24 November 2015 1

Research & Quant Team (Gautam.Duggad@MotilalOswal.com); Tel: +91 22 3982 5404

23 February 2016

VOICES

VOICES India Inc on Call

VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earnings calls attended by our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also provides links to relevant research updates and to the transcripts of the respective conference calls.

This quarterly report contains Key takeaways from the post results management commentary for 104 companies, with links to the full earnings call

transcripts Links to our Results Updates on each of the companies included Summary of our Earnings Review for the quarter

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Automobiles 6-11 Ashok Leyland .............................. 6 Bajaj Auto .................................... 7 Bharat Forge ................................ 7 Eicher Motors .............................. 8 Hero MotoCorp ........................... 8 Mahindra & Mahindra ................. 9 Maruti Suzuki ............................. 10 Tata Motors .............................. .10 TVSMotors ....…………………………. 11

Capital Goods 13-15 ABB ........................................... .13 Crompton Greaves .................... 13 Havells India .............................. 14 Thermax..................................... 15

Cement 16 JK Cement……… . ………………………16 Ultratech ................................... 16

Consumer 17-23 Asian Paints ............................... 17 Dabur India ................................ 17 Emami ........................................ 18 Godrej Consumer ...................... 19 GSK Consumer ........................... 20 Hindustan Unilever .................... 21 Jyothy Labs ................................ 22 Marico ....................................... 22 United Spirit .............................. 23

Financials- Banks 24-37 Axis Bank ................................... 24 Bank of Baroda………… ... ………….25 Cananra Bank ............................. 27 DCB Bank ................................... 27 Federal Bank ............................. .28 HDFC Bank ................................ .29 ICICI Bank ................................... 30 IDFC Bank.................................. .31 IndusInd Bank… ......................... 32 Indian Bank…………………… ………..32 Kotak Mahindra Bank ................ 33 Oriental Bank of Commerce . …..35 State Bank of India………… .......... 35 Union Bank… ........................ …..36 Yes Bank……… ........................ ….37

Financials – NBFC 39-44 Bajaj Finance .............................. 39 Dewan Housing Finance ........... .39 IndiaBulls Housing Finance ....... .40 M&M Financial .......................... 41 Muthoot Finance ....................... 42 Shriram Transport Finance ........ 43 SKS Micro Finance ..................... 44

Healthcare 46-52 Alembic Pharma ........................ 46 Alkem Labs................................. 46 Biocon ........................................ 47 Cadila Healthcare....................... 48 Dr Reddy’s Labs ......................... 49

Glenmark Pharma ...................... 49 Lupin ................................. ………50 Sun Pharmaceuticals ................. 50 Torrent Pharma ......................... 52

Media 53 Dish TV ....................................... 53 Zee Entertainment ..................... 53

Metals 54-56 Hindustan Zinc ........................... 54 Hindalco Inds…………….............. .54 JSW Steel ................................... 55 Vedanta ..................................... 56 Tata Steel ................................... 56

Oil & Gas 58 Cairn India ................................. 58 Gail India .................................... 58

Real Estate 60 DLF……………………………………… ….60 Mahindra Lifespaces………… . ..….60 Oberoi Realty ............................. 60

Retail 62-63 Jubilant Foodworks .................... 62 Shoppers Stop ........................... 62 Titan ........................................... 63 Technology 64-74 HCL Tech .................................... 64 Hexaware Technologies ............. 65 Infosys ....................................... 66 Info Edge (India) ....................... 67 KPIT Technologies ...................... 68

Mindtree .................................... 69 Mphasis ..................................... 69 NIIT Technologies ...................... 70 Persistent Systems ..................... 71 Tata Elxsi .................................... 71 TCS ............................................. 72 Tech Mahindra........................... 73 Wipro ......................................... 74

Telecom 75 Bharti Infratel ............................ 75

Utilities 76-77 JSW Energy ................................ 76 NHPC………………………… .. ………….76 NTPC .......................................... 77 Reliance Infrastructures............. 77

Others 78-89 Arvind Ltd .................................. 78 Century Ply ................................ 78 Coromandel International ......... 79 Container Corp .......................... 80 Eveready Industries ................... 80 Gateway Distriparks................... 81 Gujarat Pipavav ......................... 82 Interglobe Aviation .................... 82 Just Dial...................................... 83 Kaveri Seeds............................... 83 PVR ............................................ 84 Sintex Industries ........................ 85 Symphony .................................. 86 SRF ............................................. 87 TTK Prestige ............................... 88 V-Guard Industries ..................... 88

Contents Summary ........................................................................................................................................................................................ 3 Sectors ...................................................................................................................................................................................... 6-89 3QFY16 corporate sector performance ...................................................................................................................................... 90

Companies Pg Companies Pg Companies Pg Companies Pg ABB 13

Emami 18

JSW Energy 76

Shriram Transport Fin. 43

Alembic Pharma 46 Eveready Industries 80 JSW Steel 55 Sintex Industries 85 Alkem Laboratories 46 Federal Bank 28 Jubilant Foodworks 62 SKS Micro Finance 44 Arvind Ltd 78 Gail India 58 Just Dial 83 SRF 87 Ashok Leyland 06 Gateway Distriparks 81 Jyothy Labs 22 State Bank of India 35 Asian Paints 17 Glenmark Pharma 49 Kaveri Seeds 83 Sun Pharmaceuticals 50 Axis Bank 24 Godrej Consumer 19 Kotak Mahindra Bank 33 Symphony 86 Bajaj Auto 07 GSK Consumer 20 KPIT Technologies 68 TCS 72 Bank of Baroda 25 Gujarat Pipavav 82 Lupin 50 Tata Elxsi 71 Bharat Forge 07 Havells India 14 Mahindra & Mahindra 09 Tata Motors 10 Bajaj Finance 39 HCL Tech 64 M&M Financial 41 Tata Steel 56 Bharti Infratel 75 HDFC Bank 29 Mahindra LifeSpaces 60 Tech Mahindra 73 Biocon 47 Hero MotoCorp 08 Marico 22 Thermax 15 Cadila Healthcare 48 Hexaware Technologies 65 Maruti Suzuki 10 Titan 63 Cairn India 58 Hindalco Inds 54 Mindtree 69 Torrent Pharma 52 Cananra Bank 27 Hindustan Unilever 21 Mphasis 69 TTK Prestige 88 Century Ply 78 Hindustan Zinc 54 Muthoot Finance 42 TVS Motors 11 Container Corp 80 ICICI Bank 30 NHPC 76 Ultratech 16 Coromandel Internat. 79 IDFC Bank 31 NIIT Technologies 70 Union Bank 36 Crompton Greaves 13 IndiaBulls Housing Fin. 40 NTPC 77 United Spirits 23 Dabur India 17 Indian Bank 32 Oberoi Realty 60 Vedanta 56 DCB Bank 27 IndusInd Bank 32 Oriental Bank of Commerce 35 V-Guard Industries 88 Dewan Housing Fin. 39 Info Edge (India) 67 Persistent Systems 71 Wipro 74 Dish TV 53 Infosys 66 PVR 84 Yes Bank 37 DLF 60 Interglobe Aviation 82 Reliance Infrastructures 77 Zee Entertainment 53 Dr Reddy’s Labs 49 JK Cement 16 Shoppers Stop 62 Eicher Motors 08

Note: All stock prices and indices for companies as on 19 February 2016, unless otherwise stated

Index (Alphabetical)

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23 February 2016 3

Demand slowdown nearing its end However, revival in corporate profitability still some time away

Corporate India believes that the demand slowdown is nearing its end. A revival is on the horizon – soon for some sectors, later for others.

Most sectors have benefited from lower commodity prices; however, captains across industries do not expect further fall.

Competitive intensity remains high and profitability is likely to remain under pressure for a while.

Autos Demand environment across segments (barring M&HCVs) is weak. Recovery is not broad-based, as growth is driven by new product launches. Exports for 2Ws, 3Ws and PVs are under pressure due to weakness in parts of Africa and LatAm. Discounts / variable marketing spends have increased further in 3QFY16 (partly seasonal). Commodity price benefit is largely reflected in 3QFY16, with any further benefit getting offset by MIP on steel.

Capital Goods Although execution of orders in hand broadly remains on track, industry captains remained cautious on the pace of industrial capex recovery. Industrial capex recovery could be a few quarters away, given the continued poor capacity utilization levels and is a function of demand improvement. Sectors like Transmission, Transportation and Renewables continue to witness capex traction. Margins remain under pressure, as competition remains high.

Cement Green shoots are visible in select parts – NCR, Rajasthan, UP (ahead of election), etc. Road investment has been witnessing encouraging pick-up, with execution now at 12-14km/day. Budget should be favorable for rural economy and regulation. 7th Pay Commission should favorably impact housing demand. East India is the strongest growing market, followed by North, while West was flat and South continues to de-grow. Demand growth should accelerate further in 4QFY16. Southern market prices were stable, with interim fluctuations in Hyderabad. Post Pongal, demand has picked up. Preliminary work in AP has been moving well, but actual demand offtake should take 6-9 months more. AP and Telengana should post flat volumes in FY16 and 5-6% growth in FY17, led by government contracts. De-growth in rural housing may negate uptick in low cost housing and irrigation. Southern market demand would be flat in FY17, with slight negative bias, as de-growth in Tamil Nadu market would eat away uptick in AP and Telengana.

Consumer In Consumer, demand scenario continues to be challenging. Sales growth in 3QFY16 was affected by macro slowdown, supply issues from Nepal, floods in Chennai and delayed winters. For majority of the coverage companies, there was some moderation in rural growth, which still remains marginally higher than urban growth. Companies continue to benefit from benign raw material scenario while

Voices BSE Sensex: 23,709 S&P CNX: 7,211

Voices | India Inc on Call

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23 February 2016 4

there were signs of inflation in some input prices. For HUL, growth continues to be volume-led, with subdued pricing environment, while competitive activity remains high. Consumer companies remain cautious on demand outlook for FY17 and expect raw material prices to be benign for the next couple of quarters.

Financials Weak asset quality trends are likely to continue in 4QFY16 as well. FY17 corporate asset quality outlook remains uncertain, despite the clean-up that happened in FY16, led by continued moderate growth in global as well as domestic macroeconomic growth. Retail asset quality remains impeccable. CV, CE and unsecured loans segments have picked up over the last 2-3 quarters. New MCLR guidelines are unlikely to impact margins materially. Loan growth outlook remains moderate due to subdued capex activities at the system level.

Healthcare In Pharmaceuticals, overall sector sales and EBITDA margin were in line with our estimates. US growth continues to be muted for large caps due to lower approvals and regulatory issues. Emerging markets growth for large caps was hit by currency crisis and political turmoil; registered lower than expected growth. India formulations sales remained healthy for most of the companies. However, going ahead, improved pace of product approvals post GDUFA is likely to drive growth in US market. Emerging market growth is likely to remain subdued on currency concerns. Overall earnings are expected to pick up over the next few quarters.

Media Broadcasters: Ad growth for Broadcasters remains strong. Zee reported its 3rd strong quarter

of ad growth (27% YoY). However, Sun TV’s ad performance was severely impacted due to the Chennai floods in 3QFY16, as ad inventory consumption took a beating (37% decline YoY in December).

With BARC recently increasing rural representation in television ratings, major broadcasters with deep rural distribution networks are expected to monetize the rural content consumption once the BARC ratings system stabilizes.

Subscription growth is expected to pick up in 4Q. However, significant momentum is likely only in 1HFY17.

Print companies: With the exception of HMVL, ad growth for major print companies was ~7%, as

key segments such as Real Estate and Education remain soft. Ad growth is expected to gain steam in 1HFY17.

Circulation revenue growth is expected to remain steady. Benign newsprint cost has aided margins in 9MFY16; Print companies believe

that newsprint prices seem to have bottomed out and should remain at current levels (INR33-34/kg).

E-commerce contribution to ad revenues (albeit small base) is expected to increase multi-fold, going forward.

Metals In Steel, the view is that global prices are close to bottom; however, a sharp uptick is unlikely. MIP will come to the industry's help and gradual price hikes are

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23 February 2016 5

anticipated, based on market dynamics. Zinc prices should improve backed by supply initiatives globally and indicators from falling zinc Tc/Rcs. In Aluminum, the market is expected to enter into a deficit in 2016 and would provide support to prices.

Oil & Gas In Oil & Gas, GRMs were above estimates, driven by improved auto fuels cracks. Inventory losses were lower sequentially due to lower crude decline in 3QFY16. Managements of PLNG and GAIL have highlighted that they benefited from transmission volume uptick, led by power and fertilizers pooling. They are set to benefit from awaited hike in transmission tariffs.

Real Estate Weak demand continued in the festive season across markets. Hyderabad was one of the better markets while Nagpur and Bangalore were steady. Sales momentum remained muted in 3QF16 on lack of new launches. Even southern players gave up their strength, with sharp deterioration in presales of PEPL, Sobha, and BRDG. NCR market continued to hold the tag of weakest region, barring some resilience of DLF phase V. Improvement was visible in Mumbai, with successful launches of OBER (Borivali) and GPL (Vikhroli).

Retail In Retail, there was no dramatic change in consumer sentiment. Festive season was mixed for coverage companies. SHOP and TTAN saw good SSS growth; JUBI saw 2% SSSG (while QSR peers continue to post negative SSSG). Companies continue with their store expansion, with JUBI opening 40 new Dominos stores, SHOP opening 2 new departmental stores and TTAN opening 5 new Tanishq stores during the quarter. JUBI’s management highlighted that store expansion will be pragmatic going forward. Outlook for FY17 remains soft, as customers are seeking value products, as per SHOP’s management.

Technology In Technology, industry captains alluded to client budgets being flat to positive for CY16. Pipeline and incremental demand continue to be driven by digital/transformational projects. Customers have been optimizing costs in run-the-business activities, and are ploughing savings/additional spend in Digital. Demand across verticals is likely to remain sound, barring in Energy, which has been impacted by drop in oil prices. Continued focus is expected on investing in augmenting the front end, capability building, expansion of services portfolio and building digital practice. Simultaneously, efforts to build on automation and enhance capabilities in artificial intelligence to improve productivity remain. More clarity on revenue growth for FY17 should emerge after another quarter, as client budgets crystallize.

Utilities In Utilities, industry captains expect demand revival in 4QFY16/1HFY17, led by DISCOMs’ revival. However, recovery is linked to uptick in industrial demand improvement – revival of economic growth is crucial. Also, the ST prices are expected to remain benign. Grid constraints would ease in 4QFY16.

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Key takeaways from management commentary Ashok Leyland Buy Current Price INR 91 Target Price INR 107 | 17% Upside It expects robust demand for M&HCV to continue in 4QFY16. M&HCV demand

continues to be driven by pent-up demand, improving financial health of of fleet operators, pre-buying for infra projects, upgrading to new more efficient fleet in select industry segments and e-commerce segment.

AL’s market share has improved in all regions. In non-South regions, market share gain is driven by focus on network expansion to improve competitiveness. Its strong growth is driven by medium duty vehicles, Tractor-Trailers, 31-37 Ton segment and strong growth in South.

Discounts further increased marginally to ~INR240k. However, price increase by AL resulted in ASPs being marginally higher QoQ.

AL is well prepared for BS IV roll-out, with ability to meet new norms with current mechanical pump engines as well as offer common rail engines. For BS VI, AL’s is prepared and displayed a Euro VI product at recently concluded Auto Expo. Its subsidiary Albonair is one of the 4 companies in the world having Selective Catalytic Reduction (SCR) based solution.

Exports were at ~10% of sales (v/s 8.6% in 2QFY16). Currently, exports are driven by project orders, but gradually it would like to increase mix of retail orders. While Africa is important market, it would like to ramp-up in South East Asia. It is yet to witness any impact of economic pressures in its traditional markets of ME. It maintained its long term target of deriving 25-30% of revenues from exports.

It expects spare revenues to grow 20% in FY16 and defence revenues to grow at 10-15% in FY16.

As per the management, commodity price benefit is already fully reflected in 3QFY16. Minimum Import Price (MIP) scheme for steel would off-set any benefit of other commodities.

It continues to tightly control capex (incl Investments in subs/JVs), with ~INR750m in 9MFY16.

Working capital increased by ~INR7.5b QoQ to ~INR10.5b or 18 days of sales (v/s 7 days in 2QFY16), due to increase in inventory to ~7,887 units(v/s ~7,650 units; pre-production units for Jan & exports) and large receivables (which might get realized in 4QFY16).

As of Dec-15, it had net debt of ~INR35.1b (D:E 0.7x), an increase of ~INR4.8b QoQ (~INR4.6b YoY reduction).

Click below for Detailed Concall Transcript &

Results Update

AUTOMOBILES

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23 February 2016 7

Bajaj Auto Buy Current Price INR 2,457 Target Price INR 2,948 | 20% Upside In Nigeria, it is losing out ~15,000/month at wholesale level due to USD

availability issue. In 3Ws, it is losing out 8-9,000 units/month at Nigeria and Egypt. Retails in Nigeria are flat for 9MFY16.

Inventory levels with Nigerian dealers are very low at 1.5-2 months (incl ~45 days of transit inventory) as against normal inventory of ~3 months.

It has corrected prices in Nigeria, which is fully reflected in 3QFY16. New markets entered in last 9 months are adding 8-9,000/month. These

markets doesn’t include Brazil and South East Asia, which are yet to be fully explored, and would be targeting these markets in FY18.

Avenger is expected to ramp-up to 85-90k from ~40k in 3QFY16 (v/s ~11k in 4QFY15). It is currently sold only through main dealers, and has scope to expand sales through tier-2 dealer. Avenger is substantially more profitable than Pulsar.

It is targeting Domestic 2W exit market share of ~22% (from 18-19%), with average monthly volumes increasing to 200k from ~150k in 3QFY16, driven by ramp-up in Avenger and commencement of ‘V’ sales.

In domestic 3W market, it expects 40-50k incremental permits for FY17. USD/INR rate: For 3QFY16, it realized ~INR66 and expects it to be at 67-67.5 in

4QFY16. For FY17, ba sed on its range forward hedges it is expected at minimum of INR67.

It believes large part of commodity benefits are reflected in 3QFY16, with marginal benefits reflecting in 4QFY16. However, it expects scale benefit and Value Engineering benefit to come through in next few quarters.

Bharat Forge Buy Current Price INR 771 Target Price INR 965 | 25% Upside It has initiated actions to rationalize cost across all activities to realign with the

prevailing demand environment and put more thrust on operational efficiency, accelerating New Product Development and New Customer acquisition.

BFL’s sales in the domestic M&HCV segment have grown by 28.0% vis-à-vis market gro wth of 21.9% driven by product specific market share increase.

It has identified four sectors for import substitution under ‘Make in India’ program, viz mining, power, railways/marine and defence.

For international M&HCV segment, it expects Europe CV demand to be flat to slightly positive, whereas US Class 8 trucks are expected to decline to 270,000 units (~306k in CY15) in CY 2016.

In US PV segment, it has grown at 112% in 9MFY16 driven by ramp up of new orders.

Non-Auto exports have declined by ~36% in 9MFY16, impacted by weakness in shale gas and mining.

The decline in profitability of the international subsidiaries in 3QFY16 quarter is a result of one off operational related issues which have now been fixed. We expect the performance of the subsidiaries to improve driven by market growth & ramp up of the new aluminum forging business.

Click below for Detailed Concall Transcript &

Results Update

AUTOMOBILE |

Click below for Results Update

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Eicher Motors BuyCurrent Price INR 18,625 Target Price INR 21,561 | 16% Upside Royal Enfield Maintains RE’s maximum production for CY16 at ~620k. Loss of production of 11,200 units in 4QCY15 due to Chennai floods Order book remains strong, with waiting period of 3-4 months Targeting to add 100 dealers each in CY16/17 in tier-2/3 cities, as it is having

good coverage of top-100 cities. New launch Himalayan comes with improved service interval (~10k Kms for oil

change v/s ~2.5k for current RE’s), which is reflection in improvement in qualityover current generation of REs.

Columbia has become RE's no.1 export market in 1st year of entry Apart from opening of exclusive RE stores in Paris and Madrid, it opening stores

in big motorcycling markets of Indonesia and Thailand in last 2 months RE price increase of ~1.3% from 15/JanVECV MDEP volumes at 4,728 units (+82% YoY, -2% QoQ) VECV’s price hike of 1.2-1.3% in LMD in Nov-Dec’15.Polaris JV: Sold ~650 units since launch in Aug-15. Currently sold through 33 dealersin 7 states, but plans to expand to all markets including BSIV states by end CY16.

Hero MotoCorp BUY Current Price INR 2,705 Target Price INR 3,034 | 12% Upside New scooters would be fully rolled-out on Pan-India basis by end Mar-16. It has

got very good response for Maestro Edge and Duet, driving market share gainsdespite new scooters are cannibalizing old Maestro. New scooters enjoy ~10%conversion (~1m test rides taken by the customers).

Scooters capacity currently stands at ~100k/month or 1.2m pa (ex Gujarat).Gujarat plant is expected to be operational by end 1HFY17.

LEAP Cost Cutting Program has delivered savings of ~95bp (~INR700m) in3QFY16 and ~80bp in 9MFY16. The management indicated savings of 105-110bpfor FY16 (v/s guidance of 70-80bp in 2QFY16).

Industry volumes are expected to recover only towards 2HFY17 (assumingnormal monsoons). 1HFY17 industry volumes are expected to growth low singledigit.

HMCL’s dealer inventory stands at ~6 weeks (higher by 1 week). Spare sales grew by 17-18% in 9MFY16. Exports: Ongoing currency turmoil in countries like Nigeria, Argentina, Mexico

etc has delayed HMCL’s export plans. It has appointed distributor in Nigeria andwould enter by March end. Similarly, in Mexico it would identify distributor byend 4QFY16 and start operations by 1QFY17. It sees some downside risk to itsFY16 Exports guidance of 275-300k.

Capex: It is planning for capex of ~INR16-18b in FY16, with ~INR5.5b towardsR&D unit and INR11-12b for Gujarat plant.

Click below for Detailed Concall Transcript &

Results Update

AUTOMOBILE |

Click below for Results Update

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23 February 2016 9

Hero FinCorp (financing arm where it has ~48% stake) currently finances ~45k/month (8-9% of HMCL volumes). Hero FinCorp already has presence at 650 dealership of HMCL (at ~1500 touch points)

Mahindra & Mahindra Neutral Current Price INR 1,231 Target Price INR 1,286 | 4% Upside Farm Equipment Segment: Sowing during Rabi season is lower by ~3%, resulting in lower than initial

expected demand for tractors in 2HFY16. While tractor industry volumes declined by ~14.4% in 9MFY16, UP, MP &

Maharashtra were worst impacted with higher than industry decline. However, demand for tractors in AP & Tamil Nadu, Orissa and Assam grew.

No price increase in 9MFY16 in tractors. It reduced company level inventory (usual 3Q phenomena) by 19k units in

3QFY16. Agri business grew ~47% in 3QFY16 and ~33% in 9MFY16. It has proposed to

consolidate its entire agri business (Ex EPC Ind) in 100% own subsidiary Mahindra Shublabh, giving more focus and higher synergies by housing all agri businesses (ex EPC) under one roof. Also, it opens up potential to create value in future. Agri business is estimated to clock revenues of INR6.5-7b in FY16.

Auto Segment: KUV1OO strong start: KUV1OO has already got over 18k bookings since launch

last month, implying waiting of over 2 months. It is getting over 350 bookings per day, as against current capacity of 200/day which will be expanded to ~300/day from Aug-15. It has Diesel-Petrol ratio of 55:45. As per the company’s feedback, most KUV1OO customers would have considered Swift, Grand i10 etc as an alternate.

TUV300 stable volumes: TUV3OO had total orders of ~19k since Sep-15 launch. In Auto business, it took cumulative price increase of ~1.7% in 3QFY16. It has

not taken price increase in Jan-16. UV Product Pipeline dry: After 9 product launches in FY16, it doesn’t have any

further substantial launches in forseeable future as a) now it has very good coverage of the UV segment with price range from INR500k (KUV1OO) to INR2m (XUV5OO) and ~3.67mtr to 4.58mtr length, and b) very young portfolio with oldest product having age of <1.5 years (Scorpio).

