January 6, 2017 Demonetisation to overshadow Q3FY17Econtent.icicidirect.com/mailimages/IDirect... · We believe demonetisation impact would be limited to three to six months. It would

ICICI Securities Ltd. | Retail Equity Research

January 6, 2017

Q3FY17 Result Preview

Demonetisation to overshadow Q3FY17E The Q3FY17 performance of I-direct coverage (ex-BFSI, oil & gas and

metals) companies is expected to be muted with 3.1% revenue growth. The decline in revenue owing to lower cash in circulation is expected to be visible in auto, FMCG, media, consumer discretionary & building material sectors. Capital goods & cement have also been partly impacted by demonetisation with slower growth of 14% and 4.5% YoY, respectively, which otherwise would have been a bumper quarter. Within the consumption space, the slowdown was severe in discretionary goods with November witnessing 10-20% decline in sales. However, FMCG staples witnessed a volume decline mainly due to the de-stocking at the distributors & retailer’s level. Despite the slower growth in the capital goods space, frontline companies are expected to post better results mainly due to a pick-up in the execution cycle

On the sectoral front, the auto sector is expected to witness muted growth mainly due to 10-12% sales decline in the 2W space (ex-Eicher Motors). However, passenger cars continue to see moderate growth in the quarter. Paint companies within consumer discretionary sector, are likely to report ~10% volume de-growth against more than 10% growth in previous quarters given deferral of consumption. However, export oriented sectors like IT and pharma are unlikely to be impacted by demonetisation and are likely to clock moderate sales growth. On the other hand, in the banking space, robust treasury gains on account of correction in G-sec yields would aid PAT growth of 12-20% amid muted credit offtake (6-7% YoY) and tapering of asset quality concerns. We expect net addition in GNPA at | 8473 crore in Q3FY17E vs. | 12622 crore seen in Q2FY17 and | 44269 crore in Q3FY16

Operating margins (ex-BFSI, oil & gas and metals) are expected to expand by a mere 10 bps to 20.5% amid increasing commodity prices including crude oil & metals and negative operating leverage owing to muted topline growth. Consequently, PAT of our coverage universe (ex-BFSI, oil & gas and metals) is expected to post 16% growth

We believe demonetisation impact would be limited to three to six months. It would benefit organised players in long run. Sectors like FMCG, pharma, IT & telecom would be least affected. Within discretionary spending, apparels, auto, consumer goods and building materials would take longer (three to six months) to recover. However, real estate & cement may see prolonged (more than a year) demand disruption, which could impact sales for a year. On the flip side, banking sector would be the key beneficiary of the demonetisation move

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

823,

464.

2

898,

449.

5

843,

387.

3

820,

159.

6

828,

565.

9

809,

867.

0

795,

258.

8

743,

708.

2

772,

443.

7

808,

867.

5

825,

579.

8

830,

930.

7

873,

541.

8

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

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 1444

1830

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]


Page 2

Performance of Sensex companies

For the quarter, average topline of Sensex companies may grow at a bleak ~2.1% YoY while EBITDA & PAT are expected to report strong growth of 11% & 12% YoY, respectively. Our expectation of muted sales growth can be attributed to a decline in auto, FMCG & consumer discretionary sales. The strong earnings growth can be attributed to robust performance of ONGC due to extraordinary loss in base quarter along with higher realisation & lower operational cost in the current quarter. Similarly, expected healthy bottomline growth of Sensex companies can also be attributed to strong growth in SBI’s earnings

On a sectoral basis, with respect to Sensex companies, oil & gas, banking and auto companies would be among the top five performing companies based on PAT growth. Hence, these include ONGC, SBI, Maruti Suzuki and L&T. The expected strong growth in Maruti’s earnings can be mainly attributed to a steep jump in sales of premium segment passenger cars. This also includes exceptional items in the base quarter

On the other hand, pharma & power companies would be among bottom five Sensex companies in terms of PAT performance. The bottom five includes Axis Bank, Dr Reddy’s, Coal India, Tata Motors and NTPC. The dismal earnings growth in Dr Reddy’s would be mainly due to slower growth in the US business. Similarly, a decline in Axis Bank’s earnings was mainly on account of lower net interest revenue due to slower credit growth. On the other hand, NTPC’s results would be impacted by high other income in the base quarter

Exhibit 2: Trend in profitability of Sensex companies…

22.126.3 24.9

4.3

-7.0-10.3

4.1

-6.1 -4.4

14.7

3.2

17.0

11.1

2000025000300003500040000450005000055000600006500070000

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

Q3FY

17E

(| c

rore

)

-15-10-5051015202530

(%)

PAT YoY Growth

Top five likely Sensex companies in PAT growth for Q3FY17E Bottom five likely Sensex companies in PAT growth for Q3FY17E

262.5

92.5 81.345.0 20.20

50

100

150

200

250

300

ONGC State Bankof India

MarutiSuzuki

Adani Port L&T

(% Y

oY)

-21.9-22.1

-28.1

-46.3-52.0-60

-50

-40

-30

-20

-10

0

Axis Bank Dr Reddy Coal India Tata Motors NTPC

(% Y

oY)



Page 3

What we expect our coverage universe to report; emerging trends

From a sectoral perspective, sectors like capital goods (14% YoY), IT (9.1% YoY) and pharma (11.7% YoY) are expected to report strong revenue growth. However, consumer discretionary (9.3% de-growth), FMCG (2.6% de-growth) and auto (1.2% de-growth) are expected to witness a sales decline largely impacted by the demonetisation process. However, export oriented sectors like IT & pharma were immune to the demonetisation event

In the banking space, credit growth is expected to remain in single digits at 6-7% YoY. Deposits of more than | 12.5 lakh crore coupled with withdrawal limit will boost deposit base. With higher liquidity, the interest rate trajectory is moving southwards (G-sec yields fell ~30 bps to 6.51% as on Q3FY17). This will lead banks to garner treasury gains supporting earnings. PSBs, led by huge investment book, are poised to garner strong treasury gains and reverse MTM related provisions. In Q3FY17E, we expect banks to have positive impact of 12-20% on PAT. Banks like PNB, SBI, BoB and Axis Bank will benefit most

Our auto coverage universe is expected to witness revenue de-growth of 1.2% in the quarter on the back of overall decline in sales volumes (down ~4% YoY) in Q3FY17. October (packed with festive season) registered volume growth of 7.2% YoY, provided some cushion to declining volumes of November & December (down 4.2% & ~17% YoY, respectively). The highest impact of demonetisation was seen in 2-W & 3-W space, which reported volume de-growth of 4% & 17%, respectively in Q3FY17. The CV space was impacted, as the working capital of fleet operators is largely cash based in nature. However, surprisingly, CV volumes largely remained flat, down 0.2% YoY. The silver lining though was the PV segment, which reported volume growth 3.8% YoY, largely supported by market leader MSIL. Tractor volumes were also up ~14% YoY during the quarter

The I-direct healthcare universe is expected to grow 11.7% to | 38618 crore. However, US sales from the select pack of our healthcare universe are expected to grow just ~9% YoY to | 11324 crore as higher base, increased competition and lack of meaningful approvals are likely to act as speedbreakers. Excluding consolidation effect and currency impact, growth could have been just ~5% YoY. On the domestic formulations front, sales are likely to grow 13% YoY to | 8292 crore (select pack) due to volume growth and new launches. Elsewhere, while European growth is likely to be negative due to pricing pressure, Latin America growth is likely to be better due to currency benefit and incremental launches

Our capital goods universe is expected to witness 14% revenue growth mainly due to strong pick-up in execution & also low base effect of L&T and Bhel. However, product based companies under our coverage universe may be impacted by the demonetisation event. Bearing companies will feel the brunt as 25-65% of their product portfolios are exposed to the auto sector. NRB Bearings (65% auto exposure) and SKF (50% auto exposure) will feel the brunt. Greaves Cotton, which supplies auto engine to 3W goods & passenger vehicles and LCVs, will also see an impact of 8-10% decline on engine volumes in Q3FY17. We expect the main impact of demonetisation to be felt in Q4FY17 as the pain of delay/postponement of inventory restocking trend from auto OEMs will be more visible in Q4. The EPC space will see relatively lower impact of demonetisation given they will be able to report decent growth on the back of a low base (especially Bhel and KEC)

Our I-direct cement universe is likely to report flat sales during the quarter mainly on account of slowdown in real estate construction due


Page 4

to demonetisation. Higher dependence on cash settlement in retail cement sales and slowdown in real estate construction is expected to negatively impact cement demand in Q3FY17E. After witnessing robust growth in cement demand in October (up 6.2% YoY), we expect cement demand for November (flat YoY due to low base) and December (down 12.0% YoY) to remain weak due to an impact of demonetisation. On the infra side, although project tendering has increased 40.6% YoY to | 1,31,297 crore, project investment during the quarter has declined 12.5% YoY. As a result, overall cement demand is expected to decline 2.0% YoY in Q3FY17E vs. 4.5% YoY growth in Q3FY16. Considering this, we expect companies under our coverage universe to register volume decline of 3.5% YoY in Q3FY17E.

EBITDA margins of the coverage universe (ex-BFSI) are expected to expand 30 bps to 16.5% compared to 16.2% in the corresponding quarter. However, operating margins (ex-BFSI, oil & gas) are expected to expand 110 bps to 19.9%

On the profitability front, bottomline of I-direct coverage universe (ex-BFSI) is expected to grow 23.2% YoY due to 84.7% growth in oil & gas sector mainly due to low base effect in corresponding quarter. However, the earnings (ex- BFSI & oil & gas) witnessed growth of 12.8%

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

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

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| c

rore

)

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

(%)

PAT PAT Growth (%)


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

14.317.1 17.6

15.6 16.2

21.7

18.516.5 16.5

0

5

10

15

20

25Q3

FY15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(%)

EBITDA Margin (%)



Page 5

Demonetisation to hit consumption space… (Sector composition: consumer discretionary, IT, FMCG, healthcare) Key Highlights:

Defensives are expected to post dismal revenue growth of 6.5% YoY compared to healthy 11.8% growth in Q2FY17. This is mainly due to subdued revenue growth in consumer discretionary & FMCG companies for the quarter mainly due to slack sales in November 2016 due to cash crunch post demonetisation event. However, export oriented sectors like healthcare and IT sectors would continue to post healthy growth. The EBITDA margin of the defensive universe is expected to contract 110 bps YoY and even shrink 60 bps QoQ to 23.0%. The ensuing EBITDA, PAT of the defensive universe is expected to increase 1.3% YoY and dip 0.5% YoY, respectively

Our IT coverage is expected to post moderate 9.1% revenue growth mainly due to growth in frontline IT companies led by acquisitions. We expect dollar revenue growth in CC to face typical seasonality in Q3FY17E for Tier-1 IT companies. We expect constant currency (cc) revenues of frontline IT companies to grow 0-2% in Q3FY17E. However, cross currency headwind would impact dollar revenues by ~70-110 bps. Inter-quarter, average US$ appreciated ~3.4% vs. Euro, ~5.4% vs. GBP and ~1.1% vs. AU$. Hence, we expect tier-I IT companies to report average 0.4% growth in dollar terms. Within tier-I, TCS (1%) and HCLT (1.1%) could lead owing to better management commentary followed by Wipro (0.4%), and Infosys (-0.8%). In terms of guidance, we expect Infosys to retain its annual revenue guidance (8-9% in CC) while HCL Tech may also maintain its revenue growth guidance (12-14% in CC)

The FMCG universe has been impacted largely by demonetisation process. We believe companies with a staple product portfolio will have a limited impact; whereas those with discretionary products portfolio will get impacted, to a large extent. Factoring in demonetisation impact, we estimate our FMCG universe will report net sales decline of 3.0% YoY. On account of disruption in cigarette sales in initial days post demonetisation, we are factoring in 1.3% and 1.5% YoY decline in sales for ITC and VST Industries, respectively. We are factoring in 14.8% YoY decline in Marico led by a) price cuts (~10% for parachute portfolio) and b) demand slowdown due to demonetisation. HUL’s revenue is expected to decline 7.1% YoY due to larger discretionary product portfolio & exposure to rural market. However, we continue to remain positive on FMCG driven by rural India. The increase in MNREGA spend to | 47000 crore for FY17E shows the government’s focus on doubling farm income, which is expected to drive rural consumption. Additionally, GST implementation would lead to efficient logistics and reduce tax liability

I-direct consumer discretionary (CD) universe is estimated to see a decline in sales by 9% YoY due to higher base of corresponding quarter and deferral of sales on account of demonetisation. We believe negative impact of demonetisation would be higher in paint, AC segments wherein volume is likely to decline ~11%, 20% YoY, respectively. Other consumer companies like Havells, Bajaj Electricals and V-guard also likely to witness decline in sales of consumer products (largely B2C categories) to the tune of 6-15% respectively attributable to lower demand from Tier II and Tier III cities due to liquidity crunch. Adhesive and water proofing major, Pidilite Industries is likely to see decline in sales of consumer and bazaar segment (contributes 84% in topline) by 7% YoY attributable to lower demand from semi urban and rural India. We believe Essel Propack’s consolidated sales are likely to go up 6% YoY, as the impact of demonetisation on AMESA regions would likely


Page 6

be offset by a recovery in the performance of overseas business (contributes ~60% in topline) due to stabilisation of new facilities

Exhibit 5: How performance variables of defensives may pan out in Q3FY17E

-250

-200

-150

-100

-50

0

-15 -13 -11 -9 -7 -5 -3 -1 1 3 5(PAT growth,% YoY)

(EBI

TDA

expa

nsio

n Yo

Y, in

bps

)

Consumer Discretionary FMCG IT Pharma

Source: Company, ICICIdirect.com Research Note: Size of individual circle represents the Revenue for the respective sector in Q3FY16E.

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

18.5

10.0

14.8

11.8

6.5

500025000450006500085000

105000125000145000165000185000

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

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

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(%)


Exhibit 8: Trend in profitability

5000

10000

15000

20000

25000

30000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| c

rore

)

-10-50510152025303540

Net Profit Y-o-Y(%)



Page 7

… However cyclicals to be largely immune

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

Key Highlights

Cyclicals are expected to witness strong 18.4% YoY growth in Q3FY17E. This high growth mainly led by 31.5% growth in oil & gas led by a sharp increase in crude prices & 16% growth in metals sector largely due to ramping up of capacity of steel majors. Similarly, the capital goods sector is also likely to witness strong 14% growth on the back of the low base effect in the corresponding quarter

Our oil & gas universe revenue is expected to witness 31.5% revenue growth mainly due to stronger growth in oil marketing companies on the back of increase in crude prices. The quarter witnessed a historic Opec deal to cut production output by 1.2 mbpd to 32.5 mbpd from 33.7 mbpd with Saudi Arabia taking a major cut of ~0.5 mbpd followed by Iraq, UAE, Kuwait, etc. Non-Opec countries like Russia also agreed to cut production by 0.6 mbpd, which provided a further boost to oil prices. Average Brent crude oil prices during the quarter were at US$50.1/bbl against US$ 45.8/bbl in Q2FY17. This is expected to lead to an improvement in realisations of upstream oil companies QoQ. Closing Brent crude oil prices increased 16.8% QoQ from US$47.4/bbl in Q2FY17 to US$55.4/bbl in Q3FY17. On the subsidy sharing front, we expect PSU companies to bear nil subsidy during Q3FY17E. The entire oil under-recoveries are expected to be borne by the government.

The metals & mining universe is expected to witness 16.3% revenue growth on account of ramping up of capacity by steel majors. Coking coal prices, which witnessed a sharp rally post September 2016, continued to surge during the quarter. Contract prices during Q3FY17 settled around US$200/tonne up ~122% YoY (highest in last 16 quarters). Steel players during Q2FY17 were insulated from the impact of increased coking coal prices on the back of adequate inventory. However, majority of players are likely to see negative impact on margins during this quarter. The domestic steel industry continues to benefit from government’s protectionist measures, which have resulted in import substitution and marginal consumption growth. Steel imports for the first eight months of FY17 fell 39.2% YoY to 4.7 MT while exports increased to 4.2 MT up 53.3% YoY. The finished steel consumption registered modest growth of 3% YoY to 54.2 MT

Exhibit 9: How performance variables of cyclicals may pan out in Q3FY17E

-400

-200

0

200

400

600

800

1000

1200

-100 0 100 200 300 400 500

(PAT growth, % YoY)(EBI

TDA

Mar

gin

expa

nsio

n, in

bps

)

Capital Goods Power Auto Cement Metals



Page 8

Exhibit 10: Trend in revenue growth of cyclicals

15.3 16.2

35.2

19.3

-1.8

-14.1-7.3

-12.3-7.7

1.6 2.1

12.6 14.7

-20

-10

0

10

20

30

40

50000

150000

250000

350000

450000

550000

650000

750000

850000Q3

FY14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| c

rore

)

Total Cylical revenues Y-o-Y(%)


Exhibit 11: Trend in EBITDA margins

0

5

10

15

20

25

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(%)


Exhibit 12: Interest costs …

1000

3000

5000

7000

9000

11000

13000

15000

17000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| c

rore

)

-5

0

5

10

15

20

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


Exhibit 13: Trend in EBITDA/interest ratio…

15.1

11.313.3

14.515.9

13.8 13.6

18.116.5 15.6

14.4

16.8

13.2

02468

101214161820

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

Q3FY

17E



Page 9

Apparel

Textile chain impacted by demonetisation

We expect the performance of textile & apparel companies in Q3FY17 to remain subdued on account of demonetisation. Demonetisation impacted consumer discretionary spending, which led to a slowdown in demand for apparels and non-apparels. The impact is expected to be more severe for the unorganised segment as cash transactions are more prevalent in the sector. The aforesaid slowdown is expected to hamper revenue growth for our coverage universe companies. However, the impact would be partly offset on the back of strong October sales due to the festive season. We expect companies in the coverage universe to register single digit growth except for Page Industries. Post demonetisation, Page registered 11% volume growth in November, below its average growth rate of 15%. However, we expect the company to get back to its original run rate by the end of January 2017. We expect Page to register revenue growth of 13% YoY, driven by 12.8% YoY volume growth, while realisations are likely to remain flat. On a consolidated basis, we expect Vardhman textiles to register a revenue decline of 7.8% YoY on account of stake sale in Vardhman Yarns & Threads. Vardhman’s acrylic business is expected to be hit as majority of transactions are carried out in cash. For Arvind’s brand & retail segment, multi brand outlets (MBOs) were more affected compared to exclusive business outlets (EBOs). However, since only 15% of brand & retail sales comprise MBOs, we expect the impact of demonetisation to be limited. We expect brand & retail segment to grow 15.6% YoY and textiles segment by 3.5%. Kewal Kiran is likely to register YoY revenue growth of 3.8% whereas for Rupa, revenue growth would be flattish. We expect overall apparel coverage universe to grow 2.1% YoY.

Margins to be lower on higher input costs, subdued revenue growth

Average cotton prices (Shankar-6) have risen 22% YoY in Q3FY17 resulting in an increase in input costs, which is likely to impact margins for all companies in our coverage universe. Arvind, Kewal Kiran, Vardhman & Rupa’s EBITDA margins are likely to contract 200 bps, 80 bps, 170 bps & 120 bps, respectively. We expect Page to register flattish EBITDA margin of 18.9% YoY. On the back of subdued revenue growth, the coverage universe EBITDA is expected to decline 9.4% YoY to | 690.9 crore.

Exhibit 14: Estimates for Q3FY17E: (Apparel) (| Crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Arvind Ltd 2,326.3 7.8 -0.2 256.8 -8.8 13.3 93.4 -9.6 30.3Kewal Kiran 99.9 3.8 -35.7 17.1 -0.6 -53.7 10.7 0.1 -63.8Page Industries 497.0 13.0 -7.6 93.7 13.0 -12.8 57.9 11.5 -15.5Rupa & Co. 227.5 0.4 -16.5 27.3 -8.7 -28.0 13.7 -2.6 -35.3Vardhman Tex 1,586.4 -7.8 1.4 296.0 -15.6 -21.8 148.6 0.1 -67.3Total 4,737.1 2.1 -2.6 690.9 -9.4 -12.3 324.3 -1.3 -49.7

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

Source: ICICIdirect.com Research

Topline & Profitability (Coverage Universe) 46

41

4879

4708

4861

4737

450045504600465047004750480048504900

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.0

(%)

Revenue EBITDA Margin PAT Margin

Cotton prices (domestic & international)

60

70

80

90

100

110

120

130

140

150

160

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

|

0.4

0.5

0.6

0.7

0.8

0.9

$

Rs/kg (LHS) $/ lb

Indian textile exports to US

3041 3212 3401

300236

65

31542854 30

87 3316 36

05

0

1000

2000

3000

4000

CY2012 CY2013 CY2014 CY2015 YTD2016(upto Oct)

US$

(Mn)

Apparel Non-Apparel

Top Pick

Arvind Ltd

Research Analyst

Bharat Chhoda [email protected] Cheragh Sidhwa [email protected]


Page 10

New crop arrival to soften cotton prices

As per Cotton Association of India, cotton output in CS 2016-17 is estimated at 346 lakh bales (170 kg) vs. 338 lakh bales in CS 2015-16. Though there is a decline in acreage by ~10%, yield per hectare is expected to improve on account of better weather conditions across all cotton growing regions of the country. The current quarter marks the start of cotton procuring season which was impacted by demonetisation act. It delayed cotton arrivals in the market as farmers were reluctant to accept any mode of payment other than cash. Daily market arrivals around harvest time of the year declined to 30000-40000 bales vs. 1.5-2 lakh bales (of 170 kg each). Subsequently, cotton prices, which had come down to around | 108/kg had gone up as high as | 115/kg. Though cotton yarn prices also increased in the same quarter, the quantum of rise was lower than the quantum of increase in cotton price. However, the spike in price was a temporary phenomenon as farmers had started accepting other modes of payment. Going forward, we expect cotton prices to gradually decline from Q4FY17 onwards.

Sluggish CY16 export performance; government focus to improve global competitiveness

On the apparel export front, based on the data provided by Office of Textile and Apparel (OTEXA), India’s apparel exports to the US during YTDCY16 (up to October) declined 0.5% to US$3145 million while non apparel exports declined 1.6% YoY to US$3 billion. In CY15, India’s apparels & non-apparels exports to the US increased 7.8% and 8.7% YoY to US$3.67 billion and US$3.61 billion, respectively. However, with the government’s focus on boosting employment generation, it recently provided a financial assistance package for supporting exports in the garmenting sector. The package has been provided with the aim of creating 1 crore jobs in the next three years. While Europe and America remain key markets for India, new markets such as Iran, Russia & South Africa are opening up new possibilities. Government support augurs well for the Indian textile industry, which is expected to make it globally competitive.


Page 11

Exhibit 15: Company specific view (Apparel) Company RemarksKewal Kiran Despite Q3 usually being a good quarter owing to the festive season, we expect the

quarter to remain subdued on account of impact of demonetisation. Revenues arelikely to increase 3.8% YoY to | 99.9 crore. Volumes are expected to increase 2.7%while realisation growth is expected to remain flat. We expect operating margins tocontract 80 bps YoY to 17.1%, on the back of subdued sales growth, higher operatingexpenses while EBITDA is expected to decline 0.6% YoY to | 17.1 crore. We expectPAT to remain flat YoY at | 10.7 crore

Page Industries

We expect Page's revenue growth to be impacted on account of demonetisation. ForNovember, the company witnessed volume growth of 11% that is below their averagegrowth rate of 15%. For Q3FY17, we expect revenues to go up 13.0% YoY to | 497.0crore driven by volume growth of 12.8% YoY to 37.0 million pieces. We expectrealisations to remain flat YoY to | 132/piece. Due to increase in cotton prices weexpect gross margins to decline on account of higher raw material expense,consequently, leading to flattish EBITDA margin of 18.9%. We expect PAT to increase11.5% YoY to | 57.9 crore on account of higher other income

Rupa & Company

We expect the impact of demonetisation to be limited for Rupa, as average ticket sizefor the company is low. We expect revenues to be flat YoY at | 227.5 crore. Onaccount of higher input costs and subdued revenue growth, we expect operatingmargins to contract 120 bps to 12.0% YoY. Consequently we expect PAT to decline2.6% YoY to | 13.7 crore

Vardhman Textiles

Consolidated revenues are likely to decline 7.8% YoY to | 1586.4 crore on account ofsale of stake in Vardhman Yarn & Threads. We expect the demonetisation impact onstandalone performance to be limited as it is a B2B business and has an order cycleperiod of two months. However, the acrylic business is expected to be moreimpacted, as a large proportion of transactions are carried out in cash. Therefore, weexpect standalone revenues to grow marginally by 1.1% to | 1452.1 and acrylicbusiness to de-grow 5% YoY to | 104.1 crore. On account of higher raw materialexpense (cotton), we expect consolidated operating margins to contract 170 bps YoYto 18.7%. We expect consolidated PAT to remain flattish at | 148.6 crore

Arvind Ltd For brands & retail segment, the impact of demonetisation on MBOs was highercompared to EBOs. Since 15% of revenues generated are from MBO's and rest fromEBO's, we expect the impact for the same to be limited. Addition of 51 stores inQ2FY17, a good festive season and recovery in December, should boost revenuegrowth for the brands and retail segment. We expect the brand & retail segment togrow 15.6% to | 851.8 crore and textile segment to register moderate growth of 3.5%mainly driven by 15.1% YoY growth in the garment segment. We expect overallrevenues to grow 7.8% YoY to | 2326.3 crore. On account of higher raw material andemployee expense, we expect EBITDA margins to contract 200 bps to 11.0%.Consequently we expect PAT to decline 9.6% YoY to | 93.4 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

Oct-1

6

Milli

on k

gs

China’s cotton yarn imports have declined 21% YoY in FY17 YTD (Apr-Oct), which would impact revenue growth and margins of Indian cotton yarn exporters.


Page 12

Auto and auto ancillary

Demonetisation puts brakes on accelerating demand

After strong volume growth of 12.9% in H1FY17, demonetisation dragged overall volumes (down ~4% YoY) in Q3FY17. October (packed with festive season) witnessed volume growth of 7.2% YoY, providing some cushion to declining volumes of November & December down 4.2% & ~17% YoY, respectively). The highest impact of demonetisation was seen in 2-W & 3-W space, which reported volume de-growth of 4% & 17%, respectively. The CV space was also impacted, as the working capital of fleet operators is largely cash-based in nature. However, surprisingly, CV volumes largely remained flat, down 0.2% YoY. On the flip side, PV reported volume growth 3.8% YoY, largely supported by market leader MSIL. Tractor volumes were also up ~14% YoY during the quarter. We estimate the I-direct auto universe (ex-TML) will report topline growth of ~6.6% YoY (supported by higher realisation), with OEMs & ancillary likely to grow ~6.4% & ~7%, respectively. We expect Eicher Motors, Ashok Leyland & Escorts to post good results in the December quarter.

Benefit of lower commodity prices largely over!

Average prices of key commodities increased - rubber (up 14.2% YoY), CR steel sheet (up 22.1% YoY), lead (up 30.5% YoY) & plastics (up 17.8% YoY). The only exception was aluminium prices, down 1% YoY. However, we believe cost rationalisation, higher realisation & premiumisation will support companies. We estimate the I-direct auto universe (ex-TML) margin will expand ~40 bps YoY. Margins of tyre companies may face pressure in Q3FY17.

Operating leverage benefit to boost PAT

For the I-direct universe, (ex-TML) profits (supported by other income) are likely to grow ~22% YoY, with OEM & ancillary profits expected to grow 26% & 12%, respectively. TML’s performance will be driven by QoQ margin expansion in JLR.

Exhibit 16: Estimates for Q3FY16E: Auto and auto ancillary (| Crore)Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Amara Raja 1,387.1 13.2 3.1 228.0 -0.3 -0.7 133.3 -2.2 -2.3Apollo Tyre` 3,104.3 5.5 0.6 429.0 -15.0 -2.1 248.6 -10.8 -4.4Ashok Leyland 4,863.8 19.1 5.2 565.6 31.6 5.4 308.7 45.8 4.9Bajaj Auto' 5,009.3 -10.0 -17.3 1,054.1 -10.0 -18.7 833.6 -7.5 -25.8Balkrishna Ind 898.8 19.9 -3.6 267.1 -1.1 -13.1 163.6 20.4 -32.7Bharat Forge 953.8 -9.3 7.1 268.3 -15.4 8.3 140.4 -15.5 10.6Bosch India 2,735.0 1.4 4.7 374.7 7.9 -20.2 312.6 41.6 -55.6Eicher Motors* 1,844.0 43.6 4.6 585.8 59.7 6.0 432.5 59.7 4.7Escorts 1,079.7 21.6 8.5 88.4 159.0 41.5 57.5 180.5 83.8Exide 1,704.3 11.8 -11.6 247.8 5.8 -15.3 145.5 8.6 -19.7Hero Motocorp 6,385.0 -12.5 -18.1 955.2 -16.2 -30.2 689.5 -13.4 -31.3JK Tyre ` 1,687.3 4.3 -12.0 287.3 7.4 -25.6 77.7 -29.8 -22.4Mahindra CIE ` 1,357.9 7.1 8.4 141.6 40.0 17.1 64.8 337.8 0.9M & M 11,736.2 6.6 10.6 1,451.1 16.8 17.7 903.6 11.8 -22.3Maruti Suzuki 17,165.8 13.8 -3.8 2,746.2 26.5 -9.6 1,847.6 81.3 -23.0Motherson` 10,787.3 9.4 6.4 1,070.7 13.1 6.3 392.4 27.7 -18.2Tata Motors` 65,900.4 -8.8 0.0 9,418.5 -8.0 34.1 2,732.9 -22.1 222.2Wabco India 517.2 13.0 11.4 80.4 3.6 18.0 56.4 9.4 19.5Total 139,117.4 -1.2 -0.7 20,260.1 0.9 8.5 9,541.2 5.0 -0.8

Change (%)Company

Change (%) Change (%)

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

Topline & Profitability (Coverage universe) 14

0858 15

2419

1410

75

1401

50

1391

17

115000

125000

135000

145000

155000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

4.0

6.0

8.0

10.0

12.0

14.0

16.0

(%)


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

-17.5

-11.7

-1.6

-1.86.2

-2.7

-7.7

8.4

3.5

2.3

-10.5

-12.8

-3.7

2.2

-4.2

-7.5

-19.2

-16.9Industry

HMCL

BAL

TVS

Maruti

TML

M&M

Hyundai

ALL

YoY QoQ

Currency volatility chart

708090

100110120130140150160170

Jun-

12Se

p-12

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

Mar

-16

Jun-

16Se

p-16

Dec-

16

US$INR US$JPY US$EUR

Volatility in the currency markets is impacting raw material prices for companies with imported components and lower natural hedges.

