16 October 2017

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Today’s top research idea

Reliance Industries: Standalone EBITDA in line; RJio delivers +ve

EBIT from 1st quarter itself

v

Reliance Industries’ 2QFY18 standalone operating performance was largely in-line with

our expectations. Petchem segment reported robust performance driven by favorable

margin and strong volume growth. While the reported GRM of USD12/bbl was below

our estimate of USD12.6/bbl led by lower light-heavy differentials, the refining

throughput of 18.1mmt was ahead of our estimate of 17.5mmt.

v

RJio turns EBITDA positive in 1st quarter of reporting:

RJio reported stellar revenues of

INR61.5b, led by ARPU of INR156, coming partly from 1QFY18 recharges. EBITDA of

INR14.4b benefited from lower-than-expected opex, coupled with network and

employee expense capitalized.

v

We raise our RJio valuation to INR245/share from INR190/share. Also we increase our

estimates for petchem segment on account of increase in petchem delta due to delays

in US petchem expansions. Our SOTP-based fair value stands at INR1,005/share,

implying an upside of 15%. We thus upgrade our rating to

Buy.

Research covered

Cos/Sector

Consumer

Ecoscope

Reliance Industries.

IndusInd Bank

Avenue Supermarts

MCX

Healthcare

Results Expectation

Key Highlights

Ground Reality: Takeaways from Ground Zero in Central India

Higher costs offset better sales for India’s listed corporate

sector in 1QFY18

Standalone EBITDA in line; RJio delivers +ve EBIT from 1st

quarter itself

IIB announces merger with BHAFIN

Results below estimates; Gross margin expansion reflected at

EBITDA level

Only a few inches away from the launch of Options

IPM growth restricted by price decline

Bajaj Finance | Colgate | DCB Bank | Delta Corp | Dewan Hsg |

Federal Bank | Persistent Sys

Piping hot news

IndusInd Bank’s board approves merger with Bharat Financial

v

The board of IndusInd Bank Ltd has approved the merger between the bank

and microfinance firm Bharat Financial Inclusion Ltd (BFIL), …

Chart of the Day: EcoScope - Higher costs offset better sales for India’s listed corporate sector in 1QFY18

Comparison of manufacturing (nominal) GVA as per CSO

Expenses grew faster than sales in 1QFY18

data with that of RBI sample – (% YoY)

To compute the growth rates in any quarter, a common set of

companies for the current and previous period is considered

Source: RBI, MOSL

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

Equity MF inflow triples to Rs

80,000 crore in April-

September FY18

Equity mutual funds registered an

inflow of over Rs 80,000 crore in

April-September 2017, a three-

fold growth from the year-ago

period, mainly due to the ongoing

shift of household savings from

real estate and gold to such

financial products…

2

Kumar Mangalam Birla flagship Hindalco is gearing up to mount a multi-

billion dollar bid to acquire Aleris Corp. from its private equity owners, said

several people aware of the development. This follows talks of more than

a year between China Zhongwang Holdings Ltd, the country’s biggest

supplier of processed aluminium, and the Cleveland-based based

aluminium parts maker having floundered on heightened US national

security concerns. Despite repeated extensions, the deadline for exclusive

negotiations between both parties got over on October 13, paving the way

for others to enter the fray, said the people cited above…

Hindalco weighing bid to acquire Aleris Corp of US

3

Wind power capacity addition

put on fast track, 4,500MW up

for auction

The government is planning to

auction 4,500 MW wind projects

in the next four months to upscale

the wind capacity addition in the

country, sources say. "An

additional bid of 1,500 MW wind

projects will be rolled out in

October…

4

Banks rework funding

strategies for MSMEs

Banks are redrawing their

strategies on funding micro, small

and medium enterprises (MSMEs),

expecting the transition to the

goods and services tax (GST) will

improve their credit profiles and

enhance their borrowing

capacity…

5

State power companies seek

to import coal to tide over

supply crisis

Some state-owned power

producers, who had stopped

imports, are now looking at

importing coal at a time when the

Centre’s focus is on reducing

imports and eventually bringing it

down to zero. They have been

forced to take this move to tide

over coal availability issues and

the resulting dip in generation.

Power generation companies in

Andhra Pradesh and Bengal have

been the first movers…

6

Lenders raise concern over

disclosure of liquidation value

in resolution process

Lenders are concerned that a

provision in the insolvency and

bankruptcy code (IBC), which

requires the information

memorandum to disclose the

liquidation value of an asset that is

undergoing the resolution

process…

7

Reliance Industries (RIL) has sold

all its conventional oil and gas

exploration blocks outside India.

During the July-September

quarter, the company pulled out

of the last two oil blocks it held in

Myanmar, the company said in a

presentation to analysts…

Reliance Industries exits all

international oil and gas blocks

16 October 2017

2

13 October 2017

Sector: Consumer

Ground

Reality

Takeaways from Ground Zero in Central India

We visited a few distribution channel partners in central India to understand the demand milieu,

the GST impact, and the strategy execution/product performance of various companies.

Admittedly, the sample size was very small, and thus, may just be reflective of the local factors.

Nevertheless, we did get a decent idea on the on-the-ground operating environment in the region.

Key takeaways:

n

n

n

n

n

For Nestle, the gains from new products appear to have tapered off, and there is disappointment in terms of new launch

ad/promotion spend, both of which have been below expectations.

Emami’s

Kesh King

seems to be making a comeback via better communication, while Patanjali’s

Kesh Kanti

oils have lost

some steam. For

Kesh Kanti

more than 50% of brand sales come from shampoos.

Patanjali’s oral care sales continue to do well and are supplemented by the launch of gel variants. The other category

where Patanjali has done very well in central India is face wash and soaps (under

Saundarya

brand). Patanjali’s food

products, particularly noodles and biscuits, are struggling to grow.

For Godrej Consumer, the performance of new launches has been good, with ‘Aer’ doing particularly well even in central

India.

Mondelez has started reporting strong growth again in the chocolates segment.

Bournvita

is also doing well

.

Retailers still need do more preparation under GST regime

n

n

n

The queue time for trucks at check points has reduced by 3-4 hours. However, only areas like Mumbai which had

octroi points will benefit more in terms of time.

The number of clearing and forwarding (C&F) depots under the GST regime is likely to reduce, albeit not

drastically. We understand that large C&F agents will be required in many states. While companies have low

inventory levels at their plants, they need adequate inventory to be held at the C&F agent level across states.

C&F agents have huge warehouses, which would continue to act as hubs for every 250-300km to ensure

adequate supply to distributors and others.

Distributors we spoke to mentioned that majority of their retailers do not even have GSTN numbers yet. There is

some degree of complacency on part of the last mile channel.

Demand scenario subdued as of now

n

n

n

No company has reported less than 5-10% sales growth at C&F level. However, the problems are beyond the

C&F level, particularly on the wholesale channel.

Markets in central India are cash-dependent. Thus, with curbs on cash post demonetization, volume growth had

suffered. With the waning of the demonetization blues now, there has been heavy disruption in the wholesale

channel post GST rollout.

Staples demand has suffered, but travel & luxury goods sales have been affected even more.

Patanjali reporting healthy growth in oral care/face wash/soaps, but not in foods

n

n

n

n

n

Growth has been muted compared to earlier years.

Oral care continues to do well. A new gel variant of

Dant Kanti

is now also available in central India.

Patanjali’s

Saundarya

face wash and soaps are also doing very well, particularly the former.

However, the food category, mainly biscuits and noodles, has not done well in these parts.

Packaging of Patanjali has improved gradually, after incorporating feedback from consumers/trade partners

.

16 October 2017

3

n

n

There is a lack of professionalism on Patanjali’s part, according to some trade channel participants.

They also feel that competitors of Patanjali, after being complacent earlier, have now become smarter in terms

of product launches and communication.

Emami may do better on Kesh King

n

n

n

Most channel partners agreed that Patanjali’s

Kesh Kanti

had impacted Emami’s

Kesh King

sales; however, the

impact is now reducing.

The trade partners also corroborated that shampoos form more than half of

Kesh Kanti’s

overall franchise sales.

Advertising and word of mouth on

Kesh King

are now far stronger than earlier.

Nestle’s volumes may go back to subdued levels

n

n

n

n

n

The noodles category has not recovered to previous levels. Market share for Nestle’s

Maggi

has tapered off.

Most of the 40 odd new launches/variants are not doing so well even in modern trade.

Even in noodles, after the initial buzz on

Hot Heads

variants, demand has tapered off. Regional variants of Maggi

have not yet made a foray into central India.

Unwillingness of management to invest more in advertising/marketing, even to support new launches, is

puzzling for the trade partners.

