Investment Strategist - Kotak · PDF filecalculated is now different, impacting the firms' profits, goodwill, net worth, ... Motherson Sumi, Apollo Tyres, Motherson Sumi, Bharat Forge

Global markets were rattled in June, due to the unexpected outcome ofBrexit, apart from continuing uncertainty over US Fed rate decision. Thesharp fall in major European currencies led to cautious sentiments.However, markets have recovered most of the 'Brexit' losses, despiteuncertainty over the future events in UK / EU.

Indian markets have also risen post the Brexit-led sell-off. Sentimentshave remained buoyant on the back of good progress of monsoons andincreased probability of passage of GST bill in upcoming monsoon sessionof Parliament. Government announcements on FDI relaxations, mining, 7thPay Commission, among others, supported specific sectors / stocks.

With rate hike in US being pushed back, the immediate focus would nowbe on - 1. Further progress on Brexit-led events, 2. Impact of Brexit onIndian corporates, 3. Pace and distribution of monsoons, 4. Progress onand passage of GST bill in the monsoon session of Parliament and 5.Quarterly numbers. Q1FY17 numbers will be of interest to us, partlybecause they will now be as per the new Ind-AS standards. On the otherhand, we expect rising utilization levels and lower interest rates to kickstart the private sector capex in medium to long term.

We are hopeful of more legislative and executive reforms by theGovernment in the ensuing months and continue to maintain positivestance on domestic infrastructure and interest-rate sensitive sectors, withmedium to long term perspective. Our preference stays for companieshaving strong balance sheets and ethical managements. We need to beselective on export-oriented sectors, because of the possible Brexitimpact. Key risks to our recommendation would come from geo-politicalconcerns globally, decline in foreign inflows, sharp currency movementsand spike in oil prices.

Benchmark indices - India

Source: Bloomberg

Market performance - sector wise (June 2016)

Source: Bloomberg

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2600

4350

6100

7850

9600

14,000

18,000

22,000

26,000

30,000Sensex (LHS)Nifty (RHS)

MONTHLY FUNDAMENTAL OUTLOOK

Global events to be watched out for in near to medium termBrexit vote has resulted in raising global recession fears. Recurring crises overGovernment debt in Europe, the bumpy slowdown in China and the collapse inoil prices had already impacted the global growth and Brexit is now expected toadd to the recession fear.

US interest rate hike not expected soon

The Fed had kept its benchmark short-term rate at 0.25% to 0.50% after itslast meeting in mid-June acknowledging the pending Brexit vote then. Post theBrexit vote, the volatility witnessed in global markets as well as currencies poserisks to the world economy. Brexit referendum had shifted global risks "to thedownside," potentially posing a new threat to the US central bank's outlook.With a global flight to safety of sovereign bonds, Brexit vote has pulled US Trea-sury yields sharply lower. A stronger dollar has also tightened the financial con-ditions. The implied yields on federal funds futures are also now pricing in a realpossibility of a rate cut by year end. Thus, we do not expect Fed rate hike tohappen anytime soon as dollar has already appreciated and Fed may not want totighten the financial conditions any further.

Brexit impact to be watched out

The Brexit news has raised concerns that other countries might leave the unionand global growth would come under significant pressure. The euro area hasentered a period of worsening political disarray. France is experiencing growingsocio-political problems in the run-up to elections in May 2017. Spanish electionsdelivered a hung parliament for the second time in six months, adding to politi-cal uncertainty in Europe after Brexit vote. Italy is facing a distinct possibility ofa falling government and a new round of chaos next October.

Going ahead, the timing of exit of UK, if at all it happens, is likely to be watchedout for. Withdrawal from EU would have to follow the rules of Article 50 of EUTreaty. Hence it may take nearly 2 years for the exit to materialize. UK wouldalso have to renegotiate trade agreements outside of EU which could extend thetransition period beyond the two-year.

Japan expected to ease monetary policy

Brexit has seen capital flowing into Japan - a haven for worried global investors.Inflows have pushed Japanese Government Bond yields to record lows andstrengthened the Yen. Brexit has fuelled expectations the BoJ will ease policy atits meeting on July 28-29 when it is due to release its latest forecasts for infla-tion and economic growth.

China may announce fresh stimulus to safeguard against slowdown

United Kingdom's vote to leave the European Union exposed China's alreadystretched economic policymakers to another situation of managing Yuan. Chinadid weaken its daily Yuan "fix" to the greenback by nearly 1% during lastmonth, but the response from Chinese authorities in the wake of the Brexit votewill continue to be watched closely for any unexpected moves. China is alreadystruggling with slowing growth and falling exports and with Brexit, it stands tolose one of its strongest allies in the EU trade blocs. This may force China's cen-tral bank to infuse fresh stimulus into its economy, to safeguard against a slow-down led by falling exports. Stimulus incentives include either cutting the bank'sreserve requirement ration several times or lowering its interest rate.

Oil prices

Britain's vote to leave the European Union spurred massive risk aversion and arally in safe havens like the US dollar. This threatened to cut short a three-month-long recovery in global oil markets. Oil prices witnessed huge downwardpressure on account of this. Once the Brexit smokes clears, the fundamentals onsupply and demand will come into focus - and that will decide the movement ofoil going forward. Brent prices have already recovered to $50 / barrel.

Rupee/US$

Source: Bloomberg

Brent Crude (US$/bl)

Source: Bloomberg

20

55

90

125

34.0

44.0

54.0

64.0

74.0


Domestic events to watch out for in near to medium term

Shift towards Ind-AS from Q1FY17

India has changed its accounting standards from GAAP to Ind-AS, which is on apar with International Financial Reporting Standards (IFRS), from April 1 thisyear. All companies with a total net worth of Rs. 5bn or above have to followInd-AS. So, while the financials of companies remain the same, the way they arecalculated is now different, impacting the firms' profits, goodwill, net worth,etc. Banks and NBFCs will start following the Ind-AS from 1st April, 2018 on-wards.

The key areas that can impact various sectors are a) fair valuation of invest-ments b) transactions involving forex, derivatives, equities c)M&A accounting d)ESOP valuation e) grossing up of revenues with excise getting added up f)change in revenue recognition norms g) Loans and advances given to group com-panies h) recognition of dividend in the year in which it is approved i) JV ac-counting in case of consolidation, etc.

Metals, telecom, oil &gas, real estate and infrastructure could be impactedby the same. Grossing up of revenues can be visible in sectors like cement, con-sumers, auto, metals etc. IT companies may not have a material impact asmost of them are already following IFRS.

However, taxation aspect post Ind-AS is likely to be watched out for. Due to theway accounting is done under the new standards, Ind-AS, many transactions in-volving foreign exchange, securities and equity apart from certain demergerscould start attracting MAT. The core of the problem is fair value accounting.Under the old accounting standards, companies would take into account costprice of certain assets including foreign exchange, securities, debentures orshares they hold. But, Ind-AS requires that the companies record the fair valueor the market value of these financial instruments. If the valuation of these in-struments increases, this would boost the book profit, and hence MAT could beimposed on that.

Impact of Brexit on Indian companies

Companies operating in UK will get impacted because trade and non-trade barri-ers between UK and EU may make operations of various sectors and companiesunviable. Also, several companies may want to shift operations out of UK. Com-panies dealing with UK and EU will be impacted because the currency deprecia-tion will make exports to UK / EU unviable and changes in trade / non-traderegulations will impact the prospects and profitability of various companies.

Brexit will have a negative impact on companies in some of the major sectorssuch as IT, Pharma, Auto, Metals. IT companies will be impacted as clients inUK (and probably in EU also) may suspend / postpone spending because of theuncertainty. This can have a negative impact on the revenue growth from Eu-rope as well as on the overall revenues growth. NASSCOM has projected a 10-12% growth for the sector in FY17, which could be at risk. With the deprecia-tion of the GBP / Euro (against INR), the revenues from these economies willface further headwinds.

For Automobile sector, we believe that, companies like Tata Motors,Motherson Sumi, Apollo Tyres, Motherson Sumi, Bharat Forge will be im-pacted due to their exposure in that region. Europe is an important market forTata Motor's JLR as it accounts for ~ 24% of JLR's volumes. Furthermore, JLRalso sources 35-40% of its components from Europe. Motherson's key subsidiarySamvardhana Motherson Automotive System Group BV (SMRPBV) is based out ofNetherlands and accounts for more than 80% of the company's revenues and~45% of the consolidated profits. For Apollo tyres , 30% of revenues and ~25%of profits comes from Europe through its subsidiary Apollo Vredestein B.V. basedout of Netherland while for Bharat Forge, revenues from Europe stands at 39%.

IIP growth (%)

Source: Bloomberg; Note: IIP growth sinceApril 2009 has been recompiled using newseries of WPI

(8.0)

(4.0)

-

4.0

8.0

12.0

16.0

20.0


In Pharma sector, major impact is likely to be felt in Natco Pharma as Natco'soverall EU exposure is ~10% of sales. Plus there are a couple of interestingproduct launches lined up for EU markets, which may get delayed.

