1 August 2017

Motilal Oswal values your support in the

Asiamoney Brokers Poll 2017 for India

Research, Sales and Trading team.

We

request your ballot.

Today’s top research idea

Shilpa Medicare (Initiating Coverage): Injecting growth

Product approvals, superior execution to drive earnings; Buy with TP of 805

v

We believe that Shilpa Medicare (SLPA) is on cusp of strong growth in earnings led

by product approvals in US market. From just an API player, it has forward

integrated and transformed itself into formulator with revenue rising from from

nil till 9MFY17 to Rs3.3b in FY19E. The products are majorly in oncology space

with 23 ANDAs pending for approval.

v

We expect its base business (CRAMS), which currently forms 52% of total sales, to

remain stable and sustainable with 13% CAGR over FY17-20. We value SLPA at a

premium valuation of 25x 12M forward earnings due to strong growth visibility

from US market, backed by healthy product pipeline, which would also support

margins improvement. We initiate with

Buy

rating and target price of INR805.

Market snapshot

Equities - India

Close

Chg .%

Sensex

32,515

0.6

Nifty-50

10,077

0.6

Nifty-M 100

18,515

0.2

Equities-Global

Close

Chg .%

S&P 500

2,470

-0.1

Nasdaq

6,348

-0.4

FTSE 100

7,372

0.0

DAX

12,118

-0.4

Hang Seng

10,828

0.7

Nikkei 225

19,925

-0.2

Commodities

Close

Chg .%

Brent (US$/Bbl)

52

1.0

Gold ($/OZ)

1,268

0.7

Cu (US$/MT)

6,336

0.6

Almn (US$/MT)

1,896

0.6

Currency

Close

Chg .%

USD/INR

64.1

-0.1

USD/EUR

1.2

0.2

USD/JPY

110.6

-0.6

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.5

0.0

10 Yrs AAA Corp

7.5

0.0

Flows (USD b)

31-Jul

MTD

FIIs

-0.2

0.4

DIIs

0.3

1.0

Volumes (INRb)

31-Jul

MTD*

Cash

324

301

F&O

3,386

5,806

Note: YTD is calendar year, *Avg

YTD.%

22.1

23.1

29.0

YTD.%

10.3

17.9

3.2

5.5

15.3

4.2

YTD.%

-5.8

9.3

14.7

11.3

YTD.%

-5.5

11.2

-5.5

YTDchg

0.0

0.0

YTD

8.8

4.3

YTD*

288

5,041

Research covered

Cos/Sector

Shilpa Medicare

Financials

Pidilite Inds

Godrej Consumer

Shree Cement

Siemens

Interglobe

Tech Mahindra

LIC Housing Fin.

Shriram Trans.

Torrent Pharma.

Coromandel Intl

GE T&D India

Hexaware Tech.

Equitas Holdings

Automobiles

Metals Weekly

Results Flash

Results Expectation

Key Highlights

(INITIATING COVERAGE): Injecting growth

SBIN cuts SA deposits rate, other banks likely to follow suit

Focus on double-digit volume growth

Price hike-led sales growth in India, Indonesia drags international performance

EBITDA beat driven by better realization and lower other expenses

In-line operational performance; expensive valuations warrant Neutral

EBITDAR above est. led by higher yields and lower fuel cost

Significant 1Q beat drives 9.5% FY18 earnings upgrade

Under pressure

Strong quarter; Reaping the benefits on cost of funds

Weak revenue; margins remain stable

Strong performance; better monsoon to aid growth

Operating performance above expectations; Maintain Neutral

Beat-and-raise as revenue momentum continues

Steady shift to secured products; at PAR delinquencies in MF up marginally

Industry witnesses inventory build-up to meet festive demand

Steel and its input prices moving up across the world

BHE | CCRI | RADIOCIT

JSTL| MRCO | PWGR | SCUF

Piping hot news

SBI reduces savings rate, sets stage for RBI rate cut

v

State Bank of India (SBI) cut the interest rate on savings accounts with balance

of up to Rs1 crore by 50 basis points to 3.5%—the first time the key rate…

Chart of the Day: Shilpa Medicare - Injecting growth

Potential for US revenue to grow at strong rate

Research Team (Gautam.Duggad@MotilalOswal.com)

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

In the news today

Kindly click on textbox for the detailed news link

1

Crackdown on power theft by

Yogi Adityanath government

gives rise to UP electricity bill

collection by 28.5 pct

2

The appointment of an insolvency resolution professional (IRP) for

Nagarjuna Oil Corporation Ltd (NOCL) by the Chennai Bench of the

National Company Law Tribunal (NCLT) is expected to help the company

revive its refinery project in Tamil Nadu. NOCL’s 6-million-tonne refinery

on the east coast of Tamil Nadu was supposed to be commissioned in 2012

at a cost of about Rs 3,500 crore, but cyclone Thane stalled it…

NCLT order may help revive Nagarjuna Oil's TN refiner

Uttar Pradesh witnessed a 28.5%

rise in electricity bill collection in

the first quarter of FY18.

Collection in the April-June period

by Uttar Pradesh utilities was Rs

7,822 crore…

3

Boeing expects India orders

worth $290 billion over next

20 years

American plane maker Boeing Co.

has upgraded its India demand

forecast and now expects airlines

in the world’s fastest growing

aviation market to order as many

as 2,100 planes worth $290 billion

over the next 20 years…

4

Infosys, TCS, Tech Mahindra

see workforce shrink for the

first time

The $154 billion Indian

information technology (IT) sector,

once India’s largest creator of

jobs, is now struggling to even add

to its workforce. For the first time,

three of the five largest IT

companies saw their workforce

shrink in the quarter ended 30

June…

5

Snapdeal to lay off 950 to 1000

employees; no merger with

rival Flipkart

Beleaguered e-retailer Snapdeal

said on Monday a proposed deal

to merge with rival Flipkart had

been called off. The e-commerce

firm will, nevertheless, continue to

operate as a smaller entity by

laying off close to 950-1,000

staffers, company executives told

FE…

6

State electricity boards hurting

renewable power by reneging

on contracts

Rapidly falling prices of renewable

power, under normal

circumstances, should help the

government achieve its 2022

target of 175GW on such

electricity from both wind and

solar sources —by then, hopefully,

improvements in storage

technology will also make …

1 August 2017

7

Birla Corporation planning to

invest around Rs 2400 crore to

set up cement plant in

Maharashtra

M P Birla Group company Birla

Corporation on Monday said it is

planning to invest around Rs 2,400

crore for setting up a greenfield

cement manufacturing plant in

Maharashtra...

2

Shilpa Medicare

BSE Sensex

32,310

S&P CNX

10,015

Initiating Coverage | Sector: Healthcare

CMP: INR646

Rs

TP: INR805(+24%)

Buy

Injecting growth

n

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

SLPA IN

80

787 / 517

-2/-25/-4

57.1

0.8

43

45.3

Product approvals, superior execution to drive earnings

Shilpa Medicare (SLPA) has been engaged in the manufacture of active

pharmaceutical ingredients (APIs) since 1987. However, over a period of time, it

has shifted its focus toward creating a niche in pharmaceutical manufacturing. In

the process, it has developed a strong capability in manufacturing oncology APIs

and formulations. Besides this, SLPA is investing in novel drug delivery systems

(NDDS) and biotechnology.

We believe that SLPA is well poised to deliver robust earnings growth over the

next 2-3 years, led by the commencement of sales in the US market and the

introduction of more products in the EU market.

In our view, SLPA has the necessary manufacturing capacity and the US FDA

clearances to succeed in both APIs and formulations. It has done well on the

compliance part in recent past. The company also has a healthy pipeline of ~23

pending ANDAs (owned and for partners combined).

We expect its base business (custom synthesis) to remain stable following two

years of strong growth, as volume off-take by ICE (JV partner) has reached a

steady base.

The five-year average P/E for SLPA stands at 21x. P/E multiples for many pharma

companies are lowered due to slowdown in the US business on account of

regulatory hurdles/pricing pressure in the base business. However, we value SLPA

at a premium valuation of 25x 12M forward earnings due to strong growth

visibility from the US market, backed by a healthy product pipeline, which would

also support margins improvement. We expect US sales (just started in 4QFY17) to

increase to INR3.3b by FY19, with potential to grow 50% YoY in FY20 as well. On

overall basis, we expect revenue and PAT CAGR of 29% and 41%, respectively,

over FY17-20E.

We thus initiate coverage on SLPA with a Buy rating and a price target of INR805

on 12M forward earnings.

n

Financial Snapshot (INR m)

Y/E Mar

FY17 FY18E

Net Sales

7,836 10,682

EBITDA

1,754 2,457

PAT

1,123 1,689

EPS (INR)

14.0 21.1

Gr. (%)

6.2 50.5

BV/Sh (INR)

114.4 134.3

P/E (x)

46.2 30.7

P/BV (x)

5.7

4.8

RoE (%)

14.4 17.0

RoCE (%)

11.5 12.9

FY19E

14,028

3,507

2,435

30.4

44.2

163.1

21.3

4.0

20.4

16.4

n

n

n

Shareholding pattern (%)

As On

Mar'17 Dec'16 Sep'16

Promoter

54.7

54.7

56.9

DII

0.1

0.1

0.1

FII

30.0

26.0

15.2

Others

15.2

19.2

27.8

FII Includes depository receipts

n

Shilpa Medicare

Injecting growth

Superior execution in US market to drive sales and PAT

n

n

JV formation secures base business of CRAMS

Tushar Manudhane

+

91 22 3010 2498

n

n

With capex in APIs/formulations already behind and regulatory clearances in

place for both these businesses, we expect strong revenue and profit

growth over the next 2-3 years. SLPA has about 26 DMFs and 25 ANDAs filed

till date.

