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December 2016 2 Sharekhan ValueGuide

CONTENTS

From Sharekhan’s Desk EQUITY


FUNDAMENTALS
November was a Stock Updates 12 REGULAR FEATURES
disappointing month
for the Indian
Viewpoints 26 Report Card 4
markets, as the twin Sector Updates 28 Earnings Guide I
surprises - US
election outcome TECHNICALS DERIVATIVES
and the Nifty 29 View 30
demonetisation
move by the Modi ADVISORY DESK
government - dented investor confidence materially. As a
result, we saw big outflows from both, Equity as well as the MID Trades 37 Derivative Ideas 37
Debt markets by the foreign investors.
CURRENCY
06
FUNDAMENTALS
RESEARCH BASED EQUITY PRODUCTS
USD-INR 31 GBP-INR 31
Top Picks Basket 07 EUR-INR 31 JPY-INR 31
Wealth Creator Portfolio 11
TECHNICALS
USD-INR 32 GBP-INR 32
PMS DESK EUR-INR 32 JPY-INR 32
WealthOptimizer PMS 33
MUTUAL FUNDS DESK
ProPrime - Diversified Equity 34
ProTech - Index Top MF Picks (equity) 38
Futures Fund 35
Top SIP Fund Picks 39
ProTech - Trailing Stops 36
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disclaimer
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While
we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current.
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review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. Kindly note that this document is based on technical analysis by studying charts of a stock’s price movement and trading volume, as opposed
to focusing on a company’s fundamentals and as such, may not match with a report on a company’s fundamentals.(Technical specific) This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an
official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While
we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current.
Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors
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Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000;


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and no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.
Sharekhan ValueGuide 3
Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially
December 2016
interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any
company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.

Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; For any queries or grievances kindly email igc@sharekhan.com or contact: myaccount@sharekhan.com
REPORT CARD EQUITY FUNDAMENTALS

STOCK IDEAS STANDING (AS ON DECEMBER 02, 2016)


COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 02-DEC-16 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
AUTOMOBILES
Apollo Tyres Buy 182.1 245.0 235.0 127.1 -2.5 -8.4 24.6 21.8 2.0 0.8 27.2 16.8
Ashok Leyland Buy 74.7 90.0 112.9 73.5 -14.3 -13.3 -27.0 -13.9 -10.3 -4.6 -25.5 -17.5
Bajaj Auto Hold 2701.4 3150.0 3122.0 2172.0 -4.4 -9.6 2.4 12.8 0.0 -0.5 4.5 8.2
Gabriel India Buy 107.2 130.0 130.0 75.0 -13.0 -8.4 18.2 20.6 -9.0 0.7 20.7 15.7
Hero MotoCorp Buy 3183.7 3500.0 3740.0 2375.0 -3.9 -9.7 4.1 26.0 0.6 -0.6 6.2 20.8
M&M Buy 1145.6 1450.0 1509.0 1091.3 -14.2 -20.6 -13.5 -10.0 -10.2 -12.6 -11.7 -13.7
Maruti Suzuki Buy 5068.1 6430.0 5974.0 3193.3 -10.5 -4.1 24.6 12.9 -6.3 5.5 27.1 8.2
Rico Auto Industries Buy 58.4 84.0 75.4 27.7 -15.4 -10.6 72.4 35.1 -11.4 -1.7 76.0 29.6
TVS Motor Buy 358.4 455.0 420.0 256.0 -7.5 9.4 23.1 29.5 -3.1 20.4 25.6 24.2
BSE Auto Index 19645.4 23209.9 15385.1 -8.5 -12.7 3.0 9.6 -4.2 -4.0 5.1 5.1
BANKS & FINANCE
Allahabad Bank Hold 67.6 80 88.4 39.4 -4.8 -22.3 28.6 -7.9 -0.4 -14.5 31.3 -11.7
Axis Bank Hold 460.0 560 638.3 366.7 -7.9 -28.5 -15.6 -2.4 -3.6 -21.3 -13.8 -6.4
Bajaj Finance Hold 886.5 1200 1183.9 534.9 -10.0 -21.8 16.0 63.3 -5.8 -14.0 18.4 56.6
Bajaj Finserv Buy 2977.7 3890 3480.0 1551.3 -5.9 -3.3 57.6 53.2 -1.5 6.4 60.8 46.9
Bank of Baroda Buy 161.1 200 179.6 109.4 6.4 -9.9 8.3 -4.9 11.3 -0.9 10.5 -8.9
Bank of India Hold 116.2 140 128.8 78.4 5.1 -7.1 33.4 -6.2 10.0 2.2 36.1 -10.0
Capital First Hold 528.3 760 797.4 346.2 -20.4 -21.3 -3.4 43.6 -16.7 -13.4 -1.4 37.7
Corp Bank Reduce 45.1 30 51.0 30.8 11.1 2.6 28.7 8.2 16.3 12.9 31.3 3.7
Federal Bank Buy 68.2 95 86.0 41.4 -10.4 -7.0 23.5 21.5 -6.2 2.3 26.0 16.5
HDFC Buy 1236.8 1550 1464.0 1011.5 -8.4 -11.4 2.1 8.2 -4.2 -2.5 4.2 3.7
HDFC Bank Buy 1189.1 1415 1318.5 928.0 -5.4 -8.2 1.5 12.2 -1.0 1.0 3.6 7.5
ICICI Bank Hold 259.5 310 298.4 180.8 -7.2 -7.0 3.9 0.4 -2.9 2.3 6.1 -3.7
IDBI Bank Hold 67.8 88 93.3 47.3 -3.7 -9.6 2.8 -26.4 0.8 -0.6 4.9 -29.4
LIC Housing Finance Buy 555.8 700 624.3 388.7 2.0 -6.0 17.9 20.9 6.7 3.4 20.3 15.9
PTC India Financial Services Buy 38.0 55 42.9 29.7 -1.3 4.5 10.6 0.5 3.3 14.9 12.8 -3.6
Punjab National Bank Hold 134.0 155 164.4 69.3 -6.4 -5.6 69.2 -1.9 -2.1 3.9 72.7 -5.9
SBI Buy 254.1 320 288.8 148.3 1.1 -4.2 21.6 8.5 5.9 5.4 24.1 4.0
Union Bank of India Hold 141.9 145 166.3 104.0 6.4 -6.3 21.7 -13.2 11.3 3.1 24.2 -16.8
Yes Bank Buy 1150.2 1520 1450.0 631.6 -1.6 -15.2 11.4 63.3 3.0 -6.7 13.7 56.5
BSE Bank Index 20874.3 23694.7 15224.3 -5.9 -11.3 2.3 8.6 -1.5 -2.4 4.4 4.1
CONSUMER GOODS
Britannia Buy 2976.8 3950 3584.3 2505.1 -9.3 -14.2 7.9 4.6 -5.1 -5.6 10.1 0.3
Emami Buy 1030.3 1300 1260.8 901.0 -13.8 -16.3 -0.8 1.6 -9.8 -8.0 1.2 -2.6
GSK Consumers Hold 5075.3 6650 6800.0 4650.0 -12.6 -20.0 -11.8 -16.6 -8.6 -11.9 -10.0 -20.1
Godrej Consumer Products Hold 1449.9 1690 1715.0 1118.8 -4.7 -13.2 -6.1 18.5 -0.3 -4.5 -4.2 13.6
Hindustan Unilever Buy 831.5 915 954.0 765.4 -0.5 -9.9 -5.2 2.0 4.2 -0.9 -3.3 -2.2
ITC Buy 228.5 280 266.0 177.7 -11.4 -13.5 -6.1 11.3 -7.3 -4.9 -4.1 6.7
Jyothy Laboratories Buy 363.6 400 381.0 252.1 2.7 15.4 27.9 21.8 7.5 27.0 30.5 16.7
Marico Hold 254.7 310 306.9 207.3 -0.5 -13.5 0.7 22.2 4.1 -4.9 2.7 17.2
Zydus Wellness Buy 849.8 1000 930.0 632.0 -1.2 -6.8 9.9 3.6 3.4 2.5 12.2 -0.7
BSE FMCG Index 7954.9 9043.8 6782.2 -7.5 -10.9 -3.8 5.5 -3.2 -2.0 -1.8 1.1
IT / IT SERVICES
Firstsource Soluation Hold 36.3 47 53.7 28.7 -4.2 -17.9 -21.5 -15.0 0.2 -9.7 -19.8 -18.5
HCL Technologies Buy 793.6 965 889.9 706.4 -3.9 0.6 9.7 -3.9 0.6 10.6 12.0 -7.9
Infosys Buy 964.5 1150 1279.3 900.3 -1.2 -7.4 -21.4 -5.5 3.4 1.9 -19.8 -9.4
Persistent Systems Buy 596.7 790 798.0 501.1 -8.6 -2.2 -17.5 -10.6 -4.3 7.6 -15.8 -14.3
Tata Consultancy Services Hold 2221.9 2450.0 2744.8 2051.9 -5.4 -11.5 -17.7 -5.4 -1.0 -2.6 -16.0 -9.3
Wipro Hold 460.4 550.0 607.0 408.1 0.7 -5.9 -15.9 -20.4 5.4 3.5 -14.1 -23.7
BSE IT Index 9704.1 11775.5 9123.1 -2.2 -7.3 -16.3 -8.5 2.4 2.0 -14.6 -12.3
CAPITAL GOODS / POWER
Bharat Heavy Electricals Hold 126.9 155.0 175.0 90.2 -8.2 -19.9 7.2 -24.2 -4.0 -11.8 9.5 -27.3
CESC Hold 578.0 710.0 683.5 404.6 -1.4 -12.6 6.0 8.0 3.2 -3.9 8.2 3.5
Crompton Greaves Hold 76.3 85.0 88.9 39.2 -23.6 -21.5 -7.9 -1.3 -20.0 -13.6 -6.0 -5.4
Finolex Cables Buy 415.6 550.0 464.0 200.8 -7.7 -7.0 12.2 63.8 -3.4 2.3 14.5 57.1
Greaves Cotton Buy 130.1 160.0 155.2 114.1 -5.3 -5.1 -8.0 -10.2 -0.9 4.4 -6.1 -13.9
Kalpataru Power Transmission Buy 244.8 305.0 286.6 160.0 -5.0 -10.6 -10.8 -8.4 -0.6 -1.6 -9.0 -12.2
PTC India Buy 73.5 90.0 87.9 56.1 1.2 -10.3 6.6 22.9 5.9 -1.3 8.7 17.8
Skipper Buy 134.6 190.0 219.9 122.0 -6.5 -15.1 -5.2 -16.7 -2.2 -6.6 -3.3 -20.1
Thermax Hold 829.6 920.0 972.0 690.0 -2.7 -2.7 3.3 -7.5 1.8 7.0 5.4 -11.3
Triveni Turbine Buy 115.8 140.0 135.7 87.5 -7.6 -5.9 5.7 11.1 -3.2 3.6 7.9 6.6
Va Tech Wabag Buy 494.2 650.0 721.1 408.8 3.9 -15.1 -20.5 -30.2 8.8 -6.6 -18.8 -33.1
V-Guard Industries Buy 169.9 210.0 226.4 78.0 -16.8 -5.8 29.1 86.0 -12.9 3.6 31.7 78.4

December 2016 4 Sharekhan ValueGuide


EQUITY FUNDAMENTALS REPORT CARD

STOCK IDEAS STANDING (AS ON DECEMBER 02, 2016)


COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 02-DEC-16 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
BSE Power Index 1987.6 2153.9 1559.4 0.7 -6.0 6.5 8.5 5.3 3.4 8.7 4.0
BSE Capital Goods Index 13838.1 15835.4 10934.9 -3.8 -10.7 -4.8 -2.8 0.7 -1.7 -2.9 -6.8
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects Hold 621.7 700.0 790.0 482.0 -8.5 -7.0 7.0 -15.2 -4.3 2.3 9.2 -18.7
ITNL Buy 96.0 120.0 117.5 64.0 -1.4 30.6 44.2 21.7 3.2 43.7 47.2 16.7
IRB Infra Buy 189.1 260.0 272.0 177.5 -16.9 -19.5 -14.7 -22.1 -13.1 -11.5 -12.9 -25.4
Jaiprakash Associates Hold 7.6 ** 13.5 5.3 -23.1 -36.0 36.6 -39.8 -19.5 -29.6 39.4 -42.2
Larsen & Toubro Buy 1361.9 1640.0 1615.0 1016.1 -3.2 -10.8 -7.9 2.2 1.3 -1.9 -6.0 -2.0
NBCC NEW Buy 222.3 340.0 299.4 162.0 -0.8 -7.0 21.6 20.3 3.8 2.3 24.1 15.4
CNX Infra Index 2737.8 2999.2 2204.1 -0.8 -6.1 0.3 3.2 3.8 3.3 2.4 -1.0
BSE Real estate Index 1249.9 1646.5 1000.1 -14.7 -19.1 -12.8 -5.4 -10.8 -11.0 -11.1 -9.3
OIL & GAS
Oil India Hold 426.6 446.0 446.0 300.4 7.2 12.6 26.6 17.8 12.2 23.8 29.2 13.0
Reliance Buy 994.8 1300.0 1129.6 888.1 -0.2 -1.8 4.6 6.0 4.4 8.0 6.8 1.7
Selan Exploration Technology Hold 189.6 345.0 238.5 148.7 -0.3 -4.2 -10.1 -19.1 4.3 5.4 -8.2 -22.4
BSE Oil and gas Index 11727.1 12482.7 7987.3 1.4 8.5 29.5 32.3 6.1 19.4 32.2 26.9
PHARMACEUTICALS
Aurobindo Pharma Buy 719.6 945.0 895.0 582.0 -5.7 -7.6 -6.1 -9.5 -1.3 1.7 -4.1 -13.2
Cipla Hold 571.2 605.0 660.0 457.5 4.6 -1.4 22.3 -11.2 9.5 8.5 24.8 -14.9
Cadila Healthcare Hold 395.8 450.0 429.8 295.0 1.9 2.4 22.5 0.3 6.6 12.7 25.0 -3.8
Divi's Labs Buy 1135.9 1430.0 1381.6 917.8 -8.4 -11.9 1.1 3.9 -4.1 -3.1 3.2 -0.3
Glenmark Pharmaceuticals Buy 861.9 1150.0 994.0 671.1 -2.9 -0.6 14.6 -8.7 1.6 9.3 17.0 -12.4
Lupin Hold 1489.1 1850.0 1911.9 1280.0 -0.9 -2.5 5.3 -17.5 3.7 7.3 7.5 -20.9
Sun Pharmaceutical Industries Buy 720.4 845.0 898.5 571.9 1.4 -14.7 -10.0 -14.5 6.1 -6.1 -8.2 -18.0
Torrent Pharma Hold 1346.4 1765.0 1769.5 1175.1 0.8 -17.0 -2.3 -6.4 5.5 -8.6 -0.3 -10.2
BSE Health Care Index 15624.5 17068.0 13955.4 -0.2 -5.7 3.0 -6.9 4.5 3.7 5.1 -10.7
BUILDING MATERIALS
Grasim Buy 872.8 1105.0 1072.2 646.6 -4.6 -5.7 1.8 16.8 -0.1 3.8 3.9 12.0
The Ramco Cements Hold 582.5 655.0 685.4 352.7 -8.8 -0.7 4.6 52.1 -4.6 9.3 6.7 45.8
Shree Cement Hold 15063.3 18000.0 18519.0 9350.0 -7.3 -14.2 8.6 35.7 -3.0 -5.7 10.8 30.1
UltraTech Cement Hold 3585.7 4150.0 4130.0 2579.0 -8.7 -12.7 7.3 24.9 -4.5 -3.9 9.5 19.8
DISCRETIONARY CONSUMPTION
Century Plyboards (India) Hold 173.0 257.0 267.8 135.5 -29.4 -29.4 -0.2 -14.7 -26.1 -22.3 1.8 -18.2
Cox and Kings Buy 166.7 225.0 257.4 140.1 -21.2 -10.7 11.6 -31.8 -17.5 -1.8 13.9 -34.6
Inox Leisure Hold 220.8 255.0 293.4 170.0 -12.0 -22.1 5.3 -12.4 -7.9 -14.3 7.5 -16.0
Info Edge (India) Buy 885.0 1040.0 1025.0 688.1 -3.6 3.1 8.8 1.6 0.8 13.5 11.1 -2.6
KKCL Buy 1800.0 2360.0 2250.0 1603.3 -2.9 -6.2 1.8 -7.6 1.6 3.2 3.9 -11.4
Orbit Exports Hold 264.7 310.0 420.0 205.3 -0.8 2.7 19.8 -28.2 3.9 13.0 22.3 -31.2
Raymond Hold 492.8 675.0 654.0 350.0 -20.4 8.1 1.9 17.2 -16.7 18.9 4.0 12.4
Relaxo Footwears Buy 420.5 525.0 526.1 350.0 0.9 -2.4 -10.1 -16.6 5.6 7.3 -8.2 -20.1
Thomas Cook India Buy 187.5 229.0 228.9 165.0 -14.6 -4.2 5.4 -7.1 -10.6 5.4 7.6 -10.9
Wonderla Holidays Buy 329.1 395.0 430.4 316.0 -14.4 -21.4 -19.1 -17.9 -10.4 -13.5 -17.4 -21.3
Zee Entertainment Buy 443.1 600.0 589.9 350.1 -13.0 -17.5 -4.1 10.9 -8.9 -9.2 -2.2 6.3
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo Hold 1248.6 1250.0 1664.0 684.3 -3.4 -8.4 20.3 31.3 1.1 0.8 22.7 25.9
Bajaj Holdings Buy 2018.8 2737.0 2245.0 1310.0 -5.3 7.7 31.1 19.5 -0.9 18.4 33.8 14.5
Bharti Airtel Hold 318.6 364.0 385.0 282.3 7.4 2.5 -5.6 2.9 12.4 12.8 -3.7 -1.3
Bharat Electronics Buy 1419.1 1660.0 1505.5 1008.0 12.0 20.5 21.2 20.8 17.2 32.6 23.7 15.9
Gateway Distriparks Hold 233.9 275.0 360.0 205.6 0.1 -14.4 -23.5 -26.0 4.8 -5.8 -21.9 -29.1
Max Financial Hold 532.9 570.0 628.0 302.8 -1.8 -6.4 36.2 27.8 2.7 3.0 39.0 22.5
PI Industries Buy 830.9 955.0 921.9 495.4 -1.5 -1.9 21.7 33.8 3.1 7.9 24.1 28.3
Ratnamani Metals and Tubes Hold 573.8 600.0 657.8 387.0 -7.6 3.6 13.5 9.7 -3.3 14.0 15.8 5.2
Supreme Industries Buy 887.3 1067.0 1025.0 520.0 -3.5 -6.9 -4.3 33.1 1.0 2.4 -2.3 27.7
UPL Buy 652.2 800.0 730.7 342.0 0.6 1.7 13.0 63.9 5.3 11.9 15.3 57.1
BSE500 Index 10989.3 12083.1 9012.0 -4.9 -8.1 2.1 7.4 -0.5 1.1 4.2 2.9
CNX500 INDEX 6947.3 7647.5 5717.0 -4.9 -8.2 2.0 7.5 -0.5 1.0 4.1 3.1
CNXMCAP INDEX 14514.9 16169.1 11190.4 -4.7 -6.2 10.3 12.6 -0.3 3.1 12.6 8.0

In Top Picks basket ** Price target under review

Sharekhan ValueGuide 5 December 2016


FROM SHAREKHAN’S DESK

Changing colour for a good reason


from sharekhan’s desk November was a disappointing month for the Indian markets, as the twin surprises - US election
outcome and the demonetisation move by the Modi government - dented investor confidence
materially. As a result, we saw big outflows from both, Equity as well as the Debt markets by the
foreign investors. The BSE Sensex and the NSE Nifty ended November with a loss of ~5% each.
The broader equity market, represented by the BSE Mid-Cap index, sank ~10%.
In November, FIIs were net sellers of ~Rs17,700 crore in the equity market and ~Rs19,600 crore
in the debt market. Mutual Fund (MF) investments slowed in November, falling by 25.6% to
Rs25,110 crore compared to October. This was largely because of a 53% decline in MF investment
in debt. MF investment in equity rose by 49% to an all-time high of Rs13,610 crore.
The Government's demonetisation move and growing expectations of another rate hike by the US
Federal Reserve in December have made investors wary. The FOMC meet is scheduled on December
15. Also, the US bond yields have spiked since the outcome of the US presidential election, reducing
the rate differential with the Indian yields, which have moderated in the wake of demonetisation.
The benchmark 10-year Indian bond yield is trading ~6.3-6.4% currently while the yield on the US
10-year note is ~2.5%. The 10-year US yield had fallen below 1.5% this past summer and stood at
1.75% a month ago.
In another major development, the RBI left the benchmark interest rates unchanged as against
expectations of at least a 25 basis point cut. GDP growth forecast for FY2017 has been cut to
7.1% from 7.6% earlier. Incremental CRR has been withdrawn with effect from December 10,
2016 and excess liquidity would be absorbed by a mix of MSS and LAF facility.
The RBI said that the withdrawal of high denomination currency notes (Rs500, Rs1000) has affected
some part of industrial activity in November-December due to delays in payments of wages and
purchases of inputs, although the complete picture is still not clear. The outlook for the service
sector is mixed.
Meanwhile, the US dollar has spurted from late October after the US election result and triggered
sizable depreciations in currencies around the world. Commodity prices too have firmed up across
the board from mid-November on an improvement in the outlook for demand following the US
election result.
Oil prices are up ~19% after the OPEC and Russia last week announced they would jointly cut
production next year in an attempt to support prices. However, doubts have yet again emerged
whether the planned cuts will be big enough to end the global oil glut.
The 'shock & awe' effect of demonetisation has prompted asset managers to realign their investment
portfolios by trimming exposure to consumption-driven businesses and increasing exposure to
more stable sectors like Pharma and Utilities.
The current volatile phase could persist in the immediate future amid global economic & geo-
political uncertainties and domestic turmoil due to demonetisation. Investors should wait for the
outcome of the Uttar Pradesh elections and the Union Budget (advanced to February 1, 2017)
when more clarity emerges on the recovery of economy from the adverse impact of demonetisation.
Also, corporates would be able to adjust to the new reality by fine-tuning their business strategy.
We see the current weakness as an opportunity to pick up quality companies, as the policy measures
taken by the Government and the RBI structurally positive for the long term.

December 2016 6 Sharekhan ValueGuide


EQUITY FUNDAMENTALS SHAREKHAN TOP PICKS

SHAREKHAN TOP PICKS


Sharekhan Top Picks
The festive season this year ended with a ‘Big Bang’ surprise. With most portfolios tilted in favour of the ‘consumption
The Narendra Modi government announced a bold and game- theme’, hoping to ride the revival in consumer demand from a
changing demonetisation of high-value currency notes (Rs500 good monsoon and positive impact of salary hikes for
and Rs1000; account for 86% of currency in circulation) as government employees, the demonetisation led to some
part of its first big step to curb black money and corruption in underperformance. The Sharekhan Top Picks portfolio also
India. underperformed for the same reason, ending its strong
The historic move would have far-reaching impact on the Indian outperformance of six consecutive months. Last month, the
economy. Our view is that the demonetistion policy measure Sharekhan Top Picks portfolio declined by 8.6% compared to
to curb black money and shift towards a less cash economy (if a decline of 4.5-7% in the benchmark indices - Sensex, Nifty
not cashless) would benefit India immensely going forward by and CNX Midcap 100.
moving the large unaccounted economy to a formal banking Given the near-term pressure on consumer demand and
system. However, in the interim period, the consumption uncertainty surrounding demonetisation, we are reducing
demand would take a knock, as cash availability takes time to exposure to domestic consumer demand driven stocks and
stabilise and small businesses adjust to the changing rebalancing the portfolio. We are making three changes this
environment. No wonder, shares of the consumer demand month. We are removing Kansai Nerolac, Rico Auto and L&T
driven companies, including retail finance focused Banks/ Finance and replacing them with Indian Oil, Glenmark Pharma
NBFCs, have plummeted post the official announcement on and Bharat Electronics.
November 8.
CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%)
1 month 3 months 6 months 1 year 3 years 5 years
Top Picks -8.6 -7.1 4.9 10.4 114.9 187.7
Sensex -4.6 -6.4 -0.2 1.8 27.1 57.7
Nifty -4.8 -6.3 0.9 3.7 31.8 63.6
CNX MIDCAP -5.9 -3.0 12.1 12.5 93.0 111.4

ABSOLUTE RETURNS (TOP PICKS VS BENCHMARK INDICES) % CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS) SINCE
CONSISTENT TRACK RECORD FOR OVER 7 YEARS APRIL 2009
Sharekhan
(TOP PICKS VS BENCHMARK INDICES) Sensex Nifty CNX
(Top Picks) MIDCAP
100
YTD CY2016 10.3 1.9 3.6 11.3
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

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 CMP* PER (x) ROE (%) PRICE UPSIDE
(RS) FY16 FY17E FY18E FY16 FY17E FY18E TARGET (RS)# (%)
Finolex Cables 413 25.4 20.0 18.1 28.5 28.1 26.0 550 33
Bharat Electronics 1,438 22.4 19.6 17.1 13.8 13.7 13.5 1,660 15
Emami 1,107 47.5 41.3 31.0 40.1 40.3 44.7 1,300 17
Glenmark Pharma 876 23.2 17.0 15.1 25.0 25.7 22.7 1,150 31
Grasim Industries 871 16.6 12.5 11.1 9.5 10.9 10.6 1,105 27
HDFC Bank 1,200 24.7 20.2 16.5 18.3 19.1 20.1 1,415 18
Indian Oil 306 11.1 10.1 8.2 18.4 18.1 19.5 350 14
IndusInd Bank 1,089 28.3 21.9 16.7 16.1 16.7 17.6 1,460 34
Maruti Suzuki 5,263 34.8 19.9 18.0 18.0 24.5 22.8 6,430 22
PI Industries 865 39.0 29.2 24.6 29.2 30.0 28.0 955 10
TVS Motor 372 40.4 28.6 20.7 22.6 26.2 29.1 455 22
ZEE Entertainment 454 44.5 34.1 25.1 22.1 25.4 28.1 600 32
*CMP as on November 30, 2016 # Price target for next 6-12 months ** Under review

Sharekhan ValueGuide 7 December 2016


SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS

NAME CMP PER (x) ROE (%) PRICE UPSIDE


(RS) FY16 FY17E FY18E FY16 FY17E FY18E TARGET (RS)# (%)

FINOLEX CABLES 413 25.4 20.0 18.1 28.5 28.1 26.0 550 33

Remarks: Finolex Cables (FCL) is a leading manufacturer of Power and Communications Cables in India, having a sizeable market share. The
company is set to benefit from (1) an improving demand environment in its core business of cables; (2) strategy to leverage its brand
equity to build a high-margin consumer product business (Switchgears, Fans etc). Currently, FCL is witnessing a healthy volume
growth, which could improve further once the domestic economy picks up pace.
Apart from retaining core strength in the electrical cables, FCL is gradually adding consumer electrical products in its portfolio. Recently,
the company has launched Fans and has received approval for the Switchgears facility. FCL has also forayed into Electric Water
Heater segment. We believe executing the strategy to add consumer-facing branded electrical products could improve the overall
profile of FCL in terms of margin and return ratios in the long term. In the near to medium term, implementation of GST will be favorable
for the company too.
While the overall business traction is steady, we highly appreciate the strong and consistent cash flow generating ability of FCL.
Prudent working capital management and a cash-rich balance sheet will enable FCL to sustain very healthy return ratios (~20-25%).
We are positive on FCL.

