4 June 2020

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Research Team (Gautam.Duggad@MotilalOswal.com)

Today’s top research idea Market snapshot

Chart of the Day: Britannia Industries (Earnings outlook seems promising)

Britannia Industries: Earnings outlook seems promising, but valuations fully capture upside BRIT declared an in-line set of results, but we are pleasantly surprised with

the commentary on ~24% avg. sales growth in Apr–May’20. The managementattributed this growth to high in-home consumption and better nimblenesscompared to peers in ensuring availability of key SKUs.

However two factors highlighted in the post-results call could keep multiplere-rating in check. (a) The management going back on its stated commitmentof group Inter Corporate Deposits (ICDs) not exceeding INR5b. (b) Thecompany following the policy of not repaying debt while letting theinvestment book to build up despite a sharp inventory reduction in the pastsix months. This would lead to consequent concerns over ROCE.

While we have revised our FY21 and FY22 EPS by 19.8% and 15.4%,respectively, but valuations fully capture upside at 45.5x FY22 EPS. Neutral.

Cos/Sector Key Highlights

Britannia Industries Earnings outlook seems promising, but valuations fully capture upside

BPCL Reported GRM at USD0.75/bbl; marketing margin at INR4.4/lit

Aurobindo Pharma Solid performance backed by healthy top line growth

Tata Consumer Products Business steadily returning to normalcy

Info-Edge Subdued collections to impact standalone entity

Cholamand. Inv. & Fin. Reported GRM at USD0.75/bbl; marketing margin at INR4.4/lit

MAS Financial Services Lower pandemic provisioning leads to strong PAT beat

Financials Assessing margin trajectory amid rapidly easing environment

BRIT’s base business volumes were likely flat YoY in 4QFY20 Accelerated market share gains in 4QFY20

Research covered

Equities - India Close Chg .% CYTD.% Sensex 34,110 0.8 -17.3 Nifty-50 10,062 0.8 -17.3 Nifty-M 100 13,924 0.4 -18.6 Equities-Global Close Chg .% CYTD.% S&P 500 3,123 1.4 -3.3 Nasdaq 9,683 0.8 7.9 FTSE 100 6,382 2.6 -15.4 DAX 12,487 3.9 -5.7 Hang Seng 9,968 0.9 -10.7 Nikkei 225 22,614 1.3 -4.4 Commodities Close Chg .% CYTD.% Brent (US$/Bbl) 38 0.0 -42.4 Gold ($/OZ) 1,700 -1.6 12.0 Cu (US$/MT) 5,499 -0.1 -10.6 Almn (US$/MT) 1,541 1.4 -13.5 Currency Close Chg .% CYTD.% USD/INR 75.5 0.2 5.7 USD/EUR 1.1 0.6 0.2 USD/JPY 108.9 0.2 0.3 YIELD (%) Close 1MChg CYTDchg 10 Yrs G-Sec 5.8 0.01 -0.8 10 Yrs AAA Corp 7.1 0.03 -0.6 Flows (USD b) 3-Jun MTD CYTD FIIs 0.25 1.16 -4.00 DIIs -0.10 -0.16 11.48 Volumes (INRb) 3-Jun MTD* CYTD* Cash 702 686 484 F&O 17,258 13,351 14,195 Note: *Average

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4 June 2020 2

Centre paves way for licence-free purchase directly from farmers The Union Cabinet on Wednesday cleared an Ordinance enabling any buyer be it Farmer-producer companies, big retailer or companies to purchase directly from farmers outside the regulated mandis without any license armed with just a permanent account …

Brent Oil Rises Past $40 With OPEC+ Cut Extension Looking Likely Brent oil rose above $40 a barrel for the first time in almost three months on signs that OPEC+ producers are close to agreeing on a short extension of their historic deal to cut output. Futures in London climbed around 2% after closing at their highest level since March 6, the day the OPEC+ alliance broke down.

Trump administration set to bar Chinese passenger carriers from flying to U.S., President Donald Trump's administration plans to bar Chinese passenger carriers from flying to the United States starting in mid-June as it pressures Beijing to allow U.S. air carriers to resume flights, three U.S. and airline officials briefed on the matter told Reuters.

Companies don't need city gas license to start LNG station, says regulator Anybody can start liquefied natural gas (LNG) dispensing station in the country and wouldn’t require a city gas distribution license for it, the regulator has said in a big step towards aiding India’s ambition of shifting some of its long-haul transport to natural gas. This helps resolve long standing …

Govt clears plan to suspend IBC for 6 months, ordinance soon The union cabinet on Wednesday cleared the proposal to suspend the Insolvency and Bankruptcy Code for a period of six months, which could be extended up to a year in light of Covid-19 pandemic, sources said. Government is likely to promulgate an ordinance soon to bring the change in the IBC law into effect. The details of the cabinet decision will be announced once the ordinance is ready, the source said. …

Credit card spending falls 51 per cent in April: Survey Credit card spending tumbled 51 per cent in April amid the coronavirus lockdown, though categories like streaming platforms and online classes saw growth, a survey said. Credit card spending dropped initially by 10 per cent when the lockdown was announced in March and declined further by 51 per cent when it …

Commerce Minister Piyush Goyal asks developers to sell properties at reduced rates The Union Minister of Commerce & Industry Piyush Goyal has advised real estate developers to reduce prices and sell their inventories and not to wait for the market to improve. The government is trying to offer some concession in ready reckoner rates, but even if that…

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In the news today

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4 June 2020 3

Estimate change TP change Rating change

Bloomberg BRIT IN Equity Shares (m) 240 M.Cap.(INRb)/(USDb) 844.1 / 11 52-Week Range (INR) 3705 / 2101 1, 6, 12 Rel. Per (%) 10/31/33 12M Avg Val (INR M) 1724

Financials & Valuations (INR b) Y/E March 2020 2021E 2022E Sales 116.0 132.3 147.0 Sales Gr. (%) 4.9 14.0 11.1 EBITDA 18.4 22.6 25.2 Margins (%) 15.9 17.1 17.1 Adj. PAT 14.1 16.7 18.6 Adj. EPS (INR) 58.6 69.5 77.1 EPS Gr. (%) 21.8 18.5 11.0 BV/Sh.(INR) 183.1 188.0 193.4 Ratios RoE (%) 32.6 37.5 40.5 RoCE (%) 24.2 25.5 28.3 Payout (%) 60.9 80.0 80.0 Valuations P/E (x) 59.9 50.5 45.5 P/BV (x) 19.2 18.7 18.2 EV/EBITDA (x) 45.0 36.5 32.7 Div. Yield (%) 1.0 1.6 1.8

Shareholding pattern (%) As On Mar-20 Dec-19 Mar-19 Promoter 50.6 50.6 50.7 DII 13.4 13.6 12.4 FII 14.7 15.8 15.8 Others 21.3 20.0 21.2 FII Includes depository receipts

CMP: INR3,510 TP: INR3,470 (-1% ) Neutral Earnings outlook seems promising, but valuations fully capture upside

BRIT declared an in-line set of results, but we are pleasantly surprised withthe commentary on ~24% avg. sales growth in Apr–May’20. Themanagement attributed this growth to high in-home consumption in thelockdown period and BRIT being quicker off the block than peers after theinitial COVID-19-led disruption.