In metals sector, Tata Steel, with a significant exposure to the UK and the Euro-pean Union (EU), may take a hit. UK accounts for 25-30% of Tata Steel Europevolume, in our view. Besides the sales in UK, 12% of the (Tata Steel Europe)steel volume is exported from the UK to Europe. In addition, the event is signifi-cant for a potential buyer, as company has already put its UK assets on theblock. Besides, Tata Steel, we believe metal prices would also be under pressureand can have a negative impact on the companies operating in the sector, asthe USD appreciates and there are concerns of a global slowdown.

Q1FY17 results to be watched out closely

We expect Q1FY17 results to reflect the shift towards Ind-AS and hence the re-sults may not be directly comparable with last year. Also, currency fluctuations,oil price movement, impact of Brexit on the companies are likely to be watchedout quite closely during Q1FY17.

April - June is a seasonally strong quarter for the IT sector and the rupee hasalso depreciated v/s the USD, which will provide tailwinds to the sector. How-ever, the sharp depreciation of the GBP / Euro against USD will impact the CCgrowth negatively. We will watch out for the currency fluctuations as sustainedweakness in GBP will impact CC growth for the full fiscal for the sector.

For most of our coverage universe in pharma sector, we expect US revenues todip QoQ led by high base as well as lack of US ANDA approvals, except for Lupin(due to consolidation of Gavis acquisition). For the domestic business, pick up inseasonal revenues would give some respite post a host of price cuts and bansannounced by the NPPA. The key thing to look out will be clarity in USFDA re-inspections/resolution for Sun, Dr Reddy's, Cadila and Lupin.

Cement sector has seen the revival in demand from government led projectsalong with stability in cement prices in most of the regions. This is likely to resultin improved volumes for the quarter as well as better average realizations se-quentially. Costs are likely to remain stable till Q1FY17 despite higher pet cokeprices on account of adequate inventories with the companies. Hence, we ex-pect EBITDA per tonne to improve sequentially for the sector. Revenues for thesector are likely to look higher post adopting Ind-AS as excise is expected to beadded up.

Construction sector is expected to witness improved topline on yearly basis butis expected to decline sequentially on higher base of Q4FY16. Sector is likely tosee increased activity going forward with ramping up of order inflows in roadEPC and hybrid annuity model. So far as the capital goods sector is concerned,we are yet to see large greenfield investment announcements by corporates.However, among the several sub sectors in capital goods, we are seeing pocketsof growth. Herein, we are seeing good demand for room AC's arising fromfavourable weather. There are early signs of uptick in short cycle products likeindustrial transformers, inverters, defence equipment, construction equipmentetc. For oil and gas sector, during Q1FY17, brent crude oil price increased 33%to US$47/bbls (average) supported by drop in US inventory levels and lower oilsupply news flow. Thus, refining margins are likely to come under pressure dueto fall in product prices but partly mitigated by inventory gains.

Demand in the automobile sector in 1QFY16 has witness improvement. MHCVsegment continues to grow at a strong pace, but growth in other segments isstill low. However, all the segments are reporting growth. On a YoY basis, rawmaterial cost are still low YoY and that should be positive for operating margins.Going ahead good monsoons, seventh pay commission payout and economic re-covery are expected to translate into demand pick-up for the automobile sector.


Monsoon session of Parliament - GST in focus

Cabinet has already cleared 7th pay commission recommendations and also ap-proved new minerals exploration policy. New minerals exploration policy is ex-pected to pave way for auction of 100 prospective mines.

The monsoon session of Parliament is likely to begin from July 18 and concludeon August 12. With increased strength and support from other political parties inRajya Sabha, the government is keen to get the GST Bill, which has been pend-ing for a long time now. The bill has already been passed in Lok Sabha and oncepassed in Rajya Sabha, it is expected to provide huge fillip to sectors like logis-tics, ceramics, plywood, paint, auto and auto ancilliaries.

Monsoons pacing up

The monsoon has started off on a shaky note with a 22% rainfall deficit in mid-June, delaying crop planting and triggering a rise in the price of food, particularlyvegetables, but the vital weather system is poised to strengthen quickly andcover more parts of the country.

As per IMD, rains in 2016 would be 106% of the long-term average. With weak-ening of El nino, monsoon is expected to be robust during this season bringingrespite to policymakers along with states in extreme conditions of drought.

This could bring relief to the 10 states that are suffering from the worst droughtin decades. Apart from the kharif season, the impact of the monsoon is also cru-cial for rabi crops as it has an impact on the ground water and also reservoirswhich are critical for rabi crops irrigation. Although, the contribution of Agricul-ture in gross domestic product (GDP) has declined in recent years, rural incomescontinue to remain a strong demand driver for Tractors, 2W, FMCG and Ce-ment sectors. Expectedly, these sectors are witnessing strong investor interestpost the monsoon forecast by IMD. We expect these sectors to witness contin-ued interest in the coming weeks

FII's remain net buyers during the month

FII's were net buyers for the month of June, 2016 to the tune of Rs. 36.9 bn dur-ing June (till 29th June), while they are buyers to the tune of Rs.181 bn YTDCY2016. Mutual funds witnessed selling during the month post Brexit vote butstill were net buyers for the month for Rs2.7 bn during June 2016 while CYTD,MFs are buyers to the tune of Rs.97 bn (till 29th June). Uncertainty regardingtiming of Brexit, US Fed rate movement are likely to impact FII inflows but themarkets would now take cues from the progress of the monsoon, reform pro-cess during monsoon session of parliament as well as quarterly results.

FII & Mutual Fund investment (Rs Cr)

Source: Bloomberg

-20,000

-10,000

0

10,000

20,000

30,000 FII MF


MORNING INSIGHT July 1, 2016

Recommendation

We are hopeful of more legislative and executive reforms by the Government inthe ensuing months and continue to maintain positive stance on domestic infra-structure and interest-rate sensitive sectors, with medium to long term perspec-tive. Our preference stays for companies having strong balance sheets and ethi-cal managements. We need to be selective on export-oriented sectors, becauseof the possible Brexit impact. Key risks to our recommendation would come fromgeo-political concerns globally, decline in foreign inflows, sharp currency move-ments and spike in oil prices.

Preferred picks

Domestic Cyclicals / Investment oriented sectors

Sector Stocks

Agrochemicals Insecticides India Ltd

Automobiles Mahindra & Mahindra

Building Material Century Plyboards

Banking, NBFCs Axis Bank, ICICI Bank, SBI, IDFC Bank

Capital Goods, Engineering Praj Industries, Voltamp, Bajaj Electricals,

Cummins India, Greaves Cotton.

Cement Grasim Industries, Ultratech Cements, India Cements

Construction IRB Infra, NCC, PNC Infratech, NBCC

Education MT Educare

Logistics, Transportation Adani Port, Allcargo, GDL

Metals Hindustan Zinc

Midcap Finolex Industries

Oil & Gas GSPL, Petronet LNG, Castrol India

Paints Asian Paints, Berger Paint

Real Estate Phoenix Mills

Source: Kotak Securities - Private Client Research

Export oriented / Defensive sectors

Sector Stocks

IT Infosys, NIIT Ltd

Media TV18 Broadcast

Pharmaceuticals Alembic Pharma, Natco Pharma



Nifty : 8288

Stock Weight MCap Current PE (x) / PABV (x)*(%) (Rs mn) Price FY17E FY18E Comment

(Rs)

Infosys 9 2,703,254 1171 17.0 15.4 We believe that, the new strategy should allow Infosys toimprove growth rates over the long term withsustained margins.

Infosys has already made significant progress towardsnext-generation services and delivery mechanisms.

Ashok Leyland 9 281,754 99 21.5 16.2 As the economy recovers, we expect healthy volume forthe MHCV industry to continue over FY17/FY18.

We expect operating margins to stay healthy

SBI 9 1,470,931 219 1.9 1.6 SBI being the largest Indian bank with comfortablecore capital

It is likely to be one of the biggest beneficiaries ofimprovement in the macro economic environment

Stock is trading at reasonable valuations

Sun Pharma 9 1,838,184 764 26.3 20.8 Sun's Halol plant will be possibly inspected in the month ofJul-Aug 2016, post which (if cleared) will lead to pick up inUS revenues

Rich US pipeline, strong domestic growth as well asattractive valuation makes Sun a prefered buy in thelarge cap pharma space

GDL 8 33,588 311 22.4 18.7 Volumes to impove in the CFS segment with the companyregaining its lost market share

Container rail segment to benefit from upcoming DFCand new terminal at JNPT

Company is one the major beneficiaries of GST bill

NIIT Ltd 8 14,242 86.0 13.2 10.5 The initiatives taken by the new management have led toearlier-than-expected benefits on margins.

We remain optimistic on the future prospects of NIIT.

Cummins India Ltd 8 234,788 847.0 28.8 26.1 Recovery in domestic business led by power generation andindustrial division augers well for Cummins business.

Allcargo 8 45,684 182 15.0 13.4 Volumes continue to be healthy in the MTO segment forALL

We believe ALL to outperform its peers in CFS segment andreport marginal growth

Company is one the major beneficiaries of GST bill

Insecticides India Ltd 8 9,963 482 16.8 12.2 IIL would be one of the best play if monsoon in 2016turns out to be above normal as forecasted by IMDand Skymet

IIL has moved up in the value chain, by shifting its focusfrom trading of generic pesticides to sale of brandedproducts and inlicensed products

Century Plyboard 8 43,614 196 22.3 20.2 Company is a key beneficiary of GST. Demand has startedrecovering for plywood in key pockets

MDF capacity expansion on time Stock is available at attractive valuations

PLNG 8 220,500 294.0 18.3 13.0 Dahej LNG expansion (50% capacity addition to 15 mmtpa)is going on as per schedule and will be completed byNov/Dec’16.