HUL’s

Kissan

brand has not only moved ahead of Maggi in the sauces/ketchup category, but has also gained

considerable market leadership in B2B channels like hotels, restaurants and caterers (HoReCa).

Godrej Consumer doing well on new launches

n

n

n

Rural and general trade sales of Godrej No. 1 are doing well again after a couple of years.

‘Aer’ brand is doing very well even in central India.

Other new products of GCPL launched over the past year are also performing well.

Mondelez (Cadbury’s) – strong growth likely to be back in chocolates; Bournvita doing well

n

n

n

n

n

n

n

n

Abbot’s brand

PediaSure

is more of a metro phenomenon and very small even in modern trade in central India.

From our discussions with channel partners, we understand that in Mumbai’s HyperCity stores,

PediaSure

has

20% market share v/s 45% for Cadbury’s

Bournvita.

In modern trade in western and central India,

Bournvita

reportedly has a 55% market share, followed by

Horlicks. Bournvita

is also gaining share in recent years.

Complan

has not been able to make any headway.

In Gujarat,

Bournvita

reportedly has a 70% share.

Amul Pro

is more of threat in Gujarat compared to

PediaSure.

In chocolates,

Cadbury’s Dairy Milk,

its new variants and Cadbury’s Fuse are driving sales growth back to 20%

levels.

Bournvita biscuits are doing well in traditional trade.

Oreo

has also seen growth coming back to double-digits in modern trade.

Cadbury has hired a large team from Britannia, who are working on enhancing distribution and automation.

Cadbury apparently has 25% of sales coming from modern trade across the country, and is less dependent on

wholesale. This has helped its sales.

D- Mart doing very well; cash and carry also showing traction

n

n

n

n

D-Mart is doing particularly well in central India, while the Future Group is not doing as well.

There is huge amount of planning that FMCG companies have started doing in conjunction with D-Mart.

Overall modern retail is gaining considerable market share in these regions, but as of now, it is getting supplied

by distributors and not directly by most FMCG companies, unlike the case in cities like Mumbai.

Modern wholesale (cash and carry) outlets like Walmart have also been doing very well for the past one year,

with multiple times growth in sales.

16 October 2017

4

E

CO

S

COPE

The Economy Observer

13 October 2017

Higher costs offset better sales for India’s listed corporate sector in 1QFY18

RBI data confirm sharp slowdown in manufacturing GVA growth

n

Reserve Bank of India (RBI) data for private corporate sector (2,744 listed non-government non-finance companies)

indicate that aggregate sales and expenses grew at 18-quarter high of 7.6% and 11% YoY, respectively in 1QFY18. At

3.4pp, the gap between expenses growth and sales growth was the highest in five years.

n

Interest payments declined 1.5% YoY for the second consecutive quarter. Interest coverage ratio was 1x or lower for

four industries – textiles, construction, iron & steel and telecommunication.

Owing to the sharper rise in raw material expenses vis-à-vis sales, operating profits contracted by 10% YoY, marking the

first decline in four years. EBITDA margin dropped to a 9-quarter low of 17.2%.

Finally, manufacturing GVA growth – as per the RBI sample – declined by a sharp 9.6% YoY in 1QFY18, because of a

sharp decline in the manufacturing sector’s net profit. This confirms the slowdown in GDP growth in 1QFY18.

n

n

Corporate sales in 1QFY18 grew fastest in 18 quarters…

Sales of the private

corporate sector increased

by 7.6% YoY, the fastest

pace in 18 quarters

As per RBI data, sales of the private corporate sector (comprising financial results of

2,744 listed non-government non-finance companies) increased by 7.6% YoY, the

fastest pace in 18 quarters

(Exhibit 1).

The pick-up in growth was driven by a

turnaround in sales growth of the non-IT services sector, which had contracted in

each of the last four quarters. The construction and electricity & gas supply sectors

also witnessed an improvement in sales growth

(Exhibit 2).

Although growth in sales

of the manufacturing sector decelerated slightly to 8.9% in 1QFY18 from 10.2% in

4QFY17, it continued to be healthy. ‘Petroleum products’, ‘iron & steel’, precious &

non-ferrous metals’, ‘fabricated metals’, ‘wholesale & retail trade’, ‘mining &

quarrying’ posted healthy growth in sales, aided by a favorable base.

Exhibit 2:

Industry-wise sales growth (% YoY)

8

Share in 1QFY17 4QFY17 1QFY18

sales (%)

Sales (% YoY)

Manufacturing

68.9

(1.0)

10.2

8.9

Food pdts & beverages

5.5

0.1

(3.9)

5.6

Textiles

4.2

(1.7)

6.9

7.3

Petroleum Products

8.2

(18.2)

33.5

19.4

Fertilizers & Pesticides

1.2

(16.9)

(16.2)

7.2

Iron and Steel

7.9

(3.4)

26.0

20.6

Construction

5.3

2.8

(0.4)

6.4

Services (other than IT)

11.2

(0.3)

(2.9)

4.1

Wholesale & retail trade

2.9

(19.9)

0.7

24.4

Telecommunication

3.3

7.7

(11.4)

(13.2)

IT services

9.2

11.2

4.8

2.9

Source: Reserve Bank of India (RBI), MOSL

Sales

Expenses

(pp)

Exhibit 1:

Expenses grew faster than sales in 1QFY18

16

Difference (RHS)

8

4

0

(% YoY)

(8)

1QFY13

1QFY14

1QFY15

1QFY16

1QFY17

0

(4)

1QFY18

To compute the growth rates in any quarter, a common set of

companies for the current and previous period is considered

The growth in sales in 1QFY18 was led entirely by larger companies. Companies with

annual sales of INR10b and above posted growth of 9.2% in the quarter

(Exhibit 3),

while the smaller companies (with sales less than INR10b) witnessed a 3.1% decline.

Based on paid-up capital (PUC), bigger companies (with PUC of INR250m and above)

– which account for four-fifth of total sales – grew faster, by 7.8%

(Exhibit 4),

as

against 6.7% growth in companies with PUC of less than INR250m.

16 October 2017

5

Reliance Industries

BSE SENSEX

32,433

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

10,167

RIL IN

6,502.0

5,700.3/ 85.4

891 / 466

6/18/48

12124

55.0

14 October 2017

Q2FY18 Results Update | Sector: Oil & Gas

CMP: INR877

TP: INR1,005 (+15%) Upgrade to Buy

Standalone EBITDA in line; RJio delivers +ve EBIT from 1

st

quarter itself

Reliance Industries’ (RIL) 2QFY18 standalone EBITDA rose 23% YoY (+12% QoQ) to INR129.8b,

largely in line with our estimate of INR126b. PAT rose 7% YoY (+1% QoQ) to INR82.6b, below our

estimate of INR88.2b, due to higher interest expense of INR13b (est. of INR9.4b) and a higher tax

rate at 27.9% v/s 22% in 1QFY18 and 24% in 2QFY17. Interest expense was higher due to forex loss

of INR4.5b. GRM of USD12/bbl was below our estimate of USD12.6, while refining throughput of

18.1mmt was ahead of our estimate of 17.5mmt.

Financials & Valuations (INR b)

Y/E March

2017 2018E

Net Sales

2,420 3,146

EBITDA

433

523

Net Profit

314

361

EPS (INR)

48.3

55.5

EPS Gr. (%)

14.6

14.8

BV/Sh. (INR)

464

514

RoE (%)

11.6

11.9

RoCE (%)

9.1

10.1

Payout (%)

13.3

14.4

Valuations

P/E (x)

18.1

15.8

P/BV (x)

1.9

1.7

EV/EBITDA (x)

15.5

11.5

EV/Sales (x)

2.8

1.9

§

2019E

3,723

581

416

64.0

15.3

571

12.3

10.9

14.4

13.7

1.5

9.2

1.4

Estimate change

TP change

Rating change

Shareholding pattern (%)

As On

Sep-17 Jun-17 Sep-16

Promoter

46.2

45.0

45.1

DII

11.4

11.1

12.5

FII

25.8

25.6

23.7

Others

16.5

18.3

18.7

FII Includes depository receipts

Stock Performance (1-year)

Reliance Inds.

Sensex - Rebased

880

760

640

520

400

GRM of USD12/bbl:

While Singapore complex GRM increased from USD6.4/bbl

in 1QFY18 to USD8.3/bbl, RIL’s GRM increased only from USD11.9/bbl to

USD12/bbl due to lower light-heavy and Brent-Dubai differentials. There could

also be some hedging losses as cracks moved up sharply in the quarter.

