16th Jun, 2016 - Rathi company is likely to show healthy performance in FY17, if domestic demand...

Private & Confidential Private & Confidential

16th Jun, 2016


Suitability

Suitable for Investors looking for….

• Investment horizon over three years.

• Having low risk appetite.

• Lower volatility and price fluctuations on investments.

• Modest return with low risk within equity asset class.

• High liquidity of investments.

Private & Confidential

Business Model 1) Market Share 2) Leadership 3) Niche Business Model

Consistency 1) Sales / EBIDTA / PAT growth (3-5 years) 2) Stable or improving margins (3-5 years)

Visibility 1) Earnings outlook over next 3 years 2) Predictable business model

Corporate Governance 1) Management back ground 2) Accounting & Corporate policies

Sector opportunity 1) Sector potential to grow 2) Cyclical / Non

Cyclical 3) Favoring Policies

Diversification 1) Sectorally well diversified basket of 15 stocks 2) 80:20 Large cap and Midcap companies

Exposure 1) Single Stock exposure < 10% 2) Single Sector exposure < 30%

Active Monitoring 1) Tracking news /policy /Quarter Performance 2) Rebalancing recommended list

Stock Selection

Allocation

Investment Philosophy


Why Mid Cap

The table shows outperformance of the Mid Cap and Small Cap Index over the Sensex Index during the Bull Period.

Outperformance of the Mid Cap happens because of better earnings growth in the bull phase.

The P/E for Mid cap and Small Caps also expands as earnings growth is superior v/s Sensex earnings growth.

Going forward Mid Cap and Small Cap are expected to outperform the Large Cap, however one should keep in mind the risk associated with it as we see the higher volatility in it. Therefore we emphasis on stringent stock selection strategy to create alpha over the benchmark.

Today’s Small Cap

Small Cap

are tomorrows Mid cap

Mid Cap

Which may eventually

become Large Cap

Large Cap

Apr-03 Dec-07 CAGR Volatility

Sensex 2960 20287 51.0% 22.0%

BSE Mid Cap 952 9789 64.6% 25.0%

BSE Small Cap 893 13348 78.4% 31.6%

Dec-07 Dec-11 CAGR Volatility

Sensex 20287 15455 -6.6% 31.2%

BSE Mid Cap 9789 5135 -14.9% 40.5%

BSE Small Cap 13348 5550 -19.7% 45.4%

Dec-11 May-16 CAGR Volatility

Sensex 15455 26668 13.1% 14.3%

BSE Mid Cap 5135 11366 19.7% 19.2%

BSE Small Cap 5550 11142 17.1% 21.8%

Bull Period

Bear Period

Current Bull period


Why Mid Cap

The above graph represents the P/e difference between the CNXMCAP P/e & NIFTY P/e over the last 12 years. The MidCaps had a great rally when the diff. in P/e reached 6 from Minus 7.7. After Jan 08 crash, this difference has largely remained in the negative territory. We have utilize this as an opportunity.

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Difference between NIFTY MIDCAP 100 P/E and NIFTY 50 P/E


Recommended Conservative Basket

CMP as on 31st May 2016

Company Sector Cost CMP % Gain Loss % Holding Mkt Cap (cr) Market Cap % Allocation

RALLIS AGRICHEM 236 206 -12.8% 5.7% 4008 Large Cap 75.5%

ASHOKLEY AUTOMOBILES 95 109 14.9% 6.3% 30992 Mid Cap 24.5%

TATAMOTORS AUTOMOBILES 341 460 34.7% 8.6% 132292

CUMMINSIND CAPITAL GOODS 899 800 -11.0% 5.8% 22166 Sector % Allocation

LT CAPITAL GOODS 1650 1474 -10.7% 5.8% 137380 AGRICHEM 5.7%

AXISBANK FINANCIALS 515 515 0.0% 6.0% 123016 AUTOMOBILES 14.8%

LICHSGFIN FINANCIALS 462 471 1.8% 6.6% 23691 CAPITAL GOODS 11.6%

DABUR FMCG 267 290 8.6% 7.6% 51066 FINANCIALS 12.6%

ZEEL MEDIA 402 443 10.2% 6.2% 42615 FMCG 7.6%

BPCL OIL & GAS 726 981 35.0% 9.5% 70960 MEDIA 6.2%

DRREDDY PHARMA 3351 3183 -5.0% 6.2% 54329 OIL & GAS 9.5%

SYNGENE PHARMA 390 390 0.0% 6.0% 7776 PHARMA 12.2%

ECLERX TECHNOLOGY 1426 1426 0.0% 6.0% 5777 TECHNOLOGY 13.0%

TCS TECHNOLOGY 2585 2569 -0.6% 7.0% 507405 POWER 0.0%

ARVIND TEXTILES 307 319 4.0% 6.8% 8237 TEXTILES 6.8%

Total 476442 498412 100% Total 100.0%

As on 31st May 2016 1 Month 3 Month 6 Month 1 Year

Since Inception

18th Feb 2015

CONSERVATIVE Basket 2.8% 22.1% 2.3% 2.3% 1.1%

NIFTY 50 4.0% 16.8% 2.8% -3.2% -7.4%

NIFTY MIDCAP 100 0.7% 15.0% 0.3% 0.8% 1.6%

Model Basket Performance

Note: Returns shown above are pre cost, including dividends and adjusted for gain/loss

