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February 2017 For Private Circulation only Guide www.sharekhan.com

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CONTENTS

From Sharekhan’s Desk EQUITY The first of the major FUNDAMENTALS domestic macro- Stock Update 20 REGULAR FEATURES economic events Viewpoints 30 Report Card 4 - the Union Budget Sharekhan Special 32 Earnings Guide I - is behind us. It TECHNICALS DERIVATIVES neither disappointed Nifty 33 View 34 nor delighted the markets. The finance ADVISORY DISK DERIVATIVES minister has stuck to basics with focus on increasing MID Trades 41 Derivatives Ideas 41 capital expenditure allocation while maintaining fiscal prudence. CURRENCY 06 RESEARCH BASED EQUITY PRODUCTS FUNDAMENTALS USD-INR 35 GBP-INR 35 Top Picks Basket 07 EUR-INR 35 JPY-INR 35 Union Budget 11 Wealth Creator Portfolio 19 TECHNICALS USD-INR 36 GBP-INR 36 PMS DESK EUR-INR 36 JPY-INR 36 WealthOptimizer PMS 37 ProPrime - Diversified Equity 38 MUTUAL FIND DESK ProTech - Index Futures Fund 39 Top MF Picks (equity) 42 ProTech - Trailing Stops 40 Top SIP Fund Picks 43

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The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would en- deavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. 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Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; For any queries or grievances kindly email [email protected] or contact: [email protected] tes of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he nor his relatives has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. FebruaryEither SHAREKHAN 2017or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make 3market, act as principal or engage in transactions of purchase or sell of securities, from timeSharekhan to time or may be materially ValueGuide interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; For any queries or grievances kindly email [email protected] or contact: [email protected] REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON FEBRUARY 03, 2017) PRICE AS 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX CURRENT PRICE COMPANY ON RECO TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M 03-FEB-17 Automobiles Apollo Tyres Hold 183.3 200.0 235.0 133.5 -2.1 -7.2 17.5 34.0 -7.7 -9.9 14.8 13.2 Ashok Leyland Buy 94.5 105.0 112.9 73.5 16.6 3.5 10.5 9.9 10.0 0.5 8.0 -7.1 Bajaj Auto Hold 2808.1 3000.0 3122.0 2172.0 7.2 -0.8 3.4 22.5 1.1 -3.6 1.1 3.5 Gabriel India Buy 112.1 130.0 130.0 75.0 2.6 -7.5 8.1 29.1 -3.3 -10.2 5.6 9.1 Hero MotoCorp Buy 3214.0 3670.0 3740.0 2438.0 7.6 -4.9 0.4 32.4 1.5 -7.6 -1.9 11.9 M&M Buy 1260.7 1450.0 1509.0 1091.3 3.1 -7.4 -12.8 5.7 -2.7 -10.1 -14.8 -10.7 Maruti Suzuki E Buy 6115.5 6430.0 6218.4 3193.3 11.0 5.3 26.3 60.8 4.7 2.3 23.5 35.9 Rico Auto Industries Buy 58.9 75.0 75.4 27.7 2.3 -18.6 18.2 55.0 -3.5 -21.0 15.5 31.0 TVS Motor Buy 391.5 455.0 420.0 256.0 3.7 -0.3 31.6 37.7 -2.2 -3.2 28.6 16.4 BSE Auto Index 22147.2 23209.9 15385.1 7.4 0.7 7.1 35.6 1.3 -2.2 4.6 14.6 Banks & Finance Allahabad Bank Hold 74.2 80 88.4 39.4 19.0 0.6 -1.7 48.7 12.2 -2.3 -3.9 25.7 Axis (UTI) Bank Hold 490.7 560 638.3 373.3 7.8 3.1 -10.7 30.1 1.7 0.1 -12.7 10.0 Bajaj Finance Hold 1047.4 1190 1183.9 560.9 18.5 1.6 4.7 64.8 11.7 -1.3 2.3 39.2 Bajaj Finserv Buy 3420.0 3950 3510.0 1551.3 13.4 2.2 29.3 82.2 6.9 -0.8 26.3 54.0 Bank of Baroda Buy 186.5 200 187.3 109.4 25.5 27.2 25.3 54.7 18.3 23.5 22.4 30.7 Bank of India Hold 133.0 140 134.0 78.4 22.7 22.3 22.2 43.0 15.7 18.7 19.4 20.8 Capital First Hold 686.5 760 797.4 346.2 16.7 -0.6 0.5 80.7 10.0 -3.5 -1.8 52.7 Corp Bank Reduce 50.0 30 51.0 30.8 18.9 22.4 23.0 33.0 12.2 18.9 20.2 12.4 Federal Bank Buy 84.6 95 86.3 41.4 27.8 10.0 36.6 85.6 20.5 6.8 33.5 56.8 HDFC Buy 1397.5 1550 1464.0 1011.5 15.1 -0.3 5.4 21.9 8.6 -3.2 3.0 3.0 HDFC Bank E Buy 1311.1 1500 1318.5 928.0 10.2 4.5 5.7 26.6 3.9 1.4 3.3 7.0 ICICI Bank Hold 281.6 290 298.4 180.8 10.7 4.4 16.3 40.9 4.4 1.3 13.7 19.0 LIC Housing Finance Buy 559.0 700 624.3 388.7 5.2 1.6 12.9 27.6 -0.8 -1.4 10.3 7.8 PTC India Financial Services Buy 42.1 55 44.8 29.7 9.2 5.4 11.0 23.8 3.0 2.3 8.5 4.7 Punjab National Bank Hold 150.2 168 164.4 69.3 27.2 12.8 23.5 68.2 20.0 9.5 20.7 42.2 SBI Buy 277.6 320 288.8 148.3 13.3 13.0 22.5 69.4 6.9 9.7 19.7 43.1 Union Bank of India Hold 167.3 ** 169.1 104.0 32.5 22.1 31.3 38.1 25.0 18.5 28.3 16.7 Yes Bank Buy 1397.8 1520 1450.0 663.4 20.2 15.6 13.1 81.5 13.4 12.3 10.6 53.4 BSE Bank Index 23138.0 23694.7 15224.3 12.2 5.6 8.9 39.2 5.8 2.5 6.4 17.6 Consumer goods Britannia Buy 3230.9 3950 3584.3 2505.1 12.5 -2.1 14.1 15.0 6.1 -5.0 11.6 -2.8 Emami Buy 1174.6 1300 1260.8 901.0 14.0 -5.8 2.0 14.5 7.5 -8.6 -0.3 -3.3 GSK Consumers Hold 5069.9 6400 6600.0 4650.0 -0.2 -14.1 -18.3 -9.9 -5.9 -16.6 -20.1 -23.9 Godrej Consumer Products Buy 1581.6 1750 1715.0 1137.6 3.2 3.1 1.1 28.6 -2.7 0.1 -1.2 8.7 Hindustan Unilever Buy 849.8 950 954.0 782.0 2.4 1.2 -6.2 5.4 -3.4 -1.7 -8.4 -10.9 ITC Buy 273.1 295 279.9 177.7 12.2 13.6 8.1 30.3 5.8 10.3 5.6 10.1 Jyothy Laboratories Buy 349.1 390 381.0 252.1 3.9 -1.6 21.3 26.3 -2.1 -4.5 18.5 6.7 Marico Buy 255.3 290 306.9 215.6 -1.0 -3.3 -13.8 17.4 -6.6 -6.1 -15.7 -0.8 Zydus Wellness Buy 865.6 960 930.0 632.0 -0.3 1.2 9.6 17.2 -6.0 -1.8 7.1 -0.9 BSE FMCG Index 8864.3 9043.8 6782.2 8.2 5.7 2.8 20.6 2.1 2.7 0.5 1.9 IT / IT services Firstsource Solution Hold 39.4 43 53.7 28.7 3.1 2.2 -16.5 16.6 -2.7 -0.8 -18.3 -1.5 HCL Technologies Buy 830.8 965 877.0 706.4 0.2 9.7 2.8 0.5 -5.5 6.5 0.5 -15.1 Infosys Buy 936.1 1150 1279.3 900.3 -5.8 -3.2 -12.8 -17.3 -11.2 -6.0 -14.8 -30.1 Persistent Systems Buy 598.3 790 798.0 501.1 -3.7 -7.6 -10.8 -7.7 -9.2 -10.2 -12.8 -22.0 Tata Consultancy Services Hold 2232.6 2450.0 2744.8 2051.9 -5.5 -3.5 -15.5 -5.9 -10.8 -6.3 -17.4 -20.5 Wipro Hold 457.8 550.0 607.0 408.1 -1.6 2.7 -16.1 -17.4 -7.2 -0.3 -18.0 -30.2 BSE IT Index 9698.6 11775.5 9123.1 -4.0 -0.1 -10.9 -10.7 -9.5 -3.0 -12.9 -24.5 Capital goods / Power Bharat Heavy Electricals Hold 142.7 155.0 162.9 90.2 14.3 3.7 7.3 11.6 7.8 0.7 4.9 -5.7 CESC Buy 772.2 ** 777.6 404.6 19.9 30.1 28.8 79.6 13.1 26.3 25.9 51.7 Crompton Greaves Hold 68.0 70.0 88.9 39.2 11.9 -11.8 -9.4 50.1 5.5 -14.3 -11.5 26.9 Finolex Cable Buy 448.5 550.0 464.0 212.4 8.9 2.4 17.7 98.0 2.7 -0.6 15.1 67.3 Greaves Cotton Buy 140.1 160.0 150.4 114.1 12.3 3.5 -0.6 17.2 5.9 0.5 -2.8 -0.9 Kalpataru Power Transmission Buy 287.6 305.0 294.7 160.0 8.3 17.5 11.3 52.2 2.2 14.1 8.8 28.6 PTC India Buy 85.7 90.0 90.7 56.2 15.8 15.4 15.5 45.9 9.2 12.1 12.9 23.3 Skipper Buy 157.5 190.0 168.6 122.0 12.8 9.4 1.7 1.5 6.4 6.2 -0.6 -14.2 Thermax Hold 830.5 920.0 949.0 690.0 8.0 -2.8 -2.9 5.3 1.8 -5.6 -5.1 -11.0 Triveni Turbine Buy 125.8 140.0 135.7 87.5 4.5 -1.0 8.8 32.5 -1.4 -3.9 6.3 12.0

February 2017 4 Sharekhan ValueGuide EQUITY FUNDAMENTALS REPORT CARD

STOCK IDEAS STANDING (AS ON FEBRUARY 03, 2017) PRICE AS 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX CURRENT PRICE COMPANY ON RECO TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M 03-FEB-17 Va Tech Wabag Buy 489.6 650.0 645.0 408.8 2.1 1.7 -15.0 -12.1 -3.8 -1.3 -17.0 -25.7 V-Guard Industries Buy 208.4 235.0 226.4 78.0 27.2 1.5 21.8 130.6 20.0 -1.5 19.1 94.9 BSE Power Index 2181.3 2210.8 1559.4 8.4 10.4 9.0 29.5 2.3 7.2 6.5 9.5 BSE Capital Goods Index 15096.2 15835.4 10934.9 8.8 3.5 2.8 26.7 2.6 0.5 0.5 7.1 Infrastructure / Real estate Gayatri Projects Hold 689.5 700.0 790.0 482.0 4.4 4.9 4.5 11.2 -1.5 1.8 2.1 -6.0 ITNL Buy 109.9 145.0 124.8 64.0 -1.3 8.1 52.6 43.7 -6.9 5.0 49.1 21.5 IRB Infra Buy 234.0 260.0 266.4 177.5 14.6 5.6 14.2 2.2 8.0 2.5 11.6 -13.6 Jaiprakash Associates Hold 13.0 ** 13.6 5.3 58.5 23.2 9.7 61.5 49.5 19.6 7.2 36.5 Larsen & Toubro Buy 1480.7 1665.0 1615.0 1016.1 8.3 2.5 1.4 35.2 2.1 -0.4 -0.9 14.2 NBCC Buy 275.7 340.0 299.4 162.0 8.4 17.2 16.4 51.0 2.2 13.8 13.8 27.6 CNX Infra Index 2989.3 2999.2 2204.1 9.0 6.4 4.9 27.7 2.8 3.3 2.5 7.9 BSE Real estate Index 1451.9 1646.5 1000.1 9.7 -2.8 -6.3 26.2 3.5 -5.6 -8.4 6.6 Oil & gas Oil India Ltd Hold 344.8 ** 371.3 225.3 0.3 12.6 27.9 38.0 -5.4 9.3 25.0 16.6 Reliance Ind Buy 1033.7 1300.0 1129.6 888.1 -5.1 0.9 4.0 6.4 -10.5 -2.0 1.6 -10.1 Selan Exploration Technology Hold 187.4 345.0 231.1 148.7 -0.3 -2.7 -5.1 9.4 -6.0 -5.5 -7.3 -7.5 BSE Oil and gas Index 13100.5 13247.2 7987.3 5.3 11.6 26.9 51.6 -0.7 8.4 24.0 28.1 Pharmaceuticals Aurobindo Pharma Buy 684.7 825.0 895.0 582.0 1.9 -10.8 -8.1 -10.8 -3.9 -13.4 -10.2 -24.6 Cipla Hold 607.9 610.0 617.8 457.5 6.0 8.6 15.2 8.5 -0.1 5.4 12.6 -8.3 Cadila Healthcare Hold 365.1 382.0 429.8 304.0 2.9 -8.0 5.0 16.2 -3.0 -10.6 2.6 -1.8 Divi's Labs Hold 760.4 ** 1381.6 671.5 -2.2 -39.6 -35.2 -30.6 -7.8 -41.4 -36.6 -41.3 Glenmark Pharmaceuticals E Buy 947.3 1150.0 994.0 671.1 6.1 3.8 15.2 27.5 0.0 0.8 12.6 7.8 Lupin Hold 1492.0 1850.0 1911.9 1280.0 -0.9 1.5 -11.2 -11.8 -6.5 -1.5 -13.2 -25.5 Sun Pharmaceutical Industries Buy 647.3 845.0 898.5 571.9 1.8 -8.0 -22.8 -22.4 -4.0 -10.7 -24.6 -34.4 Torrent Pharma Hold 1314.3 1521.0 1769.5 1175.1 -1.9 -0.2 -10.2 -2.0 -7.5 -3.1 -12.2 -17.2 BSE Health Care Index 15255.0 16865.9 13955.4 2.8 -3.5 -5.2 -2.7 -3.0 -6.3 -7.4 -17.8 Building materials Grasim E Buy 944.3 1150.0 1072.2 646.6 8.7 3.8 -4.5 39.0 2.5 0.8 -6.7 17.5 Shree Cement Buy 16047.4 18000.0 18519.0 9900.4 13.6 -0.5 -4.3 58.3 7.1 -3.4 -6.4 33.8 The Ramco Cements Buy 702.9 775.0 728.0 352.7 23.5 16.6 31.0 86.1 16.5 13.2 28.1 57.3 UltraTech Cement Buy 3737.5 3950.0 4130.0 2680.0 12.3 -4.3 1.9 35.4 6.0 -7.1 -0.4 14.4 Discretionary consumption Century Plyboards (India) Buy 215.7 250.0 267.8 135.5 23.8 -9.2 -1.8 52.7 16.7 -11.8 -4.0 29.1 Cox and Kings Buy 194.7 225.0 242.0 140.1 6.6 -11.4 7.4 -7.2 0.6 -14.0 5.0 -21.6 Inox Leisure Hold 225.5 255.0 293.4 170.0 -3.5 -7.8 -9.9 4.7 -9.0 -10.4 -11.9 -11.5 Info Edge (India) Buy 835.0 950.0 1025.0 688.1 -5.6 -11.5 1.4 9.0 -11.0 -14.1 -0.9 -7.9 Kewal Kiran Clothing Buy 1765.0 2250.0 2045.0 1603.3 0.9 -5.3 -3.8 -8.8 -4.8 -8.0 -6.0 -22.9 Orbit Exports Hold 327.4 ** 365.0 205.3 11.8 19.9 50.4 -3.9 5.5 16.4 47.0 -18.8 Raymond Hold 503.8 550.0 654.0 350.0 -4.2 -20.6 10.2 29.6 -9.7 -22.9 7.7 9.5 Relaxo Footwear Buy 438.6 525.0 526.1 350.0 9.8 5.1 -8.2 -4.2 3.6 2.1 -10.3 -19.0 Thomas Cook India Buy 193.5 229.0 228.9 165.0 4.5 -10.1 -1.2 0.0 -1.5 -12.7 -3.5 -15.5 Wonderla Holidays Buy 376.8 425.0 420.0 316.0 10.9 -0.5 -5.4 -1.4 4.6 -3.4 -7.5 -16.6 Zee Entertainment Enterprises E Buy 495.9 560.0 589.9 350.1 8.2 -1.5 0.6 23.3 2.0 -4.3 -1.7 4.2 Diversified / Miscellaneous Aditya Birla Nuvo Hold 1403.0 ** 1664.0 684.3 8.6 6.7 -6.0 70.0 2.4 3.6 -8.2 43.6 Bajaj Holdings Buy 2026.6 2516.0 2245.0 1310.0 10.1 -7.7 13.7 44.3 3.8 -10.4 11.2 22.0 Bharti Airtel Hold 353.8 ** 385.0 283.1 16.2 14.5 -1.0 18.5 9.6 11.2 -3.3 0.1 Bharat Electronics E Hold 1544.4 1700.0 1625.0 1008.0 8.7 18.5 26.6 29.0 2.5 15.1 23.7 9.0 Gateway Distriparks Ltd Hold 258.8 275.0 325.7 205.6 4.3 9.8 -1.9 -1.1 -1.6 6.6 -4.1 -16.4 Max Financial Hold 599.2 ** 628.0 302.8 8.0 10.8 9.4 67.8 1.8 7.6 7.0 41.8 PI Industries Buy 933.7 955.0 964.0 495.4 12.8 3.8 19.9 45.7 6.4 0.8 17.1 23.1 Ratnamani Metals and Tubes Hold 669.3 ** 810.0 387.0 -4.9 7.8 29.2 42.3 -10.3 4.7 26.3 20.3 Supreme Industries E Buy 964.7 1067.0 1025.0 646.5 8.7 9.2 5.6 32.0 2.5 6.0 3.2 11.5 UPL E Buy 738.2 855.0 754.5 342.0 12.7 10.3 26.6 82.0 6.3 7.1 23.7 53.8 BSE500 Index 11959.4 12083.1 9012.0 7.6 3.0 5.0 24.4 1.5 0.0 2.6 5.1 CNX500 INDEX 7569.9 7647.5 5717.0 7.7 3.1 5.0 24.5 1.6 0.1 2.7 5.2 CNXMCAP INDEX 16035.2 16169.1 11190.4 9.9 4.1 10.9 33.7 3.6 1.1 8.4 13.0 E In Top Picks basket ** Price target under review

February 2017 5 Sharekhan ValueGuide FROM SHAREKHAN’S DESK

More good, less bad and nothing ugly

The first of the major domestic macro-economic events - the Union Budget - is behind us. It neither disappointed nor delighted the markets. The finance minister has stuck to basics with focus on increasing capital expenditure allocation while maintaining fiscal prudence. The Budget for FY2018 aims to stimulate the Indian economy through healthy allocation towards Housing, Agriculture and Rural sectors, besides infrastructure development. At the same time, the Budget projects to limit the fiscal deficit at 3.2% of GDP. The net market borrowings at Rs3.48 trillion for FY2018 is lower than market expectations of ~Rs4.2 trillion. Further, no bad news on the long-term capital gains tax (LTCG) in equities is good news for investors. Overall, the Budget is positive for the Indian economy in general and equity markets in particular Separately, the RBI has kept the Repo Rate unchanged at 6.25% while also changing its policy stance to ‘Neutral’ from ‘Accommodative’. This means the probability of incremental rate cuts by the RBI has reduced considerably now. The central bank is concerned about the possible supply side disruption due to demonetisation and inflationary pressure arising from the spike in the crude oil prices. However, the focus of the Union budget on reviving growth without compromising on fiscal prudence should bode well for limiting upside risks to inflation. Meanwhile, demonetisation led to a sudden disruption in the Indian economy in late 2016, with consumer demand hit badly. As a result, FY2017 is likely to end as a disappointing year for growth in corporate earnings. Commodity prices (including crude oil) too have started rising and would further hurt the profitability of India Inc, besides affecting government finances. If that wasn’t enough, the global environment remains uncertain. The global financial markets would take some more time to adjust to the new normal of changing monetary policy stance by the Federal Reserve, and the unpredictable policy of the Donald Trump regime. While the global economic scenario is expected to improve only gradually, the adverse impact of demonetisation and other anti-black money measures should recede in a couple of quarters. The weakness in Q3 and Q4 of FY2017 could reverse by Q1FY2018 and corporate earnings should grow in double digits by H2FY2018, owing to a low base and recovery in the Indian economy. Moreover, the valuations (reasonable post demonetisation) would turn more favorable over the next couple of quarters. The benchmark Indian equity indices are likely to remain volatile in the near term due to uncertainty over remonetisation, outcome of the crucial UP state elections and the pace of the domestic economic recovery. We believe that investors should use the current volatility to systematically buy quality stocks over the next few months, as the outlook for the Indian equities remains constructive for the medium term (12-24 months). Follow our model portfolios and/or advisory products to build a quality portfolio. from sharekhan’s desk from sharekhan’s

February 2017 6 Sharekhan ValueGuide EQUITY FUNDAMENTALS Sharekhan Top Picks

Sharekhan Top Picks

The calendar year 2017 has begun on a positive note. The with a marginal loss post the negative news flow for the IT benchmark Indian stock indices have recovered smartly from the Services sector from the key overseas market, USA. The new demonetisation shock, primarily on hope of a growth stimulating US administration (under the new President Donald Trump) has Union Budget and a secular rally across global equity markets. taken a protectionist policy stance, with a few measures likely to Despite the sell-off of the past two days, the Nifty and the increase costs for the Indian IT Services vendors. Consequently, Sensex ended January with handsome gains of 4.6% and 3.9%, we are replacing HCL Technologies (despite strong Q3FY2017) respectively. The Sharekhan Top Picks portfolio comfortably with Supreme Industries, which is a domestic demand driven outperformed the benchmark indices with a gain of 8.4% during quality player with a proven track record. the same period. Another change recommended for February is the churn within It was an all-round performance, with six out of the 12 stocks the Agro Chemicals space. With PI Industries close to our price in the Sharekhan Top Picks folio registering double-digit gains target, we are replacing it by UPL, which offers relatively better for January. The only loser was HCL Technologies, which ended scope for appreciation at the current juncture.

CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%) 1 month 3 months 6 months 1 year 3 years 5 years Top Picks 8.4 -2.3 3.5 24.8 117.6 201.6 Sensex 3.9 -1.0 -1.4 11.1 34.4 56.7 Nifty 4.6 -0.8 -0.7 13.4 40.3 61.5 CNX MIDCAP 100 7.4 -2.7 4.3 23.6 104.4 103.7

ABSOLUTE RETURNS (TOP PICKS VS BENCHMARK INDICES) (%) CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS SINCE Sharekhan Sensex Nifty CNX APRIL 2009) (Top Picks) Midcap 700 100 YTD CY2017 8.4 3.9 4.6 7.4 600

CY2016 8.8 1.8 3.2 7.1 500 CY2015 13.9 -5.1 -4.1 6.5 400 CY2014 63.6 29.9 30.9 55.1 300 CY2013 12.4 8.5 6.4 -5.6 CY2012 35.1 26.2 29.0 36.0 200

CY2011 -20.5 -21.2 -21.7 -25.0 100 09 13 14 11 12 15 16 17 09 10 14 12 16 10 14 11 15 09 10 13 15 12 11 12 13 16 ------CY2010 16.8 11.5 12.9 11.5 - - - - Jul Jul Jul Apr Oct Apr Oct Jun Jan Jun Jan Jan Mar Mar Feb Feb Nov Dec Nov Nov Sep Sep Aug Sep CY2009 116.1 76.1 72.0 114.0 May May

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

Name CMP* PER (x) RoE (%) Price Upside (Rs) FY16 FY17E FY18E FY16 FY17E FY18E target (Rs)# (%) Balrampur Chini 142 15.7 8.5 9.8 18.7 30.1 22.1 ** - Bharat Electronics 1,540 27.1 21.8 20.2 15.5 14.0 13.2 1,770 15 Glenmark Pharma 893 23.6 17.4 15.5 25.0 25.7 22.7 1,150 29 Grasim Industries 911 17.5 13.0 11.1 9.4 11.0 11.2 1,150 26 HDFC Bank 1,287 26.5 22.3 18.5 18.3 18.7 19.4 1,500 17 Indian Oil Corp 366 13.4 12.1 10.3 18.4 18.1 18.7 405 11 IndusInd Bank 1,253 32.6 25.2 19.2 16.1 16.7 17.6 1,394 11 Maruti Suzuki 5,896 39.0 24.0 21.8 18.6 23.1 21.6 6,430 10 RBL Bank 382 42.4 32.9 22.4 11.2 12.0 14.2 434 13 Supreme Industries 937 56.1 32.9 24.9 16.1 22.9 24.9 1,067 14 UPL Limited 726 21.6 20.3 16.1 19.1 22.2 22.7 855 18 ZEE Entertainment 490 43.7 36.8 28.6 24.4 25.4 26.8 560 14

*CMP as on January 31, 2017 # Price target for next 6-12 months ** Under review

February 2017 7 Sharekhan ValueGuide Sharekhan Top Picks EQUITY FUNDAMENTALS

PER ROE (%) PRICE UPSIDE Name CMP (Rs) FY16 FY17E FY18E FY16 FY17E FY17E TARGET (RS) (%)

BALRAMPUR CHINI 142 15.7 8.5 9.8 18.7 30.1 22.1 ** -

Remarks: ŠŠ Balrampur Chini Mills (BCML) is one of the largest sugar mills in India with sugarcane crushing capacity located in the second highest sugar producing state in India - Uttar Pradesh. The company has sugarcane crushing capacity of 76,500 tonne per day (TCD). It also has Distillery and Co-generation operations of 320 KLPD and 148.2 MW (saleable), respectively. ŠŠ The Indian sugar companies are in a sweet spot, as sugar prices have firmed up to Rs35-36 per kg in the domestic market (from the lows of Rs20 per kg in July 2015) due to a demand-supply mismatch in the international market. The domestic sugar production is expected to be down 10% YoY in sugar year (SY) 2015-16 and is expected to dip further in SY 2016-17. The upsurge in the domestic sugar prices is positive for large sugar companies such as BCML with large production capacity, better leverage position and strong relationships with cane farmers. ŠŠ BCML’s leverage position is much better in the domestic sugar industry compared to some of the other UP- based sugar companies, such as Dhampur Sugar (1.2x as on September 30, 2016). The company is confident of funding the capex of Rs100 crore and repay the debt of around Rs150 crore in FY2017 on the back of expected improvement in the cash flows. ŠŠ Any significant increase in the global sugar production (resulting in a drop in sugar prices) or a decline in the sugar recovery rate would act as a key risk to the earnings. ŠŠ BCML stock is trading at 8.5x its FY2017E earnings and 9.8x its FY2018E earnings, which is much lower than the 18-20x multiple it commanded in the last sugar up-cycle of sugar season 2008-10. We have a positive view on the stock.

BHARAT ELECTRONICS 1,540 27.1 21.8 20.2 15.5 14.0 13.2 1,770 15

Remarks: ŠŠ Bharat Electronics (BEL), a PSU manufacturing electronic, communication and defence equipment, stands to benefit from the enhanced budgetary outlay for strengthening and modernising the country’s security. ŠŠ The “Make in India” initiative of the NDA government, along with greater thrust to modernise the country’s defence equipment will support the earnings growth in the coming years, as it is the only player with strong research and manufacturing capabilities across the country. ŠŠ The company’s current order book of ~Rs33,806 crore provides revenue visibility for the next 3-4 years. We expect the company’s revenue to grow at a CAGR of 14% over FY2016-FY2019E, led by strong order wins and impressive execution rate. ŠŠ BEL remains our preferred pick in the defense sector on account of its strong manufacturing and R&D base, good cost control and growing indigenisation.

GLENMARK PHARMA 893 23.6 17.4 15.5 25.0 25.7 22.7 1,150 29

Remarks: ŠŠ Glenmark Pharmaceuticals is a research-driven global pharmaceuticals organization, focused on discovering novel molecules and developing high-quality generics & specialty products for markets across the globe. Glenmark has 17 manufacturing facilities across five countries, including the US, Switzerland, Argentina, Czech Republic and India. Glenmark has five R&D Centres around the world engaged in discovery of novel biological and chemical entities. ŠŠ The management has indicated that for future growth, the key focus areas will be Dermatology, Contraceptives and Complex Injectables. The future growth would be mainly propelled by US, EU and India markets, which are witnessing exponential growth on account of new product launches. The company is gearing up for the launch of gZetia, where it has 180-day exclusivity in the US (launch in H2FY2017). Also, there are few more significant opportunities, which fall in FY2018. ŠŠ Glenmark is in the process of aggressively ramping up products in the US, India and EU markets, which should give a major boost in the next couple of years. The gZetia launch scheduled in H2FY2017 will give a big fillip to the company’s sales and profitability, which should further help reduce debt. We have a positive outlook on Glenmark and recommend a Buy.