BHARAT ELECTRONICS 1,438 22.4 19.6 17.1 13.8 13.7 13.5 1,660 15

Remarks: Bharat Electronics (BEL), a PSU manufacturing electronic, communication and defence equipment, stands to benefit from the enhanced
budgetary outlay for strengthening and modernising the country’s security.
The “Make in India” initiative of the NDA government, along with greater thrust to modernise the country’s defence equipment will
support the earnings growth in the coming years, as it is the only player with strong research and manufacturing capabilities across the
country.
The company’s current order book of ~Rs34,700 crore provides revenue visibility for the next 3-4 years. We expect the company’s
revenue to grow at a CAGR of 14% over FY2017-FY2019E to Rs10,600 crore, led by strong order wins and impressive execution rate.
BEL remains our preferred pick for the defense play on account of its strong manufacturing and R&D base, and growing indigenisation
[to aid earnings growth over FY2017-FY2019 (14.6% CAGR)].

EMAMI 1,107 47.5 41.3 31.0 40.1 40.3 44.7 1,300 17

Remarks: Emami is one of the largest players in the domestic FMCG market with a strong presence in the under- penetrated categories such as
Cooling Oil, Antiseptic Cream, Balm and Men’s Fairness Cream. The recently acquired “Kesh King” brand improves the product and
margin profile of the company.
Unlike other FMCG companies, Emami registered strong volume growth of 11% YoY in Q2FY2017 in its core domestic business and
expects to sustain the momentum in the coming quarters. Its product portfolio in low penetrated categories would help Emami to
achieve good growth in the long run.
Also, the OPM of Emami will sustain in the range of 28-30% in the coming years. The company expects to reduce its debt on account
of better cash generation ability and will be a debt-free company by the end of FY2018.
The desire to become a large FMCG player by riding on a portfolio of differentiated brands and widening reach in various geographies
will help Emami to achieve over 20% CAGR over the next 2-3 years. We recommend a Buy.

GLENMARK PHARMA 876 23.2 17.0 15.1 25.0 25.7 22.7 1,150 31

Remarks: Glenmark Pharmaceuticals is a research-driven global pharmaceuticals organization, focused on discovering novel molecules and
developing high-quality generics & specialty products for markets across the globe. Glenmark has 17 manufacturing facilities across
five countries, including the US, Switzerland, Argentina, Czech Republic and India. Glenmark has five R&D Centres around the world
engaged in discovery of novel biological and chemical entities.
The management has indicated that for future growth, the key focus areas will be Dermatology, Contraceptives and Complex Injectables.
The future growth would be mainly propelled by US, EU and India markets, which are witnessing exponential growth on account of new
product launches. The company is gearing up for the launch of gZetia, where it has 180-day exclusivity in the US (launch in H2FY2017).
Also, there are few more significant opportunities, which fall in FY2018.
Glenmark is in the process of aggressively ramping up products in the US, India and EU markets, which should give a major boost in
the next couple of years. The gZetia launch scheduled in H2FY2017 will give a big fillip to the company’s sales and profitability, which
should further help reduce debt. We have a positive outlook on Glenmark and recommend a Buy.

December 2016 8 Sharekhan ValueGuide


EQUITY FUNDAMENTALS SHAREKHAN TOP PICKS

NAME CMP PER (x) ROE (%) PRICE UPSIDE


(RS) FY16 FY17E FY18E FY16 FY17E FY18E TARGET (RS)# (%)

GRASIM INDUSTRIES 871 16.6 12.5 11.1 9.5 10.9 10.6 1,105 27

Remarks: Grasim Industries, a flagship company of the Aditya Birla Group ranks among India’s largest private sector companies having core
businesses of Cement (~70% of revenue with listed subsidiary UltraTech Cement), Viscose Stable Fibre (~20%) and Chemicals
(~10%). The company has benefitted from improvement in its profitability in all of its three divisions with outlook continuing to be
positive.
The timely acquisition of JP Group’s cement assets, continuous brownfield expansions and de-bottlenecking are likely to increase its
cement capacity to over 90MT. The structural growth triggers like rising infrastructure investment and pick-up in rural demand (owing
to a good monsoon) are likely to help sustain a favourable growth outlook for the cement sector. The revival in VSF prices, absence of
major capacity additions in China, low inventory and leverage of LIVA brand are likely to sustain VSF division’s profitability going
forward. Further, the company will expand its Caustic Soda capacity from 840KTPA to 1048KTPA in FY2018, which should sustain its
volume growth.
The current restructuring exercise of aligning high-growth businesses in Manufacturing (Cement, Textiles, Chemicals, Insulators,
Solar etc) and Services (Financial Services & Telecom post approval of proposed group restructuring scheme) provides a unique
opportunity to investors to hold a well-diversified portfolio, which is expected to maintain strong growth momentum going forward
across verticals. Overall, we expect Grasim Industries to reap benefits going forward, considering the revival in its core VSF division,
strong demand and better realisations in Chemicals and sturdy growth outlook for the Cement business.
HDFC BANK 1,200 24.7 20.2 16.5 18.3 19.1 20.1 1,415 18

Remarks: HDFC Bank has a pre-eminent presence in the retail banking segment (~50% of loan book) and has been able to maintain a strong &
consistent loan book growth, gradually gaining market share. Going forward, economic recovery and improvement in consumer sentiment
would be positive growth drivers for the bank’s loan growth, which will in turn drive its profitability.
Backed by a current account & savings account (CASA) ratio of 40%+ and a high proportion of retail deposits, the bank’s cost of funds
remains among the lowest in the system, helping it to maintain higher net interest margin (NIM). In addition, the bank’s loan book
growth is driven by high-yielding retail products such as personal loans, vehicle loans, credit cards, mortgages etc, mostly to own
customers (which also positively impacts NIMs).
HDFC Bank has been maintaining near impeccable asset quality, with its NPA ratios consistently been among the lowest versus
comparable peers. The bank has been able to maintain a robust asset quality due to its stringent credit appraisal procedures and
negligible exposure to troubled sectors.
HDFC Bank is well poised to tap the growth opportunities going ahead due to strong capital ratios, healthy asset quality and steady
revival in consumer spending. Recent demonetisation would help the bank to gain more deposits. Also, as lending and transactions
through formal routes increase, HDFC Bank would benefit since it is a leading private sector bank and it is likely that it will gain market
share in this segment. The bank is likely to maintain a healthy RoE of 18-20% and RoA of 1.8% on a sustainable basis. Therefore, we
expect it to sustain the valuation premium that it enjoys vis-à-vis other private banks.

INDIAN OIL 306 11.1 10.1 8.2 18.4 18.1 19.5 350 14

Remarks: Indian Oil Corporation (IOC) is a leader in the domestic downstream oil sector with non-replicable infrastructure – total refining capacity
of 80.7 mmt (35% market share), retail outlets of 25,363 (45% market share) and pipeline capacity of 80.6 mmt (market share of 55%
among downstream companies). The company is also a market leader in the domestic petroleum sales with volume of 72.7 mmt
(45.9% market share).
We expect IOC’s EPS to grow by 10%/23% in FY2017/FY2018, led by ~6-7% growth in domestic consumption of HSD/MS, recovery
in refining margins (Singapore complex GRM has improved sharply to ~$8/bbl in November so far from the low of $2.9/bbl in August),
stabilisation of the 15-mmt Paradip refinery (expected to operate at 90% utilisation by February 2017) and inventory gains (given our
expectation of stable-to-rising oil prices). The Paradip refinery could add Rs3-4/share to FY2018E EPS at GRM of $9-10/bbl.
The company is also implementing pipeline expansion projects at an estimated capex of Rs12,000 crore over the next couple of years,
which would add 22 mmt to IOC’s pipeline capacity.
IOC has a strong balance sheet, with low net debt-to-equity ratio (D/E) of 0.64x in FY2016 and we expect RoE to expand to 19.5% in
FY2018 (vs 18.4% in FY2016).

INDUSIND BANK 1,089 28.3 21.9 16.7 16.1 16.7 17.6 1,460 34

Remarks: IndusInd Bank is among the fastest growing banks (26% CAGR over FY2012-FY2016), with a loan book of Rs93,678 crore and 1,000
branches across the country. About 55% of the bank’s loan book comprises of retail finance, which is a high-yielding category, and is
showing signs of growth.
Given the aggressive measures taken by the management, the deposit profile has improved considerably (CASA ratio of ~35%).
Going ahead, the bank would follow a differentiated branch expansion strategy (5% branch market share in identified centers) to help
in ensuring healthy growth in savings accounts and retail deposits.
IndusInd Bank has maintained its asset quality despite sluggish economic growth and higher proportion of retail finance in its loan
book. The bank’s asset quality is among the best in the industry, with total stressed loans (restructured loans + gross NPAs) forming
just 1.4% of the loan book.
A likely revival in the domestic economy will further fuel growth in the bank’s consumer finance division while strong capital ratios will
support future growth plans. Though the recent demonetisation has raised questions regarding delinquencies in certain lending segments,
the management expects asset quality to remain under control. The stock should continue to trade at a premium valuation, underpinned
by strong loan growth, quality management, high RoAs and healthy asset quality. We have a positive outlook on IndusInd Bank.

Sharekhan ValueGuide 9 December 2016


SHAREKHAN TOP PICKS EQUITY FUNDAMENTALS

NAME CMP PER (x) ROE (%) PRICE UPSIDE


(RS) FY16 FY17E FY18E FY16 FY17E FY18E TARGET (RS)# (%)

MARUTI SUZUKI 5,263 34.8 19.9 18.0 18.0 24.5 22.8 6,430 22

Remarks: Maruti Suzuki India (Maruti) is India’s largest passenger vehicle (PV) manufacturer with a strong 47% market share. The company has
been able to gain market share over the last two years due to new product launches, vast 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 Baleno has received a strong response, which will help Maruti to expand its market share
in the segment. Also, the company recently entered the compact sports utility vehicle (SUV) space with the launch of Vitara Brezza and
has received an encouraging response. Both the new products command a waiting period of 6-8 months each. Further, Maruti recently
entered into the light commercial vehicle (LCV) segment, which would further boost its topline.
Maruti is poised to reap the benefits of an increase in discretionary spending from the 7th Pay Commission payout. The commencement
of the first phase of the Gujarat plant with a 2.5 lakh capacity is scheduled in Q4FY2017. The management plans to double its sales
and premium distribution network (“NEXA”) in order to achieve its target of doubling the domestic volumes over the next five years.

PI INDUSTRIES 865 39.0 29.2 24.6 29.2 30.0 28.0 955 10

Remarks: PI Industries (PII) is one of the leading companies in the Indian agro-chemicals industry with a unique business model. Its key focused
areas are branded products (in-license products) and custom synthesis & manufacturing (CSM) (high-growth segment).
PII makes and market a niche product in agrochemicals, which help it to outpace the industry growth. CSM is contributing ~60% to the
total revenue. This segment is growing at CAGR of ~30% for the last three years and we believe it would be the key growth driver in the
coming years.
Demand is expected to be unaffected by the demonetisation move, as outlook for the CSM business (exports), which accounts for
~60% of total sales, remains strong and benign. In the domestic market, demand is likely to be impacted in the near term, which could
normalise by Q4FY2017.
On the EBIDTA margin front, PII has guided for 100-150BPS improvement on account of better operational efficiency (reduction in
fixed costs) and a favorable product mix. The company’s order book remains steady at $800 million.
PII has lined up a capex of ~Rs200 crore for FY2017 and ~Rs150 crore for FY2018. Structurally, PII will benefit from its unmatched
CSM capabilities, wide distribution reach and brand advantage.

TVS MOTOR 372 40.4 28.6 20.7 22.6 26.2 29.1 455 22

Remarks: TVS Motor is the fourth largest two-wheeler (2W) manufacturer in the country with a strong presence in the Scooter segment. The
Scooter segment has surpassed the growth of the Motorcycles segment over the past couple of years and currently contributes 30%
to the total 2W volume. On the Motorcycles front, two new launches in January 2016 (Apache RTR and Victor) have generated higher
volumes for the company.
TVSM’s management expects to outpace the 2W industry growth over the next two years. Good demand for recent upgrades - Victor,
Apache and Jupiter (Million R) and Star City - has helped TVSM to post higher volume and gain market share. Further, the company
is expanding its distribution reach, which would enable it to outgrow 2W industry going forward. TVSM has posted a 23% YoY volume
growth in H1FY2017 as against the 2W industry growth of 17% YoY and expects to continue outpacing the industry in H2FY2017.
The collaboration with BMW would enable TVSM to gain foothold in the high-margin Premium Motorcycles segment, where it currently
has only one model “Apache”. TVSM would also incorporate better manufacturing processes and designing cues gained from the
BMW alliance across its existing product range. We believe this will enhance the brand image of TVSM products and help the company
to command higher margins going forward. We expect the OPM to expand by ~170BPS over the next two years.
TVSM is poised to outpace the 2W industry growth, given the new launches and sustained demand for its products. We expect the
company to report ~18% CAGR in topline over FY2016-FY2018. Benefits of operating leverage, better product mix and alliance with
BMW are expected to aid in margin expansion over the next 1-2 years. We expect TVSM to report 36% CAGR growth in net profit over
the next two years.

ZEE ENTERTAINMENT 454 44.5 34.1 25.1 22.1 25.4 28.1 600 32

Remarks: Among the key players in the domestic Cable TV industry, we expect the broadcasters to be the prime beneficiaries of the mandatory
digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenue at the least incremental
capex, as the subscriber declaration standard improves in the Cable TV industry
Zee Entertainment Enterprises’ (ZEEL) management has confirmed the sale of sports business to Sony Pictures Network India (SPN)
in an all cash deal of Rs2,600 crore ($385 million). The deal will improve the balance sheet strength and ZEEL will be in a much more
comfortable position to accelerate inorganic or strategic investments.
ZEEL will acquire two entertainment channels (Big Magic and Big Ganga) and four other TV licenses from the Anil Ambani-led Reliance
Group. The management expects to achieve EBITDA breakeven by the time the consolidation of the acquisition is complete (H2FY2018).
The management’s intent to remain a pure play media company gives us confidence on the prudent capital allocation going forward.
We continue to see ZEEL as the prime beneficiary of the macro revival and ongoing digitisation trend.

December 2016 10 Sharekhan ValueGuide


EQUITY FUNDAMENTALS WEALTH CREATOR PORTFOLIO

WEALTH CREATOR PORTFOLIO NOVEMBER 30, 2016


Wealth Creator portfolio
Objective: To build a balanced and actively managed portfolio of Portfolio performance review
quality companies that will help create meaningful wealth for Demonitisation led to correction in the stock prices of most of
investors in the multi-year rally expected in the Indian equity market. the stocks in the portfolio. Despite the correction Sharekhan’s
In addition to some bottom-up picks, the portfolio contains stocks wealth creator portfolio continued to outperform broader indices
with 9.9% returns (on cumulative weighted average basis) as
identified based on three key themes: against 1.1-4.2% increase in Sensex/Nifty.
Policy push: Stocks from sectors benefiting from improvement Replaced Gateway Distriparks with IOCL - We are making one
in the policy environment change in the portfolio by replacing Gateway Distriparks
Early gainers: Beneficiaries of an economic recovery (stocks from (competitive intensity affecting profitability in a muted trade
auto, banking & financial services, logistic sectors) environment) with Indian Oil Corporation (as it will be one of
the key beneficiaries of rising demand of petroleum products
Evergreen: Steady performers that provide stable and consistent and capacity enhancement [plans to add pipeline capacity of
returns including urban consumption plays around 22mmt over next couple of years]; further it has one of
the robust balance sheets among its peers).
COMPARATIVE RETURNS
Particulars Returns (as on November 30, 2016)
Since inception (August 21, 2014)
Wealth Creator folio (weighted average returns) 9.9
- Large-cap (64%) 8.5
- Mid-cap (36%) 13.1
Sensex 1.1
Nifty 4.2
CNX Mid-cap 33.3

UPDATE ON WEALTH CREATOR PORTFOLIO


Sr No Scrip Weights Reco price (Rs) Price target (Rs) Potential upside
30-Nov-2016 March-2019
Large-caps (64% weightage)
1 Axis Bank 8 470 1210 157.6
2 Larsen & Toubro 8 1383 3800 174.9
3 Maruti Suzuki 8 5263 8750 66.2
4 Britannia 8 3038 5400 77.8
5 IndusInd Bank 8 1089 1950 79
6 Sun Pharmaceuticals 8 710 1650 132.3
7 Tata Consultancy Services 8 2277 5100 124
8 TVS Motor 8 372 725 94.9
Midcaps (36% weightage; 4% each)
9 Capital First 4 566 1485 162.5
10 V-Guard 4 172 310 80.1
11 Indian Oil Corporation 4 298 580 95
12 IRB Infra 4 187 650 248.2
13 Network 18 Media 4 38 135 255.3
14 Gabriel India 4 110 200 81.5
15 Century Plyboards 4 182 440 141.4
16 Triveni Turbine 4 116 265 127.6
17 PI Industries 4 898 1900 111.6

* Please note we see scope for upward revision in target price (three-year) of some of the stocks depending on the extent of economic recovery and will keep updating on the same

Sharekhan ValueGuide 11 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

ADITYA BIRLA NUVO


HOLD CMP: RS1,186 NOVEMBER 15, 2016
COMPANY DETAILS
Price target: Rs1,250
Financial Services boost operating performance;
Market cap: Rs15,440 cr maintain Hold with revised PT of Rs1,250
52-week high/low: Rs1,664/685
NSE volume (No of shares): 5.7 lakh KEY POINTS
BSE code: 500303 Operating performance gets a fillip from Financial Services, Manufacturing weak; Idea
NSE code: ABIRLANUVO affects bottomline: Aditya Birla Nuvo (ABNL) posted a 12% YoY decline in its
Sharekhan code: ABIRLANUVO consolidated net profit for Q2FY2017 on account of lower share in Idea Cellular's
profitability (affected by costs related to spectrum acquired in earlier years). However,
Free float (No of shares): 5.4 cr the company's operating performance was boosted by the Financial Services division
SHAREHOLDING PATTERN (revenue up 52% YoY, EBIT up 2.1x YoY). The Manufacturing vertical posted weak
FII results (revenue down 14% YoY, EBIT down 13% YoY) on account of Textiles and
12% Insulators segments' poor performance.
Institutions Expansion in Financial Services and Manufacturing divisions: ABNL would infuse Rs900
13% crore into the Financial Services business. The ABNL management sees 30-35% YoY
Promoters growth for its NBFC division in FY2018. The company would also invest Rs325 crore
59% Public &
in its Manufacturing division. The amalgamation of ABNL with Grasim is expected to
others
16%
be completed by H1CY2017.
Valuation and outlook: We believe that the outlook for ABNL's Financial Services
PRICE PERFORMANCE business remains bright, although the Manufacturing vertical continues to lag. Further,
(%) 1m 3m 6m 12m Idea's profitability is likely to remain under pressure in the near term on account of
Absolute -9.8 -17.0 43.5 40.8
ongoing capex of Rs6,500-7,000 crore during FY2017. In our stock update dated
August 11, we had advised investors to prefer Grasim over ABNL due to the ongoing
Relative to Sensex -5.7 -14.1 35.4 33.8 plan to merge Grasim and ABNL. Pre-amalgamation, we have revised our price target
(PT) for ABNL to Rs1,250 on account of de-rating of its Telecom business and subdued
Sharekhan Limited, its analyst or dependant(s) of the analyst might be operating performance of its Manufacturing verticals. We maintain our 'Hold' rating.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

ASHOK LEYLAND
BUY CMP: RS78 NOVEMBER 28, 2016
COMPANY DETAILS
Demonetisation to impact MHCV demand in near
Price target:
Market cap:
Rs90
Rs22,269 cr
term; maintain Buy with revised PT of Rs90
52-week high/low: Rs113/74 KEY POINTS
NSE volume (No of shares): 1.2 cr GDP growth to moderate in near term due to demonetisation; to impact MHCV sales:
BSE code: 500477 The Government's recent demonetisation move (banning of Rs500 and Rs1000 notes)
NSE code: ASHOKLEY would lead to a liquidity crunch, which in turn will impact consumption demand. The
Government expects Q3FY2017 GDP growth to moderate to 5.5% as against the
Sharekhan code: ASHOKLEY
7.1% GDP growth expected in H1FY2017. Slower GDP growth will impact freight
Free float (No of shares): 141.2 cr generation and consequently the MHCV demand. Further, the truckers' existing fleet
SHAREHOLDING PATTERN utilisation has been impacted on the back of the current liquidity crunch (fleet operators
Institutions
~25-30% of expenses like payment to drivers, vehicle maintenance and repairs are
9%
Corporate
Bodies predominantly in cash), which would lead to deferment of new vehicle purchases. We
3% expect the MHCV industry to report flat volumes for FY2017.
Foreign
25%
FY2018 to be a better year; GST implementation and likely scrappage scheme to boost
Promoters growth: FY2018 is likely to see GDP growth picking up once the liquidity situation
50%
normalises and the business cycle attains stability. The implementation of GST will
Public and
Others
also boost economic growth and lead to improvement in fleet productivity (as trucks
13% runtime would increase owing to reduction in time spent at toll plazas), resulting in an
uptick in the MHCV demand. Further, in order to control pollution, the Government
PRICE PERFORMANCE is working on the MHCV scrappage scheme, which intends to offer incentives to replace
(%) 1m 3m 6m 12m MHCV vehicles more than 15 years old.
Absolute -12.2 -11.0 -20.0 -17.9 Earnings estimates cut; Retain Buy with revised PT of Rs90: We have reduced our
FY2017 and FY2018 earnings estimates by 14% and 16%, respectively, to factor in
Relative to Sensex -6.3 -6.1 -22.2 -20.8
the lower MHCV demand and the consequent drop in the margins. However, given the
long-term growth prospects and expectations of demand pick-up in FY2018, we have
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
retained 'Buy' rating with a revised PT of Rs90.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 12 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

AUROBINDO PHARMA
BUY CMP: RS733 NOVEMBER 15, 2016
COMPANY DETAILS
Positive outlook;
Price target:
Market cap:
Rs945
Rs42,880 cr
Maintain Buy with unchanged PT of Rs945
52-week high/low: Rs895/582 KEY POINTS
NSE volume (No of shares): 19.7 lakh
Q2FY2017 results marginally below expectation: Aurobindo Pharma's revenue grew
BSE code: 524804 by 12.2% YoY to Rs3,775.5 crore in Q2FY2017, largely on account of strong topline
NSE code: AUROPHARMA growth in the US business (up 17.8% YoY) and Emerging Markets (up 13.3% YoY).
Sharekhan code: AUROPHARMA Operating Profit Margin (OPM) improved by 146BPS to 24.6% on account of a better
Free float (No of shares): 27.0 cr product mix. Adjusted profit (excluding forex impact) grew by 17.7% YoY to Rs585.8
SHAREHOLDING PATTERN crore. Net forex impact was Rs20 crore gain against forex loss of Rs44 crore in
Public and
Q2FY2016.
Institutions
others
8% US market to drive growth: Aurobindo Pharma's management has indicated that it
11%
plans to launch 25-28 new products (more approval of complex products) in the coming
Foreign years, which will help the company to achieve higher growth. Going forward, it is
27%
likely to see improvement in OPM, as the newly acquired entities will show better
Promoters
profitability (Actavis business turned around in FY2016) and more high-margin products
54% will get approved by the USFDA. The US market (46% of total revenue) will continue
to remain a key growth driver going forward. This is due to the new launches in Oral
PRICE PERFORMANCE
and Injectable segments.
(%) 1m 3m 6m 12m
Maintain Buy with unchanged PT of Rs945: We have maintained our earnings estimates
Absolute -9.9 3.0 -5.4 -7.6
for FY2017 and FY2018. We see a consistently strong traction and better profitability
Relative to Sensex -5.8 6.6 -10.8 -12.2 in the US base business on account of niche product launches in the coming years.
Consequently, we have maintained our 'Buy' rating and price target (PT) of Rs945 by
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
valuing the stock at 16x FY2018E EPS.
For detailed report, please visit the Research section of our website, sharekhan.com.