on the stock replacement done.


Rallis India Ltd

SECTOR

NSE Symbol BSE Code Bloomberg

RALLIS 500355 RALI IN

CMP Market Cap (cr) Equity (cr)

206 4006 19

EPS (TTM) BV FV

7.4 46.2 1

P/E P/BV Div Yield

28.0 4.5 1.21

52 Week H 52 Week L Avg Vol ('000)

273.7 142 87.9

Group

Promoter 50.09

Others 49.91

AGRICHEM

Share Holding Pattern

Rallis India Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 1,747 1,815 1,628 1,903 2,175

EBIDTA 263 273 233 299 343

EBIDTA Margin 15.1% 15.0% 14.3% 15.7% 15.8%

PAT 153 160 147 174 214

PAT Margin 8.7% 8.8% 9.0% 9.2% 9.8%

EPS 7.8 8.1 7.4 9.0 11.0

Source: Anand Rathi Research, Bloomberg, Ace equity

Figures INR crore

Rallis India (Rallis), a Tata Group company, is an established agrochemical player in India. The company, with market share of ~12% is well placed to capture emerging opportunities in the domestic agrochemical market on back of healthy distribution network, branded farm solutions and launch of new products.

In Q4FY16 Rallis India posted 8.7% y-o-y growth in consolidated revenues to Rs.348crs led by 9% y-o-y growth in standalone business and 1% y-o-y increase in Metahelix. EBITDA margin contracted 190bps y-o-y to 12.2% on lower margin in the seeds segment. Consolidated net profit jumped sharply by ~51% y-o-y to Rs.32.3crs on higher other income on land sale, lower depreciation on revaluation of asset life and tax.

The company has received regulatory approval for expansion in Dahej, with capex of Rs.2bn. Management has indicated that the excess cash will be deployed in growing the business organically as well as inorganically.

The company is likely to show healthy performance in FY17, if domestic demand picks up on the back of normal Monsoon and better growth in the global & seeds businesses. Additionally, Rallis has specific triggers such as (1) Launches of new products, (2) Custom synthesis (CSM) revenues are likely to begin, and (3) Growth in the seeds business.

CMP 206

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NIFTY MIDCAP 100

Rallis India Ltd.


Ashok Leyland Ltd.

SECTOR


ASHOKLEY 500477 AL IN


105 29839 285

EPS (TTM) BV FV

3.8 14.0 1

P/E P/BV Div Yield

27.9 7.5 0.43


112.9 64 4560.5

Group

Promoter 50.38

Others 49.62

AUTOMOBILES


Ashok Leyland Ltd.

FY 14 FY 15 FY 16 FY 17 E (P) FY 18 E (P)

Net Sales 11,487 15,341 20,490 23,064 26,792

EBIDTA 422 1,517 2,932 2,767 3,182

EBIDTA Margin 3.7% 9.9% 14.3% 12.0% 11.9%

PAT -232 -214 1,099 1,532 1,847

PAT Margin -2.0% -1.4% 5.4% 6.6% 6.9%

EPS -0.6 0.5 3.8 5.4 6.5


Figures INR crore

Ashok Leyland, hinduja group company is the 2nd largest MHCV with ~26% market share. To expand its product offerings, AL has entered into 50:50 JV with Nissan for LCVs and John Deere for construction equipment.

In Q4FY16 sales came at Rs 59.6bn (+32% YoY). EBITDA at Rs 7.5bn (+65% YoY) missed estimates on lower gross margins and higher other expenses. Management highlighted that QoQ drop in gross margins was related to lower mix of non-vehicle segments (defense, spares etc). APAT at Rs 4.6bn (+92% YoY) led by lower interest and tax expenses. Subsidiaries contributed positively for first time, with PBT contribution of ~ Rs 33.4cr v/s loss of ~Rs 87.5 cr in FY15. Capex guidance for FY17 at ~INR5b (incl investments), as against ~Rs 2.2b in FY16

Management highlighted for FY17 a) M&HVC industry growth of 15-20% driven by replacement demand and Infra demand b) It has gained ~420bp market share to ~32.7% in FY16, It expects further market share gain driven by new product launches in ICV segment gaining market share in markets where it is currently weak. c)Company expects contribution from 11 Defence orders won in FY16, from FY17 with potential revenues on full ramp-up at ~Rs. 20b p.a (v/s FY16 defence revenues at ~ Rs. 5bn)

CMP 105

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NIFTY 50

Ashok Leyland Ltd.


