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Speciality Chemicals: Waterproofing: Rising competition alters landscape Cash (NSE+BSE) 655 628 623
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Forex/money market
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Change, basis points
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Top movers
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Change, %
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kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES.
REFER TO THE END OF THIS MATERIAL.
INDIA
Strategy
AlphaBet AUGUST 03, 2020
UPDATE
BSE-30: 37,607
QUICK NUMBERS
The concentrated sentiment portfolio beats the benchmark for the fifth month straight Concentrated All-
The concentrated sentiment portfolio outperformed the index for the fifth consecutive month.
Season portfolio
Fundamental factor also beat the index. Low-volatility and momentum lagged the benchmark in outperformed the
July. Momentum is the black sheep of the factor family currently, and has underperformed the benchmark by ~7%
benchmark YTD. All other single-factor portfolios have outperformed the benchmark YTD in July
(Exhibit 3).
YTD, it has
All-Season portfolio up 16% against the index YTD outperformed the
index by ~16%
The concentrated All-Season portfolio beat the index handily in July (Exhibit 1). Year-to-date,
the concentrated All-Season portfolio has outperformed Nifty by 16.2% while the broad All- Concentrated
Season portfolio has outperformed the benchmark by 3.8%. sentiment portfolio
has outperformed
Anti-factor keeps up with the benchmark in July
the benchmark by
After beating the benchmark for three consecutive months, the concentrated anti-factor ~47% YTD
portfolio was flat with respect to the benchmark in July. The anti-factor portfolio consists of
stocks from Nifty-50 index with the worst factor scores. Despite outperforming the index in
April, May and June, the concentrated anti-factor portfolio has underperformed the benchmark
by 4% YTD.
August 2020 concentrated All-Season portfolio consists of Hindustan Unilever (HUVR), Asian
Paints (APNT), Britannia Industries (BRIT), Dr Reddy’s Laboratories (DRRD) and Infosys (INFO).
APNT replaces Tech Mahindra (TECHM) in the concentrated All-Season portfolio. We show the
scores of these stocks and their position within the universe in Exhibits 5 – 8. The other single
factor portfolio are provided in Exhibits 10-16. The anti-factor portfolio, which contains the
stocks with the worst factor scores, has Tata Motors (TTMT), Zee Limited (Z), Bajaj Finance
(BAF), Axis Bank (AXSB) and HDFC Life Insurance (HDFCLIFE). AlphaBet recommendations can
differ from KIE analyst recommendations.
Anurag Singh
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Strategy India
Along with high level of volatility, the markets also saw an increase in the correlation
between the returns of individual stocks (Exhibit 2). Elevated levels of correlation between
stock returns lead to a lower diversification benefit.
Despite these twin challenges of higher volatility and higher correlations, the AlphaBet suite
performed better than the market over the period in question.
The concentrated All-Season portfolio, which is a multi-factor portfolio of five stocks from
Nifty-50 Index with the best momentum, sentiment, volatility and fundamental scores, has
outperformed the benchmark by close to 8% from the end of February 2020. While the
benchmark’s total return over February 2020 – July 2020 is close to zero, the concentrated
All-Season portfolio has returned 8.3%. The concentrated fundamental portfolio has
returned 4.2% over the same period. The best performing single factor portfolio, however,
has been the concentrated sentiment portfolio, which has gained an eye-catching 48% over
the past five months. Concentrated momentum and concentrated low-volatility portfolios
have lagged the benchmark over this period.
Exhibit 3 shows the performance of the AlphaBet portfolios in the month of July. The
concentrated sentiment portfolio continued to outperform the benchmark for the fifth
consecutive month, while fundamental portfolio also outperformed the benchmark.
Momentum and low-volatility portfolios underperformed the benchmark in July. The multi-
factor All-Season portfolio also outperformed the benchmark by 6.8% in July. On a year-to-
date basis, all single factors have outperformed the Nifty-50 index, except the momentum
factor. The concentrated All-Season portfolio also beat the benchmark YTD.
Exhibit 1: The recent surge in volatility was only seen previously during the Great Financial Crisis
Three-month rolling volatility of Nifty-50 Index (%)
70
60
50
40
30
20
10
0
Aug-06
Aug-07
Aug-08
Aug-09
Aug-14
Aug-15
Aug-16
Aug-17
Aug-05
Aug-10
Aug-11
Aug-12
Aug-13
Aug-18
Aug-19
Exhibit 2: This high volatility was accompanied by an increase in average stock return correlation
Rolling three-month average correlation between the daily returns of Nifty-50 constituents
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Aug-12
Aug-14
Aug-17
Aug-19
Aug-10
Aug-11
Aug-13
Aug-15
Aug-16
Aug-18
Source: Bloomberg, Kotak Institutional Equities
Exhibit 3: The concentrated sentiment factor outperformed the benchmark fifth month in a row
Performance of single factor and All-Season portfolios in July 2020
July 2020 returns (%) YTD returns (%) Active July returns (%) Active YTD returns (%)
Nifty Index 7.9 (8.1) NA NA
Concentrated All-season 14.7 8.2 6.8 16.2
Broad All-Season 9.6 (4.2) 1.7 3.8
Concentrated fundamental 9.5 6.3 1.6 14.4
Broad fundamental 9.3 0.1 1.4 8.2
Concentrated low volatility 3.9 (7.6) (4.0) 0.5
Broad low volatility 7.4 (1.0) (0.5) 7.0
Concentrated momentum 4.0 (23.9) (3.9) (15.9)
Broad momentum 7.4 (16.2) (0.5) (8.1)
Concentrated sentiment 13.0 38.6 5.1 46.6
Broad sentiment 7.8 (3.0) (0.1) 5.1
Concentrated anti-factor 10.9 (12.1) 3.0 (4.0)
Broad anti-factor 8.0 0.7 0.1 8.8
The anti-factor portfolio, which selects stocks with the worst sentiment, volatility,
momentum and fundamental scores, also outperformed the index, albeit by a slender
margin. As we mentioned in our previous note, during recovery rallies after a large
drawdown, low-volatility and momentum factors underperform. On the other hand, stocks
with low momentum scores and higher volatility outperform during recoveries. Thus, the
outperformance of the anti-factor portfolio during the current recovery is not unexpected.
However, if/when the market transitions from a ‘recovery rally’ phase to a ‘normal’ phase,
we expect the anti-factor portfolio to underperform again.
Exhibit 4 shows the top half of the Nifty50 Index, as sorted by the combined factor score.
The tickers in red (top five) are a part of the concentrated All-Season portfolio.
Exhibit 5 shows the volatility metrics of the five stocks, alongside the bar chart of the same
for the benchmark. The chart demarcates the four quartiles (color coded) for the three
metrics included in our volatility factor – price volatility, downside deviation and max
drawdown. We also show the relative position of our All-Season portfolio picks and which
quartile they fall into. We truncate the metrics by clipping the edges at both ends. That is, to
reduce the effect of outliers, we cap the metrics at 90th and 10th percentile, respectively.
We also show similar metrics for momentum, fundamental and sentiment scores (see
Exhibits 6-8).
Exhibit 5: All stocks in conc. All-Season portfolio have reasonably good low-volatility characteristics
Concentrated All-Season portfolio, relative to benchmark, on volatility metrics
Exhibit 6: INFO has a lower momentum score, on account of its strong 4-week returns
Concentrated All-Season portfolio, relative to benchmark, on momentum metrics
Exhibit 7: INFO has decent operating performance, high stability and not-very-expensive valuation
Concentrated All-Season portfolio, relative to benchmark, on fundamental metrics
Exhibit 8: All stocks in the All-Season portfolio have good sentiment metrics
Concentrated All-Season portfolio, relative to benchmark, on sentiment metrics
We also show the portfolio for the broad and concentrated All-Season portfolio, along with
the different single factor portfolios in Exhibits 9-16.
Exhibit 11: Consumer staples are a big part of concentrated momentum portfolio
The concentrated momentum portfolio, as of July 31, 2020
Exhibit 13: No change in the composition of the concentrated low-volatility portfolio for a third
consecutive month
The concentrated low volatility portfolio, as of July 31, 2020
Exhibit 14: The broad low-volatility portfolio is well diversified across sectors
The broad low volatility portfolio, as of July 31, 2020
Exceptions are exceptions. We are skeptical about companies being able to retain
cost savings achieved in 1QFY21. Companies in the construction materials, consumer
and IT sectors saw significant cost savings for a variety of reasons—lower freight and
power & fuel costs (construction materials), advertising and promotion (A&P) expenses
(consumer) and travel costs (IT services). However, they may have to reinvest the savings
in the business and/or pass on the benefits to customers for competitive reasons.
QUICK NUMBERS
8% yoy decline in
Exceptional cost management in an exceptional quarter; may not sustain freight costs, 15%
It would be imprudent to extrapolate the cost savings achieved by companies in 1QFY21 in yoy decline in
perpetuity as companies may be compelled to eventually (1) reinvest the savings and/or (2) pass power & fuel costs
on the benefits to clients/customers for competitive reasons. Most Nifty-50 companies reported in 1QFY21 for
better-than-expected EBITDA in 1QFY21 on the back of lower-than-estimated costs (see Exhibit cement companies
1). However, aggregate net income is in line with our estimates (see Exhibit 2).
Average 38% yoy
Construction materials sector saw solid savings from low freight and fuel costs decline in A&P
expenses in 1QFY21
Construction materials (cement) companies saw a sharp improvement in profitability in 1QFY21
(see Exhibit 3) despite stable realizations (see Exhibit 4). They benefited from (1) lower freight for consumer
costs due to low diesel prices and (2) lower power & fuel costs due to low petroleum coke companies
prices (Exhibit 5). However, diesel prices have increased sharply in the past few weeks (see
8-30% qoq decline
Exhibit 6) and petroleum coke prices stabilized. Anyway, cement is a commodity business and it
in SG&A expenses in
would be optimistic to assume that the industry will continue to witness benign pricing
conditions despite very low capacity utilization through FY2023 (see Exhibit 7). We assume 1QFY21 for IT
moderation in cement profitability from 1QFY21 highs but note that our profitability services companies
assumptions for FY2021-23 are well above historical levels (see Exhibit 8).
Consumer companies sharply cut their A&P spends; no need to spend in ‘lockdown’ quarter
Consumer companies had a challenging 1QFY21 with a sharp decline in volumes (see Exhibit 9)
and contraction in gross margins (see Exhibit 10). However, they were nimble enough to sharply
reduce their A&P expenses. Anyway, 1QFY21 was a bad quarter for new product campaigns or
launches. Exhibits 11-12 show A&P expenses of the consumer companies on an absolute basis
as well as a proportion of their sales. We expect A&P expenses to gradually recover over
FY2022-23 (see Exhibit 13) as companies compete once again for mind and market shares. Sanjeev Prasad
Also, it would be interesting to see how organized retailing companies change the competitive
dynamics of the consumer staples industry. Anindya Bhowmik
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
India Strategy
Exhibit 1: Most construction materials, consumer staples and IT services companies beat our EBITDA estimates due to solid cost savings
Company-wise EBITDA analysis of Nifty-50 companies (Rs mn)
EBITDA (Rs mn) Change (%)
Company Sector Jun-19 Mar-20 Jun-20A Jun-20E A/E yoy qoq
Bajaj Auto Automobiles & Components 11,982 12,528 4,085 4,068 0 (66) (67)
Maruti Suzuki Automobiles & Components 20,478 15,464 (8,634) (4,117) (110) (142) (156)
Tata Motors Automobiles & Components 29,955 23,733 6,356 (26,002) 124 (78.8) (73.2)
L&T Capital Goods 30,684 51,210 16,205 20,176 (20) (47.2) (68.4)
Asian Paints Commodity Chemicals 11,563 8,596 4,843 2,136 127 (58) (44)
UltraTech Cement Construction Materials 28,930 23,800 20,260 15,691 29 (30) (15)
Britannia Industries Consumer Staples 3,947 4,543 7,170 6,706 7 82 58
Hindustan Unilever Consumer Staples 26,470 20,650 26,440 24,086 10 (0.1) 28.0
ITC Consumer Staples 45,657 41,635 26,466 23,999 10 (42) (36)
Nestle India Consumer Staples 7,073 8,006 7,584 8,463 (10) 7 (5)
HCL Technologies IT Services 34,013 47,234 45,688 41,383 10 34 (3)
Infosys IT Services 51,520 56,760 61,210 55,259 11 19 8
TCS IT Services 100,370 109,760 100,250 104,632 (4) (0) (9)
Tech Mahindra IT Services 13,141 13,478 13,005 11,164 16 (1) (4)
Wipro IT Services 29,734 31,963 33,903 29,194 16 14 6
JSW Steel Metals & Mining 37,160 29,750 13,410 12,644 6 (64) (55)
Reliance Industries O il, Gas & Consumable Fuels 213,150 166,380 168,750 162,557 4 (21) 1
Dr Reddy's Laboratories Pharmaceuticals 7,267 9,376 11,129 8,488 31 53 19
Bharti Airtel Telecommunication Services 82,802 102,021 104,079 103,500 1 26 2
Bharti Infratel Telecommunication Services 18,955 16,990 17,672 19,067 (7) (7) 4
BSE-30 677,831 677,522 590,231 572,997 3.0 (12.9) (12.9)
Nifty-50 804,848 793,877 679,871 623,095 9.1 (15.5) (14.4)
1,400
1,200
1,000
800
600
400
200
0
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Exhibit 4: Realizations of construction materials companies have been broadly steady in 1QFY21
Realization/ton of construction materials companies who have reported 1QFY20 results, March fiscal year-
ends, 2019-21 (Rs)
5,500
5,000
4,500
4,000
3,500
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Exhibit 5: Sharp decline in freight costs and power & fuel costs for construction materials companies
in 1QFY21
Freight costs and power & fuel costs of construction materials companies, March fiscal year-ends, 2020-21
(Rs/ton)
Yoy Qoq
1QFY21 1QFY20 4QFY20 (%) (%)
ACC
Freight costs 1,257 1,449 1,442 (13.3) (12.8)
Power & fuel costs 952 1,131 1,119 (15.8) (14.9)
Ambuja Cements
Freight costs 1,275 1,374 1,381 (7.2) (7.7)
Power & fuel costs 1,006 1,100 1,064 (8.5) (5.4)
Orient Cement
Freight costs 1,162 1,228 1,217 (5.4) (4.5)
Power & fuel costs 836 1,058 992 (21.0) (15.7)
UltraTech Cement
Freight costs 1,141 1,220 1,330 (6.5) (14.2)
Power & fuel costs 886 1,044 984 (15.1) (10.0)
80
70
60
50
Apr-19
Apr-18
Apr-20
Jan-18
Jul-18
Jan-19
Jan-20
Jul-20
Jul-17
Jul-19
Oct-17
Oct-19
Oct-18
1,400
1,200
1,000
800
600
400
200
0
FY2019 FY2020 1QFY21 FY2021E FY2022E FY2023E
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2-y CAGR
Staples
Bajaj Consumer Care 8.7 (0.3) 7.0 5.5 4.7 (0.2) (8.6) (30.3) (23.0) (10.2)
Britannia Industries - Domestic 12.5 11.0 8.0 7.0 3.0 3.5 2.0 (1.0) 20.0 13.3
Colgate - Overall 4.0 7.0 7.0 5.0 4.0 4.0 2.3 (8.0) (6.0) (0.7)
Dabur - Domestic 21.0 8.1 12.4 4.2 9.6 4.8 5.6 (14.6) (9.7) (3.0)
HUL (FMCG business) 12.0 10.0 10.0 7.0 5.0 5.0 5.0 (7.0) (7.0) (0.2)
Marico - Domestic 12.4 6.0 6.0 8.0 6.0 1.0 (1.0) (3.0) (14.0) (3.6)
Marico - Parachute 9.0 8.0 9.0 6.0 9.0 (1.0) (2.0) (8.0) (11.0) (2.9)
Marico - Saffola 10.0 5.0 2.0 18.0 3.0 1.0 11.0 25.0 16.0 17.0
Marico - Value-added hair oils 15.0 5.0 7.0 1.0 7.0 — (7.0) (11.0) (30.0) (15.9)
Discretionary
Asian Paints 13.0 11.0 22.0 11.0 17.0 14.0 11.0 2.5 (38.0) (17.0)
ITC - Cigarettes 1.0 7.0 7.5 10.0 3.0 3.0 2.0 (11.0) (38.0) (17.4)
Exhibit 10: Most consumer companies saw a qoq decline in gross margins
Gross margin of consumer companies under our coverage, 1QFY19-1QFY21 (%)
Exhibit 11: Consumer companies reduced their A&P expenses sharply in 1QFY21
Advertising & promotion expenses of consumer companies, 1QFY20-1QFY21 (Rs mn)
Yoy Qoq
1QFY21 1QFY20 4QFY20 (%) (%)
Bajaj Consumer Care 248 391 366 (36) (32)
Colgate 1,139 1,513 1,555 (25) (27)
Dabur 1,456 2,021 1,002 (28) 45
Hindustan Unilever 7,970 11,610 11,640 (31) (32)
Marico 1,370 2,190 1,260 (37) 9
United Spirits 518 1,708 1,200 (70) (57)
Exhibit 12: Sharp reduction in A&P expenses-to-sales ratio for consumer companies in 1QFY21
Advertising & promotion expenses of consumer companies as a proportion of sales, 1QFY20-1QFY21 (%)
Bajaj Consumer Care Colgate Dabur Hindustan Unilever Marico United Spirits
30
25
20
15
10
0
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Exhibit 13: We expect A&P expenses-to-sales ratio of consumer companies to recover over FY2022-23
Advertising & promotion expenses of consumer companies as a proportion of sales, March fiscal year-ends,
2018-23E (%)
Bajaj Consumer Care Colgate Dabur Hindustan Unilever Marico United Spirits
20
18
16
14
12
10
8
6
4
2
0
2018 2019 2020 1QFY21 2021 2022 2023
Exhibit 15: Most IT services companies witnessed reduction in SG&A expenses-to-sales ratio
SG&A expenses of IT services companies, 1QFY20-1QFY21 (Rs mn)
Yoy Qoq
1QFY21 1QFY20 4QFY20 (%) (%)
SG&A expenses
HCL Technologies 22,050 21,050 23,910 5 (8)
Infosys 25,970 25,530 28,390 2 (9)
L&T Infotech 2,752 2,364 2,796 16 (2)
Mindtree 2,834 3,969 4,060 (29) (30)
TCS 58,110 60,330 65,290 (4) (11)
Tech Mahindra 12,953 11,747 14,528 10 (11)
Wipro 19,795 19,072 17,976 4 10
SG&A expenses-to-sales (%)
HCL Technologies 12.4 12.8 12.9
Infosys 11.0 11.7 12.2
L&T Infotech 9.3 9.5 9.3
Mindtree 14.5 21.6 19.8
TCS 15.2 15.8 16.3
Tech Mahindra 14.2 13.6 15.3
Wipro 13.2 12.8 11.3
Exhibit 16: We model FY2021-23 EBIT margins at lower than 1QFY21 levels for IT services companies
EBIT margin of IT services companies, March fiscal year-ends, 2018-23E (%)
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Speciality Chemicals India
The waterproofing chemicals market in India is pegged at about Rs35 bn. It is significantly
under-indexed to decorative paints in India—as per our industry interactions, the size of the
waterproofing chemicals market in developed world is about 25-33% that of decorative
paints. Whereas, at Rs35 bn, the waterproofing products market in India is about 8% that
of decorative sales. Under-penetration is attributable to (1) lack of awareness (especially
among independent house builders in rural markets) and (2) cost considerations.
