I-direct Top Picks

Market outlook
From a sectoral perspective, we are positive on auto, cement and capital goods (cyclical recovery in
earnings aided by lower input costs and declining interest rates will provide strong operating and
financial leverage) while we have a neutral rating on IT, pharma and consumers (rich valuations amid
moderation in earnings) while being negative on metals, oil & gas and real estate. With delayed pickup in
corporate earnings, FY15 Sensex EPS witnessed growth of 0.4%. However, going ahead we expect
Sensex earnings to grow at ~18.3% each in FY16E and FY17E to |1608 and |1901 respectively. A pick-up
in earnings could see the index get further re-rated. Hence, we assign a P/E multiple of 16.5x on FY17E
EPS to arrive at a fair value of 31400 by end CY15 with the Nifty reaching 9400.
T Picks
Top Pi k
Company Recommended Price (|) Target (|) Return (%) P/E (x) P/BV (x) ROE (%)
Largecaps Horizon 1 yr FY16E FY17E FY16E FY17E FY16E FY17E
Maruti 3,772 4266 13.1 21.7 17.9 4.1 3.5 19.1 19.6
Coal India 388 450 16 0
16.0 13 3
13.3 10 9
10.9 55
5.5 47
4.7 41 6
41.6 43 2
43.2
L&T 1,662 1957 17.7 29.5 25.2 4.0 3.7 13.7 14.6
Dr. Reddy's Lab 3,422 3949 15.4 23.1 19.4 3.7 3.0 19.6 19.4
Idea Cellular 174 215 23.5 18.9 29.1 2.8 2.5 14.6 8.7
TCS 2,606 3000 15.1 21.4 19.5 7.6 6.2 35.6 31.6
Midcaps FY16E FY17E FY16E FY17E FY16E FY17E
Torrent Pharma 1,210 1450 19.8 13.7 10.3 4.1 3.1 29.6 30.3
Voltas 331 394 19.0 23.4 20.8 4.4 3.9 18.8 18.8
Care Ratings 1,519 2000 31.7 30.8 22.8 11.6 10.7 37.6 47.2
Bata India 1,031 1380 33.9 29.8 22.9 5.9 5.2 19.9 22.7
Timken India 602 740 22.9 40.6 31.9 8.6 7.2 21.1 22.6
Star Ferro Cement 152 266 74.5 23.2 13.4 3.9 3.1 20.8 28.9

June 5, 2015
I-Direct Top Picks
Maruti Suzuki India (MARUTI) Target Price: | 4266 Coal India (COALIN) Target Price: | 450