Tata Motors Ltd.

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NIFTY 50 Tata Motors Ltd.

SECTOR


TATAMOTORS 500570 TTMT IN


448 129462 577

EPS (TTM) BV FV

38.2 279.4 2

P/E P/BV Div Yield

11.7 1.6 0.00


470.3 265.8 4069.8

Group

Promoter 33.01

Others 66.99

AUTOMOBILES


Tata Motors Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 232,834 262,796 272,646 303,993 343,836

EBIDTA 33,224 39,239 36,756 44,184 50,772

EBIDTA Margin 14.3% 14.9% 13.5% 14.5% 14.8%

PAT 14,104 14,060 11,108 15,978 18,700

PAT Margin 6.1% 5.4% 4.1% 5.3% 5.4%

EPS 43.0 43.0 32.5 45.9 54.5


Figures INR crore

Tata Motors Limited is a leading global automobile manufacturer with a portfolio that covers a wide range of cars, sports vehicles, buses, trucks and defence vehicles. Company now sell vehicles in more than 50 countries. It has built a strong global network of subsidiaries and associate companies, including Jaguar Land Rover in UK and Tata Daewoo in south korea.

In Q4FY16 consolidated revenues inched up 19% YoY to Rs 807bn and PAT up 158% to Rs 47bn. JLR reported an EBIDTA margin of 13.7%. Excluding one-off the adjusted EBIDTA margin in JLR business stood at 16.2%. Standalone Net sales at Rs 124.6bn up 16.7% YoY EBITDA grew 1.8x at Rs 10.2bn. EBITDA margins were at 8.1% increase of 240bp QoQ due to improved product mix along with benefit from operating leverage. Further, Adj PAT was at Rs 5bn as compared to a loss of Rs 39.5 cr. Capex planned at £3.75 bn in FY17.

Tata motors is at sweet spot to sustain strong performance 1) Domestic M&HCV business is expected to maintain its traction, while LCV business has started showing resilience. 2) better than expected profits at Chery-JLR JV 3) JLR’s performance to improved backed by new product launches also expected to generate strong operating cash flow to fund investment, free cash flow may be negative in the medium-term.

CMP 448


Cummins India Ltd.

SECTOR


CUMMINSIND 500480 KKC IN


802 22227 55

EPS (TTM) BV FV

26.5 120.2 2

P/E P/BV Div Yield

30.3 6.7 0.80


1247.65 746.15 45.1

Group

Promoter 51

Others 49

CAPITAL GOODS


Cummins India Ltd.

FY 14 FY 15 FY 16 FY 17 E (P) FY 18 E (P)

Net Sales 3,977 4,406 5,131 5,120 5,843

EBIDTA 697 735 881 830 973

EBIDTA Margin 17.5% 16.7% 17.2% 16.2% 16.7%

PAT 600 786 714 827 950

PAT Margin 15.1% 17.8% 13.9% 16.2% 16.3%

EPS 21.6 28.3 26.5 30.1 34.6


Figures INR crore

Cummins India retains its leadership in the medium and large DG sets in India despite weak traction in the power generation segment. It continues to command premium given (1) technology and distribution intensive business model (2) strong cash generation and (3) quality of business and its managers.4) Relatively strong balance sheet and return ratios (+30%) – amongst the best in the capital goods universe.

It has successfully explored new markets for HHP / Heavy Duty exports in LatAm; LHP product range extended to more product applications / ranges.

With the competition is intensifying, Cummins expects to defend its market share and margin by lowering its cost through increased indigenization.

In Q4FY16 reported 6% revenue decline, this was mainly due to the 30% YoY dip in export revenues and domestic revenues (up 4% YoY) However, the industrial and distribution business registered strong growth of 20/14% YoY. Margins improved by 51bps to 16%.

Management guided for 8-12% growth in domestic sales on account of improved traction in railway, construction, mining, compressors, and marine, among others and flat to negative growth in exports, which gives a blended growth rate of 5-7% for FY17

CMP 802

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NIFTY 50

Cummins India Ltd.


Larsen & Toubro Ltd.

