RESULTS PREVIEW April 10, 2017 An obvious...

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An obvious recovery? As the economy recovers from the shock of demonetisation and as remonetisation takes place, a recovery from the lows seen in 3QFY17 is but obvious. Barring a few sectors, such as consumer discretionary, staples, NBFCs, E&C and Capital Goods, our 4QFY17 expectation on a YoY basis is still weak for most sectors. A marginal recovery in the economy in FY18 from FY17 also means that our analysts have a positive outlook for the next year for most sectors but still earnings estimates are behind consensus. Consensus earnings across all sectors appear lofty on the backdrop of a weak economy and especially decelerating credit growth. Consensus’ Sensex FY18 earnings estimates imply a 20% growth; a tough task and prone to material cuts to more like 10% growth. BFSI sector poses the biggest threat to earnings. Expecting 10% earnings growth for Sensex in FY18 and applying a 19x trailing multiple, we reiterate our Sensex target of 31,000 for Mar-18.

TOP BUYs: IOCL, TATA Motors, Lupin, Pidilite and Bharti Infratel.

TOP SELLs: Kotak Mahindra Bank, HCLT, UltraTech, Titan and Cipla.

TOP mid-cap BUYs: Torrent Pharma, PI Industries, Dish TV and Greaves Cotton.

4QFY17 Results Preview

RESULTS PREVIEW April 10, 2017

Research Analysts

Nitin Bhasin +91 22 3043 3241 [email protected]

Research Team +91 22 3043 3000 [email protected]

After a rather weak FY17, outlook looks better for most sectors in FY18

Watch out for

Outlook

Recommendations

Positives Negatives

Jan-Mar 2017 Qtr

FY18 vs FY17

Top BUYs Top SELLs

Agri/Chemicals FY18 growth outlook

Inventory situation SRF, Vinati Organics Rallis

Automobiles - Commodity costs, discounts Tata Motors -

Aviation Strong passenger growth Decline in yields - Interglobe Aviation

Banking Cost of funds Loan growth, credit cost - PNB, Kotak

Building Materials Formalisation Demand Pidilite Crompton

Capital Goods Pick-up in execution Dearth of new BTG orders <--> Greaves Cotton KKC

Cement Realisation Volumes, P&F costs Orient UltraTech

Consumer Staples Higher-than-expected

volume growth Input cost inflation HUL GCPL

Consumer Discretionary Strong same-store growth Demonetisation impact on

wholesale channel - Jubilant, Bata

E&C/Infra Order inflows Working cap Sadbhav Infra NBCC, Engineers India

Healthcare Recovery in Indian business,

stable EM currencies Intensifying competition in the

USA <--> Torrent Pharma, Lupin Cipla, Dr. Reddy

Media Cost control Weak revenue trends Dish TV Hathway Cable

Zee Entertainment

Metals/Mining Aluminium prices,

e-auction realisations Coking coal prices Coal India

Tata Steel, Hindalco

NBFCs - Growth, Asset quality - MMFS

Oil and Gas Healthy refining margins,

demand LT gas contracts, increasing gas

and crude prices IOCL, PLNG GAIL

Technology Demand uptick in US BFSI US protectionism TCS, TechM CTSH, HCLT

Telecom Data volume growth Continued profitability pressure Bharti Infratel Bharti Airtel

Utilities Reduction in interest burden

of discoms Weak power demand Tata Power NTPC

Source: Ambit Capital research


April 10, 2017 Ambit Capital Pvt. Ltd.

Exhibit 1: Material revisions to estimates and valuations ahead of the earnings season (more than 5%)

Company

New EPS estimates (Rs/share) Change in EPS

estimates (%) Valuations Stance

FY18E FY19E FY18E FY19E New Old Change (%)

BAF 32.5 38.6 3 14 603 520 16 SELL

CIFC 46.1 52.9 15 28 1070 955 12 SELL

MGMA 1.5 11.3 (84) 42 99 95 4 SELL

MMFS 12.0 15.8 0 13 255 227 12 SELL

SCUF 102.4 102.6 14 23 2185 1900 15 SELL

eClerx 87 83 (4) (9) 1,315 1,425 (8) SELL

ABFRL 0.1 0.8 N 10 175 175 0 BUY

PVR 21.1 38.4 (22) 1 1,594 1,594 0 BUY

Dish TV 2.0 2.8 (1) 0 117 110 6 BUY

Bharti Airtel 9.0 12.9 0 0 300 280 7 SELL

Bharti Infratel 16.3 19.3 0 7 375 355 6 BUY

Balkrishna Industries 80.6 86.7 6 2 840 770 9 SELL

V-Guard 4.4 5.3 14 10 109 100 9 SELL

Bajaj Electricals 14.5 19.7 9 7 351 309 14 BUY




Exhibit 2: Sectoral snapshot ahead of the results

FY18 estimate revisions before results Compared to FY18 consensus Stance

Up Down

Higher Lower

BUY SELL

Agri/Chemicals - - SRF PI, Rallis, Vinati Organics

PI, SRF, Vinati Rallis

Automobiles Maruti, Balkrishna Ind.

Ashok Leyland, Tata Motors, Bajaj, Hero,

TVS, Eicher M&M, TVS,

Endurance Tech.

Ashok Leyland, Bajaj, Hero, Maruti, Tata

Motors, Eicher, Amara Raja, Exide, Mahindra CIE, Balkrishna Ind.

Tata Motors, Ashok Leyland, Endurance Tech, Mahindra CIE

Bajaj, Hero, Maruti, Eicher, Amara Raja, Exide, M&M, TVS, Balkrishna Ind.

Aviation - - - Interglobe Aviation - Interglobe Aviation

Banking - - Bank of Baroda ICICI Bk., Axis Bk., SBI, Federal, Karur Vy. Bk.,

Equitas, Ujjivan - PNB , Kotak

Building Materials V-Guard, Bajaj - Century Ply Pidilite, Crompton, V-Guard, Bajaj Electricals Pidilite, Century Ply,

Bajaj Crompton, V-Guard

Capital Goods BHEL Cummins, Inox Greaves Cotton, BHEL,

Thermax Inox Wind, Cummins Greaves Cotton

BHEL, Thermax, Inox Wind, Cummins

Cement - - UltraTech, ACC, Orient

Ambuja Dalmia, Orient Shree, UltraTech, ACC, Ambuja

Consumer Staples

HUL, Dabur, Marico,

Britannia, Asian Paints, Berger

- ITC, Colgate, Marico

HUL, GCPL, Asian Paints, Berger Paints,

Dabur, Nestle, Britannia, GSK

Consumer

ITC, HUL

GCPL, Asian Paints, Berger Paints, Dabur,

Marico, Nestle, Colgate, Britannia, GSK

Consumer

Consumer Discretionary

ABFRL, PVR Arvind - Arvind, PVR, Wonderla, ABFRL

ABFRL, Wonderla, PVR Arvind

E&C/ Infra AIAE, SADE, TEEC

PWGR, ENGR, NBCC, VATW

AIAE, SADE, ENGR, SINP, TEEC

LT, PWGR, VATW, TEEC, NBCC

BHE, AIAE, SADE, TEEC, VATW

LT, PWGR, NBCC, ENGR

Healthcare NA NA Lupin, Torrent Pharma, Cipla, Cadila

Dr. Reddy, Ajanta Pharma

Lupin, Torrent Pharma, Cadila

Dr. Reddy, Cipla, Ajanta Pharma

Media NA NA Zee Entertainment Dish TV, Hathway Cable Dish TV Hathway Cable, Zee

Entertainment

Metals & Mining - - Nalco Hindalco, Tata Steel Coal India Hindalco, Nalco, Tata

Steel, SAIL

NBFCs MMFS, BAF, SHTF, SCUF,

CIFC MGMA -

LICHF, MMFS, BAF, SHTF, SCUF, CIFC,

MGMA, HDFC -

LICHF, MMFS, BAF, CIFC, MGMA, SCUF,

SHTF

Oil and Gas Unchanged Unchanged PLNG, GAIL, BPCL,

MGL, HPCL GSPL, IGL, IOCL BPCL, IOCL, GSPL, IGL,

PLNG GAIL, HPCL, MGL

Technology TCS, HCLT Wipro, TechM, LTI,

MTCL, eClerx - TCS, CTSH, Infosys,

Wipro, HCLT, TechM, LTI, PSYS, eClerx

- -

Telecom NA NA Bharti Infratel Bharti Airtel, Idea Cellular Bharti Infratel Bharti Airtel, Idea

Cellular

Utilities - JSWE NTPC, Tata Power,

Torrent Power JSWE

Tata Power, Torrent Power

NTPC, JSWE




Exhibit 3: Sector views

Sector Views Estimate revisions for FY18

Agri/Chemicals Expect 15% FY18 domestic agrochem industry growth rates driven by rising product prices (5%

pricing growth) and better cotton/vegetable acerage driving 10% volume growth Agrochem exports to witness a recovery in FY18 driven by improved offtake by global MNCs

Unchanged

Automobiles Rising commodity prices to impact margins across categories. Sector to witness modest volume recovery in FY18 as demonetisation impacts wean off 2W OEMs to record higher volume growth (14%) vs. PVs/CVs (7%) due to low 2HFY17 base

Downwards

Aviation

Domestic capacity addition to grow at a strong 16-17% CAGR over FY17-20E; with upside risks as several foreign airlines (such as Qatar) are looking to enter the domestic travel market in India

With tailwinds from declining crude prices no more available, domestic airlines will have to sacrifice on margins to maintain utilisations

Unchanged

Building Materials

Deceleration in revenue growth for adhesives, pipes and ply companies in 4QFY17/FY18 Healthy revenue growth of 13-16% for electrical companies in 4QFY17/FY18 led by price

hikes/pick-up in real estate execution. Margin headwinds for electrical companies (LE) due to ~24% YoY increase in copper prices in

4QFY17 and no price hikes

Upwards

Banking Loan growth slowdown and asset quality pressure likely to continue in FY18 Fresh NPA addition slows down in FY18, but credit costs stay high due to increasing NPA coverage Banks with stronger balance sheets and strong assets-side differentiation are better placed

Unchanged

Capital Goods Pick-up in BTG execution led by reduction in interest burden of discoms under UDAY. Declining order book for BTG; BHEL’s order inflow likely to decline by ~67% YoY in FY17. Market share for KKC in FY18 in high KVA led by increase in competition from KOEL, Perkins.

Unchanged

Cement Overall volume growth should improve to 5-6% (from 0-1% in FY17) as infra adds 1.5-2% volume

growth Pricing discipline is likely to be maintained by large players due to slowing capacity addition

Unchanged

Consumer Staples Expect sequential recovery in volumes but will remain lower than pre-demonetization levels Expect margin contraction to worsen as higher impact of input cost inflation Estimate median sales growth of ~5% driven by 1% volume growth

Upwards

Consumer Discretionary Small ticket discretionary consumption continues to be strong Wedding Jewellery will see recovery with high number of wedding dates GST could benefit sub-sectors such Multiplexes, Leisure parks whereas impact jewellery

Upwards

E&C/ Infra Segment-specific (road, T&D), Govt-oriented infra investments to drive revenue growth Lower interest rates, focus on balance sheet could lead to significant financial leverage Strong order inflows on the back of strong increase in tendering activity by Central and State Govt

Unchanged

Healthcare Continued pressure on US base business driven by incremental competition EM business to report steady growth on the back of improving penetration and stable currency

Unchanged

Media

Slowdown in advertising revenue growth to continue in FY18; expect 8% ad growth for ZEEL in FY18, same as FY17

DTH to consolidate Pay TV landscape Steady 10% volume growth for DTH (Dish TV), led by phase IV digitisation

Unchanged

Metals/Mining Overcapacity and rising Chinese steel and aluminium production keeps price outlook bearish With de-stocking behind us, coal offtake to rise to 7% CAGR in FY17-20E vs 2% in FY17

Unchanged

NBFCs Stress in loan growth and asset quality to stabilize, but a full-fledged recovery remains elusive (earlier expected to happen over FY18-19). Upwards

Oil and Gas Growing confidence on fuel deregulation will continue to drive OMC re-rating Policy actions/uptick in industrial volumes will drive high single digit gas demand growth Unchanged

Technology Recovery expected in key verticals like US BFSI driven by expectations of deregulation US protectionism remains a key risk to margins and may materialize sooner than expected Downwards

Telecom Continued competitive pressure on incumbent telcos as Jio aggressively chases market share Towerco consolidation inevitable; Infratel to correct its capital structure Capital intensity to remain elevated

Unchanged

Utilities Deceleration in power generation from 5% in 3QFY17 to 3% in 4QFY17 Surge in imported coal prices by ~58% YoY / 9% QoQ No large long-term PPA tenders in FY18 given 19 states are power surplus with PPA

Unchanged




TOP BUY RECOMMENDATIONS Recommendation Upside (%) Rationale/catalysts

IOCL

16 Stabilisation of Paradip refinery will drive refining profits to jump by 40% over FY17-FY19 Market share gains aided by improved product availability in South and East Attractive valuation of 9x FY18 EPS supported by diversified earnings from petchem and pipelines

IOCL IN

CMP 397

TP 460

Coal India

17

With destocking behind us, offtake growth to revive to 7% in FY18 vs 2% in FY17 Recovery in e-auction realisations and coking coal price hike to drive 5% realisation growth in FY18E CIL trades at FY18 P/E of 13x, in line with historical average, despite sharp improvement in volume

growth trajectory

(COAL IN)

CMP: Rs295

TP: Rs345

Tata Motors

16 JLR to report healthy 11% volume CAGR for FY17-19 led by new launches JLR EBITDA CAGR 24% over FY17-19 driven by healthy volume and favourable currency movements Trading at an attractive valuation of 12x normalised FY19 net earnings

(TTMT IN)

CMP: Rs472

TP: Rs550

Lupin

29 Faster product approvals due to GDUFA will lead to 30% CAGR in US revenues First-mover advantage in Japan to result in higher market share Ramp-up in respiratory filings in regulated markets by FY18E

(LPC IN)

CMP: Rs1,450

TP: Rs1,871

Pidilite Industries

17

An expanding senior talent pool can help build a much larger water-proofing and consumer franchise Increased focus on supply chain management (reducing inventory days) will keep RoCE elevated. Rich valuation (30x FY19E EPS) is justified given earnings/FCF longevity rivaling branded consumer

names helped by under-penetration and innovation-led applications.

(PIDI IN)

CMP: Rs710

TP: Rs830

Bharti Infratel

11 BHIN to consolidate towercos; improving bargaining power with telcos and capital structure correction Redundancies from Idea-Voda merger to marginally impact growth; data growth to drive tenancies

(BHIN IN)

CMP: Rs344

TP: Rs375

PLNG

16

Volume growth rate of ~8% at Dahej terminal over FY17-20; take or pay improves visibility of growth Kochi terminal utilisation to increase to ~40% from FY20 aided by completion of Kochi-Mangalore

pipeline Valuation of 13x FY19 EPS is attractive for RoE of ~25% and FY18 FCF yield crossing 6%

PLNG IN

CMP 409

TP 475

Torrent Pharma

14

Not a US generic story; early focus on branded generics provide consistent 15% revenue/profit growth Improvement in execution in the Indian business would result in higher than IPM growth Approval cycle in Brazil to improve aiding >15% revenue growth; trades at 17x FY19E in line with

peers

(TRP IN)

CMP: Rs1,490

TP: Rs1,706

Tata Power

29 RoE to improve from 9% in FY16 to 14% in FY18 led by ~50% of the capex in lucrative Mumbai circle The stake sale plan in the Arutmin mine is likely to get expedited with surge in Indonesian coal prices Tata may deleverage balance sheet by unlocking value of renewables and defence business

(TPW IN)

CMP: Rs87

TP: Rs112

Dish TV

14 Robust volume growth as DTH will consolidate rural markets Benign content inflation owing to scale benefits Synergy benefits from merger with VDTH; we factor in 1/3rd of total synergy benefits (Rs22/share).

(DITV IN)

CMP: Rs103

TP: Rs117

SRF

11

Specialty chemicals business will benefit from a sharp uptick in agri exports over FY18/FY19 Refrigerants are set to grow at 17% CAGR over FY17-19 aided by ramp-up in R134a volumes and new

product launches Valuations at 11.5x FY19 EPS are undemanding looking at 25% CAGR in chemicals business

profitability over FY17-FY22

(SRF IN)

CMP: Rs1,638

TP: Rs1,800

Greaves Cotton

19 20% revenue CAGR over FY17-19 led by growth in after-market, auto engines, agri-equipment 150bps margin improvement over FY17-19 led by higher share of after-market business Valuation of 17.5x FY18E P/E is attractive given FY18E RoE of 24% and 18% EPS CAGR over FY17-19E

(GRV IN)

CMP: Rs169

TP: Rs203



Recommendation Upside (%) Rationale/catalysts

Orient Cement

33

Volume growth in AP/Telangana to drive 15% volume CAGR over the next two years Pricing recovery in Maharashtra and AP/Telangana to drive increase in EBITDA/tonne from

~Rs350/tonne in FY17 to ~Rs700/tonne in FY18E At 10x FY18 EV/EBITDA, the stock trades at the lower end of the mid-cap peer range of 9-14x due to

the overhang of the Jaypee acquisition

(ORCMNT IN)

CMP: Rs143

TP: Rs190

Source: Bloomberg, Ambit Capital research



TOP SELL RECOMMENDATIONS Recommendation Downside (%) Rationale/catalysts

Kotak Mh. Bank

43

Bank is exposed to loan growth slowdown emanating from headwinds in LAP, tractor and SME sectors. As the growth picks for the bank, we expect NIMs to come down due to equity consumption, decline in

loan yields and increase in cost of funds. An expensive valuation of 3.9x FY18E BVPS along with ~14% RoE for FY17-18E

(KMB IN)

CMP: Rs 894

TP: Rs509

NTPC

21 250bps cut in regulated RoE to 13% in 2020-24 tariff regulation Incremental capex at low RoE due to competitive bids in the renewables/limited opportunity in thermal Trades at 1.3x FY18E P/B despite FY18-19 RoE at 11% which is lower than CoE of 14%

(NTPC IN)

CMP: Rs168

TP: Rs131

HCLT

10 Rising risks from sudden spree of acquisitions (11 since July 2015) Service line centric organization structure makes it vulnerable to changing technologies Contrary to consensus expectations, HCLT is not insulated from US protectionist headwinds

(HCLT IN)

CMP: Rs852

TP: Rs770

UltraTech

21

UltraTech is likely to grow below the industry average to support pricing discipline by not pushing for market-share gains in its extant capacities

Consolidation of Jaypee’s capacities in FY18 to result in 20% EPS dilution UltraTech trades at 18x FY18 EV/EBITDA, 45% premium to its historical average and upon

consolidation of Jaypee’s assets, the stock will trade at 19x FY18 EV/EBITDA, in line with Shree Cement

(UTCEM IN)

CMP: Rs4,079

TP: Rs3,170

GAIL

10

Fate of US volumes is still uncertain as we believe current spot LNG prices are well below landed costs for US contract volumes

Healthy LPG and petchem spreads and bottomed out RM prices limited earnings upgrade potential Valuation of 2x P/B for RoE of 10-11% factors in most of the positives

(GAIL IN)

CMP: Rs388

TP: Rs353

Zee Entertainment

26 Ad growth moderation due to industry headwinds and rising competition Sluggish subscription revenue growth due to lower yields in rural markets and regulatory pressures

(Z IN)

CMP: Rs545

TP: Rs405

Cipla

11 Cipla’s concentrated bets on inhalers have not materialised due to gaps in R&D Late in developing complex generics, innovative products and establishing front-end presence At 21x FY19E PE vs peers 17x; premium unjustified given low invesments in innovative products

CIPLA IN

CMP: Rs 590

TP: Rs 525

Interglobe Aviation

27 We expect 5% YoY decline in yields in 4QFY17, resulting in ~40% YoY decline in EBITDA and PAT 16% domestic capacity CAGR to keep unitary profitability under pressure over next 2-3 years The stock trades at FY18 EV/EBITDAR of 9x, higher than European/American peer average of 7.4x/4.4x

(INDIGO IN)

CMP: Rs1,038

TP: Rs760

Punjab National Bank

26 Very high quantum of bad loans at 19% would keep credit costs high. Poor capital position (tier-1 of 8.8%) limits growth opportunity to offset high credit costs. A rich valuation of 0.8x FY18E BVPS along with ~6% RoE for FY17-18E

(PNB IN)

CMP: Rs152

TP: Rs113

Cummins

37 KKC’s EBITDA margin may structurally decline as the market shifts to medium/low KVA. Market share may come under pressure due to increase in competitive intensity. Low KVA export growth for KKC to peak out in FY18

(KKC IN)

CMP: Rs934

TP: Rs610

M&M Finance

24

Improvement in growth and asset quality will be muted as full-fledged rural economy remains elusive. From a very low base, MMFS will deliver EPS growth of 33% CAGR over FY17-19E versus expectations

of 47% CAGR. Earnings disappointments of 20% over FY18/19 will test premium cross-cycle valuations at ~2.5x one-

year forward P/B.

(MMFS IN)

CMP: Rs337

TP: Rs255

NBCC

32

Consensus estimates may fall short with execution delays led by management churn and poor vendor management

Quality of order inflows will deteriorate as the company will need to invest itself to fund future projects Punchy valuations of 26x FY19E EPS; valuations demand EBITDA growth of 17% CAGR over next 15

years

(NBCC IN)

CMP: Rs173

TP: Rs117



Recommendation Downside (%) Rationale/catalysts

Crompton Consumer

39 Most exposed to EESL’s pricing disruption in fans as ~60% of EBIT comes from fans Diversification into small appliances and retail lighting not an easy ride Trading at 41x/33x FY18/FY19 P/E in line with Havells despite latter being a diversified franchise

(Crompton IN)

CMP: Rs221

TP: Rs134

Bata India

34

Low volume growth poses risk to revenue growth of 11% inFY18E Improved marketing efforts to drive higher A&P spends (by 25-50bps); higher K-scheme commissions Reversion to store expansions despite threat of ecomm will continue to inflate fixed costs (35% of

sales); valuations remain rich at 31x FY19E EPS given the same.

(BATA IN)

CMP: Rs559

TP: Rs370

Jubilant FoodWorks

16

FY18E SSG to be capped at 7% given higher competition; gross margin to dip for higher cheese cost Delayed ramp-up of new stores from 2.5 years to 3 years given sub-optimal operating metrics SSG no longer a key earnings variable as pricing correction entails gross margins; stock remains rich at

40x FY19E EPS

(JUBI IN)

CMP: Rs1,051

TP: Rs879

Rallis India

31

Continuing weak competitive positioning given lack of a differentiated product portfolio/execution Street’s optimisim on Metahelix margins (inherent nature of portfolio) and potential success in agri

CSM business (competing generics business/long gestation) may not play out Valuations are rich and exposed to disappointment; 21x FY19 EPS based on 14% FY17-19 eps CAGR

RALI IN

CMP: Rs254

TP: Rs175

Hathway Cable

23 Supply chain challenges persist; broadband unlikely to be a savior as investments intensify Excessive leverage poses challenges; dilution imminent. Key risk to our stance: regulatory positives. Downgrades continue; valuations at 10.4x FY18E EV/EBITDA are no discount to B2C distributor Dish TV

(HATH IN)

CMP: Rs36

TP: Rs28




Agri/Chemicals 4Q would be a mixed quarter for Agrochemicals. While end-consumption was weak in the quarter, improved outlook for FY18 led to better placements in March. Pricing growth was strong in 4Q and is likely to continue into FY18. Volume growth was muted in 4Q and trends in FY18 will depend on the monsoon (normal as per IMD forecasts). Specialty chemical companies (end-demand not linked to agrochem) had a good quarter driven by growing share of India in chemicals manufacturing. Vinati Organics is benefiting from this trend. Agri-linked export players like PI and SRF will report a muted quarter given continued weak environment. Vinati Organics and SRF are our top BUYs in the chemicals space.

Ambit vs consensus: Our FY18 EPS estimates for most agri/chemical companies are marginally lower than consensus estimates. We expect SRF to record a better 2HFY18 than consensus expectations.

Key recommendations: We expect agrochemicals exporters, especially SRF and PI Industries, to stage a recovery from FY18 given: a) global demand for agrochemicals has started to improve; global agrochem companies have reported strong results so far; b) inventory levels at innovators’ end have sharply corrected and even a marginal uptick in end-demand will make innovators ramp up their own product inventories; c) global M&A uncertainties are waning with improved approvals from various regulators. We are BUYers on both PI (TP Rs 1100, 34% upside) and SRF (TP Rs 1800, 0% upside). Vinati Organics (TP Rs850, 15% upside) is our other key idea with growth expected to be led by new product launches.

Stock Performance

(%) 3-month

Absolute Rel to Sensex

PI Inds 1% -10%

Rallis 36% 25%

Vinati Organics 29% 18%

SRF 5% -6%

Mar’17E Quarterly EPS

(Rs) Ambit Consensus

PI Inds 8.5 6.6

Rallis 1.9 1.5

Vinati Organics 7.4 7.2

SRF 21.6 18.8

FY18E EPS


PI Inds 32.3 34.3

Rallis 10.5 10.9

Vinati Organics 31.7 32.3

SRF 102.4 96.5




Exhibit 4: Detailed Mar'17E quarterly estimates

Company name Mar'17E Mar'16 Dec‘16 YoY QoQ Comments

PI Ind

Sales (Rs mn) 6,458 5,740 4,806 13% 34% We expect sales growth of 13% led by similar growth rates in CSM business as well as domestic sales. We expect margins to improve driven by better product mix (higher margins CSM products) and operating leverage

EBITDA (Rs mn) 1,624 1,073 1,034 51% 57%

EBITDA margin (%) 25% 19% 22% 35% 17%

PBT (Rs mn) 1,499 967 973 55% 54%

PAT (Rs mn) 1,201 953 940 26% 28%

Rallis

Sales (Rs mn) 3,924 3,483 3,314 13% 18% Sales are likely to see healthy growth as prices of certain key molecules such as Acephate have improved strongly .

EBITDA (Rs mn) 624 419 424 49% 47% Increasing price of generics bodes well for both domestic as well as exports businesses.

EBITDA margin (%) 16% 12% 13% 32% 24%

PBT (Rs mn) 523

418

318 25% 64% PAT growth is lower than EBITDA growth as base quarter had

unusually high other income. PAT (Rs mn) 366 323 254 14% 44%

Vinati Organics

Sales (Rs mn) 1,844 1,544 1,644 19% 12%

EBITDA (Rs mn) * 620 507 531 22% 17%

Vinati Organics will benefit from full quarter of revenues from TB Amine and PTBBA. Margins are likely to remain steady. Higher tax rates will drive flat PAT.

EBITDA margin (%) 34% 33% 32% 2% 4%

PBT (Rs mn) 573 468 486 22% 18%

PAT (Rs mn) 384 393 326 -2% 18%

SRF

Sales (Rs mn) 12,790 11,150 11,330 15% 13% We expect SRF to report a modest quarter with expections of 8% sales growth in chemicals and packagijng films. Margins are likely record a marginal improvement sequentially led by improved performance on 3Q base. Packaging films will benefit from new capacities while technical textiles will post sharp sales growth of 20% as the base quarter was impacted by the Chennai flood.

EBITDA (Rs mn) 2,528 2,232 2,316 13% 9%

EBITDA margin (%) 20% 20% 20% -1% -3%

PBT (Rs mn) 1,568 1,356 1,318 16% 19%

PAT (Rs mn) 1,239 1,088 1,047 14% 18%

Source: Company, Ambit Capital research.



Automobiles Demonetisation impact seems to have faded (volume growth of 11-12%, 1% and 6% YoY for PVs, 2Ws and MHCVs respectively in Mar-17). However, 4QFY17 margin performance should be muted given three key headwinds. Commodity cost has inflated with key raw materials prices like steel having increased by ~20% in last six months; price hikes will not fully offset this inflation. Many players, mainly 2Ws/CVs, have had to offer high discounts to clear BS-III inventories post SC ban on sale of BS-III vehicles from 1 Apr-17; Hero MotoCorp (EBITDA margin down 140bps QoQ) and Ashok Leyland (down 243bps YoY) will be hit the most due to higher BS-III inventories. Lastly, Maruti’s margins (down 87bps/31bps YoY/QoQ) would be affected by Gujarat plant’s higher overheads and lower gross margin. For auto-ancillary companies, while Exide, Amara Raja, Mahindra CIE and Endurance would likely report higher QoQ margin (higher revenues, price hikes), BKT’s margin may suffer from higher rubber price. Positive outlook on JLR volumes/margin makes Tata Motors our top pick in the auto sector.

Ambit vs consensus: Our FY18 EPS estimates for most auto companies are lower than consensus except for Mahindra & Mahindra, TVS Motor and Endurance Technologies.

Key recommendations: Tata Motors is our Top BUY. JLR should record a volume CAGR of 11% over FY17-19 driven by strong response to recent launches, healthy product pipeline and market-share gains in China. Higher volumes coupled with favourable currency movements (GBP depreciation against USD) would result in EBITDA growth of 24% over FY17-19. The stock trades at an attractive valuation of 12x normalised FY19 net earnings.

