Axis Top Midcap Stocks

Y/ E March Sales Adj.PAT Consensus Adj.EPS Change PE RoE RoCE EV/ EBITDA DPS

(Rs mn) (Rs mn) EPS (Rs) YoY (%) (x) (x) (x) (%) (x) (Rs)

2010 2,037,397 158,976 0.0 48.6 2.2 29.3 12.1 6.8 2.1 6.3

2011 2,658,106 202,109 0.0 61.8 27.1 23.1 13.7 7.2 1.6 6.3

2012E 2,940,061 204,982 0.0 62.7 1.4 22.8 12.6 6.1 0.0 7.0

2013E 2,938,544 205,524 0.0 62.8 0.3 22.7 11.4 5.8 - 0.3 7.0

FINANCIAL SUMMARY (Standalone)

Target Price: CMP Potential Upside Relative to Sector MARKET DATA No. of Shares

Market Cap

Free Float

Avg. daily vol (6mnth)

52-w High / Low

Bloomberg

Promoter holding

FII / DII

04 Sep 2012 / TYPE OF REPORT

BUY Rs 870

16 MAY 2014

Kashyap Pujara, Executive Director - Midcaps

[email protected] 91 22 4325 1146

Nandan Chakraborty, MD - Institutional Equity Research

[email protected] 91 22 4325 1107

2

Investment Summary

In the last 2 elections, 12-month returns AFTER the first day rise/ fall, has been far better for midcaps vs large caps or even other candidates such as levered stocks, high RoCE (adjusted for valuation), etc.

Over the last 3-5 years, Midcaps have suffered on multiple fronts: weak opportunities, low pricing power, inability to rectify balance sheet, and hence a vicious cycle of inability to improve talent, clientele, etc.

Midcaps benefit from multiple degrees of freedom as the cycle turns and all of the above brighten, feeding a virtuous feedback loop. So operating and financial leverage further drive sales & margin growth.

Obviously rerating precedes earnings growth as investors anticipate some of this potent multi-delta. Which can be very treacherous! Hence we have been careful to choose our best midcap picks in two baskets:

High growth continues, but valuations improve many secular examples

Growth takes off, and other synergistic drivers also thus kick in cyclicals, etc.

But investing in midcaps can be a landmine:

Promoter: Over-ambition eg in capex, acquisitions, beyond organisational bandwidth

Business: Matching of Co cycle vs sector cycle in areas such as capex, market expansion, etc

Timing of valuation improvement: Eg SoTP or holding Co discount narrowing recognised very late in cycle

Keeping the above in mind, we present our top midcap picks:

Secular, liquidity > $2 mn/ day: LIC housing, Just dial, UPL, Eicher, Bata, Page, Apollo Hospitals

Secular, liquidity < $2 mn/ day: Persistent Systems, Godrej Inds, Bajaj Fin, ING, Infoedge, CMC, Supreme, Inds Cholamandalam Investment, Jyothy labs, Redington, DB Corp, Jagran, Berger paints

Take-off, liquidity > $1 mn/ day: Ashok Leyland, Dish TV, Jain Irrigation, Concor, Cummins

Take-off,, liquidity < $1 mn/ day: Alstom T&D, Oberoi, Tube, Carborundum, Finolex Inds, Prestige Est, Whirlpool, JK Cement

16 MAY 2014

MIDCAP BUYS

Sector Report

3

Secular picks, adequate trading liquidity

Comp any Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)

Sales PAT Sales PAT 5yr Avg

ROE

ROE

FY16e

PE (x)

FY16e

Remark

LIC Housing * 2,536 15.6 298 19 20 18 18 21 19 1.5 Mortagages will be a prime

beneficiary of improving per capita

incomes, given relatively low

penetration of housing in India

Just Dial 1,336 15.6 1,128 40 74 25 26 34 24 42 Better economic growth will improve

SME health, driving higher customer

growth and importantly, lowering

churn

UPL 1,965 14.7 272 17 19 12 20 18 22 8 On the back of better capital

allocation (Rs 5.5 bn buyback over

last 2 years and debt reduction) , RoE

likely to sustain above 20%, leading

to PE expansion

Eicher Motors # 2,913 3.3 6,366 23 47 31 62 20 34 17 Good way to play CV recovery and

improvement in discretionary spends

Bata India 1,109 2.9 1,022 16 42 16 19 23 27 23 Improving urban consumer sentiments

to drive consumption. Productivity

initiatives and aggressive expansion to

aid growth.

Page Industries 1,137 2.6 6,036 36 37 26 30 55 57 26 Amongst the fastest growing branded

play with strong pricing power.

Apollo Hospitals 2,205 2.3 939 22 26 19 23 11 14 26 India's largest healthcare company to

continue to grow at 20% revenue

CAGR. Margin improvement as beds

and pharmacies mature

Gwth FY14 -16 5yr - CAGR (%)

Comp anies showing continuing growth with l iquidity > $ 2 mn / day

Note: Companies where profit growth trajectory is expected to remain high

16 MAY 2014

MIDCAP BUYS

Sector Report

4

Secular picks, trading liquidity to improve as prices increase

Comp any

Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)


ROE

ROE

FY16e

PE (x)

FY16e Remark

Persistent Systems 650 1.9 962 23 30 16 17 21 22 11 Differentiated business model - SMAC

(~50% rev, highest IT spend area) and

IP (~20% rev)

Godrej Industries 1,639 1.7 289 19 29 17 28 11 14 18 To maintain 25% PAT growth led (1)

higher growth in Agrovet due to animal

feed and plam oil, and (2) projects

getting executed by Godrej Properties.

GCPL to maintain growth momentum

Bajaj Finance * 1,467 1.6 1,732 42 84 17 21 19 20 1.5 Leveraged play on upturn in retail

consumption and SME business

climate

ING Vysya * 1,943 1.6 609 17 31 15 18 14 12 1.4 Biggest beneficiary of operating

leverage as uptick in demand for

credit will lead to lower C/I ratio and

improvement in return ratios

Info Edge 1,075 1.4 583 16 18 22 25 20 21 30 Improvement in economic growth will

drive material uptick in hiring (75% of

rev ) and real estate activity (15% of

rev )

CMC 720 1.1 1,407 18 19 18 23 27 27 10 Poised to benefit from increase in

domestic IT spend, complementing

strong revenue visibility in the

international markets and strong

parentage- TCS. Highest RoE among

the mid-caps

Comp anies showing continuing growth with l iquidity < $ 2 mn / day

5yr - CAGR (%) Gwth FY14 -16


16 MAY 2014

MIDCAP BUYS

Sector Report

5

Comp any

Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)


ROE

ROE

FY16e

PE (x)

FY16e Remark

Redington 579 0.9 86 17 16 14 14 20 18 8 Key beneficiary of revival in corporate

capex cycle, Govt IT spend and

increase in smart-phone penetration

DB Corp 861 0.8 278 14 42 13 12 31 27 13 Well poised to gain with an uptick in

ad revenues, given its trong

positioning across most Hindi-

speaking markets

Berger Paints 1,419 0.6 243 19 26 15 21 24 24 23 Bridging the gap with leader Asian

Paints on product portfolio,

distribution reach and supply chan

initatives. Expect operating margin to

improve from current ~12% to 14-15%

over next few years driven by

improved mix, and operating leverage

Supreme Ind 968 0.5 451 19 29 19 23 38 31 13 Expect 20% revenue growth to

continue with RoE sustaining at 25-30%

Jagran Prakashan 591 0.5 107 15 18 12 15 27 24 11 Strong positioning in existing markets

and profitable expansion in newer

markets to aid growth

Cholamandalam Invst * 702 0.5 290 23 53 16 22 12 19 1.4 Viability of truck operators to increase

with improving IIP and reduce

delinquencies

Jyothy Lab 602 0.5 197 30 21 17 40 12 19 18 Over 34% earnings CAGR over FY14-

17E driven by new management

growth investments. Further, Henkel SA

option to buy 26% stake in FY17

could be trigger for further upside



16 MAY 2014

MIDCAP BUYS

Secular picks, trading liquidity could improve as prices increase Sector Report

6

Take-off picks, adequate trading liquidity

Comp any

Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)


ROE

ROE

FY16e

PE (x)

FY16e Remark

Ashok Leyland 1,144 5.6 25 11 - 20 LP 7 11 17 Complete turnaround play - high

volume growth/high operating

leverage/reducing leverage

Jain Irrigation 680 4.8 89 16 (6) 15 65 13 14 11 Agri thrust will drive better capacity

utilization. New business model is

reducing working capital and

deleveraging balance sheet.

Dish TV 832 3.4 46 27 - 11 LP - - 17 Steady improvement in per sub

economics to aid strong FCF

generation; financial and operating

leverage to benefit

Cummins 2,534 3.0 541 4 7 21 21 29 26 17 Market share and pricing gains on

new emission norms, strong growth in

exports and continuing growth in

spares

Container Corp 3,506 1.8 1,065 8 5 17 16 17 16 16 Key beneficiary of any macro reforms

(GST, DFC/DMIC implementation)

given its strong pan-India presence

and expansion through logistics parks


Comp anies where growth take-off with l iquidity > $ 1 mn / day

Note: Companies where profit growth is expected to take-off

16 MAY 2014

MIDCAP BUYS

Sector Report

7

Take-off picks, trading liquidity could improve as prices increase

Comp any

Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)


ROE

ROE

FY16e

PE (x)

FY16e Remark

Alstom T&D 1,143 0.8 264 6 (12) 12 53 17 20 22 Key beneficiary of rising proportion of

next gen technologies in PGCIL capex,

strong margin improvement on better

mix

Oberoi Realty 1,220 0.8 220 13 4 50 53 16 14 10 New launches (Worli, Mulund,

Andheri, Goregaon and Borivali) to

drive sales from FY15 onwards. Strong

earnings outlook for FY15-16 due to

revenue recognition from project

Esquire and Oasis.