Two factors highlighted in the post-results call could keep multiple re-rating in check. (a) The management going back on its stated commitment of Inter Corporate Deposits (ICDs) not exceeding INR5b. (b) The company followingthe policy of not repaying debt while letting the investment book to buildup despite a sharp inventory reduction in the past six months. This wouldlead to consequent concerns over ROCE.

While we have revised our FY21 and FY22 EPS by 19.8% and 15.4%,respectively, but valuations fully capture upside at 45.5x FY22 EPS.Maintain Neutral.

Sales/EBITDA in-line; PAT beat on lower taxes and higher other income BRIT’s consol. sales increased 2.5% YoY to INR28.7b (in-line) in 4QFY20.

Standalone sales were flat YoY at INR26.9b. We believe base businessvolume growth would be flat YoY (in line with our estimate). Consol.EBITDA grew 4.1% YoY to INR4.5b (in-line), consol. PBT 1.6% YoY to INR4.6b (est.: INR4.4b), and consol. adj. PAT 26.5% YoY to INR3.7b (est.: INR3.4b).

Consol. gross margin contracted by 150bp YoY to 39.7% due to moderateinflation in the price of key raw materials for the bakery business. As apercentage of sales, higher staff cost (40bp YoY) and lower other expenses(-210bp YoY) implied the EBITDA margin expanded 20bp YoY to 15.8% (in-line).

FY20 consol. sales / EBITDA / adj. PAT grew 4.9%/6.3%/21.9% YoY.

Highlights from management commentary BRIT witnessed a segmental uptick over Jan–Feb’20 (unlike FMCG peers)

and its rural initiatives have also enabled growth. BRIT reported an average 24% increase in the first two months of 1QFY21

owing to: (a) high in home consumption and (b) the company’s nimblenessin ensuring faster availability of products compared to peers. Themanagement believes the trust in brands also plays a big role in times when safety is a concern.

In 1QFY21, the outlook on all commodities is weak, including palm oil andmilk, which were up 18% YoY and 50% YoY, respectively, in 4QFY20.

ICD is at the same level as a year ago, i.e., at around INR6b, but higher thanthe earlier commitment of not exceeding INR5b levels.

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3 June 2020 4QFY20 Results Update | Sector: Consumer

Britannia Industries

4 June 2020 4

Valuation and view We have increased our FY21/FY22 EPS estimate by 19.8%/15.4% on account of:

(a) significantly stronger than expected topline growth over Apr–May’20, (b)recovery in category growth after a long time over Jan–Feb (pre COVID-19), (c)the expectation of in-home consumption continuing to be reasonably strong forthe large part of the year, and (d) a benign outlook on all raw materials.

While the structural story is attractive, the increase in ICD beyond earlier-guidedthreshold levels, problems with group-level companies, and the fact that thecompany seems to have chosen to have both debt and cash on the books,thereby leading to consequent concerns over ROCE, would keep the targetmultiple in check.

Valuing the company at 45x FY22 EPS, we arrive at a target price of INR3,470,leading to 1% downside to CMP. Maintain Neutral.

Consol. Quarterly Performance (INR m) Y/E March FY19 FY20 FY19 FY20 FY20 Variance

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE (%) Base business volume growth (%) 11.0 11.0 7.0 7.0 3.0 3.0 3.0 0.0 9.0 2.3 0.0 Net Sales 25,438 28,696 28,424 27,990 27,004 30,488 29,827 28,677 110,547 115,996 28,609 0.2 YoY change (%) 12.4 12.7 10.7 10.3 6.2 6.2 4.9 2.5 11.5 4.9 2.2

Gross Profit 10,175 11,491 11,737 11,531 10,912 12,247 12,185 11,377 44,932 46,721 11,519 Margins (%) 40.0 40.0 41.3 41.2 40.4 40.2 40.9 39.7 40.6 40.3 40.3

EBITDA 3,894 4,544 4,518 4,366 3,947 4,922 5,020 4,543 17,334 18,432 4,543 (0.0) Margins (%) 15.3 15.8 15.9 15.6 14.6 16.1 16.8 15.8 15.7 15.9 15.9 YoY growth (%) 18.5 20.3 13.4 9.9 1.4 8.3 11.1 4.1 15.4 6.3 4.1

Depreciation 356 369 424 469 448 449 467 485 1,619 1,848 517 Interest 24 24 30 13 101 161 237 270 91 769 253 Other Income 420 440 600 618 675 682 652 786 2,065 2,794 637 PBT 3,933 4,590 4,664 4,502 4,072 4,994 4,969 4,574 17,689 18,609 4,409 3.8 Tax 1,352 1,559 1,658 1,557 1,430 955 1,273 849 6,125 4,507 984 Rate (%) 34.4 34.0 35.5 34.6 35.1 19.1 25.6 18.6 34.6 24.2 22.3

Adjusted PAT 2,581 3,031 3,007 2,946 2,642 4,038 3,696 3,725 11,564 14,102 3,425 8.8 YoY change (%) 19.5 16.2 14.1 11.7 2.4 33.2 22.9 26.5 15.2 21.9 16.3

E: MOFSL Estimates

4 June 2020 5

BSE SENSEX S&P CNX CMP: INR348 Under Review 34,110 10,062

Conference Call Details Date: 04 Jun 2020 Time: 11:00am IST Dial-in details: 022 6280 1342

Reported GRM at USD0.75/bbl; marketing margin at INR4.4/lit Reported EBITDA came in higher than est. at INR5.9b (-87% YoY) owing

to a better-than-expected refining margin. Inventory loss for the quarter was at INR49b (refining at INR29.6b and

marketing at INR19.4b). Adj. for the same, EBITDA came in at INR54.9b. On account of the COVID-19-led impact, the company has recorded an

exceptional item of INR10.8b in light of the revaluation of certainfinished goods inventory and raw materials.

The company reported forex loss of INR12.1b, with reported PAT-levelloss of INR13.6b (v/s gains of INR31.2b in 4QFY20).

The company has reversed tax provisions of INR1.9b from earlier years.Thus, adj. PAT (for the exceptional item and tax write-back) came in at aloss of INR8.4b, against est. loss of INR9.6b.

Refining throughput was in-line at 8.4mmt (+2% YoY, flat QoQ). BPCL reported better-than-estimated GRM at USD0.75/bbl (-USD4.5

est.; USD2.7 in 4QFY19).

Marketing sales stood in-line at 10.7mmt (-5% YoY; -3% QoQ). The marketing margin incl. inv. came in lower than the estimate at

INR4.4/lit. (v/s INR5.3 est.; INR6.5 in 4QFY19).

FY20 EBITDA stood at INR83b (-34% YoY) and adj. PAT at INR37.7b (-47% YoY).

BPCL has not exercised the new lower tax rate option due to theavailability of unutilized MAT credit.

Total refinery throughput was up 3% YoY to 31.9mmt, while marketingsales were flat YoY at 43.1mmt.

Full-year average reported GRM was USD2.5/bbl (v/s USD7.5 in FY19),and marketing margins were up 5% YoY to INR5.0/lit.

On COVID-19 impact The company communicated that:

Demand for petroleum products tumbled 55% YoY in Apr’20; however,sales in May’20 are just 30% lower YoY.