There are four broad applications of waterproofing by surface-type: (1) roof/terrace, (2) wet
areas (bathroom and kitchen), (3) exterior/interior walls, and (4) basement, podium, water
tanks and swimming pools. Based on the approach, waterproofing can be classified into two
segments: (1) integral waterproofing wherein waterproofing chemical is mixed with cement
in concrete mixer, (2) layered waterproofing—applied as a elastomeric/polymer
coat/membrane on a surface. Layered waterproofing is needed for surfaces/applications
wherein integral waterproofing is not adequate. New construction/ Repair + Renovation split
is about 50:50 for the industry. Institutional/Retail split is about 35:65— Institutional (Project
sales) comprise projects with top 200 builders.
Increase in awareness, especially in tier II-IV markets. We note that the cost of
waterproofing is about 1% of the overall construction cost of a new project. Whereas,
the cost of fixing a waterproofing issue is much higher (say 3-4X). Yet, proper
waterproofing is done mainly in the organized sector. Waterproofing penetration in
independent house buildings (IHBs) in small towns is low due to lack of awareness. Small
unorganized builders often do a substandard work in their bid to cut corners. We expect
this to change over the next 3-5 years as awareness among consumers rise. Any
regulatory push by RERA would be a welcome change.
Rise in competition to accelerate market development. About five years ago, the
waterproofing category primarily comprised Dr Fixit (Pidilite) and a few MNC/local firms
(SIKA, BASF, Fosroc, CICO, Sunanda, etc.). Over the past 2-3 years, paint and cement
companies have stepped up focus on this segment. This rise in competition has expanded
the market to some extent. We expect further acceleration in market development and
expansion of the overall pie driven by higher investments in marketing, advertising and
customer awareness/education.
In India, waterproofing products are sold across three different distribution channels: (1)
paint dealers—waterproofing or damp-proofing of walls and wet areas is usually carried out
before repainting. Given this, most paint dealers stock waterproofing products, (2) hardware
stores—it is a traditional channel for waterproofing products, and (3) building
materials/cement stores—this channel has started stocking waterproofing products over the
past few years, especially since the time cement companies have enhanced focus on
waterproofing.
Influencer/applicator plays a key role. Unlike home décor activities (such as repainting,
furnishing, etc.) wherein consumers play an active role in decision making (especially from
aesthetics standpoint), waterproofing is a more complex activity of which consumers have
limited knowledge. In waterproofing, application of product is as important as the
product itself. A good product would not give good results if it not applied properly.
Furthermore, there are a broad range of products across price points with specific use
case. Given these factors, consumers tend to rely a lot more on judgment and advice of
waterproofing experts/applicators. Waterproofing is carried out by (1) specialist
waterproofing contractors in case of complex repair work (interior work) or new
constructions, (2) civil contractors/masons in case of exterior repair or new construction,
and (3) painters for basic preventive waterproofing before repainting. Over the past 3-4
years, paint companies such as Asian Paints have trained painters in waterproofing, a
win-win proposition for the company as well as the painter.
Brand/product awareness is limited. MNC players (SIKA, BASF, Fosroc, Weber, etc.)
and most local waterproofing companies do not spend on advertising and hence brand
awareness among consumers is low. These companies engage with
influencers/applicators to create awareness and promote products. PIDI has consistently
advertised Dr Fixit (Amitabh Bachchan is brand ambassador) and created a well-known
consumer brand. Of late, paint companies have also started marketing their respective
waterproofing brands (Asian Paints—SmartCare, Berger—Home Shield, Kansai Nerolac—
Perma).
Pricing varies across product range. Most waterproofing companies have a broad
range of products across price bands. Products meant for more complex/critical areas
such as (water tanks, swimming pools basements) are usually more expensive as
compared to basic integral waterproofing products such as Dr Fixit’s LW+ that is mixed
with cement. We note that pricing of waterproofing product varies from Rs8/sq. ft to
Rs50+/sq. ft.
Warranty—a marketing tool that works with consumers. There are two types of
warranties—product warranty and product + applicator warranty. MNCs grant warranty
in case of large institutional projects but do not give any warranty in the B2C segment.
Pidilite and paint companies are relatively generous in offering warranty of 5-7 years. That
said, we note that product warranty does not help as it becomes difficult to identify root
cause (product/applicator flaw) of leakage at a later date. Pidilite and paint companies
offer full warranty if the waterproofing job is done by their waterproofing partners
(assigned by the company’s customer service team); we believe this approach is working
well for waterproofing repair work. Paint companies have suggested that the claim rate is
very low and hence there is no material risk associated with warranties.
Pushing waterproofing
Expanding product portfolio
cement and ready-mix
through organic/inorganic
Rehaul of waterproofing concrete with waterproofing
route.
customer service process is Focused on institutional Most players are focused on chemicals
Key initiatives and underway to improve lead sales. Limited local markets and offering
Asian Paints has trained
Growth strategy conversion. investments/focus to grow affordable waterproofing Companies are creating
more than 60-70K painters
retail sales. products. awareness and educating
in waterproofing. Focus is to
masons/contractors about
leverage channel strength
these new products. Focus is
and painters connect.
to leverage channel strength.
Exhibit 2: Waterproofing: distribution strength of Pidilite, Asian Paints and cement companies
Paint dealers
Paint companies
have strong
relationship
Specialist
Paint contractors waterproofing
contractors
APNT closing gap with PIDI, racing for the pole position
Our channel checks suggest that APNT is quickly closing gap with the market leader, PIDI, in
the waterproofing segment and it is eyeing #1 position in the next 2-3 years. We detail our
thoughts below and in Exhibit 4.
APNT leveraged paints dealer network and trained painters in WP to penetrate in
WP market
Waterproofing was traditionally done by specialist waterproofing applicators or civil
contractors/masons and waterproofing products were sold across three channels—hardware
stores, paint stores and building material/cement stores. Following its foray into the category in
2013, Asian Paints managed to find shelf space for its waterproofing products range
(SmartCare) in its paints dealer network but struggled to build influencer/applicators connect.
Hence, APNT expanded applicator base by training paint contractors/painters in waterproofing.
Over the past 4-5 years, APNT has trained more than 50,000 painters who now work as loyal
foot soldiers promoting APNT’s waterproofing products.
APNT’s two successful products— Damp Roof and Damp Sheath
APNT has so far focused on (1) roof waterproofing product and (2) waterproofing basecoat
(primer) and top coat for exterior and interior walls. These products (especially the latter) are
usually sold by paint dealers and applied by painters. Pidilite already had products (Newcoat/
Raincoat) but it has achieved limited success in these sub-segments of WP. A combination of
push from APNT, paint dealers and painters has led to significant increase in adoption of
waterproofing coats for exterior/interior walls (Damp Sheath) and roof (Damp Roof). Asian
Paints has an edge as painters tend to be applicators in this sub-segment of waterproofing.
Pidilite is struggling to build relationship with painters.
APNT has launched Vitalia Neo and Repair Polymer with an eye on PIDI’s LW+ and URP
In our view, APNT’s success thus far has led to expansion of the waterproofing market
without material impact on Pidilite. However, APNT has recently launched Vitalia Neo and
Repair Polymer positioned against Pidilite’s two top-selling products LW+ and URP (together
account for Rs5 bn, 50% of Dr Fixit’s sales). APNT is aggressively pushing paint dealers to
promote these two products over LW+ and URP that paint dealers have been selling since
years. If these two products succeed, Pidilite’s growth could get impacted (and LW+ and URP
could lose share in paints dealer network). Further, APNT would also focus on other channels
(hardware stores and cement stores) and step up advertising. We expect the market to
expand significantly over the next few years but it may be difficult for Dr Fixit to defend
market share in the near-to-medium term.
We do not expect Dr Fixit’s Newcoat/Raincoat to gain share from Damp Sheath and Damp
Roof. Hence, it would be important for PIDI to further strengthen influencer connect to
protect its turf in LW+ and URP space (two products account for 50% of DR Fixit sales and
about Rs5 bn sales in absolute terms).
Exhibit 4: Asian Paints has potential to surpass Dr Fixit in the next three years
Hardware stores
Primarily Paint dealers
Distribution strength Paint dealers (facing competition from Paint companies)
Limited success in other channels
Building material/cement stores
Revamp of waterproofing customer service process is Launched Vitalia Neo and Repair Polymer to compete
underway to improve customer experience and lead against Dr Fixit's top-2 products (LW+ and URP)
conversion.
Key initiatives
Attempting to strengthen influencer connect among
Attempting to strengthen influencer connect among civil contractors/masons and waterproofing experts.
painters Advertising to establish brand
We believe that Dr Fixit would continue to be a preferred brand for complex waterproofing
issues. However, Asian Paints may succeed in large scalable preventive (basic) waterproofing
sub-segments given its brand strength (associated consumer trust), advertisement campaigns
and strong support from paint dealers and paint contractors.
We note that Cement companies have also launched waterproof cement and ready-mix
concrete with waterproofing chemicals. Akin paint companies, cement manufacturers are
trying to leverage its distribution in cement stores and connect with civil contractors/masons.
We will keep a close eye on their progress.
LW+ and URP are well established waterproofing products that account for ~50% of Dr Fixit's sales.
APNT recently launched Vitalia Neo and Repair polymer to compete against LW+ and URP.
Dr Fixit- LW+ SmartCare Vitalia Neo Dr Fixit- URP SmartCare Repair Polymer
Latex based waterproofing product for general
Cement additive for integral waterproofing
repair
Damp Sheath and Damp roof are APNT's top selling waterproofing products.
Dr Fixit's Raincoat competes with Damp Sheath but it is not so well-established product.
Exhibit 6: List of projects executed by Nina Percept, Pidilite's waterproofing services subsidiary
Industry vertical Project name City Project name City Project name City
Adani Shantgram Township Ahmedabad Aparna Sarovar Hyderabad Lodha World One Mumbai
After The Rain Bengaluru Godrej Platinum Kolkata Mumbai Oberoi Skycity Mumbai
Brigade Caladium Bengaluru Tata Avenida Kolkata Oberoi Mix Use Mumbai
Godrej Platinum Bengaluru Beaumonde Mumbai Planet Godrej Mumbai
Godrej Woodsman Estate Bengaluru Crecent Bay Mumbai Suraj Apts Mumbai
Residential
Prestige Falcon City Bengaluru Godrej Waldorf Mumbai Vasant Oasis Mumbai
Purva Palm Beach Bengaluru Jay Vijay Kolte Patil Mumbai K Raheja Vistas Pune
Purva West End Bengaluru K Raheja Vivarea Mumbai Nanded City Pune
Sattva Greenage Bengaluru Lodha Palava Mumbai Pride Purple Pune
DLF Camellias Delhi NCR Lodha The Park Mumbai Dost Imperia Thane
Metro Delhi Metro Lucknow Mercedes plant Chakan
Captain of Ports Jetty Goa Master Balancing Reservoir Mumbai Samsung plant Delhi NCR
Industrial and Mandovi Bridge Goa Metro Mumbai Reliance Jamnagar
Infrastructure Metro Hyderabad Baramullah Rail Link Udhampur Srinagar Tata Motors (multiple plants) Pune
Metro Jaipur Toyota plant Bengaluru Serum Institute Pune Pune
Chenani-Nashri Tunnel JK Biocon plant Bengaluru Kia motors plant Punukonda
A strong performance overall. SBI reported ~80% yoy earnings growth led by ~35% CMP (`): 191
yoy operating profit growth. Gross NPL ratio declined ~70 bps qoq to 5.4% while net Fair Value (`): 340
NPLs declined ~40 bps qoq to 1.9% of loans. The moratorium ratio, not strictly
BSE-30: 37,607
comparable, is at ~10% of loans. The retail book should hold up better and with further
resolutions expected from the corporate NPL pool (the bank has high coverage), we see
a lower-than-expected impact on SBI through Covid. Maintain BUY (FV unchanged).
Despite disadvantages due to its size, SBI has done exceedingly well
SBI’s lack of recovery in market multiples, unlike what we have seen with private banks that
have had similar challenges on the corporate side, is an area of disappointment for us. The
decline in impairment ratios nearly mirrors these banks. The bank has had lower slippages for
FY2019-20 and we see FY2021-22 being no different in this direction as the impact of Covid
would be a lot less visible given the relatively better underwriting on the retail side. MSME has
been facing challenges for the bank for some time and growth has been slow with high NPLs M B Mahesh, CFA
already recognized ahead of the crisis. We believe Covid should leave a lower-than-expected
earnings impact on a relative basis as compared to what we have seen during the corporate NPL Nischint Chawathe
cycle. An area where we have limited visibility but has been crucial for the stock’s re-rating has
been its challenges outside its core business. The bank had to play a role to stabilize certain
Abhijeet Sakhare
parts of the financial system, which private banks have avoided. These risks act as an overhang
as it is not easily identifiable and financial impact, if any, is harder to quantify.
Ashlesh Sonje
Maintain BUY; NPLs likely to go down in the short term before impact of Covid begins
Dipanjan Ghosh
We maintain BUY rating on SBI with an FV of Rs340 (unchanged), valuing the bank at 0.8X
book and 7X June 2022E EPS for RoEs in the range of ~8-10% in the medium term. Our broad
thesis on the bank remains unchanged. It is our preferred idea among public banks – the best
to play the improvement in corporate NPL cycle with the impact of Covid likely to be relatively
lower. The bank has a strong liability franchise, healthy operating profits and leading market
share in most of its subsidiaries. Valuations are attractive to retain our positive view. kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
State Bank of India Banks
Moratorium. As of June 30, 2020, ~9.5% of the term loan portfolio (~Rs16 tn) is under
moratorium. The bank has classified any loan that has made two or more EMI payments
(out of the four due – one each in March, April, May and June 2020) as not under
moratorium. Out of this 9.5%, 2.0% is outstanding to AAA and AA rated private
companies, 3.3% is exposure to other private sector companies while 4.2% belongs to
the retail and SME segments. Further, ~Rs320 bn of home loan portfolio is under
moratorium.
Slippages. Total slippages for the quarter were Rs39.1 bn (annualized slippage ratio of
0.7%, see the exhibit below), out of which Rs36.37 were fresh slippages. The retail
portfolio saw meaningful fresh slippages of Rs13.31 bn. However, management clarified
that most of these slippages were because some loan accounts, which were not eligible
for moratorium, saw missed payments. Subsequently, the bank communicated this to the
borrowers and most of these accounts were regularized in July.
Recoveries. The bank expects to make recoveries amounting to ~Rs100-110 bn over the
next two quarters on account of resolution of four accounts – one HFC, one steel account
and two power accounts. The bank currently holds full 100% provision on these accounts
and any recovery will add to the bank’s bottom-line.
Provisions. The bank made total Covid-related provision of ~Rs29.73 bn as on June 30,
2020. This amounts to 100% provision on interest and 15% provision on the principal on
the SMA accounts (as on February 29, 2020), which have paid less than two EMIs (out of
the four due – one each in March, April, May and June 2020). Further, the bank has
provided completely in 1QFY21 for the HFC account declared as fraud in 4QFY20.
The overall SMA book for the bank is negligible leading to a much lower stressed book. We
are building in slippages of ~1.8% in FY2021, picking up to ~2.5% over FY2022-23E.
Exhibit 2: Slippages were low in 4QFY20 on account of the moratorium and asset classification standstill
Break-up of slippages, March fiscal year-ends, 1QFY19-1QFY21 (Rs bn)
Exhibit 3: Total stressed loans (GNPL+SMA-1+SMA-2) down from 8.0% in 2QFY20 to 4.8% in 1QFY21
Break-up of stress loans and provisions, 1QFY20-1QFY21
Notes:
(1) For 3QFY19-1QFY20, watch-list refers to SMA-1 and 2 across all verticals (for accounts with exposure of Rs50 mn and above and having an
exposure of <Rs20 bn from the banking system).
(2) Starting 2QFY20, watch-list refers to SMA-1 and SMA-2 accounts with exposure above Rs50 mn, from data submitted to CRILC.
Exhibit 4: Corporate drives improvement in overall GNPL ratio; retail and SME GNPLs stable
Segment break-up of NPLs, March fiscal year-ends, 2014-2020, 1QFY21
Gross NPLs (Rs bn) Gross NPLs (%)
2014 2015 2016 2017 2018 2019 20201QFY21 2014 2015 2016 2017 2018 2019 2020 1QFY21
Corporate 287 245 622 801 1,626 1,160 816 626 6.1 4.9 10.9 13.7 21.9 13.6 9.7 7.7
Top-corporate 24 15 207 331 820 1.0 0.5 6.3 9.7 19.9
Mid-corporate 263 230 415 470 806 11.5 10.6 17.1 19.3 24.4
International 38 26 78 68 72 19 17 22 1.8 1.1 2.9 2.4 2.4 0.6 0.5 0.6
SME 155 164 170 159 257 247 252 253 8.6 9.0 7.8 7.0 9.5 8.6 9.4 9.1
Agri 107 107 87 75 212 234 327 314 8.9 8.9 6.9 5.5 11.2 11.6 15.9 15.4
Retail 30 25 25 22 67 67 79 83 1.3 0.9 0.8 0.5 1.2 1.0 1.1 1.1
Total 616 567 982 1,123 2,234 1,728 1,491 1,297 5.0 4.3 6.5 6.9 10.9 7.5 6.2 5.4
Notes:
(1) Data from FY2018 onwards is for the merged entity.
(2) Gross NPL has been calculated based on outstanding NPL in each category to the reported advances. These ratios differ from those reported by the
bank (exposures have been reclassified between various segments).