Top Picks Maruti Suzuki, Tata Motors & Eicher Motors

Research Analyst

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


Page 13

Exhibit 17: Company specific view-OEM

Company RemarksAshok Leyland

The topline is expected to grow ~19.1% YoY to | 4864 crore as overall volumes haveincreased ~6% YoY to ~32840 units and ASP is expected to grow ~3% QoQ due to arich product mix. M&HCV volumes have increased ~9% YoY to ~25286 units while theLCV volumes are down ~2.5% YoY to 7555 units. We expect EBITDA margins to remainflat QoQ at ~11.6% as negative operating leverage benefit (volumes down 2% QoQ) willbe offset by a rich product mix (heavy duty truck share up QoQ). Reported PAT isexpected to be up ~46% YoY to | 309 crore

Bajaj Auto Revenues are expected to decline 10% YoY to | 5009 crore on account of 10.5% YoYdecline in total volumes to ~0.85 million units. Domestic volumes declined 5% YoY to~5.1 lakh units while domestic 2-W & 3-W volumes (impacted by demonetisation)declined by 4% YoY & 17% YoY resepctively. Export volumes at ~3.4 lakh units havedeclined for a fifth consecutive quarter (down 17% YoY) due to weak currency in themain export markets. EBITDA margins are expected to contract ~40 bps QoQ to 21%, aspositive impact of product mix will be offset by negative operating leverage. PAT isexpected to decline 7.5% YoY to | 834 crore

Eicher Motors Eicher’s RE business (motorcycles) has grown ~34% YoY to ~173838 units. VECV (truckbusiness) volumes were at ~11,784 units, down ~7.1% YoY. Consolidated revenuesmay grow 44% YoY to | 1844 crore. EBITDA margins may come in at 31.8% and be aidedby operating leverage benefit (RE volumes up 4.1% QoQ). We expect VECV businessmargins to stay almost flat QoQ at 7% as share of M&HCV has increased QoQ & willoffset negative impact of operating leverage in VECV business. Consolidated PAT isexpected at ~| 433 crore

Escorts Topline is expected to increase 22% YoY to | 1080 crore on the back of core tractorbusiness whose volumes were up ~27% YoY with volumes at ~16,963 units. Tractorrevenues are expected to grow ~25% YoY to ~| 890 crore. EBITDA margins areexpected to expand 190 bps QoQ to 8.2%, mainly driven by operating leverage benefit.We expect topline at ~| 1080 crore & PAT at ~| 58 crore for Q3FY17

Hero MotoCorp

HMCL, which has a high rural exposure, is one of the most impacted OEM due todemonetisation. Volumes declined ~13% YoY ~1.47 million units, with expected de-growth of ~31% YoY & 9.4% YoY in the scooter & motorcycle segment, respectively. Thescooter & motorcycle volumes are expected at ~0.2 million units & ~1.28 million units,respectively. EBITDA margins are expected to decline 260 bps QoQ at 15% due tonegative operating leverage. Topline & PAT are seen at ~| 6385 & ~| 690 crore,respectively

M&M Revenues are expected to grow 7% YoY to | 11736 crore on the back of 22% YoY volumegrowth in farm equipment segment. Volumes in the automotive segment at 120,870 unitshave declined ~8% YoY on account of ~12% YoY decline in the UV segment. Volumes inthe tractor segment have grown ~22% YoY to ~76,486 units due to the base effect andnormal monsoons. Margins are expected to expand 80 bps QoQ to 12.4% due to highercontribution from tractor business & operating leverage benefit. PAT is expected to grow12% YoY to | 904 crore

Maruti Suzuki We expect topline growth of 13.8% YoY on the back of ~3.5% YoY volume growth &~10% increase in ASPs. The positive growth in volume for Q3FY17 (387,251 units)despite demonetisation came on account of inventory push to reduce waiting periods forBaleno/Brezza. EBITDA margins are expected to decline 100 bps QoQ to 16% on accountof negative operating leverage, higher input cost & discounts, which will be partly offsetby favourable currency. Topline & PAT are seen at ~| 17166 crore and ~| 1,848 crore,respectively

Tata Motors JLR is expected to clock sales volumes of ~147,933 units (down 1.3% YoY) as ~80%growth in Jaguar( driven by F-Pace) will be offset by 20% decline in Land Rover (phasingout of Discovery). JLR is likely to post topline of ~£6.2 billion (| 51,579 crore) whilemargins are likely to expand ~30 bps QoQ (from adjusted Q2FY17 margins of 12.9%) to13.2%. JLR’s PAT is estimated at ~£ 314 million (| 2655 crore). We expect standalonerevenue to increase 8% YoY to | 10,829 crore. Standalone EBITDA margins are expectedat 3.2% due to negative operating leverage. Consolidated topline, PAT may come in at |66,696 crore, | 2,733 crore, respectively


Maruti Suzuki’s sales performance

360

348 41

8

374

387

-3.7

5.9

-3.3

20.1

-7.50

100

200

300

400

500

Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

(000

's)

-10

-5

0

5

10

15

20

25

(%)

Sales QoQ growth

M&M’s sales performance

194

184 19

6

188 19

7

5.1

-4.2

6.7

-5.0

22.2

100

130

160

190

220


(000

's)

-10.0

-2.0

6.0

14.0

22.0

(%)

Sales QoQ growth

Ashok Leyland’s sales performance

31

44

31 33

33

-17.2

-29.2

42.2

7.3 -1.8

05

101520253035404550


(000

's)

-40

-20

0

20

40

60

(%)

Sales QoQ growth

Eicher Motor’s sales performance

139

18618

0

164

164

-0.5

18.2

2.9

10.3

-0.1

50

75

100

125

150

175

200

Q4CY15Q1CY16Q2CY16Q3CY16Q4CY16

(000

's)

-3

2

7

12

17

22

(%)

Sales QoQ growth


Page 14

Exhibit 18: Company specific view- Ancillaries Company RemarksAmara Raja Batteries (ARBL)

ARBL's topline is expected to grow 13.2% YoY to | 1,387 crore mainly driven byautomotive replacement segment (>45% of its overall revenue). Despite price hikes inthe range of 3-7% in December 2016, we expect EBITDA margins to contract 222 bpsYoY & 63 bps QoQ to 16.4%, as average lead prices (key raw material) increased 30.5%YoY & 15.6% QoQ to | 145/kg in Q3FY17. PAT is expected to decline 2.2% YoY to | 133crore

Apollo Tyres (APL)

The slowdown in the overall demand environment due to demonetisation is likely toimpact APL’s performance. Thus on a consolidated basis, revenue is expected to grow5.5% YoY to | 3104 crore. Average price of natural rubber has increased (up 14.2% YoYto ~| 124/kg) and is likely to impact EBITDA margins by 333 bps YoY to 13.8%.Consolidated PAT is expected to decline 11% YoY to | 249 crore

Balkrishna Industries (BIL)

BIL's revenues are expected to grow 19.9% YoY to | 899 crore, with volume likely toincrease 14% YoY to 40,093 MT. Its margins are expected to move southwards (in linewith management guidance), down 326 bps QoQ to 29.7%. With higher other income,PAT is expected to grow 20.4% to | 164 crore

Bharat Forge Revenues are likely to decline 9% YoY to | 953 crore. Net domestic revenues areexpected to grow 12% YoY to | 450 crore, mainly driven by growth in M&HCV volumes.Export revenues are expected to decline 23% YoY to | 483 crore as class 8 trucks (~31%of export revenues) continue to decline. EBITDA margins are expected to expand 30 bpsto 28.1% QoQ due to higher contribution from non-auto revenues. PAT is likely to decline15.5% to | 140 crore

Bosch The December quarter is traditionally weak for Bosch with higher employee & overheadcost. The company also sold its starter motors & generators segment (accounts for~10% of revenue) in August 2016. Hence, revenue would not be comparable. Thus, weexpect the topline to grow 1.4% YoY to | 2735 crore. EBITDA margins are likely toexpand 83 bps YoY to 13.7%. Higher other income is further expected to support PAT,which is expected at | 313 crore

Exide Industries (EIL)

Revenues are expected to grow 11.8% YoY to | 1704 crore driven by automotivereplacement & industrial segment. In December 2016, EIL undertook a price hike in therange of 2-9% across its products to partly offset the impact of higher lead price. Despitethis price hike, we expect EBITDA margins to contract 82 bps YoY & 63 bps QoQ to14.5%. PAT is expected to grow 8.6% YoY to | 146 crore

JK Tyre The standalone business (accounting for >80% of revenue) is likely to decline 0.4% YoYto | 1366 crore mainly due to stiff competition from Chinese players and a subdueddemand environment. Consolidated revenue is expected to grow 4% YoY to | 1687 crore,supported by a revival in its Mexican performance. EBITDA margins are expected tocontract 311 bps QoQ to 17%. PAT is estimated at | 78 crore

MCIE Automotive

The standalone business will largely be driven by production volumes of its top twoclients (TML, M&M). Standalone revenue, EBITDA & PAT are estimated at ~| 409 crore,~| 33 crore and ~| 13 crore, respectively. On a consolidated basis, it is likely to postrevenue, EBITDA & PAT of | 1358 crore, | 142 crore and | 65 crore, respectively

Motherson Sumi

We expect consolidated revenues to grow 9.4% YoY to | 10,787 crore, mainly driven bydecent growth in domestic operations & its European subsidiaries (SMR & SMP).Consolidated EBITDA margin is likely to expand 32 bps YoY to 9.9%. PAT is likely to be |392 crore. The domestic (standalone) business is likely to post revenue & profit of | 1417crore and | 149 crore, respectively

Wabco India (WIL)

WIL’s performance largely depends on M&HCV production in India, which grew ~10%YoY in Q3FY17. Further, its parent’s strategy of low cost sourcing would support itsexport growth. Thus, revenues are expected to grow 13% YoY to | 517 crore. EBITDAmargins are expected to decline 141 bps YoY (higher royalty outgo) though it is expectedto improve 86 bps QoQ to 15.5%. PAT is expected to grow 9.4% YoY to | 56 crore


Hero MotoCorp’s sales performance

1690

1823

1721

1745

1474

7.3

1.8 1.4 4.5

-19.2

1000

1200

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's)

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-5

5

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(%)

Sales QoQ growth

Bajaj Auto’s sales performance

951

872

994

1032

852-10.0 -8.3

14.0

3.8

-17.5

700

800

900

1000

1100


(000

's)

-20

-10

0

10

20

(%)

Sales QoQ growth

Auto raw material index

91

77

103

70

80

90

100

110

Apr-1

2

Aug-

12

Dec-

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Apr-1

3

Aug-

13

Dec-

13

Apr-1

4

Aug-

14

Dec-

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Apr-1

5

Aug-

15

Dec-

15

Apr-1

6

Aug-

16

Dec-

16

Commodity prices have been indexed to 100 with base as April-12


Page 15

Banking and Financial Institutions Demonetisation to keep credit growth low; deposit to flourish

Led by demonetisation, system credit growth is expected to remain in single digits at 6-7% YoY. Deposits of more than | 12.5 lakh crore coupled with withdrawal limits will boost deposit base. For our coverage universe, credit growth is estimated at 6.7% YoY to | 369088 crore. Private banks may witness moderation in growth at 13.7% YoY, while PSU banks growth is expected to remain in lower single digits at 3.1% YoY.

Strong treasury gains, led by decline in G-sec yield, to aid earnings With higher liquidity, the interest rate trajectory is moving southwards (G-sec yields fell ~30 bps to 6.51% as on Q3FY17). This will lead banks to garner treasury gains supporting earnings. PSBs, led by huge investment book, are poised to garner strong treasury gains and reverse MTM related provisions. In Q3FY17E, we expect banks to have positive impact of 12-20% on PAT. Banks like PNB, SBI, BoB and Axis Bank will benefit most owing to their high AFS portfolio.

Slippages to stay steady; muted credit growth to keep GNPA ratio up

Post completion of AQR and resultant surge in slippages seen in H2FY16, net GNPA addition in Q2FY17 was lower at | 39564 crore with GNPA in entire system increasing to | 662937 crore (GNPA ratio at 8.8%). Including restructured assets (RA), entire stress of sector is ~12.4% of loans. Further, there are accounts under strategic debt restructuring (SDR) (currently at ~1% of system loans) and 5/25 scheme (~1.5% of system loans) also.

With ageing of stressed exposure, we believe NPA accretion will continue in Q3FY17E, though pace of addition is expected to dwindle. Relaxation provided by RBI in terms of asset classification for loans aggregating to | 1 crore will provide a breather to banks. Slippages from the watchlist provided by Axis Bank (| 13789 crore) and SBI (| 25951 crore) would be key monitorable.

For our coverage universe, we expect net addition in GNPA at | 8473 crore in Q3FY17E vs. | 12622 crore seen in Q2FY17 & | 44269 crore in Q3FY16. Despite moderation in slippages, GNPA ratio is expected to inch up owing to muted growth in advances.

Sequential moderation seen in earnings; PSBs PAT to revive YoY With higher inflow of deposit, led by demonetisation and slower demand for credit, CD ratio is expected to decline for the entire banking system. Consequently, margins in Q3FY17E are expected to decline sequentially. Muted credit offtake and margin pressure are expected to keep NII growth muted. For private banks, NII growth is estimated to remain in single digit at 9% YoY while PSBs’ NII is seen largely remaining flat YoY. For private banks, despite single digit growth in NII expected in Q3FY17E, the final impact on PAT would be negative as provisions would stay higher owing to ageing of the existing NPA pool. On the other hand, treasury gain is expected to aid revival in PSU banks profitability, ending the same in green. We expect PAT of the banking coverage universe to increase 85% YoY to | 10597 crore, with PSU bank’s profit at | 3401 crore, compared to loss of | 2135 crore in Q3FY16. Private bank’s PAT is seen declining 8% YoY at | 7196 crore. NBFCs, in line with banks, is expected to exhibit single digit growth in net profit at 6.3% YoY but QoQ will see dip of ~10%.

Net interest income (Coverage Universe)

2302

2

2154

7

1701

9

1813

3

1867

3

1926

8

1856

9

2154

1

2252

3

2261

9

1156

7

1351

9

1325

1

1524

5

1497

65000

15000

25000

35000

45000

55000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17E

Q3FY

17E

(| C

rore

)

PSB Private NBFC

PPP (Coverage Universe)

1823

3

1696

6

1414

4 1479

5

1524

8

1542

1

1480

4

1497

8

2081

9

1790

1

5143

7429

6184

6029

5908

5000

12000

19000

26000

33000

40000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| C

rore

)

PSB Private NBFC

Net Profit (Coverage Universe)

7858

7136

7290

5865

7196

3558

4045

3401

3089

4354

3515

3643 35

32

-4000

0

4000

8000

12000

16000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(| C

rore

)

PSB Private NBFC

Top Picks SBI Indian Bank

Research Analyst

Kajal Gandhi [email protected]

Vasant Lohiya [email protected]

Vishal Narnolia [email protected]


Page 16

Exhibit 19: Estimates for Q3FY17E ( | Crore) NII PPP NP

Q3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Bank of Baroda 2831.9 4.7 -17.3 2130.3 25.0 -20.8 412.7 NA -25.3PNB 3700.5 -10.2 -4.6 3037.2 4.1 -8.3 517.4 914.3 -5.8SBI 13758.9 1.1 -4.7 10810.3 12.7 -3.7 2124.7 90.9 -16.3Indian Bank 1255.3 13.0 -1.8 987.8 29.9 -1.8 346.2 718.5 -14.5Total 21546.6 0.0 -6.4 16965.6 13.3 -7.0 3401.0 NA -15.9

Axis Bank 3943.5 -5.3 -12.6 3520.3 -11.7 -14.1 1044.5 -52.0 227.4City Union Bank 277.3 9.7 -7.9 216.7 4.8 -7.9 113.2 0.2 -8.5DCB 179.2 11.7 -5.9 89.3 6.0 -11.5 46.5 12.8 -4.1Federal Bank 710.2 17.3 -2.2 409.6 25.8 -13.8 178.6 9.7 -11.3HDFC Bank 8013.8 13.4 0.3 6232.3 8.7 3.4 3695.9 10.1 7.0Indusind Bank 1388.7 18.3 -4.9 1209.6 14.0 -5.6 668.7 15.1 -5.1J&K Bank 640.5 -4.9 -0.1 362.8 -7.2 -3.4 -162.7 NA NAKotak Bank 2015.2 14.1 1.0 1442.9 19.7 0.2 834.6 31.5 2.6Yes Bank 1401.2 21.1 -3.1 1321.0 14.9 -4.7 777.1 15.0 -3.0Total 18569.5 9.1 -3.6 14804.5 4.7 -4.0 7196.3 -8.4 22.7

HDFC 2303.8 9.5 8.2 2481.5 9.9 -6.4 1646.7 8.3 -9.8LIC HF 823.4 10.2 -4.9 748.6 10.0 -5.4 464.9 11.0 -6.0Rel Cap 4507.7 94.5 -8.5 368.2 -0.2 -7.5 246.1 4.7 -2.7Bajaj Finance 1353.9 10.8 10.6 910.2 18.0 14.4 481.7 18.1 18.1Bajaj Finserv 5863.6 15.7 -1.6 1271.9 33.3 3.2 613.5 40.3 6.6PFS 123.6 14.7 -12.6 127.6 16.9 -20.1 78.7 13.3 -7.3Total 14976.0 29.5 -1.8 5907.9 14.9 -2.0 3531.6 14.3 -3.0

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

Public Sector Banks

Private Banks

NBFCs



Page 17

Exhibit 20: Company specific view (Banks) Bank of Baroda We expect BoB's credit growth to remain in the negative territory of 7.7% YoY to |

354504 crore on account of demand getting impacted by demonetisation and cutdown of overseas advances. Further, FCNR redemptions of ~| 10000 crore due inQ3FY17 may also impact balance sheet growth. Domestic deposits are likely to seea sharp surge QoQ of >| 30000 crore owing to currency ban, thus leading marketshare gains. Management does not expect a sharp rise in slippages due todemonetisation. Full year guidance of | 15000 crore (| 9000 crore seen in H1FY17)shall be maintained

Punjab National Bank

Asset quality concerns would stay though slippages are expected to remain lower.GNPA ratio is seen increasing QoQ at ~14.3%, led by muted advance growth andanticipated slower recovery in Q3FY17E. Demonetisation is seen keeping creditofftake muted at 1.7% YoY. With ~10-15 bps decline in margins and higher CI ratio,earnings are seen remaining moderate with PAT at | 517 crore. Around 30 bps fallin G-sec yields in Q3FY17 would enable healthy treasury gains thus offsettingcontinuance of higher credit cost at ~55 bps

State Bank of India

For Q3FY17, demonetisation is seen impacting credit offtake, slowing it at 7% YoY,compared to earlier expectation of 10-11% growth. Slippage from restructured assetand watchlist are anticipated to continue; though pace of accretion is expected todwindle. NII growth will remain subdued at 1% YoY, led by moderation in creditofftake and 10-15 bps margin erosion. Moderation is seen in earnings at | 2125crore, led by elevated provision at ~50 bps (above | 7000 crore). Treasury gains,led by ~ 30 bps fall in g-sec yields during Q3FY17, would partly offset negativesaiding earnings

Axis Bank In Q3FY17, the key monitorable for Axis Bank would be the asset quality asmanagement had indicated that slippages should be meaningfully lower in H2FY17than in H1FY17 (| 12411 crore). However, provisions could be higher as the bankwould maintain higher provision cover. Demonetisation would impact credit growth,which is expected at 11% YoY to | 350057 crore from 18-20% earlier. Margins mayget impacted owing to a fall in CD ratio on account of faster growth in deposits. PAT of ~| 1045 crore is expected

City Union Bank Above average deposit traction of ~19% YoY to | 30772 crore is expected with70% incremental deposits in the form of CASA. Thus, bank's CASA ratio is expectedto rise to 25% from average 20% earlier. Credit growth would be negative QoQ. Thiswould impact NIMs slightly, which is expected to be in the range of 3.8-4%. Due tolarge exposure to SME space, the impact of demonetisation on asset quality needsto be seen. The management has maintained full year slippages guidance of 1.75-2% of loans

DCB Bank Credit growth is expected to remain healthy but could be lower compared toprevious quarters, owing to demonetisation, at 20% YoY to | 14083 crore. Marginsare expected to decline 10-15 bps QoQ, resulting in slower growth in NII at ~12%YoY to | 179 crore. On the cost side, branch expansion and slower growth are seenkeeping CI ratio higher at ~62-63%. With accretion expected in absolute GNPA andsequential de-growth in advances, GNPA ratio is seen inching up 10-15 bps QoQ at1.9%. With credit cost expected to remain at ~14 bps, PAT is seen increasing12.8% YoY at | 46.5 crore

HDFC Bank We expect the PAT growth trajectory of 20% YoY to be impacted in Q3FY17 and thesame is expected at ~10% YoY to | 3696 crore. This is largely in line with slowerNII growth expected at 13.4% YoY to | 8014 crore. Slowdown in credit growth to13% YoY and 23% YoY deposit growth would impact NIMs and, consequently, theNII performance. Asset quality may see slight pressure but would largely remainsteady compared to peers

Federal Bank For Federal Bank, the improving trend in slippages seen in the last two quarterscould get slightly derailed in Q3FY17. Despite this, the slippages number that isexpected at ~| 300 crore would be lower than ~| 500 crore seen in each quarterof H2FY16. Credit offtake may witness a slowdown but would still remain healthy.With margins expected at ~3.1-3.2% levels, NII is expected to increase 16.7% YoYto | 710 crore. PAT of | 179 crore is estimated, up 10.7% YoY


C-D Ratio (Industry)

76 74.8 75.877.6

75.8 74.7

69.3

65 65.674.3

90.472.8 72.6

26.5

20

40

60

80

100

65

70

75

80

Jun-

15

Aug

-15

Oct-1

5

Dec-

15

Feb-

16

Apr

-16

Jun-

16

Aug

-16

Oct-1

6

Dec-

16

(%)

CD Ratio Incremental CD Ratio (RHS)

Asset Quality (Coverage Universe)

3.84.9

6.2 6.6 6.9

1.92.8

3.4 3.7 3.8

0.01.02.03.04.05.06.07.08.0


(%)

GNPA ratio NNPA ratio

NPA trend (Coverage Universe)

PSBBank of Baroda 43199 -0.1 19542 -6.9PNB 56966 -0.3 36122 0.0SBI 111783 4.2 64513 4.5Indian Bank 9442 3.3 5807 1.9Private BanksAxis Bank 17198 71.4 8537 93.5City Union Bank 604 7.7 369 7.4DCB 268 10.4 127 4.5Federal Bank 1782 4.1 1044 4.5HDFC Bank 5221 3.0 1563 -0.3Indusind Bank 1007 4.5 424 3.8J&K Bank 5863 20.5 3356 7.0Kotak Mahindra Bank 3340 4.0 1593 3.4Yes Bank 990 8.5 349 6.8

QoQ Growth(%) Q3FY17E

GNPA (| crore)

QoQ Growth(%)

NNPA (| crore)


Page 18

Exhibit 21: Company specific view contd. (Banks) Jammu & Kashmir Bank

Led by unrest in J&K and corporate slowdown, highest GNPA accretion was seen inQ2FY17. Though pace of slippages is expected to pare down, GNPA accretion isseen continuing with GNPA ratio rising 36 bps QoQ at ~11.7%. Operationalperformance is expected to remain steady with treasury gains partly offsettingnegatives of interest reversal. Consequently, PPP is expected to decline 7% YoY at362.7 crore. However, anticipated higher provision at | 595 crore, is seen keepingbottomline in the red with loss of | 163 crore

Kotak Mahindra Bank

On asset quality front, slippages are anticipated to remain steady and asset qualityis expected to remain stable. GNPA ratio is seen remaining broadly at 2.4-2.5%. Ledby demonetisation, traction in credit offtake is expected to moderate at 14% YoY.Operational performance is expected to remain steady. NII growth is seen at 14%YoY at | 2015 crore, a bit lower compared to previous quarters, led by a marginaldecline in NIM. CI ratio is expected to increase ~50 bps QoQ while credit cost isexpected to remain at 13-15 bps. Consequently, PAT is seen at | 835 crore; up2.6% sequentially

Yes Bank For Q3FY17, credit growth is expected to remain ahead of industry butdemonetisation is set to keep credit growth trajectory lower compared to previousquarters at 29%. Earnings growth is seen remaining healthy at 15% YoY to | 777crore though moderation is seen in trajectory led by demonetisation and credit costat ~15 bps. Slippage accretion is anticipated to remain steady in line with theprevious quarter with GNPA ratio seen increasing 6 bps QoQ at 0.89%

IndusInd Bank IndusInd Bank's loan trajectory may get impacted. We expect growth of 16.6% YoYto | 95848 crore compared to >25% levels seen in last several quarters. Assetquality and portfolio growth of the CV and LAP segment would be key monitorablesin Q3FY17. Margins may decline but still expected at healthy levels of ~3.8%. NIIgrowth of 18.3% YoY to | 1389 crore is expected while PAT of | 669 crore (up 15%YoY) is estimated

Indian Bank Led by demonetisation, advances is expected to de-grow 2% YoY to | 123513crore. Incremental inflows are seen to increase deposits by ~8% QoQ. With 90days relief with regards to asset classification norms, asset quality is anticipated toremain stable with moderation in slippages. However, GNPA ratio is seen at 7.6%,inching marginally upwards owing to de-growth in advances. Margins are seendeclining ~10 bps QoQ, led by moderation in credit offtake, NII is seen increasing13% YoY to | 1278 crore. With a decline of ~30 bps in G-sec yields in Q3FY17,treasury gains are expected to aid overall earnings. PAT is seen at | 346 crore;down 14% QoQ, with credit cost expected at ~35 bps



Page 19

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

During Q3FY17, the demonetisation move led to system wide decline in interestrates. This allowed NBFCs, especially AAA rated, to raise funds at 30-40 bps lowerrate. However, the recent move by banks to reduce lending rate by 30-90 bpswould impact business of HFCs like LICHF. However, that would be seen inQ4FY17. For Q3FY17, we expect loan growth to dip to 11.9% YoY to | 127934 croreled by decline in both retail and developer segment. Margins estimated at ~2.55-2.6% levels. NII and PAT is estimated to increase by 10-11% YoY to | 823 crore & |465 crore, respectively.

Reliance Capital Home finance segment is expected to grow 30% YoY, though sequentially growthwill remain in single digit at 4%. Advisory business growth is seen to continue athealthy pace of 20% YoY. Insurance premium, though seen to remain seasonallyslower QoQ, spike is expected YoY owing to consolidation of life insurancebusiness. Overall, consolidated topline is expected to increase 94% YoY to | 4508crore, though sequentially remains muted. In line with top line expenses are seenremaining elevated YoY, owing to consolidation of insurance business. PAT, on aconsolidated basis, is seen at | 246 crore; stable YoY and QoQ

HDFC Ltd In case of HDFC Ltd, credit growth is estimated to moderate to 11% YoY to |275388 crore. Margins would remain steady in Q3FY17. NII growth of 9.5% YoY to| 2304 crore is estimated. Gains on sale of investments would be muted at | 3crore while ~| 180 crore of dividend income is expected. GNPA ratio to remain at~0.75%. PAT seen at | 1647 crore, up 8% YoY

PTC India Financials

Asset quality is expected to remain stable with GNPA at | 414 crore. GNPA andNNPA ratio, owing to balance sheet growth, is seen easing ~19 bps and 9 bps QoQto 4.1% and 2.73%, respectively. Advances are expected to cross | 10000 croremark with healthy growth at 29% YoY. Incremental growth in renewable segment toremain ahead with contribution at ~47% of book. With downward trajectory ofinterest rates and absence of any major recovery as seen in Q2FY17, margins seenat ~5.5%. NII growth seen at ~15% YoY, led by growth in advances. Provision isexpected to decline QoQ at | 10.1 crore while PAT is seen at | 78.7 crore, up 13%YoY

Bajaj Finance For Bajaj Finance, Q3 is generally the strong quarter due to the festive season.However, owing to demonetisation impacting consumption and consciousmanagement decision to go slow in some segments (consumer durable and LAP),credit growth would be impacted. We expect 25% YoY traction in portfolio to |54469 crore. Margins are expected to remain stable while asset quality especiallyin the two-wheeler segment may see some pressure. PAT growth levels to declineto 18% YoY to | 482 crore vs. >30% seen in last several quarters

Bajaj Finserv On the revenue front, consolidated topline is seen growing 15.7% YoY to | 5864crore, led by growth across segments. Healthy traction at 15% YoY and 12% YoY isexpected in general and life insurance business. Finance business revenue growthis seen continuing at a healthy pace at 21.8% YoY. On a sequential basis, generalinsurance premium is seen declining at 29%, led by higher premium accumulated inQ2FY17 owing to crop insurance. On the profitability front, consolidated PBT growthis seen continuing its healthy trajectory at 33.3% YoY to | 1272 crore, primarily ledby insurance as well as finance segment. PBT in insurance business, including lifeand general insurance is expected to continue with healthy traction at 39% YoY and129% YoY respectively. Consolidated PAT is seen at | 614 crore; up 40% YoY, ledby lower profitability in Q3FY16 owing to high claims in general insurance business



Page 20

Building materials

Demonetisation to impact demand for building materials in near term…

Against the anticipated improvement in building material in H2FY17, building material is expected to witness a decline in volume in Q3FY17 mainly due to a slowdown in two of its key demand drivers i.e. real estate sector and renovation cycle. Buyers in these sectors are deferring their buying decision post demonetisation. Furthermore, the liquidity crunch would result in stretched working capital cycle, thereby impacting the balance sheet of the companies. However, we remain positive on the building materials sector in the long term. We believe demonetisation and GST kicking in next year would provide a level playing field for organised players (tiles industry: ~50% organised; plywood industry: ~25% organised). It would help them extend their pie & gain market share from unorganised players.

Tiles universe revenues expected to fall 15.0% YoY...

Post demonetisation, the sales volumes of our tiles universe are expected to be adversely impacted in the near term. Sales volumes of the tiles universe are expected to de-grow 15.0% YoY to 22.9 MSM. Hence, revenues may de-grow 15.4% YoY to | 854.2 crore. However, we expect EBITDA margins to contract 140 bps YoY to 12.5% due to rise in fuel cost (RLNG prices have increased 8-10%) and un-absorption of staff expenses due to a decline in topline. Owing to a significant topline de-growth and EBITDA margin contraction, we expect the bottomline to de-grow 28.7% YoY to | 51.4 crore.

Plywood universe revenues to de-grow 10.9% YoY...

We expect the topline of the plywood universe to de-grow 10.9% YoY to | 723.5 crore amid a challenging demand environment post demonetisation. EBITDA margins are expected to contract 280 bps YoY to 13.7% due to contraction in Greenply’s EBITDA margin owing to change in revenue mix. Consequently, we expect bottomline of our plywood universe to decline 35.6% YoY to | 49.5 crore.

Exhibit 23: Estimates for Q3FY17E (Tiles) (| crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Kajaria Ceramics 508.2 -14.8 -19.2 85.4 -24.0 -31.8 39.7 -31.7 -37.6Somany Ceramics 346.0 -16.2 -22.1 21.4 -22.0 -43.4 11.7 -15.9 -49.3Total 854.2 -15.4 -20.4 106.9 -23.6 -34.5 51.4 -28.7 -40.7



Exhibit 24: Estimates for Q3FY17E (Plywood) (| crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Century Plyboards 359.1 -8.1 -21.8 51.9 -25.4 -31.5 27.6 -33.7 -44.0Greenply Industries 364.4 -13.6 -16.2 47.0 -27.2 -26.9 21.9 -37.9 -37.5Total 723.5 -10.9 -19.1 98.9 -26.2 -29.4 49.5 -35.6 -41.3

Change (%)Company



Topline & Profitability (Tiles universe)

1010 11

69

1003 1073

854

500

700

900

1100

1300

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

4.0

8.0

12.0

16.0

20.0

(%)


Topline & Profitability (Plywood universe)

812 90

3

819 89

4

723

250

500

750

1000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

5.0

9.0

13.0

17.0

(%)


Sales Volume Trend (Tiles Universe)

15.9

17.4

15.8

16.6

13.5

11.0

13.8

11.1

11.9

9.4

6

12

18

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(MSM

)

Kajaria Ceramics Somany Ceramics

Top pick of the sector

Kajaria Ceramics

Research Analyst

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


Page 21

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

Kajaria Ceramics We expect Kajaria's sales volumes to take a hit in Q3FY17 due to a slowdown inreal estate and renovation cycle post demonetisation. Sales volumes are expectedto decline 15.1% YoY to 13.5 million square metre (MSM). Consequently, thetopline is expected to decline 14.8% YoY to | 508.2 crore. EBITDA margins areexpected to decline 200 bps YoY to 16.8% due to rise in fuel cost (RLNG pricesincreased 8-10%) and non-absorption of higher staff expenses due to decline insales. Owing to topline de-growth, EBITDA margin contraction, we expect thebottomline to decline 31.7% to | 39.7 crore

Somany Ceramics

Building materials demand is to be negatively impacted as sales volumes of realestate sector and renovation cycle have witnessed a slowdown postdemonetisation. Hence, we expect Somany's sales volumes to decline 14.9% YoYto 9.4 MSM. Consequently, we expect Somany's topline to decline 16.2% YoY to |346.0 crore. Furthermore, Somany's EBITDA margins are expected to decline 40bps YoY to 6.2% due to rise in RLNG prices and non-absorption of fixed cost. As aresult, we expect its bottomline to decline 15.9% YoY to | 11.7 crore despitetopline de-growth


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

Century Plyboard We believe demonetisation would disrupt the demand scenario for buildingmaterials like plywood and laminates in the near term. Consequently, we expectCentury's topline to decline 7.6% YoY to | 359.1 crore. Plywood division revenuesare expected to de-grow 10.7% YoY to | 245.9 crore while laminate divisionrevenues are expected to remain flat YoY at | 77.7 crore. Further, we expectEBITDA margins to contract 350 bps YoY to 14.3% due to anticipated contraction of210 bps in plywood division EBIT margins. The bottomline is expected to decline33.7% YoY to | 27.6 crore primarily due to topline decline and EBITDA margincontraction

Greenply Industries

We expect Greenply's revenues to decline 13.6% YoY to | 364.4 crore owing to asharp fall in demand post demonetisation. Its plywood division revenues areexpected to decline 8.3% YoY to | 266.8 crore and MDF revenues are expected todecline 26.7% YoY to | 94.6 crore. Blended EBITDA margins are expected tocontract 240 bps YoY at 12.9% due to a change in the revenue mix. Its bottomlineis expected to decline 37.9% YoY to | 21.9 crore due to a margin contraction,higher effective tax rate (27.1% in Q3FY17E vs. 23.7% in Q3FY16) as some of itsfacilities have come out of tax exemption and significant topline decline


Major news during Q3FY17 (Building materials) Building materials sector

The Centre along with states has finalised the four slabrate structure for GST with highest rate at 28%,standard rate at 12-18% and lowest rate at 5%


Page 22

Capital Goods Demonetisation to impact product based companies

We expect product based companies under our coverage universe to be impacted due to the demonetisation event. Bearing companies will feel the brunt as 25-65% of their product portfolios are exposed to the auto sector. NRB Bearings (65% auto exposure) and SKF (50% auto exposure) will feel the brunt. Greaves Cotton, which supplies auto engine to 3W goods & passenger vehicles & LCVs will also see an impact of 8-10% decline on engine volumes in Q3FY17. We expect the main impact of demonetisation to be felt in Q4FY17 as the pain of a delay/postponement of inventory restocking trend from auto OEMs will be more visible then. The EPC space is expected to see relatively lower impact of demonetisation (subcontractor & transport led issues) given they will post decent growth on the back of low base (esp. Bhel & KEC).

Order wins tepid in Q3FY17 Order inflows were quite tepid given no big order finalisation has happened in the power BTG segment as Bhel has only managed to bag orders to the tune of | 200 crore (announced on exchanges). To our surprise, L&T only reported order wins of | 3000 crore (on exchanges) plus few orders whose value are undisclosed. We expect L&T to report | 35000 crore of inflows, which will then help it to achieve its annual guidance. On the positive side, KEC has managed to bag orders to the tune of | 840 crore. This will only strengthen its visibility. Thermax’ poor run in term of order wins continues in Q3FY17 as well. VA Tech Wabag, on other hand, should report order wins in excess of | 1000 crore if it has to meet its annual inflow guidance of | 4000-4500 crore.

EPC companies to take lead in performance in Q3FY17 We expect EPC companies to post healthy topline growth of 15% YoY, led by Bhel, L&T, BEL that are expected to post YoY revenue growth of 23%, 11.6%, 26.1%, respectively. In the midcap space, VA Tech, KEC are also likely to post healthy revenue growth of 28%, 6.1%, respectively. Companies in this segment are likely to see margin expansion due to improved execution in both domestic and overseas markets. EPC companies like L&T and VA Tech are likely to witness margin expansion of 260 bps and 340 bps, respectively, while Bhel is expected to post positive EBITDA margin of 3.7% vs. -30.8% in Q3FY16. Bhel’s massive swing from loss to profit YoY magnifies the optical performance of the entire coverage universe.

Exhibit 27: Estimates for Q3FY17E (Capital Goods) (| Crore)Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

AIA Engineering 540.9 9.7 2.2 153.7 4.0 -3.2 107.2 17.3 -3.9Bharat Electronics 1,913.4 26.1 6.6 361.3 23.5 6.8 356.5 20.5 3.0BHEL 6,548.2 23.0 -1.7 244.4 LP 57.6 137.6 LP 26.2Greaves Cotton 381.5 -6.1 -13.2 60.2 -11.5 -13.8 42.2 14.8 -18.0Grindwell Norton 301.4 7.3 -3.2 45.8 12.3 0.3 25.9 13.8 -10.8KEC Internnational 2,184.0 6.1 5.3 184.8 14.8 -0.3 61.8 66.3 -5.0KSB Pumps 213.8 -12.3 32.3 25.7 -37.3 102.4 16.3 -32.9 120.3L&T 16,510.1 11.8 12.3 1,502.4 56.0 38.1 1,014.3 20.2 24.6NRB Bearings 168.8 6.3 -6.1 22.3 10.1 -21.3 8.8 13.6 -46.0SKF India 647.2 6.4 -2.2 88.0 7.8 4.7 62.7 7.8 4.0Thermax Ltd 1,025.8 -1.3 17.8 94.4 -4.5 22.1 67.5 -0.5 13.2Timken India 276.6 7.7 -2.1 38.2 13.5 -19.7 21.2 10.8 -29.1Va Tech Wabag 807.2 28.0 3.8 84.5 88.7 44.4 44.4 134.8 84.6Total 31,518.8 13.4 7.0 2,905.6 719.3 23.7 1,966.3 365.8 14.1




793 41

680

2431

1

2945

3

3151

9

05000

1000015000200002500030000350004000045000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| c

rore

.