BAJAJ HOLDINGS & INVESTMENT


BUY CMP: RS2,177 NOVEMBER 01, 2016
COMPANY DETAILS
Strong performance across parameters;
Price target:
Market cap:
Rs2,737
Rs24,232 cr
maintain Buy with revised PT of Rs2,737
52-week high/low: Rs2,235/1,311 KEY POINTS
NSE volume (No of shares): 38,485 Bajaj Holdings & Investment (BHIL) holds Bajaj Group's investments in two flagship
BSE code: 500490 companies - Bajaj Auto (BAL; 31.49% stake) and Bajaj Finserv (BFS; 39.29% stake).
NSE code: BAJAJHLDNG BHIL also has an investment portfolio with a market value of ~Rs6,684 crore in other
equity and fixed-income securities.
Sharekhan code: BAJAJHLDNG
Free float (No of shares): 6.4 cr
Bajaj Auto reports in-line numbers for Q2FY2017: Bajaj Auto (BAL) reported in-line
Q2FY2017 numbers on the operating front. BAL has been gaining market share in the
SHAREHOLDING PATTERN domestic Motorcycles industry on the back of new launches. Further, BAL has lined up
Corporate
Bodies
new products over the next six months to gain further market share. We expect BAL's
Institutions
7%
10% domestic motorcycle volume to grow by 17% in FY2017 as against the industry volume
Foreign
18%
growth forecast of 12% YoY. However, BAL's exports continue to remain weak due
to lower oil prices and currency depreciation in some of its key markets.
Promoters
42%
Bajaj Finserve posts better-than-expected Q2FY2017 results: Bajaj Finserv (BFS) has
Public and posted better-than-expected results for Q2FY2017, with its consolidated net profit
Others
23%
increasing by 31% YoY to Rs576 crore on the back of a 33% YoY rise in its consolidated
gross revenue at Rs6,912 crore. BFS' performance has been driven by topline growth,
PRICE PERFORMANCE as income from operations jumped by 35% YoY to Rs3,000 crore.
(%) 1m 3m 6m 12m Valuation; maintain Buy with a revised PT of Rs2,737: Given the strategic nature of
Absolute 15.8 22.3 54.4 36.3 BHIL's investments (namely BAL and BFS), we have given a holding company discount
Relative to Sensex 15.4 22.6 40.1 28.2
of 50% to its equity investments. The liquid investments have been valued at cost.
Further, the price target (PT) for BFS has been revised upwards to Rs3,890, as the
company has reported better-than-expected results for Q2FY2017. Consequently, we
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
have maintained our 'Buy' rating on BHIL and have revised upwards the PT to Rs2,737.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 13 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

BHARAT ELECTRONICS
BUY RS1,438 NOVEMBER 30, 2016
COMPANY DETAILS
Price target: Rs1,660
On a strong footing,
Market cap: Rs32,117 cr maintain Buy with a revised PT of Rs1,660
52-week high/low: Rs1,416/1,009
NSE volume (No of shares): 2.8 lakh
KEY POINTS
BSE code: 500049 Revenue likely to gain momentum with strong order book visibility and execution rate:
NSE code: BEL
For FY2017, Bharat Electronics' (BEL) order intake is expected to be ~Rs12,000 crore.
Strong order inflows in FY2017 will be driven by order wins from LRSAM and MCCS,
Sharekhan code: BEL barring Akash (likely inflow in FY2018). In the longer term, orders such as MRSAM,
Free float (No of shares): 5.7 cr BMS, TCS, and gun upgrades provide healthy visibility on order pipeline. We expect
SHAREHOLDING PATTERN the company's revenue to grow at a CAGR of 14% during FY2017-FY2019E to
Rs10,618 crore, led by strong order wins and impressive execution rate.
Institutions
16% Rising R&D spend, incremental capex to stay relevant; 7th Pay Commission impact on
Promoters
Non-
promoter
margin to be minimal: The BEL management has guided to raise R&D expenses to
74% corporate 12% of net sales over the next 2-3 years from the current level of 9%. Further, BEL has
3% outlined an outlay of Rs2,300 crore for the next five years (capex of Rs500 crore in
Foreign
4% FY2017) to upgrade its manufacturing facilities, acquire relevant capabilities and develop
Public and
Others
new product development centre. The 7th Central Pay Commission wage impact will
3% be felt in Q4FY2017, with a wage increase of 20%+, while the likely impact on margins
will be minimal, with Q4FY2017 being a strong quarter for BEL.
PRICE PERFORMANCE
Maintain Buy with revised PT of Rs1,660: We expect BEL's execution rate to improve
(%) 1m 3m 6m 12m in the coming years, led by strong order inflows and timely clearances, considering the
Absolute 2.9 8.2 19.0 5.4 robust order pipeline (Rs34,700 crore) and expectation of sturdy order inflows in the
Relative to Sensex 9.8 14.2 15.8 1.7 next couple of years (targeting Rs10,000-12,000 crore order inflows annually). BEL
remains our preferred pick for the defense play on account of its strong manufacturing
and R&D base, while growing defence indigenisation will aid earnings growth. We
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
reiterate our 'Buy' recommendation with a revised Price Target (PT) of Rs1,660.
For detailed report, please visit the Research section of our website, sharekhan.com.

BHARAT HEAVY ELECTRICALS


HOLD CMP: RS143 NOVEMBER 08, 2016
COMPANY DETAILS
Price target: Rs155
Turns around with cost control and
Market cap: Rs35,037 cr better execution; upgrade to Hold
52-week high/low: Rs190/90
KEY POINTS
NSE volume (No of shares): 9.1 lakh
Healthy execution and cost control result in operational turnaround: BHEL turned
BSE code: 500103
around in Q2FY2017 after reporting losses for the last couple of quarters, primarily
NSE code: BHEL driven by healthy execution, cost control measures and write-back of provisions. Revenue
Sharekhan code: BHEL grew by 12% YoY to Rs6,551 crore and the company managed to expand gross margin
Free float (No of shares): 90.4 cr by 141BPS YoY to 34.5%. Consequently, BHEL turned positive at the operating level
SHAREHOLDING PATTERN due to write-back of provision and other cost control measures. The improvement in
operating level percolated to the bottomline and resulted in a PAT of Rs109 crore as
Others
5%
against a loss of Rs181 crore in Q2FY2016.
DII
17%
Steady order backlog but focus on converting non-executable orders to executable:
During Q2FY2017, BHEL bagged orders worth Rs2,000 crore while the order backlog
remained steady at Rs1,03,316 crore (book-to-bill ratio of 3.6x). Currently, ~48% of
FII
orders are slow moving, but the company's increased focus on converting non-executable
15% Promoters
63%
orders into executable orders will lead to growth in revenue.
Earnings estimates revised and PT raised to Rs155; Hold: Though the order backlog
PRICE PERFORMANCE remains flattish, the BHEL management remains focused on the non-executable order
(%) 1m 3m 6m 12m backlog, which will be helpful in lifting earnings in the future. On the positive side, the
company is favourably placed in 12 GW of orders currently, out of which ~7 GW of
Absolute 2.8 1.3 10.0 -27.2
orders are likely to be finalised in FY2017. Despite the current challenging phase, the
Relative to Sensex 4.9 3.2 -0.1 -31.4 company managed to control cost during Q2FY2017 and earned provision write-back.
Given the improvement in Q2FY2017, we have revised upwards our earnings estimates
Sharekhan Limited, its analyst or dependant(s) of the analyst might be and rate the stock as 'Hold' with a revised price target (PT) of Rs155.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 14 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

CAPITAL FIRST
HOLD CMP: RS642 NOVEMBER 10, 2016
COMPANY DETAILS
Positive results but near-term events warrant caution
Price target: Rs760
Market cap: Rs5,932 cr KEY POINTS
52-week high/low: Rs796/348 Strong growth sustained; cost-to-income ratio improves QoQ: Capital First's (CAFL)
NSE volume (No of shares): 1.7 lakh results for Q2FY2017 were mixed, with a robust Net Interest Income (NII) and growth
BSE code: 532938 in Assets Under Management (AUM), but some niggles on the asset quality front have
NSE code: CAPF surfaced. On a consolidated basis, net total income at Rs315.1 crore grew by 70%
Sharekhan code: CAPF YoY and 13.4% QoQ, while pre-provision profit at Rs183.6 crore grew by 67% YoY
Free float (No of shares): 3.29 cr
and 5% QoQ. However, provisions of Rs103.1 crore (up 118% YoY and 3.6% QoQ)
were higher than expectation and impacted profit growth. Customer traction was also
SHAREHOLDING PATTERN
robust during Q2FY2017 and has been maintained since the last 12 quarters.
Public Asset quality maintained despite strong growth: Despite CAFL's strong 3-year AUM
36% CAGR of 29%, its asset quality has been stable and attractive. In Q2FY2017, gross
NPA improved to 0.98%, down 20BPS QoQ but up 12BPS YoY, which we find positive.
The management is confident of its Loan Against Property (LAP) segment performing
Promoter well despite the Government's recent demonetisation drive, since 1) all of its repayments
64% are via ECS/Direct Debit/PDC methods with negligible cash component and 2) LAP
loan-to-value ratio (LTV) is within the conservative 42-45% range.
PRICE PERFORMANCE Outlook and valuation: CAFL is led by an experienced and competent management,
(%) 1m 3m 6m 12m besides being backed by marquee private equity (PE) firm Warburg Pincus (owns 65%
Absolute -15.2 -12.5 32.8 69.1 stake). The company is one of the fastest-growing NBFCs. While the long-term positives
Relative to Sensex -12.8 -10.1 23.8 59.7 remain intact, we have a cautious stance, considering the still unfolding events in LAP
due to demonetisation. We have downgraded our rating to 'Hold' with a revised Price
Sharekhan Limited, its analyst or dependant(s) of the analyst might be Target (PT) of Rs760.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

CIPLA
HOLD CMP: RS528 NOVEMBER 09, 2016
COMPANY DETAILS
Price target: Rs605
Pressure continues on operations; Maintain Hold
Market cap: Rs42,422 cr with downwardly revised PT of Rs605
52-week high/low: Rs660/458
NSE volume (No of shares): 16.64 lakh
KEY POINTS
BSE code: 500087 Q2FY2017 performance weak and lower than expectation: Cipla's revenue for
NSE code: CIPLA Q2FY2017 grew by 8.6% YoY to Rs3,751 crore, in line with our expectation while
Sharekhan code: CIPLA operating profit declined by 13.4% YoY to Rs680.7 crore. Operating Profit Margin
(OPM) contracted by 460BPS to 18.1% and net profit dropped by 34.7% YoY to
Free float (No of shares): 50.8 cr
Rs354.3 crore.
SHAREHOLDING PATTERN
Institutions
Expect pressure on operations in near term: Cipla's management has guided for mid-
Public and
others 16% teens sales growth for the base business in FY2017 and OPM in the range of 16-18%.
23% Owing to the delay in the launch of inhalers in key markets and closure of acquisitions
(InvaGen and Exelan), Cipla is likely to face operational pressure in the near term.
Foreign
Also, the company's US portfolio is likely to experience pricing pressure due to increasing
24% competition and expected change in policies due to the newly elected government in
Promoters the US. During Q2FY2017, Cipla had USFDA inspection at its Goa plant and has
37%
reported four 483 observations though they are procedural in nature.
PRICE PERFORMANCE Maintain Hold with revised PT of Rs605: Taking cues from the interaction with the
(%) 1m 3m 6m 12m Cipla management and considering the pressure on the operational front, we have
Absolute -4.3 2.7 1.9 -16.8 maintained our earnings estimates for FY2017 and FY2018. We maintain our 'Hold'
Relative to Sensex -2.3 4.7 -7.4 -21.6 rating with a downwardly revised price target (PT) of Rs605, valuing it at 22x FY2018
earnings (against 24x earlier), owing to increasing pressure on operations and USFDA
Sharekhan Limited, its analyst or dependant(s) of the analyst might be issues at the Goa plant.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 15 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

CROMPTON GREAVES
HOLD CMP: RS83 NOVEMBER 08, 2016
COMPANY DETAILS
Price target: Rs85
Divesting Automation business to improve
Market cap: Rs5,199 cr balance sheet; revise PT to Rs85
52-week high/low: Rs89/32
NSE volume (No of shares): 42.3 lakh KEY POINTS
BSE code: 500093 Binding offer received for acquisition of Automation business: Crompton Greaves (CG)
NSE code: CROMPGREAV has received a binding offer from Alfanar for the acquisition of its B2B Automation
Sharekhan code: CROMPGREAV business (includes ZIV along with its subsidiaries) for an EV of EUR120 million, or
Rs880 crore. The deal is expected to consummate by January 2017.
Free float (No of shares): 41.1 cr
SHAREHOLDING PATTERN Balance sheet deleveraging to lift earnings: While the divestment of the overseas Power
Systems business is underway, the binding agreement to divest the Automation business
improves clarity on the ongoing restructuring drive. However, we believe this
Others
13%
Promoters development was not a complete surprise for the market, as the management had clearly
35%
articulated its intentions earlier. Currently, CG is having a gross debt of ~Rs1,250
DII
crore and a net debt of ~Rs500 crore. With the impending divestment of the overseas
34% Power Systems and the Automation businesses, CG could be a net cash positive company
FII by end-FY2018. However, we assume that the company will not need to make any
18%
major provision related to the divestment of the overseas Power Systems business, as it
has already provided a large chunk in the recent past.
PRICE PERFORMANCE
Earnings estimates fined-tuned; Hold with revised PT of Rs85: We believe that the
(%) 1m 3m 6m 12m divestment of the overseas Power Systems and Automation businesses would help CG
Absolute 11.8 6.6 46.6 47.1 to turn net cash positive in FY2018. On the one hand, the Automation business would
Relative to Sensex 14.0 8.6 33.2 38.6 not contribute to the operating income; while on the other hand, finance cost will drop
sharply due to deleveraging. Based on this, we have revised our earnings estimates as
Sharekhan Limited, its analyst or dependant(s) of the analyst might be well as the price target (PT) to Rs85 and upgraded our rating from 'Reduce' to 'Hold'.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

DIVI'S LABORATORIES
BUY CMP: RS1,175 NOVEMBER 22, 2016
COMPANY DETAILS
Price target: Rs1,430
Guidance maintained despite capacity constraint;
Market cap: Rs31,190 cr upgrade to Buy
52-week high/low: Rs1,380/918
NSE volume (No of shares): 3.6 lakh
KEY POINTS
BSE code: 532488 Q2FY2017 performance impacted due to one-offs: Divi's Laboratories' (Divi's)
NSE code: DIVISLAB Q2FY2017 revenue grew by 3.5% YoY to Rs1,005.4 crore. Adjusted operating profit
Sharekhan code: DIVISLAB
(adjusted for payment of one-time ex-gratia of Rs79 crore to employees) declined by
1.5% YoY to Rs370.3 crore. Operating Profit Margin (OPM) contracted by 188BPS
Free float (No of shares): 12.7 cr
to 36.8%. Adjusted net profit grew by 2.2% YoY to Rs303 crore due to lower tax rate
SHAREHOLDING PATTERN
(16% vs. 21%).
Public and Institutions
others 14% Long-term prospects remain intact: Q2FY2017 was a subdued quarter for Divi's, with
13% OPM shrinking owing to one-off impact. However, the management has maintained
its revenue growth guidance of 10-15% and OPM projection of ~37-38% for FY2017
Foreign and FY2018, as the Kakinada and Vizag expansion will only get commissioned in
21%
FY2019. Once the Rs750-crore capex for capacity expansion is over, revenue growth
Promoters FY2019 onwards can return to the higher trajectory. The current capacity utilisation
52%
across all plants remains in the range of 85-90%.
PRICE PERFORMANCE Upgrade to Buy with unchanged PT of Rs1,430: The Divi's management has maintained
(%) 1m 3m 6m 12m its revenue growth guidance of 10-15% for FY2017 and FY2018, factoring in some
Absolute -8.2 -10.0 12.1 2.9 delay in execution in the new projects. We have maintained FY2017 and FY2018
Relative to Sensex 0.0 -2.2 8.9 1.8 earnings estimates and also our price target (PT) of Rs1,430, valuing stock at 25x
FY2018 earnings. However, we upgrade the rating to 'Buy', taking into consideration
Sharekhan Limited, its analyst or dependant(s) of the analyst might be the company's consistent performance and strong balance sheet.
holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 16 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

FINOLEX CABLES
BUY CMP: RS433 NOVEMBER 10, 2016
COMPANY DETAILS
Stellar performance continues with impressive
Price target:
Market cap:
Rs550
Rs6,623 cr
margin; revised PT to Rs550
52-week high/low: Rs457/201 KEY POINTS
NSE volume (No of shares): 1.0 lakh Another quarter of strong delivery with robust volume growth: Finolex Cables (FCL)
BSE code: 500144 reported another quarter of impressive results, with Q2FY2017 numbers coming in
much ahead of our estimates. Adjusted net profit jumped by 65% YoY to Rs67 crore,
NSE code: FINCABLES
driven by substantial expansion in gross margin and very healthy volume growth in
Sharekhan code: FINCABLES Light Duty Electrical Cables segment. The Communication Cables business volume
Free float (No of shares): 9.59 cr grew by 12% YoY and enabled FCL to report an overall healthy volume growth.
SHAREHOLDING PATTERN Gross margins expanded by 625BPS YoY, as FCL did not pass the full benefit of falling
copper prices. Consequently, operating profit grew by 32% YoY to Rs100 crore. Further,
Others doubling of other income and a better operational performance lifted bottomline growth.
37% Promoters
37% Superior cash flow generation continues; new products being rolled out: The strong
cash conversion trend continued in H1FY2017, as FCF stood at ~Rs200 crore as against
EBITDA of Rs260 crore and PAT of Rs170 crore. What's more, the company is swiftly
rolling out the recently launched new products (Switchgears and Water Heater) in its
DIIs FII distribution channel in the next 1-2 quarters. Therefore, FCL should get sizeable revenue
18% 8% and margin should improve from these new products in FY2018. Moreover, it is worth
mentioning that FCL is going for an asset light model for these products (except
PRICE PERFORMANCE Switchgears), which will improve its return ratios going forward.
(%) 1m 3m 6m 12m Raise PT in line with earnings revision and reiterate Buy: Factoring in the healthy
Absolute -4.2 8.2 50.6 75.9 volume growth trend and better margin till H1FY2017, we have revised upwards our
earnings estimates by 12-15% for FY2017 and FY2018. What is more encouraging is
Relative to Sensex -1.5 11.2 40.4 66.1
that the superior cash flow generation continued in Q2FY2017. Therefore, we roll
over our valuation multiple to revised earnings base and raise our Price Target to
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
Rs550 and maintain our 'Buy' recommendation.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

GATEWAY DISTRIPARKS
HOLD CMP: RS247 NOVEMBER 10, 2016
COMPANY DETAILS
Price target: Rs275
Weak trade environment continues to affect
Market cap: Rs2,684 cr business; maintain Hold with revised PT of Rs275
52-week high/low: Rs360/206
KEY POINTS
NSE volume (No of shares): 1.4 lakh
Earnings continue to get affected by weak trade environment and increased competitive
BSE code: 532622 intensity: For Q2FY2017, Gateway Distriparks' (GDL) standalone adjusted net profit
NSE code: GDL declined by 39.7% YoY to Rs10.1 crore, owing to uneven export-import trade and
Sharekhan code: GDL lower realisation. The company's standalone net revenue declined by 2.0% YoY and
Free float (No of shares): 8.1 cr EBITDA was down 29.1% YoY. At the consolidated level, GDL's financials continue
to get affected by EXIM imbalance, weak trade environment and increasing competitive
SHAREHOLDING PATTERN intensity. Net profit before minority interest declined by 21.3% YoY. The company's
Promoters Cold Chain business was affected by higher depreciation and interest expenses, leading
25% FII
40%
to a 84.0% YoY drop in the adjusted net profit.
Expansion to continue across divisions: The Krishnapatnam CFS facility is expected to
Public & be operational by Q4FY2017. On the Railway front, the Viramgam Inland Container
others Depot (ICD) is expected to commission by the end of Q3FY2017/early Q4FY2017.
9%
GDL will expand Snowman Logistics' capacity by 15-20% while focusing on improving
Institutions
26%
its OPM further. We have fine-tuned our FY2017 and FY2018 volume and OPM
estimates.
PRICE PERFORMANCE Maintain Hold with revised PT of Rs275: We believe that the headwinds in the
(%) 1m 3m 6m 12m company's CFS and Rail divisions are expected to continue in the near term, which will
affect its financials. Although the structural long-term growth story remains intact for
Absolute -3.0 -5.4 -11.4 -22.1
GDL, the near-term uncertainties are likely to weigh on valuation. Consequently, we
Relative to Sensex -0.3 -2.8 -17.4 -26.4 maintain a 'Hold' rating with a revised Price Target (PT) of Rs275.
Risk: The risks to our call is an earlier-than-expected revival in the demand environment
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
and an improvement in OPM.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 17 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

GLAXOSMITHKLINE CONSUMER HEALTHCARE


HOLD CMP: RS5,711 NOVEMBER 08, 2016
COMPANY DETAILS
Price target: Rs6,400
Revival not in sight yet;
Market cap: Rs24,043 cr maintain Hold with revised PT of Rs6,400
52-week high/low: Rs6,800/5,367
NSE volume (No of shares): 11,976
KEY POINTS
BSE code: 500676
Muted performance continues; volume continues to be flat: GSK Consumer's Q2FY2017
underlying sales growth stood flat, with a negligible increase of 0.4% YoY. Reported
NSE code: GSKCONS net sales declined by 1.3% YoY to Rs1,135.6 crore due to one-off accounting adjustment
Sharekhan code: GSKCONS of 130BPS sitting in the base of last year. Gross margin stood flat at 57.8% while the
Free float (No of shares): 1.2 cr Operating Profit Margin (OPM) improved by 30BPS due to lower ad-spends. Thus, the
SHAREHOLDING PATTERN operating performance stood flat, which was largely in line with our as well as street's
expectations. The higher tax outgo led to a 9% YoY decline in the adjusted PAT to
Others Rs183.7 crore.
14%
FIIs
Market share gain sustained in HFD category: GSK Consumer maintained its leadership
9% position in the HFD category in Q2FY2017, with a value share of ~58% (reflecting a
gain of 0.6%) and volume market share of 66% (improvement of 1% YoY). Horlicks
Domestic and Horlicks' extension market share improved by 0.5% and 0.3%, respectively in
institutions
5%
Q2FY2017.
Promoters
72% Maintain Hold with revised PT of Rs6,400: We have reduced our earnings estimates
for FY2017/FY2018 by 8%/4.5% to factor in lower-than-estimated sales due to expected
PRICE PERFORMANCE slack in the revival of consumer demand. GSK Consumers' near-term performance has
(%) 1m 3m 6m 12m been affected by a slowdown in the overall HFD category. We expect volume growth
Absolute -7.0 -7.2 -1.2 -1.3 trajectory to gradually gain traction, with inflation easing out and demand environment
in rural markets expected to improve in the medium term. Further, the company has
Relative to Sensex -5.1 -5.4 -10.2 -7.0
strong cash kitty of Rs2,800 crore, which it can invest in future growth prospects and
maintain the hefty dividend payout. We maintain our 'Hold' recommendation with a
Sharekhan Limited, its analyst or dependant(s) of the analyst might be revised PT of Rs6,400. The stock is currently trading at 28.7x its FY2018E earnings.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

HERO MOTOCORP
BUY CMP: RS2,928 NOVEMBER 21, 2016
COMPANY DETAILS
Price target: Rs3,500
Demonetisation to impact volumes in near term;
Market cap: Rs58,472 cr PT revised to Rs3,500
52-week high/low: Rs3,740/2,375
NSE volume (No of shares): 3.9 lakh
KEY POINTS
BSE code: 500182 Demonetisation to hurt volumes in near term: The Government of India's decision to
NSE code: HEROMOTOCO demonetise the high-value currency notes (Rs500 and Rs1,000) is likely to result in
Sharekhan code: HEROMOTOCO
cash crunch and defer discretionary consumer purchases such as Two-Wheelers (2W).
The impact is expected to be severe in the rural areas where a large chunk of transactions
Free float (No of shares): 13.0 cr
are cash-based, with agriculture being the primary source of income. With the Kharif
SHAREHOLDING PATTERN
crop harvesting on and farmers preparing for Rabi sowing, the demonitisation would
Institutions
14% impact cash flows. This is likely to impact rural-focused automobile players, including
Hero MotoCorp (Hero), which derives more than half of its volumes from the rural
Foreign
42% areas. We expect the company's volume growth to moderate and envisage flattish sales
in H2FY2017.
Promoters
35% Long-term growth prospects intact; retain Buy with revised PT of Rs3,500: The recent
Public and
Others demonetisation will lead to deferment of demand for the Hero products. However, the
9%
volumes are likely to recover in the next 6-8 months once the macro-economic
PRICE PERFORMANCE environment attains stability. Long-term structural growth drivers, viz lower penetration
(%) 1m 3m 6m 12m of 2W, rising incomes and government's focus on improving farm income remain intact
Absolute -14.7 -9.2 1.4 14.6 and the 2W industry would retract to its long-term CAGR of 8-10%. Therefore, we
believe that Hero's long-term growth prospects are intact but will experience some
Relative to Sensex -10.8 -5.9 -4.3 8.9
pressure in the near term. We maintain our 'Buy' recommendation with a revised price
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
target (PT) of Rs3,500 (based on 18x average FY2018 and FY2019 earnings).
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 18 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

ICICI BANK
HOLD CMP: RS279 NOVEMBER 07, 2016
COMPANY DETAILS
Weak guidance, asset quality overhang clouds
Price target:
Market cap:
Rs310
Rs162,209 cr
operational strength
52-week high/low: Rs292/181 KEY POINTS
NSE volume (No of shares): 160.5 lakh ICICI Bank posted mixed results for Q2FY2017, with profit coming in better than
BSE code: 532174 expectation. But, the performance was helped by one-off gains and was overshadowed
NSE code: ICICIBANK by uninspiring asset quality outlook. Net Interest Income (NII) at Rs5,253 crore was
Sharekhan code: ICICIBANK flat YoY but grew by 1.8% QoQ on the back of softening Yield on Advances (8.82%),
which declined 24BPS QoQ, while the Cost of Funds (5.63%) declined by 12BPS QoQ.
Free float (No of shares): 581.9 cr
SHAREHOLDING PATTERN ICICI Bank saw a decent pick-up in domestic advances, which at Rs3,62,950 crore
were up by 16% YoY, led by strong growth in Retail Loans (up 21% YoY; 47.9% of
Public & total loans) and SME Loans (up 12% YoY; 4.3% of total loans). Total Advances
Foreign
others 38% increased by 11% YoY to Rs4,54,256 crore despite overseas advances declining by
51% 5.5% YoY.
ICICI Bank's asset quality worsened, with Net Non Performing Assets (NNPA) at
Rs16,483 crore, up 7.8% QoQ and Gross Non Performing Assets (GNPA) at Rs16,214
MF & FI crore, up by 7.8% QoQ. Net Restructured Corporate Loans stood at Rs6,336 crore,
11%
down by 12% YoY.
PRICE PERFORMANCE Outlook & valuation: ICICI Bank's management did not reaffirm Q1FY2017 guidance
(%) 1m 3m 6m 12m (30% of watchlist slippage can upgrade), which was a negative. Instead, it guided that
Absolute 4.5 12.3 28.4 0.8 H2FY2017 slippages can continue to be at the elevated level. ICICI Bank has a strong
Relative to Sensex 8.4 13.7 16.9 -3.4
retail franchise and has been prudent in its capital conservation (15% Tier 1), and
some of its loans have seen resolution and recovery recently. We revise our price target
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
(PT) to Rs310 and maintain our 'Hold' rating.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

