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Market Outlook
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» Fifth level
17-Jun-14 1
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17-Jun-14 2
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Low exposure to equity
could be injurious…to your
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17-Jun-14 3
could be injurious…to your
wealth
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Why invest in equity?
Why now?
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17-Jun-14 4
Why now?
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Sensex moved from 100 to 21500 level in 30 years
Year Sensex
1978 (base year) 100
From 1978 to 1988 100 600
Sensex multiplies by 6x per decade
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Average annual return of 19.6% between 1978 and 2008; only
asset class to give such superior returns over a period of 30 years
From 1988 to 1998 600 3600
From 1998 to 2008 3600 21400
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Close to 20% average return in spite of concerns/issues
Decade Issues/concerns
1978 - 1988 Indira Gandhi’s assassination; USSR-US cold war; Punjab
terrorism at peak; Kashmir unrest; Sri Lanka troubles,
Bofors scam etc
1988 - 1998 India debt crisis (gold mortgaged in 1991); US sanctions
post-nuclear test; three PMs in two years (1996-98); LTCM
default, US-Iraq war; defaults in Latin America, Harshad
Superior returns against all odds
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default, US-Iraq war; defaults in Latin America, Harshad
Mehta scam etc
1998 - 2008 Dotcom bubble bust; US slowdown; India’s GDP growth
below 4% in 2002; 9/11 attacks; Al-Qaeda as the new face
of global terror; Ketan Parekh scam etc
Nothing could be worse; heard it a number of times in 30 years!
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Sensex’ returns mirror growth in corporate earnings
800,000
1,200,000
1,600,000
2,000,000
Corporate profits—sole driver of equities
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India’s nominal GDP (inflation + real GDP) has been close to 14.5% since
1978; no wonder the leading corporates (companies in Sensex) grew by
close to 18% on an average between 1978 and 2008!
0
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Year Sensex
1978 100
1988 600
The Big question
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17-Jun-14 8
1988 600
1998 3600
2008 21400
2018 ???
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Sub-par performance is followed by strong returns
Periods Sensex Returns Months
Downturn Nov 94 -- Nov 98 4270 2810 48
Upturn Dec 98 -- Jan00 2812 5447 18
Downturn Feb 00 -- Sep 03 5447 5584 55
Equity—look ahead; not behind
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Non-linear nature of equity = Opportunity for superlative returns
Upturn Oct 03 -- Dec 07 5584 20286 38
Downturn Jan08 -- Feb14 20286 21120 74
Upturn Mar14 21120 ???
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Sensex set to double; do not be surprised with 50,000 plus levels (even without expecting
any re-rating of valuation multiples)
It is not about “IF” but about “WHEN” it will double and the answer is “In 2 to 3 years”
SENSEX
PE
24025 15 16 17 18 19 20 21
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FY15* 1,550 23,250 24,800 26,350 27,900 29,450 31,000 32,550
FY16* 1,790 26,850 28,640 30,430 32,220 34,010 35,800 37,590
Double—a done deal
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*Bloomberg estimates
Growth in corporate profits + Easing of interest rates = Bull run ahead
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FY16* 1,790 26,850 28,640 30,430 32,220 34,010 35,800 37,590
FY17 2,184 32,757 34,941 37,125 39,308 41,492 43,676 45,860
FY18 2,664 39,964 42,628 45,292 47,956 50,620 53,285 55,949
FY19 3,250 48,756 52,006 55,256 58,507 61,757 65,007 68,258
FY20 3,965 59,482 63,447 67,413 71,378 75,344 79,309 83,274
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600
706
864
820
835
1,067
1,165
1,248
1,350
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Sensex@75,000 or even 1,00,000
The Big picture: Index set to jump 3-4x
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90
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Even an average growth of 16-17% in corporate profits for next five years would
mean Sensex/Nifty tripling (or more) from the current levels comfortably.
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Why now?
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17-Jun-14 12
Why now?
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When Indian markets are trading at life-time highs
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Is the market providing an opportunity
@ 25,000 Sensex?
