OCTOBER 9, 2017 Economy News Equity A SERIES of surveys undertaken by the Reserve Bank of India (RBI) have indicated % Chg that more people see consumer confidence declining, business sentiment in 6-Oct 1 Day 1 Mth 3 Mths Indian Indices manufacturing dipping, inflation on the rise and growth sliding. The findings are SENSEX Index 31,814 0.7 0.4 1.4 in sync with the RBI's position in its monetary policy review, which slashed NIFTY Index 9,980 0.9 0.5 3.2 growth forecast from 7.3 per cent to 6.7 per cent for fiscal 2017-18. (Indian BANKEX Index 27,210 0.6 (1.0) 2.7 Express) BSET Index 10,109 1.2 1.9 3.3 The removal of gem and jewellery from the ambit of the Prevention of Money BSETCG INDEX 17,312 0.8 (1.9) 0.1 Laundering Act has come as a big relief for the sector which is reeling under the BSEOIL INDEX 15,467 2.1 2.4 14.6 twin impact of demonetisation and GST. Following the move, jewellers need not CNXMcap Index 18,528 0.9 (0.2) 2.3 BSESMCAP INDEX 16,629 1.1 1.9 5.0 verify the identity of their clients by a KYC process for every transaction of Rs. World Indices 50,000 or more made through a single or multiple transactions. (BL) Dow Jones 22,774 (0.0) 4.5 6.3 Nasdaq 6,590 0.1 3.6 7.1 Corporate News FTSE 7,523 0.2 2.0 2.3 HSIL Ltd., known best for its Hindware brand sanitaryware, is aiming for a NIKKEI 20,629 0.0 7.3 3.8 manifold increase in its consumer products division to touch a turnover of Rs. HANGSENG 28,458 0.3 2.6 12.0 10 Bn in five years from Rs. 1.5 Bn now. It is also planning an entry into the manufacture of PVC pipes for non-industrial use. (The Hindu) Value traded (Rs cr) 6-Oct % Chg Day Steel Authority of India (SAIL) said that it has entered into a strategic agreement Cash BSE 3,401 10.4 with POSCO for wide-ranging technical services for its IISCO Steel Plant (ISP) at Cash NSE 27,878 11.0 Burnpur to assist in realising the benefits from the company's new plant. (BS) Derivatives 359,537 (58.3) Coal India is witnessing high demand for fuel from the power sector. Coal sales Net inflows (Rs cr) increased 15-16 per cent in August and September. Emphasis on the power 5-Oct % Chg MTD YTD sector is bad for the CIL balance-sheet. This is because the miner gets 20 per FII (680) 33 (1,628) 34,902 cent higher price from non-power customers like steel, cement and others. (BL) Mutual Fund 683 76 2,455 88,799 Zee Entertainment Enterprises has agreed to acquire 9X Media and INX Music FII open interest (Rs cr) for Rs 1.6 Bn in cash, as the Subhash Chandra-controlled company seeks to 5-Oct % Chg expand its presence in regional markets and niche genres. 9X Media operates a FII Index Futures 19,792 3.2 clutch of Hindi and regional music channels. (ET) FII Index Options 74,432 2.5 Tata Teleservices informed the government that that it plans to shut its wireless FII Stock Futures 59,706 1.6 business, bringing an end to its 21-year-old phone services venture. (ET) FII Stock Options 4,327 13.7 Punjab National Bank has put assets of as many as 32 bad loans with Advances / Declines (BSE) outstanding loan exposure of Rs 11.7 Bn on the block in an effort to bring down 6-Oct A B T Total % total its NPAs. These non-performing assets (NPA), include Hanung Toys and Textile, Advances 260 717 76 1,053 100 Harbs India, United Foods, and Harman Textile. (ET) Declines 79 375 35 489 46 Unchanged 1 27 5 33 3 Banks face the prospect of haircuts or `loss on defaults' of up to 50 per cent on Reliance Communications' debt, according to Goldman Sachs. That's despite Commodity % Chg the company looking to cut its .Rs 470 Bn plus debt via alternate asset sales after 6-Oct 1 Day 1 Mth 3 Mths its merger with Aircel was scrapped. (ET) Crude (US$/BBL) 49.4 0.2 4.0 11.7 Gold (US$/OZ) 1,277 0.7 (4.7) 5.8 Jaiprakash Associates said that its board had approved the transfer of certain Silver (US$/OZ) 16.8 1.3 (5.6) 8.6 assets and liabilities, including a debt of over Rs 118.3 Bn, to its subsidiary Jaypee Infrastructure Development Ltd as part of its efforts to cut the overall borrowing Debt / forex market of the company. (ET) 6-Oct 1 Day 1 Mth 3 Mths Reliance Industries Ltd has decided to exit one of its three upstream shale gas 10 yr G-Sec yield % 6.8 6.7 6.5 