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Opening 1,779 1,881 1,861 1,991 2,234 2,128 2,059 1,878 1,728 1,685 1,616 1,597 1,491
Addition 301 106 268 328 143 109 65 80 170 91 201 83 39
Reductions 199 126 138 85 249 179 246 230 213 160 221 189 233
Closing Gross NPL 1,881 1,861 1,991 2,234 2,128 2,059 1,878 1,727 1,685 1,616 1,597 1,491 1,297
Provision coverage (without w/off) 43 47 49 50 53 54 57 62 61 63 64 65 67
Provision coverage (reported) 61 65 66 66 69 71 75 79 79 81 82 84 86
Slippages (%) 6.4 2.2 5.3 7.2 3.0 2.3 1.3 1.6 3.1 1.7 3.7 1.5 0.7
Notes:
(a) Data from 1QFY18 onwards refers to merged entity.
Exhibit 6: Auto loans segment has seen some deterioration in asset quality
GNPL in retail segment, March fiscal year ends, 1QFY19-1QFY21 (Rs mn)
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 QoQ
Home loans 1.0 1.0 0.9 0.8 1.0 0.9 0.9 1.0 1.1 10 bps
Auto loans 1.2 1.2 1.1 1.0 1.1 1.0 1.0 1.1 1.3 18 bps
Xpress credit NA 0.6 0.5 0.5 0.6 0.6 0.6 0.5 0.5 0 bps
Other per segment loans 2.0 3.2 3.1 3.1 3.2 2.5 2.7 2.6 2.4 -28 bps
0.0 0
2003
2007
2008
2009
2010
2014
2015
2016
2017
2004
2005
2006
2011
2012
2013
2018
2019
2020
1QFY21
Notes:
1) Data from FY2017 onwards refers to merged entity.
Exhibit 8: Exposure to power sector has steadily decreased to 8.5% in 1QFY21 from a peak level of 9.5%
Power exposure details, March fiscal year-end, 1QFY19-4QFY20 (Rs bn)
Notes:
(1) Break-up between public and private exposure excludes SMA-1 and 2 accounts for 3QFY19.
Exhibit 10: 42% of overall exposure to NBFCs is backed by public entities (central/state governments and PSUs), up from 34% in 2QFY20)
Borrower type-wise NBFC loan mix, March fiscal year-ends, 1QFY21 (%)
NBFC HFC Other NBFCs
Backed by
Backed by large
large Backed by
large private
private sector
Backed by private
sector institutions,
PSU, 14 sector
institutions, 20 Backed by
institutions,
40 PSU, 8
53
Headline growth. Overall loan growth remained weak at 8% yoy driven by subdued
corporate (up 3% yoy) and SME loans (down ~1% yoy) while retail loan growth was
better at ~13% yoy.
Retail. Retail loans constitute ~31% of the loan book and have been growing swiftly (up
~13% yoy) driven by home loans (up ~15% yoy) and Xpress credit (personal loans) (up
~30% yoy) while auto loan portfolio contracted ~2% yoy.
GECL scheme for MSMEs. The bank has sanctioned ~Rs210 bn loans under the GECL
scheme to eligible MSMEs and disbursed ~Rs151 bn.
Notes:
(1) Numbers post 4QFY17 are for the merged entity.
Domestic NIM was higher by ~30 bps qoq at 3.2% in 1QFY21 (2.9% in 4QFY20) mainly
because there were no interest reversals on NPA in the quarter. This was further supported
by a drop of ~50 bps qoq in cost of domestic deposits to 4.5%, while yields on domestic
advances did not decline as much (down ~40 bps qoq to 8.4%). However, overseas NIM
was marginally lower at ~1.1% in 1QFY21 (down from ~1.2% in 4QFY20).
There has been consistent improvement in margins over the past few quarters on the back
of (1) increase in share of high-yielding retail loans, (2) drop in interest reversals and (3)
gradually declining cost of deposits. Over the medium term, we expect margins to remain
around current levels of ~3%.
We expect deposit growth to stay around ~11% over the medium term.
Exhibit 13: Credit/deposit ratio fell steeply to 67% Exhibit 14: Margins were broadly flat qoq in 1QFY21
CD ratio, March fiscal year-ends, 1QFY18-1QFY21 (%) NIM (reported), March fiscal year-ends, 1QFY18-1QFY21 (%)
80 4.0
77 3.6
75
74 3.2 3.1
72 72
72 3.0 3.0
71 2.9
71 71 2.8 2.8
2.7 2.8 2.8
71 70 2.8
69
69 69 2.5
68 2.4 2.5
67 2.4
68 2.4
65 2.0
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
Notes:
Notes:
(1) Data from 1QFY17 onwards refers to merged entity.
(1) Data post 4QFY17 refers to merged entity.
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities
Exhibit 15: MCLR rates dropped 120 bps in the past 12 months
SBI MCLR rates, June 2017-May 2020 (%)
Jun-17 Sep-17 Jan-18 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Apr-20 May-20 Jun-20
Overnight 7.75 7.75 7.70 7.80 7.90 8.10 8.20 8.20 8.10 7.80 7.65 7.45 7.10 6.95 6.70
One month 7.85 7.85 7.80 7.80 7.90 8.10 8.20 8.20 8.10 7.80 7.65 7.45 7.10 6.95 6.70
Three month 7.90 7.90 7.85 7.85 7.95 8.15 8.25 8.25 8.15 7.85 7.70 7.50 7.15 7.00 6.75
Six month 7.95 7.95 7.90 8.00 8.10 8.30 8.40 8.40 8.30 8.00 7.85 7.70 7.35 7.20 6.95
One year 8.00 8.00 7.95 8.15 8.25 8.45 8.55 8.55 8.45 8.15 7.90 7.75 7.40 7.25 7.00
Two years 8.10 8.10 8.05 8.25 8.35 8.55 8.65 8.65 8.55 8.20 8.10 7.95 7.60 7.45 7.20
Three years 8.15 8.15 8.10 8.35 8.45 8.65 8.75 8.75 8.65 8.35 8.20 8.05 7.70 7.55 7.30
Exhibit 16: SBI’s term deposit rates dropped by ~190 bps since June 2019
Term deposit rates for deposits less than Rs20 mn, May 2017 – May 2020 (%)
May-17 Aug-17 Sep-17 Jan-18 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Apr-20 May-20
7-14 days 5.50 5.50 5.50 5.25 5.75 5.75 5.75 5.75 5.75 2.90 4.50 4.50 3.50 3.50 2.90
15-30days 5.50 5.50 5.50 5.25 5.75 5.75 5.75 5.75 5.75 2.90 4.50 4.50 3.50 3.50 2.90
31-45days 5.50 5.50 5.50 5.25 5.75 5.75 5.75 5.75 5.75 2.90 4.50 4.50 3.50 3.50 2.90
46 -90 days 6.50 6.50 6.50 6.25 6.25 6.25 6.25 6.25 6.25 3.90 5.50 5.50 4.50 4.50 3.90
91-120days 6.50 6.50 6.50 6.25 6.25 6.25 6.25 6.25 6.25 3.90 5.50 5.50 4.50 4.50 3.90
120-180 days 6.50 6.50 6.50 6.25 6.25 6.25 6.25 6.25 6.25 3.90 6.00 5.80 4.50 4.50 3.90
181-210 days 6.50 6.50 6.50 6.25-6.5 6.35 6.35-6.4 6.35 6.35 6.35 5.35 6.00 5.80 5.00 5.00 4.80
211 days-1year 6.50 6.50 6.50 6.50 6.40 6.40 6.40 6.40 6.40 4.40 6.70 6.25 5.00 5.00 4.80
1 year-2year 6.9-6.75 6.5-6.75 6.5-6.75 6.25 6.40 6.40 6.70 6.80 6.80 7.00 6.50 6.25 5.70 5.70 5.10
2 year-3year 6.25 6.25 6.25 6.00 6.50 6.60 6.75 6.80 6.80 6.75 6.25 6.25 5.70 5.70 5.10
3 years-5 years 6.25 6.25 6.25 6.00 6.50 6.70 6.80 6.80 6.80 6.70 6.25 6.25 5.70 5.70 5.70
5 years-8 years 6.25 6.25 6.25 6.00 6.50 6.75 6.85 6.85 6.85 6.60 6.25 6.25 5.70 5.70 5.70
8years-10 years 6.25 6.25 6.25 6.00 6.50 6.75 6.85 6.85 6.85 6.00 6.25 6.25 5.70 5.70 5.70
Current Savings
50
40
30 34.6
26.7 31.9 34.5 34.5 37.1 36.9 37.3
33.7 32.6 33.6 36.8 37.9
20
10
14.9
11.2 11.5 9.4 9.2 8.0 7.9 7.8 7.3 6.9 6.9 6.7 6.0
-
2011
2013
2016
2019
2009
2010
2012
2014
2015
2017
2018
2020
1QFY21
Notes:
(1) Data from FY2017 onwards refer to the merged entity.
We build in moderate growth in operating expenses (~7%) in FY2021 and 12% over
FY2022-23E.
Exhibit 18: Cost-to-income marginally higher qoq Exhibit 19: Share of retirement-related costs at ~40% of staff
Operating costs and cost-income ratio, March fiscal year-ends, costs
1QFY17-1QFY21 (%) Retirement costs and staff costs to total income, March fiscal year-
ends, 2012-2020, 1QFY21 (%)
(Rs bn) Operating costs (LHS) Cost-income (RHS) (%) Retirement costs to staff costs (RHS)
225 70 Staff costs to income (LHS)
45 45
180 62
39 36
58 59 57
135 54 56 54 54
51 52 52 33 27
49 51 51 50
51 50
48
90 46
42 27 18
45 38
21 9
20 16 23 18 29 27 18 36 42 41
0 30 15 -
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2012
2013
2014
2015
2016
2017
2018
2019
2020
1QFY21
Notes: Notes:
(1) Data from 1QFY17 refers to merged entity. (1) Data post 4QFY17 refers to merged entity.
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities
Non-interest income increased 18% yoy. This sharp increase was mainly led by ~7X
yoy growth in gain from sale of investments. These gains were partly offset by 14% yoy
decline in core fee income.
Capital position comfortable. CAR increased by ~30 bps qoq to 13.4% with the Tier-1
ratio also increasing by ~40 bps qoq to 11.4%. Credit RWA to total advances declined by
~160 bps yoy to ~56%. The bank reasoned that RWA was down as the bank has been
focused on underwriting credit to well-rated entities.
SBI Mutual Fund and insurance subsidiaries. SBI Mutual Fund has the highest market
share (14.79%) in mutual fund. It registered QAAUM growth of ~18% against industry
decline of ~3%. It saw PAT growth of ~57% yoy to Rs1.9 bn in 1QFY21.
SBI Life Insurance and SBI General Insurance. SBI Life’s PAT was up 5% yoy in
1QFY21 to Rs3.9 bn. VNB recorded an increase of 34%, driven by a strong 19% VNB
margin. PAT for the general insurance business increased 80% yoy in 1QFY21 to Rs1.4
bn. The company underwrote GWP of ~Rs12.4 bn in 1QFY21 – down ~3% yoy vis-à-vis
industry decline of >4%.
SBI Card. PAT for the cards business increased 14% yoy to Rs3.9 bn in 1QFY21. The
company has a market share of ~20% and ~18% by total spends and card base,
respectively. RoE for the business was at ~28% in 1QFY21.
Notes:
(1) ABVPS: Reported book value of the standalone business less net NPLs at 70%
(2) Data from FY2018 is for the consolidated book. Note that the adjusted book value is reduced for
revaluation reserves
Exhibit 23: SBI is trading at 0.8X one-year forward adj. P/B Exhibit 24: SBI is trading at a ~30% premium to public peers
Rolling 1-year forward APBR (consolidated), July 2006-July 2020 (X) PBR premium to public banks, July 2012-July 2020 (X)
3.0 2.0
2.4 1.6
1.8 1.2
1.2 0.8
0.6 0.4
0.0 0.0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Source: Company, Bloomberg, Kotak Institutional Equities estimates Source: Company, Bloomberg, Kotak Institutional Equities estimates
Notes:
(1) Data from FY2018 is the consolidated performance of the bank.
Notes:
(1) Data from FY2018 is the consolidated performance of the bank.
Aggressive cost cutting initiatives surprise. Tata Motors reported consolidated profit CMP (`): 105
of Rs6.4 bn, which was better than our expectations of loss, driven by aggressive cost Fair Value (`): 90
cutting initiatives. Despite management efforts to cut costs, substantial pick-up in
BSE-30: 37,607
volumes is essential for the company to return to profitability. We see limited visibility of
the company reporting profits anytime soon due to a weak outlook on volumes. We
retain our SELL rating on the stock with an unchanged fair value of Rs90.
Tata Motors
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 202-64 EPS (Rs) (20.7) (22.6) 2.1
Mcap (bn) (Rs/US$) 377/4.6 EPS growth (%) (284.1) (9.1) 109.3
ADTV-3M (mn) (Rs/US$) 7,434/99 P/E (X) (5.0) (4.6) 49.6
Shareholding pattern (%) P/B (X) 0.6 0.7 0.7
Promoters 42.4 EV/EBITDA (X) 6.0 6.4 4.1
FIIs 27.2 RoE (%) (12.1) (14.3) 1.4
MFs/BFIs 6.2/7.3 Div. yield (%) 0.0 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 2,611 2,301 2,826
Absolute 7 12 (23) EBITDA (Rs bn) 197 204 322
Rel. to BSE-30 (1) 1 (23) Net profits (Rs bn) (75) (87) 8
JLR reported EBITDA of GBP101 mn (-53% yoy) in 1QFY21, which was significantly above our
estimate of loss of GBP503 mn primarily due to (1) higher net realizations, (2) better-than-
expected gross margins and (3) lower-than-expected employee costs. Reported EBITDA margin
was 3.5% in 1QFY21 (down 70 bps yoy and down 130 bps qoq), as compared to our estimate
of negative 23.5%. ASPs increased by 20% yoy due to a favorable geographical mix (higher
contribution from China) and favorable model mix (higher Land Rover mix). Realized hedge
losses came in at GBP127 mn versus our estimates of GBP49 mn in 1QFY21. EBIT margin in JLR
UK business in 1QFY21 came in at negative 13.6% due to a steep decline in volumes. A sharp
decline in EBIT margin can be attributed to 22.5% negative impact due to a steep decline in
volumes partly offset by (1) 290 bps positive impact due to lower warranty cost and
manufacturing cost, (2) 500 bps positive impact due to lower marketing and selling costs and
employee cost and (3) 650 bps positive impact due to favorable FX in 1QFY21. The company
furloughed 35% of the total workforce (40% of the manufacturing staff) in 1QFY21 which
resulted in a sharp decline in employee cost on a yoy basis. Net loss came in at GBP648 mn,
which reflects negative impact of GBP235 mn due to non-recognition of deferred tax assets
under IAS12.
Standalone business reported an EBITDA loss of Rs8.4 bn (KIE: loss of Rs9.8 bn) in 1QFY21 due
to (1) lower volumes due to shut down across India during the month of April and May, (2)
adverse product mix as M&HCV volumes fell by 92% yoy and (3) 30 bps yoy decline in gross
margin (KIE: 510 bps yoy decline). Hitesh Goel
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Tata Motors Automobiles & Components
JLR reported EBITDA of GBP101 mn (-53% yoy) in 1QFY21, which was significantly above
our estimate of loss of GBP503 mn primarily due to (1) higher net realizations, (2) better-
than-expected gross margins and (3) lower-than-expected employee costs. Reported
EBITDA margin was 3.5% in 1QFY21 (down 70 bps yoy and down 130 bps qoq), as
compared to our estimate of negative 23.5%. ASPs increased by 20% yoy due to a
favorable geographical mix (higher contribution from China) and favorable model mix
(higher Land Rover mix). Realized hedge losses came in at GBP127 mn versus our
estimates of GBP49 mn in 1QFY21.
EBIT margin in JLR UK business in 1QFY21 came in at negative 13.6% due to a steep
decline in volumes. Sharp decline in EBIT margin can be attributed to 22.5% negative
impact due to a steep decline in volumes partly offset by (1) 290 bps positive impact due
to lower warranty cost and manufacturing cost, (2) 500 bps positive impact due to lower
marketing and selling costs and employee cost and (3) 650 bps positive impact due to
favorable FX in 1QFY21. The company furloughed 35% of the total workforce (40% of
the manufacturing staff) in 1QFY21 which resulted in a sharp decline in employee cost on
a yoy basis. Net loss came in at GBP648 mn, which reflects negative impact of GBP235
mn due to non-recognition of deferred tax assets under IAS12.
Share of profit from JLR China JV was zero in 1QFY21 versus loss of GBP28 mn in
1QFY20. This was due to a sharp improvement in retail volumes in China. China JV
reported EBITDA profit of GBP47 mn in 1QFY21 versus EBITDA loss of GBP5 mn in
1QFY20. EBITDA margin for 1QFY21 stood at 9.8%.
JLR’s overall wholesale volumes declined by 45% yoy to 65,425 units in 1QFY21. In the
UK P&L, (1) Jaguar brand volumes were down 63% yoy due to a steep decline in volumes
for most of its existing models and (2) Land Rover volumes were down 49% yoy in
1QFY21.On the geographical front, China wholesale volumes (excluding China JV)
declined by 12% yoy in 1QFY21. North America volumes declined by 59% yoy in
1QFY21. Europe and UK volumes declined by 57-64% yoy and rest of the world volumes
were down by 47% yoy in 1QFY21.
The company highlighted that 98% of the retailers have opened/partially opened their
showrooms across the globe and the company has also restarted its production. In China
and UK, 100% of the showrooms have opened. Retail sales volume growth continues to
improve on a mom basis with volumes declining by 62% yoy in April 2020 and 25% yoy
in June 2020. US retail sales were up by 2% yoy in June 2020 whereas China retail sales
were down by 7% yoy in June 2020.
The company has launched the new Defender – the model was rolled out in May 2020 in
UK & Europe and in June 2020 in America. The company rolled out Defender in China
and overseas market in July 2020. Also, customer orders for new the Defender model
have exceeded the company’s expectations with over >30,000 bookings so far. The
company has clocked in wholesales of 7,900 units of Defender in 1QFY21.
The company has saved GBP2.9 bn under project Charge of which (1) the company has
achieved savings of GBP1.5 bn in reduction in investments; (2) GBP0.7 bn through
reduction in working capital and (3) saved another GBP0.7 bn driven by a cut in overhead
costs.
