Monthly Report - March 2017 - Kotak Securities · ing Q3FY17, especially in the month of December 2016 which saw a 9% y-o-y contraction in sales volume. While the availability of

Investment StrategistMarch 2017

Investment Strategist March 2017 2

GLOBAL & SECTORAL INDICES

Indices As on 28th Feb 2017 As on 31st Jan 2017 % Chg

Sensex 28,743 27,656 3.9%

Nifty 8,880 8,561 3.7%

Dow Jones 20,812 19,864 4.8%

Nasdaq 5,825 5,615 3.8%

FTSE 7,263 6,248 16.3%

DAX 11,834 11,535 2.6%

CAC 40 index 4,859 4,749 2.3%

Hang Seng 23,925 23,361 2.4%

China 3,229 3,159 2.2%

Japan 19,119 16,666 14.7%

Spain 9,556 9,315 2.6%

Italy 18,913 18,591 1.7%

Indices As on 28th Feb 2017 As on 31st Jan 2017 % Chg

CNX midcap 16,481 15,414 6.9%

BSE midcap 13,552 12,857 5.4%

BSE small cap 13,691 12,936 5.8%

FMCG 22,338 21,833 2.3%

Capital Goods 15,333 14,783 3.7%

Banking 23,482 22,312 5.2%

PSU 8,464 8,337 1.5%

Oil & Gas 13,534 12,838 5.4%

Auto 21,486 21,809 -1.5%

Tech 10,376 9,586 8.2%

Healthcare 15,385 14,797 4.0%

Metal 11,893 11,672 1.9%

Realty 1,495 1,370 9.1%

Change in the Global Indices

Sectoral Indices

Investment Strategist March 2017

MONTHLY FUNDAMENTAL OUTLOOK

February saw a continuation of the rally whichstarted in December. Investors felt relieved as theFM, in the Union Budget, maintained status quoon long term capital gains. Further, the FM's focuson maintaining fiscal discipline was also takenpositively by the foreign investors. FIIs remainednet buyers for the month of February 2017. Indianmarkets gained about 4% in February 2017,broadly in line with global benchmarks.

Going ahead, markets will focus on the policies ofPresident Trump and alsoon US rate hikes. Domesti-cally, focus would shift tothe UP election results andGST. The second part ofthe Budget session isslated to start from March9 and further headways inimplementation of GSTwould be taken positivelyby the investors. We willalso closely watch the in-dustry numbers for any re-vival in demand post de-monetization.

Benchmark indices are cur-rently trading at around17x FY18 consensus estimates, which is at a pre-mium to the long-term average. At this juncture,some profit-booking cannot be ruled out. How-ever, on declines, we recommend buying into sec-tors which can be favorably impacted by theimplementation of GST (Logistics, Auto, Media,Building Materials, etc) and Government spending(Roads, Railways & Defense). We still await theelusive turnaround in private sector capex andmore clarity on US policies on IT / Pharma. Keyrisks to our recommendation would come fromgeopolitical concerns globally, continued declinein foreign inflows, sharp currency movements anda spike in oil prices.

Global events to watch out for -

Reasonable probability of a Fed rate hike in March

At its most recent monetary policy meet, the Fed de-cided to hold rates but indicated that it may be appro-priate to raise interest rates again "fairly soon", shouldjobs and inflation data come in line with expectations.

The minutes of the meeting also reflected a degree ofuncertainty among lawmakers because of a lack of clar-ity on the new Trump administration's economic pro-

gram. At least one Fed gover-nor recommended raisingrates at the March 14-15monetary policy meet.

While the US economy's re-cent performance especially inthe job market may justify fur-ther rate increases, there areuncertainties regarding thebroad contours of Mr. Trump'sfiscal stimulus plan. For theFed, there is reason to be con-cerned, as the President's fis-cal spending plan on buildingAmerica can trigger inflation-ary pressures at a quicker-than-expected pace, which

could lead the Fed to accelerate rate hikes.

According to Bloomberg's world interest rate probabilitytool, which uses fed funds futures data, the March ratehike probability is now up to 52% - up from 34% aweek ago.

In December, the Fed forecast it would raise rates threetimes in 2017 and so far, robust readings on theeconomy have bolstered the confidence of manypolicymakers. From India's perspective, what would bemore important would be the pace of future hikes. Agradual hike in the US interest rates will not be a nega-tive for India and other EMs as it would lessen the riskof sharp pullout of funds.

Benchmark indices are currently trading ataround 17x FY18 consensus estimates, whichis at a premium the long-term average. At hisjuncture, some profit-booking cannot beruled out. However, on declines, we recom-mend buying into sectors which can be fa-vorably impacted by the implementation ofGST (Logistics, Auto, Media, Building Materi-als, etc) and Government spending (Roads,Railways & Defense). We still await the elu-sive turnaround in private sector capex andmore clarity on US policies on IT / Pharma.

Market performance - sector wise (February 2017)

Source: Bloomberg

Benchmark indices - India

Source: Bloomberg

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2600

4350

6100

7850

9600

14,000

18,000

22,000

26,000

30,000Sensex (LHS) Nifty (RHS)



Rupee/US$

Source: Bloomberg

Trump's policies in focus

President Donald Trump kicked off his first address to ajoint session of Congress on the last day of February.Trump stressed his efforts so far to achieve his agendaand bring jobs and investment back to the U.S. As waslargely expected, Mr Trump called for dismantling theAffordable Care Act and replacing it with somethingelse. He has also said that, he will reduce tax rates forcorporate America. He highlighted the need for upgrad-ing the infrastructure in the US and approved USD onetrillion in investment, "financed through both public andprivate capital". He also stressed on making pipelines inthe US through locally manufactured steel. Mr Trumpalso called for upgradation in military spending and alsosignaled his intention to bring down the price of drugs.

From an Indian equities standpoint, Trump's policies onPharma sector are important and could potentially leadto fall in prices of Indian pharma products in the US ashe could permit getting generics from Canada or Eu-rope. One of the key things Trump has focused on'Make in America' and will encourage Pharma compa-nies to manufacture there and to employ US citizens.

Crude Prices have remained stable

Crude oil prices had inched up in anticipation of tightercrude supply following the decision by OPEC / non-OPECproducers to cut output in an attempt to balance anoversupplied fuel market. However, higher stockpilesand rising shale production have kept a check on furtherrise in prices.

With the improvement in global economic outlook, in-vestors have significantly increased their bets on risingcrude oil prices. Hedge funds and other investors nowhold a record net long position equivalent to 951 millionbarrels of crude. On the other hand, America's crudeproducers, which are increasing output, are hedgingagainst price falls for this year and 2018. American ex-plorers have almost doubled the number of oil rigs sinceMay, according to Baker Hughes.

In our view, given the supply response from the USshale producers, Crude prices would continue to remainrange-bound. However, sharp increase in crude prices isa negative for the Indian economy in view of the result-ing inflationary pressures.

Domestic events to watch out for -

UP elections - A strong show by the ruling partycould bolster market sentiments

As we enter the last stages of the assembly elections instates of UP, Punjab, Goa, Manipur and Uttarakhand,the focus of the markets would shift to March 11, 2017when the counting of the votes is scheduled to happen.The election verdict assumes importance as it could bea reflection of the popularity of PM Modi and his recentpolicies, especially demonetization. While the BJP's per-formance in the recent municipal elections inMaharashtra was strong and indicative of the popularityof the PM, performance in UP is crucial, both from thepoint of view of Rajya Sabha as well as next generalelections. If the performance of the ruling party is weakin UP, it could realign the government's policies intotaking fewer risks. On the other hand, if the ruling partyperforms well in UP, it would mean that despite the

40

47

54

61

68

75

IIP growth (%)

Source: Bloomberg; Note: IIP growth since April 2011 has been recompiledusing new series of WPI

(8.0)

(4.0)

-

4.0

8.0

12.0

Brent Crude (US$/bl)

Source: Bloomberg

20

45

70

95

120



pains of demonetisation, public faith in the PM remainsintact and he and his party would remain favourites forthe next general elections in 2019. It would also bolsterthe confidence of the ruling party to take further toughmeasures, which are good for the long term growth ofthe economy.

Second half of the Budget session - Progress on GSTexpected

The second half of Parliament's Budget Session will startfrom March 9, a day after the last phase of voting inthe Assembly polls, and will end on April 13. The FM hassaid that he plans to introduce the draft GST bills in thesecond half of the ongoing Budget session of Parlia-ment. In the Union Budget 2017-18, the FM had left in-direct taxes untouched, thereby signaling his seriousnessof implementing the GST as per its timeline ie July 1,2017 itself. GST is one of the most important reforms ofthe Government and will lead to significant ease of do-ing business, while also increasing tax revenues for theGovernment. Sectors with large unorganized segmentwill see a marked shift towards organized players, thusbenefitting them. We will watch out for further progresson the same and implementation of this legislation willbe a positive for the equity markets in India.

