040 - 3321 6296 Vivek Ranjan Misra [email protected]
Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY
KARVY INVESTMENT STRATEGY 3 Index
Market Outlook...... 9
Key Developments in the Indian Economy ...... 12
Is information technology on the verge of A Turnaround?...... 14
Prospects for Banking ...... 15
Prospects for Pharma...... 15
Benefit from demographic dividend in India ...... 16
Roller-Coaster one year ride of GST...... 18
Trade War - Recent Developments...... 19
Wealth-maximizer stocks
HCL Technologies Ltd...... 24
ICICI Bank Ltd ...... 26
Indiabulls Housing Finance Ltd...... 28
Larsen & Toubro Ltd...... 30
Oil & Natural Gas Corp Ltd...... 32
State Bank of India...... 34
Tata Motors Ltd...... 36
Titan Company Ltd...... 38
UPL Ltd...... 40
Yes Bank Ltd...... 42
Value Invest Stocks
ABB India Ltd...... 46
Apar Industries Ltd...... 48
Bajaj Electricals Ltd ...... 50
Bharat Electronics Ltd ...... 52
4 KARVY INVESTMENT STRATEGY Gujarat Mineral Development Corp . Ltd...... 54
Jain Irrigation Systems Ltd...... 56
LT Foods Ltd...... 58
Menon Bearings Ltd...... 60
Talbros Automotive Components Ltd...... 62
Tata Sponge Iron Ltd...... 64
Dividend Maximizer
Bajaj Auto Ltd...... 68
Bajaj Corp Ltd ...... 69
Cummins India Ltd...... 70
Divi’s Laboratories Ltd...... 71
Housing Development Finance Corp Ltd ...... 72
LIC Housing Finance Ltd ...... 73
Oil India Ltd ...... 74
PTC India Ltd...... 75
Reliance Nippon Life Asset Management Ltd...... 76
Tata Consultancy Services Ltd...... 77
KARVY INVESTMENT STRATEGY 5 Wealth Maximizer & Value Invest
Wealth Maximizer - July 2018 Market Cap CMP* Target Upside Company Name NSE Symbol Sector (Rs. Bn.) (Rs.) Price (Rs.) (%) HCL Technologies Ltd HCLTECH Information Technology 1289 .7 926 1176 27 ICICI Bank Ltd ICICIBANK Financials 1771 .2 275 405 47 Indiabulls Housing Finance Ltd IBULHSGFIN Financials 487 .4 1143 1519 33 Larsen & Toubro Ltd LT Industrials 1787 .0 1275 1631 28 Oil & Natural Gas Corp Ltd ONGC Energy 2032 .8 158 192 22 State Bank of India SBIN Financials 2314 .6 259 334 29 Tata Motors Ltd TATAMOTORS Consumer Discretionary 858 .2 269 405 50 Titan Company Ltd TITAN Consumer Discretionary 779 .9 879 1058 20 UPL Ltd UPL Materials 315 .1 619 934 51 Yes Bank Ltd YESBANK Financials 783 .1 340 472 39
*As on Jun 29, 2018, Please CLICK HERE for previous Wealth Maximizer report
Value Invest - July 2018 Market Cap CMP* Target Upside Company Name NSE Symbol Sector (Rs. Bn.) (Rs.) Price (Rs.) (%) ABB India Ltd ABB Industrials 249 .7 1179 1575 34 Apar Industries Ltd APARINDS Industrials 25 .8 675 860 27 Bajaj Electricals Ltd BAJAJELEC Consumer Discretionary 55 .5 544 670 23 Bharat Electronics Ltd BEL Industrials 264 .7 109 141 30 Gujarat Mineral Development GMDCLTD Energy 33 .9 107 170 59 Corporation Ltd Jain Irrigation Systems Ltd JISLJALEQS Industrials 39 .1 77 128 67 LT Foods Ltd DAAWAT Consumer Staples 19 .2 60 81 35 Menon Bearings Ltd MENONBE Consumer Discretionary 5 .2 92 135 47 Talbros Automotive TALBROAUTO Consumer Discretionary 3 .36 272 361 33 Components Ltd Tata Sponge Iron Ltd TATASPONGE Materials 14 .7 955 1318 38
*As on Jun 29, 2018, Please CLICK HERE for previous Value Invest report
6 KARVY INVESTMENT STRATEGY Dividend Maximizer
Dividend Maximizer - July 2018 Market Cap CMP* Dividend Per Dividend Company Name NSE Symbol GICS Sector (Rs. Bn) (Rs.) Share (Rs.)** Payout (%)** Bajaj Auto Ltd BAJAJ-AUTO Consumer Discretionary 813 .2 2810 73 7. 40 .0 Bajaj Corp Ltd BAJAJCORP Consumer Staples 59 .8 405 13 7. 75 .2 Cummins India Ltd CUMMINSIND Industrials 179 .5 648 18 3. 62 .8 Divi's Laboratories Ltd DIVISLAB Health Care 275 .7 1039 17 6. 35 .3 Housing Development Fin HDFC Financials 3209 .4 1908 24 2. 17 .0 Corp Ltd LIC Housing Finance Ltd LICHSGFIN Financials 236 .5 469 9 2. 16 .6 Oil India Ltd OIL Energy 238 .2 210 12 2. 39 .6 PTC India Ltd PTC Utilities 22 .4 76 5 3. 26 .3 Reliance Nippon Life Asset RNAM Financials 140 .3 229 8 4. 69 .8 Mgmt . Ltd Tata Consultancy Services Ltd TCS Information Technology 7074 .2 1848 35 4. 42 .0
*As on Jun 29, 2018, **Bloomberg Estimates, Please CLICK HERE for previous Dividend Maximizer report
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KARVY INVESTMENT STRATEGY 7 8 KARVY INVESTMENT STRATEGY Market Outlook
We expect the Indian markets will grind higher, though The missing puzzle for Indian equities has been a lack of we believe volatility will remain high which may induce robust earnings growth . Since 2014, earnings growth has swings in either direction . averaged at 4% vs . historical average of 11% . However, with capex likely to pick up, corporate earnings are likely Foreigners have been sellers, and this is part of to pick up strongly . the broader trend . Despite this, India is among the better-performing markets halfway through 2018, largely Nifty Trailing EPS (Rs.) as domestic investors have stepped in during the sell-off . 500
There are reasons why we remain optimistic: 400
After a slowdown since the middle of 2016, there are 300 clear signs of an economic recovery, where the last two quarters signal a turnaround in the economy . GDP 200 growth has improved over the last three quarters, 100 after a bottom during April-June quarter of 2017 . 07 09 11 13 15 17 06 08 10 12 14 16 18 06 08 10 12 14 16 ------
High-frequency indicators like commercial vehicle sales Jul Jul Jul Jul Jul Jul Mar Mar Mar Mar Mar Mar Mar growth at 57 .4% YoY during YTD FY18 (April-May) Nov Nov Nov Nov Nov Nov Source: Bloomberg, Karvy Research bodes well for the manufacturing sector and the broader economy . The index has de-rated significantly since the peak of 22x in January 2018 . While by no standards cheap, valuations GDP Consensus Estimates of Indian markets are more reasonable now (compared 7.6% to January 2018) with Nifty trading at a 12 month forward 7.6% PER 18x, Nifty’s average has been 16 .2x since 2005 . 7.5% 7.5% At current levels, valuations are not a constraint for the 7.4% markets to move higher .
7.3% Nifty Valuation - 12 month forward PE Ratio 7.3% 25 7.2% 20
7.1% 15 Q1FY19E Q2FY19E Q3FY19E Source: Bloomberg, Karvy Research 10
5 What has been more encouraging is that the growth in fixed 05 06 07 08 09 10 11 12 13 14 15 16 17 18 ------capital formation has picked up; in the last quarter it grew Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun at 14 .4% YoY . The economic data signal a turnaround in 12 month fwd. PER Average the capex cycle . This is important as investment demand + 1 SD - 1 SD will lead to higher earnings growth, especially in cyclical Source: Bloomberg, Karvy Research sectors . It takes time to add capacity; in the meantime, US rate increase is not a headwind in our view . On the higher capacity utilization can help firms improve margins contrary, equities tend to rally when US rates are rising and ROE . This also opens the door for possible higher as shown in the table below . This is largely because an earnings growth . increase in US rates is typically associated with a pick
KARVY INVESTMENT STRATEGY 9 up in the business cycle . The table below shows the Real Effective Exchange Rate performance of Indian equities in a period when US 105 rate (specifically US 10-yr bond yield) was rising . We 100 believe that pre-emptive rate hikes by the RBI is a vote of confidence in the economy, indicating that the economy 95 is on a strong growth trajectory . 90
85 US Bond Yield & Indian Market Performance Indian market 80 95 00 05 10 15 98 03 08 13 18 97 02 07 12 17 94 99 04 09 14 ------
Date Trough Date Peak - - - - - performance (%) - - - - - Feb Feb Feb Feb Feb Nov Nov Nov Nov Nov Aug Aug Aug Aug Aug Oct-93 5 .17 Nov-94 8 .03 52 May May May May May Source: BIS, Karvy Research Oct-98 4 .16 Jan-01 6 .77 75
Jun-03 3 .19 Jun-07 5 .29 314 contributes to the same, though marginally . This increases the probability of more than anticipated rate Dec-08 2 .05 Jun-09 3 .94 65 increase by the RBI . Jul-12 1 .44 Dec-13 3 .03 27 yyThe ongoing process of resolution of NPAs in the Jul-16 1 .36 Now 22 banking sector . Source: Bloomberg, Karvy Research yyState elections in 4 states (Mizoram, Rajasthan, The following makes us a bit cautious: Chhattisgarh and Madhya Pradesh) in the run-up to the general elections, to be held during May 2019 . yyCurrency depreciation: Indian markets (like other emerging markets) do well when the currency Outlook: strengthens; the current phase of weakness in the Overall, we believe that the markets will grind higher, Rupee is a headwind . though with increased volatility . Our target for Sensex for yyProspects of a more serious trade war coupled with December 2018 is 37,500 which is 6% higher than the geopolitical tensions can impact the price of oil . current levels . For December 2020, we believe Sensex will reach 40,500, representing an upside of 14% from yyIn addition to the increase in the price of oil posing the current levels . inflationary risks, the recent hike in MSPs also
Equity Indices Performance - CY18 YTD Change (%) 10
5 8.7 7.0 2.6 1.6 1.5 1.1 0 3.6 3.7 4.3 - - - 0.2 0.7 4.7 4.8 0.9 - - - - 5.7 5.9 - 6.1 - - -
-5 3.2 - 9.8 10.0 - - -10 13.8 -
-15 DAX NIFTY TAIEX TOPIX KOSPI BOLSA CAC 40 CAC NZX 50 ASX 200 S&P 500 NASDAQ FTSE100 JAKARTA BOVESPA STOXX 600 STOXX HANGSENG MSCI China China MSCI CSI 300 Index CANADA TSX STRAITS TIMESSTRAITS SWISS MARKET Index Source: Bloomberg, Karvy Research
10 KARVY INVESTMENT STRATEGY 1 Year % Change 25 20
15 22.1 17.1 10 6.6 6.4 16.4 15.3 3.4 3.6 12.3 2.4
5 11.8 11.0 0.3 6.9 0 -5 1.0 1.9 1.9 - - - 4.4 3.3 5.3 5.4 - - -10 - - DAX NIFTY TAIEX TOPIX KOSPI BOLSA CAC 40 CAC NZX 50 S&P 500 ASX 200 NASDAQ FTSE100 JAKARTA BOVESPA Index STOXX 600 STOXX HANGSENG MSCI China China MSCI CSI 300 Index CANADA TSX STRAITS TIMESSTRAITS SWISS MARKET
Source: Bloomberg, Karvy Research
5 Year CAGR Price Change 20
15 17.2
10 15.0 12.9 11.1 9.8 9.8 8.8 9.1 8.9
5 3.2 7.3 2.3 6.8 5.9 6.1 6.1 5.2 4.5 4.2 0.7 0 3.8 DAX NIFTY TAIEX TOPIX KOSPI BOLSA CAC 40 CAC NZX 50 S&P 500 ASX 200 NASDAQ FTSE100 JAKARTA BOVESPA Index STOXX 600 STOXX HANGSENG MSCI China China MSCI CSI 300 Index CANADA TSX STRAITS TIMESSTRAITS SWISS MARKET
Source: Bloomberg, Karvy Research
10 Year CAGR Price Change
14
9 12.6 10.8 9.5 10.2 7.8
5 6.7 2.2 1.8 5.0 1.7 1.2 1.0 1.1 3.3 3.7 3.5 2.8 3.1 2.7 2.7 0 2.3 DAX NIFTY TAIEX TOPIX KOSPI BOLSA CAC 40 CAC NZX 50 S&P 500 ASX 200 NASDAQ FTSE100 JAKARTA BOVESPA Index STOXX 600 STOXX HANGSENG MSCI China China MSCI CSI 300 Index CANADA TSX STRAITS TIMESSTRAITS SWISS MARKET
Source: Bloomberg, Karvy Research
KARVY INVESTMENT STRATEGY 11 KEY DEVELOPMENTS IN THE INDIAN ECONOMY
The economy continues to recover since the bottom in Manufacturing PMI April-June 2016 quarter . IMF forecasts that the Indian economy will grow at 7 .4% during FY18-19E and 7 .8% 55 during FY19-20E . 52 Quarterly GDP Growth (%) YoY
15 49
12 46 9 15 16 17 15 16 17 15 16 17 18 16 17 18 15 16 17 18 15 16 17 ------Apr Oct Apr Oct Apr Oct Apr 6 Jun Jun Jun Jun Feb Feb Feb Dec Dec Dec Aug Aug Aug
3 Source: RBI, Bloomberg, Karvy Research 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 ------More encouraging is the pick up in gross fixed capital
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar formation which grew by 14 .4% YoY in the January-
Source: RBI, Bloomberg, Karvy Research March 2018 quarter and 12% in the preceding quarter . We expect this trend to continue . India’s industrial production grew at 4 .90% in April 2018 Capacity Utilization as compared to 4 .35% in March 2018 led by positive 75% 4 growth in 16 out of 23 industry groups . Commercial 74% 3 vehicle sales growth at 57 .4% YoY during YTD FY18 2 73% (April-May) bodes well for the manufacturing sector and 1 72% broader economy . This indicates a good momentum 0 71% for the economic growth and is expected to reflect in -1 70% -2 72.0% 74.6% 71.2% 71.8% 74.1% the coming quarters given that the OECD, the leading 71.0% 69% -3 indicator for India, is also improving . Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 India OECD Leading Indicator Capacity Utlization Quarterly IIP Manufacturing 103 Source: RBI, Bloomberg, Karvy Research
102 The business expectation index for the Indian manufacturing 101 sector rose to 112 .4 in Q4FY18 as compared to 109 .8 in 100 the previous quarter, driven by higher order book growth
99 eventually leading to improvement in capacity utilization at 74 .1% during Q3FY18 as compared to 71 .8% in 98 Q2FY18 . 05 06 07 08 09 10 11 12 13 14 15 16 17 18 ------
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr However, higher growth raises inflationary risks . Rising private consumption and increase in house-rent Source: Bloomberg, Karvy Research
12 KARVY INVESTMENT STRATEGY allowances triggered the inflation print upwards where the On the banking side, while NPA’s rise, RBI financial core inflation (excl food and fuel) significantly rose from stability report forecasted 11 .6% for March 2019 but now 4 .4% in Oct 2017 to 6 2%. in May 2018 . The household estimates it to increase to 12 .2% . Under severe stress, inflation survey points out that the median inflation NPAs could increase to 13 .3% and while there may be expectations increased by 30 bps for the next three- pain left in the sector, we believe there is light at the end of month period and the perceived inflation rate reported by the tunnel . Provisions could peak in the current year and the respondents rose by 50 bps between Q4FY18 and a number of cases could be resolved via IBC (Insolvency Q3FY18 . & Bankruptcy Code) during the year . However, the capital augmentation plan is expected to address the potential CPI & Core CPI capital shortfall and boost credit growth . 10.0
7.5
5.0 Repo & Reverse Repo Rate
2.5 8.5
0.0 7.5 14 17 15 16 14 15 16 17 18 15 16 17 18 15 16 14 17 ------Feb Feb Feb Feb Nov Nov Nov Nov Aug Aug Aug Aug May May May May May 6.5 CPI (%) Core CPI (%) 3M Moving Avg CPI (%) 5.5 14 15 16 17 14 15 16 17 18
Source: RBI, Bloomberg, Karvy Research 15 16 17 18 14 15 16 17 ------Jun Jun Jun Jun Jun Mar Mar Mar Mar Dec Dec Dec Dec Furthermore, crude oil prices shot up to 19% during Sep Sep Sep Sep H1FY18, resulting in higher trade deficit coupled with Repo Rate (%) Reverse Repo (%) INR depreciation where the implied volatility of USD/INR Source: RBI, Bloomberg, Karvy Research climbed to 6 .07% as compared to the past 12-month average of 5 .07% . These escalating inflation indicators Real Bond Yield (%) lead to the much anticipated and timely rate hike by the 6% monetary policy committee where the repo rate was 5% increased by 25 bps to 6 .25% and the reverse repo rate 4% was hiked to 6 .0% from 5 75%. . Consensus expects 3% another 25 bps repo rate hike by the end of 2018 to 2% 6 .50% which we think may not be sufficient to narrow 1% down the inflation print (CPI) to 4 .0% levels set by the 0% 15 16 17 15 16 17 15 16 17 18 16 17 18 15 16 17 18 15 16 17 ------RBI . - - - Apr Apr Apr Apr Oct Oct Oct Jun Jun Jun Jun Feb Feb Feb Dec Dec Dec Aug Aug Aug With oil imports becoming costlier, we think GDP growth Real Bond Yield is to come from higher private consumption and capex Source: RBI, Bloomberg, Karvy Research while trade deficit due to higher imports could be the limiting factor .
India foreign trade during Apr-Mar 2017-18 Merchandise (M) Services (S) M+S ($ Bn) Growth % ($ Bn) Growth % ($ Bn) Exports 303 10 175 18 478 Imports 460 20 106 20 565 Trade Balance (157) - 70 - (87)
Source: RBI, Karvy Research
KARVY INVESTMENT STRATEGY 13 IS INFORMATION TECHNOLOGY ON THE VERGE OF A TURNAROUND?
After underperforming the broader indices for quite some BFSI is expected to see revival due to a) shift in spending time, IT stocks have started gaining momentum . Nifty CNX from compliance related investments to consumer-centric IT gained by 20% while Nifty improved by a flattish 2% . digital transformation b) IT spending by BFSI companies Given the negative sentiment around the sector driven by expected to shoot up driven by tax benefits and US banks weak BFSI in the US (contributes a quarter of revenues reporting record profit numbers c) on set of Fed rate hike for the Big 5 IT companies), shift in the business model cycle and d) increased focus on non-US BFSI clients by of software service providers due to digital disruption the “Big Five” Indian IT firms . and vertical-specific issues related to retail, BFSI and energy, there is skepticism whether recent rally in the IT Increase in size of digital deals: sector is justified and if the sector is really on the verge of In FY18 IT companies have announced large turnaround . transformational deals ranging from $50mn - $70mn . IT sector is on the verge of a turnaround as a) currency Going forward, the trend is going to be larger tailwinds should support growth in reported currency and transformational digital deals, which hitherto were small margins in the short term b) green shoots visible in BFSI experimental deals . This coupled with non-linearity in vertical c) larger digital deals to make digital business revenues (with headcount) in digital deals should drive the future growth driver d) IMS (Information Management margins gradually . As digital business gets mainstream, System), which was weak until now is likely to see revival this should offset the slack in legacy business and bring driven by deal momentum in cloud migration and non- back the growth to a normal level . data centre business . High Value IT Services Market 2016-2022 ($ Bn)
Currency Tailwinds: 500 444.7 430.4 404.7 387.3 369.1 The recent move in the USD-INR should support revenue 400 347.6 372.3 growth in reported currency and EPS of IT companies . 300 334.1 This is expected to justify valuations, albeit after 325.4 providing for negation on account of some loss due to 200 272 224 cross-currency exposure, sharing of gains with clients 100 182.5 145.5 and hedging related gain/loss . 101.9 0 2016 2017 2018 2019 2020 2021 2022 Green shoots in BFSI: OneOffice IT Services (Digital) Traditional IT Services Given the weakness in BFSI vertical, predominantly in the Source: HfS Research, Karvy Research US, the growth of Indian IT service providers suffered .
Export Revenues (US$ Bn) from Digital Likely revival in IMS:
25 Based on the management commentary post Q4 FY18 25 results, IMS business is expected to revive driven by 20 cloud migration and increased spending as traditional
15 Business Process Management (BPM) is being disrupted 16 by automation, artificial intelligence (AI) and IoT . IT 10 11 companies where IMS businesses were stagnant due 5 to issues like weakness in rebid markets, clients being apprehensive to move to cloud and data center heavy 0 business, should start reporting better deal wins in IMS . FY16 FY17 FY18E Source: NASSCOM, IDC, Karvy Research
14 KARVY INVESTMENT STRATEGY PROSPECTS FOR BANKING
The operating performance shall continue to hold strong like Dermatology, Ophthalmology etc, which enjoy higher for retail banks, and the recovery in the corporate banks gross margins compared to oral solid dosages may also impacted by asset quality shall continue to show traction . come under pricing pressure . We also do not expect the The pick up in the economy, refinancing opportunities for price erosion to reverse in the foreseeable future . We the stressed assets, and continuing stress in the capital believe that valuations are still not attractive and do not constrained PSU banks are expected to provide strong present a compelling buy . growth opportunities for the well-capitalized private banks having book accretive access to capital . The short Possible addition of more drugs in DPCO: term margins outlook to look positive with the increase We believe that Government of India may add new life- in MCLR and tightening in money markets rates . For the saving drugs (such as cancer drugs) to DPCO that puts corporate banks, a couple of big resolutions in the recent a ceiling on the price of these drugs and annual drug past reflect a better outlook on stressed asset recoveries and is likely to have a positive impact on Q1FY19 numbers price hikes could also be linked to WPI (Wholesale Price as well . We expect to see sharp ROE recoveries in the Index) . Lowering drug prices by adding drugs to DPCO corporate banks by FY20E which makes it preferable over is expected to gain a favor of citizens during the 2018 retail banks given the steep valuation discount corporate state elections and 2019 general elections . The impact of banks are available at . adding new drugs to DPCO is to lower both the revenues and profits of Pharma companies whose drugs may be PROSPECTS FOR PHARMA added to DPCO . We expect the prospects of the Indian pharmaceutical Mergers & Acquisitions (M&A) in Indian industry to be driven by three primary factors in the next Pharma Industry: twelve months . 1 . Pricing Pressure in the US 2 . Possible addition of more drugs in DPCO (Drug Price Control A natural consequence of the rising competition leading Order) 3 . Mergers & Acquisitions (M&A) in Indian Pharma to lower pricing power in US generic pharma industry as industry . well as in domestic pharma market is that some pharma firms may find it increasingly difficult to be profitable in Pricing Pressure in the US: the foreseeable future, this would lower market values of these firms . One solution would be to divest some We expect the pricing pressure in the US to slowdown in ANDAs or some business that lacks core competency or the coming quarters as major price erosion has been taken the whole firm . by most generic firms on account of both consolidation of drug buyers and faster ANDA (Abbreviated New Drug We strongly believe that divestitures, mergers and Application) approvals by USFDA leading to increased acquisitions would be the key driver of growth for the competition among drug manufacturers . We believe that large generic pharma companies in India & the US . Timing significant price erosion may happen for drugs where of mergers & acquisitions may be uncertain but will be there are fewer than 3 manufacturers . Specialty segments primarily driven by the level of competition and valuations .
