01-12-2016

Demonetisation Impact : A magical spell for Indian equities

Need for Demonetisation : To Axe the Devil called “ Black money”

• Demonetisation to have positive impact in long run with reduced tax rate on account of higher tax revenue to government with higher legal money base and reduced interest rate scenario to lead the demand in consumption on account of higher disposable income.

• Demonetisation is going to lead the flow of household savings to equities as most preferred asset class to bet on to beat the inflation. Bank FD, Fixed Income products, Real Estate , jewellery will no longer remain lucrative.

• Capital markets increased exposure on account of demonetisation with boost in GDP indicate promising India Story for 2017.

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5000

10000

15000

20000

25000

30000 Indian Equities 2000-2008 & 2008 -2016 : 8 Yr Cycle

V Shape recovery took 2 years in each cycle

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Auto Bankex Cap Goods FMCG Pharma IT Metal Oil Sensex 4 Years (2008-2012) 2 Years (2012-2014) 2 Years (2014-2016)

Auto, Banking, Pharma out-performed Indices in each 8 yr Cycle

Every fall brings buying opportunity…?

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PE – FY18E

Indian Markets valuations at “HOT SPOT” based on World Markets

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13.6% 11.6% 11.3% 10.5%

8.7% 8.6% 7.7%

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Contribution to Market Cap

7 5 % o f M a r k e t c a p i s c o n t r i b u t e d b y 6 s e c t o r s

Recent price correction, Nifty P/E (price-to-earnings)

has corrected to 14.6x (times), which is at a 10%

discount to its five-year average. It is at 26 month low

compared to other emerging markets.

Which are beneficiaries sectors post

demonetisation?

INSURANCE AUTO ANCILLARY

AGRICULTURE

Macro Level Investments – Insurance (Opportunity)

• Increasing investments from the Private Sector

• Improving distribution network from the existing players

• Public Listing route to generate funds (ICICI Prudential Life Insurance – Rs 6,057

cr IPO)

• Insurance penetration in India is 3.3%(FY15) compared to the global average of

6.23%.

In 2015 , Insurance FDI increased to 49% attracting $1.13 Bn in FY2016

Players to focus

Bajaj Finserv has upside potential of 33% at Rs.3,925 per share on SOTP basis

1. Insurance Business (holding discount 30%) Rs.2,458 per share

2. Bajaj Finance holding 57.6% (holding discount 30%) Rs.1,467 per share

Total value of Bajaj Finserv Rs.3,925 per share

Bajaj Finserv outperformed the Indices

Bajaj Finserv is a financial conglomerate engaged in

life insurance, general insurance, consumer finance

and other financial products through its subsidiary

ICICI Prudential Life Insurance Company Limited,

largest private sector life insurer by total

premium in FY16 and AUM as of 31 March 2016

with 12.4% industry market share as on Sep

2016.

ICIC Pru has upside potential of 29% at Rs.391 per share

The stock is attractively valued at 2.6x FY18E Embedded Value

(considering RoEV of 12%) compared to recent peers deal.

Macro Level Investments – Auto Ancillary (Opportunity)

• India’s emergence as a global R&D player

• Strong Government support

• Innovations – digital technology, emission free, hybrid and electric

cars

Players to focus

$11.8 Bn FDI Equity Inflows between FY 2010-16

Passenger Vehicle

31% CAGR Estimated Production

between FY 16-20

35.5% CAGR Estimated Production

between FY 16-20

Commercial Vehicle

2/3 Wheeler

15.4% CAGR Estimated Production

between FY 16-20

BFL has upside potential of 29% at Rs.1157

Trading at 31.4x FY17E and 21.7x FY18E earnings.

Bharat Forge Limited (BFL) focuses on supplying high-end engineered forging products.

Present across India & Europe with total tonnage capacity of ~580,000 MT - drive ~55% of its revenue from CV segment and ~45% from other segment like PV, oil & gas, power, railways etc.

BFL is increasing focus on new verticals like railways, aerospace, defence, mining & renewable.

• Exide has upside potential of 30% at Rs.227 on SOTP Basis

Exide Industries - FY18E EPS 9.7 @ 20x Rs.194

Life Insurance Business (holding discount - 40%) Rs.33

Exide is well poised to benefit from recovery in automotive demand and capacity expansion.

Going forward its margin is likely to improve due to cost reduction initiative and focus on profitable segment.

Further with GST implementation Exide would be biggest beneficiary.

Macro Level Investments – Agriculture (Opportunity)

• As per a research conducted by Assocham, India annually loses crops

worth close to Rs.50,000 crore to pests & diseases.

• India is the fourth largest global producer of agrochemicals after the US,

Japan and China.

• Agrochemicals worth USD 4.1 billion are expected to go off-patent by

2020.

• Sugar, the second-largest agro-based industry in India

• Sugar price started picking up from September 2015

Players to focus

Domestic

FY15

Exports

FY15

Domestic

FY20

Exports

FY20

7.5%

Indian Crop Protection Market

UPL has upside potential of 40% at Rs.887. Trading at PE of 12.9 x its FY18E EPS of Rs 49.3.

valuing UPL 18x its FY18

UPL is a leading global generic player in the Agrochemical Industry and ranks among the top-10 post patent generic agrochemical manufacturers in the world.

International revenue comprised 80% of its total revenue and branded generics contribute 85% of total revenue.

It will be rerated going ahead post Zeba launch

EID upside potential of 38% at Rs.341 SOTP valuation – 62% stake Coromandel (at 30% discount) = 186/share Standalone business at 10x FY18E EPS of Rs.15.5 = 155 share

EID Parry (EID) is a significant player in sugar with interests in promising areas of Bio Pesticides and Nutraceuticals.

Under Nutraceutical product category, Parry’s – Spirulina and Chlorella are the major brands that are gaining popularity in dietary supplements

Reduced its debt from Rs.1976.71. crores in FY14 to Rs.1248.32 crores in FY16 by focused cost management and fiscal prudence.

Economy to GET SET GO!!

Indian GDP @US$2.3tn

Nifty @ 8100

2026

Indian GDP @US$8tn

Nifty ~ 40500

3.5 x Growth

5 x Growth

2016

For Guidance Contact Us - 022 66965500 Or Email us - pms@krchoksey.com

CHANGING TIMES : TAKE THE OPPORTUNITY!!

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