Monitoring of High frequency data for economic re-bound post demonetisation

We would continue to monitor high frequency data forgetting sense of the response of consumer demand, asthe effects of demonetization start fading. Two wheel-ers sales figures were among the most hit by thegovernment's note ban, but we expect the situation tohave improved in February. In the passenger car seg-ment, we expect volumes in February 2017 to have wit-nessed healthy growth. Commercial vehicle segment isexpected to receive boost from pre-buying ahead ofimplementation of BS IV norms from 1st April 2017.

Cement demand was impacted by demonetization dur-ing Q3FY17, especially in the month of December 2016which saw a 9% y-o-y contraction in sales volume.While the availability of cash has now vastly improved,we have a sense that the cement demand may remainsubdued during Q4FY17 as well due to state-wise elec-tion schedule in February. Nevertheless, we remainwatchful of auto and cement numbers.

These sectors, as well as those with high unorganizedcomponent, should benefit disproportionately once GSTis implemented. The unorganized sector will come in thetax net, which should put it at par with the organizedsegment, thus giving an edge to the organized players.

Buybacks and Dividends

Share buybacks have become the new "in-thing" withcorporate India with the money spent on the same,reaching an 18 year-high. According to Prime Database,in FY17, 33 share buybacks were announced till January31, 2017, with companies spending a total of Rs.284bn,highest since 1999. In contrast, during FY15-16, the

share buybacks amounted for only Rs.18bn. We believethat, share buyback this is a more tax-efficient way ofrewarding shareholders. This is so because dividend at-tracts dividend distribution tax (DDT) at 20.3%. In addi-tion to it, there is 10% tax on individuals/HUFs and firmsthat receive more than Rs.1mn/ year of dividends.

A major announcement in February 2017 was from TCS,which approved a buyback of 2.85% of its equity capitalat Rs.2850 per equity share. Given the near Rs.400bn ofcash in its balance sheet, and the significant cash gen-eration annually, the buyback should not dent it cashbalances for long. This will however be largely neutralon earnings on FY18 basis. We do not rule out moresuch moves by other cash-rich IT majors includingInfosys, Wipro and HCL Tech. Even PSUs are taking thebuyback route with a view to raise funds for the govern-ment. NHPC has recently announced a share buyback.

Strong IPO pipeline for March

At least half a dozen companies are set to raise Rs.60bnin March or early April through IPOs, in what could bethe second highest fund raising through the primarymarket route in the last six years. The IPOs to belaunched are from Music Broadcast, Avenue Supermart(D-mart), CDSL, S Chand and Co, Continential Ware-housing Corporation, HUDCO and Shankara BuildingProducts. Apart from these, NSE, GoAir, SBI Life, AsterDM Healthcare, Hinduja Leyland Finance, IRB InvIT areamong the other major issues lined up in the rest ofCY2017. The robust IPO pipeline is a sign of the strongmarket sentiment.

FII's turned net buyers for the month

FIIs were net buyers to the tune of Rs.95.9 bn duringFeb 2017 while they are buyers to the tune of Rs.95 bnYTD CY2017. Mutual funds have remained net sellersfor the month and have sold stocks worth Rs.540 mnduring Feb, 2017 while for CYTD, MFs are buyers to thetune of Rs.51.6 bn. The February 2017 numbers includesale of HDFC Bank shares by domestic funds (aboutRs.80bn) when the FII limit was opened up for one day.Excluding this, domestic institutions were also net buy-ers during the month. Apart from the resilient earningsnumbers, what drove institutional buying was the FM'spersistence with fiscal rectitude.

FII & Mutual Fund investment (Rs Cr)

Source: Bloomberg

-20,000

-10,000

0

10,000

20,000

30,000FII MF



Preferred picks

Domestic Cyclicals / Investment oriented sectorsSector Stocks

Agri-Products Insecticides India Ltd, Finolex Industries

Automobiles Bajaj Auto, M&M, Maruti Suzuki

Building Material Century Ply, Kajaria Ceramics

Capital Goods, Engineering Voltamp, Cummins India, Greaves Cotton, L&T, Engineers India

Construction IRB Infra, NCC, PNC Infratech, KNR Construction

FMCG ITC

Logistics, Transportation Adani Ports, Allcargo, GPPL

Oil & Gas Petronet LNG, Castrol India, GSPL

Others Mold-Tek Packaging, Mirza International Ltd

Paints Asian Paints, Kansai Nerolac

Source: Kotak Securities - Private Client Research

Export oriented / Defensive sectorsSector Stocks

IT Infosys, NIIT Ltd

Media TV18 Broadcast



MONTHLY DERIVATIVE OUTLOOK

Looking Back

Nifty witnessed an uptrend through the month of Febupto 8982 levels.

Sectors like Banking, Energy, Pharma & Metals gainedsignificantly, while Auto sector has seen some profittaking.

The overall rally has been quite strong in Feb with Niftyclosing with a monthly gaining of almost 4%.

Looking Ahead

The current rally from the Dec lows of 7894 till the re-cent high of almost 9000 is almost a 14% rally, whichagain is without any meaningful (at least 2-3%) correc-tion.

A Quantitative analysis shows that such rallies withoutany intermediate correction, does not have many prece-dence. Currently we may witness some selling acrosssectors. We expect the market to test 8750-8800 levels.On the other hand sustain above 9000 can push to indextowards 9200-9300.

Banking, IT and Pharma to remain positive. Metals andCapital goods can witness consolidation with buying op-portunities at lower levels. Negative bias in Oil market-ing companies.

Recommendation

Nifty Bear PUT Spread: Buy 8900 Mar Put and Sell 8700Mar Put option. Total premium outflow Rs.50; maintainstop-loss of 25 and target of 85/100.

Nifty Options Concentration

Nifty options concentration seen at 9000CE and 8500PE

Nifty Options Concentration

Source: nseindia.com

CE - Call EuropeanPE - Put EuropeanStrike Price - Strike price for the contract

Stock Specifics

SECTOR POSITION STOCK/OPTIONS VIEW RATIONALE

Tyre BUY APOLLO TYRES Buy around 185-187 with SL Double bottom at 170.of 176 and target of 205-210

Telecom BUY BHARTIINFRATEL Buy around 289 with a SL Double bottom at 280.of 280 and a target of320-330

IT BUY WIPRO Buy around 490 with SL below Symmetrical Triangle breakout475 and target of 510-520 above 485.

For queries and feedback you can e-mail us at [email protected]


MONTHLY TECHNICAL OUTLOOK

TREND WATCH

Nifty Short Term TrendUp (Down below 8700 on a closing basis)

Nifty Medium Term TrendUp (Down below 8300 on a closing basis)

Nifty Long Term TrendUp (Down below 7900 on a weekly closing basis)

MONTHLY SNAPSHOT

Monthly Open : 8570

Monthly High : 8982

Monthly Low : 8538

Monthly Close : 8880

Change : Gain of 3.70%

NIFTY : 8939

Range : 8880-8970

Resistance : 8950-8970-9020-9070-9120-9170-9235

Support : 8910-8895-8860-8840-8820-8785-8735

BANK NIFTY : 20875

Range : 20800-20900

Resistance : 20900-20970-21050-21150-21250-21500

Support : 20800-20770-20730-20670-20610-20570

Simple Moving Average (SMA)

20 Days 50 Days 200 Days

8735 8420 8415

Simple Moving Average (SMA) - Bank Nifty

20 Days 50 Days 200 Days

20095 19050 18760

On Monthly basis, the market has made a smart recov-ery from 8537 levels and broke the level of 8970 thatwas earlier highest level for the nifty. Sensex hasmissed it by 12 points and Bank nifty has made a lowerhigh at 21011 on Friday as compared to highest level ofthe previous weeks, which was at 20142.

Trend decider levels/major supports for the nifty haveturned upward. Medium term support level for the niftywas at 7900 above, which is held in the month of De-cember 2016 and now it moved to 8300. For the longterm trend of the market, the level of 7900 has re-placed to the level of 7700, which was earlier supportfor the market on long term basis. Such type of forma-tions helps to minimize the down side for the market.

Trend is turning stronger but one has to be cautious atcurrent levels as the nifty is close to major resistancezone 8950-9150. Since last two years the market is ar-resting around the same. The market is going upwardon the back of large cap stocks where trading positionsare still below the mark of overbought. It means themarket might correct to raise stop losses for positionallong traders.

Nifty would certainly cross the level of 9120 (all timehighest) however, while looking at the current breadthof the market, which is weak and stock specific we feelthat short term pause to current up move is not ruledout. If it holds true and that is more likely then the niftymay try to revisit 8700/8750 in the near term. However,based on “Time theory” it is mandatory for the nifty tosurpass the level 9120 by the end of current month toconfirm the next up move that can send the nifty be-yond 10,000 in next couple of months. Weak marketswould sustain below the level of 8700 as in that casewe may even see the levels of 8500.

