20 Long-Term Core Portfolio Midcap Stocks for 2020mailers.sparkcapital.in/uploads/strategy/Spark...
Transcript of 20 Long-Term Core Portfolio Midcap Stocks for 2020mailers.sparkcapital.in/uploads/strategy/Spark...
Page 1
Spark Strategy believes in stock picking and portfolio construction with an eye each on Macro Environment and
Management Capability being the two most critical reasons to buy or sell a stock. While ordinary managements
deliver strong performance when their operating environment is favorable, better managements build businesses with
innate ability to deliver credible performance irrespective of how their operating environment is.
Balancing a portfolio with long-term (3-5 year) core portfolio stocks based on management capability and shorter
term (1-3 year) tactical portfolio stocks based on the likely macro environment becomes imperative for portfolio
outperformance over up cycles and down cycles. Our recommended portfolio is more biased towards tactical portfolio
currently given how we see the improving macro environment. Nevertheless, the objective of this Portfolio Strategy
note is to identify core portfolio mid cap stocks to buy and hold till 2020. Our framework has two buckets –
1.Excellent managements who have demonstrated a track record of creating superior businesses which are not
vulnerable to business cycles, Govt. regulation, fiscal/ monetary/ currency environment or any other uncontrollable
extraneous domestic and global events.
Their business model innards suggest strong franchise or a moat leading to market leadership or a structural competitive
advantage which means their current consistency and predictability leading to high cashflows and/ or RoE can sustain
beyond 2020.
Stocks which fit this framework – City Union Bank, Berger Paints, InfoEdge, Page Industries, Kajaria Ceramics,
Dabur India, Torrent Pharma, Ramco Cements, Cummins, AIA Engineering, Amara Raja Batteries and Suprajit
Engineering.
While these stocks are not value given the delivered performance and high expectations, we are not building in a
valuation re-rating upwards as our investment thesis. Earnings growth of 15%-20% CAGR built in the business model
drives our stock upside. A few of these stocks may be overpriced driving the need to wait for a better entry multiple.
2.Capable managements whose businesses should improve and fit into the first bucket during the lead up to
2020. These businesses are fundamentally good, not cyclical, but are not yet resilient or immune to their environment
and performance remains volatile. However, we believe that these Managements are working on the right strategies
which should payoff and make them more consistent, predictable and resilient to externalities.
Stocks which fit this framework – Biocon, Federal Bank, Karur Vysya Bank, Cholamandalam Finance, Bata
India, Blue Star, V Guard, Gateway Distriparks, Timken India, Cyient, Intellect Design, Indian Terrain, VIP
Industries and Sadbhav Engineering.
These stocks are more attractively valued given the question marks still on the strategies of the managements and offer
multi-bagger potential over a 3-5 year horizon. We are aggressive buyers on these names.
We also identify a couple of likely IPO candidates which should fit favorably into either bucket of this framework –
National Stock Exchange and Equitas Holdings.
Market data
BSE Sensex 24,718
NSE Nifty 7,510
Date Mar 14, 2016
Performance (%)
1m 3m 12m
BSE200 7% -2% -15%
Sensex 8% -1% -16%
20 Long-Term Core Portfolio Midcap Stocks for 2020 STRATEGY
Find Spark Research on Bloomberg (SPAK <go>),
Thomson First Call, Reuters Knowledge and Factset
SPARK RESEARCH [email protected] +91 22 4228 8152
-30%
-20%
-10%
0%
10%
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16
Sensex BSE 200
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Core Portfolio Midcap Ideas for 2020
Core Portfolio Buys on Likely
IPOs
1 National Stock Exchange
2 Equitas Holdings
20 Core Portfolio Midcaps for 2020
1 City Union Bank 11 Cyient
2 Karur Vysya Bank 12 Intellect Design Arena
3 Biocon 13 Bata India
4 Torrent Pharmaceuticals 14 Berger Paints
5 Ramco Cements 15 Indian Terrain
6 AIA Engineering 16 VIP Industries
7 Blue Star 17 Amara Raja Batteries
8 Cummins 18 Gateway Distriparks
9 V Guard 19 Suprajit Industries
10 Sadbhav Engineering 20 Timken India
Core Portfolio Buys after 20%
correction
1 Cholamandalam Finance
2 Dabur India
3 InfoEdge
4 Kajaria Ceramics
5 Page Industries
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Why do we like the Company?
Collateralized lending opportunity to small & medium sized businesses is
structural, relationships are sticky and lower competition offers moderate
pricing power esp. with PSU banks vacating the space.
CUB has demonstrated predictable and consistent earnings growth at 16%
CAGR over the past five years, highest among relevant peers;
Healthy asset quality with a well distributed customer base (average SME client
exposure at ~Rs. 3mn), 5 year average slippage at 2.0%, negligible
restructured assets of 1.6% (lowest in the peer group); Being sole banker for
most customers an added advantage;
Robust and sustainable ~3.5% NIMs given adequate pricing power with its loyal
SME customer base, reliance on retail term deposit customers, low
dependence on wholesale deposits at just ~%5 and negligible ALM mismatch;
High RoAs in excess of 1.4% and ~18%+ sustainable RoEs.
Valuation comfort with entry multiple at 1.5x FY17E ABV.
Why do we like the Management team?
What we like in Mr. Kamakodi, MD & CEO, is his deep understanding of the
bank’s strengths and more importantly, its limitations to build its strategies
around core competence than unrealistic ambitions.
For 10 years of our engagement with the management, we have heard one
high conviction voice of the bank’s unwavering uncomplicated focus, avoiding
“attractive but potentially risky” segments irrespective of competitors’ strategies,
market’s temporary preferences and investors’ feedback.
Alignment of interests of Promoter, Board, Management and Shareholders.
Continuity of management team is comforting.
Three years back identified third tier management team fast graduating to
second tier adding depth and breadth.
Strong credit culture, appreciation of growth-margin-asset quality- RoA/RoE
equation and consistent performance track record of setting and meeting
expectations.
14 Mar, 2016
Bloomberg CUBK IN
Shares o/s 598mn
Market Cap Rs. 51bn
52-wk High-Low Rs. 106-77
3m Avg. Daily
Vol Rs. 43mn
Index BSE 500
Snapshot
Promoters 0.0
Institutions 47.3
Public 52.7
% 1m 3m 12m
CUBK 3 -5 -12
Sensex 8 -1 -14
Bankex 9 -8 -21
Financial summary
Year NII
(Rs. mn)
PAT
(Rs. mn)
ROE
(%) ROA (%) ABV (Rs.)
P/ABV
(x)
FY16E 9,644 4,448 15.5 1.5 47 1.7
FY17E 10,996 5,470 16.6 1.6 55 1.5
FY18E 13,020 6,856 18.0 1.7 64 1.3
FY19E 15,775 8,463 18.9 1.7 76 1.1
FY20E 19,527 10,590 19.9 1.7 91 0.9
Relative benchmarking
Ranking matrix (1 to 6) CUBK DCBB FB JKBK KVB SIB
Market Share & Growth 2 1 4 6 3 5
Profitability 1 6 2 3 4 5
Asset Quality 2 1 3 6 5 4
Capital 1 4 2 5 3 6
Valuation 6 5 4 1 3 2
Overall Rank 1 5 2 4 3 6
City Union Bank CMP
Rs. 86
3Y Target
Rs. 191
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City Union Bank – Crystal Gazing
Over FY16-19,
CUB is expected
to clock a 20%
business CAGR
translating into a
loan book size of
Rs.352bn with
deposits of
Rs.473bn – a 1.8x
increase in
business from
current levels
(loan book of
Rs.194bn and
deposits of
Rs.260bn). With
80% of
incremental
expansion slated
for the 4 southern
states and a
carefully
calibrated
expansion
strategy of ~50
branches a year,
we expect costs
to remain under
control with an
average CIR of
40% in this phase
A probable
re-rating
Increasing RoE to
20%, with no risk of
dilution; expect
17% CAGR in ABV
over this phase.
A fall in credit costs
to 60bps against
100bps currently
resulting in RoA
expanding to 1.7%
Consistent
NIMs of 3.5%
with falling
slippages
resulting in
Increasing
leverage to
result in
Consistent
growth in
business to be
rewarded by
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
NIM 3.6% 3.3% 3.5% 3.5% 3.5% 3.4% 3.4% ◄►
Slippage 1.8% 2.4% 2.0% 1.8% 1.7% 1.6% 1.5% ▲ Credit
costs 0.4% 0.6% 1.0% 0.9% 0.7% 0.6% 0.6% ▲
RoA 1.6% 1.5% 1.5% 1.6% 1.7% 1.7% 1.7% ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 23% 17% 15% 17% 18% 19% 19% ▲
Leverage 14x 11x 10x 11x 11x 11x 12x ▲
T1 CAR 12.8% 16.5% 15.8% 15.5% 15.1% 14.5% 14.0% ▼
ABV (Rs.) 21 43 47 55 64 76 91 ▲
Trading bands (% of days in last 5 years)
< 1.00x 1.00x -
1.25x
1.25x -
1.50x
1.50x -
1.75x
1.75x -
2.00x
2.00x -
2.25x
1% 18% 30% 27% 13% 11%
The stock is trading at 1.6x 1-year forward, and has
traded above this multiple for 40% of the days in the
past 5 years.
FY11-16E CAGR %
NII PPOP PAT Price
18% 18% 16% 14%
Entry = Rs. 86 @ 1.5x
Cumulative Dividends of
Rs. 4.2
ABV CAGR of 17%, exit
multiple of 2.1x
TOTAL RETURN OF 2.4x
Page 5
14 Mar, 2016
Bloomberg KVB IN
Shares o/s 121mn
Market Cap Rs. 50bn
52-wk High-Low Rs. 603-394
3m Avg. Daily Vol Rs. 58mn
Index BSE 500
Snapshot
Promoters 2.2
Institutions 44.8
Public 53.0
% 1m 3m 12m
KVB -3 -7 -31
Sensex 8 -1 -14
Bankex 9 -8 -21
Financial summary
Year NII (Rs.
mn)
PAT (Rs.
mn)
ROE
(%) ROA (%) ABV (Rs.)
P/ABV
(x)
FY16E 14,659 4,566 12.1 0.9 334 1.2
FY17E 17,501 5,974 13.4 1.1 363 1.1
FY18E 18,930 7,214 14.6 1.2 407 1.0
FY19E 21,408 9,057 16.3 1.3 465 0.9
FY20E 24,981 11,524 18.1 1.4 541 0.7
Relative benchmarking (Based on ranks, lower the better)
Ranking matrix (1 to 7) CUBK DCBB FB JKBK KVB SIB
Market Share & Growth 2 1 4 6 3 5
Profitability 1 6 2 3 4 5
Asset Quality 2 1 3 6 5 4
Capital 1 4 2 5 3 6
Valuation 6 5 4 1 3 2
Overall Rank 1 5 2 4 3 6
Why do we like the Company?
Collateralized lending opportunity to small & medium sized businesses is
secular, relationships are sticky and lower competition offers moderate pricing
power. KVB is one of India’s best SME lending banks.
The bank had a best in breed track record of balancing growth–margins–asset
quality–capital efficiencies for close to two decades till mid-2013. Cyclical and
credit challenges and its impact on income reversals coupled with high
operating costs led to its RoAs getting impacted from close to its long term
average of 1.5% to as low as 0.75%. Measures taken to address these issues
started two years back, asset quality issues have bottomed out and the RoA is
back to 1.1%.
Robust and sustainable ~3.3% NIMs given adequate pricing power with a loyal
SME customer base, reliance on retail term deposit customers, steady growth
in CASA, low reliance on bulk deposits and negligible ALM mismatch and
Operating leverage; We see RoAs increasing to 1.4% and RoEs of ~19%.
Valuation comfort with entry multiple at 1.0x FY17E ABV.
Why do we like the Management team?
Unlike many banks where the Management team calls the shots, KVB is largely
a Board managed bank, which is where our highest comfort with the bank is.
While day to day execution is left to the Management team, the Board meets
close to once a fortnight (the highest in the sector) and is involved in strategic
as well as critical operational decisions.
The members of the Promoter group and independent directors have strong
local knowledge, native intelligence rather than flamboyance and have long
demonstrated ability of creating a strong credit culture in the bank, RoA focus
and build shareholders’ wealth.
Mr. Venkataraman, the CEO of the bank from 2011 (his term ends in June
2017) inherited and initially continued the then strategy of taking larger ticket
loans to sectors and geographies beyond their comfort zone, which had its
negative repercussions in the subsequent years. We believe that the Board and
the Management is completely seized of these challenges and has corrected
the mistakes committed over the past few years in lending decisions. This
course correction should have the bank in good stead over the next 3-4 years.
Karur Vysya Bank CMP
Rs. 412
3Y Target
Rs. 1151
Page 6
Karur Vysya Bank – Crystal Gazing
Over FY16-19, KVB
is expected to clock
a 18% business
CAGR translating
into a loan book
size of Rs.625bn
with deposits of
Rs.762bn – a 1.6x
increase in
business from
current levels (loan
book of Rs.379bn
and deposits of
Rs.473bn). With
80% of incremental
expansion slated
for the 4 southern
states and a
carefully calibrated
expansion strategy
of ~50 branches a
year, we expect
costs to remain
under control with
an average CIR of
47% in this phase
(54% in FY15).
A probable
re-rating
Increasing RoE to
19%, with no risk of
dilution; expect
15% CAGR in ABV
over this phase.
A fall in credit costs
to 71bps against
115bps currently
resulting in RoA
expanding to 1.4%
Consistent
NIMs of 3.3%
with falling
slippages
resulting in
Increasing
leverage to
result in
Consistent
growth in
business to be
rewarded by
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
NIM 3.4% 3.0% 3.4% 3.3% 3.3% 3.3% 3.2% ◄►
Slippage 0.4% 1.8% 2.1% 1.9% 1.7% 1.6% 1.6% ▲ Credit
costs 0.3% 1.4% 1.2% 1.0% 0.9% 0.7% 0.7% ▲
RoA 1.7% 0.9% 1.1% 1.2% 1.3% 1.4% 1.4% ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 22% 12% 13% 15% 16% 18% 19% ▲
Leverage 13x 14x 13x 13x 13x 13x 14x ▲
T1 CAR 14.4% 14.6% 12.7% 12.7% 12.5% 12.2% 11.7% ▼
ABV (Rs.) 227 334 363 407 465 541 639 ▲
Trading bands (% of days in last 5 years)
< 0.75x 0.75x -
1.00x
1.00x -
1.25x
1.25x -
1.50x
1.50x -
1.75x
1.75x -
2.00x
1% 5% 23% 42% 27% 2% The stock is trading at 1.0x 1-year forward, and has
traded above this multiple for 93% of the days in the
past 5 years.
FY11-16E CAGR %
NII PPOP PAT Price
18% 17% 8% 1%
Entry = Rs. 398 @ 1.0x
Cumulative Dividends of
Rs. 55
ABV CAGR of 15%, exit
multiple of 1.7x
TOTAL RETURN OF 3.0x
Page 7
Why do we like the Company?
Biocon is uniquely positioned to capitalize on the global biosimilars opportunity.
Biosimilars are the biggest opportunity for generic players over the next decade
and Biocon with 9 biosimilar assets at different stages of development is among
the frontrunners in the segment globally. Biocon has 6 biosimilars in phase III
trials and plans to file for 4 biosimilars – peg-filgrastim, insulin glargine,
trastuzumab and adalimumab – in the US and EU in CY16. Biocon is also
targeting the top emerging markets, where the potential for volume expansion in
biologic drugs post biosimilar launches, is quite significant
Biocon’s ~75%-owned subsidiary Syngene, which is the largest Indian CRO, is
on a strong growth trajectory. Syngene is in the midst of expanding its research
services capacities and is also adding capabilities in biologics and formulations
development and contract manufacturing, which augurs well for the long-term
With more than 60% of sales from biologics, Biocon has a differentiated
domestic business. In the recent past, management has focused on portfolio
and MR productivity rationalization in the segment. Going forward, we expect
benefits from operating leverage and further significant expansion in margins for
the segment
Biocon is among the largest manufacturers of statin and immunosuppressant
APIs globally. With the objective of forward-integrating its capabilities in APIs,
Biocon has commenced filings for formulations in US and EU and we expect the
next leg of growth for the segment to be driven by these initiatives
Why do we like the Management team?
Biocon’s management team is led by Kiran Mazumdar Shaw (Chairperson and
MD) and Arun Chandvarkar (CEO and Joint MD). Biocon operates in segments
(biosimilars and novel molecules), which are characterised by higher gestation
periods compared to plain vanilla generics. The management team has been
successful in deploying significant capital into these segments without 1)
compromising the company’s balance sheet quality 2) diluting equity. We
believe the company is on the verge of monetizing these investments and we
are admirers of management’s perseverance and vision to invest in higher-risk
higher-entry barrier segments
Biocon’s focus on quality and CGMP compliance driven by top management is
evident in the company’s strong track record in regulatory audits
14 Mar 2016
Bloomberg BIOS IN
Shares o/s 200mn
Market Cap Rs. 97bn
52-wk High-Low Rs. 545-395
3m Avg. Daily
Vol Rs. 344mn
Index BSE200
Snapshot
Promoters 60.7
Institutions 19.8
Public 19.5
1m 3m 12m
BIOS 10% 4% 14%
Sensex 8% -1% -14%
BSEHC 5% -1% -5%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
margin %
Adj. PAT
(Rs. mn) EPS (Rs.) P/E (x) ROE (%)
FY16E 33,993 23.6% 4,422 22.1 21.9 13.3%
FY17E 38,327 23.7% 4,815 24.1 20.1 12.5%
FY18E 43,634 25.1% 5,525 27.6 17.5 13.1%
FY19E 52,633 26.4% 6,571 32.9 14.7 14.1%
FY20E 64,873 28.6% 8,772 43.9 11.0 16.6%
Consolidated financials
Rs. mn FY16E FY17E FY18E FY19E FY20E
Biocon (ex-Syngene) 23,178 25,473 28,304 33,778 41,630
Syngene 10,815 12,854 15,330 18,856 23,243
Consolidated revenue 33,993 38,327 43,634 52,633 64,873
Biocon (ex-Syngene) 4,919 2,781 3,024 3,644 5,060
Syngene 2,225 2,767 3,402 3,979 5,048
Consolidated PAT 7,143 5,547 6,425 7,624 10,108
Minority Interest -694 -732 -900 -1,053 -1,336
PAT after minority interest 6,450 4,815 5,525 6,571 8,772
Biocon CMP
Rs. 484
3Y Target
Rs. 877
Page 8
Biocon – Crystal Gazing
Over the next 3-4
years, the key
drivers for
Biocon’s
performance will
be 1) biosimilar
launches in
regulated markets
– 4 assets (peg-
filgrastim, insulin
glargine,
trastuzumab and
adalimumab)
currently in global
phase III trials 2)
Syngene’s
addition of
capabilities in
biologics and
formulations
development and
contract
manufacturing 3)
operating leverage
in domestic
business and
forward integration
through ANDA
filings in small
molecules
segment
Regulated market
biosimilar launches
by FY19 and strong
growth in Syngene
Healthy ~18%
revenue CAGR
driven by
Improvement
in operational
performance
to result in
Biosimilar
launches in
advanced
markets can
lead to
P/E multiple FY20E EPS Price target
17x 43.9 746 ▲
20x 43.9 877
Entry = Rs. 484 @ 17x FY18E EPS
Cumulative Dividends of
Rs. 32.5
Adj. PAT CAGR of 19%, exit multiple of
20x
TOTAL RETURN OF 1.9x
Rs.mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Small
molecules 10,795 14,992 14,281 15,418 16,440 17,462 18,485 ◄►
Biosimilar 683 2,646 3,167 4,182 5,172 8,690 14,454 ▲
Branded
formulations 1,863 4,296 4,455 5,123 5,892 6,775 7,792 ▲
Syngene 3,143 8,629 10,747 12,953 15,466 19,083 23,583 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
EBITDA
margin 28.9% 22.5% 23.6% 23.7% 25.1% 26.4% 28.6% ▲
ROE 17.6% 13.4% 13.3% 12.5% 13.1% 14.1% 16.6% ▲
ROCE 15.4% 10.1% 8.6% 10.8% 11.5% 12.3% 14.6% ▲
Adj. EPS 17.0 20.4 22.1 24.1 27.6 32.9 43.9 ▲
Significant
expansion (~600bps)
in ROCE and 19%
EPS CAGR in FY16-
20
Re-rating
FY11-16E CAGR %
Revenue EBITDA Adj. PAT Price
13% 9% 5% 7%
Trading History – % of times stock traded
PE range <12x 12x-14x 14x-16x 16x-18x >18x
10% 22% 20% 29% 19%
Page 9
Why do we like the Company?
Strong presence in key branded (India, Brazil) and unbranded (US, Germany)
generic markets, Torrent has one of the most diversified business models
among leading pharma players.
Robust India franchise in chronic therapies such as CNS (rank 3) and CVS
(rank 4). Elder Pharma acquisition has given Torrent strong platforms in
segments such as nutraceuticals and pain management. We like Torrent’s
recent strategic initiatives in the domestic market including 1) rationalisation of
discounts and bonus offers to the channel, 2) MR productivity focus 3) greater
in-house manufacturing. We expect these steps to drive significant
improvement in Torrent’s domestic margins.
Execution (timely launch, strong Rx share gains) on product opportunities (such
as gCymbalta, gAbilify) has been Torrent’s key strength compared to other late
entrants in the US market. Strong cash flows from these opportunities have
enabled the company to step up its R&D efforts and filings in attractive
segments such as oncology, dermatology and ophthalmology
Torrent is the largest Indian player in key markets such as Brazil and Germany
and the company’s focused efforts in these markets will be key differentiators
going forward. The commercialisation of Dahej facility (from Q4FY16) should
ease capacity constraints and boost Torrent’s presence in key export markets
Why do we like the Management team?