GRASIM INDUSTRIES 911 17.5 13.0 11.1 9.4 11.0 11.2 1,150 26

Remarks: ŠŠ Grasim Industries, a flagship company of the Aditya Birla Group ranks among India’s largest private sector companies having core businesses of Cement (~70% of revenue with listed subsidiary UltraTech Cement), Viscose Stable Fibre (~20%) and Chemicals (~10%). The company has benefitted from improvement in its profitability in all of its three divisions with outlook continuing to be positive. ŠŠ The timely acquisition of JP Group’s cement assets, continuous brownfield expansions and de-bottlenecking are likely to increase its cement capacity to over 90MT. The structural growth triggers like rising infrastructure investment and pick-up in rural demand (owing to a good monsoon) are likely to help sustain a favourable growth outlook for the cement sector. The revival in VSF prices, absence of major capacity additions in China, low inventory and leverage of LIVA brand are likely to sustain VSF division’s profitability going forward. Further, the company will expand its Caustic Soda capacity from 840KTPA to 1048KTPA in FY2018, which should sustain its volume growth. ŠŠ The current restructuring exercise of aligning high-growth businesses in Manufacturing (Cement, Textiles, Chemicals, Insulators, Solar etc) and Services (Financial Services & Telecom post approval of proposed group restructuring scheme) provides a unique opportunity to investors to hold a well-diversified portfolio, which is expected to maintain strong growth momentum going forward across verticals. Overall, we expect Grasim Industries to reap benefits going forward, considering the revival in its core VSF division, strong demand and better realisations in Chemicals and sturdy growth outlook for the Cement business.

February 2017 8 Sharekhan ValueGuide EQUITY FUNDAMENTALS Sharekhan Top Picks

PER ROE (%) PRICE UPSIDE Name CMP (Rs) FY16 FY17E FY18E FY16 FY17E FY17E TARGET (RS) (%)

HDFC BANK 1,287 26.5 22.3 18.5 18.3 18.7 19.4 1,500 17

Remarks: ŠŠ HDFC Bank has a pre-eminent presence in the retail banking segment (~50% of loan book) and has been able to maintain a strong & consistent loan book growth, gradually gaining market share. Going forward, economic recovery and improvement in consumer sentiment would be positive growth drivers for the bank’s loan growth, which will in turn drive its profitability. ŠŠ Backed by a current account & savings account (CASA) ratio of 40%+ and a high proportion of retail deposits, the bank’s cost of funds remains among the lowest in the system, helping it to maintain higher net interest margin (NIM). In addition, the bank’s loan book growth is driven by high-yielding retail products such as personal loans, vehicle loans, credit cards, mortgages etc, mostly to own customers (which also positively impacts NIMs). ŠŠ HDFC Bank has been maintaining near impeccable asset quality, with its NPA ratios consistently been among the lowest versus comparable peers. The bank has been able to maintain a robust asset quality due to its stringent credit appraisal procedures and negligible exposure to troubled sectors. ŠŠ HDFC Bank is well poised to tap the growth opportunities going ahead due to strong capital ratios, healthy asset quality and steady revival in consumer spending. Recent demonetisation would help the bank to gain more deposits. Also, as lending and transactions through formal routes increase, HDFC Bank would benefit since it is a leading private sector bank and it is likely that it will gain market share in this segment. The bank is likely to maintain a healthy RoE of 18-20% and RoA of 1.8% on a sustainable basis. Therefore, we expect it to sustain the valuation premium that it enjoys vis-à-vis other private banks.

INDIAN OIL CORP 366 13.4 12.1 10.3 18.4 18.1 18.7 405 11

Remarks: ŠŠ Indian Oil Corporation (IOC) is a leader in the domestic downstream oil sector with non-replicable infrastructure– total refining capacity of 80.7 mmt (35% market share), retail outlets of 25,363 (45% market share) and pipeline capacity of 80.6 mmt (market share of 55% among downstream companies). The company is also a market leader in the domestic petroleum sales with volume of 72.7 mmt (45.9% market share) in FY2016. ŠŠ We expect IOC’s EPS to grow by 10%/17% in FY2017/FY2018, led by ~6-7% growth in domestic consumption of HSD/MS, recovery in refining margins (Singapore complex GRM has improved sharply to around $6.7/bbl in Q3FY2017 so far vs $5.1/bbl in Q2FY2017), stabilisation of the 15-mmt Paradip refinery (expected to operate at 90% utilisation by February 2017) and inventory gains (given our expectation of stable-to-rising oil prices). The Paradip refinery could add Rs3-4/share to FY2018E EPS at GRM of $9-10/bbl. ŠŠ The company is also implementing pipeline expansion projects at an estimated capex of Rs12,000 crore over the next couple of years, which would add 22 mmt to IOC’s pipeline capacity. ŠŠ IOC has a strong balance sheet, with low net debt-to-equity ratio (D/E) of 0.64x in FY2016 and we expect RoE to expand to 18.7% in FY2018 (vs 18.4% in FY2016).

INDUSIND BANK 1,253 32.6 25.2 19.2 16.1 16.7 17.6 1,394 11

Remarks: ŠŠ IndusInd Bank is among the fastest growing banks (26% CAGR over FY2012-FY2016), with a loan book of Rs93,678 crore and 1,000 branches across the country. About 55% of the bank’s loan book comprises of retail finance, which is a high-yielding category, and is showing signs of growth. ŠŠ Given the aggressive measures taken by the management, the deposit profile has improved considerably (CASA ratio of ~35%). Going ahead, the bank would follow a differentiated branch expansion strategy (5% branch market share in identified centers) to help in ensuring healthy growth in savings accounts and retail deposits. ŠŠ IndusInd Bank has maintained its asset quality despite sluggish economic growth and higher proportion of retail finance in its loan book. The bank’s asset quality is among the best in the industry, with total stressed loans (restructured loans + gross NPAs) forming less than 1.50% of the loan book. ŠŠ A likely revival in the domestic economy will further fuel growth in the bank’s consumer finance division while strong capital ratios will support future growth plans. Though the recent demonetisation has raised questions regarding delinquencies in certain lending segments, the management expects asset quality to remain under control. The stock should continue to trade at a premium valuation, underpinned by strong loan growth, quality management, high RoAs and healthy asset quality. We have a positive outlook on IndusInd Bank.

MARUTI SUZUKI 5,896 39.0 24.0 21.8 18.6 23.1 21.6 6,430 10

Remarks: ŠŠ Maruti Suzuki India (Maruti) is India’s largest passenger vehicle (PV) manufacturer with a strong 47% market share. Over the last two years, the company has been able to gain market share due to new product launches, a vast distribution network (with an increased focus on the rural markets) and a shift in consumer preference to petrol models from diesel models. ŠŠ The recently launched premium hatchback Baleno and the crossover Ignis have received a strong response, which will help Maruti to expand its market share in the segment. The compact sports utility vehicle (SUV) Vitara Brezza has also received an encouraging response. All the three new launches command a waiting period of 6-8 months each. Further, the recent entry in the light commercial vehicle (LCV) segment would also boost overall volumes. ŠŠ Maruti has maintained its FY2017 volume target of 1.55 million units despite the demonetisation move, as the proportion of financing in the company’s overall sales is around 80%, which is higher than the PV industry average of ~65-70%. Hence, the impact of demonetisation on Maruti sales is likely to be relatively lower. ŠŠ In FY2018, Maruti would see higher volume growth, driven by the expected resurgence in demand post demonetisation and planned new launches. Also, the Gujarat plant is expected to commence operations in March 2017. New products and high order backlog for the recent launches (Baleno, Brezza and Ignis) would enable Maruti to outpace the PV industry growth in FY2018.

February 2017 9 Sharekhan ValueGuide Sharekhan Top Picks EQUITY FUNDAMENTALS

PER ROE (%) PRICE UPSIDE Name CMP (Rs) FY16 FY17E FY18E FY16 FY17E FY17E TARGET (RS) (%)

RBL BANK 382 42.4 32.9 22.4 11.2 12.0 14.2 434 13

Remarks: ŠŠ RBL Bank (RBL) has been among the fastest growing private sector banks in the past 5-6 years, with advances CAGR of 61.9% over FY2011-FY2016. Over these years, the bank had restricted its growth to a few geographies, but now it is focusing on expanding into newer locations. ŠŠ Despite a high growth trajectory, RBL has managed to maintain a strong asset quality over the years. As of March 2016, RBL’s GNPA stood at 0.98%, which was among the best in the banking industry. The bank mostly lends working capital loans to large and medium corporates, which are short-term in nature and less risky. ŠŠ Since 2010, RBL has seen a business transformation under the new management team spearheaded by Vishwavir Ahuja (current MD & CEO). He has over 35 years of experience in the banking industry and was also the Managing Director in Bank of America for their India business. ŠŠ RBL has invested and worked towards significantly improving and upgrading its processes, risk management systems, digital technology, branch expansion and human capital. As a result, the bank’s operations are better calibrated now, and should start showing results in terms of improved return ratios and a stable asset quality going forward.

SUPREME INDUSTRIES 937 56.1 32.9 24.9 16.1 22.9 24.9 1,067 14

Remarks: ŠŠ Supreme Industries is a leading manufacturer of plastic products with a significant presence across Piping, Packaging, Industrial and Consumer segments. ŠŠ Supreme Industries has emerged as one of the best proxy plays on the growing plastic consumption in India on the back of a diversified product portfolio, an extensive distribution network, improved capital structure and government thrust on building a better infrastructure. ŠŠ The management is continuously focusing on high-value product segments, which now contribute close to 37% to the total revenue [introduced new value-added products in Sipaulin (management does not see any threat from competitors in this space as the company enjoys strong margins of 20-23%). For the next 2-3 years, the management expects 12-14% volume growth comfortably, but foresees OPM at 14-14.5% going forward from the current ~16% odd levels. ŠŠ We remain positive on the introduction of value-added products and capacity expansion plans, which are largely funded by robust internal accruals. Supreme Industries enjoys superior return ratios with low gearing levels, and we expect the company to maintain high return ratios going forward. We believe that the impending GST rollout in the long run will be a boon for the established players like Supreme Industries.

UPL LIMITED 726 21.6 20.3 16.1 19.1 22.2 22.7 855 18

Remarks: ŠŠ UPL is a leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, The company has presence across agricultural inputs, ranging from seeds to crop protection products and post-harvest activities. ŠŠ UPL’s unwavering focus on the core business and the ability to introduce innovative products (both in India and overseas markets), presence in high-growth markets (Brazil and India) and plans of tapping new markets are key positives for the future growth outlook. In line with this, during Q3FY2017, UPL launched two new products (one each in the Fungicides and Herbicides categories) in Latin American and three new products (one crop nutrient and two fungicides) in India. ŠŠ Strong growth momentum in Latin America (including Brazil), with the company aiming to outpace the industry growth and gain market share, coupled with a favorable outlook for the Indian business will help UPL to boost its overall performance going ahead. ŠŠ We expect UPL’s consolidated revenue to grow at a 17% CAGR over the next two years. Benefits of operating leverage and a better product mix would aid margin expansion, and we expect the OPM to expand by 100BPS between FY2017 and FY2019. We have a ‘Buy’ recommendation on the stock.

ZEE ENTERTAINMENT 490 43.7 36.8 28.6 24.4 25.4 26.8 560 14

Remarks: ŠŠ Among the key players in the domestic Cable TV industry, we expect the broadcasters to be the prime beneficiaries of the mandatory digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenue at the least incremental capex, as the subscriber declaration standard improves in the Cable TV industry ŠŠ Zee Entertainment Enterprises’ (ZEEL) continues to lead the broadcasting industry in advertising revenue growth. ZEEL is one of the leading players in television broadcasting with a bouquet of 40+ TV channels across genres. ŠŠ The ZEEL management stated that it is comfortable with the OPM level of ~30% and will re-invest the gains in OPM due to the sale of the loss-making Sports business (likely to add 300-350BPS in FY2018) back into the business. ŠŠ The recent acquisition of general entertainment TV business from the Reliance Group will help ZEEL to expand its regional presence and facilitate a foray into the comedy genre in the Hindi speaking markets. The management expects to achieve EBITDA breakeven by the time the consolidation of the acquisition is complete (H2FY2018). ŠŠ The ZEEL management has increased its focus on digital, movies, and international operations to improve the content monetisation. The management’s intent to remain a pure play media company gives us confidence on the prudent capital allocation going forward. We continue to see ZEEL as the prime beneficiary of the macro revival and ongoing digitisation trend.

February 2017 10 Sharekhan ValueGuide EQUITY FUNDAMENTALS Budget Special

Sharekhan Budget Special February 01, 2017 Union Budget (2017-18) No bad news is good news The Union Budget for FY2017-2018 aims to stimulate the period for computing LTCG on immovable property has Indian economy through healthy allocation toward Housing, been reduced from three years to two years. Agriculture and Rural sectors, besides infrastructure Financial sector: No negative surprises development - with primary focus on Railway, Roads and Waterways. At the same time, the Budget projects to limit • Phasing out of the Foreign Promotion & Investment Board the fiscal deficit at 3.2% of GDP. The net market borrowings (FIPB). at Rs3.48 trillion in FY2018 is lower than market expectations • Creation of an integrated spot and derivatives market for of around Rs4.2 trillion. Continued fiscal prudence and a commodities. comfortable liquidity situation leave scope for the Reserve • No change in LTCG for equities (though off-market buying Bank of India (RBI) to maintain its accommodative monetary post October 2004 could be disallowed benefits of LTCG stance. The reduction in tax liability for small-sized companies as per the fine print). with a turnover under Rs50 crore, and the relief for individual • Listing of public enterprises under the Central tax payers with income between Rs2.5 and Rs5 lakh per annum Government. are additional feel-good factors. Lastly, no bad news on the long-term capital gains tax (LTCG) in equities is good news for • Target for small loans for marginal borrowers doubled to investors. However, the limits proposed on cash transactions Rs2.44 trillion under the Pradhan Mantri Mudra Yojana. could further squeeze the unorganised sector, which is already Government finances: Deficit targets encouraging; lower- reeling under the adverse impact of demonetisation. The than-expected market borrowings leave scope for RBI to unorganised sector would also have to face challenges post the reduce policy rates implementation of the Goods & Services Tax (GST), which is • The size of the Budget stands at Rs21.47 trillion, which scheduled to be rolled out some time during FY2018. Overall, includes revenue expenditure of Rs17.3 trillion. The the Budget is positive for the Indian economy in general and Budget estimates a 12.2% increase in net revenue receipts equity markets in particular. on the back of a 15.7% upsurge in direct taxes, largely Some of the key takeaways are: supported by expectations of a 24.9% jump in personal Healthy allocation for Housing, Rural & Agriculture sectors income tax collection. We believe that the assumption of and infrastructure development healthy growth in personal income tax is based on better tax compliance and inflows from the Income Disclosure • The government has stepped up capital expenditure by Scheme. 25.4% over the previous fiscal year. For the transportation sector, the Budget allocation stands at Rs2.41 trillion • Revenue deficit for FY2018 is pegged at 1.9% of GDP, which (includes Railway, Roads and Waterways). In addition, is well within the 2% target as per the Fiscal Responsibility allocations have been made for Solar Power, Digital and Budget Management (FRBM) Act. However, the Infrastructure and other allied segments, resulting in a government has pegged the fiscal deficit at 3.2% of GDP total infrastructure development allocation of Rs3.96 (higher than 3% as per the FRBM ACT) as an exception in trillion for FY2018. order to stimulate the Indian economy. • Rural and Agriculture & Allied sector allocation is higher • Net market borrowings for FY2018 are pegged at Rs3.48 by 24% to Rs1.87 trillion. trillion, which is lower than expectation and positive for the bond market. Also, the continued fiscal prudence and • Affordable Housing has been given infrastructure industry a comfortable liquidity condition would leave scope for status while interest subvention of 3% has been announced the RBI to maintain its accommodative monetary stance. for borrowers of home loans up to Rs12 lakh. The holding Key budget data (Rs ‘00 cr) Particulars FY14 FY15 FY16 FY17RE FY18BE Gross tax revenues 11,387.3 12,448.9 14,556.5 17,032.4 19,115.8 % change yoy -7.9 -9.7 16.9 16.7 12.2 Net tax revenues 8,158.5 9,036.2 9,433.2 10,887.9 12,270.1 % change yoy -7.7 -8.4 4.4 14.9 12.7 Non tax revenues 1,988.7 1,978.6 2,517.1 3,347.7 2,887.6 Total expenditure 15,594.5 16,636.7 17,907.8 20,144.1 21,467.4 % change yoy -6.4 -5.6 7.6 12.8 6.6 Fiscal deficit 5,028.6 5,107.2 5,327.9 5,342.7 5,465.3 as % of GDP 4.4 4.1 3.9 3.5 3.2 Revenue deficit 3,570.5 3,655.2 3,427.4 3,110.0 3,211.6 as % of GDP 3.2 2.9 2.5 2.1 1.9 Primary deficit 1,286.0 1,082.8 911.3 512.0 234.5 as % of GDP 1.1 0.9 0.7 0.3 0.1 Source: India Budget, Sharekhan Research

February 2017 11 Sharekhan ValueGuide Budget Special EQUITY FUNDAMENTALS

Budget receipts Budget expenditure

Centrally Non debt sponsored Borrowing and Other capital, 3% scheme, 10% other expenditure, 13% liabilities, 19% Corporation tax, 19% Central sector Scheme, 11%

States share in Non tax tax and revenue, 10% duties, 24% interest payments, 18% Income tax, 16% Service tax, 10% Finance commision and transfers, 5% Defense, 9% Customs , 9% Union Excise Subsidies, 10% Duties, 14%

Source: India Budget, Sharekhan Research Source: India Budget, Sharekhan Research

Gross tax revenue and Tax as % of GDP Fiscal deficit movement and FD as % to GDP

21,000 13.0 6,000 6.4

17,000 12.0 5.4 13,000 11.0

5,000 4.4 9,000 10.0

3.4 5,000 9.0

1,000 8.0 4,000 2.4 FY14 FY15 FY16 FY17RE FY18BE FY14 FY15 FY16 FY17RE FY18BE

Gross Tax Revenue ('00 Cr) Tax/GDP ratio (%) Fiscal Deficit ('00) FD/GDP ratio (RHS,%)

Source: India Budget, Sharekhan Research Source: India Budget, Sharekhan Research

Tax and Non-tax revenue movement Gross and Net market borrowings

16,000 7,000 90.0

14,000 6,000 80.0 12,000 5,000

10,000 4,000 70.0 8,000 3,000

6,000 2,000 60.0

4,000 1,000

2,000 0 50.0

0 15 FY14 FY FY16

FY14 FY15 FY16 FY17RE FY18BE FY18BE FY17RE

Net tax revenues ('00 Cr) Non-tax revenues ('00 Cr) Gross debt market borrowings ('00) Net debt market borrowings ('00) net as % of gross borr

Source: India Budget, Sharekhan Research Source: India Budget, Sharekhan Research

February 2017 12 Sharekhan ValueGuide EQUITY FUNDAMENTALS Budget Special

Hits & Misses (Sectors/Companies) Hits:

• Infrastructure/Roadways/Railways: Total allocation for infrastructure development in FY2018 Union Budget is up by 14% to Rs3,96,135 crore. In the road sector, the allocation for highways has been increased from Rs57,976 crore to Rs64,900 crore, up 12%. 2,000 kms of coastal connectivity roads have been identified for construction and development. For Railways, the allocation is at Rs131,000 crore vs Rs121,000 crore, while the gross budgetary support has been enhanced to Rs55,000 crore vs Rs45,000 crore. • Companies in focus: IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, Gayatri Projects, Sadbhav Engineering, DLF, Ashiana Housing, KNR Construction, UltraTech Cement, The Ramco Cements among others. • Affordable Housing: The Union Budget has proposed to assign infrastructure status to the Affordable Housing projects, which is aligned with the government’s aim to provide “housing to all” by 2022. The infrastructure status to the Affordable Housing space will provide quicker access to capital at lower cost. Further, the Service Tax on services with respect to Affordable Housing is proposed at Nil as against 5.6% currently. The proposed positive changes for Affordable Housing and overall for the entire Real Estate sector will have a positive multiplier effect on many other sectors like Cement, Metals, Housing Finance, Paints, Tiles & Ceramics and Sanitary Ware, among others. • Companies in focus: DLF, Ashiana Housing, Godrej Properties, Century Plyboards, Kajaria Ceramics, Cera Sanitaryware, Somany Ceramics, The Ramco Cements, Asian Paints, Kansai Nerolac, Repco Home Finance, Gruh Finance and PNB Housing Finance, among others. • Rural focus and Consumption: With focus on improving rural sentiments, the government has increased allocation for various schemes such as MNREGA, Irrigation Funds and other schemes. Total allocation of Rs187,223 crore for Rural & Allied sector is up by 24% in comparison to last year. Rural roads to be built under PMGSY have been increased to 133 km per day from 73 km per day (average). In this scheme, the total allocation is Rs27,000 crore. The Budget also lays emphasis on irrigation development through the Dedicated Micro Irrigation Fund of Rs5,000 crore in NABARD. Further, open defecation free villages are now being given priority for piped water supply. • Companies in focus: HUL, Dabur, Emami, Godrej Consumer Products, Jyothy Laboratories and Britannia etc, Two Wheelers (Hero MotoCorp/Bajaj Auto), M&M, Supreme Industries, Astral Poly, Dhanuka Agritech, Insecticides India, among others • Ease of doing business: The Union Budget FY2018 has laid a strong foundation for ease of doing business in India, with more pro-business measures. Several steps have been proposed to provide enterprises (both domestic as well as global) to make doing business in India easier. (1) FIPB to be abolished and new FDI policy is under consideration to boost FDI; (2) Scope of domestic transfer pricing only if one of the entities involved in related party transaction enjoys specified profit-linked deduction. This will reduce the compliance burden for domestic companies; (3) Lower tax for MSMEs; (4) Foreign Portfolio Investors (FPI) Category I & II have been exempted from indirect transfer provision; (5) Time for completion of scrutiny assessments is being compressed further from 21 months to 18 months for the Assessment Year 2018-2019 and further to 12 months for the Assessment Year 2019-2020; (6) The threshold for the maintenance of books for individuals and HUF is proposed to be increased from the turnover of Rs10 lakh to Rs25 lakh or income from Rs1.2 lakh to Rs2.5 lakh.

Misses: • No cut in corporate tax: Among the many positive proposals, the Budget has fallen short on one of the key expectations that India Inc had - a cut in the Corporate Tax. Though the government has cut the tax for smaller companies to 25%, there is no relief for the bigger corporates. • Proposal to ban cash transactions over Rs3 lakh: The proposal to ban cash transactions over Rs3 lakhs is positive for curbing black money, besides improving the formal banking and digital economy - thereby providing further strength to the organised players. However, this move will impact sectors such as Branded Jewellery and Luxury Housing among other luxury transactions. • Bank recapitalisation: The Budget has disappointed on the bank recapitalisation front. The Rs10,000 crore allocated is less than last year’s allocation of around Rs25,000 crore.

February 2017 13 Sharekhan ValueGuide Budget Special EQUITY FUNDAMENTALS

ITC - Effect of excise duty hike of 6% on cigarettes

• In the Union Budget for FY2017-2018, the government has announced an average excise duty hike of 6% on cigarettes, which is less than our as well as street expectation of 8-10% increase.

• For ITC, the weighted average excise duty hike stands at 6%. We expect ITC to pass on the excise duty hike through an average price increase of 6-8% in its cigarette portfolio in the coming months (ITC had recently increased prices of some brands).

• With the second consecutive year of moderate hike in the excise duty on cigarettes, we expect ITC’s cigarette volume to grow by 6-7% in FY2018 (the previous volume growth expectation was 5%). This would result in a 2-3% increase in the earnings estimate for FY2018, while we broadly maintain our earnings estimate for FY2019. But, any significant increase in the tax rate on cigarettes under the impending GST regime (likely implementation in July 2017) would act as a key risk to our volume growth estimates for ITC.

• The second consecutive year of moderate excise duty hike on cigarettes is positive for ITC, as its cigarette volume is likely to improve and would further have a positive impact on the company’s cash flows in the near term. Any significant increase in the tax rate on cigarettes under the GST dispensation will remain a key monitorable in the coming quarters. The ITC stock is currently trading at 25.5x and 22.3x its FY2018E and FY2019E earnings. We maintain our ‘Buy’ recommendation on the stock.

Excise duty hike on cigarettes in the Union Budget 2017-18

Union Budget 2017-18 Rs per 1000 cigarettes Weighted Size Items Chg (%) average excise 2016-17 2017-18 duty hike for ITC Cigarettes filter > Small 1,582.5 1,678.5 6.1 60 =<65 mm Cigarettes filter > Regulars 2,087.5 2,213.5 6.0 65 =<70 mm Cigarettes filter > Longs 2,847.5 3,018.5 6.0 70 =<75 mm Cigarettes filter > Kings 4,163.5 4,414.5 6.0 75 =<85 mm

Cigarettes filter> 4,163.5 4,414.5 6.0 6.0% 85 mm

Source: India Budget, Sharekhan Research

February 2017 14 Sharekhan ValueGuide EQUITY FUNDAMENTALS Budget Special

Sectoral analysis

Overall Sector Key announcements Key companies to be affected impact

Budget impact: Neutral Sector view: Positive (preferred picks: Maruti Suzuki India, TVS Motor and Exide Industries)

Automobiles Total allocation of funds for Rural and Positive Increased rural sector allocation would boost Agricultural & Allied sectors has increased by rural income, which in turn would have a positive 24% to Rs1,87,223 crore. rub-off on rural-focused companies such as Hero MotoCorp Mahindra & Mahindra and Escorts.

Allocation for Highways increased to Rs64,900 Positive This will result in better road connectivity, which crore from Rs57,976 crore. in turn will boost the Commercial Vehicle (CV) sales. Positive for Ashok Leyland, Tata Motors and Eicher Motors.

Budget impact: Positive Sector view: Positive (preferred picks: UPL, PI Industries and Insecticides India)

Agri - Inputs Total allocation for Rural and Agricultural & Positive UPL, Dhanuka Agri, PI Industries and Insecticides Allied sectors for FY2018 has increased by 24% India to Rs1,87,223 crore (with committed efforts of doubling the income of farmers in five years).

Emphasis on irrigation through a Dedicated Positive Jain Irrigation and EPC Industrie. Micro Irrigation Fund of Rs5,000 crore in NABARD.

The customs duty on imported Liquefied Natural Positive Chambal Fertilisers, GSFC, RCF and NFL. Gas (LNG), which is one of the key inputs for fertiliser manufacturing cut from 5% to 2.5%.

Budget impact: Budget impact: Positive for gas utilities and downstream companies; negative for upstream PSUs Sector view: Positive (preferred picks: RIL, IOCL and Petronet LNG)

Customs duty on LNG imports reduced to 2.5% Positive Petronet LNG, IGL, Gujarat Gas and GAIL. from 5% currently.

No customs duty on crude oil imports. Positive IOCL, BPCL, HPCL, RIL, MRPL and Chennai Petroleum.

No reduction in cess rate on oil. Negative ONGC, Oil India and Cairn India.

Fuel subsidy provision at Rs25,000 crore (LPG Neutral ONGC and Oil India. - Rs16,076 crore and Kerosene - Rs8,924 crore) for FY2018 factors in crude oil price of $55/bbl, assuming a price hike per month of Rs0.5/litre Oil & Gas on Kerosene and Rs2/cylinder on LPG till April 2017.

Creation of an integrated public sector oil Positive ONGC, Oil India, IOCL, BPCL and HPCL. major. (given the synergies but implementation seems difficult)

Set up facilities for Strategic Crude Oil Reserves at Chandikhole in Odisha and Bikaner in Rajasthan.

