INDIA DAILY
February 14, 2020 India 13-Feb 1-day 1-mo 3-mo Sensex 41,460 (0.3) (1.2) 2.9 Nifty 12,175 (0.2) (1.5) 2.5 Contents Global/Regional indices Dow Jones 29,423 (0.4) 1.7 5.9 Daily Alerts Nasdaq Composite 9,712 (0.1) 5.0 14.5 FTSE 7,452 (1.1) (2.2) 2.2 Results Nikkei 23,633 (0.8) (1.6) 2.1 Nestle India: Strong revenue print but margins disappoint Hang Seng 27,730 (0.3) (4.0) 5.3
KOSPI 2,237 0.2 (0.1) 4.6 Page Industries: Volumes as well as margins disappoint Value traded – India GSPL: Lower volume mars performance Cash (NSE+BSE) 364 408 204 13,75 Derivatives (NSE) 28,533 8,835 Varroc Engineering: Broadly in-line quarter 0 Deri. open interest 5,117 3,714 3,504 Sunteck Realty: New launches propel sales
Results, Change in Reco Forex/money market Schaeffler India: Disappointing end to a challenging year Change, basis points 13-Feb 1-day 1-mo 3-mo Dhanuka Agritech: Robust recovery, priced in Rs/US$ 71.3 (1) 43 (66) Sector alerts 10yr govt bond, % 6.7 (2) (27) (26) Net investment (US$ mn)
Banks: Maintains pace; liquidation high 12-Feb MTD CYTD
FIIs (93) 1,984 3,356
MFs 34 85 (293)
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Best performers 13-Feb 1-day 1-mo 3-mo
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BHARTI IN Equity 540 0.1 15.0 49.0
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ONGC IN Equity 105 (1.3) (15.8) (22.7)
HPCL IN Equity 235 0.6 (7.6) (18.5)
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For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. SELL Nestle India (NEST) Consumer Staples FEBRUARY 13, 2020 RESULT Sector view: Cautious
Strong revenue print but margins disappoint. NEST’s 4QCY19 domestic revenue CMP (`): 16,412 growth print of 10% yoy was once again materially ahead of peers. Margin print Fair Value (`): 14,000 (20.9%, up a modest 20 bps yoy off an abnormally low base) disappointed, however. BSE-30: 41,460 EBITDA and pre-contingency PAT missed our estimate by 9% and 13%, respectively. There is a lot to like about NEST’s growth potential and revived execution engine. Both are priced in, however, with the stock trading at 59X CY2021E PE. Our SELL rating stays with a revised FV of Rs14,000/share (from Rs13,200) led by rollover.
Nestle India Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 16,549-9,875 EPS (Rs) 204.3 238.2 277.8 Mcap (bn) (Rs/US$) 1,583/22.2 EPS growth (%) 22.6 16.6 16.6 ADTV-3M (mn) (Rs/US$) 1,188/17 P/E (X) 80.3 68.9 59.1 Shareholding pattern (%) P/B (X) 81.9 66.5 54.8 Promoters 62.8 EV/EBITDA (X) 55.4 47.9 41.9 FIIs 12.6 RoE (%) 70.3 106.6 101.7 MFs/BFIs 3.8/4.6 Div. yield (%) 2.1 1.2 1.4 Price performance (%) 1M 3M 12M Sales (Rs bn) 123 138 154 Absolute 12 15 58 EBITDA (Rs bn) 28 32 37 Rel. to BSE-30 13 12 37 Net profits (Rs bn) 20 23 27
4QCY19 earnings print – disappointing overall, internals a mixed bag
Nestle reported 10% yoy growth in EBITDA (off a 6% decline base) to Rs6.5 bn, 9% below our estimate of Rs7.2 bn. Revenue print was broadly in line with domestic revenues growing at 10% yoy (among the highest in the broader consumption space and the highest in staples). Export revenues declined 10% yoy on account of lower coffee exports to Turkey. Agri inflation weighed on gross margins – down 217 bps yoy to 56.5% (KIE: 57.1%). Gross profits grew 5% yoy. EBITDA margins were up a modest 20 bps yoy to 20.9%, substantially lower than our estimated 22.5%. We call the EBITDA margin expansion modest in light of the favorable base. NEST had a one-off bump in adspends in 4QCY18 as the company had spent heavily on the launch of its breakfast cereal range ‘Nesplus’.
PBT increased a marginal 4% yoy while recurring PAT (pre-contingencies) grew 16% yoy to Rs4.7 bn, 13% below estimate. Reported PAT was up 38% yoy to Rs4.73 bn on account of a sharp positive swing in contingency costs. ETR declined to 23% from 34.6% in the base quarter. CY2019 round-up: domestic revenues up 11%, export revenues down 10%, gross margins down 157 bps, EBITDA up 6%, PBT up 6% and recurring PAT (pre-contingencies) up 16% yoy. Reported EPS stood at Rs204/share, up 23% yoy on account of a decline in contingency costs.
Press release calls out strong performance in noodles, chocolates and RTD beverages Rohit Chordia Nestle’s short press release that accompanies the results indicates a broad-based volume and mix led growth in 4QCY19. The company called out the following growth drivers for CY2019 – Maggi Noodles, KitKat, Nestlé Munch, Ceregrow, Maggi Masala -ae- Magic, Nescafe RTD and Jaykumar Doshi Nangrow. The company expects the RM inflation trend to sustain in the near term.
Retain estimates with a few tweaks; raise FV to Rs14,000/share from Rs13,200 on rollover Aniket Sethi
We have broadly retained our CY2020/21E EPS forecasts at Rs238/278, respectively. We continue to bake in a little over 12% growth in domestic revenues, growth revival in export revenues and modest 30-60 bps yoy margin expansion for the next two years. DCF-based FV stands revised to Rs14,000 (50X CY2021E implied PE). SELL stays.
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Nestle India Consumer Staples
Exhibit 1: Key changes to estimates, Nestle India, CY2020-21E
Revised Earlier Change (%) 2020E 2021E 2020E 2021E 2020E 2021E Revenues (Rs mn) 137,889 154,338 140,295 158,052 (1.7) (2.4) EBITDA (Rs mn) 32,364 36,765 33,292 38,059 (2.8) (3.4) EBITDA margin (%) 23.5 23.8 23.7 24.1 Net income (Rs mn) 22,969 26,783 23,000 27,098 (0.1) (1.2) EPS (Rs/share) 238.2 277.8 238.5 281.0 (0.1) (1.2)
Source: Kotak Institutional Equities estimates
Exhibit 2: Interim standalone results of Nestle India, Calendar year-ends (Rs mn)
(% chg.) 4QCY19 4QCY19E 4QCY18 3QCY19 vs KIE yoy qoq CY2019 CY2018 %yoy Net domestic revenues 29,608 30,185 26,905 30,391 (2) 10 (3) 116,568 105,075 11 Export revenues 1,700 1,906 1,883 1,602 (11) (10) 6 6,385 7,087 (10) Net sales 31,307 32,091 28,788 31,993 (2) 9 (2) 122,953 112,162 10 Material cost (13,614) (13,765) (11,894) (13,650) (1) 14 (0) (52,239) (45,902) 14 Gross Profit 17,693 18,325 16,894 18,343 (3) 5 (4) 70,714 66,260 7 Gross margin (%) 56.5 57.1 58.7 57.3 -60 bps -217 bps -82 bps 57.5 59.1 -157 bps Employee cost (3,227) (3,033) (2,799) (3,220) 6 15 0 (12,630) (11,242) 12 Other expenditure (7,923) (8,068) (8,142) (7,693) (2) (3) 3 (29,929) (28,455) 5 Total expenditure (24,763) (24,866) (22,835) (24,563) (0) 8 1 (94,797) (85,599) 11 EBITDA 6,544 7,225 5,953 7,430 (9) 10 (12) 28,156 26,564 6 EBITDA Margin (%) 20.9 22.5 20.7 23.2 -162 bps 22 bps -233 bps 22.9 23.7 -79 bps Other income 447 614 752 564 (27) (41) (21) 2,469 2,589 (5) Other operating income 186 207 184 165 (10) 1 12 736 760 (3) Interest (284) (274) (252) (299) 3 13 (5) (1,198) (1,120) 7 Depreciation (796) (817) (784) (780) (3) 1 2 (3,164) (3,357) (6) Pretax profits 6,097 6,955 5,854 7,080 (12) 4 (14) 26,999 25,437 6 Tax (1,416) (1,589) (1,804) (1,045) (11) (22) 36 (7,054) (8,220) (14) PAT 4,681 5,366 4,049 6,035 (13) 16 (22) 19,944 17,217 16 Impairment of fixed assets — (50) (69) — —— (111) Provision for contingencies 49 (560) (562) (81) (109) NM (161) (249) (1,037) (76) Recurring PAT 4,730 4,756 3,418 5,954 (1) 38 (21) 19,696 16,069 23 EO item ———— —— Reported PAT 4,730 4,756 3,418 5,954 (1) 38 (21) 19,696 16,069 23 Recurring EPS (Rs/share) 49.1 49.3 35.4 61.8 (1) 38 (21) 204.3 166.7 23 Income tax rate (%) 23.0 25.0 34.6 14.9 -201 bps -1152 bps 811 bps 26.4 33.8 -748 bps Costs as a % of sales Material cost 43.5 42.9 41.3 42.7 59 bps 216 bps 81 bps 42.5 40.9 156 bps Employee cost 10.3 9.4 9.7 10.1 85 bps 58 bps 24 bps 10.3 10.0 24 bps Other expenditure 25.3 25.1 28.3 24.0 16 bps -298 bps 125 bps 24.3 25.4 -103 bps
Source: Company, Kotak Institutional Equities estimates Consumer Staples Nestle India
Exhibit 3: Nestle’s net domestic revenue growth and EBITDA margin (%)
Net domestic revenue growth (LHS, %) EBITDA margin (RHS, %) 50 26 40 30 24 20 22 10 - 20 (10)
(20) 18 (30)
(40) 16
3QCY16 4QCY16 2QCY17 3QCY17 4QCY17 2QCY18 3QCY18 4QCY18 2QCY19 3QCY19 1QCY18 1QCY19 4QCY19 1QCY17
Source: Company, Kotak Institutional Equities
Exhibit 4: Nestle's 4QCY19 gross margins continued to contract yoy mainly to higher milk prices
61 60 59 58 57 56 55 54 53 52
51
4QCY16 1QCY17 3QCY17 4QCY17 2QCY18 3QCY18 1QCY19 2QCY19 4QCY19 2QCY17 1QCY18 4QCY18 3QCY19 3QCY16
Source: Company, Kotak Institutional Equities
Nestle India Consumer Staples
Exhibit 5: Nestle: Profit model, balance sheet, 2015-2021E, December calendar year-ends (Rs mn)
IGAAP Ind-AS 2015 2016 2017 2018 2019 2020E 2021E Profit model Net sales 81,233 90,764 99,525 112,162 122,953 137,889 154,338 EBITDA 15,946 19,652 21,643 26,564 28,156 32,364 36,765 Other income 1,621 2,159 2,340 3,350 3,205 3,267 4,142 Interest expense (33) (909) (919) (1,120) (1,198) (1,264) (1,331) Depreciation (3,473) (3,537) (3,423) (3,357) (3,164) (3,291) (3,455) Pretax profits 14,062 17,365 19,642 25,437 26,999 31,076 36,121 Tax (4,206) (5,440) (6,141) (8,220) (7,054) (7,738) (8,928) Net income 9,855 11,924 13,500 17,217 19,944 23,338 27,194 Provision for contingencies/impairment losses (917) (1,803) (1,248) (1,148) (249) (369) (411) Net income after contingencies/impairment 8,938 10,121 12,252 16,069 19,696 22,969 26,783 EO items (3,306) (108) — — — — — Reported net income 5,633 10,014 12,252 16,069 19,696 22,969 26,783 Earnings per share (Rs) 92.7 105.0 127.1 166.7 204.3 238.2 277.8 Balance sheet Total equity 30,359 32,823 34,206 36,737 19,323 23,779 28,867 Total borrowings 177 332 351 351 531— — — Deferred tax liability 1,747 1,553 1,220 588 180 180 180 Total liabilities and equity 32,283 34,708 35,777 37,677 20,034 23,958 29,046 Cash 4,996 8,800 14,574 16,101 13,081 22,559 33,580 Investments 13,297 17,557 19,789 26,585 17,511 17,511 17,511 Net current assets (excl cash) (17,296) (20,832) (25,689) (30,067) (34,258) (38,589) (43,382) Net fixed assets (incl CWIP) 31,286 29,183 27,103 25,058 23,700 22,477 21,338 Total assets 32,283 34,708 35,777 37,677 20,034 23,958 29,046 Free cash flow Operating cash flow, excl. working capital 7,665 12,618 14,428 16,397 20,705 25,207 28,471 Working capital 3,316 2,040 3,750 4,128 1,632 4,331 4,793 Capital expenditure (1,508) (2,070) (1,986) (1,660) (1,545) (2,068) (2,315) Free cash flow 9,473 12,589 16,192 18,865 20,792 27,470 30,949 Key assumptions Revenue growth (%) (17.2) 11.7 9.7 12.7 9.6 12.1 11.9 EBITDA Margin (%) 19.6 21.7 21.7 23.7 22.9 23.5 23.8 EPS Growth (%) (24.1) 13.2 21.1 31.2 22.6 16.6 16.6 RoE (%) 30.4 32.0 36.6 45.3 70.3 106.6 101.7 RoCE (%) 18.3 20.4 21.5 25.4 33.0 41.2 40.9
Source: Company, Kotak Institutional Equities estimates
REDUCE Page Industries (PAG) Consumer Durables & Apparel FEBRUARY 13, 2020 RESULT Sector view: Cautious
Volumes as well as margins disappoint. Page’s 3QFY20 earnings print was weak on CMP (`): 23,516 most counts— (1) revenues grew 8% yoy (KIE 12%), (2) volumes declined 2% yoy (KIE Fair Value (`): 22,000 7%), (3) EBITDA declined 22% yoy (LFL adjusted for Ind-AS 116) led by about 600 bps BSE-30: 41,460 decline in adjusted EBITDA margin, and (4) PBT declined 28%. Management didn’t hint at any pickup in growth or material recovery in margins. We cut FY2020-22E EPS forecasts by 14-16%. Rollover and revise FV to Rs22,000 (Rs22,900). REDUCE stays.
Page Industries Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 26,883-17,141 EPS (Rs) 363.4 449.2 538.8 Mcap (bn) (Rs/US$) 263/3.7 EPS growth (%) 2.9 23.6 20.0 ADTV-3M (mn) (Rs/US$) 723/10 P/E (X) 64.7 52.4 43.6 Shareholding pattern (%) P/B (X) 29.3 23.3 18.9 Promoters 48.3 EV/EBITDA (X) 42.4 35.8 30.4 FIIs 33.7 RoE (%) 48.5 49.5 47.9 MFs/BFIs 5.7/0.8 Div. yield (%) 0.7 0.9 1.1 Price performance (%) 1M 3M 12M Sales (Rs bn) 31 35 40 Absolute 2 (1) (3) EBITDA (Rs bn) 6 7 8 Rel. to BSE-30 3 (4) (16) Net profits (Rs bn) 4 5 6
3QFY20— Subdued print, sharp and incomprehensible decline in margin
Revenues grew 8% yoy (KIE 12%) to Rs7.9 bn. Volumes declined 2% (KIE +6.8% growth). Portfolio-level realizations grew 10% yoy to Rs179/piece led by pricing (+4.5%) and product mix (higher salience of winter wear). GM declined 390/290 bps yoy/qoq to 53.2% due to (1) increase in incentives (180 bps yoy impact), and (2) under-absorption of factory overheads due to weak volumes and (3) lower outsourcing resulting in lower conversion costs and higher COGS. The management indicated that RM costs were broadly steady through the year. Reported EBITDA declined 16% yoy; adjusted for Ind-AS 116 EBITDA was down 22%. EBITDA margin was down 490 bps yoy to 17.5% on reported basis and down about 600 bps adjusted for Ind-AS 116. A 15% yoy increase in staff costs was attributable to sales force augmentation. PBT declined 28% yoy and net profit declined 15% yoy aided by reduction in corporate tax rate.
9MFY20– revenue growth of 7% yoy led by 1% volume growth, gross margins down 180 bps, EBITDA down 5% on reported basis and down around 11% adjusted for Ind-AS 116, PBT down 14% and PAT down 2% despite the benefit of a 950 bps lower ETR. 9M EPS at Rs280/share.
Key takeaways from earnings call
Key takeaways from the conference call—The management indicated that (1) demand environment continues to be weak and refrained from giving any guidance on growth and margins, (2) it has not clawed back on investments in technology, sales and marketing talent Rohit Chordia personnel, and kids wear category notwithstanding weak macro, (3) EBO and MBO growth rates were broadly similar, (4) growth in premium products was higher than mass/popular Jaykumar Doshi products, (5) higher incentives impacted margin by about 180 bps yoy in 3QFY20 but absolute incentive amount for the year would be broadly in line with that budgeted, (6) its plan to double capacity to 520 mn pieces (from 260 mn pieces) over the next 4-5 years is on track. Aniket Sethi
We cut FY2020-22E EPS forecasts by 14-16%; FV revised down to Rs22,000 (from Rs22,900)
We bake in 3Q disappointment into our model and moderate growth and margin assumption. This drives a 14-16% cut in our FY2020-22E EPS forecasts. Our DCF-based FV stands revised down to Rs22,000 implying a 41X March 2022E PE multiple.
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Page Industries Consumer Durables & Apparel
Conference call takeaways
Kids wear—encouraging trends. PAG is focused on scaling up its kids clothing portfolio. The company has set up an independent sales team of 120 people and has a special marketing plan for this segment. It has also opened two exclusive kids wear stores. Its kids range has about 100 styles focused on top-50 cities. The company has 40+ exclusive distributors for kids wear and there are additional 100 distributors who stock kids wear in addition to other innerwear. Kids wear distribution reach is about 7,000+ stores.
PAG’s distribution coverage— (1) 63,000+ retail outlets, (2) 4,300+ distributors, (3) 2,800+ towns/cities, (4) 720+ exclusive brand outlets (including 35 exclusive women’s outlets, 170+ outlets in mall, 530+ outlets in high street) present in 250+ cities, (5) sales force of 530+.
Auto replenishment system (ARS). PAG has recently launched auto replenishment. Per management about 30% of the company’s business is covered through ARS. This system defines stock levels at distributors’ end, helps in optimizing distributor inventory and improving product availability. The objective is to curb loss of sales caused by inadequate inventory.
Other highlights— (1) Staff costs increased on the back of new recruitments for sales, marketing and operations, (2) PAG is planning doubling of capacity to 520 mn pieces (from 260 mn pieces) over the next 4-5 years, and (3) PAG usually takes 3-5% price increase per annum. Pricing contributed 4.5% to growth in 3QFY20.
Exhibit 1: Key changes to estimates, FY2020-22E, March fiscal year-ends
Revised Earlier Change (%) Rs mn 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Revenues 31,066 35,072 40,143 31,507 36,402 41,903 (1.4) (3.7) (4.2) Revenue growth (%) 8.9 12.9 14.5 10.5 15.5 15.1 EBITDA 6,160 7,254 8,480 7,035 8,296 9,649 (12.4) (12.6) (12.1) EBITDA margin (%) 19.8 20.7 21.1 22.3 22.8 23.0 Net income 4,053 5,010 6,010 4,841 5,879 7,012 (16.3) (14.8) (14.3) EPS (Rs/share) 363.4 449.2 538.8 434.0 527.1 628.7 (16.3) (14.8) (14.3)
Source: Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Consumer Durables & Apparel Page Industries
Exhibit 2: Page Industries: Interim results, March fiscal year-ends (Rs mn)
(% chg.) 3QFY20 3QFY20E 3QFY19 2QFY20 KIE Est yoy qoq 9MFY20E 9MFY19 (% chg.) FY2020E FY2019 (% chg.) Net operating income 7,938 8,246 7,383 7,754 (4) 8 2 24,042 22,443 7 31,066 28,522 9 Cost of materials (3,718) (3,579) (3,169) (3,410) 4 17 9 (10,880) (9,754) 12 (13,591) (11,967) 14 Gross profit 4,220 4,667 4,215 4,344 (10) 0 (3) 13,161 12,690 4 17,475 16,555 6 Gross margin (%) 53.2 56.6 57.1 56.0 -344 bps -393 bps -286 bps 54.7 56.5 -180 bps 56.3 58.0 Employee expense (1,346) (1,308) (1,167) (1,343) 3 15 0 (3,974) (3,431) 16 (5,374) (4,675) 15 Other expenditure (1,486) (1,464) (1,395) (1,511) 1 7 (2) (4,443) (4,285) 4 (5,940) (5,711) 4 Total Expenditure (6,550) (6,351) (5,731) (6,264) 3 14 5 (19,297) (17,470) 10 (24,906) (22,353) 11 EBITDA 1,388 1,895 1,653 1,490 (27) (16) (7) 4,745 4,973 (5) 6,160 6,169 (0) EBITDA (%) 17.5 23.0 22.4 19.2 -551 bps -490 bps -174 bps 19.7 22.2 -243 bps 19.8 21.6 -181 bps Depreciation (164) (155) (82) (147) 6 101 12 (451) (231) 95 (617) (311) 99 Interest (90) (80) (41) (81) 12 120 11 (253) (120) 110 (342) (163) 110 Other income 35 125 95 57 (72) (63) (39) 147 275 (46) 239 364 (34) PBT 1,169 1,785 1,625 1,321 (35) (28) (11) 4,188 4,897 (14) 5,440 6,060 (10) Tax expense (299) (446) (606) (175) (33) (51) 70 (1,066) (1,708) (38) (1,387) (2,121) (35) PAT 870 1,339 1,019 1,145 (35) (15) (24) 3,122 3,190 (2) 4,053 3,939 3 EO items — — — — — — — — Reported PAT 870 1,339 1,019 1,145 (35) (15) (24) 3,122 3,190 (2) 4,053 3,939 3 Income tax rate (%) 25.6 25.0 37.3 13.3 56 bps-1174 bps 1227 bps 25.5 34.9 -942 bps 25.5 35.0 EPS (Rs/share) 78.0 120.0 91.4 102.7 (35) (15) (24) 279.9 286.0 (2) 363.4 353.2 3 Margins (as % of sales) Cost of materials 46.8 43.4 42.9 44.0 343 bps 392 bps 285 bps 45.3 43.5 179 bps 43.8 42.0 179 bps Employee cost 17.0 15.9 15.8 17.3 110 bps 114 bps -36 bps 16.5 15.3 123 bps 17.3 16.4 90 bps Other expenditure 18.7 17.8 18.9 19.5 96 bps -17 bps -77 bps 18.5 19.1 -62 bps 19.1 20.0 -91 bps
Source: Company, Kotak Institutional Equities estimates
Exhibit 3: Key operating metrics, 1QFY18-3QFY20, March fiscal year-ends
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Volume (mn pieces) 46.4 42.5 39.7 36.5 50.4 41.8 44.5 36.9 49.2 45.6 43.6 Volume growth (%) 13 11 11 6 9 (2) 12 1 (2) 9 (2) Revenues (Rs mn) 6,885 6,177 6,135 5,990 8,058 6,792 7,243 5,963 8,207 7,610 7,808 Revenue growth (%) 24 18 18 22 17 10 18 (0) 2 12 8 Realisation per piece (Rs) 149 145 155 164 160 162 163 162 167 167 179 Realization growth (%) 9 7 6 15 8 12 5 (1) 4 3 10 COGS 3,187 2,649 2,760 2,274 3,672 2,913 3,169 2,213 3,752 3,410 3,718 COGS per piece (Rs) 69 62 70 62 73 70 71 60 76 75 85
Source: Company, Kotak Institutional Equities
8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Page Industries Consumer Durables & Apparel
Exhibit 4: Condensed financials, FY2016-22E, March fiscal year-ends (Rs mn)
IndAS 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net Sales 17,956 21,301 25,514 28,522 31,066 35,072 40,143 EBITDA 3,752 4,132 5,406 6,169 6,160 7,254 8,480 Other income 98 199 216 364 239 458 620 Interest (178) (180) (166) (163) (342) (336) (334) Depreciation (241) (247) (280) (311) (617) (696) (779) Profit before tax 3,431 3,903 5,175 6,060 5,440 6,680 7,987 Tax expense (1,116) (1,285) (1,705) (2,121) (1,387) (1,670) (1,977) Exceptional items — 45 — — — — — PAT 2,315 2,663 3,470 3,939 4,053 5,010 6,010 Recurring EPS (Rs/share) 208 235 311 353 363 449 539 Balance sheet (Rs mn) Equity 5,299 6,658 8,473 7,750 8,965 11,257 13,858 Total borrowings 734 673 685 848 803 758 713 Other long-term liabilities 156 227 241 219 214 216 219 Current liabilities 3,271 3,983 4,725 4,690 5,154 5,871 6,781 Total liabilites 9,461 11,541 14,124 13,506 15,135 18,102 21,571 Net fixed assets 2,170 2,602 2,965 3,079 3,390 3,497 3,616 Other LT assets 454 607 609 379 393 415 443 Cash and equivalents 86 727 2,849 440 1,701 3,270 4,984 Other current assets 6,750 7,605 7,701 9,608 9,651 10,920 12,527 Total assets 9,461 11,541 14,124 13,506 15,135 18,102 21,571 Cash flow (Rs mn) Operating cash flow 2,736 2,800 3,827 3,954 4,353 5,121 5,987 Working capital changes (572) (64) 701 (1,657) 403 (572) (722) Capital expenditure (264) (621) (570) (376) (683) (526) (582) Free cash flow 1,901 2,114 3,958 1,921 4,072 4,023 4,683 Ratios EBITDA margin (%) 20.9 19.4 21.2 21.6 19.8 20.7 21.1 ETR (%) 32.5 32.9 33.0 35.0 25.5 25.0 24.8 Book value (Rs/share) 475 597 760 695 804 1,009 1,242 RoAE (%) 50.5 43.8 45.9 48.6 48.5 49.5 47.9 RoACE (%) 39.7 37.0 39.9 42.4 38.7 39.5 38.8
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 SELL GSPL (GUJS) Gas Utilities FEBRUARY 13, 2020 RESULT Sector view: Attractive
Lower volume mars performance. GSPL’s 3QFY20 results were below estimates due CMP (`): 238 to sequential moderation in volumes and realized tariffs and higher operating costs. Fair Value (`): 225 Gujarat Gas reported qoq flat EBITDA reflecting steady volumes and unit margins. We BSE-30: 41,460 cut GSPL’s FY2020-22E consolidated EPS by 1-3% to factor in lower contribution from standalone and higher contribution from Gujarat Gas. Retain SELL with a revised SoTP- based FV of Rs225 (Rs200 earlier), amid lack of positive triggers and full valuations.