In brief, 8900 and 9000 is the resistance crucial zone forthe market. It has to surpass 9120 by the end of cur-rent month and strong buying opportunity if nifty falls to8750/8700.

Sector Specific: Keep a watch on Metal and Energysectors to buy in all declines.


MONTHLY TECHNICAL OUTLOOK

14:FM A M J J A S O N D 15:J F M A M J J A S O N D 16:J F M A M J J A S O N D 17:J F

Lnr IRIS

Source : www.SpiderSoftwareIndia.Com6200

6400

6600

6800

7000

7200

7400

7600

7800

8000

8200

8400

8600

8800

9000

Cr

250

500

750

40.00

60.00

Price

Vol

RSI(14,E,9)

NSE Nifty [N59901] 8943.70, 8946.55, 8913.65, 8944.45, 128279744 0.06%

Wk

138968.70149119.20

15

NIFTY Weekly


ONE MONTH PORTFOLIO - MARCH 2017

NIFTY: 8880

Stock Weight MCap Current PE (x)(%) (Rs mn) Price FY17E FY18E Comment

(Rs)

ITC 10 3,150,026 262 30.8 26.2 Reassuring signals from the government, as excise dutyhike well below past five years’ average

Discount to average FMCG multiples providesprotection from downsides

M&M 10 808,192 1,312 21.0 20.6 Good monsoons are likely to keep tractor demand robust Increased share of tractor revenues will be positive

for overall EBITDA margin

Bharat Electronics 10 338,390 1,515 20.5 18.5 Strong order book of Rs 332 bn Robust order pipeline consisting of Akash Missiles

Ashok Leyland 9 257,990 91 21.6 16.5 4QFY17 could likely see pick-up in sales volumes on accountof pre-buying of trucks and buses, ahead of BSIV emissionnorms getting implemented from 1st April 2017.

Castrol 9 201,286 407 29.8 26.4 We have observed that for Castrol Quarter 2 (April- June)and Quarter 4 (Oct-Dec) of the calendar year are generallythe best quarters.

The company has gained market share in passenger vehicleoil segment. New product launches will further boostlubricant sales.

The company continues its focus on volume growth andinvestment behind power brands.

Engineers India 9 101,249 150 26.4 20.0 EIL expected to benefit from recovery in spending by majorhydrocarbon players like HPCL, BPCL and IOC. Companylikely to expand margins in FY17/FY18.

Allcargo Logistics 9 42,840 170 17.5 13.6 CFS segment expected to report 13.2% volume growthin FY18.

Multimodal Transport Operations (MTO) to report volumegrowth of 6% in FY18

Attractive valuation of 14x FY18E earnings

Hindustan Media 9 20,082 274 10.4 9.5 Stock potential beneficiary of UP/ Uttarakhand elections Robust business at cheap valuations

NCC 9 46,704 84 18.3 15.6 Likely to benefit from improved construction activities inAP/Telangana as well as incremental road projects goingforward.

Company has repaid nearly Rs 1.5 -2 bn worth ofhigh cost debt and and expects to reduce it further by Rs 2bn in FY17.

Mirza International 8 11,086 92 14.7 10.8 The company is focused on growing its domestic businessunder its flagship brand ‘Redtape’ and has diversifiedin to mass segment under new brand ‘Bondstreet’.

We believe that the weakness in exports market isbottoming out in the next few quarters and expect revivalin FY18E on a low base.

NIIT Limited 8 12,379 75 22.0 10.0 While 3Q revenue growth has been muted, we expect thesame to bounce back in 4QFY17 and beyond.

Initiatives of the new management have led to consistentimprovement in revenue growth and earlier-than-expectedbenefits on margins.

Source : Kotak Securities - Private Client research

FUNDAMENTAL STOCK RECOMMENDATION

Stock Recommendations

Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) EV/EBIDTA (x)Name of the Company Reco^ as on on latest price (Down- Report Cap

2-Mar Report target^ side) Date (Rs mn) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E(Rs) (Rs) (Rs) (%)

Agri-Products

Insecticides (India) Ltd BUY 562 577 621 10.5 09-Feb-17 11,611 28.2 38.8 19.9 14.5 13.4 16.2 11.8 9.3

Finolex Industries ACCUMULATE 543 503 540 (0.6) 07-Feb-17 67,382 25.3 27.0 21.5 20.1 29.8 26.6 13.4 12.5

Auto & Auto Ancillary

Apollo Tyres ACCUMULATE 186 184 196 5.6 03-Feb-17 93,568 22.0 24.5 8.4 7.6 16.7 16.1 5.6 5.5

Ashok Leyland ACCUMULATE 89 92 98 9.9 30-Jan-17 253,863 4.2 5.5 21.2 16.2 20.2 22.4 12.3 9.6

Bajaj Auto Ltd BUY 2,769 2,833 3,208 15.9 01-Feb-17 801,349 138.8 169.0 19.9 16.4 30.1 30.8 14.6 11.5

Eicher Motors Ltd # REDUCE 23,710 24,030 24,164 1.9 02-Feb-17 640,162 585.9 836.0 40.5 28.4 57.0 52.0 27.1 18.7

Escorts Ltd ACCUMULATE 462 393 421 (8.8) 10-Feb-17 56,466 15.1 26.3 30.6 17.6 9.3 14.8 18.4 11.7

Gabriel India Ltd ACCUMULATE 116 113 124 7.2 07-Feb-17 16,661 5.5 7.8 21.0 14.8 19.6 23.4 11.2 8.3

Hero MotoCorp Ltd BUY 3,178 3,265 3,692 16.2 10-Feb-17 635,630 173.1 199.5 18.4 15.9 39.7 38.4 12.4 10.7

Mahindra & Mahindra ACCUMULATE 1,349 1,278 1,410 4.5 13-Feb-17 830,830 62.4 63.7 21.6 21.2 15.2 14.9 16.7 14.2

Maruti Suzuki India Ltd ACCUMULATE 5,920 5,802 6,464 9.2 27-Jan-17 1,787,719 245.7 293.8 24.1 20.1 24.8 24.4 15.3 12.3

Motherson Sumi Systems Ltd SELL 362 351 297 (17.9) 14-Feb-17 478,595 10.6 14.2 34.1 25.5 24.6 23.1 12.4 8.7

Tata Motors ACCUMULATE 449 482 507 12.8 15-Feb-17 1,426,554 20.0 49.3 22.5 9.1 8.1 17.7 5.9 3.6

TVS Motors SELL 425 400 344 (19.1) 25-Jan-17 202,036 11.9 17.2 35.7 24.7 26.1 29.8 22.6 16.3

Building Material

Century Plyboards (India) Ltd ACCUMULATE 249 205 227 (8.7) 03-Feb-17 55,347 7.8 9.9 31.9 25.1 27.1 26.2 21.3 16.0

Greenply Industries Ltd REDUCE 293 255 259 (11.6) 25-Jan-17 35,359 10.1 11.8 29.0 24.8 18.0 17.2 15.5 14.2

Kajaria Ceramics Ltd ACCUMULATE 582 585 627 7.8 25-Jan-17 87,930 15.5 20.9 37.5 27.8 23.3 24.3 18.5 14.3

Supreme Industries Ltd REDUCE 989 919 940 (5.0) 27-Jan-17 125,660 29.6 39.1 33.4 25.3 28.1 30.5 17.0 13.6

Capital Goods & Engineering

ABB Ltd * BUY 1,236 1,220 1,478 19.6 10-Feb-17 261,889 32.0 42.2 38.6 29.3 19.0 21.1 23.0 18.1

AIA Engineering SELL 1,466 1,385 1,108 (24.4) 14-Feb-17 137,804 47.9 55.4 30.6 26.5 18.5 18.6 19.6 16.7

Bajaj Electricals Ltd ACCUMULATE 262 263 290 10.6 10-Feb-17 25,905 11.0 16.1 23.8 16.3 13.7 17.9 9.6 7.4

Bharat Electronics ACCUMULATE 1,521 1,540 1,663 9.3 30-Jan-17 365,076 74.1 82.0 20.5 18.6 20.1 21.9 15.5 13.4

BHEL SELL 160 152 151 (5.8) 08-Feb-17 392,132 3.6 7.6 44.5 21.1 2.7 5.4 19.4 9.7

MARCH 1, 2017


Blue Star Ltd ACCUMULATE 562 521 555 (1.2) 31-Jan-17 50,524 15.6 22.2 36.0 25.3 15.9 20.6 22.3 15.9

Carborundum Universal Ltd BUY 262 259 305 16.5 08-Feb-17 48,966 8.5 13.3 30.8 19.7 13.7 18.6 13.5 10.1

Crompton Greaves ACCUMULATE 69 71 77 11.0 13-Feb-17 44,527 0.6 3.8 115.7 18.3 0.9 5.2 8.6 5.8

Cummins India BUY 881 902 1,045 18.6 03-Feb-17 244,324 28.3 32.6 31.1 27.0 23.9 25.3 29.9 25.6