KARVY INVESTMENT STRATEGY 15 BENEFITS FROM DEMOGRAPHIC DIVIDEND IN INDIA
In comparison with other countries, India has one of the CAGR of ~17%, a steep rise from its earlier growth rate youngest populations in the world . The median age is of ~8% from the prior corresponding period, driven by currently at the lowest, at 27 .9 years . The rising young favorable demography, leading to increasing workforce, population has shifted the demographic scale and rising urbanization, resulting in increased tax revenues decreased the dependency ratio to 51 .5% (as of FY16, and further increase in govt . expenditure . The period source – World Bank), and places India in the cusp of was also supported by increased FDI inflow, making a significant growth phase . India’s GDP has grown at China the largest manufacturing hub in the world, and ~10% CAGR over 2000-2016 in US$ terms and currently, the fastest growing consumer market . This resulted in we find ourselves with a similar demographic dividend as increased urbanization rates - currently, ~58% of the China in 2000 (similar age group, urbanization stats, etc) . Chinese population resides in urban areas nearly double the proportion in 2000 (~31% ) . GDP comparison (US$ Bn) 12000 10482 11199 GNI per capita comparison (US$) 10000 8561 9000 8250 7520 8000 6101 5940 6000 4598 6000 4000 2752 4340 1955 1211 1471 1657 1828 2035 2274 3100 2000 920 1187 700 3000 2060 462 508 1510 0 1560 1670 940 1110 1220 1480 2000 2002 2004 2006 2008 2010 2012 2014 2016 790 1000 600 GDP - India GDP - China 440 450 0 Source: World Bank, Karvy Research 2000 2002 2004 2006 2008 2010 2012 2014 2016 India China The dependency ratio is a measure showing the number Source: World Bank, Karvy Research of dependents, aged 0-14 and above the age of 65, to the working age population. Hence, increase in working age Demographic dividend is in a better position and population will result in lower dependency ratio and higher consumption is also on the rise . Higher workforce, GNI. coupled with improved skill and increased productivity will aid in improving our long term growth prospects . Dependency ratio 70 64.3 62.8 Impact of demography on consumer 61.0 59.4 57.9 56.3 spending: 60 54.7 52.9 51.5 Consumer market is mostly driven by household incomes 50 46.1 and in India it is more promising than before, where 43.1 demographics are also in favor of the country . According 39.5 38.5 37.2 37.0 40 35.9 35.6 36.4 to the World Bank, in 2017 there were more than 65% of the total population in the working group age bracket 30 2000 2002 2004 2006 2008 2010 2012 2014 2016 of 15-64 years, where ~8 .5% of the population is aged India China above 65 . Additionally, 250 Mn people are expected Source: World Bank, Karvy Research to join India’s workforce by 2030 . However, India’s per Demographics can change the pace and pattern of the capita income is still very low compared to the developed economic growth . China has already seen the benefit countries . India is placed at the 126th position in the from the demographic shift in the last decade and a half . International Monetary Fund’s (IMF) ranking of countries For the period 2000-2016, GNI of China increased at a based on their per capita income .
16 KARVY INVESTMENT STRATEGY Private Final Consumption Expenditure - at constant prices (2011-12) Categories 2011-12 2012-13 2013-14 2014-15 Food and non-alcoholic beverages 14997 15871 16836 16850
Alcoholic beverages, tobacco and narcotics 1372 1280 1287 1292
Clothing and footwear 3115 3193 3804 4342
Housing, water, electricity, gas and other fuels 8073 8522 9051 9596 Furnishings, household equipment and routine 1584 1696 1841 1944 household maintenance Health 1813 2015 2192 2565
Transport 7447 7718 7966 8338
Communication 1141 1194 1253 1348
Recreation and culture 507 512 536 540
Education 1824 1939 2019 2259
Restaurants and hotels 1165 1205 1245 1365
Miscellaneous goods and services 6320 6898 7525 8500
Source: Ministry of Statistics and Programme Implementation (MoSPI), Karvy Research
India’s consumer market was positioned at the 6th place in the world when consumer spending exceeded US$ 1 .3 Tn in 2016 and is expected to become the third largest consumer market by 2025 . Disposable incomes and consumer spending are also picking up at a rapid pace on the back of strong economic expansion . By 2025, the combined share of elite and affluent class is expected to improve from 8% to 16% of the total . And the share of struggler’s class is expected to be trickled down to 18% in 2025 from 31% in 2016 . Improving lifestyles, changing fashion preferences and increase in number of working women are the key drivers for consumer spending . This will be driven by young aspirants who tend to spend more on lavish lifestyle . Consumption opportunities created by new technologies will accelerate change in consumer behavior .
Indian Households, By Income (Mn)
3 .1 6 .5 15 .8 (1 .5%) (2%) (5%)
7 17 33 (3%) (6%) (11%) 17 40 61 (8%) (15) (20%) 89 121 140 (42%) (45%) (46%) 93 82 55 (44%) (31%) (18%) 2005 2016 2025
Annual gross Strugglers Next Billion Aspirers Affluent Elite household (<2 .3) (2 .3 - 7 .7) (7 7-15. .4) (15 4-30. .8) (>30 .8) income ($ 000’)
Source: BCG CCI proprietary income database; BCG analysis, Karvy Research Note: Income distribution is calculated in constant 2015 dollars; $1 = 65 rupees, Because of rounding, not all percentages add up to 100 .
KARVY INVESTMENT STRATEGY 17 ROLLER-COASTER ONE YEAR RIDE OF GST
One year back, India experienced the biggest and most 5 . During the year, multiple rates on goods and services important reform – The Goods and Service Tax (GST) by have been evaluated and around 180 products’ tax subsuming all the central and state level indirect taxes . rates have been brought down from 28% to 18% . The GST was implemented to bring the whole nation under one tax . With GST approaching its first-anniversary, Challenges: let’s dive into what worked in favor and against it . 1 . Though industry expected a simplified GST structure it had a complex structure of four-tier rate slabs with Favor: issues in the GSTN system . Typical problems faced 1 . The GST has reduced multiple taxes and has created by taxpayers include accessing the GSTN site, slow a simplified tax regime which has promoted ease of response rate and resolution mechanism . doing business . GDP growth for FY18 came in at 2 .Exporters’ funds were blocked with the tax 6 .7% as compared to 7 .1% in FY17 . However, this authorities delaying the process of refund . The decline is expected to be temporary and GDP is now manual intervention in claiming refunds was still there projected to grow at 7 4%. in FY19 by IMF . even after digitizing the whole process . The steps are 2 . Revenue collections crossed Rs . 1 lakh crore mark being taken to remove such lapses and towards fully for the first time in Mar-2018 where 60 lakh returns digitized refund claim . were filed . 3 . Other distinctive measures such as the reverse charge mechanism and invoice matching are yet to 3 . Filing of return forms GSTR-2 and GSTR-3 has be implemented . There are mixed views on whether been suspended to smooth the process . Firms are these will meet the objectives of boosting revenues now required to file GSTR-1 and a summarized and increasing tax buoyancy without adding return GSTR-3B form . GST also facilitated faster complexity . rollout of the E-way bill . A uniform tax structure and the introduction of E-way bills have resulted in an To conclude, GST Journey has progressed well . The average of 20% savings in cost and time . government has been proactively taking up issues faced by assesses through notification, circulars and 4 . Due to the removal of inter-state check posts, so far clarifications . While still there are expectation gaps, overall there has been about 18-20% improvement in turn- reduction in prices and ease of doing business seems to around time of trucks . Trucks are plying an average have a positive impact on the economy . 25 km more every day or around 325 km per day . But that is still 20% lesser than 400 km per day estimated before implementation of GST .
GST Collection Financial Year 2017 - 2018 GST Return Filed Financial Year 2017 - 2018 S.No. Year Amount Collected (000' Crore's) S.No. Year Numbers in lakhs 1 Aug-18 90,669 1 Aug-18 37 .63 2 Sep-18 93,141 2 Sep-18 42 .91 3 Oct-18 83,346 3 Oct-18 50 .10 4 Nov-18 80,808 4 Nov-18 53 .06 5 Nov-18 86,703 5 Nov-18 56 .30 6 Jan-18 86,318 6 Jan-18 55 .00 7 Feb-18 85,174 7 Feb-18 59 .51 8 Mar-18 1,03,458 8 Mar-18 60 .47 9 Apr-18 94,016 9 Apr-18 62 .46 10 May-18 95,610 10 May-18 64 .69
Source: PIB, Karvy Research Source: PIB, Karvy Research
18 KARVY INVESTMENT STRATEGY TRADE WAR - RECENT DEVELOPMENTS
In a situation of a trade war, a nation imposes tariffs US-CHINA Trade Data (US$ Bn) on imports and the other country retaliates with similar 506 forms of trade protectionism . As it alleviates, a trade war 505
355 483 468 reduces international trade between the two countries . 463 A trade war starts when a nation attempts to protect a 130 161 116 204 124 116 domestic industry and create jobs which may work in the 42 53 short turn . But in the long run, a trade war costs jobs and CY14 CY15 CY16 CY17 *CY18 depresses economic growth for all countries involved . -98 119 - 345 Trade war tariffs always increase the price of imported 347 - 367 -249 - 376 - goods . - -400 Export Import Balance Tariff on Steel & Related Industries: Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 On March 8, 2018, US President Trump announced a 25% tariff on steel imports and a 10% tariff on aluminum . The Effect: Trade war between the world’s three largest economies A trade war will increase prices for imported products induced stock markets around the world to plummet . thus, encouraging higher domestic production . On the America is the world’s largest steel importer . Tariffs were flip side, manufacturing costs will increase for domestic increased to protect the workers of aluminum industries . manufacturers who rely on cheap imported raw materials . However, they can hurt the 6 .5 Mn workers across industries that need steel, like automakers . The raise in India has been highlighted as a concern by the US trade price may be passed on to consumers . Towards the end representatives . The US has raised concerns about Indian of March, Trump exempted South Korea from steel tariff export subsidies with WTO . However, India has a surplus and South Korea returned the favor by agreeing to double of USD 24 Bn as compared to countries like China and its import quota of US cars . Following suit, Argentina, Germany which have a significantly larger trade surplus; Australia, and Brazil were also exempted . hence the probability of a significant trade war with the On June 22, the EU imposed tariffs worth $3 .2 billion on US is low for India . American products in addition to an upgrade of its trade In the long run, a full-fledged trade war is detrimental to agreement with Mexico . Once signed, it will remove tariffs globalization . It may lead to a high inflationary and low from almost all trade areas between EU and Mexico, growth scenario, which in turn would have a negative while targeting US imports like bourbon, motorcycles, impact on broader asset classes . and orange juice that will impact Trump’s political base .
Trump used a 1962 congressional power to curb imports US-Canada Trade Data (US$ Bn) that threaten national security . The Commerce Advisory 360 reported that dependence on imported metals threatens the US ability to make weapons . However, the Aerospace 260 349 313 299 296 282 281 278
Industry Council contradicted that Trump’s tariffs would 267 raise costs for the military and exporters . 160
60 99 Causes of US Trade War with China: 103 CY14 CY15 CY16 CY17 *CY18 In 2017, the United States exported goods worth $130 -40 5 - 36 17 15 11 - - Bn to China, largest being aircraft ($16 Bn), soybeans - - Export Import Balance ($12 Bn), and automobiles ($11 Bn) . US imports from China were $506 Bn which majorly includes electronics, Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 clothing, and machinery .
KARVY INVESTMENT STRATEGY 19 US-India Trade Data (US$ Bn) US-Mexico Trade Data (US$ Bn) 50 248 49 46 46 243 45 241 45 236 166 230 39 30 39 37 18 136
84 135 132 131 86 10 47 10
CY14 CY15 CY16 CY17 *CY18 2 CY14 CY15 CY16 CY17 *CY18 -10 8 - 23 23 24 24 - - - - 24 - 55 60
-80 64 - - - 71 -30 - Export Import Balance Export Import Balance
Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018
US-Japan Trade Data (US$ Bn) US-South Korea Trade Data (US$ Bn) 140 80 136 135 72 132 71 131 70 58 70 70 47
36 48 68 67 45 63 43 62 42 23
0 14 23 CY14 CY15 CY16 CY17 *CY18 17 68 69 69 69
24 CY14 CY15 CY16 CY17 *CY18 - - - - -8 - 5 - 23 25 - - 28 -70 28 - - -30 Export Import Balance Export Import Balance
Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018
US-Germany Trade Data (US$ Bn) US-France Trade Data (US$ Bn) 65 55 49 48 58 47 50 47 56 56 55 55 54 54 53 30 34 31 35 31 30 17
20 23 5 11 20 3
1 CY14 CY15 CY16 CY17 *CY18 2 1 3 - -
5 15 6 16 16 - - - 18 - CY14 CY15 CY16 CY17 *CY18 - -20 -10 Export Import Balance Export Import Balance
Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018
US-UK Trade Data (US$ Bn) US-Italy Trade Data (US$ Bn)
130 55 50 125 124 118 45 44 114 42 60 25 54 17 50 17 16 17 18 49 49 41 8 19 -10 CY14 CY15 CY16 CY17 *CY18 -5 CY14 CY15 CY16 CY17 *CY18 22 10 64 65 - 28 25 - - - 32 - - 29 75 75 - - - - -80 -35 Export Import Balance Export Import Balance
Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018 Source: United Sates Census Bureau, Karvy Research, *Jan-Apr 2018
20 KARVY INVESTMENT STRATEGY KARVY INVESTMENT STRATEGY 21 22 KARVY INVESTMENT STRATEGY KARVY INVESTMENT STRATEGY 23 HCL Technologies Ltd Bloomberg Code: HCLT IN
India Research - Stock Broking
Attractive Valuations with Stable Fundamentals Recommendation (Rs.) Stock Price Reaction Overdone: For FY19, HCL Technologies (HCLT) CMP (as on Jun 29, 2018) 926 guided for a $ revenue growth of 10.5% - 12.5% (CC growth of 9.5% to Target Price 1176 11.5%). The 10.5% (at mid-point) $ rev growth is to be contributed equally by Upside (%) 27 organic and inorganic growth (as per the management in Q4FY18 concall). Stock Information The guidance of 5.25% organic growth was slightly below estimates and Mkt Cap (Rs.Bn/US$ Bn) 1289.7 / 18.8 lower than industry average. This led to a sharp correction in the stock. 52-wk High/Low (Rs.) 1108 / 825 HCLT’s underperformance relative to both broader markets and IT index is 3M Avg.daily value (Rs. Mn) 2229.7 overdone. HCLT is likely to surprise positively on the growth front. Beta (x) 0.7 Sensex/Nifty 35423 / 10714 IMS likely to bottom out in H2FY19: Our confidence in IMS’ revival O/S Shares(mn) 1392.4 from H2 FY19 stems from a) increasing acceptance of large IMS clients to Face Value (Rs.) 2.0 move to cloud who were apprehensive hitherto b) signs of revival in non-data Shareholding Pattern (%) centre IMS business aided by areas like Digital Workplace, Networks and Promoters 59.7 Cyber Security c) large IMS deal win to build Digital Workplace for a CPG FIIs 24.6 client, d) other large deals won in H2FY18 are likely to ramp up in H2FY19 . DIIs 7.7 Mode 2 and Mode 3 to drive revenue growth: During FY18, Others 8.0 Mode 2 (Digital) grew 29 4%. and Mode 3 (Products and Platforms) grew Stock Performance (%) 68 .3% . Both the segments contributed 23 .4% of FY18 revenues as 1M 3M 6M 12M opposed to 18 6%. in FY17 . Increased focus on non-data centre business Absolute 2 (4) 4 9 in IMS, newer geographies like Australia, Germany, Canada and South Relative to Sensex 1 (11) 0 (5) Africa would compensate weak growth in legacy business . HCLT won 63 Source: Bloomberg transformational deals in FY18 vs 40 in FY17 . This should lead to a better Relative Performance* exit rate in FY19 . 131 Valuation and Risks: On a TTM basis, HCLT is currently trading at a 122 113 PE of 14 .8 and FY20E PE of 12 .5 . Currently, HCLT is trading at a discount 104 of 46% to TCS’s PE vs historical average of 25% . We remain constructive 95 18 18 18 17 17 17 17 17 17 18 17 18 18 ------on the stock given industry leading growth rate and stable margins . We - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May value HCLT at FY20 PE of 15 8. and reiterate “BUY” with a target of HCLT Sensex Rs . 1176, an upside of 27% . Sustained weakness in IMS and margin risk Source: Bloomberg; *Index 100 due to higher investments are key downside risks .
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 408082 475675 505314 574313 629015 EBITDA 87547 103846 114303 130730 142420 EBITDA Margin (%) 21 .5 21 .8 22 .6 22 .8 22 .6 Adj . Net Profit 73188 85764 87695 94937 103706 EPS (Rs .) 51 .9 60 .1 62 .5 68 .2 74 .4 RoE (%) 27 .6 26 .9 25 .3 24 .0 23 .1 PE (x)* 17 .9 15 .4 14 .8 13 .6 12 .5 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
24 KARVY INVESTMENT STRATEGY Company Background HCL Technologies is India’s fourth largest IT services company . HCL Technologies helps global enterprise transform their businesses in the digital age through an integrated portfolio of products, solutions, services and IP . HCLT’s products are built around digital, IoT, AI, automation, infrastructure management and engineering services . HCLT offers these services through a global network of R&D labs, innovation labs, and delivery centers spread across 39 countries . HCLT serves leading enterprises across key industries including 250 of the Fortune 500 companies, 650 of the Fortune 2000 . HCLT offers an integrated portfolio of products solutions and services and IP through Mode 1-2-3 strategy built around Digital, IoT, Cloud, Automation, Cybersecurity, Analytics, Infrastructure management and Engineering Services, to help enterprises reimagine their businesses for the digital age . HCLT has been the Top Employer in the UK for the past 12 consecutive years . HCL’s DRYiCE COPA (Cognitive Orchestrated Process Autonomics) platform that applies AI to drive enterprise-wide process automation and orchestration won the Best Innovation in RPA at AI Summit in San Fransisco in 2017 .
HCLTECH: Technical View
HCLTECH stock price is consistently moving higher with intermittent price corrections in between . The stock has made a swing low of 706 in mid of May’16 post which it started recovering and climbed higher . In the end of Apr’18, the stock made an all-time high of 1108, post which it witnessed profit booking from the highs; in the recent price correction made a swing low near 880 and started recovering from lower levels . Technically, stock price in the recent correction price found support near its rising trend line adjoined from the major swing low to next higher swing low . Also, the price has well respected its 200- WEMA (Weekly Exponential Moving Average), which is not tested once in last nine years time frame . Currently it is placed near 815 levels which should act as a strong support if any price correction . In the month of May’18, price has breached its major 200-DEMA and started hovering below it; importantly prices remained in a narrow range below it, and in the recent past prices attempted to move above it . On the momentum setup, 14-period weekly RSI managed to sustain above 40-level in price correction and currently it is approaching equilibrium level which indicates that oscillator remained in bullish regime and now momentum is gradually picking up while indicator on daily time frame chart is also started moving above equilibrium level . Going forward, the stock has important support near 870-880 levels, followed by 815-830 levels . On the higher side stock is likely to find immediate resistance near 960-970 levels, followed by 1040 and above which next stiff resistance will be near its all-time high of 1108 levels, moving above which stock will enter into an uncharted territory towards 1150-1200 mark .
KARVY INVESTMENT STRATEGY 25 ICICI Bank Ltd Bloomberg Code: ICICIBC IN
India Research - Stock Broking
On the Road to Recovery; No Material Deviation; Recommendation (Rs.)
