance, we expect the net profit to grow by 17.9%YoY to | 71 crore.

Rupa & Company

Rupa has major presence in the mass segment men's innerwear which ischaracterised by high competion. We expect Rupa revenues to grow by 6.7% YoY to|288 crore as we expect mass menswear segment to grow in mid single digits. Onthe margin front, Q2 usually has lower margins owing to higher proportion ofdiscounted products. We expect the EBITDA margin to decline by 100 bps to 11.5%owing to higher raw material cost and higher advertisement spend on the premumsegment products. We expect net profit to decline by 41% YoY to | 17.2 crore due toabsence of extraordinary income in Q2FY17 ( The company had received aexceptional dividend from a subsidiary (which is no more operational at present) tothe tune of | 12.3 crore.

Vardhman Textiles

Consolidated revenues are likely to decline 8.8% YoY to | 1502.7 crore on account ofsale of stake in Vardhman Yarns and Threads. On the segmental business front weexpect the yarn volumes to increase by 2% YoY, while the fabric volume is expectedto increase by 7% YoY. Consolidated Operating margins are likely to increasemarginally by 16 bps to 18.8% on account of higher margins in the acrylic business.On the operational front , Vardhman's performance is expected to be moderate.However owing to stake sale (40%) in Vardhman Yarns and Threads, we expectexceptional income to the tune of | 210 crore to boost the consolidated net profit to |346.2 crore v/s net profit of | 125 crore in Q2FY16. Excluding the exceptional profit,net profit is expected to increase by 9% YoY to | 136.2 crore.

Arvind Ltd Arvind has continued with its aggressive store expansion in the brands and retailsegment and added 40 stores in Q1FY17 which should boost the revenue growth forthe Brands and Retail segment. We expect Brands and Retail segment to grow itsrevenues by 25% YoY and the textile segment to grow by 11% YoY which is onaccount of 19.5% YoY growth in garment revenues. We expect EBITDA margin todecline by 70 bps to 11.8% on account of higher raw material prices and EBITDA toincrease by 3.6% YoY to | 271.6 crore. Consequently PAT is expected to increase by8.5% YoY to | 98.7 crore.


China’s cotton yarn import

80

110

140

170

200

230

260

Apr

-14

Jul-1

4

Oct-1

4

Jan-

15

Apr

-15

Jul-1

5

Oct-1

5

Jan-

16

Apr

-16

Jul-1

6

Milli

on k

gs

China’s cotton yarn imports have declined 20% YoY in

FY16. Even the price realisation has declined 7.5% YoY, which would impact revenue growth and margins of Indian cotton yarn exporters


Auto and auto ancillary

Stupendous volume growth; September quarter shines!

Overall auto volumes exhibited strong ~14% YoY growth, supported by a revival in rural sentiment (normal monsoon), pre-festive inventory stocking by dealers & positive impact of Seventh Pay Commission. The quarter was one of the best in terms of volume growth, aided by top two market leaders HMCL (in 2-W space) and MSIL (in PV space) reporting its highest ever volumes for September 2016. Segment wise, the overall 2-W & 4-W space reported phenomenal growth of ~15% YoY & ~16% YoY, respectively. Higher base effect & slower fleet activity impacted M&HCV volumes, which offset the LCV growth, thus leading to CV volumes remaining flat in Q2FY17. The export overhang in the 3-W space led to a volume decline. On the back of a revival in rural sentiment and normal monsoons, tractor volumes also registered strong growth of ~23% YoY. We estimate the I-direct auto universe (ex-TML) will register topline growth of ~16% YoY, with OEMs & ancillary likely to grow ~20% & ~10%, respectively. We expect good results from companies viz. M&M, MSIL & Eicher Motors in Q2FY17.

Key commodity prices move higher during quarter!

Prices of key commodities inched up in Q2FY17. This can impact margins. Average price of rubber (up 13.6% YoY), CR steel sheet (up 7.6% YoY), lead (up 12% YoY) and plastics (up 6% YoY) were up. the Aluminium prices were down 5% YoY. We estimate the I-direct auto universe (ex-TML) margin will contract ~51 bps YoY. Margins of tyre companies may face pressure in Q2FY17.

Operating leverage benefit to boost PAT

For the I-direct universe, (ex-TML) profits are likely to grow ~23% YoY, with OEM & ancillary profitability expected to grow ~27% & 11%, respectively. Tata Motors’ performance will be driven by decent volume growth in JLR.

Exhibit 16: Estimates for Q2FY16E: Auto and auto ancillary (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Amara Raja 1,317.4 13.7 -0.2 220.7 10.9 -3.1 128.8 4.8 -2.8Apollo Tyre` 3,348.2 11.8 14.6 517.4 7.2 16.5 279.8 0.4 27.4Ashok Leyland 4,375.4 -11.4 6.3 469.7 -21.0 8.4 242.0 -15.6 18.6Bajaj Auto' 6,049.4 -0.8 -0.2 1,208.2 -8.3 -1.8 966.0 3.5 -9.2Balkrishna Ind 892.1 13.4 -3.9 242.4 -2.2 -6.8 118.1 -5.5 -20.8Bharat Forge 863.0 -22.7 -16.4 228.2 -29.0 -24.3 109.4 -37.5 -32.6Bosch India 2,693.3 2.8 -6.3 482.2 6.6 -14.3 349.9 14.6 -8.2Eicher Motors* 1,783.8 37.1 14.5 552.1 53.1 15.1 435.0 70.3 31.4Escorts 1,010.6 26.1 -3.9 82.1 178.2 -6.4 50.0 209.0 6.5Exide 1,963.8 12.9 0.6 286.3 11.2 -3.3 171.7 10.0 -1.5Hero Motocorp 8,197.9 19.9 7.3 1,351.0 24.7 18.1 948.3 22.8 22.5JK Tyre ` 1,843.3 1.8 4.8 290.1 -5.6 9.7 86.8 -26.6 -15.9Mahindra CIE ` 1,404.8 11.1 -2.4 161.1 24.4 1.5 72.8 32.8 -2.3M & M 12,097.9 30.9 3.5 1,305.6 27.2 -5.4 1,128.5 22.2 30.5Maruti Suzuki 18,193.8 30.6 17.2 2,820.1 24.3 21.9 1,840.0 50.1 58.3Motherson` 10,568.5 14.9 0.7 1,054.2 17.7 5.6 492.0 71.6 46.0Tata Motors` 66,716.5 8.8 1.2 9,277.6 20.0 9.4 2,633.8 LP 16.5Wabco India 502.8 17.2 -3.2 78.3 20.3 5.8 55.8 15.5 9.5Total 143,822.5 12.7 1.9 20,627.4 16.1 7.0 10,108.5 78.8 19.0

Change (%)Company

Change (%) Change (%)

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

Topline & Profitability (Coverage universe) 12

7593 14

0858 15

2419

1410

75

1438

22

115000

125000

135000

145000

155000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

4.0

6.0

8.0

10.0

12.0

14.0

16.0

(%)


Key players & industry volume Sept’16 quarter growth (%)

3.8

13.5

20.1

7.0

7.3-10. 5

8. 2

11.5

7.0

18.4

26. 6

23.1

-2.3

15. 8

14.3

3. 8

9.0

17.0

4. 5

10. 8Industry

HMCL

BAL

TVS

HMSI

Maruti

TML

M&M

Hyundai

ALL

Y oY QoQ

Currency volatility chart

Top Picks M&M, Tata Motors

Research Analyst

Nishit Zota [email protected] Vidrum Mehta [email protected]


Exhibit 17: Company specific view- Ancillaries Company RemarksAshok Leyland

Topline may decline ~11.4% YoY to | 4375 crore as overall volumes have declined~10% YoY to ~33446 units. ASPs may decline ~4% QoQ due to a poor product mix.M&HCV volumes have declined ~15% YoY to ~25346 units while the LCV segment is up~9% to ~8100 units. We expect EBITDA margins to decline 50 bps QoQ to ~10.7% asoperating leverage benefit (volumes up 7% QoQ) may be offset by a poor product mix(lower share of heavy duty trucks QoQ) and marginally higher raw material prices.Reported PAT is estimated to decline 16% YoY to | 242 crore

Bajaj Auto BAL’s revenues are expected to decline 1% YoY to | 6049 crore on account of 2.3% YoYdecline in total volumes to ~1.03 million units. Domestic volumes grew 22% YoY to ~6.5lakh units while domestic 2-W grew 23% YoY (new launch + festive season push) whiledomestic 3-W grew 11% YoY. Export volumes at ~3.8 lakh units have declined for afourth consecutive quarter (down 27% YoY) due to weak currency in the main exportmarkets. EBITDA margins are expected to contract ~50 bps QoQ to 20%, on account ofdrop in export share & increase in input cost . PAT is expected to grow 3.5% YoY to | 966 crore.

Eicher Motors Eicher’s RE business continues to remain strong and has grown ~31% YoY to ~166941units. The VECV business at ~13,408 units has grown ~15% YoY. Consolidated revenues are expected to grow 37% YoY to | 1784 crore. EBITDA margins may come in at 31% andare likely to be aided by operating leverage benefit (RE volumes up 13% QoQ). We expectVECV business margins to remain almost flat QoQ at 8.8% as share of M&HCV hasincreased Q0Q & will offset negative impact of operating leverage in VECV business.Consolidated PAT is expected at ~| 435 crore

Escorts Topline is expected to increase 26% YoY to | 1011 crore on the back of core tractorbusiness whose volumes were up ~35% YoY with volumes at ~14,482 units. Revenuesdeclined ~21.8% YoY to ~| 781 crore. EBITDA margins are expected to expand 440 bpsYoY to 8.1%, mainly driven by 430 bps YoY expansion in tractor EBIT margins to 11%. Weexpect topline at ~| 1011 crore, PAT at ~| 50 crore

Hero MotoCorp

HMCL's volumes increased ~16% YoY ~1.82 million driven by ~41% YoY growth in thescooter segment & ~13% YoY growth in motorcycle segment on the back of pre-festivepush to dealers & revival of rural sentiment. The scooter segment is likely to haveincreased to ~2,43,729 units due to their recent launches-Duet & Maestro Edge. EBITDAmargins are expected to remain flat QoQ at 16.5% due to operating leverage benefit.Topline & PAT are seen at ~| 8198 & ~| 948 crore, respectively

M&M M&M's revenues are expected to grow 31% YoY to | 12098 crore on the back of 11.5%YoY volume growth in automotive segment & 36% YoY volume growth in farm equipmentsegment. Volumes in the automotive segment at 126,179 units have grown on account of~16% YoY growth in the UV segment. Volumes in the tractor segment have grown ~36% YoY to ~61,658 units due to the base effect and normal monsoons. Margins areexpected to contract 80 bps QoQ to 10.8% on account of higher contribution fromautomotive business & marginally higher input cost. PAT is expected to grow 22% YoY to| 1129 crore

Maruti Suzuki Maruti Suzuki's is expected to post strong topline growth of 31% YoY, due to ~18% YoYvolume growth & ~11% increase in ASPs. Volumes for Q2FY17 at 418,470 units, havegrown on the back of success of new launches, inventory push to dealers for festiveseason & 7th Pay Commission impact. EBITDA margins are expected to expand 70 bpsQoQ to 15.5% as the adverse impact of forex movement/higher input cost will be offsetby price hike taken & operating leverage benefit. Topline & PAT are seen at ~| 18194crore and ~| 1,840 crore, respectively

Tata Motors JLR is expected to clock volumes close to ~148,404 units (up 27% YoY) driven bygrowth in Jaguar due to new launches. JLR is likely to post topline of ~£5.95 billion (|52,262 crore) while margins are likely to decline ~50 bps QoQ (from adjusted Q1FY17margins-14%) to 13.5% owing to a higher share of Jaguar. JLR’s PAT is estimated at ~£341 million (| 2944 crore). We expect standalone revenue to increase 4% YoY to |10,965 crore. Standalone EBITDA margins are seen at 6% due to lower M&HCV volumes.Consolidated topline, PAT may come in at ~| 66,717 & ~| 2,634 crore, respectively


Maruti Suzuki’s sales performance

374

360

348

353

418

5.93.5

-3.7 -3.3

20.1

0

100

200

300

400

500

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

(000

's)

-10

-5

0

5

10

15

20

25

(%)

Sales QoQ growth

M&M’s sales performance

158

194

184 19

6

188

-7.9

22.2

-5.0

6.7

-4.2

100

130

160

190

220


(000

's)

-12.5

-4.5

3.5

11.5

19.5

27.5

(%)

Sales QoQ growth

Ashok Leyland’s sales performance

37

31

44

31

33

32.542.2

-17.2 -29.2

7.3

05

101520253035404550


(000

's)

-40

-20

0

20

40

60

(%)

Sales QoQ growth

Eicher Motor’s sales performance

139

139

164 164

180

17.3

-0.5

18.2

-0.1

10.3

50

75

100

125

150

175

200

Q3CY15 Q4CY15 Q1CY16 Q2CY16 Q3CY16

(000

's)

-3

2

7

12

17

22

(%)

Sales QoQ growth


Exhibit 18: Company specific view- Ancillaries Amara Raja Batteries

The strong growth in the OEM space supplemented by moderate replacement demand islikely to drive Amara Raja’s topline by 13.7% YoY to | 1,317 crore. Increase in rawmaterial cost - lead prices up 12% YoY, 9% QoQ to | 125/kg may negatively impactEBITDA margin, which is expected to contract 42 bps YoY to 16.8%. PAT is expected togrow 4.8% YoY to | 129 crore

Apollo Tyres Apollo Tyres' (APL) consolidated revenue is expected to increase 11.8% YoY to | 3,348crore supported by volume growth (in line with the management guidance) in both Indian& European operations. With increase in natural rubber prices (accounts for ~40% of rawmaterial cost), we believe EBITDA margins are expected to decline 66 bps YoY & 85 bpsQoQ to 15.5%. Consolidated PAT is expected to grow 13% YoY to | 280 crore

Balkrishna Industries

Balkrishna Industries’ (BIL) revenues are expected to increase 13.4% YoY to | 892 crore,with volume likely to grow 15% YoY to 39,483 MT. BIL’s margins are expected to movedownwards to its traditional levels, down 433 bps YoY to 27.2%. Subsequently, PAT isexpected to decline 5.5% to | 118 crore

Bharat Forge Revenues are likely to decline 23% YoY to | 863 crore. Domestic revenues are expectedto be flat YoY at | 504 crore as the growth in non-auto revenues & tractor segment willbe offset by revenues from M&HCV segment, where industry volumes have declined~10%. Export revenues are expected to decline 39% YoY to | 391 crore as class 8 trucks(~31% of export revenues) continue to decline and oil & gas business has virtuallybecome nil. EBITDA margins are expected to decline 60 bps to 26.4% due to lowercontribution of export revenues and overall lower capacity utilisation. PAT is likely todecline 37.5% to | 109 crore

Bosch Bosch has sold its starter motors & generators segment (accounts for ~10% of revenue)on a slump sale to Robert Bosch (parent) for | 486 crore in August 2016. Hence, itsQ2FY17 revenue will not be comparable YoY basis. Higher production of tractor & PV willlargely be offset by muted CV volumes, thus impacting its revenue, which is expected togrow 2.8% YoY to | 2,693 crore. EBITDA margins are likely to expand 64 bps YoY to17.9%. PAT is expected at | 350 crore

Exide Exide Industries (EIL) is likely to report decent growth on the topline front mainlysupported by strong OEM demand in Q2FY17. Its revenues are likely to grow 12.9% YoYto | 1964 crore. Higher lead prices are likely to drag EBITDA margins lower by 23 bpsYoY to 14.6%. PAT is expected to grow 10% YoY to | 172 crore

JK Tyre JK Tyre’s standalone business (accounting >80% of revenue) is likely to get impacted bystiff competition from Chinese players thereby moderating its revenue (up 1.4% YoY to |1528 crore). Consolidated revenue may grow 2% YoY to | 1843 crore, supported by arevival in its Mexican performance. With input cost moving upwards (natural rubberprices up 1.9% QoQ & 13.6% YoY to | 134/kg) EBITDA margins may contract 130 bps YoYto 15.7%. PAT is estimated at | 87 crore

MCIE Automotive

Mahindra CIE’s standalone business will largely be driven by the production volumes ofits top two clients (TML and M&M). Standalone revenue, EBITDA & PAT are estimated at~| 454 crore, ~| 47 crore and ~| 22 crore, respectively. On a consolidated basis, it islikely to post revenue, EBITDA & PAT of | 1405 crore, | 161 crore and | 73 crore,respectively

Motherson Sumi

We expect consolidated revenues to grow 14.9% YoY to | 10,569 crore, mainly driven bydecent growth in domestic operations & its European subsidiaries (SMR & SMP).Consolidated EBITDA margin is likely to expand 23 bps YoY to 10%. PAT is likely to be |492 crore. The domestic (standalone) business is likely to post revenue & profit of | 1598crore and | 215 crore, respectively

Wabco We expect Wabco India (WIL’s) pace of growth to moderate in Q2FY17 as domesticM&HCV volumes declined ~10% YoY, mainly due to higher base of last year (pre-buyingdue to ABS implementation from October 2015) & lower fleet activity during monsoonseason. However, the same would be partly cushioned by decent growth in theaftermarket & exports segment and incremental revenue from ABS. Thus, revenues areexpected to grow 17% YoY to | 502 crore. EBITDA margins are expected to improve 39bps YoY to 15.6%. PAT is expected at | 56 crore


Hero MotoCorp’s sales performance

1575

1745

1690

1721 18

23-4.3

7.3

1.81.4

4.5

1000

1200

1400

1600

1800

2000


(000

's)

-15

-5

5

15

(%)

Sales QoQ growth

Bajaj Auto’s sales performance

1057

951

872

994 10

32

4.3

-10.0-8.3

14.0

3.8

700

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900

1000

1100


(000

's)

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-10

-5

0

5

10

15

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Sales QoQ growth

Auto raw material index

RM Auto Index

165

80

100

120

140

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240

Mar

-09

Aug-

09Ja

n-10

Jun-

10N

ov-1

0Ap

r-11

Sep-

11Fe

b-12

Jul-1

2De

c-12

May

-13

Oct-1

3M

ar-1

4Au

g-14

Jan-

15Ju

n-15

Nov

-15

Apr-1

6Se

p-16

Commodity prices have been indexed to 100 with base as Feb-09


Banking and Financial Institutions Fresh addition to NPAs to moderate but provisions to stay elevated

The asset quality review (AQR) conducted by RBI in H2FY16 led the GNPA of the banking system to increase by ~| 237000 crore to | 575313 crore (GNPA ratio at 7.8%). However, post completion of AQR, net GNPA addition in Q1FY17 was lower at | 48060 crore leading to increase in GNPA in entire system to | 623373 crore (GNPA ratio at 8.4%). Including strategic debt restructuring (SDR) (currently at ~1% of the system loans), 5/25 scheme (~1.5% of system loans) & restructured assets (RA), entire stress of the sector is >12% of loans. We believe NPA concerns will continue in Q2FY17E. However, fresh additions to NPA for the sector would be lower than in H2FY16 and in-line with what was seen in Q1FY17. Slippages from the watchlist provided by Axis Bank (| 22000 crore), SBI (| 31000 crore) and PNB (| 10000 crore) would be key monitorable. Among private peers, we expect Axis Bank to report a weak performance on the asset quality front owing to frontloading of NPAs from the watchlist. For our coverage universe, we expect net addition in GNPA at | 10200 crore in Q2FY17E vs. | 11639 crore seen in Q1FY17 & | 52167 crore in Q4FY16. However, we expect provisions to continue to be elevated due to ageing of the existing NPA pool.

Substantial fall in G-sec yields to enable strong treasury gains G-sec yields fell ~55 bps to 6.9% levels as on Q2FY17. This would enable banks, especially PSBs to book strong treasury gains and reverse MTM related provisions. For a 10 bps fall in yields the impact on annual PAT is between 1-6% across banks. During Q2FY17E, we expect banks under our coverage to have positive impact of 100 to 500 bps on the PAT. Banks like PNB, SBI, Axis Bank and J&K Bank are expected to benefit most owing to their high AFS portfolio.

Exhibit 19: Estimates for Q2FY17E ( | Crore) NII PPP NP

Q2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Bank of Baroda 3381.2 4.2 0.3 2619.9 12.1 -1.9 638.6 413.0 50.7PNB 3738.1 -13.5 1.1 3197.9 8.8 -2.3 300.6 -51.6 -1.9SBI 14712.6 3.2 2.8 11049.9 7.6 0.0 2377.9 -38.7 -5.7Indian Bank 1224.0 13.3 -1.0 845.4 14.9 -6.4 301.2 -18.5 -2.0Total 23056.0 0.7 1.9 17713.0 8.8 -1.0 3618.2 -27.6 1.7

Axis Bank 4512.2 11.1 -0.1 4291.2 18.3 -4.0 1653.4 -13.7 6.3City Union Bank 288.2 20.0 2.9 235.4 14.7 2.9 124.3 15.3 0.6DCB 188.4 25.6 6.4 97.0 24.2 4.6 51.2 38.6 8.9Federal Bank 710.2 16.7 2.5 409.6 21.7 -3.8 178.6 10.7 6.7HDFC Bank 8116.9 21.5 4.3 6052.8 20.0 4.0 3452.5 20.3 6.6Indusind Bank 1422.1 30.0 4.8 1281.3 27.3 3.9 695.3 24.2 5.1J&K Bank 666.3 -4.1 5.3 385.5 -11.9 10.4 110.7 -43.4 383.8Kotak Bank 1999.4 19.1 4.2 1321.0 26.4 0.5 771.3 35.4 3.9Yes Bank 1395.3 25.9 6.0 1325.3 30.0 1.4 769.1 26.0 5.1Total # 19298.9 18.3 3.4 15399.1 20.3 1.0 7806.3 11.1 7.1

HDFC 2236.9 16.3 5.7 2699.4 13.6 -11.2 1825.7 13.8 -2.4LIC HF 885.8 23.6 7.4 790.0 17.2 6.8 452.9 10.0 11.1Rel Cap 3457.6 46.4 -5.6 383.3 6.2 17.9 257.5 2.9 24.4Bajaj Finance 1295.0 44.3 1.0 811.6 43.7 -2.4 379.5 35.8 -10.5Bajaj Finserv 5671.5 19.9 7.7 1110.7 23.7 -2.8 535.8 21.5 -0.3PFS 113.3 20.3 13.9 115.6 -62.5 9.7 74.3 -64.8 10.2Total 13660.1 27.4 3.1 5910.5 14.1 -4.4 3525.6 10.2 0.3

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

Public Sector Banks

Private Banks

NBFCs


Net interest income (Coverage Universe)

2261

9

2305

6

1631

7

1701

9

1813

9

1867

3

1929

9

2290

0

2154

1

2252

3

1072

3

1156

7

1351

9

1325

1

1366

0

5000

15000

25000

35000

45000

55000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| C

rore

)

PSB Private NBFC

PPP (Coverage Universe)

1790

1

1771

3

1279

9

1414

4 1480

1

1524

8

1539

9

1627

7

1497

8

2081

9

5182

5143

7429

6184

5911

5000

12000

19000

26000

33000

40000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| C

rore

)

PSB Private NBFC

Net Profit (Coverage Universe)

7027

7858

7683

7290

7806

4996

-213

6

-724

9

3558

3618

3198

3089 43

54 3515 35

26

-4000

0

4000

8000

12000

16000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(| C

rore

)

PSB Private NBFC

Top Picks Bajaj Finance Bajaj Finserv

Research Analyst

Kajal Gandhi [email protected]

Vasant Lohiya [email protected]

Vishal Narnolia [email protected]


Earnings improvement on QoQ basis to continue but decline 5% YoY Credit growth of the sector remains in single digits at 9.7% YoY. For our coverage universe, credit growth is estimated at 11% YoY to | 3738621 crore. Private banks are expected to witness 21.9% YoY growth largely led by retail segment and in that mainly home loans. PSU banks are expected to continue in single digits at 5.6% YoY with BoB’s trajectory remaining in the negative territory on a YoY basis. NII of private banks are estimated to increase 18% YoY while PSB’s NII are seen largely to remain flat YoY. Margins in Q2FY17E are largely expected to be steady QoQ supported by lower slippages, lag effect of deposit rate cut incurred in H2FY16 and no major base rate cuts in the quarter. Despite strong treasury gains expected in Q2FY17E, the final positive impact on PAT would be lower as provisions would stay higher owing to ageing of the existing NPA pool. We expect PAT of the banking coverage universe to decline 5% YoY to | 11425 crore, with PSU banks profit falling 27% YoY to | 3618 crore. Private banks will continue to exhibit decent operating performance with net profit growth estimated at 11% YoY to | 7806 crore. Retail oriented banks like IndusInd Bank, HDFC Bank and Kotak Bank may continue with >20% PAT growth. Axis Bank is estimated to report weak earnings of | 1653 crore, down 13.7% YoY due to elevated credit costs.

Exhibit 20: Company specific view (Banks) Bank of Baroda Asset quality stress is expected to continue led by slippages from watchlist and

restructured asset. Therefore, GNPA ratio is expected to inch up at ~12%. Credittraction is expected to remain negative at 11% YoY though a revival is seen on aQoQ basis with loan book at | 362766 crore. Margins are expected to remain stableas slowdown in low margin overseas business could offset pressure. Provision areanticipated to remain elevated at | 2004 crore, led by aging loan book. Fall in G-secyields is expected to favour earnings resulting in YoY and QoQ growth in PAT at ~|639 crore

Punjab National Bank

For PNB, muted trend in earnings shall continue with NII (| 3738 crore) and PAT (|301 crore) estimated to decline 13.5% YoY & 51.6% YoY, respectively. Asset qualityconcerns to persist though fresh additions are expected to be lower pace. Businesstraction may stay in single digits with credit growth expected at 3.8% YoY to ~|395000 crore. Margins may stay steady QoQ at ~2.5%. Around 45 bps fall in G-secyields during Q2FY17 would enable healthy treasury gains thus supporting theearnings to some extent

State Bank of India

Slippages from watchlist of |31000 crore would be key monitorable. We expecttotal slippages to be largely similar to Q1FY17 number of ~|9000 crore. Thus,GNPA is seen at >7%. NII growth is expected to remain muted at 3.2% YoY, led bymoderate credit growth at 11.5% YoY and margins at ~2.8%. Provisions areexpected to remain elevated at >|7000 crore but treasury gains due to fall in G-secyields would aid PAT, which is seen at |2378 crore, down 38.7% YoY

Axis Bank For Axis Bank, slippages from | 22000 crore watchlist remain a key monitorable asthe bank had indicated that much of slippages in FY17E will be front ended. DuringQ1FY17, slippages from watchlist were | 2680 crore. We expect credit growth tostay at 20% YoY levels to | 357679 crore led by retail segment. Margins would beunder pressure owing to interest reversals but still expected to be in the healthyrange of 3.7-3.8% range. PAT traction is expected to be negative at 13.7% YoY to |1653 crore on elevated provisions. Treasury gains would aid earnings

City Union Bank We expect the bank's healthy performance to continue with no major negativesurprise on the asset quality front. Credit growth is expected to stay healthy at16.9% YoY to | 21959 crore. Margins are estimated to be maintained at stronglevels of ~4%. We factor in 20% YoY growth in NII to | 288 crore while PAT of |124 crore is estimated



Exhibit 21: Company specific view contd. (Banks) DCB Bank Highest sequential net addition in GNPA seen in Q1FY17 seems unlikely, with stable

asset quality. Accretion is expected in absolute GNPA but GNPA ratio is expectedto remain stable at 1.7%, owing to increase in asset base. Healthy credit offtake at24% YoY coupled with ~10 bps margin improvement is expected to lead to 25.6%YoY growth in NII. On the cost side, branch expansion is seen to keep CI ratio higherat ~60%. With credit cost expected to remain at previous quarter’s level of ~15bps, healthy growth at 38.6% YoY is seen in PAT at | 51 crore

HDFC Bank For HDFC Bank, we expect PAT growth of 20.3% YoY to | 3453 crore largely in linewith its loan growth estimated at 22.6% YoY to | 512979 crore. Margins are likelyto stay steady at ~4.4% while NII growth of 21.5% YoY to | 8117 crore isestimated. Asset quality may remain stable while provisions are expected at ~|800 crore (steady QoQ)

Federal Bank Accretion in slippage is anticipated to pare down, though ~| 100 crore of exposuregetting out of moratorium remains overhang in near term. Therefore, GNPA ratio isexpected to increase marginally by ~5 bps at 2.97%. Aging of existing NPA willkeep provision higher at | 143 crore, though lower compared to previous quarters.Credit offtake is expected at 18% YoY to | 60023 crore. With margins anticipated toremain stable at ~3.2%, healthy growth is seen in NII at 16.7% YoY to | 710 crore.Led by higher provision, PAT is seen at | 179 crore, up 10.7% YoY

Jammu & Kashmir Bank

After remaining elevated in previous two quarters, accretion in slippages isexpected to pare down as asset quality woes have bottomed. Consequently, GNPAis seen to remain stable QoQ at 9.3%. However, provision expense is expected toremain on the higher side at ~40 bps owing to ageing of assets. With improvementin margin and steady credit growth at ~11% YoY, NII is expected to pick upcompared to previous two quarters. PAT is seen at | 110 crore, down 43% YoY,reviving compared to losses in Q4FY16 and dismal profit in Q1FY17

Kotak Mahindra Bank

Stability in asset quality is expected to continue with GNPA at ~2.5%, credit costseen at ~12-13 bps, similar in previous quarter. On the business front, healthygrowth is expected in credit offtake at ~17% YoY, led by traction in retail portfolio.With a marginal improvement in margins at ~4.5%, NII is seen at | 1999 crore, up19.1% YoY. CI ratio is expected to remain steady at ~51%. Led by growth in topline,PAT is expected at | 771 crore, up 35.4% YoY

Yes Bank For Q2FY17, credit offtake is expected to exceed industry growth at 36% YoY to |109120 crore, led by higher traction in retail portfolio. With minimal impact ofMCLR, margins are seen to remain stable at ~3.4-3.5%. CI ratio may remain stableQoQ at ~41%. Led by credit cost at ~17 bps, stable QoQ, PAT growth to remainhealthy at 26% YoY to | 769 crore. Slippages accretion pace is anticipated toslowdown with marginal increase in GNPA ratio at 0.85% while NNPA ratio isexpected to steady at 0.3%