February 2017 15 Sharekhan ValueGuide Budget Special EQUITY FUNDAMENTALS

Sectoral analysis Overall Sector Key announcements Key companies to be affected impact Budget impact: Positive Sector view: Positive (prefered picks: IRB Infrastructure, IL&FS Transportation, L&T, Gayatri Projects and Ashoka Buildcon) Increased total allocation for infrastructure Postive IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, development in FY2018 to Rs3,96,135 crore Gayatri Projects, Sadbhav Engineering and KNR from Rs3,48,952 crore in BE FY2017. Construction among others. In the road sector, budget allocation for Postive IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, highways has increased from Rs57,976 crore in Gayatri Projects, Sadbhav Engineering and KNR BE FY2017 to Rs64,900 crore in FY2018. 2,000 Construction among others. kms of coastal connectivity roads have been identified for construction and development. MAT/AMT credit is allowed to be carried forward Postive IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, up to a period of 15 years instead of 10 years Gayatri Projects, Sadbhav Engineering and KNR at present. To take effect from April 1, 2018 Construction among others. onwards. A new Metro Rail Policy and act with greater Postive L&T and J Kumar Infraprojects. private sector participation. Infrastructure Select airports in Tier 2 cities will be taken Postive GMR Infrastructure and GVK Infraprojects. up for operation and maintenance in the PPP mode. An amendment bill as part of the Arbitration Postive IRB Infrastructure, ITNL, L&T, Ashoka Buildcon, and Conciliation Act 1996 will be introduced Gayatri Projects, Sadbhav Engineering and KNR to streamline institutional arrangements for Construction among others. resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts. Land monetisation and railway station Positive NBCC. redevelopment - Amendment to the Airport Authority of India Act to enable effective monetisation of land assets. The resources so raised will be utilised for airport upgradation. However, 25 railway stations are expected to be awarded for redevelopment during FY2018. Budget impact: Positive Sector view: Neutral Affordable housing to be given infrastructure Positive DLF, Ashiana Housing, Godrej Properties, Century status. Plyboards, Kajaria Ceramics, Cera Sanitaryware and Somany Ceramics. Under the scheme for profit-linked income tax Positive DLF, Ashiana Housing and Godrej Properties. deduction for affordable housing, carpet area instead of built up area of 30 sq mtr and 60 sq mtr will be counted. 30 sq mtr to apply only in case of municipal limits of 4 metro cities and for the rest it will be 60 sq mt. To take effect from April 1, 2018 onwards. Reduction in the holding period for computing Neutral DLF, Ashiana Housing and Godrej Properties. Real Estate long-term capital gains for transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from April 1, 1981 to April 1, 2001 for all classes of assets, including immovable property. To take effect from April 1, 2018 onwards. To reduce the period of holding from the Positive DLF, Ashiana Housing and Godrej Properties. existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset. To take effect from April 1, 2018 onwards.

February 2017 16 Sharekhan ValueGuide EQUITY FUNDAMENTALS Budget Special

Sectoral analysis Overall Sector Key announcements Key companies to be affected impact The capital gains tax to the owner shall be Positive Godrej Properties and Asiana Housing. chargeable to the income-tax as income of the previous year, whereby the CC is issued as against the year in which the possession of immovable property is handed over to the developer for development of a project. To take effect from April 1, 2018 onwards. In case any monetary consideration is payable under the specified agreement, tax at the rate of 10% shall be deductible from such payment. This amendment will take effect from April 1, 2017. Real Estate Tax on notional rental income for constructed Positive DLF and Godrej Properties. buildings will apply only one year of the end of the year in which completion certificate is received. To take effect from April 1, 2018. The National Housing Bank will refinance Positive DLF, Ashiana Housing and Godrej Properties. individual housing loans of about Rs20,000 crore in FY2018. Allocation for the Pradhan Mantri Awaas Yojana Positive DLF, Ashiana Housing and Godrej Properties. - Gramin increased from Rs15,000 crore in BE FY2017 to Rs23,000 crore in FY2018 with a target to complete 1 crore houses by 2019 for the homeless and those living in kutcha houses. Budget impact: Neutral Sector view: Neutral A specific programme for the development of Positive Container Corporation of India, Gateway multi-modal logistics parks, together with multi Distriparks and Allcargo Logistics. Logistics modal transport facilities, will be drawn up and implemented. Budget impact: Positive Sector view: Positive (preffered picks UltraTech and The Ramco Cements) Increased allocation in Infrastructure and sops Positive UltraTech, Shree Cement and The Ramco Cement & for Affordable Housing. Cements. Cement Increased allocation for Rural and Agriculture & Positive UltraTech, Shree Cement and The Ramco Products Allied sectors at Rs187,223 crore. Cements. Budget impact: Positive Sector view: Selective (preffered picks: HUL, ITC, Emami, GCPL & Jyothy Laboratories) Focus on rural development: with focus on Positive Increase in allocation under various schemes for improving rural infrastructure, the government rural development is positive for FMCG companies has increased allocation on various schemes such as HUL, ITC, Emami, Godrej Consumer such MNREGA, besides aiming for a smooth flow Products (GCPL) and Jyothy Laboratories etc. of agriculture credit and funding under various irrigation schemes. Relief to salaried individuals: The existing Positive This will be beneficial for FMCG and Consumer rate of taxation for individual assesses falling Discretionary sectors (including Apparels and under the income slab of Rs2.5 lakh to Rs5 lakh Travel & Tourism), as this will lead to more money Consumer reduced to 5% from the present rate of 10%. in the hands of individuals to spend. Positive for Goods & Kewal Kiran Clothing, Relaxo Footwears, Thomas Discretionary Cook India and Wonderla Holidays etc. Increase in basic customs duty on cashew nuts Negative Marginally negative for companies such as (roasted, salted or roasted & salted) from 30% Britannia, ITC (food business) and others. to 45% No increase in Service Tax (kept unchanged at Positive Expectation was for an increase in the Service 15%) Tax by 200BPS in view of GST implementation. No increase in the Service Tax is positive for consumer service companies such as Wonderla Holidays, Thomas Cook India, Cox & Kings, Jubilant Foodworks and Speciality Restaurants.

February 2017 17 Sharekhan ValueGuide Budget Special EQUITY FUNDAMENTALS

Sectoral analysis Overall Sector Key announcements Key companies to be affected impact Budget impact: Positive Sector view: Positive (preferred picks: SBI, Bank of Baroda, PNB, Repco Home Finance and Gruh Finance Banks Target for agricultural credit in FY2018 raised to Neutral Mainly PSU Banks. Rs10 lakh crore (from Rs9 lakh crore in FY2017). PSU Banks Rs10,000 crore for recapitalisation of banks Neutral In line with already announced Indradhanush Plan provided in FY2018. to recapitalise PSU Banks. Promise of additional funds to be made available (if required) is also reiteration of earlier plan. Banks Increased allowable provision for Non- Positive Will reduce tax liablity of banks; benefit to Axis Performing Assets from 7.5% to 8.5%. Bank, ICICI Bank, SBI, BOB, PNB etc. Banking & NBFC Affordable housing to be given infrastructure Positive Banks and HFCs like Repco Home Finance, Gruh status. Finance, LIC Housing, PNB Housing etc. with low average ticket size loans; will have lower risk weights; refinance from NHB. Banking & NBFC Bill to curtail the menace of illicit deposit Positive Will result in deposits (low cost) accretion for schemes will be introduced. Banks and NBFCs. Budget impact: Positive Sector view: Positive (prefered picks: L&T, Finolex Cables, V-Guard, Kalpataru Power and Skipper) Electrification - With commitment to achieve Positive L&T, Kalpataru Power & Transmission, KEC 100% village electrification by May 2018, the International and Skipper. government has increased allocation by Rs4,814 crore for the Deendayal Upadhayaya Gram Jyoti Yojna. Water - To provide safe drinking water to over Positive Va Tech Wabag, ITD Cementation and Ion 28,000 arsenic and fluoride affected habitations Exchange. in the next 4 years through the National Rural Drinking Water Programme (NRDWP). Allocation for the National Ganga Plan "Namami Gange" stands at Rs2,250 crore. Optic Fibre Cables- Allocation to the Bharatnet Positive Sterlite Technology and Finolex Cables. project increased to Rs10,000 crore from Rs6,000 crore, which will provide high-speed broadband connectivity to Gram Panchayats Capital Goods / with WiFi Hot Spots and access to digital Power services at low tariffs. Defence - Defence expenditure (excluding Positive L&T, BEML and Reliance Defence. pension payout) has been provided a sum of Rs2,74,114 crore, including Rs86,488 crore for defence capital. Solar - Proposal for the second phase of Solar Positive Ujjas Energy and Indosolar. Park development for an additional 20,000 MW capacity and developing of 7,000 railway stations with solar power in the medium term. Reduction of BCD for fuel cell based power generating systems from 6% to 5%. LED - Basic customs duty & Countervailing duty Positive Crompton Greaves Consumer, Havells, Finolex on all parts for use in the manufacture of LED Cables and Bajaj Electricals. lights or fixtures, including LED lamps, reduced to 5% & 6%, respectively. Infra spending on railways - huge capital and Positive ABB, KEC International, Kalpataru power & development expenditure for Railways at Transmission, Siemens, BEML. Rs131,000 crore, of which Rs55,000 crore provided by the government. Metro Rail Policy - A new Metro Rail Policy Positive ABB, KEC International, Kalpataru Power & Railway will be announced, with focus on innovative Transmission, Siemens and J Kumar Infra. models of implementation and financing. This will facilitate greater private participation and investment in construction and operation with increased budgetary allocation to Rs18,000 crore.

February 2017 18 Sharekhan ValueGuide EQUITY FUNDAMENTALS Wealth Creator Portfolio

Wealth Creator Portfolio January 31, 2017 Ahead of broader indices

Objective: To build a balanced and actively managed portfolio Portfolio performance review of quality companies that will help create meaningful wealth for investors in the multi-year rally expected in the Indian Sharekhan’s Wealth Creator portfolio continued to equity market. outperform the broader indices in January 2017 with a cumulative weighted average return of 16.1% as against In addition to some bottom-up picks, the portfolio contains 4.9%/8.4% returns in Sensex/Nifty. stocks identified based on three key themes: We are not making any changes in the current portfolio Policy push: Stocks from sectors benefiting from and expect it to maintain the leading performance in 2017 improvement in the policy environment calendar year. Early gainers: Beneficiaries of an economic recovery (stocks from auto, banking & financial services, logistic sectors) Evergreen: Steady performers that provide stable and consistent returns including urban consumption plays

COMPARATIVE RETURNS Particulars Returns (as on January 31, 2017) Since inception (August 21, 2014) Wealth Creator folio (weighted average returns) 16.1 - Large-cap (64%) 12.6 - Mid-cap (36%) 22.5 Sensex 4.9 Nifty 8.4 CNX Mid-cap 37.9

UPDATE ON WEALTH CREATOR PORTFOLIO Reco price (Rs) Price target (Rs) Sr No Scrip Weights (%) Potential upside 31-Jan-2017 March-2019 Large-caps (64% weightage; 8% each) 1 Axis Bank 8 466 1210 159.7 2 Larsen & Toubro 8 1445 3800 163 3 Maruti Suzuki 8 5897 8750 48.4 4 Britannia 8 3127 5400 72.7 5 IndusInd Bank 8 1253 1950 55.7 6 Sun Pharmaceuticals 8 632 1650 161.3 7 Tata Consultancy Services 8 2230 5100 128.7 8 TVS Motor 8 385 725 88.1 Mid-caps (36% weightage; 4% each) 9 Capital First 4 648 1485 129.1 10 V-Guard 4 205 310 51.2 11 Indian Oil Corporation 4 366 580 58.4 12 IRB Infra 4 232 650 180.5 13 Network 18 Media 4 36 135 279.7 14 Gabriel India 4 109 200 82.9 15 Century Plyboards 4 196 440 124.9 16 Triveni Turbine 4 120 265 121.5 17 PI Industries 4 867 1900 119.1

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

February 2017 19 Sharekhan ValueGuide Stock Update EQUITY FUNDAMENTALS

Bajaj Auto Hold CMP: Rs2,838 January 31, 2017 COMPANY DETAILS Price target: Rs3,000 Domestic market recovery to be offset by export Market cap: Rs82,115 cr weakness; maintain Hold with revised PT of Rs3,000 52-week high/low: Rs3,122/2,173 NSE volume (No of shares): 2.5 lakh KEY POINTS BSE code: 532977 Operating performance marginally ahead of estimate: Bajaj Auto’s (BAL) topline in NSE code: BAJAJ-AUTO Q3FY2017 declined by 9% YoY to Rs5,067 crore, driven by an 11% drop in volumes. However, Sharekhan code: BAJAJ-AUTO BAL surprised positively by reporting a marginal 2% YoY growth in realization. OPM declined Free float (No of shares): 14.7 cr by 40BPS YoY to 20.6%. EBITDA at Rs1,044 crore declined by 11% YoY, but was ahead of our SHAREHOLDING PATTERN expectation of Rs989 crore. Higher other income of Rs319 crore (up 32% YoY) led to the net

Institutions profit of Rs925 crore, which was ahead of our expectation of Rs829 crore. Corporate 9% Bodies 7% Outlook for exports to remain challenging in near term: BAL’s key export markets have been under pressure, as their local currencies have depreciated sharply vis-a-vis the US

Promoters Foreign dollar. BAL’s export volumes are down by 22% YoY in 9MFY2017 and we expect the company 18% 49% to end FY2017 with an overall 19% drop in export volumes. BAL has indicated that the

Public and overseas headwinds are likely to persist at least for another couple of quarters. Others 17% Outlook and valuation: Domestic volumes are likely to recover in FY2018 on the back of the improved liquidity situation, perked-up rural sentiment (on the back of enhanced PRICE PERFORMANCE Rabi sowing and higher MSPs). We expect BAL to report double-digit volume growth in the (%) 1m 3m 6m 12m domestic market. However, export volumes are likely to remain under pressure in the near Absolute 8.8 1.7 5.5 25.4 term due to a steep fall in local currencies of BAL’s key export markets (Africa and Latin Relative to Sensex 2.3 3.1 6.6 9.2 America), and heightened competition from peers. We retain our ‘Hold’ rating on the stock with a revised price target of Rs3,000.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Bharat Electronics Hold CMP: Rs1,586 January 30, 2017 COMPANY DETAILS Price target: Rs1,700 Strong performance, limited upside; downgrade Market cap: Rs35,429 cr to Hold with revised price target of Rs1,700 52-week high/low: Rs1,624/1,009 NSE volume (No of shares): 3.5 lakh KEY POINTS BSE code: 500049 Strong quarter: Revenue for Q3FY2017 grew by 37% YoY to Rs2,191.3 crore, led by improved order execution. Key orders executed during the quarter included Radio Relay Frequency NSE code: BEL (LB), Hand Held Thermal Imager (with laser range finder), Fire Control Systems, Akash Sharekhan code: BEL Weapon Systems (Army), 3D Tactical Control Radar, L-70 Gun upgrade and Weapon Location Free float (No of shares): 5.7 cr Radar. SHAREHOLDING PATTERN Margin performance continues to surprise positively: The Operating Profit Margin (OPM) improved by 470BPS to 22%, with better operating leverage. Net profit grew by 33.3% YoY Institutions 16% to Rs373.5 crore. At the end of Q3FY2017, total order book stood at Rs33,806 crore, up by a Non- modest 5% YoY, which is the slowest growth in the order book in the last three quarters promoter Promoters corporate Likely to surpass management guidance of 10-12% topline growth in FY2017: The BEL 74% 3% management had earlier given a guidance of 10-12% revenue growth in FY2017. Given Foreign the 9MFY2017 revenue growth (ex-other operating income) of 14% YoY, and Q4 being a 4% seasonally strong quarter, we foresee the company overshooting the management’s earlier Public and Others guided growth rate of 12-14%. 3% Downgrade to Hold with a revised price target of Rs1,700: We have marginally tweaked our PRICE PERFORMANCE earnings estimates for FY2017/FY2018 to factor in the better-than-expected performance in Q3FY2017. BEL remains our preferred pick for the domestic defence play on account of its (%) 1m 3m 6m 12m strong manufacturing and R&D base, good cost control and growing indigenisation to aid 14% Absolute 9.4 19.4 23.2 27.0 CAGR in earnings over FY2016-FY2019. However, given the strong run-up in the stock of ~25% Relative to Sensex 2.8 21.0 24.5 10.6 in the last three months (15% in the last one month alone), we see limited upside from the current level. Therefore, we downgrade the stock to ‘Hold’ from ‘Buy’ with a revised price target of Rs1,700. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 20 Sharekhan ValueGuide EQUITY FUNDAMENTALS Stock Update

Bharti Airtel Hold CMP: Rs312 January 25, 2017 COMPANY DETAILS Price target: Rs340 Competitive intensity flaring up; maintain Hold Market cap: Rs124,539 cr KEY POINTS 52-week high/low: Rs384/282 India wireless business feels the heat from JIO entry: Bharti’s revenue declined by 3.1% NSE volume (No of shares): 31.8 lakh YoY and 5.3% QoQ to Rs23,364 crore, below our expectations. OPM for Q3FY2017 contracted BSE code: 532454 by 192BPS QoQ to 36.4%, but improved by 136BPS YoY. As a result, the adjusted net profit NSE code: BHARTI declined by 51.8% QoQ and 51.5% YoY to Rs707.7 crore. Sharekhan code: BHARTI Consolidation to gather further steam: Owing to JIO’s free trial offer, the Bharti Free float (No of shares): 131.4 cr management believes that the competitive intensity among the nine Indian telecom players SHAREHOLDING PATTERN will remain elevated. It also believes that the pressure will continue on data as well as voice Institutions pricing till the JIO’s free offer period is over. Since the end period of JIO’s free offer is still 11% unclear at this point, aggressive tariff plans, huge capex spends and increase in costs will continue for the next few quarters. Large telecom players will invest to improve the quality of their networks and start offering aggressive tariff plans to retain or marginally increase Promoters Foreign 67% 20% their market share. On the other hand, smaller players will struggle to compete and start monetising their under-utilised spectrum assets. Going ahead, we believe there will be an Public and Others increase in M&A activity, as the smaller telcos will find it difficult to operate in the ongoing 2% highly competitive environment and cut-throat price war. PRICE PERFORMANCE Valuation - Maintain Hold with a revised price target of Rs340: We have tweaked our (%) 1m 3m 6m 12m estimates for FY2017/FY2018 on account of lower-than-anticipated performance in Q3FY2017 and extended freebies from JIO. We are positive on Bharti in the long term due to Absolute 7.1 3.2 -13.5 6.4 the company’s largest market share in terms of revenue as well as subscribers, along with Relative to Sensex 1.9 6.2 -12.5 -6.4 its pan-India presence and strong balance sheet strength to weather competitive intensity. We have maintained our ‘Hold’ rating on Bharti with a revised price target of Rs340. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Godrej Consumer Products Buy CMP: Rs1,604 January 30, 2017 COMPANY DETAILS Price target: Rs1,750 Resilient performance; Market cap: Rs54,666 cr maintain Buy with revised price target of Rs1,750 52-week high/low: Rs1,710/1,138 NSE volume (No of shares): 2.2 lakh KEY POINTS BSE code: 532424 Revenue growth in high single digit; margin improvement sustained on YoY basis: For NSE code: GODREJCP Q3FY2017, Godrej Consumer Products’ (GCPL) revenue grew by ~9% YoY to Rs2,485.8 crore. Sharekhan code: GODREJCP Affected by demonetisation, the Indian business revenue stood flat, while the International Free float (No of shares): 12.5 cr business revenue grew by 19% YoY. Despite an increase in the raw material prices, gross SHAREHOLDING PATTERN margins expanded by 128BPS, largely on account of a better product mix. The OPM improved by 91BPS to 20.8% and the operating profit grew by 13.7% YoY to Rs516.8 crore. However, Others higher interest cost led to just a 5.0% YoY growth in the adjusted PAT at Rs348.9 crore. 6% Outlook – Domestic and Indonesia revenue to recover from Q4FY2017; OPM to remain Foreign & stable YoY in near term: The GCPL management expects the domestic business to recover in Institutions 31% Q4FY2017, with expected rebound in the HI segment and sales revival in the Soap segment. On the international front, the HI segment in Indonesia is expected to revive, while the African business is expected to maintain the current good growth momentum in the coming Promoters 63% quarters. The company would like to maintain the margins through a better product mix, cost-saving initiatives and calibrated price hikes in the coming quarters. We expect GCPL’s PRICE PERFORMANCE consolidated OPM to sustain in the range of 18-19%. (%) 1m 3m 6m 12m Broadly maintain estimates; Retain Buy with a revised price target of Rs1,750: We have Absolute 7.5 -5.0 -6.1 34.6 broadly maintained our earnings estimates for FY2017, FY2018 and FY2019. The stock is Relative to Sensex 1.0 -3.7 -5.1 17.2 currently trading at 36.0x/31.0x its FY2018E/FY2019E earnings. We have maintained our ‘Buy’ recommendation with a revised price target of Rs1,750. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 21 Sharekhan ValueGuide Stock Update EQUITY FUNDAMENTALS

Grasim Industries Buy CMP: Rs970 January 30, 2017 COMPANY DETAILS Price target: Rs1,150 VSF continues to outperform; Retain Buy with Market cap: Rs45,287 cr unchanged price target of Rs1,150 52-week high/low: Rs1,070/648 NSE volume (No of shares): 5.4 lakh KEY POINTS BSE code: 500300 VSF segment boosts earnings amid flattish cement performance: Grasim Industries’ NSE code: Grasim (Grasim) consolidated net sales (net of excise duty) growth of 1.1% YoY at Rs8,495 crore Sharekhan code: Grasim was muted, as revenue growth in VSF (up 9.8% YoY) and Chemical (up 6.3% YoY) segments Free float (No of shares): 32.1 cr was largely offset by a 1.5% YoY drop in Cement revenue. VSF EBITDA margin expanded by SHAREHOLDING PATTERN 359BPS due to better realisations and operating efficiencies, leading to a 6.6% YoY growth in EBITDA. Further, the PAT grew by 13.7% YoY to Rs728 crore, led by margin expansion, Public & others Promoter higher other income (up 14.5% YoY), lower interest cost (down 14.2% YoY) and reduced 27% 31% depreciation charge (down 3.7% YoY). Chemical division expansion on track; Restructuring to conclude by H1FY2018: The merger of AB Nuvo, and the subsequent demerger and listing of the Financial Services business have received approvals from the stock exchanges and the Competition Commission MF & FI of India. The transaction is expected to be completed by H1FY2018. The management has 16% FII 26% guided that de-bottlenecking in the VSF division is likely to add 200 tonne/day of capacity over phases and around 50 tonne/day of capacity would not require any capex. Moreover, PRICE PERFORMANCE the Caustic Soda capacity is on track to increase from 840KTPA to 1048KTPA in FY2018. (%) 1m 3m 6m 12m Maintain Buy with unchanged price target of Rs1,150: We have increased our earnings Absolute 12.0 -4.6 -4.1 35.4 estimates marginally for FY2017 and FY2018, primarily factoring in margin expansion in Relative to Sensex 5.3 -3.4 -3.1 17.9 the VSF division. The improved outlook for UltraTech Cement is a positive for Grasim. Consequently, we maintain our ‘Buy’ rating with an unchanged price target of Rs1,150. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Hindustan Unilever Buy CMP: Rs863 January 23, 2017 COMPANY DETAILS Price target: Rs950 Demonetisation impacts Q3FY2017 performance; Market cap: Rs186,846 cr gradual recovery anticipated; PT revised to Rs950 52-week high/low: Rs954/765 NSE volume (No of shares): 11.4 lakh KEY POINTS BSE code: 500696 Volume declines by 4% YoY; revenue flat due to higher realisations; OPM down YoY: In NSE code: HINDUNILVR Q3FY2017, HUL’s revenue stood flat at Rs8,317.9 crore, which was affected by a 4% YoY Sharekhan code: HINDUNILVR decline in volume (due mainly to the demonetisation move). Despite lower volume, the Free float (No of shares): 71.0 cr company’s revenue came in flat due to higher realisation. Gross margins were downby 34BPS YoY at 47.6% and the OPM contracted by 76BPS to 16.3% due to higher raw material SHAREHOLDING PATTERN (RM) prices. The operating profit decreased by 5.2% YoY to Rs1,355.5 crore. Adjusting for the Others exceptional item, the PAT declined by 10.4% YoY to Rs917.8 crore. 14% Management outlook – early signs of normalisation; steady growth momentum could be FIIs seen from Q1FY2018: The HUL management has indicated that the early signs of recovery 13% from demonetisation were seen in most trade channels in December 2016. The consumers’ purchase basket reduced substantially due to demonetisation, but most of them stuck to Domestic their respective brands. The Southern and Western parts of India were the fastest to recover Institutions Promoters from demonetisation vis-à-vis the Eastern and Central parts. Overall, the HUL management 6% 67% expects a gradual improvement in sales in the coming months and foresees a steady revenue growth from Q1FY2018 onwards. Though the RM prices are rising, the company will focus on PRICE PERFORMANCE maintaining the OPM through prudent price hikes and several cost saving initiatives. (%) 1m 3m 6m 12m Fine-tune estimates for FY2017/FY2018; maintain Buy with revised price target of Absolute 7.4 3.3 -4.3 10.3 Rs950: We have fine-tuned our estimates for FY2017 and FY2018 to factor in lower-than- Relative to Sensex 4.5 7.3 -1.6 -3.2 expected OPM and lower other income (we are introducing FY2019 estimates in this note). We maintain our ‘Buy’ recommendation with a revised price target of Rs950 (valuing HUL at

Sharekhan Limited, its analyst or dependant(s) of the analyst might be 35x FY2019E earnings). holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 22 Sharekhan ValueGuide EQUITY FUNDAMENTALS Stock Update

Housing Development Finance Corporation Buy CMP: Rs1,369 January 30, 2017 COMPANY DETAILS Price target: Rs1,550 Shrugs off demonetisation; loan book shows Market cap: Rs216,981 cr traction and asset quality maintained 52-week high/low: Rs1,463/1,012 NSE volume (No of shares): 25.3 lakh KEY POINTS BSE code: 500010 Housing Development Finance Corporation (HDFC) posted a better-than-expected Q3FY2017 NSE code: HDFC results, with an 11.9% YoY growth in the standalone profit after tax (PAT) at Rs1,702 crore, Sharekhan code: HDFC helped by strong AUM growth and better-than-expected Net Interest Income (NII). HDFC Free float (No of shares): 158.51 cr posted NII of Rs2,575 crore, up by 18% YoY and 12.1% QoQ, which was ahead of expectations, SHAREHOLDING PATTERN as the company benefitted from softer cost of funds as well as improved spreads. Public and During the quarter, HDFC saw a 23% YoY growth in the individual loan book (after adding others 20% back loans sold in the preceding 12 months), and at 17% YoY growth in AUM, shrugged off the effects of demonetisation and the consequent slowdown in the real estate market. Asset quality was largely maintained, with Gross Non Performing Assets (GNPA) at Rs2,341 crore (or 0.81% of the loan book). MF & Foreign 80% HDFC posted stable set of numbers for Q3FY2017, belying fears of demonetisation impact, with the loan book continuing to show traction. With the capital adequacy ratio at 16.4% PRICE PERFORMANCE (Tier I at 13.4%), HDFC is well capitalised currently and well positioned to cash in on any (%) 1m 3m 6m 12m likely push to the housing segment by the government in the future. HDFC’s premium Absolute 9.2 -0.2 -3.2 15.3 valuation is justified, as it is the leading player in the Indian Housing Finance industry, has Relative to Sensex 2.6 1.1 -2.2 0.4 one of the best operating metrics in the industry and a competent management team. We have maintained our ‘Buy’ rating on HDFC with an unchanged price target of Rs1,550.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. IDBI Bank Book out CMP: Rs82 February 07, 2017 COMPANY DETAILS Price target: Rs16,830 cr Weak operating performance, Market cap: Rs86/47 marred by dismal asset quality 52-week high/low: 55.7 lakh NSE volume (No of shares): 500116 KEY POINTS BSE code: IDBI Not only has IDBI Bank posted weak set of numbers for Q3FY2017, but the asset quality NSE code: IDBI has also deteriorated sharply. Gross Non-Performing Assets (GNPA) as a percentage of total Sharekhan code: 53.57 cr assets increased by 211BPS QoQ to 15.16% while the Net Non-Performing Assets (NNPA) at 9.61% increased by 129BPS QoQ. Even on an absolute basis, the GNPA rose by 17% QoQ to Free float (No of shares): 8.8 cr Rs35,245.33 crore and jumped by 79.7% YoY. Exposure to the troubled economic sectors, SHAREHOLDING PATTERN persistently high slippages and total stressed book of 26% (GNPA + Restructured) could keep Public the bank’s performance subdued, while a lower capital adequacy ratio (Tier 1 of 8.5%; 26% CRAR of 11.3%) would be a key impediment to growth in advances. Moreover, the IDBI Bank management does not expect any improvement in asset quality over the next 3-4 quarters. The core business would also suffer due to weak corporate credit demand and the expected pressure on Net Interest Margin (NIM). The IDBI Bank management has indicated that the NPA stress may remain elevated going Promoter 74% forward while growth in advances is expected to be muted in the near to medium term. We expect that asset quality challenges for IDBI Bank will impact its other operating PRICE PERFORMANCE parameters, which will be a negative. While mid-sized private sector banks have posted strong Q3FY2017 results so far, we believe that larger Public Sector Banks (PSB) are also (%) 1m 3m 6m 12m likely to see improvement in their performance in the medium term. Therefore, private Absolute 17.5 21.8 20.2 46.6 banks and PSBs present a better investment case vis-à-vis IDBI Bank. We are of the opinion Relative to Sensex 10.5 16.8 18.3 25.0 that investors should exit IDBI Bank and shift to better managed private banks or larger PSBs.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 23 Sharekhan ValueGuide Stock Update EQUITY FUNDAMENTALS

