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India Morning Roundup

NBIE Special Reports Apar Industries-BUY-2QFY15 Result Update- In-line Performance, On Course Towards Strong Earnings Growth: Apar Industries (Apar) posted 2QFY15 revenue of Rs12.4bn, up 9% YoY and in line with our estimate, primarily driven by a strong 32% YoY rise in the sale of conductors at Rs5.5bn (44% of total revenue). EBITDA stood at Rs773mn, translating to an operating profit margin of 6.2%, up 60bps sequentially (margin not comparable on YoY basis because of the high-base effect). Bata India-BUY-3QCY14 Result Update- Lower Near-term revenue/margins Likely, Structural Story Intact: With lower footfalls and weak same-store sales growth (SSG), revenue grew at a modest pace of 13.1% at Rs5,480mn in 3QCY14 for Bata India (BIL), in line with our/Bloomberg estimates. However, a 40bps rise in lease rent because of ~55 net store addition in 1HCY14 as against 30 in CY13 and higher advertisement expenditure on a lower revenue base resulted in a 145bps decline in operating margin at 11.6%, 125bps/173bps below our/Bloomberg estimates, respectively, despite a marginal improvement in gross margin. Cadila Healthcare- ACCUMULATE -2QFY15 Result Update- Stable Performance; Retain Accumulate: Cadila Healthcare’s (CHL) 2QFY15 earnings were in line with our expectations because of strong growth in the US business (QoQ growth of ~US$13mn), which offset the weakness in other businesses. We continue to remain sanguine on the US business growth, given the elevated drug filings/approvals. Colgate-Palmolive (India)-BUY-2QFY15 Result Update- Strong Earnings Growth Prospects: Colgate-Palmolive’s (CPIL) 2QFY15 results surprised positively on the following: (1) Volume growth at 7% YoY, (2) Gross margin resilience, and (3) improvement in all working capital components, despite unprecedented competitive intensity. Nevertheless, EBITDA and PAT growth, while healthy at 27.4% YoY and 18.5% YoY, respectively, were below expectations because of higher-than-expected staff costs and other expenses. GlaxoSmithKline Consumer Healthcare-SELL-2QFY15 Result Update- Poor Volume Growth, Flat EBITDA; Working Capital Need Rises: Volume growth of just 2%, sequential gross margin decline and increase in inventory as well as debtors were key negatives from GlaxoSmithKline Consumer Healthcare’s (GSKCHL) 2QFY15 performance. EBITDA and PAT were below Bloomberg consensus estimates, but above our estimates, mainly HeidelbergCement India-BUY-3QCY14 Result Update- Robust Volume Growth; Target Price Up, Retain Buy: HeidelbergCement India’s (HIL) 3QCY14 results were in line with our expectations, with EBITDA being 5% below our estimate and 7% above Bloomberg consensus estimate. PAT was 71%/70% below our/Bloomberg consensus estimates, respectively, following marginal disappointment on the EBITDA front. La Opala RG- ACCUMULATE -2QFY15 Result Update- Healthy Revenue Growth, Structural Story Intact: La Opala RG (LORL) posted strong 42.9% revenue growth at Rs569mn for 2QFY15, 11.3% above our estimate, on the back of aggressive distributor addition, rise in market share, moderation in competition from Corelle, Luminarc etc, and aggressive advertisement expenditure - up 627bps at 18.4% with new price points/gifting products. The Ramco Cements-BUY-2QFY15 Result Update- Volume Disappoints But Outlook Improves; Retain Buy: The Ramco Cements’ (TRCL) 2QFY15 EBITDA was 8% below our estimate following disappointment on the cement volume front, while it was 13% above Bloomberg consensus estimate. PAT was 8%/36% above our/Bloomberg consensus estimates, respectively, led by lower interest costs and other costs. Thermax-SELL-2QFY15 Result Update- Healthy Performance, But Recovery In Margins Priced In: Thermax posted standalone revenue of Rs11.9bn for 2QFY15, up 14% YoY and 8% above our/Bloomberg consensus estimates each. Torrent Pharmaceuticals-SELL-2QFY15 Result Update- Mixed Performance; Retain Sell: Torrent Pharmaceuticals’ (TPL) 2QFY15 performance was mixed. While there were some green shoots in Brazilian business and Elder Pharmaceuticals’ domestic portfolio (acquired by the company) back to its historical run-rate of close to Rs1bn, the decline in US business and margins are negative takeaways. V-Guard Industries-BUY- Conference-call Update- We hosted the conference-call of V-Guard Industries (VIL) on 5 November 2014 to discuss its 2QFY15 financial performance. Strong revenue CAGR of 19.5%, a 125bps improvement in operating margin, strong reach in the non-southern region, a 594bps improvement in RoCE at 26.5% and free cash flow of Rs2,279mn over FY14-FY17E are likely to drive VIL’s valuation. Valuation Of Companies In Our Coverage Universe

Corporate News Tata Starbucks generated revenue of Rs.95.42 crores in FY14. Sushma Rajagopalan is ITC Info’s new CEO. Ranbaxy loses ‘Exclusitivity’ on sale of 2 Generics in US.

Global/Local Economic News World food prices drop for a seventh month in October. OECD trims India’s growth forecast to 5.4%.

Source: Bloomberg, NSE, Nirmal Bang Institutional Equities Research

Local Indices(Chg %) Close Daily YTDBSE Sensex 27,916 0.2 31.9 NSE Nifty 8,338 0.2 32.3 CNX Mid-Cap 11,977 0.2 48.4 CNX Bank Nifty Index 17,353 1.3 52.4 World IndicesDow Jones 17,554 0.4 5.9 S & P 500 2,031 0.4 9.9 FTSE 100 6,551 0.2 (2.9) Nasdaq 4,638 0.4 11.1 Hang Seng 23,435 (0.9) 0.6 Shanghai Comp 2,436 0.4 15.1 Net Investment (US$mn) 7-Nov 1M 3MFIIs 310.5 94.9 (182.8) MFs 293.6 555.4 -Volume

7-Nov US$bn Chg%Cash (NSE + BSE) 1.5 1.5 26.9F&O (net) 3.0 3.0 45.5

7-Nov 1 D 1 M 3MRs/US$ 61.4 61.4 61.6 60.8Rs/EUR 76.7 76.7 77.6 81.4Rs/GBP 97.9 97.7 98.5 103.610 yr G-Sec 8.2 8.2 8.5 8.6Call Money 8.0 7.1 8.3 7.3

7-Nov 1 D 1 M 3 MGold (US$/ounce) 1,141 1,144 1,211 1,313 Brent Crude (US$/bbl) 82 83 93 107 Aluminimum (US$/mt) 2,076 2,060 1,929 2,024 Copper (US$/mt) 6,660 6,638 6,710 6,970 Nifty

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Reuters: APAR.BO; Bloomberg: APR IN

Apar Industries

In-line Performance, On Course Towards Strong Earnings Growth Apar Industries (Apar) posted 2QFY15 revenue of Rs12.4bn, up 9% YoY and in line with our estimate, primarily driven by a strong 32% YoY rise in the sale of conductors at Rs5.5bn (44% of total revenue). EBITDA stood at Rs773mn, translating to an operating profit margin of 6.2%, up 60bps sequentially (margin not comparable on YoY basis because of the high-base effect). For 1HFY15, Apar posted operating profit margin of 5.9%, while we have factored in a 6.0% margin for FY15E. The company reported a forex loss of Rs302mn for 2QFY15 (included in interest costs). PAT stood at Rs159mn, while we had expected PAT at Rs220mn with an assumption of Rs200mn forex loss (at the 1QFY15 level). Considering Rs100mn higher forex loss compared to our estimate, adjusted PAT is in line with our expectation. We have retained our earnings estimates and Buy rating on Apar with an unchanged target price of Rs521 based on 11x September 2016E earnings. Conductor segment drives performance: Conductor segment posted a strong 32% YoY rise in revenue at Rs5.5bn driven by a 39% volume growth and healthy exports, accounting for 41% of sales. It also posted a healthy margin of 7.6%, up 40bps QoQ. The order book jumped 60% YoY at Rs18bn, providing healthy revenue visibility at 1.1xFY14 revenue. Exports constituted 51% of the conductor order book. Strong order placement traction for conductors is expected from Power Grid Corporation of India in 2HFY15, while Apar already has L1 status on orders worth Rs2bn. Oil segment remains muted: The transformer and specialty oils segment posted muted revenue growth of 2% YoY at Rs5.7bn (46% of total revenue) as July-September is a non-seasonal quarter for transformer oil. The segment posted operating margin of 5.8%, flat on QoQ basis, as it has been severely impacted by forex loss and falling crude oil prices. The automotive lube category posted an impressive 17% YoY rise in volume in 1HFY15 driven by distribution network expansion, higher OEM sales and launch of premium products. Cable segment to stage a turnaround: Cable segment posted a 25% YoY decline in revenue at Rs1.3bn, as Apar intends to scale down HT/LT cables division. The segment reported a negative EBIT of Rs2mn, likely because of booking of costs towards HT/LT division’s down-sizing (EBITDA margin was 3.1% in 2QFY15, down 150bps YoY). The management’s focus has shifted to high-margin OFC and elastomeric cables, which posted a strong growth of 101% and 238% YoY, respectively. The key end-user industries for elastomeric and E-beam cables are windmills, solar power, railways and ship-building, which are expected to drive strong growth, thereby leading to healthy profitability for the cable segment because of a better product mix. Healthy debt reduction amid steady working capital cycle: The debtor days of Apar increased from 82 days in 1HFY14 to 86 in 1HFY15, while inventory days rose from 75 to 78 over the same period. With creditor days also rising from 140 to 146, net working capital as a percentage of sales increased marginally from 13.6% in 1HFY14 to 13.9% in 1HFY15. However, Apar made a substantial debt reduction in 1HFY15, with total debt decreasing from Rs7.8bn in 4QFY14 to Rs4.7bn in 1HFY15, a decline of 40%. Outlook: We expect Apar to register 9%/31% CAGR in revenue/earnings, respectively, over FY14-FY16E. Driven by improved profitability and completion of its capex programme, Apar is likely to generate healthy operating/free cash flow of Rs6bn/Rs2bn, respectively, over FY14-FY16E along with a healthy rise in return ratios and at the same time, reduce its leverage from 1.6x in FY13 to 0.5x in FY16E. We have retained Buy rating on Apar with an unchanged target price of Rs521 based on 11x September 2016E earnings.

BUY Sector: Capital Goods CMP: Rs421 Target Price: Rs521 Upside: 24% Chirag Muchhala [email protected] +91-22-3926 8092

Key Data Current Shares O/S (mn) 38.5 Mkt Cap (Rsbn/US$mn) 16.2/263.6 52 Wk H / L (Rs) 452/110 Daily Vol. (3M NSE Avg.) 166,199 Price Performance (%)

1 M 6 M 1 Yr Apar Industries 6.2 194.4 242.9 Nifty Index 4.9 24.5 32.0 Source: Bloomberg

Y/E March (Rsmn) (standalone) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Revenue 11,402 11,306 12,436 9.1 10.0 20,856 23,742 13.8Raw material costs 8,745 8,824 9,618 10.0 9.0 16,057 18,442 14.9Staff costs 160 167 175 8.9 4.6 297 342 14.9Other expenses 1,500 1,682 1,870 24.7 11.2 2,750 3,552 29.1Total expenditure 10,406 10,672 11,663 12.1 9.3 19,104 22,336 16.9EBITDA 996 634 773 (22.4) 22.0 1,751 1,407 (19.7)EBITDAM (%) 8.7 5.6 6.2 - - 8.4 5.9 -Interest costs 489 366 473 (3.5) 29.1 1,041 838 (19.4)Depreciation 66 70 76 15.1 9.5 126 146 15.7Other income 23 69 12 (47.6) (82.8) 42 81 95.4Exceptional items (7) - - - - (9) - -PBT 456 267 236 (48.2) (11.6) 618 503 (18.5)Tax 137 66 77 (44.0) 16.6 195 143 (26.8)PAT 319 201 159 (50.0) (20.8) 423 361 (14.7)NPM (%) 2.8 1.8 1.3 - - 2.0 1.5 -EPS (Rs) 8.3 5.2 4.1 (50.0) (20.8) 11.0 9.4 (14.7)

Source: Company, Nirmal Bang Institutional Equities Research

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Apar Industries

Exhibit 1: Financial summary (consolidated) Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 46,507 46,329 49,520 55,035 60,455 EBITDA 3,113 2,974 2,963 3,768 4,588 Reported net profit 1,095 896 948 1,529 2,120 EPS (Rs) 28.5 23.3 24.6 39.7 55.1 EPS growth (%) 49.9 (18.1) 5.7 61.3 38.6 EBITDA margin (%) 6.7 6.4 6.0 6.8 7.6 PER (x) 14.8 18.1 17.1 10.6 7.6 P/BV (x) 2.6 2.3 2.1 1.8 1.5 EV/EBITDA (x) 4.9 7.3 6.8 5.2 4.0 Dividend yield (%) 1.2 1.2 1.3 1.4 1.7 RoCE (%) 18.3 17.4 19.0 26.1 29.8 RoE (%) 19.0 13.6 13.0 18.4 21.6


Exhibit 2: Segment-wise snapshot (standalone) Y/E March 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Revenue (Rsmn)

Conductors 4,124 4,175 5,448 32.1 30.5 7,535 9,623 27.7 Transformer & specialty oils 5,539 5,615 5,654 2.1 0.7 10,600 11,269 6.3 Cables 1,726 1,480 1,297 (24.9) (12.3) 2,710 2,777 2.5

Revenue mix (%) Conductors 36.2 37.0 43.9 - - 36.1 40.7 - Transformer & specialty oils 48.6 49.8 45.6 - - 50.9 47.6 - Cables 15.2 13.1 10.5 - - 13.0 11.7 -

EBIT (Rsmn) Conductors 375 300 417 11.1 39.0 763 717 (6.0) Transformer & specialty oils 568 325 330 (41.9) 1.5 982 655 (33.3) Cables 50 54 (2) NA NA (24) 53 NA

EBIT margin (%) Conductors 9.1 7.2 7.6 - - 10.1 7.4 - Transformer & specialty oils 10.3 5.8 5.8 - - 9.3 5.8 - Cables 2.9 3.7 (0.1) - - (0.9) 1.9 -


Exhibit 3: Conductor segment’s order book position

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Exhibit 4: Actual performance versus our estimates 2QFY15 (Rsmn) Actual Our estimates Deviation (%) Revenue 12,436 12,132 2.5 EBITDA 773 667 15.9 PAT 159 220 (27.5) PAT excluding forex loss (net of tax) 363 355 2.4

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 5: P/E charts

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Apar Industries

Financial statement (consolidated) Exhibit 6: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 46,507 46,329 49,520 55,035 60,455 % growth 29.3 (0.4) 6.9 11.1 9.8 Raw material costs 36,555 36,755 39,121 43,202 47,155 Staff costs 573 668 782 897 998 Other overheads 6,267 5,933 6,654 7,168 7,715 Total expenditure 43,394 43,355 46,558 51,267 55,868 EBITDA 3,113 2,974 2,963 3,768 4,588 % growth 44.6 (4.4) (0.4) 27.2 21.8 EBITDA margin (%) 6.7 6.4 6.0 6.8 7.6 Other income 23 45 94 75 68 Interest costs 1,346 1,455 1,263 1,133 1,012 Depreciation 240 270 336 358 383 Profit before tax 1,549 1,294 1,458 2,352 3,261 Tax 402 386 510 823 1,141 PAT 1,148 908 948 1,529 2,120 Minority interest 7 3 - - - Exceptional items (46) (9) - - - Net profit 1,095 896 948 1,529 2,120 % growth 49.9 (18.1) 5.7 61.3 38.6 Net profit margin (%) 2.4 1.9 1.9 2.8 3.5 EPS (Rs) 28.5 23.3 24.6 39.7 55.1 % growth 49.9 (18.1) 5.7 61.3 38.6

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 8: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17EShare capital 385 385 385 385 385Reserves 5,882 6,578 7,278 8,537 10,341Net worth 6,266 6,962 7,663 8,921 10,726Minority interest 18 18 18 18 18Short-term loans 9,403 7,080 4,280 3,780 3,280Long-term loans 329 701 501 501 501Total loans 9,733 7,781 4,781 4,281 3,781Deferred tax liability (net) 103 225 225 225 225Liabilities 16,120 14,986 12,687 13,445 14,750Gross block 4,358 5,412 5,773 6,163 6,588Depreciation 1,932 2,032 2,367 2,725 3,108Net block 2,426 3,380 3,406 3,437 3,480Capital work-in-progress 454 181 150 150 150Goodwill 207 207 207 207 207Investments 796 15 15 15 15Inventories 7,515 10,170 10,504 11,172 12,024Debtors 8,138 11,036 11,817 12,604 13,606Cash 10,549 2,306 888 894 1,522Loans and advances 1,835 2,202 2,252 2,718 3,003Other current assets 665 484 383 444 520Total current assets 28,702 26,197 25,845 27,832 30,674Creditors 14,841 13,673 15,071 16,126 17,453Other current liabilities & provisions 1,624 1,321 1,864 2,069 2,322Total current liabilities 16,465 14,994 16,935 18,196 19,775Net current assets 12,238 11,204 8,910 9,637 10,899Total assets 16,120 14,986 12,687 13,445 14,750


Exhibit 7: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 2,872 2,704 2,627 3,410 4,205 (Inc.)/dec. in working capital 3,138 (7,209) 876 (721) (634) Cash flow from operations 6,011 (4,505) 3,503 2,689 3,571 Other income 23 45 94 75 68 Depreciation 240 270 336 358 383 Interest paid (-) (1,346) (1,455) (1,263) (1,133) (1,012) Tax paid (-) (430) (265) (510) (823) (1,141) Dividends paid (-) (236) (236) (248) (270) (315) Minority interest (-) (7) (3) - - - Net cash from operations 4,255 (6,149) 1,912 896 1,553 Capital expenditure (-) (1,054) (952) (330) (390) (425) Net cash after capex 3,201 (7,101) 1,582 506 1,128 Inc./(dec.) in short-term borrowing (86) (2,323) (2,800) (500) (500) Inc./(dec.) in long-term borrowing (17) 372 (200) - - Inc./(dec.) in total borrowings (104) (1,951) (3,000) (500) (500) (Inc.)/dec. in investments (796) 781 - - - Minority interest 6 0.4 - - - Equity issue/(buyback) - - - - - Cash from financial activities (893) (1,170) (3,000) (500) (500) Others (78) 27 - - - Opening cash 8,319 10,549 2,306 888 894 Closing cash 10,549 2,306 888 894 1,522 Change in cash 2,230 (8,243) (1,418) 6 628

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 9: Key ratios

Y/E March FY13 FY14 FY15E FY16E FY17E Per share (Rs) EPS 28.5 23.3 24.6 39.7 55.1 Book value 162.9 181.0 199.2 231.9 278.8 Valuation (x) P/E 14.8 18.1 17.1 10.6 7.6 P/BV 2.6 2.3 2.1 1.8 1.5 EV/EBITDA 4.9 7.3 6.8 5.2 4.0 EV/sales 0.3 0.5 0.4 0.4 0.3 Return ratios (%) RoCE 18.3 17.4 19.0 26.1 29.8 RoE 19.0 13.6 13.0 18.4 21.6 RoIC 49.2 31.0 21.5 28.0 32.7 Profitability ratios (%) EBITDA margin 6.7 6.4 6.0 6.8 7.6 EBIT margin 6.2 5.8 5.3 6.2 7.0 PAT margin 2.4 1.9 1.9 2.8 3.5 Turnover ratios Total asset turnover ratio (x) 3.0 3.0 3.6 4.2 4.3 Debtor days 66 76 90 88 86 Inventory days 56 70 80 78 76 Creditors days 116 142 145 143 141 Solvency ratios (x) Debt-equity 1.6 1.1 0.6 0.5 0.4 Interest coverage 2.1 1.9 2.1 3.0 4.2


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Apar Industries

Rating track Date Rating Market price (Rs) Target price (Rs) 17 September 2014 Buy 390 521 9 October 2014 Buy 406 521

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Reuters: BATA.BO; Bloomberg: BATA IN

Bata India

Lower Near-term revenue/margins Likely, Structural Story Intact With lower footfalls and weak same-store sales growth (SSG), revenue grew at a modest pace of 13.1% at Rs5,480mn in 3QCY14 for Bata India (BIL), in line with our/Bloomberg estimates. However, a 40bps rise in lease rent because of ~55 net store addition in 1HCY14 as against 30 in CY13 and higher advertisement expenditure on a lower revenue base resulted in a 145bps decline in operating margin at 11.6%, 125bps/173bps below our/Bloomberg estimates, respectively, despite a marginal improvement in gross margin. We believe the pain in not over for BIL as the pressure on margins is likely to continue in the near future and, therefore, we have cut our CY15/CY16 net profit estimates by 6.8%/9.3%, respectively. We remain positive on BIL as it is addressing core issues like a weak supply chain, higher product complaints and less aggressive sales staff in a much structural way by appointing Accenture as its business consultant, modernising its plants and setting up sales training centres. With high operating leverage, BIL is likely to post a healthy net profit growth once the problems are resolved, which will also coincide with urban recovery. Any fall in the stock price provides a buying opportunity. We have retained Buy rating on BIL with a revised TP of Rs1,502 (Rs1,507 earlier) based on 29xCY16E earnings (30x average CY15-CY16E earnings earlier). Subdued revenue, higher costs limit profit growth: Following lower footfalls and weak SSG, revenue grew 13.1% at Rs5,480mn, in line with our/Bloomberg consensus estimates. despite strong net addition of ~55 outlets in 1HCY14 versus 30 in CY13.With higher store addition, increased advertisement expenses and moderate growth, lease rent/other expenses rose 40bps/75bps, respectively, and as a result, despite a 22bps gross margin improvement, operating margin fell 145bps at 11.6%, 125bps/173bps below our/Bloomberg consensus estimates, respectively. On account of lower margins, net profit grew by a mere 3.8% at Rs390mn, 9.3%/11.7% below our/Bloomberg consensus estimates, respectively. Ground research indicates the pain is not over yet: We contacted over 20 outlets of BIL and found out that SSG/ footfalls were weak and also negative in case of some outlets, and that Diwali festival demand was weak. Also, the outlets continue to face problems in areas like quality (~3%-5% complaints), supply chain (right size not available) and stitching/leather finish of products manufactured by BIL including Hush Puppies. This impacted revenue per store, a part of which is visible in 3QCY14 and likely to continue for some time. We will come out with a detailed ground research analysis shortly. BIL is structurally addressing key problems: BIL is structurally addressing three key problems like: 1) Poor quality, 2) Less aggressive/knowledgeable sales staff, and 3) Weak supply chain which led to lower revenue/store. We expect BIL to resolve the problems in the next three years and, therefore, we continue to remain positive, despite muted outlook.