It is yet to evaluate commercial viability of XUV Coupe concept, which it showcased at Auto Expo 2016. It would be decided in 3 months and might take 2.5 years to commercialize.

HCV gradually scaling up: HCV clocked volumes of ~1,000 units or fourth consecutive quarter. 3.1% 9M (3.6% in 3Q) market share. At Auto Expo 2016, it launched new HCV truck series Blazo with offers superior mileage guarantee and a 48-hours back-on-road breakdown service guarantee.

Click below for Detailed Concall Transcript &

Results Update

AUTOMOBILE |

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Maruti Suzuki Buy Current Price INR 3,581 Target Price INR 4,819 | 35% Upside MSIL’s rural sales grew 15%/12% in 3Q/9MFY16. Implied Urban growth is 11%/10% in 3Q/9MFY16. Rural contributes ~35% to MSIL’s domestic volumes (v/s 34% in 2QFY16 v/s 32% in 3QFY15). Reversal of dieselization continues, with ~44% share of the industry in 3QFY16

v/s 46% in 3QFY15 v/s peak of 58% in FY13. Petrol model growing at 2x of diesel models. Diesel contributes ~32% to MSIL’s domestic volumes (v/s ~31% in 2QFY16 v/s ~28% in 3QFY15).

It plans to keep marketing spend high to increase mindshare with customers. Capacity management key challenge for FY17: The management expects

producible capacity for FY17 at ~1.6m units. It feels ~1.7m units could be a stretch, should the demand catch up. Gujarat plant is expected to start by March 2017, with first phase capacity of 250k.

Commodity Cost Benefit: 3QFY16 benefit 50bps. Going forward doesn’t expect much benefit based on current commodity prices.

JPY/USD hedge: 4QFY16 natural hedge due to commencement of Baleno exports to Japan (pricing in JPY). Looking to hedge JPY/USD for 1QFY17. See’s limited scope to further increase localization and further increase can only happen in electronics, where India is weak.

Tax rate: FY17 24-25% due to IndAS implementation as it would result in better revenue recognition and accrual accounting of tax-free FMP income (from cash accounting currently).

NEXA: 100 outlets currently, targets 200 by FY17. FY16 Capex guidance of INR30b (v/s earlier guidance of ~INR30b) in product

development, marketing infrastructure, R&D and maintenance capex. Tata Motors Buy Current Price INR 318 Target Price INR 392 | 24% Upside JLR: Key takeaways from the call Maintains EBITDA margin guidance of 14%-16%. Commodity cost benefit will play out over period of time, due to hedging policy. Variable marketing expense continues to remain high, but no major increase in

3QFY16. However, in China there as a positive trend on QoQ basis. XE launch in US is delayed by 3 month (due to gasoline engine stabilization

issue) and is now planned for 2QCY16. The management indicated that Chery JV’s performance was sustainable and

there were no one offs in 3QFY16. Also, locally produced Discovery Sports has got good response as it was priced right at launch (based on learning from Evoque launch, it was priced at ~19% discount to imported model).

Capex guidance cut to GBP3.3b in FY16 (v/s GBP3.75b guidance in 2QFY16) is reflection of timing issue and will spill over to FY17. Capex to remain high at 16- 17% of sales in foreseeable future.

Click below for Detailed Concall Transcript &

Results Update

Click below for Detailed Concall Transcript &

Results Update

AUTOMOBILE |

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23 February 2016 11

Slovakia plant with capacity of 150k unit and investment of ~GBP1b investment would commence production in 2018. Capacity can be expanded to 300k with further investment of GBP500m.

JLR: What caught our attention in 3QFY16 results, and is being ignored by the markets Volume growth back on track: After last 4-5 quarters of weak volumes due to

transitory issues (model changeover for Freelander & XF and transition to Chery), volumes have started to normalize with gradual ramp-up in Chery JV and scale-up of new product launches. FY17 will have full benefit of a) Discovery Sport (Sep-15 launch), b) XF launch (Aug-15 launch), c) XE (Jun-15 launch, but US launch only in 2QCY16), d) F-Pace (launch in 2QCY16), and e) ramp-up at Chery JV (1HFY16 vols of ~9k v/s 2HFY16 est ~30k v/s FY17 est of ~74k). We estimate ~17% growth in FY17 volumes.

Worst of product and market mix: Worst of product mix (lowest share of premium segment – Exhibit 2) and market mix (near bottom China contribution – Exhibit 1) in 3QFY16, as reflected in ~12.5% YoY (3.4% QoQ) decline in realizations and 420bp YoY decline in margins. While product mix might deteriorate further, market mix would improve in favor of China as 3QFY16 had locally made Discovery Sport only from Nov-15 and doesn’t have XF.

Chery JV PAT per car 20% higher (than JLR) at 40% utilization: At ~40% utilization in 3QFY16, China JV turns profitable with share of JV profits at ~GBP22m in 3QFY16. Interestingly, implied PAT/car for Chery JV is ~GBP3,400/unit V/S GBP2,845/unit for JLR (after incl royalty & profit on supplies from UK to China, but excl Chery JVs PAT). We estimate share in Chery JV PAT at GBP45m/157m/267m for FY16/17/18.

FCF of GBP790m in 9MFY16: Despite weak operating performance (EBITDA margins down 500bp in 9MFY16) and capex of GBP2.4b, JLR generated FCF of ~GBP433m in 3QFY16 & GBP790m in 9MFY16. We estimate FCF of GBP50m/426m/774m for FY16/17/18, based on EBITDA margin assumption of 14.3%/14.5%/15.5% and capex of GBP3.3b/3.75b/4b.

TVS Motors Buy Current Price INR 287 Target Price INR 370 | 29% Upside Victor to be first launched in South India in February 2016 and pan-India launch

by April 2016. It is targeting ~25,000 units deliveries by March-April 2016. It expects to gain ~3% market share of the domestic motorcycle due to Victor launch. It is targeting exit market share of 15.5-16% of domestic 2W Industry. This would be driven by ~3% market share gain in motorcycle, to ~10% market share. Further, it is targeting increase in market share in the premium segment from 17% to 22%, and from 17% to 20% market share in the scooters segment.

BMW Alliance: Project is on-track with no delay, and expected launch in 1QFY17. African markets are ~50% of its overall exports, and over 70% of 3W exports

(~50% of 3W expor ts to Nigeria). It is gaining market share in 3Ws (4% market share gain at retail levels). While 3W retails in Africa are going strong, it is facing challenge at wholesa le level due to shortage of USD.

AUTOMOBILE |

Click below for Results Update

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23 February 2016 12

Nepal blockade: It has appointed new distributor who can get 30% market share of 2Ws in Nepal. It sees scope to export 1,500-2,000 units/month to Nepal, once blockade is lifted.

It maintains EBITDA margin target of ~10% by FY18 (without BMW alliance benefit).

Capex of ~INR3.5b for FY16. Indonesia subsidiary performance: EBITDA losses have reduced to USD5m in

9MFY16 v/s USD7m last year. It plans to invest USD5-6m in 4QFY16 in Indonesian business.

AUTOMOBILE |

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23 February 2016 13

CAPITAL GOODS ABB Neutral Current Price INR 1,100 Target Price INR 1,380 | 25% Upside Management remained cautious on the pace of industrial capex recovery and

stated that industrial capex recovery to be at least few quarters away, given the continued poor capacity utilization levels and is thus a function of demand improvement.

Positive on sectors such as Transmission, Transportation and renewables (especially solar). Are seeing a growth in the overall project pipeline which would translate into orders for ABB 2- 3 quarters down the line.

Prefer cash over sales and would not be pushing sales to customers where they feel there could be an issue with relation to recovery of payments.

Exports contribute 12% of the revenues and about the same percentage of the order book. ABB is targeting exports orders from countries such as Sri Lanka, Africa and the M. East.

Margins expansion is being driven by operational efficiencies, lower raw material prices, selective order picking, increased localization, fall in the euro and good execution. Management expects gross margins to remain in the 35% range

Localization efforts have continued especially in the areas of drives, motors, switch gear and instrumentation. Higher localization is supporting margins.

Crompton Greaves Neutral Current Price INR 129 Target Price INR 165 | 28% Upside Overseas business: Deal being worked out is for the sale of the Power Products along with the

Belguim Systems business - in exclusive talks with a buyer and not talking to anyone else at this point in time

Of the overall $60mn of PAT loss annually, $20-25m from system, $15mn from Hungary so $40m from these two business alone

Overseas Power Systems comprises 3 divisions: Power Products in Indonesisa, US, Belguim and Hungary, Incase of no sale,

would either sell/close down Hungary as it’s a pain point Power Systems - Belguim(likley to be sold as part of the deal), UK, US, Brazil Automation - Spain, Ireland, UK - EBITDA positive Power products - Indonesia is doing very well while Belguim has turned EBITDA

positive, US is stable but Hungary is the pain point for them. Belguim has good orders in hand but will take time to be EBIT positive; EBITDA positive already and good order book. Hungary is being sold as part of the deal - if deal not done, will come back to the street with a new plan to close or restructure this plant.

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Results Update

Click below for Detailed Concall Transcript &

Results Update

CAPITAL GOODS |

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23 February 2016 14

Power Systems - This is the pain point for them, Brazil has been shut down, By August, US will also be shut down or sold and UK by March, 17. Shutting down of the systems business does not include any plant shutdowns but only people have to be asked to leave; since its US, UK and Brazil there would not be too much of severance involved in this. Belguim systems business is profitable and is being part of the deal.

Debt: Gross debt is at INR17b and net debt is at INR9b, ZIV debt is INR9b and balance debt if for the remaining businesses. Interest cost is down to INR0.85b with average cost of interst at 4-5% for them on gross debt of INR17b. Will sell some more assets of INR4-5b to bring down the net debt further. Net debt which was earlier at INR22b has been bought down to INR9b post the asset sales so INR8b of cash; INR13b reduced as INR7b gone to consumer, INR5b from Kanjur land sale.

Loans & Advances to subs at INR16b - Rs2b for ZIV debt. Investment in equity is primarily for ZIV/Automation, Sweden - a total of INR6-7b invested here

Consumer Segment Record date is likely to be end of the month for this busines Arrangement has been done with CG for the tax/treasury/finance piece for 2

years from Oct, 15 for Rs10-15cr Domestic Power Systems - will be increasing focus on this business. No slow

down in the power business and it is only a scheduling issue for them in Q316; lost Rs1bn of sales and INR0.25b of EBITDA and adjusted is 8-9% margin which will be maintained.

10% YoY growth is the target for them in FY17. Looking to set up a new transformer facility near Mumbai since Kanijurmarg will not be sufficient.

Acuqisitons in 2005-2010 - Ganz was bought to get the technology Industrial - Seeing traction in low traction motors but high traction is sluggish

50% utilization currently and can easily double margins if sales come back. Havells India Buy Current Price INR 282 Target Price INR 360 | 28% Upside Domestic growth at 11% but exports fell by 36% during the quarter; 9M exports

at INR200cr, exports fell in switchgear and lighting and will remain soft for some time

Havells witnessing improvement in consumer confidence, increased adv spend during the festival time and will continue to spend to increase presence in smaller tier 2 and tier 3 towns; focus is also on small distributors and not just large

Growth is likely to sustain and accelerate from here on in Fy17 Lighting: 50% of sales from LED and overall will see growth in FY17, 100%

growth in LED in Q316 but CFL registered de-growth so overall 9% growth. Margins in lighting to sustain at 25%; had bottomed in Q1116 and has been impvroving since there after. Not participating in the EESL tender for lamps but in streetlights via Promptec - this will have relatively better margins.

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Results Update

CAPITAL GOODS |

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23 February 2016 15

Cables: Industrial cable seeing 29% volume growth and domestic wires +9% yoY so overall 15% volume growth but fall in copper so 6% value growth higher spending in infra and by municipalities so higher underground cable demand

Switchgear: Margins were better on fall in RM(copper and platic material) and rationalization of the distribution network. Flat growth overall (7% in domestic and exports were down 37% YoY) primarily to Africa and Middle east. Trying to get back volumes in this market from Q4FY16 onwards

Brand to be transferred to Havells from 1st April and will save INR 40 Cr as will not not pay royalty to QRG trust

Distribution - now have 6000 distributors vs 4800 last year Gross margins are at highest levels ever Sylvania had sales of EUR100mn, EBITDA margin of 4-5% and PAT profit of

EUR0.5mn, 9M16 PAT is at EUR7.5m(EUR8mn loss in 1h116) - have adjusted the FY16 nos. for actuals of sylvania till 9M15

Advertsiing spend to be at 3.5-4% of sales - was higher in Q316 on account of festive spending

Sylvannia Sale Proceed details Have received Rs875cr in india and kept EUR18m with Isle of Man for taking care

of any liabilities that may arise in the subs not sold off by them. Chile closed and US running down, Brazil and Chile max liabliity is EUR18m

which they have kept for this This will earn interest on short duration maturity instruments of 7-8% Thermax Neutral Current Price INR 773 Target Price INR 862 | 12% Upside Execution of orders in hand continues to remain smooth and is not witnessing

any slow down or cancellation. Barring few waste heat recovery projects orders in the cement sector, no major

domestic order pipeline. Recent tightening of the pollution emission norms (Particulate matter, SOX,

NOX) for the thermal power plant can be beneficial for Thermax as it is present in three segment through its JV partners.

Order execution of in TBW has picked up and management has guided for the EBIDTA breakeven for FY16.

Base orders from industries like dairy, pharma, textile, tyre, beverages continue to remain stable. However order inflow from sectors like cement, power, steel continues to remain muted.

The company will continue with its capex program of ~INR4.5b, comprising manufacturing facility in Indonesia, chemicals business in Dahej and absorption chiller factory in Coimbatore.

In the Projects business, Thermax is targeting markets in SE Asia and Africa.

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Results Update

CAPITAL GOODS |

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23 February 2016 16

CEMENT JK Cement Buy Current Price INR 453 Target Price INR 645 | 42% Upside Demand outlook in north has improved. New plants are operating at maximum

utilization. Benefits of grinding units, railway siding and pet coke price softening have been percolating in cost moderations.

Demand and pricing scenario in middle-east for UAE white cement plant is subdued. Power connectivity from Feb/March 2016 is expected to lead normalization of profitability. In 3QFY16, the operations made revenue of INR570m and EBITDA of INR125m.

Pricing in north has been inexplicably low and expected to rationalize in earterm with demand improvement.

Accident in southern plant has led to stoppage for work for 15 days and 5-10% lower dispatch. Management expects normalizations of operations in next few days.

Ultratech Cement Buy Current Price INR 2,840 Target Price INR 3,372 | 19% Upside Growth: Green shoots getting brighter but gently Industry growth in 3QFY16 accelerated to 4.5% v/s 1.6% in 2QFY16. Demand

acceleration to continue in 4QFY16 with rising benefits of spending in roads infrastrucre & low cost housing, pay commission benefits and low base effect of previous 4Q. UTCEM is expected to continue its industry outperformance

Trade segment is growing faster than non-trade. Rural contribution in trade segment has increased to 55% (v/s 52% Yoy). Budget should be favorable for rural demand.

Pricing is weak now albeit with incremental demand probability of pricing uptrend is strong in later part of 4QFY16.

Regional outlook EAST India: Posting double digit growth with demand from IHB, low cost

housing and government spending on rural roads and infrastructure continues North India: QoQ uptick in demand outlook with infrastructure (Road) pick up,

early sign of demand in UP and marginal uptick in rural demand South India: No change in outlook given AP demand yet to take-off and Tamil

Nadu rain and poor availability of sand being deterrents. Cement off-take has started from low cost housing.

West India: Marginal improvement with activities in highway and rural road in Maharashtra

Cost tailwinds Benefits of sharp decline in pet coke prices (on energy cost) and new grinding

units (on lead distance) are yet to percolate completely. Deflationary cost tailwinds to continue. Rise in pet coke and WHRS mix and optimization of supply chain would remain a key focus area.

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Results Update

CEMENT |

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Voices

23 February 2016 17

CONSUMER Asian Paints Neutral Current Price INR 854 Target Price INR 850 | 0% Upside Domestic demand environment continues to be challenging. Smaller town

growth rates have been better than the urban centers for APNT. South India was adversely impacted by heavy rainfall (Chennai was shut for 20

days while areas of coastal AP, Kerala and Bangalore were also impacted). Auto Coatings JV showed improved demand while general industrial business

continued to lag. Protective Coatings and Powder coatings business did well with segment

benefitting from lower material prices. International business posted double digit growth with healthy performance in

Middle East and Bangladesh. Sleek business affected by subdued demand with the pace of business being

slower than initially expected. After internal assessment of the past demand + prevailing business conditions + revised future outlook, APNT has made a provision of INR525m (goodwill) + INR653m (on investment made in Sleek).

Ess Ess business profitability impacted due to investments behind expansion of network and heavy rainfall in Tamil Nadu.

No price cuts initiated in decorative business in Q3FY16. However APNT has taken some price cuts in the Industrial business for select customers.

Guidance Cautious on demand outlook with RM prices expected to be lower. However

gross margins are not sustainable at current levels. FY16 S/L capex of INR7b. International Business – Nepal and Egypt business are key to sustain growth in

the International domain. Markets such as GCC are facing impact due to crude price correction and other markets (like Ethiopia and Egypt) are impacted due to individual country dynamics as well as dependence on crude which is resulting in shortage of foreign exchange.

Indonesia plant is currently in design phase (should take 3-4 months). Expect construction to begin by Q1FY17.

Dabur India Neutral Current Price INR 244 Target Price INR 290 | 19% Upside Quarterly Performance Sales growth tepid due to a) macro slowdown, b) supply issues from Nepal and

c) delayed winters. Toothpaste: Red and Meswak recorded double digit volume growth, market

share up 100bp YoY. Hair Oil portfolio posted 2% growth in Q3FY16 driven by high single digit volume

growth.

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Results Update

Click below for Detailed Concall Transcript &

Results Update

CONSUMER |

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23 February 2016 18

Coconut Oil category witnessed good volume growth , however price deflation in the category led to softer value growth.

International business: Organic International business grew 10.7%, Namaste posted 35% growth.

Focusing on shampoo bottle format more along with sachet format. To compete Patanjali: Dabur’s take ‘Strengthen our own value proposition and

cater to premium end of the market’. As per internal calculations, it has lost some market share (~2%) in Chyawanprash and Honey.

Near term volume growth triggers could be a) Budget (increase in rural stimuli) and b) Good Monsoons. Demand could thus improve from Q1FY17. For Dabur expect mid-single digit volume growth after the foods business stabilize.

If Nepal remains shutdown, Dabur will be able to meet 80% of food supply requirements from other facilities. Impact of margin (INR100m – INR200m impact) from sourcing from other facilities is on account of higher freight (sourcing from Srilanka) as foods business is largely in North India.

Nigeria plant will commence in July for manufacturing Namaste products. Inorganic opportunities would be taken after considering currency depreciation

scenarios for the specific location. EBITDA margin in the International business was down due to costs pertaining

to Nepal business (INR170m), currency depreciation and A&P increase. Guidance International Business: MENA region expect 10% growth in the medium term.

Do not expect significant margin expansion in International business in the medium term.

Expect low teens growth in the International business. Expect A&P: 15-17% for Consol business. Emami Buy Current Price INR 993 Target Price INR 1,300 | 31% Upside Overall performance Overall volumes flat. Demand is on a weaker side; gained market share in key

categories. Urban growth slightly higher than rural led by Kesh King. Rural demand poor

across India. Delayed winter impacted 3Q16: Winter portfolio degrown in 3Q (40% of Consol.

sales ex. Kesh King). Though January has seen revival of winter – it can’t offset lost sales but can liquidate the trade inventory. Winter sales are less than 10% in 4Q.

Green shoots: Have seen some kind of spurt in last 40-45 days. If this momentum continues, then double digit growth in next year is possible. Winter has set in late so some demand in Boroplus has returned. Even Balms have seen traction.

International International business grew by 11% led by Bangladesh. CIS countries saw degrowth. Nepal (6% of revenue) degrew by 55%. MENA degrown 17% this quarter (Grew by 4% in 9M16).

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Results Update

CONSUMER |

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23 February 2016 19

SAARC grown except Nepal which forms 6% of sales (export to Nepal suffered due to blockage).

Kesh King Sales for the quarter stood at INR680m (around INR700-750m can be the run

rate for next few quarters). Stocking issues relating to Kesh King are behind; manufacturing started in Emami plant.

Sales of INR3,300m expected in FY17. EBITDA margins of 45% on track for KeshKing. 60ml pack launched at INR 70 – to increase the penetration. Others Value growth: Boroplus Antiseptic cream 2%, Balms 10%, Navratna -6%, Fair and

Handsome 8%. Volume growth: Boroplus Antiseptic cream -3%, Balms 3% (Chennai is big

market for balms), Navratna -6%, Fair and Handsome 6%. Emami launched Zandu Honey pan-India which saw good traction during the

quarter. Prices of Zandu honey are at 100% premium to Patanjali Honey and 25% higher to Dabur Honey.

Healthcare portfolio- Will focus on south market for the healthcare portfolio; will go slow on national launch.

Guidance Net debt: INR6b as of Dec’15; Debt repayment in two years. Ad spends: will remain at 18-19% level for next fiscal. Gross margin: RM prices benign. Do not expect much problems as far as GM is

concerned – guidance of 68-69% for FY17. Staff costs might see 10-15% growth going forward. Godrej Consumer Neutral Current Price INR 1,198 Target Price INR 1,300 | 9% Upside India business Overall demand: FMCG Industry growth has moderated sequentially in 3Q. Rural

growth>Urban growth in domestic business. HI: HI business posted double digit volume growth led by new launches and on

ground execution. GCPL gained market share during 3Q16 and ended the quarter with the highest ever market share. During the last 2-3 years, the HI market has seen increased efforts by various players in terms of branding and continued market investments.

Soaps: Soaps business saw mid-single digit volume growth with Cinthol delivering strong performance. GCPL aims to focus on the premium segment and has launch ed Godrej Nature Soft – Glycerin and Honey variant.

Air fresheners: Aer continuous to do well. ~25% of the Air Fresheners sales (card format) are in institutional format. Air Fresheners category size is INR4.5b of which home sprays forms ~50%.

Health and wellness: Successfully introduced in general trade. B Blunt introduced in modern trade and premium general trade. Innovation: GCPL introduced multiple products during the quarter, a) Godrej

Expert Rich Crème in a multi-application pack for INR120, b) Godrej No.1 Nature Soft – Glycerin & Honey and c) Aer pocket (Bathroom Air fresheners).

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Results Update

CONSUMER |

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23 February 2016 20

International business 2/3rd price led growth and 1/3rd volume led growth during the quarter. Megasari (Indonesia): FMCG market growth continues to be flat impacted by

macro-economic challenges. There will be renewed focus on innovation and introduction of new categories.

Africa: Of the 20% constant currency growth in the Darling business, 15% is organic. Nigeria and South Africa business environment remains challenging.

LatAm: Argentina saw strong performance. Europe: Strong growth in own brands portfolio. Others GCPL is open to acquisitions in existing geographies and is also looking at

increasing holding in its existing JV’s. Guidance Input costs: Expect crude led raw material gains to sustain for another two

quarters. Expect Hair Color category growth to stabilize from 4QFY16. Project Iceberg – operational cost savings in LatAm: INR2b-INR2.2b target with

GCPL being on track to achieve it. GSK Consumer Buy Current Price INR 5,569 Target Price INR 7,000 | 26% Upside Sales growth primarily driven by price and mix; volumes remain flat. Company took 5% price hike in July and further 6% in Jan’16 (does not include

sachet portfolio); in-line with the CPI. Competitive intensity unchanged. Competition usually follows with 4-5% price

increase with a lag of 1-2 months. Base Horlicks and Horlicks Extensions grew in double digits. Input cost inflation: Food inflation inching up sequentially (up 2%). Malt is

seeing 6% inflation; Milk up 7%, Sugar up 5% and Wheat 1%. Gross margin expansion due to mix of cost efficiency, low SMP prices (down 18%

YoY), price hike in July and mix improvement. Business auxiliary income: 12% growth seen in 3Q (impacted by stock pipeline

correction across brands), saw 20% YTD growth; will see impact of Novartis portfolio form June-July onwards.

