Value Guide

September 2015 Sharekhan ValueGuide2

Sharekhan ValueGuide September 20153

REGULAR FEATURESReport Card 4Earnings Guide I

Last month, equitymarkets across theworld went into atailspin led by aplunging Chinesestock market. TheChinese stockmarket has beenon a downwardspiral this year and plunged by a whopping 39% since June 12,when its year-old bubble had popped.

TECHNICALSNifty 29

Stock Ideas 15Stock Updates 16Sharekhan Special 27Sector Updates 27

From Sharekhan’s Desk EQUITY

06

Unseasonal discount sale FUNDAMENTALS

DERIVATIVESView 30

TECHNICALS

Crude Oil 31Gold 32Silver 32Copper 32

FUNDAMENTALSLead 32

Zinc 32

Nickel 33

Gold 34Silver 34Crude Oil 34

Copper 35Aluminium 35Jeera 35

TECHNICALS

FUNDAMENTALS

USD-INR 38EUR-INR 38

GBP-INR 38JPY-INR 38

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COMMODITY

CURRENCY

PMS DESKProPrime - Top Equity 39ProPrime - Diversified Equity 40ProTech - IndexFutures Fund 41ProTech - Trailing Stops 42

MUTUAL FUNDS DESK

Top MF Picks (equity) 45

Top SIP Fund Picks 46

RESEARCH BASED EQUITY PRODUCTS

Market Outlook 07Top Picks Basket 10Wealth Creator Portfolio 14

GBP-INR 37JPY-INR 37

ADVISORY DESKMID Trades 43

USD-INR 36EUR-INR 36

Derivative Ideas 43

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CONTENTS

Viewpoints 28


REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON SEPTEMBER 04, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 04-SEP-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

AUTOMOBILES

Apollo Tyres Buy 170.2 240.0 249.8 154.7 -21.7 -0.3 -1.5 -11.6 -12.8 5.4 13.7 -6.3Ashok Leyland � Buy 85.0 98.0 99.7 37.0 -3.4 28.1 18.9 129.1 7.5 35.5 37.2 142.9Bajaj Auto Hold 2211.0 2600.0 2695.0 1912.5 -12.0 1.7 6.3 -2.0 -2.1 7.5 22.6 3.8Gabriel Industries Buy 83.2 100.0 106.8 71.0 -7.3 11.2 -6.2 24.1 3.1 17.6 8.2 31.6Hero MotoCorp Buy 2290.9 3250.0 3271.8 2251.3 -12.7 -10.1 -11.7 -18.0 -2.9 -4.9 1.9 -13.1M&M Buy 1110.6 1550.0 1442.1 1092.2 -18.6 -6.2 -7.4 -20.5 -9.4 -0.9 6.8 -15.8Maruti Suzuki � Buy 4063.3 4700.0 4692.4 2856.0 -7.9 8.4 11.1 41.1 2.5 14.6 28.2 49.5Rico Auto Industries Buy 45.4 58.0 63.9 24.2 -20.4 16.7 20.1 88.2 -11.4 23.4 38.5 99.5TVS Motor Reduce 223.2 230.0 322.3 200.1 -4.3 -1.3 -22.5 0.5 6.4 4.3 -10.6 6.5BSE Auto Index 16983.2 20386.4 16796.6 -12.5 -6.2 -12.8 -3.3 -2.7 -0.8 0.6 2.5BANKS & FINANCE

Allahabad Bank Buy 76.5 110.0 136.7 75.4 -18.9 -19.4 -27.0 -32.7 -9.8 -14.8 -15.8 -28.6Andhra Bank Hold 61.8 90.0 101.0 60.5 -19.5 -9.6 -24.7 -13.0 -10.4 -4.4 -13.1 -7.8Axis (UTI) Bank Buy 468.0 652.0 655.4 370.2 -19.3 -15.2 -23.0 13.3 -10.2 -10.3 -11.2 20.1Bajaj Finance � Hold 5075.6 5600.0 5720.2 2417.1 -9.8 17.0 18.1 108.4 0.4 23.7 36.2 120.9Bajaj Finserv Buy 1828.8 1950.0 2160.0 975.0 -9.8 19.6 24.5 66.6 0.4 26.5 43.6 76.6Bank of Baroda Buy 174.3 204.0 228.9 137.2 -8.8 10.2 -1.2 1.6 1.5 16.5 13.9 7.7Bank of India Hold 128.7 162.0 312.0 126.0 -25.6 -27.7 -42.8 -54.6 -17.3 -23.6 -34.1 -51.9Capital First Buy 349.5 485.0 464.8 277.0 -17.5 -6.8 -16.0 25.1 -8.2 -1.5 -3.1 32.6Corp Bank Hold 45.9 60.0 78.9 45.1 -14.0 -10.7 -23.7 -27.4 -4.3 -5.6 -12.0 -23.1Federal Bank Buy 57.7 85.0 79.8 56.3 -14.5 -15.0 -19.8 -6.6 -4.9 -10.1 -7.5 -1.0HDFC Buy 1141.6 1400.0 1402.3 975.0 -12.3 -5.2 -15.6 6.9 -2.5 0.2 -2.7 13.3HDFC Bank Buy 996.1 1260.0 1128.0 842.0 -8.3 -1.1 -5.8 17.8 2.0 4.5 8.7 24.9ICICI Bank Buy 257.8 400.0 393.4 254.0 -17.9 -11.2 -24.9 -16.6 -8.7 -6.1 -13.4 -11.6IDBI Bank Hold 55.6 76.0 84.9 52.3 -18.4 -12.0 -28.1 -25.3 -9.2 -7.0 -17.1 -20.8LIC Housing Finance Buy 413.4 558.0 526.0 299.2 -18.7 3.5 -14.7 30.3 -9.5 9.4 -1.7 38.1PTC India Financial Services Buy 39.0 75.0 73.2 37.6 -16.6 -3.8 -38.8 -9.8 -7.2 1.7 -29.4 -4.4Punjab National Bank Hold 130.8 165.0 231.5 123.6 -17.8 -7.6 -18.6 -29.0 -8.6 -2.3 -6.1 -24.7SBI � Buy 225.2 378.0 336.0 222.6 -22.0 -12.6 -22.4 -8.3 -13.2 -7.6 -10.5 -2.8Union Bank of India Buy 156.9 185.0 253.5 129.8 -22.7 5.2 -3.9 -22.7 -14.0 11.3 10.8 -18.1Yes Bank Buy 647.2 930.0 910.0 535.9 -23.1 -21.8 -23.7 5.6 -14.4 -17.3 -11.9 12.0BSE Bank Index 18437.5 23903.8 17319.8 -15.5 -9.2 -17.3 1.5 -5.9 -4.0 -4.6 7.5CONSUMER GOODS

Britannia Buy 2988.3 3650.0 3435.0 1260.0 -5.9 16.4 39.6 139.5 4.7 23.1 61.0 153.9GSK Consumers Buy 6051.4 7000.0 6575.0 4900.0 -2.4 -3.3 4.2 12.8 8.6 2.2 20.2 19.6Godrej Consumer Products Hold 1221.2 1380.0 1459.0 830.0 -8.4 8.8 1.6 18.0 2.0 15.0 17.1 25.0Hindustan Unilever Hold 830.0 925.0 981.0 707.2 -8.6 2.0 -8.4 14.7 1.7 7.8 5.6 21.6ITC Buy 317.1 365.0 410.0 294.0 -3.9 5.1 -6.0 -7.6 6.9 11.2 8.4 -2.1Jyothy Laboratories Hold 319.9 ** 342.0 225.0 8.2 19.2 15.1 34.1 20.4 26.1 32.8 42.1Marico Hold 401.8 460.0 467.0 276.6 -9.1 -5.4 4.6 46.0 1.1 0.0 20.7 54.8Zydus Wellness Buy 832.7 1025.0 1130.3 606.0 -7.6 -9.2 -7.8 37.3 2.8 -4.0 6.3 45.5BSE FMCG Index 7610.7 8382.8 7277.5 -6.3 2.9 -5.0 5.3 4.2 8.8 9.6 11.6IT / IT SERVICES

CMC Hold 1988.5 NA 2407.0 1805.1 2.7 -0.1 -2.3 -6.2 14.3 5.6 12.7 -0.6Firstsource Solution Hold 27.3 38.0 44.4 24.2 -12.4 -7.5 -14.4 -29.5 -2.5 -2.2 -1.3 -25.3HCL Technologies Buy 940.3 1050.0 1058.5 707.5 1.3 0.5 -6.7 15.3 12.7 6.3 7.6 22.2Infosys Buy 1074.0 1240.0 1186.2 893.2 1.6 7.5 -4.2 18.5 13.0 13.6 10.5 25.6Persistent Systems Buy 692.7 820.0 957.1 573.7 3.6 -7.8 -23.5 8.2 15.2 -2.5 -11.8 14.7Tata Consultancy Services � Buy 2547.5 3000.0 2839.7 2345.0 1.5 -1.1 -6.2 0.1 13.0 4.6 8.2 6.1Wipro Hold 554.0 660.0 677.6 512.5 -1.0 1.5 -15.0 -2.0 10.1 7.3 -1.9 3.9BSE IT Index 10970.0 11927.5 10124.5 0.4 3.0 -7.5 6.5 11.7 8.9 6.7 12.9CAPITAL GOODS / POWER

Bharat Heavy Electricals Hold 206.2 270.0 300.0 194.2 -26.8 -16.9 -23.9 -8.4 -18.6 -12.1 -12.2 -2.9CESC Buy 489.6 730.0 828.1 452.0 -14.8 -4.9 -16.0 -33.0 -5.2 0.6 -3.1 -29.0Crompton Greaves Hold 161.4 185.0 231.0 145.3 -12.9 -1.3 -10.5 -22.5 -3.1 4.4 3.2 -17.8Finolex Cables Buy 233.8 310.0 306.5 197.0 -7.4 -0.8 -13.9 3.8 3.0 4.9 -0.7 10.1Greaves Cotton Hold 128.2 160.0 159.4 116.6 -13.1 5.0 -10.8 -0.9 -3.4 11.0 2.9 5.1Kalpataru Power Transmission Buy 235.1 325.0 291.8 128.6 -13.8 7.5 4.1 41.4 -4.0 13.6 20.1 49.9PTC India Buy 56.0 90.0 104.9 50.1 -22.8 -10.2 -34.8 -35.6 -14.1 -5.0 -24.8 -31.7Skipper Buy 135.8 210.0 200.0 37.7 -18.4 -19.6 -24.6 248.0 -9.3 -15.0 -13.0 268.9Thermax Hold 936.9 1150.0 1318.0 825.1 -8.6 -0.9 -22.8 10.3 1.7 4.7 -10.9 17.0Va Tech Wabag Buy 685.0 850.0 972.5 615.0 -8.8 -2.6 -19.8 -2.7 1.5 3.0 -7.5 3.1

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REPORT CARDEQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON SEPTEMBER 04, 2015)

COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEXRECO 04-SEP-15 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M

� In Top Picks basket ** Price target under review

NEW

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V-Guard Industries Buy 903.0 1155.0 1198.0 742.2 -7.3 4.3 -3.8 24.4 3.1 10.3 10.9 31.9Triveni Turbines Buy 106.1 145.0 151.8 83.0 -12.0 0.8 -15.2 23.0 -2.1 6.5 -2.2 30.4BSE Power Index 1730.0 2332.4 1705.4 -16.6 -13.4 -23.6 -16.1 -7.3 -8.4 -11.9 -11.0BSE Capital Goods Index 15432.6 18814.2 13835.6 -14.1 -6.8 -15.5 1.8 -4.4 -1.5 -2.6 7.9INFRASTRUCTURE / REAL ESTATE

Gayatri Projects Hold 408.2 500.0 500.0 132.1 -1.0 103.2 148.8 194.8 10.2 114.9 187.0 212.5ITNL Buy 87.8 225.0 229.8 86.3 -37.4 -41.4 -58.7 -57.5 -30.4 -38.1 -52.3 -55.0IRB Infra Buy 212.0 320.0 289.7 197.1 -14.6 -12.3 -15.8 -17.3 -5.0 -7.3 -2.9 -12.3Jaiprakash Associates Hold 9.1 ** 37.3 7.9 -18.4 -30.5 -67.5 -75.8 -9.2 -26.6 -62.5 -74.4Larsen & Toubro Hold 1533.9 1860.0 1893.8 1400.0 -12.7 -6.8 -15.7 -2.5 -2.8 -1.4 -2.7 3.3Punj Lloyd Reduce 24.4 ** 45.3 20.5 -23.2 7.7 -34.0 -37.2 -14.5 13.9 -23.9 -33.4CNX Infra Index 2815.5 3456.8 2780.3 -13.9 -10.5 -15.6 -11.6 -4.2 -5.4 -2.7 -6.3BSE Real Estate Index 1242.3 1894.0 1142.7 -10.2 -12.5 -30.3 -28.2 0.0 -7.5 -19.6 -23.9OIL & GAS

Oil India Buy 435.8 565.0 670.0 413.7 -1.0 -7.4 -8.9 -29.4 10.1 -2.1 5.1 -25.2Reliance Ind � Buy 835.9 1100.0 1067.9 796.5 -15.4 -8.4 -4.8 -17.6 -5.9 -3.2 9.8 -12.7Selan Exploration Technology Hold 218.9 345.0 621.0 202.7 -17.4 -10.4 -22.1 -60.3 -8.1 -5.3 -10.2 -57.9BSE Oil and Gas Index 8539.8 11742.3 8243.3 -11.8 -8.8 -11.3 -23.5 -1.9 -3.5 2.4 -18.9PHARMACEUTICALS

Aurobindo Pharma Hold 723.1 815.0 832.5 381.5 -4.1 10.3 35.3 74.1 6.7 16.6 56.0 84.6Cipla Buy 649.6 795.0 752.9 558.7 -8.2 3.3 -10.4 17.9 2.1 9.2 3.3 25.0Cadila Healthcare � Buy 1812.6 2300.0 2045.0 1060.9 -1.9 0.1 19.2 46.6 9.2 5.8 37.5 55.4Divi's Labs Hold 2176.8 2300.0 2484.7 1572.0 12.2 21.3 26.4 36.3 24.8 28.2 45.8 44.5Glenmark Pharmaceuticals Hold 1026.3 1065.0 1262.9 676.0 3.4 23.0 28.4 33.1 15.0 30.0 48.1 41.1JB Chemicals Hold 275.4 ** 292.3 173.2 -0.9 25.5 55.6 28.8 10.3 32.7 79.5 36.5Ipca Laboratories Hold 761.5 ** 888.0 591.3 4.9 19.8 12.1 0.2 16.7 26.7 29.2 6.2Lupin � Buy 1859.6 1860.0 2115.0 1306.8 13.4 6.7 4.5 40.8 26.1 12.8 20.5 49.3Sun Pharmaceutical Industries Buy 857.7 980.0 1200.8 748.0 3.3 3.1 -14.8 -0.6 15.0 9.1 -1.7 5.4Torrent Pharma Buy 1589.4 1600.0 1720.0 810.3 11.5 32.0 46.0 86.6 24.1 39.5 68.4 97.8BSE Health Care Index 17136.2 18842.7 15345.7 0.2 8.8 4.4 25.8 11.5 15.0 20.5 33.3BUILDING MATERIALS

Grasim Buy 3374.7 4475.0 4024.9 3218.0 -9.9 -1.6 -12.6 -5.5 0.3 4.0 0.8 0.2The Ramco Cements Buy 318.7 420.0 380.0 270.0 -11.1 -1.7 -5.1 -6.7 -1.1 3.9 9.4 -1.1Shree Cement Hold 10765.5 11800.0 12388.9 8000.5 -5.9 -3.3 -3.9 28.6 4.7 2.3 10.9 36.3UltraTech Cement Buy 2915.1 3750.0 3399.0 2297.2 -7.0 1.9 -11.7 7.9 3.4 7.8 1.9 14.3DISCRETIONARY CONSUMPTION

Century Plyboards (India) � Buy 140.9 260.0 262.0 95.1 -31.7 -25.0 -41.1 53.1 -24.0 -20.7 -32.1 62.3Cox and Kings Buy 236.3 350.0 368.0 218.0 -23.9 -14.2 -26.3 -19.7 -15.4 -9.3 -15.0 -14.9Eros International Media Hold 476.4 570.0 644.4 234.3 -19.1 9.8 15.0 76.7 -10.0 16.1 32.6 87.3Info Edge (India) Buy 749.0 1103.0 1015.0 697.1 -11.8 -6.3 -11.6 -2.9 -1.8 -0.9 1.9 2.9KDDL Buy 248.0 375.0 424.5 138.8 -22.4 -17.5 -26.0 58.1 -13.6 -12.7 -14.6 67.6KKCL Buy 2170.0 2480.0 2342.7 1624.1 -2.4 7.6 18.4 23.4 8.6 13.8 36.6 30.8Orbit Exports Buy 368.0 630.0 495.0 234.1 -21.5 -2.1 -3.8 45.4 -12.7 3.6 10.9 54.2Raymond Hold 387.4 500.0 579.5 360.1 -18.7 -5.6 -25.2 -16.0 -9.6 -0.2 -13.7 -10.9Relaxo Footwear Buy 499.0 650.0 615.0 216.2 -13.4 18.1 41.1 130.1 -3.6 24.9 62.8 143.9Speciality Restaurants Hold 144.9 180.0 218.8 125.0 -9.8 -5.8 -20.3 6.4 0.3 -0.4 -8.1 12.8Thomas Cook India Buy 203.3 265.0 256.9 130.1 -6.8 -13.6 -4.9 41.3 3.7 -8.7 9.7 49.8Zee Entertainment � Buy 360.4 425.0 421.7 279.5 -10.6 11.5 6.1 27.6 -0.5 17.9 22.3 35.3DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo � Buy 2010.3 2500.0 2344.9 1446.2 -11.7 18.1 16.8 38.4 -1.8 24.9 34.7 46.7Bajaj Holdings Buy 1588.8 1815.0 1694.1 1206.5 5.7 21.6 16.2 21.1 17.6 28.6 34.1 28.4Bharti Airtel Hold 350.0 450.0 452.5 332.5 -14.8 -15.5 0.2 -13.0 -5.2 -10.6 15.6 -7.7Bharat Electronics Buy 3228.1 3900.0 4160.0 1964.0 -21.3 -1.9 -11.3 65.3 -12.4 3.7 2.3 75.2Gateway Distriparks Buy 321.6 420.0 459.4 218.0 -12.2 -11.8 -22.0 32.1 -2.3 -6.8 -10.1 40.0Max India Buy 502.8 648.0 576.8 306.3 -10.4 5.3 8.0 51.0 -0.3 11.3 24.6 60.0Ratnamani Metals and Tubes Hold 597.2 750.0 806.3 412.0 1.8 3.4 -23.1 45.3 13.3 9.3 -11.3 54.1Supreme Industries Buy 590.0 750.0 746.8 540.0 -6.9 -10.2 -12.6 -6.3 3.5 -5.0 0.8 -0.6UPL Buy 529.7 600.0 576.4 299.5 -5.6 -4.6 28.7 44.7 5.1 0.8 48.5 53.4BSE500 Index 10143.9 11764.8 9840.8 -10.0 -3.8 -11.2 -0.4 0.2 1.7 2.5 5.6CNX500 Index 6421.1 7428.1 6204.0 -10.0 -4.2 -11.8 -1.2 0.1 1.3 1.7 4.7CNXMCAP Index 12591.8 14237.6 10940.9 -10.0 -0.1 -4.1 10.7 0.1 5.7 10.6 17.3


Unseasonal discount sale

FROM SHAREKHAN’S DESK

from

sha

rekh

an’s

des

k Last month, equity markets across the world went into a tailspin led by a plunging Chinese

stock market. The Chinese stock market has been on a downward spiral this year and

plunged by a whopping 39% since June 12, when its year-old bubble had popped. Together

with the persisting Greece crisis and fears of a US Federal Reserve (Fed) rate hike, China’s

plummeting equity market created a panic-driven sell-off in the commodity and equity

markets globally.

Though the Indian equity market also witnessed a break-down from its multi-month trading

range largely led by continued selling pressure from the foreign investors, the extent of the

damage in India was relatively lower compared with its emerging market peers, in terms of

both the extent of the depreciation in the rupee against the dollar and the decline in the

Indian equity market.

The improving fiscal health of India and an astute governor at the helm of the Reserve

Bank of India have supported the rupee. On the other hand, strong domestic retail inflows

have partially absorbed the selling pressure from the foreign investors. As compared with

net outflow of Rs17,248 crore from the foreign investors, the domestic mutual funds bought

equities worth Rs10,530 crore in August this year on the back of continued retail inflows

into equity mutual funds. Moreover, the government could also raise close to Rs9,300

crore by offering part stake in Indian Oil Corporation in the last month.

In the near term, volatility is likely to persist largely due to global issues like the uncertainty

related to the outlook of the Chinese economy and its fall-out on the economies globally.

Another global event that may add to the volatility is the Fed’s September 17 meeting.

Some expect the Fed to announce a rate hike at the meeting, though we do not expect a

hike before December this year. Moreover, it is largely accepted that the rates are going to

go up in the USA sooner or later.

Locally, there are two events that may provide direction to the market in the near term. The

monetary policy review meeting of our own central bank on September 29, 2015. In the

aftermath of the Chinese stock market crash the prices of commodities including crude oil

have fallen sharply which may prompt the inflation-focused Reserve Bank of India to reduce

the key policy rates, giving in to the long-pending demand of Indian corporates.

The other key event is the upcoming assembly election in Bihar. If the Bharatiya Janata

Party manages to win this critical election with a good margin, it will demoralise the

opposition parties and provide enough confidence to the ruling National Democratic Alliance

to aggressively push forward the reform agenda.

Corrective phases in a multi-year bull market are usually opportunities to buy into quality

stocks as valuations turn more reasonable. In the last multi-year rally in 2003-08, there

were three occasions of a correction of over 15% in the benchmark indices which were

followed by handsome returns over the following year.

However, it is not possible to perfectly time the market and catch the bottom. Thus, it is

always advisable to focus on individual stocks and buy gradually. Investors can either

choose from the basket of close to 100 stocks actively tracked by our Fundamental research

team (around another 60 companies are under soft coverage) or follow any of the model

portfolios (like Sharekhan Top Picks, Wealth Creator or Power Portfolio) depending upon

their investment style and horizon.�


Volatility galore

MARKET OUTLOOK SEPTEMBER 07, 2015

Global sell-offs led by weakness in China wreck Indian market:

The Indian equity market got caught in the wave of global volatility

driven by a meltdown in the Chinese equity market that was

followed by a knee-jerk reaction from the Chinese authorities to

control the situation and support the economy. Amid the rising

uncertainty, foreign investors pulled out of risky assets including

equities of emerging markets (EMs) like India, which witnessed

record outflows of over Rs17,000 crore in August this year. On

the other hand, the domestic institutional investors remained buyers

providing vital cushion to the stock market.

Domestic economy largely resilient, Parliament logjam and erratic

monsoon did weaken sentiment: Domestically, the macro scenario

is stable with a global rout in commodity prices further pushing

down inflation and also positively affecting the current account

deficit. Moreover, there are some positive signs like improving order

inflow into capital goods companies, rising auto volume sales and

a reducing number of stalled projects. However, the government

needs to push forward key reforms like the Goods & Services Tax

and land acquisition bills to sustain the momentum. The Parliament

logjam and erratic monsoon rainfall are acting as a drag and could

delay the expected revival in the economy.

Corporate earnings remain weak; hope hinges on revival in H2: As

expected, the earnings growth for Q1FY2016 was weak enough to

prompt further cuts in the consensus earnings estimates of the Sensex

companies for FY2016 and FY2017. After the recent cut in the

earnings estimates, the consensus is now building an earnings growth

of 12% for FY2016; the growth is largely expected to be back-

ended (in the second half of the fiscal). The expectations for the

FY2017 earnings growth still hover around the 18-20% mark on

the back of the positive effects of interest rate cuts getting reflected

in demand and an additional booster from the Seventh Pay

Commission in the form of a 25-30% salary hike to 15 million

central and state government employees with effect from April 2016.

Key events ahead; RBI rate cut and Bihar election: Two key domestic

events lying ahead are the expected resumption of interest rate cuts

MARKET OUTLOOKEQUITY FUNDAMENTALS

SENSEX’ ONE-YEAR FORWARD P/E BAND

Source: Bloomberg, Sharekhan Research

by the Reserve Bank of India (RBI) at the September 29, 2015 review

meet, in line with a sharp moderation in inflation and sluggish

industrial activity. Second, the outcome of the Bihar election is

critical. A comprehensive win by the Bharatiya Janata Party (BJP)

would provide enough confidence to the National Democratic

Alliance (NDA) government to push forward reforms whereas a

win by the grand coalition could put the NDA government on the

back-foot and strengthen the Narendra Modi baiters within the

BJP fold. Globally, the situation should improve from the high level

of volatility seen in the past few weeks.

Valuation comfort rises after recent correction: After the correction,

the valuation of the Sensex has declined to ~15x FY2016E earnings,

which is close to the long-term mean, though on a relative basis

(compared with the other EMs), the premium has gone up due to a

sharp correction in these EM indices. Given there are limited triggers

in the near term and global sentiment is adverse, the domestic stock

market may remain volatile and fluctuate in a wider band. We prefer

sectors that are likely to benefit from the weakness in commodity

prices and a revival in consumer demand, such as pharmaceuticals

and information technology, apart from select auto companies,

private sector banks and financial service companies, and consumer

discretionary stocks.


EQUITY FUNDAMENTALSMARKET OUTLOOK

PERFORMANCE OF EMERGING MARKET INDICES SINCE LAST TWO MONTHS


China slowdown an overhang on market: Following the devaluation

of the yuan and weak macro data, the Chinese stock market and

some of the other EMs faced one of the biggest corrections since

the Global Financial crisis. The Chinese equity indices tumbled by

39% from the peak whereas the other EMs including India witnessed

ripples. The commodity prices resumed their downward trend with

a significant correction in the major commodities, thereby hurting

the commodity based economies (Brazil, Russia, and Indonesia).

On the other hand, the US economic data shows a mixed trend

with the view widely split on rate hikes by the US Federal Reserve

(Fed) in September 2015.

Reversal of FII flows affected market, domestic participation

increasing: In response to the global shake-up, the foreign

institutional investor (FII) related outflows increased sharply across

the EMs including India which had an adverse impact on their

respective currencies. In August alone the FIIs pulled out about

Rs17,000 crore from the Indian market, though part of the outflow

was compensated by the domestic institutions, which made

purchases worth Rs10,500 crore in August. The inflows in mutual

funds have increased significantly as the average asset under

management (AUM) increased by 36% year on year (YoY; till July

as per the data of Association of Mutual Funds of India [AMFI]).

While the global situation remains volatile in the near term, India

is differentiated among the EMs (thanks to a higher growth rate,

lower inflation and interest rates, and political stability) and clarity

on tax laws (minimum alternate tax) should improve the market

sentiment.

FII OUTFLOWS INCREASE IN RECENT MONTHS


India’s macros look better amid global turmoil: While India too

was caught in the turbulence in the global financial markets, steady

domestic consumption and correcting crude prices will support the

Indian economy. A global slowdown led correction in the

commodity prices will have a positive impact on most macro-

economic variables such as fiscal deficit, inflation, current account

deficit including consumption growth, corporate earnings etc.

However, after a strong spell in June the monsoon rains have been

deteriorating and the rainfall deficit stood at about 20% till August.

Even if the monsoon does not have a meaningful impact on inflation,

a weak monsoon may prolong the revival in the rural economy.