GSPL Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 264-149 EPS (Rs) 17.0 14.2 13.1 Mcap (bn) (Rs/US$) 135/1.9 EPS growth (%) 20.4 (16.1) (7.9) ADTV-3M (mn) (Rs/US$) 132/2 P/E (X) 14.0 16.7 18.1 Shareholding pattern (%) P/B (X) 2.0 1.8 1.7 Promoters 37.6 EV/EBITDA (X) 6.5 7.3 7.6 FIIs 15.5 RoE (%) 15.4 11.5 9.7 MFs/BFIs 18.8/5.5 Div. yield (%) 1.1 0.9 1.1 Price performance (%) 1M 3M 12M Sales (Rs bn) 24 21 20 Absolute 1 10 46 EBITDA (Rs bn) 16 13 12 Rel. to BSE-30 2 6 27 Net profits (Rs bn) 10 8 7
GSPL—results below estimates amid modest decline in transmission volumes and tariffs
GSPL’s EBITDA moderated 13% qoq to Rs3.8 bn in 3QFY20, 6% below our estimate, amid (1) 2% qoq moderation in net realized tariffs (revenues, net of gas transmission expenses) to Rs1.31/scm, (2) 5.7% qoq decline in volumes to 36.9 mcm/d amid decline in refinery/petchem and industrial volumes and (3) sharp 37% qoq rise in other expenditure. Adjusted net income declined 29% qoq to Rs2.2 bn (EPS of Rs3.9), amid sharp moderation in other income in the absence of dividends from Gujarat Gas, which was partly offset by lower interest charges. 9MFY20 EBITDA remained steady yoy to Rs12.2 bn, despite 8% rise in volumes to 38.1mcm/d, reflecting (1) 5% decline in realized tariffs to Rs1.32/scm and (2) 36% jump in other expenditure. Adjusted net income increased 16% yoy to Rs7.4 bn (EPS of Rs13.2) led by higher other income, lower interest and reduction in tax rate.
Gujarat Gas—steady performance amid lack of sequential improvement in volumes and margins
Gujarat Gas reported sequentially flat EBITDA at Rs3.71 bn in 3QFY20, amid steady volumes at 9.3 mcm/d and stable unit EBITDA margins at Rs4.3/scm. Adjusted net income declined 9.5% qoq to Rs1.97 bn (EPS of Rs2.9) led by normalization of tax rate to 25.3%; previous quarter included tax write-back pertaining to 1QFY20. In 9MFY20, GUJGAS has delivered a robust 65% growth in EBITDA to Rs12.08 bn and 133% jump in adjusted net income to Rs6.48 bn (adjusted EPS of Rs9.4) driven by (1) 42% growth in volumes to 9.3 mcm/d post shutdown of coal gasifiers in Morbi and (2) 17% rise in unit margins to Rs4.7/scm underpinned by favorable change in input gas mix towards low-priced spot LNG and meaningful operating leverage.
Revise EPS estimates; retain SELL with revised fair value of Rs225
We revise GSPL’s standalone EPS estimates to Rs17(-4%) in FY2020, Rs14.2(-12%) in FY2021 Tarun Lakhotia and Rs13.1(-12%) in FY2022 factoring in (1) lower transmission tariffs for FY2021-22 to align with lower tax rates; our valuation for gas transmission segment remains unchanged, (2) lower transmission volumes in FY2020 and modestly higher volumes in FY2021-22 and (3) other Hemang Khanna minor changes. GSPL’s consolidated EPS estimates in FY2020-22 are revised down by 1-3%, as we raise contribution from Gujarat Gas to reflect higher volumes as well as margins. Our SoTP- based fair value for GSPL increases to Rs225 (from Rs200 earlier). We highlight that GSPL’s current regulated tariffs are predicated on PNGRB’s assumption of lower steady-state volumes of 26 mcm/d and GSPL’s ongoing surplus pipeline throughput will be adjusted on NPV basis through lower tariffs in the subsequent review likely due in September 2021.
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. GSPL Gas Utilities
Exhibit 1: Interim results of GSPL, March fiscal year-ends (Rs mn)
(% chg.) 3QFY20 3QFY20E 3QFY19 2QFY20 3QFY20E 3QFY19 2QFY20 9MFY20 9MFY19 (% chg.) FY2020E Net sales 6,257 6,021 4,748 6,354 3.9 31.8 (1.5) 17,736 14,434 22.9 23,842 Total expenditure (2,457) (1,960) (1,006) (1,983) 25.4 144.2 23.9 (5,544) (2,300) 141.0 (7,928) Gas transmission expense (1,733) (1,283) (304) (1,397) 35.1 470.9 24.0 (3,582) (689) 419.6 (5,225) Staff cost (154) (157) (202) (171) (1.6) (23.9) (9.8) (453) (498) (9.1) (620) Other expenditure (570) (521) (500) (415) 9.4 14.0 37.3 (1,509) (1,113) 35.6 (2,083) EBITDA 3,800 4,061 3,742 4,371 (6.4) 1.6 (13.1) 12,192 12,133 0.5 15,915 OPM (%) 60.7 67.4 78.8 68.8 68.7 84.1 66.7 Other income 52 104 76 454 (50.6) (32.4) (88.7) 582 515 13.1 624 Interest (383) (417) (551) (438) (8.2) (30.5) (12.6) (1,299) (1,687) (23.0) (1,675) Depreciation (497) (509) (440) (498) (2.3) 13.0 (0.1) (1,484) (1,324) 12.0 (1,994) Pretax profits 2,972 3,240 2,828 3,889 (8.3) 5.1 (23.6) 9,990 9,636 3.7 12,870 Extraordinaries — — (210) 1,400 1,400 — 1,400 Current tax (711) (829) (850) (688) (2,403) (3,129) (3,085) Deferred tax (40) 0 (32) (53) (156) (94) (214) Net income 2,221 2,410 1,736 4,549 (7.8) 28.0 (51.2) 8,831 6,413 37.7 10,972 Adjusted net income 2,221 2,410 1,875 3,149 (7.8) 18.5 (29.4) 7,431 6,413 15.9 9,572 Adjusted EPS (Rs) 3.9 4.3 3.3 5.6 (7.8) 18.5 (29.4) 13.2 11.4 15.9 17.0 Income tax rate (%) 25.3 25.6 33.7 19.0 25.6 33.4 25.6
Operating details Gas transmission volumes (mcm) 3,398 3,532 3,174 3,605 (3.8) 7.1 (5.7) 10,479 9,716 7.9 13,817 Gas transmission volumes (mcm/d) 36.9 38.4 34.5 39.2 (3.8) 7.1 (5.7) 38.1 35.3 7.9 37.8 Implied transmission tariff (Rs/scm) 1.31 1.33 1.39 1.34 (1.5) (5.8) (2.0) 1.32 1.38 (4.7) 1.32
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Gas Utilities GSPL
Exhibit 2: Interim results of GGL, March fiscal year-ends (Rs mn)
(% chg.) yoy 3QFY20 3QFY19 2QFY20 3QFY19 2QFY20 9MFY20 9MFY19 (% chg.) FY2020E Net sales 25,062 21,174 25,129 18.4 (0.3) 76,337 58,469 30.6 102,124 Total expenditure (21,357) (17,962) (21,423) 18.9 (0.3) (64,261) (51,164) 25.6 (85,512) Raw material (19,482) (16,264) (19,550) 19.8 (0.3) (58,554) (46,192) 26.8 (77,706) Staff cost (438) (416) (446) 5.2 (1.9) (1,348) (1,149) 17.4 (1,824) Other expenditure (1,437) (1,282) (1,427) 12.1 0.7 (4,360) (3,824) 14.0 (5,982) EBITDA 3,705 3,212 3,706 15.4 (0.0) 12,076 7,305 65.3 16,612 Other income 186 154 237 20.6 (21.5) 649 419 54.7 794 Interest (465) (485) (528) (4.2) (11.9) (1,502) (1,465) 2.5 (1,984) Depreciation (795) (728) (802) 9.2 (0.9) (2,375) (2,158) 10.1 (3,218) Pre-tax profits 2,632 2,154 2,614 22.2 0.7 8,848 4,102 115.7 12,204 Tax (656) (530) (422) (2,184) (1,174) (2,815) Exceptional gains/(loss) — (179) 3,000 3,000 328 3,000 Net income 1,965 1,380 5,173 42.4 (62.0) 9,475 3,005 215.3 11,970 Adjusted net income 1,965 1,505 2,173 30.6 (9.5) 6,475 2,782 132.7 8,970 Adjusted EPS (Rs) 2.9 2.2 3.2 30.6 (9.5) 9.4 4.0 132.7 13.0 Tax rate (%) 25.3 30.1 16.9 26.8 32.2 26.5
Operational details Sales (mn scm/d) 9.3 6.6 9.3 42.1 (0.2) 9.3 6.6 41.5 9.5 CNG (mcm) 139 131 136 6.1 2.2 410 388 5.7 551 Residential PNG (mcm) 53 50 50 6.0 6.0 148 136 8.8 208 Commercial PNG (mcm) 11 10 10 10.0 10.0 30 30 0.0 41 Industrial PNG (mcm) 654 412 663 58.7 (1.4) 1,961 1,248 57.1 2,657 Total (mcm) 857 603 859 42.1 (0.2) 2,549 1,802 41.5 3,456 Net realization (Rs/scm) 29.2 35.1 29.3 (16.7) (0.0) 29.9 32.4 (7.7) 29.5 Raw material cost (Rs/scm) (22.7) (27.0) (22.8) (15.7) (0.1) (23.0) (25.6) (10.4) (22.5) Gross margin (Rs/scm) 6.5 8.1 6.5 (20.0) 0.3 7.0 6.8 2.4 7.1 Other operating costs (Rs/scm) (2.2) (2.8) (2.2) (22.3) 0.3 (2.2) (2.8) (18.9) (2.3)
Operating profit (Rs/scm) 4.3 5.3 4.3 (18.8) 0.2 4.7 4.1 16.9 4.8
Source: Company, Kotak Institutional Equities estimates
Exhibit 3: We compute fair value of GSPL at Rs225 SoTP valuation of GSPL (Rs mn)
Fair value Valuation basis (Rs mn) (Rs/share) Gujarat state pipeline network DCF valuation 56,815 101 Gujarat Gas (54.2% stake) 0.8X DCF valuation 74,575 132 Sabarmati Gas (27.5% stake) 4X book value 2,696 5 Other investments 0.5X book value 3,651 6 Net debt 10,187 18 Fair value of GSPL (Rs) 127,550 226
Source: Company, Kotak Institutional Equities estimates
12 KOTAK INSTITUTIONAL EQUITIES RESEARCH GSPL Gas Utilities
Exhibit 4: Standalone financial summary of GSPL, March fiscal year-ends, 2014-22E (Rs mn)
2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E Profit model (Rs mn) Net sales 10,507 9,766 9,919 10,276 13,317 18,772 23,842 21,325 20,030 EBITDA 9,289 8,400 8,660 8,883 11,478 15,426 15,915 13,272 11,968 Other income 552 520 656 882 735 594 624 917 1,120 Interest (1,418) (1,178) (799) (596) (354) (2,192) (1,675) (1,267) (927) Depreciation (1,839) (1,892) (1,829) (1,791) (1,750) (1,800) (1,994) (2,121) (2,212) Pretax profits 6,583 5,850 6,688 7,378 10,108 12,028 12,870 10,800 9,949 Extraordinaries — 754 — — — — 1,400 — — Current tax (2,056) (2,198) (1,994) (2,107) (3,156) (3,819) (3,085) (2,660) (2,500) Deferred tax (336) (301) (241) (305) (268) (262) (214) (108) (50) Adjusted net profits 4,192 3,635 4,454 4,966 6,684 7,947 9,572 8,032 7,399 Adjusted EPS (Rs) 7.4 6.5 7.9 8.8 11.9 14.1 17.0 14.2 13.1
Balance sheet (Rs mn) Total equity 32,948 36,231 40,692 44,960 50,650 57,440 66,684 73,511 79,430 Deferred tax liability 4,202 4,504 4,723 4,719 4,984 5,226 5,440 5,548 5,598 Total borrowings 14,520 11,817 10,670 6,305 30,578 23,660 17,160 12,660 9,160 Currrent liabilities 2,357 2,852 2,373 2,350 3,272 3,173 3,147 3,168 3,104 Total liabilities and equity 54,028 55,403 58,458 58,334 89,485 89,500 92,431 94,888 97,292 Cash 4,992 4,352 5,529 8,026 3,645 1,583 2,412 2,473 2,896 Current assets 5,031 6,146 6,708 4,132 3,926 4,876 5,618 5,320 5,166 Total fixed assets 38,154 38,419 38,910 38,521 40,101 40,269 39,629 39,823 39,459 Investments 5,850 6,487 7,311 7,655 41,814 42,772 44,772 47,272 49,772 Deferred expenditure — — — — — — — — — Total assets 54,028 55,403 58,458 58,334 89,485 89,500 92,431 94,888 97,293
Free cash flow (Rs mn) Operating cash flow, excl. working capital 5,719 5,751 5,469 5,863 8,061 16,839 12,495 9,344 8,541 Working capital changes (869) (871) (650) 2,534 508 (8,255) (768) 320 89 Capital expenditure (2,401) (2,157) (1,828) (1,054) (2,895) (2,165) (1,294) (2,315) (1,847) Investments (4,581) 157 (2,027) (3,323) (29,793) 1,476 (2,000) (2,500) (2,500) Other income 516 476 589 699 749 563 624 917 1,120 Free cash flow 2,965 3,199 3,579 8,042 6,423 6,982 11,057 8,266 7,902
Ratios (%) Debt/equity 39.1 29.0 23.5 12.7 55.0 37.8 23.8 16.0 10.8 Net debt/equity 28.1 22.5 19.0 11.3 35.5 27.4 19.2 13.8 9.7 RoAE 11.9 9.3 10.3 10.4 12.7 13.4 14.2 10.6 9.0 RoACE 10.9 9.0 9.7 10.2 10.1 11.2 12.6 10.1 8.8 CROCI 13.6 11.3 11.7 12.1 15.0 17.5 19.2 15.4 13.3
Key assumptions Volumes (mcm/d) 21.1 23.0 24.5 24.9 31.5 34.6 37.8 36.0 33.5 Average tariff (Rs/scm) 1.32 1.12 1.07 1.11 1.13 1.37 1.32 1.20 1.20
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Gas Utilities GSPL
Exhibit 5: Consolidated financial summary of GSPL, March fiscal year-ends, 2017-22E (Rs mn)
2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net sales 59,013 72,610 95,533 125,966 136,616 152,814 EBITDA 16,418 20,439 25,402 32,527 31,916 32,502 Other income 1,040 964 828 859 1,010 1,057 Interest (2,776) (2,416) (4,269) (3,659) (2,966) (2,270) Depreciation (4,365) (4,469) (4,680) (5,212) (5,661) (6,107) Pretax profits 10,317 14,519 17,282 24,515 24,300 25,182 Extraordinaries — — 374 4,400 — — Current tax (2,756) (4,369) (5,144) (5,900) (6,041) (6,334) Deferred tax (519) (819) (757) (633) (502) (419) Net profits 7,042 9,331 11,755 22,382 17,757 18,429 Associate income 140 254 149 200 240 264 Minority interest (1,006) (1,335) (1,918) (4,111) (4,799) (5,482) Consolidated net profits 6,176 8,249 9,986 18,471 13,198 13,211 Adjusted net profits 6,176 8,249 9,737 14,071 13,198 13,211 Consolidated EPS (Rs) 11.0 14.6 17.3 25.0 23.4 23.4
Balance sheet (Rs mn) Total equity 57,606 32,839 43,060 62,364 77,044 91,337 Deferred tax liability 14,892 15,670 16,297 13,675 14,177 14,596 Total borrowings 40,270 65,859 59,393 36,791 28,791 21,291 Other liabilities 5,315 5,259 5,864 21,045 22,373 23,872 Total liabilities and equity 118,082 119,626 124,615 133,875 142,385 151,095 Cash 8,671 5,046 4,715 7,168 8,462 10,298 Other assets 12,115 12,857 14,882 17,389 17,994 19,041 Total fixed assets 92,607 95,824 98,057 100,356 104,468 107,795 Investments 4,689 5,899 6,961 8,961 11,461 13,961 Total assets 118,082 119,626 124,615 133,875 142,385 151,095
Ratios (%) Debt/equity 55.5 135.8 100.1 48.4 31.6 20.1 Net debt/equity 43.6 125.4 92.1 39.0 22.3 10.4 RoAE 9.7 15.4 21.8 33.1 21.2 18.7 RoACE 11.6 14.9 18.5 24.3 23.4 22.2 CROCI 14.5 16.2 20.1 28.4 26.6 26.0
Source: Company, Kotak Institutional Equities estimates
14 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY Varroc Engineering (VARROC) Automobiles & Components FEBRUARY 13, 2020 RESULT Sector view: Neutral
Broadly in-line quarter. Varroc reported consolidated PAT of Rs298 mn (-3% yoy) in CMP (`): 433 3QFY20, which was 33% below our estimates mostly led by (1) negative impact of IND- Fair Value (`): 540 AS 116 and (2) a higher tax rate. Adjusted for that, the company’s PAT was broadly in BSE-30: 41,460 line with our estimate. While growth in domestic 2W and global auto industry will likely be weak in the near-term, we expect the company to deliver double-digit revenue growth from FY2021E onwards led by new order wins from VW & Renault and ramp- up of new plants. BUY stays with revised FV of Rs540 (from Rs520 earlier).
Varroc Engineering Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 666-380 EPS (Rs) 15.3 28.9 45.8 Mcap (bn) (Rs/US$) 59/0.9 EPS growth (%) (54.0) 88.2 58.7 ADTV-3M (mn) (Rs/US$) 26/0 P/E (X) 28.2 15.0 9.4 Shareholding pattern (%) P/B (X) 1.8 1.6 1.4 Promoters 85.0 EV/EBITDA (X) 7.7 5.8 4.3 FIIs 5.2 RoE (%) 6.4 10.9 15.0 MFs/BFIs 5.9/0.2 Div. yield (%) 0.0 0.0 0.0 Price performance (%) 1M 3M 12M Sales (Rs bn) 115 128 148 Absolute (8) (4) (27) EBITDA (Rs bn) 11 13 16 Rel. to BSE-30 (7) (7) (36) Net profits (Rs bn) 2 4 6
PAT broad in line with our estimates excluding impact of IND-AS 116 and higher tax rate
Consolidated PAT came in at Rs298 mn (-70% yoy), which was 33% below our estimate due to (1) due to IND-AS 116 impact and (2) a higher-than-expected tax rate. Tax rate was higher as the company did not take any tax credit for losses incurred in new plants (loss of Rs625 mn in 3QFY20 versus loss of Rs347 mn in 2QFY20). As a result, tax expense was Rs195 mn (KIE: Rs81 mn), reported net profit was Rs144 mn less than our estimate of which tax accounted for Rs114 mn, while IND-AS116 had a negative impact of Rs50 mn on PAT. Adjusted for IND-AS 116 impact and a higher tax-rate, PAT was broadly in line with our estimates. On a qoq basis, depreciation was overstated by Rs190 mn, interest expense was overstated by Rs60 mn and other expenses was understated by Rs200 mn due to the impact of IND-AS 116. Overall, this resulted in PBT being understated by Rs50 mn in 3QFY20. Consolidated revenues came in at Rs28.1 bn (-5% yoy), which was 1% above our estimate. In terms of segments, (1) India business revenue declined by 13% yoy to Rs9.3 bn led by a cut in production by major OEMs and (2) VLS revenues increased by 5% yoy in Euro terms led by 58% yoy growth in VW revenues partly offset by 10-28% yoy decline in Tesla and JLR revenues.
Expect revenues to grow at 13% CAGR over FY2020-22E led by ramp-up of revenues from VLS
We expect the company’s revenues to grow at 13% CAGR over FY2020-22E driven by (1) EUR140 mn additional revenues led by ramp-up of Morocco and Poland plants and (2) double-digit growth in standalone operations led by new orders wins for BS-VI products especially electronic fuel injection, catalytic converters, magneto etc. (revenue potential of Rs4.5-5 bn). As a result, we expect VLS EBITDA margin to improve from 8.8% in FY2020E to Hitesh Goel 11% in FY2022E led by (1) incremental EUR30 mn EBITDA from new plants and (2) 60 bps improvement in EBITDA margin from existing plants due to cost reduction initiatives. Rishi Vora Cut FY2020E EPS estimates by 16%; fine-tune our FY2021-22E EPS estimates; BUY stays
We have cut our FY2020E by 16% mostly led by higher-tax rate assumptions. We have fine- tuned our FY2021-22 EPS estimates led by 3-4% cut in revenue estimates offset by 60-80 bps increase in EBITDA margin assumptions. Maintain BUY with FV revised to Rs540 (from Rs520 earlier), valuing the company at 13X December 2021E (from 14X September 2021E).
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Automobiles & Components Varroc Engineering
Takeaways from the conference call
India business impacted by industry slowdown: Revenues in India business declined by 13% yoy in 3QFY20 led by a decline in production volumes for most of the OEM customers. Revenue decline was led by (1) 16-30% yoy decline with HMSI and Yamaha and (2) 43% yoy decline with Eicher, which was partly offset by (1) 60% yoy revenue growth with M&M and (2) flattish yoy growth with Bajaj Auto in 3QFY20. EBITDA margin (including other income) in India business came in at 11.4% (down 40 bps yoy) in 3QFY20, which was above our estimate of 10% in 3QFY20 due to cost reduction initiatives taken up by the company and IND-AS 116 impact during the quarter. We expect India revenues to grow by 14% yoy in FY2021E, higher than our estimate of growth for domestic two-wheeler industry led by new order win for BS-VI products mainly electronic fuel injection, catalytic converters, magneto (revenue potential of Rs4.5- 5 bn) and increase in market share with Hero Motocorp and TVS Motors. We expect EBITDA margin in the standalone operations to improve to 11.7% by FY2021E led by operating leverage benefits and cost reduction initiatives.
Significant new order wins in domestic market: The company continues to win new orders from India business. Varroc won Rs211 mn worth of new orders for electrical and electronic products and Rs40 mn worth of new orders for Polymer body parts from Bajaj Auto in 3QFY20. The company also won Rs110 mn worth of new orders for polymer body parts from Yamaha India and won Rs120 mn worth of new orders for polymer tools from various customers. The company is supplying throttle body and ECU components (electronic fuel injection parts) to Royal Enfield and Mahindra two-wheeler. The company won business for magnetos (Rs450-500 mn revenue potential) for four models of TVS Motors and will be start supplying from the current month.
VLS business revenue grew in Euro terms: VLS business revenues remained flattish yoy in INR terms led by higher revenues from VW and PSA partly offset by a steep decline in revenues from Tesla and adverse currency impact. VLS business revenues increased by 5% yoy in Euro terms in 3QFY20 led by (1) 58% yoy growth in VW revenues and (2) 8-10% yoy growth in PSA and Ford revenues partly offset by (1) 28% yoy decline in Tesla revenues and (2) 2-10% yoy decline in JLR and FCA revenues. In terms of geographic areas, revenues from USA by 17% yoy, where revenues from India and Europe increase by 3-19% yoy in 3QFY20. VLS business won EUR318 mn worth of net business during 9MFY20, which is 83% of the company’s target for FY2020E. The company has won new projects for Tesla’s Model Y. We expect VLS revenues from these new plants to improve from EUR40 mn in FY2020E to EUR100 mn in FY2021E and EUR180 mn in FY2022E led by ramp-up of H8 line of Czech plant, Brazil and Morocco plants.