In the chocolate based market, it gained market share in North and West. It now is the market leader in UP with 27% market share and also has 37% share in Delhi.

Sachet price increased in October- impact to be seen in next quarter. Sachet portfolio now forms 7% of the India portfolio.

Employee costs: There is INR450m impact on 3QFY16 employee cost numbers due to wage settlement in two factories + bonus act.

Base Horlicks to Horlicks extension ratio in 2015 stands at 73:27 (In 2010 it was 80:20).

TN impact: South India forms 90% of Boost sales, of which 50% is from TN. The company now reaches about 3.3m outlets and 20k villages, added about

108,000 outlets in 3Q16.

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Results Update

CONSUMER |

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23 February 2016 21

Consumption by household with children is greater than household without children. Target is to increase evening consumption.

Strategy for double digit growth- 17% A&P spends; new product pipeline; higher off takes sequentially and mix improvement.

Guidance Capex: INR1-1.5b for next 12 months. A&P to be in the 16-17% range. Employee costs to see 10% growth in FY17. Hindustan Unilever Neutral Current Price INR 826 Target Price INR 830 | 1% Upside Quarterly Performance Market growth moderates on Rural slowdown. Growth continues to be led by

volumes. Pricing environment subdued. Competitive activity remains high. Impact of phase out of Excise duty benefits: topline is -80bps, EBIT is -35bps. PP Business growth ex the impact of delayed winter (200bps) and channel

interventions would have been similar to previous quarters. Realignment of channel spends: HUVR has realigned channel structure (ways to

will aid in sharper design of trade spends and improve competitiveness across channels. Will see some inventory volatility across channels, which will be stabilize by 4Q16.

Premium portfolio constitutes ~25% of total. Ayush: Will make offerings more competitive for the natural care portfolio. Steps to counter deflation: a) Premiumize Portfolio, b) Have innovations which

are margin accretive, c) Market development of nascent categories (premium products) which has higher margins.

Category Performance Soaps and Detergents: Robust volume growth offset by continued price

degrowth. Home Care delivers double digit volume growth. Personal Products: Performance impacted by delayed winter and one-time

realignment of channel spends. FAL continues to do well. Skin Care: Growth impacted by delayed winter and one-time realignment of

channel spends. Oral Care: Close up growth continues to be led by impactful activation with

Pepsodent performance muted. Pepsodent re-launch underway. Hair Care: Volume led double digit growth with Dove leading category

performance. Beverages: Steady volume led growth. Bru achieves volume and value market

leadership (Bru Gold innovation aided performance). Pricing in tea is stable. Packaged Foods: Ninth successive quarter of double digit growth. Double digit

growth in Kissan, Knorr and Kwality Walls. 9MFY16 Performance Volume growth of 6%. Impact of phase out of fiscal benefits: Topline (-115 bps), PBIT (-50 bps).

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CONSUMER |

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23 February 2016 22

Scheme of Arrangement HUL has proposed a scheme of Arrangement between the Company and its

shareholders. Proposed transfer of the entire balance of INR21.9b from General Reserves to the Profit & Loss Account. Will wait for approval of Board and sanction of court post which the transferred amount to be returned to the shareholders (tentative time frame for the process is ~6 months).

Jyothy Labs Buy Current Price INR 274 Target Price INR 350 | 28% Upside Consol volumes grew 8.9% in 3QFY16. Power brands registered 9.2% YoY growth (volume 8.6%). Competitive intensity in dishwash and detergents was high in 3QFY16. Segment wise performance: Fabric Care 0.9% (Ujala grew 5.6% YoY),

Dishwashing 8.9%, Mosquito Repellent 31.8%, Personal Care 16.7% Maxo is now No.3 in LV segment. Magic Card posted INR20m YTDFY16. Direct reach as on FY15 stands at 500,000 (400,000 as on FY14). Indirect reach is brand wise with Ujala – 3m outlets and for remaining brands

being less than 1m outlets. Distribution growth is highest in Liquid Vaporizer. Insects Control – 90% category hold by the leader. Margo glycerine contributed to 30% of Margo growth, core margo growth will

sustain going ahead. Guidance JYL should sustain volume growth around 9% in 4QFY16. ESOP cost: Q4FY16 23m, Q1FY17 23m, Q2FY17 17m, Q3FY17 and Q4FY17 will be

10m. Marico Neutral Current Price INR 233 Target Price INR 220 | -5% Downside Quarterly Performance Expect urban consumption to pick up gradually with certain green shoots visible

(modern trade growth this quarter – 20%). Rural continues to be soft, so Affordability will be key. Parachute volume growth is soft as trade stocks down during price deflation

scenario. MRCO is intending for trade to stock down (not considering black out period option) as consumers can avail lower prices (due to RM benefit).

Saffola: Expect 10% volume growth on sustainable basis with continued TG based marketing and Regional Pricing strategy.

Hair Fall is a INR9b category.

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Results Update

Click below for Detailed Concall Transcript &

Results Update

CONSUMER |

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23 February 2016 23

Guidance Going ahead expect copra and crude prices to be soft, MRCO can take strategic

position in this RM’s, so gross margins are intact for FY16 and FY17. Expect to deliver 8-10% volume growth in FY17. Deflation to be in the base from

3QFY16. Will tactically protect volume market share by passing out RM price benefit. FY16 and FY17 - Capex: INR1b – INR1.25b

United Spirits Buy Current Price INR 2,405 Target Price INR 4,000 | 66% Upside Quarterly Performance Prestige and above segment grew by 9% in the quarter, popular posted -5% and

overall volume growth was flattish. 9MFY16 total volumes are 70m cases of which Prestige and above is 26m (1m

cases from Diageo) and Popular is 44m. For Q1FY16 total volumes were 22m cases of which prestige and above were 8.6m cases (Diageo: 0.1m cases), Q3FY16 total volumes were 25.7m of which Prestige and above are 9.5m (Diageo 0.5m cases)

Uttarakhand and Chhattisgarh (operate through co-operation model) are facing regulatory challenges - UNSP has challenged it in courts.

Gross Margin of USL brands is flat on YoY basis. Diageo brands: Gross margins at ~50%. Franchisee operations (Kerala) have been margin neutral. Contribution at EBITDA level from Diageo brands to be around 11%-12% on

annualized basis. Royal Challenge posted 58% growth in 3Q16. Re-launched McDowell No.1 in

Oct-Nov: Initial response good. RM trends: ENA flattish – productivity improvement across

manufacturing/procurement on anvil. YoY lower excise as a % of sales: function of combination of brand and state mix. Guidance Capex: INR4b-INR5b for FY17. YTD FY16 capex is INR2b. Tax rate to be 34% in FY17. Working Capital - INR2b for Diageo brands on annual basis + INR2b for UNSP

brands (volatile on seasonality basis). A&P is 11% of NSP. Expect it to be in similar range, or slightly trend upwards.

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CONSUMER |

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23 February 2016 24

FINANCIALS/BANKS

Axis Bank Buy Current Price INR 393 Target Price INR 525 | 34% Upside Detailed asset quality disclosure given Have fully recognized for all the accounts related to RBI observation to be

classified by March 2016 and additional provisions by March 2017 Half of incremental slippages in the quarter are related to RBI observation

(~INR11b). INR7.42b of corporate slippages during the quarter are due to relapse from restructured loans of this INR2.7b are due to RBI directive.

RBI related directive was towards couple of accounts in power segment but not in thermal power, Battery manufacture and then rest was well spread out

Total amount in the list sent by RBI works out to be INR11b (to recognized as NPA) and INR25b (already restructured loans to increase the provisions)

Fresh restructuring of INR1.3b during the quarter is largely due to extension of DCCO. In 9MFY16 fresh restructuring done by AXSB stood at INR13.4b of which INR10.3b due to extension of DCCO

On one account SDR was invoked in the quarter (INR5b). This account was restructured earlier

AXSB did the 5:25 refinancing of INR16b (INR36b till date) during the quarter Iron and Steel exposure stands at 3.3% of loans of which 65% is rated A and

above Of the total loan book ~8% is towards highly leveraged group but behavior of

this book is not materially different then rest of portfolio. Large part of this exposure is towards high rated companies within the group. There would be marginal overall between recognized stress loans to highly levered corporate book

Of the overall slippages a)50% came due to RBI rectification b) 25% from Corporate and c) rest 25% from non-corporate book

Amtek Auto (Bond exposure) is off from books – they have sold it at a discount to investor

Security receipts outstanding on the balance sheet are only INR5.5b for the power/infra account sold in 2Q worth INR18.2b

5:25 largely related outstanding loans are largely towards Power, Roads and Metals (around INR10b)

Guidance on new stress formation Incremental slippages in 4QFY16 is expected to be INR13b. For FY16, total

slippages expected to be INR92b (including ARC sale of INR18b) of this INR22b RL (of which INR20 shift in DCCO)

In 9MFY16 total fresh stress addition stood at INR70b (INR57b slippages and INR13b of RL) including RBI review. Excluding ARC sale total fresh stress addition stood at INR52b

If one were to exclude RBI directive recognition then fresh stress addition is INR42b on which INR13b to be added (fresh slippage) and INR9b (extension of

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Results Update

FINANCIALS/BANKS |

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23 February 2016 25

DCCO) in 4Q. Thus the total fresh stress addition is expected to be INR64b (earlier guidance of INR57-60b)

Pipeline of 5:25 stands at INR25b however, no specific quantification related pipeline of SDR loans (as it is event based)

Shift in DCCO related restructuring expected to be INR9b in 4Q. Here project is already operational however, some of the phases needs extension in DCCO date

Annualised slippages from RL are expected to remain at 25% RBI has asked to make additional provision of INR2.5b on the certain

restructured loans (assuming 10% additional thus, amount works out to be INR25b)

Credit cost (including reversal of contingency provisions) stood at 75bp in 3Q and 85bp for 9M. AXSB expects this to be ~90bp for FY16

Core Credit cost (without utilization of contingency provisions) stood at 128bp in 9M and expects this to be 125bp in FY16

AXSB will shore up contingent provisions for SDR and 5:25 accounts if profitability will permit

INR30b worth of accounts are likely to exit moratorium over next 5 quarters

Others Cautiously optimistic on the macro led by expected acceleration on spending for

planned capex by RBI Provisions break up a) NPA INR6.3b b) Standard assets INR710m c) MTM

reversals of INR150m and d) others INR310m. Bank utilized INR2.2b of contingency provisions and balance left is INR1.8b Domestic NIM stands at 4.04%. Maintains guidance of 3.5% medium term NIMs Fees are expected to be in mid teen fees in FY16

Business related 2/3rd incremental growth to banks existing customer base. Selling unsecured PL

and CC existing customer 40%+ incremental growth via branches 45% including regulatory SME loans as Retail loans 80%+ of new sanctions to companies rated A and above FY16 - Cost to Income at ~40% RWA at INR3.87tr MCLR will not have material impact on NIMs Incremental corporate financing is towards segments like acquisition financing

in Tyre industry, additional financing in Pharma, Paper etc. Large part of the incremental financing is at the corporate level then project level

Bank of Baroda Buy Current Price INR 140 Target Price INR 175 | 26% Upside Asset Quality Related RBI AQR related list is fully provided in slippages and provisions during the

quarter Total stressed loans in AQR were INR105b of which INR74b slipped in the

current quarter (balance were already NPA before 3QFY16) Large parts of the slippages are from Iron and Steel and power sector

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Overall nine accounts have been refinanced under 5:25 refinancing scheme amounting to INR54.3b of this INR19.65b are standard SDR has been invoked in fourteen account amounting to INR24b of which

INR5.2b are standard Revalidation of small customers is already done; this lead to INR33b+ of

slippages during the quarter No ever greening during the quarter. Sale to ARC will happen in the future

quarters. However, current levels of provisions are adequate. 4QFY16 results will be on the clean slate

Fresh restructuring of INR2.5b during the quarter is largely on account of DCCO extension

Going forward, focus will be on the average daily business growth then the quarter/year end business and CASA deposits

Impact of interest reversals on the domestic NIMs was 66bp and global NIMs at 44bp. Interest reversals works out to be INR6.9b (average Yield of 10.9%)

India based exposure GNPAs are at INR40b in the international loans Focus is on reducing the syndication exposure in international loans; further,

standard restructure loans are INR20b Total stress loans recognized on the India based exposures (ex. BC business) is

INR60b (20% of the exposure) Relapse from RL during the quarter are at INR58b Largest account exposure now is INR20b and they are few in numbers Taking help of rating agencies for rating and increasing exposure of corporate;

approach is on the portfolio basis Of the OSRL, INR90b is towards highly rated corporate and government

companies. Management is closely looking at the exposure for the rest of the book

Other highlights On the basis of conservative simulation exercise a) CAR will improve in FY17

post factoring in (detailed study already taken) i) 20% domestic loans growth ii) 15% international local credit growth and iii) no addition to net worth b) FY17 ROE 8-12%

As per management, BOB does not require capital for 18-24months and have clearly communicated the same to the GOI. Concerned about ROE to equity shareholders

Focus is on efficiency, deploying excess liquidity and low risk business INR25b gain can be realized from sale of financial investment from NSE, UTI etc

(MF, AMC or Insurance) INR35b of capital release from existing balance sheet (in our view run down of

international exposure) will help to grow assets by INR400b Data cleansing exercise will release 50-60bp of CAR Consolidated accounting will help to release some more capital Defined management role: Mr. Joshi will work upon the managing the NPA and

corporate banking; Mr. Mehta will focus on Retail, SME and Agri; Another ED (expected to join by April 2016) will focus on risk

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Canara Bank Neutral Current Price INR 172 Target Price INR 190 | 11% Upside RBI AQR impact – 50% of the accounts identified are taken in 3Q. INR33.05b

AQR impact. Similar amount is expected in 4Q. Amount can come down post performance of certain ac counts – Banks are in discussion with RBI

Under 5:25 refinanced: Total INR33b (including Pipeline). INR16.3b done till date and bank has INR16.7b pipeline. All 5:25 accounts are standard loans and nothing is from restructured or NPA

Total SDR outstanding at INR48.8b (of which INR15b NPA). Bank has pipeline of INR30b

Gross stress loans have increased by 67bp to 11.97% Focus is on a) Increase in CASA and reduction in bulk deposits b) Cost Control

and c) RAM for loan growth. Release of 20bp on CET1 led by data cleansing, putting in record of adequate

securities etc. ARC sale INR1.59b in the quarter (INR34cr). Outstanding SR 1991cr 757cr prov

1200cr net outstanding 965cr Interest reversals of INR1.4b during the quarter and INR2b impact due to base

rate reduction INR500b of deposits reprising expected in 4Q which will drive the cost of

deposits lower and will help in improvement in NIMs Of the SEB exposure of INR270b, INR180b is covered in FRP. Total exposure

which is likely to be covered in UDAY is INR120b of which INR60b is expected to be converted into bonds by end of the quarter. Going by current situation (based on states signed for SEB), INR35b will only be converted into bonds in 4QFY16.

FITL is not the major factor behind fall in NII during the quarter. DCB Bank Not Rated Current Price INR 74 P&L Related mpact of cut in Base Rate (happened around 15th December) will be felt in

4QFY16 Initial esti mate on NIM impact from MCLR guidelines to be 25-30bp Fee income break-up – INR360 CEB, INR45m trading gains, INR40m forex

income, INR10m recoveries and balance others Expects to open 15-20 branches in 4QFY16; confident on meeting 150 branch

expansion by Sept 2017 Average employee per branch around 10-12 people come from RBI No restructuring done during 3QFY16. OSRL stands at INR460m There was no sale to ARC and 5:25 rescheduling during 3QFY16

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BS Related Yield pressure in corporate segment is leading to the de-growth; intention is to

grow max 15-20%; however, in FY16 loan book is likely to de-grow Current capitalization is sufficient for next one year of capital requirement;

would like to evaluate additional tier 1 and tier 2 capital raising options Once the branches mature, planning to reach CASA ratio of ~25% Bank continues to carry floating provisions and have not utilized same so far 65-70% of home loans portfolio is LAP Other highlights Has done a marketing tie-up with TVS credit which will be used for sourcing new

car loans Of the AIB, 80% of the portfolio comes under PSL and 3-4% tractor loans Currently, working with 3-4 fin-tech companies on digitalization front Headcount as of Dec-15 stands at 3,981 Federal Bank Neutral Current Price INR 48 Target Price INR 70 | 45% Upside Stress addition during the quarter highest ever– One large account (guided

earlier) in shipping (INR1.08b) and metal (INR0.7b) have been recognized and sold to ARC during the quarter. Further, Bank also sold INR450m worth of NPA (recognized in FY15) pertaining to construction/contractor sector. Relapse from RL stood at INR0.5b during the quarter. During the quarter bank also recognized INR450m worth of exposure as NPA (although not sold to ARC) - one large metal exposure for the system.

On expected stress addition: No major slippages expected in corporate segment henceforth as bank has already complied with RBI list. Of the accounts coming out of moratorium (INR0.5b in 4QFY16 and INR2b in FY17) INR1-1.5b pertains to Metal ancillary account which may come under stress. Ex SEB SMA2 no has come down to 6.4% vs 7% a quarter ago. INR0.8-1b slippage may continue for next two quarter in SME.

Middle east issue: a) Deposit side no arbitrage as interest rates on both NRE and domestic term deposits remain the same b) Good secured loans portfolio linked to NR side c) Deposits growth remains strong as of now as FB is gaining Market share

On growing corporate loans: Initially team size will be 25-30 people on the large corporate side. Bank is focusing on growing BBB and above rated category loans. During the quarter ~90% of the incremental growth came from BBB and above rated corporate

Data points: a) INR5.6b outstanding Security Receipts b) Gold loans are INR27b c) NRE SA at INR96b d) daily average CA growth at 14-15%

Others: a) NIMs 310-315bp for FY17 b) UDYA scheme will lower NIMs by 2-3bp

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HDFC Bank Buy Current Price INR 988 Target Price INR 1,350 | 37% Upside Business growth related Retail lending business is becoming competitive and aggression from other

lenders has also increased in terms of payouts. Digital initiatives (lower TAT, offering etc) is helping to outpace the system.

CA outstanding has element of one offs (related to one off tax free bonds). Adjusted CA growth is 23% YoY

10 second personal loans are ~10% of new origination (some of this may be due to existing customer moving from branch led to digital)

Used car loans proportion in total vehicle loans at 18-20% v/s 15% a year ago Kissan Gold card is large ly towards pre-post-harvest farm credit. Average yields

are at 10-12%. Customer profile is largely similar to middle and upper income customer segment

INR12b of home loan bought back during the quarter No clarity over MCLR rates. Transition for HDFCB will be relatively easy as HDFCB

is already on marginal cost of funds 95bp spreads on Home loan take over from HDFC ltd P&L related Impact of capital raise on NIMs at 5-6bp in 9MFY16 Employee increase largely at the front end staff; backend and support functions

net employee increase is lower than front end employee increase Fees moderated led by a) Third party distribution (MF – mix shifted from equity

to debt and guidelines related to capping up of upfront fees and moderation in Insurance sales volumes) b) Fee reduction in some retail products c) CC business related fees

Pick-up in demand is stronger in Metro and Urban segment. Meaningful presence required in semi urban and rural market is largely done

Asset quality related Based on RBI review, no new recognition was required. Only on one large

account some increase (double digit million) in provision was prescribed Slippages in wholesale book remained healthy. Contributors during 3QFY16

were Agri, Business banking, credit card portfolio (this largely based on the count of NPLs as pre regulatory requirement)

Floating provision INR16b No Pipeline for SDR and 5:25 Others RWA INR5.3 trillion Increase in tier I ratio was due a) reduction in risk weights of home loans and b)

securitization contracts expired Capital consumption will continue at around 50-60bp every year Open for considering additional partner for life insurance business. Board will

have to take the decision Around 60% of the accounts are operational under PMJDY

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ICICI Bank Buy Current Price INR 199 Target Price INR 320 | 61% Upside On RBI list Of the gross addition of INR65.44b, 2/3rd (INR43.5b) of addition related to the

cases highlighted by RBI. One large steel company exposure was asked by RBI to be recognized as NPA which is bulk of INR43.5b.

For 4QFY16, Slippages and RBI list related identification is likely to remain similar that of 3QFY16. More than Half of the slippages in 4Q from RBI review is likely to come from Restructured loans (largely from Power) – INR20b+.

ICICIBC is likely to make accelerated (from 5% to 15% on RL) provision (as asked by RBI) of INR3.5b in FY17. Hence, INR35b of restructured loans are identified by RBI showing some weakness but not asked to be classified as NPA

Overall RBI list a) To be classified as NPA (3Q – INR43.5b+4Q – INR40b+) = INR83.5b b) accelerated provision INR35 = INR115-120b. Of this ~INR60b are already recognized as stress loans in form of Restructured loans. New stress recognition on balance sheet is likely to be INR60b (1.4% of loans)

RBI has looked at overall portfolio nothing specific to domestic or overseas operations

RBI action led upgrade to accounts will happen post satisfactory performance on cash flow generation. No need to consult RBI at the time of upgrading the account. Bank and statutory auditor can take the decision

More details on asset quality Companies in the steel sector are under significant pressure. Watching situation

closely. ~20% of metal exposure classified as stress loans of which ~13% in the NPA

Other stress loan recognition in the quarter a) INR5.81b restructuring due to extension of DCCO b) INR4.5b 5:25 refinancing and c) INR16.7b SDR (largely from RL)

Pipeline for 4QFY16 a) 5.25 refinancing of INR7b and b) SDR of INR12b Outstanding: 5:25 refinancing INR35b and SDR INR19b Negligible loans sold to ARC during the quarter - INR0.38b No material exposure to DISCOM Relapse from RL (INR13.6b during the quarter) moved directly to D1, D2

category leading to higher provisions In terms of provisions - no change in policy for new slippages Standard asset provisions outstanding on balance sheet INR26b Other highlights During Retail fees are 2/3rd of overall fees for 3Q (stable QoQ) INR3.73b dividend income from subs during the quarter INR21b of gain on stake sales are yet to be recorded Lower employee expenses led by lower retrials expenses (due to rise in interest

rates) and lower provisions for variable Pay No material exposure via HK branch Don’t see much pressure or lag impact of large corporate slippage Retail growth of 25% and corporate higher than system

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IDFC Bank Buy Current Price INR 51 Target Price INR 70 | 38% Upside P&L Related Entire trading gains for the quarter related to debt market and not for equity

market Bank has rolled out CWG offering in 8 cities; offers all fund based and non-fund

based business. In the first quarter non-fund based contributed 5% of total exposure

Expect to achieve 50-60 branches over next couple of quarter. Bulk of the branch opening in the rural areas.