KDDL
BOOK OUT CMP: RS212 NOVEMBER 16, 2016
COMPANY DETAILS
Market cap: Rs214 cr
Tough business environment ahead, Book out
52-week high/low: Rs367/162 KEY POINTS
BSE volume (No of shares): 20,846 Dismal performance continued in Q2FY2017: KDDL continued to post a dismal
quarterly performance, with its Q2FY2017 revenue growing by just 7% YoY to Rs118.0
BSE code: 532054 crore and the Operating Profit Margin (OPM) contracting by ~220BPS. Its standalone
Sharekhan code: KAMLADLS
revenue stood flat, while ETHOS revenue grew by 8% YoY. Consolidated operating
profit declined by 32% YoY to Rs6.5 crore, mainly on account of a sharp drop of 75%
Free float (No of shares): 0.5 cr YoY in the operating profit of ETHOS (largely due to sharp increase in fixed cost). The
SHAREHOLDING PATTERN company posted a loss of Rs0.5 crore in Q2FY2017 as against a profit of Rs5.6 crore
in Q2FY2016.
Shareholding
pattern Foreign
0%
Demonetisation to further intensify pain going ahead: KDDL's (ETHOS) H1FY2017
15%
Public & Others
performance was impacted by factors such as introduction of PAN rule for transactions
36% Institutions above Rs2 lakh and slowdown in the discretionary consumer spends. KDDL registered
1%
single-digit revenue growth and posted a loss of Rs1.7 crore. The demonetisation of
Rs500/Rs1000 notes would further add stress to the company's sales in the near to
Promoters medium term. Therefore, we expect recovery in sales to take some more time. On the
48%
other hand, the change in revenue mix to low-priced products and new store additions
PRICE PERFORMANCE would put pressure on consolidated OPM in the coming quarters.
(%) 1m 3m 6m 12m Exit - macro headwinds to remain a drag on financial performance, valuation: Though
Absolute 4.9 -15.0 43.8 -10.2 KDDL has one of the better business models in the retail space, the near-term headwinds
Relative to Sensex 9.7 -12.0 35.7 -14.6 will affect the company's operating performance in the near term. We expect KDDL's
consolidated revenue to fall by 70% YoY to Rs1.6 crore in FY2017. Therefore, we
Sharekhan Limited, its analyst or dependant(s) of the analyst might be advise investors to exit from the stock at the current level.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 19 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

LARSEN & TOUBRO


BUY CMP: RS1,329 NOVEMBER 22, 2016
COMPANY DETAILS
Price target: Rs1,640
In-line results exhibiting strong earnings growth;
Market cap: Rs123,775 cr retain Buy
52-week high/low: Rs1,615/1,017
NSE volume (No of shares): 17.3 lakh
KEY POINTS
BSE code: 500510
Q2FY2017 in line with estimate; strong earnings growth aided by other income: Larsen
& Toubro (L&T) reported strong earnings growth in Q2FY2017, with its adjusted
NSE code: LT PAT growing by 41% YoY to Rs1,032 crore, in line with our estimate. The operating
Sharekhan code: LT performance was also healthy, with the operating profit growing by 8% YoY, largely
Free float (No of shares): 93.1 cr in line with revenue growth. However, other income improved substantially (up 50%
SHAREHOLDING PATTERN YoY) while interest and depreciation costs dropped YoY. Consequently, the company's
reported PAT came in at Rs1,435 crore. However, it included one-time gain of Rs402
Foreign crore from the divestment of the General Insurance business. Excluding that, the adjusted
18%
PAT stood at Rs1,032 crore, up 41% YoY.
Others
43%
Healthy order backlog; retains guidance amid demonetisation challenges: The
consolidated order inflow grew by 9% YoY to Rs31,119 crore, mainly boosted by
strong domestic orders in the Infra and Power segments. However, the International
orders were weak in this quarter.
DIIs
39% View - short-term challenges ahead but recent correction presents a buying opportunity:
Though the L&T management retained its revenue growth and margin expansion
PRICE PERFORMANCE guidance, we believe that due to 'demonetisation', the company could face execution
(%) 1m 3m 6m 12m challenges, especially in Civil and Real Estate projects. Against this backdrop, we have
Absolute -10.8 -9.8 8.7 -0.2 fined-tuned our earnings estimates for FY2017 and FY2018. Along with the general
market correction, the stock has corrected recently and any further weakness in the
Relative to Sensex -2.8 -2.0 5.6 -1.2
stock price should be used as a buying opportunity. Therefore, we reiterate our 'Buy'
recommendation with an unchanged price target (PT) of Rs1,640, based on the SoTP
Sharekhan Limited, its analyst or dependant(s) of the analyst might be valuation.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

MAHINDRA & MAHINDRA


BUY CMP: RS1,242 NOVEMBER 11, 2016
COMPANY DETAILS
Price target: Rs1,450
Demand outlook strong;
Market cap: Rs77,130 cr maintain Buy with revised PT of Rs1,450
52-week high/low: Rs1,509/1,092
KEY POINTS
NSE volume (No of shares): 10.2 lakh
Q2FY2017 results boosted by one-time incentives, higher other income; adjusted
BSE code: 500520 performance broadly in line: Mahindra & Mahindra (M&M) revenue grew by 16%
NSE code: M&M YoY to Rs10,172 crore, driven by 19% YoY volume growth. Operating Profit Margin
Sharekhan code: M&M (OPM) at 14.4% improved by 140BPS and was ahead of our estimate of 13.2%. Greater
Free float (No of shares): 46.4 cr
proportion of high-margin Tractor business and operating leverage led to the
improvement in OPM. Further, one-time incentive for the Chakan plant (Rs100 crore)
SHAREHOLDING PATTERN led to higher-than-estimate OPM. Adjusting for the same, OPM stood at 13.5%, which
Corporate
Bodies
was broadly in line with estimate. Boosted by a higher other income (up 41% YoY),
6% the PAT was up by 29% YoY at Rs1,253 crore - coming in ahead of our expectation.
Institutions Foreign Rural sentiments improve; expect double-digit growth in Auto, Tractor segments: A
normal monsoon this year after two consecutive years of drought (monsoon was 97%
18% 43%

of LTA) has led to an improvement in rural sentiments. Further, new launches in the
Promoters Automotive segment (M&M launched upgraded version of Bolero, aimed at rural
25% Public and
Others
markets and is planning to launch petrol variant of its premium vehicle XUV) would
8% boost sales. Tractor sales also improved significantly in H1FY2017 and the management
PRICE PERFORMANCE expects the demand traction to sustain going ahead.
(%) 1m 3m 6m 12m Valuation: M&M is likely to witness 13% topline and 16% bottomline CAGR over
FY2016-FY2018, given the improvement in the rural sentiments post a normal monsoon.
Absolute -3.0 -10.0 -0.4 7.6
While the long-term demand potential is strong, the same is likely to be impacted in the
Relative to Sensex -0.2 -7.5 -7.1 1.6 near term due to demonetisation. We have reduced our earnings estimates by 3% and
8% for FY2017 and FY2018, respectively, to factor in the impact on volumes. We
Sharekhan Limited, its analyst or dependant(s) of the analyst might be maintain 'Buy' with a revised Price Target (PT) of Rs1,450.
holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 20 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

ORBIT EXPORTS
HOLD CMP: RS260 NOVEMBER 23, 2016
COMPANY DETAILS
FY2017 year of consolidation, FY2018 to be better;
Price target:
Market cap:
Rs310
Rs373 cr
downgrade to Hold, PT revised to Rs310
52-week high/low: Rs494/205 KEY POINTS
NSE volume (No of shares): 9,061
Revenue down due to global downturn and exit from low-margin business: In
BSE code: 512626 Q2FY2017, Orbit Exports' overall revenue contracted by 21.9% YoY. The company's
NSE code: ORBTEXP revenue mix is dominated by exports. As a result, slowdown in the Middle East and
Sharekhan code: ORBTEXP currency devaluation in Latin America adversely affected the company's exports in
Free float (No of shares): 0.6 cr Q2FY2017. The company has stopped its trading activity in the domestic market,
SHAREHOLDING PATTERN which was yielding low margins of ~5-7%. Consequently, revenue declined by Rs11
Institutions crore in Q2FY2017. Orbit management has indicated that the impact of discontinuation
2% of the trading business on the topline would continue in H2FY2017 too.
Public & Operational efficiency results in stable OPM; Drop in PAT in line with revenue fall:
Others
36%
Relatively stable RM prices and better operating efficiencies resulted in the total
expenditure falling by 20.4% YoY and the Operating Profit Margin (OPM) contracting
Promoters
by just 100BPS to 33.6%, even though the revenue witnessed a sharp double-digit
62% drop. The PAT came in at Rs6.8 crore, down by 21% YoY, which is in line with the
fall in the topline.
PRICE PERFORMANCE
Downgrade to Hold with revised PT of Rs310: The Orbit management is confident of
(%) 1m 3m 6m 12m
recovery in FY2018, with a focus on growing high-margin businesses such as Ribbons
Absolute -1.9 2.6 -5.6 -32.7
& Made-ups followed by Jacquards. Also, Orbit has one of the better balance sheets in
Relative to Sensex 6.8 11.5 -8.3 -33.4 the Textile industry and we expect it to improve further in the coming years. However,
in view of near-term concerns in the export markets, we downgrade Orbit from 'Buy'
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
to 'Hold' with a revised price target (PT) of Rs310.
For detailed report, please visit the Research section of our website, sharekhan.com.

RAYMOND
HOLD CMP: RS632 NOVEMBER 03, 2016
COMPANY DETAILS
Price target: Rs675
Mixed performance;
Market cap: Rs2,399 cr Maintain Hold with revised PT of Rs675
52-week high/low: Rs654/351
NSE volume (No of shares): 23.0 lakh KEY POINTS
BSE code: 500330 Mixed performance: Raymond posted a mixed Q2FY2017 performance, with revenue
NSE code: RAYMOND growing by 12.1% YoY to Rs1,553.6 crore and operating profit declining by 10.9%
Sharekhan code: RAYMOND
YoY to Rs102.7 crore. Higher other income, lower interest cost and reduced incidence
of tax led to strong double-digit growth of 50%+ in the adjusted PAT. The revenue
Free float (No of shares): 3.5 cr
growth was much better than the ~5% YoY growth achieved in Q1FY2017, mainly
SHAREHOLDING PATTERN driven by strong low- to mid-teen revenue growth in Textiles, Branded Apparels and
Foreign
17%
Garmenting businesses.
Public &
Others Key management comments: The Raymond management indicated that growth in the
39% Branded Apparels and Textiles businesses improved from September 2016 due to the
Institutions upcoming festival and marriage season. Therefore, H2FY2017 is expected to be much
21%
better, as most festivals are falling during this period. It will continue to focus on
Promoters
7% Non-promoter
expanding its retail reach with the addition of 30-40 stores and renovation of 45-50
corporate stores in H2FY2017. Also, it will continue to work on cost optimisation and productivity
5%
enhancement to mitigate the impact of rising raw material prices on profitability.
PRICE PERFORMANCE Outlook and valuation: We have fine-tuned our earnings estimates to factor in better-
(%) 1m 3m 6m 12m than-expected growth in the Branded Apparels and Garmenting businesses and lower
Absolute 16.0 35.5 47.9 48.5 Operating Profit Margin (OPM). The company is focusing on strengthening its balance
sheet by improving the working capital management and reducing debt. However, the
Relative to Sensex 15.7 35.7 34.2 39.6
current valuation of 21x FY2018E earnings does not provide much upside from the
current level. Hence, we maintain our 'Hold' rating with a revised sum-of-the-parts
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
target of Rs675 (rolling over PT to average FY2018-FY2019 earnings).
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 21 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

RELAXO FOOTWEARS
BUY CMP: RS410 NOVEMBER 10, 2016
COMPANY DETAILS
Price target: Rs525
Revenue growth improves QoQ;
Market cap: Rs4,932 cr retain Buy with revised PT of Rs525
52-week high/low: Rs531/360
NSE volume (No of shares): 21,001
KEY POINTS
BSE code: 530517
Revenue and PAT grow at single-digit rate; volume offtake yet to improve: For
Q2FY2017, Relaxo Footwears' revenue grew by 8.2% YoY to Rs418.2 crore, driven
NSE code: RELAXO by a moderate pick-up in sales. Gross margin declined by 90BPS to 58.0% due to
Sharekhan code: RELAXO higher rubber prices. However, stringent cost management measures helped the company
Free float (No of shares): 3.0 cr to maintain OPM at 13.3%. Operating profit grew by 9.2% YoY to Rs55.8 crore
SHAREHOLDING PATTERN while PAT grew by 13.3% YoY to Rs27.3 crore (largely due to 35% fall in interest
cost).
Foreign
Public & 4%
Institutions
Topline growth to improve in medium term, but with a lag: With rural demand expected
Others
6%
2% to pick up and festive/marriage season falling in H2FY2017, the Relaxo management
Non- expects growth rate to improve in H2FY2017. We expect demand to gain traction
promoter
corporate with a lag in view of demonetisation of the Rs500/Rs1000 currency notes affecting
13% consumption for in the short term. Therefore, a revival in consumer sentiment is likely
in Q4FY2017. Also, the spike in rubber prices would put gross margin under stress in
Promoters
75%
the near term. But, better operating efficiency would result in flat Operating Profit
Margin (OPM) YoY in FY2017, with gradual improvement expected in FY2018.
PRICE PERFORMANCE Cut earnings estimates: We have reduced our earnings estimates for FY2017/FY2018
(%) 1m 3m 6m 12m by 5%/3% to factor in slower revenue growth and lower OPM due to higher rubber
Absolute -9.5 -14.6 -21.4 -22.7 prices.
Relative to Sensex -7.0 -12.3 -26.8 -27.0 Maintain Buy with revised PT of Rs525: Relaxo's stock price has corrected by ~12%
in the last two months and is currently trading at 27.7x its FY2018E EPS of Rs14.8,
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
which implies limited downside risk from the current level. Therefore, we maintain our
holding or having a postition in the companies mentioned in the article. 'Buy' recommendation with a revised price target (PT) of Rs525.
For detailed report, please visit the Research section of our website, sharekhan.com.

RICO AUTO INDUSTRIES


BUY CMP: RS67 NOVEMBER 11, 2016
COMPANY DETAILS
Price target: Rs84
Robust operating performance continues;
Market cap: Rs900 cr maintain Buy with a revised PT of Rs84
52-week high/low: Rs75/28
KEY POINTS
NSE volume (No of shares): 10.8 lakh
Strong operating performance in Q2FY2017; Earnings beat estimates: Rico Auto
BSE code: 520008 Industries' consolidated topline grew by 15.5% YoY to Rs282 crore (our estimate
NSE code: RICOAUTO Rs278 crore) on the back of improved offtake from key clients such as Hero MotoCorp,
Sharekhan code: RICOAUTO Maruti and Renault. Margin for the standalone business (90% of overall topline)
improved by 150BPS YoY to 11%, owing to savings in Power & Fuel costs and operating
Free float (No of shares): 6.75 cr leverage. Also, EBIDTA of subsidiaries improved to Rs8.67 crore in Q2FY2017 from
SHAREHOLDING PATTERN Rs5.44 crore in Q2FY2016, driven by cost control measures. Consequently, consolidated
EBITDA grew by 35% YoY to Rs36 crore, coming in ahead of our estimate. Lower
Institutions
4% interest costs resulted in the adjusted PAT growing by 66% YoY to Rs17.5 crore,
which was ahead of our estimate of Rs14.9 crore.
Ramp-up at Chennai plant, commissioning of Rajasthan plant provide visibility on
topline growth: Rico has commissioned its new plant at Chennai and is further ramping
Promoters up production to cater to the increasing demand from Renault India for its compact
Public and
50%
Others
car Kwid. Also, the proposed new plant at Rajasthan is expected to commence operations
46% by Q3FY2018 and will start contributing to the topline.
Maintain Buy with a revised PT of Rs84: Driven by a strong demand outlook and
PRICE PERFORMANCE
consequent plans to ramp up capacity, we expect Rico's revenue to grow at 14.5%
(%) 1m 3m 6m 12m CAGR between FY2016 and FY2018. Further, the company's margins are likely to
Absolute -3.0 22.5 88.6 54.3 improve due to a better product mix, operating leverage and improved profitability of
subsidiaries/JV. We have retained our earnings assumptions for FY2017/FY2018. We
Relative to Sensex -0.3 25.8 75.8 45.7
have also introduced FY2019 earnings estimates in this note. We maintain 'Buy' rating
and raise our price target (PT) to Rs84, as we roll our PT to average FY2018 and
Sharekhan Limited, its analyst or dependant(s) of the analyst might be FY2019 earnings.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 22 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

SPECIALITY RESTAURANTS
BOOK OUT CMP: RS81 NOVEMBER 11, 2016
COMPANY DETAILS
Market cap: Rs380 cr
Revival unlikely in near term, book out
52-week high/low: Rs148/80 KEY POINTS
NSE volume (No of shares): 35,275 Dismal performance in H1FY2017; higher operating cost hurting profitability: Speciality
BSE code: 534425 Restaurants (SRL) registered a dismal performance in H1FY2017, with revenue coming
NSE code: SPECIALITY in flat YoY and higher operating cost resulting in a loss of Rs8.4 crore. The sustained
disappointing performance of the past few quarters is largely on account of subdued
Sharekhan code: SPECIALITY
discretionary consumption affecting the fundamentals of the Fine Dining sector. The
Free float (No of shares): 2.1 cr lower footfalls (especially during weekdays) and higher operational & rental costs
SHAREHOLDING PATTERN affected the profitability of restaurant operations (especially new restaurants, which
Others are taking longer time to break even at the operating level).
24%
Demonetisation to worsen pain; higher operating cost to dent margins: The government's
decision to demonetise Rs500/Rs1000 currency notes will further add stress to the
Promoters discretionary consumption spends in the near term (the festival season is one of the
51%
DII strongest period for Fine Dining/Restaurant business in India). Though the company
20% has taken some aggressive steps by closing some of its non-profitable hotels, the closure
FII
5% will have initial impact on the revenue performance in the near term. Thus, all these
factors would result in a muted operating performance for a few more quarters.
PRICE PERFORMANCE
No signs of revival in near term, book out: The revival in SRL's operating performance
(%) 1m 3m 6m 12m
will take time and we expect the company to post a loss of ~Rs5 crore in FY2017. We
Absolute -3.0 -6.6 -5.6 -28.1
also expect the muted performance to continue in FY2018 (unless there is a stark
Relative to Sensex -0.3 -4.0 -12.0 -32.1 improvement in discretionary consumption environment). Therefore, we advise our
investors to exit from the stock.
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

STATE BANK OF INDIA


BUY CMP: RS273 NOVEMBER 11, 2016
COMPANY DETAILS
Price target: Rs320
Attractive business franchise,
Market cap: Rs211,846 cr positive cues to manifest in the long term
52-week high/low: Rs288/148
NSE volume (No of shares): 217.2 lakh KEY POINTS
BSE code: 500112 During Q2FY2017, State Bank of India (SBI) reported a marginal 1.3% YoY rise in
NSE code: SBIN Net Interest Income (NII), owing to relatively slower loan book growth of 7.2% YoY
Sharekhan code: SBIN and contraction in Net Interest Margin (NIM) to 2.80%. Other Income (OI) grew by
35.9% YoY, mainly driven by 53.4% YoY uptick in Treasury Gains (27% of OI) and
Free float (No of shares): 309.1 cr
strong 36.9% YoY growth in the Fee Income (51% of OI).
SHAREHOLDING PATTERN
Domestic NIM declined by 27BPS YoY to 3.05% in Q2FY2017 while overseas NIM
Public improved by 4BPS YoY to 1.37%, resulting in overall NIM of 2.80%, down 21BPS
39% YoY and flat QoQ. Lower interest rates and slowdown in Corporate Loan Book are
the main reasons for the fall in yields.
SBI's Gross Non Performing Assets (GNPA) rose to 7.14%, up 299BPS YoY and 20BPS
Promoter QoQ while Net Non Performing Assets (NNPA) stood at 4.19%, up 205BPS YoY and
61%
14BPS QoQ. Provisions rose to Rs7,897 crore, up 81% YoY, mainly due to Loan Loss
Provisions (LLP) growing to Rs7,670 crore (up 99% YoY) - thereby impacting the
bank's PAT growth. Notably, while fresh slippages of Rs10,341 crore (Rs4,843 crore
PRICE PERFORMANCE
from watch list) against Rs8,790 crore (Rs2,947 crore from watchlist) in Q1FY2017 is
(%) 1m 3m 6m 12m a negative, we believe that the watchlist declining 25% since FY2016 is a good sign.
Absolute 0.5 10.6 39.6 7.0 Valuation and outlook: SBI is also better placed due to a higher share of low-cost
Relative to Sensex 3.3 13.6 30.1 1.1 deposits, comfortable capital adequacy ratio and improving operating profitability.
Going forward, as the pace of slippages tapers off, it can be an attractive business
Sharekhan Limited, its analyst or dependant(s) of the analyst might be franchise. We maintain our 'Buy' rating with a revised Price Target (PT) of Rs320.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 23 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

SUN PHARMACEUTICAL INDUSTRIES


BUY CMP: RS667 NOVEMBER 10, 2016
COMPANY DETAILS
Price target: Rs845
Stable long-term outlook;
Market cap: Rs160,527 cr maintain Buy, PT cut to Rs845
52-week high/low: Rs898/572
NSE volume (No of shares): 33.3 lakh
KEY POINTS
BSE code: 524715 Strong operating performance: Sun Pharmaceutical Industries (Sun Pharma) reported
90.2% YoY growth in its Q2FY2017 net profit at Rs2,471.1 crore. Revenue grew by
NSE code: SUNPHARMA
20.2% YoY to Rs8,265 crore. This included milestone payments of $45 million as a
Sharekhan code: SUNPHARMA part of the licensing agreement signed with Almirall and one-month inclusion of benefit
Free float (No of shares): 108 cr from gGleevec's 180-day exclusivity. India sales stood at Rs2,009 crore, up 11% YoY.
SHAREHOLDING PATTERN US Finished Dosages sales at $555 million were up 9% YoY. US sales included the
Public and
benefit of 180-day exclusivity for Imatinib, which lasted till July 2016. R&D investments
others
Institutions
10.9%
were Rs570 crore, or 7.3% of sales compared to Rs498 crore, or 7.3% of sales.
11.4%
Long-term outlook remains stable: The management sounded confident of getting the
issues resolved at Halol in the near term, which will act as key upside trigger. The
Foreign
22.7%
management is also confident of getting $300 million synergy benefit from the Ranbaxy
integration, which should be evident from FY2018. Also, the Specialty segment is
Promoters expected to perform well, as the company gears up for the launch of BromSite drug
55.0% (used to treat Dry Eye disease). Also, very recently, Sun Pharma launched Authorized
PRICE PERFORMANCE Generics (AG) for Benicar, Benicar HCT, Azor and Tribenzor. Therefore, we expect
(%) 1m 3m 6m 12m
Sun Pharma's H2FY2017 financial performance to be positive and long-term
performance to be solid.
Absolute -12.0 -20.2 -17.8 -12.6
Maintain 'Buy'; PT cut to Rs845: We have maintained our earnings estimates for FY2017
Relative to Sensex -9.6 -18.1 -23.4 -17.5
and FY2018. We maintain our 'Buy' rating with a downward revision in Price Target
(PT) to Rs845, valuing the stock at 25x FY2018E earnings vs 28x earlier due to
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
uncertainty related to the outcome of the USFDA inspection at Halol.
For detailed report, please visit the Research section of our website, sharekhan.com.