SECTOR


LT 500510 LT IN


1461 136124 186

EPS (TTM) BV FV

54.6 471.8 2

P/E P/BV Div Yield

26.7 3.1 1.11


1888 1016.05 994.9

Group

Promoter 0

Others 100

CAPITAL GOODS



FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 85,128 92,005 101,336 114,878 113,894

EBIDTA 9,929 10,755 12,343 14,308 16,927

EBIDTA Margin 11.7% 11.7% 12.2% 12.5% 14.9%

PAT 4,875 4,964 5,538 5,568 6,685

PAT Margin 5.7% 5.4% 5.5% 4.8% 5.9%

EPS 52.9 51.3 54.6 59.6 71.5


Figures INR crore

Larsen and Toubro (LT) is India's largest E&C Company. Larsen has made significant investments in defence, shipbuilding and power, over the last 4-5 years. Larsen has also expanded into new geographies like Saudi Arabia and Qatar. Most of these businesses are highly capital intensive, which shall fetch revenues in the coming years.

In Q4FY16 LT reported consolidated sales of Rs331bn, up 18% YoY. Domestic sales were up 15% YoY and International sales were up 23% YoY. While E&C business grew by 19% YoY (infrastructures segment sales up 18% YoY), Services businesses (IT&Ts and Financial services) up ~ 16% YoY. EBITDA was up 35% YoY to Rs48.5bn and EBITDA margin stood at 14.3% up 180bps YoY.

The company has a order pipeline of Rs 2.5trn crore. Management guided for Inflow growth of 15% for FY17 (FY16 De growth of 12%). The current prospect pipeline is Rs 5trn. Out of prospect pipeline, Rs2.5trn is from infrastructure, ~Rs 1tn from hydrocarbon, ~1tn from power and ~ Rs 500bn from defence and other segments.. The company expect to bag defence orders worth Rs 150bn in FY17 against ~ Rs 50‐60bn in FY16.

LT continues to be the best play in the Indian infrastructure space, given its strong business model, diverse skill sets, strong execution capabilities and relatively healthy/large balance sheet.

CMP 1461

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NIFTY 50



eClerx Services Limited

SECTOR


ECLERX 532927 ECLX IN


1494 6100 41

EPS (TTM) BV FV

88.9 266.1 10

P/E P/BV Div Yield

16.8 5.6 1.76


1580 1051.5 6.8

Group

Promoter 50.38

Others 49.62

TECHNOLOGY


eClerx Services Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 841 942 1,314 1,409 1,592

EBIDTA 355 316 486 510 594

EBIDTA Margin 42.2% 33.6% 37.0% 36.2% 37.3%

PAT 256 230 363 393 456

PAT Margin 30.4% 24.4% 27.6% 27.9% 28.6%

EPS 63.5 56.8 89.0 96.4 111.9


Figures INR crore

Incorporated in 2000, eClerx is India’s first publicly listed KPO specializes in providing operational support, data management and analytics solutions to over 50 of Global Fortune 1000 clients in sectors like High Tech, Financial Services, E-com, Retail & Distribution, Broadband, Cable & Telecom, etc

With increase in automation and digitization of processes, platform-based and verticalised services have increased significantly. India’s BPM sector, in fact, is expected to transcend into a USD 300 billion entity by 2020.

For FY16 eClerx witnessed revenue growth of ~15% in organic terms while in constant currency terms it grew by 34%. EBITDA margins grew by ~350 bps to 37% for the year despite consolidation of low margin acquisitions. In FY16 company had 40 clients in $0.5 million + bucket. Of which 27 clients were from digital segment, 9 from financial services and 4 from cable segment.

Management expects flat 1HFY17E with subsequent pick-up based on project schedules. It expect a ’low to mid teens’ revenue growth for FY17 with growth from financial services to remain sluggish (though outlook improved) and better growth from Cable Division as well as Digital Business. Margins to remain at 30% based on investments in highlighted initiatives i.e. (1) key client focus, (2) onsite investments, (3) investments in building delivery skill-sets around automation and (4) focus on analytics

CMP 1494

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NIFTY MIDCAP 100

eClerx Services Ltd.


Dabur India Ltd.