The government has been on a spending mode (capital expenditure

up 18% in Q1FY2016) and the recent fall in the commodity prices

is more of a blessing that would expand the scope for spending

across segments (critical for a pick-up in the economy) without

straining the fiscal situation.

INFLATION CLEARLY DOWNTRENDING



Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

MARKET OUTLOOKEQUITY FUNDAMENTALS

Eye on reforms/rate cuts: The wash-out of the monsoon session of

the Parliament, the logjam on the GST bill and the surrender on

the land acquisition bill have been set-backs for the government

preventing it from pushing critical reforms amid a minority in the

upper house of the Parliament. The government is contemplating

the scope for the passage of the GST bill in a special session and if

GDP AND CAD


that goes through it will be perceived as a positive by the market.

The other factors are the upcoming Bihar election which will not

only push the reform agenda but also be critical in improving the

government’s tally in the upper house of the Parliament. The RBI

seems broadly convinced about the dip in inflation and may resume

rate cuts as global issues subside, thus the central bank will be keenly

watched by the market.

Valuation broadly in line with the long-term mean: The Sensex has

corrected by ~15% from its peak. The correction was accompanied

by a 12-14% downgrade in its consensus earnings estimate for

FY2016. After the recent cut in the earnings estimate, the consensus

is now building an earnings growth of 12% for FY2016; the growth

is largely expected to be back-ended (in the second half of the fiscal).

The expectations for the FY2017 earnings growth still hover around

the 18-20% mark on the back of the positive effects of interest rate

cuts getting reflected in demand and an additional booster from

the Seventh Pay Commission. The valuation has turned reasonable

and the Sensex trades at ~15x FY2016E (~13x FY2017) consensus

earnings estimate, which is close to the long-term mean.


EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS

Sharekhan Top PicksSHAREKHAN TOP PICKS

August of 2015 turned out to be quite volatile for the equity marketsglobally. Chinese rumbles grew louder as the government struggledto support the country’s plummeting equity market and economy.However, the fears of a currency war got triggered by an unexpectedmove by China to devalue its currency against the US Dollar. Theuncertainty driven-risk aversion led to a flight of global liquidityout of equities in general and the emerging markets in particular.

In the volatile environment also the Top Picks folio of select stocksoutperformed the benchmark indices, Sensex and Nifty (whichdeclined by 6.5% each), with a relatively lower loss of 5.8% sinceour last portfolio revision on July 31, 2015. The smartoutperformance of close to 400 basis points in a flattish month ofJuly followed by an outperformance in a sharp corrective phasehighlights the resilience of the portfolio.

*CMP as on August 31, 2015 # Price target for next 6-12 months ** Under review

NAME CMP* PER ROE (%) PRICE UPSIDE(RS) FY15 FY16E FY17E FY15 FY16E FY17E TARGET (RS)# (%)

Aditya Birla Nuvo 2,042 45.5 41.5 - 7.1 7.2 - 2,500 22

Ashok Leyland 91 110.2 25.9 16.5 4.9 18.0 23.6 98 8

Bajaj Finance 5,024 28.1 22.8 17.8 20.3 19.5 19.2 5,600 11

Cadila Healthcare 1,888 33.6 24.6 17.5 27.3 27.5 28.3 2,300 22

Century Plyboards 153 22.8 18.0 14.6 44.0 39.5 34.1 260 70

IndusInd Bank 857 25.2 20.4 16.2 19.2 20.5 21.5 1,108 29

Lupin 1,929 36.1 32.6 26.0 27.1 23.1 22.8 ** -

Maruti Suzuki 4,168 33.9 23.3 18.4 16.6 20.8 22.2 4,700 13

Reliance Industries 857 10.7 11.3 9.2 10.8 9.4 10.5 1,100 28

SBI 247 14.1 10.3 7.8 10.6 13.2 15.7 378 53

TCS 2,565 25.6 20.8 18.3 33.7 32.8 30.3 3,000 17

Zee Entertainment 386 37.8 33.9 28.0 19.0 18.6 20.1 425 10

ABSOLUTE RETURNS (TOP PICKS VS BENCHMARK INDICES) % CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS) SINCEAPRIL 2009Sharekhan Sensex Nifty CNX

(Top Picks) MIDCAP

CY2015 11.1 -4.5 -3.8 3.8

CY2014 63.6 29.9 30.9 55.1

CY2013 12.4 8.5 6.4 -5.6

CY2012 35.1 26.2 29.0 36.0

CY2011 -20.5 -21.2 -21.7 -25.0

CY2010 16.8 11.5 12.9 11.5

CY2009 116.1 76.1 72.0 114.0

Since inception 410.3 161.9 161.4 260.4(Jan 2009)

CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%)1 month 3 months 6 months 1 year 3 years 5 years

Top Picks -5.8 -1.7 -4.1 31.6 130.5 114.2Sensex -6.5 -5.6 -11.2 -2.4 51.5 43.8Nifty -6.6 -5.6 -11.4 -0.7 52.8 45.4CNX Mid-cap -4.9 -0.9 -2.7 15.2 84.8 44.9

Please note the returns are based on the assumption that at the beginning of each month an equal amount was invested in each stock of the Top Picks basket

This month, we are making two changes in the folio. Both are relatedto a routine churning of stocks from the banking & financial sector.We are replacing Yes Bank with IndusInd Bank, which iscomparatively better placed to increase its market share in the retail,and small and medium enterprise space after a recent mobilisationof fresh equity capital. It is also a play on a revival in the commercialvehicle segment with 25% of its loan book exposed to vehiclefinancing (namely, commercial vehicles).

Another change in the banking and financial space is the introductionof Bajaj Finance in place of Capital First. We believe that theaggressive base rate cut announced by HDFC Bank would have arelatively higher impact on the folio of Capital First as compared

with Bajaj Finance. �


NAME CMP PER ROE (%) PRICE UPSIDE(RS) FY15 FY16E FY17E FY15 FY16E FY17E TARGET (RS) (%)

ADITYA BIRLA NUVO 2,042 45.5 41.5 - 7.1 7.2 - 2,500 22

Remarks: � Aditya Birla Nuvo (ABNL), a conglomerate holding company, is present in different businesses ranging from lifestyle, telecom, fertilisersto financials, with each having either leadership or a strong competitive position in its market. We believe that owing to the holdingcompany structure and composition, the underlying businesses are trading at a discount to their fair value.

� Over the last few years the company has made efforts to consolidate its position in each of the business verticals and gained marketshare in the respective businesses.

� ABNL’s strong position in each of its business verticals (life insurance, telecom, lifestyle and asset management) will pave the way forgrowth. Also, the company’s efforts to implement the necessary restructuring steps to unlock value for its minority shareholdersthrough disinvestment of the sub-scale businesses (carbon black and business process outsourcing), demerger of growth businessesor consolidation within the group are likely to enhance the shareholders’ value in this quality conglomerate business. Thus, we seescope for further re-rating of the stock as each of its businesses gets valued optimally, does not suffer holding structure and has adiversified business profile (no holding discount). We, therefore, retain our positive stance on the stock and maintain our Buy rating onthe stock.

EQUITY FUNDAMENTALS SHAREKHAN TOP PICKS

ASHOK LEYLAND 91 110.2 25.9 16.5 4.9 18.0 23.6 98 8

Remarks: � Ashok Leyland Ltd (ALL) is the second largest commercial vehicle (CV) manufacturer in India with a market share of 27% in the heavytruck segment and an even higher share of about 40% in the bus segment. The domestic heavy CV industry witnessed a sharp fall involumes over FY12-14 given an economic slowdown. The industry witnessed a turnaround in FY15 with a 16% growth.

� ALL entered the light commercial vehicle (LCV) segment with the launch of the Dost in joint venture (JV) with Nissan. The JV hasadditionally launched the Partner LCV and Stile van. Going forward, we expect ALL to gain a foothold in the LCV segment and expandits market share.

� The company is also concentrating on verticals other than CVs to de-risk its business model. It has a strong presence in exports andcontinues to expand in newer geographies. Additionally, ALL’s defence business is expected to get a leg-up due to the government’sfocus on indigenous manufacture of defence products and FDI in the sector.

� ALL’s operating profit margin has recovered from the lows on the back of a reduction in discounts and price hikes taken by thecompany. Its margins are expected to expand further, given the operating leverage. In FY15, ALL raised Rs660 crore via a qualifiedinstitutional placement and sold non-core assets to pare its debts. With no significant capital expenditure planned, we expect thebalance sheet to get de-leveraged and the return ratios to improve.

BAJAJ FINANCE 5,024 28.1 22.8 17.8 20.3 19.5 19.2 5,600 11

Remarks: � Bajaj Finance Ltd (BFL) is among the most diversified NBFCs (financing of mortgages, consumer durables, SME, rural etc) having a strongdistribution network ( 512 branches). We believe a strong growth in customer additions, its unique cross-sell and up-sell capabilities, androbust growth from newer products (rural finance, lifestyle finance etc) should drive a growth of over 25% in the AUMs.

� Despite a strong growth in loans, the asset quality remains among the best in the system (gross NPAs of 1.69% based on 150-day pastdue [DPD] basis) which along with conservative provisioning adds to the comfort. BFL has already made provisions based on 90-DPDbasis, ahead of the Reserve Bank of India (RBI)’s timeline.

� We expect BFL’s earnings to grow at a compounded annual growth rate of 28% over FY15-17 resulting in a return on asset (RoA) andreturn on equity (RoE) of 3.2% and 19.2% respectively. While we have been positive on BFL’s business model and strong earningsperformance; the valuation after the recent correction has turned more reasonable (3.1x its FY1207E book value). We have a Buyrating on BFL with a price target of Rs5,600.

CADILA HEALTHCARE 1,888 33.6 24.6 17.5 27.3 27.5 28.3 2,300 22

Remarks: � Cadila Healthcare is set to enter a high-growth trajectory, thanks to its aggressive product filings in the USA and Latin America, arecovery in its joint venture business and the launch of niche products in the Indian market including the generic version of GileadSciences' Hepatitis C drug, Sofosbuvir, in India under the brand name SoviHep.

� Cadila Healthcare, which generates close to 36% of its total revenues from the US market, is likely to be among the key beneficiariesof a favourable business environment in the generic space. The company has over 161 abbreviated new drug applications (ANDAs)pending approval out of 260 ANDAs filed with the US Food and Drug Administration (USFDA) that will unfold over the next two to threeyears.

� We expect the company to record overall revenue and profit CAGR of 21% and 39% over FY2015-17 respectively from the basebusiness. The OPM of the company will see a sustained expansion of over 400BPS in the next two years, mainly on the back ofstronger traction in the branded business in India and Latin America, a better generic pricing scenario in the USA and optimisation ofcapabilities in the joint venture business.



CENTURY PLYBOARDS 153 22.8 18.0 14.6 44.0 39.5 34.1 260 70

Remarks: � Century Plyboards (Century) is a leading player in the fast growing plyboard and laminate segment, with an overall market share ofaround 25% of the organised plyboard market and an estimated size of Rs4,500-4,800 crore annually. The organised plywood andlaminate segment is growing at healthy double-digit growth rates due to an improving demand environment and a shift towardsbranded products. Century with its strong brand equity, unparalleled distribution network (10,000 touch points) and manufacturingpresence in the timber-rich region of Myanmar is well poised to cash in on the robust growth opportunity.

� The introduction of the Goods and Services Tax (GST) would create a level playing field for the organised players. The unorganisedplayers are currently out of the tax net and thus enjoy lower costs by evading taxes. After the introduction of GST, the tax advantageenjoyed by the unorganised players would diminish sharply and the market share of the organised players is likely increase significantly,benefiting Century.

� We believe Century with its top-of-the-mind brand recall is well positioned to ride the economic revival-driven recovery in demand andincrease its market dominance in the plywood and laminate segments. A robust revenue growth and margin expansion would enablethe company to deliver a strong growth ahead. We expect it to post a 25.0% earnings CAGR over FY2015-17. The implementation ofGST would provide a fillip to the revenue and earnings performance. In view of these positives, we maintain our Buy rating on the stockwith a price target of Rs260 (valued at 25x its FY2017E).

INDUSIND BANK 857 25.2 20.4 16.2 19.2 20.5 21.5 1,108 29

Remarks: � Indusind Bank is among the fastest growing banks (a 27% CAGR growth over FY10-15) having a loan book of Rs68,700 crore and 811branches across the country. About 25% of the bank’s book pertains to vehicle finance, which is a high-yielding category and isshowing signs of recovery.

� Given the aggressive measures taken by the management, the deposit profile has improved considerably (a CASA ratio of 34%).Going ahead, the bank would follow a differentiated branch expansion strategy (a 5% branch market share in identified centers) thatwould help ensure healthy savings accounts and retail deposit growth.

� Despite a weak economic growth and a higher proportion of vehicle finance book the bank has maintained its asset quality. With totalstressed loans (restructured loans + gross NPAs) forming just 1.4% of the book, the bank’s asset quality is among the best in the system.

� A likely revival in the economy will further fuel growth in the consumer finance division and strong capital ratios will support the growthplans. The stock is trading at 3.1x its FY17E book value (not factoring in the QIP issue). Given the strong loan growth, high RoAs andhealthy asset quality, the stock should continue to trade at premium valuation. We have a positive outlook on the stock.

LUPIN 1,929 36.1 32.6 26.0 27.1 23.1 22.8 ** -

Remarks: � A vast geographical presence, focus on niche segments like oral contraceptives, ophthalmic products, para-IV filings and branded businessin the USA are the key elements of growth for Lupin. The company has remarkably improved its brand equity in the domestic andinternational generic markets to occupy a significant position in the branded formulation business. Its inorganic growth strategy has seena stupendous success in the past. The company is now debt-free and that enhances the scope for inorganic initiatives.

� The acquisition of US-based Gavis is a good strategic fit. Gavis has manufacturing plants in the USA and a portfolio of 20 productsalong with a pipeline of 65 ANDA filings. Thus, the management believes the revenues could touch $300 million by 2018, up from $96million in 2014. The margins are also healthy at 36% and would firm up further. But even after taking the revenues projected for thenext three years into account, it works out to close to 3x the consideration of $880 million. On the positive side, the acquisition wouldbe earnings accretive from the first year itself.

� Lupin is expected to see stronger traction in the US business on the back of the key generic launches in recent months and a strongpipeline in the US generic business (over 95 ANDAs pending approvals including 86 first-to-file drugs) to ensure the future growth. Thekey products that are going to provide a lucrative generic opportunity for the company include Nexium (market size of $2.2 billion),Lunesta (market size of $800 million) and Namenda (market size of $1.75 billion) that will be going out of patent protection in CY2015.

MARUTI SUZUKI 4,168 33.9 23.3 18.4 16.6 20.8 22.2 4,700 13

Remarks: � Maruti Suzuki India Ltd (MSIL) is the market leader in the domestic passenger vehicle (PV) industry. In FY2015, as against an industrygrowth of a modest 3.9% MSIL has grown its volumes by 11.1% and in the process expanded its market share by 441BPS to 45%.

� The company further strengthened its sales and service network, and added 309 outlets in FY15. Additionally, the drive undertaken byits management to tap the potential in rural areas paid rich dividends in difficult times for the industry and in the face of rising competitiveintensity; this reaffirms the resilience of MSIL’s positioning and business model.

� MSIL’s new sedan, Ciaz, has received a positive response from the market and helped MSIL establish a presence in the segment.Also, with the new premium cross-over, ie S-Cross (to be retailed at exclusive Nexa outlets) the company is looking to move up theladder. MSIL has a pipeline of new launches over the next few years, with the most important being the entry into the compact utilityvehicle and light commercial vehicle segments.

� We expect customer sentiment to improve on the back of a strong government at the centre. Additionally the PV segment is expectedto benefit from the pent-up demand over the past two years; this will benefit MSIL the most due to its high market share in the entrylevel segment. The recent depreciation of the Japanese Yen is expected to boost profitability.

EQUITY FUNDAMENTALSSHAREKHAN TOP PICKS



RELIANCE INDUSTRIES 857 10.7 11.3 9.2 10.8 9.4 10.5 1,100 28

Remarks: � Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refiningdivision of the company is the highest contributor to its earnings and is operating efficiently with a better gross refining margin (GRM)compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. The exploration businessremains weak due to low production in the Krishna-Godavari-D6 (KG-D6) field and weak pricing of global fuel prices. However, capitalemployed and profit contribution from the exploration business is low.

� Moreover, the upcoming incremental capacities in the petrochemical and refinery businesses are going to drive the future earnings growthsubstantially as the downstream businesses are on the driving seat and contributing the lion’s share of the profitability and cash flow.

� In the short term the GRM is likely to taper down after hitting a multi-year high in Q1FY2016; however, on an annual basis, we expectthe GRM to remain healthy. The stock is available at an attractive valuation considering the size, strong balance sheet and cash flowgenerating ability of the company.

SBI 247 14.1 10.3 7.8 10.6 13.2 15.7 378 53

Remarks: � SBI is India's largest bank in terms of most comparable parameters such as assets size, branch network (18,000 branches) andcustomer base. The bank has a market share of ~18% and along with its associate banks it commands a market share of over 25% inthe banking system. Therefore, with a revival in the investment cycle and pick-up in consumption the bank is likely to benefit significantlyin terms of loan growth and profitability.

� SBI’s asset quality is relatively better compared with the other public sector banks (PSBs; its stressed loans stand at ~8.5% vs ~13.5%of the other PSBs) and has been showing improving trends in the past few quarters. While the pressure on the asset quality maycontinue in the near term, a higher tier-1 CAR (9.6%) and an improving operating performance remain comforting factors.

� Going ahead, SBI will look to merge its associate banks which will give an unmatched hold in the domestic banking sector and boosteconomies of scale. In addition, the likely monetisation of the insurance and other subsidiaries will strengthen the capital position ofthe bank. The bank may also benefit from the government’s plans to infuse capital into the PSBs. SBI is a better pick among thegovernment-owned banks and is reasonably valued at the current levels.

TCS 2,565 25.6 20.8 18.3 33.7 32.8 30.3 3,000 17

Remarks: � TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in mostservice offerings and has further consolidated its position as a full-service provider by delivering a robust financial and operationalperformance consistently over the years.

� The consistency and predictability of its earnings performance has put the company at the top of its league. Moreover, the quality of itsperformance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographies andverticals consistently.

� Though cross-currency head winds and softness in some verticals will keep the earnings volatile in the near term, we believe theoverall improvement in the USA will drive the growth in the coming years. Also, the company’s increasing capabilities in the digitalspace (the digital business contributed close to 12.5% of total revenues in Q1FY2016), which is a high-growth area, consolidates itsposition among the top global IT companies. We maintain TCS as our top pick in the IT sector and have a Buy rating on the stock.

ZEE ENTERTAINMENT 386 37.8 33.9 28.0 19.0 18.6 20.1 425 10

Remarks: � Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatorydigitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incrementalcapex as the subscriber declaration improves in the cable industry.

� The management maintains that the advertisement spending will continue to grow in double digits going ahead and ZEEL will be ableto outperform the same. The growth in the advertisement spending will be driven by an improvement in the macro-economic factorsand the fact the ZEEL is well placed to capture the emerging opportunities being a leader in terms of market share.

� ZEEL is well placed to benefit from the digitisation theme and the overall recovery in the macro economy. Also, the success of thenewly launched channel, “&TV” and recent acqustion of Odia GEC channel ‘Sarthak TV’, would augur well and improve the company’sposition in the general entertainment channel space.

EQUITY FUNDAMENTALS SHAREKHAN TOP PICKS


WEALTH CREATOR PORTFOLIO EQUITY FUNDAMENTALS

Wealth Creator portfolioWEALTH CREATOR PORTFOLIO AUGUST 31, 2015

COMPARATIVE RETURNSParticulars Returns (August 31, 2015)

Since inception (August 21, 2014)

Wealth Creator folio (weighted average returns) 10.7

- Large-cap (64%) 14.0

- Mid-cap (36%) 5.0

Sensex -0.3

Nifty 1.0

CNX Mid-cap 16.8

UPDATE ON WEALTH CREATOR PORTFOLIOSr No Scrip Weights Reco price (Rs) Price target (Rs) Potential upside 31-Aug-15 Mar-18

Large-caps (64% weightage; 8% each))

1 Axis Bank 8% 507 1,210 138.8%

2 Larsen & Toubro 8% 1,605 3,800 136.7%

3 Maruti Suzuki 8% 4,205 7,450 77.2%

4 Cummins 8% 1,100 1,708 55.2%

5 State Bank of India 8% 247 580 134.7%

6 Sun Pharmaceuticals 8% 898 1,650 83.8%

7 Tata Consultancy Services 8% 2,565 5,100 98.8%

8 Tata Motors DVR 8% 237 675 185.1%

Mid-caps (36% weightage; 4% each)

9 PTC India Financials 4% 41 112 171.5%

10 V-Guard 4% 898 2,100 133.9%

11 Gateway Distripark 4% 361 810 124.3%

12 IRB Infra 4% 234 650 178.2%

13 Network 18 Media 4% 49 150 205.8%

14 Gabriel India 4% 88 200 127.5%

15 Century Plyboard 4% 153 440 187.7%

16 Triveni Turbines 4% 115 265 130.4%

17 Dhanuka Agritech 4% 475 1,260 165.1%

* Please note we see scope for an upward revision in the price target (3-year) of some of the stocks depending on the extent of economic recovery and will keep updating you on the same

Objective: To build a balanced and actively managed portfolio ofquality companies that will help create meaningful wealth forinvestors in the multi-year rally expected in the Indian equity market.

In addition to some bottom-up picks, the portfolio contains stocksidentified based on three key themes:

� Policy push: Stocks from sectors benefiting from improvementin the policy environment

� Early gainers: Beneficiaries of an economic recovery (stocks fromauto, banking & financial services, logistic sectors)

� Evergreen: Steady performers that provide stable and consistentreturns including urban consumption plays

Portfolio performance review� The Wealth Creator folio has appreciated by 10.7% (weighted

average returns) since its inception comprehensively beatingthe returns from the benchmark indices in the same period.

� No changes or revisions were suggested in the folio inAugust 2015. The prices are on August 31, 2015.�


Here is a perfect match for every portfolio

COMPANY DETAILS

Price target: Rs3,650

Market cap: Rs34,605 cr

52-week high/low: Rs3,435/1,233

NSE volume (No of shares): 2.1 lakh

BSE code: 500825

NSE code: BRITANNIA

Sharekhan code: BRITANNIA

Free float (No of shares): 5.91 cr

PRICE CHART

SHAREHOLDING PATTERN

(%) 1m 3m 6m 12m

Absolute 0.0 15.2 40.9 130.5

Relative 9.3 22.3 55.8 133.9to Sensex

PRICE PERFORMANCE

BUY CMP: RS2,886 AUGUST 27, 2015

KEY POINTS� Strong brand; tasting success under new leadership: Britannia Industries Ltd (Britannia) is

the second largest player in the Indian biscuit market with about 30% market share. Within

two years of inducting Varun Berry in the top management the company has tasted success

by redefining its strategies with focus on enhancing its distribution reach, increasing in-

house production and continuously innovating the product portfolio. Britannia’s sales

volume has got into a double-digit growth trajectory and OPM surged to 14% (from 6-7%

in FY2013), making it one of the fastest growing FMCG companies in two years.

� Turning into a snack and food company: Britannia has chalked out an aggressive growth

strategy to sustain the double-digit volume growth in the biscuit segment by enhancing its

product portfolio and increasing its distribution reach. Apart from this, Britannia is also

striving to expand to the other categories such as dairy (market size Rs75,000) and adjacent

snacking categories (market size Rs30,000 crore). It also has a presence in categories such

as rusk and cakes, which are at a nascent stage. The company even has plans to re-enter the

breakfast market with relevant product offerings.

� Margins not only sustainable but could also firm up further: Britannia’s OPM improved to

14% in Q1FY2016 from merely 7% in FY2013. This can be attributed to: (1) an improving

revenue mix in favour of high-margin products; (2) operating efficiency through increased

in-house production; (3) a drop in the distance travelled, which reduced the distribution

cost; and (4) falling commodity prices. Going ahead, we believe there is scope for an

improvement of 100-200BPS in the OPM. Despite the introduction of new products and

expansion into new food categories, the shift in the revenue mix in favour of premium and

relatively high-margin categories would aid margin expansion.

� Valuation; buy with PT of Rs3,650: Under the new leadership, Britannia has been able to

leverage and monetise its strong brand and position in the biscuit and snack segments. It

reported a healthy growth of 50% CAGR in earnings over FY2012-15 which is ahead of

its peers’. We believe that the company can sustain its higher than industry growth rates

with an improving distribution reach, entry into newer categories and focus on cost

efficiencies. We initiate coverage on the stock with a Buy recommendation, assigning it a

price target of Rs3,650 (valuing the stock at 38x the average of the FY2017E and FY2018E

earnings).

� Key risk: Any increase in competitive intensity (especially by the regional brands) and rise

in the price of the key inputs would act as a key risk to our earnings estimates in the near

to medium term.

BRITANNIA INDUSTRIES

Sharekhan Limited, its analyst or dependant(s) of the analyst might be

holding or having a postition in the companies mentioned in the article.

VALUATIONS (CONSOLIDATED)

Particulars FY14 FY15 FY16E FY17E FY18E

Net sales (Rs cr) 6,912.7 7,858.4 9,013.8 10,450.7 12,123.9

Operating profit (Rs cr) 627.2 863.9 1,259.8 1,531.2 1,833.1

OPM (%) 9.1 11.0 14.0 14.7 15.1

Adjusted PAT (Rs cr) 395.9 542.5 839.7 1038.9 1258.4

EPS (Rs) 33.0 45.2 70.0 86.6 104.9

P/E (x) 87.4 63.8 41.2 33.3 27.5

EV/EBIDTA (x) 55.2 40.0 27.2 22.2 18.4

RoE (%) 58.9 53.3 55.5 48.8 43.6

RoCE (%) 42.9 46.9 51.5 46.6 43.0

For detailed report, please visit the Research section of our website, sharekhan.com.

EQUITY FUNDAMENTALS STOCK IDEA


STOCK UPDATE EQUITY FUNDAMENTALS

Healthy performance; PT revised to Rs2,500COMPANY DETAILS



52 week high/low: Rs2,340/1,402

NSE volume (no. of shares): 2.0 lakh

BSE code: 500303

NSE code: ABIRLANUVO

Sharekhan code: ABIRLANUVO

Free float (no. of shares): 5.6 cr

(%) 1m 3m 6m 12m

Absolute 18.8 19.7 29.6 58.6

Relative to Sensex 17.7 17.1 31.3 43.3

PRICE PERFORMANCE

BUY CMP: RS2,227 AUGUST 12, 2015ADITYA BIRLA NUVO

KEY POINTS� Healthy performance aided by financial and manufacturing verticals: In Q1FY2016

Aditya Birla Nuvo Ltd (ABNL)’s consolidated revenues grew by 9.9% on a Y-o-Ybasis, led by a strong growth in the financial business (+43% YoY), followed by thefertiliser business (+19.2% YoY) an d the branded apparels business (+14.4%YoY). Led by a turnaround in the lifestyle business and coupled with a marginimprovement in the financial services vertical (EBIT up 509BPS YoY), manufacturing(fertiliser, insulator) and telecom verticals (EBIT up 152BPS YoY), the operating profitgrew by a strong 31.8% YoY. The strong operating performance translated into ahealthy 50.4% Y-o-Y growth in the net earnings for the quarter.

� Healthy growth in financials; Pantaloons business turning around: The company soundedconfident of its NBFC business and continues to nurture its plans to grow the loanbook size, though it believes the market environment remains challenging for the lifestylesegment. Further, with consolidation of the businesses (Madura Coats and Pantaloons)along with the company’s effort towards growing the business via expansion throughthe online and brick-and-mortar routes would enable it grow and thrive going ahead.