VLS EBITDA margin impacted by higher ramp-up cost of newer plants: Reported like-for-like EBITDA declined by 10% yoy (in Euro terms) led by (1) EUR3.1 mn due to adverse commodity cost, (2) EUR0.2 mn negative impact due to higher overheads related to infrastructure being built to support future growth offset by (1) EUR1 mn positive impact due to 5% yoy revenue growth and (2) EUR0.2 mn due to higher other income. As a result, reported EBITDA margin came in at 7.8% (KIE: 9.2%), which was down 130bps on a yoy basis in 3QFY20. EBITDA margin from new facilities (Morocco, Brazil and H8 line in Czech) stood at negative -37.6%. We are building in EBITDA margin of 10.1% in FY2021E (8.8% in FY2020E); the improvement from current levels will be driven by (1) further benefits of improvement in operational efficiencies from the Czech plant, (2) ramp-up of Morocco plant, which is more profitable and enjoys incentives from the government, (3) backward integration from in-house manufacturing of electronic components (JV with ELBA SA) and (4) reduction in overhead costs as plant utilization of new plants in FY2021E. We expect EBITDA margin of new plants to reach 11% in FY2022E.
16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Varroc Engineering Automobiles & Components
China JV performance improves: China JV EBITDA increased by 72% to Rs168 mn in 3QFY20 from Rs98 mn in 3QFY19 due to improvement in performance of its key customers like JLR. Revenue was up by 7% yoy (in local currency terms) in 3QFY20.
Other key points: (1) Consolidated net debt stood at Rs23.75 bn (excluding impact of IND AS-116) as on December 2019 versus Rs21.3 bn in December 2018, (2) production in ELBA JV started in July 2018 (one line) and the company will start six lines in the coming quarters. Current in-house production has resulted in 10% yoy decline in purchase price of the electronics, (3) tax rate for FY2021E will be around 24-25%, (4) the company has 100% business share for e-carburetors (revenue potential for Rs600-700 mn) and (5) the company has won orders with Hyundai Motors in Turkey for i20 model and is in discussions in Vietnam and Mexico.
Exhibit 1: Varroc Engineering’s consolidated EBITDA was 5% above our estimates due to cost reduction initiatives and IND-AS 116 impact Interim consolidated results of Varroc Engineering (Rs mn)
change (%) 3QFY20 3QFY20E 3QFY19 2QFY20 3QFY20E 3QFY19 2QFY20 9MFY20 9MFY19 yoy (%) FY2020E FY2019 yoy (%) Net sales 28,116 27,733 29,656 27,120 1.4 (5.2) 3.7 84,217 89,265 (5.7) 115,474 120,365 (4.1) Raw materials (17,272) (16,629) (18,125) (16,600) 3.9 (4.7) 4.0 (51,233) (55,264) (70,555) (75,458) Staff costs (3,978) (3,852) (3,841) (3,704) 3.3 3.5 7.4 (11,874) (10,987) (16,066) (15,015) Other expenses (4,173) (4,685) (4,911) (4,505) (10.9) (15.0) (7.4) (13,135) (14,622) (18,053) (19,003) Total expenses (25,422) (25,165) (26,877) (24,809) 1.0 (5.4) 2.5 (76,242) (80,873) (104,673) (109,476) EBITDA 2,694 2,568 2,779 2,311 4.9 (3.1) 16.5 7,975 8,392 (5.0) 10,801 10,889 (0.8) Depreciation (1,934) (1,700) (1,399) (1,664) 13.8 38.3 16.2 (5,244) (4,127) (7,176) (5,656) EBIT 760 868 1,380 647 (12.5) (45.0) 17.3 2,731 4,264 (36.0) 3,625 5,233 (30.7) Other income 18 25 71 26 (28.4) (74.9) (31.1) 56 188 207 908 Interest expense (366) (350) (273) (351) 4.6 34.1 4.2 (1,030) (710) (1,322) (968) Profit before tax 412 543 1,179 322 (24.2) (65.1) 27.8 1,756 3,742 (53.1) 2,510 5,172 (51.5) Share of JV profit 81 (20) 62 (66) 14 264 85 280 Tax expense (195) (81) (240) (27) 139.1 (18.7) 622.0 (368) (1,009) (527) (989) Profit after tax 298 442 1,001 229 (32.5) (70.2) 29.9 1,402 2,997 (53.2) 2,068 4,463 (53.7) # of shares 134.8 134.8 134.8 134.8 134.8 134.8 134.8 134.8 EPS (Rs/share) 2.2 3.3 7.4 1.7 10.4 22.2 15.3 33.1 Tax rate (%) 47.3 15.0 20.3 8.4 21.0 27.0 21.0 19.1 As % of net revenues Raw material 61.4 60.0 61.1 61.2 60.8 61.9 61.1 62.7 Staff costs 14.1 13.9 13.0 13.7 14.1 12.3 13.9 12.5 Other expenses 14.8 16.9 16.6 16.6 15.6 16.4 15.6 15.8 EBITDA margin 9.6 9.3 9.4 8.5 9.5 9.4 9.4 9.0 EBIT margin 2.7 3.1 4.7 2.4 3.2 4.8 3.1 4.3 Segmental performance India business Revenue 9,310 9,510 10,662 10,058 (2.1) (12.7) (7.4) 29,727 32,523 (8.6) 40,281 42,744 EBITDA (including other income) 1,064 950 1,257 1,024 12.0 (15.4) 3.9 3,136 3,744 (16.2) 4,380 4,623 EBITDA margin (%) 11.4 10.0 11.8 10.2 10.5 11.5 10.9 10.8 VLS (in mn INR) Revenue 18,246 17,222 18,126 16,299 5.9 0.7 11.9 52,459 54,180 (3.2) 72,143 72,668 EBITDA (including other income) 1,420 1,578 1,651 1,181 (10.0) (14.0) 20.2 4,229 4,603 (8.1) 6,377 6,385 EBITDA margin (%) 7.8 9.2 9.1 7.2 8.1 8.5 8.8 8.8 Others Revenue 616 1,001 703 620 (38.4) (12.4) (0.6) 1,813 2,277 (20.4) EBITDA (including other income) 50 40 31 11 25.0 61.3 354.5 94 241 (61.0) EBITDA margin (%) 8.1 4.0 4.4 1.8 5.2 10.6 VLS customer mix (in EUR mn) Ford 44 40 44 10.2 0.1 137 133 3.5 JLR 39 44 39 (10.3) 0.4 117 140 (16.7) Tesla 22 31 21 (28.3) 7.7 61 94 (35.7) FCA 13 13 11 (2.1) 15.2 38 43 (12.2) Volkswagen 43 28 38 57.9 14.7 118 82 45.0 PSA 23 22 21 8.2 11.1 68 52 31.2 India business customer mix (in INR mn) Bajaj 5,512 5,490 5,451 0.4 1.1 16,100 16,800 (4.2) Honda 704 840 996 (16.2) (29.3) 2,670 3,200 (16.6) Royal Enfield 684 1,200 774 (43.0) (11.7) 1,600 2,000 (20.0) Yamaha 352 500 412 (29.6) (14.6) 1,150 1,500 (23.3) M&M 272 170 262 59.7 3.8 850 700 21.4 Others 2,525 2,462 2,162 2.5 16.7 7,357 8,323 (11.6)
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Automobiles & Components Varroc Engineering
Exhibit 2: Like-for-Like EBITDA margin declined due to adverse RM prices and higher overhead cost EBITDA walk of VLS business , March fiscal year-ends, 3QFY19 – 3QFY20 (EUR mn)
Source: Company, Kotak Institutional Equities
Exhibit 3: EBITDA was impacted by negative operating leverage and lower other income EBITDA walk of India business , March fiscal year-ends, 3QFY19 – 3QFY20 (Rs mn)
Source: Company, Kotak Institutional Equities
18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Varroc Engineering Automobiles & Components
Exhibit 4: Full revenue potential from Brazil plant is pegged around EUR30 mn (EUR60 mn earlier) due to scrapping of Phase-II plant Details on capex for new facilities and revenue potential for Varroc Engineering, March fiscal year-ends, FY2019 -24E (EUR mn)
Full Revenue Full potential Target Break- Confirmed order as of October 2019 to Facility Potential (Eur mn) sales year Even meet the peak revenue Brazil 30 FY2022 4QFY21 100% sourced business Morocco 180 FY2023 2QFY21 ~70% sourced business Poland 200 FY2023 4QFY21 ~55% sourced business Chennai 30 FY2024 4QFY21 ~60% sourced business VLS-ELBA JV 85 FY2024 3QFY21 To reduce sourcing cost of Electronics Czech New Line (H8) 90 FY2022 2QFY21 100% sourced business Bulgaria 10 FY2022 2QFY21 100% sourced business Total 625
Source: Company, Kotak Institutional Equities
Exhibit 5: We have cut our FY2020-21E EPS estimates by 11-16% led by lower revenue growth and higher tax rate assumptions Earnings revision table , March fiscal year-ends, 2020-22E (Rs mn)
New Estimates Old Estimates % change (YoY) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E India Sales (Rs mn) 40,281 45,739 53,033 42,667 47,891 55,611 (5.6) (4.5) (4.6) VLS Sales (Rs mn) 72,143 79,086 91,103 71,813 80,963 90,995 0.5 (2.3) 0.1 Net sales (Rs mn) 114,924 127,700 147,442 118,479 133,454 151,895 (3.0) (4.3) (2.9) India EBITDA (Rs mn) 4,380 5,362 6,257 4,343 5,301 6,160 0.9 1.1 1.6 VLS EBITDA (Rs mn) 6,377 7,984 10,037 6,014 7,435 9,614 6.0 7.4 4.4 Consolidated EBITDA (Rs mn) 11,007 13,633 16,625 10,757 13,196 16,302 2.3 3.3 2.0 EBITDA margin (%) 9.6 10.7 11.3 9.1 9.9 10.7 Net profit (Rs mn) 2,068 3,703 6,101 2,471 4,156 6,185 (16.3) (10.9) (1.4) EPS (Rs) 15.3 27.5 45.3 18.3 30.8 45.9 (16.3) (10.9) (1.4)
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Automobiles & Components Varroc Engineering
Exhibit 6: We expect Varroc to deliver 7% revenue CAGR over FY2019-22E driven by strong growth in both VLS and India business Net revenue breakdown by business segments, March fiscal year-ends, 2015-22E (Rs mn, %)
CAGR (%) 2015 2016 2017 2018 2019 2020E 2021E 2022E FY2015-19 FY2019-22E Gross revenues (Rs mn) Global lighting 41,248 48,198 61,242 63,211 72,668 72,143 79,086 91,103 15.2 7.8 India 27,631 30,806 31,681 36,508 42,745 40,281 45,739 53,033 11.5 7.5 Others 629 3,185 3,163 4,066 4,952 2,500 2,875 3,306 67.5 (12.6) Total 69,508 82,189 96,085 103,785 120,365 114,924 127,700 147,442 14.7 7.0 Yoy growth (%) Global lighting 16.8 27.1 3.2 15.0 (0.7) 9.6 15.2 India 11.5 2.8 15.2 17.1 (5.8) 13.5 15.9 Others 406.6 (0.7) 28.6 21.8 (49.5) 15.0 15.0 Total 18.2 16.9 8.0 16.0 (4.5) 11.1 15.5 Revenue mix (%) Global lighting 59.3 58.6 63.7 60.9 60.4 62.8 61.9 61.8 India 39.8 37.5 33.0 35.2 35.5 35.1 35.8 36.0 Others 0.9 3.9 3.3 3.9 4.1 2.2 2.3 2.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 EBITDA including other income (Rs mn) Global lighting 4,272 3,154 3,807 4,911 6,385 6,377 7,984 10,037 10.6 16.3 India 2,325 2,715 2,775 3,872 4,623 4,380 5,362 6,257 18.7 10.6 Others 449 47 174 399 750 250 288 331 13.7 (23.9) Total 7,046 5,916 6,755 9,182 11,758 11,007 13,633 16,625 13.7 12.2 EBITDA margin including other income (%) Global lighting 10.4 6.5 6.2 7.8 8.8 8.8 10.1 11.0 India 8.4 8.8 8.8 10.6 10.8 10.9 11.7 11.8 Others 71.4 1.5 5.5 9.8 15.1 10.0 10.0 10.0 Total 10.1 7.2 7.0 8.8 9.8 9.6 10.7 11.3
Source: Company, Kotak Institutional Equities estimates
20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Varroc Engineering Automobiles & Components
Exhibit 7: Increased penetration within the existing key customers and addition of new customers will drive revenue growth for VLS Customer-wise revenue breakdown of global lighting business, March fiscal year-ends, 2016-22E (EUR mn)
VLS business (including China) 2016 2017 2018 2019 2020E 2021E 2022E Revenues (EUR mn) American multinational OEM 144 201 183 184 184 184 184 British car OEM 114 145 149 202 142 149 156 American electric car OEM 85 134 120 110 80 84 88 International OEM 111 110 85 60 50 50 50 Large European OEM 37 58 73 70 90 95 99 German OEM 40 44 64 120 161 191 261 European international OEM — — — — — 40 100 Others 220 251 245 234 245 247 258 Total 751 942 919 980 952 1,039 1,197 Revenue mix (%) American multinational OEM 19.1 21.3 19.9 18.8 19.3 17.7 15.4 British car OEM 15.2 15.3 16.3 20.7 14.9 14.3 13.0 American electric car OEM 11.3 14.2 13.0 11.2 8.4 8.1 7.4 International OEM 14.7 11.7 9.3 6.1 5.3 4.8 4.2 Large European OEM 5.0 6.2 7.9 7.1 9.5 9.1 8.3 German OEM 5.3 4.6 7.0 12.2 17.0 18.4 21.8 European international OEM — — — — — 3.8 8.4 Others 29.3 26.6 26.6 23.9 25.7 23.7 21.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Yoy growth (%) American multinational OEM 40.8 39.5 (8.6) 0.4 — — — British car OEM 9.0 26.6 3.4 35.4 (30.0) 5.0 5.0 American electric car OEM 80.8 57.8 (10.8) (8.0) (27.3) 5.0 5.0 International OEM 21.8 (0.1) (22.6) (30.0) (16.4) — — Large European OEM 10.0 55.8 25.3 (3.8) 28.6 5.0 5.0 German OEM 43.9 9.4 46.2 87.1 35.0 18.6 36.6 European international OEM 150.0 Others 10.3 13.8 (2.4) (4.3) 4.6 0.7 4.7 Total 23.9 25.4 (2.4) 6.6 (2.8) 9.2 15.2
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Automobiles & Components Varroc Engineering
Exhibit 8: Bajaj Auto to remain the largest customer in India; greater penetration into Hero and Honda will be key growth driver Customer-wise revenue breakdown of India business, March fiscal year-ends, 2016-22E (Rs mn)
2016 2017 2018 2019 2020E 2021E 2022E Revenues (Rs mn) Bajaj Auto 16,482 15,819 18,340 22,795 22,071 25,463 29,027 Honda group 2,820 3,104 3,932 3,831 3,256 3,332 4,264 Yamaha 1,853 2,074 2,046 2,091 1,464 1,423 1,565 Royal Enfield 1,497 1,952 2,413 2,694 2,290 2,380 2,737 M&M 1,311 1,039 1,025 1,147 1,205 1,265 1,328 Suzuki 177 104 193 202 202 202 212 Hero 139 115 102 300 1,000 1,500 2,000 Others 6,527 7,472 8,458 9,683 8,792 10,175 11,898 Total 30,806 31,681 36,508 42,745 40,281 45,739 53,033 Revenue mix (%) Bajaj Auto 53.5 49.9 50.2 53.3 54.8 55.7 54.7 Honda group 9.2 9.8 10.8 9.0 8.1 7.3 8.0 Yamaha 6.0 6.5 5.6 4.9 3.6 3.1 3.0 Royal Enfield 4.9 6.2 6.6 6.3 5.7 5.2 5.2 M&M 4.3 3.3 2.8 2.7 3.0 2.8 2.5 Suzuki 0.6 0.3 0.5 0.5 0.5 0.4 0.4 Hero 0.5 0.4 0.3 0.7 2.5 3.3 3.8 Others 21.2 23.6 23.2 22.7 21.8 22.2 22.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Yoy growth (%) Bajaj Auto 1.1 (4.0) 15.9 24.3 (3.2) 15.4 14.0 Honda group 27.6 10.1 26.7 (2.6) (15.0) 2.3 28.0 Yamaha 11.8 11.9 (1.3) 2.2 (30.0) (2.8) 10.0 Royal Enfield 80.6 30.4 23.6 11.7 (15.0) 3.9 15.0 M&M 58.2 (20.7) (1.4) 12.0 5.0 5.0 5.0 Suzuki (35.9) (41.2) 84.8 5.0 — — 5.0 Hero 216.4 (17.4) (10.9) 193.8 233.3 50.0 33.3 Others 19.1 14.5 13.2 14.5 (9.2) 15.7 16.9 Total 11.5 2.8 15.2 17.1 (5.8) 13.5 15.9
Source: Company, Kotak Institutional Equities estimates
22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Varroc Engineering Automobiles & Components
Exhibit 9: We estimate Varroc Engineering’s earnings to increase at 11% CAGR over FY2019-22E period Varroc consolidated financial summary, March fiscal year-ends, 2013-22E (Rs mn)
2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net sales 42,102 61,163 67,700 79,092 92,988 102,788 120,365 115,474 128,300 148,092 EBITDA 2,521 3,995 6,169 5,690 5,812 8,808 10,889 10,801 13,312 16,307 Other income 151 230 877 226 942 386 908 207 321 317 Depreciation (1,790) (2,380) (2,540) (2,922) (3,371) (3,865) (5,656) (7,176) (7,906) (8,367) Interest (837) (1,003) (974) (841) (862) (862) (968) (1,322) (1,015) (815) Liability related to CCPS — — (3,780) 1,267 (42) — — — — — Exceptional profit/(loss) — — 518 — — — — — — — Profit before tax 44 842 (249) 3,420 2,480 4,468 5,172 2,510 4,712 7,442 Share of net profits from JV 7 (9) 403 503 796 695 349 85 122 222 Income tax (305) (413) (465) (220) (238) (651) (989) (527) (1,131) (1,563) Profit after tax (254) 420 130 3,694 3,030 4,503 4,463 2,068 3,703 6,101 EPS (Rs) (1.9) 3.1 1.0 27.4 22.5 33.4 33.1 15.3 27.5 45.3 Balance sheet (Rs mn) Equity 7,106 10,949 10,825 17,629 21,854 28,280 30,871 32,292 35,347 40,801 Minority interest 232 305 214 203 202 208 241 241 241 241 Deferred tax liability 539 500 622 473 130 509 913 913 913 913 Other long-term liabilities 191 188 120 80 83 310 328 328 328 328 Total borrowings 12,384 10,855 11,414 15,124 16,414 13,399 24,265 25,265 21,265 16,265 Current liabilities 13,512 16,860 21,089 18,951 19,922 25,818 30,912 30,461 32,908 36,552 Total liabilities 33,965 39,658 44,285 52,459 58,604 68,524 87,530 89,500 91,003 95,101 Net fixed assets 15,288 16,515 20,813 25,180 28,050 32,009 39,368 41,192 38,286 34,919 Intangibles 1,243 1,766 1,506 1,878 1,758 3,036 9,659 9,659 9,659 9,659 Investments 29 1,037 223 119 — — — — — — Cash 1,863 2,560 690 1,771 3,541 3,320 1,821 472 1,763 4,654 Other current assets 15,541 17,779 21,052 23,511 25,255 30,159 36,683 38,176 41,295 45,869 Total assets 33,965 39,658 44,285 52,459 58,604 68,524 87,530 89,500 91,003 95,101 Free cash flow (Rs mn) Operating cash flow excl. working capital 2,361 3,640 6,347 5,420 6,070 7,761 9,947 10,359 12,303 14,966 Working capital changes 1,121 961 (5,064) (2,516) 695 2,987 (5,208) (1,945) (671) (930) Capital expenditure (3,002) (2,849) (3,508) (5,992) (6,244) (5,958) (14,414) (9,000) (5,000) (5,000) Free cash flow (4,255) 192 (3,149) (3,662) 90 3,876 (13,785) (1,701) 5,938 8,538 Ratios EBITDA margin (%) 6.0 6.5 9.1 7.2 6.3 8.6 9.0 9.4 10.4 11.0 PAT margin (%) (0.6) 0.7 0.2 4.7 3.3 4.4 3.7 1.8 2.9 4.1 Net debt/equity (X) 1.4 0.7 1.0 0.7 0.6 0.4 0.7 0.8 0.5 0.3 Book value (Rs/share) 54 83 82 132 164 211 231 241 264 304 RoAE (%) 4.5 1.2 25.6 15.2 17.8 15.0 6.5 10.9 15.9 RoACE (%) 7.3 16.4 10.5 8.3 11.5 9.0 5.0 7.4 11.4
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 REDUCE Sunteck Realty (SRIN) Real Estate FEBRUARY 14, 2020 RESULT Sector view: Neutral
New launches propel sales. Sunteck reported sales of Rs3.2 bn (+5% yoy) in 3QFY20 CMP (`): 395 largely on account of the launch of a new phase (Avenue 4) at ODC, Goregaon that Fair Value (`): 400 accounted for 64% of the sales even as sales from existing projects remained weak. BSE-30: 41,460 Cash collections at Rs1.6 bn (+8% yoy) remain modest and failed to pick pace with sales even as construction spends remain strong (+70% yoy) leading to gross operating cash flow of Rs337 mn in 3QFY20. Maintain REDUCE rating with a fair value of Rs400/share.
Sunteck Realty Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 533-320 EPS (Rs) 12.5 35.6 33.6 Mcap (bn) (Rs/US$) 58/0.9 EPS growth (%) (22.7) 183.9 (5.7) ADTV-3M (mn) (Rs/US$) 93/1 P/E (X) 31.5 11.1 11.8 Shareholding pattern (%) P/B (X) 1.9 1.6 1.4 Promoters 67.2 EV/EBITDA (X) 22.9 7.7 8.1 FIIs 26.7 RoE (%) 6.0 15.4 12.7 MFs/BFIs 2.5/0.2 Div. yield (%) 0.3 0.3 0.3 Price performance (%) 1M 3M 12M Sales (Rs bn) 8 16 17 Absolute (10) (5) 12 EBITDA (Rs bn) 3 7 7 Rel. to BSE-30 (9) (8) (3) Net profits (Rs bn) 2 5 5
New launches help sustain pre-sales, inventory overhang continues to remain
Sunteck sold 0.19 mn sq. ft (-43% yoy) during the quarter for sales value of Rs3.2 bn (+5% yoy). Pre-sales were primarily hinged on the recently launched Avenue 4 in ODC, Goregaon which accounted for 64% of the sales value. We note that even in 3QFY19 Sunteck Westworld in Naigaon accounted for 42% of the sales value. Sales at extant projects—Naigaon and earlier phases of ODC were absent while BKC remained weak with only one apartment being sold during the quarter.
Sales value in 9MFY20 at Rs6 bn is down 33% yoy though we factor some improvement for 4QFY20 and factor full year sales of Rs8.8 bn in FY2020 (-25% yoy) and much stronger sales of Rs19 bn in FY2021. We expect the launch of Phase 2 at Naigaon in 4QFY20 to help strengthen sales momentum, aided by recent launches at ODC and improved sales in BKC. Sunteck has unsold inventory of Rs17.5 bn in BKC, Rs6 bn in Avenue 1&2, ODC and Rs11.5 bn in Avenue 4.
Sunteck recognized revenues of Rs1.9 bn of which 18%/41%/27% contribution came in from BKC/ODC/Naigaon, respectively. EBITDA for the quarter stood at Rs502 mn and PAT of Rs330 mn with EBITDA margin declining to 26% in 3QFY20 (lowest in last nine quarters). EBITDA margin should be seen in the context of lower revenue recognition from the high margin projects in BKC.
Collections still lagging pre-sales numbers, likely to improve going forward
Collections for 3QFY20 stood at Rs1.6 bn (+8% yoy) against construction spend of Rs1.1 bn (+70% yoy) in addition to overhead cost spent yielding an operating cash flow of Rs5 mn for the quarter. We note that against average sales of Rs2.5 bn in the last eight quarters, cash collection has averaged Rs1.6 bn during the same period and for 3QFY20. In 3QFY20, the Murtuza Arsiwalla company spent Rs1.1 bn on its residential projects.
Maintain REDUCE with fair value of Rs400/share Samrat Verma
Sunteck Realty has done well with the launch of a high velocity affordable housing project in Naigaon that required contained capital commitment as well as healthy sales in the recently launched Avenue 4 at ODC, Goregaon. However, execution for the larger commercial projects still appears to be lagging, as do cash collections from residential sales.