Internet banking is live and mobile banking will go live in April 2016 Major investments related to technology has been incurred Bharat Banking business offering out of 16 branches in 4 districts in M.P Total personal and business banking customers at 1530 largely internal

employee Balance Sheet Related Requirement of PSL INR150b assuming base will be 31st December 2015 If the credit risk is acceptable, bank will be open to grow through credit

substitutes as well. In the last quarter it grew by INR10b Will continue to grow in infrastructure if the opportunity arises On the MFI business A) Buying out of portfolio B) Partnering with MFI and C)

MFI does not get SFB license then can get access to IDFC bank platform Improvement in rating during the quarter largely driven by new acquisition Asset Quality Have not received anything from RBI regarding 150 accounts to be recognized INR88b of stress guidance remains unchanged. Interest accounting on stress

loan portfolio is on the cash basis. Impact of that could be ~INR800m (not clearly quantified) for the quarter

No Significant development in Infrastructure segment. Beyond Thermal power, seeing revival in renewal energy. Developments have taken place in road sector. Some activity on the spectrum side in telecom segment

Other highlights Not much merit on the RBS portfolio acquisition As long as IDFCB remains a sub of IDFC ltd there will not be double dividend

taxation

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IndusInd Bank Buy Current Price INR 842 Target Price INR 1,150 | 37% Upside

Balance Sheet Related Positive trends in vehicle finance book continue (disbursement +28% YoY, +6%

QoQ to INR52.5b); IIB has been seeing INR11-12b monthly repayment rate; avg. duration of 22-25 months

Growth in Power sector exp osure from transmission side Have classified all accounts as NPA highlighted by RBI LTV on LAP book at 48% P&L Related Moderation in yields driven by change in CFD loan mix from high yielding

products (2W) to MHCV segment Strong growth in processing fees driven by diamond portfolio (hefty fee

business) and strong loan growth especially on the consumer/vehicle financing. Overall retail fees now account for 35% of overall fees

I-banking fees are largely from debt market side – usually 7-9 deals per quarter; have executed project refinancing (2-3 transactions) and few real estate deals during 3QFY16

Strong Opex growth driven by hiring, IT spends in treasury operations; management expects overall C/I ratio to remain around mid-forties +/- 2%

Expects to have 1200 branch network by FY17 NPA provisioning at INR1.41b Increase in credit card related GNPAs on account of change in definition by RBI Increase in LAP related NPAs led by 2 cases this quarter. Other than these, LAP

segment GNPA expected to remain under 50 bps Indian Bank Buy Current Price INR 85 Target Price INR 115 | 35% Upside Balance sheet related Guidance FY16 credit growth 10-11% and 14-15% growth in FY17 Loan mix - MSME INR152.2b, Overseas INR60b, Agri INR224.8b, Housing loans

INR90b P&L related Reduced deposit rate (25bp) from 10th February 2016; MCLR to have some

impact in FY17 Breakup of other income: Recovery from w/o – INR450m; Trading gains –

INR650m; CEB income – INR1.41b and forex income INR740m Staff cost should see some moderation led by retirements and lower level hiring Planning to add 100-150 branches per year (focus on central and western India) Asset quality NPA provisions include INR2b of additional provision on account of RBI asset

quality review (AQR) SDR has been invoked in four accounts amounting to INR7.87b; of which two

accounts were classified as NPA (INR3b) under AQR. Balance SDR accounts were standard restructured previously. Two accounts are in SDR pipeline (INR4b)

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23 February 2016 33

Two accounts were refinanced in 3QFY16 amounting to INR5b Cumulatively, seven accounts have been refinanced under 5:25 scheme till

9MFY16 amounting to INR20b (no pipeline); this includes two large accounts amount for INR15b (standard currently), one account of INR3b which has now been classified as NPA (led by AQR) and one large restructured account of INR1.5b

Of the total slippages of INR17.4b, small borrowers account for INR4b, overseas accounts of INR1b, AQR related slippages of INR11b (of which INR3b of SDR account, INR3b of 5:25 account and INR2b of textile account which was standard earlier and one education account) and balance INR1.4b of other large corporate slippage

Management expects similar quantum of AQR related slippages (INR11b largely from steel and power sector) in 4QFY16. Two chunky metals exposure (INR8b) which have been refinanced under 5:25 scheme would be classified as NPA

Outstanding SRs stood at INR13b (no MTM provisions so far) Segment wise GNPA: Infrastructure (ex. power) INR9b, power INR4.5b, Iron and

steel INR13b and textile INR5.7b Segment wise restructured loans: Power (ex. SEB) INR20b, SEBs INR40b, Iron

and steel INR9b, engineering and others INR7b Small amount of restructuring done led by Chennai floods; similar action is

expected in 4QFY16 Relapse from restructured loans was INR7.8b and INR7.5b upgradation No direct exposure to Jaypee group Total discom exposure was INR48b of which INR40b related to FRP (five discoms

– Rajasthan, Tamil Nadu, Haryana, Andhra Pradesh and Telengana) Education loan GNPA ratio at 7.2%. Bank would be required to make additional INR1.1b provisioning restructured

loans in FY17 For INBK, international exposures have not been included in AQR Other highlights CET 1 ratio including profits 11.08% (ex. profits at 10.55%) No dilution is expected; bank has not requested for any capital infusion

government Digital transaction now account for 52.7% of total transactions SMA 2 outstanding was INR140b Kotak Bank Neutral Current Price INR 631 Target Price INR 720 | 14% Upside Macro related Low commodity price will be significant positive for India. However, it will have

some impact on remittance flows, exports and commodities players Expect bottoming out period around April-September 2016 at the macro level Domestic financial savings which moved to risk assets (in 2015) may move to

risk free assets as the markets are not conducive Business related

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Focused on creating capacity both on liability and capital to capitalize on growth opportunity. On loan growth focus remains on better risk adjusted returns and not compromise on the credit quality

Bulk of decline in Asset management business is due one time operational expenses

In KMPL lower value car sales is driving the car financing growth. Higher value car sales growth remains muted

Decline in market volumes and lesser trading days led to drop in securities business PAT

Guidance Guidance for FY16 a) Credit cost of 80-85bp, b) 15% loan growth (adjusted for

stress loans of VYSB of ~6%). Cost to Income ratio will go below 50% in FY17. KMB remains comfortable for loan growth of 1.5-2x of Nominal GDP growth.

Seeing good traction in consumer Urban and moving up the credit rating in terms of corporate.

NIMs are unlikely change in ensuing quarters despite competition to rise in the high quality

Looking at raising stress asset fund for potential opportunities in coming months On integration with VYSB In the final stages of integration in two major segments a) Technology and b)

Organization Structure Synergies have started to flow through VYSB - SA deposits are growing by ~30%

YoY. Average quarterly customer additions are going up by ~3%. Despite adding front line staff employee expenses are well controlled as low

hanging fruits are available at the supervisory level Expects the full integration to get over by May 2016 Maintains the total integration guidance of INR2b of which INR1.42b already

spent. People, process and technology etc. is proceeding as per plan. Even integration of support staff is already over

On digital side Mobile transaction in December 2015 at INR23b in terms of value vs INR10b in

April 2015. Bank has 6.8% market share (in value terms) in November 2015. Digital value payment transaction have crossed 1.5m in December 2015 50% of Term Deposits are booked online by customers Mobile volume transactions crossed INR40b per month. No of trades on mobile

app crossed over 0.3m per month Via App 7% of the brokerage is being contributed 14% of the renewals and 40% of the switch request in the life insurance business

is coming via digital platform MF provides Factsheet on mobile first of its kind Others Strong growth in others in KMPL is due to financing of capital market

transactions (LAS) Hardly any profits from ARD division in this quarter

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Employee strength on the standalone basis at 31,000 (30,400 in 2Q) and at employees at front end and getting tighter supervisory role

Oriental Bank of Commerce Neutral Current Price INR 82 RBI AQR – 80% already recognized (INR8b) as NPA and 85% as provision already

taken into account. Iron and Steel contributed INR5-6b for AQR. In 3QFY16, 5:25 3 accounts amounting to INR3.65b; Outstanding stock INR19b

(INR6-7b as NPA) In 3QFY16, 9 accounts in SDR amounting to INR15b; Received request from 5

accounts (all are NPA) INR6b. Total stock of SDR at INR29b (all are RL) INR3.63b sale to ARC in 3QFY16. Outstanding SR are INR7.83b Of the NPAs during the quarter INR22b came from 3-4 accounts in the quarter.

INR2.2b from G&J account, INR2.4b from 2 textile accounts and rest is from Metals.

NIM guidance: 2.65% for FY16 and 2.6% in 4QFY16 Interest reversals less than INR2b during the quarter Total exposure to steel sector INR70b. INR14b I&S 5:25 of which INR7b is NPA

and rest is standard accounts INR26b relapse from RL; Large part of RBI AQR is from RL. INR750m additional pension and gratuity provisions during the quarter State Bank of India Buy Current Price INR 165 Target Price INR 215 | 30% Upside NIMs decline led by a) Cut in Base Rate by 70bp and b) Interest reversals on

slippages (INR4.5b) Capital raising plans a) Raising T2 bonds of INR60b in 4Q b) Approval of CET1

capital raise of INR150b c) Divestment of non-core assets (INR10b post tax) d) Unlocking of value of subsidiaries (FY17, 10-12b post tax) e) unlocking of value of Real Estate (INR200b+, RBI may allow revaluation reserve as a part of T1 capital) f) Repatriation of profits from overseas branches (INR7-8b)

RBI AQR related slippages are INR145-150b (similar quantum expected in 4Q) of which 70% came from 3 large accounts (steel, textile and petrochemical). Of the RBI list relapse from RL was INR27b, 5:25 INR60b and SDR accounts were INR43b

Tota l amount of RBI AQR related list for subs aggregate was INR170b of which 50% recognized in the current quarter

Excluding RBI AQR slippages were INR59b. Expect FY17 slippages to be in the range of INR60-70b a quarter ARC sale during 9MFY16m stood at INR7.9b of which INR4b happened in

3QFY16. Total security receipts outstanding are INR56b of which INR6b received in 9MFY16

Of the total 5:25 done till date of INR169.5b (13 accounts), INR60b is already under NPA. INR40b is the pipeline for 5:25

Of the total SDR done till date of INR164.9b (17 accounts), INR43b is already under NPA. INR84b (12accounts) is the SDR done in 3Q

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Of the total steel sector exposure of INR790b -56% is stressed. INR130b NPA, INR50b SDR and rest is either 5:25 or restructured. Of the rest exposure INR100b can be at risk

Of the top 10 highly levered corporate groups, SBIN has exposure in 7 groups (total exposure 4.8% of balance sheet). Of this 4 groups, which in the past featured in the SMA2 category exposure was 2.8% of balance sheet and rest 3 groups never featured in SMA2

Counter cyclical provisions available on the balance sheet stands at INR23b Total OSRL of subs at INR273.3b Don’t expect major impact of MCLR guidelines Sharp increase in power exposure is led by a) higher disbursements to NTPC,

PGCIL etc. b) refinancing 2 large operational power projects. Union Bank Buy Current Price INR 116 Target Price INR 160 | 38% Upside Planning to reach ROA 1% over next two years however, capital requirements

will keep ROEs below 15% Asset Quality Of the AQR, 57% of accounts (based on quantum) have been recognized as NPA

in 3QFY16 – INR19.2b. Account remaining to be classified as NPA are largely paying well and performing as of now

Slippage from restructured book related to AQR were INR9.5b Slippages are largely from steel INR7.4b, Power INR5.55b, roads and infra

INR4.2b, overseas slippages INR4.6b (of which INR2b) 5:25 refinancing – 3 accounts INR12b (all standard) and four accounts in the

pipeline INR33b. SDR is invoked on 11 account (INR27.21b); no pipeline There was no sale to ARC in 3QFY16 GNPA - Iron and steel INR11920m, infrastructure INR30120m and textile

INR10000m SEB exposure eligible under ‘Uday’ scheme INR55b; currently, SEB exposure

yielding base rate plus 2% Other highlights Mobile banking customers more than doubled in last one year 40+ digital branches in several cities and expected to increase to 100 by FY16 CET1 including profits stands at 7.93% (v/s 7.87% in 2Q)

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Yes Bank Buy Current Price INR 714 Target Price INR 1,015 | 42% Upside Guidance Balance sheet growth is likely to be mid 20’s in FY17 Expects 2-3% CASA mix improvement each year over next few years – targeting

to reach 40% by 2020 Business banking and retail share to increase to 3-4% and to reach 45% by 2020.

By 2020, consumption assets are likely to be higher than income generating assets in retail loans – giving push the profitability.

Targeting to 2500 branches by 2020 Asset quality RBI Asset quality review: RBI audit involved recommendation based on the

FY15 numbers. In 1H in the normal course, Bank had already substantially recognized/recovered amount involved. By 9MFY16, 75% of the impact from RBI recommendation is already taken into account (including repayments, recognizing slippages and increasing provisions). For rest of the exposure bank is of the view that repayment may take place, else will be recognized in 4QFY16. Slippages for 4Q will be lower than 3Q.

In 9M bank has received the repayments from large stressed corporate accounts like Essar, JP Power, Lanco etc

Restructured loans (67bps - INR5.7b) : 12 out of 15 restructured accounts are showing satisfactory outcomes. In 3 accounts there is some cause of concern (Total amount involved INR1.4b)

Security receipts (25bp - INR2.1b): YES expects 35% cash receipt over next two quarters. Security Receipts are backed by strong underlying assets – don’t expect much hit on that front

Only one account of INR500m in the below investment grade category in credit substitutes. In this account bank expects redemption of underlying instrument very soon

Credit substitute book is externally rated and is in investment grade. RBI review also includes bond book.

Roads, EPC, cements, construction and Textiles stress loans are in the range of 15-20bp (except for roads 37bp)

During the quarter bank utilized INR200-300m of contingent provisions for writing off of loans

Retail Business Savings deposits customer base is 1.2m and are adding 15-20% customers QoQ.

No immediate plan to change savings rate. May review in April post RBI policy Income generating assets (CV, CE and LAP) are likely to be core focus area for

building retail assets in the next 18 months. For other areas (HL and consumption loans (PL, GL etc.) focus is building infrastructure, process, and relationship. Earning assets are currently at 60% of the retail assets.

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23 February 2016 38

YES is planning to add 150 branches in FY17. Of the last quarter hiring 90% was towards retail. Significant investment is going into Retail and business banking and bank is expecting meaningful contribution to profitability from FY18

YES will launch credit card in the next quarter Other Highlights MCLR guidelines will be beneficial with respect to building retail loans. YES is not

expecting any impact of MCLR on the margins. Currently bank is computing Base Rate on the marginal cost of funds. On the contrary bank is expecting further improvement in NIM in the coming quarters

G-Sec book is at INR340b (INR290b) and Non SLR at INR80-90b Corporate banking fees have one off contribution during the quarter. Credit substitutes are at INR93.6b

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FINANCIALS/NBFC Bajaj Finance Buy Current Price INR 6,049 Target Price INR 7,194 | 19% Upside Growth guidance: Targets to grow loan book by 25-30% YoY and report 20%-

25% YoY PAT growth over the medium term with new customers to grow at 15- 20% YoY.

Loan book contribution: Going forward, consumer finance would remain the customer acquisition engine; however, growth in consumer book would taper down given the base effect. SME business and rural lending would drive the loan book over the m edium term. Over the medium term, profile of loan book would change to consumer finance contributing 35-37%, SME 40-45%, rural lending 7- 8% and rest others.

New products: BAF would launch a new product category and announce a fee based opportunity soon. Further, the company has introduced gold loan products for existing customers, at present company’s customers have taken gold loans of INR110b from the system and BAF is targeting this opportunity.

LAP and mortgage business: Company would be offering LAP and mortgage products only as a cross-sell to existing customers. Expects mortgage book to grow by 25% in FY17.

Borrowing: Targets 15-18% borrowing to come from fixed deposit (at present ~6%) over the next three years

BAF would come up with its own flavor of MCLR starting 1st April, in order to face the banks and in-line with its philosophy of running the company like a banking firm.

Dewan Housing Buy Current Price INR 152 Target Price INR 302 | 99% Upside Industry Outlook: Affordable housing to be the growth driver for Real Estate

industry. Increasing number of developer are launching projects LMI and middle income segment (INR1.5m-4.5m category).

Increasing competition in the mortgage business is putting pressure on yields. Guidance: On track to reach AUM of INR1t by FY18 and maintain NIMs of 2.8-

3.0% Disbursements: ~25% of disbursements during the quarter were towards

project loans. Project loans now constitute 8% of the total loan book v/s 6% in the last quarter.

Higher repayments: Repayments were higher due to increased pre-payments across segments, but project loans witnessed heightened prepayments.

Other expenses: Other expenses were higher due to increased marketing expenses during the festive season and legal expenses on back of due diligence of asset management business.

Capital Raise: Company to issue convertible warrants of INR5b to Wadhawan Global Capital (promoter group) during 4QFY16. The warrants would be convertible into equity after 18 months.

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23 February 2016 40

Pricing of the issue would be decided by the SEBI formula of 5% premium over average price of last 6 months or 15 days (whichever is higher).

Company is raising equity in order to lower its D/E ratio and fund future growth. Others: Company is working towards selling its new HQ building to a third party.

Expects the sale to happen in 4QFY16. IndiaBulls Housing Fin Buy Current Price INR 598 Target Price INR 907 | 52% Upside Guidance: 1) Loan growth to remain at +25% 2) Maintain GNPA at 70-90bps and

NNPA at 30-50bps. 3) Target loan book share of 60% home loan; in 2 years from existing 51% 4) would maintain spreads of ~ 300bps. 5) Credit cost to be in the range of 55-60bps.

Borrowings: Due to uncertain market conditions, IHFL has shored up the cash levels to INR140b and would keep it at high levels (+INR150b) for next 2-3 quarters. Targets to reduce bank borrowing to 40% by FY17 this will help further reduction in cost of funds. Bond issuances have been healthy, and along with ECBs, contributed to 47% of the incremental borrowings in the last 12 months

Asset quality: Pala Royale is doing distress sale- paying interest and servicing debt; while it’s making timely payments to IHFL, the company is not recognizing the interest on same and has also made provisions on it. Provision breakup (INR380m standard asset; write-off INR450m (largely CVs) and INR350m of specific asset.

ZCBs: ZCBs have come down sharply and forms 3.1% of borrowings v/s 4.5% last year- wont issue further ZCBs.

Dividend Policy: Dividends to be capped at INR9/sh until reaches 50% dividend payout (Expected until 4QFY17). Dividend payout would then stabilize at 50%.

Others: 1) Company plans to sell down total 20% of the incremental loans on steady state basis and expects 20% of funding to come from sell down (3QFY16: 12%) 2) Expect avg tkt size to increase to INR35lac over the medium term. 3) Sold loans of INR10.4b during the quarter and INR29.15b in 9MFY15.4) Risk weight changes helped shore up CAR by 170bps

Industry outlook: Recent reports indicate affordable housing turning around the industry. There is a divergent trend in 15-75 lac v/s +75lac is very large; while the former is seeing a healthy growth large ticket home sales are muted.

RoA: Reduction in credit cost and improving cost to income to add 10bps of RoAs going ahead.

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M&M Financial Buy Current Price INR 216 Target Price INR 294 | 36% Upside Macro Environment: Overall economic activities levels in key states remain weak; moreover erratic

weather conditions have aggravated the pressures across all customer segments thereby impacting the cash flows.

While Bihar, Andhra, Telangana, Rajasthan, Gujarat, UP doing good (Growth is seen in these states); Maharashtra, TN, MP, Karnataka and Kerala registered degrowth (bad monsoon and no major activity); these states continue to remain problem area and contribute 60% of NPLs.

Uptick in disbursement growth of +19% was due to festival season- triggered by supporting offers from OEMs- triggered volumes. Don’t expect this growth to continue in 4Q. Moreover the growth was largely driven by value growth due to higher ticket size products- volume growth stood at 6-7%.

Asset quality: While the company remains committed to move to 120dpd reporting norms by

Mar-17 (regulatory requirement), it may shift to these norms only post Mar-16. Expect GNPA to increase by 100-120bps on movement to 120dpd reporting

norms and by 25% on movement to 90dpd, however, the same is expected to moderate going forward

Of the total 1.8m customers’ accounts- Around 146K accounts have turned NPA (v/s 129k contracts in the last quarter).

Higher provisions during the quarter were primarily due to additional provisions and shifting of buckets and not necessarily due to increased slippages. Additional provisions of INR510m during the quarter include ~INR190m income reversal and rest INR310m are additional provisions.

Lead Indicators to watch out for improvement a) Repayments happen in one visit; instead of multiple visits and part payments;

b) OEMs reducing discounts on vehicles; c) LTVs reducing on asset purchases i.e buyers willing to put in more equity. d) increase in demand of pre-owned vehicles

Chennai rains: Company does not have a major exposure to the city; thus no impact seen. However, on the positive side, due to heavy rains ground water level in the state has increased and this could bode well for agri output which in turn would aid recovery.

MSP increase: Increase in MSP especially for Soya is positive for the state of MP. Subsidiary business Insurance business to grow at a faster rate than MMFS due to lower penetration

in MMFS network. Expects renewal business to provide significant traction going forward. The company is setting up a separate team for the same

Rural Housing: Expects rural housing to continue to grow at rapid base of ~50% YoY (on a low base). Rural housing subsidiary to penetrate deeper in semi-urban areas. At present, 10% of loan book emanates from semi-urban areas.

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Muthoot Finance Buy Current Price INR 187 Target Price INR 234 | 25% Upside Key Guidance Company confident of achieving FY16 AUM growth of 10%. Would add 100-120

branches over the next 12 months. Long term RoA target of 3% and would maintain NIMs at 9%. AUM Growth Although AUM has grown at steady rate on YoY basis, however, the broad

weakness in the rural economy and poor monsoon has impacted sequential AUM growth.

Nearly 90% of loans are bridge financing availed by small businessman and traders; thus subdued economic environment is impacting incremental AUM growth. This coupled with average tenure of loans at 5-6 months is also leading to higher repayments and thus further impacting AUM growth.

Yields and margins Company has maintained margins at 9% and would continue to do so. However,

it has passed on the benefits of lower cost of funds to borrowers. CoF declined to 10.34% in 3QFY16 v/s 10.49% in 2QFY16 following reduction in repo rate by the RBI.

Teaser rates are between 12-13% pa. Average yields for the quarter was at 18.3%. MUTH intends to maintain NIMs are 9%.

Asset Quality Absolute GNPA declined marginally on back of higher auctions during the

quarter, which were held back in the last quarter due to Onam festival in the key state of Kerala.

The company would move to 150dpd NPA recognition norms from 4QFY16. However, it expects its %GNPA to remain at similar levels as the company would likely increase auctions and focus on other recovery methods.

Operating Expenses Operating expenses are expected to remain at current levels in absolute terms

or it would increase by 5%. Company has adequate infrastructure in place to service a much higher clientele than at present and thus opex growth would remain under control.

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Shriram Transport Finance Buy Current Price INR 824 Target Price INR 1,160 | 41% Upside Industry scenario and outlook: Macros largely remain unchanged over the last 2 quarters with little signs of

recovery. Higher disbursements in 3Q were largely due to festive season, typical 3Q phenomena.

Rabi crop is under pressure due to low moisture content in the soil from poor monsoon and relatively warmer winter. However, there is only marginal decline in area under cultivation. Lately drop in temperature coupled with rains in central India has improved prospects slightly, but pressure on Rabi crop remains.

Vehicle demand: Demand for M&HCV remain strong due to demand in coal mining and some pickup in road projects. Demand for LCV continue to remain subdued.

Vehicle utilization remains at 21-23 days for HCVs, which the breakeven point for operators.

Outlook: Expect macros to improve over the next 2 quarters, but largely depends on monsoon and pick up in infra activity on back of government efforts. NPLs trends to remain at current levels, improvement only seen from 3QFY17.

AUM growth: AUM to grow by 15% in FY16 and FY17 Asset quality: Management has indicated that asset quality trends will remain weak due to

rural stress and will increase ~10bp for next 2-3 quarters, see improvement only post 2HFY17.

Would move to 150dpd provisioning norms from the next quarter. Expect ~150bp increase in NPA due to change in norms

Further, the merger with Equipment financing company would be completed in 4QFY16, and thus GNPAs would further increase (current GNPA at INR10.5b in equipment financing subsidiary)

From 4QFY16, the company would report numbers on consolidated basis (i.e equipment financing subsidiary merged with parent), thus reported GNPAs are expected to be at +6%.

However the management has not yet decided on the treatment of this impact and the final call will be taken by the board post 4Q.

Yields and margins: Yields have largely remained stable during the quarter; however, going forward

as the share of new vehicles would increase impacting blended yields might decline.