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17-Jun-14 14
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India in a sweet spot
Changing political equation
+
Stabilising economy
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How this is a RARE event?
Deadly combination
Modi @ India’s
helm—pro-growth,
pro-investor focus
Raguram Rajan--
Dynamic RBI
Governor
India Inc. hungry for growth after the
most challenging phase of past 4
years
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10.1%
7.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Gujarat India
5.1%
5.8%
6.1%
5.9%
5.8%
7.1%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
1960-61 1970-71 1980-81 1990-91 2000-01 2012-13
GDP growth consistently outpaced national growth (FY02 –FY12)
Gujarat’s contribution to India’s GDP surged during FY02 -FY12
Modinomics: Proven track record in Gujarat
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Gujarat’s debt as a % of GDP declined under Modi’s regime
Significant leap in per capita income during Modi regime
38.8%
25.2%
0.0%
10.0%
20.0%
30.0%
40.0%
2001 2012
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-2,702
4,041
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
FY02 FY13
10.7%
3.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Gujarat India
Revival of sick PSU in Gujarat – Losses to high profits (Rs cr) Industry flourished; also Agri growth stood 3.5x India average
Modinomics: Proven track record in Gujarat
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FY02 FY13
Gujarat India
Modi’s magic mantra:
- Make policy framework investor friendly, fair and transparent.
- Re-energise bureaucracy and administrative machinery
- Use technology to enhance productivity and minimise wastage
of resources
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Expectation of getting investment cycle on track
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• While the slowdown in the investment activity has been prolonged and well-
flagged, the current corporate results have also shown that construction
activity, steel and cement demand, and even order books picked up during
the last quarter.
• The new government (based on infrastructure and industrial development
activities in Gujarat) is expected to kick-start the weak investment cycle.
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GDP growth bottoms out
9.5
9.6
9.4
6.9
8.6
9.3
6.3
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4.8
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4.6
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GDP Growth Rate
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The GDP growth of 4.4% in Q1FY2014 has marked the bottom and
started showing signs of stabilisation with the Q4FY2014 GDP
improving marginally by 20BPS YoY to 4.6%.
However, outlook for FY2015 GDP growth is better (consensus
estimate of ~5.5%) in expectation of a revival in manufacturing sector
and reform push by the government.
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Trade deficit for April 2014 came in at $10 billion; the April 2014 exports
CAD much lower than feared
-25.0
-20.0
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Trade balance ($bn) LHS Imports % yoy Exports % yoy
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Trade deficit for April 2014 came in at $10 billion; the April 2014 exports
were up by 5% YoY while the imports were down by 15 % YoY which
contributed to the narrowing of the trade deficit.
With increasing exports and falling imports, India’s current account deficit
(CAD) has dropped significantly from about $88 billion in FY2013 to $33
billion this year. These numbers suggest that in FY2014 CAD percentage of
GDP which was a major concern earlier, is narrow to a six years low of 1.7%
of GDP compared with 4.7% in FY2013.
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Stable rupee
52
54
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58
60
62
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68
70
Indian Rs / $
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Despite the tapering by US Federal Reserve (Fed) and after the RBI and the
Government of India jointly made efforts to contain the rupee’s fall, it has
stabilised near 59-60 levels.
The rupee may appreciate to 57 levels against the dollar if the risk appetite
continues in 2014.