Finolex Industries 477 0.7 228 10 - 2 21 18 27 11 Business transforming from B2B to

B2C. RoEs to improve to 26% from

20%. Dividend payout at 50% (5%

yield at CMP)

Prestige Estates 1,022 0.6 173 24 20 24 31 12 17 10 Prudent mix of development projects

(cash flow of ~Rs 67 bn over 4-5

years) and annuity assets (rentals of

~Rs 5 bn by Mar '15)

Tube Invst 694 0.6 220 11 28 12 51 13 14 21 Profits of standalone biz and insurance

subsidiary to grow > 2x in 2 years.

Cholamandalam Invst to maintain

growth momentum


Comp anies where growth take-off with l iquidity < $ 1 mn / day

Note: Companies where profit growth is expected to take off

16 MAY 2014

MIDCAP BUYS

Sector Report

8

Take-off picks, trading liquidity could improve as prices increase

Comp any

Mcap

(USD mn)

Avg trd

3m ($mn)

Price

(Rs)


ROE

ROE

FY16e

PE (x)

FY16e Remark

JK Cement 285 0.3 241 14 (22) 29 156 10 13 7 Biggest beneficiary of better demand

led by 50% rise in capacity in

2HFY15. Cement price recovery to

also continue led by improving ex-

South capacity utilisations

Whirlpool of India 508 0.3 237 11 12 10 29 44 20 15 With revival in the economy,

Whirlpool sales likely to grow in

double digits leading to margin

expansion to ~10%, implying high

profit growth and 45-50% RoI , with

significant FCF

Carborundum Universal 450 0.1 142 12 2 13 62 17 17 12 Profit to increase 3x in 3 years on

back of uptick in industrial activity and

S. African subsidiaries turning

profitableSource: Company, Axis Note: 1) * For Banking, Sales = Net Income, PE = PB2) # For Eicher used 4 year CAGR due to absence of VECV JV in CY083) LP: Loss to Profit


Note: Companies where profit growth is expected to take off

16 MAY 2014

MIDCAP BUYS

Sector Report

9

When Midcaps outpace broader markets

Midcap performance under various phases

GDP surprise Midcap valns catch up

Source: Bloomberg, Axis Capital

(40)

(30)

(20)

(10)

0

10

20

2,000

6,000

10,000

14,000

18,000

22,000

26,000

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

(Index)(%)

Sensex CNX Midcap Midcap P/D to Sensex (%)

Midcaps do well when: 1) GDP growth surprises and/ or 2) when the broader market has run up and pauses to catch a breath while mid caps have been languishing for a while

16 MAY 2014

MIDCAP BUYS

Sector Report

10

Post election results in 2004 & 2009, Midcaps outperformed large caps over a 1-year period

Source: Axis Capital, Bloomberg

75

85

95

105

115

125

135

145

May-

04

Jun-

04

Jul-0

4

Aug-

04

Sep

-04

Oct

-04

Nov-

04

Dec

-04

Jan-

05

Feb-0

5

Mar-0

5

Apr-05

May-

05

(%)

Nifty CNX Midcap

80

100

120

140

160

180

May-

09

Jun-

09

Jul-0

9

Aug-

09

Sep

-09

Oct

-09

Nov-

09

Dec

-09

Jan-

10

Feb-1

0

Mar-1

0

Apr-10

May-

10

(%)

Nifty CNX Midcap

16 MAY 2014

MIDCAP BUYS

Sector Report

Company section

12

Content

Page

Alstom T&D 13

Apollo Hospitals 15

Ashok Leyland 20

Bajaj Finance 21

Bata India 22

Berger Paints 24

Carborundum Universal 27

Cholamandalam Invst 31

CMC 32

Container Corp 33

Cummins 34

DB Corp 37

Dish TV 38

Eicher Motors 39

Finolex Industries 40

Godrej Industries 43

Page

Info Edge 49

ING Vysya 51

Jagran Prakashan 52

Jain Irrigation 53

JK Cement 54

Just Dial 56

Jyothy Lab 58

LIC Housing 60

Oberoi Realty 61

Page Industries 62

Persistent Systems 63

Prestige Estates 64

Redington 65

Supreme Ind 66

Tube Invst 68

UPL 71

Whirlpool of India 73

16 MAY 2014 Sector Report

MIDCAP BUYS

13

Alstom T&D

Technology and cost advantage, favorable demand environment resulting in market share gains, and tripling of earnings over FY13-16E on margin expansion -- these are just few reasons why we prefer Alstom T&D over T&D equipment suppliers like ABB, Crompton and Siemens

Alstom T&Ds parent realized the importance of India ahead of peers and started transferring technologies from 2007

Why was India important: In 2007, Alstom T&D (erstwhile Areva T&D) identified India as the fastest growing market in the world for next gen high voltage transmission equipment such as Gas-Insulated Substations (GIS) and HVDC

First mover advantage: Post technology transfer, Alstom fast tracked localization which has helped the company to lower costs and gain market share

hence it would take 3-5 years for competitors (ABB, Siemens) to reach the stage where Alstom T&D is currently

What has changed: Next generation technologies & not transformers to drive earnings growth over FY13-16E

PGCIL (50% of addressable market) is reducing its spend on transformers and increasing capex on next gen technologies. We expect proportion of next gen technologies in PGCILs capex to rise to 70% over FY14-16 from 30% over FY11-13

Next gen technologies fetch 15-18% margin for Alstom T&D due to its low cost local manufacturing and limited competition in the space (first mover advantage)

Current margin in transformers (26% of Alstom T&Ds revenue) is just 5-7%

Financial sum m ary (CMP: Rs 264)Y/E Sales EBITDA Adj.PAT Consensus EPS Chg PE RoE EV/E DPS

March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (x) (Rs)

FY13 31,450 2,845 864 - 3.6 (29.5) - 9.7 - 2.1

FY14 35,171 3,572 1,342 - 5.5 52.6 - 12.4 - 2.0

FY15E 38,908 4,371 2,212 6.8 8.6 56.6 30.6 16.6 15.7 1.9

FY16E 44,302 5,399 3,135 9.8 12.2 41.7 21.6 20.2 12.2 1.9

Source: Company, Axis Capital; *Consensus broker estimates

16 MAY 2014

Alstom T&D India ENGINEERING

14

Alstom T&D

Demand for next gen technologies to remain strong despite weak GDP

Land acquisition problems driving demand for GIS which requires 1/5th of land vs. conventional AIS systems

Recent grid collapse (in July 2012) resulting in demand for increased grid automation and network management systems

Demand for mass transfer of power and land acquisition problems driving demand for High Voltage Direct Current (HVDC)

Transformers contribution to revenue to gradually decline but worst over for pricing, margin

Chinese and Korean competitors had led to 50% decline in transformer pricing and 10 ppt. fall in margin over FY09-12

Except TBEA, Chinese/ Koreans have now stepped back due to mandatory domestic sourcing norms and weak INR

However, domestic players like ABB, BHEL, Siemens and T&R have now got their products qualified

Despite intense competition, we expect stable pricing/ margin as domestic players are unlikely to adopt irrational pricing

Earnings set to triple over FY13-16E: led by pick-up EBITDA margin expansion from 9% in FY13 to 12% in FY14 on improving mix led by higher proportion of revenues from HVDC, GIS equipment supply

Balance sheet improvement through debt reduction: Net debt reduced to Rs 3.8 bn as of Mar 14 from Rs 7.6 bn as of Sep 13 through IPP proceeds and reduction in working capital to 90 days as of Mar 14 from 112 days as of Sep 13.

It has also sold land in Bangalore which would help the company to raise Rs 1.2 bn. This transaction is expected to close in FY15 and result in further deleveraging of the balance sheet

16 MAY 2014

Alstom T&D India ENGINEERING

15

Apollo Hospitals: A multi-year compounding story

Apollo Hospitals (Apollo), Indias largest healthcare provider, enjoys a strong presence in South India. 35% increase in bed capacity over FY13-17E without any equity dilution (Currently at 6,600 beds; to add 2,300 beds by FY17)

Apollo has a secular growth story with a potential to deliver consistent growth and stable EBIT margins. We believe it enjoys pricing power in the high-end secondary and tertiary care segments which in our view are price insensitive, focus being on clinical outcomes

Improving operating parameters like average revenue per occupied bed day (Rs 22,000 from Rs 19,000 currently), richer case mix and higher occupancy

The company has demonstrated shorter gestation periods for new hospitals which are breaking even at EBITDA level in the second operational year versus industry norm of 3-4 years. Expanding to Tier II cities through Reach model which entails lower capex

Retail pharmacy business has turned profitable since the past year. Management is focused on improving EBIT margin to 4-5% from the current 1.5%. The management is looking at unlocking value from the pharmacy business

Financial sum m ary (CMP: Rs 939)Y/E Sales Adj.PAT Consensus EPS Chg PE RoE RoCE EV/E DPS

March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)

FY13 37,687 2,981 - 21.4 31.3 - 11.3 9.4 - 5.5

FY14E 44,021 3,319 24.6 23.9 11.4 39.3 11.6 9.6 19.9 5.5

FY15E 52,288 4,051 29.7 29.1 22.0 32.2 12.9 10.5 16.8 5.5

FY16E 62,524 5,002 36.3 36.0 23.5 26.1 14.3 11.6 13.5 5.5


16 MAY 2014

Apollo Hospitals

16

Apollo Hospitals: Company overview

Early mover advantage with ~ 8,500 beds, spread across 51 hospitals across India

Hospital beds owned by Apollo/ JV / subsidiaries 6,600 and remaining 1900 beds are managed

Dominance in South to continue as it is difficult for competition to replicate its scale and goodwill

Largest pan-India pharmacy chain , with over 1,600 pharmacies and ~200 stores expected to be added per year

