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Guide
January 2016
For Private Circulation only
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January 2016
Sharekhan ValueGuide
CONTENTS
EQUITY
07
13
17
45
46
18
19 REGULAR FEATURES
27 Report Card
28 Earnings Guide
TECHNICALS
Nifty
DERIVATIVES
30 View
31
ADVISORY DESK
MID Trades
COMMODITY
43 Derivative Ideas
43
FUNDAMENTALS
Crude Oil
Gold
Silver
Copper
Lead
32
33
33
33
33
33
34
35
35
35
TECHNICALS
Gold
Silver
Crude Oil
36 Copper
36 Jeera
36 Soya bean
37
37
37
FUNDAMENTALS
USD-INR
EUR-INR
38
38
GBP-INR
JPY-INR
38
38
TECHNICALS
USD-INR
EUR-INR
39 GBP-INR
39 JPY-INR
39
39
Zinc
Nickel
Castor seed
Chana
Soya bean
4
I
CURRENCY
FUNDAMENTALS
Stock Idea
Stock Updates
Sharekhan Special
Viewpoints
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disclaimer
Sharekhan ValueGuide
Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: compliance@sharekhan.com Contact: myaccount@sharekhan.com
January 2016
REPORT CARD
EQUITY
FUNDAMENTALS
52 WEEK
HIGH
LOW
ABSOLUTE PERFORMANCE
1M
3M
6M
12M
1M
RELATIVE TO SENSEX
3M
6M
12M
AUTOMOBILES
Apollo Tyres
Ashok Leyland
Bajaj Auto
Gabriel Industries
Hero MotoCorp NEW
M&M
Maruti Suzuki
Rico Auto Industries
TVS Motor
BSE Auto Index
BANKS & FINANCE
Allahabad Bank
Andhra Bank
Axis (UTI) Bank
Bajaj Finance
Bajaj Finserv
Bank of Baroda
Bank of India
Capital First
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
LIC Housing Finance
PTC India Financial Services
Punjab National Bank
SBI
Union Bank of India
Yes Bank
BSE Bank Index
CONSUMER GOODS
Britannia NEW
GSK Consumers
Godrej Consumer Products
Hindustan Unilever
ITC
Jyothy Laboratories
Marico
Zydus Wellness
BSE FMCG Index
IT / IT SERVICES
Firstsource Solution
HCL Technologies
Infosys
Persistent Systems
Tata Consultancy Services
Wipro
BSE IT Index
CAPITAL GOODS / POWER
Bharat Heavy Electricals
CESC
Crompton Greaves
Finolex Cable
Greaves Cotton
Kalpataru Power Transmission
PTC India
Skipper NEW
Thermax
Triveni Turbine
Va Tech Wabag NEW
V-Guard Industries
January 2016
Buy
Buy
Hold
Buy
Buy
Buy
Buy
Buy
Reduce
155.8
92.0
2483.4
95.5
2637.8
1242.5
4580.7
46.9
287.0
18295.3
201.0
105.0
2750.0
105.0
3250.0
1450.0
5400.0
58.0
250.0
249.8
145.1
99.7
56.0
2656.0 1912.5
106.8
72.0
3022.0 2251.3
1442.1 1092.2
4790.0 3360.0
61.2
34.3
322.3
201.0
20386.4 16689.5
0.1
2.7
0.5
9.3
-1.5
-6.8
-2.6
3.3
0.9
-2.5
-20.6
-1.7
4.6
10.4
1.8
-3.0
2.9
-0.4
24.4
1.3
-8.9
25.8
-2.3
27.2
-1.3
-6.4
13.0
12.3
8.2
-4.8
-29.3
65.0
3.8
2.6
-13.5
2.1
32.8
14.9
7.6
-2.2
1.0
3.7
1.4
10.3
-0.6
-5.9
-1.7
4.3
1.8
-1.6
-15.9
4.0
10.7
16.8
7.7
2.6
8.9
5.4
31.6
7.2
0.6
38.9
7.9
40.5
8.9
3.4
24.8
24.0
19.5
5.1
-25.9
72.9
8.8
7.5
-9.4
7.0
39.1
20.3
12.8
2.4
Hold
Buy
Buy
Buy
Buy
Buy
Hold
Buy
Hold
Buy
buy
Buy
Buy
Reduce
Buy
Buy
Hold
Buy
Buy
Buy
68.2
63.8
438.4
6052.5
1959.5
151.2
114.7
416.4
42.6
55.8
1216.7
1070.5
255.6
84.9
489.7
39.7
112.8
220.7
144.7
705.8
18943.9
90.0
84.0
652.0
6500.0
2050.0
195.0
148.0
485.0
48.0
75.0
1400.0
1260.0
400.0
76.0
558.0
62.0
156.0
324.0
185.0
930.0
132.5
64.1
96.5
58.5
655.4
407.0
6189.9 3394.6
2160.0 1208.2
228.9
137.2
306.0
108.6
464.8
321.0
78.9
39.8
79.8
52.2
1402.3 1093.2
1128.0
932.0
393.4
243.0
95.7
52.3
526.0
389.3
73.2
37.1
219.0
104.3
336.0
209.0
253.5
129.8
910.0
590.0
23903.8 18009.1
-6.9
-4.5
-6.5
12.1
-3.5
-10.9
-7.4
12.3
1.0
-3.4
3.2
0.8
-4.3
-9.2
9.1
1.4
-18.5
-10.1
-13.2
-4.9
-3.1
-12.1
-8.0
-14.9
18.2
8.8
-19.3
-19.5
11.9
-5.0
-15.8
-4.4
-1.7
-11.5
2.5
4.1
-13.0
-19.9
-9.7
-22.4
-5.3
-6.9
-24.2
-9.9
-25.7
10.2
12.9
-2.9
-36.4
4.0
-17.5
-29.6
-7.3
-1.5
-20.6
28.4
13.5
-9.0
-23.8
-19.9
-13.0
-19.1
-13.2
-44.4
-27.2
-13.0
78.9
57.8
-28.2
-59.7
19.4
-33.7
-23.5
11.0
14.1
-26.8
16.6
12.7
-38.8
-46.0
-26.8
-33.5
-7.8
-10.4
-6.1
-3.6
-5.6
13.1
-2.7
-10.1
-6.5
13.3
1.9
-2.6
4.2
1.7
-3.5
-8.3
10.1
2.3
-17.8
-9.2
-12.4
-4.0
-2.2
-7.0
-2.7
-10.0
25.1
15.1
-14.6
-14.8
18.4
0.6
-10.9
1.1
4.0
-6.4
8.4
10.2
-8.0
-15.2
-4.4
-17.9
0.2
-1.4
-16.3
-0.4
-17.9
21.6
24.6
7.2
-29.8
14.9
-8.9
-22.3
2.3
8.8
-12.4
41.9
25.3
0.5
-15.9
-11.6
-3.9
-10.6
-4.1
-41.7
-23.8
-8.9
87.4
65.3
-24.8
-57.8
25.1
-30.5
-19.9
16.2
19.5
-23.3
22.1
18.1
-35.9
-43.4
-23.3
-30.3
-3.5
-6.2
Buy
Buy
Buy
Hold
Buy
Buy
Hold
Buy
2972.6
6496.4
1329.8
859.0
325.1
307.4
225.3
858.1
7829.0
3650.0
6750.0
1460.0
900.0
370.0
360.0
240.0
990.0
1846.3
5467.1
944.1
769.0
294.0
236.0
157.6
770.1
7277.5
2.2
14.0
8.3
3.4
-6.2
-1.9
7.0
4.4
-1.7
-7.8
10.3
-1.1
2.5
-8.1
-3.4
13.4
4.1
-3.8
8.3
7.4
7.9
-8.4
-1.0
2.6
3.1
-4.1
-1.9
60.4
15.9
37.8
10.9
-10.7
19.4
39.7
11.4
2.4
3.2
15.0
9.3
4.4
-5.4
-1.0
7.9
5.4
-0.9
-2.4
16.8
4.6
8.5
-2.7
2.2
20.0
10.2
1.8
19.6
18.6
19.1
1.2
9.3
13.3
13.9
5.9
8.3
68.0
21.4
44.4
16.1
-6.5
25.1
46.3
16.7
7.2
Buy
Buy
Buy
Buy
Buy
Hold
42.2
846.0
1078.9
647.2
2369.6
557.7
10872.2
52.0
980.0
1240.0
820.0
2850.0
660.0
45.9
24.2
1058.5
746.4
1219.8
932.6
953.8
573.7
2812.1 2315.3
677.6
512.5
11927.5 10124.5
3.2
0.6
1.9
-3.1
2.3
-2.5
1.2
55.9
-0.9
-6.5
-0.6
-11.6
-7.4
-5.9
40.2
-12.3
9.7
4.0
-9.2
2.2
3.2
26.8
11.7
12.1
-24.4
-1.1
3.9
6.5
4.1
1.6
2.9
-2.2
3.2
-1.6
2.2
64.9
4.9
-1.1
5.1
-6.5
-2.0
-0.4
54.8
-3.1
21.2
14.8
0.3
12.8
13.9
32.8
17.0
17.4
-20.8
3.6
8.9
11.5
Hold
Hold
Hold
Buy
Buy
Buy
Buy
Buy
Hold
Buy
Buy
Buy
165.2
522.6
190.0
250.7
142.2
252.4
66.8
191.8
883.0
109.0
680.3
932.8
220.0
580.0
**
310.0
160.0
325.0
90.0
210.0
955.0
135.0
850.0
1155.0
-1.6
-7.4
-0.3
4.8
-4.1
-4.7
7.3
30.3
-1.9
3.7
-2.5
0.8
-16.2
-8.0
10.2
10.6
11.2
-2.9
7.6
25.5
1.3
-4.1
0.4
1.6
-36.1
-8.1
11.1
-0.6
7.8
-3.2
-1.5
24.2
-16.4
-7.1
-15.3
5.8
-36.2
-22.5
8.0
0.9
-0.2
14.4
-23.8
85.2
-14.1
0.9
-12.9
-13.0
-0.7
-6.5
0.7
5.7
-3.3
-3.8
8.3
31.5
-1.0
4.6
-1.6
1.7
-11.4
-2.7
16.6
17.0
17.6
2.8
13.8
32.8
7.2
1.5
6.2
7.5
-29.4
1.5
22.6
9.8
19.0
6.9
8.8
37.2
-7.7
2.6
-6.5
16.8
-33.2
-18.8
13.1
5.6
4.6
19.8
-20.2
94.0
-10.0
5.7
-8.7
-8.9
3435.0
6800.0
1459.0
981.0
410.0
342.0
234.3
1130.3
8382.8
300.0
751.7
203.8
306.5
162.6
291.8
102.0
219.9
1318.0
151.8
972.5
1166.0
153.0
452.0
145.3
213.0
112.6
197.6
50.1
105.2
827.0
90.0
615.0
800.0
Sharekhan ValueGuide
EQUITY
REPORT CARD
FUNDAMENTALS
RELATIVE TO SENSEX
1M
3M
6M
12M
6.1
10.7
5.8
1.6
-2.7
-7.0
-14.5
-5.0
-0.8
8.1
4.1
-6.2
-7.7
9.0
0.1
1.1
Hold
Buy
Buy
Hold
Buy
Reduce
737.7
92.0
257.9
12.0
1256.0
30.5
2725.9
1343.2
752.0
175.0
300.0
26.0
1630.0
**
769.2
224.0
275.9
29.5
1893.8
40.8
3456.8
1894.0
129.2
-32.0
6.3
8.0
-31.2
18.7
-18.2
-5.2
360.9
-46.6
8.0
-53.5
-16.9
-19.3
-9.5
-10.3
0.1
9.1
5.0
-5.3
-6.8
10.0
1.0
2.0
34.2
1.0
6.1
8.5
-15.8
22.6
-2.7
2.1
153.1
-24.9
17.4
19.3
-24.0
31.1
-9.7
4.6
382.8
-44.1
13.1
-51.3
-13.0
-15.4
-5.2
-6.0
Hold
Buy
Hold
399.0
995.3
206.0
9459.3
400.0
1100.0
345.0
592.0
1067.9
343.8
10408.1
341.1
796.5
197.2
8243.3
1.3
6.9
-14.1
4.4
-10.1
14.9
-8.5
8.0
-9.1
1.6
-29.1
-2.4
-22.0
24.8
-37.3
4.6
2.3
7.9
-13.3
5.4
-4.9
21.6
-3.2
14.3
0.3
12.2
-21.7
7.8
-18.3
30.8
-34.3
9.6
Buy
Buy
Buy
Hold
Hold
Hold
Buy
Buy
Hold
844.3
645.7
320.8
1149.7
930.6
732.0
1795.2
799.1
1448.4
16640.8
973.0
795.0
396.0
1150.0
1065.0
779.0
2207.0
885.0
1741.0
891.5
752.9
454.4
1242.4
1262.9
888.0
2129.0
1200.8
1720.0
18842.7
465.0
571.3
285.0
786.0
702.6
591.3
1364.6
704.0
1030.1
15345.7
7.5
1.0
-18.4
0.7
-5.0
-7.4
-2.9
4.8
-3.1
0.4
14.9
-1.8
-24.6
0.0
-14.2
-1.9
-15.4
-12.7
-8.1
-9.4
19.9
0.0
-11.8
20.4
-10.8
2.8
-8.3
-9.6
9.3
-1.8
60.1
6.4
-2.8
37.2
25.9
-1.7
26.1
-1.7
28.6
16.3
8.5
1.9
-17.7
1.6
-4.1
-6.6
-2.0
5.8
-2.2
1.3
21.6
3.9
-20.3
5.8
-9.2
3.8
-10.5
-7.6
-2.7
-4.1
32.4
10.5
-2.6
33.0
-1.5
13.5
1.3
-0.2
20.7
8.5
67.7
11.5
1.8
43.7
31.9
3.0
32.1
2.9
34.7
21.8
Buy
Buy
Hold
Buy
3657.3
389.2
11059.3
2749.2
4475.0
450.0
11800.0
3750.0
4024.9
405.5
13360.0
3399.0
3301.0
270.0
8860.0
2530.8
-1.8
3.7
2.8
-4.6
1.4
14.3
-8.8
-1.2
3.1
15.8
3.5
-11.6
8.8
22.0
26.3
2.7
-0.9
4.6
3.7
-3.7
7.3
21.0
-3.4
4.6
13.9
27.9
14.3
-2.3
13.9
27.8
32.3
7.6
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Buy
Hold
Buy
Hold
Buy
172.4
238.2
235.9
832.9
346.2
2140.3
384.0
419.0
500.9
142.3
204.4
396.4
422.0
240.0
300.0
307.0
1000.0
400.0
2480.0
600.0
450.0
635.0
145.0
265.0
450.0
470.0
262.0
344.0
276.3
962.7
424.5
2342.7
495.0
555.5
615.0
218.8
256.9
430.4
440.7
137.0
200.1
145.0
697.1
232.0
1624.1
302.2
360.1
302.6
114.0
156.1
240.2
299.5
-8.8
2.8
-5.0
-5.6
9.9
9.7
1.2
2.5
2.1
13.8
-1.7
0.8
7.0
1.6
12.8
-4.9
2.2
23.7
1.0
-6.8
-5.3
-7.0
-11.4
-0.3
34.8
6.1
-12.1
-2.2
32.3
-4.6
18.2
4.7
-15.0
-12.5
-1.3
0.3
-13.7
57.0
14.0
10.9
-16.8
35.8
-2.8
34.1
15.1
-0.4
-16.4
52.6
-24.0
26.3
29.0
15.8
-7.9
3.7
-4.1
-4.8
10.9
10.7
2.2
3.4
3.0
14.9
-0.8
1.7
7.9
7.5
19.3
0.6
8.1
31.0
6.9
-1.4
0.3
-1.6
-6.3
5.5
42.6
12.2
-2.9
8.0
46.1
5.4
30.5
15.6
-6.2
-3.4
8.9
10.8
-4.7
73.4
25.8
16.1
-12.8
42.2
1.8
40.4
20.6
4.3
-12.5
59.8
-20.4
32.3
35.1
21.2
Buy
Buy
Hold
Buy
Buy
Buy
Buy
Hold
Hold
Buy
2159.9
1660.2
326.8
1370.1
313.5
517.5
656.1
540.5
689.0
433.9
10491.5
6630.8
13429.4
2500.0
1950.0
380.0
1450.0
385.0
648.0
800.0
625.0
700.0
550.0
2344.9
1747.8
452.5
1416.9
459.4
586.0
787.2
806.3
746.8
576.4
11764.8
7428.1
14237.6
1516.0
1242.9
304.2
947.0
302.2
381.1
480.0
501.4
520.0
315.3
9931.9
6286.7
12133.8
8.7
-4.3
0.3
10.4
0.2
-5.2
7.9
-4.2
5.4
5.8
0.3
0.4
2.5
1.4
4.3
-7.6
13.9
-5.7
-0.7
5.3
-18.4
9.5
-4.6
-2.8
-3.0
1.5
15.4
12.2
-25.2
20.7
-5.5
-0.9
0.6
-6.7
2.8
-19.9
-5.5
-5.6
1.6
34.6
18.2
-8.5
44.5
-5.9
33.2
26.0
-18.8
18.9
36.0
0.4
0.5
11.1
9.7
-3.4
1.2
11.4
1.1
-4.3
8.9
-3.3
6.4
6.8
1.2
1.3
3.4
7.3
10.4
-2.3
20.5
-0.3
5.0
11.5
-13.7
15.8
0.9
2.8
2.7
7.4
27.5
23.9
-17.4
33.3
4.3
9.5
11.1
3.1
13.5
-11.5
4.3
4.2
12.2
41.0
23.8
-4.2
51.4
-1.5
39.5
32.0
-14.9
24.6
42.5
5.2
5.3
16.4
Sharekhan ValueGuide
ABSOLUTE PERFORMANCE
1M
3M
6M
12M
5.1
4.6
-4.2
-3.0
-3.6
-12.1
-22.6
-9.3
26.8
-4.6
0.3
2.5
-20.5
15.9
-8.1
-3.5
January 2016
January 2016
Sharekhan ValueGuide
EQUITY
MARKET OUTLOOK
FUNDAMENTALS
MARKET OUTLOOK
Key risk: (a) Global risks: Economic recovery may falter in the USA,
China may devalue its currency and geo-political issues; and (b)
domestic risks: a higher fiscal deficit and continued parliamentary logjam
Sharekhan ValueGuide
January 2016
MARKET OUTLOOK
EQUITY
FUNDAMENTALS
After a patchy growth over the past couple of years, the Indian
economy seems to be coming on track with green shoots visible
across sectors. Apart from a GDP growth of 7.4% (as per the new
series in Q2FY2016), the other economic indicators like the Index
of Industrial Production (IIP) growth are showing an improving
trend (IIP has averaged at 4.8% in the fiscal so far). A weak demand
environment has been a concern though a healthy growth in the
recently concluded festive season suggests an uptick in private
expenditure which along with government spending will support
growth in the coming quarters.
Even as some key legislations (the land acquisition bill, the Goods
and Services Tax [GST] Bill) are stuck in the Parliament, the
government has taken executive measures like de-clogging of road
projects, addressing the issues of the power distribution companies,
and raising spending on railways, irrigation etc. Over the next two
to three years, multiple factors like lower inflation, a drop in interest
rates, a steady pick-up in consumer demand and a likely resumption
of capital expenditure (capex) by the private sector will be the key
contributors to the economys growth.
January 2016
Sharekhan ValueGuide
EQUITY
MARKET OUTLOOK
FUNDAMENTALS
Source: data.gov.in
Key economic reforms like the GST bill have been stuck in the
Parliament as the ruling National Democratic Alliance lacks the
required numbers in the upper house of the Parliament (Rajya Sabha)
to get the reforms passed. While the government is lying low after
LOK SABHA COMPOSITION
Source: loksabha.nic.in
Sharekhan ValueGuide
Source: rajyasabha.nic.in
January 2016
MARKET OUTLOOK
EQUITY
FUNDAMENTALS
Source: Bloomberg
Fed raises rates but its not the end of the road
Sticking to its script the US Federal Reserve (Fed) raised the interest
rates by 25BPS suggesting confidence in the recovery of the US
economy. However, the World Bank, the International Monetary
Fund and other multi-lateral institutions have downgraded the
growth estimate of the global economy to 3.0-3.3%, largely due to
a subdued growth in the developed economies and head winds in
the EM economies (Russia, Brazil, China etc). A gradual tightening
by the Fed will result in outflows from the EMs but the net addition
to the global liquidity from the monetary easing by the other major
central banks (Peoples Bank of China, Bank of Japan, European
Central Bank etc) would prevent any disruption.
Date
Source: Bloomberg
Time to market
Top (months)
14-08-77
41.1
41
6.00% - 20.00%
16-12-86
34.7
6.00% - 7.25%
The banking sector (especially the public sector banks [PSBs]) saw
a sharp rise in non-performing assets during the 2014-15 period
which led to a reduction in their earnings estimates. Lately,
incremental stressed loan formation has shown some moderation
though some large corporate groups remain under watch. A leading
credit rating agency (CRISIL) suggests that the ratio of upgrades to
downgrades is ~3.2x for the medium-sized firms (with revenues in
the range of $20-100 million) for 2015 which is a meaningful
improvement. While this might just be one of the trends but an
improving economy and declining interest rates would improve the
debt servicing ability of firms and contribute to their earnings.
29-03-88
41.9
28
6.50% - 9.75%
30-06-99
11.3
4.75% - 6.50%
30-06-04
37.2
40
1.00% - 5.25
16-12-15
Average
?
33.25
?
25
0.25% - ??
Source: media reports
January 2016
10
Sharekhan ValueGuide
EQUITY
MARKET OUTLOOK
FUNDAMENTALS
Physical assets: Real estate and gold face several head winds
Policy push: Policy initiatives taken to curtail black money (like
Benami Property Act etc) would restrict the demand for real
estate and gold.
Source: Bloomberg
FDI FLOWS
Source: AMFI
Source: Bloomberg
Sharekhan ValueGuide
11
January 2016
MARKET OUTLOOK
EQUITY
FUNDAMENTALS
Despite the global volatility India has stayed resilient, thanks to the
strength of its economy. However, the premium it has enjoyed
traditionally over the other EMs has narrowed significantly and is
close to 22%. This suggests that the valuations of the benchmark
indices are reasonable even on a relative basis.
Urban consumption
Government spending
Economic recovery
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.
January 2016
12
Sharekhan ValueGuide
EQUITY
FUNDAMENTALS
Two thousand and fifteen seems to have been a difficult year for
equity investors going by the negative returns posted by the
benchmark indices, the Nifty and the Sensex, and the mid singledigit returns shown by the CNX Mid-cap Index. However, there
are numerous stocks in the broader market that have given
superlative returns in the past one year. The divergent trend
highlights the importance of careful stock selection as a tried and
tested formula to generate superior returns in equities.
Even our Top Picks basket has comfortably outperformed the indices
by delivering gains of close to 14% in the past 12 months in spite
of the two mishaps in the pharmaceutical sector (Dr Reddys
Laboratories and Cadila Healthcare [Cadilla]) recently. We had to
book losses in these stocks due to an unfortunate and unexpected
regulatory risk arising from a spike in US Food and Drug
Administration (USFDA) activism.