Maruti Suzuki India (MSIL) is the market leader with ~45% share in the One of the key thrust areas of the new government has been on
Indian passenger vehicle industry. The company has a vast distribution augmenting domestic coal production. The Coal Ministry has highlighted
network of ~1200 dealership and ~3000 workshops across India CILs production target at 1 billion tonnes by FY20 from the current level
Demand expected to revive in addition to higher discretionary spending of 494 MT in FY15. Though the governments target is significantly
coupled with new launches is likely to drive MSILs volumes, going optimistic and aggressive, it reinforces its strong focus on enhancing
forward. MSIL is likely to launch S-Cross while compact SUV will help CILs production. We believe easing of norms and the simultaneous
MSIL create a presence in the SUV segment. The diesel variant of Celerio removal of offtake bottlenecks could help realise the full potential
& AMT based Swift model would help improve market share. Hence, a performance of CIL
strong product pipeline of new launches and facelifts of some of its Recently, the Coal Ministry removed CILs cap on e-auction volumes with
existing models coupled with further enhancement of distribution effect from April 2015. The removal of this cap is likely to boost CILs
network will help MSIL maintain its leadership position. Further, higher profitability as auctioned coal fetches notably higher realisation compared
contribution from the premium segment, a reduction in average discount to notified prices. Going forward, we have estimated e-auction volume of
levels and localisation efforts are likely to aid margins, going forward 53 MT for FY16E and 57 MT for FY17E. On account of higher sales
For Q4FY15, MSILs revenues grew 13% YoY to | 13,625 crore. EBITDA coupled with upward trajectory in e-auction volume, we expect EBITDA
margins expanded 558 bps YoY to 15.9% owing to lower input cost while margins to improve from 23.4% in FY15 to 25% in FY16E and further to
favourable foreign exchange further boosted PAT, which grew 61% YoY 28% in FY17E
to | 1,284 crore. The management is aiming at ~10% volume growth Coal India has a strong balance sheet, healthy cash flow, net cash status
outpacing the industry growth of 6-8% for FY16E. On expectation of a and healthy dividend yield, which augurs well for the company. Going
strong economic recovery, a pickup in demand and new product forward, we expect coal sales volumes to grow at a CAGR of 8.0% in
launches, we expect MSILs volume to grow at ~13% CAGR in FY15-17E.. FY15-17E to 571 MT. We have valued the stock at 7x FY17E adjusted
Hence, we recommend Buy with a target price of | 4,266 per share EV/EBITDA (adjusted for overburden removal) and arrived at a target
price of | 450
Key Financials FY15E FY16E FY17E Key Financials FY15E FY16E FY17E
Net sales | crore 49,874.0 56,167.0 65,219.0 Total Op. Income | crore 74,120.1 83,305.3 93,505.0
Growth % 14.0 12.6 16.1 Growth % 5.0 12.4 12.2
EBITDA margins % 13.2 14.6 14.8 EBITDA margins % 23.4 25.0 28.0
PAT | crore 3,711.0 5,329.0 6,444.0 PAT | crore 13,726.6 18,532.8 22,640.0
PAT growth % 33.0 43.6 20.9 PAT growth % -9.2 35.0 22.2
P/E x 31.2 21.7 17.9 P/E x 17.9 13.3 10.9
P/BV x 4.9 4.1 3.5 P/BV x 6.1 5.5 4.7
RoE % 15.6 19.1 19.6 RoE % 34.0 41.6 43.2
RoCE % 17.2 20.1 20.3 RoCE % 36.8 40.7 43.8
I-Direct Top Picks
Larsen & Toubro (LARTOU) Target Price: | 1957 Dr. Reddys (DRREDD) Target Price: | 3949

Being the key beneficiary of infrastructure spending coupled with
execution capability, financial strength and robust & order book visibility,
believe L&T is the best bet to play the capex cycle in India
The management expects ordering to happen in the nuclear power space
(based on indigenous technology) in FY16E wherein L&Ts scope will be
30% of the total project cost (| 2.5 crore/MW). In the base business,
power T&D, road contracts, DFCC, power plant EPC ordering will be
robust while L&T is also favourably placed in two fertiliser projects and
the standalone IOC project in the domestic hydrocarbon space
Though FY15 was muted in terms of revenue execution, order inflow
growth of 22% and order backlog growth of 28% will ensure that L&Ts
revenue, PAT CAGR will be at 18.3%, 13.4%, respectively in FY15-17E.
Also, with the pain of the hydrocarbon segment behind, a margin
recovery will also be in sight. Apart from this, listing of technology
subsidiary in early FY17E can lead to a medium-term re-rating of the
stock. Minimal capex for the base business and equity infusion by Canada
pension fund in IDPL will lead RoE to improve 100 bps to ~15% in the
E&C business by FY17E. Being the key beneficiary of infrastructure
spending coupled with execution capability, financial strength and robust
order book visibility, we believe L&T is the best bet to play the capex
cycle in India
DRL has developed a knack for exclusivity/FTF launches on a fairly
continuous basis in the US. We expect this trend to continue further but
the focus has now shifted to more unique launches such as OTC, complex
generics, controlled releases, etc. The US traction is also likely to nullify
the European slowdown. The US pipeline includes 220 filed ANDAs
including 68 pending approvals
DRL, being an early mover, is well versed with the dynamics in Russia.
However, recent currency volatility and political unrest have caused
disturbances in an otherwise safe market. In India, growth is expected to
be largely from launches in the oncology and biosimilars space besides
an improvement in productivity of the enhanced field force
We expect a fall in share of low margin/high risk segments such as PSAI
and European generics (especially Betapharm). Thus, growth in FY15-17E
is likely to emanate from more productive and sustainable segments such
as the US and India. Similarly, in terms of product offering, we envisage
more launches in the fields of injectables, OTC, complex/limited
competition products and biosimilars, besides legacy generics
DRL has spent around 8-9% of the turnover on R&D in the last four years
but this figure is likely to touch 10-11%, going ahead. Beside ANDAs it
has also filed ten 10 drug applications (NDAs) in the 505 b (2) route that
are awaiting approval