Stock Performance

(%) 3-month


Ashok Leyland (1) (13)

Bajaj Auto 4 (8) Hero MotoCorp 5 (7)

Maruti Suzuki 12 0 Mahindra and Mahindra 6 (6)

Tata Motors (5) (17) Eicher Motor 13 1

TVS Motor 16 5 Amara Raja Batteries (3) (15)

Exide Industries 22 10

Mahindra CIE 19 7 Balkrishna Ind. 29 17 Endurance Tech. 39 27



Ashok Leyland 1.42 1.65

Bajaj Auto 27.4 35.8

Hero MotoCorp 37.3 38.9

Maruti Suzuki 61.4 53.0 Mahindra and Mahindra 12.4 7.57

Tata Motors 7.67 9.15

Eicher Motor 162 179

TVS Motor 2.13 3.29 Amara Raja Batteries 7.57 7.51

Exide Industries 2.07 2.09

Mahindra CIE 1.68 NA

Balkrishna Ind. 19.1 18.2

Endurance Tech. 4.31 NA

FY18E EPS


Ashok Leyland 4.93 5.19

Bajaj Auto 149 154

Hero MotoCorp 184 192

Maruti Suzuki 256 273 Mahindra and Mahindra 68.4 66.3

Tata Motors 32.9 40.2

Eicher Motor 721 795

TVS Motor 17.2 15.6 Amara Raja Batteries 33.4 36.6

Exide Industries 9.26 9.37

Mahindra CIE 8.24 12.3

Balkrishna Ind. 80.6 80.7

Endurance Tech. 30.1 29.4





Company Mar'17E Mar'16 Dec‘16 YoY QoQ Comments

Amara Raja

Sales 13,815 11,697 13,283 18% 4% YoY revenue growth includes price hikes undertaken by the company since November 2016 (to compensate for the increase in lead prices).

EBITDA (Rsmn) 2,298 1,908 2,040 20% 13% Price hikes undertaken by the company is expected to reverse EBITDA margin decline witnessed in Q3FY17. EBITDA margin (%) 16.6% 16.3% 15.4% 32 128

PBT (Rsmn) 1,947 1,632 1,689 19% 15% PAT and PBT to largely mirror EBITDA performance.

PAT 1,295 1,086 1,123 19% 15%

Ashok Leyland

Sales (Rsmn) 68,573 59,553 44,309 15% 55% YoY/QoQ revenue growth driven by 10%/52% volume growth.

EBITDA (Rsmn) 7,009 7,531 4,543 -7% 54% YoY EBITDA margin impacted by higher commodity costs and discounts. QoQ operating leverage benefits offset by high discounts to clear BS-III vehicles. EBITDA margin (%) 10.2% 12.6% 10.3% (242) (3)

PBT (Rsmn) 5,717 6,071 3,274 -6% 75% Performance at the net earnings level to largely mirror EBITDA level performance. PAT (Rsmn) 4,033 4,563 2,496 -12% 62%

Bajaj Auto

Sales 47,982 54,559 51,446 -12% -7% YoY/QoQ revenue decline driven by 9%/7% volume decline

EBITDA (Rsmn) 9,831 11,960 11,217 -18% -12% EBITDA margin to be impacted due to higher commodity prices and lower revenues EBITDA margin (%) 20.5% 21.9% 21.8% (143) (131)

PBT (Rsmn) 11,028 11,686 12,859 -6% -14% YoY net earnings to be lower than the EBITDA level due to higher treasury income and lower tax rates PAT 7,930 7,721 9,247 3% -14%

Hero MotoCorp

Sales 68,971 75,122 63,646 -8% 8% YoY/QoQ revenue trends to largely track the volume trends

EBITDA (Rsmn) 10,768 11,758 10,797 -8% 0% EBITDA margin to be impacted due to higher commodity prices and discounts on clearance of BS-III vehicles towards year-end EBITDA margin (%) 15.6% 15.7% 17.0% (4) (135)

PBT (Rsmn) 10,480 11,623 10,853 -10% -3% YoY net earnings to track EBITDA-level trends. QoQ net earnings decline (despite flat EBITDA) due to lower treasury income. PAT 7,455 8,142 7,720 -8% -3%

Maruti Suzuki

Sales 182,941 153,057 168,648 20% 8% YoY/QoQ revenue growth driven by 15%/7% volume growth.

EBITDA (Rsmn) 26,425 23,440 24,890 13% 6% We expect EBITDA margin to get impacted due to rising commodity costs and negative impact of Gujarat plant commissioning in 4QFY17 (higher overheads, higher material costs) EBITDA margin (%) 14.4% 15.3% 14.8% (87) (31)

PBT (Rsmn) 25,704 16,841 24,170 53% 6% QoQ net earnings trend to reflect EBITDA-level performance. YoY net earnings boosted by higher 'treasury income' and lower tax rates. PAT 18,552 11,276 17,445 65% 6%

Tata Motors

Sales 807,142 806,844 675,313 0% 20% QoQ revenue growth boosted by higher volumes at both standalone (4Q is seasonally strongest quarter) and JLR.

EBITDA (Rsmn) 78,333 120,287 51,612 -35% 52% Sharp YoY drop in EBITDA margin at both standalone (commodity costs, discounts) and JLR (higher incentives, adverse mix). On the other hand, QoQ margin improvement in both standalone (higher volumes) and JLR (higher volumes, one-offs in December 2016)

EBITDA margin (%) 9.7% 14.9% 7.6% (520) 206

PBT (Rsmn) 34,556 65,982 6,079 -48% 468% YoY net earnings trend to largely reflect the EBITDA level performance. QoQ net earnings sharply ahead of EBITDA level trend due to lower taxes. PAT 26,036 52,436 (2,591) -50% NM

Eicher Motor

Sales 18,761 15,450 18,348 21% 2% YoY/QoQ revenue growth driven by 20%/2.5% volume growth.

EBITDA (Rsmn) 5,866 4,620 5,770 27% 2% QoQ EBITDA margin to be impacted due to higher commodity costs. YoY margin to see an uptick on the back of healthy revenue growth EBITDA margin (%) 31.3% 29.9% 31.4% 136 (18)

PBT (Rsmn) 5,989 5,050 5,995 19% 0% YoY PBT growth lower than EBITDA growth due to lower 'other income. Lower share of profits from VECV also impacts YoY net earnings growth. However, higher share of profits from VECV helps QoQ net earnings.

PAT (Rsmn) (after share of VECV) 4,415 4,015 4,182 10% 6%




TVS Motor

Sales 27,810 28,154 29,834 -1% -7% QoQ revenue decline due to volume decline. YoY revenue decline despite 2% volume growth primarily from negative impact of IND-AS on sales realisation

EBITDA (Rsmn) 1,832 1,785 2,185 3% -16% QoQ EBITDA margin impacted by higher commodity prices and discounts to clear BS-III vehicles towards the end of the year EBITDA margin (%) 6.6% 6.3% 7.3% 25 (74)

PBT (Rsmn) 1,292 1,380 1,698 -6% -24% Higher YoY tax rates result in YoY net earnings decline despite positive EBITDA growth. QoQ net earnings decline more than the EBITDA decline due to lower 'other income' and higher tax rate. PAT 1,009 1,178 1,327 -14% -24%

Balkrishna Ind.

Sales 9,810 9,509 9,168 3% 7% YoY/QoQ revenue growth largely reflecting the volume growth trends

EBITDA (Rsmn) 3,205 3,103 3,127 3% 3% QoQ margin to witness decline due to higher rubber prices

EBITDA margin (%) 32.7% 32.6% 34.1% 5 (143)

PBT (Rsmn) 2,653 2,424 2,574 9% 3% Higher tax rate to impact QoQ net earnings performance. On the other hand, YoY net earnings growth to be helped by lower tax rate and higher 'other income' PAT 1,844 1,550 1,857 19% -1%

Mahindra CIE

Sales 14,574 13,269 13,300 10% 10% YoY growth to be helped by Bill Forge consolidation. QoQ revenue growth helped by higher sales in the European subsidiaries.

EBITDA (Rsmn) 1,708 1,420 1,485 20% 15% YoY margin helped by Bill Forge consolidation (Bill Forge has higher than average margin). QoQ margin helped by improvement in Europe (higher revenues, lower costs). EBITDA margin (%) 11.7% 10.7% 11.2% 102 55

PBT (Rsmn) 918 774 680 19% 35% YoY net earnings trend to largely reflect the EBITDA-level performance. QoQ net earnings sharply ahead of the EBITDA-level trend due to lower taxes. PAT 635 535 221 19% 187%

Exide Industries

Sales 19,483 17,614 17,293 11% 13% YoY revenue growth includes price hikes undertaken by the company since November 2016 (to compensate for the increase in lead prices).

EBITDA (Rsmn) 2,825 2,674 2,296 6% 23% Price hikes undertaken by the company to reverse EBITDA margin decline witnessed in Q3FY17. EBITDA margin (%) 14.5% 15.2% 13.3% (68) 122

PBT (Rsmn) 2,481 2,456 2,078 1% 19% Lower ‘other income’ and higher 'taxes expense' to result in PAT and PBT underperforming EBITDA on QoQ and YoY basis. PAT 1,756 1,776 1,515 -1% 16%

M&M

Sales 105,832 101,602 105,868 4% 0% Higher tractor volumes partly offset by volumes decline in the automotive segment YoY.

EBITDA (Rsmn) 13,563 11,994 14,495 13% -6% Higher share of tractors to result in margin expansion. This will to some extent be offset by higher commodity prices. QoQ margin impacted by lower tractor mix and higher discounts in UVs. EBITDA margin (%) 12.8% 11.8% 13.7% 101 (88)

PBT (Rsmn) 10,023 8,607 11,071 16% -9% PAT and PBT to largely mirror EBITDA performance.

PAT 7,103 6,123 7,846 16% -9%

Endurance Tech.

Sales 10,054 NA 8,929 NA 13% Higher domestic volumes and subsidiary revenues (new machining plant in Germany) to result in higher QoQ revenues

EBITDA (Rsmn) 1,280 NA 1,042 NA 23% Higher QoQ EBITDA margin on the back of higher revenues

EBITDA margin (%) 12.7% NA 11.7% NA 106

PBT (Rsmn) 851 NA 600 NA 42% QoQ PBT performance further helped by lower 'interest' costs and higher 'other income'; offset to some extent by higher QoQ tax rate. PAT 607 NA 472 NA 29%




Exhibit 6: Revisions ahead of the earnings season

New Estimates Old Estimates Change Comments

FY18E FY19E FY18E FY19E FY18E FY19E

Maruti Suzuki

Recommendation SELL SELL

We increase our volume estimates for FY18/FY19 on the back of performance in 4QFY17. The upgrade to target price is higher (compared to net earnings) due to roll-forward of DCF.

TP (Rs) 5,000 4,840 3%

Revenues (Rsmn) 775,074 893,604 762,004 878,386 2% 2%

EBITDA (Rsmn) 112,506 128,817 111,726 127,911 1% 1%

EBITDA margin (%) 14.5% 14.4% 14.7% 14.6% (15) (15)

PBT (Rsmn) 104,657 120,891 103,898 119,984 1% 1%

PAT (Rsmn) 77,447 88,250 76,884 87,588 1% 1%

EPS (Rs) 256.4 292.1 254.5 290.0 1% 1%

Ashok Leyland

Recommendation BUY BUY

While we maintain our volume estimates, we marginally cut our EBITDA margin estimates on account of increase in commodity costs. However, roll-forward of DCF offsets this impact at the valuation level.

TP (Rs) 94 94 0%

Revenues (Rsmn) 226,681 253,882 227,759 255,091 0% 0%

EBITDA (Rsmn) 24,896 27,883 25,497 28,583 -2% -2%

EBITDA margin (%) 11.0% 11.0% 11.2% 11.2% (21) (22)

PBT (Rsmn) 20,029 23,073 20,582 23,858 -3% -3%

PAT (Rsmn) 14,020 16,151 14,467 16,661 -3% -3%

EPS (Rs) 4.93 5.68 5.08 5.85 -3% -3%

Tata Motors


We marginally downgrade our JLR volume estimates in line with recent monthly volume trends. This results in downgrading of EBITDA/net earnings and target price

TP (Rs) 550 560 -2%

Revenues (Rsmn) 3,043,553 3,399,161 3,093,975 3,451,639 -2% -2%

EBITDA (Rsmn) 371,935 435,898 380,559 445,261 -2% -2%

EBITDA margin (%) 12.2% 12.8% 12.3% 12.9% (8) (8)

PBT (Rsmn) 131,494 165,556 135,427 170,731 -3% -3%

PAT (Rsmn) 111,859 138,520 115,059 142,901 -3% -3%

EPS (Rs) 32.9 40.8 33.9 42.1 -3% -3%

Mahindra CIE


While we maintain our estimates, our target price gets upgraded due to roll-forward of DCF

TP (Rs) 235 225 4%

Revenues (Rsmn) 60,555 65,819 60,555 65,819 0% 0%

EBITDA (Rsmn) 7,479 8,517 7,479 8,517 0% 0%

EBITDA margin (%) 12.4% 12.9% 12.4% 12.9% - -

PBT (Rsmn) 4,376 5,352 4,376 5,352 0% 0%

PAT (Rsmn) 3,112 3,805 3,112 3,805 0% 0%

EPS (Rs) 8.2 10.1 8.2 10.1 0% 0%





Bajaj Auto


While we maintain our volume estimates, we marginally cut our EBITDA margin estimate on account of increase in commodity costs. However, roll-forward of DCF more than offsets this impact at the valuation level.

TP (Rs) 2,520 2,500 1%

Revenues (Rsmn) 259,191 287,698 258,973 287,456 0% 0%

EBITDA (Rsmn) 54,784 59,946 55,269 60,485 -1% -1%

EBITDA margin (%) 21.1% 20.8% 21.3% 21.0% (21) (21)

PBT (Rsmn) 62,297 68,400 62,947 69,143 -1% -1%

PAT (Rsmn) 42,985 47,196 43,433 47,709 -1% -1%

EPS (Rs) 149 163 150 165 -1% -1%

Hero MotoCorp


We marginally downgrade our volume estimates in line with the recent monthly volume trends. This results in downgrading of EBITDA/net earnings and target price (offset to a significant extent by roll-forward of DCF).

TP (Rs) 3,000 3,020 -1%

Revenues (Rsmn) 322,390 358,065 332,721 369,541 -3% -3%

EBITDA (Rsmn) 52,872 58,007 54,566 59,866 -3% -3%

EBITDA margin (%) 16.4% 16.2% 16.4% 16.2% - -

PBT (Rsmn) 52,701 57,573 54,996 59,882 -4% -4%

PAT (Rsmn) 36,891 40,301 38,497 41,917 -4% -4%

EPS (Rs) 184.5 201.5 192.5 209.6 -4% -4%

TVS Motor


We marginally downgrade our volume estimates in line with the recent monthly volume trends. This results in downgrading of EBITDA/net earnings and target price (offset to some extent by roll-forward of DCF).

TP (Rs) 335 340 -1%

Revenues (Rsmn) 152,357 177,527 157,208 183,047 -3% -3%

EBITDA (Rsmn) 12,632 15,628 13,030 16,111 -3% -3%

EBITDA margin (%) 8.3% 8.8% 8.3% 8.8% 0 0

PBT (Rsmn) 10,515 13,270 10,863 13,687 -3% -3%

PAT (Rsmn) 7,886 9,836 8,147 10,145 -3% -3%

EPS (Rs) 16.6 20.7 17.2 21.4 -3% -3%

Amara Raja


While we maintain our estimates, our target price gets upgraded due to roll-forward of DCF.

TP (Rs) 820 810 1%

Revenues (Rsmn) 60,440 67,847 60,440 67,847 0% 0%

EBITDA (Rsmn) 9,993 11,218 9,993 11,218 0% 0%

EBITDA margin (%) 16.5% 16.5% 16.5% 16.5% - -

PBT (Rsmn) 8,396 9,665 8,396 9,665 0% 0%

PAT (Rsmn) 5,709 6,572 5,709 6,572 0% 0%

EPS (Rs) 33.4 38.4 33.4 38.4 0% 0%





Eicher Motors


We update our volumes estimates in line with the recent volume performance. This results in a marginal downgrade to our revenue and PAT estimates. This is offset by roll-forward of DCF.

TP (Rs) 19,100 19,100 0%

Revenues (Rsmn) 84,721 103,991 85,577 105,041 -1% -1%

EBITDA (Rsmn) 26,353 32,417 26,619 32,744 -1% -1%

EBITDA margin (%) 31.1% 31.2% 31.1% 31.2% - -

PBT (Rsmn) 26,992 32,814 27,543 33,484 -2% -2%

PAT (Rsmn) 19,605 23,272 20,005 23,747 -2% -2%

EPS (Rs) 721 856 735 873 -2% -2%

M&M


Our target price gets upgraded due to roll-forward of DCF.

TP (Rs) 1,300 1,280 2%

Revenues (Rsmn) 456,386 513,481 457,784 514,829 0% 0%

EBITDA (Rsmn) 63,359 71,827 63,553 72,015 0% 0%

EBITDA margin (%) 13.9% 14.0% 13.9% 14.0% (35) (35)

PBT (Rsmn) 53,441 61,354 53,524 61,423 0% 0%

PAT (Rsmn) 39,036 44,816 39,097 44,866 0% 0%

EPS (Rs) 68.4 78.5 68.5 78.6 0% 0%

Balkrishna Industries


We marginally increase our volume estimates. Decline in recent rubber prices results in sharper upgrades to EBITDA margin. However, the target price gets upgraded by much higher amount given significantly higher-than-expected FCF generation in 9MFY17.

TP (Rs) 840 770 9%

Revenues (Rsmn) 42,228 46,520 41,856 46,080 1% 1%

EBITDA (Rsmn) 13,110 14,070 12,604 13,508 4% 4%

EBITDA margin (%) 31.0% 30.2% 30.1% 29.3% 93 93

PBT (Rsmn) 11,224 12,328 10,768 11,978 4% 3%

PAT (Rsmn) 7,790 8,383 7,376 8,205 6% 2%

EPS (Rs) 80.6 86.7 76.3 84.9 6% 2%

Endurance Technologies


While we maintain our estimates, our target price gets upgraded due to roll-forward of DCF.

TP (Rs) 790 765 3%

Revenues (Rsmn) 65,023 74,198 65,023 74,198 0% 0%

EBITDA (Rsmn) 9,000 10,498 9,000 10,498 0% 0%

EBITDA margin (%) 13.8% 14.1% 13.8% 14.1% - -

PBT (Rsmn) 5,987 7,435 5,987 7,435 0% 0%

PAT (Rsmn) 4,236 5,275 4,236 5,275 0% 0%

EPS (Rs) 30.1 37.5 30.1 37.5 0% 0%

Source: Company, Ambit Capital research



Aviation In Jan-Feb 2017, domestic industry ASK grew by 17% YoY; Indigo reported above-industry ASK growth of 25% YoY. Despite strong capacity addition, Indigo’s PLF increased to 88% in Jan-Feb 2017 vs 85% same period last year, resulting in RPK growth of 30% for Indigo and 22% for industry. We expect Indigo to report ASK growth of 25% YoY in 4QFY17 and average PLF of 87% (85% in 4QFY16), resulting in RPK growth of 28%. Strong RPK growth should be driven by aggressive pricing. Hence, we expect yields to decline by 5% YoY for Indigo. Decline in yields would be partially offset by improved utilisation, resulting in 3% decline in RASK YoY and decrease in PBT/ASK to Rs0.21 from Rs0.58 in 4QFY16. We remain SELLers on Indigo as it factors in FY17-26E ASK CAGR of 14%, stable margins of Rs0.4/ASK (44% higher than FY10-15 average) and sustained profits from sale and leaseback, leaving little upside potential. Ambit vs consensus: Based on limited consensus data, our 4QFY17 earnings estimates are 13% higher than consensus.


Company Mar'17E Mar'16 Dec‘16 YoY (%) QoQ (%) Comments

Interglobe Aviation

Sales (Rs mn) 49,691 40,907 49,865 21 (0) We expect revenues to increase by 21% YoY on the back of 25% increase in ASK, partially offset by ~5% YoY decline in yields and 2% higher PLFs. We expect Indigo to report PBT/ASK of Rs0.21/ASK vs Rs0.58/ASK in 4QFY16 mainly due to decline in yields. Hence, Indigo’s EBITDA/PAT are expected to decline by 42% and 35% YoY respectively despite revenue growth of 21%.

EBITDA (Rs mn) 4,694 8,050 6,245 (42) (25)

EBITDA margin (%) 9.4% 19.7% 12.5% -1023 bps -308 bps

PBT (Rs mn) 4,721 8,108 6,021 (42) (22)

PAT (Rs mn) 3,777 5,793 4,873 (35) (22)


Stock Performance

(%) 3-month


Interglobe Aviation

24 13



Interglobe Aviation

10.5 9.22

FY18E EPS


Interglobe Aviation

57.8 59.6




Banking Loan growth for the industry till mid-March 2017 was running at an all-time low of 4.4% YoY. While banks are experiencing slowdown in the corporate segment, the retail segment has also slowed down in recent months. We expect banks’ credit growth to stay subdued at 10-12% CAGR over FY18-19E (sub-5% in FY17E) vs 13% CAGR in the last five years. Thus, 4QFY17 will be a weak quarter for the banking sector due to muted loan growth, pressure on NIM, fall in treasury income and continued high credit costs. Overall, we estimate RoA of 1.4% for private sector banks and 0.27% for PSU banks. We are SELLers on all banks as we see downward risk to earnings estimates as the impact of sluggish economic activity unravels in the next 6-12 months. Punjab National Bank (TP Rs113, 26% downside) and Kotak Mahindra Bank (TP Rs509, 43% downside) have the highest downside risks. Faster than expected resolution of large stressed loans is key risk to our negative stance. Inexpensively valued corporate lenders would be our preferred pick in that scenario.

Ambit vs consensus

Our earnings estimates for the quarter are 5-10% lower than consensus and ~11% lower than consensus for FY18. The divergence is predominantly due to weaker loan growth forecasts, higher slippage assumptions and weaker upgrades/recovery forecasts.

Recommendations

The consolidated net profit for private banks in our coverage universe is likely to remain flat QoQ, while PSU banks’ net profit would grow on a very low base (15% QoQ). Sequentially, consolidated RoA should remain unchanged at ~0.86%. New private sector banks are expected to deliver an average RoA of 1.4% compared with PSU banks’ ~0.27%. We are SELLers on all banks as we see material downward risks to earnings estimates due to unravelling impact of crackdown on the informal economy and real estate weakness on the economic activity in the next 6-12 months. We see the highest downside risks for Kotak Mahindra Bank (KMB IN, US$25.5bn, TP Rs509, 43% downside) and Punjab National Bank (PNB IN, US$5.0bn, TP Rs113, 26% downside).

SFBs/MFIs are at the highest risk in current environment due to earnings hit arising from continued weakness in collection efficiencies in certain geographies. While we do not build this in our base case scenario yet, faster than expected resolution of large stressed loans (led by concerted initiatives by the government and the RBI) could provide reliefe corporate lenders. Inexpensively valued private sector corporate lenders would be our preferred pick in that scenario.

Stock Performance

(%) 3-month


HDFC Bank 21 9

ICICI Bank 9 (3)

Axis Bank 12 (0)

Kotak Mahindra Bk. 25 13

IndusInd Bk. 24 12

State Bk. of India 19 7

Bank of Baroda 14 2

Punjab National Bk. 27 15

Bank of India 28 17

Union Bk. of India 20 8

Federal Bank 32 20

Karur Vysya Bk. 40 28

City Union Bank 10 (2)

South Indian Bk. 15 3

Equitas Holdings 14 2

Ujjivan Financials 21 9

FY18E EPS


HDFC Bank 63.0 68.7

ICICI Bank 16.2 19.0

Axis Bank 25.9 30.2

Kotak Mahindra Bk. 30.2 31.1

IndusInd Bk. 56.5 60.8

State Bk. of India 16.4 19.8

Bank of Baroda 19.1 15.8

Punjab National Bk. 10.6 13.1

Bank of India 7.3 10.7

Union Bk. of India 14.7 22.3

Federal Bank 5.5 6.3

Karur Vysya Bk. 8.6 10.6

City Union Bank 9.3 9.5

South Indian Bk. 3.3 3.0

Equitas Holdings 5.3 6.5

Ujjivan Financials 12.6 17.7




Exhibit 8: Detailed Mar’17E quarterly estimates

Mar'17E Mar'16 Dec'16 YoY QoQ Comments

HDFC Bank

Net Interest Income (Rs mn) 86,955 74,533 83,091 17% 5%

We expect loan book growth to stay little subdued at ~13% YoY. Earnings growth is in-line with loan growth.

Operating Profit (Rs mn) 68,114 57,349 66,093 19% 3%

Cost to income (%) 42.4% 44.4% 42.3% PBT (Rs mn) 57,405 50,725 58,935 13% -3%

PAT (Rs mn) 38,637 33,742 38,653 15% 0%

ICICI Bank


Muted loan book growth (7.5%) and elevated provisions to result in negative net profit growth.

Operating Profit (Rs mn) 56,335 71,075 55,239 -21% 2%

Cost to income (%) 39.3% 32.4% 40.6% PBT (Rs mn) 21,132 37,813 28,112 -44% -25%

PAT (Rs mn) 18,367 31,139 24,418 -41% -25%

Axis Bank


We expect muted loan book growth of 10% YoY. Expect RoA at 0.7% in 4QFY17.


Cost to income (%) 40.3% 39.3% 40.0% PBT (Rs mn) 15,482 32,302 8,444 -52% 83%

PAT (Rs mn) 10,186 21,543 5,796 -53% 76%

Kotak Mahindra Bank


Loan growth to stay muted (~12%). Bank is exposed to loan growth slowdown emanating from demonetisation-linked disruption in real estate (LAP), agri (tractor) and SME businesses.



PAT (Rs mn) - standalone 9,197 6,958 8,798 32% 5%

PAT (Rs mn) - consolidated 13,001 10,548 12,668 23% 3%

IndusInd Bank


Growth in PAT is in line with growth in net interest income.


Cost to income (%) 47.5% 47.2% 47.5% PBT (Rs mn) 11,550 9,375 11,465 23% 1%

PAT (Rs mn) 7,655 6,204 7,506 23% 2%

State Bank of India


Expect muted NIM and elevated credit cost.

Operating Profit (Rs mn) 123,726 141,919 125,433 -13% -1%


PAT (Rs mn) 23,364 12,638 26,100 85% -10%

Bank of Baroda

Net Interest Income (Rs mn) 32,288 33,304 31,344 -3% 3%

Elevated credit cost and muted loan book to limit RoA at 0.35%

Operating Profit (Rs mn) 22,814 25,725 25,952 -11% -12%

Cost to income (%) 52.9% 49.6% 47.1% PBT (Rs mn) 6,948 -42,852 5,157 -116% 35%

PAT (Rs mn) 6,554 -32,301 2,527 -120% 159%

Punjab National Bank

Net Interest Income (Rs mn) 36,207 27,677 37,308 31% -3%

Expecting flat loan book YoY, higher treasury income and higher credit costs to lead to RoA of 0.4%.



PAT (Rs mn) 6,842 -53,671 2,072 -113% 230%



Mar'17 Mar'16 Dec'16 YoY QoQ Comments

Bank of India

Net Interest Income (Rs mn) 31,716 31,872 28,626 0% 11% Negative loan book growth and elevated provisions, including unamortised provisions sitting on balance sheet, leading to loss after tax of Rs783mn.

Operating Profit (Rs mn) 18,518 14,642 24,584 26% -25%

Cost to income (%) 59.2% 64.0% 46.9% PBT (Rs mn) 249 -40,062 1,559 -101% -84%

PAT (Rs mn) -783 -35,871 1,017 -98% -177%

Union Bank of India


Muted loan growth (~5% YoY), NIM compression and higher treasury income to lead to RoA of 0.16%.



PAT (Rs mn) 1,826 961 1,040 90% 76%

Federal Bank


Strong loan growth of 26% should boost RoA to 0.9%.


Cost to income (%) 52.6% 56.8% 55.0% PBT (Rs mn) 3,753 60 3,161 6124% 19%

PAT (Rs mn) 2,480 104 2,057 2282% 21%

Karur Vysya Bank


We expect some recovery in margins, but muted loan growth and elevated credit costs to keep RoA at around 0.9%.


Cost to income (%) 61.8% 59.5% 60.5% PBT (Rs mn) 1,619 2,715 1,775 -40% -9%

PAT (Rs mn) 1,104 1,380 1,158 -20% -5%

City Union Bank


Loan growth is likely to remain around 13-14% but superior margins to protect profitability at ~1.6%.



PAT (Rs mn) 1,369 1,122 1,266 22% 8%

South Indian Bank


Elevated cost-to-income ratio and provisions should lead to muted RoA of 0.7%.



PAT (Rs mn) 1,043 730 1,114 43% -6%

Equitas Holdings


Muted collection efficiencies for industry will impact the RoA.

Operating Profit (Rs mn) 846 875 1,000 -3% -15%

Cost to income (%) 70% 55% 63% PBT (Rs mn) 523 729 706 -28% -26%

PAT (Rs mn) 318 468 449 -32% -29%

Ujjivan Financials


Muted collection efficiencies for industry will impact the RoA.

Operating Profit (Rs mn) 1,034 925 1,211 12% -15%

Cost to income (%) 56% 49% 49% PBT (Rs mn) 535 843 664 -37% -19%

PAT (Rs mn) 354 549 439 -36% -19%




Exhibit 9: Revisions ahead of earnings season

New Estimates Old Estimates Change

Comments FY18E FY19E FY18E FY19E FY18E FY19E

HDFC Bank Recommendation SELL SELL TP (Rs) 1,123 1,079 4% Net interest income (Rs mn) 372,495 431,349 370,997 433,258 0% 0%

Roll forward leads to a minor upgrade in our target price.