THE RAMCO CEMENTS


HOLD CMP: RS607 NOVEMBER 09, 2016
COMPANY DETAILS
Price target: Rs655
Impressive performance continues; maintain Hold
Market cap: Rs14,451 cr with revised PT of Rs655
52-week high/low: Rs685/355
KEY POINTS
NSE volume (No of shares): 1.9 lakh
Strong volume growth momentum sustains along with reduction in debt: For Q2FY2017,
BSE code: 500260
The Ramco Cements has reported robust earnings growth, as better cost management
NSE code: RAMCOCEM and higher volume (up 18.9% YoY) in Southern India offset lower realisation (down
Sharekhan code: RAMCOCEM by 2.2% YoY). Revenue grew by 15.0% YoY to Rs1,020 crore, but Operating Profit
Free float (No of shares): 13.7 cr Margin (OPM) saw a sharp jump of 177BPS YoY to 35.0%. Consequently, EBITDA
SHAREHOLDING PATTERN improved by 6.8% YoY to Rs1,509 per tonne. Further, lower interest cost (due to
reduction of borrowings) led to a net profit of Rs207 crore as against Rs130 crore
Public & others
14%
during Q2FY2016.
Lower fuel & freight cost boosts operating performance: During Q2FY2017, the
Foreign
16%
company's OPM improved substantially on account of cost saving measures across
Promoter
42% cost heads. Further, the management expects to sustain operating efficiencies in the
coming quarters too on the back of ongoing cost-saving initiatives (the company is
MF & FI
targeting higher use of Pet Coke). Additionally, it reduced borrowings by ~Rs351 crore
28% during Q2FY2017. It is planning a capex of ~Rs150 crore in FY2017 to increase its
PRICE PERFORMANCE
capacity further by 0.5 million tonne.
(%) 1m 3m 6m 12m
Reiterate Hold with revised PT of Rs655: We have revised upwards our estimates for
FY2017 and FY2018 to factor in higher volumes, margin improvement and lower
Absolute -0.8 8.6 29.8 65.8
leverage. After the recent appreciation, the stock is trading at 10.7x its FY2018E
Relative to Sensex 1.2 10.7 17.9 56.2 EBIDTA. Thus, owing to limited upside from the current level (unfavorable risk-return
ratio), we are maintaining our 'Hold' recommendation with a revised price target (PT)
Sharekhan Limited, its analyst or dependant(s) of the analyst might be of Rs655.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

December 2016 24 Sharekhan ValueGuide


EQUITY FUNDAMENTALS STOCK UPDATE

V-GUARD INDUSTRIES
BUY CMP: RS173 NOVEMBER 25, 2016
COMPANY DETAILS
Just a speed breaker on long smooth ride;
Price target:
Market cap:
Rs210
Rs5,190 cr
PT cut to Rs210
52-week high/low: Rs226/79 KEY POINTS
NSE volume (No of shares): 2.8 lakh Demonetisation to hurt volume in short term: The Government of India's demonetisation
BSE code: 532953 move is an unprecedented event. We believe this step is positive in the long run, but in
the near term, it has resulted in a severe cash crunch. A large swathe of the Indian
NSE code: VGUARD
economy, especially the small towns and rural areas, are having predominantly cash-
Sharekhan code: VGUARD based transactions. In the metro and large cities, where majority people opt for plastic
Free float (No of shares): 10.4 cr money or finance schemes, consumers may choose to defer their discretionary purchase
SHAREHOLDING PATTERN decisions in the short term. Therefore, we expect V-Guard's business to get adversely
impacted in H2FY2017 and Q1FY2018.
Others
10% We cut earnings estimates to factor in near-term impact of demonetisation: We believe
DIIs that V-Guard's volume would be affected by the demonetisation event at least for the
12% next couple of quarters, as most of its products are discretionary in nature. However,
the impact would not be permanent, as most of the products have small-ticket price
FII
tags and consumers would be comfortable to buy these products once the cash crunch
Promoters
13% 65% eases. Against this backdrop, we have cut our FY2017 and FY2018 earnings estimates.
However, we retain our FY2019 earnings estimate.
Valuation - We cut earnings estimates and PT: Factoring in the demonetisation event,
PRICE PERFORMANCE we now build earnings CAGR of 20% during FY2016-FY2019E as opposed to the
(%) 1m 3m 6m 12m earlier estimate of 22%. Further, the management's efforts to expand margins through
Absolute -8.5 -3.8 42.3 84.4 deeper penetration in the non-South markets will continue to drive future earnings
with superior business economics. Moreover, with a debt-free balance sheet and
Relative to Sensex -0.3 4.5 38.2 82.4
sustained free cash flow, V-Guard will be comfortably placed to pursue its future
inorganic endeavors. Therefore, we retain 'Buy' with a revised price target (PT) of
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
Rs210.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

WONDERLA HOLIDAYS
BUY CMP: RS339 NOVEMBER 18, 2016
COMPANY DETAILS
Price target: Rs395
Demonetisation would affect footfalls in H2FY2017;
Market cap: Rs1,915 cr PT revised to Rs395
52-week high/low: Rs430/320
NSE volume (No of shares): 72,019 KEY POINTS
BSE code: 538268 H2FY2017 footfalls face danger from demonetisation: Demonetisation of Rs500 and
Rs1,000 currency notes would have a larger impact on the discretionary consumer
NSE code: WONDERLA
spends (including Restaurants and Amusement Park businesses). Being a seasonally
Sharekhan code: WONDERLA strong quarter for Wonderla Holidays (WHL), Q3FY2017 would see an adverse impact
Free float (No of shares): 1.64 cr of demonetisation on its footfalls, as the average ticket price at its three amusement
SHAREHOLDING PATTERN parks is in the range of Rs700-Rs1,100 per person. Further, the lower footfalls are
likely to affect the growth of non-ticket revenues in the near term. Overall, WHL is
Others
12% expected to post muted operating performance at its three amusement parks in
H2FY2017.
Institutions
5% Earnings estimates cut: We have reduced our earnings estimates by 10% each for FY2017
Foreign
and FY2018 to factor in the slower growth in the footfalls at the company's Bangalore
12% Promoters
71%
and Kochi amusement parks.
Near term pain in footfalls will sustain; FY2018 to be better: WHL's FY2017 operating
performance is expected to be subdued due to events such as political unrest in Bangalore,
floods in Hyderabad and the government's demonetisation move. The demonetisation
PRICE PERFORMANCE effect will put the footfalls under a strain in the short term (unless liquidity improves in
(%) 1m 3m 6m 12m the economy). However, we expect the footfalls to improve in the backdrop of a stable
Absolute -9.4 -9.5 -4.3 5.9 economy and decelerating inflation. The stock has already corrected by 18% in the last
one month and is trading at ~12.7x EV/EBIDTA on FY2018 estimates. Although we
Relative to Sensex -5.3 -6.3 -9.7 0.7
expect the operating performance to be subdued in the short term, the long-term growth
prospects of the company are intact. Therefore, we maintain our 'Buy' recommendation
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
with a revised price target (PT) of Rs395.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

Sharekhan ValueGuide 25 December 2016


STOCK UPDATE EQUITY FUNDAMENTALS

ZEE ENTERTAINMENT ENTERPRISES


BUY CMP: RS440 NOVEMBER 25, 2016
COMPANY DETAILS
Price target: Rs600
Demonetisation to impact earnings in near term;
Market cap: Rs42,245 cr retain Buy with revised PT of Rs600
52-week high/low: Rs588/350
NSE volume (No of shares): 20.3 lakh KEY POINTS
BSE code: 505537 Acquires Reliance's broadcast TV business: Zee Entertainment Enterprises (ZEEL) will
NSE code: ZEEL acquire two entertainment channels (Big Magic and Big Ganga), and four other TV
Sharekhan code: ZEEL licenses from the Anil-Ambani led Reliance Group. AThe management expects to achieve
Free float (No of shares): 54.7 cr EBITDA breakeven by the time consolidation of the acquisition is complete (H2FY2018).
SHAREHOLDING PATTERN Expanding regional channel portfolio: Big Magic offers diverse content in the comedy
Corporate
genre with a reach of 85 million homes across India, whereas Big Ganga is a leading
Bodies
3%
Bhojpuri channel with over 50% market share in Bihar and Jharkhand. Further, the
Institutions
4% CENVAT credit for these channels was Rs60 crore. Given the total accumulated loss
and CENVAT credit, ZEEL will get the benefit of lower tax incidence.
Foreign
Promoters
48%
Cutting estimates to factor in demonetisation impact: Owing to the Government's
43%
demonetisation move, we expect reduction in advertising spends for the next 2-3 quarters
from FMCG and Auto companies. However, we expect revival in Ad Spend once the
Public and
Others

demonetisation effect abates by Q2FY2018. We have cut our Ad revenue growth


2%

PRICE PERFORMANCE estimates for H2FY2017 to 2.9% YoY from 7.5% earlier.
(%) 1m 3m 6m 12m Maintain Buy with revised PT of Rs600: We expect the recent acquisition to help
Absolute -17.0 -13.8 0.4 10.1 ZEEL expand its regional presence and to facilitate foray into the comedy genre. From
Relative to Sensex -9.6 -6.3 -2.5 8.9 a long-term perspective, we continue to be positive on ZEEL, as it is a structural India
consumption theme, and expect its growth trajectory to improve further in the coming
Sharekhan Limited, its analyst or dependant(s) of the analyst might be years. We maintain our 'Buy' rating with a revised price target (PT) of Rs600.
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.

CEAT VIEWPOINT X
BOOK PROFIT CMP: RS1,280 NOVEMBER 30, 2016
Demonetisation to impact demand in near term;
Book profit with handsome gains of 24% in three months
Key points the Passenger OEM (2W and PV) demand, as buyers who prefer
Long-term growth levers in place; Book profit: We had initiated to deal in cash would defer purchases. OEM sales, forming
a viewpoint note on CEAT at a CMP of Rs1,031 on September ~25% of CEAT's revenues, are likely to report flat volumes in
8, 2016. The stock has delivered an absolute return of 24% the near term. Also, the impact of demonetisation is likely to be
since then. Our positive view on the stock was based on the felt in the CV replacement segment (~30% of CEAT's sales), as
company's initiatives to focus on high-margin Passenger Vehicle the fleet utilisation is likely to get affected due to lower freight
(PV) business and foray into high-margin Speciality Tyres demand.
(Agricultural Tyres). Secondly, FY2017 is expected to be a peak Stock trading close to historical average multiples; Book profit:
capex year for CEAT, with the company's debt-to-equity ratio H2FY2017 performance is likely to be impacted, given the
(D/E) expected to drop from 0.53x in FY2017 to 0.25x in adverse fallout of demonetisation. Also, the recent firming up
FY2019.However, owing to a weak demand outlook for tyres of natural rubber prices (up 5% in the domestic market and
in the near term, triggered by the demonetisation drive, and the 13% in the international market in the last one month) are
recent run-up in the stock price (factoring in most positives), likely to put pressure on margins going ahead. At the CMP of
we recommend investors to book profit. Rs1,280, the stock is trading at 11.8x FY2018 and 9.2x FY2019
Demonetisation to hurt demand in near term: The Government's earnings, respectively, which is close to its long-term average
move to demonetise high-denomination currency notes (Rs500, historical multiple. We therefore recommend investors to book
Rs1,000) has resulted in a cash crunch. This is likely to impact profit and wait for a better price point to re-enter the stock.

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.

December 2016 26 Sharekhan ValueGuide


EQUITY FUNDAMENTALS VIEWPOINT

DHANUKA AGRITECH VIEWPOINT


VIEW: POSITIVE CMP: RS725 NOVEMBER 10, 2016
Long-term growth levers intact; Maintain positive view
Key points
Good performance in Q2FY2017 across parameters: Dhanuka to be well accepted in the markets and should add to the revenues
Agritech (DAL) reported strong numbers for Q2FY2017 across going ahead. Overall channel inventory declined during
key parameters. Revenue grew by 14% YoY to Rs309 crore, Q2FY2017, pointing at strong demand for the company's
largely driven by volumes. A normal southwest monsoon and products. Further, increase in Pulses acreage pan-India, including
good demand for recently-launched products aided volume in the key states of Andhra Pradesh, Telanga and Gujarat, could
growth. Operating Profit Margin (OPM) expanded by 250BPS result in strong demand for DAL's products. Going forward,
YoY to 22.5% due to the benefits of operating leverage and the outlook for the upcoming Rabi season remains positive due
savings in raw material cost. Operating profit grew by 28% to a normal southwest monsoon and adequate water levels in
YoY to Rs69.5 crore. Depreciation charge increased to Rs3.4 the reservoirs.
crore from Rs1.3 crore in Q2FY2016 on account of the Reiterate positive view: DAL, which is a major player in the
commissioning of the Keshwana plant in Q1FY2017. Tracking Agrochemicals space, is likely to be a key beneficiary of the
the strong operating performance, the Profit After Tax (PAT) improved demand outlook, good acceptability of its recently-
increased to Rs49 crore. launched products, strong new product pipeline and a well-
New product launches, positive outlook for Rabi season to aid penetrated distribution network (~8,800 distributors; 80,000
growth: DAL has guided for a ~20% CAGR for the next two retailers). Thus, we feel that the company can comfortably
years and margin improvement of ~50BPS for FY2017 and achieve the targeted 20% CAGR in topline and 50BPS
FY2018 each. The company has launched three new products improvement in OPM for the next two years. We reiterate our
in Q2FY2017 - Bullon, Aashito and Delight. Both Bullon and 'Positive' view and expect ~10% upside from the current price.
Aashito are insecticides and are in-licensing products, primarily
targeted at Cotton, Pulses, Tomatoes and Chilies. Delight is a For detailed report, please visit the Research section of our website, sharekhan.com.
Fungicide and is targeted at horticultural crops like Groundnuts, Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
Grapes etc. The products launched in the recent past continue having a postition in the companies mentioned in the article.

INDIAN OIL CORPORATION VIEWPOINT


VIEW: POSITIVE CMP: RS288 NOVEMBER 16, 2016
Ahead of the pack
Key points company's Paradip refinery is expected to stabilise and operate
at 90% utilisation from February 2017 and thus full benefit is
Market leader with unmatched downstream infrastructure and expected to accrue in FY2018.
diversified earnings profile: Indian Oil Corporation (IOCL) is a
leader in the domestic downstream oil sector with a 35% share Paradip refinery commissioned - could contribute Rs3-4/share
in India's refining capacity of 230mmt, retail outlets of 25,363 to FY2018E EPS: IOCL commissioned its 15mmt Paradip
(45% market share) and pipeline capacity of 80.6mmt (market refinery in February 2016 and we expect it add ~Rs3-4/share to
share of 55% among downstream companies). The company is the FY2018E EPS at GRM of $9-10/bbl (USD2-3/bbl premium
also a market leader in the domestic petroleum sales with volume to Singapore Complex GRM).
of 72.7mmt (45.9% market share), and owns a Petrochemicals Robust BS with low net D/E of 0.64x, strong RoE expansion
plant at Panipat (with naphtha cracker capacity of 1.46mmt, and attractive P/E provide comfort: The implementation of
LAB capacity of 0.12mmt and PX/PTA capacity of 0.5mmt). monthly LPG & Kerosene price hikes and low oil prices would
IOCL has the most balanced earnings profile among the OMC keep under-recoveries under check and thus net D/E (0.64x in
peers, with EBITDA contribution of 26% from Pipelines, 27% FY16) is expected to remain low. Given our expectation of core
from Petrochemicals, 25% from Refining and 22% from RoNW expansion to ~19.5% in FY2018E (vs 18.4% in FY2016)
Marketing in FY2016. and earnings growth of 10%/23% in FY2017E/FY2018E, IOCL
Strong earnings rebound expected on marketing volume growth, is trading at an attractive P/E multiple of 7.8x FY2018E EPS
inventory gain, better refining margins and stabilisation of (28%/18% discount to FY2018E PE of BPCL/HPCL based on
Paradip refinery: Over FY2017-FY2018, IOCL's marketing Bloomberg consensus). We are positive on IOCL and see scope
business would benefit from inventory gains (given our for ~18-20% upside from here.
expectation of stable-to-rising oil prices) and ~6-7% growth in Key concerns: Volatility in oil prices could result in inventory
domestic consumption of HSD/MS. Moreover, we are positive losses and could thus impact earnings.
on refining margins outlook (Singapore complex GRM at ~$8/ For detailed report, please visit the Research section of our website, sharekhan.com.
bbl in Nov-16 vs $2.9/bbl in Aug-16), as normalisation of global Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
diesel inventory would result in better diesel cracks. The having a postition in the companies mentioned in the article.

Sharekhan ValueGuide 27 December 2016


SECTOR UPDATE EQUITY FUNDAMENTALS

IT NOVEMBER 16, 2016


Q2FY2017 earnings review

Q2FY2017 result review Outlook:

Uncertainty prevails amid surprising US election outcome: We


Good margin execution; weak revenue growth mirrors demand
see no near- to medium-term respite for the Indian IT companies,
challenges: The top five Indian IT companies delivered good owing to ongoing soft demand environment in some verticals
operating performance in Q2FY2017 despite lower revenue (especially Financial Services), commoditisation of legacy
growth, severe pricing pressure and absence of rupee benefits. business, macro-economic challenges and shortage of skilled
TCS and Wipro surprised positively on the Operating Profit manpower for new technologies. In addition, the surprise victory
Margin (OPM) front by leveraging multiple levers efficiently, of Donald Trump in the US presidential election has created
whereas Infosys, HCL Tech and Tech Mahindra reported margin uncertainties in the form of potential adverse legislations
that were along expected lines. In terms of revenue growth, the (particularly on H1-B visas, taxes and foreign policies) and delay
top IT vendors’ performance was soft but broadly in line with in fresh tech spending by the clients. Nevertheless, we need to
estimates (ex-TCS). The reported revenue growth stood at 1.4% wait for the official announcement of new policies by the Trump
QoQ (versus 3.3% QoQ in Q1FY2017) in a traditionally strong regime and its long-term policy focus to assess the impact on
the Indian IT sector. On the positive side, most global companies
quarter. On an organic basis, Infosys returned to the top of IT
are gradually embracing digital technologies to revolutionise
pack with a CC revenue growth of 3.9% QoQ, followed by
their business models, which creates tremendous opportunities
HCL Tech (2.8% QoQ), Tech Mahindra (5% QoQ, 2.5% for the Indian IT sector. We continue to maintain our cautious
organic), TCS (1.0% QoQ) and Wipro (0.9% QoQ). While stance on the IT sector, as it is going through a transition phase,
TCS disappointed by reporting the weakest Q2 in terms of though investments for building new capabilities will create long-
revenue growth, Tech Mahindra delivered a revenue term growth opportunities.
performance that was ahead of consensus forecast. Cognizant
registered a CC revenue growth of 2.5% QoQ, in line with the Valuation:
company’s guidance.
Inexpensive, but confluence of US election, Brexit and tech shift
Challenging environment persists: The management of most IT restricts outperformance: Stocks in the IT space have corrected
companies foresee the current challenging business environment significantly in the recent quarters, owing to potential impact
from the global macro-economic uncertainties (US election
to continue in the coming quarters, owing to slower demand in
outcome and Brexit in particular) and the softer demand
some verticals, elongated transition period, severe pricing
environment. Currently, Indian IT stocks (top five) are valued
pressure, emergence of captive centres (predominantly in at 11-15x PE based on FY2018 earnings estimates (most of the
Financial Services) and continuation of unfavourable global de-rating is behind). Given the lack of earnings triggers and
macro-economic backdrop. As was anticipated, Infosys lowered uncertainties, we do not expect any material re-rating. We
its FY2017 revenue growth guidance for the second consecutive remain selective in our stock preference. In the order of
quarter, citing macro overhang, while Wipro too gave a weak preference, we are positive on Infosys, TCS and HCL Tech while
guidance for Q2FY2017 despite the Appirio acquisition, in the mid-cap space, we remain positive on Persistent Systems.
factoring in the challenging business environment. HCL Tech
maintained its revenue growth guidance for FY2017, whereas Leaders: Infosys and HCL Tech
Cognizant cut the upper end of revenue growth guidance, owing
Laggards: TCS and Wipro
to currency headwinds. In terms of verticals, Financial Services
remained soft on account of lower technology spends and setting Preferred picks: Infosys, TCS and HCL Tech (in large-cap space)
up of captive units, while growth in the Manufacturing vertical and Persistent Systems (in mid-cap space), stock preference is
will be sluggish owing to furlough in Q3FY2017. only for investors having an investment horizon of 15-18 months

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.

December 2016 28 Sharekhan ValueGuide


EQUITY TECHNICALS TREND & VIEW

Nifty in corrective mode


Daily view on Nifty
After breaking the crucial support of 8500, the Nifty has
witnessed a sharp correction towards 7916 levels
The upmove from 7916 is a corrective move. Moreover, it has
completed a counter rally in “a-b-c” structure. Also, it has
recovered up to 8250 (50% retracement of the fall from 8600
to 7916) and has turned down
The Nifty has given an impulse move on the downside from
8250 levels, indicating that the direction for the market is still
down
The Nifty is likely to break the low of 7916 in the coming
trading session and drift lower towards our short-term target
of 7741
The momentum indicator on the daily chart is in a ‘buy’ mode.
However, the bears will be back in action once the momentum
indicator gives negative crossover
Crucial supports for the Nifty will be ~7916 and 7741 while
crucial resistance will be near 8250 and 8337 levels
Weekly view on Nifty
The Nifty met the downside target after a Head & Shoulders
pattern breakdown
However, the Index has started forming lower top, lower bottom
pattern indicating downtrend. Also, 8500, which acted as a
crucial support, will now act as a strong resistance on the upside
The Nifty has completed a “5-wave” decline from 8600 to 7918
and is now seeing a retracement of it
The Index has seen 50% retracement till now. The pull-back
can further extend up to 8337 if the Index breaks above 8250
However, the short-term to medium-term trend continues to
be bearish and any rise should be seen as a selling opportunity
The Nifty is likely to drift lower towards 7645, which is the
equality target as well as the 61.8% retracement level of the
rise from 6825 to 8969
The momentum indicator on the weekly chart is in the ‘sell’
mode, indicating that further correction is likely
Crucial support would be ~7741 and 7645 whereas resistance
will be near 8337 and 8460 levels
Monthly view on Nifty
The Nifty has been in a corrective mode after hitting a high of 8968
The Index has witnessed some bounce back from the 50%
retracement level of the rise from 6825 to 8968
However, the pull-back from 7916 has been corrective in nature.
Once the low of 7916 is broken, the Nifty is likely to drift
lower towards 7645 (61.8% retracement level), which is our
medium-term target
Since the Nifty is in wave (iv), there is a possibility that it may
remain sideways within the range of 7650–8900 to form a
triangle pattern. However, it is our alternate count
From a long-term perspective, the Nifty is in an Upward Sloping
Channel, indicating that it is in an uptrend. Dips should be
seen as a buying opportunity
The momentum indicator on the monthly chart is in the ‘buy’
mode, thus confirming the uptrend
A crucial support will be ~7645 and resistance will be ~8460 and 8600
Medium term
Trend Trend reversal Support Resistance Target
Down 8600 7645 8600 7645

Sharekhan ValueGuide 29 December 2016


MONTHLY VIEW EQUITY DERIVATIVES

Derivative View: "8000 remains crucial level"


The Nifty Futures started the November F&O series on a positive Top 5 stock futures with the highest OI in current series
note, but within the first few days, it started moving in the STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
southward direction, mainly due to adverse Domestic as well as HDFCBANK 3,810.28
International developments. The Government's surprise
SBIN 2,606.29
demonetisation move played the spoilsport for the market sentiment,
due to which the market saw persistent selling pressure throughout RELIANCE 2,266.22
the series, underperforming all its international peers. As a result,
ICICIBANK 2,121.29
the Index closed the November F&O series with a sharp loss of
~7.50% to settle at ~8000 levels. Significant amount of short SUNPHARMA 2,052.06
positions also got built during this downward journey.

FIIs were on a selling spree throughout the November F&O series, Top 5 stock options with the highest OI in current series

be it the Index Futures or the cash market. However, in the STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)

December F&O series, they have been accumulating the Index SBIN 980.74
Futures; they are net buyers of Index Futures since the start of the
MARUTI 724.41
December series. On the other hand, in the cash segment, they
continue to be net sellers. ICICIBANK 611.89

RELIANCE 567.00

INFY 556.77
ROLL-OVER: MARKET-WIDE VS NIFTY
Nifty Market Wide

90.00%

80.00%

70.00%
View
60.00%

50.00% On the options front, the 8000 PE stands with the highest number
84.01%

84.48%
83.33%
82.42%

81.99%

81.45%

81.09%

77.74%

of shares in OI in the December F&O series followed by the 8100


74.82%

40.00%
69.97%

65.60%

63.21%

30.00%

20.00% strike price. On te call side, the 8300 CE stands with the highest
10.00%
number of shares in OI followed by the 8500 strike price.
0.00%
J ul
O ct

J un
Nov

Sep

Aug

At 0.97, the Put-to-Call ratio (PCR) started the December series in


line with the last few series. While the Volatility index after touching
Roll-over highlights
the high of ~20, it cooled off a bit and is now hovering ~17-18
The benchmark Nifty Futures started the December series on the levels, which is still on the higher side compared to the last few
lower side with 1.59 crore shares in Open Interest (OI) compared series. Apart from the high VIX, one more thing that needs to be
to 1.88 crore shares in OI in the November series. In Rupee terms,
highlighted is the OI is 8000 PE. The 8000 PE strike price has ~78
the December series started with an OI of Rs12,763 crore in Nifty
lakh shares in OI, which is quite huge compared to any strike price
Futures vs Rs16,306 crore OI in the November series, while in Stock
(call/put side).
Futures, the OI stood at Rs77,957 crore vs Rs74,649 crore in the
November series. In Index Options, the OI stood at Rs93,537 crore Even thoughwe haven't seen many long bets as of now,, since low
for the December series vs Rs96,830 crore in the November series rollover in Nifty Futures has resulted in many long positions getting
and in Stock Options, the OI was Rs6,148 crore for the December extinguished. But, due to a very high OI build-up in 8000 PE, we
series vs Rs8,352 crore in the November series. feel that the downside in the market is capped till 8000. Any fall
Nifty Futures rollovers at 63.10% were lower compared to 69.97% around 8000 level should be used as an opportunity to create longs
in the last series. Market-wide rollover was decent enough at 82.24% at least for the December series.
compared to the previous month's rollover of 82.42%.

December 2016 30 Sharekhan ValueGuide


CURRENCY FUNDAMENTALS MONTHLY VIEW

Currencies: Rupee tumbles on large capital outflows


Key points CURRENCY LEVELS IN NOVEMBER 2016 (IN RS)
Indian government scraps currency notes of Rs500 and Rs1000
Currency High Low Close Monthly chg (%)
Republican Candidate Mr Donald Trump wins US Presidential USDINR 68.86 66.34 68.775 2.96
election
EURINR 75.64 72.47 72.9464 0.01
India CPI eases to 4.2% in October from 4.39% in September GBPINR 86.00 80.89 85.3271 4.62
India's trade deficit widens to $10.16 billion in October from $9.69 JPYINR 66.11 60.20 61.26 -4.47
billion a year ago
November 2016 contract price movement November 2016 contract price movement
65
68.8 85.8
64.5 74
68.3 64 84.8
63.5 73.5
67.8 63
83.8

62.5 73
67.3 82.8
62
72.5
66.8
61.5 81.8
61
72 80.8
66.3 60.5

28-Oct-

30-Oct-

01-Nov-

03-Nov-

05-Nov-

07-Nov-

09-Nov-

11-Nov-

13-Nov-

15-Nov-

17-Nov-

19-Nov-

21-Nov-

23-Nov-

25-Nov-

27-Nov-
28-Oct-16

30-Oct-16

01-Nov-16

03-Nov-16

05-Nov-16

07-Nov-16

09-Nov-16

11-Nov-16

13-Nov-16

15-Nov-16

17-Nov-16

19-Nov-16

21-Nov-16

23-Nov-16

25-Nov-16

27-Nov-16

16

16

16

16

16

16

16

16

16

16

16

16

16

16

16

16
USDINR JPY INR EURINR GBPINR

USD-INR CMP: Rs68.20


The Indian Rupee depreciated by 2.96% against the US Dollar last month on the back of a stronger greenback, weak domestic market sentiments
and FII outflows from local markets. The Dollar is gaining strength, as US Treasury Yields are rising after the Republican Candidate Mr Donald
Trump emerged victorious in the presidential election and on growing expectations of a rate hike by the Federal Reserve next month. As per
NSDL, FIIs pulled out $5,786.02 million from local shares and debt markets in November.
Outlook: The Rupee is expected to trade with a negative bias on the back of a stronger Dollar and continued FII outflows from local markets.
Investors will remain cautious ahead of the December monetary policy meetings of the Reserve Bank of India (RBI), European Central Bank
(ECB) and FOMC. Gap between US and India bond yields is also narrowing. Rise in US Treasury Yields has prompted FIIs to sell Indian equities
and debt holdings. FIIs are selling stocks amid expectation that the currency crunch following demonetisation could affect economic activity
materially in the short term. As per the latest REER reading, (115.13) the Rupee is overvalued by more than 10%. Expected trading range in the
near term is 67.20 – 70.0.

EUR-INR CMP: Rs71.98


The Euro depreciated by 3.56% on the back of a stronger Dollar and downbeat economic data from the Eurozone. Further, investors are
concerned over political uncertainty in Europe. Mr Trump's victory in the US presidential election has stoked concerns about a rising tide of
potentially ominous wins for populist candidates and other electoral issues across Europe in the coming year.
Outlook: The Euro is expected to trade with a negative bias on the back of a stronger Dollar and divergence in global monetary policy set-up. The
Fed is expected to hike rate in December whereas the ECB is likely to continue with its loose monetary policy. Meanwhile, Italy’s people have
voted “no” in a referendum held over the weekend to push for constitutional reforms. Italian Prime Minister Mr Matteo Renzi said that he would
resign in the wake of the ‘no’ vote against the proposed constitutional reforms. Investors fear political uncertainty in Italy and further trouble for
Italian banks. Expected trading range in the near term is 69.30 – 74.0.