In the last month, the baskets outperformance was wiped off with
CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED)
1 month
3 months
(%)
6 months
1 year
3 years
5 years
124.9
Top Picks
0.1
-1.4
1.6
13.9
109.4
Sensex
-0.1
-0.1
-6.8
-5.1
33.7
33.0
Nifty
0.1
0.0
-6.1
-4.1
33.6
35.1
CNX Mid-cap
1.1
3.2
1.2
6.5
55.9
59.1
Sensex
Nifty
CNX
MIDCAP
CY2015
13.9
-5.1
-4.1
6.5
CY2014
63.6
29.9
30.9
55.1
CY2013
12.4
8.5
6.4
-5.6
CY2012
35.1
26.2
29.0
36.0
CY2011
-20.5
-21.2
-21.7
-25.0
CY2010
16.8
11.5
12.9
11.5
CY2009
116.1
76.1
72.0
114.0
Since inception
(Jan 2009)
423.2
160.2
160.6
269.8
Please note the returns are based on the assumption that at the beginning of each month an equal amount was invested in each stock of the Top Picks basket
NAME
Ashok Leyland
CMP*
(RS)
FY15
PER
FY16E
FY17E
FY15
ROE (%)
FY16E
FY17E
PRICE
TARGET (RS)#
UPSIDE
(%)
20
88
106.7
25.1
16.0
4.9
18.3
24.8
105
Bajaj Finance
6,044
33.8
27.4
21.4
20.3
19.5
19.2
6,500
Britannia Industries
2,968
65.7
41.7
34.4
53.3
55.9
47.5
3,650
23
GCPL
1,324
48.9
39.5
32.1
24.6
25.7
25.8
1,460
10
305
40.6
38.1
32.4
20.6
20.0
21.0
370
21
15
Havells
IndusInd Bank
Maruti Suzuki
Relaxo Footwear
Reliance Industries
966
28.6
23.0
18.2
19.2
20.5
21.5
1,108
4,623
37.6
25.3
19.7
16.6
21.3
22.8
5,400
17
508
59.1
45.8
33.9
23.4
22.1
22.3
635
25
9
1,010
12.6
12.9
10.8
10.8
9.7
10.5
1,100
SBI
225
12.8
9.4
7.1
10.6
13.2
15.7
**
TCS
2,436
24.3
19.9
17.8
33.7
32.7
29.7
3,000
23
437
50.9
44.2
35.2
19.0
18.8
20.6
470
Zee Entertainment
*CMP as on December 31, 2015 # Price target for next 6-12 months
Sharekhan ValueGuide
** Under review
13
January 2016
EQUITY
CMP
(RS)
ASHOK LEYLAND
88
FY15
106.7
PER
FY16E
25.1
FY17E
FY15
ROE (%)
FY16E
FY17E
16.0
4.9
18.3
24.8
FUNDAMENTALS
PRICE
TARGET (RS)
105
UPSIDE
(%)
20
Remarks: Ashok Leyland Ltd (ALL) is the second largest commercial vehicle (CV) manufacturer in India with a market share of 27% in the heavy
truck segment and an even higher share of about 40% in the bus segment.
The medium and heavy commercial vehicle (MHCV) volumes were under pressure over the past two years but have witnessed a
sustained recovery and been growing in double digits over the past few quarters. We expect the MHCV volumes to remain buoyant
over FY2016-17 driven by a pick-up in the economic cycle, improved operator profitability and phase-wise implementation of the
Bharat Stage IV norms across the country leading to pre-buying.
The management is also concentrating on verticals other than CVs to de-risk the business model. It has a strong presence in exports
and continues to expand to newer geographies. Additionally, ALLs defence business is expected to get a leg-up due to the governments
focus on indigenous manufacture of defence products and FDI in the sector.
ALLs operating profit margin has recovered from the lows on the back of a reduction in discounts and price hikes taken by the
company. Its margins are expected to expand further, given the operating leverage. With buoyant operating cash flows and no significant
capital expenditure planned, we expect the balance sheet to get de-leveraged and the return ratios to improve.
BAJAJ FINANCE
6,044
33.8
27.4
21.4
20.3
19.5
19.2
6,500
Remarks: Bajaj Finance Ltd (BFL) is among the most diversified NBFCs (financing of mortgages, consumer durables, SME, rural etc) having a
strong distribution network ( 512 branches). We believe a strong growth in customer additions, its unique cross-sell and up-sell
capabilities, and robust growth from newer products (rural finance, lifestyle finance etc) should drive a growth of over 25% in the AUMs.
Despite a strong growth in loans, the asset quality remains among the best in the system (gross NPAs of 1.69% based on 150-day past
due [DPD] basis) which along with conservative provisioning adds to the comfort. BFL has already made provisions based on 90-DPD
basis, ahead of the Reserve Bank of India (RBI)s timeline.
We expect BFLs earnings to grow at a compounded annual growth rate of 28% over FY15-17 resulting in a return on asset (RoA) and
return on equity (RoE) of 3.2% and 19.2% respectively. While we have been positive on BFLs business model and strong earnings
performance; We have a Buy rating on BFL with a price target of Rs6,500.
BRITANNIA INDUSTRIES
2,968
65.7
41.7
34.4
53.3
55.9
47.5
3,650
23
Remarks: Britannia Industries (Britannia) is the second largest player in the Indian biscuit market with about 30% market share. It has chalked
out an aggressive growth strategy to sustain the double-digit volume growth in the biscuit segment by enhancing its product portfolio.
It is also striving to expand to the other categories such as dairy (market size Rs75,000) and adjacent snacking categories (market size
Rs30,000 crore).
It is likely to maintain a 14-15% revenue growth rate with the volume growth standing at 10-11% (largely driven by enhanced both
distribution reach and product portfolio). The operating profit margin is expected to remain in the range of 14-15% on the back of
benign input cost and operating efficiency.
The company has a strong balance sheet with the free cash flow consistently improving over the past few years. Its return ratios have
improved over the past few years and remained strong in the upward of 50%.
Under a new leadership, Britannia has been able to leverage and monetise its strong brand and position in the biscuit and snack
segments. We believe that the company can sustain its higher than industry growth rates with an improving distribution reach, entry
into newer categories and focus on cost efficiency. We recommend a Buy on the stock with a price target of Rs3,650.
GODREJ CONSUMERS
1,324
48.9
39.5
32.1
24.6
25.7
25.8
1,460
10
Remarks: Godrej Consumer Products Ltd (GCPL) is one of the largest FMCG companies in India with a strong portfolio of brands catering to the
matured and fast growing categories in the domestic market. With a slew of acquisitions in markets such as Africa, Latin America and
Indonesia, it has expanded its base globally (about 40% of its revenues come from the international market.
GCPL's domestic business is performing well in a weak demand environment (grew by 9% in Q2FY2016). The key reason for a better
performance is a presence in the under-penetrated categories such as hair color and mosquito repellent, sustained innovation in the
portfolio and expansion in distribution reach. On the other hand, the business in Africa is in a consolidation phase while the Indonesian
business is standing tall in a favourable demand environment.
Benign input prices would continue to boost its profitability and help GCPL to take adequate promotional actions and do higher brand
three years. Thus, better growth prospects and strong earning visibility make it one of the better picks in the mid-cap FMCG space. We
maintain our Buy recommendation on the stock.
January 2016
14
Sharekhan ValueGuide
EQUITY
FUNDAMENTALS
NAME
CMP
(RS)
HAVELLS
305
FY15
40.6
38.1
FY17E
FY15
ROE (%)
FY16E
FY17E
32.4
20.6
20.0
21.0
PRICE
TARGET (RS)
UPSIDE
(%)
370
21
Remarks: Havells is a leading electrical equipment and appliance manufacturer in India. The poor performance of Sylvania (acquired in 2007) dragged
the balance sheet of the company for a long time; however now Havells is going to divest Sylvania. Therefore, the current overhang will go
away and reflect positively on the consolidated results. We believe the deal will not only strengthen its balance sheet but also add value to the
bottom line and lift the return ratios. In terms of quality, the managements focus on domestic business is expected to increase.
Apart from consolidating its leadership position in the existing products through product innovation and better features, it is also
expanding its product portfolio and making efforts to dwell deeper in the distribution channel by directly connecting with retail and
electrician networks (on the lines of Asian Paints and Astral Poly Technik). Further, consistent free cash flow generation, a high cash
conversion (reported profit to cash flow) record and a consistent high dividend pay-out speak for the management quality. Superior
return ratios and a debt-free balance sheet indicate the quality of business too. Post-divestment of Sylvania, we believe the return
ratios are poised to improve further.
We believe Havells is a deserving high quality stocks, backed by a strong track record of its management and impressive financials.
Going forward, the extraordinary efforts like direct involvement with electricians and retailers will give it competitive advantage and
help it to consolidate its leadership position in India. Though currently the domestic business is moving at a modest pace, mirroring
consumer demand, we expect urban consumption to rise in future and Havells is well positioned to captalise on it. Moreover, the
Sylvania divestment would help it to shake off the past overhang and reflect positively on its return ratios as well as valuations.
INDUSIND BANK
966
28.6
23.0
18.2
19.2
20.5
21.5
1,108
15
Remarks: IndusInd Bank is among the fastest growing banks (a 27% CAGR growth over FY10-15) having a loan book of Rs68,700 crore and 811
branches across the country. About 25% of the banks book pertains to vehicle finance, which is a high-yielding category and is
showing signs of recovery.
Given the aggressive measures taken by the management, the deposit profile has improved considerably (a CASA ratio of 34%).
Going ahead, the bank would follow a differentiated branch expansion strategy (a 5% branch market share in identified centers) that
would help ensure healthy savings accounts and retail deposit growth.
Despite a weak economic growth and a higher proportion of vehicle finance book the bank has maintained its asset quality. With total
stressed loans (restructured loans + gross NPAs) forming just 1.4% of the book, the banks asset quality is among the best in the system.
A likely revival in the economy will further fuel growth in the consumer finance division and strong capital ratios will support the growth
plans. The stock is trading at 3.3x its FY17E book value (not factoring in the QIP issue). Given the strong loan growth, high RoAs and
healthy asset quality, the stock should continue to trade at premium valuation. We have a positive outlook on the stock.
MARUTI SUZUKI
4,623
37.6
25.3
19.7
16.6
21.3
22.8
5,400
17
Remarks: Maruti Suzuki India Ltd (Maruti) is Indias largest passenger vehicle manufacturer with a strong 45% market share.The company has
been able to gain market share over the last two years on the back of its diverse product portfolio, a large distribution network with an
increased focus on the rural markets and a shift in consumer preference to petrol models from diesel models.
The recently launched premium hatchback, ie Baleno, has received a positive response which will help the company expand its market
share in the segment. Further, the company has a pipeline of new launches over the next few years, the most important being the entry
into the compact utility vehicle and light commercial vehicle segments.
The company is poised to reap the benefits of an increase in discretionary spending from the Seventh Pay Commission pay-out.
The management plans to double its existing sales and distribution network in order to achieve its target of doubling domestic volumes
over the next five years.
The profitability continues to remain high on the back of soft commodity prices, depreciation of the Japanese Yen and high operating
leverage.
RELAXO FOOTWEAR
508
59.1
45.8
33.9
23.4
22.1
22.3
635
25
Remarks: Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-of-the-mind-recall
brands, viz, Hawaii, Sparx, Flite and Schoolmate. In the last quarter it also added another brand, Bahamas, to its product portfolio.
Relaxo has a proactive approach towards both brand building and creating capacities. To build its brand and create pull, like FMCG
players it continues to rope Bollywood celebrities and this creates an aspirational quotient for its brands. On the one hand, the
company is creating strong consumer centric aspiration for the consumers; on the other hand, it is keeping its eye on quality and thus
does not believe in outsourcing. It is in the process of building capacity for future. Despite the current capacity (180 million pieces per
annuam) that would take care of growth in the next three years, the company has bought a 15-acre land at Bhiwadi to built additional
capacity to serve the future requirements.
Relaxos strong presence in the lucrative mid priced footwear segment (through its top-of-the-mind-recall brands like Hawaii, Flite and
Sparx) along with its integrated manufacturing set-up, lean working capital requirement and vigilant management puts it in a sweet
spot to cash in on the strong growth opportunity unfolding in the footwear category due to a shift from unbranded to branded products.
We thus maintain our Buy rating on the stock. We also roll over our multiple from FY2017 estimate to FY2018 estimate (valuing the
stock at 33x FY2018E) with a price target of Rs635.
Sharekhan ValueGuide
15
January 2016
EQUITY
CMP
(RS)
RELIANCE INDUSTRIES
1,010
FY15
12.6
PER
FY16E
12.9
FY17E
FY15
ROE (%)
FY16E
FY17E
10.8
10.8
9.7
10.5
FUNDAMENTALS
PRICE
TARGET (RS)
1,100
UPSIDE
(%)
Remarks: Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration businesses. The refining
division of the company is the highest contributor to its earnings and is operating efficiently with a better gross refining margin (GRM)
compared with its peers in the domestic market due to the ability of its plant to refine more of heavier crude. The exploration business
remains weak due to low production in the Krishna-Godavari-D6 (KG-D6) field and weak pricing of global fuel prices. However, capital
employed and profit contribution from the exploration business is low.
Moreover, the upcoming incremental capacities in the petrochemical and refinery businesses are going to drive the future earnings
growth substantially as the downstream businesses are on the driving seat and contributing the lions share of the profitability and cash
flow.
After a strong GRM in H1FY2016, we expect the margin to remain healthy for the whole year and drive a strong bottom line performance.
The stock is available at an attractive valuation considering the size, strong balance sheet and cash flow generating ability of the
company.
225
SBI
12.8
9.4
7.1
10.6
13.2
15.7
**
Remarks: SBI is India's largest bank in terms of most comparable parameters such as assets size, branch network (18,000 branches) and
customer base. The bank has a market share of ~18% and along with its associate banks it commands a market share of over 25% in
the banking system. Therefore, with a revival in the investment cycle and pick-up in consumption the bank is likely to benefit significantly
in terms of loan growth and profitability.
SBIs asset quality is relatively better compared with the other public sector banks (PSBs; its stressed loans stand at ~8.5% vs ~13.5%
of the other PSBs) and has been showing improving trends in the past few quarters. While the pressure on the asset quality may
continue in the near term, a higher tier-1 CAR (9.6%) and an improving operating performance remain comforting factors.
Going ahead, SBI will look to merge its associate banks which will give an unmatched hold in the domestic banking sector and boost
economies of scale. In addition, the likely monetisation of the insurance and other subsidiaries will strengthen the capital position of
the bank. The bank may also benefit from the governments plans to infuse capital into the PSBs. SBI is a better pick among the
government-owned banks and is reasonably valued at the current levels.
2,436
TCS
24.3
19.9
17.8
33.7
32.7
29.7
3,000
23
Remarks: TCS pioneered the IT services outsourcing business from India and is the largest IT service firm in the country. It is a leader in most
service offerings and has further consolidated its position as a full-service provider by delivering a robust financial and operational
performance consistently over the years.
The consistency and predictability of its earnings performance has put the company at the top of its league. TCSs management
remains positive on the digital technologies space, which grew by 10.7% QoQ, forms 13.3% of the revenues as compared with 12.5%
in Q1FY2016. The management remains confident about the growth trajectory of the digital space for the coming years. Given the
usual seasonal weakness in H2, it expects a soft revenue growth in the next two quarters. Further, it expects weakness in Diligenta
(insurance) and Japan (integration issues related to the Mitsubishi acquisition) to continue for few more quarters.
We remain positive on TCS, given its strong positioning, scale advantage and head start in the digital technologies space (the highest
among the top Indian IT companies), which justify the valuation premium for TCS over the others.
ZEE ENTERTAINMENT
437
50.9
44.2
35.2
19.0
18.8
20.6
470
Remarks: Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatory
digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental
capex as the subscriber declaration improves in the cable industry.
The management maintains that the advertisement spending will continue to grow in double digits going ahead and ZEEL will be able
to outperform the same. The growth in the advertisement spending will be driven by an improvement in the macro-economic factors
and the fact the ZEEL is well placed to capture the emerging opportunities being a leader in terms of market share.
ZEEL continues to outperform the broadcasting advertising market. We expect the momentum to continue with an improvement in the
macro economy. The management indicated the strong momentum in the advertisement revenue growth would continue led by market
share gains and improvement in spending from segments like FMCG, e-commerce, consumer durables and telecom companies.
Subscription revenues are also expected to benefit from the run-up phases III and IV of the digitisation process (to be more visible in
FY2017 and FY2018). We continue to see ZEEL as the prime beneficiary of the macro revival and digitisation.
January 2016
16
Sharekhan ValueGuide
EQUITY
FUNDAMENTALS
XXX XX,
2015
COMPARATIVE RETURNS
Particulars
9.5
- Large-cap (64%)
9.0
- Mid-cap (36%)
10.3
Sensex
-0.9
Nifty
0.7
CNX Mid-cap
UPDATE ON WEALTH CREATOR PORTFOLIO
Sr No
Scrip
19.8
Weights
Potential upside
Axis Bank
8%
450
1210
169.2%
8%
1276
3800
197.9%
Maruti Suzuki
8%
4615
8750
89.6%
Cummins
8%
1028
1708
66.2%
8%
224
580
158.5%
Sun Pharmaceuticals
8%
820
1650
101.2%
8%
2439
5100
109.1%
8%
290
675
132.9%
4%
40
112
177.6%
10
V-Guard
4%
946
2100
122.0%
11
Gateway Distripark
4%
324
810
150.3%
12
IRB Infra
4%
243
650
167.1%
13
Network 18 Media
4%
59
135
130.2%
14
Gabriel India
4%
99
200
102.0%
15
Century Plyboards
4%
170
440
159.0%
16
Triveni Turbines
4%
113
265
134.7%
17
Dhanuka Agritech
4%
512
1150
124.6%
* Please note we see scope for upward revision in target price (3-year) of some of the stocks depending on the extent of economic recovery and will keep updating on the same
Sharekhan ValueGuide
17
January 2016
STOCK IDEA
EQUITY
PI INDUSTRIES
BUY
CMP: RS610
FUNDAMENTALS
COMPANY DETAILS
Price target:
Rs800
Market cap:
Rs8,331 cr
52-week high/low:
Rs786/440
0.1 lakh
BSE code:
523642
NSE code:
PIIND
Sharekhan code:
PIIND
5.7 cr
SHAREHOLDING PATTERN
PRICE CHART
Unique business model, prime source of competitive advantage: PI Industries (PI), a leading
agro-chemical company, has a differentiated business model with focus on the fast-growing
custom synthesis and manufacturing (CSM) business, which contributes 60% of its revenues.
Its strong research base and manufacturing practices make it a preferred outsourcing partner
for the global chemical players for their innovative and patented products. Given its track
record and established relations with global players, the company is able to introduce
innovative agro-chemicals (which contribute 40% of the revenues) in the domestic market
through the in-licencing of molecules. It has in its kitty blockbuster products like Nominee
Gold and Osheen in association with MNCs.
Capacity addition to help sustain growth momentum in the CSM business: The CSM
business remains the differentiating force that will help it achieve a higher growth with a
continuous improvement in the margins in the coming years. To sustain the growth
momentum, the company has expanded its manufacturing capacity in Jambusar at a cost
of Rs300 crore and the new capacity would be commissioned in H2FY2016. After the
expansion PI would be able to improve its revenue mix in favour of the relatively highmargin CSM business. The capacity expansion would also have a favourable impact on its
return ratios. On the agro-chemical front, the company is concentrating on a few niche
products which have the ability to become blockbusters in future. It has only 25-30 products
in the market (vs the other agro-chemical companies, which have 80-100 products) and
plans to launch two new products every year which will help it to increase its market share.
Earnings to grow at 24% CAGR over FY2015-18, balance sheet to be deleveraged by FY2017:
The commissioning of the Jambusar facility and the launch of new products in the agrochemical segment will help the company to achieve a revenue CAGR of around 17% and
earnings CAGR of around 24% over FY2015-18. On the other hand, the margins are expected
to improve by 225BPS over the next three years. On the balance sheet front, the company is
expected to become debt-free by FY2017 on account of strong cash flow from operations.
The return ratios, among the best in the industry, will remain strong at RoCE of around 36%
and RoE of around 28%. With a major capex behind it, the company will generate strong
free cash flows, so theres room to increase the dividend pay-out from 15% currently.
A differentiated business model and compounding growth story: PI has a unique business
model, strong relationship with global innovators, good revenue visibility in the CSM
business and a well-spread distribution network, making it a compelling investment case.
PI is one of the few agro-chemical companies that have a unique business model and are an
example to the other chemical companies. On the valuation front, PI continues to attract a
premium valuation over the other agro-chemical companies on account of its unique business
model, strong visibility of earnings, robust balance sheet (to be debt-free by FY2017),
impressive return ratios with strong free cash flows and excellent management. Currently,
PI trades at PE of 23.2x FY2017E and 19.2x FY2018E earnings. We have valued the
company at 25x FY2018E earnings. We initiate coverage on PI with a Buy recommendation
and price target of Rs800.
VALUATIONS
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
-3.9
-2.3
-3.9
12m
30.6
Relative
to Sensex
-2.9
-0.7
-0.1
35.2
Particulars
Net sales (Rs cr)
EBIDTA (Rs cr)
Adj. PAT (Rs cr)
EBIDTA margin (%)
PAT margin (%)
EPS (Rs)
P/E (x)
RoCE (%)
RoE (%)
Debt/Equity
FY2014
1,595.0
285.6
183.7
17.9
11.5
13.6
44.8
33.1
30.1
0.2
FY2015
1,939.7
369.9
224.8
19.1
11.6
16.7
36.6
34.7
28.3
0.2
FY2016E
2,225.0
449.8
286.9
20.2
12.9
21.3
28.7
33.9
28.2
0.1
*FY2015 includes consolidation of Satyam Cineplexes, which will affect the overall profitability
FY2017E
2,613.4
541.3
354.9
20.7
13.6
26.3
23.2
35.2
27.5
0.0
FY2018E
3,090.1
658.9
428.9
21.3
13.9
31.8
19.2
36.1
26.2
0.0
For detailed report, please visit the Research section of our website, sharekhan.com.
January 2016
18
Sharekhan ValueGuide
EQUITY
STOCK UPDATE
FUNDAMENTALS
BUY
CMP: RS2,073
DECEMBER 4, 2015
Sun Life ups its stake in Birla Sun Life Insurance;
maintain Buy
COMPANY DETAILS
Price target:
Rs2,500
Market cap:
Rs26,971 cr
52 week high/low:
Rs1,519/2,340
1.4 lakh
BSE code:
500303
NSE code:
ABIRLANUVO
Sharekhan code:
ABIRLANUVO
5.6 cr
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
2.3
6.5
19.7
12m
19.4
Relative to Sensex
4.2
4.3
26.0
28.4
Event update: Sun Life Financial (Sun Life), which partners and holds 26% stake in Aditya
Birla Nuvo Ltd (ABNL)s insurance arm, Birla Sun Life Insurance, has agreed to increase its
stake in the insurance company from 26% to 49% (acquiring additional 23% stake) at an
investment of Rs1,664 crore. ABNL will continue to hold a controlling stake at 51%.
Broad contours of the deal: (a) The deal value of Rs1,664 crore for a 23% stake leads
to valuing the insurance arm at Rs7,235 crore, resulting in 2.2x its FY2015 embedded
value. The deal value is higher than our valuation of the insurance business wherein we
had attached Rs5,500 crore for the insurance business. The increase in stake by Sun
Life testifies the franchisee strength of the business coupled with general attractiveness
of the Indian insurance business. The money raised would be utilised to pay off the
debt and deliver the balance sheet of ABNL.