Retail Contribution Will Increase CMP (as on Jun 29, 2018) 275 Asset quality, no material deviation: Even though the slippages Target Price 405 increased in Q4FY17, the material portion that includes adversely classified Upside (%) 47 Stock Information accounts including the guided stress list remained unchanged. This is positive for the company as we expect the bank to be left with the adversely classified Mkt Cap (Rs.Bn/US$ Bn) 1771.2 / 25.9 exposure of Rs. 133.3 bn of which we assess Rs. 100 bn to slip in FY19E. 52-wk High/Low (Rs.) 366 / 255 Also, the RBI review report didn’t impact the asset quality negatively. 3M Avg.daily value (Rs. Mn) 6617.7 Beta (x) 1.6 Sequential uptick in NIMs aided by structural strengths: The Sensex/Nifty 35423 / 10714 14 bps increase in domestic NIMs will be led by an increase in MCLR and O/S Shares(mn) 6431.5 continuing higher growth in relatively higher yield retail products . Core spreads Face Value (Rs.) 2.0 to increase in FY19 by 25/30 bps, supported by the impact of SA rate cut in Shareholding Pattern (%) mid FY18 and high CASA ratio, along with lowering drag from NPAs . Also, Promoters 0.0 it will be partially negated by higher growth within the higher rated corporate FIIs 48.1 bucket . Reduction in overseas book share shall aid the blended NIMs too . DIIs 41.6 Loan book growth driven by retail loan: Total domestic loans grew Others 10.3 at 15% YoY in 2018 driven by retail . In Q4FY18, Retail loans constituted Stock Performance (%) 57% of the total loan portfolio . Basically, the bank has continued to 1M 3M 6M 12M leverage its strong retail franchise, resulting in 21% YoY growth in retail loans . We estimate loan growth at ~15% for FY19E, as stress resolution Absolute (5) (1) (12) (6) Relative to Sensex (6) (8) (16) (18) and recognition will impact optical growth number . Loan growth to improve Source: Bloomberg to 19% in FY20E . The bank has decided to manage and contain risk by leveraging its increase in retail share and much more stringent group Relative Performance* exposure limits in the corporate segment . 128 112 Valuation and Risks: We estimate RoAs to improve to ~1 .7% in 96 FY20E from ~0 .9% in FY18 . We maintain a “BUY” on the stock with TP of 80 18 18 18 17 17 17 17 17 17 18 Rs . 405 valuing core banking operations at Rs . 300, 1 .9x FY19E P/B and 17 18 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec subsidiaries at Rs . 105 per share . Key risk could be discovery of new May NPAs that can further deteriorate bank’s financials, thus making recovery ICICIBC Sensex Source: Bloomberg; *Index 100 difficult . Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Interest Income 212240 217373 230258 286737 339104 Net Profit 97263 98011 67774 53265 170848 EPS (Rs .) 15 .0 15 .0 11 .0 8 0. 27 .0 BVPS (Rs .) 140 .0 156 .0 164 .0 170 .0 192 .0 P/E (x)* 19 .0 18 .9 27 .5 34 .9 10 .9 P/BV (x)* 1 .5 1 3. 1 .2 1 2. 1 .0 RoE (%) 11 .4 10 .3 6 6. 5 .0 14 .7 RoA (%) 1 .6 1 4. 0 .9 0 6. 1 .7 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
26 KARVY INVESTMENT STRATEGY Company Background ICICI Bank Limited provides banking and financial services in India and internationally . It operates through Retail Banking, Wholesale Banking, Treasury, Other Banking, Life Insurance, General Insurance, and other segments . It provides home, car, two wheeler, personal, gold, and commercial business loans, as well as loans against securities and loans for new entities . In addition, the bank offers life, health, travel, car, two wheeler, home, and student medical insurance products; pockets wallet; fixed income products; investment products such as mutual funds, gold monetization schemes, and initial public offerings as well as other online investment services . It also provides farmer finance, tractor loans, and micro-banking services as well as other services to agro-traders and processors and agro corporate . Further, it provides portfolio management, trade, foreign exchange, locker, private and NRI banking and cash management services; family wealth and demat accounts; commercial banking, investment banking, capital markets and custodial, project and technology finance, and institutional banking services as well as internet, mobile, and phone banking services .
ICICIBANK: Technical View
ICICIBANK is one of the index heavyweight stock and has a peculiar behavior of trading in a phased manner; stock price generally after a rally for a couple of months, retrace back more than a half of the move and again resumes a trend . In the end of Feb’16, the stock price made a major swing low of 164 and started recovering from the lows; made an all-time high of 365 .70 in start of Feb’18, where it found resistance, made a double top near that level and witnessed price correction in last few months . In the recent price correction, stock price retraced near to 50% of move projected from swing low 164 to an all-time high of 365 .70 . Technically, stock price found support near its 200-WEMA (Weekly Exponential Moving Average) which is currently placed near 263 levels . Currently, stock price is hovering below 200-DEMA (Daily Exponential Moving Average) and also below its 21 & 50-DEMA . On the momentum setup, 14-period weekly RSI managed to sustain above 40-level in price correction and currently hovering between 40 & 50- levels, which indicates that oscillator remained in bullish regime and eventually momentum may pick up, while indicator on daily time frame chart is also hovering below equilibrium level . Going forward, stock has important support near 258-262 levels, followed by 220 levels . On the higher side, stock is likely to find immediate resistance near 315-320 levels, followed by 340 and above which next stiff resistance will be near its all-time high of 365 levels, moving above which stock will enter into an uncharted territory towards 380-400 mark . Hence, any dip towards support levels can be utilized as a buying opportunity for long term investors, considering stock price after correction to resume its trend in a gradual manner .
KARVY INVESTMENT STRATEGY 27 Indiabulls Housing Finance Ltd Bloomberg Code: IHFL IN
India Research - Stock Broking
Strong Growth with Stable Asset Quality Recommendation (Rs.)
Improvement in cost profile segment:The company intends to CMP (as on Jun 29, 2018) 1143 diversify more into retail lending . The company expects the home loans to Target Price 1519 contribute 66% of total loan book from 54% currently; also company has Upside (%) 33 brought down the bank borrowing from 49% in FY16 to 34% level and has Stock Information increased the issue of bonds . The company is currently AA+ rated by two Mkt Cap (Rs.Bn/US$ Bn) 487.4 / 7.1 rating agencies (AAA by other two) and would reduce the cost of borrowings 52-wk High/Low (Rs.) 1440 / 1040 due to the shift from bank borrowings to bonds . It has been noted that over 3M Avg.daily value (Rs. Mn) 2556.6 last 9 months close to 64% of the borrowings is through the issue of bonds . Beta (x) 1.2 Steady Loan growth and stable margins: IHFL continues to Sensex/Nifty 35423 / 10714 diversify in the retail home loan segment which accounted for 54% of loan O/S Shares(mn) 426.6 book . India Bulls AUM has grown at an average rate of 30% in last 3 years . Face Value (Rs.) 2.0 Shareholding Pattern (%) Despite this aggressive growth, the company has been very cautious at bottom line with GNPA at around 80 bps . With GST and RERA issues Promoters 23.5 being resolved, construction finance book growth has also picked up as FIIs 53.9 demands have been normalized . Indiabulls stand at a right position to DIIs 14.3 reap the benefits of developments in the real estate sector . Management Others 8.3 expects the book size to reach 4 trillion by 2023 . Stock Performance (%) Strong Structural drivers and Government focus: Under Pradhan 1M 3M 6M 12M Mantri Awas Yojana (PMAY), subsidy eligibility cover up to 12 lakh of Absolute (6) (8) (5) 4 home loan reduces home loan rates to 0 .30% for mid-income affordable Relative to Sensex (8) (14) (8) (9) Source: Bloomberg housing . Budget 2016-17 provided a 100% tax exemption on profits from construction of affordable housing and would be attracting organized Relative Performance* players . The PMAY projects have been kept out of purview of GST . Service 140 tax exemption on construction of affordable housing projects will lead to 125 reduction in prices indeed increasing affordability . 110 Valuation and Risks: The company fundamentals are on strong footing 95 18 18 18 17 17 17 17 17 17 18 17 18 18 ------
and as per consensus, the operating performance will be strong which Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May derives a valuation of 3 .4x price/book value for a target price of Rs . 1519 IHFL Sensex representing an upside potential of 33% . Source: Bloomberg; *Index 100 Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Interest Income 38000 48000 57850 81916 100537 Net profit 23000 29000 38470 45463 55639 EPS (Rs .) 60 .0 68 .8 90 .5 106 .7 128 .9 BVPS (Rs .)* 253 .8 286 .0 314 .7 377 .8 443 .2 P/E (x)* 12 .2 12 .7 17 .2 10 .7 8 .9 P/BV (x)* 3 .6 3 0. 4 .2 3 0. 2 .6 RoE (%) 27 .1 25 .5 30 .1 30 .2 31 .8 RoA (%) 3 .5 3 2. 3 .3 3 0. 2 .9 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
28 KARVY INVESTMENT STRATEGY Company Background IBHF started operations in 2000 as a Non Banking Finance Company (NBFC) . In early 2013, the company was reverse merged into housing finance company . IBHF is one of the leading housing finance companies in India . The company has also launched E-Home Loans, one of its kind in the home loan industry . It has credit rating of AAA from CARE and AA+ from CRISIL and is among very few who enjoy such rating from the rating agencies . It has pan India presence with a stronghold in tier 1 and tier 2 cities . IBHF is one of the largest housing finance companies with AUM of more than 1trn .
IBULHSGFIN: Technical View
IBULHSGFIN is in uptrend and making higher highs and higher lows on weekly charts . The stock is trading under pressure from couple of trading sessions and fall in the stock has placed the stock below all its major moving averages . The stock has made all-time high around 1440 levels in Jan 2018 . Thereafter, the stock has profit taking which has dragged the stock to the low of 1081 levels . However, the stock found its support and bounced well but was unable to resume it’s up move . Currently, the stock is trading in the range of 1155-1230 levels . The recent price action in the stock has given breakdown on daily charts on end of June 2018 . The fall in the stock has seen supportive volume formation on daily charts . The immediate support for the stock is placed around 1080 levels . Whereas, the resistance is placed at 1275 levels . The stock has retraced 38 .20% of retracements levels, drawn from the life time high of 1440 levels to the low of 1081 levels . The historical price action in the stock reflect that any meaningful dip in the stock attracts market participants which helps the stock to resume its up move . On technical setup, the 14 period RSI is trading comfortable on daily and weekly charts which indicates that the price is in comfortable zone and stock can resume its up move in near term . The bounce above 1275 levels will act as a fresh trigger for the stock which will enhance our bullish view in the stock and stock may touch it’s all-time high and above in near to medium term . Based on the above technical observations, we expect prices to recover and gradually move higher, over the coming month .
KARVY INVESTMENT STRATEGY 29 Larsen & Toubro Ltd Bloomberg Code: LT IN
India Research - Stock Broking
Builders of the Nation Recommendation (Rs.)
Focusing More on Core Assets: L&T has entered into a definitive CMP (as on Jun 29, 2018) 1275 agreement with Schneider Electric for the divestment of its E&A segment Target Price 1631 for a cash consideration of Rs . 140 Bn . The valuation is in line with other Upside (%) 28 listed peers . The transaction does not include the marine switchgear Stock Information and Servowatch Systems (primarily into marine automation) in the E&A Mkt Cap (Rs.Bn/US$ Bn) 1787.0 / 26.1 segment . The deal is expected to close in 18 months from 1st May, 52-wk High/Low (Rs.) 1470 / 1108 2018 and is subject to receipt of the regulatory approvals . The E&A 3M Avg.daily value (Rs. Mn) 2783.7 segment accounted for ~4-5% of consolidated sales in FY18 and ~6% of Beta (x) 1.1 consolidated EBITDA and enjoys EBITDA margins in 14-15% range . Sensex/Nifty 35423 / 10714 Operation Lakshya: L&T’s efforts to successfully implement Lakshya O/S Shares(mn) 1401.5 is visible in its recent performance on multiple fronts . L&T has been able Face Value (Rs.) 2.0 Shareholding Pattern (%) to improve its net working capital (60 bps) & operating margins (50 bps) vs FY18 . Listing of L&T Finance, IT services and divestment of non-core Promoters 0.0 assets helps unlock the value in medium to long term . FIIs 18.8 DIIs 39.3 Robust order book & traction in infrastructure: L&T’s Others 41.9 outstanding order book stood at Rs . 2631 Bn from various sectors at the end of Mar18, while the order inflow for the year stood at Rs . 1529 Bn . Stock Performance (%) Revenue recorded for FY18 is Rs . 1199 Bn (49% from infrastructure) vs . 1M 3M 6M 12M Rs . 1100 bn in FY17 with a book to bill ratio of 1 .3x . L&T Infrastructure Absolute (8) (3) 1 12 segment constitutes 74 3%. of the order book and 57 .1% of its new order Relative to Sensex (9) (9) (3) (2) Source: Bloomberg inflow during FY18 . Current outstanding order book constitutes domestic orders of 76 .2% followed by Middle East with 16 .8% . Robust order book Relative Performance* build up reflects its leadership in the infrastructure & engineering segments 130 and gives revenue visibility . 120 110 Valuation and Risks: L&T’s exposure to various sectors/ geographies 100 coupled with its excellent execution capabilities and its balance sheet 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr strength compared to other peers in the sector has resulted in strong Jun Jan Jun Feb Sep Mar Aug Nov Dec May order book build up . The consensus values the company at 24 .0x for a LT Sensex target price of Rs . 1631, representing an upside potential of 28% . Delay in Source: Bloomberg; *Index 100 capex cycle recovery & order execution may pose threat to the call . Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 1000328 1076365 1196832 1351249 1515553 EBITDA 104571 110732 195911 157053 180531 EBITDA Margin (%) 10 .5 10 .3 16 .4 11 .6 11 .9 Adj . Net Profit 41933 60287 72838 83113 96928 EPS (Rs .) 29 .9 43 .0 51 .9 59 .3 69 .2 RoE (%) 9 .9 12 .8 13 .9 19 .7 22 .0 PE (x)* 26 .8 24 .3 24 .9 21 .5 18 .4 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
30 KARVY INVESTMENT STRATEGY Company Background L&T is one of Asia’s largest vertically integrated E&C companies and is India’s largest Engineering & Construction Company with interests in Projects, Infrastructure Development, Engineering & Automation (E&A), Manufacturing, Fabrication and Construction, IT & Financial Services . L&T has an excellent track record of executing the most complex projects in diverse sectors like infrastructure, oil & gas, defence, power and others making it the most preferred partner resulting in repeat orders from the clients . L&T has strong presence in Infrastructure, Power, Metallurgical-material handling, Heavy Engineering, Electrical & Automation, Hydrocarbon, Development projects, IT, Financial services and others . It undertakes developmental projects like Buildings & Factories, Transportation Infrastructure, Heavy Civil Infrastructure, Power, Water & Renewable Energy, Ship Building, Defence, Machinery & Industrial Products . L&T, through its subsidiaries, associates and JVs operates in Financial services, Infotech, Infrastructure, Hydrocarbon, Manufacturing, Fabrication and Other Services, etc .
LT: Technical View
Larsen & Toubro Ltd is India’s largest and most respected Engineering & Construction Company . After a brief consolidation, stock price is attempting to move higher with spurt in volume . In mid of Dec’17, stock price made a swing low of 1175 post which it witnessed smart recovery towards all-time high of 1470 levels clocked in start of Feb’18 . Post the steady rise, stock entered in to a correction mode . After placing swing high of 1425 in mid of May’18, stock price again corrected sharply in the last month . The stock has made all-time high of 1470 levels and which has dragged the stock to the low of 1261 levels . Thereafter, the stock has bounced well and made the next immediate high of 1423 levels and unable to sustain at higher levels and seen profit taking . However, the price action in the stock reflect that, any minor dip in the stock attracts market participants, which helps stock to resume its up move . In the last three months time frame, stock price remained choppy, managed to sustain above 1260 levels on the downside, while finding resistance near 1360 levels on the higher side . In the last week of June’18 stock price breached the said support area, made a swing low of 1206 and quickly recovered next day and closed at 1275 levels, exhibiting buying interest at lower levels . Currently, stock price holds marginally below its major 200- DEMA, and also holding below its 21 & 50-DEMA . On the weekly technical setup, 14-period RSI found support near 40-levels during recent price correction and on daily time frame chart after testing oversold territory it is turning up higher . Based on above technical observations, we expect prices to recover and gradually move higher, over the coming month .
KARVY INVESTMENT STRATEGY 31 Oil & Natural Gas Corp Ltd Bloomberg Code: ONGC IN
India Research - Stock Broking
Higher Oil Prices Augur Well for ONGC Recommendation (Rs.)
On standalone basis, ONGC produced 22 .31 MMT crude oil in FY18’as CMP (as on Jun 29, 2018) 158 against 22 .25 MMT in FY17 an increase of 0 .3% . Natural gas production Target Price 192 on standalone basis stood at 23 .48 BCM as against 22 .09 BCM registering Upside (%) 22 an increase of 6 .3% . Value-added products production raised to 3 .39 Stock Information MMT in FY18’ from 3 .24 MMT in FY17’an increase of 4 .6% .Thus, rising Mkt Cap (Rs.Bn/US$ Bn) 2032.8 / 29.7 production backed by rising demand creates an ideal condition for the 52-wk High/Low (Rs.) 213 / 152 company to flourish . 3M Avg.daily value (Rs. Mn) 1164.0 OPEC’s agreement on production cut and supply disruptions caused by Beta (x) 0.9 economic sanction on Iran have led to cut in crude oil supply . Further, Sensex/Nifty 35423 / 10714 leading economies of the world are showing sign of traction in their growth . O/S Shares(mn) 12833.2 Thus, contraction in supply of crude oil amidst rise in demand to be key Face Value (Rs.) 5.0 driver of crude oil price . Higher crude oil price will be positive for ONGC Shareholding Pattern (%) margin . Nonetheless, higher crude oil price will deteriorate margin of HPCL Promoters 67.7 wherein ONGC has 51 .11% stake . However, merger of HPCL and MRPL FIIs 0.0 will consolidate downstream business and enhance profitability . DIIs 18.9 Transparent pricing: ONGC’s crude subsidy burden has significantly Others 13.3 eased following downstream sector reforms . Domestic gas price is now Stock Performance (%) linked to prices in international hubs which is revised every 6 months . We 1M 3M 6M 12M believe ONGC will continue to benefit from benign subsidy environment . Absolute (10) (11) (19) 0 Upcoming gas projects: The company has recently started its Relative to Sensex (11) (17) (22) (13) commercial production at its onshore gas terminal plant in AP by processing Source: Bloomberg gas from three offshore wells located in Vashishta and S1 fields in the KG Basin . The company projects include the KG-DWN-98/2 project which is Relative Performance* being implemented on fast track basis . The first gas project is targeted for 135 2019 . 125 115 Valuation and Risks: Synergies in ONGC’s business and likely 105 consolidation in downstream business with merger of HPCL and MRPL 95 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr will ensure uptick in growth for the company . We have valued the stock Jun Jan Jun Feb Sep Mar Aug Nov Dec May at PE 8x of FY20E EPS and have arrived at a TP of Rs . 192 which gives ONGC Sensex potential upside of 22% . However, subsidy sharing will be detrimental to Source: Bloomberg; *Index 100 ONGC’s performance . Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 1348162 1414709 3622462 2662359 2735315 EBITDA 405143 420120 568657 707628 723540 EBITDA Margin (%) 30 .1 29 .7 15 .7 26 .6 26 .5 Adj . Net Profit 180600 201753 219322 308629 313522 EPS (Rs .) 9 4. 15 .7 17 .1 23 .8 24 .2 RoE (%) 6 .8 9 8. 9 .8 12 .9 12 .1 PE (x)* 21 .4 11 .6 10 .3 6 6. 6 .5 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
32 KARVY INVESTMENT STRATEGY Company Background Oil and Natural Gas Corporation having ‘Maharatna’ status, is the largest Crude Oil and Natural Gas Company . It ranks 11 amongst global energy majors . Transparency International has ranked ONGC 26th among the biggest publically traded global giants . It is the most valued and largest E & P Company in the world, and one of the highest profit making and dividend paying enterprise . It has two subsidiaries in form of ONGC Videsh Limited (with participation in 41 projects in 20 countries) and Hindustan Petroleum Corporation limited . The company accounts for ~78% of total oil and ~73% of total gas production in India . At the end of FY17, ONGC Domestic (Standalone+JV) had 711 mmtoe of proved reserves and 1114 mmtoe of 2P reserves while OVL had 217 mmtoe of proved reserves and 704 mmtoe of 2P reserves . Its total production for FY17 aggregated 61 .6 mmtoe (Standalone: 44 .3 mmtoe, JV: 4 .5 mmtoe and OVL: 12 .8 mmtoe) . The company has equity investments in E&P blocks in 16 countries .
ONGC: Technical View
ONGC after clocking 212 .85 levels on 25th January, 2018 has been continuously falling . The stock has corrected more than 25% from the said levels, which also happens to be its 52-week high for the stock . It has been observed that the stock has been hitting 52-week highs in the month of January from the last 2 years, the first one being in January’17 when the stock clocked a high of 211 .80 levels and slipped towards 155 levels in the month of June- July’17 before heading higher once again towards 212 .85 levels in the month of January 2018 . The stock once again is trading around the same 150-155 levels around the same time frame . The stock is expected to consolidate around the current levels for the month before gradually initiating its up move . Technically, the stock is looking weak and is trading below its 21/50/100/200-DEMA on the daily and weekly chart, suggesting weakness in the counter in the near term . Among the indicators and oscillators, the 14-period RSI has given a positive crossover with the 9-day signal line on the daily charts, suggesting support and strength in the stock around the current levels in spite of all the weakness . The downside in the stock seems to be limited and the immediate support in the counter lies in the zone of 140-150, sustaining below which the weakness in the stock may drag it towards 125 levels, where its previous swing low is placed on the monthly charts clocked in the months of February-March 2016 . On the higher side, the stock may witness resistance in the zone of 170-175 levels, sustaining above which the stock may trade towards 190-210 levels in the long term .
KARVY INVESTMENT STRATEGY 33 State Bank of India Bloomberg Code: SBIN IN
India Research - Stock Broking
The Bank of Choice for a Transforming India… Recommendation (Rs.)