We expect FY18E to be driven by acceleration involume growth, supported by expansion.

TV18 Broadcast 8 77,040 45.0 29.1 19.9 Strong Ratings Performance augur well for medium-termvisibility, potential for re-rating

Valuations reasonable at 20x FY18E PER

Source : Kotak Securities - Private Client research; * P/ABV ratio for SBI

ONE MONTH PORTFOLIO - JULY

Stock Recommendations

Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) P/ABV (x)Name of the Company Reco ^ as on on latest price (Down- Report Cap

30-Jun Report target^ side) Date (Rs mn) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E(Rs) (Rs) (Rs) (%)

Banking

Allahabad Bank SELL 69 51 45 (35.0) 17-May-16 34,600 8.1 12.6 8.5 4.0 4.4 6.8 2.0 1.2

Andhra Bank SELL 58 52 50 (13.5) 10-May-16 32,344 9.5 13.8 6.1 3.8 6.1 8.5 1.0 0.7

Axis Bank BUY 534 480 540 1.2 27-Apr-16 1,264,662 38.8 45.2 13.8 10.6 17.6 18.5 2.4 2.2

Bank of Baroda SELL 154 155 142 (7.8) 16-May-16 317,445 6.2 7.4 24.8 20.9 4.4 5.1 2.4 1.6

DCB Bank BUY 97 88 103 6.0 20-Apr-16 24,329 7.0 NM 13.9 NM 10.6 NM 1.5 NM

HDFC Bank ACCUMULATE 1,176 1,092 1,200 2.0 25-Apr-16 2,799,245 58.6 NM 20.1 NM 19.9 NM 3.8 NM

ICICI Bank BUY 241 237 314 30.5 02-May-16 1,386,687 17.4 20.9 13.8 11.3 11.2 12.5 1.7 1.5

IDFC Bank BUY 45 50 78 72.6 28-Apr-16 153,047 1.9 2.9 24.2 17.1 4.5 6.7 1.2 1.2

Indian Bank BUY 141 86 110 (22.1) 13-May-16 60,684 12.4 13.9 11.4 6.2 4.5 4.9 0.8 0.8

Jammu & Kashmir Bank BUY 69 58 83 20.5 30-May-16 33,417 9.5 12.7 7.3 4.6 6.9 8.5 0.7 0.6

Punjab National Bank REDUCE 106 88 90 (15.0) 10-Feb-16 179,606 11.5 NM 9.2 NM 5.5 NM 1.1 NM

State Bank of India BUY 219 196 260 18.8 30-May-16 1,468,236 15.8 18.5 13.8 10.6 8.3 9.0 1.9 1.6

Union Bank of India ACCUMULATE 128 116 125 (2.6) 16-May-16 70,629 22.4 26.4 5.7 4.4 7.2 8.0 1.3 0.9

NBFCs

HDFC Ltd BUY 1,254 1,093 1,380 10.1 03-May-16 1,842,667 46.7 53.1 26.8 20.6 20.5 20.9 5.5 5.0

IDFC BUY 48 43 77 62.1 03-May-16 75,525 NM NM NM NM 7.6 10.1 0.7 0.7

LIC Housing Finance BUY 495 468 550 11.1 21-Apr-16 235,125 36.3 NM 13.6 NM 18.5 NM 2.4 NM

M&M Financial Services SELL 334 298 285 (14.7) 26-Apr-16 159,891 13.7 NM 24.4 NM 11.9 NM 3.6 NM

Shriram Transport Finance Co BUY 1,204 944 1,080 (10.3) 02-May-16 269,674 74.5 87.9 16.2 10.7 16.6 17.1 2.7 2.5

S

FUNDAMENTAL STOCK RECOMMENDATION


Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) EV/EBIDTA (x)Name of the Company Reco^ as on on latest price (Down- Report Cap


Agrochemical

Insecticides (India) Ltd BUY 482 455 554 14.9 10-Jun-16 9,965 29.0 40.0 16.6 12.1 13.6 16.5 10.1 8.0

Auto & Auto Ancillary

Apollo Tyres BUY 152 159 185 22.1 13-May-16 76,356 22.7 24.6 6.7 6.2 17.4 16.5 4.2 4.2

Ashok Leyland ACCUMULATE 98 104 115 16.9 27-May-16 261,709 4.6 6.1 21.4 16.1 21.8 24.0 11.2 8.8

Bajaj Auto Ltd ACCUMULATE 2,690 2,505 2,720 1.1 27-May-16 778,472 133.9 156.2 20.1 17.2 29.0 28.8 13.1 10.9

Eicher Motors Ltd # REDUCE 19,222 19,687 20,054 4.3 06-May-16 519,005 619.7 812.2 31.0 23.7 40.5 38.1 16.1 11.9

Escorts Ltd ACCUMULATE 220 222 244 11.0 30-Jun-16 26,894 13.2 18.8 16.7 11.7 8.1 10.6 12.5 8.8

Hero MotoCorp Ltd ACCUMULATE 3,178 2,894 3,134 (1.4) 06-May-16 635,650 170.7 189.9 18.6 16.7 39.8 37.9 12.5 11.0

Mahindra & Mahindra ACCUMULATE 1,430 1,331 1,447 1.2 31-May-16 880,849 57.0 67.3 25.1 21.2 15.2 15.9 17.2 14.3

Maruti Suzuki India Ltd ACCUMULATE 4,187 3,872 4,154 (0.8) 27-Apr-16 1,264,534 187.9 230.8 22.3 18.1 19.5 20.6 10.8 8.7

Motherson Sumi Systems Ltd REDUCE 290 290 298 2.7 18-May-16 383,802 11.5 14.6 25.2 19.9 31.8 31.6 8.8 6.9

Tata Motors BUY 459 421 488 6.3 31-May-16 1,457,660 41.6 46.8 11.0 9.8 16.7 16.6 4.1 3.5

TVS Motors SELL 310 287 271 (12.4) 04-May-16 147,043 12.9 15.9 24.0 19.5 28.3 27.9 14.8 12.2

Building Material

Century Plyboards (India) Ltd BUY 196 173 204 4.3 13-May-16 43,510 8.8 9.7 22.2 20.2 30.1 25.1 15.2 13.1

Greenply Industries Ltd BUY 250 197 224 (10.4) 25-May-16 30,170 12.2 12.5 20.5 20.0 21.8 18.4 11.7 11.8

Kajaria Ceramics Ltd ACCUMULATE 1,206 1,061 1,120 (7.1) 29-Apr-16 91,149 37.9 44.8 31.8 26.9 28.6 26.7 17.2 14.5

Supreme Industries Ltd ACCUMULATE 913 798 846 (7.4) 22-Apr-16 115,995 31.2 38.4 29.3 23.8 29.4 29.7 15.4 12.9

Capital Goods & Engineering

ABB Ltd * SELL 1,220 1,292 1,113 (8.8) 27-Apr-16 258,530 25.9 31.8 47.1 38.4 17.0 17.9 25.2 21.3

AIA Engineering SELL 1,029 919 918 (10.8) 26-May-16 96,703 49.1 54.1 21.0 19.0 18.9 18.1 13.0 11.6

Bajaj Electricals Ltd ACCUMULATE 238 236 270 13.6 31-May-16 23,475 13.9 18.8 17.1 12.6 17.1 20.0 7.7 6.1

Bharat Electronics ACCUMULATE 1,267 1,190 1,277 0.8 31-May-16 304,104 63.8 65.6 19.9 19.3 16.9 15.7 14.3 13.4

BHEL REDUCE 128 128 130 1.8 30-May-16 312,482 4.4 7.3 29.0 17.5 3.2 5.2 14.9 6.9

Blue Star Ltd ACCUMULATE 438 416 448 2.4 01-Jun-16 39,340 15.4 21.2 28.4 20.6 15.8 19.7 16.5 12.3

Carborundum Universal Ltd ACCUMULATE 239 202 215 (10.1) 06-May-16 44,702 9.9 13.4 24.1 17.8 14.9 18.1 11.7 9.4

Crompton Greaves REDUCE 74 72 76 3.1 22-Jun-16 47,318 3.8 5.1 19.4 14.5 5.2 6.6 7.0 5.3

Cummins India BUY 849 807 970 14.3 27-May-16 235,315 29.4 32.4 28.9 26.2 24.7 25.0 27.6 24.7


STOCK RECOMMENDATIONS

Elgi Equipment Ltd SELL 173 174 125 (27.9) 01-Jun-16 27,381 5.3 7.0 32.7 24.8 14.8 17.2 16.9 13.4

Engineers India Ltd BUY 204 182 210 3.1 27-May-16 68,647 11.1 13.7 18.4 14.9 13.6 15.7 13.3 8.9

Greaves Cotton BUY 139 138 160 15.4 10-May-16 33,864 8.6 9.8 16.1 14.2 22.7 22.2 9.6 8.3

