Large Cap Q1FY20 Result Update from Trading Team Lackluster Quarter……

Consumption BUY Staple companies, barring a few, reported better-than-consensus estimate volumes and margins. Surprisingly, volumes of paint and building material companies surpassed estimates on account of BHARTI (TP 380) better channel inventory management. While results were better than estimates, during conference PIDILITE (TP 1400) calls most managements highlighted subdued demand environment. While Godrej Consumer’s (TP 500) home insecticides and ’s Saffola businesses continued to disappoint, Colgate management, (TP 750) yet again, refrained from sharing market share data (used to release earlier). (TP 675)

SHREECEM (TP 25000) High base, demand slowdown and liquidity crunch have clearly taken a toll on high-ticket consumption stories. While retailers— , ABFRL, Bata—reported better than consensus HCL Tech (TP 1100) estimate sales growth, Titan reported subdued numbers and has giuded for a weak H1FY20. As QSR companies had a high base their SSSG print was weak, but margins too have started to contract. SELL Top BUY – PIDILITE , DABUR. Top SELL – GODREJ CONSUMER. GCPL (TP 600)

Auto and ancillaries (TP 300) Amidst higher compliance cost and channel financing challenges, Q1FY20 volumes were weak. ESCORTS (TP 400) However, across the board, higher realisation and lower commodity cost QoQ led to better-than- (TP 550) estimated margin for most auto companies. Global auto proxies JLR, Motherson Sumi and Bharat (TP 220) Forge disspointed yet again with significant margin contraction; their managements have guided for weak demand / margins going forward. MRF reported 14% sales growth despite challenging enviornment. In our view, the company has gained market share in the replacement market.

Pharmaceuticals Pharma companies reported in-line numbers, barring a few usual suspects like Glenmark; Aurobindo reported an all-round beat. Lower R&D and other expenses led to better margin for companies. As per conference calls, US based businesses have stabilised—decline has improved from 10% since last 3 years to 3-5%. While IPM clocked double-digit growth, listed players lagged IPM’s print. Top BUY – ABBOTT.

Capital goods and consumer appliances Q1FY20 numbers of infra and capital goods companies indicate that while execution was strong, margins belied estimates. Each company had its own reasons for the same—while L&T Infra’s business faced a few project-specific issues, Thermax had to battle product mix problems. While product-related demand has moderated a tad, most managements are cautious on exports.

Consumer durable companies reported double-digit sales spurt riding demand revival and a lower base. AC segment clocked divergent trends—while Voltas’ sales jumped 24%, Havells’ declined. Top BUY – L&T , HAVELLS , VOLTAS. SELL – CUMMINS.

Building materials

Cement companies reported blockbuster numbers. Price hikes, lower pet coke/ diesel prices and benefit of relaxation in higher axle load norms led to decade-high EBITDA per tonne. While price hike has been rolled back to some extent , raw material price reduction benefit is yet to percolate fully to numbers. Hence, Q2FY20 is envisaged to be another strong quarter as per most conference calls. Kajaria reported weak numbers, but guided for 15% sales growth for FY20; ply companies were victims of demand slowdown and liquidity crunch. Top BUY – .

Technology / Media / Telecom The quarter saw slow down in revenue growth and contraction in EBIT margin of IT cmpanies. The slow down was pronounced in second-rung firms where high client concentration and tepid revenue adversely impacted profitability. YoY EBIT growth was sluggish at 4% versus past 4 quarters’ average of 19.6%. In FY19, companies were able to capitalise on a weakening rupee, which had boosted margins and hence PAT; this hasn’t been the case in FY20 till date.

Media companies reported subdued ad revenue growth as they were singed by slowdown in consumption, auto and other sectors. Zee reported mere 4% ad revenue growth and estimates FY20 industry growth to be in single digit only.

Q1FY20 for telecom companies was caharcterised by QoQ ARPU improvement, rising tariffs and waning competitive intensity from RJIO and marginal players. Companies are pruning leverage, which will improve bottom lines. Top BUY – BHARTI , HCL Tech , Top SELL – ZEE , WIPRO.