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Stable rupee leads to good FII flows
Equity inflows have strengthened in the past few months
Investment by FIIs into equities remains steady ($8 billion YTD)
Also, India's relative attractiveness compared with the other equity
markets may drive more FII flows into equities
30000
40000
Equity Debt
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FII holdings up Ante to new high
50.40% 49.50% 50.70% 50.30% 49.30%
23.60%
23.90%
23.60% 24.60%
25.00%
14.20% 14.70% 14.20% 13.70% 14.10%
0%
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20%
30%
40%
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60%
70%
80%
90%
100%
Ownership Trend (top 75 Companies)
Promoters
49.3%
FII 25.0%
Financial
Inst 8.4%
Public
14.1%
Ownership Pattern for Mar 14
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In Q4FY2014, FII stake in top 75 companies further rose 33BPS to 25%
Retailers have moved away from equities over the past 4 years and retail
investments have fallen to 13.7% from 14.2%
0%
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Promoters FII Domestic MF Financial Inst Public & Others
MF 3.2%
Inst 8.4%
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Retail investors under ownership
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Retailers have moved away from equities over the past 4 years
and are under invested in equity market
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Corporate earnings growth to improve
1480
1530
1580
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Since analysts’ earnings expectations have been revised sharply in the past 12
months, we believe the bulk of the downgrades is done for FY2014
Also margins may stabilise, given the improving macro and a stable rupee; it
is fair to expect a double-digit earnings growth in FY2015
FY14
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Despite the recent surge, the valuations are still at long-term average
Sensex’ valuation is at 16x its 12-month forward earnings estimate (long-
term average multiple of around 16x)
Available @ long-term average valuation
18.0
23.0
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8.0
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Global factors
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The Fed has decided to taper QE by
$30 billion a month and reduced the
monthly stimulus package to $55
billion from $85 billion earlier, but
has maintained the guidance for the
“near zero” interest rates, thereby
removing the uncertainty for the
global markets
Easing global fears
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Indications from Eurozone about
lower interest rates and liquidity
support.
Implied Volatility is at a lower range.
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Conclusion
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This is just the beginning of a big bull run for the Indian equity
market (3-5 years)
There is an opportunity to grow net worth by participating in it
Review your existing exposure to equity—ideally it should be
anywhere from 40% to 70% of the net worth
Conclusion
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17-Jun-14 31
Get your portfolio cleaned up—Sharekhan could help you with
Portfolio Doctor, a free tool that will help you achieve proper
balance across sectors and obtain right stock ideas for better
performance over a period of time
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Risks to our prognosis
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17-Jun-14 32
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Inflation: If inflation (food inflation is coming down
currently) remains high it may force the RBI to hold or hike
the interest rates, dampening sentiments in the short term.
Risk of El Nino this year: The US weather forecasters
indicate that the El Nino phenomenon can wreak havoc on
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Risk of El Nino this year: The US weather forecasters
indicate that the El Nino phenomenon can wreak havoc on
global crops. El Nino, a warming of the sea-surface
temperatures in the Pacific, can trigger both floods and
drought in different parts of the globe.
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Sector Ideas/
Themes
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Themes
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Three Investment themes for superior returns:
Policy push (roads/power)
Companies: L&T, Crompton Greaves, UltraTech, Va-Tech Wabag
PSU re-rating
‘MODI’fied Portfolio
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Companies: Container Corporation, Engineers India, Coal India , BPCL
Economy revival leading sectors (auto/financials)
Companies: ICICI Bank, SBI, LIC Housing, Maruti, Mahindra & Mahindra
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‘MODI’fied Portfolio
Policy Push - Road / Power
EPS PE
Company Name CMP (Rs) FY15E FY16E FY15E FY16E
L&T 1,645 60.9 72.8 27.0 22.6
Crompton Greaves 196 8.6 11.3 22.8 17.3
Ultra Tech 2,784 102.9 118.3 27.1 23.5
Va - Tech Wabag 1,333 56.5 60 23.6 22.2
PSU Rerating
EPS PE
Company Name CMP (Rs) FY15E FY16E FY15E FY16E
Container Corporation 1,159 62.4 73.6 18.6 15.7
Engineers India 307 16.4 19.6 18.7 15.7
Coal India 395 26.4 33.5 15.0 11.8
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Coal India 395 26.4 33.5 15.0 11.8
BPCL 594 37.9 43.5 15.7 13.7
Oil India 602 55.4 67.3 10.9 8.9
Economy Revival Leading Sectors ( Auto / Financial )
EPS/BV PE /PBV
Company Name CMP (Rs) FY15E FY16E FY15E FY16E
ICICI Bank 1,411 694.3 767.4 2.0 1.8
SBI 2,560 1651.9 1887.9 1.5 1.4
LIC Housing Finance 312 175.3 256.2 1.8 1.2
Maruti 2,403 116.4 127.3 20.6 18.9
M&M 1,107 84 104 13.2 10.6
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‘MODI’fied Portfolio
Policy Push - Road / Power
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
Larsen & Toubro 1,645 60.9 72.8 27 22.6
Larsen & Toubro
Even in a challenging macro-economic environment L&T has delivered an impressive performance in
terms of winning orders which depicts its credentials and ability.