Havells India Ltd SELL 360 341 330 (8.3) 13-May-16 224,615 9.5 11.4 37.9 31.6 28.6 29.5 28.1 23.7

Larsen & Toubro BUY 1,497 1,291 1,471 (1.7) 26-May-16 1,380,521 58.4 74.1 25.6 20.2 11.8 13.7 15.6 12.9

Praj Industries Ltd ACCUMULATE 95 86 92 (2.7) 24-May-16 16,735 3.9 4.6 24.2 20.6 10.2 11.5 13.2 10.7

Siemens India * * SELL 1,310 1,151 1,130 (13.7) 19-May-16 433,511 29.7 NM 44.1 NM 15.6 NM 25.7 NM

Suzlon Energy RATING SUSPENDED 17 23 NA - 03-Jun-15 26,046 NM NM NM NM NM NM NM NM

Thermax ACCUMULATE 826 739 791 (4.2) 27-May-16 98,276 23.3 28.1 35.4 29.4 9.8 11.9 19.7 17.0

Time Technoplast Ltd BUY 49 49 67 36.0 06-Jun-16 10,293 6.6 8.1 7.5 6.1 11.3 12.5 4.4 3.9

Va Tech Wabag Ltd ACCUMULATE 592 555 595 0.4 30-May-16 31,395 23.3 33.1 25.4 17.9 12.2 15.3 11.6 8.8

Voltamp Ltd BUY 796 803 950 19.3 01-Jun-16 8,044 52.0 68.0 15.3 11.7 11.0 13.0 10.7 7.4

Voltas Ltd ACCUMULATE 322 323 347 7.7 20-May-16 106,504 13.1 15.1 24.6 21.3 16.9 16.9 18.0 14.9

Cement

ACC ## REDUCE 1,616 1,437 1,441 (10.8) 29-Apr-16 303,543 50.9 60.7 31.7 26.6 10.8 11.7 18.9 15.8

Grasim Industries BUY 4,666 4,144 4,663 (0.1) 10-May-16 427,840 331.3 403.4 14.1 11.6 11.6 12.6 5.2 4.0

India Cements BUY 113 93 105 (7.1) 27-May-16 34,706 4.9 7.0 23.1 16.2 3.9 5.4 5.4 4.8

Shree Cement ACCUMULATE 14,546 12,950 13,604 (6.5) 27-May-16 506,798 NM 409.4 NM 35.5 17.8 20.2 20.3 15.9

UltraTech Cement ACCUMULATE 3,411 3,278 3,480 2.0 26-Apr-16 934,614 112.0 136.3 30.5 25.0 13.9 14.8 15.7 12.7

Construction

IL&FS Transportation Network REDUCE 73 73 76 3.9 16-May-16 14,211 7.1 8.1 10.3 9.0 3.4 3.8 11.8 12.5

IRB Infrastructure Developers BUY 213 219 297 39.2 20-May-16 70,926 18.3 15.0 11.7 14.2 12.4 9.2 6.8 6.9

KNR Construction BUY 558 555 642 15.0 01-Jun-16 15,683 40.0 45.0 14.0 12.4 14.4 14.2 9.7 7.7

Nagarjuna Construction BUY 74 71 95 27.9 25-May-16 41,279 4.8 5.5 15.5 13.5 7.6 8.0 7.6 6.9

NBCC BUY 191 196 229 20.1 17-May-16 121,031 6.8 9.2 27.9 20.8 25.0 27.9 21.1 14.2

PNC Infratech Ltd BUY 580 573 671 15.7 31-May-16 29,754 37.4 39.7 15.5 14.6 13.0 12.2 9.8 7.9

Simplex Infrastructures ACCUMULATE 265 273 295 11.3 01-Jun-16 13,165 21.5 24.5 12.3 10.8 6.7 7.2 5.9 5.4

Education

MT Educare Ltd BUY 171 191 239 39.8 19-May-16 6,802 11.2 13.3 15.3 12.8 27.0 26.6 8.8 7.2





FMCG

Colgate Palmolive (India) Ltd ACCUMULATE 919 834 927 0.9 25-May-16 249,832 23.1 27.3 39.8 33.6 56.0 66.2 23.4 20.4

Dabur India Ltd BUY 309 269 305 (1.2) 29-Apr-16 536,434 8.3 9.5 37.2 32.5 29.4 28.6 29.5 25.0

Godrej Consumer Products Ltd REDUCE 1,607 1,366 1,400 (12.9) 04-May-16 520,090 39.0 43.8 41.2 36.7 23.7 22.3 28.5 24.4

Hindustan Unilever REDUCE 899 846 852 (5.2) 10-May-16 1,940,868 21.9 24.3 41.0 37.0 124.8 131.5 28.7 25.7

ITC Ltd BUY 368 330 388 5.3 23-May-16 2,850,679 14.0 16.2 26.3 22.7 33.8 35.3 17.3 15.0

Marico Ltd REDUCE 264 259 267 1.3 02-May-16 339,517 6.5 7.6 40.6 34.7 34.9 35.5 26.8 22.9

Nestle India Ltd ACCUMULATE 6,492 5,710 6,000 (7.6) 13-May-16 625,992 127.8 150.1 50.8 43.3 37.8 45.4 27.6 24.1

Pidilite Industries SELL 720 653 630 (12.5) 23-May-16 365,709 17.2 19.1 41.9 37.7 28.7 27.0 27.4 24.8

Information Technology

Cyient Ltd (Infotech) REDUCE 490 482 497 1.4 22-Apr-16 54,450 36.2 41.4 13.5 11.8 19.4 18.9 8.5 7.0

Geometric Ltd RATING SUSPENDED 222 208 NA #VALUE! 09-May-16 13,881 17.2 NM 12.9 NM 21.3 NM 5.3 NM

HCL Technologies REDUCE 730 800 838 14.7 29-Apr-16 1,031,395 57.4 64.3 12.7 11.4 17.3 16.6 9.2 8.2

Infosys Technologies BUY 1,171 1,173 1,371 17.1 18-Apr-16 2,678,771 69.0 76.1 17.0 15.4 24.6 24.7 12.3 11.0

KPIT Technologies BUY 184 161 183 (0.7) 29-Apr-16 35,238 16.5 18.6 11.2 9.9 20.4 19.2 6.4 5.3

Mphasis Ltd SELL 573 536 527 (8.1) 13-Jun-16 119,697 38.9 41.8 14.7 13.7 13.4 13.5 9.3 8.5

NIIT LTD BUY 86 84 96 11.5 11-May-16 14,181 6.5 8.2 13.2 10.5 12.7 14.5 15.5 11.1

NIIT Technologies ACCUMULATE 513 512 552 7.7 08-Jun-16 30,073 49.8 55.7 10.3 9.2 17.9 17.5 4.8 4.2

Oracle Financial Services Soft ACCUMULATE 3,464 3,497 3,685 6.4 19-May-16 290,122 163.0 186.0 21.3 18.6 35.8 36.3 14.2 12.7

Tata Consultancy Services (TCS) ACCUMULATE 2,553 2,522 2,725 6.7 20-Apr-16 4,997,438 135.6 155.3 18.8 16.4 41.1 37.7 13.4 11.4

Wipro Technologies SELL 558 602 583 4.5 21-Apr-16 1,365,136 39.3 43.2 14.2 12.9 20.6 20.2 10.4 8.9

Zensar Technologies REDUCE 971 947 958 (1.3) 26-Apr-16 41,862 75.4 85.1 12.9 11.4 21.5 20.4 7.9 6.5

Logistics

Adani Port & Special Eco Zone BUY 207 235 320 54.7 04-May-16 414,424 17.8 20.3 11.6 10.2 22.6 20.9 10.9 9.9

Allcargo Global Logistics BUY 182 174 200 9.6 23-Jun-16 49,978 12.1 13.6 15.1 13.4 12.4 12.3 9.2 8.4

Blue Dart Express SELL 5,983 6,249 5,655 (5.5) 20-Apr-16 141,796 87.9 94.3 68.1 63.4 35.6 29.4 39.8 37.2

Container Corporation of India SELL 1,431 1,360 1,260 (11.9) 27-May-16 278,957 45.7 50.6 31.3 28.3 10.2 10.5 22.3 20.1

Gateway Distriparks Ltd BUY 309 299 365 18.0 28-Apr-16 33,415 13.9 16.6 22.3 18.6 12.8 13.9 11.1 9.7

Gujarat Pipavav Port Ltd (GPPL) BUY 163 156 175 7.1 20-May-16 69,282 4.9 5.2 16.5 31.4 11.7 11.7 16.1 15.0





Media

Dish TV India Ltd ACCUMULATE 98 87 94 (3.8) 24-May-16 103,953 2.4 3.9 40.7 25.1 NM 53.5 9.6 8.6

Entertainment Network (ENIL) ACCUMULATE 755 673 725 (3.9) 24-May-16 35,994 17.5 26.8 43.1 28.2 10.3 14.1 20.0 14.0

HT Media NR 77 - - - - 18,036 NM NM NM NM NM NM NM NM

Hindustan Media Ventures Ltd BUY 273 266 336 23.0 26-May-16 20,050 28.4 31.1 9.6 8.8 20.7 18.8 6.9 5.4

