India Daily, October 19, 2018 - Kotak Securities › pdf › indiadaily › indiadaily1910201… · tax rate. Jio’s revenues and EBITDA increased 14% qoq to `92.4 bn and `35.7 bn

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

Contents

Daily Alerts

Results

Reliance Industries: More of the same

Havells India: Strong topline performance but cable business margins below expectations

ACC: A weak quarter - improvements fade

Mindtree: Reality check

Mahindra CIE Automotive: Decent quarter

DCB Bank: NIM pressure continues

Sector alerts

Media: Jio set to disrupt TV distribution

Telecom: R-Jio 2QFY19: ahead of Bharti on net wireless revenues?

INDIA DAILY October 19, 2018 India 17-Oct 1-day 1-mo 3-mo

Sensex 34,780 (1.1) (6.7) (4.4)

Nifty 10,453 (1.2) (7.3) (4.8)

Global/Regional indices

Dow Jones 25,379 (1.3) (3.9) 1.3

Nasdaq Composite 7,485 (2.1) (5.8) (4.3)

FTSE 7,027 (0.4) (4.1) (8.6)

Nikkei 22,228 (1.9) (6.1) (2.4)

Hang Seng 25,455 (0.0) (7.1) (9.1)

KOSPI 2,129 (0.9) (7.8) (6.7)

Value traded – India

Cash (NSE+BSE) 365 416 387

Derivatives (NSE) 20,897 7,946 7,465

Deri. open interest 3,986 4,206 3,887

Forex/money market

Change, basis points

17-Oct 1-day 1-mo 3-mo

Rs/US$ 73.7 (9) 172 478

10yr govt bond, % 8.1 - (21) (2)

Net investment (US$ mn)

16-Oct MTD CYTD

FIIs (146) (2,500

) (4,505)

MFs 37 1,522 15,305

Top movers

Change, %

Best performers 17-Oct 1-day 1-mo 3-mo

ARBP IN Equity 756 (2.5) (2.5) 33.2

DRRD IN Equity 2,565 (0.3) (1.6) 26.4

ACC IN Equity 1,540 (0.9) (1.5) 20.8

DIVI IN Equity 1,301 (0.5) (6.5) 20.7

ICICIBC IN Equity 315 (1.8) (1.9) 20.5

Worst performers

JPA IN Equity 7 (7.5) (28.0) (54.2)

UT IN Equity 2 (2.2) (27.9) (45.7)

YES IN Equity 232 (6.8) (27.3) (40.9)

TTMT IN Equity 180 (3.2) (28.8) (28.7)

TTMT/A IN Equity 100 (1.2) (26.7) (28.4)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Broadly in-line results, as higher petchem and retail contribution was offset by weak refining

Standalone EBITDA was 1.6% above our estimate at `148.9 bn, declining 2% qoq as higher

petchem contribution was offset by expectedly weaker refining; net income was 7% above our

estimate though at `88.6 bn, gaining from unanticipated decline in the tax rate to 24.6% from

28.4% in 1QFY19. Consolidated EBITDA and net income were in line with our expectations at

`211.1 bn and `95.2 bn (EPS of `16.1), as higher standalone and retail contribution was offset

by lower-than-expected EBITDA from Jio and sharply lower other income was offset by a lower

tax rate. Jio’s revenues and EBITDA increased 14% qoq to `92.4 bn and `35.7 bn as healthy

net addition to subscriber base (252.3 mn now) was offset by a sharp rise in operating costs.

Further increase in capex (`392 bn), C-WIP (`2.32 tn), net debt (`2.84 tn) and Jio’s BS (`2.89 tn)

Gross capex increased substantially to `392 bn (US$5.6 bn), including `130 bn on standalone,

`160 bn on Jio, ~`10 bn each on retail and shale and ~`80 bn on others, including a strategic

transaction with Saavn. Overall capital-WIP and intangible assets under development increased

to `2.32 tn (US$32 bn), including `1.18 tn (US$16 bn) pertaining to the standalone entity.

Effective net debt increased to `2.84 tn (US$39 bn) from `2.35 tn (US$36 bn) two quarters

ago. Jio’s balance sheet increased to `2.89 tn from `2.54 tn at end-FY2018. RIL also

announced the acquisition of 66% stake in Den Networks for `22.9 bn and 51.3% stake in

Hathway Cable and Datacom for `29.4 bn, which will enable it to expedite the rollout of

JioGigaFiber services.

Fine-tune EPS estimates and raise target price to `1,070 on higher retail value and rollover

We revise RIL’s FY2019-21 consolidated EPS to `67.3 (-3%), `78.4 (+0.5%) and `87.3 (+1%),

factoring in (1) weaker Rupee-US Dollar exchange rate, (2) higher realized petchem margins,

(3) higher retail contribution, (4) modestly lower refining margins, (5) lower Jio contribution and

(5) other minor changes. Our SoTP-based TP increases to `1,070 from `985, led by an increase

in the valuation of retail business and rollover to September 2020 estimates.

Reiterate SELL—expensive on any intrinsic valuation framework

We reiterate SELL given our concerns on persisting high capex, non-contributing C-WIP and

rising debt levels, all of which constrain a sustainable improvement in return ratios and free cash

flows in the medium term. The recent deterioration in refining and petchem margins may

compound woes in the near term. We find the stock expensive at 9.7X FY2020E EBITDA, 14.7X

FY2020E EPS and 2.1X March 2019E BVPS, adequately factoring in a strong medium-term

growth, while ignoring uninspiring return metrics of 8-9% RoCEs, 9-10% CRoCI and 12% RoE.

Reliance Industries (RIL)

Energy

More of the same. RIL’s results were broadly in line with our expectations as higher

contribution from petchem and retail businesses was offset by lower-than-expected

EBITDA from Jio and weakness in the refining segment; reported profits gained from a

sharp moderation in the tax rate. Capex, C-WIP, net debt and Jio’s BS exhibited no sign

of moderation, with all increasing substantially during 1HFY19 contrary to the Street’s

expectations. SELL stays with a revised SoTP-based TP of `1,070 (`985 earlier).

SELL

OCTOBER 19, 2018

RESULT

Coverage view: Attractive

Price (`): 1,151

Target price (`): 1,070

BSE-30: 34,780

Tarun Lakhotia

Rohit Chordia

Reliance Industries

Stock data Forecasts/Valuations 2019E 2020E 2021E

52-week range (Rs) (high,low) EPS (Rs) 67.3 78.4 88.4

Market Cap. (Rs bn) EPS growth (%) 13.9 16.5 12.7

Shareholding pattern (%) P/E (X) 17.1 14.7 13.0

Promoters 46.2 Sales (Rs bn) 5,564.1 5,711.4 5,913.6

FIIs 26.4 Net profits (Rs bn) 398.8 464.6 523.6

MFs 3.2 EBITDA (Rs bn) 845.6 1,020.3 1,221.8

Price performance (%) 1M 3M 12M EV/EBITDA (X) 11.6 9.7 8.2

Absolute (6.1) 5.4 31.7 ROE (%) 11.8 12.3 12.3

Rel. to BSE-30 1.5 10.7 23.5 Div. Yield (%) 0.5 0.6 0.6

Company data and valuation summary

1,329-862

6,813.4

Reliance Industries Energy

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Exhibit 1: Consolidated interim results of RIL, March fiscal year-ends (` mn)

Source: Company, Kotak Institutional Equities estimates

(% chg.)

2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 1HFY19 1HFY18 (% chg.) FY2019E

Net sales 1,433,230 1,463,506 914,810 1,287,560 (2.1) 56.7 11.3 2,720,790 1,749,520 55.5 5,564,142

Total expenditure (1,222,150) (1,253,487) (759,160) (1,080,950) (2.5) 61.0 13.1 (2,303,100) (1,468,330) 56.9 (4,718,568)

Inc/(Dec) in stock 55,760 2,360 48,100 103,860 6,260 —

Raw materials (1,060,550) (1,068,219) (615,690) (948,110) (0.7) 72.3 11.9 (2,008,660) (1,200,890) 67.3 (3,920,085)

Staff cost (29,270) (29,753) (22,600) (29,510) (1.6) 29.5 (0.8) (58,780) (47,150) 24.7 (116,571)

Other expenditure (188,090) (155,515) (123,230) (151,430) 20.9 52.6 24.2 (339,520) (226,550) 49.9 (681,912)

EBITDA 211,080 210,019 155,650 206,610 0.5 35.6 2.2 417,690 281,190 48.5 845,574

Other income 12,500 18,158 23,170 17,780 (31.2) (46.1) (29.7) 30,280 44,410 (31.8) 72,264

Finance cost (39,320) (37,166) (22,720) (35,500) 5.8 73.1 10.8 (74,820) (33,910) 120.6 (138,859)

DD&A expense (52,290) (53,576) (42,870) (51,730) (2.4) 22.0 1.1 (104,020) (73,240) 42.0 (210,935)

Pretax profits 131,970 137,435 113,230 137,160 (4.0) 16.6 (3.8) 269,130 218,450 23.2 568,044

Extraordinaries — — — — — 10,870 —

Current tax (29,170) (30,155) (24,530) (30,070) (3.3) 18.9 (3.0) (59,240) (47,740) 24.1 (151,306)

Deferred tax (7,320) (12,450) (7,870) (12,340) (19,660) (10,100) (17,697)

Net income 95,480 94,830 80,830 94,750 0.7 18.1 0.8 190,230 171,480 10.9 399,041

Share of profit/(loss) of associates 10 130 140 100 110 280 700

Minority interest (330) (280) 120 (260) (590) 410 (950)

Adjusted net income 95,160 94,680 81,090 94,590 0.5 17.4 0.6 189,750 161,300 17.6 398,791

Adjusted EPS (Rs) 16.1 16.0 13.7 16.0 0.5 17.4 0.6 32.1 27.3 17.6 67.4

Other comprehensive income (after tax) (20,740) (7,650) (15,740) (36,480) 2,140

Total comprehensive income (after tax) 74,420 73,440 78,850 1.3 (5.6) 153,270 163,440 (6.2)

Effective tax rate (%) 27.7 31.0 28.6 30.9 29.3 26.5 29.8

Petchem production

Polymer volumes ('000 tons) 1,408 1,437 1,180 1,421 (2.0) 19.3 (0.9) 2,829 2,158 31.1 5,517

Polyester volumes ('000 tons) 740 723 714 738 2.4 3.6 0.3 1,478 1,378 7.3 2,586

Fiber intermediates ('000 tons) 2,754 2,532 2,370 2,504 8.8 16.2 10.0 5,258 4,612 14.0 9,762

Refining

Crude throughput (mn tons) 17.7 17.8 18.1 16.6 (0.6) (2.2) 6.6 34.3 35.4 (3.1) 70.0

Refining margin (US$/bbl) 9.5 9.5 12.0 10.5 - (20.8) (9.5) 9.9 11.9 (16.8) 10.3

Average exchange rate (Rs/US$) 70.1 70.1 64.3 67.0 9.0 4.6 68.6 64.4 6.4 69.9

Segment results

Revenues

Petrochemicals 437,450 279,990 402,870 56.2 8.6 840,320 534,600 57.2

Refining & marketing 987,600 697,660 956,460 41.6 3.3 1,944,060 1,367,110 42.2

Oil & gas 13,220 15,030 14,320 (12.0) (7.7) 27,540 28,270 (2.6)

Organized retail 324,360 146,460 258,900 121.5 25.3 583,260 262,170 122.5

Digital 109,420 72,130 96,530 51.7 13.4 205,950 73,590 179.9

Others 55,370 24,590 29,680 125.2 86.6 85,050 62,240 36.6

Gross turnover 1,927,420 1,235,860 1,758,760 56.0 9.6 3,686,180 2,327,980 58.3

Inter segment 364,510 224,170 341,770 62.6 6.7 706,280 410,920 71.9

Excise duty 102,730 60,840 86,300 189,030 131,500 43.7

Net sales 1,460,180 950,850 1,330,690 53.6 9.7 2,790,870 1,785,560 56.3

Operating costs

Petrochemicals 356,250 230,390 324,300 54.6 9.9 680,550 444,690 53.0


Oil & gas 18,020 17,750 18,790 1.5 (4.1) 36,810 34,720 6.0


Digital 89,000 69,520 79,380 28.0 12.1 168,380 71,200 136.5

Others 52,230 21,920 25,720 138.3 103.1 77,950 57,080 36.6

Total 1,761,800 1,114,150 1,599,710 58.1 10.1 3,361,510 2,089,740 60.9

EBIT

Petrochemicals 81,200 49,600 78,570 63.7 3.3 159,770 89,910 77.7

Refining & marketing 53,220 66,210 53,150 (19.6) 0.1 106,370 140,970 (24.5)

Oil & gas (4,800) (2,720) (4,470) 76.5 7.4 (9,270) (6,450) 43.7


Digital 20,420 2,610 17,150 682.4 19.1 37,570 2,390 1,472.0

Others 3,140 2,670 3,960 17.6 (20.7) 7,100 5,160 37.6

Total 165,620 121,710 159,050 36.1 4.1 324,670 238,240 36.3

Assets

Petrochemicals 1,332,950 1,159,690 1,263,890 14.9 5.5 1,332,950 1,159,690 14.9

Refining & marketing 2,189,670 1,907,360 2,119,070 14.8 3.3 2,189,670 1,907,360 14.8

Oil & gas 388,540 421,730 380,880 (7.9) 2.0 388,540 421,730 (7.9)


Digital 2,910,860 2,280,320 2,679,170 27.7 8.6 2,910,860 2,280,320 27.7

Others 659,950 197,360 641,860 234.4 2.8 659,950 197,360 234.4

Unallocated corporate 1,230,010 1,395,760 1,269,290 (11.9) (3.1) 1,230,010 1,395,760 (11.9)

Total 9,028,890 7,520,240 8,652,370 20.1 4.4 9,028,890 7,520,240 20.1

Liabilities

Petrochemicals 828,440 573,090 808,430 44.6 2.5 828,440 573,090 44.6

Refining & marketing 1,865,430 1,402,140 1,763,330 33.0 5.8 1,865,430 1,402,140 33.0

Oil & gas 510,410 586,920 490,360 (13.0) 4.1 510,410 586,920 (13.0)


Digital 1,852,520 1,395,640 1,693,950 32.7 9.4 1,852,520 1,395,640 32.7

Others 108,380 28,610 113,090 278.8 (4.2) 108,380 28,610 278.8

Unallocated corporate 3,672,900 3,443,950 3,606,650 6.6 1.8 3,672,900 3,443,950 6.6

Total 9,028,890 7,520,240 8,652,370 20.1 4.4 9,028,890 7,520,240 20.1

Energy Reliance Industries

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 2: Standalone interim results of RIL, March fiscal year-ends (` mn)


(% chg.)

2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 1HFY19 1HFY18 (% chg.) FY2019E

Net sales 961,670 1,005,390 685,320 911,590 (4.3) 40.3 5.5 1,873,260 1,327,490 41.1 4,271,416

Total expenditure (812,750) (858,866) (555,490) (760,050) (5.4) 46.3 6.9 (1,572,800) (1,081,770) 45.4 (3,665,485)

Inc/(Dec) in stock 57,420 — (9,240) 22,990 80,410 (3,690) —

Raw materials (765,400) (756,419) (474,730) (681,930) 1.2 61.2 12.2 (1,447,330) (913,070) 58.5 (3,239,856)

Staff cost (14,930) (14,720) (11,820) (14,800) 1.4 26.3 0.9 (29,730) (23,520) 26.4 (56,880)

Other expenditure (89,840) (87,727) (59,700) (86,310) 2.4 50.5 4.1 (176,150) (141,490) 24.5 (368,749)

EBITDA 148,920 146,524 129,830 151,540 1.6 14.7 (1.7) 300,460 245,720 22.3 605,931

Other income 20,120 19,811 20,570 20,680 1.6 (2.2) (2.7) 40,800 39,750 2.6 81,362

Finance cost (24,170) (22,471) (13,140) (21,380) 7.6 83.9 13.0 (45,550) (21,020) 116.7 (79,035)

DD&A expense (27,450) (28,060) (22,680) (27,620) (2.2) 21.0 (0.6) (55,070) (44,260) 24.4 (108,350)

Pretax profits 117,420 115,804 114,580 123,220 1.4 2.5 (4.7) 240,640 220,190 9.3 499,907

Extraordinaries — — — — — — —

Current tax (23,730) (22,854) (22,940) (24,980) 3.8 3.4 (5.0) (48,710) (43,860) 11.1 (122,708)

Deferred tax (5,100) (10,150) (8,990) (10,040) (15,140) (11,720) (12,172)

Reported net income 88,590 82,800 82,650 88,200 7.0 7.2 0.4 176,790 164,610 7.4 365,028

Adjusted net income 88,590 82,800 82,650 88,200 7.0 7.2 0.4 176,790 164,610 7.4 365,028

Adjusted EPS (Rs) 14.0 13.1 12.7 13.6 27.9 25.3 57.6

Other comprehensive income (after tax) (12,510) 6,540 (1,880) (27,500) (10,520)

Total comprehensive income (after tax) 76,080 83,580 80,080 149,290 154,090

Effective tax rate (%) 24.6 28.5 27.9 28.4 26.5 25.2 27.0

Petchem production

Polymer volumes ('000 tons) 1,408 1,437 1,180 1,421 (2.0) 19.3 (0.9) 2,829 2,158 31.1 5,517

Polyester volumes ('000 tons) 740 723 714 738 2.4 3.6 0.3 1,478 1,378 7.3 2,586

Fiber intermediates ('000 tons) 2,754 2,532 2,370 2,504 8.8 16.2 10.0 5,258 4,612 14.0 9,762

Refining

Crude throughput (mn tons) 17.7 17.8 18.1 16.6 (0.6) (2.2) 6.6 34.3 35.4 (3.1) 70.0

Refining margin (US$/bbl) 9.5 9.5 12.0 10.5 — (20.8) (9.5) 9.9 11.9 (16.8) 10.3

Average exchange rate (Rs/US$) 70.1 70.1 64.3 67.0 — 9.0 4.6 68.6 64.4 6.4 69.9

Upstream production

Crude oil production (000 tons) 50 48 73 57 2.8 (32.0) (12.9) 107 149 (28.2) 235

Gas production (bcf) 13 15 17 15 (13.9) (24.3) (14.4) 28 34 (16.4) 61

Segment results

Revenues

Petrochemicals 430,220 268,260 389,540 60.4 10.4 819,760 509,090 61.0


Oil & gas 7,360 7,600 7,540 (3.2) (2.4) 14,900 13,420 11.0

Others 4,950 3,110 3,070 59.2 61.2 8,020 6,400 25.3

Gross turnover 1,257,240 872,210 1,213,940 44.1 3.6 2,471,180 1,711,170 44.4

Inter segment 226,380 120,560 220,760 87.8 2.5 447,140 255,180 75.2

Excise duty/GST 42,240 34,040 38,460 24.1 9.8 80,700 96,210 (16.1)

Net sales 988,620 717,610 954,720 37.8 3.6 1,943,340 1,359,780 42.9

Operating costs

Petrochemicals 350,480 219,130 312,090 59.9 12.3 662,570 420,120 57.7


Oil & gas 9,220 8,560 9,990 7.7 (7.7) 19,210 16,690 15.1

Others 4,890 1,880 2,690 160.1 81.8 7,580 3,850 96.9

Total 1,127,730 757,490 1,086,350 48.9 3.8 2,214,080 1,493,850 214.5

EBIT

Petrochemicals 79,740 49,130 77,450 62.3 3.0 157,190 88,970 76.7

Refining & marketing 51,570 65,320 52,210 (21.1) (1.2) 103,780 129,070 (19.6)

Oil & gas (1,860) (960) (2,450) 93.8 (24.1) (4,310) (3,270) 31.8

Others 60 1,230 380 (95.1) (84.2) 440 2,550 (82.7)

Total 129,510 114,720 127,590 12.9 1.5 257,100 217,320 18.3

Interest expense (24,170) (13,140) (21,380) 83.9 13.0 (45,550) (21,020) 116.7

Interest income 14,200 9,420 15,490 50.7 (8.3) 29,690 17,860 66.2

Other unallocable (net) (2,120) 3,580 1,520 (600) 6,030

PBT 117,420 114,580 123,220 2.5 (4.7) 240,640 220,190 9.3

Current tax (23,730) (22,940) (24,980) (48,710) (43,860)

Deferred tax (5,100) (8,990) (10,040) (15,140) (11,720)

PAT 88,590 82,650 88,200 7.2 0.4 176,790 164,610 7.4



Exhibit 3: Interim performance of Jio, March fiscal year-ends (` mn)


Performance of key business segments

Flat refining EBIT as lower margins were offset by higher throughput and a

weaker Rupee. 2QFY19 refining segment EBIT remained flat sequentially at `53.2 bn led

by (1) sequential decline in refining margins to US$9.5/bbl (-US$1/bbl qoq) and

(2) increase in crude throughput to 17.7 mn tons.

Exhibit 4: Quarterly performance of refining segment, March fiscal year-ends, 1QFY17 onwards

Source: Company, Kotak Institutional Equities

RIL’s premium over Singapore benchmark margins moderated to US$3.4/bbl from US$4.5/bbl in 1QFY19, driven by (1) unplanned shutdown of FCCU, which resulted in lower gasoline production, (2) lower light-heavy differentials due to higher fuel oil spreads and (3) lower gasoline spreads, which were partly offset by the increase in yields of middle distillates, including gasoil.

(% chg.)

2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 FY2019E FY2018 (% chg.)

Profit model

Revenues 92,400 90,987 61,471 81,091 1.6 50.3 13.9 396,277 201,545 97

Interconnect (10,460) (10,411) (21,399) (10,570) 0.5 (51.1) (1.0) (41,672) (42,874) (3)

LF/SUC (9,830) (9,091) (3,990) (8,602) 8.1 146.4 14.3 (42,759) (17,674) 142

Network operating costs (26,040) (23,750) (13,719) (21,429) 9.6 89.8 21.5 (109,033) (49,209) 122

Employee costs (4,060) (4,000) (3,031) (3,677) 1.5 33.9 10.4 (16,438) (9,634) 71

SG&A and other costs (6,290) (5,700) (4,914) (5,353) 10.4 28.0 17.5 (27,107) (14,850) 83

EBITDA 35,720 38,035 14,418 31,460 (6.1) 147.8 13.5 159,268 67,304 137

Other income 10 16 17 14 167 39

Finance cost (9,960) (8,250) (6,734) (7,676) 20.7 47.9 29.8 (42,666) (20,486) 108

Depreciation and amortization (15,310) (15,800) (11,839) (14,394) (3.1) 29.3 6.4 (63,558) (35,765) 78

Profit before taxes 10,460 14,001 (4,138) 9,405 (25.3) (352.8) 11.2 53,210 11,091 380

Extraordinaries — — — — — —

Current tax (2,250) (3,267) — (2,027) (12,803) (2,345)

Deferred tax (1,400) (1,625) 1,432 (1,259) (5,767) (1,517)

Net income/(loss) 6,810 9,109 (2,706) 6,119 (25.2) (351.7) 11.3 34,640 7,230 379

Contribution to RIL's EPS (Rs) 1.1 1.5 (0.5) 1.0 (25.2) (351.7) 11.3 5.8 1.2 379

Operational metrics

EOP subscribers (mn) 252.3 251.3 138.6 215.3 0.4 82.0 17.2 319.5 186.8 71

Average subscribers (mn) 233.8 233.3 131.0 201.0 0.2 78.5 16.3 253.1

ARPU (Rs/month) 131.7 130.0 156.4 134.5 1.3 (15.8) (2.1) 130.5 134.4 (3)

EBITDA margins (%) 38.7 41.8 23.5 38.8 40.2 33.4

Data consumption (bn GB) 7.71 7.56 3.78 6.42 2.0 104.0 20.1 33.45 13.15 154

Data consumption per user (GB/month) 11.0 10.8 9.6 10.6 1.8 14.3 3.2 11.0 9.7 14

Voice consumption (bn min) 534 528 246 449 1.0 117.2 18.9 2,315 929 149

Voice consumption per user (min/month) 761 755 625 744 0.8 21.7 2.2 762 678 12

Net addition to subscribers (mn) 37.0 36.0 15.2 28.7 2.8 143.4 28.9

Tax rate (%) 34.9 34.9 34.6 34.9 34.9 34.8

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

Financials (Rs mn)

Revenues 489,460 518,380 532,150 638,630 589,020 593,240 638,060 743,290 956,460 987,600

EBITDA 73,810 67,210 69,770 73,020 71,300 72,820 68,760 64,050 61,310 60,940

DD&A 8,000 8,200 8,500 10,400 7,550 7,500 8,000 8,160 8,160 7,720

EBIT 65,810 59,010 61,270 62,620 63,750 65,320 60,760 55,890 53,150 53,220

Operating metrics

Crude throughput (mn tons) 16.8 18.0 17.8 17.5 17.3 18.1 17.7 16.7 16.6 17.7

Refining margin (US$/bbl) 11.5 10.1 10.8 11.5 11.9 12.0 11.6 11.0 10.5 9.5

Refining operating costs (US$/bbl) 2.5 2.5 2.8 3.0 3.1 3.4 3.4 2.8 2.9 2.8

Exchange rate (Rs/US$) 66.9 67.0 67.4 67.1 64.5 64.3 64.7 64.4 67.0 70.0



Exhibit 5: RIL's premium over Singapore refining margins declined in 2QFY19 RIL's refining margins versus Singapore benchmark, 1QFY10 onwards (US$/bbl)


Further increase in petchem EBIT despite a sharp fall in regional margins. 2QFY19

petchem segment EBIT increased further by 3% qoq to `94.8 bn despite a sharp fall in

Asian benchmark margins for all key products, except PX, PTA and POY.

Exhibit 6: Quarterly performance of petrochemicals segment, March fiscal year-ends, 1QFY17 onwards


The company managed to realize higher margins versus Asian benchmarks due to (1) feedstock flexibility, which allowed RIL to opportunistically switch to low-cost ethane from naphtha amid rising crude prices, (2) lower realized cost of ethane due to favorable hedges, a portion of which may continue up to FY2020 and (3) stronger margins for PX, PTA and POY. The management indicated that the cumulative benefits from these adequately mitigated the decline in margins across all other petchem chain products.

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Reuters Singapore complex margins RIL's premium over benchmark margins Arab light-heavy differential


Financials (Rs mn)

Revenues 194,090 212,930 216,900 252,310 240,830 268,260 325,330 381,130 402,870 437,450

EBITDA 38,010 44,240 43,590 45,540 50,520 61,310 69,640 77,300 92,110 94,770

DD&A 9,000 9,600 10,000 11,000 10,680 12,180 13,050 13,860 13,540 13,570

EBIT 29,010 34,640 33,590 34,540 39,840 49,130 56,590 63,440 78,570 81,200

Production volumes ('000 tons)

PP 703 716 595 636 646 710 697 746 702 698

PE 276 282 274 255 176 279 401 530 530 520

PVC 167 188 185 178 156 191 175 190 189 190

Polymer volumes 1,146 1,186 1,054 1,069 978 1,180 1,273 1,466 1,421 1,408

POY 189 195 207 157 232 271 210 251 277 279

PSF 160 163 159 208 175 176 162 168 170 172

PET 164 236 231 215 257 267 252 283 291 289

Polyester volumes 513 594 597 580 664 714 624 702 738 740

PX 549 535 501 701 899 918 975 944 909 1,124

PTA 819 1,017 1,064 1,016 1,180 1,236 1,005 1,155 1,164 1,215

MEG 165 187 170 168 163 216 367 428 431 415

Fiber intermediates 1,533 1,739 1,735 1,885 2,242 2,370 2,347 2,527 2,504 2,754

Gross production (mn tons) 6.1 6.4 6.2 6.2 6.9 7.9 8.0 9.2 9.2 9.4

Unit EBITDA on production (US$/ton) 93 103 104 109 114 121 135 130 149 144


Notes:

(a) Volumes for 1QFY18, 2QFY18, 4QFY18, 1QFY19 and 2QFY19 include Recron Malaysia.



Exhibit 7: Benchmark margins for key petchem products declined in 2QFY19 Asia petchem margins and prices, March fiscal year-ends, 1QFY17 onwards

Source: Platt’s, Kotak Institutional Equities

RIL’s polymer production declined 1% qoq to 1.41 mn tons in 2QFY19, reflecting modestly lower polyethylene volumes. Polyester production remained flat qoq at 0.74 mn tons, while fiber intermediates volumes jumped 10% qoq to 2.75 mn tons led by a ramp-up in utilization of PX plant. The company indicated that volumes are unlikely to increase much from here, with all projects running on full capacity now. Domestic demand for polymers and polyesters grew strongly by 7-14% yoy in 2QFY19.

27% qoq growth in retail revenues, excluding Jio and fuel. RIL’s retail segment

delivered 25% qoq jump in revenues to `324 bn, driven by robust growth across product

categories and increase in Jio-related revenues. Revenues, excluding Jio-related recharges

and fuel retailing (CoCo outlets), increased by a significant 147% yoy despite relatively

moderate 30% jump in footfalls indicating near-doubling of average customer spends. EBITDA increased a tad slower by 15% qoq to `13.9 bn reflecting 40 bps moderation in margins to 4.3%; EBIT increased 16% qoq to `12.4 bn led by a 30 bps decline in margins to 3.8%. Retail revenues included (1) 34% from Jio-related recharges and (2) 9% from fuel retailing, both of which are less than 2% EBITDA margins business. The management indicated that EBITDA margins, excluding Jio and fuel business, moderated to 6.3% from 6.8% in 1QFY19. Retail store count increased by 78 to 4,081, while Jio Points increased by 535 to 5,065; retail space increased by 0.9 mn sq. ft to 19.5 mn sq. ft currently.

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 yoy qoq

Global margins

HDPE – naphtha 750 702 697 630 666 618 626 626 595 544 (12.0) (8.7)

LLDPE – naphtha 743 718 728 656 661 649 636 601 564 479 (26.2) (15.1)

PP – naphtha 560 569 564 530 541 564 575 598 593 577 2.4 (2.7)

PVC – naphtha 407 403 482 430 441 454 370 326 329 293 (35.4) (10.7)

PSF – naphtha 647 650 636 652 801 820 691 686 673 641 (21.9) (4.8)

PFY – naphtha 873 815 799 811 921 1,001 956 997 991 941 (6.1) (5.1)

PX – naphtha 382 394 352 357 365 351 303 339 338 389 10.7 15.2

Global prices

HDPE 1,143 1,100 1,122 1,131 1,128 1,053 1,169 1,214 1,216 1,196 13.6 (1.6)

LLDPE 1,137 1,116 1,153 1,157 1,123 1,084 1,179 1,188 1,184 1,132 4.4 (4.4)

PP 953 967 990 1,031 1,003 999 1,117 1,185 1,213 1,230 23.1 1.4

PVC 801 801 908 930 903 889 912 913 949 946 6.4 (0.3)

PSF 1,040 1,048 1,062 1,153 1,263 1,255 1,233 1,273 1,293 1,293 3.1 -

PFY 1,267 1,213 1,225 1,312 1,383 1,437 1,498 1,585 1,612 1,593 10.9 (1.1)

PX 776 792 778 858 828 787 845 926 958 1,042 32.4 8.8

Change (%)



Exhibit 8: Robust growth in revenues and EBIT from retail operations Key operating metrics and financials for RIL's retail operations, 1QFY18 onwards (` bn)


13-14% qoq increase on Jio’s revenues and EBITDA amid modest 2% decline in

ARPUs and 37 mn net additions to subscriber-base. Jio’s revenues increased 13.9%

qoq to `92.4 bn in 2QFY19, 1.6% ahead of our estimate driven by a lower-than-

expected 2% qoq decline in ARPU to `131.7/month, notwithstanding the rising

proportion of JioPhone customers. Jio’s EBITDA and net income increased 13.5% and

11.3% qoq to `35.7 bn and `6.8 bn, as higher revenues were partially offset by an

increase in operating costs, interest expense and depreciation and amortization charges. The subscriber base increased by 37 mn (net) to 252.3 mn as on September 30, 2018, in line with our expectations. Operational metrics improved further with a 3% qoq increase in data consumption per user to 11 GB per month and 2% qoq increase in voice consumption per user to 761 minutes per month.

Financial highlights

Lower other income, higher finance cost and lower tax rate. Other income declined

by 30% qoq to `12.5 bn led by lower treasury profits amid rising yields. Consolidated

finance cost jumped 11% qoq to `39.3 bn, despite insignificant impact from forex

movement in the standalone entity due to hedging. DD&A charges increased modestly by

1% qoq to `52.3 bn, primarily reflecting an increase in Jio’s D&A. The effective tax rate

surprisingly moderated to 27.7% from 30.9% in 1QFY19.

Significant addition of `392 bn to gross fixed assets reflecting higher capex. The

company reported `392 bn of addition to gross fixed assets during 2QFY19 including

(1) `160 bn of capital expenditure in Jio, (2) `130 bn in standalone, including ~`50 bn of

capitalization pertaining to forex and interest movement, (3) `11 bn on organized retail,

(4) `10 bn on the US shale assets and (5) remaining `80 bn on others, including the

completion of stake acquisition in Saavn.