A strong and decisive PM will support infrastructure projects which will help L&T to achieve its
targeted revenue guidance, though it may face some challenges on the OPM front.
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17-Jun-14 37
targeted revenue guidance, though it may face some challenges on the OPM front.
We remain positive on L&T in view of its ability to withstand economic downturns and expect it to
stand out within the sector. Its efforts to improve return ratios should also work in its favour.
The recent order wins will lead to a growth of over 15% in order inflows in FY2014.
The demand outlook for FY2015 and FY2016 is expected to improve on account of a possible revival in
the domestic economy and growing investments in infrastructure in the Middle-East (two mega events-
-Expo 2020 in Dubai and FIFA World Cup in Qatar, are around the corner) where L&T has a strong
foothold.
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‘MODI’fied Portfolio
Policy Push - Road / Power
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
Crompton Greaves 196 8.6 11.3 22.8 17.3
Crompton Greaves
Companies like Crompton Greaves would benefit from the much needed push from the new
government to revive the industrial and investment cycles.
The performance of its industrial systems and power system segments is mediocre currently and so
the improving outlook for these segments can be a catalyst for the stock price.
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the improving outlook for these segments can be a catalyst for the stock price.
Moreover, post-restructuring of its European operations, the overseas business is likely to improve the
bottom line performance significantly which would add to the momentum.
We believe the stock has the potential to deliver 40% returns in the next 15-18 months.
Key risk: A slower than expected policy action to review the industrial growth and investment cycle.
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Policy Push - Road / Power
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
UltraTech Cement 2,784 102.9 118.3 27.1 23.5
UltraTech Cement
India’s largest integrated cement company with an approximately 54mtpa cement capacity.
It has benefited from an improvement in market mix. The ramp-up of the new capacity and savings accruing from
the new captive power plants will improve its cost efficiency.
In Q4FY2014 it commissioned a cement grinding capacity of 1.45mt at Malkhed, Karnataka. It also commissioned a
30MW thermal power plant and a 6.5MW waste heat recovery system at Rawan, Chattisgarh and Awarpur,
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30MW thermal power plant and a 6.5MW waste heat recovery system at Rawan, Chattisgarh and Awarpur,
Maharashtra respectively.
Its current cement capacity stands at 53.95mtpa. It is likely to add an additional capacity of 5mtpa in FY2015. It
is in the process of ramping up the capacity to 64.45mtpa by 2015.
The potential to increase throughput without incurring a major capex by increasing the utilisation and blending
along with a location advantage gives it the flexibility to either export or sell in the domestic market.
After a weak macro environment in the past couple of years, cement demand likely to pick up across India after
the monsoon as infrastructure development activities pick up under the new government.
From the long-term perspective, the cement demand is expected to grow at 8%. UltraTech is our most preferred
stock in the sector due to its strong balance sheet and pan-India presence.
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Policy Push - Road / Power
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
VA Tech Wabag 1,333 56.5 60.0 23.6 22.2
VA Tech Wabag
The company is a technology driven specialised player in the water segment which demands a huge
investment in India.
The size of the opportunity in the water segment is unparalleled and it will be a key beneficiary of
the same.
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the same.
The NDA-led government at the center has an ambitious plan to connect rivers across India which
along with its emphasis on water infrastructure is a boon for the company.
With a strong growth outlook ahead, its stock’s valuation could expand and the stock could see a 40-
50% upside in the next 12-18 months.
Key risk: A slower than expected investment in the water segment could affect the growth.
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‘MODI’fied Portfolio
PSU Rerating
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
Container Corporation of India 1,159 62.4 73.6 18.6 15.7
Container Corporation of India
It has started witnessing an improvement in the domestic and exim volumes over the last two
quarters. The realisation for the domestic trade has also improved.