Date: 16th AUG, 2019 Edelweiss Professional Investor Research 1

Large Cap Q1FY20 FMCG

Companies Expectation Result Outlook Post Result Comment HUL 5% Volume growth with 24% margin 5% Volume growth with 26.5% Margin 8% Volume growth with 18.5% margin 15.5% Volume growth with 22% margin Pidilite 5% Volume growth with 21% margin 6% Volume growth with 22% margin Britannia 6% Volume growth with 15.5% margin 3% Volume growth with 14.6% margin Colgate 5% Volume growth with 26% Margin 4% Volume growth with 27% margin Dabur 6% Volume growth with 18.5% margin 9.6% Volume growth with 20.1% margin Marico 5%/5%/7% P/S/VAHO growth with 20.1% margin 9%/3%/7% P/S/VAHO growth with 21.3% margin GCPL 5.5%/6.5%/0% S/HC/HI growth with 18% margin 3.3%/-1.1%/-4% S/HC/HI with 19.4% margin

Key Trend and Specific Commentaries 1. Except Britannia, most FMCG companies reported better than consensus estimate volume and margin. 2. Surprisingly Paint and Building material companies reported better than estimate volume growth on account of better channel inventory management. 3. While results were better than estimate, in conference call most companies highlighted a subdued demand environment. 4. Godrej consumer/Marico’s HI/Saffola business continue to disappoint , Colgate again avoided to publish market share data , which they used to release earlier

Key Charts

Large MSP Hike and 6th Pay FMCG Volume growth Trend Commission with arrear

15% 14% 14% 13% 13% 12% 11% 10% 10% 10% 10% 9% 9% 8% 8% 7% 7% 7% 6% 6% 6% 6% 6% 6% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 4% 4% 4% 3% 3% 3% 2% 1%

0% 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 3QFY18 4QFY18 Q1FY19 Q2FY19 3QFY19 4QFY19 Q1FY20 -5% -4% -5% -6%

Demonetisation -10%

Edelweiss Professional Investor Research 2

Large Cap Q1FY20 FMCG

Industry in a Nutshell

FMCG Market Urban Rural Mix 120% 120%

Soaps 100% Detergents 100% Hair Oil Tea Biscuits 80% 80% Detergents Toothpaste 60% 60% Atta Penetration Cream 40% 40% Juices 20% Cleaning Edible Oils 20% Ice Cream Cofee Soups 0% Deodorants Milk Noodles

0% GCPL HUVR PGHH Dabur Jyothy Marico NESTLE 0% 10% 20% 30% 40% Colgate Britannia Urban Rural Growth

International Business Growth Trend MSP Hike

25% 22.2% 22.6% 20% DABUR MARICO GCPL 15%

10%

5% 12.0% 0%

-5% 6.9% 5.7% -10% 5.2% 3.1% 3.2% -15%

-20%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 3

Large Cap Q1FY20 Auto and Auto Ancillaries

Companies Expectation Result Outlook Post Result Comment Ashok Lyl Margin at 8% Margin at 9.4% Margin at 15% Margin at 15.4% EICHER Margin at 26.5% Margin at 26.1% HERO Margin at 14% Margin at 14.4% MnM Margin at 14.4% Margin at 14.0% Maruti Margin at 10.5% Margin at 10.4% Tata Mot JLR Margin at 7% JLR Margin at 4.2% TVS Margin at 7% Margin at 8% EXIDE Sales growth at 1% with 14.5% margin Sales growth at 0.2% with 14.7% margin AMARA Sales De growth at 2% with 15.5% margin Sales growth at 2.0% with 15.4% margin Apollo Tyre Sales growth at 3% with 10.5% margin Sales growth at 1% with 11% margin CEAT Sales growth at 1% with 9% margin Sales degrew at 1% with 9.4% margin MRF Sales growth at 2% with 14% margin Sales growth at 15% with 13.6% margin MOTHERSOM Sales growth at 10% with 7.5% margin Sales growth at 14% with 7.5% margin Sales growth at 12% with 22% margin Sales degrew at 4% with 17.6% margin

Key Trends 1. Despite weak volumes; margin were better than estimates driven by higher realisation QoQ and reduction in RM cost 2. MRF was key outlier with 15% sales growth, while Bharat Forge numbers were a disaster. 3. Inventory level remains elevated as per concall. 4. Most companies are clueless when demand will recover, case in point was Maruti which abstained from giving volume growth guidance for the FY20. 5. Bharat forge guided for weak 2Q amid slowdown in Export and Domestic market. While most of the above factors were known to the analysts, lower operating leverage led to much lower margins for 4W/CV companies, Maruti's margin at 10.5 % was a shocker.