(as on Jun 29, 2018) Sustained CASA growth Driving Deposits Growth: Due to higher CMP 259 Target Price 334 base led by demonetization, the aggregate deposits of SBI grew at a Upside (%) 29 modest rate of 4 .7% . The growth in aggregate deposits is mainly due Stock Information to the increase in savings bank deposits, which grew by 7 .9% YoY and Mkt Cap (Rs.Bn/US$ Bn) 2314.6 / 33.8 deposits from the foreign offices which grew by 17 .07% . CASA ratio of the 52-wk High/Low (Rs.) 352 / 232 bank improved to 45 7%. . 3M Avg.daily value (Rs. Mn) 5481.9 Retail Loans Drive Credit Growth: The gross advances of SBI grew Beta (x) 1.3 at 4 .9% by the end of FY18 . Retail, SME & Agriculture together constitute Sensex/Nifty 35423 / 10714 57 .5% of the domestic loan book . Much of the growth in advances came O/S Shares(mn) 8924.6 from Retail segments (home loans and auto loans) . Retail loans grew by Face Value (Rs.) 1.0 13 .55% in FY18 . Within retail, home loans grew by 13 .3% in FY2018 . The Shareholding Pattern (%) bank’s home loan portfolio now constitutes more than 57% of Retail loans . Promoters 58.9 Additionally, SBI continues to be the largest home loan provider in the FIIs 11.2 banking sector with a market share of over 32% amongst ASCB . DIIs 22.3 Others 7.6 Asset Quality: Material changes in the method of recognizing corporate stressed assets occurred after RBI’s Feb’18 notification . Despite this, the Stock Performance (%) slippage ratio in FY18 has declined to 4 .9% . Overall the Gross NPA Ratio 1M 3M 6M 12M stood at 10 .9% and the Net NPA ratio at 5 .7% . Provision Coverage Ratio Absolute (2) 4 (16) (5) (PCR) improved to 66 2%. . Relative to Sensex (3) (3) (20) (17) Source: Bloomberg Valuation and Risks: SBI with its focus on loan book growth, CASA Relative Performance* share in deposits, sustained NIMs of 2 .7%, reducing NPAs and fresh 129 slippages augur well in the long term . Merged SBI presents a case for a 111 diversified balance sheet that mirrors the domestic economy available at 93 bargain valuations from a long term investment perspective . We value the 75 18 18 18 17 17 17 17 17 17 18 17 18 18 ------stock at 1 .2x FY20 BVPS with a “BUY” rating for a target price of Rs . 334 . - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May SBIN Sensex Source: Bloomberg; *Index 100
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Interest Income 775929 813367 823828 - - Net Profit 122246 2412 3. 45562 .9 128772 247220 EPS (Rs .) 16 .0 0 .3 (5 .3) 15 .3 30 .6 BVPS (Rs .) 232 .6 272 .4 258 .1 255 .5 282 .7 P/E (x)* 12 .2 946 .5 0 0. 16 .9 8 .6 P/BV (x)* 0 .8 1 1. 1 .0 1 0. 0 .9 RoE (%) 7 .2 0 1. (2 .0) 0 4. 0 .6 RoA (%) 0 .4 0 0. (0 .1) 0 4. 0 .6 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
34 KARVY INVESTMENT STRATEGY Company Background State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate banking and NRI banking with a consolidated balance sheet close to Rs . 36 .2 lakh crore (Rs . 36 .2 Tn) . SBI employs over 264,041 employees and operates through a network of 22414 branches and has one of the largest ATM networks in the world with 59541 ATMs including Cash Deposit Machines and Recyclers serving over 424 Mn customers . SBI, along with its merged subsidiaries provides various services like deposits, retail loans for Home, Automobile, Education, other personal and corporate loans . SBI has various non-banking subsidiaries: SBI Life insurance Company, SBI Capital Markets, SBI Funds Management and SBI Cards & Payments .
SBIN: Technical View
SBIN has witnessed profit taking from its previous swing high placed around 290 levels which also happened to be near its 4-month high . Thereafter, the stock entered profit booking mode and has slipped towards 255 levels in a span of around 10-12 trading sessions, correcting more than 10% from its highs . The stock has fallen from its 52- week highs of 351 .30 levels clocked on 26th October, 2017 . Since then, the stock has been continuously falling with minor pullbacks . The fall in the stock was arrested on 23rd March, 2018 when the stock made a low of 232 .35 levels and rallied sharply towards 265 levels in a matter of 11-12 trading sessions, gaining more than 14% from its lows . The stock again retested the lows of 232 .35 levels but did not breach the levels this time and bounced back again towards 260 levels . It has been observed from previous two occasions that whenever the stock trades around 235-240 levels value-based buying is witnessed in the counter which takes back the stock towards 260-265 levels . It can also be inferred that the short to medium term bottom in the stock has been placed around 232-233 levels, any breach below the said levels will give a fresh breakdown in the counter and the stock may further slide towards 200-mark . The overall long term chart structure of the stock is positive and looks good at current levels for long term investment . The stock being the premier Public Sector Bank in the country is one of the most sought after banking stocks when it comes to investing and this decline from the said highs gives investors an excellent opportunity to go long for potential upside of 285-315 in about a year or so . As far as the technical setup of this stock is concerned, the weekly and monthly charts indicate strong support around 230-240 zone below which the next levels to watch out for will be 190-200, where the stock has very strong support . Whereas on the upside, the immediate resistance zone is placed around 285-290 levels which will test the patience of investors . However, if the stock manages to cross and sustain above the mentioned immediate resistance zone, then a quick rally towards the next resistance zone of around 315-320 could be seen . Hence, we recommend long term investors to go long in the counter around the current levels, average in case of declines towards Rs . 235 and hold with a stop loss placed below 190 for the above mentioned target levels in the stipulated time frame .
KARVY INVESTMENT STRATEGY 35 Tata Motors Ltd Bloomberg Code: TTMT IN
India Research - Stock Broking
JLR to Invest On New Platforms Recommendation (Rs.)
Around GBP 13 .5 Bn has been lined up for investments for the next three CMP (as on Jun 29, 2018) 269 years on technology, new launches and capacity expansion which works Target Price 405 out to be ~ GBP 4 .5 Bn per annum out of which ~78% is expected to be Upside (%) 50 spent on technology and product development . The technology involved Stock Information is called Modular Longitudinal Architecture (MLA) which is compatible with Mkt Cap (Rs.Bn/US$ Bn) 858.2 / 12.5 Internal Combustion Engine (ICE), Battery Electric Vehicle (BEV) and Plug-in 52-wk High/Low (Rs.) 468 / 262 Hybrid Electric Vehicle (PHEV) making it a flexible design . This is expected 3M Avg.daily value (Rs. Mn) 4380.2 to bring about some operational benefits and will be fully implemented by Beta (x) 1.5 FY25E . Sensex/Nifty 35423 / 10714 I-Pace technology to revive demand in UK: This works on lithium- O/S Shares(mn) 2887.3 ion battery with a capacity of 90kWh and has a range of up to 298 miles . Face Value (Rs.) 2.0 Shareholding Pattern (%) These supplies have begun from the first week of July 2018 with orders booked for the next six months . Furthermore, recently launched RR Sport Promoters 36.4 PHEV has got a good response and is expected to do well . FIIs 20.3 DIIs 17.5 TML’s vehicles gain significant domestic market share: TATA’s Others 25.9 total domestic utility vehicles sales volume stood at 51891 units during FY18 posting a growth of 178% YoY . This led to an increase in market Stock Performance (%) share from 2 .45% to 5 .63% in the utility segment, eventually resulting 1M 3M 6M 12M in the overall passenger vehicle segment market share to increase from Absolute (9) (18) (38) (38) 5 .66% to 6 .39% during FY18 . In the commercial vehicle segment, TML’s Relative to Sensex (10) (23) (40) (46) sales volume grew by 23 .2% YoY during FY18 recording 376456 vehicles . Source: Bloomberg Also, TML’s YTDFY19 (Apr-May) utility segment volumes have gone up by Relative Performance* six times indicating a good domestic demand . Furthermore, the company 124 plans to launch 50 commercial vehicles during FY19 across geographies . 101 Valuation and Risks: At CMP of Rs . 269, the stock is trading at P/E 78 5 .9x for FY20E EPS . The Bloomberg consensus target price for TATA 55 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Motors is Rs . 405 which is valued at P/E 8 .9x for FY20E EPS based on - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May future growth prospects . However, slowdown in the UK and European TTMT Sensex markets for JLR can be viewed as the possible downside risks to the call . Source: Bloomberg; *Index 100
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 2673201 2639995 2946192 3289067 3627401 EBITDA 371520 344314 369158 411148 475013 EBITDA Margin (%) 13 .9 13 .0 12 .5 12 .5 13 .1 Adj . Net Profit 107498 79842 76063 104063 131621 EPS (Rs .) 37 .2 27 .7 26 .3 36 .0 45 .6 RoE (%) 17 .1 10 .9 11 .7 10 .8 12 .5 PE (x)* 12 .2 19 .8 10 .2 7 5. 5 .9 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
36 KARVY INVESTMENT STRATEGY Company Background Tata Motors Group, is an automobile manufacturer with a portfolio that includes a wide range of cars, sports vehicles, trucks, buses and defence vehicles spread across 175 countries around the globe . Tata Motor’s Jaguar Land Rover Automotive PLC is the holding company of Jaguar Land Rover Limited, a British multinational automobile company with its headquarters in Coventry, United Kingdom . Models under the Jaguar Series include XF, XJ, F-Pace, XE etc, and models under the Land Rover series are Defender, Discovery and Range Rover (RR) series with more prominence in the UK, Europe, North American and Chinese regions .
TATAMOTORS: Technical View
Tata Motors Ltd headquartered in Mumbai is an Indian multinational automotive manufacturing company and a member of the Tata Group . Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles . Since Sep’16, Tata Motors is correcting from the highs at 598 levels and is currently trading close to its support zone at Rs . 260-262 levels . We expect the stock to witness a round of consolidation in the near term before taking the fresh leg of up move, any medium to long term investor may start accumulating the stock from current levels and add more on declines towards 250 levels which is multiple support of the counter as the stock has witnessed consolidation at the mentioned levels and is expected to witness rally in the counter . On the oscillator front, the 14 period RSI is indicating weakness and is placed near the oversold region, indicating a reversal in the counter . On the monthly chart, the stock is still in downtrend making lower highs and lower lows indicating inherent weakness in the counter from short term perspective . In the current scenario, considering all the data mentioned above, one may go long in the counter on any dip towards the mentioned support zone for an immediate upside targets towards the said resistance zones, breaching which the stock might move towards its all-time high in the long-term perspective .
KARVY INVESTMENT STRATEGY 37 Titan Company Ltd Bloomberg Code: TTAN IN
India Research - Stock Broking
International Markets and Wedding Jewellery Recommendation (Rs.)
Segment to Drive Growth for Jewellery Business CMP (as on Jun 29, 2018) 879 Under jewellery segment, ‘Tanishq’ is the most successful and leading Target Price 1058 brand for the company in India . Now the company is planning to enter into Upside (%) 20 international markets in jewellery segment by the end of FY19 . Initially the Stock Information company is looking at Asian markets by setting up stores under franchise Mkt Cap (Rs.Bn/US$ Bn) 779.9 / 11.4 model . These stores will be launched under partnership basis and each 52-wk High/Low (Rs.) 1006 / 503 store will be costing Rs . 200-300 Mn to the company . Despite being low 3M Avg.daily value (Rs. Mn) 2570.1 margin business, rise in total revenue will improve the PAT value for the Beta (x) 1.0 company . Sensex/Nifty 35423 / 10714 The wedding segment accounts for more than 60% of the total jewellery O/S Shares(mn) 887.8 market in India . The company has developed ‘Rivaah’ collections under Face Value (Rs.) 1.0 this segment and growing quickly to capture more market share . Titan Shareholding Pattern (%) is aiming to achieve total revenue of Rs . 500 Bn by FY23E with jewellery Promoters 52.9 business to contribute Rs . 400 Bn and Rs . 100 Bn from other segments . FIIs 20.7 Watches and Titan Eye Plus segments continue to grow aided DIIs 6.1 Others 20.3 by E-Commerce: Titan has witnessed significant growth under these segments with their expansion strategies under E-Commerce to improve Stock Performance (%) their customer reach . Titan Watches are now available in USA through 1M 3M 6M 12M e-commerce partners . Eyewear division is aiming to release new and Absolute (4) (7) 2 72 innovative products and also focusing on increasing its footfall in Tier – II Relative to Sensex (5) (13) (2) 50 Source: Bloomberg and Tier – III cities .
Valuation and Risks: Titan, with its improving operational efficiencies Relative Performance* and expansion strategies in retail network, is moving up the value chain 189 and capturing more market share . At CMP, Rs . 879 per share, the stock 156 is currently trading at 43 .2x FY20E consensus EPS . The stock is valued at 123 52 .0x on Bloomberg consensus FY20E EPS with “BUY” rating to arrive 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------at target price of Rs . 1058 with an upside of 20% . However, government - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May regulations on gold purchases, competition from regional jewellery players, TTAN Sensex gold price volatility, revival in consumer spending & competition from Source: Bloomberg; *Index 100 e-commerce players will be the key risks to the earning of the company .
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 111877 129038 159465 196275 235302 EBITDA 9347 11555 16447 21477 26890 EBITDA Margin (%) 8 .4 9 0. 10 .3 10 .9 11 .4 Adj . Net Profit 6745 7115 11301 14512 17986 EPS (Rs .) 7 .8 8 6. 12 .9 16 .4 20 .3 RoE (%) 20 .5 18 .4 24 .2 31 .1 38 .6 PE (x)* 44 .6 57 .8 74 .0 53 .4 43 .2 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
38 KARVY INVESTMENT STRATEGY Company Background Titan’s success story began in 1984 with a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation . Titan is the fifth largest integrated own brand watch manufacturer in the world . In addition to ‘Titan’ the watch brand, Titan has also built ‘Tanishq’ the leading jewellery brand over the past few years . Both these brands are among the most recognized and loved brands in India . Titan Company is one of the largest jewellery retailers in India with over 250 exclusive Tanishq boutiques in over 150 cities . The jewellery is manufactured in a fully integrated manufacturing plant with state-of-art equipment . The company has two exclusive design studios for watches and jewellery . The company is also into eyewear industry under ‘Titan Eyeplus’ which is 3rd major business line for the company . Titan has launched ‘Fastrack’ in 1998 and became an independent urban youth brand . In addition, the company has extended to personal accessories such as bags, belts, wallets and also into fragrance market under ‘Skinn’ Brand . Further, the company has also launched Raga branded watches for women category . With a retail footprint of over 1400 stores, the company has India’s largest specialty retail network spanning over 240 towns .
TITAN: Technical View
TITAN has been making repeated cycles of higher highs and higher lows on the weekly charts . The counter has generated tremendous wealth for the medium to long term investors in past one year and has generated almost 2x for the same time frame . The stock has corrected over 12% in the past two months and is currently placed around its long term moving average of 200 DEMA sustaining which may witness a fresh surge in the counter giving opportunity to investors to invest in the counter . Thereafter, the stock managed to form base around the said support levels of its 200 DEMA and is all set to move higher towards its recent peaks . Analyzing the recent volume price action, the volumes have been encouraging in the recent consolidation indicating strong hands have started accumulating the stock at lower levels . The immediate support for the stock is placed around 820 levels followed by 790 levels while on the flip side the resistance is pegged around 920 levels followed by its all-time high, breaching which it may enter to the uncharted territory . At current juncture, the stock is trading well above the major long term moving averages and looks attractive from risk reward point of view . The stock is expected to re-gain its bullish momentum and move towards the higher levels of 980-990 levels in medium term perspective . We recommend investors to buy the stocks at current levels and accumulate on any correction for long term perspective .
KARVY INVESTMENT STRATEGY 39 UPL Ltd Bloomberg Code: UPLL IN
India Research - Stock Broking FY18 saw Near Future Oversees Global Adversities Stabilizing: Recommendation (Rs.) Delayed rains in North Brazil and dry season in Southern Cone/Argentina, CMP (as on Jun 29, 2018) 619 high channel inventories weighed on overall Latin American region . Farm Target Price 934 prices continue to remain tapered, and high channel inventory has hurt Upside (%) 51 pricing growth because of raw material cost inflation . It is expected that Stock Information stock-to-use ratios of key grain commodities will drop which would allow Mkt Cap (Rs.Bn/US$ Bn) 315.1 / 4.6 UPL to take in price hikes to pass on higher RM costs . The world GDP 52-wk High/Low (Rs.) 903 / 603 growth in CY18 is expected to be at 3 .9% and weather forecast for key 3M Avg.daily value (Rs. Mn) 1004.3 agricultural regions is favourable . Further, government’s Agri-focused Beta (x) 1.1 Sensex/Nifty 35423 / 10714 initiatives would prove to be a boon for UPL and the agrochemicals O/S Shares(mn) 509.3 industry . The tariff related hostility between US and China could yield Face Value (Rs.) 2.0 penetration to new geographies and business opportunities . Shareholding Pattern (%) New Product Launches Keep profitability in place: Successful Promoters 27.7 launch of Sperto (Insecticide) in Brazil has been well accepted in the FIIs 44.0 market . UPL launched new fungicide Advancer Glow and Cuprofix in FY18 . DIIs 11.2 Others 17.1 These products have been well received by the farmers and will contribute substantially in the near term . Additionally, 3 new nutritional specialty/ Stock Performance (%) 1M 3M 6M 12M biological products have been launched . This performance visibility of the same can be seen during FY19 . Absolute (12) (15) (19) (25) Relative to Sensex (13) (21) (22) (35) Valuation and Risks: The favorable weather forecasts for key Source: Bloomberg agricultural regions, constructive government policies, and possibility Relative Performance* of price increase (given stock-to-use ratios of key grain commodities 119 expected to fall in certain regions) should speak well . Crop diversity and 101 gaining traction in biological nutrition portfolio will further drive growth 83 for UPL and help in mitigating risk . At CMP Rs . 619, as per consensus 65 18 18 18 17 17 17 17 17 17 18 17 18 18 ------
estimates, we recommend ‘BUY’ for a target of Rs . 934 valuing at 17 .4x Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May FY20E EPS representing an upside potential of 51% . UPLL Sensex Source: Bloomberg; *Index 100
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 138340 160750 173780 194357 217814 EBITDA 23950 29850 35160 39891 45548 EBITDA Margin (%) 17 .3 18 .6 20 .2 20 .5 20 .9 Adj . Net Profit 9930 17662 20220 23295 27293 EPS (Rs .) 18 .4 33 .9 39 .6 45 .7 53 .7 RoE (%) 16 .0 26 .2 24 .5 22 .8 22 .2 PE (x)* 25 .8 21 .3 18 .4 13 .4 11 .5 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
40 KARVY INVESTMENT STRATEGY Company Background United Phosphorous (UPL) is the largest producer of agrochemicals in India, producer of crop protection products, other industrial chemicals was incorporated in the year 1969 spread across 123 countries . UPL is amongst the top five post–patent agrochemical manufacturers in the world . It offers wide range of products and has developed more than 100 insecticides, fumigants, rodenticides, fungicides and herbicides . All the units of UPL are certified under the ISO 9001 for quality assurance, 14001 for Environment Pollution Control norms and OHSAS 18001 for healthy and safety also manufactures Caustic Chlorine, White Phosphorus, Industrial Chemicals and Specialty Chemicals . It also has captive power plant that has a generating capacity of 48 .5 MW i .e . BEIL (Bharuch Enviro Infrastructure) . BEIL is engaged in collection and disposing off solid/hazardous wastes from member industries in the regions . CEL (Chemo Electronic Laboratory) is part of UPL’s diversification strategy . It is one of the largest manufacturers of toxic gas detection devices and is the only manufacturer of chemical detector tubes in India . ETL (Enviro Technology) has a common effluent treatment plant located in Gujarat .
UPL: Technical View
UPL is in structural uptrend making higher highs and higher lows on the weekly charts . The stock had made a spectacular run from the lower levels of 356 odd levels to all-time high levels of 902 .50 in just a small time frame of two and a half years . After the said stellar rally, the counter witnessed a round of profit booking which dragged the stock towards the levels of 600-620 from all-time highs . At current juncture, the stock has already retraced its 50% rally from the swing corners of 355 and 902 .50 levels and is trading around the said levels . The counter is looking sideways at current juncture on the weekly charts and is hovering near the accumulation zone for the long term perspective . We expect the stock to witness a round of consolidation in the near term before taking the fresh leg of up move, any medium to long term investor may start accumulating the stock from current levels and add more on declines towards 570-580 levels which is near its 61 .8% retracement levels of the mentioned swing corners . The medium term support for the stock is placed around 600 followed by 550 levels while next resistance is pegged around 640 followed by 680-700 levels . Considering the above data facts, we expect the stock to resume its bullish trend from current levels and may test 680-700 levels in 9-12 months time frame .
KARVY INVESTMENT STRATEGY 41 Yes Bank Ltd Bloomberg Code: YES IN
India Research - Stock Broking The asset quality performance in Q4FY18 was Strong Asset quality: Recommendation (Rs.) quite strong with slippages at Rs . 3 .8 bn (0 .81% annualized) . Of this CMP (as on Jun 29, 2018) 340 Rs . 0 .3 bn came from the previously reported SDR account . The retail Target Price 472 slippages were quite minimal at Rs . 0 .6 bn . The GNPA/NNPA/Coverage Upside (%) 39 ratio improved to 1 .3%/0 .6%/50% from 1 .7%/0 .9%/46% in Q4FY18 . Stock Information Going forward, the outlook remains stable with bank indentifying only Mkt Cap (Rs.Bn/US$ Bn) 783.1 / 11.4 Rs . 2 .8 bn of exposure to an account which could potentially be referred 52-wk High/Low (Rs.) 383 / 285 to NCLT under the new guidelines for asset resolution by RBI . The bank 3M Avg.daily value (Rs. Mn) 4312.1 pushed its guidance on achieving coverage ratio of 60% to Q2FY19E Beta (x) 1.2 from its earlier ambition of achieving the same by Q1FY19E . The bank has Sensex/Nifty 35423 / 10714 Rs . 969 crore exposure to nine accounts under NCLT for which it has O/S Shares(mn) 2305.7 made provisions in the range of 43-50% . Progress towards meeting the Face Value (Rs.) 2.0 targeted coverage ratio of 60% could act as an upside trigger . Shareholding Pattern (%) Phenomenal growth; outlook robust: The loan growth for the Promoters 20.0 quarter was phenomenal at 19%/54% QoQ/YoY . The same was led by FIIs 42.6 growth in both the verticals: Corporate 19%/54% QoQ/YoY and Branch DIIs 24.8 Banking (19%/54% QoQ/YoY) . Within Branch Banking, the growth came Others 12.6 across the segments: Medium Enterprises (16%/42% QoQ/YoY), Micro Stock Performance (%) & Small Enterprises (19%/29% QoQ/YoY), and Consumer Banking 1M 3M 6M 12M (23%/98% QoQ/YoY) . With growth remaining strong at corporate, we do Absolute 0 11 8 18 not estimate a material shift in the loan book mix towards non-corporate Relative to Sensex (1) 4 4 3 over FY19E-20E . Source: Bloomberg
Valuation and Risks: Volatility in asset quality is a cause of concern . Relative Performance* In the past five years, the bank has consistently delivered 1 .5%+ RoA and 130 18%+ RoE . Liabilities have been managed well with CASA as well as retail 120 deposits improving and its target of 40% by FY19 looks achievable . It 110 has ambitious target for NIM of 4% by FY20 . Expansion of branches and 100 90 18 17 17 17 17 17 18 17 18 18 18 18 17 - - - - - employee addition will keep costs elevated . Supported by strong earnings ------Jul Oct Apr Jun Jan Jun Feb Mar Aug Sep Nov Dec and the ability to raise capital at a good price, its book value accretion May YES Sensex has been the strongest among peers with a five-year CAGR of +30% . We Source: Bloomberg; *Index 100 maintain a “BUY” on the stock with TP of Rs . 472, an upside of 39% .