0.02.04.06.08.010.012.014.016.0

(%)


Trend in quarterly tenders (both govt + private players)

50,000

100,000

150,000

200,000

250,000

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17*

(| c

rore

)

Q3FY17* = Tenders only for October-November 2016

Trend in segment wise tenders

20,289

530

10,9835,627 5,030

8,872

05,000

10,00015,00020,00025,00030,00035,00040,000

PowerDistribution

Water Supply Railways

(| c

rore

)

Q1FY17 Q2FY17 Q3FY17


L&T Bharat Electronics KEC International SKF Bearings

Research Analyst

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


Page 23

Product based companies to exhibit muted performance Overall product companies are expected to exhibit muted topline growth of ~4% YoY on account of weak industrial offtake in November-December of Q3FY17. Overall, we expect margins to remain flat compared to Q3FY16 as a pick-up in commodity prices will likely offset the pick-up in industrial utilisation of H1FY17. Accordingly, we expect bearing companies like SKF, Timken and NRB to report 8%, 7.7% and 6.3% YoY growth, respectively. This is on the back of muted growth in auto segment, passenger vehicles 9.5%, commercial vehicles 5.4% and -2.5% in the two wheeler segment. In the mining consumable/industrial space, we expect AIA to report 19% YoY growth in volumes (pick-up in mining segment will compensate weakness in the cement segment) whereas Grindwell Norton is expected to report 9.5% revenue growth (mainly volume led) coupled with a low Q3FY16 base.

Interest expenses to remain flat despite pick-up in execution We expect interest costs of our coverage universe to increase marginally by 0.8% despite a pick-up in execution. The key reason for the muted rise in finance costs is lower interest rates and better receivable management. Within the universe, L&T, despite 12% YoY growth in revenues is expected to see a decline in interest costs to the tune of 2.7% YoY.


Page 24

Exhibit 28: Capital Goods Company RemarksAIA Engineering We expect AIA to post strong volume growth of 19% YoY to 52485 tonnes. This

will be led by 34% YoY growth in mining segment, albeit on low base. However,we expect realisation to be down 8% YoY at | 100000/tonne. Revenues areexpected to grow 9.7% YoY to | 540.9 crore. EBITDA margins are expected todecline 160 bps to 28.4%. PAT is expected at | 107.2 crore, up 17% YoY(adjusted tax rate was 42% for Q3FY16)

Thermax We expect Thermax to report a muted Q3FY17 on the back of lower carry of orderbacklog and no significant order wins for the quarter. We expect Thermax toreport order inflows to the tune of | 1200 crore. We expect revenues to decline1.3% YoY to | 1025.8 crore. Margins are expected to decline 30 bps to 9.2%.However, higher other income would cushion the decline in profitability to 0.5%YoY to | 67.5 crore

KSB Pumps KSB Pumps may report a subdued performance in Q4CY16 with topline de-growing 12.0% YoY to | 212 crore. Pump segment sales are expected at | 177crore (down 12.7% YoY) while valves segment sales are expected at | 35 crore(down 10.5% YoY). EBITDA margins are expected to moderate 480 bps to 12.0%in Q4CY16 primarily due to the high base (Q4CY15 results were exceptionallygood). For Q4CY16, EBITDA is expected at | 25.7 crore while PAT is expected at| 16.3 crore, down 33% YoY

KEC International KEC is expected to post an all-round performance in Q3FY17. The companyreported strong order wins to the tune of | 840 crore. We expect revenues togrow 6.1% to | 2184 crore, on the back of demonetisation impact. EBITDAmargins are expected to expand 70 bps to 8.6%. Consequently, PAT is expectedat | 61.8 crore, up 66% YoY (adjusted tax rate to be 35% in Q3FY17 vs. 49.5% inQ3FY16)

L&T Announced order wins have been muted at | 3000 crore for Q3FY17. We expecttotal inflows at | 35000 crore (combination of announced, service and privateorders) so that L&T will be able to maintain its guidance for FY17E. On theexecution front, we expect L&T to report revenue growth of 12% YoY at | 16510.1crore. EBITDA margins are expected to expand significantly from a low base oflast quarter at 9.1% (up 260 bps YoY). Interest costs are expected to remainstable owing to greater focus of receivable management. Hence, we expect PATto grow 20% YoY | 1014 crore

Bhel In Q3FY17, Bhel did not manage to report a BTG/EPC order in the power segmentwhereas the announced order wins were at | 200 crore. However, on a low baseof last year, we expect Bhel's revenues to grow 23% YoY to | 6548.2 crore.EBITDA will turn positive and is expected at 3.7%. Consequently, PAT is expectedat | 137.6 crore. Key monitorable would be progress in slow moving orders andordering pipeline, going ahead

Greaves Cotton Demonetisation will affect the auto engine segment of the company wherein thedecline in volumes can be in the range of 8-10% (high impact on LCVs). Hence, onan overall basis, we expect revenues to decline 6.1% YoY to | 381.5 crore.Negative operating leverage will lead to a decline of margins by 90 bps to 15.8%.PAT is expected at | 42.2 crore (YoY not comparable as Q3FY16 had a one-offexpenditure to the tune of | 25 crore)



Page 25

Exhibit 29: Company specific view : Capital Goods (Continued) es

SKF India We expect SKF to deliver muted revenue growth of 6.4% YoY to | 647.2 crore.This is on account of weak volume growth of -2.5% and 9.5% in the two-wheelerand passenger segment, respectively. These segments contribute ~30% totopline of the company. The industrial segment is likely to witness 7.5% YoYgrowth (11.7% YoY last year) on account of new product offerings in thissegment. We expect SKF to post EBITDA margins of 13.6% vs. 13.4% in Q3FY16,due to high employee expenses in Q3FY16. PAT is likely to grow 7.8% YoY to |62.7 crore

VA Tech Wabag We expect Wabag to report topline growth of 28% YoY to | 807.2 crore on theback of higher execution in both domestic and overseas orders. The EBITDAmargin is expected to improve to 10.5% (7.1% in Q3FY16). Accordingly, EBITDA islikely to grow 88.7% YoY to | 84.5 crore. We expect PAT of | 44.4 crore, up134.8% YoY. Order inflows of ~| 1400 crore are also expected for the quarter

NRB Bearings In Q3FY17E, we expect NRB to report muted topline growth of 6.3% YoY to |168.8 crore, on the back of weak volume growth of ~9%, 1% and -2.5% inpassenger vehicles, light commercial vehicles and two-wheeler segments,respectively. EBITDA margins are expected at 13.2% for Q3FY17E vs. 12.8% inQ3FY16. Consequently, PAT is expected to grow 13.6% YoY to | 8.8 crore

Timken India We expect Timken to report muted topline growth of 7.7% to | 276.6 crore. Thisis account of weak volume growth of ~6% in the commercial vehicle segment.However, exports are likely to pick up from this quarter (after a mutedperformance of ~4%YoY growth in H1FY17). We expect exports to post healthy12% growth in Q3FY17E. Consequently, EBITDA margins are expected to behigher at 13.8% in Q3FY17E vs.13.1% in Q3FY16. PAT is expected to increase10.8% YoY to | 21.2 crore

Grindwell Norton In Q3FY17, GNL is expected to report topline growth of 7.3% YoY to | 301.4 croreon the back of expected growth of 5.5% and 9% in abrasive and ceramic segment,respectively. Margins are expected at 15.2% vs.14.5% YoY due to due to higherutilisation in the ceramic segment and low base of Q3FY16. Accordingly, PAT isexpected to grow 13.8% YoY to | 25.9 crore

Bharat Electronics

For Q3FY17E, BEL is expected to report robust 26.1% topline growth of | 1913.4crore. Higher topline is mostly due to higher bookings in second half of the year.EBITDA margins are expected at 18.9% for the quarter (19.3% in Q3FY16). PAT forthe quarter is likely to be | 356.5 crore, up 20.5% YoY



Page 26

Cement Demonetisation to hamper cement demand during quarter

Higher dependence on cash settlement in retail cement sales and slowdown in real estate construction is expected to negatively impact cement demand in Q3FY17E. After witnessing robust growth in cement demand in October (up 6.2% YoY), we expect cement demand for November (flat YoY due to low base) and December (down 12.0% YoY) to remain weak due to demonetisation. However, region wise South is expected to be least impacted due to lower proportion of cash transactions. On the infra side, although project tendering has increased 40.6% YoY to | 1,31,297 crore, project investment during the quarter has declined 12.5% YoY. As a result, overall cement demand is expected to decline 2.0% YoY in Q3FY17E vs. 4.5% YoY growth in Q3FY16. Considering this, we expect companies under our coverage universe to register volume decline of 3.5% YoY in Q3FY17E.

Despite tepid demand, north, central see price improvement in quarter As per our channel checks, prices in the east declined 5.0% YoY to | 268/bag led by increased capacity addition and higher competitive intensity. Further, prices in the south declined 2.7% YoY led by a weak pricing environment in AP and Telangana. However, prices in the north are expected to increase 3.5% YoY to | 300/bag while prices in central are expected to increase by 3.6% YoY to | 300/bag. Overall, realisation at the pan-India level is expected to decline 0.9% YoY (down 1.1% QoQ) to | 317/bag. We expect companies in our coverage universe to report 3.7% YoY increase in realisation to | 4,659 mainly due to high exposure to north and IND-AS adjustment.

I-direct universe to report flat topline growth YoY in Q3FY17E Our coverage universe is expected to report 0.1% YoY (up 2.4% QoQ) growth in cement revenues led by increase in realisation partially offset by a decline in volumes. Company wise, we expect India Cement to report 10.6% YoY increase in volume with Mangalam reporting volume decline of 6.7% YoY. The bottomline of our universe is expected to increase 10.5% YoY to | 961.4 crore led by higher profitability in Shree Cement (due to lower depreciation and higher other income) and India Cement (due to better performance at operating level).

Higher energy, freight cost to dent EBITDA margins Pet coke and international coal prices have increased ~68.0% YoY and ~65.7% YoY, respectively. As a result, companies under our coverage are expected to report | 60-100/tonne increase in power cost. This, coupled with a hike in diesel prices, is expected to adversely impact EBITDA margins (down 28 bps YoY).

Exhibit 1: Estimates for Q3FY17E (| Crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

ACC^ 2,705.7 -4.9 9.4 191.9 -10.2 -14.7 78.2 -23.7 -4.6Ambuja^ 2,292.5 -2.7 14.4 285.0 -6.3 3.3 92.7 -15.7 -66.5Heidelberg 392.1 -2.6 2.1 48.3 -16.1 -19.3 5.8 -34.7 -64.5India Cement * 1,164.2 25.2 -11.0 178.0 21.7 -20.7 32.3 483.3 -48.3JK Cement 857.3 -5.0 -5.9 105.5 -16.2 -27.8 8.3 -51 -80JK Laxmi Cement 616.6 -4.9 -5.9 61.4 -8.3 -34.5 -5.7 NA PLMangalam Cement 200.4 -5.3 5.8 8.4 -8.4 -62.4 -5.7 NA PLShree Cement * 2,236.6 22.4 -0.8 519.0 21.8 -20.9 258.2 151.1 -11.4Star Ferro & cement 396.3 -7.5 8.8 67.7 -26.2 15.0 7.6 -59.2 1,012.9UltraTech Cem 5,453.9 -5.1 1.0 994.6 -4.7 -9.1 489.8 -3.7 -18.5Total 16,315.7 0.1 2.4 2,459.8 -1.0 -13.9 961.4 10.5 -31.4

Change (%) Change (%)Company

Change (%)

Source: Company, ICICIdirect.com research ^Q4CY16 result * Q3FY17E revenues is as per IND AS VS Q3FY16 is as per Indian GAAP

Topline & Profitability (Coverage universe)

1629

9 1780

0

1806

2

1594

1

1631

6145001500015500160001650017000175001800018500

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

(%)


All-India quarterly cement dispatches

4.2-0.5

1.4 1.7

4.511.4

5.7 3.3-2.0

20304050607080

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

milli

on to

nnes

-5.00.05.010.015.0

%

Cement dispatches (LHS) YoY growth (RHS)

Monthly production growth YoY (%) – Till Nov 2016

9.0

13.5

4.4

2.4

10.3

1.4 3.

1 5.4 6.2

0.5

0.2 2.

2 2.7

2.9

1.4

5.4

12.2

3.2

11.9

-3.7

-1.4

-1.5 -1.7

-5.0

0.0

5.0

10.0

15.0

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

2016 2015


India Cements

Research Analyst

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


Page 27

Exhibit 2: Company specific view Company Remarks

ACC ACC is expected to register volume decline of 4.5% YoY to 5.7 MT in Q3FY17Emainly due to a fall in demand (led by liquidity crunch). Further, we expectEBITDA/tonne to fall 6.0% YoY led by 23.2% YoY increase in power & fuel cost(driven by increase in pet coke & international coal prices). PAT may decline 23.7%YoY mainly due to a poor performance at the operating level

Ambuja Cement It is expected to report a volume decline of 4.5% YoY while realisation is expectedto grow 1.9% YoY mainly due to the high presence in north (where pricing hasimproved despite moderation in demand). EBITDA/tonne is expected to decline1.9% YoY to | 545/tonne. PAT is expected to decline 15.7% YoY mainly due to thepoor performance at the operating level

UltraTech Cement

UltraTech Cement's volume is expected decline 4.1% YoY due to a decline in retailcement sales and slowdown in construction activities. Further, blendedEBITDA/tonne is expected at | 894/tonne (down 0.6% YoY) mainly led by anincrease in pet coke prices. PAT may decline 3.7% YoY to | 489.8 crore led byhigher interest and tax expenses

Shree Cement The company's cement volumes are expected to decline 2.5% YoY to 4.6 MT dueto the higher presence in the north (as this region is more dependent on cash).However, EBITDA/tonne is expected to increase 27.1% YoY (down 21.6% QoQ)mainly due to higher proportion of low cost pet coke inventory. PAT is expected toincrease 151.1% YoY to | 258.2 crore mainly led by lower depreciation and higherother income (due to adoption of IND-AS)

India Cement We expect volume growth of 10.6% YoY due to low base effect (as previous year’svolumes were impacted by floods in Chennai) and lower cash component inhousing in the southern region. EBITDA/tonne is expected to be flat YoY to |734/tonne. PAT during the quarter is expected to increase 483.3% YoY mainly dueto a better performance at the operating level and lower depreciation

JK Cement Blended volumes are expected to decline 6.1% YoY led by 7.9% YoY decline incement volumes while white cement is expected to increase 18.2% YoY (mainlydriven by capacity expansion of 0.2 MT in wall putty). In addition, the blendedrealisation is expected to increase 1.1% YoY as JK sells majority of its volumes inthe north. We expect EBITDA/tonne to decline 10.8% YoY to | 556/tonne due tohigher power & fuel cost. PAT is expected to decline 51.0% YoY due to higherdepreciation and interest expenses

JK Lakshmi Cement

JK Lakshmi is expected to report a volume decline of 6.2% YoY due to higherproportion of cash transaction in the company's key markets (North & East).However, we expect realisation to increase 1.4% YoY mainly due to a healthypricing environment in the north. Cement EBITDA/tonne is expected to decline2.3% YoY led by higher power cost at its Durg facility and increase in pet cokeprices. The company is expected to report a net loss of | 5.7 crore mainly due to apoor performance at the operating level

Mangalam Cement

Mangalam Cement is expected to report 6.7% YoY decline in volume whilerealisation is expected to increase 1.5% YoY due to a price improvement in thenorth. EBITDA/tonne is expected to decline from | 157/tonne to | 154/tonne.Further, the company is expected to report a net loss of | 5.7 crore mainly led byhigher depreciation and interest expenses (due to commissioning of 0.75 MTgrinding capacity at Aligarh in September 2016)

Heidelberg Cement

We expect a volume decline of 5.5% YoY due to demonetisation impact.EBITDA/tonne is expected to decline 11.3% YoY to | 469/tonne led by higherfreight and power cost. Further, PAT is expected to reduce from | 8.9 crore inQ3FY16 to | 5.8 crore in Q3FY17E driven by decline in operating margins

Star Ferro & Cement

Star Ferro is expected to be most hit by demonetisation as instead of reporting~16.0% YoY growth in volumes (as witnessed in the past two quarters), weexpect the company's volume to decline 4.0% YoY to 0.6 MT. Further, realisation isexpected to decline 3.3% YoY led by increased competition. In addition,EBITDA/tonne is expected to decline 23.1% YoY due to pricing pressure andincrease in operating cost. The company is expected to report 59.2% YoY decline in net profit mainly led by higher tax expenses


Sales volume (Coverage Universe)

Million tonnes Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%)

ACC 5.7 6.0 -4.5 5.1 13.0

Ambuja 5.2 5.5 -4.5 4.5 16.3

UltraTech* 11.1 11.6 -4.1 11.2 -0.5

Shree Cem 4.6 4.7 -2.5 4.6 0.3

India Cem 2.1 1.9 10.6 2.4 -10.7

JK Cement* 1.9 2.0 -6.1 1.9 -1.2

JK Lakshmi 1.7 1.8 -6.2 1.7 -3.8

Mangalam 0.5 0.6 -6.7 0.5 14.7

Heidelberg 1.0 1.1 -5.5 1.0 3.0

StarFeroCement 0.6 0.7 -4.0 0.6 4.6

Total 34.6 35.8 -3.5 33.4 3.4

* blended sales volume (grey & white)

RE

Region-wise cement retail prices |/50 kg bag Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%)

North 300 290 3.5 302 -0.6

East 268 282 -5.0 277 -3.3

South 366 376 -2.7 370 -1.3

West 305 295 3.4 290 5.2

Central 300 290 3.6 312 -3.6

North East 365 389 -6.2 374 -2.4

Average 317 320 -0.9 321 -1.1

Cement Realisations (Coverage Universe)

| per tonne Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%)

ACC 4724 4744 -0.4 4877 -3.2

Ambuja 4381 4299 1.9 4454 -1.6

UltraTech 4903 4955 -1.0 4828 1.6

Shree Cem^ 4456 3500 27.3 4506 -1.1

India Cem^ 5337 4709 13.3 5391 -1.0JK Cement* 4518 4470 1.1 4742 -4.7

JK Lakshmi 3731 3681 1.4 3816 -2.2

Mangalam 3670 3616 1.5 3980 -7.8

Heidelberg 3807 3695 3.0 3842 -0.9

StarFeroCement 6327 6546 -3.3 6086 4.0

Average 4659 4494 3.7 4706 -1.0

* Blended realisations (grey cement +white cement), ^ Q3FY17E realisation is as per IND AS VS Q3FY16 is as per Indian GAAP

EBITDA per tonne (Coverage Universe)

| per tonne Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%)

ACC 335 356 -6.0 444 -24.5

Ambuja 545 555 -1.9 613 -11.2

UltraTech* 894 900 -0.6 978 -8.6

Shree Cem 1019 802 27.1 1300 -21.6

India Cem 734 732 0.3 892 -17.7

JK Cement* 556 623 -10.8 783 -29.0

JK Lakshmi 371 380 -2.3 545 -31.9

Mangalam 154 157 -1.9 470 -67.2

Heidelberg 469 528 -11.3 598 -21.6

StarFeroCement 1077 1400 -23.1 980 10.0

Average 691 679 1.8 834 -17.2

*blended (grey + white)


Page 28

Construction & Roads

Government taking measures to ease liquidity for construction sector

After starting the year with ambitious awarding/construction target (25000 km/15000 km), the ministry & NHAI have together constructed/awarded only 4021 km/5688 km in April-November 2016. On a positive note, tendering activity has picked up with road tenders worth ~| 72167 crore (up 58.8% YoY) floated in October-November 2016, which could translate into robust awarding opportunities. Though achieving initial targets seem difficult, the government could roll them over to FY18E, which bodes well for EPC players. Media reports indicate the Road Ministry is eyeing a ~50% rise in budgetary allocation in FY18 to | 86000 crore. BOT players have started reaping the benefits from government’s key policy measure of releasing 75% of arbitral award amount where developer has won arbitration. Under this, IRB recently received two arbitral awards amounting to ~| 270 crore (It is one-off item & we have not considered in our estimates).

Execution not to be impacted much by demonetisation...

Post demonetisation, execution in road and construction has not been much impacted except a few labour & subcontracting payment issues. BOT players suffered a toll revenue loss post the government’s decision to suspend toll collections at national & state highways for 23 days. However, media reports indicate that NHAI would pay ~| 922 crore to toll operators as compensation, which could be ~80-90% of actual loss (compensation structure is yet unclear).

Construction universe revenues to grow 9.4% YoY…

We expect revenues of our construction universe to grow 9.4% YoY to | 5327.7 crore with an anticipated pick-up in execution in Q3FY17E. Further, our road universe is expected to report moderate growth of 5.0% YoY in revenues to | 3372.3 crore as companies could face partial toll revenue loss (~2-5%) post demonetisation.

Bottomline of our construction universe to rise 11.4% YoY…

Our construction universe is expected to post PAT growth of 11.4% YoY to | 145.8 crore led by margin expansion & interest cost savings. Also, our road universe PAT is expected to grow 7.9% YoY to | 262.0 crore led by tax savings as Sadbhav Engineering & PNC Infratech are claiming MAT credit under Income Tax Section 80IA.

Exhibit 3: Estimates for Q3FY17E (Road) (| Crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Ashoka Buildcon 608.6 0.8 1.8 172.0 -2.4 -4.9 14.7 11.2 -34.1IRB Infra 1,401.7 5.1 8.6 742.7 8.0 4.8 153.5 -9.5 8.0PNC Infratech 506.2 -3.0 40.6 65.1 -4.1 40.6 50.3 54.9 42.9Sadbhav Eng. 855.9 13.6 39.0 90.0 21.9 37.7 43.4 58.6 134.1Total 3,372.3 5.0 17.7 1,069.9 6.4 6.8 262.0 7.9 20.0

Change (%)Company

Change (%)Change (%)


Exhibit 4: Estimates for Q3FY17E (Construction) (| Crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

NBCC 1,677.5 17.6 38.0 71.5 25.0 -0.9 63.0 14.0 -6.2NCC 2,182.0 6.2 12.0 198.2 6.9 15.8 62.9 11.1 23.1Simplex Infra 1,468.2 5.5 16.2 171.1 15.1 7.0 19.9 4.5 11.4Total 5,327.7 9.4 20.3 440.7 12.7 9.4 145.8 11.4 7.1

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

z


Topline & profitability (Road Coverage)

3212 37

13

3490

2864 33

72

0

1000

2000

3000

4000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.0

10.0

20.0

30.0

40.0

(%)


Topline & profitability (Construction Coverage)

4872 62

05

4554

4427 53

28

0

1500

3000

4500

6000

7500

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

1.02.03.04.05.06.07.08.09.010.011.0

(%)


Quarterly Tenders trend…

93,8

13

45,4

45

125,

524

72,1

67

267,

993

93,3

88

378,

009

131,

297

0

100,000

200,000

300,000

400,000

H1FY16 Oct-Nov'15 H1FY17 Oct-Nov'16

(| c

rore

)

Road Tenders Total Tenders


NBCC, Sadbhav Engineering, PNC Infratech

Research Analyst



Page 29

Exhibit 5: Company specific view (Road coverage universe) Company Remarks

Ashoka Buildcon The company suffered toll revenue loss for 23 days post demonetisation, which isexpected to be compensated to the tune of ~80-90% (compensation structure yetunclear). Consequently, Ashoka's revenues are expected to remain flat YoY at |608.6 crore. We expect its EBITDA margins to contract 90 bps YoY to 28.3% due tomarginal blip in revenues of high margin BOT division. Further, the company isexpected to report a bottomline growth of 11.2% YoY to | 14.7 crore in Q3FY17E.Key monitorable: Management guidance on order inflow

IRB Infrastructure Post demonetisation, the government suspended toll collection for 23 days on allnational and state highways for which ~80-90% compensation is expected fromrespective authorities (compensation structure yet unclear). Hence, we expecttopline to grow moderately by 5.1% YoY to | 1401.7 crore. Further, we expectEBITDA margins to expand 140 bps YoY to 53.0%. However, the bottomline isexpected to fall 9.5% YoY to | 153.5 crore owing to higher interest expenses (|339.0 crore in Q3FY17E vs. | 263.8 crore in Q3FY16).Key monitorable: Management guidance on order inflow and details of toll losscompensation structure from NHAI

PNC Infratech We expect execution of PNC's newly won projects to pick up in Q4FY17. Hence, inQ3FY17, we expect topline de-growth of 3.0% YoY to | 506.8 crore. EBITDAmargins are expected to remain flat at 12.9%. However, we expect the bottomlineof PNC to grow robustly by 54.9% to | 50.3 crore on account of lower effective taxrate (10.0% in Q3FY17E vs. 34.4% in Q3FY16) as the company is claiming MATcredit under Income Tax Section 80IA.Key monitorable: Management commentary on execution ramp up of newly wonprojects

Sadbhav Engineering

We expect Sadbhav's topline to grow 13.6% YoY to | 855.9 crore on the back ofanticipated ramp-up in execution across divisions. Furthermore, EBITDA marginsare expected to improve 70 bps YoY to 10.5% on the back of lower constructionexpenses. However, the bottomline is expected to grow robustly by 58.6% YoY to |43.4 crore on account of topline growth and lower effective tax rate (0.8% inQ3FY17E vs. 20.2% in Q3FY16) as the company is claiming tax benefits underIncome Tax Section 80IA.Key monitorable: Improvement in execution


Road Coverage Universe

Higher interest expense* continue to eat away PAT

12.512.8

13.3

16.9

14.2

12.0

14.0

16.0

18.0

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(%)

*Interest Expenses as %age of Sales

Major news during Q3FY17 Ashoka Buildcon received LoIs fromDakshinanchal Vidyut Vitran Nigam for executionof work on Rural Electrification worth | 178.6crore from UP government

It's subsidiary Ashoka Highway (Durg) completedrefinancing of its debt with IDFC by issuing NCD'sworth ~| 200 crore carrying interest cost @9.90% per annum.It received LoI from North & South Bihar PowerDistribution Co. worth ~| 949.9 crore.

IRB Infrastructure

IT Department conducted survey at office of IRBSurat Dahisar Tollway, IDAA Infrastructure &Mhaiskar Infrastructure Pvt Ltd- wholly ownedsubsidiaries of IRB, to verify these companies'deposit of toll collection of November 8 & 9 onNovember 11, 2016 post demonetisation

IRB is preferred bidder for six laning of Kishangarh to Gulabpura section of NH 79A and NH 79 inRajasthan (length 90 km) on DBFOT basis. IRBhas offered a premium of | 186.3 crore to NHAI.The concession period of the project is 20 yearsincluding construction period of 910 days.

IRB Goa Tollway- wholly owned subsidiary of IRBhas received arbitral award worth | 248.5 crorefrom NHAI against bank guarantee submitted as75% of arbitral award amount

Infrastructure Sector

Government is pushing for an additional | 50-60,000 crore burst of spending to giveinfrastructure a big push through the secondsupplementary demand for grants. Roads,railways and rural electrification will beamong main beneficiaries

The Prime Minister laid foundation stones of keyinfrastructure projects, including country'slongest sea bridge & two metro lines in Mumbaiworth ~| 1.06 lakh crore.

Ashoka Buildcon


Page 30

Exhibit 6: Company specific view (Construction coverage universe) Company RemarksNBCC We expect NBCC's topline to grow 18.5% YoY to | 1677.5 crore on the back of

robust growth of 26.8% YoY to | 1571.7 crore in its PMC division revenues. EBITDAmargins are expected to remain flattish YoY at 4.2% largely due to lower revenuescontribution from high margin real estate division (| 25 crore in Q3FY17E vs. | 110crore in Q3FY16). Furthermore, on the bottomline front, we expect its PAT to grow14.0% YoY to | 63.0 crore largely led by topline growth Key monitorable: Margins in PMC division, ramp up on execution from big ticketprojects.

Simplex Infrastructure

We expect Simplex Infrastructure's revenues to grow moderately by 5.5% YoY to |1468.2 crore as execution continues to be hindered by stretched working capitalcycle. Furthermore, we anticipate its EBITDA margins will expand 100 bps YoY to11.7% on the back of lower raw material expenses (28.2% as percentage of sales inQ3FY17E vs. 31.1% in Q3FY16). Its bottomline is expected to grow 4.5% YoY to |19.9 crore.Key monitorable: Debt position and management commentary on working capitalimprovement.

NCC Ltd After a lull in execution in Q2FY17 due to heavy monsoons, we expect NCC'stopline to grow 6.2% YoY to | 2182.0 crore in Q3FY17E. Furthermore, EBITDAmargins are expected to remain flat YoY at 9.1%. We expect its interest expensesto dip (| 103.9 crore in Q3FY17E vs. | 119.9 crore in Q3FY16) after themanagement's conscious efforts to reduce debt and improve working capital cycle.Consequently, its bottomline is expected to grow 11.1% YoY to | 62.9 crore in spiteof lower other income (| 25.0 crore in Q3FY17E vs. | 41.5 crore in Q3FY16).Key monitorable: Management commentary on debt reduction


Construction Coverage Universe

De-leveraging is on top of the mind of construction players…

4.9

4.1

4.64.9

4.2

3.5

4.0

4.5

5.0

5.5

6.0

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

(%)

*Interest Expenses as %age of Sales

Major News during Q3FY17

NHAI is looking to monetise 30-40 road asstes toraise up to ~| 15-20,000 croreLIC is looking to invest ~| 6000 crore in NationalHighway Authority of India (NHAI) bonds for FY16to part-fund the government's ambitious projectstill completion

Road Sector

The Roads Ministry suspended toll collectionacross all National Highways from November 9till December 2, 2016 to facilitate smooth trafficmovement post demonetisationAs many as 84 infrastructure projects with a costof | 150 crore or above each, have reported acost overrun of ~| 1.14 lakh crore (original cost:~| 1.12 lakh crore & anticipated cost: ~| 2.26lakh crore)The government may come up with ambitious | 3lakh crore economic corridor project to develop35,000 km of highways for faster movement offreightThe company received orders worth ~| 410crore in October, 2016The government will engage NBCC to monetisearound 771 acre of prime land held by erstwhileVSNL to raise ~| 15000 crore. NBCC will get afee of 0.5% of the value realised from disposal ofsuch land, subject to a cap of | 1 crore

NBCC

NBCC will redevelop 10 stations. The projectincludes redevelopment of paltform, lounges,ticket counters, parking, airport like arrival anddeparture terminals NBCC has entered into an MoU with IndianTelephone Industries (ITI) to jointly carry outfeasibility study for developing 30 acre landparcel of ITI at Electronics City, BangaloreNBCC has secured new works amounting to ~|600 crore for construction of residential cumtraining complex in New Delhi NBCC's consider issue of bonus shares at itsboard meeting on January 4, 2017

NCC

The NCC-BGR consortium has been awardedthe Pachwara-North Coal Block MDO projectworth ~| 35000 crore in Jharkhand to beexecuted over a 30 year period


Page 31

Consumer Discretionary Demonetisation, seasonality to hurt revenue growth

I-direct consumer discretionary (CD) universe is estimated to record decline in sales by 9% YoY due to higher base of corresponding quarter and deferral of sales on account of demonetisation. We believe negative impact of demonetisation would be higher in items such as Paint and AC segments wherein volume is likely to decline by ~11% and 20% YoY respectively. Other consumer companies like Havells, Bajaj Electricals and V-guard also likely to witness decline in sales of consumer products (largely B2C categories) to the tune of 6-15% respectively attributable to lower demand from tier II and tier III cities due to liquidity crunch. Adhesive and water proofing major, Pidilite Industries is likely to see decline in sales of consumer and bazaar segment (contributes 84% in topline) by 7% YoY attributable to lower demand from semi urban and rural India. We believe, Essel propack consolidated sales is likely to go up by 6% YoY, as impact of demonetisation on AMESA regions would likely to offset by recovery in the performance by overseas business (contributes ~60% in topline) due to stabilisation of new facilities.

Rising input cost, lower operating leverage restrict margin The I-direct CD universe EBITDA margin is expected to decline ~80bps YoY mainly due to lower operating leverage (on account of decline in sales volume), Change in product mix (higher sales of economic products) and rising raw material prices (TiO2 and copper prices up by 7% YoY each). Further, companies have taken price hike upto 10% (to offset rise in copper prices) in the wire and cable segment, helped in restricting any sharp fall in EBITDA margin. Paint and adhesive companies are expected to witness decline in EBITDA margin by ~100 bps YoY due to lower operating leverage and down trading. Under the electrical goods category, Symphony is likely to witness decline in EBITDA margin by ~160 bps YoY (due to change in product mix). 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 expenditure.

PAT declines on account of lower sales and EBITDA Lower sales coupled with muted EBITDA margin likely to take toll on bottomline as I-direct coverage are expected to record PAT de-growth of 12% YoY. We believe, while the B2B business moreover to remain isolated from the impact of demonetisation, the B2C business will suffer the most during the cash crunch. Companies like Bajaj Electrical and Supreme Industries would see sharp fall in PAT mainly due to sharp decline in EBITDA margin.