Torrent’s management team is led by Samir Mehta (Executive Chairman),
Ashok Modi (ED and CFO), Sanjay Gupta (ED – International business) and
Ruchir Modi (ED – India and RoW operations). In our view, Torrent’s
management is among the most return-on-capital-focused in the industry. We
like Torrent’s consistent dividend policy (of 30% dividend payout)
We also highlight the turnarounds in Torrent’s India and US businesses, under
the leaderships of Ruchir Modi and Sanjay Gupta, respectively. Torrent’s
successful integration of acquired Elder business, improvement in field force
productivity and rationalization of product portfolio and trade terms can be
attributed to Ruchir Modi’s leadership. Sanjay Gupta, through his focus on
customer relationships and execution on product opportunities, has been
instrumental in building Torrent’s visibility in the US
14 Mar 2016
Bloomberg TRP IN
Shares o/s 169mn
Market Cap Rs. 218bn
52-wk High-Low Rs. 1,720-1,073
3m Avg. Daily
Vol Rs. 278mn
Index BSE200
Snapshot
Promoters 71.3
Institutions 18.0
Public 10.7
1m 3m 12m
TRP 2% -10% 19%
Sensex 8% -1% -14%
BSEHC 5% -1% -5%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
margin %
Adj. PAT
(Rs. mn) EPS (Rs.) P/E (x) ROE (%)
FY16E 67,843 39.7% 17,991 106.3 12.1 59.8%
FY17E 68,746 28.5% 12,654 74.8 17.2 31.8%
FY18E 74,723 27.7% 13,742 81.2 15.9 28.0%
FY19E 83,815 27.9% 15,873 93.8 13.7 26.6%
FY20E 95,040 28.1% 18,508 109.4 11.8 25.8%
Revenue breakup
Rs. mn FY16E FY17E FY18E FY19E FY20E
India formulations 18,230 21,147 24,530 28,455 33,008
US 27,111 22,360 21,819 23,791 26,865
Brazil 5,060 5,739 6,658 7,723 8,959
Contract manufacturing 3,800 4,180 4,598 4,828 5,069
Branded (ex India, Brazil) 3,220 3,606 4,039 4,524 5,067
Generic (ex US) 8,832 9,714 10,879 12,185 13,647
Others 1,590 2,000 2,200 2,310 2,426
Revenue 67,843 68,746 74,723 83,815 95,040
Torrent Pharmaceuticals CMP
Rs. 1289
3Y Target
Rs. 2187
Page 10
Torrent Pharmaceuticals – Crystal Gazing
Over the next 3-4
years, the
company’s
performance will
be driven by 1)
new product
launches in
dermatology, pain
and nephrology
segments and
consolidation of
its presence in
CVS,
nutraceuticals
and CNS
segments in the
domestic market
2) improvement in
Rx shares in
existing products
and new product
launches in the
US market
Recent strategic
initiatives to drive
operational
efficiencies and
margins across
markets
Healthy ~15%
revenue CAGR in
FY15-20E
Strong growth
in the US and
India lead to
P/E multiple FY20E EPS Price target
18x 109.4 1.969 ▲
20x 109.4 2,187
Entry = Rs. 1289 @ 16x FY18E EPS
Cumulative Dividends of
Rs. 127
Adj. PAT CAGR of 20% in FY15-20E,
exit multiple of 20x
TOTAL RETURN OF 1.8x
Rs.mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 21,978 46,535 67,843 68,746 74,723 83,815 95,040 ▲
EBITDA 3,878 10,202 26,947 19,560 20,680 23,352 26,733 ▲
Adj. PAT 2,702 7,509 17,991 12,654 13,742 15,873 18,508 ▲
Adj. EPS 16.0 44.4 106.3 74.8 81.2 93.8 109.4 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
EBITDA
margin % 17.6% 21.9% 39.7% 28.5% 27.7% 27.9% 28.1% ▲
ROE 29.1% 34.2% 59.8% 31.8% 28.0% 26.6% 25.8% ▲
ROCE 21.0% 22.4% 35.5% 23.8% 24.2% 24.7% 24.3% ▲
Net debt/
EBITDA 0.6 1.8 0.5 0.3 (0.1) (0.4) (0.8) ▲
>600 bps expansion
in EBITDA margin in
FY15-FY20; ROCE to
remain steady (FY15,
FY16 return ratios
boosted by on-offs)
Significant re-rating
in the last two years;
going forward,
earnings growth to
drive stock returns
FY11-16E CAGR %
Revenue EBITDA Adj. PAT Price
25% 47% 46^ 35%
Trading History – % of times stock traded
PE range <12x 12x-14x 14x-16x 16x-18x >18x
24% 33% 14% 9% 20%
Strong balance sheet and free cash generation; inorganic
initiatives can provide upsides to current estimates
Page 11
Why do we like the Company?
Ramco Cements (TRCL) is one of the largest cement producers in South and
remains among the best plays on Southern market demand recovery.
We are positive on the prospects of the South Cement industry over a 3-5 year
outlook. With bifurcation of Andhra Pradesh and a stable government at the centre,
we anticipate strong demand recovery over the next five years.
South region is not expected to see any capacity additions over the next three
years. Utilizations will increase to ~75% by FY20E from the current 50% levels,
leading to lower pricing power for the cement producers. In our view, cement prices
in the South will continue to be driven by production discipline which in turn will be
led by cost inflation.
We expect TRCL to generate cumulative free cash flows (FCF) of ~Rs. 20-25bn
over FY16E-20E (5% FCF yield). With minimal capex over the next two years, we
expect TRCL to continue to reduce debt. Net debt to equity to trend down from 1x in
FY15 to 0.1x in FY12E.
We believe company has multiple earnings lever heading into FY18 led by (1)
sustenance of cement prices in South led by tight production discipline; (2) volume
recovery from 2HFY17E led by pick up of demand in Andhra Pradesh; and (3) cost
savings from lower imports of limestone and decline in fuel prices (4) Significant free
cash flow generation in next 5 years . Given improving profitability and
deleveraging, we attribute premium valuations of 10x FY20E EV/EBITDA.
Why do we like the Management team?
Ramco cement- part of Ramco group which is one the oldest and most renowned
family business house in South – is helmed by Mr Dharmakrishnan A.V. who is with
company for last 30 years and got promoted to CEO position in 2012. He is credited
with lot of initiatives to increase operational efficiencies leading to one of the highest
Ebitda per ton generation in industry.
Group is known to be conservative with leverage, expansions and re-payment of
debt. The company has never raised equity.
Management has always taken proactive measures to lower cost of operations, like
setting up beneficiation plant, increasing petcoke usage, and lower fuel and power
consumption.
De-risked from South markets by setting up grinding unit in East. The company has
built a sizeable dealer network in the Eastern markets over the last three years.
14 Mar 2016
Bloomberg TRCL IN
Shares o/s 238mn
Market Cap Rs. 91bn
52-wk High-Low Rs. 406-270
3m Avg. Daily
Val Rs. 85mn
Index BSE 500
Snapshot
Promoters 42.3
Institutions 35.0
Public 12.7
% 1m 3m 12m
TRCL 9% 5% 5%
Sensex 2% -1% -13%
BSE 200 0% -2% -15%
Relative benchmarking
Ranking matrix (1 to 6) TRCL ICEM DBL JKLC ORCM
NT
Cost of operations 4 5 3 2 1
Regional exposure 2 4 1 3 5
Return metrics 1 5 4 3 2
Balance Sheet 1 5 4 2 3
Valuation 3 4 1 2 5
Overall Rank 1 5 3 2 4
Financial summary
Year Revenues
(Rs. Mn)
EBITDA (Rs.
Mn)
PAT (Rs.
Mn) EPS (Rs.) EV/EBITDA
EV/ton
(Rs./t)
FY16E 35,772 9,887 4,788 20.1 10.6 7,733
FY17E 39,302 10,643 5,591 23.5 9.4 7,415
FY18E 44,027 11,509 6,341 26.6 8.3 7,111
FY19E 49,563 12,579 6,330 26.6 7.5 7,007
FY20E 55,801 13,816 7,327 30.8 6.3 6,472
Ramco Cements CMP
Rs. 390
3Y Target
Rs. 600
Page 12
Ramco Cements– Crystal Gazing
Play on demand
recovery in South
India. We assume
realization to lag
cost inflation as
current cement
prices in south are
artificially inflated
and low utilizations.
Despite this, TRCL
will generate
significant free cash
flows (5% FCF
yield), hence
resulting in de-
leveraging of
balance sheet.
Expect low capex
intensity until
FY18E.
Volume recovery in
southern markets,
esp. in Andhra
Pradesh and
Telangana
Volume
growth cagr
FY16E-20E at
10%
Increasing
cash flow
from
operations
Prudent capital
allocation
leading to
EV/Ebitda
multiple FY20E Ebitda Price target
9x 13,816 525
10x 13,816 600
Entry = Rs. 390 @ 8x
FY18E Ebitda
Cumulative Dividends of Rs. 16
Ebitda CAGR of
9%, EV/Ebitda
exit multiple of 10x FY20E
TOTAL RETURN OF 1.6x
Strong cash flow
generation story,
resulting in de-
leveraging
Multiples to sustain
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Volumes in
mt 7.3 7.7 7.0 7.7 8.5 9.3 10.3 ▲
Realisation
/t 3,376 4,564 4,975 4,975 5,075 5,201 5,331 ▲
Ebitda Rs
mn 6,174 6,622 9,887 10,643 11,509 12,579 13,816 ▲
Ebitda
Margins % 23.7% 18.4% 28% 27% 26% 25% 25% ▼
Utilisations 70% 62% 54% 57% 63% 69% 76% ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 12.8% 9.5% 16.8% 16.9% 16.5% 14.5% 14.8% ▼
Leverag
e 1.6 1.0 0.71 0.47 0.29 0.22 0.13
▼
CFO (Rs
nm) 6,192 9,147 8,574 8,523 8,920 9,554 10,226
▲
FCF (Rs
nm) (2,063) 2,413 5,384 5,734 5,729 2,518 4,826
▲
FY11-16E CAGR %
Revenue EBITDA PAT Price
7% 10% 18% 29%
Trading History – % of times stock traded
EV/Ebitda
range
<6x 6x-8x 8x-10x >10x
19% 40% 8% 17%
Page 13
Why do we like the Company?
AIA Engineering (AIAE) is a leading grinding media manufacturer which has
transformed from a domestic player to a well-recognized international
manufacturer and supplier of high quality grinding media over the past decade
AIAE has demonstrated strong growth in the mining market (>40% volume
CAGR) after foray into this segment five years ago. It is already the second
largest player in the high chrome grinding media market after Magotteaux.
Mining revenue currently constitute ~36% of AIAE’s revenue vs. <10% of
revenue in FY10
AIAE’s centralized manufacturing process, based out of Gujarat, gives it
considerable cost advantages over its competitors (Molycop and Magotteaux)
who have manufacturing facilities in high cost destinations. This has given AIAE
product pricing and cost advantages in a price sensitive market
It is a large beneficiary of the shifting trend from forged media to high chrome
grinding media and should continue to see long term volume growth driven by a
large addressable market > 3mn MT and market share gains. Its foray into new
products (primary grinding media) should expand its addressable market and
should be an additional growth driver
Why do we like the Management team?
Mr. Bhadresh Shah, Promoter, is an industry veteran and a very focused
businessman. He is ably supported by his nephew Mr. Kunal Shah,
Executive Director.
The management has been very pro-active in indentifying and targeting
growth segments and has been aggressive in marketing its products during
periods when its competitors lacked focus
We like the management’s effort in bringing AIAE’s high chrome products
onto global standards in terms of technology and quality. Its call of having a
low cost centralized manufacturing has been a success and is a strong
business moat
The management’s ability to think ahead of the curve and foray into mining
markets five years ago to seek growth has been a strategic success and
has positioned AIAE for long term growth
14 Mar 2016
Bloomberg AIAE IN
Shares o/s 94mn
Market Cap Rs. 78bn
52-wk High-Low Rs. 1,364-700
3m Avg. Daily
Vol Rs. 53mn
Index BSE 200
Snapshot
Promoters 61.7
Institutions 32.0
Public 6.4
% 1m 3m 12m
AIAE 3% -8% -28%
Sensex 2% -5% -17%
CG Index 2% -15% -34%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
(Rs. mn)
PAT
(Rs.
mn)
EPS (Rs.) P/E(x) RoE(%)
FY16E 21,458 6,158 4,026 42.7 19.3 18.0
FY17E 24,363 6,359 4,059 43.0 19.1 15.9
FY18E 27,838 7,321 4,610 48.9 16.8 16.0
FY19E 32,292 8,396 5,348 56.7 14.5 17.2
FY20E 37,459 9,739 6,203 65.8 12.5 18.0
AIA Engineering
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
AIAE - Mining Volume (in MT)
Mining Volume (in MT)
CMP
Rs. 824
3Y Target
Rs. 1434
Page 14
AIA Engineering – Crystal Gazing
AIAE to grow
revenue and PAT
by 13% and 11%
in next 4 years
from FY16E-
FY20E. Market
share gains in the
mining grinding
media market,
foray into new
products and
possible recovery
in overall mining
market to drive
growth
Improved grinding
media volumes
through market
share gains and
foray into primary
grinding media
Improved
volumes to
drive growth
Strong cash
flow
generation
Market share
gains to sustain
multiples
P/E multiple FY20E EPS Price target
22x 65.2 1434
24x 65.2 1565
Entry = Rs. 824 @ 17x
FY18E
Cumulative Dividends of
Rs. 50
EPS CAGR of 11%, exit
multiple of 22x FY20E
TOTAL RETURN OF 1.8x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Volumes 1,25,817 1,88,000 1,80,777 1,97,739 2,21,882 2,51,803 2,85,512
Revenue 11,607 21,836 21,458 24,363 27,402 30,934 34,972
EBITDA 2,492 5,848 6,158 6,359 7,207 8,352 9,687
EBITDA
Margin 21.5 26.8 28.7 26.1 26.3 27.0 27.7
PAT 1,836 4,309 4,026 4,059 4,533 5,258 6,148
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 18.8 22.5 18.0 15.9 15.8 16.2 16.7
RoIC 24.9 30.8 26.6 23.1 21.6 22.7 25.1
CFO (Rs mn) 347 3055 5264 3842 4617 5227 6000
FCF (Rs. Mn) -465 1,229 3,264 842 1,617 4,027 4,800
Strong Cash flow
generation inspite of
capex plans till
FY18E
High multiple
Trading History – % of times stock traded
PE range <12x 12x-15x 15x-18x 18x-21x >21x
7% 15% 48% 14% 16%
FY11-16E CAGR %
Revenue EBITDA PAT Price
13% 20% 17% 24%
Page 15
Why do we like the Company?
Blue Star (BLSTR) has transformed itself from a cyclical EMP contractor (B2B)
to a fast-growing air conditioner player (B2C) over the past five years. It already
has ~10% market share in room air conditioner market and is among the top
five players in the industry
The company has leverage its strong commercial air conditioning brand and
has successful forayed into the room air conditioning segment through
increased distribution reach and launching/introduction of new models in the
segment. Room air conditioners-led Cooling Products segment’s revenue has
increased from ~25% of overall revenue in FY11 to ~45% currently. EBIT
contribution has increased from ~25% to 60% during the same period
We believe Cooling Products would remain at the center-stage and be a
sustained growth driver going forward given the large and expanding air
conditioner market, BLSTR’s increasing market share and improving product
mix. A recovery in the EMP segment, which we believe is around the corner,
would be an additional growth driver.
Why do we like the Management team?
BLSTR’s management is led by Mr. Vir Advani, Managing Director in the
EMP segment and by Mr. Thiyagarajan, Joint Managing Director in the
Cooling Products segment.
The management’s decision on reducing its focus from the volatile EMP
segment and foraying into a steady growing room air conditioners segment
over the past five years has been a strategic success and has de-risked the
cyclical nature, the business model was carrying earlier
Within room air conditioners, we believe the management’s focus on foraying
into new products (inverter air conditioners and air coolers) should deliver
the next leg to growth in the segment
Ability to turn down orders with low margin or unfavourable working capital
terms in the EMP segment and decision to not to foray into the Middle East
market over the past few years seeking growth have been solid instances of
the management conservative and prudent decision making skills.
14 Mar 2016
Bloomberg BLSTR IN
Shares o/s 90mn
Market Cap Rs. 30bn
52-wk High-Low Rs. 400-274
3m Avg. Daily
Vol Rs. 26mn
Index BSE 500
Snapshot
Promoters 39.5
Institutions 28.8
Public 31.7
% 1m 3m 12m
BLSTR 0% -8% 1%
Sensex 4% -2% -14%
CG Index 2% -13% -31%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
(Rs. mn)
PAT
(Rs.
mn)
EPS (Rs.) P/E(x) RoE(%)
FY16E 35,120 2,212 1,138 12.6 26.2 23.4
FY17E 40,686 2,598 1,305 14.5 22.9 23.5
FY18E 48,125 3,579 1,879 20.9 15.9 28.4
FY19E 56,307 4,332 2,400 26.7 12.4 29.1
FY20E 66,847 5,274 3,102 34.5 9.6 29.6
Blue Star
5%6%
7.5%
9%10%
0%
2%
4%
6%
8%
10%
12%
FY12 FY13 FY14 FY15 9MFY16
Blue Star - Air Conditioners market share (%)
Blue Star - Air Conditioners market share (%)
CMP
Rs. 331
3Y Target
Rs. 627
Page 16
Blue Star – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
4% -3% -8% 4%
BLSTR to grow
revenue and PAT
by 16% and 27%
in next 4 years
from FY16E-
FY20E with
EBITDA margin
inching up to 8%
range. As a
result, we expect
company to
generate OCF of
Rs 10bn in next 4
years.
Turnaround in the
EMP segment and
structural growth in
the cooling products
segment to drive
growth and margins
Strong
revenue
growth of 16%
Improved
EMP
segment
working
capital
situation
Turnaround in EMP
segment and market
share gains in air
conditioners to lead
to multiple expansion
P/E multiple FY20E EPS Price target
18x 34.5 627
20x 34.5 690
Entry = Rs. 331 @ 16x
FY18E
Cumulative Dividends of
Rs. 25
EPS CAGR of 27%, exit
multiple of 20x FY20E
TOTAL RETURN OF 2.0x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 29,807 31,819 35,120 40,686 48,125 56,307 66,847
Ebitda 2,563 1,673 2,212 2,598 3,579 4,332 5,274
Margins 8.6 5.3 6.3 6.4 7.4 7.7 7.9
PAT 1,578 920 1,138 1,305 1,879 2,400 3,102
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 30.9 19.7 23.4 23.5 28.4 29.1 29.6
Leverage 0.9 0.9 0.7 0.7 0.5 0.3 0.1
Working
capital days 94 65 64 59 53 50 48
CFO (Rs nm) -1133 2149 1587 1940 2583 2766 3224
Reducing working
capital days and
higher cash flow
from operations
High multiple
Trading History – % of times stock traded
PE range <10x 10x-14x 14x-18x 18x-22x >22x
7% 15% 48% 14% 16%
Page 17
Why do we like the Company?
Cummins India (KKC) is a technologically driven, well diversified player in the
diesel engine/back-up power generator industry with a strong brand recall and
a market leadership position.
With technological backing from its parent, KKC has a wide range of product
portfolio (0-2250kVA rating engines) catering to various sector/end-customers.
Given its diversified product range and clientele (both domestic and exports),
we believe KKC has insulated itself from any growth shock arising from
weakness from a single sector. KKC has grown by ~9% CAGR between FY10
and FY16E inspite of a weak domestic demand environment
KKC has been very active in introducing new models/filling product gaps and is
positioning itself to grow further in the lower kVA rating power generation
segment. Its product range in the industrial segment is also well placed to gain
from any recovery in the Industrial segment.
Cummins Inc’s identification of KKC to be a major manufacturing export hub is
providing a long runway of growth for KKC in exports. Exports have grown at
>20% CAGR over the past six years
Why do we like the Management team?
KKC has a well established professional management structure led by Mr.
Anant Talualicar, Managing Director. Given the MNC nature of the
company, its regular operations are not dependent on the decision making
of any single individual thereby insulting it from any management
concentration risk.
The KKC’s India team has been aggressive in introduction of new products,
foray into new segments, geographies and has led to its growth/market
share gains in a challenging market
KKC has a process oriented system and has various internal programs to
contain costs, improvement of internal efficiencies and centralization of
processes. This has greatly improved the productivity of the company,
giving it an added advantage over its peers
Cummins Inc has identified KKC as a key export manufacturing hub
(outside the US) and the Phaltan Megasite has been established with a view
to increase exports from the facility in the future.
14 Mar 2016
Bloomberg KKC IN
Shares o/s 277mn
Market Cap Rs. 237bn
52-wk High-Low Rs. 1,248-790
3m Avg. Daily
Vol Rs. 179mn
Index BSE100
Snapshot
Promoters 51.0
Institutions 34.9
Public 14.1
% 1m 3m 12m
KKC -9% -14% -5%
Sensex 4% -2% -14%
CG Index 2% -13% -31%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
(Rs. mn)
PAT
(Rs.
mn)
EPS (Rs.) P/E(x) RoE(%)
FY16E 48,189 7,951 8,003 28.9 29.6 26.4
FY17E 53,386 9,343 9,002 32.5 26.3 27.0
FY18E 61,024 10,923 10,330 37.3 22.9 28.7
FY19E 70,116 12,901 12,111 43.7 19.5 31.4
FY20E 80,592 15,151 14,131 51.0 16.8 33.6
Cummins
Parameters KKC KOEL
Revenue CAGR (FY10-
FY15) 9% 2%
EBITDA CAGR (FY10-
FY15) 8% -7%
PAT CAGR (FY10-
FY15) 12% -3%
Average RoE, % 29.7% 15.5%
CMP
Rs. 854
3Y Target
Rs. 1593
Page 18
Cummins – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
4% 3% 6% 15%
KKC to grow
revenue and PAT
by 14% and 15%
in next 4 years
from FY16E-
FY20E. Recovery
in the domestic
market driven by
industrial
segment, pick-up
in exports from a
low base and
margin expansion
to drive growth
and margins
Improved demand
from power
generation, industrial
segments and
market share gains
to drive growth
Strong
revenue
growth of 14%
Increased
cash flow
as major
capex ends
Improved
domestic
demand
environment,
margin share
gains
P/E multiple FY20E EPS Price target
27x 51 1376
30x 51 1529
Entry = Rs. 854 @ 23x
FY18E
Cumulative Dividends of
~Rs. 100
EPS CAGR of 15%, exit
multiple of 27x FY20E
TOTAL RETURN OF 1.7x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 39,512 44,058 48,189 53,386 61,024 70,116 80,592
EBITDA 6,720 7,351 7,951 9,343 10,923 12,901 15,151
EBITDA
Margin 17.0 16.7 16.5 17.5 17.9 18.4 18.8
PAT 5,996 7,859 8,003 9,002 10,330 12,111 14,131
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 35.6 28.8 26.4 27.0 28.7 31.4 33.6
RoIC 34 26.6 24.5 25.3 27.3 30.4 33.5
CFO (Rs mn) 4266 5012 8805 8960 9842 11396 13216
FCF (Rs. Mn) 2,780 1,625 5,011 6,460 8,342 9,896 11,716
Strong Cash flow
generation inspite of
capex plans till
FY17E
High multiple
Trading History – % of times stock traded
PE range <18x 18x-21x 21x-24x 24x-27x >27x
18% 34% 19% 17% 12%
Page 19
Why do we like the Company?