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 45667 57973 77371 104973 136842 EBITDA 25394 33301 42246 58259 78717 EBITDA Margin (%) 12 .0 15 .0 18 .0 25 .0 34 .0 Adj . Net Profit 66 .0 97 .0 112 .0 133 .0 161 .0 EPS (Rs .) 29 .1 24 .1 19 .2 13 .9 10 .3 RoE (%) 5 .4 3 6. 3 .1 2 7. 2 .2 PE (x)* 19 .9 18 .6 17 .7 20 .7 23 .3 Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
42 KARVY INVESTMENT STRATEGY Company Background Yes bank is a private bank set up in 2004 . Over the years, the bank’s strong business growth, healthy net interest margins, stable profitability and healthy capitalization have made it one of the top five private sector banks in India . It has steadily built a Corporate, Retail & SME banking franchise, with a comprehensive product suite of Financial Markets, Investment Banking, Corporate Finance, Branch Banking, Business and Transaction Banking and Wealth Management business across the country . Yes bank has adopted knowledge driven approach to offer financial solutions which go beyond the traditional realm of banking . The total branch count is 1100 branches & 1724 ATMs at end of March 2018 and expects to reach 1250 branches by 2020 .
YESBANK: Technical View
YESBANK has been making repeated cycles of higher highs and higher lows on the weekly charts . The counter has generated tremendous wealth for the medium to long term investors and has zoomed over 100% towards 335-340 levels from the lows of 155 levels in short time frame of three years . After clocking an all-time high of 383 levels, the counter witnessed a round of profit booking which dragged the stock towards lower levels of 280-300 which is acting as a good support on the lower side for the stock . Thereafter, the stock managed to form base around the said support levels and is all set to move higher towards its recent peaks . Analyzing the recent volume price action, the volumes have been encouraging in the recent consolidation indicating strong hands have started accumulating the stock at lower levels . The immediate support for the stock is placed at 310 levels followed by 280 breaching which the stock may enter the bearish territory . On the flip side, major resistance is pegged around 380 followed by 410 levels . At current levels, the stock is trading well above the major long term moving averages and looks attractive from risk reward point of view . The stock is expected to re-gain its bullish momentum and move towards the higher levels of 680-690 in medium term perspective . We recommend investors to buy the stocks at current levels and accumulate on any correction for long term perspective .
KARVY INVESTMENT STRATEGY 43 44 KARVY INVESTMENT STRATEGY KARVY INVESTMENT STRATEGY 45 ABB India Ltd Bloomberg Code: ABB IN
India Research - Stock Broking Growth To Be Driven By Micro Factors Recommendation (Rs.) ABB India (ABB) has restructured its operating businesses in-line with CMP (as on Jun 29, 2018) 1179 ABB Global operations and strategy . ABB has 4 major business segments Target Price 1575 Robotics and Motion (RM~22%), Electrification Products (EP~27%), Industrial Upside (%) 34 Automation (IA~16%) and Power Grids (PG~35%) . ABB’s exports business Stock Information contributes ~18% of revenues, services ~13% and railways ~7-8% . Mkt Cap (Rs.Mn/US$ Mn) 249.7 / 3.6 Order backlog cover 1.2x of revenue: At Rs . 116 bn order 52-wk High/Low (Rs.) 1749 / 1123 backlog covers 1 .2x ttm revenues . Of this, base orders constitute 3M Avg.daily value (Rs. Mn) 112.5 ~85-90% . Demand originated from consumption based sectors like Beta (x) 0.8 Food & Beverages Automotive, Railways, Renewable Energy apart from Sensex/Nifty 35423 / 10714 productivity and efficiency related investments in sectors like Cement, O/S Shares(mn) 211.9 Mining and Metals while other sectors continue to lag in fresh investments . Face Value (Rs.) 2.0 Shareholding Pattern (%) In the transmission market, PGCIL orders have slowed down and the company expects order flow momentum to pick up as the state entities Promoters 75.0 could order for new transmission lines, sub-station equipments . Though FIIs 3.2 solar market continuously witness pricing pressure, ABB management DIIs 13.6 could grow the segment without elongating the working capital cycle . Others 8.2 Stock Performance (%) Revenue and earnings to grow in next two years: Revenue for 1M 3M 6M 12M ABB is expected to grow at a CAGR of 15% in the next two years as Absolute (4) (9) (16) (19) ABB has began booking HDVC order . Apart from this, we also expect the Relative to Sensex (5) (15) (20) (29) company to see strong traction for products in the RM and EP . However, Source: Bloomberg IA could continue to remain moderate . With large HDVC revenue booking, Relative Performance* ABB to benefit from operating leverage and we expect the operating 119 margin improvement of upto ~160 bps in next two years . 108 97 Valuation and Risks: ABB in the last decade has enjoyed premium 86 valuation compared to its peers in the sector . ABB’s decadal PE averages 75 18 18 18 17 17 17 17 17 17 18 17 18 18 ------to 65x of 1yr forward earnings while the S&P Capital Goods index traded - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May at 27x in the same period . At CMP of Rs . 1179, ABB is available at 37x ABB Sensex CY19E earnings and we maintain our ‘BUY’ rating for a target price of Source: Bloomberg; *Index 100 Rs . 1575 . Lack of large order inflows and commodity inflation remain as key risks for the stock . Please CLICK HERE for previous report
Valuation Summary YE Dec (Rs. Mn) CY15 CY16 CY17 CY18E CY19E Net Sales 81403 86422 90873 102587 119236 EBITDA 7125 6945 7361 8772 11591 EBITDA Margin (%) 8 .8 8 0. 8 .1 8 6. 9 .7 Adj . Net Profit 2999 3745 4200 5022 6811 EPS (Rs .) 14 .2 17 .7 19 .8 23 .7 32 .1 RoE (%) 10 .0 11 .4 11 .6 12 .5 14 .9 PE (x)* 79 .0 58 .9 70 .8 49 .7 36 .7 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
46 KARVY INVESTMENT STRATEGY Company Background ABB India is a part of US$ 34 bn ABB group based out of Zurich, Switzerland which has existed for over 130 years on the foundation of industrial automation and has operations in over 100 countries with about 135,000 employees globally . ABB India is into electrification products, robotics and motion, industrial automation and power grids serving customers in utilities, industry, transport & infrastructure in India and across globe . ABB globally has restructured its business in the last two years with two key focus areas bringing electricity from any power plant to any plug and automating industries from natural resources to finished products . In India, ABB has a long presence and is a market leader in the transmission and distribution market, transportation market and renewable energy market . ABB global has aligned its businesses to compete in the digital era with offerings such as ‘ABB Ability Platform’, etc . ABB global is the title partner of Formula E, the fully electric international FIA motorsport class to promote e-mobility globally .
ABB: Technical View
ABB is a pioneering technology leader in electrification products, robotics and motion, industrial automation and power grids, serving customers in utilities, industry and transport & infrastructure globally . ABB has been making repeated cycles of higher highs and higher lows on the weekly charts . The counter has generated a tremendous wealth for the long term investors in the past five years and has generated a capital appreciation close to 4 .5 times for the same time frame . The stock has corrected over 34% in the past two months and is currently placed around its historical support at 1170 levels sustaining which it may witness a fresh surge in the counter . Analyzing the recent volume price action, the volumes have been encouraging in the recent consolidation indicating strong hands have started accumulating the stock at lower levels . The immediate support for the stock is placed around 1150 levels followed by 1000 levels while on the flip side the resistance is pegged around 1430 levels followed by its all-time high at 1740 levels . At the current juncture, the stock is witnessing a bullish divergence among the momentum indicators and is looking attractive in the risk-reward point of view . The stock is expected to regain its bullish momentum and move towards the higher levels of 1430 levels in medium term perspective . We recommend investors to buy the stocks at current levels and accumulate on any correction for a long term perspective .
KARVY INVESTMENT STRATEGY 47 Apar Industries Ltd Bloomberg Code: APR IN
India Research - Stock Broking Healthy Prospects Recommendation (Rs.) The company is experiencing temporary setback due to increased raw CMP (as on Jun 29, 2018) 675 material cost, intense competition, overhauling fixed expenses due to Target Price 860 expansion and GST . A bright picture is expected in FY19 due to change in Upside (%) 27 product mix and price stabilization . The conductors are experiencing healthy Stock Information demand and are expected to benefit from molten metal agreement, logistic Mkt Cap (Rs.Bn/US$ Bn) 25.8 / 0.4 benefits from Jharsuguda plant and growth in HEC sales . The oil segment is 52-wk High/Low (Rs.) 870 / 656 expected to consistently grow and to be benefited by passing on the higher 3M Avg.daily value (Rs. Mn) 17.7 crude prices through price hike . The cables segment is consistently growing Beta (x) 0.8 and railways harness business could add on to its growth . Sensex/Nifty 35423 / 10714 Conductors segment: HEC revenue growth and copper conductors O/S Shares(mn) 38.3 orders from railways (new segment), to derive the growth in revenue as Face Value (Rs.) 10.0 Shareholding Pattern (%) well as margins . The company is expecting volumes of 185000MT for FY19 . The company is already a lowest bidder in copper conductors for Promoters 58.0 railways and expecting an order of Rs . 4000 mn . The current order book FIIs 7.4 of Rs . 12090 mn turns out to be 74000 MT in volumes . DIIs 24.4 Others 10.3 Oil & Lubricants: The segment could be facing a pressure on the Stock Performance (%) bottom-line due to tremendous increase in crude prices as passing on 1M 3M 6M 12M the increase in prices could be in phases in the coming quarters . The company has won a new business to supply transformer oil for all the Absolute (4) (7) (17) (10) major HVDC projects in FY19 & FY20 . The company expects the volumes Relative to Sensex (5) (13) (20) (21) Source: Bloomberg to be in the range of 380000-415000 KL in FY19 . Relative Performance* Cables segment: The new business of Medium Voltage Covered Conductor (Higher safety conductor), railways harness business to be 116 107 the growth drivers for the coming years . The business was little subdued 98 in windmill segment due to an industry shift from FIT based bidding to 89 80 18
reverse auction scheme . 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec Valuation and Risks: The company trades at P/E of 11 .1 FY20EPS . May APR Sensex We recommend a “BUY” rating for the stock valuing at 14x(6 years avg Source: Bloomberg; *Index 100 PE) for a target price of Rs . 860 on FY20E EPS representing an upside potential of 27% . Please CLICK HERE for previous report
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 50785 48320 58185 60692 65930 EBITDA 3620 4037 4045 4248 4879 EBITDA Margin (%) 7 1. 8 .4 7 0. 7 .0 7 .4 Adj . Net Profit 1202 1763 1447 1866 2311 EPS (Rs .) 31 .2 45 .8 38 .0 49 .0 60 .7 RoE (%) 14 .1 17 .0 13 .1 13 .3 14 .7 PE (x)* 14 .9 16 .4 19 .1 13 .8 11 .1 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
48 KARVY INVESTMENT STRATEGY Company Background Apar Industries (Apar) is a leading manufacturer of conductors, transformer oils and cables for the domestic and overseas power T&D sector . Apar operates in diverse fields of electrical, metallurgical and chemical engineering . Apar’s business can be divided into three segments namely Conductors, Cables, Oils and Lubricants . Apar is a market leader in the transformer oil segment standing at 4th position globally . In the lubricants segment, Apar is known for marketing the world renowned ENI brand (eni S .P .A of Italy) of lubricants . Apar has been recognized as a registered export house for conductors by Indian Ministry of Commerce and is the fifth largest manufacturer of conductors globally . More than 50% of revenues come from conductors segment followed by 35% of contribution from specialty oils and lubricants segment . Apar was the first company to introduce high efficiency conductors in the market and is consistently growing the volumes of the conductors .
APARINDS: Technical View
APAR Industries stock price over the last few years has seen a vertical rally from the levels of sub Rs . 82 in the month of August 2013 to the recent lifetime highs of Rs . 908 in the month of May 2017, making it one of the multi- baggers in the recent times . The said price move has generated a whopping 10x returns over the last 3 and half years . However, in the recent past, the stock after clocking its lifetime high of Rs . 908 in the month of May 2017 has corrected nearly 27% from the said highs and currently trading around Rs . 660-670 levels, which we feel as a decent opportunity to enter by those who missed the bus in the previous rally . In its current correction from the highs of Rs . 908 levels, the stock is trading above its 200 weeks simple moving average which is currently placed around 570 levels indicating long-term bullish trend intact . Going forward, the stock has support near Rs . 600-610 zone around its previous swing high and key support area on the weekly charts and below it at around Rs . 570 levels where weekly 200 moving average is placed, while resistances are placed at Rs . 740-750 zone and above it at around Rs . 890-900 zone .
KARVY INVESTMENT STRATEGY 49 Bajaj Electricals Ltd Bloomberg Code: BJE IN India Research - Stock Broking EPC Segment to Drive Growth Recommendation (Rs.) CMP (as on Jun 29, 2018) 544 Very strong order book of EPC segment: EPC segment has shown Target Price 670 a very healthy growth of 25 4%. over FY17 with a strong order book of Upside (%) 23 Rs . 89340 mn of which around Rs . 40000 mn are short term orders . The Stock Information company’s strong order book gives a good visibility of revenues in the upcoming quarters . We expect EPC revenue to grow at 17% CAGR over Mkt Cap (Rs.Bn/US$ Bn) 55.5 / 0.8 FY18-20E on the back of strong execution of short cycle orders . The 52-wk High/Low (Rs.) 706 / 295 company will be availing more debt to the tune of Rs . 5000 mn in order to 3M Avg.daily value (Rs. Mn) 468.1 execute the projects in time which would boost the interest cost . As per Beta (x) 1.1 management, sustainable margins for EPC business is around 7-8% and Sensex/Nifty 35423 / 10714 expects revenue of Rs . 35000 mn from EPC business in FY19E . O/S Shares(mn) 102.1 Face Value (Rs.) 2.0 Focus on regaining the lost market share: The company in a mode Shareholding Pattern (%) of setting up RREP model had lost the market share to different players . Promoters 62.9 Now since the RREP model is fully implemented, company is looking to FIIs 9.7 regain its market share by focusing on secondary sales . The segment had a DIIs 5.8 negative growth of 3 .7% over FY17 but the volumes have shown a growth Others 21.5 of 6% overall . Fans led the volume growth . The company has made the Stock Performance (%) provision for impairment of investments in Starlite Lighting Ltd to the tune 1M 3M 6M 12M of Rs . 894 mn for its CFL business . The demand for CFL is continuously Absolute (1) (4) 9 64 deteriorating as an impact of LED business growth . The margins are Relative to Sensex (2) (10) 5 43 expected to improve though improved economies of scale . The company Source: Bloomberg expects a good boost to the revenues and margins in FY19E . We expect Relative Performance* Bajaj to regain its lost market share with the new distribution model . 205 Valuation and Risks: The consumer business and EPC strong order 165 book gives a strong support for the revenues to grow at CAGR of 14% over 125
FY18-20E . We expect the product mix to change with 60% of contribution 85 18 18 18 17 17 17 17 17 17 18 17 18 18 ------from EPC business . We value the stock on 25x (3 years avg PE) for FY20E - - - Jul Oct Apr Jun Jun Jan Feb Sep Mar Aug Nov Dec EPS to arrive at target price of Rs . 670, representing an upside potential May BJE Sensex of 23% . Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 46267 42983 47164 53129 61792 EBITDA 2642 2445 2934 3719 4634 EBITDA Margin (%) 5 7. 5 .7 6 2. 7 .0 7 .5 Adj . Net Profit 1103 1093 1730 2038 2717 EPS (Rs .) 10 .9 10 .8 17 .1 20 .1 26 .8 RoE (%) 14 .6 12 .5 18 .3 18 .7 20 .1 PE (x)* 17 .4 28 .8 29 .9 26 .9 20 .2 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
50 KARVY INVESTMENT STRATEGY Company Background Bajaj Electricals Ltd is a flagship company under Bajaj Group, one of the oldest conglomerates in India . Bajaj Electricals Ltd ., established in 1938, is a pioneer in electrical home appliances, lighting and luminaries business . Over the last 75 years, it has progressively diversified into turnkey project contracts involving Power Distribution and Transmission Line Towers (TLT) by establishing a new SBU (Strategic Business Unit) for Engineering and Projects (E&P) . While the power distribution projects are working on rural electrification, the TLT projects cater to connecting power transmission grids across India - connecting power generating plants or sub-stations . The company majorly follows asset light model as it procures products from the market and sells it under the brand name of Bajaj . In November 2002, the company entered into a technical collaboration and brand licensing agreement with Morphy Richards, United Kingdom for the sales and marketing of electrical appliances under the brand name of “Morphy Richards” in India .
BAJAJELEC: Technical View
BAJAJELEC has witnessed a stellar rally from the lows of 202 levels clocked in the month of November 2016 to the high of 705 .60 levels seen in the month of April 2018 for a gain of 249% during a span of about 16 months . There after the stock went into correction mode and corrected lower towards 457 .20 levels clocked in the month of June 2018 correcting about 35% from the high of 705 .60 levels, in a span of 6 weeks . In this correction, the stock has found support around its 200 days moving average and bounced from there and is currently finding support above the said moving average validating that average and keeping long-term bullish bias intact . On the price chart, the stock has formed a long-legged doji on the monthly charts indicating buyers present at lower levels . Among other observations, prices are trading above monthly Parabolic SAR indicating a bullish uptrend intact in the counter . Going forward, the stock has support near Rs . 480-470 zone around its weekly 50 moving average and below it at around Rs . 450-460 levels where the previous swing low is placed, while resistances are placed at Rs . 580-590 zone and above it at around Rs . 670-680 zone .
KARVY INVESTMENT STRATEGY 51 Bharat Electronics Ltd Bloomberg Code: BHE IN
India Research - Stock Broking Order Inflow Momentum to Pick up Recommendation (Rs.) Bharat Electronics (BEL) has ~40-45% market share in defence electronics CMP (as on Jun 29, 2018) 109 and has order backlog ~ 4x of ttm revenues by end of FY18 . BEL spends Target Price 141 ~8-9% of its revenue on R&D, 50% of its employees are in R&D and ~87% Upside (%) 30 of revenues come from indigenous R&D . Defence contributes ~85% of Stock Information revenues and some of the product lines are Radars (~20%), Missiles Mkt Cap (Rs.Bn/US$ Bn) 264.7 / 3.9 (~20%), EWS (~15%), Electrotronics & Communication equipments (~10% 52-wk High/Low (Rs.) 193 / 101 each) and other defence products (~10%) . EVMs and VVPAT form a major 3M Avg.daily value (Rs. Mn) 651.9 part of the non-defence revenues for BEL . Beta (x) 1.0 Large inflows expected in H1FY18:Given the pattern of Capital Sensex/Nifty 35423 / 10714 budget spending by armed forces, we expect FY18 spillover orders for O/S Shares(mn) 2436.6 Akash and LRSAM to be booked before H1FY19E . By mid FY20E, we Face Value (Rs.) 1.0 expect Army’s order for Akash to flow into BEL’s order book . We believe Shareholding Pattern (%) annual inflows could reach ~Rs . 120-130 bn in the next two years . Promoters 66.8 Revenue and earnings to expand in FY19E-20E: We expect FIIs 6.4 execution to pick up for BEL in the next two years . However, product mix DIIs 17.9 could be different particularly in the H1FY19E where it is obliged to deliver Others 8.9 large quantities of EVMs and VVPATs to EC which could have an impact Stock Performance (%) on margins . Nevertheless, pressure on margins could ease in the later part 1M 3M 6M 12M of the fiscal year itself . We believe in the next two years, revenue could Absolute (12) (23) (40) (25) grow at a CAGR of ~12% to reach ~Rs . 131 bn by FY20E . We expect Relative to Sensex (13) (29) (43) (35) margins to come back to ~19-20% levels and EPS could grow at a CAGR Source: Bloomberg of 16% in next two years to Rs . 7 .8 . Relative Performance*
Valuation and Risks: BEL is the market leader for defence electronics 129 in India . Over the last six months, BEL has seen significant price correction 106
(~43%) which in our view is overdone since we believe margins may not be 83 reaching single digits . We continue to maintain ‘BUY’ on BEL, however, 60 18 18 18 17 17 17 17 17 17 18 17 18 18 ------assign a lower multiple to accommodate for possible stress to margins in - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May H1FY19E, which could start easing from H2FY19 . We value BEL at 18x BHE Sensex
(5 year 1 yr forward earnings) of FY20E EPS for a target price of Rs . 141 . Source: Bloomberg; *Index 100 Key risk to our call is margin profile of non-defence related orders to be executed in H1FY19 . Please CLICK HERE for previous report Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 73538 86683 104008 117434 130821 EBITDA 13893 17870 20352 21344 26325 EBITDA Margin (%) 18 .9 20 .6 19 .6 18 .2 20 .1 Adj . Net Profit 13368 15234 14310 16361 19108 EPS (Rs .) 5 .5 5 9. 5 .8 6 7. 7 .8 RoE (%) 15 .3 17 .9 18 .2 18 .6 18 .3 PE (x)* 22 .2 26 .3 24 .3 16 .2 13 .9 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
52 KARVY INVESTMENT STRATEGY Company Background Bharat Electronics Ltd (BEL) is a ‘Navratna’ central public sector enterprise established to meet the specialized electronic equipment requirements of the Indian Defence Services . Though it’s the prime focus, the company has a significant presence in the civilian market as well . BEL is the largest production partner of Defence Research and Development Organization (DRDO) . It now produces a wide range of state-of-the-art equipment in fields such as Defence Communication, Radars, Naval Systems, C4I Systems, Weapon Systems, Homeland Security, Telecom & Broadcast Systems, Electronic Warfare, Tank Electronics, Electro Optics, Professional Electronic Components and Solar Photovoltaic Systems . BEL also provides turnkey system solutions . Civilian products from BEL include Electronic Voting Machines, Tablet PC, solar-powered traffic signal systems and Access Control Systems . BEL is also one of the 8 PSUs under the Ministry of Defence . BEL is the lead integrator of Akash, the Indian-made guided surface to air missile system .