Maintain REDUCE with fair value of Rs400/share. [email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Sunteck Realty Real Estate
Exhibit 1: Naigaon along with BKC projects will continue to drive bulk of the revenue recognition Quarterly results for Sunteck Realty, March fiscal year-ends, 2018-2020E (Rs mn)
Change (%) 3QFY20 3QFY20E 3QFY19 2QFY20 3QFY20E 3QFY19 2QFY20 9MFY20 9MFY19 % chg 2020E 2019 % chg 2021E Financials snapshot Net sales 1,939 2,167 1,947 1,347 (11) (0) 44 5,033 5,861 (14) 8,142 8,568 (5) 15,998 Operating costs (1,437) (1,455) (1,133) (933) (1) 27 54 (3,508) (3,151) 11 (5,511) (4,788) 15 (8,711) EBITDA 502 712 814 414 (30) (38) 21 1,525 2,710 (44) 2,631 3,780 (30) 7,287 Other income 54 102 104 62 (47) (48) (12) 162 415 (61) 215 343 (37) 215 Interest costs (110) (114) (109) (114) (3) 1 (3) (316) (316) 0 (425) (408) 4 (425) Depreciation (9) (8) (7) (8) 23 34 22 (24) (16) 55 (31) (22) 39 (31) PBT 436 692 802 354 (37) (46) 23 1,346 2,794 (52) 2,390 3,693 (35) 7,046 Taxes (98) (228) (289) (55) (57) (66) 77 (354) (990) (64) (706) (1,265) (44) (706) PAT 339 464 513 299 (27) (34) 13 992 1,803 (45) 1,684 2,428 (31) 6,340 Net comprehensive income 330 432 462 291 953 1,638 1,609 2,293 6,265 EPS (Rs/share) 1.0 1.0 1.0 1.0 3.0 3.0 1.0 1.0 1.0 Key ratios EBITDA margin (%) 25.9 32.9 41.8 30.7 30.3 46.2 32.3 44.1 45.5 PAT margin (%) 17.5 21.4 26.3 22.2 19.7 30.8 20.7 28.3 39.6 Effective tax rate (%) 22.4 33.0 36.0 15.5 26.3 35.4 29.5 34.2 10.0
Source: Company, Kotak Institutional Equities estimates
Andheri West. Sunteck has entered into a JDA project for mixed used development in Lokhandwala, Andheri West of 1.1 mn sq. ft expected to generate revenues of Rs28 bn. The agreement required no upfront capital investment except an interest bearing refundable deposit of Rs600 mn. While the land owner is responsible for getting regulatory approvals, Sunteck will be responsible for construction, sales and marketing of the project. The project is expected to be launched in 1QFY21 with completion timeline of 4-5 years.
BKC. Sunteck sold one unit (6,567 sq. ft) in its BKC projects in 3QFY20 lagging behind company’s target of selling 2-3 units in a quarter and selling a total of only three units in 9MFY20. However, realization improved to Rs51,774 per sq. ft against average realization of Rs49,260 per sq. ft achieved in FY2019. We note that Sunteck currently has an outstanding inventory of 0.28 mn sq. ft (38 units) in BKC, which the management hopes it will be able to liquidate over the next 3-4 years.
Even though units at BKC are completed, collection period for such units averages at 12 months due to the high ticket size thus slowing the collection pace. Sunteck collected Rs253 mn against sales of Rs340 mn in BKC in 3QFY20.
Goregaon. Sunteck City in Goregaon which currently has only two phases launched saw no sales in 3QFY20 taking the total sales in 9MFY20 to 30. Inventory of 300 units left is expected to be liquidated over the next three years. Sunteck sold 153 units in FY2019. Avenue 1 and 2 are expected to be finished over the next 6 months and 12 months, respectively.
Sunteck launched Avenue 4 at ODC, Goregaon in December 2019 which witnessed the highest sales amongst all projects in 3QF20 at Rs2 bn. The company sold 123 apartments (more than 50% of launched inventory) in three weeks. Apart from residential, commercial area of 2.5 mn sq. ft would be launched at a later time while remaining 0.5- 0.6 mn sq. ft could be used for development of either residential or commercial development.
KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Real Estate Sunteck Realty
Naigaon. Sunteck West World in Naigaon with gross sales area of 10 mn sq. ft which remained the mainstay of pre-sales in 3QFY19, made no sales in 3QFY20. Cash collections stood at Rs558 mn in 3QFY20.
Against sales of Rs6 bn to date in Naigaon, the company has collected Rs3 bn while only 33% of the sales (Rs2 bn) have been recognized to date. Collections at Naigaon are likely to pick up with completion of construction at seven ongoing towers. Sunteck has sold 1,849 units in Naigaon out of 2,476 units and expects to deliver the projects in 2QFY21 much ahead of its RERA timeline.
Sunteck launched Phase 2 (Sunteck Maxx World) at Naigaon in 4QFY20 where it made pre-sales of Rs6 bn (1,600 apartments) in two weeks.
Commercial portfolio. Sunteck currently has three commercial projects –Sunteck Icon and Gateway 51 at BKC, Junction and Sunteck Crest on Andheri-Kurla Road. Commercial assets (2.5 mn sq. ft) planned at ODC are yet to get regulatory approval. The company spent Rs70 mn on construction of commercial projects while made strata sales of Rs810 mn at Sunteck Icon in 3QFY20. Sunteck expects to lease 50-60% of the area before the completion of construction in the next 12-15 months with rentals expected in the range of Rs250-300 per sq. ft per month.
Exhibit 2: Construction spend continues to increase at both commercial and residential projects reaching Rs3.9 bn in 9MFY20 Sunteck’s operational performance, 3QFY19 - 3QFY20
Growth (%) 3QFY20 3QFY19 2QFY20 3QFY19 2QFY20 9MFY20 9MFY19 Sales (sq. ft) 186,900 329,079 75,357 (43) 148 425,438 1,136,017 Sales (Rs mn) 3,250 3,106 1,016 5 220 6,124 9,133 Sales (Rs/sq. ft) 17,389 9,438 13,480 84 29 14,393 8,039 Collection (Rs mn) 1,644 1,529 1,854 8 (11) 5,390 4,545 Construction (Rs mn) 1,124 662 1,466 70 (23) 3,890 1,945
Source: Company, Kotak Institutional Equities estimates
26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sunteck Realty Real Estate
Exhibit 3: Sales at completed projects continues to remain weak even as new activations during the quarter pushed sales to Rs3.2 bn Operational data for Sunteck Realty, March fiscal year-ends, 2018 - 20 (Rs mn)
Growth (%) 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 3QFY19 3QFY20 Completed projects Bandra Kurla Complex (BKC) Sales (sq. ft) 12,648 18,900 21,445 11,500 13,041 7,929 6,567 (69) (17) Sales value (Rs mn) 660 955 1,113 488 810 378 340 (69) (10) Collections (Rs mn) 632 375 669 988 220 223 253 (62) 13 Cost incurred (Rs mn) — — — — 61 — — NA NA Realizations (Rs / sq. ft) 52,182 50,529 51,905 42,435 62,112 47,673 51,774 (0) 9 Under construction projects ODC, Goregaon Sales (sq. ft) 61,326 4,321 18,684 115,042 25,403 16,850 143,550 668 752 Sales value (Rs mn) 922 66 266 1,582 363 240 2,070 678 762 Collections (Rs mn) 652 732 518 374 599 859 677 31 (21) Cost incurred (Rs mn) 193 439 375 1,157 366 879 270 (28) (69) Realizations (Rs / sq. ft) 15,031 15,251 14,237 13,752 14,276 14,249 14,420 1 1 Naigaon Sales (sq. ft) — 693,198 262,117 145,997 121,244 37,585 — (100) (100) Sales value (Rs mn) — 3,172 1,302 732 635 196 — (100) (100) Collections (Rs mn) — 152 229 598 933 548 558 144 2 Cost incurred (Rs mn) — 77 110 621 662 325 392 256 21 Realizations (Rs / sq. ft) — 4,576 4,966 5,011 5,239 5,212 — (100) (100)
Source: Company, Kotak Institutional Equities estimates
Exhibit 4: Cash collections for Sunteck has not picked up pace to match pre-sales Sunteck’s operational performance, 3QFY13 - 3QFY20
Sales (sq. ft, LHS) Sales (Rs/sq. ft, RHS) Sales (Rs mn) Collection (Rs mn) Construction (Rs mn) 800,000 35,000 4,500
4,000 700,000 30,000 600,000 3,500 25,000 3,000 500,000 548 20,000 2,500 136 400,000 88 15,000 2,000 1854 300,000 1,500 10,000 200,000 1,000 100,000 5,000 500
- - -
3QFY13 3QFY14 1QFY17 1QFY18 1QFY19 1QFY14 1QFY15 3QFY15 1QFY16 3QFY16 3QFY17 3QFY18 3QFY19 1QFY20 3QFY20
1QFY15 3QFY16 3QFY17 1QFY19 1QFY20 1QFY14 3QFY14 3QFY15 1QFY16 1QFY17 1QFY18 3QFY18 3QFY19 3QFY20 3QFY13
Source: Company, Kotak Institutional Equities
Exhibit 5: Sunteck Realty, change in estimates, March fiscal year-ends, 2020-2022E (Rs mn)
New estimates Old estimates Change (%) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Revenue 8,142 15,998 17,015 11,734 14,284 18,175 (30.6) 12.0 (6.4) EBITDA 2,631 7,165 6,512 4,767 6,334 8,490 (44.8) 13.1 (23.3) PAT 1,759 4,993 4,709 3,310 4,539 6,116 (46.9) 10.0 (23.0)
Source: Company, Kotak Institutional Equities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Real Estate Sunteck Realty
Exhibit 6: Key assumptions driving our financial model, March fiscal year-ends, 2017-22
2017 2018 2019 2020 2021 2022 Development Sales (Rs mn) 6,468 5,538 11,826 8,888 19,081 25,289 Sales (mn sq. ft) 0.31 0.26 1.40 0.66 1.54 2.15 Sales (Rs/sq. ft) 20,985 20,977 8,434 13,465 12,414 11,780 Collections (Rs mn) 4,593 5,493 6,601 11,388 22,345 28,766 Construction (Rs mn) 1,961 2,485 3,626 5,295 5,612 5,859 GCF (Rs mn) 2,632 3,008 2,975 6,092 16,733 22,907 GCF (Outstanding) 103,373 100,364 97,389 91,297 74,564 51,657 Financials Revenue (Rs mn) 9,522 8,883 8,568 8,142 15,998 17,015 EBITDA (Rs mn) 3,481 3,720 3,780 2,631 7,165 6,512 EBITDA (%) 37 42 44 32 45 38
Source: Company, Kotak Institutional Equities estimates
Exhibit 7: Residential portfolio accounts for 69% of the NAV of Sunteck Realty, while commercial portfolio accounts for the balance 44% SOTP value of Sunteck Realty based on March 2021
Value Inventory / Area Receivables Cost GCF Project Location (Rs mn) (Rs/share) (%) (mn sq. ft) (Rs/sq. ft) (Rs mn) (Rs mn) (Rs mn) (Rs mn) Residential Ongoing Signature Island BKC 4,410 35 9 0.2 69,311 10,494 — — 10,494 Signia Pearl BKC 2,912 23 6 0.1 50,504 3,848 2,128 — 5,976 Sunteck City Oshiwara 9,810 78 20 1.4 21,689 30,054 5,194 14,031 21,216 Sunteck World Naigaon 9,729 77 19 7.9 5,395 42,619.9 3,008 20,678 24,950 Others 743 6 1 Ongoing 29,705 236 59 9.5 9,147 87,016 14,642 34,709 66,948 Upcoming Others 4,692 37 9 Upcoming 4,692 37 9 Residential 34,398 273 69 9.5 9,147 87,016 14,642 34,709 66,948 Commercial Operational Sunteck Centre Vile Parle 687 5 1 0.1 110 112.4 — Operational 687 5 1 0.1 77 112 Upcoming Sunteck City Oshiwara 14,866 118 30 2.6 151 — 14,388 Upcoming 14,866 118 30 2.6 Commercial 15,553 123 31 2.7 Operational 30,392 241 61 Upcoming 19,559 155 39 Total 49,951 396 100 Net cash 411 3 1 Equity Value 50,362 400 101
Notes: (a) Inventory,receivables and cost to be incurred is as of 31st March 2021. (b) In Naigaon, Sunteck is entitled to 70% of the revenues and accordingly the sales value (and rate is 70% of gross)
Source: Company, Kotak Institutional Equities estimates
28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sunteck Realty Real Estate
Exhibit 8: Our estimates do not factor revenue recognition at Naigaon that will likely accrue beyond FY2021E Sunteck: Profit model, balance sheet, cash flow model, March fiscal year-ends, 2017-22E (Rs mn)
2017 2018 2019 2020E 2021E 2022E Profit model Net sales 9,522 8,883 8,568 8,142 15,998 17,015 EBITDA 3,481 3,720 3,780 2,631 7,165 6,512 Other income 82 93 343 215 185 210 Interest (455) (421) (408) (425) (274) (90) Depreciation (19) (13) (22) (31) (26) (27) Pre-tax profits 3,088 3,379 3,693 2,390 7,050 6,605 Tax (864) (1,003) (1,274) (706) (2,244) (2,097) Deferred taxation (8) (76) (10) — — — Net income 2,216 2,301 2,409 1,684 4,806 4,508 Adjusted net income 2,043 2,146 2,275 1,759 4,993 4,709 Earnings per share (Rs) 14.6 15.3 16.2 12.5 35.6 33.6 Balance sheet Total equity 17,953 26,303 28,337 29,932 34,761 39,306 Non-controlling interests 706 775 910 910 910 910 Gross debt 9,440 5,680 6,346 16,006 3,191 3,099 Non-current liabilities 24 29 62 54 58 56 Current liabilities 8,647 3,776 3,572 3,284 6,278 5,907 Total liabilities and equity 36,771 36,563 39,228 50,186 45,199 49,278 Fixed assets 721 705 725 8,576 13,574 19,403 Non-current financial assets 2,680 1,709 2,776 2,663 2,689 2,709 Other non-current assets 298 219 241 241 241 241 Current assets 33,072 33,930 35,487 38,707 28,694 26,925 Total assets 36,771 36,563 39,228 50,186 45,199 49,278 Free cash flow Operating cash flow, excl. working capital 2,111 2,229 2,297 1,789 5,019 4,736 Working capital changes 563 (4,690) (2,319) 6,946 5,327 3,482 Capital expenditure (0) 4 (42) (7,882) (5,025) (5,856) Free cash flow 2,674 (2,457) (64) 853 5,321 2,362 Ratios (%) Debt/equity 52.6 21.6 22.4 53.5 9.2 7.9 Net debt/equity 49.3 19.7 19.2 15.9 (1.2) (6.6) RoE (%) 12.0 9.7 8.3 6.0 15.4 12.7 RoCE (%) 9.6 9.3 7.9 4.4 14.0 11.4 Book value per share (Rs/share) 128 187 202 213 248 280 Adjusted book value per share (Rs /share) 68 127 142 153 188 220
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 SELL Schaeffler India (SCHFL) Automobiles & Components FEBRUARY 13, 2020 RESULT, CHANGE IN RECO. Sector view: Neutral
Disappointing end to a challenging year. SCHFL reported weak 4QCY19 results CMP (`): 4,604 with 15% yoy decline in EBITDA, which was 16% below our estimate. Automotive Fair Value (`): 3,900 OEM revenues (40-42% of overall revenues) declined significantly due to a decline in BSE-30: 41,460 industry production. Long-term growth prospects for the company remain strong led by a strong pipeline of new products, however, concerns on declining diesel mix in the PV segment due to BS-VI transition and expensive valuations remain. Downgrade to SELL.
Schaeffler India Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 5,715-3,836 EPS (Rs) 117.7 134.2 170.8 Mcap (bn) (Rs/US$) 144/2.1 EPS growth (%) (18.3) 14.0 27.3 ADTV-3M (mn) (Rs/US$) 37/1 P/E (X) 39.1 34.3 26.9 Shareholding pattern (%) P/B (X) 4.9 4.3 3.7 Promoters 74.1 EV/EBITDA (X) 21.4 19.4 15.4 FIIs 3.2 RoE (%) 13.0 13.3 14.8 MFs/BFIs 14.1/2.2 Div. yield (%) 0.2 0.2 0.2 Price performance (%) 1M 3M 12M Sales (Rs bn) 44 46 51 Absolute (1) 8 (17) EBITDA (Rs bn) 6 7 8 Rel. to BSE-30 0 5 (28) Net profits (Rs bn) 4 4 5
Weak quarter: 4QCY19 EBITDA was 16% below estimate
SCHFL reported 4QCY19 EBITDA of Rs1.5 bn (down 15% yoy), which was 16% below our estimates due to (1) a miss in revenue growth and (2) lower-than-expected gross margins. Revenues declined by 13% yoy (KIE: -1% yoy), which was driven by (1) 12% yoy decline in automotive segment led by a production cut in CV and passenger vehicle segment, (2) double-digit yoy decline in industrial segment led by a weakness in 2W and tractor segment, some weakness in process industries and machine tooling segment, which was partially offset by strong growth in industrial distribution and wind energy segment and (3) a decline in exports segment due to order cancellations from Europe and South East Asia.
EBITDA margin came in at 14.2% (down 30 bps yoy and up 40 bps qoq), which was 110 bps below our estimate of 15.3% due to (1) lower-than-expected gross margin driven by a weaker product mix and (2) negative operating leverage. Qoq reduction in gross margin (down 90 bps) is due to a weaker product mix (higher mix of industrial segment), despite benefit of recent softness in commodity prices. The company reported net profit of Rs846 mn (down 21% yoy), which was 27% below our estimate. For the full year CY2019, revenues declined by 4% yoy due to a steep decline in automotive volumes and a decline in diesel mix in the PV segment. EBITDA margin declined by 170 bps yoy to 14.5% in CY2019.
Expect 10% revenue CAGR over CY2019-22E aided by lower base of CY2019
We expect SCHFL to deliver 10% revenue CAGR over CY2019-22E led by (1) double-digit CAGR in auto OEM aided by a favorable base, (2) 10-12% CAGR in industrial and auto aftermarket segment aided by market share gains due to focus on new product introductions Hitesh Goel through localization efforts and (3) strong growth in railways and wind energy segment.
Cut CY2020-21 EPS estimates by 8-10%; downgrade to SELL Rishi Vora
We cut our CY2020-21 EPS estimates by 8-10% due to (1) 4% cut in revenues and (2) 20-50 bps cut in EBITDA margin due to a weaker product mix. Downgrade to SELL on weak automotive segment outlook, especially on the diesel mix of the PV segment (where the company has higher market share) due to BS-VI transition and expensive valuations; FV revised to Rs3,900 (from Rs3,800 earlier) based on 23X December 2021E EPS.
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Schaeffler India Automobiles & Components
Key takeaways from the conference call
Segmental details on revenue performance in 4QCY19: Overall revenues for the company declined 13% yoy in 4QCY19 driven by (1) 12% yoy decline in automotive segment, (2) weakness in export markets due to order cancellations from Europe and South East Asia and (3) a steep-decline in the industrial segment. Decline in automotive segment could be attributed to a steep decline in CV and four-wheeler production volumes and decline in diesel mix (where the company has a higher market share) during the quarter. Industrial segment growth also declined by double-digit yoy in 4QCY19 led by (1) weakness in 2W and tractor segment, (2) continued weakness in construction equipment, cement & steel sector and (3) a steep decline in machining tooling segment (-13% yoy) partly offset by strong growth in railways (5% of the total revenues) and wind energy segment. For the full year, export segment growth remained flattish on a yoy basis. Wind segment grew by 20% yoy led by strong order inflows in CY2019. Railway segment grew by 25% yoy in CY2019 led by strong growth in railways as well as metros (20% of the total railway segment revenues). Industrial aftermarket segment grew by +12% yoy in CY2019 and the company plans to launch new products in this segment. Overall, mobility revenues declined by 7% yoy in CY2019. Revenue mix for the company for CY2019- (1) auto OEMs - 34.5%, (2) auto aftermarket - 7.6%, (3) industrial OEMs - 33.2%, (4) industrial aftermarket - 14.2% and (5) exports - 10.4%.
Adverse product mix and negative operating leverage impacted profitability: The company’s overall EBITDA margin declined by 90 bps on yoy basis in 4QCY19 due to an adverse product mix (higher industrial segment mix, which has higher traded revenues) and negative operating leverage. Overall localization content is around 57% and the company plans to improve it further to 75% over the next three years. The company also highlighted that it is facing pressure from OEMs to reduce prices due to weak demand.
For the full year CY2019, revenues de-grew by 4% yoy due to a steep decline in automotive volumes and a decline in diesel mix in the PV segment. EBITDA margin declined by 170 bps yoy to 14.5% due to negative operating leverage in CY2019. Adjusted PAT declined by 18% yoy to Rs3.7 bn in CY2019. Tax rate for CY2019 stood at 31.2%. The company generated FCF of Rs1.9 bn and operating cash flow of Rs5.1 bn in CY2019. Working capital days increased to 72 days of sales in CY2019 from 70 days of sales in CY2018 largely due to reduction in payable days (from 63 days in CY2018 to 42 days in CY2019) offset by reduction in inventory days (from 73 days in CY2018 to 60 days in CY2019). The company incurred capex of Rs3.2 bn for CY2019..
The company highlighted that diesel mix in the PV segment has come down to ~20% from 34% in CY2018. The company expects diesel mix to decline in CY2020E. However, the company expects to increase its content per vehicle by 30% due to BS-VI norm change led by introduction of new products for clutches, damping system and engine parts. However, the company will be importing these products from the parent company and hence, will have an adverse impact on margins. The company also expects diesel content per vehicle to inch up due to CAFÉ norms (higher engine part content in order to improve fuel efficiency).
Other key points: (1) Automotive aftermarket grew by 20% qoq in 4QCY19, (2) the company did not take any price cuts in 4QCY19, (3) effective tax rate will stay around 27% going forward, (4) the company is strongly present with Hyundai and Kia Motors in India, (5) the company has launched heavy duty bearings (load bearing capacity of 32.5 tons) for dedicated freight corridors and (6) the company will continue to invest Rs2-2.5 bn annually over the next few years.
KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Automobiles & Components Schaeffler India
Exhibit 1: 4QCY19 EBITDA came in 16% below our estimate due to steep decline in revenues and lower-than-expected gross margin Interim results (proforma), Calendar year-ends, 2018-20E (Rs mn, %)
change (%) 4QCY19 4QCY19E 4QCY18 3QCY19 4QCY19E 4QCY18 3QCY19 CY2019 CY2018 yoy (%) CY2020E CY2019 yoy (%) Net sales 10,365 11,507 11,863 10,352 (9.9) (12.6) 0.1 43,606 45,615 (4.4) 45,616 43,606 4.6 Cost of materials consumed (3,782) (4,365) (3,961) (17,308) (18,176) Purchase of stock-in-trade (1,395) (2,277) (2,313) (10,030) (12,859) Changes in inventories (1,449) (1,047) (251) (158) 2,299 Net raw material cost (6,626) (7,192) (7,689) (6,525) (7.9) (13.8) 1.5 (27,496) (28,736) (4.3) (28,652) (27,496) 4.2 Employee expenses (803) (900) (785) (891) (10.7) 2.3 (9.9) (3,452) (3,179) (3,624) (3,452) Other expenses (1,466) (1,658) (1,671) (1,507) (11.6) (12.2) (2.7) (6,323) (6,305) (6,512) (6,323) Total expenses (8,895) (9,750) (10,145) (8,923) (8.8) (12.3) (0.3) (37,270) (38,219) (2.5) (38,788) (37,270) 4.1 EBITDA 1,470 1,757 1,718 1,428 (16.4) (14.5) 2.9 6,336 7,396 (14.3) 6,828 6,336 7.8 Depreciation (425) (400) (388) (400) 6.2 9.4 6.2 (1,587) (1,485) (1,859) (1,587) EBIT 1,045 1,357 1,330 1,029 (23.0) (21.4) 1.6 4,749 5,911 (19.7) 4,969 4,749 4.6 Other income 207 200 265 129 3.3 (22.2) 59.7 632 908 778 632 Interest expense (11) (5) (27) (4) (35) (70) — (35) Profit before tax 1,241 1,552 1,569 1,154 (20.0) (20.9) 7.6 5,346 6,749 (20.8) 5,747 5,346 7.5 Extraordinary income/(losses) — — — — (3) (432) — (3) Tax expense (396) (397) (497) (209) (0.4) (20.4) 89.0 (1,666) (2,119) (1,552) (1,666) Profit after tax 846 1,155 1,072 944 (26.8) (21.1) (10.5) 3,676 4,198 (12.4) 4,195 3,676 14.1 Adjusted net profit 846 1,155 1,072 944 (26.8) (21.1) (10.5) 3,679 4,480 (17.9) 4,195 3,679 14.0 No. of shares 31.3 31.3 31.3 31.3 31.3 31.3 31.3 31.3 Adjusted EPS (Rs/share) 27.0 36.9 34.3 30.2 (26.8) (21.1) (10.5) 117.7 143.3 (17.9) 134.2 117.7 14.0 Tax rate (%) 31.9 25.6 31.7 18.1 31.2 31.4 27.0 31.2 As % of net revenues Raw material 63.9 62.5 64.8 63.0 63.1 63.0 62.8 63.1 Staff costs 7.8 7.8 6.6 8.6 7.9 7.0 7.9 7.9 Other expenses 14.1 14.4 14.1 14.6 14.5 13.8 14.3 14.5 EBITDA margin 14.2 15.3 14.5 13.8 14.5 16.2 15.0 14.5 EBIT margin 10.1 11.8 11.2 9.9 10.9 13.0 10.9 10.9
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: Steep decline in automotive production resulted in 4% yoy decline in revenues in CY2019 Segmental revenue growth and revenue mix, Calendar year-ends (%)
CY2019 CY2018 Comments Yoy revenue growth (%) Automotive (1) (21.1) 15.1 Automotive segment revenues declined by 12% yoy in 4QCY19 Industrial 16.4 19.6 Industrial segment revenues declined by double-digits yoy led by weakness in process industries and machine tooling segment Exports (0.6) 9.1 Export segment revenues declined yoy in 4QCY19 led by order cancellations from Europe and South East Asia Total (4.4) 15.9 Revenue mix (%) Mobility segments 80.0 82.8 Others (2) 20.0 17.2 Total 100.0 100.0 Revenue mix (%) Automotive (1) 42.1 51.0 Industrial 47.5 39.0 Exports 10.4 10.0 Total 100.0 100.0
Notes: (1) Two-wheeler, tractors and CVs bearings business are part of industrial segment and not automotive segment (2) Others incldue raw material (steel, cement, etc.), wind and power transmission segments
Source: Company, Kotak Institutional Equities
32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Schaeffler India Automobiles & Components
Exhibit 3: We expect the company to deliver 10% revenue CAGR over CY2019-22E Revenue growth and profitability assumptions for different businesses, Calendar year-ends, 2017-22E (Rs mn)
2017 2018 2019 2020E 2021E 2022E Erstwhile Schaeffler India Revenues 19,187 22,056 22,793 24,803 27,951 31,208 EBITDA 3,665 3,757 3,334 3,579 4,290 4,773 EBITDA margin (%) 19.1 17.0 14.6 14.4 15.3 15.3 Net profit 2,380 2,589 2,359 2,619 3,142 3,571 INA Bearings Revenues 11,701 13,005 10,787 10,787 12,081 13,531 EBITDA 1,678 1,792 1,347 1,294 1,691 2,030 EBITDA margin (%) 14.3 13.8 12.5 12.0 14.0 15.0 Net profit 743 944 416 456 721 917 LuK India Revenues 8,443 10,554 10,026 10,026 11,229 12,577 EBITDA 1,478 1,847 1,654 1,654 1,965 2,264 EBITDA margin (%) 17.5 17.5 16.5 16.5 17.5 18.0 Net profit 773 967 901 901 1,113 1,298 Synergy benefits Revenues EBITDA 300 500 500 EBITDA margin (%) Net profit 219 365 365 Overall entity Revenues 45,615 43,606 45,616 51,261 57,316 EBITDA 7,396 6,336 6,828 8,446 9,566 EBITDA margin (%) 16.2 14.5 15.0 16.5 16.7 Net profit 4,500 3,676 4,195 5,340 6,152 EPS 144.0 117.7 134.2 170.8 196.8
Source: Company, Kotak Institutional Equities estimates
Exhibit 4: We cut our CY2020-21E EPS estimates by 8-10% due to lower revenue growth and EBITDA margin assumptions Earnings revision table of Schaeffler India, Calendar year-ends, 2019-21E (Rs mn, %)
New estimates Old estimates % change 2020E 2021E 2020E 2021E 2020E 2021E Net sales 45,616 51,261 47,574 53,463 (4.1) (4.1) EBITDA 6,828 8,446 7,371 8,933 (7.4) (5.4) Margin (%) 15.0 16.5 15.5 16.7 Net Profit 4,195 5,340 4,680 5,805 (10.4) (8.0) Standalone EPS 134.2 170.8 149.7 185.7 (10.4) (8.0)
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 Automobiles & Components Schaeffler India
Exhibit 5: We expect strong growth in aftermarket segment over CY2019-22E Schaeffler India (excluding Luk and INA) segment-wise revenue break-up, Calendar year-ends, 2015-22E (Rs mn, %)
2015 2016 2017 2018 2019 2020E 2021E 2022E 2019-22E CAGR (%) Revenues (Rs mn) Cars and trucks 2,562 3,023 3,567 3,995 3,396 3,735 4,183 4,602 10.7 Two-wheelers/Three-wheelers 2,732 2,732 3,060 3,305 2,975 2,826 3,165 3,418 4.7 Railways 1,195 1,327 1,486 1,932 2,512 3,014 3,466 3,986 16.6 Off-highway 854 1,025 1,178 1,355 1,423 1,522 1,751 1,926 10.6 Other industrial OEMs 3,074 3,289 3,289 3,848 4,618 5,172 5,793 6,488 12.0 Total revenues from supplies to OEMs 10,417 11,396 12,581 14,435 14,923 16,270 18,358 20,420 11.0 Automotive replacement 2,664 2,531 2,582 3,020 3,020 3,262 3,653 4,092 10.7 Industrial replacement 3,996 3,796 3,748 4,310 4,525 4,887 5,474 6,131 10.7 Total revenues from replacement market 6,660 6,327 6,329 7,330 7,546 8,149 9,127 10,223 10.7 Other operating income (includes service income) 167 240 278 291 325 384 465 566 20.3 Total revenues 17,244 17,963 19,188 22,056 22,793 24,803 27,951 31,208 11.0 Domestic 14,271 15,016 15,671 18,821 19,558 21,244 23,858 26,502 10.7 Exports 2,973 2,947 3,517 3,235 3,235 3,559 4,093 4,707 13.3 Revenue mix (%) Cars and trucks 14.9 16.8 18.6 18.1 14.9 15.1 15.0 14.7 Two-wheelers/Three-wheelers 15.8 15.2 15.9 15.0 13.1 11.4 11.3 11.0 Railways 6.9 7.4 7.7 8.8 11.0 12.2 12.4 12.8 Off-highway 5.0 5.7 6.1 6.1 6.2 6.1 6.3 6.2 Other industrial OEMs 17.8 18.3 17.1 17.4 20.3 20.9 20.7 20.8 Total revenues from supplies to OEMs 60.4 63.4 65.6 65.4 65.5 65.6 65.7 65.4 Automotive replacement 15.4 14.1 13.5 13.7 13.3 13.2 13.1 13.1 Industrial replacement 23.2 21.1 19.5 19.5 19.9 19.7 19.6 19.6 Total revenues from replacement market 38.6 35.2 33.0 33.2 33.1 32.9 32.7 32.8 Other operating income (includes service income) 1.0 1.3 1.4 1.3 1.4 1.5 1.7 1.8 Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Domestic 82.8 83.6 81.7 85.3 85.8 85.7 85.4 84.9 Exports 17.2 16.4 18.3 14.7 14.2 14.3 14.6 15.1
Source: Company, Kotak Institutional Equities estimates
34 KOTAK INSTITUTIONAL EQUITIES RESEARCH Schaeffler India Automobiles & Components
Exhibit 6: We expect Schaeffler India to deliver 19% EPS CAGR over CY2019-22E Schaeffler India (proforma financials), financial summary, Calendar year-ends, 2011-22E (Rs mn)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net sales 13,086 14,467 14,024 16,322 17,244 17,963 39,331 45,615 43,606 45,616 51,261 57,316 EBITDA 2,540 2,204 1,836 2,417 3,053 2,969 6,821 7,396 6,336 6,828 8,446 9,566 Other income 309 446 459 410 562 683 596 908 632 778 987 1,204 Interest (13) (13) (8) (10) (21) (18) (102) (70) (35) — — — Depreciation (226) (303) (433) (494) (655) (641) (1,382) (1,485) (1,587) (1,859) (2,118) (2,344) Extraordinary income/(losses) — — — — — — (45) (432) (3) — — — Profit before tax 2,610 2,335 1,854 2,324 2,938 2,993 5,888 6,317 5,343 5,747 7,316 8,427 Tax (850) (743) (636) (795) (963) (1,043) (2,003) (2,119) (1,666) (1,552) (1,975) (2,275) Reported net profit 1,760 1,592 1,218 1,529 1,975 1,951 3,885 4,198 3,676 4,195 5,340 6,152 Adjusted net profit 1,760 1,592 1,218 1,529 1,975 1,951 3,917 4,500 3,679 4,195 5,340 6,152 Earnings per share (Rs) 105.9 95.8 73.3 92.0 118.8 117.4 125.3 144.0 117.7 134.2 170.8 196.8 Balance sheet (Rs mn) Equity 7,300 8,795 9,896 11,075 12,892 14,752 23,252 27,061 29,622 33,500 38,461 44,180 Deferred tax liability 32 64 174 154 87 — — — — — — — Other long-term liabilities 209 245 221 344 235 271 456 394 455 455 455 455 Total borrowings — — — — — — 694 577 — — — — Current liabilities 2,427 2,333 3,042 2,769 3,339 3,515 7,402 9,642 6,376 6,674 7,416 8,212 Total liabilities 9,968 11,437 13,333 14,342 16,554 18,537 31,804 37,674 36,452 40,629 46,332 52,847 Net fixed assets 2,352 3,927 4,123 3,904 3,976 4,103 7,977 8,924 10,608 11,250 12,632 13,788 Investments — 44 44 44 — — — — — — — — Other long-term assets 1,202 759 1,770 999 1,283 1,440 1,319 2,112 3,197 3,197 3,197 3,197 Cash 2,334 1,948 2,377 3,295 4,704 6,406 8,938 8,476 8,354 11,288 13,846 17,314 Other current assets 4,081 4,759 5,020 6,101 6,591 6,588 13,570 18,161 14,293 14,894 16,657 18,548 Total assets 9,968 11,437 13,333 14,342 16,554 18,537 31,804 37,674 36,452 40,629 46,332 52,847 Cash flow (Rs mn) Operating cash flow excl. working capital 1,727 2,091 1,546 1,910 1,897 2,049 4,874 4,910 4,866 5,276 6,471 7,291 Working capital changes (901) (725) 75 (732) (90) (121) (864) (2,528) 231 (303) (1,020) (1,095) Capital expenditure (1,471) (1,407) (667) (401) (575) (930) (1,344) (2,439) (3,199) (2,500) (3,500) (3,500) Free cash flow (645) (41) 954 777 1,231 998 2,666 (57) 1,899 2,473 1,950 2,696 Ratios EBITDA margin (%) 19.4 15.2 13.1 14.8 17.7 16.5 17.3 16.2 14.5 15.0 16.5 16.7 PAT margin (%) 13.4 11.0 8.7 9.4 11.5 10.9 10.0 9.9 8.4 9.2 10.4 10.7 Net debt/equity (X) (0.3) (0.2) (0.2) (0.3) (0.4) (0.4) (0.4) (0.3) (0.3) (0.3) (0.4) (0.4) Book value (Rs/share) 439 529 595 666 776 888 744 866 948 1,072 1,230 1,413 RoAE (%) 27.0 19.8 13.0 14.6 16.5 14.1 20.6 17.9 13.0 13.3 14.8 14.9 RoACE (%) 39.9 21.9 12.8 16.5 20.2 18.4 30.7 23.0 16.2 16.7 19.7 20.5
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 SELL Dhanuka Agritech (DAGRI) Fertilizers & Agricultural Chemicals FEBRUARY 13, 2020 RESULT, CHANGE IN RECO. Sector view: Attractive
Robust recovery, priced in. Dhanuka’s 3QFY20 results were ahead of our estimates CMP (`): 530 driven by a strong recovery during Rabi season. The management exhibited optimism Fair Value (`): 470 on upcoming Kharif season, predicated on normal monsoon and benign input prices. BSE-30: 41,460 We raise our FY2020-22 EPS estimates by 15-18% and FV to Rs470 (Rs350 earlier) factoring in higher revenue growth and margins. We downgrade the stock to SELL from ADD as the recent rerating prices in optimism on near-term earnings recovery.
Dhanuka Agritech Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 565-287 EPS (Rs) 28.0 30.3 33.4 Mcap (bn) (Rs/US$) 26/0.4 EPS growth (%) 18.1 8.5 10.1 ADTV-3M (mn) (Rs/US$) 23/0 P/E (X) 19.0 17.5 15.9 Shareholding pattern (%) P/B (X) 3.4 2.9 2.5 Promoters 75.0 EV/EBITDA (X) 15.0 13.3 11.6 FIIs 0.0 RoE (%) 19.1 17.9 17.1 MFs/BFIs 10.9/0.1 Div. yield (%) 1.1 1.1 1.3 Price performance (%) 1M 3M 12M Sales (Rs bn) 11 12 13 Absolute 17 78 41 EBITDA (Rs bn) 2 2 2 Rel. to BSE-30 18 72 23 Net profits (Rs bn) 1 1 2
Strong rebound in revenues and margins amid pickup in Rabi season
Dhanuka delivered 25% yoy growth in revenues to Rs2.7 bn in 3QFY20 led by increase in volumes amid robust demand during Rabi season. Gross margins moderated by ~150 bps yoy, but remained steady qoq at 35.1%. EBITDA jumped 60% yoy to Rs343 mn, with margins increasing by ~270 bps yoy to 12.6%, as lower gross margins were offset by curtailment of distribution expenses and operating leverage. Net income increased 90% yoy to Rs277 mn (EPS of Rs5.8) led by reduction in effective tax rate to 26.5%. In 9MFY20, revenues grew 10% and EBITDA increased 13% amid a sharp reduction in operating expenses; net income increased 19% yoy to Rs1 bn (EPS of Rs21.5), boosted by lower tax rates.
Optimistic outlook for 4QFY20 and 1HFY21. The management exhibited optimism on recovery sustaining in the near term, taking comfort from (1) benign reservoir levels and soil moisture content, (2) increase in acreages; Rabi sowing increased 7% yoy to 57.2 mn hectares, 3% above normal levels, (3) recovery in crop prices and (4) recent reduction in input costs. The company expects Kharif demand to remain strong as well compared to the low base of last season, assuming monsoon turns out to be normal this year.
New product launches. The company plans to launch six new products in FY2021, including two 9(4) herbicides and one 9(4) insecticide in 1QFY21. Dhanuka is also awaiting approvals for three 9(3) products, which are likely to be launched in 2QFY21.
Pesticides Management Bill to augur well in the medium term. The management indicated that the approval of Pesticides Management Bill by the government will bring in stringent labeling norms for pesticides and restrict selling of spurious products in the market. It will benefit organized players due to formalization of the industry in the medium term; Tarun Lakhotia however, strict enforcement will be necessary to achieve this. Raise FY2020-22 EPS estimates; downgrade to SELL with a revised fair value of Rs470 Hemang Khanna We raise our EPS estimates to Rs28 (+15%) in FY2020, Rs30.3 (+17%) in FY2021 and Rs33.4 (+18%) in FY2022, factoring (1) higher revenue growth, (2) modestly higher EBITDA margins around 15% and (3) other minor changes. We raise our FV to Rs470 (from Rs350 earlier), based on 14X FY2022E EPS, on rollover and higher estimates. We downgrade the stock to SELL from ADD as we find the reward-risk balance unfavorable post recent sharp rerating on near-term earnings recovery, which leaves no headroom for any disappointment.
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Dhanuka Agritech Fertilizers & Agricultural Chemicals
Exhibit 1: Interim results of Dhanuka, March fiscal year-ends (Rsmn)
(% chg.) 3QFY20 3QFY20E 3QFY19 2QFY20 Est. Yoy Qoq 9MFY20 9MFY19 (% chg.) FY2020E Sales 2,715 2,330 2,168 4,020 16 25 (32) 8,925 8,131 10 11,114 Raw material cost (1,761) (1,492) (1,374) (2,612) 18 28 (33) (5,816) (5,049) 15 (7,124) Employee cost (264) (249) (235) (311) 6 12 (15) (811) (809) 0 (1,062) Other expenses (346) (353) (344) (364) (2) 1 (5) (1,022) (1,143) (11) (1,275) EBITDA 343 238 215 734 44 60 (53) 1,276 1,130 13 1,653 Other income 78 49 38 48 164 148 253 Interest cost (4) (6) (1) (6) (12) (6) (17) Depreciation and amortization (42) (61) (30) (57) (126) (93) (173) Profit before tax 376 220 221 719 71 70 (48) 1,302 1,179 10 1,716 Extraordinaries ———— —— — Tax expense (100) (48) (75) (119) (279) (320) (386) Net income 277 172 146 600 61 90 (54) 1,023 858 19 1,330 Adjusted net income 277 172 146 600 61 90 (54) 1,023 858 19 1,330 Adjusted EPS (Rs) 5.8 3.6 3.0 12.2 61 95 (52) 21.5 17.5 23 28.0 Key metrics (%) Gross margins 35.1 36.0 36.6 35.0 34.8 37.9 35.9 EBITDA margins 12.6 10.2 9.9 18.3 14.3 13.9 14.9 Effective tax rate 26.5 22.0 34.1 16.5 21.4 27.2 22.5
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: Dhanuka has launched three new 9 (4) products and a bio-nutrient in 9MFY20 List of new products launched by Dhanuka
2016 2017 2018 2019 9MFY20 Cover - co-marketed insecticide Maxx-soy - 9(3) herbicide D-ONE - 9(3) insecticide Foster - 9(4) insecticide Kempa - 9(4) herbicide Dhanwarsha - nutrient Conika - 9(3) fungicide Markar Super- 9(4) insecticide Spectrum - 9(4) fungicide Apply - 9(4) insecticide Dozo - 9(4) herbicide Fujiita - 9(3) fungicide Dumil 10% SL - 9(4) herbicide Dhanutop Super - 9(4) herbicide Largo - 9(4) insecticide Thiram - 9(4) fungicide Hi-Dice Super - co-marketed fungicide Godiwa Super - 9(4) fungicide Bio-nutrient Goldy - 9(4) fungicide Bullon - 9(4) insecticide Godiwa - 9(4) fungicide Aashito - 9(4) insecticide Fenox 1000 - 9(4) herbicide Delight - 9(4) fungicide Domar - 9(4) insecticide Foster - 9(3) miticide Suelo - soil conditioner
Source: Company, Kotak Institutional Equities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 Fertilizers & Agricultural Chemicals Dhanuka Agritech
Exhibit 3: Dhanuka’s 12-month forward P/E valuation has jumped to 17.8X 12-months forward P/E chart, April 2014 onwards (X)
40 12-month forward P/E (X) 35
30
25
20
15
10
5
0
Jul-15 Jul-16 Jul-14 Jul-17 Jul-18 Jul-19
Jan-18 Jan-15 Jan-16 Jan-17 Jan-19 Jan-20
Oct-15 Oct-16 Oct-17 Oct-14 Oct-18 Oct-19
Apr-16 Apr-17 Apr-15 Apr-18 Apr-19 Apr-14
Source: Bloomberg, Kotak Institutional Equities estimates
Exhibit 4: Dhanuka’s valuations at 17.5X FY2021E EPS factors in optimism on earnings recovery Peer valuations, March fiscal year-ends, 2019-21E
Price Market cap. P/E (X) EV/EBITDA (X) (LC) (US$ mn) FY2020E FY2021E FY2022E FY2020E FY2021E FY2022E Bayer CropScience 4,353 2,741 41.9 36.5 31.5 30.9 26.4 22.5 Dhanuka Agritech 530 354 19.0 17.5 15.9 15.0 13.3 11.6 Godrej Agrovet 556 1,497 47.2 33.9 28.0 25.8 18.5 15.6 PI Industries 1,545 2,990 41.6 33.5 27.5 28.4 22.7 18.5 Rallis India 231 630 21.2 18.5 16.1 14.7 12.4 10.7 UPL 579 6,196 20.2 14.4 12.6 9.7 8.1 7.1
Source: Bloomberg, Kotak Institutional Equities estimates
38 KOTAK INSTITUTIONAL EQUITIES RESEARCH Dhanuka Agritech Fertilizers & Agricultural Chemicals
Exhibit 5: Consolidated profit model, balance sheet and cash flow statement, March fiscal year-ends, 2014-22E (Rs mn)
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Sales 7,384 7,851 8,288 8,732 9,626 10,058 11,114 12,000 12,957 EBITDA 1,206 1,317 1,398 1,690 1,661 1,460 1,653 1,808 1,991 Other income 48 61 125 152 160 212 253 293 360 Interest (42) (26) (11) (11) (9) (9) (17) (18) (19) Depreciation (48) (59) (59) (148) (142) (123) (173) (197) (212) Profit before tax 1,163 1,294 1,453 1,682 1,670 1,540 1,716 1,887 2,120 Extraordinary items — — — — — — — — — Tax expense (232) (233) (380) (488) (408) (414) (386) (443) (530) PAT 931 1,061 1,073 1,194 1,262 1,126 1,330 1,444 1,590 EPS (adjusted) 18.6 21.2 21.5 23.9 25.7 23.7 28.0 30.3 33.4 Balance sheet (Rs mn) Equity 3,325 4,123 4,804 5,199 6,334 6,422 7,486 8,641 9,913 Total borrowings 394 161 77 79 47 222 222 222 222 Deferred tax liability/minority interest 36 34 83 116 133 122 122 122 122 Current liabilities and provisions 1,413 1,622 1,602 1,738 1,713 1,587 2,056 2,220 2,396 Total liabilites 5,168 5,940 6,566 7,131 8,227 8,353 9,886 11,205 12,654 Net fixed assets 893 1,086 1,334 1,383 1,310 1,179 1,356 1,309 1,272 Investments 10 51 432 468 895 898 898 898 898 Cash and cash equivalents 23 457 511 217 1,039 318 641 1,484 2,407 Other current assets and miscellaneous 4,242 4,345 4,289 5,063 4,983 5,958 6,992 7,514 8,077 Total assets 5,168 5,940 6,567 7,131 8,227 8,353 9,886 11,205 12,654 Free cash flow (Rs mn) Operating cash flow 951 1,109 1,079 1,258 1,318 1,003 1,250 1,347 1,442 Working capital changes (659) (36) 307 (638) 58 (969) (565) (358) (386) Capital expenditure (288) (253) (271) (193) (69) (47) (350) (150) (175) Free cash flow 4 820 1,115 427 1,307 (13) 335 839 881 Ratios EBITDA margin (%) 16.3 16.8 16.9 19.3 17.3 14.5 14.9 15.1 15.4 Net debt/equity (X) 0.1 (0.1) (0.1) (0.0) (0.2) (0.0) (0.1) (0.1) (0.2) Book value (Rs/share) 66 82 96 104 129 135 157 182 208 ROAE (%) 30.0 27.1 22.0 21.7 19.8 15.2 16.3 15.1 14.2 ROACE (%) 24.8 26.6 21.5 20.3 20.3 14.3 15.2 15.6 15.9
Source: Company, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 ATTRACTIVE Banks India FEBRUARY 14, 2020 UPDATE BSE-30: 41,460
Maintains pace; liquidation high. As per the latest release of Insolvency and Bankruptcy Board of India, a total of 3,312 cases have been admitted under the insolvency process as of 3QFY20. Out of this, 561 new cases were admitted in 2QFY20. 58% of all closed cases (780 out of 1351) till date were via liquidation while only 190 (14%) cases were resolved with an average haircut of ~57% on admitted claims. High number of liquidated cases and duration of resolution remain primary concerns.
Cases admitted maintains pace; 50% of cases admitted are by financial creditors
The number of cases admitted to NCLT in 3QFY20 was 561; second highest till date (50% from QUICK NUMBERS financial creditors). This was an important outcome as financial creditors still continue to use IBC as a framework of resolution despite the June 2019 circular on stressed assets resolution. 561 cases admitted Out of the total admitted cases (3,312) till 3QFY20, >30% cases were admitted after 1QFY20 to IBC in 3QFY20 (Exhibit 1). This reflects the increasing pivotal role played by this body in resolution of stressed despite the June assets despite the introduction of a new circular from RBI in June 2019 which removed the 2019 RBI circular clause that made it mandatory for cases to be admitted to IBC. Out of the total admitted cases, 43% cases were initiated by operational creditors and ~50% by financial creditors (Exhibit 3). Average duration Of the 182 cases which were closed in 3QFY20, 30 cases were resolved while 134 cases faced for resolution liquidation. The average duration of resolution is >350 days (for all resolved cases till 3QFY20). is >350 days; >30% More than 30% of cases have crossed 270 days. Out of the total registered cases till 3QFY20, of ongoing cases 39% were from the manufacturing space and 33% from real estate and construction (Exhibit 5). have crossed 270 days since admission Overall haircuts high at ~55% as we now move beyond the steel sector; 3QFY20 haircut at ~90%
Based on available data for all 190 cases resolved under the insolvency resolution process till ~40% of new cases 3QFY20, financial creditors have faced a haircut of ~57% on admitted claims. While the from manufacturing amount yielded on resolution as a percentage of liquidation value is high (~200%), it has been and ~33% from real declining. The haircut for cases resolved in 3QFY20, was quite high at 88%. Barring a few estate & cases, almost all resolutions in 3QFY20 had a haircut of >60%. The average premium to construction liquidation value was 120% for accounts resolved in 3QFY20. While some accounts have shown superior results, the overall haircut scenario is dismal.