Elgi Equipment Ltd SELL 215 206 136 (36.7) 15-Feb-17 33,970 4.8 6.6 44.8 32.6 13.4 16.4 22.3 17.1

Engineers India Ltd ACCUMULATE 150 148 165 10.3 17-Feb-17 100,830 5.7 7.5 26.2 19.9 13.9 17.0 20.6 13.3

Greaves Cotton ACCUMULATE 164 142 153 (6.8) 17-Feb-17 40,065 7.7 8.5 21.3 19.3 21.4 22.6 21.5 11.8

Havells India Ltd ACCUMULATE 410 378 400 (2.5) 19-Jan-17 256,101 9.4 12.2 43.7 33.6 31.1 33.8 32.2 28.3

Larsen & Toubro ACCUMULATE 1,476 1,439 1,579 7.0 30-Jan-17 1,375,772 57.7 68.5 25.6 21.5 11.8 12.9 18.3 16.0

Praj Industries Ltd REDUCE 80 80 81 0.8 14-Feb-17 14,222 2.3 4.0 34.9 20.1 6.2 10.6 19.9 11.5

Siemens India * * SELL 1,217 1,218 1,170 (3.9) 09-Feb-17 402,810 27.2 33.4 44.7 36.4 13.9 15.2 29.2 25.0

Thermax SELL 871 860 815 (6.4) 10-Feb-17 103,661 22.0 27.2 39.6 32.0 8.5 11.2 23.4 20.7

Time Technoplast Ltd BUY 101 94 108 7.4 15-Feb-17 21,015 7.2 9.0 14.0 11.2 11.8 12.4 7.0 6.2

Va Tech Wabag Ltd BUY 587 490 555 (5.4) 14-Feb-17 31,087 16.2 27.8 36.2 21.1 8.3 12.7 10.7 10.5

Voltamp Ltd ACCUMULATE 957 940 1,035 8.2 16-Feb-17 9,666 65.0 69.0 14.7 13.9 13.0 13.0 14.8 13.1

Voltas Ltd ACCUMULATE 378 345 367 (2.9) 17-Feb-17 124,946 14.4 16.2 26.3 23.3 18.5 17.9 23.4 19.4

Cement

ACC ## REDUCE 1,409 1,426 1,484 5.3 06-Feb-17 264,643 34.3 62.3 41.1 22.6 7.4 12.4 20.8 12.9

Grasim Industries ACCUMULATE 1,006 970 1,058 5.2 31-Jan-17 461,113 66.2 73.8 15.2 13.6 12.3 12.8 6.1 5.0

India Cements ACCUMULATE 169 145 155 (8.3) 30-Jan-17 51,898 6.6 8.5 25.6 19.9 5.3 6.5 7.2 6.6

Shree Cement ACCUMULATE 16,126 15,677 16,890 4.7 31-Jan-17 561,840 377.9 523.6 42.7 30.8 21.8 24.2 21.9 16.4

UltraTech Cement ACCUMULATE 3,731 3,515 3,829 2.6 24-Jan-17 1,022,321 100.4 120.2 37.2 31.0 12.5 13.4 21.0 17.9

Construction

IL&FS Transportation Network UNDER REVIEW 103 117 NA - 16-Jan-17 19,942 4.5 7.3 22.8 14.1 2.2 3.5 15.7 13.4

IRB Infrastructure Developers BUY 237 228 287 20.9 27-Jan-17 78,886 18.9 16.2 12.6 14.7 12.8 9.9 7.1 7.2

KNR Construction ACCUMULATE 179 172 188 4.9 15-Feb-17 25,185 10.7 11.5 16.8 15.6 18.8 17.0 12.4 10.8

Nagarjuna Construction BUY 83 87 105 26.5 13-Feb-17 46,143 4.6 5.4 18.0 15.4 7.3 8.0 8.4 7.5

NBCC (India) Ltd REDUCE 165 191 196 18.7 15-Feb-17 148,590 3.7 5.4 44.5 30.6 20.8 25.6 33.8 20.9

PNC Infratech Ltd BUY 101 101 134 32.8 17-Feb-17 25,881 6.7 7.4 15.1 13.6 11.7 11.4 11.3 9.0

Simplex Infrastructures BUY 299 312 318 6.3 16-Feb-17 14,861 17.3 24.5 17.3 12.2 5.5 7.3 6.5 5.8





FMCG

Colgate Palmolive (India) Ltd ACCUMULATE 894 879 953 6.6 30-Jan-17 243,168 21.5 27.2 41.6 32.9 52.2 66.1 24.2 19.9

Dabur India Ltd BUY 276 276 311 12.6 01-Feb-17 479,949 7.3 8.9 37.8 31.0 26.4 27.4 30.2 24.0

Godrej Consumer Products Ltd SELL 1,660 1,604 1,448 (12.8) 31-Jan-17 537,159 38.7 42.5 42.9 39.1 23.5 21.8 28.8 25.4

Hindustan Unilever REDUCE 876 859 877 0.2 24-Jan-17 1,891,080 19.8 22.5 44.2 38.9 120.0 123.2 31.0 26.8

ITC Ltd BUY 269 270 309 15.1 02-Feb-17 3,116,480 8.5 10.0 31.6 26.9 31.5 34.5 21.1 17.7

Marico Ltd ACCUMULATE 279 256 280 0.4 06-Feb-17 359,223 6.2 7.8 45.0 35.8 33.3 36.2 31.3 25.3

Nestle India Ltd REDUCE 6,233 6,169 6,218 (0.2) 16-Feb-17 600,986 96.1 141.3 64.9 44.1 31.4 48.7 36.1 25.9

Pidilite Industries SELL 689 673 650 (5.7) 06-Feb-17 350,114 18.0 18.6 38.3 37.1 30.0 26.2 25.9 24.3

Information Technology

Cyient Ltd (Infotech) REDUCE 478 499 502 5.0 13-Jan-17 53,134 32.5 40.2 14.7 11.9 17.7 18.8 8.8 7.1

Geometric Ltd RATING SUSPENDED 261 240 NA - 18-Jan-17 16,332 20.5 NM 12.7 NM 24.9 NM 5.6 NM

HCL Technologies REDUCE 849 849 873 2.8 25-Jan-17 1,198,929 58.9 66.3 14.4 12.8 17.3 16.4 10.5 9.3

Infosys Technologies BUY 1,025 976 1,156 12.8 16-Jan-17 2,345,526 62.5 68.0 16.4 15.1 22.5 22.8 11.5 10.4

KPIT Technologies SELL 138 138 128 (7.5) 20-Jan-17 26,462 12.4 13.2 11.2 10.5 16.1 14.9 6.2 4.8

Mphasis Ltd SELL 592 564 524 (11.5) 02-Feb-17 123,590 39.1 41.1 15.1 14.4 13.4 13.1 9.9 9.2

NIIT LTD BUY 76 79 95 25.0 23-Jan-17 12,517 3.4 7.5 22.4 10.1 1.5 18.0 15.8 9.4

NIIT Technologies BUY 417 416 482 15.6 18-Jan-17 24,451 42.7 48.2 9.8 8.6 15.3 15.4 4.1 3.6

Oracle Financial Services Soft SELL 3,735 3,657 3,209 (14.1) 14-Feb-17 312,797 152.0 179.8 24.6 20.8 35.7 36.6 15.6 13.8

Tata Consultancy Services (TCS) REDUCE 2,480 2,345 2,410 (2.8) 13-Jan-17 4,853,471 134.7 146.1 18.4 17.0 40.6 35.4 13.6 11.9

Wipro Technologies REDUCE 489 473 495 1.3 27-Jan-17 1,195,335 34.5 38.8 14.2 12.6 18.3 18.8 9.7 8.1

Zensar Technologies ACCUMULATE 920 919 1,007 9.5 27-Jan-17 39,663 68.9 79.2 13.4 11.6 19.8 19.4 8.0 6.5

Logistics

Adani Port & Special Eco Zone BUY 303 306 350 15.7 15-Feb-17 610,294 17.5 20.1 17.3 15.0 22.3 20.8 15.0 13.7

Allcargo Global Logistics BUY 167 168 190 13.9 15-Feb-17 42,046 9.7 12.5 17.2 13.3 10.5 12.2 9.1 7.6

Blue Dart Express SELL 4,289 4,255 4,110 (4.2) 09-Feb-17 101,656 71.2 91.4 60.2 46.9 31.6 30.8 36.8 27.3

Container Corporation of India SELL 1,221 1,275 1,100 (9.9) 15-Feb-17 238,095 36.7 43.9 33.3 27.8 8.4 9.5 23.2 19.5

Gateway Distriparks Ltd BUY 250 265 305 22.0 09-Feb-17 26,995 8.8 13.9 28.4 18.0 8.5 12.5 10.5 8.4