Key Financials FY15E FY16E FY17E Key Financials FY15E FY16E FY17E
Net sales | crore 57,017.4 67,046.9 79,489.7 Net sales | crore 14,818.9 17,291.5 19,438.4
Growth % 0.7 17.6 18.6 Growth % 12.1 16.7 12.4
EBITDA margins % 11.4 11.3 11.2 EBITDA margins % 23.5 23.5 24.0
PAT | crore 4,746.8 5,215.3 2.0 PAT | crore 2,099.0 2,562.6 3,048.2
PAT growth % -1.4 9.9 17.8 PAT growth % -2.4 22.1 19.0
P/E x 32.1 29.3 24.8 P/E x 22.8 18.7 15.7
P/BV x 4.4 4.0 3.6 P/BV x 4.4 3.7 3.0
RoE % 13.6 13.7 14.6 RoE % 19.3 19.6 19.4
RoCE % 11.9 13.0 14.1 RoCE % 18.1 20.2 21.3
I-Direct Top Picks
Idea Cellular (IDECEL) Target Price: | 215 Tata Consultancy Services (TCS) Target Price: | 3000

Though there have been signs of reviving pricing pressure in the latest Though TCS reported soft Q4FY15 earnings led by cross-currency
results, the softness in voice realisation was more than compensated by headwinds and weakness in insurance, energy, and telecom vertical, the
robust minutes growth and data consumption. Nonetheless, structurally, FY16E growth and CY16E IT budget commentary was encouraging. TCS
telcos are working towards improving pricing discipline in the industry. highlighted that similar to FY15, client budgets are expected to increase
Going ahead, we expect voice ARPM to decline at a 4.4% CAGR in FY15- modestly in constant currency terms in FY16 led by increasing allocation
17E to 32.6 paisa. However, the robust subscriber addition (8.5% CAGR in towards digital, simplification, governance projects and could help TCS
FY15-17E to 18.6 crore users) and voice volume growth at 10.1% CAGR in deliver FY16E revenue growth in excess of Nasscoms 12-14% guidance
FY15-17E to 829 billion minutes owing to declining tariffs is a respite Client metric and mining continues to be healthy. TCS added 382
Data revenues have grown 3.7x from FY13 to | 4553.0 crore in FY15 accounts to the $1 million+ bucket during FY10-15, an increase of 1.9x,
growing from 5.6% to 14.6% of total revenues over the same period. while $1+, $5+, $10+, $20+ and $50+ million buckets saw a 2.7x, 3.3x,
Though the data realisation per MB is seeing a declining trend, we expect 3.5x, 4.2x and 4.9x growth in the number of clients to 791, 389, 261, 162,
data volumes to be stellar at 50.8% CAGR in FY15-17E to 392.5 billion 68 in Q4FY15 vs. 297, 119, 75, 39, 14, respectively, in Q4FY07
MB. As a result, data revenues are expected to grow at 40.1% CAGR in Cross currency impacted EBIT margins in Q4FY15 given inter-quarter
FY15-17E to | 8933.4 crore, forming 23.3% of mobility revenues depreciation in the average euro (10%), GBP (7%), and AU$ (12%) rate
In the recently concluded spectrum, Idea has successfully secured vs. the US$ and inadequate rupee depreciation (0.5%) offset. However,
spectrum in all nine service areas due for license expiry in December both cross-currency average euro, GBP and AU$ have appreciated
2015/April 2016, ensuring continuity of existing business. Also, with ~3.5%, ~3.5%, ~3%, respectively, from their recent lows of 1.06, 1.46,
spectrum buyouts in recent auctions, Idea has secured itself from the 0.76 and rupee could create near term margin tailwinds.
brunt of high spectrum payouts till 2035 (2032 for seven licenses) We expect TCS to deliver revenue, EPS CAGR of 14.8%, 10% during
We have valued Idea at a FY16E-22E revenue CAGR of 10.6% using a DCF FY15-17E with average 26.6% operating margins in FY16-17E and have
based methodology to arrive at a target price of | 215 valued the shares at | 3,000 i.e. at 22.4x our FY17E EPS estimate of | 134.
Key Financials FY15E FY16E FY17E
Key Financials FY15 FY16E FY17E Net sales | crore 94,648.4 110,415.2 124,797.0
Net sales | crore 31,570.9 35,267.4 39,048.6 Growth % 15.7 16.7 13.0
Growth % 19.1 11.7 10.7 EBIT margins % 26.9 26.8 26.5
EBITDA margins % 34.2 36.3 37.2 PAT # | crore 21,696.1 23,902.9 26,246.3
PAT | crore 3,192.9 3,337.2 2,168.9 PAT growth % 13.5 10.2 9.8
PAT growth % 49.7 4.5 -35.0 P/E x 23.6 21.4 19.5
P/E x 20.5 19.6 30.1 P/BV x 9.7 7.6 6.2
P/BV x 2.8 2.9 2.6 RoE % 41.0 35.6 31.6
RoE % 13.9 14.6 8.7 RoCE % 50.5 46.3 42.1
RoA % 6.1 4.2 2.6 # FY15 PAT adjusted for one-off employee cost
I-Direct Top Picks
Torrent Pharma (TORPHA) Target Price: | 1957 Voltas (VOLTAS) Target Price: | 394