GBP-INR CMP: Rs86.60


The Pound appreciated by 2.15% against the Dollar on upbeat UK economic data and dwindling worries over “Hard Brexit” after British
minister Mr David Davis said that Britain would consider paying into EU budget for common market access. However, sharp gains were capped
owing to a stronger Dollar and after UK Autumn Forecast Statement showed that the government expects GDP to grow by 1.4% in 2017 and by
1.7% in 2018, down from March’s pre-Brexit estimate of 2.2% and 2.1%, respectively.
Outlook: The Pound is expected to trade with a positive bias on the back of upbeat UK economic data and easing worries over ‘Hard Brexit’.
However, sharp gains may be restricted on a stronger Dollar and divergence in the global monetary policy set-up. The Fed is widely expected to
hike rates in its December policy meeting. Expected trading range in the near term is 84.60 – 89.20.

JPY-INR CMP: Rs60.08


The Yen depreciated by 9.19% due to a stronger Dollar and divergence in the global monetary policy discourse. The Dollar gained strength after
encouraging US economic data fuelled expectations of an impending rate hike by the Fed in December. Demand for safe haven assets declined on
rising risk appetite in the domestic market. The spread between US and Japanese bond yields has widened.
Outlook: The Yen is expected to gain strength on upbeat Japanese economic data and growing demand for safe haven assets. Market sentiment
is weak after the Italians voted “no” in a plebiscite held over the weekend on constitutional reforms. Italian Prime Minister Mr Matteo Renzi said
that he would step down in the wake of his defeat in the referendum. Investors fear protracted political uncertainty and further trouble for Italian
banks. However, sharp gains may be prevented on the back of a stronger Dollar and divergence in the global monetary policy set-up. Widening
of spread between the US and Japanese bond yields may hurt the Yen. The expected trading range in the near term is 58.5 – 62.50.
CMP as on December 05, 2016

Sharekhan ValueGuide 31 December 2016


TREND & VIEW CURRENCY TECHNICALS

USDINR: Bears take charge EURINR: Scope for a bounce


In June, USDINR had faced resistance near 78.6% retracement In mid-August, EURINR faced resistance near a falling
of the February-March fall. After that, it entered a correction trendline from the previous highs and started tumbling.
mode. During September-October, the currency pair was in a Structurally, it formed a multi-week triangular pattern and
consolidation phase, which broke out on the upside. broke out on the downside in the beginning of October.
In November, USDINR rallied towards the high of 68.89. Near Towards the end of October, it entered a pull-back mode but
the high, the bears came in to restrict further upside. couldn’t extend beyond the upper end of a falling channel.
Consequently, the currency pair tumbled back towards the
Consequently, it entered a correction mode.
lower channel line, where the bulls seem to be providing
The daily momentum indicator is cooling off from the support.
overbought zone. Thus, USDINR can retreat towards 67.24- The short-term momentum indicator has turned bullish. Thus,
66.80. The level of 68.90 will act as a major resistance. EURINR can attempt another bounce till 75-75.50 unless the
level of 71.89 breaks on a closing basis.
MACD (-0.14263) 1.0
Relative Strength Index (54.7187) 80
70
0.5
60
50 0.0
40
30 -0.5
USDINR - INDIAN RUPEE (68.0160, 68.2700, 68.0103, 68.0199, -0.00060) EURINR (72.6070, 73.4260, 71.4320, 73.2030, +0.62500)
69.7
69.6 78.5
69.5
69.4
78.0
69.3
69.2
69.1 77.5
69.0
100.0% 0.0% 68.9
77.0
68.8
68.7
68.6 76.5
68.5
68.4
76.0
78.6% 68.3
23.6%
68.2
68.1 75.5
68.0
67.9
38.2% 75.0
61.8% 67.8
67.7
67.6 74.5
50.0%
67.5
50.0%
67.4
67.3 74.0
61.8%
67.2
38.2% 67.1 73.5
67.0
66.9
78.6% 66.8 73.0
23.6% 66.7
66.6
72.5
66.5
66.4
66.3 72.0
100.0% 66.2
66.1
0.0% 71.5
66.0
65.9
65.8 71.0
65.7
65.6
65.5 70.5
February March April May June July Augus t Septem ber October Novem ber Decem ber 2017
m ber 2016 February March April May June July Augus t Septem ber October Novem ber Decem ber 2017

GBPINR: Watch closely JPYINR: Heading south


GBPINR has been in a downtrend from a medium-term JPYINR formed a triangular pattern and broke out on the
perspective. On the way down, the currency pair cracked the downside in the beginning of October. It also broke a rising
lower channel line and reached near 61.8% retracement of the trendline along with the price pattern. It was then trading in
previous multi-year rally. Downward Sloping Channel.
Near the key Fibonacci level, the bulls rushed in, resulting in a In the beginning of November, it broke the lower end of the
short-term bounce. However, this is unlikely to develop into a channel. Consequently, the currency pair continued to tumble
larger structure on the upside. and broke the lower end of the larger channel as well. The daily
The currency pair can start the next leg down unless the swing & weekly momentum indicators are in line with the fall.
high of 89.17 is crossed on a closing basis. It can retreat towards Thus, JPYINR can slide till 58.50-57.35. On the other hand,
82-81. 60.50-61.50 will act as a key resistance area on a closing basis.
KST (-3.13191)
5
KST (-0.17704) 10
5
0
-5 0

GBPINR (86.5570, 86.8920, 85.8510, 86.6030, +0.08800)


110
JPYINR (59.8996, 60.2458, 59.3603, 59.7347, -0.13200) 70.0
69.5
0.0% 69.0
68.5
105 0.0% 68.0
67.5
67.0
66.5
100 66.0
65.5
23.6% 65.0
64.5
95 23.6% 64.0
63.5
63.0
62.5
38.2% 62.0
90
38.2% 61.5
61.0
60.5
60.0
50.0%
85 50.0% 59.5
59.0
58.5
58.0
61.8% 61.8% 57.5
80
57.0
56.5
56.0
55.5
75 55.0
54.5
78.6% 54.0
53.5
53.0
70 52.5
52.0
51.5
51.0
100.0%
50.5
65 50.0
100.0% 49.5
49.0
48.5

2010 2011 2012 2013 2014 2015 2016 2017 Apr May Jun Jul Aug Sep Oct Nov Dec 2016 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2

Currency View Reversal Supports Resistances Target


USD-INR Down 68.90 67.61/67.00 68.38/68.87 67.24-66.80
GBP-INR Down 89.17 83.69/81.83 87.63/88.24 82-81
EUR-INR Up 71.89 72.70/72.15 74.42/75.12 75-75.50
JYP-INR Down 61.5000 59.31/57.68 60.24/60.65 58.50-57.35

December 2016 32 Sharekhan ValueGuide


PMS DESK WEALTHOPTIMIZER

WEALTHOPTIMIZER PMS

The Indian equity market presents an excellent opportunity for the long-term investors. Sharekhan offers you solutions to meet your
financial objectives. WealthOptimizer is a portfolio management product that involves enhancing wealth over the long term. The goal is
to not only outperform the market but also generate superior returns.

Strategy
• To invest in the most undervalued stocks of growing companies on the basis of reported financial performance

How the product works


• Fundamental analysis is performed on more than 5,000 companies
• Stocks with sound fundamentals are picked, subject to strategy conditions
• Top 10 stocks are selected each day based on the maximum scope to grow
• No particular sector forms more than 20% of the client’s portfolio
• Fundamentals of stocks held are reviewed every quarter based on quarterly results
• Automated decision making system for transparent and disciplined investing

Key product specifications


• Minimum investment amount: Rs25 lakh
• Recommended investment duration: Two years or more

Phone: 022-6750 2152 / 2261 / 2363 / 2104 E-mail: pms@sharekhan.com

Disclaimer: Product is offered by Sharekhan Ltd (Registered Portfolio Manager with SEBI Regn. Nos. INP000000662 CIN No. U99999MH1995PLC087498) and having registered office at 10th Floor,
Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai -400042, Maharashtra. Tel: 022-61150000. Email: igc@sharekhan.com,
pms@sharekhan.com. This information does not purport to be an invitation or an offer for services, client is required to take independent advise before opting for any service. Securities investments are
subject to market and other risks and client should refer to the risk disclosure document carefully. Past performance is no indication of future results. Future performance may vary. Detailed disclaimers and
risk disclosure document is available on our website www.sharekhan.com, please acquaint yourself with these before investing.

Sharekhan ValueGuide 33 December 2016


PMS FUNDS PMS DESK

Portfolio Management Service


We are pleased to introduce you to Sharekhan’s Portfolio We have the following strategies on offer:
Management Service (PMS) in which we completely manage
ProPrime (based on fundamental research)
your investment portfolio so that you stop worrying about
the market volatility and focus your energy on things that Diversified Equity
you like to do! ProTech (based on technical analysis)
We have a wide range of strategies that you can choose from. Index Futures Fund Trailing Stops
Our strategies are based on fundamental research and
technical analysis.

PROPRIME - DIVERSIFIED EQUITY


OVERVIEW Product performance
as on November 30, 2016
The ProPrime—Diversified Equity PMS strategy is suitable for long-term investors
looking to create an equity portfolio through disciplined investments that will lead to a (In %) Scheme S&P CNX 500
growth in the portfolio’s value with medium to high risk. 1 Month -5.5 -5.6
3 Month -2.7 -5.5
6 Month 7.9 4.0
INVESTMENT STRATEGY
1 Year 6.8 5.9
Disciplined investment decisions are taken in specific stocks based on thorough
Best Month 30.0 13.5
fundamental research.
Worst Month -17.9 -10.5
Investments are made primarily in the Nifty Fifty or the BSE 100 scrips.
Best Quarter 41.0 51.2
Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and Worst Quarter -29.2 -12.0
that of minimum of 90% in the BSE 100 stocks.
Disclaimer: Returns are based on a client’s
Endeavours to create a core portfolio of blue-chip companies with a proven track returns since inception and may be different from
record and have partial exposure to quality companies in the mid-cap space. those depicted in the risk disclosure document.

PRICING Top 10 stocks


Minimum investment of Rs25 lakh Britannia Industries

Charges HDFC Bank


IL&FS Transport Networks
2% per annum; AMC fee charged every quarter
IndusInd Bank
0.5% brokerage
L&T Finance Holdings
20% profit sharing after the 12% hurdle is crossed at the end of Lupin
every fiscal
RBL Bank
Reliance Industries
TVS Motor
Zee Entertainment Enterprises

FUND OBJECTIVE
A good return on money through long-term investing in quality companies

December 2016 34 Sharekhan ValueGuide


PMS DESK PMS FUNDS

PROTECH - INDEX FUTURES FUND

OVERVIEW
The ProTech–Index Futures Fund PMS strategy is suitable for long-term investors
who desire to profit from both bullish and bearish market conditions. The strategy
involves going long (buying) or going short (selling without holding) on Nifty futures
by predicting the market direction based on a back-tested automated model.
Product performance
as on November 30, 2016

INVESTMENT STRATEGY (In %) Scheme Sensex Nifty


The strategy has the potential to generate profits irrespective of the market 1 Month 0.13 -4.57 -4.65
direction by going long or short on Nifty futures. 3 Months -1.19 -6.32 -6.39
An automated basic back-testing model is used to predict the market direction FY 15-16 11.28 -9.36 -8.86
for the Nifty which then decides the strategy to be deployed in terms of going
FY 14-15 -3.41 24.89 26.65
long or short.
FY 13-14 8.79 18.85 17.98
The portfolio is not leveraged, ie its exposure never exceeds its value.
FY 12-13 3.65 8.23 7.31
FY 11-12 13.10 -10.50 -9.20

PRICING FY 10-11 9.20 10.90 11.10


Minimum investment of Rs25 lakh FY 09-10 14.70 80.50 73.80

Charges Since Inception* 135.67 163.26 172.19

AMC fees: 0% Best Month 28.90 28.26 28.07


Worst Month -17.10 -23.89 -26.41
Brokerage: 0.05%
Best Quarter 33.30 49.29 42.04
Profit sharing: Flat 20% charged on a quarterly basis
Worst Quarter -17.73 -24.98 -24.53
*01-Feb-2006

Disclaimer: Returns are based on a client’s


FUND MANAGER’S VIEW returns since inception and may be different from
The index futures fund held onto the gains made in October through a volatile those depicted in the risk disclosure document.
November month. We are now seeing a more trending market than earlier and hope
this pattern continues. If so, we should see superior returns v/s the index in the months Investments in
ahead.
Nifty Index
Overall, our market has performed worse than most Emerging Markets (EM) and
the Developed Markets (DM). The downtrend was aggravated by the recent events
(demonetisation, US election etc) but the direction hardly matters to our fund. We
like to see big market moves in either direction that are clear and one-sided, as it
benefits our model. We believe that the recent market behavior will continue in the
months ahead.

Fund Manager: Rohit Srivastava

FUND OBJECTIVE
Absolute returns irrespective of market conditions.

Sharekhan ValueGuide 35 December 2016


PMS FUNDS PMS DESK

PROTECH - TRAILING STOPS


OVERVIEW
Our ProTech–Trailing Stops PMS strategy is ideal for Traders and Investors look-
ing for Regular Income from trading and desire to make profits in both bullish and
bearish market conditions. It is designed to payout book profits on monthly basis.*
It is also for those investors who are looking for better income than Fixed Income Product performance
or Deposits. This strategy involves going Long (buying) or Short (selling without as on November 30, 2016
holding) on stock futures.
(In %) Scheme Sensex Nifty
* Terms and conditions apply
1 Month 2.40 -4.57 -4.65
3 Months -1.71 -6.32 -6.39

INVESTMENT STRATEGY FY 15-16 -0.56 -9.36 -8.86


FY 14-15 -3.69 24.89 26.65
This strategy spots the winning trades based on technical analysis vs time frame-
based portfolios, basically the momentum calls. FY 13-14 -1.06 18.85 17.98
FY 12-13 14.89 8.23 7.31
A risk model has been developed for stock portfolio allocation that reduces the
risk and portfolio volatility through staggered building of positions. FY 11-12 29.00 -6.10 -4.60
FY 10-11
It is non-leveraged—the exposure will never exceed the value of the portfolio.
FY 09-10
Since Inception* 32.05 43.84 48.16
PRICING Best Month 9.10 11.25 12.43
Minimum investment of Rs25 lakh Worst Month -5.09 -8.93 -9.28
Charges Best Quarter 9.90 13.52 13.53
AMC fees: 0% Worst Quarter -8.20 -12.69 -12.47
Brokerage: 0.05% *09th May 2011

Profit sharing: Flat 20% charged on a quarterly basis


Disclaimer: Returns are based on a client’s
returns since inception and may be different from
those depicted in the risk disclosure document.
FUND MANAGER’S VIEW
We have been saying since June that we are taking a more aggressive stance and our Investments in
model is being used keeping in mind position sizing tools at our disposal. This, along Nifty Index
with a change in the Portfolio Manager for the fund has helped us to execute better
Stock futures
and bring back performance to the fund. This month's 2.40% return is a result of
active position sizing strategies. We expect to see this trend continue going forward.

Overall, our market has performed worse than most EMs and DMs. The downtrend
was aggravated by the recent events (demonetisation, US election etc), but the direction
hardly matters to our fund. We like to see big market moves in either direction that
are clear and one-sided, as it benefits our model. We do believe that the recent market
behavior will continue in the months ahead.

Fund Manager: Rohit Srivastava

FUND OBJECTIVE
Absolute returns irrespective of market conditions.

December 2016 36 Sharekhan ValueGuide


ADVISORY DESK MONTHLY PERFORMANCE

Advisory Products and Services


The Advisory Desk is a central desk consisting of a Mumbai-based
expert team that runs various sample model portfolios (for illustrative
purposes only) for clients of all profiles, be they traders or investors.
These products are different from Sharekhan’s research-based
technical and fundamental offerings as these essentially try to capture
the trading opportunities in stocks where momentum is expected
before or after some event including the announcement of results or
where some news/event is probable.
Advisory products are ideal for those who do not have time to either
monitor the market tick by tick or shift through pages of research for
data or pour over complex charts to catch a trend. However, all
these products require perfect discipline and money management.

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.

NEW ALPHA DELIVERY PICKS


This is a long only, cash market delivery product where stock
ideas will be rolled out based on short-term triggers with proper New Alpha Delivery Picks Rules
fundamental rationale. Recently we revised certain features of
Alpha Delivery Picks to incorporate ideas from both the Ideas Ideas based on Stock Ideas,
Fundamental research desk and the Market analysis team. The Viewpoints, Stock Updates,
time frame of the stock ideas in New Alpha Delivery Picks will be Market analysis
a maximum of two months. Stop loss will be 5-10% and profit
potential will be 10-20%. We will report the old series’ Weightage (%) 7
performance data separately. For more details please write to us
at alphapicks@sharekhan.com. Stop Loss (%) Maximum 10, minimum 5
For traders Profit Potential (%) Maximum 20, minimum 10
Time Frame Maximum 2 months
SHAREKHAN’S PRE-MARKET ACTION
These ideas are put out in Sharekhan’s Pre-market Action report Trail Stop loss 5% trailing Stop loss on 5%
along with stop loss and targets valid for a day. There is a market rise in stock price
watch list of stocks with positive and negative bias for intra-day
Exit Rules A) Pre defined / Trail stop loss
traders. For more details please write to us at
is hit
premarket@sharekhan.com.
B) Unexpected event/news/
MID DERIVATIVE CALLS outcome
These calls are based on the analysis of open interest, implied volatility
C) Time frame
and put-call ratio in the derivative market. It is a leveraged product
and ideal for aggressive traders. These calls have pre-defined stop Performance Daily
loss, targets, time frame and quantity to execute. For details of the Reporting
product please write to us at derivative@sharekhan.com.

Report Card
MID performance* MID Derivative Calls performance*
Product New Alpha Delivery Picks Ticket size (Rs) 100,000
Month November 2016 FY2017 Month November 2016 FY2017
No. of calls 3 55 No. of calls 5 106
Open 2 2 Profit booked 3 53
Profit booked 1 37
Stop loss hit 2 53
Stop loss hit - 16
Strike rate (%) 60 50
Strike rate (%) - 70

Sharekhan ValueGuide 37 December 2016


MUTUAL FUNDS DESK
MF PICKS

SHAREKHAN’S TOP MUTUAL FUND PICKS (EQUITY) NOVEMBER 11, 2016


Data as on November 01, 2016

Scheme name Star NAV (Rs) Returns (%)


rating Absolute Compounded annualised
6 months 1 year 3 years 5 years Since inception
Large-cap funds
SBI Bluechip Fund ÌÌÌÌÌ 32.4 13.5 14.5 22.8 19.5 11.6
Birla Sun Life Top 100 Fund ÌÌÌÌ 48.1 14.6 12.3 20.1 17.5 15.3
UTI Top 100 Fund ÌÌÌÌ 52.6 12.6 9.2 17.3 13.6 12.2
Kotak 50 ÌÌÌÌÌ 186.8 10.8 8.5 17.1 13.9 24.0
ICICI Prudential Focused Bluechip Equity Fund ÌÌÌ 32.3 13.6 12.1 17.0 15.1 14.9
Indices
BSE Sensex 27876.61 8.8 4.5 9.6 9.8 16.0
Mid-cap funds
Reliance Small Cap Fund ÌÌÌÌ 32.3 26.2 21.2 46.0 28.9 21.0
Kotak Emerging Equity Scheme ÌÌÌÌ 32.7 23.7 24.4 40.4 24.9 13.1
Franklin India Smaller Companies Fund ÌÌÌÌÌ 48.9 20.9 24.2 40.2 30.0 15.8
UTI Mid Cap Fund ÌÌÌÌ 94.1 19.8 18.0 39.2 25.1 20.4
SBI Magnum Midcap Fund ÌÌÌÌ 72.8 18.7 21.8 39.0 27.6 18.7
Indices
BSE MID CAP 13441.43 21.5 22.3 29.6 16.5 22.0
Multi-cap funds
Birla Sun Life Pure Value Fund ÌÌÌÌÌ 48.4 24.1 25.0 39.9 24.5 20.1
L&T India Value Fund ÌÌÌÌÌ 30.1 23.8 20.3 33.8 24.2 17.5
Franklin India High Growth Companies Fund ÌÌÌÌÌ 32.5 14.6 11.7 28.2 22.7 13.5
SBI Magnum Multi Cap Fund ÌÌÌÌ 38.5 15.9 17.3 26.8 19.6 12.9
BNP Paribas Dividend Yield Fund ÌÌÌ 38.8 13.9 12.1 21.9 17.2 13.0
Indices
BSE 500 11862.94 13.8 11.1 15.5 12.1 14.9
Tax-saving funds
Reliance Tax Saver (ELSS) Fund ÌÌÌÌÌ 51.2 16.8 15.1 30.7 21.2 15.8
Axis Long Term Equity Fund ÌÌÌÌ 33.8 13.5 9.2 27.8 22.0 19.5
DSP BlackRock Tax Saver Fund ÌÌÌÌ 38.8 21.0 21.8 25.6 20.3 14.9
IDFC Tax Advantage (ELSS) Fund ÌÌÌÌ 42.7 14.8 13.2 21.5 17.6 20.3
BNP Paribas Long Term Equity Fund ÌÌÌ 31.6 8.4 6.9 21.1 17.7 11.2
Indices
Nifty 500 7502.2 13.7 11.0 15.9 12.4 9.5
Thematic funds
Franklin Build India Fund ÌÌÌÌÌ 33.4 16.9 17.4 33.6 24.8 18.3
DSP BlackRock Natural Resources & New Energy Fund ÌÌÌÌ 25.9 34.4 51.2 30.0 12.5 11.8
UTI MNC Fund ÌÌÌÌÌ 158.8 9.1 3.2 27.3 20.7 17.7
Birla Sun Life India GenNext Fund ÌÌÌÌ 65.1 21.1 21.3 24.9 21.5 18.1
SBI Infrastructure Fund ÌÌÌÌÌ 13.2 15.7 17.6 22.6 9.8 3.0
Indices
Nifty 50 8626.25 9.8 6.9 11.0 10.4 13.9
Balanced funds
HDFC Balanced Fund ÌÌÌÌ 124.4 14.6 14.5 23.8 17.3 16.9
DSP BlackRock Balanced Fund ÌÌÌÌ 128.2 17.4 16.6 22.3 15.0 15.7
SBI Magnum Balanced Fund ÌÌÌÌ 108.3 12.4 12.5 22.2 18.4 16.5
Reliance RSF - Balanced ÌÌÌ 45.2 12.3 11.5 21.6 16.6 14.1
Franklin India Balanced Fund ÌÌÌÌÌ 101.3 9.9 11.1 20.8 15.9 14.7
Indices
Crisil Balanced Fund Index -- 9.0 8.8 11.4 10.5 12.5

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individual’s 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.

December 2016 38 Sharekhan ValueGuide


MUTUAL FUNDS DESK MF PICKS

SHAREKHAN’S TOP SIP FUND PICKS NOVEMBER 11, 2016


Data as on November 01, 2016

Investment period 1 year 3 years 5 years


Total amount invested (Rs) 12,000 36,000 60,000
Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual
value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)

Large-cap funds
SBI Bluechip Fund 32 13,170 10.6 46,077 8.8 98,048 10.5
Birla Sun Life Top 100 Fund 48 13,249 11.4 44,326 7.4 93,579 9.4
ICICI Prudential Focused Bluechip Equity Fund 32 13,188 10.8 43,275 6.5 88,451 8.2
Kotak 50 187 12,897 8.1 43,203 6.5 87,075 7.9
UTI Top 100 Fund 53 13,062 9.7 42,850 6.2 86,132 7.6
BSE Sensex 27877 12,659 6.0 38,985 2.8 75,576 4.8
Mid-cap funds
DSP BlackRock Micro Cap Fund 55 14,505 22.9 59,968 19.1 1,46,226 19.8
Mirae Asset Emerging Bluechip Fund 39 14,361 21.5 55,588 16.1 1,33,438 17.6
Reliance Small Cap Fund 32 14,321 21.2 55,404 15.9 1,37,940 18.4
Kotak Emerging Equity Scheme 33 14,182 19.9 54,369 15.2 1,22,783 15.7
Franklin India Smaller Companies Fund 49 13,991 18.2 53,773 14.7 1,33,181 17.6
BSE Midcap 13441 13,916 17.5 49,623 11.6 1,02,140 11.4
Multi-cap funds
Birla Sun Life Pure Value Fund 48 14,151 19.6 52,486 13.8 1,23,517 15.8
L&T India Value Fund 30 13,962 17.9 52,023 13.4 1,17,671 14.7
Franklin India High Growth Companies Fund 32 13,347 12.3 47,166 9.7 1,07,433 12.6
ICICI Prudential Value Discovery Fund 126 13,096 10.0 46,391 9.1 1,06,131 12.3
BNP Paribas Dividend Yield Fund 39 13,322 12.0 45,450 8.3 95,253 9.8
BSE 500 11863 13,160 10.5 42,373 5.7 83,461 6.9
Tax-saving funds
DSP BlackRock Tax Saver Fund 39 13,859 16.9 48,390 10.7 1,03,642 11.7
Reliance Tax Saver (ELSS) Fund 51 13,516 13.8 46,435 9.1 1,03,883 11.8
Axis Long Term Equity Fund 34 13,063 9.7 46,146 8.9 1,05,683 12.2
IDFC Tax Advantage (ELSS) Fund 43 13,240 11.3 44,665 7.7 95,803 10.0
BNP Paribas Long Term Equity Fund 32 12,792 7.2 43,724 6.9 93,388 9.4
Nifty 50 8626 12,788 7.1 39,923 3.6 77,452 5.3

Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individual’s 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 39 December 2016


EARNINGS GUIDE EQUITY FUNDAMENTALS

Sharekhan Earnings Guide Prices as on December 02, 2016


Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY18/FY16 FY16 FY17E FY18E FY17E FY18E FY17E FY18E (Rs) (%)