V-Guard (VGRD) has grown into a well recognized, emerging pan-India based
player with a wide product portfolio - very different from its single-product,
region-specific business model a decade ago.
VGRD has expanded its product portfolio and its geographical presence using
its existing electrical distribution network (used for stabilizers). Dependence on
stabilizers has considerably reduced from ~45% of overall revenue in FY06 to
~18% of revenue currently. Non-south markets currently constitute ~35% of
overall revenue vs. negligible presence in FY06
VGRD has met with considerable success in the new products launched. In
water heaters, VGRD’s models have been successful and is currently the No.2
player in the market (Rs. 2bn FY16E revenue). Similarly, growth in pumps,
cable and fans has also been strong with increased brand acceptance.
We believe there is considerable headroom for growth in new products given its
increasing distribution reach, strong dealer incentives and potential for market
share gains.
Why do we like the Management team?
Mr. Mithun Chittilappilly, Promoter, Managing Director, has ably taken the
company forward from his father, Mr. Kochouseph Chittilappilly, and has
driven strong growth (>20% CAGR) since becoming the managing director
in 2012
The management’s clear thought process, self analysis and measured
foray into new products and geographies has led to the building of a strong
brand and business
The management has a very good understanding of the overall market
dynamics, strength/weakness of competitors, is in touch with large
distributors/dealers and abreast of latest trends on a regular basis. This we
believe is critical to succeed in a competitive market
Heavy focus on cash flow generation and transparency in both business
strategy and financials are above industry standards
14 Mar 2016
Bloomberg VGRD IN
Shares o/s 30mn
Market Cap Rs. 25bn
52-wk High-Low Rs. 1,135-780
3m Avg. Daily
Vol Rs. 8mn
Index BSE 500
Snapshot
Promoters 65.9
Institutions 24.6
Public 9.6
% 1m 3m 12m
VGRD -7% -7% -12%
Sensex 2% -5% -17%
CG Index 2% -15% -34%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
(Rs. mn)
PAT
(Rs.
mn)
EPS (Rs.) P/E(x) RoE(%)
FY16E 18,681 1,572 941 31.4 27.0 22.0
FY17E 21,166 1,807 1,120 37.4 22.7 24.0
FY18E 24,612 2,135 1,352 45.1 18.8 25.2
FY19E 28,698 2,736 1,774 59.2 14.3 28.0
FY20E 33,545 3,460 2,284 76.2 11.1 30.0
V-Guard
Parameters FY10-FY15 FY16E-FY20E
Revenue CAGR 30% 13%
EBITDA CAGR 21% 18%
PAT CAGR 22% 20%
Average RoE, % 23.7% 26.0%
CMP
Rs. 847
3Y Target
Rs. 1593
Page 20
V-Guard – Crystal Gazing
VGRD to grow
revenue and PAT
by 14% and 28%
in next 4 years
from FY16E-
FY20E. Strong
growth in the
stabilizer
segment, traction
in new product
launches and a
better pricing
environment
should drive
growth and
margins
Market leadership in
stabilizers, increased
penetration in non-
south & traction in
new products to
drive growth
Strong
revenue
growth of 14%
Sustained
improveme
nt in
working
capital
Better than market
level growth to
drive higher
multiples
P/E multiple FY20E EPS Price target
20x 79.7 1593
24x 79.7 1753
Entry = Rs. 847 @ 19x
FY18E
Cumulative Dividends of
~Rs. 80
EPS CAGR of 28%, exit
multiple of 20x FY20E
TOTAL RETURN OF 2.0x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue
7,266
17,459
18,681
21,166
24,612
28,931
34,093
EBITDA
730
1,330
1,572
1,807
2,135
2,800
3,610
EBITDA
Margin 10.1% 7.6% 8.4% 8.5% 8.7% 9.7% 10.6%
PAT
426
707
941
1,120
1,352
1,818
2,388
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 17.0 20.3 23.1 23.7 24.6 28.0 30.6
Working Capital
(days) 125 61 55 50 50 50 50
CFO (Rs mn) -339 689 1211 1029 1056 1392 1830
FCF (Rs. Mn) -425 561 1011 809 836 1172 1610
Strong Cash flow
generation on the
back of sustained
improvement in
working capital cycle
High multiple
Trading History – % of times stock traded
PE range <15x 15x-19x 19x-23x 23x-27x >27x
9% 36% 11% 32% 13%
FY11-16E CAGR %
Revenue EBITDA PAT Price
21% 17% 17% 41%
Page 21
Why do we like the Company?
Sadbhav is amongst the few infrastructure developers in India, which has built a
credible EPC franchise and owns a well-funded BOT asset portfolio and it
should benefit from the NHAI’s rising pace of order awards and it scores
relatively better on accounting and corporate governance practices
Strong track-record in completion of road EPC projects ahead of schedule.
Large well-funded road portfolio (3739 lane kms) set it apart from many of its
peers. Entire BOT portfolio will be operational in its asset owning subsidiary
(68% holding) Sadbhav Infrastructure projects (SIPL) by 1HFY17
Portfolio of 12 road assets running through India’s most industrially advanced
states. Out of the 12 roads, 8 are commissioned (MBCP is partially
commissioned) and 4 are under advanced stages of implementation
Revenue/EPS CAGR of 20%/18% between FY10-15 demonstrates Sadbhav’s
stable performance over business cycle
Why do we like the Management team?
Like a typical mid-sized infrastructure company, Sadbhav remains a promoter-
driven company and the promoters/family members are the key strategic
decision makers say in the case of project tenders. Vishnubhai Patel, Chairman
& Managing Director with 40 years of industry experience is spearheading the
company supported by his family members and professionals
Relative to the sector, Sadbhav stayed focused on its core competency which is
largely roads, followed by irrigation and mining. As per our understanding,
promoters of Sadbhav are not involved in major businesses in any other
sectors thereby ensuring dedicated focus
We like the ability of the promoters to pick right projects both on BOT and EPC
format which set them apart from its peers. Track record of picking & owning
assets in Gujarat, Maharashtra, Rajasthan, Karnataka and Haryana which are
economically and politically stable and which are expected to have higher than
average Gross State Domestic Product (GSDP)
In the last five years, Sadbhav has recruited and trained employees in the
middle management who share the vision and have the potential to contribute
to the long term success of the company
14 Mar 2016
Bloomberg SADE IN
Shares o/s 172mn
Market Cap Rs. 42bn
52-wk High-Low Rs. 385-197
3m Avg. Daily
Vol Rs. 42bn
Index BSE500
Snapshot
Promoters 47%
Institutions 42%
Public 11%
% 1m 3m 12m
SADE -6.3% -28.3% -29.5%
Sensex 7.7% -1.3% -13.8%
BSE500 7.0% -2.8% -12.6%
Financial summary (Standalone), Rs. mn
Year Revenues EBITDA margin PAT EPS (Rs./
Share) RoE
FY16E 31,779 3,513 11% 1,211 7.1 9%
FY17E 36,319 4,080 11% 1,541 9.0 11%
FY18E 41,305 5,111 12% 2,182 12.7 14%
FY19E 45,436 5,622 12% 2,400 14.0 14%
FY20E 49,979 6,184 12% 2,640 15.4 14%
Rs. mn FY10-15 FY16E-20E
Cumulative Order inflow 132,995 266,058
Cumulative Revenues 132,808 204,818
Cumulative EBITDA 13,710 24,509
Cumulative OCF 7,629 15,209
Post tax OCF/ EBITDA 56% 62%
Average RoE, % 14.9% 12.4%
Sadbhav Engineering CMP
Rs. 245
3Y Target
Rs. 390
Page 22
Sadbhav Engineering – Crystal Gazing
EPC business’s
profits to grow at
a CAGR of 22%
for FY16-FY20%
with stable RoE
profile
Growth potential in
EPC business’
revenues due to
order inflow in road
sector projects
Consistent
revenue
growth of 16%
Stable
Balance
Sheet
quality
Consistent
growth in
business to be
rewarded by
P/E multiple FY20E EPS Price target
12x 15.4 185 ▲
15x 15.4 231*
Entry = Rs. 245 @ 9.5x
FY18E
Cumulative Dividends of
Rs. 3.5
EPS CAGR of 22%, exit
multiple of 15x FY20E
TOTAL RETURN OF 1.6x
FY10 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 12,569 29,698 31,779 36,319 41,305 45,436 49,979 ▲
Ebitda 1,377 3,002 3,513 4,080 5,111 5,622 6,184 ▲
Margins 11% 10% 11% 11% 12% 12% 12% ◄►
PAT 538 1,137 1,211 1,541 2,182 2,400 2,640 ▲
FY10 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 15% 10% 9% 11% 14% 14% 14% ▲
Leverage 0.6 0.7 0.4 0.5 0.4 0.4 0.4 ◄►
Working
capital days 123 80 55 55 55 55 55 ◄►
CFO (Rs mn) 863 807 4,640 2,613 3,258 2,254 2,444 ▲
EPC business’
balance sheet quality
and return metrics to
remain stable (no
funding required for
SIPL’s BOT assets)
High multiple
FY10-16E CAGR %
Revenue EBITDA PAT Price
20% 21% 18% 14%
Trading History – % of times stock traded
PE range <7x 7x-10x 10x-13x 13x-16x >16x
0% 5% 7% 6% 82%
Total target price of Rs. 390/- (1.6x) includes SIPL value of Rs. 159/share. Rs. 231/- implies the value for EPC business;
Page 23
Why do we like the Company?
Cyient is a pure-play engineering services and geospatial services provider,
without any presence in vanilla IT services such as ADM which is getting
impacted by technological disruption or to verticals such as Banking which is
under tremendous cost pressure driving need for automation in IT services.
The two weak years of FY13 and FY14 saw Cyient concentrate on profitability
and free cash generation. It also recognized the need to broaden its revenue
base from clients and so started to focus on the top 50 accounts. It has also put
in place a list of 600 “must have” accounts that spend heavily on R&D and the
sales force also receives a commission that’s 3x of a non-must have account.
The evidence of its efforts on account management and new client addition was
seen in FY15 with organic revenues growing 20%.
Just as with engineering services, we are likely to see the same in Product
realisation. Cyient’s move towards Product Realisation is less appreciated by
the street in our view. While initially it did not fully understand the nature of
execution of Rangsons order book and linkage to client order book, it seems to
have understood now and Design to Manufacture work in under way with 7 key
clients and over next three years we should see Cyient doing deeper and bigger
work here. This move will result in higher wallet share of client’s spending,
bigger projects and deeper and stickier relationships and help it achieve its
target of 19/20% ROE from higher revenue growth.
Why do we like the Management team?
The core change in Cyient came in after Krishna Bodanapu was elevated to the
position of CEO and MD in April 2014 and with that came in management’s
focus on receivables management, FCF generation and profitability
improvement as a part of the senior leadership’s KRAs. This resulted in much
needed consistency and predictability in performance.
Despite the top level management change in CY14, the middle level
management have remained with the company for the longest period of time.
This is an area where Cyient’s management scores over its peers.
The gradual movement Design to Manufacture is also Krishna’s view of
focussing only on engineering and product realisation segment thereby selling
its IT services arm to Techwave Consulting and acquiring Rangsons.
11 March, 2016
Bloomberg CYL IN
Shares o/s 113mn
Market Cap Rs. 45bn
52-wk High-Low Rs. 643-369
3m Avg. Daily
Vol Rs. 23mn
Index BSE Infotech
Snapshot
Promoters 22.0
Institutions 64.5
Public 13.5
% 1m 3m 12m
CYL 3 -17 -27
Sensex 8 -1 -16
IT Index 5 -2 -15
Relative benchmarking
Ranking matrix (1 to 6) CYL NITEC HEXW MTCL ECLX PSYS
Growth 2 4 2 1 4 2
Profitability 3 4 4 3 1 2
Return metrics 2 4 2 3 1 2
Balance Sheet 1 2 1 2 1 2
Valuation 1 1 4 6 6 4
Overall Rank 1 4 3 5 4 2
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT
(Rs
mn)
EPS P/E(x) RoE%
FY16E 30,845 4,263 3,420 30.4 13.2 18.1%
FY17E 33,528 4,961 3,641 32.3 12.4 18.2%
FY18E 37,216 5,673 4,183 37.2 10.8 18.4%
FY19E 41,682 6,495 5,084 45.2 9.3 18.7%
FY20E 47,518 7,599 6,137 54.5 8.5 19.0%
Cyient CMP
Rs. 400
3Y Target
Rs. 800
Page 24
Cyient – Crystal Gazing
CYL to grow
revenue and PAT
by 12% and 21%
in next 4 years
from FY16E-
FY20E with
Ebitda margins
inching up to 16%
range. As a
result, we expect
company to
generate OCF as
% of EBITDA to
improve from
51% in FY16E to
65% in FY20
generating OCF
of Rs5bn in FY20.
Structural
improvement in
margins led by
operational
efficiencies and
growth in Rangsons
Consistent
revenue
growth of 12%
Margin
improveme
nt and
stable DSOs
result in
Consistent
growth and
stable margins
in business to
be rewarded by
P/E multiple FY20E EPS Price target
12x 54.5 654 ▲
14x 54.5 763
Entry = Rs. 400 @ 11x
FY18E
Cumulative Dividends of
Rs. 40
EPS CAGR of 16%, exit
multiple of 14x FY20E
TOTAL RETURN OF
2.0x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 11,880 27,359 30,845 33,528 37,216 41,682 47,518 ▲
Ebitda 1,804 4,013 4,263 4,961 5,673 6,495 7,599 ▲
Margins 15.2% 14.7% 13.8% 14.8% 15.2% 15.6% 16.0% ◄►
PAT 1,385 3,533 3,420 3,641 4,183 5,084 6,137 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 14.3% 20.2% 18.1% 18.2% 18.4% 18.7% 19.0% ▲
Leverage 0.00 0.02 0.05 0.04 0.04 0.03 0.03 ◄
►
Debtor days 91 79 76 77 77 77 77 ◄
►
CFO (Rs nm) 934 3,617 2,204 3,267 3,711 4,319 4,853 ▲
Higher Return on
Equity and higher
cash flow from
operations
High multiple
FY11-16E CAGR %
Revenue EBITDA PAT Price
21 19 20 20
Trading History – % of times stock traded
PE range <6x 6x-10x 10x-12x 12x-14x >14x
8 29 35 20 8
Page 25
Why do we like the Company?
Intellect Design Arena (INDA) is a BFSI focused software product company
created by the vertical demerger of Polaris in March 2014. With the advent of
SMAC and other concepts like smart legacy modernisation, demand for
packaged software has been steadily improving after two years of sluggishness.
This coupled with heavy investments in S&M and R&D over the past three
years should result in doubling of revenues over FY16-20E.
Over the next three to four years the focus is to sell more products to existing
clients thereby increasing products per client from 1.3 currently to 2.5. INDA
business consists of five main product categories –Universal banking platform,
Treasury Banking platform, Risk & Treasury banking management, Central
banking platform and Enterprise insurance platform. These products have been
integrated across various OS and devices and rated highly by industry analysts.
In order to achieve this goal INDA has been spending 25% of its revenues on
sales and marketing over the last two years. This is largely going into recruiting
local sales people rather than Indians and who have been hired either from
large competitors or from banks having strong experience thereby driving
growth. For instance, if a person who has previously spent 20 years in Lloyds
Bank and is now leading sales of an INDA product, the chances of pipeline
getting converted into an order and to revenues is much higher than before.
To drive profitability, INDA has partnered with various IT vendors throughout
FY16. Agreement with IT service vendors would not only increase the size of
deal wins but also improve gross margins as Professional services or
Implementation has the lowest margins.
Why do we like the Management team?
The biggest change in INDA management is Arun Jain’s willingness to delegate
and empower second leadership team which was not being done in Polaris.
This is being done by giving full P&L responsibility to four different product
CEOs of the product they lead. These four different product CEOs are having
separate sales team and separate functional R&D team bringing accountability.
In order to ensure consistent revenue growth, INDA management has given 7%
of their outstanding equity as ESOPs to employees. This is the best way to
incentivise the sales and delivery team.
11 March, 2016
Bloomberg INDA IN
Shares o/s 101mn
Market Cap Rs. 20bn
52-wk High-Low Rs. 302-97
3m Avg. Daily
Vol Rs. 82mn
Index BSE Infotech
Snapshot
Promoters 32.1
Institutions 23.4
Public 44.5
% 1m 3m 12m
INDA 6 -22 73
Sensex 8 -1 -16
IT Index 5 -2 -15
Relative benchmarking
Ranking matrix (1 to 6) INDA NSEL OFSS MJCO RMCO SUBX
Growth 1 4 6 3 3 4
Profitability 3 4 1 3 4 4
Return metrics 2 4 1 3 4 4
Balance Sheet 1 2 1 3 2 5
Valuation 1 1 5 4 5 3
Overall Rank 1 4 3 4 4 4
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT
(Rs
mn)
EPS P/E(x) RoE%
FY16E 8,079 -307 -323 -3.2 NA NM
FY17E 9,301 417 252 2.5 80.1 4.2%
FY18E 10,863 1,019 759 7.5 26.6 11.5%
FY19E 12,831 1,638 1,315 13.0 15.4 17.3%
FY20E 15,347 2,374 1,995 19.8 10.1 21.5%
Intellect Design Arena CMP
Rs. 200
3Y Target
Rs. 400
Page 26
Intellect Design Arena – Crystal Gazing
INDA to grow
revenue and PAT
by 17% and 100%
in next 4 years
from FY16E-
FY20E with
Ebitda moving
from negative
category to 15/16
range. As a
result, we expect
company to
generate ROEs in
excess of 20% by
FY20E and cash
conversion to
improve from
negative territory
to 75% of EBITDA
by FY20E.
More product sales
to existing clients
and product sales to
new clients
Consistent
revenue
growth of 17%
Margin
improveme
nt from SI
tie up to
result in
Consistent
growth and
margin
improvement in
business to be
rewarded by
P/E multiple FY20E EPS Price target
18x 19.8 356 ▲
20x 19.8 395
Entry = Rs. 200 @ 1.7x
FY18E EV/Sales
Cumulative Dividends of
Rs. 5
EPS CAGR of 100%, exit
multiple of 20x FY20E
TOTAL RETURN OF
2.0x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue NA 6,048 8,079 9,301 10,683 12,831 15,347 ▲
Ebitda NA -842 -307 417 1,019 1,638 2,374 ▲
Margins NA -13.9% -3.8% 4.5% 9.4% 12.8% 15.5% ▲
PAT NA 830 323 252 759 1,315 1,995 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE NA NA NA 4.2% 11.5% 17.3% 21.5% ▲
Leverage NA 0.00 0.00 0.00 0.00 0.00 0.00 ◄
►
Net Working
Capital days NA 3 15 12 12 12 12
◄
►
CFO (Rs nm) NA -176 -604 332 755 1,217 1,756 ▲
Higher Return on
Equity and higher
cash flow from
operations
High multiple
FY11-16E CAGR %
Revenue EBITDA PAT Price
NA NA NA NA
Page 27
Why do we like the Company?
By virtue of being one of the early entrants into the footwear retail space and
by straddling products across price points, Bata has become a household
name and has emerged as one of the very few successful retailers in India.
We note that Bata had taken balanced approach to growth by neither being
too aggressive nor being conservative in retail expansion, which we believe
is one of the key success factors that has enabled them to survive across
consumption cycles.
Bata has faced its fair share of challenges including Labour union issues, rise
in employee cost & rental expenses, outdated merchandise, inefficient sales
force, lack of funds and supply chain related issues which led to the downfall
of several retail companies in India. Bata not only successfully transformed
these challenges but emerged stronger with K-store concept, improved billing
networks and rationality in expansion.
Rising prominence of alternate retail channels (Wholesale & e-Commerce) in
footwear, excess inventory on account of failure of SAP implementation and
higher rental costs have emerged to be the recent challenges which have led
to growth and earnings floundering offlate. We however remain sanguine of
the prospects as we believe Bata has the ability to transform itself to
changing needs as they have demonstrated in the past.
Why do we like the Management team?
Unlike a typical MNC, Bata’s decision making has stemmed from regional
centres, which we believe understands and responds to local challenges
better and aids in making quicker decisions and implementation.
Bata India accommodates the global parent chairman as an independent
director in Bata India BOD. Mr.Rajeev Gopalakrishnan is the CEO for the
past 5 years with ~26 years experience across Bata organisations.
Mr. Ram Kumar Gupta, the recently appointed CFO has been with Bata for
around 27 years, we understand that Mr. R.K. Gupta was one of the key
member in transforming Bata operations during the challenges that the
company faced in the first decade of 2000.
We believe the current management has understood the problems in hand
and is well equipped to tackle the necessary medium-long term challenges.
14 Mar, 2016
Bloomberg BATA IN
Shares o/s 129mn
Market Cap Rs. 62bn
52-wk High-Low Rs. 622-438
3m Avg. Daily
Val Rs. 220mn
Index BSE 200
Snapshot
Promoters 53.0
Institutions 27.9
Public 19.2
% 1m 3m 12m
BATA 1% 3% -21%
Sensex 4% -2% -14%
BSE DIS 2% -5% -3%
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 24,387 2,736 1,634 12.7 38.1 14.8%
FY17E 27,622 3,431 2,121 16.5 29.3 16.7%
FY18E 31,489 4,306 2,694 21.0 23.1 18.5%
FY19E 35,897 4,903 3,122 24.3 19.9 17.2%
FY20E 40,923 5,577 3,616 28.1 17.2 18.6%
Bata India
Operating leverage to accrue as revenue growth drivers bounce back
Rs.mn FY11 FY12 FY13 FY15 FY16 FY17 FY18
Revenue 15,491 18,425 20,652 26,940 24,387 27,622 31,489
Rental
costs 1,453 2,153 2,619 3,741 3,386 3,733 4,144
% of sales 9.4% 11.7% 12.7% 13.9% 13.9% 13.5% 13.2%
EBITDA 2,304 2,750 3,220 3,350 2,736 3,431 4,306
EBITDA
margin 14.9% 14.9% 15.6% 12.4% 11.2% 12.4% 13.7%
CMP
Rs. 484
3Y Target
Rs.844
Page 28
We pencil in a 4-
year revenue and
EBITDA CAGR of
~14% and ~19%
respectively
(FY17-FY20).