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19

Operating metrics

Retail stores (#) 3,634 3,679 3,751 3,837 4,003 4,081

Jio Points (#) 3,736 4,530 5,065

CoCo outlets (#) 465 472 479 495 502 512

Area (mn sq. ft) 13.8 14.2 14.5 17.7 18.6 19.5

Revenue break-up (%)

Grocery 24 22 20 17 19 17

Electronics 41 52 15 31 27 33

Connectivity 41 31 33 34

Fashion & lifestyle 13 11 10 9 9 7

Fuel retail (CoCo) 22 15 14 12 12 9

Revenue break-up

Grocery 28 32 38 41 49 55

Electronics 47 76 28 75 70 107

Connectivity 77 75 85 110

Fashion & lifestyle 15 16 19 22 23 23

Fuel retail (CoCo) 25 22 26 29 31 29

Financials

Revenue 116 146 188 242 259 324

EBITDA 4.0 4.4 6.1 10.9 12.1 13.9

EBIT 2.9 3.3 4.9 9.5 10.7 12.4

Margins (%)

EBITDA 3.4 3.0 3.2 4.5 4.7 4.3

EBIT 2.5 2.3 2.6 3.9 4.1 3.8



Exhibit 9: Capital expenditure increased further to `392 bn

Consolidated capex break-up, 1QFY18 onwards (` bn)


`445 bn increase in capital-WIP to `2.32 tn (US$32 bn) during 1HFY19. Overall

capital-WIP and intangible assets under development increased to `2.32 tn (US$32 bn)

from `1.87 tn at end-FY2018. Standalone capital-WIP also increased to `1.18 tn (US$16

bn) from just under `1 tn at end-FY2018.

`489 bn increase in consolidated effective net debt to `2.84 tn during 1HFY19.

RIL’s consolidated effective net debt, including capex creditors and deferred spectrum

liabilities, increased to nearly `2.84 tn as on September 30, 2018 from `2.35 tn as on

March 31, 2018.

Exhibit 10: We compute effective net debt of `2.84 tn as of September 30, 2018

Consolidated net debt calculation, March fiscal year-ends, 2016-19YTD (` bn)


Strategic investments in Den and Hathway to accelerate FTTH time-to-market

RIL has announced equity investments (mostly primary) into (1) Den Networks and

(2) Hathway Cable and Datacom Limited. The transaction would involve open offers to the

minority shareholders of the two companies as well to those of (1) GTPL Hathway Limited, a

company jointly controlled by Hathway, and (2) Hathway Bhawani, a subsidiary of Hathway.

Total investment (primary + secondary + open offers) envisaged is just under `79 bn and RIL

would end up with a majority stake of 91.5% in Den Networks and 77.3% in Hathway if

the open offers are fully subscribed.

We note that the investment is not being made by Jio but by six different SPVs 100%

owned and controlled by a wholly-owned step-down subsidiary of RIL. Essentially, just like

the digital assets (apps and content), these equity stakes would be owned by RIL and not Jio.

Jio will sign agreements with the operating entities being acquired for use of their resources

in its FTTH foray.


Capex break-up

Gross capital expenditure 252 157 173 211 333 392

Jio 210 70 75 130 170 160

Standalone 25 55 60 60 110 130

Retail 5 10 20 6 10 11

Others 12 22 18 15 43 91

Balance sheet details

Gross debt 2,007 2,141 2,132 2,188 2,421 2,587

Cash and cash equivalents 721 770 786 781 795 767

Reported net debt 1,286 1,371 1,346 1,407 1,626 1,820

Cash profits 113 132 151 154 159 155

31-Mar-16 31-Mar-17 31-Mar-18 30-Sep-18

Borrowings 1,652 1,837 1,816 2,341

Other financial liabilities 918 1,136 1,337 1,330

Deferred payment liabilities 133 201 202 197

Total financial liabilities 2,703 3,174 3,355 3,869

Cash and bank balance 110 30 43 41

Investments 840 784 829 820

Other financial assets 90 122 134 170

Total financial assets 1,040 937 1,006 1,031

Net debt 1,663 2,237 2,349 2,838



Den and Hathway are two of the largest cable MSOs in the country with cumulative 24 mn

home passes across 750 cities, 15 mn active cable customers and around 1 mn active cable

broadband subscribers. The acquisition provides RIL access to the 27,000 local cable

operators of both entities combined. We believe getting access to these LCOs was the key

driver of these acquisitions. Last-mile reach to homes in India is still tightly controlled by the

LCOs who can be nuisance value for anyone trying to get into these homes. Jio said as much

when they indirectly indicated ‘accelerated FTTH rollout’ as the strategic driver behind this

acquisition.

We believe these acquisitions would not result in any material capex savings for Jio’s FTTH

rollout, while we do see merit in the accelerated time-to-market argument. Broadcast TV

offering is an important element of Jio’s planned FTTH home solution bouquet. This could

emerge as a bone of contention between Jio, the operating MSO entities and the LCOs at

some point, if Jio’s FTTH offering starts hurting the current cable TV subscription revenue

stream of the MSOs and LCOs. Jio may need to compensate the MSO entities and the LCOs

for this loss, in our view; this will likely lower the profitability of the FTTH business. That’s the

tradeoff to accelerate the time to market, in our view, from a Jio standpoint.

Other updates

Commissioning of petcoke gasifiers remains elusive. The company indicated that

synchronization of petcoke gasifiers with the refinery is taking time and it may require

design and process changes, which are expected to complete by the end of current fiscal

year. The company remained non-committal on specific timelines for the commercial

operation of its petcoke gasification project.

Update on domestic upstream projects. RIL is planning to commence development

drilling activities for new projects in KG D-6 block during 3QFY19. The company

maintained its guidance on first gas production from the R-cluster to start from mid-

CY2020, satellite fields from mid-CY2021 and MJ fields from early-CY2022; we do not

rule out delays from the given timeline due to the slow pace of progress so far.

Exhibit 11: Quarterly performance of domestic E&P segment, March fiscal year-ends, 1QFY17 onwards



Financials (Rs mn)

Revenues 7,830 7,010 6,230 6,800 5,820 7,600 7,520 6,120 14,320 13,220

EBIT 480 240 (1,250) (780) (2,310) (960) (910) (4,160) (4,470) (4,800)

Operating metrics

KG-D6 gas realization (US$/mn BTU) 3.4 3.4 2.8 2.8 2.8 2.8 2.9 2.9 3.1 3.1

Dated Brent crude price (US$/bbl) 46 46 50 54 50 52 62 67 75 75

Crude oil production ('000 tons) 96 88 85 82 76 72 69 67 57 50

Gas production (bcf) 22 20 19 18 17 16 17 18 15 13




Exhibit 12: Quarterly performance of US shale business, 1QFY18 onwards


Exhibit 13: Segment EBIT numbers boosted by lower overheads or apportioning of other income

Difference between RIL's segment EBIT and reported standalone EBIT, 1QFY17 onwards (` mn)


Key assumptions behind earnings model

Refining. We model FY2019-21 refining margins at US$10.3/bbl, US$11.5/bbl and

US$12.4/bbl, reflecting robust underlying fundamentals due to improving global refining

operating rates from a favorable demand-supply balance.

Exhibit 14: Major assumptions for RIL's refining segment, March fiscal year-ends, 2014-21E (US$/bbl)


Petchem. We expect petchem sales volumes to increase to 19.6 mn tons by FY2021 from

18.6 mn tons in FY2019, led by a full ramp-up of expansion projects. We estimate

blended petchem EBITDA to increase to US$280/ton in FY2019 from US$244/ton in

FY2018 led by (1) strength in polyesters cycle and (2) further integration benefits from

RIL’s new projects; we assume margins to moderate subsequently to US$265/ton in

FY2020 and US$262/ton in FY2021.


Macro data

WTI spot price (US$/bbl) 48.3 48.2 55.4 62.9 67.9 69.5

Henry hub prices (US$/mn BTU) 3.2 3.0 3.5 3.0 2.8 2.9

Financials

Revenues 94 80 98 105 86 81

EBITDA 24 13 32 38 19 13

Average realization (US$/mcfe) 3.2 2.8 2.9 3.0 4.1 4.1

Net volumes (bcfe)

Gas sales 23.3 21.5 18.5 16.0 14.6 13.5

Condensate sales 3.4 3.8 5.4 4.7 3.2 2.8

NGL sales 3.4 3.7 4.7 4.2 3.5 2.9

Total sales 30.2 28.9 28.5 24.9 21.3 19.2

Total production 34.7 33.5 32.4 28.7 23.8 21.2


Segment EBIT

Petrochemicals 29,010 34,640 33,590 34,540 39,840 49,130 56,590 63,440 77,450 79,740

Refining 65,810 59,010 61,270 62,620 63,750 65,320 60,760 55,890 52,210 51,570

Oil & gas 480 240 (1,250) (780) (2,310) (960) (910) (4,160) (2,450) (1,860)

Others 990 900 1,140 1,190 1,320 1,230 1,200 1,080 380 60

Total EBIT (A) 96,290 94,790 94,750 97,570 102,600 114,720 117,640 116,250 127,590 129,510

Reported EBIT

EBITDA (excluding other income) 108,170 105,550 106,040 112,800 115,890 129,830 137,440 134,250 151,540 148,920

DD&A (19,500) (20,290) (20,770) (24,090) (21,580) (22,680) (24,750) (26,790) (27,620) (27,450)

Reported EBIT (B) 88,670 85,260 85,270 88,710 94,310 107,150 112,690 107,460 123,920 121,470

Difference (A)-(B) 7,620 9,530 9,480 8,860 8,290 7,570 4,950 8,790 3,670 8,040

2014 2015 2016 2017 2018 2019E 2020E 2021E

Exchange rate (Rs/US$) 60.5 61.1 65.5 67.1 64.5 69.9 72.0 73.0

Crude throughput (mn tons)

DTA refinery 30.3 30.9 32.4 32.8 32.8 32.7 32.7 32.7

SEZ refinery 37.7 37.2 37.1 37.4 37.0 37.3 37.3 37.3

Total crude throughput 68.0 68.0 69.6 70.2 69.8 70.0 70.0 70.0

Blended refining margins (US$/bbl) 8.1 8.6 10.8 11.0 11.7 10.3 11.5 12.4



Exhibit 15: Major assumptions for RIL's petchem segment, March fiscal year-ends, 2014-21E (US$/ton)


Jio. We have modeled generous assumptions for Jio, assuming the cumulative subscriber

base to increase to a substantial 465 mn by FY2021E with an ARPU of `150/month. Our

assumptions result in `788 bn of revenues and `420 bn of EBITDA with 53% margins.

Exhibit 16: Reasonably generous assumptions for Jio Financial model of Jio, March fiscal year-ends, 2018-26E (` bn)

Source: Kotak Institutional Equities estimates

2014 2015 2016 2017 2018 2019E 2020E 2021E

Exchange rate (Rs/US$) 60.5 61.1 65.5 67.1 64.5 69.9 72.0 73.0

Production volumes (mn tons)

Polymers 4.5 4.3 4.6 4.5 4.9 5.5 5.7 5.8

PE 1.0 1.0 1.0 1.1 1.4 1.9 2.1 2.1

PP 2.8 2.7 2.8 2.7 2.8 2.9 2.9 2.9

PVC 0.7 0.6 0.8 0.7 0.7 0.7 0.7 0.7

Polyesters 1.6 1.8 2.2 2.3 2.4 3.3 3.5 3.5

PFY 0.7 0.9 0.8 0.7 0.8 1.5 1.6 1.7

PSF 0.6 0.6 0.6 0.7 0.6 0.7 0.7 0.7

PET 0.3 0.4 0.8 0.8 1.0 1.1 1.1 1.1

Fiber intermediates 4.7 4.9 6.4 6.9 9.0 9.8 10.3 10.3

PX 2.0 2.2 2.3 2.3 3.7 4.1 4.5 4.5

PTA 2.0 2.1 3.4 3.9 4.1 4.3 4.4 4.4

MEG 0.7 0.6 0.7 0.7 1.2 1.4 1.4 1.4

Total volumes 10.8 11.0 13.2 13.6 16.4 18.6 19.5 19.6

Petchem EBITDA per ton (US$/ton) 168 174 164 187 244 280 265 262

Notes:

(a) Volumes include Recron Malaysia from FY2019E onwards.

2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Assumptions

Subscriber base at end-period (mn) 187 320 413 465 497 529 563 600 639

Subscriber market share (%) 17 29 35 38 40 41 43 44 46

ARPU (Rs/month) 134 130 138 150 159 165 171 178 186

EBITDA margins (%) 33 40 45 53 54 54 54 56 57

Profit model

Revenues 202 396 607 788 916 1,014 1,122 1,243 1,379

Interconnect (43) (42) (43) — — — — — —

LF/SUC (18) (43) (67) (93) (107) (118) (130) (144) (159)

Network operating costs (49) (109) (151) (179) (196) (213) (229) (244) (259)

Employee costs (10) (16) (26) (34) (44) (50) (55) (59) (64)

SG&A and other costs (15) (27) (45) (62) (74) (86) (98) (107) (117)

EBITDA 67 159 274 420 494 547 610 690 781

Other income 0 0 0 0 0 0 0 0 0

Finance cost (20) (43) (68) (111) (139) (150) (138) (122) (101)

Depreciation and amortization (36) (64) (98) (126) (148) (168) (189) (210) (231)

Profit before taxes 11 53 108 183 208 229 283 358 449

Current tax (2) (13) (32) (58) (66) (73) (92) (118) (149)

Deferred tax (2) (6) (6) (6) (7) (7) (7) (7) (8)

Net income/(loss) 7 35 70 119 135 149 184 233 293

Contribution to RIL's EPS (Rs) 1 6 12 20 23 25 31 39 49

Balance sheet

Net-worth 1,029 1,064 1,134 1,253 1,388 1,537 1,722 1,955 2,248

Effective net debt 1,400 2,050 2,221 2,416 2,342 2,227 2,052 1,816 1,511

Invested capital 2,278 3,047 3,407 3,869 4,099 4,308 4,513 4,728 4,954

Cash flow

Operating cash flow (20) 51 113 213 270 324 380 450 531

Working capital (29) 16 17 15 11 8 9 10 11

Capital expenditure (358) (706) (441) (413) (360) (256) (253) (264) (277)

Free cash flow (407) (639) (310) (185) (80) 75 136 197 266

Returns (%)

RoAE 0.8 3.3 6.4 10.0 10.2 10.2 11.3 12.7 13.9

RoACE 0.9 2.2 3.5 5.5 6.1 6.6 7.3 8.3 9.5

CRoCI 2.5 4.1 6.2 8.2 9.1 9.6 10.3 11.1 11.9

Adjusted CRoCI 2.5 4.2 6.3 8.2 9.1 9.7 10.3 11.1 11.9



Exhibit 17: Segment break-up of consolidated EBITDA, March fiscal year-ends, 2014-21E (` bn)


Exhibit 18: Modest upgrade in estimates despite a sharp increase in contribution from Jio and retail Revision in estimates, March fiscal year-ends, 2019-21E (` bn)


Exhibit 19: RIL’s earnings have high leverage to refining margins Sensitivity of RIL's consolidated EPS to key variables, March fiscal year-ends, 2019-21E


2014 2015 2016 2017 2018 2019E 2020E 2021E

EBITDA

Petrochemicals 107 111 137 165 259 365 372 375

Refining and marketing 178 191 268 286 290 258 307 344

Oil and gas 67 76 69 13 17 15 12 20

Organized retail 4 8 9 12 25 57 65 74

Digital services — — — (1) 67 159 274 420

Others (7) (12) (65) (12) (16) (7) (9) (12)

Total 348 374 417 462 642 846 1,020 1,222

New estimates Old estimates Change (%)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

EBITDA

Standalone 606 659 706 609 634 653 (1) 4 8

Jio 159 274 420 163 270 409 (2) 1 3

Retail 57 65 74 48 57 66 17 14 12

Others 24 22 21 25 25 26

Consolidated 846 1,020 1,222 845 986 1,154 0 3 6

Net income

Standalone 365 384 391 362 371 375 1 3 4

Jio 35 70 119 41 72 121 (15) (3) (1)

Retail 33 38 43 28 33 38 20 16 14

Others (34) (28) (30) (19) (14) (17)

Consolidated 399 465 524 411 462 517 (3) 0 1

Consolidated EPS (Rs) 67.3 78.4 88.4 69.5 78.0 87.3 (3) 0 1

Fiscal 2019E Fiscal 2020E Fiscal 2021E

Downside Base case Upside Downside Base case Upside Downside Base case Upside

Exchange rate

Exchange rate (Rs/US$) 68.9 69.9 70.9 71.0 72.0 73.0 72.0 73.0 74.0

Net profits (Rs bn) 390.5 398.8 407.1 456.6 464.6 472.6 515.6 523.6 531.7

EPS (Rs) 65.9 67.3 68.7 77.1 78.4 79.8 87.0 88.4 89.7

% upside/(downside) (2.1) 2.1 (1.7) 1.7 (1.5) 1.5

Blended refining margins

Margins (US$/bbl) 9.3 10.3 11.3 10.5 11.5 12.5 11.4 12.4 13.4

Net profits (Rs bn) 372.2 398.8 425.4 440.4 464.6 488.8 499.1 523.6 548.2

EPS (Rs) 62.8 67.3 71.8 74.3 78.4 82.5 84.2 88.4 92.5

% upside/(downside) (6.7) 6.7 (5.2) 5.2 (4.7) 4.7



Exhibit 20: Our SoTP valuation of RIL is ₹1,010 per share based on FY2020 estimates Sum-of-the-parts valuation of Reliance Industries, FY2020E basis (`)


Exhibit 21: Our SoTP valuation of RIL is ₹1,130 per share based on FY2021E estimates Sum-of-the-parts valuation of Reliance Industries, FY2021E basis (`)


EBITDA EV/EBITDA EV Valuation

(Rs bn) (X) (Rs bn) (Rs/share)

Petrochemicals 372 6.5 2,416 408

Refining and marketing 307 6.5 1,998 337

Upstream (a) 37 6.5 242 41

Digital services (b) 3,061 517

Retailing 65 22.0 1,433 242

Unallocable (9) 6.5 (61) (10)

Minority interest (78) (13)

Total enterprise value 9,011 1,521

Consolidated net debt 3,020 510

Implied equity value 5,991 1,011

Notes:

(a) We use FY2022E EBITDA for upstream and discount it back to FY2020E.

(b) We use DCF-based valuation for digital business.

(c) We use 5.926 bn shares (excluding treasury shares) for per share computations.

EBITDA EV/EBITDA EV Valuation

(Rs bn) (X) (Rs bn) (Rs/share)

Petrochemicals 375 6.5 2,439 412

Refining and marketing 344 6.5 2,235 377

Upstream (a) 41 6.5 266 45

Digital services (b) 3,404 574

Retailing 74 22.0 1,637 276

Unallocable (12) 6.5 (78) (13)

Minority interest (88) (15)

Total enterprise value 9,816 1,656

Consolidated net debt 3,120 527

Implied equity value 6,696 1,130

Notes:

(a) We use FY2022E EBITDA for upstream and discount it back to FY2021E.

(b) We use DCF-based valuation for digital business.

(c) We use 5.926 bn shares (excluding treasury shares) for per share computations.



Exhibit 22: We ascribe 6.5X EV/EBITDA multiple to RIL’s refining business, comparable to valuation of global refining companies Peer valuation of downstream refining companies, calendar year-ends, 2017-19E (X)

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 23: We ascribe 6.5X EV/EBITDA multiple to RIL’s petchem business, higher than valuation of global petchem companies Peer valuation of petchem companies, calendar year-ends, 2017-19E (X)


Price Market cap EV Sales P/E (X) EV/EBITDA

17-Oct (US$ mn) (US$ mn) (US$ mn) CY2017 CY2018E CY2019E CY2017 CY2018E CY2019E

Europe

MOL Hungarian Oil & Gas plc (HUF) 3,020 8,850 9,278 15,089 7.9 8.2 8.0 5.0 4.9 4.7

Omv Ag (Eur) 50 18,735 28,461 22,845 10.1 9.7 8.5 5.1 4.6 4.1

Polski Koncern Naftowy Orlen (PLN) 97 11,122 10,913 25,319 6.2 9.0 8.8 4.5 5.4 5.3

India

Bharat Petroleum Corp. (Rs) 285 8,405 19,266 36,456 6.7 6.9 6.2 6.9 6.5 6.0

Hindustan Petroleum Corp. (Rs) 207 4,292 10,251 33,915 4.6 5.0 4.8 4.4 5.0 4.6

Indian Oil Corp. (Rs) 132 17,459 35,404 63,985 5.9 7.0 6.7 5.0 5.2 5.1

Reliance Industries (Rs) 1,151 99,063 104,880 60,755 19.8 16.1 13.5 13.9 10.2 8.6

Japan

Fuji Oil (Y) 490 341 1,293 3,825 3.6 4.3 9.6 8.9 7.7 10.3

Idemitsu Kosan Co. (Y) 5,740 10,633 15,424 33,673 7.5 8.1 8.6 7.7 7.3 7.3

Korea

S-Oil Corp. (KW) 133,500 13,334 15,258 18,486 13.1 14.9 10.2 11.0 10.7 8.0

SK Innovation Co. (KW) 219,000 17,966 19,288 40,934 8.5 10.0 9.1 5.7 6.0 5.7

Thailand

Thai Oil plc (THB) 86 5,372 4,898 9,951 8.5 9.7 9.8 5.2 5.7 5.7

US

Hollyfrontier Corp. (US$) 67 11,851 14,037 14,251 27.9 12.5 8.8 11.5 7.0 5.9

Marathon Petroleum (US$) 80 55,329 49,124 66,969 20.9 15.4 10.3 12.2 9.3 5.5

Valero Energy Corp. (US$) 106 45,266 53,125 88,407 21.7 16.2 10.3 9.2 8.2 6.2

Mean 11.6 15.1 9.3 7.6 7.0 6.3

Median 8.5 9.7 9.0 6.8 6.5 5.9

Price Market cap EV Sales P/E (X) EV/EBITDA (X)


China

Sinopec Shanghai Petrochem (CNY) 5.7 7,645 4,642 11,736 11.1 9.9 10.6 5.4 5.1 5.3

Europe

BASF SE (EUR) 69.3 73,412 103,400 72,839 10.6 10.8 10.1 6.1 6.6 6.3

AKZO NOBEL (EUR) 76.8 22,669 25,695 10,859 18.6 31.5 23.3 10.8 21.5 17.2

India


Japan

Mitsui Chemicals (JPY) 2,678 4,879 9,418 11,991 7.1 6.4 6.3 6.5 6.3 6.0

Mitsubishi Chemical Holdings (JPY) 970 13,017 27,779 33,616 7.0 6.6 6.7 5.8 5.6 5.7

Sumitomo Chemical Co. (JPY) 600 8,847 NA 19,771 7.1 7.3 7.3 6.1 5.6 5.7

Tosoh Corp. (JPY) 1,646 4,766 5,528 7,427 5.9 6.6 6.8 3.7 4.0 4.0

Korea

Daelim Industrial Co. (W) 82,900 2,559 3,480 10,915 4.9 4.3 5.2 5.7 4.4 5.1

Hanwha Chemical Corp. (W) 17,200 2,489 5,847 8,266 2.9 3.7 3.9 4.6 5.4 5.1

Honam Petrochemical Corp. (W) 271,000 8,240 10,980 14,046 4.1 4.7 4.6 2.7 3.0 2.9

LG Chem (W) 325,000 20,352 22,898 22,739 11.2 13.1 11.8 5.8 6.2 5.5

US

Eastman Chemical Co. (US$) 84 11,863 20,690 9,549 11.9 9.8 9.0 8.7 7.9 7.6

Olin Corp. (US$) 23 3,908 8,166 6,268 24.0 11.6 9.1 7.6 5.7 5.2

Polyone Corp. (US$) 38 3,020 4,629 3,230 17.2 15.0 13.4 10.3 9.9 9.3

Mean 11.4 10.7 9.6 7.1 7.2 6.6

Median 10.8 9.8 9.1 6.1 6.0 5.7



Exhibit 24: RIL stock is commanding a significant premium to global integrated majors Peer valuation of integrated majors, calendar year-ends, 2017-19E (X)


Exhibit 25: Singapore complex margins have declined sharply in the recent months Singapore complex refining margins, March fiscal year-ends (US$/bbl)

Source: Reuters, Kotak Institutional Equities

Price Market cap. EV Sales P/E (X) EV/EBITDA


International majors

BP Plc (US$) 565 148,530 192,120 240,210 24.1 13.4 11.8 6.8 5.1 4.6

Chevron (US$) 118 225,170 274,270 127,590 28.4 14.5 12.2 8.2 6.0 5.2

Exxon Mobil (US$) 81 343,790 394,380 237,160 22.1 17.7 14.1 9.6 7.8 6.6

Royal Dutch Shell (GBp) 25 276,000 354,300 305,180 17.3 11.9 9.8 7.2 5.7 5.2

Total SA (EUR) 54 167,030 189,550 149,100 15.0 11.5 10.1 7.4 5.5 4.9

Regional integrateds

ConocoPhillips (US$) 74 85,763 92,213 29,106 118.5 16.2 13.4 10.9 6.2 5.7

Anadarko Petroleum (US$) 68 34,964 53,307 11,261 NA 23.1 15.2 9.7 6.6 5.5

ENI (EUR) 16 66,131 78,636 75,600 27.6 13.1 10.8 5.0 3.5 3.2

Occidental (US$) 73 55,916 72,939 12,508 81.4 14.3 12.4 11.9 6.6 5.8

RepsolYPF (EUR) 16 30,252 40,171 47,073 11.2 9.9 8.7 5.3 4.7 4.4

Marathon (US$) 80 55,329 49,124 66,969 20.9 15.4 10.3 12.2 9.3 5.5

Suncor Energy (US$) 37 59,510 78,524 24,709 25.6 14.8 11.5 8.9 6.5 5.7

European integrateds

MOL (HUF) 3,020 8,851 9,278 15,089 7.9 8.2 8.0 5.0 4.9 4.7

OMV (EUR) 50 18,738 28,461 22,845 10.1 9.7 8.5 5.1 4.6 4.1

Emerging market integrateds

CNOOC (HK$) 15 84,987 76,044 27,597 19.2 10.4 9.3 5.4 4.1 3.9

GAIL (Rs) 345 10,580 11,204 8,432 16.6 12.8 11.5 9.5 8.0 7.3

ONGC (Rs) 162 28,262 52,204 55,822 8.5 6.5 6.3 5.5 4.2 4.1

Petrobras (R$) 27 99,723 132,880 88,880 35.1 9.2 7.0 7.0 5.2 4.5

PetroChina (HK$) 6 228,710 214,160 298,650 42.4 16.4 14.1 7.0 5.8 5.5

PTT (Bt) 51 44,745 59,210 58,862 11.6 10.8 10.4 5.9 5.7 5.5


Mean 28.2 13.1 10.9 8.0 6.0 5.3

Median 20.4 13.1 10.8 7.2 5.7 5.2

Reuters Singapore refining margins, March fiscal year-ends (US$/bbl)

2012 2013 2014 2015 2016 2017 2018 2019

1Q 8.2 6.7 6.6 5.8 8.1 5.1 6.4 6.1

2Q 8.9 9.1 5.2 4.8 6.2 5.1 8.3 6.1

3Q 6.4 6.6 5.4 6.3 8.0 6.7 7.3 5.4

4Q 7.5 8.5 6.2 8.6 7.8 6.4 7.0

Average 7.8 7.7 5.9 6.3 7.5 5.8 7.2 6.0

(6)

(3)

0

3

6

9

12

15

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Reuters Singapore refining margins

(US$/bbl)



Exhibit 26: Petchem margins have moderated in the recent months Asian petchem margins, calendar year-ends (US$/ton)

Source: Platts, Kotak Institutional Equities

Exhibit 27: Standalone profit model, balance sheet, cash model, March fiscal year-ends, 2014-21E (` mn)


Quarterly average Monthly average

Annual average margins qoq mom

2015 2016 2017 2018 4Q17 1Q18 2Q18 3Q18 (%) Jul Aug Sep Oct (%)

Ethylene chain

Ethylene – naphtha 575 671 655 645 693 714 641 656 2.3 694 702 571 422 (26.2)

HDPE – naphtha 709 712 630 566 597 648 571 516 (9.7) 535 528 483 462 (4.5)

LLDPE – naphtha 695 725 642 516 603 614 531 442 (16.7) 465 454 407 402 (1.4)

LDPE – naphtha 739 780 727 544 662 646 561 470 (16.3) 504 482 423 412 (2.8)

Propylene chain

Propylene – naphtha 298 315 384 429 346 453 413 421 2.0 399 432 431 434 0.7

PP – naphtha 571 550 550 584 551 625 583 558 (4.2) 571 566 537 537 (0.1)

Vinyl chain

EDC – (0.3 x ethylene) (39) (62) (92) (94) (199) (172) (97) (54) NA (80) (67) (16) 31 NA

PVC – naphtha 333 427 407 294 315 364 293 270 (7.8) 291 304 213 157 (26.7)

Polyester/intermediates

PTA – 0.67 x PX 96 97 109 168 117 141 181 188 3.5 194 183 186 152 (18.3)

PX – naphtha 330 373 340 411 294 361 321 489 52.3 338 518 612 602 (1.6)

MEG – 0.6 x ethylene 136 19 162 192 151 211 212 143 (32.8) 129 140 159 221 39.0

PSF – naphtha 684 644 745 676 668 710 644 674 4.6 615 666 741 — NA

PFY – naphtha 1,022 833 936 984 936 1,032 952 969 1.7 900 991 1,016 — NA

2014 2015 2016 2017 2018 2019E 2020E 2021E

Profit model (Rs mn)

Net sales 3,901,170 3,290,760 2,331,580 2,420,250 2,900,420 4,271,416 4,085,799 3,982,075

EBITDA 308,770 316,020 393,470 432,560 517,410 605,931 659,479 706,226

Other income 89,360 87,210 78,210 87,090 82,200 81,362 82,024 82,186

Finance cost (32,060) (23,670) (25,620) (27,230) (46,560) (79,035) (67,911) (60,290)

Depreciation, depletion and amortization (87,890) (84,880) (85,900) (84,650) (95,800) (108,350) (127,771) (152,957)

Pretax profits 278,180 294,680 360,160 407,770 457,250 499,907 545,822 575,166

Extraordinary items — — — — — — — —

Current tax (58,120) (61,240) (78,010) (83,330) (89,530) (122,708) (127,705) (159,644)

Deferred tax (220) (6,250) (8,310) (10,190) (31,600) (12,172) (33,694) (24,409)

Net profits 219,840 227,190 273,840 314,250 336,120 365,028 384,424 391,112

Adjusted net profits 219,840 227,190 273,840 314,250 336,120 365,028 384,424 391,112

Adjusted EPS (Rs) 37.2 38.4 46.4 53.1 56.8 61.6 64.9 66.0

Balance sheet (Rs mn)

Total equity 1,970,910 2,161,760 2,539,980 2,883,130 3,146,470 3,466,513 3,802,459 4,141,631

Deferred taxation liability 122,150 126,770 237,470 247,660 279,260 291,432 325,126 349,535

Total borrowings 899,680 976,170 1,071,040 1,074,460 1,168,810 1,073,020 989,079 842,183

Other liabilities 683,090 713,150 968,250 1,262,210 1,580,710 1,719,065 1,572,212 1,449,050

Total liabilities and equity 3,675,830 3,977,850 4,816,740 5,467,460 6,175,250 6,550,031 6,688,875 6,782,399

Cash 366,240 115,710 68,920 17,540 27,310 24,776 77,223 78,575

Other assets 937,750 833,250 590,840 652,230 891,250 1,099,742 1,057,365 1,028,429

Total fixed assets 1,511,220 1,903,160 2,584,480 2,873,190 3,004,470 3,173,293 3,302,068 3,423,174

Investments 860,620 1,125,730 1,572,500 1,924,500 2,252,220 2,252,220 2,252,220 2,252,220

Total assets 3,675,830 3,977,850 4,816,740 5,467,460 6,175,250 6,550,031 6,688,875 6,782,399

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 235,920 236,020 241,240 265,620 342,010 404,165 455,414 482,313

Working capital 145,150 83,150 149,470 195,330 205,320 4,863 (49,477) (74,226)

Capital expenditure (324,560) (427,200) (202,160) (302,660) (247,000) (297,909) (295,809) (283,209)

Investments (351,430) (235,360) (258,410) (285,590) (375,800) — — —

Other income 69,290 67,720 45,410 24,240 30,960 81,362 82,024 82,186

Free cash flow (225,630) (275,670) (24,450) (103,060) (44,510) 192,481 192,152 207,064

Ratios (%)

Debt/equity 43.0 42.7 38.6 34.3 34.1 28.6 24.0 18.8

Net debt/equity 3.7 12.0 20.0 23.0 21.1 14.7 8.8 4.3

RoAE 10.8 10.3 10.7 10.5 10.2 10.1 9.7 9.0

RoACE 8.6 7.8 8.2 8.3 8.4 8.9 8.6 8.2

Adjusted RoACE 12.2 12.8 16.8 19.7 21.4 21.3 16.7 13.6

CRoCI 9.9 8.3 8.0 8.0 8.2 8.8 8.7 8.6

Adjusted CRoCI 15.1 13.3 16.0 18.0 16.7 16.5 13.1 12.7



Exhibit 28: Consolidated profit model, balance sheet, cash model, March fiscal year-ends, 2014-21E (` bn)


2014 2015 2016 2017 2018 2019E 2020E 2021E

Profit model (Rs bn)

Net sales 4,345 3,754 2,740 3,054 3,917 5,564 5,711 5,914

EBITDA 348 374 417 462 642 846 1,020 1,222

Other income 89 85 75 94 89 72 83 87

Finance cost (38) (33) (37) (38) (81) (139) (154) (191)

Depreciation, depletion and amortization (112) (115) (116) (116) (167) (211) (267) (323)

Pretax profits 287 310 339 401 483 568 682 795

Minority interest/share of associates 0 0 2 (0) 1 (0) (0) (1)

Extraordinary items — — 46 — 11 — — —

Effective tax (62) (75) (89) (102) (133) (169) (217) (271)

Net profits 225 236 299 299 361 399 465 524

Adjusted net profits 225 236 253 299 350 399 465 524

Adjusted EPS (Rs) 38 40 43 51 59 67 78 88

Balance sheet (Rs bn)

Total equity 1,987 2,185 2,316 2,637 2,935 3,289 3,705 4,177

Deferred tax liability 119 130 205 212 245 263 301 332

Minority interest 10 30 34 29 35 36 36 37

Total borrowings 1,388 1,609 1,807 1,966 2,188 2,767 3,038 3,121

Other liabilities 785 1,091 1,629 2,224 2,709 3,054 2,908 2,849

Total liabilities and equity 4,288 5,045 5,990 7,068 8,113 9,409 9,988 10,515

Cash 380 125 110 30 43 23 74 76

Loans and advances 280 307 29 37 50 50 50 50

Other assets 687 663 917 1,032 1,341 1,622 1,657 1,686

Total fixed assets 2,329 3,185 4,094 5,185 5,851 6,886 7,378 7,874

Investments 613 765 840 784 829 829 829 829

Total assets 4,288 5,045 5,990 7,068 8,113 9,409 9,988 10,515

Free cash flow (Rs bn)

Operating cash flow, excl. working capital 266 264 211 212 353 495 612 746

Working capital 110 18 78 155 185 (7) (62) (82)

Capital expenditure (601) (634) (469) (781) (740) (1,114) (804) (780)

Other income 67 66 37 15 23 72 83 87

Free cash flow (157) (285) (143) (400) (178) (554) (171) (29)

Ratios (%)

Debt/equity 69.8 73.6 78.0 74.6 74.5 84.1 82.0 74.7

Net debt/equity 25.9 51.6 71.8 84.8 80.0 91.8 84.2 76.5

RoAE 11.2 10.7 10.5 11.2 11.6 11.8 12.3 12.3

RoACE 7.9 7.0 7.0 7.2 8.1 8.5 8.5 8.9

Adjusted RoACE 11.3 11.3 12.3 13.1 12.0 10.1 8.8 8.5

CRoCI 9.7 7.7 6.6 6.2 7.4 7.8 8.5 9.0

Adjusted CRoCI 15.9 13.5 11.8 12.2 10.2 10.0 9.4 9.8


Strong revenue growth but margin below estimates as RM volatility impacts cables segment

Havells reported 2QFY19 EBITDA of `2.6 bn (+2% yoy), which was 10% below our estimates

due to lower-than-expected EBITDA margin. Revenues increased by 23% yoy (in line), which

was driven by (1) 28% yoy growth in erstwhile Havells business (2-year revenue CAGR is

15%) and (2) 8% yoy decline in Lloyd revenues due to demand challenges in the AC

industry.