Under the new government implementation of dedicated freight corridor projects will be on fast track
and it will be a key beneficiary of the dedicated freight corridor projects.
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and it will be a key beneficiary of the dedicated freight corridor projects.
It is likely to get a fillip in terms of improving exim trade and better realisation. The government’s
focus on expansion of port capacities also augurs wells.
We are upbeat about its growth prospects over the next two to three years which could improve the
cash flows leading to a better valuation.
Key risk: Lower exim trade and increased competitive intensity could lead to lower revenues and
earnings.
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‘MODI’fied Portfolio
PSU Rerating
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
Engineers India 307 16.4 19.6 18.7 15.8
Engineers India
It has a unique business model as it is a specialised consultant for infrastructure projects, especially in
the oil & gas sector, which is one of the most focused areas of the new government and is likely to see
significant reforms. Thus, opportunities are huge.
A strong balance sheet and niche expertise would be a key advantage. In the last two years with a
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A strong balance sheet and niche expertise would be a key advantage. In the last two years with a
stagnating order inflow scenario, it had been de-rated sharply despite being a superior cash and
return ratio generator.
The valuation is likely to expand along with the rising opportunities and the stock could rally again
and potentially deliver returns of over 35-40% in the next 12-18 months despite the recent run-up.
Key risk: A delay in the reform in the oil & gas and infrastructure sectors.
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‘MODI’fied Portfolio
PSU Rerating
Company Name CMP (Rs)
EPS PE
FY15E FY16E FY15E FY16E
Coal India 395 26.4 33.52 15 11.8
Coal India
Coal India Ltd (CIL) is an apex body with seven wholly owned coal producing subsidiaries and one mine
planning and consultancy company spread over eight provincial states of India. CIL is a 'Maharatna'
public sector undertaking under the Ministry of Coal. The company is the largest coal producing
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company in the world based on their raw coal production. Also, they are the largest coal reserve
holder in the world based on their reserve base.
Recently released production data for April 2014 was up 4.9% YoY, in line with CIL’s own target.
Though the offtake growth was disappointing, but we believe CIL has ample time to make up for the
deficit.
With the possibility of a stronger government at the center that would expedite project clearances
and also the building of key rail projects, it would boost the volume for CIL in the near term and
bolster its long-term prospects.
At the CMP, CIL trades at just 12.1x its FY2016 earnings estimate..
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PSU Rerating
Company Name CMP (Rs)
EPS PE
FY15E FY16E FY15E FY16E
BPCL 594 37.9 43.46 15.7 13.7
BPCL
BPCL is one of the largest public sector refining and marketing company in India. It has refineries at
Mumbai, Kochi, Bina and Numaligarh. BPCL also has upstream assets which it is looking to develop so
as to further integrate its operations and hence reduce volatility of its operations in the long term.
BPCL’s FY14 financials improved markedly over a muted FY13, led primarily by strong refining
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BPCL’s FY14 financials improved markedly over a muted FY13, led primarily by strong refining
performance and higher inventory gains of Rs 15.8bn ( Rs 6.8bn in FY13) despite a higher net subsidy
burden at Rs 5.1bn (INR 2.5bn in FY13). Timely government support also lowered finance charges to Rs
13.6bn ( Rs 18.2bn in FY13).
Refining and finance charges to support FY15 earnings. In FY15, we expect BPCL to report healthy
performance on continued refining strength and assume a zero net subsidy burden. Subsidy scenario
continues to improve. Total subsidy loss continues to improve led by diesel price hikes. With diesel
losses now at INR 2.8/litre, losses have come down from the September 2013 levels of INR 14.5/litre.
Lower dependency on government support in FY15/16E should reduce working capital needs further,
thus leading to a further reduction in finance charges.
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PSU Rerating
Company Name CMP (Rs)
EPS PE
FY15E FY16E FY15E FY16E
Oil India 602 55.4 67.3 10.9 8.9
Oil India
Oil India (OIL) is a 'Navratna' stateowned company, engaged in exploration, development, production
and transportation of crude oil and natural gas in India. Compnay has 2P reserves of 944mmboe, ~94%
of these located in the north-east.