Closure by liquidation remains dominant
Liquidation remained the most common path of closure for cases admitted under the insolvency M B Mahesh, CFA resolution process (Exhibit 1) with 58% of all admitted cases closed via liquidation. Out of 1,961 ongoing admitted cases, 635 cases have passed 270 days since admission while another 247 cases have crossed 180 days since admission (Exhibit 2). Under such circumstances, the Nischint Chawathe number of cases facing liquidation will see a significant increase in the next few quarters. The Lok Sabha passed an IBC (amendment) bill which includes (one of eight amendments to the IBC Dipanjan Ghosh bill) increasing the time for resolution of stressed assets to 330 days from 270 days earlier. With the resolution of Essar Steel and hopefully on Bhushan Power & Steel, we see greater clarity of the IBC process. This would enable higher participation from distressed funds over time. Venkat Madasu Bandwidth of insolvency professionals is adequate; usage of information utility is rising
The available number of insolvency professionals is significantly higher (2,911; up ~124 qoq) Ashlesh Sonje than the number of ongoing cases in the insolvency process (1,961) till 3QFY20 (Exhibit 10). The number of creditors who have signed agreements with NeSL (National E-Governance Services Limited) continues to increase. (Exhibit 12)
[email protected] Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Banks India
Exhibit 1: Continuous rise in cases admitted under the corporate insolvency resolution process; Most end up in liquidation Cases under corporate insolvency resolution process, March fiscal year-ends, 4QFY17-3QFY20 (#)
Closure by No. of corporates No. of corporates undergoing resolution at Withdrawal Approval of Commencement undergoing the beginning of the Appeal/ under section Resolution of resolution at the Quarter quarter Admitted review 12A Plan Liquidation end of the quarter 4QFY17 0 37 1 0 0 0 36 1QFY18 36 130 8 0 0 0 158 2QFY18 158 235 18 0 2 8 365 3QFY18 365 144 40 0 7 24 438 4QFY18 438 196 21 0 11 59 543 1QFY19 543 250 22 1 14 52 704 2QFY19 704 242 32 27 29 87 771 3QFY19 771 276 10 39 18 82 898 4QFY19 898 376 35 22 20 86 1111 1QFY20 1111 300 22 24 27 95 1243 2QFY20 1243 565 23 18 32 153 1582 3QFY20 1582 561 14 4 30 134 1961 Total NA 3312 246 135 190 780 1961
Source: IBBI, Kotak Institutional Equities
Exhibit 2: ~45% of ongoing cases have crossed 180 days since admission Progress of corporate insolvency resolution process, March fiscal year-ends, 3QFY19-3QFY20 (# of cases)
3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Admitted 1,484 1,858 2,162 2,542 3,312 Closed on appeal/review 142 152 174 186 246 Closed by Withdrawal under section 12A 63 91 101 116 135 Closed on resolution 79 94 120 156 190 Closed on liquidation 302 378 475 587 780 Ongoing CIRP 898 1,143 1,292 1,497 1,961 >270 days 275 362 445 535 635 >180 days and <=270 days 166 186 221 324 247 >90 days and <=180 days 202 247 349 276 537 <=90 days 255 348 277 362 542
Source: IBBI, Kotak Institutional Equities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 41 India Banks
Exhibit 3: Financial creditors triggered more resolutions than operational creditors in 3QFY20 Distribution of stakeholders triggering the resolution process, March fiscal year-ends, 4QFY17-3QFY20 (#)
No. of resolutions processes initiated by Financial Operational Corporate Quarter creditor creditor debtor Total 4QFY17 7 8 22 37 1QFY18 58 37 35 130 2QFY18 98 99 38 235 3QFY18 65 65 14 144 4QFY18 89 85 22 196 1QFY19 130 102 18 250 2QFY19 128 98 16 242 3QFY19 147 113 16 276 4QFY19 162 193 21 376 1QFY20 154 129 17 300 2QFY20 291 265 9 565 3QFY20 301 245 15 561 Total 1,630 1,439 243 3,312
Source: IBBI, Kotak Institutional Equities
Exhibit 4: Large number of cases ending up in liquidation were either defunct or a part of BIFR Distribution of corporate debtors ending up with liquidation, March fiscal year-ends, 3QFY19-3QFY20 (#)
No. of CIRPs initiated by State of the corporate debtor at the commencement of CIRP FC OC CD Total 3QFY19 Either in BIFR or Non-functional or both 77 90 60 227 Resolution Value ≤ Liquidation Value 86 102 60 248 Resolution Value > Liquidation Value 21 11 16 48 4QFY19 Either in BIFR or Non-functional or both 99 117 67 283 Resolution Value ≤ Liquidation Value 113 134 67 314 Resolution Value > Liquidation Value 30 15 19 64 1QFY20 Either in BIFR or Non-functional or both 125 148 75 348 Resolution Value ≤ Liquidation Value 148 168 76 392 Resolution Value > Liquidation Value 39 20 20 79 2QFY20 Either in BIFR or Non-functional or both 153 190 84 427 Resolution Value ≤ Liquidation Value 188 221 85 494 Resolution Value > Liquidation Value 43 26 23 92 3QFY20 Either in BIFR or Non-functional or both 215 249 97 561 Resolution Value ≤ Liquidation Value 263 295 102 660 Resolution Value > Liquidation Value 57 31 26 114
Source: IBBI, Kotak Institutional Equities
42 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India
Exhibit 5: ~40% of new cases are from manufacturing and ~33% from real estate & construction in 3QFY20 Sector-wise split of cases under the corporate insolvency resolution process, March fiscal year-ends, 4QFY19-3QFY20 (#)
2QFY20 3QFY20 Closed Ongoing Total Closed Ongoing Total (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) Manufacturing 450 43.1 593 39.6 1043 41.0 564 41.7 779 39.7 1343 40.5 Food, Beverages & Tobacco Products 41 3.9 87 5.8 128 5.0 56 4.1 118 6.0 174 5.3 Chemicals & Chemical Products 48 4.6 50 3.3 98 3.9 57 4.2 73 3.7 130 3.9 Electrical Machinery & Apparatus 41 3.9 46 3.1 87 3.4 54 4.0 46 2.3 100 3.0 Fabricated Metal Products 31 3.0 33 2.2 64 2.5 37 2.7 43 2.2 80 2.4 Machinery & Equipment 48 4.6 70 4.7 118 4.6 66 4.9 89 4.5 155 4.7 Textiles, Leather & Apparel Products 79 7.6 92 6.1 171 6.7 102 7.5 123 6.3 225 6.8 Wood, Rubber, Plastic & Paper Products 48 4.6 71 4.7 119 4.7 55 4.1 99 5.0 154 4.6 Basic Metals 82 7.8 101 6.7 183 7.2 98 7.3 134 6.8 232 7.0 Others 32 3.1 43 2.9 75 3.0 40 3.0 54 2.8 94 2.8 Real Estate, Renting & Business Activities 201 19.2 299 20.0 500 19.7 261 19.3 404 20.6 665 20.1 Construction 88 8.4 186 12.4 274 10.8 126 9.3 236 12.0 362 10.9 Wholesale & Retail Trade 117 11.2 133 8.9 250 9.8 143 10.6 185 9.4 328 9.9 Hotels & Restaurants 27 2.6 39 2.6 66 2.6 38 2.8 47 2.4 85 2.6 Electricity & Others 22 2.1 47 3.1 69 2.7 28 2.1 72 3.7 100 3.0 Transport, Storage & Communications 30 2.9 42 2.8 72 2.8 45 3.3 49 2.5 94 2.8 Others 110 10.5 158 10.6 268 10.5 146 10.8 189 9.6 335 10.1 Total 1,045 100 1,497 100 2,542 1,351 100 1,961 100 3,312
Source: IBBI
Exhibit 6: Haircuts for cases resolved were quite high in 3QFY20 at ~88% Cases that yielded resolution, March fiscal year-ends, 3QFY18-3QFY20 (Rs bn)
Total Realisation by FCs as Realisation by FCs as % admitted Liquidation Realisation % of their claims of liquidation claims of FCs value by FCs admitted value 3QFY18 55 14 19 34 130 4QFY18 44 14 31 70 215 1QFY19 762 181 429 56 237 2QFY19 423 95 111 26 116 3QFY19 84 30 73 86 247 4QFY19 891 131 396 44 302 1QFY20 315 42 44 14 105 2QFY20 786 148 271 34 183 3QFY20 237 24 29 12 118 Total 3,515 767 1,517 43 198
Source: IBBI, Kotak Institutional Equities
Exhibit 7: Most voluntary liquidation is on account of business not being operational Reason for voluntary liquidation, March fiscal year-ends, 2QFY19-3QFY20 (#)
Reason for voluntary liquidation 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Not carrying business operations 146 151 201 254 259 325 Commercially unviable 34 51 58 59 59 69 Running into losses 8 8 10 10 10 14 No revenue 10 12 18 19 19 20 Promotors unable to manage affairs 2 4 5 5 8 10 Purpose for which company was formed accomplished 1 5 5 5 8 8 Contract termination 3 5 5 5 5 5 Miscellaneous 42 49 58 58 58 62 Total 246 285 360 415 426 513
Source: IBBI, Kotak Institutional Equities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 43 India Banks
Exhibit 8: Voluntary liquidation cases are time consuming Status of voluntary liquidation cases, March fiscal year-ends, 1QFY19-3QFY20 (#)
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Initiated 214 269 300 383 452 498 579 Closed by dissolutions/going concern sale 5 6 18 41 56 64 101 Final reports submitted 31 33 54 97 114 144 171 Ongoing >360 days 12 36 68 96 100 158 174 >270 and <=360 days 27 42 59 31 55 26 81 >180 and <=270 days 44 63 36 51 31 79 41 >90 and <=180 days 60 41 56 35 83 46 53 <=90 days 40 54 27 73 69 45 59
Source: IBBI, Kotak Institutional Equities
Exhibit 9: Most withdrawals are due to settlement with applicant/creditor Status of cases withdrawn under section 12A, March fiscal year-ends, 4QFY19-3QFY20 (#)
4QFY19 1QFY20 2QFY20 3QFY20 Amount of claims admitted <10 mn 34 39 43 52 10 to 100 mn 21 28 32 35 10 to 500 mn 11 15 15 19 500 to 1000 mn 5 6 6 8 1000 to 10000 mn 3 3 5 6 10000 mn and above 2 2 2 2 Reason for withdrawal Full settlement with the applicant 21 28 34 37 Full settlement with other creditors 5 6 7 7 Agreement to settle in future 4 8 8 9 Other settlement with creditors 29 34 35 44 Corporate debtors not traceable 2 2 2 2 Corporate debtor struck off the registrar 1 1 1 1 Applicant not pursuing CIRP due to high cost 2 2 2 2 Others 14 14 16 23
Source: IBBI, Kotak Institutional Equities
44 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India
Exhibit 10: Pool insolvency professionals continues to increase Registered insolvency professional, March fiscal year-ends, 2QFY19-3QFY20 (#)
The Indian Institute of Insolvency ICSI Institute of Insolvency Professional Agency of City / Region professional of ICAI Insolvency Professionals Institute of Cost Accountants of India Total 3QFY19 New Delhi 284 183 45 512 Rest of Northern Region 200 114 30 344 Mumbai 263 84 23 370 Rest of Western Region 183 84 23 290 Chennai 90 49 9 148 Rest of Southern Region 228 126 33 387 Kolkata 134 30 14 178 Rest of Eastern Region 43 13 5 61 All India 1,425 683 182 2,290 3QFY20 New Delhi 354 222 60 636 Rest of Northern Region 287 161 46 494 Mumbai 340 112 31 483 Rest of Western Region 208 89 29 326 Chennai 113 72 11 196 Rest of Southern Region 288 153 43 484 Kolkata 169 34 16 219 Rest of Eastern Region 50 18 5 73 All India 1,809 861 241 2,911
Source: IBBI, Kotak Institutional Equities
Exhibit 11: Number of Insolvency professional entities increased in 3QFY20 Insolvency professional entities, March fiscal year-ends, 4QFY17-3QFY20 (#)
Recognized during De-recognized during At the end the quarter the quarter of quarter 4QFY17 3 — 3 1QFY18 14 — 17 2QFY18 22 1 38 3QFY18 18 — 56 4QFY18 19 — 75 1QFY19 1 3 73 2QFY19 4 4 73 3QFY19 3 20 56 4QFY19 5 13 48 1QFY20 6 - 54 2QFY20 7 ` - 61 3QFY20 6 - 67 Total 108 41 67
Source: IBBI, Kotak Institutional Equities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 45 India Banks
Exhibit 12: Pool of available information to insolvency professionals continues to increase Details of information with NeSL, March fiscal year-ends, 2QFY19-3QFY20 (#)
3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 FC OC FC OC FC OC FC OC FC OC Creditors having agreement with NeSL 108 NA 173 NA 209 NA 226 NA 246 NA Creditors who have submitted information 68 140 114 169 160 231 218 297 321 408 Debtors whose information have been submitted by creditors 980,724 202 1,266,445 230 2,531,930 570 2,737,049 1,764 2,926,030 2,121 Loan records on-boarded 1,438,390 280 1,955,230 316 3,911,146 52,766 4,421,280 86,766 4,803,931 125,526 User registration by debtors 10,247 44 15,085 63 23,482 83 31,696 208 48,551 NA Loan records authenticated by debtors 10,065 35 13,762 37 22,323 40 36,660 61 68,646 120 Amount of underlying debt (Rs bn) 27,328 11 41,150 162 49,106 205 56,253 280 69,195 320
Source: IBBI, Kotak Institutional Equities
46 KOTAK INSTITUTIONAL EQUITIES RESEARCH December 2019 : Results calendar 47
Mon Tue Wed Thu Fri Sat Sun 10-Feb 11-Feb 12-Feb 13-Feb 14-Feb 15-Feb 16-Feb Bajaj Consumer Care 3M India ABB Adani Transmission Balkrishna Industries Bharat Forge Aster DM Healthcare Ashok Leyland Apollo Hospitals Edelw eiss Financial Services Dilip Buildcon Astral Poly Technik City Union Bank BPCL Glenmark Pharmaceuticals GAIL (India) BHEL HCG Dhanuka Agritech IRB Infrastructure GIC CESC Hindalco Industries Future Retail Muthoot Finance Grasim Industries Coal India Info Edge Gillette India ONGC Kalpataru Pow er Transmission Cochin Shipyard Ipca Laboratories GMR Infrastructure Pfizer Motherson Sumi Systems Hexaw are Technologies Natco Pharma Godrej Industries Sadbhav Engineering MRF IDBI NBCC GSPL SAIL National Aluminium Co. Siemens P&G Hygiene Lemon Tree Hotels Shree Cement Oil India PFC Page Industries Sun TV Netw ork 17-Feb 18-Feb 19-Feb 20-Feb 21-Feb 22-Feb 23-Feb Ambuja Cements 24-Feb 25-Feb 26-Feb 27-Feb 28-Feb 29-Feb 1-Mar Sanofi India Mahindra CIE Automotive
Source: BSE, NSE, Kotak Institutional Equities India Daily Summary Daily Summary India KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -
February February 14, 2020
KOTAK INSTITUTIONAL EQUITIES RESEARCH 47 Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India
Fair O/S ADVT
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Automobiles & Components Amara Raja Batteries ADD 764 780 2 130 1.8 171 40 44 50 39.9 11.8 13.3 19 17.3 15.2 11.1 9.7 8.4 3.4 3.0 2.6 18.9 18.6 18.5 1.3 1.4 1.6 7.6 Apollo Tyres ADD 161 180 12 92 1.3 572 10.2 10.3 14.9 (29.0) 1.3 44.4 15.8 15.6 10.8 7.6 7.0 5.5 0.9 0.9 0.8 5.7 5.6 7.7 1.9 1.9 1.9 6.3 Ashok Leyland BUY 82 95 16 239 3.4 2,936 3.9 3.3 7.0 (43.7) (15.4) 110.9 20.8 24.6 11.7 12.8 12.5 6.9 2.7 2.5 2.2 13.3 10.5 20.0 1.4 1.2 2.6 21 Bajaj Auto REDUCE 3,136 3,150 0 908 13 289 178 183 214 16.4 2.6 16.9 17.6 17.1 14.7 13.5 12.6 10.2 3.7 3.3 3.0 22 20 21 2.3 2.3 2.7 19.3 Balkrishna Industries REDUCE 1,149 850 (26) 222 3.1 193 42 44 50 5.3 4.8 14.9 27.5 26.3 22.8 17.0 14.8 12.3 4.2 3.8 3.4 16.3 15.2 15.6 0.8 0.8 0.9 10.9 Bharat Forge SELL 482 365 (24) 224 3.1 466 13 16 22 (41.6) 21.6 40.4 37.2 30.6 21.8 18.9 16.6 13.1 4.0 3.7 3.3 10.9 12.4 15.8 1.1 1.2 1.2 10.7 CEAT REDUCE 1,020 960 (6) 41 0.6 40 59 63 81 (4.9) 8.1 28.8 17.4 16.1 12.5 9.2 8.5 7.3 1.4 1.3 1.2 8.3 8.4 10.0 1.2 1.2 1.2 1.8 Eicher Motors SELL 19,355 18,700 (3) 528 7.4 27 775 740 999 (5.0) (4.6) 35.0 25.0 26.2 19.4 19.7 19.2 14.8 6.0 5.1 4.2 27 21 24 0.2 —— 44 Endurance Technologies SELL 1,086 960 (12) 153 2.1 141 44 52 62 20.8 18.5 19.6 25 21.0 17.5 12.5 10.4 8.6 5.0 4.2 3.5 20.0 19.8 20.0 0.6 0.9 1.2 0.5 Escorts BUY 889 1,080 22 79 1.5 89 54 63 75 (1.6) 16.9 19.7 16.6 14.2 11.9 11.4 9.6 7.6 2.3 2.0 1.8 13.9 14.4 15.1 0.9 1.1 1.3 27
Exide Industries SELL 181 180 (1) 154 2.2 850 10.3 10.2 10.9 14.1 (0.7) 6.7 17.6 17.7 16.6 10.3 9.5 8.6 2.4 2.2 2.1 14.1 13.0 12.9 1.9 2.2 2.2 6.4 -
Hero Motocorp REDUCE 2,409 2,550 6 481 6.7 200 167 156 191 (1.5) (6.7) 22.5 14.4 15.5 12.6 9.2 9.6 7.5 3.3 3.1 2.8 24 21 23 3.8 4.2 4.8 29 February 14, 2020 Mahindra CIE Automotive ADD 169 170 1 64 0.9 378 11.9 13.5 15.9 (18.2) 14.0 17.8 14.2 12.5 10.6 7.5 6.5 5.4 1.4 1.2 1.1 10.0 10.3 10.9 ——— 0.9 Mahindra & Mahindra BUY 534 815 53 663 9.3 1,138 39 39 45 (18.0) 0.7 15.2 13.7 13.6 11.8 9.1 9.0 7.7 1.6 1.4 1.3 12.0 11.0 11.6 1.5 1.5 1.7 26 Maruti Suzuki SELL 7,001 5,800 (17) 2,115 29.6 302 203 234 296 (18.2) 14.9 27.0 34 30 24 19.9 16.2 12.1 4.2 3.8 3.4 12.7 13.3 15.3 0.7 0.8 1.1 83