JLR raises project Charge+ savings target: The company has raised project Charge+
target with an aim to save a further GBP3.1 bn (from GBP2.1 bn earlier) by FY2021E out
of which the company has already saved GBP1.2 bn in 1QFY21 and GBP0.6 bn in
4QFY20. The company expects to save the remaining GBP1.3 bn during 9MFY21E. Under
project Charge+, the company will focus on lowering warranty costs, minimizing the
overhead cost base and improving its current portfolio returns by reducing material cost.
The company will also focus on improving profitability by leveraging its most profitable
vehicles, optimizing market performance and maintaining inventory discipline. The
company will also reduce its investment in FY2021E. The company expects to save GBP6
bn combined for Project Charge and Project Charge+.
During 1QFY21, JLR reported negative FCF of GBP1.5 bn led by (1) deterioration in
working capital cycle (Rs1.1 bn negative impact) and (2) losses in operations (Rs413 mn
negative impact).
The company did not give any guidance for FY2021E. The company highlighted that
2QFY21 will be significantly better than 1QFY21 in terms of volumes and profitability. The
company expects to turn FCF positive between 2QFY21-4QFY21 led by recovery in China,
working capital improvements and savings from Project Charge+. The company has total
debt of GBP6.6 bn with total cash outflow of ~GBP 650 mn over CY2020-21E. In terms
of liquidity, the company has adequate cash balances of GBP2.7 bn with additional
undrawn revolving facility of GBP1.9 bn. The company has kept its capex and R&D
investment unchanged at GBP2.5 bn.
Exhibit 1: 1QFY21 EBITDA was significantly above our estimates due to higher ASPs and cost cutting initiatives
JLR interim financial results (including China JV income), March fiscal year-ends (GBP mn)
(% chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%) FY2022E FY2021E Yoy (%)
Volumes (units) 48,912 48,912 104,190 120,691 (53.1) (59.5) 384,000 475,952 (19.3) 479,700 384,000 24.9
Average realization 58,452 43,737 48,699 44,958 33.6 20.0 30.0 49,819 48,291 3.2 49,465 49,819 (0.7)
Net sales 2,859 2,139 5,074 5,426 33.6 (43.7) (47.3) 19,131 22,984 (16.8) 23,729 19,131 24.0
Of which hedge book gain/(loss) (49) (150) (149) (112) (300) (544) — (300)
Total expenditure (2,758) (2,642) (4,861) (5,167) 4.4 (43.3) (46.6) (17,361) (20,984) (20,954) (17,361)
Raw materials (1,833) (1,465) (3,281) (3,542) 25.1 (44.1) (48.2) (12,244) (14,684) (15,186) (12,244)
Staff cost (435) (600) (656) (626) (27.5) (33.7) (30.5) (2,260) (2,568) (2,526) (2,260)
Other expenditure (489) (577) (890) (1,074) (15.3) (45.1) (54.5) (2,858) (3,640) (3,241) (2,858)
Forex losses (revaluation of WC) (1) — (34) 75 — (92) — —
EBITDA 101 (503) 213 259 (52.6) (61.0) 1,769 2,000 (11.5) 2,775 1,769 56.8
Associate Income (China JV) — 10 (28) (20) 1 (114) 11 1
Interest (50) (55) (35) (50) (9.1) 42.9 — (200) (157) (220) (200)
Depreciation (491) (450) (463) (490) 9.1 6.0 0.2 (2,000) (1,910) (2,100) (2,000)
Pretax profits (440) (998) (313) (301) (430) (181) 465 (430)
Tax expense (235) — (7) (38) — (47) (114) —
Unrealized FX gains/(losses) 27 — (82) (200) 27 (241) — 27
Reported profit after tax (648) (998) (402) (539) (403) (469) 352 (403)
JLR wholesale volume mix (units)
Jaguar 12,158 32,417 30,309 (62.5) (59.9) 86,000 125,820 (31.6) 102,700 86,000 19.4
Land Rover 36,754 71,773 90,382 (48.8) (59.3) 298,000 350,132 (14.9) 377,000 298,000 26.5
China JV 16,513 14,360 6,288 15.0 162.6 64,453 49,450 30.3 71,800 64,453 11.4
Total volumes (including China JV) 65,425 118,550 126,979 (44.8) (48.5) 448,453 525,402 (14.6) 551,500 448,453 23.0
Product Mix (%)
Jaguar 18.6 27.3 23.9 19.2 23.9 18.6 19.2
Land Rover 56.2 60.5 71.2 66.5 66.6 68.4 66.5
China JV 25.2 12.1 5.0 14.4 9.4 13.0 14.4
Geographical Mix - Wholesale Volumes (units)
China (Only JLR P&L, excludes China JV volumes) 8,595 9,801 5,766 (12.3) 49.1 40,000 38,312 4.4 48,321 40,000 20.8
Europe 9,100 25,357 31,600 (64.1) (71.2) 90,160 113,270 (20.4) 99,176 90,160 10.0
North America 10,700 25,977 33,126 (58.8) (67.7) 122,189 135,766 (10.0) 136,852 122,189 12.0
United Kingdom 11,000 25,279 32,494 (56.5) (66.1) 88,054 110,067 (20.0) 96,859 88,054 10.0
Rest of World 9,517 17,776 17,705 (46.5) (46.2) 43,597 78,537 (44.5) 98,492 43,597 125.9
Modelwise wholesale volumes (units)
XE 780 3,169 3,194 (75.4) (75.6) 4,000 12,086 (66.9) 4,000 4,000 —
XF 580 2,557 1,501 (77.3) (61.4) 4,000 6,911 (42.1) 4,400 4,000 10.0
XJ 500 1,587 397 (68.5) 25.9 3,000 2,824 6.2 3,300 3,000 10.0
XK — — — — — — — — —
E-Pace 3,500 8,618 9,247 (59.4) (62.1) 35,000 36,890 (5.1) 48,500 35,000 38.6
F-Pace 3,598 9,352 11,422 (61.5) (68.5) 25,000 45,943 (45.6) 27,500 25,000 10.0
I-Pace 2,200 5,195 2,735 10,000 14,820 (32.5) 10,000 10,000 —
Others (incl. F Type) 1,000 1,939 1,813 (48.4) (44.8) 5,000 6,346 (21.2) 5,000 5,000 —
Jaguar 12,158 32,417 30,309 (62.5) (59.9) 86,000 125,820 (31.6) 102,700 86,000 19.4
Defender 7,900 1 119 35,000 102 40,000 35,000 14.3
Discovery 3,600 7,952 8,267 (54.7) (56.5) 28,000 33,648 (16.8) 30,000 28,000 7.1
Freelander/Discovery Sport 3,800 10,457 12,361 (63.7) (69.3) 30,000 52,889 (43.3) 50,000 30,000 66.7
Range Rover 4,800 10,020 12,534 (52.1) (61.7) 40,000 50,965 (21.5) 45,000 40,000 12.5
Range Rover Evoque 4,600 16,319 23,624 (71.8) (80.5) 60,000 83,198 (27.9) 80,000 60,000 33.3
Range Rover Velar 4,854 10,996 13,043 (55.9) (62.8) 40,000 52,972 (24.5) 52,000 40,000 30.0
Range Rover Sport 7,200 16,028 20,434 (55.1) (64.8) 65,000 76,339 (14.9) 80,000 65,000 23.1
Land Rover 36,754 71,773 90,382 (48.8) (59.3) 298,000 350,113 (14.9) 377,000 298,000 26.5
Currency Movement (average)
GBPUSD 1.2 1.3 1.3 (3.4) (3.0)
GBPEUR 1.1 1.1 1.1 (2.0) (0.1)
GBPCNY 8.8 8.8 8.9 0.3 (1.5)
Ratios (%)
EBITDA margin (%) 3.5 (23.5) 4.2 4.8 9.2 8.7 11.7 9.2
EBIT margin - including China JV profit (%) (13.6) (44.1) (5.5) (4.6) (1.2) (0.1) 2.9 (1.2)
Raw material exp to sales 64.1 68.5 64.7 65.3 64.0 63.9 64.0 64.0
Staff cost to sales 15.2 28.0 12.9 11.5 11.8 11.2 10.6 11.8
Other expenses to sales 17.1 27.0 18.2 18.4 14.9 16.2 13.7 14.9
Tax rate (%) (53.4) — (2.2) (12.6) — (26.0) 24.4 —
Exhibit 2: Lower volumes negatively impacted margins partly offset by savings from project Charge+ and favorable FX in 1QFY21
JLR yearly PBT walk, March fiscal year-ends, 2020-21 (GBP mn))
Exhibit 3: JLR generated negative FCF of GBP1.5 bn in 1QFY21 impacted by coronavirus pandemic
JLR working capital and free cash flow, March fiscal year-ends, 2020-21 (GBP mn)
Exhibit 4: JLR has total debt of GBP6.6 bn at the end of June 2020
Break-up of JLR debt maturity profile, Calendar year-ends, 2020-27 (GBP mn)
Exhibit 5: 98% of the company’s retailers have opened or partially opened across the globe
JLR production plants and retailer update, 2020
Exhibit 6: JLR achieved GBP1.2 bn under project charge+ led by reduction in investments, working capital savings and overhead savings
JLR project Charge and Charge+ update, March fiscal year-ends, 2021 (GBP mn)
Exhibit 7: JLR has introduced project Charge+ with a focus to save additional GBP3.1 bn (from GBP2.1 bn earlier) till FY2021E
JLR project Charge+ target guidance, March fiscal year-ends, 2020-21E (GBP mn)
Exhibit 9: JLR expensed ~39% of R&D in P&L in 1QFY21; overall capex and R&D was GBP547 mn in 1QFY21
Break-up of JLR R&D and capex spend, March fiscal year-ends, 1QFY18-1QFY21 (GBP mn)
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
R&D expense
Capitalized 355 410 402 443 426 418 391 404 339 353 344 333 168
Expensed 94 83 93 136 99 113 113 96 83 114 104 120 107
Total R&D expense 449 493 495 579 525 531 504 500 422 467 448 453 275
Investment in tangible and other intangible assets 546 540 575 509 541 464 516 500 373 374 444 313 272
Total product and other investment 995 1,033 1,070 1,088 1,066 995 1,020 1,000 795 841 892 766 547
R&D capitalized as % of total R&D 79.1 83.2 81.2 76.5 81.1 78.7 77.6 80.8 80.3 75.6 76.8 73.5 61.1
Exhibit 11: Success of Evoque, Defender, E-Pace and I-Pace models key to achieve improved volume performance over FY2020-23E
JLR model-wise volume mix assumptions (including China JV), March fiscal year-ends, 2017-23E (units, %)
Notes:
(a) Volumes from CJLR JV has been included in China volumes.
Standalone business reported an EBITDA loss of Rs8.4 bn (KIE: loss of Rs9.8 bn) in
1QFY21 due to (1) lower volumes due to shut down across India during the month of
April and May, (2) adverse product mix as M&HCV volumes fell by 92% yoy and (3) 30
bps yoy decline in gross margin (KIE: 510 bps yoy decline). Gross margin improved on a
qoq basis (+440 bps) possibly due to (1) lower RM cost and (2) improvement in net
pricing. Adjusted net loss came in at Rs21.4 bn (KIE: loss of Rs22.3 bn), which was below
our estimates despite a beat at EBITDA level due to higher finance cost in 1QFY21. During
the quarter, the company took an exceptional loss of Rs489 mn for provision for loan
given to investment in subsidiary and JV.
Domestic retail CV volumes were down 97% yoy (wholesale CV volumes (including
exports) were down by 89% yoy) in 1QFY21. Retail sales were 67% lower than
wholesales due to muted demand, limited credit availability and negligible opening
inventory. During 1QFY21, the company lost 15.5% market share in the CV segment
from FY2020 levels led by (1) ~16% market share loss in SCV and pickups and CV
passenger segment and (2) 560 bps market share loss in ILCV segment partly offset by
~17% market share gain in M&HCV segment.
Revenues were down 80% yoy in 1QFY21 led by (1) 82% yoy decline in volumes and (2)
11% yoy increase in ASPs due to transition to BS-VI regime despite a weaker product mix
(CV mix was down 31% yoy in 1QFY21). CV segment revenues declined by 86% yoy led
by (1) 89% yoy decline in CV volumes and (2) 35% yoy increase in ASPs due to cost
increase owing to BS-VI transition and lower discounts. PV revenues declined by 61% yoy
in 1QFY21 largely led by 61% yoy decline in PV volumes.
EBITDA margin came in at negative 31.3% in 1QFY21 (versus positive 5.5% in 1QFY20
and negative 7.4% in 1QFY20), which was above our estimates of negative 45.1%. In
terms of segments, EBIT margin in CV segment declined by 69.5% yoy to negative
64.8% due to negative operating leverage. In the PV segment, EBIT margin was negative
52.7% in 1QFY21 versus negative 9.9% in1QFY20 – a steep decline due to the
challenging demand environment.
The company incurred capex of Rs4.9 bn in 1QFY21 – out of which Rs2.4 bn was
incurred to ensure transition towards BS-VI norms and other capital investments. R&D
investments were Rs2.55 bn in 1QFY21. The company generated negative FCF of Rs42.9
bn led by lower cash flow generation from operating activities and deterioration in
working capital cycle in 1QFY21. The company will restrict its capex to Rs15 bn in
FY2021E. The company will focus on delivering Rs60 bn of cost savings in FY2021E. The
company achieved cost savings of Rs10.2 bn in 1QFY21 led by (1) Rs4.8 bn of savings due
to a cut in capex and (2) Rs5.4 bn savings due to a cut in employee costs, marketing cost
and other fixed overheads.
Gross debt for the standalone entity stood at Rs311 bn as of June 2020 from Rs260.5 bn
as of March 2020 and the company has cash balances (including current investments)
worth Rs54 bn. The company has already secured term funding of Rs40 bn during
1QFY21; however, the company will have to further raise capital in order to meet its debt
obligations.
Other key points: (1) NBFC vehicles loans dropped to 13% in 1QFY21 from 25% in
FY2020 and (2) 100% of the suppliers have resumed operations with 33% manpower;
however manpower has gradually improved to 70%.
Exhibit 12: The company incurred EBITDA loss of Rs8.4 bn due to steep volume decline and adverse mix
Tata Motors standalone interim financial results, March fiscal year-ends (Rs mn)
(% chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%) FY2022E FY2021E Yoy (%)
Volumes (units) 25,047 25,047 137,545 101,420 (81.8) (75.3) 303,516 473,377 (35.9) 397,526 303,516 31.0
Net realization (Rs) 1,072,731 863,694 970,730 959,660 24.2 10.5 11.8 1,088,162 927,974 17.3 1,096,726 1,088,162 0.8
Net sales 26,869 21,633 133,519 97,329 24.2 (79.9) (72.4) 330,275 439,282 (24.8) 435,977 330,275 32.0
Total expenditure (35,290) (31,395) (126,135) (104,556) 12.4 (72.0) (66.2) (334,381) (443,404) (24.6) (425,924) (334,381) 27.4
Raw materials (19,400) (16,657) (95,940) (74,591) 16.5 (79.8) (74.0) (243,962) (325,745) (25.1) (315,607) (243,962) 29.4
Staff cost (9,667) (9,197) (11,493) (11,496) 5.1 (15.9) (15.9) (38,028) (43,843) (13.3) (41,830) (38,028) 10.0
Other expenditure (6,222) (5,541) (18,701) (18,469) 12.3 (66.7) (66.3) (52,391) (73,815) (29.0) (68,486) (52,391) 30.7
EBITDA (8,421) (9,762) 7,385 (7,227) (4,106) (4,122) (0.4) 10,054 (4,106) (344.8)
Other income 1,343 1,500 4,012 2,689 10,597 13,831 (23.4) 10,699 10,597 1.0
Interest (5,528) (4,000) (4,395) (5,571) (22,528) (19,730) 14.2 (22,078) (22,528) (2.0)
Depreciation (8,599) (10,000) (7,771) (9,841) (34,171) (33,753) 1.2 (35,491) (34,171) 3.9
Profit before tax before exceptional (21,205) (22,262) (769) (19,950) (50,208) (43,774) (36,817) (50,208)
Extraordinary gain/(loss) (698) — 292 (27,909) — (27,499) — —
Pretax profits (21,903) (22,262) (477) (47,858) (50,208) (71,273) (36,817) (50,208)
Tax expense (4) — (494) (852) — (1,623) — —
Profit after tax (21,906) (22,262) (971) (48,711) (50,208) (72,896) (31.1) (36,817) (50,208) (26.7)
Adjusted PAT (21,383) (22,262) (1,190) (27,779) (50,208) (52,272) (3.9) (36,817) (50,208) (26.7)
Adjusted EPS (Rs) (5.6) (5.8) (0.4) (7.7) (13.1) (14.5) (9.6) (13.1)
Segmental volume breakdown (units)
MHCV 3,106 39,103 27,080 (92.1) (88.5) 80,890 124,446 (35.0) 111,596 80,890 38.0
LCV 7,370 61,254 41,989 (88.0) (82.4) 129,752 216,254 (40.0) 181,653 129,752 40.0
Passenger cars 10,094 17,913 19,958 (43.6) (49.4) 50,558 72,225 (30.0) 55,613 50,558 10.0
Utility vehicles 4,477 19,275 12,393 (76.8) (63.9) 42,316 60,452 (30.0) 48,664 42,316 15.0
Product Mix (%)
MHCV 12.4 28.4 26.7 26.7 26.3 28.1 26.7
LCV 29.4 44.5 41.4 42.7 45.7 45.7 42.7
Passenger cars 40.3 13.0 19.7 16.7 15.3 14.0 16.7
Utility vehicles 17.9 14.0 12.2 13.9 12.8 12.2 13.9
Ratios (%)
Raw material cost as % of net sales 72.2 77.0 71.9 76.6 73.9 74.2 72.4 73.9
Staff cost as % of net sales 36.0 42.5 8.6 11.8 11.5 10.0 9.6 11.5
Other expenses as % of net sales 23.2 25.6 14.0 19.0 15.9 16.8 15.7 15.9
EBITDA margin (%) (31.3) (45.1) 5.5 (7.4) (1.2) (0.9) 2.3 (1.2)
EBIT margin (%) (63.3) (91.4) (0.3) (17.5) (11.6) (8.6) (5.8) (11.6)
Tax rate (%) (0.0) — (1.8) — (2.3) — —
Diluted no. of shares 3,829 3,829 3,396 3,598 3,598 3,829 3,829
Segmental revenues
Commercial vehicles 14,380 102,097 70,157 (85.9) (79.5) 329,329
Passenger vehicles 12,226 30,958 26,926 (60.5) (54.6) 107,725
Corporate/Unallocable 263 464 247 (43.4) 6.6 2,228
Total segment revenue 26,869 133,519 97,329 (79.9) (72.4) 439,282
Eliminations — — — —
Overall revenues 26,869 133,519 97,329 439,282
Segment results
Commercial vehicles (9,277) 4,820 (4,261) (292.5) 117.7 (2,076)
Passenger vehicles (6,450) (3,105) (10,125) 107.7 (36.3) (27,276)
Corporate/Unallocable (508) (720) (1,174) (29.5) (56.7) (2,639)
Total segment result (16,235) 995 (15,560) (1,731.3) 4.3 (31,991)
Eliminations — — — —
Segment EBIT (16,235) 995 (15,560) (31,991)
Segment margin
Commercial vehicles (64.5) 4.7 (6.1) (0.6)
Passenger vehicles (52.8) (10.0) (37.6) (25.3)
Corporate/Unallocable as % of revenues (1.9) (0.5) (1.2) (0.8)
Overall margin (60.4) 0.7 (16.0) (7.3)
Segmental ASPs (Rs)
Commercial vehicles 1,372,623 1,017,336 1,015,745 34.9 35.1 1,563,451
Passenger vehicles 839,084 832,470 832,296 0.8 0.8 1,159,903
Exhibit 14: Standalone business generated negative FCF of Rs4.3 bn in 1QFY21 due to weaker operating performance
TTML's standalone cash-flow summary statement, March fiscal year-end, 2020-21 (Rs crore)
Exhibit 16: PV segment EBITDA margin came in at -14.5% (versus +1.2% in 1QFY21) and CV EBITDA margin came in -40.3% in 1QFY21
Segmental revenue, EBITDA and EBIT of standalone business, March fiscal year-ends, 1QFY18-4QFY20 (Rs mn)
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Commercial vehicle segment
Revenue 79,750 102,450 122,970 149,710 128,923 139,393 127,088 144,961 102,097 77,858 79,218 70,157 14,380
EBITDA 4,360 13,216 14,850 17,160 15,110 15,891 14,742 13,661 8,780 2,959 1,743 491 (5,795)
EBITDA margin (%) 5.5 12.9 12.1 11.5 11.7 11.4 11.6 9.4 8.6 3.8 2.2 0.7 (40.3)
EBIT 1,140 9,490 10,940 13,324 11,460 12,110 10,548 10,192 4,799 (389) (1,822) (3,718) (9,318)
EBIT margin (%) 1.4 9.3 8.9 8.9 8.9 8.7 8.3 7.0 4.7 (0.5) (2.3) (5.3) (64.8)
Passenger vehicle segment
Revenue 23,420 30,420 37,330 47,656 37,599 37,790 34,703 40,429 30,958 21,865 27,976 26,926 12,226
EBITDA (4,610) (4,198) (1,792) (4,610) (250) 76 312 13 371 (4,679) (1,007) (5,197) (1,773)
EBITDA margin (%) (19.7) (13.8) (4.8) (9.7) (0.7) 0.2 0.9 0.0 1.2 (21.4) (3.6) (19.3) (14.5)
EBIT (7,930) (7,790) (5,525) (8,770) (3,300) (3,280) (2,776) (4,614) (3,065) (8,484) (5,539) (10,393) (6,443)
EBIT margin (%) (33.9) (25.6) (14.8) (18.4) (8.8) (8.7) (8.0) (11.4) (9.9) (38.8) (19.8) (38.6) (52.7)
Total debt at JLR stood at GBP6.6 bn as on 30 June 2020. Total borrowings in the
standalone entity stood at Rs311 bn as on 30 June 2020. Net consolidated automotive debt
was Rs678 bn as of June 2020 versus Rs482.8 bn as of March 2020.
