January 8, 2016 Operating leverage to further drive margin ...content.icicidirect.com/mailimages/IDirect_ConsolidatedPreview_Q3... · Operating leverage to further drive margin expansion

ICICI Securities Ltd. | Retail Equity Research

January 8, 2016

Q3FY16E Result Preview

Operating leverage to further drive margin expansion..

The Q3FY16E results of the I-direct coverage (ex-BFSI) are likely to optically exhibit a muted trend (6.6% topline de-growth for 200+ coverage companies). Subdued commodity prices regime is the prima facie reason for the fourth straight quarter of decline in topline of coverage universe. While commodity focus sectors (especially metals and oil and gas) are expected to bear the brunt of muted realisations, the drop in the same would largely have a positive rub-off in the operating margins of corporate India. The overall operating margin of coverage universe is expected to increase by 150 bps YoY and 30 bps QoQ to 16.6%.

In the sectoral space, operating margins of FMCG majors (Marico, HUL, Dabur, GSK Consumer and Colgate) are likely to improve in the range of ~60-310 bps YoY, due to a steep decline in palm oil (down ~18% YoY) and crude oil (down ~42% YoY). Subdued commodity prices is also expected to result in margin expansion of 190 bps YoY for the consumer discretionary coverage universe. The overall performance of the capital goods sector is expected to be positively impacted by operating leverage. On the back of lower raw material costs (especially steel) EBITDA margins of capital goods coverage universe is expected to increase by 80 bps YoY to 11.4%.

On the whole, for the coverage universe (ex-BFSI), while the topline is likely to decline, EBITDA is expected to increase by 2.9% YoY. The ensuing PAT of coverage universe (ex-BFSI) is expected to remain flattish YoY. Excluding commodity focussed sectors (metals and oil & gas), the adjusted topline growth of the universe is expected to grow 7.3% while the EBITDA and PAT of the adjusted coverage universe is likely to grow 10.1% and 8.3%, respectively. Going ahead, we believe corporate India is well placed to reap the benefits of lower commodity prices leading to a further traction with respect to margin improvement. We believe ramp up in capacity utilisation, pick in capex cycle and degree of volatility in commodities will be crucial for a meaningful pick up in FY17E, given the most of low hanging fruits of margin expansion is getting played out.

Exhibit 1: Trend in revenue growth of I-direct coverage universe (Ex- BFSI)

716,

483

771,

760

647,

778

702,

945

731,

009

740,

841

684,

519

783,

000

725,

934 7`

35,4

96

714,

270

717,

123

688,

791

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(| c

rore

)

-10

-5

0

5

10

15

20

Revenues (Ex-BFSI) Growth (%)

Source: Company, ICICIdirect.com Research

Trend in Sensex EPS

724

923

1,0901,165

1,3591,165

1,462

1,365

1,755

100

300

500

700

900

1,100

1,300

1,500

1,700

1,900

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

E

FY17

E

(|)

-15

-10

-5

0

5

10

15

20

25

30

(%)

Source: Bloomberg, ICICIdirect.com Research Research Analyst

Pankaj Pandey Head – Research [email protected]

Trend in Sensex EPS


Page 2

Performance of Sensex companies

For the quarter, the aggregate Topline of Sensex companies is likely to de-grow by ~1.0% YoY, while EBITDA and PAT is expected to report marginal growth of 2.4% and 1.2% respectively. The subdued performance of Tata Motors (on account of a expected margin contraction in the JLR division due to an unfavourable geographical mix) coupled with the muted performance of metals companies is expected to result in muted growth in the PAT of Sensex companies

On a sectoral basis, with respect to Sensex companies, top five performing companies (based on PAT growth) are likely to come from Automobiles (two companies) with one each from Banks, Consumer Discretionary and Capital goods. Hence, the five companies that top the chart in terms of profitability growth include Maruti (~74% YoY), HDFC Bank (~19% YoY), Hero Honda (~18% YoY), Asian Paints (~17% YoY) and L&T (~12%)

Conversely, the bottom five Sensex companies, in terms of performance (based on PAT decline), are likely to come from, metals, oil and gas, automobile, healthcare and telecom. Hence, the bottom five includes Tata Steel (expected to report loss in Q3FY16 vis-a-viz profit reported in Q3FY15), Tata Motors (down ~43% YoY), Lupin (down ~29% YoY), Gail India (down ~19% YoY), and Bharti Airtel (down ~9% YoY)

Exhibit 2: Trend in profitability of Sensex companies…

20000250003000035000400004500050000550006000065000

Q3FY

11

Q4FY

11

Q1FY

12

Q2FY

12

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(| c

rore

)

-30-20-1001020304050

(%)

PAT YoY Growth

Top five likely Sensex companies in PAT growth for Q3FY16E Bottom five likely Sensex companies in PAT growth for Q3FY16E

74.5

19.3 18.2 17.3 12.20

10

20

30

40

50

60

70

80

Maruti Suzuki HDFC Bank Hero Honda Asian Paints L&T

(% Y

oY)

-722.3

-43.2 -28.6 -18.8 -9.7

-800

-700

-600

-500

-400

-300

-200

-100

0

Tata Steel Tata Motors Lupin Gail India Bharti Airtel



Page 3

What we expect our coverage universe to report; emerging trends

From a sectoral perspective, Media (10.1% YoY) and consumer discretionary (7.7% YoY) are expected to buck the trend by reporting higher than average growth rate. In contrast, on account of subdued commodity prices, cyclicals such as metals & mining are likely to report de-growth in revenue of 19.0% in Q3FY16E

The consumer discretionary space is expected to report both topline growth as well as margin expansion. Consumer discretionary (CD) companies are expected to report sales growth at ~7.7% YoY during Q3FY16E largely due to volume growth of 8-9% YoY. On the back of consistent demand for decorative paints from Tier II & Tier III cities volume growth of paint companies is expected at ~11% YoY (including decorative & industrial). EBITDA margins are also expected to improve due to benign raw material prices. Overall EBITDA margin of the coverage universe is expected to increase ~190 bps YoY. Due to growth in topline and margin expansion overall PAT of consumer discretionary universe is expected to register an increase of 25.3%.

Within the Capital goods space, while infrastructure segment has witnessed muted ordering trend, power T&D segment have done relatively well as companies like KEC and Kalpataru reported order inflows of | 1001 crore and | 1395 crore respectively. The overall performance of the capital goods sector will be positively impacted by operating leverage as EBITDA margins are expected to rise 80 bps YoY to 11.4% in Q3FY16E, on the back of lower raw material costs especially steel. This has a positive impact on margins owing to fixed price contracts for many EPC-based companies (50% backlog of L&T, KEC, KPTL are international and fixed price). Furthermore in terms of financial leverage, better working capital management and lower finance charges are expected to result in a 20% YoY decline in interest costs for the capital goods coverage universe. Subsequently Interest cost as a percentage of EBITDA is expected to come down to 19.5% in Q3FY16E from 27% in Q3FY15.

On the flip side, sectors like metals & mining are likely to report a 1040 bps fall in EBITDA margins on a YoY basis. Within the metals & mining space, the operating margin is likely to remain under pressure on the back of a steep fall in commodity prices (both ferrous and non-ferrous). Subsequently aggregate EBITDA of metals coverage universe is expected to decline by 63.0% YoY. On the whole the metals coverage universe is expected to report loss at PAT level

The festive season did provide some cheer to the Auto sector, wherein the sector did witness volume traction in the month of October. However November and December witnessed sluggish demand owing to the post festive dullness, partial impact of the Chennai floods & the traditional year-end effect. The demand curve remained biased towards urban & macro centric (PV & CV) against rural demand (2-W), which remained sluggish. PV volumes were up 10-12%; driven by new product launches by various OEMs across segments. CV volumes were up ~9% YoY, primarily driven by M&HCV sales. The 2-W volumes were up 1-2%, driven by scooter demand, which continued to remain strong. The low base lifted the tractor volumes.


Page 4

EBITDA margins of the coverage universe (ex BFSI) are likely to come in

at 16.6%, up 150 bps YoY and 30 bps QoQ

On the profitability front, the bottomline of the I-direct coverage universe (ex-BFSI) is expected to remain flattish QoQ. However excluding oil & gas and metals, the PAT of the coverage universe (ex-BFSI, metals and oil & gas) is likely to increase by a healthy 8.3% YoY.

Exhibit 4: Trend in profitability of I-direct coverage universe (ex- BFSI)

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(| c

rore

)

-30.0-20.0-10.00.010.020.030.040.050.0

(%)

PAT (Ex BFSI) Growth


Exhibit 3: Trend in EBITDA margins of I-direct coverage universe (ex- BFSI)

17.0 17.7

8.0

17.715.1

18.6

15.317.5 16.7

18.417.2

16.0 15.117.2 18.0

16.3 16.6

02468

101214161820

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(%)

EBITDA Margin (%)



Page 5

Defensives: Growth moderation to continue…. (Sector composition: consumer discretionary, IT, FMCG, healthcare) Key Highlights:

On an overall basis, revenue growth of defensives is expected to be subdued at 8.9% YoY vs 12.1% growth seen Q3FY15. The EBITDA margin of the defensive universe is expected to decline by 30 bps YoY and 60 bps QoQ to 23.6%. The ensuing EBITDA and PAT of defensive universe is expected to increase by 7.6% YoY and 10.8% YoY respectively.

a. In a seasonally soft quarter Tier-I IT companies are expected to report average dollar revenue growth of 0.5% QoQ in Q3FY16E (vs. 2.9% in Q2FY16). The quarter was impacted by furloughs and was further accentuated by Chennai floods. Further, 1.6%, 2.1% and 0.7% inter-quarter depreciation in the average EUR, GBP and AU$ vs. the US$ could create cross-currency headwinds of 40-60 bps. EBIT margins are expected to decline 60 bps each for TCS, Infosys to 26.5%, 24.9%, respectively, led by loss of billing days due to Chennai floods and business continuity costs partially offset by rupee tailwinds. Wipro IT services margins could decline 20 bps to 20.5% while operating margin for HCLT is expected to decline 30 bps to 20.3% as operational efficiency and rupee could help offset partial impact of wage hikes (~75 bps).

b. Within the healthcare space while domestic revenue is likely to grow by ~11% YoY and US Sales is expected to grow by 8.3% YoY, however currency headwinds in emerging economies like Russia, Brazil and Venezuela is likely to dampen the overall revenue growth. On the back of strong growth in the chronic segment and recovery in the acute segment, domestic revenue is likely to report double digit growth. US sales growth expectation is lower than historical trend (32% CAGR FY11-15) on account of lack of major approvals and higher base.

c. Operating margins of FMCG majors (Marico, HUL, Dabur, GSK Consumer and Colgate) are likely to improve in the range of ~60-310 bps YoY, due to a steep decline in palm oil (down ~18% YoY) and crude oil (down ~42% YoY). Savings on the RM costs front are expected to be channelised by companies towards higher A&P spends. Companies are likely to elevate their A&P expenses with a view to revive consumer demand, going forward.

Exhibit 5: How performance variables of defensives may pan out in Q3FY16E

25.3

5.1

43.1

2.0

-200-150-100

-500

50100150200250

0 2 4 6 8 10 12 14

(PAT growth,% YoY)

(EBI

TDA

expa

nsio

n Yo

Y, in

bps

)

Consumer Discretionary IT Pharma FMCG

Source: Company, ICICIdirect.com Research Note: Size of individual circle represents the Revenue growth (YoY) for the respective sector in Q2FY16E.


Page 6

Exhibit 6: Trend in revenue growth of defensives…

16.4

24.2 25.829.5

35.9

30.0 29.9

23.6

17.4 16.414.4

20.1 19.8 20.8 22.4

8.111.4 9.8 8.9

14.7

8.9

5000

25000

45000

65000

85000

105000

125000

145000

165000Q3

FY11

Q4FY

11

Q1FY

12

Q2FY

12

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(| c

rore

)

0

5

10

15

20

25

30

35

40

Defensive universe revenues Y-o-Y(%)


Exhibit 7: Trend in EBITDA margins

15

20

25

30

Q3FY

11Q4

FY11

Q1FY

12Q2

FY12

Q3FY

12Q4

FY12

Q1FY

13Q2

FY13

Q3FY

13Q4

FY13

Q1FY

14Q2

FY14

Q3FY

14Q4

FY14

Q1FY

15Q2

FY15

Q3FY

15Q4

FY15

Q1FY

16Q2

FY16

Q3FY

16E

(%)


Exhibit 8: Trend in profitability

5000

10000

15000

20000

25000

30000

Q3FY

11Q4

FY11

Q1FY

12Q2

FY12

Q3FY

12Q4

FY12

Q1FY

13Q2

FY13

Q3FY

13Q4

FY13

Q1FY

14Q2

FY14

Q3FY

14Q4

FY14

Q1FY

15Q2

FY15

Q3FY

15Q4

FY15

Q1FY

16Q2

FY16

Q3FY

16E

(| c

rore

)

-20

-10

0

10

20

30

40

50

Net Profit Y-o-Y(%)



Page 7

Cyclicals: Global commodities melt again….

(Sector composition: auto, cement, capital goods, power, infrastructure, real estate, oil & gas and telecom)

Key Highlights

• Oil & gas contributes ~33.4% of the aggregate revenue of cyclicals. On account of the steep fall witnessed in crude oil prices, there is likely to be a steep YoY decline in the revenue of oil & gas. Hence, we expect cyclicals to report revenue de-growth of 11.3% YoY. On an individual basis, revenues of the oil & gas sector are expected to de-grow 27.0% YoY

• Within the cyclical space, the auto universe (ex-Tata Motors) is likely to witness topline growth of ~12% YoY. Maruti Suzuki and M&M are expected to report strong revenue growth (supported by strong volumes) while Ashok Leyland (ALL) and Eicher Motors are expected to continue their strong traction. Lower commodity price would continue to help companies maintain/expand their margins in Q3FY16E. Average prices of key inputs are down: rubber (9.7% YoY), steel (CR sheets) (22% YoY), aluminium (15%), plastics (11%) & lead prices (10.6%). Hence EBITDA margins of I-direct auto universe (ex-Tata Motors) is expected to expand ~119 bps YoY, while profits (ex-Tata Motors) are likely to grow ~28% YoY mainly driven by Maruti Suzuki & tyre companies. Unfavourable product mix & lower share from China is likely to impact Tata Motors’ performance.

• On the flip side, the metals & mining space is likely to witness a subdued performance due to the steep YoY decline in prices. For the quarter, while the topline of the metals & mining coverage universe is likely to decline 19% YoY, EBITDA is expected to witness a steep 63% YoY decline due to 1040 bps contraction in aggregate margin (8.7% in Q3FY16E compared to 19.1% in Q3FY15)

Exhibit 9: How performance variables of cyclicals may pan out in Q3FY16E

4.6

10.1

11.1

6.23.5

-200

0

200

400

600

800

1000

1200

-60 -40 -20 0 20 40 60 80

(PAT growth, % YoY)

(EBI

TDA

Mar

gin

expa

nsio

n, in

bps

)

Capital Goods Real Estate Power Auto Cement



Page 8

Exhibit 10: Trend in revenue growth of cyclicals

0.0 0.0

38.1

22.530.2

26.7

10.015.3

5.4 3.9

-7.40.6 -1.0 -2.1

14.5

1.8-2.3

-13.2-7.0 -9.9

-11.350000

150000

250000

350000

450000

550000

650000

750000Q3

FY11

Q4FY

11

Q1FY

12

Q2FY

12

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(| c

rore

)

-20

-10

0

10

20

30

40

50

Total Y-o-Y(%)


Exhibit 11: Trend in EBITDA margins

0

5

10

15

20

25

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(%)


Exhibit 12: Interest costs …

1000

3000

5000

7000

9000

11000

13000

15000

17000

Q3FY

12Q4

FY12

Q1FY

13Q2

FY13

Q3FY

13Q4

FY13

Q1FY

14Q2

FY14

Q3FY

14Q4

FY14

Q1FY

15Q2

FY15

Q3FY

15Q4

FY15

Q1FY

16Q2

FY16

Q3FY

16E

(| c

rore

)

-20-15-10-5051015202530

Interest costs Y-o-Y(%)


Exhibit 13: Trend in EBITDA/interest ratio…

11.0

16.2

12.8

17.7

11.0

19.016.9 16.6

12.814.4

16.0

18.316.5

15.6

18.6 18.9

02468

101214161820

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E



Page 9

Apparel Rupa, Page likely to report double digit growth

We expect our overall apparel coverage universe to post YoY revenue growth of 3.5%. Rupa and Page are expected to register YoY revenue growth of 17.8% and 14.6%, respectively. Kewal Kiran and Arvind are likely to register revenue growth of 8.6% and 4.9%, respectively. Page Industries is expected to report lower than usual growth owing to likely lower growth in the men’s segment, which comprises a substantial portion of its revenues. Arvind’s revenues are expected to increase 4.9% to | 2169.7 crore, mainly driven by 12% and 5% growth in brand and retail & textile, respectively. Vardhman Textiles is expected to register YoY revenue de-growth of 3.5% on account of a significant decline in yarn realisations.

Lower operating cost to aid EBITDA margin expansion

Overall EBITDA margin for apparel coverage companies is expected to increase 156 bps YoY to 16.06%. EBITDA margin for Vardhman Textiles & Kewal Kiran is expected to improve 566 bps and 510 bps to 20% and 23.8%, respectively, which is mainly driven by lower raw material cost while the margin for Page is likely to improve 100 bps YoY to 20.2%. In case of Rupa, the EBITDA margin is expected to increase 147 bps to 12%. Arvind is expected to report a decline of 113 bps in EBITDA margin to 12.8% on account of higher employee expense due to capacity expansion in the garments segment.

The overall apparel universe PAT is expected to grow 36.3% YoY. PAT of Vardhman and Page is expected to increase 109% & 26% YoY to | 148.4 crore & | 56.3 crore, respectively. PAT for Rupa & KKCL is expected to increase YoY by 32.8% & 37.6%, respectively, while Arvind’s PAT is expected to decline 6.7% YoY to | 101.7 crore.

Macro trends in sector

After the change in the Chinese Cotton Policy (April 2014) there has been a sharp decline in cotton prices by almost 20.16% from | 118/kg in April 2014 to around | 94.2/kg in December 2015. India, China together contribute around 50% of global cotton production. As per industry estimates, India’s cotton production is expected to decline about 5% due to a fall in acreage on account of lower cotton prices and fall in yield due to pest fly attack in the northern region. On the apparel export front, based on the data provided by Office of Textiles and Apparel (Otexa), India’s apparel and non-apparel exports to the US during CY14 increased 5.9% and 7.4% YoY to US$3400 million and US$3316 million, respectively. For January-October 2015 apparels & non-apparels exports to the US increased 7.5% and 10% YoY to US$3169 million and US$3050 million, respectively.

Exhibit 14: Estimates for Q3FY16E: Apparel Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Arvind Ltd 2,169.7 4.9 3.6 277.4 -3.7 5.8 101.7 -6.7 11.7Kewal Kiran 95.2 8.6 -32.5 22.7 37.8 -39.6 14.4 37.6 -40.4Page Industries 432.6 14.6 -4.6 87.2 20.6 -7.0 56.3 26.0 -6.6Rupa & Co. 208.7 17.8 -22.3 25.1 34.2 -25.4 10.5 32.8 -64.0Vardhman Tex 1,378.7 -3.5 0.3 275.7 34.6 6.3 148.4 109.2 -6.8Total 4,284.9 3.5 -1.1 688.2 14.6 0.2 331.3 36.3 -8.9

Change (%) Change (%) Change (%)Company


Topline & Profitability (Coverage Universe)

4141 42

45

3996

4332

4285

3800

3900

4000

4100

4200

4300

4400

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.0

(%)

Revenue EBITDA Margin PAT Margin

Cotton prices (domestic & international)

60

80

100

120

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

0.6

0.7

0.8

0.9

1.0

|/kg (LHS) $/ lb

India

3316

3041 3212

3050

3401

3169

2618 28

54 3087 33

16

0

1000

2000

3000

4000

CY2011 CY2012 CY2013 CY2014 YTD2015(uptoOct)

US$

(Mn)

Apparel Non-Apparel

Top Picks Arvind Ltd.

Research Analyst

Bharat Chhoda [email protected] Nirav Savai [email protected]


Page 10

Exhibit 15: Company specific view (Apparel) Company RemarksKewal Kiran Revenues are likely to increase 8.6% YoY to | 95.2 crore. Sales growth is expected to be subdued

owing to festive sales being divided in Q2 and Q3FY16. Volume is expected to increase 10% whilerealisation growth is expected to be flat. The operating margin is likely to improve 510 bps YoY to23.5%. Consequently, PAT is likely to increase 37.6% YoY to | 14.4 crore

Page Industries Revenues are likely to increase 14.5% YoY to | 432.6 crore driven by 10.3% and 4.1% volume andrealisation growth, respectively. The EBITDA margin is likely to improve 110 bps YoY to 20.2%with EBITDA registering growth of 20.6% to | 87.2 crore. Consequently, PAT is expected toincrease 26% YoY to | 56.3 crore

Rupa & Company

Revenues are likely to increase 15% YoY to | 209 crore due to low base effect. The EBITDA margin is likely to be improve 140 bps to 12.0% due to a reduction in raw material cost. EBITDA isexpected to increase 34.2% YoY to | 25.1 crore. Consequently PAT is expected to rise 32.8% YoYto | 10.5 crore

Vardhman Textiles

Revenues are likely to decline 3.5% YoY to | 1378.7 crore, mainly on account of a dip in realisationin the yarn and fabric segment. However, volume is expected to improve 5% & 7% in the yarn &fabric segment, respectively. Operating margins are likely to expand 566 bps YoY. This is likely tobe driven by lower raw material prices. Owing to a better operational performance and lowerdepreciation (that was high in Q3FY15 on account of new regulation of Companies Act thatresulted in lowering of life of certain assets), PAT is likely to grow 109% YoY to | 148.4 crore

Arvind Ltd Revenues are likely to grow 5% YoY to | 2170 crore, which is expected to be mainly driven by12% growth in the brand & retail segment & 5% revenue growth in the textile segment. EBITDAmargin is likely to improve 30 bps YoY to 12.8% due to lower cost of raw materials. PAT is likely todecline 6.7% YoY to | 102 crore


China’s cotton yarn import

80

110

140

170

200

230

260

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Milli

ons


Page 11

Auto and auto ancillary Festive season provide some cheer!

With overall auto volumes growing by ~3%, Q3FY16E had something to cheer for. This was mainly driven by strong festive demand in October 2015. November & December witnessed sluggish demand owing to “post festive dullness”, partial impact of the Chennai floods & the traditional “year-end effect”. The demand curve remained biased towards urban & macro centric (PV & CV) against rural demand (2-W), which remained sluggish. PV volumes were up 10-12%; driven by new launches by various OEMs across segments. CV volumes were up ~9% YoY, driven by M&HCV sales. The 2-W volumes were up 1-2%, driven by scooter demand, which continued to remain strong. Although the low base lifted the tractor volumes, industry is yet to show a recovery. We estimate the I-direct auto universe (ex-TML) will witness topline growth of ~12% YoY. On the OEM front, we expect MSIL and M&M to report strong revenue growth (supported by strong volumes) while Ashok Leyland (ALL) and Eicher Motors will continue with their strong traction. In the ancillary pack, Wabco is likely to post decent revenue growth. Sales growth for tyres companies will continue to remain under pressure.

Commodity correction likely to result in margin expansion! Lower commodity price would continue to help companies maintain/expand their margins in Q3FY16E. Average prices of key inputs are down: rubber (9.7% YoY), steel (CR sheets) (22% YoY), aluminium (15%), plastics (11%) & lead prices (10.6%). The currency movement (rupee depreciated 6.3% YoY vs. dollar) is positive for export oriented companies like BAL and BIL. We expect I-direct auto universe margins (ex-TML) to expand ~119 bps YoY. Along with tyre companies, we expect M&M, MSIL and ALL to report strong margins.

Profitability better on lower costs, improving utilisations For I-direct universe, (ex-TML), profits are likely to grow ~28% YoY mainly driven by MSIL (volume growth + margin expansion) & tyre companies (margin expansion). Unfavourable product mix & lower share from China is likely to impact Tata Motors’ performance.

Exhibit 16: Estimates for Q3FY16E: Auto and auto ancillary (| Crore)Revenue EBITDA P AT

Q3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQAmara Raja 1,184.9 11.1 2.3 211.4 17.4 6.4 125.9 23.1 2.8Apollo Tyre 3,106.4 0.1 3.7 498.2 1.6 3.2 276.5 49.9 -0.8Ashok Leyland 4,165.5 23.9 -15.7 458.2 92.4 -22.9 205.2 539.4 -28.5Bajaj Auto' 5,608.9 -0.9 -8.0 1,098.1 -10.5 -16.6 771.0 -10.5 -17.4Balkrishna Ind 852.3 -7.7 8.3 254.8 -4.2 2.7 126.8 -3.3 1.5Bharat Forge 1,164.5 -2.8 5.9 334.7 -7.6 4.8 178.8 -8.9 1.2Bosch India 2,630.7 7.0 -2.2 452.7 98.6 -11.4 315.6 184.6 -9.8Eicher Motors` 3,413.5 48.8 6.4 539.4 78.0 7.5 303.0 97.0 14.1Exide 1,625.7 4.3 -11.8 232.2 28.9 -15.9 134.0 37.8 -18.3Hero Motocorp 7,120.2 4.1 7.4 986.7 20.1 2.0 689.1 18.2 0.4JK Tyre 1,801.5 -2.0 -1.1 307.1 21.1 0.4 140.3 52.8 7.4Mahindra CIE 1,326.6 0.6 4.9 145.5 67.4 12.3 61.4 479.6 12.1M & M 11,095.2 15.8 21.5 1,333.3 34.1 19.4 789.2 -16.2 -19.5Maruti Suzuki 15,197.4 20.8 9.1 2,505.3 57.3 10.4 1,400.0 74.5 14.2Motherson` 10,135.7 10.8 17.5 984.5 18.7 28.4 381.3 50.0 78.3Tata Motors` 70,721.5 1.1 20.7 9,382.6 -12.9 35.9 2,035.1 -43.2 62.2Wabco India 377.9 18.8 -6.1 60.5 27.0 -19.1 39.7 38.4 -23.0Total 141,528.4 6.2 13.0 19,785.2 4.8 16.5 7,973.0 -2.3 9.2

Change (%) Change (%)Company

Change (%)

Source: Company, ICICIdirect.com research ,`Consolidated numbers ‘ Maruti’s numbers are inclusive of SPIL

Topline & Profitability (Coverage universe) 13

3216

1327

50

1294

48

1252

49

1415

28

115000

118000

121000

124000

127000

130000

133000

136000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

4.0

6.0

8.0

10.0

12.0

14.0

16.0

(%)


Key players & industry volume YoY quarterly growth (%)

-10.0

6.3

5.9

13.6

-17.0

3.2

2.5

-3.7

9.8

-1.4

15.5-3.9

15.4

8.4

22.0

-1.8

-3.7

7.3

-9.6

15.7

Industry

HMCL

BAL

TVS

HMSI

Maruti

TML

M&M

Hyundai

ALL

YoY QoQ

Currency volatility chart

60

80

100

120

140

160

180

Dec-

11

Apr-1

2

Aug-

12

Dec-

12

Apr-1

3

Aug-

13

Dec-

13

Apr-1

4

Aug-

14

Dec-

14

Apr-1

5

Aug-

15

Dec-

15

US$INR US$JPY US$EUR

Volatility in the currency markets is impacting raw material prices for companies with imported components and lower natural hedges.