Motherson Sumi Systems SELL 125 105 (16) 394 5.5 3,158 4.4 6.0 7.0 (13.5) 35.0 17.7 28.3 20.9 17.8 9.3 7.1 6.0 3.3 3.0 2.7 12.2 15.0 15.9 1.0 1.2 1.4 18.4 MRF SELL 71,700 62,000 (14) 304 4.3 4 2,523 2,915 3,674 (5.4) 15.5 26.0 28 24.6 19.5 11.7 10.8 8.6 2.6 2.3 2.1 9.4 9.9 11.2 0.1 0.1 0.1 6.5 Schaeffler India SELL 4,604 3,900 (15) 144 2.0 31 118 134 171 (18.3) 14.0 27.3 39 34 27 21.4 19.4 15.4 4.9 4.3 3.7 13.0 13.3 14.8 ——— 0.5 SKF REDUCE 2,035 1,950 (4) 101 1.4 49 66 79 95 0.5 20.4 19.4 31 26 22 22.2 18.3 14.8 5.2 4.5 3.8 16.7 17.4 17.8 0.6 0.7 0.9 0.5 Tata Motors BUY 170 215 27 576 7.8 3,598 (3.4) 7.7 18.1 36.3 325.1 134.5 NM 21.9 9.3 4.4 3.4 2.9 1.0 0.9 0.9 NM 4.5 9.7 ——— 98 Timken SELL 1,018 825 (19) 77 1.1 75 29 34 40 45.6 17.0 18.9 35 30 25 20.8 17.6 14.6 4.9 4.3 3.7 15.0 15.2 15.5 0.1 0.1 0.1 0.6 TVS Motor SELL 445 350 (21) 211 3.0 475 14.4 13.8 21.8 1.8 (3.8) 58.0 31 32 20 15.6 15.3 11.1 5.6 5.0 4.3 19.1 16.4 23 1.0 0.9 1.5 10.9 Varroc Engineering BUY 433 540 25 58 0.8 135 15 29 46 (54.0) 88.2 58.7 28.2 15.0 9.4 7.7 5.8 4.3 1.8 1.6 1.4 6.4 10.9 15.0 ——— 0.4 Automobiles & Components Neutral 7,960 111.7 (8.7) 20.4 34.4 25.9 21.5 16.0 10.2 8.6 6.9 2.7 2.5 2.2 10.5 11.5 13.9 1.1 1.2 1.4 432 Banks AU Small Finance Bank SELL 1,148 625 (46) 349 4.9 302 24.4 28.5 36.2 86.7 17.0 27.0 47 40 32 ——— 7.8 6.6 5.4 19.0 17.1 18.2 0.0 —— 9.6 Axis Bank REDUCE 748 740 (1) 2,109 29.6 2,806 17.5 49 62 (3.9) 183.2 25.1 43 15.1 12.1 ——— 2.7 2.4 2.0 6.4 15.1 16.6 0.2 1.0 1.2 91 Bandhan Bank REDUCE 452 540 19 728 10.2 1,610 20.3 25.4 31.2 24.0 25.2 23.0 22.3 17.8 14.5 ——— 4.6 3.7 2.9 23.9 23 22 0.0 0.0 0.0 18.7 Bank of Baroda ADD 88 105 19 407 5.7 4,582 0.8 23.4 27 (50.0) 2,763.0 13.9 108 3.8 3.3 ——— 0.9 0.8 0.7 0.7 15.5 15.6 0.2 5.3 6.1 34 City Union Bank ADD 223 240 8 164 2.3 735 10.0 11.8 13.5 8.1 17.3 14.3 22 18.9 16.5 ——— 3.3 2.9 2.5 14.4 15.0 15.2 0.8 0.9 1.1 2.5 DCB Bank BUY 174 230 32 54 0.8 310 12.8 16.9 22.2 22.1 32.0 30.8 13.5 10.3 7.8 ——— 1.8 1.5 1.3 13.0 15.2 17.2 0.7 0.9 1.2 2.0 Equitas Holdings BUY 111 160 44 38 0.5 342 8.0 10.5 14.5 26.0 32.1 37.5 14.0 10.6 7.7 ——— 1.3 1.2 1.1 9.9 11.2 13.6 ——— 7.8 Federal Bank BUY 89 120 35 178 2.5 1,985 8.4 9.9 12.6 33.6 18.8 26.3 10.7 9.0 7.1 ——— 1.3 1.2 1.1 12.0 12.9 14.7 2.1 2.5 3.1 13.2 HDFC Bank ADD 1,241 1,350 9 6,799 95.3 5,447 48 56 67 24.9 16.6 18.5 26 22 19 ——— 4.0 3.5 3.1 16.5 16.9 17.5 0.8 0.9 1.0 107 ICICI Bank BUY 541 615 14 3,501 49.1 6,447 18.4 32 38 287.4 73.1 18.8 29 17.0 14.3 ——— 3.2 2.8 2.4 10.5 16.4 17.1 0.7 1.2 1.4 167 IndusInd Bank ADD 1,231 1,600 30 853 12.0 712 73 104 121 34.0 42.3 15.4 17 11.8 10.2 ——— 2.4 2.1 1.8 16.6 18.1 17.9 0.8 1.2 1.3 93 Karur Vysya Bank BUY 50 80 62 40 0.6 799 3.4 7 13 27.2 104.1 95.1 15 7.2 3.7 ——— 0.8 0.7 0.6 4.1 8.0 14.5 1.7 3.6 7.0 0.7 Punjab National Bank NR 55 NR — 373 5.2 4,604 2 6 10 110.2 149.0 80.1 25 10.1 5.6 ——— 1.2 0.9 0.6 2.4 7.0 10.2 0.0 0.0 0.0 16.9 RBL Bank ADD 326 375 15 159 2.2 509 9.5 32 41 (53.3) 233.4 30.0 34 10.3 7.9 ——— 1.7 1.5 1.3 5.3 14.0 16.0 0.4 1.3 1.7 63 State Bank of India BUY 327 420 28 2,922 41.0 8,925 24 45 55 2,356.7 87.9 23.3 14 7.3 6.0 ——— 1.6 1.3 1.1 9.2 15.2 16.0 0.1 0.1 0.1 171 Ujjivan Financial Services BUY 391 490 — 48 0.7 121 26.9 34 44 117.0 24.9 31.6 15 11.6 8.8 ——— 2.2 1.9 1.6 15.7 17.0 19.3 0.8 1.1 1.5 13.1 Ujjivan Small Finance Bank SELL 55 45 (18) 95 1.3 1,714 2 3 3 48.2 33.3 26.9 27 20.0 15.8 ——— 3.3 3.0 2.6 15.1 14.9 16.7 0.7 1.0 1.3 0.0 Union Bank RS 48 —— 166 2.3 3,423 0 11 15 101.2 5,126.7 36.8 237 4.5 3.3 ——— 0.7 0.6 0.4 0.2 13.2 13.2 0.0 3.3 4.5 7.8 YES Bank SELL 37 40 8 95 1.3 2,546 (11.6) (4) 10 (255.6) 64.2 351.6 NM NM 3.6 ——— 0.5 0.6 0.5 NM NM 10.2 0.0 0.0 0.0 159 Banks Attractive 19,264 270.0 171.9 91.0 27.0 24 12.7 10.0 2.0 1.7 1.5 8.3 13.0 14.5 0.5 0.9 1.1 1,004
Source: Company, Bloomberg, Kotak Institutional Equities estimates
48 KOTAK INSTITUTIONAL EQUITIES RESEARCH 48
Kotak Institutional Equities: Valuation summary of KIE Universe stocks
49 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Building Products Astral Poly Technik SELL 1,198 765 (36) 181 2.5 151 19.4 22 27 48.5 14.7 19.4 62 54 45 36.4 31.0 25.7 11.6 9.6 8.0 21 19.6 19.4 0.1 0.1 0.1 2.7 Building Products Cautious 181 2.5 49.5 14.7 19.4 62 54 45 36.4 31.0 25.7 11.6 9.6 8.0 18.8 17.9 17.8 0.1 0.1 0.1 2.7 Capital goods ABB SELL 1,269 900 (29) 269 3.8 212 18 20 25 46.3 12.6 27.3 72 64 50 47.6 41.7 33.2 7.6 7.1 6.5 9.9 11.5 13.5 0.4 0.5 0.6 1.5 Ashoka Buildcon BUY 103 155 50 29 0.4 281 12.9 11.9 13.2 8.6 (7.9) 11.2 8.0 8.7 7.8 6.7 6.1 5.4 1.2 1.0 0.9 15.3 12.6 12.7 2.0 1.8 2.0 1.4 Bharat Electronics BUY 85 113 33 208 2.9 2,437 6.2 7.5 7.0 (20.2) 20.9 (6.9) 13.8 11.4 12.3 8.2 7.1 6.7 2.1 1.9 1.8 15.7 17.6 15.2 3.2 3.8 3.6 14.2 BHEL REDUCE 37 41 10 129 1.8 3,482 2.6 2.5 3.7 (25.0) (6.2) 51.0 14.1 15.1 10.0 5.4 5.0 3.8 0.4 0.4 0.4 2.9 2.7 4.0 3.4 2.9 4.0 11.2 Carborundum Universal ADD 340 345 1 64 0.9 189 13.7 16.3 19.0 4.7 19.2 16.1 25 21 17.9 15.3 12.3 10.5 3.4 3.1 2.8 14.4 15.6 16.3 1.2 1.4 1.7 0.4 Cochin Shipyard BUY 357 600 68 47 0.7 132 44 48 38 21.1 7.9 (19.8) 8.1 7.5 9.3 2.9 4.4 4.2 1.3 1.1 1.0 16.5 15.9 11.6 3.1 3.3 3.7 1.5 Cummins India REDUCE 549 590 7 152 2.1 277 27 29 32 1.0 8.1 11.7 21 19.1 17.1 20.3 18.1 16.0 3.5 3.3 3.1 17.4 17.7 18.7 2.5 2.7 3.0 7.3 Dilip Buildcon BUY 380 580 53 52 0.7 137 36 41 51 (35.6) 14.8 24.9 10.6 9.2 7.4 5.2 4.8 3.7 1.4 1.2 1.0 14.2 14.2 15.2 0.2 0.2 0.3 1.7 IRB Infrastructure BUY 106 137 30 37 0.5 351 25 19 14 3.4 (24.0) (26.8) 4.2 5.6 7.6 7.2 7.3 7.1 0.5 0.5 0.5 13.1 9.1 6.2 2.6 2.3 1.9 3.1 Kalpataru Power Transmission BUY 395 591 50 61 0.9 153 34 38 46 12.8 10.5 22.5 11.5 10.4 8.5 5.4 4.5 3.7 1.7 1.5 1.3 15.7 15.2 16.2 0.9 1.0 1.2 0.6 KEC International BUY 344 400 16 88 1.2 257 24.6 28 33 30.2 14.4 17.9 14.0 12.2 10.4 8.0 6.8 5.9 3.0 2.4 2.0 23 22 21 0.8 0.9 1.0 1.6 L&T BUY 1,292 1,550 20 1,813 25.4 1,403 70 68 86 13.8 (3.0) 27.6 18.5 19.1 15.0 18.0 15.3 13.2 3.0 2.5 2.3 16.9 14.3 16.0 0.8 3.0 2.1 68 Sadbhav Engineering BUY 104 167 60 18 0.3 172 11.4 14.1 15.7 4.7 24.3 11.1 9.1 7.4 6.6 6.1 5.3 4.7 0.8 0.7 0.7 9.2 10.5 10.6 — — — 0.4 Siemens SELL 1,420 1,200 (16) 506 7.1 356 35 40 46 14.1 15.2 13.9 41 35 31 28.7 25.2 21.9 5.1 4.7 4.3 13.1 13.8 14.3 0.7 0.8 0.9 14.9 Thermax BUY 999 1,140 14 119 1.7 113 26 39 47 (28.5) 48.4 20.8 38 26 21 23.6 20.2 16.9 23.6 20.2 16.9 9.5 13.1 14.3 0.7 0.9 1.1 1.3 Capital goods Neutral 3,593 50.3 4.3 2.8 18.9 19.1 18.6 15.7 2.4 2.1 2.0 12.4 11.4 12.5 1.1 2.3 1.9 1,004 Commercial & Professional Services SIS REDUCE 571 870 52 84 1.2 75 37 41 48 27.5 11.9 16.0 15.6 13.9 12.0 16.8 14.4 12.3 2.8 2.4 2.0 19.9 18.8 18.5 0.6 0.6 0.7 0.4 TeamLease Services SELL 2,402 2,300 (4) 41 0.6 17 68 89 112 18.6 29.8 26.9 35 27 21 30.7 23.1 17.6 6.3 5.1 4.1 19.5 21 21 — — — 1.0 Commercial & Professional Services Cautious 125 1.7 24.7 17.3 19.6 32 27 23 19.6 16.3 13.6 5.8 4.8 4.0 18.2 17.8 17.8 0.2 0.2 0.3 1.4 Commodity Chemicals Asian Paints REDUCE 1,874 1,825 (3) 1,798 25.2 959 28.9 34.2 40.5 28.5 18.2 18.3 65 55 46 41.1 35.9 30.9 16.8 15.0 13.4 27 29 31 0.7 0.9 1.1 33 Berger Paints SELL 582 430 (26) 565 7.9 971 7.5 8.6 10.2 46.6 14.6 19.1 77 68 57 50.0 42.7 36.2 19.6 16.9 14.5 27 27 28 0.5 0.5 0.7 14.4 Kansai Nerolac REDUCE 502 530 6 270 3.8 539 10.6 11.8 14.0 22.1 11.8 18.6 47 42 36 32.1 27.7 23.4 7.2 6.6 5.9 15.9 16.2 17.4 0.7 0.8 1.0 1.9 Tata Chemicals ADD 761 775 2 194 2.7 255 33.0 37.1 40.5 (23.1) 12.4 9.3 23 21 18.8 9.5 8.5 7.7 1.5 1.4 1.4 6.7 7.1 7.4 1.2 1.3 1.5 8.2 Commodity Chemicals Neutral 2,827 39.6 16.6 15.9 17.0 57 50 42 33.8 29.6 25.7 9.4 8.6 7.8 16.3 17.3 18.4 0.7 0.9 1.0 58 Construction Materials
ACC REDUCE 1,440 1,550 8 270 3.8 188 67.0 73.9 77.7 25.9 10.3 5.1 21 19.5 18.5 9.3 8.9 8.3 2.4 2.2 2.1 11.4 11.7 11.6 1.0 2.6 2.7 15.1 Daily Summary India Ambuja Cements REDUCE 209 200 (4) 414 5.8 1,986 10.9 11.9 13.1 50.5 8.9 9.5 19.1 17.5 16.0 6.7 6.0 5.0 1.7 1.6 1.5 9.3 9.4 9.5 0.7 0.7 0.7 9.2 Dalmia Bharat ADD 874 1,050 20 169 2.4 192 17.2 22.8 35.2 8.5 32.4 54.5 51 38 25 8.9 7.8 6.4 1.5 1.5 1.4 3.1 3.9 5.8 — — — 1.6 Grasim Industries ADD 752 865 15 495 6.9 657 74.4 77.5 90.0 18.9 4.2 16.2 10.1 9.7 8.4 5.4 4.4 3.6 0.8 0.8 0.7 8.4 8.1 8.8 0.9 0.9 0.9 23 J K Cement ADD 1,408 1,500 7 109 1.5 77 84.2 100.8 131.2 146.7 19.8 30.1 16.7 14.0 10.7 10.8 8.7 7.4 3.3 2.8 2.2 22 22 23 0.7 0.7 0.7 1.6 JK Lakshmi Cement REDUCE 348 325 (7) 41 0.6 118 19.2 23.9 28.4 374.8 24.2 19.2 18.1 14.6 12.3 7.1 6.2 5.7 2.4 2.1 1.8 14.3 15.6 16.1 0.6 0.6 0.6 1.0 Orient Cement ADD 80 90 13 16 0.2 205 4.7 6.2 6.8 102.0 32.0 9.8 17.0 12.9 11.7 7.1 6.0 5.1 1.5 1.4 1.3 8.9 11.1 11.4 2.5 2.5 2.5 0.2 Shree Cement SELL 24,657 15,200 (38) 890 12.5 36 431.6 542.9 672.6 33.5 25.8 23.9 57 45 37 23.7 20.4 17.2 6.7 5.9 5.2 13.6 13.8 15.1 0.2 0.2 0.2 8.3 UltraTech Cement SELL 4,451 3,800 (15) 1,285 18.0 289 140.9 169.5 201.7 54.1 20.3 18.9 32 26 22 13.8 12.2 10.8 3.4 3.1 2.7 11.4 12.3 13.0 0.3 0.3 0.3 33 Construction Materials Cautious 3,688 51.7 40.4 13.6 17.6 24 21 18.1 9.4 8.2 7.0 2.3 2.1 1.9 9.3 9.7 10.4 0.5 0.6 0.6 93
Source: Company, Bloomberg, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -
February February 14, 2020
KOTAK INSTITUTIONAL EQUITIES RESEARCH 49 Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 278 210 (24) 174 2.4 627 7.1 8.4 9.5 19.1 18.3 13.6 39 33 29 25 21 19 12.3 9.8 7.9 35 33 30 0.9 0.9 0.0 6.3 Havells India SELL 618 520 (16) 386 5.4 625 13.2 17.1 20.4 4.8 29.4 19.8 47 36 30 29 23 19 8.2 7.3 6.4 18.5 21 22 0.7 1.0 1.2 14.7 Page Industries REDUCE 23,516 22,000 (6) 262 3.7 11 363 449 539 2.9 23.6 20.0 65 52 44 42 36 30 29.3 23.3 18.9 48 50 48 0.7 0.9 1.1 10.1 Polycab BUY 1,086 700 (36) 162 2.3 149 37 44 49 9.0 19.1 11.3 30 25 22 17 14 13 4.4 3.8 3.3 16.6 16.3 15.7 0.3 0.4 0.4 4.8 TCNS Clothing Co. ADD 560 770 38 34 0.5 65 9 12 16 (54.3) 31.7 26.0 59 45 36 14 11 9.5 5.1 4.5 4.0 9.2 10.7 11.9 1.5 2.1 2.2 0.2 Vardhman Textiles ADD 985 1,000 2 57 0.8 56 92 120 130 (28.9) 30.0 8.5 10.7 8.2 7.6 7.4 5.8 5.2 0.9 0.9 0.8 9.0 11.0 11.0 3.0 3.0 3.0 0.2 Voltas SELL 686 500 (27) 227 3.2 331 16.9 20.7 24.2 7.8 22.3 16.7 40 33 28 30 26 22 5.0 4.5 4.0 13.0 14.3 14.9 0.5 0.6 0.7 12.0 Whirlpool SELL 2,271 1,260 (45) 288 4.0 127 38 44 52 17.9 16.8 18.6 60 51 43 37 32 28 11.5 10.1 9.0 21 21 22 0.3 0.6 0.9 3.4 Consumer Durables & Apparel Cautious 1,591 22.3 0.6 23.6 41 34 29 25 21 18 6.5 5.8 15.8 17.2 17.6 0.7 0.9 52 Consumer Staples Bajaj Consumer Care BUY 200 280 40 29 0.4 148 15.3 15.8 17.7 1.6 3.3 12.1 13.1 12.7 11.3 10.4 10.0 8.8 5.7 5.0 4.4 46 42 42 5.0 5.5 6.0 0.6
Britannia Industries REDUCE 3,135 2,900 (8) 754 10.6 240 59 68 79 22.7 14.3 16.2 53 46 40 39 35 30 16.7 13.5 11.1 32 32 30 0.6 0.9 1.1 17.4 -
Colgate-Palmolive (India) ADD 1,345 1,600 19 366 5.1 272 30 36 41 12.5 18.5 14.6 45 38 33 28.2 24.2 21.3 24.9 24.5 24.0 56 65 74 1.9 2.2 2.5 14.5 February 14, 2020 Dabur India REDUCE 513 440 (14) 906 12.7 1,766 9.5 11.0 12.0 16.8 15.5 9.7 54 47 43 45 39 34 14.1 12.6 11.4 28 28 28 0.9 1.1 1.3 12.8 GlaxoSmithKline Consumer RS 9,773 —— 411 5.8 42 299 335 378 28 12.0 12.9 33 29 26 28 24 21 8.6 7.4 6.4 28 27 27 1.2 1.3 1.5 2.6
Godrej Consumer Products REDUCE 636 720 13 650 9.1 1,022 15.4 17.7 20.6 6.2 15.3 16.2 41 36 31 28 25 21 7.7 6.9 6.2 20.0 20 21 1.0 1.2 1.3 10.8 Hindustan Unilever REDUCE 2,279 1,900 (17) 4,934 69.1 2,160 34 40 47 19.8 18.4 16.5 68 57 49 47 40 35 54.3 44.0 35.3 87 85 80 1.1 1.2 1.3 41 ITC BUY 212 300 42 2,605 36.5 12,300 11.9 12.6 13.9 17.0 5.9 10.1 17.8 16.8 15.3 12.4 11.7 10.5 4.1 3.8 3.6 21 22 23 3.1 4.2 4.7 46 Jyothy Laboratories ADD 136 170 25 50 0.7 367 5.8 6.5 7.4 4.7 11.9 13.0 23 21 18.4 16.2 14.7 13.0 3.6 3.4 3.2 15.8 16.7 17.8 2.6 2.9 3.3 0.6 Marico ADD 303 365 20 392 5.5 1,290 8.2 8.8 10.0 13.5 7.1 13.7 37 35 30 26 24 21 12.2 11.6 11.0 34 34 37 1.8 2.1 2.3 10.3 Nestle India SELL 16,412 14,000 (15) 1,582 22.2 96 204 238 278 22.6 16.6 16.6 80 69 59 55 48 42 81.9 66.5 54.8 70 107 102 2.1 1.2 1.4 16.6 Tata Global Beverages ADD 393 400 2 248 3.5 631 8.8 10.3 11.5 25.1 18.2 11.1 45 38 34 25 22 20 3.2 3.1 2.9 7.4 8.3 8.8 0.8 0.9 1.1 27 United Breweries ADD 1,289 1,430 11 341 4.8 264 17.9 25.5 32.6 (15.8) 42.2 27.8 72 51 40 36 27 23 9.5 8.1 6.9 14.0 17.4 18.9 0.1 0.3 0.4 8.0 United Spirits REDUCE 711 670 (6) 516 7.2 727 13.7 16.7 20.7 44.8 22.5 23.6 52 42 34 32 28 24 13.2 8.8 6.3 28 25 21 0.3 0.4 0.4 18.0 Varun Beverages ADD 826 900 9 238 3.3 289 16.2 24.8 33.5 51.9 52.4 35.3 51 33 25 19 15 12 7.2 5.8 4.8 17.6 19.3 21 0.1 0.2 0.2 2.5
Consumer Staples Cautious 14,023 196.5 18.1 12.8 14.0 41 36 32 29 26 22 11.3 10.1 9.0 28 28 29 1.5 1.7 1.9 229 Diversified Financials Bajaj Finance REDUCE 4,795 3,850 (20) 2,885 40.4 599 101 135 163 46 33 21 47 35 29 ——— 8.6 7.1 5.8 23 22 22 0.2 0.3 0.3 81 Bajaj Finserv ADD 9,717 10,200 5 1,546 21.7 159 304 394 475 50 30 21 32 25 20 ——— 4.6 3.9 3.3 16.8 17.1 17.5 0.1 0.1 0.1 31 Cholamandalam ADD 338 340 1 264 3.7 782 17.9 22.0 25.8 18 23.0 17.4 18.9 15.4 13.1 ——— 3.7 3.0 2.5 21 21 21 0.6 0.7 0.8 9.0 HDFC BUY 2,404 2,680 11 4,156 58.2 1,721 107 72 85 88.2 (33) 17.4 22 33 28 ——— 4.7 4.4 4.0 22 13.7 14.8 1.7 1.1 1.3 106 IIFL Wealth REDUCE 1,612 1,200 (26) 140 2.0 85 34.7 45.6 66.8 (23) 31.4 46.5 46 35 24 ——— 4.7 4.5 4.3 10.1 13.0 18.4 1.6 1.8 2.7 0.5 L&T Finance Holdings REDUCE 127 115 (9) 253 3.6 1,999 9 13 16 (15.7) 35 27.8 13.5 10.0 7.8 ——— 1.7 1.5 1.3 13.2 15.7 17.4 1.0 1.1 1.3 18.6 LIC Housing Finance ADD 424 475 12 214 3.0 505 53.2 72.1 83.1 16 35.6 15.2 8.0 5.9 5.1 ——— 1.3 1.2 1.0 15.4 18.2 18.1 2.1 2.8 3.2 24 Mahindra & Mahindra Financial ADD 388 405 4 240 3.4 615 24.5 32.5 40.6 (3) 32.5 24.8 15.8 11.9 9.6 ——— 2.2 2.0 1.7 13.2 15.8 17.5 1.6 2.2 2.7 11.1 Muthoot Finance ADD 740 740 (0) 297 4.2 401 64 72 81 29.4 12 13.0 11.6 10.4 9.2 ——— 2.6 2.2 1.9 24 23 22 2.1 2.3 2.6 11.8 PNB Housing Finance NR 412 —— 69 1.0 169 66.9 77.6 88.6 (6) 16.0 14.2 6.2 5.3 4.6 ——— 0.9 0.8 0.7 14.1 14.6 14.8 1.8 2.1 2.4 7.0 Shriram City Union Finance BUY 1,450 1,975 36 96 1.3 66 171 191 214 14.0 12 12.0 8.5 7.6 6.8 ——— 1.4 1.2 1.1 16.4 15.9 15.6 1.5 1.7 1.9 0.2 Shriram Transport BUY 1,254 1,525 22 284 4.0 227 134.4 136.2 162.2 19 1.3 19.1 9.3 9.2 7.7 ——— 1.6 1.4 1.2 17.8 15.7 16.4 1.5 1.6 1.9 18.4 Diversified Financials Neutral 10,446 146.4 44.3 1.4 19.1 23 23 19.4 3.0 2.7 2.4 13.0 11.7 12.4 1.0 0.9 1.0 318
Source: Company, Bloomberg, Kotak Institutional Equities estimates
50 KOTAK INSTITUTIONAL EQUITIES RESEARCH 50
Kotak Institutional Equities: Valuation summary of KIE Universe stocks
51 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Electric Utilities CESC BUY 727 820 13 96 1.4 133 84 101 114 (7) 19.9 12.3 8.6 7.2 6.4 6.2 5.6 5.0 0.7 0.7 0.6 8.9 9.9 10.3 1.6 1.7 1.7 3.2 JSW Energy ADD 64 75 18 104 1.5 1,640 6.4 5.7 5.2 53 (10) (8.5) 10.0 11.1 12.1 5.2 4.5 3.8 0.8 0.8 0.7 8.5 7.0 6.0 ——— 0.7 NHPC ADD 24 27 14 239 3.3 10,045 3.4 3.4 3.7 34.3 2 6.8 7.0 6.9 6.4 6.2 6.6 6.0 0.7 0.7 0.7 10.8 10.5 10.6 7.2 6.4 7.0 2.9 NTPC BUY 115 160 39 1,139 16.0 9,895 12.3 14.3 15.5 9.4 16.8 7.9 9.4 8.0 7.4 9.6 8.2 6.7 1.0 0.9 0.8 10.9 11.8 11.7 3.2 3.7 4.0 18.2 Power Grid BUY 191 235 23 997 14.0 5,232 20.2 23 25 6 13.5 11.1 9.4 8.3 7.5 7.2 6.7 6.3 1.5 1.4 1.2 17.0 17.4 17.5 3.7 4.2 4.7 31 Tata Power BUY 55 72 30 149 2.1 2,705 3.6 5.4 7.2 72 48 33.4 15.2 10.3 7.7 7.6 7.3 6.7 0.8 0.8 0.7 5.7 7.9 9.7 ——— 6.2 Electric Utilities Attractive 2,725 38.2 12.2 14.0 9.8 9.3 8.2 7.4 1.1 1.0 0.9 11.4 12.0 12.1 3.4 3.7 4.1 62 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 4,353 3,000 (31) 196 2.7 45 103.8 119.4 138.3 32.3 15.1 15.8 42 36 31 31 26 22 7.8 6.7 5.8 19.6 19.7 19.7 0.5 0.5 0.6 1.0 Dhanuka Agritech SELL 530 470 (11) 25 0.4 48 28.0 30.3 33.4 18.1 8.5 10.1 19.0 17.5 15.9 15.0 13.3 11.6 3.4 2.9 2.5 19.1 17.9 17.1 1.1 1.1 1.3 0.3 Godrej Agrovet SELL 556 470 (15) 107 1.5 192 11.8 16.4 19.9 2.9 39.2 21 47 34 28 26 18 16 4.8 4.3 3.8 10.5 13.3 14.3 0.6 0.7 0.9 0.8 PI Industries SELL 1,545 1,280 (17) 213 3.0 138 37.2 46.1 56.1 25.3 24 22 42 33 28 28 23 19 7.9 6.7 5.6 21 22 22 0.4 0.5 0.7 3.1 Rallis India ADD 231 230 (0) 45 0.6 195 10.9 12.5 14.4 29.4 14.8 14.8 21.2 18.5 16.1 14.7 12.4 10.7 3.1 2.8 2.5 15.6 16.0 16.4 1.2 1.3 1.4 1.7 UPL SELL 579 510 (12) 442 6.2 765 28.6 40.1 45.8 51.3 40.2 14.1 20 14.4 12.6 9.7 8.1 7.1 2.7 2.4 2.1 14.2 17.8 17.9 1.4 2.0 2.2 26 Fertilizers & Agricultural Chemicals Attractive 1,028 14.4 39.0 32.2 15.6 27 21 18.0 13.5 11.2 9.8 4.0 3.5 3.1 14.5 16.8 17.0 0.9 1.2 1.4 32 Gas Utilities GAIL (India) BUY 130 175 34 588 8.2 4,510 12.2 13.9 14.9 (12.4) 13.5 7.3 10.7 9.4 8.8 7.6 6.9 6.4 1.3 1.2 1.1 12.3 13.3 13.5 5.7 5.8 6.1 20 GSPL SELL 238 225 (5) 134 1.9 564 17.0 14.2 13.1 20.4 (16.1) (7.9) 14.0 16.7 18.1 6.5 7.3 7.6 2.0 1.8 1.7 15.4 11.5 9.7 1.1 0.9 1.1 1.8 Indraprastha Gas SELL 496 365 (26) 347 4.9 700 17.3 19.7 22.1 43.7 13.8 12.2 28.7 25.2 22.5 21.5 18.3 15.9 7.0 5.9 5.0 27 25 24 0.8 1.0 1.2 15.4 Mahanagar Gas ADD 1,191 1,300 9 118 1.6 99 76.8 84.0 89.4 36.7 9.4 6.5 15.5 14.2 13.3 10.1 8.9 8.0 4.2 3.6 3.2 29 27 25 2.8 3.2 3.8 14.4 Petronet LNG BUY 264 325 23 396 5.6 1,500 17.9 20.8 23.1 19.4 16.0 11.1 14.7 12.7 11.4 8.5 7.3 6.5 3.5 3.2 2.9 25 26 26 3.7 4.7 5.7 8.6 Gas Utilities Attractive 1,583 22.2 3.7 11.3 7.8 14.2 12.8 11.9 9.2 8.3 7.6 2.2 2.0 1.9 15.6 16.0 15.9 3.5 3.8 4.3 60 Health Care Services Apollo Hospitals ADD 1,696 1,700 0 236 3.3 139 27.2 35 49 61 27 43 62.3 49.0 34.4 16.6 16.5 14.2 6.6 6.1 5.6 11.0 13.0 17.0 0.6 0.7 1.0 16.5 Aster DM Healthcare NR 175 - (100) 88 1.2 505 6.9 8.8 10.6 4 27.5 21 25.4 19.9 16.5 9.0 7.7 6.8 3.2 2.8 2.4 13.3 15.0 15.8 ——— 0.8 Dr Lal Pathlabs SELL 1,632 1,080 (34) 136 1.9 83 31.5 36.6 42.1 31.9 16.2 15.2 51.9 44.6 38.7 34.1 29.2 25.1 12.1 10.1 8.6 25 25 24 0.6 0.7 0.8 2.9 HCG BUY 120 190 59 11 0.1 85 (8.0) (5.4) (5.2) (130) 33 3 NM NM NM 9.6 8.0 7.1 2.0 2.3 2.5 NM NM NM ——— 0.1 Metropolis Healthcare SELL 1,818 1,130 (38) 91 1.3 50 32.2 37.2 42.9 34.6 15.4 15 56.4 48.9 42.4 35.6 30.3 26.6 17.6 14.3 11.7 35 32 30 0.5 0.6 0.7 1.0 Narayana Hrudayalaya BUY 348 410 18 71 1.0 204 6.7 8.8 11.2 131.2 31 27 52.0 39.6 31.2 18.0 15.3 13.0 5.8 5.1 4.4 11.9 13.7 15.1 ——— 2.6 Health Care Services Attractive 633 8.9 33 27 27 51.9 40.8 32.1 16.8 15.2 13.2 6.5 5.9 5.2 12.6 14.3 16.1 0.4 0.5 0.6 24