� Retain Buy with revised PT of Rs2,500: ABNL’s strong position in each of its businessverticals (life insurance, telecom, lifestyle and asset management) and its restructuringefforts to unlock value for the minority shareholders either through disinvestment ofthe sub-scale businesses (carbon black and BPO), a demerger of the growth businessesand/or consolidation within the group are likely to enhance the shareholders’ value inthis quality conglomerate business. Thus, we maintain our Buy rating with a revisedprice target of Rs2,500. �



holding or having a postition in the companies mentioned in the article.For detailed report, please visit the Research section of our website, sharekhan.com.

Margins continue to surprise; maintain Buy withan unchanged PT of Rs240

COMPANY DETAILS

Price target: Rs240


52 week high/low: Rs249/155


BSE code: 500877

NSE code: APOLLOTYRE

Sharekhan code: APOLLOTYRE


(%) 1m 3m 6m 12m

Absolute 5.1 8.1 2.9 8.6

Relative to Sensex 4.1 5.8 4.2 -1.9

PRICE PERFORMANCE

BUY CMP: RS188 AUGUST 12, 2015APOLLO TYRES

KEY POINTS� Revenues under pressure; margins hit an all-time high: For Q1FY2016, Apollo Tyres

(Apollo) witnessed pressure on the stand-alone revenues as volumes and realisationsboth fell by 3.5%. Its European operations reported an 8% volume growth. The negativeeffect of the rupee’s appreciation against the euro and price cuts taken led to a 19% fallin the revenues in rupee terms. However, Apollo continued to reap the benefits of asharp decline in the raw material prices and its consolidated margins touched an all-time high of 17.7%. The net profit after tax (PAT) rose by 27.5% YoY to Rs291 croreas against our estimate of Rs298 crore.

� Management proposes higher capital expenditure: The management expects theradialisation level in India for truck and bus tyres to increase significantly from 35% inFY2015 to 70% in the next four to five years. In keeping with this outlook, themanagement has raised its planned investment for truck and bus radial (TBR) tyres inChennai. Apollo will be investing Rs4,000 crore over the next three years in India forcapacity expansion in addition to the 400-million-euro investment for the greenfieldfacility in Hungary. As of Q1FY2016, the company has achieved a cash positive level(consolidated) and hence is in a position to undertake the large investment plan.

� Maintain Buy with a PT of Rs240: We have lowered our revenue estimates for thestand-alone operations and raised the margin expectations in tune with the currenttrend and the continued benefit on the raw material front. Consequently, there is nosignificant change in our earnings estimates for FY2016 and FY2017. We remain positiveon the stock and reiterate our Buy rating with an unchanged price target of Rs240,discounting the FY2017E earnings by 10x.�





STOCK UPDATEEQUITY FUNDAMENTALS

A strong operating performance; Buy maintainedwith revised PT of Rs98

COMPANY DETAILS

Price target: Rs98



NSE volume (no. of shares): 189 lakh

BSE code: 500477

NSE code: ASHOKLEY

Sharekhan code: ASHOKLEY


(%) 1m 3m 6m 12m

Absolute 23.0 23.3 32.0 153.1


PRICE PERFORMANCE

BUY CMP: RS88 AUGUST 13, 2015ASHOK LEYLAND

KEY POINTS� ALL continues to beat industry growth: For Q1FY2016, Ashok Leyland Ltd (ALL)

maintained a lead over its competitors and posted an impressive growth of 44.6% inthe domestic medium and heavy commercial vehicle (MHCV) segment as against theindustry growth of 23.1%. The multiple price hikes undertaken during FY2015, softcommodity prices and a higher operating leverage enabled ALL to expand operatingprofit margin by 540BPS YoY to 10.1% vis-à-vis our expectation of 9.7%. The interestcost for the quarter also fell by 28% YoY, enabling the company to post a net PAT ofRs159 crore as against our expectation of Rs131 crore.

� Consistent gain in market share: ALL has been consistently gaining market share in thebread-and-butter MHCV truck segment. In FY2015, ALL expanded its market shareby 443BPS to 27.2% and its share is nearing 30% in the current quarter. The companyis benefitting from an industry shift to higher tonnage multi-axle vehicles (>25mt).Additionally, efforts taken by the management to expand its network outside itstraditional southern market are also paying dividends. The management expects theMHCV industry to grow by about 20% in FY2016, higher than the earlier guidance of10-15%. We expect ALL to outperform with a 31% growth. Additionally, the benefitof relatively benign commodity prices and high operating leverage is expected to helpmaintain margins above the 10% mark.

� Maintain Buy with a revised PT of Rs98: Given the significant outperformance by ALL ascompared with the industry, we have revised upwards our volume estimates for FY2016and FY2017. We have also factored in higher operating profit margins due to soft commodityprices and increased operating leverage. As a result, we have raised our earnings estimatesfor FY2016 and FY2017 by 12% and 15% respectively. We remain positive on the stockand reiterate our Buy recommendation with a revised price target of Rs98. �




Good results, limited upside; maintain Holdwith revised PT of Rs815

COMPANY DETAILS

Price target: Rs815




BSE code: 524804

NSE code: AUROPHARMA

Sharekhan code: AUROPHARMA


(%) 1m 3m 6m 12m

Absolute 0.8 12.5 36.6 99.2


PRICE PERFORMANCE

HOLD CMP: RS783 AUGUST 17, 2015AUROBINDO PHARMA

KEY POINTS� Strong US performance led to better Q1FY2016 results: Aurobindo Pharma’s revenues

in Q1FY2016 rose by 14% YoY to Rs3,320.4 crore largely on account of a strongrevenue growth in the US business. However, higher expenses during the quarter leadto a marginal decline of 78BPS to 21.8% in the OPM. A high tax rate and decline inmargin resulted in a growth of 11% in the adjusted earnings to Rs458 crore.

� Steady shift towards high-margin products: The company has received approval for eightproducts during the quarter of which four are injectables. With these approvals, the companyis slowly moving toward high-value products. In Q1FY2016, the company continued togain market share in gSuprax as no other competitors was able to launch products.

� US to drive growth: The management has indicated at the launch of strong products inthe coming quarters which will help the company to achieve higher growth and alsoimprove its margin from H2FY2016 and FY2017 onwards. Going forward, the companyis likely to see better traction on the OPM front as the newly acquired entities willshow a better profitability and more approvals of high-margin products from the USFDA.The USA will remain a key growth driver for the company.

� PT revised to Rs815; maintain Hold since limited upside: We have marginally revised ourearnings estimate upward for FY2016 and maintained our earnings estimate for FY2017to factor in a strong revenue growth from new product launches and high tax rate. Hence,our revised EPS estimates for FY2016 and FY2017 stand at Rs30.4 and Rs40.5 respectively.Consequently, we have revised our price target upward to Rs815. But due to a limitedupside from the current market price we have maintained our Hold rating on the stock.�






Q1 numbers slipped on poor execution;Hold maintained

COMPANY DETAILS

Price target: Rs270




BSE code: 500103

NSE code: BHEL

Sharekhan code: BHEL


(%) 1m 3m 6m 12m

Absolute 8.3 14.4 1.5 24.1


PRICE PERFORMANCE

HOLD CMP: RS266 AUGUST 7, 2015BHARAT HEAVY ELECTRICALS

KEY POINTS� Dismal performance: For Q1FY2016, Bharat Heavy Electricals Ltd (BHEL) reported a

disappointing performance as its net earnings plummeted sharply YoY and revenuesdeclined by 16% YoY due to poor order inflow in the past and poor execution in thisquarter. Its GPM contracted by 425BPS YoY resulting in a loss at the operating level.BHEL managed to report a positive net profit of Rs34 crore against a PAT of Rs194crore in Q1FY2015 on the back of an other income of Rs573 crore. The poor operatingperformance was a negative surprise for the Street.

� Order inflows perk up; execution pick-up delayed: On the positive side, this quarterwitnessed a better order inflow of Rs19,688 crore against a negligible order of aroundRs1,127 crore in Q1FY2015 due to large orders won from the Telangana utility. Further,the company is L1 for projects of capacity totaling 4000MW. The total order backlogof BHEL has gone up to Rs116,205 crore, up 19% YoY, with the large inflow. Out ofthese around Rs24,000 crore of orders are stranded orders. The management guidedthat the order execution should get traction from Q3FY2016 onwards, as orders fromTelangana should kick-start and the execution hurdles should be cleared by then.

� Valuations; retain Hold for patient investors: The company is under severe pressure onprofitability due to weak order inflows in the past but believes that the future orderinflow outlook is the single most important factor to determine the future prospect ofthe company. We have fine-tuned our earnings estimates for FY2016 and FY2017,given the execution slippage in Q1FY2016. However, we have maintained our Holdrating on the stock with an unchanged price target of Rs270. �




In-line performance;maintain Buy with revised PT of Rs2,300

COMPANY DETAILS





BSE code: 532321

NSE code: CADILAHC

Sharekhan code: CADILAHC


(%) 1m 3m 6m 12m

Absolute 1.7 16.2 28.0 73.8


PRICE PERFORMANCE

BUY CMP: RS2,017 AUGUST 12, 2015CADILA HEALTHCARE

KEY POINTS� US business drives revenues; higher tax rate restricted net income growth: For

Q1FY2016, Cadila Healthcare (Cadila) reported a healthy performance, its revenuesgrew by 18.8% YoY to Rs2,434 crore. The growth was led by the US market, whichjumped by 37% YoY to Rs910 crore and the same contributed to 40% of the totalrevenues. Its OPM expanded by 384BPS to 22% (excluding the one-time income ofRs66.6 crore [$10.5 million], pertaining to sell-off ANDAs in the US subsidiary, themanagement indicated that $3 million will come in Q2FY2016). For the quarter, theeffective tax rate has increased to 32% (owing to a change in the invoicing policy forthe supply of its products to the subsidiary) as compared with a normal tax of around18%. Hence, the earnings for the quarter grew by 47.1% YoY to Rs353.

� Filing of new products remained strong: During the quarter, the company filed sixadditional ANDAs with the USFDA and launched one new product in the US market.For the domestic market, the company launched 12 new products of which four productsare first to be launched in India. The company has a strong pipeline of products of whichsome are exclusive. Currently, the company has 165 ANDAs pending with the USFDA.

� Maintain Buy with a revised price target of Rs2,300: The management expects 40filings in the US market during FY2016. We believe with a strong presence in the USmarket, and a higher number of product filings and approvals in the subsequent years,the growth in the US market is expected to be strong. We have tweaked our earningsestimates and expect an EPS CAGR of 39% over FY2015-17 to Rs108. We maintainour Buy rating on the stock with a revised price target of Rs2,300.�






Indian business shines; education and Meiningerbuinesses affected by high base

COMPANY DETAILS

Price target: Rs350



NSE volume (no. of shares): 33,149

BSE code: 533144

NSE code: COX&KINGS

Sharekhan code: COX&KINGS


(%) 1m 3m 6m 12m

Absolute 17.5 -1.5 -2.4 16.2

Relative to Sensex 16.7 -5.1 -1.3 5.2

PRICE PERFORMANCE

BUY CMP: RS301 AUGUST 7, 2015COX & KINGS

KEY POINTS� Muted performance on like-to-like basis: Cox & Kings India Ltd (CKIL)’s consolidated

revenues declined by 7.5% YoY to Rs683.6 crore in Q1FY2016. The OPM improvedby 113BPS to 48.7%. This along with lower interest cost and lower depreciation led toa 6% growth in the reported PAT.

� Indian business performs well; education business registered muted performance: CKIL’sIndian leisure business performed extremely well; its revenues grew by 16% and EBIDTAgrew by 17.3% YoY in Q1FY2016. Though the international leisure business’ revenuesstood flat YoY, yet its EBIDTA grew by 16.0% YoY on the back of tight cost control.The education and Meininger businesses’ revenues stood flat during the quarter due toa high base of Q1FY2015 and adverse currency movement.

� Cash from operations improved; repaid Rs65-crore debt in Q1FY2016: CKIL prudentlymanaged its working capital requirement which helped the company to generate freecash of Rs125 crore. Thus, the company utilised Rs65 crore of free cash to furtherreduce its debt on the books. The company is planning to reduce debt by Rs300-350crore in FY2016 through improving cash flows.

� Maintained FY2017 earnings; recommend Buy: We have reduced our earnings estimatefor FY2016 by 5% to factor in the delay in bed addition in the education and Meiningerbusinesses, while we have maintained our estimates for FY2017. We expect the Indianbusiness to perform strongly in the coming years, while the performance of the educationbusiness is likely to recover in the coming quarters. Further, the deleveraging of thebalance sheet will boost its earnings growth over the next couple of years. The stock iscurrently trading at 9.8x its FY2017E earnings (EV/EBIDTA of 6.6x). We maintainour Buy recommendation on the stock with an unchanged price target of Rs350.�




Strong show; maintain Hold with PT revised to Rs570COMPANY DETAILS

Price target: Rs570




BSE code: 533261

NSE code: EROSMEDIA

Sharekhan code: EROSMEDIA


(%) 1m 3m 6m 12m

Absolute -10.4 30.8 34.8 136.0

Relative to Sensex -10.9 25.7 38.2 116.6

PRICE PERFORMANCE

HOLD CMP: RS532 AUGUST 17, 2015EROS INTERNATIONAL MEDIA

KEY POINTS� Strong revenues; margin performance continues to disappoint: For Q1FY2016 Eros

International Media Ltd (EIML) reported a 95.7% Y-o-Y growth in revenues to Rs473crore, led by movies and other regional language releases. However, out of the totalrevenues Rs144 crore is attributed to third-party sales to parents (excluding which,revenues were up by 36% YoY). The EBIT margin stood at 27% (improved YoY).During the quarter, 16 movies were released, seven Hindi films, eight Tamil/Telugufilms and one regional film as compared with nine films during Q1FY2015, whichincluded five Hindi and four Tamil/Telugu films. The net income grew by 48.7% YoYto Rs53.4 crore.

� Maintain Hold with a revised PT of Rs570: We like EIML’s strategy of picking qualitymovie content and the improvement in the catalogue monetisation revenues. The recentsuccess of movies across genres is a testimony to EIML’s strong expertise in contentmanagement. We have tweaked our earnings estimates for FY2016 and FY2017 owingto an increase in the revenue estimates and higher tax rates. Though, we still remainsceptical on the cash generation profile of the company (it remains free cash flownegative, the management is hopeful of turning positive in FY2016), yet given theimprovement in the revenue visibility and the monetisation success in the digital media,we have increased our target multiple for the company and revised our price target toRs570. However, given the recent run-up in the last three months (more than 30%)and limited upside from the current level, we maintain our Hold rating on the stock. �






Strong Q1 numbers beat estimates; Buy retainedCOMPANY DETAILS

Price target: Rs310


52-week high/low: Rs306/188


BSE code: 500144

NSE code: FINCABLES

Sharekhan code: FINCABLES


(%) 1m 3m 6m 12m

Absolute 5.3 2.2 5.7 34.0

Relative to Sensex 3.4 -2.2 5.5 19.2

PRICE PERFORMANCE

BUY CMP: RS267 AUGUST 11, 2015FINOLEX CABLES

KEY POINTS� Strong earnings growth, on margin expansion: Finolex Cables Ltd (FCL) reported a

strong earnings growth of 39% YoY to Rs48 crore despite flat revenues as the operatingprofit margin (OPM) expanded substantially (up 263BPS YoY) in Q1FY2016.Consequently, the operating profit of FCL grew by 31% YoY to Rs73 crore in thisquarter and helped the earnings to grow at 39% YoY.

� Cable demand still muted; new product lines to drive future growth: During the quarter,the electrical cable volume improved by 5% YoY and the expected recovery in demandis not yet visible for electrical cables. On the other hand, the communication cablesbusiness should continue to perform well for the next two quarters. The company isstill waiting for the regulatory approvals from BIS for its planned launch of switchgearrange of products. Now, FCL has chalked out a plan to venture into fan business bysetting up a new facility (capacity of 2,400,000 fans annually). We see this as a naturaland suitable extension of its existing product line and FCL could easily leverage itsstrong brand recall and franchise.

� Valuation—fine-tuned estimates; retain Buy: Though we were positively surprised bythe margin expansion in its electrical cable segment during Q1FY2016, yet we believeretaining a part of the copper price correction for the whole year would be difficult.Given the net cash positive balance sheet, strong cash flow and healthy return ratios,we remain positive on the company. Further, the plan to enter the fan market lookslike a directionally positive step. Therefore, we retain our positive stance on the stockand reiterate our Buy rating with an unchanged price target of Rs310. �



holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

Performance to improve in H2FY2016;upgraded to Buy; PT revised to Rs7,000

COMPANY DETAILS





BSE code: 500676

NSE code: GSKCONS

Sharekhan code: GSKCONS


(%) 1m 3m 6m 12m

Absolute 1.6 -0.5 13.7 27.9

Relative to Sensex 0.9 -4.2 15.0 15.8

PRICE PERFORMANCE

BUY CMP: RS6,326 AUGUST 6, 2015GLAXOSMITHKLINE CONSUMER HEALTHCARE

KEY POINTS� Revenues grew in single digits; improved margin aided bottom line growth: In

Q1FY2016, GSK Consumer’s revenues grew by 7.5% with volume growth remainingalmost flat to growing at low single digits, as demand for the health food drinks segmentis yet to improve in the domestic market. The GPM improved by 582BPS YoY to67.6% boosted by lower milk and milk powder prices. However, the OPM improvedby 152BPS YoY to 14.6%, as higher other expenses (increased by 26% YoY) arrestedsignificant expansion in the OPM. The operating profit grew by 20.0% YoY and thereported PAT grew by 19.1% in Q1FY2016.

� Volume growth likely to revive in H2FY2016: We expect GSK Consumer’s volumegrowth to improve to 4-6% by H2FY2016 and gradually improve with a steady pick-up in the demand for health food drinks segment. The focus on improving penetrationin the northern and western parts of India along with new product additions wouldremain one of the key growth drivers for the company. On the other hand, the marginimprovement is expected to sustain in the coming quarters as milk, milk powder andbarley prices have remained benign. This will continue to support the bottom-linegrowth in the backdrop of a weak demand environment.

� Upgrade to Buy with revised price target of Rs7,000: We have fine-tuned our earnings estimatesfor FY2016 and FY2017 to factor in a better than expected operating profit margin. Animprovement in the demand environment especially in urban India would improve the growthprospects of the company. Also, the company has a strong balance of more than Rs2,000crore, which it can utilise for organic or inorganic initiatives. Hence, we upgrade our ratingon the stock from Hold to Buy with a revised price target of Rs7,000. �






GPM at a five-year high;maintain Buy with PT of Rs3,250

COMPANY DETAILS



52-week high/low: Rs3,272/2,252


BSE code: 500182

NSE code: HEROMOTOCO

Sharekhan code: HEROMOTOCO


(%) 1m 3m 6m 12m

Absolute 4.7 17.1 -3.0 6.2

Relative to Sensex 4.1 11.2 -1.3 -5.3

PRICE PERFORMANCE

BUY CMP: RS2,624 AUGUST 4, 2015HERO MOTOCORP

KEY POINTS� Weakness in volumes; positive surprise on margins: In continuation with the trend of

H2FY2015, Hero MotoCorp Ltd (HMCL) had another weak quarter as volumes fell by4% YoY and revenues declined by 1.2% YoY. However, the rise in the gross profitmargin (GPM) to a five-year high on the back of soft commodity prices led to an impressive273-BPS sequential expansion in the margins to 15.1%. With a lower depreciation chargeon a Y-o-Y basis (no amortised royalty payment to Honda, Japan), the net profit rose by33.3% YoY to Rs750 crore comfortably beating our estimate of Rs678 crore.

� Management expects demand recovery during the festive season; positive outlook onmargins: Given the sluggishness in the domestic two-wheeler industry in the first fourmonths of FY2016, the management has lowered its growth forecast for the industryto 3-4% as compared with 5-7% earlier. A recovery in the consumer sentiment isexpected during the festive season and H2FY2016 to be strong in terms of volumes.HMCL will be launching two new scooter models ahead of the festive season whichwill help it compete better in that fast growing segment. Meanwhile, the managementexpects the operating profit margin (OPM) to remain at the current level, given thebenefit of the commodity costs.

� Maintain Buy with unchanged price target of Rs3,250: We continue to expect thedemand to remain weak for the two-wheeler industry in H1FY2016 and a recovery inthe festive season. We have lowered our volume estimates but increased the marginsexpectation and thus our earnings estimates for FY2016 and FY2017 remain unchanged.We remain positive on the stock and maintain our Buy recommendation with anunchanged price target of Rs3,250.�





A very healthy performance, turn-around of infrasegment; PT raised to Rs325

COMPANY DETAILS

Price target: Rs325




BSE code: 522287

NSE code: KALPATPOWR

Sharekhan code: KALPATPOWR


(%) 1m 3m 6m 12m

Absolute 2.6 23.0 19.5 67.2


PRICE PERFORMANCE

BUY CMP: RS276 AUGUST 10, 2015KALPATARU POWER TRANSMISSION

KEY POINTS� Healthy earnings growth; turn-around of infra segment: For Q1FY2016 Kalpataru

Power Transmission Ltd (KPTL)’s stand-alone business reported a very healthy earningsgrowth of 16% YoY to Rs48 crore, ahead of our estimate. This was driven by a double-digit revenue growth and a 47-BPS OPM expansion YoY. The highlight of the resultswas the turn-around of the infrastructure segment (the railways and pipeline layingworks) after 11 quarters. Consequently, KPTL (stand-alone) managed to report anOPM of above 10% in Q1FY2016 while its PAT grew by 16% YoY. Factoring anM2M loss of Rs5 crore, the adjusted PAT stood at Rs53 crore in Q1FY2016. JMCProjects (a subsidiary of KPTL) continued to improve its margin, in line with the guidanceof the management, which is now focused on margin expansion rather than top linegrowth.

� Fine-tune earnings estimates and revise price target to Rs325; maintain Buy: We expectthe operating profit margin of its stand-alone business to improve (above 10%), withthe turn-around of its infrastructure business and depletion of the legacy projects. Againstthis backdrop, we have fine-tuned our earnings estimates for FY2016 and FY2017.Moreover, the continued margin expansion of JMC Projects (stand-alone) and potentialvalue unlocking from the listing of Shree Shubham Logistics are additional positivetriggers. Therefore, we retain our positive stance on the stock and revise our pricetarget to Rs325. We reiterate our Buy rating on KPTL.�






Healthy performance from Ethos; maintain BuyCOMPANY DETAILS

Price target: Rs375

Market cap: Rs263 cr


BSE volume (No of shares): 0.15 lakh

BSE code: 532054

Sharekhan code: KAMLADLS


(%) 1m 3m 6m 12m

Absolute 5.0 -14.6 -15.5 96.1


PRICE PERFORMANCE

BUY CMP: RS290 AUGUST 18, 2015KDDL

KEY POINTS� Snapshot of consolidated performance: In Q1FY2016 KDDL’s top line grew at 17.9%

YoY while its operating profit grew by 39% YoY resulting in a sharp 119-BPS marginexpansion. Led by a healthy operating performance, the net earnings saw a Y-o-Yturn-around from a marginal loss of Rs1 lakh in Q1FY2015 to a profit of Rs1.33 crorein Q1FY2016.

� Ethos posts a strong show: Ethos (an 80% subsidiary) posted a 25.5% top line growthon the back of a strong 16% same-store sales growth. Its contribution from the onlinechannel continues to improve and for the current quarter, the online sales constitutedaround 29% of the total revenues. An asset light model for the online presence bringsoperating leverage which has led to a strong margin expansion in the business (+170-BPS margin expansion; over 2x growth in the operating profit).

� Maintain Buy with PT of Rs375: The growth momentum and the margin expansiontrend in the Ethos business are panning in line with our expectations. Thus, we continueto like Ethos' unique high-end watch retailing business, which is expected to growmanifold by cashing in on the growth in the luxury watch segment and the increasingtrend towards online e-tailing. Thus, we believe that KDDL is available at reasonablevaluations to play on the fast-growing online niche luxury market and would witnessvaluation re-rating as the quarterly results unfold. Hence, we maintain our Buy ratingon the stock with an unchanged price target of Rs375 (valued at 6x FY2017E earningsfor the stand-alone business + 1.1x FY2017E sales of Ethos). �




A positive surprise on margins; Buy maintainedwith revised PT of Rs1,550

COMPANY DETAILS





BSE code: 500520

NSE code: M&M

Sharekhan code: M&M


(%) 1m 3m 6m 12m

Absolute 6.6 18.7 18.7 13.8


PRICE PERFORMANCE

BUY CMP: RS1,388 AUGUST 7, 2015MAHINDRA & MAHINDRA

KEY POINTS� OPM at 14.3% beats estimates: Mahindra & Mahindra (M&M) had another poor

quarter in terms of volumes as the dual effect of a weak demand for tractors and a lackof new products in the utility vehicle (UV) segment troubled the company. However,M&M made up for the fall in the volumes by improving the margins substantially. Acontrol of the overhead costs and the benefit of soft raw material prices led to a sharpimprovement in the margins. As a result, the decline in the net PAT was contained at7.3% YoY to Rs831 crore as against our estimate of Rs694 crore.

� Recovery of tractor segment in H2FY2016; new launches to drive auto volumes: Barringa few states, the monsoon rainfall has been largely satisfactory this year. The managementexpects a recovery for tractors in H2FY2016 starting with the harvesting and festiveseason. It expects a 4-5% growth for the tractor industry in FY2016 which translatesinto a 20% plus growth in H2FY2016 on the depleted base of the last year. Also, a lackof products in the compact sports utility vehicle (SUV) segment has been a sore pointfor M&M. The company will be launching a compact UV, TUV3OO, in mid Septemberfollowed by a compact cross-over in H2FY2016. These products are expected to fillthe gap in the company’s portfolio and drive the growth of the auto division.

� Maintain Buy with revised PT of Rs1,550: Given the impressive margin performancein Q1FY2016, we have increased our earnings estimates for FY2016 and FY2017 by8% and 6% respectively to factor in the higher profitability. We maintain our Buyrecommendation on the stock with an SOTP-based revised price target of Rs1,550 (vsRs1,485 earlier). �






Margin gains to sustain in near term;Hold maintained

COMPANY DETAILS

Price target: Rs460




BSE code: 531642

NSE code: MARICO

Sharekhan code: MARICO


(%) 1m 3m 6m 12m

Absolute -0.4 7.7 24.2 66.4

Relative to Sensex -0.9 2.2 26.4 48.4

PRICE PERFORMANCE

HOLD CMP: RS440 AUGUST 5, 2015MARICO

KEY POINTS� Improved margins enhance PAT growth: For Q1FY2016 Marico registered a strong

PAT growth of 24%, largely driven by a 182-BPS improvement in the OPM. Thestrong improvement in the OPM can be attributed to a 109-BPS improvement in theGPM, which was mainly due to a reduction in the prices of the key inputs, such ascopra (11%), LLP (28%) and rice bran (10%). Marico’s consolidated volume growthstood at 5% in Q1FY2016, which is better than the 3% volume growth in Q4FY2015.

� Outlook--volume growth trajectory to improve in coming quarters: The company expectsthe volume growth trajectory of its domestic market to improve from the current levelof mid single digits to 8-10% in the coming quarters. The key growth drivers will bethe rising consumption in the urban markets well supported by the direct distributioninitiative of Project One (60% increased direct coverage in top six metros). The OPMof its domestic business is expected to remain in the range of 16-17%. On theinternational front, the company expects the revenue growth to improve to 10-12%with an improvement in the performance of the key geographies, such as Bangladesh,MENA and Southeast Asia.