BIL's portfolio of
strong brands,
immense
potential to
capitalise on the
growth
opportunities
and the dormant
operating
leverage to play
out over the
medium to long
term.
Steady state revenue
growth assumed
given the inching
competitive intensity
and diminishing
distribution
advantage.
P/E multiple FY20E EPS Price target
30X 28.1 844
35X 28.1 985
Entry = Rs.484 @ 29x FY17E
Cumulative Dividends of Rs. 17
EBITDA CAGR of
~18%, exit multiple of 30x FY20E
TOTAL RETURN OF 1.8x
FY11 FY16E FY17E FY18E FY19E FY20E
Revenue 15,491 24,387 27,622 31,489 35,897 40,923
EBITDA 2,304 2,736 3,431 4,306 4,903 5,577
Margins 14.9% 11.2% 12.4% 13.7% 13.7% 13.6%
PAT 1,537 1,634 2,121 2,694 3,122 3,616
EPS 12.0 12.7 16.5 21.0 24.3 28.1
FY11 FY16E FY17E FY18E FY19E FY20E
Rental
expenses 9.4% 13.9% 13.5% 13.2% 12.8% 12.5%
ROE 31.8% 16.7% 18.5% 17.2% 18.6% 14.8%
ROCE 29.7% 16.8% 18.6% 17.3% 18.7% 14.9%
Huge operating
leverage to play out
from rental expenses
with increasing scale
of operations to
enhance returns.
Multiple assumed in line
with past performance
with no downgrading
assumed given its
vintage and robust
brand enquiry.
Bata India – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
12% 4% 2% 23%
Trading History – % of times stock traded
PE
range
<23x 23x-25x 25x-27x 27x-29x 29x-31x >31x
18% 9% 20% 18% 15% 20%
Page 29
Why do we like the Company?
Decorative paints; Cosy Oligopoly: Our penchant among paint companies
is aligned towards players who have higher contribution from decorative
paints segment given that superior pricing power and robust demand drivers
makes decorative paints a safe bet across economic cycles. We believe that
the crux of sectoral moat comes from current distribution structure and unless
any disruptive innovation happens, the incumbents will continue to enjoy the
ever expanding pie of the Indian decorative paints market.
Benefit from ‘solvent’ to ‘water’ changing preference: With consumption
of water based paints in India on the rise, BRGR had undertaken a massive
rebranding initiative to promote premium water based paints. Having been a
late entrant into the decorative paints market, the rebranding and fresh
positioning assisted BRGR in cementing a place for its own in the decorative
paints market.
Premiumising portfolio: BRGR over the past 5 years has increased its
focus on premium offerings enabling gross margins expand ~450bps from
FY11-FY15 despite limited raw material tailwinds.
Distribution expansion & focus on supply chain: ERP implementation,
better incentive programs for sales force, improving links with painters and
initiatives as ‘express painting’ has enabled BRGR developing better liaison
with painters and dealers..
Why do we like the Management team?
Entrepreneural attention from promoters (Kuldip and Gurbachan Singh
Dhingra) & professional expertise has not only led BRGR becoming the 2nd
largest decorative paint player but also has enabled them to widen the gap
between themselves and rest of the trailing market.
Mr. Abhijit Roy, since his appointment as CEO and MD in 2012 has
undertaken several long term initiatives as product premiumisation, capacity
expansion and increase in marketing spends focussing on strengthening
product, brand and supply chain.
Further, incessant innovations to remain relevant to changing market needs
as express painting & ‘aggregator’ model keeps us optimistic on
management’s ability to align to changing needs.
14 March 2016
Bloomberg BRGR IN
Shares o/s 693mn
Market Cap Rs. 164bn
52-wk High-Low Rs. 284-171
3m Avg. Daily
Val Rs. 108mn
Index BSE 200
Snapshot
Promoters 75.0
Institutions 13.6
Public 11.5
% 1m 3m 12m
BRGR -5% 8% 13%
Sensex 8% -1% -14%
BSE DIS 6% -3% -3%
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 46,994 6,970 3,981 5.7 41.4 28.5%
FY17E 53,609 8,156 4,871 7.0 33.9 28.6%
FY18E 62,822 9,800 6,054 8.7 27.3 28.8%
FY19E 74,130 11,817 7,499 10.8 22.0 28.7%
FY20E 87,473 14,225 9,140 13.2 18.1 28.2%
Berger Paints
BRGR consistently outgrowing trailing peers in revenue growth
Revenue
growth FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Berger Paints 23.8% 25.9% 13.5% 15.6% 11.7% 8.7% 14.1% 17.2%
Akzo Nobel India 16.9% 81.2% 12.3% 8.3% 4.5% 7.3% 8.6% 13.4%
Kansai Nerolac 25.5% 21.4% 9.8% 10.8% 12.2% 7.6% 14.0% 17.1%
CMP
Rs.238
3Y Target
Rs.448
Page 30
We believe
BRGR should
continue to
outperform
industry
growth led by
incessant
product and
marketing
initiatives.
Gross margins
to contract as
raw material
prices stabilise
however
operating
margins
expansion to
accrue on the
back of rise in
operating
leverage.
Multiples to
hover around
current levels
Revenues and
Earnings to grow at a
CAGR of ~17% &
~23% respectively
over next four years.
P/E multiple FY20E EPS Price target
30x 13.2 396
34x 13.2 448
Entry = Rs.238 @ 34x FY17E
Cumulative Dividends of Rs. 8.4
EPS CAGR of ~23%,
exit multiple of 30x FY20E
TOTAL RETURN OF 1.9x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 23,407 43,221 46,994 53,609 62,822 74,130 87,473
EBITDA 2,503 5,107 6,970 8,156 9,800 11,817 14,225
Margins 10.7% 11.8% 14.8% 15.2% 15.6% 15.9% 16.3%
PAT 1,500 2,647 3,981 4,871 6,054 7,499 9,143
EPS 2.2 3.8 5.7 7.0 8.7 10.8 13.2
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Gross Margins 37.3% 41.4% 44.7% 44.4% 44.1% 43.0% 42.5%
ROE 23.3% 24.0% 28.5% 28.6% 28.8% 28.7% 28.2%
ROCE 17.3% 17.2% 21.0% 23.0% 25.0% 26.1% 26.3%
CFO (Rs nm) 1,261 3,454 4,340 4,637 5,183 6,117 7,355
Gross margins to
come down as raw
material headwinds
emerge
Multiples to hover
around 30x-35x
Berger Paints – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
15% 23% 22% 41%
Trading History – % of times stock traded
PE
range
<20x 20x-25x 25x-30x 30x-35x 35x-40x >40x
26% 20% 19% 9% 23% 3%
Page 31
Why do we like the Company?
Targeting a niche but an expanding consumer segment, Indian Terrain
Fashion (ITFL) has built a strong brand equity in the affordable premium
men’s wear market through its superior and differentiated product offerings.
Having commenced operations only in 2001 and being a relatively younger
brand, ITFL’s terms of trade were more favourable for its partners and below
industry standards. However, with the company now having reached an
inflection point, ITFL has taken the initial steps in the process and all new
EBOs are expected to be contracted with improved terms of trade.
Renegotiation of existing franchise arrangements can also yield gross margin
and EBITDA margin expansion over the next 3 years.
An entrenched distribution structure with over ~1000 points of sales
(Exclusive Brand Outlets (EBOs), Multi Brand Outlets (MBOs), Large Format
Stores (LFS) and E-Commerce) illustrates the reach as well as establishes a
strong platform for expansion. ITFL also encompasses sturdy back-end
capabilities, with sourcing expertise and design competencies.
Since, ITFL was not a cash rich company and leveraged significantly till
recently, ITFL had low advertising budgets (while maintaining high Sales
Promotion / Discount budgets) and hence could not fully utilize its improving
brand salience through A&P. However, with the company having raised
Rs.750mn in 2015, the company is flushed with the necessary funds to
commence its next phase of growth.
Why do we like the Management team?
ITFL got de-merged from Celebrity Fashions in 2011, both the cos. are
promoted and managed by Mr. V Rajagopal. The day to day operations of
the company are overseen by Mr. Charath (CEO) and Mr. Amitabh Suri
(COO) who are the driving force behind the brand and the company.
Inspite of going through a very difficult journey of last 11/2 decade, with the
limited resource at disposal the ITFL team managed to create a very strong
brand equity of INDIAN TERRAIN in the market place, solely based on their
unflinching focus on design, fit and product quality.
Meaningful ESOPs to the top management ensures continuity at the top and
also aligns interest of shareholders and the management for value creation.
14 March 2016
Bloomberg ITFL IN
Shares o/s 37mn
Market Cap Rs. 4bn
52-wk High-Low Rs. 166-102
3m Avg. Daily
Val Rs. 9mn
Index -
Snapshot
Promoters 30.9
Institutions 31.1
Public 38.1
% 1m 3m 12m
ITFL 6% -11% -4%
Sensex 8% -1% -14%
BSE DIS 6% -3% -3%
Financial summary
Year Revenues
(Rs mn)
EBITDA
(Rs mn)
PAT
(Rs mn) EPS P/E(x) RoE%
FY16E 3,126 398 305 8.5 14.1 21.6%
FY17E 3,689 504 329 9.2 13.1 19.0%
FY18E 4,487 653 431 12.0 10.0 20.6%
FY19E 5,295 757 500 13.9 8.6 20.0%
FY20E 6,118 887 587 16.3 7.4 19.9%
Indian Terrain
Despite limited A&P outlay, ITFL has built a strong brand equity
FY11 FY12 FY13 FY14 FY15
Revenue 1,211 1,410 1,567 2,321 2,904
Growth (%) na 16.4% 11.2% 48.1% 25.1%
A&P 77 65 62 102 121
% of sales 6.3% 4.6% 4.0% 4.4% 4.2%
Commission and discounts 142 203 256 357 504
Margin (%) 11.7% 14.4% 16.3% 15.4% 17.4%
CMP
Rs.120
3Y Target
Rs.294
Page 32
We believe
ITFL has the
ability to
outgrow the
market led by
underlying
product quality,
distribution
expansion and
its brand
extensions.
Assuming a revenue
and PAT CAGR of ~18%
each respectively over
the next four years
Entry = Rs.120 @ PE of 13x
FY17E
Cumulative Dividends of Rs.5.5
Exit multiple of 18x FY20E
TOTAL RETURN OF 2.5x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 1,211 2,904 3,126 3,689 4,487 5,295 6,118
EBITDA 124 335 398 504 653 757 887
Margins 10.3% 11.5% 12.7% 13.7% 14.5% 14.3% 14.5%
PAT 63 180 305 329 431 500 587
EPS 2.3 5.0 8.5 9.2 12.0 13.9 16.3
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
ROE 31.8% 22.1% 21.6% 19.0% 20.6% 20.0% 19.9%
ROCE 16.1% 18.6% 19.3% 17.3% 19.2% 19.1% 19.3%
Leverage 2.62 0.37 0.24 0.15 0.11 0.07 0.05
Working
Capital Days 180 129 143 135 132 132 132
Working capital
management however
continues to be a
concern
We believe the company
can benefit from potential
valuation re-rating given
that it can possibly reach
the Rs.8bn retail revenue
threshold level by 2020.
Indian Terrain – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
21% 26% 37% 49%
P/E multiple FY20E EPS Price target
18x 16.3 Rs.294
22x 16.3 Rs.359
Page 33
Why do we like the Company?
VIP industries (VIP IN), market leader in the oligopolistic organized luggage
market in India led by its strong products, brands and distribution moat would
be an indisputable beneficiary of the increase in number of airline passengers
and Indian consumers’ innate need to migrate towards branded goods.
Wide portfolio of brands straddling across price points with distinct
positioning have been inline to meet changing consumer needs.
Growth drivers for the three new age brands viz. Skybags, Carlton and
Caprese remain on a strong footing with brands expected to deliver growth in
excess of ~20% over the next 3-4 years. These youth centric brands augurs
well to remain relevant to the young customers with increasing disposable
income.
With ~10,700 points of sales, VIP IN has the strongest distribution network
among peers. Though VIP IN has struggled on the growth and margin front in
the recent past, we can’t overemphasise the fact that throughout this difficult
cycle, VIP IN has been able to protect its terms of trade of trade, clearly
reflects brand strength of the portfolio.
Huge share (~60%) of unorganized market in the category, possible
inflection point in consumers’ preference for branded luggage and probable
gross margin expansion on the back of in-house production could be
additional levers.
Why do we like the Management team?
VIP IN is managed by the promoter family with Ms. Radhika Pirmal (third
generation) at the helm of operations. With high attrition at top management
in 2009, Ms. Radhika’s induction was instrumental in reviving VIP fortunes.
Despite intense competition, Ms.Radhika has credibly managed to sustain
market leadership by developing separate strategy for each brand & network.
Samsonite’s (global leader in luggage industry) inability to become market
leader despite possessing favourable brands and funds is a testament to
Ms.Radhika’s ability and achievements.
Credited with adding impetus to growth with the three new youth brands, we
note that Ms. Radhika has also been able to attract good talent from industry
indicating that Ms.Radhika is indeed pulling all strings to lead VIP growth.
14 Mar, 2016
Bloomberg VIP IN
Shares o/s 141mn
Market Cap Rs. 14bn
52-wk High-Low Rs. 112-71
3m Avg. Daily
Val Rs. 44mn
Index BSE 500
Snapshot
Promoters 52.5
Institutions 18.1
Public 29.4
% 1m 3m 12m
VIP 9% 8% -2%
Sensex 4% -2% -14%
BSE DIS 2% -5% -3%
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 12,219 985 588 4.2 23.3 18.3%
FY17E 13,865 1,235 753 5.3 18.2 19.5%
FY18E 16,014 1,469 922 6.5 14.9 17.6%
FY19E 18,564 1,771 1,219 8.6 11.2 21.6%
FY20E 21,246 2,009 1,404 9.9 9.8 23.1%
VIP Industries
Contribution from new age brands on the rising trend
FY14 FY15 FY16e FY17e FY18e
VIP 50% 49% 46% 45% 44%
Skybags 23% 23% 24% 25% 26%
Carlton 6% 6% 6% 7% 7%
Caprese 2% 2% 3% 3% 3%
Alfa & Aristocrat 20% 19% 22% 21% 20%
CMP
Rs.97
3Y Target
Rs. 199
Page 34
We believe VIP,
the market
leader led by
its strong
products,
brands and
distribution
moat would be
a beneficiary of
the macro
economic
revival leading
to healthy
growth for the
company. New
age brands
which are the
growth drivers
of the company
along with
operating
leverage to aid
a ~21% PAT
CAGR over
next four years
Revenues and
Earnings to grow at a
CAGR of ~14% &
~21% respectively
over next four years.
P/E multiple FY20E EPS Price target
20x 9.9 199
25x 9.9 248
Entry = Rs.97 @
18x FY17E
Cumulative Dividends of Rs.9.3
EPS CAGR of ~21%,
exit multiple of 20x FY20E
TOTAL RETURN OF 2.1x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 7,584 10,477 12,219 13,865 16,014 18,564 21,246
EBITDA 1,203 775 985 1,235 1,469 1,771 2,009
Margins 15.9% 7.4% 8.1% 8.9% 9.2% 9.5% 9.5%
PAT 887 435 588 753 922 1,219 1,404
EPS 6.3 3.1 4.2 5.3 6.5 8.6 9.9
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Gross Margins 53.5% 45.3% 43.9% 43.7% 43.5% 43.7% 43.7%
ROE 51.0% 14.7% 18.3% 19.5% 18.2% 19.8% 21.9%
ROCE 34.7% 13.8% 16.9% 18.7% 18.0% 19.6% 21.7%
Enhanced capital
efficiency on the
back of increasing
scale provided rupee
depreciation doesn’t
play a damper.
Huge potential for re-
rating given that it
currently trades at
~1.4x FY15 sales.
VIP Industries – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
10% -4% -8% -3%
Trading History – % of times stock traded
PE range <13x 13x-16x 16x-19x 19x-22x >22x
10% 19% 24% 41% 7%
Page 35
Why do we like the Company?
Superior business model, having exposures to the right end-markets with optimum
OEM/replacement segment mix. (Auto/Industrial : 55/45; OEM/Replacement: 30/70)
Gaining market share in OEM and replacement market for both the 4W and 2W
segment. Continues to be the leader in telecom battery space
22% revenue CAGR from FY11-FY16 coupled with EBITDA CAGR of 27% vs. the
industry leader Exide having a revenue and EBITDA CAGR of 8% and 3% in the
same period
Significant capacity expansion undertaken in all the segments at the right time as
volume growth remains strong. Company is entering new segment of inverter
tubular batteries (traded thus far) as demand for its batteries remains string and the
company is facing supply constraints from contract manufacturers.
Industry leading margins (17.5%+), post tax RoCEs (25%) and consistent free cash
flows
Why do we like the Management team?
AMRJ is a JV between Johnson Controls and the Galla family owning 26% each.
Johnson controls is globally the leading lead-acid battery manufacturer in terms of
size, technology and operating efficiencies. AMRJ has significantly benefited from
Johnson Controls operating capabilities. Mr. Ramachandra Galla (promoter)
is a technocrat having worked as a Consulting Engineer for the Designing of
Nuclear & Coal Fired Power Plant in the USA.
We like the management team as they have gone about doing the business by
following not following the leader (Exide) in terms of technology, sales infrastructure
and new product introductions. In all the cases, they have had huge success in
terms of sales and market share. Below are some examples
AMRJ pioneered the sale of pre-charged automotive batteries (available off the
shelf) in India. This changed the industry landscape as Exide followed conventional
methods of charging the battery at the point of sale. Pioneer in the VRLA
technology for 2W batteries and QRS (quick recharge system) batteries in Telecom
Management at AMRJ followed a two-tier structure by appointing franchisees who
would in-turn supply to retailers. This model has proven to be a huge success vs.
Exide’s single tier structure
14 Mar, 2016
Bloomberg AMRJ
Shares o/s 170.8
Market Cap Rs. 153bn
52-wk High-Low Rs. 1,132-773
3m Avg. Daily
Vol Rs. 268mn
Index BSE 200
Snapshot
Promoters 52.1
Institutions 28.9
Public 19.1
% 1m 3m 12m
AMRJ 4% 7% 5%
Sensex 8% -1% -14%
BSEAUT
O 11% -3% -12%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
Margin % PAT EPS (Rs.) P/E (x)
EV/EBITDA
(x)
FY16E 47,545 17.7% 5,143 30.1 37.3 21.0
FY17E 57,979 18.0% 6,568 38.5 29.8 17.9
FY18E 68,474 18.3% 8,274 48.4 23.3 14.1
FY19E 79,109 17.5% 9,321 54.6 18.5 11.2
FY20E 89,462 17.5% 10,988 64.3 16.4 9.7
Relative benchmarking
Amara vs. Exide Amara Raja Exide
5Y Revenue CAGR 22% 8%
5Y EBITDA CAGR 27% 3%
FY16 EBITDA Margin % 17.7% 15.2%
FY16 RoCE % 24% 13%
4W Replacement Market
Share 22% 35%
2W Replacement Market
Share 17% 30%
Amara Raja Batteries CMP
Rs. 870
3Y Target
Rs.1,510
Page 36
Amara Raja Batteries – Crystal Gazing
Limited re-rating
potential
EBITDA growth to
mirror revenue
growth
Revenue CAGR of
17% from FY16 to
FY20
Rs. Mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Auto 9,719 22,630 26,457 25,874 30,123 34,353 38,314 ▲
Industrial 7,952 19,554 21,073 32,085 38,329 44,732 51,121 ▲
Total 17,671 42,110 47,530 57,959 68,452 79,085 89,436 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
EBITDA
(Rs.mn) 2,574 7,233 8,420 10,436 12,531 13,836 15,656 ▲
EBITDA
Margin(%) 14.6% 17.1% 17.7% 18.0% 18.3% 17.5% 17.5% ▲
Entry = Rs. 850
(22x FY17 P/E)
Cumulative Dividends of Rs. 26.5
Exit at 23x FY20
P/E
TOTAL RETURN OF 68%
Over FY16-20, AMRJ is
expected to see a 17%
revenue and EBITDA
growth equally driven by
Auto and Industrial
segment.
EBITDA margin is expected
to remain stable at ~17.5%.
Do not expect to see
pricing pressure as it is a
duopoly
Growth from new segment
such as tubular inverter
battery to offset the
moderation in 4W
replacement market
volumes. 2W to continue
seeing string growth
Overall replacement
segment to be driven by
reduction in unorganized
segment which accounts
for ~40% of the
replacement market
Trading History – % of times stock traded
PE range <11x 11x-15x 15x-21x 21x-27x >27x
27% 30% 12% 21% 10%
FY11-16E CAGR %
Revenue EBITDA PAT Price
26.9% 32.3% 34.7% 36.5%
Page 37
Why do we like the Company?
It is one of the best plays on India’s improving port and rail infrastructure. The
company is a unique mix of being an ‘infra’ company yet having a near debt-free
balance sheet with steady free cash generation. We expect India’s containerization
to improve from current ~50% towards world average of ~80%
GDL is among the top three CFSs at JNPT (India’s largest container port) and
Chennai port. Other assets (CFS/ICD) are also at the right locations so as to take
advantage of expected improvement in container volumes due to the Dedicated
Freight Corridor (DFC) – Gurgaon, Faridabad, Ludhiana and planned increase in
port capacity – Mumbai, Chennai, Krishnapatnam, Vizag and Kochi
Expect ~12% volume CAGR from FY16-FY20 on the back of new terminals and
benefit from DFC and port capacity expansion. EBITDA CAGR is expected to be
higher at ~17% given improving rail margins (higher double stacking)
The stock trades at 21x FY17 EPS (assuming 50% stake in rail). We expect
Blackstone to sell its ~50% stake in the rail subsidiary in FY17
Why do we like the Management team?