IndusInd Bank We expect IndusInd Bank's overall consistent performance to continue in Q2FY17E.We expect growth of 27.2% YoY to | 99596 crore led by consumer finance (CF)segment. In CF, CV financing & LAP may continue to witness healthy traction.Margins are expected to be strong at ~3.8-3.9% range, which would lead to NIIgrowth of 30% YoY to | 1422 crore. PAT of | 695 crore is expected, up 24.2% YoYwhile asset quality should remain largely steady

Indian Bank Indian Bank delivered healthy performance compared to peers in Q1FY17, owing toimprovement in margin and slowdown in NPA accretion. In Q2FY17, relativelysuperior performance is expected with stable asset quality led by further slowdownin slippages. Consequently, GNPA is seen to increase ~13 bps QoQ at 7.1%.Selective lending will lead to single digit credit growth at 4% YoY to |127326 crore.With stable margins at ~2.5%, NII growth is seen at 13% YoY. With credit costexpected at ~32 bps, PAT is seen at |301 crore; down 18.5% YoY, due to writeback in Q2FY16


C-D Ratio (Industry)

76 7674.8

75.8

77.6

75.874.7

68 65 65.674.3

90.4

72.8 72.6

737475767778

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

(%)

5060708090100

CD Ratio Incremental CD Ratio (RHS)

Asset Quality (Coverage Universe)

3.7 3.84.9

6.2

1.9 1.92.8

3.4

6.6

3.7

0.0

2.0

4.0

6.0

8.0


(%)

GNPA ratio NNPA ratio

NPA trend (Coverage Universe)

PSBBank of Baroda 43992 2.3 21784 4.8PNB 57254 1.1 36129 1.1SBI 107541 5.9 62921 9.6Indian Bank 9044 1.7 5622 1.3Private BanksAxis Bank 10986 15.0 4612 15.0City Union Bank 583 5.0 347 4.0DCB 241 4.0 121 5.0Federal Bank 1782 2.0 1044 5.0HDFC Bank 5364 9.0 1658 11.0Indusind Bank 964 12.0 409 15.0J&K Bank 4815 2.1 3093 2.3Kotak Mahindra Bank 3273 7.0 1540 5.0South Indian Bank 454 -21.8 296 -11.5Yes Bank 929 10.0 333 10.0

QoQ Growth(%) Q2FY17E

GNPA (| crore)

QoQ Growth(%)

NNPA (| crore)


Exhibit 22: Company specific view (NBFC) LIC Housing Finance

We expect advances growth of 15.2% YoY (| 131408 crore) to be maintained.Individual home loans (~97% of the portfolio) are also expected to increase 15%YoY with developer loans traction expected to be higher YoY. We expect margins,which are the key catalyst for the stock to be maintained at ~2.6%. PAT growth of10% YoY to | 453 crore is estimated. Asset quality is estimated to stay steady withGNPA ratio at ~0.6%

Reliance Capital Consolidated topline is expected to increase 46% YoY to | 3458 crore, partly due toconsolidation of insurance business. Led by traction in home finance portfolio,interest income is seen growing 20% YoY. Healthy growth is seen in advisory feesat 9% QoQ led by AMC business. Insurance premium though is expected to remainseasonally slower QoQ. A spike is expected on YoY basis owing to consolidation oflife insurance business. Expenses are expected to shore up owing to insuranceconsolidation. Consolidated PAT is seen at | 257 crore, up 3% YoY and 25%sequentially

HDFC Ltd In Q2FY17E, profit on sale of investment are expected to be muted, which is unlikeprevious two quarters where there were large gains owing to stake sale in life &general insurance business. However, dividend income of ~| 450 crore largelyfrom HDFC Bank is expected to aid earnings. Loan growth of 14.2% YoY to |272000 crore is estimated. GNPA is expected to continue to remain steady at~0.75% with reported margins expected to be in the 3.8-3.9% range. PAT of |1826 crore (up 14% YoY) is estimated

PTC India Financials

In Q1FY17, GNPA surged due to slippage of three accounts with exposure of | 235crore. With recovery of one of the account, GNPA is expected to declinesequentially by ~| 125 crore. Consequently, GNPA ratio is seen reducing ~165bps to 4.2%. Credit growth is seen remaining healthy at ~34% YoY to | 9673 crore,renewable segment continued to remain major contributor. NII growth is seen at20% YoY to | 113 crore, with revival in margins at 5.3%, owing to interest reversalin the quarter. With provision expected to remain steady, PAT is seen to increase10% QoQ to |74 crore, down 65% YoY, due to one off gains in Q2FY16

Bajaj Finance For Bajaj Finance Q2 is seasonally a weak quarter compared to Q1 and Q3 quarters.However, led by consumer finance segment, we estimate AUM to increase 37%YoY to | 52000 crore. Strong traction in AUM and healthy calculated margins of~9.7% could lead to NII growth of 44% YoY | 1295 crore. Asset quality may stayhealthy though provisions seen to be higher QoQ. PAT of | 380 crore is expected,up 36% YoY

Bajaj Finserv Consolidated topline is expected to increase 19.9% YoY to | 5672 crore, led byfinance segment, which is seen to continue healthy traction at 39.7% YoY to | 2375crore. Growth in insurance business is seen at 8.9% YoY to | 3232 crore, withhealthy traction in general insurance at 12% YoY to | 1680 crore. Life insurance isseen to remain stable at | 1184 crore; up 1% YoY, led by muted new businesspremium. On profitability, finance segment is seen to lead the show with 36.2% YoYgrowth in PBT at | 584 crore. Insurance business PBT, on the other hand, is seen togrow at moderate pace at 11.8% YoY. In the insurance segments, general insurancePBT growth is expected to remain healthy at 15% YoY to | 235 crore while lifeinsurance PBT growth is seen at 9.1% YoY to | 260 crore despite slower premiumgrowth owing to improving efficiency. Consolidated PAT is seen growing at ahealthy pace of 21.5% YoY to | 536 crore



Building materials

Falling gas prices to keep PAT growth robust for tiles universe...

We expect the tiles universe to post moderate revenue growth of 8.5% YoY to | 1096.3 crore amid a challenging demand environment. We expect volume growth of 8.9% YoY to 29.3 MSM. However, tiles players are witnessing strong margin improvement on the back of falling RLNG prices. Consequently, we expect EBITDA margins to further expand by 100 bps YoY to 16.5%. As a result, we expect the bottomline to grow robustly by 26.4% YoY to | 91.4 crore. Among players, Kajaria’s net income is expected to grow 26.7% YoY to | 73.3 crore whereas Somany’s net income is expected to grow 25.1% YoY to | 18.1 crore.

Plywood universe net income to grow 20.8% YoY...

We expect our plywood universe to report subdued revenue growth of 5.9% YoY to | 889.6 crore largely due to a challenging demand environment. Further, we expect EBITDA margins to expand 170 bps YoY to 15.7% led by change in product mix with higher proportion of value added products in the basket of plywood players. Consequently, we expect the bottomline of our plywood universe to grow robustly by 20.8% YoY to | 88.7 crore.

Long term story intact for building materials; growth to sustain…

The tiles sector is witnessing various tailwinds like a) Anti Dumping Duty imposition: The government imposed a duty of US$1.37/sq mt on import of Chinese tiles. Though imports have reduced, it has not been completely curbed. Hence, industry is looking to negotiate with govt to hike duty up to ~US$2.5/sq mt, b) falling gas prices: Price of domestic natural gas is expected to reduce from US$3.06/MMBTU to US$ 2.5/MMBTU. This will benefit both Kajaria & Somany as ~15-25% of their capacity is tied up with domestic gas supply leading to ~40-50 bps improvement in EBITDA margin. Further, in July, 2016, anti-dumping duty was imposed on import of MDF from Vietnam & Indonesia. The duty is in the range of US$14.71-64.35/CBM on MDF with thickness of 6 mm and above for five years. This will throw up incremental opportunity of ~1.1 lakh CBM for domestic players, benefiting coverage companies. In our view, GST will be one of the biggest triggers, as unorganised sector accounts for 50%/75% in tiles/plywood segment. With GST to roll out soon, organised pie is set to expand. GST will provide a level playing field for both organised and unorganised players benefiting our universe companies.

Exhibit 23: Estimates for Q2FY17E (Tiles) (| crore) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Kajaria Ceramics 661.8 8.9 11.8 139.8 20.1 11.1 73.3 26.7 15.6Somany Ceramics 434.6 7.7 5.6 32.7 27.9 5.6 18.1 25.1 1.0Total 1,096.3 8.5 9.3 172.5 21.5 10.0 91.4 26.4 12.4


Exhibit 24: Estimates for Q2FY17E (Plywood) (| crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Century Plyboards 459.0 4.5 13.7 80.7 9.3 18.0 52.0 12.5 20.9Greenply Industries 430.7 7.5 3.8 66.8 18.1 8.0 36.7 34.8 7.6Total 889.6 5.9 8.7 147.4 13.1 13.3 88.7 20.8 15.0

Change (%)Company



Topline & Profitability (Tiles universe)

1011

1010 11

69

1003 10

96

200

400

600

800

1000

1200

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

4.0

6.08.0

10.012.0

14.016.0

18.0

(%)


Topline & Profitability (Plywood universe)

840

812 90

3

819 89

0

250

500

750

1000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

7.0

11.0

15.0

19.0

23.0

(%)


Sales Volume Trend (Tiles Universe)

16.1

15.9

17.4

15.8

17.6

10.8

11.0

13.8

11.1

11.7

6

12

18

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(MSM

)

Kajaria Ceramics Somany Ceramics

Top pick of the sector

Kajaria Ceramics

Research Analyst

Deepak Purswani, CFA [email protected] Vaibhav Shah [email protected]


Exhibit 25: Company specific view (Tiles coverage universe) Company Remarks

Kajaria Ceramics Sales volume is expected to grow 9.0% YoY to 17.6 MSM on the back of ananticipated recovery in demand. Further, anti-dumping duty imposition would helpcurb imports to a certain extent, which is beneficial for the company. Consequently,we expect revenues to grow at a pace of 8.9% YoY to | 661.8 crore. We expectEBITDA margins to expand 190 bps YoY to 21.1% due to savings in power & fuelcost on account of falling RLNG prices. Hence, we anticipate the bottomline willgrow robustly by 26.7% YoY to | 73.3 crore

Somany Ceramics

With reduction in imports post anti-dumping duty imposition and decent pick-up indomestic demand, we expect Somany's sales volume to grow 8.7% YoY to 11.7MSM. Consequently, we expect its topline to grow moderately by 7.7% YoY to |434.6 crore. Further, we expect an EBITDA margin expansion of 120 bps YoY to7.5% on account of falling RLNG prices following the renegotiation of contracts.Overall, we expect a strong bottomline growth of 25.1% YoY to | 18.1 crore


Exhibit 26: Company specific view (Plywood coverage universe) Company Remarks

Century Plyboard We expect Century to post subdued topline growth of 4.5% YoY to | 459 crore onaccount of muted growth of 2.3% YoY (high base effect) in plywood division to |327.2 crore. Further, laminate division revenue is expected to grow moderately at6.2% YoY to | 94.0 crore. We anticipate an EBITDA margin expansion of 80 bps YoY to 17.5% on the back of expansion in EBIT margin of Laminates division (280 bpsYoY expansion to 14.8%). As a result, we expect its bottomline to grow 12.5% YoYto | 52.0 crore despite an increase in tax expense (effective tax rate in Q2FY17E is15.6% vs. 3.3% in Q2FY16)

Greenply Industries

We expect revenues to grow 7.5% YoY to | 430.7 crore led by 13.1% YoY growth inMDF revenues to | 127.9 crore while plywood revenues are expected to growmoderately at 5.2% YoY to | 302.8 crore. The EBITDA margin is expected toimprove 140 bps YoY to 15.5% on account of higher proportion of revenues fromhigh margin MDF division (~29.7% in Q2FY17 vs. 28.2% in Q2FY16) and highercapacity utilisation. Consequently, we expect its bottomline to grow robustly by34.8% YoY to | 36.8 crore


Major news during Q2FY17 (Tiles universe)

Tiles Sector

The price of domestic natural gas has been revised to$2.5/ mmbtu from $3.06/ mmbtu based on grosscalorific value. The price will be effective from October1, 2016 to March 31, 2017.

Major news during Q2FY17 (Plywood universe)

Plywood sector

The government has imposed antidumping duty up toUS$14.71-64.35/CBM on imports of a specific type offibre board with thickness of 6 mm and above fromIndonesia and Vietnam for a period of five years


Capital Goods Tendering activity/run rate picking up…

Order inflows/awards in Q2FY17E (July-August 2016) have already crossed the Q1FY17 awards. On the other hand, tenders worth | 110080 crore have been invited for bidding across various segments of the capital goods and infrastructure sector. YTDFY17E, tenders worth | 299000 crore have been issued (Source: Projectstoday.com). From our coverage universe, L&T witnessed strong order inflows to the tune of | 16900 crore (announced on exchanges). In the power transmission EPC space, KEC continues to report order inflows to the tune of | 1900 crore. Other EPC players like VA Tech Wabag, Thermax and BEL did not announce any orders in Q2FY17E.

EPC companies to report better Q2FY17 led by L&T In the EPC space, L&T will lead the way for a better Q2FY17E as we expect revenues and PAT to grow 8.9% and 26.7% YoY, respectively, coupled with strong improvement in margins. Only a negative surprise can come in higher-than-expected provisions on account of Ind-AS accounting norms. KEC is also likely to report strong 10.1% YoY revenue growth with 90 bps margin expansion and stable interest costs leading to 57% YoY PAT growth. VA Tech Wabag, on the other hand, is expected to exhibit robust 28.2% YoY revenue growth coupled with margin expansion. Bharat Electronics is also expected to see robust execution with 18% YoY revenue and 16% YoY PAT growth. On the flip side, Thermax is expected to exhibit a decline of 7.9% YoY each in revenues and PAT for Q2FY17E.

Product base companies to continue to put up a good show In the product segment of bearing companies, we expect companies like SKF India, Timken India and NRB Bearings to report double digit topline growth between 10% and 15%. This is on the back of strong volume growth in Q2FY17 in the automobile segment, viz. 8%, 10% and 12% growth in CVs, LCVs and 2W segments, respectively. We also expect margin expansion to continue on account of higher utilisations and stable gross margins. Accordingly, we expect PAT growth of 14-25% for companies present in this space. On the mining consumable/industrial space, we expect AIA to report 16% YoY volume growth coupled with high margins whereas Grindwell Norton is expected to report 9.6% revenue growth (mainly volume led) coupled with a low Q2FY16 base.

Exhibit 27: Estimates for Q2FY17E (Capital Goods) (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

AIA Engineering 549.2 12.5 9.7 153.4 7.0 4.4 102.7 11.4 -5.8Bharat Electronics 1,733.2 18.1 98.9 215.3 22.8 LP 239.8 16.0 564.3Greaves Cotton 441.6 4.0 10.2 69.6 -8.2 15.3 47.4 -15.5 23.0Grindwell Norton 311.1 9.6 -0.1 50.7 19.4 0.6 30.2 19.8 3.8KEC Internnational 2,225.2 10.1 27.2 191.9 24.0 28.3 69.3 57.0 124.0KSB Pumps 204.0 9.8 0.2 25.5 -12.5 4.9 16.7 -0.9 4.6L&T 14,418.3 8.9 18.7 1,427.4 41.0 48.0 814.1 26.7 25.8NRB Bearings 190.4 13.3 9.0 31.0 0.7 5.8 16.0 1.6 13.2SKF India 675.5 12.8 3.7 84.0 24.0 0.4 60.8 21.4 0.6Thermax Ltd 973.3 -7.9 19.5 87.6 -12.1 37.5 59.7 -7.9 32.0Timken India 302.8 14.8 7.3 45.9 30.0 -6.5 26.6 26.7 -6.3Va Tech Wabag 772.2 28.2 33.1 61.0 31.2 122.0 29.7 102.8 431.8Total 22,796.8 9.6 22.0 2,443.4 27.7 52.5 1,512.8 21.0 42.6




795

2246

7 3167

6

1868

9

2279

7

0

5000

10000

15000

20000

25000

30000

35000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| c

rore

.

0.02.04.06.08.010.012.014.016.018.0

(%)


Trend in quarterly tenders (both govt + private players)

10000

60000

110000

160000

210000

260000

Q2FY

14

Q4FY

14

Q2FY

15

Q4FY

15

Q2FY

16

Q4FY

16

Q2FY

17*

(| c

rore

)

Q1FY17* = Tenders only for July-August 2016 Trend in order inflows in economy (April-May 2016)

10000

30000

50000

70000

90000

110000

Q2FY

14

Q4FY

14

Q2FY

15

Q4FY

15

Q2FY

16

Q4FY

16

Q2FY

17*

(| c

rore

)


Bharat Electronics Greaves Cotton SKF Bearings Research Analyst

Chirag Shah [email protected] Sagar Gandhi [email protected]


Interest expenses to decline 2% YoY We expect interest costs of our coverage universe to decline 1.9% YoY on the back of improved execution, lower interest rates and better management of working capital.

Q2FY17E to be best ever in last 10 quarters for capital goods space On an overall basis, we expect Q2FY17E to be a strong quarter for the capital goods space over the last 10 quarters. The revenue is expected to grow 9.6% YoY with 150 bps expansion in margins as pick up in execution will aid operating leverage. On the other hand, a decline in costs will also aid PAT that is expected to grow 21% YoY.

Exhibit 28: Company specific view Company RemarksAIA Engineering On the low base of the previous quarter, AIA is expected to deliver volume growth

of 16.5% YoY to 49940 tonnes in Q2FY17E. However, with 3.6% YoY decline inrealisations, revenues are expected to grow 12.5% YoY to | 549.2 crore. Marginsare expected to contract from a high base of Q2FY16, by 150 bps to 27.9%.Consequently, PAT is expected to grow 11.4% to | 102.7 crore

Thermax In Q2FY17, we expect the company to bag orders to the tune of | 1000 crore.However, revenues are expected to decline 7.9% YoY to | 973.3 crore whereasmargins are expected to decline 40 bps on account of weak execution.Consequently, PAT is expected to decline 7.9% YoY to | 59.7 crore. Key thing towatch out for would be the quantum of losses and business visibility of TBW JV

KSB Pumps KSB Pumps is expected to report a healthy performance in Q3CY16. We expectKSB Pumps to report a topline growth of 9.8% YoY to | 204 crore in Q3CY16.Pump segment sales are expected at | 170 crore (up 11% YoY) while valvessegment sales are expected at | 32 crore (up 5.5% YoY). EBITDA margins are,however, expected to moderate by 320 bps to 12.5% in Q3CY16 primarily on theback of higher base in Q3CY15. PAT for the quarter is expected at | 16.7 croresupported by higher other income on a YoY basis

KEC International KEC continues to exhibit strong order inflow trend at | 1873 crore in Q2FY17. Weexpect revenues to grow 10.1% to | 2225.2 crore in Q2FY17. Key monitorablewould be the ramp up in the railways business. Margins are likely to expand 90bps YoY to 8.6%. Coupled with the above, a low base of previous quarter, will leadPAT to grow 57% YoY to | 69.3 crore

L&T Order inflows have been steady at | 16900 crore, as announced on theexchanges in Q2FY17E. In terms of execution, we expect standalone revenues togrow 8.9% YoY to | 14418 crore as infrastructure and power segment revenueswill drive growth. Margins may expand 230 bps to 9.9% on account of the poorperformance of the previous quarter. This will drive absolute EBITDA by 41% YoY.We have also accounted for lower other income and expect adjusted PAT to grow26.7% YoY to | 814.1 crore on account of the lower base of the previous quarter

Greaves Cotton Non-auto business (agri machinery, power gensets and industrial engines) areexpected to continue their growth trajectory given the auto engine business islikely to remain muted in Q2FY17E. Hence, revenues are expected to grow 4%YoY to | 441.6 crore. Margins are expected to contract 210 bps YoY to 15.8%(high base of Q2FY16). Owing to margin contraction and higher effective tax ratein Q2FY17E, PAT is expected to decline 15.5% YoY to | 47.4 crore



Exhibit 29: Company specific view : Capital Goods (Continued) SKF India We expect SKF to deliver revenue growth of 12.8% to | 675.5 crore on account of

a significant demand uptick in the automobile segment (~11% YoY) coupled witha recovery in the industrial segment. EBITDA margins are likely to improve 190bps to 12.4% (11.3% in Q3FY16) due to gross margin expansion and betterutilisations. Accordingly, PAT is likely to grow at 21.4% YoY to | 60.8 crore

VA Tech Wabag We expect Wabag to report topline growth of 28.2% to | 772.2 crore on the backof higher execution in both domestic and overseas orders. EBITDA margin isexpected to remain stable at 7.9% (7.7% in Q2FY16). Accordingly, EBITDA is likelyto grow 31.2% YoY to | 61 crore. We expect PAT of | 29.7 crore for Q2FY17E, up103% YoY

NRB Bearings In Q2FY17E, we expect NRB to report topline to grow 13.3% YoY to | 190.4 crore,on the back of strong volume growth of 8%, 10% and 12% in passenger vehicle,light commercial vehicle and two wheeler segment respectively. EBITDA marginsare expected at 17% for Q2FY17E. However, the bottomline is expected toincrease 1.6% YoY to | 16 crore on account of forex gain reported by thecompany in Q2FY16. Adjusting for forex gain, PAT is likely to improve by 14% YoY

Timken India We expect Timken to report topline growth of 14.8% to | 302.8 crore on the backof strong volume growth (~8%) in commercial vehicle segment coupled withimproved traction from the railway segment. Exports are also likely to pick upfrom Q2FY17E, which showed a decline of 1% in Q1FY17. Margins are expectedto improve to 15.2% in Q2FY17E vs. 13.4% in Q2FY16. Accordingly, PAT isexpected to increase 26.7% YoY to | 26.6 crore

Grindwell Norton In Q2FY17, GNL is expected to report topline growth of 9.6% YoY to | 311.1 croreon the back of expected growth of 9% and 13% in abrasive and ceramic segmentrespectively. Margins are expected at 16.3% vs.15% YoY due to improvedutilisation in both abrasives and ceramics, where current utilisation is at ~65%and ~50%, respectively. Accordingly, PAT is expected to grow 19.8% YoY to |30.2 crore

Bharat Electronics

For Q2FY17E, BEL is expected to report robust 18.1% growth in topline to |1733.2 crore. Higher topline is mostly on account of execution of revenuesdeferred in Q1FY17. EBITDA margins are expected at 12.4% for Q2FY17E. PAT forthe quarter is likely to be | 239.8 crore, up 16% YoY



Cement Temporary aberration in cement demand mainly due to monsoon

After witnessing robust growth in cement demand in the past two quarters, cement demand is expected to remain weak in Q2FY17 mainly due to heavy rainfall and a flood-like situation in many parts of India. Although project awarding in infrastructure has increased 78.8% YoY, project tendering and investment during the quarter has declined 4.2% YoY and 46.5% YoY, respectively. As a result, cement demand is expected to remain tepid during the quarter. Considering this, we expect companies under our coverage universe to register volume growth of 4.9% YoY in Q2FY17E.

Despite tepid demand, north, central see price hike during quarter As per our channel checks, prices in the east declined 7.0% YoY to | 275/bag led by increased capacity addition and higher competitive intensity. Further, prices in the west declined 0.6% YoY led by lack of infrastructure activities and a slowdown in the rural economy. However, prices in the north and central region increased 11.7% YoY to | 305/bag and 8.6% YoY to | 310/bag, respectively, in Q2FY17. Overall, realisation at the pan-India level is expected to decline 1.3% (flat QoQ) to | 315/bag. We expect companies in our coverage universe to report 1.1% YoY increase in realisation to | 4,655 mainly due to high exposure to north.

I-direct universe to report 5.8% YoY topline growth in Q2FY17E Our coverage universe is expected to report 5.8% YoY (down 8.2% QoQ) growth in cement revenues led by increase in volume and realisation. Volume growth is expected at 4.9% YoY while cement realisation is expected to increase 1.1% YoY. The bottomline of our universe is also expected to increase 81.1% YoY to | 1,475.0 crore led by a better performance at the operating level and lower depreciation expenses.

Energy cost benefits to continue Although pet coke prices have risen QoQ, pet coke prices are still lower YoY. Further, most companies have built up some proportion of low cost pet coke inventory, which would help keep power cost lower in the current quarter. This coupled with better realisation is expected to drive EBITDA/tonne (up 22.3% YoY) in Q2FY17E.

Exhibit 30: Estimates for Q2FY17E (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

ACC^ 2,719.6 -0.7 -5.2 344.8 30.9 -15.9 190.1 65.0 -20.5Ambuja^ 2,179.6 4.0 -14.2 424.6 44.2 -27.0 249.7 62.6 -37.5Heidelberg 419.7 5.9 -9.1 70.4 60.1 -11.9 20.8 892.5 -20.6India Cement * 1,278.3 18.5 6.3 243.4 6.5 20.9 67.6 64.7 53.7JK Cement 895.6 3.2 1.0 160.0 50.4 -3.4 54.1 294 -11JK Laxmi Cement 767.6 18.9 -1.2 100.3 50.4 -14.7 16.5 LP -42.5Mangalam Cement 207.4 3.7 -7.5 40.1 7,959.2 -14.8 16.1 LP -28.7Shree Cement * 2,263.7 31.3 -8.3 563.6 44.8 -22.9 350.7 172.4 -30.9Star Ferro & cement 348.5 12.0 -22.2 50.3 -8.9 -45.1 -1.9 NA PLUltraTech Cem 5,502.8 -2.1 -11.0 1,030.5 11.1 -24.9 511.2 30.1 -34.0Total 16,582.7 5.8 -8.2 3,028.0 27.4 -20.5 1,475.0 81.1 -30.7

Change (%) Change (%)Company

Change (%)

Source: Company, ICICIdirect.com research ^Q3CY16 result * Q2FY17E revenues is as per IND AS VS Q2FY16 is as per Indian GAAP

Topline & Profitability (Coverage universe)

1567

9

1629

9 1780

0

1806

2

1658

3

14000145001500015500160001650017000175001800018500

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

(%)


All-India quarterly cement dispatches

2.15.711.4

4.31.71.4-0.5

4.2

9.9

20304050607080

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

milli

on to

nnes

-5.00.05.010.015.0

%

Cement dispatches (LHS) YoY growth (RHS)

Monthly production growth YoY (%) – Till Aug 2016

9.0

13.5

4.4

2.4

10.3

1.4 3.

1

0.2 2.