Refinery utilization in Apr’20 was ~63%, which was ramped up to ~77%at the end of May’20.

18 May 2020

4QFY20 Results Update | Sector: Healthcare

GSK Pharma 3 June 2020

Results Flash | Sector: Oil & Gas

BPCL

RESULTS FLASH

4 June 2020 6

Standalone - Quarterly Earnings Model (INR b) Y/E March FY19 FY20 FY19 FY20E FY20 Var. vs

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE Est. Net Sales 717.0 722.9 791.7 739.9 763.2 643.4 747.3 689.9 2,971.5 2,843.8 601.2 15% YoY Change (%) 25.5 35.6 30.6 13.4 6.4 -11.0 -5.6 -6.8 25.7 -4.3 -18.7

EBITDA 45.8 33.5 0.8 45.3 21.5 27.6 28.0 5.9 125.4 83.0 3.3 78% Margins (%) 6.4 4.6 0.1 6.1 2.8 4.3 3.7 0.9 4.2 2.9 0.6

EBITDA adj. for inventory and one-offs 19.0 19.1 34.1 41.7 26.0 27.9 22.6 54.9 114.0 131.4 38.2 44% Forex loss 7.1 9.3 -6.6 -2.8 -0.3 3.9 1.0 12.1 7.0 16.6 7.8 Depreciation 7.4 7.6 7.8 9.1 9.1 9.5 9.7 9.5 31.9 37.9 10.7 -11% Interest 3.0 3.3 3.4 3.5 4.5 6.4 5.1 5.8 13.2 21.8 5.4 7% Other Income 5.5 5.4 9.7 10.6 5.4 8.7 5.1 11.6 31.1 30.8 6.2 87% PBT before EO expense 33.8 18.7 5.9 46.0 13.5 16.6 17.3 -9.9 104.4 37.5 -14.4 NM Extra-Ord expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.8 0.0 10.8 0.0 PBT 33.8 18.7 5.9 46.0 13.5 16.6 17.3 -20.7 104.4 26.7 -14.4 NM Tax 10.9 6.5 0.9 14.7 2.8 -0.5 4.7 -7.1 33.1 -0.1 -4.8 NM Reported PAT 22.9 12.2 5.0 31.2 10.8 17.1 12.6 -13.6 71.3 26.8 -9.6 NM Margins (%) 3.2 1.7 0.6 4.2 1.4 2.7 1.7 -0.9 2.4 1.3 -1.6

Key Assumptions Refining throughput (mmt) 7.7 7.6 7.5 8.2 7.5 7.7 8.4 8.4 31.1 31.9 8.6 -2% Reported GRM (USD/bbl) 7.5 5.6 2.8 2.7 2.8 3.4 3.2 0.8 7.5 2.5 -4.5 NM Marketing sales volume excld exports (mmt) 11.0 10.1 10.7 11.4 11.1 10.3 11.0 10.7 43.1 43.1 11.1 -4% Marketing GM incld inv (INR/litre) 4.9 4.9 2.9 6.5 4.4 5.0 4.8 4.4 4.8 5.0 5.3 -17% E: MOFSL Estimates

4 June 2020 7

BSE SENSEX S&P CNX CMP: INR755 Buy 34,110 10,062

Conference Call Details Date: 4th Jun 2020 Time: 05:00 pm IST Dial-in details: +91-22-6280 1437

Financials & Valuations (INR b) Y/E Mar 2020 2021E 2022E

Net Sales 231.0 236.3 252.4 EBITDA 48.6 50.3 53.0 NP 28.8 29.9 31.3 EPS (INR) 49.2 51.1 53.4 EPS Gr. (%) 13.9 4.0 4.5 BV/Sh. (INR) 282.9 331.5 381.4 RoE (%) 18.9 16.6 15.0 RoCE (%) 13.0 11.5 10.9 P/E (x) 15.4 14.8 14.1 P/BV (x) 2.7 2.3 2.0

Solid performance backed by healthy top line growth

Aurobindo’s (ARBP) reported 4QFY20 sales were up 16.4% YoY to INR61.6b (v/s est. INR58.2b). Growth was largely led by (a) 21% YoY growth in USformulations to INR29.9b (48.6% of sales; 17% YoY constant currency growth to USD413m), and (b) 26% YoY growth in Europe business (27% of sales) toINR16.5b.

ARV (6% of sales) grew 31% YoY for the quarter. Growth Markets (6% of sales)grew 30.3% to INR3.7b in 4QFY20.

Growth in other segments was partially offset by decline in API (12% of sales),which was down 17.6% to INR7.6b.

Gross margin (GM) at 59.4% was up 290bp YoY due to superior product mix. However, EBITDA margin at 21.8% (v/s est. 20.4%) was up 40bp due to increase

in other expenses (+240bp as % of sales) and higher employee cost (+50bp as %of sales), which was offset by reduction in R&D expense (-50bp YoY as % ofsales).

EBITDA at INR13.4b (v/s est. INR11.9b) was up 19% YoY. Adj. PAT came in at INR8.6b (v/s est. INR7b) and grew 29.7% due to revenue

growth, better operating margins and lower tax rate. FY20 revenues stood at INR231b, up 18.1% YoY. FY20 EBITDA was up 21% to

INR48.6b, while EBITDA margin came in at 21.1%, up 50bp YoY. Adj. PAT for theyear stood at INR28.8b, up ~14% YoY; Adj. PAT growth was lower than EBITDAgrowth due to higher depreciation, lower other income and higher taxes.

Other Highlights: R&D expense for the quarter stood at INR2.4b (3.9% of revenues), lower by

50bp YoY as % of sales. ARBP filed for 17 ANDAs (incl. 10 injectables) and received final approval for 6

ANDAs. The company launched 4 products during the quarter.

Key questions for the management Growth drivers after the Sandoz deal fell through US launch outlook

3 June 2020Results Flash | Sector: Healthcare

Aurobindo Pharma

RESULTS FLASH

4 June 2020 8

Quarterly performance (Consolidated) (INR Million) Y/E March FY19 FY20 FY19 FY20 FY20E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 4QE vs Est Net Sales 42,503 47,514 52,697 52,922 54,446 56,005 58,950 61,584 195,636 230,985 58,239 5.7% YoY Change (%) 15.5 7.1 21.5 30.7 28.1 17.9 11.9 16.4 18.6 18.1 10.0

EBITDA 7,792 10,260 10,864 11,303 11,464 11,675 12,080 13,424 40,219 48,643 11,903 12.8% YoY Change (%) -7.4 -8.2 5.9 40.6 47.1 13.8 11.2 18.8 6.2 20.9 5.3

Depreciation 1,545 1,637 1,631 1,866 2,409 2,433 2,501 2,324 6,680 9,667 2,536 EBIT 6,247 8,623 9,233 9,437 9,055 9,241 9,579 11,100 33,540 38,976 9,367 YoY Change (%) -12.1 -12.5 4.0 45.8 45.0 7.2 3.8 17.6 3.8 16.2 -1

