MORNING INSIGHT November 11, 2016
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NOVEMBER 11, 2016 Economy News Equity India's infrastructure sector will see an investment of Rs25 trn in the next % Chg five years, creating almost five crore jobs. The investment in infrastructure 10 Nov 16 1 Day 1 Mth 3 Mths sector including roads and shipping would boost the GDP growth by 3%, Indian Indices road transport and highways, and shipping minister Nitin Gadkari said at SENSEX Index 27,518 1.0 (2.0) (1.2) the Economic Editors Conference. (ET) NIFTY Index 8,526 1.1 (2.1) (0.8) The government's thrust on road infrastructure has led to a rise in BANKEX Index 23,186 3.6 4.8 8.7 demand for bitumen products, prompting some oil marketing companies SPBSITIP Index 9,456 (0.7) (7.2) (14.0) (OMCs) to increase its production for better margins. According to data BSETCG INDEX 14,422 1.8 (2.6) (3.2) BSEOIL INDEX 12,098 1.6 0.7 13.7 from Petroleum Planning Analysis and Cell (PPAC), bitumen's monthly CNXMcap Index 15,391 2.0 (3.8) 4.4 consumption growth rate has been constant year-on-year (y-o-y) since SPBSSIP Index 12,927 1.8 (2.5) 6.1 August 2015, except a dip in July 2015, owing to monsoons. (BS) World Indices India will take up the issue of visa for Information Technology Dow Jones 18,808 1.2 3.7 1.0 professionals as well as other contentious issues with the new Donald Nasdaq 5,209 (0.8) (0.7) (0.4) Trump administration in the United States. India will continue to FTSE 6,828 (1.2) (3.4) (1.3) negotiate with the US government once it takes charge in early January, NIKKEI 17,344 6.7 2.2 3.9 next year. (BS) HANGSENG 22,839 1.9 (4.5) (0.4) The Reserve Bank of India made a net purchase of US$4.6 bn from the Value traded (Rs cr) spot market in September to meet the redemption requirement of 10 Nov 16 % Chg - Day FCNR(B) deposits, a data release in the Reserve Bank's monthly Bulletin Cash BSE 3,589 (31.5) said. The central bank bought $ 9 billion and sold $4.4 billion during the Cash NSE 27,197 (20.2) month. (ET) Derivatives 756,148 (3.4) The Reserve Bank of India relaxed provisioning norms for loans Net inflows (Rs cr) restructuring under the so called S4A scheme, a move that could help the 9 Nov 16 % Chg MTD YTD scheme take off many months after it was first announced. (ET) FII (2,045) (740) (1,678) 43,337 Corporate News Mutual Fund 634 214 3,628 25,684 FII open interest (Rs cr) PVR, has taken some initiatives, including a complete waiver of 9 Nov 16 % Chg convenience fees for tickets booked online through the PVR Cinemas website, or its mobile app. Currently, the app/website charges between Rs FII Index Futures 13,020 0.9 50-60 depending on the size of the transaction. (BS) FII Index Options 73,243 4.7 FII Stock Futures 56,471 2.8 ONGC Videsh (OVL) foreign arm of state-owned Oil & Natural Gas FII Stock Options 7,262 8.7 Corporation and Petroleos De Venezuela SA (PDVSA) have signed two Advances / Declines (BSE) agreements for facilitating redevelopment of their San Cristobal joint 10 Nov 16 A B T Total % total venture project in Venezuela. (BS) Advances 234 964 40 1,238 79 Dabur, is increasingly turning to markets outside India for growth, as the Declines 65 219 24 308 20 domestic market continues to be subdued. A little over a third of revenue Unchanged 1 3 17 21 1 comes from abroad and it is investing Rs5 bn to expand operations in West Asia and Africa. (BS) Commodity % Chg 10 Nov 16 1 Day 1 Mth 3 Mths The government is looking into the role played by all stakeholders, including oil ministry officials and executives at Oil and Natural Gas Crude (US$/BBL) 44.4 (0.6) (12.6) 2.1 Corp (ONGC), in the past with respect to the gas dispute between the Gold (US$/OZ) 1,266.8 (0.7) 0.1 (6.5) state firm and Reliance Industries. (ET) Silver (US$/OZ) 18.7 1.5 5.5 (7.9) SBI is in talks with global