Exhibit 7: Estimates for Q3FY17E (Consumer Discretionary) (| Crore)

Company Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Asian Paints 3,622.1 -12.9 -14.4 659.6 -17.6 -7.5 395.6 -14.6 -20.0Bajaj Electricals 1,019.6 -11.1 1.4 52.6 -33.1 16.3 18.6 -36.5 21.1Essel Propack 542.1 5.6 -9.1 102.4 -0.4 -8.0 44.2 2.9 -37.6Havells 1,302.5 -3.1 -10.3 162.8 -11.1 -19.9 112.3 -7.0 -23.0Kansai Nerolac 890.1 -8.1 -11.2 118.3 -13.4 -40.4 79.2 -6.1 -43.1Pidilite Industries 1,233.2 -7.9 -19.4 258.8 -12.4 -19.8 172.6 -7.1 -25.3Supreme Industries* 918.7 -7.9 4.6 128.8 -14.7 0.1 65.9 -19.7 -0.4Symphony* 177.6 9.3 18.0 63.1 4.5 23.1 48.4 1.4 23.1V-Guard Industries 395.4 -5.0 -20.2 28.9 -16.6 -45.9 19.2 -10.5 -51.1Voltas Ltd 1,110.8 -15.1 13.2 55.8 -4.3 -18.7 46.2 -14.8 -36.0Total 11,212.0 -9.3 -9.0 1,631.1 -14.2 -14.0 1,002.2 -11.5 -23.7

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

Source: Company, ICICIdirect.com Research, ,* year end changed from June to March, QoQ numbers not comparable due to Ind-AS


1235

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0150030004500600075009000

1050012000

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Q4FY

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Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.0

(%)


EBITDA margin (%) movement

EBITDA margin Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17E

Asian Paints 19.2 17.2 20.1 16.8 18.2

Kansai Nerolac 14.1 15.5 17.8 19.8 13.3

Pidilite Ind 22.0 19.2 23.3 21.1 21.0

Essel Propack 20.0 18.4 17.8 18.7 18.9

Havells 13.5 14.9 13.7 14.0 12.5

Bajaj Ele 6.9 5.5 5.9 4.5 5.2

V-Guard 8.3 12.4 11.1 10.8 7.3

Voltas 4.5 9.8 10.8 7.0 4.0

Supreme Ind 15.1 17.3 16.6 14.7 14.0

Symphony 37.2 42.0 25.6 34.1 35.5

Titanium dioxide (|/kg) price trend

180185190195200205210215220225

Dec-

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Mar

-15

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(|/k

g)

56

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62

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68

70

(| v

s $)

TiO2 Price | movement

TiO2 prices up by 7% on a YoY basis while | depreciated by ~2% YoY.

Top Pick Kansai Nerolac Voltas Ltd.

Research Analyst

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


Page 32

Exhibit 8: Company specific view for Q3FY17E

Asian Paints The lean season coupled with negative impact of demonetisation isexpected to hurt overall performance of the company in Q3FY17. Sales islikely to de-grow ~13% YoY to | 3622 crore led by ~11% YoY dip involume growth. Lower operating leverage coupled with a slight recoveryin raw material prices would translate into ~100 bps YoY contraction inEBITDA margin to 18.2%. As a result, PAT is likely to decline 15% YoY to |396 crore

Bajaj Electricals BEL is likely to see de-growth in sales by 11% YoY in Q3FY17 to | 1020crore led by 15% YoY dip in sales of consumer durable products (includeslighting) to | 704 crore. Lower demand (due to post festive season) anddemonetisation is likely to take a toll on consumer appliances and lightingbusiness of BEL. E&P segment is likely to record flattish sales of | 316crore. Higher fixed cost coupled with decline is sales of consumerproducts would result in 170 bps YoY decline in EBITDA margin to 5.2%.PAT is likely to decline 36% YoY to | 19 crore in Q3FY17

Essel Propack The company may record sales of | 542 crore, up 6% YoY in Q3FY17 ledby 9% and 7% YoY growth in EAP and America regions. However, salesfrom Amesa region are expected to decline 6% YoY to | 194 crore led bylower offtake of non oral care products by leading FMCG players. EBITDAmargin is likely to dip 112 bps YoY to 18.9% due to decline in sales ofhigher margin business coupled with increase in employee cost. PAT islikely to increase 3% YoY at ~| 44 crore

Havells India Havells is expected to record de-growth in sales by ~3% YoY to ~| 1303crore in Q3FY17E. We believe, ECD, lighting and switchgear productscategories would record decline in sales by ~12%, ~6% and ~4% YoY to| 250 crore, | 198 crore and | 315 crore, respectively. A slight recoveryin the cable segment (stabilisation in raw material prices) would result in3% YoY increase in sales. Lower demand of consumer products and risinginput cost would translate into decline in EBITDA margin by 100 bps YoYto 12.5%. PAT is likely to decline by 7% YoY to ~| 112 crore

Kansai Nerolac The company may record 8.1% YoY decline in sales to | 890 crore inQ3FY17E mainly due de-growth in volume by 7.5% YoY. We expect,limited fall in Kansai’s industrial paints segment (owing to better thanexpected production growth in the Passenger Vehicle segment by 9% YoYin Q3FY17) which will partially neutralise the sharp fall in demand ofdecorative paint (due to liquidity crunch). Rising raw material cost (up 7%YoY) coupled with lower operating leverage would lead to a decline inEBITDA margin by 80 bps YoY to 13.3%. As a result, PAT is likely todecline 6% YoY to ~| 79 crore

Pidilite Industries Consolidated sales are likely to decline 8% YoY to | 1233 crore inQ3FY17E, led by ~8% & ~14% YoY de-growth in the consumer & bazaar& industrial segment, respectively. Sales decline was largely due to thenegative impact of demonetisation in adhesive and building materialsegment. We expect a contraction in EBITDA margin by 100 bps YoY to20% on the back of rising raw material prices coupled with loweroperating leverage. As a result, PAT is likely to decline ~7% YoY to ~|173 crore


Volume growth movement of paint companies

-15

-10

-5

0

5

10

15

20

Q1FY

15

Q3FY

15

Q1FY

16

Q3FY

16

Q1FY

17

Q3FY

17E

(%)

Asian Paints Kansai Nerolac


Page 33

Exhibit 9: Company specific view for Q3FY17E

Supreme Industries Supreme is expected to record a decline in sales by ~8% YoY to | 919crore in the quarter ended December 2016, led by de-growth in volume by~6% YoY. Plastic piping, packaging and consumer products business islikely to see decline in sales by 10%, 13% and 5% to | 442 crore, | 264crore and | 71 crore, respectively. Decline in sales can largely beattributed to deferral in sales on account of demonetisation. Change inproduct mix coupled with rising raw material prices on YoY basis wouldresult in a decline in EBITDA margin by 110 bps YoY. PAT is likely todecline ~20% YoY to | 66 crore

Symphony Symphony is likely to post sales growth of 9% YoY to | 178 crore duringthe quarter ended December 2016 supported by volume growth of 8% YoY(due to a change in product mix due to demonetisation) and growth inrealisation by 3% YoY. The EBITDA margin is likely to decline 164 bps YoYto ~35%, due to lower operating leverage and rising raw material prices.As a result, PAT is likely to record muted growth of 1% YoY to | 48 crore

V-Guard We expect the topline to decline ~5% YoY to ~| 395 crore in Q3FY17Eon the back of ~17% YoY de-growth in sales of electronics segment (ledby stabilisers and UPS sales). We believe a slight recovery in the cable &wire business would restrict any sharp fall in revenue of electricalsegment due to demonetisation. Electrical segment is likely to recordflattish sales of | 304 crore. Decline in sales of higher margin productwould result in 100 bps YoY reduction in EBITDA margin. PAT is likely todecline 11% YoY at | 19 crore

Voltas We expect decline in topline by 15% YoY to ~| 1111 crore in Q3FY17Edue to 22% & 7% YoY dip in revenue from unitary cooling product (UCP)and EMPS segment to | 338 crore and | 673 crore, respectively. Declinein UCP segment largely on account of higher base corresponding quarterand negative impact of demonetisation on the air conditioner segment.The EBITDA margin is likely to decline by 50 bps YoY to 4% due to fall insales of UCP segment. However, we believe slight recovery in theprofitability of EMPS business coupled with lower advertisementexpenditure which would restrict any sharp fall in EBITDA margin in Q3.PAT is likely to decline by ~18% YoY to ~| 45 crore



Page 34

FMCG Demonetisation amid subdued demand to impact FMCG space

The short-term cash crunch in the economy due to demonetisation is expected to impact FMCG companies in the near-term. We believe companies with a staple product portfolio will have a limited impact; whereas those with discretionary products will get impacted, to a large extent. Factoring in the demonetisation impact, we estimate our FMCG universe will report net sales decline of 2.6% YoY. On account of disruption in cigarette sales in initial days post demonetisation, we are factoring in 1.3% and 1.5% YoY decline in sales for ITC and VST Industries, respectively. We are factoring in 14.8% YoY decline in Marico led by a) price cuts (~10% for parachute portfolio) and b) demand slowdown due to demonetisation. HUL’s revenue is expected to decline 7.1% YoY due to larger discretionary product portfolio & exposure to the rural market. Nestlé’s growth is expected to slow down post Maggi relaunch; we are estimating 20.5% YoY growth for the quarter on a low base. However, we continue to remain positive on FMCG driven by rural India. The increase in MNREGA spend in FY16 to | 43800 crore (up ~22% YoY) and | 47000 crore for FY17E shows the government’s focus on doubling rural income which would inturn drive rural consumption. Additionally, GST implementation would lead to efficient logistics and reduce tax liability.

Operating profit to contract marginally on rising commodity prices With the bottoming out of major commodity prices coupled with a decline in sales, we are factoring in a 92 bps operating margin contraction for our coverage universe in Q3FY17E. Crude oil prices increased 14.3% YoY during the quarter. Price increase for palm oil and barley continued for the quarter at 22.6% and 36.7% YoY, respectively. EBITDA margin for HUL is estimated to decline 193 bps YoY led by higher raw material cost, partly offset by other expenses. Colgate, Dabur’s EBITDA margin is also expected to contract 118 bps, 120 bps, respectively. Despite a decline in copra prices by 4.0% YoY, we are factoring in 153 bps contraction in Marico’s operating margin due to a price cut and higher employee cost. We estimate margin expansion only for TGBL by 121 bps YoY (led by lower advertisement cost) and Nestlé by 72 bps YoY (led by comeback of Maggi).

Decline in sales to impact profit of our universe by 7.0% YoY We are estimating a 7.0% decline in profit for our coverage universe largely on account of a decline in sales and increasing raw material costs, which further impacted operating profit. Profit for FMCG giants like ITC, HUL is estimated to decline 6.2%, 19.9% YoY, respectively.

Exhibit 10: Estimates for Q3FY17E (FMCG) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Colgate Palmolive 947.1 -5.9 -20.7 206.6 -10.7 -24.8 135.4 -15.1 -25.3Dabur India Ltd 2,054.8 -3.2 4.0 337.1 -9.8 -16.3 287.6 -9.8 -19.7GSK Consumer 1,013.9 -1.5 -15.0 147.0 -8.0 -40.0 125.1 -5.1 -31.9HUL 7,065.0 -7.1 -8.2 1,231.2 -13.9 -12.3 898.6 -12.5 -17.0ITC 8,985.9 -1.3 -5.8 3,463.2 -3.9 -4.6 2,488.5 -6.2 -0.5Jyothy Laboratories 359.2 -1.8 -13.7 47.7 -4.3 -24.7 30.4 -21.5 0.0Marico Ltd 1,324.5 -14.8 -8.0 230.1 -21.7 -9.1 167.3 -15.4 -7.3Nestle India 2,208.7 13.5 -5.9 423.6 14.6 -8.3 231.2 26.2 -14.2Tata Global 2,016.7 -1.7 24.0 193.6 12.5 2.0 113.9 75.1 -18.4VST Industries 213.2 -1.5 -7.2 59.1 -9.2 18.5 38.8 -5.5 10.0Total 26,188.9 -3.0 -5.3 6,339.1 -6.1 -9.1 4,516.9 -6.2 -8.4


Change (%)


Topline & profitability (Coverage Universe) 27

001

2803

4

2852

3

2765

4

2618

9

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| Cr

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(%)


Copra & palm oil price trend (| per kg)

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Copra (L.H.S) Palm Oil (R.H.S.)

Crude prices continue to remain muted (US$ per barrel)

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Top Picks

ITC GSK Consumer

Research Analyst

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


Page 35

Exhibit 11: Company specific view (FMCG) Company RemarksColgate Colgate is expected to see 6% de-growth in net sales with the expected volume dip of

~8% due to sharp sales decline in November 2016 due to demonetisation. We expecta lower realisation growth of 2% on the back of downtrading both in terms of lowpriced products as well as low priced SKUs. We also expect a 100 bps reduction inadvertisement expenditure this quarter. Operating margin is likely to shrink 120 bpsdue to sustained fixed cost as the time of sales decline

Dabur We expect net sales to witness a decline of 3.2% YoY due to 6.4% YoY dip in domesticsales. The international business is expected to grow 3.9% YoY. Domestic sales areexpected to decline on account of destocking across trade channels and a subdueddemand environment as an impact of demonetisation. EBITDA margin is expected todecline 120 bps YoY to 16.4% as we believe the company will able to contain theoperating margin despite higher raw material cost by reducing the advertisementexpense

GSK Consumer Healthcare

We expect GSK to see a limited impact of demonetisation due to nature of its products(nourishment essentials e.g. Horlicks, Boost, etc, and prescription medicines like Eno,Crocin, etc) and, hence, expect a marginal 1.5% YoY decline in net sales. However, dueto inclusion of Novartis, we estimate 47.5% YoY increase in auxiliary income. Further,led by higher raw material cost (barley prices up 22.6% YoY), we expect the operatingmargin to decline 100 bps YoY to 14.5%

HUL We expect net sales to decline 7.1% YoY due to demonetisation. We believe thepersonal care and food category would be impacted the most. Operating margin isexpected to contract 134 bps YoY to 17.1% on account of a decline in sales coupledwith an increase in raw material costs. We expect the advertisement cost to comedown to 9% of sales to cap the decline in EBITDA margin

ITC Due to a hit in cigarette sales in the initial days of demonetisation, we expect net salesfor the company to decline 1.3% YoY. Additionally, due to discretionary nature of theFMCG product portfolio, we estimate 7.4% decline in the segment. We expect theoperating margin for the quarter at 27.2%. Net profit for the quarter is expected todecline 6.2% YoY to | 2488.5 crore

Jyothy Labs We estimate 1.8% YoY decline in net sales on account lower demand in the early daysof demonetisation. Fabric and personal care segments are expected to be impacted themost. We estimate a marginal dip of 30 bps in the EBITDA margin for the quarter to13.3%. however, on account of interest cost of | 14.6 crore for the quarter, we areestimating 21.5% YoY decline in the PAT at | 30.4 crore

Marico We expect net sales to decline 14.8% YoY mainly due to the impact on domestic sales.We expect domestic sales to decline 16.3% YoY due to a) price cuts of ~10% in theParachute portfolio and b) demand slowdown on account of demonetisation. Weestimate 156 bps YoY decline in the operating margin to 17.3% due to lower sales andhigher employee cost. PAT, thus, is expected to decline by 15.4% YoY to | 167.3 crore

Nestlé India We are factoring in slower growth of 13.5% YoY in net sales for Q4CY16E (against35.1% YoY growth for Q3CY16) on a lower base. We believe that given thediscretionary nature of the product portfolio, sales will get hit by demonetisation andwill slow down growth for the quarter vis-à-vis earlier growth of 35% YoY in Q3CY16post re-launch of Maggi. We expect operating margin to remain flat YoY to 19.1% andPAT at | 231.2 crore

Tata Global Beverages

We estimate TGBL to report a 1.6% decline in net sales for the quarter due to 1.7% YoYdecline in the tea segment to | 1491.9 crore and 2.5% decline in the coffee segment to| 525.9 crore. We are factoring in ~150 bps YoY increase in raw materials cost aspercent of net sales, and expect it to offset by lower marketing & other expense. Thus,operating margin is expected to increase 121 bps YoY to 9.6%. We estimate profit willjump 75.1% YoY to | 113.9 crore on a low base.

VST Industries

Due to the severe impact of demonetisation on cigarette sales in first two weeks postannouncement, we estimate 1.0% YoY decline in sales. We estimate 70% contributionfrom below 65 mm cigarettes and 30% from above 65 mm category. Operating marginis expected to contract 238 bps due to higher raw material and manufacturing cost.Earnings is expected to decline 5.5% YoY to | 38.8 crore



Page 36

Healthcare

Domestic sales to steer growth as base effect slows down US US sales from the select pack of I-direct healthcare universe are expected to grow just ~9% YoY to | 11324 crore as a higher base, increased competition and lack of meaningful approvals are likely to act as speed breakers. Excluding consolidation effect and currency impact, growth may have been just ~5%. On the domestic formulations front, sales may grow 13% YoY to | 8292 crore (select pack) due to volume growth and new launches. The impact of demonetisation is unlikely to be significant for the quarter. Elsewhere, while European growth is likely to be negative due to pricing pressure, Latin America growth is likely to be better due to currency benefit & incremental launches. Overall, I-direct healthcare universe is expected to grow ~11% YoY to | 38513 crore. On the companies front, we expect Natco (hepatitis C sales and gTamiflu exclusivity) to register solid growth, followed by Glenmark (US traction), Cipla (base effect), Lupin and Ajanta (US traction). On the other hand, Alembic, Torrent, Cadila and Dr Reddy’s are likely to deliver a weak set of numbers due to base effect, litigation issues and increased competition in the US.

EBITDA to grow ~2% YoY; lowest growth in past may quarters EBITDA of I-direct healthcare universe is expected to grow mere 2.2% YoY to | 8987 crore, which is the lowest in the past many quarters mainly due to increased competition and lack of meaningful/ exclusive launches in the US. EBITDA margins are likely to contract ~210 bps to ~23% YoY due to slow down in the US.

Adjusted net profit to decline ~2% YoY Net profit is expected to decline 2.3% YoY to | 5460 crore. Lower net profit growth vis-à-vis EBITDA is on account of higher depreciation and lower other income besides margin contraction.


584 36

695

3712

7

3843

8

3851

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34000

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Q3FY

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| Cr

ore

0.0

5.0

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15.0

20.0

25.0

30.0

(%)


USFDA approvals for Oct-Dec 2016 (Coverage Universe)

Company Final TentativeAjanta Pharma 2 0Aurobindo Pharma 18 5Cadila Healthcare 1 0Cipla 3 1Dr. Reddy's Labs 1 1Glenmark Pharma 2 0Jubilant Life 2 1Lupin 2 4Natco 1 0Sun Pharma 1 0

Source: USFDA, ICICIdirect.com Research

Currency Movement

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USDINR EUROINR RUBINR

BRLINR JPYINR ZARINR

Top picks of sector

Ajanta Pharma Glenmark Pharma

Research Analyst

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


Page 37

Exhibit 12: Estimates for Q3FY17E (| Crore)

Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Ajanta Pharma 577.8 22.2 12.0 202.2 23.7 10.5 145.1 30.4 3.3Alembic Pharma 827.9 -10.2 -5.9 160.5 -58.3 -9.7 115.9 -57.0 -3.2Aurobindo Pharma 3,869.7 10.7 2.5 948.1 15.2 2.0 605.0 15.9 3.3Biocon 996.3 19.1 4.4 241.5 27.7 0.6 135.5 31.6 -7.6Cadila Healthcare 2,383.6 -1.8 -0.8 507.5 -12.3 -1.6 335.2 -14.1 -0.7Divi's Lab 964.5 13.1 -4.1 369.3 14.6 26.8 280.6 13.8 25.4Cipla 3,902.8 25.6 4.0 683.0 50.5 0.3 349.3 1.8 -1.4Dr. Reddys 3,659.1 -7.8 2.0 658.6 -36.4 4.5 314.3 -46.3 9.5Glenmark 2,238.8 27.5 0.7 465.8 26.0 3.8 275.1 61.9 23.0Indoco Remedies 280.6 7.0 -0.2 46.8 0.3 11.5 22.8 -4.6 3.1IPCA Labs 782.8 14.4 -11.6 107.2 20.2 -16.2 43.5 83.6 -13.5Jubilant Life Sc. 1,533.5 11.2 8.0 390.4 26.9 14.7 181.1 50.7 25.2Lupin 4,351.0 22.4 1.4 1,044.2 19.0 1.6 623.5 17.7 -5.2Natco Pharma 407.2 47.5 -13.0 95.7 56.2 -8.7 60.7 63.5 -8.7Sunpharma 7,931.2 12.0 -4.0 2,362.2 8.9 -25.4 1,571.0 10.9 -29.7Syngene International 339.4 21.0 12.0 111.1 18.2 5.2 74.2 26.2 -0.7Torrent Pharma 1,482.8 -3.7 3.8 341.0 -44.4 3.3 212.0 -56.1 2.4Unichem Laboratories 361.3 18.0 -1.8 45.3 33.0 14.6 30.9 36.1 50.3Apollo Hospitals 1,622.9 17.6 -0.7 206.7 13.2 -6.8 83.8 -36.0 -8.9Total 38,513.2 11.4 0.2 8,987.3 2.2 -6.4 5,459.7 -2.3 -8.9


Change (%)


Exhibit 13: Company specific view


Page 38


Company RemarksAjanta Pharma Revenues are expected to grow ~22% YoY on the back of ~23% growth in export

formulations and 19% growth in domestic formulations. Export business is expectedto be driven by sharp jump in the US sales and robust growth in African tenderbusiness. EBITDA margins are expected to stay strong at 34-35%. Net profit is likelyto grow ~30% mainly due to lower taxation besides operational performance

Alembic Pharma Revenues are likely to decline ~10% YoY mainly due to higher base of gAbilify in theUS. Export formulations are expected to de-grow ~31%, while domesticformulations are likely to grow ~13%. EBITDA margins are expected at 19.4%. Netprofit is expected to decline ~57%, in line with operational performance

Apollo Hospitals Standalone sales are likely to grow ~18% YoY mainly due to 21% growth in thepharmacy business and 15% growth in the healthcare service business. Impact ofdemonetisation impact in healthcare segment would be minimal as the benefit oflow Q3FY16 base (Chennai floods) is likely to pan out. Overall EBITDA margins arelikely to remain low at ~13% due to adverse business mix. Net profit is expected todecline 36% due to margin pressure and higher taxation

Aurobindo Pharma

Revenues are expected to grow ~11% YoY on the back of ~23% growth in the USsales led by incremental product launches. European sales are expected to decline~1%. EBITDA margins are likely to increase ~96 bps to 24.5% due to animprovement in the product mix. Net profit is expected to grow ~16% due to abetter operational performance

Biocon Revenues are likely to grow ~19% 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 32% mainly due tobetter operational performance and higher other income

Cadila Healthcare

Revenues are expected to decline ~2% YoY mainly due to 8% decline in US sales onthe back of higher base of HCQS (anti-malarial) and slowdown in new productapprovals. India sales are expected to grow ~10%. LatAm business is likely togrowth 20% due to price hikes, new product launches and recovery in currency.EBITDA margins are expected to contract ~253 bps YoY to ~21%. Net profit isexpected to decline ~14% mainly due to weaker operational performance

Cipla Revenues are expected to increase ~26% YoY mainly due to InvaGen acquisition.Domestic formulations are expected to grow 20% on a lower base. EBITDA marginsare likely to improve ~290 bps to 17.5%. Net profit is expected to grow mere ~2%as improvement in operational performance is likely to get offset by higher taxationand lower other income

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 remain strong at 38-39%. Net profit is expected to increase ~14%, in-line with operational performance

Dr Reddy's Revenues are likely to decline ~8% YoY mainly due to the cancellation of McNeil(US based consumer healthcare company) contract, higher competition in basebusiness and Venezuela dent. Domestic business is expected to grow mere 4%.EBITDA margins are likely to decline to ~18% from 26% in Q3FY16 mainly due toslowdown in the US sales. Net profit is likely to decline ~46%, in-line with subduedoperational performance

Glenmark Pharma

Revenues are expected to grow ~28% YoY mainly due to 42% growth in the USsales led by incremental product launches and gZetia exclusivity. Domestic revenues are expected to grow 25% mainly due to new product launches. EBITDA margins arelikely to remain at 21%. Net profit is expected to grow ~62% due to a strongoperational performance and lower taxation

Indoco Remedies

Revenues are likely to grow ~7% YoY on the back of 15% growth in domesticformulations. Export formulations growth, however, is likely to be muted due to lackof meaningful US traction. EBITDA margins are expected to decline 112 bps YoYmainly due to increase in other expenses. Net profit is expected to decline ~5% dueto weak operational performance and higher taxation

Expected growth (%) in Domestic formulation (| crore) Q3FY17E Q3FY16 Var. (%) Q2FY17 Var. (%)Ajanta 152.3 128.0 19.0 154.0 -1.1Alembic 325.7 288.3 13.0 338.0 -3.6Biocon 137.9 104.5 32.0 137.0 0.7Cadila 784.3 713.0 10.0 820.4 -4.4Glenmark 610.0 488.0 25.0 674.9 -9.6Indoco 156.1 135.7 15.0 168.8 -7.6Ipca 354.6 308.4 15.0 404.4 -12.3Lupin 975.7 871.2 12.0 995.8 -2.0Cipla 1432.8 1194.0 20.0 1467.0 -2.3Dr Reddy's 603.7 580.5 4.0 625.1 -3.4Sun Pharma 2041.5 1890.3 8.0 2009.1 1.6Torrent 499.5 446.0 12.0 496.0 0.7Unichem 217.3 188.9 15.0 227.0 -4.3Total 8291.6 7336.8 13.0 8517.4 -2.7

Expected growth (%) in the US (| crore) Q3FY17E Q3FY16 Var. (%) Q2FY17 Var. (%)Aurobindo 1924.7 1570.6 22.5 1735.1 10.9Cadila 985.0 1071.7 -8.1 988.8 -0.4Glenmark 864.8 608.9 42.0 771.2 12.1Lupin 1987.6 1404.9 41.5 1997.8 -0.5Dr Reddy's 1680.6 1941.7 -13.4 1613.4 4.2Sun Pharma 3558.0 3200.3 11.2 3714.4 -4.2Torrent 323.2 558.0 -42.1 322.0 0.4

Total 11323.8 10356.0 9.3 11142.7 1.6

Expected growth (%) in Europe (| crore) Q3FY17E Q3FY16 Var. (%) Q2FY17 Var. (%)Aurobindo 772.2 778.6 -0.8 813.4 -5.1Cadila 54.9 76.2 -28.0 55.7 -1.5Glenmark 132.3 176.4 -25.0 134.7 -1.8Dr Reddy's 174.3 193.7 -10.0 177.6 -1.8Lupin 119.2 101.0 18.0 123.1 -3.2Torrent 187.4 167.3 12.0 186.0 0.7Total 1440.2 1493.1 -3.5 1490.5 -3.4

Expected growth (%) in Latin America (| crore) Q3FY17E Q3FY16 Var. (%) Q2FY17 Var. (%)Cadila 65.3 54.4 20.0 65.6 -0.5Glenmark 138.6 123.7 12.0 133.8 3.6Torrent 165.2 118.0 40.0 157.0 5.2Total 369.1 296.1 24.6 356.4 3.6


Page 39

Exhibit 14: Company specific view Ipca Laboratories

Revenues are expected to grow ~14% YoY on the back of ~16% growth in bothdomestic and export formulations. Exports growth would be on the back ofimprovement in tender business growth. EBITDA margins are expected to remainsubdued at 13-14%. Net profit is expected to grow ~84% YoY due to lower taxationbesides low base

Jubilant Life Science

Revenues may grow ~11% YoY mainly due to strong growth in pharmaceuticalsegment. LSI segment, on the other hand, may witness subdued growth (despitetraction from crude pegged products) due to product rationalisation. Margins areexpected to improve 316 bps to 25.5% mainly due to improvement in margins across segments and better product mix. Net profit is expected to grow ~49% on the backof strong operational performance and lower interest & depreciation

Lupin Revenues are expected to grow ~22% YoY driven by US growth of 41% on the backof expanded gGlumetza traction and Gavis consolidation. The Japanese business isexpected to grow 26% YoY mainly due to favourable currency movement. EBITDAmargins are expected to remain at 24-25%. Net profit is expected to grow ~18%YoY as strong operational performance is likely to get offset by higher interest anddepreciation

Natco Pharma Revenues are likely to increase ~48% YoY mainly due to robust Hepatitis C segmentsales in domestic market and gTamiflu exclusivity in the US. EBITDA margins arelikely to increase 130 bps to 23.5% due to better product mix. Net profit is expectedto grow ~61% YoY due to a strong operational performance

Sun Pharma Revenues are likely to grow 12% YoY due to 31% growth in US sales (ex Taro).Taro's sales are expected to decline ~7% YoY. EBITDA margins are expected toremain at ~30% YoY. Net profit is expected to grow 11%, in line with operationalperformance

Syngene Revenues are likely to grow ~21% YoY due to growth across verticals and also dueto adjustment impact of sales returns pertaining to Q1FY17. On the other hand, thefire incident during the quarter is likely to impact the fee for services (FFS) segmentmarginally. EBITDA margins are expected to be in the range of 32-34%. Net profit isexpected to grow ~26% on the back of a better operational performance

Torrent Pharma Revenues are expected to decline ~4% YoY mainly due to 42% de-growth in the USon the back of high base of gAbilify. Domestic formulations and Brazil are likely togrow 12% and 40%, respectively. EBITDA margins are expected to decline to 23%from ~40% due to base effect. Net profit is expected to decline ~56%, in line withoperational performance

Unichem Labs We expect ~18% YoY revenue growth on the back of 22% growth in developedmarket formulation sales owing to strong US sales and 15% growth in domesticformulations. EBITDA margins are likely to improve ~140 bps to 12.5% due to abetter product mix. Net profit is expected to grow 36% due to a better operationalperformance


Expected growth (%) in API

e

(| crore) Q3FY17E Q3FY16 Var. (%) Q2FY17 Var. (%)Aurobindo 730.0 695.2 5.0 768.8 -5.1Alembic 116.4 101.2 15.0 164.0 -29.0Cadila 88.0 83.8 5.0 83.2 5.8Glenmark 166.7 145.0 15.0 221.3 -24.7Divi's Lab 463.1 413.5 12.0 491.3 -5.7Indoco 13.9 13.3 5.0 13.6 2.6Ipca Labs 151.8 144.6 5.0 184.5 -17.7Lupin 289.8 276.0 5.0 291.9 -0.7Cipla 114.4 143.0 -20.0 110.0 4.0Dr Reddy's 559.0 508.2 10.0 578.4 -3.4API 45.3 39.0 16.0 47.6 -4.9Sun Pharma 438.1 461.2 -5.0 371.3 18.0Unichem 22.3 21.2 5.0 24.5 -9.2Total 3198.9 3045.2 5.0 3350.5 -4.5


Page 40

Hotels

FTA growth healthy; to report double digit growth again in Q3FY17E

Foreign tourist arrivals (FTAs) are expected to grow at a healthy rate of 10.2% YoY to 26.7 lakh during the quarter for a successive quarter after five quarters of single digit growth. However, growth is expected to remain marginally lower than growth reported in Q2FY17 due to an impact of demonetisation. With better FTA growth and improved domestic demand, we expect occupancy levels to improve during the quarter on a YoY basis. However, competitive room rates are likely to keep revenue growth under check. Average occupancy levels at leisure destinations are expected to improve ~200 bps YoY due to onset of peak season while business destinations are likely to see an up tick of ~120 bps in occupancy levels. We expect TajGVK Hotels to report a good set of numbers after taking into account the impact of demonetisation. EIH, on the other hand, is likely report de-growth in their revenues due to closure of property in Delhi whereas Indian Hotels’ revenue growth may moderate due to subdued performance of international subsidiaries. Overall, we expect our I-direct hotel coverage universe to report flat revenue growth during the quarter.

Operating margins to remain under pressure

Margins of the I-direct hotel universe are expected to remain under pressure due to the impact of demonetisation and company specific issues. We expect TajGVK (pick-up from Hyderabad) to report margin expansion of 127 bps while EIH (closure of property in Delhi for renovation) & Indian Hotels (subdued performance of international subsidiaries) are expected to report 75 bps & 123 bps dip in EBITDA margins YoY. As a result, net margin of I-direct universe is expected to remain under pressure during the quarter.

Select business, leisure destinations to drive growth during quarter

Average occupancy levels continue to remain higher at both business & leisure destinations during the quarter due to the onset of the peak season. However, select leisure destinations are expected to report marginally better occupancy levels during the quarter. In business destinations, Mumbai, Hyderabad and Bengaluru are expected to register higher occupancy compared to the previous year. Among leisure destinations, Kochi, Rajasthan and Goa are likely to witness a strong up-tick in occupancy levels during the quarter.



EIH 373.0 -7.4 36.0 92.6 -10.1 504.2 38.6 -18.5 LPIndian Hotel 1,335.1 2.0 50.9 248.1 -6.7 251.2 69.2 589.0 LPTaj GVK Hotels 74.9 3.4 14.3 19.8 8.7 26.0 3.7 7.8 8.8Total 1,783.0 -0.1 45.6 360.5 -6.9 254.6 111.6 83.4 LP

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



84 1999

1281

1225 17

83

0

500

1000

1500

2000

2500

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

-20.0-15.0-10.0-5.00.05.010.015.020.025.0

(%)


FTAs to grow at 10.2% during Q3FY17E

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

7365 63

7368

73.9

74

55

7671.5

7077

67

71

58

70

61 60

40

50

60

70

80

90

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17

(%)

Business Destinations Leisure Destinations

Top pick of sector

Taj GVK Hotels

Research Analyst

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


Page 41

Exhibit 16: Company specific view Company RemarksIndian Hotels Consolidated revenue growth may moderate further on the back of a slowdown

in the international segment while domestic segment growth is expected toremain better. We expect domestic net revenues to grow 7.6% YoY to | 713.2crore with the international segment reporting revenue de-growth of 3%. OPM isexpected to decline 173 bps YoY led by higher operating costs. Further, higherinterest cost (on account of | 1,262 crore increase in debt due to acquisition ofLands End Properties Pvt Ltd) may put pressure on net margins

EIH The closure of The Oberoi, New Delhi for renovation may impact the company’srevenue growth during the quarter. We expect operating margins to declinemarginally vs. last year. However, in absolute terms, net profit for the quarter islikely to fall ~19% YoY

Taj GVK Hotel Though with the new property addition of Taj Santacruz, Mumbai performancecontinues to remain healthy, the same will not be reflected on the revenues dueto adoption of new-AS. On the standalone front, we expect revenue growth of3.4% YoY along with margin expansion of 123 bps YoY due to impact of costcontrol measures and better topline



Page 42

Information Technology Seasonally weak Q3; CY16 challenges to pass on to CY17E …

We expect dollar revenue growth in constant currency (CC) to face typical seasonality in Q3FY17E for tier-1 IT companies. We expect CC revenues of frontline IT companies to grow 0-2% in Q3FY17E. However, cross currency headwinds would impact dollar revenues by ~70-110 bps. Inter-quarter, average US$ has appreciated ~3.4% vs. the Euro, ~5.4% vs. GBP and ~1.1% vs. AU$. Consequently, we expect tier-I IT companies to report average 0.4% growth in dollar terms. Within tier-I, TCS (1%) and HCLT (1.1%) may lead owing to better management commentary followed by Wipro (0.4%) and Infosys (-0.8%). In terms of guidance, we expect Infosys to retain its annual revenue guidance (8-9% in CC) while HCL Tech may also maintain its revenue growth guidance (12-14% in CC).