Infosys Buy CMP: Rs975 January 13, 2017 COMPANY DETAILS Price target: Rs1,150 Steady quarter despite challenges; maintain Buy Market cap: Rs223,987 cr 52-week high/low: Rs1,278/900 KEY POINTS NSE volume (No of shares): 37.3 lakh Beats estimates: Infosys’ CC revenue declined by 0.3% QoQ due to a weak volume growth BSE code: 500209 of 0.2% QoQ, and a 1.1% QoQ drop in realisation. On a reported basis, the revenue in US NSE code: INFY dollar terms declined by 1.4% QoQ to $2,551 million. EBIT margin expanded by 20BPS QoQ Sharekhan code: INFY to 25.1%, led by better operational efficiencies, lower variable pay and the benefit of rupee Free float (No of shares): 200.4 cr depreciation. As a result, the net profit grew by 2.8% QoQ to Rs3,708 crore. Infosys revised SHAREHOLDING PATTERN its FY2017 revenue growth guidance to 8.4-8.8% on CC basis (from 8-9% earlier), reflecting positive QoQ growth in Q4FY2017. Public and Others Expect recovery in FY2018, margins to remain in targeted range: (1) The Infosys 10% management highlighted that a healthy deal pipeline and improvement in client spends will Promoters accelerate the growth momentum in Q4FY2017 as well as in FY2018; (2) The management Foreign 13% 58% kept unchanged its FY2017 EBIT margin band of 24-25%. It has sharpened its focus on fixed price projects and role ratios to enhance the margins in the coming years; (3) Local hiring has been augmented materially amid the change in administration in the US. To address the Institutions 18% potential change in the US visa regime going forward, Infosys has been investing heavily on automation, acquisition of local talent and delivery models. PRICE PERFORMANCE Valuation reasonable; visa overhang may restrict material outperformance: We have (%) 1m 3m 6m 12m broadly maintained our earnings estimates for FY2017/FY2018 on account of a steady revenue Absolute -2.0 -4.9 -16.7 -6.1 performance and positive management commentary. However, investors are concerned on Relative to Sensex -3.5 -1.8 -15.6 -15.4 the magnitude of impact on the company’s margins in case of any drastic change in the US visa norms. Nevertheless, given the modest valuation and room for improvement, we

Sharekhan Limited, its analyst or dependant(s) of the analyst might be maintain our ‘Buy’ rating on Infosys with a price target of Rs1,150. holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Kewal Kiran Clothing Buy CMP: Rs1,725 January 31, 2017 COMPANY DETAILS Price target: Rs2,250 One-off quarter; Gradual improvement ahead; Market cap: Rs2,126 cr Retain Buy with revised PT of Rs2,250 52-week high/low: Rs2190/1603 NSE volume (No of shares): 641 KEY POINTS BSE code: 532732 Demonetisation spoils operating performance – revenue flat; OPM falls due to higher NSE code: KKCL operating cost: For Q3FY2017, KKCL’s overall revenue grew by 2.4% YoY to Rs98.5 crore Sharekhan code: KKCL due to demonetisation. Gross margins declined by 204BPS YoY to 54.5% due to higher cotton prices. Increased personnel and marketing expenses (due to early EOSS), along with muted Free float (No of shares): 0.3 cr sales led to a 33.6% YoY decline in the operating profit to Rs11.4 crore. Though the operating SHAREHOLDING PATTERN profit contracted, a higher other income restricted a substantial decline in PAT (down 13% YoY). Public and Foreign others 13% Balance sheet remains sturdy despite slowdown: KKCL is well known for its strong balance 4% Institutions sheet and stringent working capital management. The company’s cash flows remained 8% strong, with operating cash flows coming in at Rs42.51 crore in M9FY2017. The debt:equity Non-promoter corporate ratio remained low at 0.13x in Q3FY2017. Its return ratios remained robust, with RoCE and 1% RoE coming in at 24.2% and 21.6%, respectively. Promoters 74% Maintain Buy with revised price target of Rs2,250: We have reduced our earnings estimates by 6% each for FY2017 and FY2018 to factor in the impact of the subdued Q3FY2017 PRICE PERFORMANCE performance and slow recovery in the Branded Apparel space. KKCL has one of the best (%) 1m 3m 6m 12m balance sheets among the Indian Branded Apparel players, with high return ratios and Absolute 0.6 -3.8 -0.9 -9.6 positive free cash flows, which make it one of the better picks in the Branded Apparel space. Relative to Sensex -5.5 -2.5 0.1 -21.3 Further, we expect KKCL to be one of the key beneficiaries of the likely implementation of GST. We maintain our ‘Buy’ recommendation on the stock with a revised price target of Rs2,250. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 24 Sharekhan ValueGuide EQUITY FUNDAMENTALS Stock Update

Larsen & Toubro Buy CMP: Rs1,443 January 30, 2017 COMPANY DETAILS Strong operational performance but order inflow Price target: Rs1,665 Market cap: Rs134,405 cr guidance downgraded; price target revised to Rs1,665 52-week high/low: Rs1615/1017 NSE volume (No of shares): 14.6 lakh KEY POINTS BSE code: 500510 Robust operational performance: Larsen & Toubro (L&T) reported strong operational performance, with OPM expanding by 140BPS to 9.6% even after accounting for Rs100 crore NSE code: LT provisions for receivables for the Nabha power plant. The reported PAT grew by 39% YoY to Rs972 Sharekhan code: LT crore despite higher depreciation provision. Adjusting for the one-time cost of impairment, the Free float (No of shares): 93.1 cr adjusted net profit grew by 78% YoY to Rs1,244 crore, which was ahead of our estimate. The consolidated order inflows declined by 10% YoY due to a muted domestic capex cycle and delay SHAREHOLDING PATTERN in awarding of orders. International orders grew by 7% YoY, led by orders in Building & Factories, Heavy Civil and Hydrocarbon businesses. The order backlog stood at a massive ~Rs2.5 lakh crore, Foreign reflecting a healthy book-to-bill ratio of 2.4x. 17% Revenue and order inflow guidance cut to 10%, margin guidance maintained: The L&T management scaled down the FY2017 revenue/order inflow guidance to 10% each, from the earlier Others guidance of 12-15% revenue growth and 15% expansion in order inflows, due to slower execution, 43% elongated clearance process and absence of domestic capex from the private sector. However, the L&T management is confident of achieving the order inflow guidance, as the company is the DIIs lowest bidder for ~Rs70,000-80,000 crore worth of projects. Nevertheless, the L&T management 40% has maintained the OPM expansion of 50BPS (excluding the services business) for FY2017. View - Revival in domestic capex cycle is key; maintain Buy but price target revised: Though PRICE PERFORMANCE the L&T management has trimmed its order inflow and revenue growth guidance, we believe that (%) 1m 3m 6m 12m the same are achievable, as traditionally Q4 is the strongest quarter for the company, and it has Absolute 8.4 -2.3 -7.5 31.7 a massive order backlog. Moreover, the L&T management continues to focus on its medium-term strategic plan of achieving profitable growth and higher RoE, besides superior capital allocation. Relative to Sensex 1.9 -1.0 -6.5 14.7 We maintain our earnings estimates for FY2017 and FY2018, and revise our SoTP-based price target to Rs1,665, factoring in its robust business model, competent management, strong execution and a healthy balance sheet. We continue to maintain our ‘Buy’ rating. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. LIC Housing Finance Buy CMP: Rs532 January 17, 2017 COMPANY DETAILS Price target: Rs700 Stable asset quality, growth outlook maintained Market cap: Rs26,858 cr 52-week high/low: Rs624/389 NSE volume (No of shares): 22.7 lakh KEY POINTS BSE code: 500253 LIC Housing Finance (LICHF) posted better-than-expected results for Q3FY2017, with a NSE code: LICHSGFIN strong net profit growth of 19.2% YoY at Rs499.3 crore, driven by a healthy 22.6% YoY growth in the Net Interest Income (NII) and controlled operating expenditure (up 15.9% YoY). The Sharekhan code: LICHSGFIN results are strong despite the impact of demonetisation and weak real estate demand. Free float (No of shares): 30.12 cr Despite a weak environment, the overall loan book growth remained steady at 15.3% YoY. SHAREHOLDING PATTERN Within the loan book, individual loans (accounting for 96.7% of the total loans) grew by 14.5% YoY while developer loans (accounting for 3.3% of the total loan book) grew by 45.2% YoY. LICHF’s developer loan book increased by 45.2% YoY on the back of a sharp 218.9% YoY increase in disbursements. Promoter 40.3% The Net Interest Margin (NIM) increased sharply by 17 basis points (BPS) YoY to 2.75% and the incremental spreads increased by 40BPS YoY during Q3FY2017, mainly as incremental cost of Public funds (CoF) fell sharply by 58BPS YoY while incremental yields contracted by 16BPS YoY. 59.7% The asset quality remained stable, with the Gross Non-Performing Assets (GNPA) and net NPAs (NNPA) for Q3FY2017 coming in at 0.56% and 0.27%, respectively versus 0.57% and PRICE PERFORMANCE 0.28% on a QoQ basis. (%) 1m 3m 6m 12m We expect LICHF to be among the better placed Non-Banking Finance Companies to grab a pie of the increased housing demand due to a favourable interest rate environment, Absolute -3.9 -9.2 4.8 9.6 the government’s push for “housing for all” and a strong pan-India network. The stock is Relative to Sensex -5.8 -8.0 6.5 -1.5 available at 2.2x FY2018E ABV, which we find attractive. We maintain our ‘Buy’ rating on the stock with an unchanged price target of Rs700. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 25 Sharekhan ValueGuide Stock Update EQUITY FUNDAMENTALS

Maruti Suzuki India Buy CMP: Rs5,797 January 25, 2017 COMPANY DETAILS Price target: Rs6,430 Outperformance to sustain; maintain Buy with Market cap: Rs175,110 cr unchanged price target of Rs6,430 52-week high/low: Rs5972/3202 NSE volume (No of shares): 6.9 lakh KEY POINTS BSE code: 532500 In line results: The topline grew by 12% YoY to Rs16,865 crore. While the volume growth NSE code: MARUTI slowed to 4% YoY, realisation per vehicle was up strongly at 9% YoY, led by a better product Sharekhan code: MARUTI mix and price hikes. Operating Profit Margin (OPM) for the quarter improved by 50BPS on a Free float (No of shares): 13.2 cr YoY basis to 14.8%. Net profit at Rs1,745 crore grew by 48% YoY. SHAREHOLDING PATTERN Order backlog and new launches to enable MSIL to outpace industry: The PV industry is poised to grow at a better rate than the Q3FY2017 growth of 2% YoY. Also, MSIL’s robust Institutions 12% order backlog for the recent launches will enable it to continue gaining market share. The compact UV Brezza and the premium hatchback Baleno have waiting periods of six months

Promoters and four months, respectively. Also, the recently introduced “Ignis” premium hatchback has 56% Foreign 25% a waiting period of about two months. We expect MSIL’s domestic volume growth to improve to 10% YoY in Q4FY2017. Overall, we expect MSIL to report a 9% YoY growth in its FY2017 Public and Others domestic volumes. Further, MSIL indicated that it will introduce one new product ever year 7% along with refreshes to outpace the PV industry growth.

PRICE PERFORMANCE Valuation: The PV industry is poised for a better growth in FY2018 on the back of gradually improving economic growth and easing of the tight liquidity situation. MSIL is well poised (%) 1m 3m 6m 12m to outpace the domestic PV industry growth, driven by a huge order backlog of recent Absolute 10.4 0.4 30.9 40.7 launches and a strong product pipeline. We expect 11% volume CAGR and 14% topline CAGR Relative to Sensex 5.0 3.3 32.4 23.8 over FY2017-FY2019. We retain ‘Buy’ rating on the stock with an unchanged price target of Rs6,430. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Persistent Systems Buy CMP: Rs613 January 23, 2017 COMPANY DETAILS Price target: Rs790 Investing in the right areas; Maintain Buy with an Market cap: Rs4,901 cr unchanged price target of Rs790 52-week high/low: Rs796/501 NSE volume (No of shares): 0.9 lakh KEY POINTS BSE code: 533179 Revenue beats estimate, but margins fall short of expectations: During Q3FY2017, PSL revenue grew by 4.6% QoQ to $110.0 million, driven by a 6.9% QoQ growth in IP-led revenue NSE code: PERSISTENT and a 3.7% QoQ growth in IT Services. However, the company delivered lower-than-expected Sharekhan code: PERSISTENT EBITDA margin at 15.9%, owing to reduced billing days. Forex gain increased by 327.3% QoQ, Free float (No of shares): 5.1 cr led by depreciation in the rupee. This was partially offset by lower other income and higher SHAREHOLDING PATTERN tax provision, resulting in an 11.4% QoQ growth in net profit at Rs81.9 crore. Expect better growth in Q4FY2017: (1) The PSL management expects Q4FY2017 to be Foreign Corporate 23% strong, as it has acquired new logos for its digital business. Further, the recent partnership Bodies with Dell Boomi will drive its digital business going ahead; (2) The company has successfully 2% completed the transition of the IBM IOT business and could be able to take the entire Public and team into its Board. The management foresees traction in this IBM CE/CLM product and Institutions Others 14% 25% expects a strong growth in FY2018; (3) Digital, Alliance and Accelerite will continue to deliver sustainable growth in the coming years; and (4) PSL is not perturbed about any Promoters hostile regulatory developments in relation to the current US visa regime, as the company 36% has around 47% in terms of local US hires. PRICE PERFORMANCE Reasonable valuation, long-term digital play; maintain Buy: We have marginally tweaked our revenue estimates for FY2017/FY2018, led by higher-than-expected revenue growth (%) 1m 3m 6m 12m in Q3FY2017, sharpening focus on IP and Digital businesses, and some green shoots in Absolute 4.3 -7.8 -1.4 6.7 the Services business. We continue to remain positive on PSL, as the company has been Relative to Sensex 1.5 -4.2 1.4 -6.4 continuously focusing on strengthening its digital capabilities to remain relevant to customers in the ongoing IT industry transition. We maintain our ‘Buy’ recommendation on PSL with an unchanged price target of Rs790. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 26 Sharekhan ValueGuide EQUITY FUNDAMENTALS Stock Update

Raymond Hold CMP: Rs505 January 27, 2017 COMPANY DETAILS Price target: Rs550 Mixed performance; Market cap: Rs3,100 cr Maintain Hold with revised price target of Rs550 52-week high/low: Rs654/351 NSE volume (No of shares): 22.7 lakh KEY POINTS BSE code: 500330 Demonetisation affects performance in Q3FY2017: Raymond posted a muted performance NSE code: RAYMOND in Q3FY2017, with revenue declining by 5.6% YoY to Rs1,306.9 crore, mainly due to lower Sharekhan code: RAYMOND revenue across segments (barring Branded Apparels). In spite of gross margins staying stable, a spike in the Employee Cost and Other Expenditure led to a 49.7% YoY decline in the Free float (No of shares): 3.5 cr operating profit to Rs58.5 crore. Due to the lower operating profit, Raymond reported a net SHAREHOLDING PATTERN loss of Rs14.7 crore as against a net profit of Rs39.1 crore in Q3FY2016. Core Textile and Garments volumes decline substantially; Branded Apparel posts Public & Others 34% Promoters moderate revenue growth: Raymond’s Textiles business revenue fell by 11% YoY to 43% Rs657.7 crore. Volume for this segment shrank in November-December due to weakness in Wholesale and MBO channels, and curtailment in wedding expenditure due to the cash crunch situation. The Branded Apparels business’ revenue grew by 6.5% YoY to Rs329.5 Domestic Institutions Foreign crore due to a slowdown in demand in the traditional channels. The Garmenting segment’s 14% Institutions 9% revenue declined by 12% YoY to ~Rs129 crore and the Tools & Hardware segment’s volume was affected by demonetisation in the domestic market and lower exports. PRICE PERFORMANCE Maintained Hold with revised price target of Rs550: We have reduced our FY2017/FY2018/ (%) 1m 3m 6m 12m FY2019 revenue and PAT estimates to factor in the dismal performance in Q3FY2017. We Absolute 9.0 -18.0 12.9 30.6 expect the recovery to take some more time to materialise, considering the slowdown in the Relative to Sensex 2.5 -16.9 14.0 13.7 overall discretionary consumer spending. Therefore, in view of the near-term headwinds, we maintain our ‘Hold’ recommendation on the stock with a revised price target of Rs550 and advise investors to avoid taking fresh positions in the stock at lower levels. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Reliance Industries Buy CMP: Rs1,077 January 16, 2017 COMPANY DETAILS Price target: Rs1,300 Strength in Petchem margin surprises positively; Market cap: Rs349,379 cr Refining margin disappoints 52-week high/low: Rs1,129/889 NSE volume (No of shares): 32.6 lakh KEY POINTS BSE code: 500325 Higher than expected Petchem margin and other income help beat earnings estimate: NSE code: RELIANCE RIL reported Q3FY2017 PAT of Rs8,022 crore (+10% YoY), higher than our estimate of Rs7,742 crore on account of a better-than-expected Petchem EBIT margin of 15.5% and a higher Sharekhan code: RELIANCE other income of Rs3,025 crore (+32.6% YoY). GRM at $10.8/bbl was marginally lower than Free float (No of shares): 178.1 cr our estimate of $11/bbl, but the same was largely offset by a higher refining throughput SHAREHOLDING PATTERN of 17.8mmt (vs our estimate of 17.5mmt). The Oil & Gas segment reported a loss of Rs125 crore, as the domestic price declined by 18% QoQ to $2.8/mmbtu and the KG D-6 gas Others 22% production fell by 2.7% QoQ to 7.5mmscmd. RoGC project expected to come on stream shortly; Reliance Jio adds over 72mn Promoters subscribers: The RoGC project is likely to come on stream in the near term and the major DII 45% 12% utility systems of the Petcoke Gasification project have been charged to support the pre- commissioning activities. Reliance Jio Infocomm’s (Reliance Jio) subscriber base stood at FII 72.4 million as on December 31, 2016, and the company plans an additional investment of 21% Rs30,000 crore in Reliance Jio to expand its network in terms of coverage and capacity. PRICE PERFORMANCE Maintain Buy and price target of Rs1,300: We have fine-tuned our earnings estimates for FY2017 and maintain our FY2018E EPS at Rs114.9. We expect the refining margin to remain (%) 1m 3m 6m 12m firm, as oil demand growth is likely to be strong at around 1.3mbpd in 2017. Moreover, the Absolute 4.9 3.1 8.1 2.3 likely commissioning of RIL’s Petcoke and RoGC projects would fuel earnings growth from Relative to Sensex 2.8 4.5 9.9 -8.0 H2FY2018. Any positive news on Reliance Jio (in terms of subscriber retention post March 2017) could act as a positive trigger. We maintain our Buy rating and the price target of

Sharekhan Limited, its analyst or dependant(s) of the analyst might be Rs1,300. holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 27 Sharekhan ValueGuide Stock Update EQUITY FUNDAMENTALS

UltraTech Cement Buy CMP: Rs3,518 January 23, 2017 COMPANY DETAILS Price target: Rs3,950 Operational efficiency drives good performance Market cap: Rs96,553 cr in a challenging climate; Upgrade to Buy 52-week high/low: Rs4,130/2,680 NSE volume (No of shares): 3.3 lakh KEY POINTS BSE code: 532538 OPM sustained due to operational efficiency: UltraTech Cement’s Q3FY2017 revenue at NSE code: ULTRACEMCO Rs5,540 crore (down 2% YoY; up 2.7% QoQ) was marginally affected by demonetisation. Sharekhan code: ULTRACEMCO Lower volume of 11.4mt (down 0.6% YoY; up 2% QoQ) and reduced average blended cement Free float (No of shares): 10.4 cr realisation of Rs4,860/tonne (down 1.4% YoY; up 0.7% QoQ) affected standalone revenue. SHAREHOLDING PATTERN The Operating Profit Margin (OPM) at 18.9% was higher, as the company was able to contain costs with a reduction in logistics expenditure and Fuel & Power cost. Further, lower Public & others depreciation charge and reduced effective tax rate led to the adjusted standalone net profit 11% growing by 6.7% YoY to Rs563 crore. Foreign Greenfield 3.5mtpa capacity in Madhya Pradesh and JP’s assets to increase cement 21% capacity to 95mtpa: UltraTech will set up a 3.5mtpa cement plant in Madhya Pradesh (MP) Promoter at a capital cost of Rs2,600 crore ($110/tonne). The plant is expected to start commercial 62% MF & FI production from Q4FY2019, which is likely to lower the overall lead distance, apart from 6% meeting the demand in South West MP. Moreover, consolidation of JP group’s cement assets from Q1FY2018 would help the company in expanding its footprint in the Eastern region. PRICE PERFORMANCE Upgrade to Buy with revised price target of Rs3,950: We have increased our FY2017E (%) 1m 3m 6m 12m and FY2018E EPS, factoring in better OPM. We expect a strong earnings growth going Absolute 10.4 -13.4 -2.5 33.0 forward, backed by industry-leading volume expansion and superior operational efficiency. Relative to Sensex 7.4 -10.0 0.3 16.6 Consequently, we assign a higher valuation multiple (due to improved earnings visibility) and upgrade UltraTech to ‘Buy’ with a revised price target of Rs3,950. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Wipro Hold CMP: Rs473 January 25, 2017 COMPANY DETAILS Price target: Rs550 Growth under a cloud; Market cap: Rs115,090 cr maintain Hold with price target of Rs550 52-week high/low: Rs606/410 NSE volume (No of shares): 14.6 lakh KEY POINTS BSE code: 507685 Revenue misses estimates, margin surprises positively: Wipro’s IT Services revenue for Q3FY2017 stood at $1,902.8 million on Constant Currency (CC) basis, up 0.6% QoQ (below NSE code: WIPRO estimates). On a reported basis, Wipro’s total revenue was down by 0.7% QoQ to $1902.8 Sharekhan code: WIPRO million. IT Services EBIT margin improved by 50BPS QoQ (better than expectations), partly Free float (No of shares): 65.0 cr due to one-off revenue from Designit and improved operational efficiency. Net profit grew SHAREHOLDING PATTERN by 2% QoQ to Rs2,109.4 crore. Multiple headwinds for growth in FY2018: The Wipro management stated that multiple Institutions headwinds in the traditional business will continue for the remainder of FY2017, owing to: 6% (1) Expectations of challenges in the Healthcare sector spends in the US, owing to change Corporate Bodies in the American leadership, while the HPS unit will be under pressure too; (2) Restructuring 2% of India and Middle East businesses will impact revenue for a few quarters; and (3) The Promoters Foreign Communications vertical (7.4% of total revenue) will continue to see some softness going 73% 13% forward. Public and Others Acquires Brazil’s IT firm InfoSERVER SA for $8.7 million and divests EcoEnergy division 6% for $70 million: Continuing its acquisition spree, Wipro acquired InfoSERVER SA, an IT service provider focused on Brazil for $8.7 million. InfoSERVER counts some of the largest PRICE PERFORMANCE Brazilian banks as its clients. During the quarter, the company also divested its stake in the (%) 1m 3m 6m 12m EcoEnergy division on a slump sale basis for a sale consideration of $70 million to United Technologies Corporation (UTC). Absolute 5.0 -0.5 -10.5 -11.5 Maintain Hold with price target of Rs550: Wipro’s traditional business continues to see Relative to Sensex -0.2 2.3 -9.4 -22.2 multiple headwinds, which are unlikely to subside in the near term. We continue to remain cautious on Wipro’s growth trajectory and maintain our ‘Hold’ rating with an unchanged  Sharekhan Limited, its analyst or dependant(s) of the analyst might be price target of Rs550. holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 28 Sharekhan ValueGuide EQUITY FUNDAMENTALS Stock Update

Zee Entertainment Enterprises Buy CMP: Rs480 January 24, 2017 COMPANY DETAILS Price target: Rs560 Decent quarter in difficult environment; maintain Market cap: Rs46,063 cr Buy with revised price target of Rs560 52-week high/low: Rs588/350 NSE volume (No of shares): 21.5 lakh KEY POINTS BSE code: 505537 Good quarter: ZEEL Q3FY2017 revenue grew by 3.4% YoY to Rs1,639.10 crore, which is a NSE code: ZEEL tad below our estimate. Advertising revenue grew by 3.4% YoY to Rs955.4 crore, adversely impacted by demonetisation, while Subscription revenue came in at Rs593.5 crore, up 13.7% Sharekhan code: ZEEL YoY. OPM improved by 440BPS YoY, led by better cost discipline and lower loss in &TV. Free float (No of shares): 54.7 cr Reported net profit came in at Rs250.8 crore. SHAREHOLDING PATTERN Comfortable with 30% OPM for long term; will re-invest excess gains in OPM back into

Corporate business: (1) The ZEEL management stated that it is comfortable with the OPM of ~30% Bodies and will re-invest excess OPM due to the sale of sports business (likely to add 300-350BPS Institutions 4% 4% in FY2018) back into the business; (2) Significant recovery in Ad Spends is already visible post demonetisation; (3) The management is planning to increase programming hours in the

Foreign flagship channel Zee TV from the current 25-26 hours to ~30 hours in the next 2-3 quarters; Promoters 47% 43% (4) Ad Spends from the Telecom space looks good, while new launches will drive incremental Ad Spends in the Auto sector. Public and Others Maintain Buy with revised price target Rs560: We have tweaked our Ad revenue 2% assumption for FY2018, owing to delay in FMCG Ad Spends turning normal post the recent PRICE PERFORMANCE demonetisation impact. We have also downwardly revised our margin estimates to partially (%) 1m 3m 6m 12m factor in business re-investment from the savings post the exit from the loss-making Sports Absolute 4.2 -10.2 1.5 22.2 business. We continue to remain positive on ZEEL, as it is a structural India consumption Relative to Sensex 1.4 -6.7 4.4 7.1 theme. Moreover, the company is investing across the media spectrum, like Movies, Music, Events, Digital, besides the International markets to maintain its high growth trajectory. We maintain our ‘Buy’ rating with a revised price target of Rs560.  Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com. Zydus Wellness Buy CMP: Rs865 January 31, 2017 COMPANY DETAILS Price target: Rs960 Growth prospects to improve in coming quarters; Market cap: Rs3,379 cr retain Buy with revised price target of Rs960 52-week high/low: Rs930/632 NSE volume (No of shares): 15,666 KEY POINTS BSE code: 531335 Revenue flat but higher RM costs lead to lower PAT: During Q3FY2017, Zydus Wellness’ NSE code: ZYDUSWELL revenue came in flat YoY at Rs102.6 crore, as the performance of its key brands (Sugarfree, Sharekhan code: ZYDUSWELL Nutralite and Everyuth) was subdued due to the government’s demonetisation move. Free float (No of shares): 1.07 cr Consolidated gross profit margin contracted by 295BPS to 65.9%, owing to higher palm oil SHAREHOLDING PATTERN prices. Due to a high operating cost, the operating profit dropped by 7% YoY to Rs22.25 crore. The reported PAT fell by 8.2% YoY to Rs25.1 crore. Others 11% Outlook - recovery likely to be faster due to wide presence in urban markets FIIs predominantly through retail channels: Zydus Wellness also suffered in Q3FY2017 due to 8% demonetisation. But, the company’s performance was quite resilient, with sales coming in flat and sustained leadership position in the key categories. The management feels that Domestic institutions Q4FY2017 would be better than Q3FY2017 because of the new launches/re-launches, and 9% Promoters a better product mix and expects fast recovery to pre-demonetisation level due to a wide 72% presence in modern trade (especially in urban markets).