Revenue : Rs 25 bn

EBIT : Rs 5 bn

Capital Employed : Rs 26 bn

Revenue : Rs 11 bn

EBIT : Rs 169 mn

Capital Employed : Rs 3 bn

Apollo Hospitals FY13

Revenue : Rs 38 bn

EBIT : Rs 5 bn

Hospitals Pharmacy

16 MAY 2014

Apollo Hospitals

17

Expansion to sustain growth momentum

Expansion plans till FY17 in place

Land tied-up and funding in place

Created an eco-system for 15-20% self sustaining growth

Funded through internal cash flows

4,162 6,472

2,220

2,220 1,888

1,888

0

3,000

6,000

9,000

12,000

FY13 FY17E

(No of beds)

Owned Owned by JV / Associates / Subs Managed

Apollo - scaling up own beds aggressively

(Rs mn) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Revenue 12,885 15,515 17,849 21,892 25,401 29,364 36,210 44,335 52,657 58,783

EBIT 2,398 3,075 3,802 4,187 4,987 5,359 6,337 7,759 9,478 10,875

RoCE % 19 21 18 17 19 17 17 17 18 18

Apollos near term expansion plans

Completion

Date

Op. Beds

to be added

Est Cost

(Rs mn)

Capex/ bed

(Rs mn)

Mumb ai 650 5,774Belapur FY15 350 4,374 12.5South Mumbai - Byculla FY17 300 1,400 4.7REACH 325 1,856Nellore FY14 200 1,095 5.5Nashik FY14 125 761 6.1Chennai 480 8,956MLCP FY15 370Chennai - Main FY15 30 100 3.3Chennai - South Chennai FY17 175 2,000 11.4Chennai - Women & Child FY15 60 740 12.3Chennai - Proton FY17 0 4,200Chennai (OMR) FY14 45 316 7.0Chennai (OMR) FY15 170 1,230 7.2Others 855 4,932Vizag FY15 250 1,494 6.0Patna Phase 1 FY16 240 2,000 8.3North Bangalore FY15 180 770 4.3Indore FY15 185 668 3.6TOTAL 2,310 21,518 7.3

16 MAY 2014

Apollo Hospitals

18

Largest pan-India retail pharmacy play

0

3,000

6,000

9,000

12,000

15,000

18,000

0

400

800

1,200

1,600

2,000

2,400

FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

(Rs mn)(Nos)

No of stores Revenue (RHS)

Increase in pharmacy stores leading to higher revenue

FY12 FY13 FY14E FY15E FY16E

No. of s tores 1,364 1,539 1,659 1,779 2,029

Rev./ store (Rs/ mn) 7 7 8 8 8

%y-y growth 14.1 10.0 10.0 2.0 2.5

Net Rev. (Rs mn) 8,606 11,017 12,993 14,248 16,176

EBIT (Rs mn) 57 169 390 499 728

EBIT Margin (%) 0.7 1.5 3.0 3.5 4.5

EBIT/ Store (Rs) 41,789 109,812 234,959 280,308 358,748

Apollo pharmacy snapshot

Apollo has ~ 1,600 pharmacies stores as on December-13. It plans to have over 200 pharmacies annually over the next 2-3 years

Low capital intensity business: The cost of setting up a typical pharmacy is at ~Rs 11.5 mn, of which inventory is ~Rs 0.5 mn with negligible working capital. Inventory turn is over 10x

Currently, mature pharmacies are making EBITDA margin of 6-7%. Apollo monitors the maturity of all pharmacies and closes down unviable ones

Pharmacy biz had been a drag on Apollos financials since it was EBITDA negative. However, since Q3FY11, the division has convincingly turned profitable. We expect the division to add to EBITDA on the back of:

Greater proportion of matured stores

Growth from in-house branded generic products

16 MAY 2014

Apollo Hospitals

19

Key financials

Key financials

Rs mn FY12 FY13 FY14E FY15E FY16E FY17E FY18E

Revenue 31,475 37,687 44 ,021 52,288 62,524 73,629 82,567

YoY growth 21% 20% 17% 19% 20% 18% 12%

EBITDA 5,131 6,082 6,882 8,322 10,282 12,956 15,113

EBITDA margin (%) 16% 16% 16% 16% 16% 18% 18%

PAT 2,193 2,981 3,319 4 ,051 5,002 7,027 8,795

YoY growth (%) 19% 36% 11% 22% 23% 40% 25%

EPS (Rs) 16 21 24 29 36 51 63

16 MAY 2014

Apollo Hospitals

20

Ashok Leyland

Complete turnaround play

Purest beneficiary of 3 likely events 1) Sharp recovery in the CV cycle; 2) Resultantly positive operating leverage; 3) Improvement in cash flows which will aid current de-leveraging initiatives.

The impending CV recovery

Current downcycle in MHCVs has been the longest, with >26 months of consecutive de-growth (vs. an average of 15 months during previous downcycles. This also means that the eventual upcycle (question of when, not if), will be much stronger than previous ones.

Ashok Leyland is the purest way to play this recovery. We would ignore valuations based on FY16e (EPS of Rs 1.5/sh), due to scope for humongous growth in FY17 (reckon >100%).

Earnings drivers

In previous CV upcycles, Ashok Leyland has consistently reported margins >10% (current margins -5%). While the current quarter might still be ve EBITDA, we expect FY15/16/17 margins at 4%/7.8%/9.6% driven by cost cutting initiatives, lower discounts and positive operating leverage.

With peak capex behind, current debt of Rs 50bn is on course to reduce to ~Rs35bn driven by improving cashflows and divestment of non-core assets.


March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)

FY13 124,812 1,442 - 0.5 (75.5) - 3.3 6.8 - 0.6

FY14E 99,657 (5,742) (1.9) (2.2) (498.3) (11.8) (13.7) (3.2) 918.3 0.2

FY15E 112,371 (1,697) (0.1) (0.6) (70.4) (39.9) (4.5) 1.6 24.7 0.5

FY16E 142,822 4,001 1.3 1.5 (335.8) 16.9 10.9 10.0 9.1 0.7


16 MAY 2014

Ashok Leyland AUTO

21

Bajaj Finance

Rising affluent population focus area of BAF, Increasing customer base for cross-sell (added 3 mn in FY13).

Continued consumer finance growth(~37% YoY; ~39% share) despite lukewarm consumer durables and 2-wheeler sales indicates market share gains for the company so far

Addition of digital products in partnership with Samsung and Apple points to strong momentum in consumer durable business going forward (added record 0.8 mn customers in Q4)

Renewed demand for consumer durables/2-wheelers can potentially result in 50%+ growth observed in the past

Improved business climate for SMEs will create a huge opportunity (~53% share). Company is investing in newer channels (Direct-to-customer and online) to tap into the SME opportunity

Potential upsides from rural business entry: Company is investing in rural business (~1% currently) by adding 21 new locations and 100 new spokes in FY15 (break-even expected in FY16)

High CIBIL penetration, robust risk management, and focused collection efforts keep NPAs low (net NPA 0.23%)

Strong profitability ratios: Despite our conservative approach which factors in higher slippages, moderation in spreads and loan growth, return ratios remain amongst the best (RoE at 20% and RoA at 3.4% in FY15E)

Financial sum m ary (CMP: Rs 1732)Y/E PAT EPS EPS chg BV Adj. BV P/E P/BV RoE RoA Net NPA

March (Rs mn) (Rs) (%) (Rs) (Rs) (x) (x) (%) (%) (Rs)

FY13 5,913 118.8 20.8 676 670 14.6 2.6 21.9 3.8 0.2

FY14 7,190 144.4 21.6 802 792 12.0 2.2 19.5 3.4 0.3

FY15E 8,791 176.6 22.3 958 951 9.8 1.8 20.1 3.3 0.2

FY16E 10,555 212.0 20.1 1,146 1,137 8.2 1.5 20.1 3.4 0.2

Source: Company, Axis Capital

16 MAY 2014

Bajaj Finance BANKS & FINANCIAL SERVICES

22

Bata India

Bata India has been rewarded for its relentless efforts in cutting flab, rationalizing costs, and building brand. The rewards are many - significantly better capital efficiency and profitability vs. peers, market share gains and leadership, and most importantly improving brand perception (a sustainable value creator) which now places Bata as a one-stop shop for fashion and comfort footwear vs. a need-based brand earlier.

As these in-store efforts continue along with aggressive expansion (net store addition of 100 p.a.), we expect revenue/ earnings CAGR of 17%/ 19% over CY12-15E to drive RoE to >30% in the long term vs. 26% currently.

Building blocks in place for value creation

Improving predictability

With retail restructuring behind (1% net store CAGR over CY05-11), Bata has aggressively embarked on increasing retail footprint through large format stores and positioning itself as a one-stop shop for footwear. Net store addition of 100 p.a (i.e. ~7% CAGR) and average same-store sales growth of 10% will drive 17% CAGR in revenue over next 3 years

Reinforcing sustainability

Portfolio and brand augmentation increase in sales of leather footwear, expanding younger generation/ women customer base, launch of trendy and fashionable designs at attractive price points and increase in brand investments

Driving entrepreneurial spirit: K-store scheme is a unique push-based initiative with better performance-based incentive for store managers which has led to rising store productivity, increase in motivation level, and better customer service. In fact, ~75% of incremental stores will come under K-scheme, reaching out to 40% of store base in next 3 years

16 MAY 2014

Bata India RETAIL

23

Bata India

Driving profitability

Despite increasing competition and aggressive expansion, we believe there still remains scope for margin improvement (100 bps in next 2 years) led by plant modernization, increase in outsourcing, premiumization, scale-led supply chain benefits and lower employee cost as bulk of incremental expansion through K-scheme. The tail-end risk of increase in royalty charge has not been factored in our estimates

De-risking business model

Augmenting sales through e-tailing portals (e-bay, Jabong, Flipkart etc) and EBOs (Hush Puppies and Footin)

Extending reach in tier II and III cities (tier I cities is 20% of store base).

Increased outsourcing (61% of sales) offers design flexibility

Valuation

At CMP, the stock trades at 29x/23x CY14E/CY15E EPS of Rs 37/45, which is in line with the our universe of discretionary peer group. We rate Bata highly on the PSPD (Predictability, Sustainability, Profitability and De-risking) criterion which reinforces our belief that it is a long term value creator.