In terms of segments, revenue growth was driven by (1) 42% yoy growth in the ECD

segment led by market share gains across segments and ramp-up of new categories such as

water purifiers, water heaters, etc., (2) 28% yoy growth in the switchgear segment led by

low base and increased traction in the industrial segment and (3) 35% yoy growth in the

cables segment aided by growth in the industrial segment and price hikes. Lighting revenues

were flat yoy due to negligible EESL revenues versus `450 mn in 2QFY18 (ex-EESL revenues

grew 18% yoy).

EBITDA margin came in at 12% (down 250 bps yoy), which was 130 bps below our

estimates due to (1) 300 bps qoq decline in margins in the cables segment driven by lead-lag

impact of RM volatility (margin would normalize in 2HFY19) and (2) weaker performance of

the Lloyd business. Adjusted PAT at `1.8 bn (+4% yoy) was 9% below our estimates.

Expect the company to deliver 21% EPS CAGR over FY2018-21E

Havells has a well-diversified product portfolio and it has built strong brand and distribution

network over the years, which should enable it to penetrate deeper into existing categories and

expand presence in newer segments. We believe that Havells has the potential to deliver strong

double-digit revenue growth over the medium term. We build in 21% EPS CAGR over FY2018-

21E led by (1) 17% revenue CAGR and (2) 100 bps expansion in EBITDA margin.

Cut FY2019-21E estimates by 2-5%; SELL stays on expensive valuations

We cut our FY2019E EPS estimates to build in weakness in margins in 1HFY19. For FY2020-

21E, we lower our EPS estimates by 2%. While we like the company’s strong franchisee and

premium brand positioning across segments, expensive valuations drive our SELL rating on the

stock. DCF-based TP revised to `490 (`485 earlier) on rollover to September 2020E EPS.

Havells India (HAVL)

Others

Strong topline performance but cable business margins below expectations.

Havells reported 2QFY19 EBITDA of `2.6 bn (+2% yoy), which was 10% below our

estimates due to decline in margins in the cables segment driven by lead-lag impact of

RM volatility. Revenue growth was strong at 23% yoy led by market share gain across

segments and successful entry into new categories. Havells has built an impressive

franchise, which will help it deliver strong double-digit earnings growth over the

medium term. There is a lot to like in the company, except valuations. SELL stays.

SELL

OCTOBER 19, 2018

RESULT

Coverage view:

Price (`): 587

Target price (`): 490

BSE-30: 34,780

Nishit Jalan

Hitesh Goel

Havells India





Promoters 59.5 Sales (Rs bn) 98.1 114.7 131.7


MFs 4.8 EBITDA (Rs bn) 12.4 15.5 18.1


Absolute (12.0) 5.7 7.0 ROE (%) 20.9 22.9 23.6

Rel. to BSE-30 (4.9) 11.0 0.4 Div. Yield (%) 0.8 1.0 1.2


729-450

367.1

Others Havells India


More details on the segmental performance

Revenue growth in the cables and wires segment (+35% yoy) was driven by 20% yoy

volume growth and 13% price increases. Demand is particularly strong in the industrial

cables segment due to the government’s push in the infrastructure segment (rural

electrification, railways, metro, etc.). Low base (revenues up 2% yoy in 2QFY18) also

aided revenue growth in the segment. Contributions margins in the segment declined by

300 bps qoq to 14%. We believe this was driven by immediate price cuts in the market

post recent decline in copper prices (down 7% qoq in rupee terms) while the benefit of

reduction in RM cost will come with a lag of around two months. We expect segmental

contribution margins to improve to 16-17% in 2HFY19.

In the switchgear segment, 28% yoy revenue growth was driven by (1) low base

(revenues down 5% yoy in 2QFY18), (2) increased traction in the industrial switchgear

business due to the company’s increased focus and government focus on electrification,

(3) strong growth in the modular switches segment led by replacement demand and

possibly market share gains and (4) slight improvement in the residential segment. For the

company, the residential segment accounts for 70% of segmental revenues while

contribution of the industrial segment is 30%.

In the electrical consumer durables (ECD) segment, revenues grew by 42% yoy (on base

of 4% yoy growth in 2QFY18), which was driven by (1) continued strong growth in the

premium fans category and market share gains for the company. Havells now has around

15% market in overall fans segment and 40%+ share in premium fans category, (2) strong

growth in water heaters partly due to inventory build-up ahead of winter season. Havells

has become one of the top three players in the water heater category, which is quite

impressive, (3) acceptance of the company’s products in new categories such as air

purifiers and personal grooming products and (4) pickup in demand for home appliances

and market share gains for the company.

In the lighting segment, EESL revenues were only `12 mn in 2QFY19 versus `450 mn in

2QFY18 and around `1.3 bn in FY2018. Ex-EESL revenues for the company grew by 18%

yoy in 2QFY19 led by 30% yoy volume growth. In the EESL segment, we believe that

pricing seems to have come down significantly because of which Havells has not

participated in the bidding process. Due to lower mix of EESL revenues, segmental

contribution margins improved by 260 bps yoy to 29.6%; we note that contribution

margin in EESL business is only 6-7% for the company.

Revenues of Lloyd business declined by 8% yoy and EBITDA margin came down to 3.3%

in the quarter as compared to 7% in 2QFY18 and 8.1% in 1QFY19. Lloyd had a muted

quarter owing to adverse season, channel inventory and forex headwinds. The company

highlighted that industry has not seen price increases despite cost pressures. The

company highlighted that it is continuously working on improving brand perception

(through A&P spend and offering products with advanced features) and expansion of

distribution network (both in terms of higher number of exclusive outlets and greater

presence in large multi-brand outlets), which should drive market share gain over the

medium term. The company is on track to commission its in-house AC manufacturing capacity by end-FY2019 with an initial capacity of 0.6 mn units and overall capex of `3 bn. We believe that this would help the company achieve greater control over product quality, reduce foreign currency exposure, expand product offerings (higher number of SKUs) and should also aid profitability.

Havells India Others


Exhibit 1: Strong revenue performance but margin below estimates as RM volatility impacts profitability in cables & wires segment Interim results of Havells – standalone for 4QFY18, March fiscal year-ends (` mn)


2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 1HFY19 1HFY18 Yoy (%) FY2019E FY2018 Yoy (%)

Net revenues 21,910 21,948 17,774 25,963 (0.2) 23.3 (15.6) 47,873 36,379 31.6 98,146 81,386 20.6

Total expenditure (19,285) (19,033) (15,205) (22,841) 1.3 26.8 (15.6) (42,126) (32,086) 31.3 (85,744) (70,893)

Material consumed (13,519) (13,283) (10,251) (16,209) 1.8 31.9 (16.6) (29,727) (22,217) 33.8 (60,556) (49,808)

Employee expenses (2,034) (1,950) (1,617) (1,970) 4.3 25.8 3.2 (4,003) (3,235) 23.7 (8,056) (6,497)

Other expenses (3,733) (3,800) (3,336) (4,663) (1.8) 11.9 (19.9) (8,395) (6,634) 26.6 (17,131) (14,588)

Of which A&P spend (741) (878) (509) (1,156) (15.6) 45.7 (35.9) (1,898) (1,244) 52.6 (3,691) (3,076)

EBITDA 2,625 2,916 2,569 3,123 (10.0) 2.2 (15.9) 5,748 4,294 33.9 12,402 10,493 18.2

Margins (%) 12.0 13.3 14.5 12.0 12.0 11.8 12.6 12.9

Depreciation (391) (355) (349) (350) 10.3 12.2 11.7 (742) (685) (1,529) (1,395)

EBIT 2,234 2,561 2,220 2,772 (12.8) 0.6 (19.4) 5,006 3,609 38.7 10,873 9,098 19.5

Margins (%) 10.2 11.7 12.5 10.7 10.5 9.9 11.1 11.2

Other income 343 300 287 292 14.4 19.6 17.5 635 635 1,310 1,170

Interest expenses (37) (25) (67) (26) 46.4 (45.5) 43.5 (62) (101) (177) (240)

PBT 2,540 2,836 2,440 3,039 (10.4) 4.1 (16.4) 5,579 4,143 12,006 10,028

Extraordinaries — — — — — — — 119

Reported PBT 2,540 2,836 2,440 3,039 (10.4) 4.1 (16.4) 5,579 4,143 12,006 10,147

Tax (754) (879) (730) (935) (14.2) 3.3 (19.3) (1,689) (1,219) (3,722) (3,022)

Reported PAT 1,786 1,957 1,710 2,104 (8.7) 4.4 (15.1) 3,890 2,924 8,284 7,125

Adjusted PAT 1,786 1,957 1,710 2,104 (8.7) 4.4 (15.1) 3,890 2,924 33.0 8,284 7,042 17.6

Number of shares (mn) 625 625 625 625 625 625 625 625

Adjusted EPS (Rs) 2.9 3.1 2.7 3.4 (8.7) 4.4 (15.1) 6.2 4.7 33.0 13.3 11.3 17.6

Key ratios (%)

RM as % of sales 61.7 60.5 57.7 62.4 62.1 61.1 61.7 61.2

Employee cost as % of sales 9.3 8.9 9.1 7.6 8.4 8.9 8.2 8.0

Other expenditure as % of sales 17.0 17.3 18.8 18.0 17.5 18.2 17.5 17.9

Effective tax rate 29.7 31.0 29.9 30.8 30.3 29.4 31.0 29.8

Segmental

Revenues

Switchgear 4,231 3,950 3,299 4,041 7.1 28.3 4.7 8,272 6,688 23.7 16,753 14,077 19.0

Cable and Wires 7,665 7,400 5,693 7,499 3.6 34.6 2.2 15,164 12,056 25.8 30,422 26,002 17.0

Lighting and fixtures - India 2,856 3,298 2,868 2,583 (13.4) (0.4) 10.6 5,439 5,466 (0.5) 11,563 11,563 -

Electrical consumer durables 4,579 4,500 3,216 4,759 1.8 42.4 (3.8) 9,338 6,799 37.4 19,186 15,602 23.0

Lloyd 2,579 2,800 2,698 7,081 (7.9) (4.4) (63.6) 9,660 5,370 79.9 20,222 14,141 43.0

Total 21,910 21,948 17,774 25,963 (0.2) 23.3 (15.6) 47,873 36,379 31.6 98,146 81,385 20.6

Contribution

Switchgear 1,628 1,521 1,363 1,549 7.1 19.5 5.1 3,177 2,670 19.0 6,450 5,572 15.8

Cable and Wires 1,070 1,258 1,133 1,279 (14.9) (5.6) (16.3) 2,349 1,992 17.9 4,868 4,380 11.1

Lighting and fixtures - India 847 924 775 711 (8.3) 9.3 19.1 1,558 1,540 1.2 3,353 3,356 (0.1)

Electrical consumer durables 1,250 1,283 894 1,367 (2.6) 39.8 (8.6) 2,617 1,710 53.0 5,354 4,202 27.4

Lloyd 476 532 527 1,370 (10.5) (9.6) (65.2) 1,847 921 100.5 3,842 2,683 43.2

Unallocable (2,694) (2,656) (2,184) (3,211) 1.4 23.3 (16.1) (5,905) (4,589) 28.7 (11,683) (9,926) 17.7

Overall contribution 2,577 2,861 2,507 3,064 (9.9) 2.8 (15.9) 5,641 4,243 32.9 12,183 10,267 18.7

Contribution margin (%)

Switchgear 38.5 38.5 41.3 38.3 38.4 39.9 38.5 39.6

Cable and Wires 14.0 17.0 19.9 17.0 15.5 16.5 16.0 16.8

Lighting and fixtures - India 29.6 28.0 27.0 27.5 28.6 28.2 29.0 29.0

Electrical consumer durables 27.3 28.5 27.8 28.7 28.0 25.2 27.9 26.9

Lloyd 18.5 19.0 19.5 19.4 19.1 17.1 19.0 19.0

Unallocable as % of sales 12.3 12.1 12.3 12.4 12.3 12.6 11.9 12.2

Change (%)



Exhibit 2: Revenues of ex-Lloyd business grew by 28% yoy in 2QFY19 Breakdown of Havells overall revenues and EBITDA, March fiscal year-ends, 2018-19 (` mn, %)


Exhibit 3: We have cut our FY2019-21E earnings estimates by 2-5% Earnings revision table, March fiscal year-ends, 2019-21E (` mn, %)


2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 1HFY19 1HFY18 Yoy (%) FY2019 FY2018 Yoy (%)

Total revenues 21,910 21,948 17,774 25,963 (0.2) 23.3 (15.6) 47,873 36,379 31.6 98,146 81,386 20.6

- Havells ex-Lloyd 19,331 19,148 15,076 18,882 1.0 28.2 2.4 38,214 31,009 23.2 77,924 67,245 15.9

- Lloyd 2,579 2,800 2,698 7,081 (7.9) (4.4) (63.6) 9,660 5,370 79.9 20,222 14,141 43.0

Total EBITDA 2,625 2,916 2,569 3,123 (10.0) 2.2 (15.9) 5,748 4,293 33.9 12,402 10,493 18.2

- Havells ex-Lloyd 2,541 2,706 2,380 2,549 (6.1) 6.8 (0.3) 5,090 3,963 28.4 10,785 9,226 16.9

- Lloyd 84 210 189 574 (60.0) (55.6) (85.4) 658 330 99.4 1,618 1,267 27.7

Overall EBITDA margin 12.0 13.3 14.5 12.0 12.0 11.8 12.6 12.9

- Havells ex-Lloyd 13.1 14.1 15.8 13.5 13.3 12.8 13.8 13.7

- Lloyd 3.3 7.5 7.0 8.1 6.8 6.1 8.0 9.0

Change (%)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Revenues 98,146 114,690 131,739 98,660 115,058 132,302 (0.5) (0.3) (0.4)

EBITDA 12,402 15,499 18,145 13,144 15,891 18,562 (5.6) (2.5) (2.2)

EBITDA (%) 12.6 13.5 13.8 13.3 13.8 14.0

PAT 8,284 10,335 12,164 8,761 10,556 12,418 (5.4) (2.1) (2.0)

EPS (Rs) 13.3 16.5 19.5 14.0 16.9 19.9 (5.4) (2.1) (2.0)

New estimates Old estimates Change (%)



Exhibit 4: Expect strong double-digit revenue growth across segments in FY2019-21E Revenue and contribution margin assumptions, March fiscal year-ends, 2014-21E (` mn, %)


2014 2015 2016 2017 2018 2019E 2020E 2021E

Segmental net revenues

Cables & Wires 19,264 21,904 21,865 23,794 26,002 30,422 34,377 38,503

Electrical Consumer Durables 8,534 10,283 11,264 13,784 15,602 19,186 23,478 27,351

Lloyd 14,141 20,222 23,862 28,157

Lighting & Fixtures 7,207 7,410 7,930 9,710 11,563 11,563 13,876 15,957

Switchgears 12,192 12,790 12,724 14,065 14,078 16,753 19,098 21,772

Total revenue 47,197 52,387 53,783 61,353 81,386 98,146 114,690 131,739

Yoy growth (%)

Cables & Wires 13.7 (0.2) 8.8 9.3 17.0 13.0 12.0

Electrical Consumer Durables 20.5 9.5 22.4 13.2 23.0 22.4 16.5

Lloyd 43.0 18.0 18.0

Lighting & Fixtures 2.8 7.0 22.4 19.1 - 20.0 15.0

Switchgears 4.9 (0.5) 10.5 0.1 19.0 14.0 14.0

Total revenue 11.0 2.7 14.1 32.7 20.6 16.9 14.9

Segmental revenue mix (%)

Cables & Wires 40.8 41.8 40.7 38.8 31.9 31.0 30.0 29.2

Electrical Consumer Durables 18.1 19.6 20.9 22.5 19.2 19.5 20.5 20.8

Lloyd — — — — 17.4 20.6 20.8 21.4

Lighting & Fixtures 15.3 14.1 14.7 15.8 14.2 11.8 12.1 12.1

Switchgears 25.8 24.4 23.7 22.9 17.3 17.1 16.7 16.5

Total revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Contribution from segments

Cables & Wires 2,110 2,657 3,089 3,256 4,380 4,868 5,844 6,545

Electrical Consumer Durables 2,304 2,580 2,864 3,494 4,202 5,354 6,535 7,610

Lloyd 2,683 3,842 4,772 5,772

Lighting & Fixtures 1,787 1,969 1,909 2,651 3,356 3,353 3,955 4,548

Switchgears 4,032 4,390 5,006 5,610 5,572 6,450 7,353 8,273

Total contribution 10,233 11,595 12,868 15,011 20,193 23,866 28,459 32,749

Unallocable expenses (4,012) (4,957) (5,675) (6,623) (9,926) (11,683) (13,303) (14,942)

Overall EBIT 6,220 6,638 7,194 8,388 10,267 12,183 15,156 17,807

Segmental contribution mix (%)

Cables & Wires 20.6 22.9 24.0 21.7 21.7 20.4 20.5 20.0


Lloyd 13.3 16.1 16.8 17.6


Switchgears 39.4 37.9 38.9 37.4 27.6 27.0 25.8 25.3

Total contribution 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Contribution margin (%)

Cables & Wires 11.0 12.1 14.1 13.7 16.8 16.0 17.0 17.0


Lloyd 19.0 19.0 20.0 20.5


Switchgears 33.1 34.3 39.3 39.9 39.6 38.5 38.5 38.0

Contribution margin (%) 21.7 22.1 23.9 24.5 24.8 24.3 24.8 24.9

Unallocable expenses as % of sales (8.5) (9.5) (10.6) (10.8) (12.2) (11.9) (11.6) (11.3)

Overall EBIT 13.2 12.7 13.4 13.7 12.6 12.4 13.2 13.5



Exhibit 5: Our DCF-based target price is `490 DCF valuation of Havells, March fiscal year-ends, 2018-35E (` mn)


2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2035E

FCFF calculation

Net revenue 81,464 98,146 114,690 131,739 151,500 174,225 195,132 218,548 536,319

Revenue growth (%) 32.3 20.5 16.9 14.9 15.0 15.0 12.0 12.0 8.0

EBITDA 10,434 12,402 15,499 18,145 21,210 24,392 27,319 30,597 75,085

EBITDA margin (%) 12.8 12.6 13.5 13.8 14.0 14.0 14.0 14.0 14.0

Operating tax expense (2,754) (3,371) (4,236) (4,944) (5,804) (6,679) (7,541) (8,450) (20,803)

NOPLAT 6,275 7,502 9,429 11,003 12,918 14,866 16,784 18,808 46,303

Depreciation 1,405 1,529 1,834 2,198 2,488 2,847 2,994 3,338 7,979

Change in working capital 2,702 (207) (1,136) 197 254 292 268 300 510

Capital expenditure (15,892) (5,000) (2,500) (2,600) (3,871) (4,121) (3,692) (4,499) (8,633)

Free cash flow to the firm (5,511) 3,825 7,627 10,798 11,789 13,883 16,354 17,948 46,159

Key assumptions and value drivers

Tax rate (%) 31 31 31 31 31 31 31 31 31

Gross FATR (%) 5.2 4.7 4.9 5.1 5.1 5.2 5.2 5.2 5.2

NWC ex-cash as % of sales (3.5) (2.7) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3)

DCF valuation

Terminal growth rate (%) 5.0

WACC (%) 11.5

EV and target price calculation

Sum of discounted FCF 150,462

PV of terminal value 137,965

Enterprise value 288,427

Net debt/(cash) (15,304)

Equity value 303,731

Target price (Rs/share) 486



Exhibit 6: We expect Havells to deliver 21% EPS CAGR over FY2018-21E Consolidated financial summary of Havells, March fiscal year-ends, 2012-21E (` mn)


2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

Profit model

Total income 65,182 72,479 81,858 85,694 76,126 61,558 81,464 98,146 114,690 131,739

EBITDA 6,573 6,744 7,425 7,211 7,580 8,182 10,434 12,402 15,499 18,145

Interest (expense)/income (1,281) (1,232) (741) (640) (544) (133) (248) (177) (177) (177)

Depreciation (949) (1,097) (1,155) (1,387) (1,344) (1,205) (1,405) (1,529) (1,834) (2,198)

Other income 414 279 413 505 866 1,382 1,179 1,310 1,490 1,860

Pretax profits 4,757 4,694 5,941 5,690 6,559 8,225 9,960 12,006 14,979 17,629

Extraordinary items — 1,944 — — 8,621 (949) (312) — — —

Reported PBT 4,757 6,638 5,941 5,690 15,180 7,276 9,648 12,006 14,979 17,629

Tax (1,058) (824) (1,478) (1,836) (2,193) (2,288) (3,038) (3,722) (4,643) (5,465)

Minority interest 5 — — — 18 (44) 14 — — —

Profit after tax 3,704 5,814 4,463 3,854 13,005 4,945 6,624 8,284 10,335 12,164

Adjusted PAT 3,704 4,453 4,463 3,854 6,970 5,609 6,842 8,284 10,335 12,164

EPS (Rs) 5.9 7.1 7.2 6.2 11.2 9.0 10.9 13.3 16.5 19.5

Balance sheet

Total equity 9,556 14,420 16,660 18,182 30,277 32,768 37,292 42,086 48,068 55,108

Deferred tax liability and minority interest 557 481 468 (137) 1,058 1,259 2,193 2,193 2,193 2,193

Total borrowings 9,795 9,785 10,506 4,191 855 2,083 1,424 1,350 1,350 1,350

Long-term provisions 3,174 3,132 3,889 4,524 127 100 247 239 239 239

Current liabilities 18,672 16,761 21,801 20,980 11,560 13,714 24,918 26,515 29,353 33,610

Total liabilities and equity 41,754 44,579 53,324 47,740 43,876 49,925 66,074 72,384 81,202 92,500

Cash 2,336 4,736 8,817 9,530 14,680 19,745 15,620 16,654 20,834 27,669

Current assets 24,847 24,594 28,059 22,417 14,696 15,302 21,851 23,656 27,629 31,689

Fixed assets plus intangibles 14,571 15,250 16,448 15,793 14,500 14,878 28,603 32,074 32,740 33,142

Total assets 41,754 44,579 53,324 47,740 43,876 49,925 66,074 72,384 81,202 92,500

Free cash flow

Operating cash flow, excl. working capital 5,753 7,764 6,962 5,474 6,328 7,102 8,298 8,681 10,856 12,680

Working capital changes (1,234) (1,419) 1,719 4,152 (1,015) 1,135 2,702 (207) (1,136) 197

Capital expenditure (1,716) (1,750) (1,764) (1,739) 8,326 (2,344) (11,717) (5,000) (2,500) (2,600)

Free cash flow 2,803 4,595 6,918 7,887 13,638 5,893 (717) 3,474 7,220 10,276

Ratios (%)

EBITDA margin 10.1 9.3 9.1 8.4 10.0 13.3 12.8 12.6 13.5 13.8

Debt/equity 1.0 0.7 0.6 0.2 0.0 0.1 0.0 0.0 0.0 0.0

Net debt/equity 0.8 0.4 0.1 (0.3) (0.5) (0.5) (0.4) (0.4) (0.4) (0.5)

RoE 46.0 32.3 28.7 22.1 18.0 18.8 19.8 20.9 22.9 23.6

RoCE 37.6 29.8 26.4 26.9 29.9 35.2 35.3 30.5 34.1 38.4


Weak quarter—realizations disappoint, energy cost increases after stellar 2QCY18 earnings

ACC’s earnings missed our and consensus estimates—the company reported revenues of `33.6

bn (+10% yoy, -11% qoq), EBITDA of `3.7 bn (+6% yoy, -31% qoq) and net-income of `2.1

bn (+16% yoy, -37% qoq) against our estimate of `34.5 bn, `5.5 bn and `3.3 bn respectively.

Volumes increased 10% yoy to 6.6 mn tons (-10% qoq) and were higher than our estimate of

6.4 mn tons. EBITDA/ton declined 25% qoq to `538/ton (-4% yoy) largely due to a 2% qoq

decline in realizations and higher costs. The company’s 3QCY18 earnings are weak compared

to strong earnings reported in 2QCY18.

Realizations decline 2% qoq in 3QCY18. The earning miss was largely due to lower-than-

expected realizations, which declined 2% qoq to `4,760/ton against our estimate of a

marginal increase. As per our checks, in 3QCY18 cement prices were up in Central and

North region (40% of volumes) but declined in South, West (40% of volumes). We highlight

that ACC’s 2QCY18 realizations increased 5% qoq to `4,840/ton and were higher than

those of peers and our estimate.

Energy cost rises after a decline in 2QCY18. Energy cost increased by 8% qoq to

`1,110/ton in 3QCY18. We note that in 2QCY18, ACC’s fuel cost had declined by 1% qoq

to `1,032/ton (+2% yoy) in contrast to the increase in pet-coke prices, weaker INR/US$. We

believe ACC may have gained from low priced contracts, inventory in 2QCY18. ACC’s total

cost increased 3% qoq to `4,570/ton (+1% yoy) due to high energy costs, other expenses.

We cut our target price to `1,250 (`1,270 earlier) and maintain SELL rating

ACC’s plant operated at 80% utilization in 3QCY18 as volumes increased 10% yoy to 6.6 mn

tons—3Q is a seasonally weak quarter for volumes due to monsoons; plant utilization was close

to 83% for 9MCY18. The company’s cement grinding capacity is 33.5 mtpa and it is not

pursuing any expansion project. We would expect ACC to start investing in growth capex

soon—it is likely that the company’s volume growth may suffer due to capacity constraints.

We cut our realization assumption by 1% for CY2018-2020E and tweak our cost assumptions

resulting in a 1-2% cut in our EBITDA estimate and 4-6% cut in our earnings estimate. This

results in a cut our target price to `1,250 (from `1,270)—we value ACC on 9X EV/EBITDA on

March 2020E financials. We maintain our SELL rating as the stock is expensive at 12XCY2019E

EBITDA.

ACC (ACC)

Cement

A weak quarter—improvements fade. ACC’s earnings were lower than our

estimate—EBITDA declined 31% qoq to `3.7 bn (+6% yoy) as EBITDA/ton shrank 25%

qoq to `538 (-4% yoy). The company reported lower-than-expected realizations (-2%

qoq) and higher energy costs (+8% qoq)—these were two heads that had aided the

strong earnings beat in 2QCY18. We cut our earnings estimate by 4-6% for CY2018-

2020E and target price to `1,250 (from `1,270). We maintain our SELL rating on

expensive valuations—the stock trades at 14X/12X CY2018/2019E EV/EBITDA and

27X/23X earnings.

SELL

OCTOBER 19, 2018

RESULT

Coverage view: Cautious

Price (`): 1,540


BSE-30: 34,780

Abhishek Poddar

Murtuza Arsiwalla

Prayatn Mahajan

ACC







MFs 6.1 EBITDA (Rs bn) 18.5 20.7 23.1


Absolute (3.0) 19.5 (14.1) ROE (%) 11.2 12.0 12.7

Rel. to BSE-30 4.9 25.5 (19.5) Div. Yield (%) 1.1 1.1 1.1


1,857-1,255

289.1

ACC Cement


Exhibit 1: ACC's volumes increased 10% yoy in 3QCY18; earnings miss was due to weaker-than-expected realizations and higher fuel costs Quarterly results for ACC (standalone), December year-ends (Rs mn)


Changes in our estimate

Exhibit 4 highlights key changes in our estimates.

We raise our volume estimate by 1% to 28.3 mn tons, 29.7 mn tons and 31.2 mn tons for

CY2018E, CY2019E and CY2020E. We cut our realization assumption by 1% which results

in a 1-3% cut in our EBITDA/ton estimates to `653, `698 and `742 for CY2018E, CY2019E

and CY2020E. Our EBITDA estimate is cut by 0-2% for CY2018-2020E. We estimate EBITDA

of `18.5 bn, `20.7 bn and `23.1 bn for CY2018E, CY2019E and CY2020E. We estimate

EPS of `57.9, `67.4 and `77.9 for CY2018E, CY2019E and CY2020E.

Key result highlights

Volume growth of 10% yoy aided by infrastructure demand. ACC’s volumes

increased 10% yoy to 6.6 mn tons—the company highlighted affordable housing and

infrastructure as demand drivers. RMC volumes increased 12% yoy to 0.7 mn tons. The

company’s plant utilization was 80% during the quarter versus 73% a year ago.

Costs rise due to increase in energy costs. ACC’s operating cost for the quarter

increased by 3% qoq to `4,566/ton (+1% yoy) largely due to an increase in energy costs.

The company’s fuel costs increased by 8% qoq to `1,115/ton (-1% yoy) due to an

increase in pet-coke prices and weaker INR/US$ rate. Exhibit 2 highlights the cost trends

of ACC and Ultratech in 2QCY18, the company’s energy costs declined qoq while peers

reported an increase.

(% chg.)