Gujarat Pipavav Port Ltd (GPPL) BUY 154 141 175 13.7 02-Feb-17 65,254 5.0 5.5 30.8 28.0 11.3 11.5 15.1 13.8

VRL Logistics Ltd BUY 292 290 340 16.3 27-Feb-17 26,671 9.9 14.2 29.5 20.6 16.4 21.0 11.6 9.0





Media

Dish TV India Ltd ACCUMULATE 97 88 97 (0.1) 31-Jan-17 103,261 1.7 2.8 57.1 34.7 NM 46.3 10.1 9.1

Entertainment Network (ENIL) SELL 838 818 690 (17.7) 15-Feb-17 39,994 11.0 20.9 76.2 40.1 6.6 11.5 32.2 18.8

HT Media NR 85 - - - - 19,945 NM NM NM NM NM NM NM NM

Hindustan Media Ventures Ltd BUY 269 267 316 17.5 19-Jan-17 19,731 26.3 28.7 10.2 9.4 19.3 17.7 8.2 6.1

Sun TV Network BUY 724 724 818 13.0 13-Feb-17 285,256 25.0 28.5 29.0 25.4 30.3 39.8 15.2 13.4

TV18 Broadcast BUY 42 40 53 26.8 10-Feb-17 71,478 0.9 2.1 46.4 19.9 4.0 8.7 72.0 39.2

Zee Entertainment Ent SELL 506 479 400 (21.0) 25-Jan-17 495,259 10.9 16.0 46.5 31.7 18.3 19.7 26.9 21.3

Metals & Mining

Hindustan Zinc SELL 318 314 270 (15.1) 13-Feb-17 1,344,497 19.1 22.8 16.7 14.0 18.7 19.3 11.4 9.3

JSW Steel SELL 190 198 194 2.2 01-Feb-17 458,747 13.3 15.4 14.3 12.3 12.9 13.1 7.0 6.4

National Aluminium Co SELL 72 68 55 (23.1) 15-Feb-17 184,384 3.0 3.5 23.9 20.4 5.7 6.5 14.2 10.8

NMDC Ltd SELL 150 145 110 (26.8) 14-Feb-17 595,696 8.3 9.0 18.1 16.7 12.2 11.5 13.1 12.1

Tata Sponge Iron Ltd SELL 712 622 595 (16.5) 27-Jan-17 10,967 34.0 45.0 20.9 15.8 6.2 7.8 9.4 6.0

Oil & Gas

Aban Offshore Ltd SELL 238 245 191 (19.8) 07-Feb-17 13,821 NM 25.9 NM 9.2 NM 3.3 13.8 7.4

Cairn India Ltd SELL 292 274 209 (28.3) 10-Feb-17 546,616 13.3 15.2 21.9 19.2 5.0 5.5 8.8 4.1

Castrol India Ltd * * ACCUMULATE 410 424 470 14.6 23-Feb-17 202,844 13.7 15.4 30.0 26.6 73.9 78.0 19.0 17.2

Chennai Petroleum Corporation ACCUMULATE 380 331 356 (6.4) 24-Jan-17 56,687 65.4 71.2 5.8 5.3 35.8 29.4 4.8 4.6

Gujarat State Petronet Ltd (GSPL) ACCUMULATE 156 164 175 12.3 20-Feb-17 87,460 8.9 11.1 17.5 14.0 11.8 13.3 9.0 7.4

Indraprastha Gas (IGL) SELL 1,050 1,014 899 (14.4) 09-Feb-17 147,021 41.5 50.3 25.3 20.9 21.5 21.7 14.2 11.5

Mahanagar Gas Ltd SELL 874 922 827 (5.3) 14-Feb-17 86,307 41.0 43.8 21.3 19.9 24.9 23.8 11.9 11.0

MRPL ACCUMULATE 110 112 119 8.6 08-Feb-17 192,019 12.3 12.8 8.9 8.6 30.9 25.9 5.6 5.0

Oil India Ltd ACCUMULATE 333 329 349 4.8 01-Feb-17 200,256 28.5 32.2 11.7 10.3 8.7 9.6 4.3 3.7

Petronet LNG ACCUMULATE 400 384 412 2.9 15-Feb-17 300,263 21.8 25.4 18.4 15.8 19.7 22.3 10.9 8.5

Paints

Asian Paints Ltd ACCUMULATE 1,033 975 1,050 1.7 21-Feb-17 990,407 22.0 23.9 46.9 43.2 29.6 25.9 29.3 26.5

Berger Paints ACCUMULATE 231 223 240 3.9 14-Feb-17 224,213 4.6 5.4 50.2 42.8 24.8 23.9 30.4 27.1

Kansai Nerolac Paints Ltd BUY 356 344 385 8.2 01-Feb-17 191,749 9.4 9.8 37.8 36.3 24.4 21.8 25.1 24.3





Power

NTPC ACCUMULATE 160 172 184 15.0 09-Feb-17 1,318,948 12.0 12.1 13.3 13.2 10.7 10.2 7.7 6.6

Tata Power Company Ltd ACCUMULATE 82 82 89 8.6 13-Feb-17 194,467 6.5 7.3 12.6 11.2 15.1 15.2 8.4 7.5

Real Estate

Phoenix Mills Ltd ACCUMULATE 384 342 366 (4.7) 16-Feb-17 55,622 12.1 16.9 31.7 22.7 9.5 12.2 10.5 8.9

Shipping

GE Shipping Company SELL 374 388 335 (10.4) 07-Feb-17 56,833 68.2 60.1 5.5 6.2 11.0 9.0 4.6 4.6

Reliance Defence & Engg Ltd SELL 63 59 48 (23.6) 13-Feb-17 43,442 NM NM NM NM NM NM NM NM

Shipping Corporation of India SELL 63 66 54 (14.1) 13-Feb-17 26,617 2.8 3.1 22.4 20.3 1.8 2.0 9.3 3.6

Others

MT Educare Ltd REDUCE 99 103 106 7.0 16-Feb-17 3,944 4.3 7.6 23.0 13.0 11.1 17.4 8.3 5.9

Mirza International Ltd BUY 90 91 119 31.6 02-Feb-17 10,848 6.3 8.5 14.3 10.6 15.7 18.3 7.3 5.7

Mold-Tek Packing Ltd BUY 226 202 260 15.0 14-Feb-17 6,260 10.9 15.7 20.7 14.4 19.6 22.8 12.1 8.6


^ All recommendations are with a 9-12 month perspective from the date of the report/update. Investors are requested to use their discretion while deciding the timing, quantity of investment as wellas the exit.

* Figures for CY16 & CY17** Figures for CY17 & CY18# Figures for CY16 & FY18 (15 month period)## Figures for CY17 & CY18 - September year endingNR Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circum-

stances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.NM Not Meaningful





PREFERRED PICKS - FUNDAMENTAL

ADANI PORT AND SPECIAL ECONOMIC ZONEACCUMULATE

Current Market Price (Rs) 52 Week H/L (Rs) Mkt Cap (Rs mn)302 317 / 170 626256

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 72,558 83,042 93,422Growth (%) 17.7 14.4 12.5 EBITDA 47,560 54,300 60,441EBITDA margin (%) 64.6 65.4 64.7PBT 31,377 38,932 44,164Net profit 28,108 35,220 40,547EPS (Rs) 13.9 17.5 20.1Growth (%) 20.8 25.3 15.1 CEPS (Rs) 19.3 23.0 25.8Book value (Rs/share) 63.0 78.4 96.5Dividend/share (Rs) 2.0 2.0 3.0 Source: CompanyROE (%) 22.1 22.3 20.8ROCE (%) 11.2 11.6 11.7Net cash (debt) (188,187) (195,893) (192,883)Net Worcking Capital (Days) 16.9 17.1 18.9

VALUATION PARAMETERS FY16 FY17E FY18EP/E (x) 21.7 17.3 15.0 P/BV (x) 4.8 3.9 3.1 EV/Sales (x) 11.2 9.9 8.8 EV/EBITDA (x) 17.1 15.1 13.6

PRICE PERFORMANCE (%) 1M 3M 6M(0.6) 13.7 12.7

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research

Last report at Rs.306 on 15 February 2017

Analyst: [email protected]

Target Price (Rs)350

Volume Projections (mn tonnes)

Potential Upside (%)15.7%

1 Year Performance

Share Holding Pattern (%)

Quarterly Breakup of volumes (mn tonnes)

Promoter56.3%FII

23.9%

DII14.3%

Others5.5%

50

110

170

230

290 Adani Port & Special Economic Zone Nifty

INVESTMENT ARGUMENT Strategic moves by APZ in the last 12 months including development of a

new port at Vizhinjam, acquisition of Kattupalli port, a transshipment hub at Mundra, expansion of Dhamra, creating LPG storage in Mundra and acquisition of Abbot Point Bulk coal Ltd (APB)

The company intends to focus on container and Liquid cargo which adds value to APZ as they have higher margins, lower turnaround time and require lesser investment in terms of infrastructure

APZ now has 10 ports in its fold with the next phase of growth estimated to come from subsidiary ports of Hazira, Dahej and Dhamra.