CY12 18,425 1,725 - 26.8 57.0 - 27.1 39.8 - 6.0

CY13E 20,652 2,040 37.2 31.7 18.3 32.2 26.5 38.6 19.4 6.5

CY14E 23,250 2,273 46.6 35.4 11.4 28.9 25.0 36.9 17.2 12.0

CY15E 28,019 2,894 46.5 45.0 27.3 22.7 27.1 40.0 13.6 15.0


16 MAY 2014

Bata India RETAIL

24

Berger Paints

Bridging the gap with Asian Paints Portfolio, Distribution and Branding

Portfolio enhancement New launches to strengthen presence in emulsion paints and in particular the premium segment

Distribution efficiency and reach Increased depots for quick order turnaround and building dealer network (~7% p.a.). Numeric distribution reach is now 55% of Asian Paints, but scaling up rapidly

Brand investment increased by 27% CAGR over last 5 years, now 6% of revenue (~5% for Asian Paints).

Strengthening presence in South and West region gaining market share; acquires Sherwin Williams: South and west region contribute 50% of revenue vs. industry average of 60% and Asian Paints at 65%. This would change as capacity in south & west region will increase from 43% to 73% in next 3 years. Sherwin Williams acquisition has strengthened project business in western region and given a platform for new product launches. Growing ahead of peer group (21% CAGR over FY10-13 vs. 14% for industry) and has gained market share in last two years.

Margin improvement visible scale benefit, premiumization: Improving sales mix in favor of emulsion paints (~30% of revenue) has aided 360 bps gross profit margin expansion over last 5 years. Yet EBITDA margin expanded by just 50 bps due to growth and brand investments. We believe operating margin can improve from 11.7% in FY13 to 14.5% (Asian Paints at 16%) over a period of time with better revenue mix and operating leverage from scale of operations.

Adequate margin of safety; upside to be driven by earnings momentum : At 24% RoE (can improve to 30-35%) and higher earnings growth vs. peer group (21% CAGR over FY14E-16E vs. 15% for peers), we believe target P/E of 22x is justifiable. DCF indicates fair value of Rs 266 based on 15% revenue growth, 200 bps margin improvement and higher asset turn due to lower working capital

Financial sum m ary (CMP: Rs 243)Y/E Sales Adj.PAT Consensus Adj.EPS Chg PE RoE RoCE EV/E DPS


FY13 32,271 2,161 - 6.2 20 - 25 23 - 1

FY14E 36,946 2,477 7.2 7.2 15 34 24 22 20 2

FY15E 42,128 2,961 8.6 8.5 19 28 24 24 17 2

FY16E 49,204 3,635 10.6 10.5 23 23 24 26 14 2


16 MAY 2014

Berger Paints India FMCG

25

Bridging the gap with leader

Berger Paints Asian Paints

16,500 30,000

135 180

6% of rev. Rs 1.8 bn

5% of rev. Rs 5.2 bn

30% of revenue

45% of revenue

Rs 70 mn Rs 505 mn

Dealers (nos.)

Depots (nos.)

A&P spends

Emulsion paint rev.

share

R&D spends

Gap analysis and actions taken

25% 38% RoE

Larger number of depots enables quick turnaround time to suppliers and improves reach. Berger has increased depot strength alongside manufacturing capacity in South & West

region to scale up presence

Portfolio premiumization and reduction in rebates/cash discounts has led to significant gross margin improvement (360 bps in 5 years). This has been re-invested into A&P

spends (up from ~4% to 6% over last 5 years); 27% CAGR

Berger, a late entrant into premium emulsions category, has sharpened focus by new launches (3 launches in 5 years) and increasing capacity (increased by 2x in last

5 years and can further double current capacity in next 4 years)

While Berger has increased the level of R&D expenditure over the years (41% CAGR over 5 years; now at 0.23% of sales) it is still well below that of the leader. We expect

R&D spends to improve over a period of time with scale

Asian Paints high RoE is due to higher margin profile and lower working capital intensity. We expect Berger to demonstrate improvement on both these factors, leading

to improvement in RoE profile to 30-35% in steady state

Pan-India dealership stands at 35,000 dealers. While Asian Paints reaches almost 85% of paint dealers, Berger Paints at 45% penetration has more scope for distribution-led growth. Berger plans to add 1,000 to 1,500 dealers every year to narrow the gap

16 MAY 2014


26

Berger Paints

Premiumization - Product pricing ladder


Berger and Asian Paints gain market in last 2 years

Source: Companies, Axis Capital

Berger trades at ~30% discount to Asian Paints and close to its 3-year discount average


Improving gross margin profile has led to higher brand investment


6.7%

-0.5%

-3.6%

-1.6%-1.0%

0.7% 0.4% 0.0%

-0.9% -0.2%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Asian Paints Berger Paints ICI (India) KansaiNerolac

ShalimarPaints

5 year 2 year

Market Share 52 17 12 16 3

Bison acrylic distemper

110

Bison emulsion120

Jadoo Enamel

160

Rangoli total care225

Luxol satin enamel

240

WeatherCoat all guard

300

Silk luxury emulsion

360

Breathe easy emulsion

390

0

100

200

300

400(Rs/litre)

4.0

4.5

5.0

5.5

6.0

6.5

30

32

34

36

38

40

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

E

FY15

E

FY16

E(%)(%)

Gross margin A&P (RHS)

0

10

20

30

40

50

Feb-1

1

Apr-11

Jun-

11

Aug-

11

Oct

-11

Dec

-11

Feb-1

2

Apr-12

Jun-

12

Aug-

12

Oct

-12

Dec

-12

Feb-1

3

Apr-13

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Berger Paints discount to Asian Paints Average

16 MAY 2014


27

Carborundum Universal

Carborundum Universals (CUMI) vision of being a global leader is manifested in its three-pronged strategy viz:

Raw material security: CUMI is transforming itself into a company of global scale while securing its raw materials. The company has backward integrated itself by acquiring Foskor Zirconia (FZL) & Volzhsky Abrasive Works (VAW)

Low Cost Manufacturing locations: While catering to global markets, the company has strategically housed its production units at low cost locations. Hence, Russia, South Africa and China have complemented India as manufacturing destinations. Globally, CUMI is amongst one of the lowest cost producers of Zirconia and Silica Carbide

Proximity to Markets: CUMI has set up marketing subsidiaries at various geographies to increase its local presence. While designing & manufacturing is at low cost locations, the customer service & installations happen from the respective subsidiaries

CUMI operates in abrasives (40% of revenue), industrial ceramics (25%) and electro-minerals (35%) and derives ~50% of revenue from overseas. It has manufacturing bases in India, Russia and South Africa

Raw material security providing a fillip

Post the acquisitions of FZL & VAW, CUMI has capacities in excess of what would be required for captive consumption

Value add in EMD leading to margin improvement

Apart from driving economies of scale in the core Electro-mineral Business (EMD; 35% of revenue), CUMI plans to capture adjacencies by increasing the proportion of value-added products from less than 5% currently to ~30% over the long term

Margin in EMD to inch up as value added products like diesel particulate filters, semi-friables, thermal sprays, manufactured from low cost feed stock like silica-carbide, start contributing meaningfully

Turnaround at FZL driven by higher capacity utilization of new plant and stabilizing sand prices (FZL net loss in FY14E at Rs 70 mn vs. Rs 270 mn loss in FY13; achieved cash breakeven) and losses at TRI (South African subsidiary) to reduce as offtake to RHI commences (25% volume commitment) and business gets repositioned to outside customers

16 MAY 2014


28


Diversified customer base with lower client concentration: CUMI has a diversified revenue stream with no single customer contributing to over 5% of total revenues and no sector contributing to over 10-15% of revenues

High operating leverage: As fixed costs are high across segments, lower volumes impact margin significantly. As economic environment improves, we expect significant operating leverage to come into play aiding margin growth

We expect overall utilization to rise from the current 60% to ~80% by FY16

CUMIs PAT is expected to double over FY 13 to FY16E. This is due to 450 bps expansion in margin. We expect FY16 EPS at Rs 12 (FY15E at Rs 8)



FY13 19,714 898 - 4.8 (59) - 9.0 8.2 - 1.3

FY14 21,253 821 - 4.4 (9) - 7.6 7.5 - 2.0

FY15E 23,405 1,448 7.6 7.7 76 18.4 12.5 10.7 8.3 2.0

FY16E 27,003 2,163 10.4 11.5 49 12.3 16.7 14.0 6.1 2.0


16 MAY 2014


29

Abrasives45%

Ceramics42%

Electrominerals13%

Abrasives41%

Ceramics25%

Electrominerals34%

Abrasive

Revenue : Rs 8.1 bn

EBIT : Rs 0.8 bn

Capital Employed : Rs 5.4 bn

Ceramics

Revenue : Rs 5 bn

EBIT : Rs 0.8 bn


Electro-minerals

Revenue : Rs 6.7 bn

EBIT : Rs 0.2 bn


Carborundum Universal FY13

Revenue : Rs 19.7 bn

EBIT : Rs 1.8 bn

PAT : Rs 0.9 bn

Net Revenues FY13 EBIT FY13


Business overview 16 MAY 2014


30

High operating leverage to drive margin expansion

Management has guided 15-17% revenue CAGR over FY14-17E

We expect EBITDA margin to improve to 16.4% in FY16E (12% in FY13) on back of:

Greater operating leverage as an economic revival will lead to higher volume across segments

Higher proportion of value added products

Turnaround at FZL (South Africa)

0

500

1,000

1,500

2,000

2,500

0

5,000

10,000

15,000

20,000

25,000

30,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Net Revenues (Rs mn) Adj PAT (RHS; Rs mn)

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

EBITDA (%) Raw-Materials as % of Sales PAT (%)

Revenue and PAT

High level of operating leverage to drive margin expansion

16 MAY 2014


31

Cholamandalam Investment and Finance

Improved business activity, creation of infrastructure and higher rural consumption will lead to higher freight rates and increased capacity utilization for fleet operators. This will drive superior growth for vehicle finance (74% share)

Higher recoveries and lower slippages for company (GNPA at 1.9 % currently)

Higher growth as CV sales recover strongly after prolonged downturn (last 3 years)

Home equity segment (high yield, high value of collateral at 50% LTV) is expected to continue strong growth(35%+ in last 2 years). Higher liquidity/appreciation in property prices can lead to even higher growth given small base

NIM can improve in falling interest rate scenario( largely fixed rate loan book).