Cost of fund declined largely because of higher incremental borrowing from non-bank sources.

Margins improved during the quarter on back of lower CoF and lower cash balance (better treasury management). Cash balance of INR21b i.e. 3.3% of assets v/s average cash balances of + 12% of assets led to lower interest

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23 February 2016 44

expenses boosting the margins. However, in our view this is the optimum level of treasury management.

On back of diversified borrowing profile, the company is comfortable with lower cash balance. Maintains 4%-4.5% cash on the balance sheet going forward.

Margins are expected to remain at similar levels in 4Q as well. Equipment finance subsidiary Loan book stands at INR22.5b at present. Focus continues to remain on

recoveries and not on expanding the book. Collection run rate of ~INR800m-1000m/ month is maintained. With more than

half of the collections coming from accounts that are over 150dpd due. Current GNPA at INR10.5b, down INR500m in one quarter. Targets to bring

GNPAs below INR10b mark in 4Q. Have already provided ~INR2.8b for GNPA. Others Company typically does higher securitization in 4Q and expects to securitize

INR25b-30b in the next quarter. Employee expenses, higher by INR150m, during the quarter were due to change

in bonus regulation by the government and would normalize in the next quarter. SHTF does not expect a lot of competition from SFBs as it expects the upcoming

banks to focus more on expanding their existing product portfolio and get occupied with regulatory requirements in the initial years of their operations.

SKS Micro Finance Buy Current Price INR 498 Target Price INR 619 | 24% Upside SKSM likely to grow at 70-80%: Potential in MFI industry still very large with unmet credit demand of INR1.5-

3tn. SKSM hinted that growth is likely to remain at 70-80%; 50-60% coming from

new client additions and 18-20% from increase in ticket size. SKSM intends to grow to faster pace primarily because it wants to acquire more

clients before SFBs start operations. Further, threats from SHGs have largely subsided for SKSM as nearly 60% of

SHGs are operational in AP and TN, areas where SKS has very minimal operations (some operations in AP and none in TN)

Increased ticket size, raises concerns of over leveraging SKSM is taking utmost care in ensuring that MFI borrowers are not

overleveraged and is strictly following the JLG principles and performing credit bureau checks.

Further, as a prudent measure, it provides long term loans, which are loans above INR30,000 for upto two year tenure, only to customers who have completed two loan cycles with the company.

With interest rates below 20%, political risks likely mitigated SKS reduced its interest rates to 19.75% in Dec-15. With this it has become the

most efficient MFI in the world with sub 20% interest rate.

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23 February 2016 45

The company is of the opinion that political risks associated with MFIs are largely mitigated by lending below 20%; as their exists many products such as personal loans by banks which charges more than 20%.

Operating efficiency to kick in with optimal utilization of existing infrastructure Operating leverage is likely to kick in FY17, as the company has now touched

4.2mn customers v/s 5.2mn before the crisis. It is only now that the company’s existing infrastructure would be optimally utilized and thus cost efficiencies would kick in.

Asset Quality to remain st able Asset quality likely to remain stable. The company being an NBFC is not required

to make floating provisions, thus have not made any. Cross sell to add 1% to RoA Increased focus on cross sell is likely to add 1% to RoA

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HEALTHCARE Alembic Pharma Neutral Current Price INR 617 Target Price INR 680 | 10% Upside Domestic business grew 15%YoY to INR2.9b, driven by good traction in specialty

therapies. Among specialty therapies, Cardiology, Anti-diabetic, Gynecology grew 34%,

43%, and 29% respectively (in 3Q), In acute, Anti-infective showed flat growth, whereas cough & cold segment

grew 20%YoY during this quarter. Sales grew 285% YoY to INR 5.2b, led by the US business. In 1Q, The Company had launched gAbilify in the US. It is a blockbuster product

with USD 6b market size (pre-generic). Till date, it has filed 74 products (3 in 3Q) and has received 45 approvals (2 in

3Q) from US FDA. Remaining 29 ANDA filings are primarily para IVs and attractive opportunities for

the company.

Alkem Labs Buy Current Price INR 1,286 Target Price INR 1,750 | 36% Upside India business (71% of sales) Alkem’s India sales grew at 28%YoY to INR8.8b, driven by good volume growth

in existing portfolio. Adjusted for Indchemie and cachet, India sales grew 13%YoY during this quarter. Secondary sales growth was at 18.6% (as per IMS). Alkem has maintained its leadership position in Anti-infective, Gastro, Pain and Vitamin therapies. It has also improved position in growing therapies like Derma, CNS, CVS, Anti-diabetic. At present, 24% of India sales come under NLEM. Going ahead, the company expects additional 6% of India sales to come under NLEM list, taking total NLEM exposure to 30%.

The management has no plans to add significant field force in near term and would be more focused on improving MR productivity.

US business (21% of sales) US sales grew 19%YoY to INR INR2.6b, driven by sustained market share in

existing products. In 3Q, Alkem has filed 2 ANDAs and received approvals for 5 ANDAs from US FDA. Cumulatively, it has filed 70 ANDAs and received 27 approvals till date. However, it has launched only 16 products in US market. Total pending approvals stands at 43. In addition, it also has 10 in licensed products. The management expects more than half of pending ANDAs to get approved over 24 months. Market share in key product like Mycophenolate Mofetil has also been maintained during this quarter. We expect Alkem to receive 10-15 approvals over next two years, leading to 34% revenue CAGR over FY15-18E.

Other international business (8% of sales) Other international business grew 65%YoY to INR1b. Growth was primarily

driven by Australia and Chile markets. Alkem has presence in 50 countries.

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Other highlights Gross margin improvement was driven by price hikes in India, better product

mix in both India and US and cost savings across the segments. The management also believes gross margins are sustainable going ahead.

R&D costs stood at 3-3.5% of sales in 3Q. Management expects R&D cost to increase going ahead.

The management indicated that results were also impacted by AS-09 accounting standards.

Standalone PAT was higher due to higher inventories in US subsidiary. Baddi and two US based facilities were inspected last year. Two facilities (Daman

and Ankleshwar-API) are due for US FDA inspection this year. 60-65% ANDAs are filed from Ankaleshwar and 30-35% ANDAs are filed from Baddi.

Tax rate is expected to be in range of 15-18% for FY16. Biocon Sell Current Price INR 462 Target Price INR 450 | -3% Downside Malaysia facility is expected to get commercialized by 2HFY17. Once it receives

approval from Local authority, the company will also stop capitalizing cost (including interest) for Malaysia facility. Overall capital expenditure incurred is estimated to be at INR12b for this plant.

ANDA filings: The company filed two ANDAs during this quarter and expected to file 25+ ANDAs in coming years.

New facility: Biocon has also started construction of potent solids facility in Bangalore and expected to spend INR1.5b for its capex.

Glargine Insulin: Recruitment of patients has been completed for clinical trials and Biocon expects to file this product in FY17. Similar as Lilly, Biocon is also likely to file through 505(b)2 route in US market.

Partnered products: Biocon is on track to file four monoclonal products in various markets by FY17. It is confident on the prospects of MAb portfolio and expects biosimilars product to become predictable growth driver for the company.

Oral Insulin: Tregopil Phase I study report has been satisfactory and Biocon itself will be taking it through phase II clinical trials rather than partner BMS.

R&D guidance: The company has guided for 10-12% of biopharma sales R&D expenses for next few years.

Capex: Biocon has incurred INR5.2b capex till this quarter on the back of Malaysia phase I construction, Syngene and India business expansion. Going ahead it is also likely to incur higher capex for new biologic facility in Bangalore, apart from maintenance capex of INR1.5b.

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Cadila Healthcare Buy Current Price INR 329 Target Price INR 380 | 15% Upside US (45% of sales): US grew 20% YoY to INR 10.7b in 3Q, driven by greater

traction in AG products and one off contract sales. Going forward, we expect US sales to grow atleast 18% YoY over FY15-18E on account of rich ANDA pipeline and key product launches like gAsacol HS, gPrevaid ODT, Toprol XL and few transdermals post resolution/site transfer. The company has filed 20 ANDAs with US FDA in 3Q.

Asacol HD: CDH is in process of filing for site transfer of this product. The company also has option to launch Asacol HD AG in market on July 2016. However, in such circumstances it will lose its right to launch generic Asacol HD under exclusivity. Managemen t also added that generic opportunity could be extended beyond exclusivity period due to lack of filings. As a result, it may choose to file for site transfer than launching AG in the market.

Site transfer: Currently, CDH has transferred eleven products from Moraiya facility to Ahmedabad based SEZ facility from existing product portfolio. It is also in process of site transfering four more key products from future pipeline that includes – Asacol HD and Prevacid ODT..

Revenue exposure: Currently, Moraiya facility supplies 60% of total US sales. In terms of pending product approvals, CDH has filed 74 products from Moraiya facility which includes 40% of total oral solid filings.

Other inspections: All other four key facilities (Dabasa API, Ankleshwar API, Baddi Formulations and SEZ formulations) were inspected in 2014/2015 and have not received critical observations from US FDA. SEZ facility has also received EIR from US FDA and expected to get product approvals very soon.

India (30% of sales): Domestic branded business has reported double digit growth for 2nd consecutive quarter, recording INR 7.1b sales in 3Q. It has launched 12 new products in 3Q. The management expects INR300m impact on India business due to recent NLEM policy.

Latam (2% of sales): In 3Q, LatAm sales declined 11%YoY to INR544m due to sharp currency depreciation. In Brazil it received two product approvals during this quarter. The management expects Brazil to business to break-even in FY16.

Europe (3% of sales): In 3Q, Europe sales also declined 10% YoY to INR762m. Management expects to grow EU revenues in line with respective market growth in the coming years (4-6%). We have modeled 4% growth over FY15-18E.

HEALTHCARE |

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Dr Reddy’s Lab Neutral Current Price INR 3,062 Target Price INR 3,300 | 8% Upside Global generics grew 7%, despite currency challenges. Growth story is driven by US, India and Europe. US grew 11%YoY, key molecules retained market share and gaining market

share in Nexium. PSAI declined 17%YoY, delay in dispatches due to remediation activities SG&A was higher due to settlement (USD5.4m) and remediation costs. Emerging market territory hurt by currency. Russia grew 5%YoY constant currency. Glenmark Pharma Neutral Current Price INR 747 Target Price INR 900 | 21% Upside India (27% of sales) India sales grew 13% YoY to INR4.9b affected by stoppage of sale of Sitagliptin products post court order. However, GNP has launched Tenaligliptin in 1Q and

has generated INR230m till date. US (34% of sales) In the US, the company received two approvals during this quarter - namely,

Linezolid tablets and Clotrimazole and betamethasone dipropionate topical cream. In FY16, it has received thirteen product approvals from US FDA and most of these products are in market. In FY16, GNP has also filed 6 more products with US FDA, taking total filings to 167.

SRM (13% of sales) Russia business is growing at ~5% in constant currency, whereas secondary sales

for the quarter were at 16%. Management believes Russia business environment continues to remain challenging as demand conditions are still weak. Additionally, Russian currency has also seen 30% depreciation against USD YoY, that aggravated overall sales impact in rupee terms.

LatAm (7% of sales) LatAM sales declined 47%YoY to INR 2.3b, affected by lower Venezuela sales

and deprecating Brazilian currency. In 3Q, outstanding sales in Venezuela stand at USD 20-21m while total cash at subsidiary level is still higher at USD30-35m.

Europe (10% of sales) Sales in European market grew 2%YoY in 3Q. However, secondary sales growth

was much better as German business continues to perform well for the company. In CEE region, GNP launched Bortezomib, Pregabalin, Aripiprazole,

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Dexpanthenol, Magnesium Complex B, Eztom (Mometasone) Spray, Rekarnival. In the western region, It has launched Lansoprazole, Losartan, Memantine oral drop, Omeprazole in UK.

Other highlight In 3Q, gross debt was increased to INR34.5b in Dec’15 from INR32b in Sep’15.

Cash was lower at INR6.5b in Dec’15 compared to INR7.9b in Sep’15. As result, Net debt was increased to INR28b in 3Q from INR24b in 2Q. Debt increase is on account of Tarka liability.

R&D spend was at INR1.7b during this quarter (9.2% of sales). However, over next two years management expects R&D to scale up on the back of complexity of filings and likely to reach to 10-11% of sales.

Net forex losses were at INR270m in 3Q. Lupin Buy Current Price INR 1,783 Target Price INR 2,250 | 26% Upside

US generic business grew 18%QoQ and branded business grew 56%QoQ. US generic business benefited from flu season. US branded business grew higher on account of Suprax and Antara . Gavis acquisition: Hoping for FTC clearance in this month. Expects acquisition to

get closed in Mar’16. Cosevelam and Sevelamar tabs are likely to be launch in FY17. However,

Suspension could be delayed due to open CRL. Increasingly lot of new filings are happening from Indore and Nagpur plant. Higher staff costs to due increment in R&D and manufacturing and addition of

new businesses. Sun Pharma Buy Current Price INR 864 Target Price INR 975 | 13% Upside India (27% of sales) India branded business grew 8%YoY to INR18.9b, reflecting sequential recovery

from 2QFY16. SUNP has withdrawn policy of bonus sales and giving discounts on acute

products, resulting lower sales growth over last two quarters. However, going ahead, it will improve the profitability of the India business.

In 3Q, SUNP continues to rank no 1 in Indian pharma market and has captured 8.8% market share till date. It also market leader in 12 classes of doctors in India.

Integration with Ranbaxy for domestic formulation business is on track.

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US business (47% of sales) US sales declined 5.5%YoY to INR32b (USD486m), impacted by pricing and

supply constraints at Halol facility. SUNP has launched its generic version of Gleevec in US in Feb’16. However,

management believes market share ramp up could be slow as unlike normal generic products Gleevec is being distributed by different set of specialized pharmacies in US.

Over last nine months, SUNP has filed 11 products and received 9 approvals from US FDA. Cumulatively, it has received 435 ANDA approvals till date and 156 ANDAs are still pending with US FDA.

SUNP has taken additional remediation steps after receiving warning letter for Halol facility in Dec’15. It is likely to request US FDA to re-inspect Halol facility in 1QFY17.

The management clarified that less sales in Sumatriptan injector is on account of supply constrains at Halol facility and are likely to ramp up going ahead. However reduction in Doxil sales is on account of competition and not due to Halol supply constraints.

SUNP has successfully integrated the Opiod business in 3Q. However, it also indicated that access to raw material in control substances doesn’t ensure higher quota from DEA. However, it helps to gain more market share due to competitive pricing.

Emerging markets & RoW business (22% of sales) The declined in emerging markets and RoW business sales is on account of

currency issues and discontinuance of low margin businesses during last few quarters.

Tax rates Tax rates could go up if profitability of subsidiaries in high tax brackets increases

in the future. Ranbaxy integration SUNP has started seeing positive impact of Ranbaxy integration from this

quarter and is confident of achieving USD 300m synergy by FY18. MK-3222 SUNP is expected to file this product in CY17. Currently, it is waiting for Phase III

trial data. Tildrakizumab that is once a quarter product versus Cosentyx which is once a month product.

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Torrent Pharma Buy Current Price INR 1,326 Target Price INR 1,800 | 36% Upside India business grew 7%YoY to INR4.5b in 3Q, discontinuances of bonuses led to

slower growth. However, benefit in margins due to discontinuance of bonus sales are much

higher than the top line loss Continues to focus on specialty business and improving MR productivity Price hike impact (Shelcal and Chymoral) would be reflected in 4Q Third biosimilar is also likely to enter in FY17 in India. US Base business grew substantially in 3Q aided by Nexium and Detrol LA

launch. Abilify still remains important product for Torrent in US market Till date TRP has received 57 approvals and 16 ANDAs are still pending at US FDA

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MEDIA Dish TV Buy Current Price INR 73 Target Price INR 130 | 80% Upside Subscriber additions: In spite of relatively weaker additions viz-viz-viz peers in

3Q; management is confident to achieve its net subscriber add guidance of ~1.5m subscribers on the back of increased Cricket Matches and new products launched in January 2016 (9M net additions: Videocon D2H: 1.09m; Airtel: 1.03m; Dish TV: 1.04m). 9M gross additions for the industry is estimated to have been ~8m; of which Dish TV gross adds stood at ~2m (~25% market share).

On Competition from Free Dish and Reliance Jio: Management suggested that 1) Free Dish isn’t a competition and on the contrary helps sample consumers who eventually upgrade to lower/base packages of Private DTH payers. 2) Reliance Jio could be disruptive; however bulk of their initial revenue is expected to be from voice and data and hence video business is expected to be relatively insulated for quite some time going forward.

New Product Launch: Management has introduced a slew of new products such as Dish99 which is an FTA pack; however consumers have to buy three add-on packs (min INR75); so effectively it’s an INR174 pack. The initial response has been good and manage ment intends to use this pack as a penetration pack to make further in-roads in DAS III/IV markets. Regional Offering Zing contributed ~20% of the incremental gross adds this quarter.

HD Offerings: HD contribution to incremental gross adds for Dish was ~20-22%. Dish enjoys ~20% market share in HD offerings.

Zee Entertainment Buy Current Price INR 383 Target Price INR 466 | 22% Upside Advertisement growth: Ex-&TV ad growth for Zee outpaces industry which is

growing at ~14-15%. Ad growth visibility is strong for the next 2-3 quarters. Key performing categories: FMCG, E-Commerce and Consumer Durables

continue to perform well. While Telecom and Auto haven’t fired yet, management expects these sectors to step up ad spends in the next couple of quarters.

Subscription growth: 21% YoY growth in domestic subscription also included some catch up revenues. For FY16, domestic subscription expected to grow in double-digits.

Zee Anmol: Zee Anmol continues to perform well. Management intends to improve monetization from this channel going forward.

Content Strategy: Fresh programming hours have increased from 28hours in 3QFY15 to 34hours in 3QFY16 for the flagship Zee TV. &TV’s Original Programming hours (OPH) remain stable at the 9M average of ~22 hours. Regional channels’ OPH remain largely flat.

Margin Guidance: EBITDA margin guidance remains unchanged at FY15 EBITDA margin – 50/100bps.

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Results Update

Click below for Detailed Concall Transcript &

Results Update

MEDIA |

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23 February 2016 54

METALS

Hindustan Zinc Buy Current Price INR 164 Target Price INR 171 | 4% Upside Variation in quarterly volumes will continue going ahead. But full year volumes

will be met. Silver production will be significantly higher. Mine metal will also be higher. 16km of mine development during the quarter, 55% higher from last year EC received for SK mine expansion from 2mt to 3.7mt RAM future OC expansion has slowed down the UG expansion Domestic zinc demand to grow by 4-5% in FY16 Galv steel use in India is an exception rather than a normal in US/Europe and

other developed regions. 16% lower average mine grades during the quarter INR 48 cr impact of cess, RPO obligation, water and electricity cess Tax low due to change in accounting to long term capacity gains and benefit of

certain tax free incomes Deeping of open pit by 50mtrs for RAM Kayad faster than planned ramp-up to 1mt SK mines will be ramp-up to 3.5mt in 4Q. From next year to 3.5-3.7mt Zawar is a group of mines, has many pieces. Will look at individual pieces and

take up projects which are fesible. Will maintain the plan ramp-up of 1.2mt by Fy20-21 despite the review of Zawar

and Dariba Cash decline due to - Advances in previous quarter. Special dividend consumed.

Dividend advance tax. Capex was 500 cr RAM UG regular stopping started in the month of October. Average grade will come down with years. But due to higher silver content from

mines like SK the contribution will be higher. 200-225mn dollar in Fy16, 80% of this would be in project capex; in Fy17 capex

will be slightly higher 126ppm silver last quarter. Silver content varies from pocket of mines. MIC will be marignally higher next year Zinc 30-35% exports currently Hindalco Buy Current Price INR 70 Target Price INR 104 | 50% Upside The 3rd US auto line and the new Germany line is expected to start in a couple

of quarters. The US line is fully sold-out. The Germany line still has some capacity open.

US line has commitments from F-150 and Super duty trucks. Once Super duty shipments start, the margins would see further increase.

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METALS |

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23 February 2016 55

Benefit of scrap spreads has declined over the past few quarters on lower LME and spot premiums. At some stage in future, the trend will reverse.

In the Asian market, although the lower MJP premiums has improved competitiveness against Chinese players, there is significant pricing pressure due to moderating demand in the region and over-capacity in China. South Korea, which represents ~400kt market (of total ~800kt), is relatively less influenced by competition from China.

FCF is guided to be positive for full year FY16 on major working capital release and better operating results. Working capital is to benefit from (a) better management of inventory (b) enhanced payment terms with suppliers and (c) lower LME.

Capex for F Y17E will be lower than FY16E. Guidance for FY16E is for USD400m. No further impact from price lag in the coming quarters as premiums have stabilized.

JSW Steel Buy Current Price INR 1,084 Target Price INR 1,393 | 29% Upside If excluding the shutdown, balance capacity operated at 98% utilization Inventories have come down v/s. 2Q NSR down 24% YoY. Cost down 17.5% YoY. INR 300 cr cost due to shutdown. Operating loss 118cr standalone if excluding the exceptional; in consol INR 438

cr Difference between exceptional charge in standalone and consol due to INR

3,474 cr accumulated losses in consol results. INR 39,438 cr debt delay of 1-1.5months in commissioning of new capacities 5-6% miss to the guidance of 12.9mt due to delay in commissioning FDT: State government can levy FDT only on state govt controlled entities like

MML, high court order. Max only 8% FDT can be lieved. 3months refund timeline effective 3rd Dec.

JSW can get INR 1520.93cr cash benefit - INR 825.39cr write-back in PL - benefit of FDT.

FDT is still levied @ 12%. Goodwill remaining INR 130m. Networth INR 21,502 cr Realization decline INR2,000-2,100 QoQ Unlikely to prices dropping further MIP can be extended upto 4 yrs to 18mt with no increase in gross debt. Power and fuel cost lower due to coal and lower natural gas. Coal landed cost USD100-105 cfr. In 4Q USD 5/t drop.

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METALS |

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23 February 2016 56

Vedanta Neutral Current Price INR 75 Target Price INR 68 | -8% Downside High cost alumina inventory in 3Q, as this declines aluminum CoP will see a

decline Superior pricing on oil through diversification of customer base. Started shipping

to new customers which has improved the pricing. Alumina Lanjigarh to 4mtpa approval received Aluminum CoP to decline furher on lower alumina and other initiatives Moving to less ingot and more value-add in aluminum Imported coal consumption would remain as prices of local coal is rising while

imported remains flat In Alumininm, fixed cost has come down through employee cost, alumina

moving to one stream. Evaluating Balco ramp-up next year. Planning ramp-up by 2 pots per day but

plan to accelerate it to 4 pots pe r day. Cairn SPV debt down due to re-payment of inter-company loan, partly in the

quarter and partly in the 4Q. 0.8b is repaid and balance 1.8b will be repaid gradually.

Malco debenture is to repay Twin Star debt Unused credit facility of 4,800cr. can be used to repay the inter-company debt INR 200cr one-time benefit in copper (target plus benefit) was recognized in the

quarter (relating to past year). Dedicated auction in CPP e-auction likely. Tata Steel Sell Current Price INR 253 Target Price INR 146 | -42% Downside Demand from construction and infra sector remains weak as private sector has

declined Imports represent ~50% of free hot roll coil market Chennai floods impacted sales to auto segment Ferro realization decline impacted margins of the business, despite higher

volumes Automotive industry growth picking up Some greenshoots are visible More than 80% of EU steel demand growth taken-up by imports China steel demand to fall 2% in FY16 Some indication in EU commission on rethinking of some protection on EU

imports Realization drop by INR 2300/t Seasonally Dec quarter is the weakest quarter in Europe, that also drove the

margins lower Kalinganagar 1-1.5mt in FY17. This is a single line so if even one chain does not

work there is issue of continuity

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Click below for Detailed Concall Transcript &

Results Update

METALS |

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23 February 2016 57

Translation loss in subsidiaries driving the loss in the subs - INR 198 cr gain of INR 168 cr in previous quarter.