Top Picks Eicher Motors, Maruti Suzuki & M&M

Research Analyst

Nishit Zota [email protected] Vidrum Mehta [email protected]


Page 12

Exhibit 17: Company specific view-OEM

Company RemarksAshok Leyland

The topline is expected to grow ~23.9% YoY as overall volumes have grown ~22% YoYto ~30988 units. M&HCV volumes have grown ~27% YoY to ~23237 units while theLCV segment is up ~9.8% to ~7751 units. We expect EBIDTA margins to rise 390 bpsYoY to ~11%. However, on a QoQ basis, margins are expected to contract 100 bps dueto lower share of >25 tonne category & higher LCV share. Topline, reported PAT areestimated at ~| 4166 crore, | 205 crore, respectively

Bajaj Auto BAL volumes declined 3.4% YoY to ~0.95 million units. Domestic volumes grew 10%YoY to ~5.4 lakh units while export volumes declined 16% YoY to ~4.1 lakh units. Two-wheeler volumes at ~8.3 lakh units were down 2% YoY while 3-W segment volumes at~1.24 units declined ~11% YoY. EBITDA margins are expected to contract YoY, QoQ to20% mainly due to poor product mix. Topline, PAT are expected at ~| 5608 crore, ~|792 crore, respectively

Eicher Motors Eicher’s RE business continues to remain strong and has grown ~52.9% YoY to~125744 units. The VECV business at ~12,767 units has grown ~34.7% YoY.Consolidated EBIDTA margins may come in at 15.8% and are likely to be aided by REthat continues to post ~25%+ EBITDA margins. We expect VECV business margins toexpand 180 bps QoQ to 9% aided by higher share of HCV & operating leverage benefit.Standalone topline, PAT are likely to come in at ~| 1285 crore, ~| 225 crore whileconsolidated topline, PAT are expected at ~| 3414 crore, ~| 303 crore, respectively

Escorts The core tractor business saw a volume decline of ~22.9% YoY with volumes at~14,438 units. Revenues declined ~21.8% YoY to ~| 781 crore. The negative impactof operating leverage will offset the benefit of falling commodity prices while EBITDAmargins may contract QoQ to ~4.8%. We expect overall topline, PAT at ~| 779 crore,~| 17.3 crore

Hero MotoCorp

HMCL's volumes increased ~2.5% YoY ~1.69 million units due to the launch of twonew scooter variants. The motorcycle segment is likely to have grown ~2.5% YoY to~1.44 million units while the scooter segment is likely to have grown ~3.3% YoY to~245,899 units. EBITDA margins are expected to expand ~180 bps YoY to 13.9%.Topline and PAT are, thus, expected at ~| 7120 crore and ~| 689 crore, respectively

M&M M&M's automotive segment has witnessed ~15.4% YoY growth in volumes to~130,888 units on account of new launch of TUV 300. Volumes in the tractor segmentgrew ~4.9% YoY to ~62,666 units due to base effect. Margins are expected to expandQoQ by 90 bps to 12% on account of operating leverage benefit & higher contributionfrom tractor business. Topline, PAT are expected at ~| 11095 crore,~| 789 crore,respectively

Maruti Suzuki Maruti's volumes have grown ~15.5% YoY to ~3.74 lakh units led by newlaunches/facelifts. EBITDA margins are expected to rise 380 bps YoY to 16.5% aided bybetter product mix and operating leverage. Topline and PAT are expected at ~| 15197crore and ~| 1,400 crore, respectively

Tata Motors JLR may clock volumes close to ~133,568 units (up ~9.3% YoY) driven by ~50%+growth in UK, North America & Europe. Jaguar volumes at ~25,360 units are likely togrow ~33% YoY while LR volumes at ~108,208 units are likely to grow 5% YoY. JLR islikely to post topline of ~58032 crore while margins are likely to decline ~430 bps YoYto 14.3% owing to poor market mix. JLR PAT is estimated at ~3515.7 crore. Domesticsales have declined 3.1% to~122,377 units, with M&HCV growth of 13% YoY (40737units) underperforming industry growth. The PV segment declined 11.8% YoY to~32,020 units. We expect the standalone EBITDA margins of 6%. Consolidated topline,PAT are expected to come in at ~| 70,722 crore, ~| 2,035 crore, respectively


Maruti Suzuki’s sales performance

347

341 35

3

324

374

7.0

0.6

-1.6

3.5

5.9

290300310320330340350360370380

Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16

(000

's)

-4

-2

0

2

4

6

8

(%)

Sales QoQ growth

M&M’s sales performance

173

162 17

2

158

194

-2.1

6.3

-6.5-7.9

22.2

100

140

180

220


(000

's)

-12.5

-4.5

3.5

11.5

19.5

27.5

(%)

Sales QoQ growth

Ashok Leyland’s sales performance

25

34

28

37

310.2

-17.6

34.632.5

-17.0

0

5

10

15

20

25

30

35

40


(000

's)

-40

-20

0

20

40

(%)

Sales QoQ growth

Eicher Motor’s sales performance

92

103

119

139

139

0.2

12.1

15.1 17.3

-0.5

50

75

100

125

150

Q4CY14 Q1CY15 Q2CY15 Q3CY15 Q4CY15

(000

's)

-3

2

7

12

17

22

(%)

Sales QoQ growth


Page 13

Exhibit 18: Company specific view- Ancillaries Company RemarksAmara Raja Batteries

We expect Amara Raja to post revenue growth of 11.1% YoY to | 1185 crore mainlydriven by growth in the automotive replacement segment (2-W & PV). The companywould continue to benefit from benign raw material cost (average lead prices down10.6% YoY & 0.8% QoQ to | 111/kg) likely to expand EBITDA margins by ~96 bps YoY &68 bps QoQ to17.8%. PAT is estimated to grow 23.1% YoY to | 125.9 crore

Apollo Tyres Consolidated revenues are expected to remain largely flat; up 0.1% YoY to | 3106 crore;mainly after subdued demand environment and after APL discontinued its South Africanoperations. Stiff competition from Chinese players resulting into lower pricing power islikely to offset the benefit of lower input cost keeping EBITDA margins benign QoQ at~16%. PAT is likely to grow 17% YoY to | 276.5 crore

Balkrishna Industries

In line with management guidance of subdued demand environment, BalkrishnaIndustries’ (BIL) revenues are estimated to decline 7.7% YoY to | 852 crore with volumedown ~3% YoY at 37,231 MT. Lower raw material cost & forex gains (due to favourablehedges) is likely to increase EBITDA margins by 107 bps YoY to 29.9%. PAT is estimatedat | 126 crore

Bharat Forge Revenues are likely to decline 2.8% YoY to | 1165 crore. On a QoQ basis, revenues areexpected to increase 4.2% due to 9% QoQ growth in domestic business, weaker dollar &growth in PV revenues partially offsetting decline in class 8 truck and oil & gas business.EBITDA margins are expected to decline 150 bps to 28.7%. PAT is likely to decline 9% to| 179 crore

Bosch Bosch's revenues are likely to grow 7% YoY to | 2630.7 crore mainly on account ofrecovery in tractor volumes & higher M&HCV and PV volumes. Lower raw material cost,cost efficiency and its consistent focus on localisation is likely maintain margins at17.2%. PAT is expected at | 316 crore

Exide Exide’s revenues are likely to grow 4.3% YoY to | 1625.7 crore mainly on the back ofsubdued 2-W OEM growth. The company is likely to benefit from lower lead prices withEBITDA margins expected to improve 272 bps YoY to 14.3%. Subsequently, PAT isexpected to grow 37.8% YoY to | 134 crore

JK Tyre On a consolidated basis, JK Tyre (JKTL) revenue are estimated to decline 2.7% YoY to |1,801.5 crore, mainly after subdued domestic demand & competition from Chineseplayers. A better product mix (radialisation) & benign input cost would favour EBITDAmargins, which are likely to remain stable QoQ to 17%. Adjusted PAT (in Q3FY15 JKTLhad one time FX effect of | 30 crore due to Mexican peso depreciation) is expected togrow 23.8% YoY to | 140 crore

MCIE Automotive

Mahindra CIE is likely to report the amalgamated numbers of its merged entity. On astandalone basis, new product launches by its key clients TML and M&M would supportits growth. Revenue, EBITDA & PAT are estimated at ~| 393 crore, ~| 36 crore and~| 13 crore, respectively. On a consolidated basis, it is likely to post revenue, EBITDA &PAT of | 1327 crore, | 146 crore and | 61 crore, respectively

Motherson Sumi

We expect consolidated revenues to grow 10.8% YoY to | 10,136 crore, mainly afterconstant currency growth of SMR and SMP is likely to be offset by the currencyfluctuation. Its consolidated EBITDA margin is likely to remain stable QoQ at 9.7%. PAT is likely to be | 381 crore. The domestic (standalone) business is likely to post revenue andprofit of | 1347 crore and | 145 crore, respectively

Wabco Wabco India (WIL’s) is a play on the Indian M&HCV industry, which in Q3FY16, reportedvolume growth of ~15%. We estimate WIL’s revenue will grow 18.8% YoY to | 378crore. EBITDA margins are likely to expand 100 bps YoY to 16%. Subsequently, PAT isestimated to grow 38.4% YoY to | 39.7 crore


Hero MotoCorp’s sales performance

1649

1575

1576

1646 16

90-2.6

-4.4

4.4

-4.3

7.3

1000

1200

1400

1600

1800


(000

's)

-15

-5

5

15

(%)

Sales QoQ growth

Bajaj Auto’s sales performance

988

783

1013

1057

951

-6.4

-20.7

29.4

4.3

-10.0

700

800

900

1000

1100


(000

's)

-30

-20

-10

0

10

20

30

40

(%)

Sales QoQ growth

Auto raw material index

RM Auto Index

149

80

120

160

200

240

Mar

-09

Dec-

09

Sep-

10

Jun-

11

Mar

-12

Dec-

12

Sep-

13

Jun-

14

Mar

-15

Dec-

15

Commodity prices have been indexed to 100 with base as Feb-09


Page 14

Banking and Financial Institutions Single digit NII growth led by muted credit growth and moderate NIM

Credit traction in the banking system continued to remain subdued. Though a slight improvement was seen in mid-December 2015 at 11% YoY, sustainability of the same remains questionable. Fall in commodity prices and slow pace of deleveraging by corporates may keep credit offtake muted. Among our coverage, we expect credit growth of private banks at 20.3% while PSU banks may continue in single digits at 6.7%. Owing to weak credit demand led by a delay in capital expenditure and base rate cuts, NIM moderation seen in Q3FY16E. Accordingly, NII growth is seen subdued at 2.3% YoY for PSBs to | 25749 crore, 19.2% YoY for private bank to | 17265 crore.

Asset quality to remain under stress; lower provision to support PAT Banks continue to battle against a large pile of troubled assets that is expected to elongate further. However, net addition in GNPA may moderate at 3.0% QoQ at | 16409 crore (for our coverage) owing to classification of stressed assets under “5:25 scheme” and strategic debt restructuring (SDR). Provisions are expected to decline YoY and QoQ with net addition in GNPA expected at 3.0% QoQ to | 164094 crore for our coverage. Due to a lower base effect, we expect banking PAT growth at 17.9% YoY to | 13402 crore, with PSU bank profit surging 21.9% YoY and 40.9% QoQ to | 5452 crore. Private banks may exhibit a healthy operating performance with net profit growth at 15.3% YoY to | 7949.7 crore.

Exhibit 19: Estimates for Q3FY16E ( | Crore) NII PPP NP

Q3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Bank of India 3117.5 12.1 3.2 1723.1 -7.6 18.2 86.0 -50.4 NABank of Baroda 3239.9 -1.4 -0.1 2239.9 -4.2 -4.2 657.7 96.9 428.4PNB 4380.7 3.5 1.4 3003.0 9.2 2.2 858.7 10.9 38.3SBI 13859.0 0.6 -2.8 9666.4 4.0 -5.8 3573.6 22.7 -7.9Indian Bank 1152.1 4.3 6.6 786.9 -1.0 7.0 276.2 -0.5 -25.2Total 25749.1 2.3 -0.7 17419.4 2.2 -1.8 5452.3 21.9 40.9

Axis Bank 4252.5 18.5 4.7 3849.6 16.1 6.1 2179.8 14.7 13.8City Union Bank 244.2 16.4 1.7 200.3 19.0 1.7 111.6 8.7 3.5DCB 153.3 25.7 2.2 79.9 16.9 2.4 44.2 4.1 19.8Federal Bank 596.5 1.6 -1.9 328.2 -17.4 -2.5 175.2 -33.8 8.6HDFC Bank 6946.8 21.9 4.0 5600.5 17.2 11.1 3333.0 19.3 16.2IDFC Bank 382.4 NA NA 304.5 NA NA 193.0 NA NAIndusind Bank 1116.1 29.6 2.0 1025.4 32.5 1.9 579.2 29.5 3.5J&K Bank 694.0 8.7 -0.1 424.3 11.5 -3.1 199.4 90.6 1.9Kotak Bank* 1744.3 NA 3.9 1081.4 NA 3.5 584.4 NA 2.6SIB 387.2 21.0 -0.3 212.7 -3.0 -0.1 91.1 3.6 -2.5Yes Bank 1130.3 24.4 2.0 1043.6 21.0 2.4 651.8 20.8 6.8Total # 17265.2 19.2 3.4 13845.9 15.6 6.4 7949.7 15.3 11.7

HDFC 2078.9 7.8 8.1 2235.4 6.0 -5.9 1537.4 7.9 -4.2IDFC 695.6 NA NA 380.6 NA NA 144.5 NA NALIC HF 704.5 28.4 -1.7 670.0 26.8 -0.6 420.7 22.1 2.2Rel Cap 2380.2 13.1 5.8 339.4 20.8 28.9 232.4 9.1 15.4Bajaj Finance 1068.6 29.7 19.1 674.7 34.7 19.5 339.8 31.5 21.6Bajaj Finserv 4929.4 8.1 4.2 969.3 29.6 8.0 494.9 42.5 12.2PFS 96.8 8.0 2.8 98.1 7.0 -68.2 57.0 3.8 -73.0Total 11954.0 7.1 5.6 5367.5 4.0 -3.3 3226.7 4.7 -5.7

Change (%) Change (%) Change (%)

Public Sector Banks

Private Banks

NBFCs

# - IDFC Bank is excluded in calculating private banks aggregate *Kotak Bank+ING Vysya, figure not comparable with previous period Source: Company, ICICIdirect.com Research

Net Interest Income (Coverage Universe)

2592

0

2574

9

1399

6

1482

5

1608

7

1670

5

1726

5

2518

0

2562

7

2532

7

1071

7

1259

6

1117

9

1122

8

1195

4

5000

15000

25000

35000

45000

55000

Q3FY

15

Q4FY

15E

Q1FY

16

Q2FY

16

Q3FY

16E

(| C

rore

)

PSB Private NBFC

PPP (Coverage Universe)

1773

5

1741

9

1170

1

1284

0

1270

0

1301

2

1384

6

1704

6

2054

8

1695

0

5043

6399

4917 58

45

5367

5000

12000

19000

26000

33000

40000

Q3FY

15

Q4FY

15E

Q1FY

16

Q2FY

16

Q3FY

16E

(| C

rore

)

PSB Private NBFC

Net Profit (Coverage Universe)

6748

7122 6501

7120 79

50

4471

4797 58

14

3870 5452

3072

3996

3021

1704

3227

1000

5000

9000

13000

17000

Q3FY

15

Q4FY

15E

Q1FY

16

Q2FY

16

Q3FY

16E

(| C

rore

)

PSB Private NBFC

Top Picks Bajaj Finserv Bajaj Finance

Research Analyst

Kajal Gandhi [email protected]

Vasant Lohiya [email protected]

Vishal Narnolia [email protected]


Page 15

Exhibit 20: Company specific view (Banks) Bank of Baroda We expect loan growth to stay slow at 7.4% YoY, 1.9% QoQ. NII growth may stay

largely flat YoY, QoQ at | 3340 crore. We expect NPA pressure to sustain despitelarge slippages seen during Q2FY16. GNPA, NNPA ratio may stay above 5.5%, 3.0%,respectively. Provisions are expected to be lower than | 1892 crore seen inQ2FY16. Rise in G-Sec yields may lead to higher MTM provisioning. Due to a lowerbase YoY & QoQ, PAT traction seems higher at | 658 crore

Bank of India Consistently, results have seen a huge variation due to provisions with a loss in Q2.We expect marginal PAT for Q3FY16E at | 86 crore. Credit growth may be negativeat -1.6% YoY with deposit growth at 2% YoY, depicting strong pressure due to assetquality pains. GNPA ratio may remain high at 7.63%, after seeing an almost 80 to100 bps surge every quarter

Punjab National Bank

After remaining flat for three quarters, credit book may expand in Q3FY16 thoughgrowth is seen remaining subdued at 7.7% YoY to | 390482 crore. Likewise, NIIgrowth is seen moderating at 3.5% YoY to | 4381 crore as margins may remainsteady QoQ at ~2.8-2.9%. With provision expected at 14.6% YoY, PAT growth isseen remaining moderate at 10.9% YoY to | 859 crore. We expect asset qualitypressures to stay with GNPA, NNPA at 6.23%, 3.91%. The pipeline under 5:25scheme and strategic debt restructuring need to be watched

State Bank of India

NII growth is expected to remain muted at 0.6% YoY to | 13859 crore, led by singledigit credit offtake at 9% YoY and some pressure on margin. In the absence ofsubstantial MTM gains, non-interest income growth is seen at 9% YoY to | 5688crore. PAT is expected to grow 22.7% YoY to | 3574 crore, primarily due to lowerYoY provision at | 4487 crore. Asset quality is expected to remain under pressurewith net GNPA addition seen at ~| 2500-3000 crore

Axis Bank Moderation in credit growth is expected at 20% YoY from 23% in the first twoquarters. Deposit growth is expected at 14.8% YoY. NII growth may be strong at18.5% YoY to | 4252 crore. Lower provisions on a QoQ basis are expected to boostprofitability to | 2180 crore, up 15% YoY

City Union Bank

Moderate credit growth is expected at 12.4% YoY to | 19066 crore. With marginsexpected to remain steady at ~3.5%, NII is seen growing at 16.4% to | 244 crore.Provision is expected to remain at | 47 crore, up YoY, partly owing to floods inTamil Nadu during the quarter. PAT, therefore, is seen at | 111.6 crore; up 8.7%YoY. Asset quality is expected to remain broadly stable with GNPA, NNPA at 2.2%,1.4%, respectively

DCB Bank NII growth is expected to stay healthy at 25.7% YoY to | 153 crore led by steadymargins at ~3.7-3.8% and credit traction of 24.5% to | 11816 crore. PAT tractionmay remain muted YoY on the back of higher provision at | 19.3 crore and tax at |16.4 crore. However, a 19.8% increase is seen sequentially. Asset quality isexpected to remain steady with GNPA, NNPA at 2.0%, 1.2%, respectively

HDFC Bank Credit growth seen healthy at 23.9% YoY to | 430050 crore, higher than industrywith growth led by retail. NII growth of 21.9% YoY & 4% QoQ may ensure NIMs aremaintained at 4.2%. We have lowered provisions to | 588 crore vs. run rate of |700 crore in last two quarters. Other income traction is expected to remain subduedYoY at 8%. Profit growth is expected at 19% YoY to | 3333 crore

Federal Bank Expect NII to grow 1.6% YoY and dip 1.9% YoY with credit growth still seen subduedat 7% YoY. Deposits may grow slower at 12.2% YoY. Provisions may be lower QoQas we see moderate slippages at | 80 crore vs. the previous two quarters of | 200crore each. We expect PAT to grow 9% QoQ and decline 33% YoY to | 175 crore


C-D Ratio (Industry)

76 76 76 7676

74.8

75.8

61 64 66 68 65 65.674.3

74

75

76

77

Dec-

14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct-1

5

Dec-

15

(%)

0

20

40

60

80

CD Ratio Incremental CD Ratio (RHS)

Asset Quality (Coverage Universe)

3.9 4.0 4.0 4.2

2.1 2.2 2.1 2.2

4.3

2.3

0.0

1.0

2.0

3.0

4.0

5.0


(%)

GNPA ratio NNPA ratio

NPA trend (Coverage Universe)

PSBBank of India 30790 3.0 17454 6.0Bank of Baroda 24010 1.3 12998 1.6PNB 25145 0.8 15287 0.7SBI 58421 2.8 30169 5.5Indian Bank 5843 1.2 3228 1.3Private BanksAxis Bank 4629 4.0 1605 4.0City Union Bank 418 5.0 266 4.0DCB 236 5.0 135 4.0Federal Bank 1589 6.0 729 8.0HDFC Bank 3904 2.0 1048 1.0Indusind Bank 632 5.0 225 10.0J&K Bank 3132 1.6 1300 2.4Kotak Mahindra Bank 2788 5.0 1214 4.0South Indian Bank 771 -13.6 487 -11.4Yes Bank 531 8.0 174 10.0

QoQ Growth(%) Q3FY16E

GNPA (| crore)

QoQ Growth(%)

NNPA (| crore)


Page 16

Exhibit 21: Company specific view contd. (Banks) Jammu & Kashmir Bank

Subdued credit growth may continue in Q3FY16 at | 46956 crore, up 5.9% YoY.With sequentially flat margins, NII growth is expected at 8.7% YoY to | 694 crore.Non-interest income, though up 16.5% YoY, may remain flattish QoQ at | 116 crore.PAT is expected to remain flat QoQ at | 199.4 crore but increase 90.6% YoY, due toa lower base owing to higher provision in Q3FY15. Asset quality is expected toremain stable with GNPA, NNPA at 6.47%, 2.77%, respectively

Kotak Mahindra Bank

Credit growth is expected to pick up at 17% YoY to | 123081 crore. With marginsexpected to remain broadly stable at ~4.2-4.3%, NII growth is seen at 12.5% YoY to| 1744 crore. Provision is expected to increase on sequential basis at | 209 crorethough lower compared to Q1FY16. With healthy traction in non-interest income,PAT is seen at | 584 crore, up 2.6% QoQ. Asset quality is expected to remain stablewith GNPA, NNPA at 2.3%, 1.0%, respectively

South Indian Bank

Credit traction may stay largely in line with industry at ~9.7% YoY to | 39912 crorewith retail loans expected to pick up. Margins may stay in the range of 2.7-2.8%.We expect asset quality pressure to stay despite higher slippages of ~| 160 to 220crore seen in the past three quarters. NII of | 387 crore (flat QoQ) is expected. PATof | 91 crore (up 3.6% YoY, down 2.5% QoQ) is estimated

Yes Bank Advances may grow ahead of the industry at 26% YoY to | 84016 crore. Depositsmay grow 25% YoY to | 103318 crore with higher CASA ratio at 25.7% (Q2FY16:25.5%). Hence, NIMs may remain steady at 3.3%. Other income traction at 17.5%YoY is lower than seen in previous quarters. PAT may grow at 21% YoY to | 652crore. Strength in asset quality may stay

IndusInd Bank Advances may grow ahead of the industry at 29% YoY to | 82387 crore. Such hightraction in loans must be seen in context with ~| 4100 crore portfolio acquired inQ2FY16. Accordingly, the bank is expected to maintain its healthy trend in NII(29.6% YoY to | 1116 crore) and PAT (29.5% YoY | 579 crore). Margins areexpected to stay healthy in the range of 2.7-3.8% with asset quality remainingsteady

Indian Bank Credit growth is expected to remain muted at 6% YoY to | 127933 crore. Retail andMSME segment are seen contributing a higher proportion in incremental creditofftake. With margins expected to remain stable at ~2.5%, NII growth is seenstaying benign at 4.3% YoY to | 1152 crore. In the absence of one-off available inQ2FY16 in terms of write-back of provision related to restructured loans, PAT isexpected to decline 25.2% to | 276 crore. Asset quality may remain under pressurewith GNPA, NNPA at 4.57%, 2.52%, respectively



Page 17

Exhibit 22: Company specific view (NBFCs) IDFC Bank and IDFC Holding Co.

This is the first quarterly result post demerger. IDFC Bank’s loan book may moderate to | 46000 crore, with NII seen at | 382 crore for the bank. With majorityprovisions taken care of before demerger, we believe provisions will remain lower.PAT for the bank is expected to be reported at | 193 crore. IDFC Holding Co willreport AMC fees and alternatives income and on consolidation add banking income.We expect consolidated PAT for holding company after minority interest at | 145

LIC Housing Finance

NII and PAT traction are expected to be healthy at 28% YoY and 22% YoY to | 705crore and | 421 crore, respectively. Loan traction is expected to be maintainedhealthy at 17% YoY led by the individual book, which forms around 97.5% of thebook. No major increase is estimated in the corporate portfolio and its proportion isexpected to remain steady QoQ at ~2.5%. Margins may stay in the healthy range of~2.4-2.5% with asset quality steady sequentially

Reliance Capital

Revenue growth seen at 13.1% YoY to |2380 crore led by healthy growth of 38%YoY in advisory income to |312 crore on strong AMC business. Brokerage andinsurance business to grow at 10% and 3% YoY respectively. PAT seen to remainflattish growing at 9% YoY to |232 crore mainly led by higher opex and claims ingeneral insurance business owing to floods in Tamil Nadu

HDFC Ltd Expect credit traction of 12% YoY to | 246345 crore led by individual loan segment.Asset quality is expected to remain under control. Reported NIM is expected to besteady QoQ at ~4% while spread of ~2.3% would be maintained. PAT growth of8% YoY to | 1537 crore is estimated. Dividend income of ~| 130 crore is expectedwhile capital gains of ~| 60 crore are expected vs. | 112 crore seen in Q3FY15 lastyear

PTC India Financials

PFS credit offtake is expected to remain healthy at 29% YoY to | 7606 crore; withrenewable segment expected to grow at a higher pace of 44% YoY, therebyincreasing its proportion in the overall book to 42%. With margins expected toremain benign YoY, NII growth is expected to remain in single digits at 7% to | 96.8crore. PAT is seen at | 57 crore, up 4% YoY, but sequentially down due to one-timegains from sale of investment in the previous quarter. Post a rise in NPA in theprevious quarter, asset quality is expected to remain broadly stable

Bajaj Finance Bajaj Finance is expected to maintain strong momentum in AUM at above 30% YoYto | 41366 crore as Q3 is generally strong due to the festive season. The tractionwill be led by consumer finance segment, which is expected to clock ~41% YoYgrowth to | 17660 crore. The mortgage business may continue to witness lowertraction. NIMs are expected to improve QoQ due to higher growth in the highyielding consumer financing segment. No negative surprise is expected on the NPAfront. PAT of | 340 crore is estimated (up 32% YoY)

Bajaj Finserv The insurance business is expected to remain weaker in Q3FY16E. Life insurancepremium is expected to decline 15% YoY to | 1226 crore while general insurancepremium growth is seen muted at 1.7% YoY to | 1301 crore. Bajaj Finance revenuegrowth is seen healthy at 27.3% YoY to | 1892 crore, leading to 8.1% YoY inconsolidated revenue to | 4929 crore. Consolidated PAT growth is seen at 42.5%YoY to | 495 crore, led by healthy growth in Bajaj Finance. General insurance profitis expected to decline 14.3% YoY, owing to recent floods in Tamil Nadu



Page 18

Capital Goods Order inflows dry up but power T&D orders relatively better

Ordering for EPC based companies remained muted as no major power BTG/EPC order was awarded. Apart from the above, other infrastructure segments also witnessed muted ordering trends. This is quite reflected in the order inflows reported by L&T at | 10100 crore. This is one of the most dismal performances in many quarters and raises doubt on the company meeting its revised guidance as well. The power T&D segment did relatively well as companies like KEC and Kalpataru reported order inflows of | 1001 crore and | 1395 crore. Kalpataru seems to be on the right track as it has reported order inflows of | 4800 crore and is on track to achieve the guidance of | 5000-6000 crore. Thermax continued to report dismal order wins similar to the past many quarters.

Margin expansion, financial leverage to kick in… The overall performance of the capital goods sector will be positively impacted by operating leverage as EBITDA margins are expected to rise 80 bps YoY to 11.4% in Q3FY16E, on the back of lower steel prices. This has a positive impact on margins owing to fixed price contracts for many EPC-based companies (50% backlog of L&T, KEC, KPTL are international and fixed price). In terms of financial leverage, better working capital and lower finance charges are expected to result in a 20% YoY decline in interest costs for the universe. Interest cost as a percentage of EBITDA is expected to come down to 19.5% in Q3FY16E from 27% in Q3FY15.

Product based companies to drive strong performance of coverage On the whole, revenues of the coverage universe are expected to grow 5.7% YoY coupled with 80 bps margin expansion and 11.5% YoY PAT growth. For product companies, the performance is likely to be strong: Timken India (19.4% YoY sales growth, 20.4% YoY PAT growth, aided by a low base and margin expansion), NRB Bearing (6.6%YoY sales growth and 21.8% YoY growth in PAT, aided by low base and margin expansion) and Greaves Cotton (margin expansion will lead to 108% YoY growth in PAT, albeit exceptional loss in Q3FY15). On the EPC segment, VA Tech Wabag is expected to deliver on all counts as it has almost achieved its FY16E order inflow guidance and revenue, PAT growth is expected at 15.9%, 27.9% YoY, respectively. T&D EPC companies like KEC are expected to report a strong improvement in EBITDA margins and lower interest costs, which will drive PAT to | 58.3 crore (YoY not comparable owing to one-off gain in Q3FY15). L&T’s revenue and PAT are expected to grow 6.5% and 12.2%, respectively.

Exhibit 23: Estimates for Q3FY15E ( | Crore) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

AIA Engineering 590.1 14.7 4.1 165.2 8.5 7.9 110.1 -3.9 8.2Greaves Cotton 449.5 7.1 8.7 75.9 37.3 0.0 50.6 42.1 -9.9Grindwell Norton 315.8 12.9 11.3 44.1 -0.5 3.8 25.3 -0.4 0.6Kalpataru Power 1,036.4 -14.4 -12.7 106.9 -8.5 -8.6 41.8 -10.1 -10.8KEC Internnational 2,244.9 0.4 1.5 176.7 16.8 7.3 58.9 -11.3 21.4KSB Pumps 218.5 -5.1 17.6 24.0 35.2 -17.5 13.9 39.1 -17.7L&T 15,964.7 6.5 20.7 1,788.1 13.9 28.7 1,179.7 12.2 -0.7NRB Bearings 177.4 6.6 5.6 32.5 6.9 5.6 15.0 21.8 -4.2SKF India 635.4 3.2 6.1 71.8 36.5 6.1 53.3 30.4 6.5Thermax Ltd 1,087.0 -5.2 9.7 114.1 -13.1 9.7 77.0 1.0 2.0Timken India 272.3 19.4 3.2 32.0 20.4 -9.2 20.2 20.4 -3.8Va Tech Wabag 717.8 15.9 19.2 58.0 19.3 24.7 30.5 27.9 108.4Total 23,709.8 4.6 14.5 2,689.5 12.2 19.2 1,676.3 10.3 0.9

Change (%)Company

Change (%) Change (%)

Source: Company, ICICIdirect.com research


661

2775

8

1765

6

2070

5

2371

0

0

5000

10000

15000

20000

25000

30000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| c

rore

.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(%)


L&T Order Inflow trends

161171212196210195

280

144

220

110

280

330

250

100

187

120114101

0

100

200

300

400

Sep-

11De

c-11

Mar

-12

Jun-

12Se

p-12

Dec-

12M

ar-1

3Ju

n-13

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

(| B

n)

Dec 2015 orders = announced on the exchanges Trend in Interest costs as a % of EBITDA

100

200

300

400

500

600

700

Q3FY

12Q4

FY12

Q1FY

13Q2

FY13

Q3FY

13Q4

FY13

Q1FY

14Q2

FY14

Q3FY

14Q4

FY14

Q1FY

15Q2

FY15

Q3FY

15Q4

FY15

Q1FY

16Q2

FY16

(| c

rore

)

0

5

10

15

20

25

30

(%)

Interest Cost Interest Cost as % of EBITDA

Top pick of the sector

Va Tech Wabag Greaves Cotton Grindwell Norton Research Analyst

Chirag Shah [email protected]


Page 19

Exhibit 24: Company specific view Company RemarksAIA Engineering AIA's volume growth is expected at 14.8% to 50760 tonnes, albeit on a low

base, coupled with 3% YoY increase in realisations. Hence, we build in salesgrowth of 14.7% YoY at | 590.1crore. However, higher margins of Q3FY15 areunsustainable as we build in a decline of 160 bps YoY to 28%. Consequently, PAT is expected to marginally decline by 3.9% YoY to | 110.1 crore. Guidance onexpansion will be a key monitorable

Thermax A weak order backlog may result in Thermax' revenues declining 5.2% YoY to |1087 crore. Lower execution and negative operating leverage may lead to amargin decline of 96 bps YoY to 10.5%. However, PAT will marginally rise 1% YoY to | 77 crore on higher tax outgo in Q3FY15

KSB Pumps We expect KSB Pumps to report topline de-growth of 5% YoY to | 216 crore inQ4CY15E. Pump segment sales are expected at | 174 crore while valvessegment sales are expected at | 41 crore. Margins, however, are expected toimprove YoY by 330 bps to 11% in Q4CY15E on the back of a lower base (7.7% inQ4CY14). PAT may increase 39% YoY to | 13.9 crore

KEC International KEC reported order wins of | 1001 crore, mostly in the T&D segment. However,given lower steel prices, we expect the topline to grow 9.3% to | 2244.9 crore.Consistency in improvement of margins will be visible as we pencil in a 280 bpsYoY and 30 bps QoQ growth to 8%. Optically, PAT is expected at | 58.9 crore,down 11% YoY owing to exceptional gain of | 135 crore in Q3FY15

Kalpataru Power Transmission

For 9MFY16, KPTL seems to be on track of achieve its order inflow guidance asit has bagged orders to the tune of | 1395 crore. However, we expect executionto be muted as revenues are expected to decline 9.6% YoY to | 1036.4 crore.Margins are expected at 10.3% while PAT is expected to grow marginally by2.6% YoY to | 41.8 crore owing to expansion in margins and flat interest costs

Larsen & Toubro L&T has announced dismal order inflows to the tune of ~| 6200 crore inQ3FY16E across verticals that it operates in. For Q2FY16E, we expect revenuesto grow 6% YoY to | 15964.7 crore. We have built in margin expansion of 70 bpsYoY 11.2%. We expect PAT to grow marginally by 11% to | 1180 crore. The keymonitorable would be the trend in inflows and execution scenario in thedomestic and international business

Greaves Cotton We expect GCL to post 4.3% YoY growth in revenues for Q3FY16E at | 449.5crore. We expect a marginal pick-up in both auto and non-auto segments. Onthe positive side, benefits of operating leverage post closure of the infra segment would expand margins to 16.9%. PAT is expected at | 50.6 crore and is notcomparable YoY owing to an exceptional loss in Q3FY15 to the tune of | 41 crore

SKF India SKF is likely to witness moderate topline growth of 3.2% YoY to | 635.4 crore inQ4FY16, owing to tepid auto and industrial segment growth. Margins at 11.3%are expected to remain flat on a sequential basis. The bottomline is expected toincrease 30.47% YoY to | 53.3 crore due to a lower YoY base

VA Tech Wabag Wabag is expected to report order wins of ~| 500 crore in Q3FY16E and anorder backlog of ~| 6,858 crore. Revenues are likely to grow 16% YoY to | 718crore while the margin is expected to improve 30 bps YoY to 8.1% due to higherexecution of domestic orders. PAT is likely to increase 28% YoY to | 30.5 crore

NRB Bearings With tepid two wheeler segment growth during Q3FY16 we expect topline togrow at a moderate ~6.6% YoY to | 177.4 crore. We expect margins to remainflat at 18.3% during the quarter. The bottomline is expected to increase 22% YoYto | 15.0 crore, primarily due to a lower Q3FY15 base



Page 20

Exhibit 25: Company specific view Timken India Timken is expected to report superior topline growth given the stable Railways

segment and strong M&HCV sales during the quarter. Revenues are expected togrow 19.4% YoY to | 270 crore. Margins, however, are expected to remain flat at 11.8% vs. 11.7% YoY. PAT may increase 20.4% YoY to | 20.2 crore

Grindwell Norton GNL is expected to report topline growth of ~12.8% YoY to | 313.2 crore inQ3FY16. Both abrasives and ceramics segments are expected to post similarrevenue growth of ~13%. Margins are expected at 14.0% vs. 15.8% YoY.Consequently, PAT is expected to remain flat at | 25.3 crore YoY



Page 21

Cement All-India cement volume growth to remain weak

All India cement production increased 11.5% YoY in October 2015 due to low base and improved demand post monsoons. However, the same has declined in November 2015 by 2.6% YoY led by poor rural demand and low government spending. As a result, we expect volume growth at the pan-India level to remain muted YoY, reflecting weakness in demand. All-India cement production is expected to increase marginally by 2.5% YoY to 66.0 million tonnes (MT) in Q3FY16E vs. 4.5% YoY volume growth in Q3FY15. For Q2FY16E, we expect companies under our coverage universe to register volume growth of 3.7% YoY.