§

Petchem drives core performance:

Refining EBIT stood at INR65.3b (+11% YoY,

+2% QoQ), led by GRM of USD12/bbl (+19% YoY, +1% QoQ) and throughput of

18.1mmt (+1% YoY, +3% QoQ). Petchem EBIT rose 42% YoY (+23% QoQ) to

INR49b, led by a favorable margin and strong volume growth. EBIT margin of

18.3% came in ahead of 16.3% in 2QFY17, primarily due to the strengthening of

intermediates and polyester chain deltas.

§

ROGC commissioned:

ROGC has been commissioned, while other downstream

units are being commissioned and would take 60-90 days for full ramp-up.

Petcoke gasifier is expected to be commissioned by early 2018.

§

Domestic E&P continues to shrink:

E&P EBIT stood at -INR960m v/s INR240m in

2QFY17 and -INR2.3b in 1QFY18. KG-D6 gas production declined to 5.4mmscmd

(-28.4% YoY, -13% QoQ). Shale gas production was down to 33.5bcfe (-19%

YoY,-3.5% QoQ) due to natural decline and temporary shut-in of wells.

n

RJio turns EBITDA positive in 1st quarter of reporting itself

§

RJio reported stellar revenues of INR61.5b, led by ARPU of INR156, coming

partly from 1QFY18 recharges. In effect, we believe that if recharges from both

1QFY18 and 2QFY18 were accounted on an accrual basis, ARPU would have

been ~INR130 for the quarter. Data consumption remained 4-5x of Bharti, while

MOUs are 50% higher, with 3.8bGB of data consumption.

§

EBITDA of INR14.4b benefited from lower-than-expected opex, coupled with

network and employee expense capitalized.

§

In 2HFY18, we expect addition of 42m subscribers, taking the overall subscriber

base to 181m by March’18 and 205m by March’19, from 139m in 2QFY18, with

ARPU estimates of INR156/INR172 in FY18E/FY19E.

§

2QFY18 consol. capex at INR160b:

Consol. gross debt was INR2.14t, with cash

of INR770b. Consol. capex stood at INR160b, of which INR70b was on RJio.

§

Valuation and view:

The company is coming to an end of its capex cycle in the

standalone business. We believe that with strong risk management, better yield

management and crude optimization, the company would clock GRM of

USD11.5/bbl, going forward. Commissioning of downstream units of ROGC

would boost the petchem performance further. We are increasing our petchem

delta estimate due to delays in US petchem expansions. While E&P still appears

to be a laggard in the near term, some light appears on the horizon with the

award of long lead items for the development of R-series. RJio appears to have

surprised with positive EBIT in the first quarter itself – this would remain key to

stock performance. We raise our RJio valuation to INR245/share from

INR190/share. On FY19E basis, the stock trades at 13.7x adj. SA EPS of INR64

and EV/EBITDA of 9.2x. Our SOTP-based fair value stands at INR1,005/share,

implying an upside of 15%. We thus upgrade our rating to

Buy.

16 October 2017

6

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adj PAT

YoY Change (%)

Margins (%)

Key Assumptions

Refining throughput (mmt)

GRM (USD/bbl)

Petchem EBITDA/tonne (USD/MT)

Petchem volumes (mmt)

E: MOSL Estimates

1Q

534,960

-18.7

426,790

108,170

20.2

19,500

9,240

20,330

99,760

24,280

24.3

75,480

19.5

14.1

16.8

11.5

303.8

1.9

FY17

2Q

3Q

595,770 618,060

-2.0

9.3

490,220 512,020

105,550 106,040

17.7

17.2

20,290 20,770

6,330

9,310

22,800 30,250

101,730 106,210

24,690 25,990

24.3

77,040

17.4

12.9

18.0

10.1

314.4

2.1

24.5

80,220

11.1

13.0

17.8

10.8

329.4

2.0

4Q

671,460

34.4

558,660

112,800

16.8

24,090

2,350

13,710

100,070

18,560

18.5

81,510

11.4

12.1

17.5

11.5

313.7

2.1

1Q

642,170

20.0

526,280

115,890

18.0

21,580

7,880

19,180

105,610

23,650

22.4

81,960

8.6

12.8

17.5

11.9

348.9

2.2

FY18E

2Q

3QE

685,320 905,717

15.0

46.5

555,490 767,458

129,830 138,258

18.9

15.3

22,680 27,456

13,140

9,355

20,570 23,400

114,580 124,848

31,930 27,466

27.9

82,650

7.3

12.1

18.1

12.0

435.4

2.1

22.0

97,381

21.4

10.8

17.5

11.0

300.0

3.0

FY17

4QE

912,631

35.9

773,403

139,227

15.3

27,456

9,355

23,400

125,816

27,680

22.0

98,137

20.4

10.8

17.5

11.0

300.0

3.0

FY18E

2,420,250 3,145,837

3.8

30.0

1,987,690 2,622,632

432,560

523,206

17.9

16.6

84,650

99,172

27,230

39,729

87,090

86,549

407,770

470,854

93,520

110,726

22.9

314,250

14.6

13.0

70.1

11.0

315.3

8.1

23.5

360,128

14.6

11.4

70.6

11.5

346.1

10.3

(INR Million)

2QFY18 Var v/s

Est. Est. (%)

737,250

-7.0

23.7

610,803

-9.1

126,447

2.7

17.2

23,000

-1.4

9,355

40.5

19,000

8.3

113,092

1.3

24,880

28.3

22.0

88,212

14.5

12.0

17.5

12.6

370.0

2.3

-6.3

3.4

-5.0

17.7

-8.0

16 October 2017

7

IndusInd Bank

BSE SENSEX

32,433

S&P CNX

10,167

15 October 2017

Update | Sector: Financials

CMP: INR1,750

TP: INR2,000 (+14%)

BUY

IIB announces merger with BHAFIN

Gains strong edge in rural distribution; synergies to further boost earnings

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 (%)

Financials Snapshot (INR b)

2017 2018E

Y/E Mar

NII

OP

NP

NIM (%)

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoA (%)

P/E (X)

P/BV (X)

74.6

66.7

36.4

4.2

60.9

26.7

387

16.9

1.8

28.6

4.5

94.6

84.8

47.0

4.2

78.6

29.0

453.4

19.0

1.9

22.2

3.8

IIB IN

598

1818 / 1038

0/12/26

1053

16.5

1589

85.0

2019E

120.8

108.7

60.3

4.2

100.8

28.3

539.5

20.6

1.9

17.3

3.2

IndusInd Bank (IIB) finally announced the long awaited merger with Bharat Financial

Inclusion (BHAFIN). As per terms of the agreement IIB will issue 639 shares for every 1000

shares of BHAFIN to the latter's shareholders. We believe that while the merger is clearly a

sweet deal for BHAFIN shareholders (swap ratio implies 11% gain for BHAFIN stock based

th

on closing price of 13 Oct, 2017), IIB is also set to benefit as merger will be accretive on

margins (~30bp), RoA (~15bp), RoE (80bp for FY20E), EPS (+3%) & Book Value (1%

dilution). In the medium term we believe that synergy benefits will arise from - (i)

Reduction in funding cost, (ii) Fee income opportunity arising from sale of PSL certificates,

(iii) Reduced risk-weights, and, (iv) Increased cross selling opportunities, and this will

further boost return ratios for the bank. Besides merger approval, board has also

approved preferential allotment of warrants to the promoters to restore their

shareholding back to 15%. We continue to like IIB for its strong earnings/business growth

and ability to deliver industry leading margins & RoA. We reiterate our BUY rating and

maintain our TP of Rs2,000 based on 4x Sept 19 BV.

Microfinance (MFI) exposure will increase to ~8% of merged loan book

IIB currently has MFI portfolio of Rs29bn (2.4% of loan book) which post the merger

will increase to ~Rs107bn and correspond to ~8% of total loans. While IIB has shown

very controlled growth in its MFI portfolio (~INR29b for the last few quarters) the

growth rate for BHAFIN has been higher at ~24% y-y. IIB indicated that over the

medium term MFI loans will form ~5% of total loans as it sees strong growth

opportunities in rest of the banking business.

Merger is largely book neutral however accretive on NIMs, EPS (from next fiscal)

and RoA (~15bps);

As per the swap ratio the merger is larger book neutral while it is EPS accretive from

FY19E particularly as the return profile of BHAFIN improves after undergoing

challenging times over recent period. We further estimate IIB to benefit on NIMs

(30bp change) and RoA (15bp change) without building in any synergies from the

merger. IIB also aims to refinance its MFI borrowings and which will enable it to

avail complete relaxation from CRR/SLR requirements.