2 2.7

2.9

1.4

5.4

11.7

3.2

11.9

-3.7

-1.4

-1.5 -1.8

-5.0

0.0

5.0

10.0

15.0

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep

Oct

Nov Dec

2016 2015


Ambuja Cement Mangalam Cement

Research Analyst

Rashesh Shah [email protected] Devang Bhatt [email protected]


Exhibit 31: Company specific view Company Remarks

ACC ACC is expected to register muted volume growth of 0.5% YoY to 5.6 MT inQ2FY17E mainly due to monsoon and a decline in market share. Further, we expectEBITDA/tonne to increase 30.3% YoY led by higher usage of pet coke (prices of petcoke are still lower YoY). PAT is expected to increase 65.0% YoY mainly due tobetter performance at the operating level and lower depreciation expenses

Ambuja Cement Ambuja Cement is expected to report volume growth of 1.0% YoY and realisationgrowth of 3.0% YoY mainly due to the high presence in north (where pricing hasimproved despite moderation in demand). EBITDA/tonne is expected to increase42.8% YoY to | 872/tonne. PAT is expected to increase 62.6% YoY mainly due tobetter performance at operating level

UltraTech Cement

UltraTech Cement's volume is expected increase 3.0% YoY vs. pan-India growth of2.1% YoY mainly due to a gain in market share. Further, blended EBITDA/tonne isexpected at | 900/tonne (up 7.9% YoY) mainly led by cost rationalisation. PAT mayincrease 30.1% YoY to | 511.2 crore led by higher other income (due to adoption ofIND AS) and lower depreciation expenses

Shree Cement The company's cement volumes are expected to increase 10.8% YoY to 4.6 MT dueto capacity expansion. Further, cement realisation is expected to increase 2.3%QoQ mainly led by healthy pricing scenario in north. Cement EBITDA/tonne isexpected to increase 38.8% YoY to | 1,101/tonne. Further, power segment EBITDAmargin is expected to increase from 29.5% in Q2FY16 to 32.4% in Q2FY17E due tolower fuel cost. PAT is expected to increase 172.4% YoY to | 350.7 crore mainlyled by lower depreciation and higher other income (due to adoption of IND-AS)

India Cement We expect volume growth of 14.6% YoY due to low base effect (as previous year’svolumes were impacted by floods in Chennai). The EBITDA/tonne is expected todecline 8.1% YoY to | 914/tonne mainly due to higher maintenance expenses. PATduring the quarter is expected to increase 64.7% YoY mainly due to lower interestexpenses and lower tax rate

JK Cement Blended volumes are expected to increase 1.9% YoY led by 18.2% YoY increase inwhite cement volumes (mainly driven by capacity expansion of 0.2 MT in wallputty). In addition, the blended realisation is expected to increase 1.3% YoY as JKsells majority of its volumes in the north. We expect EBITDA/tonne to increase47.6% YoY to | 861/tonne. PAT is expected to grow 294% YoY due to betterperformance at the operating level

JK Lakshmi Cement

JK Lakshmi is expected to report volume growth of 16.5% YoY mainly led bycommissioning of the Surat grinding unit (1.35 MT) and better demand in the east.Further, we expect realisation to increase 2.0% YoY mainly due to high exposure tonorth. Cement EBITDA/tonne is expected to increase 29.0% YoY led by higherrealisation and power cost rationalisation at the Durg plant. The company isexpected to report a net profit of | 16.5 crore vs. net loss of | 14.9 crore mainlydue to higher operating profit

Mangalam Cement

Mangalam Cement is expected to report flat volume growth while realisation isexpected to increase 3.4% YoY due to price improvement in north. With animprovement in pricing and cost rationalisation, the EBITDA/tonne is expected toincrease from | 9/tonne to | 725/tonne. Further, the company is expected to reportPAT of | 16.1 crore vs. loss of | 15.4 crore mainly due to a better performance atthe operating level and higher other income. The company commissioned 0.75 MTgrinding unit at Aligarh in September 2016. Hence, it will bear no impact on thecompany's volume growth in the current quarter


Sales volume (Coverage Universe)

Million tonnes Q2FY17E Q2FY16 YoY (%) Q1FY17QoQ (%)

ACC 5.6 5.6 0.5 6.1 -7.9

Ambuja 4.9 4.8 1.0 5.8 -15.5

UltraTech* 11.5 11.1 3.0 13.2 -13.2

Shree Cem 4.6 4.2 10.8 5.2 -10.2

India Cem 2.5 2.2 14.6 2.3 7.3

JK Cement* 1.9 1.8 1.9 1.9 -1.5

JK Lakshmi 2.0 1.7 16.5 2.1 -3.6

Mangalam 0.55 0.6 0.3 0.6 -8.7

Heidelberg 1.1 1.1 3.8 1.2 -9.8

StarFeroCement 0.6 0.5 23.7 0.8 -18.4

Total 35.2 33.6 4.9 39.1 -9.9

* blended sales volume (grey & white)

RE

Region-wise cement retail prices |/50 kg bag Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%)

North 305 273 11.7 293 3.9

East 275 296 -7.0 284 -3.0

South 365 380 -4.0 360 1.3

West 291 292 -0.6 288 0.9

Central 310 285 8.6 293 5.7

North East 345 389 -11.2 360 -4.2

Average 315 319 -1.3 313 0.6

Cement Realisations (Coverage Universe)

| per tonne Q2FY17E Q2FY16 YoY (%) Q1FY17QoQ (%)

ACC 4824 4884 -1.2 4689 2.9

Ambuja 4477 4347 3.0 4412 1.5

UltraTech* 4804 5053 -4.9 4684 2.6

Shree Cem^ 4527 3646 24.2 4427 2.3

India Cem^ 5093 4904 3.9 5173 -1.5JK Cement* 4820 4760 1.3 4703 2.5

JK Lakshmi 3767 3692 2.0 3678 2.4

Mangalam 3753 3628 3.4 3705 1.3

Heidelberg 3815 3740 2.0 3785 0.8

StarFeroCement 5674 6254 -9.3 5948 -4.6

Average 4655 4605 1.1 4567 1.9

* Blended realisations (grey cement +white cement), ^ Q2FY17E realisation is as per IND AS VS Q2FY16 is as per Indian GAAP

EBITDA per tonne (Coverage Universe)

| per tonne Q2FY17E Q2FY16 YoY (%) Q1FY17QoQ (%)

ACC 612 469 30.3 670 -8.7

Ambuja 872 611 42.8 1009 -13.6

UltraTech* 900 834 7.9 1040 -13.5

Shree Cem 1101 793 38.8 1262 -12.8

India Cem 914 994 -8.1 857 6.6

JK Cement* 861 583 47.6 879 -2.0

JK Lakshmi 492 381 29.0 556 -11.5

Mangalam 725 9 7937.3 778 -6.7

Heidelberg 640 415 54.3 655 -2.3

StarFeroCement 817 1109 -26.4 1212 -32.7

Average 839 686 22.3 949 -11.6

*blended (grey + white)


Exhibit 32: Company specific view Company Remarks

Heidelberg Cement

We expect Heidelberg to report volume growth of 3.8% YoY and realisation growthof 2.0% YoY mainly led by consolidation in central region. EBITDA/tonne isexpected to increase 54.3% YoY to | 640/tonne led by freight cost rationalisationand commissioning of 12 MW waste heat recovery plant. Further, PAT is expectedto increase from | 2.1 crore in Q2FY16 to | 20.8 crore in Q2FY17E driven by higheroperating margins

Star Ferro & Cement

The company's volumes are expected to increase 23.7% YoY to 0.6 MT led bycapacity expansion and higher sales outside north east. However, realisation isexpected to decline 9.3% YoY led by increased competition. In addition,EBITDA/tonne is expected to decline 26.4% YoY due to pricing pressure andincrease in maintenance cost. The company is expected to report loss at the netlevel due to margin pressure at the operating level



Construction & Roads Government taking measures to ease liquidity for construction sector

The government is taking key policy measures to revive the construction sector. Under the new arrangement, government agencies would release 75% of the arbitral award amount where the developer has won the arbitration award. The total amount under arbitration for the industry is at ~| 1 lakh crore of which ~| 70000 crore has been disclosed by PSUs. In our view, the move will help the construction sector to complete stranded projects. This will not only help improve liquidity in the short run but will also hasten the arbitration process. We believe HCC (claims in favour: | 3200 crore) will be the biggest beneficiary while Simplex, NCC and PNC have claims worth | 150 crore, | 150 crore, | 17 crore in their favour of which they would receive 75% of claims soon.

Roads Ministry to lease out road assets to fund ambitious plan... The government has lined up 104 projects for leasing under toll operate transfer model through which it could raise ~| 70000 crore. We believe this move would help the Road Ministry fund its ambitious awarding, construction target of 25000 km, 15000 km, respectively, for FY17E. A strong pick-up in awarding activity is seen with orders worth | 62275 crore awarded in July-August 2016 vs. | 62170 crore in Q2FY16. Further, decent tendering activity was witnessed with tenders worth ~| 1.1 lakh crore floated in July-August 2016 vs. ~| 1.5 lakh crore in Q2FY16. In terms of verticals, road & power sector saw maximum traction with 25.4% and 26.7% share, respectively.

Road universe to report revenue growth of 8.8% YoY…

We anticipate execution in road and construction universe to remain muted due to heavy monsoons in Q2FY17E vs. Q2FY16. Consequently, road universe revenues are expected to grow 8.8% YoY to | 3279.9 crore. Further, we expect revenues of our construction universe to grow 3.7% YoY | 4788.8 crore.

Bottomline of road universe to rise 10.8% YoY…

Our road universe is expected to report bottomline growth of 10.8% YoY to | 272.6 crore largely due to interest cost savings and tax savings for certain companies. However, the bottomline of our construction universe is expected to decline 2.2% YoY to | 129.5 crore led by NBCC’s 19.7% YoY topline decline to | 51.3 crore.

Exhibit 33: Estimates for Q2FY17E (Road) (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Ashoka Buildcon 579.9 -10.9 -11.0 179.3 -13.4 -2.6 20.4 -49.2 95.3IRB Infra 1,411.4 22.8 -7.0 754.2 24.7 -2.6 167.8 12.5 -7.7PNC Infratech 489.3 4.2 -5.0 63.7 4.3 -5.0 48.0 57.2 -25.1Sadbhav Eng. 799.3 7.2 -1.0 86.0 6.5 -1.0 36.4 39.1 -25.2Total 3,279.9 8.8 -6.0 1,083.2 13.6 -2.6 272.6 10.8 -10.6

Change (%)Company

Change (%)Change (%)

Exhibit 34: Estimates for Q2FY17E (Construction) (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

NBCC 1,288.5 14.5 3.5 55.0 -12.6 22.6 51.3 -19.7 12.9NCC 2,142.8 2.2 12.7 186.8 1.3 12.7 62.4 13.7 19.3Simplex Infra 1,357.6 -2.8 -3.5 158.6 -3.4 -3.5 15.8 16.5 -8.1Total 4,788.8 3.7 5.2 400.4 -2.7 6.8 129.5 -2.2 12.7

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


Topline & profitability (Road Coverage)

3016

3212 37

13

3491

3280

0

1000

2000

3000

4000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.0

10.0

20.0

30.0

40.0

(%)


Topline & profitability (Construction Coverage)

4618

4872 62

05

4554

4789

0

1500

3000

4500

6000

7500

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

1.0

3.0

5.0

7.0

9.0

11.0

(%)


Quarterly Tenders trend…

55,18075,546

94,04473,065

27,983

150,618 153,320

202,396189,842

110,018

0

50,000

100,000

150,000

200,000

250,000

Q2FY16 Q3FY16 Q4FY16 Q1FY17 July-Aug'17

(| c

rore

)

Road Tenders Total Tenders


NBCC, PNC Infratech

Research Analyst



Exhibit 35: Company specific view (Road coverage universe) Company Remarks

Ashoka Buildcon The topline is expected to de-grow 10.9% YoY to | 579.9 crore on account of 20.4%YoY decline in construction segment revenue to | 390.8 crore owing to mutedexecution as several projects are yet to take off. However, BOT division revenue isexpected to grow robustly by 17.9% YoY to | 189.1 crore. We expect its EBITDAmargins to contract 90 bps YoY to 30.9%. Its bottomline is expected to decline49.2% YoY (high base) to | 20.4 crore on account of higher depreciation andinterest expenses.Key monitorable: Management guidance on strong order inflow

IRB Infrastructure We anticipate IRB's topline will grow robustly by 22.8% YoY to | 1411.4 crore ledby strong growth of 27.7% YoY to | 601.6 crore in the BOT revenues. Further,construction division revenues are also expected to grow robustly by 19.4% YoY to| 810 crore. Further, EBITDA margins are expected to improve by 80bps YoY to53.4%. Further, the bottomline is expected to grow 12.5% YoY to | 167.8 crore.Key monitorable: Management guidance on strong order inflow

PNC Infratech With project execution expected to pick up in H2FY17, we expect topline growth tobe muted at 4.5% YoY to | 483.5 crore. Furthermore, EBITDA margins are expectedto stay flat YoY at 13.0%. Bottomline is expected to grow 1.6x YoY to | 48.0 croremainly due to lower tax rate on account of benefit under Section 80IA (effective taxrate of 7% in Q2FY17E vs. 33.8% in Q2FY16).Key monitorable: Management commentary on execution pick-up

Sadbhav Engineering

With an anticipated pick-up in the irrigation division, we expect revenues to grow7.2% YoY to | 799.3 crore. Further, EBITDA margins are expected to remain atsimilar levels YoY at 10.8%. However, the bottomline is expected to grow 39.1%YoY to | 36.4 crore owing to lower base as there was an exceptional item of | 11.8crore associated with claim settlement. Adjusting for this one-off, the bottomline isexpected to de-grow 4.1% YoY to | 36.4 croreKey monitorable: Execution in irrigation division


Road Coverage Universe

Higher interest expense* continues to eat away PAT

12.4 12.512.8

13.2

14.1

12.0

13.0

14.0

15.0

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(%)

*Interest Expenses as %age of Sales

Major news during Q2FY17 Ashoka Concession, a subsidiary of AshokaBuildcon has emerged as lowest bidder for 4/6laning of Kharar to Ludhiana section of NH-95.This project is under hybrid annuity mode and isworth | 1600 crore

According to media sources, SBI Macquarie islooking to sell its 39% stake in AshokaConcessions, a subsidiary of Ashoka Buildcon.They have already kick-started the process to sellthe stake

IRB Infrastructure

IRB has received LoA for six laning of Udaipur toRajasthan/Gujarat border on DBFOT basis withlength of 113.8 km. The estimated project cost is~| 2100 crore and the company has offered anpremium of | 163.8 crore to NHAI. Theconcession period of the project is 21 yearsincluding construction period of 910 days

IRB Infrastructure Developers has filed a draftdocument seeking Securities and Exchange Boardof India's approval to raise | 4,300 crore throughInvITs

IRB received LoA for six laning of Kishangarh-Udaipur-Ahemdabad highway on DBFOT basiswith length of 125 km. The company has offereda premium of | 228.6 crore to NHAI. Concessionperiod of the project is 20 years includingconstruction period of 910 days

PNC Infratech

PNC Infratech has been declared as lowest bidderfor 2/4 laning of Dausa-Kautham section (83.5km) worth | 881 crore of NH 11A in Rajasthan

Infrastructure Sector

Sebi has reduced required mandatory sponsorholding in InvITs to 15% & allowed InvITs toinvest in a two-level SPV through holdingcompanies. It also removed limit on number ofsponsors of InvITs, allowing consortium ofmultiple developers and investors that holdinvestments in infrastructure projects to explorethe InvIT

Ashoka Buildcon


Exhibit 36: Company specific view (Construction coverage universe) Company RemarksNBCC We expect NBCC to post robust topline growth of 14.6% YoY to | 1288.5 crore

mainly led by 30.4% YoY growth in PMC division to | 1170.8 crore. We expect itsEBITDA margins to contract 120 bps YoY to 4.2% on account of lower contributionfrom the high margin real estate division (| 50.0 crore in Q2FY17E vs. | 163.0 crorein Q2FY16). As a result, we expect its profitability to decline 19.7% YoY to | 51.3crore.Key monitorable: Strong redevelopment order inflows, margins in PMC divisionand performance of real estate division

Simplex Infrastructure

We anticipate revenues will de-grow 2.5% YoY to | 1357.6 crore amid mutedexecution due to rainy season and stretched working capital cycle. Further, weexpect EBITDA margins to remain flat YoY at 11.7%. The bottomline is expected togrow 16.5% YoY (low base effect) to | 15.8 crore.Key monitorable: Debt position and management commentary on working capitalimprovement

NCC Ltd We expect NCC's revenue growth to remain muted at 2.2% YoY to | 2142.8 crore inthe absence of power division revenues. Furthermore, EBITDA margins are alsoexpected to remain at same levels YoY at 8.7%. However, with a reduction ininterest expenses (| 100.3 crore in Q2FY17E vs. | 131.1 crore in Q2FY16), weexpect bottomline to grow 13.7% YoY to | 62.4 crore.Key monitorable: Management commentary on debt reduction


Construction Coverage Universe

De-leveraging on top of mind of construction players

5.24.9

4.1

4.6 4.5

3.5

4.0

4.5

5.0

5.5

6.0

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(%)

*Interest Expenses as %age of Sales

Major news during Q2FY17

National Highway Authority of India (NHAI) islooking to bid out 30000 km of highway projectsin the next two or three years. Further, NHAIaims to award 10000 km of roads in FY17

Road Sector

Asian Development Bank may loan $1 billion tothe 793 km Mumbai-Nagpur communicationsuper expressway project worth | 31,500 crore

Currently, 65% of rural habitations have beenconnected with all-weather roads and remaining35% are expected to be connected by March,2019. In the second phase of Pradhan MantriGram Sadak Yojana upgradation, 50,000 km roadwill be done at a cost of | 33,000 crore. Atpresent, 100 km of roads is being built each dayand the government has set a target of taking itto 133 km per day

The government has lined up ~104 highwayprojects to be leased out to private players for 30years in exchange for an upfront fee under the tolloperate transfer (TOT) model.

The government may come up with ambitious | 3lakh crore economic corridor project to develop35,000 km of highways for faster movement offreight. The economic corridors include Mumbai-Kochi-Kanyakumari, Bangalore-Mangalore,Hyderabad-Panjim, etc

NHAI has raised | 5,000 crore by selling bonds toEPFO and rates are being negotiated for furthersale

The company has received orders worth ~| 345crore & | 614.8 crore in July & August, 2016

NBCC NBCC has secured work for construction of 30bedded ESIC Hospital at Baltikuri, West Bengalworth | 250 crore

NBCC has secured works worth ~| 440 crorefrom ESIC, Ministry of Labour & Employment forconstruction of 100 bedded hospital at Haridwar& Dehradun and 300 bedded hospital at Indore


Consumer Discretionary Sales up with onset of festive demand

Sales of I-direct consumer discretionary (CD) universe are expected to grow ~9% in Q2FY17 due to inventory build up at dealer’s level amid implementation of Seventh Pay Commission, better monsoon and onset of festive demand. Paint volume is expected to go up ~13% driven by good demand from both decorative and industrial paint segments. Pidilite Industries is expected to see sales growth of 10.6% supported by 11.5% growth in sales of consumer & bazaar segment supported by good demand of adhesive & water proofing business. Cooling product categories such as Symphony, Voltas are expected to record volume growth of 14%, 10% YoY, respectively (lower compared to Q1FY17) as demand is affected by heavy rains in most regions. Other consumer goods companies like Havells, V-Guard are likely to see sales growth of 13%, 10% YoY, respectively, supported by inventory build up at dealers level onset of festive demand. V-Guard’s stabiliser business is expected to record sales growth of 15% YoY supported good demand of stabilisers from the LED television.

Better product mix, benign RM prices help margin expansion The I-direct CD universe EBITDA margin is expected to increase 116 bps YoY supported by various factors like change in product mix and benign raw material prices. Higher EBITDA margin would largely be driven by both paints and white goods manufacturers. We believe though prices of crude derivatives have shown stability in the recent past, a change in product mix and higher sales volume would be key driving factors of EBITDA margin. Further, a slight recovery in the industrial product category (wire & cables and switches) coupled with moderate advertisement expenses would benefit Havells, V-Guard, Voltas, respectively. Besides, margin of Bajaj Electrical is likely to remain subdued on the back of under performance of its consumer durable products coupled with higher employee cost.

Better EBITDA margin to aid PAT growth Companies under our coverage are expected to record PAT growth of 22% largely supported by an improvement in operational performance and saving in interest cost. We believe a turnaround of project business of Voltas, Bajaj Electricals would drive PAT growth of 77%, 41% YoY, respectively. Since paint & electrical goods companies enjoys debt free status, better EBITDA margin would boost PAT. Additionally, companies like Essel Propack, Supreme Industries would see a base effect in Q2FY17 PAT. We believe higher valuation of I-direct CD universe is justified by better future visibility in the wake of higher disposable income (due to Seventh Pay Commission), GST and better rural demand (due to good monsoon).

Exhibit 37: Estimates for Q2FY17E (Consumer Discretionary) (| Crore)

Company Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Asian Paints 4,204.0 11.2 3.0 755.2 21.6 -7.9 469.8 17.7 -15.0Bajaj Electricals 1,119.6 -0.7 16.7 49.3 7.1 -12.6 15.8 40.7 -30.7Essel Propack 579.9 8.3 9.8 117.7 3.2 20.6 50.8 -14.3 35.1Havells 1,523.1 12.8 3.8 217.8 16.9 8.3 156.3 29.5 8.0Kansai Nerolac 1,082.5 11.4 3.4 184.4 19.9 -1.3 118.0 21.8 -6.7Pidilite Industries 1,460.5 10.6 -13.6 339.1 12.5 -14.0 229.3 19.6 -15.8Supreme Industries* 791.3 2.8 -33.2 91.7 4.8 -53.3 36.3 47.9 -68.5Symphony* 137.4 20.0 -9.9 43.9 29.0 12.6 36.0 25.2 15.6V-Guard Industries 477.4 10.1 -16.6 43.5 19.4 -31.8 28.5 23.7 -33.4Voltas Ltd 1,086.4 2.2 -41.4 88.1 41.4 -55.9 78.8 77.3 -50.0Total 12,462.1 8.7 -8.0 1,930.8 17.5 -14.4 1,219.5 22.0 -18.9

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

Source: Company, ICICIdirect.com Research, ,* year end changed from June to March


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EBITDA margin Q2FY16 Q3FY16 Q4FY16 Q1FY17E Q2FY17E

Asian Paints 16.4 19.2 17.2 20.1 18.0

Kansai Nerolac 15.8 14.1 15.5 17.8 17.0

Pidilite Ind 22.8 22.0 19.2 23.3 23.2

Essel Propack 21.3 20.0 18.4 18.5 20.3

Havells 13.8 13.6 14.9 13.7 14.3

Bajaj Ele 4.1 6.9 5.5 5.9 4.4

V-Guard 8.4 8.3 12.4 11.1 9.1

Voltas 5.9 4.5 9.8 10.8 8.1

Supreme Ind 11.4 15.1 17.3 16.6 11.6

Symphony 29.7 37.2 42.0 25.6 31.9

Titanium dioxide (|/kg) price trend

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Top Pick Kansai Nerolac

Research Analyst

Sanjay Manyal [email protected] Hitesh Taunk [email protected]


Exhibit 38: Company specific view for Q2FY17E

Company RemarksAsian Paints Asian Paints is expected to record sales growth of 11.2% YoY in Q2FY17

to | 4204 crore led by 12.8% YoY volume growth (supported by upcomingfestive demand) while realisation is expected to see a dip of ~1.5% YoY.EBITDA margin is expected to increase 154 bps YoY to 18% mainly due tohigher sales volume and benign raw material prices. Sales growthcoupled with increase in margin would help PAT grow 18% to | 470 crore

Bajaj Electricals BEL is likely to see muted sales growth in Q2FY17 at | 1120 crore (down1% YoY) as consumer durable segment (includes lighting) segment isexpected to record flattish performance in Q2FY17 to | 708 crore mainlydue to inventory rationalisation of appliances at dealer's level. Also,seasonally a weak quarter (due to rainy season) E&P segment, sales islikely to decline 1% YoY to | 412 crore . Higher employee cost wouldrestrict EBITDA margin at 4.4% (vs. 4% in Q2FY16). PAT is likely to recordPAT of | 16 crore against | 11 crore recorded in Q2FY16 supported by adecline in interest cost by ~10% YoY

Essel Propack The company may record sales of | 580 crore, up 8% YoY (impact ofdivestment in subsidiary would be normalised) in Q2FY17. Sales fromAmesa region is expected to increase 5% YoY to | 218 crore. TheAmerica and Europe region is expected to post sales growth of ~8% and~9% YoY to | 121 crore and | 113 crore, respectively. EBITDA margin islikely to decline 100 bps YoY to 20.3% as saving in input cost would bepartly offset by higher employee cost .PAT (adjusted with exceptionalitems in Q2FY16) is likely to stay flat at ~| 51 crore

Havells India Havells is expected to record sales growth of ~13% YoY to ~| 1523crore in Q2FY17E, led by ~15%, 18% & ~11% YoY growth in switchgear,ECD and lighting segment to | 385 crore, | 301 crore & | 219 crore,respectively. A slight recovery in the cable and wire segment(stabilisation in raw material prices) would help improve EBITDA marginby 50 bps YoY to 14.3%. PAT is likely to increase 30% YoY to ~| 156crore

Kansai Nerolac We expect sales growth of 11.4% YoY to | 1083 crore in Q2FY17E largelycontributed by cumulative volume growth of 13.4% YoY in the decorativeand industrial paint segment. The company is expected to pass on thebenefit by taking a price cut of ~1.7% YoY. Higher volume growthcoupled with benign raw material prices would lead to an increase inEBITDA margin by 120 bps YoY to 17%. In the absence of any significantnon operating cost, PAT is likely to increase 22% YoY to ~| 118 crore

Pidilite Industries Pidilite is likely to record consolidated sales growth of ~11% YoY to ~|1461 crore in Q2FY17E, led by ~12% YoY growth in the consumer &bazaar segment. With the slight recovery in the demand of industrialproducts, we expect the industrial segment to record sales growth of 2%YoY. We expect a stabilisation in raw material prices to restrict any sharpmovement in EBITDA margin as it is likely to increase by mere 40 bps YoYat 23.2%. As a result, PAT is likely to grow ~ 20% YoY to ~| 230 crore


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Exhibit 39: Company specific view for Q2FY17E

Supreme Industries Supreme is expected to record sales growth of 3% YoY to | 791 crore inthe quarter ended September 2016, led by volume growth of ~7% YoY.The packaging and consumer product segment are likely to record salesgrowth of 8% and 7% to | 172 crore and | 62 crore, respectively.However, sales from the plastic piping segment are expected to remainflat YoY. Due to passing on the benefit of lower raw material prices to itscustomers, EBITDA margin is expected to remain flat at ~11.6%. Thecompany is expected to report a PAT of | 36 crore against ~| 25 crore inSeptember 2015 (mainly due to loss from associate)

Symphony Symphony is likely to post sales growth of 20% YoY to | 137 crore duringthe quarter ended September 2016 supported by volume growth of 14.3%YoY and growth in realisation by 5% YoY. The EBITDA margin is likely toincrease 222 bps YoY to ~32%, supported by benign raw material prices,launch of new models and higher operating leverage. As a result, PAT islikely to increase 25% to | 36 crore in the quarter ended September 2016

V-Guard We expect topline growth of ~10% YoY to ~| 477 crore in Q2FY17Esupported by ~13% YoY growth in the electronics segment led by bettersales of stabilisers. The electrical segment is likely to record sales growthof 9% YoY to ~| 342 crore largely driven by the pump and water heatersegment. Price stabilisation in the wire & cable segment, coupled with achange in product mix would help in expansion in EBITDA margin by 80bps YoY to 9.1%. Better margin and saving in interest cost would helpboost PAT by 24% YoY to ~| 29 crore

Voltas We expect a topline growth of ~2% YoY to ~| 1086 crore in Q2FY17Eled by ~14% YoY revenue growth in the unitary cooling product (UCP)segment to | 358 crore. Despite being a weak season for the coolingproducts segment, UCP segment (i.e. ~44% of FY16 revenue) is expectedto record volume growth of 10% YoY supported by higher inventory build-up at dealer's level. The EBITDA margin is likely to increase 225 bps YoYto 8.1% due to improved profitability in the EMPS and UCP segment. As aresult, PAT is likely to increase ~77% YoY to ~| 79 crore



FMCG ITC, Nestlé to lead revenue growth; rural demand to aid volumes

The FMCG universe is estimated to report healthy net sales growth of 12.4% YoY mainly driven by strong growth in ITC and Nestlé with a revival in cigarette volumes and a strong comeback of Maggi noodles, respectively. We estimate volume growth of 5-9% for Dabur, Colgate, Marico, HUL and ITC (FMCG). The revival in cigarette volumes witnessed last quarter is expected to continue. Thus, we estimate 15.1% and 21.4% YoY growth in net sales for ITC and VST Industries, respectively. Strong re-launch of Maggi noodles and aggressive 25 new launches are expected to drive revenue for Nestlé at 44.1% YoY in Q3CY16E. We are factoring in ~3% price cut for Marico’s entire product portfolio. The company has taken 10-16% price cuts in its Parachute coconut oil portfolio to pass on the benefit of ~23% YoY decline in copra prices. We estimate net sales growth of 6.5% for GSK Consumer Healthcare, largely driven by realisation growth. We maintain our positive outlook on the FMCG sector backed by the expected turnaround in rural demand. We are optimistic on the sector on account of a) normal monsoon after two consecutive years of deficit rainfall and b) the government’s thrust on increasing rural income levels by focusing on the agri economy with initiatives like ~22% increase in MNREGA spend to ~| 43800 crore in FY16.

Margin peaking as commodity prices bottom out With the bottoming out of major commodity prices, companies have started taking back promotional offers along with limited price hikes in their product portfolio. We see limited margin expansion of our coverage universe in Q2FY17E. Crude oil prices continued to fall YoY by 8.4% for the quarter. However, they remained flat QoQ. Price increase for palm oil and barley was 30.2% YoY and 27.8% YoY, respectively. Factoring in the impact of a rise in raw material cost partly offset by price increase, we estimate a marginal improvement in operating margin for HUL by 80 bps and GSK Consumer by 30 bps. However, we expect Marico to enjoy 295 bps expansion in margin on the back of 23.3% decline in copra prices. Due to higher advertisement expense, we factor in ~180 bps decline in Colgate and flat margin for Dabur.

Led by healthy revenue, PAT to grow at 14.4% YoY for our universe We are expecting the revival in cigarette volumes in Q1FY17 to continue for the quarter leading to 12.6% YoY growth in ITC’s earnings growth. Also, with strong return of Maggi, Nestlé is expected to witness robust PAT growth of 113.7% YoY. Benefiting from lower copra prices, we estimate Marico’s PAT to grow 31.3% YoY.