Securitization to lower cost of funds: 65% of the vehicles financed qualify for priority sector and hence company intends to use the securitization window for lowering the cost of funds

Earnings growth will be driven by operating leverage (55% branches opened in FY11-13). Efficiencies will further improve as the company is witnessing number of branches attaining break even as there is increase in number of cases being handled per employee.



FY13 3,065 21.4 37.8 137 136 13.5 2.1 18.1 2.0 0.2

FY14 3,640 25.4 18.7 160 151 11.4 1.9 17.1 1.8 1.1

FY15E 4,545 31.7 24.9 187 177 9.1 1.6 18.3 2.0 1.0

FY16E 5,441 38.0 19.7 220 207 7.6 1.4 18.7 2.1 1.0


16 MAY 2014

Cholamandalam Investment and Finance BANKS & FINANCIAL SERVICES

32

CMC

Best placed to benefit from increase in domestic IT spend (esp. PSUs). Domain expertise in Govt vertical : Govt vertical showcases a promising area. CMC has both domain expertise and competitive edge. It has serviced key Govt entities such as BPCL, BSNL, Defence, RBI, Election Commission, Indian Railways, ONGC, IOC etc

Differentiators are unique to CMC: (1) well established ecosystem of industry alliances, (2) domain expertise in niche verticals such as Govt., Energy & Utilities, Shipping, Defense & Space, (3) unique capabilities in Embedded, ITES, Office Automation, Document Digitization and (4) well executed subcontracting model with fair mix of domestic/exports rev (32:68)

Outlook in high-margin SI and ITeS businesses (76% rev share in Q3FY14) remains strong as increased focus likely in core Infra Management Services, Systems Integration. Expect core SI/ITeS to post > 20% revenue CAGR over FY14-16E

TCS (51% stake, 55% rev share) parentage working to its advantage: With joint 'go-to-market strategy, leveraging TCS' B/S, access to large clients (Passport Seva), growth in high margin international biz, assured annuity revenue

Margins and cash flows to surprise: Potential from margin upsides from offshore (~21% of exports vs. peak levels of ~40%) ), higher revenues from IP-led products. Post capex on SEZ / Kolkatta facility, cash flow generation to be strong



FY13 19,265 2,302 - 76.0 51.7 - 26.8 34.1 - 17.5

FY14 22,119 2,804 - 92.5 21.8 - 26.7 35.6 - 22.5

FY15E 26,458 3,422 108.3 112.9 22.0 12.5 26.8 32.6 9.3 28.2

FY16E 30,794 4,230 128.4 139.6 23.6 10.1 27.3 33.7 7.4 34.9


16 MAY 2014

CMC IT - SERVICES

33

Container Corporation of India (Concor)

Key beneficiary of any macro reforms (GST, DFC/DMIC implementation)

Aggressive expansion in logistics parks/ Private Freight Terminal (PFT) space to help Concor capitalize on its pan-India presence (63 terminals and 230+ container trains) through better asset utilization and offer greater value added services

Expedited infrastructure push, coupled with an improvement in macro to drive volume uptick across Exim and domestic space

While volume growth during FY10-14 is muted, container volume growth has been in sync with nominal GDP growth over last 2 decades (CAGR of ~13% over FY95-14)

Higher contribution from value added services to drive profitability

Expected increase in contribution from warehousing, container handling, and other value added services (typically commanding higher margin) to improve overall operational performance

Lower empty running, higher contribution from double stacking and operating leverage benefits to aid margin expansion

Building capacity for the long term growth

Healthy operating cash flows (Rs 48 bn) will be suffice to fund Concors aggressive capex plans for logistics parks (Rs 30 bn over FY15E-17E)

While such high capex will keep Concors return ratios depressed in the near term, we expect the benefits of the same to accrue to the company in the medium term



FY13 44,062 9,697 - 49.7 10.5 - 16.3 19.4 - 11.6

FY14E 50,194 9,866 51.2 50.6 1.8 19.1 14.9 18.4 14.2 12.1

FY15E 57,130 11,248 57.3 57.7 14.0 16.7 15.2 18.9 11.8 13.8

FY16E 68,181 13,208 65.7 67.7 17.4 14.2 16.0 20.0 9.6 16.3


16 MAY 2014

Container Corp Of India MEDIA

34

Cummins India

New emission norms to be a game changer for Cummins India: New norms will be a game changer for the MHP and LHP segments as they will help Cummins to consolidate market share and sell more content to the customers

Cummins to enjoy 20% price increase on gensets, however the cost increase will be limited to 10-15% as it has reduced the footprint for 60% of product portfolio

New norms will help the company to overcome its cost disadvantage in low HP segment and grow its sales from Rs 4 bn in FY14 to Rs 6 bn in FY16E

Domestic powergen (35% of revenue) growth now linked to GDP growth then power deficit: Growth in powergen to be driven by Infrastructure, services and real estate sectors mainly for backup requirements thereby delinking the growth from power deficit and linking it to new capex

Exports (30% of revenue) ramp up of LHP exports and new models to drive five-fold growth in 5 years: Focusing on increasing LHP exports to 40% of revenue over next 5 years driven by:

Low HP exports with peak potential of Rs 20 bn (currently Rs 4 bn)

Introduction of Mid HP gensets of up to 330 kVA (exports portfolio to increase from current 140kVA to 330 KVA). Parent to shift manufacturing of QSB-6 (6 lit engine) and QSL-7 (7 lit engine) from Kent, UK to Cummins India

Cummins India ENGINEERING



FY13 45,894 6,255 - 22.6 20.3 - 28.2 40.9 - 12.9

FY14E 40,745 5,782 21.8 20.9 (7.6) 24.3 23.0 31.5 20.0 11.7

FY15E 49,275 7,087 23.9 25.6 22.6 19.8 25.2 34.5 16.1 12.9

FY16E 59,280 8,434 27.3 30.4 19.0 16.7 26.1 35.3 13.3 12.9


16 MAY 2014

35

Cummins India

Distribution business (21% of revenue) to benefit from new emission norms. Outlook for distribution business to improve driven by

Implementation of new emission norms and transition to electronic-controlled engines would make the customers come back to Cummins for services than to roadside shops. Also intensity of service to increase post implementation of new norms

Growth in strategic business services solutions and indigenization of parts. The company intends to get into sectors which have higher usage of gensets such as Railways and Defense

Management working towards maintaining margin: Cummins India has been working on introducing fit-for-market products and reduction of footprint for 60% of products to save material costs Expects to maintain margin as the benefits of these cost reduction initiatives will be offset by expected wage hikes and

currency impact. We are factoring in stable margin of 18% over FY14-16

We expect Cummins to report earnings CAGR of 17% over FY14-16 based on (1) 15% growth in domestic powergen driven by 20% price hike on new emission norms, (2) exports revenue growth of 15-20% aided by pick up in low HP exports as India is the sole sourcing hub for this segment and introduction of two new models in Mid HP and (3) 15% growth in spares 15% as the company would add new sectors with higher requirement for spares such as Defense, Railways and Oil & Gas

Key negatives: Transfer of high HP engines QSK 60 to parents 100% sub, unproductive capex for office building and technical center for parent, rising competition in high HP engines from Perkins (CAT co.), Export pricing norms reset to 1 year from 3 years and introduction of support charges to parent for services received from parent


16 MAY 2014

36

Cummins India: Exports potential equivalent to current sales and PAT

High HP exports: 3 models V -28, K-38, K-50

Low HP exports: 7.5-140 kVA (X, S and B series)+

Medium HP exports: 160-330 kVA (transferring two new

models from UK)

Current revenue: Rs 7 bn

Capacity of 25 engines/day

Peak potential: Rs 15 bn

EBITDA margin @ 12%

PBT: Rs 1.4 bn

PAT: Rs 1.0 bn

Current revenue: Rs 4 bn

Capacity of 15,000 p.a for X & S series and 120,000 for B series (50% for Cummins India)


Capex of Rs 2.5 bn

EBITDA margin @ 20%

PBT: Rs 4 bn

PAT: Rs 2.6 bn

Current revenue: Nil

Capacity of 45,000 p.a for L series


Capex of Rs 7.5 bn

EBITDA margin @ 12%

PBT: Rs 2.0 bn

PAT: Rs 1.4 bn

Cummins India export potential


Exports have peak potential of Rs 55 bn and net profit of Rs 5 bn


16 MAY 2014

37

D B Corp

DB Corp (DBCL) has a well diversified geographic reach across most of the Hindi-speaking markets (barring Uttar Pradesh) with strong positioning (either #1 or #2) in key markets like Madhya Pradesh, Rajasthan and Gujarat

On the back of its superior on-the-ground execution, DBCLs expansion across new territories like Maharashtra and Bihar has been encouraging

Strong presence across markets has aided DBCL capitalize on growth in local ad spends, thus translating into a higher-than-industry ad revenue growth for the company

We expect DBCL to continue record healthy ad growth given a) uptick in national ad spends with macro recovery, coupled with steady local ad spends and b) gradual improvement ad yields across key markets

Strong ad revenue growth, coupled with operating leverage benefits (given lower losses from emerging editions) to aid healthy earnings growth going ahead

Key risks: Sharp increase in newsprint prices, intensifying competition

Financial sum m ary (CMP: Rs 278)Y/E Sales EBITDA Adj.PAT Consensus Adj.EPS Chg PE RoE RoCE EV/E DPS

March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)