BEL: Technical View
Bharat Electronics Limited is a Navratna PSU (under the Ministry of Defence, Government of India) established in the year 1954 . BEL is engaged in the business of Defence Electronics empowering the Nation’s Defence Forces and in other chosen areas of Professional Electronics . Since Nov’17, Bharat Electronics is correcting from the highs at 193 levels and is currently trading close to its support zone at Rs . 100 levels . We expect the stock to witness a round of consolidation in the near term before taking the fresh leg of up move, any medium to long-term investor may start accumulating the stock from current levels and add more on declines towards 94 and 87 levels which is confluence support of the counter as the stock has witnessed consolidation at the mentioned levels and is expected to witness rally in the counter . On the oscillator front, the 14 period RSI is indicating weakness and is placed near the oversold region, indicating a reversal in the counter . On the monthly chart, the stock is still in downtrend making lower highs and lower lows, indicating inherent weakness in the counter from a short-term perspective . In the current scenario, considering all the data mentioned above, one may go long in the counter on any dip towards the mentioned support zone for an immediate upside target towards 143 and 170 levels, breaching which the stock might move towards its all-time highs in the long-term .
KARVY INVESTMENT STRATEGY 53 Gujarat Mineral Development Corp. Ltd Bloomberg Code: GMDC IN
India Research - Stock Broking
GMDC on Strong Earning Trajectory: GMDC has reported 38 .5% Recommendation (Rs.) growth in production of lignite to 10 .60 Mn MTs in FY18 as against CMP (as on Jun 29, 2018) 107 7 .65 Mn MTs in FY17 on the back of strong demand . Revenue from lignite Target Price 170 sales grew by 36 .4% over the same period . The gross realization for FY18 Upside (%) 59 stood at Rs . 1645/MT against Rs . 1671/MT in FY17 . Going forward, three Stock Information lignite blocks with an estimated reserve of 34 Mn MTs will further boost the Mkt Cap (Rs.Bn/US$ Bn) 33.9 / 0.5 lignite production and for that matter revenue of GMDC . The company sells 52-wk High/Low (Rs.) 181 / 102 40% of total lignite production to the government bodies while remaining 3M Avg.daily value (Rs. Mn) 26.9 60% is sold out in the open market . Beta (x) 1.2 Sensex/Nifty 35423 / 10714 Likely Traction in Power Business: The company has experienced O/S Shares(mn) 318.0 a moderation in Power revenue by 8 .8% in FY18 over FY17 . However, Face Value (Rs.) 2.0 we expect traction in Power business as the Ministry of Power has set Shareholding Pattern (%) a target of adding 93000 MW capacity in 13th Five-year Plan (2017-22) . Promoters 74.0 Thus, power capacity expansion by the government and private players FIIs 4.4 will lead to an increased demand for lignite . Further, the company has DIIs 11.0 power purchase agreement with Gujarat Urja Vikas Nigam Limited and Others 10.7 hence realization is highly likely . Stock Performance (%) Superior Operating Performance: GMDC for FY18 registered 1M 3M 6M 12M significant jump of 30 .8% in its top-line on YoY basis . EBITDA margin Absolute (10) (13) (36) (27) improved by 498 bps on YoY basis . However, a sharp decline in other Relative to Sensex (11) (19) (39) (36) Source: Bloomberg income and share of loss of associates dented PAT and EPS . Excluding other income, PAT and EPS grew by 133 .2% in FY18 over FY17 . Relative Performance* Valuation and Risks: We believe lignite demand will continue to surge 129 113 on the back of increased industrial & manufacturing activities and power 97 capacity expansion by the government . Sound financial position of the 81 65 18 18 18 17 17 17 17 17 17 18 18 company adds value to stock . We value the stock on 1 yr forward P/E 8 .8x 17 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec of FY20E EPS which is a discount of 5 year average of 10 .4 and give the May TP of Rs . 170 with a potential upside of 59% . However, the key downside GMDC Sensex Source: Bloomberg; *Index 100 risk is coal price becoming cheaper in domestic and international markets . Please CLICK HERE for previous report
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 12153 15824 20700 23530 26222 EBITDA 2888 4174 6491 6547 7502 EBITDA Margin (%) 23 .8 26 .4 31 .4 27 .8 28 .6 Adj . Net Profit 2190 3241 3531 5386 6116 EPS (Rs .) 6 9. 10 .2 11 .1 16 .9 19 .2 RoE (%) 6 .0 8 4. 8 .4 11 .8 12 .2 PE (x)* 9 .2 12 .0 11 .1 6 3. 5 .5 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
54 KARVY INVESTMENT STRATEGY Company Background Gujarat Mineral Development Corporation (GMDC) was incorporated in 1963 and is engaged in the business of mining and power . The company started its operations with small and crushing facilities which are majorly used by sodium silicate and glass manufacturers . Then, it entered into beneficiation of fluorspar with applications in industries like steel, aluminum, hydrochloric acid, foundry flux and welding electrodes . In 1970, the company commissioned mining of lignite which is a cheaper substitute to coal to supply it to textiles industries . Since then, GMDC has emerged as one of the largest merchant sellers of lignite in the country . The company has 6 lignite mines and 1 bauxite mine . Its power business vertical consists of Thermal (250MW), Wind (200 .9 MW) and Solar (5 MW) plants .
The company first implemented ISO-9001 at corporate office in 2010 and aims at obtaining it for all the mines in operations with Occupational Health and Safety Systems (OHS – 18000) along with Environment Management Systems (ISO – 14000) .
GMDCLTD: Technical View
Gujarat Mineral Development Corporation Limited is a major minerals and lignite mining company of India . It is a state owned company . GMDC was founded in 1963 . Its corporate headquarters is at Ahmedabad . Its product range includes essential energy minerals like lignite, base metals and industrial minerals like bauxite and fluorspar . Since Oct’17, GMDC is correcting from the highs at 180 .9 levels and is currently trading close to its support zone at Rs . 101 levels . This is the 61 .8% Fibonacci retracement level of its previous rally starting from 52 .30 levels to 180 .9 levels . The stock is consolidating within a symmetric triangle chart pattern on weekly line charts suggesting that the stock is going through an accumulation phase and medium to long term investor may start accumulating the stock from current levels and add more on declines towards 91 levels where lower band of Bollinger bands of monthly chart is in making . On the oscillator front, the 14 period RSI is indicating weakness and is placed near the oversold region, indicating a reversal in the counter . Stock is having immediate resistance in 121-128 zone above which the next resistance is around 147-150 levels On the monthly chart, the stock is still in downtrend making lower highs and lower lows, indicating inherent weakness in the counter from short term perspective . In the current scenario, considering all the data mentioned above, one may go long in the counter on any dip towards the mentioned support zone for an immediate upside targets towards the said resistance zones, breaching which the stock might move towards its all-time highs in the long-term perspective .
KARVY INVESTMENT STRATEGY 55 Jain Irrigation Systems Ltd Bloomberg Code: JI IN
India Research - Stock Broking Government’s Thrust on Irrigation and Infrastruc- Recommendation (Rs.) ture Strengthening Demand for MIS and Pipes CMP (as on Jun 29, 2018) 77 Jain Irrigation Systems Limited registered 17 .4% growth in top-line and Target Price 128 25 .6% growth in bottom-line over FY17 on YoY basis on the back of Upside (%) 67 Stock Information robust off-take in demand for MIS and Pipes . Higher off-take in domestic and export markets contributed to smart growth in Hi-tech Agri Input Mkt Cap (Rs.Bn/US$ Bn) 39.1 / 0.6 Division sales . Plastic Division sales got good support from robust off-take 52-wk High/Low (Rs.) 150 / 74 in project business . However, Food processing business recorded muted 3M Avg.daily value (Rs. Mn) 546.5 growth despite strong domestic demand as exports were less because of Beta (x) 1.5 lower sales in Middle-East markets . Sensex/Nifty 35423 / 10714 Strong Segmental Performances: Revenue of Hi-tech Agri Input O/S Shares(mn) 496.4 Product grew by 28 .3%, Plastic Division grew by 12 .2% whereas Agro Face Value (Rs.) 2.0 Processing Division grew by 0 .5% . Going forward, government’s thrust on Shareholding Pattern (%) irrigation and strong order book in hand is likely to further drive the growth Promoters 28.5 momentum in all business segments . FIIs 33.5 Strong Global Order Book: The company’s global order book is at Rs . DIIs 7.0 40890 Mn which includes orders of Rs . 18076 Mn for Hi-tech Agri Input Others 31.0 Products Divisions, Rs . 12082 Mn for Plastic Division, Rs . 9640 Mn for Stock Performance (%) Agro Processing division and Rs . 1092 Mn for Other Division . 1M 3M 6M 12M US and Belgium based Units to Enhance Market Base: Absolute (28) (28) (39) (25) Acquisitions of 100% stake in Innovafood N . V . Belgium and US based Relative to Sensex (29) (33) (41) (35) Source: Bloomberg AVI (Agri-Valley Irrigation Inc) and IDC (Irrigation Design and Construction Inc) units will provide greater market access to company’s products and Relative Performance* thereby higher sales . 145 130 Valuation and Risks: Given the backdrop of brighter business 115 prospects in all three business segments and a strong order book of 100 Rs . 40890 Mn, we continue to maintain positive outlook on the stock . We 85 18 18 18 17 17 17 17 17 17 18 17 18 18 ------have valued the stock at 1 yr forward P/E 12x of FY20E EPS (as against - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May BSECD industry PE of 35), with revised TP of Rs . 128 accounting for 67% JI Sensex potential upside for next 9-12 months . We assign “BUY” rating on the Source: Bloomberg; *Index 100 stock . However, the key risks to the business are high crude oil price and Please CLICK HERE for previous report depreciating INR . Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 63222 67698 79468 90427 102540 EBITDA 8183 9402 10554 13233 15979 EBITDA Margin (%) 12 .9 13 .9 13 .3 14 .6 15 .6 Adj . Net Profit 487 1762 2213 3794 5519 EPS (Rs .) 1 1. 3 .3 4 3. 7 .4 10 .7 RoE (%) 1 .3 4 3. 5 .2 8 4. 11 .2 PE (x)* 57 .7 28 .5 25 .1 10 .4 7 .2 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
56 KARVY INVESTMENT STRATEGY Company Background Jain Irrigation Systems Ltd (JISL) incorporated in the year 1986, is an Indian multinational company engaged in the business of Hi-tech Agri Input Products (Drip & Spinkler irrigation), Plastic Piping & Products (PE/PVC pipes and PVC sheets), Agro Processing (De-hydrated onions/vegetables and processed foods) and Other Business divisions (Solar thermal products, solar photovoltaic grid and off-grid products, Bio-gas and Solar Power generation) . The micro irrigation system (MIS) is a flagship product of the company wherein company offers end-to-end water solution projects . The company has ushered in large scale Integrated Irrigation Projects (IIP) . The company does not merely sell MIS but also provides Agronomic Extension support, after sales services and all technical supports for getting better crop returns . It is one-stop-shop for total agricultural needs . The company has manufacturing plants in 30 locations and more than 11000 associates worldwide . The company holds 40% market share in domestic MIS industry and around 20% market share in domestic PVC piping .
JISLJALEQS: Technical View
Jain Irrigation Systems is a multinational organization based in Jalgaon, India . JISL employs over 10, 000 employees and has 32 manufacturing plants . It develops, manufactures, supports and sells diversified products, including drip and sprinkler irrigation systems and its components, integrated irrigation automation systems, PVC and PE piping systems, plastic sheets, greenhouses, bio-fertilizers, solar power, solar water-heating systems, solar water pumps, turnkey biogas plants and photovoltaic systems . JISL also processes dehydrated vegetables, concentrated and frozen fruits or pulp . Since January, JISLJAEQS is correcting from the highs at 150 .4 levels and is currently trading close to its support zone at Rs . 69-74 levels . Rs . 69 is the 78 .4% Fibonacci retracement level of its previous rally starting from 46 .80 levels to 150 .4 levels . On the oscillator front, the 14 period RSI is trading at 28 .8 indicating weakness and is placed near the oversold region, indicating a reversal in the counter . Stock is having immediate resistance in 121-128 zone above which the next resistance is around 147-150 levels On the monthly chart, the stock seems to be forming a primary reversal candle on monthly chart indicating a possible reversal from these levels . In the current scenario, considering all the data mentioned above, one may go long in the counter on any dip towards the mentioned support zone for an immediate upside target towards the said resistance zones, breaching which the stock might move towards its all-time highs in the long-term perspective .
KARVY INVESTMENT STRATEGY 57 LT Foods Ltd Bloomberg Code: LTFO IN
India Research - Stock Broking Branded Business Driving Domestic and Export Sales Recommendation (Rs.) The company on a consolidated basis has registered mixed performance, CMP (as on Jun 29, 2018) 60 wherein revenue for full year FY18 has grown by 11 .4%, primarily driven by Target Price 81 branded sales whose contribution in total sales has increased to 69% from Upside (%) 35 64% in FY17 . The company’s branded business has increased by 18%, Stock Information wherein domestic & international business grew by 13% & 23% respectively Mkt Cap (Rs.Bn/US$ Bn) 19.2 / 0.3 YoY . The average realization for domestic branded sales increased to Rs . 52-wk High/Low (Rs.) 110 / 55 51/kg, an increase of 18%, while average realization for international branded 3M Avg.daily value (Rs. Mn) 81.6 sales increased to Rs . 96/kg, higher by 5% on YoY basis . However, EBITDA Beta (x) 1.1 margin contracted by 58 bps as a result of the rise in the cost of materials Sensex/Nifty 35423 / 10714 consumed and other expenses including Fx-fluctuation loss . PAT during O/S Shares(mn) 319.8 the period increased by 11 7%. led by lower interest cost and depreciation, resulting in EPS recording growth of 9 .1% on YoY basis . Face Value (Rs.) 1.0 Shareholding Pattern (%) The company is likely to grow at CAGR Brighter Business Prospect: Promoters 56.0 of 11% during FY18-20E on the back of consistent brand investment FIIs 3.8 and strengthening footprints in all the channels including general trade, DIIs 13.9 modern trade and online business . European business is also likely to turn Others 26.3 profitable from FY20E . We believe that adverse impact of GST on HoReCa Stock Performance (%) (Hotel, Restaurant and Café) business not to last in medium to long run . 1M 3M 6M 12M Further, consolidation in industry will help increase market share for the well organized companies like LT Foods Limited . Absolute (22) (29) (34) (11) Relative to Sensex (23) (34) (37) (23) Valuation and Risks: We believe that the company will continue to Source: Bloomberg leverage on brand strength, distribution network and infrastructure . This Relative Performance* along with a focus on value-added business will provide big flip to the business . Further, picking up of the organic food business, gathering pace 160 140 of business in Middle-East and Africa, contributions from the US facility 120 and Rotterdam plant to provide impetus to sales . We are also encouraged 100 to see that company has improved upon its net debt-to-equity ratio from 80 18 18 18 17 17 17 17 17 17 18 17 18 18 ------2 .3x in FY17 to 1 .3x in FY18 . We value the stock at three years average of - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May 1 yr forward PE 11x of FY20E EPS which gives the TP of Rs . 81 with 35% LTFO Sensex upside . The company’s closest peer 1yr forward PE is at 20x of FY20E Source: Bloomberg; *Index 100 EPS . The key downside risk continues to be competition from private label sales and foreign exchange fluctuations . Please CLICK HERE for previous report Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 29734 32448 36137 40112 44524 EBITDA 3566 3582 3780 4532 5045 EBITDA Margin (%) 12 .0 11 .0 10 .5 11 .3 11 .3 Adj . Net Profit 725 1293 1444 1987 2362 EPS (Rs .) 2 7. 4 .8 4 5. 6 .2 7 .4 RoE (%) 14 .5 21 .5 15 .7 15 .6 15 .9 PE (x)* 8 .3 13 .6 20 .7 9 7. 8 .1 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
58 KARVY INVESTMENT STRATEGY Company Background Incorporated in Oct . 1990 as a private limited company and got converted into public limited in May 1994 . LT Foods Limited is one of the leading processors and exporters of packaged basmati and non-basmati rice . The company enjoys market share of 14% in the branded basmati segment, with flagship brand of Daawat which is the 2nd largest basmati rice brand in India whereas Royal is no .1 basmati rice brand in USA with more than 45% market share . Organic brand Ecolife is witnessing faster acceptance across the world . The company has five manufacturing facilities with combined rice milling capacity of 82 Tons Per Hour (TPH) . The company has been known for being quality based procurer, state-of-the-art milling plants, product quality, brands and customer focused . The company has strong distribution network in major cities and has tied up with all major retailers . It adheres to global best practice for safety, hygiene, quality and exports to more than 65 countries across the globe .
DAAWAT: Technical View
LT FOODS has been in a secular decline for the past few weeks now and it has approached crucial support levels around Rs . 55- Rs . 58 . The stock is currently witnessing a little bit of demand around current levels and if this trend continues for a few days, then a possibility of the stock moving higher towards the Rs . 75- Rs . 80 mark over a time period of 8-12 months is higher . The overall chart structure indicates that it has witnessed a reasonable correction from higher levels which gives traders and investors an excellent opportunity to accumulate the stock at a lower price . The volumes during the decline too were not very significant and this gives us the comfort in recommending a long trade in the stock for the above mentioned time horizon . The RSI (29 .80) on weekly charts has just entered the oversold area around 30 and if the stock manages to hold onto current levels and then moves out after consolidating for a bit, then a steep rally towards the mentioned targets cannot be ruled out . Hence, we recommend smart investors to go long around current levels, average the stock on declines towards Rs . 50 for the above mentioned target levels of Rs . 75-80 in the stipulated time frame .
KARVY INVESTMENT STRATEGY 59 Menon Bearings Ltd Bloomberg Code: MEN IN
India Research - Stock Broking Expansion Plans to Complement Higher Demand Recommendation (Rs.) Healthy growth & improved margins: Menon enjoys a marquee CMP (as on Jun 29, 2018) 92 list of clientele like Tata, Volvo, Mahindra & Piaggio and is confident of its Target Price 135 manufacturing capabilities . Menon undertakes designing, testing, validation Upside (%) 47 Stock Information & manufacturing of bearings, bushes & thrust washers . On account of client additions coupled with incremental revenue from its expansions Mkt Cap (Rs.Bn/US$ Bn) 5.2 / 0.1 along with the shift in market dynamics in favor of BS VI, we expect the 52-wk High/Low (Rs.) 127 / 70 profitability margins to stabilize by FY20E with EBITDAM reaching 27 .0% 3M Avg.daily value (Rs. Mn) 6.1 levels coupled with PATM reaching 14 .0% levels . Beta (x) 1.4 Sensex/Nifty 35423 / 10714 Strong financials: Net debt/ equity of 0 .1x in FY18, net working capital/ O/S Shares(mn) 56.0 sales at less than 25% and cash per share of Rs . 3 .3 indicate its balance Face Value (Rs.) 1.0 sheet strength to remain debt free while maintaining operational superiority . Shareholding Pattern (%) Historically, Menon Bearings has been recording a healthy profitability & Promoters 70.7 return ratios; we expect the trend to continue in future with RoE reaching FIIs 0.0 24 .0% & RoCE of 29 .0% levels by FY20E . DIIs 1.2 Aluminum die-cast plant: Menon has invested Rs . 400 Mn towards Others 28.1 enhancement of aluminum division and the facility is expected to be ready Stock Performance (%) by FY20E . With enhanced capacities, Menon is de-risking its product mix . 1M 3M 6M 12M Considering its strong clientele like Honeywell, Cummins, John Deere we Absolute (5) (6) (3) 25 have a positive view about increasing revenue from aluminum segment Relative to Sensex (7) (13) (7) 9 from the current levels of ~30% . Source: Bloomberg Relative Performance* Valuation and Risks: At CMP of Rs . 92, Menon Bearings is trading at 17 .6x to FY20E EPS . In view of the capacity enhancements, product mix 170 150 de-risking and healthy profitability margins, we ascribe a multiple of 26 .0x 130 to FY20E EPS (5 year average of one year forward PE) and recommend a 110 “BUY” rating for a target price of Rs . 135 representing an upside of 47% . 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------We believe that on account of high return on capital at 33 .6% over last - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May 3 years, the company has potential to be re-rated . Threat of counterfeit MEN Sensex products which mainly cater to after-market segment (10% of Menon Source: Bloomberg; *Index 100 revenues) along with slowdown in industrial & automotive segments especially tractor & CV sales may pose risk to the call . Please CLICK HERE for previous report Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 1109 1228 1449 1609 1968 EBITDA 286 324 364 425 533 EBITDA Margin (%) 25 .7 26 .4 25 .1 26 .4 27 .1 Adj . Net Profit 149 191 211 246 293 EPS (Rs .) 3 .2 3 4. 3 .8 4 4. 5 .2 RoE (%) 28 .7 29 .8 27 .3 26 .4 25 .7 PE (x)* 15 .5 21 .4 26 .1 21 .0 17 .6 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
60 KARVY INVESTMENT STRATEGY Company Background
Incorporated in 1991 & headquartered at MIDC in Kolhapur, Maharashtra, the company is engaged in manufacturing automobile components like bushes, bearings, thrust washers, aluminum die cast and bimetal strips . These products are customized according to the clients’ requirements in various specifications . Different varieties of bearings supplied by the company include flanged bearings, tri-metal bearings, copper-bronze & aluminum-tin bearings for crankshafts . The products find applications in light & heavy commercial vehicles, passenger vehicles, compressors, combustion engines and electrical appliances such as refrigerators and air conditioners . The company caters to OEMs, replacement market and the export market . Its products are exported to countries across the globe such as USA, UK and Middle East .