Seasonality in revenue trajectory to impact margins… We expect EBIT margins to increase ~10 bps only for TCS led by higher revenue growth QoQ and decline of ~50-10 bps for HCLT, Infosys and Wipro. HCLT margins may be impacted by a partial wage hike, Infosys’ margins could be impacted due to lower utilisation led by RBS deal ramp-down and seasonal weakness in revenue while Wipro’s margin may be impacted due to weaker revenue growth.

Selective midcap IT universe could surprise … Our midcap IT coverage universe could report a mixed set of results. While Persistent and Cyient could surprise positively, MindTree could halt its de-growth trend. Within midcaps, we expect Persistent (3.2% QoQ growth), TechM (2.3%) and Cyient (1.7%) to lead. MindTree (0.5%) may be soft while NIIT Technologies (-0.8%), KPIT (-1%), eClerx Services (-2.5%) may be weak. EBITDA margin movement could range at ~170 to 80 bps (Firstsource & eClerx at bottom and TechM, Persistent at the top) as seasonally weaker revenue growth could be offset by operational efficiency and marginal rupee tailwinds.

Cyclical headwinds could recede; structural to linger… Waning of some cyclical events could provide some ray of hope on IT spend in CY17E, which was suppressed in CY16. We believe Indian IT companies should up their ante on digital related investments significantly in CY17E to win some market share or buy growth via tuck-in acquisitions. Investor interest: Any change in visa regulations, demand environment and pricing trend in IT services.



Cyient 935.6 19.7 2.4 133.2 20.9 3.8 94.0 8.2 -3.4Eclerx 321.3 -6.7 -3.7 117.3 -5.9 -7.6 84.4 -4.9 -13.2Firstsource Sol 831.5 3.8 -3.0 94.5 -6.0 -16.1 56.6 -15.8 -20.5HCL Tech 11,736.7 13.5 1.9 2,499.9 5.1 -0.4 1,976.4 2.6 -1.9Infosys 17,296.9 8.8 -0.1 4,665.0 7.8 -1.4 3,479.4 0.4 -3.5InfoEdge 192.1 10.8 -3.9 56.3 46.3 -14.2 50.9 134.2 -48.4KPIT Tech 823.4 1.3 -0.9 92.2 -21.9 0.9 46.4 -36.9 -17.4Mindtree 1,307.3 7.6 0.9 164.7 -23.3 1.6 94.5 -37.4 -0.4NIIT Technologies 689.6 1.6 -0.3 111.9 -9.5 -0.3 78.2 -1.0 20.4Persistent Systems 731.6 23.6 3.9 120.0 8.0 8.3 76.4 -1.3 4.1TCS 29,775.6 8.8 1.7 8,277.6 6.9 2.1 6,558.5 7.3 -0.4Tech Mahindra 7,394.2 10.3 3.2 1,160.9 2.9 8.5 770.8 3.0 19.6Wipro 13,877.4 7.1 -0.1 2,751.7 0.0 -1.1 2,009.0 -10.1 -2.8Total 85,913.1 9.2 1.1 20,245.2 5.0 0.6 15,375.5 1.6 -1.3

Change (%)Change (%)Company

Change (%)

Topline & profitability (Coverage universe) 78

658

8206

8

8379

6

8500

0

8591

315000

25000

35000

45000

55000

65000

75000

85000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

10.0

15.0

20.0

25.0

30.0

(%)


Dollar growth, QoQ

IT Services Q3FY17E Q2FY17 Growth (%)

TCS 4,417.7 4,374.0 1.0

Infosys 2,566.3 2,587.0 (0.8)

Wipro ^ 1,923.7 1,916.0 0.4

HCL Tech 1,741.3 1,722.4 1.1

Tech Mahindra 1,097.1 1,072.4 2.3

Mindtree 194.0 193.0 0.5

KPIT Technologies 122.2 123.4 (1.0)

Cyient 138.8 136.5 1.7

NIIT Technologies 102.3 103.1 (0.8)

Persistent Systems 108.5 105.2 3.2

eClerx 47.7 48.9 (2.5)

BPO (in |)

Firstsource 831.5 857.2 (3.0)

Internet (in |)

Info Edge 192.1 199.8 (3.9) ^ IT services

Top picks of the sector

TCS Persistent Systems

Research Analysts

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


Page 43

Exhibit 18: Company specific view Cyient We expect dollar revenues to grow 1.7% QoQ to $138.8 million while those in rupee

may increase 2.4% QoQ to | 935.5 crore led by an upsurge in revenue fromRangsons and subdued performance in services business post strong growth inH1FY17 and seasonality. EBITDA margins may increase 20 bps QoQ to 14.2% led byabsence of one-time cost (completion of 25th year) offset by lower utilisation. Orderbook visibility for services & DLM business unit, margin trajectory & levers for thesame could be of investor interest

eClerx We expect dollar revenues to decline 2.5% to $47.7 million while rupee revenuesmay decline 3.7% to | 321.3 crore, respectively, led by continued weakness inspending among clients and a weak deal pipeline. EBITDA margins may decline~160 bps QoQ to 36.5% led mainly by revenue de-growth. Investor interest: CY17Egrowth guidance, outlook on automation impacting legacy projects in BFSI, margintrajectory

Firstsource Solutions

We expect rupee revenues to decline 3% QoQ to | 858.6 crore led by seasonalityISGN, Sky deal and currency headwind due to GBP depreciation. EBITDA marginsmay decline 170 bps QoQ to 11% mainly due transition of employees from Sky Deal,weak seasonality of ISGN impacting its margins. CY17E demand outlook, Sky dealand ISGN acquisition revenue and margin trajectory, Brexit impact on clientspending, could be of investor interest

HCL Tech We expect dollar revenues to grow 1.1% QoQ to $ 1,741 million and 1.9% in rupeeterms to | 11,737 crore. Weakness is expected after strong H1FY17. Expect tomaintain CC guidance (12-14%) though reported number guidance (11-13%) could bechanged. EBIT margins may decline 50 bps QoQ to 19.6% due to partial wage hikeoffset by operational efficiency. Investor interest: Update on IP-led partnership withIBM, growth/margin outlook, trajectory on IMS and ER&D services, revised guidanceowing to currency headwind, if any

Infosys US$ revenues may decline 0.8% QoQ to $2,566 million led by RBS deal ramp-down.Constant currency revenues expected to remain unchanged QoQ while those inrupees may decline marginally by 0.1% to | 17,297 crore. EBIT margins may shed~30 bps QoQ to 24.6% led by lower utilisation due to RBS deal ramp-down andseasonal weakness. Investor interest: FY18E outlook, pricing trends, large deal TCV,M&A strategy

Info Edge We expect revenues to grow 10.8% YoY to | 192.1 crore led by deceleration inNaukri and 99 acres business post demonetisation. Jeevansathi.com business couldalso witness subdued growth. EBITDA margins may decline 350 bps QoQ to 29.3%led by lower revenue growth in Naukri and 99 acres business and continuedadvertising spend. Investor interest: Online consumer trend post demonetisation,competitive intensity across businesses, marketing and other investment outlook,outlook on Zomato's operational performance

KPIT Tech Dollar revenues may decline 1% QoQ to $122 million while those in rupees coulddecline 0.9% QoQ to | 823.4 crore led by seasonality but top account could continuemomentum. EBITDA margins could increase 20 bps QoQ to 11.2% led by absence ofone-time R&D write-off cost (down 80 bps). CY17E growth guidance, products &platforms unit outlook, top 10 account outlook, margin trajectory may be of investorinterest

MindTree Dollar revenues may increase 0.5% QoQ to $193.9 million while those in rupees mayincrease 0.9% QoQ to | 1,307 crore led slower revenue growth in Bluefin offset bytop client. At 12.6%, EBITDA margins may increase ~10 bps QoQ led by mutedrevenue growth, absence of restructuring costs partly offset by operationalefficiency. Investor interest: FY18E revenue growth guidance, outlook on Bluefinrecovery both in revenue & margins, attrition trajectory client mining, TCV dealsignings and traction on digital business


EBIT margin impact

EBIT margins Q3FY17E Q2FY17 Change (bps)

TCS 26.1 26.0 10

Infosys 24.5 24.9 (40)

Wipro ^ 17.7 17.8 (10)

HCL Tech 19.6 20.1 (50)

EBITDA margins

Tech Mahindra 15.7 14.9 80

Mindtree 12.6 12.5 10

KPIT Technologies 11.2 11.0 15

Cyient 14.2 14.0 20

NIIT Technologies 16.2 16.2 (0)

Persistent Systems 16.4 15.7 70

eClerx 36.5 38.1 (160)

BPO

Firstsource 11.0 12.7 (170)

Internet (in |)

Info Edge 29.3 32.8 (350) ^ IT Services $/|

40

50

60

70

Jan-

13Ap

r-13

Jul-1

3Oc

t-13

Jan-

14Ap

r-14

Jul-1

4Oc

t-14

Jan-

15Ap

r-15

Jul-1

5Oc

t-15

Jan-

16Ap

r-16

Jul-1

6Oc

t-16

Jan-

17

|

|/$

$ vs. global currencies

0.60.70.80.91.01.1

Jan-

13Ap

r-13

Jul-1

3Oc

t-13

Jan-

14Ap

r-14

Jul-1

4Oc

t-14

Jan-

15Ap

r-15

Jul-1

5Oc

t-15

Jan-

16Ap

r-16

Jul-1

6Oc

t-16

Jan-

17

$/Euro $/GBP AUD/$


Page 44

Company specific view NIIT Tech At $102.3 million, reported dollar revenues may decline 0.8% QoQ led by seasonality

and ramp-down of airline client. Rupee revenues may decline 0.3% QoQ to | 689.5crore. EBITDA margins may remain unchanged QoQ to 16.2% led by subduedrevenue growth QoQ. PAT may increase ~22% QoQ led by partial reversal ofprovision of | 36.1 crore. Order book trend, update on BFSI & Travel and hospitalitybusiness, margin trajectory may be monitorables for CY17E

Persistent Systems

We expect dollar revenues to grow 3.2% QoQ to $108.5 million while rupee revenuesmay grow 3.9% QoQ to | 731.6 crore led by seasonally strongest quarter for IBMcould contribute IP-led growth. EBITDA margins may increase ~70 bps QoQ to16.4% led by seasonality in IP-led growth. Investor interest: CY17E growthcommentary, Top 20 account mining, traction in IP business, margin outlook, andupdates on IBM alliance

TCS US$ revenues may grow 1% QoQ to $4,418 million while those in constant currencymay grow ~2% QoQ led by India business (deferral of Q2FY17 revenue to flow inQ3FY17E) and some uptick in retail vertical. Rupee revenues could grow 1.7% to |29,776 crore. EBIT margins may increase ~10 bps QoQ to 26% led by higher QoQgrowth and operational efficiency offset by currency headwind. Investor interest:CY17E IT budget spend pattern, H1-B visa outlook, traction in digital business,margin levers and attrition

Tech Mahindra We expect US$ revenues to grow 2.3% QoQ to $1,097 million led by enterprisebusiness and seasonality of Comviva business. Constant currency revenues couldgrow ~3.3% while rupee revenues may increase 3.2% QoQ to | 7394 crore. EBITDAmargins could increase ~80 bps QoQ to 15.7% led by absence of one-time employeecost, which impacted margins in Q2FY17 offset by cross-currency headwinds.Enterprise and telecom business outlook, TCV, margin outlook in Q4FY17E owing towage hike, LCC revenue recovery outlook may be of investor interest

Wipro Global IT services dollar revenues could increase 0.4% QoQ to $1,924 million, in linewith its guided range of $1916-1955 million. Global IT services rupee revenue maydecline 0.5% while consolidated revenues could also decline 0.1% to | 13,877 crore.Global IT services EBIT margins could decline ~10 bps QoQ to 17.7% led by weakerrevenue growth, Appirio integration cost offset by operational efficiency. Investorinterest: Q4FY17E guidance, client spending patterns in energy vertical, marginlevers, digital deal pipeline, CY17E outlook



Page 45

Logistics

Container volumes continue marked recovery at major ports… Post a decline in September, container volumes at major ports revived for a second consecutive month in November. YTD volumes (April-December) at major ports posted growth of 4% to 5.6 million TEUs compared to 5.4 million TEUs in 2016. Volumes for YTDQ3FY17 (October-November) grew 7% YoY to 1.4 million TEUs compared to 1.3 million TEUs in the same period of the previous year. A slew of measures like withdrawal of certain charges coupled with broadening of freight basket and running of time tabled freight trains have, to an extent, resulted in rail gaining back market share from road. JNPT, adopting the direct port delivery (DPD) facility, enabled an YTD (October-November) growth of 2%. However, YTD volumes for smaller ports like Chennai and Kolkata grew a robust 9% and 11%. In addition to the revamp in trade activity, promoting coastal shipping as a domestic means of transportation has also led to higher traffic at some major ports. The volume scenario for container train operators (CTOs) like Concor, Gateway Distriparks (GDL) witnessed a revival in H1FY17, which, we believe, will continue in Q3FY17 with YoY growth of 7%, 6% respectively. Maintaining its competitiveness over road for domestic, realisation rates for Concor are expected to remain subdued. This would lead to de-growth in revenues by 2% YoY. On the other hand, as it an Exim focused player and revival in Chennai volumes would result in revenue growth of 6% for GDL’s revenues.

Demonetisation to hit operations of truck/surface players… The daily requirement of cash by truck operators were, to an extent, impacted by imposition of withdrawal limit on account of demonetisation. Subsequently, utilisation levels were impacted, which would dent the earning for fleet operators. In addition to the same, the demand side was largely impacted by a slowdown in consumer discretionary spending. Subsequently, revenues for Gati are expected to de-grow 2%. However, due to a de-merger of TCI Express, comparable sequential revenues for TCI are expected to de-grow 7% QoQ. TCI’s YoY revenues remain supportive of addition of a container ship and consistent supply chain revenues. Increase in number of card transactions would support the document’s total revenues for BlueDart, which are expected to grow 2% YoY.

Rail operators, specialised players to offset sector weakness… Total revenue of the universe are expected at | 3315 crore against | 3294 crore in Q3FY17. EBITDA is expected at | 549 crore against | 610 crore for the same quarter last year. PAT for the quarter is expected at | 323 crore vs. | 367 crore in Q3FY16.

Exhibit 19: Estimates for Q3FY17E: (Logistics) (| Crore)


Blue Dart 665.4 1.9 0.3 83.2 -7.1 11.2 47.4 -5.4 10.7Container Corporation 1,373.6 -2.2 -0.4 247.3 -11.7 8.1 171.9 -16.6 8.9Gateway Distriparks 283.1 5.6 -0.5 59.5 -5.2 -7.4 25.6 -17.4 -7.3GATI Ltd 411.0 -1.6 -3.4 24.7 -27.2 -10.9 4.9 -36.1 -15.5Gujarat Pipavav 163.2 -1.4 -5.2 96.3 -3.9 -2.4 57.6 8.1 -3.0Transport Corp 418.9 8.9 -7.0 37.6 -22.1 -13.0 15.4 -34.0 -21.7Total 3,315.1 0.7 -1.8 548.5 -10.8 2.1 322.9 -13.1 3.1


Change (%)



3294

2892

3255 33

74

3315

2400

2700

3000

3300

3600

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.020.0

(%)


Container Volumes

643

683694

673

744

686706

726 718 715

679693

705

500

550

600

650

700

750

Nov

'15

Dec'

15

Jan'

16

Feb'

16

Mar

'16

Apr

'16

May

'16

June

'16

July

'16

Aug

'16

Sep'

16

Oct'1

6

Nov

'16

('000

TEU

s)

Top Pick

Container Corporation

Research Analyst

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


Page 46


Company RemarksContainer Corporation

Trade activity for the quarter remained low due to demonetisation. However, Eximvolumes were, to an extent, less impacted due to the prevailing order backlog. Webelieve the road segment would be impacted by unavailability of drivers, which wouldbenefit rail operators to regain volume market share. We expect total volumes togrow 7% (Exim 8%, domestic 2%). However, in the quest of market share gain,realisations are expected to remain subdued. Revenues are expected to record de-growth of 2%. EBITDA margins would remain impacted, down 200 bps to 18%, due tohigher rental charges due to revision of land prices by Indian Railways. AbsoluteEBITDA is expected de-grow 12% YoY (up 8% QoQ) to | 247 crore. Higherdepreciation is expected to result in PAT de-growth of 17% YoY (up 10% QoQ) to |172 crore

Gateway Distriparks

Majority of the volumes for Gateway are derived from the Exim route, which, to anextent, could safeguard the company from recent domestic numbness. However, dueto higher base impact, YoY volumes are expected to de-grow 5% YoY (up 4% QoQ) to48600 TEUs. Still, ICD volumes are expected to maintain their run rate of ~100000TEUs (mainly from Vizag). Consolidated revenues are expected at | 283 crore. Withcompetitor’s terminals in the vicinity, pressure on realisations would result in lowerEBITDA margins, which are expected to decline 200 bps YoY to 21% with an EBITDAof | 60 crore. PAT is expected at | 25.5 crore

Transport Corporation of India

Revenues accounting for the demerger of XPS division is expected to grow 9% YoY to| 419 crore. Majority of the growth is expected from seaways (up 15% YoY) andsupply chain (up 18% YoY). However, due to lower volumes, revenues from freightdivision are expected to remain flattish YoY at | 205 crore (below its quarterly runrate of | 220 crore). Operating margins are expected to sequentially decline 100 bpsto 9%; with absolute EBITDA of | 38 crore. Resultant PAT is expected at | 15.5 crore.YoY numbers are not comparable due to the demerger

BlueDart October, which remained robust for B2C business, was, to an extent, offset bysoftness in November and December. However, on account of focus on cashlesstransactions, we expect document volumes to support volumes for the B2B business.However, non-document volumes are expected to remain subdued. We expectrevenues to remain flat sequentially (up 2% YoY) at | 665 crore. Subdued high marginB2C business would impact EBITDA margins, which are expected to decline 120 bpsYoY to 12.5%, with resultant absolute EBITDA of | 83 crore. Subsequently, PAT isexpected at | 47 crore

Gujarat Pipavav Port

Port volumes would continue to remain sluggish due to slow ramp up of volumesamidst loss of shipping clients. In addition to the same, the aggression ofneighbouring ports would keep tabs on realisation rates. Apart from the recent Hanjinshipping bankruptcy, the acquisition of Hamburg Sud Group by Maersk is expected tobring in consolidation in the global container shipping. However reefer volumes wouldpartly offset the weakness in the current quarter. We expect container volumes tomarginally de-grow 2% YoY to 174300 TEUs with revenues of | 163 crore. Operatingmargins are expected to remain at ~59% with EBITDA of | 96.3 crore. PAT isexpected at | 57.6 crore

Gati Trucking companies are expected to be significantly impacted by demonetisation. Onthe one hand, the supply side was impacted by availability of drivers and workingcapital (due to limit on withdrawals). On the other hand, the demand side wasimpacted by lower offtake in goods like consumer durables, auto, etc, which couldimpact the overall earnings of the company. Gati KWE’s revenues are expected to de-grow 5% YoY to | 273 crore. Standalone revenues (driven by fuel sales) are expectedto grow 5% YoY to | 125.7 crore. Consolidated revenues are expected to de-grow 2%YoY to | 411 crore. Lower utilisation would impact operating margins, which areexpected to decline 200 bps YoY to 6% with EBITDA of | 24.7 crore. PAT is expectedat | 5 crore



Page 47

Media Print segment to witness subdued quarter…

The gains that accrued in festive October for print players were washed away by demonetisation, which affected local as well as national advertisements. Consequently, ad revenue growth for the quarter has been subdued across players. DB Corp, which is coming off a low base of decline in Q3FY16, is likely to witness print ad growth of ~4.0% YoY. HT Media, however, was the worst hit among print players in terms of ad growth in Q3FY17. Apart from the impact of demonetisation, Hindi ad growth also faced a decline due to higher base in Q3FY16 on account of Bihar elections. English ad growth, meanwhile, continued to be a laggard owing to the slowdown in national ad growth, which was further accentuated by demonetisation. Consequently, its print ad revenue is expected to decline 7.6% YoY with Hindi and English segment declining 7.0% and 8%, respectively. Circulation revenues are expected to remain stable at 7.5% and 9.5% YoY growth for HT Media and DB Corp, respectively. Radio is also likely to be impacted by demonetisation. Consequently, we expect single digit growth in Q3FY17 vs. high double digit growth reported in earlier quarters.

Broadcasters also face demonetisation woes…

Our broadcaster coverage universe is expected to witness muted ad growth in Q3FY17 in the wake of demonetisation, which impacted November and December. Consequently, Zee, Sun TV and TV Today are expected to report subdued ad revenue growth of 1.2%, 3.7% and 2.0%, respectively. Subscription revenues are expected to be healthy with Zee and Sun expected to report 9.4% and 12.2% YoY growth, respectively. The management commentary, however, indicates that there has been recovery in ad growth momentum from the beginning of Q4FY17.

Dangal saves quarter for multiplexes

The quarter was marked by movies such as MS Dhoni, Ae Dil Hai Mushkil, etc, which had a good run in the box office. However, the quarter was hit by demonetisation woes, which led to a washout in November. Strong collection by Dangal in December end did provide some respite to an otherwise subdued quarter. PVR is expected to witness footfall growth of 10.9% to 18.3 million, aided mainly by the consolidation of DT Cinema. Inox, on the other hand, is expected to witness footfall growth of ~3.8% YoY to 13.4 million. ATP is also likely to be muted, given the relatively softer quarter.

Exhibit 21: Estimates for Q3FY17E- Media Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

DB Corp 612.3 4.5 15.8 186.0 -0.4 23.6 107.2 0.3 21.1Dish TV 786.1 1.9 0.9 263.2 -0.9 -0.4 41.2 -39.8 -41.2ENIL 147.9 3.0 14.0 39.9 -19.7 72.6 19.0 -29.5 136.2Eros International 259.0 -22.8 -45.9 29.8 -55.4 -66.6 14.8 -60.8 -76.5HT Media 651.3 -4.4 8.1 68.9 -41.9 36.5 28.9 -58.1 -6.7Inox Leisure 320.9 7.9 7.9 51.8 -2.0 90.5 18.0 15.5 1,055.4PVR 550.0 9.9 -0.8 89.3 4.6 -4.1 21.4 -28.4 -26.5Sun TV 618.0 7.6 -1.2 464.7 5.5 -0.3 255.6 18.6 -5.4TV Today 149.1 -0.4 12.7 52.6 -5.7 42.6 33.8 -8.3 49.7Zee Ent. 1,599.3 0.3 -5.7 423.8 -1.5 -13.4 311.0 13.1 30.5Total 5,693.8 1.1 -2.2 1,670.1 -4.7 -1.2 851.0 -3.5 3.5

Change (%)Company




5634

5270

5859

5823

5694

490050005100520053005400550056005700580059006000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(%)


PVR & Inox – Footfalls

18.816.5

15.3

20.718.5 18.3

14.512.9

11.5

15.512.7 13.4

0.0

5.0

10.0

15.0

20.0

25.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17Q3FY17E

(milli

on)

PVR Inox

Top pick of sector PVR Limited Research Analysts

Bhupendra.Tiwary [email protected]

Sneha Agarwal [email protected]


Page 48

Exhibit 22: Company specific view Company RemarksDB Corp Post healthy festive growth in October, DB Corp faced the wrath of demonetisation,

which impacted its ad growth rate for Q3FY17. Consequently, DB Corp is expected topost muted 4.0% YoY print ad revenue growth to | 406.8 crore. The traction in radiowould be comparatively better at 9% YoY mainly aided by new stations revenues,while digital ad revenues growth is expected at 20.0% YoY. The company is expectedto clock circulation revenue growth of ~9.5% YoY growth to | 125.0 crore. Newsprintcosts may be higher 3.0% YoY due to higher circulation. Margins are expected todecline 150 bps to 30.4% on a YoY basis due to lower operating leverage

Dish TV Gross subscriber addition is expected at ~0.64 million, with net adds of 0.24 millionand churn of 0.41 million (0.9% monthly of net base). The churn rate is expected to behigher in the quarter with some effects of digitisation. Lower activation would alsolead to some decline in ARPUs, which is expected at | 160.4, down 1.0% QoQ.Content costs are expected to stay under control. However, lower operating leverageowing to a decline in ARPUs and subscriber addition would result in EBITDA margin of33.4%, down 100 bps YoY

ENIL ENIL is expected to report ad revenue growth of 3% YoY to | 147.9 crore as radio alsofaced a slowdown owing to demonetisation. EBITDA margins would continue to beimpacted by new station launches and lower operating leverage due to muted toplinegrowth. Hence, we expect margins at 27.0% in Q3FY17E against 34.6% in theQ3FY16. PAT is expected at | 19.0 crore (vs. | 27 crore in Q3FY16), further impactedby higher depreciation & interest expense in Q3FY17

Eros International

Eros is expected to have a washout quarter given the lower number of releases,which was further plagued by demonetisation impact. During Q3FY17, Hindi releaseincluded Rock On 2 (that also bombed at the box office) and Kahaani 2 (overseas).Regional movies, which released during the quarter included Chaar Sahibzaade 2(Punjabi), Amar Prem (Bengali) and Double Feluda (Bengali). Consequently, revenuesare seen at | 259.0 crore (down ~22.8% YoY). We expect margins of 11.5%, down~840 bps YoY, owing to negative operating leverage

HT Media HT Media was the worst hit among print players in terms of ad growth in Q3FY17.Apart from the impact of demonetisation, Hindi ad growth also faced a decline due tothe higher base in Q3FY16 on account of Bihar election. English ad growth,meanwhile, continued to be a laggard owing to a slowdown in national ad growth,which was further accentuated by demonetisation. Overall print ad revenue for thequarter is expected to decline 7.6% YoY to | 471.2 crore. The Hindi segment adrevenue is expected to decline 7.0% YoY while English segment is expected to decline8.0% YoY. Overall weakness would keep radio revenues also subdued at 9% YoY to |35.2 crore vs. the high double digit growth posted in previous quarters. Decline inoverall revenues would lead to negative operating leverage and, thus, an EBITDAmargin contraction of 680 bps YoY to 10.6%. The EBITDA pain in was also impactedby one-off expenses of ~| 17 crore on account of HT Leadership Summit

Inox Leisure Dangal, MS Dhoni, Ae Dil Hai Mushkil , etc had a decent run in the box office.However, the quarter was also impacted by the cash crunch resulting fromdemonetisation and a subdued November. As a result, the performance of the quarterhas been weaker compared to festive quarters in the past. We expect Inox to posttotal footfalls of 13.4 million, up 3.8% YoY leading to 5.6% YoY increase in net ticketing revenues to | 196.8 crore. ATPs are expected to grow 2.0% YoY to | 182.6. F&Brevenues are expected to grow 7.8% YoY to | 70.6 crore boosted by 5.2% YoYincrease in spends per head to | 62.1. Advertising revenues are seen at | 32.4 crore(up 10.0% YoY). There could be risk to advertisement revenue estimates if volumesare better/lower than our estimates. EBITDA margins are expected at 16.1%, down170 bps YoY, owing to relatively lower operating leverage



Page 49

Exhibit 23: Company specific view Company RemarksPVR The footfall growth that would come by in a festive quarter was offset by the woes of

demonetisation resulting in a weak November. The strong collection of movies likeDangal , MS Dhoni , Ae Dil Hai Mushkil , etc helped offset losses. We expect PVR towitness 9.5% YoY growth in net box office collections to | 275.0 crore, with totalfootfalls seen at 18.3 million, up 10.9% YoY. Average ticket prices are expected toremain stable at last year’s levels of | 202. The company has been able to constantlytake price hikes in its food offerings. Hence, it is expected to post 21.0% YoY growthin food & beverage revenues to | 136.7 crore owing to a 9.2% hike in SPH to | 80.8.Advertising revenues are expected to grow 13.0% YoY to | 78.3 crore with marginsexpected at 16.2%, down 80 bps YoY. PVR is well placed with about 75% contributionfrom digital payment methods and, hence, was least affected among peers, with theafter effects of demonetisation

Sun TV The benefits of the festive quarter seen in October would be offset by two months ofdecline in ad volumes owing to demonetisation woes. We expect Sun TV to post adrevenue growth of 3.7% YoY to | 309.4 crore. Subscription revenues are, however,expected to grow 12.2% YoY to | 234.3 crore benefiting from traction in cablesubscription revenues. Margins are expected at 75.2%, down 150 YoY owing to loweroperating leverage with lower ad revenues

TV Today Network

TV Today is expected to post a subdued ~2.0% YoY growth in its broadcasting adrevenues to | 141.9 crore owing to low ad spends by companies affected bydemonetisation. Aaj Tak had come on board Doordarshan's Freedish platform (outlayof | 6 crore as per media sources) to increase its presence in rural areas, whichwould impact its subscription revenues but would give it a premium with advertisers.The company had recently cancelled the agreement with ENIL to sell its radiochannels in Mumbai, Delhi and Kolkata and the radio business would get additionalfocus from the management. The quarter would, however, continue to be dull for theradio business with revenues expected at | 1.5 crore, down 26.0% YoY. Margins areexpected to decline YoY 200 bps to 35.3% owing to low operating leverage owing tosubdued ad growth

Zee Entertainment

Demonetisation has taken its toll on the ad environment with companies spendingless owing to subdued demand across all consumption categories. Ad revenuegrowth for Zee is, hence, expected to remain subdued at ~1.2% YoY to | 953.3 crore.Domestic subscription revenues are expected to grow 10.6% YoY to | 463.4 crore.Growth would have been higher but for low ARPU growth in the DTH and cablesegment. International subscription revenues are, however, expected to be down7.0% YoY to | 107.7 crore owing to its lumpy nature. Other operating revenues areexpected at | 75.0 crore owing to lack of any major sporting events and big budgetmovies. Muted ad revenues would lead to lower operating leverage. Hence, marginsare expected at 26.5%, down 50 bps YoY



Page 50

Metals & Mining Coking coal prices to impact margins, demonetisation to hit volumes

Coking coal prices, which witnessed a sharp rally post September 2016, continued to surge during the quarter. Contract prices during Q3FY17 settled around US$200/tonne, up ~122% (highest in the last 16 quarters). Steel players in Q2FY17 were insulated from the impact of increased coking coal prices on the back of adequate inventory. However, majority of the players are likely to feel the negative impact on margins during the quarter. Furthermore, the government’s demonetisation move adversely impacted the retail sales segment of steel players for November as the cash crunch slowed overall demand. While steel players responded with a price hike to protect margins to partly cover the impact, nevertheless the above mentioned factors are likely to impact the overall performance. The domestic steel industry continues to benefit from the government’s protectionist measures, which have resulted in import substitution and export growth. Steel imports for the first eight months of FY17 fell 39.2% YoY to 4.7 MT while exports increased to 4.2 MT up 53.3% YoY. The finished steel consumption registered modest growth of 3% YoY to 54.2 MT during the period.

Non ferrous pack glitters… Zinc prices continued to outshine in Q3FY17 wherein average prices were at US$2513/tonne (up 55.7% YoY, 11.5% QoQ), highest in the last nine quarters. The strong footing in zinc prices can be attributed to depleting supply on account of mine closures. In the first 10 months of CY16, global zinc output fell ~1.8% leading to deficit of 277 kilotonne (KT). On the flip side, zinc consumption rose 3.7% YoY influenced by Chinese demand. In the quarter, entire non-ferrous pack saw a notable upside. Average lead prices were at US$2138/tonne, up 27.1% YoY, 14.1% QoQ. Average aluminium price was at US$1710/tonne, up 14.5% YoY, 5.6% QoQ while average copper prices were at US$5278/tonne, up 7.9% YoY, 10.4% QoQ.

Aggregate EBITDA margins to increase QoQ, YoY… On the back of the healthy performance of non-ferrous players and Coal India, the aggregate EBITDA margin is likely to increase 133 bps QoQ to 17.2 % (15.9% in Q2FY17). We expect the EBITDA/tonne of JSW Steel (standalone operations) to come in at | 5000/tonne and Tata Steel (Indian operations) at | 8500/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 | 1500/tonne. We expect Novelis to clock an EBITDA/tonne of US$325/tonne while Coal India is expected to report EBITDA/tonne of | 250/tonne.