PRICE PERFORMANCE Maintain Buy with revised price target of Rs960: We have reduced our earnings estimates for FY2017/FY2018 by 9%/2% to factor in the lower sales growth due to demonetisation. We (%) 1m 3m 6m 12m have introduced FY2019 estimates in this note. The company is confident of good revenue Absolute 2.9 -0.7 10.4 16.0 growth in the coming quarters on account of a revamped distribution system and regular Relative to Sensex -3.3 0.6 11.6 1.0 media & promotional initiatives to improve brand awareness. We have maintained our ‘Buy’ recommendation with a revised price target of Rs960. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

February 2017 29 Sharekhan ValueGuide VIEWPOINT EQUITY FUNDAMENTALS

IndusInd Bank Viewpoint View: Positive CMP: Rs1,162 January 10, 2017 Strong performance; no noticeable impact of demonetisation

Key points Industry growth) and the possibility of even lower credit cost for FY2017E. The growth in Deposits at 38% YoY (CASA IndusInd Bank (IndusInd) posted strong Q3FY2017 numbers, at 37%) has been achieved despite the Rs800 crore IPO float with a 25% YoY expansion in loan book on the back of a money exiting during Q3FY2017. The bank’s asset quality better-than-expected NII and PAT. The bank’s Corporate trend has been stable, with Gross Non Performing Assets loan book (58% of total loan book) propelled the growth, (GNPA) and Net Non Performing Assets (NNPA) at 0.94% and with loans to Large Corporates/Mid Corporates rising by 0.39%, respectively. 28%/23% YoY. While IndusInd’s Vehicle Finance segment did witness some slowdown (up 14% YoY), the Credit Card and IndusInd’s impeccable asset quality and strong business Equipment Finance businesses grew smartly by 51% YoY and growth are key positives for the bank. We find that the 28% YoY, respectively. bank continues to outperform its banking sector peers on most parameters, besides delivering on its stated goals and IndusInd has been consistently delivering value over the business metrics. IndusInd currently trades at 3.0x FY2018E last three years, both in terms of growth (Advances CAGR adjusted Price-to-Book. We maintain our ‘positive’ view on of 25%+) as well as profitability (ROA of 1.8%+; ROE of 16%+, the stock and believe that there is 18-20% upside potential NIM of 3+%). Despite the industry-wide asset quality stress in the stock from the current levels. (barring a few) and weak credit demand, IndusInd has been among the best performers. The management has guided For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a to maintain the current traction in its loan book (3x of postition in the companies mentioned in the article. Nava Bharat Ventures Viewpoint View: Positive CMP: Rs113 January 31, 2017 Near term challenges linger but long-term story remains intact

Key points arrangement with Tata Steel continued to add value. Sugar business revenue leapt by 66% YoY to Rs46 crore due to Slowly but surely moving forward to commissioning of better realisation and higher production. Sugar business’ Zambian Power Plant: Nava Bharat Ventures’ (NBVL) PBIT margin swung to a positive 4.3% from a negative 1.2%. Zambian subsidiary is envisaged to achieve the COD in The PAT (after minority interest) dropped by 69% YoY to Q4FY2017 without any cost over-run despite a seven-month Rs23.3 crore, led by a fall in profitability of the Power delay. The management guided that the Zambian power SBU. Grid curtailments and subdued merchant power rates plant is facing challenges in terms of grid constraint due to affected the Domestic Power business. non-upgradation of transmission infrastructure. However, it expects this issue to be resolved in the next 2-3 months. Valuation: We believe that post the commissioning of the Post resolution, the plant will operate at 60-65% PLF, which Zambia plant, NBVL is likely to witness a steep jump in its will gradually be increased to 80-85% after June 2017. earnings, which is yet to reflect in the stock price. It is Moreover, the management guided that it will go ahead trading attractively at 5x its FY2018E earnings, 4.4x EV/ with 300MW additional generation capacity despite facing EBITDA multiple and 54% below FY2018 BV. We believe that a delay in completion of phase I. This augurs well for the post the commencement and stabilisation of the Zambian shareholders in terms of higher profitability going forward. power plant, the stock would witness a major re-rating. Therefore, we see ~20% upside potential in the stock in Consolidated revenue down 13% YoY but up 11% QoQ: the next 3-6 months. Going forward, better PLFs across The Domestic Power segment’s revenue dropped by 37% power plants should result in improved profitability as well YoY to Rs185 crore, but improved sequentially (QoQ) due as higher revenue. to lower fuel costs and higher power generation volume. Ferro Alloys SBU’s revenue jumped 46% YoY to Rs182 crore, For detailed report, please visit the Research section of our website, sharekhan.com. underpinned by increased consumption from China and Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a full recovery of captive power at grid tariff. Further, the postition in the companies mentioned in the article.

February 2017 30 Sharekhan ValueGuide EQUITY FUNDAMENTALS VIEWPOINT

Power Grid Corporation of India Viewpoint View: Positive CMP: Rs188 January 03, 2017 Power play; preferred pick to capitalise on the revival in the infrastructure sector Key points funds (WACC). This trend is prominent and highly visible in Higher capitalisation rate to drive earnings growth the long run. momentum: Power Grid Corporation of India (PGCIL) Healthy financials and high-quality earnings to support derives revenue post capitalisation of the transmission capex: PGCIL has a very healthy balance sheet, sustainable line assets. Higher asset capitalisation will boost PGCIL’s earnings visibility, positive cash flow from operations and regulated equity base, on which it earns fixed returns, stable return ratios. Further, with increasing capitalisation driving the company’s earnings growth momentum. We of assets, we see substantial improvement in its annual CFO expect PGCIL’s regulated equity base to grow at a CAGR and better ability to fund the equity component of projects of 13%, translating into an earnings CAGR of ~20% during comfortably. FY2016-FY2019E. This would be supported by a huge capex Positive view: We consider PGCIL as one of the best plan in the range of ~Rs20,000-22,000 crore annually for defensive bets in the Power Utility space, underpinned by the next 4-5 years. a strong earnings growth visibility and a healthy balance Low-risk business model and assured returns give sheet. It offers sustainable RoE of ~14.5% against the comfort: PGCIL has a monopolistic position in the Power current return of ~7-8% offered by the benchmark fixed- T&D sector in India, which is likely to sustain in the income instruments in India. The spate of positive growth foreseeable future. Its stable, low-risk business model and drivers and rub-off from the scheduled IPO of a private healthy assured returns provide cushion to the long-term sector transmission company at possible lofty valuations investors. PGCIL earns RoE of ~17% on the regulated equity, should re-rate the stock. Therefore, we see ~15-18% upside effectively translating into a sustainable RoE of ~14% at in the stock in the next 6-9 months. the company level. On a sustainable basis, the company For detailed report, please visit the Research section of our website, sharekhan.com. is creating shareholder value by managing a respectable Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a spread between returns (RoCE and RoE) and its cost of postition in the companies mentioned in the article.

RBL Bank Viewpoint View: Positive CMP: Rs368 January 20, 2017 Stellar performance continues, business momentum encouraging

Key points RBL Bank has been able to maintain its asset quality well despite strong growth in its loan book. Gross Non- RBL Bank posted stellar Q3FY2017 results, with its Net Performing Assets (GNPA) declined to 1.06% (down 2BPS Interest Income (NII) coming in at Rs321.6 crore (up 44.6% YoY and 4BPS QoQ) while the Net Non-Performing Assets YoY and 6.2% QoQ) while the net profit stood at Rs128.7 (NNPA) decreased to 0.52% (0.69% in Q3FY2016 and 0.55% crore (up 58.8% YoY and 43.2% QoQ) on the back of robust in Q2FY2017). business traction and well-managed operational costs. RBL Bank was able to manage its operational costs well despite Over the past few years, RBL Bank has maintained its high the bank seeing a one-time expense due to the adverse growth momentum without compromising on its strong impact of demonetisation, with its Cost-to-Income (C/I) asset quality. We expect the bank’s growth momentum to ratio declining to 53.3% (down by 6BPS QOQ and 170BPS continue while the C/I should trend down. While several of YoY). RBL Bank’s peers have suffered high delinquencies in the past few quarters, it stands tall with better and continuously During Q3FY2017, RBL Bank witnessed strong traction in improving performance. We maintain our ‘positive’ view on its business growth, as the advances growth was led by RBL Bank and foresee a potential 15-18% upside from the Corporate & Institutional banking and Business & Branch current level. banking. Deposits during the quarter surged by 43.9% YoY to Rs30,005 crore, driven by a strong 82.85% YoY growth in For detailed report, please visit the Research section of our website, sharekhan.com. CASA deposits while term deposits increased by 35.2% YoY. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a The CASA ratio improved by 493BPS YoY to 23.2%. postition in the companies mentioned in the article.

February 2017 31 Sharekhan ValueGuide SHAREKHAN SPECIAL EQUITY FUNDAMENTALS

Sharekhan Special January 11, 2017 Earnings to be constrained by the demonetisation roadblock

Another quarter of tepid growth: With demonetisation’s nationwide liquidity situation should completely turn adverse impact visible in earnings of Auto, Consumer and around by Q1FY2018 (April-June quarter). In such a other domestic demand driven sectors, the aggregate scenario, the earnings growth would rebound to high earnings of the Sensex companies for Q3FY2017 are double-digit levels in FY2018, largely due to a low base expected to be lackluster - dashing hopes for a strong and normalisation of earnings in heavyweight sectors revival in corporate earnings from H2FY2017. We like Banks, Energy and Consumer. expect the aggregate earnings growth to be at 4.1% in Valuation: Even though the earnings downgrades are Q3FY2017. Even after adjusting for the usually volatile expected to continue post Q3FY2017 results, the Price- earnings of Banks and Energy companies, the growth to-Earnings multiple of Sensex is at a reasonable level rate would come to around 8.2% - which is unlikely to and factors in the impending weakness in earnings for improve market sentiments materially. another couple of quarters due to demonetisation. Revenue growth also muted; margins remain strong: Therefore, we continue to suggest buying a few carefully The growth trend in revenue is also expected to be picked quality businesses in a systematic and phased unexciting, but the margins will remain firm, with growth manner over the next few weeks, as was suggested in at the operating level expected to be ahead of growth our earlier special report (Demonetisation: Short‐term in revenue and earnings. However, the bad news is that pain, long‐term gain) at the height of pessimism in the flaring prices of crude oil and other commodities November (we had suggested 12 stock picks). would put pressure on margins in the coming quarters. The weakening of consumer demand in the wake of demonetisation would also limit the pricing power of Sensex’ one-year forward P/E band Indian companies, which would find it difficult to pass 25.0 on the higher input costs to consumers. 22.0 19.0

Road ahead looks hazy but we remain hopeful: 16.0

Along with the Q3FY2017 results, the management 13.0 commentary on any tell-tale signs of recovery in demand 10.0 would provide more clarity on the possible pace of 7.0 09 11 13 15 17 rebound in corporate earnings going forward. Currently, - - - - - Jan Jan Jan Jan Jan most indications imply that currency circulation would +1 sd PER Avg PER -1 sd normalise by the end of February. Consequently, the Source: Bloomberg, Sharekhan Research

For detailed report, please visit the Research section of our website, sharekhan.com. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

February 2017 32 Sharekhan ValueGuide EQUITY TECHNICALS TREND & VIEW

Nifty at crucial juncture

Daily view on Nifty

KST (3.13835) 3 3 2 2 1 1 The Nifty continues to form high tops, higher bottoms on the daily 0 0 -1 -1 -2 -2 -3 -3 -4 -4 chart, which indicates uptrend in the short term. -5 -5 9000 9000

8950 8950 The Index is trading in an upward sloping channel and has now 8900 8900 8850 8850 reached the upper end of the channel. 8800 8800 8750 8750

8700 8700 Given that it has reached the upper end of the channel, some 8650 8650 8600 8600 correction or consolidation is likely in the near term. Therefore, 8550 8550 8500 8500 short-term traders need to maintain some degree of caution. 8450 8450 8400 8400

8350 8350

However, the uptrend remains intact, as there are no signs of a 8300 8300

8250 8250

reversal visible on the daily chart. 8200 8200

8150 8150 The momentum indicator on the daily chart is in ‘buy’ mode, 8100 8100 8050 8050 thereby confirming the uptrend. 8000 8000 7950 7950

7900 7900 Support levels for the Nifty will be at 8673 and 8530 while the 7850 7850 7800 7800 resistance levels will be at 8810 and 8900. 7750 7750

10 17 24 1 7 15 21 28 5 12 19 26 2 9 16 23 30 6 13 20 November December 2017 February

Weekly view on Nifty

The Index has witnessed a sharp rise after making a low of 7893.

KST (2.11900) Interestingly, the Index has given a weekly close around the 78.6% 5 5 0 0

retracement level, which may act as a resistance in the coming -5 -5

9350 9350 9300 9300 sessions. 9250 9250 9200 9200 9150 9150 9100 9100 9050 9050 9000 9000 100.0% 8950 8950 If the Nifty manages to sustain above the 78.6% retracement mark, 8900 8900 8850 8850 8800 8800 8750 78.6% 8750 8700 8700 then it is likely to head towards 8900, which is the equality target 8650 8650 8600 8600 8550 61.8% 8550 8500 8500 of the previous move. Also, the upper end of the weekly Bollinger 8450 50.0% 8450 8400 8400 8350 8350 8300 38.2% 8300 8250 8250 Band is pegged at 8900. 8200 8200 8150 23.6% 8150 8100 8100 8050 8050 8000 8000 7950 7950 Given that the Nifty is around resistance level, traders need to 7900 0.0% 7900 7850 7850 7800 7800 7750 7750 maintain some degree of caution. 7700 7700 7650 7650 7600 7600 7550 7550 7500 7500 7450 7450 However, there are no signs of a reversal as of now to conclude 7400 7400 7350 7350 7300 7300 7250 7250 that the current uptrend in the Index may reverse. 7200 7200 7150 7150 7100 7100 7050 7050 7000 7000 The momentum indicator on the weekly chart is in a ‘buy’ mode 6950 6950 6900 6900 6850 6850 6800 6800 and has moved above the “zero line”. 6750 6750 6700 6700 6650 6650 Crucial support will be around 8460 whereas the crucial resistance 2015 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Feb Mar Apr will be near 8900.

Monthly view on Nifty

On the monthly chart, the Nifty is making lower top, higher bottom

700 700 600 600 500 500 pattern - indicating the possibility of a triangle pattern formation. 400 400 300 300 200 200 100 100 0 0 -100 -100 -200 -200 Also, the Nifty is in wave (iv), which further confirms the possibility -300 -300 of triangle formation, wherein it is expected to be in the range of 10000 10000 9500 9500

8150-8900. 9000 9000

8500 8500

From a long-term perspective, the Nifty is in an upwards sloping 8000 8000 channel. However, it is witnessing some consolidation in an ongoing 7500 7500 7000 7000

bull market. The Index will head towards the upper end of the 6500 6500 channel once it breaks above 8900. 6000 6000 5500 5500 The momentum indicator on the monthly chart is flat, thus 5000 5000 4500 4500

indicating the possibility of consolidation in the coming months. 4000 4000

3500 3500

A crucial support will be around 8327 and resistance will be around 3000 3000 8900. 2500 2500 2000 2000

1500 1500

Trend Trend reversal Support Resistance Target 1000 1000 Down 8530 8530 8900 8900 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

February 2017 33 Sharekhan ValueGuide MONTHLY VIEW EQUITY DERIVATIVES

Derivative view: “Markets in a bullish mode”

The Nifty started the January F&O series on a positive Top 5 stock futures with the highest OI in current series note and continued to advance, closing the series with a spectacular gain of ~6.20%. Significant amount of open STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR) interest (OI) was built, especially in the Bank Nifty, which saw an addition of over 48%. Also, the OI in the Nifty shot HDFCBANK 4,909.36 up by 44%, which we feel are the long positions that were built in the journey from 8000 to 8600. Overall, the index INFY 2,589.17 has seen good amount of long build-up throughout the January series. With high rollover in Nifty (~73%), we feel RELIANCE 2,142.90 that the majority of the long positions have got carried forward into the February F&O series. SBIN 1,953.48 FIIs have not been that positive in the cash market since January series. But, post the Union Budget, the FIIs have SUNPHARMA 1,879.68 resumed their buying in the cash market, albeit in a very small quantum. In the derivatives segment, since the start of the February series, FIIs’ participation has Top 5 stock options with the highest OI in current series majorly been through the Index options, as they have already bought more than Rs6,000 crore worth of it. In STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR) the Index futures, there has not been much activity by FIIs so far. However, in the January series they had bought ICICIBANK 1,150.30 a significant amount ofI ndex futures, besides rolling over most of those positions into the February series. This again indicates the underlying positive outlook for the SBIN 1,037.43 overall market, unless FIIs start unwinding their long bets. IDEA 957.26 ROLL-OVER: MARKET-WIDE VS NIFTY

90.00% INFY 785.03 80.00% 70.00% MARUTI 754.88 60.00% 50.00% % % % % % % % 84 % 01 42 24 99 73 . 45 % . % . . . . .

40.00% % % 12 View 84 97 . 84 49 82 82 81 81 81 . . 60 10 . . 30.00% 73 69 69 65 63 20.00% On the options front, in the February F&O series 8500 PE 10.00% stands with the highest number of shares in OI followed 0.00% Oct Jan by the 8600 strike price. On the call side, the 9000 CE Feb Dec Nov Sep Nif ty Market Wide stands with the highest number of shares in OI followed Rollover highlights:- by the 8800 strike price. The benchmark Nifty started the February F&O series on a high note with OI of 1.91 crore shares vs. 1.69 crore Since the start of the February series, the India Volatility shares at the start of the previous series. In rupee terms, Index (India VIX) has seen a sharp jump from around 15 it started the February series with Rs16,496 crore OI in Nifty futures Vs Rs13,677 crore OI in the January series, levels to 18 but post the budget it came down significantly while in stock futures, the OI stood at Rs74,468 crore and is now currently hovering around 13 levels. The Vs Rs64,521 crore in the previous series. In the index interesting observation was on the PCR front, which options, the OI stood at Rs98,916 crore Vs Rs93,417 crore and in stocks options, the OI stood at Rs8,077 crore Vs traded above 1.00 throughout the January series. It has Rs6,619 crore. also started the February series on the higher side at 1.00. Rollovers in the Nifty stood at 73.12%, which was a higher Seeing the above data (lot of long positions getting added compared to its previous month’s rollover of 69.49%, indicating that majority of the long positions built in and getting rolled over into the February series), we feel the last series has got carried forward into the February that the overall market has still more room on the up side series. Market-wide rollover stood at 81.89%, which was a bit lower compared to its previous month’s rollover of and 8900-9000 (highest call base) can be tested. 84.84%.

February 2017 34 Sharekhan ValueGuide CURRENCY FUNDAMENTALS MONTHLY VIEW

Currencies: Dollar plunges on Donald Trump comments

Key points CURRENCY LEVELS IN JANUARY 2017 (IN RS) India IIP rose by 5.7% in November compared to -1.9% in Currency High Low Close Monthly chg (%) October India CPI eased to 3.41% in December from 3.63% in USDINR 68.38 67.75 67.865 -0.08 November EURINR 73.35 70.92 72.6546 1.36 The European Central Bank kept its rates and asset GBPINR 86.27 81.77 84.3819 1.06 purchasing program unchanged The Bank of Japan left its monetary policy unchanged JPYINR 60.49 57.71 59.59 2.54 January 2017 contract price movement January 2017 contract price movement

68.5 86 60.2 73.3 68.4 85.5

72.8 85 68.3 59.7 84.5 68.2 72.3 59.2 84

68.1 71.8 83.5 58.7 68 83 71.3 58.2 82.5 67.9 70.8 82 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17

67.8 57.7 ------17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 ------Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan ------02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan ------02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 EURINR GBPINR USDINR JPYINR USDINR CMP: Rs(67.34) The Indian rupee appreciated by 0.08% against the US dollar in January on the back of growing risk appetite in the domestic market and weakness in the greenback. Further, upbeat macro economic data supported the rupee. However, sharp gains were capped, as investors remained cautious ahead of the announcement of the annual Economic Survey and the Union Budget. Further, lower economic growth projection from the CSO, the IMF and the World Bank added downside pressure. Continued FII outflows from local shares and debt also weighed on the rupee. As per NSDL, $512.22 million worth of FIIs outflows from local equity and debt markets was seen in January. Outlook: The rupee is expected to trade with a positive bias in the early part of February owing to weakness in the dollar and growing risk appetite for the Indian assets. Further, the Union Budget for FY2018 signaled government’s relentless commitment to boost investment in Agriculture, Social Sector, Infrastructure and Employment Generation, besides sticking to the fiscal consolidation path. The FRBM Review Committee has set a fiscal deficit target of 3.2% of GDP for FY2018 and 3% for FY2019. However, in the latter part of February, the rupee may give up its strength in anticipation of faster tightening of interest rates by the Federal Reserve in the wake of upbeat US economic data. The gap between the US and India bond yields is also narrowing. Rising US bond yields have prompted the foreign investors to sell their Indian market holdings. Demand for the dollar from the importers may also hurt the rupee. As per the latest REER reading of 116.75, the rupee is overvalued by more than 10%. The expected trading range in the near term is 66.40 – 68.30. EURINR CMP: Rs(72.35) The euro appreciated by 2.67% in January owing to weakness in the dollar and upbeat economic data from the Euro area. The European Central Bank (ECB) policy meeting minutes showed that few policymakers didn’t support an extension of its mass bond buying programme. Further, the common currency gained strength after the US trade adviser Peter Navarro said that Germany was using a “grossly undervalued” euro to gain advantage over the US and its own European Union partners. Outlook: The euro currency is expected to trade with a negative bias on the back of divergence in the global monetary policy. Demand for the dollar may rise on mounting expectation of a large fiscal stimulus from the Trump regime to boost US economic growth. Widening of the yield spread between the US and Germany may also hurt the euro. The spread between the 10-year US Treasury yield and German bund yield is widening, majorly on the back of divergence in monetary policies of the US and Europe, besides the disparate outlook for GDP and inflation in the two regions. Investors are also jittery about the lingering political uncertainty in Europe. The expected trading range for the euro in the near term is 71.20 – 73.50. GBPINR CMP: Rs(84.06) The pound appreciated by 1.93% due to weakness in the dollar and on expectations that the Bank of England (BOE) may signal early monetary tightening. However, sharp gains were capped, as the UK’s Supreme Court ruled that the British government must go through the Parliament (not the UK regional assemblies) to trigger talks on leaving the EU. Outlook: The pound is expected to trade with a negative bias on the back of weak economic data from the UK and divergence in the global monetary policy. Traders were disappointed after the BOE refrained from giving any definite signal about its future monetary policy moves. The BOE signaled that it was comfortable with record low interest rates and said that it now expects inflation to be slightly lower in two years than it did in November. Investors are worried that Scotland may call for another referendum on independence. The expected trading range in the near term is 82.90 – 85.80. JPYINR CMP: Rs(59.50) The yen appreciated by 3.55% due to weakness in the dollar and after the Bank of Japan (BOJ) kept its monetary policy unchanged and upgraded its growth forecast. Further, the global demand for safe haven assets increased after the US President Donald Trump’s executive orders on immigration. Mr Trump and his trade adviser Mr Navarro criticized Germany, Japan and China, saying that the three key American trading partners were engaged in devaluing their currencies to the disadvantage of the US. Outlook: The yen is expected to trade with a positive bias after Japan’s Finance Minister Taro Aso said that the BOJ’s monetary policy was aimed at domestic objectives of defeating deflation and not to weaken the yen. The global demand for safe haven assets may increase on weak market sentiments and amid fears that President Trump could shake the global markets by taking aggressive steps on trade policies. Market sentiments were hurt following President Trump’s executive orders on immigration. Traders are worried that such measures would create problems with the US trading partners. Further, demand for safe haven assets may improve amid worries over Britain’s exit from the EU, lingering political uncertainty in Europe, fears of global economic slowdown, and volatility in crude oil prices. The expected trading range in the near term is 58.50 – 60.80. CMP as on February 03, 2017

February 2017 35 Sharekhan ValueGuide TREND & VIEW CURRENCY TECHNICALS

USDINR: Tumbling down EURINR: Fall on the cards

During September-October, USDINR was in a consolidation In mid-August, EURINR faced resistance near a falling trendline phase, which broke out on the upside. In November, the from the previous high. Structurally, it formed a multi-week currency pair rallied towards the high of 68.89. Near the high, the bears intervened to restrict further upside. Consequently, it triangular pattern and broke out on the downside in the formed a Double Top and entered a correction mode. The fall is beginning of October. On the way down, it broke multiple getting sub divided into lower degree waves. Recently, USDINR supports. However, after hitting 70.35, EURINR saw a short- formed a distribution triangle and broke out on the downside. term pull-back, which ended near the key WMAs. After touching As a result, USDINR can slide to 66.80, ie the 78.6% retracement 73.35, the currency pair seems to have resumed a larger mark below which 66.22-66 will be the target area to watch. On the other hand, 68-68.20 will act as a key resistance zone downtrend. The short-term momentum indicator has turned on a closing basis. bearish, and so EURINR can fall to test the low of 70.35.

68.80 MACD (-0.10615) 0.4 MACD (0.21622) 1.0 0.3 0.5 0.1 0.0 0.0 -0.1 -0.5 -0.2 -0.3 EURINR (72.5710, 72.9270, 72.2590, 72.2990, -0.25900) 79.0 USDINR - INDIAN RUPEE (67.3800, 67.5050, 67.2050, 67.2050, -0.19050) 69.4 78.5 69.3 69.2 78.0 69.1 69.0 77.5

0.0% 68.9 77.0 68.8 68.7 76.5 68.6 76.0 68.5 68.4 75.5 68.3 23.6% 68.2 75.0 68.1 68.0 74.5 67.9 38.2% 74.0 67.8 67.7 73.5 67.6 50.0% 67.5 73.0 67.4 72.5 67.3 61.8% 67.2 72.0 67.1 67.0 71.5 66.9 71.0 78.6% 66.8 66.7 70.5 66.6

66.5 70.0 66.4 66.3 69.5 100.0% 66.2 66.1 69.0 66.0 68.5 65.9 65.8 68.0 Aug Sep Oct Nov Dec 2016 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Feb Mar December 2016 February March April May June July August September November December 2017 February March

GBPINR: Bears take control JPYINR: Pull-back near maturity

GBPINR has tumbled over the past several months. On the JPYINR formed a triangular pattern and broke out on the way down, the currency pair cracked the lower channel line downside in the beginning of October. It also broke a rising and reached near the 61.8% retracement mark of the previous trendline along with the price pattern. In early November, multi-year rally. Near the key fibonacci level, the bulls rushed it broke the lower end of the channel. Consequently, the in. Consequently, the currency pair witnessed a multi-week currency pair continued to tumble and also broke the lower end pull-back, which looks to be over. The weekly momentum of the larger channel. As a result, JPYINR reached the 61.8% indicator has completed the pull-back cycle, whereas the retracement mark. From that key Fibonacci level, JPYINR saw daily momentum indicator has triggered a bearish crossover. a decent pull-back. Since the last few sessions, it is forming a Alternately, it can take form of a triangle. In either case, the distribution near a trendline resistance. So, unless the swing swing high of 86.18 will act as a crucial resistance. On the high of 60.50 is breached on a closing basis, JPYINR can fall downside, 81.65-81.05 will be the target area to keep an eye back toward 57.65-57.15. on.

MACD (0.16804) 1.0 KST (-0.15712) 10 0.5 5 0 0.0 -5 -0.5 GBPINR (85.4480, 85.8190, 84.1000, 84.1410, -1.27200) 111 -1.0 110 JPYINR (59.5051, 60.0374, 59.4180, 59.5736, +0.07370) 109 69.0 108 68.5 0.0% 107 0.0% 106 68.0 105 67.5 104 103 67.0 102 66.5 101 66.0 100 99 65.5 98 65.0 23.6% 97 96 64.5 23.6% 95 64.0 94 63.5 93 92 63.0 91 38.2% 62.5 90 62.0 89 38.2% 88 61.5 87 61.0 86 50.0% 60.5 85 60.0 84

50.0% 83 59.5

82 59.0 81 61.8% 58.5 80 58.0 79 78 57.5 61.8% 77 57.0 76 56.5 75 56.0 74 78.6% A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S O N D 2016 M A M J J A S O N D 2017 A M J J A S March April May June July August September October November December 2017 February March

Currency View Reversal Supports Resistances Target USD-INR Down 68.20 66.80/66.21 67.68/68 66.00 GBP-INR Down 86.18 82.88/81.65 84.80/85.82 81.05 EUR-INR Down 73.35 71.52/70.72 72.87/73.11 70.35 JYP-INR Down 60.5000 58.90/57.65 60.03/60.22 57.1500

February 2017 36 Sharekhan ValueGuide PMS DESK WEALTHOPTIMIZER

WEALTHOPTIMIZER PMS

The Indian equity market presents an excellent opportunity for the long-term investors. Sharekhan offers you solutions to meet your financial objectives. WealthOptimizer is a portfolio management product that involves enhancing wealth over the long term. The goal is to not only outperform the market but also generate superior returns. Strategy

• To invest in the most undervalued stocks of growing companies on the basis of reported financial performance

How the product works

• Fundamental analysis is performed on more than 5,000 companies • Stocks with sound fundamentals are picked, subject to strategy conditions • Top 10 stocks are selected each day based on the maximum scope to grow • No particular sector forms more than 20% of the client’s portfolio • Fundamentals of stocks held are reviewed every quarter based on quarterly results • Automated decision making system for transparent and disciplined investing Key product specifications

• Minimum investment amount: Rs25 lakh • Recommended investment duration: Two years or more

Phone: 022-6750 2152 / 2261 / 2363 / 2104 • E-mail: [email protected]

Disclaimer: Product is offered by Sharekhan Ltd (Registered Portfolio Manager with SEBI Regn. Nos. INP000000662 CIN No. U99999MH1995PLC087498) and having registered office at 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai -400042, Maharashtra. Tel: 022-61150000. Email: [email protected], [email protected]. This information does not purport to be an invitation or an offer for services, client is required to take independent advise before opting for any service. Securities investments are subject to market and other risks and client should refer to the risk disclosure document carefully. Past performance is no indication of future results. Future performance may vary. Detailed disclaimers and risk disclosure document is available on our website www. sharekhan.com, please acquaint yourself with these before investing.