Torrent Pharmaceuticals has remained ahead of the curve when it comes
to strategic decision making. In domestic formulations, it concentrated on
high yielding chronic therapies. It was one of the early entrants in
Brazilian markets. Strong margins and high return ratios are some of the
major differentiators for Torrent
The exports business is witnessing strong traction, especially from the
US. Brazil has started showing signs of a recovery with a recalibrated
approach. Other export markets like Europe and ROW are growing at a
steady pace. In the US, Torrent owns a healthy product pipeline (67 filed
ANDAs, 48 approvals). We expect US sales to grow at a CAGR of 38.9%
in FY15-17E to | 1605.2 crore on a higher base
Despite having a higher proportion of chronic therapies, Torrent remained
an underachiever in the branded formulations space, growing at a CAGR
of 17.3% in FY10-15. The acquisition of Elder Pharmas branded portfolio
is likely to add new therapies to fill up the portfolio gaps. Elders portfolio
is also margin accretive. We expect Indian branded formulations to grow
at a CAGR of 21.7% in FY15-17E to | 2398.8 crore
US, Brazil and domestic formulations remain the troika for future growth
based on new launches and improvement in market share. US is in good
shape as the pipeline remains promising, including products like gAbilify.
Brazilian growth is crawling back to normal with a recalibrated approach
Voltas is primarily an assembler of ACs with outsourcing component and
assembles in its Pantnagar plant (Uttarakhand). The segment contributes
~39% to the consolidated topline and recorded sales CAGR of ~16%
during FY010-15. A strong brand coupled with over 6500 dealers has
helped Voltas to improve its market share from 14% in FY10 to 20.3% in
FY15. Given the relatively stable margin and high operating cash flow, the
UCP segment has provided strong support to Voltass profitability with
lower working capital requirement. The company commands strong RoCE
of the UCP segment in the range of ~40-43% over the last four years.
Due to adverse macroeconomic conditions, Voltas faced a severe working
capital crunch on account of the slow pace of execution in the EMPS
business. To reduce working capital requirements and improve
profitability, it has adopted a strategy to remain selective in bidding for
new project with a ticket size in the range of | 300-400 crore. with a
minimum operating margin of 5%
Considering the two different portfolio consumer and industrial facing
business of Voltas, we are valuing consumer and industrial businesses
separately using SOTP method. We value the UCP segment at 26x FY17
earnings, EMPS business on 5x FY17E earning (considering sharp
volatility in earnings) and 8x FY17E earnings to the EPS segment. We are
positive on the stock with the target price of | 394/share