BUY Sector: Retail CMP: Rs1,272 Target Price: Rs1,502 Upside: 18% Jignesh Kamani, CFA [email protected] +91-22-3926 8239

Key Data Current Shares O/S (mn) 64.3 Mkt Cap (Rsbn/US$bn) 81.9/1.3 52 Wk H / L (Rs) 1,413/888 Daily Vol. (3M NSE Avg.) 162,341 Price Performance (%)

1 M 6 M 1 Yr Bata India (8.5) 26.8 37.5 Nifty Index 4.9 24.5 32.0 Source: Bloomberg

Y/E December (Rsmn) 3QCY13 2QCY14 3QCY14 Chg. (YoY )% Chg. (QoQ) % 9MCY13 9MCY14 Chg. (%) Net sales 4,844 6,221 5,480 13.1 (11.9) 15,108 16,655 10.2 Net raw material & purchases of finished goods 2,229 2,985 2,510 12.6 (15.9) 7,065 7,753 9.7 % of sales 46.0 48.0 45.8 - - 46.8 46.5 - Rental expenses 635 725 741 16.6 2.2 1,865 2,158 15.7 % of sales 13.1 11.7 13.5 - - 12.3 13.0 - Other expenses 1,347 1,509 1,593 18.3 5.6 3,956 4,403 11.3 % of sales 27.8 24.3 29.1 - - 26.2 26.4 - Operating profit 633 1,002 636 0.5 (36.5) 2,222 2,341 5.4 OPM (%) 13.1 16.1 11.6 - - 14.7 14.1 - Interest costs 2.4 3.0 2.9 20.8 (1.7) 7 9 19.4 Depreciation 156 154 155 (1.0) 0.3 428 446 4.2 Other income 89 85 106 18.9 23.9 236 264 12.1 Extra-ordinary income - (47) - - - - (92) - PBT 563 883 584 3.8 (33.9) 2,023 2,059 1.8 Provision for tax 187 289 194 3.8 (32.9) 643 681 6.0 Effective tax rate (%) 33.2 32.7 33.2 - - 31.8 33.1 Reported PAT 376 594 390 3.8 (34.3) 1,380 1,378 (0.1) Adjusted PAT 376 625 390 3.8 (37.6) 1,380 1,439 4.3 NPM (%) 7.8 10.0 7.1 - - 9.1 8.6 - EPS (Rs) 5.8 9.7 6.1 3.8 (37.6) 21.5 22.4 4.3 Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

7


Bata India

Exhibit 1: Financial summary Y/E December (Rsmn) CY11 CY12 CY13 CY14E CY15E CY16E Revenue 15,425 18,425 20,652 22,785 26,300 32,061 YoY (%) 22.6 19.4 12.1 10.3 15.4 21.9 EBITDA 2,305 2,744 3,220 3,490 4,195 5,400 EBITDA margin (%) 14.9 14.9 15.6 15.3 16.0 16.8 Reported PAT 2,258 1,716 1,909 2,055 2,597 3,328 Adj. PAT 1,421 1,716 1,976 2,143 2,597 3,328 EPS (Rs) 22.1 26.7 30.7 33.3 40.4 51.8 YoY (%) 49.0 20.8 15.1 8.5 21.2 28.2 RoE (%) 29.2 26.9 25.7 23.5 24.1 25.8 RoCE (%) 29.7 26.1 25.3 23.5 24.1 25.8 RoIC (%) 40.6 32.9 35.2 35.4 38.6 46.2 P/E (x) 57.6 47.7 41.4 38.2 31.5 24.6 Price/sales (x) 5.3 4.4 4.0 3.6 3.1 2.6 EV/ EBITDA (x) 35.1 29.2 24.6 22.5 18.4 14.0 Source: Company, Nirmal Bang Institutional Equities Research

BIL to structurally address key problems Three key problems which resulted in lower revenue per store are: 1) Poor quality, 2) Lower aggression/knowledge of sales staff, and 3) Weak supply chain. We expect BIL to resolve all these problems in the next three years and, therefore, we continue to remain positive on BIL, despite muted outlook. The outlets visited by us stated that BIL has not provided training to its sales staff in the past five years. In the past six months, BIL has started sales staff training which includes increasing awareness about the company’s products, sales strategy to be adopted when a particular variety/size is not available etc. BIL is modernising three out of its five plants, including the largest plant at Bata Nagar, which will reduce quality complaints. BIL has hired Accenture to improve its supply chain. Competitor Relaxo Footwear hired Accenture three years ago and the positive impact of it has already started flowing into its Profit & Loss Account and Balance Sheet. We expect the same to happen in case of BIL in the next three years. Once all these issues are resolved in a structural manner, we expect BIL to witness a 20% revenue growth rate with a 20% operating margin. Exhibit 2: Our estimates versus actual performance (Rsmn) 3QCY13 2QCY14 3QCY14 YoY (%) QoQ (%) 3QCY14E Dev. (%) 3QCY14 BBE Dev. (%)Revenue 4,844 6,221 5,480 13.1 (11.9) 5,387 1.7 5,434 0.8 EBITDA 633 1,002 636 0.5 (36.5) 693 (8.2) 725 (12.3) EBITDA (%) 13.1 16.1 11.6 (145)bps (450)bps 12.9 (125)bps 13.3 (173)bps Adjusted PAT 376 625 390 3.8 (37.6) 430 (9.3) 442 (11.7)


Exhibit 3: Our revised earnings estimates Description (Rsmn)

Earlier estimates New estimates Change (%) CY14E CY15E CY16E CY14E CY15E CY16E CY14E CY15E CY16E

Sales 22,785 26,682 32,541 22,785 26,300 32,061 - (1.4) (1.5) EBITDA 3,490 4,469 5,904 3,490 4,195 5,400 - (6.1) (8.5) EBITDA (%) 15.3 16.8 18.1 15.3 16.0 16.8 - (80)bps (130)bps APAT 2,143 2,786 3,672 2,143 2,597 3,328 - (6.8) (9.3)


8


Bata India

Exhibit 4: One-year forward P/E

Source: Nirmal Bang Institutional Equities Research Exhibit 5: One-year forward EV/EBITDA

Source: Nirmal Bang Institutional Equities Research

0

200

400

600

800

1,000

1,200

1,400

1,600

Nov-0

8

Mar-0

9

Jul-0

9

Nov-0

9

Mar-1

0

Jul-1

0

Nov-1

0

Mar-1

1

Jul-1

1

Nov-1

1

Mar-1

2

Jul-1

2

Nov-1

2

Mar-1

3

Jul-1

3

Nov-1

3

Mar-1

4

Jul-1

4

Nov-1

4

(Rs)

20x

35x30x

15x

25x

5

10

15

20

25

30

35

Nov-0

8Fe

b-09

May-0

9Au

g-09

Nov-0

9Fe

b-10

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0Au

g-10

Nov-1

0Fe

b-11

May-1

1Au

g-11

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1Fe

b-12

May-1

2Au

g-12

Nov-1

2Fe

b-13

May-1

3Au

g-13

Nov-1

3Fe

b-14

May-1

4Au

g-14

Nov-1

4

(x)

Median 21.0x

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

100,000

Nov-0

8Ma

r-09

Jul-0

9

Nov-0

9Ma

r-10

Jul-1

0

Nov-1

0Ma

r-11

Jul-1

1

Nov-1

1Ma

r-12

Jul-1

2

Nov-1

2Ma

r-13

Jul-1

3

Nov-1

3Ma

r-14

Jul-1

4

Nov-1

4

(Rsmn)

14x

8x

20x

11x

17x

02468

10121416182022

Nov-0

8Fe

b-09

May-0

9Au

g-09

Nov-0

9Fe

b-10

May-1

0Au

g-10

Nov-1

0Fe

b-11

May-1

1Au

g-11

Nov-1

1Fe

b-12

May-1

2Au

g-12

Nov-1

2Fe

b-13

May-1

3Au

g-13

Nov-1

3Fe

b-14

May-1

4Au

g-14

Nov-1

4

(x)

Median 12.6x

9


4 Bata India

Financials (standalone) Exhibit 6: Income statement Y/E December (Rsmn) CY11 CY12 CY13 CY14E CY15E CY16E Net sales 15,425 18,425 20,652 22,785 26,300 32,061 Growth (%) 22.6 19.4 12.1 10.3 15.4 21.9 Raw material costs 7,265 8,680 9,488 10,432 11,903 14,510 Staff costs 1,859 1,959 2,133 2,415 2,630 3,110 Rentals 1,453 2,154 2,619 2,916 3,312 3,847 Freight costs 405 407 429 501 579 705 Commission 416 565 642 752 868 1,058 Others 1,723 1,915 2,121 2,278 2,814 3,431 Total expenditure 13,121 15,680 17,432 19,295 22,105 26,661 EBITDA 2,305 2,744 3,220 3,490 4,195 5,400 Growth (%) 37.3 19.1 17.3 8.4 20.2 28.7 EBITDA margin (%) 14.9 14.9 15.6 15.3 16.0 16.8 Other income 216 300 315 321 373 321 Extra-ordinary items 1,094 - (101) (132) - - Interest costs 9 10 13 - - - Gross profit 3,605 3,033 3,421 3,679 4,568 5,721 Growth (%) 105.4 (15.9) 12.8 7.5 24.2 25.2 Depreciation 411 514 592 635 721 790 Profit before tax 3,194 2,520 2,829 3,044 3,848 4,931 Growth (%) 123.4 (21.1) 12.3 7.6 26.4 28.2 Tax 936 804 920 989 1,250 1,603 Effective tax rate (%) 29.3 31.9 32.5 32.5 32.5 32.5 Net profit 2,258 1,716 1,909 2,055 2,597 3,328 Growth (%) 136.8 (24.0) 11.2 7.6 26.4 28.2 Extra-ordinary items 838 - (67) (88) - - Reported net profit 1,421 1,716 1,976 2,143 2,597 3,328 Growth (%) 49.0 20.8 15.1 8.5 21.2 28.2


Exhibit 8: Balance sheet Y/E December (Rsmn) CY11 CY12 CY13 CY14E CY15E CY16E Equity 643 643 643 643 643 643 Reserves 5,100 6,361 7,756 9,211 11,096 13,450 Net worth 5,743 7,003 8,399 9,854 11,739 14,092 Short-term loans 194 267 - - - - Long-term loans - - - - - - Total loans 194 267 - - - - Deferred tax liability (342) (444) (681) (644) (606) (556) Liabilities 5,595 6,827 7,718 9,209 11,133 13,536 Gross block 5,003 5,611 6,035 7,172 8,172 8,972 Depreciation 2,813 3,198 3,552 4,187 4,908 5,698 Net block 2,190 2,413 2,483 2,985 3,265 3,275 Capital work-in-progress 81 181 237 - - - Long-term Investments 49 49 - - - - Inventories 3,913 4,621 5,827 5,896 6,754 8,147 Debtors 314 449 509 578 667 814 Cash 1,229 1,871 2,558 3,479 4,718 6,485 Other current assets 1,124 1,276 1,526 1,709 1,972 2,405 Total current assets 6,581 8,218 10,419 11,662 14,113 17,850 Creditors 2,346 2,941 3,654 3,752 4,298 5,184 Other current liabilities 959 1,093 1,767 1,686 1,946 2,405 Total current liabilities 3,305 4,034 5,421 5,438 6,244 7,589 Net current assets 3,276 4,184 4,998 6,224 7,868 10,261 Total assets 5,595 6,827 7,718 9,209 11,133 13,536


Exhibit 7: Cash flow Y/E December (Rsmn) CY11 CY12 CY13 CY14E CY15E CY16E EBIT 1,894 2,230 2,627 2,855 3,474 4,610 (Inc.)/dec. in working capital (1,300) (267) (127) (304) (405) (626) Cash flow from operations 594 1,964 2,500 2,550 3,069 3,984 Other income 216 300 315 321 373 321 Depreciation 411 514 592 635 721 790 Deferred liabilities (31) (101) (237) 37 38 49 Interest paid (-) (9) (10) (13) - - - Tax paid (-) (680) (804) (920) (989) (1,250) (1,603) Dividend paid (-) (447) (448) (489) (600) (712) (975) Extraordinary items - - - - - - Net cash from operations 54 1,414 1,749 1,954 2,239 2,567 Capital expenditure (-) (1,198) (838) (718) (900) (1,000) (800) Net cash after capex (1,144) 576 1,031 1,054 1,239 1,767 Inc./(dec.) in short-term borrowing 56 73 (267) - - - Inc./(dec.) in borrowings - - - - - - (Inc.)/dec. in investments 124 - 49 - - - Cash from financial activities 180 73 (219) - - - Others / extraordinary income 838 (8) (126) (132) - - Opening cash 1,356 1,229 1,871 2,558 3,479 4,718 Closing cash 1,229 1,871 2,558 3,479 4,718 6,485 Change in cash (126) 642 686 922 1,239 1,767


Y/E December CY11 CY12 CY13 CY14E CY15E CY16E Per share (Rs) EPS 22.1 26.7 30.7 33.3 40.4 51.8 Book value 89.4 109.0 130.7 153.3 182.7 219.3 Valuation (x) P/E 57.6 47.7 41.4 38.2 31.5 24.6 P/sales 5.3 4.4 4.0 3.6 3.1 2.6 P/BV 14.3 11.7 9.7 8.3 7.0 5.8 EV/EBITDA 35.1 29.2 24.6 22.5 18.4 14.0 EV/sales 5.2 4.4 3.8 3.4 2.9 2.4 Return ratios (%) RoIC 40.6 32.9 35.2 35.4 38.6 46.2 RoCE 29.7 26.1 25.3 23.5 24.1 25.8 RoE 29.2 26.9 25.7 23.5 24.1 25.8 Margins (%) EBITDA margin 14.9 14.9 15.6 15.3 16.0 16.8 PBIT margin 12.3 12.1 12.7 12.5 13.2 14.4 PBT margin 20.7 13.7 13.7 13.4 14.6 15.4 PAT margin 9.2 9.3 9.6 9.4 9.9 10.4 Turnover ratio Asset turnover ratio (x) 2.8 2.7 2.7 2.5 2.4 2.4 Avg. inventory period (days) 107 106 120 110 110 110 Avg. collection period (days) 7 9 9 9 9 9 Avg. payment period (days) 64 68 75 70 70 70 Solvency ratios (x) Debt-equity - - - - - - Interest coverage 217.6 216.1 202.3 - - - Growth (%) Sales 22.6 19.4 12.1 10.3 15.4 21.9 EBITDA 37.3 19.1 17.3 8.4 20.2 28.7 PAT 49.0 20.8 15.1 8.5 21.2 28.2


10


Bata India

Rating track Date Rating Market price (Rs) Target price (Rs) 26 September 2011 Buy 639 817 1 November 2011 Buy 725 838 10 January 2012 Buy 550 838 1 March 2012 Buy 700 838 20 March 2012 Buy 725 838 20 April 2012 Buy 844 1,008 26 April 2012 Buy 855 1,008 2 May 2012 Buy 878 1,008 22 June 2012 Buy 847 1,008 10 July 2012 Buy 872 1,008 27 July 2012 Hold 896 1,008 14 August 2012 Hold 914 1,008 4 October 2012 Hold 982 1,008 1 November 2012 Sell 854 786 4 February 2013 Buy 784 1,000 27 February 2013 Buy 758 1,000 26 April 2013 Buy 704 865 8 May 2013 Hold 786 865 14 May 2013 Hold 799 865 5 June 2013 Hold 863 865 26 July 2013 Buy 876 1,064 29 July 2013 Buy 908 1,064 7 October 2013 Buy 862 1,064 31 October 2013 Buy 888 1,064 20 December 2013 Buy 1,010 1,310 7 January 2014 Buy 1,026 1,310 22 January 2014 Buy 974 1,310 13 February 2014 Buy 1,000 1,310 26 March 2014 Buy 1,130 1,310 30 March 2014 Buy 1,076 1,310 2 May 2014 Buy 1,068 1,245 22 May 2014 Buy 1,091 1,255 4 July 2014 Buy 1,343 1,592 6 August 2014 Buy 1,253 1,507 25 August 2014 Buy 1,252 1,507 10 October 2014 Buy 1,337 1,507 7 November 2014 Buy 1,274 1,502

11



FY15

Res

ult U

pdate

Reuters: CADI.BO; Bloomberg: CDH IN

Cadila Healthcare 7 November 2014

Stable Performance; Retain Accumulate Cadila Healthcare’s (CHL) 2QFY15 earnings were in line with our expectations because of strong growth in the US business (QoQ growth of ~US$13mn), which offset the weakness in other businesses. We continue to remain sanguine on the US business growth, given the elevated drug filings/approvals. Coupled with a likely recovery in domestic business from FY16 onwards, we expect CHL to break the jinx of flat/falling earnings growth witnessed over the past four years and post strong growth over FY14-FY17E (we expect a 24% earnings CAGR). We have increased our FY15/FY16 earnings estimates by 3%/6%, respectively, and retained Accumulate rating on CHL with a revised target price of Rs1,471, valuing the stock at 20xFY16E average FY16E/FY17E EPS . Sharp growth in the US business offsets weakness in other geographies: CHL’s US business increased by ~US$13mn QoQ, led by new launches (four new launches including authorised generic (AG) launch of Niacin) and continued traction in AG launch of Divalproex Sodium tablets. India business was up 9% YoY (16 new launches in 2QFY15, excluding Boehringer Ingelheim’s discontinued portfolio from the base, revenue was up 13%) and is likely to rebound from FY16 onwards. Most of the other geographies were subdued. In line with higher US revenue, gross margin improved 70bps QoQ. Overall operating margin was up 510bps YoY and 170bps QoQ, around 80bps/130bps above our/Bloomberg consensus estimates, respectively. Depreciation was up 42% YoY on account of a change in the useful life of assets, as per the new Companies Act 2013. Reported PAT of Rs2.8bn includes exceptional gain of Rs2mn and forex loss of Rs14mn. US business is key driver of our bullish view: We believe CHL is set to witness strong growth on likely pick-up in product approvals in the US, (approvals pending for around 150 products) and a sharp uptick in the filing rate (54 filings in CY13/27 filings in 1HFY15; run-rate of 30-40 filings per year and expects 10-15 approvals). We expect CHL to comfortably maintain a 20-product launch run-rate in the US in FY15 and beyond, including launches in controlled substance/transdermal/nasal segments and limited competition products like Sirolimus (US$200mn product) and Prevacid OD (CHL has received a complete response letter from the US Food and Drug Administration or USFDA) Conference-call highlights: 1) CHL doesn’t expect growth in the joint venture business and it is expected to remain at the current levels. 2) Tax rate guidance of 17%-18% and the company expects it to be under the MAT (minimum alternate tax) rate. 3) Capex guidance of Rs5.5bn for FY15 and Rs6.0bn for FY16. 4) Gross debt at Rs26bn and the management expects to reduce it by Rs 2bn-Rs3bn by the end of FY15. 5) CHL expects to receive transdermal product approvals in FY16. 6) Gets minor 483s at Moraiya unit inspection (couple of months ago) by the USFDA and the company has responded to them. 7) Launched three products through Nesher and expects to launch one more in 1QFY16.

ACCUMULATE Sector: Pharmaceuticals CMP: Rs1,411 Target Price: Rs1,471 Upside: 4% Praful Bohra [email protected] +91-22-3926 8175 Sumit Singhania [email protected] +91-22-3926 8111

Key Data Current Shares O/S (mn) 204.7 Mkt Cap (Rsbn/US$bn) 288.8/4.7 52 Wk H / L (Rs) 1,458/691 Daily Vol. (3M NSE Avg.) 108,024 Price Performance (%)

1 M 6 M 1 YrCadila Heathcare 7.7 44.0 102.4

Nifty Index 4.9 24.5 32.0 Source: Bloomberg

Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 IHFY15 YoY (%) Net revenue 17,468 20,501 21,080 20.7 2.8 33,838 41,581 22.9 Total raw material costs 6,762 8,133 8,221 21.6 1.1 12,156 16,354 34.5 % of revenue 38.7 39.7 39.0 - - 35.9 39.3 - Staff costs 2,730 2,901 2,873 5.2 (1.0) 5,358 5,774 7.8 % of revenue 15.6 14.2 13.6 - - 15.8 13.9 - R&D expenses 1,288 1,057 1,179 (8.5) 11.5 2,341 2,236 (4.5) % of revenue 7.4 5.2 5.6 - - 6.9 5.4 - Other expenses 4,082 4,649 4,598 12.6 (1.1) 8,520 9,246 8.5 % of revenue 23.4 22.7 21.8 - - 25.2 22.2 - EBITDA 2,605 3,761 4,210 61.6 11.9 5,463 7,971 45.9 EBITDA margin (%) 14.9 18.3 20.0 - - 16.1 19.2 - Other income 122 104 146 19.5 40.3 248 250 1.1 Interest costs 193 181 173 (10.7) (4.5) 472 353 (25.1) Depreciation 518 677 733 41.6 8.3 983 1,410 43.4 Exceptional item - (12) 2 - - - (10) - PBT after exceptional item 2,017 2,996 3,453 71.2 15.3 4,256 6,448 51.5 Tax 101 524 571 465.1 8.9 304 1,096 260.2 Minority I\interest (82) (69) (101) - - (162) (170) - Reported net profit 1,834 2,402 2,781 51.7 15.8 3,790 5,183 36.8

Source: Company, Nirmal Bang Institutional Equities Research 12


2 Cadila Healthcare

Exhibit 1: Financial summaryY/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Revenue 63,577 72,240 80,454 94,797 109,640 YoY (%) 20.8 13.6 11.4 17.8 15.7 EBITDA 11,251 12,001 15,335 19,362 23,035 EBITDA (%) 17.7 16.6 19.1 20.4 21.0 Reported PAT 6,535 8,036 10,471 13,623 16,495 Adj. PAT 6,535 8,189 10,471 13,623 16,495 YoY (%) 0.1 25.3 27.9 30.1 21.1 Fully DEPS 31.9 40.0 51.1 66.5 80.6 RoE (%) 23.6 25.7 27.2 28.4 27.6 RoCE (%) 16.8 16.0 19.5 22.1 23.0 P/E (x) 44.2 35.9 27.6 21.2 17.5 EV/EBITDA (x) 27.7 25.9 20.2 15.8 13.0 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Revenue break-up (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Domestic 7,997 8,708 8,835 10.5 1.5 16,093 17,543 9.0

Formulations 6,263 6,749 6,808 8.7 0.9 12,515 13,557 8.3 APIs 119 240 257 116.0 7.1 319 497 55.8 Wellness 1,039 1,075 1,101 6.0 2.4 2,189 2,176 (0.6) Animal health & others 576 644 669 16.1 3.9 1,070 1,313 22.7

Exports 8,310 10,670 11,093 33.5 4.0 15,366 21,763 41.6

Formulations 7,438 9,771 10,331 38.9 5.7 13,706 20,102 46.7 US 4,786 7,165 8,020 67.6 11.9 8,660 15,185 75.3 Europe 942 1,012 777 (17.5) (23.2) 1,869 1,789 (4.3) Japan 131 - 2 (98.5) - 253 2 (99.2) Brazil 654 544 647 (1.1) 18.9 1,173 1,191 1.5 Emerging markets 925 1,050 885 (4.3) (15.7) 1,751 1,935 10.5

APIs & others 872 899 762 (12.6) (15.2) 1,660 1,661 0.1 JVs 1,068 1,189 1,136 6.4 (4.5) 2,378 2,325 (2.2) Total 17,375 20,567 21,064 21.2 2.4 33,837 41,631 23.0 Source: Company, Nirmal Bang Institutional Equities Research Exhibit 3: Actual performance versus our estimates, Bloomberg consensus estimates (Rsmn) Actual Our estimates Variation (%) Bloomberg cons. est. Variation (%) Revenue 21,080 21,486 (1.9) 21,068 0.1 EBITDA 4,210 4,132 1.9 3,939 6.9 EBITDA margin (%) 20.0 19.2 80bps 18.7 130bps Reported PAT 2,781 2,702 2.9 2,600 7.0 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4: Change in our earnings estimates FY15E FY16E (Rsmn) Old New Change (%) Old New Change (%) Revenue 80,454 80,454 - 94,797 94,797 - EBITDA 14,943 15,335 2.6 18,438 19,362 5.0 EBITDA margin (%) 18.6 19.1 50bps 19.4 20.4 100bps Reported PAT 10,156 10,471 3.1 12,881 13,623 5.8


13


Cadila Healthcare

Exhibit 5: P/E ratio


0

5

10

15

20

25

30

35

4-Nov-09 4-Nov-10 4-Nov-11 4-Nov-12 4-Nov-13 4-Nov-14

(x)

14


Cadila Healthcare

Financials Exhibit 6: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales (incl. other oper. income) 63,577 72,240 80,454 94,797 1,09,640 % growth 20.8 13.6 11.4 17.8 15.7 Raw material costs (23,202) (27,136) (27,067) (30,599) (34,749) Staff costs (9,042) (10,711) (11,376) (13,404) (15,503) Research & development exp. (4,705) (4,608) (5,884) (6,933) (8,019) Other expenses (15,377) (17,784) (20,791) (24,498) (28,334) Total expenditure (52,326) (60,239) (65,119) (75,435) (86,605) EBITDA 11,251 12,001 15,335 19,362 23,035 % growth 3.8 6.7 27.8 26.3 19.0 EBITDA margin (%) 17.7 16.6 19.1 20.4 21.0 Other income 370 507 639 753 870 Interest costs (1,687) (902) (780) (750) (720) Gross profit 9,934 11,606 15,194 19,365 23,185 % growth 4.3 16.8 30.9 27.4 19.7 Depreciation (1,847) (2,012) (2,158) (2,404) (2,650) Profit before tax 8,087 9,594 13,036 16,960 20,535 % growth 1.8 18.6 35.9 30.1 21.1 Exceptional items - (172) - - - Tax (1,188) (1,060) (1,955) (2,544) (3,080) Effective tax rate (%) 14.7 11.0 15.0 15.0 15.0 Minority interest (364) (326) (609) (793) (960) Net profit 6,535 8,036 10,471 13,623 16,495 % growth 0.1 23.0 30.3 30.1 21.1 Adj. profit 6,535 8,189 10,471 13,623 16,495 % growth 0.1 25.3 27.9 30.1 21.1


Exhibit 8: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17EEquity 1,024 1,024 1,024 1,024 1,024Reserves 28,421 33,366 41,560 52,221 65,129Net worth 29,445 34,390 42,584 53,245 66,153Long-term loans 29,178 27,004 26,004 25,004 24,004Total loans 29,178 27,004 26,004 25,004 24,004Deferred tax liability 1,005 961 961 961 961Minority interest 1,193 1,444 2,051 2,842 3,799Total liabilities 60,821 63,799 71,600 82,052 94,917Gross block 43,762 46,640 52,640 58,640 64,640Depreciation 13,506 15,402 17,560 19,964 22,615Net block 30,256 31,238 35,080 38,676 42,025Capital work-in-progress 7,356 8,915 7,915 6,915 5,915Long-term Investments 1,145 866 866 866 866Inventories 12,136 13,675 16,121 19,249 22,263Debtors 9,551 11,337 12,174 14,345 16,591Cash 5,838 5,488 5,307 8,331 14,048Other current assets 7,440 8,347 9,318 10,856 12,449Total current assets 34,965 38,847 42,920 52,781 65,350Creditors 6,568 9,108 8,174 9,469 10,871Other current liabilities 6,333 6,959 7,006 7,717 8,368Total current liabilities 12,901 16,067 15,180 17,185 19,239Net current assets 22,064 22,780 27,740 35,595 46,111Total assets 60,821 63,799 71,600 82,052 94,917