Has bid for electrosteel. fits into strategy of being into long products about segment.

FY17 capex significantly lower than FY16 as KPO capex will be largely done. 1.6-1.8mt capacity cut in Europe USD1.5b guarantee by Tata Steel India for EU operations Railways and highways seeing some activity Wire rods, cold rolled and plates papers filed for safeguard INR 1000-1200 p.a maintenance capex in Jameshdpur

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OIL & GAS

Cairn India Neutral Current Price INR 131 The capex for the quarter stood at USD58m of which 70% was invested in

development, and the balance in exploration activities. On an asset basis, the core MBA fields accounted for 60% of total investments. Capex for the full year has been maintained at USD300m.

Rajasthan royalty share stood at INR4.1b (v/s INR6.9b in 3QFY15 and INR4.3b in 2QFY16).

Profit petroleum stood at INR1.1b (v/s 9.4b in 3QFY15 and INR5.3b in 2QFY16). Other income stood at INR1.4b (v/s INR1.6b 3QFY15 and INR1.2b in 2QFY16).

Other income was flat QoQ on excluding the MTM loss of USD20m on bonds recognized in the last quarter.

Foreign exchange gain stood at INR488m (v/s gain of INR3.8b in 2QFY16 and gain of INR3.5b in 3QFY15) primarily due to lower INR/USD depreciation in this quarter than the previous quarter.

CAIRN India approached the High Court to expedite the PSC extension decision and to be allowed to export its crude production.

An extension of the PSC term will lower the depreciation expense of the company, as the assets will then be depreciation over till 2030, instead of 2020.

Gail India Neutral Current Price INR 326 Target Price INR 373 | 14% Upside Gas Transmission: In 3QFY16, gas volumes increased due to increased power

pooling volumes (by ~8mmsmcd, can go to ~12mmscmd in the near term). Spot LNG volumes increased from ~4.7mmscmd in 3QFY15 to ~9.4mmscmd in

3QFY16. Likely increase in the transmission tariff: Transmission segment profitability will

benefit with the awaited increase in pipelines tariffs. Tariff revision for KG basin network was expected in December 15 (now delayed); tariffs for others are expected to be revised by end of the current fiscal year.

Petchem: Profitability for the petchem segment was impacted by higher depreciation and higher interest costs due to new plants commissioning. Also, stabilization issues at the plant resulted in lower than expected production increase. Expect petchem to turn profitable in 1QFY17. By 1QFY17, total pechem production can be expected to reach 140-150,000MT.

Others: Other income was higher due to (a) INR400m of interest on income tax refunds, (b) ~INR900m of dividends received from ONGC and (c) foreign exchange gains or ~INR250m.

Debt/Equity stands at 0.9 and cash as of 3QFY16 stands at INR8-9b.

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Click below for Detailed Concall Transcript &

Results Update

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23 February 2016 59

Capex guidance for FY16/FY17 stands at ~INR17b/INR15b. In FY18 and FY19, total capex guidance stands at INR40b. The increase in FY18 and FY19 is due to new pipeline projects.

Update on Kochi-Mangalore-Bangalore pipeline: Management indicated that on the Mangalore leg, with all the RoW is in place, they are yet to get full consent on the two districts and some breakthrough is expected soon. Also on the Bangalore phase the entire RoW was also in place, but even after the favourable Supreme Court decision, clarity will only emerge after the Tamilnadu government’s final stand on this project. (Media reports indicate that Tamilnadu government wants to modify the pipeline route).

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REAL ESTATE DLF Buy Current Price INR 89 Target Price INR 120 | 35% Upside Bought back DE Shaw stake in DCCDL as part of preparation of DCCDL CCPS

transaction, which is ready to be shared with prospective investors in Feb 2016. DCCDL will have near INR120b of debt by March 2016 post unbundling of

existing debt structure where DCCDL has INR73b debt. Ongoing assets offer net cash flow visibility of INR140b albeit monetization

timeline would be contingent on market dynamics. DCCDL CCPS transaction doesn’t stuck in SEBI verdict in current format as Hons

Supreme court order has been in favor. Mahindra Lifespaces Neutral Current Price INR 463 Target Price INR 500 | 8% Upside Weak demand continued in the festive season across markets. Hyderabad was

one of the better markets while Nagpur and Bangalore were steady. Launch of the Andheri project was received well by the customers (70% of 0.23msf sold).

MLIFE received the approval for the 500 acres of DTA in MWC Jaipur and master plan is expected to be completed by 4QFY16.

Sumitomo has picked up 40% stake in MIPL for north Chennai SEZ and land has been transf erred to new JV.

It acquired 21 acres of land with development potential of 0.89msf at Palghar, Maharashtra for development of a new affordable housing project under the Happinest brand.

Oberoi Realty Buy Current Price INR 226 Target Price INR 349 | 54% Upside The largest contributor this time to both the top line, as well as the margins is

Esquire. So the project to date number stands at a little over Rs. 14,000 a square feet. Whereas if you will look at the numbers for the last couple of quarters, it's all at about Rs. 20,000 odd a square feet. So when the first time recognition is coming in, it is on the back of an average number of about Rs. 14,000 a square feet. So that's why you're seeing slightly lower margins.

The construction expense was as per line with the earlier quarters. What was critical this quarter was some premiums that they paid. In fact they paid close to about 400 crores of premiums during this quarter. This is all for the primary component event in Borivali. Then there was a payment made for the higher floors in Esquire, as well as for Enigma.

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Results Update

REAL ESTATES |

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23 February 2016 61

Exquisite and Esquire, Exquisite was under the old DCR, there were no fungible premiums or any of those paid. In Esquire it fall under the new DCR, so there is the fungible FSI which is getting paid, plus They are also loading some TDR on this building. So there is also the additional costs coming on account of that into Esquire. That's why there is higher land costs compared to Exquisite.

Glaxo's also again clear, they also received commencement certificate some time before the property comes into the market.

Some orders in the Supreme Court, which said that if the state government has not boundary the boundary then we cannot do any development deal. 10 kilometers. But this is only the applicable to any project, which is about 20 thousand Yes. If you restrict your construction activity to less than 20,000m and you don't have a problem. In Oberoi’s case, they have just about starting. So, they haven't yet crossed that 20,000m threshold

The Worli project is to be launched in 4Q and they anticipate Esquire to deliver by December 2017.

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RETAIL

Jubilant Foodworks Buy Current Price INR 1,021 Target Price INR 1,500 | 47% Upside Consumer sentiment largely muted. Volume deceleration YoY in 3QFY16 (SSG

for 3QFY16 stood at 2%). Pricing actions: Dominos took 3.8% weighted average price hike in

September’15 and 3% in Novemeber’15. Dominos have taken differential pricing after extensive consumer study. Price increase was taken only in those sku’s where price elasticity was high (as per the study done by the company).

TN flood effect: There are currently 50-55 stores in TN; impact not meaningful. EBITDA margin impacted by 110bps due to one-offs in staff cost (differential

bonus cost impact). Going forward the impact will be around 30bps. Adverting expenses marginally higher in the quarter (stood at 5% for 3QFY16). High rental expenses due to new restaurant openings and escalation as per

agreement. Payback period has been increasing for new stores as the new stores are now

opened in Tier-2 and Tier-3 cities. Menu additions: During the quarter, Dominos introduced Double Cheese Crunch

Pizza and Custard Bliss. While Dunkin’ Donuts introduced 5 new burger, 6 new donuts and 4 new coffees.

Technology: OLO now contributes 36% to delivery sales (27% in 3QFY15); Mobile ordering contributes 38% to OLO sales (21% in 3QFY15).

Discounting: Once a month offers now have increased to twice a month. Dunkin Donuts: Around 7% weighted average price hike taken on a YTD basis.

200bps drag on profitability for the company on a full year basis. The brand is expected to contribute to profitability at 120 stores (70 stores as on 3QFY16).

The opportunity in All Day Menu is less in Dominos than Dunkin Donuts. Some pressure on store signing – more pragmatic expansion Employee count: 30,328 as on 31st Dec’15. Guidance: Target to open 150 new Domino’s restaurants and 20-22 new Dunkin’ Donuts

restaurants. Capex: INR2.20b for FY16 (INR1.7b for stores and rest for commissaries, office

space, etc). Shoppers Stop Neutral Current Price INR 346 Target Price INR 420 | 21% Upside Quarterly Performance Demand environment: No dramatic change in consumer sentiment, better SSSG

due to company’s strategic offers & schemes during the quarter. Gross margin drop in SHOP due to the scheme ‘Choose your Own Gift’ run by

the company during the quarter.

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Results Update

Click below for Detailed Concall Transcript &

Results Update

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23 February 2016 63

Online: INR0.20b invested during the year. 2nd phase warehouse management system now will be worked on as phase 1 of Omni channel initiative is executed (by April will get to know about its success); refreshed website of SHOP already on air and new app will be launched in 1-2 weeks.

HyperCITY: Fashion continues to grow but at a slower pace. Drop in customer entry was due to the reduction of sizes of two big stores.

Others Debt has increased due to infusion of money in HyperCITY; Debt level to further

increase by INR0.2-0.3b by FY16 end. 8 property options sold for INR 1.25b; 11 property options still left. SALE period has been getting preponed every year to fight the online players. SHOP and Femina exclusive brand launched during the quarter. Guidance Outlook for FY17 soft; customers asking for value products. Stores: 2 stores to be opened in 4QFY16. 6 departmental stores and 2 HyperCITY

stores expected to be added in FY17. 8-9% LTL growth for departmental stores estimated for FY17. SHOP hopes to achieve 8% EBITDA target for departmental stores by 24-

30months from now. Titan Company Neutral Current Price INR 334 Target Price INR 360 | 8% Upside Jewellery Business Jewellery gross margin improved due to better brand mix. Spot purchase vs Gold on lease was 25%: 75% in 3QFY16. No material hedging

gains in 3QFY16. Benefit of hedging premium to come in 4QFY16. Jewellery store expansion continues with 12 stores added with ~ 54k sft. YTD Pan card regulation impacted studded jewellery sales vs. gold jewellery sales

(witnessed 20% growth) in Jan’2016. However management would wait to see few more weeks of data to establish any trend.

GHS contribution in sales growth in 3Q16 would be 5%. 1st week of activation account for 25% of total sales Wedding season in Q3 was very strong. GHS sales through tie up with banks has

not seen any material pick-up yet. Not likely to touch 100k sqft store expansion target for FY16. Should reach ~80ksqft.

Watches Helios stores continue to report healthy like to like growth. Watches margin impacted due to higher adspends and earlier commencement

of discount season vs Q4PY. Others Eyewear posted 2.4% growth due to muted performance during festive season

and weather conditions in South India (largest revenue contributor). Eyewear closed 8 stores and renovated 12 stores in 3QFY16. Sunglasses industry in India is ~INR3b. Cash Balance of INR10b. Other segment EBIT losses higher due to precision

engineering incurred losses and fragrance segment incurred higher ad spends.

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TECHNOLOGY

HCL Tech Buy Current Price INR 850 Target Price INR 1,000 | 18% Upside

Guided for stronger 1HCY16: HCLT had earlier announced 10 deals in the July-September quarter, only 2 of which have transitioned to steady state, and the ramp up in remaining deals will follow in the near term. That lends visibility of strong revenue pick up over the next couple of quarters. Based on this pick-up expected in IMS, it has guided for a strong 2HFY16 (erstwhile June-end year).

Retains 21-22% EBIT margin outlook, but for the next half: HCLT had earlier retained its full year EBIT margin outlook of 21-22%. However, with multiple factors that have affected costs in 1Q and 2Q of the current year, the company has guided for the band to prevail in 1HCY16. It expects to drive the levers of utilization and G&A expense optimization in order to maintain margins in the near term. Moreover, the absence of costs associated with the Chennai floods in 3Q, and material pick-up expected in revenue growth, there is visibility on margin expansion.

Headcount reduction: The headcount reduction during the quarter was not a function of lower demand expectation. The company has ample visibility of ramp up in deals over the next two quarters. Transformational deals can take up significant costs and resources when acquired, and hence don’t see increased allocation of manpower as the deal ramps up. Moreover, on account of changes in technology, reskilling efforts have been ongoing. Additional attrition would be caused because of the bunch of people who are unable to cope with these changes.

Various factors playing out in the application services space: Growth slowing down in the application services space has been largely on account of pressure in ERP and packaged applications. The company is seeing negligible growth in these areas. However, it has been strong growth in the areas of application modernization, middleware and analytics.

Differentiated positioning in Financial Services: Financial Services has been seeing a shift in spending patterns. While budgets continue to grow in the range of 3-4%, a higher proportion is being captured by Digital/new technologies. HCLT’s efforts to differentiate include: [1] Creating co-innovation labs with for customers, [3] Higher use of cognitive and automation tools, [4] Aiding clients with their transformational/legacy modernization needs, and [5] Outcome based models.

Volvo deal progressing well: HCLT’s deal with Volvo has been progressing well. The LOI was signed when it was announced in the previous quarter. Conversion to revenue is likely to happen 1QFY17 onwards (March-end year).

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Hexaware Tech Neutral Current Price INR 231 Target Price INR 250 | 8% Upside Guidance for CY16 In CY15, HEXW beat the NASSCOM guidance (12-14%) in both constant currency

and US D. It expects to beat the 10-12% revenue growth guidance for CY16 too. It guided for profitability in-line with CY15 full year profitability. It expects 2QCY16 and 3QCY16 to deliver the vast majority of the growth and 1QCY16 and 4QCY16 to be seasonally soft quarters. Dividend payout is likely to be similar to that in CY15.

Strong new deal wins New deal wins for CY15 stood at USD120m. This has been a significant positive

given the fact that deal wins from new customers in CY14 stood at a fraction of this amount. This gives the company a better footing to begin CY16 with.

Two fold strategy going ahead HEXW has simplified its strategy and will focus on two objectives: [1] Shrink IT:

Help clients knock off 30% in commodity IT; Target top30-50 customers of leading IOPs which are dissatisfied and cannibalize on their revenue and [2] Grow Digital: Harness all forms of data and modernize IT landscape for key processes; Investing in solution building.

Focus on larger deals HEXW has been focusing on building a pipeline of larger deals. It has been

deliberately walking away from smaller deals. This has also reflected in its revenues from APAC, which have seen a decline/sluggish growth for the last few quarters. However, the geography has reached the inflection point where work on new large deals starts to reverse the impact of shrinkage in the portfolio. This has led to growth in APAC, which can be expected to continue going ahead.

Focus on top 20 customers HEXW has been focusing on its top 20 customers and this metric to track

progress on client mining. During the quarter, this bracket saw 2 new additions. These customers were smaller earlier, and have grown through rigorous mining.

Wage hike impact to be seen in 4QCY15 too The company has altered its wage hike cycles. From now on, the impact of

offshore wage hike will be seen in 3Q and 4Q, and the impact of onsite wage hike would be felt in 4Q. Hence, 1Q will not see any negative effect, as it used to earlier.

Demand environment across segments 3Q saw some weakness in verticals like manufacturing and travel &

transportation. The management expects a pick-up in manufacturing in a couple of quarters. Growth in travel & transportation was muted because 2Q saw a sharp jump in revenue. The outlook for this vertical remains positive as airlines have seen huge savings because of subdued oil prices, which are translating into increased IT spend.

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Infosys Buy Current Price INR 1,126 Target Price INR 1,350 | 20% Upside Pricing environment: Pricing environment in traditional services continues to be

under stress. Pricing is on a structural decline led by cost pressures for clients, and the massive shift in businesses towards digital.

Bump in India business: Revenues from India grew by 24% QoQ CC in 3Q. This wasn’t driven by a one-time or exceptional item, but resulted out of multiple projects commencing and ramping up. Also, revenues from GST were not a part of growth during the current quarter.

the quarter, the management was also confident of achieving industry-leading growth in FY17E. Moreover, the vision for 2020 (USD20b revenue, with 30% operating margin and revenue productivity of USD80,000 per employee) is achievable. However, results would start appearing in the form of revenues first, then margins, and followed by revenue productivity.

No clarity on client budgets just yet: There is still little clarity on client budgets for 2017, as budgets are increasingly being decided upon on a quarterly basis. However, the general belief is that budgets would be flat to downwards. While cost cutting in the traditional business would be present as usual, spend would be repurposed towards transformational activities.

Vertical-wise demand outlook: The momentum in Financial Services has been strong, and INFO continues to win on vendor consolidation. It has seen three consecutive strong quarters. Retail could see thrust on smaller innovation projects as the medium of sales has been seeing a dramatic change towards mobility, and online. In manufacturing while automotive has been seeing great momentum in the areas of connected cars and Digital in dealerships, aerospace has been seeing a downturn as most design cycles have been completed.

Several margin levers in place: There are several margin levers in place – scope of improvement in utilization with progress in the ‘Zero Bench’ initiative, offshoring in areas like IMS and testing, optimization of subcontracting expenses and onsite employee costs, and automation.

IMS weakness: Was on the back of one-time effect, but overall IMS will continue to remain one of the drivers of company growth. The one-time impact of last quarter sat in this service line.

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Info Edge Buy Current Price INR 729 Target Price INR 1,060 | 45% Upside 99acres.com Revenues from 99acres.com declined by 6.7% QoQ (12.6% YoY). While the real

estate market in Bangalore/Pune/Mumbai remained good, Noida/Gurgaon have taken a big hit. The real estate market remains bogged down by depressed demand, low transactions, 50-60% decline in new launches and unsold inventory of 2-4 years.

The segment had losses of INR200m during the quarter, which is lower compared to INR255m in the previous quarter. The loss was on account of increased investments in platform, data quality and advertisement.

Competitive intensity has reduced in the real estate market. However, INFOE is cautious given the Quikr-Commonfloor transaction and fresh capital infusion in Housing.com. It will continue to spend on advertising, although not as aggressively as it did in 1H.

As measured by Comscore, 99acres.com has seen an average market share of 42-43% over the last 2-3 months. 45-50% of its total sessions are driven by mobile.

Naukri.com Topline grew 19.4% YoY, with continued strength in IT services hiring. However,

non-IT will be directly linked to the revival of the economy; which can potentially drive even better growth. Sectors like Financial Services and Infrastructure should see some pick-up as the economy revives.

Corporate sales margins were lower during the quarter on account of the bonus payments.

INFOE has been focusing heavily on new products. It now has 1500 live customers on career site manager, and a few hundred customers on referral hiring manager. It will continue to invest in augmenting features and functionality on existing platforms to strengthen positioning.

Zomato.com Zomato.com has been aiming to drive profitability through [1] Ramp up in the

search business, [2] Driving higher ordering revenue and [3] Cost rationalization. With cost optimization more or less done, it now expects breaking even to be driven by the first two factors (majorly second).

Monetization in the ordering business is relatively easier for Zomato.com given the fact that it has traffic flowing on the core business – leading to lower cost of customer acquisition. Moreover, its model offers higher sustainability as it offers no discounts/subsidies and has a higher average bill rate compared to peers.

Jeevansathi.com Jeevansathi.com saw an increase in paid customer by 27% YoY. This resulted in

21% YoY growth in revenue. Profitability also improved in Jeevansathi.com as the segment reported an EBITDA loss of INR20m in 3Q, compared to INR60m in the previous quarter.

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KPIT Tech Neutral Current Price INR 124 Target Price INR 165 | 33% Upside Expanded margins at a sustainable level: EBITDA margins expanded by 500bp

over the last three quarters (60bp in 3Q). The improvement during this quarter was primarily driven by [1] Operational efficiency: progress in the areas of net reduction of people across levels, and fresh graduate hiring, and [2] INR depreciation: 30bp. The management expects further improvement of 50bp in 4Q, and sustenance of margins in FY17. It sees levers in utilization (potential to im prove by 3-4pp), offshoring (which inched up 3.5pp during the quarter) and SAP margins reaching company average. It however, expects the headcount reduction to cease 4Q onwards.

Automotive engineering to continue driving growth: Performance has been strong and consistent in automotive engineering (minus PES). The company sees this continuing as it has a healthy pipeline driven by growth in infotainment, electronics in powertrain/battery management, and standardization.

Additional avenues for growth in ITS: ITS has been primarily supplied to government needs. It was rolled out in ~5,000 buses in the previous year. The company has an order book of an additional 10,000 buses. However, the delivery of the order remains uncertain as the government usually notifies on the same a month prior to delivery. To mitigate the risk of delays and less visibility, KPIT has been looking at two tangents for growth: [1] Other emerging geographies, and [2] Private sector orders. Both of these initiatives are expected to see some progress going ahead.

Revolo seeing progress: The Prime Minister recently inaugurated buses for the use of members of Parliament that are equipped with Revolo. KPIT has a complete range of products from plug-in to hybrid. While the product is being testing at the moment, initial results have been encouraging. The company is in discussion with multiple OEMs and body builders and a clear picture is expected to emerge in the next 3-4 months.

Focus of 2H on driving growth: KPIT has been making investments in the areas of products & platforms, IMS, and digital technologies. It expects these investments to start bearing fruit going ahead. Moreover, focus on growth is expected to revive as the company has initiated some actions including investments in account managers, engineering + IT solutions, and acquisition of new enterprise accounts. The management expects revival in growth.

Multiple issues looming over growth: While 4Q was affected by project closures in A&E, and furloughs in IES, there are other issues which have been weighing on performance lately are: [1] 80% YoY decline in YTD revenues from ITS, [2] Pressure in revenue from the top client, [3] Spend cuts reflecting in revenue pressures in the Energy vertical (10% of total revenue). There is uncertainty over the improvement of any of these issues. The company’s growth initiatives are likely to find alternate avenues for growth in this scenario.

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Mindtree Neutral Current Price INR 1,421 Target Price INR 1,600 | 13% Upside Po sitive guidance for 4QFY16: MTCL expects revenue growth in 4Q to be better

than that in 3Q, excluding the acquisition of Magnet360. At the same time, it also expects utilization to pick-up in the short term and result in margin expansion in 4Q. However, this too excludes Magnet360, given it operates at a lower margin than MTCL.

Demand environment: Although there has been a delay in the freezing of client budgets for 2016, MTCL sees no negative tone in the demand environment. Despite price competitiveness in renewals in traditional services, client budgets overall are not expected to see any negative turn.

Vertical-wise commentary: The Banking and Financial Services vertical has been seeing fairly strong competitiveness in terms of pricing. MTCL’s investments in productivity and platforms are in the mature stage and it has been seeing a good funnel and traction in the vertical. Insurance has been seeing healthy demand driven by P&C players wanting to adopt real-time packaged software. expected to be better. Travel & Hospitality has been seeing increased Digital investments, and that is being well reflected in MTCL’s deal wins and pipeline. Technology, Media and Services is expected to see positive single digit growth post two years of flatness.

Digital continues to see strength and focus: Multiple clients are currently in the experimental stage on Digital. This has been characterized by small projects, which later turn into larger deals. For example, one of MTCL’s customers has gone to Stage III of Digital (support of Digital initiatives) from Stage I (experimental) and Stage II (roll out). Stage III deals are usually multi-year, multimillion dollar and provide annuity based revenue stream. MTCL has a first mover advantage in Digital and should benefit from this going ahead.

M&A activity to not see the same amount of acceleration: In order to fill some of the whitespaces that MTCL had, it acquired four companies in the last year – addressing various gaps and matching the demand environment. Although it will continue to address key gaps through inorganic activity, such acceleration is not likely to continue over the next 12 months.

Mphasis Neutral Current Price INR 421 Target Price INR 520 | 23% Upside USD61m TCV deals signed: MPHL has announced USD61m TCV of deal wins

during the quarter. The entire amount corresponds to new deal wins, and doesn’t include any renewals. Of the total deal wins during the quarter, 46% was contributed by MPHL’s focus areas of IMS, AMS, Digital and GRC. This took the total LTM deal wins to USD309m; which should help grow the direct international business faster than the market in FY17.