Hotels & Restaurants Daily Summary India Jubilant Foodworks ADD 1,835 1,900 4 242 3.4 132 27 38 52 12 42.1 36 68.2 48.0 35.4 24.8 19.8 15.9 19.5 14.7 11.2 28 35 36 0.3 0.5 0.9 21 Lemon Tree Hotels BUY 55 70 28 43 0.6 789 1.0 1.8 2.2 44 83 23 56.7 31.0 25.2 19.5 13.5 10.3 4.5 4.1 3.8 8.3 14.0 15.7 — 1.0 1.4 0.9 Hotels & Restaurants Attractive 285 4.0 17 50 33 66.0 44.1 33.1 23.5 18.1 14.4 13.0 10.6 8.6 19.7 24 26 0.3 0.6 1.0 22 Insurance HDFC Life Insurance ADD 577 590 2 1,165 16.3 2,009 7.2 8.4 9.8 12.6 17.9 16.1 80.6 68.4 59 ——— 18.6 16.7 15.0 24 26 27 0.3 0.4 0.4 24 ICICI Lombard SELL 1,350 825 (39) 613 8.6 454 26.8 33.4 38.9 16 25 16 50.3 40.4 35 ——— 9.9 8.3 7.1 21 22 22 0.4 0.5 0.6 9.8 ICICI Prudential Life BUY 479 580 21 688 9.6 1,436 8.2 9.0 10.3 4 9.0 15.3 58.2 53.4 46 ——— 8.8 7.8 6.9 16.1 15.5 15.7 0.3 0.3 0.4 21 Max Financial Services ADD 492 550 12 132 1.9 417 6.9 9.9 14.4 275 44 45 71.6 49.7 34 —————— 13.7 17.9 23 0.5 0.7 1.1 16.1 SBI Life Insurance ADD 928 1,010 9 928 13.0 1,000 13.7 16.1 17.7 3.5 17.5 9.4 67.6 57.5 53 ——— 10.8 9.3 8.1 17.1 17.4 16.5 0.2 0.3 0.3 41 Insurance Attractive 3,527 49.4 13.5 18.8 16.2 64.1 54.0 46 11.3 9.9 8.7 17.7 18.4 18.7 0.2 0.3 0.3 111
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Source: Company, Bloomberg, Kotak Institutional Equities estimates -
February February 14, 2020
KOTAK INSTITUTIONAL EQUITIES RESEARCH 51
Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Internet Software & Services Info Edge SELL 2,865 2,470 (14) 351 4.9 122.0 31.0 39.7 48.7 20.0 28.0 22.7 92.4 72.2 58.9 78.9 59.5 48.1 13.3 11.8 10.3 15.3 17.3 18.7 0.3 0.3 0.4 16.9 Just Dial REDUCE 516 570 11 33 0.5 64.8 40.0 40.9 42.4 25.4 2.2 3.5 12.9 12.6 12.2 6.8 5.6 4.7 2.7 2.3 2.0 23 19.7 17.4 0.8 0.8 0.8 20 Internet Software & Services Attractive 384 5.4 22.1 17.5 15.9 60.3 51.3 44.3 51.0 41.5 35.6 10.0 8.7 7.6 16.5 16.9 17.1 0.4 0.4 0.5 37 IT Services HCL Technologies ADD 612 650 6 1,662 23.3 2,702 39.9 43.5 48.0 9.0 8.9 10.4 15.3 14.1 12.8 9.7 8.7 7.6 3.4 2.9 2.5 24 22 21 2.5 2.7 2.7 27 Hexaware Technologies REDUCE 371 390 5 111 1.5 302 21.2 24.4 26.5 9.9 15.2 8.6 17.5 15.2 14.0 12.7 10.9 9.4 4.0 3.6 3.1 25 25 24 2.3 3.2 3.2 2.5 Infosys ADD 792 865 9 3,374 47.3 4,256 38.7 42.5 47.3 9.3 9.9 11.3 20.5 18.6 16.7 14.3 12.5 11.2 5.4 5.0 4.7 26 28 29 2.8 3.3 3.8 81 L&T Infotech ADD 2,020 2,060 2 352 4.9 175 84.5 102.1 120.6 (2) 20.8 18.2 23.9 19.8 16.8 16.4 13.5 11.3 6.2 5.2 4.3 28 29 28 1.5 1.6 1.8 4.4 Mindtree REDUCE 937 830 (11) 154 2.2 165 38.5 55.6 63.9 (16) 44 15 24.3 16.9 14.7 13.4 10.0 8.4 4.6 3.9 3.4 19.1 25 25 3.2 1.8 2.0 10.4 Mphasis REDUCE 892 960 8 166 2.3 186 60.2 65.6 70.7 7 8.9 7.8 14.8 13.6 12.6 9.1 8.1 7.4 2.9 2.7 2.5 20 21 21 3.4 4.5 5.0 3.0 TCS REDUCE 2,192 2,020 (8) 8,224 115.2 3,752 87.1 95.1 104.3 5 9.2 9.6 25.1 23.0 21.0 18.2 16.2 14.6 8.5 7.9 7.3 35 36 36 2.8 2.8 3.1 102 -
Tech Mahindra ADD 828 890 7 735 10.3 880 47.8 54.4 62.6 0.1 13.9 15.0 17.3 15.2 13.2 11.1 8.9 7.6 3.2 2.8 2.5 19.5 19.7 20 2.0 2.2 2.5 23 Wipro REDUCE 244 265 9 1,393 19.5 5,827 17.2 18.9 20.7 14.8 10.2 9.4 14.2 12.9 11.8 8.7 7.5 6.7 2.6 2.1 2.0 17.9 18.0 17.4 0.6 0.8 3.5 10.9 February 14, 2020 IT Services Cautious 16,169 226.6 4.7 10.0 10.6 20.7 18.8 17.0 14.2 12.5 11.2 5.3 4.8 4.3 26 25 25 2.5 2.7 3.2 263 Media
DB Corp. REDUCE 130 135 4 23 0.3 175 18.0 18.7 18.6 14.6 4.1 (0.5) 7.2 6.9 7.0 3.8 3.5 3.5 1.2 1.2 1.2 16.9 17.4 17.4 9.6 11.5 13.1 0.2 Jagran Prakashan REDUCE 69 60 (13) 20 0.3 296 8.7 9.9 10.7 (0.9) 14 NA 7.9 7.0 NA 3.3 3.1 NA 1.1 1.1 NA 13.7 15.4 16.7 13.1 13.1 13.1 0.7 PVR REDUCE 2,072 1,850 (11) 106 1.5 51 43.0 59.8 69.1 (0) 39 15 48.2 34.6 30.0 16.5 14.2 12.2 5.5 4.8 4.2 13.9 14.8 15.0 0.2 0.3 0.3 10.6 Sun TV Network REDUCE 499 510 2 197 2.8 394 37.7 41.1 43.5 4 9.0 5.9 13.2 12.1 11.5 9.3 8.3 7.5 3.1 2.7 2.4 25 24 22 2.5 3.0 3.4 16.4 Zee Entertainment Enterprises ADD 237 340 43 228 3.2 960 17.2 18.4 21.0 4.4 6.9 13.7 13.8 12.9 11.3 8.8 7.9 6.9 2.4 2.1 1.9 17.8 17.3 17.6 1.9 2.3 2.3 93 Media Attractive 574 8.0 4.8 9.7 9.5 14.6 13.3 12.1 8.9 8.1 7.2 2.6 2.4 2.2 18.1 18.0 17.8 2.5 2.9 3.1 121 Metals & Mining Hindalco Industries BUY 195 250 28 439 6.1 2,224 22.1 24.9 28.1 (10.5) 12.6 13 8.8 7.8 7.0 5.5 5.0 4.3 0.7 0.6 0.6 8.2 8.6 8.9 0.6 0.6 0.6 24 Hindustan Zinc REDUCE 191 210 10 806 11.3 4,225 16.4 16.9 18.4 (13.1) 3.3 9.0 11.7 11.3 10.4 7.1 6.9 6.4 2.6 2.9 3.2 22 24 29 10.5 10.5 10.5 1.7 Jindal Steel and Power BUY 194 240 24 198 2.8 1,016 2.7 33.2 23.2 259 1,112 (30) 70.7 5.8 8.3 7.1 4.4 4.7 0.6 0.5 0.5 0.9 9.8 6.3 — — — 54
JSW Steel ADD 293 290 (1) 709 9.9 2,402 8.7 21.6 28.8 (72.8) 150 32.9 33.9 13.6 10.2 10.3 7.2 5.9 1.9 1.7 1.5 5.8 13.3 15.7 1.4 1.4 1.4 29 National Aluminium Co. SELL 41 35 (15) 77 1.1 1,866 0.6 2.3 2.2 (92) 254 (3.0) 64.2 18.2 18.7 10.6 6.6 8.2 0.7 0.7 0.7 1.2 4.1 4.0 3.0 5.5 5.3 5.9 NMDC ADD 110 135 23 337 4.7 3,062 16.9 17.3 15.7 14.6 2.4 (9) 6.5 6.4 7.0 4.5 4.4 4.9 1.2 1.1 1.1 19.2 18.3 15.5 7.7 7.9 7.1 13.6 Tata Steel BUY 441 560 27 501 7.0 1,146 9.8 65.0 91.4 (89) 562 41 44.9 6.8 4.8 7.6 5.5 4.4 0.7 0.7 0.6 1.6 10.3 12.9 2.3 2.3 2.3 97 Vedanta BUY 143 175 23 530 7.4 3,717 10.4 17.7 20.1 (32) 71 13.5 13.8 8.1 7.1 6.1 5.1 4.8 0.9 0.9 0.9 6.2 10.7 12.3 12.6 12.6 12.6 30 Metals & Mining Attractive 3,596 50.4 (43.2) 69.7 13.6 14.7 8.7 7.6 7.0 5.6 5.0 1.1 1.0 1.0 7.3 11.7 12.5 5.7 5.8 5.7 50 Source: Company, Bloomberg, Kotak Institutional Equities estimates
52 KOTAK INSTITUTIONAL EQUITIES RESEARCH 52
Kotak Institutional Equities: Valuation summary of KIE Universe stocks
53 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 469 420 (10) 1,017 14.3 1,967 32 39 40 (10.5) 18.9 3.8 14.5 12.2 11.7 10.4 9.0 8.6 2.3 2.2 2.0 16.8 18.6 18.0 4.0 4.3 4.4 50.0 Coal India BUY 178 280 57 1,096 15.4 6,163 28 30 28 0 6.6 (8.4) 6.3 5.9 6.4 5.4 4.5 4.6 3.3 2.8 2.5 58.7 51.4 40.8 8.4 11.2 11.2 23.5 HPCL SELL 235 225 (4) 358 5.0 1,524 23 26 26 (43.2) 16.9 0.2 10.4 8.9 8.9 9.2 9.2 9.2 1.2 1.1 1.0 11.8 12.9 12.0 3.8 4.5 4.5 15.8 IOCL ADD 115 130 13 1,080 15.1 9,181 9.5 15.2 15.5 (46.9) 59.7 2.0 12.0 7.5 7.4 6.0 5.1 5.0 0.9 0.9 0.9 7.9 12.1 11.8 4.5 6.6 6.8 26.5 Oil India BUY 134 180 34 145 2.0 1,084 22 23 25 (28) 5.2 8.6 6.1 5.8 5.3 3.0 3.0 2.7 0.5 0.5 0.5 8.4 8.4 8.7 6.6 6.9 7.5 3.1 ONGC BUY 105 170 61 1,325 18.6 12,580 22 21 22 (8) (4.7) 7.4 4.8 5.1 4.7 2.9 2.7 2.4 0.5 0.5 0.5 11.1 10.0 10.0 7.1 7.4 7.6 21.1 Reliance Industries BUY 1,474 1,850 25 8,737 122.4 5,927 76 93 107 14.9 22.8 15.4 19.4 15.8 13.7 12.6 9.7 8.1 2.0 1.8 1.6 11.0 12.2 12.6 0.5 0.5 0.5 194.2 Oil, Gas & Consumable Fuels Attractive 13,760 192.8 (7.4) 15.6 7.5 12.4 10.7 10.0 7.8 6.7 6.0 1.5 1.4 1.2 12.0 12.7 12.5 2.4 2.9 3.0 334.1 Pharmaceuticals Aurobindo Pharma ADD 527 560 6 309 4.3 584 47 54 56 15.3 17 3.0 11.3 9.7 9.4 7.1 6.1 5.8 1.9 1.6 1.4 16.8 16.7 15.1 1.2 1.4 1.7 27.1 Biocon SELL 307 200 (35) 368 5.2 1,202 7.5 9.0 10.1 24 20 12.1 41 34 30 20.1 15.3 13.5 4.7 4.2 3.8 12.3 12.3 12.5 0.9 1.0 1.1 16.4 Cipla BUY 443 570 29 357 5.0 806 21.2 27 33 11.5 27 23 21 16.6 13.5 10.7 9.2 7.4 2.1 1.9 1.8 10.7 11.8 13.0 1.0 1.3 1.6 18.3 Dr Reddy's Laboratories REDUCE 3,325 2,800 (16) 552 7.7 166 110 139 185 11 26 32.6 30 23.9 18.0 13.4 12.7 9.8 3.6 3.2 2.8 12.0 13.4 15.5 0.6 0.7 1.0 27.1 Laurus Labs BUY 441 500 13 47 0.7 107 23.5 34.0 37 114.8 44 8 19 13.0 12.1 10.6 7.9 7.1 2.6 2.2 1.8 14.9 16.7 15.3 — — — 1.1 Lupin ADD 703 840 19 319 4.5 450 19 34 48 (9.6) 79 42 37 21 14.6 12.4 9.2 6.9 2.3 2.1 1.9 6.2 10.2 12.9 0.7 0.7 1.0 16.2 Sun Pharmaceuticals ADD 419 480 15 1,005 14.1 2,406 19.1 23.2 25 18.3 22 8 22 18 16.7 12.2 9.6 8.2 2.2 2.0 1.8 10.6 11.1 11.4 0.9 1.1 1.2 33.7 Torrent Pharmaceuticals ADD 2,080 2,250 8 352 4.9 169 55 69 86 113.0 25 26 38 30 24 17.1 14.4 12.3 6.7 5.9 5.0 17.7 19.4 20.9 1.1 1.2 1.3 7.6 Pharmaceuticals Neutral 3,310 46.4 18.3 26 17 24 19 16.3 12.2 10.0 8.4 2.7 2.4 2.2 11.3 12.7 13.2 0.9 1.0 1.2 147.5 Real Estate Brigade Enterprises BUY 230 280 22 47 0.7 204 8.3 10 18 (29) 17 82 27.5 23.5 13.0 14.3 9.8 6.2 2.1 1.9 1.7 7.7 8.5 14.1 1.1 1.1 1.1 0.5 DLF ADD 231 260 12 573 8.0 2,475 4.5 8.2 11.8 (24) 81 43 51 28.1 19.7 47.4 38.4 26.9 1.6 1.5 1.4 3.2 5.5 7.5 0.9 0.9 0.9 34.7 Embassy Office Parks REIT ADD 449 410 (9) 346 4.9 772 12.7 15.6 18.0 7,843 23 15 35 29 25 22.4 19.5 17.4 1.6 1.6 1.7 4.3 5.5 6.6 5.2 6.0 6.8 2.8 Godrej Properties SELL 1,130 735 (35) 285 4.0 252 11.3 10.6 19.3 2.4 (7) 82.6 100 107 59 97.5 144.1 65.4 5.9 5.6 5.1 7.8 5.3 9.1 — — — 4.2 Oberoi Realty ADD 517 575 11 188 2.6 364 22 34 38 (4.0) 55.5 12 24.0 15.4 13.7 21.8 13.0 10.9 2.2 1.9 1.7 9.4 13.1 13.1 0.4 0.4 0.4 2.5 Prestige Estates Projects ADD 363 410 13 141 2.0 378 15.4 15.7 16 76.8 2 3 24 23 22.5 9.1 8.7 8.1 2.7 2.5 2.3 12.4 11.2 10.5 0.4 0.4 0.4 2.8 Sobha ADD 377 515 37 36 0.5 95 33 34 40 6 3.9 15.6 11.4 11.0 9.5 5.9 5.3 5.4 1.4 1.3 1.2 13.3 12.6 13.2 1.9 1.9 1.9 1.4 Sunteck Realty REDUCE 395 400 1 58 0.8 140 12.5 35.6 34 (22.7) 184 (6) 32 11.1 11.8 22.9 7.7 8.1 1.9 1.6 1.4 6.0 15.4 12.7 0.3 0.3 0.3 1.3 Real Estate Neutral 1,673 23.5 15.0 44.1 25.8 38 26 20.9 22.0 17.7 14.8 2.0 1.9 1.8 5.2 7.2 8.6 1.5 1.7 1.9 50.1 Retailing Aditya Birla Fashion and Retail BUY 276 230 (17) 213 3.0 773 1.8 2.8 4.6 (57.5) 58.0 65.7 156 99 60 17.7 15.3 13.4 13.6 12.0 10.0 9.1 12.9 18.2 — — — 2.3
Avenue Supermarts SELL 2,544 1,400 (45) 1,597 22.4 626 22.0 28 36 52.1 25.9 29.8 116 92 71 73 56 43 22.5 18.1 14.4 21.7 21.9 22.7 — — — 25.1 Daily Summary India Titan Company ADD 1,298 1,475 14 1,152 16.2 888 18.1 24 30 7.4 30.7 26.8 72 55 43 45 35 28 16.4 13.7 11.3 24.5 27.1 28.6 0.5 0.6 0.8 35.7 Retailing Cautious 2,963 41.5 14.7 30.0 30.2 95 73 56 49 39 31 18.9 15.6 12.7 19.9 21.3 22.6 0.2 0.2 0.3 63.1 Speciality Chemicals Castrol India BUY 157 180 15 155 2.2 989 8.4 9.4 10.1 16.8 12.0 8.2 18.7 16.7 15.5 12.6 11.4 10.5 11.3 10.0 8.9 65.3 63.5 60.9 3.5 4.8 5.3 4.6 Pidilite Industries REDUCE 1,578 1,425 (10) 802 11.2 508 24.8 28 33 40.1 14.0 17.2 64 56 48 47 41 35 16.3 13.9 11.9 27.9 26.9 26.9 0.5 0.6 0.7 13.6 S H Kelkar and Company BUY 120 140 17 17 0.2 141 5.1 7.1 8.1 (16.0) 37.8 15.0 23.3 16.9 14.7 12.4 10.1 8.9 2.1 2.0 1.8 8.7 11.9 12.9 1.7 2.3 2.9 0.1 SRF ADD 4,149 3,900 (6) 238 3.3 57 144 174 207 28.6 21.2 18.8 28.9 23.8 20.1 17.5 14.3 12.0 4.8 4.1 3.4 18.1 18.4 18.6 0.3 0.4 0.5 13.7 Speciality Chemicals Neutral 1,212 17.0 27.7 16.0 15.1 41 35 30.4 26.9 23.1 20.0 10.0 8.6 7.4 24.8 24.7 24.4 0.9 1.1 1.3 32.0 Source: Company, Bloomberg, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -
February February 14, 2020
KOTAK INSTITUTIONAL EQUITIES RESEARCH 53
Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 13-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Telecommunication Services Bharti Airtel BUY 540 600 11 2,946 41.3 5,455 (5.5) 6.0 13.5 NM NM NM NM 89.7 40.1 11.1 8.2 6.9 3.6 3.7 3.5 NM 4.1 9.0 0.7 1.1 1.1 129.5 Bharti Infratel REDUCE 245 230 (6) 453 6.3 1,850 15.3 15.7 17.8 16.9 2.4 13.1 16.0 15.6 13.8 7.9 7.3 6.6 3.0 2.9 2.9 19.0 18.8 20.9 3.9 4.9 5.6 41.7 Vodafone Idea RS 5 — — 129 1.8 28,736 (22.3) (4.0) (6.2) NM NM NM NM NM NM 19.4 9.5 8.8 0.6 1.1 (2.1) NM NM NM — — — 34 Tata Communications ADD 400 500 25 114 1.6 285 11.0 14.0 17.9 36.2 26.5 28.0 36.2 28.6 22.4 6.7 6.1 5.5 216.9 25.9 12.2 NM 162 74.1 1.9 1.9 1.9 1.3 Telecommunication Services Cautious 3,642 51.0 NM 65.3 47.2 NM NM NM 11.6 8.3 7.2 3.1 3.4 3.9 NM NM NM 1.1 1.5 1.6 206.6 Transportation Adani Ports and SEZ BUY 369 475 29 750 10.5 2,032 24.6 24.8 28.2 23.1 0.8 13.8 15.0 14.9 13.1 12.4 10.7 9.3 2.9 2.5 2.2 19.9 18.2 17.9 4.2 1.2 1.3 23.3 Container Corp. SELL 566 515 (9) 345 4.8 609 16.6 20.6 26.7 1.9 23.6 29.7 34 28 21 19.0 16.1 12.3 3.3 3.1 2.9 9.7 11.5 14.1 0.4 1.6 2.0 9.9 Gateway Distriparks BUY 127 162 28 14 0.2 109 3.9 6.0 9.2 (42.8) 55.9 51.7 32.8 21.0 13.9 7.6 6.3 5.2 0.9 0.8 0.8 2.9 4.1 6.0 2.4 2.4 2.4 0.5 Gujarat Pipavav Port BUY 81 118 46 39 0.5 483 6.2 5.7 7.2 44.9 (8.2) 26.7 13.1 14.3 11.3 7.5 6.6 5.8 1.9 1.9 1.9 14.7 13.4 16.9 6.6 6.2 7.8 0.6 InterGlobe Aviation REDUCE 1,444 1,535 6 556 7.8 383 70.0 97.8 115.1 1,615.5 39.8 17.7 21 15 12.5 5.2 3.8 3.1 5.7 4.2 3.3 32.1 32.8 29.4 — 0.7 0.8 28
Mahindra Logistics ADD 392 415 6 28 0.4 71 10.5 15.4 18.6 (16.4) 47.0 20.7 37 25 21 16.7 12.5 10.3 5.1 4.4 3.8 14.3 18.5 19.2 — — — 0.2 -
Transportation Attractive 1,732 24.3 63.2 15.1 17.8 19 17 14.0 9.7 7.9 6.6 3.4 3.0 2.6 18.1 18.0 18.2 2.2 1.2 1.4 62 February 14, 2020 KIE universe 122,494 1716.8 8.7 34.2 18.2 25 18.3 15.5 11.7 9.9 8.7 2.7 2.4 2.2 11.2 13.4 14.3 1.5 1.8 1.9
Notes:
(a) We have used adjusted book values for banking companies. (b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies. (c) Exchange rate (Rs/US$)= 71.36 Source: Company, Bloomberg, Kotak Institutional Equities estimates
54 KOTAK INSTITUTIONAL EQUITIES RESEARCH 54
India Daily Summary - February 14, 2020
India of of the following trategic transaction n a merger or s any, noare longer in effect for this stock , if, Asof December 2019 31, fair value KOTAK INSTITUTIONAL EQUITIES RESEARCH , any, if for this stock,because is there notsufficient a
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Percentageof companies covered by Kotak Equities,Institutional within the specified category. Percentageof companies within each category whichfor Kotak Institutional Equities and or its affiliates has provided investment banking services within the previousmonths. 12 The * above categories are defined as follows:expect this = Buy We stock to deliver more than 15% returns theover next months; 12 Add = expectWe this stock to deliver5-15% returns over the next months; 12 Reduce =expectWe this stock to deliver -5-+5% returns over the next months; 12 =Sell expectWe this stock to deliver lessthan -5% returns over the next months. 12 targetOur prices are also on a 12-month horizon Thesebasis. ratings are used illustratively to comply with applicableregulations. As of 31/12/2019 Kotak InstitutionalEquities Investment Research had investmentratings on 202 equity securities.
r r display is not or applicable. months. . The previous investment and rating
fair valuefair
SELL 1.0% 22.3%
term volatility in stock prices related to movements in the market.Hence, a particular Ratingmay not , if, any,have been suspended temporarily.Such suspension is in compliance with applicable regulation(s) - fair valuefair +5% returns over the next 12 months.
- 1.5% 20.3% month horizon basis. 5 REDUCE - - 15% returns over the next 12 5% returns over the next months.12 The information is not available fo - -
ake into account short Kotak SecuritiesKotak has suspended coverage of this company. ADD 27.7% 2.5%
are also on12 a Kotak SecuritiesKotak Research has suspended the investment and rating
The information is not meaningful and is therefore exc
Kotak SecuritiesKotak does not cover this company.
The investment and rating
The coverage view represents each analyst’s fundamental overall outlook on the Sector.The coverage viewwill consist of one
Attractive, Neutral, Cautious. BUY 2.5% 29.7% We expect this stock to deliver We this expect stock to deliver5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12
Fair Value estimates 0% 10% 60% 50% 40% 30% 20% 70% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof ratings/investment banking relationships fundamental basis for determining an investment rating or and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not NR = Rated.Not and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving this company and in certain other circumstances. CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. Other definitions Other Coverage view. designations: ratings/identifiers Other ADD. REDUCE. SELL. Our Our Ratings System notdoes t strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY.
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Corporate Office Overseas Affiliates Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 369 Lexington Avenue Bandra Kurla Complex, Bandra (E) 155-157 Minories 28th Floor, New York Mumbai 400 051, India London EC3N 1LS NY 10017, USA Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1 212 600 8856
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This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. 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CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No. INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. 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