SECTOR


DABUR 500096 DABUR IN


307 54122 176

EPS (TTM) BV FV

7.1 23.6 1

P/E P/BV Div Yield

43.2 13.0 0.65


316.4 231.5 295.0

Group

Promoter 68.11

Others 31.89

FMCG


Dabur India Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 7,075 7,827 8,436 9,515 10,777

EBIDTA 1,160 1,316 1,520 1,735 1,977

EBIDTA Margin 16.4% 16.8% 18.0% 18.2% 18.3%

PAT 916 1,068 1,255 1,439 1,649

PAT Margin 13.0% 13.7% 14.9% 15.1% 15.3%

EPS 5.2 6.1 7.1 8.2 9.4


Figures INR crore

Dabur’s vast product portfolio provides a good play on Indian Consumer Goods spend by virtue of its strong presence in less penetrated and high growth categories. Contribution: Consumer care 53% , Food 12% and International Business 32%

Dabur reported Strong Q4FY16. Consolidated revenue grew 11% to `21.6bn, driven by 7% volume growth partly attributed to the pipeline filling of its juice portfolio and strong growth in the homecare & toothpaste segment. EBITDA rose 21% yoy to `4.1bn driven by the 155-bp EBITDA margin expansion to 19.1%. Adj. PAT rose 16.5% to `3.3bn.

Dabur’s positioning on the ‘health and wellness’ platform, backed by its ANH (ayurvedic/natural/herbal) image is very progressive. Its ability to create new categories and sub-categories, makes it well-placed to capture lifestyle changes-led growth in the Consumer Goods space.

With the forecast of an above-average monsoon, higher rural budgetary allocation and OROP, management was optimistic of higher growth in rural markets, driving better volume momentum in FY17. Thus, management is expecting mid- to high single-digit volume growth in H1 FY17, which it expects to improve to high single- to low double-digit volume growth in H2 FY17.

CMP 307

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NIFTY 50

Dabur India Ltd.


Axis Bank

SECTOR


AXISBANK 532215 AXSB IN


530 126564 477

EPS (TTM) BV FV

35.0 224.4 2

P/E P/BV Div Yield

15.2 2.4 0.87


613.45 366.75 4359.1

Group

Promoter 30.76

Others 69.24

FINANCIALS


Axis Bank is the third-largest private sector bank in India in terms of asset size, with a balance sheet of ~Rs. 5.25tn. It has a network of over 2,904 branches 12,743 ATMs spread across the country. The bank earns substantial fee income from transaction and merchant banking activities.

4QFY16 PAT came at Rs. 21.5b was flat QoQ and YoY basis (9% miss). While reported PPOP came at Rs. 44b (+23% YoY, 12% QoQ). Q4FY16 performance was steady with: a) slippages restricted to Rs. 14.7bn (1.9%); b) incremental restructuring at Rs. 9.3bn (due to change in DCCO); and c) credit cost at 69bps (even after creating Rs. 3bn contingent provision).

Management guided for FY 17: a) NIM > 3.6%, (b) Cost/Income ratio of < 40%, (c) High teens Pre Provisioning operating growth, (d) credit costs 125bp (Base Case) -150bp (adverse case) (e) Provision Coverage (~70%), (f) loan growth of 18-20%, (g) CASA ratio 40%, (h) 350-400 new branches

The bank is all set to take next leap (1) strong capitalization (12.5% CET I), healthy ROA (1.5%) 2) Expanding deposit franchise (2,904 branches – 15%+ CAGR over FY12-15). 3) Retail Asset Focus-Leveraging on the strong distribution network retail loans now form 41% of loans. Increased share of retail loans and strong SME business would help reduce revenue volatility.

CMP 530

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NIFTY 50

Axis Bank Ltd.

Axis Bank Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

NET INT Income 11,952 14,224 16,833 19,029 22,142

TOTAL Income 19,357 22,589 26,109 29,849 34,642

Operating EXP 7,901 10,309 11,496 12,913 14,729

PAT 6,218 7,358 8,129 8,644 10,890

NIM % 3.4% 3.5% 3.6% 3.50% 3.50%

EPS 26.5 31.0 34.1 36.3 45.7

BV 163 189 224 252 291


Figures INR crore


LIC Housing Finance Ltd.

SECTOR


LICHSGFIN 500253 LICHF IN


470 23704 101

EPS (TTM) BV FV

33.0 182.6 2

P/E P/BV Div Yield

14.2 2.6 1.06


523.95 388.65 690.1

Group

Promoter 40.31

Others 59.69

FINANCIALS



FY 14 FY 15 FY 16 FY 17 E FY 18 E

NET INT Income 1,916 2,237 2,944 3,618 4,162

TOTAL Income 2,160 2,489 3,179 3,899 4,488

Operating EXP 313 379 469 548 642

PAT 1,317 1,386 1,661 2,048 2,477

NIM % 2.3% 2.3% 2.5% 2.6% 2.5%

EPS 26.1 27.5 33.5 42.0 47.5

BV 150 155 182 216 254


Figures INR crore

LIC Housing Finance (LICHF) is a proxy player of India Housing Sector Growth with a consistent performer on all fronts and operates on a distribution network business model.

Apart from wide marketing network comprising Direct Selling Agents (DSAs), Home Loan Agents (HLAs) and Customer Relationship Associates (CRAs), a wholly owned subsidiary LICHF Financial Services (LICHFLFS) also distributes the company’s product.