Digital Risk to hurt: After three consecutive quarters of strong growth in Digital Risk, the business turned flat during 3Q. On account of a large project being executed in this quarter, revenue is expected to decline in 4Q. Digital Risk is expected to head back towards its foundational run-rate of ~USD30m.

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Direct International revenues to grow above industry in FY17: MPHL expects to grow its Direct International business to outgrow industry average in FY17. The revenue growth momentum, deal wins and pipeline all drive confidence towards that end.

Target margin band maintained: With the domestic BPO business off the portfolio, and higher incremental revenue from the Direct International business, the company has been seeing a better revenue mix. This leads to confidence of maintaining its EBIT margin guidance of 13-15%. While the management aspires to set its long term EBIT margin in the range of 14-16%, more clarity on execution and time frames will emerge at the end of next quarter.

NIIT Tech Neutral Current Price INR 470 Target Price INR 610 | 30% Upside Digital Push: Digital currently contributes 15% of NITEC revenues; and has

increased steadily over the last few quarters. NITEC’s focus on Digital is on the areas of [1] Customer experience, [2] Analytics, [3] Cloud and [4] Digital integration. It has made significant progress in all these areas. It has been seeing strong traction in customer experience in the Travel vertical, momentum in analytics in the Insurance vertical and added capabilities in digital integration on the account of its acquisition of Incessant.

Outlook by segment The company has been seeing good growth in BFSI, led by new insurance

deal wins in the US, and strong growth in NITL. The travel and transportation space has been seeing a good amount of

growth from Digital. Growth has been appearing to be lower because of the closure of the Airport Authority of India project. However, international has been growing well (except in 3Q). The situation for airlines has been favourable as profitability improvement has been led by the decline in oil prices. The outlook for the vertical looks good and is substantiated by the fact that the Travel vertical made up for 3 out of the 4 deals won during the quarter.

4Q to be soft: Revenue growth in 3Q was weak on account of seasonal weakness, and completion of projects in the Transport vertical. However, the softness is expected to continue in 4Q, despite the uptick in fresh order intake. The management expects projects to ramp up in the beginning of FY17. This would consequently lead to lower than industry growth in FY16; but the management is confident of achieving its industry-level-growth target in FY17.

Growth trajectory of margins to continue: Margin improvement during the quarter was driven by decline in domestic revenues. Moreover, SG&A spend declined to 19.1% of total revenue from 19.6% earlier. This was also accompanied by a reduction in the S&M headcount (excluding GIS) to 136, from 144 in the previous quarter. The reduction was a function of mid-year reviews and consolidation of the domestic business. Margin expansion however is

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expected to continue despite the soft revenue growth expected in 4Q, and the management expects an exit rate of 18.5%.

Persistent System Neutral Current Price INR 651 Target Price INR 700 | 8% Upside Adjustments needed in the ISV portfolio: Business from ISVs has been under

pressure on account of reduced requirement of effort. During the quarter, the additional factor in play was that the product development work associated with Aepona was shifted from Intel to within Persistent. Going ahead, PSYS sees two opportunities for growth in ISVs, by targeting: [1] New customers, [2] New spend in existing cu stomers. Some adjustments would have to be made to the current ISV portfolio with respect to these opportunities in order to see increased momentum.

IP – not only aimed at end-of-life products: PSYS has traditionally aimed at acquiring products that are mature and at the end of the lifecycle. However, recent acquisitions have been of products that are relevant to market conditions and earlier in the maturity curve.

Deal sizes in Digital getting bigger: Deal sizes in Digital have consistently grown larger. While earlier, deal size averaged in a few hundred thousand dollars, the company is seeing discussions for deals in the range of USD2-3m. The increase in size is largely a function of more deals in integration and maintenance.

Won’t shy away from investing for growth: PSYS has been seeing margin pressure directly proportional to its growth and aspiration in the EDT business. The company feels the need to continue investing in Sales & Marketing, thought leadership, and recruitment of tale nt. The opportunity in the next few quarters is bright and PSYS won’t hesitate in investing to capture long term growth.

Hiring plans on track: PSYS is on-track in its recruitment plan of 1,000 net additions in FY16. 4Q should see hiring that achieves the annual target. A large chunk of the addition is expected to be comprised of freshers.

FY17 outlook: PSYS sees a continual in the traction it has been seeing in EDT. Its focus on Data, APIs and experiences has been creating good traction. Moreover, it has been seeing a shift in positioning with clients – from deployment to partnering in product development.

Tata Elxsi Buy Current Price INR 1,898 Target Price INR 2,000 | 5% Upside JLR still contributes 20% to transportation revenues, which is growing at a pace

similar to the overall revenue growth. Company is consistently making efforts to de-risk itself from JLR.

Medical electronics still a very small part of business in terms of revenues, however, there seems to be better visibility, looking at how things are going. TELX has invested in it since many years.

In terms of competition, management highlighted that TELX doesn’t compete in areas where TCS is present. In general, TELX doesn’t do IT, but does engineering

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and design – as far as bigger competition is concerned, the size of orders doesn’t attract them.

Current headcount stands at 4,600 employees and attrition during the quarter was close to ~15%.

Outlook: Management highlighted that Business gives visibility over a quarter or two maximum, but there are leading indicators that are helpful in gauging the growth rate. Management is confident of continuing this steady pace of growth led by automotive and broadcast while in future medical electronics and Internet of Things (IoT) are expected to be big opportunities. Management highlights that the near term target is to touch 30% growth YoY, with margins expected to remain at ~24%. Company has an ambitious target to clocking INR30b revenues in few years.

TCS Neutral Current Price INR 2,320 Target Price INR 2,575 | 11% Upside Multiple issues reflecting in revenue growth: TCS’ revenue growth was

impacted by multiple factors during the quarter. While the regular aspects of seasonality and furloughs existed during 3QFY16, the company faced additional issues on account of [1] Increased volatility in India revenues, [2] Declining revenues in Japan and Diligenta, and [3] Chennai floods.

May not recoup entire loss in 4Q: TCS lost 5-6 days because of the Chennai floods, in addition to which it saw increased absenteeism for a few days. This was expected to cause material impact to revenue growth during the quarter. The management refrained from quantifying this impact. However, not all of the lost revenue will be regained in 4Q, as the project-based work can’t be made up for, and are lost contracts.

Improvement in one out of four pain points: TCS has been citing stress in three areas – Diligenta, Japan and Latin America. These areas have drawn overall performance lower despite strong growth in other areas. While Latin America stabilized in the previous quarter, it saw 16.3% QoQ growth during 3QFY16. While one issue has resolved for TCS, the decline in Diligenta and Japan is expected to continue for at least another quarter. Energy is expected to bottom out by the end of 4QFY16.

Strongly placed in Digital: TCS has been making significant progress in digital, evident from the growth in the area, and deal wins. Digital, which is now ~13.7% of total revenues, grew by 4.4% QoQ CC. Although the growth was lower than that in the previous quarter (10.7% QoQ CC), it was strong given seasonal weakness during the quarter. TCS has been seeing tremendous traction in all of its platforms, which has been contributing to the pull seen in Digital.

Digital still away from moving the needle on overall metrics: At the moment Digital contributes to 13.7% of total revenues. It is expected to grow very rapidly moment; it is too small to make a difference to overall metrics. For example, the order book is still dominated by multi-year deals in traditional areas, and there has been no significant change in the cumulative duration of the order book.

Awaiting clarity on client budgets: TCS has been citing a strong demand environment across the board, for most areas that it focuses on. Although it

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doesn’t see any cuts in client budgets, it is still getting inputs on the same; and would cite an outlook for FY17E only in the next quarter.

Tech Mahindra Neutral Current Price INR 440 Target Price INR 550 | 25% Upside Telecom weakness to continue in the near-term: The trend of delayed decision

making is expected to continue in the near term. The pressure on service providers in the voice business, budgetary control and newer areas of capital projects are likely to continue driving volatility for a couple of quarters. The pressure exists through the industry and TECHM hasn’t lost market share in telecom service providers.

Positive outlook on Enterprise: The management sees growth in Enterprise being driven by large deals and the opportunity in Digital transformation. The company has been seeing changes in the complexion of deals – led by Digital playing a part in how deals are structured. With a continual in momentum, it expects to grow revenue from Enterprise at industry rates.

Weakness in top 5 accounts: The decline in top 5 customers during the quarter was led by [1] Negative impact of cross-currency movement, [2] Furloughs and [3] Ramp down in certain accounts.

Deal pipeline remains healthy: TECHM won deals with a TCV of UD275m during the quarter, taking the number to ~USD1b in the last three quarters. This is inline with deal wins seen in the last few quarters. Deal wins during the quarter continued to be dominated by Enterprise, which constituted to ~60% of deals wins in 2Q.

Margins outlook: Margins are likely to be negatively impacted in 4Q on account of wage hikes that would be effective January 1. While the appraisal process is completed, the procedure is on the way to completion. Margins in FY17 are likely to be driven by productivity improvement, cost optimization and offshoring. The company intends to mitigate most of the negative impact of wage hikes in FY17E.

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Wipro Neutral Current Price INR 547 Target Price INR 630 | 15% Upside Competitive pricing in large deals: WPRO cited that there has been increasing

pricing pressure in large deals, led by growing competitive pressures. Both, deal sizes and value of deals are under pressure. In this environment, WPRO has been trying to offset the pressure by increasing the use of automation. It has been reducing the headcount across all traditional deals using HOLMES as the backbone.

Update on HOLMES: WPRO is currently running 12 active engagements on HOLMES, some of which have moved to production. It has seen productivity gains in the range of 25-35% on account of this platform. It released 4,300 employees as a result, which are now being re-trained and re-deployed to other areas.

Energy continues to be a pain-point: The Energy vertical continued to remain weak on account of the decline in oil prices. Although WPRO has been focusing on increasing wallet share, and has seen itself on the positive side of vendor consolidation, overall spend has been under pressure. Accounts have scaled down to such an extent that the number of E&U accounts above USD100m have come down from 4 last year to 1 now.

Top account issues: WPRO expects the top account to continue moderating for another quarter. Although it has won consolidation deals, and is responsible for ~85% of the technology needs, growth is yet to revive.

Margin levers in place: On account of the capacity creation, resulting out of the automation-led freeing up of resources, utilization excluding trainees dropped to 78% in 3Q, from 82.3% in the previous quarter. In the short-term, as these employees get re-deployed, utilization will bounce-back and lead to margin expansion.

Focus on long-term over short-term: WPRO called out some areas where it will focus its investments including IMS, Digital and Automation. These spaces require significant investments, and WPRO won’t hesitate to make them in the medium to long term to save upon margins.

Client mining strategy beefed up: The management spoke of several steps that it has taken strategically in order to solve WPRO’s core issues. In order to improve its client mining, WPRO has been beefing up its account management, where it has transformed a large number of account partners including relationship managers, domain experts, and consultative sales. It has also been working on making the organization more nimble and agile so it can react to customer needs faster.

Carved out new unit - MIT: WPRO has formed a new unit, Marketing, Innovations and Technology (MIT), which will be headed by its Global Infrastructure Services Head GK Prasanna. The unit would be involved in strategically develop IP, and would be central to govern IT and monetize IP in a non-linear way. HOLMES and robotic automation would also get integrated here, and the ecosystem would extent to universities, venture capital and startups.

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TELECOM Bharti Infratel Buy Current Price INR 3,73 Target Price INR 485 | 30% Upside Data installations have tripled over last one year but most data sites continue to

come from loading rather than standalone data sites Site additions were impacted by an operator who could not renew spectrum There was minor impact on revenue/costs due to Chennai floods Other income has been impacted due to change in rules related to recognition

of long-term capital gains on debt funds. Tendering process for smart cities would start soon and might give BHIN an

avenue to utilize its cash.

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UTILITIES JSW Energy Neutral Current Price INR 66 Target Price INR 78 | 18% Upside Board approved investment in 240MW Kutehr hydro power project at a cost of

INR29b Guidance on ST realization for FY17E by 4QFY16. Large part of merchant capacity is tied-up through ST contracts. Due-diligence is on for acquiring Monnet Power and JP Bina power project. The mining performance has been encouraging with the total 1.7 Mn ton of

lignite being mined during the quarter, work on Jalipa is progressing satisfactorily.

The outlook for the sector is a concerned for a short term as it will be impatcted in terms of sluggish demand, however the kind of policy that GOvt has taken in terms of making the fuel availability on domestic side.

NHPC Neutral Current Price INR 20 Target Price INR 22 | 8% Upside 490MW of project will be commissioned by end FY17E, adding INR5b to

regulated equity (INR80b of CWIP to be capitalised). Management guided for Kishenganga (330MW) project to be commissioned by 3QFY17E.

Debtor position remains elevated at INR33.5b, vs INR29b as at March 2015. Of this, receivable from state of J&K is INR16.4b.

NHPC is hopeful of recovery of dues from J&K by March 2017 as it is covered under UDAY scheme.

Capex target of INR52b in FY17E as no major project pipeline. NHPC started work Teesta IV project in November 2014, while attempt to restart the work at Subhanshri Lower p roject has not bear fruits.

Parbati II (800MW) and Kishanganga (330MW) would be the projects under construction, as work on S. Lower remains uncertain (2GW). Parbati II (Dec-18) and S. Lower are as it is targeted for commissioning in FY19E, limiting any near term growth options.

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NTPC Buy Current Price INR 130 Target Price INR 171 | 32% Upside Telangana power project approved at a cost of INR100b+ and Mandakini coal

block is issued for the project. Also, in-principal approval is given for linkage in the interim.

NTPC will be allowed to sell un-requisitioned power and benefit would be shared between beneficiary and NTPC in the ratio of 50:50.

Capital expenditure required for meeting recent environment norms is INR50lac/MW.

NTPC targets 3360MW of Solar capacity by 2020. Of this, 760MW of capacity is already ordered while PPA are signed for 250MW only.

Capacity commercialization target for FY17E stands at 5000MW Reliance Infra Buy Current Price INR 418 Target Price INR 597 | 43% Upside Mumbai distribution area: Recovered INR2.2b arrears in 3QFY16. Infrastructure portfolio:

A. Roads: All the eleven projects are revenue generating and traffic growth is in the range of 6-7%.

B. Metro: Mumbai Metro SPV registered net loss of INR490m in 3QFY16. Fare fixation committee (FFC) has approved tariff hike from INR10 to INR110 but recommended to explore other option to garner revenue, support from government.

Cement: Current installed capacity of 5.8mtpa operated at a utilisation of 65% in 3QFY16. Division reported net loss of INR440m in 3QFY16.

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OTHERS Arvind Ltd Buy Current Price INR 279 Target Price INR 350 | 25% Upside Outlook: The management has guided for 4QFY16 blended revenue growth of 9-

10%, led by 28-29% growth in brands and retail business and 2-3% growth in textiles business. Management opined that performance for the quarter satisfactory considering challenging domestic markets. It expects 4QFY16 to show stronger performance led by improving consumer sentiments. They expect textiles to grow by 7-8% and brands and retail to grow by 18-20% in FY17. Brands in 4-5 years should garner 16-17% margins with specialty retail garnering 10-12%.

Management believes consumer sentiment during 3Q was challenging but is seeing the same improving during 4Q and accordingly expects robust growth led by investments being in place, demand and ramping up of newly opened brands and retail stores. Overall as an industry, it is seeing a pickup in demand and believes L2L growth can go upto 5-7% in next few quarters as against 1-2% currently.

Debt as at 3QFY16 stood at INR37b and management expects a reduction of INR1.5b in 4QFY16 since all investments have been done.

Online sales currently contribute around ~6% of revenues which management expects to grow to 8% next year.

Current capex plans for FY17 stand at INR5b – largely towards brand and retail. App launch and digitization M obile app for brands and retail is expected to be

rolled out in in Q4FY16 or April 2016. Century Plyboards Buy Current Price INR 147 Target Price INR 190 | 29% Upside 3QFY16 was a season characterized by multiple festivals – Dussehra, Diwali, all

falling in the same quarter (normally it is spread over two quarters), which led to there being too many holidays, impacting productivity.

Ce ntury Ply exercised restrained on reducing prices, those were maintained as against competitors which went for price reduction. If prices were reduced by 5-10%, growth would have been higher at 10-15%.

On a nine month basis, prime segment saw growth of 9%, Sainik segment saw a volume growth of 12% and others de-grew close to 2%.

Company is passing through very challenging period where there are many contrastive signals, however it is not just trying to retaining volumes and profitability, but also making the right investments like products, MDF, particle board, investing in other countries – Laos, Myanmar, Indonesia and Vietnam so that in future when the opportunity comes, company is ready for a superior performance.

Real estate as a sector is slow, especially the ones in the premium apartment segments, so company concentrated on mid-segment, especially Sainik. There

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was some migration from the premium segment to mid premium segment, there is some decline in premium brands and growth in the Sainik brand.

Plywood - investing in brands, through advertisements which is there for all to see, especially for Sainik , which is seeing dedicated advertising.

With the introduction of GST that will be the bigger segment where growth will come, acting as an entry level product for people migrating from unorganized to organized segment. Thus, company is tweaking its strategy to focus on this segment given the slowdown in high-ticket segment. GST is expected very soon, do not think it should go beyond June 2016. The moment is introduced, CPBI is ready with the capacity and brand in the mid segment through Sainik, which by that time shall be household names.

Particle board capacity shall be ready in March this year, 3 months ahead of schedule while MDF is expected to commence December 2016 or January 2017.

4QFY16 outlook – performance will be on similar lines. Not foreseeing any big jump in growth. Year should end on close to ~5% growth. On margins front, should continue to see improvement as raw material prices are benign. Management highlighted that based on their interactions with various industry bodies and people close to government, it expects budget to have a positive impact on the sector.

FY17 growth completely demands upon revival of real estate sector, if it does revive, growth can touch double digits, else the same shall remain slow. EBITDA margins of ~17% is sustainable.

Coromandel International Buy Current Price INR 167 Target Price INR 260 | 56% Upside Management highlighted that the new plan of subsidy on organic manure of

INR1500/ton that will be provided by government can be a major positive in terms of reducing overall costs and driving volume expansion, however the details of the exact scheme are yet to be notified. Management also expects the recently announced crop insurance scheme to impact positively.

Management highlighted that net debt to equity as at end of 3QFY16 was 0.06x as against 0.17x at end of 3QFY15.

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Container Corp Buy Current Price INR 1,121 Target Price INR 1,605 | 43% Upside Total empty haulage expenses for 3QFY16 amounted to ~INR715m. The management has guided that while 4QFY16 volumes would be marginally

higher than the 3QFY16 volumes, they are expected to be lower than 4QFY15 volumes. Near term operating environment for the company continues to look weak.

Operations at Pantnagar have started, and it was one of the reasons of a QoQ jump in domestic volumes.

Khatuwas terminal will become operational shortly. The transit operations have already been started partly. Of the total budgeted capex of ~INR4.8b, upto INR1.5b have already been invested.

Apart from the 15 projects to be commissioned by FY17, the management has identified another 10 projects. Land acquisition for these projects has already started. The total planned capacity will increase to 7-7.5mTEUs.

Of the INR60b capex guidance for FY16, ~INR54b capex investments have already been made. While the management guided that they do not consider taking debt on CONCOR’s balance sheet as prudent, they are open to taking debt on projects being carried out under JVs.

During the quarter, the company had increased its authorized capital. The management highlighted that this doesn’t mean that they will raise cash in the near term necessarily; the authorized limit was raised to give some headroom for capital raising should any investment opportunities arise.

Market share decline: CONCOR’s market share declined in EXIM volumes a little bit. The management attributed the decline to competition from private players, particularly integrated operators like APL and Hind Terminals which were able to cross-subsidize haulage charges. Also, the market share of containers transported through roads ate into the overall market share of containers through railways.

Succession: The board has already appointed the new Managing Director of the company (name not announced).

Eveready Buy Current Price INR 216 Target Price INR 387 | 79% Upside EVRIN’s 3QFY16 revenue was impacted by flattish growth in battery business,

sharp decline in flashlights compensated by healthy growth in LED business. EBITDA margins expanded due to lower raw material cost and benefits of

operating leverage. Eveready recently bid for Madhya Pradesh government LED bulb tender which is

its first tender in government order. It has been declared L2 and expects order of 7m bulb pcs to be executed over 6months. The bid price is INR64.6 per LED bulb and its impact in revenue is expected to be seen in 1Q and 2QFY17. As per industry sources, the total LED tender opportunity available in next 12months stands at 150m pcs of bulb which will be either in 7W or 9W category. The company intends to participate in more such orders during FY17.

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Flashlights witnessed ~13% volume decline in 3QFY16 as it is largely rural driven business adversely impacted by poor monsoon. The company has also launched economy range flashlights which are expected to gradually pick up in terms of growth in FY17.

Eveready currently is present in appliances segment through products like rechargeable fans and lanterns. Management plans new launches in the segment like ceiling fans and kitchen appliances. The products offered will be comparable with the likes of Bajaj Electricals and Havells. The products will have a soft launch in March 2016 through ecommerce an modern retail, which management believes is an effective way of reaching consumers, given the already strong brand equity of EVRIN.

Gateway Distriparks Buy Current Price INR 212 Target Price INR 453 | 114% Upside Update on Gateway rail JV Management has indicated that it will continue to negotiate buyback of stake

from the Blackstone in its rail business JV. Rail Division takeaways 3QFY16 operations: Overall the market was impacted due to decline in exports

due to weakness in global trade. Rail double stacking index stood at around 63%. On average, the company is incurring INR10m/month as empty haulage costs.

Viramgam terminal is expected to commence operations by August 2016. The management expects 5-7% savings in rail haulage charges due to double stacking benefits provided by the terminal. We believe this will be a significant margin booster well ahead of dedicated freight corridor (DFC) commissioning.

At Faridabad ICD, the management expects to exit the current fiscal year with four digit volumes.

Ludhiana market declined by 18%, led by 25% decline on the export side and 11% decline on the import side. The management highlighted that there were pricing pressures in the region due to entry of competition.

The management stated that while overall margins and market share in Ludhiana have improved, the overall market declined impacted the performance. Market share in Ludhiana stands at ~45%, while market share in NCR is 11%.

Rail business income tax rate will reduce from FY18 as the company will start receiving 80-IA benefits.

CFS business takeaways 3QFY16 operations: Overall the volumes declined due to weaker macro

environment and volumes loss due to Chennai floods. Volumes have returned to normal levels in January.

Chandra CFS in Chennai resumed operations after a period of almost one year. The company had incurred about INR50m in expenses since the CFS closure.

CFS business growth will be driven by new ports. GDPL had acquired new 48.5 acres land at Krishnapatanam to build a new CFS. GDPL will also provide

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warehousing services at this CFS. The first phase of warehousing is expected to commence by September 2016, and the CFS businesss by the end of the year. The management expects to reach more than 10,000 TEU in the first year.

Container capacity of this port is estimated to increase from 1.2m TEU to 6m TEU in the next five years. Some volumes will also shift from Chennai port which is over congested.

Gujarat Pipavav Buy Current Price INR 148 Target Price INR 198 | 34% Upside Customers shifting back to Pipavav from the line that moved to the other

competing port in West Coast. This helped Container volume. Additional coastal service (Shreyas shipping) begun operation and now operate

3 services to South Coast from Pipavav. Bulk volumes are also lower because of declining coal imports. Also, fertilizers

and minerals volumes too have been seeing moderation. 7 Ro-Ro calls were handled during the car consisting 4,500 cars. 1.35m TEUs of capacity expansion will be operational from 1QFY17. No major

disruption is expected due to commissioning of new cranes. Interglobe Aviation Buy Current Price INR 840 Target Price INR 1,474 | 76% Upside 3 aircraft added this quarter: IndiGo’s total fleet size increased to 100 aircraft during the quarter. The

management did not give any schedule on the new A320Neo delivery schedule following recently announced delays.

Indigo has 22 aircraft on short term leases, including aircraft taken from Tiger Airways. While 17 of the aircraft have already been received, 3 aircraft are expected to be inducted in 4QFY16.