Operating profit (Rs mn) 283,832 330,971 278,763 325,160 2% 2%

Cost to income (%) 43.8% 43.5% 44.6% 44.2% PBT (Rs mn) 241,572 284,418 230,992 277,385 5% 3%

PAT (Rs mn) 159,375 187,643 153,610 184,461 4% 2%

EPS (Rs) 63.0 74.2 60.8 73.0 4% 2%

ICICI Bank Recommendation SELL SELL TP (Rs) 250 238 5% Net interest income (Rs mn) 230,813 261,621 230,813 261,621 0% 0%




PAT (Rs mn) 94,107 125,540 94,107 125,540 0% 0%

EPS (Rs) 16.2 21.6 16.2 21.6 0% 0%

Axis Bank Recommendation SELL SELL TP (Rs) 510 504 1% Net interest income (Rs mn) 207,599 240,907 209,655 243,338 -1% -1%


Operating profit (Rs mn) 180,587 204,839 182,641 207,312 -1% -1%

Cost to income (%) 43.6% 43.6% 43.6% 43.6% PBT (Rs mn) 92,941 168,000 94,995 170,474 -2% -1%

PAT (Rs mn) 61,806 111,720 63,171 113,365 -2% -1%

EPS (Rs) 25.9 46.9 26.5 47.6 -2% -1%

Kotak Mahindra Bank Recommendation SELL SELL TP (Rs) 509 491 4% Net interest income (Rs mn) 94,964 113,202 94,964 113,202 0% 0%




PAT (Rs mn) - standalone 37,924 46,686 37,515 46,249 1% 1%

PAT (Rs mn) - consolidated 55,352 67,006 54,942 66,568 1% 1%

EPS (Rs) - consolidated 30.2 36.5 30.0 36.3 1% 1%

IndusInd Bank Recommendation SELL SELL TP (Rs) 1,171 1,140 3% Net interest income (Rs mn) 71,689 87,386 71,027 86,594 1% 1%




PAT (Rs mn) 33,589 40,834 33,187 40,349 1% 1%

EPS (Rs) 56.5 68.6 55.8 67.8 1% 1%





State Bank of India Recommendation SELL SELL TP (Rs) 248 240 3% Net interest income (Rs mn) 636,862 710,868 636,862 710,868 0% 0%




PAT (Rs mn) 127,575 169,954 127,338 169,798 0% 0%

EPS (Rs) 16.4 21.9 16.4 21.9 0% 0%

Bank of Baroda Recommendation SELL SELL TP (Rs) 181 177 2% Net interest income (Rs mn) 146,971 169,336 147,640 167,346 0% 1%


Operating profit (Rs mn) 114,750 132,842 115,419 130,852 -1% 2%

Cost to income (%) 46.8% 45.1% 46.7% 45.5% PBT (Rs mn) 60,376 78,171 61,055 76,185 -1% 3%

PAT (Rs mn) 44,074 57,065 44,570 55,615 -1% 3%

EPS (Rs) 19.1 24.7 19.3 24.1 -1% 3%

Punjab National Bank Recommendation SELL SELL TP (Rs) 113 110 3% Net interest income (Rs mn) 154,110 162,897 154,110 162,897 0% 0%




PAT (Rs mn) 22,526 25,346 22,526 25,346 0% 0%

EPS (Rs) 10.6 11.9 10.6 11.9 0% 0%

Bank of India Recommendation SELL SELL TP (Rs) 63 62 2% Net interest income (Rs mn) 121,668 133,948 121,668 133,948 0% 0%




PAT (Rs mn) 7,745 18,595 7,745 18,595 0% 0%

EPS (Rs) 7.3 17.6 7.3 17.6 0% 0%

Union Bank of India Recommendation SELL SELL TP (Rs) 108 105 3% Net interest income (Rs mn) 95,092 103,320 95,092 101,155 0% 2%


Operating profit (Rs mn) 64,713 68,292 66,867 68,389 -3% 0%

Cost to income (%) 52.0% 52.7% 51.2% 52.7% PBT (Rs mn) 15,247 17,710 15,674 17,761 -3% 0%

PAT (Rs mn) 10,139 11,777 10,423 11,811 -3% 0%

EPS (Rs) 14.7 17.1 15.2 17.2 -3% 0%

Federal Bank Recommendation SELL SELL TP (Rs) 60 58 4% Net interest income (Rs mn) 35,613 40,832 35,614 40,834 0% 0%




PAT (Rs mn) 9,413 11,733 9,677 12,020 -3% -2%

EPS (Rs) 5.5 6.8 5.6 7.0 -3% -2%





Karur Vysya Bank Recommendation SELL SELL TP (Rs) 87 84 4% Net interest income (Rs mn) 20,859 22,427 20,859 22,427 0% 0%




PAT (Rs mn) 5,210 5,808 5,210 5,808 0% 0%

EPS (Rs) 8.6 9.5 8.6 9.5 0% 0%

City Union Bank Recommendation SELL SELL TP (Rs) 141 135 5% Net interest income (Rs mn) 13,197 15,247 13,197 15,247 0% 0%




PAT (Rs mn) 5,587 6,631 5,639 6,692 -1% -1%

EPS (Rs) 9.3 11.1 9.4 11.2 -1% -1%

South Indian Bank Recommendation SELL SELL TP (Rs) 17.8 17.1 4% Net interest income (Rs mn) 18,444 20,588 18,444 20,588 0% 0%




PAT (Rs mn) 4,406 4,991 4,406 4,991 0% 0%

EPS (Rs) 3.3 3.7 3.3 3.7 0% 0%

Equitas Holdings Recommendation SELL SELL TP (Rs) 134 130 3% Net interest income (Rs mn) 10,903 14,046 10,903 14,046 0% 0%




PAT (Rs mn) 1,791 2,613 1,791 2,613 0% 0%

EPS (Rs) 5.3 7.8 5.3 7.8 0% 0%

Ujjivan Financials Recommendation SELL SELL TP (Rs) 289 280 3% Net interest income (Rs mn) 9,356 11,855 9,356 11,855 0% 0%




PAT (Rs mn) 1,492 1,858 1,492 1,858 0% 0%

EPS (Rs) 12.6 15.7 12.6 15.7 0% 0%




Building Materials Different fortunes for different categories Within Building materials, performance could be mixed. Whilst the demonetisation-led supply disruption is receding, demand/ growth trends are not uniform; the best performing is light electricals with revenue growing in mid-teens. The unorganised players and cash dealings are getting back and retail demand has improved QoQ. But channel’s outlook is weak and hopes rest on affordable units (downtrading risk) as new project demand remains subdued; some fast pacing of projects could throw surprises. Margins for most are likely to come under pressure – light electricals for raw material prices and slow growth for other categories. EBITDA margin for Havells/V-Guard/Finolex will decline by 140bps/200bps/680bps, for Crompton it will improve by 30bps due to lower base impact. The key thing to ask managements will be their outlook and impact from GST as unorganised may not completely vacate the space; hence market share from unorgnaised will require more work on branding, reach and unique products. Pidilite is our key BUY and Crompton our key SELL.

Ambit vs consensus: Whilst our FY18 EPS estimates for Pidilite/Crompton/V-Guard/Bajaj are 2%3%/10%/6% lower than consensus, for Supreme it is 5% ahead of consensus.

Key recommendations: Crompton Consumer is our Top SELL. Crompton is most exposed to EESL’s price disruption strategy as fans contribute ~60% of EBIT with high exposure to economy fans. Crompton would not be successful in product diversification given weak acceptance in small appliances and retail lighting. The stock currently trades at 41x/33x FY18/FY19 P/E, in line with Havells, despite latter being a more diversified franchise with strong execution history.

Stock Performance

(%) 3-month


Pidilite 17 4

Supreme 22 10

Century Ply 45 32

Crompton 48 36

V-Guard 50 38

Havells 28 16

Finolex Cables 26 14

Bajaj 53 42



Pidilite 3.9 2.6

Supreme 10.8 10.1

Century Ply 1.7 1.9

Crompton 1.4 NA

V-Guard 1.1 NA

Havells 2.6 NA

Finolex Cables 4.4 NA

Bajaj 3.0 NA

FY18E EPS


Pidilite 19.0 19.5

Supreme 39.0 37.2

Century Ply 9.8 9.8

Crompton 5.4 5.6

V-Guard 4.4 4.9

Havells NA 11.3

Finolex Cables NA 21.4

Bajaj 13.2 14.0






Pidilite Industries

Sales (Rs mn) 13,803 12,409 13,344 11% 3% With a pick-up in retail sales, we expect 12% YoY (1% QoQ) growth in the Consumer and Bazaar segment; Industrials and others are expected to grow at a moderate 4%

EBITDA (Rs mn) 3,051 2,384 2,909 28% 5% We expect limited margin expansion (31bps QoQ) due to increase in RM costs, which have possibly not been fully passed on to the end consumer EBITDA margin (%) 22.1% 19.2% 21.8% 290 31

PBT (Rs mn) 2,886 2,154 2,814 34% 3% Trickle-down impact of slightly higher EBITDA

PAT (Rs mn) 1,992 1,516 2,020 31% -1%

Supreme Industries

Sales (Rs mn) 14,366 12,003 11,074 20% 30%

We had built in the following estimates for 4QFY17; however, we are highly skeptical whether the company will be able to post such a growth. Hence, we put the stock under review (UR).

EBITDA (Rs mn) 2,350 2,152 1,848 9% 27%

EBITDA margin (%) 16.4% 17.9% 16.7% (157) (33)

PBT (Rs mn) 1,880 1,686 1,380 11% 36%

PAT (Rs mn) 1,366 1,146 1,008 19% 36%

Century Ply

Sales (Rs mn) 4,659 4,547 4,255 2% 10% Channel checks suggest YoY decline in ply industry sales; however, there has been QoQ pick-up in retail

EBITDA (Rs mn) 722 760 673 -5% 7% Decline in margin due to unfavourable operating leverage and higher incentives to the channel EBITDA margin (%) 15.5% 16.7% 15.8% (122) (32)

PBT (Rs mn) 462 536 412 -14% 12% Trickle-down impact of lower EBITDA

PAT (Rs mn) 388 396 346 -2% 12%

Crompton Consumer

Sales (Rs mn) 11,348 10,016 8,889 13% 28% We expect sales growth to accelerate from 10% in 3QFY17 to 13% (in line with 1HFY17) led by recovery in the secondary market demand.

EBITDA (Rs mn) 1,476 1,272 993 16.1% 49% Positives: Non-recurring cost in 4QFY16 (160bps YoY), lower overheads payable to Crompton Greaves (20bps), cut in vendor's margin (180bps), premiumisation/favourable operating leverage (20bps) Negatives: Ad-spend (120bps), increase in commodity prices (150bps), ESOP cost (80bps)

EBITDA margin (%) 13.0% 12.7% 11.2% 30bps 180bps

PBT (Rs mn) 1,357 1,079 855 26% 59% Trickle-down impact of higher EBITDA

PAT (Rs mn) 911 723 574 26% 59%

V-Guard

Sales (Rs mn) 5,960 5,133 4,596 16% 30% We expect revenue growth to accelerate from 13% in 9MFY17 to 16% in 4QFY17 led by a strong growth of 17% in cables and wires (vs 3% in 9MFY17) due to ~8% price hikes.

EBITDA (Rs mn) 622 634 386 -2% 61% Margin decline led by increase in commodity prices

EBITDA margin (%) 10.4% 12.4% 8.4% -200bps 200bps

PBT (Rs mn) 600 605 372 -1% 61% Trickle-down impact of lower EBITDA

PAT (Rs mn) 449 420 280 7% 61% Tax rate to decline from 30.6% in 4QFY16 to 25.1% led by higher revenue from tax exempt Sikkim facility

Havells

Sales (Rs mn) 17,194 14,754 15,060 17% 14% Sales growth led by 23% YoY growth in cables & wires revenue (13% volume growth; 10% price hike) and 21% YoY growth in electrical consumer durables.

EBITDA (Rs mn) 2,324 2,201 1,930 6% 20% Margin decline led by increase in commodity prices alongside unfavourable product mix (higher share of cables and wires) and channel special package cost announced after demonetisation. EBITDA margin (%) 13.5% 14.9% 12.8% -140bps 70bps

PBT (Rs mn) 2,325 2,208 1,877 5% 24% Trickle-down impact of EBITDA

PAT (Rs mn) 1,652 1,635 1,340 1% 23% We expect tax rate to increase from 13.4% in 4QFY16 to 28.9%




Finolex Cables

Sales (Rs mn) 7,763 6,807 6,754 14% 15% Sales of cables and wires to grow by 17% YoY led by 10% volume growth and 7% price hikes. Communication cables likely to remain flat due to higher base impact.

EBITDA (Rs mn) 967 1,311 922 -26% 5% Margin decline led by inability to pass on the entire increase in the commodity prices. Average copper prices for 4QFY17 up by ~25% vs ~7% YoY increase in realisation. EBITDA margin (%) 12.5% 19.3% 13.6% -680bps -110bps

PBT (Rs mn) 919 1,301 839 -29% 9% Trickle-down impact of higher EBITDA

PAT (Rs mn) 680 1,026 804 -34% -15% We expect tax rate to increase from 21.1% in 4QFY16 to 26.0%.

Bajaj Electricals

Sales (Rs mn) 14,511 13,572 10,495 7% 38% Whilst for consumer business we model flat revenue, for E&P we model 12% revenue growth led by higher opening order book in 4Q.

EBITDA (Rs mn) 1,052 744 672 41% 57% In consumer + lighting, EBIT margin would improve by 150bps YoY to 6.3% due to discontinuance of extra discounts under ToC. In EPC, EBIT margin would improve by 70bps to 7.3% led by streamlining of TOC. EBITDA margin (%) 7.2% 5.5% 6.4% 170bps 80bps

PBT (Rs mn) 776 532 452 46% 72% Trickle-down impact of higher EBITDA PAT (Rs mn) 508 347 297 46% 71%





Rsmn unless specified New Estimates Old Estimates Change in

estimates Comments FY18E FY19E FY18E FY19E FY18E FY19E

Crompton Consumer Recommendation SELL SELL TP (Rs) 134 130 3% Led rollover of TP by 3 months

Revenues (Rs mn) 46,032 52,043 46,113 52,136 0% 0%

No change

EBITDA (Rs mn) 5,767 6,848 5,785 6,816 0% 0%

EBITDA margin (%) 12.5% 13.1% 12.5% 13.1% 0bps 0bps

PBT (Rs mn) 5,231 6,493 5,250 6,462 0% 0%

PAT (Rs mn) 3,505 4,350 3,517 4,330 0% 0%

EPS (Rs) 5.6 6.9 5.6 6.9 0% 0%

V-Guard Recommendation SELL SELL TP (Rs) 109 100 9%

Consequent to rollover of TP by 3 months and 11%/8% upgrade in FY18/FY19 EBITDA estimate

Revenues (Rs mn) 24,372 28,271 22,168 26,158 10% 8%

Led by upgrade in our revenue growth expectation from 1%/10% in 4QFY17/FY18 earlier to 16%/15% given Kerala has recovered from the impact of demonetisation much earlier than our expectation

EBITDA (Rs mn) 2,550 3,099 2,296 2,877 11% 8% Led by favourable operating leverage


PBT (Rs mn) 2,479 3,045 2,213 2,811 12% 8%

Trickle-down impact of higher EBITDA PAT (Rs mn) 1,834 2,247 1,593 2,018 15% 11%

EPS (Rs) 4.4 5.3 3.8 4.8 14% 10%

Bajaj Electricals Recommendation BUY BUY

TP (Rs) 351 309 14%

Led by: (a) 9% upgrade in consumer business value to Rs293/share as we upgrade our long term EBIT margin assumption by 40bps over FY20-30 given the encouraging feedback from the distributors in ToC region; and (b) 24% upgrade in E&P valuation to Rs117/share as we cut our CoE of E&P business from 17% earlier to 15% given E&P business has now streamlined with strong ToC processes.

Revenues (Rs mn) 51,030 59,728 49,015 58,274 4% 2% We upgrade FY18/FY19 E&P revenue by 10%/6% given strong order inflows over past 6 months (order book in 3Q increased 40% QoQ).

EBITDA (Rs mn) 2,977 3,891 2,835 3,788 5% 3% Trickle-down impact of higher revenue


PBT (Rs mn) 2,206 3,007 2,022 2,809 9% 7%

Trickle-down impact of higher EBITDA PAT (Rs mn) 1,456 1,985 1,335 1,854 9% 7%

EPS (Rs) 14.5 19.7 13.2 18.4 9% 7%




Capital Goods Execution across sub-sectors is likely to be strong led by pick-up in the infrastructure-led demand. Revenue growth for BHEL (pick-up in execution), Inox (execution before expiry of GBI in Mar’17) and Cummins (KKC, pick-up in exports demand) is likely to be strong at 26%, 63% and 21% respectively. Thermax/Greaves (GRV) likely to report moderate growth of 3%/2% due to weak opening order book and decline in auto engine volumes for Greaves. Except GRV (flat margin), all companies are likely to report improvement in margin due to pick-up in execution. BHEL/Thermax/Inox/KKC are likely to report 700bps/200bps/160bps/10bps improvement in EBITDA margin. However, BTG ordering is likely to remain weak with BHEL missing its FY17 order inflow guidance of Rs280bn by ~50%. Our top BUY is GRV; our top SELL is KKC.

Ambit vs consensus: Currently no credible consensus estimates are available for all companies under our coverage.

Key recommendations:

Greaves Cotton (BUY, TP Rs203/share, 19% upside)

Greaves’ revenue will grow at 20% over FY17-19 vs 3% decline over FY12-16 led by 40% CAGR in the after-market segment (multi-brand spares), 14% CAGR in auto engines (price hikes; demand recovery) and 12% CAGR in agri portfolio (new range of tillers). EBITDA margin will improve by 150bps over FY17-19 to 18.0% in FY19 led by increase in the share of margin-lucrative after-market segment from 21% in FY17 to 29% in FY19. Also, new OEM sign-ups for impressive ‘leap engine’ family (1.5-3.5 tonne) is a call option. Valuation of 17.5x FY18E P/E is attractive given FY18E RoE/FCF yield of 24%/3.9% and 18% EPS CAGR over FY17-19E.

Ambit vs consensus: Currently, no credible consensus estimates are available for all companies under our coverage for 4QFY17.

Cummins - KKC (SELL, TP Rs610/share, 37% downside) KKC is likely to underperform the industry given increase in the competitive intensity with players, such as KOEL, F G Wilson, Sterling Wilson, Mahindra, JCB and Greaves expanding their range and reach. Moreover, KKC’s EBITDA margin may structurally decline as the market shifts to medium/low KVA due to declining power deficit and low capacity utilisation across industries; medium/low KVA is a low-margin segment versus high KVA due to higher competitive intensity. Further, the growth in the distribution business (high-margin business) may decelerate given the decline in engine working hours due to the low running hours for engines used for back-up applications. Lastly, we expect low KVA export growth for KKC to peak out in FY18 given it is led by shift in sourcing from Cummins UK to KKC. As margins decline, KKC’s valuation of 32x FY18E P/E, a ~65% premium to its five-year average, should de-rate.

Stock Performance

(%)

3-month


BHEL 34 2

Thermax 22 9

Inox Wind (1) (13)

Cummins 19 6

Greaves Cotton 40 27



BHEL 3.9 NA

Thermax 9.5 NA

Inox Wind 16.9 NA

Cummins 7.4 NA

Greaves Cotton 1.8 NA

FY18E EPS


BHEL 7.6 6.6

Thermax 28.5 27.2

Inox Wind 17.5 20.4

Cummins 30.4 32.8

Greaves Cotton 9.7 9.0




Company name Mar'17E Mar'16 Dec'16 YoY QoQ Comment

BHEL

Sales (Rs mn) 126,170 100,048 63,254 26% 99% Revenue growth led by pick-up in execution

EBITDA (Rs mn) 13,349 3,638 2,239 267% 496% Margin expansion led by favourable operating leverage and lower provisioning on receivables EBITDA margin (%) 10.6% 3.6% 3.5% 700bps 710bps

APBT (Rs mn) 14,445 5,209 1,246 177% 1060% Trickle down impact of higher EBITDA

APAT (Rs mn) 9,642 3,655 935 164% 931%

Thermax

Sales (Rs mn) 13,320 12,932 8,136 3% 64% Revenue growth led by 3% higher order book in 4Q

EBITDA (Rs mn) 1,478 1,182 807 25% 83% Led by 410bps gross margin improvement due to higher share of high-margin after-market revenue EBITDA margin (%) 11.1% 9.1% 9.9% 200bps 120bps

PBT (Rs mn) 1,693 1,524 850 11% 99% PBT growth is lower than EBITDA growth due to 20% decline in other income

PAT (Rs mn) 1,135 1,112 567 2% 100% We expect tax rate to increase from 27.1% in 4QFY16 to 33.0%

Inox Wind

Sales (Rs mn) 29,778 18,287 11,606 63% 157% Revenue growth led by faster execution closer to the expiration of GBI in March'17.

EBITDA (Rs mn) 5,387 3,011 1,810 79% 198% Led by increase in favourable operating leverage


PBT (Rs mn) 5,221 2,852 1,429 83% 265% Trickle-down impact of EBITDA growth

PAT (Rs mn) 3,749 1,973 1,075 90% 249%

Cummins

Sales (Rs mn) 12,941 10,654 13,550 21% -4%

We expect export revenue growth of 37% YoY led by lower base impact (exports declined by 29% in 4QFY16). We expect domestic revenue growth of 17% YoY led by strong demand from the industrial segment. On sequential basis, we expect domestic revenue decline of 4%.

EBITDA (Rs mn) 2,085 1,708 2,265 22% -8% Despite favourable operating leverage, EBITDA margin to improve by just 10bps due to 240bps YoY decline in gross margin given pricing pressure. EBITDA margin (%) 16.1% 16.0% 16.7% 10bps -60bps

PBT (Rs mn) 2,505 2,013 2,446 24% 2% Trickle-down impact of higher EBITDA

APAT (Rs mn) 2,041 1,642 1,981 24% 3%

Greaves Cotton

Sales (Rs mn) 4,136 4,051 4,050 2% 2%

Revenue increase led by 50% growth in genset volume (vs 60% in 9MFY17) and 35% YoY growth in after-market led by multi-brand spares. However, we expect volume decline of 12%/15% in 3W/4W given double-digit decline in domestic sales/production of Greaves OEM in Jan and Feb'17.

EBITDA (Rs mn) 644 632 613 2% 5% Assumed margin to remain flat


APBT (Rs mn) 657 646 588 2% 12% Trickle-down impact of higher EBITDA

APAT (Rs mn) 440 450 394 -2% 12% We expect tax rate to increase from 30% in 4QFY16 to 33%





Rs mn unless specified New Estimates Old Estimates Change in

estimates Comments FY18E FY19E FY18E FY19E FY18E FY19E

BHEL Recommendation SELL SELL TP (Rs) 128 125 2.8% Led by rollover of TP by 3 months Revenues (Rs mn) 321,722 319,312 320,309 318,265 0% 0%

No change EBITDA (Rs mn) 26,920 33,193 26,787 33,031 0% 0%


PBT (Rs mn) 26,871 33,128 26,444 32,445 2% 2%

Marginal upgrade in other income PAT (Rs mn) 18,541 22,858 18,246 22,387 2% 2%

EPS (Rs) 7.6 9.3 7.5 9.1 2% 2%

Thermax Recommendation SELL SELL TP (Rs) 648 629 3.0% Consequent to rollover of TP by 3 months

Revenues (Rs mn) 49,507 52,784 49,507 52,784 0% 0%

No Change

EBITDA (Rs mn) 5,446 5,806 5,446 5,806 0% 0%

EBITDA margin (%) 11% 11% 11% 11% 0bps 0bps

PBT (Rs mn) 5,061 5,621 5,061 5,621 0% 0%

PAT (Rs mn) 3,391 3,766 3,391 3,766 0% 0%

EPS (Rs) 28.5 31.6 28.5 31.6 0% 0%

Inox Wind Recommendation SELL SELL TP (Rs) 203 206 -1% Led by 2%/2% cut in FY18/FY19 EBITDA

Revenues (Rs mn) 45,737 46,038 45,737 46,038 0% 0% No Change

EBITDA (Rs mn) 6,098 6,502 6,248 6,649 -2% -2% Margin cut led by pricing pressure due to competitive bidding EBITDA margin (%) 13.3% 14.1% 13.7% 14.4% -40bps -30bps

PBT (Rs mn) 5,463 5,886 5,626 6,041 -3% -3%

Trickle-down impact of cut in EBITDA PAT (Rs mn) 3,881 4,181 3,996 4,291 -3% -3%

EPS (Rs) 17.5 18.8 18.0 19.3 -3% -3%

Cummins Recommendation SELL SELL TP (Rs) 610 600 2% Led by rollover of TP by 3 months

Revenues (Rs mn) 59,880 68,687 60,387 69,286 -1% -1%

Marginal change led by lower-than-expected sales growth in 4QFY17 as per recent channel checks

EBITDA (Rs mn) 9,701 10,990 9,783 11,086 -1% -1%


PBT (Rs mn) 11,403 13,309 11,496 13,426 -1% -1%

PAT (Rs mn) 8,438 9,848 8,507 9,936 -1% -1%

EPS (Rs) 30.4 35.5 30.7 35.8 -0.8% -0.9%

Greaves Cotton

Recommendation BUY BUY TP (Rs) 205 201 2% Led by rollover of TP by 3 months

Revenues (Rs mn) 20,155 23,144 20,193 23,191 0% 0%

No change

EBITDA (Rs mn) 3,401 4,169 3,419 4,164 0% 0%


PBT (Rs mn) 3,435 4,080 3,458 4,067 0% 0%

PAT (Rs mn) 2,370 2,815 2,386 2,806 0% 0%

EPS (Rs) 9.7 11.5 9.7 11.5 0% 0%




Cement Industry volumes declined 15% in Jan-Feb 2017 due to demonetisation. Channel checks suggest that there was a sharp demand recovery of 3-5% YoY in March. Hence, we expect ~7% YoY overall industry volume decline in 4QFY17. Amongst our coverage, regional players, such as Shree, Dalmia and Orient, should report above-industry volume growth of 3-12% YoY whereas ACC, Ambuja and UltraTech should report 5-10% volume decline. Whilst average cement prices (of 50kg bag) have increased by ~3% in North India, prices in South have seen a 3% decline whereas prices in West, East and Central India are flattish. Hence, realisations of pan-India players like UltraTech and ACC should remain flat QoQ whereas realisations for players with high exposure to North (Shree, Ambuja) would increase by ~3% QoQ. Although pet coke prices have remained largely stable since Nov-16, power and fuel costs are likely to increase by ~3-7% QoQ as full impact of higher petcoke prices flows through the P&L in 4QFY17. On a YoY basis, Shree and Orient are expected to report EBITDA growth due to volume and pricing growth. UltraTech, ACC and Dalmia should report 5-20% YoY decline in EBITDA as higher petcoke costs flows through the P&L and volume declines for UltraTech and ACC.

Ambit vs consensus

Based on limited consensus data, our 4QFY17 earnings estimates are higher than consensus for Shree Cement and lower for UltraTech and Dalmia.

Recommendations

In this weak demand environment (FY18E demand growth of 5-6% at best), we expect regional players to outperform the pan-India players (trading at 30-50% premium to regional players), as pan-India players are likely to surrender market share to chase pricing. Orient Cement is our top BUY idea as we expect a sharp recovery in volume and pricing in the existing business; however, the stock may remain under pressure until visibility on funding and profitability of the acquisition improves. We reiterate SELL on both UltraTech and Shree, but prefer Shree over UltraTech as it offers superior volume as well as pricing growth. We maintain SELL on Ambuja and ACC. Between the two, Ambuja offers superior pricing growth given its exposure to North and West markets.

Stock Performance

(%) 3-month


UltraTech 23 12 Ambuja 14 3

ACC 10 (1)

Dalmia Cement 41 30

Shree Cement 25 14

Orient Cement 13 2



UltraTech 22.6 26.2 Ambuja 1.3 1.3

ACC 6.5 6.6

Dalmia Cement 4.7 9.3

Shree Cement 77.2 60.5

Orient Cement 0.1 n.a.

FY18E EPS


UltraTech 123.5 115.1 Ambuja 5.8 6.4

ACC 51.7 42.3

Dalmia Cement 57.7 59.4

Shree Cement 489.0 477.9

Orient Cement 6.7 4.9





Company name Mar-17 Mar-16 Dec-16 YoY (%) QoQ (%) Comments

UltraTech Cement dispatches (mt) 12.9 13.6 11.4 (5) 13

Expect volumes to decline by 5% YoY, mainly due to weak volumes (down 10-12%) in Jan-Feb, which recovered to ~3-6% growth in Mar-17. Expect realisations to remain flattish QoQ as benefit of price hikes in North India are likely to be offset by price cuts in South India. We expect unitary EBITDA to remain flat QoQ as increase in pet coke prices is likely to be offset by operating leverage (volumes up 13% QoQ).

Realisation (Rs/tonne) 4,920 4,789 4,920 3 -

Sales (Rs mn) 63,483 65,037 56,091 (2) 13

EBITDA (Rs mn) 12,491 13,527 11,135 (8) 12

EBITDA margin (%) 19.7 20.8 19.9 (112) (18)

EBITDA (Rs/tonne) 968 996 977 (3) (1)

PBT (Rs mn) 8,991 9,301 7,655 (3) 17

PAT (Rs mn) 6,204 6,814 5,634 (9) 10

Ambuja Cement Cement dispatches (mt) 5.3 5.9 5.0 (10) 5

Expect volumes for Ambuja to decline by 9% YoY, higher-than-industry volume decline of ~7% due to its exposure to North market which has been significantly impacted post demonetisation. Expect realisations to increase by ~3% QoQ mainly due to price hikes in North and West India. 3% realisation growth is likely to result in increase in EBITDA/tonne to Rs872/tonne from ~Rs658/tonne in 4QCY16.