FY13 15,923 3,760 2,181 - 11.9 8 - 22.3 26.6 - 6

FY14 18,598 5,003 3,066 - 16.7 41 - 28.2 33.1 - 7

FY15E 21,253 5,860 3,520 18.9 19.2 15 14.5 28.6 35.6 8.3 9

FY16E 23,738 6,369 3,842 21.9 20.9 9 13.3 27.4 34.9 7.4 9


16 MAY 2014

D B Corp MEDIA

38

Dish TV

Key investment argument

Strong improvement in per subscriber economics

Steep hike in installation prices of Set Top Box (STB) coupled with discontinuation of free-viewing period (excl. South) to result in lower Subscriber Acquisition Cost (SAC) for Dish TV as well as the DTH industry

This coupled with gradual improvement in its key operating matrix namely (a) churn rate and (b) ARPU to partially nullify the relative slower sub additions and improve per subscriber economics for Dish TV

Strong cash flow generation on the cards

Given the improved economics, we expect Dish TV to be self-sufficient to fund its subscriber addition plans and expect the company to generate ~Rs15 bn of free cash flows over FY14E-17E and be debt-free by FY17

Market cap to double over 3 years given operating as well as financial leverage

Expect 0.8 mn net sub additions annually coupled with 5% CAGR in ARPU to drive operating leverage benefits; debt repayment to aid savings on interest outgo

We expect the stock to double over the next 3 years given the strong benefits of operating and financial leverage

Financial sum m ary (CMP: Rs 46)Y/E Sales EBITDA Adj.PAT Consensus EPS RoE RoCE PE EV/E EV/Net Sales

March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) (%) (%) (x) (x) (x)

FY13 21,668 5,794 (1,254) - (1.2) NA NA - - -

FY14E 24,128 5,762 (1,227) (1.0) (1.2) NA NA - 10.1 2.4

FY15E 27,016 6,877 759 0.3 0.7 NA NA 64.9 8.1 2.1

FY16E 29,914 7,822 2,950 1.6 2.8 NA NA 16.7 6.7 1.7


16 MAY 2014

Dish TV India MEDIA

39

Eicher Motors

Visibility on long-term Royal Enfield (RE) volumes improves:

While RE volumes seem to be indifferent to the macro environment in the near term (given the high waiting periods), we believe that an improving macro will aid volume growth CY15 and beyond. Uptick in discretionary spends will drive further premiumization in the 2 wheeler space.

Margins (already >23% in Q1CY14) have scope for further improvement on (1) Higher utilization at new plant and 2) Improving product mix (higher share of >500cc bikes). We highlight that the New Continental GT (most expensive bike in their portfolio) accounts for ~25% of dealer bookings in metros

VECV* Clean way to play CV cycle turn; Engine business remains joker in the pack

While VECV has less scope for earnings delta vis--vis a beaten down Ashok Leyland, it remains a very safe play on the impending CV cycle recovery given its clean balance sheet/business structure (relative to peers), coupled with superior return ratios/asset turns.

Engine Business makes VECV a significant part of Volvos global supply chain and provides Eicher a huge technological leap on their own CVs. More importantly, almost 30% of cash hoard is being deployed in a high RoCE business (reckon >30% on full operations). Volvo's perceptible affinity for VECV also provides scope for outsourcing opportunities of other manufacturing processes.

*Volvo Eicher Commercial Vehicle (Eichers stake: 54.4%)



CY12 63,899 3,243 - 120.1 5.0 - 20.0 22.8 - 20.0

CY13 66,858 3,939 - 145.7 21.3 44.4 20.7 21.8 23.7 30.0

CY14E 83,931 6,394 228.3 236.5 62.3 27.4 27.7 25.9 16.9 40.0

CY15E 114,956 10,348 327.0 382.7 61.8 16.9 34.4 35.0 10.2 50.0


16 MAY 2014

Eicher Motors AUTO

40

Finolex Industries

Finolex Industries (Bloomberg: FNXP IN) is set for a perception change. Market is still valuing it as a B2B* player (10x 1-year fwd PE) vs. peers like Supreme Ind (16x) and Astral Poly Technik (17x) which are B2C* players. The anomaly will cease to exist as market notices the structural change the company is undergoing Finolex is fast transitioning to a PVC pipes company from being a predominantly PVC resin manufacturer. The transition (B2B to B2C) will lead to Finolex capturing incremental margins and narrow valuation gap with peers

The company, its business, and progression

Finolex Industries (Finolex) is a market leader (12% share) in PVC pipes with pan-India distribution and strong brand. It commenced operations in1980s as a PVC pipe manufacturer and backward integrated in 1990s to make its own raw material (PVC resin). It has also set up a 43 MW captive power unit to reduce its dependence on grid power making it the only backward integrated domestic PVC pipe company in India

Learning phase Pre-2008 (10-year PAT CAGR of 5%): Viability of PVC resin plant required substantially higher capacities compared to Finolex pipes capacity. As a result, majority of revenue was from selling PVC resin (B2B business with asset turn of ~1.5x) rather than pipes which are sold on the back of strong brand and distribution (B2C business with higher asset turn of 3-4x)

Focus on integration 2008-2013 (PAT CAGR 14%): Set up 43 MW captive power as grid power became unreliable and expensive. It scaled up PVC pipes capacity to benefit from backward integration of PVC resin. External sales of PVC resin kept falling. Over 50% of PVC now being used to make pipes (11% in FY08)

Reaping benefits 2013-2015 (PAT CAGR 20%): Backward integration benefit is finally taking shape and Finolex is now poised to transition itself to a consumer-focused B2C business from a commodity-based B2B business. This is evident as it is using raw materials internally to make PVC pipes rather than selling PVC resin externally. Interdivisional transfer of raw materials has moved up from 11% in FY08 to ~ 60% in FY14. We expect this to further improve to ~ 90% by FY16

Enter 2016: A B2C player with focus on growth

* B2B: Business to Business B2C: Business to Consumer

16 MAY 2014

Finolex Industries Ltd MIDCAPS

41

Finolex Industries

Growth and margin comfort with attractive valuation

Volumes: PVC pipes demand is likely to maintain its growth trajectory (11% volume CAGR over FY08-13), driven by strong demand from agriculture and housing. Incremental asset turns for Finolex to improve as capex only towards pipe expansion as pipe capacity finally matches its in-house resin capacity. Over 1/3rd of the 1.5 mn ton PVC pipe industry is unorganized and GST implementation would benefit Finolex. Also, it sells pipes against advances from dealers resulting in zero receivable days

Margin to expand as Finolex captures incremental margins from PVC pipes

EBIT/ton to improve to Rs 16,000 in FY16 (Rs 13,000 in FY13) as Finolex uses in-house resin to make pipes

Spread can further firm up, as global capacities of its key raw material EDC (ethylene dichloride) is expected to rise 2x over FY16, putting further pressure on raw material prices

Bottomline: RoE to expand to ~30% in FY17 (20% in FY13) and rising FCF to pare down D/E to 0.2x (~ 1x in FY13)

Downside cushion: (1) Dividend payout of 50% expected to continue. Stock at dividend yield of ~ 5% for FY15 and

(2) Underlying assets > market cap

Land: 70 acres of non core land at Pune which company can monetize

Finolex Plasson: Owns 46% in associate company having revenue of Rs 4 bn with 20% EBIDTA margin and zero debt

Port: 1,200 acres of sea front land at Ratnagiri with own cryogenic jetty

Finolex Cables: Owns 15% in listed associate company; implied value of Rs 16/share in Finolex Inds Financial sum m ary (CMP: Rs 228)Y/E Sales Adj.PAT Consensus EPS Chg PE RoE RoCE EV/E DPS

June (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)

FY13 21,448 1,361 - 11.0 81.2 - 19.7 14.0 - 5.5

FY14E 24,530 1,701 - 13.7 25.0 16.6 22.5 19.2 10.3 6.5

FY15E 24,790 1,929 19.1 15.5 13.4 14.6 23.3 21.1 9.4 8.0

FY16E 25,535 2,475 21.0 19.9 28.3 11.4 27.0 26.3 7.5 10.0


16 MAY 2014


42

At an inflexion point

2008 10-yr PAT CAGR 5%

2008-2013 PAT CAGR 14%

2013-16 PAT CAGR 20%

2016

Learning phase

Finolex started as a pipe company in 1981 and backward integrated to PVC resin in 1990s due to unavailability of PVC resin

PVC resin project cost escalated by Rs 2 bn to Rs 7.5 bn in 1991 due to sharp rupee deprecation

Took 8 years for business to justify invested capital

Set up 43 MW captive power as grid power became unreliable and expensive

Scaled up PVC pipes capacity to benefit from backward integration of PVC resin. External sales of PVC resin kept falling

Over 50% of PVC now being used to make pipes (11% in FY08)

Finolex is transitioning from B2B business to B2C with ~ 90% of PVC resin being used to make pipes which are sold on the back of strong brand and distribution network

No capex on resin going forward

Demand of PVC pipes to remain robust as industry shifts to PVC pipes vs. GI/CI pipes, unorganized players continue to shrink, and agriculture continues to drive growth since only 40% of cultivated area is irrigated

Value unlocking of hidden assets

Focus on integration Reaping benefits Focus on growth


FY08 FY13 FY16E

Benefit from integration 11% 54% 87%

Revenue 13,949 21,448 25,028

B2B - External sales of PVC resin 66% 33% 11%

B2C - PVC pipes 34% 67% 89%

EBITDA margin (%) 10.7% 12.2% 15.5%

PAT 712 1,361 2,270

RoE (%) 13.1% 19.7% 24.6%

16 MAY 2014


43

Godrej Industries

10x in first 10 years and 10x in next 10 years

Holding company with 45% M-cap CAGR since inception in 2001 driven by (1) 30% CAGR in consolidated earnings and (2) value unlocking after successfully incubating businesses

In 2010-11, management envisaged another 10x growth by 2020. Trajectory seems to be on track, given 2011-13 profit growth at 27%

Key strengths: Reputed management, strong brand, high growth consumption driven businesses, history of profitable monetization of new businesses (Godrej Sara Lee, Godrej Foods, Aadhaar, Godrej Hi-care, etc)