Mix of consumer loan increases to 52.5%

IIB has always aimed to diversify its loan mix with a retail:corporate mix of 50:50

(from 40:60 now). The merger with BHAFIN, will add ~6.3% (to IIB’s existing loans

and ~5% to its balance sheet. Accordingly, the share of consumer finance segment

will increase to ~46% and thus takes IIB one step closer to achieve the desired

business mix.

Synergy benefits to further boost earnings; estimate RoA to cross 2% mark

In the medium term we believe that synergy benefits arising from - (i) Reduction in

funding cost as BHAFIN currently borrows at >10%, (ii) Fee income opportunity

arising from sale of PSL certificates - the entire MFI portfolio is eligible for PSL , (iii)

Shareholding pattern (%)

As On

Sep-17 Jun-17 Sep-16

Promoter

DII

FII

Others

15.0

12.6

53.8

18.6

15.0

12.7

53.9

18.4

14.9

11.6

54.7

18.9

FII Includes depository receipts

Stock Performance (1-year)

IndusInd Bank

Sensex - Rebased

1,800

1,600

1,400

1,200

1,000

16 October 2017

8

Reduced risk-weights on MFI loans - 75% for a bank vs 100% for NBFC, and, (iv)

Increased cross selling opportunities, will further boost return ratios for the bank.

The merger will also significantly expand IIB's rural reach (Bhafin has presence in

1,00,000 villages) and help expand IIB’s customer base by 6.8mn to 16.3mn

customers.

MFI business via bank can earn better returns; Also addresses political risks and

other uncertainties

The MFI business can generate higher sustainable RoEs under a banking set-up due

to a) elimination of the need to carry excess liquidity (negative carry), which is

required in day-to-day operations and first loss margins for off-balance sheet, b)

lower cost of funds (difference of ~400bp between IIB and BHAFIN); c) no cap on

spreads, d) higher leverage (10x v/s 5x currently), and, e) also addresses political and

regulatory overhang. We note that PPoP to average assets is ~6.3% for BHAFIN and

~3.4% for IIB. Furthermore, capitalization of BHAFIN is very high, with a CAR of ~32%

(leverage of just ~4.6x).

Preferential warrant to promoters will further increase book value by 7%;

Maintain BUY with TP of Rs2,000

IIB board has approved preferential allotment of warrants to promoters so as to

restore their shareholding back to 15%. Taking issuance price to be closer to current

market price this will potentially improve IIB's book value by 7% on conversion. We

continue to like IIB for its strong earnings/business growth and ability to deliver

industry leading margins & RoA. We reiterate our BUY rating and maintain our TP of

Rs2,000 based on Sept 19E BV.

16 October 2017

9

RESULTS

FLASH

Avenue Supermarts

Under Review

15 October 2017

Results Flash | Sector: Financials-Banks

BSE SENSEX

32,433

S&P CNX

10,167

CMP: INR1,234

n

n

We will revisit our estimates

post earnings call/management

interaction.

Results below estimates; Gross margin expansion reflected at EBITDA level

DMART reported overall revenue of INR35.08b (est INR39.1b) in 2QFY18

marking a YoY growth of 26.3%.

EBITDA margins expanded by 70bp to 9.1% (est 9%) in 2QFY18 as the gross

margin expanded by 90bp to 16.1%. However, the gross margin expansion was

partly offset by an increase of 40bp in employee expenses which stood at 2% of

net sales.

EBITDA during the quarter stood at INR3.18b (est INR3.5b), growth of 37% YoY.

Accordingly, adj. PAT grew 65% YoY to INR1,910m (est. INR2,103m) in 2QFY18.

The interest expense stood higher than expected at INR109m.

The company added 4 stores during 2QFY18, compared to 1 store addition in

1QFY18.

Conference Call Details

Date:

Time:

Dial-in details:

n

n

n

2019E

217.9

18.5

11.0

17.6

38.7

82.8

23.0

23.2

62.6

13.3

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

119.0 163.1

EBITDA

9.8

13.6

NP

4.8

7.9

EPS (INR)

7.7

12.7

EPS Gr. (%)

34.5

65.8

BV/Sh. (INR)

61.6

70.5

RoE (%)

17.9

19.3

RoCE (%)

14.2

16.5

P/E (x)

143.9

86.8

P/BV (x)

17.9

15.7

Key questions for the management

n

Like to like growth in the quarter

n

New store additions expected in 2HFY18

Valuation and view:

We will revisit our estimates post interaction with the

management. The recent run-up in stock price has stirred uncertainties that cap

the upside potential. We hence keep the stock under review and would update

post revision in estimates.

16 October 2017

10

13 October 2017

Q2FY18 Results Update | Sector: Technology

MCX

Buy

BSE SENSEX

32,433

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

10,167

MCX IN

Only a few inches away from the launch of Options…

51

…focused on participation enhancement and not revenue

57.8 / 0.9

1411 / 932

n

Yield-led operational miss:

MCX’s 2QFY18 revenue stood at INR673m

(below our est. of INR706m). Yield for the quarter seems to have declined

-1/-16/-31

545

~3%, driving the revenue miss. Operating expenses were INR466m, in line

100.0

with our estimate of INR468m, and stable sequentially. Thus, EBITDA stood

CMP: INR1,133

TP: INR1,300(+15%)

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

2.6

2.8

Net Sales

0.8

0.9

EBITDA

1.3

1.3

PAT

24.8

26.5

EPS (INR)

6.2

6.6

Gr. (%)

266.4

262.0

BV/Sh (INR)

10.2

10.0

RoE (%)

10.0

9.7

RoCE (%)

45.6

42.8

P/E (x)

4.3

4.3

P/BV (x)

2019E

4.0

2.0

2.2

43.4

64.2

284.1

15.9

15.4

26.1

4.0

n

n

Estimate change

TP change

Rating change

n

at INR207m (30.7% margin, -7.9pp YoY), below our estimate of INR238m

(33.7% margin, -4.9pp YoY). PAT of INR292m (below est. of INR363m) was

dragged further lower by other income of INR243m (17% below est.).

Volumes finally seeing uptick:

Volumes were down 14.0% YoY in 2QFY18.

Volumes have been subdued for the last three quarters, dragged mainly by

bullion – Gold (-39% YoY) and Silver (-34% YoY) – due to demonetization and

then GST-related uncertainty. Contribution from Gold and Silver combined

was 29% of overall volumes (39% in 2QFY17). However, QoQ growth of

17.0% is encouraging, signifying an end to downward pressure on volumes.

Zero pricing on Options leads to downward revision:

MCX announced that

it will launch 1kg Gold Options on 17 October 2017, with approvals for other

Options expected to be in place by year-end. While we estimate volume

uptick because of Options starting 3Q, MCX would refrain from levying

charges till a deeper level of participation is achieved. The absence of

revenue from Options, along with the miss in 2Q, has led to a cut of 11/3%

in FY18/19E. We continue to be encouraged by the pace of reforms, though.

Valuation view:

MCX has retained its market leadership position, with a

share of 80-90% over FY09-17, even in the most turbulent months of FY13-

15, when the parent’s existence was in deep waters on issues of fraud

around NSEL. With the SEBI’s reforms underway, we see volumes on the

path to a significant recovery, from new products and participants.

Operating margin on incremental volumes at ~80% would boost operating

profits for MCX. We expect earnings CAGR of 32% over FY17-19. Our price

target is INR1,300, which discounts forward earnings by 30x.

Buy.

(INR Million)

4Q

626

-8.7

160

335

49

82

13.1

243

325

106

32.6

219

-35.5

4.3

12.4

-10.3

-16.5

1Q

592

-5.5

178

282

48

84

14.2

277

361

98

27.2

263

20.0

5.1

12.0

-3.4

-24.8

FY18

2Q

673

13.6

178

288

48

158

23.6

243

401

110

27.3

292

11.0

5.7

14.1

17.0

-14.0

FY17

3Q

748

11.2

178

294

48

227

30.4

275

502

125

25.0

377

29.2

7.4

16.3

15.6

17.1

4Q

800

7.0

178

304

48

270

33.8

288

559

140

25.0

419

11.2

8.2

17.5

7.7

40.7

2,641

12.4

644

1,116

186

695

26.3

1,164

1,857

512

27.5

1,346

221.7

26.4

58.7

4.1

FY18E

2,812

6.5

713

1,146

191

762

27.1

1,083

1,845

473

25.6

1,372

4.8

26.9

59.8

2.0

Est.

Var.