There are already two ANDA approvals in place, and the company has a

healthy pipeline of ~23 ANDAs awaiting approvals. We expect SLPA to grow

its revenues in the US market from nil in December 2016 (no business until

then) to ~INR3.3b in FY19, subject to product approvals.

The base business (custom synthesis) has witnessed strong 37% revenue CAGR.

It constituted ~60% of FY16 sales due to higher off-take by JV partner, ICE.

The shift of this business to the JV in December 2016 and the doubling of

capacity under this JV might curtail revenues due to a change in accounting.

However, profit would rise with greater consolidated-level efficiency.

3

tushar.manudhane@motilaloswal.com

1 August 2017

Stock Performance (1-year)

Capex in progress for future growth

n

SLPA has guided for further INR4.5b capex over two years toward R&D,

enhancing API/formulation capacities and investing in bio-similars. This would

strengthen its foundation for future growth.

Valuation and view

n

n

n

n

Many pharma companies have been de-rated over the past year due to

slowdown in the US business on account of regulatory woes/pricing pressure on

the base business. However, we value SLPA at 25x FY19E earnings, given strong

growth visibility over FY17-19E, backed by approved products and a strong

pipeline pending approvals. The US product pipeline has the potential to drive

US revenue growth of ~45% YoY in FY20 as well. Relatively superior margin from

the US business would also improve overall margin for SLPA.

We expect sales, EBITDA and PAT CAGR of 29%, 36% and 41% to INR16.8b,

INR4.3b and INR3b, respectively, over FY17-20E. Assuming PAT growth and

improving return ratios, we value SLPA at 25x 12M forward earnings. We thus

initiate coverage on the stock with a

Buy

rating and a price target of INR805.

At CMP of INR647, SLPA trades at 30.7x FY18E EPS of INR21.1 and 21.3x FY19E

EPS of INR30.4.

Our sensitivity analysis indicates downside of 9.9% in bear case, upside of 24.8%

in base case and 65% in bull case from the current levels.

Risks

n

n

n

n

Delay in approval for its products

Longer-than-expected time taken to execute in terms of manufacturing and

selling

Higher-than-expected competition for its key products

Any untoward outcome of future regulatory inspections, which may have an

impact on existing business and/or future product approvals

1 August 2017

4

Sector Update | 31 July 2017

Financials

SBIN cuts SA deposits rate, other banks likely to follow suit

Expect reduction in cost of deposits by ~15bp and higher PBT benefit

n

n

n

n

The State Bank of India (SBIN) has lowered the rate on savings deposits up to INR10m

by 50bp to 3.5% from the existing rate of 4%. According to management, savings

accounts with balances of INR10m and below contribute ~90% of overall savings

deposits for the bank, and thus, the cut in rates could lead to interest savings of

INR44.5b on annualized basis (21% of estimated FY18 PBT).

In our view, other banks are likely to follow suit, which should lead to FY18E interest

cost savings of ~INR136b for the banking sector. In our view, 80% of system SA

deposits are below INR10m.

While banks with low RoA and high SA balance (PSU banks) are likely to be the key

beneficiaries of the same, MCLR cuts in the ensuing quarters cannot be ruled out,

thereby likely negating the benefit of SA rate cut.

Among the high SA balance banks under our coverage, we like HDFCB, SBIN and

ICICIBC. We expect the emerging private banks to be more aggressive now to mobilize

SA deposits. These banks now will have greater headroom to cut rates without losing

the customer. We like YES and KMB among the emerging names.

SA rate cut – a step in the right direction…

As of FY17, total system deposits of ~INR106t include ~INR34t of savings deposits.

Assuming ~80% of SA deposits have balances of INR10m and below, total interest

savings (assuming all banks cut SA rates) would amount to ~INR136b for FY18. In our

view, for SBI, the 50bp SA rate cut would lower cost of deposits/cost of funds by

~15bp for FY18, leading to FY18 PBT/PAT uptick of INR44.5b (+21%)/INR31b (+21%)

and RoA/RoE uptick of 9bp/160bp from our present estimate of 0.43%/8%.

…however, PBT impact will be partially offset by MCLR cut

A reduction in savings rates will also bring down marginal cost of funds, leading to a

reduction in MCLR for banks with a lagged effect. This should lower yields and partly

offset interest cost savings due to a reduction in cost of deposits, thereby fading the

positive impact on PBT/PAT.

Prefer SBIN, ICICIBC and HDFCB among large banks

Among the high SA balance banks in our coverage universe, we like HDFCB, SBIN and

ICICIBC. We expect the emerging private banks to be more aggressive now to

mobilize SA deposits. These banks will also now have greater headroom to cut rates

without losing the customer. Our back-of-the-envelope calculation suggests that the

large private banks (if not passed on) could see profit upgrade of 2-3% from a 50bp

cut in SA deposits rate. PSU bank profit upgrade could be 15%.

Exhibit 1:

Bank-wise market share of total and SA deposits

FY17 data (INRb)

System

SBI

20,448

7,639

37.4

22.5

19.3

90

PNB

6,217

2,142

34.4

6.3

5.9

90

9

170

BoB

6,017

1,510

25.1

4.4

5.7

90

7

137

Kotak

HDFC Bank ICICI Bank Axis Bank Mahindra YES Bank IndusInd

Bank

6,436

4,900

4,144

1,574

1,429

1,266

1,936

1,718

1,260

415

328

270

30.1

35.1

30.4

26.4

22.9

21.4

5.7

5.1

3.7

1.2

1.0

0.8

6.1

4.6

3.9

1.5

1.3

1.2

75

75

75

60

60

60

5

7

5

7

4

3

51

55

59

44

32

26

Source: MOSL, Company

Total deposits

1,06,199

SA deposits

33,939

% of SA deposits

32.0

SA market share

Deposits market share

% of SA deposits < INR10m

Impact on RoA (bp)

Impact on RoE (bp)

1 August 2017

5

C

orner

O

ffice

the

Interaction with the CEO

31 July 2017

Focus on double-digit volume growth

All-time high adhesives margins a near-term risk

n

Pidilite Industries

n

n

Pidilite Industries (PIDI) is cautious on near-term performance, given GST implementation.

While it might take a month or so to assess the impact of GST, PIDI perceives it as a

positive reform for the Adhesives industry.

Underlying demand remains healthy, and during our meeting, Mr Puri reiterated time and

again PIDI’s long-term target of delivering double-digit volume growth. He also reiterated

that current margins are unsustainable, prioritizing volumes over margins.

While he highlighted the attractive long-term opportunity in a variety of categories, PIDI

does not intend to enter Paints unless it gets a disruptive proposition. The company has a

strategy of deriving 2/3rd growth from “Growth” and “Pioneer” categories and the

remaining 1/3rd from “Core” categories. It will continue to expand reach and make

significant investments in R&D to build a strong foundation for multiple years of growth.

Our view: Its track record of consistent delivery on volumes and profits drives our preference

for PIDI. We prefer PIDI to Asian Paints (both NEUTRAL-rated stocks), as return ratios have

converged – Asian Paints’ RoCE has come off from mid-40s to late 20s in five years while its

valuations have expanded. Even fixed asset turns are similar now. Asian Paints’ growth

moderation over the last 3-4 years also makes it relatively unattractive.

Prioritizing volumes over margins

PIDI is prioritizing volume growth over margins. During our meeting, Mr Puri

emphasized the company’s overarching focus on growth, with margins at risk at current

high levels: “When we have 12 months of economy without any disruption, we should

go to double-digit volume growth.” In CY16, PIDI had expected record volume growth,

and had planned accordingly, but demonetization played spoilsport. Mr Puri reminisced

about the good old days when the Consumer sector grew at 2x (GDP + Inflation), and

how growth fell to 1.5x (GDP + Inflation), and then to the current 1x (GDP + Inflation).

Yet, PIDI is confident of double-digit volume growth in the medium term.

Pricing premium vis-à-vis unorganized players to narrow

PIDI has candidly stated that its current margins are unsustainable. The company

currently enjoys 35% premium over unorganized players; in Adhesives, its margins are

at all-time highs. PIDI sees this premium narrowing to 15-20%. Recent price increases

by the company have been modest; in 1QFY18, the gap between volume growth and value growth was 1%. PIDI

intends to pass on only ~75% of the cost inflation to customers and has lately been passing on the benefits of

declines in raw material costs in the form of discounts.

Mr Puri’s association with

Pidilite began as an

Independent Director in 2008.

He started his career with

Asian Paints in 1982 and rose

to the position of General

Manager - Sales & Marketing.

He then moved to Cadbury in

1998 as Director of Sales and

Marketing for Cadbury India. In

2002, he was appointed

Managing Director South Asia,

after which he moved to

Singapore in 2006 where he

was responsible for Strategy,

Marketing and Sales for the

Asia Pacific region. In his last

assignment, he was President -

Global Chocolate, Gum and

Candy Categories at Mondelez

International, Zurich with

worldwide responsibilities for

the growth of these categories.

Mr Puri has completed his MBA

from the Indian Institute of

Management, Ahmedabad.

Mr Bharat Puri—

Managing Director

VAM prices have shot up due to unusual shutdowns and maintenance problems at suppliers’ end. Prices went up

from USD750/MT (recent low when crude prices corrected) to USD950/MT, and are now stabilizing at USD900/MT.

A large part of this price rise is due to supply disruptions rather than demand improvement.

GST – lot of flux; will take another month or so to figure out actual impact

In the run-up to GST, the wholesale channel was impacted the most in June. In July, sales are returning to normal,

but are also boosted because of re-stocking post the de-stocking in June. PIDI will need another 30-45 days to see

how sustainable the sales growth is and this will also be a function of tertiary consumer demand.

PIDI was first off the block in educating the supply chain on GST. The company started billing on 2nd July, while most

others are still finding their way and are sending consignments just now. It is too early to figure out the reset in the

channel. Most traders are still confused on billing.