Realisation (Rs/tonne) 4,525 4,127 4,393 10 3

Sales (Rs mn) 24,228 24,446 22,310 (1) 9

EBITDA (Rs mn) 4,597 4,498 3,291 2 40

EBITDA margin (%) 19.0 18.4 14.8 57 422

EBITDA (Rs/tonne) 872 768 658 14 32

PBT (Rs mn) 3,297 4,202 2,003 (22) 65

PAT (Rs mn) 2,637 3,038 1,759 (13) 50

ACC Cement dispatches (mn tonnes) 5.9 6.4 5.5 (7) 9

Expect volumes for ACC to decline by 7% YoY, in line with the industry volume decline of ~7% as higher-than-industry volume decline in existing markets is likely to be partially offset by ramp-up at new capacities in East India. We expect realisations to remain flattish QoQ as benefit of price hikes in North India are likely to be offset by price cuts in South India. We expect EBITDA to increase by 35% QoQ due to 9% sequential increase in volumes and resultantly higher fixed cost absorption.

Cement Realisation (Rs/tonne) 5,012 4,702 5,012 7 -

Sales (Rs mn) 29,643 29,906 27,313 (1) 9

EBITDA (Rs mn) 3,421 4,328 2,542 (21) 35

EBITDA margin (%) 11.5 14.5 9.3 (293) 223

EBITDA (Rs/tonne) 578 681 466 (15) 24

PBT (Rs mn) 1,736 3,220 847 (46) 105

PAT (Rs mn) 1,215 2,322 911 (48) 33

Dalmia Cement Cement dispatches (mn tonnes) 4.0 3.9 3.6 3 13

On a consolidated basis, we expect 3% YoY volume growth driven by 6% growth for Dalmia Ex-OCL (South + North East) whereas we expect OCL volumes to remain flat. We expect realisations for Dalmia to decline 1% QoQ, due to ~3% price cuts in South India whereas prices are expected to be flattish in East and West India. EBITDA/tonne is likely to be flat QoQ Rs1,190/tonne as marginally lower realisations and higher pet coke prices will be offset by operating leverage (volumes up 13% QoQ).

Cement Realisation (Rs/tonne) 4,778 4,847 4,845 (1) (1)

Sales (Rs mn) 19,355 19,133 17,393 1 11

EBITDA (Rs mn) 4,766 5,019 4,211 (5) 13

EBITDA margin (%) 24.6 26.2 24.2 (161) 41

EBITDA (Rs/tonne) 1,189 1,293 1,183 (8) 0

PBT (Rs mn) 1,686 2,710 1,131 (38) 49

PAT (Rs mn) 413 1,149 357 (64) 16

Shree Cement Cement dispatches (mn tonnes) 5.9 5.6 4.9 5 20

We expect Shree to report 5% YoY volume growth, due to rising volumes in East India. We factor in 2% QoQ increase in realisations due to price increase in North India (3% average). Sequentially, higher realisations are likely to be partially offset by higher pet coke costs, and hence, we expect EBITDA/tonne to increase only marginally (Rs985/tonne from ~Rs955/tonne in the previous quarter).

Cement Realisation (Rs/tonne) 3,771 3,217 3,697 17 2

Sales (Rs mn) 22,247 20,174 18,434 10 21

EBITDA (Rs mn) 5,812 5,050 4,691 15 24

EBITDA margin (%) 26.1 25.0 25.4 109 68

EBITDA (Rs/tonne) 985 902 955 9 3

PBT (Rs mn) 3,362 2,183 2,460 54 37

PAT (Rs mn) 2,689 2,235 2,355 20 14



Company name Mar-17 Mar-16 Dec-16 YoY (%) QoQ (%) Comments

Orient Cement Cement dispatches (mt) 1.45 1.39 1.25 5 16

We expect Orient to report above-industry volume growth (5% YoY) due to ramp-up of Gulbarga plant and exposure to AP/Telangana. We expect realisations to decline by 3% QoQ due to sharp price cuts in AP/Telangana in the month of Mar-17. Sequential decrease in realisations is likely to be more than offset by volume leverage and lower raw material costs resulting in EBITDA/tonne of Rs467/tonne from Rs364/tonne in 3QFY17.

Cement Realisation (Rs/tonne) 3,546 3,242 3,646 9 (3)

Sales (Rs mn) 5,154 4,493 4,565 15 13

EBITDA (Rs mn) 679 617 456 10 49

EBITDA margin (%) 13.2 13.7 10.0 (55) 320

EBITDA (Rs/tonne) 467 445 364 5 28

PBT (Rs mn) 43 107 (180) n.a. n.a.

PAT (Rs mn) 30 194 (117) n.a. n.a.




Consumer Discretionary Impact of demonetisation was short lived as low ticket item categories like apparel and multiplexes witnessed steady recovery while Titan is likely to report impressive 14% growth led by wedding jewellery. We expect double digit growth in most of the companies in our coverage universe. The apparel companies like Arvind, Page and ABFRL are expected to report a decline in gross margin due to inflation in cotton prices/extended End of Season Sale whereas Trent will continue its sustained SSG on the back improving sales productivity. We expect Titan to deliver stellar numbers (topline growth in excess of 30%) led by activation and performance of new wedding collection ‘Rivaah’. On the flip side, Jubilant and Bata are expected to report sharp decline in EBITDA margin due to promotions and cost inflation (cheese cost is up 20% YoY). The reasonably strong performance of Bollywood movies will drive PVR’s topline (19% growth in 4QFY17E) and for Wonderla the yet to mature park at Hyderabad will drive revenue growth but will weigh on margins.

Ambit vs consensus: Our FY18 EPS estimates are broadly at par with consensus.

Key recommendations: We like companies like Trent (BUY; TP Rs 248; upside 0%), PVR (BUY; TP Rs 1,594; upside 6%) and Wonderla (BUY; TP Rs 515; upside 33%) given their strong Balance sheets and proven execution. We like ABFRL (BUY; TP Rs 175; upside 10%) as we expect it to turn the corner with Madura in FY18E and Forever 21 clocks throughput and breaks even. We are SELLers on Jubilant (SELL; TP Rs 879; downside 16%) and Bata (SELL; TP Rs 370; downside 34%) given relatively weak franchise strength and immense competition from players in their respective categories.

Stock Performance

(%) 3-month


Titan 37 25

Trent 34 23

Bata India 19 7

Jubilant Foodworks 26 14

Arvind 12 0 Aditya Birla Fashion 15 3

Page Industries 5 (6)

Wonderla Holidays 13 1

PVR 28 16



Titan 2.5 2.5

Trent 0.4 NA

Bata India 2.2 NA

Jubilant Foodworks 3.7 4.9

Arvind 4.7 4.3

Aditya Birla Fashion (0.4) NA

Page Industries 57.0 60.5

Wonderla Holidays 2.1 NA

PVR 0.7 4.4

FY18E EPS


Titan 11.7 11.6

Trent 6.5 NA

Bata India 15.3 15.3

Jubilant Foodworks 18.3 21.2

Arvind 20.1 21.2

Aditya Birla Fashion 0.8 1.5

Page Industries 304.2 302.8

Wonderla Holidays 11.7 13.4

PVR 38.4 39.5





Company name Mar'17E Mar'16 Dec‘16 YoY QoQ Titan

Sales (Rs mn) 33,350 24,563 39,260 36% -15% Revenue growth led by above 40% growth in jewellery revenues YoY and low base (strike against levy of excise in 4QFY16)

EBITDA (Rs mn) 3,508 2,149 3,735 63% -6% EBITDA margin to expand due to higher share of studded due to activation EBITDA margin (%) 10.5% 8.7% 9.5%

PBT (Rs mn) 3,246 2,052 3,503 -7% -7% PAT to expand due to higher other income and margin expansion

PAT (Rs mn) 2,272 1,895 2,558 20% -11% Trent Sales (Rs mn) 4,387 3,815 4,407 15% 0% Revenue to grow by 15% YoY due to End of Season Sale ('EoSS') EBITDA (Rs mn) 114 38 484 200% -76% Margin expansion of 160 bps YoY led by higher gross margin as

compared to last year EBITDA margin (%) 2.6% 1.0% 11.0% PBT (Rs mn) 243 181 445 34% -45%

Expect PAT to remain flat due to higher interest and lower other income PAT (Rs mn) 175 173 372 1% -53% Bata India Sales (Rs mn) 5,720 5,447 6,408 5% -11% Revenues to grow by 5% led by EoSS EBITDA (Rs mn) * 530 554 757 -4% -30%

Margin contraction due to lower gross margin due to extended EoSS EBITDA margin (%) 9.3% 10.2% 11.8% PBT (Rs mn) 429 780 447 -45% -4%

PAT to decline due to margin contraction and higher depreciation PAT (Rs mn) 287 594 448 -52% -36% Jubilant Foodworks Sales (Rs mn) 6,809 6,180 6,588 10% 3% Revenues growth to be led by promotions EBITDA (Rs mn) 713 742 640 -4% 11%

Promotions to impact gross margin and consequently EBITDA margin EBITDA margin (%) 10.5% 12.0% 9.7% PBT (Rs mn) 359 385 294 -7% 22%

PAT as a consequence of the above, to remain flat PAT (Rs mn) 250 249 188 0% 33% Arvind

Sales (Rs mn) 24,654 23,196 23,355 6% 6% Textile revenues expected to grow by 6% while brand revenues expected to grow by 15%

EBITDA (Rs mn) 3,037 2,967 2,359 2% 29% Lower gross margin due to EoSS and increased cotton prices will result in EBITDA margin contraction EBITDA margin (%) 12.3% 12.8% 10.1%

PBT (Rs mn) 1,822 1,566 1,059 16% 72% PAT to expand by 10% due to lower interest and higher other income

PAT (Rs mn) 1,221 1,109 779 10% 57% Aditya Birla Fashion

Sales (Rs mn) 16,914 14,422 17,072 17% -1% Madura expected to grow by 6% (on low base) and Pantaloons expected to grow by 16%

EBITDA (Rs mn) 727 929 869 -22% -16% Margin contraction due to lower gross margin due to extended EoSS

EBITDA margin (%) 4.3% 6.4% 5.1% PBT (Rs mn) (285) (1,098) (124) -74% 130%

PAT to improve due to higher other income PAT (Rs mn) (285) (1,098) (124) -74% 130% Page Industries

Sales (Rs mn) 5,133 4,356 5,287 18% -3% Revenue expected to grow by 18% led by 17% growth in mens and 36% growth in womens category

EBITDA (Rs mn) 1,001 915 991 9% 1% Margin expected to contract due to higher cotton prices

EBITDA margin (%) 19.5% 21.0% 18.7% PBT (Rs mn) 949 814 904 17% 5%

PAT to grow due to higher other income PAT (Rs mn) 636 573 629 11% 1% Wonderla Holidays Sales (Rs mn) 582 445 701 31% -17% Revenue to grow led by 31% growth in non-ticket revenues EBITDA (Rs mn) 182 110 133 65% 37%

EBITDA margin to expand due to lower direct expenses EBITDA margin (%) 31.3% 24.7% 19.0% PBT (Rs mn) 159 104 63 53% 152%

PAT to expand due to margin expansion PAT (Rs mn) 116 76 42 53% 176% PVR Sales (Rs mn) 4,903 4,133 5,377 19% -9% Revenue to grow by 19% led by 30% growth in food and beverages EBITDA (Rs mn) 559 432 890 29% -37% EBITDA margin to expand by 90bps EBITDA margin (%) 11.4% 10.5% 16.6% PBT (Rs mn) 48 (33) 363 NA -87% PAT margin will be compressed by higher depreciation. PAT (Rs mn) 33 (10) 235 NA -86%






Reasons for downgrading FY17E estimates of PVR

Poor performance (lower occupancy) of movies released in March and continued pressure on ad revenues (11% of sales as against normal 12% of sales) post demonetisation. Also F&B revenues are likley to be lower given lower footfalls/occupancy in March. Impact of content qulaity is non recurring in nature and it has no bearing on our FY18 revenues. Also, we expect the ad revenues to normalise from 1QFY18 as the effect of demonetisation wanes and F&B revenues to recover as content improves. Therefore, our downgrade our FY17E EPS (22%) has no bearing on our FY18E EPS.



Arvind Recommendation SELL SELL TP (Rs) 311 311 0% Revenues (Rs mn) 92,398 105,724 91,308 105,724 1% 0%

Increase revenue estimates for FY17E to account for longer EoSS with lower margins.

EBITDA (Rs mn) 10,130 12,389 10,194 12,632 -1% -2%

EBITDA margin (%) 11.0% 11.7% 11.2% 11.9% PBT (Rs mn) 4,886 7,428 4,846 7,549 1% -2%

PAT (Rs mn) 3,446 5,200 3,441 5,284 0% -2%

EPS (Rs) 13.3 20 13.3 20.5 0% -2%

Aditya Birla Fashion Recommendation BUY BUY TP (Rs) 175 175 0% Revenues (Rs mn) 67,027 80,078 68,825 82,154 -3% -3%

Reduced revenue estimates on account of below than expectation performance of Madura. Increased EBITDA margin due to lower than estimated ad spends.

EBITDA (Rs mn) 3,942 5,185 3,568 5,396 10% -4%

EBITDA margin (%) 5.9% 6.5% 5.2% 6.6% PBT (Rs mn) 57 729 (903) 626 NA 16%

PAT (Rs mn) 57 594 (736) 510 NA 16%

EPS (Rs) 0.1 0.8 (1.0) 0.7 NA 10%

Wonderla Recommendation BUY BUY TP (Rs) 515 515 0% Revenues (Rs mn) 2,677 3,230 2,592 3,189 3% 1%

Revenues increased for FY17E and FY18E to account for increased footfalls however, margin reduced by 240bps to account for additional expenses of Hyderabad park.

EBITDA (Rs mn) 819 1,234 855 1,223 -4% 1%

EBITDA margin (%) 30.6% 38.2% 33.0% 38.4% PBT (Rs mn) 603 955 630 956 -4% 0%

PAT (Rs mn) 416 659 435 660 -4% 0%

EPS (Rs) 7.4 11.7 7.7 11.7 -4% 0%

PVR


TP (Rs) 1,594 1,594 0%

Revenues (Rs mn) 21,521 26,040 21,590 26,636 0% -2%

Reduced revenue estimates for 4QFY17E due to movie releases not performing upto expectations and as a consequence building in EPS decline.

EBITDA (Rs mn) 3,510 4,639 3,545 4,522 -1% 3%

EBITDA margin (%) 16.3% 17.8% 16.4% 17.0%

PBT (Rs mn) 1,517 2,679 1,774 2,515 -14% 7%

PAT (Rs mn) 1,032 1,822 1,315 1,811 -22% 1%

EPS (Rs) 21.1 38.4 27.4 38.2 -22% 1%



Consumer Staples Channel checks suggest overall growth has returned to positive territory but has not completely recovered to pre-demonetisation levels. Recovery in rural areas is still weak due to: a) cash crunch affecting demand and job losses in the informal sector and b) supply chain disruption due to delay in recovery in wholesales channels. In 4QFY17, FMCG/Paints should report 5%/8% sales growth and 1%/9% volume growth YoY. Gross margins could dip given rising raw material prices, resulting in 50bps/90bps YoY gross margin contraction for FMCG/Paints. However, for FMCG companies, EBITDA margins would fall by only ~35 YoY as A&P spends were subdued. Paints companies will record a higher EBITDA margin contraction of ~120bps YoY due to lower operating efficiency. FMCG/Paints should report 3%/2% PAT decline YoY. Our top BUY in expectation of 4QFY17 results is HUL due to market share gains in key categories.

Stock Performance

(%) 3-month


HUL 12 (0)

Britannia 18 5

Colgate 12 (1)

Dabur 2 (11)

GCPL 11 (1)

GSK Consumer 1 (11)

Marico 15 2

Nestle 12 (1)

ITC 13 1

Asian Paints 18 6

Berger Paints 10 (1)

Hatsun Agro 39 27


Company Ambit Consensus

HUL 4.8 NA

Britannia 17.5 NA

Colgate 5.3 NA

Dabur 1.9 NA

GCPL 10.1 NA

GSK Consumer 44.2 NA

Marico 1.1 NA

Nestle 30.9 NA

ITC 2.2 NA

Asian Paints 4.3 NA

Berger Paints 0.9 NA

Hatsun Agro 2.7 NA

FY18E EPS


HUL 22.2 22.4

Britannia 79.3 87.9

Colgate 25.8 25.3

Dabur 8.0 8.5

GCPL 38.8 44.8

GSK Consumer 176.6 187.4

Marico 7.3 7.3

Nestle 120.1 137.4

ITC 10.3 9.8

Asian Paints 20.6 23.6

Berger Paints 4.8 5.5

Hatsun Agro 13.6 11.5





Particulars Mar'17E Mar'16 Dec'16 YoY QoQ Comments

HUL

Sales 85,788 83,290 83,179 3% 3% Assuming 0.5% volume growth and 2.5% price/mix led growth

EBITDA 14,544 14,703 13,554 -1% 7% Expect 40 gross margin contraction; higher A&P spends will lead to EBITDA margin contraction of 70bps YoY EBITDA margin (%) 17.0% 17.7% 16.3% (70) 66

PBT 14,598 14,826 13,331 -2% 10% PAT to decline by 2% YoY due to EBITDA margin contraction

PAT 10,460 10,624 8,849 -2% 18%

Dabur

Sales 20,038 19,840 18,529 1% 8% Assuming volume growth of 2% YoY and 1% price/mix led decline

EBITDA 4,093 4,152 3,339 -1% 23% Expect gross margin contraction of 90bps due to input cost inflation; lower A&P spends will lead to EBITDA margin contraction of 50bps YoY EBITDA margin (%) 20.4% 20.9% 18.0% (50) 241

PBT 4,193 4,201 3,697 0% 13% PAT growth to be in line with sales due to higher other income

PAT 3,355 3,333 2,945 1% 14%

Marico

Sales 13,696 12,920 14,167 6% -3% Assuming volume growth of 3% YoY and 3% price/mix led decline

EBITDA 2,219 2,145 2,724 3% -19% Expect gross margin to contract by ~80bps YoY due to copra price inflation. A&P spends are expected to be 50bps lower YoY EBITDA margin (%) 16.2% 16.6% 19.2% (40) (303)

PBT 2,191 2,040 2,698 7% -19% PAT to grow by 7% YoY due to higher other income

PAT 1,462 1,362 1,916 7% -24%

GCPL

Sales 23,313 21,388 24,858 9% -6% Assuming 9% YoY revenue growth driven by ~3% volume growth in domestic business

EBITDA 5,074 4,634 5,168 10% -2% Expect gross margin expansion of 30bps due to low input cost and EBITDA margin expansion of 10bps EBITDA margin (%) 21.8% 21.7% 20.8% 10 97

PBT 4,554 4,228 4,598 8% -1% PAT to grow by 8% YoY in line with sales growth

PAT 3,445 3,198 3,612 8% -5%

GSK Consumer

Sales 11,457 11,086 9,602 3% 19% Assuming 4% volume decline offset by 7% price/mix led growth

EBITDA 2,410 2,343 1,677 3% 44% Expect gross margin contraction of ~40bps YoY due to high input prices; lower A&P spends would lead to EBITDA margin contraction of 10bps YoY EBITDA margin (%) 21.0% 21.1% 17.5% (10) 357

PBT 2,838 2,773 2,059 2% 38% PAT to grow by 3% YoY, in line with sales growth

PAT 1,859 1,807 1,364 3% 36%

Nestle

Sales 26,598 23,025 22,862 16% 16% We expect Maggi Noodles sales to revive to ~80% of pre-crisis levels driving ~16% YoY sales growth on a low base.

EBITDA 5,473 4,783 4,063 14% 35% Expect gross margin contraction of ~30bps YoY; EBITDA margin will contract by 20bps YoY EBITDA margin (%) 20.6% 20.8% 17.8% (20) 280

PBT 4,838 4,202 3,600 15% 34% Expect PAT to grow by 15% YoY, lower than sales growth due to margin contraction PAT 2,980 2,588 2,473 15% 20%

Colgate

Sales 11,328 10,988 9,912 3% 14% Assuming 4% volume decline offset by 7% price/mix led growth.

EBITDA 2,441 2,412 2,141 1% 14% Expect gross margin to expand by ~30bps YoY due to lower input cost; higher other expenditure and employee cost lead to EBITDA margin contraction of 40bps EBITDA margin (%) 21.6% 22.0% 21.6% (40) (4)

PBT 2,216 2,229 1,908 -1% 16% PAT growth is expected decline by 1% due to margin contraction

PAT 1,451 1,459 1,278 -1% 14%



Particulars Mar'17E Mar'16 Dec'16 YoY QoQ Comments

Britannia

Sales 23,641 21,890 23,553 8% 0% Assuming 2% volume growth and 6% price/mix led growth YoY

EBITDA 3,040 2,903 3,126 5% -3% Expect gross margin to contract by 150bps YoY due to rising input costs; EBITDA margin to contract by ~40bps YoY due to lower A&P spends EBITDA margin (%) 12.9% 13.3% 13.3% (40) (41)

PBT 3,105 2,942 3,201 6% -3% PAT growth is expected decline by 6% due to margin contraction

PAT 2,100 1,990 2,204 6% -5%

ITC

Sales 104,035 97,567 92,484 7% 12% Assuming 7% YoY revenue growth mainly driven by price hike in cigarette but partially offset by volume decline of 3% YoY

EBITDA 39,447 36,084 35,464 9% 11% Expect 93bps EBITDA margin expansion due to price hike taken in cigarette EBITDA margin (%) 37.9% 37.0% 38.3% 93 (43)

PBT 40,847 37,131 39,542 10% 3% We expect PAT growth of 10% led by cigarette EBIT growth of ~10% YoY PAT 26,170 23,789 26,467 10% -1%

Hatsun Agro

Sales (Rs mn) 11,169 8,935 9,468 25% 18% Expect Hatsun to report revenue growth of 25% YoY

EBITDA (Rs mn) 915 714 878 28% 4% We expect gross margin contraction of 50bps YoY due to input cost inflation, EBITDA margin expansion by ~20 bps due to lower other expenditure EBITDA margin (%) 8.2% 8.0% 9.3% 20 (109)

PBT (Rs mn) 405 299 388 36% 4% PAT growth of 64% YoY due to margin expansion

PAT (Rs mn) 332 202 288 64% 15%

Asian Paints

Sales (Rs mn) 43,011 40,576 43,540 6% -1% Expect Asian Paints to report 6% sales growth YoY.

EBITDA (Rs mn) 6,833 6,974 7,763 -2% -12% Expect gross margin contraction of 80bps YoY due to input cost inflation; EBITDA margin to contract by 130bps due to higher other expenditure EBITDA margin (%) 15.9% 17.2% 17.8% (130) (194)

PBT (Rs mn) 6,333 6,570 7,231 -4% -12% PAT growth is expected to decline by 4% due to margin contraction

PAT (Rs mn) 4,136 4,291 4,766 -4% -13%

Berger Paints

Sales (Rs mn) 12,418 11,392 12,966 9% -4% Expect Berger Paints to report 9% revenue growth YoY

EBITDA (Rs mn) 1,564 1,560 1,836 0% -15% We expect gross margin contraction of 90bps YoY due to input cost inflation; EBITDA margin contracts by ~110bps due to higher other expenditure EBITDA margin (%) 12.6% 13.7% 14.2% (110) (156)

PBT (Rs mn) 1,369 1,385 1,602 -1% -15% PAT growth is expected decline by 1% due to margin contraction

PAT (Rs mn) 905 915 1,078 -1% -16%







HUL

Recommendation BUY BUY TP (Rs) 990 950 4% Revenues (Rs mn) 323,401 375,582 316,481 367,497 2% 2%

We have marginally upgraded our sales estimates on partial recovery in 4Q sales. Margin estimates have also been increased to some extent as certain raw material prices have started peaking.

EBITDA (Rs mn) 57,563 65,242 55,635 62,294 3% 5%

EBITDA margin (%) 17.8% 17.4% 17.6% 17.0% 22 42

PBT (Rs mn) 59,366 68,072 57,438 65,124 3% 5%

PAT (Rs mn) 41,874 48,018 40,544 45,984 3% 4%

EPS (Rs) 18.9 21.7 18.3 20.8 3% 5%

Dabur

Recommendation SELL SELL TP (Rs) 245 240 2% Revenues (Rs mn) 84,887 97,061 83,003 94,872 2% 2%

We have marginally upgraded our sales estimates on partial recovery in 4Q sales. Also, other Income is running ahead of estimates, leading to a higher upgrade in PAT.

EBITDA (Rs mn) 15,114 16,990 14,779 16,607 2% 2%

EBITDA margin (%) 17.8% 17.5% 17.8% 17.5% (0) 0

PBT (Rs mn) 16,343 18,145 15,409 17,761 6% 2%

PAT (Rs mn) 12,911 14,153 12,173 13,854 6% 2%

EPS (Rs) 7.3 8.0 6.9 7.9 6% 2%

Marico


We have increased our sales estimates as recovery has picked up in 4Q

EBITDA (Rs mn) 11,234 13,069 11,032 12,827 2% 2%

EBITDA margin (%) 18.5% 18.6% 18.5% 18.6% (0) 0

PBT (Rs mn) 11,213 13,223 11,011 12,982 2% 2%

PAT (Rs mn) 7,966 9,393 7,823 9,222 2% 2%

EPS (Rs) 6.2 7.3 6.1 7.1 2% 2%

GCPL

Recommendation SELL SELL TP (Rs) 1,060 1,060 0% Revenues (Rs mn) 96,368 107,249 96,368 107,249 0% 0%

No change in our estimates

EBITDA (Rs mn) 17,988 19,590 17,988 19,590 0% 0%

EBITDA margin (%) 18.7% 18.3% 18.7% 18.3% - -

PBT (Rs mn) 16,766 18,381 16,766 18,381 0% 0%

PAT (Rs mn) 13,078 13,786 13,078 13,786 0% 0%

EPS (Rs) 37.0 38.8 37.0 38.8 0% 0%

GSK Consumer

Recommendation SELL SELL TP (Rs) 4,820 4,800 0% Revenues (Rs mn) 40,590 44,884 41,789 46,209 -3% -3%

We have marginally reduced our sales estimate on weaker volumes but increased our margin estimates as price hikes should help mitigate input cost inflation and moderation in A&P spends continues

EBITDA (Rs mn) 6,477 7,207 6,460 7,097 0% 2%

EBITDA margin (%) 16.0% 16.1% 15.5% 15.4% 50 70

PBT (Rs mn) 10,220 11,337 10,203 11,226 0% 1%

PAT (Rs mn) 6,694 7,425 6,683 7,353 0% 1%

EPS (Rs) 159.2 176.6 158.9 174.8 0% 1%





Nestle



EBITDA (Rs mn) 16,801 20,059 16,801 20,059 0% 0%

EBITDA margin (%) 18.2% 18.4% 18.2% 18.4% - -

PBT (Rs mn) 15,371 17,278 15,371 17,278 0% 0%

PAT (Rs mn) 10,221 11,576 10,221 11,576 0% 0%

EPS (Rs) 106.0 120.1 106 120 0% 0%

Colgate

Recommendation SELL SELL TP (Rs) 825 825 0% Revenues (Rs mn) 43,368 51,641 43,368 51,641 0% 0%


EBITDA (Rs mn) 9,509 11,241 9,509 11,241 0% 0%

EBITDA margin (%) 21.9% 21.8% 21.9% 21.8% - -

PBT (Rs mn) 8,652 10,474 8,652 10,474 0% 0%

PAT (Rs mn) 5,970 7,018 5,970 7,018 0% 0%

EPS (Rs) 21.9 25.8 21.9 25.8 0% 0%

Britannia


We have marginally upgraded our sales estimates as we expect Britannia's superior distribution management will support resilience of biscuit volumes. We have, however, reduced our margin estimates as cost inflation in wheat and sugar continues to rise.