Management also expects healthy SEZ income over FY16 to FY18E on the back of addition of new assets at the port

Management is also making efforts to enhance non-port revenues, taking measures to bring down cost of debt and other cost and have taken cognizance of investor concerns with respect to third party transactions

We estimate APZ to deliver earnings CAGR of 20% and ROE of ~21%, despite a tough global trade environment.

RISKS & CONCERNS Competition from ports on the west coast including JNPT Weak coal imports Slowing economy and trade Slow capex at SEZs

COMPANY BACKGROUND APZ has entered into an agreement with GMB to build, operate and

maintain the port for a period of 30 years till 2031 extendable by another 20 years.

The port is into providing cargo handling services for bulk, crude and container cargo.

SECTOR BACKGROUND Demand for port infrastructure is driven by the 3Cs: coal, containers and

crude.

0.05.0

10.015.020.0

25.0

30.035.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

Mundra Others

0

50

100

150

200

250

FY14 FY15 FY16 FY17E FY18E

Mundra Total



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 47,243 50,644 58,330 Growth (%) 7.2 7.2 15.2EBITDA 7,604 8,080 9,432 EBITDA margin (%) 16.1 16.0 16.2 PBT 9,064 9,453 10,887 Net profit 7,517 7,846 9,036 EPS (Rs) 27.1 28.3 32.6 Growth (%) 8.1 4.4 15.2 CEPS (Rs) 30.0 31.4 35.8 BV (Rs/share) 114.4 122.8 134.4 Dividend/share (Rs) 14.0 17.0 18.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 24.8 23.9 25.3 ROCE (%) 23.2 22.5 24.0 Net cash (debt) 873 1,058 802 NW Capital (Days) 51.6 46.1 44.4


PRICE PERFORMANCE (%) 1M 3M 6M(2.2) 16.8 (4.4)

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company


CUMMINS INDIA LTD Analyst: [email protected]


Revenue mix (%)


1 Year Performance


Export Sales (Rs bn)

Promoter51.0%

FII15.1%

DII20.9%

Others13.0%

0

10

20

30

40

50

60

Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

Power44%

Industrial18%

Automotive6%

Distribution32%

50

100

150

200

250

300 Cummins India Ltd Nifty

INVESTMENT ARGUMENT CIL is market leader in mid/high KVA oil engines in India. Company is well poised to benefit from recovery in the

infrastructure spending in the country. Commencement of mega production site at Phaltan is likely to

ease out capacity constraints and would add to cash flow generation in future. Company has committed a Capex of USD 300 mn funded mainly through internal accruals.

We recommend 'BUY' on company's stock with a DCF based price target of Rs 1045.

RISKS & CONCERNS Slowdown in industrial production and core sector growth Rising interest rate scenario can put further pressure on domestic

capex cycle.

COMPANY BACKGROUND A Cummins Inc subsidiary. Significant player in domestic market Diversified across power, industrial and automotive sector.

SECTOR BACKGROUND Oil engines (backup power) sales is expected to grow with the

overall economic growth going ahead. Indian Low KVA oil engines market is highly competitive. Mid/High

KVA engines space is dominated by few players.



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 624,410 688,865 753,376 Growth (%) 17.1 10.3 9.4EBIT 156,189 166,239 181,726 EBITDA margin (%) 25.0 24.1 24.1 PBT 187,439 200,589 223,497 Net profit 134,909 142,972 159,801 EPS (Rs) 59.0 61.3 67.9 Growth (%) 9.4 3.9 10.7 CEPS 70.0 73.1 80.7 Book Value (Rs / Share) 270.3 288.4 307.1 Dividend per Share (Rs) 53.8 45.0 50.0 Source: CompanyROE (%) 23.2 22.2 22.9 ROCE (%) 32.2 31.1 32.0 Net cash (debt) 328,778 378,067 408,361 Net working capital (Days) 65.0 62.8 63.3


PRICE PERFORMANCE (%) 1M 3M 6M9.8 6.5 (0.4)


Geographical Revenue Break up (%)


1 Year Performance


Number of Employees (Nos)

Last report at Rs.976 on 16 January 2017

INFOSYS TECHNOLOGIES LTD Analyst: [email protected]


Promoter12.8%

FII40.1%

DII17.8%

Others29.2%

0

50,000

100,000

150,000

200,000

FY13 FY14 FY15 FY16

80

110

140

170 Infosys Technologies Nifty

INVESTMENT ARGUMENT The performance for FY17 has been muted because of client-specific

issues and internal reorganization. However, we believe that, the new strategy should allow Infosys to improve growth rates over the long term with sustained margins.

The long-term strategic plan reflects Infosys’ focus on next-generation services and delivery models.

Infosys has already made significant progress towards next-generation services and delivery mechanisms.

Benefits of the new strategy are visible in terms of deal wins and client scale-ups and reducing attrition. A coherent sales strategy and smaller business units with P&L responsibilities should lead to agility and competitive gains for Infosys, going ahead.

RISKS & CONCERNS A slower-than-expected recovery in major user economies may impact

our projections. A sharp appreciation of rupee beyond our assumed levels may impact

our earnings estimates for the company.

COMPANY BACKGROUND Infosys was incorporated in 1981 by 7 engineers, led by Mr. Narayana

Murthy. Infosys had been the proxy for the Indian IT sector since its inception.

The company has been an outstanding corporate citizen in terms of corporate governance in India. Infosys services clients in over 30 countries.

SECTOR BACKGROUND IT services exports are expected to amount to nearly $118bn in FY17. Indian companies provide services to several Fortune 500 companies. Banking & Financial services sector accounts for the largest revenues

and USA is the largest geography for the industry

0

20

40

60

80

FY13 FY14 FY15 FY16

USA Europe India Others



IRB INFRASTRUCTURE DEVELOPERS LTDBUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 52,541 59,312 64,738 Growth (%) 32.7 12.9 9.1 EBITDA 27,846 31,419 33,827 EBITDA margin (%) 53.0% 53.0% 52.3%PBT 8,680 9,159 8,585 Net profit 6,360 6,644 5,702 EPS (Rs) 18.1 18.9 16.2 Growth (%) 17.1 4.5 (14.2) CEPS(Rs) 42.4 48.0 48.2 Book value(Rs/share) 139.8 156.3 170.1 DPS (Rs) 2.0 2.0 2.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 13.7 12.8 9.9 ROCE (%) 10.5 10.8 10.9 Net cash (debt) 125,596 142,346 161,003 Net Working Capital (Days) 52 52 52







Segmentwise Revenue Break up (Rs mn)


1 Year Performance


Order book break up (Q3FY16)

Promoter57.4%

FII27.8%

DII8.0%

Others6.8%

15.0%

2.0%6.0%2.0%

9.0%

4.0%17.0%17%

12.0%

16.0%O&M contractsSindhudurg airportGoa-KundapurSolapur YedeshiYedeshi AurangabadRajasthan KaithalUdaipur-GujAgra EtawahKishangarh-GulabpuraGulabpura-Chittorgarh

50

110

170

230

290

350 IRB Infrastructure Developers Ltd Nifty

INVESTMENT ARGUMENT Company’s current order book stands at Rs.120bn with Rs.48bn in

ongoing projects, Rs 17.5 bn in O&M phase and Rs.54.36bn from recently awarded projects.

Various projects have witnessed sharp improvement in traffic volumes leading to healthy growth in toll revenues. Average toll collection per day for the company is also expected to increase going forward led by improvement in tolling across projects.

During the current fiscal, company has received a healthy order inflow of road BOT projects totaling nearly 329 km on NH-79 and NH-8. With this IRB has met its order inflow guidance for the current fiscal which was expected to be around 300-400km.

We expect EPC revenues in FY17 to be largely driven by execution of Goa-Kundapur, Solapur-Yedeshi, Yedeshi-Aurangabad and Rajasthan-Kaithal project and going ahead, from new projects.

Company has also taken a board approval for setting up an Infrastructure Investment trust to unlock value and raise funds for future growth and equity commitments.

RISKS & CONCERNS Delays in financial closure of recently awarded projects Lower than expected toll revenues or slowdown in traffic growth Execution delays or slower than expected decline in interest rate

COMPANY BACKGROUND IRB is an experienced player in road BOT segment and likely to benefit

from upcoming project awards in road segment It has the second largest road BOT portfolio in the country and currently

has 23 projects in its portfolio.