1 August 2017

6

PIDI expects the proportion of official sales to go up post GST. For unorganized players, there will be a dramatic

difference between sales post-GST and sales pre-GST. Unorganized players are concerned about the repercussions if

the extent of their real sales is detected by the tax authorities. As far as the consumers are concerned, they were in

any case paying taxes in the earlier regime. It is just that now CGST and SGST are shown separately on the bill.

In the Arts & Stationery segment, business is largely unaffected. However, in the Building Materials segment

(Plywood, Hardware, and Paints & Allied Products), business is at a virtual stand-still. The unorganized segment is

sizable, and there has been very little supply in the last 20-25 days. Players are adopting a wait-and-watch strategy.

Consistently evaluating new categories, markets for future growth

PIDI classifies its business in three buckets: Core, Growth and Pioneer categories. Fevicol and Fevikwik constitute the

Core categories. Construction, Waterproofing, and Joinery segments constitute the Growth categories. In the

Pioneer categories, PIDI currently has Tiling Adhesives. PIDI targets to grow its Core categories at 1-1.5x GDP, its

Growth categories at 2-3x of GDP, and intends to ensure that today’s Pioneer categories become tomorrow’s

Growth categories. It targets 2/3rd growth from Pioneer and Growth categories, and 1/3rd from Core categories.

There are a lot of Pioneer categories in India. PIDI needs to choose a few, and make it BIG. While the company is

spoilt for choice, it will enter only those categories where it believes it has a ‘right to win’. It has invested

aggressively in R&D over the last four years – as a cost item, R&D has seen the highest jump. It has set up a research

lab in USA through a tie-up with University of North Carolina. It will be looking at technologies and how to make

them relevant for emerging markets.

PIDI keeps looking at markets similar to India. Some of these, including Turkey and Brazil are 7-8 years ahead of

India in a few categories. This enables PIDI to decide category adjacencies for future.

The company has set up a separate entity, PLUB Pidilite to focus large institutional (including government) business

.

Waterproofing – successfully transitioned from Pioneer to Growth category

PIDI is a pioneer in the waterproofing segment. Having created the market, it now sees expanding the market as its

task. Eight out of 10 houses in India have waterproofing issues, and the opportunity is immense. Some competition

is welcome, as it will help to expand the size of the market. The big competition is from MNCs. World over, new

construction constitutes 70% of the waterproofing market and repairs constitute 30%. In India, repairs constitute

the major part of the waterproofing market.

PIDI believes the key ingredients for success are a strong brand, better-informed service offering, and wide reach.

Its

Dr Fixit

brand has become a dominant brand in the segment. PIDI has often emphasized its ‘four feet on the

street’ – two extra feet to educate the consumer on how to use the product. One of PIDI’s strengths is that its sales

personnel focus not only on sales but also on servicing and creating demand. The company has resisted suggestions

from consultants on consolidation of its sales force and thus expanding margins by a few basis points. For its

waterproofing products, PIDI reaches 25,000 paints dealers, next only to APNT.

The retail segment constitutes ~70% of

Dr Fixit

sales. However, institutional business has been a large growth driver.

PIDI believes RERA is positive; good builders will now look at waterproofing more seriously.

Competition / entry into paints / APNT’s Loctite adhesive launch

n

n

PIDI will enter Paints only when it feels it can disrupt the category – does not want to be number-5 in Paints.

APNT’s entry in Adhesives (Loctite launch in 1HCY16) has not created much flutter (corroborated by our own

dealer checks – we had released a note (link) after doing a survey of 46 dealers in Mumbai).

1 August 2017

7

Godrej Consumer

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg. Val, INRm/ Vol.

Free float (%)

S&P CNX

10,077

GCPL IN

340.6

518.0 / 7.8

1084 / 643

2/13/14

425

36.7

31 July 2017

Q1FY18 Results Update | Sector: Consumer

CMP: INR1,035 TP:INR995(-4%)

Neutral

Price hike-led sales growth in India, Indonesia drags international

performance

n

Financials & Valuation (INR b)

Y/E Mar

2017 2018E 2019E

n

92.4 106.3 121.2

Net Sales

18.9

21.6

24.7

EBITDA

12.9

14.7

16.8

PAT

18.9

21.5

24.7

n

EPS (INR)

12.4

14.0

14.6

Gr. (%)

77.8 100.0 116.2

BV/Sh (INR)

24.6

24.2

22.8

RoE (%)

16.8

16.5

16.3

RoCE (%)

n

P/E (x)

54.7

48.0

41.9

EV/EBITDA (x)

38.5

33.8

29.4

Estimate change

TP change

Rating change

n

Godrej Consumer’s (GCPL) 1QFY18 consolidated net sales grew 2.8% YoY

to

INR21.7b (est. of +9%). Consol. EBITDA declined by 9.3% YoY to INR3.5b (est. of

+2.9%) and adj. PAT by 9.2% YoY to INR2.3b (est. of +1.3%), representing a miss

on all counts. Organic consolidated CC sales grew 6% YoY in 1QFY18, with India

business exhibiting similar growth on organic CC basis.

Gross margin shrunk 20bp YoY to 53.4%.

Higher adspend (+80bp YoY to 8.8%)

and other expenses (+150bp YoY to 17.6%) were partially offset by lower staff

costs (-40bp YoY to 11.1%). Thus, EBITDA margin shrunk 210bp YoY to 15.9%.

India branded business volume growth came in flat YoY.

All three key

domestic segments reported YoY sales growth, which came in 4% YoY for

Household Insecticides, 7% YoY for Soaps and 5% YoY for Hair Color. India

primary net sales growth stood at 6%, while secondary sales increased 9% YoY.

International:

Organic CC net sales grew 7%, while EBITDA fell 5% YoY. CC sales

fell 11% YoY in Indonesia, but grew 26% YoY in Africa, 4% in LatAm and 24% in

Europe. Indonesia, Africa and LatAm saw EBITDA margin contraction of 390bp,

80bp and 610bp YoY, respectively, while Europe saw expansion of 260bp.

Valuation view:

There is no material change to our EPS forecasts. At 42x March

2019E EPS, the stock is by no means undervalued. While earnings growth has

been more consistent than FMCG peers (FY17 was 8

th

straight year of double-

digit EBITDA and PAT growth), we believe the stock does not warrant a higher

multiple due to its exposure to various geographies, attendant currency risks

and relatively low RoE (mid-20s). Maintain

Neutral

with a revised TP of INR995

(39x June 2019E EPS, 10% premium to three-three average).

FY18

2QE

3QE

4QE

27,333 28,461 28,753

16.0

19.0

20.8

5,509

6,168

6,466

20.2

21.7

22.5

19.0

21.8

19.4

393

417

430

333

357

376

213

221

213

4,996

5,614

5,872

1,199

1,347

1,399

24.0

24.0

23.8

3,797

4,266

4,433

18.2

22.3

15.8

FY17

92,428

9.7

18,915

20.5

16.4

1,416

1,452

1,004

16,894

3,808

22.5

13,088

12.5

FY18E

106,273

15.0

21,594

20.3

14.2

1,614

1,463

928

19,446

4,580

23.6

14,826

13.3

(INR Million)

FY18

Var.

1QE

(%)

23,110

-6.0%

9.0

3,883

-11.1%

16.8

2.9

359

310

149

3,364

-12.0%

794

23.6

2,570

-9.5%

1.3

Quarterly Performance (Consolidated)

FY17

Y/E March

1Q

2Q

3Q

4Q

Net Sales

21,144 23,563 23,916 23,805

YoY Cha nge (%)

6.5

11.3

8.9

11.8

EBITDA

3,806

4,631

5,063

5,414

Ma rgi ns (%)

18.0

19.7

21.2

22.7

YoY Growth (%)

21.6

13.7

12.0

19.5

Depreci a ti on

327

358

363

369

Interes t

326

350

397

379

Other Income

166

194

294

350

PBT

3,330

4,118

4,474

4,972

Ta x

770

907

986

1,145

Ra te (%)

23.1

22.0

22.0

23.0

Adj PAT

2,561

3,212

3,489

3,827

YoY Cha nge (%)

18.3

7.3

5.0

21.4

E: MOSL Estimates

1Q

21,728

2.8

3,452

15.9

-9.3

374

397

282

2,960

634

21.4

2,327

-9.2

1 August 2017

8

31 July 2017

1QFY18 Results Update | Sector: Cement

Shree Cement

Buy

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

SRCM IN

35

649.3 / 9.7

20560 / 12477

5/3/0

287

35.2

CMP: INR18,638

n

TP: INR22,360(+20%)

EBITDA beat driven by better realization and lower other expenses

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

84.3

98.9

EBITDA

23.7

25.0

PAT

13.4

16.0

EPS (INR)

384.4 460.4

Gr. (%)

5.4

19.8

BV/Sh (INR)

2,210 2,623

RoE (%)

18.4

19.1

RoCE (%)

17.5

17.7

P/E (x)

48.5

40.5

P/BV (x)

8.4

7.1

2019E

123.0

31.9

n

19.1

547.8

19.0

3,125

19.1

18.0

n

34.0

6.0

Estimate change

TP change

Rating change

n

Quarterly Performance - Shree Cement (S/A)

1Q

5.13

18.0

3,885

11.8

17.4

21,987

27.9

14,678

7,308

33.2

1,540

276

979

6,471

0

6,471

1,394

21.5

5,077

Volume growth led by ramp-up in east:

SRCM’s 1QFY18 volumes increased

~15% YoY (-1% QoQ) to 5.89mt, led by capacity ramp-up in east, with utilization

in excess of 90-95%. Realizations rose ~10% QoQ (+6.7% YoY) due to higher

cement prices in north and east markets. However, exit realizations were lower

than average realization for the quarter. Revenue increased 15% YoY to

INR25.36b (est. of INR24.5b). Cement revenue stood at INR24.4b (+22% YoY),

with cement EBITDA at INR6.81b (+4% YoY). Power revenue declined 54% YoY to

INR958m, with power EBITDA at -INR14m due to weak merchant power rates.