Exhibit 24: Estimates for Q3FY17E: (Metals & Mining) (| Crore)


Coal India 20,442.4 7.8 26.1 3,567.5 -14.9 380.4 2,671.6 -28.1 345.1Graphite India 344.3 -3.4 7.7 21.1 -50.0 49.7 18.4 -6.7 15.6HEG 221.5 24.0 16.5 22.8 -42.1 21.7 -9.9 PL NAHindalco 9,983.0 22.5 10.8 1,247.9 85.8 7.9 472.1 1,065.6 7.6Hindustan Zinc 4,852.8 41.5 37.6 2,836.8 91.9 36.6 2,349.2 29.7 23.5JSW Steel 13,251.6 52.3 0.2 1,800.1 101.8 -39.2 59.0 LP -91.0NMDC 2,242.7 47.8 29.0 1,179.8 83.2 42.9 1,000.6 52.8 29.8SAIL 10,661.3 19.3 -5.0 -480.0 NA PL -1,127.0 NA NAVedanta Ltd 18,477.7 24.2 16.5 5,784.3 86.2 23.9 1,465.3 8,086.2 -35.7Tata Steel 27,862.9 -0.6 5.7 3,115.6 301.6 4.9 285.2 LP LPTotal 108,340.3 16.3 10.9 19,095.9 82.6 22.9 7,184.6 199.1 25.0


Change (%)

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

Top line & Profitability (Coverage universe) 93

158

1021

57

9132

2

9768

4

1083

40

700007500080000850009000095000

100000105000110000115000

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16

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17

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17

Q3FY

17E

| Cr

ore

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(%)


Movement of Base metal prices on LME (US$ per tonne) Q3FY17 Q2FY16 YoY Q2FY17 QoQ

Zinc 2,512.6 1,613.6 55.7 2,252.6 11.5

Lead 2,137.8 1,682.3 27.1 1,873.2 14.1

Copper 5,277.5 4,890.1 7.9 4,778.3 10.4

Aluminium 1,710.4 1,494.2 14.5 1,620.1 5.6

Quarterly Coking Coal Contracts ($/tonne)

-

50.0

100.0

150.0

200.0

250.0

Q1FY

13Q2

FY13

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13Q4

FY13

Q1FY

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FY14

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14Q4

FY14

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Quarterly Coking Coal Prices

$/to

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International Iron Ore Prices

-10 20 30 40 50 60 70 80 90

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6

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International Iron Ore Prices

$/to

nne

Top pick of sector

Coal India

Research Analyst

Dewang Sanghavi [email protected]

Akshay Kadam [email protected]


Page 51


Company Remarks

Coal India

For Q3FY17, we expect e-auction realisations to increase from Q2FY17level of | 1348/tonne to | 1450/tonne (up 7.6% QoQ). After registering adecline in offtake in Q2FY17, Coal India reported moderate growth inofftake in Q3FY17, which increased 3.5% YoY. Offtake volumes during thequarter came in at 142.7 million tonne (MT). For the quarter, we expect e-auction volumes to come in at 25.0 MT (up 64.5% YoY and 30.9% QoQ).Coal India's topline is expected to grow 26.1% QoQ and 7.8% YoY while theEBITDA margin is likely to increase 1287 bps QoQ to 17.5%

Graphite India

Graphite India is likely to continue to operate on healthy capacity utilisationlevels. We expect the company's capacity utilisation levels to increase to80% from 75% in Q2FY17 and 56% in Q3FY16. As a result, the topline isexpected to increase sequentially by 7.7%. The EBITDA margin is likely toincrease 172 bps QoQ to 6.1%. PAT is expected to come in at | 18.4 crore

HEG

A substantial improvement in capacity utilisation is likely to aid EBITDAmargins during Q3FY17. We expect the company to clock an capacityutilisation rate of 75% (Q2FY17:65% and Q3FY16: 55%). Subsequently, thetopline is likely to increase 16.5% QoQ. The EBITDA margin is likely tocome in at 10.3% (Q2FY17: 9.8%). At the PAT level, we expect thecompany to report a net loss of | 9.9 crore

Hindalco Industries

For Q3FY17E, Hindalco’s domestic operations are expected to reportaluminium sales of 325000 tonne (up 11.1% YoY and 1.2% QoQ) whilecopper sales are likely to come in at 106000 tonne (up 12.8% YoY). Weexpect topline to increase 10.8% QoQ on account of higher volumes andpositive LME pricing of both aluminium and copper. The EBITDA margin isexpected to remain flat as higher raw material cost especially increasedcrude and crude derivative prices forming ~20% of raw material cost islikely to offset gains from increased LME prices. Hindalco is expected toreport an EBITDA margin of 12.5% (Q2FY17: 12.8%)

Hindustan Zinc

We expect HZL to report a strong EBITDA margin of 58.5% for Q3FY17,primarily on the back of strong volumes and sharp rally witnessed in zincprices. During the quarter, zinc prices witnessed a significant upside withaverage prices being US$2511/tonne highest in the last nine quarters. Weexpect topline and EBITDA to reflect the increase witnessed in zinc andlead prices. Subsequently, for Q3FY17, on a sequential basis, we expectrevenues, EBITDA and PAT to increase 37.6%, 36.6% and 23.5%,respectively

JSW Steel

JSW Steel's Q3FY17 performance is likely to be marked by increased rawmaterial cost (both coking coal and iron ore) impacting margins. Secondly,the demonetisation move of the government is likely to result in lowersales volume as unavailability of cash reduced overall demand primarily inthe retail segment (contributing ~36% of overall sales volume in Q2FY17).For Q3FY17, JSW Steel is likely to clock an EBITDA/tonne of | 5000/tonne(down 29.3% QoQ). We expect domestic operations to report sales volumeof 3.6 MT. The topline is expected to remain flat QoQ while EBITDA isexpected to decline 878 bps QoQ to 13.6%


Hindustan Zinc : Sales Volume Trend

Sales Unit Q3 Q4 Q1 Q2 Q3E

Zinc Tonne 204000 158000 120000 148000 200000

Lead Tonne 35000 41000 23000 32000 37000

Silver Kg 115000 122000 88000 108000 111000

2016 2017

Tata Steel :: EBITDTA/tonne & Sales

Sales Q3 Q4 Q1 Q2 Q3E

Tata Steel India 2.4 2.7 2.1 2.6 2.7

Tata Steel Europe 3.4 3.6 2.5 2.3 2.3

Tata Steel Group 6.4 6.9 5.4 5.7 5.7

EBITDA/tonne

Tata Steel India 6,375 7,954 10,351 7,297 8,500

Tata Steel Europe (31) (15) 51 67 40

FY17FY16

Sales volume in Million tonne, Indian EBITDA/tonne in |/tonne, while European operations EBITDA/tonne in US$/tonne. JSW Steel :: EBITDA/tonne & Sales

Q3 Q4 Q1 Q2 Q3E

Sales Volume 2.6 3.3 3.3 3.8 3.6

EBITDA/tonne 3443 5404 9,276 7,077 5,000

FY16 FY17

Sales volume in Million tonnes and EBITDA/tonne in |/tonne

SAIL:: EBITDA/tonne & Sales

Q3 Q4 Q1 Q2 Q3E

Sales Volume 2.9 3.8 2.8 3.6 3.2

EBITDA/tonne (4,764) (2,957) 835 310 (1,500)

FY16 FY17

Sales volume in Million tonnes and EBITDA/tonne in |/tonne


Page 52


NMDC

NMDC's performance during the quarter was marked by healthy price hikeand strong sales volume run rate. It is likely to report a sales volume 9.8million tonne (MT) (up 36.5% YoY). We expect revenues to increase ~48%YoY and 29% QoQ on the back of improvement in realisations post pricehike. EBITDA margins are expected to improve 1016 bps YoY and 512 bpsQoQ to 52.6%

SAIL

SAIL witnessed a turnaround in the last couple quarters while reporting apositive EBITDA. However, for Q3FY17, its performance is likely to beimpacted by increased coking coal cost and lower sales volume onaccount of demonetisation. We expect SAIL to report sales volume of 3.4MT for the quarter wherein the topline is expected to come in at | 10661.3crore, up 19.3% YoY, down 5% QoQ. The company is expected to post anEBITDA loss of | 480.0 crore wherein the EBITDA/tonne is expected tocome in at negative | 1500/tonne

Vedanta

Vedanta's performance in Q3FY17 is likely to be driven by healthyperformance from the zinc and oil & gas segment. We expect topline toincrease 16.5% QoQ while EBITDA is likely to increase 15% QoQ. TheEBITDA margin is likely to remain flat at 29.0%

Tata Steel

EBITDA margins in Q3FY17, unlike its peers, are likely to be insulated fromthe increased cost of coking coal primarily on the back of adequateinventory of 2-2.5 months, Furthermore, integrated operations (~40%captive coking coal source) is likely to safeguard margins. We expect TataSteel India to report sales volume of 2.7 MT while Tata Steel Europe isexpected to report steel sales of 2.3 MT. We expect the overallconsolidated topline to increase 5.7% QoQ while EBITDA margin is likely toremain flat at 11.2%. We expect Indian operations to clock anEBITDA/tonne of | 8500/tonne while European operations are likely toreport an EBITDA/tonne of US$40/tonne



Page 53

Oil and gas Brent crude prices rise QoQ

The quarter witnessed a historic Opec deal to cut production output by 1.2 mbpd to 32.5 mbpd from 33.7 mbpd with Saudi Arabia taking a major cut of ~0.5 mbpd followed by Iraq, UAE, Kuwait, etc. Non-Opec countries like Russia also agreed to cut production by 0.6 mbpd, which provided a further boost to oil prices. Average Brent crude oil prices during the quarter were at US$50.1/bbl against US$ 45.8/bbl in Q2FY17. This is expected to lead to an improvement in realisations of upstream oil companies QoQ. Closing Brent crude oil prices increased 16.8% QoQ from US$47.4/bbl in Q2FY17 to US$55.4/bbl in Q3FY17. On the subsidy sharing front, we expect PSU companies to bear nil subsidy during the quarter. The entire oil under-recoveries are expected to be borne by the government.

GRMs improve QoQ due to strong product spreads and inventory gains The oil marketing companies (OMCs) are expected to report a healthy improvement in refining margins on account of strong product spreads, along with inventory gains. Operational Singapore GRMs in Q3FY17 increased 31.3% QoQ to US$6.7/bbl against US$5.1/bbl in Q2FY17. The quarter witnessed an increase in spreads (margins) across all products. Gasoline spreads increased 23.4% QoQ from US$12.8/bbl to US$15.8/bbl while that of gas oil (diesel) increased 15.9% QoQ from US$12.8/bbl to US$15.8/bbl. Also, naphtha and LPG spreads witnessed strongly increase during the quarter. On the marketing front, we estimate volume growth of 5.1% YoY for the four major petroleum products (petrol, diesel, LPG and kerosene).

Volumes of gas utilities to be flattish QoQ Volumes of gas companies are expected to remain flattish in spite of a marginal improvement in domestic gas production QoQ due to the decline in LNG volumes. The sharp increase in spot LNG prices QoQ (due to seasonality) has led to a decline in LNG imports from November onwards. However, the Indian market continued its high dependence on LNG, with demand arising mainly from the power and fertiliser sector. In profitability terms, we expect some decline QoQ. However, profit growth would continue to remain strong YoY.

Exhibit 27: Estimates for Q3FY17E: (Oil and Gas) (| Crore)Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Bharat Petroleum 62,401.3 33.7 13.6 3,200.0 32.4 131.7 2,043.6 37.3 56.6Cairn India Ltd 2,087.7 2.4 2.4 1,096.9 64.7 5.6 667.4 7,580.5 -14.3Castrol India Ltd 808.6 2.2 6.2 221.4 4.4 4.0 148.8 5.7 6.4Gail India 11,328.1 -15.8 -6.1 1,490.3 28.9 -2.9 822.4 23.8 -11.1Gujarat Gas 1,230.8 -17.1 -0.5 207.6 32.2 -2.5 69.5 245.2 -3.2GSPL 264.9 6.8 2.7 229.1 11.8 1.3 125.4 3.4 -3.4Gulf Oil 266.0 2.2 -3.0 41.3 0.4 -5.8 27.0 3.0 -10.6HPCL 57,817.3 32.9 20.9 2,475.6 10.5 96.3 1,281.4 22.9 82.7IOC 116,657.1 39.8 16.3 8,075.6 54.1 39.9 4,401.5 44.0 41.0Indraprastha Gas 907.7 -2.3 -6.1 249.4 33.1 1.8 140.4 33.6 -2.6MRPL 16,619.3 88.5 18.8 1,307.5 192.8 66.5 848.7 184.4 104.1ONGC 18,845.1 1.9 2.4 9,951.9 13.8 3.2 4,660.8 262.5 -6.3Petronet LNG 7,065.0 37.3 6.8 616.0 95.1 -15.2 345.2 93.5 -24.9Total 296,298.9 31.5 14.1 29,162.5 32.4 26.3 15,582.0 84.7 18.1


Change (%)



5296

2156

57

2669

64

2596

03

2962

990

50000

100000

150000

200000

250000

300000

350000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.02.04.06.08.010.012.014.016.0

(%)


Singapore gross refining margins (GRMs)

6.78.07.7

5.0 5.1

2

4

6

8

10


Refin

ing

mar

gins

(US$

per

bbl

)

Average Brent Crude Oil Prices

43.6

34.3

46.0 45.850.1

20

30

40

50

60


US$

per b

bl

Top pick of sector

GAIL

Research Analyst

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

Akshay Gavankar [email protected]


Page 54

Exhibit 28: Company specific view Company RemarksBPCL We expect revenues to increase 13.6% QoQ to | 62401.3 crore mainly due to increase

in oil prices by 9.4% QoQ. Refining margins are expected to increase QoQ to $7/bbl vs.$3.1/bbl mainly on account of higher product spreads, along with inventory gainsduring the quarter. Subsequently, PAT is expected to increase 56.6% QoQ to | 2043.6crore. We assume subsidy burden will remain nil, same as Q2FY17

Cairn India The increase in oil prices by 9.4% QoQ was largely negated by lower oil productionQoQ, which will result in revenue growth of only 2.4% QoQ. Rajasthan crude oilrealisation is expected to increase from $41.5/bbl in Q2FY17 to $44.8/bbl in Q3FY17.On the operational front, gross production from Rajasthan fields is expected to decline8.8% QoQ to 153,001 boepd while net oil & gas production is expected to decline 8.3%QoQ to 115,117 boepd

Castrol India Revenues are expected to increase 2.2% YoY on account of 3% YoY increase involumes, which will be slightly offset by lower net realisation (down 0.8% YoY). Grossmargins are expected to decline marginally by 2.9% YoY to | 88.1/litre as competitivepricing scenario remains stable. The EBITDA per litre is expected to increase 1.4% YoYto | 46.6/litre

Gail We expect 23.8% YoY improvement on the profit front mainly on account of betterperformance in gas transmission, petrochemicals and LPG hydrocarbon business YoY.Gas transmission volumes are expected to increase 2.5% YoY to 99.5 mmscmd. ItsEBIT is expected to increase 41.4% YoY due to benefits arising from tariff revision of itssix pipelines. The petchem segment is expected report EBIT of ~| 133 crore vs. EBITloss of | 160.6 crore YoY. LPG liquid hydrocarbon EBIT is expected to increase 59.1%YoY to | 370.3 crore on account of lower domestic gas prices

GSPL We expect revenues to increase 2.7% QoQ in Q3FY17 due to increase in windmillbusiness revenues. On the gas transmission side, volumes are expected to declinemarginally by 0.3 mmscmd QoQ to 24.3 mmscmd on account of higher spot LNGprices. Transmission tariffs are expected to remain stable at | 1.09/scm. PAT isexpected to decline 3.4% QoQ to | 125.4 crore as operating expenses are expected tobe higher by 11.3% QoQ

Gujarat Gas We expect revenues to decline 17.1% YoY on account of 5.3% YoY decline in volumesto 5.1 mmscmd (due to lower industrial volumes) and 12.5% YoY decline in netrealisation to | 26.2/scm. However, gross spreads are expected to improve by |1.3/scm YoY to | 6.6/scm on account of a reduction in gas costs and increased pricingpower. However, QoQ, gross spreads are expected to decline marginally by | 0.3/scm

Gulf Oil Lubricants

We expect revenues to increase 2.2% YoY on account of a 4% YoY increase in volumes,partly offset by 1.8% YoY decline in net realisation. The EBITDA per litre is expecteddecline by | 0.7/litre YoY to | 20.9/litre. Subsequently, PAT is expected to increase 3%YoY to | 27 crore, due to higher other income YoY

Hindustan Petroleum

We expect revenues to increase 20.9% QoQ to | 57,817.3 crore mainly due to increasein oil prices by 9.4% QoQ. Refining margins are expected to increase QoQ to $6.7/bblvs. $3.2/bbl mainly on account of higher product spreads, along with inventory gainsduring the quarter. Subsequently, PAT is expected to increase 82.7% QoQ to | 1281.4crore. We assume subsidy burden will remain nil, same as Q2FY17

Indian Oil We expect revenues to increase 16.3% QoQ to | 116,657.1 crore mainly due toincrease in oil prices by 9.4% QoQ. Refining margins are expected to increase QoQ to$6.4/bbl vs. $4.3/bbl on account of higher product spreads and inventory gains duringthe quarter. Subsequently, PAT is expected to increase 41% QoQ to | 4401.5 crore. Weassume subsidy burden will remain nil, same as Q2FY17


Gross under-recoveries of petroleum products

61515486

4095 37314614

0

2000

4000

6000

8000

10000


| Cr

ore

* Under-recoveries includes Cash Subsidy under DBTL

Sharing of crude oil under-recoveries (| Crore) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

Upstream 0 -729 0 0 0Downstream 298 -285 0 0 0Government 5854 6500 4095 3731 4614Total 6151 5486 4095 3731 4614

Sharing of crude oil under-recoveries (%)

Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17Upstream 0.0 -13.3 0.0 0.0 0.0Downstream 4.8 -5.2 0.0 0.0 0.0Government 95.2 118.5 100.0 100.0 100.0Total 100.0 100.0 100.0 100.0 100.0

Sharing of net crude oil under-recoveries (| Crore) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

ONGC 0 -632 0 0 0GAIL 0 0 0 0 0IOC 206 -201 0 0 0BPCL 46 -46 0 0 0HPCL 45 -37 0 0 0Government 5854 6500 4095 3731 4614Total 39725 39237 28691 22419 15981

Gross under-recoveries of petroleum products

1399

763

276 175

1610

0

400

800

1200

1600

2000

FY13

FY14

FY15

FY16

FY17

E

| bn

Gross under-recoveries

Sharing of crude oil under-recoveries (%)

37.3 47.9 56.14.5

62.1 50.6 41.0

95.4 100.0

0.6 1.5 2.9 0.1

020406080

100

FY13

FY14

FY15

FY16

FY17

E

%

Upstream companies Government OMC's


Page 55

Exhibit 29: Company specific view Indraprastha Gas

Volume growth is expected to remain strong at 8.5% YoY in spite of demonetisation,due to increased push by Delhi government to curb increased pollution. This will resultin volumes of ~4.3 mmscmd (CNG: 3.2 mmscmd, PNG: 1.1 mmscmd). We expectgross margins to increase to | 10.5 per scm vs. | 9.9 per scm YoY due to a decline indomestic gas prices. Subsequently, PAT is expected to increase 33.6% YoY to | 140.4crore

MRPL We expect reported GRMs to increase from $4.7/bbl in Q2FY17 to $9.2/bbl in Q3FY17mainly due to global product cracks and an inventory gain of $2.5/bbl in Q3FY17 vs.inventory loss of $0.9/bbl in Q2FY17. Adjusting for inventory gains, we expect GRMs of$6.9/bbl vs. $5.6/bbl QoQ. Throughput is expected at 4.1 MMTPA. PAT is expected toincrease to ~2x QoQ to | 848.7 crore even after forex losses of ~| 225 crore

ONGC Oil production is expected to remain flat QoQ (decline 2.6% YoY) at 6.4 MMT with gasproduction increasing 3.3% QoQ (increase 4% YoY) to 6 MMT in Q3FY17. We expectnet realisation to increase 4.4% QoQ at $50.1/bbl in Q3FY17. We assume subsidyburden will remain nil, same as Q2FY17. Subsequently, PAT is expected to decline6.3% QoQ to | 4660.8 crore. However, on a YoY basis, PAT is expected to increasesharply by 262.5% YoY on account of lower operational expenses and extraordinaryloss of ~| 4000 crore in Q3FY16

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 Q2FY17 was an exceptionally good quarter. We expect volumes to decline5.1% QoQ to 179.2 trillion British thermal units (tbtu) (3.4 MMT) in Q3FY17 due tohigher spot LNG prices and recommissioning of Dabhol LNG. We expect blendedmargins to decline 7% QoQ from | 45.2/mmbtu to | 42/mmbtu due to lower shortterm/spot margins. Subsequently, PAT is expected to decline 24.9% QoQ to | 345.2crore



Page 56

Power Capacity addition target crosses 100% for Twelfth Plan but incremental

addition decelerating Total capacity addition in the Twelfth Plan as of November 2016 was 90433 MW, which implies the achievement rate is at 102.2% of the total target (88537 MW). Out of the above, state and private sector companies have overachieved targets to tune of 34.5% and 13.8%, respectively. However, we believe incremental capacity addition in the sector is on a declining trend as during YTDFY17 only 5463 MW of capacity is added. This implies a 35% YoY decline in YTDFY17. Total capacity addition target for FY17 is at 16654 MW, implying majority of capacity addition will be achieved in Q4FY17. In our coverage universe, NTPC is the only company that has commissioned a unit of 800 MW (Kudgi project) during Q3FY17. Power Grid, on the other hand, is expected to maintain its strong capitalisation trend in the range of | 8000-9000 crore for Q3FY17.

Power generation up 5% in YTD FY17 amid flattish PLFs Overall, power generation in April-November 2016 is up marginally by ~5% YoY. In Q3FY17 (October-November 2016), power generation is up 5.1% YoY. Segment wise, thermal generation is up 6.1% YoY while hydro is marginally down 0.8% YoY. Base deficit was at 0.7% in October 2016 while peak deficit was at 0.6% in the same period. Even though on an all-India level, PLFs were flattish at 60.74%, central level utilities saw improvement of 390 bpd in PLF at 71.14%.

Generation companies lag while others likely to perform well Our coverage companies are likely to post a muted performance in Q3FY17E. Generation companies are likely to report a disappointing performance. NHPC is likely to put up a dismal show as generation is expected to decline 17% YoY. This, in turn, is expected to lead to revenue and PAT decline of 12.1% YoY and 34% YoY, respectively. It has not added any capacity during the quarter. NTPC will also report a muted 3.9% YoY revenue growth (generation is likely to increase 0.2% YoY while tariffs are expected to rise 3% YoY) while PAT is expected to decline 7% (Q3FY16 had exceptionally high other income component). CESC is likely to witness 1.3% YoY growth in revenues (generation will decline but the same will be compensated by power purchase from subsidiary amid a weak seasonal quarter) while PAT is expected to rise 5.1% YoY (lower fuel costs and other expenses will aid margins). On the brighter side, Power grid may maintain consistency in reporting strong revenue, PAT growth of 20.2%, 17.8% YoY, respectively. PTC India is also likely to report 12.9% YoY growth in trading volumes, leading to PAT growth of 11.2% YoY.

Exhibit 30: Estimates for Q3FY17E (Power) (| crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

CESC 1,542.5 1.3 -23.5 323.9 14.5 -45.2 117.7 5.1 -51.3NHPC 1,286.5 -12.1 -46.5 602.0 -26.2 -61.4 253.6 -34.6 -82.5NTPC 18,024.2 3.9 -5.6 4,731.2 3.9 -7.1 1,946.5 -21.9 -11.5Power Grid Corp 6,501.1 20.2 3.9 6,046.0 23.5 3.7 1,900.3 17.8 1.3PTC India Ltd 3,527.3 20.1 -12.9 62.4 8.4 -31.4 50.4 11.2 -54.1Total 30,881.6 7.7 -8.7 11,765.5 11.0 -10.6 4,268.6 -8.2 -27.3


Change (%)



674

2998

9 3273

0

3382

0

3088

2

26000270002800029000300003100032000330003400035000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.05.010.015.020.025.030.035.040.045.0

(%)


Trend in all India sectoral PLF

0

10

20

30

40

50

60

70

80

Nov

-15

Dec-

15Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6Se

p-16

Oct-1

6N

ov-1

6

(%)

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

Thermal, 69%

Nuclear, 2%

Hydro, 14%

RES, 15%

Data as on November 2016 Top pick of sector

NTPC Power Grid

Research Analyst

Chirag Shah [email protected]


Page 57

Exhibit 31: Company specific view (Real Estate coverage universe) Company RemarksNTPC During Q3FY17, NTPC has commissioned capacity to the tune of 800 MW and is on the

verge of commencing coal production from its Pakrih Barwadih mine. On theperformance front, generation and energy sales are likely to be muted at 0.2% YoY at60.9 billion units and 56.7 billion units, respectively. We expect revenues to grow 4%YoY to | 18024.2 crore. We have assumed a realisation of | 3.15/Kwhr. Consequently,we expect PAT at | 1946.5 crore, down 7% YoY on account of higher tax rate assumed(24% in Q3FY17 vs.~ 17% in Q3FY16)

NHPC We expect NHPC's generation to decline 17% YoY at 337.2 crore units in Q3FY17. Weexpect energy sold at 296.8 crore units with realisation of | 4.2/Kwhr. Hence, overallrevenues are expected to decline 12.1% YoY to | 1286.5 crore. Lower generation willlead to PAT decline of 34.6% YoY at | 253.6 crore. Key monitorable would be theprogress on stuck projects like Subansiri lower (2000 MW)

PTC India Despite a seasonally weak quarter, we expect overall trading volumes to grow 12.9%YoY to 1102 crore units in Q3FY17. Growth will be backed by 12% YoY and 16% YoYgrowth in volumes in the short-term and long term trading segment, respectively. Wehave built in 4 paisa trading margins. On the whole, we expect PAT at | 50.4 crore, up11.2% for Q3FY17

Power Grid We expect the company to capitalise assets to the tune of | 8000-9000 crore inQ3FY17. Overall revenues are expected to grow 20.2% YoY to | 6501.1 crore. In termsof segmental performance, we expect transmission, telecom, consultancy business toexhibit revenue growth of 20%, 25%, 25%, respectively, for Q3FY17. Strong assetaddition will also lead to a rise in interest costs by 31% YoY. Consequently, we expectPAT to grow 17.8% YoY to | 1900 crore

CESC Q3FY17 is seasonally a weak quarter owing to winter in the Kolkata distribution area.Coupled with increased power purchase from Haldia Energy (subsidiary), generation willdecline 27% YoY at 116 crore units. On the other hand, CESC is expected to buy 102.9crore units of power from subsidiary, which will lead to energy sales of 205.7 croreunits in Q3FY17. Hence, we expect revenues at | 1542.5 crore, up 1.2% YoY. However,lower fuel and employee costs will help EBITDA grow 14% YoY. However, higherdepreciation & lower income would lead to PAT of | 117.7 crore, up 5.1% YoY



Page 58

Real Estate

Demonetisation- Near term hindrance…

We believe the real estate sector could face headwinds post demonetisation in the near term. The evaporation of speculative demand in resale/secondary market post demonetisation could keep primary market prices and sales volumes under pressure, especially in the luxury/high ticket residential market. In our view, affordable housing segment would be the silver lining for real estate sector. Furthermore, government doubled the loan amount to | 12 lakh under Pradhan Mantri Awas Yojana. Under this scheme, interest rate subvention of 4% is applicable for loan up to | 9 lakh & 3% for loan up to | 12 lakh. Hence, overall, this move should boost demand for housing sector, particularly in affordable housing segment. Additionally, banks have started reducing interest rate for housing loans, which should improve buyer’s affordability (every 100 bps decline in interest rate improves affordability equivalent to 7-8% reduction in property prices).

Sebi’s stringent REITS norms to bring in more transparency…

According to Sebi guidelines, offer documents of real estate investment trusts (REITS) must have a minimum three year project wise operating cash flow and revenue forecast. It will also have to disclose the framework for calculation of net distributable cash flows. The move is to bring in more transparency and also improve investor confidence for successful listing of REITS.

Sales volume of real estate universe to decline 25.3% sequentially…

We expect sales volumes of our real estate universe to remain under pressure in the near term due to demonetisation. Consequently, in the absence of any major new launches, we expect our sales volume to slump 25.3% sequentially to 9.6 lakh sq ft in Q3FY17 vs. 12.8 lakh sq ft in Q2FY17.

Topline of real estate coverage universe to fall 30.2%...

Real estate universe revenues are expected to decline 30.2% YoY to | 936.6 crore mainly on account of 67.5% YoY (high base) de-growth in revenues of Oberoi Realty. The EBITDA margin of our real estate coverage is expected to contract 710 bps to 27.2% mainly on account of a change in the project mix. Consequently, we expect our universe to report bottomline de-growth of 42.3% YoY to | 156.9 crore.

Exhibit 32: Estimates for Q3FY17E (Real Estate) (| crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Oberoi Realty 253.8 -67.5 0.7 123.7 -62.3 -1.7 79.6 -62.0 -4.9Mahindra Lifespace 250.1 49.9 163.2 37.0 28.2 538.4 40.9 33.6 220.9Sobha Dev. 432.8 10.1 -20.0 94.2 -9.2 -8.9 36.4 13.4 -5.2Total 936.6 -30.2 5.5 254.9 -44.6 8.5 156.9 -42.3 16.3




1342

886 98

3

888

937

0

250

500

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1000

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ore

20.0

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40.0

45.0

(%)


Sales volume trend (Coverage Universe)

2.3 3.

4

2.6

2.5

2.1

10.2

1.4

1.5 1.8

1.1

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8.1 8.6

6.4

8.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17E

(lakh

sq

ft)

Mahindra Oberoi Sobha


Mahindra Lifespace Research Analyst



Page 59

Exhibit 33: Company specific view (Real Estate coverage universe) Company RemarksOberoi Realty We expect Oberoi's sales volumes to drop 37.1% sequentially to 1.12 lakh sq ft as

buyers are deferring property purchases post demonetisation. On a YoY basis, salesis expected to slump 89.1% due to high base effect as the company had launchedSkyCity project in Q3FY16, which received a stellar response. Further, we expectthe topline to de-grow 67.5%YoY to ~| 253.8 crore due to high base effect inQ3FY16 post Esquire project reaching revenue recognition threshold. EBITDAmargins are expected to expand 680 bps YoY to 48.7% largely due to lowerproportion of revenues from relatively lower margin Esquire project (it is expectedto contribute 44.3% to overall revenues in Q3FY17 vs. 82.1% in Q3FY16). However,we expect its bottomline to de-grow 62.0% YoY to | 79.6 crore (high base effect)

Mahindra Lifespace

As buyers are deferring property purchases post demonetisation, we expectMahindra Lifespace (MLDL) to report sales volume de-growth of 9.6% YoY to 2.1lakh sq ft. However, we anticipate MLDL's topline will grow 49.9% YoY to | 250.1crore as its Andheri project "Vivante Phase I" is expected to reach revenuerecognition threshold in Q3FY17E. Furthermore, we expect the bottomline to grow33.6% YoY to | 40.9 crore led by robust topline growth

Sobha Ltd With Sobha's major micro-markets to be impacted post demonetisation, weanticipate its sales volumes will fall 20.7% YoY to 6.4 lakh sq ft. However, itstopline is expected to grow 10.1% YoY to | 432.8 crore led by 11.9% growth in itsconstruction and manufacturing revenues to | 168.4 crore. On the bottomline front,we expect its PAT to grow 13.4% YoY to | 36.4 crore


Major news in Q3FY17

Oberoi Realty

Media reports indicate that Oberoi Realty is looking to setup a separate shopping mall business unit under which itplans to build a significant retail portfolio in the next fewyears

Real Estate Sector

A Cushman & Wakefield report has indicated that Indianreal estate is likely to provide an investment opportunityworth up to $77 billion through REIT- eligible commercial –office and retail, properties across the country’s top sevencities by 2020

The Centre has simplified environmental clearanceprocesses for building projects in countrySebi has said offer documents of real estate investmenttrusts must have a minimum three year project wiseoperating cash flow and revenue forecast. The trust willalso have to disclose the framework for calculation of netdistributable cash flows and even working capital details


Page 60

Retail

Festive season quarter adversely impacted by demonetisation Q3FY17 started on a positive note wherein companies reported strong revenue growth during the festive seasons of Dussehra and Diwali. Demonetisation led to a liquidity crunch resulting in a decline in consumer discretionary demand as consumers were reluctant to spend in the month of November and December. However, the impact of demonetisation was much more significant for unorganised players as majority of the transactions were carried out in cash. They lack the necessary infrastructure required to deal with non-cash transactions. Therefore, in the long run, the shift from unorganised to organised market augurs well for organised companies. Of the different channel sales, multi brand outlets (MBOs) were impacted the most compared to exclusive brand outlets (EBOs).

Retail sales steadily improve, trade channels to remain under pressure Titan (Tanishq) witnessed one of the best festive seasons, where it recorded a like-to-like sales growth of 40% over the same period. Post the announcement of demonetisation, the company witnessed a slowdown in the initial few weeks. However, for Titan’s jewellery segment, since 60% of transactions were carried out through plastic money and 60% of cash transactions involved PAN card, the jewellery division revived to its pre-demonetisation levels by the end of November. A strong wedding season also aided revenue growth. We expect Titan’s overall revenues to grow marginally by 2.6% YoY to | 3514.3 crore owing to a 2.3% revenue growth in the jewellery segment to | 2884.1 crore. The watches segment was also adversely impacted on account of demonetisation. However, retail sales steadily improved. Trade channels (MBOs), which account for ~50% of watches business were still under pressure. Shoppers Stop recorded moderate SSSG for the festive season. Post demonetisation announcement, SSL witnessed a decline in footfalls impacting the overall sales. HyperCity, on the other hand, benefited from this move as consumers preferred using plastic money to buy groceries rather than using cash. We expect SSL’s departmental stores & HyperCity to register SSSG growth of 2.5% & 6%, respectively, leading to revenue growth of 8.7% YoY to | 1515.4 crore. Bata introduced new collections in Q3FY17, which were more contemporary and targeting the youth. We expect Bata’s revenue to grow 2.1% YoY to | 630.7 crore.

Operating margins expected to decline except for Titan

We expect Bata’s EBITDA margin to decline 130 bps YoY to 11.6% on account of high advertising expenses undertaken by the company for brand building activities. We expect Titan’s EBITDA margin to improve marginally by 23 bps YoY to 9.3% on back of higher share of studded jewellery. Shoppers Stop’s EBITDA margin is expected to decline 150 bps YoY to 3.4% owing to 258 bps decline in standalone margin and loss at the EBITDA level in the HyperCity format.

Exhibit 34: Estimates for Q3FY17E: (Retail) (| Crore) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

Bata India 630.7 2.1 8.0 72.9 -8.7 36.1 42.1 -5.5 21.7Shopper Stop 1,515.4 8.7 6.6 51.3 -24.3 10.6 -1.8 PL NATitan Company 3,514.3 2.6 32.5 325.7 5.1 17.9 223.6 -0.7 23.7Total 5,660.4 4.1 21.5 449.9 -1.7 19.6 263.9 -6.2 22.8

Change (%)Company



Topline & Profitability (Coverage Universe)

5438

4242

4609

4658 56

60

0

1000

2000

3000

4000

5000

6000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.01.02.03.04.05.06.07.08.09.0

(%)


Space addition – million square feet ( QoQ)

-0.010.05

0.130.03

0.12

(0.01)0.06

-0.05

0.10

0.15

0.09

(0.03)

(0.10)

-

0.10

0.20

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

Shoppers Stop

Revenue per sq. ft.