… cement prices to decline across regions, expect south and NE As per our channel checks, prices in the North, East, Central and Western region have declined QoQ and YoY led by weak demand. Prices in the west have declined by | 28/bag to | 287/bag in Q3FY16. However, prices in South have increased 9.4% YoY led by production discipline. Prices in northeast have increased 8.9% YoY. Overall, realisation growth at the pan-India level may be flat YoY (down 1.4% QoQ) at | 315/bag. We expect companies in our coverage universe to report flat realisation growth YoY (down 2.9% QoQ) to | 4,469.

I-direct universe to report moderate topline growth in Q3FY16E

Our coverage universe is expected to report 3.7% YoY (up 2.6% QoQ) growth in cement revenues. Volume growth is expected at 3.7% YoY (up 5.8% QoQ) while cement realisation is expected to be flat YoY (down 2.9% QoQ). Among our coverage universe, we expect JK Lakshmi and Mangalam Cement to report losses at the net level. The bottomline of our universe is also expected to decline sharply by 25.4% YoY to | 867.5 crore led by higher depreciation & interest expenses.

EBITDA/tonne to improve led by lower power & fuel cost We expect the EBITDA/tonne of our coverage universe to improve 6.8% YoY (down 3.4% QoQ) | 663/tonne. The EBITDA/tonne is expected to improve due to decline in power & fuel cost.

Exhibit 26: Estimates for Q3FY16E (| Crore) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

ACC^ 2,771.8 0.3 -0.4 218.0 19.6 -11.9 80.4 -75.4 -37.4Ambuja^ 2,402.3 1.0 13.1 337.6 1.6 11.9 189.3 -42.4 -0.9Heidelberg 407.8 -0.6 -2.9 47.6 -10.2 -2.4 4.5 LP -25.8India Cement 926.2 -10.6 -17.0 165.6 4.3 -19.3 14.1 LP -70.2JK Cement 848.7 6.5 3.5 109.5 11.0 34.3 12.0 -28.1 LPJK Laxmi Cement 648.6 16.7 15.1 79.3 5.1 77.5 -3.3 PL NAMangalam Cement 187.9 -9.5 -3.5 1.5 -60.2 LP -14.2 NA NAShree Cement * 1,822.0 18.0 9.3 411.1 34.3 34.6 125.6 34.0 145.5Star Ferro & cement 409.1 13.7 17.7 108.4 -10.3 26.7 22.9 -18.8 60.0UltraTech Cem 5,665.4 3.2 2.5 952.9 12.7 0.8 436.1 19.7 -1.8Total 16,089.7 3.5 3.4 2,431.4 11.7 7.5 867.5 -25.4 2.6

CompanyChange (%) Change (%) Change (%)

Source: Company, ICICIdirect.com Research; ^Q4CY15 result; * Q2FY16 result


542 16

679

1680

4

1556

2

1609

0

14500

15000

15500

16000

16500

17000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

(%)


All-India quarterly cement dispatches

1.7

1.9

1.59.6 9.8

4.5 -0.5 0.9 2.5

20

30

40

50

60

70

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

milli

on to

nnes

-2.00.02.04.06.08.010.012.0

Cement dispatches (LHS) YoY growth (RHS)

Monthly production growth YoY (%) – Till Sept 2015

0.52.7

-2.4

2.6 2.5 1.45.1

-1.1

11.5

-2.6 -1.0-4.2-10.0

-5.00.05.0

10.015.020.0

Jan

Feb

Mar Ap

r

May Jun

Jul

Aug

Sep

Oct

Nov Dec

2015 2014 2013


UltraTech Cement Star Ferro & Cement

Research Analyst

Rashesh Shah [email protected] Devang Bhatt [email protected]


Page 22

Exhibit 27: Company specific view Company Remarks

ACC Cement sales volumes may increase 1.2% YoY (up 3.9% QoQ) to 5.8 MT inQ4CY15. Net realisation may decline 0.8% YoY to | 4,755/tonne led by pricingpressure across regions. EBITDA/tonne is expected to increase 18.1% YoY (down20.3% QoQ) to | 374/tonne led by lower power cost and lower raw material cost(driven by lower slag and additives cost as witnessed in previous quarter). PAT isexpected to decline 75.4% YoY to | 80.4 crore due to increase in depreciationexpenses and higher tax expenses vs. tax credit in Q4CY14

Ambuja Cement Cement sales volume is expected to increase 2.0% YoY (up 23.0% QoQ) to 5.9 MTin Q4CY15. We expect cement realisations to decline ~1.0% YoY (down 6.7%QoQ) to | 4,054/tonne led by pricing pressure in north (where the company has ahigh presence). The EBITDA/tonne is expected to be flat YoY to | 570/tonne. PATis expected to reduce 42.4% YoY to | 189 crore due to an increase in depreciationexpenses led by change in useful life of asset and higher tax expenses vs. taxcredit in Q4CY14

UltraTech Cement

Blended sales volume may increase 1.3% YoY to 11.4 MT in Q3FY16. Blendedrealisation is expected to increase 1.9% YoY (down 2.0% QoQ) to | 4,953/tonneled by better pricing in south. Blended EBITDA/tonne is expected at | 833/tonne(up 11.3% YoY) led by lower power & fuel cost (due to increased usage of petcoke). PAT may increase 19.7% YoY (up 11.0% QoQ) led by better performance atoperating level and lower interest expenses

Shree Cement Revenues are expected to increase 18.0% YoY due to 20.3% YoY growth incement revenues and 3.4% YoY increase in power revenues. We expect cementsales volumes to increase 19.2% YoY to 4.5 MT supported by increased capacity.Cement realisations is expected to be flat YoY (down 1.9% QoQ) to | 3,576/tonne.Cement EBITDA is expected at | 777/tonne (up 7.0% YoY) due to a decline inpower & fuel cost. PAT is expected to increase 34.0% YoY led by betterperformance at operating level

India Cement Revenues are expected to decline 10.6% YoY due to absence of revenues from IPL(led by divestment of IPL subsidiary) and 10.3% YoY decline in cement revenuesled by 11.8% YoY decline in cement volumes (due to Chennai floods). Cementrealisations are expected to increase 1.7% YoY to | 4,875/tonne due to productiondiscipline in the south. EBITDA/tonne is expected to at | 790.

JK Cement Blended sales volume (grey & white) is expected at 1.8 MT in Q3FY16 (up 4.0%YoY). Blended realisation is expected to increase 2.4% YoY to | 4,670/tonne led by improvement in white cement realisation. EBITDA/tonne is expected to increase6.7% YoY to | 603/tonne due to a decline in power & fuel cost. PAT is expected todecline 28.1% YoY led by higher interest expenses and higher tax expenses vs. tax credit in Q3FY15

JK Lakshmi Cement

Cement volumes to increase 19.3% YoY to 1.8 MT led by capacity expansion.EBITDA/tonne to decline 11.9% YoY to | 442/tonne led by fall in realisation. Thecompany is expected to report losses at the PAT level led by an increase indepreciation & interest expenses

Mangalam Cement

Sales volume is expected to be flat YoY to 0.5 MT in Q3FY16. We expect cementrealisations to reduce 10.1% YoY (down 1.9% QoQ) to | 3,558/tonne. Thecompany is expected to report an EBITDA/tonne of | 28 (down 60.5% YoY) led bypricing pressure. The company is expected to report losses at the PAT level dueto a poor performance at the operating level

Heidelberg Cement

Sales volumes may rise 1.8% YoY (up 5.7% QoQ) to 1.1 MT in Q3FY16.Realisations may decline 2.4% YoY (down 2.7% QoQ) to | 3,640/tonne.EBITDA/tonne may reduce 11.9% YoY to | 425/tonne led by lower realisation

Star Ferro & Cement

Sales volume is anticipated to increase 14.4% YoY to 0.7 MT in Q3FY16. Weexpect cement realisations to increase 5.9% YoY to | 6,203/tonne due to betterpricing in the northeast region. The EBITDA/tonne is expected to decline 3.2% YoYto | 1,642/tonne led by higher marketing expense. The company is expected toreport a PAT of | 22.9 crore (up 332.7% YoY) led by lower depreciation expenses


Sales volume (Coverage Universe)

Million tonnes Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%)

ACC 5.8 5.8 1.2 5.6 3.9

Ambuja 5.9 5.8 2.0 4.8 23.0

UltraTech* 11.4 11.3 1.3 11.1 2.8

Shree Cem 4.5 3.8 19.2 4.2 8.5

India Cem 1.9 2.1 -11.8 2.2 -13.8

JK Cement* 1.8 1.7 4.0 1.8 -0.3

JK Lakshmi 1.8 1.5 19.3 1.7 2.5

Mangalam 0.5 0.5 0.7 0.6 -4.2

Heidelberg 1.1 1.1 1.8 1.1 5.7

StarFeroCement 0.7 0.6 14.4 0.5 32.5

Total 35.5 34.2 3.7 33.6 5.8

* blended sales volume (grey & white) * RE

Region-wise cement retail prices

|/50 kg bag Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%)

North 272 277 -1.8 273 -0.2

East 282 300 -6.0 296 -4.8

South 376 344 9.4 380 -1.1

West 287 315 -8.7 292 -1.7

Central 281 289 -3.0 285 -1.6

North East 390 358 8.9 389 0.3

Average 315 314 0.3 319 -1.4

Cement Realisations (Coverage Universe)

| per tonne Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%)

ACC 4755 4796 -0.8 4884 -2.6

Ambuja 4054 4095 -1.0 4347 -6.7

UltraTech* 4953 4860 1.9 5053 -2.0

Shree Cem 3576 3551 0.7 3646 -1.9

India Cem 4875 4795 1.7 4904 -0.6JK Cement* 4670 4560 2.4 4760 -1.9

JK Lakshmi 3617 3698 -2.2 3692 -2.0

Mangalam 3558 3959 -10.1 3628 -1.9

Heidelberg 3640 3730 -2.4 3740 -2.7

StarFeroCement 6203 5858 5.9 6254 -0.8

Average 4469 4470 0.0 4605 -2.9

* Blended realisations (grey cement +white cement)

EBITDA per tonne (Coverage Universe)

| per tonne Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%)

ACC 374 317 18.1 469 -20.3

Ambuja 570 572 -0.4 611 -6.7

UltraTech* 833 749 11.3 834 -0.1

Shree Cem 777 726 7.0 791 -1.8

India Cem 790 755 4.6 994 -20.5

JK Cement* 603 565 6.7 583 3.3

JK Lakshmi 442 501 -11.9 381 15.9

Mangalam 28 72 -60.5 9 214.6

Heidelberg 425 482 -11.9 415 2.4

StarFeroCement 1642 1696 -3.2 1109 48.1

Average 663 621 6.8 686 -3.4

*blended (grey + white)


Page 23

Construction & Infrastructure Traction in awarding activity to continue…

With a boost in tendering activity, we believe the government has renewed its focus on the development front. Tenders worth | 3.98 lakh crore have been floated during April-November, 2015, which grew 39.8% YoY. Out of this, ~99% tenders have been floated by the government (central + state). In terms of verticals, the road sector witnessed maximum traction (38.5% share) followed by water supply (11.6%) and Railway (9.4%). This lends us comfort that there will be huge opportunities for EPC players such as NCC, PNC Infratech, Simplex Infrastructure and for BOT players such as Ashoka Buildcon, Sadbhav Engineering and IRB Infrastructure.

Even…regulatory reforms have seen some momentum… The government continued its regulatory reforms push in Q3FY16. In the road vertical, the Cabinet gave its approval to NHAI to extend the concession period for BOT projects languishing in the construction period due to factors not attributable to concessionaire. The government also allowed the Road Ministry to approve projects on its own if its construction cost is <| 1000 crore (excluding land cost). In power T&D, the government also came out with the UDAY Scheme. The scheme entails a massive bailout plan for debt ridden discoms, measures to reduce power thefts, aligns consumer tariff with generation cost and promotes energy efficiency. These regulatory reforms should attract more investment in future and, in turn, would offer more long term opportunities to construction & infrastructure players.

Topline of our infrastructure universe to grow 43.9% YoY… With the commissioning of new projects and a better pick-up in execution in the EPC division, revenues of our infrastructure coverage universe are expected to grow 43.9% YoY to | 2042.8 crore in Q3FY16E, mainly led by 41.6% and 48.9% YoY revenue growth in IRB Infrastructure and Ashoka Buildcon’s revenues, respectively However, we expect revenue growth of our construction universe to see subdued growth at 3.0% YoY to | 6192.3 crore chiefly due to 14.0% de-growth in revenues of NCC following lower contribution from captive power projects. However, companies like NBCC, PNC Infratech are expected to post robust revenue growth of 21.2%, 24.4% YoY, respectively.

Healthy bottomline growth in construction, infrastructure segments We expect our infrastructure universe to report bottomline growth of 24.4% YoY to | 166.5 crore mainly on account of the low base effect of Ashoka Buildcon. Furthermore, the bottomline of our construction universe is expected to grow 22.9% led by 39.6% and 33.8% growth in NBCC and PNC Infratech’s bottomline, respectively.

Exhibit 28: Estimates for Q3FY16E (Infrastructure) (| Crore) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Ashoka Buildcon 678.3 48.9 4.2 182.6 73.3 -11.8 9.0 590.4 -77.5IRB Infra 1,364.5 41.6 18.7 706.2 27.1 16.7 157.5 18.8 5.6Total 2,042.8 43.9 13.5 888.8 34.5 9.5 166.5 24.4 -12.0

Change (%)Company

Change (%)Change (%)


Topline & profitability (Infrastructure Coverage)

1419 17

93

1739

1800 20

43

0

500

1000

1500

2000

2500

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.05.010.015.020.025.030.035.040.045.050.0

(%)


Topline & profitability (Construction Coverage)

6012 69

82

5640

5827

6192

0

1500

3000

4500

6000

7500

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.0

2.0

4.0

6.0

8.0

10.0

12.0

(%)



NBCC, Ashoka Buildcon Research Analyst

Deepak Purswani, CFA [email protected] Vaibhav Shah [email protected]


Page 24

Exhibit 29: Company specific view (Infrastructure coverage universe) Company Remarks

Ashoka Buildcon Ashoka Buildcon is expected to post a topline growth of 48.9% YoY to | 678.3crore. Its construction revenue is expected to grow 55.7% YoY to | 500.1 crorewhile BOT revenue is expected to grow 73.3% YoY to | 178.1 crore boostedmainly by toll collection from new projects viz. Belgaum, Sambalpur andKharagpur. Consequently, we expect its EBITDA margins to expand 380 bps YoYto 26.9%. Its bottomline is expected to grow 590.4% YoY to | 9.0 crore mainlydue to low base effect.Key monitorable: Traffic growth on ACL's project

IRB Infrastructure We expect revenues to grow 41.6% YoY to | 1364.5 crore with healthy growth inconstruction revenue (to grow at 74.4% YoY to | 859 crore). Toll revenues areexpected to grow 7.3% YoY to | 505.6 crore. However, with the commissioningof new BOT projects leading to higher interest and depreciation expenses, weanticipate bottomline will grow 18.8% YoY to | 157.5 crore

Key monitorable: Execution of construction division & growth in toll revenues


Infrastructure Coverage Universe

Higher interest expense* continue to eat away PAT

22.3

19.2

20.0

19.4 19.3

18.0

21.0

24.0

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(%)

*Interest Expenses as %age of Sales

Major news during Q3FY16

Ashoka Buildcon

Ashoka Buildcon along with Bhartia Infraprojectsreceives LoA for two laning of Pasighat -Mariyang - Yingkiang (NH - 513) from Singer riverto Sijon River section19.8 km to 43.3 km in Arunachal Pradesh on EPCbasis (project) issued by National Highways &Infrastructure Development Corporation (NHIDCL).The accepted bidvalue of the project is | 179.82 crore

Jaora-Nayagaon Toll Road Company (JTCL), anassociate of the company, completes refinancingof its debt of | 552 crore with the leading PSUbank. After refinancing, the interest cost reducesto 9.80% per annum, resulting in a saving of 1.5%

IRB Infrastructure

IRB Infra bagged | 10050 crore 14.8 km long roadtunnel project between Srinagar & Leh Ladakh fora concession period of 22 years (includingconstruction period of seven years) on semi-annual annuity of | 981 crore

Infrastructure Sector

The government has sanctioned a special packageof | 1.25 lakh crore for Bihar. The biggest chunk of funds has been approved for highway and roadbuilding projects with a total allotment of | 54,713crore


Page 25

Exhibit 30: Estimates for Q3FY16E (Construction) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

NBCC 1,359.2 21.2 20.8 81.2 68.6 22.4 70.9 39.6 5.4NCC 2,021.8 -14.0 -3.6 161.7 -7.1 -12.3 41.7 -0.9 -24.2PNC Infratech 474.0 24.4 2.5 62.7 11.5 2.7 31.6 33.8 3.5Sadbhav Engineering 849.1 17.6 13.8 91.9 25.2 13.8 44.5 18.0 70.1Simplex Infra 1,488.1 3.7 6.6 170.5 2.4 3.8 19.0 28.5 39.9Total 6,192.3 3.0 6.3 568.0 9.6 2.0 207.6 22.9 7.9

Company Change (%)Change (%) Change (%)


Exhibit 31: Company specific view (Construction coverage universe) Company RemarksNBCC With an order inflow of ~| 3300 crore in Q3FY16, we expect NBCC to close the

order book at ~| 32,000 crore, implying a TTM order book to bill ratio of 6.2x,providing strong revenue visibility, going ahead. As a result, we expect NBCC topost revenue growth of 21.2% YoY to | 1359.2 crore primarily due to 27.0%growth in its PMC division to | 1237.2 crore. We expect its EBITDA margin toexpand 170 bps YoY to 6.0% with EBIT margin in the PMC division expanding 200bps YoY to 7%. Consequently, we expect its bottomline to grow 39.6% YoY to |70.9 crore.Key monitorable: Strong redevelopment order inflows, execution rate in PMCdivision.

Simplex Infra Simplex Infrastructure's order book is at | 14888 crore, 2.5x book to bill ratio on aTTM basis. However, given its focus to improve its working capital, we expectrevenues to post modest growth of 3.7% YoY to | 1488.1 crore. Nonetheless, PATis expected to grow 28.5% to | 19.0 crore with stability in interest expensesKey monitorable: Management commentary on WC improvement & debtreduction

NCC Given the higher revenue contribution from the captive power project in Q3FY15,we expect revenues to decline 14.0% YoY to | 2022 crore. Nonetheless, weanticipate its PAT will remain flattish at | 41.7 crore with 60 bps improvement inEBITDA margin at 8% and reduction in interest expenses by | 16.8 crore to |126.9 crore

PNC Infratech We expect PNC to post a topline growth of 24.4% YoY to | 474.0 crore on theback of strong execution. The EBITDA margin is expected to decline 150 bps to13% with lower revenue contribution from high margin captive orders. Weanticipate its bottomline will grow at 33.8% YoY to | 31.6 crore.Key monitorable: Management commentary on strong execution

Sadbhav Engineering

With the orderbook of ~| 9300 crore implying order book to bill ratio of 2.8x, weexpect the topline to grow 17.6% YoY to | 849.1 crore. Furthermore, we expect itsEBITDA margin to expand 60 bps YoY to 10.8%. Consequently, we expect itsbottomline to grow 18.0% to | 44.5 crore


Construction Coverage Universe

De-leveraging on top of the mind of construction players…

4.9

4.4

5.55.2

4.9

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

(%)

*Interest Expenses as %age of Sales

Major News during Q3FY16

NBCC

All India Institute of Medical Sciences (AIIMS)has issued a letter of award (LoA) for the re-development of AIIMS Western Campus &Ayurvigyan Nagar, New Delhi. It involvesconstruction of 3000 flats in 2.5 years, with afinancial implication of | 5,828 crore

AIIMS has inked an MoU with NBCC to build thesecond phase of the existing trauma centre of theinstitution with construction cost of | 3,000crore. The project is planned for 2250 patientbeds and shall be developed on a land parcel of15 acres within four years

PNC Infratech

PNC Infratech has emerged as lowest bidder (L1)for augmentation of Aligarh-Moradabad section ofNH-93 to two lanes with paved shoulders in UPunder NHDP Phase-IV. The NHAI project is to beexecuted on an EPC basis at a total project costof | 644.5 crore

Road/Construction sector

The Cabinet has authorised NHAI to allowextension of concession period for all currentprojects in BOT (toll) mode that are languishing inthe construction period due to causes notattributable to concessionaire

The government has declared its plan to convert98 Indian cities into Smart Cities for which theCentre has earmarked a total investment of |48000 crore

Infrastructure project budgets may exclude landcost for faster clearances. If this goes ahead, thenit will allow more ministries to clear their ownprojects without going through the time-consuming process of seeking the approval of theCabinet Committee on Economic Affairs (CCEA).


Page 26

Consumer Discretionary Revenue growth largely driven by festive demand

Consumer discretionary (CD) companies are expected to report sales growth at ~8% YoY during Q3FY16E largely due to volume growth of 8-9% YoY. Volume growth of paint companies is expected at ~11% YoY (including decorative & industrial) on the back of consistent demand for decorative paints from Tier II, Tier III cities during festive season. However, paint companies may pass on the partial benefit to end customers by taking a price cut of ~4% YoY. Pidilite Industries’ revenue growth would be 7% YoY largely due to off season and lower growth in industrial product categories. Electrical goods manufacturers are likely to record sales growth of 10% YoY led by revenue growth in Symphony to the tune of ~24% YoY. We believe advance stocking of goods by dealers before the onset of summer would help in volume growth of Symphony and Voltas to the tune of 19% YoY and 9% YoY, respectively. Havells India is expected to report sales growth of ~8% YoY while Bajaj Electrical and V-Guard are expected to record sales growth of 11% and 12% YoY, respectively, led by festive demand.

Expansion in margin on the back of benign raw material prices We believe the overall EBITDA margin will increase ~190 bps YoY during Q3FY16E supported by paint & plastic companies. We expect a margin expansion of ~120-330 bps YoY for companies that use crude derivatives as their raw material (as price of raw material Titanium Di-oxide declined ~4% YoY). Pidilite is expected to report a margin expansion of ~237 bps YoY supported by lower vinyl acetate monomer (VAM) prices (down ~16% YoY). Besides, we expect Bajaj Electricals to record a positive EBITDA margin of 4.3% largely due to a turnaround of its E&P business and a recovery in the lighting segment. Better margin realisation in the project business coupled with volume growth in the AC segment is expected to lead to a 147 bps YoY expansion in EBITDA margin for Voltas.

Expansion in margin to help PAT growth Companies under our coverage are expected to record bottomline growth of 25% largely on account of an expansion in EBITDA margin On the other hand; a turnaround of the project business (for Bajaj Electrical and Voltas) would help drive PAT in Q3FY16E. This is largely on account of a shift in the company’s strategy to bid for quality higher margin projects.

Exhibit 32: Estimates for Q3FY16E (Consumer Discretionary) (| Crore)

Company Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Asian Paints 3,913.3 7.1 3.5 673.3 15.4 8.5 431.8 17.3 8.2Bajaj Electricals 1,140.9 10.8 1.2 49.3 NM 7.1 17.7 NM 57.0Essel Propack 569.7 0.4 6.4 111.4 21.1 -2.3 41.5 36.6 -30.0Havells 1,342.7 7.6 -0.5 194.7 8.0 4.5 127.1 9.4 5.3Pidilite Industries 1,291.0 7.4 -2.2 238.3 23.2 -20.9 151.6 21.9 -20.9Supreme Industries* 1,104.0 4.8 43.5 134.9 15.7 54.1 64.7 83.5 163.5Symphony* 187.2 23.6 45.1 61.5 27.9 81.1 48.3 34.1 67.8V-Guard Industries 441.5 11.7 1.9 27.7 27.8 -24.1 16.1 74.0 -30.3Voltas Ltd 1,049.8 10.4 -1.2 78.8 37.2 26.5 72.0 -33.0 62.0Total 11,040.1 7.7 5.1 1,569.9 24.8 5.4 970.7 25.3 7.5

Change (%) Change (%) Change (%)

Source: Company, ICICIdirect.com Research, ,* year end is June

Topline & Profitability (Coverage universe)

1025

1

1106

4

1143

5

1050

7

1104

0

-500

500

1500

2500

3500

4500

5500

6500

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.02.04.06.08.010.012.014.016.018.0

(%)


EBITDA margin (%) movement

EBITDA margin Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16

Asian Paints 16.0 15.8 18.9 16.4 17.2

Pidilite Ind 16.1 12.8 23.4 22.8 18.5

Essel Propack 16.2 17.4 18.1 21.3 19.6

Havells 14.5 13.4 12.5 13.8 14.5

Bajaj Ele -3.4 5.9 6.0 4.1 4.3

V-Guard 5.5 8.0 8.7 8.4 6.3

Voltas 6.0 9.6 8.2 5.9 7.5

Supreme Ind 11.1 16.6 19.7 11.4 12.2

Symphony 31.7 30.8 16.1 26.3 32.8

Titanium dioxide (|/kg) price trend

180

190

200

210

220

230

240

May

/14

Aug/

14

Nov

/14

Feb/

15

May

/15

Aug/

15

Nov

/15

(|/k

g)

525456586062646668

(| v

s $)

TiO2 Price | movement

Research Analyst

Sanjay Manyal [email protected] Hitesh Taunk [email protected]


Page 27

Exhibit 33: Company specific view for Q3FY16E

Asian Paints We expect overall revenue growth of ~7% YoY to ~| 3913 crorecontributed by ~11% YoY volume growth in Q3FY16E. The company isexpected to pass on the benefit of lower raw material cost to the tune of~4% YoY in terms of price cuts. The EBITDA margin is expected toincrease ~120 bps YoY to ~17% supported by benign raw material price.PAT is likely to record growth of ~17% YoY to ~| 432 crore

Bajaj Electricals We expect BEL to post ~11% YoY revenue growth at ~| 1141 crore inQ3FY16E, led by ~18% and 12% YoY growth in E&P and Lighting segmentto | 342 crore and | 259 crore, respectively. However, sales fromconsumer durables are expected to grow albeit at a slower pace of ~6%YoY to | 539 crore due to adoption of ToC strategy. Post a turnaround ofthe E&P business, the EBITDA margin is expected at 4.3%. It is likely topost PAT of ~| 18 crore vs. loss of ~| 52 crore in Q3FY15

Essel Propack We expect muted consolidated revenue growth at ~| 618 crore inQ3FY16E, led by a decline in sales of the Amesa region by ~11% YoY dueto divestment of its flexible packaging business. The EAP, Americas andEurope region are expected to record revenue growth of ~11%, 3% and~14% YoY, respectively. Improved operational efficiencies in theEuropean region & Americas coupled with lower raw material prices mayhelp expand EBITDA margin by 334 bps YoY at 19.6%. PAT is likely to rise~37% YoY to ~| 42 crore

Havells India We expect standalone sales growth of ~8% YoY to ~| 1343 crore inQ3FY16E, mainly due to muted demand for industrial products like cable& switchgear. The electrical consumer durable & lighting segment isexpected to grow ~16%, ~12% to | 267 crore, | 216 crore, respectively.We believe the EBITDA margin will remain muted at 14.5% as thecompany will pass on the benefit of lower raw material prices. PAT islikely to increase ~9% YoY to ~| 127 crore supported by sales growth

Pidilite Industries Pidilite is expected to post consolidated revenue growth of ~7% YoY to |1291 in Q3FY16E, led by ~9% YoY growth in the consumer & bazaarsegment. The industrial segment is expected to record flattish growth at~1% YoY. The EBITDA margin is expected to increase ~237 bps YoY at~18.5%, on account of saving in raw material cost. PAT is likely toincrease ~22% YoY to ~| 152 crore

Supreme Industries We expect Supreme to post ~5% YoY growth in revenue to | 1104 croreduring Q2FY16E led by ~8% YoY growth in the plastic segment. Weexpect plastic sales volumes to grow at ~10% YoY while realisation isexpected to decline ~2%. The EBITDA margin is expected to increase~110 bps YoY to 12.2% led by lower raw material cost. PAT is likely toincrease ~83% YoY to ~| 65 crore as last year in the same period, thecompany booked a loss of ~| 18 crore from associates

Symphony We expect Symphony to post ~24% YoY growth in revenue to | 187crore during Q2FY16E led by ~19% YoY volume growth on the back of anuptick demand in festive demand. The EBITDA margin is expected toincrease ~110 bps YoY to 32.8% led by lower advertising expenditure.PAT is likely to increase ~34% YoY to ~| 48 crore led by an expansion inEBITDA margin


Volume growth movement of paint companies

02468

10121416

Q1FY

14

Q3FY

14

Q1FY

15

Q3FY

15

Q1FY

16

Q3FY

16E

(%)

Paints Volume


Page 28

Exhibit 34: Company specific view for Q3FY16E

V-Guard We expect topline growth of ~12% YoY to ~| 442 crore in Q3FY16E ledby ~22% YoY growth in the electronics segment and ~8% YoY growthin the electrical segment to | 125 crore and | 316 crore, respectively.Revenues are expected to be largely driven by festive season demand.The EBITDA margin may increase 80 bps YoY due to higher operatingleverage. PAT is likely to see sharp growth to | 16 crore led by arecovery in sales and better margin

Voltas We expect topline growth of ~11% YoY to ~| 1050 crore in Q3FY16Eled by ~15% revenue growth in the UCP segment to | 440 crore.Additionally, revenue from the EMPS and EPS segment is expected toincrease ~10% and 7% YoY, respectively. The EBITDA margin isexpected to increase 147 bps YoY to 7.5% due to improved profitability inthe EMPS business and saving in raw material cost. Adjusted PAT islikely to increase ~15% YoY to ~| 72 crore



Page 29

FMCG Modest volume growth; structural decline seen in RM costs

We expect the FMCG universe sales growth to come in at a meagre 3% on the back of modest volume growth coupled with a lacklustre performance on the realisation front. The latter is mainly due to a structural decline in commodity costs. We estimate modest volume growth of ~4-6% for Dabur, Colgate, HUL, Marico and ITC (FMCG). FMCG companies have resorted to price cuts to gain/retain market share as they pass on some benefit of commodity price correction. Marico took price cuts across key SKUs of Parachute coconut oil on the back of ~27% YoY decline in copra prices. Unseasonal rains and deficient monsoons played spoilsport for rural India as we factor in its impact on Q3FY16E sales for companies. We believe this, coupled with a sluggish rate of recovery in urban consumption, is the reason for a weak demand scenario. Nepal border blockade is expected to impact export sales for FMCG companies, in general, and Real fruit juice sales for Dabur, in particular. Maggi noodles’ comeback in the latter half of Q4CY15 was the only positive for Nestlé. However, the noodles issue is expected to negatively impact Nestlé’s topline by 15.9% in Q4CY15. We expect volume decline of 11% for ITC (cigarettes) & VST Industries as a result of aggressive excise regime in recent times. GSK Consumer is likely to post 6.6% sales growth, led by mix of volume & realisation growth.