Exhibit 7: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 9,404 9,989 13,177 16,958 20,385 (Inc.)/dec. in working capital (3,591) (1,703) (5,671) (5,517) (5,423) Cash flow from operations 5,813 8,286 7,506 11,441 14,961 Other income 370 507 639 753 870 Depreciation 1,847 2,012 2,158 2,404 2,650 Interest paid (-) (1,687) (902) (780) (750) (720) Tax paid (-) (1,188) (1,060) (1,955) (2,544) (3,080) Dividends paid (-) (2,066) (1,875) (1,749) (2,279) (2,964) Net cash from operations 3,089 6,968 5,819 9,025 11,717 Capital expenditure (-) (5,958) (4,437) (5,000) (5,000) (5,000) Net cash after capex (2,869) 2,531 819 4,025 6,717 Inc./(dec.) in long-term borrowing 6,285 (2,174) (1,000) (1,000) (1,000) Inc./(dec.) in borrowings 6,285 (2,174) (1,000) (1,000) (1,000) (Inc.)/dec. in investments (903) 279 - - - Cash from financial activities 5,382 (1,895) (1,000) (1,000) (1,000) Others (1,341) (986) - - - Opening cash 4,666 5,838 5,488 5,307 8,331 Closing cash 5,838 5,488 5,307 8,331 14,048 Change in cash 1,172 (350) (181) 3,024 5,716

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 9: Key ratios Y/E March FY13 FY14 FY15E FY16E FY17E Per share (Rs) Reported EPS 31.9 39.2 51.1 66.5 80.6 Adjusted EPS 31.9 40.0 51.1 66.5 80.6 DPS 7.5 7.1 9.2 12.0 14.5 BV/share 143.8 168.0 208.0 260.1 323.1 Dividend payout (%) 32.2 21.7 21.7 21.7 21.7 Performance ratios (%) RoE 23.6 25.7 27.2 28.4 27.6 RoCE 16.8 16.0 19.5 22.1 23.0 Valuation ratios (x) P/E 44.2 35.9 27.6 21.2 17.5 P/BV 9.8 8.4 6.8 5.4 4.4 EV/net sales 4.9 4.3 3.8 3.2 2.7 EV/EBITDA 27.7 25.9 20.2 15.8 13.0 Efficiency ratios Asset turnover (x) 1.1 1.1 1.2 1.2 1.2 Working capital/sales (x) 0.4 0.4 0.4 0.4 0.5 Receivable days 56.6 58.6 56.6 56.6 56.6 Inventory days 72.0 70.7 75.0 76.0 76.0 Payable days 50.3 59.8 50.4 50.5 50.5


15


Cadila Healthcare

Rating track Date Rating Market price (Rs) Target price (Rs) 1 November 2011 Sell 758 743 11 November 2011 Sell 760 737 22 December 2011 Hold 701 737 12 January 2012 Hold 678 737 8 February 2012 Sell 660 629 19 March 2012 Sell 712 674 16 April 2012 Sell 702 674 11 May 2012 Hold 759 831 9 July 2012 Hold 774 831 7 August 2012 Hold 909 923 4 October 2012 Hold 858 923 8 November 2012 Hold 859 910 7 January 2013 Hold 885 910 11 February 2013 Sell 790 742 9 April 2013 Sell 752 742 31 May 2013 Buy 775 940 9 July 2013 Buy 791 940 8 August 2013 Hold 708 792 7 October 2013 Hold 689 792 1 November 2013 Hold 663 728 30 December 2013 Buy 785 908 7 January 2014 Buy 785 908 10 February 2014 Buy 903 1,120 11 April 2014 UR 993 1,120 19 May 2014 Buy 912 1,120 10 July 2014 Accumulate 1,143 1,120 31 July 2014 Accumulate 1,165 1,195

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Reuters: COLG.BO; Bloomberg: CLGT IN

Colgate-Palmolive (India)

Strong Earnings Growth Prospects Colgate-Palmolive’s (CPIL) 2QFY15 results surprised positively on the following: (1) Volume growth at 7% YoY, (2) Gross margin resilience, and (3) improvement in all working capital components, despite unprecedented competitive intensity. Nevertheless, EBITDA and PAT growth, while healthy at 27.4% YoY and 18.5% YoY, respectively, were below expectations because of higher-than-expected staff costs and other expenses. While we have downgraded our EPS forecasts slightly, we expect~22% EPS CAGR overFY14-FY17E, led by healthy volume growth, lower advertising and promotion (A&P) to sales(givenhigh base and continued market share gains) and strong gross margin momentum due to premiumisation. Valuation is attractive at 27.4x FY17 EPS, for a company with among the best EPS growth compared to peers, RoE and RoCE of ~100%and dividend yieldof 2.3% and 2.6% in FY16 and FY17, respectively. As we roll forward to September 2016 benchmarks, and given the earnings prospects and undeserved discountto MNC peers, we have increased the target multiple to 35x causingrating upgrade from Accumulate to Buy and the target price increase from Rs1,813 earlier to Rs2,045, upside of 19% Revenue growth below expectations, but volume surprises:Revenue was up 11.1% YoY at Rs10bn, 2.1%/1.6 below our/Bloombergestimates. Volume growth was above expectations at 7%, despite a 10% growth in the base quarter.Toothpaste market share rose 80bps YoY at 56.7% in Jan-Sept 2014 compared to Jan-Sep 2013, despite unprecedented competitive intensity. There was a marginal fall in toothpaste market share sequentially, but it is not a cause for concern as the trend is positive. Toothbrush market share was up 110bps YoY at 42.6% in Jan-Sept 2014 and was maintained sequentially. Gross margin impressive, but staff costs higher than estimate: Gross margin/ EBITDA marginwere up 290bps/240bpsYoY respectively, indicating that the premiumisation process continues. Growth was also aided by a low base, as 2QFY14 witnessed lowest EBITDA margin and second-lowest gross margin in the past 14 quarters. Gross margin was stable at 62.7% sequentially. Rise in staff costs at 27.4% YoY was higher than expected and A&P and other expenses were also slightly higher than estimates.From FY15 onwards, CPIL is clubbing A&P expenses together, unlike the practice in recent years and, therefore, A&P expenses show a sharp increase while other expenses show a decline YoY. Put together, the increase has been moderate at 10% YoY. EBITDA was up by a healthy 27.5% YoY at Rs1.87bn, but was 11.0% below our expectation and 3.7% belowconsensus. While depreciation was above estimates, tax rate was below expectations. PAT was up 18.3% YoY at Rs1.3bn, 10.7% below our estimate and 5.6% below Bloomberg consensus. Improvement in working capital cycle is commendable:While 1HFY15 sales grew 11% YoY, debtors declined YoY, creditors increased 19.6% YoY and inventory was up 11.7% YoY, all leading to 40% increase in negative NWC. Other assets declined 23.6% YoY.

BUY Sector:FMCG CMP: Rs1,714 Target Price: Rs2,045 Upside: 19% Krishnan Sambamoorthy [email protected] +91-22-3926 8033 Aditya Joshi [email protected] +91-22-3926 8028

Key Data Current Shares O/S (mn) 136.0 Mkt Cap (Rsbn/US$bn) 233.6/3.8 52 Wk H / L (Rs) 1,769/1,228 Daily Vol. (3M NSE Avg.) 198,433 Price Performance (%)

1 M 6 M 1 YrColgate-Palmolive (I) (1.1) 21.2 39.1Nifty Index 4.9 24.2 34.2Source: Bloomberg

Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 Chg. (YoY)% Chg. (QoQ)% 1HFY14 1HFY15 Chg. (YoY)% Net sales 9,007 9,569 10,005 11.1 4.6 17,604 19,574 11.2 Net RM costs & purchases of finished goods 3,621 3,572 3,730 3.0 4.4 6,904 7,302 5.8 % of sales 40.2 37.3 37.3 - - 39.2 37.3 - Advertising & promotion expenses 1,195 1,806 2,010 68.2 11.3 2,209 3,816 72.8 % of sales 13.3 18.9 20.1 - - 12.5 19.5 - Staff costs 535 584 681 27.4 16.6 1,155 1,265 9.6 % of sales 5.9 6.1 6.8 - - 6.6 6.5 - Other expenses 2,194 1,671 1,719 (21.6) 2.9 4,221 3,390 (19.7) % of sales 24.4 17.5 17.2 - - 24.0 17.3 - Operating profit 1,463 1,937 1,865 27.5 (3.7) 3,116 3,802 22.0 OPM (%) 16.2 20.2 18.6 - - 17.7 19.4 - Depreciation 117 166 177 52.2 7.1 234 343 46.6 Other income 130 65 99 (23.8) 53.8 301 164 (45.7) PBT 1,477 1,836 1,787 21.0 (2.6) 3,184 3,623 13.8 Provision for tax 382 487 491 28.7 1.0 792 978 23.5 Effective tax rate (%) 25.8 26.5 27.5 - - 24.9 27.0 - Reported PAT 1,095 1,349 1,296 18.3 (4.0) 2,947 2,645 (10.3) Adjusted PAT 1,095 1,349 1,296 18.3 (4.0) 2,392 2,645 10.6 NPM (%) 12.2 14.1 13.0 - - 13.6 13.5 - EPS (Rs) 8.1 8.3 9.5 18.3 14.8 21.7 19.4 (10.3) Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

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Exhibit 1: Financial summary Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Revenue 31,654 35,788 40,118 46,938 54,449 YoY (%) 17.4 13.1 12.1 17.0 16.0 EBITDA 6,584 6,640 8,304 10,749 12,687 EBITDA (%) 20.8 18.6 20.7 22.9 23.3 Adj. PAT 4,968 4,755 5,749 7,364 8,529 YoY (%) 11.3 (4.3) 20.9 28.1 15.8 FDEPS (Rs) 36.5 35.0 42.3 54.1 62.7 RoE (%) 107.4 87.3 88.8 97.5 96.2 RoCE (%) 105.2 85.4 87.3 95.5 93.9 Dividend yield (%) 1.6 1.6 1.8 2.3 2.6 P/E (x) 47.0 49.1 40.6 31.7 27.4 *Net sales in FY14 were up by ~15% YoY, but revenue growth is down because of lower operating income after the sale of IT outsourcing business to the parent Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Our estimates versus actual performance (Rsmn) 2QFY14 1QFY14 2QFY15 YoY (%) QoQ (%) 2QFY15E Devi. (%) 2QFY15 BBE Devi.(%) Revenue 9,007 9,569 10,005 11.1 4.6 10,223 (2.1) 10,166 (1.6) EBITDA 1,463 1,937 1,865 27.5 (3.7) 2,095 (11.0) 1,937 (3.7) EBITDA (%) 16.2 20.2 18.6 240bps (160)bps 20.5 (185.2)bps 19.1 (41)bps Adjusted PAT 1,095 1,349 1,296 18.3 (4.0) 1,451 (10.7) 1373 (5.6) Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Change in our earnings estimates Y/E March (Rsmn)

Old estimates New estimates Change (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

Sales 40,619 47,525 55,129 40,118 46,938 54,449 (1.2) (1.2) (1.2) EBITDA 8,408 10,883 12,845 8,304 10,749 12,687 (1.2) (1.2) (1.2) EBITDA (%) 20.7 22.9 23.3 20.7 22.9 23.3 (0.0) 0.0 0.0 APAT 5,875 7,475 8,640 5,749 7,364 8,529 (2.1) (1.5) (1.3)



Source: Company, Bloomberg, Nirmal Bang Institutional Equities Research

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Financials Exhibit 5: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 31,654 35,788 40,118 46,938 54,449 % growth 17.4 13.1 12.1 17.0 16.0 Raw material costs 12,502 14,020 15,142 17,489 20,112 Staff costs 2,494 2,118 2,457 2,874 3,334 Advertisement costs 4,901 6,887 7,603 8,249 9,486 Other expenses 5,173 6,123 6,613 7,577 8,829 Total expenditure 25,070 29,148 31,814 36,189 41,762 EBITDA 6,584 6,640 8,304 10,749 12,687 % growth 13.4 0.9 25.1 29.4 18.0 EBITDA margin (%) 20.8 18.6 20.7 22.9 23.3 Other income 85 145 145 160 165 Interest costs (399) (358) (351) (479) (614) Depreciation 437 508 702 716 736 Profit before tax 6,630 6,636 8,098 10,672 12,730 % growth 12.7 0.1 22.0 31.8 19.3 Tax 1,663 1,881 2,349 3,308 4,201 Effective tax rate (%) 25.1 28.3 29.0 31.0 33.0 Net profit 4,968 4,755 5,749 7,364 8,529 % growth 11.3 (4.3) 20.9 28.1 15.8 Adjusted net profit 4,968 4,755 5,749 7,364 8,529 % growth 11.3 (4.3) 20.9 28.1 15.8 Extra-ordinary items - 644 - - - Reported net profit 4,968 5,399 5,749 7,364 8,529 % growth 11.3 8.7 6.5 28.1 15.8

** Net sales in FY14 are up by ~15% YoY, but revenue growth is down because of lower operating income after the sale of IT outsourcing business to the parent. Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 7: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Equity 136 136 136 136 136 Reserves 4,760 5,863 6,810 8,024 9,429 Net worth 4,896 5,999 6,946 8,160 9,565 Liabilities 4,896 5,999 6,946 8,160 9,565 Gross block 6,735 11,342 12,142 12,542 12,842 Depreciation 3,929 4,368 5,070 5,786 6,522 Net block 2,807 6,974 7,072 6,756 6,320 Capital work-in-progress 1,020 - - - - Inventories 1,853 2,257 2,359 2,785 3,182 Debtors 812 547 552 734 758 Cash 4,791 2,946 4,885 6,453 9,212 Liquid Investments 471 471 471 471 471 Other current assets 1,314 1,692 1,861 2,047 2,252 Total current assets 9,242 7,913 10,128 12,490 15,874 Creditors 4,666 5,100 6,331 7,043 8,471 Other current liabilities 3,506 3,789 3,923 4,043 4,157 Total current liabilities 8,172 8,889 10,254 11,086 12,629 Net current assets 1,070 (975) (126) 1,404 3,245 Total assets 4,896 5,999 6,946 8,160 9,565


Exhibit 6: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 6,147 6,133 7,602 10,033 11,951 (Inc.)/dec. in working capital 1,021 200 1,090 38 917 Cash flow from operations 7,168 6,332 8,692 10,071 12,867 Other income 85 145 145 160 165 Depreciation 437 508 702 716 736 Interest paid (-) 399 358 351 479 614 Tax paid (-) (1,663) (1,881) (2,349) (3,308) (4,201) Dividends paid (-) (4,417) (4,260) (4,802) (6,150) (7,123) Extra-ordinary items - 644 - - - Net cash from operations 2,009 1,846 2,739 1,967 3,059 Capital expenditure (-) (1,025) (3,656) (800) (400) (300) Net cash after capex 983 (1,809) 1,939 1,567 2,759 Cash from financial activities - - - - - Others (8) (36) 1 (0) (0) Opening cash 3,816 4,791 2,946 4,885 6,453 Closing cash 4,791 2,946 4,885 6,453 9,212 Change in cash 975 (1,845) 1,940 1,568 2,758


Exhibit 8: Key ratios Y/E March FY13 FY14 FY15E FY16E FY17E Per share (Rs) EPS 36.5 35.0 42.3 54.1 62.7 DPS 28.0 27.0 30.4 39.0 45.2 Book value 36.0 44.1 51.1 60.0 70.3 Valuation (x) P/E 47.0 49.1 40.6 31.7 27.4 P/BV 47.7 38.9 33.6 28.6 24.4 EV/EBITDA 34.7 34.7 27.5 21.1 17.6 EV/sales 7.2 6.4 5.7 4.8 4.1 Return ratios (%) RoCE 105.2 85.4 87.3 95.5 93.9 RoE 107.4 87.3 88.8 97.5 96.2 Margins (%) Gross margin 60.5 60.8 62.3 62.7 63.1 EBITDA margin 20.8 18.6 20.7 22.9 23.3 PBT margin 20.9 18.5 20.2 22.7 23.4 PAT margin 15.7 13.3 14.3 15.7 15.7 Turnover ratios Fixed asset turnover ratio (x) 8.3 5.1 5.7 7.0 8.6 Avg. inventory period (days) 23 21 21 20 20 Avg. collection period (days) 10 7 5 5 5 Avg. payment period (days) 48 50 52 52 52 Solvency ratios (x) Debt-equity (1.1) (0.6) (0.8) (0.8) (1.0) Interest coverage (0.1) (0.1) (0.0) (0.0) (0.1) Dividend yield (%) 1.6 1.6 1.8 2.3 2.6 Growth (%) Sales 17.4 13.1 12.1 17.0 16.0 EBITDA 13.4 0.9 25.1 29.4 18.0 PAT 11.3 (4.3) 20.9 28.1 15.8


19



Rating track Date Rating Market price (Rs) Target price (Rs) 7March 2014 Buy 1,324 1,691 26May 2014 Buy 1,369 1,660 2 July 2014 Accumulate 1,515 1,660 28 July 2014 Accumulate 1,637 1,813 7 November 2014 Buy 1,714 2,045

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Reuters: GLSM.BO; Bloomberg: SKB IN

GlaxoSmithKline Consumer Healthcare

Poor Volume Growth, Flat EBITDA; Working Capital Need Rises Volume growth of just 2%, sequential gross margin decline and increase in inventory as well as debtors were key negatives from GlaxoSmithKline Consumer Healthcare’s (GSKCHL) 2QFY15 performance. EBITDA and PAT were below Bloomberg consensus estimates, but above our estimates, mainly because of lower-than-expected depreciation and higher other income. With competitive intensity likely to be high, price hike, a key component of historical sales growth, is likely to be lower than usual and the advertising and promotion (A&P) spending to sales ratio is expected to remain high. EPS growth over FY14-FY17E is likely to languish at ~9%CAGR, thereby exerting pressure on return ratios. The stock trades at expensive multiples of 36.3xFY16E EPS and 32.3xFY17E EPS. Despite the excise duty benefit expected to go away from FY16, we are assuming a healthy gross margin. GSKCHL also has 23% contribution of non-operating income to PBT, which does not deserve high multiples. We have rolled forward our target multiple to September 2016E numbers, and increased our target multiple (30.0x in line with 3-year average, at a huge premium to 5-year average of 27.5x and 10-year average of 21.0x), in line with FMCG sector multiple increase in the past few months, but still get a 14% downside to our target price of Rs4,750 (Rs3,828 earlier). We retain Sell rating on the stock. Single-digit sales growth continues: Net sales and operating income were up 9.8% YoY at Rs 11.14bn. This was 0.8% above expectations. Volume growth was even lower than expectations at 2% YoY following a 3% YoY growth in the previous quarter. Other operating income, so often an important factor in top-line growth, fell YoY as well as sequentially, and sales growth was up 10.8% YoY with both core HFD (health food drinks) as well as foods business growing at a similar pace. HFD and oats gained market share during the quarter. Exports declined because of slowdown in Bangladesh and certain one-offs. Flat EBITDA as margins decline: Gross margin was down 155bps YoY at 62.9% as a result of steep rise in raw material costs, like milk and milk products, and inability to pass on the increase to consumers, given the low volume growth and high competitive intensity. Gross margin decline was 70bps above our estimate and down sequentially by 70bps. EBITDA margin fell 136bps YoY at 17.6% and EBITDA was up 1.9% YoY at Rs1.96bn. While EBITDA was 2.4% above our expectations, it was 0.4% below Bloomberg consensus expectations. A&P spending to sales ratio declined 40bps YoY (but remained high at 15.7% of sales) and other expenses increased 30bps YoY. Lower-than-expected depreciation and higher-than-expected other income meant that PAT was up 9.1% YoY at Rs1.6bn, above EBITDA growth and our estimate, but 2.1% below Bloomberg consensus estimate. Balance sheet metrics worsen: Despite only a 9.2% YoY increase in sales in 1HFY15, inventory increased 28% YoY and trade receivables rose 22.5% YoY. With creditors increasing by only 12.8% YoY, the company was marginally net working capital positive at the end of September 2014. Other current assets also increased in double-digits YoY.

SELL Sector: FMCG CMP: Rs5,415 Target Price: Rs4,750 Downside: 14% Krishnan Sambamoorthy [email protected] +91-22-3926 8033 Aditya Joshi [email protected] +91-22-3926 8028

Key Data Current Shares O/S (mn) 42.1 Mkt Cap (Rsbn/US$bn) 227.7/3.7 52 Wk H / L (Rs) 5,799/4,011 Daily Vol. (3M NSE Avg.) 12,917 Price Performance (%)

1 M 6 M 1 YrGSK Consumer (2.9) 30.4 16.9Nifty Index 4.9 24.5 30.0Source: Bloomberg

Y/E March (Rsmn) 3QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Net sales 10,141 9,660 11,136 9.8 15.3 19,044 20,796 9.2 Net raw material & Purchase of finished goods 3,605 3,519 4,131 14.6 17.4 6,591 7,651 16.1 % of sales 35.6 36.4 37.1 - 34.6 36.8 - Advtg and Sales Prom 1,632 1,414 1,753 7.4 23.9 3,008 3,167 5.3 % of sales 16.1 14.6 15.7 - - 15.8 15.2 - Staff costs 937 1,054 1,009 7.7 (4.3) 1,981 2,063 4.1 % of sales 9.2 10.9 9.1 - - 10.4 9.9 - Other expenses 2,046 2,026 2,286 11.7 12.9 3,983 4,312 8.3 % of sales 20.2 21.0 20.5 - - 20.9 20.7 - Operating Profit 1,920 1,646 1,957 1.9 18.9 3,481 3,604 3.5 OPM (%) 18.9 17.0 17.6 - - 18.3 17.3 - Depreciation 116 119 121 4.8 1.9 238 241 1.1 Other income 434 458 619 42.6 35.2 819 1,076 31.4 PBT 2,237 1,983 2,453 9.6 23.7 4,059 4,436 9.3 Tax 768 682 850 10.7 24.6 1,390 1,531 10.2 Effective tax rate (%) 34.3 34.4 34.6 - - 34.2 34.5 - Reported PAT 1,469 1,301 1,603 9.1 23.2 2,669 2,904 8.8 Adjusted PAT 1,469 1,301 1,603 9.1 23.2 2,669 2,904 8.8 NPM (%) 14.5 13.5 14.4 - - 14.0 14.0 - EPS (Rs.) 34.9 30.9 38.1 9.1 23.2 63.5 69.1 8.8 Note: FY14 comprises 15 months; Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

21



Conference-call highlights Input costs remained high for the quarter (mainly SMP), but there is some relief in 3QFY14 and the management expects ~10% reduction from the elevated levels in the December 2014 quarter. The management has given guidance of 3.0-3.5% volume growth for the next two-three quarters and stated that beyond that there should be a recovery to 5%-6% steady-state going forward. Sales growth is likely to be around 10-12% for the next few quarters. There are no signs of improvement in the sentiment and HFD is a segment where the demand is elastic and thereby affected in a high-inflation environment. Oats still account for a very small proportion in the company’s overall business. The company is now No. 2 in South India after Quaker (Pepsico) and has gained around 200bps market share during the quarter. Oats business growth was 7% YoY for the quarter. The management has given guidance of 10-12% auxiliary commission growth on a steady-state basis and, therefore, the high growth in the past, which had contributed significantly to profitability, is unlikely to return. The company went for a small 1.5% price hike in October 2014, but price hikes so far are not adequate to address the adverse gross margin impact. From FY16, as a result of excise duty on the Baddi unit going away, there could be an impact of 300bps on gross margin, which the management expects to recoup from other cost items. The base includes one-off sales to Pakistan and Myanmar, which affected exports (~7% of sales for the quarter). In HFD business, Boost grew 7%, with all the growth coming from price hike. Horlicks grew 8%, with 6% growth coming from price hike and 2% from volume spurt. Rural growth is still better than urban growth, but rural areas accounted for around 26% of the company’s sales. Crocin affected auxiliary commission growth because the company gradually shifted customers from basic Crocin to advanced Crocin, but the DPCO (Drug Price Control Order) forced it to cut prices on advanced Crocin by 50% - from Rs20 per pack to Rs10 per pack. The company has planned Rs12bn-Rs15bn capex over the next three-four years as it is running close to full capacity. As of now, this could delay greenfield plans by six months because the volume growth is low. The company’s distribution reach is currently at around 3.10mn outlets, with direct reach at 0.85mn outlets.