19271985

21761858

2333 2338 2300 23702009

-

500

1,000

1,500

2,000

2,500

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

Shoppers Stop

Top Pick

Titan Company

Research Analyst

Bharat Chhoda [email protected] Cheragh Sidhwa [email protected]


Page 61

Various initiatives undertaken to tackle demonetisation

Retailers across all formats came out with various initiatives to spur their revenue growth and help customers deal with the cash crunch problems they were facing during demonetisation drive. Many retailers such as Shoppers Stop, HyperCity and Titan preponed their end of season sale (EOSS). Generally, EOSS begins from January and ends in mid-February. Bata has tied up with various mobile wallets such as Paytm and Freecharge to expand their payment options. Titan’s promotional gold exchange scheme aided its revenue growth. For the watches segment, the Titan consumer discount started in mid-December and will continue till January, 2017.

Shopper Stop goes slow while Titan maintains pace in space addition

In anticipation of a stronger H2FY17 on the back of a good monsoon season, the Seventh Pay Commission and festive season, retailers across all formats had aggressively added stores in the first half of this fiscal. Shoppers stop added five departmental stores & three HyperCity stores. Titan added six Tanishq stores and five Fastrack stores. However, Q3FY17 witnessed slower store addition as Shoppers Stop added one and shut two departmental stores, (net closure of one store). HyperCity added one & shut one, (net addition zero). Titan maintained its pace and added four Tanishq store and one Fastrack store this quarter. Among our coverage companies, we expect Shoppers Stop to add 0.31 million sq ft (YoY) & decline by 0.01 million sq ft (QoQ) taking the total operational space to 6.16 million sq ft. On account of festive season, the quarter saw launches of new collections under various categories of Titan. Tanishq launched the ‘Subham Collection' of heritage gold jewellery. It also introduced differentiated wedding line and colour stones, ‘Nakashi’. Gold plus introduced a new ‘wedding’ collection, ‘Apsara’ collection and ‘Akriti’ collection of Diamantine jewellery.


Page 62

Exhibit 35: Company specific view (Retail)

Company RemarksBata India In order to sustain stiff competition from MNCs and e-commerce players, Bata has been

continuously striving to improve its product mix. In the current quarter, the companyintroduced various new collections, which are more contemporary and stylish in order totarget the younger generation. Demonetisation led to a decline in revenues for initialweeks. However, with various initiatives undertaken, the company managed to return topre-demonetisation levels. Factoring in the impact of demonetisation, we expect revenuesto grow 2.1% YoY to | 630.7 crore. On the profitability side, we expect the EBITDA marginto decline 130 bps YoY to 11.6% on account of higher advertising expenses and subduedrevenue growth. Consequently, we expect PAT to decline 5.5% YoY to | 42.1 crore

Shoppers Stop

We expect Shoppers Stop’s departmental stores to be impacted on account ofdemonetisation, resulting in a decline in footfalls & impacting LTL sales growth. Theimpact on HyperCity was limited, to a certain extent, as consumers preferred buyinggrocery through plastic money as the unorganised market lacked necessary infrastructure,required to handle non-cash transactions. We expect SSL’s departmental stores &HyperCity to register SSSG growth of 2.5% & 6%, respectively, leading to revenue growthof 8.7% YoY to | 1515.4 crore. Consolidated EBITDA margin is expected to decline 150 bpsto 3.4% owing to 258 bps decline in standalone margin and loss at EBITDA level in theHyperCity format. Owing to a subdued operational performance and loss in HyperCityformat we expect SSL to report a consolidated net loss of | 1.8 crore

Titan Company

Q3FY17 started on a positive note as jewellery segment recorded a strong Dussehra-Diwali season on back of new collection launches & various consumer schemes. However, the momentum in revenue growth was offset by the impact of demonetisation. By the endof November, daily sales recovered to pre-demonetisation levels on account of Titan'spromotional gold exchange scheme and healthy wedding season. We expect revenues togrow 2.6% YoY to | 3514.3 crore owing to a 2.3% YoY revenue growth in the Jewellerysegment to | 2884.1 crore. We expect EBITDA margins to improve marginally by 23 bpsto 9.3% on the back of higher share of studded jewellery. We expect PAT to decline 0.7%YoY to | 223.6 crore



Page 63

Shipping, Offshore, Shipbuilding

Dry bulk provides breather; tanker market remains supportive Baltic Dry Index (BDI) continues to show its seasonal pattern, which reaches its annual peak in October-December and low in January-February. In addition to seasonality, China witnessed restocking of iron ore inventories, on the back of higher steel demand and improved prices in recent months. Subsequently, BDI for the quarter improved 55% YoY to 994 levels compared to 640 levels in Q3FY16. Prevailing oversupply in the bulk market saw slippage of 48% in 2017, which is expected to keep bulk rates much below their breakeven levels. In tandem with BDI, winter demand resulted in a sequential sharp recovery of tanker rates. Average daily rates for Q3FY17 for VLCC, Suezmax were at $37000 and $17400, respectively, compared to $15000 and $11000, respectively compared to previous quarter. However with orderbook of ~12% to be added in 2017, rates are further expected to soften. Headwinds from an increase in crude prices would, to an extent, undo the margin expansion realised by I-direct shipping universe in FY16. With the government’s focus shifting to coastal shipping, Shipping Corporation of India has initiated formation of a subsidiary to provide dedicated services on the same. It has recently pooled vessels for carrying coastal cargo offering service across the ports.

Execution of Sagarmala – Key for shipping ancillaries National Perspective Plan of Sagarmala envisions doubling of port capacity from 1400 million tonnes (MT) to 2500 MT. It envisages developing six new mega ports and increasing draft at existing ports that would increase tonnage carrying capacity at major ports. Developing coastal shipping would need smaller dredgers for which Dredging Corporation (DCI) could be appointed as a nodal agency. Seeking committed business from IWAI would entail a capex for DCI that remains key for its re-rating. However, the recent earnings for Dredging continued to be adversely impacted by ramp down in dredging activities of Kolkata Port (KPOT). A new inland dredger was added in the current quarter, which would accelerate earnings in FY17. However, revenues for the current quarter are expected to maintain a quarterly run rate of | 164 crore.

Order book crucial for Reliance Defence re-rating Higher execution for the existing order book is expected to keep the YoY earning growth rates elevated for Reliance Defence. The anticipation of big ticket defence orders is expected to be awarded in FY17. The new management of Reliance Defence is vying for newer contracts in the defence space, which would mark FY17 as a turnaround year for the company. We expect Reliance Defence revenues to approximately double to | 93 crore (vs. | 50 crore in Q3FY16) with an expected EBITDA of | 7 crore.

Exhibit 36: Estimates for Q3FY17E: (Shipping) Revenue EBITDA PATQ3FY17E YoY QoQ Q3FY17E YoY QoQ Q3FY17E YoY QoQ

GE Shipping 833.7 -12.0 2.5 429.4 -15.6 -1.9 182.4 -33.6 -32.1Dredging Corporation 164.6 2.0 2.1 32.6 -6.6 193.3 7.0 -12.7 LPReliance Def. & Eng. 93.0 84.1 -5.3 7.4 LP -35.2 -130.4 NA NASCI 838.1 -15.1 10.5 167.6 -26.0 26.0 21.6 -63.8 LPTotal 1,929.4 -10.1 5.3 637.0 -1.0 7.4 80.5 65 -32




2147

2108

1850

1832 19

29

165017001750180018501900195020002050210021502200

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0.05.010.015.020.025.030.035.040.0

(%)


Dry Bulk Indices

0

1000

2000

3000

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

Inde

x

BDI BPI

Source : Bloomberg, ICICIdirect.com Research Tanker Indices

200

600

1000

1400

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

Inde

x

Baltic clean tanker index Baltic dirty tanker index

Source : Bloomberg, ICICIdirect.com Research

Research Analyst

Bharat Chhoda [email protected]

Ankit Panchmatia [email protected]


Page 64

Exhibit 37: Company specific view Company RemarksGE Shipping Subdued tanker freight rates over 2016, weighed down by a large number of new

deliveries, witnessed a sharp recovery towards year-end due to winter demand.However, on a YoY basis, rates are still significantly low. The softness in tankerwould be slightly offset by a strengthening in Baltic Dry Index (BDI), which led tofirmness in dry bulk prices. Following the same, revenues are expected to de-grow12% YoY to | 833 crore. Higher crude prices would lead to moderation in EBITDAmargins by 200 bps to 51.5% with absolute EBITDA of | 429 crore. Increasedinterest costs due to NCDs would lead to a higher decline in PAT which is expectedat | 180 crore

SCI Given the weakness in the container market, coupled with lower utilisation ofoffshore vessels, revenues for Q3FY17 are expected de-grow 15% to | 838 crore.The impact of an increase in crude prices would take a toll on EBITDA margins,which are expected to decline 300 bps with absolute EBITDA of | 167.6 crore. PATexcluding extraordinary profit/loss is expected at | 22 crore

Reliance Defence & Engineering

The existing order book of | 2500 crore would shore up the earnings for the currentquarter. A ramp up in execution would lead to topline growth of >50% YoY to | 93crore. On the back of better execution coupled with controlled opex, EBITDA isexpected at a profit of | 7 crore. Higher interest expenses would continue to dentPAT, which is expected at a loss of | 130 crore

Dredging Corp Addition of an inland dredger is expected to contribute in Q4FY17. However, costsrelated to the same are expected to dent the profitability for the current quarter.Keeping contractual revenues intact, topline for Q3FY17 is expected to maintain aquarterly run rate of | 165 crore. Increase in crude prices, coupled with sparescosts would result in a decline in EBITDA margins by 200 bps to 19.8% withabsolute EBITDA of | 32.6 crore. As against the loss of | 14 crore in Q2FY17 due tohigher repairs, PAT for Q3FY17 is expected at a profit of | 7 crore



Page 65

Telecom

Double whammy of Jio Launch & demonetisation in Q3FY17 Q3FY17 was marked by the dual impact of Jio launch and demonetisation impacting the fortunes of both voice and data revenue growth for telecom players. In response to Jio’s free voice offer, incumbent operators also came out with free voice and bundled offering to keep their customer base intact. Jio’s decision of extending their free usage period till March, 2017 also played an important role in pushing incumbents to follow suit in terms of pricing. Apart from data tariff impact owing to competition, data volumes would also be impacted in the quarter as customers cut down on their data consumption, which is discretionary in nature, owing to the demonetisation impact.

Voice realisations slide on “bundled offerings” While the launch of Jio did impact the voice segment, total volumes remained firm owing to huge number of incoming calls from Jio to incumbents' network. Furthermore, operators also came out with free voice offerings in the form of “bundled offerings”, which is likely to impact voice realisations. We expect 0.5% and 0.7% QoQ growth in total voice minutes to 315.0 and 197.0 billion for Airtel & Idea, respectively. The voice APRM would witness a decline with Idea & Airtel expected to post 5% QoQ decline to 30.8 paisa and 31.2 paisa, respectively. As a result, we expect Airtel and Idea to post a voice revenue decline of 5.0% and 4.5% QoQ to | 9700.8 crore and | 6140.4 crore, respectively.

Data also faces “discretionary” nature challenge The full impact of Jio’s launch and subsequent data tariff cuts would be seen in Q3FY17. We expect data tariffs to decline 9% and 8.0% QoQ for Airtel and Idea to 18.3 and 17.1 paisa, respectively. However, the data segment also witnessed lower uptake during the quarter as customers lowered their data consumption due to the discretionary nature of data. Consequently, Airtel & Idea are expected to post data volume growth of 6.1% & 4.5% QoQ growth to 189.0 & 112.2 billion MB, respectively. Consequently, data revenues may decline 3.5% QoQ and 3.9% QoQ to | 3453 crore and | 1923 crore for Airtel and Idea, respectively.

Margin pressure to continue during quarter... Margins are expected to remain under pressure with lower operating leverage during the quarter. Idea is expected to post margins of 27.5%, down 300 bps QoQ. Consolidated margins for Airtel are seen at 36.4%, down 190 bps QoQ, impacted by lower operating leverage in the Indian mobility business and cross currency impact.

Exhibit 38: Estimates for Q3FY17E (Telecom) (| Crore)


Bharti Airtel 24,157.2 0.2 -2.1 8,800.8 4.1 -7.0 971.9 -13.0 -33.5Bharti Infratel 3,351.5 7.9 1.8 1,480.0 8.6 2.1 720.2 45.5 -6.9Idea Cellular 8,920.1 -1.0 -4.1 2,450.0 -21.7 -13.7 -284.4 PL PLTata Comm 4,836.1 -5.2 7.3 715.7 -5.8 8.0 45.4 107.2 13.3Total 41,265.0 -0.1 -1.2 13,446.5 -1.9 -6.7 1,453.0 -39.4 -38.6


Source: Company, ICICIdirect.com research

Topline & Profitability (Coverage Universe)

4131

8

4279

4

4330

2

4177

3

4126

5

05000

100001500020000250003000035000400004500050000

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

Q3FY

17E

| Cr

ore

0510152025303540

(%)


MOU trend

393387

379

368360

405415 414

406 401

350

360

370

380

390

400

410

420


Billio

n M

inut

es

Airtel Idea

Voice ARPM Trend

31.6

33.1

33.833.3

33.5

32.4

30.8

33.6

32.8

31.2

29

30

31

32

33

34


Voic

e AR

PM (i

n pa

isa)

Airtel Idea

Top Pick of the sector

Bharti Infratel

Research Analysts

Bhupendra Tiwary [email protected]

Sneha Agarwal sneha. [email protected]


Page 66

Exhibit 39: Company specific view (Telecom) Company RemarksBharti Airtel Demonetisation and Jio launch are likely to hit Airtel in Q3FY17. On the demonetisation

front, the major impact was on data, which is discretionary in nature. Similarly, the Jiolaunch had an impact both on the data and voice fronts, where Bharti followed suit onreducing prices. Overall voice volumes are expected to remain flattish sequentially(0.5% QoQ) at 315 billion minutes owing to huge number of incoming calls from Jio toAirtel's network. The pressure on voice realisations would be seen owing to freeminutes the company has offered in bundled offerings. Voice ARPM is expected todecline 5% QoQ to 30.8 paisa. Consequently, we expect voice revenues to fall 5.0%QoQ to | 9700.8 crore in the India mobility business. Data realisations would continueto slide and we expect data ARMB to decline 9% QoQ to 18.3 paisa. With flattish datausage owing to demonetisation, we expect data revenues to decline 3.5% QoQ to |3453 crore. EBITDA margins are seen at 38.8%, (down ~300 bps QoQ) in Indianoperation. Africa revenues are expected at | 5452.3 crore vs. | 5272.6 crore inQ2FY17. Africa EBITDA margin is expected at 21.5%, vs. 23% in Q2FY17

Bharti Infratel The tenancy addition is expected to witness a revival in Q3FY17 as Bharti Infratel islikely to witness incremental demand emanating from the Jio launch. Furthermore, thecompany is not expected to face the impact of exits, which had brought the tenancyaddition lower in H1FY17. We expect net tenancy addition of 5687 & average tenancyratio (at the consolidated level) is expected at 2.22x (up 0.8% QoQ) with total co-locations reaching 202,088. The new Master Service Agreement (MSA) and theimpact of rental freeze for existing clients would, however, continue to weigh on rentalrealisations growth. Rental revenues are expected at | 2066.4 crore (up 1.6% QoQ).We expect energy revenue growth of 2.1% QoQ to | 1243.1 crore. Energy margins areexpected at 6% during the quarter, given higher diesel realisations. EBITDA marginsare seen at 44.2%, up 20 bps QoQ, largely aided by higher energy margins, with coremargins (ex-energy) flattish at 66.4%. PAT is seen at | 720.2 crore for the quarter. Wehave accounted for Q3FY17E based on proportionate consolidation of Indus (earliermethod)

Idea Cellular The quarter witnessed the full impact of Jio's launch as well as unexpected event inthe form of demonetisation. Voice volumes remained firm (albeit muted despite aseasonally strong quarter) owing to huge number of incoming calls from the Jionetwork to Idea. The tariff pressure, however, was seen across the data and voicesegments. Voice volumes are expected at 197 billion minutes (up 0.7% QoQ). Weexpect voice ARPMs to decline 5.0% QoQ to 31.2 paisa. We expect overall voicerevenue decline of 4.5% QoQ to | 6140.4 crore. Owing to Jio launch and pricingpressure, data tariffs are expected to decline 8.0% QoQ to 17.1 paisa. The tempo ofdata revenue growth has also been impacted due to lower data usage owing todemonetisation. Hence, we expect 3.9% QoQ data revenue de-growth to | 1923 crore.The negative operating leverage owing to both data and voice revenues decline wouldimpact margins. Hence, we expect margins to contract 300 bps QoQ to 27.5%

Tata Communication

Voice volumes are expected to decline 2% YoY to 10.2 billion minutes whilerealisations are expected to decline 12% YoY leading to voice revenue decline of 13.7%YoY to | 1710.3 crore. Voice margins would also continue to reel under pressure andare expected at 6%, down 60 bps QoQ. The data segment business would also witnessweakness owing to pain in subsidiaries’ Transformation Services TCTS (company isfocussing on skill building and has also undertaken lower margin Indian deals) andpayment solutions TCPSL (ATM business impacted by demonetisation). Consequently,we expect the data segment to post revenues of | 2723.1 crore, up 1% YoY. Datamargins are expected to be down 250 bps QoQ to 20% owing to exclusion of highmargin data centre business & muted topline. Overall margins are expected at 14.8%.Our financials are inclusive of Neotel and global data centre, which the companyreports as discontinued operations, and thus not comparable on QoQ. The company isalso expected to post gains of ~US$250 million on sale of Indian data centre business,which we have not accounted for.



Page 67

Others Exhibit 40: Estimates for Q2FY17E (others) (| Crore)


Cox & Kings 559.2 9.2 -5.2 141.1 27.1 -21.9 52.7 -50.8 92.6CARE 70.3 11.6 -13.3 44.8 11.1 -25.2 32.0 19.5 -25.9Jet Airways 5,799.3 1.7 -1.1 463.9 -50.1 -9.5 34.9 -92.5 -58.8Mah. Seamless 320.5 68.1 5.1 45.7 NM -23.1 28.9 NM -25.5Mcleod Russel 489.4 -2.4 12.4 111.9 42.0 -32.7 91.4 60.4 -30.8Navneet Publications 130.0 14.8 -24.2 22.4 75.3 -25.0 12.1 78.5 -35.0Rallis India 326.5 5.2 -40.5 43.2 22.9 -58.5 22.1 8.2 -66.8Solar Industries 439.7 14.3 33.9 84.9 11.1 29.5 46.8 14.0 26.8Swaraj Engines 144.4 36.7 -19.3 21.7 70.2 -25.7 14.8 77.0 -23.3TTK Prestige 509.6 13.8 1.7 61.7 6.1 -0.7 38.2 2.8 6.1Talwalkars 64.7 19.8 -38.9 24.6 13.9 -55.4 8.4 55.9 -71.0United Spirits 2,254.1 -14.6 10.6 203.0 -24.6 -2.3 58.3 42.5 -29.3United Breweries 955.4 -7.3 -3.5 154.0 -16.0 27.1 27.1 -62.5 -58.4VST Tillers & Tractors 134.6 -11.3 -23.0 18.8 -30.0 -28.0 12.2 -31.2 -30.3Wonderla Holidays 55.7 10.5 10.9 13.1 -28.1 28.4 6.6 -46.0 123.8Total 12,253.3 0.0 -0.9 1,454.7 -22.4 -13.9 486.6 -47.4 -30.6

Change (%)Company



Exhibit 41: Company specific view (Others) Company RemarksCox & Kings Growth may come in mainly from the leisure segment during the quarter. Standalone

revenues may grow ~10% YoY to |137.5 crore due to a pick-up in demand. Leisureinternational business is expected to grow 8% YoY to |214.9 crore. On the otherhand, education & Meininger revenue growth may decline by 55.0% QoQ and 25.7%QoQ due to lean season in Europe. Cost control measures may help improve EBITDAmargins by 355 bps YoY to 25.2% . However, net profit margins are likely to declinefrom 20.9% in Q3FY16 to 9.4% in Q3FY17E as last year the company reportedexceptional gain of | 168 crore. Adverse movement of currencies in Europe pose arisk to profitability growth for the quarter

CARE On a YoY basis, traction in rating revenue is expected at 11.6% to | 70.3 crore. This is on the lower side compared to traction witnessed in earlier years during Q3. This isdue to a continuous slowdown in bank loans and SME rating segment. Unlike Q2,surveillance fee income is not that strong in Q3. EBITDA margin of 63.7% is expectedwhile PAT of | 32 crore is factored in (up 19.5% YoY, down 26% YoY).Other incomemay come slightly higher YoY owing to profit booked on maturity of certaininvestments made for longer tenure

Jet Airways Jet's lower domestic passenger traffic growth (flat vs. industry growth of 22%)reflects the increase in competition intensity whereas international passenger trafficis expected to grow 5.6% YoY to 18.9 lakh. Domestic market share may come down200 bps QoQ to 17%, lowest over the past five years. Adjusting for lower realisations,we expect the company to report revenue growth of 1.7% YoY during the quarter.Rising ATF prices (up 7.6% YoY, down 2.3% QoQ) will put pressure on margins

Maharashtra Seamless

For Q3FY17, Maharashtra Seamless is likely to report a total pipes sales volume of61500 tonne (seamless pipes: 44000 tonne and ERW: 17500 tonne). The topline isexpected to come in at | 320.5 crore. However, on account of an increase in steelprices (key raw material) we expect the EBITDA margin to decline 523 bps to 14.2%.The company is expected to report a PAT of | 28.9 crore.



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Exhibit 42: Company specific view (Others) Company RemarksMcLeod Russel McLeod Russel is expected to report another quarter of subdued numbers with 2.5%

revenue de-growth mainly on account of declining prices and flat volumes. Weexpect 75% domestic volumes and 25% export volumes for the quarter. Averagerealisation for the quarter is likely to be | 175/kg. With the continuous increase inlabour cost, operating margins are expected to remain under pressure.

Navneet Education

Being in a low ticket size business, where the average ticket size is around | 40-50,the impact of demonetisation on Navneet was limited. Q3FY16 was a low base yearon account of absence of government orders & scrapping of scholarship programmesfor FY16. On a low base, we expect the publication segment to grow 12.4% while thestationery segment is expected to grow 10.4% YoY to | 80.8 crore and | 44.2 crore,respectively. Overall, we expect revenues to grow 14.8% YoY to | 130.0 crore. Weexpect the EBITDA margin to recover and improve 594 bps YoY to 17.2% owing tohigher proportion of exports in stationery revenue & better operating leverage.EBITDA is expected to increase to | 22.4 crore vs. | 12.8 crore YoY. Consequently,we expect PAT to increase to | 12.1 crore vs. | 6.8 crore YoY

Rallis India Rallis India is predominantly a Kharif strong company, which makes Q3 a seasonallysoft quarter. Hence, its performance is not comparable QoQ. However, strong sowingactivity during the ongoing Rabi season with sowing at 58.3 million hectares, up 7%YoY bodes well for the company. In Q3FY17, in the agro-chemical segment we expectsales to grow 7.1% YoY to | 301 crore (lower base). On the Metahelix front, weexpect 12.0% YoY de-growth in sales to | 25 crore. At the consolidated level, weexpect sales to grow 5.2% YoY to | 327 crore while EBITDA margins are expected at13.2% up 190 bps YoY. Consequent EBITDA & PAT is expected at | 43 crore & | 22crore respectively

Solar Industries We expect Solar Industries to post moderate revenue growth of 14.3% YoY to | 439.7crore. This is due to weak volume growth of 11.2% in bulk and 4.4% in the cartridgesegment, respectively. Revenues from overseas markets are likely to grow 22% YoYprimarily on account of low base of Q3FY16, stable Naira (Nigeria), Kwacha (Zambia)and commencement of South African operations from this quarter. EBITDA marginsare likely to remain stable at 19.3%. PAT is likely to increase by 14% YoY to | 46.8crore

Swaraj Engines Swaraj Engines is expected to report healthy performance in Q3FY17 on the back ofrobust tractor sales at parent group M&M (up 21% YoY). Domestic tractor industrywitnessed growth in December 2016 thereby allaying fears of demand destructionpost demonetisation. Engine sales volumes are expected at 17940, up 40% YoY,which is also supported by low base (Q3FY16 performance was weak). Consequentnet sales are expected at | 143.6 crore, up 37% YoY. EBITDA margins are expectedat 15.0%, up 300 bps (low base). EBITDA & PAT for the quarter are expected at |21.7 crore and | 14.8 crore (up 77%), respectively

TTK Prestige TTK witnessed strong revenue growth during the festive season. However,demonetisation impacted growth for November. We expect standalone revenues togrow 5.5% YoY and consolidated revenues (including the Horwood acquisition) toincrease 13.8% YoY to | 509.6 crore. We expect 9% growth in appliances segmentand 3% growth in the cooker and cookware segment. On account of higher focus onincreasing market share and negative operating leverage, we expect EBITDA marginsto decline 90 bps to 12.1% with EBITDA growth of 6.1% to | 61.7 crore.Consequently, net profit is expected to grow marginally by 2.8% YoY to | 38.2 crore

Talwalkars Better Value Fitness

Addition of new gyms, improvement in same store sales and increasing share ofvalue added services & personal training are expected to drive revenues (up 22.0%YoY) in Q3FY17E. However, the EBITDA margin is expected to decline 272 bps mainlydue to an increase in marketing expenses. Net profit in the quarter is expected toincrease from | 5.4 crore to | 8.4 crore led by lower depreciation expenses



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Exhibit 43: Company specific view (Others) Company RemarksUnited Spirits Liquor companies are expected to feel the pinch of demonetisation as consumers

bought smaller packs of liquor and/or switched to cheaper brands negativelyimpacting volume growth for the industry. Q3 being a festive quarter is a high growthperiod for liquor companies. Hence, the impact of demonetisation is expected to behigher as revenues of Indian Made Foreign Liquor (IMFL) companies were down ~20-25% during November. For United Spirits, we expect volumes to decline 10% YoYin Q3FY17 to 23 million cases. We expect the popular segment to be negativelyimpacted more than the prestige and above segment due to shifting of consumer to

United Breweries

Though the festive season in October had seen a recovery in volumes,demonetisation impacted volume growth in November. Metro cities were lessimpacted as consumers and restaurants/bars shifted to use of credit/debit cards andother cashless methods of payment. However, the decline was more pronounced inTier II and Tier II cities due to the cash crunch. We expect United Breweries’ volumesto decline 5% YoY to 30.2 million cases leading revenues to decline 8% to | 1070crore. Higher input cost (sugar, barley) would lead to a 143 bps decline in EBITDAmargin to 14.4% with EBITDA at | 154 crore. Consequently, PAT is expected todecline 27% YoY to | 52.8 crore

VST Tillers & Tractors

VST Tillers and Tractors is expected to report muted performance in Q3FY17 largelytracking de-growth in power tiller segment amid healthy growth in the tractorsegment. In Q3FY17, power tillers sales volume is expected at 3919 units (down 38%YoY) while tractor sales volume is expected at 2302 units (up 24% YoY). Realisationof farm equipment is expected to be largely stable. Consequent sales is expected at |135 crore (down 11.0% YoY). EBITDA margins, however, are expected to taper downby 370 bps to 14.0% due to increasing competitive intensity. Consequent EBITDA &PAT is expected at | 18.8 & | 12.2 (down 31% YoY) crore, respectively

Wonderla Holidays

Wonderla is expected to report 10.5% YoY growth in revenues to | 55.7 crore vs.24.2% YoY growth in revenues in previous two quarters mainly due to adverse impactof demonetisation. The growth in revenues is mainly due to addition of Hyderabadpark. Revenues at Bengaluru and Kochi are expected to fall 10.0% YoY each led bydecline in footfall and realisation. Further, higher operating cost (led by opening ofnew park) is expected to dent EBITDA margins (down 1261 bps YoY) and PATmargins (down from 24.3% in Q3FY16 to 11.9% in Q3FY17E).


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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 1,741 2,110 Buy 2,146 55.0 66.8 78.9 33.2 27.3 23.1 21.8 19.0 15.5 30.7 40.7 41.9 22.5 25.0 26.5Vardhman Textiles Ltd 1,097 1,190 Buy 6,976 92.6 105.9 125.9 11.9 10.4 8.8 6.7 6.0 4.9 11.7 15.3 17.2 15.0 15.0 15.4Page Industries 14,100 12,000 Sell 15,727 208.5 257.5 322.2 62.8 50.9 40.7 38.9 32.5 26.0 61.0 57.6 59.4 46.0 46.0 46.5Arvind Limited 364 480 Buy 9,395 14.1 16.8 22.2 25.8 21.7 16.4 12.1 10.2 8.9 13.8 15.4 16.4 12.5 12.8 14.8Rupa 249 UR UR 1,981 8.3 9.7 11.2 31.5 27.0 23.3 16.8 15.1 13.6 18.3 16.4 16.6 17.9 17.7 17.9

RoA (%)AutoAmara Raja Batteries 923 1,025 Hold 15,766 28.6 31.2 39.4 32.2 29.5 23.3 19.2 17.1 13.4 32.4 28.5 30.6 23.2 21.0 21.9Apollo Tyres 190 225 Buy 9,684 21.5 20.7 22.5 8.7 8.8 8.1 5.2 6.1 5.8 19.9 15.6 15.0 17.1 15.6 14.7Ashok Leyland 85 105 Buy 24,062 2.5 5.9 6.7 32.7 14.1 12.4 11.1 8.4 6.9 22.8 27.0 28.0 17.4 24.1 23.2Bajaj Auto 2,731 3,300 Buy 79,020 126.2 153.0 187.3 21.4 17.8 14.5 16.0 13.8 11.0 42.2 41.1 42.1 29.7 30.5 31.2Balkrishna Industries 1,101 1,400 Buy 10,642 58.7 77.7 93.2 18.7 15.6 13.0 10.5 9.9 7.8 20.4 23.5 26.4 20.3 20.4 20.9Bharat Forge 920 1,000 Buy 21,421 28.0 29.6 44.5 33.0 29.5 19.6 16.1 15.4 11.5 18.1 16.8 22.1 18.4 16.9 21.6Bosch 21,195 24,000 Buy 64,690 410.2 599.5 600.2 50.4 34.5 34.4 32.8 33.1 23.7 22.5 29.3 29.4 15.1 21.1 20.4Mahindra CIE 191 225 Buy 7,218 2.3 6.2 10.6 80.2 29.9 17.4 18.5 12.0 8.7 7.4 8.5 12.3 7.5 7.3 11.0Eicher Motors 22,665 28,000 Buy 61,657 473.1 653.0 854.2 47.1 37.4 28.6 24.1 20.7 15.8 41.4 42.1 42.3 36.9 37.1 35.4Exide Industries 186 240 Buy 15,810 7.3 8.5 10.3 25.0 21.7 17.8 14.5 12.5 10.1 19.4 20.4 23.0 14.0 14.7 16.1Hero Motocorp 3,091 3,675 Buy 61,716 156.9 188.2 206.4 19.6 17.0 15.5 13.0 11.6 10.4 53.8 52.5 48.9 39.4 38.7 35.8JK Tyre & Industries 117 145 Buy 2,664 21.0 17.7 26.9 5.6 6.6 4.3 4.5 4.4 3.6 20.1 15.9 17.1 29.1 22.6 23.1M&M 1,227 1,470 Buy 76,177 53.4 64.7 75.9 22.7 18.7 15.9 15.0 12.5 10.1 17.2 18.9 20.4 14.2 15.2 16.0Maruti Suzuki 5,603 6,765 Buy 169,240 151.3 260.7 307.5 36.7 19.6 16.6 18.6 13.8 11.2 24.0 31.7 31.0 16.9 23.6 22.8Motherson Sumi 334 310 Hold 46,845 9.6 12.8 16.0 33.9 24.1 19.3 13.7 10.3 8.3 22.2 28.7 33.3 30.5 30.9 30.4Wabco 5,241 6,200 Buy 9,942 107.7 138.8 167.4 48.7 36.3 30.1 32.6 23.8 19.4 25.5 27.1 27.2 19.4 20.3 20.0Tata Motors 502 595 Buy 161,190 37.2 35.5 61.3 11.7 12.2 7.1 3.7 4.0 2.8 17.3 13.2 18.7 17.4 11.4 17.0Escorts 331 360 Hold 4,061 7.5 14.0 24.7 43.2 24.9 14.2 26.6 14.3 8.9 7.3 12.6 17.5 5.6 8.9 13.1

RoA (%)AviationJet Airways 372 490 Buy 4,223 106.7 68.8 81.1 3.4 5.4 4.5 5.1 6.3 5.7 45.4 38.3 43.1 NA NA NA

EV/EBITDA (x)P/E (x) RoCE (%) RoE (%)EPS (Rs)Market Cap

Sector / Company CMP Target Price

Rating

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

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Valuation Matrix

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FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EBuilding MaterialsCentury Plyboard 177 255 Buy 3,921 7.6 8.4 10.5 23.6 21.4 17.0 15.6 14.6 11.5 25.1 20.8 22.4 31.8 28.6 29.1Kajaria Ceramics 500 655 Hold 7,946 14.4 18.4 21.9 34.3 26.8 22.6 17.9 14.9 12.8 27.5 29.7 30.3 24.8 25.7 24.8Somany Ceramics 482 680 Hold 2,043 15.3 21.6 26.3 31.6 22.3 18.3 16.1 12.8 10.7 15.5 17.6 19.0 15.1 18.1 18.6Greenply Industries 251 313 Hold 3,082 10.8 11.9 13.7 23.1 21.1 18.2 13.1 11.9 11.5 22.8 20.4 16.9 21.6 18.2 17.6