Core business segments centre around urban and rural consumption Consumer through Godrej Consumers (GCPL), Agriculture through Godrej Agrovet (GAVL), Real Estate through Godrej Properties (GPL), Chemicals in standalone entity, and urban retail through Natures Basket

Consolidated earnings to double over FY13-15E

GAVLs (unlisted) 30% PAT CAGR to be driven by leadership in high growth animal feed business and better yields from maturing palm oil plantations (a restrictive monopoly)

Temasek Holdings (PE fund) took 20% stake in GAVL in FY13 (valuing it at Rs 30 bn)

GCPL to maintain 20% earnings CAGR led by focus on 3x3 strategy

GPLs earnings CAGR of 35% to be driven by faster execution and higher margin from new projects

16 MAY 2014

Godrej Industries MIDCAPS

44

Company overview

GIL (FY13) (M-Cap ~ Rs 104 bn)

Rev: Rs 72 bn PAT: Rs 4 bn

Chemical Division

Revenue: Rs 13 bn PAT: ~ Rs 0.7 bn

Godrej Consumers (M-Cap ~ Rs 256 bn)

Revenue: Rs 64 bn PAT: Rs 7.9 bn

Godrej Properties (M-Cap ~ Rs 36 bn)

Revenue: Rs 10 bn PAT: Rs 1.4 bn

Note: GIL also derives income from its international trading arm and businesses like Natures Basket

Animal Feed: 75% of revenue

Palm Oil Plantation: 10% of revenue

Agri Inputs: 9% of revenue

Poultry: 49% stake in JV with Tyson

Revenue: Rs 3 bn

Seeds: 1% of revenue

Godrej Agrovet

Revenue: Rs 31 bn PAT: ~ Rs 1.6 bn

Project Trees a 40:60 JV between GIL and GPL (3.5 mn sq ft of mixed use development at Vikhroli)

40% stake

60% stake

62% stake 23% stake 64% stake

16 MAY 2014


45

Agrovet

Business positioning

Future prospects

FY13-17E

growth FY15E RoE

BCG matrix

Successful pan-India developer

Follows asset light JDA model

Strong brand name ensures premium pricing and lower cost of debt

Indias leading agri player across (1) Animal feed and (2) palm oil plantations

High entry barriers due to wide distribution, R&D, pan-India manufacturing, and trusted brand

Low capital intensity

Largest player of oleo chemicals

Sticky customer base

Negative working capital

Niche player in fresh food and gourmet stores

Operating 27 stores across select metros

Dominant market position in India and in select international geographies

GCPL has successfully combined growth with smart equity strategy

Capacity ramp-up to drive growth

Focus on specialized products to reduce margin cyclicality

Rev CAGR: 20%

PAT CAGR: ~25%

RoE: 25%

B2C B2B

Consumer-centric businesses with high growth potential

Rev CAGR: 20%

PAT CAGR: 25%

RoE: 41%

Rev CAGR: 35%

PAT CAGR: 45%

RoE: 18%

Rev CAGR: ~25%

Rev: 12%

PAT: 15%

RoE: ~20%

Access to vast land bank of group cos

Strong cash flow visibility based on portfolio of 84 msf

Margin to improve on the back of new projects

Market share gains in animal feed as yield conscious farmers shift to organized players (10% of overall mkt)

Increasing acreage and maturity profile of palm oil plantations to drive growth

With greater stores achieving maturity, we expect the division to curtail its losses

Focus on 3x3 strategy (3 categories across 3 geographies)

Innovation and brand building driving market share gain

Cross pollinating products across geographies

Properties GCPL Natures Basket Chemicals

Source: Axis Capital

16 MAY 2014


46

A holdco that has created wealth over the years

Since the de-merger of Godrej Soaps into GIL and GCPL in 2001, the company has continued to gain market cap

GIL acquired 22% stake in GCPL over the years (hence associate company)

GIL has incubated business like GCPL, Properties and Agrovet which have scaled significantly (30-35% PAT CAGR) over FY02-13

Profitably hived off business and exited JVs like Aadhar, Medical diagnostics, Foods, Photo-Me, etc

Incubated business which have been scaled up or hived off, creating a Rs 100 bn M-Cap; 45% CAGR over FY01-13

Value creation by selling out businesses

Profit of Rs 350 mn on sale of Godrej Foods

Sold Godrej Tea

Profit on sale Medical diagnostics division

Sale of Godrej Aadhar

Value creation in Godrej Sara Lee

Sale of Godrej Global Solutions (BPO)

Stake sale of Godrej Agrovet to Temasek valuing the company at ~Rs 30 bn

2006

2008

2010

2012

Businesses that have displayed over 30% PAT CAGR

420

7,492

FY02 FY13

Smart acquisitions to be No1 or No 2 in its segment

GCPL

40

1,380

FY02 FY13

Listed Godrej Properties in 2009 valued at Rs 45 bn

Properties

50

1,000

FY02 FY13E

Largest animal feed producer and early mover into palm oil plantation

Agrovet

45% M-Cap CAGR

M-Cap

Rs 100 bn

Rs mn Rs mn Rs mn

M-Cap

Rs 5 bn


16 MAY 2014


47

and more to come as revenue tilts towards high growth segments

Profit potential of Rs 10 bn by FY19E

GILs current revenue mix ~70% of revenue in FY16E from high growth, secular businesses


RoE set to improve

2x PAT by Agrovet on the back of higher maturity of palm oil plantations and continued dominance in animal feed

Leveraging on group companys land bank, joint development and asset light business. Higher execution by GPL and roll-out of Project Trees at Vikhroli to drive improvement

GCPLs 3x3 strategy to sustain 25% earnings CAGR over next few years

On course to achieve its vision 10x10

Chemicals, 22%

Agrovet, 24%

Properties, 12%

Consumer Products, 18%

Others, 24% Chemicals, 19%

Agrovet, 29%

Properties, 17%

Consumer Products, 20%

Others, 15%


Note: Revenue mix comprises proportionate share of various businesses Source: Company, Axis Capital

0

2

4

6

8

10

12

14

16

0

1,000

2,000

3,000

4,000

5,000

6,000

FY10 FY11 FY12 FY13 FY14E FY15E FY16E

(%)(Rs mn)

PAT (Rs mn) RoE (RHS)

16 MAY 2014


48

SOTP

Holding company discount unwarranted

High standards of corporate governance

Efficient capital allocation

Full pass through of dividends received from GCPL and Godrej Properties

Value unlocking possible in Godrej Agrovet, seeds business, and Natures Basket

Excluding holdco discount, our TP stands at Rs 425

1-year fwd P/E

0

10

20

30

40

50

60

May-

08

Aug-

08

Nov-

08

Feb-0

9

May-

09

Aug-

09

Nov-

09

Feb-1

0

May-

10

Aug-

10

Nov-

10

Feb-1

1

May-

11

Aug-

11

Nov-

11

Feb-1

2

May-

12

Aug-

12

Nov-

12

Feb-1

3

May-

13


Source: Axis Capital

SOTP valuation: FY16EGIL 's s take

(Rs mn)

(Rs/

share)Comments

GCPL 50,688 151 GIL's 23% stake valued at 20% discount to our TP of Rs 835

Properties 20,029 60 GIL's 63% stake valued at 20% discount to our TP of Rs 204

Agrovet 28,926 86 GIL's 64% stake valued at 20x FY16E PAT

Chemical business 15,103 45 7x FY16E EBITDA

Project 'Trees' 7,000 21 Valued GIL's 40% stake in the JV

Others 3,000 9 Nature's Basket and other investments

Value of Godre j Indust r ies 124,746 372

16 MAY 2014


49

Info Edge

Info Edge a key play on turnaround in economy: With 90% of standalone revenue geared to economy, Info Edge will significantly benefit from any improvement in economic growth. In an environment of higher economic growth, kick-start in hiring (75% of revenue) and turnaround in real estate activity (15% of revenue) will lead to material improvement in revenue growth and drive margin expansion.

Higher losses of investee companies NOT a source of worry

Even as revenue growth of investee companies grew by 56% (on a lower base) to ~Rs 1.7 bn, EBITDA losses widened by 48% to Rs 1.1 bn. This is primarily attributable to Zomato, which is in the midst of investing in expansion to 22 countries.

We are optimistic on the prospects of investee companies as most of them have been gaining scale riding on their competitive advantages. Valuation also has been looking up for these companies in subsequent rounds of funding - Zomato is now valued at 3x the investment of Info Edge and Meritnation at 2x the investment

Info Edge will be a key beneficiary of secular shift in advertising from traditional media to online platforms, being a leader by wide margin in recruitment (Naukri.com) and one of the leaders (among top 3) in the fast growing property (99acres.com), matrimony (Jeevansaathi.com) and restaurants (Zomato.com) classifieds. Increasing internet penetration (already starting to hit the J-Curve) is a key driver for the stock

Strong sales force of ~2,000 employees (76% of total employee base) across ~40 cities drives sales efficiencies across standalone businesses (recruitment, property, matrimonial) and leads to continued strong execution and faster scale up of business

Solid management: Info Edge management has excellent hang on sector trends and we believe this will enable the company to develop and execute successful strategies around evolving trends in internet space

16 MAY 2014

Info edge INTERNET

50

Info Edge

Financial sum m ary (CMP: Rs 573)Y/E Sales Adj.PAT Consensus Adj.EPS Chg PE RoE RoCE EV/E DPS


FY13 4,373 1,315 - 12 (47) - 21 30 - 1

FY14 5,059 1,341 - 12 2 - 19 27 - 3

FY15E 6,150 1,615 14.3 15 20 39 20 29 27 3

FY16E 7,502 2,109 18.6 19 31 30 21 32 20 3


Triggers

Improvement in GDP growth will lead to better than expected earnings growth and re-rating in P/E multiple

Likely improvement in dividend payout (50%+ balance sheet is cash; company continues to generate strong FCFs) as earnings growth set to resume with economic recovery