� Premium valuation provides limited upside; maintain Hold: We have broadly maintainedour earnings estimates for FY2016 and FY2017. The stock is currently trading at apremium valuation of 31.6x its FY2017E EPS of Rs13.9 and does not provide muchupside from the current level. Hence, we maintain our Hold recommendation on thestock with an unchanged price target of Rs460. �




Steady performance; maintain Buywith PT revised to Rs648

COMPANY DETAILS

Price target: Rs648




BSE code: 500271

NSE code: MAX

Sharekhan code: MAX


(%) 1m 3m 6m 12m

Absolute 12.3 30.3 21.6 86.0


PRICE PERFORMANCE

BUY CMP: RS554 AUGUST 13, 2015MAX INDIA

KEY POINTS� Consolidated PBT up by 14.8%: For Q1FY2016 Max India reported a decent set of

numbers as its profit before tax increased by 14.8% YoY (consolidated) supported bya 13.4% growth in EBITDA. Max Life reported a flattish growth in profit on a Y-o-Ybasis (Rs118 crore) though the operating metrics remained steady. Max Healthcarereported a profit of Rs10 crore as compared with a loss of Rs5 crore in Q1FY2015.

� APE growth slack in Q1; likely to improve in coming quarters: The annual premiumequivalent (APE) for Max Life declined by 11.5% due to a high base of Q1FY2015and some temporary slowdown in bancassurance and partnership channels. On thehealthcare side, the overall EBITDA margin eased slightly due a sharp increase inrevenues and hiring in new hospitals whereas the EBITDA of the existing hospitalsremained healthy at 12.7%.

� PT revised to Rs648; maintain Buy: The demerger of Max India into three verticals islikely to be complete by October 2015 which would result in an enhanced focus on theindividual businesses and a reduction in the holding company discounts for valuationpurpose. The easing of foreign direct investment in the insurance sector leaves scopefor unlocking value from the insurance business. We have revised our price target toRs648 (increased valuation multiple for the life insurance business to 2x FY2017E EVand factored in the capacity increase in the healthcare business) and maintained ourBuy rating on the stock. �






Downgraded to Hold with a revised PT of Rs750COMPANY DETAILS

Price target: Rs750




BSE code: 520111

NSE code: RATNAMANI

Sharekhan code: RATNAMANI


(%) 1m 3m 6m 12m

Absolute 1.7 -10.2 -17.2 46.2


PRICE PERFORMANCE

HOLD CMP: RS674 AUGUST 10, 2015RATNAMANI METALS & TUBES

KEY POINTS� For Q1FY2016, Ratnamani Metals & Tubes reported a strong revenue growth of

21% YoY to Rs430 crore driven by a strong growth in the carbon steel (CS) pipesegment. Moreover, the operating performance also improved marginally on accountof an improved realisation of the CS pipe segment (increased orders for coated pipes).Hence, the earnings for the quarter stood at Rs50 crore (up 30% YoY).

� The current order book (in terms of values) at the end of June 2015 stood at Rs944. Inthe SS pipe division, the order book declined by 30% while in the CS division thedecline was at 29% YoY. Though the management sees a good opportunity for SSpipes (which account for 45% of the revenues) in the refinery space and CS space inriver connecting projects, and expects the overall volume growth to be around 10% inFY2016, yet owing to the softening of steel prices, the order book in value terms coulddecline in FY2016 for both the segments. This could result in a lower growth in theoverall revenues in FY2016. Nevertheless, the management expects the margins toremain around 18-19% in FY2016. On capacity expansion, the company is planning atotal capex of Rs220 crore in phase 1 to expand its SS capacity by 10,000 tonne. Theproject will take around two years and will be financed through internal accruals.

� Owing to lower revenue estimates for FY2016 and FY2017, we are revising our earningsestimates downward by 9% and 8% for FY2016 and FY2017 respectively. Consequently,we have revised our price target to Rs750. Also, owing to a limited upside from thecurrent level, we have downgraded our recommendation to Hold from Buy.�




Strong operating performance, asset qualitystable; Buy maintained

COMPANY DETAILS

Price target: Rs75




BSE code: 533344

NSE code: PFS

Sharekhan code: PFS


(%) 1m 3m 6m 12m

Absolute 0.7 -11.5 -22.4 32.7


PRICE PERFORMANCE

BUY CMP: RS49 AUGUST 10, 2015PTC INDIA FINANCIAL SERVICES

KEY POINTS� Operating performance remains strong; spreads expand: For Q1FY2016, PTC India

Financial Services (PFS) reported a strong growth in the net interest income (up 25%YoY) led by a healthy growth in loans and expansion of spreads (up 43BPS QoQ to4.58%). However, the growth in the net profit was 17.7% (better than estimated) dueto higher tax rate (35% in Q1FY2016 vs 28% a year ago). The non-interest incomegrew by 53.8% and contributed to the earnings expansion.

� Loan growth picking up; asset quality stable: While the outstanding loans grew by32.8% YoY, the sanctions saw a healthy growth of 73% QoQ mostly in the renewableenergy sector. Currently, the renewable energy sector constitutes 41% of the outstandingbook as compared with 35% in Q1FY2015. The asset quality remained stable as grossNPAs were at 1.24%, similar to that in Q4FY2015.

� Valuations and outlook: The operating performance of PFS remained strong andprofitability has also shown an improvement in Q1FY2016. Going ahead, the loanbook growth is likely to remain strong led by the government’s focus on the renewableenergy sector and the company’s specialisation in the sector. The stressed loans havealready been provided and we expect spreads to improve (due to a decline in theborrowing costs). PFS has sold its entire stake in Ind Barath Energy for Rs312 croreand an exit from the remaining investment book will add value. We estimate coreearnings would grow at a CAGR of 52.2% (not factoring the gains on investment)leading to healthy return ratios. We maintain our Buy rating on the stock with anunchanged price target of Rs75. �






Recent correction a buying opportunity;upgraded from Hold to Buy

COMPANY DETAILS



52 week high/low: Rs1,067/797


BSE code: 500325

NSE code: RELIANCE

Sharekhan code: RELIANCE


(%) 1m 3m 6m 12m

Absolute -19.1 -8.2 -0.3 -16.0

Relative to Sensex -11.6 -1.2 11.1 -14.9

PRICE PERFORMANCE

BUY CMP: RS853 AUGUST 26, 2015RELIANCE INDUSTRIES

KEY POINTS� Core segments stand firm and remain high cash generators: The core business segments

of Reliance Industries Ltd (RIL), refining and petrochemicals, remain strong. Currently,the continued weakness in global crude oil prices has raised concerns for the oil & gascompanies and the same is reflecting in the stock prices of these companies. However,the continued weak crude price trend has a limited effect on the earnings of RIL’s corebusiness segments, as it has the ability to pass on the cost variation as a refinery andpetrochemical producer. The exploration business is expected to be negatively affectedby the weak crude price. However, the profit before interest and tax contribution ofthe segment is 11% only and the Street is not factoring any meaningful upside fromthis segment in the next few years too. On the contrary, the likely commencement ofthe ongoing major projects (petcoke gasifiers and off-gas crackers) in its refinery andpetrochemical businesses is going to lift its core earnings substantially from FY2017onwards. The core segments are expected to remain strong cash generators for RIL.

� Recent correction in stock price a buying opportunity: The share price of RIL hascorrected substantially in the recent past (by 19% in a month and by 13% in a week).The correction gives investors a better entry point in our view. Therefore, we haveupgraded our rating from Hold to Buy with an unchanged price target of Rs1,100based on our sum-of-the-parts valuation.�





Maintain Hold with revised PT of Rs11,800COMPANY DETAILS





BSE code: 500387

NSE code: SHREECEM

Sharekhan code: SHREECEM


(%) 1m 3m 6m 12m

Absolute 4.9 12.5 5.7 56.2


PRICE PERFORMANCE

HOLD CMP: RS11,641 AUGUST 5, 2015SHREE CEMENT

KEY POINTS� Lower cement realisation affects earnings negatively: For Q4FY2015, Shree Cement

reported a revenue growth of 4.1% YoY to Rs1,724.6 crore largely on account ofvolume growth (up 16.9% YoY) led by capacity addition (in the Chhattisgarh unit).However, the cement realisation declined by 13.0% YoY. The company reported a netprofit decline of 62.5% to Rs104.1 crore (which includes an extraordinary cost ofRs24 crore) for Q4FY2015 on account of a lower operating margin (down 581BPSYoY) and a higher depreciation charge (up 54.9% YoY).

� Better power performance limited impact on operating performance: The performanceof the cement division was affected by lower realisation during the quarter leading to adecline of 43.1% YoY in the EBIDTA per tonne, which stood at Rs675. However, thepower division posted both better volume (up 14.9% YoY) and realisation (up 8.8%YoY at Rs3.7 per unit). Consequently, the operating profit for the quarter declined by18.8% YoY to Rs356.8 crore.

� Maintain Hold with revised price target of Rs11,800: We have marginally revised ourearnings estimate upwards in order to factor in the better realisation hereon in the cementdivision and the sustainable operating performance of the power division. Hence, wehave revised our price target upward to Rs11,800. However, from the valuation point ofview, we see a limited upside potential from the current level and an unfavourable risk-reward ratio. Thus, we maintain our Hold rating on the stock. At the current marketprice, the stock is trading at 16.1x its EV/EBIDTA and PE of 33.7x FY2017E. �





Q1 operationally better than expected; retainBuy with PT of Rs980

COMPANY DETAILS

Price target: Rs980




BSE code: 524715

NSE code: SUNPHARMA

Sharekhan code: SUNPHARMA


(%) 1m 3m 6m 12m

Absolute -6.6 -12.7 -9.1 10.3

Relative to Sensex -7.5 -14.6 -7.9 -0.4

PRICE PERFORMANCE

BUY CMP: RS866 AUGUST 12, 2015SUN PHARMACEUTICAL INDUSTRIES

KEY POINTS� Excluding one-time charge related to Ranbaxy integration, operating performance ahead of

expectations: For Q1FY2016, Sun Pharmaceutical Industries (Sun Pharma) reported a 60%decline in earnings YoY to Rs479 crore which included a one-time charge of Rs685 crore.Adjusting for that its earnings declined by 19% YoY. The company’s revenues for the quartergrew marginally by 3% to Rs6,522 crore on account of price hikes for some products byTaro Pharma, a strong traction in its Indian business and a pleasant surprise from a surge inthe US business sequentially. Its EBIDTA margin declined by 550BPS to 24.8% YoY but italso included a one-time expense related to a restructuring and other write-offs. Adjusting forthe same the EBIDTA margin was at 28%, which is ahead of our expectations.

� Synergy with Ranbaxy; Halol plant remains key development to watch ahead: Themanagement is confident about the synergy with Ranbaxy through improvingproductivity of the overall Ranbaxy business and synergy benefits derived from certainproducts. During Q1FY2016, the performance of the Halol plant improved marginallyand may improve further in the coming quarters on account of regulatory approvals.We expect to a see gradual improvement with a reduction in the integration relatedexpenses and traction in its US business with a pipeline of 159 products including theexpected launch of Gleevec in Q4FY2016.

� Revised price target downwards owing to management’s cautious outlook: We haveincorporated the management’s concern (lower growth in revenues, higher R&Dspending and decline in profitability) in our earnings estimates. Likewise we have reducedour revenue estimates in the range of 10-12%. Consequently, we have cut our EPStarget for FY2016 and FY2017 by 22% and 16% respectively and revised our pricetarget downwards to Rs980. We maintain our Buy rating on the stock though.�





Healthy Q1 performance; upgraded to Buy;PT revised to Rs1,155

COMPANY DETAILS





BSE code: 532953

NSE code: VGUARD

Sharekhan code: VGUARD


(%) 1m 3m 6m 12m

Absolute 10.7 -1.9 -2.3 30.7


PRICE PERFORMANCE

BUY CMP: RS976 AUGUST 4, 2015V-GUARD INDUSTRIES

KEY POINTS� For Q1FY2016 V-Guard Industries (V-Guard) reported a healthy double-digit earnings

growth of 13% YoY, supported by a mid single-digit revenue growth, marginal OPMexpansion and lower interest outgo over the last year. The operating profit grew by7.5%; further, owing to a debt repayment of Rs15 crore the interest cost dropped andthe PAT grew by 13% YoY to Rs25 crore in Q1FY2016.

� The non-south market continued to register a healthy growth of around 16% YoY.The share of revenues as well as profitability from the non-south market continues torise; the non-south business contributed 38% of the revenues and 20% of the operatingprofit in this quarter. The company has shifted its inventory valuation method fromthe end-of-the-quarter valuation to the weighted average method for the period whichhelped to neutralise the copper price correction to a large extent.

� During the post-results conference call, the management of V-Guard retained its guidance(a 15% revenue growth and EBITDA margin of 8.0-8.5%) for the full year. After thesuccess of its premium water heater (Pebble), V-Guard is planning to launch anotherpremium brand (Verano) in H2FY2016. We believe the continuous efforts of thecompany to expand in the non-south market (which has started contributingmeaningfully to operating profit) and new launches with better brand visibility woulddrive the growth in future. Moreover, potential drivers like benefits from theimplementation of the Goods and Services Tax and a revival in urban consumption areyet to be factored in. Hence, we have revised upwards our earnings estimate for FY2017and upgraded the stock from Hold to Buy with a revised price target of Rs1,155 (basedon 28x FY2017E EPS). �






Q1FY2016 earnings reviewSHAREKHAN SPECIAL AUGUST 21, 2015

No major surprises on earnings; revenues decline but marginexpansion supports earnings: The earnings of the Sensex grew onan aggregate basis by a modest 6% YoY (excluding Tata Motors);a tad better compared with the past couple of quarters and werelargely in line with the modest expectations of the Street. The positivetakeaway from the results was the improvement in the operatingmargins to 20.1% (ex banks and financials) which helped theearnings to grow and mitigated the effect of a close to 5% declinein the aggregate revenues during the quarter. The marginimprovement was aided by soft commodity prices and was moreprominent in consumer goods companies along with the energyand telecom companies whereas there was margin pressure in sectorslike metals, cement and capital goods.

Key takeaways; some green shoots visible but challenges remain:Some of the positive takeaways from the quarterly results are themarked slowdown in fresh NPAs reported by the public sectorbanks, improving order booking by specific infrastructure andcapital goods companies, and sustained strong commercial vehicleand passenger car sales. On the other hand, the global commodityand export-focused companies are reeling in pain in terms of bothweak demand-led pricing pressure and volatility in foreign exchange.

OutlookConsensus earnings downgraded once again, but still factors in a healthydouble-digit growth in earnings over FY2015-17: Given the weakness

SHAREKHAN SPECIAL EQUITY FUNDAMENTALS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding orhaving a postition in the companies mentioned in the article.


Source: Company data, Sharekhan Research

Rupee tailwinds, positive cushion for margins

INFORMATION TECHNOLOGY AUGUST 25, 2015



margins. However, owing to several moving variables, in termsof onsite shift, increased sub-contracting costs, higher sales andmarketing (S&M) spending, pricing pressure and hedging loss,it is very difficult to extrapolate the rupee tailwinds into earningsupgrades. Even in the quarter of the highest depreciation in therupee, the margin performance of the top four IT companiesremained contradictory. Nevertheless, in the environment ofpricing erosion in the legacy services, increasing S&M spendingand building capabilities in the digital space, the depreciationof the rupee will definitely act as a buffer to support margins.

� Valuation: remain positive, correction provides opportunity forfresh investments: In the last few days, in line with marketcorrection, the CNX IT Index has also corrected close to 5%.Given the strong balance sheet and impressive cash flowgeneration, IT companies will remain as a tactical investmentbet for the next 12 months. We remain positive on the IT sector,in view of the improvement expected in the demand environmentin FY2016 and FY2017, and the reasonable valuation of thetop IT companies. In order of preference, we continue to likeTCS, Infosys and HCL Tech among the top IT companies andPersistent Systems in the mid-cap space. �

� Rupee depreciation, positive tailwinds: In the last ten days, thecurrency pair USD-INR has witnessed a steep correction of closeto 5% and is currently hovering around Rs66 per dollar. Thedepreciating rupee acts as a tailwind for the Indian IT companiesand will have a positive effect on the operating profit margins.The rupee’s depreciation of 1% will have a positive effect of30-50BPS at the EBIT level and a 1.5-2.0% effect at the netincome level, keeping other line items constant. For FY2016and FY2017 the consensus has pegged currency estimates ataround Rs63 and Rs62, which are 3.2% and 4.8% lowerrespectively, assuming the USD-INR is reset to Rs65 for FY2016and to FY2017. Thus, if the rupee stays at around Rs65, logicallyit should translate into earnings upgrades of 8-10% for FY2016and FY2017. However, the anecdotal evidence has a differentreality practically.

� Anecdotal evidence shows rupee tailwinds have not translatedinto margin expansion: Though the depreciating rupee seemsto be a positive tailwind for the sector, yet we note that in realitythe depreciating rupee has not meaningfully translated intomargin expansion in the recent years. If we look at the datafrom FY2013-15 (refer to exhibit 1), the rupee has depreciatedby close to 13%. The margin performance of the top four ITcompanies remained mixed. Infosys and Tata ConsultancyServices (TCS) delivered a muted margin performance whileWipro and HCL Technologies (HCL Tech) improved their

in corporate earnings, the consensus earnings estimates for Sensex (atan aggregate level) were downgraded by 2-3% for FY2016 andFY2017. Post-moderation in expectations, in the last six to eight monthsthe consensus is factoring an 11-12% earnings growth for Sensex inFY2016 and a relatively much better growth of 18-20% for FY2017.Again the Street is factoring an improvement in the margins (resultingfrom soft commodity prices and operating leverage) and lower interestrates to boost the earnings growth as the consensus is building a highsingle-digit growth in revenues over the two-year period of FY2015-17 as against a healthy double-digit growth in the earnings.

ValuationAfter the downgrade in consensus earnings estimates, the Sensextrades at close to 18.5x FY2016 and 15.0-15.5x FY2017 earningsestimates which are at a slight premium to the long-term averagemultiple. In light of the uncertain global conditions and lack of anydomestic triggers, the benchmark indices could continue toconsolidate in the range of 300-400 points (Nifty) in the near term.Any positive development on the policy front and/or resumption ofinterest rate cuts by the RBI and/or improvement in corporateearnings are the key monitorables that could drive the benchmarkindices to higher levels.�


On an exponential growth path

AXISCADES ENGINEERING TECHNOLOGIESVIEW: POSITIVE AUGUST 18, 2015 CMP: RS329

Key points

� Acquisition unfolded a plethora of high-growth defenceopportunities: AXISCADES Engineering Technologies Ltd(ACETL), an engineering design IT services company, wouldemerge as a play on the fast-growing defence business with themanagement’s decision to acquire its privately held entityAXISCADES Aerospace & Technologies Ltd (ACATL), whichcaters to leading global defence equipment companies and isapproved/certified vendor of Indian defence forces. Thecombined entity will have a presence across the value chain ofaerospace and defence space, and widen the market opportunitieswith the cross-selling opportunities and deeper mining of 12+marquee clients of the combined entity.

� Widen market opportunities; revenues to grow by 3.0-3.5x innext 5 years: The combined entity will benefit from a higherscale of operations, a unified “go to market” strategy and ahigher share of the potential business in the aerospace anddefence space. Also, the management is confident of leveragingits strength to partner with global OEMs in the “Make in India’programmes, which is expected to be a humongous opportunityin the defence space. Overall, the management aspires to growits revenues by 3.0-3.5x in the next five years from the current

VIEWPOINT

Beats Street estimate in Q1; gaining strength

CUMMINS INDIAVIEW: POSITIVE AUGUST 7, 2015CMP: RS1,184

Key points

� Strong Q1; beats Street estimate: Cummins India Ltd (CIL)delivered an impressive ~40% Y-o-Y growth at the adjustedPAT level mainly driven by a 24% Y-o-Y revenue growth duringQ1FY2016. Its domestic revenues grew by 17% YoY whileexport revenues jumped by 36% YoY during the quarter. Thedomestic revenue growth was primarily on account of marketshare gain by the company while the export performance wasdriven by the continued sourcing from its parent company tothe other geographies. Segment-wise, the power generationbusiness grew by 19% YoY while the industrial businesswitnessed a 22% Y-o-Y growth with some improvement ingovernment-led infrastructure investments. Adjusting for a one-time gain of Rs82.6 crore in Q1FY2015, the PAT in Q1FY2016grew by roughly 40% YoY.

� Guidance stepping towards the higher band; potential case ofover delivery: The company’s revenues grew by 24% inQ1FY2016 which surprised us positively. Even the managementrecognised that the performance for the quarter wasexceptionally well and sounded more optimistic about meetingthe higher band of its earlier growth guidance of 10-15%. Themanagement of CIL believes the international demand scenario

VIEWPOINT

EQUITY FUNDAMENTALS VIEWPOINT





is depressing while on the domestic side, some pockets areshowing initial signs of an improvement. The marine and miningscene seems promising in the next two years, given the enhancedfocus of the new government. Against this backdrop, we believethere is a potential case for over delivery by the management.

� Positive view reaffirmed; stay put: Since we had initiated ourpositive view on the stock on September 18, 2014, the stock hasmoved up by more than 70%, backed by a revised guidance bythe management and strong results in this quarter. Despite thesharp run-up and relatively higher valuation (based on our roughestimate), we remain positive on the stock as the primary thesisof our call is still intact and the strong Q1 results reinforce ourconviction. Further, we believe there is a case for over deliveryby the management and the impressive financials of the company(debt-free, high RoE and high pay-out) are likely to shinebrighter. We believe a revival in the domestic investment cycleand potential new opportunities from its marine business areadditional triggers to play out in future. Hence, we see around15% upside from the current level and retain our positive stanceon CIL.�

level of Rs530 crore (combined revenues). The synergy benefitsare expected to play out and improve the blended margingradually over the next few years.

� Valuation still to reflect the full potential of combined entity;scope for multi-fold returns in next 3 years: At the current marketprice of Rs329 (market cap works out to Rs1,230 crore on fullydiluted equity of 3.77 crore equity shares), the stock trades atEV of 17.5x combined EBITDA for FY2015 which is anattractive defence play considering the growth prospects of thecompany. We expect the stock to have multi-fold returns in thenext two to three years (for long-term investors). We have apositive view on the stock and expect it to give an upside of 20-25% in the near to medium term.

Risk: 1) Slowdown in global economics will adversely affect thefinancial prospects of the company.

2) Majority of revenues is coming from global OEMs fromengineering, aerospace and defence space; any conflict of interestwith OEMs will have a negative effect.�


� The Nifty seems to have completed wave Y down as the recentfall appears to be a three-wave correction on the daily chart.

� The reversal, however, will be achieved once the formation oflower tops and lower bottoms is violated. On the Nifty thereversal is pegged at 8091. For the short term 7540 to 7420 isa very crucial support zone and until this zone is broken wecan see the Nifty trading in a range of 7950-7420 levels.

� The daily momentum indicator has given a negative cross-over.

� Crucial supports for the index will be around 7540 and 7420while crucial resistance will be near 7950 and 8091.�

� The Nifty has met the equality target on the downside, ie 7540levels. Hence, wave W = wave Y and the equality target hasbeen met.

� Now, if this has to be a triple zigzag correction, then we willsee a wave X bounce which will retrace this fall from 8660-7540 levels following which we will see wave Z down. On theflip side, if the correction is over in a double zig-zag combination,then the market is near its medium-term bottom.

� The momentum indicator is well in sell mode. A reversal ispegged above 8091 level, which when taken off will confirmthat the correction is done.

� A crucial support would be around 7540 and resistance wouldbe around 8091. �

� The Nifty has retraced 38.2% of its entire rise from 5118 to9119 levels which is quite reasonable for a wave-4 correction.

� The Nifty needs to take off the falling channel on the upsidewith a buy cross-over in its momentum indicator in order toconfirm the reversal from down to up.

� The index has a reversal pegged at 8500, ie the channelresistance, and until that level is taken off it will be difficult tosay if the market has bottomed. The downside risk is still theretill the levels of 7160, ie the aggressive target of the bearishhead-and-shoulders pattern.

� A crucial support will be around 7540 and a crucial resistancewill be around 8500.�

Daily view on Nifty

Weekly view on Nifty

Monthly view on Nifty

Medium term

In the final stages of correction

Trend Trend reversal Support Resistance Target

Down 8091 7420 8091 8091 to 7420

TREND & VIEWEQUITY TECHNICALS


Derivative View: More pain ahead

The August series ended in line with the previous two to three

expiries but the market witnessed significant volatility especially in

the second half of the series. The Nifty ended the series with a

sharp cut of more than 5%, which is the biggest fall for any

particular expiry in two years. It has also seen the breaking of the

important supports in the market. The fall was led by multiple

factors like depreciating emerging market currencies including the

rupee, a slowdown in the Chinese economy and the concern of the

USA hiking its interest rates which resulted in a sharp sell-off in the

Nifty in the second half of the series. On open interest, a significant

amount of build-up was observed in both the key indices, ie Nifty

and Bank Nifty, which is more on the shorter side. Also, with a

high roll-over and a decrease in the roll-over cost, most of the short

positions got carried forward to the next series.

On the foreign institutional investor (FII) front as well, the FIIs

saw the creation of a significant amount of shorts in index futures.

Simultaneously, the FIIs sold heavily in the cash market, selling

equities worth more than Rs17,000 crore, which is the highest

monthly selling figure since January 2008.

STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

RELIANCE 2669.46

HDFCBANK 2581.74

INFY 1736.85

SBIN 1540.86

ICICIBANK 1480.84

Top 5 stock futures with the highest OI in current series

Top 5 stock options with the highest OI in current series

STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

SBIN 597.12

RELIANCE 455.87

INFY 293.54

ICICIBANK 291.99

MARUTI 287.14

On the options front, in the September series 7500 PE stands with

the highest number of shares in the open interest followed by the

7800 strike price. However, the difference between the two strikes

is very less. On the other hand, on the call side, the deep out-of-the-

money strike price of 8500 CE stands with the highest number of

shares in open interest followed by the 8200 CE. The Volatility

Index saw a sharp increase and touched a multi-year high of 30-35

level but it has cooled off to 25-26 levels since. Going ahead, we do

expect the Volatility Index to rise further. The put/call ratio has

also started a bit on the higher side in this series at around 0.94

levels. In view of the above data and with shorts getting rolled

over, we feel there is more pain left in the market, and the Nifty

could again test the low of the August series and show more

downside till 7400 in the coming trading session.�

View

ROLL-OVER: MARKET-WIDE VS NIFTY

EQUITY DERIVATIVESMONTHLY VIEW

The benchmark index, the Nifty, started the September series with

around 2.15 crore shares, which was a bit on the higher side. In

rupee terms, it started the new month with Rs17,193 crore of open

interest vs Rs14,505 crore of open interest in the previous month.

In stock futures it started the series with Rs56,311 crore of open

interest vs Rs62,176 crore of open interest in the previous month.

In index options it started the month with Rs83,683 crore of open

interest vs Rs82,547 crore of the same in the previous month. In

stock options it began the month with Rs5,416 crore of open interest

vs Rs5,945 crore in the previous month. The roll-over in the Nifty

stood at 66.83%, which was higher compared with the previous

month’s roll-over of 65.92%. The market-wide roll-over stood at

81.83%, which is marginally lower than the previous month’s roll-

over of 83.93% and more or less the same as the three-month and

six-month average roll-over of 82.77% and 83.89% respectively.

The roll-over activity in both the key indices, ie in Nifty and Bank

Nifty, was on the higher side and with a sharp rise in open interest,

indicating most of the short positions formed in the August series

have been carried forward to the next series. This leaves room for

more downside.