MENONBE: Technical View
MENONBE has given stellar returns since it has been listed on the bourses . On the weekly charts, if we see the stock has witnessed some decent correction from the highs placed around 118 levels and has corrected around 22%, so one can accumulate the counter . It has been trading near its support placed around 92 levels and has sustained there for a while from a short term perspective . The stock although breached the above mentioned support but managed to held back during the current week’s closing, from a short term perspective if the stock is able to breach the resistance placed around 97 levels then upside momentum can be seen in the counter from a short to medium term perspective . The overall trend in the counter is making higher high and higher low on the charts which suggest that the stock has some inherent strength in the counter . If we talk about the volumes on the monthly chart one can see that the fall is not accompanied by strong volumes which clearly indicates that the selling is not intensified and investors can take the advantage of this correction to build long position in this counter and add this stock in their portfolio . On the other hand, if we see the stock has given a breakout on the charts from the consolidation zone of 68-92 levels and currently it has retested those levels which can be inferred that the stock has still upside potential left in it, the volume accompanying the breakout on the chart was also above average which suggest that the breakout has some strength in it . The stock from a long term perspective has a strong support placed around 68 levels . The stock is trading above its all the major long-term moving average (100 and 200 DEMA) which suggests that the stock is looking good from a long term perspective .
KARVY INVESTMENT STRATEGY 61 Talbros Automotive Components Ltd Bloomberg Code: TALB IN
India Research - Stock Broking To Benefit from Auto Industry Growth Recommendation (Rs.) Standalone business which comprises gaskets and forging segment is CMP (as on Jun 29, 2018) 272 expected to rise on account of improving share of business with OEMs . In Target Price 361 addition to this, the focus will be to bring in new export orders for gaskets Upside (%) 33 where the company has some orders already lined-up from Cummins- Stock Information global and Zetor Tractors-Czech Republic . Mkt Cap (Rs.Bn/US$ Bn) 3.36 / 0.05 For the forging segment, the company operates at a 70% utilization rate 52-wk High/Low (Rs.) 354 / 175 where there has been a healthy order book build-up of Rs . 1600 Mn 3M Avg.daily value (Rs. Mn) 8.0 coming from both domestic and global OEMs . Out of this chunk, BMW Beta (x) 1.1 order is expected to contribute Rs . 260-270 Mn in FY19E . Sensex/Nifty 35423 / 10714 O/S Shares(mn) 12.3 Joint Venture Performance: Face Value (Rs.) 10.0 Nippon Leakless (60:40 JV): Revenue for FY18 stood at Rs . 480 Mn as Shareholding Pattern (%) compared to Rs . 430 Mn during FY17 posting a 11 .6% YoY growth driven Promoters 56.6 by higher volumes from HMSI (Honda Motors and Scooters India Ltd) and FIIs 0.1 Hero MotoCorp . DIIs 2.0 Magneti Marelli (50:50 JV): Increased share of business in the control Others 41.3 Stock Performance (%) arms division with Maruti Suzuki India Ltd led revenue during FY18 to grow at 25 .6% YoY recording Rs . 540 Mn vs . Rs . 430 Mn in FY17 . Also, Talbros 1M 3M 6M 12M being a single source of supply for successful models like Baleno and Absolute (12) (3) (12) 37 Brezza bodes well for the company . Going forward, we expect revenue Relative to Sensex (13) (9) (15) 19 Source: Bloomberg growth to also come from front axle supplies to Bajaj Quadricycle . Relative Performance* Talbros Marugo Rubber (50:50 JV): FY18 revenue posted Rs . 204 Mn, with an improvement of 32 5%. YoY driven by higher orders from anti- 170 vibration products and hoses where supply of hoses have begun to Maruti, 140 Japan . The management has indicated strong order pipe-line in the hoses 110 80
segment from Maruti Suzuki India Ltd and expects revenue to exceed Rs . 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr Jun Jun Jan Feb 260 Mn in FY19E . Sep Mar Aug Nov Dec May TALB Sensex Valuation and Risks: We value Talbros at P/E of 12 .5x for FY20E EPS Source: Bloomberg; *Index 100 of Rs . 28 .9 based on the 10-year average fwd P/E for a target price of Rs . 361, representing an upside potential of 33% . Please CLICK HERE for previous report
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 **FY18 FY19E FY20E Net Sales 3919 4281 3930 4676 5437 EBITDA 382 479 408 526 611 EBITDA Margin (%) 9 .7 11 .2 10 .4 11 .2 11 .2 Adj . Net Profit 97 196 207 284 357 EPS (Rs .) 7 .9 15 .9 16 .8 23 .0 28 .9 RoE (%) 7 .5 14 .3 12 .9 14 .8 16 .2 PE (x)* 39 .2 19 .5 16 .2 11 .8 9 .4 Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price, ** FY18E adjusted as per IND AS accounting standards
62 KARVY INVESTMENT STRATEGY Company Background
Established in the year 1956, Talbros Automotive Component Ltd (TACL) is a auto component manufacturer which started off with producing gaskets in liaison with Cooper Payen of UK . Along the years, they have ventured into manufacturing Forging, Suspension systems, Heat shields, Anti-vibration products and Hoses . In order to gain expertise in design and development, they have formed technical collaborations and joint ventures with leading international corporations which are: 1) Joint Venture with Nippon Leakless Corporation (NLC), Japan: For varied range of Gaskets . 2) Joint Venture with Magneti Marelli (Fiat Group company), Italy- For chassis components which include- Control arms, Steering Knuckle and other suspension components . 3) Joint Venture with Marugo Rubber Pvt Ltd, Japan - The joint venture began in 2012 to facilitate manufacture of Hoses and anti-vibration products .
TALBROAUTO: Technical View
TALBROAUTO is in a strong secular uptrend which can be evidenced by its stock price movement from the levels of sub 50 to the Jan 2018 highs of around 350, giving whopping up move of more than 600% in a period of around 4 years . Over last three years, the breakout from each consolidation zone is accompanied by huge price and volume breakout, indicating the smart market participants are adding to winning position in their kitty . Over last six months, the stock is trading in a broad range of 250 to 350, and currently trading at its lower end of the said band which also coincides with the support of cluster of major long term moving averages on daily charts . On the weekly charts, the volumes on the up move are very strong when compared with the down move volumes . The recent major price up move in the month of December from sub 200 to 350 is accompanied by strong volumes which are higher in last few years . Going forward, the support for the stock may be assumed at around 200-250 zone and below it at 170-180 levels while resistance may be projected at around 320-350 zone and above it at around 400 levels . Hence, medium to long term investors may utilize this dip or correction to add to their value portfolio and may look for all-time high zone with a provision to review their holding when the stock price moves below 160-170 levels .
KARVY INVESTMENT STRATEGY 63 Tata Sponge Iron Ltd Bloomberg Code: TTSP IN
India Research - Stock Broking Higher Realization Pivotal to Overall Growth Recommendation (Rs.) Higher realization and expectation of the same to remain high, pick up CMP (as on Jun 29, 2018) 955 in manufacturing and push provided to infrastructure would continue to Target Price 1318 drive revenue for Tata Sponge Iron Limited in next couple of years . The Upside (%) 38 management has given positive guidance for next fiscal year and has set Stock Information sponge iron production target of 425000 MT by FY19E . We believe that Mkt Cap (Rs.Bn/US$ Bn) 14.7 / 0.2 top line of the company would grow at CAGR of 4 .9% over FY18-20E . 52-wk High/Low (Rs.) 1249 / 768.3 We also believe that margin for FY19E and FY20E to stay in the range of 3M Avg.daily value (Rs. Mn) 313.2 23-24% amidst increasing volume and cutting down on costs . Beta (x) 1.2 Operational Efficiency to Further Improve Margin: There has Sensex/Nifty 35423 / 10714 been an increase in raw material costs – both iron ore and coke coal . But O/S Shares(mn) 15.4 the cost of iron ore is believed to have settled down at the current level Face Value (Rs.) 10.0 around Rs . 2900/MT following initial problems faced because of Supreme Shareholding Pattern (%) Court’s order of recovery of penalty from miners . Concern is with regard Promoters 54.5 to coal price which has been volatile . The company has started taking FIIs 8.7 part in auction bidding process . Successful bidding will ensure backward DIIs 0.9 integration and greater control over its raw material prices . Others 36.0 Stock Performance (%) Capacity Expansion Plan to Add Sales: In FY18, capacity utilization 1M 3M 6M 12M stood at 107% . In FY19, the company aims at producing 425000 MT of Sponge Iron . The management has given to understand that it would Absolute (14) 4 (3) 21 approach the Ministry for another 35000-40000MT for capacity additions Relative to Sensex (15) (3) (7) 6 Source: Bloomberg to meet rising demand for sponge iron . In the meantime, the company plans to spend more on R&D towards technological innovations . Relative Performance* Valuation and Risks: The company has delivered strong performance 160 and we expect continuance of the same in the next couple of years as 125 well on the back of improved domestic and global manufacturing outlook . We value the stock at 1 Yr forward EV/EBITDA 6 .5x of NSE Metal industry 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------valuation and arrive at upwardly revised target price of Rs . 1318 reflecting - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec May 38% upside . Risks to our rating could be increasing coke coal price, TTSP Sensex logistics cost and delay in approval for capacity addition . Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
Valuation Summary YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E Net Sales 5735 5573 8002 8466 8805 EBITDA 240 616 1827 1986 2124 EBITDA Margin (%) 4 2. 11 .1 22 .8 23 .5 24 .1 Adj . Net Profit 319 588 1409 1561 1689 EPS (Rs .) 20 .7 38 .2 91 .5 101 .4 109 .7 RoE (%) 3 9. 7 .0 15 .2 14 .9 14 .4 PE (x)* 22 .6 18 .3 10 .1 9 4. 8 .7 Source: Company, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
64 KARVY INVESTMENT STRATEGY Company Background
Tata Sponge Iron Ltd with manufacturing facility at Biliepada in Odisha was initially set up as a joint venture between Tata Steel and the Industrial Promotion and Investment Corporation of Orissa (IPICOL) in the name of Ipitata Sponge Iron Limited . In 1991, Tata Steel acquired IPICOL’s stake in the company making it an associate company of Tata Steel . Following acquisition, the name of the company was changed to Tata Sponge Iron Ltd . To cater to the growing demand of sponge iron, the company increased its capacity by adding kiln over the period . Presently, the company has total sponge iron production capacity of 390000 TPA (tons per annum) from three kilns . In May 2017, the company received an approval from the Ministry of Environment for enhancing production capacity by 35,000 MT . The company also has two captive power plants that generate 26 MW of power from the waste heat of exit gases from kilns . Tata Sponge Iron Ltd is the first company to earn CDM (Clean Development Mechanism) certificate . It has also been accredited with ISO 9001 and ISO 14001 certifications .
TATASPONGE: Technical View
TATA SPONGE is in a strong secular uptrend which can be evidenced by its stock price movement from the levels of sub 350 in the month of February 2018 to the April 2018 highs of around 1250, thereby generating a whopping up move of more than 250% in a period of less than 2 years . Over last two years, the breakout from each consolidation zone is accompanied by huge price and decent volume action indicating that the smart market participants are adding to their portfolio . Over last six months, the stock is trading in a broad range of 900 to 1250, and currently trading at its lower end of the said band which also coincides with the support of cluster of major medium term moving averages on weekly charts . The trend indicator, ADX on weekly charts, has cooled off from 50 levels to 30 levels indicating the uptrend is still strong, even its +DI and –DI lines are showing that bulls are having upper hand in the counter . Going forward, the support for the stock may be assumed at around 850-900 zone and below it at around 740-770 levels while resistance may be projected at around 1100-1150 zone and above it at around 1250 levels . Hence, medium to long term investors may utilize this dip or correction to add to their value portfolio and may look for all-time high zone with a provision to review their holding when the stock price moves below 700 levels .
KARVY INVESTMENT STRATEGY 65 66 KARVY INVESTMENT STRATEGY KARVY INVESTMENT STRATEGY 67 Bajaj Auto Ltd Bloomberg Code: BJAUT IN
India Research - Stock Broking
Bajaj Auto is a part of Bajaj Group founded by Jamnalal Bajaj over 9 decades Dividend Information (Rs.) ago. Bajaj Auto is India’s 2nd largest manufacturer of 2W selling over ~3 mn CMP (as on Jun 29, 2018) 2810 vehicles annually and world’s largest 3W manufacturer with market share of ~63%. Bajaj owns strong brands in the 2W segment like CT100, Platina, Dividend/share* 73.7 Discover, V, Avenger, Pulsar, Dominar and international brand ‘KTM’. Bajaj’s Dividend Payout (%)* 40.0 offering covers entire spectrum of biking. Its entry level bikes are pricedat * Bloomberg Estimates ~Rs. 30k while the range goes upto high-performance bikes which are priced Stock Information above Rs. 1.5 lakhs. In the 3W segment, it has ‘Compact’ range covering Mkt Cap (Rs.bn/US$ bn) 813.2 / 11.9 passenger segment and ‘Maxima’ range covering goods carrier segment. 52-wk High/Low (Rs.) 3473 / 2695 In the 3W segment, its offerings cover Petrol, Diesel and CNG variants. The 3M Avg. daily value (Rs.mn) 1224.9 company recently received approval for its quadricycle ‘Qute’ which is based on CNG having engine capacity of ~217cc. The company has 3 major plants Beta (x) 0.9 Waluja (~3.2 mn capacity), Chakan (~1.2 mn), Pantnaga (~1.8 mn). In the last Sensex/Nifty 35423 / 10714 decade, Bajaj Auto revenue grew by 13% CAGR to Rs. 255 bn, profits grew by O/S Shares (mn) 289.3 23% CAGR to Rs. 42 bn and RoE average to ~35% by end of FY18. Face Value (Rs.) 10.0
Exhibit 1: Dividend/Share Shareholding Pattern (%) 80 Promoters 49.3 FIIs 19.8 60 73.7
68.8 DIIs 5.9 60.0 40 55.0 55.0 Others 25.0 50.0 50.0 Stock Performance (%) 20 1M 3M 6M 12M 0 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Absolute 1 2 (16) 0 Source: Bloomberg Relative to Sensex (1) (5) (19) (13) Source: Bloomberg Exhibit 2: Dividend Payout (%) 50 Relative Performance* 125 40 47.8 44.9 46.2 43.2 42.9
41.8 115 30 40.0
20 105
10 95 18 18 18 17 17 17 17 17 17 18 17 18 18 ------
0 Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec FY14 FY15 FY16 FY17 FY18 FY19E FY20E May BJAUT Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 197263 211062 221517 213735 247003 EBITDA 41552 41132 47811 44194 47816 EBITDA Margin (%) 21 .1 19 .5 21 .6 20 .7 19 .4 Net Profit 33803 30256 37840 40795 42190 EPS (Rs .) 116 .8 104 .6 130 .8 141 .0 145 .8 RoE (%) 37 .1 28 .5 32 .3 25 .6 22 .4 PE (x) 17 .8 19 .3 17 .1 19 .9 18 .8
Source: Bloomberg 68 KARVY INVESTMENT STRATEGY Bajaj Corp Ltd Bloomberg Code: BJCOR IN
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Bajaj Corp Limited (Bajaj corp), incorporated in the year 2006 is a company Dividend Information (Rs.) engaged in the trading and manufacturing of cosmetics, toiletries and other CMP (as on Jun 29, 2018) 405 personal care products. Bajaj corp has leadership position in hair care segment. Its brand portfolio consists of Almond Drops hair oil, Amla hair oil, Brahmi hair Dividend/share* 13.7 oil, Coco Jasmine hair oil and Nomarks. The company’s principal product is Dividend Payout (%)* 75.2 Almond Drops hair oil, which is the market leader with over 60% market share * Bloomberg Estimates in the Light hair oil market. Almond Drops is the 2nd largest brand in the overall Stock Information hair oil segment. Nomarks is 3rd largest anti-marks brand nationally. Bajaj corp Mkt Cap (Rs.bn/US$ bn) 59.8 / 0.9 is also producing oral care products under the brand name Bajaj Black Tooth 52-wk High/Low (Rs.) 525 / 371 powder. Bajaj corp has hair oil manufacturing facilities in Himachal Pradesh, Uttarakhand, Rajasthan and Guwahati. Now the company is delivering its 3M Avg. daily value (Rs.mn) 23.9 products through 3.92 mn retail outlets serviced by 9341 distributors or Beta (x) 0.6 stockists and more than 15,000 wholesalers. Revenue grew by 11% CAGR to Sensex/Nifty 35423 / 10714 Rs. 8 bn and profits grew by 14% CAGR to Rs. 2 bn in the last five years. The O/S Shares (mn) 147.5 company pays out 84% of profits as dividend and has 67% of its net worth as Face Value (Rs.) 1.0 investments in FY18 while maintaining RoE of 45% in the past five years. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 66.9 13 FIIs 25.1
13.7 DIIs 4.6 10 12.8 12.0 11.5 11.5 11.5 Others 3.4 7 Stock Performance (%)
3 6.5 1M 3M 6M 12M
0 Absolute (13) (14) (15) 9 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Relative to Sensex (14) (20) (19) (5) Source: Bloomberg Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 103 140 82 130 100.6
87.3 120 62 83.9 80.6 77.5 75.2 110
41 66.5 100 21 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------0 - - - Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec FY14 FY15 FY16 FY17 FY18 FY19E FY20E May BJCOR Sensex
Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 6707 8238 7975 7948 8091 EBITDA 1860 2392 2739 2640 2539 EBITDA Margin (%) 27 .7 29 .0 34 .3 33 .2 31 .4 Net Profit 1489 1727 1964 2182 2111 EPS (Rs .) 10 .1 11 .7 13 .3 12 .5 14 .3 RoE (%) 29 .7 34 .3 40 .5 44 .8 42 .8 PE (x) 21 .5 39 .1 29 .0 26 .7 33 .0
Source: Bloomberg KARVY INVESTMENT STRATEGY 69 Cummins India Ltd Bloomberg Code: KKC IN
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Cummins India Ltd, is a 51% subsidiary of Cummins Inc, USA, is into business Dividend Information (Rs.) of manufacturing and marketing diesel engines and value packages serving CMP (as on Jun 29, 2018) 648 the Power Generation, Industrial and Distribution Markets. It has manufacturing capacity of over ~75,000 engines p.a and is capable of manufacturing variants Dividend/share* 18.3 of NTs, V28, K/KV & Q platforms. It also caters to the growing market for Dividend Payout (%)* 62.8 natural gas and dual fuel engines. It has plants in Kothrud, Phaltan and an * Bloomberg Estimates SEZ unit at Phaltan SEZ for exports. Engine business supplies various engine Stock Information (32-3500 HP) products to Auto, Construction, Mining, Compressors, Pumps, Mkt Cap (Rs.bn/US$ bn) 179.5 / 2.6 Marine, Rail, Oil & Gas and Defence customers. Power generation segment 52-wk High/Low (Rs.) 1044 / 633 manufactures Gensets in a wide capacities of 7.5-3000kVA and also provides 3M Avg. daily value (Rs.mn) 360.6 support in energy management, captive power plants and alternators. Components & consumables business segment supplies filtration lubricants, Beta (x) 0.9 emission solutions, turbochargers, etc. Cummins India is the global sourcing Sensex/Nifty 35423 / 10714 hub for LHP engines. The company spends 1.5% of sales on R&D activities O/S Shares (mn) 277.2 and has strong backing from parent Cummins Inc to deliver products compliant Face Value (Rs.) 2.0 to CPCB III and CEV BS6. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 51.0 20 FIIs 14.1 15 DIIs 21.7 18.3 16.4
15.0 Others 13.2
10 14.0 14.0 14.0 13.0 Stock Performance (%) 5 1M 3M 6M 12M
0 Absolute (9) (8) (28) (29) FY14 FY15 FY16 FY17 FY18 FY19E FY20E Relative to Sensex (10) (14) (31) (38) Source: Bloomberg Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 64 119
48 101
32 83 62.8 61.8 61.2 61.1 54.2 53.8 52.8
16 65 18 17 17 17 17 17 18 17 18 18 18 18 17 ------Jul Oct Apr Jun Jan Jun Feb Mar Aug Sep Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E KKC Sensex
Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 39767 44058 47088 50773 50825 EBITDA 6967 7318 7751 8018 7325 EBITDA Margin (%) 17 .5 16 .6 16 .5 15 .8 14 .4 Net Profit 6000 7859 7543 7346 7085 EPS (Rs .) 21 .6 28 .3 27 .2 26 .5 25 .6 RoE (%) 24 .2 27 .3 22 .6 20 .3 18 .3 PE (x) 27 .6 30 .9 30 .9 35 .8 27 .4
Source: Bloomberg 70 KARVY INVESTMENT STRATEGY Divi’s Laboratories Ltd Bloomberg Code: DIVI IN