Commodity price correction savings to drive higher A&P spend Savings on the RM costs front are expected to be channelised by companies towards higher A&P spend. We expect 60-310 bps margin expansion for Marico, HUL, Dabur, GSK Consumer and Colgate. Major raw materials like crude oil & palm oil witnessed YoY dip of ~42% & ~18%, respectively, leading to gross margin expansion for most FMCG companies. As a result of these savings, companies are likely to elevate their A&P expenses with a view to revive consumer demand, going forward. Marico gave 20% extra Parachute Jasmine oil in 200 ml SKU to promote sales. ITC, VST Industries are expected to witness margins improvement of 100 bps, 261 bps, respectively, as they strive to combat excise hike by means of a price hike.

PAT expected to increase 2% YoY The effective tax rate for FMCG companies is expected to increase as tax benefits expire between FY16 and FY18. HUL is likely to see 210 bps increase in tax rate. Nestlé, reeling in the aftermath of the Maggi noodles controversy for most of Q4CY15, may post 38.3% YoY de-growth in earnings.

Exhibit 35: Estimates for Q3FY16E (FMCG)

Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Colgate Palmolive 1,035.8 4.8 0.4 236.2 21.4 -7.3 156.5 19.6 -0.2Dabur India Ltd 2,233.0 7.7 6.7 417.1 20.4 4.2 339.6 19.7 -0.5GSK Consumer 1,039.8 6.6 -3.2 135.4 27.9 -43.0 116.2 20.5 -47.0HUL 8,059.3 6.3 3.1 1,461.8 9.8 10.3 953.2 7.5 11.6ITC 9,087.2 3.3 3.2 3,665.3 5.8 3.0 2,643.5 0.3 8.7Jyothy Laboratories 380.1 11.8 -0.8 49.5 39.2 2.1 37.1 24.8 -2.9Marico Ltd 1,533.2 5.8 3.3 260.4 9.9 13.4 172.8 8.1 14.6Nestle India 2,151.7 -15.9 23.9 374.6 -32.4 31.1 192.1 -38.3 54.7Tata Global 2,170.3 2.9 8.6 199.5 0.2 34.7 97.4 15.7 NAVST Industries 198.2 0.9 -2.5 54.5 11.7 14.0 33.0 8.8 3.9Total 27,888.6 3.0 4.7 6,854.4 5.2 4.8 4,741.5 2.0 7.1


Change (%)


Topline & profitability (Coverage Universe) 27

070

2707

6

2684

4

2662

8

2788

9

15000

20000

25000

30000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%)


Copra & palm oil price trend

50

75

100

125

Jun-

14

Aug-

14

Oct-1

4

Dec-

14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct-1

5

Dec-

15

20

30

40

50

Copra (| per kg) Palm Oil (| per kg)

Sharp fall in crude prices (US$ per barrel)

25

45

65

85

105

125

Jun-

14

Aug-

14

Oct-1

4

Dec-

14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct-1

5

Dec-

15

Top Picks

Hindustan Unilever

Research Analyst

Sanjay Manyal [email protected] Parineeta Rajgarhia [email protected] Parth Joshi [email protected]


Page 30

Exhibit 36: Company specific view (FMCG) Company RemarksColgate We expect toothpaste volume growth at ~5.5% whereas no price hikes due to soft

commodity costs would keep realisation growth under check. Strong growth intoothbrushes and higher contribution of premium products in the sales mix wouldhelp drive topline by 4.8% YoY. We expect the company to post operating margins of22.6% (an improvement of 308 bps YoY) primarily on the back of lower input costs.Net profit is expected to see 19.6% YoY growth in Q3FY16E

Dabur Net sales are expected to grow 7.7% YoY as the company continued to be impactedby the Nepal border blockade in Q3FY16. The Nepal issue is expected to impact 'Real'fruit juice sales and, hence, overall volumes, as it is manufactured in Nepal and sold inthe domestic market. The domestic and international business is likely to grow 2.2%and 22.1%, respectively. Benign RM cost is expected to aid expansion of 197 bps inoperating margins

GSK Consumer Healthcare

We expect 6.6% YoY increase in net sales led by a mix of volume and realisationgrowth. Expiry of excise benefits at its Baddi facility is expected to keep the toplinegrowth in check. However, we expect the company to benefit from falling commodityprices. As a result, we estimate operating margins will improve 210 bps to 12.6%. Weexpect 20.5% YoY growth on the earnings front

HUL We estimate volume growth of 5% while higher sales contribution from premiumproducts would aid realisation growth, to a certain extent. Price cuts, on the back of adecline in input cost, are expected to restrict sales growth for the company at 6.3%YoY. We expect HUL to improve its operating margins by 65 bps to 17.8% despitehigher expected A&P spend (151 bps increase)

ITC We expect cigarette volume woes to persist and have modelled ~11% de-growth inITC's cigarette volumes. Sales growth (YoY) in the FMCG, paper business is estimatedat 7.8%, 11.2%, respectively. The hotels segment is expected to witness YoY de-growth of 5.7%. Benign commodity costs are expected to provide some support tomargins. We expect earnings to come in flat for the quarter

Jyothy Lab Jyothy Labs is expected to post 11.8% YoY sales growth, largely led by volumes withlimited price growth due to benign raw material cost. We expect 12.9% growth in thesoaps & detergent segment and 4.8% growth in the home care segment. We expect a266 bps improvement in operating margins majorly on the back of low commodityprices. We also expect tax liability for Jyothy Labs to increase, going forward

Marico Marico is expected to post modest 5.8% YoY topline growth largely led by volumegrowth. We estimate 2.1% and 22.8% growth in domestic and international business,respectively. To combat competition from regional players, we believe the companyhas passed on the benefit of lower RM cost to consumers in the form of offers,discounts and extra grammage. We estimate a 63 bps expansion in operatingmargins despite higher expected A&P expense

Nestlé India During Q4CY15, Maggi noodles made a comeback in the domestic market after beingoff the retail shelves since June 2015. However, net sales are expected to decline15.9% YoY. Milk products, beverages and chocolate are expected to grow 7.1%, 10.2% and 9.1%, respectively. We estimate earnings de-growth of 38.3% YoY during thequarter

Tata Global Beverages

We expect TGBL to witness 2.9% YoY sales growth mainly on the back of 1.9%growth (| 1617 crore) in the tea segment and 5.3% growth in the coffee segment (|566.4 crore). We estimate higher RM cost and higher employee expenses to impactits operating margins by 27 bps. We have modelled operating margins at 9% with15.7% YoY growth in earnings

VST Industries

With the aggressive excise hikes in the Budget, VST Industries had to take price hikesto pass on the excise burden. This has affected volume growth for the company. Weexpect ~11% decline in cigarette volumes. We estimate 65% contribution from below65 mm cigarettes and 35% from the above 65 mm category. We expect 12.8% higherexcise outgo in Q3FY16E



Page 31

Healthcare

Subdued large cap performance to drag Q3 sales Companies under the I-direct healthcare coverage (ex-Ajanta Pharma) in Q3FY16 are expected to post growth of ~8% YoY to | 33,575.4 crore. US sales from the select pack are expected to grow 8.3% to | 10013 crore on the back of 1) rupee depreciation (~6.4% YoY), 2) continued sales traction from gValcyte to DRL and gAbilify to Torrent and Alembic post exclusivity, 3) market share gains and 4) Natrol acquisition by Aurobindo. Similarly, Cipla through gNexium supply to Teva is also likely to register strong growth in the US. Though, US sales growth expectation is lower than historical trend (32% CAGR FY11-15) on account of lack of major approvals and higher base. On the domestic front, despite the ongoing restructuring at some companies, the select pack is likely to grow ~12% YoY to | 7485.3 crore on the back of strong growth in the chronic segment and recovery in the acute segment. On the flip side, currency headwinds in other geographies like Europe and emerging economies like Russia, Brazil and Venezuela are likely to impact the overall performance negatively. On the companies front, we expect Alembic, Cipla and Torrent to register strong growth mainly due to robust US sales while Ajanta and Natco are likely to grow on the back of strong growth in the domestic market. On the other hand, DRL and Lupin are likely to deliver weak numbers due to lack of meaningful US launches while Ipca’s numbers are likely to be impacted by ongoing cGMP issues. Restructuring at Sun is likely to continue in Q3 as well. Apart from this, the Chennai floods would impact Apollo Hospitals’ Q3 growth.

EBITDA to grow 9.5% YoY We expect EBITDA of the I-direct healthcare coverage (ex-Ajanta Pharma) to grow ~9.5% YoY to | 7969 crore. EBITDA margins are likely to remain flat at 23.7%.

Consolidated net profit to grow 43% YoY We expect the net profit of the I-direct healthcare coverage (ex- Ajanta Pharma) to grow 43.3% YoY to | 4923 crore mainly due to lower base of Q3FY15 (on account of higher taxation).

Exhibit 37: Estimates for Q3FY16E (| Crore)


Ajanta Pharma 457.3 NA 4.5 155.5 NA 1.1 103.8 NA 3.9Alembic Pharma 810.0 58.3 -19.7 226.0 120.6 -39.9 170.0 137.6 -41.1Aurobindo Pharma 3,515.5 11.0 5.5 831.5 35.8 7.2 514.7 27.2 1.0Biocon 836.1 8.7 -0.1 196.2 22.7 -0.6 117.2 28.9 13.9Cadila Healthcare 2,480.3 13.3 0.8 595.3 33.1 -4.2 429.5 54.3 9.8Divi's Lab 910.8 15.1 -5.5 354.0 23.3 -5.9 279.5 26.7 -5.5Cipla 3,201.6 15.8 -7.3 624.3 12.7 -20.9 366.3 11.7 -15.1Dr. Reddys 4,042.7 5.2 1.3 939.9 -4.1 -17.5 565.1 -1.7 -21.1Glenmark 1,841.4 8.2 -1.8 397.6 49.7 -1.1 264.7 130.6 32.1Indoco Remedies 258.3 19.2 1.3 52.7 23.0 15.3 28.7 32.6 26.8IPCA Labs 762.3 2.9 1.7 99.1 -18.2 11.2 44.4 -8.1 72.5Jubilant Life Sc. 1,490.0 3.1 1.8 329.2 77.6 2.7 122.5 LP 7.9Lupin 3,234.6 1.8 -2.6 695.4 -21.2 3.5 429.4 -28.6 5.0Natco Pharma 248.6 27.2 5.8 62.7 31.8 7.2 33.6 33.6 13.8Sunpharma 6,734.5 -2.8 -1.5 1,919.3 -11.3 -0.7 1,107.1 180.0 0.0Torrent Pharma 1,502.9 28.7 -11.1 405.8 69.1 -43.2 326.3 95.4 -38.1Unichem Laboratories 312.9 17.7 2.4 42.5 401.6 23.5 30.1 1,332.5 30.3Apollo Hospitals 1,393.1 17.8 1.9 197.5 13.1 2.3 94.3 -11.5 0.7Total* 33,575.4 8.1 -1.7 7,969.2 9.5 -8.8 4,923.4 43.1 -6.9

Company Change (%) Change (%) Change (%)

Source: Company, ICICIdirect.com Research; *Total excludes Ajanta pharma(due to unavailability of Q3FY15 figures)


059

3077

1 3339

7

3414

4

3357

5

29000

30000

31000

32000

33000

34000

35000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%)


USFDA approvals for July-Sep 2015 (Coverage Universe)

Company Final TentativeAurobindo Pharma 12 2Lupin 7 1Jubilant Life Sciences 5 0Ajanta Pharma 2 2Torrent Pharma 3 1Alembic Pharma 3 0Glenmark Pharma 2 1Sun Pharma 2 0Strides Acrolab 1 0Cipla 1 0

Source: USFDA website;

Currency Movement

40.050.060.070.080.090.0

100.0110.0120.0

1-Oc

t-14

1-N

ov-1

4

1-De

c-14

1-Ja

n-15

1-Fe

b-15

1-M

ar-1

5

1-Ap

r-15

1-M

ay-1

5

1-Ju

n-15

1-Ju

l-15

1-Au

g-15

1-Se

p-15

1-Oc

t-15

USDINR EURINR RUBINR

JPYINR GBPINR

Top picks of sector

Dr. Reddy’s Laboratories Lupin

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected] Nandan kamat [email protected]


Page 32

Exhibit 38: Company specific view Company RemarksAjanta Pharma Revenues are expected to grow ~4.5% QoQ mainly due to strong African tender

business growth while domestic growth is expected to be muted sequentially mainlydue to increased competition in the Derma segment. EBITDA margins are likely toremain strong at ~34%

Alembic Pharma Revenues are expected to increase ~58% YoY mainly due to ~170% growth in theexport generics business on the back of continuous windfall from gAbilify. Due tothis windfall, EBITDA margins are also expected to increase to ~28% from 20% inQ3FY15

Apollo Hospitals Standalone sales are likely to grow 17.8% YoY mainly driven by 29% growth in thepharmacy business and 10% growth in the healthcare service business. Growthduring the quarter would be impacted by the Chennai floods. Due to higher growth inthe low margin pharmacy business, we expect overall EBITDA margins to remainlow at ~14%

Aurobindo Pharma

We expect ~11% YoY growth in revenues mainly due to 30% YoY growth in the USled by Natrol acquisition and market share gains in existing products, which havebeen partially offset by a decline in Europe and ARV sales mainly due to the highbase. EBITDA margins are likely to be remain flat at ~24%

Biocon Revenues are likely to grow ~9% YoY on the back of 15% growth each in researchservices and branded formulations. EBITDA margins are expected to improve ~267bps to 23.5% due to a better product mix and increased margin accretive the CRObusiness contribution

Cadila Healthcare

Revenues are expected to grow ~13% YoY due to ~16% growth in the US anddomestic formulations. On the flip side, currency headwinds in the Brazil and Europemarkets are likely to impact negatively. US growth is expected mainly on the back ofmarket share gain and rupee depreciation. EBITDA margins are expected to improve~357 bps to 24.0% due to incremental high margin sales in the US

Cipla Revenues are expected to grow ~16% YoY mainly due to ~25% growth in exportformulations primarily on account of gNexium supply to Teva. Domestic formulationsare expected to grow ~12% YoY. EBITDA margins are likely to remain flat YoY at~20%

Divi's Laboratories

Revenues are expected to grow ~15% YoY on the back of growth in both thegeneric API and CS businesses despite a high base. EBITDA margins are likely toimprove ~258 bps to ~39% YoY mainly due to favourable currency movement

Dr Reddy's Revenues are expected to grow ~5% YoY mainly due to consolidation of Habitrol inthe US and UCB business consolidation in the domestic market. On the flip side,currency headwinds in Russia and RoW markets are likely to impact revenuesnegatively. EBITDA margins are likely to contract 225 bps to 23.3% due to the impactof additional remedial costs in the US

Glenmark Pharma

Revenues are expected to grow just ~8% YoY as growth in the domestic and USmarkets is likely to be offset by adverse currency movements in LatAm and RoWmarkets. EBITDA margins are likely expand ~600 bps to 21.6% due to a betterproduct mix

Indoco Remedies

Revenues are likely to grow ~19% YoY on the back of strong growth in developedmarket and growth recovery in domestic market (albeit on lower base). We expectEBITDA margins to remain at ~20%

Ipca Laboratories

Revenues are expected to grow a mere 3% YoY on the back of USFDA import alert,lower institutional business and currency fluctuations in emerging markets. EBITDAmargins are expected to decline ~335 bps to 13.0% due to higher operating cost onidle capacity and expenses on corrective measures


Expected growth (%) in the Domestic market in Q3FY16 (| crore) Q3FY16E Q3FY15 Var. (%) Q2FY16 Var. (%)Ajanta 126.1 109.0 15.6 124.0 1.7Alembic 314.1 307.7 2.1 264.2 18.9Biocon 120.8 105.0 15.0 119.0 1.5Cadila 744.5 641.8 16.0 751.3 -0.9Glenmark 511.0 433.1 18.0 608.5 -16.0Indoco 141.3 122.9 15.0 138.1 2.3Ipca 324.7 278.7 16.5 330.8 -1.8Lupin 855.4 743.8 15.0 873.8 -2.1Cipla 1342.9 1199.0 12.0 1262.0 6.4Dr Reddy's 548.2 432.8 26.7 546.4 0.3Sun Pharma 1832.7 1745.4 5.0 1818.7 0.8Torrent 442.1 421.0 5.0 441.0 0.2Unichem 181.8 158.1 15.0 188.5 -3.5Total 7485.3 6698.2 11.8 7466.2 0.3

Expected growth (%) in the US in Q3FY16 (| crore) Q3FY16E Q3FY15 Var. (%) Q2FY16 Var. (%)Aurobindo 1624.8 1201.2 35.3 1477.5 10.0Cadila 1034.8 895.9 15.5 1003.8 3.1Glenmark 633.2 507.2 24.8 598.4 5.8Lupin 1186.3 1404.3 -15.5 1155.0 2.7Dr Reddy's 1901.7 1681.9 13.1 1856.3 2.4Sun Pharma 3161.8 3385.8 -6.6 3315.8 -4.6Torrent 470.4 171.7 174.0 712.0 -33.9

Total 10012.9 9248.0 8.3 10118.8 -1.0

Expected growth (%) in Europe in Q3FY16 (| crore) Q3FY16E Q3FY15 Var. (%) Q2FY16 Var. (%)Aurobindo 757.6 860.9 -12.0 764.3 -0.9Cadila 67.8 84.7 -20.0 65.2 3.9Glenmark 164.3 173.0 -5.0 160.4 2.5Dr Reddy's 31.0 30.9 0.3 32.4 -4.4Lupin 92.6 80.5 15.0 115.8 -20.1Torrent 187.9 225.7 -16.8 186.0 1.0Total 1301.1 1455.6 -10.6 1324.1 -1.7

Expected growth (%) in Latin America in Q3FY16 (| crore) Q3FY16E Q3FY15 Var. (%) Q2FY16 Var. (%)Cadila 54.9 61.0 -10.0 52.7 4.2Glenmark 164.1 234.4 -30.0 165.7 -0.9Torrent 132.4 155.8 -15.0 131.0 1.1Total 351.5 451.3 -22.1 349.4 0.6


Page 33

Exhibit 39: Company specific view Jubilant Life Science

Revenues are expected to increase ~3% YoY on the back of 8% growth in thepharmaceutical business. Growth in the pharma business is expected to be largelyoffset by a slowdown in LSI segment sales. Margins are expected to improve ~927bps to 22.1% due to an improvement in both pharmaceutical and LSI margins

Lupin Revenues are expected to grow just 1.8% YoY. The US business is expected todecline 16% due to a higher base and increased competition in existing products.The domestic business is expected to grow 15% YoY due to strong growth acrosstherapeutic segments. The Japanese business is likely to be impacted owing togeneric price cuts taken in Q4FY15 and adverse currency movement. EBITDAmargins are expected to decline ~630 bps to 21.5% owing to an adverse productmix

Natco Pharma Revenues are likely to increase ~27% YoY mainly due to robust sales of Hepcinat,third party Sofosbuvir and the domestic oncology business. EBITDA margins arelikely to remain healthy at ~25% due to a better product mix

Sun Pharma Revenues are likely to be muted due to divestment of Ranbaxy’s non-corebusinesses and supply constraints due to the USFDA warning letter at Halol plant.EBITDA margins are likely to deliver muted growth sequentially (~28%)

Torrent Pharma Revenues are expected to increase ~29% YoY mainly due to 174% growth in the USon the back of continuous strong windfall from gAbilify. Due to this windfall, marginsare also expected to increase to 27% from 20.5% in Q3FY15

Unichem Labs We expect ~18% YoY revenue growth mainly due to strong growth in developedmarket formulation sales and recovery in domestic formulation (albeit on lowerbase). We expect EBITDA margins to improve ~1040 bps to 13.6% YoY due to alower base and a better product mix


Expected growth (%) in API in Q2FY16

e

(| crore) Q3FY16E Q3FY15 Var. (%) Q2FY16 Var. (%)Aurobindo 708.1 674.4 5.0 691.1 2.5Alembic 97.6 81.3 20.0 137.2 -28.9Cadila 100.7 95.9 5.0 90.7 11.0Glenmark 161.1 146.5 10.0 165.5 -2.6Indoco 15.1 12.9 17.5 14.6 4.0Ipca Labs 180.7 150.4 20.2 180.4 0.2Lupin 317.2 275.8 15.0 321.9 -1.5Cipla 181.2 151.0 20.0 226.0 -19.8Dr Reddy's 623.4 611.2 2.0 591.8 5.3Sun Pharma 298.9 259.9 15.0 328.7 -9.1Unichem 30.6 28.3 8.1 24.8 23.3Total 2714.6 2487.5 9.1 2772.7 -2.1


Page 34

Hotels Foreign tourists arrivals (FTA) growth of 5.3% to keep revenue growth

steady I-direct hotel coverage universe is expected to report revenue growth of 7.3% YoY to | 1772.1 crore in Q3FY16 lead by improved peak season demand and increase in the room inventory. While the domestic demand is expected to improve, foreign tourist arrival (FTAs) growth is expected to moderate to 5.3% during the quarter compared to growth of 8.9% YoY in Q3FY15. Although, higher room inventory is expected to keep occupancy under check, rise in room rates would help the companies to improve margins. Average occupancy levels at tourist destinations is expected to remain higher compared to the last year with improvement of 80-90 bps across destinations while occupancy at business destinations are expected to decline marginally during the quarter.

Operating margins to improve marginally YoY during the quarter Margins of the I-direct hotel universe are expected to improve marginally YoY due to low base effect of last year. We expect I-direct hotel universe operating margins at 22.8% for Q3FY16E (up 90bps YoY). We expect EIH’s and IHCL’s margins to improve by 60bps and 110bps YoY respectively while margins of TajGVK are expected to remain flat YoY due to high base of last year.

I-direct universe expected to report net profit of | 125.6 crore Companies under I-direct coverage are expected to report net profit of ~| 125.6 crore in Q3FY16E vs. net profit of |108 crore during Q3FY15.

Select business destinations to drive growth during the quarter Average occupancy levels were higher at leisure destinations compared to business destinations during the quarter due to peak season coupled led by healthy demand from domestic segment during the quarter. In business destinations, Mumbai registered higher occupancy compared to the previous year while almost all leisure destinations registered higher occupancy levels along with improvement in ARRs during the quarter compared to previous year.

Exhibit 40: Estimates for Q3FY16E: (Hotels) (| Crore)


EIH 398.0 5.2 29.9 115.8 8.2 302.1 46.6 6.9 1,759.9Indian Hotel 1,300.9 7.8 26.9 270.6 13.6 335.5 76.1 23.2 LPTaj GVK Hotels 73.2 7.1 19.0 18.1 3.4 46.0 2.9 8.3 LPTotal 1,772.1 7.2 27.2 404.5 11.5 291.4 125.6 16.3 LP

Company Change (%) Change (%)Change (%)

Source: ICICIdirect.com Research


1653

1569

1326

1393 17

72

0200400600800

100012001400160018002000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

-20.0-15.0-10.0-5.00.05.010.015.020.025.0

(%)


FTAs likely to grow by 5.3% during Q3FY16E

200

400

600

800

1000

Apr

May Jun

Jul

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar

(in '0

00)

FY13 FY14 FY15 FY16

Trends in average occupancy levels

60

70 72

62

7065 63

71

51 53

77

5459

55

6960 61

73

70

55

71 74

40

50

60

70

80

90

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

(%)

Business Destinations Leisure Destinations

Top pick of sector

EIH

Research Analyst

Rashesh Shah [email protected] Devang Bhatt [email protected]


Page 35

Exhibit 41: Company specific view Company RemarksIndian Hotels Consolidated revenue growth may remain higher led by improved performance

of international subsidiaries. Operating margin may expand 110 bps YoY due tolow base effect of last year along with improved topline. Net profit growth of23% YoY may remain higher than coverage universe due to improvement inmargins

EIH Being a pure domestic player with a presence in strategic locations, we expectrevenues to increase 5.2% YoY in sync with growth in foreign tourist arrivals(FTAs) during the quarter. The company is expected to maintain margins on aYoY basis

Taj GVK Hotel Marginal revenue growth is visible in the quarter due to improvement indemand. However, opening of a new hotel in Mumbai (under JV) would initiallyput pressure on margins during the quarter. Hence, net profit growth mayremain moderate for the quarter



Page 36

Information Technology Twin blows of furloughs, Chennai floods to hurt Q3 earnings…

We expect tier-I IT companies to report average dollar revenue growth of 0.5% QoQ in Q3FY16E (vs. 2.9% in Q2FY16 and 1.6% in Q3FY15) in a seasonally soft quarter impacted by furloughs and accentuated by Chennai floods. Further, 1.6%, 2.1% and 0.7% inter-quarter depreciation in the average EUR, GBP and AU$ vs. the US$ could create cross-currency headwinds of 40-60 bps. Sequentially, TCS revenues could grow 0.5% while those for Wipro, HCLT could grow 0.4%, 1.6%, respectively. Infosys revenues could decline 0.5% QoQ led by non-recurrence of one-off project termination revenue of $23 million that helped in Q2. Noticeably, though growth appears modest relative to Q3FY15, IT companies had said that Chennai floods, which disrupted operations for over a week, would have a considerable revenue impact. Adjusted for this, we believe, growth could be comparable.

Margins too will be impacted… We expect EBIT margins to decline 60 bps each for TCS, Infosys to 26.5%, 24.9%, respectively, led by loss of billing days due to Chennai floods and business continuity costs partially offset by rupee tailwinds. Wipro IT services margins could decline 20 bps to 20.5% while those for HCLT could decline 30 bps to 20.3% as operational efficiency and rupee could help offset impact of partial wage hikes (~75 bps).

Soft quarter for our midcap coverage universe… We expect a soft Q3 for our midcap coverage universe led by reasons mentioned. However, Persistent (recovery in IP) and Firstsource could surprise. Within midcaps, we expect Persistent (4%), Firstsource (5%) to lead while MindTree (1.5%), Cyient (1%), NIIT Technologies (1.8%), eClerx (2%), KPIT (1.5%) and TechM (0.7%) could be soft. EBITDA margin movement could range in 60 to -50 bps (Persistent at the bottom and Firstsource, TechM, NIIT Technologies at the top) as rupee tailwinds and operational efficiency could help offset seasonality impact and business headwinds.

CY16E budget commentary to dictate earnings trajectory… Operationally, though discretionary spending remains healthy in the US and could aid growth momentum while sustained recovery in Europe could help, timely conclusion of the CY16E budget cycle and spends trends could dictate the earning trajectory.