Sun TV Network ACCUMULATE 364 383 414 13.8 30-May-16 143,396 24.4 25.7 14.9 14.2 29.7 36.9 7.1 6.6

TV18 Broadcast BUY 45 39 56 24.3 22-Apr-16 77,036 1.5 2.3 30.0 19.6 7.0 9.4 20.2 14.0

Zee Entertainment Ent REDUCE 457 465 467 2.3 15-Jun-16 446,457 13.0 16.7 35.1 27.3 19.0 21.1 23.8 18.2

Metals & Mining

Hindustan Zinc ACCUMULATE 181 171 185 2.5 17-Jun-16 762,882 17.0 18.5 10.6 9.8 16.9 16.5 6.6 5.7

JSW Steel ACCUMULATE 1,464 1,304 1,370 (6.4) 19-May-16 353,933 100.3 119.3 14.6 12.3 10.1 10.7 6.8 6.1

National Aluminium Co REDUCE 43 42 44 2.3 31-May-16 110,811 2.8 3.1 15.4 13.9 8.3 8.8 4.8 4.1

Tata Sponge Iron Ltd BUY 623 547 625 0.3 28-Apr-16 9,598 47.9 57.1 13.0 10.9 8.5 9.4 4.8 3.5

Mid-Cap

Finolex Industries BUY 427 416 504 18.1 29-Jun-16 52,936 21.4 26.5 19.9 16.1 25.8 27.2 12.3 9.9

Oil & Gas

Aban Offshore Ltd SELL 212 197 151 (28.8) 24-May-16 12,299 24.0 37.0 8.8 5.7 2.5 3.9 7.8 7.4

Cairn India Ltd SELL 141 144 131 (6.8) 26-Apr-16 263,512 6.1 8.8 23.0 16.0 2.3 3.3 3.0 NM

Castrol India Ltd * * BUY 379 374 446 17.7 24-Jun-16 187,439 13.9 14.8 27.3 25.6 74.9 68.8 17.4 16.3

Chennai Petroleum Corporation BUY 197 203 235 19.1 24-May-16 29,405 48.3 52.1 4.1 3.8 27.8 24.2 4.1 4.1

Gujarat State Petronet Ltd (GSPL) ACCUMULATE 143 136 150 4.7 20-May-16 80,391 10.2 11.0 14.0 13.0 13.0 13.0 7.3 6.6

Indraprastha Gas (IGL) ACCUMULATE 628 568 602 (4.1) 16-May-16 87,857 33.3 35.9 18.8 17.5 18.0 17.0 9.9 9.0

MRPL ACCUMULATE 68 70 77 13.2 13-May-16 119,136 4.9 5.7 14.0 11.9 13.4 13.8 6.4 4.6

Oil India Ltd BUY 352 348 412 17.0 30-May-16 211,707 42.0 46.0 8.4 7.7 10.4 10.8 3.9 3.3

Petronet LNG ACCUMULATE 294 279 304 3.3 16-Jun-16 220,650 16.1 22.6 18.3 13.0 17.3 20.7 10.0 6.6

Paints

Asian Paints Ltd ACCUMULATE 1,003 999 1,065 6.1 20-Jun-16 962,165 21.9 23.3 45.8 43.1 31.7 29.5 28.5 26.0

Berger Paints ACCUMULATE 276 283 300 8.6 14-Jun-16 191,407 6.5 7.5 42.5 36.8 24.6 23.3 25.4 22.1

Kansai Nerolac Paints Ltd SELL 310 295 290 (6.5) 29-Apr-16 167,171 7.7 8.1 40.3 38.3 22.0 20.2 25.0 24.1





Pharmaceuticals

Alembic Pharma BUY 574 619 700 22.0 28-Apr-16 108,448 23.6 29.3 24.3 19.6 25.1 25.7 18.3 13.7

Cadila Healthcare Ltd ACCUMULATE 328 327 360 9.7 16-May-16 335,978 15.4 18.0 21.3 18.2 24.0 22.8 14.8 12.4

Cipla SELL 501 495 480 (4.2) 25-May-16 402,804 19.9 24.6 25.2 20.4 12.7 14.0 15.3 13.0

Dr Reddy's Laboratories Ltd SELL 3,382 2,960 2,640 (21.9) 10-Feb-16 575,565 132.2 NA 25.6 NA 17.8 NA 14.5 NA

Lupin ACCUMULATE 1,540 1,433 1,580 2.6 10-Jun-16 690,401 68.3 78.9 22.5 19.5 25.0 23.4 14.3 12.1

Natco Pharma Ltd BUY 580 469 608 4.8 30-May-16 101,027 23.9 29.1 24.3 19.9 24.3 22.8 17.2 13.9

Sun Pharmaceuticals BUY 763 763 915 19.9 01-Jun-16 1,836,019 29.0 36.7 26.3 20.8 19.8 20.2 16.3 12.6

Torrent Pharmaceuticals SELL 1,373 1,333 1,320 (3.8) 24-May-16 232,012 64.1 69.4 21.4 19.8 28.6 25.3 15.1 13.8

Power

NTPC ACCUMULATE 156 143 160 2.4 31-May-16 1,288,850 12.1 11.4 12.9 13.7 11.7 10.3 7.8 6.4

Tata Power Company Ltd BUY 73 76 84 14.5 14-Jun-16 174,060 8.5 8.6 8.6 8.5 15.4 13.6 5.1 4.8

Real Estate

Phoenix Mills Ltd BUY 347 313 366 5.6 18-May-16 50,227 11.3 16.1 30.7 21.5 9.0 11.7 9.4 8.3

Shipping

GE Shipping Company SELL 313 317 300 (4.3) 06-May-16 47,629 73.8 63.8 4.2 4.9 11.8 9.4 3.5 3.9

Reliance Defence & Engg Ltd ACCUMULATE 63 65 70 10.6 17-May-16 43,753 NM NM NM NM NM NM NM NM

Shipping Corporation of India SELL 67 67 66 (1.3) 09-Jun-16 28,311 11.0 10.2 6.1 6.6 6.9 6.0 5.8 2.5


^ All recommendations are with a 9-12 month perspective from the date of the report/update. Investors are requested to use their discretion while deciding the timing, quantity of investment as wellas the exit.

* Figures for CY16 & CY17** Figures for CY17 & CY18# Figures for CY16 & FY18 (15 month period)## Figures for CY17 & CY18 - September year endingNR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circum-

stances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.NM= Not Meaningful





BUY

Current Market Price (Rs) 52 Week H/L (Rs) Mkt Cap (Rs mn)

796 962 / 618 8054

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 5,633 6,279 7,221 Growth (%) 9.0 11.5 15.0EBITDA 374 508 718 EBITDA margin (%) 6.6 8.1 9.9 PBT 593 696 940 Net profit 440 522 684 EPS (Rs) 43.5 51.6 67.7 Growth (%) 56.2 18.6 31.2 CEPS (Rs) 49.4 58.1 74.7 Book value (Rs/share) 490.6 490.6 540.7 Dividend per share (Rs) 14.0 14.0 15.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 10.7 10.7 12.9 ROCE (%) 10.8 10.8 13.0 Net cash (debt) 2,589 2,589 2,729 Net Working Capital (Days) 121.3 121.3 122.5

VALUATION PARAMETERS FY16 FY17E FY18EP/E (x) 18.3 15.4 11.8

P/BV (x) 1.6 1.6 1.5

EV/Sales (x) 1.0 0.9 0.7

EV/EBITDA (x) 15.6 10.8 7.4

PRICE PERFORMANCE (%) 1M 3M 6M0.7 0.2 (14.3)

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company

Transformer mix in Revenue (%)

Potential Upside (%)

19.3%

1 Year Performance

Share Holding Pattern (%)

Order backlog (Rs mn)

Last report at Rs.803 on 1 June 2016

VOLTAMP LTD

Target Price (Rs)

950

Promoter47.5%

FII28.9%

DII11.3%

Others12.3%

0

1,000

2,000

3,000

4,000

5,000

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16

Power50%

Distribution32%

Dry type18%

50

110

170

230

290

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Voltamp Ltd Nifty

INVESTMENT ARGUMENT One of the consistently profitable company in the transformer

manufacturing space The company is seeing strong demand for transformers from the Solar

power sector Gross margins have improved in recent times thanks to weak copper prices Adequate room for production ramp-up as capacity utilization is at ~ 65%. Strong balance sheet with no debt and cash surplus of Rs 2.2 bn, a rarity in

the mid-size transformer industry

RISKS & CONCERNS Industry continues to reel under overcapacity due to an influx of foreign

players in the market

Price competition is very intense

COMPANY BACKGROUND The company was established in 1963 at Vadodara. The Exec Chairman is

Mr L H Patel, a technocrat and who has worked earlier with Siemens andBharat Bijlee. The CEO and MD is Mr KS Patel, who has a rich experienceof 26 years in Voltamp as member of top management team.

SECTOR BACKGROUND The slowdown in power industry began few years back has largely

continued which is impacting capacity utilization and price realizationbecause of keen competition amongst organized sector manufacturersowing to overcapacity in industry.