Lower other expenses and higher realization drive margin improvement:

EBITDA of INR6.8b (-7% YoY) came in higher than our estimate of INR6.21b due

to lower other expenses and higher realization. Overall margin shrunk 6.4pp YoY

to 26.8% (+5.3pp QoQ) due to an increase in YoY unitary costing on higher freight

costs (led by an increase in diesel prices and underlying freight rates) and power

& fuel costs (led by a rise in petcoke prices).

Capex and capacity addition plans:

The company is likely to incur capex of

INR12-13b in FY18 and INR14-15b in FY19 toward capacity addition, including 1)

3.6mt of GU in Rajasthan, 2) 2mt of GU in Bihar, 3) 0.9mt of GU in Bihar (will get

commissioned by 2QFY18), 4) 2.8mt of clinker unit in Chhattisgarh and 5) 3mt of

integrated unit in Karnataka.

Deserves premium valuation:

SRCM is the most cost-efficient player in the

industry. Its superior execution capability enables it to achieve RoIC of over ~50%

(FY19E). SRCM’s gross-block-to-capacity (GB/capacity) – currently at

~USD53/tonne – has been structurally trending downward, as the proportion of

brownfield expansion has increased. Its GB/capacity is at 28% discount to peers,

which is also reflected in its superior RoCE profile. In our view, SRCM deserves to

trade at premium valuations, and we thus value the cement business at 15x

FY20E EV/EBITDA to arrive at a target price of INR 22,360. Maintain

Buy.

FY17

2Q

3Q

4.57

4.91

9.2

4.5

3,965

3,699

9.6

7.2

2.1

-6.7

20,068 18,434

17.2

2.2

13,506 13,744

6,563

4,689

32.7

25.4

4,322

3,176

293

411

1,233

1,356

3,180

2,459

0

21

3,180

2,438

265

83

8.3

3.4

2,915

2,354

4Q

5.93

10.7

3,771

13.9

1.9

23,803

19.1

18,691

5,112

21.5

3,109

314

1,510

3,199

0

3,199

154

4.8

3,045

1Q

5.89

14.8

4,146

6.7

9.9

25,363

15.4

18,563

6,800

26.8

2,312

329

1,307

5,466

0

5,466

1,065

19.5

4,401

FY18

2QE

3QE

5.30

5.65

16.0

15.0

3,946

4,096

-0.5

10.7

-4.8

3.8

21,590 23,794

7.6

29.1

16,836 17,905

4,754

5,889

22.0

24.8

2,000

2,000

320

320

1,500

1,900

3,934

5,469

0

0

3,934

5,469

393

547

10.0

10.0

3,540

4,922

4QE

6.42

8.2

4,209

11.6

2.8

28,203

18.5

20,601

7,602

27.0

4,367

349

2,293

5,180

0

5,180

2,125

41.0

3,054

FY17

20.54

10.5

3,825

10.7

84,292

16.5

60,619

23,672

28.1

12,147

1,294

5,077

15,308

0

15,308

1,917

12.5

13,391

FY18E

23.25

13.2

4,105

7.3

98,950

17.4

73,905

25,045

25.3

10,678

1,318

7,000

20,048

0

20,048

4,010

20.0

16,039

(INR mn)

FY18

Var.

1QE

(%)

5.90

0

15.0

4,071

2

4.8

8.0

24,534

3

11.6

18,316

-46

6,219

9

25.3

3,120

320

1,500

4,279

28

0

4,279

28

642

15.0

3,637

21

Sales Dispat. (m ton)

YoY Change (%)

Realization (INR/Ton)

YoY Change (%)

QoQ Change (%)

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO Exp

Extra-Ord Expense

PBT

Tax

Rate (%)

Reported PAT

Adj. PAT

YoY Change (%)

5,077

106.1

2,915

18.3

2,375

1.6

3,045

-51.4

4,401

-13.3

3,540

21.5

4,922

107.3

3,054 13,391 16,039

0.3

5.4

19.8

3,637

-28.4

1 August 2017

9

31 July 2017

3QFY17 Results Update | Sector: Capital Goods

Siemens

Neutral

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

SIEM IN

356.1

505.7 / 7.9

1470 / 1011

4/9/-6

265

25.0

CMP: INR1,452

n

TP: INR1,335(-8%)

In-line operational performance; expensive valuations warrant Neutral

3QFY17 operating performance came in line with expectations.

On a reported

basis, revenues increased 1.2% YoY to INR26.5b (in line with est. of INR26.3b;

revenue from continuing business up 22% YoY), supported by strong growth in

Energy Management (+54% YoY) and Building Technologies (+25% YoY)

segments. EBIDTA declined 2% YoY to INR2.3b, with the margin at 8.5% (-30bp

YoY; est. of 8.4%). Net profit from operations rose 27% YoY to INR1.6b, in line

with our estimate of INR1.6b.

Gross margin expanded 40bp YoY to 34.1%

in 3QFY17. EBITDA margin of 8.5%

came in line with our estimate of 8.4%. EBIT margin from continuing business

expanded 30bp YoY to 6.0% on account of margin improvement across

segments, except for Power & Gas and Process industries & Drives.

Order inflow down 12% YoY; book-to-bill at 1.0x:

Order intake for the quarter

stood at INR28.5b (-12% YoY; IN32.2b in 3QFY16), led by delay in finalization of

large-ticket orders. The company’s book-to-bill stood at 1.0x, with order book

position of INR112b.

Valuation and view:

We cut our FY17 estimates by 7% to factor in margin

pressure on account of fluctuations in product mix, currency and accounting

norm change. At CMP, SIEM trades at 63.9/43.7/38x its FY17/18/FY19E EPS of

INR22.7/33.2/38.1. Given expensive valuations, we maintain

Neutral

with a TP

of INR1,335, based on 35x FY19E EPS.

(INR Million)

FY16

2Q

3Q

27,836 26,204

4.9

10.3

3,218 2,303

70.3

-7.9

11.6

8.8

590

625

14

15

270

279

0

0

2,884 1,942

1,003

661

34.8

34.0

1,881 1,282

1,881 1,282

21.8 -23.8

4Q

1Q

30,906 22,933

-6.3

-0.9

2,414 2,337

-4.6

23.8

7.8

10.2

462

483

21

20

683

623

22,825

0

25,439 2,456

770

856

3.0

34.9

24,670 1,600

1,845 1,600

7.1

43.8

FY17

MOSLe

FY16

FY17

2Q

3Q

4QE

3Q Var %

29,288 26,508 39,794 108,094 118,523 26,300 0.8%

5.2

1.2

28.8

1.4

12.7

0.4

2,786 2,255 3,819 10,176 11,197 2,200 2.5%

-13.4

-2.1

58.2

36.8

14.7

-5.9

9.5

8.5

9.6

9.4

9.4

8.4

502

480

460

2,263

1,924

625

21

14

29

64

84

20

529

731

819

1,645

2,701

740

72

0

0 22,825

0

0

2,864 2,492 4,150 32,446 12,058 2,295 8.6%

1,001

863 1,085

3,148

3,805

677

34.9

34.6

26.1

9.7

31.6

29.5

1,863 1,629 3,065 29,298

8,253 1,618 0.7%

1,791 1,629 3,065

6,346

8,086 1,618 0.7%

-4.8

27.1

66.2

39.9

34.0

24.4

Financials & Valuations (INR b)

2016 2017E 2018E

Y/E Sep

Net Sales

108.1 116.3 142.2

EBITDA

10.2

11.8

15.6

PAT

6.3

8.6

11.9

EPS (INR)

17.8

24.3

33.3

Gr. (%)

5.2

36.2

37.3

BV/Sh (INR)

191.6 221.3 242.6

RoE (%)

9.3

11.0

13.7

RoCE (%)

15.1

15.8

19.2

P/E (x)

79.6

58.4

42.6

P/BV (x)

7.4

6.4

5.8

n

n

n

Estimate change

TP change

Rating change

Quarterly Performance (Standalone)

Y/E September

Total Revenues

Change (%)

EBITDA

Change (%)

As % of Revenues

Depreciation

interest

Other Income

Extra-ordinary Items

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

1Q

23,142

-12.8

1,888

-0.1

8.2

586

9

411

0

1,705

592

34.7

1,113

1,113

4.9

1 August 2017

10

InterGlobe Aviation

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

INDIGO IN

361

411.2 / 6.2

1170 / 790

9/11/-11

757.9

14.1

31 July 2017

1QFY18 Results Update | Sector: Aviation

CMP: INR1,291

TP: INR1,312(+2%)

Neutral

EBITDAR above est. led by higher yields and lower fuel cost

IndiGo reported revenue of INR57.5b (in-line; +26% YoY, +19% QoQ) and EBITDAR of

INR19.5b (est. of INR17.5b; +28% YoY, +46% QoQ), led by lower fuel cost of INR17.9b (est.

of INR19.3b; +31% YoY, +1% QoQ). PAT of INR8.1b (est. of INR6.1b; +37% YoY, +84% QoQ)

was further boosted by higher other income of INR2b (est. of INR1.5b; +25% YoY) and

lower depreciation of INR983m (est. of INR1.4b; -14% YoY).

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

185.8 239.0 303.4

EBITDA

21.4 34.1 46.5

PAT

16.6 23.0 33.8

EPS (INR)

46.0 63.9 93.7

Gr. (%)

-16.6 38.8 46.6

BV/Sh (INR)

55.9 62.9 73.2

RoE (%)

86.2 107.5 137.7

RoCE (%)

38.9 51.7 88.6

P/E (x)

28.0 20.2 13.8

P/BV (x)

23.1 20.5 17.6

Adj.

