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November 16, 2016 RSec TradEdge | India

CMP STOP LOSS Target


Institutional Equity Research 431 408 475

Tech Mahindra Sector - IT

Background & Business


Tech Mahindra (TechM) is Indias sixth-largest IT services firm (US$4bn FY16 revenue). It offers a wide range of IT services including 1 Year Stock Price Performance
ADM, Enterprise Solutions, Analytics, Cloud and IMS to industries including BFSI, Manufacturing, Media and Retail. It also offers
560
Telecom industry-focused services including Network Services & OSS/BSS. Tech Mahindra earns major chunk of revenue from North 540
America (48%), followed by Europe (30%). The company clocked 23%/14% CAGRs in Revenue/PAT, respectively over FY12-FY16. 520
500
Investment Rationale 480
ff Encouraging Trends in 2QFY17: TechM reported encouraging revenue momentum in 2QFY17, with USD revenue up 4% qoq 460

(5% in CC terms). Its Enterprise business maintained its healthy business momentum, with revenue growing by 5.6% qoq led by 440

Manufacturing (+10.3% qoq), Retail (+8.8%) & BFSI (+5.8%). 420


400
ff Pick-up in Communications Vertical A Likely Turning Point: TechMs key Communications vertical clocked 3.4% CC revenue

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growth in 2QFY17 after 3 successive quarters of decline. Management believes the worst is over and revenue predictability
could improve in 1-2 quarters. We expect TechMs investments in IoT, Product Engineering, Cloud and IMS to drive growth. Note: *CMP as on November 15, 2016

Outlook & Valuation


TechM expects Communications to see better predictability in 1-2 quarters. On the flip side, GBP depreciation is likely to continue to
Key Figure
impact margins; employee pyramid and higher acquisition margins are key levers for margin defence. Post 2QFY17, we see these
trends as positive. Valuation at less than 11.3x FY18E EPS also leaves good margin of safety for the investors. Market Cap ( Rsbn/US$mn ) 419/61.6
Current Price 431.0
Risks
ff Any adverse development in Communications vertical may impair estimates Target Price 475.0
Promoters / Public & Others 36.3/63.6
ff Deterioration in margin quality, owing to pricing pressure and lower profitability of acquisitions
FY18E P/E (x) 11.3
Mar (Rs mn) FY16 FY17E FY18E Revenues CAGR (FY16-18 %) 10.4%
Revenues 264,942 288,445 322,726 EBITDA CAGR (FY16-18 %) 8.2%
EBITDA 35,118 34,151 41,142
EBITDA MARGIN % 16.1 15.1 16.1
Adj.PAT 30,659 28,749 33,733 Key Ratios FY16 FY17E FY18E

ROE (%) 22.8 18.5 19.3 P/E (x) 12.5 13.3 11.3
Source: Company, RSec Estimates P/BV (x) 2.6 2.3 2.1
EV/EBITDA (x) 9.1 8.5 6.9

Research Team; Contact: (022) 33201202; Email: rsec.research@rcap.co.in


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November 16, 2016 RSec TradEdge | India

CMP STOP LOSS Target


Institutional Equity Research 358 334 408

Cadila Sector - Pharmaceuticals

Background & Business


Cadila Healthcare (CDH) a well-diversified pharmaceutical company with presence across over 100 countries is one of the few 1 Year Stock Price Performance
Indian players having presence in Consumer and Animal Healthcare businesses. It ranks among the Top-5 companies in the Indian
450
pharma market and the India branded business contributes over 30% to its total sales. CDHs US business contributes major chunk 430

to its total revenues, as the Company is among the Top-15 generic companies in the US in terms of prescriptions. 410
390

Investment Rationale 370


350
ff Strong Fundamentals: CDHs long-term fundamentals continue to remain intact on the back of rich pending ANDA pipeline and 330
310
investment in high-margin complex generic segment in the US for future growth. 290

ff Early Resolution of US FDA Issue Expected: We expect early resolution (end FY17E or early FY18E) of Moraiya US FDA issue 270
250
(60% of US sales and 40-50% of pending pipeline), as the Company has already received Establishment Inspection Report (EIR)

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from the US FDA in Jul16, subsequent to which CDH has requested for re-inspection.
ff Robust Growth in US Biz: We expect strong growth in the US business in FY18E (20% yoy in CC terms) led by new product Note: *CMP as on November 15, 2016
launches. The Company has ~160 ANDAs pending approval including high-value opportunities like Lialda, transdermal patches,
and other extended release formulations like Toprol XL & Prevacid ODT.
ff Zydus Wellness to See Strong Growth: We expect recovery in business growth and profitability of Zydus Wellness. Key Figure