In addition to this, the entry of Chinese Manufactures since few years andcontinuation of addition of capacity by Multinational Companies in over-crowded industry, has also lead to margin under pressure

BUY


219 292 / 148 1668382

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18EInterest income 1,637 1,761 1,952 Interest expense 1,068.0 1147.1 1278.6Net interest income 569 614 673 Growth (%) 3.4% 7.9% 9.6%Other income 282 274 301 Gross profit 433 431 487 Net profit 99.5 121.0 142.0 Growth (%) -20.3% 21.6% 17.3%Gross NPA (%) 6.5 6.6 6.0 Net NPA (%) 3.8 3.8 3.1 Net interest margin (%) 3.0 2.9 2.9 Source: Company, Kotak Securities - Private Client Research

CAR (%) 13.1 13.2 12.5 RoE (%) 7.4 8.3 9.0 RoAA (%) 0.5 0.5 0.5 Dividend per share (Rs) 2.6 3.0 3.0 EPS (Rs) 13.0 15.8 18.5 Adjusted BVPS (Rs) 112.0 117.2 137.3


P/BV (x) 2.0 1.9 1.6

PRICE PERFORMANCE (%) 1M 3M 6M10.8 12.3 (3.6)


Trend in Asset Quality


18.7%

1 Year Performance


Trend in earnings (Rs bn)

Last report at Rs.196 on 30 May 2016

STATE BANK OF INDIA

Target Price (Rs)

260

Promoter61.3%FII

10.4%

DII18.0%

Others10.3%

60

85

110

135

160

185

210

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

State Bank of India Nifty

INVESTMENT ARGUMENT Largest Indian bank - proxy to India growth story. New management has been

focusing on profitable growth as against earlier strategy of garnering market share,even if it came at some margin sacrifice.

Liability franchise is amongst best-in-the-class - CASA mix at ~44% (FY16) withlower dependence on bulk deposits.

Sharp rise in fresh slippage during H2FY16 has come on the back of RBI’s AQR.Large corporate and mid-corporate segments largely contributed to the sharp risein NPLs.

Although there is a systemic pressure on NIM as bargaining power is shifting infavor of borrowers along with shift in the loan mix towards lower yielding retailassets, SBI is likely to maintain its NIM at current levels on back of lower incomede-recognition pressure arising from fresh delinquencies.

Better play amongst PSU banks in likely improvement in the macro-economicenvironment, with peaking NPL cycle, comfortable capital, well-managed opex andreasonable valuation.

Based on SOTP methodology: standalone business at Rs.206 (1.5x FY18E ABV)and value of subsidiaries at Rs.54 (Holdco discount: 20%).

RISKS & CONCERNS Large corporate and mid-corporate segments largely contributed to the sharp rise

in NPLs during H2FY16.

Deregulation of interest rates on saving deposits (~36% of domestic deposits)might increase the funding costs.

COMPANY BACKGROUND Largest bank in India with 16,784 branches and business of Rs.32.4 tn.

GOI owns 61.3% stake.

SECTOR BACKGROUND Easing bond yield is positive for wholesale funded entities and is likely to result into

higher trading gains for banks.

Retail segment continues to drive loan growth. Prefer private sector banks andremain cautious on PSU banks.

0

50

100

150

200


NII PAT

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0

200

400

600

800

1000

1200


Gross NPA (Rs bn ‐ LHS) Gross NPA (% ‐ RHS)

ACCUMULATE


294 302 / 164 220500

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 271,334 268,129 324,120 Growth (%) (31.3) -1.2 20.9EBITDA 15,903 20,930 29,215 EBITDA margin (%) 5.9 7.8 9.0 PBT 12,004 17,009 25,266 Net profit 9,140 12,076 16,928 EPS (Rs) 12.2 16.1 22.6 Growth (%) 15.9 32.1 40.2 CEPS (Rs) 16.5 21.1 28.2 Book value (Rs/share) 85.0 97.5 115.9 Dividend per share (Rs) 2.5 3.0 3.5 Source: Company, Kotak Securities - Private Client Research

ROE (%) 14.9 17.3 20.7 ROCE (%) 11.1 14.3 20.1 Net cash (debt) (12,781) (12,045) (2,177) Net Working Capital (Days) 6.2 11.7 13.6


P/BV (x) 3.5 3.0 2.5

EV/Sales (x) 0.8 0.8 0.6

EV/EBITDA (x) 13.8 10.0 6.6

PRICE PERFORMANCE (%) 1M 3M 6M9.5 20.8 15.2


Dividend Yield (%)


3.4%

1 Year Performance


Sales Volume (TBTU's)


PETRONET LNG LTD

Target Price (Rs)

304

Promoter50.0%

FII22.5%

DII15.2%

Others12.3%

0

200

400

600

800

1,000

FY14 FY15 FY16 FY17 FY18

0

0

0

0

0

0

0

0

FY16 FY17E FY18E

50

110

170

230

290

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Petronet LNG Ltd Nifty

INVESTMENT ARGUMENT PLNG is expected to complete its 5 mmtpa Dahej expansion (i.e. 50%

capacity addition to 15 mmtpa). We expect significant ramp up in DahejRLNG volumes in FY18E. On the other hand, the Kerala government hasindicated to provide full support to Kochi port in resolving the pipelineissue of the Petronet LNG’s Kochi terminal. We expect FY18E to bebetter, driven by acceleration in volume growth, supported by expansion.

Kochi pipeline: Recently, the Kerala government has indicated toprovide full support to Kochi port in resolving the pipeline issues of thePetronet LNG terminal. With the pipeline connectivity to Mangaluru viaThrissur and Malappuram and Bengaluru via Palakkad, the port will alsoget benefited. Currently, the Kochi terminal is operating at 8-10% ofcapacity in the absence of pipeline connections to Mangalore andBengaluru. The management has indicated that the capacity utilizationwill improve in FY17E due to higher demand from BPCL’s expandedrefinery. However, meaningful improvement in utilization levels can beseen only after the commissioning of these pipelines, we opine.

LNG demand: Currently, LNG price from Qatar is around $5-6/mmbtu.We believe lower prices is supporting strong LNG demand in India.PLNG has highlighted that all its customers are picking up imported LNGfrom Qatar (8.5 mmtpa).

RISKS & CONCERNS Availability of LNG at reasonable prices on a long term basis has

remained a key worry. Any capping of margins by PNGRB will negatively impact its earnings

and growth. However, management has indicated that imported LNGdoes not fall under the preview of PNGRB.

Project execution risk.

COMPANY BACKGROUND Petronet LNG is India's largest importer of LNG at its Dahej plant. It has

expanded the Dahej capacity to 10 MMTPA.

NATIONAL BUILDING CONSTRUCTION CORP LTDBUY


191 243 / 162 22920

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 58,271 75,390 106,608 Growth (%) 25.0 29.4 41.4EBITDA 3,844 4,847 6,764 EBITDA margin (%) 6.6 6.4 6.3 PBT 4,362 5,840 7,858 Net profit 3,088 4,088 5,501 EPS (Rs) 5.1 6.8 9.2 Growth (%) 11.4 32.4 34.6 CEPS (Rs) 5.2 6.9 9.2 Book value (Rs/share) 24.8 29.6 36.1 Dividend per share (Rs) 1.5 2.0 2.7 Source: Industry, Company, Kotak Securities - Private Client Research

ROE (%) 22.0 25.0 27.9 ROCE (%) 24.9 30.0 34.6 Net cash (debt) 11,344 18,867 25,251 Net Working Capital (Days) (51.4) (46.4) (46.4)


P/BV (x) 7.7 6.4 5.3

EV/Sales (x) 0.2 0.1 (0.0)

EV/EBITDA (x) 3.0 0.8 (0.3)

PRICE PERFORMANCE (%) 1M 3M 6M(0.6) 1.7 (4.0)

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research


Target Price (Rs)

229

Order Book to Bill ratio


19.8%

1 Year Performance


Redevelopment Opportunity (Rs bn)

Promoter90.0%

FII2.5%

DII0.9%

Others6.6%

0

200

400

600

800

1000

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

NBCC Nifty

INVESTMENT ARGUMENT NBCC has very high entry barrier in PMC business as it is notified as

Public Work Organization under which government departments andPSUs can award projects on nomination basis. It has cash generatingbusiness model with negative working capital and strong ROCE.

NBCC has an opportunity of Rs 400 bn of work in redevelopment orgreenfield development of old government colonies which wouldsupport high growth for longer duration.

NBCC has order book of over Rs 370 bn which is over 6x FY16 revenueand gives revenue growth visibility of 36% CAGR in FY16-18E.

RISKS & CONCERNS Slowdown in government spending

Aggressive foray in real estate business

Redevelopment projects are awarded on competitive bidding

COMPANY BACKGROUND NBCC is a Navratna PSU company engaged in the business of project

management consultancy (PMC), EPC contract and Real Estatedevelopment. The PMC business contributed 90% of sales and 71% ofprofits in FY16 and involves concept to commissioning of civilconstruction projects from various government departments.

SECTOR BACKGROUND There is huge PMC opportunity from redevelopment of government

colonies, development of sick PSUs land, smart cities, etc. As perindustry estimates, development of government colonies in Delhi couldlead to PMC opportunity size of ~Rs 700 bn over next 8-10 years.Further, the development of smart cities in the country would requireUSD 1.2 trn investments.