Maintain Buy with an unchanged price target of Rs2,500: Despite incorporating the
deal (insurance being valued at Rs7,235 crore, higher than our valuation of Rs5,500
crore), we have maintained our price target on the stock of the company as we
downgraded the telecom business (now valued at 7x its FY2017E EV/EBITDA as against
7.5x earlier) due to increasing competitive intensity in the telecom space in the wake of
the impending launch of Reliance Jio and Idea Cellulars aggression towards higher
spending to build its data capability that would have a negative effect on its balance
sheet. Thus, cumulatively our price target remains unchanged at Rs2,500. We have
also maintained our Buy rating on the stock.
For detailed report, please visit the Research section of our website, sharekhan.com.
AUROBINDO PHARMA
BUY
CMP: RS804
DECEMBER 10, 2015
Strong growth outlook backed by slew of product
approvals; upgrade to Buy
COMPANY DETAILS
Rs973
Market cap:
Rs46,953 cr
52 week high/low:
Rs861/491
16.04 lakh
BSE code:
524804
NSE code:
AUROPHARMA
Sharekhan code:
AUROPHARMA
26.9 cr
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
-1.5
13.7
22.5
12m
43.0
Relative to Sensex
1.3
10.7
27.4
57.1
Event--received approval for key products: Aurobindo Pharma Ltd (APL) received USFDAs
nod for two products: (a) Eptifibatide injection (gIntegrillin); antiplatelet drug (US market
size $137 million; only Teva and Schering have approvals for this product and now APL will
be the third player) which can help APL generate around Rs90-100-crore sales (assuming
10% market share); and (b) Levonorgestrel tablet; OTC-contraceptive in the USA.
Key product approvals and launches to drive earnings: APL received 25 abbreviated new
drug application (ANDA) approvals in the year till date (the highest compared with its peers)
and important launches are scheduled in H2 (Aripiprazole, Memantine, Raloxifene, Integrilin).
Additionally, the management expects a few more big-ticket injectable approvals in H2,
thereby indicating a strong H2FY2016 performance.
EBITDA margins to expand over next 3 years: We expect its operating profit margin to
increase to 25.5% in FY2018 from 21.2% in FY2015, as APL continues to launch niche
products in the USA and as the profitability of the EU and anti-retroviral (ARV) businesses
improves.
Upgraded rating from Hold to Buy with price target of Rs973: At the current market price of
Rs804, APL trades at 23.6x its FY2016E earnings of Rs34, 18.8x its FY2017E earnings of
Rs42.8 and 14.9x its FY2018E earnings of Rs54.1. Going ahead, re-rating is expected to
happen on the back of increasing profitability, improving balance sheet and strong free cash
flow generation. Hence, we have upgraded the rating to Buy with a price target of Rs973,
valuing the stock at 18x its FY2018E earnings of Rs54.6.
Risks: (1) Delay in ANDA approvals and adverse outcome of USFDA inspection of plants; (2)
worsening of pricing environment in EU; and (3) currency fluctuations in both dollar and euro
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan ValueGuide
19
January 2016
STOCK UPDATE
EQUITY
BAJAJ FINANCE
BUY
CMP: RS5,915
DECEMBER 24, 2015
Strong growth to sustain; PT revised to Rs6,500
COMPANY DETAILS
Price target:
Rs6,500
Market cap:
Rs31,723 cr
52 week high/low:
Rs5,932/3,395
0.6 lakh
BSE code:
500034
NSE code:
BAJFINANCE
Sharekhan code:
BAJFINANCE
2.27 cr
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
10.2
17.1
19.0
75.5
Relative to Sensex
10.0
20.1
25.6
84.0
12m
Consumption trends improving: The improving consumption trend remains a key bright
spot in the economy and will drive a recovery going ahead. The retail sales in the festive
season gone by were better than expected suggesting a positive trend. Bajaj Finance is
among the key players to benefit from a strong consumption trend. The companys
overall book grew by 36% in Q2FY2016 with a strong growth coming from segments
like consumer goods, which forms 41% of the AUM. The new products like lifestyle
financing and rural financing are showing strong traction.
Falling interest rates to cushion margins, asset quality stays robust: Around 50% of the
companys borrowings are on a floating rates. Therefore, declining interest rates will ease
the borrowing costs. Going ahead, as the RBI is pushing banks for faster transmission of
rates coupled with higher borrowings from bonds will aid the margins. Despite the strong
growth, BFLs asset quality has remained amongst the best in the system. In terms of
provisioning, the company is ahead of the curve as it has already made provisioning
based on 90-day past due (DPD) basis vs 150 days mandated by the regulator.
Valuations rolled over to FY2018 estimates, maintain Buy: We expect BFL to continue
its strong growth trajectory (27% CAGR in loans over FY2015-18) led by steady
consumer demand, unique cross-selling capabilities and newer product launches. We
have shifted valuations to FY2018E book value (BV; earlier valued at the average of
FY2017E and FY2018E BV) resulting in a revised price target of Rs6,500 (3.4x its
FY2018 BV). We have maintained our Buy rating on the stock.
Key risk: So far the company has demonstrated an exceptional performance on most
counts and therefore any negative surprise on asset quality could affect the valuations.
For detailed report, please visit the Research section of our website, sharekhan.com.
BRITANNIA INDUSTRIES
BUY
CMP: RS2,969
DECEMBER 1, 2015
Recent correction provides good entry point;
long-term growth prospects intact
COMPANY DETAILS
Price target:
Rs3,650
Market cap:
Rs35,613 cr
52 week high/low:
Rs3,435/1,507
2.0 lakh
BSE code:
500825
NSE code:
BRITANNIA
Sharekhan code:
BRITANNIA
5.9 cr
KEY POINTS
Britannia posted a strong operating performance in H1FY2016 with a double-digit volume
growth and OPM expansion of 400BPS to 14.5%. The management is confident of
maintaining the strong performance in H2FY2016 as well, with volume growth expected to
sustain in the range of 8-10%. The margins are likely to remain strong at around 14% on the
back of benign raw material prices and benefits derived from various cost-saving initiatives.
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
-9.6
-0.2
15.5
78.3
Relative to Sensex
-7.8
0.0
21.6
92.9
January 2016
FUNDAMENTALS
Britannia is set to relaunch its Tiger brand in the value segment which will not only garner
market share from organised players but also position it to benefit from the eventual
implementation of the GST bill that would potentially lead to a shift in the market share
from the unorganised to organised segment. Also, the company aims to aggressively strengthen
its position in dairy products and snack segment (rusk and cakes). Lastly, the company is
currently servicing 75 countries globally, but the revenues of the international business are
just 6% of the overall revenues. Its aim is to expand the international business revenue
contribution to one-fifth of the overall revenues over the next three to four years, which will
be done through new product launches and distribution expansion in the key international
markets.
The strategies are in place which will help Britannia to maintain the double-digit revenue
growth along with a steady improvement in the OPM. The stock has corrected by 11% in
the last one month which provides a good entry point for investors. Thus, in view of the
strong growth prospects and better upside from the current level, we have maintained our
Buy recommendation on the stock with an unchanged price target of Rs3,650.
For detailed report, please visit the Research section of our website, sharekhan.com.
20
Sharekhan ValueGuide
EQUITY
STOCK UPDATE
FUNDAMENTALS
CESC
HOLD
CMP: RS516
DECEMBER 9, 2015
Unrelated diversification to hurt valuation
multiples; downgrade to Hold
COMPANY DETAILS
Price target:
Rs580
Market cap:
Rs6,874 cr
52 week high/low:
Rs751/452
3.6 lakh
BSE code:
500084
NSE code:
CESC
Sharekhan code:
CESC
6.7 cr
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
3.2
14.5
8.8
-19.4
Relative to Sensex
6.2
11.4
13.2
-11.4
Another investment in unrelated area; to buy IPL team: CESC through one of its stepdown subsidiary, New Rising Promoters Pvt, has won the rights and obligations to operate
the Pune franchisee of the IPL for two years. New Rising Promoters Pvt is a 100%
subsidiary of Crescent Power, in which CESC holds a 51% stake and the remaining is
held by the promoters. The company had invested earlier in unrelated areas like retail
and business process outsourcing (BPO) which was not appreciated by the minority
shareholders even then.
Management indicates zero cash outflow for IPL venture: As per media interactions, the
management has clearly stated that there would be zero financial effect or cash outflow from
CESC for the IPL venture. Also, the reason to acquire IPL rights through CESC step-down
subsidiary could be to use the strength of CESCs balance sheet to meet the bank guarantee
requirements (non-fund-based support) for the transaction. However, we view the unrelated
investments negatively. Therefore, we expect a de-rating of valuation multiples of the stock.
PT revised down and stock put on Hold: Given the bitter experience of most of the IPL
owners in the past, we believe the Street will not appreciate the move. The stock has suffered
on the valuation front in the past on account of venturing into unrelated areas; now owning
IPL team raises further risk. Though the management intends to transfer the IPL venture
from the CESC umbrella by revising the structure over time, we dont think it was prudent
in the first place to bid for an IPL team through a step-down subsidiary of the listed entity,
CESC. Therefore, we have revised down our target multiples and price target to Rs580;
consequently, we have downgraded the recommendation to Hold from Buy.
For detailed report, please visit the Research section of our website, sharekhan.com.
FEDERAL BANK
BUY
CMP: RS54
COMPANY DETAILS
Price target:
Rs75
Market cap:
Rs9,307 cr
52 week high/low:
Rs80/52
40.9 lakh
BSE code:
500469
NSE code:
FEDERALBNK
Sharekhan code:
FEDERALBNK
171.74 cr
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
-0.7
-12.6
-19.0
-23.8
Relative to Sensex
1.2
-10.3
-15.6
-18.3
Inexpensive valuations: The stock of Federal Bank has corrected by around 18% since our last
report (dated October 20, 2015) following a weak set of numbers in Q2FY2016. Presently, the
stock trades at 1.0x FY2017E BV, which is around 17% discount to the five-year mean valuation
(ie 1.2x). While we expect the earnings to witness a significant improvement from FY2017 onwards,
the current valuation increases the comfort and mostly factors in the concerns.
Structural initiatives positive over medium to long term: The bank took several initiatives to
improve the liability base resulting in an increased CASA ratio over the past three years (31.8% vs
27.5% in FY2012). Federal Bank is focused on prudent growth strategy with thrust on retail and
SME sectors which will augur well in the long term. Also, the increased branch expansion in nonhome markets will help to tap more business opportunities.
Asset quality to stabilise, higher tier-1 CAR adds to comfort: The performance of the retail and
SME portfolios has been satisfactory though the corporate portfolio has caused stress. Going
ahead, as the pipeline of stressed account eases, we expect its asset quality to stabilise. A higher
provision coverage (76.6%) coupled with strong capitalisation (tier-1 CAR at 14.1%) as compared
with its peers increases the comfort.
Upgrade to Buy, PT unchanged at Rs75: While Federal Banks FY2016 earnings may be affected
by higher provisioning, we expect RoE and RoA to improve to 13.2% and 1.1% respectively by
FY2017. We believe the structural initiatives taken by the management over the past two to three
years should strengthen the banks performance. We have, therefore, upgraded the rating to Buy
with an unchanged price target of Rs75 (1.4x its FY2017E BV).
Key risk: If the performance of corporate portfolio deteriorates it could affect the asset quality and
earnings.
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan ValueGuide
21
January 2016
STOCK UPDATE
EQUITY
FUNDAMENTALS
FIRSTSOURCE SOLUTIONS
BUY
CMP: RS43
DECEMBER 2, 2015
Earnings outperformance to drive re-rating;
PT revised to Rs52
COMPANY DETAILS
Price target:
Rs52
Market cap:
Rs2,906 cr
52 week high/low:
Rs45/25
KEY POINTS
19.43 lakh
On a strong footing to deliver superior earnings in FY2017: Backed by strong deal conversion
BSE code:
532809
NSE code:
FSL
Sharekhan code:
FSL
29.6 cr
(around $500 million worth deals in the pipeline) coupled with the recent lift-out deal win from
a UK commercial bank for a value of $110 million and improved prospects in payer side of the
business, Firstsource Solutions Ltd (FSL) is well poised to deliver strong numbers for FY2017.
The management has indicated at least 8-10% growth for FY2017 on an organic level. Further,
the management is also contemplating inorganic opportunities aggressively, so it will boost the
growth. On the margin side, the management expects the margins to improve in FY2017, led by
the absence of one-off losses in FY2016 due to (1) ramp-downs in the domestic business; (2) US
telco clients, revenue shortfall and losses; and (3) better hedging gains. The management expects
to exit FY2017 with a margin of around 14%. Further, it expects to be comfortably net cash
positive by the end of FY2017 and cash generation to improve in Q3 and Q4FY2016.
SHAREHOLDING PATTERN
Q3FY2016 to be strong quarter: FSL delivered strong numbers for Q2FY2016 after several
quarters of lacklustre earnings. It is likely to deliver another strong quarter for Q3FY2016 with
a top line growth of close to 5%. The margins are also expected to improve QoQ. We expect
FSL to exit Q4FY2016 with a revenue run rate of $135 million, which will set the stage for at
least $540-550 million revenues for FY2017.
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
40.1
61.9
45.5
12m
30.3
Relative to Sensex
42.6
58.7
53.1
40.2
BUY
Price target:
Rs1,460
Market cap:
Rs43,248 cr
52 week high/low:
Rs1,457/830
2.03 lakh
BSE code:
532424
NSE code:
GODREJCP
Sharekhan code:
GODREJCP
12.5 cr
CMP: RS1,270
DECEMBER 14, 2015
H2 to remain stable; near-term growth
levers are in place
KEY POINTS
SHAREHOLDING PATTERN
PRICE PERFORMANCE
1m
3m
6m
12m
Absolute
-5.8
5.0
9.6
23.1
Relative to Sensex
-3.2
2.2
14.0
35.2
January 2016
For detailed report, please visit the Research section of our website, sharekhan.com.
COMPANY DETAILS
(%)
Maintain Buy with a revised price target of Rs52: In our Stock Update note dated September 16,
2015, we had upgraded our rating from Hold to Buy. We had highlighted that the worst is over
for the company and we expected a gradual re-rating in the stock with an improvement in the
earnings performance from Q2FY2016 onwards. Since then, the stock has delivered close to
60% returns. Now, after our recent conversation with the management, we expect the earnings
momentum to gather steam and FSL to deliver much higher numbers than the current consensus
estimate. We have also increased our earnings estimates for FY2017 and consequently increased
our price target to Rs52. We have maintained our Buy rating on the stock.
H2FY2016 PAT growth to stay ahead of revenue growth: With no change in the demand
environment, the revenue growth will remain in line with the growth in the earlier
quarters. However, the management expects the growth across various domestic
segments to stay ahead of the category growth on the back of a strong product portfolio
and extensive promotional offerings. On the international front, the Latin American
and African businesses will continue to post a double-digit revenue growth and better
margins in H2. Overall, the operating profit margins are expected to remain high due
to a benign input cost. Thus, the PAT growth is expected to stay ahead of the revenue
growth in the coming quarters.
HI and hair colour segments to drive growth in near term: The HI and hair colour businesses
remain the key pillars of growth with low penetration levels in the rural as well as urban
markets. Some of the recent launches by GCPL, such as Good Knight Fast Card (reached
Rs100 crore of revenues in less than one year) and Godrej Expert Crme (became the
highest selling crme colour within 20 months of launch). Both the segments are expected
to grow in the range of 15-18% and drive the overall margins in the near to medium term
(consolidated OPM to stay in the range of 18-18.5% over the next two years).
Better pick in FMCG space; retain Buy: With innovations remaining the core of the
business strategy and focus on enhancing distribution reach from the current 4.5 million
outlets, GCPL is well poised to achieve a revenue and PAT growth of 16% and 22%
respectively over FY2015-18. Thus, we have retained GCPL as one of our top picks in
the mid-cap FMCG space. We have also maintained our Buy recommendation on the
stock with an unchanged price target of Rs1,460.
For detailed report, please visit the Research section of our website, sharekhan.com.
22
Sharekhan ValueGuide
EQUITY
STOCK UPDATE
FUNDAMENTALS
BUY
CMP: RS1,171
DECEMBER 8, 2015
Risk-reward turns favourable after recent
correction; upgraded to Buy
COMPANY DETAILS
Price target:
Rs1,400
Market cap:
Rs1,84,869cr
52 week high/low:
Rs1,400/1,062
KEY POINTS
25.6 lakh
Healthy growth in individual loans, signs of revival in non-individual book: According to the
BSE code:
500010
NSE code:
HDFC
Sharekhan code:
HDFC
157.77 cr
management of HDFC, the high-margin non-individual loans (29.1% of loan book) have shown some
signs of recovery over the past couple of quarters (8% YoY). Even as the company remains conservative
on developer loans, it expects growth to be much better over the next three to four quarters. On the
other hand, the individual loans continue to report a healthy growth of 23% (in Q2FY2016) including
the loans sold.
SHAREHOLDING PATTERN
Margin pressure in near term, asset quality to remain stable: Given the reduction in lending rates both
on individual and non-individual loans, the margins have dropped (calculated). While pressure on the
margins persist in the near term the pick-up in non-developer loans and dip in the cost of funds may
support the margins over the next three to four quarters. Due to secured lending and stringent credit
practices, we expect the asset quality and credit cost to remain stable.
Upgraded to Buy as risk-reward ratio turns favourable after recent correction: The stock of HDFC has
corrected by almost 12% since our report dated October 26, 2015, which suggests that the concerns
related to margins have been factored in. In addition, the management commentary suggests that
growth in the non-individual book will be much better over the next three to four quarters which will
support spreads and profitability. We, therefore, have upgraded the rating to Buy (SOTP-based price
target unchanged at Rs1,400). Presently, the stock is trading at 4.6x its FY2017E book value (standalone), which is premium to the other housing finance companies due to its superior operating metrics.
Risk to our call: (1) Further weakening of sentiment in the housing sector; and (2) irrational competition
by financiers could affect earnings growth..
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
-1.7
2.6
-0.4
12m
7.4
Relative to Sensex
1.1
-0.2
3.6
18.0
For detailed report, please visit the Research section of our website, sharekhan.com.
MARICO
HOLD
CMP: RS462
COMPANY DETAILS
Price target:
Rs480
Market cap:
Rs29,798 cr
52 week high/low:
Rs468/316
6.7 lakh
BSE code:
480010
NSE code:
MARICO
Sharekhan code:
MARICO
26.0 cr
SHAREHOLDING PATTERN
On the international front, the Middle East is clocking a good revenue growth while
Egypt is likely to get into the positive growth trajectory due to distribution transition.
Overall, Maricos revenues and earnings are expected to grow at a compounded annual
growth rate of 13% and 20% respectively over FY2015-18.
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
8.5
12.8
8.1
39.7
Relative to Sensex
8.4
15.7
14.1
46.4
Sharekhan ValueGuide
The company has announced a bonus issue of 1:1 and at ex date of December 22, 2015
the stock is trading at ex bonus.
However, the recent surge of 16% in the stock price has already been factored in the
near term positives. Hence, we recommend a Hold rating on the stock with a rolledover price target of Rs240.
For detailed report, please visit the Research section of our website, sharekhan.com.
23
January 2016
STOCK UPDATE
EQUITY
FUNDAMENTALS
BUY
CMP: RS4,620
DECEMBER 18, 2015
Gujarat plant receives green signal;
maintain Buy with a revised PT of Rs5,400
COMPANY DETAILS
Price target:
Rs5,400
Market cap:
Rs139,569 cr
52 week high/low:
Rs4,763/3,274
KEY POINTS
3.1 lakh
BSE code:
532500
NSE code:
MARUTI
Sharekhan code:
MARUTI
13.2 cr
Maruti receives minority shareholders approval for the Gujarat plant proposal: Maruti
Suzuki India Ltd (Maruti) has received more than 50% minority shareholders approval
for the proposal of setting up the Gujarat plant as a direct subsidiary of its parent, ie
Suzuki Motor Corporation (SMC). The company received 89.75% votes in favour of
the proposal while 10.25% votes were against it. The shareholders approval was
expected as FIIs with 22% holding were likely to vote in favour of the deal after
international advisory firms had backed it.
SHAREHOLDING PATTERN
SMG to set up the Gujarat plant: Suzuki Motor Gujarat Pvt Ltd (SMG), a 100%
subsidiary of SMC, would set up the Gujarat plant as a contract manufacturer for
Maruti. The sale to Maruti would be on no profit-no loss basis, ie SMG would not
charge a manufacturing margin on the sale. The Gujarat plants construction is already
in process and the plant would be ready by CY2017. The plant would have an initial
capacity of 2.5 lakh vehicles per annum which will be further expandable to 15 lakh
vehicles in six phases. With the cash flow freed, Maruti would be making significant
investment in network expansion.
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
-0.6
6.1
22.6
40.4
Relative to Sensex
0.4
7.8
27.5
45.4
Overhang on the stock gone; maintain Buy with a revised PT of Rs5,400: Clarity on the
Gujarat plant and minority shareholders approval were an overhang on the stock which
are now out of the way. The proposal will benefit Maruti as it would boost free cash flows
and return ratios. We have raised our earnings estimate by 3% to factor in the excellent
response to the Baleno and shift in mix in favour of petrol models which will benefit
Maruti. We remain positive on the stock and reiterate our Buy rating with a revised price
target of Rs5,400 (earlier Rs4,950), discounting FY2018E earnings at 20x.
For detailed report, please visit the Research section of our website, sharekhan.com.
OIL INDIA
HOLD
CMP: RS365
DECEMBER 15, 2015
Crude slide to dent earnings; downgraded to Hold
COMPANY DETAILS
Price target:
Rs400
Market cap:
Rs21,941 cr
KEY POINTS
52 week high/low:
Rs592/342
5.6 lakh
BSE code:
533106
NSE code:
OIL
Sharekhan code:
OIL
19.4 cr
Oil Indias financials to deteriorate on further fall in crude oil prices: The global crude
oil prices have slipped further and touched $35 per barrel, which is closer to the cost of
production for Oil India Ltd (OIL). We believe it is an unprecedented challenge for
OIL, as the company could manage to be barely profitable at operating level with such
low crude level. This could force the company to be selective in production activity in
such an environment. OIL would also have limited surplus to invest in exploration and
monetisation of its oil and gas assets.
SHAREHOLDING PATTERN
Pressure intensified on crude price touching decades low: In the latest meeting of OPEC
the members removed their production ceiling thus putting pressure on oil price. OPEC has
been pumping oil at 31.76mbpd, higher than 30mbpd decided in June 2015. Consequently,
the global Brent crude prices tumbled down further and touched a decade-low level. Given
the supply glut and the unfavourable relation between the crude oil producing economies,
the consensus expects crude oil prices to remain soft in the near future.
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
-0.4
-15.8
-20.0
-29.8
Relative to Sensex
1.4
-13.6
-16.6
-24.8
January 2016
Unprecedented uncertainty; downgraded from Buy to Hold: Given crude oil prices seesaw with the cost of production, OIL is likely to find it challenging to remain
operationally profitable in case crude oil slips further. Moreover, the benchmark
international natural gas prices are also declining, which would lead to a cut in natural
gas price in April 2016. Given the situation, we cut our earnings estimate for FY2017
by 17% after factoring in the average US crude oil price of $42. We also run a sensitivity
analysis to understand the potential effect of the same on OILs earnings. Therefore,
we are downgrading the stock to Hold with a revised price target of Rs400.
For detailed report, please visit the Research section of our website, sharekhan.com.