In Q4FY16 LICHF reported 18.5% YoY growth in net earnings. NII growth stood at 26% YoY adversely impacted by rising trend in prepayments. Incremental spread however improved further to 2.1% vs 1.74% in FY15.

Despite a challenging macro environment LICHF has so far maintained a decent asset quality. In Q4FY16 the GNPA ratio came down to 0.45% vs 0.58% YoY, while the NNPA ratio came down to 0.22% vs 0.32% YoY.

Going forward, the key to margin improvement is (a) higher incremental spreads (b) Replacement of high cost bank borrowing with lower cost NCDs and (c) increase in the share of LAP and corporate loan portfolio.

CMP 470

80

90

100

110

120

130

140

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY 50



Bharat Petroleum Corporation Ltd.

SECTOR


BPCL 500547 BPCL IN


991 71668 723

EPS (TTM) BV FV

110.4 387.5 10

P/E P/BV Div Yield

9.0 2.6 2.27


1033.95 731.15 358.5

Group

Promoter 54.93

Others 45.07

OIL & GAS



FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 264,421 242,599 188,448 194,730 195,005

EBIDTA 9,372 9,778 14,414 13,330 14,993

EBIDTA Margin 3.5% 4.0% 7.6% 6.8% 7.7%

PAT 4,053 5,082 8,464 7,166 7,839

PAT Margin 1.5% 2.1% 4.5% 3.7% 4.0%

EPS 54.1 66.5 110.4 100.4 109.6


Figures INR crore

BPCL is the best among other Oil Marketing company in terms of operating performance, margins and profitability. Current reforms have the potential to transform OMCs into a structural investment play led by (a) higher earnings predictability and (b) increase in profitability leading to higher RoE’s.

Q4FY16 EPS is down 11% YoY hit mainly by 20% YoY fall in its GRM. However, BPCL’s FY16 standalone EPS is up 46% YoY driven by 82% YoY higher GRM, Rs8bn YoY lower product inventory loss and no subsidy hit vis-à-vis Rs4.9bn in FY15. FY16 consolidated EPS is 7% higher than standalone EPS whereas in FY15 consolidated EPS was 5% lower than standalone. This is due to JV Bina Oman Refinery being in the black in FY16 vis-à-vis in the red in FY15, and halving of E&P EBIT loss.

While refining margins have been weak recently, we remain optimistic. Volume growth continues to remain very high, the outlook for marketing segment remains strong. The petroleum product demand continues to remain very strong. Overall, Indian petroleum consumption was up nearly 11% in FY16, and growth in April-16 was also strong 10%. The realized marketing margins on both diesel and petrol remain resilient. Oil marketing companies can continue to maintain strong margins on other products.

CMP 991

80

90

100

110

120

130

140

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY 50



Dr. Reddys Laboratories Ltd.

SECTOR


DRREDDY 500124 DRRD IN


3096 52820 85

EPS (TTM) BV FV

117.3 752.2 5

P/E P/BV Div Yield

26.4 4.1 0.65


4386.6 2750.05 210.0

Group

Promoter 25.58

Others 74.42

PHARMA


Dr. Reddys Laboratories Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 13,415 15,023 15,471 16,382 18,366

EBIDTA 3,251 3,494 3,541 3,918 4,522

EBIDTA Margin 24.2% 23.3% 22.9% 23.9% 24.6%

PAT 1,963 2,336 1,978 2,392 2,861

PAT Margin 14.6% 15.6% 12.8% 14.6% 15.6%

EPS 115.3 137.1 117.3 141.0 168.4


Figures INR crore

Dr. Reddy’s stands out with its world class R&D skills in developing technically complex/niche products which attract limited competition and is well set to capture the less-explored world of higher complexity generic products in the US. It is also among the leading players globally with a strong pipeline in the high potential biosimilars space which will be a long term growth driver.

Dr Reddy’s reported weak 4QFY16 revenue of Rs 37.6bn, down ~3% YoY with adjusted EBITDA of Rs. 8.2bn (flat YoY), primarily due to high R&D & remediation cost and change in product mix. 4QFY16 reported PAT at Rs 74.5 cr included Venezuela related write offs of Rs 4.3bn (AdjPAT- Rs 3.8bn).

It expects to complete the remediation at the warning letter impacted sites by end Q1FY17F and thereafter request for FDA inspection. The expectation of approvals is not contingent on successful remediation. They have under taken site transfers, and a few of the new approvals are for third-party sites.