Interest 295 354 477 501 499 409 371 318 1,627 1,598 316 Other Income 437 263 134 323 110 206 220 326 1,157 862 214 PBT before EO expense 6,389 8,532 8,890 9,259 8,666 9,038 9,428 11,108 33,070 38,240 9,264 19.9% Forex loss/(gain) 682 397 -505 28 -48 272 -89 262 603 397 0 Exceptional (expenses)/income 0 -268 -250 (1,062) -127 -128 -129 123 (1,581) (261) 0 PBT 5,707 7,866 9,144 8,169 8,587 8,638 9,388 10,969 30,887 37,582 9,264 18.4% Tax 1,155 1,754 2,048 2,311 2,278 2,244 2,329 2,285 7,269 9,135 2,327 Rate (%) 20.2 22.3 22.4 28.3 26.5 26.0 24.8 20.8 23.5 24.3 25.1

Minority Interest -3 -2 -26 4 -47 -1 6 185 -29 137 -13 Reported PAT 4,555 6,114 7,122 5,854 6,357 6,395 7,053 8,499 23,647 28,310 6,950 22.3% Adj PAT 5,095 6,632 6,925 6,636 6,415 6,691 7,083 8,609 25,288 28,798 6,950 23.9% YoY Change (%) -2.8 -15.1 5.5 22.6 25.9 0.9 2.3 29.7 1.1 13.9 4.7 Margins (%) 12.0 14.0 13.1 12.5 11.8 11.9 12.0 14.0 12.9 12.5 11.9

Key performance Indicators (Consolidated) Y/E March FY19 FY20 FY19 FY20 INRm 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Formulations 35,008 39,348 43,478 43,735 47,119 47,939 51,050 54,012 161,571 200,119 YoY Change (%) 14.7 7.4 21.8 34.6 34.6 21.8 17.4 23.5 19.4 23.9

ARV form. 1,556 2,440 2,813 2,915 3,185 2,379 3,134 3,818 9,725 12,515 YoY Change (%) -36.4 17.6 17.7 96.2 104.7 -2.5 11.4 31.0 15.8 28.7

US generic form. 18,896 22,268 24,332 24,811 26,884 28,355 29,694 29,903 90,307 114,835 YoY Change (%) 11.5 6.1 27.4 42.7 42.3 27.3 22.0 20.5 21.3 27.2

EU and ROW form. 14,556 14,640 16,333 16,009 17,050 17,205 18,222 20,291 61,539 72,769 YoY Change (%) 31.0 7.9 14.9 17.6 17.1 17.5 11.6 26.7 17.2 18.2

APIs 7,480 8,166 9,218 9,168 7,322 8,058 7,898 7,556 34,030 30,834 YoY Change (%) 19.7 5.8 20.4 14.7 -2.1 -1.3 -14.3 -17.6 14.7 -9.4

Cost Break-up RM Cost (% of Sales) 44.9 43.0 45.4 43.5 42.2 42.3 43.5 40.6 44.2 42.1 Staff Cost (% of Sales) 14.0 13.2 12.3 13.5 14.3 13.9 13.5 14.0 13.2 13.9 R&D Expenses(% of Sales) 4.0 4.6 4.8 4.4 4.5 4.0 4.3 3.9 4.5 4.1 Other Cost (% of Sales) 18.8 17.7 16.9 17.3 17.9 19.0 18.2 19.6 17.6 18.5

Gross Margins(%) 55.1 57.0 54.6 56.5 57.8 57.7 56.5 59.4 55.8 57.9 EBITDA Margins(%) 18.3 21.6 20.6 21.4 21.1 20.8 20.5 21.8 20.6 21.1 EBIT Margins(%) 14.7 18.1 17.5 17.8 16.6 16.5 16.2 18.0 17.1 16.9 Formulations (% of Sales) 82.4 82.8 82.5 82.7 86.6 85.6 86.6 87.7 82.6 86.6 ARV form. 3.7 5.1 5.3 5.5 5.9 4.2 5.3 6.2 5.0 5.4 US generic form. 44.5 46.9 46.2 46.9 49.4 50.6 50.4 48.6 46.2 49.7 EU and ROW form. 34.3 30.8 31.0 30.3 31.3 30.7 30.9 33.0 31.5 31.5 APIs (% of Sales) 17.6 17.2 17.5 17.3 13.4 14.4 13.4 12.3 17.4 13.3 E: MOSL Estimates

4 June 2020 9

Business steadily returning to normalcy

Tata Consumer Products (TCP) has released a press note highlighting the impact of COVID-19 on its business segments. Key insights highlighted below:

India Operations TCP’s Indian operations started to see disruptions around mid-Mar’20.

Operations have resumed partially since early-Apr’20 after the receipt ofrequisite Government permissions.

In the initial period, TCP witnessed mixed response across channels. Sales off-take in modern trade and E-commerce were good, which to some extentreflects panic buying. On the other hand, sales in traditional channels and foodservice were adversely impacted, primarily due to closure of stores and issueswith sales manpower/logistics.

The company has partnered with E-commerce/other delivery players in Indiato ensure direct reach to consumers, thus boosting its supply chain.

Almost all its tea packaging units, salt/pulses packing centers and third-partyspice units are operational and following the government prescribed operatingnorms. Further, almost all its warehouses are now operational with a fewoperating with limited working hours and manpower. The finished goods stockholding across depots are also at a healthy level.

India – JV and Plantations Tata Starbucks: All stores in India were closed from 22nd Mar’20 till mid-Apr’20.

The company has now opened ~40% of its outlets for delivery and takeaways.NourishCo Beverages: As most of this business’ products are consumed onpremise/out-of-home, the impact has been fairly significant in Apr’20. Startinglate-May’20, as markets and outlets have opened, revenues are slowly returningto normalcy.

Plantations: TCP’s tea and coffee plantations in India were also shut. Plantationsopened in early-Apr’20 with limited manpower and operations and are currentlyoperating almost at full capacity (barring a few geographies). There has beensome crop shortfall during this period due to curtailment of operations.

International operations All its factories have been running flat out. TCP has seen higher demand with significant in-home consumption increase due

to stocking with offices, bars and restaurants that were closed during thelockdown. A shift to more normal consumption level is beginning in certainmarkets.

While tea and coffee sales to retail customers have increased due to higher in-home consumption, out-of-home businesses in the US/Australia have seen asharp decline.

News Flash| 4 June 2020

Tata Consumer Products Financial valuation snapshot (INR b) Y/E MARCH FY20 2021E 2022E Sales 96.4 104.0 114.5 EBITDA 12.9 14.5 16.9 Adj. PAT 7.3 8.5 10.3

EBITDA Margin.% 13.4 14.0 14.8 Cons. Adj. EPS (INR)

8.0 9.2 11.2

EPS Gr. (%) 66.4 15.7 21.3 BV/Sh. (INR) 150 156 163 Ratios Net D:E (0.1) (0.1) (0.1)

RoE (%) 6.9 6.0 7.0 RoCE (%) 8.5 7.8 9.0 Payout (%) 46.5 31.2 28.8 Valuations P/E (x) 46.0 39.7 32.8 EV/EBITDA (x) 24.9 22.2 19.1 Div. Yield (%) 0.9 1.4 1.6 FCF Yield (%) 4.8 3.1 4.5

4 June 2020 10

View The Tata group has clear focus on leveraging its brand and participating in

India’s consumption story of INR30t, which resulted in the merger of TataChemicals’ Consumer business with itself.