24
Sharekhan ValueGuide
EQUITY
STOCK UPDATE
FUNDAMENTALS
BUY
CMP: RS42
DECEMBER 9, 2015
Maintain Buy with unchanged PT of Rs58
COMPANY DETAILS
Price target:
Rs58
Market cap:
Rs565 cr
52 week high/low:
Rs64/36
7.7 lakh
BSE code:
520008
NSE code:
RICOAUTO
Sharekhan code:
RICOAUTO
67.5 cr
KEY POINTS
Media carrying reports of excise department notice to Rico: As per a recently published
media report, the excise department has sent a notice to Rico Auto Industries (Rico) and
other auto ancillary players pertaining to excise duty applicable on retrospective price
increases taken on the contracts with original equipment manufacturers (OEMs). Auto
ancillary players enter into contracts with OEMs for supply of parts and the pricing is
linked to commodity prices which are reset at periodic intervals. The excise department
has also imposed an additional interest and penalty of 18%. In an interaction with us,
the management stated that it is yet to receive any such notice from the excise department.
SHAREHOLDING PATTERN
Notices are part of routine operations; no significant effect expected: From our
understanding, such notices are part of routine operations for companies. Companies
have an option of appealing against the notice to the Custom Excise and Service Tax
Appellate Tribunal. In case of an unfavourable response, they can take further legal
recourse. In case Rico receives such a notice it would not affect the daily operations of
the company. Further, the impact on the financials, if any, would not be immediate
and is expected to be minimal.
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
6.0
6.0
20.6
12m
1.0
Relative to Sensex
9.1
3.2
25.5
11.0
Maintain Buy with unchanged price target of Rs58: We have maintained our earnings
estimates for FY2016-17. Rico has reported a marked improvement in its operating
performance over the last couple of quarters driven by the managements focus to
improve efficiency and restructuring of the loss-making entities. The interest expense
has also dropped significantly as the company de-leveraged its balance sheet from the
proceeds of the FCC Rico stake sale. We remain positive on the stock with a Buy rating
and an unchanged price target of Rs58..
For detailed report, please visit the Research section of our website, sharekhan.com.
BUY
CMP: RS754
COMPANY DETAILS
Price target:
Rs885
Market cap:
Rs181,672 cr
52 week high/low:
Rs1,201/706
39.2 lakh
BSE code:
524715
NSE code:
SUNPHARMA
Sharekhan code:
SUNPHARMA
109 cr
KEY POINTS
Event--USFDA nod for 180-day exclusivity for generic Gleevec: Sun Pharmaceutical
Industries (Sun Pharma) has received the final approval from the USFDA to market
gGleevec with 180-day exclusivity for the US market. Currently, the product has a
market size of $2.5 billion in the USA. Gleevec is used to treat chronic myeloid leukemia
(cancer). Under the terms of settlement agreement with Novartis, the Sun Pharma
subsidiary is permitted to launch its version of generic Gleevec in the USA on February
1, 2016. The commercial launch of this product is scheduled on February 1, 2016.
SHAREHOLDING PATTERN
Impact; factored in our estimates: According to our estimates, we have already factored
the incremental revenues of around $650 million from Gleevec to Sun Pharma, spread
over FY2016 ($80 million in two months of exclusivity), FY2017 ($400 million from
four months of exclusivity and eight months of non-exclusivity) and FY2018 (around
$170-180 million). The estimates are based on significant price erosion of 60-75%
over the period after the six-month exclusivity period.
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
4.8
-12.4
-7.4
-2.4
Relative to Sensex
4.7
-10.2
-2.2
2.3
Sharekhan ValueGuide
Retain Buy with price target of Rs950: We view this development as very positive as it
is a new approval for the blockbuster drug given by the USFDA after the issues raised
at its Halol plant. Also, the outcome of Halol plant inspection is due anytime since its
been almost a year the site received 483s observations; the Halol plant resolution
could act as the next big trigger for the stock. We have maintained our Buy rating on
the stock with an unchanged price target of Rs950.
For detailed report, please visit the Research section of our website, sharekhan.com.
25
January 2016
STOCK UPDATE
EQUITY
FUNDAMENTALS
SUPREME INDUSTRIES
HOLD
CMP: RS642
DECEMBER 11, 2015
Falling input cost raises near-term concerns but
improves volume growth outlook
COMPANY DETAILS
Price target:
Rs700
Market cap:
Rs8,153 cr
52 week high/low:
Rs745/540
KEY POINTS
50,790
BSE code:
509930
NSE code:
SUPREMEIND
Sharekhan code:
SUPREMEIND
6.4 cr
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
Absolute
6.3
13.5
0.6
12m
6.3
Relative to Sensex
9.3
10.5
4.7
16.8
For detailed report, please visit the Research section of our website, sharekhan.com.
BUY
CMP: RS2,377
DECEMBER 14, 2015
Chennai deluge adds to growth concerns;
maintain Buy with PT revised to Rs2,850
COMPANY DETAILS
Price target:
Rs2,850
Market cap:
Rs465,590 cr
52 week high/low:
Rs2,810/2,317
11.07 lakh
BSE code:
532540
NSE code:
TCS
Sharekhan code:
TCS
51.2 cr
KEY POINTS
Material impact on Q3FY2016 earnings, owing to Chennai flood: Tata Consultancy Services
(TCS) management has announced that owing to the recent floods in Chennai, there will be a
material effect on the revenue growth in Q3FY2016. Chennai has one of the largest facilities of
TCS in India with over 65,000 headcounts. Due to the flood situation all work had been halted for
a week from December 1, 2015. Though the company resumed its normal business operations
from December 7, 2015, yet owing to the flood the attendance rates were lower than normal as
employees were still recovering from the floods aftermath. With around 20% of TCS total
headcounts getting affected for one week, there will be some effect on the Q3FY2016 revenue
numbers. The third quarter is seasonally weak with lower numbers of working days and furloughs.
SHAREHOLDING PATTERN
Directionally lower exit rate (Q4 growth) results in earnings downgrade for FY2017: For TCS,
FY2016 is likely to be a soft year, owing to several factors: (1) slow ramp-up in retail vertical and
continued softness in Diligenta (insurance) business; and (2) lower growth in Latin Americas with
region affected by collapse of commodity prices. These reasons could pull down the consolidated
revenues by $20-25 million in FY2016 without accounting for a further dent from the Chennai
deluge situation. Thus, we estimate the constant-currency growth in high single digits only in
FY2016 and subsequently also affect revenue and earnings for FY2017.
Maintain Buy with a revised PT of Rs2,850: We have revised down our dollar revenue estimates
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
-7.4
-8.5
-9.6
-8.6
Relative to Sensex
-4.8
-10.9
-5.9
0.4
January 2016
for FY2016 and FY2017 but the overall earnings effect was partially negated by the currency
reset to Rs65.5 and Rs65 for FY2016 and FY2017 vs Rs64.5 and Rs64 earlier respectively. The
earnings downgrade was to the tune of 1.2% each for FY2016 and FY2017. We remain positive
on TCS, given its strong positioning, scale advantage and head start in the digital technologies
space (the highest among the top Indian IT companies). But the revenue growth convergence
with Infosys will affect the premium valuation of TCS (already seen de-rating, trades at 17.6x its
FY2017E earnings). We have introduced our FY2018E earnings in this note, revised down our
price target
to Rs2,850
and
maintained
our Buysection
ratingofon
stock.
For detailed
report,
please
visit the Research
ourthe
website,
sharekhan.com.
26
Sharekhan ValueGuide
EQUITY
STOCK UPDATE
FUNDAMENTALS
V-GUARD INDUSTRIES
BUY
CMP: RS930
DECEMBER 10, 2015
Inorganic expansion and better product folio
key growth drivers
COMPANY DETAILS
Price target:
Rs1,155
Market cap:
Rs2,787 cr
52 week high/low:
Rs1,197/810
KEY POINTS
9.5 lakh
BSE code:
532953
NSE code:
VGUARD
Sharekhan code:
VGUARD
1.0 cr
Scouting for acquisition and expansion to deepen non-south presence: After successfully
expanding its non-south base, V-Guard Industries (V-Guard) is looking out for inorganic
opportunities to expedite its expansion in regions other than south. Along with a better
geographical reach, the idea is also to look at enhancing its product portfolios especially
in the home & kitchen appliances segment. The managements preferred acquisition
target is around Rs100-200 crore; however given a meaningful and attractive
opportunity, it can also go for an acquisition of Rs400-500 crore.
Virtually debt-free and sustained cash flow to support inorganic ambition: V-Guard
aims to be debt-free by the end of the year (currently total debt of around Rs30 crore)
backed by sustainable cash flows. Therefore, acquisition in the range of Rs100-200
crore could be comfortably done by the company by adding debt on books. However,
if the acquisition target expands to Rs400-500 crore, then we believe its debt-equity
ratio will be relatively on the higher side and may require some equity dilution.
Acquisition valuation to be watched out; retain Buy: Though the proposal to expand
through the inorganic route by leveraging its balance sheet is a step in the right direction,
it is essential that the acquisitions are done at reasonable valuations. The management
sees equity dilution as expensive. Therefore, acquisitions through debt would be the
most preferred route. We believe it would be prudent to strike a right balance of debt
without much stress on the balance sheet and to bring value by expanding product
folio to make the inorganic growth plan fruitful. We have retained our Buy
recommendation on the stock with an unchanged price target of Rs1,155.
SHAREHOLDING PATTERN
PRICE PERFORMANCE
(%)
1m
3m
6m
12m
Absolute
5.2
2.3
6.2
-17.2
Relative to Sensex
8.2
-0.4
10.5
-9.0
SHAREKHAN SPECIAL
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan ValueGuide
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
27
January 2016
VIEWPOINT
ZEE LEARN
VIEW: EXIT
EQUITY
CMP: RS42.7
Exit with a gain of 19%
FUNDAMENTALS
VIEWPOINT
DECEMBER 3, 2015
Key points
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
NOCIL
VIEWPOINT
CMP: RS62
VIEW: BOOK PROFIT
DECEMBER 16, 2015
Fairly valued post-recent appreciation; Book profit with gains of 25.5%
Key points
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
January 2016
28
Sharekhan ValueGuide
EQUITY
VIEWPOINT
FUNDAMENTALS
HAVELLS
VIEW: POSITIVE
CMP: RS308
Sylvania gone; lights on
VIEWPOINT
DECEMBER 18, 2015
Key points
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
ROSSELL INDIA
VIEWPOINT
CMP: RS162
VIEW: BOOK PROFIT
DECEMBER 30, 2015
Risk-reward ratio unfavourable after recent appreciation; Book profit
Key points
For detailed report, please visit the Research section of our website, sharekhan.com.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a postition in the companies mentioned in the article.
Sharekhan ValueGuide
29
January 2016
EQUITY
TECHNICALS
9200
9100
9000
8900
8800
8700
8600
8500
The index has broken its crucial support level of 7539, which
was formed in September 2014 and December 2015. This
confirms the formation of lower tops and lower bottoms.
Hence, the downtrend shall continue.
8400
8300
8200
8100
8000
7900
7800
7700
7600
Crucial supports for the index will be around 7322 and 7100
while crucial resistance will be near 7675 and 7832.
7500
7400
7300
KST ( -1.93596)
-5
March
April
May
June
July
August
September
October
November
Dec em ber
2016
The Nifty has reversed from the previous swing high of 7979
and broken its previous swing low of 7539, thereby confirming
the downtrend in the medium term. The index has been falling
in a downward sloping channel and until the series of lower
tops and lower bottoms is reversed the trend will remain bearish.
9200
9100
9000
8900
8800
8700
8600
8500
8400
8300
8200
8100
8000
7900
7800
7700
7600
7500
7400
7300
7200
KST (-3.44122)
5
-5
er
2015
February March
April
May
June
July
August
September
November
2016
February
March
January 2016
10000
9500
0.0%
9000
8500
23.6%
8000
38.2%
7500
50.0%
7000
61.8%
6500
6000
5500
100.0%
5000
4500
KST ( -1.08899)
J A S O N D 2011
A M
J A S O
D 2012
A MJ J A S O
D 2013
A MJ J A S O
D 2014
40
35
30
25
20
15
10
5
0
-5
-10
A MJ J A S ON
2015
A MJ J A S ON
2016
A MJ J A S ON
Medium term
30
Trend
Trend reversal
Support
Resistance
Target
Down
7973
7100
7973
7100
Sharekhan ValueGuide
EQUITY
MONTHLY VIEW
DERIVATIVES
RELIANCE
2831.64
HDFCBANK
2211.85
SBIN
1908.25
AXISBANK
1747.59
LT
1643.62
In the derivative segment, since the start of the January series the
FIIs participation has majorly been through index options as they
have already bought more than 7,000 crore of index options and a
majority of these are on the put side.
RELINFRA
672.48
SBIN
653.15
RELIANCE
458.32
TATASTEEL
431.75
TATAMOTORS
387.20
View
On the options front, in the January series the position is constantly
shifting from the higher strike price to the lower strike price which
is a negative sign for the market going forward. As of now on the
put side, the 7500 strike price stands with the highest number of
shares in open interest (OI) followed by the 7400 strike price. On
the call side, the 8000 strike price stands with the highest number
of shares in OI followed by the 7900 strike price.
The Volatility Index (India VIX) has seen a sharp jump from 13
levels to around 18 currently since the start of the January series.
The observation was interesting on the put-call ratio front. After
starting this series with a very low PCR of 0.77 and despite the
market going down since the start of the January series, we have
seen a sharp jump in the PCR to around 0.85 which is an unusual
scenario. The rise was mainly due to the buying of put options and
that too by the stronger market participants. In view of the above
data, the high roll-over of short positions and the simultaneous
buying of put options by the stronger hands, we feel the Nifty would
find it difficult to sustain at the higher levels. On the lower side,
below 7500 the Nifty could drift towards the next support level at
around 7400 in the coming trading session. Any bounce before
that level should be used to create short positions.
Roll-over highlights
The benchmark index, Nifty, started the January series with more
or less the same number of shares at around 1.95 crore shares
compared with the last series. In rupee terms, it started the new
month with open interest of Rs15,533 crore in Nifty futures vs
Rs15,436 crore in the previous series; Rs60,874 crore in stock
futures vs Rs58,530 crore in the previous series; Rs70,354 crore in
index options vs Rs77,170 crore in the previous series; and Rs5,369
crore in stock options vs Rs4,712 crore in the previous series.
The roll-overs in Nifty stood at 74.89%, which was higher compared
with the previous month (68.63%), indicating a majority of the
short positions built in the last series got carried forward. The
Sharekhan ValueGuide
31
January 2016
MONTHLY VIEW
COMMODITY
FUNDAMENTALS
lower for eight days in a row; yuan devalued to the weakest level since
March 2011
Chinas Caixin PMI of services for December fell to its lowest in 17 months
Chinas Caixin manufacturing data shows contraction for the 10th
month in a row
China factory gauge signals a fifth month of contraction
Weaker yuan, poor macro data and end of sales ban trigger sell-off in
Chinese equities
China plans larger infrastructure fund in 2016
Global growth will be disappointing in 2016 on US rate hike and
China slowdown: IMF's Lagarde
Industrial commodities fall in new year as bullions rally on China concerns
Yen and bullion complex rally as wider market falls on China concerns
US December non-farm pay-rolls beat the forecast (200k); actual
(292k); however earnings trail the forecast
Markit UK Services PMI cools in December as confidence falls to 3year low on British exit possibility; hiring and business expectations
get affected
UK Markit Manufacturing PMI below forecast (52.7) in December vs
actual (51.9)
Euro zone economic growth likely picked up in the last quarter of 2015
North Korea says it successfully tested first hydrogen bomb; experts
doubt the claim though
Pressure on the European Central Bank as the euro zone inflation
averaged at zero in 2015
Saudi Arabia cuts diplomatic ties with Iran after violent protests over
the execution of a Shiite cleric
A measure of 20 developing nation exchange rates depreciated 15% in
2015, the steepest slide since 1997; emerging market currencies vulnerable
Bank of Japan keeps monetary policy unchanged
High
Low
Close
Copper
4,750.0
4,513.0
4,705.0
MoM chg %
2.6
Zinc
1,636.0
1,474.0
1,609.0
2.9
Lead
1,801.0
1,604.0
1,793.0
8.9
Nickel
9,140.0
8,440.0
8,820.0
-0.9
Gold
1,088.9
1,046.4
1,061.1
-0.3
Silver
15.7
13.7
13.9
-1.6
Crude oil
43.5
35.4
37.0
-10.5
Dist.
Gasoline
-2015
8695
4553
487409
153110
221420
-0.41
6.02
2.10
Refinary utlization rate was 92.60% in the last week of December 2015
Lead
Zinc
Nickel
-9298
-1156
31492
9627
177854
12074
200428
48339
-4.97
-8.74
18.64
24.87
Copper
Lead
Zinc
Nickel
-8150
63325
-78200
32934
236225
191650
464400
441294
-3.34
49.35
-14.41
8.06
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Crude oil
CMP: $33.64
Crude oil prices plunged by over 10% in December 2015 on a persistent glut in the market, concerns about Chinas economy and surge
in the fuel stockpiles in the USA. Although the US crude oil inventories fell 0.41% in the last month, the inventories of distillates and
gasoline rose by 6.02% and 2.10% respectively. The counter has had the worst ever start in a year as oil fell another 12% in the first
four trading days of 2016. China cut the yuan-dollar reference rates for eight consecutive days taking the yuan down 1.42% in that
period. Irans relations with Saudi Arab went sour on the latter beheading the cleric Sheikh Nimr al-Nimr, an outspoken opponent of
the ruling Al Saudi family. However, crude oil failed to get any support from this incident. Chinas equity market is tumbling. Crude
oil bulls would need a colder than normal winter and flaring of geo-political tensions in the Middle-East to find a firm ground to stand
on and take control, or else oil can fall lower to $20. The expected range in the near term is $30-37.
January 2016
32
Sharekhan ValueGuide
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Gold
Gold price was slightly lower in December 2015 as the metal fell for the third year in a row. In 2015 it fell nearly 11%. However, gold has started
the New Year on a positive note as bulls took charge helped by the carnage in the risk assets that has increased the safe haven appeal of gold. A
sharp decline of 12% in Chinas equities in 2016 has sent a shock wave through the financial world. Global equities markets have tumbled like
the proverbial nine pins. A meltdown in risk assets is giving rise to speculation that this alarming weakness in the markets would force the US
Federal Reserve (Fed) to go slow on rate hike, thus helping the bullion complex rise. Gold faces a stiff resistance in the $1,135- $1,140 zone. On
the downside, looking at the shaky financial markets, the metal is likely to find a support at $1,080 in the near term. However, the overall outlook
is bearish and we look for a test of $950-970 support area eventually.
Silver
Given the weakness in the base metals and crude oil, silver is vulnerable as it is used as an industrial metal too. However, in a positive
development, Indias silver imports would probably set a new record in 2015 due to a rapid change in consumer preferences in jewellery.
We look for a range of $13.60-14.70 in the near term.
Base metals: Lead holds ground amongst base metals pack in 2015 as others crash
Key points
ICSG-Copper surplus of 122,000 tonne in the January-September period versus a deficit of 375,000 tonne in the same period of 2014
Nine large Chinese copper smelters pledge to cut a minimum of 350k tonne output in 2016
ILZSG: Lead market refined metal balance in surplus of 22k tonne in the January-October 2015 period against a surplus of 6k tonne in the
corresponding period in 2014
Lead inventories rose sharply in LME in December 2015 from 128,325 tonne in November end to 191,650 tonne by the year end, a rise of
almost 50%
ILZSG: Zinc production surplus balance widened to 213k tonne in the January-October 2015 period against a deficit of 242k tonne in the
same period in 2014
Nrystar, the worlds largest zinc smelter, cut production by 100,000 tonne, would cut more up to 400,000 tonne if prices remain depressed
Zinc inventories on LME fell 15% to 464,400 tonne by year end against 545,375 tonne at the start of the month
Nickel remains in vicious circle as producers refrain from production cuts despite sharply lower prices
Nickel stockpile continues upward journey with Shanghai stocks increasing by almost 35% to 38,712 tonne; stocks on LME rise by 10% to
441,294 tonne from 408,360 tonne in November 2015 end
Copper
MCX copper gained 5% in December 2015, ending the month at Rs315/kg, after posting the highest losses of 10% in November 2015. It ended 2015 with
losses of 21% as a slowdown in Chinese demand and a weak global economic outlook led to a surplus in metal balance. As per ICSG, the world refined
copper production is estimated to increase by around 1.5% (230,000 tonne) in the January-September period of 2015. Chinas November copper imports
grew to 358,727 tonne, up by almost 5% over 343,473 tonne in October 2015. Large smelters in China have pledged to store metal in warehouse rather
than sell in spot markets, even requesting the government to stockpile copper in order to support the prices. We expect copper price to remain subdued
unless we see some developments on the production cut front. Copper is likely to attract selling on rallies near Rs328/kg with Rs286/kg as the objective in
the near term.
Lead
Lead continues to stand tall amidst commodity rout, the only metal to end 2015 on a slightly positive note at Rs118.05, while on a monthly basis it posted
gains of 8.4%, strongly bouncing from its strong levels of Rs108/kg. Lead inventories rose sharply during mid December 2015, rising by almost 50% on a
monthly basis at 191,650 tonne. However, even cancelled warrants rose simultaneously. Thus, we believe this is more of warehouse shifting and even
probability of hidden stocks in the markets cannot be ruled out. We expect lead to trade in the range of Rs104/kg and Rs119/kg.
Zinc
Zinc ended 2015 on a weaker note losing its premium over the other metals at Rs106.35, down by almost 23% as weak steel demand turned a deficit story
into a surplus balance. Glencore has slashed Chinese zinc 2016 premiums to $110-125 per tonne from $130-160/tonne on a lower demand forecast. Zinc
Sharekhan ValueGuide
33
January 2016
MONTHLY VIEW
COMMODITY
FUNDAMENTALS
inventories on the London Metal Exchange (LME) have come down by 15% to 464,400 tonne at the end of December 2015 from 545,375 tonne at the start
of the month. However, Shanghai zinc inventories rose by 17% to 198,849 tonne from 168,936 tonne. Production cut news by Glencore was overshadowed by the news of Vedanta raising output. Some more supply cuts are needed for the price to recover; we expect zinc to trade in the range of Rs94/kg on
the lower side and Rs110/kg on the higher side.
Nickel
Nickel turned out the worst performer of 2015 amongst the metal pack losing almost 38% on the back of weak demand for refined nickel from
China and a lack of production cut in the counter. As per reports, almost 60% of the global nickel production is operating cash negative below
$10,000 per tonne. Eleven Chinese NPI producers have pledged to cut their production by 20% in 2016. Nickel stocks continue to rise: stocks on
the LME have risen by 7.50% to 441,294 tonne while Shanghai stocks have risen to 45,187 tonne, up 17%. We expect some production squeeze
soon in nickel markets which could give a much needed boost to the prices. We expect nickel to remain attractive on dips to Rs550/kg area for
a medium-term target of Rs760/kg.