13.0 10.1

8.4

EV/EBITDAR

Estimate change

TP change

Rating change

n

n

n

n

n

EBITDAR above est.:

1QFY18 EBITDAR margin expanded to 34% from 33.4% in

1QFY17, led by higher yield of INR4.33 (est. of INR4.22; flat YoY, +9% QoQ) and

lower fuel cost per ASK of INR1.19 (est. of INR1.25; +11% YoY, -5% QoQ).

Surprised by lower fuel cost:

While ATF price grew ~16% YoY, INDIGO’s fuel

cost per ASK rose 11% in 1QFY18, which management ascribed to increased

contribution of fuel-efficient A320Neo (~16% of fleet) and better fuel

procurement strategies.

Lowered ASK addition guidance:

Management has lowered its ASK addition

guidance to 20% YoY from 25% earlier for FY18 (incl. planned ATR operation).

For 2QFY18, ASKs are expected to increase 15% YoY. Management expects to

increase capacity (ASKs) at the rate of 20% over FY18-20.

Raising estimates:

We raise our earnings estimate by ~10/2% for FY18/19 to

factor in the revised ASK guidance. We believe lower capacity addition should

result in better yields and higher load factor for INDIGO. Thus, for FY18/19E,

we increase yield to INR4.21/4.35 (v/s INR4.14/4.3 earlier) and passenger load

factor (PLF) to 87/88% (v/s 86% earlier).

Promoters to dilute stake:

To meet promoter holding norms, INDIGO is

planning a follow-on public offer, which is likely to be a mix of a fresh issue and

an offer for sale. Promoters currently hold 85.8% stake in the company.

Valuation and view:

The stock trades at 13.8x FY19E EPS of INR93.7 and at 8.4x

FY19E adj. EV/EBITDAR. We value INDIGO at 14x FY19E EPS to arrive at a fair

value of INR1,312. Maintain

Neutral.

4Q

48,482

18.5

17,734

5,339

12,087

35,160

13,322

27

8,242

5,080

10.5

1,052

777

2,938

6,190

1,786

28.9

4,403

12.2

-24.0

1Q

57,529

25.6

17,929

5,843

14,250

38,022

19,507

34

8,537

10,970

19.1

983

770

2,026

11,243

3,132

27.9

8,111

22.5

37.1

FY18E

2QE

3QE

52,362 64,517

25.7

29.4

19,969 21,851

5,957 6,530

13,127 14,767

39,053 43,149

13,309 21,369

25

33

8,558 9,453

4,751 11,916

9.1

18.5

1,426 1,421

770

770

2,026 2,026

4,581 11,752

1,329 3,408

29.0

29.0

3,253 8,344

9.0

23.2

132.6

71.2

FY17

FY18E

4QE

64,625 185,805 239,034

33.3

15.1

28.6

23,358 63,644 83,108

8,179 20,482 83,108

16,165 48,992 58,309

47,702 133,118 167,926

16,923

52,687 71,108

26

28

30

10,426 31,254 36,974

6,497

21,433 34,134

10.1

11.5

14.3

1,688

4,573

5,519

770

3,308

3,079

2,026

7,891

8,105

6,065 21,443 33,641

1,759

4,852

9,627

29.0

22.6

28.6

4,306 16,592 24,014

12.0

46.0

66.6

-2.2

-17.0

44.7

(INR Million)

FY18

Var.

1QE

vs est

57,216

1%

25.0

19,320

-7%

6,200

-6%

14,184

0%

39,704

-4%

17,512

11%

31

8,485

1%

9,028

22%

15.8

21%

1,378

-29%

487

58%

1,498

35%

8,660

30%

2,512

25%

29.0

6,149

32%

17.1

32%

3.9

Quarterly performance

Y/E March

Net Sales

YoY Change (%)

Fuel cost

Employee cost

Other expenses

Total Expenditure

EBITDAR

Margins (%)

Net Rentals

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Reported PAT

EPS

YoY Change (%)

1Q

45,789

8.7

13,674

4,789

12,046

30,509

15,279

33

7,127

8,152

17.8

1,148

1,163

1,626

7,467

1,549

20.7

5,918

16.4

-8.8

FY17

2Q

3Q

41,669 49,865

17.7

16.0

15,524 16,712

5,080 5,273

11,388 13,471

31,992 35,457

9,677 14,409

23

29

7,721 8,164

1,956 6,245

4.7

12.5

1,189 1,184

610

759

1,608 1,719

1,765 6,022

367 1,149

20.8

19.1

1,398 4,873

3.9

13.5

24.1 -25.9

1 August 2017

11

RESULTS

FLASH

Bharat Electronics

BSE SENSEX

32,515

S&P CNX

10,077

31 July 2017

Results Flash | Sector: Capital Goods

CMP: INR178

TP: INR200

Buy

We will revisit our estimates

post earnings call/management

interaction.

Results significantly beat estimates

n

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

86.1 110.1

EBITDA

17.6

19.6

NP

15.5

16.4

EPS (INR)

6.9

7.3

EPS Gr. (%)

27.2

5.7

BV/Sh. (INR)

33.6

43.6

RoE (%)

20.6

16.8

RoCE (%)

18.9

19.0

P/E (x)

23.1

22.5

P/BV (x)

4.8

3.8

2019E

122.8

21.4

18.5

8.3

12.9

48.7

17.0

17.9

21.5

3.7

n

n

n

n

Sales stood at INR17.3b (+98% YoY) v/s our estimate of INR11.7b. We note that

1QFY17 was a weak quarter, as shipments worth ~INR3b could not be shipped

out.

Gross margin of 44.7% (-130bp YoY) was in line with our estimate of 45%.

EBITDA stood at INR1.63b v/s our estimate of a loss of INR195m, with the

margin at 9.5% v/s our estimate of -1.7%. Employee costs rose 46% YoY to

INR4.6b, primarily due to the impact of 7

th

Pay Commission.

Other income declined in the quarter due to lower cash balance post the

buyback in 3QFY17.

PAT stood at INR1.25b (+247% YoY) v/s our estimate of INR0.4b.

Valuation and view:

We will revisit our estimates post our interaction with

management. We maintain our

Buy

rating with a TP of INR200 @25x FY19E EPS.

Quarterly Performance

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

Exceptional items (reported)

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

E: MOSL Estimates

1QE

8714

-20.8

-467

-699

-5.4

435

0

1387

0

486

125

25.7

361

-52.9

361

-52.9

FY17

2Q

3QE

17033 20867

15.9

37.2

3349

4828

85

74

19.7

23.1

455

455

3

106

1714

776

0

4606

1178

25.6

3427

66.5

3427

66.5

0

5043

1307

25.9

3735

33.3

3735

33.3

4QE

39877

23.7

9796

8

24.6

571

9

909

0

10125

2208

21.8

7917

6.3

7917

6.3

1QE

17248

97.9

1633

-450

9.5

561

3

723

0

1793

540

30.1

1253

247.2

1253

247.2

FY18

2QE

3QE

20921 24775

22.8

18.7

2932

3823

-12

-21

14.0

15.4

550

520

0

0

850

1200

0

3232

711

22.0

2521

-26.5

2521

-26.5

0

4503

991

22.0

3513

-6.0

3513

-6.0

FY17

4QE

47166

18.3

11203

14

23.8

550

47

1227

0

11834

2766

23.4

9068

14.5

9068

14.5

FY18

86119 110110

17.5

27.9

17617 19592

28

11

20.5

17.8

1915

2180

118

50

4710

4000

0

20294

4818

23.7

15476

18.4

15476

18.4

0

21361

5007

23.4

16354

5.7

16354

5.7

(INR Million)

MOSL

1QE

11715

34.4

-195

-58

-1.7

460

0

1150

0

495

109

22.0

386

6.9

386

6.9

Var

47.2

-935.8

262.5

224.9

224.9

1 August 2017

12

31 July 2017

1QFY18 Results Update | Sector: Technology

Tech Mahindra

Buy

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

TECHM IN

Significant 1Q beat drives 9.5% FY18 earnings upgrade

976

n

Weak but not to the extent thought:

TECHM’s 1QFY18 CC revenue declined ~2.1%

375.9 / 5.9

QoQ, but was ahead of our estimate of a 3.4% decline, led by stabilization of LCC

515 / 358

revenues and above-estimate BFSI performance. Including revenues from HCI (two

-4/-32/-37

months), CC revenue declined 0.6% v/s our estimate of -2.2%. EBITDA margin

1293

expanded 70bp QoQ to 12.7%, only slightly ahead of our estimate of 12.4%, helped

63.9

CMP: INR385

TP: INR490(+27%)

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

291.4 307.6 344.0

Net Sales

41.8

42.2

49.9

EBITDA

27.5

30.2

32.7

PAT

30.9

34.0

36.8

EPS (INR)

-11.9

9.9

8.3

Gr. (%)

187.9 207.1 232.5

BV/Sh (INR)

18.4

17.4

16.9

RoE (%)

15.2

14.5

14.2

RoCE (%)

12.5

11.3

10.5

P/E (x)

2.1

1.9

1.7

P/BV (x)

n

n

Estimate change

TP change

Rating change

n

by improvement in LCC profitability. Significant forex gains (INR2.7b v/s estimate of

INR1.8b) drove PAT beat (INR8b v/s estimate of INR6.5b).

Profitability recovery visible:

TECHM saw a 4.1% QoQ reduction in Software

Professionals headcount (3,407 employees), cost impact from which only accrued

toward the end of the quarter. Benefits from the same will fully reflect in 2Q

EBITDA margins, more than offsetting 30-40bp impact from wage hikes during the

period. Utilization at 77% including trainees was flat for the third quarter and down

100bp YoY, and remains a few points below management’s target. These should

drive margin improvement QoQ for the remainder of the year.