EBITDA (Rs mn) 12,540 14,716 12,143 14,262 3% 3%

EBITDA margin (%) 13.4% 13.5% 13.5% 13.6% (11) (13)

PBT (Rs mn) 12,257 14,084 11,860 13,629 3% 3%

PAT (Rs mn) 8,281 9,516 8,013 9,209 3% 3%

EPS (Rs) 69.0 79.3 66.8 76.7 3% 3%

ITC

Recommendation BUY BUY TP (Rs) 303 297 2% Revenues (Rs mn) 394,308 459,215 397,401 462,799 -1% -1%

We rolled forward our target price and marginally reduced our estimates

EBITDA (Rs mn) 151,666 175,474 153,783 177,947 -1% -1%

EBITDA margin (%) 38.5% 38.2% 38.7% 38.5% (23) (24)

PBT (Rs mn) 160,818 184,359 162,890 186,779 -1% -1%

PAT (Rs mn) 106,140 121,677 107,507 123,274 -1% -1%

EPS (Rs) 8.8 10.1 8.9 10.2 -1% -1%

Hatsun Agro


We have marginally upgraded our sales estimates on higher volumes; increase in tax rate lead to lower PAT growth

EBITDA (Rs mn) 3,666 5,118 3,596 4,982 2% 3%

EBITDA margin (%) 9.0% 10.3% 9.0% 10.3% - -

PBT (Rs mn) 1,762 2,753 1,691 2,616 0% 5%

PAT (Rs mn) 1,339 2,092 1,336 2,067 0% 1%

EPS (Rs) 8.8 13.8 8.8 13.6 0% 1%





Asian Paints


We have marginally upgraded our sales estimates on higher volumes as we expect trade to stock up before price hikes kick in

EBITDA (Rs mn) 29,197 30,654 28,081 29,490 4% 4%

EBITDA margin (%) 18.3% 17.0% 18.3% 17.0% 0 0

PBT (Rs mn) 27,932 29,721 26,815 28,557 4% 4%

PAT (Rs mn) 19,273 20,507 18,502 19,704 4% 4%

EPS (Rs) 19.5 20.6 18.7 19.8 4% 4%

Berger Paints


We have marginally upgraded our sales estimates on trade stocking but reduced our margin estimates as we expect cost pressure to worsen

EBITDA (Rs mn) 6,921 7,710 6,722 7,405 3% 4%

EBITDA margin (%) 14.5% 14.2% 14.8% 14.3% (26) (10)

PBT (Rs mn) 6,013 6,883 5,813 6,579 3% 5%

PAT (Rs mn) 4,089 4,681 3,953 4,474 3% 5%

EPS (Rs) 4.2 4.8 4.1 4.6 3% 5%




E&C/Infrastructure Revenue growth in the construction sector is likely to remain in double digits driven by healthy order books from Government infra projects. Revenue growth is likely to be led by Government-owned companies either driven by low base (Engineers India) or due to segment-specific focus (Power Grid, Bharat Electronics). Engineers India could disappoint on the revenue front due to slow ramp-up in BS-VI projects. L&T’s flurry of order announcements indicate an inflow of more than Rs500bn, taking it close to its guidance. However, focus will be on the company’s ability to deliver the 19% growth required to achieve the full-year guidance (Ambit est: 15%) and its guidance for FY18E. Watch out for commentary on commissioning of Hyderabad Metro and losses. AIAE’s margins could surprise negatively due to lower gross margins and increase in input costs.

Key recommendations: Valuations across the space are punchy and leave little room for potential upsides. We continue to prefer companies in the power transmission (Techno Electric), roads (Sadbhav Infra) and the defence segments. Valuations appear stretched in companies, such as AIAE and VA Tech. Avoid companies that have high expectations baked in, in terms of either order inflows (Engineers India) or execution (NBCC).

Stock Performance

(%) 3-month


L&T 21 9

PowerGrid 4 (7)

Bharat Electronics 17 5

NBCC 3 (8)

AIA Engineering 24 12

Engineers India (1) (13)

Sadbhav Engg 13 1

VA Tech Wabag 46 35

Techno Electric 20 9



Larsen & Toubro 28 30

Power Grid Corp 3.9 4.2

Bharat Electronics 3.5 NA

NBCC 2.8 NA

AIA Engineering 14 NA

Engineers India 1.0 NA

Sadbhav Engg. 3.3 4.0

VA Tech Wabag 12 NA

Techno Electric 2.6 NA


FY18E EPS


Larsen & Toubro 67 69

Power Grid Corp 17 17

Bharat Electronics 6.9 6.9

AIA Engineering 56 55

NBCC 4.7 5

Engineers India 7.1 7.0 Sadbhav Engineering 6.5 3.8

VA Tech Wabag 31 32

Techno Electric 20 21





Company Mar-17 Mar-16 YoY Dec-16 QoQ Comments

Larsen & Toubro

Sales (Rs bn) 379.1 331.6 14% 262.9 44% Revenue growth to be in double-digits but company to miss its full year guidance

EBITDA (Rs bn) 54.0 48.6 11% 25.2 114% Margins to expand driven by improved profitability in segments like hydrocarbon EBITDA margin (%) 17.0% 14.7% 240 bps 9.6% 740 bps

PBT (Rs bn) 47.8 35.3 35% 16.8 185% Higher EBITDA flows through to the PBT/ PAT level;

PAT (Rs bn) 26.6 24.5 9% 9.7 174%

Power Grid Corp (SA)

Sales (Rs bn) 68.7 57.6 19% 66.3 4% Capitalisation to exceed Rs125bn led by commissioning of major lines

EBITDA (Rs bn) 61.1 50.3 21% 59.6 2%

EBITDA margin (%) 88.9% 87.3% 160 bps 89.9% -90 bps

PBT (Rs bn) 25.2 20.6 22% 25.1 0% Core RoEs to sustain at similar level as last quarter

PAT (Rs bn) 20.6 16.2 27% 19.4 6%

Bharat Electronics (SA)

Sales (Rs bn) 38.2 32.1 19% 21.9 74% Provisional revenue figures shared by the company indicates a 19% growth in 4QFY17

EBITDA (Rs bn) 10.9 10.0 9% 4.8 126% EBITDA margin to decline due to higher employee cost provisioning; FY17 margins still indicate growth over the previous year EBITDA margin (%) 28.6% 31.1% -240 bps 22.0% 660 bps

PBT (Rs bn) 11.4 10.7 6% 5.0 126% Higher EBITDA flows through to PAT though growth is lower due to limited other income growth PAT (Rs bn) 8.4 7.9 6% 3.7 126%

NBCC

Sales (Rs bn) 25.0 23.1 8% 14.3 75% Revenue growth in the core PMC business of 11% YoY due to high base and no execution uptick in newly won projects

EBITDA (Rs bn) 2.1 1.8 18% 0.8 177% Margins to expand on a YoY basis due to better performance in the PMC segment EBITDA margin (%) 8.6% 7.9% 70 bps 5.4% 320 bps

PBT (Rs bn) 2.3 2.0 16% 1.0 143% Higher EBITDA flows through to profits

PAT (Rs bn) 1.7 1.4 19% 0.6 161%

AIA Engineering

Sales (Rs mn) 6,261 6,099 3% 6,075 3% Revenue growth of 3% mainly driven by 11% volume growth; mining volume growth of 27%; realisations to continue to decline

EBITDA (Rs mn) 1,657 1,929 -14% 1,728 -4% Margin decline to be visible as increasing raw material costs impacts the company's gross margins. Overheads to remain largely steady EBITDA margin (%) 26.5% 31.6% -520 bps 28.4% -200 bps

PBT (Rs mn) 1,656 1,727 -4% 1,773 -7% Other income boosts PBT

PAT (Rs mn) 1,291 1,346 -4% 1,203 7%





Company Mar-17 Mar-16 YoY Dec-16 QoQ Comments

Engineers India (SA) Sales (Rs mn) 3,492 2,864 22% 3,250 7% Growth led by strong domestic consulting business

EBITDA (Rs mn) 454 394 15% 809 -44% EBITDA margin (%) 13.0% 13.8% -80 bps 24.9% -1190 bps

PBT (Rs mn) 992 997 -1% 1,308 -24% Lower other income impacts PAT growth

PAT (Rs mn) 690 699 -1% 850 -19%

SADE (SA) Sales (Rs mn) 9,434 8,580 10% 8,648 9% Revenues to grow mainly led by high increase in EPC roads execution pace

EBITDA (Rs mn) 998 814 23% 938 6% Margins to expand on a YoY basis as the revenue mix is likely to remain largely the same EBITDA margin (%) 10.6% 9.5% 110 bps 10.8% -30 bps

PBT (Rs mn) 582 525 11% 505 15% High PAT growth driven by nil tax rate and higher EBITDA

PAT (Rs mn) 567 356 59% 524 8%

VA Tech Wabag Sales (Rs mn) 9,527 8,588 11% 7,183 33% Execution momentum witnessed in 1HFY17 to sustain driven mainly by the international business;

EBITDA (Rs mn) 1,314 1,189 11% 794 65% Margins to remain steady

EBITDA margin (%) 13.8% 13.8% 00 bps 11.1% 270 bps

PBT (Rs mn) 1,161 995 17% 624 86% Higher EBITDA flows through to PBT; PAT impacted by higher tax rate PAT (Rs mn) 723 675 7% 581 25%

Techno Electric Sales (Rs mn) 3,675 3,260 13% 3,563 3% EPC business growth of 13% will be the main contributor to revenue in this quarter

EBITDA (Rs mn) 527 506 4% 751 -30% 4QFY16 had unusually high margins; Full year margins will be in the management's guided range of 14.5-15% EBITDA margin (%) 14.3% 15.5% -120 bps 21.1% -670 bps

PBT (Rs mn) 413 350 18% 587 -30% Interest cost to reduce due to asset sales led debt pare; tax incidence, however, could be higher PAT (Rs mn) 314 274 15% 407 -23%







Larsen & Toubro Recommendation SELL SELL TP (Rs) 1,375 1,325 4% TP increases marginally due to a roll-over

Revenues (Rs bn) 1,223 1,344 1,210 1,330 1% 1% We largely maintain our estimates

EBITDA (Rs bn) 148 167 149 166 0% 1% EBITDA margin (%) 12.1% 12.4% 12.3% 12.5% -20 bps 00 bps

PBT (Rs bn) 113 125 113 125 0% 0% PAT (Rs bn) 74.5 82.5 74.4 82.5 0% 0%

EPS (Rs) 67.4 76.9 67.3 76.9 0% 0%

Power Grid Corp Recommendation SELL SELL TP (Rs) 210 210 0% Revenues (Rs bn) 293 325 301 336 -3% -3% EBITDA (Rs bn) 260 289 261 292 0% -1%

EBITDA margin (%) 88.9% 88.9% 86.8% 86.8% 210 bps 210 bps

PBT (Rs bn) 110.6 127.0 113.4 131.4 -2% -3% Marginal cut to PAT estimates driven by lower than estimated performance in FY17 PAT (Rs bn) 87.4 100.4 90.7 105.1 -4% -4%

EPS (Rs) 16.7 19.2 17.3 20.1 -4% -4%

Bharat Electronics Recommendation BUY BUY TP (Rs) 177 170 4% TP increases marginally due to quarterly roll-over

Revenues (Rs bn) 101 114 97 109 4% 4% We marginally upgrade our revenue estimates on the back of a strong 4QFY17

EBITDA (Rs bn) 17.8 20.3 17.1 19.3 4% 5% We maintain our margin estimates


PBT (Rs bn) 20.5 23.3 20.7 23.6 -1% -1% PAT (Rs bn) 15.4 17.5 15.5 17.7 -1% -1% No material change to earnings estimates due to

lower other income EPS (Rs) 6.9 7.8 6.9 7.9 -1% -1%

NBCC India Ltd


TP (Rs) 117 117 0%

Revenues (Rs bn) 78 106 80 108 -2% -2%

EBITDA (Rs bn) 4.7 7.0 4.8 7.1 -2% -2%


PBT (Rs bn) 6.0 8.6 6.1 8.7 -2% -2%

PAT (Rs bn) 4.2 6.0 4.3 6.1 -2% -2%

EPS (Rs) 4.7 6.7 4.8 6.8 -2% -2%

AIA Engineering Recommendation BUY BUY TP (Rs) 1,600 1,550 3% Marginal upgrade in TP due to quarterly roll-over

Revenues (Rs mn) 27.1 34.2 26.8 33.8 1% 1% We upgrade our volume estimates

EBITDA (Rs mn) 7.2 9.3 7.1 9.2 1% 2% Margin estimates are unchanged


PBT (Rs mn) 7.5 9.6 7.4 9.4 1% 1%

PAT (Rs mn) 5.3 6.8 5.2 6.7 1% 1%

EPS (Rs) 56.2 71.9 55.6 70.9 1% 1%







Engineers India Recommendation SELL SELL TP (Rs) 120 115 4%

Revenues (Rs mn) 25,671 35,222 26,768 36,742 -4% -4% Cut to our revenue estimates mainly driven by the LSTK segment; execution on Vizag unlikely to start before 2QFY18

EBITDA (Rs mn) 4,401 5,897 4,415 5,914 0% 0% EBITDA estimates unchanged

EBITDA margin (%) 17% 17% 16% 16% 60 bps 60 bps PBT (Rs mn) 7,281 8,899 7,457 8,901 -2% 0%

PAT (Rs mn) 4,805 5,874 4,921 5,875 -2% 0%

EPS (Rs) 7.1 8.7 7.3 8.7 -2% 0%

Sadbhav Engineering Recommendation BUY BUY TP (Rs) 335 335 0% Revenues (Rs mn) 55,142 63,654 56,843 65,394 -3% -3% Marginal cuts to revenue estimates driven by

lower execution in the non-road segments EBITDA (Rs mn) 16,030 17,669 16,128 17,794 -1% -1% EBITDA margin (%) 29.1% 27.8% 28.4% 27.2% 70 bps 50 bps EBITDA margin upgrades led by consistently

strong margins through 9MFY17 PBT (Rs mn) 1,894 3,190 1,864 3,243 2% -2% PAT (Rs mn) 1,120 1,898 1,098 1,935 2% -2% EPS (Rs) 6.5 11.1 6.4 11.3 2% -2% VA Tech Wabag Recommendation BUY BUY TP (Rs) 625 620 1% Largely maintaining our TP

Revenues (Rs mn) 33,498 38,979 34,331 39,950 -2% -2% Revenue for FY17 at the lower end of the management's guidance

EBITDA (Rs mn) 3,388 3,827 3,450 3,900 -2% -2% EBITDA margin (%) 10.1% 9.8% 10.0% 9.8% 10 bps 10 bps

PBT (Rs mn) 2,686 3,204 2,733 3,280 -2% -2%

Corresponding decline in EPS estimates PAT (Rs mn) 1,704 2,046 1,734 2,096 -2% -2%

EPS (Rs) 31.1 37.4 31.7 38.3 -2% -2%

Techno Electric Recommendation BUY BUY TP (Rs) 415 400 4% Revenues (Rs mn) 15,807 19,458 16,294 20,097 -3% -3% Cut in revenue estimates led by the EPC

business EBITDA (Rs mn) 3,342 3,888 3,239 3,807 3% 2%

EBITDA margin (%) 21.1% 20.0% 19.9% 18.9% 130 bps 100 bps Margins upgrades in the EPC business due to higher than expected performance in 9MFY17

PBT (Rs mn) 2,920 3,633 2,812 3,565 4% 2% PAT (Rs mn) 2,486 3,072 2,354 2,971 6% 3% EPS (Rs) 21.8 26.9 20.6 26.1 6% 3% EPS upgrades largely led by asset sale and

associated higher other income Source: Company, Ambit Capital research



Healthcare Pharmaceutical companies under our coverage would likely report a revenue growth of 1% YoY in 4QFY17 given pressure on US base business and no material approvals in US generic market. On the flip side, recovery in the Indian business led by normalised buying post demonetisation and improvement in demand in EMs could improve revenues/margins. Therefore, EBITDA margins are likely to improve by 160bps YoY for our coverage universe. Lupin’s revenue should decline QoQ and margins contract by 180bps to normalise at 25% given pressure on US base business offset by higher Japan and India sales. Dr. Reddy is facing competition in key products; it should report 23% margin versus 26% in 3QFY16 due to negative operating leverage. Key events to watch out for: Dr. Reddy: Product approvals from facilities recently inspected and update on transfer of key product filings; Lupin: Revenue/profitability from Gavis portfolio; Cadila: Product approvals in the USA post clearing of Moraiya facility; Torrent: Growth in Brazilian business.

Ambit vs consensus: Based on the limited consensus data for 4QFY17, our earnings estimates are 6-25% below consensus estimates for Dr. Reddy, Lupin, Torrent Pharma, Cadila and Ajanta. For Cipla, we are 13% above consensus estimates as we expect better offtake from Seretide in the UK market. We believe consensus estimates are not meaningful due to the low number of estimates.

Key recommendations: With Goa facility now cleared, we believe that Lupin is best placed to reap the benefits of the Generic Drug User Fee Act (GDUFA) given presence in complex generics and large pipeline of ~140 ANDAs pending approval. We expect the company to report US revenue CAGR of 30% over FY16-19E. Also, Lupin has the first-mover advantage in Japan and the company should benefit from increasing generic penetration. Over FY16-19E, we see 200bps margin growth to 28.7% led by gross margin expansion due to higher revenue from limited competition complex generics and operating leverage in RoW; partially offset by increase in R&D spends (12% in FY18E). The stock trades at 14x FY19E versus 17x for its peer average, making it attractive. Whilst well entrenched promoters, strong balance sheet and excellence in execution lend comfort on valuations, earnings momentum is also likely to sustain (led by unfolding of pipeline in the USA).

We argue Torrent Pharma as an investment opportunity in branded generics rather than the US generic; providing consistent revenue/profitability growth. Early focus on building brands in India/EMs (60% of revenues) has driven strong brand equity, imparting sustainability to Torrent’s business. Whilst the US market foray is much sought after, revenue/profit CAGR of 13%/19% over FY17-19E would be driven by branded generics markets. With improving Dahej capex utilisation, operating leverage should kick in as the Indrad facility is freed for Europe/EMs; we expect 24.8% RoCE in FY19E vs 21% in FY17E. Technology gaps will be filled inorganically; history of rational capital allocation and superior execution of acquired businesses (e.g. Elder) provide comfort. Earnings momentum to drive stock price appreciation given strong branded base, margin/RoCE expansion from price hikes in Elder portfolio and scaling the value chain in the USA. Torrent is our top pick. Risks: Low growth in Brazil; USFDA cGMP issues.

Stock Performance

(%) 3-month


Dr. Reddy -12.6 -25.1

Lupin -3.8 -16.3

Cadila 22.4 9.9

Ajanta Pharma -3.6 -16.1

Torrent Pharma 9.0 -3.6

Cipla 2.3 -10.3


Company Ambit Consensus %

Dr. Reddy 25.9 27.7 -6%

Lupin 13.2 14.2 -7%

Cadila 3.2 3.4 -7%

Torrent Pharma 12.1 13.3 -9%

Cipla 4.9 4.4 13%

Ajanta Pharma 12.2 16.4 -26%

FY18E EPS


Dr. Reddy 95.0 129.6

Lupin 79.9 72.0

Cadila 21.4 17.7

Torrent Pharma 75.2 68.6

Cipla 27.3 24.3

Ajanta Pharma 54.9 66.6





Company name Mar-17 Mar-16 Dec-16 YoY QoQ Comments

Dr. Reddy

Sales (Rs mn) 35,277 37,562 37,065 -6% -5% Expect 5% QoQ decline in sales in 4QFY17 largely due to price erosion in base business in the US market and lower growth in the Indian business

EBITDA (Rs mn) * 8,272 4,804 8,793 72% -6% Expect margins to be flat sequentially as base business price erosion and R&D spend get offset by improvement in profitability in the Russian business EBITDA margin (%) 23.4% 12.8% 23.7% 1066bps -27bps

PBT (Rs mn) 5,372 2,485 5,922 116% -9% Expect PAT of Rs4.3bn in 4QFY17

PAT (Rs mn) 4,298 746 4,701 476% -9%

Lupin

Sales (Rs mn) 40,047 40,913 44,049 -2% -9% Expect Lupin's sales to report decline QoQ largely led by authorised generic entry in Glumetza offset by the launch of products in the US market

EBITDA (Rs mn) 10,337 13,674 12,158 -24% -15% Expect EBITDA margins to decline 180bps QoQ to 25.8% led by increase in R&D spends and pricing pressure in the US base business EBITDA margin (%) 25.8% 33.4% 27.6% -761bps -179bps

PBT (Rs mn) 8,037 12,254 10,426 -34% -23% Expect Lupin to report PAT of Rs5.9bn (-6% QoQ).

PAT (Rs mn) 5,928 8,071 6,331 -27% -6%

Cadila

Sales (Rs mn) 24,230 24,491 23,111 -1% 5% QoQ growth would be driven by India and emerging markets, partially offset by base business erosion in US business.

EBITDA (Rs mn) 4,655 5,814 4,043 -20% 15% As abnormal profits from HCQS were booked in FY16, expect margins to decline by 450bps YoY partially offset by better Indian business margin. EBITDA margin (%) 19.2% 23.7% 17.5% -453bps 172bps

PBT (Rs mn) 3,880 5,180 3,244 -25% 20% Cadila is likely to report PAT of Rs3.2bn in 4QFY17

PAT (Rs mn) 3,229 3,887 2,816 -17% 15%

Torrent Pharma

Sales (Rs mn) 14,576 14,990 14,430 -3% 1% Led by 12% YoY growth in India and ~30% in Brazil, offset by incremental competition in US business, we expect sales to remain flat YoY and QoQ.

EBITDA (Rs mn) 3,294 4,840 3,160 -32% 4% Normalised margins of 22.6% (70bps QoQ growth) would be driven by execution improvement in India and other branded generic markets offset by higher R&D spend. EBITDA margin (%) 22.6% 32.3% 21.9% -969bps 70bps

PBT (Rs mn) 2,494 4,050 2,450 -38% 2% Torrent Pharma is likely to report PAT of Rs2.0bn in 4QFY17

PAT (Rs mn) 2,045 3,570 2,290 -43% -11%

Cipla

Sales (Rs mn) 36,909 32,665 36,472 13% 1% 13% YoY growth to be driven by India and EM business. 2.5% QoQ growth in US business will be driven by new product launches.

EBITDA (Rs mn) 7,381 2,190 6,777 237% 9% 140bps QoQ margin expansion driven by India and South Africa, control over costs including employee expenses and partially offset by higher R&D spend. EBITDA margin (%) 20.0% 6.7% 18.6% 1330bps 142bps

PBT (Rs mn) 5,031 955 5,141 427% -2% We estimate PAT at Rs 3.9bn in 4QFY17

PAT (Rs mn) 3,976 809 3,748 392% 6%

Ajanta Pharma

Sales (Rs mn) 4,786 4,257 5,331 12% -10% 10% QoQ decline in revenue would be driven by weakness in African and Asian branded generic business due to concerns around repatriation

EBITDA (Rs mn) 1,566 1,405 1,780 11% -12% Margins will remain flat despite higher US business (only 10% of revenues) as costs in emerging markets will escalate due to unfavourable currency EBITDA margin (%) 32.7% 33.0% 33.4% -28bps -66bps

PBT (Rs mn) 1,438 1,307 1,811 10% -21% Ajanta is likely to report PAT of Rs1.1bn in 4QFY17

PAT (Rs mn) 1,079 1,063 1,426 1% -24%







Dr. Reddy Recommendation SELL SELL TP (Rs) 2,386 2,386 0.0% Revenues (Rs mn) 145,853 150,491 145,853 150,491 0% 0%

No change in our forecasts.

EBITDA (Rs mn) 27,689 29,015 27,689 29,015 0% 0%

EBITDA margin (%) 19.0% 19.3% 19.0% 19.3% PBT (Rs mn) 18,922 20,226 18,922 20,226 0% 0%

PAT (Rs mn) 14,759 15,776 14,759 15,776 0% 0%

EPS (Rs) 88.9 95.0 88.9 95.0 0% 0%

Lupin 10% Recommendation BUY BUY TP (Rs) 1,871 1,871 0.0% Revenues (Rs mn) 180,080 210,558 180,080 210,558 0% 0%


EBITDA (Rs mn) 49,619 56,451 49,619 56,451 0% 0%


PAT (Rs mn) 30,333 35,993 30,333 35,993 0% 0%

EPS (Rs) 67.3 79.9 67.3 79.9 0% 0%

Cadila Recommendation BUY BUY TP (Rs) 500 500 0.0% Revenues (Rs mn) 92,193 129,507 92,193 129,507 0% 0%


EBITDA (Rs mn) 18,641 30,853 18,641 30,853 0% 0%


PAT (Rs mn) 12,640 21,908 12,640 21,908 0% 0%

EPS (Rs) 12.3 21.4 12.3 21.4 0% 0%

Torrent Pharma Recommendation BUY BUY TP (Rs) 1,706 1,706 0.0% Revenues (Rs mn) 62,762 70,801 62,762 70,801 0% 0%


EBITDA (Rs mn) 16,495 18,509 16,495 18,509 0% 0%


PAT (Rs mn) 10,890 12,729 10,890 12,729 0% 0%

EPS (Rs) 64.3 75.2 64.3 75.2 0% 0%

Cipla Recommendation SELL SELL TP (Rs) 525 525 0.0% Revenues (Rs mn) 151,111 189,039 151,111 189,039 0% 0%


EBITDA (Rs mn) 27,811 37,500 27,811 37,500 0% 0%


PAT (Rs mn) 14,718 21,951 14,718 21,951 0% 0%

EPS (Rs) 18.3 27.3 18.3 27.3 0% 0%





Ajanta pharma Recommendation SELL SELL TP (Rs) 1,454 1,454 0.0% Revenues (Rs mn) 19,988 22,163 19,988 22,163 0% 0%


EBITDA (Rs mn) 6,746 7,090 6,746 7,090 0% 0%


PAT (Rs mn) 5,033 4,852 5,033 4,852 0% 0%

EPS (Rs) 56.9 54.9 56.9 54.9 0% 0%




Media Gradual recovery underway The Pay TV sector continues to face the overhang of the demonetisation. In 4QFY17E, both advertising and subscription revenues will witness single-digit annual growth. Amongst Pay TV providers, we expect ZEEL to report robust operating profit growth owing to cost control and divestiture of its loss-making sports business. Dish TV and Hathway will continue to witness sluggish profitability growth due to weak revenue growth trends. Watch out for commentary on industry growth trends and likely a timeframe of recovery. Progress of phase III/IV digitisation and industry stakeholders’ strategy to mitigate the impact of the recent regulatory intervention are other critical aspects of interest. Dish TV remains our top BUY given improving return ratios due to scale benefits and synergy from merger with VDTH.

Ambit vs consensus: Our 4QFY17 EPS estimates are in line with the limited estimates available on Bloomberg.

Key recommendations: Dish TV is our top BUY. We expect the company to record 14% revenue CAGR over FY17-19 led by robust subscriber addition in rural markets. Scale benefits should result in 20% EBITDA CAGR. Robust cash flow generation and synergy benefits from merger with VDTH are key triggers for the stock. Dish TV trades at an attractive valuation of 8.7x FY19E EV/EBITDA, which is at a 20% discount to its 5-year average traded multiple.

Stock Performance

(%) 3-month


Dish TV 20 8

Hathway Cable 1 (11)

Zee Entertainment 19 8



Dish TV 0.0 0.4

Hathway Cable (0.1) 0.1

Zee Entertainment 3.6 3.5

FY18E EPS


Dish TV 2.0 3.1

Hathway Cable (2.3) (1.4)

Zee Entertainment 16.0 16.2






Zee Entertainment

Sales (Rs mn) 15,702 15,316 16,391 3% -4% Advertising growth of 3% YoY impacted by demonetisation and sports business sale. Expect subscription revenue to decline 1% YoY due to sports business sale in Feb'17.

EBITDA (Rs mn) 4,787 4,136 5,158 16% -7% Margin improvement driven by cost control and reducing losses in &TV

EBITDA margin (%) 30.5 27.0 31.5 349bps -98bps

PBT (Rs mn) 5,022 4,278 4,630 17% 8% Earnings could be volatile owing to fair value accounting of outstanding preference share debt. PAT (Rs mn) 3,438 2,606 2,508 32% 37%

Dish TV

Sales (Rs mn) 7,708 7,994 7,480 -4% 3% We expect net subscriber addition of 0.3mn (8% YoY volume growth) to drive revenue growth. We expect flat ARPU QoQ (Rs153) owing to demonetisation challenges.

EBITDA (Rs mn) 2,529 2,608 2,495 -3% 1% Margins to remain stable on account of cost control.

EBITDA margin (%) 32.8 32.6 33.4 18bps -55bps

PBT (Rs mn) 460 799 429 -42% 7% PAT to decline sharply YoY as 4QFY16 PAT included tax writeback.

PAT (Rs mn) 39 4,828 267 -99% -86%

Hathway Cable

Sales (Rs mn) 3,556 3,399 3,376 5% 5% We build in 3%QoQ/4%YoY subscription growth and 8%QoQ/52%YoY broadband growth.

EBITDA (Rs mn) 730 798 650 -8% 12% Our EBITDA ex-activation estimate is Rs505mn (up 15%QoQ/334%YoY) led by yield improvements of phase III customers. EBITDA margin (%) 20.5 23.5 19.3 -294bps 127bps

PBT (Rs mn) (218) (96) (420) NM NM

PAT (Rs mn) (218) (459) (444) NM NM







Zee Entertainment


No material change to our estimates

TP (Rs) 405 405 0%

Revenues (Rs mn) 67,496 81,440 67,495 81,440 0% 0%

EBITDA (Rs mn) 22,418 31,596 22,418 31,596 0% 0%


PBT (Rs mn) 23,462 36,346 23,461 36,338 0% 0%

PAT (Rs mn) 15,364 23,674 15,364 23,674 0% 0%

EPS (Rs) 16.0 24.7 16.0 24.7 0% 0%

Dish TV


Owing to progress of the company's merger with VDTH - NCLT approval is on course; we incorporate 1/3rd of merger synergy benefits in our target price for Dish TV.