Shift to component accounting: The company has shifted to component accounting this fiscal, where in

maintenance costs are taken for aircraft on financing lease and capitalized in the balance sheet. These additions are then amortized over the expected remaining life of the lease. The management stated that this had led to a increase in depreciation rates.

Increase in employee costs: Employee costs increased by ~50% in 3QFY16 driven particularly by the

recruitment of pilots and cabin crew in anticipation of deliveries of A320Neos. The management also attributed the increased in costs to allotment of ESOPs to

employees that amounted to ~INR237m in 3QFY16 and ~INR407m in 9MFY16. Pass-through of decline in fuel expenses:

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Average fare declined to INR4,517 in 3QFY16, down ~15% from INR5,262 in 3QFY15. The management cited that average fares had declined due to the pass-through of decline in fuel costs to stimulate demand.

Just Dial Buy Current Price INR 532 Target Price INR 830 | 56% Upside Management highlighted slowdown in new campaign additions is due to lack of

emphasis on augmenting the sales force which had impacted 2QFY16 performance as well.

They have initiated to address the issue by adding close to 150 employees in the sales team in 3QFY16 and will add 2000-2500 in the next 9-10months with close to 150-200 being added each month, which they believe shall lead to listings growth, resulting in growth coming back from 1QFY17 and FY17 seeing a 25% topline growth.

It takes atleast a quarter for the employees joined in one quarter to show results.

Company plans to have a product launch of the improved version of Search Plus (improving certain portions such as the transactions user experience) and JD Omni in February 2016, kicking off the ad campaigns to increase user engagement through mass communication (spending INR1b over four quarters).

JD Omni and Search Plus will be synergistic with the existing Search business by transacting, managing vendor’s inventory, logistics and providing him with a domain.

Search Plus has started contributing to revenues through affiliate transactions, though it is a miniscule portion currently. Company is receiving good response regards to the customer satisfaction.

Company has increased Just Dial ambassadors and the increase in employee numbers should be visible in 4QFY16.

Kaveri Seeds Neutral Current Price INR 354 Target Price INR 400 | 13% Upside KSCL plans to manufacture ~9-10m packets of cotton seed in FY17 and has

guided for sales of ~6.5-7m. Management expects FY17 to see growth bounce back led by normal monsoon,

regaining market share in credit markets like Andhra, Karnataka, Telangana, market share gains in Maharashtra and Gujarat, due to intensifying sales efforts and strong product portfolio.

It believes high yielding products like Jadoo, Super Duper and ATM to contribute significantly over next few years with ATM being as successful as Jadoo.

It expects g rowth of 20% in cotton and more than 20% in other seeds. Other conference call highlights The accounting policy for provision of doubtful debts has been changed from

ageing of 3 years to 2 years now.

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Management highlighted that the pink bollworm has proved to be a concern in some parts of India li ke Karnataka and Gujarat however the overall places impacted is less than 1% of total area of India. This might be due to dry season that places witnessed, which is conducive for pink bollworm. Government and seed companies are working on a solution to it.

Company gained market share in corn in places like Bihar, Andhra. Management commented that it is seeing pickup in HDP variety seeds. It sold

around 20,000 packets of the same and expects the number to go upto ~0.8-1m in next 3-4 years.

Capex done during the nine months was INR150m, which is complete for FY16. For FY17 and FY18, capex should remain between INR150-200m.

PVR Buy Current Price INR 737 Target Price INR 965 | 31% Upside Margins were impacted by increase in entertainment tax - entertainment tax %

of gross box office grew from 20.2% to 22% while as a % of net box office grew from 25.4% to 28.1% YoY and retrospective cost of INR450m due to impact of amendment in Payment of Bonus Act.

During the quarter, PVR Pictures has distributed few films on which it has earned an average commission of 3-5% resulting in lower operating margins for the quarter on a consolidated basis (Dilwale and Singh is Bling distributed in few regions).

Footfalls during the quarter posted 3.1% growth to 16.5m impacted by below par performance of some movies.

Content like ‘Bajirao Mastani’, ‘Prem Ratan Dhan Payo’, ‘Dilwale’, ‘Tamasha’ and ‘Pyaar ka Punchnama 2’ contributed 43% of net box office in 3QFY16 as against top 5 movies of 3QFY15 which contributed 56% then.

Like to like footfalls de-grew 1%. Occupancy for the quarter stood flat at 34%. ATP grew 8% YoY to INR200 and SPH was up 10% to INR74. Gross margin in F&B

rose to 75% from 72% in 3QFY15. Advertising revenue posted robust 28.6% YoY growth to INR693m on account of

the high-profile content. Management highlighted that 3QFY16 is generally the strongest quarter on

account of festive season, product launches across various industries, which coupled with the movies starring prominent actors leads to higher yields and strong advertising.

Bollywood contributed 56% followed by regional content 24% while Hollywood was at 20%.

3Q is the strongest quarter marked by seasonality of festive season and strong releases.

Management highlighted that 4Q is generally weak however this year it should show growth due to low base – 4QFY15 had the Cricket World Cup.

Management has guided for 53 screen additions FY16 and continues to guide for 60 screen additions (ex. DT Cinemas) going forward.

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Sintex Buy Current Price INR 75 Target Price INR 145 | 92% Upside The management had forecasted 20% revenue growth and 20% profit growth

for the whole year. The commodity prices have dropped substantially, beyond imagination. No one thought that crude would be trading at $30 and would be 12-year-low. So things happen some times, which is out of their forecast or exceptions. They do not expect any more decline in commodity prices. In that scenario, they expect top line growth of about 15% with the better or equivalent growth on the bottom for the whole year.

China definitely affects everyone, but it affects more on a stock exchange rather than the – or financial market, debt market rather than immediately affecting the business. The business impact of China is long term, and initially, for at least, next two quarters to three quarters, most of the manufacturing industry would not be affected. As far as Sintex is concerned, currently, they have very little to do with China, but once the yarn division starts, China is definitely one of the major customer.

People are switching to compact yarn from the older technology. So the demand today, if you see, mostly in China has been subdued, but the compact demand has been quite strong. Basically, on a final counts as well as especially value-added counts died as well as double yarn or like stretchable yarns. So they are producing value-added and high-quality yarns, plus they are also going to produce yarn for different segments like knitting and weaving of textile. And that would definitely broaden their customer base. They are not looking at China alone here they expect China to play not more than 25% of their sales in a best case scenario. And in worst case scenario, maybe 10%. So the world is a market for this kind of yarns.

The prefab margins have declined in Q3 they have many products and they are not only classrooms or primary health centers. Current – last quarter, they had a large volume from toilets and wastebins, CSR-relatedactivity, Clean India-related activity. So these are definitely low-contributing products. They are low revenue and low-contributing products when the numbers are huge.

Business on the side of where they [ph] brought supply (22:54) to off-road OEMs, whose customers are mainly mining, oil, kind of industries have really taken cuts in their forecasting. In fact, some of the customers, they've reduced their projections by half, 50%. So since they are impacted, Sintex also get impacted to an extent in long-term orders.

They are focusing on our business development ability, so that they can get more orders, more diversified orders into their basket, especially, since the acquisition of Groupe Simonin, which is a new technology in itself. they have opened up a kind of quite a growth opportunity for them.

See, other than the retail business, in plastic, retail business is water tank. Other than the retail business in plastic, depends on the client, the raw material is pass-through. That means that on three months basis, they would take average cost of raw material and the sales price would get adjusted accordingly for next quarter. So, generally, whenever there's a fall or increase in the price, they account on a assumption that they will get this much of rate and this much of –

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23 February 2016 86

at this exchange rate. And when the accounts are drawn end of the quarter, the exchange rate is considered average exchange rate for the entire 90 days. And the sales rate is also considered weighted average of the entire 90 days. So that automatically gets adjusted every quarter.

The custom molding business is a long-term thinking. They think many, many product will convert plastic – sorry – metal into composite, and that is where this particular segment has come up. And they entered into the segment because of that, saying that many products across the product segment – across the production customer segment people will convert metal into lighter material and functional materials. So, that's the theme of this business. And they expect definitely a reasonable growth. The custom molding business never grew 30%, never. They have hardly few quarters which have done more than 20% growth. The growth always had been between 12% to 15% growth. And they are very confident that as long as the external factors like exchange rate or flood or things like that doesn't come in this business has always grown steadily between 8% to 18%.

Symphony Sell Current Price INR 2,003 Target Price INR 1,830 | -9% Downside Revenue growth led by volume and realizations growth of 18.6% and 2% YoY,

respectively. Domestic revenues grew 20.5% while exports grew 13%. Margins expanded on account of lower raw material prices, better operational

efficiency and value engineering. Sales during the quarter were robust across all geographies and were majorly

through the traditional channel. The management highlighted that newly launched Window 70 Jet model was

well received by the market and will soon launch two new models from the Munters collection in the domestic (under Symphony brand) as well as in the international markets.

The company has successfully completed Munters Keruilia acquisition and it has become 100% subsidiary.

For the period ended Dec 2015, Munters registered topline of INR500m with loss of INR100m and management targets to turnaround it in medium to long term by achieving sales of INR1300m, its earlier peak.

The company has initiated measures to convert Impco to asset light business model by outsourcing its manufacturing process in line with Indian business model which will fully materialize in next 18 to 21 months.

Encashment of real estate has led to liquidity of INR130m which will be utilized to provide advance to Munter through Singapore holding company.

Interim dividend announced up from 200% to 250% Treasury Funds have given a return of 6.9%. Many prestigious orders were received by the company in its central cooling

(institutional service) – food processing, factories, textiles, education, showrooms, etc.

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SRF Buy Current Price INR 1,109 Target Price INR 1,460 | 32% Upside Chemical business registered 24% revenue growth in 3QFY16 driven by specialty chemical business. The global agrochemical business continues to remain soft but SRF could utilize its capacity for some opportunistic business from its clients. Some part of opportunistic business will also flow into 4QFY16. The company has announced capitalization and commissioning of a plant

(INR430m) which will manufacture raw material for the molecule which will be supplied to Gilead for Hepatitis C drug. The company has also approved capex of INR480m for manufacturing the finished good i.e the molecule.

The other part of chemical business which includes fluorochemicals and refrigerant gases faced some pressure. Realizations of R22 gas in export market was under pressure due to quota regime. The quota for consuming R22 in India is 10,000tn whereas quota for manufacturing the same is 40,000tn which led to high exports bringing realizations under pressure. Chloromethane also reported subdued revenue growth due to high volatility in its prices.

The company is confident of achieving volume sales of ~7500tn of HFC134a in FY16 compared t o 42 50tn in FY15. Walmart has given repeat order of HFC-134a which is double the previous order and will reflect in 4QFY16. Additionally, next year pharma grade HFC134a will also require industrial grade HFC134a for its RM requirement to the extent of 1200-1300tn.

Specialty chemicals contributed 55% to total chemical business revenue in 9MFY16 compared to 50% in FY15. During the quarter, the company’s sales came from 13molecules. In FY15, within specialty chemical, Pharma contributed 17% while Agrochem was 83%, in Sept quarter end Pharma was 24% and Agrochem was 76%, goal is to reach 25% pharma by March 2017. Currently rough cut mix is 21% Pharma.

The company will continue to invest INR2.5-3bn every year in dahej which will be largely towards specialty chemicals.

Packaging business continued outperform in subdued environment running at full capacity in all plants including overseas plant.

Global BOPET market continues to be in high surplus capacity, however SRF has done well considering its client relationship and value added products. In the domestic market, the industry ratio of plain vanilla to value added products in packaging films is 70:30 however incase of SRF it is 30:70 which helps it to maintain its realization and margins coupled with client stickiness.

The technical textile business was partly impacted due to Chennai floods, lower realization and pressure on NTCF business. The EBIT level loss due to Chennai floods was INR100m in the quarter on account of loss of raw material, finished goods, spares and some machinery. The loss will continue to flow in next two quarters to the extent of ~INR70m and ~INR40m respectively. However, the plant is already functional after remaining closed for 1 month. Majority of the loss is expected to be recovered from insurance.

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23 February 2016 88

TTK Prestige Buy Current Price INR 4,187 Target Price INR 5,150 | 23% Upside Green-shoots were visible in some markets. Consumer sentiment improving but not substantially – traction is towards

innovative new products. South grew slightly lower pace, Chennai floods impacted. Overall consumer

sentiment in non-south better. Loss due to Tamil Nadu floods has been close to INR200m.

Industry has not grown in double digits, but TTKPT grew due to market share gains.

This quarter Diwali came in November which helped in registering strong growth.

Several new products launched during 1HFY16 and 3QFY16 were received favourably by market.

80% of share of revenues is products launched in last few years. Ecommerce showing strong growth, fulfillment centre improving. Currently have

four fulfillment centres for it. Share of ecomm in revenues was 5% through direct Prestige channels (excluding market place data).

Non south: South revenue mix was is 53:47 Capacity utilization across plants is beyond 60%. Softer material cost and higher capacity utilization helped bottom line through

margin expansion. Since GST rates are not known, management is unable to comment on the exact

impact. However believe with the widening of tax base, the organized sector should benefit.

Company is planning to launch certain products exclusively for rural areas in induction cooktops, cookers, rechargeable lanterns.

Ad Spends have been close to 6.5%. 4QFY16 guidance – Double digit growth in topline. V-Guard Inds Buy Current Price INR 842 Target Price INR 910 | 8% Upside Performance impacted by falling realizations in largest segment – cables and

wires which is linked to international copper prices. In case of benign prices, even trade destocks the goods.

Cables and wires – contributed 31% of revenues, degrew 2.2% YoY, thus impacting performance. 12% YoY volume growth, but de-grew in realizations as a result.

Stabilizers grew 12%, UPS de-grew 4%, pumps grew 16% while water heaters grew 5%.

Stabilizers contribution 50-55% air cond, 25% by refrig, 20% television Non-South: South mix is 70:30 vs 68:32 in 3QFY15. Non-south growth was flat. Non-south PBT margins have broken even. 4% EBITDA margins for nine-months

in nine-south.

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4.9% of revenues spent in ad, 4.9% last year. Shall spend close to 4.5% for FY16 overall, i.e. around 3% for 4QFY16.

Gross debt of INR24cr vs 100cr YoY. Cash including current investments INR26cr as at 3QFY16.

INR18m bonus provision of last 2 years in 3QFY16 Yet to see a pickup in discretionary spending. Newer product categories, switchgears and kitchen appliances, are receiving a

good response and seeing healthy growth. The quarter also witnessed a turnaround in the pumps segment. Stabilizer and fans segments continue to track well.

Consumer sentiment in Kerala is subdued, rest of south has been good. Tamil Nadu a grew very well, despite floods in Chennai, all 3 states in south except Kerala doing well

Moved to hub spoke model in non-south from branch. Products have copper steel as inputs, not passed on benefits, except in wires

and cables. Late onset of winter in places like Delhi, so led to slow water heater sales. Consumer durables channel is healthy, however the electrical segment is slow. 90% of wires and cables is retail- house wiring Management believes copper prices reached lowest level. Will bottom out –

commodity prices and will start inching up. Setting new stabilizers manufacturer facility in Sikkim. Primary benefit is excise

duty and income tax exemption for 10 years – Sikkim facility, mainly income tax benefits – expect close to INR100m for initial years per annum. This is for stabilizers. Earlier it was outsourced. Expecting to manufacture INR10b worth of sales value in 24 months – capex max is INR100-150m. Not investing in land and building.

Expecting strong growth in wires next year. Forecasts of early summer augur well for V Guard. 4Q is generally a very strong

quarter. Non south: Focusing on markets like Pune, Ahmd, Bhopal, Ghaziabad, Noida

instead of large cities like Delhi, Mumbai – since cost of retailing is high, these also act as redistribution markets, so the aim is to focus on suburb markets.

Inorganic opportunities – get into categories that are adjacent, good cash flows currently, low debt, so will be looking out for inorganic opportunities – across retailing channels, distribution, brands, products – currently in process of talking to opportunities, signing NDAs, already landscaped plans.

FY16 topline growth 5-6%, 100bp margin expansion to 9%, 4Q is a stronger quarter.

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3QFY16 corporate sector performance PSU Banks and Cyclicals drag 3QFY16! PAT declined 10%, sales de-growth of 3% Aggregate performance of MOSL Universe: Aggregate sales de-grew 3.2% (est

of 0.6% growth), EBITDA was up 1.4% (est of 4.1% growth), PAT declined 10.3% (est of 0.2% decline). Excluding OMCs and PSU banks (saw sharp increase in provisions post RBI mandated AQR), PAT registered 0.5% growth (est of flat performance).

EBITDA margin (ex-financials & OMCs) expanded 50bp YoY to 19.2% (est of 19.1%). PAT margins expanded 20bp YoY to 9.4% (est of 9%).

63 companies reported PAT higher than estimates, 70 companies below and 43 in-line. On the EBITDA front, 54 companies exceeded estimates and 70 companies were below estimates.

We cut our Sensex EPS FY17E by 5.6% to INR1,550 (growth of 16%). Sector performance: Healthcare, Oil (Ex OMCs) and Cement led aggregate PAT growth Sales growth was led by Private Banks (19%), NBFCs (17%), Technology (12%)

and Cement (8%). Oil & Gas ex OMCs (-27%), Metals (-19%) and PSU Banks (-4%) reported negative sales growth.

EBITDA growth was led by Cement (35%), Private Banks (24%), NBFCs (17%), Utilities (22%), Media (22%), Oil & Gas ex OMCs (16%) and Healthcare (15%). Metals (-61%), Cap Goods (-47%), PSU Banks (-6%) contributed negatively.

PAT growth was led by Healthcare (53%), Oil & Gas ex RMs (37%), Cement (32%), Private Banks (12%), Media (20%) and Utilities (13%). Metals (Profit to Loss) , Capital Goods (-56%), PSU Banks (Profit to Loss) & Telecom (-10%) were the major drags.

PAT excluding Oil & Gas and Metals de-grew 5% v/s expectations of 9.4% growth.

Sensex performance: PAT growth of 3%; 4 companies saw upgrades in FY17E EPS (APNT, BJAUT, INFO, SUNP) Sensex aggregate sales declined 3% (est of 1% growth), EBIDTA grew 5% (in line

with est) and PAT grew 3% (est of 5.5% growth). 10 companies in Sensex reported PAT above estimates; 8 companies below est;

12 reported in-line. Highest PAT growth companies are Sun Pharma (258%), Reliance Inds (42%),

Asian Paints (40%), Hero Moto (37%), Adani Ports (26%), Maruti (23%), HDFC Bank (20%) and L&T (19%). Top PAT de-growth companies are Tata Steel (reported loss), BHEL (reported loss), SBI (-62%), Bharti Airtel (-22%), Lupin (-12%), Tata Motors (-10%) and NTPC (-9%). (Refer our detailed Dec-15 Quarter Review).

Sensex EPS Downgrade De-construct 3QFY16 is marked by the disproportionate pain inflicted by PSU Banks on the

aggregate earnings performance. We have revised our FY16/17/18 Sensex EPS downwards by 2.5%/5.6%/5.3% to

INR 1332/1550/1890, respectively. We now expect Sensex EPS to decline 1.6% for FY16 and grow 16.4% for FY17.

Refer our Dec-15 Quarter Review

Sales YoY (%)

15

4

-1

-7 -5 -6 -3

14

6 2

-5 -3 -4 -3

1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY15 FY16

SensexMOSL Universe Ex OMCs

EBIDTA YoY (%)

19

6

0 -4

3 0 5

16

7 2

-1

2 1 1

1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY15 FY16

SensexMOSL Universe Ex OMCs

PAT YoY (%)

22

6

-8 -8

0

-1

3

18

8

-6 -9 -5 -5

-10

1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY15 FY16

SensexMOSL Universe Ex OMCs

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SBI and BHEL account for 77% of FY16E PAT downgrade. Five stocks contribute 72% of FY17E Sensex PAT downgrade: SBI (32%), ONGC

(19%), ICICI Bank (9%), Coal India (7%), and Tata Motors (6%). Five stocks contribute 83% of FY18E Sensex PAT downgrade: SBI (39%), ONGC

(27%), ICICI Bank (8%), Maruti (6%) and Tata Motors (4%). FY17 Sensex EPS growth contributors: Banks (31%), Auto (21%) & Technology

(16%) contribute 2/3rd of the 16.4% FY17E Sensex EPS growth estimate.

Sectoral actual v/s expected - MOSL universe (INR b) Sector Sales EBITDA PAT EBIDTA Margin

(no of companies) Dec 2015

Chg. % QoQ

Chg. % YoY

Var. over Exp. (%) Dec

2015 Chg. % QoQ

Chg. % YoY

Var. over Exp. (%) Dec

2015 Chg. % QoQ

Chg. % YoY

Var. over Exp. (%) Dec

2015(%) Chg.

YoY bp High growth sectors 1,729 -5 -16 -7 380 0 18 -2 214 2 39 6 22 634 Healthcare (14) 315 -1 9 -2 80 -3 15 3 52 -3 53 6 26 140 Oil Ex OMCs (9) 1,077 -10 -26 -9 227 -3 16 -4 131 3 37 6 21 773 Cement (7) 168 4 8 2 28 4 35 7 12 -7 32 14 17 327 Media (9) 60 13 16 1 19 23 22 0 9 20 20 -3 31 167 Retail (3) 49 20 17 1 4 41 15 -5 3 57 19 2 9 -14 Real Estate (8) 59 9 20 -14 22 27 35 -16 7 12 17 12 36 399 Med/Low growth sectors 2,156 2 9 -2 790 7 16 2 480 4 9 1 37 215 Utilities (10) 627 0 4 -8 191 13 22 2 90 8 13 2 30 446 Banks - Private (8) 215 4 19 3 201 16 24 8 106 9 12 4 93 370 Consumer (16) 393 5 4 -1 89 5 10 0 63 8 8 -1 23 119 NBFC (13) 136 5 17 -1 119 1 17 -2 69 -4 7 -7 87 46 Technology (11) 784 2 12 0 190 -1 6 1 151 1 7 4 24 -153 PAT de-growth sectors 3,615 1 -3 -3 668 -6 -17 -8 88 -59 -68 -55 18 -330 Capital Goods (11) 453 3 3 -5 24 -30 -47 -47 9 -37 -56 -59 5 -514 Telecom (4) 415 1 5 -2 147 2 8 -2 26 14 -10 -6 36 112 Others (21) 221 2 4 -4 38 29 6 -6 20 51 -1 -7 17 23 Automobiles (12) 1,275 11 7 -2 176 15 5 -6 83 41 8 -6 14 -33 Metals (9) 954 -8 -19 -3 82 -37 -61 -3 -11 PL PL Loss 9 -932 Banks - PSU (8) 298 -7 -4 -7 200 -9 -6 -7 -39 PL PL PL 67 -153 MOSL Universe (176) 9,232 0.0 -6.8 -2.2 1,933 4.9 7.6 -1.7 838 -6.1 -1.1 -8.3 21 280 MOSL Ex OMCs (173) 7,500 0.1 -3.2 -3.8 1,838 0.6 1.4 -2.6 782 -12.0 -10.3 -10.1 25 111 Ex OMCs,PSU Bks (165) 7,202 0.4 -3.1 -3.6 1,638 2.0 2.4 -2.0 821 -1.7 0.5 0.5 23 124 Sensex (30) 4,477 2.4 -2.7 -3.9 1,085 3.5 4.6 -1.8 551 -2.5 3.0 -2.4 24 170 Nifty Ex. BPCL (49) 5,574 1.6 -2.6 -3.5 1,388 2.2 2.3 -2.0 605 -10.1 -8.1 -9.6 25 119

Sensex EPS trend (INR)

216 236 272 361 446 540

720 833 820 834

1,024 1,120 1,182 1,338 1,354

1332 1550 1890

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

FY01-08: 21% CAGR

FY08-15: 7% CAGR

FY15-18E: 12% CAGR

-2%

16%

22% FY93-FY15: 14% CAGR

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QUANT RESEARCH & INDIA STRATEGY GALLERY

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N O T E S

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