RoA (%)Capital GoodsVA Tech Wabag 480 640 Buy 2,620 17.0 30.3 36.5 28.2 15.8 13.2 11.3 7.4 6.1 16.9 21.1 21.9 9.3 14.6 15.3SKF Bearing 1,278 1,585 Buy 6,742 48.8 46.0 50.3 26.4 27.9 25.6 16.7 17.1 15.4 20.2 21.8 21.4 16.4 14.0 13.9Timken India 622 614 Hold 4,227 13.5 16.3 18.2 46.6 38.7 34.6 26.2 22.0 19.5 27.9 28.0 27.6 18.2 18.2 17.9NRB Bearing 111 120 Hold 1,075 4.3 5.1 6.0 24.9 21.3 17.9 11.7 11.4 10.0 14.1 15.0 16.5 15.1 16.2 17.3Grindwell Norton 325 390 Buy 3,598 9.4 11.2 12.4 34.4 29.1 26.2 19.2 16.8 15.3 22.7 25.1 26.6 15.5 17.6 18.7Bharat Heavy Electrical Limited 128 120 Hold 31,256 -4.4 3.1 8.1 NM 38.5 14.9 NM 19.6 7.9 -4.8 3.1 7.5 -3.3 2.4 5.8Thermax 816 815 Hold 9,729 29.6 23.3 27.6 26.8 34.2 28.9 23.1 25.3 21.1 18.8 14.7 15.7 14.2 10.3 11.0KEC International 146 162 Buy 3,741 9.0 11.1 13.0 16.2 13.2 11.2 7.4 6.3 5.9 15.5 16.2 17.0 14.3 15.3 15.5Greaves Cotton 123 170 Buy 3,004 6.6 7.7 9.5 18.6 16.0 13.0 9.7 9.3 7.7 31.7 29.3 32.4 20.4 21.0 23.0AIA Engineering 1,289 1,400 Hold 12,153 44.3 44.9 51.7 29.1 28.7 24.9 18.4 18.2 15.8 23.3 21.2 21.4 17.5 15.7 15.9Larsen & Toubro 1,394 1,635 Buy 130,034 51.1 55.9 68.4 27.0 24.7 20.2 21.0 18.9 15.5 14.6 15.0 16.3 12.5 12.6 14.1Bharat Electronics Ltd 1,424 1,600 Buy 31,802 57.8 65.0 71.5 24.9 22.2 20.1 16.1 15.2 12.7 21.4 26.1 25.3 15.4 18.8 18.4

RoA (%)CementIndia cements 126 175 Buy 3,869 4.3 5.4 6.7 28.1 22.5 18.2 8.6 8.5 7.4 8.4 8.6 9.1 4.1 4.4 5.2Ambuja 214 280 Buy 42,533 5.2 5.4 6.6 40.6 39.1 32.0 25.8 24.3 18.6 12.2 15.1 18.0 7.8 10.2 11.9Ultratech 3,350 4,600 Buy 91,960 79.3 94.2 112.1 41.5 35.0 29.4 21.5 18.6 16.1 11.3 13.1 14.8 10.5 10.9 12.2Heidelberg cement 111 124 Hold 2,518 1.7 2.6 3.5 66.5 43.9 31.9 17.1 14.0 12.1 7.9 9.3 11.0 4.3 6.1 7.8JK Lakshmi 361 550 Buy 4,248 1.1 2.2 7.1 334.3 162.3 51.1 21.7 17.8 12.3 5.4 6.7 9.8 1.8 2.0 6.0Jk cement 729 990 Hold 5,094 15.4 20.4 31.5 47.7 36.0 23.3 15.0 13.0 11.9 8.9 10.2 11.6 6.3 8.4 11.0Mangalam cement 279 365 Buy 746 -8.3 4.1 16.0 NM 69.6 18.0 32.7 13.5 8.4 1.6 6.0 11.8 -4.6 2.3 8.2Shree cement 14,157 18,500 Hold 49,319 164.5 363.1 554.6 86.0 39.0 25.5 37.4 21.5 14.3 8.3 17.4 23.4 9.1 17.0 20.8ACC 1,348 1,760 Buy 25,317 31.3 33.3 48.7 42.2 39.6 27.1 20.1 19.7 15.9 11.2 10.2 13.9 8.9 7.3 10.0Star Ferro and Cement 100 115 Hold 2,217 4.1 2.6 4.6 24.0 39.0 21.8 7.4 8.7 6.6 12.2 9.7 13.2 12.3 7.2 11.8

RoA (%)ConstructionNBCC 252 281 Buy 15,117 5.1 5.1 8.0 49.0 49.5 31.3 39.8 41.1 23.7 31.1 28.5 39.3 20.7 18.5 25.3NCC Limited 84 93 Buy 4,653 4.0 3.8 5.5 21.5 22.4 15.6 8.7 8.6 7.5 15.5 13.6 14.4 6.5 6.0 8.0Simplex Infrastructure 287 455 Buy 1,420 13.4 20.0 32.2 21.3 14.3 8.9 7.4 6.1 5.6 10.6 11.3 12.7 4.3 6.0 8.8

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

Rating Market Cap

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

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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EConsumer DiscretioneryHavells India 364 416 Hold 22,742 11.5 8.5 10.7 29.5 39.8 31.8 25.8 25.6 19.8 26.6 25.1 27.7 21.1 18.2 20.0Voltas Ltd 338 355 Buy 11,177 11.7 10.0 14.0 26.6 31.1 22.1 22.1 25.5 18.2 19.4 18.1 22.2 14.9 13.2 16.9Asian Paints Ltd 927 1,275 Buy 88,961 18.8 20.2 23.4 50.1 46.5 40.2 32.0 31.8 28.1 42.1 37.1 38.9 32.1 30.1 32.1Kansai Nerolac 339 415 Buy 18,294 16.7 7.9 9.3 20.4 43.2 36.5 30.8 29.3 25.1 22.4 23.1 22.8 15.8 16.1 16.5Bajaj Electricals Ltd 231 216 Hold 2,339 9.6 7.4 11.2 22.6 29.1 19.4 8.9 10.7 9.3 26.6 20.3 22.8 12.8 9.5 13.0Symphony Ltd 1,178 1,530 Buy 8,241 16.9 25.2 35.7 71.9 48.3 34.1 62.2 38.1 26.7 47.5 63.8 68.0 34.3 46.7 49.7Essel Propack Ltd 248 257 Hold 3,888 11.6 12.3 15.1 21.6 20.4 16.5 10.6 10.8 8.7 19.5 18.3 21.9 19.0 16.0 18.7V-Guard Ltd 165 186 Hold 4,992 3.7 4.8 6.1 46.5 36.3 28.6 29.1 24.7 19.7 34.1 33.4 33.8 23.7 24.9 25.0Pidilite Industries 617 775 Buy 31,632 11.4 16.7 18.5 56.3 38.4 34.7 32.7 24.7 22.1 32.8 38.6 37.8 22.5 28.6 27.7Supreme Industries 905 1,011 Buy 11,496 17.3 31.8 39.7 52.2 28.4 22.8 26.2 17.4 13.6 21.7 31.2 35.6 17.2 25.8 27.9

RoA (%)FMCGHindustan Unilever 836 978 Buy 180,966 19.1 20.7 24.2 43.0 39.6 33.9 30.4 28.7 25.4 106.8 208.0 239.6 111.1 181.2 219.5Colgate Palmolive 899 1,042 Hold 24,452 21.2 23.1 27.4 42.3 38.9 32.7 25.8 24.1 20.2 77.6 71.7 74.9 58.7 51.1 52.3Dabur India 278 338 Buy 48,917 7.1 7.6 8.3 38.9 36.6 33.5 32.7 30.9 28.5 31.1 28.4 27.7 30.1 26.8 25.8GSK Consumer Healthcare 5,120 6,765 Buy 21,533 163.3 171.8 195.7 31.0 29.5 25.8 22.2 20.4 18.0 39.4 36.4 36.5 28.1 26.3 26.6ITC 244 277 Buy 296,246 7.7 8.7 9.7 31.8 28.2 25.2 21.2 19.1 17.1 42.2 45.2 49.1 28.7 31.6 34.7Jyothy Laboratories 333 397 Buy 6,051 5.0 10.0 12.3 66.8 33.6 27.2 24.8 19.9 16.9 19.2 18.2 21.4 8.8 16.3 18.9Marico 262 303 Buy 33,850 5.6 6.6 7.9 46.0 39.2 32.6 31.3 27.2 23.5 46.1 47.4 48.0 34.5 35.9 37.2McLeod Russel 143 151 Hold 1,570 3.4 5.9 8.2 41.0 23.6 17.1 12.6 11.1 10.1 6.0 6.0 6.4 1.8 3.0 4.0Nestle India 5,915 7,658 Buy 57,029 58.4 107.8 138.6 100.8 54.6 42.5 34.5 29.3 25.9 29.7 35.1 38.3 32.3 36.2 42.2Tata Global Beverages 125 130 Hold 7,895 5.2 8.0 8.7 24.1 15.6 14.3 11.5 9.0 8.8 7.7 9.5 9.7 5.6 8.4 8.6VST Industries 2,400 2,437 Hold 3,706 99.2 111.4 146.2 24.2 21.5 16.4 15.4 13.9 10.6 59.7 63.1 78.0 41.3 44.2 54.3

RoA (%)HospitalApollo Hospital 1,200 1,440 Buy 16,692 23.8 21.8 31.4 51.2 55.9 38.7 24.5 22.8 19.2 8.2 8.1 10.3 8.9 8.2 10.7

RoA (%)HotelsEIH 97 100 Hold 5,544 2.2 1.7 2.1 45.0 55.8 47.1 14.9 18.4 16.8 7.8 6.2 6.5 5.1 4.1 4.3Indian Hotels 95 145 Buy 9,443 -0.7 0.2 1.2 NM 470.3 84.4 21.2 17.1 16.3 5.1 6.7 7.0 -2.7 0.9 3.6Taj GVK 109 148 Buy 681 0.6 1.5 2.9 189.3 71.9 37.5 15.6 14.6 12.3 6.1 6.1 7.6 1.4 2.7 4.9

Market Cap


Rating


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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EITCyient 495 540 Hold 5,571 29.0 33.8 39.0 17.1 14.6 12.7 11.5 9.4 7.9 20.3 20.8 21.8 17.1 17.7 18.1eClerx Services 1,424 1,360 Sell 5,654 87.9 85.9 97.5 15.9 16.3 14.3 10.7 10.8 9.2 42.7 36.1 35.8 33.5 28.5 27.7Firstsource Solutions 40 47 Buy 2,672 4.0 4.0 4.9 9.3 9.1 7.5 7.3 6.2 4.8 10.9 11.2 12.7 12.7 11.6 12.6HCL Technologies 817 950 Buy 115,320 40.0 58.3 63.8 20.9 14.3 13.1 16.7 9.9 8.6 23.5 31.0 29.9 20.7 25.9 24.6Infosys 972 1,175 Buy 223,183 59.0 62.3 69.1 16.9 16.0 14.4 11.3 10.0 8.7 30.2 29.0 28.9 21.8 20.7 20.6KPIT Technologies 136 150 Hold 2,677 14.1 12.9 14.9 9.3 10.1 8.8 5.6 6.6 5.3 23.7 19.6 20.4 20.4 16.2 16.2MindTree 507 475 Hold 8,509 35.9 26.4 33.8 14.2 19.2 15.1 9.8 10.9 9.4 31.1 23.8 27.3 25.2 17.9 21.3NIIT Technologies 425 450 Hold 2,608 45.8 37.6 45.2 9.4 11.5 9.5 4.7 4.6 4.1 28.6 26.0 25.8 17.6 13.1 14.3Persistent Systems 635 725 Buy 5,080 37.2 38.5 44.5 16.8 16.2 14.1 10.3 8.8 7.1 23.8 22.1 22.3 18.1 16.5 16.7Tata Consultancy Services 2,277 2,600 Buy 448,617 122.9 131.6 144.1 19.3 18.0 16.4 14.9 13.7 12.4 46.2 42.4 39.6 33.1 29.5 27.2Tech Mahindra 469 525 Buy 45,674 31.7 35.0 37.5 15.5 14.0 13.1 10.2 10.0 8.3 25.5 23.9 25.0 21.7 18.8 19.7Wipro Technologies 472 525 Hold 114,652 36.1 31.8 35.0 13.0 14.7 13.4 9.3 9.6 8.0 19.6 16.7 16.5 19.1 15.5 14.6InfoEdge 875 930 Buy 10,599 -20.8 13.6 18.6 NM 65.4 47.8 NM 56.0 37.3 -15.9 9.9 12.8 -21.6 12.5 14.7

RoA (%)LogisticsBlue Dart Express 4,470 6,000 Buy 10,606 81.2 75.3 86.0 54.9 59.3 51.8 28.0 33.9 29.2 39.7 33.7 34.9 46.6 36.3 35.2Great Eastern Shipping 384 330 Hold 5,787 74.9 66.2 62.5 5.1 5.7 6.1 2.8 2.5 2.3 11.5 10.4 9.8 12.6 12.6 11.0Shipping Corporation of India 66 60 Hold 3,070 9.1 3.5 4.9 7.1 18.7 13.4 5.5 9.2 7.9 6.2 2.7 3.2 8.1 2.3 3.1Container Corporation of India 1,178 1,460 Buy 22,968 40.4 41.9 47.4 28.6 27.6 24.4 19.8 20.5 16.3 12.7 12.1 12.7 9.7 9.3 9.8Reliance Defence and Engineering 56 64 Buy 4,137 NA NA NA - - - NM 131.2 50.0 -4.1 -1.3 -0.3 -29.3 -12.7 -11.3Gati Ltd 118 165 Buy 1,041 4.2 4.4 5.0 27.9 26.5 23.3 11.1 9.3 8.0 9.1 9.8 10.7 6.5 6.6 7.1Gujarat Pipavav Port 135 165 Hold 6,519 5.4 4.5 5.0 24.4 29.5 26.2 15.2 16.0 14.0 14.9 11.1 52.8 23.3 13.1 9.3Dredging Corporation of India 435 400 Hold 1,218 28.5 9.7 26.7 14.7 43.0 15.7 10.8 14.7 11.0 2.9 1.5 2.7 5.2 1.6 4.1

RoA (%)MediaSun TV Limited 533 560 Buy 21,007 23.2 26.3 31.1 22.6 19.9 16.8 10.9 10.0 8.5 36.1 38.7 42.6 24.9 27.0 29.5DB Corp Ltd 372 455 Buy 6,839 16.1 20.4 24.3 23.1 18.3 15.3 12.8 10.0 8.3 29.9 30.8 31.8 22.0 22.9 23.4Dish TV Limited 87 90 Hold 9,247 6.5 2.0 3.1 13.2 43.9 27.3 9.6 9.2 7.5 31.1 29.7 39.8 181.9 35.4 36.3Entertainment Network Limited 768 790 Hold 3,659 21.0 13.3 22.5 37.2 58.5 34.6 23.8 27.1 17.1 14.5 11.1 16.3 13.0 7.7 11.6Eros International Media Limited 169 190 Buy 1,588 22.9 19.4 23.7 7.5 8.8 7.2 5.3 8.3 5.9 13.5 9.9 12.9 12.1 9.8 10.7HT Media Limited 76 80 Hold 1,757 7.2 5.3 6.4 10.6 14.4 12.0 6.7 5.8 4.4 10.7 10.8 11.3 8.2 5.7 6.4Inox Leisure Ltd 229 270 Hold 2,213 8.4 5.5 8.3 27.5 42.5 27.9 12.2 13.7 10.5 11.1 8.8 11.6 10.9 6.2 8.7PVR Limited 1,184 1,375 Buy 5,534 25.4 19.1 24.9 46.7 62.1 47.8 17.5 17.4 14.2 15.6 12.9 15.1 14.3 9.5 10.9Zee Entertainment Enterprises Ltd 468 583 Buy 44,906 10.7 11.5 17.0 43.1 40.0 27.1 28.2 23.0 18.0 25.9 24.7 28.7 16.8 15.3 19.0TV Today Network Limited 284 335 Buy 1,691 15.8 17.9 21.9 18.0 15.9 13.0 10.5 8.7 7.0 27.6 26.3 27.7 17.7 17.4 18.2


Rating Market Cap

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

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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EMetals, Mining & PipesTata Steel 424 425 Hold 41,136 -23.1 10.5 41.6 NM 38.6 9.8 15.1 8.5 5.9 5.3 6.5 10.2 -7.3 3.3 12.1SAIL 52 56 Hold 21,642 -10.0 -1.3 5.4 NM NM 9.3 NM 15.1 6.2 -7.9 1.5 7.3 -10.5 -1.5 5.8JSW Steel 176 151 Hold 42,628 5.7 14.6 16.0 28.5 11.2 10.2 6.9 4.0 4.1 4.7 13.7 13.5 6.3 17.4 18.7NMDC 137 125 Hold 43,472 7.6 11.0 14.0 17.6 12.2 9.6 12.5 11.7 9.2 15.0 20.9 23.0 10.1 14.4 16.6Hindalco 163 165 Hold 33,658 1.3 12.3 16.0 124.7 12.9 10.0 10.1 7.5 6.6 4.3 6.6 8.4 1.1 6.2 7.5Vedanta Ltd 232 205 Hold 68,870 7.3 12.4 16.1 29.8 17.5 13.5 9.4 7.5 6.5 6.5 9.2 11.0 4.8 7.9 9.6Hindustan Zinc 265 250 Hold 112,098 19.3 20.2 22.7 13.0 12.5 11.0 10.7 8.6 7.0 21.6 23.3 23.9 21.8 20.3 20.5Graphite India 78 80 Hold 1,531 3.1 4.5 6.0 23.8 16.7 12.5 9.6 10.6 6.0 4.4 3.6 10.4 3.5 5.0 6.5HEG 166 160 Hold 663 -3.8 1.5 9.6 NM 109.6 16.7 10.2 9.8 7.1 2.9 3.2 5.9 -1.6 0.6 4.1Maharashtra Seamless 278 240 Hold 1,861 5.8 14.6 19.0 37.0 14.8 11.4 33.8 7.5 5.9 0.2 2.6 6.2 1.4 3.4 4.2Coal India 308 350 Buy 191,219 22.6 24.5 25.4 14.5 13.4 12.9 10.3 9.2 8.8 45.0 50.7 68.8 42.2 45.3 47.8

RoA (%)MidCapRallis India 203 250 Buy 3,954 7.4 14.8 11.0 26.5 22.1 17.8 16.8 13.4 10.6 20.1 20.5 24.4 15.9 15.3 17.1Swaraj Engines 1,361 1,540 Buy 1,690 41.2 54.2 61.6 33.0 25.1 22.1 20.4 15.1 13.1 27.9 37.7 42.2 23.9 30.3 33.1VST Tillers & Tractors 1,800 2,050 Hold 1,555 85.8 86.6 102.5 21.0 20.8 17.6 12.5 12.6 10.2 24.4 21.4 22.5 17.6 15.7 16.3KSB Pumps 617 625 Hold 2,148 19.7 19.2 22.9 31.4 32.4 27.1 18.2 20.4 16.3 12.8 10.1 12.1 11.4 10.3 11.4

RoA (%)Oil & GasCairn India 257 245 Hold 48,209 -50.3 12.8 12.4 NM 19.1 19.6 12.2 9.9 8.5 -18.9 5.2 5.0 -22.0 0.8 1.4GAIL 448 505 Buy 56,771 18.1 30.9 32.6 24.2 14.2 13.5 14.5 9.8 8.3 8.9 13.6 14.1 7.5 11.7 11.2Gulf Oil 665 750 Hold 3,301 20.2 23.8 24.3 33.5 28.5 27.9 20.9 18.7 18.0 38.6 41.2 39.4 40.4 36.8 31.0HPCL 466 455 Hold 47,350 38.0 50.0 44.7 12.1 9.2 10.2 8.6 6.8 7.6 14.2 17.6 13.3 20.6 22.7 17.9IGL 924 920 Buy 12,937 29.7 42.1 45.5 31.4 22.2 20.5 16.4 11.9 10.6 21.7 25.1 23.2 16.0 18.6 17.0Indian Oil Corporation 348 335 Hold 168,961 21.4 39.7 30.6 16.1 8.7 11.3 11.1 5.6 7.0 14.2 23.8 18.6 12.8 24.0 17.8MRPL 110 110 Buy 19,191 6.6 14.1 12.1 16.3 7.6 8.9 7.3 5.8 6.3 12.0 26.4 19.4 20.7 29.1 20.8ONGC 206 282 Hold 264,236 19.1 22.1 23.4 14.9 12.9 12.2 6.2 5.9 5.3 12.0 13.9 13.8 10.8 11.7 11.6Petronet LNG 376 410 Buy 28,223 12.2 21.5 25.7 30.7 17.4 14.5 17.8 10.3 8.6 15.0 23.3 25.2 11.7 18.0 18.2Castrol 391 504 Buy 19,325 12.4 13.5 14.3 31.0 28.6 26.9 20.6 18.3 17.4 181.0 185.0 189.7 106.9 110.0 114.1GSPL 140 174 Buy 7,861 7.9 9.3 12.0 17.6 14.9 11.6 9.6 8.4 6.5 13.5 15.1 17.7 9.6 10.6 12.6Gujarat Gas 535 570 Hold 7,364 13.0 23.0 32.9 41.6 23.5 16.4 13.4 10.9 8.7 10.8 12.9 16.0 6.4 12.4 15.8BPCL 669 680 Hold 96,691 51.4 53.9 54.3 12.8 12.2 12.1 9.9 9.3 8.5 25.0 23.5 23.0 27.9 24.4 24.0

Market Cap


Rating


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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EOthersTalwalkars 243 300 Buy 720 18.5 24.7 28.8 13.1 9.8 8.4 6.2 5.4 4.5 13.3 16.0 18.8 12.9 14.8 14.9Cox and Kings 186 180 Hold 3,290 3.5 13.9 23.7 51.7 13.1 7.7 6.7 6.9 5.3 9.9 10.1 12.6 2.5 9.2 13.6Solar Industries India Ltd 704 697 Buy 6,369 18.4 20.3 25.3 38.7 34.9 28.0 22.4 20.0 16.9 21.1 20.1 21.9 19.1 17.9 19.0United Spirits 1,928 2,700 Buy 28,018 66.7 19.1 36.3 29.3 102.1 53.8 30.1 28.5 24.0 28.6 35.6 27.8 54.1 16.2 18.3United Breweries 806 995 Buy 21,308 11.2 13.4 16.3 72.2 60.5 49.7 29.7 26.1 22.6 22.2 22.8 24.1 14.0 14.6 15.3Wonderla Holidays 345 460 Buy 1,948 10.6 10.1 13.5 32.4 34.0 25.4 21.8 20.9 14.6 21.5 14.4 16.6 14.8 12.7 14.9RoA (%)PharmaSun Pharma 644 850 Buy 154,569 20.6 30.4 32.3 30.9 21.0 19.7 16.9 13.1 12.0 18.6 19.8 18.4 18.0 19.5 17.7Ajanta Pharma 1,798 2,220 Buy 15,819 45.4 59.7 69.4 39.1 29.8 25.6 27.0 21.5 18.0 42.9 40.3 36.6 34.2 33.1 29.4Lupin 1,515 1,890 Buy 68,366 50.4 63.9 65.4 29.6 23.4 22.8 19.7 15.4 14.0 18.6 19.8 20.0 20.7 21.5 18.6Aurobindo Pharma 691 1,100 Buy 40,424 32.8 41.5 47.3 20.3 16.0 14.1 13.6 11.1 9.4 23.3 24.3 25.1 28.1 25.8 23.2Biocon 962 1,030 Hold 19,235 45.8 30.4 33.4 20.4 30.8 28.0 23.5 18.8 16.0 9.1 12.3 13.4 11.3 13.5 13.4Cadila Healthcare 374 450 Buy 38,308 14.9 13.3 17.9 24.2 27.1 20.2 16.1 18.4 14.0 26.7 19.1 23.8 28.6 21.5 23.7Cipla 580 575 Hold 46,691 18.5 18.9 25.2 30.7 30.0 22.5 20.0 17.8 13.9 12.0 11.1 14.1 12.5 11.5 13.6Dr Reddy's Lab 3,195 3,300 Hold 52,929 117.5 66.1 135.9 26.3 46.8 22.7 13.1 21.9 12.7 17.3 5.8 13.4 20.7 8.7 15.8Divi's Lab 755 1,305 Buy 20,050 41.8 44.1 51.9 18.0 17.1 14.5 13.7 12.5 10.1 30.7 27.9 28.3 25.9 22.8 22.2Glenmark 900 1,200 Buy 25,391 32.2 45.4 59.8 27.9 19.8 15.0 17.6 13.7 10.6 16.2 19.5 23.5 21.2 23.3 23.7Indoco 272 365 Buy 2,507 9.4 10.3 15.1 28.7 26.2 17.8 14.8 14.0 10.4 12.9 11.0 16.3 14.8 14.4 18.1Ipca Lab 549 605 Buy 6,927 7.4 15.1 25.4 74.3 36.5 21.6 22.1 15.9 12.6 5.7 9.9 12.6 5.5 7.8 11.9Jubilant Life 707 795 Buy 11,253 27.1 43.5 54.3 26.4 16.4 13.2 12.2 9.7 8.2 12.0 15.8 17.4 14.2 19.5 19.9Natco 621 750 Buy 10,819 8.5 12.8 13.1 69.6 46.1 45.2 40.1 29.6 28.8 16.0 19.9 17.5 11.9 15.6 14.0Torrent Pharma 1,373 1,700 Buy 23,227 101.8 56.6 68.3 13.3 23.9 19.8 8.8 15.9 14.1 46.7 22.3 25.6 53.8 23.3 23.2Unichem lab 268 305 Hold 2,436 11.9 14.1 18.5 22.2 18.9 14.3 14.7 12.1 9.5 13.8 15.0 16.9 11.7 12.0 13.9Alembic Pharma 606 700 Hold 11,424 38.2 23.1 26.0 15.9 26.1 23.3 11.0 17.9 16.2 51.5 26.4 24.2 44.9 22.8 21.7Syngene International 583 570 Hold 11,651 11.1 15.8 17.8 52.5 36.8 32.6 32.2 26.3 21.2 13.2 18.0 18.6 21.0 23.6 21.5RoA (%)PowerCESC 645 675 Hold 8,544 37.3 56.5 70.6 17.4 11.5 9.2 6.3 6.6 5.8 12.2 11.4 12.0 5.7 8.5 8.9NHPC 27 27 Hold 30,278 2.2 2.2 2.4 12.5 12.3 11.6 10.8 9.9 9.5 7.1 7.7 7.7 8.7 8.4 8.4Power Grid Corporation 192 204 Buy 100,394 11.5 14.0 16.0 16.3 13.4 11.8 10.4 9.7 9.0 8.6 8.6 8.6 14.1 14.9 14.9PTC India 78 76 Hold 2,303 9.2 8.9 7.1 8.5 8.8 11.0 4.3 4.5 6.3 13.6 15.2 10.2 9.6 8.7 6.7Tata Power 77 UR Ur 20,893 4.0 4.8 5.4 19.1 16.1 14.2 5.7 6.3 5.9 13.4 11.4 11.7 6.6 6.9 8.9NTPC 165 188 Buy 136,256 12.3 12.8 13.9 13.4 12.8 11.8 11.2 9.8 9.2 7.5 8.8 8.7 11.5 11.0 11.1RoA (%)Real EstateOberoi Realty 306 375 Hold 10,378 13.0 12.0 29.0 23.4 25.4 10.5 15.3 17.1 6.6 11.0 8.4 19.3 8.0 6.6 14.1Mahindra Lifespace 361 520 Buy 1,482 22.7 23.4 33.1 16.0 15.5 10.9 17.3 8.0 5.8 5.6 9.1 12.0 6.0 5.9 7.9Sobha Ltd 265 275 Hold 2,550 15.6 14.3 19.4 16.8 18.4 13.6 9.3 11.6 9.1 8.9 7.3 9.0 6.0 5.3 6.9

Market Cap


Rating


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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18ERetailTTK Prestige 5,683 4,925 Sell 6,616 98.6 125.4 150.6 53.4 42.0 35.0 32.5 26.6 22.2 23.6 23.4 26.5 15.9 17.9 18.8Shopper Stop 294 400 Buy 2,455 -5.2 -0.5 3.7 1,205.1 136.9 55.2 16.7 15.8 12.5 3.5 3.6 5.5 0.4 3.5 8.1Titan Industries 359 435 Buy 31,858 8.0 8.9 11.3 40.7 36.5 28.6 30.4 23.1 20.0 25.3 28.5 29.1 20.1 19.4 21.1Bata India 468 462 Buy 6,016 17.0 11.1 15.0 24.4 37.2 27.6 18.4 21.6 16.4 35.6 26.7 31.8 18.5 11.4 14.1

RoA (%)RoadIRB Infrastructure 214 235 Buy 7,503 19.1 18.9 17.1 11.1 11.3 12.5 7.7 6.5 5.6 9.7 10.6 12.6 13.2 11.9 9.9Ashoka Buildcon 160 160 Hold 2,985 3.1 5.2 4.6 53.4 32.2 36.4 9.5 9.0 8.5 4.0 4.0 4.2 6.2 4.9 4.2PNC Infratech 105 129 Buy 2,695 9.5 8.3 8.2 11.1 12.6 12.8 9.8 9.5 7.2 18.7 16.1 16.6 11.3 13.6 11.9Sadbhav Engineering 275 330 Buy 4,718 7.8 11.9 12.7 35.2 23.2 21.7 18.1 15.0 12.9 12.2 11.9 12.9 9.1 12.2 11.7

RoA (%)TelecomBharti Airtel 324 315 Hold 129,376 13.7 11.6 9.1 23.2 27.5 34.8 6.3 6.2 6.2 9.4 8.7 8.5 6.1 7.3 5.2Bharti Infratel 357 420 Buy 65,939 11.8 16.0 16.1 29.1 21.5 21.5 11.2 10.6 9.7 15.6 18.6 20.8 12.3 18.3 18.5Idea Cellular 74 70 Hold 26,506 8.6 -0.7 -3.9 8.7 NM NM 5.2 7.4 7.6 9.0 4.1 3.0 12.0 -1.0 -5.9Tata Communications 635 690 Hold 18,085 -7.4 14.1 24.6 NM 44.3 25.4 10.1 8.9 7.3 5.1 8.8 10.7 -11.2 -751.6 176.7

Sector / Company CMP Target Price

Rating Market Cap

EPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)


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Valuation Matrix

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18EBanksIndusInd Bank 1,150 1,350 Buy 68,702 38.4 49.5 61.2 28.8 22.4 18.1 3.7 3.2 2.8 1.9 1.9 2.0 15.9 15.3 16.5Yes Bank 1,245 1,300 Hold 52,634 60.3 67.6 90.1 19.3 17.2 12.9 3.6 2.4 2.1 1.7 1.7 1.9 19.9 17.5 17.2Bank of Baroda 153 180 Hold 35,254 -23.3 10.1 22.6 NM 14.7 6.6 0.9 0.8 0.8 -0.8 0.3 0.7 -13.5 5.7 11.8State Bank of India 248 310 Buy 192,284 12.8 13.2 26.1 19.1 18.5 9.4 1.3 1.0 0.9 0.5 0.4 0.8 7.3 6.3 10.5City Union Bank 137 166 Buy 8,222 7.4 8.5 10.1 17.5 15.3 12.9 2.5 2.2 1.9 1.5 1.5 1.6 15.6 15.6 16.2Indian Bank 239 275 Buy 11,479 14.8 27.7 33.7 15.3 8.2 6.7 0.7 0.7 0.6 0.4 0.6 0.7 4.5 8.0 9.3Punjab National Bank 120 138 Hold 25,610 -20.2 14.6 21.2 NM 8.1 5.6 0.6 0.6 0.5 -0.6 0.4 0.6 -10.3 7.6 9.7Axis Bank 461 510 Hold 110,154 34.5 16.1 33.1 13.3 28.4 13.9 2.1 1.9 1.7 1.7 0.7 1.2 16.8 7.0 13.2DCB Bank 114 120 Hold 3,248 6.8 7.0 9.0 16.2 15.8 12.4 1.8 1.6 1.4 1.1 1.0 1.0 12.0 11.1 12.6Federal Bank 68 80 Hold 11,683 2.8 4.6 6.3 23.8 14.2 10.5 1.4 1.3 1.2 0.5 0.8 1.0 5.9 9.3 11.6HDFC Limited 1,227 1,570 Buy 194,467 45.0 46.7 53.4 27.0 26.0 22.8 5.7 5.2 4.6 2.6 2.4 2.4 21.8 20.6 21.3Jammu & Kashmir Bank 61 75 Buy 2,957 8.6 -10.4 10.9 7.0 NM 5.5 0.5 0.5 0.5 0.5 -0.6 0.6 6.6 -8.1 8.5Kotak Mahindra Bank 707 810 Hold 130,036 11.4 17.3 21.0 62.5 41.2 33.9 5.4 4.8 4.2 1.1 1.5 1.6 9.2 12.4 13.1LIC Housing Finance 526 625 Hold 26,528 32.9 39.3 46.4 16.1 13.5 11.4 2.9 2.4 2.0 1.4 1.4 1.5 19.6 19.6 19.1Reliance Capital 450 540 Hold 11,370 56.9 45.4 49.5 7.7 9.7 8.9 0.8 0.8 0.7 2.4 1.6 1.5 9.8 7.0 7.2CARE 1,311 1,650 Buy 3,859 40.0 48.3 63.2 33.0 27.3 20.9 9.5 8.7 8.0 40.9 44.0 47.2 28.8 31.9 38.5PTC India Financial Limited 39 39 Hold 2,518 7.0 4.6 6.0 5.5 8.4 6.4 1.3 1.0 0.9 5.0 2.9 2.9 24.9 14.4 15.3HDFC Bank 1,192 1,500 Buy 304,190 48.6 58.7 71.7 24.5 20.3 16.6 4.1 3.6 3.2 1.9 1.9 1.9 18.2 18.9 20.2Bajaj Finserv Limited 2,997 3,470 Hold 47,690 117.5 150.8 199.8 25.2 19.7 14.8 3.7 3.1 2.6 1.9 2.1 2.4 15.7 17.1 19.0Bajaj Finance Limited 894 1,300 Buy 48,980 24.6 31.6 43.5 35.3 27.5 20.0 6.1 5.2 4.1 3.2 3.2 3.4 21.0 20.9 23.4

Market Cap

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

Rating


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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This update is prepared on the basis of publicly available information. ICICI Securities has received an investment banking mandate from Government of India for disinvestment in Bharat Heavy Electricals Limited. This report is prepared based on publicly available information. ICICI Securities has received an investment banking mandate for disinvestment in NMDC Ltd. The report is prepared on the basis of publicly available information.

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January 6, 2017 Demonetisation to overshadow Q3FY17Econtent.icicidirect.com/mailimages/IDirect... · We believe demonetisation impact would be limited to three to six months. It would