3QCY18 3QCY18E 3QCY17 2QCY18 KIE yoy qoq 9MCY18 9MCY17 (% chg) CY2018E CY2017 (% chg)

Sales 33,640 34,553 30,545 37,679 (3) 10 (11) 106,889 94,667 13 145,218 129,310 12

Operating costs

Raw material costs (4,487) (4,847) (4,452) (5,243) (15,375) (13,115) (21,059) (19,676)

Employee costs (2,120) (2,127) (2,008) (2,565) (6,667) (6,142) (8,994) (8,190)

Freight costs (9,378) (9,051) (8,034) (10,380) (29,781) (25,091) (40,409) (34,510)

Power costs (7,305) (6,760) (6,732) (7,510) (22,302) (20,055) (30,562) (27,145)

Purchased cement (249) (255) (3) (248) (517) (8) (275) (8)

Other expenditure (6,368) (6,018) (5,787) (6,300) (18,843) (18,358) (25,457) (24,226)

Total operating costs (29,906) (29,058) (27,015) (32,244) 3 11 (7) (93,485) (82,768) (126,755) (113,755)

EBITDA 3,734 5,495 3,530 5,435 (32) 6 (31) 13,404 11,899 13 18,463 15,555 19

EBITDA margin (%) 11.1 15.9 11.6 14.4 12.5 12.6 12.7 12.0

Other income 1,005 1,130 858 1,119 3,269 3,622 4,509 4,853

Interest (201) (267) (213) (275) (669) (689) (897) (1,023)

Depreciation (1,499) (1,496) (1,551) (1,481) (4,454) (4,823) (5,935) (6,401)

PBT 3,040 4,863 2,624 4,798 (37) 16 (37) 11,549 10,009 15 16,139 12,984 24

Current tax (984) (1,556) (847) (1,543) (3,788) (2,899) (4,842) (3,511)

Deferred tax — — — — — — (403) (318)

Net income 2,056 3,307 1,777 3,255 (38) 16 (37) 7,762 7,109 9 10,894 9,155 19

Extraordinaries (net of tax) — — — — — — — —

Reported net income 2,056 3,307 1,777 3,255 (38) 16 (37) 7,762 7,109 10,894 9,155

EPS - adjusted (Rs) 10.9 17.6 9.5 17.3 41.3 37.8 57.8 48.6

Sales (mn tons) 6.6 6.4 6.0 7.2 3 10 (10) 20.9 19.3 8 28.3 26.2 8

Realization (Rs/ton) 4,756 4,906 4,733 4,836 (3) 0 (2) 4,740 4,554 4 4,759 4,576 4

Operating costs (Rs/ton) 4,566 4,556 4,533 4,454 4,473 4,288 4,481 4,340

Raw materials 685 760 747 724 736 680 744 751

Employee costs 324 334 337 354 319 318 318 312

Freight costs 1,432 1,419 1,348 1,434 1,425 1,300 1,429 1,317

Power & fuel costs 1,115 1,060 1,130 1,037 1,067 1,039 1,080 1,036

Purchased cement 38 40 — 34 25 — 10 —

Other expenditure 972 944 971 870 902 951 900 924

Profitability (Rs/ton) 538 819 557 713 (34) (4) (25) 603 586 3 653 593 10

Cement ACC


Exhibit 2: ACC's realizations increased sharply while energy cost declined in 2QCY18—this trend reversed in 3QCY18 Comparison of realization, energy cost per ton of ACC and Ultratech, June 2016 - September 2018 (Rs/ton, %)

Source: Companies, Kotak Institutional Equities estimates

Exhibit 3: ACC's cement volumes increased 10% yoy to 6.6 mn tons Quarterly cement volumes of ACC, 3QCY13- 3QCY18 (mn tons)


Exhibit 4: ACC Cement, changes in estimates, December year-ends, 2018-20E


Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Realisation (Rs/ton)

Ultratech 4,662 4,828 4,719 4,687 5,020 5,001 4,789 4,877 4,946 —

Change yoy (%) -8% -9% -8% -4% 8% 4% 1% 4% -1% —

Change qoq (Rs/ton) -213 166 -109 -32 333 -19 -212 88 69 —

ACC 4,418 4,558 4,592 4,461 4,805 4,837 4,680 4,721 4,947 4,862

Change yoy (%) -3% -1% 2% 3% 9% 6% 2% 6% 3% 1%

Change qoq (Rs/ton) -129 139 34 -131 344 32 -157 41 225 -85

Energy cost/ton (Rs)

Ultratech 682 737 785 840 871 925 949 987 1,028 —

Change yoy (%) -24% -19% -5% 23% 28% 26% 21% 18% 18% —

Change qoq (%) 8% 7% 7% 4% 6% 3% 4% 4% —

ACC 848 1,051 969 976 1,011 1,124 1,019 1,048 1,032 1,110

Change yoy (%) -13% -4% 8% 10% 19% 7% 5% 7% 2% 8%

Change qoq (%) -4% 24% -8% 1% 4% 11% -9% 3% -2% 8%

(15)

(10)

(5)

-

5

10

15

20

25

30

0

1

2

3

4

5

6

7

8

3Q

CY13

4Q

CY13

1Q

CY14

2Q

CY14

3Q

CY14

4Q

CY14

1Q

CY15

2Q

CY15

3Q

CY15

4Q

CY15

1Q

CY16

2Q

CY16

3Q

CY16

4Q

CY16

1Q

CY17

2Q

CY17

3Q

CY17

4Q

CY17

1Q

CY18

2Q

CY18

3Q

CY18

Despatch (mn tons) (LHS) Growth (%, yoy) (RHS)

Revised estimate Previous estimate Change (%)

2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E

Volume and realizations (mn tons, Rs/ton)

Cement sales (mn tons) 28.3 29.7 31.2 28.0 29.4 30.9 1 1 1

Realization (Rs/ton) 5,134 5,278 5,424 5,204 5,327 5,472 (1) (1) (1)

EBITDA (Rs/ton) 653 698 742 670 709 753 (3) (2) (1)

Earnings estimates (Rs mn)

Revenues 145,218 156,766 169,139 145,814 156,717 169,056 (0) — —

EBITDA 18,463 20,720 23,149 18,772 20,858 23,265 (2) (1) (0)

PAT 10,894 12,665 14,648 11,627 13,236 15,254 (6) (4) (4)

EPS 57.9 67.4 77.9 61.9 70.4 81.1 (6) (4) (4)

ACC Cement


Exhibit 5: Our assumptions factor a healthy improvement in profitability coupled with reasonable volume growth Key assumptions in the profit model for ACC, December year-ends, 2015-20E (Rs mn)


Exhibit 6: Our fair value of Rs1,250/share is based on 9X March 2020E EV/EBITDA ACC Cement, Valuation details, March 2020E


Growth (%)

2016 2017 2018E 2019E 2020E 2016 2017 2018E 2019E 2020E

Key Standalone financials (Rs mn)

Revenue 107,678 129,310 145,218 156,766 169,139 (6) 20 12 8 8

EBITDA 12,518 15,555 18,463 20,720 23,149 8 24 19 12 12

PAT 6,899 9,154 10,894 12,665 14,648 (7) 33 19 16 16

Key operating metrics

Volumes (mn tons) 23.0 26.2 28.3 29.7 31.2 (3) 14 8 5 5

Realization (Rs/ton) 4,684 4,934 5,134 5,278 5,424 (3) 5 4 3 3

Operating cost (Rs/ton) 4,139 4,340 4,481 4,581 4,681 (5) 5 3 2 2

Profitability (Rs/ton) 544 593 653 698 742 11 9 10 7 6

EV

(Rs mn) (Rs mn) (Rs/share)

Valuation

EBITDA (Rs mn) 21,327 9 191,944 1,021

Cash & cash equivalents (Rs mn) 43,272 230

Equity value (Rs mn) 235,216 1,250

Target Price (Rs/share) 1,250

Multiple

(X)

Cement ACC


Exhibit 7: ACC Cement, Profit model, balance sheet and cash flow model, December year-ends, 2015-20E (Rs mn)


2015 2016 2017 2018E 2019E 2020E


Net sales 114,139 107,678 129,310 145,218 156,766 169,139

EBITDA 11,542 12,518 15,555 18,463 20,720 23,149

Other income 5,023 3,503 4,853 4,509 5,123 5,995

Interest (673) (826) (1,023) (897) (897) (897)

Depreciation (6,521) (6,052) (6,401) (5,935) (6,320) (6,705)

Extraordinary item (1,532) (428) — — —

Profit before tax 7,840 8,715 12,984 16,139 18,625 21,541

Current tax (2,588) (2,350) (3,511) (4,842) (5,587) (6,462)

Deferred tax 664 106 (318) (403) (372) (431)

Reported net income 5,916 6,471 9,154 10,894 12,665 14,648

Adjusted PAT 7,447 6,899 9,154 10,894 12,665 14,648

Earnings per share (Rs) 39.6 36.7 48.7 57.9 67.4 77.9


Equity 84,430 88,319 93,655 100,702 109,520 120,322

Deferred tax liability 4,692 4,474 5,414 5,817 6,190 6,620

Borrowings 355 500 592 — — —

Current liabilities 38,931 41,103 49,229 48,629 51,900 54,985

Total liabilities 128,408 134,396 148,889 155,148 167,610 181,928

Fixed assets 76,559 77,858 75,027 74,092 72,772 71,067

Investments 14,757 2,585 2,302 2,302 2,302 2,302

Cash 916 19,451 26,954 29,585 40,133 52,691

Other current assets 36,176 34,502 44,606 49,169 52,404 55,868

Total assets 128,408 134,396 148,889 155,148 167,610 181,928


Operating cash flow excl. working capital 14,258 12,288 16,762 17,232 19,358 21,784

Working capital changes 579 1,764 (890) (5,163) 37 (380)

Capital expenditure (11,681) (4,976) (5,194) (5,000) (5,000) (5,000)

Free cash flow 3,156 9,077 10,679 7,069 14,394 16,404

Ratios

Book value (Rs/share) 449 470 498 536 583 640

RoAE (%) 8.9 8.0 10.1 11.2 12.0 12.7

RoACE (%) 4.8 5.6 7.1 8.7 9.3 9.7

CRoCI (%) 12.7 13.6 19.8 19.5 20.2 21.1


Muted revenue growth due to weak growth from clients outside top-10 bucket

Mindtree reported 2% sequential revenue growth to US$246 mn (2.4% in constant currency).

Revenues from the top client grew 6.2%, while the rest of the top-10 clients grew 4.1%

sequentially. Client metrics were healthy with two additions to US$10 mn bucket. Yet revenues

missed our estimate due to lack of growth from clients outside the top-10 bracket and lack of

replenishment of projects in retail, CPG & manufacturing vertical (-4.2% qoq) due to delay in

decision-making. EBITDA margin increased 130 bps qoq to 15.4% with the entire increase

attributable to rupee depreciation. The impact of promotions and campus hires (60 bps) was

offset by absence of one-off cost in the previous quarter. Net profit of `2.06 bn (+65% yoy)

was 16.2% ahead of our estimate and largely due to `403 mn of forex gain.

Business in a healthy shape; growth from large accounts and deal wins comforting

Even as revenues fell short in the quarter, we retain our FY2019-21E revenue growth estimates.

A few factors lend comfort—(1) TCV of deal wins is tracking up 22% in 1HFY19. Value of

contracts to be executed over the next 12 months has also grown at the same rate, (2) revenue

growth is getting broad-based. Clients beyond the top name and in the 2-10 category have

started growing, (3) improvement in the client bucket with a few added to US$10 mn category,

and (4) the deal pipeline is strong. The management indicated that growth rates in seasonally

weak December quarter will be similar to September quarter.

Cut EPS estimates by 0-3%; performance on track. Maintain ADD rating

We cut FY2019-21E EPS estimate by 0-3% largely due to cut in margin assumption by 20-40 bps

from FY2019-21E. Moderation in margin assumption captures the aggressive talent onboarding

and investments in enterprise re-imagination segment. Core profitability assumption remains

unchanged. We cut our target price to `1,080 (from `1,225) due to mix of EPS moderation and

marginal alignment in multiples. Mindtree can grow at an elevated rate courtesy strength in

digital competencies, strong wins from advisory channel and alignment of portfolio to growth

areas. We remain constructive and retain ADD rating.

Mindtree (MTCL)

Technology

Reality check. Mindtree disappointed with muted constant-currency revenue growth

of 2.4% in a seasonally strong quarter. Growth was strong from top-10 clients but

weak from the rest. Health of the business is in good shape as reflected in growing rate

of deal wins and improvement in client metrics. We retain our revenue growth

estimates but moderate profitability assumption due to higher-than-expected

reinvestment rate. Cut EPS by 0-3% and target price by 12% to `1,080. Mindtree is

well-poised to grow at an elevated rate with measured pace of margin expansion. ADD.

ADD

OCTOBER 19, 2018

RESULT

Coverage view: Cautious

Price (`): 978


BSE-30: 34,780

Kawaljeet Saluja

Sathishkumar S

Mindtree







MFs 5.4 EBITDA (Rs bn) 10.8 13.4 14.9


Absolute (15.1) (9.5) 94.7 ROE (%) 24.8 26.0 25.2

Rel. to BSE-30 (8.3) (5.0) 82.6 Div. Yield (%) 1.4 1.7 1.9


1,184-469

160.6

Technology Mindtree


Reinvestments keep margins in check

Mindtree’s gross profit margin declined on a sequential basis despite rupee depreciation.

The margin improvement has been largely due to currency depreciation with little

operational efficiency to show for. We believe this is partly on account of reinvestments in

business. We highlight two specific areas of investments.

Accelerated onboarding of talent. Mindtree continues to hire aggressively and believes

that plenty of high quality talent are keen to join the organization. The company is willing

to onboard high profile quality talent and keep a bench as long as such recruitments can

drive additional projects from clients and accelerate growth further. In effect the

company is recruiting aggressively in anticipation of strong demand. The downside of this

approach is that it leads to increase in cost structure and can impact margins if the

demand was to slow down.

Enterprise re-imagination. Mindtree is developing a new global business from the

ground up under the leadership of Dr Satya Ramaswamy. Dr Ramaswamy developed the

global digital services business in TCS from the ground up over a seven-year period

starting 2010. Creation of this new line of business calls for sustained investments, which

Mindtree is willing to make. The company is also investing in the platforms business.

These initiatives may not have material near-term revenue potential but can create a new

engine of growth over the medium term. Despite these investments, Mindtree’s EBITDA margin will increase over the next two years led by strong growth profile, improvement in fixed-price project execution and operational efficiencies. We forecast EBITDA margin of 15.4%, 16.6% and 16.5% for FY2019E, FY2020E and FY2021E, respectively. However, margin improvement will have its share of quarterly volatility.

Strong deal momentum continues

Deal closures increase further. The company’s TCV of deal wins was US$271 mn in the

September 2018 quarter, a yoy growth of 31%. Deals wins in 1HFY19 grew 22%. We do

note that Mindtree captures all wins (renewals and new) in the TCV; hence the focus should

be on total wins to gauge direction of growth. Mindtree further indicated increasing digital

deal sizes, a positive and shows progress towards the theme of industrialization of digital. Of

the US$271 mn TCV, deals expiring in <1 year in US$198 mn.

Key highlights from earnings call

Margin walk-through. EBITDA margin increased 130 bps sequentially to 15.4% due to

(1) 60 bps headwind from promotions and new campus hires, offset by, (2) 60 bps

tailwind from absence of one-time grant to Stanford University and (3) 130 bps tailwind

from rupee depreciation net of cross-currency movements.

Revenue and margin outlook. Mindtree expects 3QFY19 revenues to be impacted by a

volatile macro-environment and seasonality. The management indicated that 3QFY19

revenue growth rate will be similar to 2QFY19 growth rates based on visibility in the deal

pipeline. The company expects 3QFY19 margins to be slightly better than 2QFY19

margins. FY2019 margins will be better than FY2018 margins excluding the impact of

currency.

Commentary on retail, CPG & manufacturing vertical. Retail, CPG & manufacturing

vertical revenues declined by 4.2% qoq. Management attributed the decline to delay in

deal closure in the US leading to a gap in the deal pipeline following completion of

projects in Europe. Management indicated that the vertical will revert to growth in the

next quarter.

Commentary on margins. Mindtree reported that it did not face headwinds to margins

from price negotiation with customers in light of the recent rupee depreciation. Margin

Mindtree Technology


drivers include (1) revenue growth, (2) leverage of pyramid and (3) efficiencies from

automation apart from rationalization of SG&A costs.

Commentary on BFSI vertical. Mindtree has a higher proportion of ‘run the business’

projects among its BFSI clients. The company has not seen a strong pickup for digital in

BFSI unlike other verticals leading to weak growth visibility in the near term.

Travel vertical. Mindtree continues to see good momentum in the vertical. Mindtree

enjoys good domain knowledge and credibility in both airline and hospitality sub-

segments. Projects in the vertical involve cutting edge work on personalization and

related trends in digital, which are in a sweet spot for the company.

Top accounts. Revenue from top client and revenues from top 2-10 clients increased by

6.2% and 4.1% on a sequential basis, respectively. Mindtree expects good growth from

its top 2-10 customers. Management does not expect account-related challenges from its

top 2-10 clients barring one client. Mindtree does not expect pricing pressure from its top

client.

Client metrics. Mindtree added two clients to US$10 mn bucket. Number of clients in

US$25 mn, US$50 mn, US$100 mn buckets remained unchanged.

Digital. Mindtree reported that the average size of digital deals won by the company is

rising. Mindtree is able to win higher proportion of projects involving high levels of

consulting, domain knowledge and technology. Margins in digital business remained flat

in the quarter.

Hiring. Mindtree has hired roughly 600 campus graduates in 1HFY19. The company

expects to hire 800 more campus graduates in 2HFY19 evenly across the next two

quarters. Lateral additions will be based on availability of talent and business needs.

Macro concerns. Based on discussions with clients, management reported that the

prevailing macro situation negatively affected client sentiments leading to delay in signing

of new contracts. Delay in decision-making by clients equally impacted both ‘run’ and

‘digital’ parts of the business.

Dividend. Mindtree board has declared an interim dividend of `3/share for the quarter.

Technology Mindtree


Exhibit 1: Mindtree, 2QFY19 interim results (Ind-AS), March fiscal year-ends (Rs mn)


Exhibit 2: Key changes to estimates, March fiscal year-ends, 2019E-21E


2QFY19 2QFY19E 2QFY18 1QFY19 KIE yoy qoq FY2019E FY2018 % chg.

Revenues (US$ mn) 246.4 248.3 206.2 241.5 (0.7) 19.5 2.0 993 847 17.3

Revenues 17,554 17,502 13,316 16,395 0.3 31.8 7.1 69,993 54,628 28.1

Direct costs (11,171) (10,979) (9,001) (10,395) 1.7 24.1 7.5 (44,309) (35,641) 24.3

Gross profit 6,383 6,522 4,315 6,000 (2.1) 47.9 6.4 25,684 18,987 35.3

SG&A expenses (3,684) (3,842) (2,774) (3,690) (4.1) 32.8 (0.2) (14,925) (11,582) 28.9

EBITDA 2,699 2,681 1,541 2,310 0.7 75.1 16.8 10,759 7,405 45.3

Depreciation (403) (420) (454) (400) (4.2) (11.2) 0.8 (1,697) (1,715) (1.1)

EBIT 2,296 2,260 1,087 1,910 1.6 111.2 20.2 9,062 5,690 59.3

Interest (1) — (25) (28) (29) (169)

Other income 524 157 598 279 1,057 1,902 (44.4)

Profit before tax 2,819 2,417 1,660 2,161 16.6 69.8 30.4 10,119 7,592 33.3

Tax (756) (642) (413) (579) (2,701) (1,722)

Net profit 2,063 1,775 1,247 1,582 16.2 65.4 30.4 7,418 5,870 26.4

EPS (Rs/ share) 12.6 10.8 7.6 9.6 16.2 65.0 30.4 45.0 34.6 30.1

Shares outstanding (mn) 164.2 164.2 163.9 164.0 164 165

Margins (%)

Gross margin 36.4 37.3 32.4 36.6 36.7 34.8

SG&A as % of revenues 21.0 22.0 20.8 22.5 21.3 21.2

EBITDA margin 15.4 15.3 11.6 14.1 15.4 13.6

Tax rate (%) 26.8 26.6 24.9 26.8 26.7 22.7

% chg.

New Old Change (%)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Revenues (Rs mn) 69,993 80,495 90,470 69,453 80,436 90,699 0.8 0.1 (0.3)

Revenues (US$ mn) 993 1,118 1,257 990 1,117 1,260 0.3 0.1 (0.3)

Growth (%) 17.3 12.6 12.4 16.9 12.9 12.8

EBITDA (Rs mn) 10,759 13,359 14,945 10,905 13,608 15,341 (1.3) (1.8) (2.6)

Net Profit (Rs mn) 7,389 9,092 10,364 7,346 9,331 10,680 0.6 (2.6) (3.0)

Fully diluted EPS (Rs/share) 45.0 55.4 63.1 44.7 56.8 65.0 0.6 (2.6) (3.0)

Re/ $ rate 70.5 72.0 72.0 70.2 72.0 72.0 0.4 — —

EBITDA margin (%) 15.4 16.6 16.5 15.7 16.9 16.9

Mindtree Technology


Exhibit 3: Revenue growth across geographies, verticals and service lines (Sep 2018)


Exhibit 4: Impressive pickup in yoy growth trajectory


Revenues Revenues (

U(US$ mn) QoQ YoY % of total

Total revenues 246 2.0 19.5 100

Revenue by geography

USA 181 3.3 30.3 73.6

Europe 46 (5.1) (2.0) 18.7

India 8 8.6 12.7 3.3

Rest of the world 11 6.9 (16.5) 4.4

Revenue by verticals

Hi-Tech & Media Services 97 3.1 24.2 39.3

BFSI 55 2.5 7.9 22.4

Retail, CPG & Manufacturing 53 (4.2) 13.2 21.7

Travel & Hospitality 41 7.8 37.6 16.7

Revenue by service offerings

ADM 125 2.2 21.4 50.8

Consulting 8 (7.0) (7.4) 3.1

Package implementation 22 (15.3) (6.1) 8.8

IP led revenue 2 36.0 (4.4) 0.8

Independent testing 32 2.0 29.4 13.1

IMS & Tech support 58 10.5 28.3 23.4

Digital 119 3.3 34.9 48.1

Revenues from client buckets

Top client 50 6.2 49.9 20.2

Top 5 clients 83 6.8 34.2 33.8

Top 10 clients 110 5.1 27.8 44.8

Growth (%)

16 18

20 19

16

11 10

23 25

32

28

7

4

- 1

7

11

16

21 19

0

5

10

15

20

25

30

35

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

US$ revenue growth (yoy %)

Technology Mindtree


Exhibit 5: Strong growth from the top account continues


Exhibit 6: Mindtree: Sustained increase in Total Contract Value on yoy basis (US$ mn)


Exhibit 7: EBITDA margin boosted by sharp rupee depreciation and absence of one-offs


Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 4 qtr 8 qtr 12 qtr

Revenues (US$ mn)

Top client 26.1 27.8 27.1 28.0 30.6 33.2 35.6 40.3 46.9 49.8 10.7 7.6 8.2

Top-5 clients 59.0 57.9 57.9 60.0 60.2 62.1 67.7 72.4 78.0 83.3 7.6 4.6 3.2

Top-10 clients 84.7 82.0 81.3 82.0 83.0 86.4 93.6 98.8 105.1 110.4 6.3 3.8 2.5

Non Top-10 accounts 114.3 111.0 110.9 113.6 117.1 119.8 120.7 127.4 136.4 136.0 3.2 2.6 2.7

Growth (%)

Top client 14.2 6.4 (2.5) 3.2 9.5 8.4 7.2 13.2 16.4 6.2

Top-5 clients 1.5 (1.8) (0.1) 3.8 0.3 3.0 9.1 6.9 7.8 6.8

Top-10 clients 1.3 (3.1) (0.9) 0.8 1.3 4.0 8.4 5.6 6.3 5.1

Non Top-10 accounts 2.1 (2.9) (0.1) 2.5 3.0 2.3 0.7 5.6 7.1 (0.3)

Contribution of top account to growth

Incremental revenues added (US$ mn) 3 (6) (1) 3 5 6 8 12 15 5

Share of top account in incremental revenues (%) 95 (28) 86 26 59 42 29 39 43 60

CQGR (%)

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Renewals 130 153 209 184 119 170 135 219 130 187 256 255 222

New 63 51 72 36 65 144 74 43 77 57 42 51 49

Total TCV (US$ mn) 193 204 281 220 184 314 209 262 207 244 298 306 271

Expiring within 1 year 157 180 247 209 152 234 182 198 166 206 237 259 198

Expiring >1 year 36 24 34 11 31 80 27 64 41 38 61 47 73

Digital 105 82 82 93 64 103 50 108 84 132 102 139 162

Total TCV (LHS,TTM US$ mn) 717 769 886 898 889 999 927 969 992 922 1,011 1,055 1,119

Total TCV growth (RHS,TTM qoq %) 4.1 7.3 15.2 1.4 (1.0) 12.4 (7.2) 4.5 2.4 (7.1) 9.7 4.4 6.1

20.4

19.0

18.4

20.8

19.5

21.5

20.0 19.8

20.5

19.5

17.6 18.5

17.7 17.1

14.7

12.5 13.4

14.2

11.1 11.6

15.1 16.1

14.1

15.4

10

13

16

19

22

25

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Sep

-18

EBITDA margin (%)

Mindtree Technology


Exhibit 8: Mindtree: Key operating metrics


Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Revenues (US$ mn) 199.0 193.0 192.2 195.6 200.1 206.2 214.3 226.2 241.5 246.4

Revenue by geographical segment (%)

USA 66.7 67.6 68.7 69.8 69.6 67.5 69.7 71.0 72.7 73.6

Europe 23.1 21.4 20.8 20.8 21.1 22.8 20.9 21.1 20.1 18.7

India 3.1 3.5 3.1 2.8 3.0 3.5 3.2 3.2 3.1 3.3

Rest of the world 7.1 7.5 7.4 6.6 6.3 6.3 6.2 4.7 4.2 4.4

Revenue by service offering (%) - new classification

Development 22.7 22.0 22.3 21.4 22.6 23.1 24.5 25.5

Engineering 9.8 9.8 9.5 9.5 9.6 9.2 9.1 9.1

Maintenance 17.3 17.8 17.6 18.3 19.0 17.7 16.6 15.7

ADM 51.2 50.0 50.2 50.3 50.7 50.8

Consulting 4.1 3.8 3.9 4.0 3.4 4.0 4.0 3.9 3.4 3.1

Package implementation 13.9 13.1 12.4 12.6 11.5 11.2 11.3 11.2 10.6 8.8

IP led revenue 1.0 1.2 1.4 1.3 1.1 1.0 0.9 0.9 0.6 0.8

Independent testing 12.8 12.4 12.6 12.5 11.8 12.1 12.6 12.7 13.1 13.1

Infrastructure management & Tech support 18.4 19.9 20.3 20.4 21.0 21.8 21.1 21.0 21.6 23.4

Digital 39.9 40.0 39.4 39.6 42.3 42.6 43.9 45.0 47.5 48.1

Revenue by industry (%) - new classification

Hi-Tech & Media Services 36.1 36.7 36.7 37.5 37.9 37.8 36.6 37.6 38.9 39.3

BFSI 24.9 24.7 24.1 24.7 25.1 24.8 24.8 22.5 22.3 22.4

Retail, CPG & Manufacturing 24.1 24.2 24.1 23.0 22.7 22.9 23.3 24.0 23.1 21.7

Travel & Hospitality 15.0 14.4 15.1 14.9 14.3 14.5 15.3 15.9 15.8 16.7

Revenue by project type (%)

Fixed price 48.7 50.6 52.5 52.8 52.9 55.5 56.4 56.8 56.4 56.1

Time & materials 51.3 49.4 47.5 47.2 47.1 44.5 43.6 43.2 43.6 43.9

Effort mix (%)

Onsite 22.9 23.3 23.5 24.4 23.2 22.8 22.9 22.8 22.8 22.3

Offshore 77.1 76.7 76.5 75.6 76.8 77.2 77.1 77.2 77.2 77.7

Revenue mix (%)

Onsite (%) 59.5 59.2 60.2 60.5 58.0 57.6 57.9 58.9 NA

Offshore (%) 40.5 40.8 39.8 39.5 42.0 42.4 42.1 41.1 NA

Effort and Utilization

Onsite - Billled hours 1,387,455 1,387,696 1,357,257 1,440,240 1,423,605 1,419,828 1,402,667 1,504,976 1,603,168 1,665,289

Offshore - Billed hours 4,681,805 4,573,034 4,426,659 4,469,309 4,703,810 4,816,924 4,713,836 5,088,373 5,424,314 5,803,089

Total 6,069,260 5,960,730 5,783,916 5,909,549 6,127,415 6,236,752 6,116,503 6,116,503 7,027,482 7,468,378

Fee revenues (US$ mn)

Onsite 117.2 113.4 114.1 117.1 114.9 117.5 122.6 131.8 NA

Offshore 79.6 78.1 75.6 76.5 83.2 86.5 89.2 92.1 NA

Utilization (%)

Including trainees 71.4 71.4 71.3 70.9 73.2 73.2 72.8 73.8 75.4 74.5

Excluding trainees 72.0 73.1 72.3 72.7 73.8 74.6 74.3 75.2 76.3 76.5

Client metrics

Number of active clients 343 337 348 328 336 327 344 338 339 341

New clients added 17 18 21 20 20 24 28 23 24 18

US$1 mn clients 98 107 106 111 113 114 114 118 117 111

US$5 mn clients 31 30 30 30 33 38 37 38 39 44

US$10 mn clients 16 16 17 16 16 16 15 17 19 21

US$20 mn clients

US$25 mn clients 5 6 4 4 3 3 3 4 4 4

US$30 mn clients

US$50 mn clients 2 2 1 1 1 1 1 1 1 1

Client contribution to revenue (%)

Top customer 13.1 14.4 14.1 14.3 15.3 16.1 16.6 17.8 19.4 20.2

Top 5 customers 29.6 30.0 30.1 30.7 30.1 30.1 31.6 32.0 32.3 33.8

Top 10 customers 42.6 42.5 42.3 41.9 41.5 41.9 43.7 43.7 43.5 44.8

Revenue from repeat business 98.2 97.8 98.7 98.7 98.3 98.7 98.2 99.1 NA

Total Contract Value signed (TCV), US$ mn

Renewals 184 119 170 135 219 130 187 256 255 222

New 36 65 144 74 43 77 57 42 51 49

Total 220 184 314 209 262 207 244 298 306 271

Expiring within 1 year 209 152 234 182 198 166 206 237 259 198

Expiring >1 year 11 31 80 27 64 41 38 61 47 73

Digital 93 64 103 50 108 84 132 102 139 162

Employee metrics

Software professionals 15,092 15,189 15,068 15,413 15,441 15,782 16,068 16,595 17,837 18,214

Sales and support 1,018 1,030 1,031 1,057 1,120 1,128 1,132 1,128 1,153 1,188

Total 16,110 16,219 16,099 16,470 16,561 16,910 17,200 17,723 18,990 19,402

Gross addition 210 744 470 914 645 856 857 1,102 1,934 1,126

Net addition (513) 109 (120) 371 91 349 290 523 1,267 412

Attrition (LTM) (%) 16.5 16.4 16.1 15.1 14.0 13.0 12.6 12.5 12.2 13.0

Quarterly annualised attrition (%) 17.7 15.7 14.6 13.3 13.4 12.1 13.3 13.3 14.5 14.9

Technology Mindtree


Exhibit 9: Condensed consolidated financials for Mindtree, March fiscal year-ends, 2014-21E (Rs mn)


2014 2015 2016 2017 2018 2019E 2020E 2021E

Profit model

Revenues 30,316 35,619 46,896 52,364 54,628 69,993 80,495 90,470

EBITDA 6,100 7,092 8,299 7,181 7,405 10,759 13,359 14,945

Interest (expense)/income (4) (1) (4) (191) (169) (29) — —

Depreciation (809) (1,018) (1,332) (1,858) (1,715) (1,697) (1,760) (1,864)

Other income 496 835 810 445 1,902 1,057 852 1,114

Pretax profits 5,783 6,908 7,773 5,577 7,423 10,090 12,452 14,195

Tax (1,275) (1,545) (1,741) (1,363) (1,722) (2,701) (3,360) (3,830)

Profit after tax 4,508 5,363 6,032 4,214 5,701 7,389 9,092 10,364

Diluted earnings per share (Rs) 26.8 31.9 35.9 25.1 34.5 45.0 55.4 63.1

Balance sheet

Total equity 16,405 20,128 23,956 25,771 27,414 32,121 37,912 44,514

Deferred taxation liability (402) (449) (602) (624) (318) (318) (318) (318)

Total borrowings 27 23 433 991 3,009 — — —

Current liabilities 4,562 6,398 9,013 7,144 6,942 8,764 10,076 11,329

Total liabilities and equity 20,593 26,101 32,801 33,282 37,047 40,567 47,670 55,525

Cash 1,184 3,763 2,331 2,508 3,289 2,470 6,210 10,651

Other current assets 10,141 11,077 15,846 14,435 16,083 20,605 23,696 26,744

Goodwill — — 7,606 6,411 6,059 5,676 5,369 5,101

Tangible fixed assets 3,932 5,909 4,857 4,001 3,601 3,802 4,379 5,014

Total assets 20,593 26,101 32,801 33,282 37,047 40,567 47,670 55,525

Free cash flow

Operating cash flow, excl. WC 6,081 7,218 8,407 7,181 8,029 10,759 13,359 14,945

Tax paid (1,297) (1,539) (1,939) (1,771) (1,632) (2,701) (3,360) (3,830)

Working capital changes (1,766) 28 (2,243) 1,217 (833) (2,700) (1,780) (1,795)

Capital expenditure (1,517) (1,987) (1,315) (846) (1,011) (1,514) (2,031) (2,230)

Acquisitions — — (6,659) (467) (164) — — —

Free cash flow 1,501 3,720 (3,749) 5,314 4,389 3,844 6,189 7,090

Ratios (%)

EBITDA margin 20.1 19.9 17.7 13.7 13.6 15.4 16.6 16.5

EBIT margin 17.5 17.1 14.9 10.2 10.4 12.9 14.4 14.5

Net debt/equity (0.4) (0.5) (0.2) (0.3) (0.3) (0.3) (0.4) (0.4)

RoAE 30.5 29.4 27.4 17.0 21.4 24.8 26.0 25.1

RoACE 27.7 25.8 24.3 15.7 15.3 21.2 24.2 23.2


Strong revenue performance but EBITDA miss due to lower profitability in Europe business

Mahindra CIE reported consolidated 3QCY18 EBITDA of `2.6 bn (+24% yoy), which was 12%

below our estimates largely due to lower-than-expected EBITDA margin in the Europe business.