Exhibit 40: Estimates for Q2FY17E (FMCG) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Colgate Palmolive 1,148.9 11.3 0.6 262.8 3.1 24.4 161.9 3.2 28.8Dabur India Ltd 2,224.0 6.3 15.6 426.2 6.5 23.8 361.8 6.1 23.2GSK Consumer 1,144.8 6.5 14.2 256.6 8.0 26.1 199.2 8.9 24.0HUL 8,084.3 6.4 1.2 1,491.1 11.6 -8.8 1,067.7 7.8 -9.0ITC 10,134.0 15.1 1.8 4,004.1 12.5 13.6 2,737.6 12.6 14.8Jyothy Laboratories 432.4 12.8 2.5 66.1 36.3 -14.7 43.9 14.8 -13.8Marico Ltd 1,566.7 5.6 -10.5 288.7 25.7 -22.8 194.1 28.8 -27.5Nestle India 2,502.7 44.1 10.9 462.8 61.9 3.6 265.5 113.7 15.0Tata Global 2,139.7 7.0 25.0 208.8 40.9 -12.4 106.1 31.2 -11.2VST Industries 246.7 21.4 -2.6 68.6 43.3 2.5 44.1 38.7 6.0Total 29,624.2 12.2 4.3 7,535.8 15.1 5.8 5,181.8 14.4 6.9



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Top Picks

ITC Hindustan Unilever

Research Analyst

Sanjay Manyal [email protected] Tejashwini Kumari [email protected]


Exhibit 41: Company specific view (FMCG) Company RemarksColgate Colgate is expected to post 11.3% YoY growth in net sales led by ~6% volume growth

(on account of various new launches) & 5% realisation growth (due to a change inproduct mix). We expect margins to decline 183 bps to 22.7% largely on account ofhigher advertisement spend in the quarter. We expect 230 bps increase in ad-ex tosales in Q2FY17E. Led by margin contraction, net profit is expected to grow marginallyby 3.2% YoY to | 162 crore

Dabur We expect net sales to grow 6.3% YoY on the back of 9.8% YoY domestic segmentsales. However, international business would see muted performance with 1% declinein revenue due to dismal demand from Middle East. Despite commodity prices seeingan uptick, Dabur would be able to maintain its operating margin at 19.2% considering a220 bps decline in advertisement expense to sales

GSK Consumer Healthcare

We expect muted 6.5% YoY revenue growth largely driven by price growth. We expectoperating margins to marginally inch up 30 bps YoY to 21.4% mainly on account ofbenign milk prices and a dip in packaging cost offsetting 30% increase in barley prices.Adjusted net profit is expected to grow 8.9% to | 199.2 crore

HUL HUL is expected to witness net sales growth of 6.4% with 5% volume growth. Withcommodity prices bottoming out, operating margins are expected to witness 204 bpscontraction vis-à-vis Q1FY17 though they continue to expand 80 bps compared toQ2FY16. We expect sustained higher advertisement expenditure at 14% of sales duringthe quarter. Net profit is likely to grow 7.8% to | 1067.7 crore

ITC We expect cigarette volumes to witness ~4% increase mainly on account of a lowbase & moderate excise hike of 10% in 2016 Budget. Sales growth in FMCG,paperboards & agri business is estimated at 14%, 15% & 16%, respectively. On theother hand, the hotels business expected to grow a muted 2% during the quarter. Weestimate an operating margin of 37.8% during the quarter. Net profit is expected toincrease 12.6% to | 2737.6 crore

Jyothy Labs We are estimating revenue growth for the company at 12.8% YoY led by 14.1% YoYgrowth in the soaps and detergent segment. Fabric care segment is expected to report~8% YoY growth. However, we expect the insecticide segment will continue to remainmuted. We are factoring in 263 bps expansion in operating margins to 15.3%

Marico We are estimating revenue growth of 5.6% YoY for the quarter led by 6.6% growth indomestic sales. We are factoring in ~9% volume growth and ~3% cut in prices(majorly in Parachute portfolio on account of declining copra prices). Copra prices weredown 23.3% YoY for Q2FY17 (but up 5.5% QoQ). On account of saving in raw material& selling costs, we are estimating 295 bps improvement in operating margin to 18.4%

Nestlé India We are factoring in 44.1% YoY growth in net sales on a lower base for Nestlé led by -a) market share increase to 57.1% of Maggi noodles (as of June 2016) and regaining ofleadership in the instant noodles segment, b) aggressive launch of 25 products (mostlyin premium category with differentiated proposition) between June-August, 2016. Weare expecting operating margin to expand 203 bps to 18.5% and PAT at | 265.5 crore(growth of 113.7% YoY)

Tata Global Beverages

We expect TGBL to witness 7.0% YoY increase in sales on the back of 7.6% (| 1583crore) growth in tea & 4.8% (| 559 crore) growth in coffee segment. We expect thecompany to maintain elevated advertisement spend at 17.5% to sales. Operatingmargins are likely to expand 235 bps on the back of lower tea prices. Net profit isexpected to grow 31% mainly on account of a low base due to the dismal performancein the corresponding quarter

VST Industries

VST Industries is expected to post net sales growth of 21.4% YoY led by 15.5% and24.5% sales growth in cigarette and raw tobacco, respectively. We estimate 70%contribution from the below 65 mm cigarettes and 30% from the above 65 mmcategory. Operating margin is expected to expand 426 bps largely led by lowermanufacturing cost. We expect 13.2% higher excise outgo in Q2FY17E. Earnings arelikely to grow 38.7% YoY to | 44.1 crore



Healthcare

Recovery in India, EMs to support growth besides US I-direct healthcare universe revenues are expected to grow ~9% YoY to | 38020 crore led by growth in the US and India. Similarly, normalised currency impact in most emerging markets (EMs) along with price hikes in Brazil and launches of new products across EMs are likely to support overall growth. Venezuela issues, however, would continue to impact Dr Reddy’s (DRL) and Glenmark. US sales from the select pack are expected to grow ~12% to | 10119 crore on the back of 1) rupee depreciation vis-à-vis US$ (~3% YoY), 2) exclusivity sales (gGleevec by Sun, gGlumetza by Lupin) 3) consolidation of acquisitions and 4) incremental product launches & price hikes (gFortamet by Lupin). However, increased competition in existing products especially in gAbilify, gNexium and price erosions elsewhere may partly offset overall US growth. On the domestic formulations front, despite continued NLEM/FDC issues growth is likely to be 10% YoY to | 8244 crore (selected pack) on the back of favourable seasonality benefit over and above the volume growth and new launches. On the companies’ front, we expect Natco (hepatitis C sales), Lupin (Fortamet sales in the US), Syngene (growth across verticals), Biocon (biological and CRO) and Sun (gGleevec exclusivity) to register strong growth. On the other hand, Alembic, Torrent and DRL are likely to deliver a weak set of numbers due to base effect and increased competition in the US.

EBITDA to grow ~9% YoY We expect the EBITDA of the I-direct healthcare universe to grow ~9% YoY to | 9772 crore on a higher base. EBITDA margins are likely to remain strong at ~26% YoY due to better product mix.

Adjusted net profit to grow ~12% YoY We expect the net profit of the I-direct healthcare coverage to grow 11.9% YoY to | 6085 crore. Higher net profit growth vis-à-vis EBITDA is on account of lower interest expenses and taxation.

Exhibit 42: Estimates for Q2FY17E (| Crore)


Ajanta Pharma 512.5 17.1 8.8 174.3 13.3 4.6 123.2 23.2 3.0Alembic Pharma 817.1 -19.0 12.2 163.4 -56.5 4.1 119.3 -58.7 15.1Aurobindo Pharma 3,765.0 12.9 1.0 903.6 16.5 1.6 581.0 14.0 -0.7Biocon 1,042.5 24.5 6.1 249.1 26.0 -5.3 157.1 52.3 -5.7Cadila Healthcare 2,340.7 -4.8 2.3 551.3 -11.3 5.2 381.9 -2.4 7.2Divi's Lab 1,089.6 13.0 8.1 348.1 -7.4 -13.8 264.7 -10.5 -12.3Cipla 3,601.5 4.3 0.2 624.5 -20.9 2.2 299.7 -30.5 -17.9Dr. Reddys 3,327.5 -16.6 2.9 640.5 -43.8 65.6 301.4 -57.9 153.5Glenmark 2,226.0 18.7 14.6 445.2 10.8 17.4 262.6 31.0 15.8Indoco Remedies 307.0 20.4 19.3 54.2 18.5 29.7 29.6 30.7 49.4IPCA Labs 840.2 12.1 -0.2 139.7 56.7 8.7 74.1 188.0 40.8Jubilant Life Sc. 1,433.9 -2.0 1.0 372.1 16.1 1.1 168.8 48.7 4.5Lupin 4,204.3 26.6 -5.3 1,191.9 77.3 -8.9 710.3 73.7 -19.5Natco Pharma 316.2 34.6 -2.8 75.9 29.7 -1.8 47.9 62.1 0.6Sunpharma 8,421.8 23.2 2.2 3,012.5 55.8 3.1 2,077.7 87.7 2.2Syngene International 326.4 24.9 18.9 106.9 24.5 20.3 72.1 38.0 20.8Torrent Pharma 1,582.9 -6.4 2.5 474.6 -33.5 8.6 298.1 -43.4 2.1Unichem Laboratories 365.8 19.7 7.0 51.2 48.7 15.8 38.0 64.4 47.4Apollo Hospitals 1,499.0 9.6 2.3 192.6 -0.3 3.1 77.8 -16.9 7.8Total 38,019.9 9.1 2.4 9,771.5 8.8 4.2 6,085.2 11.9 1.6


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USFDA approvals for July-Sep 2016 (Coverage Universe)

Company Final TentativeAjanta Pharma 4 1Aurobindo Pharma 17 2Cadila Healthcare 1 0Cipla 3 0Dr. Reddy's Labs 2 0Glenmark Pharma 7 0Jubilant Life 2 0Lupin 1 3Natco 2 0Sun Pharma 8 0

Source: USFDA website;

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Top picks of sector

Aurobindo Pharma Syngene Int. Jubilant Life Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected]


Exhibit 43: Company specific view Company RemarksAjanta Pharma Revenues are expected to grow ~17% YoY on the back of ~20% growth in

domestic branded formulations, which in turn will be driven by cardiology. Exportsare likely to grow ~18% driven by the tender business. EBITDA margins areexpected to stay strong at ~33%. Net profit is likely to grow 23% due to lowertaxation

Alembic Pharma Revenues are likely to decline ~19% YoY mainly due to higher base of Q2FY16 (ofgAbilify in the US). Export formulations are expected to de-grow ~45%, whiledomestic formulations are likely to grow ~15%. EBITDA margins are expected at~20%. Net profit is expected to decline ~59%, in line with operational performance

Apollo Hospitals Standalone sales are likely to grow ~10% YoY mainly due to 12% growth in thepharmacy business and 8% growth in the healthcare service business. Slow growthin the Chennai Cluster is likely to impact overall hospital growth. Overall EBITDAmargins are likely to remain low at ~13% due to adverse business mix. Net profit isexpected to decline ~16% due to increase in interest and depreciation

Aurobindo Pharma

Revenues are expected to grow ~13% YoY on the back of 20% growth in the USsales led by new product launches. European sales are expected to grow ~8%.EBITDA margins are likely to increase ~73 bps to 24% due to an improvement in theproduct mix. Net profit is expected to grow ~14% due to a better operationalperformance

Biocon Revenues are likely to grow ~25% YoY mainly due to strong growth in Syngene,biologics segment and domestic branded formulations. EBITDA margins areexpected to remain at 23-24%. Net profit is expected to increase 52% mainly due tobetter operational performance and higher other income

Cadila Healthcare

Revenues are expected to decline ~5% YoY due to 10% decline in US sales on theback of lower HCQS (anti-malarial) sales and slowdown in new approvals. Indiasales are expected to grow ~8%. LatAm business is likely to do better due to pricehikes, new product launches and recovery in currency. EBITDA margins areexpected to contract 170 bps YoY to ~24%. Net profit is expected decline 3%, loweroperational performance is expected to get offset by lower taxation

Cipla Revenues are expected to decline ~4% YoY despite InvaGen acquisition due to highbase (gNexium supply to Teva in Q2FY16). Domestic business expected to grow 6%YoY. EBITDA margins are likely to decline to ~17% from 23% in Q2FY16. Net profit isexpected to decline ~30% on account of a dent in EBITDA and higher depreciation

Divi's Laboratories

Revenues are expected to grow ~13% YoY on the back of ~12% growth in genericAPI and CS segments besides ~27% growth in Carotenoid sales. EBITDA marginsare likely to decline to 31% from 39% in Q2FY16 due to one-off ex-gratia payment of~| 80 crore, which is likely to be provided in Q2FY17. Net profit is expected todecline 10.5% due to one-offs

Dr Reddy's Revenues are likely to decline 16% YoY mainly due to the cancellation of McNeil (USbased consumer healthcare company) contract, higher competition in base businessand Venezuela dent. Domestic business is expected to grow 12% YoY. EBITDAmargins are likely to decline to ~19% from 28.6% in Q2FY16 mainly due toslowdown in the US sales. Net profit is likely to decline ~58% on the back of pooroperational performance

Glenmark Pharma

Revenues are expected to grow ~19% YoY mainly due to ~27% growth in the USsales led by incremental product launches like gCrestor and market shares gain inkey products. Domestic revenue is expected to decline 2% YoY mainly due to baseeffect. EBITDA margins are likely to decline 144 bps to 20%. Net profit is expected togrow 31% due to a strong operational performance and lower taxation

Indoco Remedies

Revenues are likely to grow ~20% YoY on the back of 31% growth in developedmarkets and 25% growth in domestic formulations. We expect EBITDA margins toremain at ~18%. Net profit is expected to grow ~31% due to a strong operationalperformance and lower taxation


Expected growth (%) in Domestic formulation (| crore) Q2FY17E Q2FY16 Var. (%) Q1FY17 Var. (%)Ajanta 149.8 124.0 20.8 157.0 -4.6Alembic 335.8 284.6 18.0 277.7 20.9Biocon 154.7 119.0 30.0 158.0 -2.1Cadila 811.4 751.3 8.0 786.2 3.2Glenmark 596.4 608.5 -2.0 513.8 16.1Indoco 172.6 138.1 25.0 142.1 21.4Ipca 395.2 330.8 19.5 345.2 14.5Lupin 935.0 873.8 7.0 931.3 0.4Cipla 1337.7 1262.0 6.0 1449.0 -7.7Dr Reddy's 612.0 546.4 12.0 522.3 17.2Sun Pharma 2037.0 1818.7 12.0 1854.3 9.9Torrent 478.5 441.0 8.5 504.0 -5.1Unichem 228.0 188.5 21.0 221.5 2.9Total 8244.0 7486.6 10.1 7862.5 4.9

Expected growth (%) in the US (| crore) Q2FY17E Q2FY16 Var. (%) Q1FY17 Var. (%)Aurobindo 1769.9 1477.5 19.8 1703.9 3.9Cadila 901.8 1003.8 -10.2 848.3 6.3Glenmark 761.8 598.4 27.3 698.2 9.1Lupin 1902.2 1155.0 64.7 2188.6 -13.1Dr Reddy's 1518.2 1856.3 -18.2 1552.3 -2.2Sun Pharma 3981.6 3315.8 20.1 4070.6 -2.2Torrent 443.2 712.0 -37.8 434.0 2.1

Total 11278.7 10118.8 11.5 11495.9 -1.9

Expected growth (%) in Europe (| crore) Q2FY17E Q2FY16 Var. (%) Q1FY17 Var. (%)Aurobindo 825.9 764.3 8.1 831.2 -0.6Cadila 78.2 65.2 20.0 79.2 -1.2Glenmark 192.4 160.4 20.0 150.0 28.3Dr Reddy's 179.4 212.4 -15.5 161.5 11.1Lupin 127.4 115.8 10.0 128.0 -0.5Torrent 183.5 159.6 15.0 187.0 -1.9Total 1586.8 1477.6 7.4 1536.8 3.3

Expected growth (%) in Latin America (| crore) Q2FY17E Q2FY16 Var. (%) Q1FY17 Var. (%)Cadila 63.2 52.7 20.0 52.7 20.0Glenmark 207.1 165.7 25.0 155.6 33.1Torrent 176.9 131.0 35.0 167.0 5.9Total 447.2 349.4 28.0 375.3 19.1


Exhibit 44: Company specific view Ipca Laboratories

Revenues are expected to grow 12% YoY on the back of ~20% growth in domesticformulations. EBITDA margins are expected to improve ~470 bps YoY to ~17%. Netprofit is expected to grow 188% YoY due to strong operational performance andlower taxation

Jubilant Life Science

Revenue growth may remain muted as strong growth in pharma business, ~6% ledby radiopharma and CMO businesses are likely to be offset by 13% de-growth in LSIsegment due to product rationalisation. Margins are expected to expand ~400 bpsto ~26%, mainly due to improvement in margins across segments and betterproduct mix. Net profit is expected to grow ~49% on the back of strong operationalperformance and lower interest and depreciation

Lupin Revenues are expected to grow ~26% YoY driven by US growth of 65% on the backof gGlumetza exclusivity and Gavis consolidation. The Japanese business isexpected to grow 37% YoY mainly due to favourable currency movement. EBITDAmargins are expected to increase ~800 bps YoY to 28% on the back of gGlumetzaexclusivity and margin accretive Gavis consolidation. Net profit is expected to grow~74% YoY due to a strong operational performance

Natco Pharma Revenues are likely to increase ~35% YoY mainly due to robust Hepatitis C segmentsales in domestic market. EBITDA margins are likely to decline ~90 bps to ~24%due to higher other expenditure. Net profit is expected to grow 62% YoY due to astrong operational performance, lower interest and taxation

Sun Pharma Revenues are likely to grow 23% YoY due to 20% growth in US sales on the back ofgGleevec exclusivity. Taro's sales are expected to grow ~14% YoY. EBITDA marginsare expected to improve ~750 bps to ~36% due to gGleevec exclusivity,improvement in Taro margins and received upfront payment of US$50 million forTildrakizumab. Net profit is expected to grow ~87% due to strong operationalperformance

Syngene Revenues are likely to grow ~25% YoY due to strong growth across verticals andfavourable currency movement. EBITDA margins are expected to be in the range of32-34%. Net profit is expected to grow 38% on the back of better operationalperformance

Torrent Pharma Revenues are expected to decline ~6% YoY mainly due to 38% de-growth in the US(on the back of high base of gAbilify in Q2FY16). Domestic formulations and Brazilare likely to grow 8.5% and 35%, respectively. EBITDA margins are expected todecline to 30% from 42% due to base effect. Net profit is expected to decline ~43%in line with operational performance

Unichem Labs We expect ~20% YoY revenue growth on the back of 23% growth in developedmarket formulation sales owing to strong US sales and 21% growth in domesticformulations. We expect EBITDA margins to improve ~273 bps to ~14% due to abetter product mix. Net profit is expected to increase 64% due to strong operationalperformance and lower taxation


Expected growth (%) in API

e

(| crore) Q2FY17E Q2FY16 Var. (%) Q1FY17 Var. (%)Aurobindo 725.7 691.1 5.0 734.5 -1.2Alembic 144.0 137.2 5.0 128.2 12.3Cadila 95.2 90.7 5.0 97.6 -2.4Glenmark 182.1 165.5 10.0 191.2 -4.8Divi's Lab 541.0 483.0 12.0 501.3 7.9Indoco 17.1 14.6 17.5 17.6 -2.8Ipca Labs 189.4 180.4 5.0 201.5 -6.0Lupin 289.7 321.9 -10.0 286.9 1.0Cipla 172.3 226.0 -23.8 131.0 31.5Dr Reddy's 473.4 591.8 -20.0 469.2 0.9API 41.0 39.0 5.0 40.0 2.4Sun Pharma 345.2 328.7 5.0 488.2 -29.3Unichem 21.7 24.8 -12.6 20.8 4.3


Hotels

FTA shows healthy traction, expected to grow in double digits

Foreign tourist arrivals (FTAs) are expected to grow at healthy rate of 13.2% YoY to 19.8 lakh during the quarter after five quarters of single digit growth. However, the impact of the same will not get reflected in the company’s current quarter performance due to company specific reasons. Although we expect occupancy levels to improve during the quarter on a YoY basis, competitive room rates are likely to keep revenue growth under check. Average occupancy levels at business destinations are expected to remain higher compared to last year with an improvement of 250-350 bps across destinations. While EIH is likely report de-growth in its revenues due to closure of property in Delhi, Indian Hotel’s revenue growth may moderate on account of subdued performance of international subsidiaries. Overall, we expect our I-direct hotel coverage universe growth of 1.9% YoY to | 1,409 crore in Q2FY17 vs. 7.6% YoY growth last year, 1.7% YoY growth last quarter).

Operating margins to improve marginally led by cost control measures, losses to narrow down

Margins of the I-direct hotel universe are expected to improve marginally due to an impact of cost control measures. We expect TajGVK (pick-up from Hyderabad) and Indian Hotels (cost control measures) to report margin expansion of 90 bps and 260 bps, respectively, while EIH is expected to report a 70 bps dip in EBITDA margins YoY (closure of property in Delhi for renovation). On the profitability front, net margin of I-direct universe is expected to remain under pressure mainly due to higher interest cost and depreciation.

Select business destinations to drive growth during quarter

Average occupancy levels continue to remain higher at business destinations compared to leisure destinations during the quarter due to lean season impact. However, select leisure destinations may report marginally better occupancy levels during the quarter. In business destinations, Mumbai and Bengaluru registered higher occupancy compared to the previous year. Among leisure destinations, Kochi and Goa reported marginal improvement in occupancy during the quarter.

Exhibit 45: Estimates for Q2FY17E: (Hotels) (| Crore) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

EIH 283.4 -6.3 2.6 33.8 -11.3 10.2 1.3 -87.9 LPIndian Hotel 1,063.4 4.2 12.3 91.4 48.2 -3.0 -13.4 NA NATaj GVK Hotels 62.1 3.2 6.5 12.2 8.3 -3.9 0.8 LP 44.4Total 1,409.0 1.9 10.0 137.4 23.8 -0.1 -11.3 NA NA

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

Source: ICICIdirect.com Research


1383 17

84

1872

1281 1409

0200400600800

100012001400160018002000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

-20.0-15.0-10.0-5.00.05.010.015.020.025.0

(%)


FTAs to grow at 13.2% during Q2FY17E

200

400

600

800

1000

Apr

May Jun

Jul

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar

(in '0

00)

FY14 FY15 FY16 FY17E

Trends in average occupancy levels

70 7365 63

77

67

71

58

70

60

61

7368

54

74

55

76

61

40

50

60

70

80

90

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

(%)

Business Destinations Leisure Destinations

Top pick of sector

Taj GVK Hotels

Research Analyst

Rashesh Shah [email protected] Devang Bhatt [email protected]


Exhibit 46: Company specific view Company RemarksIndian Hotels Consolidated revenue growth is expected to moderate further on the back of a

slowdown in the international segment while domestic segment growth isexpected to be better. We expect domestic net revenues to grow 7% YoY to |510.3 crore with international segment reporting revenue growth of 3%. OPMmay broadly remain stable while higher interest cost (on account of | 1,262crore increase in debt due to acquisition of Lands End Properties Pvt Ltd) maypressurise net margins

EIH The closure of The Oberoi, New Delhi for renovation will the impact revenuegrowth during the quarter. We expect operating margins to remain stable vs.last year. However, in absolute terms, net profit for the quarter is likely to fall54% YoY

Taj GVK Hotel Although the new property addition of Taj Santacruz, Mumbai performancecontinues to remain healthy, the same will not be reflected on revenues due toadoption of IND-AS. On the standalone front, we expect moderate revenuegrowth while EBITDA margins may improve 200 bps YoY due to the impact ofcost control measures



Information Technology Low expectation in seasonally strong Q2; FY17E outlook mystifying…

We expect tepid dollar revenue growth due to slow decision making among clients post the Brexit event in a seasonally strong Q2 for tier-1 IT companies. We expect frontline IT companies’ constant currency (CC) revenues to grow 0.2-3% in Q2FY17E. However, there would be cross currency headwind impacting dollar revenues by 40-100 bps. Inter-quarter, the average US$ has appreciated ~1.2% vs. the euro, ~8.4% vs. GBP and depreciated 1.6% vs. AU$. Consequently, we expect tier-I IT companies to report average 1.2% growth in dollar terms. Within tier-I, Infosys (2.4%) could lead owing to better management commentary followed by HCLT (2%), TCS (0.9%) and Wipro (-0.5%). In terms of guidance, we expect Infosys to revise downward its annual revenue guidance (10.5-12% in cc) to factor in currency volatility and RBS deal cancellation.

Q2FY17E margins to be impacted by slower revenue growth… Absence of wage hike and higher visa costs for few companies would positively impact margins. We expect EBIT margins to increase ~60 bps for both TCS and Infosys (primarily led by absence of wage hikes and higher visa fees), decline 80 bps for Wipro (impact of two month wage hike) & 100 bps decline in HCLT( partial wage hike).

Midcap IT universe may also struggle… Our midcap IT coverage universe could report a mixed set of results. While Persistent and Cyient could surprise positively, MindTree is expected to report weak results after issuing profit warning. Within midcaps, we expect Persistent (3.6% QoQ growth), NIIT Technologies (3%), Cyient (2.6%), and Firstsource (2.4%) to lead. TechM (1.5%), KPIT (0.2%) could be soft while MindTree (-1.5%) could be weak (in line with mid-quarter guidance). EBITDA margin movement could range from -190 to 120 bps (MindTree, Persistent at bottom and NIIT Technologies, KPIT at the top) as a partial wage hike could partially be offset by the absence of higher visa fees and operational efficiency.

Uncertain business environment continues to hinge on IT spend… Post Brexit, slow decision making process among clients led to lower growth expectation for Indian IT companies in H2FY17E. Investor interest would now be more focussed on US presidential elections, Brexit impacting temporary IT spending, European banking sector clients outlook and US discretionary spending especially in BFSI sector.

Exhibit 47: Estimates for Q2FY17E (| Crore)


Cyient 852.3 10.4 2.6 109.1 -6.2 0.1 72.3 -26.6 -2.2Eclerx 335.5 2.1 -1.4 124.1 1.7 -1.5 88.1 -5.2 -8.3Firstsource Sol 896.3 13.1 2.4 119.9 21.8 0.6 76.2 23.3 3.9HCL Tech 11,550.9 14.4 1.9 2,448.4 10.7 0.0 1,976.7 14.5 0.0Infosys 17,150.9 9.7 2.2 4,645.1 6.8 4.5 3,532.7 4.0 2.8InfoEdge 202.9 16.6 0.7 55.4 66.2 -1.5 45.1 32.8 -5.1KPIT Tech 802.9 -1.1 0.0 93.1 -18.2 -14.2 62.9 -16.2 14.2Mindtree 1,312.7 12.3 -1.1 168.0 -22.4 -13.9 109.0 -31.1 -12.0NIIT Technologies 690.3 1.8 3.2 113.9 -4.6 11.3 65.4 -4.1 82.1Persistent Systems 727.0 34.0 3.6 102.5 0.7 -3.1 66.1 -8.0 -9.8TCS 29,474.8 8.5 0.6 8,073.2 3.2 3.0 6,380.0 5.4 1.0Tech Mahindra 7,010.5 6.0 1.3 1,072.6 -2.6 4.2 692.3 -11.9 -7.7Wipro 13,266.3 5.6 -3.1 2,614.2 -6.0 -5.0 1,967.5 -12.0 -4.4Total 84,273.4 9.0 0.6 19,739.5 2.8 1.6 15,134.4 1.8 0.1

Change (%)Change (%)Company

Change (%)

Topline & profitability (Coverage universe)

7734

9

7865

8

8206

8

8379

1

8427

3

15000

25000

35000

45000

55000

65000

75000

85000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

10.0

15.0

20.0

25.0

30.0

(%)


Dollar growth, QoQ

IT Services Q2FY17E Q1FY17 Growth (%)

TCS 4,401.3 4,362.0 0.9

Infosys 2,561.0 2,501.0 2.4

Wipro ^ 1,906.3 1,915.9 (0.5)

HCL Tech 1,724.8 1,691.0 2.0

Tech Mahindra 1,047.0 1,031.5 1.5

Mindtree 196.0 199.0 (1.5)

KPIT Technologies 120.0 119.8 0.2

Cyient 127.3 124.0 2.6

NIIT Technologies 103.1 100.1 3.0

Persistent Systems 108.6 104.8 3.6

eClerx 50.1 50.2 (0.1)

BPO (in |)

Firstsource 896.3 875.3 2.4

Internet (in |)

Info Edge 202.9 201.5 0.7 ^ IT services

Top picks of the sector

Infosys HCL Tech

Research Analysts

Deepak Purswani, CFA [email protected] Tushar Wavhal [email protected] Deepti Tayal [email protected]


Exhibit 48: Company specific view Cyient We expect dollar revenues to grow 2.6% QoQ to $127.3 million while those in rupee

could increase 2.6% QoQ to | 852.2 crore primarily led by upsurge in revenue fromRangsons and improvement in services business. EBITDA margins may decline 30bps QoQ to 12.8% led by impact of partial wage hike offset by improvement inRangsons performance and operational efficiency. Demand outlook across services & DLM business unit, margin trajectory & levers for the same could be of investorinterest

eClerx We expect $, revenues to decline 0.1% to $ 50.1 million while rupee revenues coulddecline 1.4% to | 335 crore, respectively led by roll-off of legacy projects due toautomation. EBITDA margins may remain flat QoQ to 37% led by absence of wagehike offset by muted revenue growth. Investor interest: H2FY17E growth guidance,outlook on digital and cable business, outlook on automation impacting legacyprojects in BFSI, margin trajectory

Firstsource Solutions

We expect | revenues to grow 2.4% QoQ to | 896 crore led by ISGN and Sky deal.EBITDA margins may decline 20 bps QoQ to 13.1% mainly due to transition of 200employees from Sky Deal. FY17E growth/margin trajectory, outlook on Sky deal andISGN acquisition, Brexit impact on client spending, large client growth could be ofinvestor interest

HCL Tech We expect $ revenues to grow 2% QoQ to $ 1,725 million and 1.9% in rupee terms to| 11,551 crore led by IMS, ER&D and strong order book conversion. EBIT marginsmay decline 100 bps QoQ to 19.6% due to partial wage hike. Investor interest:Impact of Brexit on business, update on IP-led partnership with IBM, growth/marginoutlook, TCV deal signings, outlook on IMS and ER&D services

Infosys US$ revenues could grow 2.4% QoQ to $2,560 million led by deal ramp-ups. Constantcurrency revenues could grow ~3% QoQ while those in rupees may grow 2.2% to |17,150 crore. EBIT margins may increase ~60 bps QoQ to 24.7% led by operationalefficiency and absence of visa cost & wage hike. Investor interest: update to FY17Egrowth guidance post RBS deal cancellation and currency volatility, pricing trends,large deal TCV, outlook across verticals and geographies

Info Edge We expect revenues to grow 16.5% YoY to | 203 crore led by continued growth inNaukri business and recovery in 99 acres, Jeevansathi.com business. EBITDAmargins could decline 60 bps QoQ to 27.3% led by higher marketing costs especiallyin real estate business and investments into Naukri and other businesses. Investorinterest: Competitive intensity in real estate and matrimony business, new productinitiative, online consumer trend, marketing and other investment outlook, outlook oninvestee companies

KPIT Tech Dollar revenues could increase marginally 0.2% QoQ to $120 million while those inrupees could be flat QoQ to | 803 crore led by top 2-10 accounts partially offset byon-premise implementation challenges and softness from top account (Cummins).EBITDA margins could increase 90 bps QoQ to 11.6% led by absence of wage hikeand improvement in operational efficiency. SAP and IES business unit outlook, topaccount (Cummins) outlook, margin levers, H2FY17E growth guidance could be ofinvestor interest

MindTree Dollar revenues may decline 1.5% QoQ to $196 million while those in rupees maydecline 1.1% QoQ to | 1,313 crore led by cross currency movement, projectcancellation, slower revenue growth in Bluefin and slower ramp-ups in large deals.At 12.8%, EBITDA margins could decline ~190 bps QoQ led by partial wage hike,addition of freshers, operational loss for Bluefin acquisition partially offset byabsence of visa cost & operational efficiency. Investor interest: FY17E revenuegrowth guidance, margin and attrition trajectory, outlook on Bluefin acquisition,client mining, TCV deal signings and update on digital business


EBIT margin impact

EBIT margins Q2FY17E Q1FY17 Change (bps)

TCS 25.7 25.1 60

Infosys 24.7 24.1 60

Wipro ^ 17.0 17.8 (80)

HCL Tech 19.6 20.6 (100)

EBITDA margins

Tech Mahindra 15.3 14.9 40

Mindtree 12.8 14.7 (190)

KPIT Technologies 11.6 10.7 90

Cyient 12.8 13.1 (30)