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Diesel reforms to lead to significant cut in underrecoveries: Recently announced diesel reforms (a)
increasing diesel prices by INR 0.5/ltr every month end (b) Market pricing for bulk buyers; would lead
to a significant cut in under recoveries (35%reduction by FY16 over FY14). (c) freeing of diesel prices,
possibly by the end of FY15 .
Valuations attractive; steady production growth; gas price hike a key trigger: Oil India trades at ~40%
discount to global peers on EV/BOE (1P basis). We expect the overall oil subsidy burden to be lower
and a revision in gas price in FY2015. Given the new government at the center, we expect several
reforms and positive policy actions which could benefit companies like OIL substantially
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Economy Revival Leading Sectors ( Auto / Financial )
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
ICICI Bank 1,411 694.3 767.4 2.0 1.8
ICICI Bank
It is the second largest private bank in terms of market cap (of over Rs1 lakh crore). As on September
2013, it had 3,507 branches and 11,098 ATMs, spread across the country as well as overseas.
Its CASA ratio at 43% is also the highest among private banks. The CAR as per Basel-II norms is the
highest at 18.35%. Its Q4FY2014 numbers suggest buoyancy in the operating performance, which has
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highest at 18.35%. Its Q4FY2014 numbers suggest buoyancy in the operating performance, which has
been driving the earnings growth.
The improvement in deposit profile is structurally positive for the NIM outlook. The asset quality
challenges for the bank will be within manageable limits and the recovery in the operating
performance will help in dealing with the provisioning requirements.
With an improved liability base, increased visibility on the advances growth and relatively stable
trend in the asset quality, it is likely to trade at a premium to its five-year mean valuation. Earnings
growth is likely to remain steady (a CAGR of 15% over FY2014-16) and drive an improvement in the
return ratios.
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Economy Revival Leading Sectors ( Auto / Financial )
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
State Bank of India 2,560 1651.9 1887.9 1.5 1.4
State Bank of India
It is the largest bank in India with loan assets of over Rs11 lakh crore. The loan growth for FY2014 was
above the industry average while the core operating performance was largely stable.
The successful merger of the associate banks and value unlocking from the insurance business could
provide a further upside. It has started focusing on the existing bad loans and the assets that are
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provide a further upside. It has started focusing on the existing bad loans and the assets that are
beginning to show stress and are likely to slip into NPA category.
It has introduced a technological platform giving early warnings of stressed assets.
For Q4FY2014 it reported PAT of Rs3,041 crore (up 36% QoQ), led by a strong growth in the non-
interest income (up 19% YoY). But the core profitability improved led by a strong growth in the NII (up
16.5% YoY) and the fee income.
The asset quality surprised as slippages were lower (Rs7,947 crore vs Rs11,438 crore in Q3FY2014)
leading to a decline in the NPAs. The recoveries were also better partly led by a sale of the loans to
ARCs.
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State Bank of India
Being the largest bank with a strong liability franchise and healthy capital (tier-1 CAR of 9.72%) it is
better placed to benefit from an economic revival. While the NPAs have been a cause for concern, the
pick-up in the economy may improve the asset quality position.
It is better placed compared with other PSBs with regards to the migration to Basel-3 norms and
creates a need for a huge capital infusion into the PSBs. The government could also look at ways for
pension funds and insurance companies to invest in the long-term perpetual debt of banks (considered
as tier-1 capital). This, if it happens, could address the need for capital infusion without significantly
expanding the equity capital of the PSBs.
The outlook for the bank has also improved due to its capital position after the recent QIP issue.
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Economy Revival Leading Sectors ( Auto / Financial )
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
LIC Housing Finance Company 312 175.3 256.2 1.8 1.2
LIC Housing Finance Company
A recovery in the economy will boost the housing sector which anyways has remained resilient in the
slowdown. Being the second largest housing finance company it will benefit from the recovery in the
housing market.
The re-pricing of the fixed rate loans to floating rate loans over FY2015 and FY2016 coupled with a
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The re-pricing of the fixed rate loans to floating rate loans over FY2015 and FY2016 coupled with a
moderation in the interest rates will boost its margins.