One of the first movers in the rail segment when container train operations were
opened for private participation. Only about five of the 16 companies awarded rail
licence are currently active. GDL is the largest of those (ex-Concor). This was
primarily lead by strong management team which focused on 1) profitable routes
based on the key catchment areas 2) reducing exposure to the low margin
domestic business 3) strategic plan of providing end-to-end solution by way of
owning terminals in the right locations apart from haulage activity 4) strong
relationship with shipping lines coupled with raising the bar in terms of value added
services resulting in strong volume growth and high market share in NCR region
Prior to joining Gateway Rail, CEO of Gateway Rail, Mr. Sachin Bhanushali spent
~15 years with Indian Railways and Concor, he hence understands the nitty-gritty of
the business thoroughly especially on operations management
Mr. Prem Kishan Gupta, Chairman and MD of GDL is a visionary promoter with
focus on creating the right assets with a long term view. Key examples are
Acquisition of Snowman Logistics (one of the fastest growing climate controlled cold
chain operations), land acquisition for terminals at attractive value well ahead of the
curve, which places the company beneficially for future expansion as strategically
located contiguous land is a key constraint for the ICD/CFS business
12 Mar, 2016
Bloomberg GDPL
Shares o/s 108mn
Market Cap Rs. 28bn
52-wk High-Low Rs. 455-206
3m Avg. Daily
Vol Rs. 66mn
Index BSE 500
Snapshot
Promoters 25.2
Institutions 64.5
Public 10.3
% 1m 3m 12m
GDL -1% -21% -40%
Sensex 8% -1% -14%
Financial summary (multiples adjusted for 50% stake in Rail)
Year Revenue
(Rs. mn)
EBITDA
Margin % PAT EPS (Rs.) P/E (x)
EV/EBITDA
(x)
FY16E 10,635 24.9% 1,325 12.2 27.0 14.9
FY17E 12,335 25.4% 1,740 16.0 20.9 12.4
FY18E 14,164 28.9% 2,673 24.6 14.3 9.1
FY19E 15,925 29.6% 3,279 30.2 11.5 7.6
FY20E 17,676 30.1% 3,892 35.8 9.6 6.3
Relative benchmarking
GDL vs. CONCOR GDL CONCOR
5Y Volume CAGR 4.5% 2.5%
5Y Revenue CAGR 14.3% 8.5%
5Y EBITDA CAGR 11.3% 2.8%
EBITDA Margin % 25% 20.4%
FY15 RoCE % 15% 14%
EBITDA / TEU (Rs. ) Rs. 4,610 Rs. 4,042
Gateway Distriparks CMP
Rs. 255
3Y Target
Rs. 460
Page 38
Gateway Distriparks – Crystal Gazing
Limited re-rating
potential
EBITDA/TEU to
improve from Rs.
3,000 to Rs. 3,425 in
CFS and from ~Rs.
7,500 to ~Rs. 9.740
CFS volume growth
of ~12%, Rail volume
growth of ~13.5%
resulting in revenue
growth of ~14%
FY16E FY17E FY18E FY19E FY20E
CFS volume
(TEUs) 3,71,251 4,08,420 4,75,600 5,39,600 5,89,200 ▲
Rail Volume
(TEUs) 2,03,512 2,33,400 2,68,555 3,02,419 3,38,910 ▲
Revenue
(Rs. Mn) 10,635 12,335 14,164 15,925 17,676 ▲
FY16E FY17E FY18E FY19E FY20E
Rail
EBITDA/TEU
(Rs.)
7,491 7,865 9,178 9,473 9,736 ▲
CFS EBITDA /
TEU (Rs.) 3,036 3,189 3,430 3,428 3,427 ▲
Entry = Rs. 255 (implied
14.5x EV/EBITDA)
Cumulative Dividends of
Rs. 28.5
Exit at 11.5x implied
EV/EBITDA
TOTAL RETURN OF 80%
Over FY16-20, GDL is
expected to clock a ~14% /
19% revenue / EBITDA
growth. Volume growth is
driven by increasing port
capacity (JNPT,
Krishnapatnam) and
containerization levels
(currently at ~50% vs.
global average of 75-80%).
Revenue growth is
expected to be across the
board, however EBITDA
growth is expected to be
driven by rail business
(21.5% EBITDA CAGR) as
the benefits of double
stacking from the
Viramgam terminal would
kick in in FY18-FY20.
SOTP Valuation Multiple (x) Net
Debt
Per share
value (Rs.) Mumbai + Chennai
CFS P/E 17 144
Other CFSs P/E 17 43
GRFL (54% stake) EV/EBITDA 13
(2,308) 216
Snowman Market cap 25
Consolidated 429
Trading History – % of times stock traded
PE range <10x 10x-14x 14x-18x 16x-18x >18x
35% 29% 13% 13% 11%
Page 39
Why do we like the Company?
SEL is the largest control cables manufacturers in India with a strongly diversified
revenue and customer profile. These strengths are further complemented by dominant
market position in major customer segments and supplemented by meaningful inroads
in the domestic AM segment (currently ~10% market share) and export markets driven
by marquee brands.
SEL derives ~52% of its revenue from 2W segment, 33% from 4W, 10% from AM and
6% from non-auto segment. It has more than 70% market share in the 2W segment and
~35% market share in the 4W business.
Increasing thrust in the domestic AM segment and OEM exports, coupled with growing
wallet share with 2W (specifically HMSI) and 4W OEMs, sets up SEL’s (excl. Phoenix
Lamps Ltd, PLL) revenue and PAT to grow at CAGR of 19% and 27%, over FY16-FY20.
SEL’s (with a proven track record of synergising acquisitions) acquisition of PLL would
enable it to reap benefits of PLL’s mkt. leadership (61% share in domestic OE lamps
segment), besides opening up cross-selling opportunities in the AM space.
PLL’s profitability drivers to unravel over the medium term, through SEL driven cost and
capital rationalisation efforts with steady revenue growth over the medium term. Expect
revenue and PAT from PLL (excl. MI) to grow at CAGR of 12% & ~20%, FY16-20
Why do we like the Management team?
We are extremely positive on SEL’s mgmt., which under the aegis of Ajith Rai, MD and
Chairman, has relentlessly focussed on incessant, yet conservative and well considered
,expansions (organic/inorganic) consistently de-risking the revenue profile. The share of
2W in cables business revenue mix has reduced from 97% in FY02 to 52% in 1HFY16,
and share of exports has increased from 1% in FY02 to 19% in 1HFY16.
Mgmt.’s focus on flawless execution has enabled SEL to generate best in industry
margin and ROE’s. SEL works closely with OEMs, setting up plants in proximity to most
OEM clusters enabling significant saving of freight costs. Additionally, mgmt. keeps a
tight leash on working capital cycles, closely aligning it with that of the OEMs (through
best manufacturing practices, including JIT) which aids in achievement of sustainable
RoEs in the range of 25-30%.
We believe that the management would be would be able to bring in the same
execution ethic to PLL as well, favourably impacting its ROE, projected at 17% by FY20,
up from an expected 11% in FY16. Post-acquisition, SEL has made changes to the top
brass at PLL, whose primary mandate is to ensure efficiency in asset utilisation and cost
rationalisation, and we expect benefits to be visible over the near term.
12 Mar, 2016
Bloomberg SEL
Shares o/s 131.3mn
Market Cap Rs. 17bn
52-wk High-Low Rs. 152-111
3m Avg. Daily
Vol Rs. 6mn
Index BSE Small Cap
Snapshot
Promoters 51.8
Institutions 7.6
Public 40.6
% 1m 3m 12m
SEL -4% -4% -3%
Sensex 8% -1% -14%
BSEAUT
O 11% -3% -12%
Financial summary (Consolidated, incl. PLL)
Year Revenue
(Rs. mn)
EBITDA
Margin % PAT EPS (Rs.) P/E (x)
EV/EBITDA
(x)
FY16E 10,076 15.3% 720 6.0 21.7 8.4
FY17E 11,915 15.4% 920 7.7 17.0 7.3
FY18E 13,934 16.0% 1,178 9.8 13.3 6.2
FY19E 16,079 17.6% 1,519 12.6 10.3 5.0
FY20E 18,605 17.8% 1,819 15.1 8.6 4.4
Relative benchmarking
SEL AMRJ EXID WHL SF GABR
5Y Revenue CAGR 14.6% 22.0% 8.2% 3.3% 7.4% 8.2%
5Y EBITDA CAGR 13.9% 27.0% 3.2% 5.3% 11.0% 6.4%
FY16 EBITDA
Margin % 15.9% 17.7% 15.2% 8.4% 14.8% 8.9%
FY16 RoCE % 13.5% 24.0% 12.8% 9.0% 12.4% 19.1%
FY16 Leverage 0.8 0.0 - 0.7 0.7 0.0
Suprajit Engineering CMP
Rs. 130
3Y Target
Rs. 268
Page 40
Suprajit Engineering – Crystal Gazing
High multiples to be
maintained
EBITDA margin to
improve more than
in proportion to
revenue growth led
by improving
efficiencies and
revenue mix
Revenue CAGR of
17% from FY16 to
FY20
Rs. Mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
SEL (excl.
PLL) 3,467 6,118 6,855 8,337 9,934 11,598 13,578 ▲
PLL - - 3,220 3,577 4,000 4,481 5,027 ▲
Total 3,467 6,118 10,076 11,915 13,934 16,079 18,605 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Consol
EBITDA
(Rs.mn)
566 961 1,542 1,834 2,223 2,824 3,308 ▲
Consol
EBITDA
Margin(%)
16.3% 15.7% 15.3% 15.4% 16.0% 17.6% 17.8% ▲
Entry = Rs. 130 (Implied
17x FY17 P/E)
Cumulative Dividends of Rs. 6.2
Exit at 17.5x FY20
P/E
TOTAL RETURN OF 105%
Over FY16-20, SEL
(Consol) is expected to
register a 17% revenue
and 26% PAT CAGR
driven by steady scale up
of primarily SEL (excl.
PLL) revenue and
improving profitability
across the board., driven
by improving revenue
mix and cost
rationalization efforts.
Revenue growth would
be driven by improving
market share with
existing customers and
increasing foray into
newer segments (AM and
exports)
Consol EBITDA margin
are expected to improve
from 15% to 18%.
P/E Multiple FY20 EPS/PAT Target price
SEL (excl. PLL): 17.5X
PLL:16X (61.9% holding)
SEL (excl. PLL):
EPS: Rs.13
PLL PAT:
Rs.407mn Rs. 268
Dividend Rs.6.2
Consistent,
rounded
revenue
growth
Increasing
operational
efficiency
and product
mix
Increasingly
de-risked
revenue
profile and
improved
margins to be
rewarded
SEL Trading History – % of times stock traded
PE range <6x 6x-12x 12x-16x 16x-20x >20x
20% 35% 9% 20% 15%
FY11-16E CAGR %
Revenue EBITDA PAT Price
14.6% 13.9% 12.4% 46.1%
Page 41
Why do we like the Company?
TMKN is amongst the best plays in the bearings space given its leadership in tapered
roller bearings, with exposure to the right end-markets – specifically railways, exports
(to parent) and CVs.
We believe that strong growth prospects (with a high probability of fruition), in the
railways division (~25% of revenue) and exports (35% of revenue), poises TMKN for
exponential growth.
Drivers for these opportunities would be wagon addition & the DFC and continued
American parent patronage on the back of superior engineering capabilities and low-
cost manufacturing capabilities, respectively. Steady revenue from the CV segment
and catering to newer markets in industrial bearings (which would be increasingly
manufactured in India), would be supplementary growth drivers.
Expect revenue to grow at CAGR of 22% over FY16-FY20.
The increase in the scale of ops. would be enabled by TMKN’s capacity doubling
capex involving an outlay of Rs.1.25bn (already underway), underpinned by
empirically, best in industry asset turns and capital efficiency ratios.
Expect margins to improve to 16.5% by FY20 from 14.4% in FY16E, on the back of
improving leverage, better revenue mix and scaling up of operations at new facilities.
Expect PAT to grow at CAGR of 27.4% over FY16-FY20.
Why do we like the Management team? Timken India is a wholly owned subsidiary of The Timken Company (USA), a pioneer in
tapered roller bearings and also a supplier of power transmission components and
related services. It has operations spread across 28 countries with 62 mfg. facilities.
Timken (US) has been acquiring companies to add to its offerings, with nine
companies/businesses with a combined sales potential of ~US$300 mn. acquired in the
last four years.
According to the mgmt., the parent brings in some of these new product lines to India if it
could be profitably commercialised. The industrial gears drives business in Raipur was
set up using the expertise from the acquisition of Philadelphia Gear.
Timken (US) operates a R&D and Engg center in Bangalore, wherefrom R&D support
flows in to Timken India as well.
Also, Timken US, has highlighted Timken India as its preferred sourcing
destination,(over China) due to its combination of high engg. capabilities and low cost
mfg. base.
14 Feb, 2016
Bloomberg TMKN
Shares o/s 68mn
Market Cap Rs. 29bn
52-wk High-Low Rs. 669-409
3m Avg. Daily
Vol Rs. 8mn
Index BSE 500
Snapshot
Promoters 75.0
Institutions 11.2
Public 13.8
% 1m 3m 12m
TMKN -3% -22% -25%
Sensex 8% -1% -14%
BSEAUT
O 11% -3% -12%
Financial summary
Year Revenue
(Rs. mn)
EBITDA
Margin % PAT EPS (Rs.) P/E (x)
EV/EBITDA
(x)
FY16E 10,451 14.4% 929 13.7 30.5 18.5
FY17E 12,602 16.0% 1,273 18.7 22.3 13.9
FY18E 16,667 16.5% 1,747 25.7 16.2 10.2
FY19E 19,826 16.5% 2,086 30.7 13.6 8.4
FY20E 23,183 16.5% 2,447 36.0 11.6 6.9
Relative benchmarking
TMKN SKF FAG NRB
5Y Revenue CAGR 17.4% 4.4% 28.2% 6.7%
5Y EBITDA CAGR 16.1% 3.8% 27.2% -1.0%
FY16 EBITDA Margin % 14.4% 11.9% 17.7% 15.2%
FY16 RoCE % 18.9% 12.7% 13.3% 9.1%
FY16 Leverage 0.0 - - 0.9
Timken India CMP
Rs. 417
3Y Target
Rs. 750
Page 42
Timken India – Crystal Gazing
High multiples to be
sustained backed by
continued
diversification of
revenue and best in
industry margin
EBITDA margin to
improve more than
in proportion to
revenue growth led
by improving
efficiencies and
revenue mix
Revenue CAGR of
22% from FY16 to
FY20
Rs. Mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 4,681 9349 10,451 12,602 16,667 19,826 23,183 ▲
Rs. Mn FY11 FY15 FY16E FY17E FY18E FY19E FY20E
EBITDA 712 1,396 1,500 2,016 2,750 3,271 3,825 ▲
EBITDA (%) 15.2 14.9 14.4% 16.0% 16.5% 16.5% 16.5% ▲
Entry = Rs. 417
(22x FY17 P/E)
Cumulative Dividends of Rs. 27.5
Exit at 20x FY20
P/E
TOTAL RETURN OF 80%
Over FY16-20, TMKN is
expected to register a
22% revenue CAGR
driven by the railways
and export segments.
TMKN is well poised to
capitalize on significant
opportunities in the
aforesaid segments on
the back of Its
demonstrated execution
track record and
technical cum mfg.
capabilities.
Expect margins to
steadily improve on the
back of improving
product mix and
operating leverage, from
14% in FY16E to 16.5% in
FY20.
P/E Multiple FY20 EPS Target price
20x Rs.36 Rs.750
Dividend (FY17-20) Rs. 28
Consistent,
rounded
revenue
growth
Increasing
operational
efficiency
and product
mix
Continued
benefits of
de-risked
revenue
profile and
improved
margins to be
rewarded
Trading History – % of times stock traded
PE range <27x 27x-29x 29x-31x 31x-33x >33x
10% 46% 9% 17% 18%
FY11-16E CAGR %
Revenue EBITDA PAT Price
17.4% 16.1% 28.1% 20.1%
Page 43
5 CORE PORTFOLIO STOCKS AFTER A 20% CORRECTION TO MULTIPLES
Page 44
Why do we like the Company?
Positioned as a player lending to middle of the pyramid customers through new
CVs, used CVs and MUVs. It also finances bottom of the pyramid customers
through SCVs and older vehicles. About 65% of its disbursements are to micro
and small enterprises and agri-based customers.
Well diversified portfolio across India with 90% of branches in tier-II, tier-III and
tier-IV towns. It has 25% presence in LCV segment with Cars and MUVs
constituting 16%, HCVs about 13% and refinancing portfolio constitutes about
15% of the total AUM.
CIFC has demonstrated consistent earnings growth at 54% CAGR over the
past five years, highest among relevant peers. Quarterly NIMs trending at a 18
quarter high currently.
Healthy asset quality with transitionary pressures being a tailwind now unlike
comparable peers who are still grappling with transition challenges. Already at
120 DPD recognition, a year ahead of RBI guidelines.
Why do we like the Management team?
Mr. Vellayan’s approach on asset quality over growth has been commendable.
The calibrated efforts on containing asset quality delinquencies have begun to
bear fruits with CIFC being one of the few players to see an improvement in
GNPAs in 3QFY16 despite a weak rural macro and accelerated NPA transition.
Management has also scored on the growth front, delivering above guidance
and is likely to deliver 17% in the medium term.
Extreme prudence exhibited by the management in terms of dealing with
transition related challenges. Moving to 120 DPD in a smooth manner well
ahead of RBI requirements has instilled high confidence amongst investors.
Moreover, transition to 90 DPD is expected to be fairly smooth.
At a time when most managements are looking to adopt technology to enable
business operations, CIFC is one of the most advanced entities in terms of
technology being at the forefront of business conduct and operations.
The 54% CAGR in profits between FY11-16 coincides with Mr. Vellayan taking
charge as MD of the company since August 2010.
14 Mar, 2016
Bloomberg CIFC IN
Shares o/s 156mn
Market Cap Rs. 105bn
52-wk High-Low Rs. 757-538
3m Avg. Daily
Vol Rs. 49mn
Index BSE 500
Snapshot
Promoters 53.2
Institutions 39.8
Public 7.1
% 1m 3m 12m
CIFC -1% 6% 17%
Sensex 8% -1% -14%
Bankex 9% -8% -21%
Financial summary
Year NII
(Rs. mn)
PAT
(Rs. mn) ROE (%) ROA (%)
ABV
(Rs.)
P/ABV
(x)
FY16E 20,938 5,323 16.9% 1.8% 197 3.3
FY17E 24,477 6,431 16.4% 1.9% 219 3.0
FY18E 28,822 7,872 17.2% 2.0% 260 2.5
FY19E 34,911 9,657 17.9% 2.1% 309 2.1
FY20E 43,511 12,839 20.0% 2.2% 383 1.7
Relative benchmarking
Ranking matrix (1 to 5) CIFC MMFS SHTF SCUF SUF
Growth 1 4 3 2 5
Profitability 2 5 4 1 3
Asset Quality 2 5 4 3 1
Transitionary Pressures 1 3 5 4 2
Valuation 3 4 2 1 5
Overall Rank 1 5 4 2 3
Cholamandalam Finance CMP
Rs. 668
3Y Target
Rs. 1,312
Page 45
Cholamandalam Finance – Crystal Gazing
Over FY16-19,
CIFC is expected
to clock a 20%
business CAGR
translating into a
loan book size of
Rs.502bn with LAP
constituting ~29%
of the overall AUM
(current loan book
of Rs.280bn and
LAP @ 30% of
AUM). With rural
India bottoming
out and LCV
segment at the
cusp of revival,
CIFC is well
networked in
terms of branches
and employee
count to capitalize
on the turnaround.
With growth
estimated to trend
at an average of
20% over the next
three years, we
believe significant
operating leverage
to play out for
CIFC.
A probable
re-rating
Increasing RoE to
20%, with no risk of
dilution; expect
18% CAGR in ABV
over this phase.
A fall in credit costs
to 110bps against
150bps currently
resulting in RoA
expanding to 2.2%
Consistent
improvement
in NIMs fuelled
by growth
revival with
Leverage
sustained at
current levels
to drive
ROEs
Consistent
growth in
business to be
rewarded by
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
NIM 7.5% 7.1% 7.2% 7.3% 7.4% 7.5% 7.5% ◄►
Provisions 2.3% 1.2% 1.5% 1.4% 1.4% 1.4% 1.2% ▲
Credit
costs 2.5% 1.3% 1.5% 1.4% 1.3% 1.3% 1.1% ▲
RoA 0.6% 1.6% 1.8% 1.9% 2.0% 2.1% 2.2% ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 6.7% 17.5% 16.9% 16.4% 17.2% 17.9% 20.0% ▲
Leverage 9x 9x 8x 8x 8x 8x 9x ▲
T1 CAR 11.1% 13.0% 13.0% 13.0% 12.7% 12.1% 11.4% ▼
ABV (Rs.) 87 170 197 219 260 309 383 ▲
Trading bands (% of days in last 5 years)
< 1.00x 1.00x -
1.50x
1.50x –
2.00x
2.00x-
2.50x
2.50x-
3.00x
3.00x-
4.00x
2% 33% 30% 8% 18% 10%
The stock is trading at 3.0x 1-year forward, and has traded above
this multiple for 10% of the days in the past 5 years.
FY11-16E CAGR %
NII PPOP PAT Price
28% 27% 54% 32%
Entry = Rs. 650 @ 3.0x
Cumulative Dividends of
Rs. 11.5
ABV CAGR of 18%, exit
multiple of 3.4x
TOTAL RETURN OF 2.0x
Page 46
Why do we like the Company?
We see that Dabur has managed to find alternating growth drivers in different
brands across several consumption cycles enabling the company to sustain
healthy volume growth across cycles. We acknowledge that several of these
growth drivers emerged out of management’s pro-active vision to spot market
and growth opportunities well ahead of time.
We note that Dabur has also managed to carve a niche offering within each
category on the back of Ayurveda proposition which we believe has not only
led to brand differentiation but also enabled Dabur to command a significant
pricing premium.
Though we acknowledge the recent threat that has sprung with the advent of
Patanjali Ayurveda to this portfolio, we believe Dabur has enough
ammunitions to tackle this from a long term perspective. With Dabur in clear
cognizant of the problem, we believe the management would take necessary
steps to mitigate the risk as they had done historically when exposed to
disruptive competitions in several categories.