It has 82 ANDAs/NDAs (including 18 FTF opportunities) pending for approval. It made 14 filings during the quarter, taking cumulative filings to 230

Domestic formulations business likely to grow in line with industry growth at 14% CAGR over FY16-FY18 including the UCB portfolio(acquired in FY16). Growth would be led by launch of new products, continued traction in big brands and integration of the UCB portfolio.

CMP 3096

80859095

100105110115120125

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY 50 Dr. Reddys Laboratories Ltd.


Zee Entertainment Enterprises Ltd.

SECTOR


ZEEL 505537 Z IN


455 43720 96

EPS (TTM) BV FV

10.7 43.9 1

P/E P/BV Div Yield

42.6 10.4 0.49


466.4 331.25 627.5

Group

Promoter 43.07

Others 56.93

MEDIA



FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 4,422 4,884 5,851 6,778 7,865

EBIDTA 1,204 1,231 1,510 1,851 2,263

EBIDTA Margin 27.2% 25.2% 25.8% 27.3% 28.8%

PAT 890 976 1,029 1,270 1,565

PAT Margin 20.1% 20.0% 17.6% 18.7% 19.9%

EPS 9.2 8.9 10.7 12.9 15.9


Figures INR crore

Zee Entertainment Enterprises Ltd is India’s largest vertically integrated media & entertainment company. In Q4FY16 revenue grew 14% YoY to Rs 15.32bn, led by 29% YoY ad growth; Ex-&TV, ad growth outpace the industry. Subscription revenue grew 16% YoY to Rs. 5.94bn. Domestic subscription revenue grew 12% YoY to Rs. 4.68b, International subscription revenue grew 35% YoY to Rs. 1.26bn. International ad revenue grew 38% QoQ to Rs. 1.12bn.

It continues to lead the industry in advertising growth. Strong performance of its recently launched &TV has strengthened Zee’s presence in this core segment, driving market share gains. FMCG and E-Commerce continue to perform well. FMCG spends which account for 50%+ of TV ad spends is expected to remain stable for the next 6 months. Management expects Telecom and Auto step up ad spends in the next couple of quarters.

While domestic subscription growth is expected to remain resilient, significant acceleration is likely only from FY17 post phase III digitization.

Zee’s strategy to aggressively invest in content and launch of new channel has strengthened the bouquet. This will aid in market share gain and healthy ad revenue growth. Further, uptick in ad spends by telecom companies (due to anticipated 4G launch) and BFSI companies would aid growth.

CMP 455

80

90

100

110

120

130

140

150

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY 50



Tata Consultancy Services

SECTOR


TCS 532540 TCS IN


2535 499444 197

EPS (TTM) BV FV

123.3 331.7 1

P/E P/BV Div Yield

20.6 7.6 1.72


2770 2115 430.6

Group

Promoter 73.42

Others 26.58

TECHNOLOGY


Tata Consultancy Services Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 81,809 94,648 108,646 122,088 136,088

EBIDTA 25,147 24,482 30,590 34,253 38,100

EBIDTA Margin 30.7% 25.9% 28.2% 28.1% 28.0%

PAT 19,332 20,060 24,375 26,493 29,608

PAT Margin 23.6% 21.2% 22.4% 21.7% 21.8%

EPS 97.7 101.4 123.3 134.7 150.4


Figures INR crore

TCS is the largest Indian IT services company with employee base of 3,53,843 at Mar’16. North America contributes the highest 54% to revenues, followed by 14.9% from UK, 11.2% from continental Europe, 5.9% from India and 15% from rest of world. In terms of verticals, BFSI leads with 40.9% revenue share, followed by 14.1% from Retail & distribution, 8.3% from telecom, 10.4% from manufacturing, 5.6% from Hi-Tech, 7.3% from Life sciences and healthcare and rest (13%) from other verticals.

In Q4FY16 Revenue grew 2.1% QoQ in constant currency. CC growth was 10.4% YoY for the quarter. Revenue in INR terms grew by 4% QoQ to Rs284.46bn and 1.5% QoQ in USD terms to $4,207m. EBIT margins declined by 54bps QoQ to 26.1% due to investments business. EPS grew by 3.8% QoQ to Rs32.18). Volumes grew 3.2% QoQ.

Entering into FY17, TCS is not witnessing headwinds in any of its segments unlike in FY16. Management has indicated that the order book is good and the deal pipeline is healthy. Ithas maintained EBIT margin range of 26‐28%.

TCS remains key beneficiary of increased global sourcing of IT services given its strong client relations, stable management and its dominance in emerging services like IT infrastructure management, business process management and digital that is likely to drive superior growth vs. peers.

CMP 2535

80

85

90

95

100

105

110

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY 50

Tata Consultancy Services Ltd.


Syngene International Ltd.