Key Charts Auto Realisation Trend

700000 606414 585172

600000 552428 466146

500000 452311 441898

400000

300000

200000 70034 65387 61958 62187 61196 100000 58812 48318 48406 47121 44266 43720 43574

0 Maruti Hero M&M (Auto) Bajaj TVS Eicher

3QFY19 4QFY19 1QFY20

Edelweiss Professional Investor Research 4

Large Cap Q1FY20 Auto and Auto Ancillaries

Industry in a Nutshell

2W Market Share Trend 2W Market by Segment 120 120 HERO Bajaj TVS HONDA Others <125cc >125cc

100 100 5 4 5 7 5 5 4 5 4 4 4 7 6 7 8 9 9 10 11 11 11 11 9 8 12 14 13 13 15 19 24 80 80 28 31 32 33 32 30 18 24 27 26 18 16 14 27 29 26 27 15 15 14 13 12 60 13 60 12 14 15 15 23 17 19 21 13 13 14 15 14 15 15 26 27 19 18 14 14 11 12 40 11 10 12 12 40 59 54 51 51 49 48 48 49 45 48 45 45 43 20 20 41 41 41 40 39 37 37 36 36

0 0 FY06 FY08 FY10 FY12 FY14 FY16 FY18 YTD'20 FY14 FY15 FY16 FY17 FY18 FY19 YTD'20

PV market share Trend CV market share Trend 120 Maruti Hyundai M&M 120 Ashok LyL Tata Motors Others Eicher Others 100 100 6 5 4 5 4 4 4 18 17 10 11 11 11 23 23 25 24 22 22 20 13 11 11 80 80 6 7 5 6 5 6 8 14 12 8 8 8 23 27 31 33 9 8 8 33 34 35 60 10 17 60 9 12 16 16 16 17 17 15 15 14 40 40

58 57 51 52 55 51 51 52 50 45 47 47 50 20 38 39 42 20

0 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD'20 FY14 FY15 FY16 FY17 FY18 FY19 YTD'20

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 5

Large Cap Q1FY20 Auto and Auto Ancillaries

Global Auto Sales Trend 40% 30.0%

30% 20.0%

20% 10.0%

10% 0.0%

0% -10.0%

-10% -20.0%

-20% -30.0%

Global USA -30% -40.0% 06-2001 06-2002 06-2003 06-2004 06-2005 06-2006 06-2007 06-2008 06-2009 06-2010 06-2011 06-2012 06-2013 06-2014 06-2015 06-2016 06-2017 06-2018 06-2001 07-2002 08-2003 09-2004 10-2005 11-2006 12-2007 01-2009 02-2010 03-2011 04-2012 05-2013 06-2014 07-2015 08-2016 09-2017 10-2018

100.0% 20.0%

15.0% 80.0% 10.0% 60.0% 5.0%

40.0% 0.0%

20.0% -5.0%

-10.0% 0.0% -15.0% -20.0% -20.0% China Car Sales Trend Europe -40.0% -25.0% 03-2006 01-2007 11-2007 09-2008 07-2009 05-2010 03-2011 01-2012 11-2012 09-2013 07-2014 05-2015 03-2016 01-2017 11-2017 09-2018 03-2006 01-2007 11-2007 09-2008 07-2009 05-2010 03-2011 01-2012 11-2012 09-2013 07-2014 05-2015 03-2016 01-2017 11-2017 09-2018 Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 6

Large Cap Q1FY20 Pharmaceutical

Companies Expectation Result Outlook Post Result Comment SUN $150 mn Core US sales with 21% margin $150 mn Core US sales with 23% margin Lupin $220 mn Core US sales with 19% margin $223 mn Core US sales with 19.5%

CIPLA Domestic sales growth at 6% with 21% margin Domestic Sales degrew by 3% while margin at 22%