Disbursals for Tata Motors Finance were down due to a poor demand scenario. Disbursals
slowed down by 87% to Rs4.9 bn primarily due to a slowdown in demand for long haul
trucks. PBT stood at Rs260 mn in 1QFY21 versus Rs100 mn in 1QFY20. Gross NPA rose to
5.3% in 1QFY21 from 3.9% in 1QFY20 and net NPA rose to 4.4% in 1QFY21 from 2.5% in
1QFY20. The company raised Rs110 bn of capital during 1QFY21. Cost to income ratios
stood at 48% in 1QFY21 versus 57% in 1QFY20. The company has cash and cash
equivalents stood at Rs57 bn as on June 2020.
Exhibit 17: Consolidated EBITDA was significantly above our estimates due to better-than-expected performance in JLR
Tata Motors consolidated interim financial results, March fiscal year-ends (Rs mn)
(% chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%) FY2022E FY2021E Yoy (%)
Net sales 319,831 240,281 614,670 624,930 33.1 (48.0) (48.8) 2,300,860 2,610,680 (11.9) 2,826,279 2,300,860 22.8
Raw materials (199,212) (139,362) (397,755) (408,096) 42.9 (49.9) (51.2) (1,437,338) (1,671,310) (1,782,576) (1,437,338)
Staff costs (56,943) (57,740) (77,196) (76,987) (1.4) (26.2) (26.0) (292,728) (304,386) (321,819) (292,728)
Other expenses (57,320) (92,890) (109,765) (116,113) (38.3) (47.8) (50.6) (366,667) (437,726) (399,509) (366,667)
Total expenses (313,475) (289,993) (584,715) (601,196) 8.1 (46.4) (47.9) (2,096,733) (2,413,422) (2,503,904) (2,096,733)
EBITDA 6,356 (49,712) 29,955 23,733 (78.8) (73.2) 204,127 197,258 3.5 322,375 204,127 57.9
Other income 6,065 4,000 8,360 5,645 51.6 (27.4) 7.5 24,000 29,732 30,000 24,000
Interest expense (18,768) (15,000) (17,116) (19,528) 25.1 9.7 (3.9) (80,337) (72,433) (85,037) (80,337)
Depreciation (55,994) (55,000) (51,117) (58,149) 1.8 9.5 (3.7) (236,171) (214,254) (246,991) (236,171)
Extraordinary gain/(loss) 504 — (2,464) (44,831) — (46,102) — —
Profit before tax (61,837) (115,712) (32,382) (93,130) (88,380) (105,800) 20,347 (88,380)
Tax expense (22,005) — (1,961) (3,583) (2,743) (3,953) (12,311) (2,743)
Minority interest/associates (538) (2,000) (2,641) (2,230) (956) (10,956) 44 (956)
Profit after tax (84,380) (117,712) (36,983) (98,943) (92,079) (120,708) 8,080 (92,079)
Adjusted profit after tax (84,884) (117,712) (34,766) (54,112) (92,079) (79,217) 8,080 (92,079)
Adjusted EPS (Rs) (22.2) (30.7) (10.2) (15.0) (24.0) (22.0) 2.1 (24.0)
Ratios (%)
Raw material as % of sales 62.3 58.0 64.7 65.3 62.5 64.0 63.1 62.5
Staff costs as % of sales 17.8 24.0 12.6 12.3 12.7 11.7 11.4 12.7
Other expenses as % of sales 17.9 38.7 17.9 18.6 15.9 16.8 14.1 15.9
EBITDA margin (%) 2.0 (20.7) 4.9 3.8 8.9 7.6 11.4 8.9
Tax rate (%) (35.6) — (6.1) (3.8) (3.1) (3.7) (3.1)
Diluted no. of shares 3,829 3,829 3,396 3,598 3,829 3,598 3,829 3,829
Exhibit 18: JLR’s total debt stood at GBP6.6 bn in 1QFY21; standalone entity total borrowings stood at Rs311 bn in 1QFY21
TTML's consolidated debt maturity profile, March fiscal year-end, 2020-2021 (GBP bn, Rs crore)
Exhibit 19: We expect EBITDA margin to improve to 13% in China JV venture in FY2023E
Summary projected financials of JLR China JV venture, March fiscal year-ends, 2016-23E (GBP mn)
2016 2017 2018 2019 2020 2021E 2022E 2023E
Sales volumes (units)
Discovery Sport 8,000 38,873 43,673 26,053 23,531 30,000 33,000 36,000
Evoque 26,751 17,677 18,777 7,680 7,469 15,000 18,000 21,000
Jaguar XF — 9,454 21,854 9,947 5,726 5,153 5,800 6,264
Jaguar XE — — 3,908 11,239 10,453 12,000 12,500 13,500
E-Pace — — — 2,509 2,271 2,300 2,500 2,700
Total sales volumes 34,751 66,004 88,212 57,428 49,450 64,453 71,800 79,464
Net sales 1,106 2,163 2,773 1,697 1,295 1,857 2,068 2,289
Raw material cost (675) (1,298) (1,608) (1,154) (1,036) (1,393) (1,551) (1,671)
Staff cost (50) (73) (98) (109) (109) (98) (106) (114)
Royalty (55) (108) (139) (110) (99) (109) (120) (132)
Other expenses (98) (161) (54) (101) (70) (59) (59) (64)
Total expenses (878) (1,640) (1,899) (1,474) (1,314) (1,659) (1,837) (1,982)
EBITDA 228 523 874 223 (19) 198 232 308
Interest expense (2) (3) (96) 1 (11) (15) (20) (20)
Depreciation expense (58) (105) (139) (209) (201) (180) (180) (180)
Profit before tax 168 415 640 15 (231) 3 32 108
Tax (44) (103) (136) (2) 7 (1) (10) (35)
Profit after tax 124 312 504 13 (224) 2 21 72
Ratios
Raw material cost as % of net sales 61.0 60.0 58.0 68.0 80.0 75.0 75.0 73.0
Staff cost as % of net sales 4.5 3.4 3.5 6.4 8.4 5.3 5.1 5.0
Royalty cost as % of net sales 5.0 5.0 5.0 6.5 7.7 5.9 5.8 5.8
Other expenses cost as % of net sales 8.9 7.4 1.9 5.9 5.4 3.2 2.9 2.8
EBITDA margin (%) 20.6 24.2 31.5 13.1 (1.5) 10.6 11.2 13.4
Exhibit 22: We have increased our FY2021-23E consolidated EPS estimates led by cost cutting initiatives in JLR and standalone operations
Earnings revision table, March fiscal year-ends, FY2021-23E (Rs mn, GBP mn, %)
New estimates Old estimates change (%)
2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E
Standalone (Rs mn)
Volumes (units) 303,516 397,526 472,167 303,516 397,526 472,167 — — —
Net sales 330,275 435,977 537,739 327,965 432,679 526,730 0.7 0.8 2.1
EBITDA (4,106) 10,054 32,447 (25,800) (10,893) 8,809
EBITDA margin (%) (1.2) 2.3 6.0 (7.9) (2.5) 1.7
Adjusted net profit (50,208) (36,817) (16,587) (74,879) (61,070) (46,792)
JLR UK P&L (GBP mn)
Volumes (units) 384,000 479,700 500,770 416,432 499,032 521,092 (7.8) (3.9) (3.9)
Average realization 49,819 49,465 49,229 44,681 46,917 46,778 11.5 5.4 5.2
Net sales 19,131 23,729 24,653 18,607 23,413 24,376 2.8 1.3 1.1
Of which hedged forex losses (300) — — (300) — —
EBITDA 1,769 2,775 2,939 967 2,714 2,943 83.0 2.2 (0.1)
EBITDA margin (%) 9.2 11.7 11.9 5.2 11.6 12.1
Reported net profit (404) 341 390 (1,063) 438 535
China JV (GBP mn)
Volumes (units) 64,453 71,800 79,464 56,657 63,300 68,614 13.8 13.4 15.8
Net sales 1,857 2,068 2,289 1,484 1,658 1,797 25.1 24.8 27.4
EBITDA 198 232 308 27 121 183 640.4 92.2 67.7
EBITDA margin (%) 10.6 11.2 13.4 1.8 7.3 10.2
Net profit 2 21 72 (127) (67) (25)
Consolidated (Rs mn)
Net sales 2,300,860 2,826,279 3,028,262 2,248,780 2,793,000 2,990,951 2.3 1.2 1.2
EBITDA 204,127 322,375 365,112 98,752 289,262 335,743 106.7 11.4 8.7
EBITDA margin (%) 8.9 11.4 12.1 4.4 10.4 11.2
Adjusted net profit (86,594) 8,080 35,997 (177,028) (18,149) 7,962
EPS (22.6) 2.1 9.4 (46.2) (4.7) 2.1
GBPINR 95.0 95.0 95.0 95.0 95.0 95.0 — — —
Exhibit 23: We build in EBIT margin of ~3% in JLR UK financials over FY2022-23E
Jaguar Land Rover (ex-China JV) income statement, March fiscal year-ends, 2011-23E (GBP mn)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Volumes (000s) 244 314 372 430 467 509 535 545 508 476 384 480 501
Sales 9,871 13,512 15,784 19,386 22,106 22,286 24,339 25,786 24,214 22,984 19,131 23,729 24,653
Of which realzied forex losses — — — — 240 78 (1,320) (1,389) (703) (544) (300) — —
Realizations per vehicle 40,520 42,972 42,422 45,083 47,387 43,759 45,510 47,296 47,677 48,291 49,819 49,465 49,229
Cost of sales 8,286 11,373 13,254 15,910 18,129 18,821 21,143 22,880 21,812 20,563 17,001 20,594 21,353
Materials 6,178 8,733 9,904 11,904 13,347 13,562 15,071 16,328 15,670 14,684 12,244 15,186 15,531
Labor 789 1,011 1,333 1,654 1,977 2,321 2,490 2,722 2,820 2,568 2,260 2,526 2,831
Manufacturing costs and SG&A 1,319 1,629 2,017 2,352 2,805 2,938 3,582 3,830 3,322 3,311 2,498 2,881 2,991
D&A 396 466 622 875 1,051 1,418 1,656 2,075 2,164 1,910 2,000 2,100 2,200
Product dev 119 149 198 236 253 318 368 406 421 421 360 360 360
EBIT 1,069 1,524 1,710 2,365 2,673 1,729 1,172 425 (183) 90 (231) 675 739
EBITDA 1,465 1,989 2,331 3,240 3,724 3,147 2,828 2,500 1,981 2,000 1,769 2,775 2,939
Other income 36 38 71 153 143 128 379 420 (102) (212) — — —
Interest 23 69 (3) 147 87 52 35 52 76 157 200 220 220
PBT 1,082 1,492 1,784 2,371 2,729 1,805 1,516 793 (361) (279) (431) 455 519
Tax 79 26 460 622 576 293 331 398 (308) 47 — 114 130
Forex gains/(losses) (33) (14) (108) 137 (216) (136) (102) 467 (3,271) (29) 27 — —
PAT 1,036 1,481 1,216 1,886 1,937 1,376 1,083 862 (3,324) (355) (404) 341 390
EBITDA margin (%) 14.8 14.7 14.8 16.7 16.8 14.1 11.6 9.7 8.2 8.7 9.2 11.7 11.9
EBIT margin - including China JV profit (%) 10.8 11.3 10.8 12.2 12.1 8.0 5.5 2.6 (0.7) (0.1) (1.2) 2.9 3.1
Exhibit 24: We expect standalone EBITDA to turn positive from FY2022E onwards
Tata Motors standalone profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2012-23E (Rs mn)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Profit model (Rs mn)
Net sales 543,066 447,657 342,881 362,947 428,455 443,163 578,965 692,028 439,282 330,275 435,977 537,739
EBITDA 41,776 17,180 (9,112) (12,375) 29,466 13,577 23,907 51,548 (4,122) (4,106) 10,054 32,447
Other income 2,104 17,046 18,669 18,814 14,023 9,811 24,925 25,547 13,831 10,597 10,699 10,801
Interest (8,550) (10,041) (13,375) (16,117) (15,920) (15,690) (17,444) (17,936) (19,730) (22,528) (22,078) (22,528)
Depreciaton (16,067) (18,176) (20,703) (26,032) (23,292) (30,371) (31,019) (30,986) (33,753) (34,171) (35,491) (37,306)
Profit before tax 19,263 6,008 (24,521) (35,710) 4,276 (22,674) 369 28,172 (43,774) (50,208) (36,817) (16,587)
Extra ordinary income/(expenses) 5,852 (8,642) 14,263 (4,038) (4,948) (859) (9,838) (4,183) (27,499) — — —
Tax expense — 6 13,603 (7,642) 73 (571) (926) (2,947) (331) — — —
Net profit 12,422 (1,354) 3,346 (47,390) (623) (24,296) (10,349) 20,206 (72,896) (50,208) (36,817) (16,587)
Adjusted net profit 16,519 (3,031) (27,276) (52,240) 3,088 (23,652) (2,970) 23,343 (52,272) (50,208) (36,817) (16,587)
Adjusted Diluted EPS (Rs) 4.9 (0.9) (8.0) (15.4) 0.9 (7.0) (0.9) 6.9 (14.5) (13.1) (9.6) (4.3)
Balance sheet (Rs mn)
Equity 6,348 6,381 6,438 6,438 6,792 6,792 6,792 6,792 7,195 7,658 7,658 7,658
Reserves and Surplus 189,913 187,118 185,328 142,188 225,829 204,834 194,918 214,833 176,681 160,710 123,893 107,307
Deferred tax liability 21,054 19,639 431 — 714 1,476 1,546 2,059 1,986 1,986 1,986 1,986
Total borrowings 158,806 167,990 150,528 211,344 164,733 193,570 184,638 186,396 258,979 238,979 248,979 248,979
Current liabilities 169,073 142,871 154,619 139,462 168,692 182,111 204,229 199,016 181,058 146,784 162,819 183,055
Total liabilities 545,193 523,998 497,344 499,432 566,760 588,783 592,123 609,096 625,899 556,117 545,336 548,985
Net fixed assets 190,562 202,085 215,956 218,240 267,623 280,439 268,004 285,734 290,332 271,161 260,671 253,365
Investments 204,936 199,344 184,584 169,670 152,175 148,584 149,427 156,920 157,309 157,309 157,309 157,309
Cash 18,410 4,629 2,262 9,650 25,343 27,640 26,163 24,820 44,175 30,837 17,717 11,125
Other current assets 128,702 115,790 94,542 101,872 121,619 132,120 148,530 141,622 134,083 96,810 109,639 127,186
Miscellaneous expenditure 2,584 2,150 — — — — — — — — — —
Total assets 545,193 523,998 497,344 499,432 566,760 588,783 592,123 609,096 625,899 556,117 545,336 548,985
Free cash flow (Rs mn)
Operating cash flow excl. working capital 39,671 17,557 (9,949) (6,972) 34,789 15,465 40,824 59,848 (5,320) 6,490 20,752 43,247
Working capital changes (3,135) 5,028 34,583 (15,171) (7,759) (931) 515 3,079 (9,226) 3,000 3,206 2,689
Capital expenditure (28,355) (25,884) (30,941) (30,548) (32,492) (34,965) (27,948) (47,532) (45,134) (15,000) (25,000) (30,000)
Free cash flow (6,642) (21,394) (23,805) (71,140) (26,321) (39,795) (7,593) (8,153) (82,377) (28,038) (23,120) (6,592)
Ratios
Gross margin (%) 26.9 26.4 24.4 25.5 32.1 29.3 26.3 26.9 25.8 26.1 27.6 28.7
EBITDA margin (%) 7.7 3.8 (2.7) (3.4) 6.9 3.1 4.1 7.4 (0.9) (1.2) 2.3 6.0
EBIT margin (%) 4.7 (0.2) (8.7) (10.6) 1.4 (3.8) (1.2) 3.0 (8.6) (11.6) (5.8) (0.9)
Debt/equity (X) 0.8 0.9 0.8 1.4 0.7 0.9 0.9 0.8 1.4 1.4 1.9 2.2
Net debt/equity (X) 0.7 0.8 0.8 1.4 0.6 0.8 0.8 0.7 1.2 1.2 1.8 2.1
RoAE (%) 8.3 (1.6) (14.2) (30.7) 1.6 (10.6) (1.4) 11.0 (25.8) (28.5) (24.6) (13.5)
Book value/share (X) 57.8 57.0 56.5 43.8 68.5 62.3 59.4 65.3 51.1 44.0 34.4 30.0
Higher margins offset muted revenues. UPL’s 1QFY21 EBITDA was modestly above CMP (Rs): 478
our estimate, as lower revenues were offset by a sharp expansion in margins. Net debt Fair Value (Rs): 390
remained steady, although the company raised ~US$500 mn of bonds to enhance its
BSE-30: 37,607
liquidity position. New disclosures suggest a large portion of net debt reduction in
FY2020 can be attributed to receivables factoring. We retain SELL with a revised FV of
Rs390 (Rs350 earlier), while noting material downside risks to consensus estimates.