sovereign wealth funds and strategic investors Debt / forex market to sell up to 5% stake in SBI Life, the life insurance JV with BNP Paribas 10 Nov 16 1 Day 1 Mth 3 Mths Cardiff, in a pre-IPO fund-raise, pegging its valuation at Rs370-400 bn. (ET) 10 yr G-Sec yield % 6.7 6.7 6.7 7.1 Rane Holdings Ltd (RHL), has decided to sell its 45.26% stake in its Re/US$ 66.6 66.4 66.5 66.7 associate firm SasMos HET Technologies Ltd (SasMos). (BL) Sensex In a big boost to the Cyrus Mistry camp, the independent directors of Tata Chemicals have come out in full support of its Chairman Cyrus Mistry in a board meeting. (BS) Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange MORNING INSIGHT November 11, 2016 RESULT UPDATE GREAVES COTTON LTD Sanjeev Zarbade [email protected] +91 22 6218 6424 PRICE: RS.129 RECOMMENDATION: BUY TARGET PRICE: RS.160 FY18E P/E: 14.2X Greaves Cotton's (GCL) quarterly profits exceeded our expectations aided by higher EBITDA margins. Near term revenue growth outlook is weak but is seen improving in the medium term as economy gains momentum and due to the implementation of the BS IV emission norms. The company's foray into spare parts for non Greaves engine fitted vehicles in the 3W segment is positive as it opens up a large market for the company. Summary table We like the strong free cash generation of the company. Further, trigger could be potential for addition of OEMs for engine supply likely by FY17. (Rs mn) FY16 FY17E FY18E At 14.2x FY18 earnings, GCL is one of the most attractively valued stocks Sales 16162 17575 18954 in our sector coverage. Further, dividend yield is also the highest. We Growth (%) -4.3 8.7 7.9 maintain BUY with an unchanged price target of Rs 160 based on DCF. EBITDA 2686 2844 3052 EBITDA margin (%) 16.6 16.2 16.1 Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise PBT 2915 2802 3086 3W LCV volumes which is the stronghold of GCL. We would remain Net profit 1740 2017 2222 EPS (Rs) 7.1 8.3 9.1 watchful about this emerging threat. Growth (%) 18.0 16.0 10.1 CEPS 9.0 10.2 11.2 Quarterly performance BV (Rs/share) 33.0 38.4 44.5 (Rs mn) Q2FY17 Q2FY16 YoY (%) H1FY17 H1FY16 YoY (%) DPS (Rs) 5.5 2.5 2.5 ROE % 20.8 21.9 20.9 Gross Revenues 4886 4711 3.7 9322 8931 4.4 ROCE % 20.5 19.6 18.8 Excise duty 501 481 4.2 942 921 2.3 Net cash (debt) 209.2 601.0 278.4 NW Capital (Days) 45 36 38 Net Revenues 4384 4229 3.7 8380 8009 4.6 EV/Sales (x) 1.9 1.8 1.7 other op income 9 21 -57.0 21 46 -54.2 EV/EBITDA (x) 11.6 10.9 10.2 RM costs 2656 2531 4.9 4975 4822 3.2 P/E (x) 18.1 15.6 14.2 P/Cash Earnings 14.4 12.6 11.5 Purchase of traded goods 167 227 -26.6 478 396 20.7 P/BV (x) 3.9 3.4 2.9 Staff costs 411 374 10.0 800 763 4.8 Source: Company, Kotak Securities - Pri- Other costs 462 365 26.4 847 707 19.9 vate Client Research EBITDA 698 753 -7.4 1301 1369 -4.9 Depreciation 115 115 0.0 224 227 -1.4 Other income 130 128 1.9 237 217 9.4 EBIT 712 766 -7.0 1314 1358 -3.2 Interest 2 2 -15.0 2 4 -39.5 PBT 711 764 -7.0 1312 1354 -3.1 Tax -197 -196 0.5 -358 -422 -15.2 Adjusted PAT 513 567 -9.5 954 932 2.4 Extraordinary items 0 -19 -100.0 -55 -19 199.5 Reported PAT 513 549 -6.5 899 913 -1.6 Excise rate (%) 10.0 10.2 10.0 10.3 EBITDA (%) 15.9 17.8 15.5 17.1 RM costs to sales (%) 64.4 65.2 65.1 65.1 Other exp to sales (%) 10.5 8.6 10.1 8.8 Tax rate (%) (27.8) (25.7) (27.3) (31.2) EPS (Rs) 2.1 2.3 3.9 3.8 Source: Company Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2 MORNING INSIGHT November 11, 2016 Estimata - Quarterly performance (Rs mn) Reported Estimated Revenue 4384 4898 EBITDA (%) 15.9 14.8 PAT 513 507 Source: Kotak Securities - Private Client Research Revenue growth continued to remain muted During the quarter, engine segment reported decline of 4% in revenue on a y-o- y basis as demand for 3W and 4W LCVs continued to remain weak in the quar- ter.