2Q (%/bp)

706

(4.7)

19.3 -564bp

178

0.5

291

(1.0)

46

4.6

192

(17.3)

27.1 -360bp

293

(17.1)

484

(17.2)

121

(9.3)

25.0

237bp

363

(19.8)

38.4

7.1

(19.8)

14.1

17.0

-14.0

MCX Quarterly Performance

Sales

Q-o-Q Gr. (%)

Sta ff Cos ts

Other expens es

Depreci a ti on

EBIT

Ma rgi ns (%)

Other Income

PBT bef. Exceptional items

Ta x

Ra te (%)

PAT

Q-o-Q Gr. (%)

EPS (INR)

Total volumes (INR t)

Q-o-Q Gr. (%)

Y-o-Y Gr. (%)

E: MOSL Es ti ma tes

1Q

676

18.7

143

265

49

219

32.4

308

527

152

28.9

375

30.3

6.5

16.0

7.3

17.7

FY17

2Q

3Q

652

686

7.8

5.1

144

198

257

296

42

45

209

148

32.1

21.5

302

312

511

459

134

119

26.3

26.0

376

339

0.5

-9.9

7.4

6.7

16.4

13.9

2.3

-15.2

10.3

6.4

16 October 2017

11

Healthcare

Performance of top

companies: September 2017)

Company

IPM

Sun Pharma

Abbott India

Cipla

Zydus Cadila

Mankind

Alkem

Lupin

GSK Pharma

Pfizer

Glenmark

Pharma

Sanofi

Dr Reddy Labs

Torrent Pharma

Alembic Pharma

Ipca Labs

Natco

Ajanta Pharma

Merck

Biocon

MAT

gr (%)

6.2

7.5

8.7

2.3

11.8

6.2

2.8

9.3

3.0

(2.2)

10.3

11.7

3.4

9.6

(0.8)

(0.4)

(11.5)

9.4

7.1

11.5

Sep-

17

(%)

2.8

2.1

6.1

4.1

4.1

11.8

2.8

(2.8)

8.4

(2.3)

10.7

11.2

0.6

6.3

(6.8)

(17.5)

20.5

9.1

(0.1)

11.1

n

n

n

15 October 2017

Sector Update

IPM growth restricted by price decline

n

n

Natco, Mankind and Biocon witnessed highest growth in September-2017

n

Indian pharmaceutical market’s (IPM) secondary sales growth came in muted in

September, primarily due to lower prices and flat volume growth. IPM growth

stood at 2.8% YoY in September and 1% in July-September.

After declining by 0.5% in June-August 2017, prices in the industry witnessed

further 1.8% erosion in July-September. Growth in new products too came

down to 2.8% from a high of 3.9% in 1Q and 2QFY17, while volumes growth was

flat. We expect industry growth to remain muted in the coming months due to

GST-related issues.

Moving annual total (MAT) growth for September came down to 6.2%, as

against 7.3% in August.

Natco (+20.5%) posted robust growth for September, followed by Mankind

(+11.8%), Sanofi (+11.2%) and Biocon (+11.1%). In the month, ~50% of the

companies posted single-digit growth.

IPCA’s (-17.5%) secondary sales continued to decline in September, followed by

Alembic (-6.8%).

Vaccines (1.9% of IPM) saw significant growth of 15.5% in September, followed

by derma (6.3% of IPM; +12%) and anti-diabetic (9.2% of IPM; +10.7%). 50% of

the therapies posted mid- to low-single-digit growth. Respiratory therapy (7.4%

of IPM) grew 2.3% during the month v/s a decline of 6.1% in August. Anti-

infectives (13.9% of IPM) continued to decline (-2.4%), but showed

improvement from the previous month (-8% in August). Anti-neoplastics (2.1%

of IPM) declined 1.6%.

In value terms, secondary sales of DPCO-listed products declined 1.7% YoY and

of non-DPCO products increased 3.4% YoY. Volumes of DPCO-listed products

declined 1.8% YoY and of non-DPCO products increased 1.1% YoY.

FDC-banned drugs (~2.4% of IPM in value terms) after a few quarters posted

growth of 1.4% YoY, while non-banned drugs increased 3.3% YoY in September.

Secondary sales for Indian companies increased 2.5% YoY, while MNC

companies grew 3.9% YoY.

Price Growth (%)

9.9

4.4

3.7

1.8

3QFY17

3.2

New Product Growth (%)

8

3.4

1.4

4QFY17

1QFY18

Total Growth (%)

Vaccines, Derma and Anti-diabetic lead among therapies

DPCO v/s non-DPCO market (Sep-17)

n

FDC ban impact (September-17)

n

Exhibit 1: Further de-growth in price, along with muted volume growth, exerts pressure on industry

Volume Growth (%)

13.9

7.8

4.6

3.9

-0.7

1QFY17

2QFY17

7.4

3.9

2.6

6.7

1.6

2.1

3

2.8

0

-1.8

1

2QFY18

Source: AIOCD, MOSL

16 October 2017

12

Indian Pharma Market - Sep 2017

Exhibit 2: Performance of top companies: Sep 2017

MAT Sep -17

Value

Market Growth

(INR m)

Share (%)

(%)

IPM

1,142,174

100.0

6.2

97,347

8.5

7.5

Sun Pharma

71,110

6.2

8.7

Abbott India

52,637

4.6

2.3

Cipla

49,172

4.3

11.8

Zydus Cadila

42,475

3.7

6.2

Mankind

38,765

3.4

2.8

Alkem

38,027

3.3

9.3

Lupin

34,492

3.0

3.0

GSK Pharma

27,741

2.4

(2.2)

Pfizer

27,459

2.4

10.3

Glenmark Pharma

25,869

2.3

11.7

Sanofi

25,599

2.2

3.4

Dr Reddy Labs

26,722

2.3

9.6

Torrent Pharma

14,585

1.3

(0.8)

Alembic Pharma

15,840

1.4

(0.4)

Ipca Labs

9,630

0.8

(11.5)

Natco

7,192

0.6

9.4

Ajanta Pharma

6,769

0.6

7.1

Merck

3,877

0.3

11.5

Biocon

Company

Last 8 Quarters in Growth (%)

Dec-15

18.4

10.8

14.6

17.9

12.7

23.4

16.2

14.5

14.0

5.5

22.7

(0.6)

26.8

11.6

23.5

34.7

(4.8)

(2.5)

27.9

(29.3)

Mar-16

14.2

13.5

5.9

8.2

11.3

21.9

10.9

17.3

3.9

(2.3)

16.3

(6.9)

21.0

10.8

15.4

22.6

48.1

(4.9)

9.8

(29.2)

Jun-16

9.6

4.0

8.3

5.6

7.0

16.3

15.4

7.9

(4.8)

(1.5)

6.0

(0.6)

(1.2)

4.4

10.3

13.4

20.4

13.1

9.5

(19.2)

Sep-16

14.4

14.8

10.0

14.7

12.2

17.4

25.0

14.5

1.2

4.3

14.1

12.8

15.0

15.3

19.6

20.6

2.0

12.7

4.7

7.4

1M

Dec-16 mar-17 Jun-17 Sep-17 Sep-17

10.0

13.9

13.4

5.5

16.2

2.7

10.3

14.6

(6.0)

1.4

11.3

14.6

2.9

15.7

4.8

9.1

6.1

11.4

8.3

12.5

8.1

8.9

8.9

3.3

16.2

6.2

7.2

8.1

6.2

(1.3)

15.4

11.8

2.4

11.7

2.4

9.4

(29.4)

13.9

5.9

5.8

6.7

6.9

6.5

1.6

11.0

9.8

(1.3)

12.7

8.0

(2.9)

9.5

15.5

7.9

7.7

1.7

2.5

(9.0)

6.5

9.8

17.8

1.0

1.1

6.4

(1.0)

4.8

6.1

(2.9)

2.6

4.9

(5.7)

5.5

5.8

0.8

4.6

(10.7)

(16.8)

(5.8)

6.4

4.4

9.7

2.8

2.1

6.1

4.1

4.1

11.8

2.8

(2.8)

8.4

(2.3)

10.7

11.2

0.6

6.3

(6.8)

(17.5)

20.5

9.1

(0.1)

11.1

Exhibit 3: Performance of top therapies: Sep 2017

Therapy

MAT Sep -17

Last 8 Quarters in Growth (%)

1M

Value

Market Growth

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 mar-17 Jun-17 Sep-17 Sep-17

(INR m) Share (%) (%)

1,142,174

100.0

6.2

18.4

14.2

9.6

14.4

10.0

8.1

6.7

1.0

2.8

158,391

13.9

(3.5)

17.8

11.7

7.5

19.0

0.9

(3.9) (1.0) (8.8) (2.4)