Use of digital media, continuous re-packaging and reformulation initiatives to
be relevant to changing consumer needs along with incessant distribution
initiatives based by identifying early trends as Project Double (focussing on
Rural), Project 20-20 (Focussing on Urban), Project LEAD & project CORE
(focussing on healthcare) indicates their intent of attempting to develop a
network for category through which potential of a category can be explored.
Why do we like the Management team?
Burmans family were among the first business families in India to segregate
family and business when they handed over the management to
professionals in 1998. The combination of entrepreneurial attention and
professional approach has worked out very well for the group.
Mr.Sunil Duggal who took over as the CEO in 2002 has transformed Dabur
from an OTC company to a FMCG company.
Balsara acquisition, restructuring of divisions to stem maximum value out of
field sales, dealer integration through ERP, manufacturing plant
rationalisation, incessant new product/marketing/distribution initiatives have
been the hallmarks of Mr. Duggal’s achievements.
14 Mar, 2016
Bloomberg DABUR IN
Shares o/s 1,759mn
Market Cap Rs. 433bn
52-wk High-Low Rs. 317-231
3m Avg. Daily
Val Rs. 332mn
Index BSE 100
Snapshot
Promoters 68.1
Institutions 25.1
Public 6.8
% 1m 3m 12m
DABUR 3% -8% -8%
Sensex 4% -2% -14%
Bse fmcg 2% -3% -9%
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 84,180 15,141 12,406 7.1 34.4 33.4%
FY17E 93,993 17,600 14,298 8.1 29.9 32.0%
FY18E 1,08,096 20,464 16,545 9.4 25.8 31.1%
FY19E 1,24,323 23,643 19,067 10.9 22.4 30.5%
FY20E 1,42,996 27,306 22,350 12.7 19.1 30.8%
Dabur India
Despite hindrances emerging, Dabur has held its own through innovations
FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e
Revenue 77,223 96,322 1,09,386 70,753 78,272 84,180 93,993 1,08,096
Growth (%) 16% 25% 14% 15% 11% 8% 12% 15%
EBITDA 13,281 15,088 17,320 11,598 13,164 15,141 17,600 20,464
Margin (%) 17.2% 15.7% 15.8% 16.4% 16.8% 18.0% 18.7% 18.9%
PAT 8,428 9,887 11,139 9,145 10,658 12,406 14,298 16,545
Margin (%) 11.4% 10.6% 10.6% 12.9% 13.6% 14.7% 15.2% 15.3%
CMP
Rs.243
3Y Target
Rs.394
Page 47
Dabur operates
in a plethora of
niche consumer
categories and
remains one of
the companies
which we believe
could adjust its
strategy at any
given point of
time to take
advantage of
strong rural or
urban growth
drivers. Though
the company has
been facing the
heat of
competition
lately, we believe
it would only be a
matter of time
before the
company
emerges
stronger and
unscathed.
We believe Dabur
would deliver a
revenue and
earnings CAGR of
~14% & ~16%
respectively over the
next four years
P/E multiple FY20E EPS Price target
31x 12.7 Rs.394
35x 12.7 Rs.445
Entry = Rs.243 @ 30x FY17E
Cumulative Dividends of Rs.17
EPS CAGR of ~16%,
exit multiple of 31x FY20E
TOTAL RETURN OF 1.7x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 40,774 78,272 84,180 93,993 1,08,096 1,24,323 1,42,996
EBITDA 7,730 13,164 15,141 17,600 20,464 23,643 27,306
Margins 19.0% 16.8% 18.0% 18.7% 18.9% 19.0% 19.1%
PAT 5,686 10,658 12,406 14,298 16,545 19,067 22,350
EPS 3.3 6.1 7.1 8.1 9.4 10.9 12.7
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 48.9% 35.5% 33.4% 32.0% 31.1% 30.5% 30.8%
ROCE 33.2% 28.6% 28.4% 28.6% 29.0% 29.1% 29.7%
Working
capital days 36 27 35 38 38 38 38
Capital efficiency to
remain at similar
healthy levels in the
medium to long term.
We believe Dabur
would continue to
remain a
compounding play
given its steady stay
business model.
Dabur India – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
16% 16% 17% 21%
Trading History – % of times stock traded
PE
range
<24x 24x-27x 27x-30x 30x-33x 33x-36x >36x
21% 31% 25% 6% 13% 4%
Page 48
Why do we like the Company?
Kajaria Ceramics (KJC) is India’s largest tile manufacturer with strong brand
equity and a well entrenched distribution network
KJC has demonstrated consistent market share gains over the last 10 years,
resulting in a revenue CAGR of 21%. Importantly, despite the slowdown in real
estate and influx of Chinese imports, KJC has grown at a superior rate of 15%
over the last two years, indicating strong franchise value
Long term demand prospects for tiles remain strong led by (1) increasing
penetration of tiles as a flooring material; (2) increasing usage of wall tiles; (3)
low per capita consumption and increasing urbanisation; and (4) increasing
consumer preference for aesthetics and branded products.
Combination of strong long term demand prospects for tiles, robust franchise
(brand and distribution network) of KJC, and strong balance sheet, makes us
positive on its prospects.
KCJ will see a structural improvement in margins led by reduction in long term
gas prices by 40-50% post RasGas-Petronet deal and the proposed imposition
of Anti-dumping duty on Chinese vitrified tiles.
We expect KJC to grow revenue and PAT by 16% and 21% in next 4 years from
FY16E-FY20E with EBITDA margins inching up to 18-20% range. As a result,
we expect company to generate OCF of Rs 20bn in next 4 years. With structural
improving demand of tiles, market share gains and robust margins profile, we
attribute 25x FY20E EPS of 62.4, arriving at TP of Rs1550.
Why do we like the Management team?
Mr. Ashok Kajaria, Founder, has ~40 years of experience in the tiles industry.
He is credited with pioneering the launch of value added tiles (large format and
glazed vitrified ) in India.
Strong management bandwidth, with two sons of the promoter managing
separate verticals.
Proven track record of re-investing cash flows in return accretive projects.
Continues to focus on market share growth along with maintaining profitability.
Market share increase from 7% in FY10 to 11% in FY15. The company has
displaced “Johnson” to become the leading tiles player in the country.
14 Mar 2016
Bloomberg KJC IN
Shares o/s 79mn
Market Cap Rs. 74bn
52-wk High-Low Rs. 998-607
3m Avg. Daily
Val Rs. 91mn
Index BSE 500
Snapshot
Promoters 47.2
Institutions 30.9
Public 21.9
% 1m 3m 12m
KJC -2% -3% 20%
Sensex 3% -2% -14%
Relative benchmarking
Ranking matrix (1 to 6) KJC SOMC CERA HSIL GIL CPBI
Market Share & Growth 2 1 4 6 3 5
Profitability 1 6 2 3 4 5
Return metrics 2 1 3 6 5 4
Balance Sheet 1 4 2 5 3 6
Valuation 6 5 4 1 3 2
Overall Rank 1 5 2 4 3 6
Financial summary
Year Revenues
(Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 24,382 4,672 2,318 29.2 31.5 27.7%
FY17E 27,477 5,763 2,987 37.6 24.5 28.4%
FY18E 31,631 6,501 3,458 43.5 21.1 26.5%
FY19E 37,026 7,348 4,068 51.2 18.0 25.4%
FY20E 43,829 8,694 4,956 62.4 14.8 25.2%
Kajaria Ceramics CMP
Rs. 920
3Y Target
Rs. 1550
Page 49
Kajaria Ceramics – Crystal Gazing
Expect KJC to
continue to
outpace industry
growth. This will
be driven by
aggressive
capacity
additions, new
product launches,
and better
product mix.
Further, we
expect KJC’s
foray in to new
verticals
(Faucets, Sanitary
ware) will
succeed driven
by brand image
and dealer
network.
Market share gain to
continue. Expect the
current peak margins
to sustain led by
product mix and
anti-dumping duty
Consistent
revenue
growth of 16%
Increasing
operational
efficiency
result in
Consistent
growth in
business to be
rewarded by
P/E multiple FY20E EPS Price target
23x 62.4 1,434
25x 62.4 1,559
Entry = Rs. 920 @ 21x
FY18E
Cumulative Dividends of
Rs. 40
EPS CAGR of 21%, exit
multiple of 25x FY20E
TOTAL RETURN OF 1.7x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 9,533 21,746 24,382 27,477 31,631 37,026 43,829 ▲
Ebitda 1,487 3,418 4,672 5,763 6,501 7,348 8,694 ▲
Margins 15.6% 15.7% 19.2% 21.0% 20.6% 19.8% 19.8% ◄►
PAT 607 1,756 2,318 2,987 3,458 4,068 4,956 ▲
Market
share % 11% 15%
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 29.5% 27.6% 27.7% 28.4% 26.5% 25.4% 25.2% ▼
Leverage 1.3 0.31 0.30 0.17 0.06 -0.04 -0.14 ▼
Working
capital days 28 30 43 43 41 41 41 ▼
CFO (Rs nm) 1,304 2,098 2,264 3,740 4,254 4,555 5,241 ▲
Expect the stretched
(FY16E) working
capital days to
continue. However,
in case of strong
pick up in demand,
working capital can
come down
Expect multiple to re-
rate
FY11-16E CAGR %
Revenue EBITDA PAT Price
21% 26% 31% 65%
Trading History – % of times stock traded
Fwd PE
range
<16x 16x-20x 20x-24x 24x-28x >28x
16% 9% 14% 47% 14%
Page 50
Why do we like the Company?
Naukri.com has the benefit of being the first mover in the job portal segment
and the company has also capitalized on it by maintaining its leadership after
being in operation for more than 18 years. The portal has over 200,000 jobs and
over 45m résumés on its website, which gives it a competitive edge.
Naurki.com works as a subscription-based model for both job seekers as well
as recruiters/ consultants. Job seekers have an option to upload their résumés
and stay as a free user. However, they can buy add-ons and premium services
on a subscription basis. Given this model, jobs posted by a recruiter become a
factor in the number of profiles available on the portal as a large portion of the
revenue comes from access to the résumé database.
In the housing portal segment the number of listings is the key metric as the
higher the number of listings, the higher the web traffic from buyers, which
should lead to more interest from property sellers to list on the website. 99acres
currently has over 900K listings on its website which is higher than any other
player in the market; the second largest player magicbricks, has c.750K listings.
Despite entry of new players which has driven traffic share of 99acres down
(30-40% from 50-60% in FY11), it has still maintained its leadership position as
it has the highest number of association with builders and property agents and
brokers which drives credible leads and traffic.
Zomato has developed itself from being a restaurant listing platform to a social
media platform wherein it is well placed to own the entire communication
channel between consumers and the enterprise which generally takes years to
build. It is a highly monetizable asset with advertising generating upfront cash,
analytics solutions bringing in higher margins and ordering and table booking
solution closing the loop with consistent revenue generation.
Why do we like the Management team?
The success of Info Edge is largely a story of Sanjeev Bikchandani and Hitesh
Oberoi’s consistency and key focus on organic growth. Monster India followed
an acquisition route to expand (it bought Jobsahead in May 2004) and started
facing internal issues related to integration and management changes, which
led to a steep fall in traffic share.
Management’s ability to deploy free cash by making investments in the Indian
internet sector run by people having clarity of thought remains unmatched.
15 Feb, 2016
Bloomberg INFOE IN
Shares o/s 121mn
Market Cap Rs. 94bn
52-wk High-Low Rs. 935-690
3m Avg. Daily
Vol Rs. 103mn
Index BSE 500
Snapshot
Promoters 43.2
Institutions 45.3
Public 11.3
% 1m 3m 12m
INFOE 7 -7 -16
Sensex -7 -11 -20
BSE-500 7 -3 -15
Relative benchmarking
Ranking matrix (1 to 6) INFOE JUST
Growth 1 6
Profitability 1 6
Return Ratios 1 3
Balance Sheet 1 2
Valuation 1 2
Overall Rank 1 5
Financial summary (Standalone)
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT
(Rs
mn)
EPS P/E(x) RoE%
FY16E 7,202 1,478 1,405 11.6 67.0 8.2%
FY17E 8,631 2,369 2,044 16.9 46.1 11.0%
FY18E 10,618 3,224 2,734 22.6 34.4 13.2%
FY19E 13,325 4,190 3,580 29.7 26.3 15.2%
FY20E 16,757 5,273 4,558 37.8 20.7 16.6%
Info Edge CMP
Rs. 780
3Y Target
Rs. 1,600
Page 51
Info Edge – Crystal Gazing
Info Edge to grow
revenue and PAT
by 24% and 34%
in next 4 years
from FY16E-
FY20E with
Ebitda margins
inching up to 31-
32% range. As a
result, we expect
company to
generate annual
OCF of Rs4.5bn
in FY20 and
cumulative OCF
of Rs15bn over
next 4 years.
Driven by near
monopoly
Naukri.com segment
and improving
industry structure in
real estate portals
Sustainable
revenue
growth of 24%
Margin
improveme
nt in
99acres
resulting in
Consistent
growth and
improving
margins to be
rewarded by
P/E multiple FY20E EPS Price target
40x 37.8 1,510 ▲
42x 37.8 1,585
Entry = Rs. 780 @ 34x
FY18E
Cumulative Dividends of
Rs. 15
EPS CAGR of 34%, exit
multiple of 42x FY20E
TOTAL RETURN OF
2.0x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 2,940 6,116 7,202 8,631 10,618 13,325 16,757 ▲
Ebitda 996 1,822 1,478 2,369 3,224 4,190 5,273 ▲
Margins 33.9% 29.8% 20.5% 27.5% 30.4% 31.4% 31.5% ▲
PAT 496 1,639 1,405 2,044 2,734 3,580 4,558 ▲
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 10.7% 13.5% 8.2% 11.0% 13.2% 15.2% 16.6% ▲
Leverage 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ◄
►
Net Working
Capital days -121 -102 -123 -121 -121 -121 -121
◄
►
CFO (Rs nm) 1,101 1,390 1,600 2,008 2,763 3,598 4,513 ▲
Higher Return on
Equity and higher
cash flow from
operations
High multiple
FY11-16E CAGR %
Revenue EBITDA PAT Price
20 8 23 21
Trading History – % of times stock traded
PE range <30x 30x-40x 40x-50x 50x-60x >60x
6 36 44 12 2
Page 52
Why do we like the Company?
Page Industries (PAG), the exclusive licensee for Jockey in India, has
scripted one of the unique success stories in Indian garmenting industry,
thanks to its unflinching focus on key value propositions – Brand, Product
and Distribution. Though it may appear very simple on the surface, but to do
the basic things right consistently over ~2 decades leads one to command
the brand loyalty ‘Jockey’ commands today in the market.
PAG’s consistent delivery on the core value proposition has enabled it to
extend its lead in the Indian innerwear market and extend the brand loyalty
seamlessly into the adjacencies like leisure wear. Throughout its ~2.5 decade
journey in Indian market so far, it managed the complex equation of
remaining affordable cum aspiration and that has ensured that no domestic
or foreign brands have been able to match PAG’s value proposition so far.
PAG' revenues and PAT have grown at a robust CAGR of ~35% and ~47%
respectively over the last ten years across cycles outpacing the industry
growth rate of ~13%. We believe that ~20% sustained revenue growth is
achievable on the back of expanding consumer franchisee.
Though we fail to see the possibility of multiple revision in the stock, we
believe an achievable ~20% earnings growth CAGR over the next 3-4 years
makes PAG a lucrative compounding engine.
. Why do we like the Management team?
Page Industries is promoted and managed by the Genomal family with Mr.
Sunder Genomal at the forefront of operations. While brand ‘Jockey’ has
found growth challenging across other markets, we believe it is the
management’s vision and strategy which aided ‘jockey’ to grow into a
Rs.15bn brand in India with its revenues growing at a CAGR of ~35% over
the last ten years.
Despite being the market leader for years and still growing, we believe the
management has never been complacent and leaves ‘no stone unturned’
ensuring its market share is preserved and continues to deliver growth by
undertaking multiple initiatives across the board.
Average dividend payout of ~53% over last ten years further underscores
management’s intentions to reward minority shareholders as well.
14 Mar, 2016
Bloomberg PAG IN
Shares o/s 11mn
Market Cap Rs. 127bn
52-wk High-Low Rs. 17,000-9,752
3m Avg. Daily
Val Rs. 155mn
Index BSE 500
Snapshot
Promoters 51.0
Institutions 39.7
Public 9.3
% 1m 3m 12m
PAG 7% -11% -11%
Sensex 4% -2% -14%
BSE DIS 2% -5% -3%
Financial summary
Year Revenue
s (Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x) RoE%
FY16E 17,613 3,549 2,388 214.1 53.1 53.2%
FY17E 21,214 4,308 2,890 259.1 43.9 49.4%
FY18E 25,783 5,219 3,498 313.6 36.3 46.8%
FY19E 30,305 6,304 4,224 378.7 30.0 45.1%
FY20E 35,828 7,378 4,944 443.3 25.7 42.5%
Page Industries
Consistent volume growth and favorable price mix on brand equity
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Volume growth 27% 19% 17% 17% 18% 11% 13% 14%
Price Mix 18% 20% 9% 19% 11% 5% 7% 8%
Revenue growth 45% 39% 26% 36% 29% 16% 20% 22%
EBITDA (Rs.mn) 903 1,330 1,642 2,405 2,899 3,549 4,308 5,219
Margin (%) 18.4% 19.5% 19.0% 20.5% 19.2% 20.1% 20.3% 20.2%
CMP
Rs.11,372
3Y Target
Rs.17,732
Page 53
Page Industries
revenues and
PAT is
expected to
grow at a
CAGR of ~19%
and ~20%
respectively
over the next
four years on
the back of
long term
penetration,
brand
extension and
per capita
consumption
prospects
remain
favourable .
Though growth is
expected to taper down
given the high base,
pace of growth still
healthy and possible
given the increasing
penetration and robust
brand equity.
P/E multiple FY20E EPS Price target
40x 443.4 17,732
45x 443.4 19,948
Entry = Rs.11,372
@ 44x FY17E
Cumulative Dividends of Rs.581
EPS CAGR of 20%, exit multiple of 40x FY20E
TOTAL RETURN OF 1.6x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 4,916 15,140 17,613 21,214 25,783 30,305 35,828
EBITDA 903 2,899 3,549 4,308 5,219 6,304 7,378
Margins 18.4% 19.2% 20.1% 20.3% 20.2% 20.8% 20.6%
PAT 585 1,960 2,388 2,890 3,498 4,224 4,944
EPS 52.5 175.7 214.1 259.1 313.6 378.7 443.3
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 53% 58.0% 53.2% 49.4% 46.8% 45.1% 42.5%
ROCE 30% 37.1% 37.1% 37.0% 37.3% 37.7% 37.0%
Working
capital days 81 108 109 109 109 109 109
capital efficiecy to
remain robust given
the increasing scale
of operations
alongside an asset
light business model.
We believe an
achievable ~20%
earnings growth CAGR
over the next 3-4 years
makes PAG a lucrative
compounding engine.
Page Industries – Crystal Gazing
FY11-16E CAGR %
Revenue EBITDA PAT Price
29% 31% 32% 51%
Trading History – % of times stock traded
PE
range
<25x 25x-30x 30x-35x 35x-45x 45x-55x >55x
10% 36% 19% 11% 15% 9%
Page 54
STRUCTURAL BUY IDEAS ON LIKELY IPOs
Page 55
Why do we like the Company?
Amongst small finance bank licensees who are largely mono-line MFIs seeking
to evolve as a diversified small finance bank play, Equitas stands relatively
better positioned; unlike other SFB aspirants, Equitas already has a well
diversified bouquet of products, meaning minimal product side tweaking post
transition.
An unambiguous stance on what a small finance bank cannot do minimises
transition related risks, we believe the business is likely to command RoAs of
~2.1% by FY20, with further scope for expansion as scale kicks in.
Even during its formative years in 2007, Equitas built its portfolio by charging
interest on a reducing balance method @ 26% while most of the market players
were charging much higher on a flat rate basis.
Equitas was also compliant with most of the Malegam Committee’s
recommendations well ahead of time, amply demonstrating management
prudence.
A volume driven growth philosophy, focus on asset quality and an ability to
proactively interpret and respond to market trends singles Equitas out.
Why do we like the Management team?
Mr. P N Vasudevan has been the MD of EHL since inception (2007) and has
unparalleled experience in the financial services industry – has spent two
decades in Cholamandalam Finance and drove the vehicle financing business.
Management’s focussed understanding of lending to weaker sections of the
society and highly regarded CSR initiatives make the model sustainable.
Management’s relentless focus on a sustainable volume driven growth centric
model rather than an unrealistic temporary high growth model.
A comprehensive understanding of the underserved segment of customers
inadequately catered to by formal financing channels, proven ability to cross-
sell to the bread and butter unbanked/under-banked populace, judicious risk
management backed by robust technology, and a prudent management team
known for its conservative bent of mind holds the group in good stead.
14 Mar, 2016
Bloomberg NA
Shares o/s NA
Market Cap NA
52-wk High-Low NA
3m Avg. Daily
Vol NA
Index NA
Snapshot
Promoters NA
Institutions 100.0
Public NA
% 1m 3m 12m
Sensex 8 -1 -14
Bankex 9 -8 -21
Financial summary
Year NII
(Rs. mn)
PAT
(Rs. mn) ROE (%) ROA (%) ABV (Rs.) P/ABV (x)
FY16E 6,279 1,535 12.3 2.6 47 2.3
FY17E 8,720 1,870 10.5 1.9 64 1.7
FY18E 11,592 2,623 11.1 1.8 71 1.6
FY19E 15,122 3,840 14.3 2.0 81 1.4
FY20E 19,486 5,561 17.6 2.1 96 1.1
Relative benchmarking
Ranking matrix (1 to 6) Equitas AU Fin Jana* Ujjivan CLAB*
Diversified Portfolio 1 3 4 4 2
Size 2 3 1 2 5
Cost of Borrowings 2 2 2 2 1
Ability to build liability
book 2 5 3 3 1
Overall Rank 1 5 3 4 2
*Jana – Janalakshmi Financial Services; CLAB – Capital Local Area Bank
Equitas Holdings CMP
NA
3Y Target
Rs. 192
Page 56
Equitas Holdings – Crystal Gazing
Over FY16-19, Equitas is
expected to clock a 37%
advances book CAGR
translating into a loan book
size of Rs.213bn with
deposits of Rs.170bn – a
>5x increase in business
from FY16 levels. With
bulk of incremental
expansion from high
yielding SME and MFI and
a carefully calibrated
expansion strategy to
contain costs and build a
liability story, we expect
ROAs to trend upwards
post stabilization of the
banking operations in
FY18. A probable
re-rating
Increasing RoE to
17.5%, with no risk
of dilution; expect
20% CAGR in ABV
over this phase.