NIIT Technologies 16.5 15.3 120

Persistent Systems 14.1 15.1 (100)

eClerx 37.0 37.0 (10)

BPO

Firstsource 13.1 13.3 (20)

Internet (in |)

Info Edge 27.3 27.9 (60) ^ IT Services $/|

40

50

60

70

Jul-1

2Oc

t-12

Jan-

13Ap

r-13

Jul-1

3Oc

t-13

Jan-

14Ap

r-14

Jul-1

4Oc

t-14

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15Ap

r-15

Jul-1

5Oc

t-15

Jan-

16Ap

r-16

Jul-1

6Oc

t-16

|

|/$

$ vs. global currencies

0.60.70.80.91.01.1

Dec-

12M

ar-1

3Ju

n-13

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

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-16

Jun-

16Se

p-16

$/Euro $/GBP AUD/$


Company specific view NIIT Tech At $103.1 million, reported $ revenues could increase 3% QoQ led by revenue growth

from US and strong order book conversion. Rupee revenues could increase 3.2% QoQto | 690 crore. EBITDA margins may increase 120 bps QoQ to 16.5% primarily led byabsence of visa cost & wage hike and better revenue growth QoQ. Large deal wins,update on UK Insurance business, margin trajectory could be monitorables for FY17E

Persistent Systems

We expect $ revenues to grow 3.6% QoQ to $108.6 million while | revenues couldgrow 3.6% QoQ to | 727 crore led by IBM-Watson deal & traction in servicesrevenue. EBITDA margins may decline ~100 bps QoQ to 14.1% as wage hikepartially offset by revenue growth. Investor interest: FY17E growth commentary,enterprise account mining, traction in IP business, margin outlook, and updates,outlook on IBM alliance

TCS US$ revenues could grow 0.9% QoQ to $4,401 million while those in constantcurrency could grow ~1.8% QoQ. Rupee revenues could grow 0.5% to | 29,475crore. EBIT margins could increase ~60 bps QoQ to 25.7% led by absence of visacost and wage hike but offset by weaker revenue growth QoQ. Investor interest:FY17E outlook post mid-quarter warning on discretionary spend particularly in BFSIsector, trajectory of Diligenta, Japan, LatAm, traction in digital business, attrition andmargin levers

Tech Mahindra We expect US$ revenues to grow 1.5% QoQ to $1,047 million led by enterprisebusiness and expected recovery in Comviva business. Constant currency revenuescould grow ~2.3% while rupee revenues could increase 1.3% QoQ to | 7010 crore.EBITDA margins could increase ~40 bps QoQ to 15.3% led by absence of visa cost &operational efficiency Margin trajectory, enterprise and telecom business outlook,deal pipeline and top customer growth could be of investor interest

Wipro Global IT services $ revenues could decline 0.5% QoQ to $1,906 million, in line withits guided range of $1901-1939 million. Global IT services rupee revenue coulddecline 2.6% while consolidated revenues could also decline 3.1% to | 13,266 crore.Global IT services EBIT margins could decline ~80 bps QoQ to 17.0% led by unevenmargin profile of acquired companies, two-month wage hike partially offset by betteroperational efficiency. Investor interest: Q3FY17E guidance, update on spendingpatterns in energy & BFSI vertical, margin trajectory, digital contribution to revenue,attrition



Logistics Container train operators (CTO) recover; sustainability key…

Indian Railways is implementing its strategy to claw back its lost market share to road transport. To promote movement of cargo evacuated from major ports via rail, Indian Railways (IR) has withdrawn port congestion charge of 10% and busy season charge (BSC) of 15%. Furthermore, IR has started running time table freight trains on a pilot basis across three routes and has also expanded the commodity basket for containerisation. In IR’s pursuit of increasing freight revenues, container train operators like Concor and Gateway Distriparks (GDL) experienced a revival in Q1FY17 volumes. We expect the revival in volumes to continue in Q2FY17 with YoY growth of 3% and 10% each for Concor and GDL, respectively. However, due to fierce competition from road, realisation rates are expected to remain subdued. Following this, Concor’s revenues are expected to de-grow 5% YoY. However, an improvement in volumes is expected to result in higher utilisation levels that would result in lower empties and benefit operating margins to the extent of 150-200 bps

Buoyant container volumes at major ports; green shoots visible… Container volumes at major ports continued to remain above 700000 TEUs. Volumes for the current quarter (July-August) grew 2% YoY to 1.43 million TEUs vs. 1.4 million TEUs in the same period (July-August) of the previous year. Though moderate, the seventh consecutive monthly growth in port volumes indicates a revival in trade activity and also affirms our view of green shoots being visible in the economy. The YTD volume (April-August) growth remains robust at 4.4% YoY to 3.55 million TEUs compared to 3.40 million TEUs. Majority of the volume growth was contributed by smaller ports, which remained robust for a second consecutive quarter with YTD growth of 42% and 22% for Vizag and Kochi, respectively. Given the capacity constraints, volumes at JNPT (largest port) grew a modest 2% on a YTD basis. A revamp in trade activities coupled with incentives towards coastal shipping would facilitate higher traffic at some major ports. Volumes at private port GPPL are expected to grow 17% YoY and maintain a quarterly run-rate 171000 TEUs. The robust growth is due to lower base in Q2FY16 because of loss of shipping clients and bad weather conditions.

E-com euphoria returns; festive sale to keep express players busy… The spurt in sales volumes during the Independence Day weekend and Onam is expected to result in increased e-commerce volumes for the company. However, as the larger base catches up, the incremental growth is expected to decelerate. Also, recent guidelines by Department of Policy and Promotion (DIPP) aimed towards creating a level playing field with brick & mortar players are expected to moderate a competitive edge in e-tailing.

Exhibit 49: Estimates for Q2FY17E- Logistics Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Blue Dart 664.5 2.0 6.9 83.1 -10.4 7.8 47.5 -11.7 7.7Container Corporation 1,425.8 -5.1 6.5 285.2 -9.8 8.9 200.1 -14.3 12.1Gateway Distriparks 284.1 8.9 2.3 62.5 -4.5 1.5 27.6 -10.0 22.5GATI Ltd 425.1 5.0 -0.1 31.9 9.0 -4.6 8.1 40.4 -13.9Gujarat Pipavav 173.2 16.1 3.6 102.2 33.7 1.9 60.8 14.6 1.8Transport Corp 423.8 7.1 -0.8 36.7 9.1 -3.6 13.5 5.9 -10.5Total 3,396.4 1.0 4.2 601.5 -2.0 5.1 357.6 -8.2 8.6

Change (%)Company




3364

3304

3325

3258 33

96

3000

3300

3600

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.020.0

(%)


Container Volumes

678693

666

643

683694

673

744

686706

726 718 715

500

550

600

650

700

750

Aug

'15

Sep'

15

Oct'1

5

Nov

'15

Dec'1

5

Jan'

16

Feb'

16

Mar

'16

Apr

'16

May

'16

June

'16

July

'16

Aug

'16

('000

TEU

s)

Change in truck rentals

7

0.5

2

-6

54

1.5

3.5

-1.5 -1.5 -3

-8

-6

-4

-2

0

2

4

6

8

Oct'1

5

Nov

'15

Dec'

15

Jan'

16

Feb'

16

Mar

'16

Apr'1

6

May

'16

June

'16

July

'16

Aug'

16

(% c

hang

e M

oM)

Consecutive decline in road freight rates

Research Analyst

Bharat Chhoda [email protected] Ankit Panchmatia [email protected]


Value added services like e-fulfilment centres, pick-up and packing would remain key for the logistics players. Furthermore, with GST implementation, logistics player would re-align their pan-India presence to provide competitive solutions. Subsequently, we expect revenues for Gati and BlueDart to grow 2% and 5%, respectively. However, as they build in higher capacities for the next festive quarter, margins are expected to remain subdued.

Sector view: - Surface players upbeat; revival lingers for rail operators Total revenues of the I-direct logistics universe are expected to grow 1% YoY to | 3396.4 crore. However, profitability is expected to remain impacted by higher fuel costs and lower realisation rates. Post a subdued year, revival of volumes for container train operators (CTOs) remains key. The activity across major ports is expected to lead volumes for Concor, GDL to grow 3%, 10%, respectively. Volume growth for GDL may be higher due to lower base impact of Q2FY16, which was impacted by closure of Chandra CFS and harsh weather issues around Mundra and Pipavav. Higher competition from road may keep realisation rates pressurised. We expect revenues for CTOs to de-grow 3% YoY. However, GPPL is expected to report a marked revival, as Q2FY16 witnessed pressure due to weather disruptions. Discount deals provided by e-tailing companies in Q2FY17 and uptick in domestic trade activities are expected to provide parcel/surface operators growth of 4% YoY to | 1513 crore. Overcapacity of small fleet operators has impacted realisation levels. Ramp up in capacity for the upcoming festive quarter would keep operating profits subdued, which is expected to de-grow 3% YoY to | 152 crore.

Exhibit 50: Company specific view

Container Corporation

Overall rail tonnage of containers (domestic + Exim) for the August-September periodgrew 3% YoY to 7.91 million tonnes (MT). Also, port volumes for the same periodgrew a modest 2% YoY to 1.4 mn TEUs. Time tabled freight trains on a pilot basiscoupled with ramp up in recently opened PFT's at Kathuwas and Nagulpally wouldcontribute to Q2FY17 earnings. We expect Concor volumes to grow 3% YoY to775000 TEUs. However, realisation is expected to remain under pressure due tocontinued higher competition from road operators. Revenues are expected at | 1425crore. Higher volumes would result in lower empties, which would result in asequential improvement in operating margins, which are expected at 20% with anabsolute EBITDA of | 285 crore. Lower other income due to higher capex may resultin PAT of | 200 crore

Gateway Distriparks

Higher double stacking due to commencement of Viramgam (Ahmedabad) terminalwould accelerate rail volumes, which are expected to grow 10% YoY. However,subdued volumes at Chennai port are expected to dent the ICD business performance,which would be partly mitigated by commencement of Chandra CFS. Given a subduedQ2FY16, consolidated revenues are expected to grow 9% YoY to | 284 crore.However, competition from Concor and road fleet operators is expected to keepoperating margins sticky at 22% with an EBITDA of | 62.5 crore. Subsequently, PAT is expected at | 27.5 crore




Transport Corporation of India

The demerger of XPS division would result in uncomparable sequential numbers.However, we expect TCI’s standalone revenue to grow 7% YoY to | 424 crore.Outperformance in the auto sector would provide positive momentum to the revenuesof freight business that are expected to grow 7% YoY to | 222 crore. Addition of newclients in its value added segments like warehousing and 3PL services enhancesupply chain while seaways are expected to grow 5% and 8%, respectively. Operatingmargins are expected to improve 50 bps YoY to 8.7% with an estimated growth of 9%YoY in EBITDA to | 37 crore. Subsequently, PAT is expected to grow 6% YoY at |13.5 crore

BlueDart The B2C business in Q1FY17 was impacted by DIPP policy. However, a number ofsales by e-commerce companies between August and September would enableimproved growth. However, the B2B business would continue to lag behind.Following the phenomenal performance in Q2FY16, revenues for Q2FY17 are expected to grow modestly by 2% YoY to | 665 crore. EBITDA margins in Q2FY16 were high(14.2%) due to non-recurring exceptional cost efficiencies derived. Subsequently,EBITDA for the current quarter is expected at 12.5% with absolute EBITDA of | 83crore. Resultant PAT is expected at | 47.5 crore

Gujarat Pipavav Port

Q2FY16 was marked by a loss of shipping clients, which dented the quarterlyperformance. GPPL’s current quarter record of handling 17 container trains per dayvs. 15 trains earlier indicates higher volumes handled. However, the achievementwould be partly offset by adversities from bankruptcy of Hanjin shipping liner, whichresulted in stalled berthing of ~5000 Indian containers. We expect container volumesto grow 17% YoY to 171000 TEUs with revenues of | 173 crore. Operating marginsare expected to remain at ~60% with EBITDA of | 102 crore. PAT is expected at | 61crore

Gati Trucking rentals for July and August de-grew 1.5% and 3%, respectively. However,subsequently, Gati KWE’s revenues are expected to remain flattish at | 283 crore.Higher discounting by e-tail players would provide momentum to e-com revenues andits standalone revenues, which are expected to grow 6% YoY to | 128.5 crore.Following the good monsoon, increased demand for cold storage warehousing wouldsee Kausar’s revenues sequentially grow 6% YoY to | 12.5 crore. Subsequently,consolidated revenues are expected to grow 5% YoY to | 425 crore. Operatingmargins are expected at 7.5% with EBITDA of | 32 crore (up 9% YoY). Subsequently,reported PAT is expected at | 8 crore



Media Subdued print ad revenue growth across players…

Ad revenue growth for the quarter has been subdued across players with the impact of the Shraddh period in the quarter and an overall grim advertisement environment with no festivities. DB Corp and Jagran Prakashan are expected to post print ad revenue growth of 12.0% and 9.0% YoY, respectively. HT Media is expected to post a relatively weaker print ad revenue growth of 1.5% YoY impacted by a 1.2% YoY decline in the English print revenue and subdued growth of 6.0% in the Hindi print. The players were also impacted by floods in some of the operating circles and some benefits from Bihar elections in the base quarter. Circulation revenues are expected to remain stable at 8.1% YoY with DB Corp expected to lead the growth with 12.4% YoY growth. Radio and digital segments continue to be stellar across players except HT Media, which is expected to report single digit revenue growth of 9.5% YoY in the radio segment versus double digit growth for other players.

No major excitement in broadcaster universe, stable ad growth

Overall ad revenue for our broadcast coverage universe is expected to remain in single digits at ~8.7% YoY for the quarter. Overall ad growth is being weighed down by Sun TV, which is expected to post muted ad revenue growth of 3.0% YoY, as the company expects a major pick-up in ad revenues only in H2FY17. Zee TV is expected to post 13.5% YoY growth, slightly ahead of the industry but lower than the earlier quarter run rate owing to high base effect. Though Zee has been facing pressures in its flagship channel, traction in the regional portfolio and continued performance of new channel launches would aid overall growth. TV Today is expected to post 14.4% YoY ad growth as it continues to command premium owing to its consistent No. 1 ranking in the Hindi news genre. In addition, growth is expected to be aided by rate hikes it had taken in the past quarters.

Ticket price hikes to enable multiplex players maintain revenues!

The quarter was marked by movies such as Sultan, Pink, Rustom, etc which had a decent run up in the box office but remained weaker compared to the base quarter super hits such as Bajrangi Bhaijaan & Baahubali. Hence, both PVR and Inox are expected to witness footfall decline of 1.5% & 2.2% YoY to 18.5 & 14.2 million, respectively. However, their ability to take price hikes in the range of 5.0-7.0% will help them maintain their revenues.

Exhibit 52: Estimates for Q2FY17E- Media Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

DB Corp 549.9 15.0 3.2 150.0 34.3 2.0 84.6 43.1 1.0Dish TV 797.7 6.0 -3.5 279.8 9.7 0.5 59.4 -31.7 2.5ENIL 132.0 13.5 14.2 26.8 -25.0 -21.4 12.4 -54.2 -30.7Eros International 430.6 -14.7 18.4 75.5 -44.4 5.2 45.4 -49.8 14.4HT Media 617.6 2.7 -1.0 55.4 -11.6 -21.1 24.0 -34.0 -17.5Inox Leisure 320.2 4.0 0.5 53.0 -6.2 -12.4 19.7 -4.1 -20.2Jagran Prakashan 576.8 11.0 7.9 162.1 10.3 12.3 94.6 3.6 8.2PVR 519.1 9.4 -2.9 84.9 -6.3 -19.7 22.2 -46.0 -29.7Sun TV 623.3 9.7 -15.7 476.2 10.2 8.5 264.7 21.2 15.3TV Today 139.5 9.8 -4.0 38.0 6.3 3.0 23.2 -4.7 -4.4Zee Ent. 1,633.8 18.0 7.7 441.1 24.4 14.1 315.4 27.5 4.1Total 6,340.3 8.7 1.4 1,842.7 7.3 3.8 965.4 2.4 4.0

Change (%)Company




5835

6210

5800

6251 63

40

5500560057005800590060006100620063006400

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.0

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15.0

20.0

25.0

30.0

35.0

(%)


PVR & Inox – Footfalls

18.816.5

15.3

21.118.5

14.512.9

11.5

15.514.2

0.0

5.0

10.0

15.0

20.0

25.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17E

(milli

on)

PVR Inox

Top pick of sector Jagran Prakashan PVR Limited Research Analysts

Bhupendra.Tiwary [email protected]

Sneha Agarwal [email protected]


Exhibit 53: Company specific view Company RemarksDB Corp DB Corp is expected to post 12.0% YoY ad revenue growth to | 344.8 crore, higher

than peers on account of negative growth in the base quarter. Overall ad revenuesituation was weak due to the Shraddh period. The traction in radio & digital adrevenues would, however, continue at 18.0% & 20.0% YoY growth, respectively. DBCorp continues to increase its copies further in its legacy markets and is expected toclock circulation revenue growth of ~12.4% YoY growth to | 118.4 crore. Thoughnewsprint costs may be higher 7.0% YoY due to higher circulation and some impact of rupee depreciation, topline growth against ad revenue decline in the base quarter willbring in higher operating leverage. Margins are expected to grow 600 bps to 29.3% ona YoY basis

Dish TV Gross subscriber addition is expected at ~0.69 million, with net adds of 0.38 millionand churn of 0.31 million (0.7% monthly of net base), with the industry targetingphase III digitisation. ARPU is expected to remain flattish YoY at | 165 (incorporatingthe change in accounting). Content costs are expected to stay under control, leadingto ~50 bps YoY margin improvement to 34.4%

ENIL ENIL is expected to report ad revenue growth of 11.7% YoY to | 129.0 crore withrevenues from new stations yet to take off. EBITDA margins are expected to beimpacted by new station launches and large scale marketing campaigns undertakenacross different platforms. Hence, we expect margins at 20.3% in Q2FY17E against30.7% in the Q2FY16. PAT is expected at | 12.4 crore, further impacted by the higherdepreciation and interest expense in the quarter

Eros International

Eros released movies such as Dishoom, Banjo, Baar Baar Dekho, etc, along with fewother regional movies. The box office was a mixed bag with decent performance byDishoom & Happy Bhaag Jaayegi with Banjo & Baar Baar Dekho flopping. Q2FY17will remain soft compared to Q2FY16, which was marked by Bajrangi Bhaijaan, ablockbuster. Consequently, revenues are seen at | 430.6 crore (down ~14.7% YoY).We expect margins of 17.5%, down ~940 bps YoY.

HT Media Overall print ad revenue growth for the quarter is expected to be subdued at 1.5% YoYto | 451.7 crore. The growth would be lower owing to the decline of 1.2% YoY to |273.5 crore expected in English print ad revenues. The Hindi segment would also beslower at 6.0% YoY growth to | 178.2 crore, some of which can be partly attributedto the base effect of Bihar elections, Shraddh period and partly to flood in someregions of Bihar. The overall weakness and lack of any festivities would keep radiorevenues also subdued at 9.5% YoY to | 32.1 crore against the high double digitgrowth posted in previous quarters. Subdued revenues would lead to lower operatingleverage and, thus, an EBITDA margin contraction of 140 bps YoY to 9.0%

Inox Leisure Sultan , Pink , Rustom , etc had a decent run in the box office but remained weaker ascompared to the base quarter super hits such as Bajrangi Bhaijaan & Baahubali . Weexpect Inox to post total footfalls of 14.2 million, down 2.0% YoY owing to relativelysubdued content. Hence, net ticketing revenues are expected to grow 2.1% YoY to |200.4 crore aided by 4.5% YoY increase in ATPs to | 176.6. F&B revenues may grow9.7% YoY to | 75.9 crore boosted by 12.4% YoY increase in spends per head to |63.0. Advertising revenues are seen at | 23.8 crore (up 11.0% YoY). There could berisk to advertisement revenue estimates if volumes are better/lower than ourestimates. EBITDA margins are expected at 16.9%, down 140 bps YoY, owing to asubdued box office performance

Jagran Prakashan

Jagran Prakashan is expected to post print ad revenue growth of ~9.0% YoY to |363.4 crore. Ad growth would have been better but for low spends by the educationsector, Shraddh period and some loss due to floods in its operating circles. Radio Cityis, however, expected to continue its strong ad revenue growth of 18.0% YoY to |65.5 crore, higher than its peers. Circulation revenues are expected to remain steadywith 7.2% growth YoY to | 107.1crore. Newsprint costs are expected to post 6.0%YoY increase owing to rupee depreciation and increase in the number of copies.Hence, margins are expected to contract ~20 bps YoY to 28.1%



Exhibit 54: Company specific view Company RemarksPVR The quarter was marked by movies such as Sultan, Pink, Rustom, etc, which had a

decent run in the box office but remained weaker compared to the base quarter,which had superhits like Bajrangi Bhaijaan & Baahubali. Though Average TicketPrices would continue to increase 6.5% YoY to | 200.9, the company is expected topost 1.7% YoY de-growth in net ticketing revenues to | 273.3 crore. Total footfalls areexpected to decline 1.5% YoY to 18.5 million, impacted by relatively subdued content.The company has been able to constantly take price hikes in its food offerings. Hence,it is expected to post 15.0% YoY growth in Food & Beverage revenues to | 137.1crore owing to a 24% hike in SPH to | 82.8. The growth in Spends Per Head alsolooks higher due to lower absolute SPH number in the base quarter. Advertisingrevenues are expected to grow at a stellar rate of 24.0% YoY to | 57.2 crore ascontracts are usually entered in advance with the sub-par performance of moviecasting a lower impact on advertisement revenues. Lower box office revenues,however, would lead to lower operating leverage and, hence, a consequent margindecline of ~280 bps to 16.3%

Sun TV Sun TV may continue to post subdued ad growth of 3.0% YoY to | 310.5 crore withthe major bump-up in ad revenues only expected in H2FY17. Subscription revenuesare, however, expected to grow 19.2% YoY to | 235.4 crore benefitting from tractionin the cable subscription revenues. Though there would be some escalations incontent costs due to launch of new shows, overall margins would post a slightimprovement of 40 bps YoY to 76.4% benefitting from higher subscription revenues

TV Today Network

TV Today is expected to post ~10.0% YoY growth in its broadcasting ad revenues to| 137.3 crore. The popularity of the TV channel (Aaj Tak) is evident from its No. 1ranking in most weeks in the viewership share among top five channels in the Hindinews genre. The company had taken several ad rate hikes in the recent past, whichwill also drive growth despite the overall grim ad environment. Aaj Tak has also comeon board Doordarshan's Freedish platform (outlay of | 6 crore as per media sources)to increase its presence in rural areas, which would impact its subscription revenuesbut would give it a premium with advertisers. The company ran certain marketingcampaigns for its new TV shows, which could lead to higher marketing expenses.Margins are expected to decline YoY by 120 bps to 26.9% owing to increased run rateof employee and marketing expenses

Zee Entertainment

Zee is expected to post advertisement revenue growth of ~13.5% YoY to | 957.4crore, slightly better than industry growth rate of 12-13% YoY. The growth could havebeen better but for the high base effect and some weakness in the flagship channel,Zee TV. Regional channels continue to do well for the company. Subscriptionrevenues are expected to grow ~14.0% YoY to | 546.4 crore. Other operatingrevenues are expected at | 130.0 crore aided by the strong box office collection ofmovie Rustom and stable sports syndication and other syndication revenues. Thesports losses would be lower in the quarter at ~| 15.0 crore, aided by healthy sportsrelated syndication revenues. The company has, however, incurred heavy marketingexpenses towards the re-launch of Ditto TV and for the movie Rustom, which will leadto an increase in overall costs. The margins would be dilutive on a QoQ basis, down180 bps to 27%. The margins are not comparable YoY as the base quarter wasmarked by expenses towards launch of new channels and, hence, recorded lowmargins of 25.6%



Metals & Mining Coking coal prices surge, adequate inventory to offset impact on cost

Iron ore and coking coal are two key components used in steel making process. During Q2FY17E, key raw materials such as spot coking prices witnessed a sharp increase, especially in September 2016. The steep increase in spot coking coal prices was primarily on account of China cutting its coal production days to 276 days from 330 days earlier. However as majority of steel producers had adequate coking coal inventory, they are likely to be insulated from the impact on cost in Q2FY17. During the quarter in the backdrop of the challenging scenario witnessed by the global steel sector, the domestic steel industry also benefited from measures adopted by the government. This resulted in import substitution and marginal consumption growth. Steel imports for the first five months of FY17 fell 35.3% YoY to 3.0 MT while exports increased 22.1% YoY to 2.3 MT. Finished steel consumption for the aforesaid period was at 33.3 MT, up 1.2% YoY.

Zinc shines among non-ferrous pack

Zinc prices witnessed a strong rally in Q2FY17 wherein the average price was at US$2252/tonne (up 22.0% YoY and 17.4% QoQ), highest in the last eight quarters. The rally can be attributed to depleting supply on account of mine closures. For the first seven months of CY16, global zinc output declined ~4% leading to deficit of 174 kilo tonne (KT). During the quarter, most non-ferrous metals showed signs of improvement YoY as well as sequentially, except for copper. Average lead prices during the quarter were at US$1873/tonne, up 9.0% YoY & QoQ. Average price of aluminium was US$1620/tonne, up 1.6% YoY and 3.0% QoQ while average copper prices stood at US$4778/tonne, down 9.4% YoY and up 0.9% QoQ.

Aggregate EBITDA margins to decline QoQ, increase YoY For the quarter, we expect aggregate EBITDA margins to decline QoQ at 16.0% (18.7% in Q1FY17 and 12.9% in Q2FY16). We expect the EBITDA/tonne of JSW Steel (standalone operations) to come in at | 7500/tonne and Tata Steel (Indian operations) at | 9500/tonne. Tata Steel Europe is expected to report EBITDA/tonne of US$40/tonne while SAIL is expected to report a negative EBITDA/tonne of | 300/tonne. We expect Novelis to clock an EBITDA/tonne of US$350/tonne while Coal India is expected to report EBITDA/tonne of | 228/tonne.

Exhibit 55: Estimates for Q2FY17E: (Metals & Mining) (| Crore)


Coal India 15,894.2 -9.1 -13.7 2,642.2 6.7 -37.9 2,116.1 -16.8 -31.0Graphite India 265.7 -16.5 -3.5 13.2 -71.5 25.8 10.4 -62.3 -5.1HEG 181.3 -24.5 11.1 5.3 -90.0 67.2 -27.2 PL NAHindalco 8,797.0 -1.4 15.8 988.0 63.9 -12.8 178.0 72.3 -39.5Hindustan Zinc 3,166.6 -21.5 25.1 1,736.1 -19.8 53.5 1,524.3 -33.3 47.0JSW Steel 11,877.6 8.9 1.4 2,689.3 55.5 -17.7 585.5 400.5 -47.2SAIL 11,080.9 19.7 19.9 -105.0 NA PL -776.1 NA NAVedanta Ltd 15,865.2 -4.2 9.9 3,987.7 -0.3 13.7 574.1 -41.1 -6.7Tata Steel 27,214.5 -7.1 7.9 3,216.6 75.7 -0.8 989.0 LP 172.0Total 94,342.8 -4.4 5.3 15,173.5 18.9 -9.6 5,174.2 1.4 -12.8


Change (%)

Source: Company, ICICIdirect.com Research,, Hindalco numbers are of Standalone entity.

Top line & Profitability (Coverage universe) 98

638

9378

6

1021

57

8960

1

9434

3

70000

75000

80000

85000

90000

95000

100000

105000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.020.0

(%)


Movement of Base metal prices on LME (US$ per tonne) Q2FY17 Q2FY16 YoY Q1FY17 QoQ

Zinc 2,252.6 1,846.4 22.0 1919.36 17.4

Lead 1,873.2 1,718.1 9.0 1717.69 9.1

Copper 4,778.3 5,274.3 -9.4 4735.58 0.9

Aluminium 1,620.1 1,594.5 1.6 1572.47 3.0 Source: ICICIdirect.com Research

Research Analyst Dewang Sanghavi [email protected] Akshay Kadam [email protected]



Company Remarks

Coal India

On account of muted demand from the power sector, Coal India registered adecline in offtake in quarterly volume after almost five years. The offtake volumecame in at 115.9 MT (down 13.0% QoQ and 4.9% YoY). E-auction volumes areexpected to come in at 21 MT (up 2.4% QoQ and 42.9% YoY), wherein e-auctionrealisations are likely to come in at | 1650/tonne. We expect Coal India's totaloperating income to decline 13.7% QoQ and 9.1% YoY while the EBITDA margin isexpected to decline 647 bps QoQ to 16.6%

Graphite India

For Q2FY17E, we expect Graphite India to clock a capacity utilisation rate of 65%for Q2FY17 (68% in Q1FY17 and 63% in Q1FY16). On account of decline in capacity utilisation sequentially, we expect the topline to decline 3.5% QoQ. However on theback of marginal increase in graphite electrodes realisation we expect EBITDAmargin to improve 116 bps QoQ to 5.0%. PAT is expected to remain flattish on aQoQ basis

HEG

We expect HEG to register a capacity utilisation rate of 55% for Q2FY17 (50% inQ1FY17 and 60% in Q2FY16). On the back of higher utilisations sequentiallycoupled with marginal increase in graphite electrodes prices, we expect the toplineto increase by 11.1% QoQ. The EBITDA margin is expected to improve 100 bps QoQ to 3.0%.

Hindalco Industries

For Q2FY17, Hindalco's domestic operations are expected to report aluminiumsales of ~300000 tonne (up 12.4% YoY and 4.3% QoQ) while copper sales arelikely to come in at ~98000 tonne (down 2.0% YoY, up 57.1% QoQ). We expecttopline to increase 15.8% QoQ on account of higher copper volumes with restartingof the copper smelter post a maintenance shutdown in Q1FY17. The EBITDA isexpected to fall 367 bps QoQ. We expect EBITDA margins of standalone operationsto decline QoQ on account of higher operating costs, especially coal. We expectNovelis to register a sales volume of ~775000 tonne and an EBITDA/tonne ofUS$350/tonne

HindustanZinc

On the back of sharp rally witnessed in zinc prices, for Q2FY17E we expect HZL toreport EBITDA margins of 55% , highest in last 9 quarters. During the quarter, zincprices witnessed a significant upside with average prices being US$2252/tonnehighest in the last eight quarters. We expect topline and EBITDA to reflect theincrease witnessed in zinc and lead prices. Subsequently for Q2FY17, on asequential basis we expect Revenues, EBITDA and PAT to increase by 25.1%,53.5% and 47% respectively.