Commodities: On shaky ground amid China and US rate hike concerns

Key points

� Commodities fall on China’s demand concerns and Fed rate hike uncertainty

� Bloomberg Commodities Index falls to a 16-year low

� Moody’s raises concerns over China’s mounting regional debt

� US monthly job report: a mixed picture as job number trails the forecast,previous two months’ numbers revised higher, unemployment rate andparticipation rate fall, earnings rise

� The Fed can delay rate hike on China’s turmoil

� China sets up a fund of up to CNY60 billion to encourage the growth ofsmall and micro-businesses; lowers the initial capital requirement for fixed-asset investment projects

� China shifting towards market-oriented economy; risks unwind

� China factory gauge shrinks to three-year low

� China cuts interest rates for the fifth time since November 2014 to supportthe economy

� US factories expand at slowest pace since May 2013 on subduedChinese demand

� US construction spending in the 12 months through July increased 13.9%,the biggest year-over-year gain since March 2006

� More than two-thirds of global PMIs in August deteriorated comparedto July

� UK PMI Construction below forecast (57.5) in August vs actual (57.3)

� UK exports fell for the fifth month in a row

� Brazil and Canada slip into a technical recession

� IMF’s Lagarde says global growth outlook weaker than IMF July forecast

� China Premier Li says no basis for yuan’s continued depreciation

� US Q2 growth revised higher to 3.7% annualised, expectations 3.2%,prior 2.3%

� South Korea exports crash most since 2009 as global trade suffers

� The accumulation of dollar assets held as forex reserves across the emergingworld slowing down

Macro-economy

Crude oil: Highly volatile as production cut talks possible, supply glut, China concerns

Key points

� IEA: Global crude oil demand is expected to grow by 1.6mb/d, up 0.2mb/d from the previous projection� World oil supply fell 0.6mb/d in July mainly on lower non-OPEC output� Non-OPEC supply growth is expected to slow sharply to 1.1mb/d this year from 2.4mb/d in 2014, mainly on account of lower prices and spending cuts� As per EIA, US commercial crude oil stocks remain high at 455mb, up by almost 95mb from its seasonally five-year average of 360mb� Oil dependent economies like Venezuela approaching non-OPEC producers like Russia to initiate some action on supporting falling crude prices� Crude prices recovered from the lows as OPEC says it is ready to discuss price decline with the other producers� AS US driving season ends, crude oil shall enter a lean demand period� US weekly rig count has remained stable at 662

Crude oil prices fell to a fresh cycle low below $38 on account of China concerns and ample supply amid no signs of production cut bythe Organization of Petroleum Exporting Countries (OPEC). Crude oil rallied sharply nearly 27% from the low as a paper published byOPEC stated that the organisation is ready to speak with the other producers as prices keep on tumbling. However, it also stated that itwould protect its interests in terms of market share. The counter got further support from Energy Information Administration (EIA)cutting crude oil output forecast. However, crude oil gave back some of its gains as doubts regarding OPEC’s steps resurfaced. Russia andVenezuela have agreed to continue talks between the OPEC and non-OPEC oil producers. However, no country is willing to cut production.Venezuela is the most vulnerable among producers. RBC analysts cite Algeria, Iraq, Libya and Nigeria as four other nations in “fragilefive”. With the driving season coming to an end, production cuts would be needed to support the prices. We see a range of $40-50 in thenear term amid high volatility.

WTI NYMEX crude oil CMP: $46

COMMODITY PRICES IN AUGUST 2015 (IN $)

Commodity High Low Close MoM chg %

Copper 5364 4855 5135 -1.82

Zinc 1935 1673 1810 -5.53

Lead 1767 1618 1732 1.76

Nickel 11275 9100 10060 -8.88

Gold 1170.34 1081.17 1133.35 3.42

Silver 15.715 13.98 14.6 -17.89

Crude oil 47.33 37.75 45.22 -4.86

MONTHLY CHANGE IN SHFE STOCKS (JUL-AUG 2015)

Copper Lead Zinc Nickel

Change (in tonne) 25775 -31175 88075 -4932

August 28, 2015 123223 14114 157387 18357

Change (in %) 19.50 -2.66 -11.19 23.88

MONTHLY CHANGE IN DOE PETROLEUM STOCKS (JUL-AUG 2015)

Crude oil Dist. Gasoline

Change in (kbls) 158 5139 -2570

August 26, 2015 (kbls) 455428 149951 214163

Change in (%) 0.03 3.55 -1.19

Refinary utlisation rate was 92.80% in the last week of August 2015

MONTHLY CHANGE IN LME STOCKS (JUL-AUG 2015)

Copper Lead Zinc Nickel

Change (in tonne) 25775 -31175 88075 -4932

August 28, 2015 371250 187400 522875 455166

Change (in %) 7.46 -14.26 20.26 -1.07

Note—LME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)

MONTHLY VIEWCOMMODITY FUNDAMENTALS


Gold CMP: $1,121 (spot)

Precious metals: Fed rate hike and China to drive the markets

Silver CMP: $14.57 (spot)

Silver moved more in line with the base metals and crude oil rather than gold. The physical demand for the metal is strong as seen in thedeclining COMEX silver inventory and the US mint sales. However, rate hike expectations and weakness in the industrial commoditiesare keeping a lid on the prices. We expect silver to trade with a positive bias amid China uncertainties. The expected range is $14-15.70.

Copper CMP: Rs345 (November) contract)

Base metals: languish as weak Chinese economic appetite takes its toll on demand growthKey points� Metals decline as yuan devaluation and US rate hike concerns hurt sentiment and stoke demand fear� Chinese authorities took unprecedented dual monetary action of rate cut and reduction in reserve rate� Copper falls for eighth months in a row, the longest losing streak since 2008� Indonesian authorities reaffirm the continuing ban on export of ores amidst speculation of relaxation on export ban� As per ICSG, refined copper production increased by 3% while demand fell by 3% in the January-May period.� Lower metal prices may lead to production cuts now: Chinese aluminium smelters proposing production due to weak demand and lower prices� China ‘s rising lead exports since January 2015 dipped first time in June� As per ILZSG, the zinc market for the January-June period has been in surplus of 157,000 tonne� Nickel pig iron imports in China rise three times to 59,115 tonne in July 2015

Copper prices traded in a narrow range of Rs326/kg on the lower side and Rs350/kg on the higher side as weak prices on the London Metal Exchange(LME) were insulated by weak the Indian Rupee which stemmed the losses. The LME three-month copper has been currently trading below $5,184/tonnein a bear range, as per the common definition of the bear market that says 20% lower from the yearly high. Production of refined copper in the January-Mayperiod has been higher by 3% while the demand has been lower by 3% over the corresponding period of 2014. Copper LME inventories remain at elevatedlevels at 370,000 tonne. Also, China’s monthly refined copper consumption in June 2015 has been lower at 8.98 lakh tonne as against 9.48 lakh tonne inJune 2014. We expect copper to trade in the range of Rs326-372, any indication on a delay in the Fed rate hike could provide some support to the prices.

Lead CMP: Rs114.70 (September contract)

Lead prices remained range-bound with Rs108 acting as a good support due to a weakening rupee. As most producers in China were indestocking mode and there was saturation in e-bike sales in China, the demand for lead remained weak. Also, due to environmental concerns inChina, more batteries are being replaced with lighter ones made of lithium rather than lead. The global lead balance was surplus by 26,000 tonnein the first half of 2015, though on a month-on-month basis it has come down from 14,000 tonne in March to almost a balanced market in June.On the positive side, LME inventories have come down from 2.18 lakh tonne in July end to 1.83 lakh tonne in August end. We expect lead pricesto remain in the range of Rs104 on the lower side to Rs119 on the higher side.

Gold outperformed silver, crude oil and the base metals in August as the risk assets fell on concerns over China’s economy. China devalued its currencyyuan so as to support the exports but the markets saw it as a sign of confirmation of weakness in the economy. Investors are worried that China’sgrowth, which is already at a 25-year low, can dip below 7%. Weakness in the emerging market currencies and falling equities markets led investors topile into gold. The yellow metal trimmed its gains as the euro gave back its gains on a dovish European Central Bank (ECB). The dollar also benefitedas most of the key economic indicators out of the USA topped the forecast, thus keeping the hopes of a rate hike by the US Federal Reserve (Fed) inSeptember alive. India’s demand for gold is running strong and is likely to strengthen further in the festival season. Even a hike in September would notbe extremely bearish for gold as more than hike it would be about the pace of hike which is likely to be quite measured. Risk assets can suffer further inthe next two months on concerns over China’s economy. The metal is expected to trade between $1,100 and $1,170 with an upward bias.

Key points� Gold posts a monthly gain on China concerns amid sell-off in risk assets� Gold outperforms base metals and silver in August� Bullion complex seen volatile on stimulus and Fed rate speculation� China’s gold imports likely to increase as domestic supply lags demand� US gold production declines on lower prices� India’s gold imports in August likely to rise 50% YoY; up 40% in first 8 months� Gold demand to surge by 70% during festive season, say jewellers and traders� COMEX silver inventories down nearly 25% in last five months� Gold coin sales surge 306% YoY In August, silver sales rise more than 100%: US Mint� Silver Institute projects a supply deficit of 57.7 million ounce for 2015

Zinc CMP: Rs121.70

Zinc prices underperformed vis-à-vis the other commodities as a slowing China affected imports and demand for zinc. Also, the deficit story hascome under cloud with the zinc market balance at a huge surplus of 1.60 lakh tonne in H12015 against a deficit of 2.49 lakh tonne in the sameperiod in 2014. Slow demand has also led to inventory build-up in the LME and inventory rose to 5.29 lakh tonne in August end from 4.33 lakhtonne at the start of the month. Weak Chinese real estate and destocking amidst previous apparent demand from financing deals have alsodragged on zinc demand. Overall, we expect zinc prices to remain in the range of Rs111/kg to Rs126/kg.

MONTHLY VIEW COMMODITY FUNDAMENTALS


Nickel CMP: Rs670Nickel is currently trading at a six-year low as weak demand for stainless steel in China and lower cost of nickel pig iron have led to downside pressure on therefined nickel prices. Indonesia continues to maintain the ban on ore exports which has affected nickel supplies. China’s refined nickel imports increased sinceApril at 38,500 tonne in August 2015, up from 9,500 tonne in August 2014, while stainless steel production has come down suggesting build-up in stocks inChina’s warehouses. LME nickel inventories remain elevated at 4.54 lakh tonne, slightly lower than the high of 4.70 lakh tonne. On the positive side, almost80% of nickel pig iron production has turned unprofitable at the current low prices. Also, rising imports could be a sign of destocking running its course.Overall, we expect nickel prices to recover and dips below Rs650/kg can be seen as favourable buying propositions for Rs800/kg target in the medium term.

Events watch: Major economic events in September 2015CMP as on September 4, 2015

Date Region Event Survey Actual Prior ImpactDate Region Event Survey Actual Prior Impact

09/01/2015 China Manufacturing PMI 49.8 49.7 50 The indicator is crucial as China is the biggest consumer of metals; data trailing the forecastand remaining in contraction zone would be bearish for the industrial commodities butspeculation that China may take more steps to support the economy limits the downside

09/01/2015 USA ISM Manufacturing PMI 52.5 51.1 52.7 The index trailed the forecast and fell to a two-year low; data is bearish for industrial commoditiesand supportive for precious metals as it can force the Fed to delay the rate hike

09/02/2015 USA ADP non-farm employment change 200K 190K 177K Data slightly below forecast, hence somewhat bearish for the dollar and industrialcommodities but speculation that the Fed may delay the rate hike on China concerns amidsoft US data is supporting for industrial commodities

09/03/2015 Europe Minimum bid rate 0.05% - 0.05% No change expected but focus would be on ECB's Draghi speech; an indication of moreeasing measures would be euro bearish and supportive for industrial commodities

09/03/2015 USA ISM Non-Manufacturing PMI 58.2 - 60.3 Better than expected data would support industrial commodities and dollar but be bearishfor precious metals complex

09/04/2015 USA Non-farm employment change 218K 173 K 215K Data trails the forecast but earnings were up and unemployment rate came down to 5.1%,so it is kind of a mixed job report

09/08/2015 China Trade balance - - 43 China concerns have roiled the markets as the growth rate is at the lowest level in 25 yearsand could dip below 7%; both imports and exports need to be analysed to gauge the demandfor commodities; weaker than expected data would be bearish for industrial commoditiesand positive for bullions

09/10/2015 China CPI YoY - - 1.60% China can cut interest rates further to support the economy if the inflation remains subdued;that would be supportive for industrial commodities

09/10/2015 UK Official bank rate 0.50% - 0.50% No change expected

09/11/2015 USA PPI MoM -0.10% - 0.20% The Fed can delay rate hike if inflation trails the forecast, more so as to take care of theturmoil in the global markets on China's concerns

09/11/2015 USA Prelim UoM consumer sentiment 91.8 - 91.9 Better than expected data is positive for the economy, thus it would support the dollar andindustrial commodities but weigh on precious metals

13/9/2015 China Industrial production YoY - - 6.00% China's macro-economic indicators are running soft; yet another soft data would stokeconcerns regarding the health of the economy, thus would be bearish for the industrialcommodities and bullish for gold

15/9/2015 Japan Monetary policy statement - - - No change in interest rate expected but Bank of Japan may indicate a dovish posture asthe global markets fall; in that case yen and gold would fall

15/9/2015 Europe German ZEW economic sentiment - - 65.7 German economy is doing somewhat better currently; the data is expected to reflect thesame, thus would be bullish for the euro and industrial commodities

15/9/2015 UK Inflation report hearings - - - Subdued outlook on inflation would be bearish for the pound as it would force the Bank ofEngland to delay the rate hike, especially in the current scenario of global turmoil

15/9/2015 USA Core retail sales MoM - - 0.40% Better than expected data would be positive for the dollar and industrial commodities butbearish for precious metals

16/9/2015 USA Core CPI MoM - - 0.10% Subdued data would be bearish for the dollar as the Fed could delay rate hike; bullionwould rally

17/9/2015 USA Housing starts - - The US housing sector is a key contributor to the economy, thus encouraging data wouldsupport the dollar and industrial commodities but bullion complex would fall

17/9/2015 USA FOMC statement - - - Markets are expecting the Fed would not hike the rates at its September meeting; if thisturns out to be the case, commodities especially bullion would rally

20/9/2015 Europe Greek parliamentary election - - - This is an event risk for the markets; the markets could fall if the leftist parties come topower as it would jeopardise the bail-out agreement with the creditors

22/9/2015 China Caixin Flash Manufacturing PMI - - 47.1 Weaker than expected data would be bearish for industrial commodities and bullish for gold

22/9/2015 Europe German Flash Manufacturing PMI - - 53.3 Germany's economy is doing well, so the data is expected to be encouraging for the markets;euro and industrial commodities would benefit

24/9/2015 USA Core durable goods orders MoM - - 0.60% Better than expected data would be positive for the dollar and industrial commodities butbearish for precious metals

25/9/2015 USA Final GDP QoQ - - 3.70% Better than expected data means better economy, so it would be bearish for the bullioncomplex but positive for industrial commodities

30/9/2015 USA ADP non-farm employment change - - 190K Better than expected would be bullish for the dollar but bearish for bullion complex

MONTHLY VIEWCOMMODITY FUNDAMENTALS


Gold:Bulls in control

� Gold tumbled down sharply till the multi-month falling trendline in July 2015. The yellow metal formed a consolidation nearthe trend line for a few weeks and started moving higher.

� In the last few sessions gold moved up sharply but facedresistance near the falling trend line. It has fallen back towardsthe key daily moving averages (DMAs), which are acting assupports. Thus, from here gold can start climbing up once again.Once it crosses the falling trend line and the recent high, ie$1,168.40, gold can rise higher.

� The subsequent levels will be $1,205 and $1,232. On the otherhand, the recent low of $1,077 will act as a major support.

Silver: Base in formation

� Silver in the penultimate week failed to sustain above the keyDMAs and tumbled sharply. It broke the crucial swing lows of$14.42 and $14.33 on an intra-week basis. However, silverrecovered from a falling trend line and posted a weekly closeabove these supports.

� A larger structure shows that the white metal has formed anending diagonal pattern. Thus, unless the recent low of $13.93breaks silver can be expected to move up. The key levels on theupside will be 15.66 and 16.26.

Trend Trend Supports Resistances Targetreversal

Up $13.93 $14.41/$14.17 $15.33/$15.72 $15.66/$16.26

� Since the beginning of July crude oil has been falling. The fallwas breaking up into lower degree waves.

� However, it recently completed an impulse on the downsideand entered the pull-back mode.

� The short-term momentum indicators have turned bullish.

� The pull-back is breaking up into lower degree waves. Thus,crude oil can extend till $50.15 and $53.10. On the other hand,the 20-day moving average (DMA), which is near $42.95, willact as a major support on a closing basis.


Up $42.95 $45/$43.21 $49.33/$51.41 $50.15/$53.10


Up $1,077 $1,109/$1,094 $1,147/$1,168 $1205/$1232

Crude oil: In recovery mode

COMMODITY TECHNICALSTREND & VIEW



Up $2.209 $2.287/$2.25 $2.51/$2.57 $2.50/$2.58

Aluminium: Relief rally� MCX aluminium was trading in a multi week downward sloping

channel. Within that channel it had formed a sideways channel,which was reflecting consolidation.

� The consolidation has turned out to be an accumulation andthe base metal has jumped up since.

� The short-term as well as medium-term momentum indicatorshave turned in favour of bulls.

� Thus, aluminium is expected to form a deep retracement of theprevious fall. The key levels on the upside will be Rs112.50and Rs115.60. A reversal of the bullish view can be placed belowthe 20-DMA, ie Rs102.50.


Up 102.50 105.10/104 109.50/112 112.50/115.60

� NCDEX jeera formed a short-term bounce in the last fewsessions. It retraced 50% of the previous fall and tested a crucialswing high of Rs16,675.

� The agri-commodity also faced resistance near the daily upperBollinger Band. These multiple hurdles have attracted a freshround of selling in jeera.

� As a result, it has started tumbling down once again. However,the fall is breaking up into lower degree waves.

� Once the crucial support zone of Rs15,740-15,525 breaks jeeracan fall back to the low of Rs14,400. On the other hand,Rs16,400-16,690 will act as a key resistance zone.


Down Rs16,690 Rs15,525/15,135 Rs16,400/16,595 Rs14,400

Copper: Takes a leap

� COMEX copper had formed a complex pull-back, which hadfaced resistance near the 61.8% retracement of the entireprevious fall (from $3.294 to $2.419). From the key Fibonaccilevel the red metal tumbled towards a crucial multi-month trendline and the lower end of the medium-term falling channel.

� Copper formed a short-term base near those supports and startedmoving up.

� It has surpassed a medium-term falling trend line. The short-term momentum indicators have turned bullish.

� Thus, copper can attempt a bounce till $2.50-2.58 levels. Therecent low of $2.209 will act as a strong support.

Jeera: About to topple

TREND & VIEWCOMMODITY TECHNICALS


Currencies: Yen and euro rallied due to global equity sell-offKey points

� India’s CPI eased to 3.8% in July from 5.48% in June and IIP roseto 3.8% in June from 2.7% in May

� People's Bank of China cut the one-year lending rate to 4.6% from4.85% and reserve requirement ratio by 0.5%

� US prelim GDP rose by 3.7% in Q2 of 2015 from 2.3% in Q1 of 2015

� India’s GDP expanded by 7.0% in Q1 of FY2016 from 7.5% in thelast quarter

CURRENCY LEVELS IN AUGUST 2015 (IN RS)

Currency High Low Close Monthly chg (%)

USD-INR 66.765 63.715 66.045 3.34

EUR-INR 77.261 69.19 74.59 5.67

GBP-INR 105.2806 98.5938 102.0092 2.05

JPY-INR 56.1 51.06 54.9 6.27

USD-INR CMP: Rs66.4(spot)Recap: The Indian Rupee depreciated by 3.34% against the dollar in the previous month on the back a rise in risk aversion in the global markets and

weak economic data from China. Weak manufacturing data from China led to the fear that a slowdown in the world's second largest economy could

weigh on global growth. Further, devaluation in the other currencies hurt market sentiment. Investors worry that export competitiveness may force

the other Asian countries to take similar measures. China has devalued its currency yuan against the dollar by almost 5% causing Vietnam and

Kazakhstan to devalue dong and tenge respectively. The Reserve Bank of India (RBI) Governor Raghuram Rajan said the recent depreciation in the

yuan is not a cause for concern immediately but a similar correction in the other currencies would be a concern. The demand for the dollar from oil

importers and outflows from the local shares proved negative for the rupee. However, any further fall was prevented as worries over slowing global

growth and falling expectations of inflation led to the speculation that the US Federal Reserve (Fed) may delay the rate hike.

Outlook: The Indian Rupee is expected to trade with a negative bias in this month on the back of a strong dollar and weak macro-economic

data’s. India gross domestic product (GDP) expanded by 7.0% in Q1FY2016 from 7.5% in the last quarter. The demand for the dollar may go

up on a series of robust economic data points from the USA. The market view on rate hike by the Fed remains divided. Some fear that the Fed may

increase the rates in September due to a series of upbeat economic data whereas some others expect the Fed to hold back its rate hike decision on

worries over a slowing global growth and falling expectations of inflation. All eyes will be on Federal Open Market Committee (FOMC) meeting

on September 17n 2015. As per the latest REER reading (provisional; 111.95) the rupee is overvalued by more than 10%. Additionally, worries

over global economic growth may add to the downside pressure. However, a sharp fall in the currency may be prevented as the market expects

the RBI to lower its benchmark interest rates after the Indian GDP came below expectations and with inflation under control. Falling commodity

prices will benefit the Indian economy by lowering the inflationary pressures. Easing inflation may provide the RBI room to cut rates. The USD-

INR may face resistance near 68.8; a sustained break above this level may cause the pair to depreciate to 70.0. A strong support lies near 64.0 and

a sustained break below this level may cause the rupee to appreciate till 62.5.

August 2015 contract price movement August 2015 contract price movement

Recap: The euro appreciated by 2.094% against the dollar in August this year. It moved northward on the back of weakness in the dollar. The

dollar gave up its strength as the Fed failed to provide any indication if it would raise the short-term rates by September. Further, investors pushed

back expectations of a rate hike by the Fed in September to December as weak manufacturing data from China led to worries over a slowing

global growth. The Euro Area Composite Index rose to 54.1 in August from 53.9 in July. Greece made 3.2-billion-euro payment to European

Commercial Bank (ECB) after receiving 13 billion euros from its creditors as part of the third bail-out fund. The euro as funding currency because

of the nation’s low interest rates got strengthen as money flew back to where it was funded from during risk times. However, at the end of the

month the single currency came under pressure as ECB policy maker Peter Praet hinted that more easing could be seen as lower commodity prices

increased the risk that the ECB may miss its inflation target.

EUR-INR CMP: Rs73.83(spot)

MONTHLY VIEW CURRENCY FUNDAMENTALS


GBP-INR CMP: Rs101.1 (spot)

Recap: The pound depreciated by 1.76% in August this year on the back of a strong dollar demand and weak economic data from the country.

A slower growth in manufacturing, construction and services sectors fuelled worries among market participants that the economic recovery may

be losing momentum. The minutes of the Bank of England (BoE)’s meeting showed that only one policy member voted in favour of a rate hike.

The market was expecting at least two policymakers to be in favour of a rate hike. Officials cut their outlook for the UK inflation for the rest of

the year. In its quarterly Inflation Report, it said the near-term outlook for inflation is subdued and the recent decline in energy prices will bear

down until at least the middle of 2016. However, a sharp fall was cushioned as expectations of a rate hike in September by the Fed started to fade

after dovish FOMC meeting minutes and weak manufacturing data from China led to worries over a slowing global growth. Further, an

unexpected rise in inflation fuelled expectations of a rate hike by BoE before the end of the year. The UK Consumer Price Index rose 0.1% in July

from 0.0% in June this year.

Outlook: The pound is likely to trade with a negative bias. A strong dollar after upbeat economic data from the USA and hawkish statement from

Fed officials may add to the downside pressure. Further, weak economic data from the country would prove unfavourable for the pound as it has

given rise to worries over the economic health of the country. The UK Manufacturing PMI declined to 51.5 in August from 51.9 in July. The rate

of growth in new orders slowed. The UK Construction PMI increased to 57.3 in August from 57.1 in July. A fall in the Services PMI signals a slow

economic growth. The Service PMI followed the ongoing weakness in the manufacturing and construction sectors. Weaker activity in the service,

manufacturing and construction sectors may fuel the belief that the BoE will not raise the rates until 2016. Investors will remain cautious ahead

of the FOMC meeting. The GBP-INR spot may face resistance near 104. A sustained break above this level may cause the pair to depreciate till

106.6. A strong support lies near 98.7 and a sustained break below this level may take the pair down till 96.8.

JPY-INR CMP: Rs55.56 (spot)Recap: The yen appreciated by 2.11% in August this year. A rise in risk aversion in the global markets after weak economic data from China,

political uncertainty in Greece and tension on Korean borders led to the rise in demand for safe haven. North Korean leader Kim Jong Un ordered

his army to prepare for war after an exchange of fire with South Korea. Devaluation in the other currencies hurt market sentiment. China

devalued its currency yuan against the dollar by almost 5% causing Vietnam and Kazakhstan to devalue the dong and the tenge respectively.

However, a sharp gain was prevented on the back of a divergence in the global monetary policies. The Fed is expected to increase the rates

whereas the Bank of Japan is likely to continue with its loose monetary policy. Mixed economic data from Japan proved unfavourable. The

unemployment rate fell to 3.3% from 3.4% but household spending eased 0.2%, well below the 1.3% gain expected.

Outlook: The yen is expected to trade with a positive bias. A rise in risk aversion in the global markets, weak economic data from China, worries

over a slowing global growth and political uncertainty in Greece may lead to a rise in the demand for the safe haven. The yen as a funding

currency because the nation’s low interest rates may strengthen as money flows back to where it was funded from during risk times. However,

sharp gains may be prevented as the market expects the Fed to hike interest rates sooner this year after a series of robust economic data from the

USA whereas the Bank of Japan is likely to continue with its loose monetary policy until it achieves its 2% inflation target. Investors worry that

a strong yen may hurt its export industry and push the Bank of Japan to provide more monetary stimulus. The market participants will remain

cautious ahead of the Bank of Japan’s monetary policy meet. The bank is expected to keep its monetary policy unchanged. The JPY-INR spot may

find a strong support near 53.7 and a sustain break below this level may plunge the pair to 52.0. An immediate resistance lies near 56.6 and a

sustained break above this level may push up the pair till 58.5.

CMP as on August 05, 2015

CURRENCY FUNDAMENTALS MONTHLY VIEW

Outlook: The euro is expected to trade with a negative bias as the demand for the dollar may rise on expectations of strong economic data from

the USA. Further, expectations of mixed economic data from the euro zone may prove unfavourable. A divergence in global monetary policies

will add to the downside pressure. The ECB indicated that the central bank could expand its quantitative easing programme whereas the Fed is

expected to hike rates sooner. The ECB has also lowered its inflation projections for 2016 and 2017 from 1.5% and 1.8% to 1.1% and 1.7%

respectively. Investors worry that a strong euro may hurt the euro zone export industry. Greek prime minister’s resignation has renewed tensions

in the region. Political uncertainty may prove negative for the euro. Investors will remain cautious ahead of the FOMC meeting and Greek

parliamentary election. As per the polls, left wing Syriza Party is losing support. The EUR-INR may face a strong resistance near 76.7 and a

sustained break above this level may cause the pair to depreciate till 78.8. A strong support lies near 72.0 and a sustained break below this level

may plunge the pair to 68.7.