February 2017 37 Sharekhan ValueGuide PMS FUNDS PMS DESK

Portfolio Management Service We are pleased to introduce you to Sharekhan’s Portfolio We have the following strategies on offer: Management Service (PMS) in which we completely manage your investment portfolio so that you stop worrying about ProPrime (based on fundamental research) the market volatility and focus your energy on things that Diversified Equity you like to do! ProTech (based on technical analysis) We have a wide range of strategies that you can choose Index Futures Fund Trailing Stops from. Our strategies are based on fundamental research and technical analysis. PROPRIME - DIVERSIFIED EQUITY

Product performance OVERVIEW as on January 31, 2017 The ProPrime—Diversified Equity PMS strategy is suitable for long-term investors (In %) Scheme Nifty 500 looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolio’s value with medium to high risk 1 Month 5.8 5.7 3 Month -1.5 -1.6

6 Month 4.1 0.7 INVESTMENT STRATEGY 1 Year 20.1 16.4 Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. Best Month 30.0 13.5 Worst Month -17.9 -10.5 Investments are made primarily in the Nifty Fifty or the BSE 100 scrips. Best Quarter 41.0 51.2 Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and that of minimum of 90% in the BSE 100 stocks. Worst Quarter -29.2 -12.0

Endeavours to create a core portfolio of blue-chip companies with a proven Disclaimer: Returns are based on a client’s track record and have partial exposure to quality companies in the mid-cap returns since inception and may be different space from those depicted in the risk disclosure document.

PRICING Top 10 stocks Minimum investment of Rs25 lakh Britannia Industries Charges Hdfc Bank

¾¾ 2% per annum; AMC fee charged every quarter Il & Fs Transportation Networks

¾¾ 0.5% brokerage Indusind Bank ¾¾ 20% profit sharing after the 12% hurdle is crossed at the end of every fiscal L&T Finance Holdings

Lupin

Rbl Bank

Reliance Industries

Tvs Motor Company

ZEE

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

February 2017 38 Sharekhan ValueGuide PMS DESK PMS FUNDS

PROTECH - INDEX FUTURES FUND

OVERVIEW The ProTech–Index Futures Fund PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy Product performance involves going long (buying) or going short (selling without holding) on Nifty futures as on January 31, 2017 by predicting the market direction based on a back-tested automated model. (In %) Scheme Sensex Nifty

1 Month 4.77 3.87 4.59

INVESTMENT STRATEGY 3 Months 3.73 -0.98 -0.75

The strategy has the potential to generate profits irrespective of the market FY 15-16 11.28 -9.36 -8.86 direction by going long or short on Nifty futures. FY 14-15 -3.41 24.89 26.65 An automated basic back-testing model is used to predict the market direction for the Nifty which then decides the strategy to be deployed in terms of going FY 13-14 8.79 18.85 17.98 long or short. FY 12-13 3.65 8.23 7.31 The portfolio is not leveraged, ie its exposure never exceeds its value. FY 11-12 13.10 -10.50 -9.20

FY 10-11 9.20 10.90 11.10 PRICING FY 09-10 14.70 80.50 73.80 Minimum investment of Rs25 lakh Since Inception* 144.14 173.16 183.34 Charges Best Month 28.90 28.26 28.07 ¾¾ AMC fees: 0% Worst Month -17.10 -23.89 -26.41 ¾¾ Brokerage: 0.05% Best Quarter 33.30 49.29 42.04 ¾¾ Profit sharing: Flat 20% charged on a quarterly basis Worst Quarter -17.73 -24.98 -24.53

*01-Feb-2006

Disclaimer: Returns are based on a client’s FUND MANAGER’S VIEW returns since inception and may be different from those depicted in the risk disclosure The month of January saw a clear trend, with the Nifty moving up. This follows a secular document. one-sided decline in December. So, these were the best two months for the year, starting the recovery process from the previous decline. We delivered a 4.7% return on the Nifty, which was Investments in almost equal to the gain made by the Index for the month. Nifty Index

A trending market or a volatile market with big moves is usually good for trend following systems like ours. So, the first half of 2016 saw a drawdown due to range-bound moves in the Nifty. However, we are witnessing a recovery now and expect the same to continue.

Fund Manager: Rohit Srivastava

FUND OBJECTIVE Absolute returns irrespective of market conditions.

February 2017 39 Sharekhan ValueGuide PMS FUNDS PMS DESK

PROTECH - TRAILING STOPS

OVERVIEW Our ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors looking for Regular Income from trading and desire to make profits in both bullish and bearish market conditions. It is designed to payout book profits on monthly basis.* Product performance It is also for those investors who are looking for better income than Fixed Income or Deposits. This strategy involves going Long (buying) or Short (selling without as on January 31, 2017 holding) on stock futures. (In %) Scheme Sensex Nifty * Terms and conditions apply 1 Month 7.69 3.87 4.59

3 Months 10.47 -0.98 -0.75 INVESTMENT STRATEGY FY 15-16 -0.56 -9.36 -8.86 This strategy spots the winning trades based on technical analysis vs time frame- based portfolios, basically the momentum calls. FY 14-15 -3.69 24.89 26.65

A risk model has been developed for stock portfolio allocation that reduces the FY 13-14 -1.06 18.85 17.98 risk and portfolio volatility through staggered building of positions. FY 12-13 14.89 8.23 7.31 It is non-leveraged—the exposure will never exceed the value of the portfolio. FY 11-12 29.00 -6.10 -4.60

FY 10-11

PRICING FY 09-10 Minimum investment of Rs25 lakh Since Inception* 42.45 49.26 54.23 Charges Best Month 9.10 11.25 12.43

¾¾ AMC fees: 0% Worst Month -5.09 -8.93 -9.28

¾¾ Brokerage: 0.05% Best Quarter 9.90 13.52 13.53

¾¾ Profit sharing: Flat 20% charged on a quarterly basis Worst Quarter -8.20 -12.69 -12.47 *09th May 2011

Disclaimer: Returns are based on a client’s FUND MANAGER’S VIEW returns since inception and may be different from those depicted in the risk disclosure The Indian market was extremely weak in December. From an extremely oversold situation, document. the Nifty started a rally in January. We turned positive and were able to capture moves in the Metals sector - the best performing sector in January. So, we were able to beat the Nifty with a 7.7% return. Investments in Nifty Index The market is bullish right now, but we do not expect any trend in a particular direction to go on forever. Trailing stop losses are the underlying methods that we use to maximise gains in a Stock futures particular direction. We are now actively using position sizing as a means of building winning positions in the direction of the trend. Position sizing is a method to minimise losses and is now our core strategy followed by trailing stop losses to deliver regular income.

Fund Manager: Rohit Srivastava

FUND OBJECTIVE Absolute returns irrespective of market conditions.

February 2017 40 Sharekhan ValueGuide ADVISORY DESK MONTHLY PERFORMANCE

Advisory Products and Services The Advisory Desk is a central desk consisting of a Mumbai-based expert team that runs various sample model portfolios (for illustrative purposes only) for clients of all profiles, be they traders or investors. These products are different from Sharekhan’s research-based technical and fundamental offerings as these essentially try to capture the trading opportunities in stocks where momentum is expected before or after some event including the announcement of results or where some news/event is probable. Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management.

For investors

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

NEW ALPHA DELIVERY PICKS This is a long only, cash market delivery product where stock ideas will New Alpha Delivery Picks Rules be rolled out based on short-term triggers with proper fundamental rationale. Recently we revised certain features of Alpha Delivery Ideas Ideas based on Stock Ideas, Picks to incorporate ideas from both the Fundamental research desk Viewpoints, Stock Updates, and the Market analysis team. The time frame of the stock ideas in Market analysis New Alpha Delivery Picks will be a maximum of two months. Stop Weightage (%) 7 loss will be 5-10% and profit potential will be 10-20%. We will report the old series’ performance data separately. For more details please write to us at [email protected] Stop Loss (%) Maximum 10, minimum 5

For traders Profit Potential (%) Maximum 20, minimum 10

SHAREKHAN’S PRE-MARKET ACTION Time Frame Maximum 2 months

These ideas are put out in Sharekhan’s Pre-market Action report along 5% trailing Stop loss on 5% rise Trail Stop loss with stop loss and targets valid for a day. There is a market watch list in stock price of stocks with positive and negative bias for intra-day traders. For A) Pre defined / Trail stop loss Exit Rules more details please write to us at [email protected]. is hit B) Unexpected event/news/ MID DERIVATIVE CALLS outcome These calls are based on the analysis of open interest, implied volatility C) Time frame and put-call ratio in the derivative market. It is a leveraged product and ideal for aggressive traders. These calls have pre-defined stop Performance Daily loss, targets, time frame and quantity to execute. For details of the Reporting product please write to us at [email protected].

Report Card

MID performance* MID Derivative Calls performance* Product New Alpha Delivery Picks Ticket size (Rs) 100,000 Month January 2017 FY2017 Month January 2017 FY2017 No. of calls 17 77 No. of calls 11 124 Open 3 3 Profit booked 18 55 Profit booked 8 65 Stop loss hit 0 19 Stop loss hit 3 59 Strike rate (%) 100 74 Strike rate (%) 73 52

February 2017 41 Sharekhan ValueGuide MF PICKS MUTUAL FUNDS DESK

Sharekhan’s top mutual fund picks (equity) January 11, 2017 Data as on January 02, 2017 Scheme name Star NAV (Rs) Returns (%) rating Absolute 6 Compound annualised months 1 yr 3 yrs 5 yrs Since inception Large-cap funds Birla Sun Life Top 100 Fund êêêêê 45.1 0.3 6.4 17.2 18.8 14.4 Kotak 50 êêêê 175.2 -2.2 2.7 15.5 14.4 23.1 ICICI Prudential Focused Bluechip Equity Fund êêêê 30.8 1.4 7.4 15.3 16.3 14.0 Franklin India Bluechip êêêê 367.3 -1.9 6.2 14.7 14.5 21.4 IDFC Classic Equity Fund êê 34.0 2.9 7.8 14.1 15.6 11.3 Indices BSE Sensex 26595.45 -2.0 1.7 8.4 11.4 15.8 Mid-cap funds Reliance Small Cap Fund êêêê 29.5 7.0 5.3 34.2 30.8 18.7 Kotak Emerging Equity Scheme êêêê 29.7 2.0 10.5 31.3 26.1 11.8 Sundaram Select Midcap êêêêê 392.1 5.4 11.7 30.3 25.8 28.9 HDFC Mid-Cap Opportunities Fund êêêê 42.7 5.2 10.9 28.2 26.2 16.4 Birla Sun Life Small & Midcap Fund êêêêê 28.8 2.5 9.6 28.2 23.7 11.7 Indices BSE MID CAP 12131.4 2.3 7.8 22.4 18.8 20.8 Multi-cap funds Birla Sun Life Pure Value Fund êêêêê 43.7 5.4 8.3 32.1 26.2 18.3 L&T India Value Fund êêêêê 27.9 5.4 8.1 29.5 26.0 15.8 Birla Sun Life Equity Fund êêêêê 552.0 7.9 15.5 23.6 22.1 24.4 Kotak Select Focus Fund êêêêê 25.1 2.0 9.1 21.7 20.4 13.4 ICICI Prudential Multicap Fund êêêêê 221.5 1.3 10.3 20.2 19.9 14.9 Indices BSE 500 11072.57 -0.3 3.7 12.7 13.8 14.3 Tax-saving funds (ELSS) DSP BlackRock Tax Saver Fund êêêê 35.8 3.6 10.6 21.4 21.5 13.7 Birla Sun Life Tax Relief 96 êêêêê 22.6 0.1 3.1 21.0 21.0 9.7 Franklin India Taxshield êêê 438.5 -2.0 4.2 20.2 18.7 23.7 Kotak Taxsaver êêêêê 32.4 2.4 7.2 20.1 16.9 11.2 ICICI Prudential Long Term Equity Fund (Tax Saving) êêê 285.0 -0.3 3.7 18.2 19.8 21.2 Indices Nifty 500 7002.5 -0.4 3.7 13.0 14.2 9.1 Thematic funds UTI Transportation and Logistics Fund êêêêê 93.0 3.1 5.4 31.8 31.7 19.0 DSP BlackRock Natural Resources & New Energy Fund êêêêê 26.2 25.4 44.8 28.8 17.0 11.7 Sundaram Rural India Fund êêêêê 32.5 4.5 21.8 24.6 20.7 11.7 Birla Sun Life Special Situations Fund êêêê 19.2 4.2 7.2 24.0 19.2 7.6 SBI Magnum COMMA Fund êêêêê 30.6 14.3 32.9 18.7 10.2 10.3 Indices Nifty 50 8179.5 -1.8 2.7 9.5 12.0 13.6 Balanced funds Birla Sun Life Balanced 95 êêêêê 617.3 2.5 8.9 19.3 17.3 20.7 HDFC Prudence Fund êêêêê 411.8 6.1 9.2 19.2 17.2 19.0 Franklin India Balanced Fund êêê 97.5 0.9 7.6 18.9 17.2 14.3 L&T India Prudence Fund êêêê 20.9 1.4 4.7 18.9 18.9 13.3 DSP BlackRock Balanced Fund êêêê 119.2 3.6 8.1 18.6 15.8 15.1 Indices Crisil Balanced Fund Index -- 1.7 6.7 10.7 11.5 12.2 BNP Paribas Mutual Fund Equity schemes Scheme name Category NAV (Rs) Returns (%) Absolute 6 Compound annualised months 1 yr 3 yrs 5 yrs Since inception BNP Paribas Equity Fund Large Cap 63.1 -8.2 -6.1 14.1 15.8 16.2 BNP Paribas Mid Cap Fund Mid Cap 25.6 -3.3 -1.3 24.2 25.9 9.2 BNP Paribas Dividend Yield Fund Multi Cap 35.5 -0.9 1.6 18.1 18.0 11.9 BNP Paribas Long Term Equity Fund ELSS 27.9 -7.7 -6.9 15.9 17.4 9.8

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.n Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.

February 2017 42 Sharekhan ValueGuide MUTUAL FUNDS DESK MF PICKS

Sharekhan’s top sip fund picks January 11, 2017 Data as on January 02, 2017 Investment period 1 year 3 years 5 years Total amount invested (Rs) 12,000 36,000 60,000 Present Avg annual Present Avg annual Present Avg annual Funds would have grown to (Rs) NAV value (Rs) return (%) value (Rs) return (%) value (Rs) return (%) Large-cap funds SBI Bluechip Fund 30 12,051 0.5 41,130 4.7 87,617 8.0 IDFC Classic Equity Fund 34 12,537 4.9 40,920 4.5 80,524 6.2 Birla Sun Life Top 100 Fund 45 12,294 2.7 40,324 4.0 85,114 7.4 ICICI Prudential Focused Bluechip Equity Fund 31 12,445 4.0 40,251 3.9 82,288 6.6 Kotak 50 175 12,026 0.2 39,412 3.2 79,749 6.0 BSE Sensex 26595 12,042 0.4 36,662 0.6 70,744 3.4 Mid-cap funds DSP BlackRock Micro Cap Fund 50 13,004 9.1 51,160 12.8 1,28,168 16.7 Mirae Asset Emerging Bluechip Fund 36 12,847 7.7 47,797 10.2 1,16,458 14.4 Reliance Small Cap Fund 29 12,957 8.7 47,524 10.0 1,20,467 15.2 Birla Sun Life Small & Midcap Fund 29 12,618 5.6 46,157 8.9 1,03,756 11.8 ICICI Prudential MidCap Fund 75 12,698 6.4 43,162 6.4 1,01,419 11.3 BSE Midcap 12131 12,381 3.5 43,024 6.3 89,587 8.5 Multi-cap funds L&T India Value Fund 28 12,778 7.1 45,839 8.6 1,04,973 12.0 Birla Sun Life Equity Fund 552 12,870 7.9 44,056 7.2 96,425 10.1 Kotak Select Focus Fund 25 12,512 4.7 42,730 6.1 91,958 9.1 ICICI Prudential Value Discovery Fund 120 12,306 2.8 41,963 5.4 96,585 10.2 HDFC Core & Satellite Fund 63 12,664 6.0 40,847 4.4 83,288 6.9 BSE 500 11073 12,201 1.8 38,664 2.5 76,154 5.0 Tax-saving funds (ELSS) DSP BlackRock Tax Saver Fund 36 12,550 5.0 42,952 6.2 92,289 9.1 Birla Sun Life Tax Relief 96 23 12,179 1.6 41,944 5.4 91,585 9.0 Kotak Taxsaver 32 12,455 4.1 41,673 5.1 84,805 7.3 L&T Tax Advantage Fund 41 12,538 4.9 41,557 5.0 85,417 7.4 Reliance Tax Saver (ELSS) Fund 48 12,442 4.0 41,227 4.8 92,937 9.3 Nifty 50 8180 12068 0.6 37234 1.2 71,989 3.8

BNP Paribas Mutual Fund Equity schemes Present Compounded Present Compounded Present Compounded Funds would have grown to (Rs) Category value annualised value annualised value annualised (Rs) return (%) (Rs) return (%) (Rs) return (%) BNP Paribas Equity Fund Large Cap 11,392 -5.5 36,981 0.9 77,336 5.3 BNP Paribas Mid Cap Fund Mid Cap 11,953 -0.4 42,069 5.5 97,342 10.3 BNP Paribas Dividend Yield Fund Multi Cap 12,114 1.0 40,200 3.9 84,531 7.2 BNP Paribas Long Term Equity Fund ELSS 11,413 -5.3 37,521 1.4 80,200 6.1 Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individual’s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds.n

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

February 2017 43 Sharekhan ValueGuide EARNINGS GUIDE EQUITY FUNDAMENTALS

Sharekhan Earnings Guide Prices as on February 03, 2017 Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div (Rs) growth Rs. Yld(%) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY18/FY16 FY16 FY17E FY18E FY17E FY18E FY17E FY18E Automobiles Apollo Tyres 183.3 11,793.0 13,404.8 15,245.6 1,045.2 958.2 950.5 20.5 18.8 18.7 -4% 8.9 9.8 9.8 14.2 13.3 13.6 12.1 2.0 1.1 Ashok Leyland 94.5 18,919.4 20,974.0 23,834.5 1,168.5 1,499.1 1,617.3 4.1 5.1 5.5 16% 23.0 18.5 17.2 21.9 22.2 24.8 24.4 1.0 1.0 Bajaj Auto 2,808.1 22,624.7 21,948.0 24,969.3 3,741.2 3,937.9 4,264.6 129.4 136.2 147.5 7% 21.7 20.6 19.0 37.6 36.0 27.8 26.4 50.0 1.8 Gabriel India 112.1 1,438.2 1,556.4 1,760.0 75.8 83.2 103.7 5.3 5.8 7.2 17% 21.2 19.3 15.6 24.7 26.4 19.0 20.3 0.5 0.4 Hero Motocorp 3,214.0 28,442.7 28,400.4 31,942.4 2,975.8 3,434.3 3,736.4 149.0 172.0 187.0 12% 21.6 18.7 17.2 49.5 46.6 36.7 34.2 40.0 1.2 M&M 1,260.7 38,874.8 43,386.9 49,569.8 3,285.6 3,702.9 4,417.9 52.9 59.6 71.1 16% 23.8 21.2 17.7 17.8 19.0 14.9 15.9 12.0 1.0 Maruti Suzuki 6,115.5 57,746.2 67,334.0 78,300.0 4,571.0 7,437.0 8,187.0 151.3 246.2 271.0 34% 40.4 24.8 22.6 30.7 28.8 23.1 21.6 25.0 0.4 Rico Auto Industries 58.9 1,007.0 1,065.0 1,214.0 34.0 50.7 61.0 2.5 3.7 4.5 34% 23.6 15.9 13.1 11.3 12.9 9.9 10.9 0.5 0.8 TVS Motor 391.5 11,243.9 12,250.5 14,531.3 437.8 571.4 760.6 9.2 12.0 16.0 32% 42.5 32.6 24.5 22.7 27.2 24.7 27.2 2.5 0.6 Banks & Financials Allahabad Bank 74.2 7,808.6 8,364.8 9,302.7 (743.3) 332.4 672.8 -12.1 5.4 11.0 - - 13.7 6.8 - - 2.3 4.6 0.0 0.0 Axis (UTI) Bank 490.7 26,204.4 28,947.8 34,124.2 8,223.7 2,918.0 9,127.2 34.5 12.2 38.3 5% 14.2 40.1 12.8 - - 5.4 15.4 5.0 1.0 Bajaj Finance 1,047.4 4,029.7 5,202.1 6,869.7 1,278.6 1,683.6 2,293.6 23.9 31.4 42.8 34% 43.9 33.3 24.5 - - 20.6 23.1 2.5 0.2 Bajaj Finserv 3,420.0 9,446.4 - - 1,863.3 - - 117.1 - - - 29.2 - - - - 0.0 0.0 1.8 0.1 Bank of Baroda 186.5 17,738.7 20,878.3 22,580.6 (5,395.5) 2,829.9 3,956.0 -23.4 12.2 17.1 - - 15.2 10.9 - - 6.8 9.0 0.0 0.0 Bank of India 133.0 15,377.2 17,581.6 18,664.8 (6,089.2) 136.9 1,061.7 -74.5 1.7 13.0 - - 79.3 10.2 - - 0.4 3.2 0.0 0.0 Capital First 686.5 806.9 1,125.0 1,502.2 166.4 222.5 336.5 18.2 24.4 36.9 42% 37.6 28.1 18.6 - - 12.4 16.8 2.4 0.3 Corp Bank 50.0 5,974.6 6,344.9 7,079.4 (506.5) 182.7 214.4 -5.0 1.8 2.1 - - 28.0 23.8 - - 1.6 1.9 0.0 0.0 Federal Bank 84.6 3,290.6 3,829.5 4,463.4 475.6 811.2 1,022.9 2.8 4.7 6.0 47% 30.6 17.9 14.2 - - 9.6 11.1 0.7 0.8 HDFC 1,397.5 8,387.5 9,356.6 10,510.5 7,093.1 7,690.0 8,648.0 44.9 48.6 54.7 10% 31.1 28.7 25.5 - - 20.0 20.0 17.0 1.2 HDFC Bank 1,311.1 38,343.2 44,830.4 53,137.4 12,296.2 14,620.6 17,598.8 48.6 57.8 69.6 20% 27.0 22.7 18.8 - - 18.7 19.4 9.5 0.7 ICICI Bank 281.6 36,547.1 42,410.4 41,038.2 9,726.3 10,534.0 12,156.1 16.7 18.1 20.9 12% 16.8 15.5 13.5 - - 11.1 11.7 5.0 1.8 LIC Hsg. Fin. 559.0 2,944.1 3,386.1 4,088.8 1,660.8 1,918.7 2,430.9 32.9 38.0 48.1 21% 17.0 14.7 11.6 - - 19.4 20.9 5.5 1.0 PTC India Fin. Ser. 42.1 414.2 527.2 671.8 391.1 340.3 429.3 7.0 5.3 6.7 -2% 6.1 7.9 6.3 - - 16.8 17.6 1.2 2.9 PNB 150.2 22,188.8 24,444.9 29,041.5 (3,974.4) 1,431.5 2,604.4 -20.2 6.6 12.0 - - 22.8 12.6 - - 3.7 6.4 0.0 0.0 SBI 277.6 85,040.2 90,128.7 1,01,674.2 9,950.7 10,776.3 13,268.8 12.8 13.9 17.1 15% 21.7 20.0 16.2 - - 7.3 8.4 2.6 0.9 Union Bank of India 167.3 11,944.8 12,941.6 14,809.2 1,351.6 1,364.2 2,351.8 19.7 19.8 34.2 32% 8.5 8.4 4.9 - - 5.8 9.5 2.0 1.2 Yes Bank 1,397.8 7,278.9 9,091.2 11,349.1 2,539.4 3,225.3 4,066.6 60.4 76.7 96.7 27% 23.1 18.2 14.5 - - 21.4 22.7 10.0 0.7 Consumer Goods Britannia 3,230.9 8,397.2 9,943.3 11,345.8 831.5 1,001.5 1,200.4 69.3 83.5 100.0 20% 46.6 38.7 32.3 76.4 68.1 48.7 43.9 20.0 0.6 Emami 1,174.6 2,393.7 2,648.4 3,169.4 528.1 568.5 767.3 23.3 25.0 33.8 21% 50.5 47.0 34.8 36.2 45.7 38.2 43.8 7.0 0.6 GSK Consumers* 5,069.9 4,308.7 4,518.5 5,167.3 686.9 730.1 837.6 163.3 173.6 199.1 10% 31.0 29.2 25.5 41.9 41.6 27.7 27.4 70.0 1.4 GCPL 1,581.6 8,757.8 9,605.5 11,134.7 1,086.7 1,243.4 1,516.9 31.9 36.5 44.5 18% 49.6 43.3 35.5 20.8 22.9 22.1 22.3 5.8 0.4 Hindustan Unilever 849.8 33,491.3 33,851.0 37,775.3 4,167.3 4,185.3 5,055.6 19.3 19.3 23.4 10% 44.1 44.0 36.3 77.7 69.8 56.9 50.8 16.0 1.9 ITC 273.1 36,582.7 40,104.1 46,326.4 9,311.3 10,416.5 12,414.1 7.7 8.6 10.3 16% 35.4 31.8 26.5 39.9 43.8 31.2 35.0 8.5 3.1 Jyothy Laboratories 349.1 1,659.5 1,759.4 2,061.1 74.2 134.0 198.7 4.3 7.4 11.0 60% 81.2 47.2 31.7 16.6 20.2 15.3 20.5 5.0 1.4 Marico 255.3 6,024.5 5,971.1 6,884.8 707.9 824.9 970.7 5.5 6.4 7.5 17% 46.4 39.9 34.0 45.6 43.0 35.0 32.9 4.3 1.7 Zydus Wellness 865.6 429.5 431.4 497.3 103.7 111.3 134.0 26.5 28.5 34.3 14% 32.6 30.4 25.2 23.3 24.1 21.5 21.9 6.5 0.8 IT / IT services FSL 39.4 3,217.3 3,549.1 3,836.3 255.2 284.6 336.1 3.8 4.2 5.0 15% 10.4 9.4 7.9 12.0 11.9 14.7 15.0 0.0 0.0 HCL Technologies*** 830.8 31,136.0 46,791.6 52,998.9 5,669.0 8,228.9 9,532.6 40.3 58.4 67.6 30% 20.6 14.2 12.3 33.3 32.6 27.0 26.4 17.0 2.0 Infosys 936.1 62,441.0 68,834.9 75,035.9 13,492.0 14,397.2 15,699.6 59.0 62.9 68.6 8% 15.9 14.9 13.6 32.7 31.8 23.5 22.8 24.3 2.6 Persistent Systems 598.3 2,312.3 2,926.0 3,359.9 297.4 310.1 351.3 37.2 38.8 43.9 9% 16.1 15.4 13.6 23.2 23.4 17.4 17.3 8.0 1.3 TCS 2,232.6 1,08,646.2 1,18,024.5 1,27,332.2 24,215.2 26,195.5 28,364.8 122.9 132.9 144.0 8% 18.2 16.8 15.5 37.5 34.2 29.2 26.4 43.5 1.9 Wipro 457.8 51,244.0 55,025.8 57,739.8 8,892.2 8,374.4 9,152.3 36.2 34.6 37.7 2% 12.6 13.2 12.1 13.5 13.6 16.3 16.1 12.0 2.6 Cap goods / Power BHEL 142.7 25,138.0 29,454.2 34,469.6 (913.0) 607.7 1,054.7 -3.7 2.5 4.3 - - 57.5 33.1 2.8 4.6 1.8 3.1 0.4 0.3 CESC 772.2 6,493.0 7,059.8 7,467.2 707.0 715.9 740.1 53.3 54.0 55.8 2% 14.5 14.3 13.8 7.4 7.1 8.0 7.8 10.0 1.3 Crompton Greaves 68.0 5,272.0 5,818.9 5,452.1 128.4 155.8 262.5 2.0 2.5 4.2 45% 34.0 27.3 16.2 4.7 5.9 3.3 5.3 0.0 0.0 Finolex Cable 448.5 2,461.0 2,767.3 3,214.5 249.0 316.0 348.6 16.3 20.7 22.8 18% 27.5 21.7 19.7 26.3 25.1 28.1 26.0 2.5 0.6 Greaves Cotton 140.1 1,616.2 1,716.5 1,973.1 181.4 184.8 208.7 7.4 7.6 8.5 7% 18.9 18.4 16.5 29.4 30.5 20.3 21.0 5.5 3.9 Kalpataru Power 287.6 4,365.0 5,020.4 5,759.2 200.0 256.6 298.0 13.0 16.7 19.4 22% 22.1 17.2 14.8 16.7 17.4 10.8 11.4 1.5 0.5 PTC India 85.7 12,799.0 13,646.4 14,921.1 218.4 263.1 287.6 7.4 8.9 9.7 15% 11.6 9.6 8.8 13.8 14.2 13.8 13.9 2.5 2.9 Skipper 157.5 1,506.0 1,746.6 2,076.4 83.1 96.0 117.6 8.1 9.4 11.5 19% 19.4 16.8 13.7 24.9 24.6 22.6 22.7 1.4 0.9 Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated

February 2017 44 Sharekhan ValueGuide EQUITY FUNDAMENTALS EARNINGS GUIDE

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div (Rs) growth Rs. Yld(%) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY18/FY16 FY16 FY17E FY18E FY17E FY18E FY17E FY18E Thermax 830.5 4,352.0 4,056.0 4,239.0 305.0 284.0 313.7 25.6 23.9 26.3 1% 32.4 34.7 31.6 15.7 16.4 11.0 11.3 6.0 0.7 Triveni Turbine 125.8 796.3 913.0 1,053.0 107.6 142.0 162.0 3.3 4.3 4.9 23% 38.6 29.2 25.7 61.7 55.0 41.8 37.0 1.1 0.9 Va Tech Wabag 489.6 2,549.0 3,020.0 3,577.0 88.9 138.7 173.4 16.4 25.5 31.9 39% 29.9 19.2 15.3 17.8 19.8 13.3 14.9 4.0 0.8 V-Guard Industries 208.4 1,862.0 2,089.6 2,453.1 111.7 145.4 181.7 3.7 4.8 6.0 27% 56.2 43.3 34.7 37.3 37.1 27.5 27.7 3.5 1.7 Infra / Real Estate Gayatri Projects 689.5 1,812.2 2,061.6 2,529.2 58.6 75.9 116.7 16.5 21.4 32.9 41% 41.7 32.2 21.0 10.3 11.9 9.0 12.5 2.0 0.3 ITNL 109.9 8,263.8 8,456.4 9,547.0 311.5 205.3 246.7 9.5 6.2 7.5 -11% 11.6 17.6 14.6 8.4 8.7 3.0 3.6 2.0 1.8 IRB Infra 234.0 5,130.2 5,882.7 6,795.8 635.8 679.7 754.4 18.1 19.3 21.5 9% 12.9 12.1 10.9 12.7 15.0 13.4 13.4 4.0 1.7 Jaiprakash Asso 13.0 8,793.8 - - (3,511.7) - - -14.4 ------0.0 0.0 Larsen & Toubro 1,480.7 1,01,964.0 1,13,804.0 1,25,961.0 4,199.0 5,301.0 6,203.0 45.1 56.9 66.6 22% 32.8 26.0 22.2 7.9 8.9 11.6 12.6 14.3 1.0 NBCC 275.7 5,838.3 7,147.0 10,446.9 311.1 363.1 526.9 5.2 6.1 8.8 30% 53.2 45.6 31.4 37.4 45.7 22.5 27.8 2.0 0.7 Oil & gas Oil India 344.8 9,765.0 9,795.0 10,515.0 2,545.0 1,986.0 2,243.0 31.8 24.8 28.0 -6% 10.8 13.9 12.3 9.8 10.7 8.7 9.5 12.0 3.5 Reliance 1,033.7 2,76,544.0 2,99,408.5 3,40,501.8 27,630.0 31,066.0 33,887.0 93.7 105.4 114.9 11% 11.0 9.8 9.0 9.1 9.2 11.5 11.3 10.5 1.0 Selan Exp 187.4 62.0 78.1 96.2 12.9 20.9 24.5 7.9 12.7 14.9 37% 23.7 14.8 12.6 9.2 10.4 7.2 8.1 5.0 2.7 Pharmaceuticals Aurobindo Pharma 684.7 13,896.1 16,477.8 19,707.6 2,048.0 2,630.0 3,455.0 35.0 44.9 59.0 30% 19.6 15.2 11.6 29.4 33.1 31.6 30.6 2.5 0.4 Cipla 607.9 13,678.3 16,023.9 17,871.1 1,505.9 1,709.2 2,205.0 19.5 21.3 27.4 19% 31.2 28.6 22.1 12.7 14.8 13.2 14.7 2.0 0.3 Cadila Healthcare 365.1 9,837.6 9,556.8 10,941.9 1,522.6 1,213.4 1,567.2 14.9 11.9 15.3 1% 24.5 30.8 23.8 17.0 19.5 19.5 21.3 3.2 0.9 Divi's Labs 760.4 3,769.0 4,256.1 5,178.5 1,111.9 1,228.4 1,448.7 41.9 46.3 57.2 17% 18.1 16.4 13.3 32.3 32.9 26.3 26.7 10.0 1.3 Glenmark Pharma 947.3 7,650.0 9,499.0 10,272.0 1,068.0 1,451.0 1,631.0 37.8 51.4 57.8 24% 25.1 18.4 16.4 24.3 25.7 25.7 22.7 2.0 0.2 Lupin 1,492.0 14,208.5 17,022.9 20,420.4 2,270.7 3,035.1 3,791.7 50.4 67.4 84.1 29% 29.6 22.1 17.7 22.2 25.6 21.7 21.5 7.5 0.5 Sun Pharma 647.3 28,269.7 35,638.9 36,757.9 5,401.1 7,317.6 8,122.9 22.4 30.4 33.8 23% 28.9 21.3 19.1 23.5 24.2 19.2 17.9 3.0 0.5 Torrent Pharma 1,314.3 6,529.0 6,762.3 7,276.9 1,862.0 1,076.9 1,232.1 110.0 63.6 72.8 -19% 11.9 20.6 18.0 23.9 23.9 24.7 21.0 35.0 2.7 Building Materials Grasim 944.3 34,654.3 36,017.1 40,790.4 2,434.5 3,280.5 3,837.2 52.2 70.3 82.2 26% 18.1 13.4 11.5 14.6 16.0 11.0 11.2 4.5 0.5 Shree Cement** 16,047.4 5,568.0 8,309.9 9,853.8 461.1 1,332.8 1,757.6 132.3 382.5 504.5 95% 121.3 41.9 31.8 21.4 22.7 19.6 21.3 24.0 0.1 The Ramco Cements 702.9 3,672.9 4,020.7 4,456.1 534.4 633.1 755.7 22.4 26.6 31.7 19% 31.3 26.4 22.1 11.5 12.4 18.7 18.8 3.0 0.4 UltraTech Cement 3,737.5 23,841.0 23,526.8 26,611.8 2,313.9 2,573.9 3,046.4 84.4 93.9 111.2 15% 44.3 39.8 33.6 14.7 16.1 11.2 11.8 9.5 0.3 Discretionary Cox and Kings 194.7 2,351.9 2,206.8 2,514.2 284.9 279.5 382.5 16.8 16.5 22.6 16% 11.6 11.8 8.6 11.9 14.1 16.5 18.9 1.0 0.5 Century Ply (I) 215.7 1,664.0 1,813.0 2,273.9 160.5 175.7 212.9 7.2 7.9 9.6 15% 29.9 27.3 22.5 20.6 21.5 29.1 27.5 1.0 0.5 Inox Leisure 225.5 1,332.7 1,234.6 1,474.3 77.5 41.9 84.0 8.4 4.6 9.2 5% 26.8 49.0 24.5 10.0 15.0 6.6 11.7 0.0 0.0 Info Edge (India) 835.0 723.5 794.2 949.0 153.0 181.3 248.2 12.7 15.0 20.5 27% 65.7 55.7 40.7 14.0 16.6 9.4 11.6 3.0 0.4 KKCL 1,765.0 457.4 494.8 565.8 68.0 76.8 87.9 55.1 62.3 71.3 14% 32.0 28.3 24.8 27.9 28.0 24.1 24.2 60.0 3.4 Orbit Exports 327.4 150.0 116.0 139.0 23.0 19.2 24.2 16.0 13.3 16.8 2% 20.5 24.6 19.5 12.5 14.9 16.0 17.7 3.8 1.1 Raymond 503.8 5,621.0 5,286.0 5,590.0 92.0 69.5 93.6 15.0 11.3 15.2 1% 33.6 44.6 33.1 8.6 8.2 5.5 5.2 3.0 0.6 Relaxo Footwear 438.6 1,715.4 1,891.6 2,195.6 117.3 137.2 177.6 9.8 11.4 14.8 23% 44.8 38.5 29.6 28.6 35.2 19.0 21.9 0.6 0.1 Thomas Cook India 193.5 4,236.7 5,404.3 6,459.3 50.2 128.7 266.0 0.8 2.6 5.5 162% 241.8 74.4 35.2 10.5 19.5 13.4 22.0 0.4 0.2 Wonderla Holidays 376.8 205.4 267.9 336.8 59.8 32.8 57.1 10.6 5.8 10.1 -2% 35.6 65.0 37.3 12.1 20.3 8.1 13.8 2.0 0.5 ZEEL 495.9 5,851.5 6,439.1 7,210.4 933.1 1,277.8 1,637.3 10.2 13.3 17.1 29% 48.6 37.3 29.0 26.9 29.2 25.4 26.8 2.3 0.5 Diversified / Miscellaneous Aditya Birla Nuvo 1,403.0 5,422.6 5,372.4 5,783.1 303.6 304.7 472.1 23.3 23.4 36.3 25% 60.2 59.9 38.6 7.0 7.3 3.7 5.4 5.0 0.4 Bajaj Holdings 2,026.6 469.8 - - 2,265.2 - - 203.5 - - - 10.0 ------25.0 1.2 Bharti Airtel 353.8 96,619.2 97,549.5 1,04,090.8 4,735.3 4,511.5 3,591.5 11.8 11.3 9.0 -13% 30.0 31.3 39.3 10.7 8.6 6.2 5.6 1.4 0.4 Bharat Electronics 1,544.4 7,295.2 8,452.5 9,778.8 1,364.9 1,575.7 1,703.6 56.9 70.5 76.3 16% 27.1 21.9 20.2 17.8 17.0 13.2 12.6 17.0 1.1 Gateway Distriparks 258.8 1,046.1 1,099.5 1,196.7 123.6 108.3 134.5 11.4 10.0 12.4 4% 22.8 26.0 20.9 13.0 15.0 11.4 14.3 7.0 2.7 Max Financial 599.2 11,711.9 - - 252.7 - - 9.5 - - - 63.3 ------0.0 0.0 PI Industries 933.7 2,096.8 2,495.2 2,984.2 300.0 399.6 475.5 22.2 29.6 35.2 26% 42.1 31.5 26.5 34.6 34.1 30.0 27.6 3.1 0.3 Ratnamani Metals 669.3 1,719.0 1,497.3 1,800.9 162.7 139.8 172.2 34.8 29.9 36.8 3% 19.2 22.4 18.2 16.9 19.0 12.8 14.1 5.5 0.8 Supreme Industries** 964.7 2,974.8 4,240.3 5,504.7 212.0 361.2 477.1 16.7 28.4 37.6 50% 57.8 33.9 25.7 26.7 31.7 22.9 24.9 7.5 0.8 UPL 738.2 13,301.5 16,005.0 18,786.0 1,438.9 1,815.3 2,285.7 27.6 35.8 45.1 28% 26.7 20.6 16.4 18.3 19.3 22.2 22.7 5.0 0.7

^Marico after 1:1 bonus **June-ended financial year till FY2015, FY2016 consists of only 9 months Crompton Greaves is in the process of selling its overseas power system business by Q4FY2016; hence, we have not estimated the FY2017 numbers Divis Labs after 1:1 bonus; BEL after 2: 1 bonus *** June ended Cadila Healthcare post stock split from Rs5 to Rs1

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Remarks Automobiles Apollo Tyres  Apollo Tyre is the market leader in truck and bus tyre segments with a 28% market share in India. The company has invested $600 million in the past to set up a greenfield facility in Hungary and Rs4,000 crore to expand capacity at Chennai facility. The expanded capacities are likely to come on stream by 2017-18. Also the recent foray in the 2 wheeler tyres strengthens Apollo Tyres presence across all the key automobile segments. With the liquidity situation improving post the demonetisation move (announced in early-Nov 2016), ATL’s domestic market OEM sales are expected to improve going ahead. Further, with the Union Budget increasing the allocation for infrastructure development, the tyre replacement segment is likely to gain pace going forward. Further, the European operations are seeing a double- digit volume growth after the company sorted out capacity related issues in H1FY2017. The new plant in Hungary would commence operations in Q1FY2018 and the company has already tied up with various OEMs to commence supplies. We expect ATL’s topline to grow at a 12% CAGR over FY2017-FY2019. Natural Rubber prices have surged by 50%/31% in the international/domestic markets in the last 3-4 months. Also, crude oil prices have increased by 8%. ATL has indicated that it expects a ~10% increase in the RM cost in Q4FY2017. Although ATL has undertaken a 1.5% price hike, it is unlikely to pass on the full increase in RM costs, which will lead to lower margins. We expect the OPM to drop to 13% in FY2018 from 15% in 9MFY2017. We retain our ‘Hold’ rating on the stock with a revised price target of Rs200. Ashok Leyland  Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. The demonetisation move adversely impacted the overall Commercial Vehicle (CV) volume in November-December 2016, with the industry sales dropping by 13% YoY. ALL’s volume declined by 4% YoY during the same period. At present, the situation has improved considerably, as the tight liquidity situation has eased, resulting in better working capital management for the fleet operators. Further, the truck prices are set to rise by ~7-8% from the current level due to the implementation of the new emission norms effective April 2017 and the likely rollout of the new cab code, which will make air conditioning in the CVs mandatory. This is expected to result in a significant amount of pre-buying in Q4FY2017 and we expect CV volume to grow by 16% YoY in Q4FY2017 and at high single-digit rate in FY2018. Given the pressure on volume due to demonetisation, the MHCV industry resorted to heavy discounting (Rs300,000 per vehicle up from Rs250,000 per vehicle earlier) to push sales. The discounting levels are expected to ease, as the volume growth gains traction and the cash crunch situation eases further at the fleet operators’ end. This, along with the price hikes taken in January 2017 will expand the OPM to 11.9% in FY2018 from 10.3% in Q3FY2017. We maintain our ‘Buy’ recommendation with a revised price target of Rs105. Bajaj Auto  Bajaj Auto is a leading motorcycle and Three Wheeler (3W) manufacturer with a significant presence in the overseas markets. In the domestic market, it is a leader in the premium motorcycle segment. The launch of CT100 and refreshed Platina in the recent past has given a much needed volume push while the newly launched Pulsar variants, Avenger and V-series have helped consolidate its leadership in the premium and luxury motorcycle segments. The launch of the Dominar 400 would help the company gain further market share in the premium motorcycle segment. Improved cash availability (post demonetisation), better rural sentiments (due to enhanced Rabi sowing) and higher Minimum Support Prices (MSPs) are likely to propel growth for the domestic motorcycle industry going forward. With the recent new launches (Pulsar NS200 and Dominar), BAL is likely to continue winning market share in FY2018. We expect BAL’s domestic volume to grow in double digits in FY2018. The macro-economic issues (sharp currency depreciation) in the key export markets including Nigeria have affected the dispatches to these countries and the impact is likely to be felt for another couple of quarters. Also Bajaj Auto is likely to face a steep competition in the key exports markets as competitors TVS and Hero are stepping up presence. Domestic volume is likely to recover in FY2018 while we expect the export volume to remain under pressure in the near term. We retain our ‘Hold’ rating on the stock with a revised price target of Rs3,000. Gabriel India  Gabriel is one of India’s leading manufacturers of shock absorbers and front forks with a diversified customer base. Gabriel’s revenues are expected to grow at a healthy 15% CAGR over FY2016-FY2018 due to improved outlook for the two-wheeler industry and the passenger car segments. There has been a ramp-up in supplies to Honda Motorcycle & Scooter’s (HMSI) new plant in Gujarat, as also to the new models of Maruti Suzuki and Mahindra & Mahindra (M&M). In the near term, the stock performance would be influenced by the recovery in the two-wheeler market, a likely positive rub-off from the implementation of the Seventh Pay Commission’s recommendations and expectations of a normal monsoon in 2016. The recent demonetisation move will impact demand, especially in the 2W segment (where transactions are cash based). GIL believes that demonetisation will impact demand in Q3FY2017 but the long-term growth outlook is strong. Apart from the RM cost reduction, GIL is also working on controlling the overhead costs through productivity improvement. GIL is targeting to reach double-digit OPM as against 9.4% OPM in H1FY2017. We maintain our ‘Buy’ rating on the stock with an unchanged PT of Rs130. Hero MotoCorp  HMCL is the largest two-wheeler manufacturer in the world with sales of over 6.6 mn vehicles in FY16 and a domestic market share of 39%. We expect the two-wheeler industry to grow at 10-12% CAGR over the next five years driven by increased penetration levels in rural areas and replacement demand. HMCL is expected to maintain its leadership position in the industry with new launches in the premium motorcyles and scooters segments. Further, massive capex plans implemented by the company in the past, shall ramp up the production levels. The Government’s decision to demonetise the high-value currency notes is likely to result in a cash crunch and defer discretionary consumer purchases such as Two-Wheelers (2W). The impact is expected to be severe in the rural areas where a large chunk of transactions are cash-based. This is likely to impact rural-focused automobile players, including Hero MotoCorp. However, the volumes are likely to recover in the next 6-8 months once the macro-economic environment attains stability. Therefore, we believe that Hero’s long-term growth prospects are intact but it will experience some pressure in the near term. We maintain our ‘Buy’ recommendation with a revised price target (PT) of Rs3,500.

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M&M  M&M is a leading maker of tractors and UVs in India. We expect demand for the automobile segment to pick up with an improvement in customer sentiment. Additionally, new launches especially in the compact UV space will drive volume growth. After growing in strong double digits, the tractor demand was under pressure in FY15-16 due to weak monsoon. Tractor sales improved significantly in H1FY2017 and the management expects the demand traction to sustain going ahead. M&M is working on launching a new platform for Tractors in the sub-30 HP category in H1FY2018 and we expect Tractor demand to grow at 16% CAGR over the next two years. However, near-term concerns like demonetisation are likely to impact demand in the short term (transactions in rural areas where M&M has strong presence are predominantly done in cash). We expect M&M’s topline and bottomline are likely to grow at 13% and 16% CAGR, respectively between FY2016 and FY2018. While the long-term demand potential is strong, the same is likely to be impacted in the near term. We have reduced our earnings estimates by 3% and 8% for FY2017 and FY2018, respectively to factor in the impact on volume. We maintain our ‘Buy’ rating on the stock with a revised price target of Rs1,450. Maruti Suzuki  Maruti Suzuki is India’s largest passenger vehicle maker with a strong 46% market share. It has been able to gain market share over the last two years on the back of a diverse product portfolio, a large distribution network with an increased focus on rural markets and a shift in consumer preference to petrol models from diesel. The premium hatchback, Baleno and Compact SUV Vitara Brezza command a waiting period of six months each while the newly launched Ignis has a waiting period of two months. This will help the company expand market share in the segment. The management plans to double its existing sales and distribution network in order to achieve its target of doubling domestic volumes over the next five years. Maruti is likely to outpace the PV industry growth rate in FY2017-FY2018 on the back of sustained strong demand for recent launches and a robust product pipeline. The commissioning of the first phase of Gujarat plant will further aid volume expansion. MSIL’s yen exposure is expected to reduce with a higher localisation level while the royalty on future models shall be INR denominated, thus shielding the OPM’s partly. Also, Operating Profit Margin (OPM) is expected to improve on the back of operating leverage and lower discounts due to strong demand. The Government’s demonetisation move is unlikely to have any material impact on Maruti’s volumes given the higher proportion of financing in its sales, and a long waiting period on recently launched models (Baleno and Vitara Brezza). Further, Maruti’s FY2018 volume growth would be higher, driven by the expected resurgence in demand post demonetisation and the planned new launches. We maintain our ‘Buy’ rating with a revised price target of Rs6,430. Rico Auto Inds.  Rico Auto is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. The significant cash inflow due to stake sale in a JV company has enabled it to deleverage its balance sheet. Additionally, a lower interest burden will result in a growth in the earnings and free cash flow. Further, improved demand outlook from the key customers - Hero MotoCorp, Maruti Suzuki and Renault (60-65% of total revenue), coupled with commissioning of the Chennai plant will boost the company’s topline going forward. Also, the proposed new plant at Rajasthan is expected to commence operations by Q3FY2018 and will start contributing to the topline. Driven by a strong demand outlook and consequent plans to ramp up capacity, we expect Rico’s revenue to grow at 14.5% CAGR between FY2016 and FY2018. Further, the company’s margins are also likely to improve due to a better product mix, operating leverage and improved profitability of subsidiaries/JV. We maintain our ‘Buy’ rating and raise our price target (PT) to Rs84. TVS Motor  TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scooter segment. The scooter segment has surpassed the growth in the motorcycle segment over the past couple of years and currently contributes 30% of the total two-wheeler volumes. On the motorcycle front, two new launches in January 2016 (Apache RTR and Victor) have generated higher volumes for the company TVSM is poised to outpace the 2W industry growth given the new launches and sustained demand for its products. TVS has a higher share of Mopeds and Scooters (their combined contribution in TVS’ 2W volumes is 60% as against industry- wide average proportion of ~36%), which have been less affected by demonetisation being utilitarian products. The alliance with BMW would further aid topline growth. We also believe that the alliance with BMW would be a game changer for TVSM, as it would enhance its brand image in the premium motorcycle category. Also, the technological inputs received from BMW would significantly enhance the brand appeal of the entire TVSM product range, enabling it to command higher margins. Benefits of operating leverage, better product mix and alliance with BMW are expected to aid in margin expansion over the next 1-2 years. We expect TVS to outpace the 2W We retain our ‘Buy’ rating with a revised price target of Rs455.

Banks & Finance Allahabad Bank  With a wide network of over 3,000 branches spread across India, Allahabad Bank enjoys a stronghold in north and east India. But it has reported a rise in NPAs resulting in deterioration of its asset quality. Higher proportion of stressed loans and low tier-I CAR remain the key concerns of the bank. Axis Bank  Axis Bank is the third largest private sectors bank, continues to grow faster than the industry and has diversified its book in favour of the retail segment (~40% of loans in retail segment). The bank’s liability profile has improved significantly which would help to sustain the margins at healthy levels. We expect the earnings growth to remain reasonably strong driven by a healthy operating performance. While asset quality pressures have emerged as pain points due to infrastructure and steel exposures, we expect the stress to persist in near term. Bajaj Finance  Bajaj Finance, owned by Bajaj Finserv, is a fast growing, well-diversified leading NBFC in the country. It has assets spread across products, viz loans for consumer durables, two- and three-wheelers, loans to small & medium enterprises (SMEs), mortgage loans and commercial loans. Despite strong growth in loans, the asset quality and provisioning remain among the best in the system. Given the strong growth rate, high margins and return ratios, its premium valuations within the NBFC space is justified. Bajaj Finserv  Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer finance and distribution) and is among the top players in the life insurance and general insurance segments. Its consumer finance (Bajaj Finance) and general insurance businesses continue to report a robust performance while the life insurance business is showing signs of a pick-up after being affected by a change in regulations.

February 2017 47 Sharekhan ValueGuide EARNINGS GUIDE EQUITY FUNDAMENTALS

Bank of Baroda  Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (over 100 offices in 24 countries) and a strong network of over 5,000 branches across the country. It has a stronghold in western and eastern India. Its performance metrics remain better than that of the other PSBs and asset quality has deteriorated in line with the RBI’s directive to clean the balance sheet. Bank of India  Bank of India has a network of over 4,800 branches, spread across the country and abroad, along with a diversified product and services portfolio, and steadily growing assets. The operating performance and earnings have eroded significantly due to margin deterioration and sharp rise in NPAs. Given the rise in the number of incremental stressed loans and the relatively weaker capital position, its valuations may remain subdued. Capital First  Capital First (erstwhile Future Capital Holdings) had been acquired by global private equity firm, Warburg Pincus (a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments, like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Its loan book is expected to sustain a 25-30% growth in the next three years. As a result of several initiatives taken, the operating leverage will play out and may lead to significant pick-up in profitability over medium term. Corp Bank  Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantly exposed to the corporate segment, which constitutes about 45% of its book. Due to a higher dependence on the wholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise in NPAs could keep provisioning high and weaken earnings performance. Federal Bank  Federal Bank is among the better performing old private sector banks in India with a strong presence in south India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve the quality of its earnings and asset book. The asset quality has shown stress in the past few quarters, though we expect a gradual improvement in the NPAs and the operating performance to pick up gradually. The valuations seems attractive over the medium to long term. HDFC  HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward. Due to a dominant market share and consistent return ratios, it should continue to command a premium over the other NBFCs. Any unlocking of value from its insurance business will be positive for the stock. HDFC Bank  HDFC Bank is among the top performing banks in the country having deep roots in the retail segments. Despite the general slowdown in the credit growth, the bank continues to report a strong growth in advances from retail products. Its relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet and there is scope for expansion in the valuations. ICICI Bank  ICICI Bank is India’s largest private sector bank with a network of over 3,800 branches in India and a presence in around 18 countries. The bank has made inroads into retail loans (~45% of the book) and significantly improved its liability franchisee. The operating profit improved significantly though its exposure to some troubled sectors (infrastructure, steel etc) has increased pressure on the asset quality. However, a healthy growth in the operating income and proceeds from monetisation of the stake in subsidiaries will help to deal with the NPA challenges. LIC Housing  LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loan book of over Rs1,00,000 crore. It is promoted by Life Insurance Corporation of India, which is among the most trusted brand in the country. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782 customer relationship associates, the company has among the strongest distribution structures in India to support business expansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggers for the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growth outlook, the company’s fundamentals are strong. PNB  Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constituting around 40% of its total deposits. This helps it to maintain one of the highest margins among PSBs. However, in view of the weakness in the economy and relatively higher exposure to troubled sectors, the asset quality stress has increased and NPA issues will persist over next few quarters. PFS  PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in the energy value chain. Given the robust lending opportunities in the renewable energy segment and the likely reforms in the thermal power segment, the loan growth is expected to remain strong over the next two to three years. The proceeds from exits in investments would add to the profitability. The asset quality despite some deterioration is manageable. SBI  State Bank of India is the largest bank of India with loan assets of over Rs14 lakh crore. The successful merger of the associate banks and value unlocking from insurance business could provide further upside for the bank. While the bank is favourably placed in terms of liability base and the operating profit is also better than peers; the asset quality has emerged as a key pain point which will affect the earnings growth. Union Bank  Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become the largest retail, MSME bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending. The bank’s asset quality challenges have come to fore (mainly from the corporate portfolio) whereas low tier-1 CAR also remains an area of concern. Yes Bank  Yes Bank, a new generation private bank, started its operations in November 2004 and has emerged as among the top performing banks. It follows a unique business model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking players. The bank is suitably poised to ride the recovery in the economy and the retail deposit franchise is showing a sharp improvement which will support the margins in the medium to long term

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Consumer goods Britannia  Britannia is the second largest player in the Indian biscuit market with about 30% market share. Under a new leadership, Britannia has been able to leverage and monetise its strong brand and position in the biscuit and snack segments. The company can sustain its higher than industry growth rates with an improving distribution reach, entry into newer categories and focus on cost efficiency. There will be some impact on the business in the near term due to demonetisation. However, the long-term growth strategy will remain intact. We recommend a ‘Buy’ on the stock with a price target of Rs3,950. Emami  Emami is one of the largest players in the domestic FMCG market with a strong presence in the under-penetrated categories such as cooling oil, antiseptic cream, balm and men’s fairness cream. The recently acquired “Kesh King” brand improves the product and margin profiles of the company. The desire to become a large FMCG player by riding on a portfolio of differentiated brands and widening reach in various geographies will help Emami to achieve a growth of over 20% CAGR over the next 2-3 years. The management expects volume growth to recover to 10-12% in the near to medium term and to on enhance the direct distribution reach. We recommend a ‘Buy’ on the stock. GSK Consumer  GSK Consumer Healthcare is a leading player in the MFD segment with ~70% share in the domestic market. Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay ahead of the competition and maintain its pricing power over the years.. There will be some impact on the business in the near term due to demonetisation, but the long-term growth strategy will remain intact. In a bid to de-risk its business model, it has expanded its product portfolio by entering into new categories such as biscuits and oats in the recent years. With cash balance of more than Rs2,500 crore, the company can invest in growth initiatives and/or reward its shareholders with a healthy dividend payout. GCPL  Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market segments in India. The recent acquisitions, ie Strength of Nature, Darling Group, Tura, Megasari and Latin American companies, have helped the company to expand its geographic footprint and improve growth prospects. GCPL is expected to be relatively less affected by demonetisation compared to other FMCG companies, as its domestic business constitutes ~50% of overall consolidated revenue. The GCPL management expects the domestic business to recover in Q4FY2017. Further, the company’s international business is expected to post a better performance, underpinned by the revival in Indonesia and expectations of strong revenue growth and improvement in profitability in Africa. We have upgraded our rating from ‘Hold’ to ‘Buy’ with a revised price target of Rs1,750. HUL  Hindustan Unilever is India’s largest FMCG Company. The HUL management expects a gradual improvement in sales in the coming months and foresees a steady revenue growth from Q1FY2018 onwards. Also, the supply chain and distribution systems are already in the process of getting into the GST mould. Being present in the essential consumer goods categories, HUL will be one of the key beneficiaries of GST implementation. we maintain our ‘Buy’ recommendation with a revised price target of Rs950 In the long term, it will be one of the key beneficiaries of the Indian consumerism story. ITC  ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some of which are at a nascent stage. The quantum of excise duty of 6%declared in the Union budget 2017-18 was much lower than in the earlier years. This should help in stabilizing cigarette sales volume in the coming years. The current valuation makes ITC one of the cheapest stocks in the large-cap FMCG space. Jyothy Labs  Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration of Henkel and the induction of a new management team led by S Raghunanadan, it has transformed itself from a one-brand wonder to an aggressive FMCG player. We expect JLL to see an early recovery (due to demonetisation) because of its strong presence in South India, which has high penetration of non-cash transactions. Fur¬ther, the company is focusing on enhancing its direct dis¬tribution reach. Marico  Marico is among India’s leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new product categories (especially in the beauty and wellness space) and growth through acquisitions Marico is feeling the pinch from the Government’s demonetisation measure, with its sales expected to be lower in H2FY2017. Marico is one of the strongest players in the domestic branded Hair Oil and Edible Oil markets, with a leadership position in both the categories. With less exposure to Rural India, we expect Marico to see a faster recovery when the demonetisation pain abates, owing to strong brands and a wide distribution reach of 4.5 million outlets. Due to the recent stock correction, we maintain our ‘Buy’ recommendation with a revised price target of Rs290 Zydus Wellness  Zydus Wellness has small product portfolio, consisting of just three brands (Nutralite, Sugar Free and Everyuth) that cater to a niche category. The Zydus Wellness management is confident of good revenue growth in the coming quarters on account of a revamped distribution system and regular media & promotional initiatives to improve brand awareness (largely in the urban markets). The company is aiming to improve the growth prospects of its key categories by regular new product/variant additions and plans to expand its footprint into the international markets.