TP (Rs) 117 110 6%

Revenues (Rs mn) 35,062 39,581 35,052 39,581 0% 0%

EBITDA (Rs mn) 12,138 14,588 12,129 14,584 0% 0%


PAT (Rs mn) 2,147 2,965 2,173 2,978 -1% 0%

EPS (Rs) 2.0 2.8 2.0 2.8 -1% 0%

Hathway Cable


No change to our estimates

TP (Rs) 28 28 0%

Revenues (Rs mn) 25,365 29,073 25,365 29,073 0% 0%

EBITDA (Rs mn) 5,742 7,658 5,742 7,658 0% 0%


PAT (Rs mn) (1,899) (1,794) (1,899) (1,794) NM NM

EPS (Rs) (2.3) (2.2) (2.3) (2.2) NM NM


Dish TV: During the quarter, Dish TV received consent from the National Company Law Tribunal (NCLT). The NCLT has directed the company to convene a shareholders meeting on 12 May. Given the progress of regulatory approvals, we incorporate 1/3rd of synergy benefits (estimated value of Rs21-22/share) to our target price and upgrade our target price by 6% to Rs117. The following approvals are pending: (i) Dish TV and VDTH shareholders’, (b) exchanges, SEBI and SEC (as VDTH is Nasdaq listed), (c) the Competition Commission of India, (d) creditors, (e) High Court, and (f) regulator (TRAI) and the Government (MIB).

http://reports.ambitcapital.com/reports/Ambit_DishTV_Consolidationmakesdistributionlucrative_05Dec2016.pdf



Metals & mining In 4QFY17, aluminium realisations should rise by 8% QoQ due to higher LME prices whereas alumina realisations are likely to increase by ~27% QoQ, driving 7-13% revenue growth and 23-63% EBITDA growth. For domestic steel players, despite 8-10% increase in realisations, we do not expect EBITDA/tonne to increase sequentially as most of the increase in realisations is likely to be offset by increase in coking coal prices. We expect Tata Steel to report 6% revenue growth and 14% EBITDA growth, mainly due to 6% QoQ volume growth as 4Q is a seasonally strong quarter for the industry. For Coal India, we expect revenues to rise ~8% YoY driven by offtake growth of 5% and realisation growth of 3% due to 9%/10% higher e-auction realisations/volumes respectively. However, increase in employee costs due to wage revisions is likely to result in just a 2% YoY PAT growth.

Ambit vs consensus

Based on limited consensus data, our 4QFY17 earnings estimates are higher than consensus for Nalco, Coal India and Tata Steel and lower for SAIL and Hindalco.

Recommendations

With destocking by power plants now behind us, we expect CIL’s volume CAGR to recover to 7% over FY17-20E (vs 2% in FY17). This coupled with recovery in e-auction realisations and coking coal price hike is likely to drive 5% realisation growth in FY18E. Valuation of 13x FY18E P/E (in line with historical average) remains inexpensive for a 20% EPS CAGR and 5-6% dividend yield. We reiterate our SELL stance on Hindalco and Nalco as rising Chinese aluminium production and global overcapacity keeps our aluminium price outlook bearish. Hindalco trades at 7.6x FY17 EV/EBITDA, a premium to the historical average of 6x. We reiterate our SELL stance on Tata Steel and SAIL as we do not expect EBITDA/tonne of domestic steel players to increase on the back of structurally weak pricing power for domestic steel players, bearish outlook for global iron ore and steel prices and expensive valuations (Tata Steel currently trades at FY18E EV/EBITDA of 7.4x, a premium to historical average of 5.8x).


Company Mar'17E Mar'16 Dec'16 YoY (%) QoQ (%) Comments

Nalco Sales (Rs mn) 22,423 18,744 19,881 20 13

We expect revenues to rise 13% QoQ on the back of higher alumina/aluminium realisations (8%/27% QoQ respectively). We expect alumina sales of 312kt, flat QoQ, and aluminium sales of ~100kt vs 99kt in 3QFY17. We expect EBITDA of Rs4.6bn, up 63% QoQ, mainly due to higher realisations.

EBITDA (Rs mn) 4,652 2,387 2,852 95 63

EBITDA margin (%) 20.7% 12.7% 14.3% 801 bps 640 bps

PBT (Rs mn) 4,502 2,812 2,428 60 85

PAT (Rs mn) 3,016 2,079 1,811 45 67

Hindalco

Sales (Rs mn) 99,563 86,675 93,136 15 7 Revenues should rise by ~7% QoQ mainly due to 8% higher aluminium realisations. We build in aluminium production of 320kt (flat QoQ) and copper production of 100kt (vs 94kt in 3QFY17). We expect EBITDA of Rs14.6bn, up 23% QoQ, mainly due to higher aluminium realisations. We expect Hindalco to report PAT of Rs4.9bn, higher than Rs3.2bn reported in 3QFY17.

EBITDA (Rs mn) 14,619 11,664 11,852 25 23


PBT (Rs mn) 6,960 4,547 4,593 53 52

PAT (Rs mn) 4,872 3,563 3,204 37 52

Tata Steel

Sales (Rs mn) 296,869 295,076 279,565 1 6 We expect Indian business’ sales volumes to rise by 6% QoQ to 3.18mt, as 4Q is a seasonally strong quarter. European business sales volumes should rise by 5% QoQ of 2.5mt. Indian EBITDA/tonne should decline to ~Rs10,259/t vs Rs11,301 in 3QFY17 as the full impact of higher coking coal prices passes through the P&L. We factor in EBITDA of US$35/t in 4QFY17 vs US$38/t in 3QFY17.

EBITDA (Rs mn) 40,513 22,053 35,393 84 14


PBT (Rs mn) 13,813 847 9,306 n.a. 48

PAT (Rs mn) 8,172 (3,559) 2,319 n.a. 252

Stock Performance

(%) 3-month


Nalco 13 2

Hindalco 20 9

Tata Steel 18 7

SAIL 28 16

Coal India (7) (18)



Nalco 1.17 0.91

Hindalco 2.26 5.57

Tata Steel 8.41 4.94

SAIL (1.87) 4.52

Coal India 6.97 6.12

FY18E EPS


Nalco 3.63 4.4

Hindalco 17.2 19.3

Tata Steel 32.7 45.2

SAIL 1.84 (1.2)

Coal India 22.0 21.7




Company Mar'17E Mar'16 Dec'16 YoY (%) QoQ (%) Comments

SAIL

Sales (Rs mn) 128,533 113,714 112,982 13 14 We factor in sales volumes of 3.45mt, up 5% QoQ, as 4Q is a seasonally strong quarter. We expect EBITDA of Rs155/tonne vs loss of Rs129/tonne reported in 3QFY17, on the back of sequentially higher realisations, which are likely to be partially offset by higher coking coal prices. The company is likely to continue to report losses at the PAT level, as has been the case over the last 8 quarters.

EBITDA (Rs mn) 532 (11,236) (427) n.a. n.a.

EBITDA margin (%) 0.4% -9.9% -0.4% 1029 bps 79 bps

PBT (Rs mn) (12,188) (23,407) (12,547) n.a. n.a.

PAT (Rs mn) (7,732) (12,310) (7,960) n.a. n.a.

Coal India

Sales (Rs mn) 224,688 207,595 197,045 8 14 Coal India reported offtake of ~152mt in 4QFY17, up 5% YoY. Of this we expect ~15% volumes to be sold in e-auction (17.5mt of regular e-auctions and another ~5mt in special auction for the power/non-power sector). We expect blended e-auction realisations to increase to Rs1,800/t vs Rs1,564/tonne in 3QFY17 due to higher premiums in Jan-Feb and improved grade mix. Higher e-auction realisations are likely to be result in a 3% YoY increase in blended realisation. 5% volume growth coupled with 3% realisation growth is likely to result in 8% YoY revenue growth. However, higher revenues are likely to be offset by higher employee costs (wage escalation) and hence, we expect EBITDA/PAT to grow by 4% and 2% respectively.

EBITDA (Rs mn) 58,430 56,001 35,608 4 64

EBITDA margin (%) 26.0% 27.0% 18.1% -97 bps 793 bps

PBT (Rs mn) 64,589 63,287 41,598 2 55

PAT (Rs mn) 43,274 42,479 28,845 2 50

Source: Company, Ambit Capital research; Note: *Quarterly estimates for Nalco, Hindalco and SAIL are for parent operations; CIL numbers are excl. OBR provisions



NBFCs Whilst growth and asset quality trends have stabilised for NBFCs, a full-fledged recovery remains elusive – 30-50% of demonetisation-led defaults are still delinquent and CV/2W sales continue to struggle. Our earnings estimates remain below consensus which is still factoring in pre-demonetisation narrative of full-fledged recovery. Lofty valuations (4x FY18 PB) do not leave any room for negative surprises despite structural negatives like increasing formalisation of economy (GST, demonetisation), ongoing market-share loss in prime segments and supply-side bottlenecks in affordable housing. We remain SELLers on the entire NBFC space and put our estimates and stance on MOFS Under Review.

Growth improving but yet to revert to pre-demon levels

Our channel checks suggest that whilst disbursements have improved in 4Q compared with 3Q levels, they still are lower than the pre-demon levels across lending segments, such as: i) Auto loans: Auto sales remain weak (CV/2W sales in 4QFY17 were down to 3%/0% respectively versus 7%/16% growth pre-demon) owing to slower economic growth; ii) Home loans: Home sales have moderated owing to declining discretionary demand and prospective buyers sitting on fence with the expectation of a price decline; iii) LAP/SME loans: Declining working capital demand and borrower eligibility (declining collateral values); iv) Small-ticket loans: Growth in gold loans and micro-finance loans has been hit due to non-availability of cash for disbursements. We expect growth rate of HFCs to be at 13-15% YoY (versus previous run-rate of 15-18%), for auto financers at 10-16% YoY (versus the previous run-rate of 14-18%) and for SME financers at 16-33% (versus the previous run-rate of 18-38%).

Asset quality trends not yet reverted to pre-demon levels

Our channel checks suggest that whilst collections in secured loans (auto, home, LAP) have improved, unsecured loans like microfinance continue to see pain. Improving cash flows in the rural economy have led to improved collections in auto loans, with collections on post-demonetisation defaults now at ~50-70% across product segments (HCV, LCV, tractor loans and used vehicle loans). In home loans too, the small ticket, self-employed segment have seen collections improving for select lenders. For SME lenders, whilst stress has also abated somewhat in the smaller ticket LAP and unsecured SME loans. That said, gross NPAs and credit costs are likely to stay high for auto financers/small-ticket SME financers owing to derailing of improving asset quality trends in the pre-demonetisation period (rural economy is yet to revive to its earlier levels) and migration to 120/90dpd NPA recognition norms this quarter.

Mixed margin trends

Stable wholesale rates (up by only ~10bps during 4QFY17) as well as base/MCLR rates (down by ~10/60bps respectively during 4QFY17) and room to realign the liability mix towards cheaper wholesale borrowings will be favourable for the funding cost of NBFCs. Intense competition from banks in prime categories (car loans) means the benefit of lower funding costs would be passed on, thereby limiting NIM expansion of NBFCs having high exposure to such products (MMFS). NBFCs with meaningful presence in segments with lower competitive intensity (used CV, LCV financing) should not see margins decline (CIFC, MGMA). Mortgage financer LICHF should see improving margins sequentially due to seasonal factors.

Preparing for the forthcoming results

With NBFCs still recovering from demonetisation, growth and asset quality will be the key metrics to watch for. Whilst NBFCs’ 4QFY17 earnings should be better than that of 3QFY17, earnings momentum continues to lack visibility owing to muted growth and elevated asset quality stress. With our earnings estimates significantly below consensus expectations by ~6-20%, disappointments cannot be ruled out.

Stock Performance

(%) 3-month


LIC Hou Finance 19 8

M & M Finance 22 11

Shriram Transport

17 6

Magma Fincorp 16 5

Bajaj Finance 37 26

SCUF 23 12

Motilal Oswal 49 38

Chola 7 (4)

HDFC 21 10

FY18E EPS


LIC Hou. Finance 37.5 44.2

M & M Finance 15.8 19.2

Shriram Transport 73.2 79.2

Magma Fincorp 11.3 10.1

Bajaj Finance 38.6 42.3

SCUF 102.6 118.7

MOFS 29.2 29.2

CIFC 52.9 55.8

HDFC 47.1 52.7



Recommendation: Remain SELLers on the entire NBFC space

Auto financers and SME financers: Whilst growth and asset quality trends have stabilised for these lenders, a full-fledged recovery remains elusive – reflected in shortfall in recoveries (30-50% of demonetisation-led defaults are yet to be recovered) and muted demand (CV/2W sales struggling at 3%/0%). That said, stabilising trends in FY18 are a surprise and hence we upgrade our growth and credit costs assumptions for these lenders, resulting in EPS upgrades to the tune of 10-25% across lenders (highest for Chola, SCUF). Nevertheless, our growth and credit costs assumptions continue to be more conservative than the Street (which is building in the pre-demonetisation narrative of full-fledged recovery in growth and asset quality); reflecting in our FY18 EPS estimates being 10-20% below the Street (highest for MMFS). With lofty valuations not leaving any room for negative surprises despite structural negatives, such as increasing formalisation of economy (GST, demonetisation) and ongoing market-share loss in prime segments, we continue to be sellers on this space. We are SELLers on all NBFC stocks in our coverage. Our high conviction SELL is MMFS.

Housing Finance: Operating trends were not encouraging for HFCs even prior to demonetisation, with pressure on growth, margins and asset quality clearly visible. We expect growth to moderate in the sector due to: i) moderation in real estate prices; ii) increasing competition; and iii) penetration peaking in the salaried segment. Interest spreads will be under pressure due to hyper competition from banks and regulatory push towards fair pricing of floating rate loans. Increasing LTVs (through innovative financing schemes), decreasing underwriting standards, lack of standard valuation methodologies should negatively impact asset quality of the lenders. Demonetisation is impacting growth and asset quality trends in the sector as home prices remain weak and buyers stay away from market anticipating a price decline. That said, positive news flows surrounding this sector on the affordable housing space are keeping the hopes alive for reversion to high growth; and driving towering valuations of 4x FY18 P/B. However, our analysis indicates (click here for our note dated 17 March, 2017) that affordable housing schemes are unlikely to result pick-up in aggregate home loan demand by more than 1%. We remain SELLers on LICHF and HDFC and are 11-15% below the Street on the FY18 EPS owing to lower growth and margin assumptions.



Exhibit 28: Detailed Mar’17 quarterly estimates

Company name Mar'17 Mar'16 Dec'16 YoY QoQ Comment

HDFC

Net Interest Income (Rs mn) 26,353 23,525 24,446 12% 8% Moderated loan growth at 15% YoY and marginal decline in margins will drive NII growth of 12% YoY. However, PAT will decline by 31% YoY due to a high base of 4QFY16 (owing to gain on stake sale in HDFC Life).


Operating margin (%) 105% 173% 103% PBT (Rs mn) 26,300 35,253 24,004 -25% 10%

PAT 17,247 24,903 15,704 -31% 10%

LIC Housing Finance


Moderated loan growth at 13% YoY and marginal improvement in margins will drive NII growth of 18% YoY. Steady operating and credit costs will drive PAT growth of 20% YoY.


Operating margin (%) 89% 89% 89% PBT (Rs mn) 8,272 6,943 7,656 19% 8%

PAT 5,394 4,480 4,993 20% 8%

Bajaj Finance

Net Interest Income (Rs mn) 13,543 10,153 15,469 33% -12%

AUM growth should revert back to ~33% YoY with stable NIMs and operating costs, leading to 34% YoY PAT growth.


Operating margin (%) 64% 64% 67% PBT (Rs mn) 6,563 4,890 8,500 34% -23%

PAT 4,229 3,151 5,557 34% -24%

SCUF

Net Interest Income (Rs mn) 7,618 6,223 7,624 22% 0% Operating profit should grow at 26% YoY, led by 17% AUM growth and improvement on margin and operating leverage. However, low base of 4QFY16 (owing to high provisioning on 150dpd NPA migration), imply that PAT should grow by 97% YoY.


Operating margin (%) 57% 55% 61% PBT (Rs mn) 1,628 864 2,412 88% -32%

PAT 1,091 555 1,577 97% -31%

Magma Fincorp

Net Interest Income (Rs mn) 3,146 3,324 3,085 -5% 2%

Booking of Rs2.2bn due to loss on sale of NPAs should result in post-tax loss of Rs956mn.


Operating margin (%) 57% 60% 52% PBT (Rs mn) (1,437) 1,015 564 -242% -355%

Consol. PAT (956) 652 372 -247% -357%

M&M Finance


Operating profit growth would be muted at 8% YoY, owing to muted AUM growth (13% YoY) and declining margins (by ~25bps), leading to muted PAT growth (6% YoY).


Operating margin (%) 66% 68% 53% PBT (Rs mn) 5,844 5,706 (241) 2% -2522%

Consol. PAT 4,336 4,100 117 6% 3598%

Motilal Oswal Financial Services

Total Income (Rs mn) 3,023 2,054 2,791 47% 8% We expect MOFS’s total income (ex-HFC) to increase by 8% QoQ driven by 15% QoQ growth in brokerage revenues and 6% QoQ growth in AMC revenues. HFC PAT should be up by 38% QoQ. Assuming that booking of gains on investments continues at the rate of previous quarters, consolidated PAT should grow at 22% QoQ.

Operating Profit (Rs mn) 874 499 1,015 75% -14%

Operating margin (%) 29% 24% 36% PBT (Rs mn) 799 418 940 91% -15%

Consol. PAT 1,060 481 872 120% 22%

SHTF

Net Interest Income (Rs mn) 15,847 14,438 14,121 10% 12% AUM growth would moderate to 10% YoY leading to 13% YoY growth in operating profit. However, low base of 4QFY16 (owing to high provisioning on 150dpd NPA migration), imply that PAT should grow by 94% YoY.


Operating margin (%) 77% 74% 81% PBT (Rs mn) 4,225 2,172 5,294 95% -20%

Standalone PAT 2,788 1,439 3,460 94% -19%



Company name Mar'17 Mar'16 Dec'16 YoY QoQ Comment

CIFC

Net Interest Income (Rs mn) 6,796 5,994 6,040 13% 13% Whilst AUM growth would moderate to 16% YoY, declining margins (down ~20bps) and spike in operating costs (up ~20bps) would lead to 8% YoY growth in operating profit. With marginally declining credit costs, PAT should grow at 11% YoY.


Operating margin (%) 63% 66% 58% PBT (Rs mn) 3,173 2,962 2,517 7% 26%

Standalone PAT 2,126 1,920 1,633 11% 30%




Exhibit 29: Revisions ahead of earnings season



LIC HF Recommendation SELL SELL TP (Rs) 434 406 7% Net Revenues (Rs mn) 36,762 39,367 36,167 37,894 2% 4%

We marginally upgrade our FY18 growth expectations (13% YoY from 10% YoY earlier), which lead to marginal upgrades in our EPS. This with roll forwards lead to an upgrade in our EVA-based valuation.

Operating Profit (Rs mn) 30,678 32,343 30,339 31,205 1% 4%

Operating margin (%) 83% 82% 84% 82% PBT (Rs mn) 28,398 28,231 28,650 27,147 -1% 4%

PAT (Rs mn) 19,027 18,915 19,196 18,189 -1% 4%

EPS (Rs) 37.7 37.5 38.0 36.0 -1% 4%

Cholamandalam Recommendation SELL SELL TP (Rs) 1070 955 12% Net Revenues (Rs mn) 24,578 29,090 24,693 26,535 0% 10%

Upgrades to our FY17/18 growth expectations (now 17%/16% YoY from 9%/5% YoY earlier) and credit costs (now 1.1%/1.3% from 1.8%/2.1% earlier) lead to upgrades in our EPS and thus upgrade in our EVA-based valuation.

Operating Profit (Rs mn) 14,436 17,401 15,053 16,577 -4% 5%

Operating margin (%) 59% 60% 61% 62% PBT (Rs mn) 10,826 12,440 9,407 9,686 15% 28%

PAT (Rs mn) 7,254 8,335 6,303 6,489 15% 28%

EPS (Rs) 46.1 52.9 40.0 41.2 15% 28%

Bajaj Finance Recommendation SELL SELL TP (Rs) 603 520 16% Net Revenues (Rs mn) 60,620 77,241 59,419 74,165 2% 4%

Upgrades to our FY18 growth expectations (now 26% YoY from 24% YoY earlier) and credit costs (now 1.8% from 2% earlier) lead to upgrades in our EPS by ~14%. This with roll forwards lead to 16% upgrade in our EVA-based valuation.



PAT (Rs mn) 18,018 21,376 17,530 18,781 3% 14%

EPS (Rs) 32.5 38.6 31.6 33.9 3% 14%

Shriram Transport Recommendation SELL SELL TP (Rs) 944 910 4% Net Revenues (Rs mn) 58,084 61,717 58,190 60,483 0% -2%

Marginal upgrades to our FY18 growth expectations (now 10% YoY from 7% YoY earlier) lead to marginal upgrades in our EPS by ~4%. Roll forwards lead to 4% upgrade in our EVA-based valuation.

Operating Profit (Rs mn) 44,338 45,106 43,466 44,422 -2% -2%


PAT (Rs mn) 13,952 16,617 14,299 17,326 2% 4%

EPS (Rs) 61.5 73.2 63.0 76.4 2% 4%

Magma Fincorp Recommendation SELL SELL TP (Rs) 99 95 4% Net Revenues (Rs mn) 12,768 12,741 13,164 12,717 -3% 0%

Up fronted provisioning of Rs2.2bn due to loss on sale of NPAs should result in post-tax loss of Rs956mn in 4Q, resulting in 84% downgrade in our EPS estimates. However, this lowers our credit cost estimates for FY18, leading to ~42% upgrade in our FY18 EPS estimates.

Operating Profit (Rs mn) 6,683 7,045 7,002 7,172 -5% -2%

Operating margin (%) 52% 55% 53% 56% PBT (Rs mn) 510 3,937 3,337 2,768 -85% 42%

PAT (Rs mn) 342 2,638 2,236 1,855 -85% 42%

EPS (Rs) 1.5 11.3 9.5 7.9 -84% 42%





M&M Finance Recommendation SELL SELL TP (Rs) 255 227 12% Net Revenues (Rs mn) 33,921 40,262 34,283 39,009 -1% 3%

Upgrades to our FY18 growth expectations (now 10% YoY from 7% YoY earlier) and credit costs (now 2.9% from 3.2% earlier) lead to FY18 EPS upgrade by ~13%. This, with roll forwards lead to 12% upgrade in our EVA-based valuation.

Operating Profit (Rs mn) 19,561 24,322 20,247 23,946 -3% 2%


PAT (Rs mn) 5,598 7,348 5,583 6,329 0% 16%

EPS (Rs) 12.0 15.8 12.0 14.0 0% 13%

Shriram City Union Finance Recommendation SELL SELL TP (Rs) 2185 1900 15% Net Revenues (Rs mn) 29,282 32,554 26,139 27,745 12% 17%

Upgrades to our FY17/18 growth expectations (now 18%/13% YoY from -3%/8% YoY earlier) and FY18 credit costs (now 3.9% from 4.7% earlier) lead to our EPS upgrade and thus upgrade in our EVA-based valuation.



PAT (Rs mn) 6,749 6,762 5,920 5,493 14% 23%

EPS (Rs) 102.4 102.6 89.8 83.3 14% 23%




Oil and Gas Profitability of OMCs and gas companies is expected to moderate sequentially. Whilst OMCs would benefit from stable GRMs (Singapore GRMs of US$6.5 in 4Q, flat vs. 3Q) volume growth rates will be weak at ~-2% and there would be inventory losses on both product/crude. Gas volumes were weak in January due to higher gas prices and supply issues but ramped up well over Feb-March. Accordingly, volumes of GAIL/PLNG should see a marginal sequential moderation in gas transmission/LNG regasification volumes in 4QFY17. GAIL volumes would benefit from ramp-up of the petchem plant and higher LPG prices. GSPL will benefit from improved industrial and CGD volumes. Lower USD INR (down 2% QoQ) will aid margins for all gas companies. OMCs too will see sharp forex gains due to currency appreciation. We expect IGL/MGL to report healthy volume growth of 10%/6% YoY while currency benefit on margins will be negated by higher other expenses. Our top picks are IOCL (9x FY19 EPS) and PLNG (13x FY19 EPS) due to strong volume growth visibility, healthy RoE and inexpensive valuations.

Ambit vs consensus

Based on limited consensus data for 4QFY17, our earnings estimates are behind consensus on most of the companies except HPCL, GAIL and PLNG. On FY18, we are mostly behind consensus except for GAIL, IGL and PLNG.

PLNG and IOCL – Top ideas in the space

Petronet (PLNG) is our top pick in the gas space given strong earnings growth visibility and attractive valuations of 15x/13x FY18/FY19E EPS relative to CGD peers 18-20x EPS. We note that PLNG’s earnings growth of ~18% over FY17-20 and RoE of ~23% are well ahead of domestic gas peers. Government’s push for a broader gas ecosystem and growing gas demand from industrial consumers/CGDs will keep LNG demand growth at high single digits over FY18/FY19. We expect PLNG to clock volumes of ~20mmt by FY20 given: (i) it will garner 90% of incremental demand on the west coast over FY17-19 and (ii) ramp-up in Kochi operations (only LNG terminal in South India) from FY19. Operating leverage due to Dahej ramp-up and reduction in Kochi losses will support earnings. Limited capex needs beyond 2.5mmt expansion at Dahej to provide FCF yield of ~6%. TP of Rs475 (16x FY19E EPS) implies ~15% upside.

IOCL: We continue to remain structurally positive on the OMC pack. On a relative basis, IOCL’s reputation as a laggard to peers should change with Paradip scale-up, improving distillation yields from existing refinery portfolio and rising share of EBITDA from stable businesses; together these will reduce volatility of overall earnings, which have impacted multiples. Over the next 12-18 months, we expect IOCL’s discount vs OMC peers to narrow as RoE inches up to 20% as Paradip ramps up. OMCs as a pack should re-rate given growing comfort on fuel deregulation and increased rollout of long-term drivers like micro-market pricing/non-fuel retailing. Announced capex plans shouldn’t be a worry as capex spends have always lagged guidance. TP of Rs460 (9x FY19 EPS) implies 16% upside.

Preparing for the results

We have kept our estimates unchanged.

Stock Performance

(%) 3-month


IOCL 15% 5%

BPCL 1% -9%

HPCL 13% 3%

IGL 9% -1%

PLNG 8% -2%

GSPL 13% 3%

GAIL 13% 3%

MGL 10% 0%



IOCL 8.38 9.0

BPCL 11.7 13.66

HPCL 11.13 8.67

IGL 10.09 10.68

PLNG 5.15 3.76

GSPL 2.1 2.25

GAIL 5.96 5.47

MGL 10.02 10.4

FY18E EPS


IOCL 40.3 39.83

BPCL 57.7 61.4

HPCL 40.2 45.3

IGL 47.1 42.5

PLNG 24.8 23.3

GSPL 10.2 12.5

GAIL 27.9 27.2

MGL 42.8 44.1






IOCL

Sales (Rs mn) 963,898 784,008 931,167 22.9% 3.5% Build in GRMs of US$5.7/barrel versus Singapore benchmark of US$6.5/barrel; EBITDA is likely to remain sequentially flat given moderation in volume growth rates. IOCL will likely see a nominal US$0.5/bbl inventory loss on crude inventory and ~Rs4-5bn loss on product inventories. Strong forex gains will support overall profitability.

EBITDA (Rs mn) 78,545 47,497 79,486 65.4% -1.2%

EBITDA margin (%) 8% 6% 9% 2.1 -0.4

PBT (Rs mn) 61,045 29,402 61,907 107.6% -1.4%

PAT (Rs mn) 40,688 16,853 39,949 141.4% 1.8%

BPCL

Sales (Rs mn) 540,345 441,971 535,427 22.3% 0.9%

EBITDA (Rs mn) 25,746 34,896 33,165 -26.2% -22.4% Build in GRMs of US$5.5/barrel versus Singapore benchmark of US$6.5/barrel; we build in a product volume growth of -2% YoY for 4QFY17. EBITDA should decline sequentially by ~22% due to weaker volume growth rates and higher inventory losses.

EBITDA margin (%) 5% 8% 6% -3.1 -1.4

PBT (Rs mn) 25,321 34,973 32,491 -27.6% -22.1%

PAT (Rs mn) 16,965 25,491 22,791 -33.4% -25.6%

HPCL

Sales (Rs mn) 477,126 421,952 485,556 13.1% -1.7%

EBITDA (Rs mn) 20,093 26,613 28,033 -24.5% -28.3% Build in GRMs of US$5.5/barrel versus Singapore benchmark of US$6.5/barrel; We build in a product volume growth of -2% YoY for 4QFY17. EBITDA should decline sequentially by ~28% due to weaker volume growth rates and higher inventory losses.

EBITDA margin (%) 4% 6% 6% -2.1 -1.6

PBT (Rs mn) 17,143 22,025 24,046 -22.2% -28.7%

PAT (Rs mn) 11,315 15,529 15,903 -27.1% -28.9%

IGL

Sales (Rs mn) 9,603 10,592 8,868 -9.3% 8.3%

EBITDA (Rs mn) 2,489 1969.3 2,509 26.4% -0.8% Building in volume growth rate of 10% on a YoY basis. Sequentially, volumes are likely to remain flat. Q4 margins benefited from rupee appreciation to the tune of ~2-3% over quarterly average while higher LNG costs potentially negated these benefits. We expect overall margins to marginally moderate on a QoQ basis during the quarter.

EBITDA margin (%) 26% 19% 28% 7.3 -2.4

PBT (Rs mn) 2,141 1627.3 2,183 31.6% -1.9%

PAT (Rs mn) 1,413 1076.4 1,487 31.3% -5.0%

PLNG

Sales (Rs mn) 65,281 60,653 62,993 7.6% 3.6%

EBITDA (Rs mn) 6,455 4581 6,071 40.9% 6.3%

EBITDA margin (%) 11% 8% 10% 3.2 0.7

PBT (Rs mn) 5,315 3,574 5,095 48.7% 4.3% We expect a marginal sequential moderation in volumes from 191TBTU to 184TBTUs. Margin improvement led by annual escalation in tariffs (5%) would drive 6% sequential jump in EBITDA. We don’t build in any loss/gain on spot cargoes.