Exhibit 1: Financial summary Y/E March (Rsmn) CY12 FY14* FY15E FY16E FY17E Revenue 31,875 48,686 42,892 49,326 56,725 YoY (%) 15.3 52.7 (11.9) 15.0 15.0 EBITDA 5,734 8,728 7,232 8,287 9,757 EBITDA (%) 18.0 17.9 16.9 16.8 17.2 Adj. PAT 4,368 6,748 5,740 6,277 7,041 FDEPS (Rs) 103.9 128.4 136.5 149.3 167.4 YoY (%) 23.0 23.6 6.3 9.4 12.2 RoE (%) 34.9 34.0 29.3 27.7 27.0 RoCE (%) 32.4 31.1 26.3 25.3 25.1 Dividend yield (%) 0.8 0.8 1.1 1.2 1.3 P/E (x) 52.1 42.2 39.7 36.3 32.3

*FY14 comprised 15 months, all ratios and per share ratios are adjusted, barring absolute numbers and absolute number growth Source: Company, Nirmal Bang Institutional Equities Research

22



Exhibit 2: Our estimates versus actual performance (Rsmn) 3QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 2QFY15E Devi. (%) 2QFY15 BBE Devi.(%) Revenue 10,141 9,660 11,136 9.8 15.3 11,053 0.8 10,983 1.4 EBITDA 1,920 1,646 1,957 1.9 18.9 1,912 2.4 1,965 (0.4) EBITDA (%) 18.9 17.0 17.6 (136) 53 17.6 (2) 17.9 (32) Adjusted PAT 1,469 1,301 1,603 9.1 23.2 1,499 6.9 1,637 (2.1) Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Change in our earnings estimates Y/E March (Rsmn)

Old assumptions New assumptions Change (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

Sales 42,357 48,710 55,529 42,892 49,326 56,725 1.3 1.3 2.2 EBITDA 7,158 8,378 9,551 7,232 8,287 9,757 1.0 (1.1) 2.2 EBITDA (%) 17.1 17.3 17.2 16.9 16.8 17.2 (24) (50) 0 APAT 5,629 6,314 7,020 5,740 6,277 7,041 2.0 (0.6) 0.3




05

101520253035404550

Nov-0

5

May-0

6

Nov-0

6

May-0

7

Nov-0

7

May-0

8

Nov-0

8

May-0

9

Nov-0

9

May-1

0

Nov-1

0

May-1

1

Nov-1

1

May-1

2

Nov-1

2

May-1

3

Nov-1

3

May-1

4

Nov-1

4

(x)

23



Financials Exhibit 5: Income statement Y/E March (Rsmn) CY12 FY14* FY15E FY16E FY17E Net sales 31,875 48,686 42,892 49,326 56,725 % growth 15.3 52.7 (11.9) 15.0 15.0 Raw material costs 11,519 17,396 15,625 18,203 20,933 Staff costs 3,011 4,701 4,160 4,759 5,425 Advertisement costs 4,965 8,106 7,041 8,027 9,030 Royalty costs 1,056 1,568 1,364 1,569 1,804 Other expenses 5,590 8,188 7,470 8,482 9,775 Total expenditure 26,141 39,958 35,660 41,039 46,968 EBITDA 5,734 8,728 7,232 8,287 9,757 % growth 13.7 52.2 (17.1) 14.6 17.7 EBITDA margin (%) 18.0 17.9 16.9 16.8 17.2 Other income 149 332 266 292 292 Interest costs (income) (965) (1,726) (1,719) (1,579) (1,434) Depreciation 361 626 586 719 896 Profit before tax 6,487 10,161 8,631 9,439 10,588 % growth 20.1 56.6 (15.1) 9.4 12.2 Tax 2,119 3,413 2,891 3,162 3,547 Effective tax rate (%) 32.7 33.6 33.5 33.5 33.5 Net profit 4,368 6,748 5,740 6,277 7,041 % growth 23.0 54.5 (14.9) 9.4 12.2 Adjusted net profit 4,368 6,748 5,740 6,277 7,041 Reported net profit 4,368 6,748 5,740 6,277 7,041 % growth 23.0 54.5 (14.9) 9.4 12.2

*FY14 comprises 15 months Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 7: Balance sheet Y/E March (Rsmn) CY12 FY14* FY15E FY16E FY17E Equity 421 421 421 421 421 Reserves 13,189 17,708 20,651 23,870 27,481 Net worth 13,610 18,129 21,072 24,291 27,901 Liabilities 13,610 18,129 21,072 24,291 27,901 Gross block 6,562 8,931 10,931 13,431 16,931 Depreciation 4,624 5,147 5,733 6,452 7,347 Net block 1,938 3,784 5,198 6,979 9,583 Capital work-in-progress 1,972 - - - - Inventories 3,696 4,074 5,092 5,449 6,673 Debtors 1,126 2,994 2,177 3,499 3,028 Cash 14,642 18,388 17,805 18,083 16,897 Other current assets 2,170 4,876 5,363 5,899 6,489 Total current assets 21,635 30,331 30,437 32,931 33,087 Creditors 4,784 6,716 6,210 8,385 8,400 Other current liabilities 7,151 9,270 8,353 7,235 6,370 Total current liabilities 11,936 15,986 14,563 15,619 14,770 Net current assets 9,699 14,345 15,874 17,311 18,318 Total assets 13,610 18,129 21,072 24,291 27,901


Exhibit 6: Cash flow Y/E March (Rsmn) CY12 FY14* FY15E FY16E FY17E EBIT 5,373 8,102 6,646 7,568 8,861 (Inc.)/dec. in working capital 2,090 (900) (2,112) (1,159) (2,193) Cash flow from operations 7,463 7,202 4,534 6,409 6,668 Other income 149 332 266 292 292 Depreciation 361 626 586 719 896 Interest paid (-) 965 1,726 1,719 1,579 1,434 Tax paid (-) (2,119) (3,413) (2,891) (3,162) (3,547) Dividends paid (-) (1,895) (2,198) (2,796) (3,058) (3,430) Net cash from operations 4,924 4,275 1,417 2,778 2,313 Capital expenditure (-) (773) (498) (2,000) (2,500) (3,500) Net cash after capex 4,151 3,777 (583) 278 (1,187) Cash from financial activities - - - - - Others (305) (31) (0) 0 0 Opening cash 10,797 14,642 18,388 17,805 18,083 Closing cash 14,642 18,388 17,805 18,083 16,897 Change in cash 3,846 3,745 (583) 278 (1,187)


Exhibit 8: Key ratios Y/E March CY12 FY14* FY15E FY16E FY17E Per share (Rs) EPS 103.9 128.4 136.5 149.3 167.4 DPS 45.0 45.0 57.3 62.7 70.3 Book value 323.6 431.1 501.0 577.6 663.4 Valuation (x) P/E 52.1 42.2 39.7 36.3 32.3 P/BV 16.7 12.6 10.8 9.4 8.2 EV/EBITDA 37.2 30.0 29.0 25.3 21.6 EV/sales 6.7 5.4 4.9 4.3 3.7 Return ratios (%) RoCE 32.4 31.1 26.3 25.3 25.1 RoE 34.9 34.0 29.3 27.7 27.0 Margins (%) Gross margin 63.9 64.3 63.6 63.1 63.1 EBITDA margin 18.0 17.9 16.9 16.8 17.2 PBT margin 20.4 20.9 20.1 19.1 18.7 PAT margin 13.7 13.9 13.4 12.7 12.4 Turnover ratios Fixed asset turnover ratio (x) 8.2 10.3 8.3 7.1 5.9 Avg. inventory period (days) 42 36 39 39 39 Avg. collection period (days) 12 19 22 21 21 Avg. payment period (days) 48 54 55 54 54 Solvency ratios (x) Dividend yield (%) 0.8 0.8 1.1 1.2 1.3 Growth (%) Sales 15.3 52.7 (11.9) 15.0 15.0 EBITDA 13.7 52.2 (17.1) 14.6 17.7 PAT 23.0 54.5 (14.9) 9.4 12.2

*While FY14 comprised 15 months, all ratios and per share ratios are adjusted, barring absolute numbers and absolute number growth Source: Company, Nirmal Bang Institutional Equities Research

24



Rating track Date Rating Market price (Rs) Target price (Rs) 16 June 2014 Sell 4,484 3,896 7 August 2014 Sell 4,867 3,828 7 November 2014 Sell 5,415 4,750

25



CY14

Res

ult U

pdate

Reuters: HEID.BO; Bloomberg: HEIM IN

HeidelbergCement India

Robust Volume Growth; Target Price Up, Retain Buy HeidelbergCement India’s (HIL) 3QCY14 results were in line with our expectations, with EBITDA being 5% below our estimate and 7% above Bloomberg consensus estimate. PAT was 71%/70% below our/Bloomberg consensus estimates, respectively, following marginal disappointment on the EBITDA front. We like to highlight that low PAT margin results in a sharp deviation in PAT estimate, despite a small movement in EBITDA. Cement volume surprised positively, 20% above our estimate at 1.04mt. We have revised our volume estimates upward by 5%/3%/3% for CY14/CY15/CY16, respectively, after factoring in 3QCY14 strong performance, which led to 4%/3%/3% increase, respectively, in EBITDA estimates for the same period. We have also rolled forward our valuation from CY15 to CY16, keeping the multiple unchanged at 7.0x EV/EBITDA. Our revised target price of Rs128 on HIL is 38% above the current market price and, therefore, we have retained Buy rating on it. Strong volume performance: HIL posted 32% YoY and 1% QoQ rise in cement volume at 1.04mt, while on adjusted basis (adjusting for Raigad grinding unit sale), cement volume grew 47% YoY. For 9MCY14, cement volume growth was 15.3% YoY at 3.10mt, while on adjusted basis, cement volume was up 33% YoY. Operational performance strong YoY, but subdued QoQ on lower realisation: Cement realisation was down 1% QoQ at Rs3,846mn (2% below our estimate), while it was up 4% YoY. However, HIL was able to achieve a 8% YoY drop in blended costs at Rs3,363/tn (1% above below our estimate) following across-the-board fall in costs and the sale of high-cost Raigad unit. On sequential basis, blended costs were up 2% because of higher power/fuel costs and other expenses. The above factors led to a 256% YoY rise in EBITDA/tn at Rs542 (versus our estimate of Rs681), while it was down 20% QoQ. For 9MCY14, EBITDA/tn witnessed a 92% YoY surge at Rs626, driven by 2% higher realisation and 6% lower costs. Strong financial performance: HIL posted a 36% YoY rise in revenue at Rs4,061mn driven by higher volume and better realisation, while it was down 1% QoQ. EBITDA jumped 370% YoY at Rs564mn driven by lower costs, while it was down 19% QoQ. HIL posted Rs16mn PAT for 3QCY14 versus Rs119mn in 2QCY14 and a Rs284mn loss in 3QCY13.

BUY Sector: Cement CMP: Rs93 Target Price: Rs128 Upside: 38% Giriraj Daga [email protected] +91-22-3926 8168

Key Data Current Shares O/S (mn) 226.6 Mkt Cap (Rsbn/US$mn) 21.0/342 52 Wk H / L (Rs) 104/33 Daily Vol. (3M NSE Avg.) 931,817 Price Performance (%)

1 M 6 M 1 Yr HeidelbergCement 5.3 111.3 130.7 Nifty Index 4.9 24.5 32.0 Source: Bloomberg

Y/E December (Rsmn) 3QCY13 2QCY14 3QCY14 YoY (%) QoQ (%) 9MCY13 9MCY14 YoY (%) Net revenue 2,990 4,105 4,061 35.8 (1.1) 10,347 12,196 17.9 Raw material costs 949 865 889 (6.3) 2.7 2,497 2,501 0.2 % of sales 31.7 21.1 21.9 24.1 20.5 Power & fuel expenses 792 1,014 1,120 41.4 10.5 2,947 3,328 12.9 % of sales 26.5 24.7 27.6 28.5 27.3 Freight & handling charges 412 623 532 29.0 (14.5) 1,570 1,694 7.9 % of sales 13.8 15.2 13.1 15.2 13.9 Other expenditure incl. staff costs 717 906 956 33.4 5.6 2,455 2,733 11.3 % of sales 24.0 22.1 23.5 23.7 22.4 EBITDA 120 698 564 370.3 (19.2) 877 1,939 121.0 EBITDA margin (%) 4.0 17.0 13.9 8.5 15.9 Depreciation 274 261 278 1.3 6.5 705 804 14.0 Interest costs 303 273 288 (5.0) 5.3 699 831 18.9 Other income 28 19 26 (4.4) 37.0 44 67 52.4 Exceptional loss/(gain) - - - - (603) PBT (429) 183 25 (105.8) (86.4) (483) 975 (301.9) Provision for tax (146) 64 9 (106.3) (85.7) (142) 362 (355.6) Effective tax rate 34.0 35.2 37.1 29.3 37.1 PAT (284) 119 16 (105.5) (86.8) (341) 613 (279.6) EPS (Rs) (1.3) 0.5 0.1 (105.5) (86.8) (1.5) 2.7 (279.6) Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

26



Exhibit 1: Financial summary Y/E December (Rsmn) CY12* CY13* CY14E CY15E CY16E Net sales 8,625 11,936 16,798 20,479 23,737 EBITDA 559 867 2,740 4,236 5,519 EBITDA margin (%) 5.1 6.4 16.6 21.0 23.6 Net profit 308 (407) 569 1,619 2,667 EPS 1.4 (1.8) 2.5 7.1 11.8 PER (x) 68.2 (51.6) 37.0 13.0 7.9 P/BV (x) 2.5 2.5 2.3 1.9 1.5 EV/EBITDA 54.8 38.6 11.6 7.2 5.1 RoCE (%) 1.4 0.7 6.8 11.0 14.8 RoE (%) 3.7 (4.8) 6.4 16.0 21.7 EV/tn (US$) 162 103 97 93 85 * Adjusted for discontinued operations Source: Company, Nirmal Bang Institutional Equities Research,

Exhibit 2: Our estimates versus actual performance (Rsmn) 3QCY13 2QCY14 3QCY14 YoY (%) QoQ (%) 3QCY14E Dev. (%) 3QCY14BBE Dev. (%) Operational data Cement volume (mt) 0.79 1.04 1.04 32.0 0.5 0.87 19.5 - - Realisation (Rs/tn) 3,701 3,904 3,846 3.9 (1.5) 3,943 (2.5) - - Blended costs (Rs/tn) 3,642 3,292 3,363 (7.7) 2.1 3,343 0.6 - - EBITDA (Rs/tn) 152 674 542 256.3 (19.5) 681 (20.4) - - Financials Net sales 2,990 4,105 4,061 35.8 (1.1) 3,500 16.0 3,617 12.3 EBITDA 120 698 564 370.3 (19.2) 592 (4.8) 527 7.1 PAT (284) 119 16 (105.5) (86.8) 54 (71.3) 52 (69.7)


Exhibit 3: Operational data (Rs/tn) 3QCY13 2QCY14 3QCY14 YoY (%) QoQ (%) 9MCY13 9MCY14 YoY (%) Cement volume (mt) 0.79 1.04 1.04 32.0 0.5 2.69 3.10 15.3 Blended realisation 3,701 3,904 3,846 3.9 (1.5) 3,781 3,870 2.4 Raw material costs 1,204 836 855 (29.0) 2.2 929 807 (13.1) Employee expenses 313 247 248 (20.8) 0.5 291 246 (15.6) Power & fuel costs 1,005 980 1,077 7.1 9.9 1,096 1,074 (2.0) Freight & forwarding expenses 523 602 512 (2.2) (14.9) 584 547 (6.4) Other expenses 597 629 672 12.5 6.8 622 636 2.3 Total expenditure 3,642 3,292 3,363 (7.7) 2.1 3,523 3,311 (6.0) EBITDA 152 674 542 256.3 (19.5) 326 626 91.8 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4: Change in our earnings estimates

Description Earlier assumptions New assumptions Change (%)

CY14E CY15E CY16E CY14E CY15E CY16E CY14E CY15E CY16E Operational data Cement volume (mt) 4.05 4.65 5.10 4.25 4.80 5.25 4.9 3.2 2.9 Realisation (Rs/tn) 3,960 4,277 4,533 3,883 4,193 4,445 (1.9) (1.9) (1.9) Blended costs (Rs/tn) 3,379 3,453 3,541 3,308 3,384 3,470 (2.1) (2.0) (2.0) EBITDA (Rs/tn) 649 888 1,051 645 883 1,051 (0.7) (0.6) 0.0 Financials Net sales 16,317 20,186 23,419 16,798 20,479 23,737 2.9 1.5 1.4 EBITDA 2,630 4,127 5,361 2,740 4,236 5,519 4.2 2.6 3.0 Adjusted PAT 492 1,544 2,558 569 1,619 2,667 15.7 4.9 4.3 Source: Company, Nirmal Bang Institutional Equities Research

27



Exhibit 5: EV/EBITDA average multiple Exhibit 6: P/BV average multiple

Source: Company, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 7: Valuation summary Valuation (CY16E) (Rsmn) Target EV/EBITDA (x) 7.0 EBITDA 5,519 Enterprise value 38,633 Net debt (adj. for WIP) 9,623 Target market capitalisation 29,010 Target price (Rs) 128 Implied EV/tn (US$) 117 Upside (%) 38.0 Source: Company, Nirmal Bang Institutional Equities Research

(5)

0

5

10

15

20

25

30

35

Jan-07 Apr-08 Aug-09 Dec-10 Mar-12 Jul-13 Nov-14EV/EBITDA (x) Median(x) +1SD +2SD -1SD

(x)

-

0.5

1.0

1.5

2.0

2.5

Jan-07 Apr-08 Aug-09 Dec-10 Mar-12 Jul-13 Nov-14P/BV (x) Median(x) +1SD +2SD -1SD -2SD

(x)

28



Financials Exhibit 8: Income statement Y/E December (Rsmn) CY12 CY13 CY14E CY15E CY16E

Revenue 8,625 11,936 16,798 20,479 23,737 YoY growth (%) (13.2) 38.4 40.7 21.9 15.9 Staff costs 1,628 2,517 3,496 4,027 4,493 % of sales 18.9 21.1 20.8 19.7 18.9 Royalty & cess 850 967 1,034 1,158 1,298 % of sales 9.9 8.1 6.2 5.7 5.5 Selling exp. & freight costs 5,589 7,585 9,527 11,057 12,428 % of sales 64.8 63.5 56.7 54.0 52.4 Total expenditure 8,066 11,069 14,057 16,243 18,218 EBITDA 559 867 2,740 4,236 5,519 EBITDA margin (%) 6.5 7.3 16.3 20.7 23.3 Depreciation 236 891 983 1,004 995 EBIT 323 (24) 1,757 3,232 4,524 Other income 103 1,056 1,194 1,134 907 Interest costs 104 227 249 249 249 Exceptional loss/(gain) (133) (47) (603) - - PBT 456 (807) 1,416 2,347 3,866 Provision for tax 148 (399) 425 727 1,198 Effective tax rate (%) 32.5 49.5 30.0 31.0 31.0 PAT 308 (407) 991 1,619 2,667 YoY growth (%) (10.5) (232.1) (343.4) 63.4 64.7 PAT margin (%) 3.5 (3.3) 5.8 7.8 11.1

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 10: Balance sheet Y/E December (Rsmn) CY12 CY13 CY14E CY15E CY16E Share capital 2,266 2,266 2,266 2,266 2,266 Reserves and surplus 6,200 6,067 7,058 8,678 11,345 Shareholders' funds 8,466 8,334 9,325 10,944 13,611 long term loan 9,858 12,926 12,065 11,462 9,170 short term loan 450 642 503 478 382 Loan funds 10,308 13,568 12,568 11,940 9,552 Net deferred tax liability 378 50 50 50 50 Total capital employed 19,152 21,951 21,942 22,933 23,213

Gross block 10,443 25,379 25,229 26,079 28,479 Less: Acc. depreciation 6,702 7,505 8,488 9,493 10,488 Net block 3,740 17,873 16,740 16,586 17,991 Capital WIP 15,171 1,670 2,120 2,570 870 Net fixed assets 18,911 19,543 18,860 19,156 18,860 Cash and bank balance 732 1,141 1,697 2,316 2,699 Inventory 1,650 1,989 2,351 2,647 3,069 Debtors 216 306 362 441 511 Other C.A. and loans & adv. 3,042 4,607 4,607 4,607 4,607 Total C.A. and loans & adv. 5,640 8,043 9,016 10,011 10,886 Creditors 1,486 1,901 2,200 2,500 2,800 Other current liabilities 2,451 2,069 2,069 2,069 2,069 Provisions 1,462 1,664 1,664 1,664 1,664 Net current assets 241 2,408 3,082 3,778 4,352 Total assets 19,152 21,951 21,942 22,933 23,213


Exhibit 9: Cash flow Y/E December (Rsmn) CY12 CY13 CY14E CY15E CY16E

EBIT 323 (24) 2,360 3,232 4,524(Inc.)/Dec in working capital 590 1,218 (119) (76) (192)Cash flow from operations 913 1,194 2,242 3,156 4,332Other income 104 227 249 249 249Depreciation 236 891 983 1,004 995Interest paid (-) 103 1,056 1,194 1,134 907Tax paid (-) 148 (399) 425 727 1,198Dividends paid (-) - - - - -Net cash from operations 1,002 1,654 1,855 2,548 3,470Capital expenditure (-) 5,120 1,435 300 1,300 700Net cash after capex (4,118) 219 1,555 1,248 2,770Inc./(Dec.) in short-term debt 450 192 (139) (25) (96)Inc./(dec.) in long-term debt 2,089 3,068 (861) (603) (2,292)Cash from financing activity 2,539 3,260 (1,000) (628) (2,388)Others (796) (3,069) - - -Opening cash 3,107 732 1,141 1,697 2,316Closing cash 732 1,141 1,697 2,316 2,699Change in cash (2,375) 410 555 620 382


Exhibit 11: Key ratios Y/E December CY12 CY13 CY14E CY15E CY16E

Per share (Rs)

EPS 1.4 (1.8) 2.5 7.1 11.8Book value 37.4 36.8 41.1 48.3 60.1Valuation (x) P/E 68.2 (51.6) 37.0 13.0 7.9P/BV 2.5 2.5 2.3 1.9 1.5EV/EBITDA 54.8 38.6 11.6 7.2 5.1EV/sales 2.8 2.5 1.9 1.5 1.2M-cap/sales 1.6 1.2 0.8 0.7 0.6Return ratios (%) RoCE 1.4 0.7 6.8 11.0 14.8RoE 3.7 (4.8) 6.4 16.0 21.7Margin ratios (%) EBITDA margin 5.1 6.4 16.6 21.0 23.6PBIT margin 3.7 (0.2) 10.5 15.8 19.1PBT margin 3.8 (7.2) 8.4 11.5 16.3PAT margin 2.0 (3.8) 5.9 7.9 11.2Turnover ratios Asset turnover ratio (x) 0.8 0.5 0.7 0.8 0.8Avg. collection period (days) 7.2 8.2 8.0 8.0 8.0Avg. payment period (days) 49.3 50.8 48.7 45.3 43.8Solvency ratios (x) Debt-equity 1.2 1.6 1.3 1.1 0.7Interest coverage ratio 5.4 0.8 2.3 3.7 6.1


29



Rating track Date Rating Market price (Rs) Target price (Rs) 25 December 2012 Buy 56 66 12 February 2013 Buy 52 61 9 April 2013 Buy 35 53 29 July 2013 Buy 37 47 18 October 2013 Buy 34 43 23 December 2013 Hold 38 43 20 February 2014 Buy 34 46 11 April 2014 Hold 46 46 5 May 2014 Buy 47 55 11 July 2014 Buy 60 88 28 July 2014 Buy 59 92 7 November 2014 Buy 93 128

30



FY15

Res

ult U

pdate

Reuters: LAOP.BO; Bloomberg: LOG IN

La Opala RG

Healthy Revenue Growth, Structural Story Intact La Opala RG (LORL) posted strong 42.9% revenue growth at Rs569mn for 2QFY15, 11.3% above our estimate, on the back of aggressive distributor addition, rise in market share, moderation in competition from Corelle, Luminarc etc, and aggressive advertisement expenditure - up 627bps at 18.4% with new price points/gifting products. Despite advertisement expenditure rising 627bps, better product mix and price hike in Diva led the improvement in operating margin by 159bps at 29.8%, 104bps above our estimate. Following robust revenue growth and better margins, net profit grew by a healthy 87.9% at Rs111mn, 32.9%/28.9% above our/Bloomberg consensus estimates, respectively. LORL reduced its inventory days from 114 to 98 YoY. Following better performance, we have increased our FY15/FY16/FY17 net profit estimates by 2.3%/4.6%/10.4%, respectively. We had initiated coverage on the stock on 17 September 2013 at a price of Rs87 and it has delivered 387% returns till now. Despite such a sharp run-up, we continue to remain structurally positive on LORL. Market leadership status with a strong balance sheet, an 874bps improvement in RoIC at 38.2%, consistent free cash flow generation and debt-free balance sheet likely by FY15 coupled with strong 31.8%/39.9% revenue/PAT CAGRs, respectively, over FY14-FY17E support LORL’s valuation. We have retained Accumulate rating on LORL with a revised target price of Rs458 (Rs353 earlier) based on 36x (30x earlier) average FY16E-FY17E P/E and 23.5x EV/EBITDA. Strong revenue growth: In the past six months, LORL increased its distributors to ~125 from ~100 and replaced non-performing distributors with efficient ones. To generate more demand, LORL created two new price points - Rs650 (6-piece dinner set) to meet the needs of a two-member family and Rs999 (10-piece dinner set) for a four-member family. To drive additional revenue from gifting, particularly during festivals like Diwali, Onam etc, LORL launched a price-point of Rs250-Rs350 (2-4 serving/decorative bowls) used for gifting chocolates etc. As per the management, Corelle’s revenue has declined, while Luminarc is losing market share. On account of aggressive distributor addition, increase in market share, moderation in competition from Corelle, Luminarc etc, and aggressive advertisement expenditure (up 627bps at 18.4% with new price points/gifting products), LORL posted strong revenue growth of 42.9% for 2QFY15, 11.3% above our estimate. PAT surges 87.9%: Diva, which enjoys higher margin at ~32%-33% compared to ~16%-17% of La Opala, grew at a faster rate. With a price hike of 7% in Diva and better product mix, operating margin increased 159bps at 29.8%, 104bps above our estimate, despite advertisement expenditure being higher by 627bps at 18.4%. LORL improved its inventory days from 114 to 98 YoY, resulting in lower interest costs. Following healthy revenue growth, better margins and lower interest costs, net profit grew 87.9% at Rs111mn, 32.9%/28.3%, above our/Bloomberg consensus estimates, respectively.