Glenmark $105 mn Core US sales with 15.5% margin $105 mn Core US sales with 14.7% margin DRL $230 mn US sales with 21% margin $234 mn US sales with 19% margin CADILA $250 mn US sales with 21% margin $195 mn US sales with 25% margin AURO $350 mn US sales with 21% margin $387 mn US sales with 21% margin $70 mn Biologics sales with 27% margin $70 mn Biologics sales with 25.2% margin

Key Trends 1. Barring few; Pharma companies reported inline numbers. Auro reported an all-round beat , while glenmark reported weakest earning print. 2. Lower R&D and Other expenses led to better margin. 3. As per Concalls; US base business has seen stabilisation from 10% odd degrowth to 3%-5% degrowth. 4. IPM has seen double digit growth while listed companies lagged IPM growth.

Key Charts

US Business in $ mn

350 Lupin Biocon SUN Core Though Driven by One-off /FTF 300 drug they will continue till next 325 327 323 2-3 Quarters until Speciality 262 300 299 comes to picture 250 282 222 222 250 249 247 233 200 221 223 213 211 174 200 196 178 178 177 150 150 150 135 135 150 112 100 100 77 80 72 70 73 70 59 63 64 52 50 50 37 37 33 29 29 24 23 24 2426 18 12 11 0 0 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20

Edelweiss Professional Investor Research 7

Large Cap Q1FY20 Pharmaceutical

US Patent Expiry Opportunity $bn Opportunity size is reducing from US$33bn per year to 58 US$13bn per year only 48 49

32 33 25 18 18 19 18 17 14 16 15 15 13 12 11 6 8

CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20

Global Pharmaceutical Market (USDbn) FY16 FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F Chemical Drugs 933 966 1,001 1,039 1,080 1,125 1,163 1,197 1,225 1,250 1,275 Biologics 221 239 262 288 317 350 389 430 473 516 563 Originals 216 232 249 268 288 313 344 378 412 447 483 Biosimilars 4 8 13 20 28 37 44 52 60 69 80 Total 1,154 1,205 1,263 1,327 1,397 1,475 1,552 1,627 1,698 1,766 1,838 (%) FY16 FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F Chemical Drugs 80.8 80.2 79.3 78.3 77.3 76.3 74.9 73.6 72.1 70.8 69.4 Biologics 19.2 19.8 20.7 21.7 22.7 23.7 25.1 26.4 27.9 29.2 30.6 Originals 18.7 19.3 19.7 20.2 20.6 21.2 22.2 23.2 24.3 25.3 26.3 Biosimilars 0.3 0.7 1 1.5 2 2.5 2.8 3.2 3.5 3.9 4.4 Total 100 100 100 100 100 100 100 100 100 100 100 (y-y,%) FY16 FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F Chemical Drugs 3.5 3.6 3.8 3.9 4.2 3.4 2.9 2.3 2.0 2.0 Biologics 8.1 9.6 9.9 10.1 10.4 11.1 10.5 10 9.1 9.1 Originals 7.4 7.3 7.6 7.5 8.7 9.9 9.9 9 8.5 8.1 Biosimilars 100 62.5 53.8 40 32.1 18.9 18.2 15.4 15.0 15.9 Total 4.4 4.8 5.1 5.3 5.6 5.2 4.8 4.4 4.0 4.1

Top Drugs which are going off patent – Indian companies Positioning Pipeline Drug Pre-Clincal Phase I Phase II Phase III / Filed Marketed HUMIRA Celltrion Boehringer,Fuji,LG AMGEN, SB , Sandoz , BIOCON LANTUS BIOCON Enbrel BIOCON Celltrion SANDOZ, LG, SB REMICADE LG AMGEN SANDOZ, NICHIKO Celltrion, SB RITUXAN MERCK Boehiringer , SB Celltrion , SANDOZ , AVASTIN SB,FUJI,BI,PFIZER,BIOCON HERCEPTIN PFIZER CELLTRION, SB , BIOCON,AMGEN NOVOLOG BIOCON NEULASTA APOTEX,SANDOZ,COHERUS,BIOCON LUCENTIS

Volatility in Biosimilar Industry Post “Skyrizi” launch by Abbvie , which is for same indication as HUMIRA i.e. Plaque Psoriasis