PAT (Rs mn) 3,880 2,430 3,975 59.7% -2.4%

GSPL

Sales (Rs mn) 2,650 2,319 2,668 14.3% -0.7%

EBITDA (Rs mn) 2,290 2,049 2,275 11.8% 0.6%

EBITDA margin (%) 86% 88% 85% -2.5 0.5

PBT (Rs mn) 1,810 1,538 1,822 17.7% -0.7% We expect volumes to see a sequential uptick led by improvement in CGD and industrial demand. We build in gas transmission volumes of 27.5mmscmd in Q4FY17. PAT (Rs mn) 1,181 997 1,186 18.4% -0.4%

GAIL

Sales (Rs mn) 138,551 117,324 121,324 18.1% 14.2% GAIL is expected to report a fairly healthy quarter with 8% sequential jump in EBITDA. We expect transmission volumes to marginally moderate from 103mmscmd in 3QFY17 to 102mmscmd in 4QFY17. Petchem volumes should continue to ramp up as PATA 2 operated at ~60% utilisation in 4Q with PATA 1 running at full capacity. LPG realisations too improved in the quarter benefiting EBITDA.

EBITDA (Rs mn) 18,576 12,237 17,261 51.8% 7.6%

EBITDA margin (%) 13% 10% 14% 3.0 -0.8

PBT (Rs mn) 15,295 9,399 14,836 62.7% 3.1%

PAT (Rs mn) 10,095 7,700 9,829 31.1% 2.7%




MGL

Sales (Rs mn) 4,918 5,067 5,009 -2.9% -1.8%

EBITDA (Rs mn) 1,600 1348 1,672 18.7% -4.3% We expect volumes to grow at 6% YoY and 2% QoQ. EBITDA margins would see a sequential moderation from Rs7.1/scm to Rs6.7/scm due to higher operating expenses negating currency benefits. EBITDA margin (%) 33% 27% 33% 5.5 -0.8

PBT (Rs mn) 1,500 1277 1,544 17.5% -2.8%

PAT (Rs mn) 990 846 990 17.0% 0.0%




Technology 4QFY17 Preview: All eyes on FY18 outlook FY18 outlook will be keenly watched especially due to absence of NASSCOM's guidance. Consensus expects growth acceleration due to improved macro-economic environment but we are sceptical because of poor exit-rate in the Mar-17 quarter, and continued pressure on both volume (automation, cloud) and pricing. Specifically, we expect Infosys to guide for 7-9% YoY growth for FY18 (cc terms) versus 9MFY17 growth of 9.4%. Apart from the outlook, the Street will look out for management commentary on capital allocation policies, impact of US protectionist action and cost control measures to offset the impact of INR appreciation. For the top-6 companies in aggregate, we expect revenue growth of 1.2% (QoQ, organic, cc terms) versus 1.1% in 4QFY16 and decline in EBIT margin by 60bps YoY. For the large-caps, we have tweaked our estimates by -4% to 3% and TPs by -2% to 4% to account for a stronger INR and roll-forward of our DCF model. We retain our cautious stance on the sector. Cognizant/HCL Tech are our top SELLs.

Expect revenue deceleration and margin drop in FY18

We expect Infosys to guide for a revenue growth of 7-9% in FY18 (cc terms). This is in line with consensus expectations and compares with 6% growth for the March 2017 quarter and 9.4% growth in 9MFY17. To achieve the mid-point of this guidance, as per its own seasonal pattern, it would have to deliver revenue growth of 3.5%, 3.5%, 1.0%, 1.0% in the four quarters of FY18, which is still stronger than 1.7%, 3.9%, -0.3%, 0.6% delivered/expected in the four quarters of FY17.

We also expect HCL Tech to guide for a revenue growth of 12-14% in FY18 (cc terms, including the inorganic contribution of 4%).

Across our coverage for the top-6 Indian IT services companies, we expect only TCS’s revenue growth to accelerate materially as it recovers from the company-specific headwinds in Diligenta, Japan and Latin America. It is also well-placed to benefit from the digital projects moving to the integration phase.

FY18 margin will be under pressure due to INR appreciation and as companies step up investments in digital and to combat US protectionism. Infosys will likely cut its FY18 margin outlook to 23-25% from 24-26% earlier.

Capital allocation to be another focus area

Given the patchy track record of recent large acquisitions (Infosys-Lodestone, TCS-Alti, TCS-Mitsubishi, TechM-LCC), companies that return more cash to shareholders will be rewarded.

TCS and HCLT have already announced buybacks, but we await clarity on their cash-return policy. At Infosys, investors are hopeful of a share buyback of US$2bn (6% of outstanding shares). In the past, the current management has resisted calls for returning the cash pile (13% of market-cap) in order to pursue acquisitions. Whilst the announcement does not impact our target price, we are wary of a sentimental disappointment here.

Companies turning innovative to cut costs

Rising risk of US protectionism and appreciation of INR (2-3% YoY) appears to have accelerated the pace of cost-saving efforts by Indian IT companies – fewer hires/lay-offs, lower wage hikes and now relaxed hiring standards.

The Business Standard reported that HCLT has started to hire high-school graduates on a pilot basis. HCLT will offer students nine months of classroom training and three months of on-the-job training, after which they will be given a diploma and absorbed internally. Our channel checks indicate that students will likely have to pay for the training, after which they would get a starting salary of Rs180,000 p.a. (35-40% lower than that for engineers). This will be for both infrastructure management services and application development and maintenance.

Stock Performance

(%) 3-month


TCS 5 (7)

Infosys 3 (9)

Wipro 10 (2)

HCLT 5 (7)

TechM (5) (17)

LTI 5 (6)

MTCL (10) (22)

PSYS (10) (22)

eClerx (2) (13)



TCS 35.5 33.7

Cognizant ($) 0.7 0.8

Infosys 14.9 15.8

Wipro 8.4 8.9

HCLT 15.0 14.6

TechM 8.6 8.7

Mindtree 6.5 6.3

LTI 13.5 13.7

Persistent systems 8.9 9.6

eClerx 19.0 18.8

FY18E EPS


TCS 140.0 144.0

CTSH($) 2.6 3.6

Infosys 64.0 67.9

Wipro 34.0 37.1

HCLT 63.0 63.4

TechM 37.0 39.0

Mindtree 32.5 32.6

LTI 59.4 59.2

Persistent systems 41.0 45.2

eClerx 82.6 90.7


https://goo.gl/ZcUOO0



We see this as a practical route to cut costs, without deteriorating the quality. Most engineering education in this country is of low quality and most IT services work does not require deep engineering knowledge.

Ambit vs consensus

For TCS, HCLT, Mindtree and eClerx we are 1.1% - 5.3% above consensus on 4QFY17 EPS estimates. However, for the rest of our coverage universe, we are 1% - 11% below consensus as we factor in lower growth/margin in this quarter because of company specific issues. On FY18 EPS estimates, we are 1% - 28% below consensus for our entire coverage universe as we turn more cautious towards the sector on back of structural risks like US protectionism. For Cognizant, we deviate significantly from the consensus view (our EPS estimate is 28% below consensus) that the company will be able to successfully shift its focus from growth to profitability and this is the key reason behind the divergence of the estimates.

Where do we go from here?

For the large-caps, we have tweaked our estimates by -4% to 3% and target prices by -2% to 4% to account for a stronger INR and roll-forward of our DCF model.

For the mid-caps, we have incorporated the impact of US protectionist action leading to minimum wages for all US-based onsite workers rising to US$100,000 p.a. versus US$60,000 today. This leads to cut in FY19 estimates by 20%/14% for Mindtree and LTI. Persistent Systems is relatively insulated because of the already high salaries of its US-based workforce (product engineering work, mostly located in California, a high-cost area). eClerx is the most insulated because 99% of its workforce is in India.

We retain our cautious stance on the sector, with Cognizant and HCL Tech being our top SELLs among the large-caps.

Cognizant – Revenue growth will disappoint as management focus shifts to margins, most exposed to US protectionism risk

We expect Cognizant to deliver just 4% revenue growth in CY17 versus its guidance of 8-10% because: 1) it continues to lose large contracts to peers as customers have started focusing more on price rather than the added ‘comfort’ that Cognizant offered (e.g. 3 senior people per project versus 1 for TCS, more experienced salespeople); and 2) it is starting to focus more on profitability, which will likely lead to further client/employee attrition. For instance, it will likely have to start charging for some services that it provided for free, be faster in rolling off senior people from projects, reduce pay for senior sales staff, etc. We note that Mark Livingston, the head of Cognizant’s consulting division quit recently.

It is also the most exposed to the risk of US protectionism. It derives 79% of revenues from the USA versus 53% for TCS; 91% of its US onsite employees earn less than US$100K as per Glassdoor versus 83% for TCS. Lastly, our channel checks and management commentary indicate that it does not anticipate regulations to change significantly, whereas TCS appears to be much better prepared.

We do not think this company is beyond resurrection. Cognizant leads in its focus verticals (BFSI and Healthcare account for 70% of revenues), delivered industry-leading growth (until recently), and is a top-5 global vendor in digital capability. However, we fear that it might be at the start of a long, painful, transformation journey and still trades at 17x one-year forward earnings (consensus), in line with TCS. Our CY18 and CY19 estimates are 26% and 55% below consensus respectively assuming that minimum wages for all onsite workers will rise to US$100K over CY18 and CY19.

HCLT – Rising risks from acquisitions, not prepared for digital

HCLT is a consensus darling, as it has a strong portfolio mix. Almost 60% of its revenues come from the fast-growing segments, such as Infrastructure Management Services and Engineering Services. The recent share buyback announcement has also buoyed investor sentiment.



However, we have a structural SELL thesis because of the rising risks from sudden spree of acquisitions (11 acquisitions since July 2015) and its service-line-centric organisation structure which makes it vulnerable to changing technologies. Further, contrary to consensus expectations, we do not think it is insulated from US protectionist headwinds even if visa-holders make up less than 50% of its US-based workforce. It will still be classified as an H-1B dependent employer (>15% of US-based workforce on visas). Further, because of the talent shortage in the USA, and fungibility of visaholders and locals, it appears increasingly likely that the costs of all US-based workers would rise, not just the H-1B visaholders.

Valuation at 14x one-year forward P/E (consensus), which is likely going to be 15x after adjusting for stronger INR, a level last seen in September 2015, does not offer margin of safety. We build in an EPS CAGR of 5% over FY17-19.

Incipient signs of re-organisation and more enticing valuations could make us reconsider our stance.




Mar-17E Dec-16 QoQ Mar-16 YoY Comment

TCS

Sales (US$ mn) 4,475 4,387 2.0% 4,207 6.4% 2.2% QoQ revenue growth in constant-currency terms

Sales (Rs bn) 295 297 -0.7% 284 3.8% EBIT (Rs bn) 78.3 77.3 1.3% 74.1 5.6%

EBIT margin (%) 26.5% 26.0% 50 bps 26.1% 50 bps Productivity improvements will more than offset margin compression due to INR appreciation

PBT (Rs bn) 92.0 89.2 3.1% 83.2 10.6% PAT (Rs bn) 70.0 67.8 3.3% 63.4 10.4% CTSH Sales (US$ mn) 3,495 3,474 0.6% 3,202 9.1% 1.2% QoQ revenue growth in constant-currency terms, vs. guidance of 1.4-2.5%

EBIT ($ mn) 592 604 -2.0% 554 6.9%

EBIT margin (%) 17.0% 17.4% -50 bps 17.3% -40 bps

Key headwinds: (1) INR appreciation, (2) pricing pressure in healthcare vertical. Our channel checks suggest that the company reduced hikes and bonuses for its employees across the pyramid to optimise margins. However, this will likely reflect starting from Jun-17 quarter

PBT ($ mn) 608 621 -2.1% 589 3.2% PAT ($ mn) 450 459 -2.1% 441 1.9% Infosys

Sales (US$ mn) 2,574 2,551 0.9% 2,446 5.2% 0.8% QoQ growth in constant-currency revenue terms; (vs. guidance of 0.3-1.8%)

Sales (Rs bn) 170 173 -1.6% 166 2.7% EBIT (Rs bn) 42 43 -3.6% 42 -1.0%

EBIT margin (%) 24.6% 25.1% -50 bps 25.5% -90 bps Key headwinds: (1) INR appreciation, (2) leave costs were low last quarter due to utilisation of leaves and lower variable pay

PBT (Rs bn) 48 52 -6.1% 50 -3.0%

PAT (Rs bn) 34 37 -8.0% 36 -5.2%

Wipro

IT Services

Sales (US$ mn) 1,939 1,903 1.9% 1,882 3.0% Organic revenue in CC terms is expected to be flat. Including full consolidation of Appirio ($29mn incremental), divested EcoEnergy ($3mn lesser) growth would be 1.4% versus guidance of 1-2%

EBIT (Rs bn) 24 23 3.3% 25 -2.7%

EBIT margin (%) 17.7% 17.8% -10 bps 20.2% -250 bps Key drivers: (1) INR appreciation offset by hedge gains, (2) full quarter consolidation of low-margin Appirio.

Consolidated Sales (Rs bn) 136 138 -1.2% 137 -1.1% EBIT (Rs bn) 23 23 -3.1% 25 -9.6% EBIT margin (%) 16.6% 16.9% -30 bps 18.1% -160 bps PBT (Rs bn) 27 28 -3.9% 29 -9.3%

PAT (Rs bn) 20 21 -3.9% 22 -9.5% Higher other income because of incremental cash (US$70mn) from divestment of EcoEnergy



Mar-17E Dec-16 QoQ Mar-16 YoY Comment

HCLT

Sales (US$ mn) 1,822 1,745 4.4% 1,587 14.8% Organic revenue growth of 1.4% QoQ (in CC terms). We factor in incremental $47mn (2.7% of revenue) from acquisitions of Butler, second and third IBM deals and 30-day impact of Geometric consolidation

Sales (Rs bn) 120 117 3.0% 107 12.9% EBIT (Rs bn) 24 24 1.0% 22 8.8% EBIT margin (%) 20.0% 20.4% -40 bps 20.7% -80 bps Key drivers: 1) INR appreciation, 2) Consolidation of acquisitions

PBT (Rs bn) 26 26 1.2% 24 9.7% PAT (Rs bn) 21 20 1.2% 19 8.4% TechM

Sales (US$ mn) 1,125 1,116 0.8% 1,023 10.0%

Revenue growth of 0.4% QoQ in cc terms. Enterprise segment: +2%, telecom: -1% (shedding US$50mn in annualised revenues in LCC) Sales (Rs bn) 74 76 -1.8% 69 7.8%

EBIT (Rs bn) 8.9 9.4 -5.1% 9.3 -4.6%

EBIT margin (%) 12.0% 12.4% -40 bps 13.6% -160 bps Key driver: INR appreciation

PBT (Rs bn) 9.7 10.6 -8.3% 10.6 -8.4% PAT (Rs bn) 7.7 8.6 -10.4% 8.6 -10.6% Mindtree

Sales (US$ mn) 193 192 0.5% 195 -0.9% Organic constant-currency growth of 0.4%

Sales (Rs mn) 12,753 12,953 -1.5% 13,203 -3.4% EBIT (Rs mn) 1,295 1,281 1.1% 1,731 -25.2%

EBIT margin (%) 10.2% 9.9% 30 bps 13.1% -300 bps Key drivers: 1) Operational efficiencies, 2) Improved profitability at Bluefin and 3) INR appreciation

PBT (Rs mn) 1,433 1,379 3.9% 1,773 -19.2%

PAT (Rs mn) 1,089 1,031 5.7% 1,330 -18.1%

LTI

Sales (US$ mn) 250 245 2.0% 230 8.8% Organic revenue growth of 1.8% QoQ (in cc terms)

Sales (Rs mn) 16,500 16,667 -1.0% 15,579 5.9%

EBIT (Rs mn) 2,555 2,549 0.2% 2,413 5.9%

EBIT margin (%) 15.5% 15.3% 20 bps 15.5% 00 bps Improved operational efficiencies, e.g. utilisation to offset INR appreciation

PBT (Rs mn) 2,979 3,147 -5.3% 2,913 2.3%

PAT (Rs mn) 2,354 2,480 -5.1% 2,284 3.0%

Persistent

Sales (US$ mn) 111 110 0.6% 100 10.2% Revenues will be flattish in cc terms. We expect IBM deal to contribute just US$45mn in FY17 vs. initial guidance of US$50-55mn.

Sales (Rs mn) 7,302 7,455 -2.1% 6,771 7.8%

EBIT (Rs mn) 729 800 -8.9% 818 -10.9%

EBIT margin (%) 10.0% 10.7% -70 bps 12.1% -210 bps Key drivers: INR appreciation, growth in Accelerite, decline in IBM deal revenues

PBT (Rs mn) 949 1,118 -15.1% 1,028 -7.7%

PAT (Rs mn) 712 819 -13.1% 808 -11.9%

eClerx Sales (US$ mn) 47 47 0.0% 51 -7.1% Revenue growth to remain flattish on muted demand

Sales (Rs mn) 3,177 3,247 -2.1% 3,432 -7.4%

EBIT (Rs mn) 858 909 -5.6% 1,269 -32.4%

EBIT margin (%) (pre- hedging)

27.5% 28.0% -50 bps 37.0% -940 bps EBIT margin to remain depressed because of investment in onsite and senior hiring

PBT (Rs mn) 1,021 1,022 -0.1% 1,359 -24.8% PAT (Rs mn) 786 860 -8.6% 1,083 -27.4% Source: Company, Ambit Capital research





FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

TCS (in Rs bn)

Target Price (Rs)

2,750

2,670

3%

Our estimates remain largely unchanged except for the changes caused by exchange rates. Out TP is increased by 3% because of roll-forward of DCF-model.

USD/ INR 67.0 65.4 65.4 67.5 68.0 68.0 -1% -4% -4%

Revenue (US$mn) 17,598 19,304 21,513 17,597 19,301 21,511 0% 0% 0%

EBIT 305 333 346 308 346 361 -1% -4% -4%

EBIT margin 25.9% 26.4% 24.6% 26.0% 26.4% 24.6% -10bps 00bps 00bps

PAT 267 276 289 265 286 300 1% -4% -4%

EPS (Rs) 135 140 147 134 145 152 1% -4% -4%

CTSH (in US$ mn)

Target Price ($)

38

37

0%

Revenue (US$mn) 13,499 14,105 15,023 13,499 14,105 15,023 0% 0% 0% Our estimates for CY17, CY18 & CY19 remain largely unchanged.

EBIT 17.3% 17.8% 14.7% 17.3% 17.8% 14.7% 00bps 00bps 00bps EBIT margin 2,333 2,512 2,201 2,333 2,512 2,201 0% 0% 0%

PAT 1,597 1,918 1,721 1,597 1,918 1,721 0% 0% 0% Out TP is increased by 3% because of roll-forward of DCF model.

EPS ($) 2.6 3.2 2.8 2.6 3.2 2.8 0% 0% 0% Infosys Target Price (Rs) 1,100 1,050 5%

Our estimates are largely unchanged except for the changes caused by exchange rates. We increase our target price by 5% because of roll forward of our DCF-model.

USD/ INR 66.9 65.4 65.4 67.4 68.0 68.0 -1% -4% -4%

Revenue (US$mn) 10,213 10,961 12,025 10,202 10,922 12,071 0% 0% 0%

EBIT 169 176 172 170 182 180 -1% -3% -4%

EBIT margin 24.7% 24.5% 21.9% 24.7% 24.5% 21.9% 00bps 00bps 00bps

PAT 142 145 145 142 149 150 0% -3% -3%

EPS (Rs) 62 63 63 62 65 66 0% -3% -3%

Wipro Target Price (Rs) 430 430 0% USD/ INR 67.0 65.4 65.4 67.0 68.0 68.0 0% -4% -4% IT Services Our estimates are slightly changed to reflect the

INR appreciation, divestiture of EcoEnergy division and consolidation of Appirio acquisition by the company

Revenue (US$mn) 7,689 8,050 8,712 7,691 8,058 8,747 0.0% -0.1% -0.4%

EBIT 94 95 93 97 99 97 -2% -4% -4%


Consolidated Revenue 549 553 596 553 574 621 -1% -4% -4%

EBIT 92 91 90 94 95 94 -2% -4% -4%

EBIT margin 16.7% 16.4% 15.1% 16.9% 16.5% 15.1% -30bps -10bps -10bps

PAT 83 83 84 84 86 87 -2% -3% -4%

EPS (Rs) 34 34 35 35 35 36 -2% -3% -4%

HCL Tech Target Price (Rs) 770 750 3% USD/ INR 66.7 65.4 65.4 67.2 68.0 68.0 -1% -4% -4% Revenue from second and third IBM deals, and

Butler aerospace acquisition are now factored in. This has more than offset the negative EBIT margin impact because of INR appreciation

Revenue (US$mn) 6,981 7,871 8,926 6,927 7,640 8,664 1% 3% 3%

EBIT 1,415 1,572 1,610 1,399 1,521 1,560 1% 3% 3%

EBIT margin 20.3% 20.0% 18.0% 20.2% 19.9% 18.0% 10bps 10bps 00bps

PAT 1,226 1,308 1,351 1,210 1,268 1,311 1% 3% 3% Our DCF-based Target price increased by 3% because of roll forward of estimates

EPS (Rs) 58 63 65 58 61 63 1% 3% 3%




FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

Tech Mahindra

Target Price (Rs) 540 550 -2% Cut our target price slightly as TechM will not be able to offset INR appreciation headwind.

USD/ INR 66.9 65.4 65.4 67.4 68.0 68.0 -1% -4% -4%

No significant changes in the estimates over FY17-18 except those cause by changes in exchange rate.

Revenue (US$mn) 4,344 4,630 5,046 4,349 4,651 5,070 0% 0% 0%

EBIT 35 39 41 36 41 42 -3% -3% -3%


PAT 30 33 33 31 34 34 -1% -3% -3%

EPS (Rs) 34 37 37 34 38 38 -1% -3% -3%

Mindtree (Rs mn) Target Price (Rs) 435 450 -3%

We estimate 480bps margin hit over FY18-20 due to US protectionism, of which half would be recovered over 5 years. We reduce our DCF-based target price for above reason.

USD/ INR 65.4 65.4 65.4 68.0 68.0 68.0 -4% -4% -4%

Revenue (US$mn) 777 844 949 776 836 941 0% 1% 1%

EBIT 5,217 6,647 6,578 5,318 6,844 8,334 -2% -3% -21%

EBIT margin 10.0% 12.0% 10.6% 10.2% 12.0% 13.0% -10bps 00bps -240bps

PAT 4,303 5,460 5,319 4,369 5,589 6,650 -2% -2% -20%

EPS (Rs) 25.6 32.5 31.6 26.0 33.2 39.5 -1.5% -2.3% -20%

LTI (Rs mn) Target Price (Rs) 800.0 800.0 0%

We estimate 480bps margin hit over FY18-20 due to US protectionism, of which half would be recovered over 5 years. However, we also build higher growth in FY18 and FY19 based on feedback from channel checks. So our DCF-based target price is unchanged.

USD/ INR 65.4 65.4 65.4 68.0 68.0 68.0 -4% -4% -4%

Revenue (US$mn) 966 1,063 1,179 966 1,051 1,156 0% 1% 2%

EBIT 10,304 11,437 10,902 10,326 11,766 12,999 0% -3% -16%

EBIT margin 15.9% 16.5% 14.1% 16.2% 16.5% 16.5% -30bps 00bps -240bps

PAT 9,519 10,112 9,701 9,536 10,366 11,315 0% -2% -14%

EPS (Rs) 56.0 59.4 57.0 56.1 60.9 66.5 -0.2% -2.4% -14%

Persistent (Rs mn) Target Price (Rs) 550 550 0%

Persistent pays higher onsite salaries compared to other mid-sized peers like LTI and Mindtree, and so margin hit is only 60bps vs. 480bps to peers. Our DCF-based TP remains the same as we roll forward the estimates and factor in slightly higher margins in FY18.

USD/ INR 66.9 65.4 65.4 67.4 68.0 68.0 -1% -4% -4%

Revenue (US$mn) 431 471 511 433 478 519 0% -1% -1%

EBIT 2,985 3,359 3,633 2,968 3,443 3,937 1% -2% -8%

EBIT margin 10.4% 10.9% 10.9% 10.2% 10.6% 11.2% 20bps 30bps -30bps

PAT 2,999 3,317 3,543 2,986 3,380 3,770 0% -2% -6%

EPS (Rs) 37 41 44 37 42 47 0% -2% -6%

eClerx (Rs mn) Target Price (Rs) 1,315 1,425 -8%

We cut our EBIT estimates sharply over FY19-20 as the company plans to invest in senior and offsite hiring despite the poor revenue growth. Our DCF-based TP is reduced by 8% as we now factor in lower EBIT margins. No impact of US protectionism as 99% of all headcount is based in India.

USD/ INR 67.7 65.4 65.4 68.2 68.0 68.0 -1% -4% -4%

Revenue (US$mn) 194 195 218 194 195 218 0% 0% 0%

EBIT 4,109 4,010 4,660 4,301 4,410 4,941 -4% -9% -6%

EBIT margin 31.2% 31.0% 32.2% 32.5% 32.8% 32.9% -120bps -180bps -70bps

PAT 3,576 3,408 3,891 3,724 3,724 4,118 -4% -8% -6%

EPS (Rs) 86.6 82.6 94.3 90 90 100 -4.0% -8.5% -6%




Telecom Another disastrous quarter

In 4QFY17, incumbent telcos rolled out counter-offers to Jio’s aggressive data plans. This resulted in gradual revenue recovery from Dec’16 lows. The recovery is too feeble and QoQ/YoY revenues will continue to decline. Cost control measures won’t mitigate revenue pressures. Thus, Airtel/Idea will report a disastrous quarter with sharp 11%/50% YoY decline in operating profit. The rush to rollout data sites by Jio/incumbents will boost Infratel’s tenancies driving 10% revenue growth. Hence, Bharti Infratel should report the best results amongst telcos. Key things to watch out for during the quarter are: (i) ARPU trends like offtake of the Rs345-350 plan for incumbent telcos and impact on ARPU; currently, this is resulting in downtrading of higher ARPU data consumers. Will incumbents be able to encourage voice consumers to uptrade?; (ii) capex outlook for FY18; (iii) regulatory issues like merger permissions and recent regulatory intervention stalling Jio from offering freebies; (iv) consolidation in the towerco space.

Ambit vs consensus: Our 4QFY17 EPS estimates are in line with the limited estimates available on Bloomberg. Our FY18 estimates for Airtel/Idea are below consensus. For Bharti Infratel, our FY18 estimates are marginally ahead of consensus.

Key recommendations: Bharti Infratel (BHIN) is our Top BUY. We expect the company to be a key beneficiary of an inevitable towerco consolidation. This will enhance its bargaining power with telcos and correct its capital structure. Rather than hope for elusive market structure improvement benefits from telco consolidation (remain SELLers on Airtel/Idea), grab the easily available dividend yield (BHIN offers 4% FY18E dividend yield).

Stock Performance

(%) 3-month


Bharti Airtel 7 (5)

Bharti Infratel (4) (16)

Idea Cellular 19 7



Bharti Airtel 1.8 1.2

Bharti Infratel 3.8 3.8

Idea Cellular (2.4) (1.9)

FY18E EPS


Bharti Airtel 9.0 10.3

Bharti Infratel 16.3 16.1 Idea Cellular (5.8) (4.0)





Bharti Airtel

Sales (Rs mn) 230,618 249,831 233,639 -8% -1% Expect deteriorating trends in the Indian wireless business due to continuation of Jio's free offer

EBITDA (Rs mn) 81,180 91,357 85,097 -11% -5% Margin compression is a result of revenue headwinds

EBITDA margin (%) 35.2 36.6 36.4 -137bps -122bps

PBT (Rs mn) 16,327 23,164 15,860 -30% 3%

PAT (Rs mn) 7,347 13,195 5,037 -44% 46%

Bharti Infratel

Sales (Rs mn) 35,049 31,817 34,007 10% 3% Expect 8% YoY increase in rental income driven by tenancy growth due to RJio's aggresive capex

EBITDA (Rs mn) 15,562 14,495 14,801 7% 5% Given negative impact of Rs510mn on rental revenue owing to rental freeze, expect margins to remain under pressure EBITDA margin (%) 44.4 45.6 43.5 -116bps 88bps

PBT (Rs mn) 11,222 10,260 10,441 9% 7%

PAT (Rs mn) 7,096 7,184 6,204 -1% 14%

Hathway Cable

Sales (Rs mn) 83,609 94,839 86,627 -12% -3% Build in sharp deterioration of revenue metrics, especially in the data business, resulting in ARPU decline of 5% QoQ

EBITDA (Rs mn) 18,094 36,160 21,655 -50% -16% EBITDA compression led by slow revenue growth and sharp increase in network build-out costs and sales/advertising expenses EBITDA margin (%) 21.6 38.1 25.0 -1649bps -336bps

PBT (Rs mn) (13,890) 8,745 (6,087) NM NM

PAT (Rs mn) (8,713) 5,756 (3,839) NM NM







Bharti Airtel


We leave our estimates unchanged. The key reason for upgrading Airtel's target price is upgrading of our target price for Bharti Infratel (a subsidiary).

TP (Rs) 300 280 7%

Revenues (Rs bn) 1,049 1,130 1,049 1,130 0% 0%

EBITDA (Rs bn) 376 399 376 399 0% 0%


PAT (Rs bn) 36 51 36 51 0% 0%

EPS (Rs) 9.0 12.9 9.0 12.9 0% 0%

Bharti Infratel


We upgrade FY19E estimates for BHIN on the back of lesser-than-expected tenancy cuts for Idea-Vodafone.