Currency View Reversal Supports Resistances Target

USD-INR Up 65.41 65.85/65.69 66.49/66.90 67.30-67.50

GBP-INR Up 99.41 100/99.55 102.53/104.95 106.98-110.15

EUR-INR Up 72.15 73.75/72.97 75.22/76.50 78.21-78.87

JPY-INR Up 0.5276 0.5432/0.5340 0.5595/0.5667 0.5735-0.5840

JPY-INR: Bulls take control� For several weeks the JPY-INR was trading in a sideways manner.

It formed a short- to medium-term base for itself and startedrallying.

� It crossed a short-term as well as medium-term falling trend line.The daily and weekly momentum indicators are in favour of bulls.

� Thus, the currency pair is expected to form a deep retracementof the previous fall. In the last few sessions it has formed a minordegree correction, which can be taken as a buying opportunity.

� The key levels on the upside will be 0.5735 and 0.5840. A reversalcan be placed at 0.5276.

USD-INR: Going north� The USD-INR was consolidating in a sideways to bearish

manner for a few weeks. The consolidation unfolded in achannelised manner.

� The price took support near the lower end of the channel aswell as near the medium-term rising trend line. From there thecurrency pair has started the next leg up.

� It has broken out from the channel on the upside and is rallyingsharply. The short-term as well as medium-term momentumindicators are in line with the rally.

� The subsequent levels on the upside will be 67.30, ie the upperchannel line, and 67.50, ie the larger pattern target. A reversalcan be trailed to 65.41.

CURRENCY TECHNICALSTREND & VIEW

EUR-INR: Scope for bulls

� The EUR-INR formed a multi-week channelised correction, whichfound support near the 61.8% retracement mark. From the keyFibonacci level the currency pair started rallying.

� It broke out from the upper channel line. Recently it surpassed amedium-term falling trend line and in the last few sessions it hascome down to retest the trend line.

� The daily and weekly momentum indicators are in sync with thebullish break-out. Thus, from here on the currency pair is expectedto start moving higher.

� The key levels on the upside will be 78.21 and 78.87. On the otherhand, 72.70-72.15 will act as a major support zone.

GBP-INR: Upside potential

� The GBP-INR was trading in a medium-term falling channel. Itrecently formed a short-term base near the key daily movingaverages and started moving up.

� It has broken out form the channel on the upside. The short-term and medium-term momentum indicators have triggered abullish cross-over.

� Thus, the currency pair looks poised for a decent upside. It isexpected to test the high of 106.98.

� Beyond the high the GBP-INR can target 110.15. On the otherhand, the 20-weeky moving average (99.41) will act as a crucialsupport.


We are pleased to introduce you to Sharekhan’s PortfolioManagement Service (PMS) in which we completely manageyour investment portfolio so that you stop worrying aboutthe market volatility and focus your energy on things thatyou like to do!

We have a wide range of strategies that you can choose from.Our strategies are based on fundamental research and tech-nical analysis.

Portfolio Management Service

INVESTMENT STRATEGY� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.

� Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and

that of minimum of 90% in the BSE 100 stocks.

� Endeavours to create a core portfolio of blue-chip companies with a proven track

record and have partial exposure to quality companies in the mid-cap space.

FUND OBJECTIVEA good return on money through long-term investing in quality companies

PRICING� Minimum investment of Rs25 lakh

� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of

every fiscal

PROPRIME - TOP EQUITY

OVERVIEWThe ProPrime—Top Equity PMS strategy is suitable for the long-term investors looking

to create an equity portfolio through disciplined investments that will lead to a growth

in the portfolio’s value with low to medium risk.

Product performanceas on August 31, 2015

(In %) Scheme Sensex Nifty

1 month -5.3 -6.5 -6.6

3 month -6.0 -5.6 -5.5

6 month -11.9 -10.5 -10.5

1 year -1.9 -1.3 0.2

Best month 12.9 11.2 12.4

Worst month -10.6 -8.9 -9.3

Best quarter 21.7 13.5 14.5

Worst quarter -13.2 -6.1 -10.4

Disclaimer: Returns are based on a client’sreturns since inception and may be different fromthose depicted in the risk disclosure document.

We have the following strategies on offer:

ProPrime (based on fundamental research)

� Top Equity � Diversified Equity

ProTech (based on technical analysis)

� Index Futures Fund � Trailing Stops

PMS FUNDSPMS DESK

Top 10 stocks

Ashok Leyland

Axis Bank

Gateway Distriparks

Hero MotoCorp

ICICI Bank

Larsen & Toubro

Lupin

Reliance Industries

State Bank of India

Tata Motors


PMS FUNDS PMS DESK

INVESTMENT STRATEGY

� Disciplined investment decisions are taken in specific stocks based on thorough

fundamental research.

� A balanced mix of value and growth stocks (mid-cap and small-cap) is created

that represents investment opportunities across sectors and market capitalisation.

� Invests in quality value and growth stocks with good earnings visibility and healthy

balance sheet.

� The fund manager, with the help of extensive, in-house, superior research,

identifies fundamentally sound companies to invest in.

� The fund manager strives to capture the short-term trading opportunities to

maximise the potential of the swings in specific stocks.

FUND OBJECTIVEA good return on money through long-term investing regardless of short-term volatility


� Charges

� 2% per annum; AMC fee charged every quarter

� 0.5% brokerage

� 20% profit sharing after the 12% hurdle is crossed at the end of every

fiscal

PROPRIME - DIVERSIFIED EQUITY

OVERVIEWThe ProPrime—Diversified Equity PMS strategy is suitable for long-term investors

looking to create an equity portfolio through disciplined investments that will lead to a

growth in the portfolio’s value with medium to high risk. Product performanceas on August 31, 2015

(In %) Scheme S&P CNX 500

1 month -8.3 -6.1

3 month -1.3 -4.2

6 month -3.5 -7.9

1 year 0.1 4.9

Best month 36.3 34.4

Worst month -23.4 -27.2

Best quarter 60.3 51.2

Worst quarter -30.5 -28.6


Top 10 stocks

Apollo Tyres

Axis Bank

Federal Bank

Gateway Distriparks

Hero MotoCorp

ICICI Bank

IL&FS Transport Networks

Lupin

Reliance Industries

Sun Pharmaceutical Industries


PMS FUNDSPMS DESK

Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

OVERVIEWThe ProTech–Index Futures Fund PMS strategy is suitable for long-term investorswho desire to profit from both bullish and bearish market conditions. The strategyinvolves going long (buying) or going short (selling without holding) on Nifty futuresby predicting the market direction based on a back-tested automated model.



1 month 1.02 -6.51 -6.58

3 months -3.10 -5.55 -5.48

FY14-15 -3.41 24.89 26.65

FY13-14 8.79 18.85 17.98

FY12-13 3.65 8.23 7.31

FY11-12 13.10 -10.50 -9.20

FY10-11 9.20 10.90 11.10

FY09-10 14.70 80.50 73.80

Since inception* 151.72 159.60 163.81

Best month 28.90 -23.89 -26.41

Worst month -17.10 -0.02 0.55

Best quarter 33.30 49.30 42.04

Worst quarter -11.70 17.33 22.25

*01-Feb-2006


FUND MANAGER’S VIEWIndex Futures Fund rebounded from an extreme negative drawdown to close August

of 2015 in the positive. This was a big change as the range-bound moves were eating

into the returns of the folio for some time. We think that the system is out of the

woods. The expansion in volatility is likely to benefit the index trading system for the

rest of the year. Experience tells us that trending markets always follow a major

drawdown.

The domestic stock market after months of trying to push higher has sold off below

8000. This should be a major trend reversal for the market for the months ahead and

marks the start of a highly volatile phase, which is usually beneficial to products like

Index Futures Fund that trade both sides of the market. Moves of over 10% in both

directions should be the norm going forward.

Investments in

Nifty Index

INVESTMENT STRATEGY� The strategy has the potential to generate profits irrespective of the market

direction by going long or short on Nifty futures.

� An automated basic back-testing model is used to predict the market directionfor the Nifty which then decides the strategy to be deployed in terms of goinglong or short.

� The portfolio is not leveraged, ie its exposure never exceeds its value.

PROTECH - INDEX FUTURES FUND


Fund Manager: Rohit Srivastava

FUND OBJECTIVEAbsolute returns irrespective of market conditions.


� Charges

� AMC fees: 0%

� Brokerage: 0.05%

� Profit sharing: Flat 20% charged on a quarterly basis

PROTECH - TRAILING STOPS



1 month 2.46 -6.51 -6.58

3 months 6.75 -5.55 -5.48

FY14-15 -3.69 24.89 26.65

FY13-14 -1.06 18.85 17.98

FY12-13 14.89 8.23 7.31

FY11-12 29.00 -6.10 -4.60

FY10-11 - - -

FY09-10 - - -

Since inception* 45.24 41.85 43.60

Best month 9.10 11.30 12.40

Worst month -4.40 -1.96 -1.66

Best quarter 9.90 -12.69 -12.47

Worst quarter -8.20 9.24 9.92

*09th May 2011


FUND MANAGER’S VIEWTrailing Stops returned 2.46% in August 2015 as we were aided by large market

moves. We believe this puts to an end a period of range-bound moves and stocks

going in both directions damaging the one-sided trades that form part of our core

strategy. This should also mark better times ahead for this line of product as we are

able to ride out clear trends that are sustained.

The domestic stock market after months of trying to push higher has sold off below

8000. This should be a major trend reversal for the market for the months ahead and

marks the start of a highly volatile phase, which is usually beneficial to products like

Index Futures Fund that trade both sides of the market. Moves of over 10% in both

directions should be the norm going forward.

Investments in

Nifty Index

Stock futures

INVESTMENT STRATEGY� This strategy spots the winning trades based on technical analysis vs time frame-

based portfolios, basically the momentum calls.

� A risk model has been developed for stock portfolio allocation that reduces therisk and portfolio volatility through staggered building of positions.

� It is non-leveraged—the exposure will never exceed the value of the portfolio.

OVERVIEWOur ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors look-ing for Regular Income from trading and desire to make profits in both bullish andbearish market conditions. It is designed to payout book profits on monthly basis.*

It is also for those investors who are looking for better income than Fixed Incomeor Deposits. This strategy involves going Long (buying) or Short (selling withoutholding) on stock futures.

* Terms and conditions apply

PMS FUNDS PMS DESK


MONTHLY PERFORMANCEADVISORY DESK

Advisory Products and ServicesThe Advisory Desk is a central desk consisting of a Mumbai-basedexpert team that runs various sample model portfolios (for illustrativepurposes only) for clients of all profiles, be they traders or investors.

These products are different from Sharekhan’s research-basedtechnical and fundamental offerings as these essentially try to capturethe trading opportunities in stocks where momentum is expectedbefore or after some event including the announcement of results orwhere some news/event is probable.

Advisory products are ideal for those who do not have time to eithermonitor the market tick by tick or shift through pages of research fordata or pour over complex charts to catch a trend. However, allthese products require perfect discipline and money management.

For investors

PORTFOLIO DOCTORIt is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggestschanges to improve its performance. To avail of this service please write to the Portfolio Doctor [email protected].

ALPHA DELIVERY PICKSThis is a long only, cash market delivery product where stock ideas are rolled out based on short-term triggers withproper fundamental rationales. The buying price range, stop loss and probable target are clearly defined at the time ofinitiation. These ideas are for a maximum period of one to two months for the medium-term investor. For more detailsof this product please write to us at [email protected].

For traders

SHAREKHAN’S PRE-MARKET ACTIONThese ideas are put out in Sharekhan’s Pre-market Action report along with stop loss and targets valid for a day. Thereis a market watch list of stocks with positive and negative bias for intra-day traders. For more details please write to usat [email protected].

MID DERIVATIVE CALLSThese calls are based on the analysis of open interest, implied volatility and put-call ratio in the derivative market. It isa leveraged product and ideal for aggressive traders. These calls have pre-defined stop loss, targets, time frame andquantity to execute. For details of the product please write to us at [email protected].

MID Derivative Calls performance*

Ticket size (Rs) 100,000

Month Aug 2015 YTD FY2016

No. of calls 19 117

Profit booked 10 68

Stop loss hit 9 49Strike rate (%) 53 58

MID performance*

Product Alpha Delivery PicksMonth Aug 2015 YTD FY2016No. of calls 11 34Profit booked 3 15Stop loss hit 8 19Strike rate (%) 27 44

Report Card

Note: We have discontinued Alpha Swing *Based on closed calls



MUTUAL FUNDS DESK MF PICKS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) AUGUST 17, 2015Data as on August 07, 2015

Scheme name Star NAV (Rs) Returns (%)rating Absolute Compounded annualised

6 months 1 year 3 years 5 years Since inception

Large-cap fundsReliance Top 200 Fund �� 25.2 4.2 27.6 25.7 14.9 12.3

Birla Sun Life Frontline Equity Fund - Reg - �� 170.2 3.6 23.0 25.7 14.7 24.5

ICICI Prudential Focused Bluechip Equity Fund - Ret �� 30.5 2.6 19.6 22.9 14.6 16.7

Kotak 50 - Reg �� 181.4 4.8 27.3 22.2 12.4 24.2

ICICI Prudential Select Large Cap Fund - Ret �� 23.3 -1.1 13.4 20.0 11.6 14.6

IndicesBSE Sensex 28,236.4 -1.7 10.3 17.1 9.2 16.6

Mid-cap fundsMirae Asset Emerging Bluechip Fund �� 32.4 14.2 46.2 40.6 25.5 26.0

Canara Robeco Emerging Equities �� 64.9 14.6 47.8 40.1 23.3 19.7

Principal Emerging Bluechip Fund �� 73.7 11.5 43.4 38.0 18.4 34.5

Religare Invesco Mid N Small Cap Fund �� 37.4 8.7 36.8 36.4 20.8 19.5

Kotak Emerging Equity Scheme - Reg �� 27.8 11.2 45.8 34.6 17.4 13.0

Indices

BSE Mid-cap 11,557.5 11.7 34.7 26.0 11.7 15.7

Multi-cap fundsBirla Sun Life Pure Value Fund �� 40.8 7.8 25.6 36.6 18.8 21.0

Franklin India High Growth Companies Fund �� 31.1 6.1 39.5 36.1 19.5 15.2

SBI Magnum Multiplier Fund �� 165.5 10.0 34.3 27.9 14.6 15.4

SBI Magnum Multi Cap Fund �� 34.4 9.3 33.7 27.4 13.4 13.3

HDFC Capital Builder Fund �� 210.4 4.2 24.8 25.6 14.4 15.2

IndicesBSE 500 11,358.7 2.1 16.3 19.0 9.2 15.8Tax saving fundsAxis Long Term Equity Fund �� 32.4 8.7 36.4 34.8 22.2 23.3

Birla Sun Life Tax Relief 96 �� 22.9 8.2 38.7 30.5 14.4 11.8

Birla Sun Life Tax Plan �� 28.9 7.7 37.2 29.5 16.8 12.8

SBI Magnum Tax Gain Scheme 93 �� 119.0 5.9 26.7 25.5 14.5 17.5

L&T Tax Advantage Fund �� 40.1 7.1 27.1 23.6 13.4 15.8

IndicesCNX500 7,183.9 2.2 16.7 19.5 9.6 9.8

Thematic fundsICICI Prudential Exports and Other Services Fund �� 48.2 15.3 39.7 43.0 22.4 17.6

Franklin Build India Fund �� 30.7 7.1 43.6 38.1 19.8 20.8

Birla Sun Life Infrastructure Fund - Plan A �� 27.8 5.2 23.5 25.1 9.4 11.5

Canara Robeco Infrastructure Fund �� 39.5 5.9 27.5 23.0 11.7 15.2

Birla Sun Life Financial Planning FoF Aggressive �� 17.0 4.4 20.1 18.8 - 13.4

IndicesS&P Nifty (CNX Nifty) 8,564.6 -1.1 12.0 17.1 9.5 14.6

Balanced funds

L&T India Prudence Fund �� 20.2 7.1 27.9 25.5 - 17.0

ICICI Prudential Balanced �� 95.4 4.1 21.5 25.0 17.0 15.4

HDFC Balanced Fund �� 111.4 4.6 22.5 23.6 16.3 17.5

Franklin India Balanced Fund �� 94.0 5.4 30.2 23.5 14.8 15.4

Birla Sun Life 95 �� 581.0 4.0 24.7 23.1 14.0 21.9

Indices

Crisil Balanced Fund Index -- 0.5 12.3 14.4 9.4 13.3


MUTUAL FUNDS DESK

SHAREKHAN’S TOP SIP FUND PICKS AUGUST 17, 2015

MF PICKS

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhanfirst understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggestthat you get in touch with our Mutual Fund Advisor before investing in the best funds.�

Data as on August 07, 2015

Investment period 1 year 3 years 5 yearsTotal amount invested (Rs) 12,000 36,000 60,000Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual

value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)

Large-cap funds

Reliance Top 200 Fund 25.2 12,984.2 9.0 54,267.6 15.1 102,842.1 11.6

SBI Bluechip Fund 29.6 13,154.2 10.6 54,156.9 15.0 104,786.1 12.0

Birla Sun Life Frontline Equity Fund - Reg 170.2 12,915.6 8.4 52,233.9 13.6 100,386.8 11.0

Kotak 50 - Reg 181.4 13,058.7 9.5 51,853.6 13.2 95,916.3 10.0

ICICI Prudential Focused Bluechip Equity Fund - Ret 30.5 12,740.3 6.8 50,345.7 12.2 95738.0 10.0

BSE Sensex 28,236.4 12,206.6 1.85 45,613.1 8.40 83,622.1 6.96

Multi-cap funds

Birla Sun Life Pure Value Fund 40.8 13,287.4 11.8 64795.2 22.3 124,750.5 16.0

Franklin India High Growth Companies Fund 31.1 13,257.1 11.5 62544.3 20.9 123,491.6 15.8

SBI Magnum Multiplier Fund 165.5 13,422.9 13.1 56866.2 17.0 107,624.6 12.6

SBI Magnum Multi Cap Fund 34.4 13,379.7 12.7 56,677.2 16.8 106,095.5 12.3

HDFC Capital Builder Fund 210.4 12,929.2 8.5 53,824.0 14.8 101,232.6 11.2

BSE 500 11,358.7 12,620.7 5.56 48,551.8 10.73 88,028.0 8.07

Mid-cap funds

Canara Robeco Emerging Equities 64.9 14,020.0 18.6 71,117.8 26.3 140,511.3 18.9

Mirae Asset Emerging Bluechip Fund 32.4 13,906.0 17.5 68,032.7 24.4 138,576.0 18.6

Kotak Emerging Equity Scheme - Reg 27.8 13,679.6 15.4 65,162.4 22.6 124,347.4 16.0

Principal Emerging Bluechip Fund 73.7 13,731.7 15.9 64,998.0 22.5 128,271.5 16.7

Religare Invesco Mid N Small Cap Fund 37.4 13,343.8 12.3 62,645.7 20.9 125,245.3 16.1

BSE Midcap 11,557.5 13,708.4 15.36 55,674.9 16.02 102,606.5 11.48

Tax saving funds

Axis Long Term Equity Fund 32.4 13,412.9 12.7 62,160.0 20.5 125,346.2 16.1

Birla Sun Life Tax Relief 96 22.9 13,541.0 14.2 58,716.8 18.3 110,600.3 13.2

Birla Sun Life Tax Plan 28.9 13,475.7 13.6 57,814.6 17.6 110,161.6 13.2

SBI Magnum Tax Gain Scheme 93 119.0 13,025.5 9.4 54,217.8 15.1 103,063.4 11.6

L&T Tax Advantage Fund 40.1 13,202.4 11.0 52,904.2 14.1 98,000.1 10.5

CNX Nifty 8,564.6 12,286.8 2.57 46,069.8 8.77 84,369.0 7.15


Prices as on September 04, 2015

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY17/FY15 FY15 FY16E FY17E FY16E FY17E FY16E FY17E (Rs)

EQUITY FUNDAMENTALSEARNINGS GUIDE

Sharekhan Earnings Guide

Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated ^^ FY2015 earnings numbers are on reported basis, including the one-time impact of bonus for employees to the tune of Rs2,627.9 crore.

AUTOMOBILES

Apollo Tyres 170.2 12,785.2 12,710.7 14,059.4 1,060.1 1,140.1 1,224.5 20.8 22.4 24.1 7% 8.2 7.6 7.1 23.0 20.1 20.5 18.5 2.0 1.2

Ashok Leyland 85.0 13,562.2 18,698.1 23,084.2 233.9 996.3 1,559.4 0.8 3.5 5.5 158% 103.4 24.3 15.5 21.2 29.2 18.0 23.6 0.5 0.5

Bajaj Auto 2,211.0 21,612.0 23,784.6 27,120.8 3,087.1 3,757.3 4,272.5 106.7 129.8 147.7 18% 20.7 17.0 15.0 46.0 45.5 32.6 32.2 50.0 2.3

Gabriel Industries 83.2 1,444.1 1,632.3 1,956.7 60.6 86.9 119.5 4.2 6.1 8.3 40% 19.7 13.8 10.0 29.2 33.4 24.2 27.1 1.1 1.3

Hero MotoCorp 2,290.9 27,585.3 29,578.1 33,633.9 2,540.7 3,195.5 3,933.2 127.2 160.0 197.0 24% 18.0 14.3 11.6 61.6 62.8 45.1 45.9 60.0 2.6

M&M 1,110.6 37,468.3 42,652.7 49,386.7 3,087.6 3,993.2 4,910.3 52.2 67.5 83.0 26% 21.3 16.4 13.4 18.5 20.9 18.7 19.9 12.0 1.1

Maruti Suzuki 4,063.3 49,970.6 58,232.6 69,966.8 3,711.2 5,392.1 6,844.9 122.9 178.5 226.6 36% 33.1 22.8 17.9 22.2 22.2 18.0 18.0 25.0 0.6

Rico Auto Industries 45.4 1,346.3 1,076.2 1,233.3 -0.9 33.1 59.4 -0.1 2.4 4.4 -690.1 18.6 10.3 10.3 15.6 7.0 11.6 3.0 6.6

TVS Motor 223.2 9,920.1 12,015.8 14,323.7 401.8 503.3 687.0 8.5 10.6 14.5 31% 26.4 21.1 15.4 23.8 29.0 27.8 31.4 1.9 0.9

BANKS & FINANCE

Allahabad Bank 76.5 8,173.9 8,878.6 10,068.0 620.9 1,106.9 1,473.7 10.9 19.4 25.8 54% 7.0 3.9 3.0 - - 8.5 10.5 1.6 2.1

Andhra Bank 61.8 6,037.5 6,677.9 7,660.9 638.4 1,050.5 1,261.1 10.6 17.4 20.9 41% 5.8 3.5 3.0 - - 10.0 11.1 2.0 3.2

Axis (UTI) Bank 468.0 22,589.2 26,402.1 31,221.0 7,355.9 8,612.3 10,424.2 31.0 36.3 44.0 19% 15.1 12.9 10.6 - - 17.9 18.6 5.5 1.2

Bajaj Finance 5,075.6 2,871.7 3,705.9 4,698.1 893.6 1,173.6 1,505.1 178.7 220.3 282.5 26% 28.4 23.0 18.0 - - 19.5 19.2 18.1 0.4

Bajaj Finserv 1,828.8 7,587.0 - - 1,689.8 - - 106.2 - - 17.2 - - - - 0.0 0.0 1.8 0.1

Bank of Baroda 174.3 17,589.2 19,073.3 22,338.0 3,398.4 4,359.6 5,545.9 15.3 19.7 25.0 28% 11.4 8.9 7.0 - - 10.5 12.2 3.2 1.8

Bank of India 128.7 15,576.7 16,884.6 19,188.1 1,708.9 1,640.0 2,106.4 25.7 24.6 31.6 11% 5.0 5.2 4.1 - - 5.1 6.3 5.1 4.0

Capital First 349.5 501.4 695.5 865.8 110.7 171.4 239.5 12.2 18.8 26.3 47% 28.7 18.6 13.3 - - 10.5 13.3 2.2 0.6

Corp Bank 45.9 5,552.8 6,204.3 7,092.3 584.0 685.2 995.5 7.0 8.2 11.9 31% 6.6 5.6 3.9 - - 6.4 8.7 1.4 3.1

Federal Bank 57.7 3,258.7 3,738.6 4,443.7 1,004.9 1,114.7 1,394.1 5.9 6.5 8.1 18% 9.8 8.9 7.1 - - 13.7 15.2 1.1 1.9

HDFC 1,141.6 7,630.7 9,263.1 11,220.9 5,990.1 7,164.2 8,521.1 38.0 45.5 54.1 19% 30.0 25.1 21.1 - - 20.4 21.2 13.0 1.1

HDFC Bank 996.1 31,392.0 37,450.7 45,076.5 10,215.9 12,467.9 15,358.2 40.8 49.7 61.3 23% 24.4 20.0 16.3 - - 18.7 19.8 8.0 0.8

ICICI Bank 257.8 31,215.7 35,649.2 41,934.7 11,175.4 13,064.2 15,907.3 19.3 22.5 27.4 19% 13.4 11.4 9.4 - - 15.5 17.0 5.0 1.9

IDBI Bank 55.6 9,755.5 9,687.7 10,757.3 873.4 1,041.6 1,310.5 5.4 6.5 8.2 22% 10.2 8.6 6.8 - - 4.2 5.1 0.7 1.4

LIC Hsg. Fin. 413.4 2,236.4 2,822.4 3,410.2 1,386.2 1,732.4 2,120.0 27.5 34.3 42.0 24% 15.1 12.0 9.8 - - 20.4 21.2 5.0 1.2

PTC India Fin. Ser. 39.0 340.7 444.6 576.9 160.9 277.6 372.5 4.4 7.1 9.5 47% 8.9 5.5 4.1 - - 18.1 21.3 1.0 2.6

Punjab National Bank 130.8 22,446.3 24,459.4 28,244.3 3,061.6 4,106.4 5,159.6 16.5 22.1 27.8 30% 7.9 5.9 4.7 - - 10.1 11.6 3.3 2.5

SBI 225.2 77,591.1 85,970.2 99,619.3 13,101.6 17,862.2 23,772.7 17.5 23.9 31.8 35% 12.8 9.4 7.1 - - 13.2 15.7 3.5 1.6

Union Bank of India 156.9 11,966.9 13,291.5 15,416.7 1,781.6 2,162.8 2,705.2 28.0 34.0 42.5 23% 5.6 4.6 3.7 - - 10.5 12.0 6.0 3.8

Yes Bank 647.2 5,534.3 6,804.2 8,432.7 2,005.4 2,338.2 3,005.2 48.0 56.0 71.9 22% 13.5 11.6 9.0 - - 18.6 20.4 9.0 1.4

CONSUMER GOODS

Britannia 2,988.3 7,858.4 9,013.8 10,450.7 542.5 839.7 1,038.9 45.2 70.0 86.6 38% 66.1 42.7 34.5 51.5 46.6 55.5 48.8 16.0 0.5

GSK Consumers* 6,051.4 4,136.4 4,564.2 5,316.9 583.6 709.9 827.7 138.8 168.8 196.8 19% 43.6 35.8 30.7 46.4 45.2 30.6 29.8 55.0 0.9

GCPL 1,221.2 8,242.2 9,573.5 11,429.3 923.8 1,247.0 1,466.0 27.1 36.6 43.1 26% 45.1 33.4 28.3 24.6 26.6 27.7 26.4 5.5 0.5

Hindustan Unilever 830.0 31,199.7 34,663.0 39,668.9 3,886.5 4,672.4 5,563.1 18.0 21.6 25.7 19% 46.1 38.4 32.3 145.6 138.1 104.8 100.6 15.0 1.8