SECTOR BACKGROUND NHAI has ramped up the awarding process and along with MoRTH, it is

likely to achieve healthy growth in order awards as compared to FY16. Further inflow in EPC and BOT segment is expected in coming quarters

0

10000

20000

30000

40000

50000

60000

FY11 FY12 FY13 FY14 FY15 FY16

Toll EPC



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 515,825 547,008 622,993 Growth (%) NM 6.0 13.9 EBITDA 133,558 142,686 166,627 EBITDA margin (%) 25.9 26.1 26.7 PBT 143,396 154,627 181,620 Net profit 92,447 102,054 119,869 EPS (Rs) 7.7 8.5 10.0Growth (%) NM 10.4 17.5CEPS (Rs) 8.5 9.4 10.9Book value (Rs/share) 27.4 26.5 31.3Dividend per share (Rs) 5.7 4.4 4.4 Source: Kotak Securities - Private Client ResearchROE (%) 29.0 31.5 34.5ROCE (%) 23.7 25.7 29.3Net cash (debt) 65,640 100,498 140,951 Net Working Capital (Days) 213 178 204





ITC LTD Analyst: [email protected]


Cigarette EBIT Growth (%, y/y)


1 Year Performance


Cigarette Volume Growth (Est., %, y/y)

90100110120130140150160 ITC Ltd Nifty

INVESTMENT ARGUMENT Trend of cigarette volume growth suggests that, after a reshuffle

in cigarette consumption patterns, there is stability in the cigarette market. ITC, which has c.80% market share in the cigarette market, is likely to see a fair degree of stability in revenue growth going forward.

The cigarette industry has been able to combat structural negatives with a higher mix of <65mm cigarettes. In ITC’s own product mix, <65mm cigarettes now contribute more than 30% (as per our channel checks)

Recent excise duty hikes suggest a more benign approach in excise duty hikes, after ~15% hikes through FY13-FY16. 9-10% growth in cigarette EBIT is now the base-case scenario, unless tax trajectory changes significantly. Moreover, other divisions of ITC (paper, hotels, agri-business) have a weak base, and could surprise positively.

Valuations of ITC are attractive relative to large-cap FMCG plays, as well as ITC’s own historical bands.

RISKS & CONCERNS Significant changes in tax trajectory, including potential negatives

from GST rollout

COMPANY BACKGROUND ITC is India's largest cigarette company, with c.80% market share.

The company is also involved in several other segments, which include non-cigarette FMCG goods, paper, paperboards, and packaging, hotel, and agri-business.

SECTOR BACKGROUND Indian FMCG sector’s size is pegged at Rs 3 Trillion with rural

India contributing to about a third of the revenues.

-20

-15

-10

-5

0

5

10

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

3.1

20.27

11.2

21.119.67

33.67

0.98Mutual Funds

FPIs

Financial Institutions/ Banks

Insurance Companies

Non-Institutions

Corporate Bodies

Other



ACCUMULATE


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 1,026,317 1,110,056 1,241,422 Growth (%) 11.6 8.2 11.8EBITDA 123,427 118,195 134,074 EBITDA margin (%) 12.0 10.6 10.8 PBT 80,867 95,749 112,074 Net profit 47,110 53,754 63,795 EPS (Rs) 46.7 57.7 68.5 Growth (%) (2.1) 23.5 18.7 CEPS (Rs) 76.3 80.3 91.0 Book value (Rs/share) 470.4 508.0 556.2 Dividend per share (Rs) 17.0 18.0 18.0 Source: CompanyROE (%) 10.3 11.8 12.9 ROCE (%) 3.6 3.3 3.6 Net cash (debt) (954,050) (874,524) (878,540) Net Working Capital (Days) 105.4 117.3 114.9


PRICE PERFORMANCE (%) 1M 3M 6M0.7 9.2 (1.2)


Revenue mix


1 Year Performance


Order intake Rs bn


LARSEN & TOUBRO LTD Analyst: [email protected]


75

100

125

150

175

200 Larsen & Toubro Nifty

INVESTMENT ARGUMENT L&T is a diversified p lay on the Indian in frastructure and Industrial sector. The order backlog of Rs 2.58 trn remains strong providing visib ility of 34

months of trailing four quarter revenue. The company has given revenue growth gu idance in FY17 of 10%. Stock performance would be contingent on newsflow on larger order wins,

commodity price trends and genera l economic and po licy datapoints (interest ra te cuts and mining and power sector reforms), we opine.

We expect stock to respond favourably to any reforms moves to address the issues that have plagued the power sector

RISKS & CONCERNS

Main ly project execution and commodity price risks. Project investments has slowed down in recent quarters, which may impact

order flow in the coming quarters.

COMPANY BACKGROUND Professionally m anaged engineering company. Presence across Midd le East and Central Asia Diversified across Power, Infrastructure, Hydrocarbons, Railways, Shipbuilding, Nuc lear etc

SECTOR BACKGROUND The sector is a play on the growth of industrial and in frastructure investm ent

in India as well as abroad Government is a sign ificant investor in the sector as it rolls out its investm ent

plans in road bu ilding, railways, power and energy. Sector has in the recent years been bogged down by h igh interest rates and

delay in decision making at government level.

0

100

200

300

400

500

Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

0%

15%

30%

45%

60%

FII17%

DII40%

Others43%



ACCUMULATE


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 577,463 673,704 822,924 Growth (%) 15.6 16.7 22.1EBITDA 89,785 104,321 125,562 EBITDA margin (%) 15.5 15.5 15.3 PBT 65,350 101,689 121,585 Net profit 45,714 74,233 88,757 EPS (Rs) 151.3 245.7 293.8 Growth (%) 23.3 62.4 19.6 CEPS (Rs) 244.8 330.5 386.3 BV (Rs/share) 894.0 1,085.6 1,325.1 Dividend / share (Rs) 35.0 45.0 45.0 Source: CompanyROE (%) 18.0 24.8 24.4 ROCE (%) 25.2 33.5 33.0 Net cash (debt) 174,241 217,619 290,374 NW Capital (Days) (14.1) (12.7) (12.8)





MARUTI SUZUKI INDIA LTD Analyst: [email protected]


Market Share (%)


1 Year Performance


Sales Volumes (Units)

Promoter56.2%FII

22.1%

DII15.0%

Others6.7%

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

48.0

45.9 46.5 44.7 45.3

38.4 40.1

42.1

45.0 46.8

35

40

45

50

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

50

150

250

350

450 Maruti Suzuki India Ltd Nifty

INVESTMENT ARGUMENT We expect MSIL's volumes to grow at a strong pace aided by expected,

recovery in rural areas, continued robust demand for recently launched products (Baleno, Brezza, Ignis), expansion of Nexa network and demand in favor of petrol run vehicle. Furthermore facelifts, upgrades and variants of existing models will also drive sales for the company in FY18.

With strong presence in rural areas and dominance in the entry level car segment, MSIL will be the key beneficiary of rural demand recovery.

In recent years, the company made substantial strides in the premium car segment. MSIL has big opportunity to gain market share in the premium segment. Focus on premium products and scaling-up of distribution network will translate into share of premium products in MSIL's product mix increase in a meaningful way

We expect MSIL's EBITDA margin to stay healthy in FY18.

RISKS & CONCERNS Lower than anticipated growth will jeopardize our revenue and profit

estimates. MSIL benefits from yen depreciation. Any unfavorable movement of yen

can have significant impact on the company's profitability.

COMPANY BACKGROUND MSIL, India's largest passenger car company, is a subsidiary of Suzuki

Motor Corporation of Japan. Formed as a government owned company (Maruti Udyog Limited), it entered into a JV with Suzuki Motor Corporation. Over the years the company has been one the most successful player in the Indian car market.

SECTOR BACKGROUND India’s passenger vehicle industry sold ~3.4mn vehicles in FY16. While

81% of sales happened in the domestic market, balance 19% were exported. Top five players account for ~80% of domestic industry sales volumes.



BUY


Source: Bloomberg

Source: Company

FINANCIALS (RS MN) FY16 FY17E FY18ESales 9,258 9,439 11,012 Growth (%) 0.8 2.0 16.7EBITDA 1,706 1,658 2,068 EBITDA margin (%) 18.4 17.6 18.8 PBT 1,158 1,115 1,520 Net profit 781 752 1,025 EPS (Rs) 6.5 6.3 8.5 Growth (%) 52.6 (3.7) 36.3 CEPS (Rs) 8.6 8.6 11.0 Book value (Rs/share) 37.0 42.6 50.3 Dividend per share (Rs) 0.5 0.7 0.9 Source: chemicals.nic.in, CompanyROE (%) 20.6 15.7 18.3 ROCE (%) 24.0 19.9 23.2 Net cash (debt) (1,936) (1,209) (929) Net Working Capital (Days) 112 120 121



Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research

Healthy Operating Cash Flows & RoCE


1 Year Performance


Indian leather exports trend


MIRZA INTERNATIONAL LTD Analyst: [email protected]


Promoter74.0%

FII1.0%

Others25.0%

0100200300400500600700 Mirza International Ltd Nifty

INVESTMENT ARGUMENT MIL has a fully integrated business model with in-house manufactur ing and

marketing its products under Redtape brand, which makes it different from peers. MIL is focused on growing its domestic business under Redtape brand which has

grown at a CAGR of 20% in FY11-16 in domestic market. I t intends to grow Redtape business by aggressive marketing through different modes ( including EBOs) and increasing focus on online business

MIL is planning to foray in the affordable segment under the new brand ‘Bondstreet’ in domestic market in order to tap huge growth opportunity in the segment. It intends to penetrate this segment by offering quality products at a competitive price to its competitors.