UPL
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 618-240 EPS (Rs) 23.2 31.9 36.5
Mcap (bn) (Rs/US$) 366/4.9 EPS growth (%) 22.7 37.6 14.2
ADTV-3M (mn) (Rs/US$) 3,040/41 P/E (X) 20.6 15.0 13.1
Shareholding pattern (%) P/B (X) 2.2 2.0 1.8
Promoters 27.9 EV/EBITDA (X) 9.1 7.8 7.1
FIIs 50.2 RoE (%) 11.5 14.2 14.6
MFs/BFIs 4.2/8.1 Div. yield (%) 1.3 1.7 2.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 358 381 402
Absolute 12 14 (20) EBITDA (Rs bn) 68 78 83
Rel. to BSE-30 4 2 (20) Net profits (Rs bn) 18 24 28
Sharp decline in LatAm and North America offset by robust growth in India and RoW
UPL reported 1% yoy decline in revenues to Rs78.3 bn in 1QFY21, well below our estimates,
reflecting 16% yoy decline in LatAm and 14% decline in North America, which was partly offset
by 27% growth in India and 10% growth in RoW. Weak performance in LatAm was attributed to
postponement of orders amid sharp devaluation of Brazilian Real, while North America was
impacted due to Covid-related pre-buying in the previous quarter. Healthy growth in India and
South East Asia were driven by a favorable monsoon outlook. Reported gross margin jumped to
54.7% from 43.9% in 4QFY20 amid—(1) favorable product/geographical mix, (2) higher
realizations amid devaluation of Brazilian Real, (3) moderation in input costs and (4) synergy gains.
EBITDA, including forex gain, jumped 39% yoy to Rs18.3 bn, modest 3% above our estimate,
with margins expanding by 630 bps qoq to 23.4%.
Bond issuance amid steady net debt; WC reduction in FY2020 attributed to receivable factoring
Net debt remained stable at ~Rs250 bn (including perpetual bonds) with OCF of Rs18.9 bn, WC
deployment (84 days now) of Rs6.4 bn and capex of Rs5.3 bn. UPL issued US$500 mn of 10-years
bonds to enhance its liquidity position and bought back US$82 mn of 5-year bonds maturing in
October 2021. The company disclosed its receivable factoring was at Rs60 bn now versus Rs69.7
bn as of end-FY2020 and Rs40 bn as of end-1QFY20—this suggests that a large portion of WC
release in FY2020, which was around 80% of US$0.5 bn FCF, was perhaps due to an increase in
receivable factoring. UPL expects to reduce net debt to 2X EBITDA by end-FY2021, which we
believe may be difficult to achieve without perpetual bonds or an equity dilution or receivables
factoring given limited scope to reduce working capital hereon.
UPL’s expectations imply healthy growth in revenues along with sharp moderation in margins
UPL management expects (1) 6-8% growth in revenues for FY2021 implying a healthy 8-11%
increase in revenues for the rest of the year and (2) 10-12% growth in EBITDA for the year as
compared to 29% jump in 1QFY21, implying a relatively lower 6-8% increase in EBITDA during Tarun Lakhotia
the remaining nine months—the latter suggests possibility of sharp moderation in margins. The
management indicated that glyphosate ban could benefit its glufosinate business in the US. UPL
Hemang Khanna
has fully provided for all litigation costs pertaining to patent infringement; however, certain
exceptional costs related to plant closures may be accounted over the next few years.
Fine-tune EPS estimates; retain SELL noting material downside risks to consensus estimates
We raise FY2021-22E EPS by 2-5% and FV to Rs390 from Rs350 factoring in (1) higher margins,
(2) a weaker Rupee, (3) higher finance costs and (4) other minor changes. We retain SELL noting
material downside risks to consensus estimates with our forecasts at 14-21% below the Street.
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
UPL Fertilizers & Agricultural Chemicals
Exhibit 1: Consolidated interim results of UPL, March fiscal year-ends (Rs mn)
Change (%)
1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%)
Net sales 78,330 90,640 79,060 111,410 (14) (1) (30) 381,126 357,560 7
Total operational costs (60,010) (72,882) (65,860) (92,370) (302,909) (289,830)
Raw materials (35,490) (48,186) (42,030) (62,480) (197,877) (187,430)
Employee expenses (8,700) (9,156) (8,610) (9,680) (35,606) (33,910)
Other expenses (17,100) (16,815) (15,160) (17,560) (68,904) (65,180)
Forex loss 1,280 1,275 (60) (2,650) (522) (3,310)
EBITDA 18,320 17,758 13,200 19,040 3 39 (4) 78,217 67,730 15
Other income 670 288 390 210 1,336 1,040
Finance cost (5,510) (4,982) (3,980) (1,870) 11 38 195 (17,820) (14,810) 20
Depreciation and amortization (5,220) (6,188) (4,460) (5,950) (16) 17 (12) (23,572) (20,120) 17
PBT 8,260 6,877 5,150 11,430 20 60 (28) 38,161 33,840 13
Extraordinary items (250) — (720) (1,710) (1,133) (6,230)
Tax (1,430) (1,444) (770) (2,110) (7,498) (5,860)
PAT 6,580 5,433 3,660 7,610 21 80 (14) 29,530 21,750 36
Income from associate/MI (1,070) (1,000) (740) (1,440) (5,099) (3,990)
Net income 5,510 4,433 2,920 6,170 24 89 (11) 24,431 17,760 38
Reported EPS (Rs) 7.2 5.8 3.8 8.1 24 89 (11) 31.9 23.2 38
Exhibit 2: Margins ex-synergy gains jumped to 22.2% in 1QFY21, perhaps reflecting a favorable geographical mix
UPL's financials including Arysta, 1QFY20 onwards (Rs mn)
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Yoy (%)
Key financials including Arysta
Revenues 74,060 70,660 82,730 88,720 79,060 78,170 88,920 111,410 78,330 (0.9)
Variable cost 42,400 39,160 47,650 53,780 45,080 45,460 51,660 71,880 44,500 (1.3)
Contribution 31,660 31,500 35,080 34,940 33,980 32,710 37,260 39,530 33,830 (0.4)
Gross margins (%) 42.7 44.6 42.4 39.4 43.0 41.8 41.9 35.5 43.2 21 bps
Fixed cost 16,750 17,660 18,110 17,540 17,390 17,300 16,510 17,840 16,790 (3.5)
Reported EBITDA 14,910 13,840 16,970 17,400 16,590 15,410 20,750 21,690 17,040 2.7
EBITDA margins (%) 20.1 19.6 20.5 19.6 21.0 19.7 23.3 19.5 21.8 77 bps
Forex loss 60 920 (320) 2,650 (1,280)
Adjusted EBITDA 16,530 14,490 21,070 19,040 18,320
Adjusted EBITDA margins (%) 20.9 18.5 23.7 17.1 23.4
Realized synergy gains 1,293 1,907 2,150 2,380 954
Ex-synergy adjusted EBITDA 15,237 12,583 18,920 16,660 17,366
Ex-synergy adjusted EBITDA margins (%) 19.3 16.1 21.3 15.0 22.2
Exhibit 3: Robust growth in India and RoW offset sharp declines in LatAm and North America
Trend in sales across key geographies, 1QFY19 onwards
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Sales (Rs mn)
India 12,480 10,770 4,860 4,910 11,930 11,950 7,500 6,900 15,110
North America 7,390 4,020 8,660 14,710 11,950 6,210 12,880 25,310 10,270
Europe 6,480 3,670 5,110 11,590 16,320 9,070 7,670 20,700 17,030
LatAm 8,640 17,420 22,840 22,220 24,000 37,670 42,030 33,940 20,150
RoW 6,350 6,690 7,740 12,130 14,860 13,280 18,840 24,550 15,780
Total 41,340 42,570 49,210 65,560 79,060 78,180 88,920 111,400 78,340
Yoy growth (%)
India 11.6 8.0 (20.8) 6.7 (8.0) 6.0 42.0 36.0 26.7
North America 8.5 2.3 21.5 13.5 6.0 (1.0) (12.0) 45.0 (14.1)
Europe 10.8 1.1 36.6 17.9 (3.0) 1.0 (27.0) (2.0) 4.4
LatAm 17.2 25.8 26.5 25.9 25.0 24.0 21.0 27.0 (16.0)
RoW 5.5 5.9 12.7 2.2 7.0 (4.0) 7.0 33.0 6.2
Total 11.0 12.9 17.3 15.2 7.0 11.0 7.0 26.0 (0.9)
Notes:
(a) Including Arysta from 1Q FY20 onwards.
30
20
10
(10)
(20)
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
2QFY16
3QFY16
4QFY16
1QFY17
4QFY18
1QFY19
2QFY19
1QFY21
120
90
60
30
-
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Exhibit 6: UPL’s end-year working capital is seasonally lower compared to its global peers
Working capital days for global ag-chem majors (days)
Exhibit 8: Consolidated profit model, cash flow statement and balance sheet for UPL, March fiscal year-ends, 2016-23E (Rs mn)
In-line results. SRF’s 1QFY21 results were broadly in line with our expectations, as the CMP (`): 3,793
robust performance of packaging films largely mitigated weakness in other segments. Fair Value (`): 4,000
Specialty chemicals is expected to regain its robust growth trajectory led by (1) potential
BSE-30: 37,607
recovery in HFC demand and (2) ramp-up of recently commissioned capacities; expected
moderation in packaging films margins may be partly offset by volume ramp-up from
new overseas plants. We retain ADD rating and revise FV to Rs4,000 (Rs3,800 earlier).
SRF
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 4,260-2,468 EPS (Rs) 138.0 150.0 192.6
Mcap (bn) (Rs/US$) 219/3 EPS growth (%) 23.5 8.7 28.4
ADTV-3M (mn) (Rs/US$) 1,019/14 P/E (X) 27.5 25.3 19.7
Shareholding pattern (%) P/B (X) 4.4 3.8 3.2
Promoters 52.3 EV/EBITDA (X) 17.0 14.9 12.0
FIIs 18.3 RoE (%) 17.5 16.2 17.8
MFs/BFIs 11/0.4 Div. yield (%) 0.4 0.4 0.5
Price performance (%) 1M 3M 12M Sales (Rs bn) 72 78 96
Absolute 5 2 40 EBITDA (Rs bn) 15 17 20
Rel. to BSE-30 (2) (9) 40 Net profits (Rs bn) 8 9 11
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
SRF Speciality Chemicals
Exhibit 1: Interim results of SRF, consolidated, March fiscal year-ends (Rs mn)
Change (%)
1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%)
Net sales 15,452 18,654 17,633 18,578 (17) (12) (17) 77,804 72,094 8
Raw material (7,415) (9,140) (9,533) (9,175) (19) (22) (19) (39,401) (36,870) 7
Employee costs (1,375) (1,456) (1,290) (1,470) (6) 7 (6) (5,826) (5,419) 8
Power and fuel (1,233) (1,799) (1,554) (1,716) (31) (21) (28) (7,196) (6,726) 7
Forex gain/(loss) (91) (101) 151 (271) (91) (35)
Other expenses (1,705) (2,429) (1,809) (2,334) (30) (6) (27) (8,649) (8,495) 2
EBITDA 3,633 3,729 3,597 3,613 (3) 1 1 16,642 14,549 14
EBITDA margins (%) 23.5 20.0 20.4 19.4 352 bps 311 bps 406 bps 21.4 20.2 121 bps
Other income 101 126 152 63 (20) (33) 60 522 491 7
Interest cost (432) (489) (515) (466) (12) (16) (7) (1,954) (2,007) (3)
Depreciation (1,040) (1,072) (925) (1,014) (3) 13 3 (4,272) (3,886) 10
PBT 2,262 2,293 2,310 2,196 (1) (2) 3 10,938 9,147 20
Exceptionals — — — — — 1,234
Tax (493) (487) (556) (255) 1 (11) 93 (2,324) (1,222) 90
PAT 1,769 1,806 1,753 1,942 (2) 1 (9) 8,614 9,159 (6)
Adjusted PAT 1,769 1,806 1,753 1,942 (2) 1 (9) 8,614 7,925 9
Adjusted EPS (Rs) 30.8 31.5 30.5 33.8 (2) 1 (9) 150.0 138.0 9
PAT from discontinued operations 2 139 (84) — 1,032
Segment-wise sales
Technical textiles 1,404 3,821 3,168 (63) (56) 10,241 13,576 (25)
Chemicals 7,052 6,032 8,819 17 (20) 35,396 29,750 19
Packaging film 6,774 7,017 6,015 (3) 13 29,989 26,040 15
Others 237 772 577 (69) (59) 2,253 2,783 (19)
Total 15,467 17,642 18,578 (12) (17) 77,879 72,148 8
Segment-wise EBIT
Technical textiles (140) 569 372 (125) (138) 918 1,803 (49)
Chemicals 886 787 1,589 13 (44) 5,909 5,115 16
Packaging film 2,207 1,456 1,307 52 69 7,299 5,556 31
Others (3) 101 53 (103) (105) 185 318 (42)
Total 2,950 2,912 3,321 1 (11) 14,309 12,792 12
EBIT margins (%)
Technical textiles (10.0) 14.9 11.7 (2,487)bps (2,173)bps 9.0 13.3 (432)bps
Chemicals 12.6 13.0 18.0 (48)bps (546)bps 16.7 17.2 (50)bps
Packaging film 32.6 20.7 21.7 1,184 bps 1,085 bps 24.3 21.3 300 bps
Others (1.2) 13.1 9.2 (1,429)bps (1,034)bps 8.2 11.4 (321)bps
Overall EBIT margins 19.1 16.5 17.9 256 bps 120 bps 18.4 17.7 64 bps
Exhibit 3: We estimate strong growth in chemicals and packaging film business in FY2021-23E
Consolidated segment-wise performance of SRF, March fiscal year-ends, 2018-23E (Rs mn)
Exhibit 5: Consolidated profit model, balance sheet and cash flow statement for SRF, March fiscal year-ends, 2016-23E (Rs mn)
Pieces falling in place. Covid tailwinds and benefits of the company’s cost- CMP (`): 760
rationalization initiatives showed up strong in TCOM’s 1QFY21 print, driving a mid-20s Fair Value (`): 975
yoy EBITDA growth. The print lends credence to the three-year outlook the company
BSE-30: 37,607
shared in its recent analyst webinar. We believe the company could do better than this
three-year outlook if the innovation bucket inflects and the new key account
management focus is executed well. We raise FY2021-23E EBITDA forecasts by around
13% each and revise our FV up to Rs975/share (from Rs705). Retain BUY.
Tata Communications
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 760-200 EPS (Rs) 16.0 29.9 37.3
Mcap (bn) (Rs/US$) 217/2.9 EPS growth (%) 254.6 87.3 24.5
ADTV-3M (mn) (Rs/US$) 92/1 P/E (X) 47.5 25.4 20.4
Shareholding pattern (%) P/B (X) (16.9) (39.9) 54.5
Promoters 75.0 EV/EBITDA (X) 9.5 7.3 6.3
FIIs 17.5 RoE (%) (62.4) (93.7) (1,461.8)
MFs/BFIs 0.1/1.5 Div. yield (%) 0.5 0.5 0.8
Price performance (%) 1M 3M 12M Sales (Rs bn) 171 178 190
Absolute 24 76 166 EBITDA (Rs bn) 33 42 46
Rel. to BSE-30 15 58 165 Net profits (Rs bn) 5 9 11
TCOM reported a strong 26% yoy growth in EBITDA in 1QFY21 to Rs10.4 bn, 23% above our
estimate. The EBITDA surprise was led equally by better-than-expected revenues (+5.6% yoy;
2.4% above estimate) and lower-than-expected costs. EBITDA crossed the Rs10 bn mark for the
first time on the back of all-time high EBITDA margins of 23.7%. INR depreciation aided, to some
extent. Even as some of the verticals like media faced disruptions due to Covid, TCOM benefitted
on balance from increased demand of services like UCC/SIP-trunking and GHCC. Capex for the
quarter stood at Rs3.7 bn while EOP net debt stood at Rs90 bn (down Rs1.7 bn qoq).