141,522

12.4

9.7

13.7

12.8

8.8

10.8

13.9 10.5

8.6

6.3

5.9

132,046

99,821

104,661

84,036

77,572

71,888

69,185

58,744

23,909

21,716

21,191

19,884

11.6

8.7

9.2

7.4

6.8

6.3

6.1

5.1

2.1

1.9

1.9

1.7

6.1

5.4

17.3

0.6

4.8

12.7

6.3

7.8

7.3

18.7

6.1

7.6

17.8

11.3

23.5

20.0

18.2

19.6

17.2

16.8

52.6

35.8

10.9

22.7

14.9

12.5

18.5

9.4

12.5

18.1

17.5

14.4

45.0

(1.3)

17.7

17.3

9.2

10.3

17.1

3.5

8.1

12.1

11.4

9.8

9.2

2.7

12.7

8.7

13.1

12.0

18.7

27.0

15.2

13.1

11.9

9.3

(3.2)

9.6

6.9

11.3

9.1

11.4

21.6

4.1

9.3

13.7

11.0

12.3

15.7

12.5

6.9

9.9

9.2

7.9

20.1

1.9

8.0

15.9

6.5

11.6

7.0

25.4

5.5

5.6

6.1

3.7

17.1

3.2

5.5

11.0

5.0

7.4

5.8

28.7

6.4

10.2

1.0

(0.1)

11.3

(5.8)

(2.3)

10.6

3.3

1.1

1.5

10.3

5.5

5.0

2.4

(0.3)

10.7

2.3

(0.9)

12.0

1.8

1.3

(1.6)

15.5

6.2

4.1

IPM

Anti-Infectives

Cardiac

Gastro Intestinal

Vitamins / Minerals / Nutrients

Anti Diabetic

Respiratory

Pain / Analgesics

Derma

Neuro / Cns

Gynaecological

Anti-Neoplastics

Vaccines

Ophthal

Hormones

Source: AIOCD, MOSL

16 October 2017

13

September 2017 Results Preview | Sector: Financials

Bajaj Finance

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

BAF IN

546.9

1020 / 16

1989 / 762

5 / 54 / 62

CMP: INR1,865 TP: INR2,300 (+23%)

n

Buy

Financial Snapshot (INR b)

Y/E March

NII

PPP

PAT

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoA (%)

RoE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

Div. Yield (%)

55.5

10.6

0.1

41.1

6.6

0.2

29.7

5.5

0.2

21.5

4.5

2.9

2017 2018E 2019E 2020E

54.7

36.4

18.4

33.6

40.7

176

3.5

21.6

14.0

77.6 102.7 135.2

52.5

26.0

45.4

35.1

285

3.6

20.1

12.5

70.8

36.1

62.9

38.7

338

3.7

20.2

12.5

96.4

49.6

86.6

37.6

412

3.9

23.1

12.5

n

n

n

n

We expect AUM growth of 35% YoY, driven by strong growth in

consumer and commercial lending. Rural business too should

register strong growth, albeit off a low base. The company

continues to increase its market share in consumer durables

lending.

With investments into upgradation of systems, C/I is expected to

remain largely stable at 44%.

Asset quality is likely to remain stable. We expect provisions of

INR2.8b, as against INR2.9b in 1QFY18 and INR1.7b in 2QFY17.

Net profit is likely to grow 39% YoY to INR5.7b.

The stock trades at 6.6x FY18E and 5.5x FY19E BV (post capital

raise). Maintain Buy.

Key issues to watch for

Ø

Commentary on business growth momentum.

Ø

Guidance on margins due to changing product mix.

Ø

Asset quality trends, especially in LAP and 2W/3W businesses.

Ø

Traction in cross-sell franchise.

Quarterly Performance

Y/E March

Revenue from operations

YoY Growth (%)

Interest expenses

Net Income

YoY Growth (%)

Other income

Total Income

Operating Expenses

Operating Profit

YoY Growth (%)

Provisions and Cont.

Profit before Tax

Tax Provisions

Net Profit

YoY Growth (%)

Loan Growth (%)

Borrowings Growth (%)

Cost to Income Ratio (%)

Tax Rate (%)

E: MOSL Estimates

1Q

22,864

38.9

8,833

14,031

44.8

147

14,178

5,865

8,312

58.1

1,797

6,515

2,275

4,240

53.8

39.5

40.5

41.4

34.9

FY17

2Q

23,470

39.7

9,562

13,909

41.2

190

14,098

6,144

7,954

40.8

1,691

6,263

2,185

4,078

45.9

37.8

43.4

43.6

34.9

3Q

26,930

30.6

9,802

17,128

30.5

109

17,237

6,939

10,297

33.5

1,797

8,500

2,943

5,557

36.0

32.6

30.2

40.3

34.6

4Q

26,650

39.1

9,837

16,813

51.4

79

16,892

7,099

9,794

51.7

2,897

6,897

2,406

4,492

42.6

36.1

33.0

42.0

34.9

1Q

31,505

37.8

10,780

20,725

47.7

140

20,866

8,755

12,110

45.7

2,856

9,254

3,234

6,020

42.0

38.9

33.4

42.0

34.9

FY18

2QE

31,820

35.6

11,426

20,393

46.6

250

20,643

9,120

11,523

44.9

2,800

8,723

3,053

5,670

39.1

35.0

32.0

44.2

35.0

3QE

36,275

34.7

12,112

24,163

41.1

160

24,323

9,580

14,743

43.2

2,600

12,143

4,250

7,893

42.0

36.0

38.0

39.4

35.0

4QE

36,374

36.5

13,113

23,261

38.3

168

23,429

9,337

14,092

43.9

4,193

9,900

3,470

6,430

43.2

35.0

36.3

39.9

35.1

FY17

92,723

34.4

38,034

54,690

37.6

260

54,949

25,642

29,047

40.0

8,182

20,865

9,810

18,366

43.6

34.5

33.0

46.9

35.1

(INR m)

FY18E

125,045

34.9

47,430

77,614

41.9

719

78,333

36,792

40,822

40.5

12,449

28,373

14,007

26,013

41.6

35.0

36.3

47.4

35.1

16 October 2017

14

September 2017 Results Preview | Sector: Consumer

Colgate

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

CLGT IN

272.0

296 / 5

1176 / 862

-1 / 3 / -1

n

CMP: INR1,088 TP: INR1,385 (+27%)

n

Buy

We expect Colgate’s (CLGT) sales to grow 4% YoY to INR10.9b,

with 7% toothpaste volume growth. We have factored in GST

related accounting impact of 7.5% on sales and no impact on

absolute EBITDA.

We estimate EBITDA margin expansion of 320bp YoY to 29.2%.

Hence, we have modeled EBITDA growth of 17.1% and adjusted

PAT growth of 10.7% for the quarter.

The stock trades at 36.6x FY19E EPS of INR29.8; we have a Buy

rating on the stock.

Financial Snapshot (INR b)

Y/E March

2017 2018E 2019E 2020E

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

51.3

23.2

31.0

0.9

44.5

22.0

26.9

1.6

36.6

20.6

22.2

1.9

30.2

18.9

18.6

2.3

39.5

9.4

5.8

21.2

-5.7

46.8

50.4

49.3

47.0

40.4

10.9

6.7

24.5

15.2

49.4

50.8

49.8

70.0

48.5

13.0

8.1

29.8

21.7

52.9

58.2

57.1

70.0

57.1

15.5

9.8

36.1

21.2

57.6

65.3

64.1

70.0

n

Key issues to watch for

Ø

Volume growth in toothpaste and market share movement.

Ø

Ad spends and competitive intensity in toothpaste, especially

from Patanjali.