6.5 assets in the US for $126 million. RIL had bought a 60 per cent stake in it for Re/US$ 65.4 65.1 64.1 64.8 $392 million in 2010. (ET) Sensex Finolex Industries, a PVC pipes & fittings manufacturer in the farm sector 32,550 enjoying 70 per cent of the organised market pie, has set a USD 1 billion revenue target and to double its capacity by 2020. (ET) 30,538 28,525 Sebi has ordered forensic audit of Landmark Leisure Corporation Ltd (LLCL) after finding prima facie evidence of misuse of books of accounts by the firm. The 26,513 trading curbs imposed on the firm, which figures among 331 'suspected shell 24,500 companies' under Sebi's scanner, though have been removed. (ET) Oc t-16 Jan-17 Apr-17 Jul-17 Oc t-17 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, Source: Bloomberg BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. MORNING INSIGHT October 9, 2017 COMPANY UPDATE INSECTICIDES (INDIA) LTD Pankaj Kumar PRICE: RS.945 RECOMMENDATION: SELL [email protected] +91 22 6218 6434 TARGET PRICE: RS.830 FY19E PE: 18.2X After a strong Q1FY18 with 15.9% yoy growth in revenue of Insecticides (India) Ltd (IIL), Q2FY18 is expected to be a flattish quarter due to weather concerns, high base of last year, etc. The monsoon weakened in the month of August 2017, after timely onset in the month of June 2017 followed by strong rainfall in July. The uneven rainfall in the season with rainfall deficit of 5% of long period average (LPA) may negatively impact farm output and has also affected the growth expectations of the agrochemicals sector for FY18. This has also increases risk of downgrade in revenue guidance of IIL which was earlier at 15-20% growth for FY18. However, the company is confident of increasing EBITDA margins by 200 bps led by improved product mix. Based on revenue downgrade risk and stock trading above our target price, we downgrade our rating on the stock to SELL from (Buy earlier) with unchanged target price of Rs 830. Summary table - Consolidated Growth expectation dampened on uneven rains (Rs mn) FY17 FY18E FY19E After the timely onset of monsoon in the months of June 2017, followed by strong Revenue 11074 12846 14957 rainfall in July, the monsoon weakened in the month of August 2017. Further, late Growth (%) 12.1 16.0 16.4 pickup of monsoon in south and delay in withdrawal of monsoon can have EBITDA 1139 1553 1849 negative impact on the crops. The uneven and unseasonal rainfall along with EBITDA margin (%) 10.3 12.1 12.4 rainfall deficit of 5% of long period average (LPA) in 2017, may negatively impact PBT 800 1212 1511 PAT 581 873 1073 farm output. The government in its first advance estimates released recently, EPS 28.1 42.2 51.9 expected 137 mn tonnes of Kharif output which is 1.1% lower than its fourth EPS Growth (%) 48.0 50.1 22.9 estimates released in FY17 end. Such weather conditions, has also dampened the CEPS (Rs) 36 51 61 growth expectations of the agrochemicals sector in FY18. As per our channel Book value (Rs/share) 224 262 310 checks with the industry players and companies, the sector is expected to grow at Dividend per share (Rs) 2 3 4 ROE (%) 13.3 17.4 18.1 below expected rate (Vs double growth expectations) in this kharif season. In Core ROCE (%) 14.8 18.9 20.7 Q1FY18, most of the industry players faced lower off-take by dealers and Net cash (debt) (2171) (2021) (1794) destocking of old inventory in the system due to GST. And in Q2FY18, the uneven NW Capital (Days) 119 116 118 rainfall may affect the performance. P/E (x) 33.6 22.4 18.2 P/BV (x) 4.2 3.6 3.0 Seasonal Rainfall Scenario (1st June to 30th September, 2017) EV/EBITDA (x) 19.0 13.8 11.5 EV/Sales (x) 2.0 1.7 1.4 Regions Actual Rainfall (mm) Normal Rainfall (mm) % Departure from LPA Source: Company, Kotak Securities – Private Client Country as a whole 841.3 887.5 -5% Research Northwest India 552.9 615 -10% Central India 918.8 975.5 -6% South Peninsula 717.6 716.1 0% East & northeast India 1386.4 1438.3 -4% Source: IMD Q2FY18 expected to be flattish on monsoon concerns and base effect After a strong Q1FY18 with 15.9% yoy growth, Q2FY18 is expected to be flattish quarter due to weather concerns, high base of last year and stronger Q1FY18.