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Divi’s Laboratories (Divi’s) manufactures generic APIs and nutraceuticals. Dividend Information (Rs.) It also undertakes custom synthesis of APIs, advanced intermediaries and CMP (as on Jun 29, 2018) 1039 specialty ingredients manufacturing for innovator pharma companies in the Dividend/share* 17.6 global markets. It has a portfolio of 120 products across diverse therapeutic Dividend Payout (%)* 35.3 areas. Divi has one manufacturing unit in Hyderabad and three units in Vizag, all of which are approved by US FDA. It has four R&D centres and * Bloomberg Estimates two pilot plants. In previous years, exports contributed to around ~87% of Stock Information Divi’s revenue and top 5 accounts for 43% of revenues and top 5 customers Mkt Cap (Rs.bn/US$ bn) 275.7 / 4.0 account for 41% of revenue. Divi’s has a total of 42 drug master files (DMFs) 52-wk High/Low (Rs.) 1223 / 606 with US-FDA and 61 EDMFs with Europe and other agencies and 21 CEPs 3M Avg. daily value (Rs.mn) 734.5 (Certificate of Suitability) issued by EDQM authorities at the end of FY17. Beta (x) 1.3 Divi’s has filed a total of 34 patents for generic products. Over the last Sensex/Nifty 35423 / 10714 decade, revenues grew at 16% CAGR to Rs. 38 bn, profits grew by 13% O/S Shares (mn) 265.4 CAGR to Rs. 9 bn, returns averaged to ~26% and has one-third of net worth Face Value (Rs.) 2.0 as investments. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 52.1 18 FIIs 18.4 17.6 DIIs 15.8 12 15.5 Others 13.8
6 10.0 10.0 10.0 10.0 10.0 Stock Performance (%) 1M 3M 6M 12M
0 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Absolute (3) (5) (5) 63 Source: Bloomberg Relative to Sensex (4) (11) (9) 42 Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 40 190
30 165 36.6 35.3 34.3
31.2 140 30.3 20
25.1 115 23.6
10 90 18 17 17 17 17 17 18 17 18 18 18 18 17 ------Jul Oct Apr Jun Jan Jun Feb Mar Aug Sep Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E DIVI Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 25253 31149 37690 40533 39128 EBITDA 10157 11669 14194 14472 12617 EBITDA Margin (%) 40 .2 37 .5 37 .7 35 .7 32 .2 Net Profit 7733 8515 11119 10600 8770 EPS (Rs .) 29 .1 32 .1 41 .9 39 .9 33 .0 RoE (%) 28 .3 26 .4 28 .9 22 .0 15 .5 PE (x) 23 .4 55 .7 23 .3 15 .6 33 .0
Source: Bloomberg KARVY INVESTMENT STRATEGY 71 Housing Development Finance Corp Ltd Bloomberg Code: HDFC IN
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Housing Development Finance Corp (HDFC) started in 1977 as a specialized Dividend Information (Rs.) mortgage company has emerged beyond mortgages and has become a CMP (as on Jun 29, 2018) 1908 financial conglomerate with group market capitalization of ~US$ 140 bnby Dividend/share* 24.2 end of FY18. HDFC group has entities operating in the areas of banking, asset management, life insurance, general insurance, housing loans, education Dividend Payout (%)* 17.0 loans, property advisory and financial products distribution. HDFC is India’s * Bloomberg Estimates largest housing finance company with outstanding loan book of ~Rs. 4tn Stock Information distributed to individuals (~73%) and non-individuals (~27%). HDFC’s average Mkt Cap (Rs.bn/US$ bn) 3209.4 / 46.9 loan ticket size is ~Rs. 2.6 mn and ~84% of disbursements occur through its own network viz, HDFC Sales (~51%), HDFC bank (~27%) and Walk-ins 52-wk High/Low (Rs.) 1986 / 1601 (~6%). To lend it has borrowed ~Rs. 3.2 tn comprising of NCDs (57%), 3M Avg. daily value (Rs.mn) 4858.8 Deposits (29%) and Term loans (14%) at an average cost of ~7.5% yielding Beta (x) 1.1 ~9.8% on loans netting a spread of ~2.3% in FY18. By end of this period, its Sensex/Nifty 35423 / 10714 Gross NPA reached to 1.1% and has CAR of 19.2% splitting into 17.3% of Tier O/S Shares (mn) 1675.8 I and 1.9% of Tier II capital. HDFC’s return of equity reached 20.4% and the Face Value (Rs.) 2.0 same on average asset stands at 2.4% by end of FY18. Shareholding Pattern (%) Exhibit 1: Dividend/Share 25 Promoters 0.0 FIIs 74.0 20 24.2
21.9 DIIs 12.6
15 20.0 18.0
17.0 Others 13.4 15.0 10 14.0 Stock Performance (%) 5 1M 3M 6M 12M
0 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Absolute 5 5 12 17 Source: Bloomberg Relative to Sensex 4 (3) 7 2 Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 30 125 27.7 27.2
26.7 115 20 26.0
20.2 105 18.8
10 17.0 95 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E HDFC Sensex
Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Interest Income 74672 84462 94193 106418 147928 Net Profit 79478 87626 101903 110511 162550 EPS (Rs .) 51 .0 55 .9 64 .6 69 .8 100 .4 BVPS (Rs .) 241 286 322 378 516 P/E (x) 17 .3 23 .5 17 .1 21 .5 18 .2 P/BV (x) 3 7. 4 6. 3 4. 4 0. 3 .5 RoE (%) 22 .9 21 .2 21 .2 19 .9 22 .2 RoA (%) 2 9. 2 7. 2 7. 2 5. 3 .1 Source: Bloomberg 72 KARVY INVESTMENT STRATEGY LIC Housing Finance Ltd Bloomberg Code: LICHF IN
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LIC Housing Finance Ltd (LICHF), promoted by LIC of India, is the 2nd largest Dividend Information (Rs.) Housing Finance Company in India. It offers loans to purchase residential flat, CMP (as on Jun 29, 2018) 469 repair and renovation of existing flat / houses, purchase of equipments and Dividend/share* 9.2 corporate loans. Salaried customers account for 83% of portfolio with ticket size of ~Rs. 23 lakhs and ~75% of loans are floating rate loans. Major demand Dividend Payout (%)* 16.6 comes from top 7 cities (~45%) and total outstanding loan portfolio reached * Bloomberg Estimates Rs. 1.7 trillion comprising of Retail Homes Loans (81%), Retail LAP & others Stock Information (14%) and rest as developer loans. LICHF’s borrowings crossed Rs. 1.5 trillion Mkt Cap (Rs.bn/US$ bn) 236.5 / 3.5 which comprises of NDCs (79%), Banks (10%), Deposits (5%), CP(3%) and 52-wk High/Low (Rs.) 763 / 463 others. LICHF weighted average cost of funds stands at 8.31% and its yield on 3M Avg. daily value (Rs.mn) 856.5 advance is at 10.1% leading to NIMs of 2.38% by FY18. Its Gross NPA stands at 0.78% and Net NPA stands at 0.43% by the end of same period. Its return Beta (x) 0.9 on equity reached 17% while the same on average assets reached 1.7% Sensex/Nifty 35423 / 10714 and maintained CAR of 16% splitting into 13.3% as Tier I and 2.7% as Tier O/S Shares (mn) 504.7 II capital. LICHF has strong network across India with 249 marketing offices, Face Value (Rs.) 2.0 12,500 intermediaries and 23 back offices. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 40.3 10 FIIs 32.9 8 9.2 DIIs 8.3 6 7.9 Others 18.5 6.8 6.2
4 5.5 Stock Performance (%) 5.0 4.5 2 1M 3M 6M 12M
0 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Absolute (4) (12) (17) (37)
Source: Bloomberg Relative to Sensex (5) (18) (20) (45) Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 20 124
15 108 18.1 17.2 17.1 17.0 16.6 16.6 16.1 92 10 76
5 60 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E LICHF Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Interest Income 19203 22805 29876 36984 38629 Net Profit 13182 13956 16677 19423 20139 EPS (Rs .) 26 .1 27 .7 33 .1 38 .5 39 .9 BVPS (Rs .) 150 .3 156 .1 182 .6 221 .1 253 .5 P/E (x) 9 .0 15 .8 14 .9 16 .1 13 .4 P/BV (x) 1 6. 2 8. 2 7. 2 8. 2 .1 RoE (%) 18 .7 18 .0 19 .5 19 .1 16 .8 RoA (%) 1 5. 1 3. 1 4. 1 4. 1 .2 Source: Bloomberg KARVY INVESTMENT STRATEGY 73 Oil India Ltd Bloomberg Code: OINL IN
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Oil India Ltd (OIL) is a state-owned vertically integrated Crude Oil & Natural Dividend Information (Rs.) Gas (O&G) Navratna company engaged in the business of exploration, CMP (as on Jun 29, 2018) 210 development and production of O&G assets, transportation of crude oil & Dividend/share* 12.2 production of LPG. OIL contributes to about 9% of India’s total domestic O&G Dividend Payout (%)* 39.6 production and has 3 Petroleum Mining License, 22 Petroleum Exploration * Bloomberg Estimates License and Participating Interest in 9 domestic blocks and 5 overseas blocks. This apart, OIL also holds 26% stake in Numaligarh Refinery, stake in two Stock Information Rosneft assets; TYNGD (29.9%) and Vankorneft (23.9%). OIL’s in-house Mkt Cap (Rs.bn/US$ bn) 238.2 / 3.5 infrastructure allows for cost control and the assets include one 2D and two 52-wk High/Low (Rs.) 259 /171 3D seismic crew, 10 logging units, 19 drilling rigs, over 24 work-over rig, 70 3M Avg. daily value (Rs.mn) 262.3 production installations, 5,000 km of O&G pipelines and ~1,50,000 kilo litres of crude storage. OILs’ domestic reserve base (2P) includes 78.85 Million Metric Beta (x) 0.6 Tons (MMT) of oil, 125.3 Balance Recoverable Gas(BCM) of gas reserves Sensex/Nifty 35423 / 10714 and O&OEG 187.71MMTOE with reserve replacement ratio consistently well O/S Shares (mn) 756.6 over 100% offers future cushion. OIL’s present installed capacity under the Face Value (Rs.) 10.0 renewable energy domain stands at 188MW. Shareholding Pattern (%) Exhibit 1: Dividend/Share 15 Promoters 66.1 FIIs 3.8 15.0 10 DIIs 13.6 12.2 12.0 10.8 Others 16.5 9.5 10.0
5 8.0 Stock Performance (%) 1M 3M 6M 12M 0 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Absolute (7) (3) (15) 19 Source: Bloomberg Relative to Sensex (8) (10) (19) 3 Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 60 155 57.6 40 135 47.2 46.1 43.2 41.5 39.6 39.5 115 20 95 18 17 17 17 17 17 18 17 18 18 18 18 17 ------Jul Oct Apr Jun Jan Jun Feb Mar Aug Sep Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E OINL Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 96898 99784 93123 92324 106978 EBITDA 36462 36324 35857 31205 39275 EBITDA Margin (%) 37 .6 36 .4 38 .5 33 .8 36 .7 Net Profit 29420 26084 20039 24028 27346 EPS (Rs .) 24 .5 21 .7 16 .7 20 .0 23 .9 RoE (%) 15 .0 12 .4 8 9. 5 8. 9 .3 PE (x) 9 .7 10 .5 12 .1 16 .8 6 .0
Source: Bloomberg 74 KARVY INVESTMENT STRATEGY PTC India Ltd Bloomberg Code: PTCIN IN
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PTC India is India’s largest power trading company with over ~40% market Dividend Information (Rs.) share in the power trading market. PTC has traded 384 billion units of power CMP (as on Jun 29, 2018) 76 since inception and generated cumulative revenue of US$19.4 bn over the Dividend/share* 5.3 years. PTC’s cross-border trade (7.9bu in FY17) is with countries like Nepal, Dividend Payout (%)* 26.3 Bhutan and Bangladesh and domestic operations (17.9bu in FY17) include * Bloomberg Estimates supply of power to 22 state utilities and 500+ industrial & commercial clients. Stock Information In FY18, PTC traded short term contracts of 30.9bu, medium term contracts of 2.2bu & 23.9bu long term contracts. These are back-to-back buy and sell Mkt Cap (Rs.bn/US$ bn) 22.4 / 0.3 contracts with suppliers and customers. PTC operates two subsidiaries; PTC 52-wk High/Low (Rs.) 130 / 72 Financial Services which funds power projects predominantly for renewable 3M Avg. daily value (Rs.mn) 244.4 energy sector and PTC Energy owns and operates a portfolio of renewable Beta (x) 1.5 energy projects totaling over 290MW. In the last decade, PTC India’s revenue Sensex/Nifty 35423 / 10714 grew by 16% CAGR to Rs. 153 bn, profits grew by 29% CAGR to Rs. 4 bn and O/S Shares (mn) 296.0 maintained average payout at ~25%. Face Value (Rs.) 10.0 Exhibit 1: Dividend/Share Shareholding Pattern (%) 6 Promoters 16.2 FIIs 33.1 4 5.3
4.5 DIIs 28.0 4.0 Others 22.7 2 3.0 2.5
2.2 Stock Performance (%) 2.0
0 1M 3M 6M 12M FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Bloomberg Absolute (11) (13) (36) (20) Relative to Sensex (12) (19) (39) (30) Exhibit 2: Dividend Payout (%) Source: Bloomberg 40 Relative Performance*
135 30 125
33.3 115 30.0 20 105 26.3
23.5 95 21.4 21.2
10 16.4 85 75 18 17 17 17 17 17 18 17 18 18 18 18 17 ------0 - Jul Oct Apr FY14 FY15 FY16 FY17 FY18 FY19E FY20E Jun Jan Jun Feb Mar Aug Sep Nov Dec May PTCIN Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 120991 139012 134474 153106 192365 EBITDA 8262 9977 11493 13899 15196 EBITDA Margin (%) 6 .8 7 2. 8 5. 9 1. 7 .9 Net Profit 3608 2563 4303 4147 3554 EPS (Rs .) 12 .2 8 7. 14 .5 14 .0 12 .0 RoE (%) 13 .0 8 .6 9 7. 11 .2 9 .1 PE (x) 5 .6 9 3. 5 9. 6 7. 7 .3
Source: Bloomberg KARVY INVESTMENT STRATEGY 75 Reliance Nippon Life Asset Management Ltd Bloomberg Code: RNAM IN
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Reliance Nippon Life Asset Management Ltd (RNAM) is promoted by Reliance Dividend Information (Rs.) Capital Ltd (~42.88%) and Nippon Life Insurance Company (~42.88%) and CMP (as on Jun 29, 2018) 229 RNAM is the asset manager of Reliance Mutual Fund. By end of FY18, RNAM manages ~Rs. 3.9 trillion of assets comprising of Mutual Funds (~57%), Dividend/share* 8.4 Pensions (~42%) and Managed & Offshore funds (~1%). RNAM is considered Dividend Payout (%)* 69.8 as the 3rd largest MF AMC in India with AUM of over Rs. 2.4 trillion which is * Bloomberg Estimates ~11% of MF asset management industry. Total AUM of MF segment consist of Stock Information ~59% debt funds, ~36% equity funds and others (ETFs & FoFs) ~5.4%. RNAM Mkt Cap (Rs.bn/US$ bn) 140.3 / 2.0 distributes ~48% of its products through Financial Advisors, ~33% through 52-wk High/Low (Rs.) 335 / 205 banking, 19% through national partners and none of the partner contributes more than 5% of AUM. RNAM is strengthening its presence in B30 towns and 3M Avg. daily value (Rs.mn) 42.8 these B30s contribute ~16% of AUM and SIP flows are ~30% of new flows Beta (x)* 0.9 adding over ~1.1 lakh SIP every month with average ticket size of ~ Rs. 3,800. Sensex/Nifty 35423 / 10714 RNAM’s FY18 management fees stands at Rs. 15.9 bn (~57 bps of AAUM) O/S Shares (mn) 612.0 and profits reached Rs. 5.2 bn (~19 bps of AAUM). RNAM paid out 85% of Face Value (Rs.) 10.0 earnings (including DDT) and maintains RoE above ~25% by FY18. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 85.8 9 FIIs 3.2
8.4 DIIs 7.3 6 7.0 Others 3.7 6.0
5.1 Stock Performance (%) 3 4.1 3.9 1M 3M 6M 2.8
0 Absolute 4 (7) (24) FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Bloomberg Relative to Sensex 2 (14) (27) Source: Bloomberg, *Nov 06, 2017 to till date Exhibit 2: Dividend Payout (%) Relative Performance* 90 120 75 110 84.5 60 100 70.2 69.8 68.7 90 61.3 62.5
45 61.5 80 30 70 18 18 18 18 18 18 17 17 17 17 18 18 18 18 18 18 18 ------15 - - - - - Apr Apr Jan Jan Jan Jun Jun Feb Feb Mar Mar Nov Nov Dec Dec 0 May May FY14 FY15 FY16 FY17 FY18 FY19E FY20E RNAM Sensex Source: Bloomberg Source: Bloomberg; *Index 100 Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 AUM 1932536 2369000 2752000 3506000 3964000 Investment Management Fees 6760 8470 12000 13080 15860 Revenue 7750 9550 13140 14360 18150 Net Profit 2720 3620 3760 4020 5220 EPS (Rs .) 4 .5 6 1. 6 3. 6 7. 8 .7 P/E* 62 47 45 42 28 Market Cap/AUM (%)* 8 8. 7 2. 6 2. 4 8. 3 .7
Source: Bloomberg, * for FY14-16 1st closing price post listing was used 76 KARVY INVESTMENT STRATEGY Tata Consultancy Services Ltd Bloomberg Code: TCS IN
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Tata Consultancy Services (TCS) is an integrated Information Technology, Dividend Information (Rs.) Consulting and Business Solutions provider offering a wide range of services CMP (as on Jun 29, 2018) 1848 like Application Development & Maintenance, Enterprise Solutions, Assurance services, Engineering & Industrial services, Infrastructure services, Global Dividend/share* 35.4 Consulting, Asset Leveraged Solutions and Business Process Outsourcing Dividend Payout (%)* 42.0 (BPO) services. TCS has a total employee base of 394,998 working from * Bloomberg Estimates 190 offices spread across 46 countries. Its annual turnover crossed US$ 19 Stock Information bn in FY19 of which 54% comes from Americas, 28% from Europe, 6% from Mkt Cap (Rs.bn/US$ bn) 7074.2 / 103.3 India, rest from other countries. TCS’s digital revenues crossed ~$4 bn in FY18 52-wk High/Low (Rs.) 1900 / 1162 which is ~20% of overall revenues. In terms of large clients, it has 207 clients in the $20mn+ bracket, 97 clients in the $ 50 mn+ bracket and 38 clients in the $ 3M Avg. daily value (Rs.mn) 7423.7 100mn+ bracket. It has generated ~$ 4 bn FCF in FY18 and has maintained a Beta (x) 0.8 dividend payout of ~38%. In the last 4 years its shareholder payout (Dividend Sensex/Nifty 35423 / 10714 + Buy-back) crossed $ 11.6 bn which is ~73% of the total FCF generated by O/S Shares (mn) 3828.5 the company. TCS’s investments on books account for ~42% of net worth and Face Value (Rs.) 1.0 the decadal RoE averages to ~36% ending FY18. Shareholding Pattern (%) Exhibit 1: Dividend/Share Promoters 71.9 40 FIIs 17.0
30 DIIs 6.7 35.4 34.2 Others 4.5 20 25.0 23.5 Stock Performance (%) 21.8 10 19.5 16.0 1M 3M 6M 12M
0 Absolute 5 30 37 58 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Bloomberg Relative to Sensex 3 21 32 38 Source: Bloomberg Exhibit 2: Dividend Payout (%) Relative Performance* 50 159 40
44.5 136 30 42.0 37.3 36.0 35.8 35.8 33.0 113 20
10 90 18 18 18 17 17 17 17 17 17 18 17 18 18 ------Jul Oct Apr Jun Jan Jun Feb Sep Mar Aug Nov Dec 0 May FY14 FY15 FY16 FY17 FY18 FY19E FY20E TCS Sensex Source: Bloomberg Source: Bloomberg; *Index 100
Exhibit 3: Key Financials YE Mar - (Rs. Mn) FY14 FY15 FY16 FY17 FY18 Net Sales 818094 946484 1086460 1179660 1231040 EBITDA 251322 246664 306770 323110 325160 EBITDA Margin (%) 30 .7 26 .1 28 .2 27 .4 26 .4 Net Profit 191639 216961 242918 261170 256820 EPS (Rs .) 48 .8 55 .4 61 .6 66 .7 67 .1 RoE (%) 40 .7 34 .8 37 .8 33 .0 29 .4 PE (x) 21 .9 25 .5 20 .5 18 .2 21 .2 Source: Bloomberg KARVY INVESTMENT STRATEGY 77 Wealth Maximizer - Largecap (WM) is an investment product of Karvy Stock Broking Ltd formulated by our Equity Fundamental & Technical Research, based on Techno-Funda Analysis. It enlists 10 stocks from the Karvy Large-cap stock universe. The objective of ‘Wealth Maximizer’ is to deliver superior returns over an extended time frame. The investment philosophy works on simple but superior fundamental research. The 10 large cap companies in this product in our opinion reflects superior businesses with consistent future cash flows, run competently and have potential for growth. We also track short-term price distortions that create long-term value, driven by sound economic fundamentals of the company. This reflects stocks that have margin of safety will converge to their intrinsic value over a period of time and will reflect superior returns. This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and deliver consistent out-performance. The stocks’ performance will be assessed on an ongoing basis and the composition of the stocks in the product will be altered based on target achievement, changes in the fundamentals of the stocks, industry position, market performance and broad macro-economic factors. The product is being given to the clients in the form of non-binding investment recommendations so that they can decide to capitalize on the robust fundamentals and future plans of the company which are being discussed in the report.
Value Invest - Midcap (VI) is an investment product of Karvy Stock Broking Ltd formulated by our Equity Fundamental & Technical Research, based on Techno-Funda Analysis. It enlists 10 stocks from the Karvy Mid-cap stock universe. The objective of ‘Value Invest - Midcap’ is to deliver superior returns over an extended time frame. The investment philosophy works on simple but superior fundamental and technical research. The 10 midcap companies in this product in our opinion reflects superior businesses with consistent future cash flows, run competently and have potential for exponential stock price growth. We also track short-term price distortions that create long-term value, driven by sound economic fundamentals of the company. This reflects stocks that have margin of safety will converge to their intrinsic value over a period of time and will reflect superior returns. This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and deliver consistent out-performance. The stocks performance will be assessed on an ongoing basis and the composition of the stocks in the product will be altered based on target achievement, changes in the fundamentals of the stocks, industry position, market performance and broad macro-economic factors. The product is being given to the clients in the form of non-binding investment recommendations so that they can decide to capitalize on the robust fundamentals and future plans of the company which is being discussed in the report.
78 KARVY INVESTMENT STRATEGY Disclaimer yy Analyst certification: The following analyst(s), Vivek Ranjan Misra who is (are) primarily responsible for this report and whose name(s) is/are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report . yy Disclaimer: Karvy Stock Broking Limited [KSBL] is registered as a research analyst with SEBI (Registration No INZ000172733) . KSBL is also a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products . 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80 KARVY INVESTMENT STRATEGY