Consolidated PBT came in at `1.86 bn (39% yoy), which was only 5% below our estimates due

to (1) forex gains of `90 mn in Bill Forge Mexico and (2) lower interest expense due to

reduction in debt levels.

New orders wins drive strong revenue growth in India. India revenues grew by 20% yoy

led by (1) 9% yoy production growth of its key customers (M&M and Tata Motors), (2) 3-4%

yoy growth due to price increases taken to pass on the impact of rise in commodity prices

and (3) remaining 7-8% led by market share gains with new customers and market share

gains with existing customers. EBIT/PBT grew by 40%/50% yoy in 3QCY18, respectively.

Strong revenue performance in Europe but profitability disappoints. Revenues increased

by 26% yoy in 3QCY18, which was led by (1) 12% euro appreciation against Indian rupee,

(2) 3-4% due to price increase taken to pass on the impact of higher commodity costs and

(3) 10% due to core revenue growth in euro terms led by new order wins. EBITDA margin

came in at 12.2% (down 30 bps yoy and 200 bps qoq), which was 180 bps below our

estimates due to lower production levels this quarter (extended plant shutdown at some

OEMs) and possibly some pricing pressure due to challenging industry conditions. We expect

EBITDA margin to improve to 13-13.5% going ahead.

Fine-tune earnings estimates; maintain ADD with TP of `280 (from `290)

We cut our CY2018-21E consolidated EPS estimates by 1-2% largely due to 50-90 bps cut in

EBITDA margin assumptions in Europe business. We expect consolidated revenues to grow at

12% CAGR over CY2017-20E driven by new order wins and market share gain in both India

and Europe businesses. In Europe, growth will be particularly driven by strong growth in

Metalcastello and PV businesses, while in India, ramp-up of Bill Forge Mexico facility and growth

in existing customers will be major growth drivers. Maintain ADD; TP revised to `280 (from

`290), valuing the company at 17X September 2020E EPS (from 18X March 2020E EPS earlier).

Mahindra CIE Automotive (MACA)

Automobiles

Decent quarter. Mahindra CIE reported decent 3QCY18 results with 38% yoy PBT

growth, which was 5% below our estimates. Revenues grew by 23% yoy led by new

order wins and market share gains in both India and Europe businesses. EBITDA margin

in Europe was below our estimates due to extended production shutdown by OEMs

and challenging industry conditions. Going ahead, we expect the company to deliver

21% EPS CAGR over CY2017-20E led by (1) double-digit revenue growth aided by share

gains and (2) improvement in profitability. ADD stays; TP revised to `280 (from `290).

ADD

OCTOBER 19, 2018

RESULT

Coverage view: Neutral

Price (`): 264


BSE-30: 34,780

Hitesh Goel

Nishit Jalan

Mahindra CIE Automotive







MFs 6.9 EBITDA (Rs bn) 11.1 12.2 13.1


Absolute (6.4) 1.1 13.1 ROE (%) 13.2 13.0 12.4

Rel. to BSE-30 1.1 6.2 6.1 Div. Yield (%) 0.0 0.0 0.0


302-199

99.8

Automobiles Mahindra CIE Automotive


Conference call takeaways

Strong demand traction in Bill Forge Mexico and new order wins in India. The

company had highlighted there is strong demand traction in Mexico, which is leading to

new order wins by Bill Forge. The company has added second press in Mexico for a new

customer; production for this customer will start from January 2019. Given the strong

demand environment, the company plans to add third press in Mexico by end-CY2018.

Overall, revenue potential from Mexico would be around US$30 mn in CY2020E.

Capacity utilization of Mexico plant with two presses is 50% currently. Revenues from

Mexico plant were around US$5 mn in CY2017. In India, over the past few quarters, the

company has won new businesses—(1) gears from TBK India, (2) stampings business from

Ashok Leyland and (3) forged crankshaft business from Hyundai.

Strong growth in Europe but profitability below estimates. In the European

business, revenues increased by 26% yoy in 3QCY18, which was driven by (1) 12%

benefit due to euro appreciation against Indian rupee, (2) 3-4% due to price increase

taken to pass on the impact of higher commodity costs and (3) 10% due to core revenue

growth in euro terms. Revenues were marginally impacted by extended shutdown by

OEMs such as Renault, VW, etc. to adjust manufacturing facility to new test norms.

Production has again improved in October, which should aid revenue growth going

ahead. In terms of profitability, EBITDA margin in Europe was 12.2% (down 30 bps yoy

and 200 bps qoq), which was 180 bps below our estimates. The decline in profitability

was driven by lower production levels this quarter and possibly some pricing pressure due

to challenging industry conditions; we expect margins to improve to around 13-13.5%

going ahead.

Strong revenue growth in India business aided by new order wins. For the India

business, revenues increased by 20% yoy in 3QCY18, which was driven by (1) 9% yoy

production growth of its key customers, (2) 3-4% yoy growth due to price increases

taken to pass on the impact of rise in commodity prices and (3) remaining 7-8% led by

market share gains with new customers. These new order wins will continue to drive

market share going ahead as well, as per the management. EBITDA margin in India

business came in at 15.4% (up 100 bps yoy), which was 90 bps below our estimates.

There was a forex loss of `90 mn in Bill Forge Mexico, which positively impacted PBT for

the India business.

Other key points. (1) The Board of Directors has decided to close the Stokes Group

business in the UK; this will be done in a phased manner over the next two years. Stokes

Group accounts for 1.5% of consolidated revenues, EBITDA was largely breakeven while

there was marginal loss at PBT level (1% of consolidated PBT). The company will try to

transfer the business of this entity to India after taking customer approvals, (2) the

company incurred capex of `4.2 bn in 9MCY18 and maintained its capex guidance at 5-

6% of sales over the next few years and (3) consolidated net debt was `7.5 bn, down

from `8 bn as of June 2018.

Mahindra CIE Automotive Automobiles


Exhibit 1: 3QCY18 consolidated EBITDA was 12% below our estimates due to lower-than-expected margin in Europe business Mahindra CIE interim results summary, calendar year-ends


Exhibit 2: We have marginally cut our consolidated earnings estimates Earnings revision table, calendar year-ends, 2018-20E (₹ mn, %)


3QCY18 3QCY18E 3QCY17 2QCY18 3QCY18E 3QCY17 2QCY18 9MCY18 9MCY17 % yoy CY2018E

Sales 19,326 19,786 15,692 19,547 (2.3) 23.2 (1.1) 57,753 45,674 26.4 78,477

EBITDA 2,610 2,953 2,093 2,909 (11.6) 24.7 (10.3) 8,150 6,073 34.2 11,104

EBIT 1,918 2,200 1,440 2,173 (12.8) 33.2 (11.7) 6,020 4,084 47.4 8,113

EBT 1,856 1,950 1,347 1,944 (4.8) 37.8 (4.5) 5,709 3,771 51.4 7,793

Margins

EBITDA margin (%) 13.5 14.9 13.3 14.9 14.1 13.3 14.1

EBIT margin (%) 9.9 11.1 9.2 11.1 10.4 8.9 10.3


Sales 11,263 11,736 8,944 11,632 (4.0) 25.9 (3.2) 34,085 26,450 28.9 46,345

EBITDA 1,369 1,643 1,119 1,653 (16.7) 22.3 (17.2) 4,479 3,465 29.3 6,145

EBIT 984 1,190 772 1,216 (17.3) 27.5 (19.1) 3,254 2,373 37.1 4,427

EBT 850 1,000 676 1,102 (15.0) 25.7 (22.9) 2,894 2,072 39.7 4,000

Margins

EBITDA margin (%) 12.2 14.0 12.5 14.2 13.1 13.1 13.3

EBIT margin (%) 8.7 10.1 8.6 10.5 9.5 9.0 9.6


Sales 8,063 8,050 6,748 7,915 0.2 19.5 1.9 23,668 19,224 23.1 32,132

EBITDA 1,241 1,310 974 1,256 (5.2) 27.4 (1.2) 3,671 2,608 40.8 4,959

EBIT 934 1,010 668 957 (7.5) 39.8 (2.4) 2,766 1,711 61.7 3,686

EBT 1,006 950 671 842 5.9 49.9 19.5 2,815 1,699 65.7 3,793

Margins

EBITDA margin (%) 15.4 16.3 14.4 15.9 15.5 13.6 15.4

EBIT margin (%) 11.6 12.5 9.9 12.1 11.7 8.9 11.5

PBT margin (%) 12.5 11.8 9.9 10.6 11.9 8.8 11.8

India business

(Standalone + Bill Forge + Gears India)

Europe business

Consolidated

% change

% change

% change

2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E

Consolidated

Net sales 78,477 86,001 92,190 80,535 88,513 95,212 (2.6) (2.8) (3.2)

EBITDA 11,104 12,178 13,130 11,349 12,478 13,518 (2.2) (2.4) (2.9)

EBITDA margin (%) 14.1 14.2 14.2 14.1 14.1 14.2 6 bps 6 bps 4 bps

Adjusted net profit 5,246 5,882 6,410 5,267 5,936 6,551 (0.4) (0.9) (2.1)

EPS 13.9 15.5 16.9 13.9 15.7 17.3 (0.4) (0.9) (2.1)

Europe

Net sales 46,345 48,962 51,739 46,516 49,141 51,927 (0.4) (0.4) (0.4)

EBITDA 6,145 6,575 6,990 6,429 6,924 7,461 (4.4) (5.0) (6.3)

EBITDA margin (%) 13.3 13.4 13.5 13.8 14.1 14.4 -56 bps -66 bps -86 bps

Adjusted net profit 2,680 2,951 3,212 2,819 3,134 3,478 (4.9) (5.8) (7.6)

EPS 7.1 7.8 8.5 7.4 8.3 9.2 (4.9) (5.8) (7.6)

Standalone + Bill Forge

Net sales 32,132 37,040 40,452 34,019 39,372 43,285 (5.5) (5.9) (6.5)

EBITDA 4,959 5,603 6,140 4,920 5,553 6,057 0.8 0.9 1.4

EBITDA margin (%) 15.4 15.1 15.2 14.5 14.1 14.0 97 bps 102 bps 119 bps

Adjusted net profit 2,566 2,931 3,198 2,449 2,802 3,073 4.8 4.6 4.1

EPS 6.8 7.7 8.5 6.5 7.4 8.1 4.8 4.6 4.1

New estimates Old estimates % change

Automobiles Mahindra CIE Automotive


Exhibit 3: We build in improvement in profitability in both Europe and India businesses over CY2017-20E Key financials of different businesses and consolidated entity, calendar year-ends, 2016-20E (` mn, %)


CY2016 CY2017 CY2018E CY2019E CY2020E

Consolidated

Revenues 53,199 65,200 78,477 86,001 92,190

Yoy growth (%) 22.6 20.4 9.6 7.2

EBITDA 5,311 8,221 11,104 12,178 13,130

EBITDA margin (%) 10.0 12.6 14.1 14.2 14.2

Adjusted net profit 1,753 3,633 5,246 5,882 6,410

EPS (Rs) 4.6 9.6 13.9 15.5 16.9

Europe subsidiaries

Revenues 33,429 36,762 46,345 48,962 51,739

Yoy growth (%) 10.0 26.1 5.6 5.7

EBITDA 3,549 4,870 6,145 6,575 6,990

EBITDA margin (%) 10.6 13.2 13.3 13.4 13.5

Adjusted net profit 957 2,205 2,680 2,951 3,212

EPS (Rs) 2.5 5.8 7.1 7.8 8.5

India business (Standalone + Bill Forge + Gears India)

Revenues 19,770 28,438 32,132 37,040 40,452

Yoy growth (%) 43.8 13.0 15.3 9.2

EBITDA 1,762 3,351 4,959 5,603 6,140

EBITDA margin (%) 8.9 11.8 15.4 15.1 15.2

Net profit 796 1,428 2,566 2,931 3,198

EPS (Rs) 2.1 3.8 6.8 7.7 8.5

Mahindra CIE Automotive Automobiles


Exhibit 4: We expect consolidated earnings to increase at 22% CAGR over CY2017-20E Consolidated profit, balance sheet and cash model, calendar year-ends, 2015-20E (₹ mn)


FY2015 9MFY16 CY2016 CY2017 CY2018E CY2019E CY2020E


Net sales 55,699 38,653 53,199 65,200 78,477 86,001 92,190

EBITDA 4,403 3,632 5,311 8,221 11,104 12,178 13,130

Other income 429 287 314 269 252 261 271

Interest (1,197) (504) (594) (545) (573) (489) (439)

Depreciation (2,375) (1,630) (2,325) (2,808) (2,990) (3,210) (3,442)

Exceptionals (2,261) (779) (90) (69) — — —

Profit before tax (1,001) 1,006 2,616 5,067 7,793 8,740 9,519

Tax 219 (239) (926) (1,483) (2,547) (2,858) (3,109)

Net profit (782) 767 1,690 3,584 5,246 5,882 6,410

Adjusted net profit 2,406 1,312 1,753 3,633 5,246 5,882 6,410

Earnings per share (Rs) 7.4 4.1 4.6 9.6 13.9 15.5 16.9


Equity 18,865 20,066 32,663 37,156 42,403 48,285 54,695

Minority interest 155 — — — — — —

Deferred tax liability 333 592 968 925 925 925 925

Total borrowings 15,491 10,847 13,917 11,969 9,000 6,000 3,000

Other liabilities 12,633 17,500 18,279 22,221 26,403 27,712 28,586

Provisions 2,362 3,020 3,489 3,644 3,644 3,644 3,644

Total liabilities 49,839 52,024 69,316 75,915 82,375 86,567 90,851

Net fixed assets 32,501 15,774 18,801 19,741 22,251 24,040 25,598

Goodwill — 17,714 27,338 28,364 28,364 28,364 28,364

Investments 570 671 389 550 550 550 550

Cash 893 502 981 719 1,465 1,154 1,713

Inventories 6,850 7,189 8,352 9,898 11,744 13,117 14,057

Trade receivables 4,225 3,831 5,219 5,984 6,450 7,069 7,577

Other current assets 4,801 6,344 8,237 10,657 11,550 12,272 12,990

Total assets 49,839 52,024 69,316 75,915 82,375 86,566 90,850


Operating cash flow excl. working capital 2,940 4,901 6,392 8,237 9,093 9,853

Working capital changes 3,857 (1,881) (540) 978 (1,404) (1,293)

Capital expenditure (2,006) (1,979) (3,748) (5,500) (5,000) (5,000)

Free cash flow 4,790 1,041 2,104 3,714 2,689 3,560

Ratios

EBITDA margin (%) 7.9 9.4 10.0 12.6 14.1 14.2 14.2

PAT margin (%) (1.4) 2.0 3.2 5.5 6.7 6.8 7.0

Net debt/equity (X) 0.8 0.5 0.4 0.3 0.2 0.1 0.0

Book value (Rs/share) 58.4 62.1 86.4 98.2 112.1 127.6 144.6

RoAE (%) 3.9 6.4 10.3 13.2 13.0 12.4

Notes:

(a) The company has changed fiscal year from March 2016 to December 2015

(b) 9MFY16 represents financials for April 2015 to December 2015 period


Healthy revenue growth, strong costs control and lower provisions aid earnings growth

DCB reported 25% yoy earnings growth on the back of 13% yoy NII growth but slower growth

in provisions (5% yoy). Loan growth was solid at 27% yoy while NIM declined ~10 bps qoq to

3.8%. Asset quality was stable qoq with fresh slippages at 1.8% of loans. Operating expense

growth was slower at 11% yoy partly led by a change in the useful life of assets. Non-interest

income growth was at 13% yoy driven by 16% yoy growth in fee income. Growth in CASA at

20% yoy was lower than deposit growth at 27% yoy in 2QFY19. CASA ratio was stable at

24%.

Stable trends on asset quality continue

Overall gross and net NPLs were stable qoq at 1.8% and 0.7% of loans. Slippage at 1.8%of

loans have been broadly stable in recent quarters and the gross NPLs reported in the LAP

portfolio are lower than the industry average, which gives greater comfort to the underwriting

standards of the bank. Most of the underlying trends in other product segment are not

showing any major negative deviations. The impact of GST appears to be negligible.

RoE targets for 4QFY19 look challenging to meet but likely to be closer

Given the performance in 1HFY19, it looks like a challenge for the management to meet its RoE

target of 14% and ~55% cost-income ratio for 4QFY19. NIM would be under pressure for

another quarter and lack of treasury income can result in a marginal miss to this target. While it

is a miss, we are not too worried given that directionally the management is a lot closer to

where it wanted to reach.

Maintain BUY with TP at ₹185 (from `180 earlier)

We value DCB at 1.8X book and 14X September FY2020E EPS (TP at `185 from `180 earlier)

for RoEs at 12-13% in the short term but ~25% CAGR in earnings over FY2018-20E.

DCB Bank (DCBB)

Banks

NIM pressure continues. DCB reported 25% yoy earnings growth led by 13% yoy

revenue growth and 5% yoy growth in provisions. NIM declined ~10 bps qoq to 3.8%

while loan growth was healthy at 27% yoy. Asset quality was stable qoq. Operating cost

growth was slower leading to marginal improvement in cost-income ratio. NIM pressure

continues to act as a key headwind to achieving its RoE target of 14% for 4QFY19E but

overall progress has been consistent and less prone to negative surprises, making us

comfortable to maintain BUY with TP at `185 (from `180 earlier).

BUY

OCTOBER 19, 2018

RESULT

Coverage view: Attractive

Price (`): 160


BSE-30: 34,780

QUICK NUMBERS

NII up 12% yoy; net

profit increased

25% yoy in 2QFY19

GNPL ratio stable at

1.8%; NNPL ratio

flat qoq at 0.7%

Maintain BUY with

TP at `185 (from

`180 earlier)

M B Mahesh CFA

Nischint Chawathe

Dipanjan Ghosh

Shrey Singh

DCB Bank





Promoters 15.0 NII (Rs bn) 11.5 13.6 16.2


MFs 16.5 BVPS 86.3 96.3 111.1

Price performance (%) 1M 3M 12M P/B (X) 1.9 1.7 1.4

Absolute (4.1) (1.9) (13.1) ROE (%) 11.4 12.6 15.4

Rel. to BSE-30 3.6 3.0 (18.5) Div. Yield (%) 0.6 0.7 1.0


207-140

49.5

DCB Bank Banks


Exhibit 1: DCB Bank – quarterly performance March fiscal year-ends, 2QFY18-2QFY19 (` mn)


2QFY19 2QFY19E 2QFY18 1QFY19 2QFY19E 2QFY18 1QFY19 FY2019 FY2018 (% chg.) FY2018

Interest Earned 7,357 7,415 5,870 7,014 (0.8) 25.3 4.9 30,449 24,130 26.2 36,958

Interest on Advances 5,917 5,902 4,689 5,665 0.2 26.2 4.4 24,348 19,403 25.5 30,357

Interest on Investment 1,341 1,318 1,033 1,188 1.7 29.9 12.9 5,292 4,208 25.8 5,695

Others 99 194 148 162 (49.2) (33.3) (39.0) 810 519 55.9 906

Interest expense 4,538 4,526 3,389 4,285 0.3 33.9 5.9 18,916 14,176 33.4 23,407

Net interest income 2,818 2,889 2,481 2,730 (2.4) 13.6 3.2 11,533 9,954 15.9 13,552

Other Income 735 705 653 828 4.3 12.6 (11.3) 3,496 3,103 12.7 4,603

Commission & exchange 559 570 483 599 (1.9) 15.7 (6.7) 2,630 2,192 20.0 3,156

Total Income 3,553 3,594 3,134 3,558 (1.1) 13.4 (0.1) 15,030 13,057 15.1 18,155

Operating Expenses 2,092 2,248 1,890 2,144 (6.9) 10.7 (2.4) 8,829 7,807 13.1 10,191

Staff costs 1,102 1,105 921 1,087 (0.3) 19.6 1.4 4,586 3,812 20.3 5,518

Other operating expenses 990 1,143 969 1,057 (13.3) 2.3 (6.3) 4,242 3,995 6.2 4,673

Pre-provisioning profit 1,461 1,346 1,244 1,414 8.6 17.4 3.3 6,201 5,250 18.1 7,964

Provisions 319 377 302 332 (15.5) 5.5 (4.0) 1,542 1,388 11.1 2,215

Profit before tax 1,142 968 942 1,082 18.0 21.3 5.6 4,659 3,862 20.6 5,748

Provision for Taxes 408 329 353 387 23.9 15.5 5.4 1,584 1,408 12.5 1,954

Net Profit 734 639 589 695 14.9 24.7 5.7 3,075 2,453 25.3 3,794

Tax rate (%) 36 34 37 36 5.0 (4.7) (0.1) 34.0 36.5 (6.8) 34

PBT - net treasury income 583 398 459 483 46.4 27.1 20.8 4,365 3,469 25.8 5,004

EPS (Rs) 2.2 1.9 2.2 15.5 - 10.0 8.0 25.3 12.3

CAR (%) 15.6 14.7 15.6 92 bps 2 bps

Tier-I (%) 12.0 12.9 12.0 -88 bps 0 bps

Key balance sheet items (Rs bn)

Total deposits 262 260 206 250 0.5 27.2 4.5 296 240 23 369

CASA ratio (%) 24.3 25.9 24.6 -158 bps -33 bps 24.3 24.3 0 bps 24.8

Loans 221 219 174 212 0.9 26.9 3.9 257 203 27 321

Corporate banking 33 30 36 11.9 (8.3)

SME+MSME 26 21 25 26.9 3.9

Mortgages 88 73 85 20.8 3.9

CV/CE/STVL 22 9 19 153.7 15.4

Agriculture 42 30 38 41.8 9.7

Others 9 12 8 (27.5) 3.9

Investment 70 75 57 71 (6.3) 22.6 (0.7) 63 62 2 74

Asset quality

GNPL (Rs mn) 4,100 3,158 4,006 29.8 2.3 4,993 3,690 35 6,180

GNPL (%) 1.8 1.8 1.9 4 bps -2 bps 1.9 1.8 13 bps 1.9

NNPL (Rs mn) 1,553 1,570 1,539 (1.1) 0.9 2,650 1,467 81 3,083

NNPL (%) 0.7 0.9 0.7 -20 bps -2 bps 1.0 0.7 31 bps 1.0

PCR- KS (%) 62 50 62 1183 bps 54 bps 47 60 -1331 bps 50

Slippages (Rs mn) 972 775 1,071 25.4 (9.2) 4,112 3,489 18 4,698

Slippages (%) 1.8 1.9 2.1 -8 bps -28 bps 2.0 2.2 1.8

Key calculated ratios (%)

Yield on advances 10.9 11.1 10.9 -22 bps 3 bps 10.6 10.7 -17 bps 10.5

Yield on investment 7.6 7.3 7.2 32 bps 48 bps 8.5 7.0 146 bps 8.3

Cost of deposit 7.1 6.8 7.0 27 bps 10 bps 6.5 6.0 56 bps 6.6

NIM 3.7 4.2 3.7 -46 bps -1 bps 3.6 3.8 -24 bps 3.5

CD ratio 84.3 84.6 84.9 -24 bps -53 bps 87.0 84.7 227 bps 87.0

Cost to income 58.9 60.3 60.3 -141 bps -138 bps 58.7 59.8 -105 bps 56.1

RoA 0.9 0.9 0.9 -2 bps 2 bps 0.9 0.9 2 bps 0.9

RoE 10.2 8.9 9.8 128 bps 34 bps 11.4 10.9 52 bps 12.6

Other key business parameters (#)

Branches 328 310 323 5.8 1.5 350 318 10 390

ATM 541 507 536 6.7 0.9 583 533 9 633

(% chg.)

Banks DCB Bank


Exhibit 2: NII growth drops to 12% yoy Growth in revenues and NII, March fiscal year-ends, 2QFY16-2QFY19 (%)

Source: Companies, Kotak Institutional Equities

Exhibit 3: LAP growth drops to ~20% Growth in loans and LAP portfolios, March fiscal year-ends, 2QFY16-2QFY19 (%)

Source: Companies, Kotak Institutional Equities

Exhibit 4: Drop in yields led to margin compression in 2QFY19 Calculated YoA, CoF and NIM, March fiscal year-ends, 2QFY16-2QFY19 (` mn)


Margin pressure remains as lending yields are still moving downwards

Calculated NIM dropped 10 bps qoq (down 50 bps yoy) led by decline in yields while cost of

funds has remained stable qoq. Cost of deposits increased by 10 bps yoy to 6.6%. Yield on

advances decreased 15 bps qoq to 11% (down ~40 bps yoy). MCLR rates increased by 65

bps in 2QFY19. Increase in competition from other players in the retail space and gradual

shift in product mix to include more of low-yielding mortgage and CV loans have led to yield

compression yoy.

We maintain a negative outlook on NIM in the absence of any change in product mix

though directionally we are less negative than before. Competition, especially from NBFCs,

has slackened in the past month and we do expect this to result in an improvement in

pricing power for the existing players.

27 32 30 26 27 31 31 32 30 20 20 17 14

28

22

31

17

27

32

23

34

24

19

23

1213

0

8

16

24

32

40

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

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3Q

FY1

7

4Q

FY1

7

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FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

Revenue growth NII growth

27 24 23 28 29 24 22 22 20 27 29 31 27

37

31

25 2523

22 22 22

18

2220 19

21

0

10

20

30

40

50

2Q

FY1

6

3Q

FY1

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FY1

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FY1

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FY1

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3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

Loan growth LAP growth

12.0 12.1 11.8 11.7 11.7 11.8 11.4 11.2 11.1 11.0 10.8 10.9 10.9

7.9 7.8 7.7 7.7 7.6 7.5 6.9 6.9 6.8 6.9 6.8 7.0 7.1

3.8 3.9 3.9 3.8 3.8 3.9 3.9 4.1 4.2 4.0 3.8 3.7 3.7

0

2

3

5

6

8

0

3

6

9

12

15

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

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FY1

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FY1

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1Q

FY1

8

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FY1

8

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FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

Yield on advances (LSH) Cost of deposits (LHS) NIM (RHS)

DCB Bank Banks


We expect NIM to drop by ~50 bps from FY2018-21E. NIM continues to drop from peak

levels of 4%. Pressure on NIM would result from – (1) shift in loan mix to include more retail

assets like vehicle and mortgage loans where competition from other banks and NBFCs is

relatively high, (2) stable rather than any improvement in CASA ratio in medium term and

(3) focus on building retail deposit franchise (currently at 75% of deposits; up 100 bps qoq)

in the medium term may result in deposit costs being relatively inelastic in comparison to the

loan yields.

Asset quality stable qoq; NPLs in the LAP portfolio stable qoq

Headline gross NPL ratio remained stable at 1.8% of loans in 2QFY19 whereas net NPL ratio

was flat qoq at 0.7%. On absolute basis GNPL increased ~2.3% qoq. Reported provision

coverage ratio (including technical write-off) inched upwards by 80 bps qoq to 77%. The

bank maintains relatively high coverage ratio compared to its peers.

Slippages saw marginal improvement for the quarter at 1.8% of loans. Recoveries and

upgrades remain strong at 1.3% in 2QFY19 (1.3% in 1QFY19 and 1.2% in 2QFY18). This

hint at directional shift in asset mix focusing on consumers whose tendency of default is

high but chances of recovering bad loans are also high as compared to corporate NPLs.

Impact of GST has been negligible as the asset quality continues to hold up well in all

segments, including MSME.

NPLs in the core mortgage portfolio remained high but stable qoq at 1.7%. Corporate GNPL

inched up by 30 bps qoq to 2.8%, a trend similar to previous quarters. CV/CE loan GNPL

saw significant improvement in 2QFY19 (down 40 bps qoq and 200 bps yoy). This segment

continued to see drop in GNPL over the past few quarters. SME GNPL was flat qoq at 1.4%.

We build in 1.6%-2% slippages and 60-70 bps credit cost over FY2019-21E.

Exhibit 5: Strong improvement in asset quality for the vehicle segment; stable across others Segment-wise NPLs, March fiscal year-ends, 2010-2QFY19 (%)


2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19 2QFY19

Vehicle loans 22.3 2.1 3.3 1.8 3.2 2.5 1.7 1.3

Corporate loans 5.9 5.3 5.3 3.0 0.7 3.8 4.4 3.4 2.4 2.5 2.8

SME loans 2.2 1.1 1.0 3.9 6.5 2.1 1.6 1.7 1.3 1.3 1.4

Mortgage 1.3 0.7 0.8 0.8 0.8 0.8 1.1 1.7 1.7 1.7

Gross NPLs 8.7 5.9 4.4 3.2 1.7 1.8 1.5 1.6 1.8 1.9 1.8

Net NPLs 3.1 1.0 0.6 0.7 0.9 1.0 0.8 0.8 0.7 0.7 0.7

Provision coverage ratio (PCR) 66.3 84.4 87.5 77.6 46.5 43.2 50.6 51.1 60.2 61.6 62.1

PCR (incl. technical write-offs) — 91.2 85.7 80.5 74.7 77.6 73.8 75.7 76.1 —

Banks DCB Bank


Exhibit 6 : Expect gross NPL of ~1.8-1.9% in the medium term Gross and net NPLs, March fiscal year-ends, 2011-21E (%)


Exhibit 7: Drop in slippages going ahead Slippages and credit costs, March fiscal year-ends, 2011-21E (%)


Loan growth maintains momentum at ~27% yoy

Loan growth was strong at 27% yoy in 2QFY19. Loan growth has maintained robust pace

over the past four quarters recording >25% yoy growth. The sharp spike in loans was led by

CV and SME segments. Corporate loan growth maintained an upward trajectory growing

12% yoy though it is not a key focus area for the bank. CV/CE loans jumped 1.5X yoy (up

15% qoq) in 2QFY19. This has been driven by positive sentiment in the sector and a gradual

increase in focus of the bank towards increasing retail asset mix. Mortgage loan growth

remains healthy at 21% yoy, broadly similar to that observed over the past few quarters.

SME/MSME growth saw a spike at 27% yoy. This segment remains a major area for growth

going ahead. However, corporate loan growth momentum declined to 12% yoy growth

(48% in 1QFY19). This point towards the shifting focus of management towards retail

segments and management has guided for restricting the corporate book growth at around

~15% in the medium term.

We expect overall loan growth to remain above the industry average, closer to ~24% CAGR

from FY2018-21E. However, there might be a shift in product mix with increasing share of

CV and SMSE loans while mortgage loans may see a slight dip.

Exhibit 8: DCB maintains strong retail share of loans at 53% Break-up of loans, March fiscal year-ends, 2010-2QFY19 (%)


5.9

4.4

3.2

1.7 1.8 1.5

1.6 1.8 1.9 1.9 1.8

1.0 0.6

0.7 0.9 1.0 0.8 0.8 0.7 1.0

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E

Gross NPL (LHS) Net NPL (LHS)

1.4 1.5

1.4 1.4

2.1 2.1 2.0

2.2

2.0

1.8

1.6

1.3

0.6

0.3 0.5

0.7 0.6

0.8 0.7 0.6

0.7 0.6

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1.0

1.4

1.9

2.4

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Slippages Credit costs

2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19 2QFY19

Corporate banking 32.0 26.0 22.6 23.8 25.7 23.0 15.0 16.0 17.0 17.0 15.0

SME and MSME 17.0 24.0 27.2 22.6 16.6 12.6 12.0 12.0 12.0 12.0 12.0

Retail 26.0 30.0 35.1 42.0 43.5 49.0 56.0 54.0 53.0 53.0 54.0

Mortgage loans 12.0 25.0 29.4 36.4 38.4 42.6 43.0 43.0 40.0 40.0 40.0

Vehicle loans 8.0 2.0 2.1 1.7 2.1 2.5 4.0 4.0 6.0 9.0 10.0

Others 3.0 2.8 3.7 3.9 3.0 3.9 9.0 7.0 7.0 4.0 4.0

Agriculture 25.0 20.0 15.2 11.6 14.2 15.4 17.0 18.0 18.0 18.0 19.0

DCB Bank Banks


CASA ratio remains stable at ~24%

CASA ratio was stable qoq at ~24% in 2QFY19 (down 160 bps yoy). While growth in total

deposits was strong at 27% yoy, it was relatively modest at 19% yoy for CASA reflecting

the increased focus on term deposits to improve overall branch productivity. Retail deposits

comprise about 75% of total deposits (up 30 bps qoq).

We expect similar CASA growth going ahead. Our forecast is 21% CAGR growth in total

deposits and 23% CAGR growth in CASA from FY2018-21E.

Exhibit 9: CASA ratio has been broadly stable at ~25% levels in recent years Break-up of retail deposits, March fiscal year-ends, 2010-2QFY19 (%)


Focus on cost efficiencies continues; cost-income ratio improves

Cost-to-income ratio decreased ~140 bps qoq to 59% (similar decline yoy) in 2QFY19. Cost-

income ratio has remained high in the range of 55-60% over the past two years as the bank

had aggressively opened branches. Operating expenses growth at 10% yoy was lower than

that observed over the past few quarters as the bank has changed assumption regarding

change in useful life of the assets. Employee expenses grew 20% yoy as the bank is

probably increasing its capacity within each branch to reflect increase in business

opportunity. The bank has slowed down branch expansion and is focusing on improving

productivity of existing branches in order to gain cost efficiencies.

We expect cost-income ratio of ~53-58% in FY2019-21E. We forecast around ~13% CAGR

in operating cost in FY2018-21E as we build in about 100 additional branches till FY2021E

compared to 120 new additions during FY2016-18. Higher pressure on NIM is slowly

emerging as key headwind for improvement in cost-income ratio. The bank would need to

cut back operating expenses growth in FY2019 to achieve its medium term RoEs of 12% for

4QFY19E.