ACCUMULATE Sector: Tableware CMP: Rs424 Target Price: Rs458 Upside: 8% Jignesh Kamani, CFA [email protected] +91-22-3926 8239 Ruchita Maheshwari [email protected] +91-22-3926 8023

Key Data Current Shares O/S (mn) 55.5 Mkt Cap (Rsbn/US$mn) 24.1/392.7 52 Wk H / L (Rs) 436/90 Daily Vol. (3M NSE Avg.) 94,114 Price Performance (%)

1 M 6 M 1 Yr La Opala RG 28.6 162.9 284.8 Nifty Index 4.9 24.2 32.0 Source: Bloomberg

Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 YoY(%) QoQ (%) 1HFY14 1HFY15 YoY(%) Net sales 398 419 569 42.9 35.8 720 988 37.2 Net RM costs and finished goods purchases 90 86 85 (5.4) (0.7) 177 171 (3.5) % of sales 22.6 20.5 15.0 - - 24.6 17.3 - Power, oil & fuel costs 54 59 75 40.7 27.0 100 135 34.5 % of sales 13.5 14.2 13.3 - - 13.9 13.6 - Other expenses 142 167 239 68.0 43.1 248 405 63.5 % of sales 35.6 39.8 41.9 - - 34.4 41.0 - Operating profit 113 107 170 50.9 58.6 195 277 42.4 OPM (%) 28.2 25.6 29.8 - - 27.0 28.0 - Interest costs 11 3 1 (87.3) (52.7) 21 4 (78.8) Depreciation 18 19 26 46.2 33.2 32 45 39.6 Other income 2 3 5 213.9 70.2 4 8 98.8 PBT 86 88 148 72.8 68.3 146 236 61.6 Provision for tax 27 27 37 39.4 38.9 42 64 52.3 Effective tax rate (%) 31.1 30.4 25.1 - - 28.7 27.1 - Adjusted PAT 59 61 111 87.9 81.1 104 172 65.3 NPM (%) 14.8 14.6 19.5 - - 14.4 17.4 - EPS (Rs) 1.1 1.2 2.0 79.4 72.9 9.8 15.8 61.5 Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

31


La Opala RG

Exhibit 1: Financial summary Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E Revenue 1,150 1,539 1,779 2,358 3,039 4,069 YoY (%) 19.3 33.8 15.6 32.6 28.9 33.9 EBITDA 269 412 500 679 901 1,244 EBITDA margin (%) 23.3 26.7 28.1 28.8 29.7 30.6 Reported PAT 126 229 300 415 591 820 Adj. PAT 127 229 300 415 591 820 Diluted EPS (Rs) 2.4 4.3 5.7 7.5 10.7 14.8 YoY (%) 35.2 80.5 31.2 32.2 42.5 38.7 RoCE (%) 19.9 28.1 30.1 28.3 27.7 29.8 RoIC (%) 18.5 26.7 29.5 32.3 32.8 38.2 RoE (%) 25.0 35.2 34.9 29.1 27.7 29.8 P/E (x) 177.6 98.4 75.0 56.7 39.8 28.7 P/B (x) 40.4 30.4 23.0 12.6 9.9 7.6 EV/ EBITDA (x) 84.7 55.1 45.1 33.9 25.4 18.0 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Our estimates versus actual performance (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 2QFY15E Devi. (%) BBG2QFY15E Devi. (%) Revenue 398 419 569 42.9 35.8 511 11.3 517 10.1 EBITDA 113 107 170 50.9 58.6 147 15.3 149 14.3 EBITDA (%) 28.2 25.6 29.8 159bps 429bps 28.8 104bps 28.7 109bps Adjusted PAT 59 61 111 87.9 81.1 83 32.9 86 28.3 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Change in our estimates Y/E March (Rsmn) Earlier estimates New estimates Change (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Sales 2,272 2,834 3,658 2,358 3,039 4,069 3.8 7.2 11.2 EBITDA 667 852 1,126 679 901 1,244 1.7 5.8 10.4 EBITDA (%) 29.4 30.1 30.8 28.8 29.7 30.6 (58)bps (40)bps (22)bps APAT 405 565 743 415 591 820 2.3 4.6 10.4




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1015202530354045

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g-14

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32


La Opala RG

Exhibit 5: One-year forward EV/EBITDA


0.0

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14No

v-14

(x)

33


La Opala RG

Financials Exhibit 6: Income statement Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E Net sales 1,150 1,539 1,779 2,358 3,039 4,069 Growth (%) 19.3 33.8 15.6 32.6 28.9 33.9 Raw material costs 251 335 403 491 639 856 Staff costs 159 189 218 278 349 452 Power & fuel costs 196 243 242 323 416 557 Others 276 361 415 587 732 960 Total expenditure 882 1,128 1,279 1,680 2,137 2,825 EBITDA 269 412 500 679 901 1,244 Growth (%) 26.3 53.3 21.5 35.7 32.9 38.0 EBITDA margin (%) 23.3 26.7 28.1 28.8 29.7 30.6 Other income 2 10 11 17 64 61 Interest costs 41 42 33 12 - - Gross profit 230 380 478 683 965 1,305 Growth (%) 28.4 65.5 25.8 43.0 41.3 35.2 Depreciation 46 56 70 101 123 137 Profit before tax 184 324 408 583 842 1,168 Growth (%) 37.2 76.6 25.7 42.9 44.5 38.7 Tax 57 96 108 168 251 348 Effective tax rate (%) 30.9 29.5 26.5 28.8 29.8 29.8 Net profit 127 229 300 415 591 820 Growth (%) 36.1 80.0 31.2 38.5 42.5 38.7 Extraordinary items (1) - - - - - Adjusted PAT 128 229 300 415 591 820 Growth (%) 36.2 79.1 31.2 38.5 42.5 38.7


Exhibit 8: Balance sheet Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E Equity 106 106 106 111 111 111 Reserves 451 635 872 1,764 2,277 3,007 Net worth 557 741 978 1,875 2,388 3,118 Short-term loans 140 138 142 - - - Long-term loans 111 150 - - - - Total loans 251 288 142 - - - Deferred tax liability 57 75 94 124 169 231 Liabilities 865 1,104 1,214 1,999 2,557 3,349 Gross block 820 989 1,114 1,436 1,893 2,102 Depreciation 334 351 383 483 606 743 Net block 487 639 731 953 1,287 1,360 Capital work-in-progress 20 9 22 7 9 11 Long-term Investments 1 74 1 1 1 1 Inventories 260 308 283 373 475 628 Debtors 164 186 215 275 355 475 Cash 4 8 91 568 659 1,180 Other current assets 91 92 105 135 174 233 Total current assets 519 594 694 1,351 1,663 2,516 Creditors 34 40 35 47 59 78 Other current liabilities 127 173 200 266 343 460 Total current liabilities 161 212 235 313 403 538 Net current assets 358 382 460 1,038 1,260 1,977 Total assets 865 1,104 1,214 1,999 2,557 3,349


Exhibit 7: Cash flow Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17EEBIT 223 356 430 578 778 1,107(Inc.)/dec. in working capital (59) (20) 5 (102) (131) (197)Cash flow from operations 164 336 435 476 648 910Other income 2 10 11 17 64 61Depreciation 46 56 70 101 123 137Deferred liabilities (4) 18 18 31 45 62Interest paid (-) (41) (42) (33) (12) - -Tax paid (-) (57) (96) (108) (168) (251) (348)Dividend paid (-) (25) (43) (62) (71) (78) (91)Extraordinary items 1 - - - - -Net cash from operations 86 239 332 373 551 731Capital expenditure (-) (46) (197) (176) (307) (459) (211)Net cash after capex 39 42 156 66 91 521Inc./(dec.) in short-term borrowing (13) (2) 4 (142) - -Inc./(dec.) in long-term borrowing (26) 39 (150) - - -Inc./(dec.) in preference capital - - - - - -Inc./(dec.) in borrowings (39) 36 (146) (142) - -(Inc.)/dec. in investments - (74) 74 - - -Equity issue/(buyback) - - - 553 - -Cash from financial activities (39) (37) (72) 411 - -Others (2) (1) - - - -Opening cash 6 4 8 91 568 659Closing cash 4 8 91 568 659 1,180Change in cash (1) 4 83 477 91 521


Y/E March FY12 FY13 FY14 FY15E FY16E FY17EPer share (Rs) EPS 2.4 4.3 5.7 7.5 10.7 14.8Book value 11 14 18 34 43 56Valuation (x) P/E 177.6 98.4 75.0 56.7 39.8 28.7P/sales 19.6 14.6 12.6 10.0 7.7 5.8P/BV 40.4 30.4 23.0 12.6 9.9 7.6EV/EBITDA 84.7 55.1 45.1 33.9 25.4 18.0EV/sales 19.8 14.7 12.7 9.7 7.5 5.5Return ratios (%) RoIC 18.5 26.7 29.5 32.3 32.8 38.2RoCE 19.9 28.1 30.1 28.3 27.7 29.8RoE 25.0 35.2 34.9 29.1 27.7 29.8Margins (%) EBITDA margin 23.3 26.7 28.1 28.8 29.7 30.6PBIT margin 19.4 23.1 24.2 24.5 25.6 27.2PBT margin 15.9 21.1 22.9 24.7 27.7 28.7PAT margin 11.0 14.8 16.9 17.6 19.5 20.2Turnover ratio Asset turnover ratio (x) 1.3 1.4 1.5 1.2 1.2 1.2Avg. inventory period (days) 106 98 80 80 80 80Avg. collection period (days) 51 44 43 42 42 42Avg. payment period (days) 14 13 10 10 10 10Solvency ratios (x) Debt-equity 0.5 0.4 0.1 - - -Interest coverage 5.5 8.5 13.1 49.4 - -Growth (%) Sales 19.3 33.8 15.6 32.6 28.9 33.9EBITDA 26.3 53.3 21.5 35.7 32.9 38.0PAT 35.2 80.5 31.2 38.5 42.5 38.7


34


La Opala RG

Rating track Date Rating Market price (Rs) Target price (Rs) 17 September 2013 Buy 87 114 7 October 2012 Buy 96 114 12 November 2013 Buy 112 134 14 February 2014 Buy 129 174 15 February 2014 Buy 129 174 17 February 2014 Buy 129 174 12 March 2014 Buy 140 174 14 May 2014 Buy 176 211 4 July 2014 Buy 181 211 14 August 2014 Accumulate 243 254 9 October 2014 Accumulate 337 353 10 October 2014 Accumulate 340 353 7 November 2014 Accumulate 424 458

35



FY15

Res

ult U

pdate

Reuters: TRCE.BO; Bloomberg: TRCL IN

The Ramco Cements

Volume Disappoints But Outlook Improves; Retain Buy The Ramco Cements’ (TRCL) 2QFY15 EBITDA was 8% below our estimate following disappointment on the cement volume front, while it was 13% above Bloomberg consensus estimate. PAT was 8%/36% above our/Bloomberg consensus estimates, respectively, led by lower interest costs and other costs. Volume was 8% below our estimate, while realisation, costs/tn and EBITDA/tn were in line with our estimates. We have cut our volume estimates by 6%/7%/6% for FY15/FY16/FY17, respectively, following weak performance in 1HFY14, but we have increased our realisation estimates in view of strong cement prices in South India and lowered our costs estimates on a fall in energy costs. Overall, cement EBITDA/tn estimates stand increased by13%9%/10% for FY15/FY16/FY17, respectively, which led to 6%/2%/3% increase in EBITDA estimates, respectively, for the same period. We have also rolled forward our earnings multiple from March 2016 to September 2016. Our revised target price of Rs435 (Rs354 earlier) on TRCL is 25% above the current market price and, therefore, we have retained Buy rating on it. Subdued volume, but offset by higher realisation: TRCL reported 11% YoY and 9% QoQ drop in cement volume at 1.94mt because of sustained slackness in cement demand. For 1HFY14, the company witnessed a 8% drop in cement volume at 4.07mt. Nonetheless, it posted 15% YoY and 9% QoQ increase in cement realisation at Rs4,588/tn, while it was up 8% YoY in 1HFY15. Cement EBITDA/tn stood at Rs972, up 94% YoY and 37% QoQ. Financial performance update: The above factors resulted in a 3% YoY rise in revenue at Rs9,514mn, while it was down 1% QoQ. Strong cement prices enabled 62% YoY and 26% QoQ jump in EBITDA at Rs2,163mn. Lower depreciation and a modest rise in interest costs resulted in 369% YoY and 136% QoQ jump in PAT at Rs856mn. For 1HFY15, the revenue was flat at Rs19,106mn, while EBITDA/PAT were up 9%/40% YoY, respectively, driven by strong cement prices. Other highlights: The company indicated that its 1mt grinding unit at Vizag, Andhra Pradesh, is likely to be commissioned by March 2015 versus earlier target of September 2014, partially driven by impact of the recent cyclone.

BUY Sector: Cement CMP: Rs348 Target Price: Rs435 Upside: 25% Giriraj Daga [email protected] +91-22-3926 8168

Key Data Current Shares O/S (mn) 238.0 Mkt Cap (Rsbn/US$bn) 82.9/1.3 52 Wk H / L (Rs) 362/156 Daily Vol. (3M NSE Avg.) 208,615 Price Performance (%)

1 M 6 M 1 Yr The Ramco Cements 10.9 65.6 96.8 Nifty Index 4.9 24.5 32.0 Source: Bloomberg

Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Net revenue 9,207 9,592 9,514 3.3 (0.8) 19,079 19,106 0.1 Raw material costs 1,816 1,917 1,635 (10.0) (14.7) 3,520 3,552 0.9 % of sales 19.7 20.0 17.2 18.5 18.6 Power & fuel expenses 2,161 1,978 1,852 (14.3) (6.4) 4,277 3,830 (10.5) % of sales 23.5 20.6 19.5 22.4 20.0 Freight & handling charges 1,977 2,143 2,027 2.6 (5.4) 4,026 4,170 3.6 % of sales 21.5 22.3 21.3 21.1 21.8 Other expenditure incl. staff costs 1,916 1,840 1,837 (4.1) (0.2) 3,687 3,677 (0.3) % of sales 20.8 19.2 19.3 19.3 19.2 EBITDA 1,337 1,714 2,163 61.8 26.2 3,569 3,877 8.7 EBITDA margin (%) 14.5 17.9 22.7 18.7 20.3 Depreciation 767 627 624 (18.6) (0.5) 1,524 1,251 (17.9) Interest costs 473 500 480 1.6 (4.0) 923 980 6.2 Other income 22 18 24 9.1 31.1 40 42 5.2 PBT 120 605 1,084 806.0 79.0 1,163 1,689 45.3 Provision for tax (63) 243 227 (459.9) (6.5) 291 470 61.3 Effective tax rate (52.8) 40.1 21.0 25.1 27.8 PAT 183 363 856 368.8 136.2 871 1,219 39.9 EPS (Rs) 0.8 1.5 3.6 368.8 136.2 3.7 5.1 39.9 Source: Company, Nirmal Bang Institutional Equities Research

7 November 2014

36


The Ramco Cements

Exhibit 1: Financial summary Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 38,635 37,382 39,878 46,661 53,830 EBITDA 10,381 6,177 8,491 11,598 14,545 EBITDAM (%) 26.9 16.5 21.3 24.9 27.0 RPAT 4,037 1,377 2,594 4,581 6,851 EPS 17.0 5.8 10.9 19.2 28.8 PER (x) 20.5 60.2 32.0 18.1 12.1 P/BV (x) 3.5 3.3 3.1 2.7 2.3 EV/EBITDA 8.0 17.6 12.5 8.7 6.5 RoCE (%) 9.1 5.0 6.4 9.6 12.5 RoE (%) 17.0 5.5 9.6 14.9 18.7 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Our estimates versus actual performance Description (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 2QFY15E Dev. % 2QFY15BBE Dev. % Operational data Cement volume (mt) 2.19 2.13 1.94 (11.3) (8.7) 2.10 (7.6) - - Cement realisation 4,011 4,236 4,588 14.4 8.3 4,575 0.3 - - Segment-wise revenue Cement 8,784 9,011 8,915 1.5 (1.1) 9,619 (7.3) - - Wind power 267 232 306 14.7 32.0 280 9.2 - - Other operating income 157 349 294 87.2 (15.9) 350 (16.1) - - Total 9,207 9,592 9,514 3.3 (0.8) 10,249 (7.2) - - Financials Net sales 9,207 9,592 9,514 3.3 (0.8) 10,249 (7.2) 9,973 (4.6) EBITDA 1,337 1,714 2,163 61.8 26.2 2,358 (8.3) 1,907 13.5 PAT 183 363 856 368.8 136.2 790 8.4 630 36.0 Source: Company, Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 3: Operational data Description (Rs/tn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Cement volume (mt) 2.19 2.13 1.94 (11.3) (8.7) 4.40 4.07 (7.6) Blended realisation 4,011 4,236 4,588 14.4 8.3 4,098 4,404 7.5 Raw material costs 829 901 841 1.5 (6.6) 799 873 9.2 Power & fuel costs 987 930 953 (3.4) 2.5 971 941 (3.1) Freight & forwarding expenses 903 1,007 1,043 15.6 3.6 914 1,025 12.1 Other expenses including staff costs 791 690 779 (1.6) 12.8 726 732 6.1 Total expenditure 3,510 3,529 3,616 3.0 2.5 3,411 3,571 4.7 EBITDA 501 708 972 94.0 37.3 686 834 21.5 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4: Change in our earnings estimates

Description Earlier estimates New estimates Change (%)

FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Cement segment data Cement volume (mt) 8.94 9.83 10.62 8.43 9.18 10.01 (5.8) (6.6) (5.8) Realisation (Rs/tn) 4,436 4,791 5,078 4,519 4,857 5,149 1.9 1.4 1.4 Costs (Rs/tn) 3,611 3,706 3,828 3,584 3,674 3,779 (0.7) (0.9) (1.3) EBITDA (Rs/tn) 825 1,084 1,250 934 1,183 1,370 13.2 9.1 9.6 Wind power data Net power sold outside (mu) 213 237 261 215 239 264 1.0 1.2 1.0 Net realisation (Rs/unit) 3.20 3.40 3.50 3.20 3.40 3.50 - - - Revenue (Rsmn) 680 805 914 688 814 923 1.0 1.2 1.0 Financials (Rsmn) Net sales 41,489 49,197 56,256 39,878 46,661 53,830 (3.9) (5.2) (4.3) EBITDA 7,989 11,388 14,100 8,491 11,598 14,545 6.3 1.8 3.2 PAT 2,086 4,437 6,544 2,594 4,581 6,851 24.4 3.3 4.7 Source: Company, Nirmal Bang Institutional Equities Research

37


The Ramco Cements

Exhibit 5: Valuation Description (Rsmn) Amount Target EV/EBITDA (x) 9.0 EBITDA 13,072 Enterprise value 117,645 Net debt 14,119 Target market capitalisation 103,526 Fair value (Rs/share) 435 Upside (%) 24.9 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 6: EV/EBITDA trend Exhibit 7: P/BV trend

Source: Company, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research

0

5

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Apr-03 Nov-04 Jul-06 Mar-08 Nov-09 Jul-11 Mar-13 Nov-14 EV/EBITDA (x) Median (x) +1SD +2SD -1SD -2SD

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38


The Ramco Cements

Financials Exhibit 8: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 38,635 37,382 39,878 46,661 53,830 % growth 19.8 (3.2) 6.7 17.0 15.4 Raw material consumption 5,299 6,897 6,826 7,515 8,273 Power & fuel costs 8,099 8,324 8,316 9,178 10,230 Staff costs 1,957 2,218 2,304 2,662 3,076 Freight charges 7,693 8,257 8,496 9,724 11,129 Other expenses 5,205 5,509 5,444 5,983 6,577 Total expenditure 28,254 31,205 31,387 35,063 39,285 EBITDA 10,381 6,177 8,491 11,598 14,545 % growth 10.8 (40.5) 37.4 36.6 25.4 EBITDA margin (%) 26.9 16.5 21.3 24.9 27.0 Depreciation 2,806 3,063 2,844 3,126 3,179 Other income 7,667 3,425 5,755 8,645 11,678 Interest costs 1,785 1,881 1,995 2,005 1,748 Profit before tax 5,882 1,543 3,760 6,640 9,929 Tax 1,846 166 1,165 2,058 3,078 Effective tax rate (%) 31.4 10.8 31.0 31.0 31.0 Profit after tax 4,037 1,377 2,594 4,581 6,851 % growth 4.7 (65.8) 88.4 76.6 49.5


Exhibit 10: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17EEquity 238 238 238 238 238Reserves 23,470 24,583 26,782 30,613 36,342Net worth 23,708 24,821 27,020 30,851 36,580Long-term (LT) loans 20,790 22,052 20,052 16,052 12,052Short-term (ST) loans 5,881 7,236 7,598 7,978 8,377Total loans 26,671 29,288 27,650 24,030 20,429Deferred tax 7,164 7,374 7,374 7,374 7,374Total liabilities 57,542 61,483 62,044 62,255 64,383 Gross block 64,329 66,754 71,097 72,689 73,922Depreciation 18,394 20,344 23,188 26,313 29,492Net block 45,936 46,411 47,909 46,376 44,430Capital work In progress 1,570 3,542 1450 858 625Total fixed assets 47,506 49,953 49,359 47,234 45,055Investments 2,673 2,850 2,850 2,850 2,850Inventory 5,948 6,855 6,902 8,089 9,343Debtors 3,028 3,040 3,185 3,733 4,312Cash & bank balance 540 446 1,408 2,845 6,191Loans & advances 5,021 5,541 5,984 6,463 6,980Total current assets 14,536 15,882 17,479 21,131 26,826Creditors 5,299 6,155 6,371 7,467 8,624Provision 1,873 1,048 1,274 1,493 1,725Total current liabilities 7,172 7,203 7,645 8,960 10,349Net current assets 7,364 8,679 9,834 12,171 16,477Total assets 57,542 61,483 62,044 62,255 64,383


Exhibit 9: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 7,575 3,114 5,647 8,472 11,367 (Inc.)/dec in working capital (2,235) (1,409) (194) (899) (961) Cash flow from operations 5,341 1,705 5,453 7,573 10,406 Other income 92 310 108 173 311 Depreciation 2806 3063 2844 3126 3179 Interest paid (1,785) (1,881) (1,995) (2,005) (1,748) Tax paid (1,148) (166) (1,165) (2,058) (3,078) Dividends paid (692) (209) (395) (750) (1,122) Net cash from operations 4,613 2,821 4,850 6,058 7,947 Capital expenditure (3,993) (4,397) (2,250) (1,000) (1,000) Net cash after capex 620 (1,576) 2,600 5,058 6,947 Inc./(dec.) in LT borrowing (183) 1,262 (2,000) (4,000) (4,000) Inc./(dec.) in ST borrowing (251) 1355.4 362 380 399 Inc./(dec.) in investment (118) (178) - - - Cash from financial activities (552) 2,440 (1,638) (3,620) (3,601) Others (3) (957) - - - Change in cash 65 (94) 961 1,438 3,346 Opening cash 475 540 446 1,408 2,845 Closing cash 540 446 1,408 2,845 6,191


Exhibit 11: Key ratios Y/E March FY13 FY14 FY15E FY16E FY17E Return ratios (%) RoCE 9.1 5.0 6.4 9.6 12.5 RoE 17.0 5.5 9.6 14.9 18.7 Operating ratios EBITDA margin (%) 26.9 16.5 21.3 24.9 27.0 Net debt/equity (x) 1.0 1.1 0.9 0.7 0.5 Valuation ratios (x) PER 20.5 60.2 32.0 18.1 12.1 P/BV 3.5 3.3 3.1 2.7 2.3 EV/sales 2.2 3.0 2.7 2.2 1.8 EV/EBITDA 8.0 17.6 12.5 8.7 6.5 Rs/share EPS 17.0 5.8 10.9 19.2 28.8 Dividend 3.0 0.8 1.4 2.7 4.0 Book value 100 104 114 130 154


39


The Ramco Cements

Rating track Date Rating Market price (Rs) Target price (Rs) 3 January 2014 Buy 181 231 11 April 2014 Hold 214 231 23 May 2014 Hold 272 298 11 July 2014 Buy 290 378 30 July 2014 Buy 280 354 7 November 2014 Buy 348 435

\

40



FY15

Res

ult U

pdate

Reuters: THMX.BO; Bloomberg: TMX IN

Thermax

Healthy Performance, But Recovery In Margins Priced In Thermax posted standalone revenue of Rs11.9bn for 2QFY15, up 14% YoY and 8% above our/Bloomberg consensus estimates each. The top-line was driven by a healthy 22% YoY growth in the energy segment (revenue of Rs9.6bn, 78% of total revenue) but the environment segment posted a 1% YoY fall in sales at Rs2.6bn. While raw material costs, as a percentage of sales, were up 70bps YoY at 65.1%, other expenses fell sharply by 190bps YoY at 15.1% of sales, leading to improved operating profit with EBITDA showing a 30% YoY rise at Rs1.2bn. Aided by a 208% YoY growth in other income at Rs232mn (includes Rs80mn interest income on tax write-back and Rs55mn forex gains), PAT stood at Rs860mn, 28%/32% above our estimate/Bloomberg consensus estimate, respectively. However, on a consolidated basis, overseas arms reported a net loss of Rs732mn in 1HFY15, mainly because of a Rs364mn write-down suffered by German arm Omnical Kessel and a Rs570mn loss in the B&W JV (Thermax share is 51%). Even if Thermax gets the benefit of operating leverage, we expect its consolidated operating margin to be capped at 9.0%/9.2% in FY15/FY16, respectively (from 8.6% in FY14) as more than 22% of its order book is constituted by a low-margin Reliance Industries (RIL) order along with pricing pressure likely from B&W JV overheads and EPC contracts won in the past one year. We have retained Sell rating on Thermax with a revised TP of Rs775 (Rs712 earlier) based on 21x September 2016 earnings (rolled forward from March 2016 earlier). Order inflow on expected lines: Thermax posted standalone order inflow of Rs10.9bn, in-line with the normal quarterly run-rate, primarily driven by healthy export orders worth Rs5.6bn. On a consolidated basis, the order inflow stood at Rs16.1bn aided by Rs3.4bn boiler pressure parts order won by the B&W JV. Energy segment accounted for 77% of the order inflow while the environment segment formed the balance 23%. Consolidated order backlog fell 1% YoY at Rs60.7bn. We have retained our consolidated order inflow estimate for FY15 at Rs60bn. The management expects good traction in small-sized product orders in 2HFY15, primarily from consumption-oriented sectors like paper, textile, food processing and FMCG while large project/EPC orders may take time to revive. Working capital cycle elongates: Thermax witnessed a significant elongation in its working capital cycle, with debtor days rising from 117 in 1HFY14 to 121 in 1HFY15 and inventory days increasing from 20 to 25. Creditor days fell from 112 to 94 over the same period, leading to the working capital cycle doubling from 25 days each in 1HFY14/FY14 to 51 days in 1HFY15. With 40%/52% YoY rise in short-term loans & advances and other current assets, respectively, ex-cash net working capital, as a percentage of sales, jumped to 9.3% in 1HFY15 versus 1.1%/2.6% in 1HFY14/FY14, respectively. The management has attributed higher working capital cycle to execution of the RIL order and lower trade payables from the normal course of business. Outlook: We have retained our negative view on Thermax because of: (a) Slowdown in base business owing to delay in corporate capex revival, (b) Entry into the utility boiler space, via its B&W JV, leading to an annual cost burden of Rs1.2bn with very low prospects of winning orders carrying a healthy margin, and (c) Stretched valuation.