TCOM has been on a journey towards becoming a digital transformation partner for enterprises
from just a plain-vanilla connectivity provider for the past many years. SCDX (Secure Connected
Digital Experience), the company’s recently launched proposition to help enterprises transform
their network architecture for the post-Covid world, is a good example of the company’s ability
to launch relevant new services in quick time. SCDX, in a nutshell, offers solutions for digital
customer experience, real-time management of distributed partners, collaboration solutions,
and secure connectivity to enterprise applications and cloud (through NetFoundry). We see
SCDX as an illustration of the company’s transition from a product mindset to a solutions one.
Building blocks in place; could this be the start of a consistent delivery phase?
For the past decade or so, TCOM has been putting building blocks in place to transform from a
Rohit Chordia
plain-vanilla network connectivity provider to a digital transformation solutions provider. This is
a transition from a capital-intensive, low-RoCE construct to a capital-light, reasonable-RoCE one
as also a transition from a discrete-product-selling mindset to a solutions-selling one. The Aniket Sethi
transition is still work in progress, to be sure; however, we do feel increasingly comfortable with
the pace and direction of the same. The other transformation that may have started showing up
in numbers is the company’s internal cost transformation drive. Benefits showed up strong in
1QFY21 and we believe a good chunk of the cost savings is sustainable in nature. Key account
management focus being driven by the new CEO has the potential to fast-track the journey.
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Telecommunication Services Tata Communications
We have raised the EV/EBITDA multiple we ascribe to the data business from 7.25X to 8X.
Our revised FV stands at Rs975/share (from Rs705 earlier). Reiterate BUY on the stock.
Segmental results
Voice segment. EBITDA rose 48% qoq (but down 25% yoy) to Rs450 mn with revenues
down 0.5% qoq. Volumes declined 3.7% qoq while net realization per minute rose
sharply to almost 25p/min. Improvement in net realizations indicates higher quality of
traffic carried.
Traditional data. Growth of 1.5% qoq (in INR terms) was recorded on account of
increased bandwidth usage due to the lockdown. Margin print came in at 42.2%,
massive margin of 520 bps qoq on account of cost efficiencies and lower costs due to the
lockdown.
Growth services. There was strong qoq pickup in revenue growth to 7.9%. UCC sub-
segment benefitted (+34.4% qoq) on the back of surge in conferencing traffic. Margin
expansion was robust with print of 12.5% (4Q: 11.6%). EBITDA increased 15.5% qoq.
The segment has been reporting a healthy expansion trajectory considering it had broken
even at the EBITDA level only in end-FY2019.
Innovation services. Revenues almost halved this quarter with lower loss at the EBITDA
level (US$13 mn). We wouldn’t read much in the sharp decline given the small size of the
segment and relatively concentrated client exposure.
TCPSL reported a decline in revenues (down 36.3% qoq) due to sharp decline in POS
managed on account of lockdown-led disruptions.
TCTSL. Revenue declined 7.9% qoq due to loss of revenue following termination of an
onerous contract; termination of this contract led to improved profitability for the
business.
Solutions for the digital ecosystem. TCOM has launched Secure Connected Digital
Experience (SCDX), which includes a broad range of solutions for the digital ecosystem.
These solutions are gaining traction in the post-Covid world. This includes improved
work-from-home solutions, improved e-commerce and video-commerce solutions and
efficient B2B ecosystem connectivity systems.
Impact of Covid on costs. While TCOM continues to drive efficiencies across the board,
the Covid impact led to a sharp fall in overhead expenses for the quarter, about Rs500-
600 mn. There were savings in travel costs, marketing costs and general G&A expenses.
They also received some concessions from governments in the international markets.
While some of the cost savings will be structural in nature, costs will increase as things
normalize. The company is rationalizing its employee expenses by changing its headcount
mix from international to India.
Strong funnel adds though deal closures taking longer. TCOM has seen strong
funnel adds in the last quarter. Management attributes this to their strategy of deeper
engagement with customers. They are more proactive to create new opportunities and
solutions for clients. There has been an increased number of enquiries for network
transformation projects and for the unified communication and collaboration portfolio.
They are also seeing a strong pipeline for NetFoundry.
Work from home solutions. Besides the traditional VPN service, TCOM is also enabling
advanced work from home solutions. There are solutions and products that even help
their BPO clients to enable remote connectivity for their employees.
Exhibit 1: Key changes to TCOM earnings model, March fiscal year-ends, 2021-23E (Rs mn)
Voice business
Sep-2022E EBITDA (Rs bn) 1.6
EV/EBITDA (x) 3.0
Enterprise value (Rs bn) 5
Data business
Sep-2022E EBITDA (including rental income) (Rs bn) 46.2
EV/EBITDA (x) 8.0
Enterprise value (Rs bn) 370
Others
Value of 26% stake in DC business sold to STT (Rs bn) 15
Total EV (Rs bn) 389
Consolidated net debt (Rs bn) 96
Less: Potential DOT liability (Rs bn) 16
Net equity value (Rs bn) 278
Equity value per share (Rs/share) 974
Exhibit 3: TCOM – 1QFY21 review, Ind-AS, March fiscal year-ends (Rs mn)
(% chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 KIE Est. yoy qoq FY2021E FY2020 (% chg.)
Revenues 44,029 43,014 41,686 43,979 2.4 5.6 0.1 178,227 170,680 4.4
Total expenditure (33,612) (34,542) (33,430) (35,471) (2.7) 0.5 (5.2) (136,646) (137,350) (0.5)
EBITDA 10,418 8,472 8,256 8,508 23.0 26.2 22.4 41,581 33,330 24.8
Depreciation and amortization (5,899) (5,900) (5,522) (5,797) (0.0) 6.8 1.8 (24,339) (22,507) 8.1
EBIT 4,518 2,572 2,735 2,711 75.7 65.2 66.7 17,242 10,822 59.3
Other income 147 210 88 373 893 697
Interest expense (1,163) (1,245) (1,157) (1,232) (4,859) (4,707)
Pre-tax profits 3,503 1,537 1,666 1,853 127.9 110.3 89.1 13,276 6,812 94.9
Tax (incl. deferred tax) (812) (769) (852) 98 (4,779) (2,267)
Net income pre exceptionals 2,691 769 813 1,951 8,497 4,545
Exceptional items (105) — (65) (4,671) - (5,415)
PAT after exceptional items 2,586 769 749 (2,720) 8,497 (870)
Minority int. share of loss (3) (6) (4) (0) (14) (11)
Share in loss of associates (5) 20 21 (30) 52 22
Reported net income 2,578 783 766 (2,750) 8,534 (860)
Adjusted net profit 2,683 783 831 1,921 8,534 4,555 87.3
EPS (Rs/share) 9.4 2.7 2.9 6.7 29.9 16.0 87.3
Margins (%)
EBITDA 23.7 19.7 19.8 19.3 3.85 4.31 23.3 19.5
EBIT 10.3 6.0 6.6 6.2 9.7 6.3
PBT 8.0 3.6 4.0 4.2 7.4 4.0
PAT (pre exceptionals and MI) 6.1 1.8 2.0 4.4 4.8 2.7
Change (%)
Quarter-ending Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 qoq (%) yoy (%)
Gross Revenue by Segment (%)
Global Voice Solutions 21.4 20.5 19.1 18.3 18.1
Global Data Services 78.6 79.5 80.9 81.7 81.9
Global Voice Solutions (Rs mn)
Gross revenues 8,903 8,741 8,090 8,030 7,990 (0.5) (10.3)
Net revenues 1,478 1,493 1,030 1,110 1,280 15.3 (13.4)
EBITDA 866 790 450 440 650 47.7 (24.9)
EBIT 797 715 380 350 560 60.0 (29.7)
EBITDA margin (%) 9.7 9.0 5.6 5.5 8.1
EBIT margin (%) 9.0 8.2 4.7 4.4 7.0
Volumes (bn mins)
Total 6.4 5.9 5.5 5.4 5.2 (3.7) (18.8)
ILD 6.1 5.8 5.4 5.3 5.1 (3.8) (16.4)
NLD 0.3 0.1 0.1 0.1 0.1 — (66.7)
Net realization per min (Rs/min) 0.231 0.253 0.187 0.206 0.246 19.8 6.6
EBITDA per min (Rs/min) 0.135 0.134 0.082 0.081 0.125 53.4 (7.6)
O perating costs per min (Rs/min) 0.096 0.119 0.105 0.124 0.121 (2.4) 26.7
Global Data Solutions (Rs mn)
Gross revenues 32,784 33,986 34,200 35,950 36,040 0.3 9.9
Net revenues 21,808 22,186 21,980 23,380 23,210 (0.7) 6.4
EBITDA 6,690 6,867 7,078 7,368 9,768 32.6 46.0
EBIT 1,238 1,356 1,548 588 3,958
EBITDA margin (%) 20.4 20.2 20.7 20.5 27.1
EBIT margin (%) 3.8 4.0 4.5 1.6 11.0
GR by segment (%)
Service Provider / Carrier 38.0 39.0 38.0 38.0 37.0
Enterprise 62.0 61.0 62.0 62.0 63.0
GR by service line (%)
Traditional services 63.1 63.6 63.1 61.1 61.9
Growth services 24.0 23.4 23.7 25.0 26.3
Subsidiaries 11.9 12.0 12.1 12.3 10.7
GR by geography (%)
India 52.0 54.0 53.0 53.0 51.0
Rest of the world 48.0 46.0 47.0 47.0 49.0
TCPSL
Gross Revenue (Rs mn) 889 850 870 820 520 (36.6) (41.5)
Total ATMs managed 12,399 12,362 12,278 12,240 12,198 (0.3) (1.6)
Managed ATMs 4,076 4,011 3,993 3,955 3,949 (0.2) (3.1)
White label ATMs 8,323 8,351 8,285 8,285 8,249 (0.4) (0.9)
Total PO S managed 8,365 5,823 5,791 5,584 3,412 (38.9) (59.2)
Traditional services (US$ mn)
Revenues 297.1 306.9 303.2 303.7 293.7 (3.3) (1.2)
EBITDA 114.4 116.0 114.0 112.4 123.9 10.3 8.3
Growth services (US$ mn)
Revenues 110.3 109.6 110.3 118.4 121.6 2.7 10.2
EBITDA 3.0 3.9 7.2 13.7 15.2 10.7 407.0
Innovation services (US$ mn)
Revenues 2.7 3.2 3.7 5.9 3.0
EBITDA (19.4) (21.3) (20.8) (18.4) (13.3)
Debt profile
Core business (US$ mn)
Gross debt 1,386 1,406 1,418 1,486 1,477 (0.6) 6.6
Foreign Currency Loans 1,313 1,359 1,369 1,420 1,370 (3.5) 4.3
Rupee Loans 73 47 49 67 107.38 60.7 47.1
Cash and cash equivalent 138 144 159 217 290 33.7 110.4
Net debt 1,248 1,262 1,257 1,216
INR/USD (closing) 69.00 70.79 71.32 75.46
Net debt (Rs mn) 86,112 89,331 89,650 91,760 90,080 (1.8) 4.6
Exhibit 5: TCOM – forecasts and underlying assumptions, March fiscal year-ends, 2017-23E (Rs bn)
Key assumptions
Voice segment
Revenues 67.6 53.1 38.7 33.8 29.6 25.7 22.2
EBITDA 4.3 3.4 3.3 2.6 1.9 1.7 1.5
EBITDA margin (%) 6.4 6.3 8.6 7.8 6.4 6.6 6.9
Data segment
Revenues 108.7 113.4 123.1 136.9 148.7 164.0 181.5
EBITDA 19.7 19.6 22.0 30.7 39.7 44.2 48.3
EBITDA margin (%) 18.2 17.2 17.9 22.4 26.7 27.0 26.6
Note:
(a) Financials for FY2017 reflect those of continuing operations only.
Lower provisions drive earnings. Chola’s strong earnings print was driven by a sharp CMP (`): 203
decline in provisions even as NII growth was muted on expected lines. Its strong Fair Value (`): 300
collections encouraged it to bring down ECL and selectively focus on disbursements but
BSE-30: 37,607
incrementally flattening recovery trends are concerning. Low coverage has been a
concern, though Chola has fared well though the cycle, driving our conviction; retain
BUY with FV of Rs300.
Cholamandalam
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 349-117 EPS (Rs) 12.8 13.9 20.2
Mcap (bn) (Rs/US$) 166/2.3 EPS growth (%) (15.4) 8.5 45.0
ADTV-3M (mn) (Rs/US$) 2,944/39 P/E (X) 15.8 14.5 10.0 QUICK NUMBERS
Shareholding pattern (%) P/B (X) 2.2 2.0 1.7
Promoters 51.6 BVPS (Rs) 93.9 101.0 120.4 PAT up 37% yoy;
FIIs 12.2 RoE (%) 14.7 13.1 16.7 core PBT up 18%
MFs/BFIs 23.3/1.8 Div. yield (%) 0.8 0.8 1.1
Price performance (%) 1M 3M 12M NII (Rs bn) 35 37 38 yoy
Absolute 7 27 (22) PPOP (Rs bn) 25 25 26
Rel. to BSE-30 (1) 14 (22) Net profits (Rs bn) 11 11 17 AUM up 10% yoy;
disbursements
Lower provisions support earnings down 58% yoy
Chola’s 37% PAT growth was driven by a sharp decline in provisions (down 49% yoy). NII growth ~50% of AUM
was moderate at 14% yoy with 5% yoy growth in loans on-balance sheet (AUM up 10% yoy), under moratorium
driven by 50 bps yoy NIM expansion to 6.6%, reflecting lower cost of funds. With improvement have made part
in cost/income ratio, core PBT was up 18% yoy. The sharp decline in provisions reflects reduction
payments or paid at
in ECL as a consequence of improved collections from the loan book under moratorium.
least one EMI
Lower credit cost is a bit concerning; recovery trends flattening
Chola incurred credit cost of 36 bps in 1QFY21 versus average of 80 bps during 1Q-3QFY20.
After large Covid provisions in 4QFY20 (total credit cost of 3.7%), the company took cognizance
of improved collections, bringing down its coverage levels. Notably, Chola follows a formula-
based provisioning policy for Covid-19 moratorium. We would have preferred if the company
had used management overlay to make higher provisions. In its earnings call, management
highlighted that while CV utilization levels have picked up in July, its overall collections have
been flat mom. Further, freight movement typically tends to be weak in August and September
due to the monsoon. Hence, we don’t expect significant improvement in collections in the near-
Nischint Chawathe
term. On the positive side, 50% of its borrowers under moratorium have made payments with
34% paying at least one EMI and 17% at least two EMIs. As such, these borrowers will have a
M B Mahesh, CFA
longer time period before migrating to stage 3, even if they are not able to fully service their
loans in 3QFY21E. Chola does not envisage high eventual losses, 45% of stage 1 AUM under
moratorium and 79% of stage 2 AUM under moratorium have vintage of >18 months, Dipanjan Ghosh
improving their equity in the asset even as the moratorium increases the tenure of the loan.
Asset price inflation due to the change in emission norms will help, in this backdrop. Abhijeet Sakhare
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Diversified Financials Cholamandalam
Lower provisions, NIM expansion, stringent cost control drive strong earnings
Chola’s PAT increased 37% yoy led by a sharp decline in provisions (down 49% yoy to
Rs562 mn). NIM expansion and stringent cost control measures further aid strong earnings
print. Core PBT was up 18% yoy.
NII growth was moderate at 14% yoy despite muted 5% yoy growth in loans on balance
sheet. This was driven by 50 bps yoy/6 bps qoq expansion in NIM to 6.6%. NIM expansion
was led by a sharp decline in cost of funds despite high liquidity on balance sheet (Rs81 bn
in 1QFY21 compared to Rs70 bn in 4QFY20 and Rs58 bn in 1QFY20).
Chola reported 10% AUM growth; disbursements were down 58% yoy. Negligible
repayments during the quarter supported AUM growth.
Operating expenses declined 1% yoy in 1QFY21 on the back of (1) lower discretionary
expenses, (2) lower disbursements and (3) pause in expansionary efforts. Other expenses
declined 9% yoy. Additionally, the company benefited from lower rent expenses during the
quarter.
Provisions declined 49% yoy. Overall ECL coverage declined 27 bps qoq to 2.4% aided by 9
bps qoq decline in coverage on stage 1 and 2 loans. Adjusted for write-offs, the company
witnessed ~Rs850 mn of provision reversals during the quarter. The company follows a
formula-based provisioning policy for Covid-19 provisions; considering improving collections
from the moratorium book, overall credit cost for the quarter was low.
Fleet utilization remains low albeit higher than trough levels in April and May
2020. Management guided that for a small fleet operator to be able to service EMIs, fleet
utilization levels need to be >65%. Overall inter-state e-way bills were down 84% yoy in
April 2020 and 53% yoy in May 2020 (Exhibit 5). Gradual easing of the lockdown led to
13% yoy decline in e-way bills in June 2020. However, the onset of monsoon and partial
lockdown in select states/districts have led to >20% yoy decline in e-way bills in July
2020. Notably, inter-state bills have declined >25% in July 2020 (down 20% yoy in June
2020). Chola’s exposure in the CV segment is mostly towards large and medium fleet
operators and as such collections will likely remain tepid over the next few months.
While we don’t have similar data across peers, the disclosure provides comfort on the quality
of customers who have opted for the moratorium and also signifies lower LGDs (higher
vintage tends to drive lower LGDs). A significant proportion of the customers under
moratorium are likely focused on cash conversion and resuming business activities.
Exhibit 2: ~34% of customers under moratorium have paid at least one full EMI
Details of moratorium and collections, March fiscal year-ends, July 28, 2020
0-6 months 6-12 months 12-18 months 18-24 months 24-36 months >36 months
100
9 10 9 11
24 28 24 22
80 20 19 20 19
60 16 16 16 16
38 34 39 40
22 23 22 23
40
17 17 18 18
20 25 23 24 22
15 15 15 18
8 9 1 1 - - 8 9
- 5 5 3 2
Agreements AUM Agreements AUM Agreements AUM Agreements AUM
Stage 1 Stage 2 Stage 3 Overall
Exhibit 5: E-way bills have marginally increased from trough levels observed in April and May 2020
Total E-way bills generated, March fiscal year-ends, May 2018-July 2020 (# mn)
70
56
42
28
14
0
May-18
May-19
May-20
Aug-18
Aug-19
Mar-19
Mar-20
Nov-18
Nov-19
Jul-18
Oct-18
Oct-19
Dec-19
Apr-20
Sep-18
Dec-18
Apr-19
Jul-19
Sep-19
Jun-19
Jun-20
Jun-18
Jan-19
Jan-20
Notes:
(1) Data for July is till July 26, 2020.