CMP as on January 08, 2016
Event
04/01/2016
Date
China
Survey
Actual
Prior
48.9
48.2
48.6
The data showed that the manufacturing sector continued to contract for the 10th month in a row; also, the
data fell short of forecast; overall, it is a bearish development for the industrial commodities
04/01/2016
USA
06/01/2016
49
48.2
48.6
The manufacturing sector contracted in the USA too; it is again a negative development for the industrial
commodities
USA
56
55.3
55.9
The data fell short of forecast; it is somewhat bearish for the dollar and industrial commodities; it is to be
noted that the services sector constitutes nearly two-third of the US economy, thus it is a key indicator of
the health of the US economy
07/01/2016
USA
The minutes showed that hiking the rate was a close call and concerns regarding subdued inflation linger;
the stress was on a gradual lift-off and adjusting of the policies as per requirement; overall, somewhat
bearish for the dollar and bullish for bullions
08/01/2016
USA
0.20%
0.0%
0.20%
08/01/2016
USA
200k
292k
211k
09/01/2016
China
CPI YoY
1.60%
1.6%
1.50%
13/01/2016
China
Trade balance
347.00b
--
343.10b
It is a crucial piece of data to gauge the health of both China and the global economy; the data has been
showing weakness in both the economies for quite some time; a fall in China's imports and exports would
be bearish for the industrial commodities; bullion complex is likely to edge higher on the possibility of the
US Fed going less hawkish
15/01/2016
USA
0.30%
--
0.40%
Better than expected data would be positive for the dollar and industrial commodities; bullions would fall
on rate hike prospects
15/01/2016
USA
93
--
92.6
A pick-up in consumer sentiment is to be construed as positive for the US economy, thus positive for the
dollar; industrial commodities would get a boost from the data while bullions would fall
19/01/2016
China
6.90%
--
6.90%
It is becoming increasingly clear that Chinese authorities would struggle to maintain a growth of 7%, which
is a cause for concern for the markets; data trailing the forecast would weigh on the industrial commodities
Bullion can rise on safe haven demand
19/01/2016
China
6.10%
--
6.20%
Better than expected data would bode well for the industrial commodities
19/01/2016
Europe
--
--
16.1
It is a key economic indicator; data topping the forecast would be positive for the euro and the industrial
commodities
20/01/2016
USA
--
--
0.20%
Better than expected data would be bullish for the dollar as the concerns of subdued inflation would be
assuaged to some extent; it would increase the chances of a faster pace of rate hike; bullion complex
would fall
20/01/2016
USA
Housing starts
--
--
1173k
Housing is a key component of the US economy; better than expected data would be positive for the base
metals like copper and aluminium; dollar to strengthen and bullions to fall
21/01/2016
Europe
--
--
53.2
Stronger manufacturing data would be positive for the industrial commodities like base metals and crude
oil; euro would benefit
21/01/2016
Europe
--
--
0.05%
No change expected but the markets would be focused on the press conference so as to get clues if the
ECB would ease further; a hawkish ECB is positive for the euro but bearish for the industrial commodities
and wider markets
21/01/2016
USA
--
--
-5.9
It is a crucial economic indicator of manufacturing sector; better than expected data would be supportive
for the base metals and crude oil; bullions would fall
25/01/2016
Europe
--
--
108.7
28/01/2016
USA
FOMC statement
--
--
--
Markets would be looking forward to the clues regarding the pace of the rate hike; a hawkish Fed would be
negative for the bullion complex as the dollar would rally
28/01/2016
USA
0.25%
--
0.25%
No change expected; the focus would be on the statement as market players look forward to the pace of
the rate hike
28/01/2016
USA
--
--
-0.10%
Data topping the forecast would be positive for the industrial metals and the dollar while bullions would
fall; but the indicator has been showing weakness for the past many months
29/01/2016
USA
--
--
2.00%
Data trailing the forecast would weigh on the dollar as the Fed would be probably going slow on rate hike
in that case; the dollar would fall and the bullion complex would get a boost
January 2016
34
Impact
Better than expected number would be positive for the euro and the base metals
Sharekhan ValueGuide
COMMODITY
FUNDAMENTALS
MONTHLY VIEW
Warm winter likely to pull down rabi crop yield this year
Rabi crop sowing in India (figs in lakh hectares)
News highlights
Crop
Wheat
271.46
293.16
Pulses
128.24
131.33
Coarse cereals
55.19
50.97
Oil seeds
71.47
76.11
Rice
14.77
16.05
Total
541.12
567.63
Castor seed
Castor seed January futures largely remained under downside pressure in December. The prices have declined on account of huge
carry-over stocks of the previous year coupled with higher acreage
and expectations of a higher output. Expectations that the new
crop would arrive earlier than normal added to the downside pressure. Castor seed acreage till the end of kharif season sowing operations stood 8.4% higher year on year at 1.11 million ha compared with 1.02 million ha in the last year. The prices declined
from Rs3,889 per quintal in early December 2015 to a new contract low of Rs3,444 in the second week of the month. However,
the prices bounced back sharply from the lower levels and made a
high of Rs3,894 in the third week of December on short coverings
and good castor oil export demand. However, the prices again retreated from higher levels towards end of the month and settled
4.96% lower month on month at Rs3,740. The prices may remain
weak as ample supplies and higher output projections may keep
them under pressure.
Price performance
Commodity
Dec 31,
2015 (Rs)
Nov 30,
2015 (Rs)
% Change
Castorseed
Jan
3740
3935
(4.96)
Chana
Jan
4807
4810
(0.06)
2085
1724
20.94
Dhaniya
Jan
7219
10130
(28.74)
Guargum
Jan
6460
6700
(3.58)
Guar seed
Jan
3315
3408
(2.73)
Jeera
Jan
14440
16065
(10.12)
Kapas
Apr
891.00
856.50
4.03
RM Seed
Jan
4289
4897
(12.42)
Sugars
Mar
3215
2844
13.05
Soya bean
Jan
3729
3907
(4.56)
Jan
617.30
619.65
(0.38)
Turmeric
Apr
9780
9762
0.18
Soya bean
Chana
Chana January futures swung between gains and losses in December 2015. Tight supplies in the physical markets due to low carryover stocks coupled with a forecast of lower kharif pulses output
and lower arrivals helped push up the prices. However, declining
demand at higher levels capped sharp gains. Increased supplies of
various pulses due to government crackdown on hoarders also added
to the downside prices. The government released stocks of the pulses
seized in the raids in the open market bringing a much needed respite. Also, higher chana sowing figures raised hopes of higher output in the coming marketing season. Prices settled marginally lower
0.06% month on month at Rs4,807 compared with Rs4,810 in the
last month. Currently chana sowing is complete at 81.07 lakh ha
as on January 1, 2016, up 1.4% compared with 79.95 lakh ha
during the corresponding period last year. The overall sentiment
remains weak due to weak demand at higher levels and higher acreage. Favourable climatic conditions in the main chana growing regions are also likely to keep the prices under pressure.
Sharekhan ValueGuide
Expiry
35
January 2016
COMMODITY
TECHNICALS
MAC D (3 .8 0 1 1 9 )
20
10
0
-10
-20
The pattern would mark the end of the correction at least in the
short to medium term.
1320
1310
1300
1290
1280
1270
Near the lower end of the pattern gold formed a base triangle
and broke out on the upside. The short-term momentum
indicator is in bullish mode and is in line with the price structure.
1260
1250
1240
1230
1220
1210
1200
1190
1180
1170
1160
1150
1140
1130
1120
1110
1100
1090
1080
1070
View
Reversal
Supports
Resistances
Target
$1,073
$1,088/$1,081
$1,137/$1,182
$1,150/
1060
1050
1040
Up
2015
F e b r u a ry
Ma rch
Ap ri l
Ma y
Ju n e
J u ly
Au g u s t
Se p t e m b e r O c to b e r
N o ve m b e r D e c e m b e r
2016
F e b r ua r y
Ma
1,190
M AC D (-0 .0 6 9 0 7 )
0 .0
-0 . 5
SI L VER [ C AS H ] (1 4 .3 0 0 0 , 1 4 . 3 2 6 0 , 1 3 .8 6 0 0 , 1 3 .9 3 0 0 , - 0 .3 7 0 0 0 )
1 9 .0
After the spike silver formed a correction once again and fell
back towards the low of $13.93. Structurally, silver seems to
have formed a larger ending diagonal pattern. Near the low bulls
are providing support to the commodity. Thus, it seems to be
forming a base near the lower trend line.
1 8 .5
1 8 .0
1 7 .5
1 7 .0
1 6 .5
1 6 .0
1 5 .5
1 5 .0
1 4 .5
1 4 .0
View
Up
Reversal
Supports
Resistances
Target
$13.60
$13.73/$13.63
$14.42/$15.06
$14.71/
15.30
1 3 .5
N o ve m b e r
2015
F e b ru a ry M a rch
Ap ri l
Ma y
Ju n e
J u ly
Au g u s t
Se p te m b e r
N ove m b e r
2016
F e b r u a ry Ma
NYMEX crude oil has been tumbling down for a while now.
On the occasions of minor degree bounces it has been facing
resistance near the key DMAs.
KS T (-6 .9 2 0 6 7 )
10
5
0
-5
-1 0
L IG H T C R U D E C O N T IN U O U S 1 0 0 0 B AR R E L S [ N YM EX] (3 3 . 3 0 0 0 , 3 4 .3 4 0 0 , 3 2 .6 4 0 0 , 3 3 . 1 6 0 0 , -0 . 1 1 0 0 0 )
65
60
55
50
45
View
Down
January 2016
Reversal
Supports
Resistances
Target
$36.07
$32/$30.50
$34.53/$35.70
$31/29.60
40
35
30
M a r ch
36
Ap ri l
Ma y
Ju n e
Ju l y
Au g u s t
Se p te m b e r
O c to b e r
N o ve m b e r
D e ce m b e r
2016
F e b ru a r
Sharekhan ValueGuide
COMMODITY
TECHNICALS
COMEX copper had taken support near the lower end of the
medium-term falling channel and formed a short-term bounce.
KS T (-2 . 2 5 5 8 1 )
5
0
-5
H G C O PP E R C O N T IN U O U S 2 5 0 0 0 L BS [ C O M E X] ( 2 .0 2 2 5 0 , 2 .0 5 1 5 0 , 2 .0 1 1 0 0 , 2 .0 2 2 0 0 , + 0 .0 0 0 0 )
3 .1 5
3 .1 0
3 .0 5
3 .0 0
2 .9 5
2 .9 0
2 .8 5
From there the base metal has started falling once again.
Structurally it has formed a bearish flag pattern and broken out
on the downside.
2 .8 0
2 .7 5
2 .7 0
2 .6 5
2 .6 0
2 .5 5
2 .5 0
2 .4 5
2 .4 0
2 .3 5
2 .3 0
2 .2 5
2 .2 0
2 .1 5
2 .1 0
2 .0 5
2 .0 0
1 .9 5
1 .9 0
1 .8 5
Ap ri l
View
Down
Reversal
Supports
Resistances
Target
$2.09
$1.99/$1.92
$2.05/$2.07
$1.90
Ma y
Ju n e
Ju l y
Au g u s t
Se p t e m b e r
O c to b e r
N o ve m b e r
Dec em ber
2016
F e b ru a r
NCDEX jeera has been in a down trend over the short term as
well as medium term. From 50% retracement of the previous
fall the agri-commodity is forming the third leg down which is
sub-dividing into lower degree waves.
KS T (-4 .8 4 9 1 3 )
15
10
5
0
-5
JE ER A Q U IN T AL - 1 MO N T H (1 3 ,9 6 5 .0 0 , 1 4 ,0 9 0 .0 0 , 1 3 ,6 4 0 .0 0 , 1 3 ,7 0 0 .0 0 , - 2 8 5 .0 0 0 )
20000
19500
19000
1 0 0 .0 %
18500
18000
17500
6 1 .8 %
17000
5 0 .0 %
16500
3 8 .2 %
16000
2 3 .6 %
15500
15000
14500
0 .0 %
14000
13500
View
Reversal
Supports
Resistances
Target
Down
Rs12,700
13000
Ap ri l
Ma y
Ju n e
J u ly
Au g u s t
Se p te m b e r
O cto b e r
N o ve m b e r
D e ce m b e r
2016
KS T (-1 .7 4 7 9 9 )
SO YB EAN Q U I N T AL - 1 MO N T H (3 ,6 4 2 .0 0 , 3 ,6 7 3 .0 0 , 3 , 6 1 5 . 0 0 , 3 ,6 3 0 .0 0 , -1 0 .0 0 0 0 )
4600
4550
4500
4450
4400
4350
4300
4250
4200
4150
4100
1 0 0 .0 %
7 8 .6 %
0 .0 %
6 1 .8 %
4050
4000
3950
3900
2 3 .6 %
3850
3800
3750
5 0 .0 %
3 8 .2 %
3700
3650
3600
5 0 .0 %
3 8 .2 %
10
5
0
-5
3550
3500
6 1 .8 %
3450
3400
2 3 .6 %
3350
3300
7 8 .6 %
3250
3200
3150
3100
0 .0 %
1 0 0 . 0%
3050
3000
View
Down
Reversal
Rs3,755
Supports
Rs3,554/Rs3,500
Sharekhan ValueGuide
Resistances
Rs3,700/Rs3,744
2950
Target
2900
2850
Ap ri l
Rs3,465/
3,430
37
Ma y
J une
J u ly
Au g u s t
Se p te m b e r
O c to b e r
N o ve m b e r
D e ce m b e r
2016
F e b ru a ry
January 2016
MONTHLY VIEW
CURRENCY
FUNDAMENTALS
High
Low
Close
USD-INR
67.13
66.10
66.40
-0.25
EUR-INR
74.16
70.29
72.84
3.13
GBP-INR
101.87
98.10
98.53
-1.85
JPY-INR
55.59
53.86
55.14
1.54
USD-INR
The Indian Rupee (INR) appreciated against the dollar in December of 2015 on the back of likely inflows in local shares. A probable
intervention by the Reserve Bank of India (RBI) in the foreign exchange (forex) market provided stability to the rupee. However, a
sharp gain was prevented as the US Federal Reserve (Fed) raised interest rates by 0.25%. Unfavourable macro-economic data and geopolitical tension added to the downside pressure. The Government of India cut its economic growth forecast to 7.0-7.5% for the
FY2016 in its mid-year review compared with an estimate of over 8% previously.
Outlook: The rupee is expected to trade with a negative bias on the back of a strong dollar, escalating geo-political tensions and a rise in risk aversion in the
domestic market. Higher US rates would make the dollar more attractive as these would boost returns on assets denominated in dollars. The weakening of
Chinas yuan may drag the other Asian currencies lower. The dollar demand from importers would prove negative. As per the latest REER reading (provisional;
112.88), the rupee is overvalued by more than 10%. The expected trading range in the near term is 65.4-68.80.
GBP-INR
CMP: Rs97.74(spot)
The pound depreciated by 2.17% against the dollar in the last month. It extended losses on the back of a strong dollar and a divergence in global
monetary policies. The Bank of England (BoE) indicated that rates may remain lower for a longer time. A majority of the policymakers said low
oil prices and subdued wage growth would keep a lid on inflation. Soft economic data from the UK added to the downside pressure.
Outlook: The pound is likely to trade with a negative bias on a divergence in global monetary policies and weak economic data from the UK. The
Fed raised interest rates by 0.25% whereas the BoE is likely to continue with its loose monetary policy. Data showed that activity in the
manufacturing and service sectors slowed. Market sentiment is hurt on escalating geo-political tensions and worries over a slowdown in China.
The expected trading range in the near term is 95.3-100.5.
EUR-INR
The euro appreciated by 2.72% against the dollar as the European Central Bank (ECB) left benchmark interest rates unchanged and did not
increase the pace of its EUR60-billion-a-month quantitative easing programme. ECB President Mario Draghi said the bank would also expand its
bond-buying purchase scheme beyond September 2016 until the end of March 2017 or beyond, if necessary. However, a sharp gain was capped
as ECB still worried over inflation and lowered its projections.
Outlook: The euro is expected to trade with a negative bias on the back of a strong dollar and a divergence in global monetary policies. Further, soft economic
data from the euro zone may hurt the euro. Investors fears that lower inflation from the euro zone may push the ECB to add monetary stimulus. The market
fears that falling crude oil prices may put deflationary pressures on countries struggling with lower inflation calling for further easing. However, the euro as a
funding currency because of the euro zones low interest rates may gain strength as money flows back to where it was funded from during risk times. The
expected trading range in the near term is 70.1-74.0.
JPY-INR
The yen appreciated by 2.37% against the dollar on upbeat gross domestic product data. Bank of Japan kept its monetary stimulus target
unchanged at YEN80 trillion but decided to extend the maturity of the Japanese government bonds it purchases from 10 to 12 years and to set
up a YEN300-billion fund to buy exchange traded funds. Investors thought Bank of Japan fell short of market expectations.
Outlook: The yen is expected to gain strength as the demand for safe haven may go up on a rise in risk aversion in the global markets and escalating geo-political
tensions. The central bank added stimulus package but fell short of market expectations. However, sharp gains may be prevented on the back of a strong dollar
and a divergence in global monetary policies. Investors may worry that a strong yen may hurt its export industry and push the Bank of Japan to provide more
monetary stimulus. The expected trading range in the near term is 54.0-59.0.
CMP as on January 08, 2016
January 2016
38
Sharekhan ValueGuide
CURRENCY
TECHNICALS
M A C D (0 . 1 0 6 5 7 )
M A C D (0 . 0 8 5 6 9 )
1 .0
0 .5
0 .5
0 .0
0 .0
-0 . 5
E U R IN R ( 7 3 . 1 0 8 0 , 7 3 . 1 2 1 0 , 7 2 . 0 2 6 0 , 7 3 . 0 4 6 0 , - 0 .0 8 2 0 0 )
6 9 .0
U S D IN R - I N D I A N R U P E E ( 6 6 . 8 8 1 1 , 6 6 . 9 2 0 4 , 6 6 . 5 9 0 0 , 6 6 . 8 3 7 2 , - 0 .0 4 4 0 1 )
7 9 .0
7 8 .5
7 8 .0
6 8 .5
7 7 .5
7 7 .0
6 8 .0
7 6 .5
7 6 .0
6 7 .5
7 5 .5
0 .0 %
7 5 .0
6 7 .0
7 4 .5
0 .0 %
2 3 .6 %
7 4 .0
6 6 .5
7 3 .5
2 3 .6 %
3 8 .2 %
6 6 .0
5 0 .0 %
7 3 .0
3 8 .2 %
7 2 .5
5 0 .0 %
6 1 .8 %
7 2 .0
6 1 .8 %
6 5 .5
7 1 .5
7 1 .0
6 5 .0
7 0 .5
1 0 0 .0 %
7 0 .0
1 0 0 .0 %
6 4 .5
6 9 .5
6 9 .0
6 4 .0
6 8 .5
6 8 .0
6 3 .5
6 7 .5
6 7 .0
20
27
3
10
Au g u s t
17
24
31
7
14
S e p te m b e r
21
28
5
12
O cto b e r
19
26
2
9
16
N o ve m b e r
23
30
7
14
D e ce m b e r
21
28
4
2 01 6
11
18
25
1
8
F e b r u a ry
15
22
6 6 .5
27
3
10
Au g u s t
17
24
31
7
14
S e p te m b e r
21
28
5
12
O cto b e r
19
26
2
9
16
N o ve m b e r
23
30
7
14
D ec em ber
21
28
4
2016
11
18
25
1
8
F e b ru a ry
15
22
29
Ma
The price has fallen below the crucial daily and weekly moving
averages. The momentum indicators on these time frames are in
bearish mode.
From the high of 0.5735 the JPY-INR entered correction mode in the
last month. Overall, it formed a complex correction from the high
and retraced 61.8% of the previous rise.
It also found support near the key weekly moving averages. From
those multiple supports the currency pair has started a fresh rally.
The short-term as well as medium-term momentum indicators are in
sync with the rally.
Once the swing high of 0.5735 is crossed the equality target will be
0.6000.
M A C D (0 . 0 0 6 0 7 7 )
0 .0
0 .0
0 .0
-0 . 0
-0 . 0
-0 . 0
K S T (-2 . 2 6 5 0 3 )
10
5
1
0
0
0
1
1
0
5
0
5
0
5
J P Y IN R ( 0 .5 5 0 4 0 , 0 .5 7 0 0 0 , 0 .5 4 9 5 0 , 0 . 5 6 9 0 0 , + 0 . 0 1 8 7 0 )
0 .7 2
-5
0. 0 %
0 .7 1
0 0 .0 %
G B P I N R ( 9 7 . 6 5 5 0 , 9 8 .5 8 8 0 , 9 6 .9 0 8 0 , 9 7 .0 2 8 0 , - 0 . 6 0 8 0 0 )
109
108
107
106
0 .7 0
105
104
0 .6 7
0 .6 9
0 .6 8
0 .6 6
103
102
0 .6 5
101
23 . 6 %
0 .6 4
100
6 1 .8 %
99
0 .6 3
98
0 .6 2
97
38 . 2 %
96
0 .6 1
5 0 .0 %
95
0 .6 0
94
50 . 0 %
0 .5 9
93
3 8 .2 %
92
0 .5 8
91
61 . 8 %
0 .0 %
0 .5 7
90
89
2 3 .6 %
0 .5 6
3 8 .2 %
0 .5 5
86
5 0 .0 %
0 .5 4
85
6 1 .8 %
2 3 .6 %
88
87
0 .5 3
84
7 8 .6 %
83
0 .5 2
82
1 0 0 .0 %
0 .0 %
81
10 0 . 0 %
0 .5 1
0 .5 0
80
79
2 013
20 1 4
Currency
View
USD-INR
Up
2 01 5
201 6
0 .4 9
J
2014
2015
2016
Reversal
Supports
Resistances
Target
66.08
66.41/66.15
67.17/68.00
68.50
GBP-INR
Down
100.10
96.47/95
98.94/99.50
95.40-93.70
EUR-INR
Up
71.24
72.02/71.32
74.14/74.52
75.36
JYP-INR
Up
0.5495
0.5617/0.5500
0.5735/0.5865
0.6000
Sharekhan ValueGuide
39
January 2016
PMS FUNDS
PMS
DESK
Diversified Equity
Trailing Stops
OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors
looking to create an equity portfolio through disciplined investments that will lead to a
growth in the portfolios value with medium to high risk.
INVESTMENT STRATEGY
Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.
Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and
that of minimum of 90% in the BSE 100 stocks.
(In %)
Scheme
1 month
-1.0
0.6
3 month
3.8
1.2
6 month
3.1
-2.5
1 year
2.8
-0.7
Best month
36.3
34.4
Worst month
-23.4
-27.2
Best quarter
60.3
51.2
Worst quarter
-30.5
-28.6
Top 10 stocks
PRICING
Charges
Apollo Tyres
Axis Bank
Federal Bank
IndusInd Bank
0.5% brokerage
Hero MotoCorp
20% profit sharing after the 12% hurdle is crossed at the end of
every fiscal
ICICI Bank
II&Fs Transport Networks
Lupin
Reliance Industries
Sun Pharmaceuticals Industries
FUND OBJECTIVE
A good return on money through long-term investing in quality companies
January 2016
40
Sharekhan ValueGuide
PMS
DESK
PMS FUNDS
Product performance
as on December 31, 2015
(In %)
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market
direction by going long or short on Nifty futures.
The portfolio is not leveraged, ie its exposure never exceeds its value.