AUTOMOBILES
Apollo Tyres 182.1 11,793.0 13,465.5 15,179.3 1,045.2 1,022.2 1,132.3 20.5 20.1 22.2 4% 8.9 9.1 8.2 15.0 15.2 14.4 14.0 2.0 1.1
Ashok Leyland 74.7 18,890.9 20,214.0 22,074.5 1,153.2 1,331.9 1,430.8 4.1 4.6 4.9 9% 18.2 16.2 15.2 19.5 19.4 22.2 22.0 1.0 1.3
Bajaj Auto 2,701.4 22,624.7 24,236.9 28,134.4 3,741.2 4,249.5 4,790.7 129.4 146.9 165.7 13% 20.9 18.4 16.3 40.8 40.2 29.9 29.1 50.0 1.9
Gabriel India 107.2 1,438.2 1,556.4 1,760.0 75.8 83.2 103.7 5.3 5.8 7.2 17% 20.2 18.5 14.9 24.7 26.4 19.0 20.3 0.5 0.4
Hero MotoCorp 3,183.7 28,514.0 30,010.4 33,994.6 3,047.0 3,396.1 3,767.9 152.6 170.1 188.7 11% 20.9 18.7 16.9 49.0 47.0 36.3 34.5 40.0 1.3
M&M 1,145.6 38,874.8 43,386.9 49,569.8 3,285.6 3,702.9 4,417.9 52.9 59.6 71.1 16% 21.7 19.2 16.1 17.8 19.0 14.9 15.9 12.0 1.0
Maruti Suzuki 5,068.1 57,746.2 69,923.0 82,464.0 4,571.0 7,990.0 8,853.0 151.3 264.5 293.1 39% 33.5 19.2 17.3 32.5 30.4 24.5 22.8 25.0 0.5
Rico Auto Industries 58.4 1,007.0 1,145.1 1,319.5 34.0 57.4 71.5 2.5 4.2 5.3 46% 23.4 13.9 11.0 13.8 15.3 11.1 12.4 0.5 0.9
TVS Motor 358.4 11,243.9 12,342.3 14,738.9 437.8 602.3 811.3 9.2 12.7 17.1 36% 39.0 28.2 21.0 23.8 28.3 25.7 28.2 2.5 0.7
Banks & Financials
Allahabad Bank 67.6 7,808.6 8,364.8 9,302.7 (743.3) 332.4 672.8 -12.1 5.4 11.0 - - 12.5 6.2 - - 2.3 4.6 0.0 0.0
Axis (UTI) Bank 460.0 26,204.4 29,402.9 34,262.1 8,223.7 8,533.6 10,348.6 34.5 35.8 43.4 12% 13.3 12.8 10.6 - - 15.1 16.1 5.0 1.1
Bajaj Finance 886.5 4,029.7 5,252.2 7,163.9 1,278.6 1,747.3 2,424.0 23.9 32.6 45.3 38% 37.1 27.2 19.6 - - 21.3 24.1 2.5 0.3
Bajaj Finserv 2,977.7 9,446.4 - - 1,863.3 - - 117.1 - - - 25.4 - - - - 0.0 0.0 1.8 0.1
Bank of Baroda 161.1 17,738.7 20,878.3 22,580.6 (5,395.5) 2,829.9 3,956.0 -23.4 12.2 17.1 - - 13.2 9.4 - - 6.8 9.0 0.0 0.0
Bank of India 116.2 15,377.2 17,581.6 18,664.8 (6,089.2) 136.9 1,061.7 -74.5 1.7 13.0 - - 69.3 8.9 - - 0.4 3.2 0.0 0.0
Capital First 528.3 806.9 1,094.7 1,434.9 166.4 211.4 303.5 18.2 23.2 33.3 35% 29.0 22.8 15.9 - - 11.8 15.3 2.4 0.5
Corp Bank 45.1 5,974.6 6,344.9 7,079.4 (506.5) 182.7 214.4 -5.0 1.8 2.1 - - 25.2 21.5 - - 1.6 1.9 0.0 0.0
Federal Bank 68.2 3,290.6 3,829.5 4,463.4 475.6 811.2 1,046.1 2.8 4.7 6.1 48% 24.6 14.5 11.2 - - 9.6 11.4 0.7 1.0
HDFC 1,236.8 8,387.5 9,356.6 10,510.5 7,093.1 7,694.9 8,653.5 44.9 48.7 54.7 10% 27.6 25.4 22.6 - - 20.0 20.0 17.0 1.4
HDFC Bank 1,189.1 38,343.2 45,461.1 54,382.9 12,296.2 14,984.5 18,358.7 48.6 59.3 72.6 22% 24.4 20.1 16.4 - - 19.1 20.1 9.5 0.8
ICICI Bank 259.5 36,547.1 40,979.0 41,532.8 9,726.3 10,870.5 12,223.1 16.7 18.7 21.0 12% 15.5 13.9 12.3 - - 11.4 11.7 5.0 1.9
IDBI Bank 67.8 9,499.6 10,297.1 11,813.5 (3,664.8) 812.8 1,246.7 -17.8 3.9 6.1 - - 17.2 11.2 - - 2.9 4.3 0.0 0.0
LIC Hsg. Fin. 555.8 2,944.1 3,488.0 4,140.7 1,660.8 2,053.1 2,512.5 32.9 40.7 49.8 23% 16.9 13.7 11.2 - - 20.6 21.3 5.5 1.0
PTC India Fin. Ser 38.0 414.2 527.2 671.8 391.1 340.3 429.3 7.0 5.3 6.7 -2% 5.5 7.2 5.7 - - 16.8 17.6 1.2 3.2
PNB 134.0 22,188.8 25,362.9 29,022.8 (3,974.4) 1,801.1 2,194.2 -20.2 8.3 10.1 - - 16.2 13.3 - - 4.6 5.4 0.0 0.0
SBI 254.1 85,040.2 90,128.7 101,674.2 9,950.7 10,776.3 13,268.8 12.8 13.9 17.1 15% 19.8 18.3 14.9 - - 7.3 8.4 2.6 1.0
Union Bank of India 141.9 11,944.8 12,941.6 14,809.2 1,351.6 1,364.2 2,351.8 19.7 19.8 34.2 32% 7.2 7.2 4.1 - - 5.8 9.5 2.0 1.4
Yes Bank 1,150.2 7,278.9 9,091.2 11,349.1 2,539.4 3,225.3 4,066.6 60.4 76.7 96.7 27% 19.0 15.0 11.9 - - 21.4 22.7 10.0 0.9
Consumer Goods
Britannia 2,976.8 8,397.2 9,943.3 11,345.8 831.5 984.3 1,180.9 69.3 82.0 98.4 19% 43.0 36.3 30.3 76.4 67.3 48.1 43.7 20.0 0.7
Emami 1,030.3 2,393.7 2,767.7 3,290.8 528.1 607.9 810.2 23.3 26.8 35.7 24% 44.3 38.4 28.9 40.3 44.7 38.5 48.2 3.0 0.3
GSK Consumers* 5,075.3 4,308.7 4,518.5 5,167.3 686.9 730.1 837.6 163.3 173.6 199.1 10% 31.1 29.2 25.5 41.9 41.6 27.7 27.4 70.0 1.4
GCPL 1,449.9 8,757.8 9,994.3 11,536.2 1,086.7 1,297.7 1,576.6 31.9 38.1 46.3 21% 45.5 38.1 31.3 21.6 23.5 23.0 22.9 5.8 0.4
Hindustan Unilever 831.5 33,491.3 33,410.6 37,716.7 4,167.3 4,218.4 5,201.5 19.3 19.5 24.0 12% 43.2 42.6 34.6 78.2 71.1 57.2 51.7 9.5 1.1
ITC 228.5 36,582.7 40,527.6 46,866.4 9,311.3 10,539.9 12,783.4 7.7 8.7 10.6 17% 29.6 26.3 21.6 40.4 44.2 31.5 35.8 8.5 3.7
Jyothy Laboratories 363.6 1,659.5 1,815.0 2,104.8 74.2 147.8 217.5 4.3 8.2 12.0 67% 84.6 44.3 30.3 17.6 21.8 16.7 21.9 1.0 0.3
Marico 254.7 6,024.5 6,347.9 7,430.3 707.9 850.2 1,086.9 5.5 6.6 8.4 24% 46.3 38.6 30.3 46.8 47.5 35.9 35.8 3.8 1.5
Zydus Wellness 849.8 429.5 459.5 523.9 103.7 122.9 137.2 26.5 31.4 35.1 15% 32.0 27.1 24.2 25.4 23.8 23.5 22.0 6.5 0.8
IT / IT services
Firstsource Solution 36.3 3,217.3 3,803.4 4,273.9 255.2 318.0 375.8 3.8 4.7 5.6 21% 9.5 7.7 6.5 13.9 14.0 16.3 16.4 0.0 0.0
HCL Technologies*** 793.6 31,136.0 46,784.6 52,663.9 5,669.0 8,096.2 9,470.2 40.3 57.6 67.4 29% 19.7 13.8 11.8 32.4 32.2 26.4 25.9 17.0 2.1
Infosys 964.5 62,441.0 68,910.2 74,858.5 13,492.0 14,285.1 15,675.0 59.0 62.4 68.5 8% 16.3 15.5 14.1 32.6 31.8 23.3 22.8 24.3 2.5
Persistent Systems 596.7 2,312.3 2,896.5 3,328.4 297.4 308.4 350.5 37.2 38.5 43.8 9% 16.0 15.5 13.6 23.0 23.5 17.3 17.3 8.0 1.3
TCS 2,221.9 108,646.2 117,866.0 127,846.1 24,215.2 25,899.3 28,363.1 122.9 131.4 143.9 8% 18.1 16.9 15.4 37.2 34.2 28.9 26.5 43.5 2.0
Wipro 460.4 51,244.0 55,802.6 59,911.3 8,892.2 8,506.5 9,634.4 36.2 34.5 39.0 4% 12.7 13.3 11.8 13.5 14.3 16.5 16.8 12.0 2.6
Cap goods / Power
BHEL 126.9 25,138.0 32,731.0 35,932.3 (913.0) 134.6 1,023.0 -3.7 0.5 4.2 - - 230.8 30.4 0.8 4.7 0.4 3.0 0.3 0.2
CESC 578.0 6,493.0 7,150.0 7,787.0 707.0 746.5 794.8 53.3 56.3 60.0 6% 10.8 10.3 9.6 7.3 7.4 8.4 8.6 10.0 1.7
Crompton Greaves 76.3 5,272.0 5,631.3 6,023.2 128.4 210.7 233.7 2.0 3.4 3.7 36% 38.2 22.4 20.6 5.3 5.7 4.4 4.7 0.0 0.0
Finolex Cables 415.6 2,461.0 2,767.3 3,214.5 249.0 275.0 311.2 16.3 18.0 20.3 12% 25.5 23.1 20.4 23.3 23.1 24.9 24.6 2.5 0.6
Greaves Cotton 130.1 1,616.2 1,716.5 1,973.1 181.4 184.8 208.7 7.4 7.6 8.5 7% 17.6 17.1 15.3 29.4 30.5 20.3 21.0 5.5 4.2
Kalpataru Power 244.8 4,365.0 5,422.7 6,148.7 200.0 271.2 307.1 13.0 17.7 20.0 24% 18.8 13.9 12.2 17.6 17.8 11.4 11.7 1.5 0.6
PTC India 73.5 12,799.0 13,709.0 14,403.8 234.0 244.0 257.0 7.9 8.2 8.7 5% 9.3 9.0 8.4 12.8 12.8 15.2 15.3 2.2 3.0
Skipper 134.6 1,506.0 1,746.6 2,076.4 83.1 96.0 117.6 8.1 9.4 11.5 19% 16.6 14.3 11.7 24.9 24.6 22.6 22.7 1.3 1.0
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated

Sharekhan ValueGuide 40 December 2016


EQUITY FUNDAMENTALS EARNINGS GUIDE

Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY18/FY16 FY16 FY17E FY18E FY17E FY18E FY17E FY18E (Rs) (%)
Thermax 829.6 4,352.0 4,056.0 4,237.1 305.0 284.0 313.7 25.6 23.9 26.3 1% 32.4 34.7 31.5 15.7 16.4 11.0 11.3 6.0 0.7
Triveni Turbine 115.8 796.3 1,975.0 1,053.0 107.6 142.0 162.0 3.3 4.3 4.9 23% 35.5 26.9 23.6 61.7 55.0 41.8 37.0 1.1 1.0
Va Tech Wabag 494.2 2,549.0 3,020.0 3,577.0 88.9 138.7 173.4 16.4 25.5 31.9 39% 30.1 19.4 15.5 17.8 19.8 13.3 14.9 4.0 0.8
V-Guard Industries 169.9 1,862.0 3,020.0 2,329.0 111.7 132.0 160.0 3.7 4.4 5.3 20% 45.8 38.6 32.1 17.8 19.8 25.3 25.2 3.5 2.1
Infra / real estate
Gayatri Projects 621.7 1,812.2 2,064.8 2,467.0 58.6 67.5 107.9 16.5 19.0 30.4 36% 37.6 32.7 20.5 9.8 11.5 8.0 11.7 2.0 0.3
ITNL 96.0 8,263.8 8,624.0 9,277.9 311.5 224.1 324.2 9.5 6.8 9.9 2% 10.1 14.1 9.7 8.6 9.1 3.3 4.7 2.0 2.1
IRB Infra 189.1 5,130.2 5,932.7 6,745.8 635.8 670.4 875.7 18.1 19.1 24.9 17% 10.5 9.9 7.6 12.5 14.9 13.2 15.4 4.0 2.1
Jaiprakash Asso 7.6 8,793.8 - - (3,511.7) - - -14.4 - - - - - - - - - - 0.0 0.0
Larsen & Toubro 1,361.9 101,964.0 113,804.0 125,961.0 4,199.0 5,301.0 6,203.0 45.1 56.9 66.6 22% 30.2 23.9 20.4 7.9 8.9 11.6 12.6 16.3 1.2
NBCC 222.3 5,838.3 - 10,446.9 311.1 363.1 526.9 5.2 6.1 8.8 30% 42.9 36.7 25.3 37.4 45.7 22.5 27.8 2.0 0.9
Oil & gas
Oil India 426.6 9,765.0 9,809.0 10,435.0 2,545.0 2,170.0 2,380.0 42.3 36.1 39.6 -3% 10.1 11.8 10.8 10.6 11.3 9.5 10.1 16.0 3.8
Reliance 994.8 276,544.0 299,408.5 340,501.8 27,630.0 30,978.2 33,887.1 93.7 105.1 114.9 11% 10.6 9.5 8.7 9.1 9.2 11.4 11.3 10.5 1.1
Selan Exp. 189.6 62.0 78.1 96.2 12.9 20.9 24.5 7.9 12.7 14.9 37% 24.0 14.9 12.7 9.2 10.4 7.2 8.1 5.0 2.6
Pharmaceuticals
Aurobindo Pharma 719.6 13,896.1 16,477.8 19,707.6 2,048.0 2,630.0 3,455.0 35.0 44.9 59.0 30% 20.6 16.0 12.2 29.4 33.1 31.6 30.6 2.5 0.3
Cipla 571.2 13,678.3 16,023.9 17,871.1 1,505.9 1,709.2 2,205.0 19.5 21.3 27.4 19% 29.3 26.8 20.8 12.7 14.8 13.2 14.7 2.0 0.4
Cadila Healthcare 395.8 9,837.6 10,839.2 12,372.1 1,522.6 1,782.4 2,261.1 14.9 17.4 22.1 22% 26.6 22.7 17.9 28.9 33.2 26.3 26.2 3.2 0.8
Divi's Labs 1,135.9 3,769.0 4,256.1 5,178.5 1,111.9 1,228.4 1,448.7 41.9 46.3 57.2 17% 27.1 24.5 19.9 32.3 32.9 26.3 26.7 10.0 0.9
Glenmark Pharma 861.9 7,650.0 9,499.0 10,272.0 1,068.0 1,451.0 1,631.0 37.8 51.4 57.8 24% 22.8 16.8 14.9 24.3 25.7 25.7 22.7 2.0 0.2
Lupin 1,489.1 14,208.5 17,022.9 20,420.4 2,270.7 3,035.1 3,791.7 50.4 67.4 84.1 29% 29.5 22.1 17.7 22.2 25.6 21.7 21.5 7.5 0.5
Sun Pharma 720.4 28,269.7 35,638.9 36,757.9 5,401.1 7,317.6 8,122.9 22.4 30.4 33.8 23% 32.2 23.7 21.3 23.5 24.2 19.2 17.9 3.0 0.4
Torrent Pharma 1,346.4 6,529.0 6,762.3 7,276.9 1,862.0 1,205.6 1,380.3 110.0 71.3 81.6 -14% 12.2 18.9 16.5 27.1 25.8 27.3 22.7 35.0 2.6
Building materials
Grasim 872.8 35,171.6 38,180.6 43,623.5 2,443.6 3,250.8 3,650.6 52.3 69.6 78.2 22% 16.7 12.5 11.2 14.8 15.6 10.9 10.6 4.5 0.5
The Ramco Cements 582.5 3,672.9 4,020.7 4,456.1 534.4 633.1 755.7 22.4 26.6 31.7 19% 25.9 21.9 18.4 11.5 12.4 18.7 18.8 3.0 0.5
Shree Cement** 15,063.3 5,568.0 8,959.9 10,405.1 461.1 1,543.8 1,938.6 132.3 443.1 556.4 105% 113.8 34.0 27.1 23.2 23.5 22.4 22.7 24.0 0.2
UltraTech Cement 3,585.7 23,841.0 25,028.2 29,290.2 2,287.2 2,987.6 3,339.4 83.5 109.0 121.9 21% 43.0 32.9 29.4 16.7 17.1 12.7 12.6 9.5 0.3
Discretionary
Cox and Kings 166.7 2,351.9 2,347.9 2,665.4 284.9 309.1 424.2 16.8 18.3 25.1 22% 9.9 9.1 6.6 10.4 13.0 13.4 16.4 1.0 0.6
Century Ply (I) 173.0 1,664.0 1,901.0 2,318.7 160.5 192.1 228.8 7.2 8.6 10.3 19% 24.0 20.0 16.8 22.8 22.4 31.3 28.7 1.0 0.6
Inox Leisure 220.8 1,332.7 1,231.3 1,551.4 77.5 48.7 102.3 8.4 5.3 11.1 15% 26.3 41.6 19.8 11.0 17.2 7.6 13.8 0.0 0.0
Info Edge (India) 885.0 723.5 856.4 1,019.3 153.0 199.1 260.1 12.7 16.5 21.5 30% 69.7 53.6 41.2 15.2 17.1 10.3 12.0 3.0 0.3
KKCL 1,800.0 457.4 511.0 577.4 68.0 81.6 93.5 55.1 66.2 75.8 17% 32.7 27.2 23.7 31.3 31.4 25.5 25.5 60.0 3.3
Orbit Exports 264.7 150.0 116.0 139.0 23.0 19.2 24.2 16.0 13.3 16.8 2% 16.5 19.9 15.8 12.5 14.9 16.0 17.7 3.8 1.4
Raymond 492.8 5,621.0 6,022.0 6,562.0 115.5 144.6 187.3 20.3 23.8 30.8 23% 24.3 20.7 16.0 11.4 12.8 8.6 10.2 3.0 0.6
Relaxo Footwear 420.5 1,715.4 1,891.6 2,195.6 117.3 137.2 177.6 9.8 11.4 14.8 23% 42.9 36.9 28.4 28.6 35.2 19.0 21.9 0.6 0.1
Thomas Cook India 187.5 4,236.7 5,404.3 6,459.3 50.2 128.7 266.0 0.8 2.6 5.5 162% 234.4 72.1 34.1 10.5 19.5 13.4 22.0 0.4 0.2
Wonderla Holidays 329.1 205.4 259.0 328.0 59.8 53.5 79.2 10.6 9.5 14.0 15% 31.1 34.6 23.5 19.1 26.0 12.9 17.7 0.5 0.2
ZEEL 443.1 5,851.5 6,672.6 7,341.4 933.1 1,277.3 1,737.9 10.2 13.3 18.1 33% 43.4 33.3 24.5 26.7 30.8 25.4 28.1 2.3 0.5
Diversified / Miscellaneous
Aditya Birla Nuvo 1,248.6 5,422.6 5,372.4 5,783.1 303.6 304.7 472.1 23.3 23.4 36.3 25% 53.6 53.3 34.4 7.0 7.3 3.7 5.4 5.0 0.4
Bajaj Holdings 2,018.8 469.8 - - 2,265.2 - - 203.5 - - - 9.9 - - - - - - 25.0 1.2
Bharti Airtell 318.6 96,619.2 100,050.0 106,779.7 4,735.3 3,758.2 3,529.3 11.8 9.4 8.8 -14% 27.0 33.9 36.2 10.5 8.6 5.9 4.6 1.4 0.4
Bharat Electronics 1,419.1 7,295.2 8,205.3 9,330.9 1,364.9 1,538.2 1,762.2 56.9 64.1 73.4 14% 24.9 22.1 19.3 18.5 18.2 13.8 13.7 17.0 1.2
Gateway Distriparks 233.9 1,046.1 1,099.5 1,196.7 123.6 108.3 134.5 11.4 10.0 12.4 4% 20.6 23.5 18.9 13.0 15.0 11.4 14.3 7.0 3.0
Max Financial 532.9 11,711.9 - - 252.7 - - 9.5 - - - 56.3 - - - - - - 0.0 0.0
PI Industries 830.9 2,096.8 2,495.2 2,984.2 300.0 399.6 475.5 22.2 29.6 35.2 26% 37.4 28.1 23.6 34.6 34.1 30.0 27.6 3.1 0.4
Ratnamani Metals 573.8 1,719.0 1,497.3 1,800.9 162.7 139.8 172.2 34.8 29.9 36.8 3% 16.5 19.2 15.6 16.9 19.0 12.8 14.1 5.5 1.0
Supreme Industries** 887.3 2,974.8 4,812.0 5,843.1 212.0 420.5 522.9 16.7 33.1 41.2 57% 53.1 26.8 21.5 30.4 33.7 26.0 26.4 7.5 0.8
UPL 652.2 13,301.5 15,520.3 18,046.2 1,438.9 1,843.4 2,243.4 27.6 35.3 43.0 25% 23.6 18.5 15.2 18.5 19.0 22.5 22.3 5.0 0.8
^Marico after 1:1 bonus
**June-ended financial year till FY2015, FY2016 consists of only 9 months
Crompton Greaves is in the process of selling its overseas power system business by Q4FY2016; hence, we have not estimated the FY2017 numbers
Divis Labs after 1:1 bonus; BEL after 2: 1 bonus
*** June ended
Cadila Healthcare post stock split from Rs5 to Rs1

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Automobiles
Apollo Tyres Š Apollo Tyre is the market leader in truck and bus tyre segments with a 28% market share in India. The company
will be investing $600mn over the next three years to set up a greenfield facility in Hungary and Rs4,000 crore to
expand capacity at Chennai facility. The expanded capacities are likely to come on stream by 2017-18. Also the
recent foray in the 2 wheeler tyres strengthens Apollo Tyres presence across all the key automobile segments. ATL
is likely to post 14% topline CAGR over the next two years, given the improved demand scenario in both,
Domestic as well as European operations. Further, we believe that ATL is likely to sustain OPM reported in
Q2FY2017 going forward (we expect OPM of ~15% for FY2017 and FY2018) due to benign raw material prices
and benefits of operating leverage. We retain our 'Buy' rating with a price target (PT) of Rs245.
Ashok Leyland Š Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. The Government's recent
demonetisation move (banning of Rs500 and Rs1000 notes) would lead to a liquidity crunch, which in turn will
impact consumption demand. The Government expects Q3FY2017 GDP growth to moderate to 5.5% from the
7.1% GDP growth expected in H1FY2017. Slower GDP growth will impact freight generation and consequently
the MHCV demand. Further, the truckers' existing fleet utilisation has been impacted on the back of the current
liquidity crunch, which would lead to deferment of the new vehicle purchases. We expect demonetisation to
impact the MHCV demand in the next two quarters. However, FY2018 is likely to see GDP growth picking up
once the liquidity situation normalises and the business cycle attains stability. We have reduced our FY2017 and
FY2018 earnings estimates by 14% and 16%, respectively, to factor in the lower MHCV demand and the consequent
drop in the margins. However, given the long-term growth prospects and expectations of demand pick-up in
FY2018, we have retained our 'Buy' rating on the stock with a revised PT of Rs90.
Bajaj Auto Š Bajaj Auto's domestic motorcycle volumes have been under pressure over the last couple of years largely due to
issues in the executive segment However, the launch of CT100 and refreshed Platina has given a much needed
volume push while the newly launched Pulsar variants, Avenger and V-series have helped consolidate its leadership
in the premium and luxury motorcycle segments. The macro-economic issues (sharp currency depreciation) in the
key export markets including Nigeria have affected the dispatches to these countries and the impact is likely to be
felt for the next one to two quarters. The launch of its quadricycle, RE60, has been delayed by legal issues and the
matter is expected to be sorted soon and will be a trigger for re-rating of the stock. Bajaj Auto is likely to report
a strong double-digit growth in the domestic motorcycles space on the back of demand recovery and market share
gains through the new launches. However, the decline in export volumes and liquidity crunch due to demonetization
are likely to keep demand under pressure in the near term. Overall, we expect BAL to report a 5% volume growth
in FY2017. We maintain our 'Hold' rating with a price target (PT) of Rs3,150.
Gabriel India Š Gabriel is one of India's leading manufacturers of shock absorbers and front forks with a diversified customer
base. Gabriel's revenues are expected to grow at a healthy 15% CAGR over FY2016-FY2018 due to improved
outlook for the two-wheeler industry and the passenger car segments. There has been a ramp-up in supplies to
Honda Motorcycle & Scooter's (HMSI) new plant in Gujarat, as also to the new models of Maruti Suzuki and
Mahindra & Mahindra (M&M). In the near term, the stock performance would be influenced by the recovery in
the two-wheeler market, a likely positive rub-off from the implementation of the Seventh Pay Commission's
recommendations and expectations of a normal monsoon in 2016. The recent demonetisation move will impact
demand, especially in the 2W segment (where transactions are cash based). GIL believes that demonetisation will
impact demand in Q3FY2017 but the long-term growth outlook is strong. Apart from the RM cost reduction,
GIL is also working on controlling the overhead costs through productivity improvement. GIL is targeting to
reach double-digit OPM as against 9.4% OPM in H1FY2017. We maintain our 'Buy' rating on the stock with an
unchanged PT of Rs130.
Hero MotoCorp Š HMCL is the largest two-wheeler manufacturer in the world with sales of over 6.6 mn vehicles in FY16 and a
domestic market share of 39%. 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 with new launches in the premium motorcyles and scooters segments.
Further, massive capex plans implemented by the company in the past, shall ramp up the production levels. The
Government's decision to demonetise the high-value currency notes is likely to result in a cash crunch and defer
discretionary consumer purchases such as Two-Wheelers (2W). The impact is expected to be severe in the rural
areas where a large chunk of transactions are cash-based. This is likely to impact rural-focused automobile players,
including Hero MotoCorp. However, the volumes are likely to recover in the next 6-8 months once the macro-
economic environment attains stability. Therefore, we believe that Hero's long-term growth prospects are intact
but it will experience some pressure in the near term. We maintain our 'Buy' recommendation with a revised price
target (PT) of Rs3,500.
M&M Š 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. Tractor sales improved significantly in H1FY2017 and the management expects the demand
traction to sustain going ahead. M&M is working on launching a new platform for Tractors in the sub-30 HP

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category in H1FY2018 and we expect Tractor demand to grow at 16% CAGR over the next two years. However,
near-term concerns like demonetisation are likely to impact demand in the short term (transactions in rural areas
where M&M has strong presence are predominantly done in cash). We expect M&M's total volumes to grow at
13% CAGR between FY2016 and FY2018. While the long-term demand potential is strong, the same is likely to
be impacted in the near term. We have reduced our earnings estimates by 3% and 8% for FY2017 and FY2018,
respectively to factor in the impact on volume. We maintain our 'Buy' rating on the stock with a revised Price
Target (PT) of Rs1,450.
Maruti Suzuki Š Maruti Suzuki is India's largest passenger vehicle maker with a strong 46% 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 and Compact SUV Vitara Brezza have received a positive response which
will help the company expand market share in the segment. 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. Maruti
is likely to outpace the PV industry growth rate in FY2017-FY2018 on the back of sustained strong demand for
recent launches and a robust product pipeline. The commissioning of the first phase of Gujarat plant will further
aid volume expansion. MSIL's yen exposure is expected to reduce with a higher localisation level while the royalty
on future models shall be INR denominated, thus shielding the OPM's partly. Also, Operating Profit Margin
(OPM) is expected to improve on the back of operating leverage and lower discounts due to strong demand. We
maintain 'Buy' rating with a revised price target (PT) of Rs6,430.
Rico Auto Inds. Š Rico Auto is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. The significant
cash inflow due to stake sale in a JV company has enabled it to deleverage its balance sheet. Additionally, a lower
interest burden will result in a growth in the earnings and free cash flow. Further, improved demand outlook from
the key customers - Hero MotoCorp, Maruti Suzuki and Renault (60-65% of total revenue), coupled with
commissioning of the Chennai plant will boost the company's topline going forward. Also, the proposed new
plant at Rajasthan is expected to commence operations by Q3FY2018 and will start contributing to the topline.
Driven by a strong demand outlook and consequent plans to ramp up capacity, we expect Rico's revenue to grow
at 14.5% CAGR between FY2016 and FY2018. Further, the company's margins are also likely to improve due to
a better product mix, operating leverage and improved profitability of subsidiaries/JV. We maintain our 'Buy'
rating and raise our price target (PT) to Rs84.
TVS Motor Š TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scooter
segment. The scooter segment has surpassed the growth in the motorcycle segment over the past couple of years
and currently contributes 30% of the total two-wheeler volumes. On the motorcycle front, two new launches in
January 2016 (Apache RTR and Victor) have generated higher volumes for the company TVSM is poised to
outpace the 2W industry growth given the new launches and sustained demand for its products. The alliance with
BMW would further aid topline growth. We also believe that the alliance with BMW would be a game changer for
TVSM, as it would enhance its brand image in the premium motorcycle category. Also, the technological inputs
received from BMW would significantly enhance the brand appeal of the entire TVSM product range, enabling it
to command higher margins. Benefits of operating leverage, better product mix and alliance with BMW are
expected to aid in margin expansion over the next 1-2 years. We expect TVSM to report 36% CAGR growth in
net profit over the next two years. We retain our 'Buy' rating with a revised price target (PT) of Rs455.
Banks & Finance
Allahabad Bank Š With a wide network of over 3,000 branches spread across India, Allahabad Bank enjoys a stronghold in north
and east India. But it has reported a rise in NPAs resulting in deterioration of its asset quality. Higher proportion
of stressed loans and low tier-I CAR remain the key concerns of the bank.
Axis Bank Š Axis Bank is the third largest private sectors bank, continues to grow faster than the industry and has diversified
its book in favour of the retail segment (~40% of loans in retail segment). The bank’s 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 have emerged as pain
points due to infrastructure and steel exposures, we expect the stress to persist in near term.
Bajaj Finance Š Bajaj Finance, owned by Bajaj Finserv, is a fast growing, well-diversified leading NBFC in the country. It has
assets spread across products, viz loans for consumer durables, two- and three-wheelers, loans to small & medium
enterprises (SMEs), mortgage loans and commercial loans. Despite 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,
its premium valuations within the NBFC space is justified.
Bajaj Finserv Š 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.