SELL Sector: Capital Goods CMP: Rs944 Target Price: Rs775 Downside: 18% Chirag Muchhala [email protected] +91-22-3926 8092

Key Data Current Shares O/S (mn) 119.2 Mkt Cap (Rsbn/US$bn) 112.6/1.8 52 Wk H / L (Rs) 997/607 Daily Vol. (3M NSE Avg.) 49,682

Price Performance (%)

1 M 6 M 1 Yr Thermax 4.5 31.5 51.4Nifty Index 5.0 24.6 32.0Source: Bloomberg

Y/E March (Rsmn) (standalone) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Net revenue 10,433 8,394 11,908 14.1 41.9 19,061 20,302 6.5Raw material costs 6,717 5,158 7,750 15.4 50.3 11,743 12,907 9.9Staff costs 1,008 1,027 1,137 12.9 10.7 1,999 2,165 8.3Other expenses 1,772 1,632 1,798 1.5 10.2 3,569 3,430 (3.9)Total expenditure 9,496 7,817 10,685 12.5 36.7 17,310 18,502 6.9EBITDA 937 577 1,222 30.5 111.7 1,751 1,800 2.8EBITDAM (%) 9.0 6.9 10.3 - - 9.2 8.9 -Depreciation 140 150 182 30.1 21.8 282 332 17.4Interest costs 19 30 24 27.1 (18.8) 27 54 100.2Other income 75 191 232 207.6 21.5 157 423 169.7PBT 853 589 1,248 46.3 111.9 1,598 1,837 14.9Tax 551 175 388 (29.6) 121.7 794 563 (29.1)Net profit 302 414 860 185.1 107.7 804 1,274 58.4NPM (%) 2.9 4.9 7.2 - - 4.2 6.3 -EPS (Rs) 2.5 3.5 7.2 185.1 107.7 6.7 10.7 58.4Source: Company, Nirmal Bang Institutional Equities Research

5 November 2014

41


Thermax

Exhibit 1: Financial summary (consolidated) Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 54,917 50,999 58,094 70,549 79,842 EBITDA 4,902 4,373 5,228 6,491 7,585 Net profit 3,201 2,460 3,225 4,038 4,759 EPS (Rs) 26.9 20.6 27.1 33.9 39.9 EPS growth (%) (20.7) (23.2) 31.1 25.2 17.9 EBITDA margin (%) 8.9 8.6 9.0 9.2 9.5 PER (x) 35.1 45.7 34.9 27.9 23.6 P/BV (x) 6.0 5.5 4.9 4.4 3.8 EV/EBITDA (x) 23.2 26.4 21.9 17.5 14.8 Dividend yield (%) 0.7 0.6 0.6 0.7 0.8 RoCE (%) 18.7 13.0 13.5 16.2 17.8 RoE (%) 17.4 11.2 13.0 14.9 15.7


Exhibit 2: Segment-wise snapshot (standalone) Y/E March 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Revenue (Rsmn)

Energy 7,851 6,446 9,562 21.8 48.3 14,190 16,008 12.8 Environment 2,684 2,148 2,646 (1.4) 23.2 5,081 4,794 (5.7)

Revenue mix (%) Energy 74.5 75.0 78.3 - - 73.6 77.0 - Environment 25.5 25.0 21.7 - - 26.4 23.0 -

EBIT (Rsmn) Energy 922 421 1,162 26.1 175.7 1,654 1,584 (4.2) Environment 242 98 199 (17.8) 101.7 456 297 (34.9)

EBIT margin (%) Energy 11.7 6.5 12.2 - - 11.7 9.9 - Environment 9.0 4.6 7.5 - - 9.0 6.2 -


Exhibit 3: Consolidated order backlog, earnings visibility

0.0

0.5

1.0

1.5

2.0

2.5

0

10

20

30

40

50

60

70

1QFY

11

2QFY

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3QFY

11

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11

1QFY

12

2QFY

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3QFY

12

4QFY

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1QFY

13

2QFY

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13

4QFY

13

1QFY

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2QFY

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3QFY

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4QFY

14

1QFY

15

2QFY

15

Order backlog (LHS) Order backlog to sales ratio (RHS)

(Rsbn) (x)


42


Thermax

Exhibit 4: Consolidated order intake trend

0

5

10

15

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30

1QFY

11

2QFY

11

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4QFY

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3QFY

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4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

Energy Environment

(Rsbn)(includes Rs17bn RIL order)


Exhibit 5: Actual performance versus our estimates, Bloomberg consensus estimates (standalone) 2QFY15 (Rsmn) Actual Our estimates Deviation (%) Bloomberg cons. est. Deviation (%) Revenue 11,908 11,012 8.1 10,967 8.6 EBITDA 1,222 969 26.1 979 24.9 PAT 860 669 28.6 653 31.7


Exhibit 6: P/E chart

0

5

10

15

20

25

30

35

40

Apr-0

6

Oct-0

6

Apr-0

7

Oct-0

7

Apr-0

8

Oct-0

8

Apr-0

9

Oct-0

9

Apr-1

0

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0

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1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

Apr-1

4

Oct-1

4

(x)

Median P/E = 22.8x


43


Thermax

Financial statements (consolidated)

Exhibit 7: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales 54,917 50,999 58,094 70,549 79,842 % growth (9.8) (7.1) 13.9 21.4 13.2 Raw material costs 33,157 28,616 34,276 43,247 49,901 Staff costs 6,122 7,019 7,552 8,466 9,182 Other overheads 10,736 10,991 11,038 12,346 13,174 Total expenditure 50,015 46,626 52,866 64,059 72,257 EBITDA 4,902 4,373 5,228 6,491 7,585 % growth (17.2) (10.8) 19.6 24.1 16.9 EBITDA margin (%) 8.9 8.6 9.0 9.2 9.5 Other income 849 716 730 765 810 Interest costs 165 274 571 527 471 Depreciation 771 922 1,194 1,322 1,441 Profit before tax 4,814 3,893 4,194 5,406 6,483 Tax 1,773 1,696 1,384 1,784 2,139 Net profit 3,041 2,197 2,810 3,622 4,344 Minority interest (161) (262) (416) (416) (416) PAT after minority interest 3,201 2,460 3,225 4,038 4,759 % growth (20.7) (23.2) 31.1 25.2 17.9 PAT margin (%) 5.8 4.8 5.6 5.7 6.0 EPS (Rs) 26.9 20.6 27.1 33.9 39.9 % growth (20.7) (23.2) 31.1 25.2 17.9

Source: Company, Nirmal Bang Institutional Equities Research Exhibit 9: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17EShare capital 238 238 238 238 238Reserves 18,449 20,145 22,534 25,595 29,239Net worth 18,687 20,383 22,772 25,834 29,478Minority interest 1,103 1,397 981 981 981Short-term loans 377 2,221 2,021 1,821 1,621Long-term loans 3,832 5,167 4,867 4,467 3,867Total loans 4,210 7,387 6,887 6,287 5,487Deferred tax liability (net) 383 318 318 318 318Total Liabilities 24,382 29,484 30,958 33,420 36,263Gross block 12,962 20,441 21,441 22,641 23,841Depreciation 4,236 5,176 6,370 7,692 9,133Net block 8,727 15,265 15,072 14,949 14,708Capital work-in-progress 5,175 537 500 500 500Investments 4,430 7,079 7,079 7,079 7,079Inventories 3,240 4,158 4,789 5,806 6,562Debtors 15,467 14,685 16,394 19,522 21,656Cash 3,211 4,508 4,971 4,987 6,012Loans and advances 1,625 2,119 2,324 2,822 3,194Other current assets 8,001 11,070 11,269 13,626 15,039Total current assets 31,544 36,540 39,746 46,762 52,463Creditors 9,723 9,319 11,456 14,692 17,089Other current liabilities & provisions 15,770 20,618 19,982 21,178 21,397Total current liabilities 25,493 29,937 31,439 35,870 38,486Net current assets 6,051 6,603 8,308 10,892 13,977Total assets 24,382 29,484 30,958 33,420 36,263


Exhibit 8: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 4,131 3,451 4,035 5,168 6,144 (Inc.)/dec. in working capital (2,632) 745 (1,242) (2,568) (2,059) Cash flow from operations 1,499 4,196 2,793 2,600 4,085 Other income 849 716 730 765 810 Depreciation 771 922 1,194 1,322 1,441 Interest paid (-) (165) (274) (571) (527) (471) Tax paid (-) (1,768) (1,761) (1,384) (1,784) (2,139) Dividends paid (-) (976) (836) (836) (976) (1,115) Net cash from operations 208 2,962 1,925 1,400 2,610 Capital expenditure (-) (3,766) (2,823) (963) (1,200) (1,200) Net cash after capex (3,557) 140 962 200 1,410 Inc./(dec.) in short-term borrowing (1,451) 1,843 (200) (200) (200) Inc./(dec.) in long-term borrowing 2,956 1,334 (300) (400) (600) Inc./(dec.) in total borrowings 1,506 3,178 (500) (600) (800) (Inc.)/dec. in investments (2,035) (2,649) - - - Minority interest (14) 294 (416) - - Cash from financial activities (543) 822 (916) (600) (800) Others 329 335 416 416 416 Opening cash 6,983 3,211 4,508 4,971 4,987 Closing cash 3,211 4,508 4,971 4,987 6,012 Change in cash (3,771) 1,297 463 16 1,025

Source: Company, Nirmal Bang Institutional Equities Research :

Exhibit 10: Key ratios Y/E March FY13 FY14 FY15E FY16E FY17E Per share (Rs) EPS 26.9 20.6 27.1 33.9 39.9 Book value 156.8 171.1 191.1 216.8 247.4 Valuation (x) P/E 35.1 45.7 34.9 27.9 23.6 P/BV 6.0 5.5 4.9 4.4 3.8 EV/EBITDA 23.2 26.4 21.9 17.5 14.8 EV/sales 2.1 2.3 2.0 1.6 1.4 Return ratios (%) RoCE 18.7 13.0 13.5 16.2 17.8 RoE 17.4 11.2 13.0 14.9 15.7 Profitability ratios (%) EBITDA margin 8.9 8.6 9.0 9.2 9.5 EBIT margin 7.5 6.8 6.9 7.3 7.7 PAT margin 5.8 4.8 5.6 5.7 6.0 Turnover ratios Total asset turnover ratio (x) 2.4 1.9 1.9 2.2 2.3 Debtor days 103 105 103 101 99 Inventory days 36 53 51 49 48 Creditors days 107 119 122 124 125 Solvency ratios (x) Debt-equity 0.2 0.4 0.3 0.2 0.2 Interest coverage 25.0 12.6 7.1 9.8 13.0


44


Thermax

Rating track Date Rating Market price (Rs) Target price (Rs) 27 January 2012 Sell 495 383 3 February 2012 Sell 522 375 13 April 2012 Sell 445 375 14 May 2012 Sell 421 378 27 July 2012 Sell 480 378 4 October 2012 Sell 561 378 31 October 2012 Sell 585 421 3 December 2012 Sell 590 467 7 January 2013 Sell 617 467 4 February 2013 Sell 582 467 9 April 2013 Sell 573 467 23 May 2013 Sell 589 486 8 July 2013 Sell 617 541 9 July 2013 Sell 621 541 26 July 2013 Sell 592 541 7 October 2013 Sell 592 541 8 November 2013 Sell 620 530 10 December 2013 Sell 669 530 7 January 2014 Sell 695 530 22 January 2014 Sell 650 583 11 April 2014 Sell 759 583 29 May 2014 Sell 898 787 10 July 2014 Sell 924 787 24 July 2014 Sell 909 712 9 October 2014 Sell 862 712

45



FY15

Res

ult U

pdate

Reuters: TORP.BO; Bloomberg: TRP IN

Torrent Pharmaceuticals 7 November 2014

Mixed Performance; Retain Sell Torrent Pharmaceuticals’ (TPL) 2QFY15 performance was mixed. While there were some green shoots in Brazilian business and Elder Pharmaceuticals’ domestic portfolio (acquired by the company) is back to its historical run-rate of close to Rs1bn, the decline in US business and margins are negative takeaways. We acknowledge that Elder Pharmaceuticals’ domestic portfolio is strong and enjoys higher margins (we believe around 40%), but higher leverage (D/E ratio of ~1x in FY15E), long gestation period (at least six-seven years) and a sharp fall in RoE are expected to result in stock underperformance in the medium term. Consequently, we expect muted earnings growth over the next couple of years (11% CAGR over FY5E-FY17E) and given the rich valuation (the stock trades at 19x as against the historical range of 14x-16x), we continue to retain Sell rating on it with a revised target price of Rs833 (Rs683 earlier), valuing it at 16x average FY16E/FY17E EPS. Post 2HFY15 earnings, we have increased our FY15/FY16 earnings estimates by 9%/5%, respectively. Weak operating performance: Despite full-quarter integration of high-margin Elder Pharmaceuticals’ domestic portfolio, 2QFY15 margins were weak at 22.4% (QoQ decline of 860bps). largely on account of: a) Sharp decline in Cymbalta sales (~US$5mn as against US$18mn in 1QFY15, as per our assessment), b) Cymbalta-related shelf stock adjustment and c) Employees’ social security-related spending. We believe the combined impact on operating profit owing to these adjustments is around Rs450mn-Rs500mn. Some green shoots in Brazil, but US underperforms: US business declined by ~US$17mn QoQ, largely on account of lower sales of generic Cymbalta because of increased competition and decline in Telmisartan family (Micardis) - the management highlighted that the molecule witnessed around 20% decline. Rest-of-the-world markets growth was flat owing to operations discontinued in certain CIS and Gulf countries because of unviability. On the positive side, Brazilian business grew sharply by 28% YoY (up 32% in constant currency or CC terms), led by: a) Launch of a new product, b) Market share ramp-up in Nebivolol (TPL holds a 27% share in the brand and a 8% share in the generic segment), c) Volume growth in three-four products which witnessed price declines last year, d) Ramp-up in institutional business (around 20% of Brazilian business) and generic-generic business (constituting <5% of Brazil business revenue).TPL has given guidance of a 15% growth in this market over the next few years. Interestingly, the company’s management highlighted increased efforts by ANVISA to accelerate product approvals, which is a key positive. Elder Pharmaceuticals’ domestic portfolio stabilises to ~Rs1bn run-rate: 2QFY15 witnessed full-quarter impact of Elder Pharmaceuticals’ domestic portfolio which clocked in Rs950mn (up from Rs770mn in 1QFY15; TPL included revenue of Rs10mn in 1QFY15) and TPL expects to grow on this base as channel filling and working capital problems have been resolved. Interestingly, the company expects to report strong growth in this portfolio in FY16 owing to: a) Likely price hike (prices have been stagnant for the past two years), b) Likely introduction of more than 20 SKUs or stock-keeping units, and c) Only 9M consolidation in FY15 numbers. Currently, Elder Pharmaceuticals’ field force is working separately and the management does not expect to achieve any synergy over the next six months. Excluding Elder Pharmaceuticals’ domestic portfolio, TPL’s base business in domestic market grew 17%.

SELL Sector: Pharmaceuticals CMP: Rs921 Target Price: Rs833 Downside: 10% Praful Bohra [email protected] +91-22-3926 8175 Sumit Singhania [email protected] +91-22-3926 8111

Key Data Current Shares O/S (mn) 169.2 Mkt Cap (Rsbn/US$bn) 155.8/2.5 52 Wk H / L (Rs) 940/440 Daily Vol. (3M NSE Avg.) 86,611

Price Performance (%) 1 M 6 M 1 Yr

Torrent Pharma 4.1 53.1 89.3

Nifty Index 4.9 24.5 32.0Source: Bloomberg

Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 IHFY15 YoY (%) Net revenue 9,720 11,140 12,170 25.2 9.2 19,440 23,310 19.9 Raw material costs 3,010 3,010 3,810 26.6 26.6 6,050 6,820 12.7 % of revenue 31.0 27.0 31.3 - - 31.1 29.3 - Personnel costs 1,820 1,840 2,240 23.1 21.7 3,540 4,080 15.3 % of revenue 18.7 16.5 18.4 - - 18.2 17.5 - Other expenses 3,100 2,840 3,390 9.4 19.4 5,980 6,230 4.2 % of revenue 31.9 25.5 27.9 - - 30.8 26.7 - EBITDA 1,790 3,450 2,730 52.5 (20.9) 3,870 6,180 59.7 EBITDA margin (%) 18.4 31.0 22.4 - - 19.9 26.5 - Other income 100 490 720 620.0 46.9 180 1,210 572.2 Depreciation 220 210 560 154.5 166.7 430 770 79.1 Interest expenses 150 240 540 260.0 125.0 230 780 239.1 PBT 1,520 3,490 2,350 54.6 (32.7) 3,390 5,840 72.3 Tax 390 930 370 (5.1) (60.2) 770 1,300 68.8 Tax rate (%) 25.7 26.6 15.7 - - 22.7 22.3 - Net profit 1,130 2,560 1,980 75.2 (22.7) 2,620 4,540 73.3 Source: Company, Nirmal Bang Institutional Equities Research

46


Torrent Pharmaceuticals

Other highlights a) TPL gave guidance that profitability is similar across business segments (branded, institutional and generic) in

Brazil.

b) Expects to launch generic Abilify (US$1.5bn market size) in 1QFY16. Five companies have tentative approvals including TPL.

c) TPL has given guidance of higher number of filings from 2HFY15,

d) Expects tax rate to be closer to MAT (minimum alternate tax) rate in FY15.

e) TPL has outstanding forex hedges amounting to US$300mn taken at Rs63-Rs65/US$

f) Attrition rate in Elder Pharmaceuticals’ workforce is close to 8% after the acquisition.

g) Expect 8-10 product launches in the US every year.

Exhibit 1: Financial summary Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17ERevenue 32,111 41,847 49,707 57,096 64,440 YoY (%) 19.1 30.3 18.8 14.9 12.9EBITDA 6,922 9,515 12,247 13,950 15,725 EBITDA (%) 21.6 22.7 24.6 24.4 24.4Adj. PAT 4,628 6,640 7,687 8,078 9,539 YoY (%) 28.3 43.5 15.8 5.1 18.1Fully DEPS 27.3 39.2 45.4 47.7 56.4RoE (%) 35.4 39.9 34.3 27.5 25.7RoCE (%) 30.3 32.8 24.9 21.9 22.8P/E (x) 36.0 23.5 20.3 19.3 16.3EV/EBITDA (x) 22.6 16.8 14.6 12.5 10.8Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Revenue break-up (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) India 2,970 3,520 4,420 48.8 25.6 Latin America 1,250 1,490 1,600 28.0 7.4 Europe (including Heumann) 2,350 2,300 2,480 5.5 7.8 US 1,150 2,690 1,670 45.2 (37.9) RoW markets 970 860 970 - 12.8 Contract manufacturing (including dossier income) 1,000 260 960 (4.0) 269.2 Other 20 30 40 100.0 33.3 Total 9,710 11,150 12,140 25.0 8.9


Exhibit 3: Change in our earnings estimates FY15E FY16E (Rsmn) Old New Change (%) Old New Change (%) Revenue 49,938 49,707 (0.5) 56,039 57,096 1.9 EBITDA 12,433 12,247 (1.5) 13,717 13,950 1.7 EBITDA margin (%) 24.9 24.6 (30bps) 24.5 24.4 (10bps) Reported PAT 7,046 7,687 9.1 7,706 8,078 4.8


Exhibit 4: Actual performance versus our estimates, Bloomberg consensus estimates Particulars (Rsmn) Actual Our estimates Variation (%) Bloomberg cons. est. Variation (%) Revenue 12,170 12,423 (2.0) 12,116 0.4 EBITDA 2,730 3,134 (12.9) 3,015 (9.5) EBITDA margin (%) 22.4 25.2 (280bps) 24.9 (250bps) Reported PAT 1,980 1,560 26.9 1,646 20.3 Source: Company, Bloomberg, Nirmal Bang Institutional Equities Research

47



Exhibit 5: P/E ratio


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10

15

20

25

4-Nov-09 4-Nov-10 4-Nov-11 4-Nov-12 4-Nov-13 4-Nov-14

(x)

48



Financials Exhibit 6: Income statement Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Net sales (incl. other oper. income) 32,111 41,847 49,707 57,096 64,440 % growth 19.1 30.3 18.8 14.9 12.9 Raw material costs (9,258) (12,435) (12,632) (14,640) (16,529) Staff costs (6,233) (7,411) (10,252) (11,933) (13,473) Research & development exp. (1,250) (1,375) (2,186) (2,486) (2,807) Other expenses (8,449) (11,112) (12,389) (14,087) (15,906) Total expenditure (25,189) (32,332) (37,460) (43,146) (48,715) EBITDA 6922 9515 12247 13950 15725 % growth 38.3 37.5 28.7 13.9 12.7 EBITDA margin (%) 21.6 22.7 24.6 24.4 24.4 Other income 434 381 1,458 276 312 Interest costs (338) (586) (1,899) (1,674) (1,449) Gross profit 7,018 9,310 11,805 12,552 14,588 % growth 39 33 27 6 16 Depreciation (827) (870) (1,950) (2,197) (2,358) Profit before tax 6,191 8,440 9,855 10,356 12,230 % growth 46.0 36.3 16.8 5.1 18.1 Tax (1,467) (1,800) (2,168) (2,278) (2,691) Effective tax rate (%) 23.7 21.3 22.0 22.0 22.0 Exceptional Item (375) - - - - Minority interest (22) - - - - Net profit 4,328 6,640 7,687 8,078 9,539 % growth 4.3 53.4 15.8 5.1 18.1 Adjusted Net profit 4,628 6,640 7,687 8,078 9,539 % growth 28.3 43.5 15.8 5.1 18.1


Exhibit 8: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17EEquity 423 846 846 846 846Reserves 13,796 18,178 24,967 32,101 40,526Net worth 14,219 19,024 25,813 32,948 41,373Short-term Loans 1,246 2,104 2,104 2,104 2,104Long-term Loans 5,684 9,213 23,213 20,213 17,213Total Loans 6,930 11,318 25,318 22,318 19,318Deferred Tax Liability 258 (182) (182) (182) (182)Minority Interest 4 4 4 4 4Liabilities 21,410 30,164 50,953 55,088 60,513Gross Block 12,955 14,200 38,240 42,240 46,240Depreciation 4,757 5,447 7,397 9,594 11,952Net Block 8,198 8,753 30,843 32,647 34,288Capital work-in-progress 2,853 5,341 4,341 4,141 3,941Inventories 9,239 10,061 14,677 16,692 18,847Debtors 6,878 10,994 12,008 13,657 15,420Cash 6,270 7,694 2,859 3,477 5,319Liquid Investments 605 1,857 1,857 1,857 1,857Other Current assets 3,475 5,342 5,756 6,463 7,219Total Current assets 26,466 35,947 37,157 42,146 48,662Creditors 10,667 14,291 15,894 18,306 20,669Other current liabilities 5,440 5,586 5,494 5,539 5,710Total current liabilities 16,107 19,877 21,387 23,846 26,379Net current assets 10,359 16,070 15,769 18,300 22,283Total Assets 21,410 30,164 50,953 55,088 60,513