Scheme
Sensex
Nifty
1 month
2.4
-0.1
0.1
3 months
7.0
-0.1
0.0
FY14-15
-3.4
24.9
26.7
FY13-14
8.8
18.9
18.0
FY12-13
3.7
8.2
7.3
FY11-12
13.1
-10.5
-9.2
FY10-11
9.2
10.9
11.1
FY09-10
14.7
80.5
73.8
174.9
158.0
163.0
Since inception*
Best month
28.9
-23.9
-26.4
Worst month
-17.1
0.0
0.6
Charges
Best quarter
33.3
49.3
42.0
Worst quarter
-11.7
17.3
22.3
PRICING
AMC fees:
0%
Brokerage:
0.05%
Profit sharing:
*01-Feb-2006
Investments in
Nifty Index
The Index Futures Fund continued to perform with increasing volatility in the market
in December 2015. A gain of 2.43% for the month and that of 7% for the quarter are
good numbers. As long as we continue to see these big moves in the market in both
directions, we should see good return numbers as well. The last couple of signals in
the trading system saw clear positive results and none of the signals went wrong. So
this must be a winning streak.
The market has gone through a prolonged period of low volatility and the numbers
can only expand. We have been waiting for that to happen. We still see a lot of
divergence in the market internals that is keeping the numbers from achieving their
best potential but this is better than it was earlier. We expect the market to move in
both directions and 10% moves in a month should become normal.
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
Sharekhan ValueGuide
41
January 2016
PMS FUNDS
PMS
DESK
Product performance
as on December 31, 2015
(In %)
INVESTMENT STRATEGY
Scheme
Sensex
Nifty
1 month
0.4
-0.1
0.1
3 months
2.5
-0.1
0.0
This strategy spots the winning trades based on technical analysis vs time framebased portfolios, basically the momentum calls.
FY14-15
-3.7
24.9
26.7
FY13-14
-1.1
18.9
18.0
A risk model has been developed for stock portfolio allocation that reduces the
risk and portfolio volatility through staggered building of positions.
FY12-13
14.9
8.2
7.3
FY11-12
29.0
-6.1
-4.6
FY10-11
FY09-10
50.9
41.0
43.2
Best month
9.1
11.3
12.4
Worst month
-4.4
-2.0
-1.7
PRICING
Charges
Since inception*
AMC fees:
0%
Best quarter
9.9
-12.7
-12.5
Brokerage:
0.05%
Worst quarter
-8.2
9.2
9.9
Profit sharing:
Investments in
Nifty Index
Stock futures
The market has gone through a prolonged period of low volatility and the numbers
can only expand. We have been waiting for that to happen. We still see a lot of
divergence in the market internals that is keeping the numbers from achieving their
best potential but this is better than it was earlier. We expect the market to move in
both directions and 10% moves in a month should become normal.
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
January 2016
42
Sharekhan ValueGuide
ADVISORY
MONTHLY PERFORMANCE
DESK
For investors
PORTFOLIO DOCTOR
It is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggests
changes to improve its performance. To avail of this service please write to the Portfolio Doctor at
portfoliodoctor@sharekhan.com.
For traders
SHAREKHANS PRE-MARKET ACTION
These ideas are put out in Sharekhans Pre-market Action report
along with stop loss and targets valid for a day. There is a market
watch list of stocks with positive and negative bias for intra-day
traders. For more details please write to us at
premarket@sharekhan.com.
Weightage (%)
Time Frame
Maximum 2 months
Exit Rules
C) Time frame
Performance
Reporting
Daily
Report Card
MID performance*
Product
Month
No. of calls
Open
Profit booked
Stop loss hit
Strike rate (%)
Sharekhan ValueGuide
43
100,000
Dec 2015
YTD FY2016
No. of calls
17
191
Profit booked
12
110
5
71
81
58
January 2016
January 2016
44
Sharekhan ValueGuide
MUTUAL FUNDS
DESK
MF PICKS
Scheme name
Large-cap funds
SBI Bluechip Fund
Birla Sun Life Top 100 Fund
Reliance Top 200 Fund
Birla Sun Life Frontline Equity Fund - Reg
Reliance Focused Large Cap Fund
Indices
BSE Sensex
Mid-cap funds
Mirae Asset Emerging Bluechip Fund
SBI Magnum Midcap Fund
L&T Midcap Fund
BNP Paribas Mid Cap Fund
Tata Mid Cap Growth Fund - Reg
Indices
BSE Mid-cap
Multi-cap funds
Birla Sun Life Pure Value Fund
L&T India Value Fund
ICICI Prudential Value Discovery Fund
Franklin India High Growth Companies Fund
SBI Magnum Global Fund 94
Indices
BSE 500
Tax saving funds
Axis Long Term Equity Fund
Birla Sun Life Tax Relief 96
Birla Sun Life Tax Plan
Franklin India Taxshield
BNP Paribas Long Term Equity Fund
Indices
Nifty 500
Thematic funds
ICICI Prudential Exports and Other Services Fund
Franklin Build India Fund
Birla Sun Life India GenNext Fund
L&T Infrastructure Fund
Kotak Infrastructure & Economic Reform Fund - Reg
Indices
Nifty 50
Balanced funds
L&T India Prudence Fund
Star
rating
NAV (Rs)
Absolute
6 months
Returns (%)
Compounded annualised
1 year
3 years
5 years
Since inception
28.2
42.3
23.5
158.8
23.4
1.74
0.37
-0.82
-0.60
0.21
6.34
-0.85
-0.81
-0.23
2.58
19.90
18.47
18.15
17.66
16.22
12.24
11.89
11.40
10.98
9.03
11.15
15.33
10.81
23.18
9.18
26,117.9
-3.9
-8.2
10.5
5.5
16.2
31.48
60.50
90.31
25.37
103.06
8.53
4.37
6.61
6.20
2.03
15.80
15.98
13.06
14.50
11.98
33.09
32.39
29.37
28.52
28.52
22.38
19.19
14.95
18.76
16.77
23.65
18.35
21.46
10.19
11.50
11,097.6
5.9
7.2
17.1
6.6
21.9
39.66
25.28
115.10
29.37
132.22
8.16
7.21
1.18
-0.08
1.07
4.21
13.02
7.54
4.72
10.17
30.71
28.45
27.49
27.15
26.12
16.74
15.69
17.46
15.99
17.61
19.63
17.01
24.13
13.76
15.37
10,595.8
-1.6
-3.0
12.3
6.0
15.0
30.07
21.51
27.16
420.63
29.32
-0.44
2.19
1.88
0.53
-0.18
6.08
9.30
8.38
4.96
5.27
26.70
23.20
22.25
20.94
20.93
18.45
11.51
13.19
13.94
14.42
20.40
10.39
11.51
25.17
11.46
6,699.8
-1.5
-2.8
12.7
6.4
9.3
47.1
28.7
53.0
10.8
14.8
8.4
-1.0
-0.5
0.0
-2.4
12.5
5.3
7.5
6.4
0.3
35.5
29.9
19.7
18.6
18.3
20.4
17.2
15.3
6.2
9.0
16.8
18.4
17.5
1.0
5.2
7,931.4
-3.7
-7.0
10.5
5.7
14.1
19.75
3.64
9.71
20.96
--
15.17
96.06
2.74
7.84
19.89
12.26
16.57
167.93
0.29
7.20
19.55
14.11
16.79
92.23
1.71
3.04
19.09
14.19
14.81
90.59
1.38
6.02
18.72
12.46
14.78
--
-0.7
-1.4
10.2
7.0
12.7
Indices
Crisil Balanced Fund Index
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
Sharekhan ValueGuide
45
January 2016
MF PICKS
MUTUAL FUNDS
DESK
Investment period
Total amount invested (Rs)
Funds would have grown to (Rs)
NAV
1 year
12,000
Present
Avg. annual
value (Rs)
return (%)
Present
value (Rs)
3 years
36,000
Avg. annual
return (%)
5 years
60,000
Present Avg. annual
value (Rs)
return (%)
Large-cap funds
SBI Bluechip Fund
28.2
12,010.6
0.1
48,491.9
10.8
96,813.0
10.2
23.5
11,732.2
-2.4
47,751.2
10.2
92,982.7
9.3
42.3
11,774.8
-2.0
46,738.3
9.4
92,449.4
9.2
158.8
11,719.8
-2.5
45,942.2
8.7
90,891.9
8.8
45.5
11,725.7
-2.5
44,823.5
7.8
85,239.3
7.4
26,117.9
11,397.8
-5.5
40,380.8
4.0
75,681.7
4.8
39.7
12,384.3
3.5
57,968.6
17.8
116,968.0
14.5
Multi-cap funds
Birla Sun Life Pure Value Fund
L&T India Value Fund
ICICI Prudential Value Discovery Fund
Franklin India High Growth Companies Fund
SBI Magnum Global Fund 94
BSE 500
25.3
12,419.4
3.8
56,490.8
16.7
114,025.4
14.0
115.1
12,077.7
0.7
54,752.1
15.5
112,588.5
13.7
29.4
11,909.6
-0.8
54,350.0
15.2
112,191.1
13.6
132.2
11,902.7
-0.9
53,219.0
14.4
109,492.5
13.0
10,595.8
11,650.0
-3.2
43,101.4
6.4
80,270.3
6.1
31.5
12,584.6
5.3
60,591.7
19.6
127,945.8
16.7
Mid-cap funds
Mirae Asset Emerging Bluechip Fund
L&T Midcap Fund
90.3
12,414.8
3.8
58,739.2
18.3
116,792.0
14.5
103.1
12,078.5
0.7
57,960.9
17.7
116,792.0
14.5
34.0
12,347.0
3.2
57,303.0
17.3
113,113.0
13.8
25.4
12,414.1
3.8
56,465.5
16.7
119,220.1
15.0
11,097.6
12,320.5
2.9
50,318.6
12.2
91,929.0
9.1
BSE Mid-cap
Tax-saving funds
Axis Long Term Equity Fund
30.1
11,769.3
-2.1
52,711.0
14.0
109,954.9
13.1
21.5
12,006.6
0.1
51,519.2
13.1
101,207.5
11.2
420.6
11,912.3
-0.8
49,767.7
11.8
97,884.9
10.5
274.4
12,176.9
1.6
49,460.6
11.5
97,742.4
10.4
29.3
11,820.4
-1.6
49,252.6
11.4
98,980.1
10.7
7,931.4
11,418.0
-5.3
40,815.5
4.4
76,367.8
5.0
(Tax Saving)-Reg
BNP Paribas Long Term Equity Fund
Nifty 50
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
January 2016
46
Sharekhan ValueGuide
EQUITY
EARNINGS GUIDE
FUNDAMENTALS
CMP
(Rs)
FY15
Net profit
FY16E
FY17E
FY15
FY16E
FY17E
EPS
(%) EPS
growth
FY15
FY16E
FY17E FY17/FY15
PE (x)
RoCE (%)
RoNW (%)
DPS
FY17E
Div
yield
(Rs) (%)
AUTOMOBILES
Apollo Tyres
155.8
12,785.2
11,802.7
13,063.3
1,060.1
1,092.9
1,134.6
20.8
21.5
22.3
3%
7.5
7.3
7.0
21.2
16.9
19.8
17.4
2.0
1.3
92.0
13,562.2
18,698.1
23,084.2
233.9
996.3
1,559.4
0.8
3.5
5.5
158%
112.0
26.3
16.8
21.4
30.3
18.3
24.8
0.5
0.5
2,483.4
21,612.0
23,784.6
27,220.7
3,087.1
3,774.8
4,396.2
106.7
130.4
151.9
19%
23.3
19.0
16.3
46.1
46.5
32.7
32.9
50.0
2.0
95.5
1,444.1
1,489.6
1,745.5
60.6
78.7
104.6
4.2
5.5
7.3
31%
22.6
17.4
13.1
26.7
30.4
22.2
24.7
1.1
1.1
Hero MotoCorp
2,637.8
27,585.3
28,820.2
33,854.1
2,540.7
3,189.4
3,920.5
127.2
159.7
196.3
24%
20.7
16.5
13.4
61.0
59.9
43.7
43.0
60.0
2.3
M&M
1,242.5
37,468.3
40,680.6
48,139.3
3,087.6
3,644.4
4,727.1
52.2
61.6
79.9
24%
23.8
20.2
15.5
16.1
18.8
17.2
19.4
12.0
1.0
Maruti Suzuki
4,580.7
49,970.6
58,232.6
69,966.8
3,711.2
5,392.1
6,844.9
122.9
178.5
226.6
36%
37.3
25.7
20.2
22.2
22.2
18.0
18.0
25.0
0.5
Ashok Leyland
Bajaj Auto
Gabriel Industries
46.9
1,346.3
1,076.1
1,234.9
-6.9
33.1
59.4
-0.5
2.4
4.4
-91.8
19.2
10.7
10.4
15.2
7.1
11.6
3.0
6.4
287.0
9,920.1
11,528.5
13,731.5
401.8
496.0
696.1
8.5
10.4
14.7
32%
33.9
27.5
19.6
24.1
30.2
27.4
31.9
1.9
0.7
68.2
8,173.9
8,649.8
9,692.6
620.9
866.5
1,261.3
10.9
15.2
22.1
43%
6.3
4.5
3.1
6.7
9.1
1.6
2.4
Andhra Bank
63.8
6,037.5
6,614.0
7,595.0
638.4
984.2
1,243.5
10.6
15.1
19.1
34%
6.0
4.2
3.3
9.3
10.7
2.0
3.1
438.4
22,589.2
26,402.1
31,221.0
7,355.9
Bajaj Finance
6,052.5
2,871.7
3,705.9
4,698.1
893.6
Bajaj Finserv
1,959.5
7,587.0
1,689.8
151.2
17,589.2
18,291.2
20,895.5
3,398.4
Bank of India
114.7
15,576.7
16,010.3
18,140.0
1,708.9
Capital First
416.4
501.4
695.5
865.8
110.7
Corp Bank
42.6
5,552.8
6,267.2
7,071.0
584.0
Bank of Baroda
Federal Bank
8,612.3 10,424.2
31.0
36.3
44.0
19%
14.1
12.1
10.0
17.9
18.6
5.5
1.3
1,505.1
178.7
220.3
282.5
26%
33.9
27.5
21.4
19.5
19.2
18.1
0.3
106.2
18.5
0.0
0.0
1.8
0.1
3,382.6
4,557.0
15.3
15.3
20.5
16%
9.9
9.9
7.4
8.2
10.3
3.2
2.1
-305.5
1,739.7
25.7
-3.9
21.9
-8%
4.5
-29.8
5.2
-0.9
5.1
5.1
4.5
171.4
239.5
12.2
18.8
26.3
47%
34.2
22.1
15.8
10.5
13.3
2.2
0.5
734.3
981.3
7.0
7.4
9.9
19%
6.1
5.8
4.3
6.6
8.0
1.4
3.3
1,173.6
55.8
3,258.7
3,545.8
4,153.2
1,004.9
940.2
1,182.6
5.9
5.5
6.9
8%
9.5
10.2
8.1
11.6
13.2
1.1
2.0
HDFC
1,216.7
7,630.7
8,984.1
10,812.6
5,990.1
6,963.5
8,235.8
38.0
44.2
52.3
17%
32.0
27.5
23.3
19.8
20.6
13.0
1.1
HDFC Bank
1,070.5
31,392.0
37,450.7
45,076.5 10,215.9
12,467.9 15,358.2
40.8
49.7
61.3
23%
26.3
21.5
17.5
18.7
19.8
8.0
0.7
ICICI Bank
255.6
31,215.7
35,218.7
40,280.5 11,175.4
12,725.0 14,794.4
19.3
21.9
25.5
15%
13.3
11.6
10.0
15.1
15.9
5.0
2.0
IDBI Bank
84.9
9,755.5
9,447.6
10,456.9
873.4
868.0
1,135.8
5.4
5.4
7.1
14%
15.6
15.7
12.0
3.5
4.5
0.7
0.9
489.7
2,236.4
2,822.4
3,410.2
1,386.2
1,732.4
2,120.0
27.5
34.3
42.0
24%
17.8
14.3
11.7
20.4
21.2
5.0
1.0
39.7
340.7
424.9
549.9
160.9
378.2
338.0
4.4
9.6
8.6
40%
9.1
4.1
4.6
24.2
18.7
1.0
2.5
112.8
22,446.3
23,608.5
26,708.7
3,061.6
3,477.2
4,542.5
16.5
17.7
24.5
22%
6.8
6.4
4.6
8.4
10.0
3.3
2.9
SBI
220.7
77,591.1
84,516.2
95,684.8 13,101.6
17.5
21.4
26.7
23%
12.6
10.3
8.3
11.9
13.5
3.5
1.6
144.7
11,966.9
12,770.0
14,604.2
1,781.6
2,198.3
2,735.1
28.0
34.6
43.0
24%
5.2
4.2
3.4
10.7
12.2
6.0
4.1
Yes Bank
705.8
5,534.3
6,843.2
8,494.8
2,005.4
2,370.0
2,974.9
48.7
57.6
72.3
22%
14.5
12.3
9.8
18.8
20.2
9.1
1.3
Britannia
2,972.6
7,858.4
8,836.0
10,312.3
542.5
853.2
1,036.2
45.2
71.1
86.4
38%
65.8
41.8
34.4
51.9
45.6
55.9
47.5
16.0
0.5
GSK Consumers*
6,496.4
4,136.4
4,327.4
5,046.7
583.6
673.8
800.8
138.8
160.2
190.4
17%
46.8
40.6
34.1
44.2
44.2
29.2
29.2
55.0
0.8
GCPL
1,329.8
8,242.2
9,292.9
11,044.8
923.8
1,140.7
1,403.0
27.1
33.5
41.2
23%
49.1
39.7
32.3
22.5
24.6
25.7
25.8
5.5
0.4
1.7
15,997.5 19,953.3
CONSUMER GOODS
Hindustan Unilever
859.0
31,199.7
33,912.4
38,564.1
3,886.5
4,389.7
5,379.5
18.0
20.3
24.9
18%
47.7
42.3
34.5
143.1
147.2
101.7
104.4
15.0
ITC
325.1
36,507.4
39,066.0
44,378.7
9,607.7
10,220.6
11,653.0
12.0
12.8
14.5
10%
27.1
25.4
22.4
39.0
38.0
30.9
30.4
6.3
1.9
Jyothy Laboratories
307.4
1,514.8
1,724.2
2,016.2
123.1
185.3
196.9
6.7
10.0
10.7
26%
45.9
30.7
28.7
15.8
21.4
22.4
20.7
4.0
1.3
Marico^
225.3
5,733.0
6,190.7
7,022.9
573.5
711.3
857.2
4.4
5.5
6.6
22%
50.7
40.9
33.9
43.4
43.7
34.4
33.2
2.5
1.1
Zydus Wellness
858.1
415.2
432.3
497.6
98.7
108.4
129.0
25.3
27.7
33.0
14%
33.9
31.0
26.0
24.3
24.1
26.2
26.1
6.0
0.7
0.0
IT / IT SERVICES
Firstsource Solution
42.2
3,034.6
3,260.5
3,568.2
234.3
273.6
336.1
3.5
4.1
5.0
20%
12.1
10.3
8.4
11.8
12.9
12.3
13.3
0.0
HCL Technologies***
846.0
37,062.0
41,931.9
46,415.3
7,255.0
7,612.9
8,746.0
51.4
54.0
62.0
10%
16.5
15.7
13.6
37.5
36.0
31.1
29.3
22.0
2.6
1,078.9
53,319.0
60,873.1
68,084.5 12,330.0
13,082.3 14,889.8
53.9
57.2
65.1
10%
20.0
18.9
16.6
34.0
34.8
24.4
25.0
59.5
5.5
Infosys
Persistent Systems
647.2
1,891.3
2,207.0
TCS^^
2,369.6
94,648.4
108,817.7
2,524.4
290.6
Wipro
557.7
46,954.5
50,707.4
55,105.1
8,652.8
BHEL
165.2
29,542.0
27,106.0
32,886.0
1,419.9
721.0
1,945.0
5.8
CESC
522.6
6,189.0
6,628.3
7,149.0
698.0
704.3
765.2
52.4
Crompton Greaves
190.0
14,013.0
14,248.0
15,628.0
183.0
134.0
365.0
2.1
Finolex Cable
250.7
2,449.1
2,736.9
3,162.8
175.8
191.9
243.3
Greaves Cotton
142.2
1,692.2
1,668.6
1,800.3
127.7
187.6
210.4
Kalpataru Power
252.4
4,422.3
4,696.0
5,371.0
165.6
194.0
236.0
66.8
13,081.7
13,561.0
14,080.0
189.3
207.0
216.0
6.4
7.0
7.3
7%
10.4
9.5
9.2
11.4
11.4
191.8
1,312.8
1,601.7
1,935.0
61.4
88.9
124.0
6.0
8.7
12.1
42%
32.0
22.1
15.8
28.0
28.0
121,193.6 19,648.4
358.5
36.3
36.5
44.8
11%
17.8
17.7
14.4
26.3
27.6
19.2
20.3
10.0
1.5
23,746.3 26,496.3
291.8
100.3
121.2
135.3
16%
23.6
19.6
17.5
41.5
37.7
32.4
29.5
32.0
1.4
9,305.0 10,498.9
35.3
37.8
42.6
10%
15.8
14.8
13.1
17.6
17.9
20.2
20.0
12.0
2.2
2.9
7.9
17%
28.5
57.0
20.9
3.1
8.2
2.1
5.5
1.2
0.7
52.9
57.4
5%
10.0
9.9
9.1
7.2
7.3
8.4
8.6
9.0
1.7
2.1
5.8
66%
90.5
90.5
32.8
8.0
11.2
3.0
8.7
1.2
0.6
11.5
12.5
15.9
18%
21.8
20.1
15.8
18.9
21.3
19.3
21.7
1.8
0.7
5.2
7.7
8.6
28%
27.2
18.5
16.5
28.9
29.0
21.5
21.5
1.1
0.7
10.8
12.6
15.4
19%
23.4
20.0
16.4
14.4
15.3
9.0
10.1
1.5
0.6
7.5
7.4
2.2
3.3
25.2
26.8
1.5
0.8
PTC India
Skipper
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
Sharekhan ValueGuide
^^ FY2015 earnings numbers are on reported basis, including the one-time impact of bonus for employees to the tune of Rs2,627.9 crore.