SECTOR


SYNGENE 539268 SYNG IN


397 7936 200

EPS (TTM) BV FV

11.1 51.8 10

P/E P/BV Div Yield

35.9 7.7 0.25


436 295 53.6

Group

Promoter 74.55

Others 25.45

PHARMA



FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 700 860 1,107 13,520 1,649

EBIDTA 214 281 358 454 567

EBIDTA Margin 30.5% 32.7% 32.3% 3.4% 34.4%

PAT 134 175 221 270 338

PAT Margin 19.1% 20.4% 20.0% 2.0% 20.5%

EPS 7.2 8.8 11.1 14.0 16.9


Figures INR crore

Pharmaceutical companies have been facing stiff issues relating to patent cliff and rising R&D costs. There is a large opportunity awaiting the global CRO and CRAMS sectors where companies like Syngene, an integrated end–to-end discovery & development service provider for novel molecular entities (NMEs) across the range of industrial sectors likely to benefit the most.

In Q4FY16 Revenues grew by 31.7% y-o-y to Rs.331.5crs on account of expansion in services for dedicated clients, strong biological services growth and growth in chemical development group. EBITDA margins declined 220 bps y-o-y to 31.6% due to lower gross margin and higher employee expenses. EBITDA grew 23.6% to Rs.103.1crs. Net profit increased 19.6% to Rs.66.5crs.

Client base has increased from 221 in FY15 to 256 in FY1. During FY16, It cleared three USFDA inspections without any major observations. Realisation was muted in FY16 as the company passed on the currency benefits to customers. The company has guided ~3% annual increment in realisation.

Company to benefit from (1) Large and growing addressable market 2) Flexible Business Models 3)Customer engagement with dedicated center model and tailored service offering 4) Moving from CRO to CRAMS with commercial manufacturing 5) World Class Infrastructure and Qualified Pool of Scientists 6) Attractive Blue Chip Customer Base..

CMP 397

80

90

100

110

120

130

140

Au

g/1

5

Sep

/15

Sep

/15

Oct

/15

No

v/1

5

No

v/1

5

Dec

/15

Jan

/16

Jan

/16

Feb

/16

Mar

/16

Mar

/16

Ap

r/1

6

May

/16

May

/16

NIFTY MIDCAP 100



Arvind Ltd.

SECTOR


ARVIND 500101 ARVND IN


307 7924 258

EPS (TTM) BV FV

14.0 102.4 10

P/E P/BV Div Yield

21.8 3.0 0.83


365.7 216.3 951.1

Group

Promoter 43.78

Others 56.22

TEXTILES


Arvind Ltd.

FY 14 FY 15 FY 16 FY 17 E FY 18 E

Net Sales 6,948 7,851 8,431 9,555 10,885

EBIDTA 934 1,027 1,065 1,237 1,427

EBIDTA Margin 13.4% 13.1% 12.6% 12.9% 13.1%

PAT 353 338 365 452 565

PAT Margin 5.1% 4.3% 4.3% 4.7% 5.2%

EPS 13.7 13.2 14.0 17.5 21.9


Figures INR crore

Arvind offers a good mix of export and domestic consumption growth. Its textiles business will benefit from a recovery in the developed markets and improving competitiveness, while its brands and expanding retail network will benefit from secular growth in India’s organized apparel market.

In Q4FY16 revenue grew by 14% at Rs.2319 cr on the back of strong growth in brands and retail business (B&R) of 31% on y-o-y basis to Rs. 763 cr. Brands posted a 44% YoY growth while Mega-Mart revenues de-grew 4%. L2L growth for brands stood at 2.7% while power brands grew 31%. Textiles grew 4% to Rs. 1360 cr with garments growth of 27% and woven fabrics growing 4% YoY.

Management expects revenues to grow at a CAGR of ~15% over next five years with brands and retail revenues contributing 45-50% of the overall pie. Revenue growth guidance for FY17 is 15-16% with 8-9% growth in textiles and 24% in brands and retail. It expects textiles margins to be maintained and a 75-100bp expansion in B&R margin

Brands and retail on secular growth Arvind’s leading position in menswear and its track record of growing licensed brands like Arrow and Tommy Hilfiger etc. will enable it to exploit opportunities in the branded apparel space.

CMP 307

80

90

100

110

120

130

140

150

160

May

/15

Jun

/15

Jul/

15

Au

g/1

5

Sep

/15

Oct

/15

No

v/1

5

Dec

/15

Jan

/16

Feb

/16

Mar

/16

Ap

r/1

6

May

/16

NIFTY MIDCAP 100

Arvind Ltd.


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16th Jun, 2016 - Rathi company is likely to show healthy performance in FY17, if domestic demand...

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