ITC 317.1 36,507.4 41,392.2 47,990.3 9,607.7 10,754.0 12,590.1 12.0 13.4 15.7 14% 26.4 23.7 20.2 40.2 39.7 32.3 32.0 6.3 2.0

Jyothy Laboratories 319.9 1,514.8 1,724.2 2,009.6 123.1 185.3 194.9 6.7 10.0 10.6 26% 47.7 32.0 30.2 15.6 21.5 22.2 20.5 4.0 1.3

Marico^ 401.8 5,733.0 6,354.5 7,404.6 573.5 669.5 899.2 8.9 10.4 13.9 25% 45.1 38.6 28.9 40.7 43.3 31.8 32.6 2.5 0.6

Zydus Wellness 832.7 415.2 467.3 537.0 98.7 121.2 140.0 25.3 31.0 35.8 19% 32.9 26.9 23.3 28.9 27.4 26.8 25.3 6.0 0.7

IT / IT SERVICES

CMC 1,988.5 2,513.5 2,889.6 3,406.8 296.0 360.6 421.7 97.7 119.0 139.2 19% 20.4 16.7 14.3 29.4 29.0 24.3 24.0 27.5 1.4

Firstsource Solution 27.3 3,034.6 3,231.4 3,509.5 234.3 269.0 316.4 3.5 4.0 4.7 16% 7.8 6.8 5.8 11.5 12.2 12.1 12.6 0.0 0.0

HCL Technologies** 940.3 37,062.0 42,049.1 47,364.1 7,255.0 7,679.2 8,946.9 51.4 54.4 63.4 11% 18.3 17.3 14.8 37.8 36.7 31.4 29.8 22.0 2.3

Infosys 1,074.0 53,319.0 59,915.2 67,366.4 12,330.0 13,245.2 14,918.1 53.9 57.9 65.2 10% 19.9 18.5 16.5 33.9 34.2 24.6 24.8 59.5 5.5

Persistent Systems 692.7 1,891.3 2,144.3 2,470.4 290.6 286.1 350.8 36.3 35.8 43.9 10% 19.1 19.3 15.8 26.0 27.1 18.9 20.0 10.0 1.4

TCS^^ 2,547.5 94,648.4 107,936.2 123,907.1 19,648.4 24,122.9 27,477.1 100.3 123.2 140.3 18% 25.4 20.7 18.2 42.0 38.8 32.8 30.3 32.0 1.3

Wipro 554.0 46,954.5 50,855.2 55,449.2 8,652.8 9,392.2 10,513.6 35.3 38.3 42.9 10% 15.7 14.5 12.9 17.5 17.6 20.4 20.2 12.0 2.2

CAPITAL GOODS / POWER

BHEL 206.2 29,542.0 30,493.7 34,916.2 1,419.9 1,607.8 2,369.1 5.8 6.6 9.7 29% 35.5 31.4 21.3 7.0 9.8 4.6 6.5 2.1 1.0

CESC 489.6 6,189.0 6,628.3 7,149.0 698.0 704.3 765.2 52.4 52.9 57.4 5% 9.3 9.3 8.5 7.2 7.3 8.4 8.6 9.0 1.8

Crompton Greaves 161.4 14,013.0 14,248.0 15,628.0 183.0 146.0 365.0 2.1 2.3 5.8 66% 76.9 70.2 27.8 8.1 11.2 3.7 8.7 1.2 0.7

Finolex Cable 233.8 2,449.1 2,736.9 3,162.8 175.8 191.9 243.3 11.5 12.5 15.9 18% 20.3 18.7 14.7 18.9 21.3 19.3 21.7 1.8 0.8

Greaves Cotton^ 128.2 1,692.2 1,733.0 1,869.9 127.7 187.5 210.1 5.2 7.7 8.6 28% 24.5 16.7 14.9 28.9 29.0 21.5 21.5 1.1 0.8

Kalpataru Power 235.1 4,422.3 4,899.0 5,548.0 165.6 193.0 251.0 10.8 12.6 16.3 23% 21.8 18.7 14.4 15.8 17.9 8.9 10.7 1.5 0.6

PTC India 56.0 13,081.7 13,561.0 14,080.0 189.3 207.0 216.0 6.4 7.0 7.3 7% 8.7 8.0 7.7 11.4 11.4 7.5 7.4 2.0 3.6

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)


FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY17/FY15 FY15 FY16E FY17E FY16E FY17E FY16E FY17E (Rs)

EQUITY FUNDAMENTALS EARNINGS GUIDE

^Marico estimates excluding Kaya’s financials ** June year ended

Crompton Greaves is in the process of selling its overseas power system business by Q4FY2016. Hence, we have not estimated the FY2017 numbers #We have annualised these ratios to make them comparable

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div(Rs) growth yield

(%)Skipper 135.8 1,312.8 1,602.5 1,938.1 61.4 88.7 123.9 6.0 8.7 12.1 42% 22.6 15.7 11.2 27.4 27.5 24.1 26.0 0.2 0.1

Thermax 936.9 4,697.4 5,185.0 5,913.0 335.7 386.0 455.0 28.2 32.4 38.2 16% 33.2 28.9 24.5 23.7 24.7 16.1 16.8 7.0 0.7

Va Tech Wabag 685.0 2,435.2 2,869.0 3,448.0 110.1 137.2 181.1 20.3 25.3 33.4 28% 33.7 27.1 20.5 21.2 24.3 14.4 16.8 4.0 0.6

V-Guard Industries 903.0 1,745.9 1,978.0 2,295.0 70.7 94.9 123.6 23.6 31.7 41.2 32% 38.3 28.5 21.9 32.3 35.0 23.0 24.8 4.5 0.5

Triveni Turbine 106.1 650.8 947.8 1,287.4 93.3 138.8 181.8 2.8 4.2 5.5 40% 37.9 25.3 19.3 65.7 58.1 46.6 39.7 0.9 0.8

INFRASTRUCTURE / REAL ESTATE

Gayatri Projects 408.2 1,601.1 1,965.9 2,527.9 25.5 56.8 107.2 8.4 16.0 30.2 89% 48.4 25.5 13.5 9.0 11.5 7.6 12.5 2.0 0.5

ITNL 87.8 6,320.7 7,316.9 8,660.2 308.8 215.6 541.0 12.5 8.7 21.9 32% 7.0 10.0 4.0 8.4 9.7 3.7 9.0 4.0 4.6

IRB Infra 212.0 3,847.5 4,487.0 5,049.9 542.9 665.7 864.8 15.4 18.9 24.6 26% 13.7 11.2 8.6 12.1 13.4 14.4 16.6 4.0 1.9

Jaiprakash Associates 9.1 10,854.3 13,905.8 15,220.7 -867.3 -93.2 115.2 -4.1 -0.4 0.5 - -2.2 -20.8 16.8 6.6 7.3 -0.7 0.9 0.0 0.0

Larsen & Toubro 1,533.9 57,017.4 64,528.5 77,594.1 4,699.0 5,094.0 6,357.0 50.7 55.0 68.6 16% 30.3 27.9 22.4 14.6 17.1 13.0 14.6 14.3 0.9

Punj Lloyd 24.4 7,090.3 8,316.6 9,381.7 -1,681.4 -356.0 -268.0 -50.6 -10.7 -8.1 0% -0.5 -2.3 -3.0 -1.7 2.3 -48.8 -58.3 0.0 0.0

OIL & GAS

Oil India 435.8 9,748.2 9,926.5 11,356.0 2,510.2 2,624.0 2,943.0 41.8 43.7 49.0 8% 10.4 10.0 8.9 13.2 14.1 11.9 12.4 10.0 2.3

Reliance Ind 835.9 375,435.0 347,433.6 404,645.9 23,566.0 22,287.0 27,459.0 80.1 75.7 93.3 8% 10.4 11.0 9.0 7.5 8.8 9.4 10.5 10.0 1.2

Selan Exploration 218.9 79.3 74.2 110.9 28.3 26.3 39.1 17.3 16.0 23.8 17% 12.7 13.7 9.2 11.2 15.3 9.1 12.6 5.0 2.3

PHARMACEUTICALS

Aurobindo Pharma 723.1 12,120.5 13,603.1 16,016.9 1,635.4 1,775.0 2,363.0 28.0 30.4 40.5 20% 25.8 23.8 17.9 26.0 30.5 29.6 29.6 6.8 0.9

Cipla 649.6 11,345.4 13,627.0 16,673.0 1,180.8 1,793.0 2,563.0 14.7 22.3 31.9 47% 44.2 29.1 20.4 17.7 21.9 15.2 18.4 2.0 0.3

Cadila Healthcare 1,812.6 8,651.3 10,663.1 12,672.4 1,150.6 1,569.0 2,207.3 56.2 76.6 107.8 39% 32.3 23.7 16.8 27.3 30.3 27.5 28.3 12.0 0.7

Divi's Labs 2,176.8 3,114.9 3,732.8 4,580.9 865.5 1,040.2 1,350.3 65.2 78.4 101.7 25% 33.4 27.8 21.4 32.2 33.5 26.1 27.0 20.0 0.9

Glenmark Pharma 1,026.3 6,644.8 8,068.0 9,806.0 747.0 935.0 1,353.7 27.5 34.5 49.9 35% 37.3 29.7 20.6 18.9 22.6 24.2 26.3 2.0 0.2

JB Chemicals 275.4 1,120.7 1,327.5 1,529.6 112.9 146.8 187.0 13.3 17.3 22.1 29% 20.7 15.9 12.5 16.2 17.7 13.1 14.2 3.0 1.1

Ipca Laboratories 761.5 3,142.0 3,337.0 3,931.0 254.0 330.0 538.0 19.8 26.1 42.7 47% 38.5 29.2 17.8 13.9 20.0 14.1 19.8 1.0 0.1

Lupin 1,859.6 12,599.7 14,206.0 16,887.0 2,403.0 2,655.0 3,341.0 53.5 59.1 74.3 18% 34.8 31.5 25.0 30.8 31.0 23.1 22.8 7.5 0.4

Sun Pharma 857.7 27,286.5 28,078.2 32,007.8 4,778.4 5,699.3 8,698.1 23.1 23.7 34.0 21% 37.2 36.2 25.2 21.1 25.1 18.3 22.4 0.0 0.0

Torrent Pharma 1,589.4 4,585.0 6,906.1 6,927.2 751.0 1,507.2 1,224.9 44.4 89.1 72.4 28% 35.8 17.8 22.0 38.5 28.7 45.4 26.1 11.3 0.7

BUILDING MATERIALS

Grasim 3,374.7 32,436.0 35,700.0 41,721.0 1,753.0 1,685.0 2,178.0 190.9 183.3 237.2 11% 17.7 18.4 14.2 11.4 13.1 6.6 7.6 18.0 0.5

The Ramco Cements 318.7 3,743.0 4,155.0 4,871.0 258.0 317.0 435.0 10.8 13.3 18.3 30% 29.5 24.0 17.4 11.4 14.1 6.9 8.2 1.5 0.5

Shree Cement** 10,765.5 6,454.0 7,750.0 9,475.0 462.0 741.0 1,211.0 133.1 212.6 347.6 62% 80.9 50.6 31.0 13.0 19.0 14.0 18.0 22.0 0.2

UltraTech Cement 2,915.1 22,656.0 25,781.0 30,654.0 2,065.0 2,258.0 3,014.0 75.4 82.4 110.0 21% 38.7 35.4 26.5 13.1 16.2 10.8 12.7 9.0 0.3

DISCRETIONARY CONSUMPTION

Cox and Kings 236.3 2,569.1 2,414.1 2,783.8 399.8 422.6 519.2 23.6 25.0 30.7 14% 10.0 9.5 7.7 11.9 14.9 16.3 19.4 1.0 0.4

Century Plyboards (I) 140.9 1,588.0 1,825.0 2,155.0 149.0 188.0 234.0 6.7 8.5 10.5 25% 21.0 16.6 13.4 24.2 23.7 39.5 34.1 2.0 1.4

Eros Intl Media 476.4 1,421.2 1,771.5 2,001.8 247.1 312.6 355.8 26.7 33.8 38.5 20% 17.8 14.1 12.4 20.4 21.5 19.1 18.0 0.0 0.0

Info Edge (India) 749.0 611.6 699.9 833.5 164.7 136.9 201.9 13.7 11.4 16.8 11% 54.7 65.7 44.6 10.9 14.8 7.7 10.3 1.0 0.1

KDDL 248.0 411.7 479.2 587.9 8.7 11.4 14.7 9.5 12.5 16.2 31% 26.1 19.8 15.3 13.9 14.1 17.8 18.5 2.0 0.8

KKCL 2,170.0 405.1 467.4 551.9 66.3 75.8 109.3 53.7 61.5 88.6 28% 40.4 35.3 24.5 30.0 32.0 22.1 27.8 22.0 1.0

Orbit Exports 368.0 158.0 187.0 225.0 27.9 32.7 41.2 19.4 22.8 28.8 22% 19.0 16.1 12.8 21.1 21.7 30.4 30.5 4.5 1.2

Raymond 387.4 5,352.0 5,977.0 6,756.0 115.8 127.6 168.8 18.9 20.8 27.5 21% 20.5 18.6 14.1 11.5 12.7 7.8 9.5 3.0 0.8

Relaxo Footwear 499.0 1,472.8 1,873.2 2,412.7 103.1 156.2 216.7 8.6 13.0 18.1 45% 58.0 38.4 27.6 40.9 32.5 25.1 29.9 0.5 0.1

Speciality Restaurants 144.9 299.4 349.7 439.3 9.5 19.0 35.6 2.0 4.0 7.6 95% 72.4 36.2 19.1 8.2 14.4 6.1 10.7 1.0 0.7

Thomas Cook India 203.3 3244.3# 3,698.5 4,376.8 112.3 219.7 345.4 2.8 4.8 7.6 65% 72.6 42.3 26.7 20.5 27.0 15.5 21.2 0.5 0.2

Zee Entertainment 360.4 4,883.7 5,604.7 6,559.8 977.5 1,092.8 1,321.3 10.2 11.4 13.8 16% 35.3 31.6 26.1 27.5 29.8 18.6 20.1 2.6 0.7

DIVERSIFIED / MISCELLANEOUS

Aditya Birla Nuvo 2,010.3 10,260.1 11,425.6 - 584.2 639.3 - 44.9 49.2 - - 44.8 40.9 - 8.9 - 7.1 - 7.0 0.3

Bajaj Holdings 1,588.8 523.9 - - 2,028.7 - - 182.3 - - - 8.7 - - - - - - 32.5 2.0

Bharti Airtel 350.0 92,039.0 96,158.0 105,816.0 5,883.0 5,970.0 6,613.0 14.7 14.9 17.2 8% 23.8 23.5 20.3 12.3 14.2 4.8 8.8 3.9 1.1

Bharat Electronics 3,228.1 6,775.9 7,695.9 8,971.4 1,100.6 1,273.6 1,527.8 137.6 159.2 191.0 18% 23.5 20.3 16.9 16.0 16.5 12.2 12.5 27.5 0.9

Gateway Distriparks 321.6 1,105.0 1,090.9 1,219.6 187.8 178.5 222.4 17.3 16.4 20.5 9% 18.6 19.6 15.7 16.1 19.6 19.3 22.9 7.0 2.2

Max India 502.8 14,815.0 - - 279.6 - - 10.5 - - - 47.9 - - - - - - 5.0 1.0

Ratnamani Metals 597.2 1,675.6 2,050.0 2,478.0 172.5 205.7 264.1 37.0 43.9 56.6 24% 16.2 13.6 10.6 29.0 31.4 20.6 22.1 5.5 0.9

Supreme Industries** 590.0 4,255.0 4,767.0 5,635.0 312.0 344.0 439.0 24.5 27.1 34.5 19% 24.1 21.8 17.1 27.6 30.9 23.4 25.0 8.0 1.4

UPL 529.7 12,090.5 13,710.6 15,436.4 1,224.0 1,306.3 1,608.8 28.6 30.5 37.5 15% 18.5 17.4 14.1 16.7 18.1 19.3 19.8 5.0 0.9


Remarks

Automobiles

Apollo Tyres � Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The management isexpecting strong demand traction in the European operations (particularly the summer tyre segment) and isgaining market share in Europe. Further, the domestic operations would see a pick-up in demand in H2FY15. Themargins may sustain at higher levels due to subdued raw material prices. The company will be investing $560mnover the next three years to set up a greenfield facility in Hungary and Rs4,000 crore to expand capacity atChennai facility. We maintain our Buy recommendation on the stock with a price target of Rs240.

Ashok Leyland � Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. It has ventured into LCV spacewith the launch of Dost in collaboration with Nissan. The MHCV volumes have been under pressure over the pasttwo years due to a subdued economic environment. The discounts in the system have come down and the companyhas managed to take price hikes which propped up margins. A strong government at the centre is expected tofocus on growth led by manufacturing and infrastructure sectors which will improve CV segment’s volumes. Thecompany has raised Rs660 crore via QIP and has sold non-core assets to pare its debt. We have a Buyrecommendation on the stock with a price target of Rs98.

Bajaj Auto � Bajaj Auto’s domestic motorcycle volumes have been under pressure over the last couple of years largely due toissues in the executive segment and a drop in its market share to an all-time low of 15.2% in Q4FY2015 from24.5% in FY2013. However, the launch of CT100 and refreshed Platina has given a much needed volume pushwhile the newly launched Pulsar variants would help consolidate its leadership in the premium motorcycle segment.After a blip in Q4FY15, exports are getting back on track and are expected to see a strong growth going ahead.The launch of its quadricycle, RE60, has been delayed by legal issues and the matter is expected to be sorted soon.The company maintains industry leading EBITDA margins and the rupee’s depreciation is expected to boost itsprofitability as exports contribute 45% of the total revenues.

Gabriel India � Gabriel is one of India’s leading manufacturers of shock absorbers and front forks with a diversified customerbase. A pick-up in the volumes post-election in the PV and CV segments as well as higher growth in the two-wheeler segment, increase in market share with HMSI and continued growth in the aftermarket sales are expectedto drive the revenue growth going forward. Moreover, with increasing utilisation levels and higher proportion ofrevenues from the profitable CV segment, the OPM is expected to expand from 6.6% in FY13 to 7.9% in FY16.Further, a reduction in debt level would lead to higher return ratios, going forward. Therefore, we recommend aBuy with a price target of Rs100.

Hero MotoCorp � HMCL is the largest two-wheeler manufacturer in the world with sales of over 6.6mn vehicles in FY15 and adomestic market share of 42%. We expect the two-wheeler industry to grow at 10-12% CAGR over the next fiveyears driven by increased penetration levels in rural areas and replacement demand. HMCL is expected to maintainits leadership position in the industry. It has presence in the fast growing scooter segment with two models. It willlaunch a couple of new scooters and double the scooter capacity which would boost its volumes. HMCL hasaggressive plans to increase export contribution to 10% (currently 2%) by 2017. Also, with the “Leap program”,which is being implemented currently, the management targets an OPM expansion of 200BPS in the next coupleof years through cost rationalisation. We recommend a Buy with a price target of Rs3,250.

M&M � M&M is a leading maker of tractors and UVs in India. We expect demand for the automobile segment to pick upwith an improvement in customer sentiment. Additionally, new launches especially in the compact UV space willdrive volume growth. After growing in strong double digits, the tractor demand was under pressure in FY15 dueto weak monsoon rainfall. However, with the expectation of normal rainfall we expect the tractor segment torecover and grow at 3-4% in FY16. The value of its subsidiaries adds to its sum-of-the-parts valuation. Higherfarm income, strong rural positioning and lower vulnerability to interest rates make it a proxy play on foodinflation.

Maruti Suzuki � Maruti Suzuki is India’s largest small car manufacturer. Though the demand for diesel cars is witnessing pressure,the petrol segment is witnessing a recovery due to the narrowing differential between petrol and diesel prices. Thecompany plans to launch 14 new models over the next five years (including some in the high-value UV space)which would boost its volumes and realisation. The recent launch of Celerio diesel variant and Ciaz have beenwell received. The company has also launched the new Alto K10 with automatic transmission which will be thecheapest automatic available in the country. We expect customer sentiment to improve on the back of a stronggovernment at the centre. Additionally, the PV segment is expected to benefit from the pent-up demand over thepast two years and will benefit Maruti Suzuki most due to its high market share in the entry level segment. Weremain positive on the stock with a price target of Rs4,700.

Rico Auto Inds. � Rico is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. It has recentlydivested its 50% stake in a joint venture with FCC Co., Japan for Rs495 crore. The significant cash flow (nearlyequivalent to current market cap) is expected to be a game changer for the company and enable it to deleverage itsbalance sheet and fund future capex. Additionally, a lower interest burden will result in an exponential growth inthe earnings and free cash flow. The company will be commissioning three new plants in the next 12 months andis poised to benefit from an auto demand revival. We have a Buy recommendation on the stock with a price targetof Rs58.



Remarks


TVS Motor � TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scootersegment. The scooter segment has grown at a CAGR of 25% over the past five years as opposed to 12% CAGR inmotorcycles and currently contributes 30% of the total two-wheeler volumes. With the launch of the Jupiter inOctober 2013, the company has balanced its scooter portfolio and witnessed incremental volumes. Additionally,new launches such as Star City+, refreshed Wego and new Scooty Zest have helped maintain the growth momentum.The company will launch two new motorcycles in H2FY15. Exports, especially of three-wheelers, are doingextremely well. We expect a margin expansion of 40-50BPS over FY14-16.

Banks & Finance

Allahabad Bank � With a wide network of over 3,000 branches spread across India, Allahabad Bank enjoys a stronghold in north and eastIndia. But it has reported a rise in slippages resulting in deterioration of its asset quality. Relatively higher proportion ofstressed assets and low tier-I CAR remain concerns, though the low valuation partly factors the same.

Andhra Bank � Andhra Bank, with a wide network of over 2,200 branches across the country, has a strong presence in southIndia especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on assetquality front and the political situation within the state could affect its operations. Valuation factors the same.

Axis Bank � Axis Bank is the third largest private sectors bank, continues to grow faster than the industry and is diversifying itsbook in favour of the retail segment. The bank’s liability profile has improved significantly which would help tosustain the margins at healthy levels. We expect the earnings growth to remain reasonably strong driven by ahealthy operating performance while asset quality pressures will be manageable.

Bajaj Finance � Bajaj Finance, owned by Bajaj Finserv, is one of the most diversified and leading NBFCs in the country. It hasassets spread across products, viz loans for consumer durables, two- and three-wheelers, loans to small and mediumenterprises (SMEs), mortgage loans and commercial loans. Despite a strong growth in loans, the asset quality andprovisioning remain among the best in the system. Given the strong growth rate, high margins and return ratios,it deserves to trade at a premium to the other NBFCs

Bajaj Finserv � Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer financeand distribution) and is among the top players in the life insurance and general insurance segments. Its consumerfinance (Bajaj Finance) and general insurance businesses continue to report a robust performance while the lifeinsurance business is showing signs of a pick-up after being affected by a change in regulations.

Bank of Baroda � Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (over 100 officesin 24 countries) and a strong network of over 5,000 branches across the country. It has a stronghold in westernand eastern India. Its performance metrics remain superior to that of the other PSBs, though the asset qualitytrends will be the key monitorable in the near term.

Bank of India � Bank of India has a network of over 4,800 branches, spread across the country and abroad, along with a diversifiedproduct and services portfolio, and steadily growing assets. The operating performance has weakened due tomargin deterioration and sharp rise in NPAs. Given the rise in the number of incremental stressed loans and therelatively weaker capital position, its valuations may remain subdued.

Capital First � Capital First (erstwhile Future Capital Holdings) has been acquired by global private equity firm, Warburg Pincus(a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments,like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Itsloan book is expected to sustain a 25-30% growth in the next three years. As a result of several initiatives taken,the operating leverage will play out and may lead to significant pick-up in profitability over medium term.

Corp Bank � Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantlyexposed to the corporate segment, which constitutes about 44% of its book. Due to a higher dependence on thewholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise inNPAs could keep provisioning high and weaken earnings performance.

Federal Bank � Federal Bank is among the better performing old private sector banks in India with a strong presence in southIndia, especially Kerala. Under the new management, the bank has taken several initiatives, which would improvethe quality of its earnings and asset book. The asset quality has consistently improved in the past several quartersand the operating performance is picking up gradually. The valuations remain attractive over the medium to long term.

HDFC � HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. Ithas interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries aregrowing faster than HDFC, the value contributed by them would be significantly higher going forward. Due to adominant market share and consistent return ratios, it should continue to command a premium over the otherNBFCs. Any unlocking of value from its insurance business will be positive for the stock.

HDFC Bank � HDFC Bank is among the top performing banks in the country having deep roots in the retail segments. Despitethe general slowdown in the credit growth, the bank continues to report a strong growth in advances from retailproducts. Its relatively high margins (compared with its peers), strong branch network and better asset qualitymake HDFC Bank a safe bet and there is scope for expansion in the valuations.

ICICI Bank � ICICI Bank is India’s largest private sector bank with a network of over 3,800 branches in India and a presence inaround 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to


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contract its advances book due to asset quality concerns. The operating profit improved significantly and is thekey driver of the earnings growth. The bank offers substantial value unlocking opportunities from the insuranceand securities businesses.

IDBI Bank � IDBI Bank is one of leading PSBs of India, though it is largely present in the corporate lending space. It is graduallyworking towards improving its liability base and expanding the retail book which is likely to reflect in the form ofbetter margins and return ratios. However, due to rising asset quality risks, low tier-I CAR and slower businessgrowth, the stock is likely to underperform in the near term.

LIC Housing � LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loanbook of over Rs1,00,000 crore. It is promoted by Life Insurance Corporation of India, which is among the mosttrusted brand in the country. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782customer relationship associates, the company has among the strongest distribution structures in India to supportbusiness expansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be thekey triggers for the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growthoutlook, the company’s fundamentals are strong.

PNB � Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constitutingaround 40% of its total deposits. This helps it to maintain one of the highest margins among PSBs. However, inview of the weakness in the economy and relatively higher exposure to troubled sectors, the asset quality stress hasincreased and NPA issues will persist over next 2-3 quarters.

PFS � PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in theenergy value chain. Given the robust lending opportunities in the renewable energy segment and the likely reformsin the thermal power segment, the loan growth is expected to remain strong over the next two to three years. Theproceeds from exits in investments would add to the profitability. The asset quality despite some deteriorationremains among the best in the system.

SBI � State Bank of India is the largest bank of India with loan assets of over Rs12 lakh crore. The loan growth for FY15was in line with the industry average while the core operating performance was relatively strong. The successfulmerger of the associate banks and value unlocking from insurance business could provide further upside for thebank. While the bank is favourably placed in terms of liability base and the operating profit is also improving, theasset quality would remain a key monitorable in the near term.

Union Bank � Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become thelargest retail bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending.While the high stressed loans and weak capital ratios remain concerns with the bank, the current valuations are atsteep discount to book value which partly factors the concerns.

Yes Bank � Yes Bank, a new generation private bank, started its operations in November 2004 and has emerged as amongthe top performing banks. It follows a unique business model based on knowledge banking, which offers productdepth and a sustainable competitive edge over established banking players. The bank is suitably poised to ridethe recovery in the economy and the retail deposit franchise is showing a sharp improvement which will supportthe margins.

Consumer goods

Britannia � Britannia is the second largest player in the Indian biscuit market with about 30% market share. Under a newleadership, Britannia has been able to leverage and monetise its strong brand and position in the biscuit and snacksegments. The company can sustain its higher than industry growth rates with an improving distribution reach, entryinto newer categories and focus on cost efficiency. We recommend a Buy on the stock with a price target of Rs3,650.