The merger of Tata Chemicals’ Consumer business with TCP is in line with theTata group’s focus to create a single FMCG-focused company. The merger offersmultiple synergies, including higher outlet coverage, focused new productdevelopment, stronger cash flow generation and scale efficiencies.

Although the supply chain issue due to COVID-19 would pose a challenge toscale up the business in the short term, it is likely to recover in the mediumterm. However, the Tata group’s long-term vision of creating strong presence inthe FMCG space remains intact.

We value the stock on an SOTP basis to arrive at a target price of INR431.Maintain Buy.

4 June 2020 11

BSE SENSEX S&P CNX CMP: INR2,567 TP: INR2,560 (0%) Neutral 34,110 10,062

Stock Info Bloomberg INFOE IN Equity Shares (m) 104 M.Cap.(INRb)/(USDb) 314.4 / 4.2 52-Week Range (INR) 3125 / 1580 1, 6, 12 Rel. Per (%) -1/17/26 12M Avg Val (INR M) 866 Free float (%) 59.5

Financials Snapshot (INR b) Y/E MARCH FY20E FY21E FY22E Net Sales 12.7 13.2 16.0 EBITDA (Rs b) 4.0 3.7 4.5 NP 2.4 3.1 3.8 EPS 19.8 25.2 31.0 EPS Gr (%) -13.5 26.9 23.2 BV/Share (Rs) 204.2 218.8 235.6 P/E (x) 130.0 102.5 83.2 P/BV (x) 12.6 11.8 11.0 RoE (%) 13.7 12.0 13.8 RoCE (%) 13.7 11.9 13.7

Shareholding pattern (%) As On Mar-20 Dec-19 Mar-19 Promoter 40.5 40.5 40.8 DII 13.4 12.9 15.2 FII 35.7 36.4 33.5 Others 10.5 10.3 10.6

FII Includes depository receipts

Subdued collections to impact standalone entity

In response to the COVID-19 pandemic, Info Edge (INFOE) has released a business update. Key insights highlighted below.

Operational performance stable for now… Unaudited 4QFY20 revenue increased 10.3% YoY to INR3.23b. Recruitment

revenue grew 11.2% YoY (v/s 18.4% YoY in 4QFY19), 99acres.com grew 3.7% YoY (v/s 45.8% in 4QFY19) and Jeevansathi grew 25.4% YoY (v/s 6.5% in4QFY19).

The company’s B2B businesses (Naukri.com and 99acres.com) saw a majorpart of the COVID-19 impact. Its B2C business (Jeevansathi), however, sawminimal impact.

EBITDA margin dipped 500bp sequentially to 28%. Margin from recruitmentbusiness stood at 56%, above the average range of ~55%. We believe thathigher advertisement expenses on Jeevansathi and 99acres.com led to themargin underperformance at a standalone level.

…however, brace for troubled waters ahead Naukri.com’s collection growth was consistent at 13% YoY till mid-Mar’20.

Nevertheless, collections saw INR140m YoY decline in 4QFY20 as the jobmarket plummeted in the last 15 days of Mar’20. This, managementbelieves led to a shortfall of ~INR400-440m.

For Apr’20, collections plunged 54%, indicating billing of INR400m as against the monthly average of ~INR1b.

Similar to Naukri.com, 99acres.com saw a collection decline of INR180mYoY. According to the company’s estimate, COVID-19 related impact led to a shortfall in collections by ~INR250-300m.

Unlike the above, Jeevansathi saw only a nominal impact with collectionsgrowing 20% YoY.

Given that Naukri.com and 99acres.com together contribute 90% of INFOE’s standalone business, we expect 1QFY21 to be a complete washout.

Strong cash and investments to cushion COVID-19 impact INFOE has strong liquidity position of INR15.7b; of this, Banks/FDR holds

INR13.1b and MFs (Liquid schemes) hold INR2.6b. Given the fixedcommitments of INR6b in FY20, the company has enough liquidity tosustain operations for 2.5 years.

Apart from this, book value of start-up investments amount to INR11b ofthe balance sheet.

Update | Sector: Technology

Info-Edge

Motilal Oswal values your support in the Asiamoney Brokers Poll 2020 for India

Research, Sales and Trading team. We request your ballot.

Stock Performance (1-year)

1,4001,9002,4002,9003,400

Jun-

19

Aug-

19

Nov-

19

Feb-

20

Jun-

20

Info Edg.(India)Sensex - Rebased

4 June 2020 12

To further differentiate its investing business, INFOE created a separate AIF on 9th Jan’20. Proposed corpus of this fund would be INR7.5b (INR3.5b invested by the company).

In the past, INFOE’s start-up investments have been highly successful. According to our estimate, the company has clocked an XIRR of >40% since the time it started investing.

Valuation and view We foresee a halt in near-term momentum, led by expectation of billing decline

in the recruitment and real estate segments for 1HFY21. However, given the market positioning of its entities, multi-dimensional growth could be expected from the company in the medium-to-long term, backed by recruitment, real estate, Zomato (its biggest investee company) and Policybazaar.

So far, INFOE has shown prudence with its investments (XIRR >40%). We, thus, believe that some of its current investments would scale up in the medium-to-longer term and further contribute to the group’s valuations.

Our SOTP-based price target of INR2,560 is same as CMP. Maintain Neutral. Unaudited revenue grew 11% YoY

Billing decline to pressure near-term revenue growth momentum

2224

.6

2252

.1

2271

.6

2406

.6

2595

.3

2650

.1

2810

.6

2926

.5

3127

.7

3166

.1

3205

.0

3229

.0

12.6

7.2

22.1

15.5 16.7 17.7

23.7 21.6 20.5 19.5

14.0 10.3

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

Revenue (INR m) Revenue Growth - YoY (%)

1821

1464

1632

2163

2101

1841

1936

2598

2517

2098

2100

2440

12% 14% 13% 9%

15%

26% 19% 20% 20%

14% 8%

-6%

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

Naukri Billing (INR M) Growth (YoY)

298

333

378

562

409

501

490

667

484

605

543

507 8%

-5%

54% 43% 37%

50%

30% 19% 18% 21%

11%

-24%

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

99 acres Billing (INR M) Growth (YoY)

4 June 2020 13

BSE SENSEX S&P CNX CMP: INR156 TP: INR225 (+44%) Buy 34,110 10,062

Conference Call Details Date: 04 Jun 2020 Time: 10:00am IST Dial-in details: 022 7115 8805 / 022 6280 4040

Financials & Valuations (INR b) Y/E March 2020 2021E 2022E Total Income 40.6 39.4 43.1 PPP 24.8 22.5 24.7 PAT 10.5 9.2 12.5 EPS (INR) 12.8 11.2 15.2 EPS Gr. (%) -15.4 -12.4 35.2 BV (INR) 98 107 120 Valuations

NIM (%) 6.5 5.9 6.1 C/I ratio (%) 38.9 42.8 42.6 RoAA (%) 1.7 1.4 1.8 RoE (%) 15.0 11.0 13.4 Payout (%) 11.7 14.2 11.2 Valuations

P/E (x) 12.2 13.9 10.3 P/BV (x) 1.6 1.5 1.3 Div. Yield (%) 1.0 1.0 1.1

INR5b in one-time COVID-19 provisions CIFC’s PAT declined 85% YoY to INR427m (88% miss), weighed by an 8%

miss on operating profit, coupled with higher-than-expected provisions. The company took INR5b worth of one-time provisions (0.9% of loans) for the impact of COVID-19. Around 76% of customers have been granted moratorium.