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Bank of Baroda Š 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 5,000 branches across the country. It has a stronghold in western
and eastern India. Its performance metrics remain better than that of the other PSBs and asset quality has deteriorated
in line with the RBI’s directive to clean the balance sheet.
Bank of India Š Bank of India has a network of over 4,800 branches, spread across the country and abroad, along with a diversified
product and services portfolio, and steadily growing assets. The operating performance and earnings have eroded
significantly 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 Š Capital First (erstwhile Future Capital Holdings) had 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 Š 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 Š 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 shown stress in the past few quarters, though we
expect a gradual improvement in the NPAs and the operating performance to pick up gradually. The valuations
seems attractive over the medium to long term.
HDFC Š 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 Š 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 Š ICICI Bank is India’s largest private sector bank with a network of over 3,800 branches in India and a presence in
around 18 countries. The bank has made inroads into retail loans (~45% of the book) and significantly improved
its liability franchisee. The operating profit improved significantly though its exposure to some troubled sectors
(infrastructure, steel etc) has increased pressure on the asset quality. However, a healthy growth in the operating
income and proceeds from monetisation of the stake in subsidiaries will help to deal with the NPA challenges.
IDBI Bank Š IDBI Bank is one of leading PSBs of India in terms of size of asset, 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 huge asset quality pressure, low
tier-I CAR and slower business growth, the stock is likely to underperform in the near term.
LIC Housing Š 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 company’s fundamentals are strong.
PNB Š 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 few quarters.
PFS Š 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 is
manageable.

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SBI Š State Bank of India is the largest bank of India with loan assets of over Rs14 lakh crore. 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 better than peers; the asset
quality has emerged as a key pain point which will affect the earnings growth.
Union Bank Š Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become the
largest retail, MSME bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME
lending. The bank’s asset quality challenges have come to fore (mainly from the corporate portfolio) whereas low
tier-1 CAR also remains an area of concern.
Yes Bank Š 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 in the medium to long term.
Consumer goods
Britannia Š 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 (PT) of Rs3,950.
Emami Š Emami is one of the largest players in the domestic FMCG market with a strong presence in the under-penetrated
categories such as cooling oil, antiseptic cream, balm and men’s fairness cream. The recently acquired “Kesh King”
brand improves the product and margin profiles of the company. The desire to become a large FMCG player by
riding on a portfolio of differentiated brands and widening reach in various geographies will help Emami to achieve
a growth of over 20% CAGR over the next 2-3 years. We recommend a Buy on the stock.
GSK Consumer Š GSK Consumer Healthcare is a leading player in the MFD segment with ~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. But the slowdown in discretionary space has
affected the company’s volume growth. 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 Rs2,500
crore, the company can invest in growth initiatives and/or reward its shareholders with a healthy dividend payout.
GCPL Š Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market
segments in India. The recent acquisitions, ie Strength of Nature, Darling Group, Tura, Megasari and Latin
American companies, have helped the company to expand its geographic footprint and improve growth prospects.
We believe that the decent volume growth in the domestic business, coupled with a strong growth in Indonesia,
Africa and Argentina businesses would help it to achieve an 18% topline growth and 20%+ bottomline growth
(CAGR) over FY2015-FY2017.
HUL Š Hindustan Unilever is India's largest FMCG Company. With improving sentiments in the urban markets and a
normal monsoon resulting in better rural demand, HUL's volume growth in the domestic business is expected to
improve in the coming years. Also, new product launches and entry into new categories will drive the performance
of the company in future. With improving business fundamentals the downside risk in the stock price is limited.
Hence, we recommend a Buy on the stock. In the long term, it will be one of the key beneficiaries of the Indian
consumerism story.
ITC Š 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 quantum of excise duty of 10% declared in the Union budget 2016-17 was
much lower than in the earlier years. This should help in stabilising cigarette sales volume in the coming years. The
current valuation makes ITC one of the cheapest stocks in the large-cap FMCG space.
Jyothy Labs Š 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 has transformed itself from a
one-brand 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 Š Marico is among India’s 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 Š 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.

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IT/IT services
Firstsource Š Firstsource Solutions is a specialized BPO service provider. The management continues to maintain revenue growth
(10-12% YoY on CC terms) and margin expansion (70-90BPS YoY) guidance for FY2017 with an upward bias.
The health of its balance sheet is improving gradually as the company is gradually reducing its debt burden
through internal accruals. The company expects to be comfortably net cash positive by the end of FY17. We
expect the ongoing macro overhang to restrict the stock's outperformance in the near-to-medium term, as FSL has
38.1% exposure to the UK.
HCL Tech Š 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. The management
has made investments in digital technologies (DRYiCE), which will catapult the company to the next level of
growth during the ongoing digital transition. We remain positive on the company in view of its large order wins,
acquisitions in the ERD space, investments in applications space and superior earnings visibility.
Infosys Š Infosys is India's premier IT and IT-enabled Services Company that provides business consulting, technology,
engineering and outsourcing services. It has also given a promising aspiration target for 2020 of achieving $20bn
in revenues and 30% in margin. 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 automation. We remain positive on the company's growth prospects for the coming years.
Persistent Š 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, PSL's enterprise digital transformation strategy is shaping up well. Further,
led by the recent acquisitions and alliance with IBM to build IoT solutions for IBM's Watson platform, we expect
the revenue momentum to accelerate in FY2017/FY2018 and the margins are likely to remain stable on the back
of the initiatives taken by the company.
TCS Š 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 expects the digital revenues to grow much faster in the coming
years; these grew by 52.2% YoY to $2.3 billion in FY16. The management noted that headcount addition will be
materially lower than in FY16 and dependence on Visas will come down. We believe that the ongoing transition
phase of the IT industry and macro overhang ('Brexit' and US election) will restrict stock outperformance in the
medium term. On a longer term basis, we still prefer TCS, owing to its diversified portfolio and head-start in the
Digital space.
Wipro Š Wipro is among the top five 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, telecom, and some project deferrals, it’s unlikely to show
material improvement in earnings on an organic basis in FY17. The management has given an ambitious target of
$15 billion revenues and 23% margin by 2020. We see the target of new CEO Abid Ali Neemuchwala as an uphill
task looking at the current growth trajectory. Therefore, we remain sceptical, as anecdotal evidence on Wipro in
the last two to three years does not inspire confidence.
Capital goods/Power
BHEL Š Bharat Heavy Electricals, India’s biggest power equipment manufacturer, has been the prime beneficiary of the
multi-fold 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.
CESC Š 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. Also its 600MW thermal power project at Chandrapur has signed PPA and
started operating. 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.
Crompton Greaves Š Crompton Greaves’ key businesses—industrial and power systems—are passing through a rough patch and are
potential beneficiaries of the upcoming investment cycle revival. Also, the company is looking to unlock value by
selling its international subsidiaries.
Finolex Cables Š 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. It has recently launched Fans and switch Gears. Further, it is planning to launch water
Heaters soon. Addition of new products in the product portfolio could be the next growth driver. We see a healthy
earnings growth, return ratios in high teens and superior cash flows which bode well for the stock. Hence, we
remain positive on the stock.
Greaves Cotton Š 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 management has taken a strategic call to close and hive off the loss-making infrastructure
equipment division. A positive outlook for all the business segments, coupled with the company's ongoing efforts

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to launch new products and widen its geographical reach is likely to drive topline going forward. Further, GCL is
ready with Bharat Stage 4 compliant engines (Bharat Stage 4 to be implemented from April 1, 2017 pan-India),
which will further aid topline growth in FY2018. We expect GCL's topline to grow at 10% CAGR between
FY2016 and FY2018. We remain positive on the stock and maintain our Buy rating with a price target of Rs160.
Kalpataru Š 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. 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 see some value unlocking potential from selling assets or listing of new business
in future. We remain positive.
PTC India Š 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. We retain our positive stance on
expected healthy volume uptick, with an increasing share of long-term contract business.
Skipper Š 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 has expanded the PVC capacity manifold (4x)
and aspires to turn a national player from a regional player.
Thermax Š The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc’s
capex. Thermax’ group order book stands at around 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 Š Triveni Turbines (TTL) is a market leader in 0-30MW 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 multi-fold 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 company's earnings are likely to grow by 25%+ per annum over the next
3-4 years.
V Guard Ind Š 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.
The company has a strong presence in the south region. It is also aggressively expanding in non-south markets and
is particularly focusing on the tier-II and III cities where there is a lot of pent-up demand for its products.
Va Tech Wabag Š VA Tech Wabag (VTW) is one of the world’s 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. Given the large opportunity ahead and inherent strengths of VTW,
like professional management, niche technical expertise and global presence, we remain positive on the stock.
Infrastructure/Real estate
Gayatri Proj Š 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 Rs12,269 crore, which is 6.8x its FY2016 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.
IL&FS Trans Š IL&FS Transportation Networks is India’s 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 Š 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 Š Jaiprakash Associates has been facing earnings pressure across business verticals. Further, it is in the process of
concluding its cement asset sale to deleverage its balance sheet. The construction and real estate division has also
been underperforming lately. The current uncertainty in business restructuring and liquidity concerns has led to a
cautious view on the stock.

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L&T Š 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 will continue for some time, leaving scope for
further value unlocking. Measures planned by the company to improve its return ratios augur well. Hence, we
remain positive on the stock.
NBCC Š NBCC (India), a Navratna public sector enterprise is notified as a Public Works Organization (PWO), which gives
it a unique eligibility to bag orders on a nominated basis from government departments and PSUs. NBCC has already
amassed a huge order book, which gives it a strong revenue visibility for the next five years. Moreover, future
prospects look much brighter given the opportunities from multiple areas, like redevelopment of old government
colonies in Delhi, Rajasthan & Odisha, development of government lands, Smart Cities, 'Housing for All 2022' and
'Amrut. Given the huge competitive advantage, a unique business model, high return ratios and healthy cash flows,
we remain positive on the stock.
Oil & gas
Oil India Š Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total proven and probable reserves of the company stand at 52 MMTOE and 121 MMTOE respectively. Its
reserve-replacement ratio is also healthy. Though currently weak global crude oil prices are weighing on its
performance, operational performance is healthy and offers high dividend yield.
Reliance Ind Š Reliance Industries has one of the largest and complex refining businesses in India which enjoys a substantially
higher refining margin over the benchmark GRM. Further, its petrochemical business is also highly efficient, where
RIL is expanding capacity. We expect the GRM to remain healthy and the petrochem margin to be maintained in
the medium term on an uptick in the domestic demand. Currently, the decline in gas output from the KG-D6 basin
is weighing on the stock price; however, capex in downstream business (incremental capacity in the petchem
business and petcoke gasification in refining) would be the earnings driver in the coming years. Large investment
in Reliance Jio could add value in long term.
Selan Exploration Š Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat.
The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.
Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based
on this, we expect it to ramp up production significantly, subject to approval for the new wells. However, weak
global oil prices are likely to be an overhang on the stock in the medium term.
Pharmaceuticals
Aurobindo Pharma Š Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the US and European markets,
thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones,
penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenue
mix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. It
has recently acquired the commercial operations (revenue size EUR320mn) of Actavis Plc in seven western European
countries and of Natrol in the USA to take on the nutraceutical business, which is a strategic fit.
Cadila Š Cadila Healthcare’s performance in the US generic vertical is likely to improve on the back of new product
approvals. Besides, its consumer business and exports to the emerging markets will help it to achieve a superior
growth. Cadila has recently launched its Authorised Generic (AG) Asacol HD in the US market, numbers from
which will start reflecting from Q2FY2017 onwards. This will help the company to get its US business growth
back on track. Further, the company expects the resolution of USFDA warning letter to come in Q2FY2017 (by
September 2016), which will be another key trigger to improve the overall operating performance from Q2FY2017
onwards.
Cipla Š 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.
Divi’s Labs Š The management has altered the FY2017 revenue growth guidance to 14-15% (vs. 18-20%), as the Kakinada
expansion has been delayed. However, the OPM will be maintained in the range of 37-38%. Once the Rs750
crore capex materialises, sales growth for FY2018 onwards can go back to the higher trajectory. The management
expects the Kakinada SEZ to boost growth, reaffirming 20% growth from FY2018 onwards.
Glenmark Pharma Š The management has given a revenue growth guidance of more than 25% for FY2017 (including Zetia). The
company will report 12-15% base revenue growth in FY2017 and FY2018 each. The management has indicated
that for future growth, the key focus areas will be dermatology, contraceptives and complex injectables. The
growth would be mainly driven by the USA, EU and India, which are witnessing an exponential growth on
account of launch of new products. Currently, it has three new chemical entities and four new biological entities
in clinical trials, out-licensing potential.
Lupin Š 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. Lupin has recently
successfully closed its outstanding 483 letter at its key plant in Goa. Around 30 products are pending for USFDA

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approval from the Goa plant, which we expect to start soon. Delay in key product approvals, coupled with
growing competition and pricing pressure in the US business are increasing strain on the operating performance in
the near term.
Sun Pharma Š The combination of Sun Pharma, Taro, Dusa Pharma, the generic business of URL Pharma and the acquisition of
Ranbaxy offers an excellent business model for Sun Pharma. Also, the integration process with Ranbaxy is set to
help boost the profitability due to favourable synergies from H2FY2017. The management maintains its aim to
achieve a $300-mn synergy from the merger of Ranbaxy. With a strong cash balance, it is well positioned to
capitalise on the growth opportunities and inorganic initiatives. The company has started receiving few approvals
from the Halol unit, which points to resolution of the plant issues in the near future. Also, the Specialty segment
is expected to perform well, as the company has recently launched BromSite drug (used to treat Dry Eye disease).
Also, very recently, Sun Pharma launched Authorized Generics (AG) for Benicar, Benicar HCT, Azor and Tribenzor.
All four products put together recorded sales of $2.5 billion for the 12-month ended August 2016. Therefore, we
expect Sun Pharma's H2FY2017 financial performance to be positive and long-term performance to be solid.
Torrent Pharma Š 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. Company 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 Š 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 full ramp-up of Vilayat plant
(increasing capacity to 804,000 tonne) is likely to aid VSF volumes going ahead, though prices may soften in the
near term. Further, the merger of ABCIL and expansion in caustic division are likely to maintain a strong performance
in chemical division. On the cement front, the company expects demand to pick up in the near term while a slow
execution of government projects and surplus inventory remain concern areas.
The Ramco Cements Š 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. In certain key markets of The Ramco Cements, like
Telangana, Maharashtra and Andhra Pradesh, demand has started to pick up but realisations have been under
pressure. The company has reaped the benefits through cost-saving measures, besides constantly reducing its debt,
leading to improved profitability. In a nutshell, better volumes, cost efficiencies and reducing leverage have yielded
benefits for the company.
Shree Cement Š Shree Cement’s cement grinding capacity has grown to 27.2mtpa which will support its volume growth in the
coming years. It has a power plant with capacity of 612MW for its own consumption and 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.
UltraTech Cement Š UltraTech Cement is India’s largest cement company with approximately 91mtpa cement capacity post acquisition
of JP Associates’ cement assets. The eastern region has seen a robust growth in infrastructure and housing demand
while the other regions have seen infrastructure spending only with no major improvement in housing and rural
demand. The management has guided for a 7-8% demand growth for FY17 driven by infrastructure spend and
revival in retail demand after a good monsoon. However, the uncertainty over cement price and increase in price
of pet coke (trading with upward bias, Q3FY2017 onwards may feel the impact) will be the key monitorable for
FY17. However, cost efficiency (impact of new grinding and waste heat recovery) and base effect may lead to
better operating performance for UltraTech.
Discretionary consumption
Century Plyboards Š Century Plyboards is a leading player in the organised plywood industry with a market share of 25%. A strong
growth in the sector, Century's premium positioning and brand equity strength, and the impending GST roll-out
would enable it to post a revenue growth (CAGR) of 18.1% over FY2016-FY2018E. On the back of a revenue
growth and better absorption of fixed costs, the earnings are likely to grow at a rate of 19.4% CAGR over FY2016-
FY2018E. We believe that the structural growth story in terms of GST implementation and capacity expansion
benefits remains intact, but are still 6-9 months away. Therefore, we downgrade the stock to 'Hold' with an
unchanged price target (PT) of Rs257.
Cox & Kings: Š Cox & Kings is an integrated player in the tourism & travel industry, with a strong presence in the global leisure
travel segment and the education tourism segment in Europe. It has a 30% market share in the global outbound
tourism market. It is a market leader in education tourism in the UK. The terrorist attacks in Brussel and Paris
earlier this year will have some impact on the business fundamentals. The impact of ‘Brexit’ would be limited to
currency translation affect in the near term. We retain Buy on the stock with a long-term view as the company is
focusing on strengthening its balance sheet.
Info Edge (India) Š Info Edge is India’s 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. Further, prevailing lower competitive intensity in the real estate
space is positive in terms of profitability. We expect Zomato business’ growth to extend in the coming years, with

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better integration of services and increasing monetisation opportunities. 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 Š INOX Leisure Ltd (ILL), India's second largest multiplex operator with 112 properties and 440 screens across 57
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 688 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
continue to remain positive on ILL from a long-term perspective, given its pan-India growth plans, healthy balance
sheet (lower financial leverage) and potential benefits from GST rollout.
KKCL Š 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.
Orbit Exports Š 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 women’s 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.
Raymond Š 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.
Relaxo Footwear Š 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. It has emerged as an attractive investment
opportunity due to its growing scale, strong brand positioning and healthy financial performance.
Thomas Cook (I) Š Thomas Cook India (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 environment
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
businesses. Moreover, we see a turnaround in the financial performance of Sterling Holidays. The value unlocking
in Quess Corp has happened through IPO, which is broadly in line with our expectations. We maintain Buy with
a price target of Rs229.
Wonderla Holidays Š 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 came up with a third park in Hyderabad in Q1FY2017. 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 4-5% increase in the annual ticket price, WHL’s revenues are expected to grow at a
CAGR of 30% over FY15-18. Its OPM of 35-40% is better compared with some of the matured international
parks. better compared with some of the mature international parks.
Zee EntertainmentŠ 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 40 channels across Hindi, regional, sports and lifestyle genres. ZEEL
continues to outperform the broadcasting advertising market and expects to continue the momentum with an
improvement in the macro economy. ZEEL's recent move to exit from the loss-making sports business will improve
its profitability, strengthen balance sheet and position the company to accelerate inorganic or strategic investments.
We continue to see ZEEL as the prime beneficiary of macro revival and digitisation.
Diversified/Miscellaneous
Aditya Birla Nuvo Š We believe that the outlook for ABNL's Financial Services business remains bright, although the Manufacturing
vertical continues to lag. Further, Idea's profitability is likely to remain under pressure in the near term. Pre-
amalgamation, we have revised our price target (PT) for ABNL to Rs1,250 on account of de-rating of its Telecom
business and subdued operating performance of its Manufacturing verticals. We maintain our 'Hold' rating on the
stock.
Bajaj Holdings Š 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. Given the

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strategic nature of BHIL's investments (namely BAL and BFL), we have given a holding company discount of 50%
to BHIL's equity investments. The liquid investments, and investments in other group companies have been valued
at cost. Further, the price target (PT) for BFS has been revised upwards to Rs3,890, as the company has reported
better-than-expected results for Q2FY2017 and long-term upside potential remains intact since all three business
streams are in high-growth and emerging segments. Consequently, we have maintained our 'Buy' rating and have
revised upwards the PT to Rs2,737.
Bharti Airtel Š Bharti Airtel is the leader in the Indian mobile telephony space. The long awaited entry of a competitor with deep
pockets – Reliance Jio - in the market with aggressive pricing and deep market penetration strategy, Airtel will have
to bear the brunt in the short term. Going forward, from a long-term perspective, explosive growth in the data
segment, strong network and reach will help Bharti emerge stronger, but the near-term blips make us keep our Hold
rating on the stock with a price target of Rs 364
BEL Š Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, stands to benefit from
the enhanced budgetary outlay for strengthening and modernising the country's 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 company's current order book of around Rs34,675 crore
provides revenue visibility for the next three to four years.
GDL Š 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 a.ll the three segments will strengthen its presence in each of the segments
and increase its pan-India presence.
Max India Š Max India has demerged into three different entities of which Max Financial Services will hold Max Life Insurance
(new Max India will hold Max Healthcare, Max Bupa Health Insurance and Antara businesses). Max Life Insurance
(held by Max Financial Services) is among the leading private sector insurers, has gained the critical mass and
enjoys among the best operating parameters in the industry. As the insurance sector is showing signs of stabilisation,
the company’s favourable product mix and a strong distribution channel will result in a healthy growth in the
premiums and profits.
PI Industries Š PI Industries (PII), 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. To sustain
the growth momentum, the company has expanded its manufacturing capacity in Jambusar at a cost of Rs300
crore and the new capacity has commissioned in H2FY2016. PII is gradually ramping up production at the recently
commissioned Jambusar facility. The new products launched in the recent past have gained good acceptability in
the market and would continue to contribute to topline growth. We expect demand to be majorly unaffected due
to demonetisation, as outlook for the CSM business (exports), which accounts for ~60% of total sales, remains
strong and unaffected. In the domestic market, demand is likely to be impacted due to demonetisation, which
could normalise by Q4FY2017. On the EBIDTA margin front, PII has guided for 100-150BPS improvement on
account of a richer product mix and likely improvement in operational efficiencies. The company's order book
stands at $800 million. PII has lined up a capex of ~Rs200 crore for FY2017 and ~Rs150 crore for FY2018.
Structurally, PII will benefit from its unmatched CSM capabilities (exports business), distribution reach and brand
advantage in the domestic markets. We have maintained our Buy rating on the stock with a revised PT of Rs955.
Ratnamani Metals Š Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. Despite the challenging
business environment due to increasing competition, we remain positive on RMTL on the back of its strong
balance sheet, the company's ability to generate superior return ratios in the coming years and expansion of
seamless SS tube capacity in the next few years. Further, 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 Š 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, which are largely funded by its robust internal accruals. The company enjoys superior return
ratios with low gearing levels. With diversified products, extensive distribution network, improved capital structure
and government thrust’s on better infrastructure, Supreme has emerged as one of the best proxy play on the
increasing use of plastic consumption in India. Hence, we remain positive on the stock.
UPL Š UPL is 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. It has also started to focus on premium products in agro-chemicals.
UPL's consistent focus and ability to introduce innovative products (both in India and overseas markets), presence
in high-growth markets (Brazil and India) and plans of tapping new markets (China and Africa)augur well for the
company. Strong growth momentum in the Latin American markets, with the company aiming to outpace the
industry growth and gain market share, coupled with a favorable outlook for the Indian business will help UPL to
boost its overall performance and achieve its revenue growth target of 15% for FY2017. Also, a better product
mix, operating leverage and likelihood of market share gains in the key markets should boost the overall performance.
We retain our 'Buy' rating with a revised Price Target (PT) of Rs800.

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