Exhibit 42: Estimates for Q3FY16E (| Crore)


Cyient 787.4 10.6 2.0 115.7 0.0 -0.5 96.9 -3.9 -1.6Eclerx 337.3 39.6 2.7 124.3 53.3 1.8 94.5 55.5 1.7Firstsource Sol 832.0 10.8 5.0 108.0 15.4 9.7 71.0 23.4 14.7HCL Tech* 10,342.0 11.4 2.4 2,244.2 -3.2 1.5 1,850.0 -3.4 7.2Infosys 15,677.0 13.6 0.3 4,272.0 8.0 -1.8 3,303.0 1.6 -2.8KPIT Tech 833.1 6.8 2.6 117.5 8.2 3.1 103.6 58.5 37.9Mindtree 1,205.5 32.2 3.1 219.4 17.5 1.4 160.0 13.6 1.1NIIT Technologies 702.3 18.0 3.6 126.4 46.6 5.9 72.5 50.4 6.3Persistent Systems 568.1 14.8 4.7 103.4 3.9 1.6 70.1 -5.8 -2.4TCS 27,514.0 12.3 1.3 7,801.2 10.6 -0.3 6,010.0 10.4 -0.7Tech Mahindra 6,705.0 16.6 1.4 1,139.8 -1.7 3.5 790.0 -1.9 0.6Wipro 12,894.0 6.7 2.6 2,811.0 1.5 1.0 2,250.0 2.6 0.7Total 78,397.5 11.8 1.6 19,188.7 6.4 0.1 14,873.3 5.1 0.3



Topline & profitability (Coverage universe)

7015

1

6971

1

7311

6

7717

5

7839

7

15000

25000

35000

45000

55000

65000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

10.0

15.0

20.0

25.0

30.0

(%)


Dollar growth, QoQ

IT Services Q3FY16E Q2FY16 Growth (%)

TCS 4,177.0 4,156.0 0.5

Infosys 2,380.0 2,392.0 (0.5)

Wipro ^ 1,840.0 1,831.9 0.4

HCL Tech * 1,570.0 1,544.5 1.6

Tech Mahindra 1,018.0 1,011.0 0.7

Mindtree 183.0 180.3 1.5

KPIT Technologies 126.5 124.6 1.5

Cyient 119.5 118.4 1.0

NIIT Technologies 106.6 104.7 1.8

Persistent Systems 86.2 83.0 4.0

eClerx 51.2 50.2 2.0

BPO (in |)

Firstsource 832.0 792.5 5.0 * June year end, ^ IT services

Top picks of the sector

Infosys

Research Analysts

Abhishek Shindadkar [email protected]


Page 37

Exhibit 43: Company specific view Cyient We expect dollar revenues to grow 1% QoQ to $119.5 million while those in rupee

could grow 2% QoQ to | 787.4 crore led by growth moderation in the organicbusiness. EBITDA margins may decline 40 bps QoQ to 14.7% led by growth in thelower margin business. Demand outlook across business units, margin trajectoryand levers could be of investor interest

eClerx We expect dollar, rupee revenues to grow 2%, 2.7% QoQ to $51.2 million, | 337.3crore respectively, led by growth in emerging clients and continued revival in topfive clients. EBITDA margins may decline 40 bps QoQ to 36.8% led by growthmoderation and higher SG&A expenses partially offset by rupee tailwinds. Investorinterest: traction in non-cable business, top five accounts, margin outlook,synergies from CLX integration and order bookings

Firstsource Solutions

We expect rupee revenues to grow 5% QoQ to | 832 crore led by growth inhealthcare vertical, contribution from banking client win in UK and recovery in topclient revenues. EBITDA margins may improve 60 bps QoQ to 13% led by growth.FY16E growth outlook, ACV deals signed during the quarter, large client growth andmargin trajectory could be of investor interest

HCL Tech We expect dollar, rupee revenues to grow 1.6% ($ 1,570 million), 2.4% (| 10,342crore) QoQ, respectively, led by IMS and engineering services. Adjusted EBITmargins may decline 30 bps QoQ to 20.3% as rupee, operational efficiency mayoffset impact of partial wage hike (75 bps). Recall, HCLT Q1 margins had a one-offimpact of 120 bps associated with project cancellation. Investor interest: FY16Egrowth/margin trajectory, TCV deal signings, sustainability of growth in IMS andstep being taken to accelerate growth in core software business

Infosys US$ revenues could decline 0.5% QoQ to $2,380 million led by non-recurrence ofone-off project termination revenue of $23 million that helped Q2 revenues, andimpact of Chennai floods. Constant currency revenues could be flat QoQ while thosein rupees may grow 0.3% QoQ to | 15,677 crore helped by 1.4% inter-quarterdepreciation in the average rupee rate relative to the dollar. EBIT margins maydecline 60 bps QoQ to 24.9% led by lower utilisation (Chennai floods) and SG&Ainvestments. Investor interest: CY16E IT budget trends, FY16E guidance revision, ifany, large deal TCV signings, outlook across verticals and geographies, acquisitionspipeline and attrition

KPIT Tech Dollar revenues could grow 1.5% QoQ to $126.5 million while rupee revenues couldgrow 2.6% QoQ to | 833.1 crore. EBITDA margins could be flat QoQ (10 bps changeto 14.1%) led by operational efficiency. FY16E revenue growth, margin trajectory,outlook on individual business units and SAP business (growth/margin) could be ofinvestor interest

MindTree Dollar revenues may grow 1.5% QoQ to $183 million while those in rupees maygrow 3.1% QoQ to | 1,206 crore led by digital business and top client mining. At18.2%, EBITDA margins could decline 30 bps QoQ led by wage increases for 28% ofthe employees, which could impact margins by ~80 bps partially offset by rupee.Investor interest: Growth, margin and attrition trajectory, client mining, and TCVdeal signings

NIIT Tech At $106.6 million, reported dollar revenues could grow 1.8% QoQ led by growth ininternational business. Rupee revenue could grow 3.6% QoQ to | 702 crore. EBITDAmargins may increase 40 bps QoQ to 18% primarily led by growth in the highermargin international business and rupee tailwinds. Margin trajectory, attrition, largedeals wins, cross-selling opportunities from recent Incessant acquisition and orderbookings may be of investor interest


EBIT margin impact

EBIT margins Q3FY16E Q2FY16 Change (bps)

TCS 26.5 27.1 (60)

Infosys 24.9 25.5 (60)

Wipro ^ 20.5 20.7 (20)

HCL Tech * 20.3 20.6 (30)

EBITDA margins

Tech Mahindra 17.0 16.6 40

Mindtree 18.2 18.5 (30)

KPIT Technologies 14.1 14.0 10

Cyient 14.7 15.1 (40)

NIIT Technologies 18.0 17.6 40

Persistent Systems 18.2 18.7 (50)

eClerx 36.8 37.2 (40)

BPO

Firstsource 13.0 12.4 60 * June year end, ^ IT Services $/|

40

50

60

70

Oct-1

0

May

-11

Dec-

11

Jul-1

2

Feb-

13

Sep-

13

Apr-1

4

Nov

-14

Jun-

15

Jan-

16

|

|/$

$ vs. global currencies

0.60.70.80.91.01.1

Mar

-12

Aug-

12

Jan-

13

Jun-

13

Nov

-13

Apr-1

4

Sep-

14

Feb-

15

Jul-1

5

Dec-

15

$/Euro $/GBP AUD/$


Page 38

Exhibit 44: Company specific view Persistent Systems

We expect dollar, rupee revenues to grow 4%, 4.7% to $86.2 million, | 568 crore ledby growth recovery in IP business. EBITDA margins may decline 50 bps QoQ to18.2% primarily led by SG&A investments partially offset by rupee tailwinds.Investor interest: FY16E growth commentary, enterprise account mining, traction inIP, M&A strategy and margin outlook

TCS US$ revenues could grow 0.5% QoQ to $4,177 million while those in constantcurrency may grow 1% QoQ. Rupee revenues could grow 1.3% to | 27,514 crore,aided by currency tailwind. EBIT margins could decline 60 bps QoQ to 26.5% led bylower utilisation (impact of Chennai floods) and business continuity costs partiallyoffset by rupee tailwinds. Investor interest: CY16E IT budget and spend trends,demand trends across businesses, traction in digital business, attrition and marginlevers

Tech Mahindra We expect US$ revenues to grow 0.7% QoQ to $1,018 million led by the enterprisebusiness while telecom could be flat. Constant currency revenues could grow~1.3% while rupee revenues could grow 1.4% QoQ to | 6,705 crore. EBITDAmargins may improve 40 bps QoQ to 17% led by operational efficiency and rupee.Margin trajectory, telecom vertical outlook, deal pipeline and top customer growthcould be of investor interest

Wipro Global IT services dollar revenues could grow 0.4% QoQ to $1,840 million, in linewith its earlier guided range of $1,841-1,878 million. Global IT services rupeerevenue could grow 0.6% while consolidated revenues could grow 2.6% to | 12,894crore. Global IT services EBIT margins may decline 20 bps QoQ to 20.5% led byimpact of Chennai floods. Investor interest: Q4FY16E guidance, update to spendingpatterns in energy vertical, margins and deal pipeline outlook, change in strategy, ifany, post CEO change



Page 39

Logistics Volumes remain subdued - Near term concerns prevail

Container volumes at major ports continued to remain subdued with mere 2% YTD (April-November) growth. YTD volumes were at 5.4 million TEUs vs. 5.3 million TEUs in the same period of the previous year. Q3FY16 volumes were mainly impacted by lower Exim, domestic trade volumes. In addition to sluggish trade, adverse weather conditions impacted volumes in Chennai. Q3FY16 volumes (October-December) stayed unchanged at 1.3 million TEUs compared to the same period in FY15. Volumes at the largest port JNPT de-grew 0.7% YoY to 728000 TEUs in the first two months of Q3FY16 (October-December) vis-à-vis same period in Q3FY15. Furthermore, volumes at Chennai were impacted the most with de-growth of 4.7% YoY. Volumes at Kolkata port grew 2% YoY in the same period.

Lower utilisation – Ports, ancillary to continue to disappoint The previous quarter for Pipavav Port was adversely impacted by damage to its rail line and realignment of certain liners. We believe the impact of adjustment of liners would continue to negatively impact the current quarter volumes. We expect container volumes of GPPL to decline 18% YoY. Correspondingly, bulk volumes are expected to de-grow 11% YoY. Due to lower volumes at the ports, a majority of container train operators are also expected to post a dull quarter. Revenues for Gujarat Pipavav are expected to de-grow 17% YoY to | 153 crore. Lower volumes and empty running will dampen operating efficiencies on the back of which EBITDA is expected to de-grow 18% to | 82 crore. Following the absence of Pipavav Rail corporation (PRCL) dividend, PAT is expected to halve to | 37 crore.

E-commerce sales, festive purchases to benefit express players Logistics players would reap the benefits from a number of flash sales offered by e-commerce players. Players with higher fleet on the street and deep geographical reach would derive higher volumes & greater efficiencies. Higher component of value added service (VAS) from e-fulfilment centres would scale up margins for the quarter. Revenues for BlueDart, Gati are expected to grow 15%, 10% YoY respectively. As utilisation levels would be higher, we believe economies of route optimisation would improve EBITDA margins for both companies expected at 13.2% and 8.1%, respectively. PAT for BlueDart and Gati is expected at | 52 crore and | 12 crore, respectively.

I-direct logistics universe – blockbuster quarter for surface players Express players in the I-direct logistics universe are expected to post annual growth of 13%. However, traditional logistics players and CTOs are expected to de-grow 2% YoY. Total revenue of the universe is expected at | 1851 crore against | 1733 crore in Q3FY15 while EBITDA is expected at | 253 crore against | 220 crore for the same quarter last year. PAT for the quarter is expected at | 124 crore.

Exhibit 45: Estimates for Q3FY16E: Logistics (| Crore)


Blue Dart 677.2 15.0 4.0 89.4 84.7 -3.6 51.5 89.7 -4.3GATI Ltd 445.2 5.0 10.0 36.1 11.4 23.3 11.9 5.3 106.3Gujarat Pipavav 152.5 -17.3 2.3 81.6 -18.8 6.8 37.3 -58.2 -29.7Transport Corp 576.1 3.8 3.6 45.9 9.2 4.8 23.4 37.0 0.5Total 1,851.1 5.6 5.1 252.9 13.3 4.4 124.1 -14.3 -8.7

Change (%)Company




1752

1740

1769

1761 18

51

1500

1800

2100

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.02.04.06.08.010.012.014.016.0

(%)


Container Volumes

500

550

600

650

700

750

Aug

'13

Nov

'13

Feb'

14

May

'14

Aug

'14

Nov

'14

Feb'

15

May

'15

Aug

'15

Nov

'15

('000

TEU

s)

Top Picks

Blue Dart

Research Analyst

Bharat Chhoda [email protected] Ankit Panchmatia [email protected]


Page 40

Exhibit 46: Company specific view

Company RemarksTransport Corporation of India

Revenue is expected to grow 4% YoY to | 568 crore. Majority of the growth isexpected from its supply chain segment. EBITDA margins are expected at 8% withan EBITDA of | 46 crore. Higher other income would further accelerate the PATgrowth, which is expected at | 23.4 crore

BlueDart The B2C segment is expected to continue its positive momentum on the back ofGMV reported by e-commerce companies. A lull quarter for B2B operations willmoderate the performance. Following this, revenue is expected to grow 15% YoY to| 677 crore. The EBITDA margin is expected to increase 500 bps YoY to 13.2%.Strong operational performance is expected to lead to YoY PAT growth of 89% to |52 crore

Gujarat Pipavav Port

On the back of sluggish volumes at major ports coupled with a shift of liners to otherport, we expect a soft performance. We expect container volumes to de-grow 18%YoY. Subsequently, we expect revenues to de-grow 17% to | 152 crore. EBITDA isexpected at | 82 crore. PAT would continue to be adversely impacted by deferredtax expenses. Thus, we expect PAT at | 37 crore

Gati Following growth in e-commerce revenues, standalone revenues are expected togrow 25%. KWE and Kausar revenues are expected to be sluggish. Subsequently,consolidated revenues are expected at | 445 crore with growth of 5% YoY. Higherutilisation levels will bring in margin expansion, which we expect at 8%. PAT isexpected to grow 4% to | 12 crore



Page 41

Media Zee to drive broadcaster universe ad revenue growth at 21.1% YoY

Ad growth revival is expected across media companies in the festive rich quarter. Zee TV is expected to continue its high growth trajectory by posting 27.6% YoY growth aided by new channels and better-than-industry ad revenue growth in other channels. TV Today is expected to post 18.0% YoY ad growth (ex-radio) as it continues to command a premium owing to its consistent No. 1 ranking in the Hindi news genre. Sun TV, however, would see a relatively weaker quarter at 7.2% YoY growth due to adverse effect from Chennai floods and lower ad volumes.

Festive quarter brings in robust ad revenue for print also… Ad revenues across print players are expected to show traction in the festive season with additional benefits from the three days of Navratri. However, some benefits are being weighed down by the presence of Shraddh. HT Media is expected to post ad revenue growth of ~9.4% YoY with high 18.5% and 5.0% YoY growth in the Hindi and the English print, respectively. Jagran Prakashan is expected to post ad growth of 11.0% YoY buoyed by strong uptick in its flagship paper, traction in Nai Duniya and a stellar performance in radio. DB Corp may, however, report subdued ad revenue growth of 2.2% YoY owing to an election heavy base quarter. Higher operating leverage would aid margins for all players except DB Corp. We expect EBITDA margins of 32.1%, 15.3%, 30.0% for DB Corp, HT Media, Jagran, respectively.

Set top box seeding gains pace, Phase III deadline arrives With the quarter end coinciding with the Phase III digitisation deadline, Hathway should seed ~155,000 STBs in Q3FY16 on a standalone basis. Dish TV should add ~0.5 million net subscribers while its ARPU may expand 1.4% QoQ to | 173.0. We also note that a couple of states like AP, Telangana, Sikkim, Maharashtra, etc, have obtained a stay order for extension in Phase III deadlines. We believe the full potential of seeding will be seen in Q4FY16 if the government takes stringent action towards black-out of analog signals.

H1FY16 – Charmer for box office, Q3FY16 - Good show but not a hit! Q3FY16 had fewer hits with Bajirao Mastani, Dilwale, and Prem Ratan Dhan Paayo being the major releases. The releases in the quarter remained softer in comparison to H1 but were better YoY. PVR and Inox are expected to post ~10% and ~14.8% YoY growth in total footfalls to 17.6 and 13.3 million, respectively.

Exhibit 47: Estimates for Q3FY16E- Media Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

DB Corp 575.7 3.8 20.3 185.0 0.2 65.6 108.3 3.0 83.3Dish TV 783.3 9.7 4.1 258.6 35.2 1.4 51.0 LP -41.4ENIL 134.6 15.1 15.8 50.5 12.8 41.4 31.6 -3.6 17.3Eros International 359.8 -26.7 -28.7 68.0 -53.8 -49.9 43.6 -60.1 -51.7Hathway Cables 287.0 20.0 4.7 34.0 38.4 -0.4 -46.5 NA NAHT Media 675.8 11.6 12.3 103.7 20.3 65.5 40.3 -37.1 10.5Inox Leisure 311.7 18.7 1.3 56.8 22.6 0.6 20.9 46.0 1.8Jagran Prakashan 574.1 22.0 10.5 172.5 30.2 17.4 96.5 44.6 5.7PVR 498.9 18.7 5.1 81.0 -2.6 -10.6 21.8 -30.9 -46.9Sun TV 588.7 6.6 3.6 449.8 5.1 4.1 223.1 4.2 2.2TV Today 149.6 13.6 17.8 51.9 18.8 45.4 33.2 26.0 36.5Zee Ent. 1,583.0 16.1 14.3 398.9 12.9 12.5 296.4 -4.0 19.8Total 6,522.3 10.1 6.8 1,910.8 8.2 9.1 920.1 0.9 2.9

Change (%)Company




5922

5588

6063

6109 65

22

500052005400560058006000620064006600

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(%)


Dish gross subscriber base, ARPU

12.5

12.9

13.3

13.7

14.2

177

179

173

171

173

11.5

12.0

12.5

13.0

13.5

14.0

14.5

Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16E

Milli

on

166

168

170

172

174

176

178

180

|

Subscriber base ARPU

PVR & Inox – Footfalls

16.0

12.2

19.0 18.817.6

11.6

8.4

14.5 14.513.3

0.02.04.06.08.0

10.012.014.016.018.020.0


(milli

on)

PVR Inox

Top pick of sector Jagran Prakashan Inox Leisure Research Analysts

Bhupendra.Tiwary [email protected]

Sneha Agarwal [email protected]


Page 42

Exhibit 48: Company specific view Company RemarksDB Corp Print ad revenue growth is expected to remain flattish YoY at | 395.4 crore as the

base quarter was heavy with state elections. In addition, we believe there couldhave been some ad volume losses owing to its price hike strategy, ex-electionimpact the growth should be ~4-5% YoY. The high traction in radio and digital adrevenues may lead to total ad revenue growth of 2.2% YoY to | 437.8 crore.Circulation revenues may continue their growth trajectory and post 12.4% YoYgrowth to | 108.8 crore. Newsprint costs could be high due to rupee depreciationand higher consumption. Lower operating leverage is expected to cause a 120 bpscontraction in margins on a YoY basis to 32.1%

Dish TV Gross subscriber addition is expected at ~0.76 million, with net adds of 0.5 millionand churn of 0.27 million (0.7% monthly of net base), with the quarter marking theend of the Phase III digitisation deadline. ARPU is expected to show 1.4% QoQincrease to | 173.3, owing to higher activation income in the quarter and price hikestaken in August. Content costs are expected to stay under control. Hence, marginsare expected to remain stable at 33.0%

ENIL We expect ENIL to report ad revenue growth of 14.5% YoY to | 134.6 crore with theutilisation level at ~112%. EBITDA margins at 37.5% may be down 76 bps YoY dueto higher marketing expenditure on account of some costs towards Phase IIIexpansion and one-time cost for "Mirchi Top 20" event. The company is alsoexpected to incur the full tax rate from Q3FY16 onwards vs. 27-28% earlier. PAT,consequently, at | 31.6 crore, is expected to decline 3.6% YoY. Revenues fromPhase III stations would, however, be visible only from Q2FY17 onwards

Eros International

During Q3FY16, Eros releases included Bajirao Mastani, Mukhtiar Chaddha (Punjabi),Mumbai Pune Mumbai 2 (Marathi), Pathemari (Malayalam), etc. With no major hitapart from Bajirao Mastani in Q3FY16, we expect a softer quarter vis-à-vis H1FY16,which had multiple blockbusters. Revenues are seen at ~| 359.8 crore (decline of26.7% YoY) in Q3FY16. Given the high budget of Bajirao Mastani and collections from third week flowing into Q4FY16, the profitability would be subdued. We expectEBITDA margins of 18.9% & PAT of | 43.6 crore

HT Media The Hindi segment is expected to post robust growth of ~18.5% YoY with majorgrowth coming in from UP and Bihar. The presence of the festival season withadditional three days of Navratri would offset the impact of Shraddh and aid adrevenues. The English segment is expected to show signs of revival with bothMumbai and Delhi seeing traction. We expect 5.0% YoY growth at | 334.6 crore.Circulation revenues may grow 5.3% YoY to | 77.2 crore. The radio segment wouldalso see traction with 18.0% YoY growth at | 30.4 crore owing to the full quarterimpact of the Chennai station in the quarter. The company should be able to manageits costs during the quarter and also benefit from higher operating leverage. Weexpect margins at 15.3%, up 110 bps YoY

Hathway Cable

Hathway is expected to seed ~155,000 boxes at the standalone level, leading toactivation revenue of | 9.5 crore, owing to Phase III digitisation sunset. Subscriptionrevenues are expected at ~| 110.2 crore, up 2.5% QoQ. Placements revenues areexpected to remain in line with the previous quarter with no major ramp-up in thequarter. Broadband revenues may grow 10.5% QoQ to | 79.4 crore with traction inDOCSIS 3.0 activations. Though the high margin activation revenues may double inthe quarter, it still remains small in absolute terms. Higher content costs areexpected to dent margins. EBITDA margins are seen at 11.9%, down ~60 bps QoQ

Inox Leisure H1FY16 has been the saviour for the multiplex space in FY16, making the festivequarter look softer on a relative basis despite double digit YoY growth. Inox isexpected to post 13% YoY increase in total footfalls to 13.3 million, albeit down 8.1%QoQ. Net ticketing revenues are expected to grow 18.4% YoY to | 193.7 crore aidedby a 3.2% YoY increase in ATPs to | 180.6. F&B revenues should grow 21.9% YoY to| 67.8 crore boosted by 6.9% YoY increase in spends per head to | 59.9. Advertisingrevenues are seen at | 32.0 crore (up 10.7% YoY). EBITDA margins are expected toexpand ~60 bps YoY to 18.2% owing to high operating leverage with PAT expectedat | 20.9 crore



Page 43

Exhibit 49: Company specific view Company RemarksJagran Prakashan

Jagran Prakashan is expected to post print ad revenue growth of ~11% YoY to |375.6 crore, aided by the festive season. Mid-Day however would be softer YoYowing to the high base as a result of the Maharashra elections in the base quarter.Radio City is expected to post strong ad revenue growth of 15.0% YoY to | 67.5crore. Circulation revenues are expected to remain steady with 3.0% growth YoY to| 103.0 crore. Newsprint costs are expected to grow 6.7% YoY as the festive seasonleads to higher newsprint consumption and also due to after-effects of rupeedepreciation. However, owing to the high margin generating radio business, we maywitness EBITDA margin expansion to 30.0%, up ~188 bps YoY

PVR Post stupendous box office performances in H1FY16, Q3FY16 looks relatively softdespite movies like Bajirao Mastani, Dilwale having a decent run-up. PVR isexpected to witness ~10% YoY growth in total footfalls to 17.6 million (6.5% QoQdecline). Net ticketing revenues are expected to grow 18.0% YoY to | 272.2 crore,boosted by 5.5% YoY growth in ATP to | 197.3. F&B revenues may also witnesshealthy growth of 16.6% YoY to | 115.2 crore, aided by 6.0% YoY growth in spendsper head (SPH). Advertising revenues are expected to show traction on account ofhuge expectations from movies in the quarter. We expect it to post 13% YoY growthto | 60.6 crore. PVR had distributed two movies through its PVR Pictures arm duringthe quarter, which may lead to higher other operating income. These moviedistribution revveneus are however low margin in nature & may dent overallmargins. We expect an EBITDA margin of ~16.2% (down 360 bps YoY) and PAT of| 21.8 crore, impacted by a higher tax rate

Sun TV Sun TV's ad growth would be subdued in the quarter with the impact of Chennaifloods and lower advertisement traction in the region. We expect Sun TV to post adrevenue growth of 7.2% YoY in the quarter. Furthermore, subscription revenuescould be flattish for the quarter at | 204.5 crore (up 2.9% YoY) as the progress indigitisation remains slow with some states obtaining stay order for extension inPhase III deadlines. Margins are expected to contract 110 bps YoY to 76.4% owingto increased spending on quality content and low operating leverage in the quarter

TV Today Network

TV Today is expected to post ~18.0% YoY growth in its broadcasting ad revenues to| 139.6 crore benefitting from higher ad yield consequent to its wide reach. Thepopularity of the TV channel (Aaj Tak) is evident from its No. 1 ranking in nine out ofthe last 11 weeks in the viewership share among top five channels in the Hindi newsgenre. Aaj Tak has also come on board Doordarshan's Freedish platform (outlay of |6 crore as per media sources) in a bid to increase its presence in rural areas, whichwould give it a premium with advertisers. Subscription revenues, therefore, mayreduce due to such an arrangement. With costs under control and higher operatingleverage with increase in ad yields, we expect EBITDA margins of 34.7% in thequarter, higher both QoQ & YoY.

Zee Entertainment

Zee is expected to post advertisement revenue growth of ~27.6% YoY to | 947.9crore, higher than the industry. The ad growth is aided by the festivities, newchannels viz. Zee Zindagi and & TV and traction in its regional portfolio. Subscriptionrevenues are expected to grow ~15.5% YoY to | 515.2 crore owing to some catch-up deals entered by the company on the domestic subscription front and rupeedepreciation leading to higher reveneus in rupee terms from internationalsubscription. The other operating revenues would also be higher at | 120 croreduring the quarter due to higher sports related syndication revenues (sportingevents such as Pakistan-England Series, Sri-Lanka - West Indies series etc). Inaddition, there were two productions - Jazbaa & Katyar Kaljat Ghusali (marathi)during the quarter and traction in the numbers of Zee Music company. Sports lossesare expected to be ~| 10.0 crore (due to absence of Ind-Pak series). EBITDAmargins are expected to contract to ~25.2%, down 70 bps YoY owing to highercontent investments in the festive quarter and contiued spending towards newchannels.



Page 44

Metals & Mining Rising imports continue to eat away incremental steel demand

On the ferrous metal front, for the first eight months of FY16, steel demand grew 5.3% to 52.2 million tonnes (MT). Growth in steel demand was primarily driven by higher imports even as domestic production declined 0.7% in the aforesaid period. Imports increased 34% to 7.4 MT while exports declined 31% YoY to 2.5 MT. In the world market, due to subdued demand & elevated supply levels (especially from China) global steel prices declined ~5-7% QoQ. While muted steel prices impacted realisations of steel companies, subdued prices of key raw materials (iron ore, coking coal) provided partial relief to ferrous players. Coking coal contracts for Q3FY16 was US$89/tonne (down 25.2% YoY and 4.3% QoQ). Average iron ore prices (China 62% Fe-CFR) were US$45.5/tonne (down 38.5% YoY, 17.7% QoQ). Going forward, any steps taken by the government to protect the domestic sector remains key monitorable.

Non ferrous metal prices remain muted both QoQ, YoY On the back of a slowing down Chinese growth engine during Q3FY16 most non ferrous metal prices witnessed both QoQ as well as YoY decline. During the quarter, the average price of zinc was US$1614/tonne, down 27.8% YoY and 12.6% QoQ. Average price of copper was US$4890/tonne, down 26.3% YoY and 7.3% QoQ. Average aluminium prices were US$1494/tonne, down 24.1% YoY and 6.3% QoQ while average lead prices during the quarter were at US$1682/tonne, down 15.9% YoY and 2.1% QoQ.

Aggregate EBITDA margins to decline QoQ, YoY For the quarter, we expect aggregate EBITDA margins to decline 400 bps QoQ, 1040 bps YoY to 8.7% (12.7% in Q2FY16, 19.1% in Q3FY15). We expect EBITDA/tonne of JSW Steel at | 4500/tonne, Tata Steel (Indian operations) at | 6750/tonne. Tata Steel Europe is expected report negative EBITDA/tonne of US$25/tonne while SAIL is expected to report a negative EBITDA/tonne of | 4500/tonne. We expect Novelis to clock EBITDA/tonne of US$200/tonne with NMDC expected to report an EBITDA/tonne of | 1150/tonne.

Exhibit 50: Estimates for Q3FY16E: Metals (| Crore)


Graphite India 323.9 3.1 1.7 48.5 16.4 4.6 26.3 28.9 -5.1HEG 229.8 -17.8 -4.3 42.4 -17.3 -20.7 4.6 -56.0 -68.6Hindalco 8,025.1 -6.7 -10.1 530.8 -42.5 -11.9 -89.6 PL PLHindustan Zinc 3,370.9 -12.5 -16.4 1,298.3 -37.9 -40.0 1,412.9 -40.6 -38.2JSW Steel 8,901.2 -32.7 -18.4 1,205.4 -47.5 -30.3 -351.0 PL PLNMDC 1,595.0 -45.9 -0.4 824.7 -57.7 -8.6 798.0 -49.9 -1.5SAIL 9,149.8 -17.0 -1.2 -1,285.8 PL NA -1,021.7 PL NAVedanta Ltd 14,613.8 -24.0 -11.8 2,903.2 -52.8 -27.4 -281.0 PL PLTata Steel 29,151.8 -13.3 -0.5 1,018.8 -66.9 -44.3 -977.6 PL NATotal 75,361.3 -19.0 -7.1 6,586.4 -63.0 -35.9 -479.1 PL PL


Change (%)

Source: Company, ICICIdirect.com Research, Hindalco numbers are of standalone entity

Top line & Profitability (Coverage universe) 93

088

9268

7

8298

0

8114

8

7536

1

70000

75000

80000

85000

90000

95000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

(%)


Movement of Copper & Aluminium on LME

4000

5000

6000

7000

8000

Mar

-13

Jun-

13Se

p-13

Dec-

13M

ar-1

4Ju

n-14

Sep-

14De

c-14

Mar

-15

Jun-

15Se

p-15

Dec-

15

US$/

tonn

e

800

1200

1600

2000

2400

US$/

tonn

e

Copper (LHS) Aluminium (RHS)

Movement of Zinc & Lead on LME

1200150018002100240027003000

Jun-

11

Dec-

11

Jun-

12

Dec-

12

Jun-

13

Dec-

13

Jun-

14

Dec-

14

Jun-

15

Dec-

15

(US$

/tonn

e)

Zinc Lead

Research Analyst Dewang Sanghavi [email protected]


Page 45


Company RemarksGraphite India We expect capacity utilisation of the graphite electrodes segment to come in at

~65% for Q3FY16 (~63% in Q2FY16, ~63% in Q3FY15). We expect topline toincrease 1.7% QoQ and 3.1% YoY while EBITDA margins are expected to increasemarginally by 40 bps QoQ to 15.0%

HEG We expect capacity utilisation of the graphite electrodes segment to come in at~60% for Q3FY16 (~60% in Q2FY16, ~68% in Q3FY15). We expect the topline todecline 4.3% QoQ and 17.8% YoY while EBITDA margins are expected to decline380 bps QoQ to 18.5%

Hindalco Industries

For Q3FY16, we expect domestic operations to report total aluminium metal salesvolume of ~275 KT (up 2.4% QoQ) and copper metal sales at ~98 KT (up 3.2%QoQ). On the back of subdued aluminium prices coupled with muted premiums,EBITDA margins are likely to decline 410 bps YoY to 6.6%. For Novelis, we expectrolled product sales at 781 KT with EBITDA/tonne at US$200/tonne.