Muted growth; Yield down sequentially Disbursements declined 36% YoY to INR57b, driven by similar decline

in VF and LAP. With the COVID-19 situation having impacted the past 10–15 days in the quarter, disbursements should not have declined more than 10–15% YoY, in our opinion; the larger-than-expected decline indicates: a) underlying weakness in CV demand, despite the migration to BS6 and b) the lack of supply of vehicles at the dealer level. As a result, AUM was flat QoQ (up 12% YoY) at INR606b.

While the company benefited from lower cost of funds (down 30bp QoQ to 8.3%), it also witnessed some yield pressure (down 60bp QoQ to 14.4%). This, coupled with lower assignment income (INR330m v/s estimate of INR660m), caused the 7% miss on total income v/s our estimates.

INR100b in cash and undrawn lines As of 31st May’20, the company has INR100b in cash and undrawn

sanctioned lines. Hence, the company is comfortable to meet all fixed obligations up to Sep’20 without availing moratorium from its lenders.

GNPL ratio inches up; 76% of customers have availed moratorium The GNPL ratio increased 30bp QoQ to 3.8%. This is slightly negative

given that 4Q is a seasonally strong quarter and the company granted moratorium to customers in March. We await further clarity on the same.

Around 76% of customers have been granted moratorium. As of date, 90% of branches are open and operational. Other details For the full year FY20, the company delivered 1.8% RoA and 15% RoE. The company raised INR9b via QIP and INR3b via preferential allotment

to the promoter in 4QFY20. Valuation and view The lower-than-expected disbursements in 4QFY20 cannot be attributed

to the impact of COVID-19 alone, in our view. We believe it also points to structural issues, such as the lack of demand in the CV segment, and temporary issues, such as the unavailability of stock at the dealer level. Demand recovery in FY21 would be divergent, with the Tractor segment being the first to recover, followed by SCV, Cars, and finally the M&HCV segment, in our view. The Home Equity segment is likely to remain muted in FY21. While most customers have availed moratorium, the overall collection efficiency would be a key monitorable. We look to revise our estimates and TP post the concall on Thursday, 4th June (022 7115 8805).

RESULTS FLASH

3 June 2020 Results Flash | Sector: Financials

Cholamandalam Inv. & Finance

4 June 2020 14

Quarterly Performance (INR m) Y/E March FY19 FY20

FY19 FY20 4QFY20E v/s Est. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Income from Operations 16,057 16,751 18,261 18,851 20,295 21,970 22,749 21,513 69,926 86,529 22,581 -5 Interest Expenses 7,950 8,565 9,508 9,864 10,870 11,769 11,924 11,359 35,887 45,922 11,671 -3 Net Interest Income 8,107 8,185 8,753 8,987 9,425 10,200 10,825 10,154 34,039 40,607 10,909 -7

YoY Growth (%) 22.2 17.9 22.2 20.9 16.3 24.6 23.7 13.0 22.9 19.3 21.4 Total Income 8,109 8,186 8,754 8,989 9,425 10,201 10,825 10,156 34,046 40,609 10,911 -7

YoY Growth (%) 22.2 17.9 22.2 20.9 16.2 24.6 23.7 13.0 22.9 19.3 21.4 Operating Expenses 2,816 2,901 3,158 3,820 3,500 4,016 4,244 4,016 12,696 15,776 4,262 -6 Operating Profit 5,293 5,285 5,596 5,169 5,925 6,185 6,581 6,140 21,350 24,833 6,649 -8

YoY Growth (%) 22.5 24.8 28.8 20.5 11.9 17.0 17.6 18.8 29.0 16.3 28.6 Provisions & Loan Losses 905 690 961 556 1,095 952 1,360 5,567 3,112 8,973 1,764 216 Profit before Tax 4,388 4,595 4,635 4,614 4,830 5,233 5,221 573 18,238 15,860 4,885 -88 Tax Provisions 1,535 1,549 1,591 1,695 1,688 2,163 1,336 147 6,370 5,334 1,210 -88 Net Profit 2,852 3,047 3,044 2,919 3,142 3,070 3,885 427 11,868 10,526 3,675 -88

YoY Growth (%) 36.0 49.4 38.7 2.3 10.2 0.8 27.6 -85.4 36.6 -11.3 25.9 Key Parameters (%) Yield on loans 14.7 14.0 14.3 14.0 14.1 14.6 15.0 14.4 13.9 15.0 Cost of funds 8.0 7.8 8.1 8.1 8.2 8.5 8.6 8.3 8.1 8.7 Spread 6.7 6.3 6.3 5.9 5.9 6.1 6.4 6.2 5.8 6.3 NIM 7.3 7.0 7.1 6.9 6.7 7.0 7.2 6.7 6.3 6.5 C/I ratio 34.7 35.4 36.1 42.5 37.1 39.4 39.2 39.5 37.3 38.9 Credit cost 0.8 0.6 0.8 0.4 0.8 0.7 0.9 3.7 0.6 1.6 Tax rate 35.0 33.7 34.3 36.7 34.9 41.3 25.6 25.6 34.9 33.6 Balance Sheet Parameters Disbursements (INR b) 70.1 69.0 75.3 88.9 85.7 73.8 74.8 56.6 304.5 292.1

Growth (%) 44.5 25.6 11.3 11.1 22.2 7.0 -0.7 -36.3 21.3 -4.1 AUM (INR b) 453.3 477.2 503.9 542.8 574.9 592.9 607.8 605.5 542.8 605.8

Growth (%) 29.5 30.9 29.3 26.5 26.8 24.2 20.6 11.6 26.5 11.6 AUM mix (%)

Vehicle finance 73.4 74.2 74.4 74.8 74.8 74.0 73.4 73.0 74.8 72.8 Home Equity 22.7 22.5 22.2 21.4 21.1 21.3 21.4 21.4 21.4 21.6 Others 3.9 3.3 3.5 3.8 4.2 4.7 5.2 5.6 3.8 5.6

Borrowings (INR b) 412.9 470.6 472.3 505.7 551.2 559.0 549.4 550.1 505.7 550.1 Growth (%) 32.3 44.4 36.2 32.6 33.5 18.8 16.3 8.8 31.9 8.8

Asset Quality Parameters GS 3 (INR B) 16.2 16.2 16.5 14.4 16.7 18.0 20.2 21.6 11.7 21.6 GS 3 (%) 3.6 3.4 3.3 2.7 3.0 3.2 3.5 3.8 2.2 3.9

- Vehicle finance 2.6 2.3 0.0 1.8 2.0 2.3 2.7 0.0 - Home Equity 6.2 6.0 0.0 5.5 5.6 5.9 6.0 0.0