Exhibit 7: Cash flow Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E EBIT 6,095 8,645 10,296 11,753 13,367 (Inc.)/dec. in working capital (4,245) (1,799) (4,443) (1,958) (2,312) Cash flow from operations 1,850 6,846 5,854 9,795 11,055 Other income 434 381 1,458 276 312 Depreciation 827 870 1,950 2,197 2,358 Interest paid (-) (338) (586) (1,899) (1,674) (1,449) Tax paid (-) (1,467) (1,800) (2,168) (2,278) (2,691) Dividends paid (-) (754) (2,817) (990) (898) (943) Net cash from operations 552 2,894 4,205 7,418 8,642 Capital expenditure (-) (2,629) (3,734) (23,040) (3,800) (3,800) Net cash after capex (2,077) (839) (18,835) 3,618 4,842 Inc./(dec.) in short-term borrowing (135) 858 - - - Inc./(dec.) in long-term borrowing 1,277 3,530 14,000 (3,000) (3,000) Inc./(dec.) in borrowings 1,142 4,388 14,000 (3,000) (3,000) (Inc.)/dec. in investments 636 (1,252) - - - Equity issue/(buyback) (0) 423 - - - Cash from financial activities 1,778 3,559 14,000 (3,000) (3,000) Others (174) (1,295) - - - Opening cash 6,743 6,270 7,694 2,859 3,477 Closing cash 6,270 7,694 2,859 3,477 5,319 Change in cash (473) 1,425 (4,835) 618 1,842


Exhibit 9: Key ratios Y/E March FY13 FY14 FY15E FY16E FY17E Per share (Rs) Reported EPS 25.6 39.2 45.4 47.7 56.4 Adjusted EPS 27.3 39.2 45.4 47.7 56.4 DPS 4.6 2.0 0.9 1.0 1.1 BV/share 84.0 112.4 152.5 194.7 244.5 Dividend payout (%) 52.5 29.8 11.7 11.7 11.7 Performance ratios (%) RoE 35.4 39.9 34.3 27.5 25.7 RoCE 30.3 32.8 24.9 21.9 22.8 Valuation ratios (x) P/E 36.0 23.5 20.3 19.3 16.3 P/BV 11.0 8.2 6.0 4.7 3.8 EV/net sales 4.9 3.8 3.6 3.1 2.6 EV/EBITDA 22.6 16.8 14.6 12.5 10.8 Efficiency ratios Asset turnover (x) 1.5 1.6 1.2 1.0 1.1 Working capital/sales (x) 0.2 0.2 0.2 0.2 0.3 Receivable days 82 99 90 90 90 Inventory days 110 91 110 110 110 Payable days 155 161 155 155 155


49



Rating track Date Rating Market price (Rs) Target price (Rs) 1 November 2011 Buy 575 715 12 January 2012 Buy 551 715 24 January 2012 Buy 548 715 16 April 2012 Buy 623 715 21 May 2012 Buy 617 715 24 July 2012 Hold 632 715 4 October 2012 Hold 684 715 29 October 2012 Hold 669 715 31 January 2013 Hold 710 745 9 April 2013 Hold 688 745 31 May 2013 Hold 787 877 9 July 2013 Hold 874 877 29 July 2013* Hold 411 456 7 October 2013* Hold 446 456 1 November 2013* Hold 447 491 23 December 2013* Sell 481 444 7 January 2014 Sell 468 444 22 January 2014 Sell 512 479 11 April 2014 Sell 568 479 12 May 2014 Sell 625 618 10 July 2014 Sell 679 618 1 August 2014 Sell 743 683 10 October 2014 Sell 852 683 Note: * Post bonus share issue of 1:1

50


Institutional EquitiesCo

nfere

nce-

call U

pdate

Reuters: VGUA.NS; Bloomberg: VGRD IN

V-Guard Industries

We hosted the conference-call of V-Guard Industries (VIL) on 5 November 2014 to discuss its 2QFY15 financial performance. Strong revenue CAGR of 19.5%, a 125bps improvement in operating margin, strong reach in the non-southern region, a 594bps improvement in RoCE at 26.5% and free cash flow of Rs2,279mn over FY14-FY17E are likely to drive VIL’s valuation. We have retained Buy rating on VIL with a target price of Rs1,109 based on 24x average FY16E-FY17E EPS of Rs46.2 and 15.6x EV/EBITDA. Following are the key takeaways:

VIL maintained advertisement expenditure at 3.3% of net sales for 2QFY15. The company also maintained advertisement expenditure guidance at 3.5%-4.0% of net sales for FY15E. VIL has introduced a new service model under its warranty cost system. Under this system, instead of the distributor bearing the cost of after-sales service, there is a franchisee system to deal with the warranty of products. This change in the model led to a clean-up activity, as a result of which VIL incurred an additional cost of Rs10mn during the quarter. In addition, because of heavy rains and lightning in Kerala affected the inverters installed there. This led VIL to incur one-time costs of Rs20mn-Rs25mn as some products had to be repaired and delivered to the consumers. Further, VIL shifted its call centre activity to a third party at Noida. The total one-off cost s stood at Rs40mn-45mn for the quarter, leading to a jump in other expenditure by 34.3% YoY atRs356mn. The additional one-off expenditure led to a one percentage-point impact on EBITDA margin at 8.3%. VIL sharpened its focus on the non-southern region (46.7% YoY revenue growth in 2QFY15, with a 33% contribution versus 28% in 2QFY14). The products like voltage stabilisers, wires, pumps, electric water heaters and inverters did exceptionally well and contributed to high growth in the region. After muted growth in South India for the past four quarters, VIL posted a strong 20.7% growth at Rs2,935mn led by voltage stabiliser and DUPS divisions on the back of coal shortage and power cuts resuming in the region. States like Andhra Pradesh, Karnataka and Tamil Nadu reported strong numbers except Kerala, which witnessed lower growth in the pumps segment because of two years of good rainfall. VIL posted just a 50bps gross margin expansion at 46% for the quarter, despite reporting strong growth in the non-southern region. In anticipation of good growth in the winter season, VIL built up an inventory which is expected to normalise post winter season. VIL and its competitors built up inventory in the inverter and battery segments with their channel partners, leading to an oversupply of products and as a result they remained unsold. The management expects the inventory to normalise in 3QFY15. Piling-up of inventory and no price hike impacted profitability of the product. Post likely normalisation of inventory in 3QFY15, a price hike is on the cards which will improve the margin in the product. Improvement in EBIT margin of inverters alone can provide a 1% improvement in EBITDA margin of VIL. The electric water heater category registered a growth of 5%-8%, but, VIL reported 42.6% growth in 1HFY15 mainly led by: a) Expansion to newer geographies, b) Non-southern region doing well, and c) New products like Pebble performing better. VIL has been able to gain market share from its competitors in the southern region. VIL has been able to maintain its margin in the electric water heater segment. As per management, the fall in copper prices will impact VIL in the short term because of MTM (mark-to-market) impact on high-cost inventory. However, in the long run, the fall in copper prices will help in improving the margins of VIL as the company is not liable to pass on the benefit to its customers, especially in segments like voltage stabilisers, inverters etc, where other items are also used in the manufacturing process. However, in case of wires, VIL needs to pass on the benefit to its customers.

BUY Sector: White Goods CMP: Rs914 Target Price: Rs1,109 Upside: 21% Jignesh Kamani, CFA [email protected] +91-22-3926 8239 Ruchita Maheshwari [email protected] +91-22-3926 8023 Key Data Current Shares O/S (mn) 29.9 Mkt Cap (Rsbn/US$mn) 27.3/444 52 Wk H / L (Rs) 937/403 Daily Vol. (3M NSE Avg.) 41,123 One-Year Indexed Stock Performance

Price Performance (%)

1 M 6 M 1 Yr

V-Guard Ind. 4.2 74.6 88.4

Nifty Index 4.9 24.5 32.0 Source: Bloomberg

708090

100110120130140150160170180190200

Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14V-GUARD IND LTD NSE CNX NIFTY INDEX

7 November 2014

51


V-Guard Industries

Exhibit 1: Financials Y/E March (Rsmn) cons. FY12 FY13 FY14 FY15E FY16E FY17E Revenue 9,646 13,602 15,176 18,081 21,592 25,889 YoY (%) 32.8 41.0 11.6 19.1 19.4 19.9 EBITDA 936 1,100 1,226 1,576 1,915 2,415 EBITDA (%) 9.7 8.1 8.1 8.7 8.9 9.3 Reported PAT 509 630 702 943 1,188 1,570 Adj. PAT 17.0 21.1 23.5 31.6 39.8 52.6 FDEPS (Rs) 19.1 23.8 11.5 34.3 26.0 32.2 YoY (%) 26.6 26.7 24.2 26.4 26.5 27.7 RoCE (%) 20.3 21.3 20.5 23.3 24.3 26.5 RoIC (%) 18.5 19.4 18.4 20.7 22.0 24.4 RoE (%) 53.7 43.3 38.9 28.9 23.0 17.4 P/E (x) 13.0 10.4 8.6 6.9 5.5 4.3 P/B (x) 30.2 26.1 23.0 17.8 14.5 11.2 EV/EBITDA (x) 9,646 13,602 15,176 18,081 21,592 25,889 Source: Company, Nirmal Bang Institutional Equities Research

As of now, VIL has no plan to introduce new product categories. VIL has already launched induction cook-top and mixer-grinders in the kitchen appliances segment and also switchgear. However, in the induction cook-top segment, after a two-year successful stint in Kerala, the company plans to enter Tamil Nadu.

As per the management, 2HFY15 is expected to witness EBITDA margin expansion because of a favourable product mix.

VIL’s management continues to maintain its guidance of 20% revenue growth and also EBITDA margin in the range of 8.5%-9.0% for FY15.

Exhibit 2: Result analysis Y/E March - consolidated (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Net sales 3,340 4,777 4,313 29.1 (9.7) 7,422 9,089 22.5 Net raw material costs and finished goods purchases 2,418 3,537 3,102 28.3 (12.3) 5,447 6,639 21.9 % of sales 72.4 74.0 71.9 - - 73.4 73.0 - Employee expenses 220 254 275 24.8 8.0 437 529 21.1 % of sales 6.6 5.3 6.4 - - 5.9 5.8 - Other expenses 431 581 579 34.3 (0.4) 958 1,160 21.2 % of sales 12.9 12.2 13.4 - - 12.9 12.8 - Total expenditure 3,070 4,372 3,956 28.9 (9.5) 6,842 8,329 21.7 Operating profit 271 404 356 31.7 (11.9) 580 761 31.2 OPM (%) 8.1 8.5 8.3 - - 7.8 8.4 - Interest costs 48 54 53 9.1 (2.8) 103 107 3.4 Depreciation 29 37 38 33.3 2.5 57 75 31.3 Other income 11 7 11 (5.6) 62.5 22 17 (22.7) PBT 205 320 277 34.7 (13.5) 442 597 34.9 Tax 60 97 85 40.5 (13.0) 121 182 50.9 Effective tax rate (%) 29.4 30.5 30.7 - - 27.3 30.5 - Adjusted PAT 145 223 192 32.4 (13.8) 321 414 28.9 NPM (%) 4.3 4.7 4.4 - - 4.3 4.6 - EPS (Rs) 4.9 7.5 6.4 32.4 (13.8) 10.8 13.9 28.9 Equity 298.5 298.5 298.5 - - 298.5 298.5 -


52


V-Guard Industries

Exhibit 3: Segment-wise analysis – standalone Y/E March (Rsmn) cons. 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Segment revenue Electronics 846 1,934 1,214 43.4 (37.2) 2,497 3,148 26.1 Electrical/electro-mechanical 2,410 2,747 2,979 23.6 8.5 4,762 5,726 20.2 Others 84 96 120 42.3 24.7 163 215 31.9 Total 3,340 4,777 4,312 29.1 (9.7) 7,422 9,089 22.5 EBIT Electronics 109 219 140 28.1 (36.2) 308 358 16.2 Electrical/electro-mechanical 150 160 203 35.6 27.0 256 363 41.6 Others 1 9 1 180.0 (84.6) (10) 11 (203.3) Total 259 388 344 32.7 (11.3) 554 732 31.9 EBIT margin (%) Electronics 12.9 11.3 11.5 (10.7) 1.7 12.4 11.4 (7.8) Electrical/electro-mechanical 6.2 5.8 6.8 9.7 17.1 5.4 6.3 17.7 Others 0.6 9.5 1.2 96.8 (87.7) (6.2) 4.9 (178.4)


Exhibit 4: Segment-wise break-up of revenue – standalone Y/E March (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Electronics

Voltage stabiliser 543 1,110 679 25.1 (38.9) 1,445 1,789 23.8 Standalone UPS 110 69 81 (26.3) 17.1 225 150 (33.3) Digital UPS 197 755 455 130.8 (39.8) 830 1,210 45.7

Segment total 849 1,934 1,214 43.0 (37.2) 2,499 3,148 26.0 Electricals

Pump 338 497 401 18.6 (19.3) 894 898 0.4 House wiring cable 1,172 1,265 1,402 19.6 10.8 2,233 2,667 19.4 LT cable 198 151 161 (18.7) 6.4 354 312 (11.8) Electrical water heater 422 280 604 43.2 115.9 620 884 42.6 Fan 154 443 210 36.5 (52.7) 473 653 38.1 Others 126 111 208 65.1 87.7 189 319 68.8

Segment total 2,410 2,747 2,986 23.9 8.7 4,763 5,733 20.4 Others

Solar water heater 81 96 112 38.5 17.0 160 208 30.1 Others - - - - -

Segment total 81 96 112 38.5 17.0 160 208 30.1 Grand total 3,340 4,777 4,313 29.1 (9.7) 7,422 9,090 22.5


Exhibit 5: Geography-wise gross revenue – standalone

Region 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 1HFY14 1HFY15 YoY (%) Revenue-South 2,431 3,140 2,935 20.7 (6.5) 5,301 6,075 14.6 Contribution (%) 72 65 67 - - 70 66 - Revenue-Non-South 964 1,670 1,415 46.7 (15.3) 2,234 3,085 38.1 Contribution (%) 28 35 33 - - 30 34 - Total 3,395 4,810 4,350 28.1 (9.6) 7,535 9,160 21.6


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V-Guard Industries

Exhibit 6: Working capital analysis (Rsmn) Particulars (Rsmn) 1HFY14 FY14 1HFY15 YoY (%) 1HFY15 over FY14 (%)Revenue 7,422 15,176 9,089 22.5 19.8Inventory 2,418 2,525 3,002 24.2 18.9Inventory days 69 81 70 - -Sundry debtors 1,613 2,121 2,032 26.0 (4.2)Sundry debtors days 39 50 40 - -Sundry creditors 1,548 1,753 1,728 11.6 (1.4)Sundry creditors days 88 56 80 - -Net working capital 2,483 2,894 3,306 33.2 14.2Net working capital days 20 75 30 - -Ex-cash current assets 4,466 5,025 5,580 24.9 11.0As % of annualised sales 30.1 33.1 30.7 - -Current liabilities 2,089 2,478 2,363 13.1 (4.7)As % of annualised sales 14.1 16.3 13.0 - -Ex-cash net current assets 2,377 2,547 3,217 35.3 26.3As % of annualised sales 16.0 16.8 17.7 - -Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 7: Actual performance versus our estimates, Bloomberg consensus estimates (Rsmn) 2QFY14 1QFY15 2QFY15 YoY (%) QoQ (%) 2QFY15E Chg. (%) 2QFY15 BBE Chg.(%) Revenue 3,340 4,777 4,313 29.1 (9.7) 3,951 9.2 4,011 7.5 EBITDA 271 404 356 31.7 (11.9) 340 4.9 343 3.8 EBITDA (%) 8.1 8.5 8.3 16bps (20)bps 8.6 (33)bps 8.6 (30)bps Adjusted PAT 145 223 192 32.4 (13.8) 189 1.5 190 0.8 Source: Company, Nirmal Bang Institutional Equities Research



Exhibit 9: One-year forward EV/EBITDA


0100200300400500600700800900

1,000

Oct-0

8

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54


V-Guard Industries

Financials (standalone) Exhibit 10: Income statement Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E Net sales 9,646 13,602 15,176 18,081 21,592 25,889 Growth (%) 32.8 41.0 11.6 19.1 19.4 19.9 Raw-material 7,019 10,128 11,217 13,115 15,639 18,581 Staff costs 518 701 848 1,013 1,209 1,450 Other expenses 1,174 1,673 1,885 2,378 2,828 3,443 Total expenditure 8,710 12,503 13,950 16,505 19,677 23,474 EBITDA 936 1,099 1,225 1,576 1,915 2,415 Growth (%) 28.1 17.5 11.5 28.6 21.5 26.1 EBITDA margin (%) 9.7 8.1 8.1 8.7 8.9 9.3 Other income 23 36 48 54 58 65 Interest costs 170 200 211 155 131 77 Gross profit 789 936 1,063 1,475 1,843 2,403 Growth (%) 17.6 18.6 13.6 38.7 24.9 30.4 Depreciation 97 114 120 147 169 192 Profit before tax 692 822 943 1,328 1,673 2,211 Growth (%) 17.0 18.7 14.7 40.8 26.0 32.2 Tax 184 193 242 385 485 641 Effective tax rate (%) 26.5 23.4 25.6 29.0 29.0 29.0 Net profit 509 629 701 943 1,188 1,570 Growth (%) 19.2 23.7 11.5 34.4 26.0 32.2


Exhibit 12: Balance sheet Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E Equity 298 298 298 298 298 298 Reserves 1,808 2,315 2,886 3,673 4,686 6,065 Net worth 2,106 2,613 3,185 3,971 4,985 6,363 Total loans 1,049 1,574 992 892 692 242 Deferred tax liability 43 79 95 100 150 217 Liabilities 3,198 4,267 4,272 4,963 5,827 6,822 Gross block 1,625 1,888 2,323 2,723 3,137 3,552 Depreciation 395 506 626 773 943 1,135 Net block 1,230 1,382 1,697 1,950 2,194 2,418 Capital work-in-progress 111 88 - 14 16 18 Long-term Investments - - - - - - Inventories 1,574 2,486 2,525 2,980 3,553 4,238 Debtors 1,478 1,988 2,121 2,461 2,879 3,380 Cash 34 150 28 84 251 428 Other current assets 263 455 379 452 540 647 Total current assets 3,349 5,079 5,053 5,977 7,223 8,694 Creditors 962 1,629 1,753 2,109 2,569 3,065 Other current liabilities 530 652 725 868 1,036 1,243 Total current liabilities 1,492 2,282 2,478 2,977 3,605 4,307 Net current assets 1,857 2,797 2,575 3,000 3,618 4,386 Total assets 3,198 4,266 4,272 4,963 5,827 6,822 Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 11: Cash flow Y/E March (Rsmn) FY12 FY13 FY14 FY15E FY16E FY17E EBIT 838 985 1,105 1,429 1,746 2,224 (Inc.)/dec. in working capital 75 (805) 100 (369) (450) (592) Cash flow from operations 913 180 1,205 1,060 1,296 1,631 Other income 23 36 48 54 58 65 Depreciation 97 114 120 147 169 192 Deferred liabilities (19) 36 16 5 50 66 Interest paid (-) (170) (200) (211) (155) (131) (77) Tax paid (-) (165) (229) (242) (385) (485) (641) Dividend paid (-) (104) (104) (130) (157) (174) (192) Net cash from operations 575 (166) 808 569 784 1,045 Capital expenditure (-) (286) (243) (347) (414) (416) (418) Net cash after capex 289 (409) 460 155 368 627 Inc./(dec.) in short term borrowings (497) 402 (572) (100) (100) (375) Inc./(dec.) in long term borrowings 171 123 (10) - (100) (75) (Inc.)/dec. in investments - - - - - - Others - - - - - - Equity issue/(buyback) - - - - - - Cash from financial activities (326) 525 (582) (100) (200) (450) Opening cash 71 34 150 28 83 251 Closing cash 34 150 28 83 251 428 Change in cash (37) 116 (122) 55 168 177

: Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 13: Key ratios Y/E March FY12 FY13 FY14 FY15E FY16E FY17E Per share (Rs) EPS 17.0 21.1 23.5 31.6 39.8 52.6 Book value 71 88 107 133 167 213 Valuation (x) P/E 53.7 43.3 38.9 28.9 23.0 17.4 P/sales 2.8 2.0 1.8 1.5 1.3 1.1 P/BV 13.0 10.4 8.6 6.9 5.5 4.3 EV/EBITDA 30.2 26.1 23.0 17.8 14.5 11.2 EV/sales 2.9 2.1 1.9 1.6 1.3 1.0 Return ratios (%) RoIC 18.5 19.4 18.4 20.7 22.0 24.4 RoCE 20.3 21.3 20.5 23.3 24.3 26.5 RoE 26.6 26.7 24.2 26.4 26.5 27.7 Margins (%) EBITDA margin 9.7 8.1 8.1 8.7 8.9 9.3 PBIT margin 8.7 7.2 7.3 7.9 8.1 8.6 PBT margin 7.2 6.0 6.2 7.3 7.7 8.5 PAT margin 5.3 4.6 4.6 5.2 5.5 6.1 Turnover ratio Asset turnover ratio (x) 3.0 3.2 3.6 3.6 3.7 3.8 Avg. inventory period (days) 65 72 65 65 65 65 Avg. collection period (days) 55 53 50 49 48 47 Avg. payment period (days) 40 47 45 46 47 47 Solvency ratios (x) Debt-equity 0.5 0.6 0.3 0.2 0.1 0.0 Interest Coverage 4.9 4.9 5.3 9.2 13.4 28.9 Growth (%) Sales 32.8 41.0 11.6 19.1 19.4 19.9 EBITDA 28.1 17.5 11.5 28.6 21.5 26.1 PAT 19.1 23.8 11.5 34.3 26.0 32.2 Source: Company, Nirmal Bang Institutional Equities Research

55


V-Guard Industries

Rating track Date Rating Market price Target price (Rs)10 July 2014 Buy 640 91530 July 2014 Buy 728 9155 November 2014 Buy 904 1,1097 November 2014 Buy 914 1,109

56

Capital GoodsChirag Muchhala ([email protected] )Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Sales EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EABB India 1,121 693 Sell 3,868 77,220 82,368 91,166 4,699 6,010 7,386 1,793 2,580 3,542 8.7 25.4 40.5 8.5 12.2 16.7 132.5 92.1 67.1 51.2 40.1 32.5 8.9 8.3 7.6 6.8 9.3 11.8 11.8 14.4 17.5 Apar Industries 421 521 Buy 264 46,329 49,520 55,035 2,974 2,963 3,768 896 946 1,529 9.0 12.6 30.6 23.3 24.6 39.7 18.1 17.1 10.6 7.3 6.8 5.2 2.3 2.1 1.8 13.6 13.0 18.4 17.4 19.0 26.1 BHEL 258 160 Sell 10,276 391,088 367,835 353,445 45,198 39,387 39,681 34,608 31,912 32,613 (4.9) (6.3) (2.9) 14.1 13.0 13.3 18.2 19.8 19.4 11.9 13.5 12.7 1.9 1.8 1.7 10.9 9.3 8.9 10.5 7.8 7.1 Bajaj Electricals 286 335 Buy 469 40,298 47,352 55,461 818 2,782 3,992 (53) 1,210 2,094 17.3 120.9 NA (0.5) 12.1 20.9 NA 23.6 13.7 38.5 11.3 7.7 4.0 3.5 2.9 (0.7) 16.0 23.3 5.9 22.9 30.8 Crompton Greaves 192 212 Accumulate 1,957 134,806 146,382 160,606 6,820 9,097 11,704 2,443 4,621 6,348 9.2 31.0 61.2 3.9 7.4 10.1 49.2 26.0 18.9 20.1 15.1 11.6 3.4 3.1 2.7 6.8 12.1 15.0 7.4 10.1 13.3 KEC International 103 130 Buy 430 79,018 85,232 94,406 4,933 5,455 6,797 668 1,036 2,009 9.3 17.4 73.5 2.6 4.0 7.8 39.6 25.5 13.2 9.4 8.5 6.8 2.2 2.1 1.9 5.7 8.4 14.9 13.5 13.6 17.1 PGCIL 142 159 Buy 12,129 152,303 179,095 208,540 129,563 151,156 176,634 44,974 50,668 60,832 17.0 16.8 16.3 8.6 9.7 11.6 16.6 14.7 12.3 11.5 10.6 9.8 2.2 2.0 1.8 13.1 13.4 14.6 5.3 5.3 5.6 Siemens 880 394 Sell 5,101 113,527 108,338 127,960 4,207 6,392 10,493 1,940 2,920 5,610 6.2 57.9 70.1 5.4 8.2 15.8 161.6 107.3 55.9 73.1 48.6 29.4 7.8 7.7 7.2 4.9 7.2 13.3 4.3 9.5 18.3 Thermax 944 775 Sell 1,834 50,999 58,094 70,549 4,373 5,228 6,491 2,460 3,225 4,038 17.6 21.8 28.1 20.6 27.1 33.9 45.8 34.9 27.9 26.4 21.9 17.6 5.5 4.9 4.4 11.2 13.0 14.9 13.0 13.5 16.2 Triveni Turbine 90 118 Buy 486 5,154 7,799 9,633 1,036 1,735 2,256 680 1,190 1,556 36.7 47.6 51.3 2.1 3.6 4.7 43.9 25.1 19.2 28.9 17.1 13.0 17.1 12.0 8.6 38.9 48.0 45.0 43.5 58.8 56.7 Voltas 250 253 Accumulate 1,349 52,660 56,201 62,004 2,656 3,294 4,442 2,238 2,779 3,636 8.5 29.3 27.5 6.8 8.4 11.0 37.0 29.8 22.8 31.1 24.8 18.1 4.6 4.1 3.6 14.2 14.5 16.9 12.1 13.8 17.1