2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19 2QFY19

Current 16.2 15.8 13.2 10.8 9.3 8.3 7.9 8.0 7.6

Savings 19.2 19.4 18.9 16.4 15.7 15.1 15.5 16.4 16.7

CASA 35.4 35.2 32.1 27.2 25.0 23.4 23.4 24.3 24.3 24.6 24.3

Term deposits 64.6 64.8 67.9 72.8 75.0 76.6 76.6 75.7 75.7 75.4 75.7

NRI deposits 4.9 6.2 8.0 9.0 8.0 7.0 6.2 6.2 5.9

Retail deposits 81.5 81.2 84.4 77.4 77.0 80.0 80.7 77.0 74.0 75.0 75.3

Wholesale deposits 18.5 18.8 15.6 22.6 23.0 20.0 19.3 23.0 26.0 25.0 24.7

Banks DCB Bank


Exhibit 10: Improvement in cost-income ratio going ahead Cost-income ratio, March fiscal year-ends, 2011-21E (%)


Exhibit 11: We expect operating leverage benefit in FY2019-20E Operating expenses to assets, March fiscal year-ends, 2011-21E (%)


Other highlights for the quarter

Non-interest income remained stable qoq at `740 mn (up 13% yoy). Fee income

increased 16% yoy while sharp drop in treasury gains continue to be driven down by

increase in mark to market losses. We forecast ~20% CAGR growth in non-interest

income in FY2018-21E led by sharp growth in fee income.

Capital adequacy ratio stood at 15.6% with tier-1 at 12%. Growth in RWA at 18% yoy

was slightly lower than advances growth at 27% yoy in 2QFY19.

Exhibit 12: DCB trades at 1.8X forward book (adjusted) One-year forward PBR, October 2008- October 2018 (X)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 13: DCB Bank trading at discount to peers has decreased DCB trading premium to private banks, October 2011- October 2018 (X)


71 75

69

63

59 58 60 60 59

56 53

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52

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76

88

100

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3.2 3.1

2.8 2.6 2.7 2.8

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0.5

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Oct

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Oct

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0.6

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DCB Bank Banks


Exhibit 14: DCB Bank – change in estimates March fiscal year-ends, 2019-21E (` mn)


New estimates Old estimates % change

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Net loan growth (%) 26.6 24.8 22.9 26.1 24.5 22.7 48 bps 29 bps 23 bps

Loans (Rs bn) 257 321 395 256 319 392 0.4 0.6 0.8

Total income 15,030 18,155 22,030 15,763 18,464 21,979 (4.7) (1.7) 0.2

Net interest income 11,533 13,552 16,225 11,867 13,661 15,975 (2.8) (0.8) 1.6

NIM (%) 3.6 3.5 3.4 3.7 3.4 3.3 -7 bps 4 bps 11 bps

Other income 3,496 4,603 5,804 3,896 4,803 6,004 (10.3) (4.2) (3.3)

Fee income 2,630 3,156 3,945 2,630 3,156 3,945 — — —

Treasury income 304 754 1,004 704 954 1,204 (56.8) (21.0) (16.6)

Operating expenses 8,829 10,191 11,691 8,963 10,338 11,847 (1.5) (1.4) (1.3)

Employee expenses 4,586 5,518 6,534 4,628 5,569 6,594 (0.9) (0.9) (0.9)

Other cost 4,242 4,673 5,157 4,335 4,769 5,253 (2.1) (2.0) (1.8)

Loan loss provisions 1,382 2,025 2,148 1,724 2,015 2,133 (19.8) 0.5 0.7

PBT 4,659 5,748 7,964 4,916 5,921 7,773 (5.2) (2.9) 2.5

Tax 1,584 1,954 2,708 1,671 2,013 2,643 (5.2) (2.9) 2.5

Net profit 3,075 3,794 5,257 3,244 3,908 5,130 (5.2) (2.9) 2.5

% growth yoy 25 23 39 32 20 31 -691 bps 292 bps 728 bps

PBT-treasury+provisions 5,897 7,210 9,335 6,096 7,172 8,928 (3.3) 0.5 4.6

Banks DCB Bank


Exhibit 15: DCB Bank – key financial ratios and growth rates March fiscal year-ends, 2016-21E (%)


2016 2017 2017 2019E 2020E 2021E

Growth rates (%)

Net loan 23.5 22.4 28.6 26.6 24.8 22.9

Total Asset 18.5 25.8 25.7 20.5 22.1 20.7

Deposits 18.4 29.2 24.5 23.3 24.8 22.4

Net interest income 21.9 28.7 24.9 15.9 17.5 19.7

Loan loss provisions 11.1 42.8 23.7 3.1 46.5 6.1

Total other income 33.0 13.2 24.4 12.7 31.6 26.1

Net fee income 17.8 17.9 32.3 20.0 20.0 25.0

Net capital gains 52.7 7.4 (0.1) (33.0) 148.1 33.2

Net exchange gains 90.7 (28.5) 34.1 30.0 30.0 30.0

Operating expenses 23.8 28.0 24.3 13.1 15.4 14.7

Employee expenses 25.0 25.7 23.8 20.3 20.3 18.4

Key ratios (%)

Yield on average earning assets 10.2 10.1 9.3 9.5 9.5 9.5

Yield on average loans 11.6 11.5 10.7 10.6 10.5 10.6

Yield on average investments 7.4 7.8 7.0 8.5 8.3 8.1

Average cost of funds 7.1 6.8 6.0 6.4 6.5 6.6

Interest on deposits 7.3 6.9 6.0 6.5 6.6 6.7

Spread 3.1 3.3 3.4 3.1 3.0 3.0

Net interest income/earning assets 3.7 3.9 3.8 3.6 3.5 3.4

Spreads on lending business 4.5 4.7 4.8 4.1 4.0 4.0

New provisions/average net loans 0.6 0.8 0.7 0.6 0.7 0.6

NII/total income 73.8 76.2 76.2 76.7 74.6 73.7

Other income / total income 26.2 23.8 23.8 23.3 25.4 26.3

Fee income to total income 16.7 15.8 16.8 17.5 17.4 17.9

Fee income to advances 1.2 1.2 1.2 1.1 1.1 1.1

Fees income to PBT 53.8 54.0 56.8 56.5 54.9 49.5

Exchange income to PBT 5.5 3.4 3.6 3.9 4.1 3.8

Operating expenses/total income 58.4 60.0 59.8 58.7 56.1 53.1

Operating expenses/assets 2.8 2.9 2.9 2.6 2.5 2.4

Tax rate 25.5 34.9 36.5 34.0 34.0 34.0

CASA ratio 23.4 24.3 24.3 24.3 24.8 25.9

Loans-to-deposit ratio 86.6 82.0 84.7 87.0 87.0 87.4

Equity/assets (EoY) 9.4 9.2 9.3 8.4 7.7 7.2

Loan impairment ratios (%)

Gross NPL 1.5 1.6 1.8 1.9 1.9 1.8

Net NPL 0.8 0.8 0.7 1.0 1.0 0.8

Slippages 2.1 2.0 2.2 2.0 1.8 1.6

PCR 50.6 51.1 60.2 46.9 50.1 54.0

Dupont analysis (%)

Net interest income 3.5 3.7 3.7 3.5 3.4 3.3

Loan loss provisions 0.4 0.5 0.5 0.4 0.5 0.4

Net other income 1.3 1.2 1.1 1.0 1.1 1.2

Operating expenses 2.8 2.9 2.9 2.7 2.6 2.4

(1- tax rate) 74.5 65.1 63.5 66.0 66.0 66.0

ROA 1.1 0.9 0.9 0.9 0.9 1.1

Average assets/average equity 10.8 11.7 12.0 12.4 13.5 14.4

ROE 11.9 10.8 10.9 11.4 12.6 15.4

DCB Bank Banks


Exhibit 16: DCB Bank – income statement and balance sheet March fiscal year-ends, 2016-21E (` mn)

Notes: (a) FY2018 values are calculated using quarterly numbers.


2016 2017 2017 2019E 2020E 2021E

Income statement

Total interest income 16,984 20,761 24,130 30,449 36,958 45,287

Loans 13,541 16,479 19,403 24,348 30,357 37,781

Investments 3,078 3,935 4,208 5,292 5,695 6,527

Cash and deposits 366 347 519 810 906 978

Total interest expense 10,790 12,791 14,176 18,916 23,407 29,061

Net interest income 6,195 7,971 9,954 11,533 13,552 16,225

Loan loss provisions 759 1,084 1,340 1,382 2,025 2,148

Net interest income (after prov.) 5,436 6,887 8,614 10,151 11,526 14,077

Other income 2,205 2,495 3,103 3,496 4,603 5,804

Net fee income 1,405 1,657 2,192 2,630 3,156 3,945

Net capital gains 423 454 454 304 754 1,004

Net exchange gains 145 104 139 181 235 305

Operating expenses 4,909 6,283 7,807 8,829 10,191 11,691

Employee expenses 2,451 3,080 3,812 4,586 5,518 6,534

Other provisions 84 33 (13) 150 180 216

Pretax income 2,611 3,067 3,862 4,659 5,748 7,964

Tax provisions 666 1,070 1,408 1,584 1,954 2,708

Net profit 1,945 1,997 2,453 3,075 3,794 5,257

% growth 2 3 23 25 23 39

PBT - Treasury + Provisions 3,067 3,728 4,796 5,897 7,210 9,335

% growth 23 22 29 23 22 29

Balance sheet

Cash and bank balance 8,916 11,925 23,720 30,270 34,874 40,224

Net value of investments 43,333 58,179 62,190 63,160 74,436 86,423

Net loans and advances 129,214 158,176 203,367 257,406 321,243 394,923

Fixed assets 2,480 4,886 4,940 4,874 5,380 5,839

Other assets 7,242 7,298 8,004 8,405 8,825 9,266

Total assets 191,185 240,464 302,221 364,115 444,758 536,675

Deposits 149,260 192,892 240,069 295,934 369,325 451,997

Borrowings and bills payable 15,413 17,624 25,447 27,927 30,903 34,475

Other liabilities 8,591 7,899 8,627 9,490 10,439 11,483

Total liabilities 173,264 218,415 274,143 333,351 410,667 497,955

Paid-up capital 2,844 2,854 3,081 3,081 3,081 3,081

Reserves & surplus 15,077 19,195 24,997 27,683 31,010 35,640

Total shareholders' equity 17,922 22,049 28,078 30,764 34,091 38,720


Event— RIL to acquire majority stake and operating control in Hathway and Den

RIL has announced equity investments in Den and Hathway. This transaction triggers open

offers in Den, Hathway and GTPL Hathway (37% associate of Hathway). Total investment

(primary + secondary + open offers) envisaged is about Rs78 bn and RIL would end up with a

majority stake of 91.5% in Den and 77.3% in Hathway if the open offers are fully subscribed

to.

Implication #1: Expect acceleration in TV-to-OTT shift; Jio can cross 15 mn FTTH subs in 3 years

These acquisitions would provide Jio access to 24 mn cable subscribers (Hathway + Den + GTPL)

and 1.2 mn broadband subscribers. We expect Jio to roll FTTH broadband + IPTV services in the

top 100 cities in the next 2-3 years. About 16 mn of these 24 mn cable homes are in the top

100 cities. We expect Jio to add another 4 mn cable homes by attracting competition’s LCOs

and/or acquisition of 1-2 regional MSOs. Jio can potentially cross 15 mn FTTH subs in 3 years

assuming (1) FTTH+ITPV offering is priced at about Rs500/month, (1) 50-55% penetration in 20

mn cable homes, and (2) churn of 4-5 mn subs to Jio from DTH (20-25% of 20 mn DTH subs).

Implication #2: Broadcasters’ subscription revenue growth likely to decelerate

We expect pressure on broadcasters’ subscription revenues due to (1) churn of 4-5 mn DTH

subs to Jio over the next 3 years. Broadcasters earn Rs35-40/sub (content fees net of carriage)

from cable as against Rs75-85 from DTH, (2) efficient content sourcing by Jio given scale of 24

mn subs, (3) rise in competitive intensity would put pressure on P&L of incumbent distributors

compelling them to aggressively negotiate content deals. Broadcasters’ subscription revenues

could be impacted by Rs7.6 bn in FY2021E (about 6.6% impact) (Exhibit 1). We do not expect

TRAI’s tariff order to shield broadcasters from the shift of bargaining power to distributors (at

the margin). Given Zee’s network strength, we see a modest 3% risk to its domestic

subscription revenues (about Rs500 mn and 50 bps impact on FY2021E EBITDA and EBITDA

margin). Weaker/smaller players such as Sony, Sun and news channels could be impacted more.

We note that Jio’s smart set-top box would carry Netflix and Prime video apps (add-on services)

that would compete with TV content for watch time and wallet share in subscription.

Implication #3: DTH—impact on subscriber and ARPU growth is inevitable

We believe it would be difficult for DTH to compete against Jio’s bundled services. If we assume

Jio to offer FTTH broadband + IPTV at Rs500/month (or slightly higher), it would be very difficult

for a DTH player to retain its subscribers especially households paying more than Rs300/month

for Pay-TV. We expect Tata Sky to be most impacted followed by Airtel DTH given their strength

in urban markets. Dish TV is relatively better off as about 70-75% of its subscriber base is in

rural markets where Jio may not rollout for now. Even as we do not see material subscriber loss

of ARPU pressure on Dish TV, some impact is inevitable as competitive intensity will eventually

spread to rural from urban. More importantly, there is a risk of Jio acquiring regional MSOs and

selectively rolling out in smaller markets in the medium term. We cut EBITDA by 5-10% and

revise TP to Rs70 (from Rs90) valuing it at 6.5X FY2020E EV/EBITDA as against 7.5X earlier.

Media

India

Jio set to disrupt TV distribution. RIL’s acquisition of Hathway and Den paves the

way for the accelerated rollout of Jio’s FTTH broadband + IPTV. Jio can potentially add

15 mn FTTH subs in the next three years. Key implications: (1) acceleration in TV-to-OTT

shift led by proliferation of ultra-high-speed fixed-line internet, (2) deceleration in

broadcasters’ subscription revenue growth due to consolidation of distributors, ARPU-

dilutive churn of subs to Jio from DTH, (3) risk to subscriber and ARPU growth of DTH in

urban markets. We cut Dish TV’s FY2020-21E EBITDA by 5-10% and TP to Rs70 (from

Rs90); ADD.

ATTRACTIVE

OCTOBER 19, 2018

UPDATE

BSE-30: 34,780

Jaykumar Doshi

Media India


Further thoughts on Jio’s FTTH— strategy, challenges and implications

Acquisitions indicate Jio’s sense of urgency to rollout FTTH. We believe Jio’s initial

plan was to grow its FTTH + IPTV business through the organic route even if it took time.

It was keen on direct ownership of customers and hence it had refrained from acquiring

cable MSOs. Acquisitions of Hathway and Den against that backdrop indicate (1) a sense

of urgency to rollout FTTH and achieve scale, (2) preparedness to work along with LCOs.

This would lower profitability of FTTH business, a tradeoff to accelerate the time to

market, in our view.

Key to success would be an agreement with LCOs on ownership of last-mile infra

and billing. We believe Jio would like to (1) control billing and collection, and (2) replace

LCOs’ last-mile co-axial cable with its own fibre. The key challenge would be to get LCOs

to agree to these terms. At present, LCOs are apprehensive and wary as they fear gradual

loss of control over last-mile under Jio’s regime. Jio may have to sign long-term contracts

with LCOs assuring protection of their economic interests to bring them on board.

We expect phased rollout in the top 100 cities in the next three years. Even as

these acquisitions have given Jio access to 24 mn cable subscribers across 750 cities, we

believe FTTH rollout in the first phase (say next 2-3 years) to be limited to top 100 cities

(or even fewer cities). We expect Jio to discard most of the existing network and last-mile

infrastructure of Hathway/Den and upgrade the same. This would take time. While Jio

has already invested substantially in the backbone fibre infrastructure, a lot more work is

required. For instance, Jio will have to work with thousands of LCOs to replace the last-

mile coaxial cable with fibre. We also believe that the demand for Jio’s FTTH services (at

the price point at which Jio may offer) would not be material outside the top 100 cities.

Thus, we do not see a business case for rollout in all 750 cities for now.

Jio’s operating costs could be in the range of Rs425-450/month/subscriber. The

involvement of LCOs and MSOs would potentially increase Jio’s operating cost by

Rs175/month/sub assuming it protects their economic interests (LCOs’ share could be

Rs125-150/month/sub and MSOs’ EBITDA could be Rs25-50/month/sub). Other costs

would be (1) content cost net of carriage/placement of Rs30-35/month/sub for top-100

cities (marginally lower than that paid by Den/Hathway at present), (2) GST of Rs75

@18% on Rs500 pack (gross tariff), (3) SG&A and bandwidth costs of Rs150/sub/month

or so. Thus, we expect Jio’s operating costs to be in the range of Rs425-450/month.

Base FTTH+IPTV bundle could be priced at about Rs500/month; HD services could

become default while Netflix and Prime video would be add-ons. We expect Jio to

offer high-speed FTTH broadband internet + IPTV bundle for Rs500 (inclusive of taxes) to

drive penetration. Further, the company may have to offer consumer premise equipment

CPE (cable modem + smart set-top box) against a refundable deposit or monthly EMIs.

We note that the cost of CPE is around Rs4,500, a bit prohibitive in view of the scale that

Jio is eyeing. We expect Jio to bear the cost of last-mile cable upgrades and installation of

about Rs1,500/sub. We believe Jio could make HD as a default offering and offer Netflix

and Prime video subscriptions as add-on services.

Expect further consolidation in the distribution space. Jio has urged other MSOs and

LCOs to join them. We expect it to churn away several LCOs from their existing MSOs.

Additionally, we would not be surprised if Jio acquires a few regional cable companies

such as Fastway (Punjab), Asianet cable (Kerala) and perhaps Ortel (Odisha). We also do

not rule out a merger between Tata Sky and Bharti Airtel in view of the current

competitive intensity. Revenues of these companies could potentially decline a bit led by

some subscriber loss and significant pressure on ARPUs especially in case of high-ARPU

subscribers in urban markets.

India Media


Limited clarity on economics of Hathway/Den going forward. We note that the

investment is not being made by Jio but by six different SPVs 100% owned and

controlled by a 100% step-down subsidiary of RIL. Jio will sign agreements with the

operating entities being acquired for the use of their resources in its FTTH foray. As we do

not expect Jio to use the infrastructure of Hathway/Den (we believe the key objective of

this acquisition is to inherit LCO relationships), we do not expect any material value

creation in Hathway/Den. However, we would wait for disclosures on commercial

agreements between Hathway/Den and RIL/Jio.

IPTV would accelerate shift to appointment-based viewing from Linear-TV. As per

our understanding, Jio would offer IPTV services along with FTTH broadband. Its smart

set-top box would carry several OTT apps such as Netflix, Prime video, YouTube and

possibly Hotstar, ZEE5, JioTV etc. We expect consumption trends to change significantly

at least in these Jio FTTH households.

Key to watch out Jio’s content/carriage deals to better assess long-term

subscription revenue outlook for broadcasters

We note that Jio’s telecom network supports 55-60% of wireless traffic on OTT platforms

today. With about 15 mn FTTH households, it would have 30% share in Pay-TV distribution

in the top-100 cities. More importantly, these households would be among the country’s

top 10% in terms of purchasing power. Additionally, Jio would also have 15 mn+ cable

households outside of top 100 cities. It would be interesting to see if Jio does

content/carriage deals at an aggregate level for mobile + FTTH + cable subs.

We believe Jio can single-handedly influence medium-term domestic subscription

revenue growth outlook of broadcasters. For instance, Jio would have the power to

upsell services such HD to drive ARPU growth or it can choose to make HD services a default

offering without charging more. The latter strategy allows it to be more competitive versus

incumbents and gain subscriber share. While this strategy is good for Jio and consumers, it

would put pressure on existing ARPUs and hurts the ability of distributors to pay for content

(at the margin). Given RIL’s aspiration of 50 mn FTTH homes, we believe its pricing would be

on the lower side. Expect pressure on industry ARPUs.

We note that Jio is presently paying broadcasters either on fixed fee basis or on per

subscriber basis for Live-TV channels on JioTV for its mobile customers. This is an additive

revenue stream for broadcasters in addition to Pay-TV subscription revenues; essentially

broadcasters are getting subscription revenues for digital as well as TV medium even as the

content and consumers are same. It will be interesting to see if this arrangement continues

in the long term with Jio having a dominant share in both mediums.

Transaction details

RIL has announced equity investments (mostly primary) into (a) Den Networks and (b)

Hathway Cable and Datacom Limited. The transaction would involve open offers to the

minority shareholders of the two companies as well to those of (a) GTPL Hathway, a

company jointly controlled by Hathway, and (b) Hathway Bhawani, a subsidiary of Hathway.

Total investment (primary + secondary + open offers) envisaged is just under Rs79 bn and

RIL would end up with a majority stake of 91.5% in Den Networks and 77.3% in Hathway if

the open offers are fully subscribed to.

Den and Hathway (including 37% associate company, GTPL) are two of the largest cable

MSOs in the country with 24 mn combined cable subscribers across 750 cities and around

1.2 mn combined active cable broadband subs. The acquisition provides RIL access to the

two entities’ combined 27,000 local cable operators. We believe getting access to these

LCOs was the key driver of these acquisitions. Last-mile reach to homes in India is still tightly

controlled by the LCOs who can be nuisance value for anyone trying to get into these

homes. R-Jio said as much when they indirectly indicated ‘accelerated FTTH rollout’ as the

strategic driver behind this acquisition.

Media India


Exhibit 1: We expect 6-7% impact on broadcasting industry's domestic subscription revenues in FY2021E


Exhibit 2: Revised estimates for DITV, March fiscal year-ends, 2019E-21E (Rs mn)


FY2021E Comments

Impact of Churn to Jio from DTH

Pay-TV subscribers in top 100 cities (mn) 50.0Phase I+II market comprises of top 42 cities having 30 mn Pay-TV subscribers.

We have assumed 20 mn Pay-TV subscribers in the next 58 cities.

- DTH subscribers (mn) 21.5 DTH has 35% share in Phase I+II and about 55% share in phase III market

- Digital cable subscribers (mn) 28.5

- Jio (Hathway + Den + GTPL) 16.0 Combined share of about 55-60% in digital cable in the top 100 cities

- Jio (additional acquisitions of MSOs or LCOs)- KIE est 3.0 We expect Jio to acquire regional players and attract competition's LCOs

- Others 9.5

DTH subscribers in coverage areas of Jio 14.3

Churn to Jio from DTH to cable (@33%) 4.7

Impact on broadcasting industry's subsciption revenues 2,272 Expect Jio to pay Rs40/month/sub (similar to cable) versus about

Rs80/sub/month paid by DTH; Loss of revenues @Rs40/sub/month

Impact of efficient content sourcing by Jio (scale benefits)

Content cost of Hathway + GTPL + Den 19,000

Cost savings on efficient content sourcing by Jio 2,850 Assume 15% savings on content costs

Impact of ARPU pressure on incumbents

Impact of ARPU pressure on incumbents 2,500

Total impact on broadcasting industry's domestic

subscription revenues7,622

We have assumed impact in FY2021E as M&A clauses in extant content deals

would protect broadcasters from any downward negotiation by Jio and Jio

would also take 2-3 years to rollout and rampup

Broadcasting industry's Pay-TV subscription revenues 115,000

Total impact % of broadcasting industry's Pay-TV subscription revenues6.6

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Subscription revenues 61,454 65,085 68,208 61,868 67,362 73,130 (0.7) (3.4) (6.7)

Other revenues 6,537 6,754 6,820 6,123 6,699 6,772 6.8 0.8 0.7

Total revenues 67,991 71,840 75,028 67,991 74,061 79,902 — (3.0) (6.1)

Total expenditure 43,935 45,682 47,849 43,935 46,564 49,750 — (1.9) (3.8)

EBITDA 24,056 26,158 27,179 24,056 27,496 30,152 — (4.9) (9.9)

D&A expenses 15,073 15,828 16,014 15,073 15,828 16,014 — — —

EBIT 8,982 10,330 11,165 8,982 11,668 14,138 — (11.5) (21.0)

PAT 3,518 5,551 7,061 3,518 6,621 9,439 — (16.2) (25.2)

EPS (Rs/share) 1.8 2.9 3.7 1.8 3.4 4.9 — (16.2) (25.2)

EBITDA margin (%) 35.4 36.4 36.2 35.4 37.1 37.7

Key assumptions

Net subscribers yr-end (mn) 24.2 25.1 25.8 24.3 25.7 27.0

Net subscriber additions (mn) 1.20 0.85 0.75 1.30 1.40 1.30

ARPU (Rs/month/sub) 217 220 224 218 225 231

ARPU growth (yoy %) 4.9 1.5 1.5 5.4 3.0 3.0

Revised Previous Change (%)


Earnings highlights – revenues a tad ahead, EBITDA below, capex way above

R-Jio reported revenues of `92.4 bn (+13.9% qoq, +50.3% yoy), 1.6% ahead of our expected

`91 bn. The revenue surprise was driven by a marginal surprise on both end-period subs count

(252.3 mn versus 251.3 mn expected) and ARPU (`131.7 versus `130 expected). EBITDA of

`35.7 bn (+13.5% qoq, +148% yoy), however, missed our estimate of `38 bn by 6%. PAT of

`6.8 bn was 25% below our expectations on account of EBITDA miss as well as higher-than-

expected net finance cost. Depreciation, once again, increased only 6.4% qoq versus a 20%

qoq growth in data traffic.

From an estimate build-out standpoint, we are making progress in capturing the revenue

rhythm but are still nowhere close to understanding the drivers of capex or movement in costs.

High capex and the sharp spike in sequential network opex, for example, surprised us.

Jio likely to be #1 in net wireless revenues in India as early as 3QFY19

We expect Bharti’s net India wireless revenues (reported gross wireless revenues less estimated

gross interconnect revenues) to be around `87-88 bn for 2QFY19. Jio’s reported revenues of

`92.4 bn are net of IC revenues as the company adjusts IC revenues in the IC costs line. If Bharti

does not report a material beat on our estimated wireless revenues for the quarter, Jio has

perhaps crossed Bharti on net India wireless revenues to become #2 after Idea-Voda. If the

current trends continue, Jio will likely become #1 on net revenues as early as 3QFY19E.

Operating metrics – acceleration in subscriber growth without much ARPU sacrifice

Jio’s reported net adds of 37 mn for 2QFY19 marks a material acceleration in the net adds

trend. The company attributed the same to (a) excellent response to its Monsoon Hungama

(MH) offer for JioPhone, and (b) acceleration in overall smartphone additions for the market.

More important, JioPhone-led acceleration in net adds has not meant any material dilution in

ARPU for Jio (down a modest 2% qoq to `131.7/sub/month).

Data traffic for the quarter grew 20% qoq and 104% yoy to 7.71 bn GB; data usage per sub

increased 3.2% qoq and 14.3% yoy to 11 GB/month. Voice traffic grew 19% qoq and 117%

yoy to 534 bn minutes as MOU/sub jumped further to 761 min/sub/month. Adjusted for a

substantial (15-20%, per Jio’s explanation of low VLR ratio) data-only subs base, adjusted MOU

per active voice sub could be as high as 900 min/month!

Balance sheet expands to `2.9 tn (+`354 bn versus end-Mar 2018 levels)

Jio’s capex continues to stay high with the company spending another `160 bn in 2Q taking

total 1H capex to `320 bn; we note that RCOM deals on towers, fiber and spectrum haven’t

closed yet and this number does not include the same. Net debt expanded to `1.72 tn from

`1.42 tn at end-Mar 2019. RIL is open to infusing further equity into Jio.

Telecom

India

R-Jio 2QFY19: ahead of Bharti on net wireless revenues? R-Jio may well have crossed

Bharti in net wireless revenues in 2QFY19, having come within 15% of Idea-Voda,

according to our rough math. R-Jio’s 2QFY19 earnings print was a mixed bag with

revenues marginally ahead but EBITDA and PAT materially below our estimates. ARPU

seems to be settling in the `130/month zone with no meaningful dilutive impact of

JioPhone additions. Balance sheet expansion (to `2.9 tn) continues to surprise. Net debt

at end-Sep 2018 stood at `1.72 bn, up `300 bn from end-FY2018 levels.

CAUTIOUS

OCTOBER 19, 2018

UPDATE

BSE-30: 34,780

Rohit Chordia

Aniket Sethi

Telecom India


Strategic investments in Den and Hathway to accelerate FTTH time-to-market

RIL has announced equity investments (mostly primary) into (a) Den Networks and

(b) Hathway Cable and Datacom Limited. The transaction would involve open offers to the

minority shareholders of the two companies as well to those of (a) GTPL Hathway Limited, a

company jointly controlled by Hathway, and (b) Hathway Bhawani, a subsidiary of Hathway.

Total investment (primary + secondary + open offers) envisaged is just under `79 bn and RIL

would end up with a majority stake of 91.5% in Den Networks and 77.3% in Hathway if

the open offers are fully subscribed.

We note that the investment is not being made by R-Jio but by six different SPVs that are

100% owned and controlled by a 100% step-down subsidiary of RIL. Essentially, just like

the digital assets (apps and content), these equity stakes would be owned by RIL and not

R-Jio. R-Jio will sign agreements with the operating entities being acquired for use of their

resources in its FTTH foray.

Den and Hathway (including its associate company, GTPL Hathway) are two of the largest

cable MSOs in the country with 24 mn combined cable homes across 750 cities and around

1.2 mn combined active cable broadband subs. These acquisitions provide RIL access to

27,000 local cable operators. We believe getting access to these LCOs was the key driver of

these acquisitions. Last-mile reach to homes in India is still tightly controlled by LCOs who

can be nuisance value for anyone trying to get into these homes. R-Jio said as much when

they indirectly indicated ‘accelerated FTTH rollout’ as the strategic driver behind this

acquisition.

We believe these acquisitions would not result in any material capex savings for R-Jio’s FTTH

rollout; we do see merit in the accelerated time-to-market argument. Broadcast TV offering

is an important element of R-Jio’s planned FTTH home solution bouquet; this could emerge

as a bone of contention between R-Jio, the operating MSO entities, and the LCOs at some

point if R-Jio’s FTTH offering starts hurting the current cable TV subscription revenue stream

of the MSOs and LCOs. R-Jio may need to compensate the MSO entities and the LCOs for

this loss, in our view; this will likely lower the profitability of the FTTH business. That’s the

tradeoff to accelerate the time-to-market, in our view, from an R-Jio standpoint.

Other key takeaways from the analyst meet

Jio maintained that its primary focus remains net adds and it sees no reason to tinker with

pricing at this point.

On network rollout, the company indicated that it is now covering nearly 96% of the

country’s population and should achieve its targeted 99% pop coverage by end-Mar

2019. Jio expects wireless capex to moderate after this but also suggested that overall

capex intensity could stay high as wireline (FTTH) capex kicks in.

Jio indicated strong response to the Monsoon Hungama exchange offer for JioPhone

while emphasizing that the momentum for non-exchange JioPhones also remains healthy.

On the content front, the company continues to sign new partnerships and highlighted

the one with Star for Indian cricket and the one with Disney as the key ones signed

during the quarter.

The company does see potential ban on Aadhaar-based e-KYC as something that can

result in a temporary slowdown in the pace of net adds for the company. Jio is working

on alternatives and believes the impact would only be temporary.

Media convergence nodes buyout from RCOM is largely complete; Jio has paid around

55% of the total consideration of `20 bn. Other transactions (towers, fibre, spectrum) are

still pending.