Outlook & Valuation Market Cap ( Rsbn/US$mn ) 366.6/53.9


We believe that CDHs long-term fundamentals continue to remain intact on account of rich pending pipeline (~160 ANDAs) and Current Price 358
investing in high-margin complex generic segment, while growth in US sales will drive growth. Key developments to watch out for: (1) Target Price 408
US FDA clearance of Moraiya plant (60% of US sales; 40-50% of pending pipeline); (2) niche launches from Nesher; and (3) launch
Promoters / Public & Others 74.9/25.1
of high-value transdermal products. We expect strong growth in the US business in FY18E (20% yoy in CC terms).
FY18E P/E (x) 17.0
Risks
Revenues CAGR (FY16-18 %) 9.9%
ff Any delay in US FDA approvals, and
EBITDA CAGR (FY16-18 %) 18.8%
ff Other US FDA regulatory risks.

Mar (Rsmn) FY16 FY17E FY18E Key Ratios FY16 FY17E FY18E
Revenues 94,694 99,259 114,472 P/E (x) 24.0 20.9 17.0
EBITDA 20,147 21,345 26,306 P/BV (x) 6.9 5.5 4.4
EBITDA MARGIN % 27.4 27.2 27.9 EV/EBITDA (x) 21.0 20.0 16.0
Adj.PAT 15,274 17,450 21,544
ROE (%) 28.5 26.3 25.8
Source: Company, Bloomberg Estimates
Research Team; Contact: (022) 33201202; Email: rsec.research@relianceada.com
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November 16, 2016 RSec TradEdge | India

Institutional Equity Research

Recommendations Summary

Open Positions
Stock Symbol Sector Reco Date Reco Price CMP SL Target Remarks
CADILAHC Pharma 16-Nov-16 358.0 358.0 334.0 408.0 BUY

TECHM IT 16-Nov-16 431.0 431.0 408.0 475.0 BUY

Closed Positions
Stock Symbol Sector Reco Date Reco Price Exit Price Exit Date Return % Remarks
NBCC Infrastructure 21-Jun-16 186.0 212.6 07-Jul-16 14.3% Booked Profit
PERSISTENT IT 21-Jun-16 696.0 650.0 18-Jul-16 -6.6% Booked Loss
SUNPHARMA Pharma 02-Jul-16 763.0 801.4 21-Jul-16 5.0% Booked Profit
CROMPTON Consumer 15-Jul-16 144.0 156.4 28-Jul-16 8.6% Booked Profit
UPL Agrochemicals 15-Jul-16 566.0 616.3 29-Jul-16 8.9% Booked Profit
PFS NBFC 02-Jul-16 38.8 38.0 16-Aug-16 -2.1% Booked Loss
ABFRL Retailing 30-Jul-16 145.0 161.8 18-Aug-16 11.6% Booked Profit
MGL Oil-Gas 17-Aug-16 537.0 595.0 23-Aug-16 10.8% Booked Profit
KEC Capital Goods 30-Jul-16 143.0 133.0 07-Sep-16 -7.0% Booked Loss
INFY IT 01-Sep-16 1036.0 1064.0 19-Sep-16 2.7% Booked Profit
AUROPHARMA Pharma 16-Sep-16 783.0 858.5 23-Sep-16 9.6% Booked Profit
NAVKARCORP Logistics 16-Sep-16 200.0 184.0 29-Sep-16 -8.0% Booked Loss
SUNPHARMA Pharma 17-Aug-16 783.0 733.0 29-Sep-16 -6.4% Booked Loss
BAJAJCORP Consumer 01-Sep-16 400.0 405.7 14-Oct-16 1.4% Booked Profit
ASHOKLEY Auto 17-Oct-16 81.0 85.1 20-Oct-16 5.1% Booked Profit
ABFRL Retailing 03-Oct-16 138.0 147.5 21-Oct-16 6.9% Booked Profit
INFY IT 17-Oct-16 1027.0 980.0 02-Nov-16 -4.6% Booked Loss
AMBUJACEM Cement 03-Oct-16 252.0 238.0 03-Nov-16 -5.6% Booked Loss

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November 16, 2016 RSec TradEdge | India

Institutional Equity Research

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