The stock is currently trading at 1.5x FY2016 book value. We foresee an upside of about 40% in the
next 12-18 months.
Key risk: A weak monsoon rainfall or sticky core inflation could lead to monetary tightening by the RBI
which, in turn, could raise the wholesale borrowings cost and hit the margins.
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Economy Revival Leading Sectors ( Auto / Financial )
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
Maruti Suzuki India 2,403 116.4 127.3 20.5 18.8
Maruti Suzuki India
It is India’s largest small carmaker. Though the demand for diesel cars is witnessing pressure due to a
hike in diesel prices, but the petrol segment is witnessing a recovery due to the narrowing differential
between petrol and diesel prices.
It is planning to launch 14 new models over the next five years (including in the high value UV space)
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It is planning to launch 14 new models over the next five years (including in the high value UV space)
which would boost its volumes and realisation both.
The recently launched Celerio has been well received by the market and garnered bookings of over
30,000 units. Its new automatic manual transmission feature has especially enthused the market.
It has ceded the proposed Gujarat plant, which was being set up by a subsidiary of Suzuki Motor Corp,
Japan. It will now seek a nod from the minority shareholders on the issue.
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Economy Revival Leading Sectors ( Auto / Financial )
Company Name CMP (Rs)
EPS/BV PE /PBV
FY15E FY16E FY15E FY16E
M&M 1107 84 104 13.2 10.6
Mahindra & Mahindra
Mahindra & Mahindra (M&M) is a leading maker of tractors and utility vehicles (UVs) in India. Though
the automotive demand is under pressure owing to a declining demand for UVs and light commercial
vehicles (LCVs), but the demand for tractors is growing in strong double digits, thanks to a normal
monsoon rainfall and higher minimum support prices. The collaboration with world majors in the
passenger cars and commercial vehicles (CVs) has helped it diversify into various automobile
segments.
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segments.
M&M posted a double-digit growth in the earnings in Q3FY2014 on the back of a robust operating
performance (owing to an improved product mix and cost-control initiatives) even as the revenues
remained flat. The margin improved for both the automotive and tractor segments.
The tractor segment is expected to maintain a double-digit growth in FY2015 on the back of strong
demand rivers (owing to an increase in the rural income and a labour shortage which encourages
mechanisation). In the automotive business the volume growth could turn positive aided by the low
base effect, demand revival and the launch of the compact UV models. Also, the management expects
to sustain the margin due to the continued improved mix and benign commodity prices..
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Sector view/picks
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Sharekhan Sector Preferred Picks
Sectors CNX 100
Sharekh
an
View/Stan
ce Prefered picks
Banks & Financials 27.2 28.5 Positive
ICICI Bank, SBI, Federal Bk, Yes Bank, LIC
Housing, PTC Fin Srvcs, Max India
IT 14.4 10.5 Neutral TCS, HCL Tech, Persistent Sys, Firstsource, CMC
Energy 13.1 15.0 Positive RIL, Oil India, Coal India, Selan Exploration
Auto & auto anci 8.2 10.0 Positive Maruti, M&M, TVS Motors, Apollo Tyres
Consumer/Disc spending 13.6 10.0 Cautious ITC, Arvind, Relaxo, Titan, Jyothy Labs, Zee Ent
Pharma 5.8 4.0 Cautious Sun, Cadila, Lupin, Aurobindo
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Pharma 5.8 4.0 Cautious Sun, Cadila, Lupin, Aurobindo
Industrials/Engineering
/Cement 8.5 14.0 Positive
L&T, Crompton, Finolex Cables, PTC India, IRB
Infra, V-Guard, Ultratech, Ramco Cement
Metals & Mining 4.8 4.0 Neutral NMDC, Sesa Sterlite
Telecom 2.5 2.0 Neutral Bharti Airtel, Bharti Infratel, Tata Comm
Others 1.9 2.0 UPL, Bharat Electronics
Total 100 100
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This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for
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Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this
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Thank you
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Thank you
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