0

20

40

60

80

100

120

0

2

4

6

8

10

0

200

400

600

800

1000

1200

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Order Book (LHS ‐ Rs bn)

Revenue (LHS ‐ Rs bn)

OB/Bill (RHS ‐ x)

BUY


171 200 / 107 6809

Source: Bloomberg

Source: Company

FINANCIALS (RS MN) FY16 FY17E FY18ESales 2,871 3,843 4,609 Growth (%) 26.5 33.8 19.9EBITDA 579 776 940 EBITDA margin (%) 20.2 20.2 20.4 PBT 475 651 774 Net profit 323 444 528 EPS (Rs) 8.1 11.2 13.3 Growth (%) 25.3 37.4 18.9 CEPS (Rs) 12.1 15.9 19.1 Book value (Rs/share) 34.5 41.3 49.9 Dividend per share (Rs) 2.0 2.8 3.3 Source: Company, Kotak Securities - Private Client Research

ROE (%) 23.6 27.0 26.6 ROCE (%) 28.3 32.1 34.5 Net cash (debt) (235) (13) 54 Net Working Capital (Days) 1.3 0.5 2.5


P/BV (x) 5.0 4.1 3.4

EV/Sales (x) 2.5 1.8 1.5

EV/EBITDA (x) 12.2 8.8 7.2

PRICE PERFORMANCE (%) 1M 3M 6M(8.7) (0.3) (10.3)



MT EDUCARE (MT)

Target Price (Rs)

239

RoE & RoCE (%)


39.8%

1 Year Performance


Revenue growth driven by Robomate, Science and Gayatri

Promoters & Top

Management52.0%

FII23.0%

DII5.0%

Others20.0%

70

100

130

160

190

220

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

MT Educare (MT) Nifty

INVESTMENT ARGUMENT MT Educare (MT) differentiates itself from other players in the sector by

focusing on technology driven coaching services through Robomate whichhelps company to position itself as a niche player in highly unorganizedindustry with low entry barriers.

MT has entered into product business by selling Robomate to Non-MTstudents which is relatively higher margin business.

MT is increasing its focus on national level exams such as CA, IIT JEEAdvanced, JEE Mains, CAT, CMAT, CBSE, ICSE, etc, in order to achievehigher scale.

MT has track record of generating 25% plus RoCE with strong cashflowsand the business does not need high amount of capital.

We are positive on the education sector and believe that MT positioningitself as a niche player through focus on technology and new geographieswhich would expand its scale of operation in the longer run.

RISKS & CONCERNS MT is present in low entry barrier coaching business. However the

company has started creating entry barrier through introduction ofRobomate and technology

COMPANY BACKGROUND MT Educare is engaged in the business of providing educational support

and coaching services. The company was promoted by Mr. Mahesh Shettyin 1988 and has been providing coaching services under the brand name‘Mahesh Tutorials’.

SECTOR BACKGROUND The Indian coaching sector has strong growth outlook based on rising

disposable income, increasing spend on education and infrastructurebottlenecks for formal education. Coaching business is one of the bestplays on India’s growing urban consumption.

0

1000

2000

3000

4000

5000

0.0

10.0

20.0

30.0

40.0

FY13 FY14 FY15 FY16 FY17E FY18E

RoE (%) RoCE (%)

BUY


482 605 / 295 9962

Source: Bloomberg

Source: Company

FINANCIALS (RS MN) FY16 FY17E FY18ESales 9,882 11,515 13,687 Growth (%) 2.5 16.5 18.9EBITDA 911 1,179 1,479 EBITDA margin (%) 9.2 10.2 10.8 PBT 499 813 1,121 Net profit 393 593 818 EPS (Rs) 19.0 28.7 39.6 Growth (%) (28.4) 51.0 37.9 CEPS (Rs) 26.7 36.9 48.4 Book value (Rs/share) 197.8 223.2 258.2 Dividend per share (Rs) 2.0 2.9 4.0 Source: chemicals.nic.in, Company



P/BV (x) 2.4 2.2 1.9

EV/Sales (x) 1.2 1.0 0.9

EV/EBITDA (x) 13.1 10.1 7.9


Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research


INSECTICIDES (INDIA) LTD

Target Price (Rs)

554

RoE & RoCE to revive (%)


14.9%

1 Year Performance


Growth in pesticides capacities and production in India (in ‘000MT)

Promoters68.8%

FII5.5%

DII12.5%

Others13.2%

70

100

130

160

190

220

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Insecticides (India) Ltd Nifty

INVESTMENT ARGUMENT IIL has moved up in the value chain, by shifting its focus from trading of generic

pesticides to sale of branded products and inlicensed products by inlicensing,leasing or acquiring brands.

IIL is launching new products through reverse engineering of off patented moleculeby increasing focus on R&D. It has recently launched the generic version of PIIndustries top product ‘Nominee Gold’ under brand ‘Green Label’ which is expectedto positively impact its topline and margins in the next 2-3 years

IIL has created enough capacity and can double its sales on present capacity as itis presently operating at 36% capacity utilization. We believe that IIL is well placedto grow in agro chemical sector which is growing at double digits rate and haspositive growth outlook.

We believe that, IIL would be one of the best play if monsoon in 2016 turns out tobe above normal as forecasted by IMD and Skymet.

RISKS & CONCERNS Agrochemical business is sensitive to rainfall and its spread Acceptability of new products would be key for future growth

COMPANY BACKGROUND Insecticides (India) Limited (IIL) is amongst the top 10 Indian agrochemical

companies having approx. 7% market share of the Indian domestic agrochemicalmarket. IIL has a fully integrated business model right from manufacturing oftechnicals and branded formulations to sale of generic and inlicensed agrichemicalproducts. IIL has a pan India presence with network of 5000 plus distributors. Thecompany has a portfolio of strong & successful brands and has international tie-upswith AMVAC and Nissan Chemicals for brand licensing and marketing rights.

SECTOR BACKGROUND India’s crop protection industry has been growing at a double digit rate and is at

USD 4.25 bn, with the top-10 players growing at a faster pace. India’s cropprotection industry is expected to reach USD 7.5 bn by FY19E, entailing 12%CAGR. Of this, domestic market is expected to grow from USD 2.25 bn to USD 3.3bn with 8% CAGR and exports are expected to grow from USD 2 bn to USD 4.2 bnwith 16% CAGR.

10.0

12.0

14.0

16.0

18.0

20.0

22.0

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

RoE (%) RoCE (%)

0

70

140

210

280

350

FY10 FY11 FY12 FY13 FY14 FY15

Capacity Production

BUY


1171 1279 / 933 2686361

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 624,410 715,563 802,193 Growth % 17.1 14.6 12.1EBIT 156,189 185,740 204,050 EBITDA margin % 25.0 26.0 25.4 PBT 187,439 224,990 248,963 Net profit 134,909 160,868 179,253 EPS (Rs) 59.0 69.0 76.1 Growth % 9.4 16.9 10.3 CEPS 70.0 81.3 89.8 Book Value (Rs / Share) 270.3 296.1 323.0 Dividend per Share (Rs) 53.8 45.0 50.0 Source: Company, Kotak Securities - Private Client Research

ROE % 23.2 24.6 51.1 ROCE % 32.2 34.4 70.9 Net cash (debt) 328,778 388,529 435,346 Net working capital (Days) 65.0 64.3 64.2


P/BV (x) 4.3 4.0 3.6

EV/Sales (x) 3.8 3.2 2.8

EV/EBITDA (x) 15.1 12.4 11.0

PRICE PERFORMANCE (%) 1M 3M 6M(6.8) (2.7) 6.1


Geographical Revenue Break up (%)


17.1%

1 Year Performance


Number of Employees (Nos)

Last report at Rs.1173 on 18 April 2016

INFOSYS TECHNOLOGIES LTD

Target Price (Rs)

1371

Promoter12.8%

FII40.1%

DII17.8%

Others29.2%

0

45,000

90,000

135,000

180,000

FY10 FY11 FY12 FY13 FY14 FY15

80

110

140

170

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Infosys Technologies Nifty

INVESTMENT ARGUMENT Infosys has been reporting above-expectation numbers in FY16. The

consistent volume growth and order book additions from large deals havebeen the positive takeaways.

We believe that, the new strategy should allow Infosys to improve growthrates over the long term with sustained margins.

The long-term strategic plan reflects Infosys' focus on next-generationservices and delivery models. Infosys has already made significantprogress towards next-generation services and delivery mechanisms.

We have accorded valuations to Infosys, which are at a marginal premiumto those of TCS, in anticipation of improved growth rates from Infosys.

RISKS & CONCERNS A slower-than-expected recovery in major user economies may impact our

projections.

A sharp appreciation of rupee beyond our assumed levels may impact ourearnings estimates for the company.

COMPANY BACKGROUND Infosys was incorporated in 1981 by 7 engineers, led by Mr. Narayana

Murthy. Infosys had been the proxy for the Indian IT sector since itsinception.

The company has been an outstanding corporate citizen in terms ofcorporate governance in India. Infosys services clients in over 30countries.