CementGiriraj Daga ([email protected])Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Sales EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EACC 1,486 1,859 Buy 4,540 111,689 119,275 138,771 16,288 17,451 26,206 10,958 11,699 16,664 11.5 26.8 23.3 58.3 62.2 88.7 25.5 23.9 16.8 3.6 3.3 3.0 15.5 14.1 9.2 14.4 14.5 19.0 12.3 12.5 17.3 Ambuja 223 262 Buy 5,621 91,917 102,430 119,798 16,356 21,531 28,153 12,784 14,035 17,934 14.2 31.2 18.4 8.4 9.2 11.7 26.7 24.3 19.0 3.6 3.3 2.9 18.4 13.6 10.3 14.0 14.1 16.2 11.0 13.8 15.9 Grasim Industries 3,559 4,549 Buy 5,320 293,240 341,172 406,038 49,144 56,056 76,754 20,715 22,584 30,523 17.7 25.0 21.4 225.6 243.7 329.4 15.8 14.6 10.8 1.5 1.4 1.2 8.1 7.4 5.2 10.0 10.0 12.2 8.7 9.1 11.2 HeidelbergCement 93 92 Buy 342 11,936 16,317 20,186 867 2,630 4,127 (407) 492 1,544 30.0 118.2 NA (1.8) 2.2 6.8 (51.6) 42.7 13.6 2.5 2.3 1.9 38.6 12.1 7.5 (4.8) 5.6 15.4 0.7 6.5 10.7 India Cement 110 165 Buy 552 44,584 47,759 57,036 5,546 7,018 10,500 (1,624) 625 2,903 13.1 37.6 NA (5.3) 2.0 9.5 (20.9) 54.3 11.7 0.9 0.9 0.8 10.2 8.0 5.1 (4.2) 1.6 7.2 3.2 5.8 7.7 JK Cement 634 680 Acc. 721 27,815 35,326 43,537 3,749 5,039 7,377 970 994 1,751 25.1 40.3 34.3 13.9 14.2 25.0 45.7 44.6 25.3 2.5 2.4 2.3 13.8 13.1 8.6 5.6 5.5 9.2 5.5 6.6 8.2 JK Lakshmi Cement 381 348 Buy 730 20,566 25,712 31,240 3,020 4,421 6,873 930 1,216 2,888 23.2 50.9 76.2 7.9 10.3 24.5 48.2 36.9 15.5 3.4 3.2 2.8 18.0 12.8 7.9 7.3 9.0 19.1 6.1 8.0 11.4 Sagar Cement 343 406 Buy 97 4,889 5,914 9,285 13 476 1,201 (256) 3,042 199 37.8 856.6 NA (14.7) 174.9 11.4 (23.3) 2.0 30.0 2.5 1.1 1.1 536.6 20.8 7.6 (10.1) 78.8 3.7 (1.1) 5.3 5.8 Shree Cement 9,095 9,684 Buy 5,157 58,873 70,576 86,652 13,898 18,099 24,994 7,872 9,189 14,059 21.3 34.1 33.6 226.0 263.7 403.5 40.3 34.5 22.5 6.7 5.6 4.4 21.8 16.7 11.9 18.4 17.6 21.9 17.8 15.9 19.9 The Ramco Cement 348 354 Buy 1,349 37,382 41,489 49,197 6,177 7,989 11,388 1,377 2,086 4,437 14.7 35.8 79.5 5.8 8.8 18.6 60.2 39.7 18.7 3.3 3.1 2.7 17.6 13.4 9.0 5.5 7.8 14.6 5.0 5.9 9.4 Ultratech Cement 2,535 3,081 Buy 11,322 202,798 238,318 290,032 38,179 46,282 65,292 21,445 25,895 37,930 19.6 30.8 33.0 78.2 94.4 138.3 32.4 26.8 18.3 4.1 3.6 3.1 18.3 16.0 11.2 12.5 14.5 18.0 9.7 10.2 13.4

FMCGKrishnan Sambamoorthy ([email protected] )Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Sales EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EColgate Palmolive 1,717 1,813 Accumulate 3,804 35,788 40,619 47,525 6,640 8,408 10,883 4,755 5,875 7,476 15.2 28.0 25.4 35.0 43.2 55.0 49.1 39.8 31.2 34.7 27.2 20.9 38.9 33.5 28.5 87.3 90.6 98.6 85.4 89.0 96.7 PGHH 5,613 5,375 Accumulate 2,968 20,510 24,285 29,402 4,207 4,905 6,233 3,020 3,586 4,400 19.7 21.7 20.7 92.9 110.3 135.4 60.4 50.9 41.5 42.7 36.2 28.3 18.2 15.4 12.9 33.4 33.4 33.4 34.0 33.0 34.1 Britannia Inds. 1,552 780 Sell 3,029 68,927 77,543 87,623 6,072 6,669 7,711 3,954 4,207 4,915 12.7 12.7 11.5 33.0 35.1 41.0 47.0 44.2 37.9 30.3 27.5 23.2 23.3 17.8 14.0 58.3 45.7 41.4 39.6 38.1 35.5 Nestle India 6,354 5,051 Sell 9,977 90,814 98,714 111,251 19,999 20,335 23,585 11,033 11,499 13,538 10.7 8.6 10.8 114.4 117.2 140.4 55.5 54.2 45.2 30.4 29.7 25.2 25.9 21.1 17.8 53.0 42.8 42.5 32.7 27.9 29.1 Glaxo Consumer 5,415 3,828 Sell 3,709 48,686 42,357 48,710 8,728 7,158 8,378 6,748 5,628 6,315 0.0 (2.0) (3.3) 128.4 133.8 150.1 42.2 40.5 36.1 30.0 29.3 24.9 12.6 10.8 9.4 34.0 28.8 27.9 31.1 26.0 25.7 United Breweries 707 483 Sell 3,042 42,297 45,934 54,202 5,881 5,834 7,588 2,260 2,119 3,039 13.2 13.6 16.0 8.6 8.0 11.5 82.5 88.0 61.4 33.6 34.0 26.6 10.9 9.9 8.7 14.0 11.8 15.1 8.5 7.7 9.6

Metal & MiningGiriraj Daga ([email protected])Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Sales EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16ECoal India 349 336 Sell 35,888 688,100 745,128 810,052 159,632 181,484 198,641 151,116 169,603 185,982 8.5 11.6 10.9 23.9 26.9 29.4 14.6 13.0 11.9 5.2 4.6 4.0 10.4 8.3 7.1 33.3 37.4 35.7 32.6 37.3 35.8 GMDC 154 130 Sell 796 12,897 15,805 15,987 6,146 6,572 6,835 4,391 4,263 4,064 11.3 5.5 (3.8) 13.8 13.4 12.8 11.1 11.5 12.0 1.7 1.5 1.4 6.2 6.4 6.8 16.3 14.1 12.2 16.3 14.1 12.2 Hindalco 157 124 Sell 5,260 876,955 977,117 1,040,218 82,863 100,695 107,599 21,750 25,864 29,630 8.9 14.0 16.7 10.5 12.5 14.4 14.9 12.5 10.9 0.8 0.8 0.7 10.2 8.7 8.2 5.7 6.2 6.7 4.5 5.1 5.0 Hindustan Zinc 169 194 Buy 11,588 136,360 149,053 159,641 69,654 77,510 88,644 69,047 80,436 87,109 8.2 12.8 12.3 16.3 19.0 20.6 10.3 8.9 8.2 1.9 1.6 1.4 6.6 5.3 4.1 18.5 18.5 17.3 18.7 18.6 17.4 IMFA 229 367 Buy 97 13,179 13,549 15,408 2,975 2,625 3,513 349 99 534 8.1 8.7 23.7 13.4 3.8 20.6 17.0 60.3 11.1 0.7 0.7 0.6 5.5 6.2 4.4 4.0 1.1 5.9 5.9 4.7 6.8 JSW Steel 1,232 1,607 Buy 4,848 512,196 555,752 588,199 91,655 108,610 119,761 4,519 28,222 35,681 7.2 14.3 181.0 18.7 116.8 147.6 65.9 10.6 8.3 1.4 1.3 1.1 7.9 6.8 6.0 1.9 12.0 13.4 3.2 8.4 9.5 NALCO 58 48 Sell 2,452 67,809 71,455 75,515 9,342 12,102 12,385 6,423 8,460 7,545 5.5 15.1 8.4 2.5 3.3 2.9 23.4 17.8 20.0 1.2 1.2 1.1 10.5 7.8 7.7 5.3 6.8 5.9 5.6 6.8 5.9 NMDC 159 202 Buy 10,289 120,582 134,516 133,904 77,715 89,237 88,069 64,201 70,946 70,358 5.4 6.5 4.7 16.2 17.9 17.7 9.8 8.9 9.0 2.1 1.9 1.7 5.7 4.7 5.0 21.4 21.3 19.4 21.3 21.4 19.4 Sesa Sterlite 251 341 Buy 12,104 661,475 759,071 807,762 203,597 267,120 306,161 62,985 56,519 78,160 10.5 22.6 11.4 21.2 19.1 26.4 11.8 13.2 9.5 1.0 1.0 0.9 7.0 5.3 4.5 8.6 7.3 9.3 9.0 8.9 9.3 SAIL 85 89 Buy 5,680 467,601 513,406 590,539 41,757 62,979 77,637 26,165 26,035 25,462 12.4 36.4 (1.4) 6.3 6.3 6.2 13.3 13.4 13.7 0.8 0.8 0.7 13.7 10.4 8.9 6.3 6.0 5.6 4.0 5.2 5.0 Tata Steel 478 669 Buy 7,557 1,486,136 1,494,051 1,516,007 164,110 184,207 204,488 35,949 45,747 66,241 1.0 11.6 35.7 37.0 47.1 68.2 12.9 10.2 7.0 1.1 1.1 0.9 7.1 6.5 5.7 9.8 10.9 14.3 5.4 5.5 7.1 Vesuvius India 715 856 Buy 236 6,018 6,528 7,247 1,109 1,120 1,320 652 671 821 9.7 9.1 12.2 32.1 33.1 40.4 22.3 21.6 17.7 3.7 3.2 2.8 12.1 11.6 9.4 17.6 15.8 16.9 17.6 15.8 17.0

Target Price

Net sales (Rsmn) EBITDA (Rsmn) PAT (Rsmn)

EBITDA (Rsmn) PAT (Rsmn)TP (Rs)

Net sales (Rsmn) RoCE (%)

CAGR FY14-FY16E EPS (Rs) P/E (X)

EV/EBITDA (X)P/BV (X)

EV/EBITDA (X) P/BV (X) RoE (%) RoCE (%)

RoE (%)

RoCE (%)TP (Rs)

Net sales (Rsmn) EBITDA (Rsmn) PAT (Rsbn) CAGR FY14-FY16E EPS (Rs) P/E (X) P/BV (X) EV/EBITDA (X) RoE (%)

Valuation Of Companies In Our Coverage Universe

Net sales (Rsmn) EBITDA (Rsmn) PAT (Rsmn) CAGR FY14-FY16E EPS (Rs) P/E (X) EV/EBITDA (X) P/BV (X) RoE (%) RoCE (%)TP (Rs)

EPS (Rs)CAGR FY14-FY16E P/E (X)


57

MidcapJignesh Kamani ([email protected] )Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Sales EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EBata India 1,282 1,507 Buy 1,341 20,652 22,785 26,682 3,220 3,490 4,469 1,976 2,142 2,786 13.7 17.8 18.7 30.7 33.3 43.4 41.7 38.4 29.6 24.8 22.6 17.3 9.8 8.4 6.9 25.7 23.5 25.6 25.3 23.5 25.6Kajaria Ceramics 600 848 Buy 738 18,400 22,088 27,099 2,808 3,511 4,307 1,242 1,724 2,212 21.4 23.9 33.5 16.4 21.7 27.8 36.5 27.7 21.6 17.0 13.5 10.9 8.6 6.7 5.4 27.9 27.7 27.6 20.9 22.4 23.4Supreme Inds 600 683 Buy 1,241 39,622 46,685 55,666 5,888 6,279 7,626 2,585 3,167 3,969 18.5 13.8 23.9 20.4 24.9 31.3 29.5 24.1 19.2 13.5 12.5 10.3 7.3 6.1 5.2 27.0 27.7 29.1 22.7 21.9 24.0Just Dial 1,530 2,062 Buy 1,748 4,613 5,952 7,624 1,422 1,957 2,526 1,206 1,482 1,914 28.6 33.3 26.0 17.2 21.1 27.3 89.0 72.4 56.1 70.8 50.9 38.7 20.1 16.8 13.7 25.1 25.2 26.9 25.1 25.1 26.9Arvind 301 - UR 1,265 68,621 82,166 96,135 9,340 11,279 13,596 3,686 3,854 4,978 18.4 20.6 16.2 14.3 14.9 19.3 21.1 20.2 15.6 11.3 9.7 8.1 3.0 2.7 2.3 15.2 14.1 16.1 13.1 12.1 12.9Havells India 291 325 Buy 2,956 81,858 91,999 102,104 7,425 8,962 10,634 4,463 5,375 6,594 11.7 19.7 21.6 7.2 8.6 10.6 40.6 33.8 27.5 25.3 20.9 17.3 10.9 9.3 7.8 28.7 29.7 30.9 15.9 17.5 19.5Tilaknagar Inds 36 63 Buy 73 8,118 8,089 8,929 1,575 1,466 1,949 459 265 621 4.9 11.3 16.3 3.7 2.1 5.0 9.7 16.7 7.1 7.9 8.3 6.3 0.7 0.7 0.6 8.2 4.2 8.7 7.2 7.1 8.6Greenply Inds 1,042 1,248 Buy 409 22,169 25,789 28,506 2,646 3,484 3,940 1,176 1,536 1,820 13.4 22.0 24.4 48.7 63.7 75.4 21.4 16.4 13.8 12.3 9.1 7.8 4.3 3.4 2.8 22.2 23.4 22.3 13.2 14.4 14.7La Opala RG 362 355 Accumulate 327 1,779 2,272 2,834 500 667 852 300 408 568 26.2 30.5 37.6 5.7 7.3 10.2 64.0 49.3 35.4 40.3 29.3 22.6 19.6 10.8 8.5 34.9 28.7 26.9 30.1 27.8 26.9JBF Industries 150 152 Accumulate 160 85,677 101,277 182,654 7,119 9,337 18,558 112 2,890 8,127 46.0 61.5 752.2 1.3 43.8 124.0 116.3 3.4 1.2 10.2 8.5 3.7 0.5 0.5 0.3 0.6 14 31.8 1.4 6.4 13.3CARE 1,347 1,610 Buy 636 2,356 2,750 3,224 1,477 1,720 2,031 1,294 1,474 1,728 17.0 17.3 15.5 44.6 50.8 59.6 30.2 26.5 22.6 23.2 19.7 16.4 8.1 7.4 6.8 28.5 29.2 31.4 28.5 29.2 31.4ICRA 2,702 3,305 Accumulate 440 2,830 3,219 3,730 856 990 1,159 689 806 944 14.8 16.3 17.0 68.9 80.6 94.4 39.2 33.5 28.6 27.9 23.6 19.6 7.0 6.2 5.4 19.0 19.5 20.1 18.6 19.1 20.1Crisil 1,814 2,060 Accumulate 2,107 11,106 12,803 15,237 3,606 4,071 4,949 2,527 2,748 3,529 17.1 17.2 18.2 35.7 38.9 49.9 50.7 46.7 36.3 34.7 30.3 24.5 19.0 16.7 14.1 42.0 38.1 42.2 41.8 38.1 42.2V Guard 904 1,109 Buy 440 15,176 18,081 21,592 1,226 1,576 1,915 702 943 1,188 19.3 25.0 30.1 23.5 31.6 39.8 38.4 28.6 22.7 22.8 17.6 14.3 8.5 6.8 5.4 24.2 26.4 26.5 20.5 23.3 24.3CCL Products 133 183 Buy 287 7,168 9,507 10,788 1,431 1,826 2,136 644 999 1,312 22.7 22.2 42.7 4.8 7.5 9.9 27.4 17.7 13.4 14.1 10.8 8.8 5.0 4.1 3.3 20.4 25.6 27.4 12.3 17.0 20.7Adi Finchem 288 417 Buy 65 1,518 1,956 2,830 333 403 583 187 225 349 36.5 32.3 36.6 14.9 16.3 25.3 19.3 17.7 11.4 12.8 10.5 7.1 7.6 5.9 4.0 47.9 39.3 41.7 32.8 29.6 35.0

Pharmaceutical Praful Bohra ([email protected])Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EAurobindo Pharma 1,001 781 UR 4,750 80,873 121,273 136,451 21,195 21,235 24,972 13,333 13,503 16,258 29.9 8.5 10.4 45.7 46.3 55.8 21.9 21.6 17.9 15.5 15.3 12.8 7.8 5.8 4.4 36.9 30.6 27.7 26.1 21.7 22.9 Cadila 1,411 1,195 UR 4,701 72,240 80,454 94,797 12,001 14,943 18,438 8,036 10,156 12,881 14.6 23.9 26.6 40.0 49.6 62.9 35.3 28.4 22.4 25.9 20.7 16.6 8.4 6.8 5.5 25.7 26.5 27.2 16.0 18.9 21.0 Cipla 659 462 UR 8,605 100,973 117,229 136,125 21,329 24,083 30,074 13,884 16,043 20,588 16.1 18.7 21.8 17.3 20.0 25.6 38.1 33.0 25.7 24.7 22.0 17.5 5.2 4.6 3.9 14.5 14.8 16.5 15.8 15.6 18.0 Divis Labs 1,721 1,792 Accumulate 3,718 25,187 32,042 37,169 10,391 11,856 14,124 7,733 8,841 10,722 21.5 16.6 17.7 58.3 66.6 80.8 29.5 25.8 21.3 22.0 19.3 16.2 7.7 6.5 5.4 28.3 27.3 27.8 33.2 31.6 32.4 Ipca Labs 669 815 Accumulate 1,374 32,818 36,017 43,372 8,106 8,457 10,301 4,764 5,546 6,859 15.0 12.7 20.0 42.3 43.9 54.4 15.8 15.2 12.3 11.1 10.6 8.5 4.3 3.5 2.8 27.1 25.2 25.1 27.1 25.2 25.1 Glenmark Pharma 765 757 Accumulate 3,380 60,053 68,995 80,928 13,087 14,970 18,166 5,493 8,192 10,661 16.1 17.8 39.3 26.4 29.4 38.6 29.0 26.0 19.9 17.8 15.3 12.3 7.0 5.5 4.3 24.9 23.5 24.1 19.6 20.0 22.5 Jubilant Life Sciences 140 151 Sell 362 57,984 57,567 66,719 9,984 6,207 9,460 3,347 160 2,346 7.3 (2.7) (16.3) 21.0 1.0 14.7 6.6 138.6 9.5 5.4 8.6 5.8 0.8 0.9 0.8 13.1 0.6 8.8 10.7 4.8 9.5 Lupin 1,381 1,405 Accumulate 10,095 112,866 137,377 159,266 30,028 38,115 43,408 18,364 23,876 27,720 18.8 20.2 22.9 41.0 53.2 61.8 33.7 25.9 22.3 20.6 16.0 13.7 8.9 7.0 5.6 30.3 30.3 27.8 38.1 40.1 37.3 Natco Pharma 1,406 1,125 UR 757 7,389 8,909 10,426 1,793 2,138 2,554 1,026 1,306 1,717 18.8 19.3 29.4 30.4 38.4 50.5 46.3 36.6 27.8 27.5 23.0 18.9 7.7 6.5 5.5 17.8 19.4 21.6 15.4 17.4 20.1 Sun Pharma 872 872 Accumulate 29,377 160,804 189,987 217,299 71,956 84,910 96,067 57,218 65,714 72,238 16.2 15.5 12.4 27.6 31.7 34.9 31.5 27.5 25.0 24.4 20.2 17.4 9.6 7.6 6.2 33.9 30.9 27.2 33.4 30.4 28.2 Torrent Pharma 921 683 Sell 2,536 41,847 49,938 56,039 9,515 12,433 13,717 6,640 7,046 7,706 15.7 20.1 7.7 39.2 41.6 45.5 23.5 22.1 20.2 16.8 14.4 12.8 8.2 6.2 4.9 39.9 31.8 26.9 32.8 25.2 21.5

BankingHatim Broachwala ([email protected])Company CMP Current M-cap

(Rs) Rating (US$mn) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E NII Op. Profit PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16EAxis Bank 458 490 Buy 17,590 119,516 140,857 158,075 111,426 122,112 136,401 62,176 69,409 74,991 15.0 10.6 9.8 26.5 29.5 31.9 17.3 15.5 14.3 2.8 2.5 2.2 17.4 16.9 16.0 1.7 1.7 1.6 HDFC Bank 913 1,060 Buy 35,877 184,826 225,421 273,182 142,464 169,509 208,815 84,784 102,377 124,606 21.6 21.1 21.2 35.3 42.7 51.9 25.8 21.4 17.6 4.9 4.2 3.6 21.3 21.6 22.1 1.9 1.9 1.9 ICICI Bank 1,671 1,840 Buy 31,483 164,756 188,404 214,516 156,927 177,957 204,535 98,105 109,961 127,684 14.1 14.2 14.1 84.9 95.2 110.5 19.7 17.6 15.1 2.8 2.5 2.3 14.0 14.3 15.0 1.7 1.8 1.8 State Bank of India 2,782 2,915 Buy 33,802 492,822 561,099 631,419 300,712 365,605 415,334 108,912 143,068 177,711 13.2 17.5 27.7 145.9 191.6 238.0 19.1 14.5 11.7 2.4 2.1 1.8 10.0 11.5 13.0 0.6 0.7 0.8 Bank of Baroda 953 865 Accumulate 6,658 119,653 139,698 164,986 85,470 101,505 123,927 45,411 55,862 66,555 17.4 20.4 21.1 105.4 129.7 154.5 9.0 7.3 6.2 1.4 1.3 1.1 13.4 14.7 15.5 0.8 0.8 0.8 Punjab National Bank 950 1,030 Accumulate 5,597 161,460 177,097 201,860 108,351 116,257 143,329 33,425 43,078 65,907 11.8 15.0 40.4 92.3 119.0 182.0 10.3 8.0 5.2 1.4 1.3 1.1 9.7 11.5 15.9 0.6 0.7 1.0 Bank of India 287 315 Accumulate 2,995 108,305 120,393 143,908 76,273 82,081 104,580 27,293 31,300 38,485 15.3 17.1 18.7 42.4 48.7 59.9 6.8 5.9 4.8 1.0 1.0 0.8 10.1 10.1 11.4 0.5 0.5 0.6 Canara Bank 410 370 Accumulate 3,080 89,444 104,387 120,510 62,921 72,194 81,723 24,382 31,224 37,101 16.1 14.0 23.4 52.9 67.7 80.4 7.8 6.1 5.1 0.8 0.7 0.6 8.9 10.1 10.9 0.5 0.6 0.6 Syndicate Bank 128 - Under review 1,298 55,398 58,701 67,481 34,050 37,346 44,032 17,114 15,651 20,023 10.4 13.7 8.2 27.4 25.1 32.1 4.7 5.1 4.0 0.7 0.6 0.6 15.7 12.7 14.7 0.7 0.6 0.6 ING Vysya Bank 647 790 Buy 2,004 17,532 19,979 23,408 10,713 12,705 16,124 6,579 7,076 9,897 15.6 22.7 22.7 34.9 37.5 52.5 18.5 17.2 12.3 1.8 1.7 1.5 11.2 9.6 12.3 1.1 1.1 1.3 IndusInd Bank 722 800 Buy 6,210 28,907 34,180 41,591 25,441 29,609 36,829 14,080 16,958 21,763 19.9 20.3 24.3 26.8 32.3 41.4 27.0 22.4 17.4 4.3 3.8 3.2 16.9 17.5 19.5 1.8 1.8 1.9

TP (Rs)

Net sales (Rsmn) EBITDA (Rsmn) PAT (Rsbn)

TP (Rs)

Net sales (Rsmn) EBITDA (Rsmn) PAT (Rsmn)

P/BV (X) P/E (X)CAGR FY14-FY16E EPS (Rs) EV/EBITDA (X)

P/BV (X)CAGR FY14-FY16E EPS (Rs)

RoCE (%)RoE (%)

RoE (%) RoCE (%)

RoE (%) RoA (%)TP (Rs)

Net Interest Income (Rsmn) Op Profit (Rsmn) PAT (Rsmn) CAGR FY14-FY16E EPS (Rs) P/E (X) P/ABV (X)

P/E (X) EV/EBITDA (X)

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Disclaimer Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

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