We believe that the slowdown in exports business is near its bottom and expect revival in FY18.

MIL has a track record of generating 20% plus RoCE and positive operating cash flows, based on robust margins and control over working capital.

RISKS & CONCERNS Aggressive expansion of EBOs may increase working capital Forex volat ility risk

COMPANY BACKGROUND Mirza International Ltd (MIL), incorporated in 1979, is engaged in manufacturing

and marketing of leather footwear and accessories in the international (75% of sales) and domestic (25% of sales) markets. The company is focused on high-end fashion footwear segment and sells its products through exclusive brand outlets, large format stores and multi brand out lets. The company has a fully integrated in-house shoe production facility backed by its own tannery with its own pollution treatment plant, and a dedicated design studio.

SECTOR BACKGROUND The size of Indian leather industry is ~USD 12 bn and has been growing at a

CAGR of 13% in the last 5 years. Exports account for approximately 50% of the industry ($ 5.9 bn). India is the second largest producer of leather next to China and is fifth largest exporter of leather goods and accessories. 80% of the domestic market is controlled by the small and household units while large and medium units are either tanneries or shoe manufacturing companies.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

10

210

410

610

810

1010

1210

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

OCF (Rs mn, LHS) RoCE (RHS, %)

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

-2000

0

2000

4000

6000

8000

FY12 FY13 FY14 FY15 FY16

Leather exports (LHS, $ mn) YoY Growth (LHS, %)



NAGARJUNA CONSTRUCTION COMPANY LTDBUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 82,634 83,956 92,352 Growth (%) 0 2 10EBITDA 6,756 7,556 8,312 EBITDA margin (%) 8.2 9.0 9.0PBT 2,960 3,876 4,587 Net profit 2,229 2,558 3,027 EPS (Rs) 4.0 4.6 5.4 Growth (%) 99 15 18CEPS (Rs) 6.0 6.8 7.7 Book value (Rs/share) 61.2 65.4 70.5 Dividend per share (Rs) 0.4 0.4 0.4 Source: Company, Kotak Securities - Private Client ResearchROE (%) 6.7 7.3 8.0 ROCE (%) 15.0 14.0 14.6 Net cash (debt) (17,190) (14,611) (14,358) Net Working Capital (Days) 146.0 146.0 146.0


PRICE PERFORMANCE (%) 1M 3M 6M(6.4) 3.4 (8.1)





Segmentwise Revenue Break up (%)


1 Year Performance


Order book break up (%)

Promoter20.4%

FII26.6%

DII17.5%

Others35.5%

41

19

10

7

15

8

Roads,building,oil

Water and railways

Irrigation

Electrical

Mining

Internatnal

0

200

400

600

800 Nagarjuna Construction Company Ltd Nifty

INVESTMENT ARGUMENT Nagarjuna Construction Co Ltd, a leading player in infrastructure segment

has a strong order book o f Rs 205 bn providing visib ility for two years. Company’s order book is well divers ified across roads, building, oil & gas

(41%), water & railways (19%), irrigation (10%), electrical (7%), mining (15%) & Int'l (8%).

Company is set to benefit from government’s continued push on infrastructure. It has bagged Rs 93.2 bn in 9MFY17 and expects to bag Rs 120 bn worth of new orders during FY17. It is quite optimistic on order inflows from AP/Telangana in water supp ly, irrigation and bu ilding segm ent.

Profitab ility improvement over past few quarters was largely led sharp reduction in interest expense. Company has repaid nearly Rs 1.5 -2 bn worth of high cost debt and and expects to reduce it further by Rs 2 bn in FY17. It now has an improved Balance Sheet with gross debt at Rs.20.6 bn as on 30th Sep'16 and debt/equity ratio of 0 .6:1.

Healthy order book, stable margins and reasonable leverage is like ly to lead to CAGR of 6% on revenues and 17% on reported PAT over FY16-18E. We maintain positive bias for the stock and recommend BU Y on the stock.

RISKS & CONCERNS Delays in order in flow across verticals m ay impact revenue growth going

forward Delays in stake sale real estate projects may keep debt at higher levels

COMPANY BACKGROUND Order book currently is diversified across roads, building, oil and gas, water

and railways, irrigation, electrical, mining, internationa l, metals and power.

SECTOR BACKGROUND Order inflow is likely to increase going forward during the fisca l due to

improvement in macro-economic climate. We expect buildings, water supply, and irrigation to continue to witness increased activity thereby leading to better order inflows.

0

25

50

75

100

FY13 FY14 FY15 FY16

Power Metals InternatnalMining Electrical IrrigationWater and railways Roads,building



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,521 10,269 11,769 Growth (%) NM (2.4) 14.6 EBITDA 1,056 1,034 1,828 EBITDA margin (%) 10.0 10.1 15.5 PBT 1,957 1,616 3,874 Net profit 2,047 1,572 3,622 EPS (Rs) 1.2 0.9 2.1Growth (%) 30.5 (23.2) 130.5 CEPS (Rs) 1.4 1.1 2.4 Book value (Rs/share) 22.3 23.2 25.2 Dividend per share (Rs) - - - Source: BARC, Note: Imp. Stands for impressions in the headline aboveROE (%) 5.5 4.0 8.7 ROCE (%) 5.5 4.1 8.8 Net cash (debt) 200 1,074 3,911 Net Working Capital (Days) 74 99 110


PRICE PERFORMANCE (%) 1M 3M 6M14.0 13.4 0.2

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Kotak Securities - Private Client Researh

CNBC TV-18 Budget Week Viewership


1 Year Performance


Top 10 Hindi GEC (Urban) Week 5, 2017(Imp., mn)


TV18 BROADCAST LTD Analyst: [email protected]

Target Price (Rs)53

Promoter60.3%FII

8.9%

DII7.3%

Others23.5%

70

120

170

220

270 TV18 Broadcast Ltd Nifty

NVESTMENT ARGUMENT TV18 owns one of the most attractive bouquets in the Indian TV

Broadcasting industry (news operations, 50% ownership in entertainment/ infotainment operations via JVs), and valuation (mkt. cap ~Rs 70Bn) versus peers (Zee Entertainment ~Rs 520 Bn, Sun TV ~Rs 300 Bn) indicates significant scope for appreciation.

Strong performance in entertainment channels’ ratings points to strong earnings ahead: Colors, the flagship channel of Viacom18, has emerged as the #1 Hindi GEC in several weeks of 2016/17; regional channels too bringing in strong performance. IPO pipeline being strong is a positive signal for business news performance. Additionally, near-term earnings will benefit from political advertising (UP elections). We expect strong earnings growth with EBITDA CAGR of 47% between FY16-FY18E.

The company is likely to report strong earnings as and when the negative impact of recent launches fades (2HFY17). Valuations are attractive, at 15X FY18E PER (>40% discount to Zee Entertainment). Our price target implies PER of 22X FY18E.

RISKS & CONCERNS Ratings performance of key channels is the key risk.

COMPANY BACKGROUND TV18 Broadcast is amongst the largest TV broadcasting companies in

India, with presence in news as well as entertainment. The company has a 50:50 JV with Viacom ("Viacom18) which operates,

among others, Hindi GEC Colors. TV18 has bought a 50% stake in ETV entertainment channels (other than Telugu) and 100% stake in ETV News channels.

SECTOR BACKGROUND Indian TV Broadcasting is a Rs 540 Bn industry, with Rs 175 Bn in

advertising revenues. The sector is positively exposed to digital addressability, which should bring benefits to broadcasters/ platform providers.

-

100

200

300

400

500

0

500

1000

1500

CNBC TV18 ET Now NDTV Profit Bloomberg TV

CY2016 CY2017


Fundamental Desk

Technical Desk

Shrikant Chouhan

Derivatives Desk

Sahaj Agrawal

RESEARCH TEAM

Dipen ShahIT, Economy

Sanjeev ZarbadeCapital Goods, Engineering

Teena VirmaniConstruction, Cement

Arun AgarwalAuto & Auto Ancillary

Ruchir KhareCapital Goods, Engineering

Ritwik RaiFMCG, Media

Sumit PokharnaOil and Gas

Amit AgarwalLogistics, Paints, Transportation

Jatin DamaniaMetals & Mining

Pankaj KumarMidcap

Nipun GuptaInformation Technology

Jayesh KumarEconomy

K. KathirveluProduction

Amol Athawale

Malay Gandhi Prashanth Lalu Prasenjit Biswas


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Monthly Report - March 2017 - Kotak Securities · ing Q3FY17, especially in the month of December 2016 which saw a 9% y-o-y contraction in sales volume. While the availability of