Edelweiss Professional Investor Research 8

Large Cap Q1FY20 Capital Goods and Consumer Durables

Companies Expectation Result Outlook Post Result Comment

LT 12% Sales growth with 8.5% Margin in Standalone EPC LTL basis sales grew 17% , Margin 8.5%

Cummins 12% Domestic / -2% Export sales with 15.7% margin Export degrew by 26% along with 11% margin

Thermax Sales growth at 9% with 7.5% margin Sales growth at 34% with 7.1% margin ABB Sales growth at 12% with 8% margin Sales growth at 4% with 8% margin Siemense Sales growth at 11% with 11% margin 4% Sales growth with 11.1% margin Voltas UCP Sales growth at 20% with 10.5% margin 24% UCP growth 12% margin

BHEL Sales growth at 7% with 4.5% margin Sales degrew by 25% with negative margin of 6%

Havells Sales growth at 14% with 12.5% margin Sales growth at 4.4% with 10.3% margin CG Sales growth at 12% with 14% margin Sales growth at 12% with 14.2% margin V-Guard Sales growth at 10% with 10% margin Sales growth at 10% with 10.2% margin

Key Trends 1. Capital goods companies reported decent improvement in execution however order inflow has seen a slowdown 2. Margins were lower than estimates, which has been a key highlight since last 3-4 quarters. Every company has their own set of explanations, some say product mix while others blame high commodity cost. 3. Consumer goods companies reported decent sales growth. Barring Havells, most companies delivered double digit sales growth, Voltas UCP business growth at 24% was key highlight for the quarter. 4. Havells explanation for weak sales growth was a key negative surprise.

Key Charts

Cummins Domestic/Export Sales Trend 50% 44%

40%

30%

20% 15% 16% 13% 9% 10% 7% 3%

0% 0% -4% -3% -4% -10%

-20%

-30% -26% FY15 FY16 FY17 FY18 FY19 1QFY20 Dom Export

Edelweiss Professional Investor Research 9

Large Cap Q1FY20 Capital Goods and Consumer Durables

Industry in a Nutshell Capital Goods companies order inflow growth trend Order Inflow yoy growth (%) 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 ABB -17 -1 8 29 173 28 13 -35 -48 (27) 8 24 -17 6 -20 BHEL 3 55 -84 -12 -74 6 -45 -10 651 52 144 172 -36 -73 -12 Larsen & Toubro 5 -23 -9 35 -14 16 12 -26 82 5 32 46 -12 14 11 65 10 44 10 -6 61 -12 10 1 (38) 1 4 3 25 6 Thermax -29 26 -41 -32 -20 -28 4 26 9 14 -14 0 85 38 -26 Voltas 76 81 139 4 -1 15 75 -9 10 -64 -36 67 -7 59 -7 -8 -46 27 -14 11 17 -13 96 64 96 143 6 -13 6

L&T Order Book Break Up – process order all time low……

Process O&G Power Infra Others

100.0%

80.0%

60.0%

40.0%

20.0%

0.0% FY09 FY11 FY13 FY15 FY17 FY19

-20.0% 3QFY09 2QFY10 4QFY10 1QFY11 3QFY11 2QFY12 4QFY12 1QFY13 3QFY13 2QFY14 4QFY14 1QFY15 3QFY15 2QFY16 4QFY16 1QFY17 3QFY17 2QFY18 4QFY18 1QFY19 3QFY19

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Process order as a percentage of order book at an all time low which supports Our view that is going through OPEX cycle rather than CAPEX cycle while short cycle order inflow has already picked up

Edelweiss Professional Investor Research 10

Large Cap Q1FY20 Capital Goods and Consumer Durables

System Capacity Utilisation % Merchant Power price (Rs/unite)

85.0% 12

80.0% 10

75.0% 8

Title 70.0% 6

65.0% 4 2 60.0% 0 Jun-08 Jun-11 Jun-14 Jun-17 Sep-10 Sep-13 Sep-16 Dec-09 Dec-12 Dec-15 Dec-18 Mar-09 Mar-12 Mar-15 Mar-18 Jul 2012Jul 2019Jul Jan2009 Jan2016