JSW Steel

We expect lower realisation along with elevated raw material cost to impact theperformance of JSW Steel. For Q2FY17, JSW Steel is likely to clock anEBITDA/tonne of | 7500/tonne, down 19.1% QoQ. We expect domestic operationsto report a sales volume of 3.5 MT (3.3 MT in Q1FY17 and 3.2 MT in Q2FY16). Thetopline is expected to increase 1.4% QoQ with EBITDA margin decling 528 bps QoQto 22.6%.

SAIL

We expect SAIL to register sales volume of 3.5 million tonne (MT) for the quarterwherein the topline is expected to come in at | 11080.9 crore, up ~20% both YoYand QoQ. However after witnessing a turnaround at the EBITDA level in Q1FY17,we expect muted sales realisation to impact the performance of SAIL in Q2FY17.With realisations down ~| 1200 during the quarter, the company is expected topost a loss at the EBITDA level wherein the EBITDA/tonne is expected come in atnegative ~300/tonne.


Hindustan Zinc : Sales Volume Trend

Sales Units Q2 Q3 Q4 Q1 Q2EZinc Tonne 217000 204000 158000 120000 140000Lead Tonne 40000 35000 41000 23000 30063Silver Kg 112500 115000 122000 88000 100108

FY16 FY17


Tata Steel :: EBITDTA/tonne & Sales Tata SteelSales Q2 Q3 Q4 Q1 Q2ETata Steel India 2.3 2.4 2.7 2.1 2.4 Tata Steel Europe 3.3 3.4 3.6 2.5 2.5 Tata Steel Group 6.3 6.4 6.9 5.4 5.9 EBITDA/tonneTata Steel India 7,979 6,375 7,954 10,351 9,500 Tata Steel Europe (11) (31) (15) 51 40

FY16 FY17

Sales volume in Million tonnes , Indian EBITDA/tonne in |/tonne, whileEuropean operations EBITDA/tonne in US$/tonne. Source: ICICIdirect.com Research JSW Steel :: EBITDA/tonne & Sales

FY16Q2 Q3 Q4 Q1 Q2E

Sales Volume 3.2 2.6 3.3 3.3 3.5EBITDA/ tonne 4908 3443 5404 9276 7500

FY17

Sales volume in Million tonnes and EBITDA/tonne in |/tonne Source: ICICIdirect.com Research

SAIL:: EBITDA/tonne & Sales

SAILQ2 Q3 Q4 Q1 Q2E

Sales Volume 2.7 2.9 3.8 2.8 3.5 EBITDA/tonne (3,883) (4,764) (2,957) 835 (300)

FY16 FY17

Sales volume in Million tonnes and EBITDA/tonne in |/tonne Source: ICICIdirect.com Research



Vedanta

Vedanta's performance is expected to be largely driven by the performance ofHindustan Zinc. We expect Vedanta's topline to grow 9.9% QoQ and EBITDA by13.7% QoQ. EBITDA margin is likely to improve 81 bps QoQ and 100 bps YoY andcome in at 25.1% (24.3% in Q1FY17 and 24.1% in Q2FY16)

Tata Steel

We expect Tata Steel India to report steel sales of 2.4 MT (2.3 MT in Q2FY16 and2.1 MT in Q1FY17) while Tata Steel Europe is expected to report steel sales of 2.5MT (3.3 MT for Q2FY16 and 2.5 MT in Q1FY17). We expect Tata Steel Europeanoperations to report a positive EBITDA/tonne of US$40/tonne in Q2FY17 ascompared to negative EBITDA/tonne of US$11/tonne in Q2FY16. Sequentiallydomestic operations is expected to report subdued EBITDA/tonne on the back ofmuted realisations. The Indian operations' EBITDA/tonne is likely to come in at |9500/tonne compared to | 10351/tonne in Q1FY17. We expect the consolidatedtopline to increase 7.9% QoQ while the EBITDA is expected to decline 103 bps QoQto 11.8%



Oil and gas Average Brent crude prices remain flat QoQ

Opec countries, mainly Saudi Arabia, continued to produce a higher quantity of oil & gas from their fields to maintain market share. However, lower production from non-Opec countries, including the US led oil markets to remain flat QoQ. Average Brent crude oil was at $45.8/bbl in Q2FY17. This would keep realisations for upstream companies flat QoQ. The closing Brent crude oil prices declined marginally QoQ from $48.4/bbl in Q1FY17 to $47.4/bbl in Q2FY17.

Gross under-recoveries to increase marginally in Q2FY17E Gross crude oil under-recoveries are estimated to increase marginally by 2.3% QoQ from | 4095 crore in Q1FY17 (including | 2128 crore cash subsidy under DBTL) to | 4190 crore in Q2FY17E (including | 2285 crore cash subsidy under DBTL) on account of higher LPG subsidy (due to higher sales) during the quarter. We estimate that upstream companies will continue to bear nil subsidy QoQ as per the last subsidy sharing formula. Also, we have assumed that downstream companies will bear nil under-recovery in Q2FY17E. We estimate the government’s share of the subsidy burden at 100% in Q2FY17E.

Reported GRMs to decline due to absence of inventory gains In Q2FY17, operational Singapore gross refining margins (GRMs) stayed flat QoQ at $5.1/bbl. However, we expect reported GRMs of refineries to decline QoQ due to absence of inventory gains. On operational basis, we witnessed a decline in spreads of light distillates like gasoline, LPG, naphtha, etc while spread of lower distillates, mainly fuel oil, increased in Q2FY17E. The gas oil (diesel) spreads increased marginally QoQ.

Gas utility volumes to improve QoQ on increased volumes Gas production from the domestic fields is expected to improve QoQ in the backdrop of lower production from ONGC in the Q1FY17. However, it is expected to decline YoY. We expect higher dependence on LNG from global markets to continue, with incremental demand arising mainly from the power and fertiliser sector. Hence, gas transportation companies would report increased volumes YoY. Profitability of city gas distribution (CGD) companies is expected to remain strong YoY due to lower gas prices.

Exhibit 58: Estimates for Q2FY17E: (Oil and Gas) (| Crore)Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Bharat Petroleum 56,899.9 22.4 -0.2 2,460.7 84.7 -37.2 1,567.9 54.0 -40.2Cairn India Ltd 1,907.8 -14.9 1.2 647.2 -28.9 -18.5 316.8 -52.9 -11.9Castrol India Ltd 818.2 4.3 -15.7 234.8 8.8 -26.0 157.7 10.1 -23.8Gail India 10,883.5 -23.2 0.3 1,324.2 56.8 -16.9 736.2 67.1 -44.9Gujarat Gas 1,308.7 -16.8 6.9 248.6 69.5 13.6 105.3 362.5 38.8GSPL 268.5 6.2 4.0 230.6 2.9 -1.2 119.9 10.4 -1.2Gulf Oil 269.6 8.4 -4.9 43.5 12.8 -10.3 28.0 18.6 -10.1HPCL 52,148.2 23.9 0.9 1,850.0 LP -49.0 788.9 LP -62.4IOC 110,047.6 28.9 2.7 4,749.0 583.4 -65.3 2,172.6 LP -73.7Indraprastha Gas 950.2 -2.0 5.6 266.1 39.0 2.5 152.8 50.4 3.2MRPL 13,806.4 35.1 19.1 1,015.0 LP -16.9 707.9 LP -1.7Oil India Limited 2,293.6 -9.4 3.3 793.5 -12.2 -8.0 507.3 -24.8 2.6ONGC 17,981.0 -13.0 1.1 9,484.0 -9.7 1.0 4,342.7 -13.1 2.6Petronet LNG 5,457.6 -27.7 2.3 544.8 16.7 -15.2 309.3 24.3 -18.1Total 275,040.8 16.5 2.2 23,892.0 48.4 -35.1 12,013.3 71.3 -43.0


Change (%)



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Singapore gross refining margins (GRMs)

5.16.3

8.0 7.7

5.0

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4

6

8

10


Refin

ing

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Average Brent Crude Oil Prices

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bl

Top pick of sector

Indraprastha Gas MRPL GAIL

Research Analyst

Mayur Matani [email protected] Harshal Mehta [email protected]


Exhibit 59: Company specific view Company RemarksBPCL We expect revenues to decline marginally by 0.2% QoQ to | 56899.9 crore as oil prices

remained flat QoQ. Refining margins are expected to decline QoQ to $4.9/bbl vs.$6.1/bbl mainly due to absence of inventory gains and flat global GRMs. Subsequently,PAT is expected to decline 40.2% QoQ to | 1567.9 crore. We assume subsidy burdento remain nil, same as Q1FY17

Cairn India We expect revenues to increase marginally by 1.2% QoQ as crude oil prices remainedflat QoQ. Rajasthan crude oil realisation remained flat at $37.8/bbl in Q2FY17. On theoperational front, gross production from Rajasthan fields is expected to remain flat QoQat 167168 boepd while net oil & gas production is expected to marginally decline QoQto 125130 boepd

Castrol India Revenues are expected to increase 4.3% YoY on account of 5% YoY increase involumes, which will be slightly offset by lower net realisation (down 0.6% YoY). Grossmargins are expected to increase 3.7% YoY to | 92.1/litre on account of a stablecompetitive pricing scenario. Subsequently, EBITDA per litre is expected to increase3.6% YoY to | 49.3/litre

Gail We expect 67.1% YoY improvement on the profit front mainly on account of betterperformance in the gas trading, petrochemicals and LPG hydrocarbon business YoY.Gas transmission volumes are expected to increase 8.9% YoY to 98 mmscmd.However, its EBIT is expected to decline YoY on account of one time income last year.The petchem segment is expected report EBIT of ~| 200 crore vs. EBIT loss of | 236.9crore YoY. LPG liquid hydrocarbon EBIT is expected to increase 138% YoY to | 172crore on account of lower gas prices. We assume subsidy burden to remain nil, sameas Q1FY17

GSPL We expect revenues to increase 4% QoQ in Q2FY17 on account of increase in gastransmission volumes by 0.5 mmscmd QoQ to 25.6 mmscmd. Transmission tariffs areexpected to decline marginally by 2.1% QoQ to | 1.05/scm. PAT is expected to decline1.2% QoQ to | 119.9 crore as operating expenses are expected to be higher by | 7.7crore QoQ

Gujarat Gas We expect revenues to decline 16.8% YoY on account of 3.4% YoY decline in volumesto 5.4 mmscmd and 13.8% YoY decline in net realisation to | 26.3/scm. However, thegross spread is expected to improve by | 2.4/scm YoY to | 7.0/scm on account ofreduction in gas costs and better pricing power. Subsequently, EBITDA margin isexpected to improve 967 bps YoY to 19% in Q2FY17

Gulf Oil Lubricants

We expect revenues to increase 8.4% YoY on account of a 9% YoY increase in volumes,partly offset by 0.6% YoY decline in net realisation. The EBITDA per litre is expectedincrease by | 0.7/litre YoY to | 21.7/litre. Subsequently, PAT is expected to increase18.6% YoY to | 28 crore, due to lower interest cost and higher other income YoY

Hindustan Petroleum

We expect revenues to increase marginally by 0.9% QoQ to | 52148.2 crore as oilprices remained flat QoQ. Refining margins are expected to decline QoQ to $4.7/bbl vs.$6.8/bbl mainly due to absence of inventory gains (~$2/bbl in Q1FY17) and flat globalGRMs. Subsequently, PAT is expected to decline 62.4% QoQ to | 788.9 crore. Weassume subsidy burden will remain nil, same as Q1FY17

Indian Oil We expect revenues to increase marginally by 2.7% QoQ to | 110047.6 crore as oilprices remained flat QoQ. Refining margins are expected to decline QoQ to $3.7/bbl vs.$10/bbl mainly due to absence of inventory gains (~$6.4/bbl in Q1FY17) and flat globalGRMs. Subsequently, PAT is expected to decline 73.7% QoQ to | 2172.6 crore. Weassume nil subsidy burden will remain nil, same as Q1FY17

Indraprastha Gas

Strong volume growth of 8% YoY is estimated due to the implementation of odd evenrule for vehicles by the Delhi Government. This will result in volumes of ~4.4 mmscmd(CNG: 3.4 mmscmd, PNG: 1 mmscmd). We expect gross margins to increase to | 10.8per scm vs. | 9.2 per scm YoY due to a decline in domestic gas prices as well as LNGprices. Subsequently, PAT is expected to increase 50.4% YoY


Gross under-recoveries of petroleum products

71906151

54864095 4190

0

2000

4000

6000

8000

10000


| Cr

ore

* Under-recoveries includes Cash Subsidy under DBTL

Sharing of crude oil under-recoveries (| Crore) Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Upstream 680 0 -729 0 0Downstream 2 298 -285 0 0Government 6507 5854 6500 4095 4190Total 7190 6151 5486 4095 4190

Sharing of crude oil under-recoveries (%)

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17Upstream 9.5 0.0 -13.3 0.0 0.0Downstream 0.0 4.8 -5.2 0.0 0.0Government 90.5 95.2 118.5 100.0 100.0Total 100.0 100.0 100.0 100.0 100.0

Sharing of net crude oil under-recoveries (| Crore) Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

ONGC 596 0 -632 0 0GAIL 0 0 0 0 0IOC 2 206 -201 0 0BPCL 0 46 -46 0 0HPCL 0 45 -37 0 0Government 6507 5854 6500 4095 4190

Gross under-recoveries of petroleum products

16101399

763

276

1385

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400

800

1200

1600

2000

FY12

FY13

FY14

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FY16

| bn

Gross under-recoveries

Sharing of crude oil under-recoveries (%)

39.7 37.3 47.9 56.1

4.5

60.3 62.1 50.6 41.0

95.4

0.0 0.6 1.5 2.9 0.1

0

20

40

60

80

100

FY12

FY13

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%

Upstream companies Government OMC's



MRPL We expect reported GRMs to decline from $10/bbl in Q1FY17 to $5.2/bbl in Q2FY17mainly due to inventory loss of $0.3/bbl vs. inventory gain of $4.7/bbl in Q1FY17.Adjusting for inventory losses, we expect GRMs of $5.5/bbl vs. $5.3/bbl QoQ. Thethroughput is expected at 4 MMTPA. PAT is expected to decline 1.7% QoQ to | 707.9crore even after forex gains of ~| 340 crore

ONGC Oil production is expected to remain flat QoQ (decline 3.6% YoY) at 6.3 MMT with gasproduction increasing 3.7% QoQ (flat YoY) to 5.7 MMT in Q2FY17 mainly in thebackdrop of lower gas production in the previous quarter. We expect net realisation tobe flat QoQ at $45.9/bbl in Q2FY17. We assume subsidy burden will remain nil, sameas Q1FY17

Petronet LNG We expect Petronet's volumes and profitability to remain strong YoY on account ofhigher dependence on imported LNG. However, on a QoQ basis, we expect somedecline as Q1FY17 was an exceptionally good quarter. We expect volumes to decline4.8% QoQ to 160 trillion British thermal units (tbtu) (3.1 MMT) in Q2FY17. We expectblended margins to decline 7.3% QoQ from | 45.2/mmbtu to | 41.9/mmbtu due tolower short term/spot margins. Subsequently, PAT is expected to decline 18.1% QoQ to| 309.3 crore



Power Muted capacity addition in Q2FY17E

During July-August 2016, the Indian power sector added capacity to the tune of ~946 MW, which was below the target of 1530 MW as planned. However, till date in the Twelfth Five Year Plan, the sector added capacity to the tune of 87195 MW till August 2016. We reiterate our stance that 100% of the capacity planned in the Twelfth Plan will be achieved. In terms of segmental achievement, the thermal segment has already surpassed targets as it has already got installed capacity to the tune of 82264 MW vs. 72340 MW, implying ~137%.

Power generation muted across the board in Q1FY17 Overall, power generation in July-August 2016 was up marginally by 1.4% YoY while on a YTD basis power generation was up 5.7% YoY. On a segmental basis, thermal generation is up 8.2% YoY while hydro is down 5.9% YoY. Base deficit was at 0.5% in August 2016 vs. 2.3% in August 2015. In terms of fuel availability, none of the plants faced sub-critical levels of coal in August 2016 vs. three plants facing the same situation in August 2015. From a sectoral perspective, there was no major capacity addition in Q2FY17E. However, at the same time, Power Grid is expected to witness reasonable capitalisation of assets to the tune of | 7000-8000 crore.

Sober Q2FY17E compared to Q1FY17: Power Grid to outperform We expect Q2FY17E to be a relatively sober quarter given thermal generations gets impacted owing to monsoon season. On the whole, for Q2FY17E, the I-direct coverage universe is expected to deliver a stable performance as we expect companies under coverage to report 5.6% YoY and 5.3% YoY growth in revenues and PAT, respectively. NTPC with 0.7% growth in generation will be a relatively better performer in the overall thermal space as we expect revenues to decline 2.6% (4% YoY decline in realisations, better consumption of auxiliary power and minuscule import of coal) while PAT is expected to grow 2.6% YoY at | 2389.1 crore. Power Grid is expected to be a star performer as revenue, PAT are expected to deliver 25.2%, 20.3% YoY growth, respectively. CESC may put up a muted performance in the form of 1.3%, 2.6% YoY revenue, PAT growth, respectively, on the back of 10.3%YoY decline in volume growth. NHPC is expected to report 6.8% revenue growth on the back of increase in realisations albeit a modest 0.7% decline in generation in the monsoon season. PTC India is expected to report 14.1% YoY volume growth on the back of good demand in the short-term and long term segment.

Exhibit 61: Estimates for Q2FY17E: (Power) (| Crore)


CESC 1,780.0 1.3 -5.7 418.3 -1.1 8.1 200.1 2.6 15.0NHPC 2,504.9 6.8 14.0 1,654.9 3.7 22.0 1,094.7 -7.3 27.6NTPC 17,872.3 -2.6 -5.3 4,986.8 11.3 -4.9 2,389.4 2.6 -0.4Power Grid Corp 6,158.0 25.2 0.6 5,554.5 25.5 -0.1 1,741.6 20.3 -3.4PTC India Ltd 4,294.8 22.0 17.8 104.2 27.7 42.0 68.5 2.3 21.4Total 32,610.1 5.6 -0.4 12,718.8 15.5 0.8 5,494.3 5.3 3.9


Change (%)



892

2867

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9 3273

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260002700028000290003000031000320003300034000

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Trend in all India sectoral PLF

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Data as on August 2016 Segment wise break up of total installed capacity

RES14%

Hydro14%

Nuclear2%

Thermal70%

Data as on August 2016 Top pick of sector

NTPC Power Grid

Research Analyst

Chirag Shah [email protected]


Exhibit 62: Company specific view Company RemarksNTPC Post a strong Q1FY17 in terms of generation, Q2FY17 may see a muted 0.7% YoY

growth in generation to 6060 crore units. However, on a lower base, hydrogeneration may be 10% YoY. We expect blended realisation at | 3.15/unit, down 4%YoY. However, absolute EBITDA is expected to grow 11.3% YoY on the back of asteep decline in imported coal consumption. However, lower other income and highinterest costs may restrict PAT growth to 2.6% to | 2389 crore in Q2FY17E

NHPC We expect generation to decline 0.7% YoY to 859.1 crore units with sale of powerunits at 756 crore units. The company has not commissioned any capacity duringQ1FY17. Revenues are expected to be at | 2505 crore on account of higherrealisations and other operating income. However, higher interest costs will lead toPAT decline of 7.3% YoY to | 1094.7 crore

PTC India Entering the seasonally best quarter, we expect trading volumes to go up by 14.1%to 1431.6 crore units. We expect short and long term volumes at 687.3 crore unitsand 657.8 crore units, respectively. Trading margins are expected at 4 paisa/unit.Consequently, PAT is expected at | 68.5 crore in Q2FY17E. Key thing to watch outwould be the commissioning of the 1200 MW Teesta project, which wouldsubstantially add to long term volumes, going ahead

Power Grid Coupled with a spill over from Q1FY17, we expect the company's capitalisation to bein the range of | 7000-8000 crore in Q2FY17E. Given strong capitalisation over thepast few fiscals, we expect revenues to grow 25.2% YoY to | 6158 crore. In terms ofsegmental revenues, transmission revenues are expected to grow 25% YoY whereastelecom and consultancy segments are expected to grow 30% YoY each. Robustrevenues coupled with stable margins may drive PAT by 20.3% YoY | 1741.6 crore

CESC CESC is expected to post a 10.3% YoY decline in its standalone generation to 177.3crore units. The shotrfall in generation will be met from Haldia energy (subsidiary) forthe Kolkata license area. We expect the tariff to be flat QoQ at | 6.84/unit. Hence,revenues and PAT are expected to grow 1.3% and 2.6% YoY to | 1780 crore and |200 crore, respectively. Key things to watch would be the decline in losses for retailbusiness and signing of PPA for Chandrapur plant



Real Estate

Maharashtra government unveils much awaited new housing policy…

The Maharashtra government has unveiled the new housing policy, which entails a slew of incentives including higher floor space index (FSI). The new policy extends the redevelopment policy bonanza for old dilapidated buildings to Mumbai’s suburbs. For the re-development of plots up to 2,000 sq mt, an FSI of 3 would be allowed vs. 2 previously while plots beyond 2,000 sq mt would have an FSI of 4. This could pave the way for redevelopment of unsafe tenanted buildings, transit camps and dilapidated Mhada colonies. Furthermore, the policy mentions that every tenant will get at least 300 sq ft homes and a maximum of 753 sq ft homes post redevelopment.

Sebi relaxes REITS norms…

Sebi has relaxed certain REITS norms to make the product more attractive for investors. Sebi would allow up to 20% investment by such trusts in under construction projects, up from maximum 10% currently. It has also removed the limit on number of sponsors. We believe these moves should pave the way for REITS listing.

Sales volume to grow robustly by 14.8% YoY…

Despite the absence of any big launch, our universe sales volume is expected to grow strongly by 14.8% YoY at 4.5 lakh sq ft in Q2FY17 vs. 3.9 lakh sq ft in Q2FY16 on the back of strong volume growth of Oberoi Realty. We expect Oberoi’s sales volumes to expand 2.4x YoY (low base in absence of SkyCity project in Q2FY16) to 1.53 lakh sq ft as sales volume is boosted by ‘Oasis Residential’ and ‘SkyCity’ projects. However, MLDL’s sales volume is expected to de-grow 9.6% YoY to 3.0 lakh sq ft on account of a subdued environment and no major launches. MLDL had launched subsequent phases of ‘Happinest Boisar’ and ‘Antheia Pune’ projects with combined sales volume of 2.5 lakh sq ft in Q1FY17, which should drive the sales volume in the current quarter.

Topline of real estate coverage universe to grow robustly by 25.3%...

Real estate universe revenues are expected to grow strongly by 25.2% YoY to 389.9 crore mainly on account of 39.7% YoY (low base) growth in revenues of Oberoi Realty. The EBITDA margin for our real estate coverage is expected to decline 320 bps to 38.4% primarily on account of a change in project mix. Consequently, we expect our universe to report moderate bottomline growth of 5.0% YoY to | 111.2 crore.

Exhibit 63: Estimates for Q2FY17E (Real Estate) (| crore) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Oberoi Realty 264.4 39.7 -17.4 131.5 20.6 -20.5 85.8 18.4 -19.6Mahindra Lifespace 125.6 2.9 41.3 18.4 -10.2 47.9 25.4 -24.1 65.9Total 389.9 25.3 -4.6 149.8 15.7 -15.7 111.2 5.0 -8.9




311

949

336 409

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Mahindra Oberoi


Mahindra Lifespace Research Analyst



Exhibit 64: Company specific view (Real Estate coverage universe) Company RemarksOberoi Realty We expect sales volumes to grow 2.4x YoY (low base effect) to 1.52 lakh sq ft

mainly boosted by SkyCity project, which was launched in Q3FY16. Further, thetopline is expected to grow 40.0% YoY to | 262.7 crore led by 67.7% YoY growth to| 173.4 crore in revenues from residential projects as Esquire project had notreached revenue recognition threshold in Q2FY16. EBITDA margins are expected tocontract 790 bps YoY to 49.7% largely due to a change in the project mix. However,we expect its bottomline to grow 18.7% YoY to | 85.8 crore

Mahindra Lifespace

Despite the launch of subsequent phases of Antheia Pune and Happinest Boisarprojects (saleable area: 2.5 lakh sq ft), we expect sales volumes to de-grow 9.6%YoY to 3.0 lakh sq ft amid subdued demand environment. Further, we expectstandalone revenues to grow 2.9% YoY to | 125.6 crore. Also, profitability isexpected to de-grow 24.1% YoY to | 25.4 crore


Major news during Q2FY17

Teva Pharmaceuticals has bought ~1.25 lakh sq ft spacein Oberoi Commerz II in Goregaon for ~| 140-145/ sq ft.

Oberoi Realty

According to media sources, Oberoi Realty is in talks withUS-based investor Morgan Stanley and Singapore’ssovereign fund, GIC, to set up a joint venture (JV) fordeveloping malls. The venture would have a corpus of |1,000 crore. Oberoi is expected to hold about 75%. Further,it could also initiate talks with Canada Pension PlanInvestment Board, which has shown an interest in buyingin malls

The Maharashtra government has unveiled a new housingpolicy paving the way for redevelopment of unsafetenanted buildings, transit camps and dilapidated Mhadacolonies, with a slew of incentives including higher floorspace index (FSI). The re-development up to 2,000 sqmetre of plot would be allowed an FSI up to 3 vs. 2previously while plots beyond 2,000 sq mt would have anFSI of 4

Real Estate Sector

Sebi would allow up to 20% investment by such trusts inunder construction projects, up from maximum 10%currently for REITS


Retail

End of season sale to provide marginal uptick in revenues

Q2FY17 started off on a positive note initially with a marginal pick-up in consumer sentiment. Consumer walk-ins increased but conversion into sales remained weak with consumers looking for good deals or exclusive collections. Easy availability of discounts in online channels kept buyers visiting offline retailers for good discounts. The quarter was characterised by end of season sale for most offline retailers with varied discount offerings from major retailers like Shoppers Stop, Titan and Bata. We expect our retail coverage universe companies to report revenue growth of 9.2% YoY with Shoppers Stop, Bata India expected to report revenue growth of ~6%. We expect Shoppers Stop (SS) to report same store sales growth (SSSG) of 4% for the departmental while HyperCity is expected to report flattish SSSG with a decline of 1.0% YoY. Among jewellery retailers, Titan’s Jewellery segment is likely report growth of 12% YoY on a subdued base as Q2FY16 there were no redemption under the Golden Harvest Scheme. Titan’s watch segment continues to face challenges in revenue growth owing to lower export demand from the Gulf region. Consequently, Titan’s overall revenue is likely to grow 11% YoY to | 2956 crore.

Titan, Bata EBITDA margins to improve; Shoppers Stop margin to decline

Shoppers Stop’s SSSG has been in single digits for the last three quarters. In order to push sales it has had to resort to higher discounting leading to margin pressure. We expect SSL’s EBITDA margin to decline 150 bps YoY to 2.9% owing to lower operating margin in departmental store format and higher losses at EBITDA level in the HyperCity format. In Q2FY17, Titan initiated discounting in the high margin studded gold segment, which received a good response and should boost Titan’s studded gold sales ratio thereby positively contributing to margin growth. We expect Titan’s EBITDA margin to improve 229 bps YoY to 9.9%. Bata India is also expected to register margin expansion of 274 bps YoY to 11.3% (Q2FY16 margin was exceptionally low) due to cost rationalisation measures like re-negotiating lease rentals for stores enabling lowering of rental expenses.

After aggressive store opening in Q1FY17, space addition slower in Q2FY17

Retailers across formats had started FY17 on a positive note with aggressive store additions by Shoppers Stop (added four departmental stores and one HyperCity store) and Titan (added five Tanishq stores, six World of Titan stores and two Fast Track stores) on account of an expected uptick in consumer sentiments. However, Q2FY17 has seen slower store addition as Shoppers Stop added one departmental store and Titan added one Tanishq store.

Exhibit 65: Estimates for Q2FY17E (Retail) (| crore) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Bata India 610.0 6.1 -9.5 68.8 40.2 -16.2 36.3 -33.0 -27.9Shopper Stop 1,364.4 6.0 18.4 40.2 -28.5 182.8 -7.2 PL NATitan Company 2,955.5 11.3 6.2 293.6 44.8 0.5 197.2 35.6 55.6Total 4,929.9 9.2 7.0 402.6 30.7 3.6 226.3 9.2 50.5

Change (%)Company




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0.00

0.10

0.20

0.30

0.40

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17E

Q2FY

17E

Shoppers Stop

Revenue per sq. ft.

23002194 19852176

1858

2333 2338

19272239

-

500

1,000

1,500

2,000

2,500

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

Shoppers Stop

Top Pick

Titan Company

Research Analyst



Among our coverage companies, we expect Shopper Stop to add 0.42 million square feet (mn sq ft) (YoY) and 0.04 mn sq ft on a QoQ basis taking the total operational space to 6.15 mn sq ft. The quarter saw launches of new collections under various categories from Titan. In the above | 250,000 priced segment, Titan launched the ‘Queen of Hearts’ studded gold jewellery collection. In addition to the Queen of Hearts collection, it also launched the Mia Multitaskers collection and Amaara collection of plain gold jewellery under the Tanishq umbrella and Sitaara and Swaram under the Gold Plus umbrella.