HindustanZinc

We expect zinc sales for Q3FY16 at ~205000 tonne (up 6.6% YoY) with lead salesvolumes at ~33,000 tonne (up 11.0% YoY) and silver sales at ~108000 kg (up27.3% YoY). However, on account of muted zinc and lead prices, we expect thetopline to decline 12.5% YoY and 16.4% QoQ. EBITDA margins are also expectedto come in notably lower at 38.5% in Q3FY16 (54.2% in Q3FY15 and 53.7% inQ2FY16)

JSW Steel For Q3FY16, we expect JSW Steel to report subdued sales volume on account ofthe scheduled shutdown (partial) taken by the company for capacityenhancement. We expect steel sales volume at 2.7 MT for Q3FY16 (3.2 MT inQ2FY16 and 3.0 MT in Q3FY15). On the back of lower sales volume and mutedrealisations, we expect the topline to decline 32.7% YoY and 18.4% QoQ whileEBITDA margins are expected to decline 390 bps YoY and 240 bps QoQ to 13.5%.Subsequently, we expect a loss at the PAT level

NMDC For Q3FY16E, we expect sales volume of 7.2 MT (7.0 MT in Q3FY15 and 6.5 MT inQ2FY16). On account of muted realisations, we expect revenues to decline 45.9%YoY. EBITDA margins are expected to decline 460 bps QoQ and 1440 bps YoY to51.7%

SAIL We expect steel sales volumes for Q3FY16 to come in at 2.9 MT (2.9 MT inQ3FY15, 2.7 MT in Q2FY16). On the back of muted realisations, we expect thetopline to decline 17.6% YoY. EBITDA is expected to remain in the negative terrainon account of weak realisations and subdued sales volumes. Subsequently weexpect a loss at PAT level

Vedanta For Q3FY16, we expect Vedanta to report muted realisations due to lower priceson LME. Cairn India is also likely to report a muted performance on account ofsubdued crude oil prices. Subsequently, we expect EBITDA margins to decline1250 bps YoY and 430 bps QoQ to 19.9%. Subsequently, we expect a loss at PATlevel

Tata Steel For Q3FY16, we expect Tata Steel India to report steel sales of 2.35 MT (2.14 MTin Q3FY15 and 2.33 MT in Q2FY16) while Tata Steel Europe is expected to reportsteel sales of 3.1 MT (3.3 MT for Q3FY15 and Q2FY16). On account of subduedsteel prices, we expect the consolidated topline to decline 13.3% YoY whileEBITDA margins are expected to decline 560 bps YoY and 270 bps QoQ to 3.5%.Subsequently, we expect a loss at PAT level


Hindustan Zinc Sales Trend 19

3000

2230

00

1800

00

2170

00

2057

50

3006

3

3700

0

2900

0

4000

0

3330

0

8417580000

76000

112500108225

0

50000

100000

150000

200000

250000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

tonn

e

50000

60000

70000

80000

90000

100000

110000

120000

kg

Zinc (LHS) Lead (LHS) Silver (RHS)

Tata Steel :: EBITDTA/tonne & Sales

Sales Units Q3 Q4 Q1 Q2 Q3E

Tata Steel India MT 2.1 2.4 2.1 2.3 2.4

Tata Steel Europe MT 3.3 3.8 3.4 3.3 3.1

Tata Steel Group MT 6.3 6.9 6.3 6.3 6.2

EBITDA/tonne

Tata Steel India |/tonne 9295 6972 7880 7979 6750

Tata Steel Europe US$/ton 49 44 26 -11 -25

FY15 FY16

JSW Steel :: EBITDA/tonne & Sales

6988

5469

4838

4908

4500

3

3.1

3.1

3.2

2.7

0

1000

2000

3000

4000

5000

6000

7000

8000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

|/ to

nne

2.42.52.62.72.82.93.03.13.23.3

(MT)

EBITDA/tonne (LHS) Sales Volume (RHS)

SAIL:: EBITDA/tonne & Sales

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Q2FY

15

Q3FY

15

Q4FY

16

Q1FY

16

Q2FY

16E

|/ to

nne

0

0.5

1

1.5

2

2.5

3

3.5

(MT)

EBITDA/tonne (LHS) Sales Volume (RHS)


Page 46

Oil and gas Average Brent crude prices down 13.1% QoQ in Q3FY16

The resilience of US shale oil production, the potential increase of production from Iran post-lifting of economic sanctions and increase in crude oil production from Saudi Arabia, in particular, to defend its market share led to a sharp decline in crude oil prices in Q3FY16. Brent crude oil prices declined 13.1% QoQ to $43.6/bbl in Q3FY16. This would lead to a decline in realisations for upstream companies QoQ.

Gross under-recoveries in Q3FY16E at ~| 7633 crore Gross crude oil under-recoveries are estimated to increase 6.2% QoQ from | 7189.5 crore in Q2FY16 (including | 3953 crore cash subsidy under DBTL) to | 7632.9 crore in Q3FY16E (including | 4897.2 crore cash subsidy under DBTL) due to ~6% QoQ (in rupee terms) increase in LPG prices, despite falling crude prices. We estimate the government’s share of subsidy burden at 97.5% in Q3FY16E. We estimate upstream companies will bear lower subsidy burden during the quarter (| 190.9 crore) against | 680 crore in Q2FY16 while we have assumed that downstream companies will have nil under-recovery in Q3FY16E (| 30 lakh in Q3FY15). Net realisations of PSU upstream companies are expected to decline QoQ from ~US$49/bbl to ~US$43/bbl.

Gross refining margins increase QoQ Singapore gross refining margins (GRMs) increased 27% QoQ from $6.3/bbl in Q2FY16 to $8/bbl in Q3FY16. The increases in gas oil, LPG and naphtha cracks QoQ mainly led to an increase in GRMs QoQ. Higher GRMs would be advantageous for refiners. However, inventory losses on account of a decline in crude oil prices QoQ would partly offset the advantage.

Gas utilities volumes to improve QoQ The decline in gas production from the Reliance KG-D6 basin and other domestic fields have been arrested QoQ. We expect higher dependence on LNG from global markets to continue, with incremental demand arising mainly from the power sector. Hence, gas transportation companies are expected to report increased volumes QoQ. Costs of city gas distribution (CGD) companies are expected to decline QoQ due to lower domestic gas prices in the current quarter.

Exhibit 52: Estimates for Q3FY16E: (Oil and Gas) (| Crore)Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Aban Offshore 872.8 -13.0 -11.9 478.8 -18.1 -20.0 53.4 -58.6 -56.3Cairn India Ltd 2,087.6 -40.4 -6.9 695.8 -65.7 -23.6 212.0 -84.3 -68.5Gail India 14,524.5 -3.0 2.5 1,010.6 2.5 19.7 490.7 -18.8 11.4Gujarat Gas 1,582.8 164.5 0.7 201.8 89.3 37.5 57.6 -25.1 153.0Gulf Oil 232.3 -4.3 -6.6 35.7 12.1 -3.7 23.0 26.2 -2.5HPCL 37,653.9 -26.3 -10.5 1,096.0 LP LP 445.3 LP LPIOC 72,062.5 -32.7 -15.6 2,579.9 LP 271.3 693.6 LP LPIndraprastha Gas 950.7 0.7 -1.9 215.3 12.1 12.5 120.5 11.4 18.6MRPL 7,708.8 -47.6 -24.6 105.0 LP LP -126.7 NA NAOil India Limited 2,332.3 6.3 -7.9 835.1 28.1 -7.6 490.5 -1.6 -27.3ONGC 17,701.1 -6.5 -14.4 8,535.2 -11.1 -18.8 3,128.8 -12.4 -35.4Petronet LNG 7,508.5 -33.0 -0.5 443.7 30.2 -5.0 239.7 47.6 -3.7Total 165,217.8 -27.0 -12.4 16,233.1 59.1 13.3 5,828.6 250.9 4.3

Change (%)Company




6475

2009

08

2174

89

1886

21

1652

18

0

50000

100000

150000

200000

250000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.02.04.06.08.010.012.014.016.0

(%)


Singapore gross refining margins (GRMs)

8.0

6.3

8.68.0

6.3

0

2

4

6

8

10


Refin

ing

mar

gins

(US$

per

bbl

)

Average Brent Crude Oil Prices

76.4

53.9

62.2

50.2 43.6

20

40

60

80


US$

per b

bl

Top picks of sector

Indraprastha Gas MRPL

Research Analyst

Mayur Matani [email protected] Harshal Mehta [email protected]


Page 47


Company RemarksAban Offshore Revenues are expected to decline 11.9% QoQ in Q3FY16 as additional assets went out

of contract during the quarter and remained under marketing. The EBITDA margin isexpected to contract 560 bps QoQ at 54.9%. Subsequently, PAT is expected to decline56.3% QoQ in Q3FY16

Cairn India Revenues are expected to decline 40.4% YoY on account of ~43% decline in crude oilprices YoY. Rajasthan crude oil realisation is expected to decline to $39/bbl. On theoperational front, gross production from Rajasthan fields is expected to decline 2.2%YoY (inc 4.7% QoQ) to 1,76,001 boepd while net oil & gas production is also expectedto decline 2.2% YoY (inc 4.7 QoQ) to 1,23,201 boepd

Gail We expect a mixed performance on the profit front with gas trading, LPG liquidhydrocarbon reporting higher EBIT YoY while gas transmission & petchem EBIT areexpected to decline. While gas transmission volumes may increase 3.3% QoQ to 93mmscmd, its EBIT is expected to decline 32.4% QoQ due to one-offs in Q2FY16. Thepetchem segment is expected to report losses due to a decline on account of lower oilprices YoY, impacting realisations. Nil subsidy is expected in Q3FY16 vs. | 500 croreYoY

Gujarat Gas We expect revenues to remain flat QoQ as 3.3% QoQ volume growth (5.8 mmscmd)would be negated by a 2.6% decline in net realisation. Gross spread is expected toincrease from | 4.7/scm in Q2FY16 to | 5.4/scm in Q3FY16. The EBITDA margin isexpected to improve 342 bps QoQ to 12.7% in Q3FY16 (*numbers are not comparableon a yearly basis)

Gulf Oil Lubricants

We expect revenues to decline 4.3% YoY on account of 9.8% YoY reduction in netrealisation. However, volumes are expected to increase 6% YoY. The EBITDA margin isexpected to improve 289 bps YoY on account of lower base oil prices. Subsequently,PAT is expected to increase 26.2% YoY to | 23 crore in Q3FY16

Hindustan Petroleum

We expect revenues to decline 10.5% QoQ on account of lower crude oil prices.Refining margins may increase to $4/bbl vs. $2.7/bbl QoQ due to strong global refiningmargins, in spite of inventory losses. PAT is expected at | 658 crore against loss of |320.5 crore in Q2FY16. We assume nil subsidy in Q3FY16

Indian Oil We expect revenues to decline 15.6% QoQ due to lower crude oil prices. Refiningmargins are expected to increase to $3.1/bbl vs. $0.9/bbl QoQ due to strong globalrefining margins, in spite of inventory losses. PAT is expected at | 693.6 crore againstloss of | 329.2 crore in Q2FY16. We assume nil subsidy in Q3FY16

Indraprastha Gas

Revenue is expected to remain flat YoY as 5% YoY increase in volumes to ~4.1mmscmd (CNG: 3.1 mmscmd, PNG: 1 mmscmd) would be negated by a decline of3.8% YoY in net realisation. Higher gross margins YoY would lead to 11.4% YoYincrease in Q3FY16 PAT to | 120.5 crore

MRPL The GRM is expected to increase from $0.3/bbl in Q2FY16 to $2.6/bbl in Q3FY16 due tostrong global refining margins and lower inventory losses (-$4.3/bbl vs. -$5/bbl QoQ). The throughput is expected at 3.6 MMTPA. The company may report aloss of | 126.7 crore in Q3FY16 from a loss of | 909.5 crore in Q2FY16

Oil India We expect oil production to decline 5.5% YoY (including 1.5% QoQ) to 0.8 MMT withgas production increasing 4.7% YoY (inc 2.6% QoQ) at 0.7 MMT in Q3FY16. Netrealisation is expected at $42.9/bbl in Q3FY16 vs. $46.4 /bbl in Q2FY16 assumingsubsidy burden of | 24.8 crore ($0.6/bbl) vs. | 84.5 crore ($2.3/bbl) QoQ

ONGC We expect oil production to decline 1.7% YoY (decline 1.1% QoQ) at 6.5 MMT and gasproduction to decline 3.9% YoY (including 1.4% QoQ) at 5.8 MMT in Q3FY16. Netrealisation is expected at $42.9/bbl in Q3FY16 vs. $48.8/bbl in Q2FY16 assumingsubsidy burden of | 166 crore ($0.7/bbl) vs. | 595.5 crore ($2.4/bbl) QoQ

Petronet LNG We expect volumes to decline 4.5% QoQ to 149.5 trillion British thermal units (tbtu)(2.6 MMT) in Q3FY16 mainly due to lower regasification volumes. However, volumesmay increase 5.7% YoY as short-term/spot volumes would increase at the expense ofcontractual LNG volumes. Blended margins are expected to improve to | 38.4/mmbtuvs. | 37.4/mmbtu QoQ as we expect higher spot LNG margins


Gross under-recoveries of petroleum products

15981

8523 87447190 7633

0

7000

14000

21000


| Cr

ore

* Under-recoveries includes Cash Subsidy under DBTL

Sharing of crude oil under-recoveries (| Crore) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16

Upstream 10896 0 1300 680 191Downstream 0 0 2 2 0Government 5085 8523 7442 6507 7442Total 15981 8523 8744 7190 7633

Sharing of crude oil under-recoveries (%)

Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16Upstream 68.2 0.0 14.9 9.5 2.5Downstream 0.0 0.0 0.0 0.0 0.0Government 31.8 100.0 85.1 90.5 97.5Total 100.0 100.0 100.0 100.0 100.0

Sharing of net crude oil under-recoveries (| Crore) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16

ONGC 9458 0 1133 596 166OIL India 1438 0 167 85 25GAIL 0 0 0 0 0IOC 13 11 2 2 0HPCL -3 -4 0 0 0Government 5085 8523 7442 6507 7442

Gross under-recoveries of petroleum products

13851610

1399

756782

0

400

800

1200

1600

2000

FY11

FY12

FY13

FY14

FY15

| bn

Gross under-recoveries

Sharing of crude oil under-recoveries (%)

38.7 39.7 37.3 47.9 56.6

52.4 60.3 62.1 50.6 40.5

8.8 0.0 0.6 1.5 2.9

0

20

40

60

80

100

FY11

FY12

FY13

FY14

FY15

%

Upstream companies Government OMC's


Page 48

Power PLFs decline across sector due to onset of winter

The power sector added ~3,290 MW capacity in October-November FY16. YTD capacity addition was 14.4 GW while total installed capacity reached ~282.0 GW. Capacity addition during the quarter was led by the coal and renewable segment, which together added 2,565 MW capacity. In Q3FY16, industry PLF declined 233 bps YoY to 45% due to poor offtake by state discoms on account of their ailing financial health and also due to the onset of winter. The coal inventory position improved significantly in Q3FY16 with only one power stations facing sub-critical level in November 2015 vs. 50 plants YoY.

Lower offtake, demand leads to fall in merchant rates The merchant rate declined 7.6% QoQ to | 2.8/Kwh in Q3FY16 as demand softens during Q3 due to the onset of winter across the nation during the period leading to a fall in temperature. On a YoY basis as well, merchant rates declined drastically by 17.8%. A steep fall in merchant rates was also due to the higher base effect of the past year, which witnessed strong power demand due to election across a few states like Maharashtra, Jharkhand and Jammu & Kashmir, which had kept demand intact for short-term power.

All companies (barring PTC) likely to report strong earnings growth Our coverage universe is expected to post topline growth of 10.9% while the bottomline is expected to rise 22.2% YoY in Q3FY16 primarily due to a lower YoY base. CESC is likely to report 11.9% YoY revenue growth, driven by commissioning of the Haldia plant. PAT is expected to increase 10.0% YoY, which would be partially impacted by non-recovery of fixed assets in case of the Chandrapur plant, which is operating at lower PLF. For Power Grid, we expect capitalisation of ~| 12,000 crore driven by commissioning of phase-I of Biswanath Chariyali – Agra HVDC project. We expect the topline to grow 20.2% YoY while PAT is expected to grow 16.7% YoY to | 1433.8 crore during the quarter. PTC is expected to report a 10.6% rise in trading volume to 8.6 BUs driven by the commencement of new PPAs. Consequently, the topline is likely to increase 9.7% YoY. However, PAT is expected to decline 22.1% YoY due to higher YoY base, which was fuelled by higher rebate and surcharge income. NHPC is likely to report 22.6% YoY growth across generation and sales volume, coupled with 3.7% YoY rise in tariff rate. Consequently, revenue and PAT are likely to grow 13.0% and 5.4%, respectively, during the quarter. Tata Power’s revenue is likely to increase 6.2% YoY driven by high PLF across Mundra UMPP due fall in international coal prices. Consequently, the company is likely to report 6.2% YoY growth in revenue while PAT is likely to grow to | 122 crore vs. a loss of | 12.8 crore in Q3FY15.

Exhibit 54: Estimates for Q3FY16E: (Power) (| Crore)


CESC 1,383.7 11.9 -21.2 333.0 16.4 -21.3 121.0 10.0 -37.9NHPC 1,329.7 -3.9 -43.3 729.7 -9.2 -54.3 311.6 5.4 -73.6Power Grid Corp 5,233.6 27.5 6.4 4,693.5 29.8 6.0 1,433.8 26.2 -1.0PTC India Ltd 3,096.0 9.7 -12.1 45.3 -9.8 -44.5 30.5 -22.1 -54.4Tata Power 9,350.9 6.2 3.4 1,795.4 18.7 -8.5 122.0 LP -54.8Total 20,393.9 11.1 -5.5 7,596.8 21.2 -10.5 2,018.9 28.7 -36.1

Change (%)Change (%)Company

Change (%)



354

1817

2 2077

5

2158

4

2039

4

16000

17000

18000

19000

20000

21000

22000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.05.010.015.020.025.030.035.040.045.0

(%)


Trend in all India sectoral PLF Q3FY16

21

62

23

68

26

64

81

31

0

20

40

60

80

Coal Gas Nuclear Hydro

(%)

Q3FY16 Q3FY15

*Upto August 2015 Capacity addition target/achievement 12th Five Year Plan

99

386

0 0

155

(100)

300

700

1,100

1,500

Ther

mal

Hydr

o

Nuc

lear

Rene

wab

le

Tota

l

(MW

)

0

100

200

300

400

(%)

Target Achievement % Achieved (RHS)

Top pick of sector

CESC and Power Grid

Research Analyst

Chirag Shah [email protected] Anuj Upadhyay

[email protected]


Page 49

Exhibit 55: Company specific view Company RemarksNHPC We expect generation and sales units to increase ~22.6% YoY to 4.0 BUs and 3.5

BUs, respectively, in Q3FY16E. Tariff realisation is expected to increase 3.7% YoY to~| 3.8/Kwh. We expect the topline to increase 13.0% YoY to | 1,330 crore.However, PAT is expected to grow 5.4% YoY to | 311.6 crore due to non-operationof few projects, leading to under recovery of fixed cost

PTC India We expect trading volumes to increase 10.6% YoY to 8.6 BUs in Q3FY16E driven bycommissioning of new PPAs and a slightly improved short-term market.Consequently, sales are expected to increase 9.7% YoY to | 3,096 crore, HoweverPAT is expected to decline 22.1% YoY to | 30.6 crore due to a higher YoY base

Tata Power We expect revenues to increase 6.2% YoY in Q3FY16 driven by better generationacross Mundra UMPP, partially offset by lower realisation at the coal SPV. Weexpect flat coal sales of 21.0 MT in Q3FY16 vs. the same in Q3FY15. We expectPAT to increase to | 122.3 crore in Q3FY16 vs. loss of | 12.8 crore YoY

Power Grid We expect strong capitalisation of ~| 12,000 crore in Q3FY16E on a higher base of| 7,193 crore capitalised in Q3FY15. For FY16E, we expect capitalisation of ~|26,662 crore vs. | 22,460 crore in FY15. We expect sales and PAT growth of 20.2%YoY and 16.7% YoY, respectively, in Q3FY16

CESC We expect CESC to sell ~2.0 BUs in Q3FY16E (up 2.0% YoY) as demand is likely toremain soft due to the onset of winter. Tariff is, however, expected to increase8.3% YoY to | 6.9/Kwh. Accordingly, the topline is likely to increase 11.9% YoY. PATis expected to increase 10% YoY to | 121 crore driven by commissioning of theHaldia power plant



Page 50

Real Estate

Residential space to remain under pressure… Sentiments towards the residential real estate market continue to remain weak. According to the Ficci-Knight Frank Real Estate Sentiment Index for the July-September 2015 quarter, majority of the real estate developers and financial institutions believe the residential sector is not going to experience any upturn in sales and new launches in the coming six months. On the positive side, 62% of respondents in the survey are optimistic about the office market and expect lease volumes to improve, going ahead. On the regulatory front, the Union Cabinet recently approved some major amendments to the real estate regulatory bill. This includes registration of projects on 500 square metre of area or eight flats, deposit of at least 70% of sale proceeds including land cost in an escrow account and clear definition of carpet area to include usable spaces like kitchen and toilets to make it clear. Going ahead, the real estate regulatory bill seeks to protect home buyers as well as help investments in the real estate industry grow. This will ensure accountability and transparency in the real estate sector.

Volume to see traction on back of new launches… With the launch of projects in new geographies, we expect our coverage universe to post sales volume growth of 11.6% YoY to 2.18 million square feet (mn sq ft) in Q3FY16 vs. 1.33 mn sq ft in Q3FY15. With the launch of SkyCity project in Borivali, we anticipate Oberoi’s sales volumes will zoom 12.5x to 1.02 mn sq ft. However, we expect Mahindra Lifespace’s sales volume to de-grow 38.2% YoY to 3.64 lakh sq ft on the back of subdued demand. Furthermore, Sobha’s sales volume grew 19.2% YoY to 0.81 mn sq ft.

Coverage universe revenue to grow 10.1%; PAT to grow at 64.1%... We expect our real estate universe revenues to grow 10.1% YoY to | 1082.2 crore mainly on account of 122.0% YoY growth in revenues of Oberoi Realty as Oberoi Esquire is expected to reach the revenue recognition threshold in Q3FY16. Consequently, we expect our universe to report a booming 64.1% YoY bottomline growth mainly due to a 129.1% YoY growth in net income of Oberoi Realty.

Exhibit 56: Estimates for Q3FY16E (Real Estate) (| crore) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

Oberoi Realty 481.8 122.0 154.7 277.7 119.4 154.7 181.5 129.1 150.6Mahindra Lifespace 152.7 82.5 25.2 10.4 LP -49.4 24.4 124.8 -27.1Sobha Dev. 447.6 -34.4 -0.6 115.6 -24.1 0.2 40.4 -32.7 0.7Total 1,082.2 10.1 42.1 403.6 47.7 64.9 246.3 64.1 68.7




3

981

775

762 10

82

0

200

400

600

800

1000

1200

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.05.010.015.020.025.030.035.040.0

(%)


Sales Volume Trend (Coverage Universe)

5.9

4.4

2.6 3.

3 3.65

0.8

7.5

0.7

0.5

10.1

5

6.6

10.3

8.4

8.5

8.06

0.0

2.0

4.0

6.0

8.0

10.0

12.0


(lakh

sq

ft)

Mahindra Oberoi Sobha


Oberoi Realty, Mahindra Lifespace

Research Analyst

Deepak Purswani, CFA [email protected] Vaibhav Shah [email protected]


Page 51

Exhibit 57: Company specific view (Real Estate coverage universe) Company RemarksOberoi Realty With the launch of the Borivali project, we anticipate sales volume will zoom

12.5x to 1.0 mn sq ft in Q3FY16. In terms of financials, we expect revenues togrow 122% YoY to | 481.8 crore as Oberoi Esquire is expected to reach therevenue recognition threshold in Q3FY16. Consequently, we anticipatebottomline will grow 129.1% YoY to | 181.5 crore

Sobha Ltd With no new launch and slowdown in Chennai sales due to recent flood, Sobhareported 5.2% decline in sales volume sequentially to 8.06 lakh sq ft.Consequently, we expect revenues and net profit to decline 34.4% YoY and32.7% YoY to | 447.6 crore & | 40.4 crore, respectively

Mahindra Lifespace MLD pre-launched Vivante project in Andheri and formal launch is expected inJanuary, 2016. Overall, we anticipate sales volume will de-grow 38.2% YoY to3.65 lakh sq ft due to the subdued demand environment. However, we expectstandalone revenues to grow 82.5% YoY to | 152.7 crore due to low base effectand better execution across projects. The net profit is expected to grow 124.8%YoY to | 24.4 crore


Major news during Q3FY16

Mahindra Lifespace

The Commerce Ministry has renewed its demand thatdevelopers of special economic zones (SEZs), as well as theunits in these enclaves, be given exemption from minimumalternate tax (MAT) and dividend distribution tax (DDT). If it isimplemented, it will not only improve Mahindra Lifespace'scash flow position due to lower tax rate but would alsoimprove the demand absorption in the Jaipur SEZ

Oberoi Realty

Oberoi Realty launched its multi-tower project Sky City atBorivali spread across 25 acres consisting of multiple towersof up to 60 storeys each. The company plans to launch the firstphase of this development consisting of three towers, whichwill comprise expansive three bedrooms in variousconfigurations

Real estate sector

The Reserve Bank of India (RBI)'s move to reduce the riskweight on loans for low-cost homes is expected to boost salesof such houses. RBI's proposal is expected to increase lendingin the segment due to lower capital required to be set aside forsuch loans and also lower lending rates for borrowers

The Union Cabinet has approved 20 major amendments to thereal estate regulatory bill. Some major amendments includeregistration of projects on 500 sq mt of area or eight flats,deposition of at least 70% of sale proceeds including land costin an escrow account and carpet area has now been clearlydefined to include usable spaces like kitchen and toilets tomake it clear

The government of Maharashtra has asked municipalcorporations in the state to work on cutting the number ofapprovals needed for a project in the realty sector to about 70,from the present level of 200. Civic bodies have also beenasked to consider a reduction in the number of days forproviding all clearances to no more than a month


Page 52

Retail Festive season to boost revenue growth...

We expect our retail coverage universe companies to report topline growth of 9% YoY with revenues of Shoppers Stop increasing 11.6% YoY. We expect Shoppers Stop (SS) to report SSSG of 14% and 5% in the departmental and HyperCity segment, respectively. Titan Company is likely to witness 8.2% revenue growth due to 9% YoY increase in jewellery due to strong Diwali and Dussehra sales. Bata India is expected to register 10% YoY growth in revenue owing to festive demand.

Operating margin to remain subdued We expect the EBITDA margin of Shoppers Stop to decline 50 bps YoY to 5.5% on account of the likely loss in HyperCity at the operating profit level. Titan and Bata’s EBITDA margin are expected to decline YoY. Titan’s EBITDA margin is expected to decline marginally by 40 bps to 9.1% owing to lowering of making charges on gold jewellery and higher proportion of discounted sales in the watches and eyewear segment. Bata India is expected to register a decline of 80 bps YoY to 11.2% due to higher rental and employee expenses owing to aggressive store expansion.

Space addition to gain momentum in Q3FY16 for festive season We expect SS to add 0.07 million square feet (mn sq ft) (YoY) taking the total operational space to 5.83 mn sq ft. During the quarter, Shoppers Stop opened two new department stores, which resulted in 76 stores under operation. During the quarter, Titan Company added seven Tanishq stores (net), taking the total number of Tanishq stores to 187 with total retail space of ~7.75 lakh sq ft. For the watches segment, Titan launched the Raga Moonlight collection of occasion wear watches. Overall, the watches segment saw muted growth for the quarter despite the festive season. Total 11 World of Titan stores and four fast track stores were added in Q3FY16 taking their total to 446 and 151, respectively.

Exhibit 58: Estimates for Q3FY16E (Retail) (| Crore)


Bata India 590.7 10.0 2.7 62.5 1.8 27.4 36.6 4.8 -32.3Shopper Stop 1,309.4 11.6 1.8 71.6 1.2 27.3 18.2 29.3 138.0Titan Company 3,135.2 8.2 18.1 285.9 3.6 41.0 198.7 4.2 36.7Total 5,035.3 9.3 11.5 420.0 3.0 36.3 253.5 5.7 22.4




4608

4144

4450

4516 50

35

0

1000

2000

3000

4000

5000

6000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0.01.02.03.04.05.06.07.08.09.010.0

(%)


Space addition (QoQ)

(0.01)

0.10

0.30

(0.03)

0.090.15 0.10

-0.05

0.06

-0.10

0.00

0.10

0.20

0.30

0.40

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

Shoppers Stop

Revenue per sq ft

23331906

1,9891,754

2,1941,985

2176

1858

-

500

1,000

1,500

2,000

2,500

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

Shoppers Stop

Research Analyst

Bharat Chhoda [email protected] Nirav Savai [email protected]


Page 53

Exhibit 59: Company specific view (Retail) Company RemarksBata India Revenues are likely to increase 10% YoY to | 590.7 crore on the back of festive demand.

We expect the operating margin to decline 80 bps to 10.6% due to higher rental andemployee expenses as the company is shifting some stores from the small format tolarge format stores. Consequently, PAT is expected to register growth of 4.8% YoY to |36.6 crore

Shoppers Stop

Improvement in SSSG of departmental stores to 14% due to good festive sales and 5%SSSG in the HyperCity format is likely to drive revenue growth of 11.6% YoY to | 1309.4crore. The operating margin is expected to decline 50 bps in Q3FY16E at 5.5%, mainly onaccount of loss at the EBITDA level in HyperCity. Consequently, the company is expectedto report a PAT of | 18 crore

Titan Company

Revenues are likely to grow 8.2% YoY to | 3135.2 crore due to 9% YoY increase injewellery revenues due to strong sales in Dussehra and Diwali. The EBITDA margin isexpected to decline 40 bps to 9.1% due to the aggressive promotion and higherproportion of discounted sales in the watch and eyewear segment and reduced makingcharges in the jewellery segment. We expect EBITDA to increase 3.6% YoY leading toPAT growth of 4.2% YoY to | 198.7 crore



Page 54

Shipping, Offshore, Shipbuilding Dry bulk - Worst year, Tankers - Best year milestone under way!!!

So far, the current year (2015) is considered to be the worst year on record for the dry bulk shipping industry. The Baltic Dry Index (BDI) continued to weaken and has entered a 30-year low territory of 498 levels. Post increasing in Q2FY16 to an average of 977, the two month (October-November) average BDI was 689. In contrast, tankers had a dream run in CY15 with more than double daily rates for each asset class. On the other hand, quarterly average of Baltic Dirty tanker Index (BDTI) was at 842 in Q3FY16 compared to 805 in Q3FY15, implying growth of 5% YoY. Conversely, average Baltic Clean Tanker Index (BCTI) de-grew 27% YoY to 513 compared to an average of 709 in the same period of the previous year. The divergence in tanker rates reflects higher demand for crude tankers on the back of strategic reserves built up by various countries.