NS 3 (INR B) 10.5 10.5 10.4 8.9 10.7 11.8 13.6 12.7 NS 3 (%) 2.4 2.2 2.1 1.7 1.9 2.1 2.4 2.3 PCR (%) 35.0 35.5 36.7 37.9 36.1 34.4 33.0 41.5 Total ECL (%) 2.1 1.9 2.0 1.7 1.7 1.8 1.9 2.7 Vehicle finance AUM mix (%) LCV 22.0 22.0 21.5 21.5 21.6 21.3 21.1 21.3 Cars & MUV 16.0 16.0 16.0 6.6 6.7 6.7 6.8 6.9 3W & SCV 6.0 7.0 5.4 0.6 0.7 0.8 1.0 1.1 Used CV 13.0 13.0 12.5 12.6 12.6 12.9 13.3 26.0 Tractor 7.0 7.0 7.5 7.3 7.4 7.4 7.6 7.7 HCV 19.0 19.0 18.0 17.4 16.4 15.3 13.6 12.7 Refinance 13.0 13.0 12.4 12.4 12.4 12.6 12.7 0.0 CE 4.0 4.0 4.6 4.9 4.9 4.9 4.9 5.0 Two wheeler 0.0 0.0 2.0 2.3 2.6 3.1 3.5 3.7

4 June 2020 15

BSE SENSEX S&P CNX CMP: INR632 Buy 34,110 10,062

Conference Call Details Date: 04 Jun 2020 Time: 5:30am IST Dial-in details: 022 6280 1149/ 7115 8050

Financials & Valuations (INR b) Y/E March 2020 2021E 2022E Total income 4.1 4.1 4.7 PPP 3.2 3.2 3.6 PAT 1.8 1.5 1.9 EPS (INR) 32.6 28.2 34.5 EPS Gr. (%) 17.2 -13.6 22.3 BVPS (INR) 182 204 231 Ratios

NIM (%) 8.8 8.0 8.1 C/I ratio (%) 22.1 23.4 22.7 RoA on AUM (%) 3.2 2.5 2.7 RoE (%) 19.4 14.6 15.8 Payout (%) 21.0 21.0 21.0 Valuations

P/E (x) 19.4 22.4 18.3 P/BV (x) 3.5 3.1 2.7 Div. yield (%) 0.9 0.8 1.0

Lower pandemic provisioning leads to strong PAT beat MASFIN reported 4QFY20 PAT at INR357m (69% beat). PPoP (flat YoY) missed

our estimates by 8%. Lower-than-expected COVID-19 provisions at INR203m (v/s est. ~INR300m) led to the strong beat.

For FY20, PPoP grew 11% YoY, in line with AUM growth. While PBT was flat YoY at INR2.3b, decline in the tax rate led to 17% YoY growth in PAT to INR1.8b.

Net income was up 5% YoY and declined 10% QoQ to INR1.04b (7% miss). Miss in net income was largely driven by lower-than-expected gain on assignments (INR289m v/s est. INR325m) and lower interest income (3% lower than est. INR1.4b).

QoQ AUM remained flat at INR59.7b (up 11% YoY). Share of 2W/CV loans declined 100bp QoQ to 9.3%, which was offset by 150bp increase in the share of SME loans to 29.7%. Share of on-balance sheet loans declined to 56% (down 200bp/500bp QoQ/YoY).

Asset quality updates: Moratorium was offered to all customers. On the balance sheet, GS3/NS3 rose by 13bp/8bp sequentially to 1.42%/1.14%.

The company’s current liquidity position is comfortable to meet its obligations and continued business operations; Tier I ratio remains strong at ~29%.

Valuation and view: MASFIN operates in a tough operating environment with large exposure to micro loans and the MSME sector. Thus, asset quality and business growth are the key monitorables. Historically, the company has managed liquidity well with higher sell-downs, which was reflected in 4QFY20 earnings as well. MASFIN has one of the best capitalizations amongst NBFCs with Tier I of ~29%. We plan to revise earnings post the management concall on 4th Jun’20.

Quarterly Performance (INR m) Y/E March FY19 FY20 FY19 FY20

4QFY20E Act v/s Est (%) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Revenue from Operations 1,196 1,359 1,615 1,556 1,592 1,674 1,836 1,729 5,726 6,831 1,805 -4 Interest Income 998 1,134 1,272 1,241 1,357 1,394 1,447 1,393 4,645 5,592 1,436 Gain on assignments 156 200 303 282 200 242 344 289 941 1,075 325 Other operating Income 43 25 39 32 35 38 45 46 139 165 44

Interest expenses 410 501 587 569 644 727 686 690 2,067 2,720 690 0 Total income 786 858 1,028 987 949 947 1,150 1,039 3,659 4,111 1,115 -7

Growth Y-o-Y (%) 49.5 23.1 33.6 20.1 20.7 10.4 11.8 5.3 30.5 12.3 Operating Expenses 184 201 203 187 192 222 225 232 775 909 239 -3 Operating Profits 602 657 825 800 756 725 925 807 2,885 3,202 876 -8

Growth Y-o-Y (%) 64.2 26.6 51.3 20.6 25.5 10.3 12.1 0.8 38.7 11.0 Provisions 134 121 132 159 130 226 186 327 545 858 591 -45 Profit before tax 468 537 694 641 627 499 739 479 2,339 2,345 285 68

Growth Y-o-Y (%) 60.7 33.9 50.3 28.7 33.8 -6.9 6.6 -25.1 41.6 0.2 Tax Provisions 164 191 239 224 219 33 188 123 818 563 74 66 Net Profit 305 346 455 416 407 467 551 357 1,521 1,782 211 69

Growth Y-o-Y (%) 81.6 42.2 50.9 29.1 33.7 35.0 21.3 -14.2 47.1 17.2

Source: MOFSL, Company

RESULTS FLASH

3 June 2020 Results Flash | Sector: Financials

MAS Financial Services

4 June 2020 16

Assessing margin trajectory amid rapidly easing environment Sharp cut in deposit rates to offset NIM pressures; Private banks better placed The interest rate environment has eased rapidly in recent months as the government

and RBI announced steps to handhold the system amid the COVID-19 shock. Most large private and PSU banks have announced a series of sharp cuts in Term/Savings rates to offset NIM pressures. In a recent move, AXSB and ICICIBC reduced their SA rate by 25bp to 3.0%, and SBIN lowered its SA rate by 5bp to 2.7%. While a sharp reduction in the repo rate has resulted in moderation in yield under the externally benchmark-based price regime loans, a reduction in deposit rates would offset margin pressure to some extent. Amid this backdrop, we assessed the margin trajectory for the major banks; we believe private banks are relatively well-positioned to preserve their margins even as we expect slight compression in NIMs at the sector level. We maintain our preference for ICICIBC, HDFCB, and SBIN.

The RBI has been lowering the repo rate since Feb’19 and has to date effected a 250bp reduction in the repo rate (115bp alone in Mar’20 and Apr’20) v/s 80–130bp decline in MCLR for most banks during this period. The maximum reduction in one-year MCLR has been by SBI at 130bp, followed by KMB at 115bp.

Most banks have followed this up with reducing interest rates on SA/TDs. SBI has reduced its peak term deposit rate by 150bp to 5.3%, and large private banks have reduced their TD rates between 165–205bp. Over the past six months, TD rates have declined in the range of 65–95bp for PSU banks and in the range of 105–125bp for private banks.