GSK Consumers � GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay aheadof the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expandedits product portfolio by entering into new categories such as biscuits and oats in the recent years. With cash balanceof more than Rs2,000 crore the company can invest in growth initiatives as well as reward its investors with a healthydividend payment. We recommend Buy on the stock.

GCPL � Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide marketsegments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies havehelped the company to expand its geographic footprint. We believe the decent sales volume growth in the domesticbusiness coupled with a strong growth in the Indonesian, African and Argentine businesses would help it toachieve an 18% top line growth and a 26% bottom line growth (CAGR) over FY15-17.

HUL � Hindustan Unilever is India’s largest FMCG Company. With declining inflation and improving sentiment, HUL’svolume growth in the domestic business is expected to improve in the coming years. Also it would be one of thekey beneficiaries of reducing input prices. Though business fundamentals have improved, the valuation remains atpremium levels. Hence we recommend Hold on the stock. In the long term, it will be one of the key beneficiariesof the Indian consumerism story.

ITC � ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, tostrengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses someof which are at a nascent stage. The fourth consecutive year of a 15%+ hike in excise duty will continue to putpressure on the cigarette sales volume. However price hikes will maintain the profitability of the cigarette business.The current valuation makes ITC one of the cheapest stocks in the large-cap FMCG space.


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Jyothy Labs � Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration ofHenkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 15%. A stable OPMand lower interest cost would aid the PAT to grow at 26% CAGR over FY15-17.

Jyothy Labs � Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration ofHenkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 17%. A stable OPMand lower interest cost would aid the PAT to grow at 38% CAGR over FY14-17.

Marico � Marico is among India’s leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footingin the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of newproduct categories (especially in the beauty and wellness space) and growth through acquisitions. While the domesticproduct portfolio is likely to achieve a steady growth in volumes, the international business is yet to gain momentum.Marico has been our preferred pick in the FMCG sector and we remain positive on its long-term growth story.

Zydus Wellness � Zydus Wellness is bearing the brunt of a limited product portfolio of three brands (Nutralite, Sugar Free andEveryuth) that cater to a niche category. The company would benefit from a lower input cost, improving urbanconsumer sentiment and a new distribution system in FY2016. Thus, we expect a better operating performancefrom it in FY2016.

IT/IT services

CMC � As per the scheme of amalgamation, CMC as an entity will cease to exist in the next six months as it will get fullyintegrated into TCS. Thus, by the record date of the swap ratio, the stock price of CMC will eventually trade at adiscount of around 21% to that of TCS as per the swap ratio of 79 shares of TCS for every 100 shares of CMC. Weretain our Hold rating on the stock for the existing shareholders, in line with our positive view on TCS (for which wehave a price target of Rs3,000). But for fresh investment it would be more prudent to buy into TCS rather thanCMC, as the latter will cease to exist as an entity in the next few quarters.

Firstsource � Firstsource Solutions is a specialized BPO service provider. It has scripted a remarkable turn-around from beingon the brink of a financial burn-out to being an operationally sound company with a large scope for furtherimprovement. The health of its balance sheet is improving gradually as the company is gradually reducing its debtburden through internal accruals. The management maintains a 6-8% revenue growth guidance for FY16. Thegrowth in actual contract value (ACV) deals remained muted and grew from $495 million to $501 millionsequentially, with net deal wins of $5-7 million. On the margins front, the management reduced its EBITDAmargins guidance level for FY2016 to 70-90BPS from 100-150BPS earlier in FY2015, leading to margin pain inH1FY2016.

HCL Tech � HCL Technologies is a global technology company. Its management indicates that the demand environment lookspromising with an increase in market share coupled with a significant increase in the deal funnel. Further, themanagement has made investments in digital technologies and Internet of things (IOT), and already won a fewdeals in the space. (25% of total deals wins in FY2015 comes from digital space). However, the margins areexpected to remain under pressure in the medium term owing to these investments. We remain positive on thecompany in view of its order wins and superior earnings visibility.

Infosys � Infosys is India's premier IT and IT-enabled services company that provides business consulting, technology,engineering and outsourcing services. For FY16, the management has maintained revenue guidance of 10-12% Y-o-Y growth on a CC basis and increased guidance on a reported basis to 7.2-9.2% from 6-8% earlier, led by lesser impactof cross-currency headwinds. It has also given a promising aspiration target for 2020 of achieving $20bn in revenues.Under the leadership of Vishal Sikka, the company is doing the right thing by investing in the digital space (both organicand inorganic), improving client engagement through design thinking, and automating and innovating for futuregrowth prospects. We remain positive on the company’s growth prospects for the coming years.

Persistent � Persistent Systems has proven expertise and strong presence in newer technologies, strength to improve its IP baseand the best-in-the-class margin profile which sets it apart from the other mid-cap IT companies. Weakness andvolatility in legacy ISV segment coupled with softness in IP revenues will restrict the revenue trajectory for FY16on an organic basis. Also, margins remain under pressure on account of an increase in investments in the enterprisedigital transformation strategy. We believe the integration and consolidation of Aepona Holdings will have amaterial impact on estimates for FY16 and FY17.

TCS � Tata Consultancy Services is among the pioneers of the IT services outsourcing business in India and is the largestIT service firm in the country. Its management aspires to beat the Nasscom growth guidance of 12-14%. Thoughthe management expects the weakness in the telecom, energy and Diligenta businesses to continue, it expectsclients’ IT budget to increase modestly in FY16. We remain positive on the company, given its strong positioning,scale advantage and head start in digital technology.

Wipro � Wipro is among the top 5 IT companies in India but in the last few years it has been lagging the industry in terms ofgrowth. We believe, owing to weakness in the energy and telecom spaces, it’s unlikely to show material improvementin earnings on an organic basis in FY16. However, we remain sceptical, as anecdotal evidence on Wipro in the lasttwo to three years does not inspire confidence.


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Capital goods/Power

BHEL � Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflowhas been showing signs of slowing down which would remain a major concern for the company. The key challengebefore the company now would be to maintain a robust order inflow and margin amid rising competition and lowerorder inflow. The current order book of Rs101,018 crore stands at around 3.4x FY15 sales.

CESC � CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) whichis a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution)has come on stream recently in Haldia. However, another 600MW is ready in Chandrapur which is looking forcoal and power purchase linkage. The losses in the retail business are coming down gradually over the past and itis expected to break even soon. The BPO subsidiary, FirstSource, is performing well in line with expectations. Weretain our Buy recommendation on CESC.

Crompton Greaves � Crompton Greaves’ key businesses—industrial and power systems--are passing through a rough patch and arepotential beneficiaries of the upcoming investment cycle revival. Its consumer product segment is expected tosustain a high growth and unlock value from a demerger exercise. The troubled international power systembusiness, which was a major overhang for the stock, is considered for sale. This along with the demerger of theconsumer business could unlock value for shareholders.

Finolex Cables � Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improvingdemand environment in its core business of cables and leveraging its brand strength to build a high-margin consumerproduct business (of switchgears, lamps etc). However, a derivative exposure and the subsequent overhang arematters of past now, leading to a strong case for re-rating. We see a healthy earnings growth, return ratios in highteens and superior cash flow which bode well for the stock; hence, we remain positive on the stock.

Greaves Cotton � Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrolengines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructureequipment segment). The foray in the mini tractor segment and international markets would open new growthavenues. The management has taken a strategic call to close and hive off the loss-making divisions. The stepstaken include (1) the closure of the legacy casting unit in Pune; (2) the hive-off of the engineering unit in Germany;and (3) the closure of operations at the infrastructure division. With the closure of the infrastructure business andan expected improvement in the engine business, we expect the company to return to its 15%-plus OPM level.

Kalpataru � Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also currentconsol order book is 1.4x its FY14 sales). The OPM of the stand-alone business is likely to remain around 9-10%;however the OPM of JMC Projects (a subsidiary) is showing signs of improvement. Listing of Subham Logistics isalso expected to unlock value. We retain our Buy rating.

PTC India � PTC India is a leading power trading company in India with a market share of 35-40% in the short-term tradingmarket. In the last few years, the company has made substantial investments in areas like power generationprojects and power project financing which will start contributing to its earnings. Long pending receivables wasone of the drags on the company’s balance sheet and return ratios; however, the concern has receded after receivingpayment from UPSEB. We retain Buy due to expectations of a healthy volume uptick with an increasing share oflong-term contract business.

Skipper � Skipper is uniquely placed to exploit the growing opportunities in two lucrative segments: power (transmissiontower manufacturing and EPC projects) and water (PVC pipes). It has a comfortable order book of Rs2,400 crorein the transmission business, which looks promising given the huge investments proposal by the government in thepower T&D segment in the next five years. It plans to expand the PVC capacity manifold (4x) and aspires to turna national player from a regional player. After the revamp of its low-margin steel tube business and due tooperating leverage the overall margin may improve substantially in the next two years and boost its earnings andreturn ratios. The earnings are poised to surge; hence we are positive on the stock.

Thermax � The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’scapex. Thermax’ group order book stands at around 2.4x its FY15 consolidated revenues. However, the companyhas shown its ability to maintain a double-digit margin in a tough environment. The management sounded positivewith a likely recovery in industrial capex cycle. We retain Hold on the stock due to its rich valuation.

Triveni Turbines � Triveni Turbines Ltd (TTL) is a market leader in the up to 30MW steam turbine segment. TTL is at an inflexionpoint with a strong ramp-up in the after-market segment and overseas business while the domestic market isshowing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of 30-100MWrange which is likely to grow multifold in the next 4-5 years. TTL is virtually a debt-free company with a limitedcapex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boostedby the expected uptick in the domestic capex cycle, the company’s earnings are likely to grow by 25%+ per annumover the next 3-4 years.

V Guard Ind � V-Guard Industries is an established brand in the electrical and household goods space, particularly in southIndia. Over the years, it has successfully ramped up its operation and network to become a multi-product company.It has recently also forayed into regions other than the south and is particularly focusing on the tier-II and III citieswhere there is a lot of pent-up demand for its products. We expect a CAGR of over 13% in its earnings over FY15-17 and RoE of around 22% during this period.


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Va Tech Wabag � VA Tech Wabag (VTW) is one of the world’s leading companies in the water treatment field with eight decades ofplant building experience. Given the rising scarcity of fresh water availability, we expect flow of huge investmentsin water segment both globally and domestically. With rising urbanisation and industrialisation in India, weexpect substantial investments in this space. Moreover, we expect the water segment to get substantial focus andbudgetary allocation, with the pro-reform BJP-led government at the centre. Given the large opportunity aheadand inherent strengths of VTW, like professional management, niche technical expertise and global presence, weexpect the earnings to grow by 30% (CAGR) during FY15-17 and generate RoE of around 15%.

Infrastructure/Real estate

Gayatri Proj � Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road andindustrial construction businesses. The order book stands at Rs5,968 crore, which is 3.7x its FY15 revenues. It isalso expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity.The company has potential to transform itself into a bigger entity.

IL&FS Trans � IL&FS Transportation Networks is India’s largest player in the BOT road segment with a pan-India presence anda diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with thegeographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, astrong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.

IRB Infra � IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator inthe country with all its projects being toll based. It has an integrated business model with an in-house constructionarm which provides a competitive advantage in bidding for the larger projects and captures the entire value fromthe BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-freeand it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefitfrom the huge opportunity in the road development projects on the back of its proven execution capability and thescale of its operations.

Jaiprakash Asso � Jaiprakash Associates, India’s leading cement and construction company, is all set to reap the benefits of India’sinfrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.The marked improvement in the macro environment has improved accessibility to capital and thus eased theconcerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.

L&T � Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of thedomestic infrastructure capex cycle. The strong potential of its international business, its sound execution track recordand bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. Recent measuresplanned by the company to improve its return ratios augur well. Hence, we remain positive on the stock.

Punj Lloyd � Punj Lloyd is the second largest EPC player in the country with a global presence. However, since FY09 theprofitability has come under severe pressure due to cost overruns/liquidated damages in some of Simon Carves (asubsidiary) projects. Thus, it has put Simon Carves under administration. Further, Libyan projects will take anotherfew quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction andworking capital management will drive its growth as it enjoys a robust order book.

Oil & gas

Oil India � Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.The total proven and proven and probable reserves of the company stand at 473 million barrels (mmbbls) and941mmbbls respectively. In addition to the huge oil reserves, the company’s reserve-replacement ratio is quitehealthy at 1.6x, which implies a comfortable level of accretion of oil reserves through new discoveries. Further, itoffers healthy dividend yield, which provides comfort to investors. The full benefit of the recent policy reformslike deregulation of diesel, gas price revision and DBT scheme for LPG consumers are expected to reflect in itsfuture earnings and add value, though weak global oil prices are likely to be an overhang on the stock for sometime.

Reliance Ind � Reliance Industries has one of the largest and complex refining businesses in India which enjoys a substantially higherrefining margin over the benchmark GRM. Further, its petrochemical business is also highly efficient while theprospects for its E&P business remains bright, though currently it remains depressed. We expect the GRM to remainhealthy and the petrochem margin to be maintained in the medium term on an uptick in the domestic demand.Currently, the decline in gas output from the KG-D6 basin is weighing on the stock price; however, incrementalcapacity in the petchem business would be the earnings driver in the coming years. Large investment in Reliance Jiocould add value in long term.

Selan Exploration � Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat.The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Basedon this, we expect it to ramp up production significantly, subject to approval for the new wells. We expectproduction ramp-up in FY16 and hence we expect the earnings to grow significantly in the next two to three years.However, weak global oil prices are likely to be an overhang on the stock in the medium term.


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Pharmaceuticals

Aurobindo Pharma� Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the US and European markets,thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones,penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenuemix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. Ithas recently acquired the commercial operations (revenue size EUR320mn) of Actavis Plc in seven western Europeancountries and of Natrol in the USA to take on the nutraceutical business, which is a strategic fit.

Cadila � Cadila Healthcare’s performance in the US generic vertical is likely to improve on the back of new productapprovals. Besides, its consumer business and exports to the emerging markets will help it to achieve a superiorgrowth. It got DCGI approval for its first NCE called Lipaglyn to treat type-II diabetes; this will add value to itsR&D pipeline.

Cipla � Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus ontechnology-intensive products in the inhalation and nasal spray segments; (2) established front-end presence in thekey markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; and (4) invested infuture growth areas like biosimilars. Though the rationalisation of products and creation of front-end presence inthe key markets would hurt earnings in the short term, but the base business would continue to grow steadily. Thegrowth would be fast-tracked on the back of the launch of combination inhalers in Europe, ramp-up in generics inthe USA and synergy from consolidation.

Divi’s Labs � The DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for Divi’s Laboratories. Thecompany is likely to see an improvement in economies of scale which will also lead to tax benefits after USFDAapprovals for three additional production blocks. A near debt-free balance sheet and strong cash flow are likely tohelp build a war chest for pursuing strategic investments (biosimilars) and exploit the growth opportunities inniche segments, like oncology and steroids for contraceptives. The company has planned to set up a new facility atVishakhapatnam with an initial investment of Rs500 crore; it will start contributing revenues from H2FY17.

Glenmark Pharma � Glenmark Pharmaceuticals exhibited a weaker operating performance during FY15 due to adverse economicscenario in the key emerging markets including Russia and a fewer number of product approvals in the USA.However, the management has given a revenue growth guidance of 18-20% for FY16 (vs 11% in FY15) and anEBITDA guidance of Rs1,750 crore for the same period (vs Rs1,359 crore in FY15; a Y-o-Y growth of 30%). Thegrowth would be mainly driven by the US and Latin American markets, which are witnessing exponential growth.The company’s focus on innovation augers well as evident from the fact that it received over $200 million as initialmilestone payment on out-licensing of partly developed molecules in a span of nine years. Currently, it has threenew chemical entities and four new biological entities in clinical trials, out-licensing potential.

Ipca Lab � Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap theexport markets. But, it has recently got an import alert from USFDA for its Ratlam API facility and the formulationfacility at Indore SEZ. While the overhang related to the USFDA ban is unlikely to ease in near term, a respite isexpected from the shipment of two products to the US market, namely hydroxychloroquine sulfate and propranololhydrochloride (exempted from the import ban), and a clearance on its Ratlam facility by the WHO. This will helpthe company to resume a significant portion of the institutional business. The management has guided for amoderate growth outlook (revenue growth of 10% and EBIDTA margin of 17-18%) for FY16.

J B Chemicals � Three years after selling the OTC business in Russia and CIS, JB Chemicals and Pharmaceuticals has re-establisheditself in the export market while retaining leadership in the domestic branded formulation market. A major chunkof the proceeds from the sale of the OTC business has stayed in its balance sheet while the operating performanceof the company has improved in recent quarters. We expect the company to fast forward growth rates on the backof focus on regulated markets like the USA. The utlisation of surplus cash of over Rs500 crore would provide thekey trigger to the stock.

Lupin � The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with additionof in-licenced product-Alinia, Inspira Chamber VHC and Locoid lotion) in the USA and a robust pipeline of newlaunches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expandedfield force and therapy focused marketing division, its formulation business in the domestic market has beenperforming better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incrementalrevenue stream for Lupin in the Indian market.

Sun Pharma � The combination of Sun Pharma, Taro, Dusa Pharma, the generic business of URL Pharma and the recentlyacquired Ranbaxy offers an excellent business model for Sun Phaarma. However, the integration process withRanbaxy is set to affect the profitability in short term. Also, the USFDA’s adverse observation report (Form-483)on its Halol (Gujarat) facility creates a major overhang. However, the management maintains its aim to achieve a$250-mn synergy from the merger of Ranbaxy by FY18. With a strong cash balance, it is well positioned tocapitalise on the growth opportunities and inorganic initiatives.


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Torrent Pharma � A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expandingits international presence. With the investment phase now over, it should start gaining from its internationaloperations in the USA, Russia and Brazil. Better field force productivity, focus on developed market and strongerbalance sheet would result in a sustainable earnings growth. It has recently acquired 30 key brands of ElderPharma for Rs2,000 crore which is a strategic fit in long run. The company has proposed to raise funds up toRs10,000 crore through a mix of equity and debt instruments, part of which may be used for inorganic initiatives.

Building materials

Grasim � Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortabledebt/equity ratio, attractive valuation and diversified business. The demand for VSF products remains strong in the globalmarket and Grasim being a leading domestic player is well placed to capture the incremental demand. However, a slowdownin demand for VSF and cement may affect the near-term earnings. The long-term outlook for the company remains intact.

The Ramco Cements � The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity additioncarried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volumegrowth in the future. The regional demand remains lacklustre but on account of the improvement in the realisationdue to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY15.

Shree Cement � Shree Cement’s cement grinding capacity has grown to 18.2mtpa which will support its volume growth in thecoming years. It has a power plant with capacity of 300MW entirely for merchant sale which is expected tosupport its revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenueaccruing from the sale of surplus power will drive the earnings of the company.

UltraTech Cement � UltraTech Cement is India’s largest cement company with approximately 52mtpa cement capacity. It has benefitedfrom an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing fromthe new captive power plants will improve its cost efficiency.

Discretionary consumption

Century Plyboard � Century Plyboard is a leading player in the organised plywood industry with a market share of 25%. A strong growthin the sector, Century’s premium positioning and brand equity strength, and the impending GST roll-out would enableit to post a revenue growth (CAGR) of 16.5% over FY14-17. On the back of a revenue growth and better absorptionof fixed costs, the earnings are likely to grow at a much stronger rate of 25% CAGR over FY14-17. It is a qualityconsumer play in a niche growing segment. Its robust return ratios and strong growth potential make us positive onthe stock. We have a Buy rating on it with a price target of Rs260.

Cox & Kings: � Cox & Kings is an integrated player with a strong presence in the global leisure travel segment and the educationtourism segment in Europe. It has 30% market share in the global outbound tourism market and a market leaderin education tourism in the UK. An improving global macro environment (conducive to travel & tourism industry)and the company’s focus on de-leveraging its balance sheet will help it to achieve a double-digit earnings growthin the medium term. Hence, we recommend a Buy on it with a price target of Rs350.

Eros Intl Media � Eros International Media Ltd (EIML) is one of the largest integrated film studios in India with multi-platformrevenue streams and a well-established distribution network across the globe. With its proven track record, animpressive movie slate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionaryspending on film entertainment driven by the country’s favourable demographics. We like EIML’s strategy ofpicking quality movie content and improvement in the catalogue monetisation revenues and the recent success ofmovies across genres is a testimony to EIML’s strong expertise in content management. Though we remain scepticalabout the cash generation profile of the company, we like the stock for the improvement in its revenue visibilityand the monetisation success of the digital media business.

Info Edge (India) � Info Edge is India’s premier online classified company in the recruitment, matrimony, real estate, education andrelated service sectors. Naukri is a quality play on the improving macro environment and is directly related to theGDP growth and Internet/mobile penetration. Thus, it can grow consistently at over 20% for the next few years.We expect Zomato business’ growth to extend in the coming years, with better integration of services and increasingmonetisation opportunities. Going ahead, other investee ventures, like www.meritnation.com,www.policybazaar.com, www.mydala.com and www.canvera.com, are also likely to gain from the ongoing e-commerce boom in India.

KKCL � Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, hascreated a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is aheadof its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled witha robust balance sheet make us positive on the company.


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KKDL � KKDL Ltd (erstwhile Kamala Dials and Devices) is present in the watch manufacturing business and has a strongpresence in the luxury watches retail business through subsidiary, Ethos. The watch business generates steady revenuesand cash flow with minimal capex, as no capacity is likely to come on stream and the utilisation levels are expectedto improve. The high-end retail watch business “Ethos” provides a strong growth opportunity in terms of revenuegrowth via its online venture wherein it generates leads that translate into lower customer acquisition cost and betterfixed cost management that would result in robust margin improvement and strong profit growth. This unique high-growth potential business along with the steady manufacturing business that generates free cash is attractively pricedcurrently and offers significant returns over the medium to long term. We put a Buy rating on the stock, valuing itusing the SOTP method (the manufacturing vertical is valued at 6x FY17E earnings + the high-end Ethos is valuedat 1.1x FY17E sales) to arrive at a price target of Rs375.

Orbit exports � Orbit Exports (Orbit) is a leading manufacturer and exporter of novelty fabrics exporting its products to over 32countries. It is a recognised star export house and operates in the niche area of high-end fancy fabrics, which are mainlyused by designers in women’s fashion apparels. A strong OPM profile has enabled it to earn higher returns averagingat 21% in RoCE and at 33% in RoE over the last three years. Given the strong financials, niche capabilities and avigilant management, Orbit is well poised for a strong earnings growth. Hence, we expect its top line and bottom lineto grow at a CAGR of 19.6% and 22.8% respectively over FY15-18. Given the robust earnings potential and enviablereturn ratios, Orbit is expected to trade at higher multiples. Thus, we expect the stock to get re-rated (in line with itspeers like Kitex Garments). We initiate coverage on Orbit with a Buy rating and value the company at 22x its FY2017Eearnings to arrive at a price target of Rs630.

Raymond � Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. Withgrowing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourabledemographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond withits brands and superior distribution set-up is very well geared to encash the same. Any development with regard tothe Thane land in the form of either joint development or disposal would lead to value unlocking and providesignificant cash to the company.

Relaxo Footwear � Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investmentopportunity due to its growing scale, strong brand positioning and healthy financial performance.

Speciality Rest. � Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands suchas Mainland China and Sigree. It is a good proxy on the Indian consumption story as several factors such asdemographics, increasing disposable income and the trend of nuclear families are playing in its favour. Given theslow pace of growth of consumer discretionary spending and pressure on the operating profit margin due to theaddition of new stores, we maintain our Hold rating on the stock.

Thomas Cook (I) � Thomas Cook India Ltd (TCIL), owned by the legendary value investor Prem Watsa, is an integrated leisure traveland human service management company in India. The improvement in the domestic and global macro environmentsprovides a huge growth opportunity in the Indian leisure and travel industry. Quess Corp (its human resourcemanagement business) provides exposure to the fast growing HR, office management and technology solutionsbusiness. Moreover, we see a turn-around in the financial performance of Sterling. The recent stock price correctioncoupled with the improving financial health of Sterling Resorts, visibility in Quess Corp business and expansion inthe OPM and earnings, provide an opportunity to re-enter the stock. Hence we upgrade it to a Buy with a pricetarget of Rs265.

Zee Entertainment � Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainmentcompanies. It has a bouquet of more than 34 channels across Hindi, regional, sports and lifestyle genres. For FY16,the management has indicated that the margin profile will be maintained at around 25%. The management alsoindicates a better operating environment in terms of both advertisement revenues and subscription revenues. On theadvertisement side, the management expects to exceed the industry’s low-teen growth in FY16. The subscriptionrevenues will also benefit from the phases III and IV of the digitisation process (will be more visible in FY17).

Diversified/Miscellaneous

Aditya Birla Nuvo � We like the strong positioning that Aditya Birla Nuvo’s businesses enjoy in their respective fields. It is amongst thetop five players in the insurance, asset management and telecom segments (Idea Cellular is the fastest growing telecomcompany, third in ranking). Madura Garments, with its marquee brands, and consistent and resilient growth, is aprofitable set-up. In an improving macro-economic environment the company would be well placed to grow.

Bajaj Holdings � Bajaj Holdings & Investment Ltd (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby itsmanufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of thewind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties,assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remainwith BHIL. BHIL is a primary investment company focused on new business opportunities. It holds more than 30%stake each in BAL and BFS. We have a Buy recommendation on the stock with a price target of Rs1,815.


Bharti Airtel � Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industryas well as the company focusing on the quality of revenues rather than volume, better times can be expected aheadfor the sector and hence the company. We remain optimistic about the company.

BEL � Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, stands to benefit fromthe enhanced budgetary outlay for strengthening and modernising the country’s security. The “Make in India”initiative of the government will support the earnings growth in the coming years, as it is the only player with strongresearch and manufacturing units across the country. The company’s current order book of around Rs22,500 croreprovides revenue visibility for the next three to four years.

GDL � With its dominant presence in the container freight station segment and recent forays into the rail freight and coldchain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cowwhile its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largestplayers in the CFS business and has also evolved as the largest player in the rail freight business as well as the coldstorage business. The proposed capex for all the three segments will strengthen its presence in each of the segmentsand increase its pan-India presence. We expect its revenues and net profit to grow at 20% and 16% CAGRrespectively over FY13-15.

Max India � Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insuranceand healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sectorplayers, has gained the critical mass and enjoys some of the best operating parameters in the industry. As theinsurance sector is showing signs of stablisation, the company’s favourable product mix and a strong distributionchannel will result in a healthy growth in the annual premium equivalent. The company has turned profitable ona consolidated basis and has announced dividend in past couple of years.

Ratnamani Metals � Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challenging businessenvironment due to increasing competition, the stock is attractively valued. The management has maintained a strongoutlook on the potential opportunities in the oil & gas sector and inter-connection of the rivers across the country.

Supreme Ind � Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging,industrial and consumer segments. After a subdued FY15 performance, the company is expecting 10-12% volumeswith a better operating performance (due to stable polymer prices). In addition, new launches of 70 value-addedproducts would further support margin performance in FY16. With expectations of a healthy volume growth,better product mix and expansion in margins in the coming years, we have fine-tuned our earnings estimates forFY16 and FY17. Therefore, we have retain a Buy rating with a price target of Rs750.

UPL � A leading global producer of crop protection products, intermediates, specialty chemicals and other industrialchemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to cropprotection products and post-harvest activities. A diversified geography and the recent acquisition of DVA AgroBrazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Itsrevenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY15. It has alsostarted to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-marginproducts. It has also started to focus on selling premium products and maintaining a strong balance sheet.












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