OBICUS Capacity Utilisation % Jun 2008 Jun 2015 Oct Oct 2010 Oct 2017 Apr 2014 Feb 2013 Sep 2013 Dec2011 Dec2018 Aug 2009 Aug 2016 Nov2014 Mar2010 Mar2017 May 2011 May 2018

Average Power Demand-Supply Peak Power Demand vs Supply

1400 0.0% 200 0.0% 1200 -1.0% -2.0% 150 -2.0% 1000 -3.0% -4.0% 800 -4.0% 100 -5.0% -6.0% 600 -6.0% 50 400 -7.0% -8.0% -8.0% 0 -10.0% 200 -9.0% 0 -10.0% FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTDFY20 FY13 FY14 FY15 FY16 FY17 FY18 FY19

YTDFY20 Peak Demand (GW) Peak Met (GW) Requirement Availability Deficit (%) Peak Deficit (%)

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 11

Large Cap Q1FY20 Building Materials

Companies Expectation Result Outlook Post Result Comment

ULTRA 17.9 MT Volume along with INR 1400 per ton EBITDA 17.26 MT Volume with INR 1477 per ton EBITDA

Dalmia 4.4 MT Volume with INR 1270 per ton EBITDA 4.5 MT Volume with INR 1470 per ton EBITDA Shree 6.4 MT Volume with INR 1430 per ton EBITDA 6.1 MT Volume with INR 1498 per ton EBITDA ACC 7.0 MT Volume with INR 950 per ton EBITDA 7.2 MT Volume with INR 1090 per ton EBITDA India 3.0 MT Volume with INR 730 per ton EBITDA 3.0 MT Volume with INR 800 per ton EBITDA Cement Kajaria 10% Sales growth with 15% margin 6.5% Sales growth with 15.1% margin Century Ply 10% Sales growth with 13% margin 7.5% Sales growth with 15% margin Greenply Ind 10% Sales growth with 13% margin 6% Sales growth with 11% margin

Key Trends

1. Cement companies reported blockbuster numbers on account of higher realisation and lower raw material prices. 2. EBITDA per ton has touched a decade high of INR 1300 per ton. While price hike has been rolled back to some extent, benefit of lower raw material cost will through in 2Q as well. 3. Building material companies got impacted due to subdued demand and channel financing related issues; which was visible on Cement volumes as well which de-grew by 4% during the quarter.

Key Charts

Decade High EBITDA per Volume Growth Vrs EBITDA /T tone 1400 1323 25%

1200 20% 1040 983 973 1000 15% 895 888 829 840 794 824 796 798 800 759 781 761 770 761 800 744 10% 705 672 695 693 688

600 551 556 5% 477

400 0%

200 -5%

0 -10%

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 12

Large Cap Q1FY20 Building Materials

Industry in a Nutshell

Fuel Cost Vrs EBITDA Kajaria Volume & Pricing Trend 1,400 6,000 35% Realisation EBITDA 30% 1,200 5,000 25% 1,000 4,000 20% 800 3,000 15% 600 10% 2,000 400 5%

200 1,000 0% -5% - - FY12 FY14

-10% Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19 Q1FY20

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 Volume Volume Pricing Pricing

180 Pet Coke and Diesel Prices Havells Switchgear Sales 160 30%

140 25% 120 20% 100

80 15%

60 10% 40 5% 20

0 0%

-5% 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 06-2012 11-2012 04-2013 09-2013 02-2014 07-2014 12-2014 05-2015 10-2015 03-2016 08-2016 01-2017 06-2017 11-2017 04-2018 09-2018 02-2019

PetCoke Diesel -10%

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 13

Large Cap Q1FY20 Media, Retail, Telecom

Companies Expectation Result Outlook Post Result Comment TCS 2.9% QoQ CC Revenue growth with 24.3% EBIT margin 2.5% QoQ CC Revenue growth with 24.2% EBIT margin 2.6% QoQ CC Revenue growth with 20.2% EBIT margin 2.8% QoQ CC Revenue growth with 20.5% EBIT margin Wipro 0% QoQ CC Revenue growth with 17.6% EBIT margin -0.7% QoQ CC Revenue growth with 18.4% EBIT margin HCL Tech 2% QoQ CC Revenue growth with 17.9% EBIT margin 4.2% QoQ CC Revenue growth with 17.1% EBIT margin Tech M -0.8% QoQ CC Revenue growth with 13.3% EBIT margin -1.6% QoQ CC Revenue growth with 11.5% EBIT margin LTI 2.1% QoQ CC Revenue growth with 16% EBIT margin 0.8% QoQ CC Revenue Growth with 16% EBIT margin