While SBIN has reduced its SA rate further by 5bp to 2.7%, large private banks have announced a further reduction in the SA rate by 25bp to 3.0%. KMB has effected a massive 150bp/200bp SA rate cut to 3.5%/4% and is thus likely to maintain resilient margins as SA deposits re-price immediately. TD rates have also been revised down across banks, with short-tenure rates in the range of 2.9–3.5%, well below the repo rate. KMB witnessed a sharp uptick in its CASA deposits, with SA deposits forming ~40% of the total deposits.

We believe this would help lenders tackle margin pressures as continued monetary easing would result in lower yield under the external benchmark-based pricing regime. With the proportion of SA deposits rising, we believe a reduction in SA rates could support margins as TD reduction takes time to re-price, while SA rate re-pricing happens instantly.

Thus, banks with a strong/granular liability franchise and a rising proportion of loan mix toward high-yielding products would be able to tackle margin pressures in a better way. Nevertheless, we expect margins to decline in the range of 5–20bp over FY21. Maintain preference for ICICIBC, HDFCBC, and SBIN.

Financials

Monetary easing drives further reduction in lending rates

% SA Rate AXSB 3.00% HDFCB 3.25% ICICIBC 3.00% IIB 4.00% KMB 3.50% RBK 5.00% BoB* 3.25% PNB* 3.50% SBIN* 2.70%

Sector Update | 3 June 2020

4 June 2020 17

Weighted Average Lending Rate (WALR) on fresh loans moderated by 43bp MoM WALR on fresh loans declined ~100bps to 9.20% for private banks in Feb’20

and 35bps to 8.65% for PSU banks over the past six months.

WALR on O/S loans stood at 10.95% for private banks in Mar’20 (decline of 11bp in Feb’20). For PSU banks, WALR has been on the decline and stood at 9.45% in Mar’20, implying a drop of 55bps over the past six to nine months.

WATDR has been declining over the past one year; it fell by ~70bps to 6.54% for private banks and by 40bps to 6.38% for PSU banks.

Spread differential between private banks and PSBs doubles to ~134bp Private banks have been focusing on high-yielding assets, while PSBs (barring

SBIN) have not been very aggressive; thus, the lending yield differential between the two remains high. However, continued monetary easing has resulted in lower yield under the external benchmark-based pricing regime, and the lending yield differential between private banks and PSBs has therefore narrowed to ~60bp (v/s 150bp in Mar’19). On the other hand, the deposit rate differential is at ~15bp. This has caused the spread difference between private and PSU banks to widen—the gap has more than doubled to ~134bp v/s ~62bp over the past one year.

Valuation and view We believe this reduction in deposit rates would help lenders tackle margin

pressures as continued monetary easing would result in lower yield under the external benchmark-based pricing regime. With the proportion of SA deposits rising, we believe a reduction in SA rates could support margins as TD reduction takes time to re-price, while SA rate re-pricing happens instantly. Thus, banks with a strong/granular liability franchise and rising proportion of loan mix toward high-yielding products would be able to better tackle margin pressures. Nevertheless, we expect margins to decline in the range of 5–20bp over FY21. Maintain preference for ICICIBC, HDFCB, and SBIN.

SA rates across banks along with CASA mix SA Rate (%) Old Revised CA Mix SA Mix CASA Mix AXSB 3.25% 3.00% 14.1% 27.1% 41.0% HDFCB 3.50% 3.25% 15.2% 27.0% 42.2% ICICIBC 3.25% 3.00% 13.3% 31.9% 45.1% IIB 4.00% 4.00% 14.1% 26.3% 40.4% KMB 4.00% 3.50% 16.4% 39.8% 56.2% RBK 5.50% 5.00% 13.0% 16.6% 29.6% BoB* 3.25% 3.25% 6.1% 32.7% 38.8% PNB* 3.50% 3.50% 7.1% 36.6% 43.7% SBIN* 2.75% 2.70% 6.3% 38.4% 44.7%

*CA, SA and CASA mix as on 3QFY20 Source: Banks, MOFSL

TD rates across tenures – Short-tenure TD rates in the range of 2.9–3.5%, well below the repo rate TD Rates (%)

7-14 days

0-3 months

3-9 months

9-15 months

15-36 months

HDFCB 3.0% 4.5% 5.0% 5.6% 5.8% AXSB 3.3% 4.5% 5.0% 5.8% 5.8% ICICIBC 3.3% 4.3% 4.8% 5.6% 5.8% KMB 3.0% 4.0% 4.8% 5.3% 4.8% IIB 4.0% 5.5% 6.0% 7.0% 6.8% SBIN 2.9% 3.9% 4.4% 5.1% 5.1% BoB 3.3% 4.3% 4.9% 5.6% 5.6% PNB 3.5% 4.5% 5.3% 5.8% 5.8%

Source: Banks, MOFSL

4 June 2020 18

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1. CIPLA: A BIG OPPORTUNITY IS BEGINNING TO UNLOCK FOR US IN THE US; Umang Vohra, MD & Global CEO

Company was not able to invoice about Rs 200 odd crore of sales on account of the last week of Covid closure and that is pretty high margin sales. The impact would have been directly on profitability.

In the last six to nine months, spent a fair amount of cost and effort on the remediation required for Goa which is now completely in numbers. From where we stand, company sees the remediation effort and work for Goa that is required to finish approximately by June or July. The charges have largely been taken in the last quarter.

Have guided that base business in the US is roughly around 120 to 125 so every new launch company gets should add hopefully above this meaningfully.

In the first two, three weeks of the lockdown, there was a serious dip because everyone was dealing with the lockdown initially. What we found in week three and four was that activity was resumed by doctors, who started interacting virtually with their patients.

What has happened in the last week is that the green and orange zones are opening up and we see activity resuming there. Of course, there are sections where the doctors are not meeting as much. For example, dentists and dermatologists because of the risk of this infection being real, are perhaps not meeting as much as interventionists, chest physicians etc. So, it is gradually opening up. As we build more experience out of the green and the orange zones and as the red zones begin to open up, you will see a resumption in activity depending on the zone.

In conversation

4 June 2020 19

1. KEEPING IBC IN ABEYANCE A PREGNANT PAUSE, NEEDS TO BE HANDLED GENTLY

The one announcement of the Finance Minister Nirmala Sitharaman on Sunday that catches the eye for its focus on micro, small and medium enterprises (MSMEs) is “Further enhancement of ease of doing business through IBC related matters". The government will not initiate any fresh IBC proceeding for a year. Pregnant pause, as with the IBC proposed today, has a lot of entrepreneurs’ expectation riding on the proposal. And hopefully it will deliver positivity in the months ahead. The minimum threshold to initiate insolvency proceedings has been pushed to ₹1 crore from the current Rs1 lakh default. This is with the thought that MSMEs would be largely insulated. Section 240 (A) of the IBC covers the framework of how it is applied on MSMEs. The government has now proposed a special resolution framework for MSMEs to be notified soon. The new definition of MSMEs that was announced earlier this week has brought the concept of looking at both investment as well as the turnover of the firms to classify an MSME. The jury is still out if it would actually benefit or negate the current benefits. One of the negatively-impacted MSME sectors would be those which are labour-intensive, where a relatively small capital expenditure of even a Rs10 crore-Rs15 crore could achieve a turnover of over Rs100 crore.

From the think tank

4 June 2020 20

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