IT/IT services Firstsource  Firstsource Solutions is a specialized BPO service provider. The management continues to maintain its FY2017 revenue growth guidance (10-12% YoY on CC terms). However, the management believes that margins could be adversely impacted, owing to softness in the mortgage business, mounting hiring cost for expansion of customer base in Healthcare and unfavorable currency movements. The health of its balance sheet is improving gradually as the company is gradually reducing its debt burden through internal accruals. The company expects to be comfortably net cash positive by the end of FY17. We expect the ongoing macro overhang to restrict the stock’s outperformance in the near-to-medium term, as FSL has 38.1% exposure to the UK.

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HCL Tech  HCL Technologies has a leadership position in ERD and IMS space, together accounting for ~58% of the company’s total revenue. The management believes that cross-selling to the existing ERD and IMS clients could unravel a larger business opportunity going forwardThe company has not shied away from taking the inorganic route (10 acquisition/partnerships in the last 18 months) to strengthen its offerings. In addition, the management has made investments in digital technologies (DRYiCE), which will catapult the company to the next level of growth during the ongoing digital transition. We remain positive on the company in view of its large order wins, acquisitions in the ERD space, investments in applications space and superior earnings visibility. Infosys  Infosys is India’s premier IT and IT-enabled Services Company that provides business consulting, technology, engineering and outsourcing services. It has also given a promising aspiration target for 2020 of achieving $20bn in revenues and 30% in margin. Under the leadership of Vishal Sikka, the company is doing the right thing by investing in the digital space (both organic and inorganic), improving client engagement through design thinking, and automation. We remain positive on the company’s growth prospects for the coming years. Persistent  Persistent Systems has proven expertise and a strong presence in newer technologies, strength to improve its IP base and the best- in-the-class margin profile which set it apart from the other mid-cap IT companies. PSL is focusing on the development of IoT products and platforms, as it sees significant traction from Industrial Machinery, SmartCity, Healthcare and Smart Agriculture verticals. Further, led by the recent acquisitions and alliance with IBM to build IoT solutions for IBM’s Watson platform, we expect the revenue momentum to accelerate in FY2017/FY2018 and the margins are likely to remain stable on the back of the initiatives taken by the company. TCS  Tata Consultancy Services is among the pioneers of the IT services outsourcing business in India and is the largest IT service firm in the country. Its management expects the digital revenues to grow much faster in the coming years; these grew by 52.2% YoY to $2.3 billion in FY16. The management noted that headcount addition will be materially lower than in FY16 and dependence on Visas will come down. We believe that the ongoing transition phase of the IT industry and the weak spending environment will restrict stock outperformance in the medium term. On a longer term basis, we still prefer TCS, owing to its diversified portfolio and head-start in the Digital space. Wipro  Wipro is among the top five IT companies in India but in the last few years it has been lagging the industry in terms of growth. We believe, owing to weakness in the energy, telecom, and some project deferrals, it’s unlikely to show material improvement in earnings on an organic basis in FY17. The management has given an ambitious target of $15 billion revenues and 23% margin by 2020. We see the target of new CEO Abid Ali Neemuchwala as an uphill task looking at the current growth trajectory. Therefore, we remain sceptical, as anecdotal evidence on Wipro in the last two to three years does not inspire confidence.

Capital goods/Power BHEL  Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflow has been showing signs of slowing down which would remain a major concern for the company. The key challenge before the company now would be to maintain a robust order inflow and margin amid rising competition and lower order inflow. CESC  CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which is a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution) has come on stream recently in Haldia. Also its 600MW thermal power project at Chandrapur has signed PPA and started operating. The losses in the retail business are coming down gradually over the past and it is expected to break even soon. The BPO subsidiary, FirstSource, is performing well in line with expectations. However, the recent diversification into unrelated businesses like IPL franchisee would hurt its valuations. Crompton Greaves  Crompton Greaves’ key businesses—industrial and power systems—are passing through a rough patch and are potential beneficiaries of the upcoming investment cycle revival. Also, the company is looking to unlock value by selling its international subsidiaries. Finolex Cables  Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improving demand environment in its core business of cables. It is leveraging its brand strength to build a high-margin consumer product business. It has recently launched Fans and switch Gears. Further, it is planning to launch water Heaters soon. Addition of new products in the product portfolio could be the next growth driver. We see a healthy earnings growth, return ratios in high teens and superior cash flows which bode well for the stock. Hence, we remain positive on the stock. Greaves Cotton  Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol engines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructure equipment segment). The management has taken a strategic call to close and hive off the loss-making infrastructure equipment division. A positive outlook for all the business segments, coupled with the company’s ongoing efforts to launch new products and widen its geographical reach is likely to drive topline going forward. Further, GCL is ready with Bharat Stage 4 compliant engines (Bharat Stage 4 to be implemented from April 1, 2017 pan- India), which will further aid topline growth in FY2018. We expect GCL’s topline to grow at 10% CAGR between FY2016 and FY2018. We remain positive on the stock and maintain our Buy rating with a price target of Rs160. Kalpataru  Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India. Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility. The OPM of the stand-alone business is likely to remain around 10%; however the OPM of JMC Projects (a subsidiary) is showing signs of improvement. We see some value unlocking potential from selling assets or listing of new business in future. We remain positive. PTC India  PTC India is a leading power trading company in India with a market share of 35-40% in the short-term trading market. In the last few years, the company has made substantial investments in areas like power generation projects and power project financing which will start contributing to its earnings. We retain our positive stance on expected healthy volume uptick, with an increasing share of long-term contract business.

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Skipper  Skipper is uniquely placed to exploit the growing opportunities in two lucrative segments: power (transmission tower manufacturing and EPC projects) and water (PVC pipes). It has a comfortable order book of more than Rs2,400 crore in the transmission business, which looks promising given the huge investments proposal by the government in the power T&D segment in the next five years. It has expanded the PVC capacity manifold (4x) and aspires to turn a national player from a regional player. Thermax  The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’s capex. Thermax’ group order book stands at around consolidated revenues. However, the company has shown its ability to maintain a double-digit margin in a tough environment. We retain Hold on the stock due to its rich valuation. Triveni Turbines  Triveni Turbines (TTL) is a market leader in 0-30MW steam turbine segment. TTL is at an inflexion point with a strong ramp-up in the after- market segment and overseas business while the domestic market is showing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of 30-100MW range which is likely to grow multi-fold in the next 4-5 years. TTL is virtually a debt-free company with a limited capex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boosted by the expected uptick in the domestic capex cycle, the company’s earnings are likely to grow by 25%+ per annum over the next 3-4 years. V Guard Ind  V-Guard Industries is an established brand in the electrical and household goods space, particularly in south India. Over the years, it has successfully ramped up its operation and network to become a multi-product company. The company has a strong presence in the south region. It is also aggressively expanding in non-south markets and is particularly focusing on the tier-II and III cities where there is a lot of pent-up demand for its products. Va Tech Wabag  VA Tech Wabag (VTW) is one of the world’s leading companies in the water treatment field with eight decades of plant building experience. Given the rising scarcity of fresh water availability, we expect flow of huge investments in water segment both globally and domestically. With rising urbanisation and industrialisation in India, we expect substantial investments in this space. Given the large opportunity ahead and inherent strengths of VTW, like professional management, niche technical expertise and global presence, we remain positive on the stock.

Infrastructure/Real estate Gayatri Proj  Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and industrial construction businesses. The order book stands at Rs12,510 crore, which is 6.9x its FY2016 revenues. It is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity. The company has potential to transform itself into a bigger entity. IL&FS Trans  IL&FS Transportation Networks is India’s largest player in the BOT road segment with a pan-India presence and a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a strong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster. Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector. IRB Infra  IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator in the country with all its projects being toll based. It has an integrated business model with an in-house construction arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free and it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefit from the huge opportunity in the road development projects on the back of its proven execution capability and the scale of its operations. Jaiprakash Asso  Jaiprakash Associates has been facing earnings pressure across business verticals. Further, it is in the process of concluding its cement asset sale to deleverage its balance sheet. The construction and real estate division has also been underperforming lately. The current uncertainty in business restructuring and liquidity concerns has led to a cautious view on the stock. L&T  Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the domestic infrastructure capex cycle. Further, backed by its sound execution track record and healthy order book, the company will do well. Monetisation of the non-core businesses will continue for some time, leaving scope for further value unlocking. Measures planned by the company to improve its return ratios augur well. Hence, we remain positive on the stock. NBCC  NBCC (India), a Navratna public sector enterprise is notified as a Public Works Organization (PWO), which gives it a unique eligibility to bag orders on a nominated basis from government departments and PSUs. NBCC has already amassed a huge order book, which gives it a strong revenue visibility for the next five years. Moreover, future prospects look much brighter given the opportunities from multiple areas, like redevelopment of old government colonies in Delhi, Rajasthan & Odisha, development of government lands, Smart Cities, ‘Housing for All 2022’ and ‘Amrut. Given the huge competitive advantage, a unique business model, high return ratios and healthy cash flows, we remain positive on the stock.

Oil & gas Oil India  Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The total proven and probable reserves of the company stand at 52 MMTOE and 121 MMTOE respectively. Its reserve-replacement ratio is also healthy. Though currently weak global crude oil prices are weighing on its performance, operational performance is healthy and offers high dividend yield.

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Reliance Ind  Reliance Industries has one of the largest and complex refining businesses in India which enjoys a substantially higher refining margin over the benchmark GRM. Further, its petrochemical business is also highly efficient, where RIL is expanding capacity. We expect the GRM to remain healthy and the petrochem margin to be maintained in the medium term on an uptick in the domestic demand is weighing on the stock price; however, capex in downstream business (incremental capacity in the petchem business and petcoke gasification in refining) would be the earnings driver in the coming years. Large investment in Reliance Jio could add value in long term. Selan Exploration  Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production. Based on this, we expect it to ramp up production significantly, subject to approval for the new wells. However, weak global oil prices are likely to be an overhang on the stock in the medium term.

Pharmaceuticals Aurobindo Pharma  Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the US and European markets, thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones, penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenue mix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. It has recently acquired the commercial operations (revenue size EUR320mn) of Actavis Plc in seven western European countries and of Natrol in the USA to take on the nutraceutical business, which is a strategic fit. Cadila  A lot of key product approvals have been delayed due to regulatory issues at Cadila’s Moraiya facility. The management confirmed that the USFDA will re-inspect the Moraiya facility from February 6. We expect this inspection to go on for 3-5 days and the USFDA may give its opinion post that. We feel that the uncertainty relating to the outcome of the USFDA inspection at Moraiya is likely to weigh on the stock in the near term. Cipla  Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on technology-intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the key markets like South Africa, USA and Europe; (3) developed an appetite for inorganic expansions; and (4) invested in future growth areas like biosimilars. The UK approval for gSeretide comes at a crucial time for Cipla, as it will help the company to gain traction in its business across global markets. The Cipla management sounded confident of ramping up USA and EU businesses with new product launches, and expects benefits from cost- control initiatives to drive the company’s earnings from FY2018 onwards. Divi’s Labs  The US Food & Drug Administration (USFDA) inspected Divis Laboratories’ (Divis Lab) Unit-II at Visakhapatnam (Vizag) from November 29, 2016 to December 06, 2016. The USFDA has issued Form 483 with five observations, which are moderate to serious in nature. Divis Lab’s Unit-II at Vishakhapatnam/Vizag is a very critical unit for the company, as majority of its exports are from this unit (around 50%+ sales come from this unit and even larger contribution to profitability). If the USFDA’s 483 observation letter escalates to a Warning Letter / Import Alert, then it will impact the company’s financials significantly, leading to a possible sharp downward revision in estimates. Glenmark Pharma  The management has given a revenue growth guidance of more than 25% for FY2017 (including Zetia). The company will report 12-15% base revenue growth in FY2017 and FY2018 each. The management has indicated that for future growth, the key focus areas will be dermatology, contraceptives and complex injectables. The growth would be mainly driven by the USA, EU and India, which are witnessing an exponential growth on account of launch of new products. Currently, it has three new chemical entities and four new biological entities in clinical trials, out-licensing potential. The gZetia launch scheduled in H2FY2017 will give a big fillip to the company’s sales and profitability, which should further help reduce debt on the company’s balance sheet. Lupin  The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with addition of in-licenced product- Alinia, Inspira Chamber VHC and Locoid lotion) in the USA and a robust pipeline of new launches in the domestic and overseas markets provide strong growth visibility for Lupin. Lupin has recently successfully closed its outstanding 483 letter at its key plant in Goa. Around 30 products are pending for USFDA approval from the Goa plant, which we expect to start soon. Delay in key product approvals, coupled with growing competition and pricing pressure in the US business are increasing strain on the operating performance in the near term. Sun Pharma  The combination of Sun Pharma, Taro, Dusa Pharma, the generic business of URL Pharma and the acquisition of Ranbaxy offers an excellent business model for Sun Pharma. Also, the integration process with Ranbaxy is set to help boost the profitability due to favourable synergies from H2FY2017. The management maintains its aim to achieve a $300-mn synergy from the merger of Ranbaxy. With a strong cash balance, it is well positioned to capitalise on the growth opportunities and inorganic initiatives. The company has started receiving few approvals from the Halol unit, which points to resolution of the plant issues in the near future. Also, the Specialty segment is expected to perform well, as the company has recently launched BromSite drug (used to treat Dry Eye disease). Also, very recently, Sun Pharma launched Authorized Generics (AG) for Benicar, Benicar HCT, Azor and Tribenzor. All four products put together recorded sales of $2.5 billion for the 12-month ended August 2016. Therefore, we expect Sun Pharma’s H2FY2017 financial performance to be positive and long-term performance to be solid. Torrent Pharma  Torrent Pharma is building a strong US pipeline, which could add ~30-40 products over FY2017-FY2019E. Improving market share in Detrol and Nexium, additional product volumes from Dahej, and 10 new launches planned in FY2017 would partially mitigate the decline in the company’s US revenue during FY2017E. In the case of the India business, the Torrent Pharma management is focusing on improving profitability by building larger brands in chronic diseases.

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Building materials Grasim  Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortable debt/ equity ratio, attractive valuation and diversified business. The full ramp-up of Vilayat plant (increasing capacity to 804,000 tonne) is likely to aid VSF volumes going ahead, though prices may soften in the near term. Further, the merger of ABCIL and expansion in caustic division are likely to maintain a strong performance in chemical division. On the cement front, the company expects demand to pick up in the near term while a slow execution of government projects and surplus inventory remain concern areas. The Ramco Cements  The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity addition carried out ahead of its peers in the southern region. In certain key markets of The Ramco Cements, like Telangana, Maharashtra and Andhra Pradesh, demand has started to pick up but realisations have been under pressure. The company has reaped the benefits through cost-saving measures, besides constantly reducing its debt, leading to improved profitability. In a nutshell, better volumes, cost efficiencies and reducing leverage have yielded benefits for the company. Shree Cement  Shree Cement’s cement grinding capacity has grown to 27.2mtpa which will support its volume growth in the coming years. It has a power plant with capacity of 612MW for its own consumption and merchant sale which is expected to support its revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing from the sale of surplus power will drive the earnings of the company. UltraTech Cement  UltraTech Cement is India’s largest cement company with approximately 91mtpa cement capacity post acquisition of JP Associates’ cement assets. The eastern region has seen a robust growth in infrastructure and housing demand while the other regions have seen infrastructure spending only with no major improvement in housing and rural demand. The management has guided for a 7-8% demand growth for FY17 driven by infrastructure spend and revival in retail demand after a good monsoon. However, the uncertainty over cement price and increase in price of pet coke (trading with upward bias, Q3FY2017 onwards may feel the impact) will be the key monitorable for FY17. However, cost efficiency (impact of new grinding and waste heat recovery) and base effect may lead to better operating performance for UltraTech.

Discretionary consumption Century Plyboards  Century Plyboards is a leading player in the organised plywood industry with a market share of 25%. A strong growth in the sector, Century’s premium positioning and brand equity strength, and the impending GST roll-out would enable it to post a revenue growth (CAGR) of 18.1% over FY2016-FY2018E. On the back of a revenue growth and better absorption of fixed costs, the earnings are likely to grow at a rate of 19.4% CAGR over FY2016-FY2018E. We believe that the structural growth story in terms of GST implementation and capacity expansion benefits remains intact, but are still 6-9 months away. Therefore, we downgrade the stock to ‘Hold’ with an unchanged price target (PT) of Rs257. Cox & Kings:  Cox & Kings is an integrated player in the tourism & travel industry, with a strong presence in the global leisure travel segment and the education tourism segment in Europe. It has a 30% market share in the global outbound tourism market. Demonetisation and GST implementation are key positives for CKL’s domestic Leisure Travel business from a long-term perspective due to the expected shift from the unorganised players to organized ones. On the other hand, Education and Meininger business is expected to post a decent performance in the coming years. Also, the management would reduce the consolidated debt by Rs400-500 crore per year through internal cash flows. Therefore, we maintain our ‘Buy’ recommendation with a revised price target of Rs225 Info Edge (India)  Info Edge is India’s premier online classified company in the recruitment, matrimony, real estate, education and related service sectors. Naukri is a quality play on the improving macro environment and is directly related to the GDP growth and Internet/mobile penetration. Further, prevailing lower competitive intensity in the real estate space is positive in terms of profitability. We expect Zomato business’ growth to extend in the coming years, with better integration of services and increasing monetisation opportunities. We continue to derive comfort on Info-Edge’s business strength, with leading market share in key businesses. We expect its earnings trajectory to catch up, as the macro headwinds subside. INOX Leisure  INOX Leisure Ltd (ILL), India’s second largest multiplex operator with 113 properties and 446 screens across 57 cities (accounting for about 27% of the multiplex screens in India) is scripting a blockbuster growth story through a mix of inorganic and organic expansion plans to scale up the total screen count to 890 screens over the next 24-30 months. The ILL mega show is supported by an improving content quality in the Indian mainstream and regional cinema with its movies regularly hitting the Rs100-crore or Rs200-crore box-office collection mark. We continue to remain positive on ILL from a long-term perspective, given its pan-India growth plans, healthy balance sheet (lower financial leverage) and potential benefits from GST rollout. KKCL  Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has created a niche space in the minds of consumers. We expect KKCL to get back to double-digit revenue growth on the back of its strong brand equity and enhanced distribution reach. KKCL has one of the best balance sheets among the Indian branded apparel players, with high return ratios and positive free cash flows, which make it one of the better picks in the branded apparel space. Orbit Exports  Orbit Exports (Orbit) is a leading manufacturer and exporter of novelty fabrics exporting its products to over 32 countries. It is a recognised star export house and operates in the niche area of high-end fancy fabrics, which are mainly used by designers in women’s fashion apparels. FY2017 can be considered as a year of consolidation for Orbit, with events such as slowdown in the Middle East, currency devaluation in LatAm and demonetisation in India adversely affecting the company’s performance in the near term. However, the Orbit management is confident of recovery in FY2018, with a clear focus on growing the high-margin businesses. Also, Orbit has one of the better balance sheets in the Textile industry and we expect it to improve further in the coming years. However, in view of near-term concerns in the export markets, we downgrade our rating from ‘Buy’ to ‘Hold’ with price target under review.

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Raymond  Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With growing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with its brands and superior distribution set-up is very well geared to encash the same. We expect recovery to take some more time, considering the slowdown in the overall discretionary consumer spending. The company is focusing on strengthening brands, product innovation and expansion of distribution network (through an asset-light model), and turning around its non-textile businesses. However, the result of these initiatives would take time to reflect in the operational performance.

Relaxo Footwear  Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunity due to its growing scale, strong brand positioning and healthy financial performance. Being mainly into the mass footwear segment, the revival of revenue after the demonetisation effect would be faster for Relaxo compared to other footwear retail players. We expect the revival in the company’s sales to kick in from Q1FY2018. Also, the implementation of GST will bring under its fold all the unorganised players, and we believe that the price difference between branded and unbranded players will get reduced.

Thomas Cook (I)  Thomas Cook India (TCIL), owned by the legendary value investor Prem Watsa, is an integrated leisure travel and human service management company in India. The improvement in the domestic and global macro environment provides a huge growth opportunity in the Indian leisure and travel industry. The top management of TCIL has indicated that the Government’s demonetisation drive will have near-term impact on the performance of its Travel & Tourism business, as the bookings for summer holidays 2017 (Q1FY2018) will be adversely impacted. However, TCIL’s management is confident of seeing a recovery in the Travel business in the next 6-8 months once the macro-economic environment attains certain stability. We maintain ‘Buy’ with a price target of Rs229.

Wonderla Holidays  Wonderla Holidays Ltd (WHL) is the largest amusement park company in India with over a decade of successful and profitable operations. It owns and operates two amusement parks under the brand name Wonderla in Kochi and Bengaluru, and came up with a third park in Hyderabad in Q1FY2017. The company posted strong growth in footfalls in Q3FY2017 and we expect this trend to continue going forward, as WHL endeavors to provide better entertainment services to its patrons at a reasonable price. The company’s better cash generation ability and a strong balance sheet make WHL one of the better plays in the consumer discretionary services space. Therefore, we maintain our ‘Buy’ recommendation with a revised price target of Rs 425.

Zee Entertainment  Zee Entertainment Enterprises, part of the Essel group, is one of India’s leading TV media and entertainment companies. It has a bouquet of more than 40 channels across Hindi, regional, sports and lifestyle genres. ZEEL continues to outperform the broadcasting advertising market and expects to continue the momentum with an improvement in the macro economy. ZEEL’s recent move to exit from the loss-making sports business will improve its profitability, strengthen balance sheet and position the company to accelerate inorganic or strategic investments. We continue to see ZEEL as the prime beneficiary of macro revival and digitisation.

Diversified/Miscellaneous

Aditya Birla Nuvo  We believe that the outlook for ABNL’s Financial Services business remains bright, although the Manufacturing vertical continues to lag. Further, Idea’s profitability is likely to remain under pressure in the near term. Pre-amalgamation, we have revised our price target (PT) for ABNL to Rs1,250 on account of de-rating of its Telecom business and subdued operating performance of its Manufacturing verticals. We maintain our ‘Hold’ rating on the stock.

Bajaj Holdings  Bajaj Holdings & Investment Ltd (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby its manufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of the wind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties, assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remain with BHIL. BHIL is a primary investment company focused on new business opportunities. Given the strategic nature of BHIL’s investments (namely BAL and BFL), we have given a holding company discount of 50% to BHIL’s equity investments. The liquid investments, and investments in other group companies have been valued at cost. Further, the price target (PT) for BFS has been revised upwards to Rs3,890, as the company has reported better-than-expected results for Q2FY2017 and long-term upside potential remains intact since all three business streams are in high-growth and emerging segments. Consequently, we have maintained our ‘Buy’ rating and have revised the PT to Rs2,516.

February 2017 54 Sharekhan ValueGuide EQUITY FUNDAMENTALS EARNINGS GUIDE

Bharti Airtel  Bharti Airtel is the leader in the Indian mobile telephony space. The long awaited entry of a competitor with deep pockets – Reliance Jio - in the market with aggressive pricing and deep market penetration strategy, Airtel will have to bear the brunt in the short term. Going forward, from a long-term perspective, explosive growth in the data segment, strong network and reach will help Bharti emerge stronger, but the near-term blips make us keep our Hold rating on the stock with a price target of Rs340.

BEL  Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, stands to benefit from the enhanced budgetary outlay for strengthening and modernising the country’s security. The “Make in India” initiative of the government will support the earnings growth in the coming years, as it is the only player with strong research and manufacturing units across the country. The company’s current order book of around Rs33,806 crore provides revenue visibility for the next three to four years.

GDL  With its dominant presence in the container freight station segment and recent forays into the rail freight and cold chain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold storage business. The proposed capex for a.ll the three segments will strengthen its presence in each of the segments and increase its pan-India presence.

Max India  Max India has demerged into three different entities of which Max Financial Services will hold Max Life Insurance (new Max India will hold Max Healthcare, Max Bupa Health Insurance and Antara businesses). Max Life Insurance (held by Max Financial Services) is among the leading private sector insurers, has gained the critical mass and enjoys among the best operating parameters in the industry. As the insurance sector is showing signs of stabilisation, the company’s favourable product mix and a strong distribution channel will result in a healthy growth in the premiums and profits.

PI Industries  PI Industries (PII), a leading agro-chemical company, has a differentiated business model with focus on the fast-growing custom synthesis and manufacturing (CSM) business, which contributes 60% of its revenues. To sustain the growth momentum, the company has expanded its manufacturing capacity in Jambusar at a cost of Rs300 crore and the new capacity has commissioned in H2FY2016. PII is gradually ramping up production at the recently commissioned Jambusar facility. The new products launched in the recent past have gained good acceptability in the market and would continue to contribute to topline growth. We expect demand to be majorly unaffected due to demonetisation, as outlook for the CSM business (exports), which accounts for ~60% of total sales, remains strong and unaffected. In the domestic market, demand is likely to be impacted due to demonetisation, which could normalise by Q4FY2017. On the EBIDTA margin front, PII has guided for 100-150BPS improvement on account of a richer product mix and likely improvement in operational efficiencies. The company’s order book stands at $800 million. PII has lined up a capex of ~Rs200 crore for FY2017 and ~Rs150 crore for FY2018. Structurally, PII will benefit from its unmatched CSM capabilities (exports business), distribution reach and brand advantage inthe domestic markets. We have maintained our Buy rating on the stock with a revised PT of Rs955.

Ratnamani Metals  Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. Despite the challenging business environment due to increasing competition, we remain positive on RMTL on the back of its strong balance sheet, the company’s ability to generate superior return ratios in the coming years and expansion of seamless SS tube capacity in the next few years. Further, the management has maintained a strong outlook on the potential opportunities in the oil & gas sector and inter-connection of the rivers across the country.

Supreme Ind  Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging, industrial and consumer segments. We remain positive on its new launches of value-added products and capacity expansion plans, which are largely funded by its robust internal accruals. The company enjoys superior return ratios with low gearing levels. With diversified products, extensive distribution network, improved capital structure and government thrust’s on better infrastructure, Supreme has emerged as one of the best proxy play on the increasing use of plastic consumption in India. Hence, we remain positive on the stock.

UPL  UPL is a leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, United Phosphorus has presence across agricultural inputs segment ranging from seeds to crop protection products and post-harvest activities. It has also started to focus on premium products in agro-chemicals. UPL’s consistent focus and ability to introduce innovative products (both in India and overseas markets), presence in high-growth markets (Brazil and India) and plans of tapping new markets augur well for the company. Strong growth momentum in the Latin American markets, with the company aiming to outpace the industry growth and gain market share, coupled with a favorable outlook for the Indian business will help UPL to boost its overall performance and achieve its revenue growth target of 15%-20% for FY2017. Also, a better product mix, operating leverage and likelihood of market share gains in the key markets should boost the overall performance. We retain our ‘Buy’ rating with a revised Price Target (PT) of Rs 855.

February 2017 55 Sharekhan ValueGuide