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adj PAT

YoY Change (%)

Margins (%)

Key Assumptions

Refining throughput (mmt)

GRM (USD/bbl)

Petchem EBITDA/tonne (USD/MT)

Petchem volumes (mmt)

E: MOSL Estimates

1Q

534,960

-18.7

426,790

108,170

20.2

19,500

9,240

20,330

99,760

24,280

24

75,480

19.5

14.1

16.8

11.5

303.8

1.9

FY17

2Q

3Q

595,770 618,060

-2.0

9.3

490,220 512,020

105,550 106,040

17.7

17.2

20,290 20,770

6,330

9,310

22,800 30,250

101,730 106,210

24,690 25,990

24

24

77,040 80,220

17.4

11.1

12.9

13.0

18.0

10.1

314.4

2.1

17.8

10.8

329.4

2.0

4Q

671,460

34.4

558,660

112,800

16.8

24,090

2,350

13,710

100,070

18,560

19

81,510

11.4

12.1

17.5

11.5

313.7

2.1

1Q

642,170

20.0

526,280

115,890

18.0

21,580

7,880

19,180

105,610

23,650

22

81,960

8.6

12.8

17.3

11.9

348.9

2.2

FY18E

2QE

3QE

737,250 905,717

23.7

46.5

610,803 767,458

126,447 138,258

17.2

15.3

23,000 27,456

9,355

9,355

19,000 24,558

113,092 126,006

24,880 27,721

22

22

88,212 98,284

14.5

22.5

12.0

10.9

17.5

12.6

370.0

2.3

17.5

11.0

300.0

3.0

(INR Million)

FY17

FY18E

4QE

912,631 2,420,250 3,197,768

35.9

3.8

32.1

777,291 1,987,690 2,681,833

135,339 432,560 515,935

14.8

17.9

16.1

27,456

84,650

99,492

9,355

27,230

35,944

24,558

87,090

87,295

123,087 407,770 467,795

27,079

93,520 103,331

22

23

22

96,008 314,250 364,464

17.8

14.6

16.0

10.5

13.0

11.4

17.5

11.0

280.0

3.0

70.1

11.0

315.3

8.1

69.8

11.6

324.7

10.5

16 October 2017

15

September 2017 Results Preview | Sector: Financials

DCB Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

DCBB IN

307.1

57 / 1

213 / 100

1 / 4 / 36

n

CMP: INR185

n

TP: INR188 (+2%)

Neutral

Financial Snapshot (INR b)

Y/E MARCH

2017 2018E 2019E 2020E

NII

8.0

9.7

11.9 14.5

OP

4.2

5.1

6.3

7.8

NP

2.0

2.6

3.2

3.8

EPS (INR)

7.0

8.4

10.4 12.5

EPS Gr. (%)

2.3

19.5 24.3 20.6

BV/Sh. (INR)

68.2 83.4 92.8 104.2

RoE (%)

10.8 11.4 11.8 12.7

RoA (%)

0.9

1.0

1.0

0.9

Valuations

P/E (x)

26.7 22.4 18.0 14.9

P/BV (x)

2.7

2.2

2.0

1.8

n

n

n

Loan growth (19% YoY) and deposit growth (14% YoY) are expected

to be significantly above industry average. Growth will be driven by

retail; management intends to curb corporate growth below 20%.

We expect NII to grow 24% YoY, led by strong loan growth and

margin expansion of 15bp YoY owing to lower cost of funds from

healthy CASA accretion post demonetization.

Non-interest income is expected to grow ~10% YoY. While fee

income is expected to remain healthy, trading gains would be

sequentially lower, as 1QFY18 had one-off treasury gains of

~INR214m.

Overall, we expect PPP growth to be ~23% YoY. We model opex

growth of 22% YoY, lower than previous quarters, as the pace of

branch addition will slow down. Credit costs may be elevated

owing to potential stress in the retail and SME segments (we factor

in 1.7% slippage ratio). We expect PBT growth of 27% YoY.

DCBB trades at 2x FY19E BV and 18.0x FY19E EPS. Expensive

valuations leave room for limited upside. Maintain Neutral.

Key issues to watch for

Ø

Management commentary on slippages in SME segment.

Ø

Update and commentary on balance sheet growth strategy.

Ø

CASA ratio and NIM performance.

Quarterly Performance

Interest Income

Interest Expense

Net Interest Income

% Change (Y-o-Y)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (Y-o-Y)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (Y-o-Y)

Operating Parameters

NIM (Reported,%)

Deposit Growth (%)

Loan Growth (%)

CD Ratio (%)

Asset Quality

Gross NPA (INR B)

Gross NPA (%)

E: MOSL Estimates

1Q

4,706

2,936

1,770

26.1

601

2,372

1,444

927

3.4

205

722

252

470

0.3

4.1

18.2

27.9

85.1

2.3

1.7

FY17

2Q

5,063

3,160

1,903

26.9

616

2,519

1,511

1,009

29.2

265

744

259

485

31.3

4.0

30.4

29.1

81.6

2.6

1.8

3Q

5,502

3,407

2,095

30.5

641

2,736

1,643

1,093

29.7

305

787

274

513

24.5

4.0

33.8

24.3

77.4

2.3

1.6

4Q

5,491

3,288

2,203

30.6

636

2,839

1,685

1,153

18.9

339

814

286

529

-24.0

1Q

5,660

3,329

2,332

31.7

858

3,189

1,825

1,364

47.1

355

1,009

357

652

38.7

4.2

22.2

22.0

84.9

2.9

1.7

FY18E

2QE

5,966

3,612

2,355

23.7

725

3,080

1,843

1,237

22.6

290

947

317

630

29.9

3QE

6,360

3,919

2,441

16.5

728

3,169

1,939

1,229

12.5

270

959

321

638

24.4

4QE

7,135

4,513

2,622

19.0

725

3,347

2,059

1,288

11.7

311

977

328

649

22.8

FY17

20,761

12,791

7,971

28.7

2,495

10,465

6,283

4,182

19.8

1,115

3,067

1,070

1,997

2.6

(INR m)

FY18E

25,121

15,372

9,749

22.3

3,035

12,784

7,666

5,119

22.4

1,226

3,893

1,323

2,569

28.7

29.2

22.4

82.0

2.5

1.6

13.7

19.4

0.0

3.0

1.7

14.2

25.3

0.0

3.2

1.7

25.0

25.0

0.0

3.0

1.5

29.2

22.4

82.0

2.5

1.6

25.0

25.0

82.0

3.2

1.6

16 October 2017

16

September 2017 Results Preview | Sector: Others

Delta Corp

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

DELTA IN

267.1

56 / 1

218 / 95

11 / -2 / 6

n

CMP: INR209

n

TP: INR232 (+11%)

Buy

We expect revenue to grow 34% YoY to INR1,800m, driven by the

casino business in Goa and Sikkim, as well as the amalgamation of

Adda52.

EBITDA margin is likely to shrink 420bp YoY to 38%, and EBITDA

should grow 20.6% YoY to INR684m.

Net profit is likely to increase 27.6% YoY to INR413m. Buy.

Financial Snapshot (INR Billion)

Y/E March

2017 2018E 2019E 2020E

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

68.4

5.3

35.2

0.2

37.4

3.5

21.6

0.6

27.0

3.2

15.8

0.6

21.0

2.8

12.1

0.7

4.5

1.6

0.7

3.1

125.5

39.7

8.1

8.7

13.2

6.8

2.5

1.5

5.6

82.8

59.2

11.9

11.4

25.9

8.7

3.3

2.1

7.7

38.8

65.4

12.4

12.5

20.2

10.6

4.1

2.7

9.9

28.4

73.6

14.3

21.1

16.9

n

Key issues to watch for

Ø

Commencement of Sikkim airport.

Ø

Expansion plans of online business.

Consolidated - Quarterly Earning Model (INR m)

FY17

Y/E March

1Q

2Q

Net Sales

1,087

1,343

YoY Change (%)

34.6

43.8

Total Expenditure

671

776

EBITDA

415

567

Margins (%)

38.2

42.2

Depreciation

91

93

Interest

87

87

Other Income

9

11

PBT before EO expense

246

399

Extra-Ord expense

-46

2

PBT

292

397

Tax

85

91

Rate (%)

29.2

22.9

MI & P/L of Asso. Cos.

4

-16

Reported PAT

202

322

Adj PAT

170

323

YoY Change (%)

2,539.9

494.1

Margins (%)

15.6

24.1

E: MOSL Estimates

3Q

1,036

3.4

723

313

30.2

89

82

11

152

5

147

40

27.2

6

101

105

-9.4

10.1

4Q

1,081

5.3

737

344

31.8

87

94

19

182

0

181

64

35.4

3

114

114

-29.3

10.5

1Q

1,286

18.4

833

453

35.2

89

70

37

332

-18

350

127

36.1

1

223

211

24.4

16.4

FY18

2QE

1,800

34.0

1,116

684

38.0

105

33

70

616

0

616

203

33.0

0

413

413

27.6

22.9

FY17

3QE

1,864

80.0

1,230

634

34.0

112

0

70

592

0

592

178

30.0

0

414

414

296.2

22.2

4QE

1,892

75.0

1,230

662

35.0

112

0

70

620

0

620

186

30.0

0

434

434

281.3

23.0

4,547

21.2

2,907

1,640

36.1

361

350

49

978

42

936

280

29.9

2

654

683

118.8

15.0

FY18E

6,827

50.1

4,369

2,458

36.0

423

80

210

2,165

0

2,165

671

31.0

3

1,491

1,491

118.2

21.8

16 October 2017

17

September 2017 Results Preview | Sector: Financials

Dewan Housing Finance

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

DEWH IN

313.2

175 / 3

651 / 214

2 / 40 / 77

n

CMP: INR559

n

TP: INR690 (+23%)

Buy

Financial Snapshot (INR b)

Y/E March

NII

PPP

Adj. PAT

EPS (INR)

EPS Gr. (%)

BV (INR)

RoAA (%)

RoE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

P/ABV (x)

Div. Yield (%)

18.9

2.2

2.2

0.7

14.8

2.0

2.0

1.0

11.9

1.7

1.7

1.3

9.9

1.5

1.5

1.5

2017 2018E 2019E 2020E

15.1

16.2

9.3

29.6

18.5

252

1.2

14.4

15.7

19.3

21.2

11.8

37.7

27.4

282

1.2

14.1

17.4

24.9

26.7

14.7

47.1

24.9

321

1.3

15.6

17.4

30.3

31.9

17.6

56.2

19.3

367

1.3

16.3

17.4

n

n

n

n

Business growth has been good, despite the implementation of GST

and RERA. We expect 20% YoY growth in disbursements to drive

4%/22% QoQ/YoY growth in AUM in the quarter.