Normalization of
opex post transition
to an SFB from FY18
onwards is likely to
expand ROAs from
the trough in FY18
Consistently
healthy NIMs
of >7.5% until
FY20
Increasing
leverage to
result in
Consistent
growth in
business to be
rewarded by
FY16E FY17E FY18E FY19E FY20E
NIM 11.5% 9.5% 8.8% 8.5% 8.1% ▼
Opex 6.0% 5.7% 5.0% 4.6% 4.2% ▲
Provisions 1.9% 1.4% 1.3% 1.2% 1.1% ▲
RoA 2.6% 1.9% 1.8% 2.0% 2.1% ▲
FY16E FY17E FY18E FY19E FY20E
RoE 12% 11% 11% 14% 18% ▲
Leverage 4.4x 4.1x 5.2x 6.3x 7.3x ▲
T1 CAR 19.5% 21.8% 17.9% 15.2% 13.5% ▼
ABV (Rs.) 47 64 71 81 96 ▲
Entry = Rs. 110 @ 1.7x
Cumulative Dividends
of Rs. 0 (no indicative history)
ABV CAGR of 20%, exit multiple of
2.0x
TOTAL RETURN OF 1.7x
P/ABV multiple FY20E ABV Price target
2.0x 96 192 ▲
2.2x 96 211
Page 57
Why do we like the Company?
National Stock Exchange (NSE) is India’s largest exchange offering products
across cash equities, equity derivatives, interest rate derivatives and currency
derivatives. NSE has a dominant market share across product categories.
Exchanges are almost the perfect business models with limited competition,
high operating leverage and robust cash flows. Stock exchanges in particular
have a strong correlation to underlying economic activity.
Allocation to equity is at ~3% of total savings in India vs. ~18% in other
emerging markets and 40% in developed markets. Economies tend to migrate
to higher allocation of savings to equities as evident in markets such as South
Korea, China.
Hedging products such as Interest rate and Currency derivatives have very low
penetration in India and over a period time could become meaningful for NSE.
Globally, interest derivatives are the largest class of derivatives traded.
Exchange businesses are very unique in comparison to other businesses given
their limited need for incremental capex or opex to drive revenue growth. NSE
business model is extremely robust as evident from the profit of Rs. 8.3bn
company generated in a year like FY13. NSE has one of the lowest pricing
across markets and still generates EBITDA margins in excess of 60% owing to
strong technology and operations. In a good year like FY15, NSE EBITDA
margin expanded by 400bps with hardly any change to Capex.
BSE continues to adopt aggressive pricing in derivatives, however BSE’s ability
to increase market share has been minimal.
Why do we like the Management team?
NSE management’s focus is to ensure they do not cede market share across
products a fact reinforced by NSE maintaining / improving market share despite
BSE having aggressive pricing
Inspite of its dominant position NSE has continuously improved the core
technology platform, continue to lead in the launch of innovative products
NSE has focused on creating management capacity at various levels of the
organisation, a fact evident from the numerous interactions we have had with
various business heads.
.
Financial summary
Year Revenues
(Rs mn)
EBITDA
(Rs mn)
PAT (Rs
mn) EPS P/E(x)
EV/EBITD
A
FY14 13,618 8,552 9,652 209 19.1 16.5
FY15 17,231 11,577 10,264 228 17.5 11.6
FY16E 17,345 11,166 10,692 238 16.8 11.1
FY17E 19,836 13,080 12,260 272 14.7 9.2
FY18E 24,042 16,656 14,737 327 12.2 6.9
FY19E 24,311 16,235 14,696 327 12.2 6.7
FY20E 28,047 19,216 16,965 377 10.6 5.3
NSE market share across product categories
85%
99%
88%
56%
63%
81%
40%
50%
60%
70%
80%
90%
100%
Cash Eqities Equity Futures Equity Options CurrencyFutures
CurrencyOptions
Bond Futures
National Stock Exchange CMP
Rs. 4,000
3Y Target
Rs. 10,000
Page 58
NSE – Crystal Gazing
NSE to grow
revenue and PAT
by 10% in next 4
years from FY15-
FY20E . We
expect dividend
pay-out to
increase to 50%
of PAT leading to
high dividend
yield
Though exchanges
are cyclical
business, even at the
bottom of the cycle
they make adequate
profits
Consistent
revenue
growth of 10%
Consistent
growth and
stable margins
in business to
be rewarded by
P/E multiple FY20E EPS Price target
25x 377 9,425 ▲
30x 377 11,310
Entry = Rs. 4000 @ 15x
FY17E
Cumulative Dividends of
Rs. 690
EPS CAGR of 11%, exit
multiple of 25x FY20E
TOTAL RETURN OF
2.5x
FY11 FY15 FY16E FY17E FY18E FY19E FY20E
Revenue 12,321 17,231 17,345 19,836 24,042 24,311 28,047 ▲
Ebitda 8,814 11,577 11,166 13,080 16,656 16,235 19,216 ▲
Margins 72% 67% 64% 66% 69% 67% 69% ◄►
PAT 7,902 10,264 10,692 12,260 14,737 14,696 16,965 ▲
FY12 FY15 FY16E FY17E FY18E FY19E FY20E
RoE 19% 18 17% 18% 18% 19% 19.0% ▲
Leverage 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ◄
►
Higher Return on
Equity and higher
return on investment
High multiple
FY11-16E CAGR %
Revenue EBITDA PAT
7 5 6
Page 59
Core Portfolio Midcap Ideas for 2020
Core Portfolio Buys on Likely
IPOs
1 National Stock Exchange
2 Equitas Holdings
20 Core Portfolio Midcaps for 2020
1 City Union Bank 11 Cyient
2 Karur Vysya Bank 12 Intellect Design Arena
3 Biocon 13 Bata India
4 Torrent Pharmaceuticals 14 Berger Paints
5 Ramco Cements 15 Indian Terrain
6 AIA Engineering 16 VIP Industries
7 Blue Star 17 Amara Raja Batteries
8 Cummins 18 Gateway Distriparks
9 V Guard 19 Suprajit Industries
10 Sadbhav Engineering 20 Timken India
Core Portfolio Buys after 20%
correction
1 Cholamandalam Finance
2 Dabur India
3 InfoEdge
4 Kajaria Ceramics
5 Page Industries
Page 60
Tactical Portfolio
Five Themes to play Tactically in FY17
Factors Explanation
1 Improving Monetary
environment
Savings and deposit pickup, low inflation, falling Govt.
borrowing, 25-50bps likely policy rate cut, steepening yield
curve, reverse repo to become operative rate
2 Increasing and improving
Govt. spend esp. States
Multiplier effect of Road, Rail spend by Govt to play out. State
Govt. spend to increase materially
3 Bottoming out of Rural
economy
Agri economy to improve on multiple measures. Rural push by
Govt should help consumption
4 Pay Commission Nominal wage growth and discretionary consumption to get a
leg up on Pay Commission impact on large Govt. employees
5 Real Estate is biggest
Fault-line
Vulnerable real estate scene – Falling sales volumes and
prices are a double whammy to the real estate economy
Tactical Sector Weights
Overweight Underweight
Retail/ SME Financials IT
Consumer Discretionary Pharma
Automobiles Oil
Infrastructure PSU/ Corporate Banks
Commodity importers Cement & Real Estate
Top Large Cap Buys
1 HDFC Bank 6 Maruti Suzuki
2 Indusind Bank 7 Asian Paints
3 Kotak Mahindra Bank 8 Coal India
4 Hero Motocorp 9 Infosys
5 Bajaj Motocorp 10 Sun Pharma
Top Sells
1 PSU Banks excl SBI
2 Axis Bank
3 HDFC
4 Mahindra Finance
5 Shriram Transport
6 BHEL
7 Havells
8 Lupin
9 Shree Cement
10 HCL Tech
Top Mid & Small Cap Buys
1 Yes Bank 6 Kaveri Seeds
2 Voltas 7 Arvind
3 Kansai Nerolac 8 Bajaj Corp
4 Dalmia Bharat Cement 9 VST Tillers
5 GSPL 10 KNR Construction
Page 61
Company Name CMP Mkt Cap
(Rs. bn)
Net Sales (Rs. bn) EBITDA (Rs. bn) Net Profit (Rs. bn) ROE (%) P/E (x) EV/EBITDA (x) TP Rating
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Auto Mukesh Saraf | +91 44 4344 0041 | [email protected]
Amararja Batteries Ltd 894 153 47.5 58.0 68.5 8.4 10.4 12.5 5.1 6.6 8.3 26.9 27.4 27.4 29.7 23.3 18.5 18.2 14.7 12.2 1,000 Buy
Ashok Leyland Ltd 97 276 178.3 210.2 242.7 20.1 25.2 27.9 9.5 13.3 15.1 17.3 20.9 20.3 28.8 20.5 18.1 13.6 10.5 9.4 95 ADD
Apollo Tyres Ltd 168 85 117.3 126.5 146.3 19.9 20.9 24.1 11.1 10.7 12.2 20.0 16.2 15.8 7.7 8.0 7.0 4.7 4.9 4.5 180 Buy
Bajaj Auto Ltd 2,326 673 231.1 275.0 309.1 48.6 58.0 65.3 37.2 45.1 51.4 31.8 32.1 30.0 18.1 14.9 13.1 12.2 11.8 10.5 2,620 ADD
Bharat Forge Ltd 816 190 75.8 85.9 105.7 14.3 16.9 21.2 6.9 8.9 12.0 18.8 21.1 24.0 27.6 21.4 16.0 14.4 11.8 9.2 850 Add
Eicher Motors Ltd 20,004 543 154.9 164.7 200.0 24.0 29.3 37.8 12.6 16.3 21.5 30.4 30.1 30.8 43.4 33.5 25.4 22.2 18.2 14.1 20,660 Buy
Exide Industries Ltd 132 112 68.0 72.9 81.0 10.3 11.5 13.0 6.0 6.7 7.6 13.5 12.5 12.2 18.6 16.8 14.7 10.5 9.4 8.3 125 Reduce
Hero Motocorp Ltd 2,813 562 279.1 318.9 362.5 43.2 50.2 56.2 30.6 36.4 42.2 41.9 40.3 37.7 18.4 15.4 13.3 12.3 10.2 8.8 3,200 BUY
Mahindra & Mahindra Ltd 1,221 758 406.7 468.4 528.5 49.6 57.1 64.5 34.9 40.4 45.4 17.0 17.4 16.9 21.5 18.6 16.5 13.0 10.9 9.3 1,340 ADD
Maruti Suzuki India Ltd 3,641 1,100 569.6 676.5 765.8 89.3 100.1 113.6 45.5 61.8 61.8 17.9 21.2 21.9 24.2 17.8 14.8 10.6 9.0 7.4 4,290 BUY
NRB Bearings Ltd 116 11 6.5 7.5 8.7 1.0 1.3 1.6 0.5 0.7 0.8 16.1 21.8 23.8 24.5 16.6 13.4 13.8 10.5 8.8 132 Buy
Ramkrishna Forgings Ltd 340 9 9.1 11.3 13.5 1.8 2.3 2.8 0.6 0.7 1.1 12.8 14.3 19.0 17.4 13.7 8.9 9.6 7.8 6.2 440 Buy
Suprajit Engineering Ltd 132 17 6.9 8.3 9.9 1.1 1.4 1.7 0.6 0.8 1.0 22.7 25.0 26.2 26.5 19.9 15.4 16.5 12.9 10.4 160 Buy
SKF India Ltd 1,201 63 30.2 27.8 32.1 3.6 3.6 4.2 2.7 2.7 3.2 18.0 16.1 17.1 23.3 23.2 19.5 17.6 17.8 15.2 1,025 Sell
Tata Motors Ltd 354 1,152 2,677.0 2,817.6 3,259.9 343.8 371.8 450.7 129.8 132.9 155.9 21.1 18.4 18.5 9.3 9.1 7.7 5.6 5.2 4.3 490 Buy
Timken India Ltd 421 29 10.5 12.6 16.7 1.5 2.0 2.8 0.9 1.3 1.7 19.9 23.7 27.0 30.8 22.5 16.4 19.1 14.2 10.4 550 Buy
TVS Motor Company Ltd 288 137 115.6 139.4 157.0 8.2 10.7 12.9 4.5 6.5 6.5 24.8 28.9 28.0 30.3 20.9 16.9 17.5 13.2 10.9 215 SELL
WABCO India Ltd 5,433 103 17.9 25.7 32.4 3.1 4.7 5.9 2.1 3.2 4.1 21.8 26.6 26.6 49.4 32.3 25.2 32.7 22.0 17.3 6,550 Buy
VSTTillers Tractors Ltd 1,438 12 6.3 7.5 8.7 1.1 1.3 1.5 0.7 0.9 1.0 21.6 29.8 20.5 16.9 14.1 12.1 13.8 12.1 11.0 1,660 Buy
Capital Goods & Engineering Vijayaraghavan Swaminathan | +91 44 4344 0022 | [email protected]
AIA Engineering Ltd 825 78 21.5 24.4 27.8 6.2 6.4 7.3 4.0 4.1 4.6 18.0 15.9 16.0 19.3 19.2 16.9 11.8 11.4 9.9 1,076 Buy
Bajaj Electricals Ltd 188 19 46.8 52.8 60.7 2.6 3.0 3.3 1.0 1.2 1.4 13.6 15.1 15.1 19.2 15.5 13.8 8.7 7.8 7.2 155 Sell
Bharat Heavy Electricals Ltd 104 254 274.3 299.6 342.2 -14.4 23.8 32.5 -8.3 16.8 23.0 -2.5 5.3 7.1 NA 15.1 11.1 NA 10.5 7.7 94 Sell
Blue Star Ltd 332 30 35.1 40.7 48.9 2.2 2.7 3.8 1.1 1.4 2.0 23.4 24.9 29.7 26.2 21.4 14.8 15.1 12.3 8.7 413 Buy
Crompton Greaves Ltd 146 92 129.9 141.8 155.5 4.9 5.9 7.8 0.7 2.5 3.7 1.8 6.3 8.7 132.3 36.5 25.0 21.9 18.6 14.4 158 Reduce
Elgi Equipments Ltd 131 21 13.8 15.4 17.7 1.2 1.6 2.0 0.6 0.8 1.2 10.9 14.2 19.2 36.0 25.2 17.3 19.3 15.3 11.8 152 Buy
Havells India Ltd 291 182 85.2 91.9 99.9 8.3 9.8 10.9 4.5 5.7 6.2 25.0 28.2 27.1 40.2 31.9 29.1 21.9 18.6 16.7 231 Sell
Kalpataru Power Transmission Ltd 196 30 66.7 75.7 89.4 7.1 8.3 9.9 1.2 1.7 2.4 5.9 8.0 10.0 25.2 17.3 12.6 8.9 8.0 7.1 250 Buy
KEC International Ltd 118 30 85.3 95.1 107.0 6.5 7.6 8.8 1.8 2.5 3.2 12.5 16.1 18.0 17.3 12.0 9.4 7.9 6.8 6.0 150 Buy
Cummins India Ltd 847 235 48.2 55.9 66.1 8.0 9.8 12.2 8.0 9.5 11.6 26.4 27.9 29.9 29.4 24.8 20.3 29.0 23.5 18.8 1,129 Buy
Kirloskar Oil Engines Ltd 210 30 24.4 27.5 31.9 1.9 2.7 3.6 1.4 2.0 2.7 10.7 13.8 17.6 20.7 15.3 11.3 11.4 7.9 6.0 279 Buy
Techno Electric & Engineering 480 27 11.5 12.9 14.5 2.4 2.6 2.8 1.5 1.7 2.0 13.5 15.9 16.5 20.9 15.7 13.4 12.6 11.3 10.1 579 Buy
Thermax Ltd 755 90 54.9 55.9 56.2 5.1 5.7 5.7 2.8 3.2 3.3 12.5 13.2 12.7 32.4 28.4 27.2 16.7 14.8 14.4 694 Sell
Triveni Turbine Ltd 98 32 7.7 9.2 11.1 1.6 2.0 2.5 1.0 1.3 1.7 38.7 39.8 40.4 32.2 24.6 19.6 20.7 16.1 13.1 125 Add
VA Tech Wabag Ltd 520 28 27.2 31.4 37.8 2.4 2.8 3.5 1.0 1.4 1.8 10.8 13.6 15.9 27.9 20.0 15.4 13.3 11.4 9.2 609 Add
V-Guard Industries Ltd 831 25 18.7 21.2 24.6 1.6 1.8 2.1 0.9 1.1 1.4 23.1 23.7 24.3 26.5 22.2 18.4 16.0 13.8 11.7 1,037 Buy
Voltas Ltd 247 82 54.8 61.3 69.8 3.7 4.2 5.2 3.1 3.6 4.4 14.2 15.0 16.9 26.2 22.7 18.7 19.5 16.9 13.7 290 Buy
TTK Prestige Ltd 4,164 48 15.4 17.6 20.3 1.9 2.2 2.5 1.2 1.4 1.7 17.8 18.6 19.8 39.9 34.4 29.2 25.9 22.4 19.3 3,268 Sell
Whirlpool of India Ltd 630 80 35.1 39.0 44.7 3.9 4.6 5.5 2.5 2.9 3.6 25.4 26.5 29.1 32.0 27.1 22.4 20.4 17.5 14.7 707 Buy
Spark Coverage Universe – Valuation Summary
Page 62
Company Name CMP Mkt Cap
(Rs. bn)
Net Sales (Rs. bn) EBITDA (Rs. bn) Net Profit (Rs. bn) ROE (%) P/E (x) EV/EBITDA (x) TP Rating
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Cement / Materials Girish Choudhary | +91 44 4344 0021 | [email protected]
ACC Ltd 1,227 230 114.3 119.9 133.2 11.7 15.1 19.1 5.9 10.1 13.0 7.1 11.6 13.9 39.0 22.7 17.7 18.6 14.7 11.7 1,330 Add
Ambuja Cements Ltd 201 311 93.7 98.4 107.5 14.4 17.4 22.8 8.1 12.7 17.2 7.9 8.7 8.9 38.5 31.3 23.1 20.2 17.0 13.0 220 Buy
Birla Corporation Ltd 346 27 32.1 34.6 37.5 1.8 3.0 3.5 0.9 2.2 2.6 3.4 8.1 8.9 29.7 12.1 10.3 14.5 8.8 7.6 UR UR
Dalmia Bharat Enterprises 723 59 63.2 72.8 83.1 13.7 15.7 17.5 1.0 2.3 3.4 3.3 6.4 8.2 57.3 28.0 18.9 9.0 8.1 7.1 875 Buy
India Cements Ltd 75 23 40.7 44.4 49.5 7.8 8.0 8.3 1.3 1.7 2.1 3.9 5.1 5.8 17.6 13.3 11.1 6.8 6.4 6.1 75 Add
JK Lakshmi Cement Ltd 298 35 25.2 28.9 34.6 2.5 3.8 6.2 -0.8 0.2 2.0 -5.9 1.7 15.1 NA 164.6 17.5 22.2 14.6 8.7 310 Buy
Madras Cements 384 91 35.8 39.3 44.0 9.9 10.6 11.5 4.8 5.6 6.3 16.8 16.9 16.5 19.1 16.4 14.4 11.5 10.2 9.0 425 Buy
Shree Cement Ltd 11,259 392 77.3 90.3 103.5 16.7 21.0 24.4 5.8 10.5 13.2 15.1 23.5 25.8 67.9 37.4 29.7 23.1 18.3 15.8 9,100 Sell
Ultratech Cement Ltd 2,994 822 242.1 266.3 293.5 42.1 49.9 55.0 18.8 23.8 26.3 9.6 11.1 11.1 43.7 34.6 31.3 20.2 17.1 15.5 2,900 Add
Orient Cement Ltd 139 28 14.4 19.6 22.7 1.8 3.8 4.8 0.0 0.9 1.6 0.3 9.4 15.3 NA 30.8 17.4 22.9 11.3 8.7 125 Reduce
IT Services Soumitra Chatterjee | +91 22 4228 8151 | [email protected]
eClerx Services Ltd 1,315 54 13.2 14.4 16.2 4.7 4.8 5.3 3.4 3.4 3.7 44.0 38.4 38.1 16.0 16.2 14.6 10.1 9.6 8.7 1,250 Sell
Firstsource Solutions Ltd 35 23 32.4 36.4 38.5 4.0 4.5 5.1 2.6 2.9 3.3 11.5 11.3 12.1 9.4 8.5 7.4 6.7 5.3 4.3 42 Buy
HCL Technologies Ltd 823 1,161 420.7 465.5 505.4 92.5 99.9 106.2 75.2 79.7 85.8 27.5 24.0 21.7 15.5 14.6 13.6 11.1 9.8 8.7 810 Reduce
Hexaware Technologies Ltd 255 77 34.9 38.9 43.8 5.8 6.2 7.1 4.1 4.4 5.1 27.7 27.2 29.0 18.8 17.7 15.3 12.6 11.8 10.2 225 Reduce
Infosys Ltd 1,143 2,634 618.2 670.3 744.6 169.8 187.9 212.5 132.9 142.1 160.4 23.9 24.2 25.0 19.7 18.4 16.3 13.6 12.1 10.4 1,260 Buy
Info Edge (India) Ltd 552 94 7.2 8.6 10.6 1.5 2.4 3.2 1.4 2.0 2.7 8.2 11.0 13.2 47.4 32.6 24.4 56.3 34.1 24.1 1,130 Buy
Cyient Ltd 405 46 30.8 33.5 37.2 4.3 5.0 5.7 3.4 3.6 4.2 18.1 18.2 18.4 13.3 12.5 10.9 9.0 7.5 6.1 520 Add
Intellect Design Arena Ltd 203 20 8.1 9.3 10.9 -0.3 0.4 1.0 -0.3 0.3 0.8 NM 4.2 11.5 NA 81.4 27.0 NA 45.0 17.7 290 Buy
MindTree Ltd 663 111 46.1 52.6 59.0 8.2 9.2 10.0 5.4 6.2 6.8 25.6 25.0 24.8 10.3 9.0 8.2 13.1 11.3 10.3 1,220 Sell
MCX Ltd 843 43 2.3 2.6 3.2 0.8 1.1 1.5 0.4 1.2 1.6 3.7 10.6 12.9 97.4 34.3 26.9 37.6 27.2 18.5 720 Sell
Mphasis Ltd 448 94 60.4 61.0 64.9 8.7 9.0 10.1 6.9 7.5 8.2 11.9 12.4 13.0 13.7 12.6 11.5 9.8 9.3 8.0 430 Reduce
Persistent Systems Ltd 599 48 22.4 25.2 27.8 4.2 5.0 5.5 2.9 3.3 3.8 19.4 19.6 20.0 16.4 14.5 12.7 9.3 7.6 6.5 660 Add