Key Trend and Specific Commentaries 1. Growth in revenue YoY was decent at 11.7% but on a sequential basis the growth was lowest in all of last 13 quarters except Q1FY’18. 2. Commentary for all companies except Infosys, HCL Tech were cautious for FY’20 & the companies are hopeful of meeting their targets which hinges on the hopes of a good 2nd quarter. 3. Infosys, HCL Tech reported strong set of numbers, whereas TCS, & LTI reported weak set of numbers. 4. Worse trend was observed in the Mid-tier firms which suffered heavily on the EBIT margin front. 5. TCV traction remains strong, but a lot shall depend on the deal conversion which at the moment seems elusive for most of the firms.

Key Tables: Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Quarterly TCV of Deal Wins (US mn$) TCS NA NA NA NA 4,900.0 4900 5,900.0 6,200.0 5,700.0 Infosys 657.0 731.0 779.0 905.0 1,116.0 2029 1,570.0 1,568.0 2,700.0 TechM 325.0 NA 300.0 280.0 270.0 550 440.0 450.0 475.0 Hexaware 40.0 43.0 72.0 28.0 41.0 25 116.0 36.0 36.0 183.0 123.0 130.0 116.0 153.0 210 122.0 130.0 151.0 262.0 207.0 244.0 298.0 306.0 271 256.0 242.0 324.0

Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 US$ Sequential Growth (%) TCS 3.1 3.2 1.0 3.9 1.6 3.2 0.7 2.8 2.2 Infosys 3.2 2.9 1.0 1.8 0.9 3.2 2.3 2.4 2.8 Wipro 0.9 2.1 0.0 2.4 -1.7 0.7 1.8 1.4 -0.7 HCLTech 3.7 2.3 3.1 2.5 0.8 2.1 4.9 3.5 4.2 L&TInfotech 2.0 4.4 8.5 5.3 3.5 2.7 5.6 2.0 0.9 Mindtree 2.3 3.0 3.9 5.6 6.8 2.0 2.1 4.2 1.1 Hexaware 5.5 0.9 1.3 3.9 3.8 1.7 2.9 2.2 4.7 Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 14

Large Cap Q1FY20 Media, Retail, Telecom

Industry in a Nutshell

Geographical Distribution of Revenue Typical Revenue Build-up

120% 100% 100% 20% 20% 80% 5% 7% 60% 7% 7% 7% 40% 31% 16% 20% 55% 0% 25% BFSI TOTAL RETAIL OTHERS ENERGY HEALTHCARE TECHNOLOGY N.America Europe Others MANUFACTURING COMMUNICATION

BFSI Growth % QoQ Retail Growth % QoQ 6.0% 14.0% 4.0% 12.0% 10.0% 2.0% 8.0% 6.0% 0.0% 4.0% 2.0% -2.0% 0.0% -2.0% -4.0% -4.0% -6.0% -6.0% -8.0% Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

TCS INFOSYS WIPRO HCLT TCS INFOSYS WIPRO HCLT

EBIT MARGIN % Digital Leading the Growth

35.0% 120% 30.0% 100% 25.0% 80% 20.0% 71% 68% 67% 66% 64% 15.0% 60% 76% 75% 74% 73% 10.0% 40% 5.0% 20% 33% 34% 36% 0.0% 24% 25% 27% 28% 29% 32% 0% FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 FY'19 Q1FY20

TCS INFY WIPRO Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 HCLT TECH M Digital Core

Source: Bloomberg, Company, Edelweiss Professional Investor Research

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Large Cap Q1FY20 Media, Retail, Telecom