Key Financials FY15E FY16E FY17E Key Financials FY15E FY16E FY17E
Net sales | crore 4,653.0 5,689.6 6,739.0 Net sales | crore 5,183.1 6,150.1 7,383.2
Growth % 11.2 22.3 18.4 Growth % -1.6 18.7 20.0
EBITDA margins % 21.9 23.8 25.1 EBITDA margins % 7.9 8.9 8.9
PAT | crore 799.0 921.3 1,222.2 PAT | crore 384.3 458.7 516.0
PAT growth % 20.3 15.3 32.7 PAT growth % 56.6 19.3 12.5
P/E x 15.8 13.7 10.3 P/E x 30.7 23.4 20.8
P/BV x 5.1 4.1 3.1 P/BV x 5.1 4.4 3.9
RoE % 32.4 29.6 30.3 RoE % 18.3 18.8 18.8
RoCE % 19.7 26.4 30.9 RoCE % 17.1 19.9 21.4
I-Direct Top Picks
Credit Analysis & Research (CARE) Target Price: | 2000 Bata India (BATIND) Target Price: | 1380

CARE, the second largest rating company by market share, is a pure play Bata India (Bata) is Indias leading and one of the oldest footwear
on the rating business with ~99% (| 257 crore) of its FY15 core revenue companies. Only 40% of the footwear market is organised and footwear
generated from the rating segment. CARE is strong in the bank loan rating is relatively lower penetrated compared to other consumption categories.
(BLR) and bond market while it has an insignificant presence in the SME Bata has embarked upon improving its financial position on the back of
space as of now. We expect it to maintain its rating revenue market share enhanced product mix, improved store layouts, launch of a promotion
of ~28% ahead. campaign, shift to an asset light business model and the store addition
CARE earns best margins among rating agencies with 63% EBITDA and plans. Aggressive retail expansion and product portfolio augmentation
55% PAT margin in FY15. These can be attributed to i) relatively lower would enable Bata revenue to grow at a CAGR of 16% over 2014-17
employee cost ii) high proportion of large ticket bank loans & bonds (high Indias per capita footwear consumption at 2.5 pairs per year (2012) is
margin business) and iii) offices being largely owned saving on lease cost. considerably lower than the average of four to five in developed
Going ahead, we expect a healthy traction in PAT considering the countries. According to estimates, Indias per capita expenditure on
improving economic outlook with expected upturn in the investment footwear is likely to go up from $6.3 in 2013 to $11.6 by 2017.
cycle, peaking of interest rates and gradual & structural development of Furthermore, improving demographics, rising rural penetration and a
the bond market. We expect 17% PAT CAGR in FY15-17E to | 193 crore booming online retail industry will accelerate the growth
CARE emerged as a strong player in the rating business with strong The change in store format by improving the design and layout,
margins and improving market share with best brand recall after Crisil. It extending the store timings by two hours (from the earlier 10 am 7 pm
is trading at a discount to the consolidated business of Crisil, Icra. CARE to 10 am 9 pm) would boost footfalls in stores. Additionally, the launch
has strong RoE of 39% for FY15 & potential to further enhance it to ~47% of brand specific stores (Hush puppies, etc.) and rationalising employee
by FY17E. We have lowered our EPS estimates as we cut our SME rating expenses will result in an improvement in margins over 2105-17
revenues and factor in lower other income. However, we are structurally
positive on the rating business in the next three to five years. We
recommend Buy with a TP of | 2000, valuing at 30x FY17E EPS
Key Financials FY15* FY16E FY17E
Key Financials FY15E FY16E FY17E
Net sales | crore 2,694.0 2,513.5 3,011.1
Net sales | crore 257.2 307.3 364.2 Growth % 30.4 -6.7 19.8
Growth % 12.1 19.5 18.5 EBITDA margins % 12.4 15.0 15.6
EBITDA margins % 63.0 62.7 62.7 PAT | crore 231.5 227.8 295.9
PAT | crore 140.3 142.3 192.7 PAT growth % 21.2 -1.5 29.9
PAT growth % 9.1 1.4 35.4 P/E x 29.4 29.8 22.9
EPS | 48.4 49.1 66.4 P/BV x 6.6 5.9 5.2
P/E x 31.2 30.8 22.8 RoE % 22.6 19.9 22.7
P/BV x 12.2 11.6 10.7 RoCE % 25.0 25.7 29.2
RoE % 38.9 37.6 47.2 * 15 months
I-Direct Top Picks
Timken India (TATTIM) Target Price: | 740 Star Ferro Cement (SFCL) Target Price: | 266