Redington (India) Ltd 109 44 340.6 361.6 396.9 7.7 8.4 9.4 4.1 4.5 5.2 16.2 15.7 16.0 10.6 9.6 8.3 6.1 5.6 5.2 110 Add
NIIT Technologies Ltd 462 28 26.7 28.1 30.5 4.7 4.8 5.1 0.2 0.1 0.1 18.5 17.6 17.7 10.4 9.5 8.3 5.5 5.1 4.3 610 Buy
KPIT Technologies Ltd 142 28 31.7 32.4 33.7 4.2 4.5 4.7 2.7 2.8 3.1 18.7 16.7 16.0 10.7 10.2 9.2 6.8 5.7 4.8 120 Sell
Tata Consultancy Services Ltd 2,365 4,661 1,077.1 1,167.4 1,295.8 305.5 326.5 353.4 237.5 248.2 276.2 38.1 33.4 30.8 19.5 18.7 16.8 14.4 13.1 11.7 2,530 Add
Tech Mahindra Ltd 458 443 262.7 278.5 304.5 42.7 46.4 53.3 29.8 33.8 40.7 22.0 21.0 21.3 13.7 12.0 10.0 9.2 7.9 6.3 550 Buy
Wipro Ltd 539 1,332 510.9 536.0 576.9 110.3 117.0 128.6 88.8 93.3 101.7 20.4 19.3 19.2 14.9 14.2 13.0 11.4 10.4 9.2 570 Reduce
Building Material Girish Choudhary | +91 44 4344 0021 | [email protected]
Kajaria Ceramics Ltd 930 74 24.4 27.5 31.6 4.7 5.8 6.5 2.3 3.0 3.4 27.7 28.4 26.4 31.9 24.7 21.5 16.5 13.3 11.8 1,125 Buy
Century Plyboards (I) Ltd 167 37 16.1 18.0 21.6 2.6 2.9 3.8 1.6 1.8 2.2 36.9 31.2 30.8 22.6 21.1 17.1 16.1 15.3 12.0 200 Buy
Somany Ceramics Ltd 361 15 17.1 18.9 21.7 1.3 1.5 1.8 0.6 0.8 0.9 17.4 17.3 17.3 25.6 19.2 16.7 13.2 11.1 9.8 435 Buy
Cera Sanitaryware Ltd 1,762 23 9.4 10.8 13.0 1.3 1.6 1.9 0.8 0.9 1.1 20.2 20.1 20.8 29.6 25.4 20.8 17.6 15.0 12.5 1,690 Reduce
Greenply Industries Ltd 188 23 16.8 18.0 20.3 2.6 2.8 3.1 1.1 1.2 1.4 25.3 22.2 20.7 16.3 14.9 13.0 9.6 9.2 9.3 230 Buy
HSIL Ltd 271 20 20.4 23.0 26.1 3.1 3.5 4.0 0.9 1.2 1.5 6.6 8.3 9.8 21.9 16.6 13.1 8.6 7.6 6.7 270 Reduce
Spark Coverage Universe – Valuation Summary
Page 63
Company Name CMP Mkt Cap
(Rs. bn)
Net Sales (Rs. bn) EBITDA (Rs. bn) Net Profit (Rs. bn) ROE (%) P/E (x) EV/EBITDA (x) TP Rating
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Consumptions Tejash Shah | +91 22 4228 8155 | [email protected]
Asian Paint Ltd 898 862 155.2 178.5 207.3 28.8 34.2 37.2 18.6 22.5 24.5 35.6 35.6 32.0 46.4 38.2 35.2 29.4 24.6 22.5 904 Add
Arvind Ltd 274 71 83.9 96.1 111.9 10.8 12.9 15.3 3.7 4.8 6.5 12.9 15.0 18.0 19.1 14.8 10.9 9.1 7.5 6.3 334 Buy
Berger Paint India Ltd 237 164 47.4 55.6 66.5 6.8 8.2 10.4 3.9 4.9 6.4 27.7 28.7 30.4 42.6 33.8 25.6 24.6 20.2 15.8 256 Reduce
Akzo Nobel India Ltd 1,306 63 27.1 29.4 33.4 2.9 3.2 3.8 2.0 2.2 2.6 19.7 21.2 23.2 32.3 27.8 23.1 19.9 17.7 14.6 1,223 Reduce
Kansai Nerolac Paints Ltd 278 150 38.1 43.5 51.2 5.6 6.7 7.9 3.6 4.3 5.1 20.6 21.3 21.5 42.1 34.8 29.3 26.1 22.1 18.6 283 Add
Pidilite Industries Ltd 604 310 52.7 60.1 69.5 11.2 13.2 15.0 7.1 8.6 9.9 28.4 28.3 26.9 43.4 36.0 31.3 27.2 23.1 20.3 594 Reduce
Page Industries Ltd 11,367 127 17.6 21.2 25.8 3.5 4.3 5.2 2.4 2.9 3.5 52.7 48.7 45.9 53.3 43.9 36.3 36.4 29.9 24.7 11,916 BUY
Kewal Kiran Clothing Ltd 1,801 22 4.5 5.6 6.8 1.1 1.8 1.8 0.7 1.2 1.1 20.8 32.7 26.1 32.3 18.1 19.5 18.3 11.5 11.1 2,398 Add
Indian Terrain Fashions Ltd 119 4 3.1 3.7 4.5 0.4 0.5 0.7 0.3 0.3 0.4 21.6 19.0 20.6 14.0 13.0 9.9 10.1 7.7 5.8 155 Buy
La Opala RG Ltd 578 32 2.7 3.4 4.2 0.9 1.1 1.5 0.6 0.7 1.0 27.6 27.9 28.5 55.5 43.4 33.4 35.2 27.4 21.6 577 Reduce
Wonderla 368 21 2.1 2.9 3.5 0.9 1.2 1.6 0.6 0.7 0.9 14.9 16.8 18.1 35.6 28.1 22.7 22.0 16.9 13.3
Relaxo Footwears Ltd 387 46 17.6 20.9 25.0 2.6 3.1 3.8 1.4 1.7 2.2 31.7 29.8 28.6 33.9 27.1 21.5 18.5 15.3 12.2 557 Add
Bata India Ltd 494 63 24.4 27.6 31.4 2.7 3.4 4.3 1.6 2.1 3.6 14.8 16.7 17.2 38.8 29.9 23.1 22.5 18.0 16.2 495 Add
Titan Company Ltd 346 307 119.3 138.3 161.6 10.9 13.4 16.4 7.9 9.8 12.0 23.6 24.9 25.8 38.8 31.5 25.7 27.8 22.6 18.5 330 Reduce
Bajaj Corp Ltd 398 59 9.4 11.0 12.8 2.9 3.3 3.4 2.5 2.9 3.1 51.0 52.9 48.0 23.4 20.6 19.0 19.5 17.1 16.3 484 Buy
VIP Industries 97 14 12.2 13.8 16.0 1.0 1.2 1.5 0.6 0.8 0.9 18.3 19.5 21.0 23.2 18.1 14.8 13.9 11.0 9.2 117 Buy
Dabur India Ltd 250 440 84.2 94.0 108.1 15.1 17.6 20.5 12.4 14.3 16.5 33.4 32.0 31.1 35.4 30.7 26.5 28.1 23.8 20.2 252 Reduce
Marico Ltd 246 317 61.2 67.6 79.4 10.6 12.6 14.4 7.2 8.6 10.0 35.5 34.6 33.3 43.9 36.7 31.8 29.7 24.7 21.3 234 Add
Jyothy Laboratories Ltd 286 52 16.3 18.4 21.5 2.5 2.7 3.1 1.8 1.8 1.9 21.5 20.2 19.8 29.7 29.2 27.4 21.4 18.7 16.4 301 Add
Zydus Wellness Ltd 741 29 4.3 4.6 5.0 0.9 1.1 1.2 1.0 1.2 1.4 22.4 22.4 22.3 29.3 25.1 21.4 31.5 25.1 20.9 621 Sell
Emami Ltd 940 213 26.2 31.7 38.3 6.8 8.5 10.6 5.3 6.3 8.1 40.9 43.2 47.1 40.0 33.7 26.2 32.6 25.5 20.0 893 Reduce
Hindustan Unilever Ltd 852 1,843 333.2 366.6 412.8 59.8 68.8 77.8 42.7 49.5 55.7 104.8 113.0 109.6 43.2 37.2 33.1 30.1 26.1 22.9 921 Buy
ITC Ltd 321 2,583 360.8 403.8 457.0 138.5 159.8 180.3 98.8 113.7 128.3 30.4 31.1 30.8 26.1 22.7 20.1 18.2 15.8 14.0 351 Buy
Pharma Dr Harith Ahamed | +91-44-4344 0052 | [email protected]
Aurobindo Pharma 732 428 137.5 160.6 180.1 31.9 39.8 46.6 20.4 25.2 29.6 33.7 31.3 28.2 21.0 17.0 14.4 14.7 11.7 9.8 1,015 Buy
Biocon Ltd 485 97 34.0 38.3 43.6 8.0 9.1 10.9 4.4 4.8 5.5 13.3 12.5 13.1 22.0 20.2 17.6 12.8 11.4 9.7 572 Buy
Cadila Healthcare 345 353 99.5 110.3 127.8 24.1 25.2 29.8 15.7 16.9 20.2 31.8 27.4 26.5 22.5 20.9 17.5 15.4 14.6 12.2 355 Add
Divi's Laboratories 1,004 267 36.1 39.9 45.5 13.7 15.6 17.6 10.6 11.8 13.3 27.7 25.9 25.0 25.1 22.7 20.1 18.8 16.4 14.3 1,000 Sell
Dr. Reddy's Laboratories 3,211 548 157.3 172.9 193.9 40.8 41.7 48.9 24.6 25.7 30.6 20.2 18.0 18.4 22.3 21.3 17.9 14.3 13.7 11.7 3,226 Add
Granules India Ltd 126 26 14.3 16.7 19.2 2.7 3.3 3.9 1.2 1.5 1.9 23.0 20.7 19.6 24.5 18.9 15.2 11.7 9.4 7.9 125 Add
Lupin 1,856 836 139.0 176.6 206.5 34.7 47.7 54.6 22.3 29.7 34.3 22.8 24.9 23.4 37.6 28.2 24.4 25.6 18.3 15.6 1,670 Sell
Sun Pharmaceutical Industries 868 2,089 281.2 328.4 373.8 85.5 113.2 134.2 45.7 70.3 86.4 19.1 21.8 22.1 39.8 29.7 24.2 25.1 18.7 15.5 944 Buy
Syngene International 400 80 11.0 13.2 15.7 3.6 4.4 5.4 2.2 2.8 3.4 24.3 25.8 26.7 35.9 28.9 23.5 22.1 18.1 14.7 422 Add
Torrent Pharmaceuticals 1,288 218 67.8 68.7 74.7 26.9 19.6 20.7 18.0 12.7 13.7 59.8 31.8 28.0 12.1 17.2 15.9 9.0 11.9 10.9 1,628 Buy
Spark Coverage Universe – Valuation Summary
Page 64
Company Name CMP Mkt Cap
(Rs. bn)
Net Sales (Rs. bn) EBITDA (Rs. bn) Net Profit (Rs. bn) ROE (%) P/E (x) EV/EBITDA (x) TP Rating
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Oil & Gas Vishnu Kumar A S | +91 44 4344 0069 | [email protected]
Oil & Natural Gas Corp 205 1,755 768.6 779.6 902.0 372.4 366.7 447.9 154.9 146.7 205.4 10.7 10.0 13.7 11.3 12.0 8.5 4.7 4.8 3.9 303 Buy
Indian Oil Corp 386 937 3,203.3 3,379.3 3,963.1 219.2 222.7 222.7 107.2 108.1 110.4 17.1 13.6 12.8 8.7 8.7 8.5 6.2 6.2 6.2 524 Buy
Bharat Petroleum Corp 804 581 1,469.6 1,499.1 1,866.6 104.8 87.7 85.0 65.6 51.4 48.7 26.6 18.1 15.6 8.9 11.3 11.9 6.6 7.8 8.1 941 Buy
Hindustan Petroleum Corp 729 247 1,429.3 1,541.2 1,845.6 70.2 68.2 65.5 33.4 30.8 25.3 18.0 16.0 12.2 7.4 8.0 9.7 5.9 6.1 6.7 700 SELL
Oil India 311 187 101.3 103.4 120.9 38.2 38.1 46.0 24.7 24.4 28.7 11.2 10.5 11.8 7.6 7.7 6.5 6.8 6.8 5.6 535 Buy
Indraprastha Gas 529 74 37.5 38.0 39.6 7.5 8.3 8.5 4.1 4.6 4.7 18.0 17.9 15.8 18.2 16.0 15.8 8.3 7.2 6.8 448 Sell
Petronet LNG 251 188 320.3 249.4 317.0 17.1 20.2 27.2 9.2 11.2 16.0 15.3 16.5 20.8 20.5 16.9 11.7 12.7 10.3 7.7 273 Buy
Gujarat Gas Co 509 70 61.9 65.7 68.3 8.1 10.4 11.2 2.4 3.9 4.6 11.7 17.0 17.4 29.0 17.9 15.3 11.9 9.0 8.3 500 Reduce
Gujarat State Petronet 127 72 10.1 12.0 12.4 8.7 10.5 10.9 4.4 5.6 5.9 11.6 13.3 12.8 16.3 12.9 12.2 9.2 7.6 7.0 164 Buy
Agri & Logistics Mukesh Saraf | +91 44 4344 0041 | [email protected]
Container Corp of India Ltd 1,148 224 57.8 64.2 73.4 11.7 13.3 15.7 8.6 9.0 10.4 10.6 10.4 11.2 26.1 24.9 21.5 18.8 16.5 13.9 1,135 Reduce
Gateway Distriparks Ltd 257 28 10.6 12.3 14.2 2.6 3.1 4.1 1.3 1.7 2.7 10.7 13.4 18.7 21.0 16.0 10.4 10.3 8.6 6.6 333 Buy
Infra & Power Bharanidhar Vijayakumar | +91 44 4344 0038 | [email protected]
Adani Ports and Special
Economic Zone 231 479 72.0 81.8 95.7 46.5 52.4 61.3 28.0 32.2 40.8 23.2 21.6 22.2 17.1 14.9 11.7 13.3 11.5 9.5 253 Buy
Ashoka Buildcon Ltd 186 35 24.5 27.8 32.9 6.8 7.4 8.8 0.8 1.1 1.9 3.7 4.3 7.5 44.2 33.0 18.6 10.4 9.5 7.9 235 BUY
COAL India 319 2,014 782.2 870.7 985.1 187.8 230.8 254.5 151.1 175.5 187.3 36.4 39.8 39.5 13.3 11.5 10.8 10.6 8.7 7.9 410 Buy
Gujarat Pipavav Port Ltd 159 77 7.1 8.4 9.9 3.8 4.8 6.1 2.4 3.0 3.7 15.9 17.0 15.9 20.6 17.1 20.6 20.4 16.2 13.0 173 Add
IRB Infrastructure Developers Ltd 232 82 62.1 73.4 70.2 31.2 34.7 38.1 6.9 8.1 5.4 14.7 14.8 9.2 11.8 10.1 15.1 7.0 7.1 7.0 237 ADD
KNR Constructions Ltd 515 14 8.2 13.8 16.0 1.4 2.7 3.1 0.7 0.6 1.0 8.2 6.7 10.2 21.6 25.0 15.7 16.6 8.2 7.1 560 BUY
PNC Infratech Ltd 490 25 23.1 28.5 33.2 3.9 5.8 6.4 0.6 1.0 1.3 5.8 6.9 8.8 38.9 25.6 18.7 11.7 7.7 6.9 650 BUY
Sadbhav Engineering Ltd 246 42 40.7 49.6 59.6 7.2 10.3 14.0 -0.5 0.8 1.9 -2.6 3.8 8.7 NA 54.0 22.1 15.8 11.3 8.2 315 BUY
Spark Coverage Universe – Valuation Summary
Page 65
Company Name CMP Mkt Cap
(Rs. bn)
Net Interest Income (Rs. Bn) Operating Profits (Rs. Bn) PAT (Rs. Bn) ABV/share Rs. P/ABV RoE (%) Target
Price Rating
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Financials Abhinesh Vijayaraj | +91 44 4344 0006 | [email protected]
Axis Bank 413 983 166 194 226 161 189 217 85 99 121 211 242 283 2.0 1.7 1.5 17.5 17.6 18.5 308 Sell
Bank of Baroda 141 324 125 133 154 84 89 108 -19 29 45 103 111 130 1.3 1.2 1.0 -4.8 7.2 10.4 77 Sell
Bank of India 93 76 114 119 134 60 63 72 -36 -1 15 143 98 78 0.7 1.0 1.3 -13.3 -0.5 5.6 49 Sell
Canara Bank 182 99 97 106 123 72 77 91 13 24 40 357 344 383 0.5 0.5 0.5 4.7 7.8 11.9 135 Sell
City Union Bank 85 51 10 11 13 8 9 11 4 5 7 47 55 64 1.7 1.4 1.2 15.5 16.6 18.0 112 Buy
DCB 76 22 6 7 8 3 3 4 2 2 2 57 63 70 1.3 1.1 1.0 10.5 10.2 10.3 68 Sell
Federal Bank 49 83 24 26 31 14 15 18 7 8 12 45 48 54 1.1 1.0 0.9 8.2 9.1 12.5 57 Buy
HDFC Bank 1,029 2,599 274 333 413 214 260 325 124 153 194 285 335 400 3.6 3.1 2.6 18.3 19.3 20.6 1,266 Buy
ICICI Bank 214 1,243 213 235 275 243 234 273 120 116 142 143 154 175 1.2 1.1 1.0 14.0 11.9 12.9 256 Buy
Indusind Bank 927 551 45 56 70 41 50 64 23 29 37 289 332 387 3.1 2.7 2.3 16.5 15.5 17.2 1,092 Buy
JKBK 62 30 28 30 35 17 19 22 7 9 12 118 133 152 0.6 0.5 0.5 10.2 13.2 14.7 93 Buy
Kotak Mahindra Bank 643 1,178 69 78 93 41 52 63 21 29 37 125 139 158 4.4 3.8 3.3 9.2 11.7 13.2 776 Buy
Karur Vysya Bank 410 50 18 19 21 13 14 17 6 7 9 363 407 465 1.2 1.1 0.9 13.4 14.6 16.3 593 Buy
Punjab National Bank 82 161 168 180 204 121 128 147 14 23 53 107 100 117 0.9 0.9 0.8 3.6 5.5 11.8 60 Sell
State Bank of India 180 1,398 559 630 740 400 459 549 108 169 247 144 158 183 1.0 0.9 0.8 7.9 11.0 14.5 187 Buy
South Indian Bank 17 23 16 18 21 9 11 13 4 5 7 24 27 31 0.8 0.7 0.6 10.4 12.9 14.7 25 Buy
Yes Bank 801 337 45 55 69 43 51 63 25 31 38 326 386 460 2.1 1.8 1.5 19.8 20.6 21.1 958 Buy
Cholamandalam Fin 670 105 21 24 29 12 14 17 5 6 8 197 219 260 3.1 2.8 2.4 16.9 16.4 17.2 700 Buy
HDFC 1,161 1,833 86 97 108 93 103 114 63 69 77 211 235 262 4.0 3.5 3.0 19.3 19.2 19.2 1,078 Sell
LIC Housing Fin 462 233 29 33 36 27 30 34 16 19 21 175 202 234 2.8 2.4 2.1 19.4 18.7 18.1 416 Sell
M&M Finance 229 130 30 33 39 19 21 24 5 5 11 86 82 100 2.3 2.4 2.0 8.3 8.1 16.9 181 Sell
REPCO 590 37 3 4 5 3 3 4 2 2 2 147 175 211 4.2 3.6 2.9 17.0 18.5 19.6 661 Buy
Sundaram Finance 1,212 135 11 12 14 7 8 9 5 5 6 299 326 361 3.7 3.4 3.0 14.8 13.7 14.5 1,464 Buy
Shriram City Union Fin 1,501 99 24 27 32 14 16 18 6 6 7 626 666 716 2.3 2.2 2.0 13.8 12.8 12.4 1,665 Buy
Shriram Transport Fin 927 210 49 56 63 37 42 47 14 15 17 392 416 716 1.9 1.8 1.8 14.0 14.1 13.9 708 Sell
Spark Coverage Universe – Valuation Summary
Page 66
Disclaimer
Spark Disclaimer
Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and
infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We
have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of
time.
Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered
with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure
advisory services.
This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.
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be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of
companies referred to in this document.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies
referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This
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material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.
Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this
document. Spark Capital , its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or
deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit
investment banking or other business from, any company referred to in this report.
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark
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Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective
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or reliance on this report.
Absolute
Rating
Interpretation
BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year
horizon
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year
horizon SELL Stock expected to fall >10% over a 1-year horizon
Page 67
Disclaimer (Cont’d)
Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,
Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Disclosure of interest statement Yes/No
Analyst financial interest in the company No
Group/directors ownership of the subject company covered No
Investment banking relationship with the company covered No
Spark Capital’s ownership/any other financial interest in the company covered No
Associates of Spark Capital’s ownership more than 1% in the company covered No
Any other material conflict of interest at the time of publishing the research report No
Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:
Managing/co-managing public offering of securities
Investment banking/merchant banking/brokerage services
products or services other than those above
in connection with research report
No
Whether Research Analyst has served as an officer, director or employee of the subject company covered No
Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research
analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
Additional Disclaimer for US Institutional Investors
This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under
the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange
Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities
discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne
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if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available
to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material
concerning investment to you under relevant legislation and regulations;