Communications outlook optimistic, but with gestation:

TECHM defended its

growth in Communications v/s peers, highlighting that it has not lost any

business to competitors. Also, stabilization of operations in LCC is largely

behind, and the segment is already adding to growth in some geographies.

Digital deals are also kicking in and growing in sizes too. Digital is also

impacting Enterprise, changing the complexion of pipeline, driving the need for

significant organization-wide up-skill.

Valuation view:

Our earnings estimates for FY18/19 are up by 9.5%/1.6%. The

significant FY18 upgrade comes on the back of combined effect from forex

gains and revenue beat. TECHM trades at 11.4x/10.6x FY18/19E earnings.

There remains some tailwinds to improve profitability in the near term, which

will feed positively into valuation multiple. Improvement in Communications

revenue growth is an option value over and above the same. Our price target

of INR490 discounts FY18E earnings by 13x, implying an upside of 26%.

Maintain

Buy.

(

FY18E

2Q

3Q

4Q

1,166

1,192

1,218

2.5

2.3

2.1

75,797 78,106 80,386

5.8

3.3

7.3

28.7

29.4

29.9

15.3

15.3

13.8

10,210 11,030 11,611

13.5

14.1

14.4

10.2

10.9

11.2

2,391

1,218

1,196

311

296

282

23.5

23.5

23.5

7,419

7,170

7,618

-7.1

-3.4

6.2

15.1

-16.2

29.6

8.3

8.1

8.6

120,350 123,517 126,413

78.4

78.6

78.9

36.4

36.1

36.2

FY17

4,351

7.8

291,408

10.0

29.4

15.1

41,843

14.4

11.0

6,836

1,286

26.0

27,447

-12.0

31.9

117,693

77.5

36.2

FY18E

4,715

8.4

307,650

5.6

29.0

15.3

42,198

13.7

10.5

8,912

1,259

24.0

30,192

10.0

34.0

126,413

78.3

36.2

Est.

1Q

1,117

-1.3

71,979

4.0

27.4

15.0

8,943

12.4

8.9

2,542

356

23.5

6,481

10.2

-1.2

7.3

115,532

76.7

35.5

bp)

1.9

188bp

1.9

200bp

58bp

26bp

4.5

32bp

49bp

61.5

3.9

23.2

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

Interes t expens e

ETR (%)

PAT excl. BT amort & EOI

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l excl . tra i nees (%)

Attri ti on (%)

Offs hore rev. (%)

1Q

1,032

0.9

69,209

10.0

29.5

14.6

10,290

14.9

12.0

1,519

274

25.9

6,561

-23.5

5.4

7.4

107,216

78.0

21.0

36.6

FY17

2Q

3Q

4Q

1Q

1,072

1,116

1,131

1,138

4.0

4.1

1.4

0.6

71,674 75,575 74,950 73,361

8.3

12.8

8.9

6.0

30.6

30.7

26.9

28.0

15.7

15.0

14.9

15.3

10,701 11,865

8,987

9,347

14.9

15.7

12.0

12.7

11.5

12.4

8.2

9.4

1,387

1,552

2,378

4,106

345

349

318

370

30.8

20.2

28.2

25.4

6,447

8,560

5,879

7,985

-1.7

32.8

-31.3

35.8

-17.9

12.8

-31.5

21.7

9.0

7.3

9.6

6.6

111,743 117,095 117,693 115,990

78.0

77.0

77.0

77.0

19.0

18.0

17.0

36.5

36.1

36.3

35.7

0.4

27bp

80bp

1 August 2017

13

LIC Housing Finance

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INR b)/(USD b)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val. (INR m)

Free float (%)

S&P CNX

10,077

LICHF IN

Under pressure

505.0

n

LIC Housing Finance (LICHF) reported PAT of INR4.7b for 1QFY18, missing our

350.5/5.2

estimate by 20%. Sharp sequential decline in margins and largely stable

794/470

provisions YoY (despite high base in 1QFY17) were the key reasons for the miss.

-12/7/17

Overall, it was a subdued quarter for LICHF.

1259

59.7

n

Loan book growth remained in line with past trends at ~15% YoY, with retail

31 July 2017

1QFY18 Results Update | Sector: Financials

CMP: INR692

TP: INR708 (+3%)

Neutral

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

NII

36.5

39.1

PPP

32.4

34.2

Adj PAT

19.3

21.0

Adj EPS.INR

38.2

41.6

PS Gr. (%)

16.3

8.7

BV/Sh (INR)

212.1 245.5

RoAA (%)

1.5

1.4

RoE (%)

19.4

18.2

Payout (%)

18.8

19.7

Valuations

P/E (x)

18.1

16.6

P/BV (x)

3.3

2.8

Div. Yld (%)

0.9

1.0

2019E

44.2

39.0

24.7

48.9

17.7

n

284.7

1.5

18.5

19.7

14.1

2.4

1.2

n

n

loan book growth muted at 9-10% YoY. There was slight shift in mix towards

non-core loans. However, after two quarters of INR10b+ disbursements in

builder loans, LICHF has reverted to average disbursements of INR4b-5b in this

segment. Also, disbursements in the core home loan segment were up 16% YoY.

This was a key positive in the results.

Margins declined sharply (11bp YoY, 47bp QoQ), driven by decline in both retail

and non-retail yields. Calculated spreads of 1.46% are the lowest in the last 12

quarters. We believe loan yields would decline a further 30-40bp in the near

term. This should be offset by decline in cost of funds, though we expect CoF re-

pricing in the medium-to-long term.

GNPL ratio was up 13bp YoY to 0.72%, with individual portfolio GNPL ratio

increasing 7bp YoY to 0.42%. While this is not a concern, credit cost declined

only 10% YoY to INR1.05b. Three builder loans amounting to INR1.2b slipped

into NPL in the quarter.

Valuation and view:

Despite being the second largest HFC, LICHF has managed

to grow at ~15% YoY, consistently. However, over the past 4-8 quarters, growth

has been driven largely by non-core loans. With the retail portfolio witnessing

moderate growth and sustained yield pressure, topline growth has been

sluggish. While we acknowledge that its LAP book is not as risky as peers

(INR1m-1.5m average ticket size at 30% LTV), we believe valuation will re-rate

only with growth returning in the core home loan portfolio. We cut our FY18/19

EPS estimates by 13%/9%. Maintain

Neutral.

1 August 2017

14

RESULTS

FLASH

31 July 2017

Results Flash | Sector: Logistics

CONCOR

Neutral

BSE SENSEX

32,515

S&P CNX

10,077

CMP: INR1,147

TP: INR1,180(+3%)

Beat led by higher margins and volumes

n

We will revisit our estimates

post earnings call/management

interaction.

Conference Call Details

Date:

1 Aug 2017

Time:

11:00am IST

Dial-in details:

+91-22-3960 0983

st

Financials & Valuations (INR b)

Y/E Mar

2017

2018E

2019E

Sales

56.1

EBITDA

12.5

NP

8.6

EPS (INR)

38.0

EPS Gr.(%)

-2.6

BV/Sh.(INR)

363.0

RoE (%)

10.8

RoCE (%)

10.5

Payout (%)

57.7

Valuations

P/E (x)

30.2

P/BV (x)

3.2

EV/EBITDA (x) 22.1

Div. Yield (%)

1.5

60.6

11.9

9.6

39.4

3.7

379.6

10.6

10.4

57.7

29.1

3.0

23.2

1.6

67.5

13.1

11.1

45.4

15.1

398.8

11.7

11.4

57.7

25.3

2.9

21.3

1.9

CONCOR’s 1QFY18 reported revenue stood at INR14.5b (est. of INR13.8b; +9%

YoY, -6% QoQ), led by higher-than-estimated volumes.

n

EBITDA stood at INR3.3b (est. of INR2.6b; +25% YoY, -34% QoQ), led by

improved margins in both EXIM and domestic segments. EBITDA margin

expanded to 22.4% in 1QFY18 from 19.6% in 1QFY17, led by 0.9pp

improvement in EXIM margin and 6.9pp in domestic margin.

n

Reported PAT of INR2.4b (est. of INR1.7b; +36% YoY, -42% QoQ) was further

boosted by higher other income of INR936m (+35% YoY).

n

Volumes higher than est.:

Overall volumes stood at 842.7k teu (est. of 782k

teu; +15% YoY). EXIM volumes stood at 712k (est. of 663k; +13% YoY) and

domestic volumes at 129k (est. of 118k; +26% YoY).

n

Realization trend:

Overall realization was at INR17,287/teu (est. of

INR17,637/teu; -5% YoY). EXIM and domestic realization stood at INR15,875

and INR25,033, respectively.

n

Overall segmental EBIT stood at INR2,959/teu

(est. of INR2,373; -3% YoY), led

by EXIM EBIT at 3,112/teu (-3% YoY) and domestic EBIT at INR2,121/teu

(+457% YoY).

Key questions for management

n

Volume guidance for 2QFY18/FY18, both for the industry and CONCOR

n

Reasons for sharp improvement in margins

n

Impact of increased competitive intensity in the focused market

n

Capex guidance for 2QFY18/FY18

Valuation and view:

We will revisit our estimates post earnings call. Based on our

current estimates, it trades at 23.2x/21.3x FY18/FY19E EBITDA. Maintain

Neutral.