TP (Rs) 375 355 6%

Revenues (Rs bn) 149 166 149 163 0% 2%

EBITDA (Rs bn) 66 76 66 72 0% 5%


PAT (Rs bn) 31 37 31 34 0% 7%

EPS (Rs) 16.3 19.3 16.3 18.0 0% 7%

Idea Cellular


No change to our estimates

TP (Rs) 90 90

Revenues (Rs bn) 394 429 394 429 0% 0%

EBITDA (Rs bn) 100 113 100 113 0% 0%

EBITDA margin (%) 25.4% 26.3% 25.4% 26.4% -3bps -3bps

PAT (Rs bn) (21) (11) (21) (11) NM NM

EPS (Rs) (5.8) (3.1) (5.8) (3.1) NM NM


Bharti Infratel: We upgrade our FY19E estimates for the company, incorporating the elimination of lower tenancy from the Idea-Vodafone merger. Both managements have outlined that redundant tenancies will be 20% of combined tenancies against our earlier estimate of 30% redundancies. Idea and Vodafone have also indicated that they will look to first cut tenancies on towers hosted by weak towercos and Indus will be least impacted. We upgrade our FY19E revenue and EBITDA estimates by 2% and 5% incorporating this in our numbers.

Bharti Airtel: Our valuation for Bharti Airtel changes as we upgrade Bharti Infratel’s target price. Our estimates for Airtel remain unchanged.



Utilities Growth in power generation has decelerated from 5% YoY in 3QFY17 to 3% YoY in 4QFY17 led by weak demand from discoms despite improvement in the financial health due to debt transfer/refinancing under UDAY. India’s thermal PLF declined 230bps YoY to 61.8%. Within our coverage, average PLF for NTPC was flat at 81.6%, Tata Power (TPL) improved by 400bps YoY to 86% and JSW Energy (JSWE) declined by 28ppts YoY to 59%. We expect all companies under our coverage, except Torrent, to report decline in PAT. PAT should decline by 14%/2%/87% YoY for NTPC/TPL/JSWE. The reasons being higher base for NTPC, increase in losses at Mundra for TPL and decline in PLF and average realisation for JSWE. Torrent should report PAT of Rs1.1bn versus Rs0.2bn in 4QFY16 led by lower base. NTPC (21% downside) is our top SELL and TPL (29% upside) is our top BUY. We retain SELL on JSWE and BUY on Torrent.

Ambit vs consensus: Currently there are no credible consensus estimates available for NTPC, TPL, Torrent and JSWE.

Recommendations

NTPC (SELL, TP Rs131/share, 21% downside)

NTPC’s competitive advantage as a low-cost producer has diminished given new plants are far from mines, FSA for plants commissioned after FY09 allows supply of domestic coal equivalent to ~70% PLF vs 85% PLF pre-2009. We expect NTPC’s new capacity addition to decelerate given India does not need additional power plants. Assuming demand CAGR of 6.4% over FY16-32 (0.8x correlation to GDP), decline in AT&C losses to 15% by FY32 and PLF rises to 85%, power capacity addition CAGR over FY16-32 should reduce to 4.2% vs 7.2% over FY01-16. We expect NTPC’s regulated RoE to be cut by 250bps for 2019-24 to 13% due to: (a) 200bps fall in G-Sec yield; and (b) 50bps cut in spread over G-Sec yield as Government wants to disincentivise fresh capacity additions. NTPC’s valuation would de-rate as capacity addition growth would plateau and RoE decline to 10%.

Tata Power (BUY, TP Rs112/share, 29% upside)

With ~18% surge in Indonesian prices since Oct’16 and Tata Power re-negotiating the terms of the agreement, we believe the stake sale plan in the Arutmin mine is likely to get expedited. If the deal goes through then we may upgrade our TP for Tata Power by ~6% to Rs117/share. We expect Tata Power to deleverage balance sheet by unlocking the value of its renewables and defence businesses. Our implied value for renewables portfolio is at 10x EV/EBITDA versus expected IPO valuation of 32x for Renew Power. Lastly, we expect Tata Power’s RoE to improve materially from -1%/9% in FY15/FY16 to 10%/15% in FY17/FY18 led by ramp-up in the investment in RoE lucrative Mumbai circle. Our SOTP-based value of Rs112/share ascribes Rs3/9 per share to Mundra/Bumi versus the CMP of Rs87/share.

Stock Performance

(%) 3-month


NTPC 2 (10)

Tata Power 13 1

JSW Energy 4 (8)

Torrent Power 29 1

March’17E Quarterly EPS


NTPC 2.8 NA

Tata Power 1.9 NA

JSW Energy 0.3 NA

Torrent Power 2.3 NA

FY18E EPS


NTPC 1 3.8 13.5

Tata Power 9.3 6.8

JSW Energy 4.3 6.1

Torrent Power 15.5 13.7




Company name Mar'17E Mar'16 Dec'16 YoY QoQ Comment

NTPC

Sales (Rs mn) 207,242 181,126 181,368 14% 14% Led by 12% growth in average realisation due to increase in fuel cost and 2% YoY growth in volumes

EBITDA (Rs mn) 53,619 54,541 50,253 -2% 7% Despite 6% YoY growth in installed capacity, we expect EBITDA to remain flat due to higher base impact (non-recurring expense reversal of Rs3.5bn in 4QFY16). EBITDA margin (%) 25.9% 30.1% 27.7% -420bps -180bps

PBT (Rs mn) 30,652 35,712 28,286 -14% 8% Led by 4%/15% YoY growth in depreciation/interest expenses PAT (Rs mn) 23,256 27,164 21,214 -14% 10%

Tata Power

Sales (Rs mn) 70,179 93,752 66,837 -25% 5% Decline in revenue and EBITDA due to changes in accounting under Ind AS; Tata Power is no longer consolidating financials from Indonesian mines

EBITDA (Rs mn) 15,707 21,644 15,551 -27% 1%

EBITDA margin (%) 22.4% 23.1% 23.3% -70bps -90bps

APBT (Rs mn) 3,750 5,937 2,432 -37% 54% Expect marginal PBT decline before accounting for share of profits from Indonesian mines given increase in fuel cost under-recoveries at Mundra

APAT (Rs mn) 5,027 5,127 4,984 -2% 1% APAT after accounting for share of profits from Indonesian mines

JSW Energy

Sales (Rs mn) 17,972 27,046 19,043 -34% -6%

Led by decline in Vijayanagar/Ratnagiri/Barmer's sales volume by 24%/52%/17% YoY in 4QFY16 due to weak demand. Moreover average realisation at Vijayanagar plant also down by 18% YoY to Rs3.6/unit

EBITDA (Rs mn) 6,759 11,609 6,575 -42% 3% Impact of lower revenue and ~9% YoY increase in average fuel cost to ~Rs2.3/unit EBITDA margin (%) 37.6% 42.9% 34.5% -530bps 310bps

APBT (Rs mn) 632 4,841 407 -87% 55% Trickle-down impact of lower EBITDA

APAT (Rs mn) 424 3,286 214 -87% 98%

Torrent Power

Sales (Rs mn) 24,430 24,812 23,267 -2% 5% Led by decline in true-up income by ~65% to Rs0.6bn

EBITDA (Rs mn) 6,187 4,988 5,863 24% 6% Led by lower base impact as employee cost/other expenses abnormally increased by 29%/32% YoY in 4QFY16 EBITDA margin (%) 25.3% 20.1% 25.2% 520bps 10bps

PBT (Rs mn) 1,519 385 1,221 294% 24% Trickle-down impact of higher EBITDA

PAT (Rs mn) 1,063 240 1,067 344% 0%





Rsmn unless specified New Estimates Old Estimates Change in estimates


Tata Power Recommendation BUY BUY TP (Rs) 112 111 1% Led by rollover of TP by 3 months

Revenues (Rs mn) 406,173 427,438 406,173 427,438 0% 0%

No Change

EBITDA (Rs mn) 98,810 102,031 98,810 102,031 0% 0%


PBT (Rs mn) 41,778 52,933 41,778 52,933 0% 0%

PAT (Rs mn) 25,256 32,571 25,256 32,571 0% 0%

EPS (Rs) 9.3 12.0 9.3 12.0 0% 0%

JSW Energy Recommendation SELL SELL

TP (Rs) 60 58 4% Led by rollover of TP by 3 months.

Revenues (Rs mn) 82,288 85,209 81,788 84,670 1% 1%

Marginal change in line with 4Q generation, imported coal and merchant prices trend

EBITDA (Rs mn) 34,201 36,974 33,701 36,435 1% 1%


PBT (Rs mn) 10,166 13,740 10,470 13,705 -3% 0%

PAT (Rs mn) 7,014 9,892 7,224 9,867 -3% 0%

EPS (Rs) 4.3 6.0 4.4 6.0 -3% 0%

Torrent Power Recommendation BUY BUY

TP (Rs) 257 227 13%

We increase the target multiple of Unosugen from 0.5x earlier to 2.0x given PPA sign-up for Unosugen looks nearly certain with the receipt of RLNG for Sugen

Revenues (Rs mn) 95,419 93,754 95,419 93,754 0% 0%

No change

EBITDA (Rs mn) 25,871 21,227 25,871 21,189 0% 0%


PBT (Rs mn) 10,791 6,419 10,791 6,418 0% 0%

PAT (Rs mn) 7,446 4,172 7,446 4,172 0% 0%

EPS (Rs) 15.5 8.7 15.5 8.7 0% 0%



Exhibit 37: Ambit Coverage Valuation Summary

Name Reco Mcap ADVT -

6m CMP TP Upside EPS (`) P/E (x) P/B (x) EV/EBITDA (x) ROE (%)

($ mn) ($ mn) (`) (`) (%) FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Automobiles Maruti Suzuki SELL 29,426 57.8 6,259 5,000 (20) 248 256 292 24 21 4.9 4.2 15 13 20 20 Tata Motors BUY 23,293 57.3 468 550 17 19 33 41 14 11 1.6 1.4 4 4 10 11 Bajaj Auto SELL 12,746 12.4 2,830 2,520 (11) 132 149 163 19 17 5.7 5.4 13 12 31 32 Mahindra & Mahindra SELL 12,329 21.3 1,276 1,300 2 61 68 79 19 16 2.6 2.3 13 11 14 14 Eicher Motors* SELL 10,928 19.9 25,807 19,000 (26) 614 720 793 36 33 10.9 8.6 19 17 38 32 Hero Motocorp SELL 9,993 22.1 3,215 3,000 (7) 170 185 202 17 16 6.0 5.2 11 10 34 33 Ashok Leyland BUY 3,703 14.9 84 94 13 4 5 6 17 15 3.3 2.9 10 9 19 20 TVS SELL 3,463 9.5 468 335 (28) 11 17 21 28 23 8.1 6.6 18 15 32 32 Exide Industries SELL 2,974 6.9 225 180 (20) 8 9 10 24 22 3.5 3.2 15 13 22 21 Amara Raja SELL 2,371 4.9 892 820 (8) 29 33 38 27 23 5.3 4.4 15 13 20 19 Balkrishna Inds SELL 2,097 11.1 1,394 840 (40) 75 81 87 17 16 3.2 2.7 11 10 20 18 Endurance Tech. BUY 1,752 1.3 800 790 (1) 24 30 37 27 21 5.2 4.3 13 11 22 22 Mahindra CIE BUY 1,278 0.5 217 235 8 5 8 10 26 22 3.2 2.8 13 11 12 14 Agri/Chemicals PI Inds BUY 1,781 2.4 832 1,100 32 31 34 42 24 20 6.8 5.6 17 14 30 31 SRF BUY 1,463 6.0 1,637 1,797 10 86 102 129 16 13 2.7 2.4 10 8 1,810 2,035 Rallis India SELL 752 1.2 248 175 (30) 15 11 12 23 20 4.1 3.6 14 13 18 19 Vinati Organics BUY 583 0.5 726 800 10 29 36 44 20 16 4.3 3.4 13 10 24 23 Aviation Interglobe Aviation SELL 5,844 5.0 1,039 760 (27)

41 58 67

18 16

9.1 6.6

11 10

60 49

Capital Goods BHEL SELL 6,658 16.0 175 128 (27) 5 8 9 23 19 1.2 1.2 14 11 5 6 Cummins SELL 4,171 3.3 967 610 (37) 28 30 36 32 27 6.6 5.7 27 24 22 22 Thermax SELL 1,811 0.8 976 648 (34) 22 28 32 34 31 4.2 3.8 21 20 13 13 Inox Wind SELL 640 1.2 185 203 10 23 17 19 11 10 2.1 2.2 8 7 20 22 Greaves Cotton BUY 633 1.0 167 205 23 8 10 12 17 14 3.9 3.4 12 10 24 25 Cement

UltraTech SELL 17,434 20.0 4,081 3,170 (22) 109 120 156 34 26 4.3 3.8 18 15 13 15 Shree Cement SELL 9,665 4.4 17,826 14,500 (19) 720 917 1,121 19 16 4.4 3.7 20 16 25 25 Ambuja Cement* SELL 7,492 9.2 242 244 1 5 6 8 42 32 2.1 2.1 17 13 5 7 ACC* SELL 4,290 9.0 1,468 1,340 (9) 35 52 62 28 24 3.0 2.9 14 12 11 12 Dalmia Bharat BUY 2,994 2.2 2,162 2,172 0 22 58 100 37 22 4.4 3.8 12 10 11 17 Orient Cement BUY 456 0.9 143 190 33 (1) 7 14 21 10 2.6 2.1 9 6 13 23




($ mn) ($ mn) (`) (`) (%) FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Consumer Goods/FMCG ITC BUY 51,543 47.2 273 303 11 9 10 12 26 23 8.4 7.6 18 15 34 35 Hind. Unilever BUY 31,140 16.8 925 990 7 19 22 28 42 33 70.1 80.5 30 25 152 228 Nestle India * SELL 9,933 4.0 6,620 5,800 (12) 106 120 144 55 46 20.6 19.7 31 26 38 44 Godrej Consumer SELL 9,009 5.2 1,700 1,060 (38) 37 38 44 44 39 8.2 7.0 30 27 20 20 Dabur India SELL 7,742 6.4 282 245 (13) 7 8 10 35 30 9.0 7.9 29 25 27 29 Britannia Inds SELL 6,270 8.6 3,357 2,800 (17) 69 79 97 42 35 30.4 24.9 27 23 39 40 Marico Inds SELL 6,026 5.9 300 250 (17) 6 7 8 41 36 14.0 12.1 29 25 36 37 United Spirits BUY 4,558 12.9 2,024 2,575 27 22 34 49 60 41 11.3 8.9 3 2 21 24 Colgate Palmolive SELL 4,280 5.6 1,011 825 (18) 22 26 31 39 33 20.5 17.7 24 21 56 58 GSK Consumer SELL 3,403 2.6 5,199 4,820 (7) 159 177 201 29 26 6.9 6.1 26 23 25 25 United Breweries SELL 3,155 3.5 770 625 (19) 11 10 14 78 55 7.9 7.1 0 0 11 14 Hatsun Agro BUY 1,269 0.1 536 530 (1) 9 14 18 39 31 15.7 11.6 18 14 48 44 Consumer Discretionary Titan SELL 6,706 10.8 485 442 (9) 9 12 13 42 36 9.5 8.3 28 24 24 24 Page Inds BUY 2,485 2.7 14,314 16,782 17 241 319 410 45 35 25.5 20.3 29 23 47 50 Aditya Birla Fashion BUY 1,919 1.6 160 175 9 - - - N/A N/A 12.2 10.4 28 21 6 16 Arvind SELL 1,591 12.9 396 311 (21) 13 20 27 20 15 2.2 1.9 10 8 12 14 Trent BUY 1,385 1.2 268 248 (7) 5 7 9 40 29 0.5 0.4 27 20 13 16 Bata India SELL 1,115 3.9 558 370 (34) 13 15 18 36 31 5.1 4.6 21 19 15 16 PVR BUY 1,114 3.4 1,531 1,594 4 21 38 57 40 27 6.1 5.0 16 13 16 20 Jubilant Foodworks SELL 1,067 10.3 1,040 879 (15) 13 18 26 57 40 7.6 6.7 21 16 14 18 Wonderla BUY 340 0.3 387 515 33 7 12 16 33 25 4.5 3.9 18 14 14 17 Eng, Construction & Infra L&T SELL 24,472 36.3 1,686 1,375 (18) 61 67 77 25 22 3.0 2.8 18 17 12 13 Bharat Electronics BUY 5,828 11.6 168 177 6 7 7 8 24 21 4.1 3.6 17 15 18 18 NBCC SELL 2,481 5.7 177 117 (34) 4 5 7 38 26 8.4 7.3 30 21 24 30 AIA Engineering BUY 2,273 1.5 1,549 1,600 3 50 56 72 28 22 2.5 2.2 20 15 19 22 Engineers India SELL 1,574 10.6 150 120 (20) 5 7 9 21 17 3.5 3.4 16 12 17 20 Sadbhav BUY 845 0.6 317 335 6 0 7 11 48 29 3.2 3.0 9 8 7 11 Techno Electric BUY 701 0.7 395 415 5 17 22 27 18 15 3.4 2.9 13 11 20 21 VA Tech BUY 574 1.6 676 620 (8) 16 31 37 22 18 3.1 2.8 11 10 15 16 Sadbhav Infra BUY 550 0.1 100 130 29 (6) (2) (0) N/A N/A 3.0 2.6 11 10 0 0 Healthcare

Lupin BUY 9,909 22.8 1,410 1,871 33 67 80 104 18 14 3.8 3.1 12 9 24 25 Cipla SELL 7,387 11.5 590 525 (11) 18 27 34 22 17 3.1 2.7 14 11 15 17 Cadila Healthcare BUY 7,256 7.0 455 500 10 12 21 26 22 18 5.9 4.7 15 13 30 30 Dr. Reddy's Labs SELL 6,862 18.6 2,661 2,386 (10) 89 95 121 28 22 2.9 2.6 16 13 11 12 Torrent Pharma BUY 3,832 7.7 1,455 1,706 17 64 75 91 19 16 4.9 4.0 14 12 28 28 Ajanta Pharma SELL 2,359 4.9 1,723 1,454 (16) 57 55 73 31 24 7.8 6.1 21 17 27 29


Name

Reco

Mcap

ADVT -

6m

CMP

TP

Upside

EPS (`)

P/E (x) P/B (x)

EV/EBITDA (x) ROE (%)

($ mn) ($ mn) (`) (`) (%) FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Home Building

Asian Paints SELL 16,166 20.9 1,083 835 (23) 19 21 25 52 44 14.8 13.2 34 29 29 32 Pidilite BUY 5,650 5.4 708 830 17 16 19 23 37 31 9.1 7.8 25 20 26 27 Havells UR 4,584 9.7 471 UR N/A - - - - - - - - - - - Berger Paints SELL 3,593 2.9 238 190 (20) 4 5 6 49 39 11.5 10.0 30 24 25 27 Supreme Inds# UR 2,145 1.2 1,085 UR N/A - - - - - - - - - - - Crompton Consumer SELL 2,097 3.5 215 134 (38) 5 6 7 38 31 20.1 16.4 24 20 59 58 Finolex Cables UR 1,226 0.6 515 UR N/A - - - - - - - - - - - V-Guard SELL 1,203 2.1 182 109 (40) 4 4 5 42 34 10.7 8.8 30 25 28 28 Century Ply BUY 899 1.0 260 270 4 8 10 13 26 20 6.6 5.2 14 11 28 29 Bajaj Electricals BUY 541 1.4 343 351 2 13 14 20 24 17 3.6 3.1 12 9 16 19 Media

Zee SELL 8,185 16.8 548 405 (26) 12 16 25 34 22 6.3 5.3 22 16 20 26 Dish TV BUY 1,655 9.3 100 117 17 1 2 3 50 36 14.7 10.4 10 9 35 34 Hathway SELL 461 0.5 36 28 (22) (3) (2) (2) N/A N/A 4.8 6.7 9 7 (27) (34) Metals & Mining

Coal India BUY 27,426 20.3 284 345 22 18 22 25 13 11 7.3 8.2 9 8 53 67 Tata Steel SELL 7,455 42.3 493 275 (44) 18 33 42 15 12 1.4 1.3 7 7 9 11 Hindalco Inds SELL 6,755 36.5 194 100 (48) 15 18 23 11 8 0.9 0.8 8 7 8 10 SAIL SELL 4,261 6.4 66 37 (45) 0 2 3 39 21 0.6 0.6 13 10 2 3 NALCO SELL 2,217 2.8 74 37 (49) 3 4 4 20 18 1.3 1.3 7 7 7 7 Oil & Gas

IOCL BUY 30,028 25.8 397 458 15 40 40 39 10 10 2.1 1.9 6 6 22 19 BPCL BUY 15,200 26.6 675 848 26 56 59 56 12 12 2.5 2.2 7 7 26 22 GAIL SELL 10,177 23.3 387 470 22 32 35 43 11 9 1.3 1.1 9 8 12 13 HPCL SELL 8,471 29.4 536 561 5 47 40 42 13 13 2.3 2.0 9 8 18 17 Petronet LNG BUY 4,769 12.8 409 476 16 22 25 30 16 14 3.4 2.8 10 9 22 23 Indraprastha Gas BUY 2,163 10.2 993 1,150 16 39 47 55 21 18 4.9 4.5 12 10 24 26 Gujarat State Petronet BUY 1,399 1.5 160 180 13 9 10 12 15 13 2.0 2.0 8 8 13 15 Mahanagar Gas SELL 1,360 3.0 885 875 (1) 41 45 48 20 18 4.3 3.8 12 11 24 22 Power Utilities

NTPC SELL 21,590 12.4 168 131 (22) 11 14 15 12 11 1.3 1.2 9 9 11 11 Power Grid Corporation SELL 15,876 16.1 195 210 8 15 17 19 12 10 1.9 1.7 8 8 17 17 Tata Power BUY 3,683 5.9 88 112 28 6 9 12 9 7 1.3 1.1 6 6 15 16 Torrent Power BUY 1,718 2.9 230 257 12 8 15 9 15 26 1.3 1.2 7 9 9 5 JSW Energy SELL 1,691 4.2 66 60 (10) 4 4 6 15 12 1.2 1.1 7 6 8 11




($ mn) ($ mn) (`) (`) (%) FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Software/Tech TCS BUY 74,487 49.5 2,429 2,750 13 135 140 147 17 17 4.8 4.2 12 12 30 27 Cognizant SELL 35,319 4.9 58 38 (35) 3 3 2 21 24 2.2 1.9 11 13 12 9 Infosys BUY 35,087 62.2 982 1,100 12 62 63 63 15 16 3.2 2.9 12 12 22 20 Wipro SELL 19,366 11.3 512 430 (16) 34 34 35 15 15 2.3 2.1 9 9 16 15 HCL# SELL 18,653 22.2 849 770 (9) 58 62 46 14 18 3.6 3.3 9 12 29 26 Tech Mahindra BUY 6,719 24.5 443 540 22 34 37 37 12 12 2.3 2.0 8 8 20 18 L&T Infotech BUY 1,887 0.7 711 800 13 56 59 57 12 12 4.0 3.3 9 9 36 28 Mindtree SELL 1,168 4.7 447 435 (3) 26 32 32 14 14 5.5 5.5 8 8 21 19 Eclerx SELL 864 0.8 1,396 1,315 (6) 87 83 94 17 15 3.2 2.7 11 9 21 18 Persistent Systems SELL 709 1.0 570 550 (3) 37 41 44 14 13 2.2 2.0 8 7 17 15 Telecom Bharti Airtel SELL 21,444 22.0 345 300 (13) 6 9 13 38 27 2.0 1.9 7 6 5 7 Bharti Infratel BUY 10,006 32.1 348 375 8 15 16 19 21 18 3.4 3.3 9 8 16 19 Idea Cellular SELL 4,915 35.9 88 90 3 (3) (6) (3) N/A N/A 1.4 1.5 8 7 (9) (5) Banks/Financial Services HDFC Bank SELL 57,381 52.5 1,439 1,123 (22) 57 63 74 23 19 3.8 3.3 N/A N/A 18 18 HDFC SELL 36,709 55.6 1,485 1,122 (24) 45 47 50 32 30 5.6 5.1 N/A N/A 19 18 SBI SELL 35,917 71.6 289 248 (14) 13 16 22 18 13 1.4 1.3 N/A N/A 8 10 ICICI Bank SELL 25,143 79.0 277 250 (10) 17 16 22 17 13 1.6 1.5 N/A N/A 9 12 Kotak Mahindra Bank SELL 25,014 29.2 873 509 (42) 26 30 37 29 24 3.8 3.3 N/A N/A 13 15 Axis Bank SELL 18,791 71.1 504 510 1 15 26 47 19 11 2.0 1.7 N/A N/A 11 17 IndusInd Bank SELL 13,146 26.2 1,412 1,170 (17) 48 56 69 25 21 3.7 3.2 N/A N/A 16 17 Bajaj Finance SELL 10,282 23.4 1,202 603 (50) 33 39 48 31 25 5.9 4.9 N/A N/A 21 22 Bank of Baroda SELL 6,048 27.1 169 181 7 8 19 25 9 7 0.9 0.9 N/A N/A 11 13 Punjab National Bank SELL 4,949 24.5 149 113 (24) 8 11 12 14 13 0.8 0.7 N/A N/A 6 6 LIC HFC SELL 4,911 22.0 625 434 (31) 38 37 45 17 14 2.6 2.3 N/A N/A 17 17 SHTF SELL 3,842 12.8 1,088 944 (13) 61 73 89 15 12 1.9 1.7 N/A N/A 14 15 MMFS SELL 2,968 12.4 335 255 (24) 10 13 17 26 19 2.7 2.5 N/A N/A 11 13 CIFC SELL 2,443 5.6 1,005 1,070 7 46 53 65 19 15 3.1 2.7 N/A N/A 18 19 Federal Bank SELL 2,356 12.4 88 60 (31) 5 5 7 16 13 1.6 1.5 N/A N/A 10 12 SCUF SELL 2,327 1.9 2,267 2,185 (4) 102 102 163 22 14 2.6 2.3 N/A N/A 13 18 Bank of India SELL 2,316 8.0 141 63 (55) (6) 7 18 19 8 0.5 0.5 N/A N/A 3 6 Motilal Oswal UR 1,725 1.1 767 UR NA - - - - - - - N/A N/A - - Union Bank of India SELL 1,624 11.5 152 108 (29) 9 15 17 10 9 0.5 0.5 N/A N/A 5 5 City Union Bank SELL 1,431 1.9 153 141 (8) 9 9 11 16 14 2.3 2.1 N/A N/A 15 16 Karur Vysya Bank SELL 1,070 2.1 114 87 (23) 8 9 10 13 12 1.3 1.2 N/A N/A 10 11 Equitas SELL 869 3.1 165 134 (19) 5 5 8 31 21 2.3 2.1 N/A N/A 2 2 Ujjivan Financial Services SELL 731 7.0 393 289 (27) 19 13 16 31 25 2.4 2.2 N/A N/A 2 2 South Indian Bank SELL 607 2.8 22 18 (18) 3 3 4 7 6 0.7 0.6 N/A N/A 11 11 Magma SELL 448 1.0 121 99 (18) 2 11 14 11 9 1.2 1.1 N/A N/A 11 13 Source: Bloomberg, Ambit Capital research, Note: N/A indicates Field Not Applicable, UR - Under Review *- December ending, #-June ending, All values for Cognizant are in US$



Institutional Equities Team Saurabh Mukherjea, CFA CEO, Ambit Capital Private Limited (022) 30433174 [email protected] Pramod Gubbi, CFA Head of Equities (022) 30433124 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 30433241 [email protected] Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected] Abhishek Ranganathan, CFA Retail / Consumer Discretionary (022) 30433085 [email protected] Anuj Bansal Consumer (022) 30433122 [email protected] Aditi Singh Economy / Strategy (022) 30433284 [email protected] Ashvin Shetty, CFA Automobiles / Auto Ancillaries (022) 30433285 [email protected] Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected] Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected] Gaurav Khandelwal, CFA Automobiles / Auto Ancillaries (022) 30433132 [email protected] Girisha Saraf Home Building (022) 30433211 [email protected] Karan Khanna, CFA Strategy (022) 30433251 [email protected] Mayank Porwal Retail / Consumer Discretionary (022) 30433214 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected] Paresh Dave, CFA Healthcare (022) 30433212 [email protected] Parita Ashar, CFA Cement / Metals / Aviation (022) 30433223 [email protected] Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected] Rahil Shah Banking / Financial Services (022) 30433217 [email protected] Ravi Singh Banking / Financial Services (022) 30433181 [email protected] Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected] Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected] Sagar Rastogi Technology (022) 30433291 [email protected] Sudheer Guntupalli Technology (022) 30433203 [email protected] Sumit Shekhar Economy / Strategy (022) 30433229 [email protected] Utsav Mehta, CFA E&C / Infrastructure (022) 30433209 [email protected] Vivekanand Subbaraman, CFA Media / Telecom (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 [email protected] Dharmen Shah India / Asia (022) 30433289 [email protected] Dipti Mehta India (022) 30433053 [email protected] Krishnan V India / Asia (022) 30433295 [email protected] Nityam Shah, CFA Europe (022) 30433259 [email protected] Punitraj Mehra, CFA India / Asia (022) 30433198 [email protected] Shaleen Silori India (022) 30433256 [email protected]

Singapore

Praveena Pattabiraman Singapore +65 6536 0481 [email protected] Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola – CEO Americas +1(646) 793 6001 [email protected] Hitakshi Mehra Americas +1(646) 793 6002 [email protected] Achint Bhagat, CFA Americas +1(646) 793 6752 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected] Sharoz G Hussain Production (022) 30433183 [email protected] Jestin George Editor (022) 30433272 [email protected] Richard Mugutmal Editor (022) 30433273 [email protected] Nikhil Pillai Database (022) 30433265 [email protected]

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Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

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