47
January 2016
EQUITY
FUNDAMENTALS
EARNINGS GUIDE
Company
CMP
(Rs)
Sales
Thermax
883.0
Triveni Turbine
109.0
650.8
889.5
1,079.8
93.3
129.2
160.7
2.8
3.9
4.9
32%
38.9
27.9
22.2
62.4
51.1
44.1
36.7
1.0
0.9
Va Tech Wabag
680.3
2,435.2
2,869.0
3,448.0
110.1
137.2
181.1
20.3
25.3
33.4
28%
33.5
26.9
20.4
21.2
24.3
14.4
16.8
4.0
0.6
V-Guard Industries
932.8
1,745.9
1,938.0
2,221.0
70.7
96.0
121.0
23.6
32.0
40.2
31%
39.5
29.1
23.2
32.6
34.4
23.2
24.2
4.5
0.5
737.7
1,601.1
1,965.9
2,527.9
25.0
55.9
106.5
8.3
15.8
30.0
91%
89.2
46.7
24.6
9.2
11.8
7.5
12.3
2.0
0.3
92.0
6,320.7
7,456.3
8,599.1
308.8
205.8
512.1
12.5
6.3
15.6
12%
7.3
14.7
5.9
8.2
9.4
3.4
7.7
4.0
4.3
1.6
FY15
4,697.4
FY16E
4,578.0
Net profit
FY17E
5,072.0
FY15
335.7
FY16E
339.0
FY17E
393.0
FY15
28.2
EPS
(%) EPS
growth
FY16E
28.5
FY17E FY17/FY15
32.9
8%
PE (x)
RoCE (%)
RoNW (%)
DPS
FY17E
14.9
Div
yield
(Rs) (%)
7.0 0.8
257.9
3,847.5
4,486.4
5,035.6
542.9
628.3
865.8
15.4
17.9
24.6
26%
16.7
14.4
10.5
11.1
13.5
13.7
16.7
4.0
12.0
10,854.3
13,905.8
15,220.7
-867.3
-93.2
115.2
-4.1
-0.4
0.5
-2.9
-27.4
22.2
6.6
7.3
-0.7
0.9
0.0
0.0
1,256.0
57,017.4
62,265.9
71,453.9
4,699.0
4,320.5
5,254.3
50.7
46.5
56.5
6%
24.8
27.0
22.2
12.5
14.2
11.2
12.5
16.3
1.3
30.5
7,090.3
8,316.6
9,381.7 -1,681.4
-356.0
-268.0
-50.6
-10.7
-8.1
0%
-0.6
-2.8
-3.8
-1.7
2.3
-48.8
-58.3
0.0
0.0
Oil India
399.0
9,748.0
9,652.0
2,560.0
2,382.0
41.8
42.6
39.6
-3%
9.5
9.4
10.1
12.9
11.7
11.6
10.2
20.0
5.0
Reliance Ind
995.3 375,435.0
354,461.0
23,011.0 27,459.0
80.1
78.2
93.3
8%
12.4
12.7
10.7
7.7
8.8
9.7
10.5
10.0
1.0
Selan Exploration
206.0
79.3
Aurobindo Pharma
844.3
12,120.5
13,965.1
Cipla
645.7
11,345.4
14,103.8
Cadila Healthcare
320.8
8,651.3
10,475.0
12,352.4
Jaiprakash Associates
Larsen & Toubro
Punj Lloyd
74.2
8,956.0
2,510.0
404,645.9 23,566.0
110.9
28.3
26.3
39.1
17.3
16.0
23.8
17%
11.9
12.9
8.7
11.2
15.3
9.1
12.6
5.0
2.4
16,276.9
1,635.4
1,987.0
2,498.0
28.0
34.0
42.8
24%
30.2
24.8
19.7
28.7
31.4
32.5
30.2
3.4
0.4
19,207.6
1,180.8
1,811.9
2,695.9
14.7
22.6
33.6
51%
43.9
28.6
19.2
18.7
22.8
15.4
19.2
2.0
0.3
1,150.6
1,535.0
1,959.0
11.3
15.0
19.0
30%
28.4
21.4
16.9
28.1
32.5
28.3
27.9
2.4
0.7
PHARMACEUTICALS
Divi's Labs
Glenmark Pharma
Ipca Laboratories
Lupin
Sun Pharma
Torrent Pharma
1,149.7
3,114.9
3,732.8
4,580.9
865.5
1,040.2
1,350.3
32.6
39.2
50.9
12%
35.3
29.3
28.1
32.2
33.5
26.1
27.0
10.0
0.9
930.6
6,644.8
8,068.0
9,806.0
747.0
935.0
1,353.7
27.5
34.5
49.9
35%
33.8
27.0
18.6
18.9
22.6
24.2
26.3
2.0
0.2
732.0
3,142.0
3,337.0
3,931.0
254.0
330.0
538.0
19.8
26.1
42.7
47%
37.0
28.0
17.1
13.9
20.0
14.1
19.8
1.0
0.1
1,795.2
12,599.7
14,206.0
16,887.0
2,403.0
2,655.0
3,341.0
53.5
59.1
74.3
18%
33.6
30.4
24.2
30.8
31.0
23.1
22.8
7.5
0.4
799.1
27,286.5
27,804.0
35,413.0
4,778.4
5,573.3
7,695.7
23.1
23.1
32.0
18%
34.6
34.6
25.0
21.4
25.8
17.9
20.4
0.0
0.0
1,448.4
4,585.0
6,680.7
6,804.7
751.0
1,426.8
1,312.8
44.4
84.3
77.6
32%
32.6
17.2
18.7
39.0
32.7
43.5
28.1
11.3
0.8
3,657.3
32,433.0
34,757.0
41,000.0
1,753.0
1,860.0
2,259.0
190.9
202.5
246.0
14%
19.2
18.1
14.9
11.7
13.5
7.3
7.8
18.0
0.5
389.2
3,743.0
4,155.0
4,871.0
258.0
370.0
463.0
10.8
15.6
19.4
34%
36.0
24.9
20.1
13.2
14.6
7.7
8.4
1.5
0.4
11,059.3
6,454.0
6,134.0
9,687.0
462.0
390.0
1,220.0
133.1
112.0
350.3
62%
83.1
98.7
31.6
10.0
20.0
12.0
19.0
22.0
0.2
2,749.2
22,656.0
24,839.0
29,933.0
2,062.0
2,217.0
3,147.0
75.3
80.9
114.9
24%
36.5
34.0
23.9
12.9
16.8
10.6
13.2
9.0
0.3
1.2
BUILDING MATERIALS
Grasim
The Ramco Cements
Shree Cement**
UltraTech Cement
DISCRETIONARY CONSUMPTION
Century Plyboards (I)
172.4
1,588.0
1,768.0
2,088.0
149.0
180.0
224.0
6.7
8.1
10.1
23%
25.7
21.3
17.1
23.4
23.2
38.1
33.3
2.0
238.2
2,569.1
2,456.2
2,798.7
399.8
352.4
477.0
23.6
20.8
28.2
9%
10.1
11.4
8.4
11.3
13.5
15.5
18.3
1.0
0.4
Inox Leisure
235.9
1016.8*
1,373.9
1,651.0
20*
72.6
102.1
2.2
7.9
11.1
125%
107.2
29.9
21.3
12.9
15.6
9.7
12.0
0.0
0.0
832.9
611.6
716.5
833.6
164.7
140.0
203.1
13.7
11.6
16.8
11%
60.8
71.8
49.6
11.1
14.9
7.8
10.3
3.0
0.4
KDDL
346.2
411.7
472.8
574.1
8.7
10.5
12.8
9.5
11.5
14.1
22%
36.4
30.1
24.6
13.3
13.4
16.5
16.4
2.0
0.6
KKCL
2,140.3
405.1
453.2
526.6
66.3
73.8
101.3
53.7
59.8
82.1
24%
39.9
35.8
26.1
29.3
31.5
21.5
26.0
22.0
1.0
Orbit Exports
384.0
158.0
175.0
209.0
27.9
30.8
31.0
19.4
22.8
27.6
19%
19.8
16.8
13.9
20.9
21.9
30.5
29.4
4.5
1.2
Raymond
419.0
5,352.0
5,850.0
6,497.0
115.8
88.3
124.3
18.9
14.4
20.2
3%
22.2
29.1
20.7
10.0
11.2
5.5
7.3
3.0
0.7
Relaxo Footwear
500.9
1,472.8
1,765.4
2,153.5
103.1
133.3
179.9
8.6
11.1
15.0
32%
58.2
45.1
33.4
26.0
27.7
22.1
22.3
0.5
0.1
299.4
341.6
430.7
9.5
10.9
28.6
2.0
2.3
6.1
75%
71.2
61.9
23.3
4.8
12.0
3.5
8.9
1.0
0.7
0.2
204.4
3244.3#
3,850.8
4,596.1
112.3
151.0
325.4
2.8
3.6
7.8
67%
73.0
56.8
26.2
20.4
21.8
23.4
25.6
0.5
Wonderla Holidays
396.4
181.9
212.9
312.5
50.6
56.1
74.1
9.0
9.9
13.1
21%
44.0
40.0
30.3
22.0
27.4
15.6
19.3
1.5
0.4
Zee Entertainment
422.0
4,883.7
5,727.5
6,767.1
977.5
1,075.2
1,353.9
8.6
9.9
12.4
20%
49.1
42.6
34.0
23.6
26.4
18.8
20.6
2.6
0.6
0.3
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo
2,159.9
10,260.1
11,425.6
584.2
639.3
44.9
49.2
48.1
43.9
8.9
7.1
7.0
Bajaj Holdings
1,660.2
523.9
2,028.7
182.3
9.1
32.5
2.0
326.8
92,039.0
97,293.0
107,143.0
5,883.0
5,211.0
6,712.0
14.7
13.0
16.8
7%
22.2
25.1
19.5
12.3
14.2
5.4
10.2
3.9
1.2
Bharti Airtel
Bharat Electronics
1,370.1
6,775.9
7,742.9
9,312.0
1,100.6
1,324.3
1,598.8
45.9
55.2
66.6
21%
29.9
24.8
20.6
16.4
17.5
12.5
13.3
9.2
0.7
Gateway Distriparks
313.5
1,105.0
1,070.0
1,175.0
187.8
153.0
187.0
17.3
14.1
17.2
0%
18.1
22.2
18.2
14.5
17.2
16.7
20.1
7.0
2.2
Max India
517.5
14,815.0
279.6
10.5
49.3
5.0
1.0
PI Industries
656.1
1,939.7
2,225.0
2,613.4
224.8
286.9
354.9
16.7
21.3
26.3
25%
39.3
30.8
24.9
33.9
35.2
28.2
27.5
2.5
0.4
Ratnamani Metals
540.5
1,675.6
1,685.0
1,922.0
172.5
162.9
200.5
37.0
34.9
42.9
8%
14.6
15.5
12.6
23.3
24.9
16.7
17.7
5.5
1.0
Supreme Industries
689.0
4,255.2
3,354.0
5,239.0
311.7
257.2
396.5
24.5
20.2
31.2
13%
28.1
34.1
22.1
22.0
28.3
18.7
24.2
9.0
1.3
UPL
433.9
12,090.5
13,198.5
15,000.7
1,224.0
1,220.7
1,534.3
28.6
28.5
35.8
12%
15.2
15.2
12.1
15.9
17.6
18.3
19.2
5.0
1.2
Sharekhan ValueGuide
48
* Inox Leisure FY2015 includes consolidation of Satyam Cineplexes, which will affect the overall profitability
#We have annualised these ratios to make them comparable
Cadila Healthcare post stock split from Rs 5 to Rs 1
January 2016
EQUITY
EARNINGS GUIDE
FUNDAMENTALS
Remarks
Automobiles
Apollo Tyres
Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The management is
expecting strong demand traction in the European operations (particularly the summer tyre segment) and is
gaining market share in Europe. Further, the domestic operations would see a pick-up in demand since H2FY15.
The margins may sustain at higher levels due to subdued raw material prices. The company will be investing
$560mn over the next three years to set up a greenfield facility in Hungary and Rs4,000 crore to expand capacity
at Chennai facility. We maintain our Buy recommendation on the stock with a price target of Rs201.
Ashok Leyland
Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. The MHCV volumes which have
been under pressure over the past two years have witnessed a sustained recovery and been growing in double
digits over the past few quarters. We expect MHCV volumes to remain buoyant over FY16-17 driven by a pickup in the economic cycle, improved operator profitability and phase-wise implementation of Bharat Stage IV
norms across the country leading to pre-buying. The company has managed to take price hikes which along with
the higher operating leverage has propped up the margins. We have a Buy recommendation on the stock with a
price target of Rs105.
Bajaj Auto
Bajaj Autos domestic motorcycle volumes have been under pressure over the last couple of years largely due to
issues in the executive segment and a drop in its market share to an all-time low of 15.2% in Q4FY2015 from
24.5% in FY2013. However, the launch of CT100 and refreshed Platina has given a much needed volume push
while the newly launched Pulsar variants would help consolidate its leadership in the premium motorcycle segment.
After a blip in Q4FY15, exports are getting back on track and are expected to see a strong growth going ahead.
The launch of its quadricycle, RE60, has been delayed by legal issues and the matter is expected to be sorted soon.
The company maintains industry leading EBITDA margins and the rupees depreciation is expected to boost its
profitability as exports contribute 45% of the total revenues.
Gabriel India
Gabriel is one of Indias leading manufacturers of shock absorbers and front forks with a diversified customer
base. While the demand scenario is expected to remain muted in FY2016, we expect a robust growth in FY2017
on the back of a revival in motorcycle demand, ramp-up in supplies to Honda Motorcycle and Scooters new plant
in Gujarat and to the new models of both Maruti Suzuki and M&M. Moreover, with increasing utilisation levels
and higher proportion of revenues from the profitable CV segment, the OPM is expected to expand from 7.0% in
FY14 to 9.2% in FY17. Further, a reduction in debt level would lead to higher return ratios, going forward.
Therefore, we recommend a Buy with a price target of Rs105.
Hero MotoCorp
HMCL is the largest two-wheeler manufacturer in the world with sales of over 6.6mn vehicles in FY15 and a
domestic market share of 42%. We expect the two-wheeler industry to grow at 10-12% CAGR over the next five
years driven by increased penetration levels in rural areas and replacement demand. HMCL is expected to maintain
its leadership position in the industry. It has presence in the fast growing scooter segment with two models. It will
launch a couple of new scooters and double the scooter capacity which would boost its volumes. HMCL has
aggressive plans to increase export contribution to 10% (currently 2%) by 2017. Also, with the Leap program,
which is being implemented currently, the management targets an OPM expansion of 200BPS in the next couple
of years through cost rationalisation. We recommend a Buy with a price target of Rs3,250.
M&M
M&M is a leading maker of tractors and UVs in India. We expect demand for the automobile segment to pick up
with an improvement in customer sentiment. Additionally, new launches especially in the compact UV space will
drive volume growth. After growing in strong double digits, the tractor demand was under pressure in FY15-16
due to weak monsoon rainfall. However, with the expectation of normal rainfall we expect the tractor segment to
recover and report a strong growth in FY17. We remain positive on the stock, given its leadership position in the
domestic tractor and UV segments as well as the value derived from its subsidiaries across business segments.
Maruti Suzuki
Maruti Suzuki is Indias largest passenger vehicle maker with a strong 45% market share. It has been able to gain
market share over the last two years on the back of a diverse product portfolio, a large distribution network with
an increased focus on rural markets and a shift in consumer preference to petrol models from diesel. It is poised to
reap the benefits from the increased discretionary spending from the Seventh Pay Commission pay-out. The
recently launched premium hatchback, Baleno, has received a positive response which will help the company
expand market share in the segment. Further, the company has a pipeline of new launches over the next few years,
with the most important being the entry into the compact utility vehicle and light commercial vehicle segments.
The management plans to double its existing sales and distribution network in order to achieve its target of
doubling domestic volumes over the next five years. The profitability remains high due to soft commodity prices,
depreciation of the yen and high operating leverage. We remain positive on the stock with a price target of
Rs5,400.
Rico is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. It has recently
divested its 50% stake in a joint venture with FCC Co., Japan for Rs495 crore. The significant cash flow (nearly
equivalent to current market cap) is expected to be a game changer for the company and enable it to deleverage its
balance sheet and fund future capex. Additionally, a lower interest burden will result in an exponential growth in
the earnings and free cash flow. The company will be commissioning three new plants in the next 12 months and
is poised to benefit from an auto demand revival. We have a Buy recommendation on the stock with a price target
of Rs58.
Sharekhan ValueGuide
49
January 2016
EQUITY
FUNDAMENTALS
EARNINGS GUIDE
Remarks
TVS Motor
Allahabad Bank
Andhra Bank
Andhra Bank, with a wide network of over 2,200 branches across the country, has a strong presence in south
India especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on asset
quality front and the political situation within the state could affect its operations. Valuation factors the same.
Axis Bank
Axis Bank is the third largest private sectors bank, continues to grow faster than the industry and is diversifying its
book in favour of the retail segment. The banks liability profile has improved significantly which would help to
sustain the margins at healthy levels. We expect the earnings growth to remain reasonably strong driven by a
healthy operating performance while asset quality pressures will be manageable.
Bajaj Finance
Bajaj Finance, owned by Bajaj Finserv, is one of the most diversified and leading NBFCs in the country. It has
assets spread across products, viz loans for consumer durables, two- and three-wheelers, loans to small and medium
enterprises (SMEs), mortgage loans and commercial loans. Despite a strong growth in loans, the asset quality and
provisioning remain among the best in the system. Given the strong growth rate, high margins and return ratios,
it deserves to trade at a premium to the other NBFCs
Bajaj Finserv
Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer finance
and distribution) and is among the top players in the life insurance and general insurance segments. Its consumer
finance (Bajaj Finance) and general insurance businesses continue to report a robust performance while the life
insurance business is showing signs of a pick-up after being affected by a change in regulations.
Bank of Baroda
Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (over 100 offices
in 24 countries) and a strong network of over 5,200 branches across the country. It has a stronghold in western
and eastern India. Its performance metrics remain superior to that of the other PSBs, though the asset quality
trends will be the key monitorable in the near term.
Bank of India
Bank of India has a network of over 4,900 branches, spread across the country and abroad, along with a diversified
product and services portfolio, and steadily growing assets. The operating performance has weakened due to
margin deterioration and sharp rise in NPAs. Given the rise in the number of incremental stressed loans and the
relatively weaker capital position, its valuations may remain subdued.
Capital First
Capital First (erstwhile Future Capital Holdings) has been acquired by global private equity firm, Warburg Pincus
(a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments,
like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Its
loan book is expected to sustain a 25-30% growth in the next three years. As a result of several initiatives taken,
the operating leverage will play out and may lead to significant pick-up in profitability over medium term.
Corp Bank
Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantly
exposed to the corporate segment, which constitutes about 45% of its book. Due to a higher dependence on the
wholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise in
NPAs could keep provisioning high and weaken earnings performance.
Federal Bank
Federal Bank is among the better performing old private sector banks in India with a strong presence in south
India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve
the quality of its earnings and asset book. The asset quality has consistently improved in the past several quarters
and the operating performance is picking up gradually. The valuations remain attractive over the medium to long term.
HDFC
HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It
has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are
growing faster than HDFC, the value contributed by them would be significantly higher going forward. Due to a
dominant market share and consistent return ratios, it should continue to command a premium over the other
NBFCs. Any unlocking of value from its insurance business will be positive for the stock.
HDFC Bank
ICICI Bank
HDFC Bank is among the top performing banks in the country having deep roots in the retail segments. Despite
the general slowdown in the credit growth, the bank continues to report a strong growth in advances from retail
products. Its relatively high margins (compared with its peers), strong branch network and better asset quality
make HDFC Bank a safe bet and there is scope for expansion in the valuations.
ICICI Bank is Indias largest private sector bank with a network of over 4,000 branches in India and a presence in
around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to
TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scooter
segment. The scooter segment has grown at a CAGR of 25% over the past five years as opposed to 12% CAGR in
motorcycles and currently contributes 30% of the total two-wheeler volumes. With the launch of the Jupiter in
October 2013, the company has balanced its scooter portfolio and witnessed incremental volumes. Additionally,
new launches such as Star City+, refreshed Wego and new Scooty Zest have helped maintain the growth momentum.
The company will launch two new motorcycles in H1CY16. Exports, especially of three-wheelers, are doing
extremely well. We expect a margin expansion of 180BPS over FY15-17.
Banks & Finance
With a wide network of over 3,100 branches spread across India, Allahabad Bank enjoys a stronghold in north and east
India. But it has reported a rise in slippages resulting in deterioration of its asset quality. Relatively higher proportion of
stressed assets and low tier-I CAR remain concerns, though the low valuation partly factors the same.
Sharekhan ValueGuide
50
January 2016
EQUITY
EARNINGS GUIDE
FUNDAMENTALS
Remarks
contract its advances book due to asset quality concerns. The operating profit improved significantly and is the
key driver of the earnings growth. The bank offers substantial value unlocking opportunities from the insurance
and securities businesses.
IDBI Bank
IDBI Bank is one of leading PSBs of India, though it is largely present in the corporate lending space. It is gradually
working towards improving its liability base and expanding the retail book which is likely to reflect in the form of
better margins and return ratios. However, due to rising asset quality risks, low tier-I CAR and slower business
growth, the stock is likely to underperform in the near term.
LIC Housing
LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loan
book of over Rs1,00,000 crore. It is promoted by Life Insurance Corporation of India, which is among the most
trusted brand in the country. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782
customer relationship associates, the company has among the strongest distribution structures in India to support
business expansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the
key triggers for the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growth
outlook, the companys fundamentals are strong.
PNB
Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constituting
around 40% of its total deposits. This helps it to maintain one of the highest margins among PSBs. However, in
view of the weakness in the economy and relatively higher exposure to troubled sectors, the asset quality stress has
increased and NPA issues will persist over next 2-3 quarters.
PFS
PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in the
energy value chain. Given the robust lending opportunities in the renewable energy segment and the likely reforms
in the thermal power segment, the loan growth is expected to remain strong over the next two to three years. The
proceeds from exits in investments would add to the profitability. The asset quality despite some deterioration
remains among the best in the system.
SBI
State Bank of India is the largest bank of India with loan assets of over Rs12 lakh crore. The loan growth for FY15
was in line with the industry average while the core operating performance was relatively strong. The successful
merger of the associate banks and value unlocking from insurance business could provide further upside for the
bank. While the bank is favourably placed in terms of liability base and the operating profit is also improving, the
asset quality would remain a key monitorable in the near term.
Union Bank
Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become the
largest retail bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending.
While the high stressed loans and weak capital ratios remain concerns with the bank, the current valuations are at
steep discount to book value which partly factors the concerns.
Yes Bank
Yes Bank, a new generation private bank, started its operations in November 2004 and has emerged as among
the top performing banks. It follows a unique business model based on knowledge banking, which offers product
depth and a sustainable competitive edge over established banking players. The bank is suitably poised to ride
the recovery in the economy and the retail deposit franchise is showing a sharp improvement which will support
the margins.
Britannia
GSK Consumers
GCPL
HUL
ITC
Consumer goods
Britannia is the second largest player in the Indian biscuit market with about 30% market share. Under a new
leadership, Britannia has been able to leverage and monetise its strong brand and position in the biscuit and snack
segments. The company can sustain its higher than industry growth rates with an improving distribution reach, entry
into newer categories and focus on cost efficiency. We recommend a Buy on the stock with a price target of Rs3,650.
GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.
Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay ahead
of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expanded
its product portfolio by entering into new categories such as biscuits and oats in the recent years. With cash balance
of more than Rs2,000 crore the company can invest in growth initiatives as well as reward its investors with a healthy
dividend payment. We recommend Buy on the stock.
Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market
segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies have
helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic
business coupled with a strong growth in the Indonesian, African and Argentine businesses would help it to
achieve an 18% top line growth and a 26% bottom line growth (CAGR) over FY15-17.
Hindustan Unilever is Indias largest FMCG Company. With declining inflation and improving sentiment, HULs
volume growth in the domestic business is expected to improve in the coming years. Also it would be one of the
key beneficiaries of reducing input prices. Though business fundamentals have improved, the valuation remains at
premium levels. Hence we recommend Hold on the stock. In the long term, it will be one of the key beneficiaries
of the Indian consumerism story.
ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to
strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some
of which are at a nascent stage. The fourth consecutive year of a 15%+ hike in excise duty will continue to put
pressure on the cigarette sales volume. However price hikes will maintain the profitability of the cigarette business.
The current valuation makes ITC one of the cheapest stocks in the large-cap FMCG space.
Sharekhan ValueGuide
51
January 2016
EQUITY
FUNDAMENTALS
EARNINGS GUIDE
Remarks
Jyothy Labs
Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration of
Henkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a onebrand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 15%. A stable OPM
and lower interest cost would aid the PAT to grow at 26% CAGR over FY15-17.
Marico
Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing
in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new
product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic
product portfolio is likely to achieve a steady growth in volumes, the international business is yet to gain momentum.
Marico has been our preferred pick in the FMCG sector and we remain positive on its long-term growth story.