SECTOR BACKGROUND IT services exports are expected to amount to nearly $110bn in FY16. Indian companies provide services to several Fortune 500 companies. Banking & Financial services sector accounts for the largest revenues and

USA is the largest geography for the industry

0

20

40

60

80

FY12 FY13 FY14 FY15

USA Europe India Others

BUY


427 434 / 245 52948

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 24,528 28,031 32,601 Growth (%) (0.9) 14.3 16.3EBITDA 3,751 4,396 5,242 EBITDA margin (%) 15.3 15.7 16.1 PBT 3,435 3,909 4,842 Net profit 2,336 2,659 3,293 EPS (Rs) 18.8 21.4 26.5 Growth (%) 388.9 13.8 23.9 CEPS (Rs) 22.9 25.6 30.7 Book value (Rs/share) 77.2 89.0 106.0 Dividend per share (Rs) 10.0 7.0 7.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 26.8 25.8 27.2 ROCE (%) 25.0 32.4 36.7 Net cash (debt) (2,017) (1,060) 904 Net Working Capital (Days) 21.2 28.8 40.7


P/BV (x) 5.5 4.8 4.0

EV/Sales (x) 2.2 1.9 1.6

EV/EBITDA (x) 14.7 12.3 9.9


Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Industry, Kotak Securities - Private Client Research

Investment in water supply and irrigation (Rs bn)


18.0%

1 Year Performance


RoCE and RoE to improve further


FINOLEX INDUSTRIES LTD

Target Price (Rs)

504

Promoter52.7%

FII4.8%

DII7.3%

Others35.3%

50

100

150

200

250

300

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Finolex Industries Ltd Nifty

INVESTMENT ARGUMENT Finolex Industries Ltd (FIL) is a leading company in Indian PVC pipes and

fittings industry with 19% organized market share in volume terms. It hasstrong brand equity and enjoys market leadership in agri segment with 70%of its revenue being contributed by this segment where pipes are used inirrigation.

Government has emphasized on increasing land under irrigation and isfocused on improving rural water and sanitation infrastructure, which ispositive for pipes’ demand. We believe that, FIL would be a major beneficiaryif rural consumption improves on normal monsoon as forecasted by IMD andSkymet.

FIL is generating strong cash flows which would be used in meeting itsfunding requirement and making it debt free.

RISKS & CONCERNS High volatility in raw material prices

Disappointment from rural demand

COMPANY BACKGROUND FIL is a leading brand in Indian PVC pipes and fittings market. The company

manufactures and sells PVC pipes, fittings and PVC resin. 73% of its revenueis contributed by PVC pipes and fittings and balance 27% is contributed byPVC resins. The company has 280000 tpa (tonnes per annum) capacity ofPVC and 272000 tpa of PVC resins. It is expanding its PVC pipes capacity by100000 tonnes in the next three years with Rs 1 bn of total investment at itsexisting plants.

SECTOR BACKGROUND Domestic PVC pipes market at 1.8 mn tonnes is growing at 12-15% CAGR in

volume terms. About 40% of the industry is unorganized. The industry issteadily shifting toward organized players with shift expected to gather paceafter the introduction of GST and would be positive for organized players.

0.0

12.0

24.0

36.0

48.0

FY14 FY15 FY16 FY17E FY18E

RoE (%) RoCE (%)

606

1208

2553

1215

2435

5044

0 1000 2000 3000 4000 5000 6000

Xth (2002‐2007)

XIth (2007‐2012)

XIIth (2012‐2017)

ACCUMULATE


238 300 / 155 24026

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 46,120 52,730 59,945 Growth (%) 8.3 14.3 13.7EBITDA 2,593 3,164 3,896 EBITDA margin (%) 5.6 6.0 6.5 PBT 1,535 2,084 2,814 Net profit 955 1,375 1,858 EPS (Rs) 9.7 13.9 18.8 Growth (%) nm 43.9 35.1 CEPS (Rs) 12.4 17.3 22.2 Book value (Rs/share) 76.1 86.8 101.4 Dividend per share (Rs) 2.0 2.2 3.2 Source: Company, Kotak Securities - Private Client Research



P/BV (x) 3.1 2.7 2.3

EV/Sales (x) 0.5 0.5 0.4

EV/EBITDA (x) 9.2 7.8 6.2



Revenue mix (%)


13.4%

1 Year Performance


Sales (Rs bn)


BAJAJ ELECTRICALS LTD

Target Price (Rs)

270

Promoter63.6%

FII11.6%

DII3.0%

Others21.8%

0

10

20

30

40

50

60

70

FY12 FY!3 FY14 FY15 FY16 FY17E FY18E

Lighting24%

Consumer Durables47%

Engineering & Projects

29%

90

130

170

210

250

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Bajaj Electricals Ltd Nifty

INVESTMENT ARGUMENT Bajaj Electricals Ltd (BAEL) is one of the prominent electrical and

consumer durable players in India. Company has diversified product portfolio that ranges from

lightings, luminaries, fans, engineering & project (E&P). Company has a wide distribution network that caters to nearly

490,000 retail outlets across India. Company's technological and marketing alliances with world's

major players like Morphy Richards, Maiden, Trilux (Germany) islikely to have a positive impact on company's financials going ahead.

We believe that stock is adequately prices and recommendAccumulate on the company with a DCF based price target of Rs270.

RISKS & CONCERNS Slowdown in consumer sector growth.

Further loss accretion in T&D business that have been under pressure since past three years.

COMPANY BACKGROUND Bajaj group, India's one of the oldest electrical company. Diversified across electrical, lighting and power transmission

sector.

SECTOR BACKGROUND Consumer appliances sector is observing shift in consumer

preference from unorganized products towards branded products. Infrastructure spending, especially in power T&D is expected to

increased driven by several initiatives taken by the government.

BUY


574 792 / 513 108208

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 31,451 32,358 37,002Growth (%) 53.0 2.9 14.4EBITDA 10,023 5,904 7,832 EBITDA margin (%) 31.9 18.2 21.2PBT 9,355 5,562 6,900 Net profit 7,195 4,450 5,520 Core EPS(Rs) 19.7 23.6 29.3 Growth(%) 31.0 20.1 24.1CEPS(Rs) 42.0 28.0 34.9 BVPS(Rs) 85 103 125 DPS (Rs) 4.5 5.0 6.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 57.9 25.1 25.7ROCE (%) 51.5 26.3 27.1Net debt -3184 (152) (846) Net working capital(Days) 48.8 78.6 77.5


P/BV (x) 6.8 5.6 4.6

EV/Sales (x) 3.3 3.3 2.9

EV/EBITDA (x) 10.5 18.3 13.7

PRICE PERFORMANCE (%) 1M 3M 6M7.2 (1.7) (15.3)


Rev/PAT to post 16%/31% CAGR over FY14-17E


22.0%

1 Year Performance


US revenues to post 26% CAGR

Last report at Rs.619 on 28 April 2016

ALEMBIC PHARMA LTD

Target Price (Rs)

700

Promoter74.1%

FII7.7%

DII5.2%

Others13.0%

50

120

190

260

330

400

Dec‐…

Feb‐…

Apr‐…

Jun‐14

Aug‐…

Oct‐14

Dec‐…

Feb‐…

Apr‐…

Jun‐15

Aug‐…

Oct‐15

Dec‐…

Feb‐…

Apr‐…

Jun‐16

Alembic Pharma Ltd Nifty

INVESTMENT ARGUMENT Management has guided for a 50% increase in R&D expenses in FY17E

led by increased focus on injectables, oncology and other complexmolecules. Though this will lead to margin pressure in current fiscal, itaugurs well for the company over the longer run (FY17E and beyond).

Alembic Pharma’s increasing focus on specialty segment in the domesticmarket, complex filings for US, robust free cash flow generation,ROE/ROCE of ~30%, makes Alembic a best bet in the mid cap pharmaspace with a long horizon.

RISKS & CONCERNS Drug price control in the domestic market has will remain an overhang

for Alembic Pharma and can impact our revenue and profitabilityassumptions.

USFDA compliance risk (Import alert or Warning letter) remain a key riskfor Alembic Pharma, more so, as the US is key driver for revenues aswell as margins.

COMPANY BACKGROUND Alembic Pharma was established in 1907 as Alembic Ltd for

manufacturing of tinctures and alcohol at its Baroda plan, later in 1940,the company entered in the pharma space. In 2010, Alembic Ltddemerge red its core Pharma business (now Alembic Pharma - ALPM).Management since then, started focusing aggressively on regulatedmarket exports (US and Europe) and chronic therapies in the domesticmarket.

SECTOR BACKGROUND The Indian Pharma Market (IPM) stood at US$ 14.6 bn and is expected

to post 13-15% CAGR over the next 4-5 years. Moreover, US, is thelargest pharma market at ~US$390 bn, is expected to witness US$ 44bnworth drugs going off patent which will provide further fillip to Indiancompanies.

‐50%

0%

50%

100%

150%

200%

250%

‐40

0

40

80

120

160

200

240


US $ mn (LHS) Growth (% ‐ RHS)

0%

5%

10%

15%

20%

25%

0

7,000

14,000

21,000

28,000

35,000

42,000


Rev (Rs mn ‐ LHS)Core PAT (Rs mn LHS)NPM (% ‐ RHS)

Documents

Investment Strategist - Kotak · PDF filecalculated is now different, impacting the firms' profits, goodwill, net worth, ... Motherson Sumi, Apollo Tyres, Motherson Sumi, Bharat Forge