Revenue to remain subdued; bunker costs tailwind to profitability Continued sluggish Exim & domestic trade volumes and paralysed trade activities in China would continue to moderate the topline of I-direct shipping companies. The fleet composition of SCI and Great Eastern Shipping in favour of tankers would continue to provide resistance to softness in dry bulk rates. Additionally, lower bunker costs may keep EBITDA growth and margins at elevated levels. Revenues for the I-direct shipping (excluding Pipavav Defence) are expected to grow 8% YoY to | 2055 crore. EBITDA (excluding Pipavav Defence) growth momentum for the shipping universe may be maintained with more than 50% YoY growth rate, which is expected at | 851 crore. PAT is expected at | 448 crore. We believe a change in management of Pipavav Defence would improve growth prospects. However, financials would take some time to ramp up. Hence, we expect Pipavav Defence to maintain its currently quarterly run rate of | 55 crore. With lower execution, expenses are expected to be contained, which may help Pipavav Defence post a positive EBITDA of | 3.6 crore. Higher interest expense and depreciation would adversely impact PAT, which is expected at a loss of | 149 crore.

Exhibit 60: Estimates for Q3FY16E: (Shipping) Revenue EBITDA PATQ3FY16E YoY QoQ Q3FY16E YoY QoQ Q3FY16E YoY QoQ

GE Shipping 980.7 11.7 -5.1 529.6 55.6 -10.0 293.7 61.7 -23.2Pipavav Defence 96.8 -61.6 0.0 -4.0 PL NA -127.7 NA NASCI 1,073.9 4.7 -1.0 322.2 73.8 3.0 154.4 392.6 -4.2Total 2,151.4 -0.2 -2.9 847.7 48.8 -5.5 320.4 124.3 -23

Change (%)Company



Exhibit 61: Company specific view GE Shipping Following the continued positivity in tanker markets, revenues are expected to

grow 12% YoY to | 980 crore. EBITDA is expected to increase 55% to | 530 crorewith EBITDA margin of 54%. Excluding extraordinary profit/loss from sale ofship/asset, PAT is expected at | 294 crore

SCI As positive momentum in tanker rates continue, we expect revenues to grow 5%YoY to | 1074 crore. Lower bunker costs may keep EBITDA margins elevated,which are expected at 30% levels. PAT before extraordinary profit/loss is expectedat | 154 crore

Pipavav Defence & Offshore Engineering

The strategies charted by new management at the helm would take some time toscale up revenues for the company. Revenue is expected at | 58 crore. We expecta positive EBITDA of | 4 crore. Higher interest expense and depreciation chargesmay impact PAT, which is expected at a loss of | 149 crore



2156

1977

2110 22

15

2151

185019001950200020502100215022002250

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

-5.00.05.010.015.020.025.030.035.040.045.0

(%)


Dry Bulk Indices

0

1000

2000

3000

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Inde

x

BDI BPI

Source : Bloomberg, ICICIdirect.com Research Tanker Indices

200

600

1000

1400

Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Inde

x

Baltic clean tanker index Baltic dirty tanker index

Source : Bloomberg, ICICIdirect.com Research

Research Analyst

Bharat Chhoda [email protected]

Ankit Panchmatia [email protected]


Page 55

Telecom

Subscriber additions gain pace in first two months of quarter The telecom sector saw net additions of ~16.0 million subscribers in the first two months of the quarter. Airtel and Idea commanded a 34.8% and 25.6% market share in net additions, adding 5.5 and 4.0 million subscribers, respectively. We expect Airtel and Idea to end the quarter with 243.4 and 172.7 million subscribers, up 3.5% and 3.7% QoQ, respectively. Healthy growth in subscriber addition indicates price related incentives on part of telcos to attract subscribers. Moreover, with promotional offers in data, there could be some up-trading of subscribers vs. fresh additions.

Voice ARPMs to post decline, voice volumes to grow 4.9% QoQ Robust subscriber addition and voice ARPM decline should boost voice volumes. We expect 4.0% and 5.8% QoQ increase in total voice minutes to 293 and 201 billion for Airtel and Idea, respectively. The same will be boosted by the 1.5% QoQ decline expected in voice ARPM to 34.06 and 31.9 paisa for Airtel and Idea, respectively. Volume growth is higher for Idea, owing to the subscriber mix having higher price elasticity. Till now, we have not seen any major voice cannibalisation towards data. Voice revenues would increase 2.4% and 4.2% QoQ to | 9994.4 crore and | 6421.3 crore for Airtel and Idea, respectively.

Data continues to remain robust… Airtel & Idea are expected to post 11.9% & 13.5% QoQ growth to 128.6 & 81.7 billion MB, respectively, stemming from higher data penetration. Data revenue growth would, however, be in the ~10% range owing to the arrest in data tariff due to intense competition. We expect Airtel and Idea to post data revenues of | 3199.4 crore and | 1843.7 crore, respectively. Data as a proportion of revenues has been continuously increasing from 13-16% in Q3FY15 to 21-22% in Q3FY16. Telcos continue to spend heavily on data awareness advertisements to push data usage further.

4G - talk of the town, telcos step on the gas on capex front… 4G remains the talk of the town with Airtel having already launched 4G services in ~354 cities and enjoying first mover advantage. Airtel has also lined up a capex plan to spend ~| 60,000 crore to upgrade the network under the network transformation programme titled ‘Project Leap’. Idea launched 4G services in some of the southern states in Q3FY16. It has also inked a spectrum trading pact to buy 10 MHz in the 1800 MHz band from Videocon for | 3310 crore in the UP (West) and Bihar circles, to expand its 4G offering. The much awaited Reliance Jio also hit the headlines in the quarter with its big bang employee launch. The commercial launch is slated for the fag end of the coming quarter, post which the industry could see some structural changes in the data market. In this highly competitive data game, the telecom sector would continue to witness huge capex outlay by telcos in a bid to upgrade their networks so as to stay ahead in their service offerings. In such a scenario of declining prices, high volumes would be the sole profitability lever.

Margins to remain flat to positive for the telcos... Though there would be higher spends towards 3G/4G rollout, decline in the diesel prices would bring in some network costs benefit. In addition, robust data growth will lead to operating leverage with Airtel & Idea expected to post margins at 34.8% (up 30 bps QoQ) & 35.5% (up 20 bps QoQ) respectively. Bharti Infratel is expected to see an expansion in energy margins owing to this diesel price decline and post margins of 44.5%, up 160 bps QoQ.


3910

9

3922

5

4070

1

4073

3

4185

5

05000

1000015000200002500030000350004000045000

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16E

| Cr

ore

0510152025303540

(%)


MOU trend

388

400408

386396

416 418424

404409

350

370

390

410

430


Min

utes

Airtel Idea

Voice ARPM Trend

37.736.2

34.9 34.6 34.1

35.7

33.932.7 32.4 31.930

33

36

39


Voic

e AR

PM (i

n Pa

isa)

Airtel Idea

Top Pick of sector Bharti Airtel Bharti Infratel Research Analysts

Bhupendra Tiwary [email protected]

Sneha Agarwal sneha. [email protected]


Page 56

Exhibit 1: Estimates for Q3FY16E (Telecom) (| Crore)


Bharti Airtel 24,633.2 6.0 3.3 8,575.4 10.1 3.9 1,297.1 -9.7 -14.8Bharti Infratel 3,053.1 3.5 0.5 1,357.1 6.6 4.3 554.8 9.5 -4.2Idea Cellular 9,140.3 14.0 5.2 3,247.3 18.0 6.2 839.9 9.5 3.8Tata Comm 5,028.4 2.3 -2.4 813.2 1.5 2.1 41.3 -62.0 585.6Total 41,855.0 7.0 2.8 13,993.0 10.9 4.4 2,733.0 -3.0 -6.3



Exhibit 2: Company specific view (Telecom) Company RemarksBharti Airtel Subscriber additions were robust in the first two months of the quarter. Airtel

added 5.5 million subscribers. We expect it to add ~8.2 million subscribers inQ3FY16E, ending the quarter with 243.4 million subscribers, up 3.5% QoQ. Robustsubscriber addition hints towards a price reduction strategy undertaken by thecompany. Hence, we expect voice ARPM to decline 1.5% QoQ to 34.06 paisa,aiding voice minutes by 4.0% QoQ to 293 billion minutes. Data would continue tolead growth with data subscribers growing to ~53.7 million, with 11.9% QoQincrease in data volume to 128.6 billion MB. However, competition in the dataspace is heating up. This is expected to lead to a reduction in data tariffs. Weexpect a 10.6% QoQ increase in data revenues to | 3199.4 crore. Despite higherdata roll-outs and hence network costs, benefits from lower diesel prices andhigher data volume, the Indian operation is expected to post EBITDA margins of39.3%, up 40 bps QoQ. The African business is expected to post 3.0% growth inrevenues with margins expected at ~20.2%.

Bharti Infratel As telcos are aggressively expanding their data footprint, we expect robustness intenancy additions. However, with exposure to RCom (failure to renew spectrum infive circles) and Videocon (selling spectrum and, hence, wound up some of thetenancy agreements with Indus), the net tenancy additions would remain flattish.We expect the tenancy ratio at 2.16 level (up 0.4% QoQ). With the continuousdecline in diesel prices, we expect the energy revenues to decline to | 1092.4crore, down 2.0% QoQ. The company also receives added benefits in its energycontracts, which would aid energy margins to 4.5% during the quarter. Traction intenancies and expansion in energy margins would be EBITDA accretive, with thecompany clocking 44.5% margins, up 160 bps QoQ. The company had paiddividend of | 1480 crore which has resulted in reduced cash balance. The same islikely to affect its other income, thereby impacting PAT. We expect a PAT of |554.8 crore for the quarter

Idea Cellular We expect Idea to add ~6.1 million subscribers in Q3FY16 (it added ~4.0 millionsubscribers in the first two months of the quarter) and end the quarter with 172.7million subscribers, up 3.7% QoQ. Robust subscriber addition in the first twomonths hints at price incentives to attract subscribers. We,expect a 1.5% QoQdecline in voice ARPM's to 31.9 paisa, hence boosting voice minutes by 5.8% QoQto 201 billion minutes. Data subscribers are expected to grow to 45.4 million,resulting in overall data revenue growth of 10% QoQ to | 1843.7 crore. This wouldhave been higher but for the reduction in data tariffs owing to stiff competition inthe segment. EBITDA margins are expected at ~35.5%, up 35 bps despite highernetwork investments for 3G/4G BTS owing to savings with declining trend indiesel prices and data volumes.



Page 57

Exhibit 3: Company specific view (Telecom) Company RemarksTata Communication

The voice business would continue to decline, affected by low volumes owing tothe holiday season globally. We expect voice volumes of 10.2 billion minutes,down 12.6% YoY, leading to a similar voice revenue decline to | 1833.2 crore. Thedata segment continues to be the growth driver. New launches have been gainingtraction while the managed services business continues to do well. We expect thedata segment to post revenues of | 2725.6 crore, up 18% YoY. Data margins areexpected to inch upwards by 70 bps to 19.7% QoQ. However, volatility in the taxstructure and currency headwinds may lead to increased depreciation and taxexpense, which may be a risk to our PAT estimates



Page 58

Others Exhibit 4: Estimates for Q3FY16E (others) (| Crore)


Century Plyboards 416.7 9.1 -5.1 70.1 -3.9 -5.0 42.9 3.5 -7.3Cox & Kings 522.8 12.2 -21.8 178.4 17.1 -44.7 48.4 LP -62.5CARE 69.4 11.1 -16.3 42.5 10.6 -25.8 29.9 14.0 -29.7InfoEdge 175.0 20.1 0.5 40.0 10.1 19.9 39.0 0.9 14.9Jet Airways 5,837.0 7.4 5.8 623.7 265.0 23.1 247.6 8,153.3 617.7Jindal SAW 1,350.5 -24.0 0.4 189.2 -20.7 0.2 57.2 -7.6 -43.5Kajaria Ceramics 620.8 12.1 2.2 107.4 26.2 -7.8 53.1 16.4 -8.2Mah. Seamless 258.4 -26.1 -2.1 2.5 -93.1 -8.8 4.5 -87.2 4.0Mcleod Russel 491.2 3.8 -2.2 100.2 -6.3 -58.1 89.6 11.5 -58.6Navneet Publications 155.3 15.6 32.3 27.8 16.2 137.1 13.9 17.8 32.7Rallis India 354.1 -9.1 -29.4 42.1 -16.7 -56.5 17.9 -29.9 -68.8Sintex Industries 2,101.9 15.1 17.0 343.3 11.9 18.8 130.0 -19.8 31.7Solar Industries 380.1 18.8 13.5 70.5 17.5 5.5 39.8 12.5 12.4Somany Ceramics 450.6 21.4 11.7 29.4 43.0 14.9 16.4 48.5 13.2Swaraj Engines 137.4 34.7 -10.3 19.9 67.2 -12.3 13.8 65.3 -11.3TTK Prestige 435.6 13.5 3.5 54.9 20.6 4.3 34.7 23.5 1.8Talwalkars 56.8 20.0 -40.6 23.8 19.9 -47.7 5.8 28.2 -74.1United Spirits 2,230.0 -3.8 3.9 314.1 34.8 -1.1 143.8 82.4 -84.5United Breweries 1,140.0 14.0 0.7 141.1 16.2 -6.0 50.0 25.2 3.8VST Tillers & Tractors 143.9 34.8 -4.7 24.5 32.9 -1.8 15.8 31.0 -1.8Wonderla Holidays 55.9 18.0 29.2 25.2 20.8 71.5 18.3 43.6 53.4Total 16,966.6 4.0 3.1 2,400.3 33.6 -7.2 1,069.4 51.2 -44.1




Page 59

Exhibit 5: Company specific view (Others) Century Plyboard

We expect Century Plyboard to post 9.1% YoY revenue growth to | 416.7 crore onaccount of moderate growth of 7.0% in plywood and allied division to | 300.6 croreas sluggishness in demand continues. The EBITDA margin is expected to decline220 bps at 16.7% in the absence of low cost of inventory. On the bottomline front,we expect it to grow 3.5% YoY to | 42.9 crore in Q3FY16

Cox & Kings Consolidated revenue growth is expected to come in mainly from the leisuresegment during the quarter. Standalone India revenue is expected to grow ~12%YoY due to a pick-up in demand. The leisure international business may grow 14%YoY. The education division is also expected to report revenue growth of 11% YoYwhile Meininger revenue may grow 10% YoY to | 89.1 crore led by capacityexpansion. Expect net profit of | 48.4 crore (excluding forex adjustments) vs. loss of| 55.8 crore reported last year on account of forex loss

Info Edge We expect revenues to grow 20% YoY and 0.5% QoQ to | 175 crore led bycontinued momentum in Naukri business while 99acres growth could moderate onYoY basis. EBITDA margins could improve 370 bps QoQ to 22.9% led by lowermarketing spends and growth in higher margin Naukri business. Investor interest:growth/margin trends across businesses, competitive

Maharashtra Seamless

We expect sales volume of the pipes segment for Q3FY16 at 54063 tonnes (down6.0% YoY, 2.4% QoQ) wherein seamless pipes sales volumes are expected at 37813tonnes (down 1.8% QoQ, 14.4% YoY) while that of ERW is likely to be 16250 tonnes(down 3.8% QoQ but up 21.7% YoY). Due to muted realisations, we expect thetopline to decline 26.1% YoY and EBITDA margins to decline 920 bps YoY to 1.0%

Jindal SAW For the quarter, we expect the pipes segment to report sales volume at ~200000tonnes (~215600 tonnes in Q3FY15 and ~199000 tonnes in Q2FY16). We expectthe topline to increase marginally by 0.4% QoQ while EBITDA margins are likely toremain flat QoQ at 14.0%

Jet Airways Total passenger traffic may witness robust growth of 21.2% YoY due toimprovement in domestic demand coupled with improved connectivity in theoverseas segment. Further lower capacity in the industry would help the companyto maintain the market share of over 21%. However, adjusting for lower realisations,we expect the company to report revenue growth of 7.4% YoY during the quarter.Lower ATF prices (down 31% YoY, 6.9% QoQ) may aid in healthy margin expansionduring the quarter

Kajaria Ceramics

With the initiation of investigation for anti-dumping in October 2015, we believeimports may reduce in Q3FY16 with sales volumes expected to grow 12.8% YoY to16.5 MSM. Consequently, we expect the topline to grow 12.1% YoY to | 620.8crore. We expect the EBITDA margin to expand 190 bps YoY to 17.3% due to fallingnatural gas prices. In our view, full benefit of falling natural gas prices from RasGasPetronet deal should be visible in H1CY16. Overall, the bottom line is expected togrow 16.4% YoY to | 53.1 crore due to better margin show

Navneet Education

We expect revenues to grow 15.6% YoY to | 155.2 crore led by 8.5% & 28.8% YoYgrowth in the publication & stationery segment, respectively. We expect a marginalimprovement of 9 bps in EBITDA margin to 17.9% owing to higher proportion ofexports in the stationery revenues. EBITDA is expected to grow 16% YoY, whichwould lead to YoY PAT growth of 18% to | 13.9 crore

Rallis India For Rallis India, Q3 is a seasonally weak quarter. Hence, the performance is notcomparable QoQ. For Q3FY16, in the agro-chemical segment, we expect sales to de-grow 10% YoY to | 315 crore. On the Metahelix front, we expect Metahelix to report5% YoY growth in sales to | 36 crore. At the consolidated level, we expect sales tode-grow 9% YoY to | 351 crore while EBITDA margins are expected at 11.9% down110 bps YoY. Consequent EBITDA and PAT is expected at | 42 crore and | 18 crore,respectively



Page 60

Exhibit 6: Company specific view (Others) Somany Ceramics

We expect sales volumes to grow 13.7% YoY to 11.6 MSM due to higher capacityutilisation. On the financial front, we expect Somany to report robust growth of21.4% YoY in its topline to | 450.6 crore. We expect EBITDA margin expansion of 80bps YoY to 6.3% in Q3FY16 on account of falling gas prices. Consequently, weexpect its bottomline to grow 48.5% YoY to | 16.4 crore

Wonderla Holidays

Wonderla revenues are expected to be positively benefited due to higher festivals inthe current quarter vs. the previous quarter. The company is expected to report18.0% YoY increase in revenues led by 26.9% YoY increase in revenues from theKochi park and 12.3% YoY increase in revenues from the Bengaluru park. We expectrevenues to improve at both parks due to improvement in pricing. The EBITDAmargin is expected to improve 104 bps YoY to 45.2% led by operating leveragebenefit

Swaraj Engines Swaraj Engines is expected to report a robust quarterly performance in Q3FY16Eprimarily on the back of a lower base in Q3FY15 and good traction being witnessedin the sales of tractors domestically (Swaraj brand). Sales volume is expected toincrease 38% YoY to 16771 units in Q3FY16 with consequent sales at | 133.7 crore.Margins are also expected to improve to 14.5% vs. 11.7% in Q3FY15. PAT for thequarter is expected at | 13.8 crore, up 66% YoY

Talwalkars Better Value Fitness

Revenue growth may moderate to ~20% YoY (vs. 28.5% last year) mainly due tolower gym additions coupled with higher base of last year. Operating margins mayremain healthy at 42% due to healthy same store sales growth

McLeod Russel We expect the company to witness 3.8% revenue growth as the recovery in teavolumes has not been up to expectations after the significant crop loss suffered bythe company in FY15. We estimate average realisation of | 181 per kg with teavolume of 27.2 million kg (mkg). Domestic volume sales are expected at 19.6 mkgwith average realisation of | 169 per kg and exports volumes at 7.6 mkg withaverage realisation of | 210 per kg

TTK Prestige Revenues are expected to increase 13.5% YoY to | 435.5 crore due to lower base inQ3FY15 (which was on account of early festive season last year). We expectcookers, cookware and appliances segment to grow 8%, 18% and 14% YoY,respectively. The EBITDA margin is expected to improve 70 bps to 12.6% while PATis likely to grow by 23.5% YoY to | 34.66 crore

United Spirits Festive sales would result in pent up demand for alcohol. Net revenue is expected togrow 2% YoY to | 2230 crore on continued growth momentum in its prestige andabove segment. The EBITDA margin is expected to improve 340 bps to 14.3%,mainly benefiting from lower RM prices. Better operational performance andexpected higher other income due to interest income from cash received from saleof UBL shares in the earlier quarter is expected to result in higher PAT growth,which is expected at | 143.7 crore

United Breweries

With the festive season and price hike in certain states, revenues are expected togrow 14% YoY to | 1140 crore. On the back of lower RM prices, we expect EBITDAto grow higher than sales. EBITDA is expected to grow 16% YoY to | 141 crore withmargins of 12.3%. Following the operational performance, we expect PAT at | 50crore



Page 61

Exhibit 7: Company specific view (Others) CARE On a YoY basis, traction in rating revenue is expected at 11.1% to | 69.4 crore which

is on the lower side compared to traction witnessed in earlier years during Q3. Thisis due to continuous slowdown in bank loans and SME rating segment. Unlike Q2,surveillance fee income is not that strong in Q3. EBITDA margin of 61.3% isexpected while PAT of | 29.9 crore is factored in (up 14% YoY, down 21%YoY).Other income may continue to stay muted

Solar Industries Revenues are likely to increase 19% YoY to | 380.1 crore due to strong volumegrowth, upwards of 20% across all segments. EBIDTA margins are likely to remainstable at 18.5% due to stable realisations across categories. Export growth is alsoexpected to remain strong. The overseas business is likely to revive and witnessstability on account of improved volume growth. PAT is likely to increase 12.5% YoYto | 39.8 crore

VST Tillers & Tractors

VST Tillers and Tractors is expected to report a robust quarterly performance inQ3FY16E primarily on the back of a lower base in Q3FY15 and good traction beingwitnessed in sales of tractors domestically. In Q3FY16, tractor sales volume isexpected to increase 35% YoY to 1791 units while power tillers sales volume isexpected to increase 50% YoY to 6086 units. Consequent sales is expected at | 144crore, EBITDA margins at 17.0% and PAT at | 15.8 crore


Page 62

ICICIdirect.com Coverage Universe Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17EApparelsKewal Kiran Clothing Ltd 2,189 2,119 Hold 2,698 53.8 67.5 84.8 40.9 32.5 25.9 27.8 23.1 18.4 33.5 39.1 43.5 20.7 25.7 28.4Vardhman Textiles Ltd 817 855 BUY 5,198 72.1 88.5 129.4 11.2 9.1 6.2 6.0 5.4 4.3 9.9 11.6 15.3 11.9 13.1 16.4Rupa & Company 295 - - 2,348 8.3 10.0 11.5 40.0 33.0 28.8 21.0 17.9 15.9 16.2 17.5 18.4 20.9 20.4 20.1Page Industries 13,195 12,700 Hold 14,718 175.7 201.7 255.8 77.6 67.6 53.3 48.1 42.0 33.4 58.2 57.1 58.5 50.7 46.9 47.7Arvind Limited 337 370 BUY 8,703 13.1 15.3 19.3 25.8 22.0 17.5 11.9 10.3 9.1 14.4 15.1 16.0 12.5 13.0 14.3

RoA (%)AutoAmara Raja Batteries 838 1,000 Buy 14,314 24.1 29.8 39.5 35.9 29.0 21.9 20.7 17.3 13.1 36.0 33.3 35.1 25.9 24.2 25.4Apollo Tyres 148 200 Buy 7,541 19.0 20.6 20.5 8.2 7.5 7.6 4.1 4.3 4.5 24.7 21.5 17.8 20.1 17.4 15.5Ashok Leyland 91 90 Hold 25,926 1.2 3.5 5.0 78.6 26.5 18.4 27.8 13.3 10.5 8.2 18.2 22.6 5.0 17.2 21.0Bajaj Auto 2,407 2,910 Buy 69,658 97.2 129.9 165.3 25.6 19.1 15.0 15.9 12.6 10.0 40.0 43.6 46.3 29.5 31.1 33.8Balkrishna Industries 652 720 Hold 6,302 50.6 57.9 59.2 12.8 11.2 11.0 7.4 6.8 5.8 17.3 19.2 19.6 21.4 19.9 17.1Bharat Forge 825 970 Buy 19,200 32.8 40.1 46.9 26.8 21.9 18.8 15.1 12.9 11.1 20.3 24.1 26.5 21.3 24.2 23.7Bosch 18,320 22,500 Buy 57,523 426.0 414.0 546.7 43.9 45.2 34.2 28.6 29.6 23.9 27.0 23.0 25.4 18.5 15.6 17.8Mahindra CIE 245 300 Buy 7,925 -2.4 8.2 13.0 -102.5 30.2 19.1 21.4 13.2 10.4 7.1 11.5 15.7 -4.1 11.5 16.9Eicher Motors 16,920 19,000 Buy 45,943 227.8 520.7 607.4 76.7 33.6 28.8 41.1 18.8 15.9 25.2 43.8 40.7 24.5 39.9 34.9Exide Industries 140 175 Buy 11,900 6.4 7.2 8.7 22.1 19.6 16.2 13.1 11.3 9.6 19.1 19.7 21.4 13.5 13.9 15.1Hero Motocorp 2,521 2,625 Hold 50,338 119.5 155.9 175.0 21.6 16.5 14.7 13.9 11.2 9.9 53.4 54.3 51.0 38.8 39.1 36.9JK Tyre & Industries 106 130 Buy 2,402 14.5 22.6 24.7 7.9 5.1 4.7 5.5 4.1 3.8 17.8 22.2 21.4 25.5 28.9 23.5M&M 1,192 1,470 Buy 74,034 56.3 57.9 75.1 21.7 21.1 16.3 16.9 14.3 10.9 17.6 18.6 21.1 15.7 15.7 17.7Maruti Suzuki 4,290 5,090 Buy 129,592 122.9 178.3 231.5 36.5 25.1 19.4 20.0 14.2 11.3 20.7 26.1 28.0 15.6 19.3 20.9Motherson Sumi 269 300 Hold 35,555 6.5 10.6 19.6 43.1 26.5 14.4 12.6 10.4 6.7 24.5 27.9 39.5 29.5 34.8 47.1Wabco 5,875 6,250 Hold 11,143 63.6 101.2 159.8 94.3 65.3 41.4 54.7 43.0 28.1 20.1 25.2 31.0 14.0 18.5 22.9Tata Motors 345 480 Buy 112,690 41.2 30.4 49.3 8.9 12.0 7.4 3.5 3.6 3.0 23.2 14.2 16.3 25.1 13.1 15.0

RoA (%)AviationJet Airways 742 790 BUY 8,431 -184.6 68.8 107.6 -3.1 8.4 5.4 75.5 8.7 6.7 4.1 33.4 39.7 NA NA NA

EV/EBITDA (x)P/E (x) RoCE (%) RoE (%)EPS (Rs)Market CapSector / Company CMP Target Price Rating

CMP as on January 7 , 2016


Page 63

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17ECapital GoodsVA Tech Wabag 667 830 Buy 3,634 20.3 31.1 37.7 35.1 22.9 18.9 16.0 12.8 10.9 17.4 19.8 21.2 14.1 16.0 17.5SKF Bearing 1,186 1,357 Hold 6,254 38.5 51.5 46.8 31.1 23.2 25.5 20.4 15.7 16.6 21.6 20.1 20.6 14.3 16.7 13.7Timken India 525 740 Buy 3,570 11.9 15.9 20.8 45.6 34.1 26.0 27.4 20.6 17.0 28.1 32.4 30.2 18.4 22.3 23.1NRB Bearing 141 135 Hold 1,367 5.5 6.2 7.9 26.0 23.2 18.0 13.7 12.1 10.1 16.3 17.1 20.3 20.9 20.2 22.1Grindwell Norton 715 866 Buy 3,958 18.6 21.5 28.9 39.3 33.8 25.2 21.9 19.3 14.5 24.1 24.6 28.7 16.8 17.2 19.7Larsen & Toubro 1,208 1,687 Buy 112,491 51.3 52.2 58.5 23.5 23.1 20.6 18.2 16.7 14.6 16.7 15.8 16.3 13.6 12.8 13.2Thermax 880 865 Hold 10,486 32.3 25.3 30.2 26.8 34.2 28.6 21.6 22.7 20.1 24.6 17.3 19.1 17.0 11.7 12.8KEC International 143 174 Buy 3,674 7.5 9.3 11.7 19.2 15.5 12.3 9.0 6.5 6.0 13.1 16.5 17.8 7.5 14.7 15.9Kalpataru Power 246 294 Hold 3,767 10.9 12.1 15.7 22.7 20.5 15.8 8.9 8.1 7.2 12.7 12.9 14.6 7.9 8.2 9.8Greaves Cotton 139 181 Buy 3,383 3.5 8.2 9.5 39.0 16.9 14.5 15.2 10.1 7.9 21.7 28.6 29.6 16.5 20.4 21.0AIA Engineering 842 972 Hold 7,942 43.8 42.6 48.4 19.2 19.7 17.3 13.4 11.7 10.5 26.0 23.1 22.6 20.0 17.0 16.8CementIndia cements 93 90 HOLD 2,854 1.0 4.6 4.9 102.5 21.4 20.0 8.4 6.7 6.2 6.8 9.0 10.1 0.8 4.2 4.0Ambuja 198 225 HOLD 30,665 9.7 5.7 7.7 21.0 35.5 26.2 13.9 19.4 14.8 17.8 12.4 15.9 14.4 8.6 11.3Ultratech 2,674 3,600 Buy 73,379 73.4 83.5 138.1 37.3 32.8 19.8 20.1 16.7 11.2 12.1 12.3 17.9 10.6 11.0 15.6Heidelberg cement 75 81 HOLD 1,700 2.6 0.8 2.5 29.2 90.5 30.1 9.8 14.6 10.6 9.2 6.7 9.5 -0.1 2.2 6.2JK Lakshmi 325 373 HOLD 3,818 8.1 -3.0 6.7 40.6 NA 49.7 15.3 20.2 14.0 8.3 4.1 8.3 12.0 -1.9 5.8Jk cement 562 710 HOLD 3,929 22.4 11.2 8.7 25.8 51.9 66.6 13.9 13.1 14.9 8.5 8.4 7.4 9.5 4.6 3.5Mangalam cement 192 220 HOLD 513 8.9 -19.2 18.4 22.3 NA 10.8 11.0 66.6 7.6 7.2 -1.7 10.7 5.3 -10.7 9.3Shree cement 10,970 12,500 BUY 38,216 122.5 123.6 232.5 93.8 92.9 49.4 30.5 32.0 20.1 8.3 7.5 13.2 8.8 7.7 12.7ACC 1,295 1,475 Hold 24,315 61.8 30.1 68.8 21.5 44.1 19.3 18.7 19.7 11.7 13.7 11.0 18.9 14.1 8.8 14.4Star Ferro and Cement 130 215 BUY 2,888 2.9 5.7 11.9 46.7 23.2 11.3 8.8 7.3 5.2 11.2 16.9 24.3 9.4 15.4 24.8ConstructionNBCC 992 1,150 Buy 11,898 20.8 25.7 41.6 48.3 39.0 24.1 42.5 30.5 16.5 32.0 20.1 28.2 20.9 13.4 18.8NCC Limited 73 84 Hold 4,033 2.0 3.3 3.7 39.0 23.9 21.3 9.5 9.4 8.6 13.9 14.0 14.3 3.5 5.4 5.8Simplex Infrastructure 313 450 Buy 1,546 12.6 15.6 31.2 25.2 20.4 10.2 7.7 6.9 5.8 9.8 10.7 12.6 4.3 5.1 9.2PNC Infratech 528 632 Buy 2,709 25.2 24.3 31.1 21.4 22.2 17.4 14.3 11.0 9.0 21.0 17.0 18.8 14.0 9.9 11.3Consumer DiscretioneryHavells India 296 315 Hold 18,460 7.5 7.8 10.2 41.2 39.4 30.1 25.1 22.5 19.2 27.1 26.8 28.9 19.7 19.2 22.0Voltas Ltd 287 384 Buy 9,496 11.6 11.5 13.7 25.3 25.5 21.5 22.3 18.9 15.1 17.0 17.3 19.1 16.6 15.8 17.4Asian Paints Ltd 871 951 Buy 83,556 14.5 19.1 23.5 58.4 44.4 36.2 36.0 27.6 23.6 38.2 43.6 43.5 29.4 33.8 34.5Bajaj Electricals Ltd 197 327 Buy 1,992 -1.4 10.2 13.4 -145.9 20.0 15.2 26.8 9.1 7.6 5.6 20.8 22.4 -2.0 13.5 15.5Symphony Ltd 2,220 2,745 Buy 7,764 33.1 33.5 58.7 63.9 63.2 36.1 55.3 48.7 27.3 38.7 36.8 50.0 35.3 29.7 39.5Essel Propack Ltd 156 160 Hold 2,451 9.0 11.5 13.2 16.9 13.1 11.5 7.7 6.3 5.5 17.7 21.0 22.7 18.0 19.3 19.7V-Guard Ltd 916 880 Hold 2,750 23.7 31.9 37.8 38.8 28.8 24.3 21.2 17.7 15.3 26.7 27.9 28.1 18.7 21.2 21.1Pidilite Industries 561 645 Buy 28,761 10.0 13.9 15.9 58.7 42.3 37.0 35.0 24.5 21.4 29.4 38.1 38.6 22.9 27.6 27.8Supreme Industries 695 842 Hold 8,828 25.4 13.9 33.1 26.8 49.1 20.6 14.0 22.5 10.8 32.4 18.9 34.6 26.6 13.4 26.6