India Telecom


Exhibit 1: Interim performance of Jio, March fiscal year-ends (Rs mn)


2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 qoq (%) yoy (%) 2QFY19E Deviation (%)

Profit model

Revenues 61,471 68,794 71,280 81,091 92,400 13.9 50.3 90,987 1.6

Interconnect (net) (21,399) (10,816) (10,659) (10,570) (10,460) (1.0) (51.1) (10,411) 0.5

LF/SUC (3,990) (6,227) (7,454) (8,602) (9,830) 14.3 146.4 (9,091) 8.1

Network operating costs (13,719) (17,368) (18,122) (21,429) (26,040) 21.5 89.8 (23,750) 9.6

Employee costs (3,031) (3,343) (3,247) (3,677) (4,060) 10.4 33.9 (4,000) 1.5

SG&A and other costs (4,914) (4,769) (4,866) (5,353) (6,290) 17.5 28.0 (5,700) 10.4

EBITDA 14,418 26,270 26,931 31,460 35,720 13.5 147.7 38,035 (6.1)

Other income 17 12 7 14 10 16

Finance cost (6,734) (6,638) (7,113) (7,676) (9,960) 29.8 47.9 (8,250)

Depreciation and amortization (11,839) (11,926) (11,988) (14,394) (15,310) 6.4 29.3 (15,800)

Profit before taxes (4,138) 7,718 7,836 9,405 10,460 11.2 NM 14,001 (25.3)

Current tax — (695) (1,650) (2,027) (2,250) (3,392)

Deferred tax 1,432 (1,980) (1,082) (1,259) (1,400) (1,500)

Net income/(loss) (2,706) 5,044 5,104 6,119 6,810 11.3 NM 9,109 (25.2)

Contribution to RIL's EPS (Rs) (0.46) 0.85 0.86 1.03 1.15 11.3 NM 1.54 (25.2)

Operational metrics

EOP subscribers (mn) 138.6 160.1 186.6 215.3 252.3 17.2 82.0 251.3 0.4

Average subscribers (mn) 131.0 149.4 173.4 201.0 233.8 16.3 78.5 233.3 0.2

ARPU (Rs/sub/month) 156.4 153.5 137.1 134.5 131.7 (2.1) (15.8) 130.0 1.3

EBITDA margins (%) 23.5 38.2 37.8 38.8 38.7 41.8

Data consumption (bn GB) 3.78 4.31 5.06 6.42 7.71 20.1 104.0 7.56

Data consumption per user (GB/month) 9.62 9.62 9.73 10.65 10.99 3.2 14.3 10.80

Total voice traffic (bn min) 246 311 372 449 534 19.0 117.3 528

MOU (min/sub/month) 625 694 716 744 761 2.2 21.8 755

Costs as % of revenues

Interconnect costs (net) 34.8 15.7 15.0 13.0 11.3 11.4

LF/SUC as % of net revenues 10.0 10.7 12.3 12.2 12.0 11.3

Network operating costs 22.3 25.2 25.4 26.4 28.2 26.1

Employee costs 4.9 4.9 4.6 4.5 4.4 4.4

SG&A and other costs 8.0 6.9 6.8 6.6 6.8 6.3

ETR (%) 34.6 34.6 34.9 34.9 34.9

Bharti's voice traffic/ Jio's (X) 1.78 1.59 1.59 1.52

Bharti's data traffic/ Jio's (X) 0.21 0.26 0.30 0.33

Telecom India


Exhibit2 : Reliance Jio-Condensed balance sheet (Rs bn)

Rs bn Mar-17 Sep-17 Mar-18 Sep-18

Assets

Non-current assets

Net PP&E 10 856 958 1,116

CWIP 1,124 523 610 751

Intangible assets 0 599 598 589

Intangible assets under dev 656 82 90 95

Investments 9 9 10 11

Other financials assets 0 0 0 0

Deferred tax assets 42 43 40 38

Other non-current assets 37 35 36 39

Total non-current assets 1,877 2,148 2,342 2,638

Current assets

Receivables — 8 9 16

Cash and equivalents 0 0 7 1

Other bank balances 0 0 0 4

Other financial assets 2.4 1 3 32

Other current assets 129 155 176 201

Total current assets 132 164 195 253

Total assets 2,009 2,312 2,537 2,891

Equty and liabilities

Share capital 450 450 450 450

Other equity 259 461 579 592

Total equity 709 911 1,029 1,042

Non-current liabilities

Borrowings 384 334 352 557

Other financial liabilities 90 89 85 140


Provisions — — 4 4

Total non-current liabilities 676 627 643 898

Current liabilities

Borrowings 59 61 133 208

Payables — 36 31 37

Other financial liabilities 535 632 658 662


Other current liabilities 22 29 34 34

Provisions 1 1 1 1

Total current liabilities 624 774 865 951

Total liabilities 1,300 1,401 1,508 1,849

Total equity and liabilities 2,009 2,312 2,537 2,891

Effective net debt 1,266 1,324 1,417 1,726

Implied capex, FY2018E 501 529

Implied capex, 1HFY18E 283





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September 2018: Results calendar

Source: NSE, Kotak Institutional Equities

Mon Tue Wed Thu Fri Sat Sun

15-Oct 16-Oct 17-Oct 18-Oct 19-Oct 20-Oct 21-Oct

Indiabulls Housing Crisil ACC SBI Life Insurance HDFC Bank

IndusInd Bank Federal Bank DCB Bank UltraTech Cement ICICI Lombard

22-Oct 23-Oct 24-Oct 25-Oct 26-Oct 27-Oct 28-Oct

Asian Paints Adani Port and SEZ Bajaj Auto Bharti Airtel Bharat Electronics

GlaxoSmithkline Pharmaceuticals Ambuja Cements Bajaj Holding & Investment BHEL Coromandel International

Hindustan Zinc Bajaj Corp. Bharat Financial Inclusion Biocon Dr Reddy's Laboratories

Jubilant Life Science Bajaj Finance Bharti Infratel CEAT ICICI Bank

Kansai Nerolac Bajaj Finserv Hexaw are Technologies Crompton Greaves Consumer ITC

Oberoi Realty HCL Technologies IDFC Bank DB Corp. PI Industries

Schaeffler India HDFC Standard Life Interglobe Aviation DishTV UPL

ICICI Prudential Life Jubilant Foodw orks JSW Steel

Rallis India Jyothy Laboratories Maruti Suzuki

RBL Bank Karur Vysya Bank Piramal Enterprises

TVS Motor Kotak Mahindra Bank PVR

L&T Finance Holdings Shriram City Union Finance

L&T Infotech Yes Bank

Mahindra & Mahindra Financial

SIS

SKF

Wipro

29-Oct 30-Oct 31-Oct 1-Nov 2-Nov 3-Nov 4-Nov

Carborundum Universal ABB Canara Bank Berger Paints Aditya Birla Fashion Endurance Technologies

Century Textile Bank of Baroda Dabur India Godrej Properties Axis Bank Torrent Pharmaceuticals

Colgate-Palmolive (India) Cholamandalam Escorts HDFC Gillette India

GRUH Finance Container Corporation Kalpataru Pow er Transmission HPCL Godrej Consumer Products

LIC Housing Finance Emami L&T Mahindra Logistics Hindalco Industries

Supreme Industries Info Edge Lupin Marico IOCL

Tata Pow er Pidilite Industries Tata Motors Magma Fincorp

Prestige Estates Projects United Spirits P&G Hygiene

Tech Mahindra Vedanta PFC

The Ramco Cement Tata Chemicals

Torrent Pow er

5-Nov 6-Nov 7-Nov 8-Nov 9-Nov 10-Nov 11-Nov

Cipla Voltas Amara Raja Batteries

Exide Industries Titan Company

PNB Housing Finance

Timken

WABCO India

12-Nov 13-Nov 14-Nov 15-Nov 16-Nov 17-Nov 18-Nov

Shree Cement Mahanagar Gas Mahindra & Mahindra

Motherson Sumi Systems


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks


Target O/S ADVT

Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo

Company Rating 17-Oct-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn)

Automobiles

Amara Raja Batteries REDUCE 744 780 4.8 127 1.7 171 32 37 43 17.1 15.9 14.5 23.0 19.9 17.4 12.2 10.5 9.0 3.8 3.2 2.8 17.4 17.5 17.4 0.7 0.8 0.9 6.3

Apollo Tyres BUY 209 340 62.4 120 1.6 541 19 23 28 38.9 26.1 18.1 11.3 8.9 7.6 7.2 6.0 4.9 1.1 1.0 0.9 10.4 12.0 12.7 1.4 1.4 1.4 12.7

Ashok Leyland BUY 114 160 40.0 336 4.6 2,926 6.2 8.9 9.4 15.3 43.2 6.1 18.4 12.9 12.1 9.3 6.7 6.3 4.0 3.3 2.8 23.4 28.4 25.4 1.6 2.3 2.5 46.6

Bajaj Auto SELL 2,548 2,600 2.0 737 10.0 289 155 168 180 10.8 8.1 7.4 16.4 15.2 14.1 10.9 9.8 8.8 3.4 3.1 2.8 22.2 21.4 20.6 2.4 2.6 2.8 28.5

Balkrishna Industries BUY 1,031 1,180 14.4 199 2.7 193 50 61 69 32.7 23.3 12.3 20.8 16.8 15.0 11.4 9.4 8.3 4.0 3.3 2.8 21.3 21.7 20.2 0.5 0.6 0.6 15.8

Bharat Forge SELL 561 600 7.0 261 3.5 466 23 27 29 44.4 14.6 7.1 24.0 20.9 19.5 13.7 12.0 11.0 4.8 4.1 3.5 21.5 21.0 19.4 0.9 1.0 1.1 12.8

CEAT ADD 1,099 1,500 36.5 44 0.6 40 99 108 116 53.7 8.3 7.9 11.0 10.2 9.5 7.5 6.4 5.8 1.5 1.3 1.2 14.4 13.8 13.2 0.9 0.9 1.0 12.3

Eicher Motors SELL 21,989 21,500 (2.2) 600 8.1 27 981 1,124 1,251 23.7 14.6 11.3 22.4 19.6 17.6 15.8 13.8 11.7 8.1 6.2 4.8 41.8 35.8 30.8 0.1 0.1 — 29.7

Escorts BUY 618 1,200 94.2 53 1.0 89 59 71 78 52.3 19.9 10.2 10.5 8.7 7.9 6.1 4.8 3.9 1.8 1.6 1.4 17.6 18.0 17.1 1.4 1.7 1.9 15.7

Exide Industries SELL 263 235 (10.6) 223 3.0 850 10 11 13 25.3 11.0 11.6 25.5 23.0 20.6 14.5 13.0 11.6 3.7 3.4 3.1 15.4 15.5 15.7 1.1 1.3 1.5 8.5

Hero Motocorp SELL 2,815 2,600 (7.6) 562 7.6 200 174 182 196 (6.1) 4.7 7.6 16.2 15.5 14.4 9.4 8.8 8.0 4.3 3.9 3.5 27.9 26.2 25.4 3.1 3.2 3.5 22.9

Mahindra CIE Automotive ADD 264 280 6.2 100 1.4 378 14 16 17 44.4 12.1 9.0 19.0 17.0 15.6 9.6 8.5 7.7 2.4 2.1 1.8 13.2 13.0 12.4 — — — 2.4

Mahindra & Mahindra BUY 759 1,125 48.1 944 12.8 1,138 45 54 56 18.8 19.0 4.2 16.8 14.1 13.6 10.9 9.0 8.4 2.5 2.2 2.0 15.8 16.6 15.4 1.2 1.4 1.5 35.8

Maruti Suzuki ADD 6,886 9,200 33.6 2,080 28.2 302 298 362 408 16.7 21.2 12.9 23.1 19.0 16.9 12.4 9.8 8.2 4.3 3.7 3.2 20.1 21.1 20.5 1.1 1.3 1.5 88.5

Motherson Sumi Systems SELL 249 280 12.2 525 7.1 2,105 11 14 16 40.2 21.5 13.8 21.8 17.9 15.7 8.9 7.3 6.4 4.5 3.8 3.3 22.5 23.2 22.3 1.1 1.3 1.4 16.4

MRF REDUCE 62,102 69,000 11.1 263 3.6 4 3,425 3,932 4,411 28.3 14.8 12.2 18.1 15.8 14.1 8.4 7.2 6.1 2.4 2.1 1.8 13.9 13.9 13.7 0.1 0.1 0.1 8.2

Schaeffler India BUY 5,061 6,000 18.5 84 1.1 17 156 199 233 9.0 27.3 17.6 32.4 25.5 21.7 19.6 14.9 12.4 4.4 3.9 3.5 14.5 16.4 17.0 0.6 0.8 0.9 0.7

SKF ADD 1,698 1,800 6.0 87 1.2 51 69 82 97 19.7 18.5 18.2 24.6 20.8 17.6 15.7 12.9 10.6 4.1 3.6 3.1 16.7 17.1 17.4 0.7 0.8 1.0 0.4

Tata Motors BUY 180 425 136.2 611 7.7 3,396 22 36 39 10.7 62.7 8.0 8.1 5.0 4.6 2.9 2.4 2.2 0.6 0.5 0.5 7.6 11.2 10.8 — — — 54.8

Timken SELL 548 570 4.0 41 0.6 68 19 24 28 41.7 25.1 18.0 28.6 22.8 19.4 17.4 14.0 11.7 4.4 3.7 3.1 16.9 17.5 17.2 0.2 0.2 0.2 0.2

TVS Motor SELL 533 350 (34.3) 253 3.4 475 15 17 20 8.4 15.1 15.6 35.3 30.6 26.5 19.3 16.8 14.7 7.6 6.5 5.7 23.1 22.9 22.9 0.8 1.0 1.1 15.7

Varroc Engineering BUY 805 1,250 55.3 109 1.5 135 39 47 51 52.3 19.9 10.2 20.7 17.3 15.7 16.2 13.8 11.9 3.2 2.6 2.1 15.3 15.3 13.5 — — — —

WABCO India SELL 6,500 6,350 (2.3) 123 1.7 19 169 222 225 17.8 31.3 1.0 38.4 29.2 28.9 24.9 18.8 18.5 6.8 5.6 4.7 19.2 20.9 17.7 0.2 0.2 0.2 0.4

Automobiles Neutral 8,483 115 17.4 25.0 9.7 18.3 14.7 13.4 8.1 6.7 6.0 2.7 2.4 2.1 14.8 16.2 15.6 1.1 1.3 1.4 435.4

Banks

Axis Bank REDUCE 576 600 4.2 1,480 20.1 2,567 19 41 46 1,635.7 118.8 12.3 30.9 14.1 12.6 — — — 2.5 2.1 1.8 7.3 14.3 14.3 0.5 1.1 1.2 102.0

Bank of Baroda ADD 100 130 — 263 3.6 2,652 21 26 29 323.7 26.4 12.1 4.9 3.8 3.4 — — — 0.9 0.6 0.5 12.7 14.0 13.7 — — — 44.2

Canara Bank ADD 221 280 26.9 162 2.2 733 (5) 51 68 91.6 1,147.0 33.3 (45.5) 4.3 3.3 — — — 1.3 0.8 0.5 (1.0) 10.1 12.0 — — — 26.9

City Union Bank ADD 171 185 8.3 125 1.7 665 9 11 12 5.8 13.3 16.7 18.1 16.0 13.7 — — — 2.8 2.5 2.1 15.5 15.6 16.0 1.0 1.1 1.3 2.1

DCB Bank BUY 160 185 15.6 49 0.7 308 10 12 17 25.3 23.4 38.6 16.0 13.0 9.4 — — — 1.9 1.7 1.4 11.4 12.6 15.4 0.6 0.7 1.0 4.2

Equitas Holdings BUY 126 160 27.4 43 0.6 340 4.4 8.4 11.4 378.4 89.9 35.6 28.3 14.9 11.0 — — — 1.8 1.6 1.4 6.4 11.2 13.4 — — — 5.4

Federal Bank BUY 79 105 33.8 156 2.1 1,972 6.0 8.0 9.7 35.3 32.4 21.8 13.0 9.8 8.1 — — — 1.3 1.2 1.1 9.4 11.5 12.8 1.7 2.3 2.8 19.4

HDFC Bank ADD 1,975 2,100 6.4 5,365 72.8 2,595 78 94 112 15.7 20.0 19.1 25.3 21.1 17.7 — — — 3.7 3.3 2.9 16.7 16.2 17.0 0.8 0.9 1.1 82.6

ICICI Bank BUY 315 400 27.1 2,026 27.5 7,072 8 26 31 (17.6) 227.0 18.6 39.8 12.2 10.3 — — — 2.1 1.8 1.6 4.7 14.4 15.2 0.5 1.6 1.9 100.1

IDFC Bank NR 35 — — 119 1.6 3,404 1.2 2.9 4.3 (52.7) 146.7 44.8 29.4 11.9 8.2 — — — 0.8 0.7 0.7 2.6 6.3 8.6 0.7 1.7 2.4 6.8

IndusInd Bank BUY 1,604 1,850 15.3 964 13.1 600 67 83 97 10.8 24.3 17.3 24.1 19.4 16.5 — — — 3.4 3.0 2.6 16.7 16.1 16.4 — 0.6 0.7 42.8

J&K Bank BUY 43 90 111.8 24 0.3 557 5 8 16 48.7 41.1 109.3 7.9 5.6 2.7 — — — 0.5 0.5 0.4 4.8 6.5 12.6 2.5 3.6 7.5 0.3

Karur Vysya Bank ADD 77 110 42.2 62 0.8 727 3 13 14 (32.3) 306.7 9.1 24.0 5.9 5.4 — — — 1.1 0.9 0.8 3.7 14.1 13.9 1.0 4.2 4.8 2.1

Punjab National Bank ADD 67 80 20.3 204 2.8 2,761 (27) 12 18 40.4 145.3 46.9 (2.5) 5.5 3.8 — — — 3.3 1.1 0.6 (23.4) 10.7 13.8 — — — 42.2

RBL Bank REDUCE 538 500 (7.0) 228 3.1 420 22 29 36 48.1 31.5 21.0 24.0 18.2 15.1 — — — 3.1 2.8 2.5 13.3 15.5 16.5 0.6 0.8 1.0 15.6

State Bank of India BUY 261 370 41.7 2,331 31.6 8,925 8 37 53 204.8 380.5 42.7 34.0 7.1 5.0 — — — 1.7 1.2 1.0 3.1 13.6 16.7 — 0.2 0.2 111.2

Ujjivan Financial Services BUY 232 360 55.2 28 0.4 121 19 28 32 3,033.9 47.3 15.1 12.4 8.4 7.3 — — — 1.4 1.2 1.1 12.1 15.8 15.8 0.7 1.2 1.5 5.5

Union Bank ADD 67 90 34.6 78 1.1 1,169 8 33 40 117.1 330.8 22.5 8.7 2.0 1.7 — — — 1.0 0.6 0.4 3.9 15.2 16.3 1.7 7.4 9.1 10.4

YES Bank SELL 232 200 (13.8) 536 7.3 2,303 18 19 25 (4.4) 10.6 28.2 13.2 12.0 9.3 — — — 1.9 1.7 1.5 14.7 14.5 16.4 1.3 1.4 1.8 148.3

Banks Attractive 14,244 193 800.6 147.2 26.7 29.1 11.8 9.3 1.7 1.5 1.3 6.0 13.1 14.5 0.6 0.9 1.1 772.1

Dividend yield (%)P/B (X) RoE (%)


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Target O/S ADVT



NBFCs

Bajaj Finance SELL 2,151 2,000 (7.0) 1,243 16.9 575 68 90 114 56.6 31.9 27.3 31.6 24.0 18.9 — — — 6.4 5.2 4.2 22.4 24.0 24.6 0.3 0.4 0.5 90.6

Bajaj Finserv REDUCE 5,386 6,100 13.3 857 11.6 159 245 307 376 39.7 25.2 22.5 22.0 17.5 14.3 — — — 3.5 2.9 2.4 17.5 18.1 18.6 0.3 0.3 0.3 23.0

Bharat Financial Inclusion NA 984 — — 138 1.9 139 43 54 69 31.1 27.2 25.8 23.0 18.1 14.3 — — — 3.7 3.0 2.5 17.9 18.5 19.0 — — — 12.0

Cholamandalam ADD 1,131 1,425 26.0 177 2.4 156 74 92 113 19.4 23.8 23.1 15.2 12.3 10.0 — — — 3.0 2.5 2.1 20.6 21.3 21.7 0.8 1.0 1.2 7.9

HDFC ADD 1,738 2,020 16.2 2,985 40.5 1,676 55 65 79 (27.3) 18.7 21.2 31.7 26.7 22.0 — — — 4.0 3.6 3.3 13.6 14.2 15.7 1.2 1.4 1.7 83.5

HDFC Standard Life Insurance SELL 372 405 8.9 749 10.2 2,007 6 7 8 14.8 10.9 14.7 58.6 52.8 46.0 — — — 15.5 13.9 12.4 28.0 27.7 28.4 0.4 0.5 0.5 8.1

ICICI Lombard SELL 794 620 (21.9) 360 4.9 454 26 32 37 37.1 21.5 18.5 30.5 25.1 21.2 — — — 6.7 5.6 4.7 23.8 24.2 24.0 0.8 0.9 1.1 6.1

ICICI Prudential Life BUY 330 500 51.6 473 6.4 1,436 12 13 15 10.1 7.0 10.0 26.5 24.8 22.6 — — — 5.9 5.0 4.2 24.5 21.8 20.2 0.6 0.7 0.7 8.7

IIFL Holdings SELL 430 625 45.2 137 1.9 319 38 45 52 31.5 18.6 16.0 11.5 9.7 8.3 — — — 2.0 1.8 1.5 20.5 20.0 20.0 1.9 2.2 2.6 2.3

L&T Finance Holdings ADD 120 165 37.1 240 3.3 1,996 13 14 16 70.9 12.3 12.8 9.6 8.5 7.6 — — — 1.7 1.5 1.3 18.9 18.8 18.3 1.7 2.1 2.0 22.5

LIC Housing Finance BUY 433 580 33.9 219 3.0 505 48 55 66 10.9 13.9 19.8 8.9 7.9 6.6 — — — 1.4 1.2 1.1 17.0 16.2 16.9 1.7 2.0 2.4 17.8

Magma Fincorp BUY 102 165 61.6 27 0.4 237 13 17 21 34.0 31.8 23.0 7.8 5.9 4.8 — — — 1.0 0.9 0.8 13.9 15.8 17.0 1.9 2.5 3.1 1.0

Mahindra & Mahindra Financial ADD 367 450 22.5 227 3.1 614 23 28 34 58.4 23.2 18.6 16.0 13.0 10.9 — — — 2.3 2.1 1.9 14.3 15.8 16.7 1.7 2.1 2.5 12.9

Max Financial Services ADD 384 650 69.3 103 1.4 268 6 6 6 36.9 1.8 1.8 61.2 60.1 59.1 — — — — — — 8.3 8.0 7.8 0.6 0.6 0.6 5.8

Muthoot Finance ADD 403 480 19.2 161 2.2 400 40 42 48 (7.8) 6.0 14.8 10.2 9.6 8.3 — — — 1.8 1.6 1.4 19.0 17.6 17.8 2.3 2.4 2.8 7.9

PNB Housing Finance REDUCE 865 1,200 38.7 145 2.0 167 62 75 92 25.3 20.9 22.4 13.9 11.5 9.4 — — — 2.0 1.8 1.5 15.2 15.9 17.0 0.4 0.4 0.4 4.3

SBI Life Insurance ADD 560 785 40.2 560 7.6 1,000 15 18 21 26.0 22.9 17.0 38.5 31.3 26.8 — — — 7.3 6.1 5.1 20.6 21.3 20.9 0.4 0.5 0.6 3.2

Shriram City Union Finance ADD 1,670 2,120 26.9 110 1.5 66 139 171 206 38.1 22.6 20.5 12.0 9.8 8.1 — — — 1.9 1.7 1.4 15.5 16.7 17.4 1.0 1.3 1.5 1.4

Shriram Transport BUY 1,006 1,450 44.1 228 3.1 227 109 127 143 57.8 16.2 12.5 9.2 7.9 7.1 — — — 1.6 1.4 1.2 17.6 17.2 16.8 1.5 1.8 2.1 28.4

NBFCs Neutral 9,140 124 13.2 19.5 19.6 23.6 19.7 16.5 3.7 3.3 2.8 15.9 16.5 17.1 0.8 1.0 1.2 772.1

Cement

ACC SELL 1,540 1,250 (18.8) 289 3.9 188 58 67 78 19.0 16.3 15.7 26.6 22.9 19.8 14.1 12.0 10.2 2.9 2.6 2.4 11.2 12.0 12.7 1.1 1.1 1.1 17.4

Ambuja Cements REDUCE 219 210 (4.2) 435 5.9 1,986 9 11 12 14.5 23.2 15.8 25.5 20.7 17.9 8.5 7.0 5.8 2.0 1.9 1.8 8.1 9.5 10.4 1.6 1.6 1.6 11.2

Dalmia Bharat ADD 2,059 2,830 37.5 184 2.5 89 94 122 139 55.8 29.3 14.8 21.9 16.9 14.8 8.5 6.9 5.8 2.7 2.3 2.0 12.9 14.6 14.5 0.1 0.1 0.1 4.1

Grasim Industries BUY 882 1,170 32.7 580 7.9 657 46 55 70 (2.5) 18.8 28.0 19.1 16.1 12.6 6.9 6.6 6.2 1.0 0.9 0.9 5.2 5.9 7.1 0.6 0.6 0.6 16.9

India Cements REDUCE 94 118 26.0 29 0.4 308 4 8 12 28.0 102.6 41.3 22.4 11.1 7.8 7.9 6.2 5.1 0.5 0.5 0.5 2.5 4.8 6.5 1.1 1.1 1.1 9.9

J K Cement ADD 699 890 27.4 49 0.7 70 45 79 78 3.7 75.4 (0.8) 15.6 8.9 9.0 9.5 7.9 6.4 2.2 1.8 1.5 15.0 22.3 18.5 1.1 1.1 1.1 0.4

JK Lakshmi Cement ADD 276 370 34.1 32 0.4 118 11 28 37 153.5 147.9 30.5 24.4 9.8 7.5 9.0 5.8 4.7 2.1 1.8 1.4 8.9 19.5 21.0 0.7 0.7 0.7 0.4

Orient Cement ADD 89 145 62.8 18 0.2 205 7 11 15 212.9 58.7 41.3 13.2 8.3 5.9 6.7 5.1 3.7 1.6 1.4 1.2 12.9 18.2 21.8 1.7 2.2 2.2 0.3

Shree Cement SELL 15,126 12,500 (17.4) 527 7.2 35 421 630 760 6.0 49.7 20.6 35.9 24.0 19.9 16.6 12.4 10.0 5.2 4.3 3.6 15.4 19.7 19.8 0.3 0.3 0.3 5.6

UltraTech Cement SELL 3,730 2,950 (20.9) 1,024 13.9 275 126 162 201 42.7 28.9 24.0 29.7 23.0 18.6 15.6 12.8 10.6 3.5 3.1 2.7 12.6 14.3 15.4 0.3 0.3 0.3 19.1

Cement Cautious 3,168 43 18.7 30.6 21.9 25.8 19.7 16.2 10.0 8.5 7.4 2.1 2.0 1.8 8.3 9.9 10.9 0.6 0.6 0.6 85.3



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Target O/S ADVT



Consumer products

Asian Paints REDUCE 1,256 1,200 (4.5) 1,205 16.4 959 27 33 39 32.1 20.3 18.3 46.3 38.5 32.6 29.0 24.0 20.2 12.5 10.9 9.5 28.8 30.3 31.3 0.9 1.2 1.5 23.7

Bajaj Corp. ADD 388 405 4.4 57 0.8 148 15 17 19 7.8 10.3 9.5 25.1 22.8 20.8 20.0 17.1 14.9 11.7 11.6 11.4 46.3 51.2 55.4 3.4 3.6 3.9 0.6

Britannia Industries ADD 5,530 5,875 6.2 664 9.0 120 104 127 152 24.5 22.2 19.2 53.1 43.4 36.4 34.7 28.4 23.7 15.5 12.5 10.2 32.5 31.8 30.9 0.6 0.8 1.0 16.0

Coffee Day Enterprises REDUCE 268 265 (1.2) 57 0.8 211 8 10 12 129.9 30.0 21.2 34.9 26.8 22.1 11.8 10.3 9.6 2.2 2.1 1.9 6.6 8.0 8.9 — — — 1.0

Colgate-Palmolive (India) ADD 1,085 1,120 3.3 295 4.0 272 27 32 36 14.7 15.6 15.5 39.8 34.4 29.8 22.7 19.7 17.1 17.4 15.1 13.2 46.0 46.9 47.3 1.5 1.8 2.1 7.3

Dabur India REDUCE 403 345 (14.4) 712 9.7 1,762 9 10 12 17.3 12.9 13.6 44.2 39.2 34.5 37.0 31.9 27.6 12.4 10.8 9.5 28.1 29.6 29.4 0.9 1.1 1.4 22.1

GlaxoSmithKline Consumer REDUCE 6,907 6,325 (8.4) 290 3.9 42 199 223 246 19.5 12.1 10.1 34.7 31.0 28.1 24.2 20.8 18.2 7.5 6.8 6.2 22.8 23.0 23.1 1.3 1.5 1.8 2.2

Godrej Consumer Products REDUCE 734 645 (12.2) 751 10.2 1,022 17 19 22 18.8 13.7 12.7 43.4 38.2 33.9 30.8 26.7 23.2 10.2 8.8 7.7 25.3 24.7 24.2 0.8 0.9 1.0 14.3

Hindustan Unilever REDUCE 1,562 1,430 (8.5) 3,381 45.9 2,160 29 34 38 18.9 16.0 13.0 53.6 46.2 40.8 37.8 32.5 28.7 41.8 35.0 29.6 83.2 82.6 78.6 1.3 1.5 1.7 39.4

ITC ADD 286 310 8.3 3,505 47.6 12,275 10 11 12 8.2 12.3 11.7 29.7 26.4 23.7 19.1 16.9 15.0 6.4 6.1 5.7 20.4 22.2 24.2 2.0 2.3 2.7 59.2

Jubilant Foodworks BUY 1,208 1,430 18.4 159 2.2 132 25 35 46 74.7 37.6 32.4 47.5 34.5 26.1 23.6 17.7 13.3 11.8 9.0 6.8 29.0 29.7 29.9 0.2 0.2 0.3 28.5

Jyothy Laboratories ADD 191 210 10.1 69 0.9 364 6 7 8 27.6 16.7 15.4 33.9 29.1 25.2 22.7 19.2 16.4 5.2 4.6 4.0 16.6 16.8 16.9 0.5 0.8 1.0 0.9

Marico ADD 315 310 (1.5) 406 5.5 1,291 7 8 9 8.9 20.0 14.5 46.1 38.4 33.6 32.0 26.4 22.8 15.1 14.0 13.0 33.7 37.9 40.2 1.5 1.7 2.0 10.4

Nestle India ADD 9,725 9,950 2.3 938 12.7 96 171 197 223 34.2 15.7 13.2 57.0 49.3 43.5 32.6 28.1 24.7 25.2 23.1 21.2 46.1 49.0 50.8 1.2 1.4 1.6 10.6

Page Industries SELL 28,066 22,300 (20.5) 313 4.2 11 418 508 607 34.3 21.6 19.5 67.2 55.2 46.2 43.3 35.7 29.8 28.4 22.5 18.1 47.8 45.5 43.4 0.6 0.8 0.9 18.9

Pidilite Industries REDUCE 963 960 (0.3) 489 6.6 508 21 26 31 16.8 21.8 20.2 45.7 37.5 31.2 30.3 24.9 20.7 11.6 9.7 8.1 27.4 28.2 28.4 0.7 0.9 1.0 8.3

S H Kelkar and Company BUY 196 240 22.5 28 0.4 145 7 10 12 (6.2) 41.9 23.2 28.2 19.9 16.1 18.3 13.1 11.4 3.1 2.7 2.4 11.3 14.5 16.0 0.9 1.0 1.4 0.6

Tata Global Beverages ADD 231 230 (0.5) 146 2.0 631 8 9 10 7.7 17.0 12.9 29.2 24.9 22.1 16.0 14.0 12.4 2.0 1.9 1.8 7.0 7.9 8.5 1.3 1.5 1.7 10.1

Titan Company REDUCE 800 760 (5.0) 710 9.6 888 16 20 23 25.6 21.8 19.3 49.8 40.9 34.3 33.0 26.3 21.6 11.8 9.9 8.4 25.6 26.3 26.4 0.6 0.7 0.9 39.9

United Breweries REDUCE 1,210 1,040 (14.0) 320 4.3 264 21 26 31 39.2 23.6 20.6 58.2 47.1 39.0 28.7 24.6 21.1 10.1 8.5 7.2 18.7 19.6 20.0 0.3 0.4 0.5 15.5

United Spirits REDUCE 533 470 (11.9) 388 5.3 727 10 13 17 34.7 30.9 24.5 52.0 39.7 31.9 30.4 24.6 20.6 10.6 7.8 6.0 24.2 22.7 21.3 — — 0.5 11.9

Varun Beverages REDUCE 773 700 (9.5) 141 1.9 183 15 20 26 29.8 34.5 30.7 51.7 38.5 29.4 17.1 14.6 12.3 7.1 6.1 5.2 14.6 17.1 19.0 — — 0.3 1.3

Consumer products Cautious 15,026 204 17.6 16.5 14.7 42.3 36.3 31.7 27.5 23.5 20.4 11.1 9.9 8.8 26.1 27.2 27.8 1.2 1.4 1.7 343.0

Energy

BPCL REDUCE 285 275 (3.6) 619 8.4 1,967 33 33 36 (19.2) 2.6 7.5 8.8 8.5 7.9 6.7 6.3 5.8 1.5 1.4 1.3 17.9 16.8 16.5 4.6 4.7 5.0 31.0

Castrol India SELL 139 155 11.3 138 1.9 989 7 8 9 2.9 10.1 9.7 19.7 17.9 16.3 12.2 11.0 10.0 12.9 12.6 12.2 67.1 71.5 76.0 3.9 4.5 4.8 3.6

GAIL (India) BUY 345 455 31.8 779 10.6 2,255 29 31 33 41.7 6.4 8.0 12.0 11.2 10.4 7.5 7.0 6.4 1.8 1.6 1.5 15.4 14.9 14.7 2.8 2.9 3.0 27.2

GSPL SELL 168 185 10.4 94 1.3 564 16 12 13 31.3 (25.1) 12.1 10.8 14.4 12.8 4.2 5.1 4.4 1.6 1.5 1.4 16.2 10.9 11.1 1.4 1.0 1.2 1.6

HPCL REDUCE 207 185 (10.8) 316 4.3 1,524 28 29 31 (32.3) 1.7 6.6 7.3 7.2 6.8 7.3 7.4 7.4 1.2 1.1 1.0 17.2 16.1 15.8 5.6 5.6 6.0 28.9