Timken India has forayed into gear repair services with the Raipur facility.
The management pegs the opportunity in the segment, currently served
by unorganised players, at ~| 2500 crore in India wherein it is looking to
garner up to 15% market share in the medium to long term. Furthermore,
DFC implementation would also provide an incremental bearing market
opportunity of ~| 500 crore led by incremental ordering of new wagons.
Timken with 50% market share in the segment would be a key
beneficiary.
Timken has shown the best revenues and earnings growth among its
peers led by strong exports (~32% CAGR in FY09-14) and revival of M&H
CV segment. In FY15, when its peers revenues grew in single digits,
Timken clocked a staggering topline and bottomline growth of 29% and
80%, respectively. Going ahead, the M&H CV segment is expected to
continue its robust performance along with the railway freight segment,
which has stable demand. Hence, we expect overall revenue growth of
15.9% in FY14-17E with margins expanding 250 bps in the next two years
Given the leadership in the tapered bearings led by strong parentage,
robust balance sheet and strong earning CAGR (~29.6% over FY14-17E),
we have a Buy rating with a target price of | 740/share.
Star Ferro Cement (SFCL) is the largest cement player in the North-East
region (NER) with over 23% market share. Demand growth in this region
has consistently remained higher than the growth at pan-India level. SFCL
has expanded its capacity from 1.5 MT in FY13 to 3.6 MT in FY15. This, in
turn, has helped SFCL to gain market share in the NER. With the
governments thrust on infrastructure development, demand growth in
NER is expected to remain healthy over the next three or four years.
Given this backdrop, SFCL is expected to clock revenue CAGR of 26.1%
in FY15-17E
SFCL enjoys various fiscal benefits under NE industrial policy (NEIIPP
2007). SFCL also has cost advantage due to its own captive limestone
mines, proximity to large reserves of coal and self sufficiency in terms of
power requirement. As a result, it generates healthy EBITDA/tonne which
is over ~2.5x of cement players at pan-India level.
Given SFCLs ability to generate over 2.5x EBITDA/tonne of its peer set
and capability to expand through internal accruals, we believe SFCL will
trade at premium valuations despite being a midcap cement player. We
have valued the company at 8.0x FY17E EV/EBITDA (i.e. at a 30%
discount to large cap players valuations and 10% premium over midcap
peer-set companies) with a target price of | 266/share. Recommend Buy

Key Financials FY15E FY16E FY17E Key Financials FY15E FY16E FY17E
Net sales | crore 929.0 1,069.2 1,248.2 Net sales | crore 1,512.7 1,723.7 2,269.7
Growth % 29.0 15.1 16.7 Growth % 29.1 13.9 31.7
EBITDA margins % 14.4 15.8 16.9 EBITDA margins % 29.7 33.7 34.0
PAT | crore 80.7 106.5 135.5 PAT | crore 93.7 154.9 269.0
PAT growth % 80.0 32.0 27.2 PAT growth % 1,434.6 65.4 73.7
P/E x 49.3 37.3 29.4 P/E x 38.4 23.2 13.4
P/BV x 9.1 7.9 6.6 P/BV x 5.3 3.9 3.1
RoE % 18.4 21.1 22.6 RoE % 13.8 17.0 23.2
RoCE % 26.5 29.6 28.1 RoA % 13.1 20.8 28.9
Pankaj Pandey Head Research pankaj.
pankaj.pandey@icicisecurities.
pandey@icicisecurities.com

ICICIdirect.
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai 400 093
research@icicidirect.
research@icicidirect.com
Disclaimer
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subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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