Companies Expectation Result Outlook Post Result Comment ZEE 6% Ad revenue with 32% margin 3.5% Ad revenue growth with 33% margin DISH TV INR 200 ARPU with 0.15 mn new subs add INR 200 ARPU with 0.21 mn new subs add Bharti INR 125 ARPU with 25% India EBITDA margin INR 129 ARPU with 24% India EBITDA margin IDEA INR 114 ARPU with 16.3% Margin INR 108 ARPU with 11% margin JUBILIANT 6.5% SSSG with 16.5% Margin 4% SSSG with 15.5% margin BATA 8% Sales growth 11% Sales growth PAGE 8% Sales growth 2% Sales growth Titan 15% Jewellery Sales growth 14.3% Jewellery Sales growth

Key Trends 1. Divergent trend was seen within consumer companies. While Bata /ABFRL/TRENT reported strong sales growth Titan/Page/Jubilant reported below estimate numbers. 2. Titan’s lowering of guidance and Page’s negative volume growth was incremental negative for upcoming quarters. 3. Slowdown was visible in Ad revenue growth in ZEE / SUN TV. 4. Bharti reported strong ARPU driven by rationalisation in active subscriber base while ARPU went down on QoQ basis due to adverse subscriber mix.

Key Charts

Average Revenue Per User (ARPU)

250

200

150

100

50

0 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 1QFY20

Airtel Idea Reliance Jio

Source: Bloomberg, Company, Edelweiss Professional Investor Research

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Large Cap Q1FY20 Media, Retail, Telecom

Industry in a Nutshell

International comparison of ad-spend mix Trend In Advertisment Industry

100 100% 5% 6% 8% 10% 13% 16% 90 90% 4% 19% 4% 4% 22% 25% 12 4% 80 19 24 80% 4% 21 17 25 35 4% 21 38 4% 70 46 70% 4% 39% 4% 60 37% 36% 34% 38 18 60% 31% 30% 18 25 6 28% 50 24 23 32 26% 25% 15 50% (% ad-spends) in 40 7 40% 30 52 50 30% 20 40 44 42 39 38 36 38 38 47% 47% 47% 46% 46% 45% 43% 42% 41% 10 20% 0 10% 2012 2016 2012 2016 2012 2016 2012 2016 2012 2016 0% US Japan Korea Indonesia India 2012 2013 2014 2015 1016 2017 2018E 2019E 2020E TV Print RADIO OOH Digital CINEMA Television Digital Print Radio Out of Home

Jubilant Food SSSG vrs Margin Titan Jewellery Sales Growth

30% 20% 80% 27%26% 65% 18% 25% 60% 55%55% 21% 16% 36% 37% 20% 18% 40% 14% 29% 14% 20% 22% 15% 15% 15% 12% 20% 11% 14% 8% 8% 3% 10% 10% 1% 0% 7% 7% 0% 6% 6% 5% 4% 4% 8% 5% 3% 3% 2% -20% -11% 6% -15% 0% 4% -40% -32% -5% -3% -3% 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2% 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 -10% -8% 0%

Source: Bloomberg, Company, Edelweiss Professional Investor Research

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Large Cap Q1FY20 Media, Retail, Telecom

TRAI subscriber market share Telecom ARPU (INR) 45.00% 250 40.00% 200 35.00% 30.00% 150 25.00% 20.00% 100 15.00% 50 10.00% 5.00% 0 0.00% Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 1QFY20 May-14 May-15 May-16 May-17 May-18 May-19

Airtel Vodafone Idea Reliance Jio Airtel Vodafone Idea Reliance Jio

MOU per sub (Minutes per month) Data Usage per sub (MB per month)

1000 14000 900 12000 800 700 10000

600 8000 500 400 6000 300 4000 200 2000 100 0 0 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Bharti Airtel Vodafone Idea Reliance Jio Vodafone Idea Reliance Jio

Data Traffic (Billion MB) EBITDA margin (India Mobile Services)

12000 45.0% 40.0% 10000 35.0% 8000 30.0% 25.0% 6000 20.0% 4000 15.0% 10.0% 2000 5.0% 0 0.0% Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 Q1FY14 Q3FY14 Q1FY15 Q3FY15 Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19 Q1FY20

Bharti Airtel Vodafone Idea Reliance Jio Airtel Vodafone Idea Reliance jio

Source: Bloomberg, Company, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 18

Large Cap Q1FY20

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W) Board: (91-22) 4272 2200

Vinay Khattar Head Research [email protected]

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

Edelweiss Professional Investor Research 19

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