16 MAY 2014

Info edge INTERNET

51

ING Vysya Bank

Traction in corporate loans to support higher fee income growth (mainly driven by transaction banking fees and forex income)

Retail business growth to be driven by next phase of branch expansion without compromising on cost-income ratio:

~40 new branches p.a (focus on urban locations)

New branches focusing on PSL (esp. Agri & MSME loans)

Relocating legacy branches to high street locations

Banks niche in LAP (SME loans, key driver for profitable growth) to benefit from improved SME climate

Savings Account (SA) franchise to show good traction with bank exploring alternate channels (especially digital channels) for acquiring new customers (record ~81,000 new savings accounts added in Q4)

C/I ratio to decline by building network in North & West (targeting affluent class, brand positioning as ING)

Well capitalized; operating leverage to kick in: Capital raised in June 2013 is sufficient for ~ 3 years (CAR at 16.8%). Management is targeting for over 15% RoE in next 3 years



FY13 6,130 39.4 30.9 291 290 15.5 2.1 14.6 1.2 0.0

FY14 7,188 38.0 (3.5) 368 365 16.0 1.7 12.5 1.2 0.3

FY15E 8,763 46.5 22.2 408 401 13.1 1.5 12.0 1.4 0.5

FY16E 9,993 53.0 14.0 451 444 11.5 1.4 12.3 1.4 0.5


16 MAY 2014

ING Vysya Bank BFSI

52

Jagran

Strong presence in Uttar Pradesh (UP) and high readership has enabled Jagran Prakashan (JAGP) to tide over the macro headwinds and record healthy ad revenue growth

Also, given the change in national political equations and its market leadership in Uttar Pradesh (UP), we expect JAGP to be the key beneficiary of higher spend on infrastructure and development programs in UP

Encouraging response from circulation expansion in both Madhya Pradesh (MP) and Mumbai for Nai Duniya and Mid Day respectively augurs well for its medium term growth

Strong positioning in existing markets, coupled with focus on profitable expansion in newer territories (through multiple acquisitions) will continue to drive profitable growth for JAGP

Given benefits from synergies with JAGP, operational losses from Nai Duniya and Mid Day to remain limited

Tight cost cutting measures to ensure operational leverage benefits to play out

We expect steady uptick in ad revenue growth to drive earnings and PE rerating for the stock. Current valuations factor in extreme pessimism and hence we do not foresee any significant downside from current levels

Financial sum m ary (CMP: Rs 107)Y/E Sales EBITDA Adj.PAT Consensus EPS RoE RoCE PE EV/E EV/Net Sales

March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) (%) (%) (x) (x) (x)

FY13 15,255 2,952 2,551 - 8.1 24.5 18.5 - - -

FY14E 16,723 3,727 2,265 7.0 7.2 30.3 11.4 14.9 9.9 2.2

FY15E 18,785 4,465 2,585 8.1 8.2 23.1 19.2 13.1 8.1 1.9

FY16E 20,890 5,055 2,997 9.3 9.5 23.1 19.2 11.3 6.9 1.7

Source: *Consensus broker estimates, Company, Axis Capital

16 MAY 2014

Jagran Prakashan MEDIA

53

Jain Irrigation

Sharp improvement in micro-irrigation cash conversion cycle to 230 days (4-year low) in FY14E from 404 days in FY13 led by cash-n-carry model in Maharashtra and increase in revenue from progressive states and institutional business. In fact, incremental working capital at current growth is expected at Rs 1 bn p.a. (vs. average of Rs 4.6 bn p.a. over FY10-14E), thus enabling free cash flow generation of Rs ~12 bn over next 2 years

Growth triggers in place; rupee appreciation to aid margin stability: We build in 19% revenue CAGR (management expectation of 25% CAGR) in MIS over next 2 years led by (a) drip irrigation being made mandatory on all cash crops in Maharashtra from June 2015 (estimated market potential of Rs 90 bn from Sugarcane alone), (b) several states creating opportunities to implement large scale micro irrigation projects and (c) rising inclination of farmers to adopt MIS given the yield improvement and labor/water shortage issues. Management is guiding for margin improvement in FY15 vs. our stable outlook

3x increase in profit over next 2 years: Micro irrigation (MIS) revenue visibility has improved with continued growth in Maharashtra post change in business model and sharp increase in institutional business. This is translating into a rapid improvement in cash conversion cycle for MIS segment and balance sheet de-leveraging. Thus earnings before tax are likely to increase by 3x in the next 2 years to Rs 4.8 bn by FY16E, due to reduction in interest burden, as against EBITDA growth of 15% CAGR over FY14-16E.



FY13 49,169 1,132 - 2.5 (74.0) - 5.8 9.3 - -

FY14E 59,017 1,381 3.4 3.0 20.0 29.9 6.2 9.6 9.8 -

FY15E 68,061 2,586 5.9 5.6 87.2 15.9 10.9 10.9 8.4 -

FY16E 77,685 3,768 8.3 8.1 45.7 10.9 14.3 12.7 7.1 -


16 MAY 2014

Jain Irrigation MIDCAPS

54

JK Cement

50% expansion in both grey and white cement at an opportune time

3 mnt expansion in Rajasthan (with grinding unit in Haryana) expected to come in H1FY15 will cater to Northern India, a high-growth and no significant overcapacity region

FY16 EBITDA to rise 3x vs. FY14 levels led by FY14-16 volume CAGR of 20% in grey cement and sustained strong profitability in white cement business

White cement a high growth oligopoly market in India (JKCE and UltraTech)

Demand growth of 10% in white cement and 25% in wall putty

Extremely strong pricing power led by oligopoly market and strong volume growth

Attractive valuation: Stock trading at EV/ton of USD 40 vs large cap players at USD 120-150

EBITDA to rise 3x by FY16 led by expansions


0

2

4

6

8

10

FY11 FY12 FY13 FY14E FY15E FY16E

(Rs bn)

Grey White

Financial sum m ary (CMP: Rs 241)Y/E Sales EBITDA Adj.PAT EPS Chg PE RoE EV/E EV/ton Div Yield

March (Rs mn) (Rs mn) (Rs mn) (Rs) YoY (%) (x) (%) (x) (USD) (%)

FY13 29,120 5,578 2,301 32.9 25.3 - 14.3 - 2.7

FY14E 28,280 3,069 391 6 (83) 43 2 10.1 40.0 1.1

FY15E 35,804 5,709 1,736 25 344 10 10 5.0 43 1.4

FY16E 47,231 8,636 2,563 37 48 7 13 4.9 39 2.5


16 MAY 2014

JK Cement CEMENT

55

Focus charts

More that 3x rise in capacity since FY04

White cement realization growth is non-cyclical and secular

Source: Company

Source: Company

7.5

2.8

0.8 0.5

0.5 3.0

3.0

0

2

4

6

8

10

12

FY'04 FY'05 FY'07 FY'09 FY'10 FY'15E

(mnt)

7,000

8,000

9,000

10,000

11,000

12,000

13,000

2,900

3,100

3,300

3,500

3,700

3,900

4,100

FY09 FY10 FY11 FY12 FY13 FY14

(Rs)(Rs)

Grey White (RHS)

Locat ion Detai l s

Gotan (Rajasthan)

White : 0.6 mnt,

Wal l p u t t y: 0.5 mnt,

Grey: 0.5 mnt

Nimbahera (Rajasthan) Grey: 3.3 mnt

Mangrol (Rajasthan)

Grey: currently 0.75 mnt,

brownfield expansion of 3 mnt

in progress

Muddapur (Karnataka) Grey: 3 mnt

Fujairah (UAE)White cement : 0.6 mnt/

grey cement : 1.0 mnt

JK Cements geographical presence

Gotan Nagaur (Rajasthan)

Nimbahera Chittorgarh (Rajasthan)

Mangrol Chittorgarh (Rajasthan)

Muddapur Bagalkot (Karnataka)

16 MAY 2014

JK Cement CEMENT

56

Just Dial

Higher economic growth will aid customer additions and importantly, reduce churn

Higher economic growth will translate to improvement in SME health. This has two key implications:

Just Dial will be able to realise higher growth in customers, and

Pricing power will come back, as SMEs will allocate higher budgets for ad spends

Churn, which is currently at 40-45% (and has been so in the last few years) is likely to come down any reduction in churn will directly help growth in customer base

Success in high potential transaction services (search plus) will be a key re-rating trigger

Just Dial has already soft launched Search plus services, however they will be monetized only from FY16. The monetization will follow build-up of traffic for these services, which is expected in FY15 (JUST intends to spend Rs 0.6-1 bn in H2FY15 to market these services)

Successful ramp up of these products will create non-linear revenue streams apart from increasing user engagement and customer stickiness. JUST is well positioned to enter these verticals as go-to-market can speed up by tapping its established database of ~12 mn listings

Virtuous cycle (higher number of customers drive searches and vice versa) being constantly strengthened

22% CAGR in customers (paid listings) over FY14-16

~1,000 feet-on-street employees maintain personalized relationships with SMEs, helping acquire new or convert existing listings to paid; this also acts as a deterrent to competition (both local and global)

Increasing awareness among SMEs on Internets potential for quality lead generation (compared to other media) and geography diversification (90%+ revenue is from top 11 cities)

Higher user engagement targeted through launch of user reviews, ratings etc

These features will build on the already strong brand image of delivering quick and accurate data to the users

Strengthen JUSTs competitive positioning among other local search/ e-commerce platforms

16 MAY 2014

Just Dial INTERNET

57

Just Dial

Upside triggers

Traction in JUSTs new products can result in non-linear revenue streams

Getting acquired

International expansion (management indicated unlikely in medium term), and

Higher dividend pay-out

Financial sum m ary (CMP: Rs 1128)Y/E Sales Adj.PAT Adj.EPS Chg PE RoE RoCE EV/E DPS

March (Rs mn) (Rs mn) (Rs) YoY (%) (x) (x) (%) (x) (Rs)

FY13 3,628 700 10 28 - 26 32 - -

FY14 4,613 1,206 17 7

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