Zydus Wellness
Firstsource
Zydus Wellness is bearing the brunt of a limited product portfolio of three brands (Nutralite, Sugar Free and
Everyuth) that cater to a niche category. The company would benefit from a lower input cost, improving urban
consumer sentiment and a new distribution system in FY17. Thus, we expect a better operating performance from
it in FY17.
IT/IT services
Firstsource Solutions is a specialized BPO service provider. The management has indicated that the worst is over
for earnings downgrades and expects to see an improvement in the earnings starting from Q2FY2016. The health
of its balance sheet is improving gradually as the company is gradually reducing its debt burden through internal
accruals. The management maintains a 6-8% revenue growth guidance for FY16. We expect the earnings momentum
to gather steam and FSL to deliver much higher numbers than the current consensus estimate.
HCL Tech
HCL Technologies is a global technology company. Its management indicates that the demand environment looks
promising with an increase in market share coupled with a significant increase in the deal funnel. However, recent
client specific issue and skewed IMS revenues will affect the earnings performance in the near term. Nevertheless,
the management has made investments in digital technologies and Internet of things (IOT), and already won a few
deals in the space. (25% of total deals wins in FY2015 comes from digital space). However, the margins are
expected to remain under pressure in the medium term owing to these investments. We remain positive on the
company in view of its order wins and superior earnings visibility, notwithstanding some near-term softness in the
IMS vertical owing to some projects delays.
Infosys
Infosys is India's premier IT and IT-enabled Services Company that provides business consulting, technology,
engineering and outsourcing services. For FY16, the management has maintained revenue guidance of 10-12% Y-oY growth on a CC basis and increased guidance on a reported basis to 7.2-9.2% from 6-8% earlier, led by lesser impact
of cross-currency headwinds. It has also given a promising aspiration target for 2020 of achieving $20bn in revenues
and 30% in margin. Margins will recover in the next two to three years. For FY16, the management maintained its
margin of 24-25%. Under the leadership of Vishal Sikka, the company is doing the right thing by investing in the digital
space (both organic and inorganic), improving client engagement through design thinking, and automating and
innovating for future growth prospects. We remain positive on the companys growth prospects for the coming years.
Persistent
Persistent Systems has proven expertise and a strong presence in newer technologies, strength to improve its IP
base and the best-in-the-class margin profile which set it apart from the other mid-cap IT companies. Looking at
the strong growth in enterprise revenue, which has delivered a 9% CQGR in the last six quarters, PSLs enterprise
digital transformation strategy is shaping up well. Further, led by the recent acquisitions of Aepona Holdings and
a pick-up in the IP-led revenue in Q4FY2016, we expect the revenue momentum to accelerate in FY17. The
company is also likely to see a gradual improvement in the margins with the tapering off of the SG&A investments
and Aepona Holdings integration.
TCS
Tata Consultancy Services is among the pioneers of the IT services outsourcing business in India and is the largest
IT service firm in the country. Its management aspires to beat the Nasscom growth guidance of 12-14%. Though
the management expects the weakness in the telecom, energy and Diligenta businesses to continue, it expects
clients IT budget to increase modestly in FY16. We remain positive on the company, given its strong positioning,
scale advantage and head start in digital technology.
Wipro
BHEL
Wipro is among the top 5 IT companies in India but in the last few years it has been lagging the industry in terms of
growth. We believe, owing to weakness in the energy and telecom spaces, its unlikely to show material improvement
in earnings on an organic basis in FY16. However, we remain sceptical, as anecdotal evidence on Wipro in the last
two to three years does not inspire confidence.
Capital goods/Power
Bharat Heavy Electricals, Indias biggest power equipment manufacturer, has been the prime beneficiary of the multifold increase in the investments made in the domestic power sector over the last few years. However, the order inflow
has been showing signs of slowing down which would remain a major concern for the company. The key challenge
before the company now would be to maintain a robust order inflow and margin amid rising competition and lower
order inflow. The current order book of around Rs1 lakh crore stands at around 3.4x FY15 sales.
CESC
CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which
is a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution)
has come on stream recently in Haldia. However, another 600MW is ready in Chandrapur which is looking for
coal and power purchase linkage. The losses in the retail business are coming down gradually over the past and it
is expected to break even soon. The BPO subsidiary, FirstSource, is performing well in line with expectations.
However, the recent diversification into unrelated businesses like IPL franchisee would hurt its valuations.
Sharekhan ValueGuide
52
January 2016
EQUITY
EARNINGS GUIDE
FUNDAMENTALS
Remarks
Crompton Greaves Crompton Greaves key businessesindustrial and power systems--are passing through a rough patch and are
potential beneficiaries of the upcoming investment cycle revival. Its consumer product segment is expected to
sustain a high growth and unlock value from a demerger exercise. The troubled international power system
business, which was a major overhang for the stock, is considered for sale. This along with the demerger of the
consumer business could unlock value for shareholders.
Finolex Cables
Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improving
demand environment in its core business of cables. It is leveraging its brand strength to build a high-margin
consumer product business of fans. However, a derivative exposure and the subsequent overhang are matters of
past now, leading to a strong case for a re-rating. We see a healthy earnings growth, return ratios in high teens and
superior cash flow which bode well for the stock. Hence, we remain positive on the stock.
Greaves Cotton
Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol
engines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructure
equipment segment). The foray in the mini tractor segment and international markets would open new growth
avenues. The management has taken a strategic call to close and hive off the loss-making divisions. The steps
taken include (1) the closure of the legacy casting unit in Pune; (2) the hive-off of the engineering unit in Germany;
and (3) the closure of operations at the infrastructure division. With the closure of the infrastructure business and
an expected improvement in the engine business, we expect the company to return to its 15%-plus OPM level.
Kalpataru
Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.
Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also current
consol order book is 1.4x its FY14 sales). The OPM of the stand-alone business is likely to remain around 10%;
however the OPM of JMC Projects (a subsidiary) is showing signs of improvement. We retain our Buy rating.
PTC India
PTC India is a leading power trading company in India with a market share of 35-40% in the short-term trading
market. In the last few years, the company has made substantial investments in areas like power generation
projects and power project financing which will start contributing to its earnings. Long pending receivables was
one of the drags on the companys balance sheet and return ratios; however, the concern has receded after receiving
payment from UPSEB. We retain Buy due to expectations of a healthy volume uptick with an increasing share of
long-term contract business.
Skipper
Skipper is uniquely placed to exploit the growing opportunities in two lucrative segments: power (transmission
tower manufacturing and EPC projects) and water (PVC pipes). It has a comfortable order book of more than
Rs2,000 crore in the transmission business, which looks promising given the huge investments proposal by the
government in the power T&D segment in the next five years. It plans to expand the PVC capacity manifold (4x)
and aspires to turn a national player from a regional player. After the revamp of its low-margin steel tube business
and due to operating leverage the overall margin may improve substantially in the next two years and boost its
earnings and return ratios. The earnings are poised to surge; hence we are positive on the stock.
Thermax
The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs
capex. Thermax group order book stands at around 2.4x its FY15 consolidated revenues. However, the company
has shown its ability to maintain a double-digit margin in a tough environment. We retain Hold on the stock due
to its rich valuation.
Triveni Turbines
Triveni Turbines Ltd (TTL) is a market leader in the up to 30MW steam turbine segment. TTL is at an inflexion
point with a strong ramp-up in the after-market segment and overseas business while the domestic market is
showing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of 30-100MW
range which is likely to grow multifold in the next 4-5 years. TTL is virtually a debt-free company with a limited
capex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boosted
by the expected uptick in the domestic capex cycle, the companys earnings are likely to grow by 25%+ per annum
over the next 3-4 years.
V Guard Ind
V-Guard Industries is an established brand in the electrical and household goods space, particularly in south
India. Over the years, it has successfully ramped up its operation and network to become a multi-product company.
It has recently also forayed into regions other than the south and is particularly focusing on the tier-II and III cities
where there is a lot of pent-up demand for its products. We expect a CAGR of over 13% in its earnings over FY1517 and RoE of around 22% during this period.
Va Tech Wabag
Gayatri Proj
VA Tech Wabag (VTW) is one of the worlds leading companies in the water treatment field with eight decades of
plant building experience. Given the rising scarcity of fresh water availability, we expect flow of huge investments
in water segment both globally and domestically. With rising urbanisation and industrialisation in India, we
expect substantial investments in this space. Moreover, we expect the water segment to get substantial focus and
budgetary allocation, with the pro-reform BJP-led government at the centre. Given the large opportunity ahead
and inherent strengths of VTW, like professional management, niche technical expertise and global presence, we
expect the earnings to grow by 28% (CAGR) during FY15-17 and generate RoE of around 15%.
Infrastructure/Real estate
Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and
industrial construction businesses. The order book stands at Rs5,968 crore, which is 3.7x its FY15 revenues. It is
also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private equity.
The company has potential to transform itself into a bigger entity.
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IL&FS Trans
IL&FS Transportation Networks is Indias largest player in the BOT road segment with a pan-India presence and
a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the
geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a
strong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.
Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.
IRB Infra
IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator in
the country with all its projects being toll based. It has an integrated business model with an in-house construction
arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from
the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free
and it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefit
from the huge opportunity in the road development projects on the back of its proven execution capability and the
scale of its operations.
Jaiprakash Asso
Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias
infrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.
The marked improvement in the macro environment has improved accessibility to capital and thus eased the
concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.
L&T
Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the
domestic infrastructure capex cycle. Further, backed by its sound execution track record and healthy order book, the
company will do well. Monetisation of the non-core businesses and listing of L&T Infotech would unlock value.
Measures planned by the company to improve its return ratios augur well. Hence, we remain positive on the stock.
Punj Lloyd
Punj Lloyd is the second largest EPC player in the country with a global presence. However, since FY09 the
profitability has come under severe pressure due to cost overruns/liquidated damages in some of Simon Carves (a
subsidiary) projects. Thus, it has put Simon Carves under administration. Further, Libyan projects will take another
few quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction and
working capital management will drive its growth as it enjoys a robust order book.
Oil India
Reliance Ind
Selan Exploration
Aurobindo Pharma
Cadila
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Cipla
Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on
technology-intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the
key markets like South Africa, USA and Europe; (3) developed an appetite for inorganic expansions; and (4)
invested in future growth areas like biosimilars. Though the rationalisation of products and creation of front-end
presence in the key markets would hurt earnings in the short term, but the base business would continue to grow
steadily. The growth would be fast-tracked on the back of the launch of combination inhalers in Europe, ramp-up
in generics in the USA and synergy from consolidation.
Divis Labs
The DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for Divis Laboratories. The
company is likely to see an improvement in economies of scale which will also lead to tax benefits after USFDA
approvals for three additional production blocks. A near debt-free balance sheet and strong cash flow are likely to
help build a war chest for pursuing strategic investments (biosimilars) and exploit the growth opportunities in
niche segments, like oncology and steroids for contraceptives. The company has planned to set up a new facility at
Vishakhapatnam with an initial investment of Rs500 crore; it will start contributing revenues from H2FY17.
Glenmark Pharma
Glenmark Pharmaceuticals exhibited a weaker operating performance during H1FY16 due to adverse economic
scenario in the key emerging markets including Russia and a fewer number of product approvals in the USA.
However, the management has given a revenue growth guidance of 18-20% for FY16 (vs 11% in FY15) and an
EBITDA guidance of Rs1,750 crore for the same period (vs Rs1,359 crore in FY15; a Y-o-Y growth of 30%). The
growth would be mainly driven by the US and Latin American markets, which are witnessing exponential growth.
The companys focus on innovation augers well as evident from the fact that it received over $200 million as initial
milestone payment on out-licensing of partly developed molecules in a span of nine years. Currently, it has three
new chemical entities and four new biological entities in clinical trials, out-licensing potential.
Ipca Lab
Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap the
export markets. But, it has recently got an import alert from USFDA for its Ratlam API facility and the formulation
facility at Indore SEZ. While the overhang related to the USFDA ban is unlikely to ease in near term, a respite is
expected from the shipment of two products to the US market, namely hydroxychloroquine sulfate and propranolol
hydrochloride (exempted from the import ban), and a clearance on its Ratlam facility by the WHO. This will help
the company to resume a significant portion of the institutional business. The management has guided for a
moderate growth outlook (revenue growth of 10% and EBIDTA margin of 17-18%) for FY16.
Lupin
The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with addition
of in-licenced product-Alinia, Inspira Chamber VHC and Locoid lotion) in the USA and a robust pipeline of new
launches in the domestic and overseas markets provide strong growth visibility for Lupin. Further, with an expanded
field force and therapy focused marketing division, its formulation business in the domestic market has been
performing better than the industry. The deal with Eli-Lilly to distribute human insulin would open an incremental
revenue stream for Lupin in the Indian market.
Sun Pharma
The combination of Sun Pharma, Taro, Dusa Pharma, the generic business of URL Pharma and the recently
acquired Ranbaxy offers an excellent business model for Sun Phaarma. However, the integration process with
Ranbaxy is set to affect the profitability in short term. Also, the USFDAs adverse observation report (Form-483)
on its Halol (Gujarat) facility creates a major overhang. However, the management maintains its aim to achieve a
$250-mn synergy from the merger of Ranbaxy by FY18. With a strong cash balance, it is well positioned to
capitalise on the growth opportunities and inorganic initiatives.
Torrent Pharma
Grasim
A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expanding
its international presence. With the investment phase now over, it should start gaining from its international
operations in the USA, Russia and Brazil. Better field force productivity, focus on developed market and stronger
balance sheet would result in a sustainable earnings growth. It has recently acquired 30 key brands of Elder
Pharma for Rs2,000 crore which is a strategic fit in long run. The company has proposed to raise funds up to
Rs10,000 crore through a mix of equity and debt instruments, part of which may be used for inorganic initiatives.
Building materials
Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortable
debt/equity ratio, attractive valuation and diversified business. The demand for VSF products remains strong in the global
market and Grasim being a leading domestic player is well placed to capture the incremental demand. However, a slowdown
in demand for VSF and cement may affect the near-term earnings. The long-term outlook for the company remains intact.
The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity addition
carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed volume
growth in the future. The regional demand remains lacklustre but on account of the improvement in the realisation
due to supply discipline and a likely change in the market mix its profitability will improve (marginally) in FY16.
Shree Cement
Shree Cements cement grinding capacity has grown to 18.2mtpa which will support its volume growth in the
coming years. It has a power plant with capacity of 300MW entirely for merchant sale which is expected to
support its revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue
accruing from the sale of surplus power will drive the earnings of the company.
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UltraTech Cement
UltraTech Cement is Indias largest cement company with approximately 62mtpa cement capacity. It has benefited
from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from
the new captive power plants will improve its cost efficiency.
Discretionary consumption
Century Plyboard Century Plyboard is a leading player in the organised plywood industry with a market share of 25%. A strong growth
in the sector, Centurys premium positioning and brand equity strength, and the impending GST roll-out would enable
it to post a revenue growth (CAGR) of 16.5% over FY14-17. On the back of a revenue growth and better absorption
of fixed costs, the earnings are likely to grow at a much stronger rate of 25% CAGR over FY14-17. It is a quality
consumer play in a niche growing segment. Its robust return ratios and strong growth potential make us positive on
the stock. We have a Buy rating on it with a price target of Rs260.
Cox & Kings:
Cox & Kings is an integrated player with a strong presence in the global leisure travel segment and the education
tourism segment in Europe. It has 30% market share in the global outbound tourism market and a market leader
in education tourism in the UK. An improving global macro environment (conducive to travel & tourism industry)
and the companys focus on de-leveraging its balance sheet will help it to achieve a double-digit earnings growth
in the medium term. Hence, we recommend a Buy on it with a price target of Rs300.
Info Edge is Indias premier online classified company in the recruitment, matrimony, real estate, education and
related service sectors. Naukri is a quality play on the improving macro environment and is directly related to the
GDP growth and Internet/mobile penetration. Thus, it can grow consistently at over 20% for the next few years.
We expect Zomato business growth to extend in the coming years, with better integration of services and increasing
monetisation opportunities. Zomatos online ordering services are currently available for around 12,000 restaurant
partners and it expects to take the count to more than 20,000 in FY2016. Going ahead, other investee ventures,
like www.meritnation.com, www.policybazaar.com, www.mydala.com and www.canvera.com, are also likely to
gain from the ongoing e-commerce boom in India.
INOX Leisure
INOX Leisure Ltd (ILL), Indias second largest multiplex operator with 101 properties and 393 screens across 55
cities accounting for about 23% of the multiplex screens in India, is scripting a blockbuster growth story through
a mix of inorganic and organic expansion plan to scale up the total screen count to 565-570 screens over the next
24-30 months. The ILL mega show is supported by an improving content quality in the Indian mainstream and
regional cinema with its movies regularly hitting the Rs100-crore or Rs200-crore box-office collection mark. We
believe ILL with its strong brand and extended reach is well poised to leverage the opportunity in Indias underpenetrated multiplex sector.
KKCL
Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has
created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead
of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with
a robust balance sheet make us positive on the company.
KKDL
KKDL Ltd (erstwhile Kamala Dials and Devices) is present in the watch manufacturing business and has a strong
presence in the luxury watches retail business through subsidiary, Ethos. The watch business generates steady revenues
and cash flow with minimal capex, as no capacity is likely to come on stream and the utilisation levels are expected
to improve. The high-end retail watch business Ethos provides a strong growth opportunity in terms of revenue
growth via its online venture wherein it generates leads that translate into lower customer acquisition cost and better
fixed cost management that would result in robust margin improvement and strong profit growth. This unique highgrowth potential business along with the steady manufacturing business that generates free cash is attractively priced
currently and offers significant returns over the medium to long term. We put a Buy rating on the stock, valuing it
using the SOTP method (the manufacturing vertical is valued at 6x FY17E earnings + the high-end Ethos is valued
at 1.1x FY17E sales) to arrive at a price target of Rs400.
Orbit exports
Orbit Exports (Orbit) is a leading manufacturer and exporter of novelty fabrics exporting its products to over 32
countries. It is a recognised star export house and operates in the niche area of high-end fancy fabrics, which are mainly
used by designers in womens fashion apparels. A strong OPM profile has enabled it to earn higher returns averaging
at 21% in RoCE and at 33% in RoE over the last three years. Given the strong financials, niche capabilities and a
vigilant management, Orbit is well poised for a strong earnings growth. Hence, we expect its top line and bottom line
to grow at a CAGR of 19.6% and 22.8% respectively over FY15-18. Given the robust earnings potential and enviable
return ratios, Orbit is expected to trade at higher multiples. Thus, we expect the stock to get re-rated (in line with its
peers like Kitex Garments). We initiate coverage on Orbit with a Buy rating and value the company at 22x its FY2017E
earnings to arrive at a price target of Rs600.
Raymond
Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With
growing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable
demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with
its brands and superior distribution set-up is very well geared to encash the same. Any development with regard to
the Thane land in the form of either joint development or disposal would lead to value unlocking and provide
significant cash to the company.
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Relaxo Footwear Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four topof-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment
opportunity due to its growing scale, strong brand positioning and healthy financial performance.
Speciality Rest.
Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such
as Mainland China and Sigree. It is a good proxy on the Indian consumption story as several factors such as
demographics, increasing disposable income and the trend of nuclear families are playing in its favour. Given the
slow pace of growth of consumer discretionary spending and pressure on the operating profit margin due to the
addition of new stores, we maintain our Hold rating on the stock.
Thomas Cook (I) Thomas Cook India Ltd (TCIL), owned by the legendary value investor Prem Watsa, is an integrated leisure travel
and human service management company in India. The improvement in the domestic and global macro environments
provides a huge growth opportunity in the Indian leisure and travel industry. Quess Corp (its human resource
management business) provides exposure to the fast growing HR, office management and technology solutions
business. Moreover, we see a turn-around in the financial performance of Sterling. The recent stock price correction
coupled with the improving financial health of Sterling Resorts, visibility in Quess Corp business and expansion in
the OPM and earnings, provide an opportunity to re-enter the stock. Hence, we maintain Buy with a price target
of Rs265.
Wonderla Holidays
Wonderla Holidays Ltd (WHL) is the largest amusement park company in India with over a decade of successful
and profitable operations. It owns and operates two amusement parks under the brand name Wonderla in Kochi
and Bengaluru, and is coming up with a third park in Hyderabad (to be operational by Q1FY17). With a steady
improvement in footfalls, the Hyderabad park getting operational in Q1FY17, a strong growth in the non-ticket
revenues (F&B and product sales) and an 8-10% increase in the annual ticket price, WHLs revenues are expected
to grow at a CAGR of 30% over FY15-18. Its OPM of 44-45% is better compared with some of the mature
international parks.
Zee Entertainment
Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment
companies. It has a bouquet of more than 34 channels across Hindi, regional, sports and lifestyle genres. For FY16,
the management has indicated that the margin profile will be maintained at around 25.7% 25%. The management
also indicates a better operating environment in terms of both advertisement revenues and subscription revenues. On
the advertisement side, the management expects to exceed the industrys low-teen growth in FY16. The subscription
revenue will also benefit from the phases III and IV of the digitisation process (will be more visible in FY17 and FY18).
Diversified/Miscellaneous
Aditya Birla Nuvo We like the strong positioning that Aditya Birla Nuvos businesses enjoy in their respective fields. It is amongst the
top five players in the insurance, asset management and telecom segments (Idea Cellular is the fastest growing telecom
company, third in ranking). Madura Garments, with its marquee brands, and consistent and resilient growth, is a
profitable set-up. In an improving macro-economic environment the company would be well placed to grow.
Bajaj Holdings
Bajaj Holdings & Investment Ltd (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby its
manufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of the
wind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties,
assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remain
with BHIL. BHIL is a primary investment company focused on new business opportunities. It holds more than 30%
stake each in BAL and BFS. We have a Buy recommendation on the stock with a price target of Rs1,815.
Bharti Airtel
Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry
as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead
for the sector and hence the company. We remain optimistic about the company.
BEL
Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, stands to benefit from
the enhanced budgetary outlay for strengthening and modernising the countrys security. The Make in India
initiative of the government will support the earnings growth in the coming years, as it is the only player with strong
research and manufacturing units across the country. The companys current order book of around Rs21,648 crore
provides revenue visibility for the next three to four years.
GDL
With its dominant presence in the container freight station segment and recent forays into the rail freight and cold
chain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cow
while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest
players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold
storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments
and increase its pan-India presence. We expect its revenues and net profit to grow at 20% and 16% CAGR
respectively over FY13-15.
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FUNDAMENTALS
EARNINGS GUIDE
Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance
and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector
players, has gained the critical mass and enjoys some of the best operating parameters in the industry. As the
insurance sector is showing signs of stablisation, the companys favourable product mix and a strong distribution
channel will result in a healthy growth in the annual premium equivalent. The company has turned profitable on
a consolidated basis and has announced dividend in past couple of years.
Ratnamani Metals Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challenging business
environment due to increasing competition, the stock is attractively valued. The management has maintained a strong
outlook on the potential opportunities in the oil & gas sector and inter-connection of the rivers across the country.
Supreme Ind
Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging,
industrial and consumer segments. We remain positive on its new launches of value-added products and capacity
expansion plans. However, the recent volatility in the prices of its raw materials (mainly polymers) amid a highly
competitive environment is likely to limit the growth in the margin in the near term. Hence, while we remain
positive on its long-term structural story, we maintain our Hold rating on the stock.
UPL
A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial
chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop
protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro
Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Its
revenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY16. It has also
started to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-margin
products. It has also started to focus on selling premium products and maintaining a strong balance sheet.
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