(INR Million)

1Q

13,392

-5.7

2,619

19.6

-9.0

841

0

692

2,470

0

2,470

685

27.7

1,785

-13.7

13.3

FY17

2Q

3Q

13,786

13,304

-8.2

-5.3

2,288

2,612

16.6

19.6

-27.6

-6.7

873

927

3

1

763

845

2,175

2,529

0

0

2,175

2,529

596

669

27.4

26.4

1,578

1,860

-32.4

-9.7

11.4

14.0

4Q

15,579

-2.3

4,950

31.8

6.2

877

32

593

4,634

865

3,768

411

10.9

4,223

37.9

27.1

1QE

13,795

3.0

2,550

18.5

-2.6

880

9

600

2,261

0

2,261

565

25.0

1,696

-5.0

12.3

1QAct

14,568

8.8

3,267

22.4

24.8

953

0

936

3,251

0

3,251

817

25.1

2,434

36.4

16.7

FY18E

Var (%)

6%

28%

YoY (%)

9%

25%

QoQ (%)

-6%

-34%

Container Corporation

Y/E March

Net Sales

YoY Change (%)

EBITDA

Margins (%)

YoY Change (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

8%

-98%

56%

44%

44%

44%

44%

13%

35%

32%

32%

19%

36%

9%

-99%

58%

-30%

-14%

99%

-42%

1 August 2017

15

Shriram Transport Finance

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

SHTF IN

226.9

231.0 / 3.6

1325 / 778

-3/-11/-36

830

73.9

31 July 2017

1QFY18 Results Update | Sector: Financials

CMP: INR1,018

n

TP: INR1,330 (+31%)

Buy

Strong quarter; Reaping the benefits on cost of funds

Shriram Transport’s (SHTF) 1QFY18 PAT of INR4.5b was largely in line with our

estimate. Strong sequential AUM growth, continued decline in cost of funds

and reduction in GNPL ratio (QoQ) were the key positives of the quarter.

Disbursements have started to pick up post the subdued performance in

2HFY17. AUM growth of 3.6% QoQ is encouraging – we believe that if the

economic scenario in 2HFY18 picks up, the company would be able to better its

12-15% AUM growth guidance.

Calculated NIM on AUM expanded 60bp QoQ to 7.9%.

CoF declined 34bp

sequentially to 9.44%. This is in line with our fundamental thesis that SHTF

will be the biggest beneficiary on CoF reduction among all NBFC peers due to

a larger share of high-cost legacy borrowings.

Also, yields moderated just

13bp YoY to 14.31%, allaying fears that yields will reduce drastically as the

company moves toward financing more younger-vintage vehicles.

GNPL ratio decreased 13bp QoQ to 8.03%. However, credit costs of INR4b

were higher than the quarterly FY17 average of INR3.1b. If one were to

normalize the quantum of write-offs, the GNPL ratio would have been flat

sequentially.

However, the PCR of 71% gives us enough comfort that credit

costs will decline sharply over the next two years, despite migration to 90dpd.

Valuation and view:

SHTF’s return ratios are at cyclical lows, with decadal high

credit cost and NPLs.

However, credit costs over the past two years have been

statutory, rather than economic, i.e., write-offs as % of AUM have been

steady.

Additionally, we believe margin compression fears are overplayed with

the company yet to reap significant benefit on CoF. We increase our FY18-19

estimates by 2%/4% to factor in stronger revenue. The stock trades at

1.8x/1.6x FY18/19E BV.

Buy

with a TP of INR1,330 (2x June 2019E BVPS).

n

Financials & Valuations (INR b)

Y/E March

2017 2018E

Net Inc.

55.2 64.7

PPP

43.7 52.3

PAT

12.6 17.9

Cons.PAT

12.6 18.1

EPS (INR)

55.4 78.9

Cons. EPS (INR)

55.6 80.0

BV/Sh (INR)

498

556

Cons. BV (INR)

494

560

RoA on AUM (%)

2.0

2.7

RoE (%)

11.7 15.0

Payout (%)

20.9 18.6

Valuations

P/Cons. EPS (x)

18.3 12.7

P/Cons. BV (x)

2.1

1.8

Div. Yield (%)

1.0

1.2

2019E

72.2

58.0

n

22.9

23.2

100.7

102.4

639.3

644.4

3.1

n

16.9

17.4

9.9

1.6

1.5

n

1 August 2017

16

Torrent Pharmaceuticals

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg. Val, INRm

Free float (%)

S&P CNX

10,077

TRP IN

Weak revenue; margins remain stable

169

n

TRP reported sales of INR13.5b (-11% YoY; >10% below est.). The miss is

222.8 / 3.5

attributed to a decline in domestic revenue due to GST roll-out. Despite this,

1768 / 1144

gross margin stood at 70.3% (up >500bps QoQ), a positive surprise, as India is

3/-16/-25

the most profitable business. EBITDA margin came in at 22% (+60bp QoQ). R&D

389

as % of sales stood at 7.5% in 1Q v/s 9.8% in 4QFY17 and 6.0% in 1QFY17.

28.8

31 July 2017

1QFY18 Results Update | Sector: Healthcare

CMP: INR1,317

TP: INR1,350(+3%)

Neutral

n

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

58.6

63.7

74.5

EBITDA

13.8

14.8

18.3

PAT

9.3

9.0

11.4

EPS (INR)

55.2

53.4

67.3

Gr. (%)

-7.7

-3.2

26.0

BV/Sh (INR)

257.1 291.2 334.2

RoE (%)

23.8

19.5

21.5

RoCE (%)

18.6

15.7

17.0

n

P/E (x)

23.9

24.7

19.6

P/BV (x)

5.1

4.5

3.9

Estimate change

TP change

Rating change

n

India biz impacted by GST; pricing pressure continues in US:

India business

declined ~9% YoY due to channel destocking ahead of GST rollout. Secondary

sales remained strong (at mid-teens). The company expects India business to

grow in double-digits, led by strategic initiatives undertaken since 2QFY16.

US

business

remained largely flat QoQ at INR2.7b due to continued pricing

pressure in base business, offset by recent launches, including gCelecoxib. We

expect this business to remain under pressure in FY18 due to further price

erosion in base business, partially offset by 5-6 new launches in FY18E (~25

pending ANDAs). TRP is also focusing on in-licensing of products in the US.

Earnings call takeaways:

1) Plans to file 15-16 ANDAs in FY18. 2) Pricing pressure

in US in 1QFY18. 3) Tax rate guidance of 21-22% in FY18. 4) Dahej- formulations

facility inspected in Jun-17, and received five 483 observations. 5) Renvela

launch deferred for more than a year. 6) Tax rate to stay at ~20% in FY18. 7)

According to AIOCD, secondary sales of Novartis brand acquired were ~INR31cr

(annualized at June-end). 8) Local currency growth in Germany was ~12% YoY

(~8% YoY in reported terms). 9) Capex guidance of INR4b in FY18 and FY19.

Upside potential capped; downgrading to Neutral:

Although TRP remains one

of the better plays on India’s growth story (because of chronic heavy portfolio

and one of the best margins), challenges in the US business will keep growth

and margins under check in the near term. We downgrade the stock to

Neutral

due to limited upside at current valuations. Our TP is INR1,350@20x FY19E PER

(v/s INR1,450 @ 20x FY19E EPS). We cut FY18E/19E EPS by ~6% as we build in

the impact of higher pricing pressure in the US and lower EBITDA margin.

1 August 2017

17

Coromandel International

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg. Val, (INR m)

Free float (%)

S&P CNX

10,077

CRIN IN

291.3

75.4/ 1.1

274/146

5/34/12

68

37.9

31 July 2017

1QFY18 Results Update | Sector: Fertilizers

CMP: INR449

n

TP: INR523 (+16%)

Buy

Strong performance; better monsoon to aid growth

Exhibits recovery in PAT:

CRIN reported overall revenue of INR22.7b (est. of

INR22.2b) in 1QFY18, as against INR20.6b in 1QFY17, marking growth of 10.6%.

EBITDA margin expanded significantly by 320bp YoY in 1QFY18 to 7.5% (est. of

4.6%) on account of gross margin expansion of 240bp YoY. EBITDA increased

94% YoY to INR1,715m (est. of INR1,025m). Consequently adj. PAT grew from

INR75m in 1QFY17 to INR754m (est. of INR364m) in 1QFY18 on account of

significant reduction in finance cost (INR441m v/s INR651m in 1QFY17).

Better monsoon aids crop acreages:

The country is witnessing better monsoon

in 2017 (southwest monsoon 5% above normal level), leading to an increase of

3% in sowing of Kharif crops. Cotton sowing increased impressively by 29%,

followed by pulses (+6.9%) and rice (2.4%). CRIN is set to benefit from better

monsoon and increased sowing.

DBT rollout to prove beneficial:

Rollout of direct benefit transfer (DBT) for

fertilizers has been pushed to 2018 as distribution of POS machines has not

been completed yet due to low availability. However, once implemented, it will

significantly ease the subsidy receivables situation for CRIN. DBT rollout is

expected to require end-to-end supply chain management and last mile reach,

both of which will benefit CRIN on account of the strong brand pull.

Valuation and view:

We believe increased sowing on account of better

monsoon, moderating raw material prices, and regular disbursement of

subsidy will be the major triggers for margin expansion. We thus maintain our

revenue estimates for FY18 and FY19, and raise our EBITDA/PAT by 9.2%/9.9%

for FY18E and by 10.2%/11.4% for FY19E. We expect 14% revenue CAGR (FY17-

19) and 32% PAT CAGR. Maintain

Buy

with a TP of INR523, 18x FY19E EPS.