Exhibit 66: Company specific view (Retail)

Company RemarksBata India Revenue growth remains the main challenge in the midst of increasing competition from

online players and offline international brands who have entered India. Also, problems inthe southern market of Bangalore and Tamil Nadu could subdue revenue growth inQ2FY17. Delayed monsoons had negatively impacted the sale of plastic shoes (Sandakbrand) in Q1FY17. However, we expect plastic shoe sales to shift to Q2FY17 on the back ofa pick-up in monsoon and buoy revenue growth, to some extent. We expect Bata to report6% YoY revenue growth to | 610 crore. On the profitability side, we expect EBITDA margin(Q2FY16 was exceptionally low at 8.5%) to improve 274 bps YoY to 11.3% on the back ofcost rationalisation measures leading to lower rentals, employee and other expenses.Though EBITDA is likely to increase 40% YoY to | 68.8 crore, PAT is expected to decline33% YoY to | 36. 3 crore due to exceptional income in Q2FY16 to the tune of | 31.8 crore

Shoppers Stop

Revenue growth is expected to remain moderate despite end of season sale during thequarter due to subdued consumer sentiments and a delayed festive season that isexpected to begin from October 2016. We expect Shoppers Stop’s (SSL) revenues to grow6% YoY to | 1364 crore. We expect departmental stores to register same store salesgrowth (SSSG) of 4% while HyperCity SSSG is expected to register a decline of 1%.Consolidated EBITDA margin is expected to decline 150 bps to 2.9% owing to 140 bpsdecline in standalone margin and loss at EBITDA level in the HyperCity format. Owing to asubdued operational performance and loss in HyperCity format we expect SSL to report aconsolidated net loss of | 7.2 crore

Titan Company

Q2 of every financial year usually has higher discounted sales in the jewellery segment.Titan had several discount offers in the diamond jewellery segment, which should enable itto post higher revenues from studded gold category. Also, the previous quarter (Q2FY16)had lower sales on account of absence of Golden Harvest Scheme. We expect Titan topost revenue growth of 11% YoY to | 2956 crore, mainly driven by 12% growth in thejewellery segment. Owing to higher proportion of revenues from studded gold segment, weexpect EBITDA margins to improve 229 bps YoY to 9.93%. Due to an improved operationalperformance, we expect the company to report PAT growth of 36% YoY to | 197.2 crore



Shipping, Offshore, Shipbuilding

Carnage in tanker market; BDI remains range bound… BDI for Q2FY17 was range bound at 600-700 levels, much better than H1CY16 when it had tumbled to an all-time low of 290 points. Medium size vessels like Supramax continued at 670 levels. However, indices for smaller size vessels like Handysize improved 11% MoM to a yearly high of ~400 levels. Baltic Dry Index (BDI) remained supportive of a revival in the Chinese economy and increased shipping activity due to end of the summer holiday season and nearing of winter. Dry indices continue to remain much below breakeven levels. However, tanker rates were severely impacted by delivery of 13 VLCCs during the quarter. Daily rates across all tanker assets class faced a glut situation. VLCC rates were at a yearly low rate of $13000/day compared to $30000/day in August 2015. Daily rates for Suezmax, Aframax and Clean de-grew 76%, 77% and 72%, respectively. The revival in crude prices is expected to result in increased bunker costs, which would impact operating margins for fleet operators. The I-direct shipping universe is expected to report lowest level of quarterly run-rate revenues in Q2FY17. Revenues are expected to de-grow 25% YoY to | 1597.7 crore. EBITDA is expected to further decelerate with de-growth of 34% YoY to | 600 crore.

Shipping ancillary – Lull continues in dredging activity The Shipping Ministry has directed the Kolkata Port Trust (KPoT) to utilise a new shipping channel. This would enable the port to cut its annual dredging costs to the extent of | 120 crore and improve its navigability. Dredging Corporation of India (DCI) would be negatively impacted by the same as it derives 50% of its revenues from KPoT. The execution under Sagarmala project continues to remain a laggard. The awarding for developing of six new mega ports remains crucial for further orders for the company. Addition of a new inland dredger would trigger future growth for the company. However, earnings for the current quarter would remain sluggish with ~10% YoY de-growth to | 144 crore.

Order book for Reliance Defence expected to ramp up in FY17 Defence PSU (DPSU) shipyards are expected have orders worth | 180000 crore compared to their annual production capacity of ~| 7500 crore. The government has decided to optimally utilise the private sector capacity to complement the DPSU capacity. However, awarding of the same remains key. The new management of Reliance Defence is keen on completion of long pending order of | 2500 crore. Further, it is also vying for newer contracts in the defence space earmarking FY17 as a turnaround year. We expect Reliance Defence’s earning to grow 50% YoY to | 81 crore and post a 2nd consecutive quarter of profit with an EBITDA of | 2.4 crore.

Exhibit 67: Estimates for Q2FY17E: (Shipping) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

GE Shipping 786.0 -23.9 -2.7 412.7 -29.9 -7.1 220.0 -42.5 -5.8Dredging Corporation 143.9 -10.0 1.0 33.8 -25.0 15.6 8.6 -50.5 114.4Reliance Def. & Eng. 80.9 49.7 15.0 2.4 LP 32.6 -120.4 NA NASCI 811.7 -25.2 -3.4 186.7 -40.3 -12.7 42.7 -73.5 -23.7Total 1,822.5 -21.9 -2.1 635.5 -32.3 -7.8 150.8 -61 -5

Change (%)Company




2332

2147

2108

1861

1823

0

500

1000

1500

2000

2500

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0.05.010.015.020.025.030.035.040.045.0

(%)


Dry Bulk Indices

0

1000

2000

3000

Aug-

12

Feb-

13

Aug-

13

Feb-

14

Aug-

14

Feb-

15

Aug-

15

Feb-

16

Aug-

16

Inde

x

BDI BPI

Source : Bloomberg, ICICIdirect.com Research Tanker Indices

200

600

1000

1400

Aug-

13

Feb-

14

Aug-

14

Feb-

15

Aug-

15

Feb-

16

Aug-

16

Inde

x

Baltic clean tanker index Baltic dirty tanker index

Source : Bloomberg, ICICIdirect.com Research

Research Analyst


Ankit Panchmatia [email protected]


Exhibit 68: Company specific view Company RemarksGE Shipping Freight rates for tankers continue to tread down for a third consecutive quarter. YTD

daily rates across crude assets (VLCC, Suezmax, Aframax and Clean) have morethan halved. Emphasis on time charter voyage rather than spot basis would remainkey for Q2FY17 performance. Given the phenomenal performance in Q2FY16,revenues for Q2FY17 are estimated to de-grow 24% YoY to | 786 crore. Lowerutilisation levels coupled with increased bunker costs would result in EBITDAmargins moderation of 500 bps to 52.5% with absolute EBITDA of | 413 crore.Excluding extraordinary profit/loss from sale of ship/asset, PAT is expected at | 220crore

SCI The tanker markets continued to be plagued by overcapacity resulting in lowerrates. In addition to the same the offshore market stood at historic low utilisationlevels. Given the distressed market conditions, revenues for Q2FY17 are expectedde-grow 23% to | 812 crore. Unlike Q2FY16, which witnessed low bunker costs,EBITDA margins for Q2FY17 are expected to decline 600 bps YoY to yearly lowlevels of 23% with an absolute EBITDA of | 187 crore. PAT excluding extraordinaryprofit/loss is expected at | 43 crore

Reliance Defence & Engineering

The company in FY16 had won on a competitive basis refitting of two Indian NavalShips INS Deepak and INS Savitri. The work on these vessels was expected tocommence from July 2016. In addition to the same, execution of existing projects tothe tune of | 2500 crore would shore up the current quarter earnings. Revenues areexpected to grow 50% YoY to | 81 crore. Better execution coupled with controlledopex would result in a positive EBITDA of | 2 crore. Despite an expected slightmoderation in interest expenses, current quarter PAT would continue at a loss of |120 crore

Dredging Corp The closure of a channel at Haldia (biggest client) would result in subdued earningsfor the company throughout the year. However, a ramp up in earnings from newprojects would take some time resulting in revenue de-growth of 10% YoY to | 144crore in Q2FY17. Continued high fixed costs related to dredgers would result inEBITDA de-growth of 18% YoY to | 34 crore with operating margins of 25.6%.Accounting for interest costs and depreciation, reported PAT is expected at | 8.6crore



Telecom

Both voice volumes & ARPM to be muted in seasonally weak quarter Q2, being a seasonally weak quarter, is expected to witness muted voice volumes & ARPM. Furthermore, operators have come out with free voice offerings for premium customers, albeit a small percentage of the overall customer base is likely to impact the realisation. We expect 2.0% and 2.3% QoQ decrease in total voice minutes to 308.5 and 194.7 billion for Airtel & Idea, respectively. The voice APRM would also witness a decline with Idea & Airtel expected to post 2% QoQ decline to 32.8 paisa and 33.0 paisa respectively. As a result, we expect Airtel and Idea to post voice revenue decline of 4.0% and 4.5% QoQ to | 10126.2 crore and | 6417.0 crore, respectively.

Data realisation slides , increased volume uptake to save the day Jio launch and pre-emptive price cuts by incumbents are expected to reflect partially in the data realisations decline in Q2FY17. We expect data tariffs to decline by 13.0% and 8.0% QoQ for Airtel and Idea to 19.4 and 18.2 paisa respectively. The data volume growth, however, is expected to witness higher uptake, given the uptrading by subscribers. Airtel & Idea are expected to post 19.2% & 15.7% QoQ growth to 188.4 & 107.7 billion MB, respectively. Consequently, the data revenues would grow by 3.7% QoQ and 6.4% QoQ to | 3655.7 crore and | 2050.6 crore for Airtel and Idea respectively. Data as a proportion of revenues continues to increase from 17-18% in Q4FY15 to 22-25% in Q2FY17E.

Margins to witness pressure during the quarter... Margins are expected to remain under pressure with lower operating leverage in a seasonally weak quarter. Idea is expected to post margins at 31.7%, down 70 bps QoQ. Margin for Airtel is seen at 37%, down 30 bps QoQ, impacted by lower operating leverage in Indian mobility business and devaluation of Naira (~33% QoQ) and exclusion of higher margins operations of Burkino Faso & Sierra Leone post their sale in African business.

Quarter finally witnesses much awaited Jio launch Post the trial launch for employees and tie-ups with various handset providers earlier, Jio came out with a welcome offer providing free voice as well as data services from September 5th until December 31st, 2016. Jio also unveiled tariff plans that would be applicable from January, 2017. The lowest tariff plan starts at | 149 giving 0.3 GB of data and unlimited free voice calling, which is likely to attract customers with higher voice usage. Other tariff plans range from | 499 to | 4999 offering 4 GB and 75 GB of data at a per MB data realisation of 12 paisa and 6.6 paisa, respectively. We note that the incumbents had anticipated such offering, and they had already announced tariffs with cuts across small data packs, free voice offering for premium customer and data at 5 paisa/MB with some initial upfront payment, in early Q2FY17. Post the launch also, there has been an additional tariff cut across the industry, the complete impact of which will however be visible in the coming quarters.

Exhibit 69: Estimates for Q2FY17E (Telecom) (| Crore) Revenue EBITDA PATQ2FY17E YoY QoQ Q2FY17E YoY QoQ Q2FY17E YoY QoQ

Bharti Airtel 24,411.3 2.3 -4.5 9,051.5 9.7 -5.5 1,151.0 -24.4 -21.3Bharti Infratel 3,235.6 6.4 0.8 1,422.2 8.6 2.0 638.9 8.0 -15.5Idea Cellular 9,311.4 7.2 -1.8 2,951.2 -3.5 -4.0 203.9 -74.8 -7.5Tata Comm 5,156.6 0.0 2.5 867.7 9.0 0.6 91.4 1,417.5 118.7Total 42,114.9 3.4 -2.7 14,292.6 6.6 -4.1 2,085.1 -28.8 -15.9


l

Source: Company, ICICIdirect.com research


4073

6

4131

8

4279

4

4330

2

4211

5

05000

100001500020000250003000035000400004500050000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

| Cr

ore

0510152025303540

(%)


MOU trend

386393

387379

367

424

404 405415 414

350360370380390400410420430


Billio

n M

inut

es

Airtel Idea

Voice ARPM Trend

32.4

31.6

33.133.6

33.0

34.6

33.833.3 33.5

32.8

3031313232333334343535


Voic

e AR

PM (i

n pa

isa)

Airtel Idea

Research Analysts

Bhupendra Tiwary [email protected]

Sneha Agarwal sneha. [email protected]


Exhibit 70: Company specific view (Telecom) Company RemarksBharti Airtel The quarter being seasonally weak, we expect the voice revenues to fall by 4.0%

QoQ to | 10126.2 crore in India mobility business. The impact on topline is due to a2.0% QoQ decline in both voice minutes and ARPM to 308.5 billion minutes and32.8 paisa respectively. The data segment is likely to be impacted by tariffs cutsespecially post Jio launch. Data tariffs are hence expected to decline by 13.0% QoQto 19.8 paisa. However, the decline in the tariffs will be compensated by upgradingof data subscribers and hence higher usage per subscriber leading to a 19.2% QoQgrowth in the total data traffic to 188.3 billion MB. The data revenues would hencepost a 3.7% QoQ growth to | 3656.7 crore. Indian operations are expected to postEBITDA margins of 40.8%, down ~80 bps QoQ. Full impact of Naira decline (~33%QoQ) will be seen this quarter. In addition, the African revenues would also be ex-Burkino Faso and Sierra Leone leading to revenues of | 5244.8 crore versus |6249.3 crore in Q1FY17. Africa EBITDA margin is expected at 18.3%, vs. 22.3% inQ1FY17, as discontinued African operations earned high margins of ~35%.

Bharti Infratel The tenancy addition is expected to be moderate as the players gear up for thespectrum, albeit the company is not expected to face the impact of exits which hadnegatively impacted the tenancy in Q1FY17. Average tenancy ratio (at theconsolidated level) is expected at 2.22x (up 1.1% QoQ) with total co-locationsreaching 1,98,890. The rental revenues, during the quarter, are expected to beimpacted by the contract renewal by existing tenants, who have been given anoption to extend their existing contract to FY22, with a rental freeze till the rate cardcatches up. Consequently, rental revenues are expected to be muted (0.4% QoQ) to| 2066.4 crore. We expect energy revenue growth of 1.3% QoQ to | 1169.3 crore.Energy margins are expected at 5% during the quarter. EBITDA margins are seen at44%, up 60 bps QoQ. We expect PAT of | 638.9 crore for the quarter. We haveaccounted Q2FY17E estimates based on proportionate consolidation of Indus(earlier method). The bottomline could also witness MTM impact on investment asper the IND AS.

Idea Cellular The quarter was marked by several competitive pressures for the telecom industryas a whole with the launch of Reliance Jio and as a result tariff cuts was seenacross the data and voice segments. We expect voice ARPMs to decline by 2.0%QoQ to 33.0 paisa and the data tariffs to decline by 8.0% QoQ to 18.2 paisa.Seasonality in the quarter would also be a drag on the voice minutes. Voice minutesare expected to remain tepid at 194.7 billion minutes (down 2.5% QoQ) leading toan overall voice revenue decline of 4.5% QoQ to | 6417.0 crore. The tempo of datarevenue growth has also been impacted due to steep tariff cuts and hence weexpect a 3.7% QoQ data revenue growth to | 2740.1 crore. Data subscribers areexpected to grow to 52.1 million, resulting in data volume growth of 15.7% QoQ to107 billion MB's. The quarter, being a seasonally weaker one, would lead to a loweroperating leverage and hence we expect margins to contract by 70 bps to 31.7% ona QoQ basis.

Tata Communication

The data segment would continue to display robustness with new launches gainingtraction. We expect the data segment to post revenues of | 3014.9 crore, up 16.5%YoY with both the traditional and growth services doing well. The data margins arehowever expected to be lower by 60 bps QoQ to 23.0% owing to some newlaunches yet to catch and some margin softness in the TCTSL segment of thecompany. The voice volumes are expected to decline by 5.6% YoY to 10.5 billionminutes leading to voice revenue decline of 16.0% YoY to | 1738.3 crore. The voicemargins would also continue to reel under pressure and is expected at 5.6%, down90 bps QoQ. Neotel, financials are expected to be flattish on a QoQ basis.The overallmargins would contract by 30 bps QoQ to 16.8% due to some margin decline inboth the voice and data revenue front.



Others Exhibit 71: Estimates for Q2FY17E (others) (| Crore)


Cox & Kings 744.2 8.6 6.4 339.2 6.6 8.4 128.2 8.4 18.6CARE 87.3 11.6 52.7 62.2 11.6 76.2 42.4 12.0 71.4Jet Airways 5,723.9 3.7 2.5 577.8 14.0 -12.9 67.8 96.5 -46.3Mah. Seamless 312.8 18.5 8.5 34.6 NM 18.5 22.0 NM -7.9Mcleod Russel 507.1 0.9 196.0 248.7 3.9 LP 228.3 5.5 LPNavneet Publications 135.7 15.7 -75.8 17.6 50.6 -90.2 7.9 -24.6 -93.0Rallis India 589.4 17.5 31.0 124.7 29.1 66.0 77.3 34.9 35.1Solar Industries 389.6 16.4 -8.3 76.4 14.4 -11.8 42.2 19.3 -10.3Swaraj Engines 171.2 11.8 -0.3 25.7 13.0 -9.2 17.0 9.5 -10.5TTK Prestige 478.6 13.7 38.3 59.8 13.7 37.6 38.4 12.8 58.8Talwalkars 111.8 16.7 92.3 56.3 19.0 124.0 29.1 18.1 408.0United Spirits 2,087.4 -2.7 2.3 211.2 -33.5 6.4 31.5 -47.1 24.8United Breweries 1,243.7 9.8 -20.4 169.6 13.0 -41.5 65.8 36.4 -55.3VST Tillers & Tractors 174.0 15.3 -2.3 26.1 4.8 6.2 16.9 5.0 -15.3Wonderla Holidays 57.7 33.4 -35.1 14.5 -1.6 -63.1 6.0 -49.7 -73.3Total 12,814.5 -5.0 -8.2 2,044.6 -3.4 -9.7 820.8 -0.6 1.0

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


Exhibit 72: Company specific view (Others) Company RemarksCox & Kings After four quarters of subdued performance due to sale of the camping division, we

expect revenues to grow 8.6% YoY. The growth is expected to come mainly from theeducation and leisure-India segment during the quarter. Standalone revenues maygrow ~13% YoY due to pick-up in demand. Leisure international business may grow3% YoY. On the other hand, the Education & Meininger division may report revenuegrowth of 13% and 8% YoY, respectively, due to peak season. Net profit margins arelikely to remain same as last year despite better topline growth. Adverse movementof currencies in European region pose risk to profitability growth for the quarter

Maharashtra Seamless

We expect pipes segment sales volume for Q2FY17 at 61750 tonnes (up 11.5% YoYand 7.4% QoQ) wherein seamless pipes sales volumes are expected at 46750 tonnes(up 21.4% YoY and 6.3% QoQ) while that of ERW is likely to be 15000 tonnes (down11.2% YoY and up 11.1% QoQ). We expect topline to increase 18.5% YoY whileEBITDA margins are expected to come in at 11.1% (10.1% in Q1FY17 and 1% inQ2FY16)

Jet Airways Jet's lower domestic passenger traffic growth (up 5.4% YoY vs. industry growth of24%) reflects the increase in competition intensity whereas international passengertraffic growth may remain healthy at 11% YoY to 20.2 lakh. Domestic market sharemay come down 340 bps YoY to 19.1%. Adjusting for lower realisations, we expectthe company to report revenue growth of 3.7% YoY during the quarter. Rising ATFprices (up 7.5% QoQ, down 2.0% YoY) to put pressure on margins. However, on a YoYbasis, we expect profitability growth to remain better

Navneet Education

Q2FY16 was a subdued quarter for Navneet's publication segment with 20% YoYdecline in publication revenues due to absence of government orders, scrapping ofscholarship programmes for FY16 and the drought situation in Maharashtra resultingin lower spending in rural areas. On the subdued base, we expect the publicationsegment to grow 16.6% while the stationery segment is expected to grow 7.8% YoYto | 80.3 crore and | 50.4 crore, respectively. Overall, we expect revenues to grow15.7% YoY to | 135.8 crore. We expect EBITDA margins to recover on account ofbetter operating leverage and improve 301 bps YoY to 13% and EBITDA to increase50% YoY to | 17.7 crore. However, PAT is expected to decline 24% YoY to | 7.9 croreas Q2FY16 had higher other income.



Exhibit 73: Company specific view (Others) Company RemarksRallis India Rallis India is expected to report a robust performance in the seasonally important

quarter amid robust sowing activity domestically (106.7 million hectare, up 3% YoY)and normal monsoon 2016 (97% of LPA). For Q2FY17, in the agro-chemical segmentwe expect sales to grow 20% YoY to | 560 crore. On the Metahelix front, we expectsales at | 30 crore. At the consolidated level, sales are expected at | 589.4 crore, up17% YoY. EBITDA margins are expected to improve 90 bps YoY to 21.2% in Q2FY17.Consequent EBITDA & PAT are expected at | 124.7 crore (up 29% YoY) & | 77.3crore (up 35% YoY), respectively.

Wonderla Holidays

The addition of the Hyderabad park and increase in footfall at Kochi and Bengaluruare expected to drive revenues during the quarter. Wonderla’s revenues are expectedto increase 33.4% YoY in Q2FY17E. However, opening of new park entails higheroperating cost which would lead to lower EBITDA and PAT.

Swaraj Engines Swaraj Engines is expected to report a healthy performance in Q2FY17. Theperformance, however, will lag robust tractor sales at parent group M&M (up 36%YoY) due to high base effect primarily on account of inventory stuffing in Q2FY16.Engine sales volume is expected at 20780, up 10% YoY. Consequent net sales isexpected at | 171.2 crore. EBITDA margins are expected to remain largely flat YoY at15.0%. EBITDA & PAT for the quarter are expected at | 25.7 crore and | 17.0 crore,respectively

Talwalkars Better Value Fitness

Talwalkars is expected to report revenue growth 17.0% YoY mainly led by addition ofnew gyms, improvement in same store sales and increasing share of value addedservices & personal training. In addition, EBITDA margin is expected to improve 88bps mainly due to cost rationalisation. Overall net profit during the quarter isexpected to increase 18.1% YoY led by better performance at operating level andlower interest expenses

McLeod Russel McLeod Russel is expected to report a muted quarter with revenue growth of mere~1% YoY. On account of declining domestic prices and subdued demandenvironment, we are estimating 7% decline in domestic sales (3% decline in volumeto 19.9 million kg (mkg) and 4% realisation decline to | 161 per kg). However, weexpect export sales to grow 18.3% YoY, largely led by growth in volumes by 14.2%YoY to 8.1 mkg supported by 4% YoY improvement in prices

TTK Prestige TTK has taken a price cut in three product categories. An improved performance fromthe southern markets should enable it to boost its volume growth. Revenues(including the Horwood acquisition) are likely to increase 13.7% YoY (| 479 crore) onthe back of 10% growth in appliances segment and 4% growth in the cookersegment. The cookware segment that had declined 11% & 9% in Q4FY16 & Q1FY17,respectively, is also expected to do better with 2% YoY growth. EBITDA margin isexpected to remain flattish with marginal growth at 12.5% and EBITDA growth of14% to | 59.8 crore. Consequently, net profit is expected to grow 12.8% YoY to |38.4 crore

United Spirits Total volumes for Q2FY17 are expected to grow 3% YoY to 22.4 million cases. Thegrowth would be mainly driven by prestige and above brands, which are expected togrow 10% YoY; partly offset by 5% YoY de-growth in popular segment. Subsequently,revenues for the current quarter are expected at | 2087 crore. Higher contributionfrom prestige and above segments would enable improved operating margins that are expected at 10.2% with EBITDA of | 211 crore. PAT is expected at | 58.5 crore

United Breweries

Total volumes for the company are expected to outpace (up 8% YoY) industry growth.Price hike in key markets would further accelerate Q2FY17 revenues, which areexpected to grow 10% YoY to | 1243 crore. The impact of price hikes would be partlyoffset by higher glass and sugar prices, following which operating margins areexpected to remain flattish at 13.6% with EBITDA at | 170 crore. Improvedoperational performance coupled with reduction in interest costs would furtheraccelerate PAT growth, which is expected to grow 36% YoY to | 65.7 crore



Exhibit 74: Company specific view (Others)

Company RemarksCARE On a YoY basis, the traction in CARE's rating revenue is expected at 11.6% to | 87.3

crore. Q2 being a strong quarter in terms of surveillance fee income, the QoQ tractionin rating income looks strong at 52.7%. EBITDA margin is expected at 71% while PATof | 42.4 crore is factored in (up 12% YoY and 71% QoQ). Other income may continueto stay muted. Progress and management commentary regarding SME ratings wouldbe closely watched

Solar Industries Revenues are expected to increase 16.4% YoY to | 389.6 crore due to volume growthof 18% in bulk and 45% in the cartridge segment, albeit with muted realisations. Weare expecting strong growth in cartridge segment on the back of improved domesticdemand from private infrastructure players and higher exports. Revenues fromoverseas are likely to remain flat at ~| 92 crore due to continued currencyheadwinds. EBITDA margins are likely to remain stable at 19.6%. PAT is likely toincrease 19.3% YoY to | 42.2 crore

VST Tillers & Tractors

VST Tillers & Tractors is expected to put up a robust performance in Q2FY17 largelytracking positive momentum amid normal monsoon season 2016. In Q2FY17, tractorsales volume is expected at 2505 units (up 43% YoY) with power tillers sales volumeexpected at 7383 units (flat YoY). Realisation of farm equipment is expected to belargely stable. Consequent sales are expected at | 174 crore (up 15.3% YoY). EBITDAmargins, however, are expected to taper down (150 bps to 15.0%) due to increasingcompetition in the marketplace. Consequent EBITDA, PAT is expected at | 26.1, |16.9 crore, respectively


ICICIdirect.com Coverage Universe Valuation Matrix x

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EApparelsKewal Kiran Clothing Ltd 1,889 2,025 Hold 2,328 55.0 68.5 81.0 34.1 27.4 23.1 22.4 19.5 15.8 30.7 40.3 41.6 22.5 25.4 26.9Vardhman Textiles Ltd 1,069 1,100 Hold 6,804 92.6 144.2 137.3 11.6 7.5 7.9 6.6 5.3 4.4 11.7 19.0 18.1 15.0 19.5 16.0Page Industries 15,718 11,950 Hold 17,532 208.5 257.5 322.2 75.6 61.3 49.0 46.8 39.1 31.3 61.0 57.6 59.4 46.0 46.0 46.5Arvind Limited 356 370 Buy 9,187 14.1 15.3 19.4 25.6 19.3 15.2 12.0 9.1 8.3 13.8 14.7 15.3 12.5 11.8 13.3Rupa 283 UR UR 2,252 8.3 10.4 12.2 34.3 27.4 23.3 18.1 14.7 12.9 18.3 17.1 17.8 17.9 18.8 19.1

RoA (%)AutoAmara Raja Batteries 1,037 900 Hold 17,709 28.7 31.1 38.9 36.8 33.3 26.7 21.9 19.6 15.7 32.4 29.3 30.5 23.3 21.0 21.6Apollo Tyres 226 180 Hold 11,494 21.5 20.3 22.2 10.7 11.3 10.3 6.2 7.1 6.4 19.9 15.5 15.5 17.1 15.3 14.6Ashok Leyland 80 95 Buy 22,881 2.5 5.4 6.4 32.3 15.2 12.9 11.0 8.6 7.0 22.8 26.2 27.8 17.4 22.6 22.7Bajaj Auto 2,834 2,950 Buy 82,011 126.2 148.3 175.4 22.6 19.2 16.3 16.9 14.7 12.0 42.2 40.2 40.5 29.7 29.8 30.0Balkrishna Industries 1,133 925 Hold 10,951 58.7 59.6 71.6 19.4 19.1 15.9 10.9 10.3 8.7 20.4 21.0 23.1 20.3 17.5 17.7Bharat Forge 930 840 Hold 21,655 28.0 29.9 39.0 32.9 29.7 22.8 16.0 15.2 12.4 18.1 17.5 20.4 18.4 17.1 19.4Bosch 22,867 24,700 Hold 71,801 398.7 477.0 616.9 57.2 51.2 39.6 37.3 35.6 27.8 22.5 23.7 26.0 15.1 16.0 18.1Mahindra CIE 201 225 Buy 6,512 2.3 7.5 11.4 86.3 26.5 17.4 19.7 12.1 8.7 7.4 9.6 12.9 7.5 8.6 11.5Eicher Motors 26,231 25,000 Buy 71,246 473.1 661.4 813.2 55.5 39.7 32.3 28.5 22.0 17.9 41.4 42.6 40.7 36.9 37.4 34.2Exide Industries 192 195 Buy 16,312 7.3 8.6 10.0 26.5 22.5 19.3 15.4 13.0 10.6 19.4 20.9 22.5 14.0 15.0 15.8Hero Motocorp 3,469 3,820 Buy 69,265 156.9 186.6 212.4 22.2 19.3 17.0 14.9 13.1 11.4 53.8 52.2 49.8 39.4 38.3 36.5JK Tyre & Industries 155 110 Hold 3,512 21.0 13.7 22.7 7.5 11.5 6.9 5.3 6.2 4.8 20.1 12.6 15.5 29.1 16.9 20.9M&M 1,367 1,575 Buy 84,894 53.4 63.2 72.2 26.1 22.1 19.3 17.4 14.2 11.9 17.2 18.7 19.6 14.2 14.9 15.4Maruti Suzuki 5,709 6,150 Buy 172,465 151.3 213.2 279.4 37.6 26.7 20.4 19.0 16.6 13.2 24.0 27.3 29.2 16.9 20.2 21.9Motherson Sumi 329 325 Hold 46,200 9.6 12.8 16.0 34.5 24.8 19.8 13.9 10.2 8.1 22.2 26.2 30.6 30.5 30.9 30.4Wabco 6,151 6,400 Hold 11,667 107.9 144.2 182.4 57.5 43.0 34.0 38.7 29.1 23.7 25.5 28.0 28.9 19.4 20.9 21.3Tata Motors 550 660 Buy 176,605 37.2 57.6 67.7 15.0 9.7 8.2 4.7 3.9 3.0 17.3 18.3 20.4 17.4 17.5 17.4

RoA (%)AviationJet Airways 474 790 Buy 5,381 106.7 113.5 134.1 4.5 4.3 3.6 5.7 4.8 4.5 45.4 51.0 49.3 NA NA NA

MCapSector / Company CMP Target Price Rating EV/EBITDA (x)P/E (x) RoCE (%) RoE (%)EPS (Rs)