Sector / Company CMP Target Price Rating Market CapEPS (Rs) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)



Page 64

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17EFMCGHindustan Unilever 818 1,017 Buy 177,091 19.9 20.8 24.8 42.2 40.4 33.9 34.5 30.0 25.8 101.4 126.9 137.1 91.8 93.5 103.3Colgate Palmolive 917 1,018 Hold 24,941 20.6 21.6 25.2 46.8 44.5 38.2 31.4 27.6 24.1 93.4 94.6 94.1 72.6 68.4 66.8Dabur India 268 325 Buy 47,154 6.1 7.4 7.7 45.8 37.7 36.3 38.0 31.3 29.1 31.8 31.7 28.6 31.9 30.7 26.7GSK Consumer Healthcare 6,570 7,193 Buy 27,630 138.8 161.3 175.7 47.5 40.9 37.6 34.9 31.8 27.4 38.2 36.0 36.2 27.6 26.0 26.1ITC 310 387 Buy 249,178 12.0 12.6 14.6 26.5 25.3 21.8 18.4 17.1 15.3 43.2 45.5 49.0 31.3 32.3 36.1Jyothy Laboratories 309 300 Hold 5,587 7.9 9.0 9.7 38.8 34.2 31.6 30.4 24.2 20.4 6.7 13.0 15.6 15.1 16.6 17.5Marico 223 250 Buy 28,764 4.4 5.0 6.1 51.4 46.2 37.4 33.9 30.2 25.1 38.7 37.2 37.1 31.4 28.3 28.6McLeod Russel 162 173 Hold 1,770 2.8 10.6 15.7 60.7 16.3 11.0 17.2 9.8 8.6 3.6 6.5 8.6 1.5 5.5 7.8Nestle India 5,622 7,240 Buy 54,200 122.9 57.5 116.4 46.4 99.1 49.0 26.3 33.0 28.0 40.6 28.6 34.7 42.4 30.3 37.8Tata Global Beverages 140 132 Hold 8,804 4.0 5.6 7.6 36.8 26.4 19.4 12.5 14.0 11.5 8.8 7.8 9.4 5.9 6.2 8.1VST Industries 1,715 1,762 Hold 2,648 98.6 76.4 107.8 17.2 22.3 15.8 10.6 12.8 9.3 64.8 50.4 66.2 43.9 33.8 46.0

RoA (%)HospitalApollo Hospital 1,392 1,340 Hold 19,366 24.4 28.8 34.1 59.8 50.7 42.8 29.6 25.0 20.5 9.9 11.5 12.9 10.4 11.5 12.3

RoA (%)HotelsEIH 123 133 BUY 7,056 1.1 2.6 2.7 117.4 50.5 47.2 23.0 18.3 16.7 5.9 8.0 8.7 2.4 5.5 5.7Indian Hotels 118 103 HOLD 9,508 -4.4 3.5 1.6 -27.0 34.2 72.4 26.8 23.7 19.8 3.8 4.4 4.6 7.8 9.9 5.1Taj GVK 96 86 HOLD 601 -0.3 0.8 0.8 -329.3 129.1 132.5 18.4 15.3 15.4 4.2 5.8 5.5 -1.2 1.4 1.4

RoA (%)InfrastructureIRB Infrastructure 237 260 Hold 8,336 16.3 17.7 17.0 15.5 14.4 14.9 8.3 6.6 6.9 10.2 12.1 11.0 12.4 12.3 10.9Ashoka Buildcon 187 240 Buy 3,504 5.2 2.7 5.1 36.6 71.1 37.0 15.4 10.5 8.9 2.6 3.9 4.7 6.0 3.6 6.5

RoA (%)ITCyient 484 500 Hold 5,443 31.4 34.0 40.0 15.3 14.1 12.0 12.0 9.7 7.5 22.2 21.9 22.4 19.2 18.1 18.6eClerx Services 1,410 1,200 Sell 5,742 74.3 105.0 115.0 19.0 13.5 12.3 12.5 9.1 7.7 40.4 47.6 43.7 32.1 36.9 33.6Firstsource Solutions 40 45 Buy 2,674 3.3 4.2 5.1 11.7 9.3 7.7 8.7 7.1 5.5 9.5 11.6 14.1 11.2 12.2 12.9HCL Technologies 826 1,050 Buy 116,339 51.4 55.0 64.0 16.1 15.0 12.9 12.0 10.5 8.6 35.2 31.7 30.5 29.3 25.7 24.7Infosys 1,053 1,300 Buy 241,765 53.9 57.0 65.0 19.5 18.4 16.2 14.0 12.6 10.7 31.4 29.7 30.1 22.5 21.3 21.7KPIT Technologies 160 135 Hold 3,157 11.9 12.5 14.0 13.2 12.6 11.2 9.5 7.6 6.5 14.7 17.4 17.4 17.0 15.4 14.9MindTree 1,420 1,600 Hold 11,907 63.9 75.0 96.0 22.2 18.9 14.8 15.5 12.8 10.2 33.7 32.9 34.3 26.6 25.9 26.9NIIT Technologies 538 525 Hold 3,286 18.7 42.0 47.5 28.8 12.9 11.4 8.6 6.2 5.1 23.4 29.8 31.9 14.3 16.6 16.6Persistent Systems 625 675 Hold 4,996 36.3 41.0 48.0 17.3 15.4 13.1 10.8 8.7 6.9 27.5 26.6 26.6 20.7 19.7 19.5Tata Consultancy Services 2,379 2,800 Buy 468,765 100.3 119.0 130.0 23.6 19.9 18.2 16.3 14.5 12.7 81.8 77.3 74.6 42.8 36.1 31.9Tech Mahindra 514 600 Buy 49,662 26.7 29.0 36.0 19.1 17.6 14.2 11.4 11.2 9.0 26.9 24.9 26.5 21.5 19.4 20.4Wipro Technologies 549 680 Buy 135,650 35.1 37.0 40.5 15.7 14.8 13.6 11.2 10.0 8.8 23.0 22.6 22.4 21.2 19.7 19.1

RoCE (%)Sector / Company CMP Target Price Rating

RoE (%)Market Cap

EPS (Rs) P/E (x) EV/EBITDA (x)



Page 65

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17ELogisticsBlue Dart Express 6,700 8,500 Buy 15,898 53.5 89.4 112.0 125.7 75.2 60.0 72.0 41.7 33.6 31.4 45.2 48.9 42.7 48.2 47.7Great Eastern Shipping 368 440 Hold 5,547 42.0 67.3 70.8 8.8 5.5 5.2 4.2 2.9 3.0 7.6 10.6 10.0 9.2 13.1 12.4Shipping Corporation of India 91 76 Hold 4,218 5.9 13.8 15.2 15.5 6.7 6.0 10.3 7.6 6.4 2.7 6.1 6.5 2.4 9.0 9.2Pipavav Defence & Offshore 81 66 Hold 5,989 -5.4 -5.0 -4.0 -15.5 -16.9 -21.1 107.5 210.2 92.1 -0.0 -1.4 -0.9 -20.5 -17.8 -16.6Gati Ltd 153 230 Buy 1,334 4.7 4.8 6.4 34.1 34.0 25.5 13.0 12.5 9.8 10.9 10.4 12.4 8.1 7.1 8.8Gujarat Pipavav Port 154 195 Buy 7,435 8.0 5.7 7.9 19.5 27.3 19.8 14.6 17.4 12.7 22.8 16.7 19.0 89.4 21.6 13.4

RoA (%)MediaSun TV Limited 410 384 Hold 16,138 19.8 22.7 27.0 21.3 18.6 15.6 9.3 8.4 7.1 33.0 35.7 38.2 22.7 24.5 26.4DB Corp Ltd 326 305 Hold 5,989 17.2 16.6 18.2 18.9 19.6 17.8 10.5 10.6 9.6 33.2 28.4 27.2 24.6 20.2 19.6Dish TV Limited 98 115 Hold 10,397 0.0 2.2 3.1 3,446.2 45.7 32.5 16.2 11.6 9.6 15.4 35.3 38.6 -1.0 -310.2 129.8Entertainment Network Limited 750 734 Hold 3,576 22.2 22.1 22.3 34.2 34.4 34.1 22.0 23.7 18.1 21.4 14.2 16.5 15.7 13.5 12.1Eros International Media Limited 229 311 Buy 2,146 26.7 27.5 31.1 9.1 8.8 7.8 7.2 7.2 6.2 16.7 16.0 16.4 16.7 14.9 14.4Hathway Cable Datacom Ltd 42 36 Sell 3,513 -2.2 -2.1 -1.1 -20.2 -21.1 -38.2 19.0 14.4 11.3 -1.5 0.4 3.2 -20.0 -16.6 -10.1HT Media Limited 86 86 Hold 1,990 7.7 5.5 7.9 11.5 16.2 11.2 7.6 8.2 6.0 13.5 10.3 13.0 10.0 6.4 8.5Inox Leisure Ltd 232 274 Buy 2,238 2.2 5.9 9.6 108.3 40.2 24.5 19.3 12.8 9.3 6.0 11.0 14.6 3.1 7.4 10.8Jagran Prakashan Limited 166 193 Buy 5,410 9.7 13.1 11.0 17.2 12.7 15.1 12.1 9.7 7.9 21.1 24.5 27.1 21.9 23.7 21.7PVR Limited 796 1,017 Buy 3,707 3.1 21.9 15.4 266.3 37.4 53.3 22.2 14.0 13.8 8.3 12.6 11.1 3.6 13.3 8.4Zee Entertainment Enterprises Ltd 417 410 Hold 40,012 10.2 10.9 13.7 41.2 38.4 30.6 30.9 27.1 21.0 25.3 24.9 26.3 17.6 16.8 17.6TV Today Network Limited 323 310 Buy 1,926 13.6 16.3 20.5 24.1 20.1 16.0 14.1 12.0 9.1 27.5 27.3 28.9 18.0 18.2 19.3

RoA (%)Metals, Mining & PipesTata Steel 251 200 Hold 24,378 NM 4.4 19.7 NM 60.8 13.7 7.7 9.1 6.5 6.2 7.6 6.8 NM 1.2 5.2Steel Authority of India Ltd 46 40 Sell 19,184 5.1 -4.9 2.8 9.9 NA 17.7 10.4 106.4 8.1 5.1 -1.2 5.6 4.8 -4.8 2.7JSW Steel 1,025 950 Hold 24,779 74.3 38.7 78.8 14.2 27.3 13.4 6.2 7.8 6.3 9.8 7.1 9.1 8.0 3.9 7.5NMDC 88 85 Hold 35,008 16.2 9.2 9.1 5.6 9.9 10.0 2.3 4.6 6.1 30.4 16.6 15.6 19.9 10.8 10.3Hindalco 77 75 Hold 15,807 4.1 3.5 9.0 19.5 23.1 8.9 8.0 9.5 7.1 5.8 4.3 5.8 7.3 1.9 4.6Vedanta Ltd 81 100 Hold 23,984 19.8 13.0 20.0 4.5 6.8 4.4 4.5 5.4 4.4 10.1 8.4 10.2 10.9 6.9 9.9Hindustan Zinc 140 170 Hold 58,943 19.4 18.4 18.9 7.5 8.0 7.7 4.2 4.1 3.6 20.9 18.0 17.1 18.9 16.2 15.2Graphite India 82 85 Hold 1,606 2.9 5.4 8.0 28.7 15.6 10.6 12.6 7.7 5.8 5.8 8.6 11.6 3.3 6.2 8.8HEG 165 175 Hold 659 9.8 9.5 17.5 17.6 18.0 9.8 7.7 7.6 6.2 7.1 6.5 8.5 6.5 4.1 7.2Jindal Saw 61 60 Hold 1,870 0.9 12.7 16.0 71.9 5.0 4.0 9.7 8.1 6.1 5.6 7.2 9.3 0.7 9.2 10.4Maharashtra Seamless 163 135 Hold 1,095 3.4 0.8 2.5 49.1 214.0 66.2 59.1 175.2 56.6 3.9 1.4 3.3 4.0 0.9 3.0




Page 66

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17EMidCapRallis India 169 220 HOLD 3,287 8.1 6.3 8.8 21.6 27.7 19.9 12.7 14.9 11.3 21.1 17.6 24.0 19.3 14.0 17.5Swaraj Engines 952 1,110 BUY 1,182 41.7 47.4 55.5 22.8 20.0 17.1 13.4 11.7 9.6 213.1 196.6 266.4 24.4 26.9 30.2VST Tillers & Tractors 1,420 1,800 BUY 1,227 80.4 80.2 99.5 17.4 17.5 14.1 11.0 9.9 7.8 25.7 22.9 24.7 19.1 16.6 17.9KSB Pumps 585 700 BUY 2,036 19.7 20.1 23.4 31.3 30.6 26.3 19.9 22.0 16.3 16.2 14.8 16.3 12.1 11.6 12.3InfoEdge 820 1,000 Buy 9,899 2.0 9.0 13.0 403.7 90.1 62.2 388.7 74.4 52.9 3.7 6.5 9.1 1.7 7.2 9.5

RoA (%)Oil & GasAban Offshore 213 223 Hold 1,246 88.7 73.1 85.9 2.4 3.0 2.5 6.4 6.1 5.6 9.2 8.3 8.6 9.6 7.4 8.0Cairn India 129 173 Hold 24,158 23.9 11.8 11.9 5.4 10.9 10.8 2.6 5.6 4.5 9.4 4.0 4.3 5.4 1.7 1.3GAIL 372 355 Buy 47,124 24.0 13.0 18.6 15.6 28.7 20.0 11.9 15.5 11.9 11.1 7.4 9.5 10.4 5.5 7.5Gulf Oil 516 520 Hold 2,560 15.6 18.9 20.9 33.9 28.0 25.4 20.6 17.3 16.0 33.2 37.1 36.5 41.4 38.6 34.1HPCL 857 820 Hold 29,031 80.6 67.7 74.5 10.9 13.0 11.8 8.8 8.9 7.4 12.0 9.4 10.4 17.1 13.3 13.4IGL 562 547 Buy 7,868 31.3 31.4 36.0 18.0 17.9 15.6 9.8 9.2 8.0 24.9 22.8 22.1 19.2 17.0 16.7Indian Oil Corporation 441 405 Hold 106,951 21.7 34.9 33.4 20.6 12.8 13.4 63.4 39.3 8.9 3.0 1.6 10.6 5.3 10.3 10.2MRPL 67 64 Buy 11,734 -9.8 -1.4 7.5 -7.0 -47.5 9.0 -5.2 30.9 6.2 -12.2 3.3 18.1 -32.9 -1.6 22.5Oil India 389 430 Buy 23,405 41.7 43.1 39.7 9.6 9.3 10.0 5.9 5.0 4.9 12.7 12.9 11.3 11.7 11.4 10.1ONGC 226 250 Hold 193,354 20.7 21.6 21.6 11.4 10.9 10.9 3.5 3.9 3.7 14.4 14.1 13.3 12.3 12.1 11.5Petronet LNG 263 225 Buy 19,706 11.8 13.1 15.8 22.8 20.5 17.0 15.6 13.0 10.4 14.1 15.5 17.2 12.8 13.7 15.3Gujarat Gas 746 520 Hold 9,562 32.2 16.3 33.5 19.9 39.4 19.1 10.7 14.5 10.0 17.4 11.1 17.1 16.9 7.8 15.2

RoA (%)OthersTalwalkars 257 305 BUY 762 17.6 18.3 21.5 15.2 14.6 12.5 7.5 6.0 4.8 14.4 12.5 14.0 16.7 12.6 13.1Cox and Kings 239 308 BUY 4,040 5.4 20.2 27.9 45.4 12.2 8.8 6.1 5.8 4.5 12.7 12.3 14.5 8.1 11.4 14.0Century Plyboard 167 235 BUY 3,715 6.8 8.5 10.3 25.5 20.4 16.7 16.4 13.9 12.3 25.2 25.9 24.9 38.9 36.9 34.9Kajaria Ceramics 953 1,080 Buy 7,574 22.1 27.4 36.1 43.8 35.3 26.8 23.1 18.1 14.1 27.0 28.3 31.3 24.7 24.9 26.3Somany Ceramics 381 465 Buy 1,615 11.8 14.4 18.5 33.2 27.3 21.2 17.0 13.1 10.8 15.4 13.5 14.9 17.8 14.3 16.0Solar Industries India Ltd 3,570 3,750 Buy 6,461 81.5 91.0 127.5 41.4 37.1 26.4 25.2 21.8 16.6 18.6 18.7 20.7 20.0 18.4 21.3United Spirits 2,768 4,170 Buy 40,227 -116.1 19.8 34.5 -25.6 150.0 86.2 58.3 42.9 33.8 22.6 32.0 50.7 -290.8 33.9 37.9United Breweries 929 1,150 Buy 24,563 25.9 32.3 44.5 35.1 28.1 20.4 15.4 12.4 9.6 18.1 20.4 24.8 13.5 14.7 17.1Wonderla Holidays 381 460 BUY 2,153 9.2 12.1 13.3 42.7 32.4 29.5 25.1 22.8 15.8 20.2 23.8 22.7 14.2 16.5 15.7


RoE (%)Market Cap

EPS (Rs) P/E (x) EV/EBITDA (x)



Page 67

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17EPharmaSun Pharma 787 825 Hold 189,328 18.8 16.5 25.8 42.2 48.2 30.8 23.8 23.3 18.0 18.8 18.0 20.8 18.6 15.9 18.1Ajanta Pharma 1,272 1,900 Buy 11,189 35.1 44.9 54.3 37.7 29.5 24.4 23.0 20.2 16.4 50.3 46.5 41.4 37.8 34.2 31.1Lupin 1,716 2,200 Buy 77,292 53.6 45.0 67.3 33.2 39.6 26.5 21.6 25.6 16.6 35.1 20.4 28.1 27.1 19.2 23.2Aurobindo Pharma 840 990 Buy 49,059 27.1 31.1 37.5 32.2 28.1 23.3 30.7 25.7 21.9 23.4 25.3 26.6 31.7 27.9 24.8Biocon 511 470 Hold 10,228 24.9 33.2 27.1 25.6 15.7 19.2 7.6 6.6 5.7 10.4 12.1 13.2 12.5 13.2 13.1Cadila Healthcare 307 415 Buy 31,378 11.2 14.6 16.1 28.6 22.1 20.0 20.0 14.9 13.8 20.7 25.9 25.0 27.0 27.9 25.0Cipla 630 750 Buy 50,580 14.7 22.3 28.2 44.3 29.2 23.1 24.5 18.2 14.7 13.8 15.9 18.1 10.9 14.6 16.0Dr Reddy's Lab 2,992 4,080 Buy 51,024 130.2 145.5 150.0 23.7 21.2 20.6 15.0 12.7 11.8 16.7 17.2 16.8 22.3 20.0 17.1Divi's Lab 1,125 1,340 Buy 29,855 32.1 41.2 47.3 35.7 27.8 24.2 25.4 21.2 17.9 29.4 31.7 31.0 24.4 26.2 25.3Glenmark 862 1,140 Buy 24,322 16.5 28.2 44.7 56.8 33.2 20.9 24.0 17.3 13.7 13.3 20.2 23.4 21.7 25.7 25.6Indoco 308 400 Buy 2,838 9.0 10.9 17.2 35.9 29.5 18.8 18.2 15.5 11.3 16.4 17.4 24.5 16.0 17.0 22.2Ipca Lab 690 700 Hold 8,706 20.2 13.8 31.4 35.7 52.3 23.0 18.7 25.3 14.6 11.5 7.1 14.2 11.4 7.5 14.9Jubilant Life 415 460 Hold 6,608 -3.6 30.3 42.5 NA 13.8 9.8 16.0 8.3 6.8 5.8 13.3 15.3 -0.4 16.6 19.4Natco 590 630 Buy 10,276 7.5 7.5 10.7 82.4 82.1 58.0 54.2 43.6 34.9 15.4 13.4 15.8 17.9 10.5 13.2Torrent Pharma 1,430 1,800 Buy 24,198 44.4 101.3 71.0 32.9 14.4 20.6 26.1 10.3 14.4 20.1 39.7 24.1 30.2 45.4 26.2Unichem lab 250 330 Buy 2,271 8.3 12.7 18.2 31.5 20.7 14.4 23.0 13.2 9.9 8.5 15.1 19.0 8.7 12.1 15.5Alembic Pharma 662 790 Buy 12,482 15.1 33.4 28.2 45.1 20.4 24.2 32.1 15.5 18.4 30.8 49.4 33.9 32.2 47.2 31.1PowerCESC 489 668 Buy 6,482 22.6 44.5 66.0 22.7 11.5 7.8 7.7 7.4 5.5 8.9 8.9 11.4 3.1 8.6 11.4NHPC 21 22 Buy 22,972 1.9 2.1 2.3 11.6 10.4 9.6 9.2 8.7 7.7 7.2 7.0 8.1 7.6 8.0 8.2Power Grid Corporation 139 173 Buy 72,588 9.5 12.2 14.4 14.7 10.7 9.1 11.0 10.2 9.0 7.7 7.7 8.5 13.1 14.9 15.4PTC India 66 68 Hold 1,961 6.8 7.6 6.3 9.9 8.9 10.7 5.6 4.4 4.6 12.7 11.7 10.0 7.7 8.1 6.5Tata Power 66 74 Hold 17,932 1.5 5.4 7.2 45.5 12.9 9.5 7.3 5.8 4.9 10.4 12.2 14.3 1.3 8.8 12.4Real EstateOberoi Realty 262 350 BUY 8,890 9.7 14.7 36.2 28.0 18.4 7.5 18.5 11.9 4.9 8.8 12.4 26.7 6.9 9.0 18.5Mahindra Lifespace 464 590 Buy 1,904 65.2 21.8 30.9 7.3 21.1 14.9 7.2 10.3 7.8 16.5 11.1 13.8 18.0 5.8 7.7Sobha Ltd 310 322 Hold 3,040 24.3 17.6 23.2 13.0 17.9 13.6 8.0 10.5 8.3 12.1 9.3 11.4 9.8 6.8 8.5RetailTTK Prestige 4,370 4,350 Hold 5,087 79.6 107.3 155.4 51.5 38.2 26.4 30.8 23.7 16.6 21.0 24.8 31.7 14.4 17.2 21.4Shopper Stop 390 500 Buy 3,254 5.9 3.9 7.2 69.0 103.6 56.1 26.0 17.8 14.3 2.3 6.2 8.2 8.0 4.6 10.6Titan Industries 344 375 Hold 30,553 9.3 9.6 11.7 37.4 36.1 29.7 26.6 26.3 21.8 37.1 33.2 36.1 26.6 23.1 23.5Bata India 493 587 Buy 6,334 18.0 16.7 19.6 27.7 29.8 25.4 18.5 22.6 14.9 40.7 40.4 46.0 22.6 18.9 19.8TelecomBharti Airtel 319 480 Buy 127,517 13.0 14.6 17.0 25.4 22.6 19.4 6.1 6.3 5.2 11.1 10.0 11.5 9.9 5.8 9.8Bharti Infratel 404 530 Buy 76,587 10.5 12.1 14.7 39.6 34.5 28.4 15.3 14.4 12.6 15.8 18.5 22.2 11.7 14.1 17.4Idea Cellular 131 170 Buy 47,291 8.9 9.8 6.0 15.2 13.8 22.7 6.8 7.6 6.7 11.3 8.4 7.9 13.9 13.3 7.6Tata Communications 423 500 Buy 12,056 0.0 2.0 16.4 9,930.8 222.8 27.4 7.8 7.3 6.4 6.9 7.0 9.8 0.7 74.4 136.3



Page 68

Valuation Matrix

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17EBanks P/BV(x)IndusInd Bank 930 1,050 Buy 55,232 33.9 39.5 49.5 27.7 23.8 19.0 4.7 3.1 2.8 1.8 1.9 2.0 18.2 16.5 15.5Yes Bank 677 850 Buy 28,373 48.0 57.2 66.7 14.8 12.4 10.7 2.5 2.2 1.9 1.6 1.6 1.6 21.3 18.9 18.8Bank of Baroda 139 172 Hold 32,028 15.3 15.7 19.8 9.7 9.5 7.5 0.9 0.8 0.7 0.5 0.5 0.5 9.0 8.6 10.0Bank of India 110 116 Sell 8,679 25.7 -3.0 16.4 4.5 -38.8 7.0 0.3 0.3 0.3 0.3 -0.0 0.2 5.6 -0.7 3.9State Bank of India 210 300 Buy 163,018 17.5 18.7 21.5 12.5 11.7 10.1 1.3 1.1 1.0 0.7 0.7 0.7 10.6 10.5 10.6City Union Bank 90 105 Buy 5,378 6.4 7.1 8.2 14.1 12.8 11.1 2.0 1.8 1.6 1.4 1.4 1.5 15.9 14.9 15.1Indian Bank 108 184 Buy 5,180 20.9 23.0 28.9 5.4 4.9 3.9 0.4 0.4 0.3 0.5 0.5 0.6 7.0 7.3 8.7Punjab National Bank 105 130 Hold 20,559 16.5 17.5 25.1 6.7 6.3 4.4 0.5 0.5 0.5 0.5 0.5 0.7 8.2 8.4 10.9Axis Bank 409 600 Buy 97,298 31.0 34.7 41.7 14.1 12.6 10.5 2.3 2.0 1.7 1.7 1.7 1.7 17.8 17.0 17.5DCB Bank 76 85 Sell 2,160 6.8 5.7 4.1 11.8 14.1 19.3 1.5 1.3 1.2 1.3 0.9 0.6 14.6 10.1 7.0Federal Bank 52 60 Hold 9,007 5.9 4.7 5.4 9.5 11.7 10.3 1.2 1.1 1.0 1.3 0.9 0.9 13.7 10.1 10.6HDFC Limited 1,176 1,410 Buy 185,714 38.0 42.7 50.2 31.9 28.4 24.1 6.3 5.7 5.1 2.5 2.5 2.5 20.3 20.7 22.0Jammu & Kashmir Bank 81 95 Hold 3,941 10.5 17.3 20.7 8.0 4.9 4.1 0.7 0.6 0.5 0.7 1.0 1.1 8.6 13.0 14.1South Indian Bank 20 23 Hold 2,646 2.3 2.7 3.1 8.7 7.4 6.3 0.8 0.7 0.7 0.5 0.6 0.6 9.2 10.3 11.4Kotak Mahindra Bank 694 677 Hold 127,150 13.6 10.6 12.8 51.9 66.5 55.1 5.9 5.5 5.0 1.5 1.0 1.0 12.1 8.6 9.4LIC Housing Finance 488 545 Buy 24,628 27.5 33.4 41.2 18.2 15.0 12.2 3.2 2.5 2.1 1.3 1.4 1.4 18.1 18.7 18.6Reliance Capital 418 515 Buy 10,563 39.6 33.6 38.0 11.6 13.6 12.1 1.0 1.0 0.9 2.0 1.5 1.6 7.8 6.3 6.8CARE 1,240 1,700 BUY 3,596 48.4 45.9 56.9 26.5 27.9 22.5 10.3 9.5 8.9 43.2 44.9 50.4 38.9 33.9 39.5PTC India Financial Limited 39 51 Buy 2,192 2.9 6.6 5.3 14.1 6.1 7.6 1.6 1.3 1.1 2.6 4.8 3.4 11.5 23.7 16.9HDFC Bank 1,053 1,220 Buy 265,778 40.8 49.2 61.0 26.3 21.8 17.6 4.3 3.7 3.2 1.9 1.9 1.9 19.3 18.2 19.3Bajaj Finserv Limited 1,946 2,308 Buy 30,966 106.2 129.2 160.3 18.4 15.1 12.2 2.8 2.4 2.0 2.0 2.1 2.3 16.7 17.1 17.9Bajaj Finance Limited 6,075 6,000 Buy 32,584 179.9 228.6 282.0 33.5 26.4 21.4 6.3 4.3 3.7 3.1 3.1 3.1 20.4 19.6 18.9


RoE (%)Market Cap

EPS (Rs) P/E (x) P/BV (x)



Pankaj Pandey Head – Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]


Disclaimer ANALYST CERTIFICATION We /I, Pankaj Pandey Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Pankaj Pandey Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. ICICI Securities has received an investment banking mandate from Government of India for disinvestment in ONGC. This report is prepared based on publicly available information.


Documents

January 8, 2016 Operating leverage to further drive margin ...content.icicidirect.com/mailimages/IDirect_ConsolidatedPreview_Q3... · Operating leverage to further drive margin expansion