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Sales

100.3 117.2 131.4

EBITDA

9.8

12.1

13.7

NP

4.8

7.0

8.5

EPS (INR)

16.6

24.1

29.0

EPS Gr. (%)

36.0

45.1

20.4

BV/Sh. (INR)

99.1 114.8 133.7

RoE (%)

17.5

22.5

23.4

RoCE (%)

12.3

15.6

17.1

P/E (x)

27.0

18.6

15.5

P/BV (x)

4.5

3.9

3.4

n

n

Estimate change

TP change

Rating change

n

1 August 2017

18

31 July 2017

1QFY18 Results Update | Sector: Capital Goods

GE T&D India

Neutral

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

GETD IN

256

91.4 / 1.4

425 / 277

10/11/-2

36

25.0

CMP: INR395

n

TP: INR395(0%)

Operating performance above expectations; Maintain Neutral

Performance aided by strong execution:

Sales rose 41% YoY to INR12.1b in

1QFY18, meaningfully above our estimate of INR9.5b, led by strong execution

of projects in hand. Adj. EBITDA stood at INR1.1b v/s INR21m (one-time tax

provision of INR1.8b) in 1QFY17, with the margin expanding 850bp YoY to

8.7%. Adj. PAT stood at INR616m v/s INR360m in 1QFY17.

EBIDTA margin expands led by better execution, cost rationalization:

EBIDTA

stood at INR1.1b as against profit of INR21m, with the margin expanding YoY to

8.7% from 0.2%. Operating margin expansion was driven by better operating

leverage and cost control (employee cost rationalization). Management guided

for 7-8% EBIDTA margin on a sustainable basis due to intense competition in

the sector.

Order inflow and book grow strongly:

Order intake rose 98% YoY to INR15.8b

in 1QFY18, driven by strong order finalization in the substation segment (46%

of order inflow). Order backlog stands at INR84.2b, providing revenue visibility

for the next two years. Of the total order book, 40% are from PGCIL, 40% from

private and the rest from the state. Key orders bagged in 1Q were (1)

765/230kv GIS substation order from Doosan (INR4.0b), (2) 765kv AIS

substation order at Warangal (INR3.3b), (3) Solar project from Odisha from

PAN India Infra (INR1.6b) and (4) 765kv 80MVAR reactor order from PGCIL

(INR662m).

Maintaining Neutral; raising estimates:

We raise EPS for FY18E/19E by 4/6% to

INR9/11 to factor in improved execution of the projects in hand. Maintain

Neutral

with a revised TP of INR395, valuing the stock at 35x FY19E EPS of

INR11.3.

FY18

2Q

3Q

4Q

9,700 12,914 13,124

16.3

11.1

9.7

900 1,214 1,569

165.2

68.3

43.0

9.3

9.4

12.0

210

210

197

220

220

207

310

200

326

780

984 1,491

234

295

338

30.0

30.0

22.7

546

689 1,153

165.3

55.5 150.0

546

689 1,153

165.3

55.5 150.0

FY17

FY18

(INR Million)

MOSL Var.

1QE Vs Est

9,500

27

11.2

500

111

2,258

5.3

210

171

339

458

113

137

30.0

321

92

-116.3

321

92

-10.9

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

40.5

47.8

51.1

EBITDA

2.2

4.1

5.1

PAT

1.5

2.4

2.9

EPS (INR)

5.7

9.3

11.3

Gr. (%)

325.3

62.1

21.5

BV/Sh (INR)

40.3

46.1

53.1

RoE (%)

12.4

21.5

22.7

RoCE (%)

15.7

26.0

29.3

P/E (x)

69.3

42.7

35.2

P/BV (x)

9.8

8.6

7.5

Estimate change

TP change

Rating change

n

n

n

Quarterly Performance

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

E: MOSL Estimates

1Q

8,546

11.6

21

-70.3

0.2

217

226

326

-2,425

-455

18.8

-1,970

-2,041.0

360

254.6

FY17

2Q

3Q

4Q

8,340 11,623 11,963

-4.4

62.8

26.9

339

722 1,097

-50.1 -235.7

81.7

4.1

6.2

9.2

220

221

224

239

343

344

435

522

177

315

679

705

109

236

244

34.6

34.7

34.6

206

443

461

-43.0 -215.4

70.9

206

443

461

-43.0 -215.4

70.9

1Q

12,093

41.5

1,055

4,875.9

8.7

224

278

421

974

358

36.8

616

-131.3

616

71.1

40,521 47,831

22.7

18.0

2,230 4,113

-9.0

-9.0

5.5

8.6

873

873

589

589

427

427

1,195 3,078

508

508

42.5

16.5

687 2,570

0.0

0.0

687 2,570

2.0

2.0

1 August 2017

19

Hexaware Technologies

BSE SENSEX

32,515

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,077

HEXW IN

Beat-and-raise as revenue momentum continues

302

n

Revenue momentum intact:

HEXW continued its strong revenue momentum in

79.2 / 1.2

2QCY17 (USD152.6m; 2.3pp beat). In constant currency terms, revenue grew

268 / 178

4.9% QoQ and 18.2% YoY to USD151.8m. EBITDA margin, including ESOP

3/17/3

242

charges, shrunk 70bp QoQ to 16.2%, marginally below our estimate, due to

28.8

elevated ESOP charges (INR121m v/s estimate of INR54m). PAT grew 7.5% QoQ

31 July 2017

2QCY17 Results Update | Sector: Technology

CMP: INR262

TP: INR250(-5%)

Neutral

Financials & Valuations (INR b)

2016 2017E 2018E

Y/E Dec

35.3

39.5

44.2

Net Sales

5.7

6.4

6.9

EBITDA

4.2

4.7

5.0

PAT

13.7

15.7

16.5

EPS (INR)

5.8

14.8

4.8

Gr. (%)

56.3

65.0

77.2

BV/Sh (INR)

26.5

25.7

23.1

RoE (%)

24.2

24.0

22.5

RoCE (%)

19.1

16.7

15.9

P/E (x)

4.7

4.0

3.4

P/BV (x)

n

n

Estimate change

TP change

Rating change

n

to INR1.22b (7pp beat) on the back of better-than-expected revenue, forex

gains, and lower tax rates.

Broad-based traction drives guidance raise:

Broad-based growth across

geographies and verticals was a highlight for the quarter, with IMS and BPS as

the stars among services. After the second quarter of high-teens growth, HEXW

upgraded its revenue growth guidance for CY17 to 14-15% from 10-12%. Even

flat revenue sequentially for the remainder of the year will put HEXW at the

higher end of the band. It expects to sustain EBITDA margins at last year’s

levels (16.3%).

Alleviates concerns around top clients:

Sluggish outlook for the second half is

a function of weakness in two of its top five clients, ramp-down in one of which

was embedded in the 10-12% guidance at the beginning of the year. The

situation in new account is expected to impact HEXW’s revenue by 2.5-3% in

CY18 – it will still exit CY17 with close to double-digit growth. Margins in these

accounts were close to company average, and should thus remain unaffected.

Also, HEXW noted it lost only a share of the larger piece and continues to grow

in other areas of the relationship.

Valuation and view:

We have upgraded our revenue estimates by 4-4.5% and

earnings estimates by 2.5-3.5% for CY17 and CY18. For CY16-18, we expect

revenue CAGR of 12.5% and earnings CAGR of 10%. HEXW trades at 16.7x

CY17E and 16x CY18E earnings. Our target price of INR250 discounts forward

earnings by 14x, factoring the risks in top clients playing out in some measure.

Maintain

Neutral.

CY17

CY16 CY17E

Quarterly Performance (Consolidated)

Y/E Dec

CY16

1Q

2Q

3Q

4Q

Revenue (USD m)

121.7 129.7 135.2 138.9

QoQ (%)

-1.9

6.6

4.2

2.7

Revenue (INR m)

8,202 8,697 9,041 9,409

YoY (%)

15.0

12.6

10.5

14.8

GPM (%)

33.6

34.6

35.4

34.6

SGA (%)

19.0

19.0

18.0

17.3

EBITDA

1,194 1,353 1,576 1,624

EBITDA Margin (%)

14.6

15.6

17.4

17.3

EBIT Ma rgi n (%)

12.9

14.0

15.9

15.8

Othe r i ncome

55

132

67

140

ETR (%)

24.2

25.8

25.8

25.1

PAT

842

999 1,114 1,216

QoQ (%)

-15.3

18.6

11.5

9.2

YoY (%)

1.0

1.0

-0.1

22.3

EPS (INR)

2.8

3.3

3.7

4.0

Headcount

11,599 11,875 11,859 12,115

Uti l i za ti on (%)

69.6

70.0

74.1

78.6

Attri ti on (%)

16.0

16.6

16.5

16.1

Offs hore re v. (%)

36.9

38.6

36.8

38.1

1Q

2Q

3QE

4QE

144.7 152.6 153.7 153.6

525

605

4.2

5.5

0.7

0.0

8.2

15.2

9,605 9,836 9,991 10,064 35,349 39,496

17.1

13.1

10.5

7.0

13.2

11.7

34.1

33.7

33.9

32.3

34.6

33.5

17.2

17.4

17.0

17.0

18.3

17.1

1,623 1,598 1,686 1,539 5,747 6,445

16.9

16.2

16.9

15.3

16.3

16.3

15.3

14.6

15.2

13.7

14.7

14.7

28

146

146

74

394

394

23.8

22.9

23.5

23.5

25.3

23.4

1,139 1,224 1,277 1,108 4,171 4,748

-6.3

7.4

4.4 -13.2

35.3

22.5

14.7

-8.9

6.1

13.8

3.8

4.1

4.2

3.7

13.7

15.7

12,734 13,098 13,255 13,492 12,115 13,492

78.9

80.8

80.0

77.0

73.9

80.3

14.9

35.5

35.3

35.0

33.8

37.6

34.9

Est.

2QCY17

150.2

3.8

9,679

11.3

33.1

17.0

1,561

16.1

14.7

113

25.5

1,142

0.3

14.3

3.8

13,434

77.0

Var. (%

/ bp)

1.6

167bp

1.6

179bp

56bp

42bp

3683bp

14bp

-5bp

29.2

7.2

715bp

821bp

-2.5

380bp

32.9 236bp

1 August 2017

20