CMP as on October 6 , 2016, * UR= Under Review


Valuation Matrix x

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EBuilding MaterialsCentury Plyboard 252 255 Buy 5,599 7.6 8.2 10.6 34.1 31.6 24.3 21.8 20.5 15.6 25.1 20.7 22.9 31.8 28.0 29.5Kajaria Ceramics 702 685 Buy 11,161 14.4 18.0 22.8 48.9 39.1 30.9 25.3 21.4 17.7 27.5 29.1 31.2 24.8 25.2 25.8Somany Ceramics 629 582 Hold 2,666 15.3 18.7 23.3 40.7 33.2 26.7 20.3 17.1 14.1 15.6 16.2 17.9 15.1 16.0 17.1Greenply Industries 271 225 Buy 3,270 10.4 12.3 14.1 26.4 22.4 19.5 14.7 13.0 12.2 19.3 19.1 16.6 20.9 20.1 19.0

RoA (%)Capital GoodsVA Tech Wabag 555 760 Buy 3,025 17.0 33.3 40.0 32.9 16.8 14.0 13.2 8.4 6.9 16.9 22.9 24.1 9.3 15.8 16.4SKF Bearing 1,408 1,575 Buy 7,425 48.8 45.4 48.8 29.4 31.6 29.4 18.9 19.5 17.8 20.2 21.5 21.1 16.4 13.9 13.6Timken India 563 614 Buy 3,828 13.5 16.7 19.2 40.7 33.0 28.6 22.8 18.8 16.4 27.9 28.6 28.8 18.2 18.6 18.7NRB Bearing 132 131 Buy 1,280 4.3 5.3 6.6 30.7 25.1 20.2 13.8 13.1 11.5 14.1 15.1 16.9 15.1 16.8 18.5Grindwell Norton 337 390 Buy 3,731 9.4 11.4 13.0 36.0 29.7 26.1 20.1 17.3 15.4 22.7 25.5 27.5 15.5 17.9 19.3Thermax 900 814 Hold 10,723 29.6 24.0 27.7 30.7 37.9 32.9 26.5 27.5 23.8 18.8 15.1 15.7 14.2 10.5 11.0KEC International 125 162 Buy 3,203 9.0 10.9 12.4 14.0 11.5 10.1 6.8 5.8 5.5 15.5 16.4 16.6 14.3 15.1 14.9Greaves Cotton 127 180 Buy 3,101 6.6 7.7 9.7 19.4 16.7 13.2 10.2 9.6 7.8 31.7 29.6 33.0 20.4 21.0 23.4AIA Engineering 1,290 1,113 Hold 12,167 44.3 42.5 48.4 29.6 30.8 27.1 18.8 19.3 16.6 23.3 20.0 20.4 17.5 15.0 15.1Larsen & Toubro 1,451 1,655 Buy 135,272 57.0 61.4 72.3 25.6 23.8 20.2 22.1 18.0 15.5 14.5 15.9 16.7 12.6 13.6 14.4Bharat Electronics Ltd 1,268 1,560 Buy 30,443 57.8 59.8 65.1 22.1 21.3 19.6 15.1 13.8 11.7 21.4 19.9 19.7 15.4 14.5 14.3RoA (%)CementIndia cements 157 190 Buy 4,812 4.4 8.6 5.8 35.3 18.0 26.7 9.9 7.9 8.7 8.4 10.9 8.8 4.1 6.9 4.5Ambuja 251 300 Buy 49,919 5.2 7.9 8.4 49.2 32.5 30.7 24.2 18.1 16.3 12.2 16.8 17.1 7.8 11.2 11.3Ultratech 3,953 4,000 Buy 108,498 79.8 104.9 125.8 49.7 37.8 31.5 25.1 19.2 17.1 12.4 15.5 17.0 10.6 12.0 13.3Heidelberg cement 140 135 Hold 3,167 1.7 4.8 7.0 79.2 28.2 19.4 18.1 11.3 9.2 9.2 15.1 17.9 4.3 10.8 13.7JK Lakshmi 505 480 Buy 5,942 0.5 5.5 12.8 929.5 90.5 38.8 27.6 18.2 12.9 5.1 8.8 12.7 1.3 4.7 10.0Jk cement 910 855 Buy 6,363 14.9 39.3 42.5 59.8 22.7 21.0 17.1 11.6 11.6 8.8 13.1 13.1 6.1 14.6 13.4Mangalam cement 354 365 Buy 945 -7.6 30.6 31.8 NM 11.4 10.9 35.8 6.7 6.1 1.4 16.6 17.0 -4.2 14.6 13.3Shree cement 17,692 18,650 Hold 61,635 130.7 493.9 624.3 135.4 35.8 28.4 47.6 23.2 15.4 6.8 24.4 24.9 7.4 22.1 22.1ACC 1,625 1,875 Buy 30,517 31.3 52.4 64.8 52.3 31.2 25.2 25.2 18.2 15.0 11.2 14.7 17.2 8.9 10.9 12.4Star Ferro and Cement 105 132 Buy 2,339 4.1 1.8 4.3 25.1 56.8 24.2 7.7 9.7 7.3 12.2 7.8 12.1 12.3 5.3 11.4RoA (%)ConstructionNBCC 272 281 Buy 16,314 5.1 4.8 8.4 54.4 57.9 33.4 44.6 49.3 25.3 31.1 27.1 40.7 20.7 17.6 26.3NCC Limited 86 90 Buy 4,762 4.0 4.1 5.7 21.2 20.9 14.9 8.7 7.6 6.6 15.5 14.4 15.4 6.5 6.4 8.4Simplex Infrastructure 334 440 Buy 1,655 13.4 20.0 32.2 25.0 16.7 10.4 7.8 6.5 5.9 10.6 11.3 12.7 4.3 6.0 8.8

Sector / Company CMP Target Price Rating MCap EPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)

CMP as on October 6, 2016, * UR= Under Review


Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EITCyient 483 500 Hold 5,434 29.0 33.3 38.6 16.6 14.5 12.5 10.7 9.2 7.5 18.6 19.0 20.1 15.0 15.6 16.2eClerx Services 1,503 1,412 Sell 6,137 87.9 90.5 100.9 17.1 16.6 14.9 11.6 10.9 9.5 42.7 38.0 36.2 33.5 29.6 28.1Firstsource Solutions 41 54 Buy 2,736 4.0 5.0 5.6 10.6 8.4 7.5 8.3 6.3 4.9 10.3 12.5 14.6 12.7 14.2 13.9HCL Technologies 801 950 Buy 112,987 40.1 57.2 63.2 20.2 14.1 12.8 15.5 10.0 8.7 24.2 28.7 28.2 20.8 24.7 23.6Infosys 1,027 1,290 Buy 235,977 59.0 64.7 71.8 17.6 16.0 14.5 11.9 10.2 9.0 30.2 30.0 29.8 21.8 21.4 21.2KPIT Technologies 131 142 Hold 2,588 14.7 12.8 14.2 8.7 9.9 8.9 5.4 5.4 4.8 18.8 15.7 16.0 17.2 13.8 13.6MindTree 489 595 Hold 8,204 32.9 34.8 39.6 14.9 14.1 12.3 9.5 8.6 7.6 29.5 28.1 29.5 23.1 22.3 23.0NIIT Technologies 418 475 Hold 2,562 45.8 44.4 47.5 9.3 9.6 9.0 4.6 4.3 3.7 28.4 26.3 26.8 17.6 15.2 14.6Persistent Systems 680 690 Hold 5,440 37.2 39.0 45.9 17.2 16.4 13.9 10.3 8.9 7.2 28.1 25.5 26.6 21.4 19.0 19.6Tata Consultancy Services 2,390 2,700 Buy 470,962 122.9 134.9 149.0 19.6 17.9 16.2 15.2 13.6 12.2 46.2 43.1 40.4 33.1 30.1 27.9Tech Mahindra 422 600 Buy 40,929 34.5 34.0 38.1 12.2 12.4 11.1 9.1 8.0 6.7 27.7 27.5 26.9 23.1 21.4 20.9Wipro Technologies 478 560 Hold 116,152 36.1 33.7 37.5 13.3 14.2 12.8 8.6 8.7 7.1 20.7 18.3 17.9 17.9 15.4 14.6InfoEdge 970 875 Buy 11,728 -20.8 13.6 18.6 NM 63.4 46.3 NM 54.0 36.0 -15.9 9.9 12.8 -21.6 12.5 14.7RoA (%)LogisticsBlue Dart Express 5,490 6,500 Buy 13,027 81.2 79.8 100.2 67.7 68.9 54.9 34.5 35.6 28.6 39.7 35.3 39.3 46.6 38.1 39.6Great Eastern Shipping 369 330 Hold 5,564 74.9 66.9 64.5 5.0 5.6 5.8 2.7 2.5 2.2 11.5 10.7 10.1 12.6 12.7 11.3Shipping Corporation of India 70 65 Hold 3,249 9.1 8.8 8.2 7.8 8.0 8.6 5.8 7.0 6.6 6.2 4.7 4.4 8.1 5.7 5.0Container Corporation of India 1,398 1,600 Buy 27,248 40.4 46.6 64.0 34.4 29.8 21.7 24.3 20.3 14.8 12.7 13.4 16.7 9.7 10.3 12.8Reliance Defence & Engineering 60 64 Buy 4,399 NA NA NA - - - NM 88.9 53.9 -4.1 -0.8 -0.3 -29.3 -18.4 -19.1Gati Ltd 133 200 Buy 1,162 4.2 5.9 7.3 32.2 23.0 18.5 12.3 8.9 7.2 9.1 11.5 13.4 6.5 8.5 9.7Gujarat Pipavav Port 182 190 Hold 8,801 5.4 5.0 6.1 33.1 35.9 29.2 20.9 20.3 16.6 14.9 12.4 64.2 23.3 13.1 10.3Transport Corporation of India 186 180 Buy 1,424 10.8 12.2 15.1 17.2 15.2 12.4 8.4 7.7 6.5 13.4 14.0 15.8 11.9 12.5 13.7Dredging Corporation of India 400 425 Hold 1,120 28.5 27.7 35.5 14.2 14.6 11.4 10.6 9.5 8.6 2.9 2.9 3.3 5.2 4.3 5.2RoA (%)MediaSun TV Limited 521 480 Hold 20,512 23.2 27.3 31.9 22.8 19.3 16.6 11.0 9.6 8.4 36.1 39.8 42.9 24.9 27.7 29.8DB Corp Ltd 387 455 Buy 7,112 16.1 22.0 24.7 24.4 17.9 16.0 13.6 9.8 8.6 29.9 32.8 31.8 22.0 24.3 23.4Dish TV Limited 96 87 Hold 10,195 6.5 2.2 3.6 15.0 44.4 27.2 10.9 9.9 7.7 31.1 35.6 43.9 181.9 38.2 38.4Entertainment Network Limited 840 800 Buy 4,004 21.0 17.4 23.4 40.3 48.5 36.1 25.8 24.9 18.3 14.5 14.2 17.3 13.0 9.8 11.7Eros International Media Ltd 206 225 Hold 1,926 22.9 22.1 28.0 9.0 9.4 7.4 6.1 7.3 5.5 14.0 12.0 14.9 12.1 11.0 12.2HT Media Limited 86 86 Hold 1,996 7.2 6.4 7.5 12.1 13.6 11.7 7.6 5.3 4.3 10.7 11.7 12.5 8.2 6.8 7.4Inox Leisure Ltd 264 290 Buy 2,549 8.4 8.0 9.8 31.6 33.4 27.1 13.9 12.8 10.6 11.1 11.5 13.3 10.9 8.9 9.8Jagran Prakashan Limited 198 220 Buy 6,473 13.6 12.5 14.7 15.0 16.3 13.9 11.6 9.5 7.7 23.9 26.7 28.3 22.5 22.1 21.8PVR Limited 1,182 1,300 Buy 5,522 25.4 22.7 32.4 47.1 52.7 37.0 17.6 16.3 12.6 15.6 14.3 17.6 14.3 11.1 13.6Zee Entertainment Enterprises 554 583 Hold 53,238 10.7 13.1 17.4 52.9 43.3 32.5 34.8 27.6 21.6 25.9 26.6 28.7 16.8 17.0 19.0TV Today Network Limited 323 363 Buy 1,929 15.8 18.8 24.1 19.7 16.6 13.0 11.6 9.2 7.0 27.6 27.3 29.5 17.7 18.0 19.5




Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EMetals, Mining & PipesTata Steel 389 350 Hold 37,800 -23.1 16.2 37.7 NM 24.1 10.3 14.9 8.4 6.3 5.3 7.4 10.8 -7.3 5.0 11.0SAIL 48 45 Hold 19,721 -10.0 2.0 3.8 NM 24.4 12.9 NM 10.9 7.1 -7.9 3.4 6.9 -10.5 2.1 3.9JSW Steel 1,757 1,500 Sell 42,465 57.2 133.7 159.9 31.2 13.3 11.2 13.4 7.1 6.5 4.8 12.6 12.8 6.4 14.2 14.8Hindalco 157 140 Sell 32,410 1.3 11.8 12.8 124.3 13.4 12.4 10.1 7.1 6.6 4.3 7.0 7.6 1.1 6.0 6.1Vedanta Ltd 196 165 Hold 58,152 7.3 6.0 15.4 25.7 28.9 11.3 8.8 8.4 6.3 6.5 6.9 10.4 4.8 4.0 9.6Hindustan Zinc 248 200 Hold 104,851 19.3 17.2 18.5 13.0 14.7 13.6 10.7 10.1 8.5 21.6 20.1 19.5 21.8 17.0 16.5Graphite India 77 75 Hold 1,496 3.1 3.5 4.5 23.8 21.3 16.6 9.6 10.3 6.6 4.4 3.9 9.0 3.5 4.0 5.0HEG 178 150 Sell 710 -3.8 1.0 8.0 NM 181.2 22.3 10.8 10.4 7.9 2.9 3.0 5.2 -1.6 0.4 3.4Maharashtra Seamless 213 215 Hold 1,424 5.8 9.0 13.0 37.0 23.9 16.6 33.8 12.2 8.7 0.2 0.8 4.4 1.4 2.1 3.0Coal India 318 340 Hold 200,829 22.6 21.2 24.3 14.2 15.2 13.2 10.3 10.7 9.1 45.0 45.9 71.6 42.2 41.7 49.9RoA (%)MidCapRallis India 231 240 Buy 4,488 7.4 15.2 10.9 32.6 26.1 21.9 20.6 15.6 13.1 20.1 21.9 24.3 15.9 15.9 17.0Swaraj Engines 1,370 1,320 Buy 1,701 41.2 49.3 60.3 32.4 27.0 22.1 20.0 16.0 12.9 27.9 34.9 42.6 23.9 27.8 32.8VST Tillers & Tractors 1,948 2,100 Buy 1,683 85.8 91.3 105.0 22.8 21.4 18.6 13.6 12.9 10.9 24.4 22.4 22.7 17.6 16.3 16.4KSB Pumps 602 750 Hold 2,096 19.7 23.5 28.7 30.9 26.0 21.3 17.9 16.1 12.7 16.7 17.2 18.9 11.4 12.4 13.6RoA (%)Oil & GasCairn India 226 209 Hold 42,438 -50.3 6.0 4.9 NM 34.1 42.4 10.2 11.6 10.3 -18.9 2.5 2.1 -22.0 -1.2 -1.4GAIL 415 475 Buy 52,642 18.1 28.5 28.0 21.1 13.4 13.7 12.9 9.2 8.1 8.9 13.0 13.0 7.5 10.8 9.9Gulf Oil 766 670 Hold 3,798 20.2 23.4 24.4 37.8 32.6 31.2 23.5 20.8 19.8 38.6 39.1 38.0 40.4 36.5 31.3HPCL 449 402 Hold 45,562 113.9 140.2 120.5 3.8 3.1 3.6 4.5 3.4 3.8 14.3 16.5 13.6 21.0 21.9 16.8IGL 855 870 Buy 11,963 29.7 43.9 46.5 26.4 17.8 16.9 13.6 9.4 8.5 21.7 25.9 139.7 16.0 19.8 -Indian Oil Corporation 645 670 Buy 156,700 42.8 68.7 60.0 14.1 8.8 10.0 49.0 9.2 13.5 2.1 12.5 7.1 12.2 19.2 15.2MRPL 89 105 Buy 15,563 6.6 13.9 12.0 13.4 6.3 7.3 5.5 3.8 5.4 12.0 24.4 18.7 20.7 28.5 20.3ONGC 268 240 Hold 228,988 19.1 19.7 19.7 13.6 13.2 13.2 5.7 5.7 5.5 12.0 12.7 12.0 10.8 10.5 10.1Petronet LNG 374 400 Buy 28,031 12.2 19.4 26.0 29.0 18.2 13.6 16.8 10.6 7.8 15.0 21.4 25.7 11.7 16.9 19.7Castrol 472 500 Buy 23,356 12.4 14.2 15.1 39.1 34.2 32.2 26.1 22.1 20.9 181.0 182.5 177.4 106.9 109.5 107.7GSPL 153 152 Buy 8,600 7.9 10.0 11.7 19.9 15.7 13.4 10.8 8.9 7.5 13.5 15.9 17.2 9.6 11.3 12.2Gujarat Gas 591 615 Hold 8,137 13.0 30.4 40.7 44.7 19.1 14.3 14.2 10.1 8.2 10.8 15.8 18.4 6.4 16.0 18.3BPCL 667 665 Buy 96,474 51.4 53.4 54.3 12.2 11.7 11.6 9.5 8.5 8.3 25.0 23.5 23.8 27.9 24.3 24.0RoA (%)OthersTalwalkars 271 265 Hold 806 18.5 25.8 29.5 15.1 10.8 9.5 6.3 5.5 4.6 13.3 16.3 18.6 12.9 15.4 15.1Cox and Kings 224 200 Hold 3,952 3.6 16.7 24.6 62.3 13.5 9.1 7.4 6.6 5.5 9.7 11.6 13.2 2.7 10.6 13.6Solar Industries India Ltd 664 720 Buy 6,008 18.4 20.5 25.8 36.5 32.7 26.0 21.2 18.7 15.7 21.1 21.7 23.5 19.1 18.2 19.5United Spirits 2,503 3,000 Buy 36,378 66.7 31.1 49.1 38.7 82.9 52.6 39.4 33.5 24.5 28.6 37.7 33.5 54.1 24.1 22.3United Breweries 943 900 Buy 24,943 11.2 13.8 17.0 84.9 69.0 55.8 34.9 30.6 26.4 22.2 22.7 23.9 14.0 15.0 15.9Wonderla Holidays 397 460 Buy 2,244 10.6 12.9 16.9 35.9 29.5 22.5 24.2 17.5 13.1 21.5 19.3 19.5 14.8 15.7 17.5

RoCE (%)Sector / Company CMP Target Price Rating RoE (%)MCap EPS (Rs) P/E (x) EV/EBITDA (x)



Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EPharmaSun Pharma 755 890 Buy 181,609 20.6 32.9 38.9 36.8 23.0 19.5 20.2 14.8 12.6 18.6 22.5 22.4 18.0 20.9 20.5Ajanta Pharma 1,968 1,780 Hold 17,317 45.4 55.1 65.6 46.0 37.9 31.8 31.7 26.4 22.8 42.9 38.3 35.6 34.2 31.2 28.6Lupin 1,485 1,890 Buy 66,927 50.4 68.0 76.8 29.6 22.0 19.4 19.7 14.4 12.2 18.6 21.6 22.3 20.7 22.6 20.4Aurobindo Pharma 857 1,055 Buy 50,149 32.8 42.9 48.7 26.5 20.3 17.9 25.0 20.4 17.8 23.3 24.8 25.3 28.1 26.6 23.6Biocon 958 1,030 Buy 19,151 45.3 33.5 38.3 21.3 28.8 25.2 12.4 9.4 7.7 9.1 13.2 14.7 11.1 14.8 15.0Cadila Healthcare 386 405 Buy 39,476 14.9 15.8 20.0 26.2 24.8 19.5 17.4 17.8 14.2 26.7 23.0 26.5 28.6 24.6 25.4Cipla 578 510 Hold 46,466 18.5 17.0 24.7 31.8 34.6 23.8 20.6 19.3 14.2 12.0 10.7 14.8 12.5 10.5 13.5Dr Reddy's Lab 3,065 2,875 Hold 50,785 117.5 75.7 140.7 26.9 41.7 22.5 13.4 19.8 12.2 17.3 9.2 17.4 20.7 10.0 16.1Divi's Lab 1,269 1,415 Buy 33,688 41.8 45.1 54.5 31.1 28.8 23.8 24.1 21.3 17.6 30.7 29.2 29.8 25.9 23.3 23.4Glenmark 921 1,000 Buy 25,983 32.2 38.3 50.0 28.8 24.3 18.5 18.1 16.4 12.4 16.2 17.4 20.6 21.2 20.4 21.3Indoco 314 365 Buy 2,889 9.0 13.0 19.7 35.3 24.5 16.2 17.7 13.9 10.2 12.5 16.5 23.6 14.2 17.6 22.1Ipca Lab 605 605 Buy 7,638 7.4 21.8 30.1 82.2 27.9 20.2 24.3 15.4 12.2 5.7 11.4 14.3 5.5 11.0 13.5Jubilant Life 626 795 Buy 9,964 27.1 43.9 54.7 24.1 14.9 11.9 11.4 9.0 7.5 12.0 15.9 17.6 14.2 19.7 20.0Natco 609 700 Buy 10,607 8.9 11.2 13.3 67.3 53.6 44.9 38.8 33.7 28.3 16.0 16.8 17.6 11.9 13.3 14.0Torrent Pharma 1,632 1,650 Buy 27,616 101.8 70.9 77.5 16.3 23.5 21.5 10.7 16.0 15.5 46.7 29.6 28.1 53.8 27.9 24.8Unichem lab 282 340 Buy 2,561 11.9 16.5 21.2 24.0 17.3 13.5 15.8 11.9 9.1 13.8 16.8 18.8 11.7 13.8 15.4Alembic Pharma 671 620 Hold 12,640 38.2 21.8 28.3 17.5 30.6 23.7 12.4 21.7 17.4 51.5 24.6 26.1 44.9 21.7 23.5Syngene International 497 570 Buy 9,937 11.1 15.6 18.7 44.1 31.2 26.1 26.9 21.6 17.3 13.2 17.2 19.4 21.0 23.4 22.4

RoA (%)PowerCESC 621 623 Hold 8,229 37.3 56.5 70.6 18.0 10.9 8.7 6.4 6.4 5.7 12.2 11.4 12.0 5.7 8.5 8.9NHPC 25 28 Hold 28,175 2.2 2.3 2.5 12.3 11.5 10.9 10.7 9.3 8.9 7.1 7.9 7.9 8.7 8.7 8.6Power Grid Corporation 178 204 Buy 93,070 11.5 14.0 - 16.1 10.6 - 10.3 8.8 3.1 8.6 8.6 - 14.1 14.9 -PTC India 76 83 Hold 2,242 9.2 7.3 7.7 8.3 10.4 9.8 4.1 4.7 5.5 13.6 11.8 11.1 9.6 7.3 7.4NTPC 149 188 Buy 122,693 12.3 12.8 13.9 13.1 12.6 11.6 11.1 9.7 9.1 7.5 8.8 8.7 11.5 11.0 11.1

RoA (%)Real EstateOberoi Realty 319 340 Hold 10,839 13.0 12.1 31.9 24.0 25.7 9.7 15.7 17.2 5.6 11.0 8.6 21.1 8.0 6.7 15.5Mahindra Lifespace 437 550 Buy 1,795 22.7 26.5 44.6 19.4 16.6 9.9 16.7 9.5 6.2 5.7 9.5 13.9 6.0 6.7 10.4

RoA (%)RetailTTK Prestige 5,300 4,590 Hold 6,170 98.6 127.7 163.8 49.7 38.4 29.9 30.3 24.3 19.1 23.6 23.8 28.1 15.9 18.2 20.2Shopper Stop 369 400 Hold 3,080 -5.2 -0.5 3.4 1,600 180.4 78.7 20.8 19.3 15.3 3.5 3.6 5.4 0.4 3.5 7.5Titan Industries 396 425 Buy 35,139 8.0 9.2 12.4 50.9 43.8 32.6 38.0 28.6 23.3 25.3 32.2 33.8 20.1 20.1 22.7Bata India 486 585 Hold 6,241 17.0 15.2 19.2 29.0 32.4 25.7 22.2 18.3 14.4 35.6 36.4 42.2 18.5 15.2 17.4



Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18ERoadIRB Infrastructure 244 230 Hold 8,591 19.1 16.8 17.1 13.1 15.0 14.7 7.6 7.2 5.5 10.2 10.4 13.4 13.1 10.6 10.0Ashoka Buildcon 175 160 Hold 3,269 3.1 3.7 5.1 55 46.0 33.9 9.7 9.5 8.5 4.0 3.8 4.4 6.2 3.6 4.7PNC Infratech 127 140 Buy 3,254 9.5 7.7 8.4 13.6 16.8 15.4 12.1 10.6 8.0 18.6 16.5 18.7 11.3 12.7 12.4Sadbhav Engineering 282 330 Buy 4,839 7.8 11.9 12.7 36.8 24.2 22.6 18.7 15.5 13.4 12.2 11.9 12.9 9.1 12.2 11.7

RoA (%)TelecomBharti Airtel 320 315 Hold 128,057 13.7 12.2 15.3 23.4 26.3 21.0 6.4 5.9 5.5 9.4 9.8 10.5 6.1 7.7 8.4Bharti Infratel 381 450 Buy 70,535 11.8 14.2 14.9 31.8 26.4 25.2 12.5 11.7 10.8 15.6 16.8 19.0 12.3 15.1 16.2Idea Cellular 80 80 Hold 28,734 8.6 1.8 2.0 9.3 45.3 39.7 5.1 5.7 5.9 9.4 6.1 6.0 12.0 2.4 2.7Tata Communications 604 543 Buy 17,217 -7.4 15.8 24.8 NM 38.4 24.5 9.9 8.3 7.0 5.1 8.4 10.5 333.7 -2,445 156.8

Sector / Company CMP Target Price Rating RoE (%)MCap EPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%)


Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EBanksIndusInd Bank 1,222 1,250 Buy 72,822 38.4 49.5 61.1 32.2 25.0 20.2 4.1 3.6 3.1 1.9 2.0 2.0 15.9 15.3 16.5Yes Bank 1,276 1,150 Hold 53,698 60.3 64.9 82.6 21.1 19.6 15.4 3.9 2.6 2.3 1.7 1.7 1.7 19.9 16.8 15.9Bank of Baroda 164 152 Hold 37,777 -23.3 6.9 19.6 NM 24.3 8.6 1.0 1.0 0.9 -0.8 0.2 0.6 -13.5 4.0 10.5State Bank of India 256 240 Hold 198,805 12.8 17.9 23.7 19.9 14.3 10.8 1.4 1.3 1.2 0.5 0.6 0.7 7.3 9.2 11.3City Union Bank 136 140 Buy 8,111 7.4 8.5 10.1 17.3 15.1 12.7 2.5 2.2 1.9 1.5 1.5 1.6 15.6 15.6 16.2Indian Bank 215 190 Hold 10,305 14.8 21.8 28.5 15.1 10.2 7.8 0.7 0.7 0.6 0.4 0.5 0.6 4.5 6.4 8.0Punjab National Bank 141 112 Hold 29,941 -20.2 14.8 22.0 NM 9.6 6.5 0.8 0.7 0.6 -0.6 0.4 0.6 -10.3 7.3 9.7Axis Bank 528 510 Hold 125,937 34.5 34.6 41.5 16.0 15.9 13.3 2.5 2.2 1.9 1.7 1.5 1.5 16.8 14.5 15.2DCB Bank 125 98 Hold 3,553 6.8 7.0 9.0 17.2 16.7 13.1 1.9 1.7 1.5 1.1 1.0 1.0 12.0 11.2 12.6Federal Bank 73 62 Hold 12,483 2.8 4.0 5.4 26.6 18.4 13.7 1.5 1.4 1.3 0.5 0.7 0.8 5.9 8.0 10.0HDFC Limited 1,422 1,530 Buy 224,829 45.0 46.7 53.4 31.7 30.5 26.7 6.7 6.0 5.4 2.6 2.4 2.4 21.8 20.6 21.3Jammu & Kashmir Bank 86 68 Hold 4,176 8.6 12.9 19.3 10.3 6.9 4.6 0.7 0.6 0.6 0.5 0.7 1.0 6.6 9.4 13.0Kotak Mahindra Bank 784 750 Hold 143,957 11.4 15.7 19.1 69.1 50.0 41.2 6.0 5.3 4.7 1.1 1.4 1.4 9.2 11.3 12.1LIC Housing Finance 583 550 Hold 29,440 32.9 39.3 46.4 18.1 15.1 12.8 3.3 2.7 2.2 1.4 1.4 1.5 19.6 19.6 19.1Reliance Capital 567 498 Hold 14,315 42.8 29.6 30.2 13.3 19.2 18.8 1.1 1.0 1.0 1.8 1.1 1.0 7.4 4.7 4.7CARE 1,450 1,400 Buy 4,264 40.0 46.4 62.4 35.9 30.9 23.0 10.3 9.6 8.9 40.9 44.1 47.5 28.8 31.0 38.7PTC India Financial Limited 38 39 Hold 2,156 7.0 4.6 6.0 5.5 8.3 6.3 1.3 1.0 0.9 5.0 2.9 3.0 24.9 14.5 15.3HDFC Bank 1,281 1,375 Buy 324,253 48.6 58.7 71.7 26.4 21.9 17.9 4.5 3.8 3.4 1.9 1.9 1.9 18.2 18.9 20.2Bajaj Finserv Limited 3,158 2,900 Buy 50,254 117.5 149.4 197.6 27.2 21.4 16.1 4.0 3.3 2.8 1.9 2.1 2.5 15.7 17.0 18.8Bajaj Finance Limited 1,072 1,060 Buy 57,751 246.2 315.9 435.1 4.4 3.4 2.5 0.8 0.7 0.5 3.2 3.2 3.4 21.0 20.9 23.4

RoA (%)Sector / Company CMP Target Price Rating RoE (%)MCap EPS (Rs) P/E (x) P/BV(x)



Pankaj Pandey Head – Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]

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