Margins are likely to remain largely stable. As a result, we expect

26% YoY growth in NII in the quarter.

Calculated cost-to-income ratio will continue to decline. We expect

it to reach 24.5% in 2QFY18 v/s 25.3% in 1QFY18 and 26% in

2QFY17.

Asset quality is likely to remain stable, with GNPAs of 0.95%. We

factor in provisions of INR600m for 2QFY18.

Net profit is likely to grow 27% YoY to INR2.9b.

The stock trades at 2.0x FY18E and 1.7x FY19E BV. Maintain Buy.

Key issues to watch for

Ø

Business growth trends and momentum, and management

commentary on the same.

Ø

Impact of RERA.

Ø

Asset quality trends in non-retail and LAP segments.

Ø

Guidance on cost structure.

Quarterly performance

Y/E March

Interest Income

Interest Expenses

Net Interest Income

YoY Growth (%)

Fees and other income

Net Income

YoY Growth (%)

Operating Expenses

YoY Growth (%)

Operating Profits

YoY Growth (%)

Provisions

Profit before Tax

Tax Provisions

Profit after tax

YoY Growth (%)

Loan growth (%)

Borrowings growth (%)

Cost to Income Ratio (%)

Tax Rate (%)

E: MOSL Estimates

1Q

19,319

14,754

4,565

14.5

275

4,840

15.5

1,361

8.4

3,479

18.6

450

3,029

1,015

2,014

16.2

18.3

20.4

28.1

33.5

(INR m)

FY17

2Q

21,227

16,307

4,920

21.0

451

5,371

18.3

1,398

6.1

3,972

23.2

450

3,522

1,196

2,326

29.0

16.0

38.5

26.0

34.0

3Q

23,151

18,001

5,150

20.8

514

5,664

21.6

1,497

9.1

4,167

26.9

450

3,717

1,269

2,448

31.7

16.9

28.0

26.4

34.2

4Q

22,835

17,475

5,360

22.6

943

6,303

29.1

1,717

10.8

4,586

37.7

830

3,756

1,273

2,483

30.9

16.7

33.1

27.2

33.9

1Q

23,529

17,869

5,660

24.0

549

6,209

28.3

1,570

15.4

4,640

33.4

830

3,810

1,205

2,605

29.3

19.8

34.4

25.3

31.6

FY18

2QE

24,705

18,494

6,211

26.2

500

6,711

25.0

1,646

17.7

5,065

27.5

600

4,465

1,518

2,947

26.7

21.0

12.0

24.5

34.0

3QE

25,446

18,772

6,675

29.6

600

7,275

28.4

1,743

16.4

5,532

32.8

800

4,732

1,609

3,123

27.6

21.0

16.0

24.0

34.0

4QE

26,209

18,987

7,221

34.7

806

8,027

27.4

2,018

17.6

6,009

31.0

1,258

4,751

1,617

3,134

26.2

20.9

12.5

25.1

34.0

FY17

86,531

66,536

19,995

19.8

2,182

22,177

21.4

5,973

8.7

16,204

26.9

2,180

14,024

4,754

9,270

27.1

18.5

45.7

26.9

33.9

FY18E

99,889

74,122

25,767

28.9

2,455

28,222

27.3

6,977

16.8

21,245

31.1

3,488

17,757

5,949

11,809

27.4

18.0

23.9

24.7

33.5

16 October 2017

18

September 2017 Results Preview | Sector: Financials

Federal Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

Financial Snapshot (INR b)

Y/E Mar

2017 2018E

NII

30.5 35.4

OP

19.2 23.4

NP

8.3

10.4

NIM (%)

3.3

3.1

EPS (INR)

4.8

5.4

EPS Gr. (%)

74.1 11.6

BV/Sh. (INR)

50.8 62.3

ABV/Sh. (INR)

47.2 58.9

ROE (%)

9.9

10.0

ROA (%)

0.8

0.8

Payout (%)

26.1 20.3

Valuations

P/E(X)

23.7 21.2

P/BV (X)

2.2

1.8

P/ABV (X)

2.4

1.9

Div. Yield (%)

1.0

0.8

FB IN

1719.0

196 / 3

122 / 62

3 / 20 / 42

n

2019E

43.4

27.5

13.3

3.1

6.8

27.0

67.7

64.1

10.5

0.9

19.7

16.7

1.7

1.8

1.0

2020E

52.0

33.9

16.7

3.0

8.6

25.7

74.6

71.7

12.1

0.9

19.7

13.3

1.5

1.6

1.3

n

n

CMP: INR114

n

TP: INR139 (+22%)

Buy

n

We expect FB to report ~24% YoY (5% QoQ) loan growth, aided by

renewed focus on corporate growth. Traction in SME and retail

loans would be maintained. We expect NIM to expand by 16bp

QoQ, as 1QFY18 margin was impacted by an interest reversal.

Other income growth is likely to moderate to 20% YoY, driven by

healthy fee income growth.

Overall PPoP growth is expected to be ~24% YoY, led by strong

revenue growth and controlled opex (+16% YoY).

We expect slippages to decline to INR3.2b (at 1.7% annualized

slippage ratio) v/s INR4.3b in 1QFY18, which had a bulky

restructured account slipping into NPA. GNPA is expected to

decline marginally to 2.38%.

We expect PAT of INR2.8b v/s INR2b in 2QFY17 and ~INR2.1b in

1QFY18. FB trades at 1.7x FY19E BV and 16.7x FY19E EPS. Buy.

Key issues to watch for

Ø

Outlook on asset quality.

Ø

Strategy on balance sheet growth, particularly corporate

growth.

Quarterly Performance

Net Interest Income

% Change (YoY)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (YoY)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (YoY)

Operating Parameters

NIM (Reported,%)

Deposit Growth (%)

Loan Growth (%)

CASA Ratio (%)

Asset Quality

Gross NPA (INR b)

Gross NPA (%)

E: MOSL Estimates

1Q

6,927

14.5

2,370

9,297

5,039

4,259

16.0

1,685

2,574

901

1,673

18.3

3.3

12.5

19.3

32.8

17.5

2.9

FY17

2Q

3Q

7,262

7,914

19.4

30.7

2,616

2,747

9,878

10,661

5,128

5,912

4,750

4,749

41.1

45.9

1,684

1,588

3,066

3,161

1,053

1,104

2,013

2,057

24.8

26.4

3.3

17.0

27.2

31.0

18.2

2.8

3.3

23.3

32.0

34.7

19.5

2.8

4Q

8,424

22.8

2,821

11,245

5,753

5,492

39.2

1,227

4,265

1,699

2,566

2,400.9

3.4

23.4

26.2

32.6

17.3

2.3

1Q

8,007

15.6

3,291

11,298

5,719

5,579

31.0

2,364

3,214

1,113

2,102

25.6

FY18E

2QE

8,707

19.9

3,148

11,855

5,951

5,904

24.3

1,600

4,304

1,506

2,798

39.0

FY17

3QE

9,059

14.5

3,461

12,519

6,599

5,920

24.7

1,800

4,120

1,442

2,678

30.2

4QE

9,657

14.6

3,952

13,609

7,604

6,005

9.3

1,569

4,435

1,564

2,871

11.9

30,526

21.7

10,818

41,345

22,095

19,249

35.2

6,184

13,065

4,757

8,308

74.7

3.3

23.4

26.2

32.8

17.3

2.3

(INR m)

FY18E

35,429

16.1

13,851

49,280

25,874

23,406

21.6

7,334

16,073

5,625

10,447

25.7

18.1

29.1

17.7

23.9

18.4

22.0

21.0

25.0

21.0

25.0

33.3

19.6

2.1

18.7

2.4

19.3

2.4

19.6

2.3

19.6

2.1

16 October 2017

19