Indraprastha Gas SELL 242 240 (0.9) 170 2.3 700 12 13 15 16.4 12.3 10.7 20.2 18.0 16.2 12.7 11.1 9.8 4.2 3.6 3.2 22.1 21.5 20.9 1.0 1.3 1.7 9.8

IOCL REDUCE 132 120 (9.3) 1,285 17.4 9,479 16 15 17 (24.1) (1.8) 12.3 8.5 8.6 7.7 5.0 4.8 4.3 1.1 1.0 0.9 12.9 11.9 12.6 4.7 4.6 5.2 19.8

Mahanagar Gas ADD 822 965 17.4 81 1.1 99 56 60 64 16.0 7.6 5.4 14.6 13.6 12.9 8.5 7.7 7.1 3.4 3.0 2.7 24.8 23.5 22.0 2.7 2.9 3.1 12.9

ONGC ADD 162 200 23.4 2,080 28.2 12,833 22 21 21 24.6 (1.3) (4.0) 7.5 7.6 7.9 3.7 3.6 3.5 0.9 0.8 0.8 11.9 11.0 10.0 4.2 4.3 4.3 17.9

Oil India SELL 202 200 (0.9) 229 3.1 1,135 24 25 26 (2.0) 4.1 4.5 8.3 8.0 7.7 5.5 5.2 5.0 0.8 0.7 0.7 9.6 9.5 9.5 4.8 5.0 5.2 2.6

Petronet LNG BUY 217 280 29.1 325 4.4 1,500 16 18 20 16.7 13.1 9.4 13.4 11.8 10.8 9.0 7.5 6.7 2.9 2.6 2.3 23.3 23.2 22.7 2.6 3.4 4.2 10.3

Reliance Industries SELL 1,151 1,070 (7.1) 6,813 92.5 5,922 67 78 88 13.9 16.5 12.7 17.1 14.7 13.0 11.6 9.7 8.2 2.1 1.8 1.6 11.8 12.3 12.3 0.5 0.6 0.6 154.6

Energy Attractive 12,929 175 4.6 6.5 7.5 12.0 11.3 10.5 7.4 6.8 6.2 1.5 1.4 1.3 12.7 12.4 12.2 2.1 2.2 2.4 320.2



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Price (Rs) price Upside shares 3mo


Industrials

ABB SELL 1,284 1,020 (20.6) 272 3.7 212 26 29 36 30.1 14.2 23.5 49.8 43.6 35.3 29.2 26.2 21.7 6.9 6.3 5.6 14.5 15.1 16.7 0.7 0.7 0.7 2.4

BHEL REDUCE 74 89 20.0 272 3.7 3,671 3.3 5.5 7.6 47.9 69.3 38.0 22.8 13.5 9.8 7.2 4.4 3.2 0.8 0.8 0.8 3.6 6.1 8.2 2.7 4.6 6.3 9.8

Carborundum Universal SELL 365 322 (11.8) 69 0.9 189 14 17 20 25.0 21.4 13.8 25.6 21.1 18.5 14.0 11.5 9.9 4.0 3.6 3.2 16.3 17.8 18.1 1.2 1.4 1.6 0.5

CG Power and Industrial BUY 39 62 58.6 24 0.3 627 1.4 3.6 5.7 71.6 157.3 57.0 27.8 10.8 6.9 7.2 5.2 4.0 0.9 0.9 0.8 3.3 8.4 12.5 — — — 4.2

Cummins India REDUCE 676 710 5.0 187 2.5 277 28 33 37 15.2 17.5 13.7 24.3 20.7 18.2 20.3 17.4 15.0 4.4 4.1 3.8 18.7 20.6 21.8 2.2 2.6 3.0 5.3

Kalpataru Power Transmission BUY 305 560 83.8 47 0.6 153 23.9 32.7 41.3 23.4 36.6 26.4 12.7 9.3 7.4 6.2 4.9 4.1 1.6 1.4 1.2 13.0 15.5 16.9 0.5 0.5 0.5 0.6

KEC International BUY 279 410 46.8 72 1.0 257 21 27 33 16.9 29.7 23.0 13.3 10.3 8.4 7.6 6.2 5.3 2.9 2.3 1.9 24.1 25.2 24.9 0.8 1.0 1.3 2.8

L&T BUY 1,211 1,600 32.1 1,698 23.0 1,401 62.8 67.1 83.3 21.5 6.8 24.1 19.3 18.0 14.5 15.6 14.9 12.9 3.1 2.8 2.5 16.7 16.1 18.0 1.7 1.8 2.3 51.4

Siemens SELL 933 1,000 7.2 332 4.5 356 29 35 — 21.4 21.7 — 32.1 26.4 - 17.9 14.3 — 3.8 3.6 — 12.3 14.0 — 1.3 1.6 — 4.1

Thermax REDUCE 975 1,065 9.2 116 1.6 113 27.8 38.7 43.8 34.7 39.2 13.2 35.1 25.2 22.3 22.2 16.5 14.1 3.8 3.4 3.1 11.1 14.3 14.7 1.0 1.1 1.2 1.0

Industrials Neutral 3,090 42 23.8 17.8 15.7 22.2 18.8 16.3 14.8 13.1 10.9 2.6 2.4 2.4 11.8 12.9 14.7 1.6 1.9 2.2 82.0

Infrastructure

Adani Ports and SEZ BUY 314 460 46.5 650 8.8 2,071 19 23 29 1.2 21.1 29.8 16.8 13.9 10.7 11.8 9.7 8.5 2.7 2.3 1.9 17.0 17.7 19.4 0.6 0.7 0.6 16.3

Ashoka Buildcon BUY 114 220 93.1 32 0.4 282 9 10 10 4.1 17.8 (1.3) 13.0 11.0 11.2 8.6 7.2 6.7 1.4 1.3 1.2 11.8 12.3 11.0 1.5 1.1 1.1 0.6

Container Corp. SELL 599 635 5.9 292 4.0 487 21 25 29 17.4 20.9 15.0 28.9 23.9 20.8 17.7 14.0 11.5 2.9 2.7 2.5 10.3 11.6 12.3 1.5 1.7 1.6 5.2

Dilip Buildcon BUY 469 1,240 164.5 64 0.9 137 56 71 85 19.8 27.5 20.1 8.4 6.6 5.5 5.0 4.0 3.4 2.0 1.5 1.2 26.7 26.2 24.4 — — — 3.3

Gateway Distriparks BUY 160 250 56.3 17 0.2 109 7 8 11 (5.8) 15.2 37.5 22.3 19.4 14.1 10.3 8.6 7.0 3.0 2.6 2.2 9.8 14.5 17.1 — 1.9 1.9 0.2

Gujarat Pipavav Port BUY 102 150 47.2 49 0.7 483 5.3 6.5 7.8 29.7 22.9 19.3 19.1 15.5 13.0 10.1 8.2 6.8 2.4 2.3 2.3 12.7 15.3 17.8 4.3 5.3 6.2 0.6

IRB Infrastructure BUY 126 320 154.8 44 0.6 351 31 33 23 36.8 7.1 (31.3) 4.1 3.8 5.5 5.8 6.3 7.6 0.7 0.6 0.5 17.6 16.3 10.0 2.4 3.2 3.4 5.7

Mahindra Logistics REDUCE 560 565 0.9 40 0.5 71 15 21 25 50.7 39.3 23.7 37.9 27.2 22.0 21.1 15.3 12.1 7.9 6.4 5.1 22.7 25.8 25.8 — — — 0.4

Sadbhav Engineering BUY 237 370 55.9 41 0.6 172 17 22 22 31.7 27.9 2.9 14.0 11.0 10.6 10.4 8.2 6.9 1.9 1.7 1.4 14.5 16.2 14.5 — — — 1.3

Infrastructure Attractive 1,230 17 11.3 20.2 16.7 16.0 13.3 11.4 10.2 8.7 7.8 2.4 2.1 1.8 14.8 15.5 15.7 1.0 1.2 1.2 33.6

Internet

Info Edge ADD 1,501 1,425 (5.1) 183 2.5 122 26 33 40 14.9 27.5 20.6 58.1 45.5 37.8 44.1 33.4 27.1 6.9 6.2 5.6 13.2 14.3 15.6 0.5 0.5 0.7 3.0

Just Dial ADD 485 610 25.9 33 0.4 67 26 30 33 23.0 15.0 9.4 18.6 16.1 14.7 9.4 7.4 6.0 2.9 2.5 2.2 16.7 16.6 15.7 0.5 0.6 0.7 19.6

Internet Cautious 216 3 17.6 23.0 16.8 44.0 35.8 30.6 32.1 25.3 21.1 5.7 5.1 4.5 12.9 14.2 14.7 0.5 0.6 0.7 22.7

Media

DB Corp. REDUCE 187 270 44.5 34 0.5 184 20 23 26 14.9 12.3 14.8 9.2 8.2 7.2 4.8 4.2 — 1.9 1.8 — 20.7 22.3 25.2 9.0 11.3 13.5 0.4

DishTV ADD 50 70 39.3 93 1.3 1,925 1.8 2.9 3.7 514.6 57.8 27.2 NM 17.4 13.7 4.5 3.7 3.1 18.2 13.6 9.6 72.7 89.3 81.9 — — — 3.9

Jagran Prakashan REDUCE 109 168 53.8 32 0.4 311 11 12 14 10.0 12.2 14.6 10.3 9.2 8.0 4.4 3.9 3.3 1.7 1.7 1.6 15.9 18.3 20.2 4.6 8.2 8.2 0.4

PVR BUY 1,314 1,430 8.8 61 0.8 47 38 50 61 41.2 32.3 22.4 34.7 26.2 21.4 13.3 11.3 9.6 5.0 4.3 3.6 15.3 17.6 18.3 0.3 0.4 0.5 10.9

Sun TV Network REDUCE 654 660 0.9 258 3.5 394 35 37 41 20.6 6.6 10.3 18.8 17.7 16.0 12.6 11.7 10.2 5.1 4.8 4.4 28.4 27.9 28.6 3.1 3.4 3.8 17.9

Zee Entertainment Enterprises REDUCE 464 430 (7.2) 445 6.0 960 17 20 22 11.4 17.1 12.6 27.7 23.6 21.0 16.2 14.3 12.6 5.2 4.6 4.1 19.9 20.6 20.5 1.0 1.2 1.5 20.7

Media Attractive 924 13 28.7 17.0 14.4 22.1 18.9 16.6 10.3 9.2 7.8 4.9 4.4 4.3 22.0 23.2 25.8 1.8 2.2 2.6 54.3

Dividend yield (%)P/B (X) RoE (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)


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Metals & Mining

Coal India ADD 280 320 14.3 1,737 23.6 6,207 25 25 27 120.4 2.2 6.6 11.2 11.0 10.3 8.6 7.3 6.7 6.9 7.6 8.1 62.7 65.9 76.0 7.1 8.9 8.9 14.6

Hindalco Industries BUY 228 330 44.9 511 6.9 2,229 28 33 35 28.1 17.8 6.4 8.1 6.9 6.5 5.4 4.6 4.1 0.8 0.7 0.7 10.8 11.4 10.9 0.5 0.5 0.5 39.3

Hindustan Zinc REDUCE 270 280 3.7 1,141 15.5 4,225 21 24 27 (3.8) 15.7 12.3 13.0 11.3 10.0 7.5 6.1 5.1 2.8 2.4 2.1 22.9 23.2 22.6 3.0 3.0 3.0 5.6

Jindal Steel and Power REDUCE 169 215 27.6 163 2.2 968 8 14 22 195.9 68.5 60.8 20.7 12.3 7.6 6.4 5.8 4.9 0.5 0.5 0.5 2.7 4.3 6.5 — — — 35.6

JSW Steel SELL 362 350 (3.2) 874 11.9 2,406 31 26 31 16.1 (16.2) 17.2 11.6 13.8 11.8 6.9 8.0 7.1 2.5 2.1 1.8 23.5 16.6 16.8 0.9 0.9 0.9 38.2

National Aluminium Co. BUY 66 87 32.0 127 1.7 1,933 10 8 9 238.9 (16.0) 3.6 6.7 8.0 7.7 3.1 3.7 3.5 1.2 1.1 1.1 17.6 14.4 14.6 9.1 9.1 9.1 11.8

NMDC REDUCE 110 120 8.6 349 4.7 3,164 12 10 11 4.2 (14.3) 5.9 9.0 10.6 10.0 5.5 6.4 6.0 1.3 1.3 1.2 15.3 12.4 12.5 5.0 5.0 5.0 6.6

Tata Steel ADD 555 660 19.0 633 8.6 1,205 76 85 94 12.8 12.1 10.9 7.3 7 5.9 5.8 6.1 5.7 1.0 0.9 0.8 14.3 14.3 14.4 1.8 1.8 1.8 72.9

Vedanta BUY 208 360 73.1 773 10.5 3,717 27 38 39 26.7 39.0 2.2 7.6 5.5 5.4 5.0 3.7 3.3 1.1 1.0 0.9 15.4 19.4 17.7 3.9 5.5 5.6 50.2

Metals & Mining Attractive 6,310 86 35.8 10.0 9.1 9.9 9.0 8.2 6.2 5.7 5.1 1.7 1.6 1.4 17.3 17.5 17.3 3.8 4.5 4.5 274.7

Pharmaceutical

Apollo Hospitals ADD 1,124 1,090 (3.0) 156 2.1 139 20 27 33 133.5 36.7 21.6 57.0 41.7 34.3 19.9 16.8 14.7 4.5 4.2 3.9 8.2 10.5 11.8 0.4 0.6 0.7 15.6

Aster DM Healthcare BUY 169 240 42.0 85 1.2 505 5 8 12 74.4 62.0 51.4 35.2 21.7 14.3 12.6 9.9 7.7 2.8 2.5 2.2 8.3 12.2 16.3 — — — 0.2

Aurobindo Pharma ADD 756 760 0.5 443 6.0 584 42 57 64 1.0 35.8 12.3 17.9 13.2 11.8 12.0 8.9 7.9 3.2 2.6 2.2 19.3 19.9 18.6 0.7 0.8 1.0 41.9

Biocon SELL 637 330 (48.2) 382 5.2 601 8 15 18 35.9 75.7 21.7 75.6 43.0 35.4 32.9 22.0 18.7 6.3 5.7 5.1 8.7 13.9 14.3 0.5 0.8 1.0 24.0

Cipla BUY 640 680 6.2 516 7.0 805 24 31 40 34.5 31.0 29.4 27.2 20.8 16.0 15.3 12.2 9.5 3.2 2.9 2.5 12.4 14.6 15.7 0.8 1.0 1.3 23.1

Dr Lal Pathlabs REDUCE 946 900 (4.9) 79 1.1 83 24 29 34 19.0 17.9 18.4 38.9 33.0 27.8 23.8 19.9 16.3 8.3 7.0 5.9 23.4 23.1 22.9 0.5 0.6 0.7 1.2

Dr Reddy's Laboratories REDUCE 2,562 2,150 (16.1) 425 5.8 166 89 118 141 50.2 32.8 19.3 28.9 21.8 18.2 14.5 10.4 8.7 3.1 2.7 2.4 11.1 12.6 13.3 0.5 0.7 0.8 34.5

HCG BUY 230 270 17.3 20 0.3 85 2 4 7 28.8 87.5 73.4 114.3 60.9 35.1 17.5 14.5 11.4 3.7 3.5 3.2 3.3 5.9 9.4 — — — 0.2

Laurus Labs ADD 402 500 24.3 43 0.6 106 16 29 34 2.4 79.9 17.5 24.8 13.8 11.7 11.7 8.1 7.1 2.6 2.2 1.8 10.9 17.1 15.6 — — — 0.6

Lupin REDUCE 895 800 (10.7) 405 5.5 450 27 39 50 (28.9) 44.0 27.4 33.0 22.9 18.0 15.4 11.2 9.0 2.7 2.5 2.2 8.6 11.4 12.4 0.5 0.7 0.8 45.2

Narayana Hrudayalaya ADD 216 265 22.6 44 0.6 204 3 6 9 23.0 103.2 40.7 69.9 34.4 24.4 20.2 14.1 11.3 4.0 3.6 3.1 5.9 11.0 13.7 — — — 0.2

Sun Pharmaceuticals SELL 593 540 (9.0) 1,424 19.3 2,406 16 24 29 7.5 45.5 21.6 36.4 25.0 20.6 19.5 14.0 11.6 3.4 3.1 2.7 9.8 12.9 13.2 0.5 0.8 1.0 61.5

Torrent Pharmaceuticals NR 1,561 — — 264 3.6 169 47 61 81 18.0 29.6 32.1 33.0 25.5 19.3 14.5 12.4 10.2 5.0 4.4 3.7 15.3 17.2 19.3 0.7 0.9 1.2 7.9

Pharmaceuticals Neutral 4,287 58 11.3 40.7 22.6 32.3 23.0 18.7 16.7 12.4 10.3 3.5 3.1 2.7 10.9 13.5 14.6 0.5 0.8 0.9 256.2

Real Estate

Brigade Enterprises BUY 192 290 51.4 26 0.4 136 9 15 17 (17.0) 59.2 15.8 20.8 13.1 11.3 13.2 10.3 8.2 1.1 1.0 1.0 5.4 8.1 8.8 1.3 1.3 1.3 0.3

DLF RS 144 — — 258 3.5 1,784 5.3 23.9 14.1 (74.4) 354.6 (41.0) 27.5 6.0 10.2 43.1 7.6 14.1 0.7 0.6 0.6 2.6 11.3 6.2 1.4 1.4 1.4 22.1

Godrej Properties SELL 540 400 (25.9) 124 1.7 216 12.9 15.1 18.2 (32.9) 16.3 20.8 41.7 35.8 29.7 690.5 197.1 105.8 4.3 3.9 2.9 10.9 11.4 10.1 — — — 1.6

Lemon Tree Hotels ADD 68 76 11.8 54 0.7 786 — 1 2 147.2 174.0 66.8 152.4 55.6 33.3 34.2 20.8 15.5 6.3 5.7 5.2 4.2 10.7 16.3 — — 1.4 —

Oberoi Realty BUY 375 560 49.3 136 1.9 340 62 44 66 385.4 (28.0) 49.3 6.1 8.4 5.7 8.6 10.6 4.4 1.4 1.2 1.0 27.4 15.2 19.2 0.5 0.5 0.5 2.7

Prestige Estates Projects ADD 196 315 60.9 73 1.0 375 10 10 11 (24.2) 8.4 — 20.6 19.0 18.4 12.9 12.9 12.8 1.5 1.4 — 7.3 7.5 7.3 0.8 0.8 0.8 0.5

Sobha REDUCE 437 510 16.8 41 0.6 95 20 23 24 (7.5) 14.8 3.5 21.6 18.8 18.2 12.6 11.8 11.1 1.4 1.4 1.6 6.8 7.4 9.1 1.6 1.6 1.6 1.5

Sunteck Realty REDUCE 349 360 3.1 51 0.7 140 19 19 39 22.4 1.6 106.6 18.7 18.4 8.9 16.3 15.8 6.7 1.7 1.6 1.3 9.5 8.9 16.2 0.3 0.3 0.3 1.9

Real Estate Neutral 764 10 (22.8) 69.2 (6.9) 17.8 10.5 11.3 20.4 11.2 11.3 1.2 1.1 1.0 7.0 10.6 9.1 0.8 0.8 0.9 30.6

Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%)


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Technology

HCL Technologies REDUCE 1,024 1,100 7.4 1,426 19.4 1,409 71 78 82 14.6 8.9 5.0 14.3 13.2 12.5 9.3 8.2 7.6 3.2 2.7 2.5 24.4 22.3 20.6 0.8 3.0 3.2 31.4

Hexaware Technologies SELL 395 455 15.3 117 1.6 302 20 24 27 19.5 21.6 12.7 20.0 16.4 14.6 14.7 11.1 9.6 5.1 4.3 3.7 27.6 28.7 27.5 2.0 2.0 2.5 20.3

Infosys ADD 705 780 10.6 3,081 41.8 4,350 37 41 45 13.5 12.3 10.4 19.2 17.1 15.5 13.3 11.6 10.4 4.3 3.9 3.5 23.5 24.1 23.9 3.1 2.8 3.0 87.4

L&T Infotech ADD 1,826 2,100 15.0 316 4.3 175 83 96 113 30.5 15.6 18.1 22.0 19.1 16.1 16.7 13.4 11.3 6.7 5.4 4.4 33.5 31.3 30.0 1.3 1.4 1.6 9.9

Mindtree ADD 978 1,080 10.4 161 2.2 165 45 55 63 30.2 23.1 14.0 21.7 17.7 15.5 14.0 11.0 9.5 5.0 4.2 3.6 24.8 26.0 25.2 1.4 1.7 1.9 24.9

Mphasis SELL 1,124 900 (19.9) 217 2.9 193 53 60 63 21.9 12.1 4.7 21.0 18.8 17.9 15.5 13.1 12.2 4.1 3.7 3.4 18.9 21.0 20.0 1.8 2.2 2.7 7.6

TCS REDUCE 1,929 1,950 1.1 7,240 98.2 3,752 85 95 103 25.6 11.6 8.9 22.8 20.4 18.7 16.2 14.4 13.3 7.1 6.7 6.3 33.8 33.7 34.8 1.8 3.4 3.7 74.2

Tech Mahindra ADD 719 865 20.3 635 8.6 891 46 57 64 8.4 22.4 13.0 15.6 12.7 11.2 9.2 7.2 6.2 2.9 2.5 2.1 20.2 21.2 20.3 1.3 1.4 1.6 38.8

Wipro REDUCE 324 325 0.3 1,466 19.9 4,507 19 23 25 12.8 19.5 7.5 17.0 14.2 13.2 10.9 9.2 8.4 2.6 2.4 2.2 16.5 17.6 17.4 0.5 3.1 3.4 20.8

Technology Cautious 14,659 199 16.1 12.7 9.0 19.7 17.5 16.0 13.5 11.8 10.7 4.7 4.3 3.9 23.9 24.5 24.3 1.8 3.0 3.3 315.4

Telecom

Bharti Airtel ADD 289 445 54.2 1,153 15.6 3,997 (6) (4) 5 (221.5) 28.8 215.1 (50.2) (70.5) 61.3 8.4 7.1 5.7 1.7 1.8 1.8 (3.4) (2.5) 2.9 0.3 (0.3) 0.4 28.1

Bharti Infratel REDUCE 260 285 9.6 481 6.5 1,850 13 12 13 (4.8) (8.5) 7.7 19.9 21.7 20.2 7.3 7.7 7.3 3.0 3.0 2.9 14.6 13.7 14.6 4.1 3.7 4.0 10.1

IDEA REDUCE 38 45 19.0 330 4.5 4,359 (17) (17) (15) (75.6) (2.4) 11.4 (2.3) (2.2) (2.5) 39.4 33.1 20.3 0.7 1.1 2.1 (29.7) (41.1) (59.4) — — — 16.1

Tata Communications ADD 471 660 40.2 134 1.8 285 0 3 7 (77.5) 694.2 123.5 1,271 160.0 71.6 9.9 8.7 7.9 (58.5) (79.4) (1,538.4) 7.8 (42.1) (211.0) 1.4 1.6 1.6 3.0

Telecom Cautious 2,099 28 (2,384.5) 5.0 68.0 (29.2) (30.7) (96.2) 10.2 8.9 7.3 2.0 2.2 2.3 (6.9) (7.2) (2.4) 1.2 0.7 1.2 57.3

Utilities

CESC BUY 895 1,180 31.9 119 1.6 133 115 128 141 31.7 11.6 10.1 7.8 7.0 6.3 5.6 5.0 4.3 0.8 0.7 0.6 10.0 10.4 10.5 1.4 1.4 1.5 9.0

JSW Energy REDUCE 64 70 9.2 105 1.4 1,640 5.1 6.5 6.6 65.9 26.8 2.9 12.6 9.9 9.6 5.5 4.6 4.1 0.9 0.8 0.7 7.2 8.5 8.0 — — — 1.3

NHPC ADD 24 30 26.6 243 3.3 10,260 3.1 3.2 3.4 26.9 1.8 8.0 7.7 7.5 7.0 7.1 6.9 7.4 0.8 0.8 0.7 10.4 10.2 10.6 7.3 7.4 6.3 1.4

NTPC BUY 163 190 16.6 1,343 18.2 8,245 15 16 18 18.8 4.4 16.5 10.9 10.5 9.0 8.8 8.2 6.8 1.2 1.1 1.1 11.6 11.3 12.2 2.7 2.9 3.3 10.7

Power Grid BUY 189 250 32.2 989 13.4 5,232 19 21 23 19.3 13.6 7.6 10.1 8.9 8.2 7.2 6.6 6.3 1.6 1.5 1.3 17.1 17.5 17.0 3.3 3.8 4.1 13.5

Tata Power BUY 72 90 24.3 196 2.7 2,705 6.0 7.0 10.9 12.7 15.6 57.0 12.0 10.4 6.6 10.6 10.2 8.9 1.2 1.0 0.9 10.1 10.6 14.6 — — — 5.4

Utilities Attractive 2,995 41 21.1 8.8 14.1 10.2 9.4 8.2 7.9 7.3 6.6 1.2 1.1 1.0 11.9 12.0 12.5 3.0 3.2 3.4 41.2

P/B (X) RoE (%) Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)


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Target O/S ADVT



Others

Aditya Birla Fashion and Retail BUY 186 220 18.0 144 2.0 773 2 4 6 50.6 59.1 53.5 81.2 51.0 33.3 23.8 18.6 15.0 11.3 9.3 7.3 15.0 20.0 24.5 — — — 5.2

Astral Poly Technik SELL 961 640 (33.4) 115 1.6 120 19 25 29 30.2 28.8 16.1 50.4 39.1 33.7 27.1 21.5 18.2 8.9 7.3 6.1 19.8 20.5 19.7 0.1 0.1 0.1 1.0

Avenue Supermarts SELL 1,311 890 (32.1) 818 11.1 624 16 20 26 29.8 27.3 27.9 81.5 64.0 50.1 47.2 36.7 28.8 14.4 11.8 9.5 19.4 20.2 21.0 — — — —

Bayer Cropscience REDUCE 4,320 4,100 (5.1) 148 2.0 34 106 130 154 20.5 23.1 18.3 40.9 33.3 28.1 25.9 21.1 17.6 7.2 6.2 5.3 18.9 20.0 20.3 0.5 0.6 0.7 0.5

Crompton Greaves Consumer SELL 199 215 8.0 125 1.7 627 6 7 9 19.5 20.7 17.4 32.2 26.7 22.7 20.0 16.8 14.2 11.0 8.4 6.4 40.4 35.8 32.3 1.0 1.3 — 3.0

Dhanuka Agritech ADD 405 650 60.5 20 0.3 49 27 31 34 3.9 15.4 10.8 15.2 13.1 11.9 10.8 8.8 7.6 2.7 2.4 2.1 19.2 19.2 18.5 1.4 1.6 1.8 0.2

Godrej Agrovet ADD 534 640 19.9 102 1.4 189 15 19 23 28.9 28.8 21.1 35.9 27.9 23.0 19.5 15.3 12.7 5.3 4.5 3.8 15.7 17.4 17.9 — 0.5 0.7 0.9

Godrej Industries RS 470 — — 158 2.1 336 16 20 — 8.9 24.2 — 29.6 23.9 - 25.9 28.1 — 3.9 3.4 — 13.9 15.1 — 0.4 0.4 — 4.0

Havells India SELL 587 490 (16.5) 367 5.0 625 13 17 19 19.7 24.8 17.7 44.3 35.5 30.1 28.3 22.4 18.7 8.7 7.6 6.7 20.9 22.9 23.6 0.8 1.0 1.2 15.4

InterGlobe Aviation BUY 837 980 17.1 322 4.4 383 (11) 42 75 (118.1) 496.4 79.4 (78.9) 19.9 11.1 (46.1) 9.5 5.1 4.8 3.9 2.9 (5.9) 21.5 29.9 (0.1) - 0.5 20.4

Kaveri Seed SELL 512 515 0.5 34 0.5 66 34 34 37 7.3 0.1 8.3 14.9 14.9 13.8 12.1 11.4 10.1 3.6 3.1 2.7 26.4 22.4 21.0 1.6 2.0 2.0 5.3

PI Industries BUY 771 875 13.5 106 1.4 138 31 40 48 17.9 26.8 21.5 24.6 19.4 16.0 17.5 13.7 11.0 4.6 3.9 3.2 20.5 21.7 21.9 0.5 0.6 0.8 2.2

Rallis India ADD 186 220 18.6 36 0.5 195 10 12 13 17.2 19.4 9.7 18.4 15.4 14.0 12.1 10.2 9.0 2.8 2.5 2.3 15.8 17.1 16.9 2.0 2.2 2.4 0.7

SIS REDUCE 911 1,130 24.1 67 0.9 73 33 40 48 48.5 21.1 17.8 27.3 22.6 19.1 17.1 14.3 11.9 5.4 4.5 3.7 21.8 21.7 21.1 0.3 0.4 0.5 0.4

SRF BUY 1,754 2,200 25.4 101 1.4 57 100 132 150 23.8 32.2 14.1 17.6 13.3 11.7 10.5 8.3 7.0 2.5 2.1 1.8 15.0 17.3 17.0 0.8 0.8 0.9 11.3

Tata Chemicals ADD 670 760 13.4 171 2.3 255 44 51 56 (15.3) 14.6 11.5 15.2 13.3 11.9 6.3 5.2 4.4 1.4 1.3 1.2 9.7 10.3 10.8 2.2 2.5 2.5 6.8

TCNS Clothing Co. BUY 576 760 31.9 35 0.5 64 18 23 27 15.3 27.5 20.8 32.6 25.6 21.2 17.4 13.1 10.3 6.5 5.0 3.9 22.7 22.2 20.9 — — — —

TeamLease Services SELL 2,387 1,785 (25.2) 41 0.6 17 60 77 100 38.9 29.2 28.7 39.8 30.8 24.0 40.2 30.4 23.3 7.5 6.0 4.8 20.8 21.7 22.4 — — — 1.1

UPL ADD 638 660 3.4 325 4.4 507 49 55 60 14.6 11.9 9.5 13.0 11.6 10.6 8.8 7.5 6.5 2.9 2.4 2.1 24.7 22.9 21.1 1.6 1.8 1.9 28.5

Vardhman Textiles ADD 1,041 1,300 24.9 60 0.8 56 118 130 142 14.8 9.7 9.8 8.8 8.0 7.3 6.7 6.1 5.4 1.1 1.0 0.9 13.1 13.0 13.0 1.9 2.9 2.9 0.5

Voltas SELL 501 530 5.9 166 2.2 331 17 21 25 0.4 18.8 18.9 28.8 24.3 20.4 21.5 17.5 14.5 3.8 3.4 3.0 13.9 14.8 15.7 0.7 0.8 1.0 11.8

Whirlpool SELL 1,467 1,350 (8.0) 186 2.5 127 37 46 56 33.9 24.7 20.2 39.6 31.8 26.4 23.9 18.9 15.5 8.6 7.1 6.1 23.7 24.5 24.8 0.5 0.6 1.1 1.7

Others 3,647 49 (10.4) 39.6 18.2 33.9 24.2 20.5 19.9 14.5 11.3 4.8 4.2 3.7 14.3 17.2 18.3 0.6 0.7 0.8 120.8

KIE universe 103,209 1,400 23.2 28.6 15.4 20.5 15.9 13.8 10.4 9.1 8.1 2.6 2.3 2.1 12.6 14.7 15.3 1.4 1.8 2.0

KIE universe (ex-energy) 90,280 1,225 29.4 34.5 17.1 22.8 16.9 14.4 11.5 9.9 8.8 2.9 2.6 2.3 12.6 15.3 16.1 1.3 1.7 1.9

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2019 means calendar year 2018, similarly for 2020 and 2021 for these particular companies.

(c) Exchange rate (Rs/US$)= 73.70

Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%)

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Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)

and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction

involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock

and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Kotak Institutional Equities Research coverage universe

Distribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of June 30, 2018

Percentage of companies covered by Kotak Institutional

Equities, within the specified category.

* The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over

the next 12 months; Add = We expect this stock to

deliver 5-15% returns over the next 12 months; Reduce

= We expect this stock to deliver -5-+5% returns over

the next 12 months; Sell = We expect this stock to deliver

less than -5% returns over the next 12 months. Our

target prices are also on a 12-month horizon basis.

These ratings are used illustratively to comply with

applicable regulations. As of 31/03/2018 Kotak

Institutional Equities Investment Research had

investment ratings on 207 equity securities.

Percentage of companies within each category for

which Kotak Institutional Equities and or its affiliates has

provided investment banking services within the

previous 12 months.

21.4%

31.3%

25.4%21.9%

2.0%5.0% 4.5%

0.5%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Corporate Office Overseas Affiliates

Kotak Securities Ltd.

27 BKC, Plot No. C-27, “G Block”

Bandra Kurla Complex, Bandra (E)

Mumbai 400 051, India

Tel: +91-22-43360000

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8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20-7977-6900

Kotak Mahindra Inc

369 Lexington Avenue

28th Floor, New York

NY 10017, USA

Tel:+1 212 600 8856 Copyright 2018 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

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2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. 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This report has been prepared by the Institutional Equities Research Group of Kotak Securities Limited. 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 Private Client Group. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. 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Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. 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We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). 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India Daily, October 19, 2018 - Kotak Securities › pdf › indiadaily › indiadaily1910201… · tax rate. Jio’s revenues and EBITDA increased 14% qoq to `92.4 bn and `35.7 bn