6.2
6.4
5.5
4.7
4.8 4.1
3.8
3.5 3.4
3.0 3.1
3.2 2.6 2.7
1.9
1.6 0.9 1.1
0.5 0.7
0.0
2007
2008
2009
2016
2017
2018
2019
2020
2010
2011
2012
2013
2014
2015
2021E
2022E
2023E
Notes:
(1) Data from FY2018 is based on Ind-AS.
ECL coverage remains low compared to peers, except credit cost to remain
elevated
Chola incurred Rs170 mn Covid-19 provisions in 1QFY21 (overall Covid-19 provisions of
Rs5.5 bn or 1.1% of AUM under moratorium). The overall ECL coverage at 2.4% is
significantly lower than most vehicle financiers at >4%. Historically, Chola has maintained
lower coverage on its book owing to (1) lending to medium or large fleet CV operators and
relatively lower share of used vehicles (compare to STFC) and (2) diversified product bouquet
(~30% are non-vehicle loans). However, in the current environment we expected the
company to ramp up its coverage ratio as the loans under moratorium are significantly high
at ~75% (though ~50% of customers have made part payments or more than one EMI).
Credit cost remains challenging to predict at this stage owing to (1) uncertainty over
intensity, tenure and spread of Covid-19 and various lockdown-related disruptions, (2)
repayment over the next few months; we don’t read much into the decline in moratorium
which reflects collection received for the month. We pen down credit cost at 1.6% of AUM
in FY2021E (flat yoy). Higher write-offs and rise in delinquency towards hard buckets will
drive credit cost in FY2021E. Overall ECL coverage will likely increase to ~4% in FY2021
from low levels of 2.4% in 1QFY21.
3.2
2.8
2.4 2.2
1.8
1.5 1.6 1.5
1.6 1.3 1.3
1.1 1.0
0.8 0.8
0.8 0.6 0.6
0.5
0.4
0.0
2007
2008
2009
2014
2015
2016
2017
2010
2011
2012
2013
2018
2019
2020
2022E
2023E
2021E
Notes:
(1) Data from FY2018 is based on Ind-AS.
Chola expects used vehicle disbursements to remain strong relative to other asset
classes. Prices in used CVs have increased 20% post transition to BS-VI (price of used
CVs have increased proportionately to that of new CVs). Additionally, large fleet
operators will focus on rationalization of available fleet based on driver availability and
freight demand. Under such circumstances, used vehicle sales will remain strong.
SCVs/3Ws/ICVs which are used for last mile transportation will continue to witness
strong traction. Chola will focus on increasing its share of financing these vehicles in
rural areas, where the impact of Covid-19 is relatively lower.
On the back of strong Rabi, high water reservoir levels and expectation of normal
monsoon, tractor demand will be robust. Rural cash flows are strong and tractor
volumes will likely hold up well. Additionally, increasing penetration in select OEMs will
drive growth.
Demand for CVs (HCVs/LCVs) will remain weak due to a delay in pick of construction,
mining, e-commerce and infrastructure activities. Focus on cash conservation will
hinder new purchases by fleet operators. Our auto analyst expects ~30% yoy decline
in CVs in FY2021E.
Our auto analyst expects 2W volumes to decline ~15% yoy in FY2021E. Rising finance
penetration and higher volumes in rural markets will however cushion disbursements.
The company may however tighten underwriting for select customer cohorts.
Exhibit 11: Muted AUMs in FY2021E Exhibit 12: ...led by steep decline in disbursements
AUM for Chola, March fiscal year-ends, 2007-2023E Disbursements for Chola, March fiscal year-ends, 2007-2023E
600 50 60 320 55 70
48
41 36 36 36 32 29
28
450 31 40 240 21 35
26 26 8 13
22
17 15 (2) (4)
300 10 12 12 20 160 0
6
1 0 (31)
(43)
150 0 80 -35
(13)
- -20 - -70
2021E
2022E
2023E
2021E
2023E
2022E
2007
2009
2011
2012
2013
2014
2016
2018
2020
2007
2008
2010
2011
2012
2015
2016
2017
2019
2020
2008
2010
2015
2017
2019
2009
2013
2014
2018
Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates
100 4 2 1 2 3 3 3 4 6
9 9 7 7 7
23 21 23
23 25 29 28 24 21 21 21 20
80 18 30 21
24
7
21
60
40 76 75
70 74 73 73 69 67 69 73 73 72 72 73
67
58
20
0
2008
2013
2014
2015
2016
2009
2010
2011
2012
2017
2018
2019
2020
2021E
2022E
2023E
Notes:
(1) Prior to FY2011, 'other's loans were mostly consumer durables.
24
260 16
20
130 12 10 8
Vehicle finance (LHS) Home equity (LHS) Others (LHS) YoY (RHS)
(Rs bn) (%)
100 60
45 9.5
8.3 10.6
80 10.3 12.4 30
26 22 11.0 10.4
7.2 7.6 13 11
9.5 7 10.6
60 9.4 9.1 -
9.1 (2) 7.4
5.9
40 (30)
(36) 4.8
1.2
20 (58) (60)
400 48
300 36
200 24
100 12
0 -
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Notes:
(1) AUM for Shubh vehicles for 4QFY20 and 1QFY21 are assumed values.
Chola’s funding cost will likely decline 20 bps yoy in FY2021E. Its large bank loans
(~66% of total) are linked to bank MCLRs and the benefit of lower bank rates will
reflect in its near-term margins. Besides its bonds yields have been declining; we
expect the company to be one of the fewer NBFCs that command confidence of the
debt market participants.
Well placed on liquidity. Chola ALM position is comfortable with positive ALM gap in
all buckets up to one year as of 1QFY21 (adjusted for collections from customers who
have availed moratorium). High liquidity on-balance sheet (~Rs 72 bn) and sanctioned
credit lines (~Rs44 bn) augur well. Management guided that the company will continue
to maintain strong cash buffers of ~Rs80 bn in 2QFY21 and gradually reduce it to ~Rs69
bn by FY2021E exit. Chola has not opted for a moratorium from its lenders and the
company is well placed to meet all debt and other expense obligations till December
2020 after considering lower collections due to a significant share of customers under
moratorium.
Focus on funding mix diversification. In order to reduce the rise in borrowing cost and
manage liquidity, the company has (1) diversified funding sources (raised ECBs in
1QFY20), (2) maintained high liquidity on balance sheet (~Rs65 bn in FY2020 compared
to Rs37 bn in FY2019) and (3) focused on securitization/assignment (9% of funding mix).
Share of bank borrowings in overall funding mix inched up to ~66% in 4QFY20 from
64% in 3QFY20, 49% in FY2019 and 35% in FY2018.
Exhibit 17: Higher on-balance sheet liquidity to drag NIM and offset liability side advantages
Calculated yields, cost of funds and NIM for Chola, March fiscal year-ends, 2007-2023E (%)
22.5 20.4 9
19.3
8.2
18.0 15.8 16.3 8
15.2 15.6 15.5 15.0 14.8 15.0 14.9 15.1 15.0
14.4 13.9 13.9
13.1 7.2
13.5 6.8 6.8 7
6.5 6.5 6.6
6.3
9.0 6.1 6
2021E
2023E
2022E
2009
2011
2013
2015
2017
2019
2007
2008
2010
2012
2014
2016
2018
2020
Source: Company, Kotak Institutional Equities
12 8
4 6
Notes:
(1) The company had adjusted inflows in the upcoming months for lower collections owing to moratorium.
Bank loans CPs and FCNR Debentures Subordinated debt and PDI Securitisation
100 0 0 0 0 0 0 0
13 13 12 12 13 12 12 15 11 11 11
8 5 2
80 8 10 10
22 21 20 20 20 21
21 8 11
2 3 3 3 42
60 6 12 32
11
40 11 10
63 60 65 65 64 66 66
55 49
20 35 35
0
2011
2014
2016
2019
2012
2013
2015
2017
2018
2020
1QFY21
Amid lower volumes and elevated credit cost, muted operating expenses will likely provide a
cushion to profitability. This will remain a key monitorable going ahead.
Exhibit 21: Cost-to-average AUM down ~20 bps yoy in FY2021E to 2.6%
Cost ratios for Chola, March fiscal year-ends, 2007-2023E
68 8
6.4
51 6
4.0 4.2
3.6 3.9
3.5
34 3.1 3.1 3.1 3.2 2.9 4
2.6 2.7 2.6 2.6 2.8
17 2
62 57 81 47 53 55 50 44 43 39 42 40 37 39 39 38 38
0 0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
2023E
Source: Company, Kotak Institutional Equities
30 2.2 2.0
2QFY19
3QFY19
1QFY20
3QFY20
4QFY20
1QFY19
4QFY19
2QFY20
1QFY21
Exhibit 23: Chola’s ability to toggle between assets classes has helped it to deliver stable ROAs over the years
Segmental performance, March fiscal year-ends, 2011-2020, 1QFY19-1QFY21 (%)
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 YoY 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YoY
NIM (%) 7.3 7.0 6.8 6.8 6.7 6.7 7.0 6.6 6.1 -60 bps 8.8 7.4 7.6 7.7 7.9 8.7 8.6 7.5 6.8 6.8 0 bps
Vehicle finance 7.2 7.4 7.2 7.6 6.9 6.9 7.0 7.1 7.0 10 bps 8.9 7.7 7.3 7.1 7.5 8.5 8.4 8.1 7.3 7.0 -30 bps
Home Equity 3.8 3.6 3.7 4.1 3.9 3.8 3.9 3.6 3.9 0 bps 5.8 5.4 5.6 5.6 5.4 5.1 4.4 4.1 3.8 3.8 0 bps
Expense ratio (%) 2.5 2.5 2.4 2.9 2.5 2.6 2.7 2.6 2.2 -30 bps 4.6 4.1 3.8 3.4 3.4 3.4 3.6 3.0 2.6 2.6 0 bps
Vehicle finance 2.9 2.9 2.9 3.4 2.9 3.1 3.1 3.0 2.6 -30 bps 4.3 4.1 3.8 3.5 3.6 3.8 3.8 3.6 3.0 3.0 0 bps
Home Equity 1.0 0.9 1.0 1.2 1.0 1.2 1.2 1.0 0.9 -10 bps 2.4 2.0 2.0 1.6 1.3 1.2 1.2 1.1 1.0 1.1 10 bps
Provisions (%) 0.8 0.6 0.7 0.4 0.8 0.6 0.9 0.6 0.4 -40 bps 2.8 0.4 0.8 1.5 1.5 1.7 1.1 0.8 0.6 1.5 90 bps
Vehicle finance 0.9 0.8 0.9 0.4 1.0 0.9 1.2 4.0 0.5 -50 bps 0.8 0.5 0.5 1.6 2.0 1.7 1.4 0.8 0.8 1.8 100 bps
Home Equity 0.5 (0.4) (0.1) (0.1) 0.1 0.2 - 3.1 0.3 20 bps 0.5 0.3 0.3 0.2 0.5 0.7 1.0 0.8 (0.0) 0.7 75 bps
Pre-tax RoA (%) 4.0 3.9 3.6 3.5 3.4 3.4 3.4 0.4 3.6 20 bps 1.4 2.7 3.0 2.8 3.0 3.6 3.9 3.7 3.7 2.7 -100 bps
Vehicle finance 3.4 3.7 3.4 3.8 3.1 2.9 2.7 0.1 3.9 80 bps 3.9 3.1 3.0 2.1 2.0 3.0 3.2 3.7 3.6 2.2 -140 bps
Home Equity 2.2 3.2 2.9 3.0 2.8 2.8 2.7 (0.5) 2.6 -20 bps 2.9 3.1 3.3 3.8 3.7 3.2 2.2 2.3 2.8 2.0 -80 bps
32 3.6
24 2.7
16 1.8
8 0.9
0 0.0
Jul-08
Jul-10
Jul-12
Jul-14
Jul-17
Jul-19
Jul-07
Jul-09
Jul-11
Jul-13
Jul-15
Jul-16
Jul-18
Jul-20
Jan-08
Jan-10
Jan-13
Jan-15
Jan-17
Jan-19
Jan-09
Jan-11
Jan-12
Jan-14
Jan-16
Jan-18
Jan-20
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Covid testing, cost controls aid performance. Dr Lal’s 1QFY21 revenue (-21% yoy) CMP (`): 1,889
was 9% ahead of our estimate. Higher-than-expected revenues from Covid testing led Fair Value (`): 1,300
to the revenue beat with strong cost controls driving margin surprise. Non-Covid
BSE-30: 37,607
business is recovering well and higher Covid volumes will support revenue growth in
these ‘testing’ times. We retain our SELL rating with an unchanged DCF based fair value
of Rs1,300.
Dr Lal Pathlabs
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 2,029-1,053 EPS (Rs) 27.1 26.7 37.2
Mcap (bn) (Rs/US$) 158/2.2 EPS growth (%) 13.4 (1.4) 39.2
ADTV-3M (mn) (Rs/US$) 237/3 P/E (X) 69.8 70.8 50.8
Shareholding pattern (%) P/B (X) 15.3 13.3 11.2
Promoters 56.8 EV/EBITDA (X) 43.7 44.2 31.0
FIIs 20.0 RoE (%) 22.8 20.1 23.9
MFs/BFIs 7.7/0.5 Div. yield (%) 0.4 0.4 0.6
Price performance (%) 1M 3M 12M Sales (Rs bn) 13 14 18
Absolute 21 19 74 EBITDA (Rs bn) 3 3 5
Rel. to BSE-30 12 7 73 Net profits (Rs bn) 2 2 3
DLPL’s 1QFY21 revenue declined 21% yoy, and was 9% ahead of our estimate. The revenue
beat was primarily driven by Covid testing which contributed Rs510 mn versus KIE estimate of
Rs360 mn. The non-Covid business declined 37% yoy (in line versus KIE). Importantly, revenues
in June grew 14% yoy after a decline of 61% and 12% in April and May respectively. Patient
volumes declined 28% yoy (-33% ex-Covid), with realizations increasing 11% yoy to Rs760 on
account of higher Covid testing. Gross margins declined 730bps qoq (-130 bps vs KIE) led by
higher contribution of low margin RT-PCR testing along with lower volumes impacting
throughput. Strong control on SG&A spend (-21% yoy), which was 14% lower than our
estimates led to EBITDA exceeding our estimates by 36%, despite higher staff costs. Lower
depreciation led to PAT exceeding our estimates by 70%.
Recovery in non-Covid segment is promising with management indicating that June non-Covid
revenues were at 90% of pre-Covid levels. All labs and collection centers within DLPL’s network
are also now operational. Additionally, with DLPL conducting RT-PCR testing at its Delhi,
Kolkata and Indore labs, we expect meaningful revenues from Covid testing, even as we see
non-Covid segment recovering completely only by 4QFY21. RT-PCR testing In Kolkata has also
enhanced Dr Lal’s brand visibility within the healthcare community in West Bengal. Antibody
testing and government approval for RT-PCR tests without prescription can provide further
upside to Covid revenues. We build in Rs2.4 bn revenues from the Covid segment in FY2021.
Even as margins in Covid testing are well below non-Covid, this segment will help absorb
overheads while strong cost control measures will aid margin defense. With home collection Kumar Gaurav
gaining traction in the non-Covid segment, particularly in the B2C segment we believe Dr Lal,
through its wide network of collection centers is better positioned versus the unorganized
Chirag Talati, CFA
segment. However we do not see rapid consolidation in the near term given unorganized labs
are also fully functional and operating at 70-75% of pre-Covid revenues.
We broadly retain our estimates for FY2021-23 with an unchanged DCF-based fair value of
Rs1,300. DLPL trades at expensive valuations of 51X FY2022E EPS. SELL
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Dr Lal Pathlabs Health Care Services
Gross margin (%) 71.5 72.8 78.8 76.1 77.5 78.2 70.2
EBITDA margin (%) 18.2 14.5 28.4 19.0 25.8 24.4 23.4
Staff costs to sales (%) 22.4 23.0 17.4 20.7 18.2 17.3 18.6
Collection centres fees to sales (%) 11.0 10.2 13.0 13.0 13.0 12.5 13.2
Other expenses to sales (%) 19.9 25.1 20.0 23.4 20.5 23.9 15.0
Tax rate (%) 25.5 25.2 33.9 28.2 26.7 33.3 25.6
Operational data
Number of tests (mn) 7.9 — 11.9 11.2 (33.6) (29.5) 47.7 41.8 14.2 44.6
Realizations/test (Rs) 337 — 282 269 19.5 25.0 279 288 (3.2) 322
Number of patients (mn) 3.5 3.3 4.9 4.4 5.1 (28.6) (20.5) 19.4 17.6 10.3 19.1
Realizations/patient (Rs) 760 735 684 686 3.4 11.1 10.8 687 685 0.2 751
Tests/patient 2.26 — 2.43 2.55 (7.1) (11.3) 2.5 2.4 3.6 2.3
Segmental performance
COVID revenues (Rs mn) 559 360 55.2 2,426
Non-COVID revenues (Rs mn) 2,101 2,087 3,352 3,017 0.7 (37.3) (30.3) 11,927
COVID volumes (mn) 0.2 0.1 64.2 1.3
Non COVID volumes (mn) 3.3 3.2 4.9 4.4 2.9 (32.6) (24.9) 17.8
COVID realizations (Rs) 2,836 3,000 (5.5) 1,925
Non COVID realizations (Rs) 636 650 684 686 (2.1) 668
Exhibit 2: Revenues have recovered on the back of COVID Exhibit 3: Non-Covid revenues declined 37% in 1QFY21
testing Revenue breakup, March fiscal year-ends, 1QFY20-21 (Rs mn)
Revenue and volume growth, March fiscal year-ends (%)
4,000 Non-Covid Covid
20 Revenues Volumes
14
3,500
10 3
3,000
-
2,500
(10) 559
(12) 2,000
(20)
3,352
(30) (25) 1,500
(50) 500
(60)
-
(61) (62)
(70) 1QFY20 1QFY21
April May June
Source: Company, Kotak Institutional Equities
Source: Company, Kotak Institutional Equities
Exhibit 4: Delhi and West Bengal testing has ramped up Exhibit 5: Countries past their peak have not seen meaningful
significantly decline in testing
COVID tests per day (RT-PCR+antigen), April-July 2020 COVID tests per day, March-Jul 2020
Jul 7, 2020
May 12, 2020
May 20, 2020
May 28, 2020
Mar 1, 2020
Mar 9, 2020
May 4, 2020
05/Jun/2020
12/Jun/2020
19/Jun/2020
26/Jun/2020
10/Apr/2020
17/Apr/2020
24/Apr/2020
01/May/2020
08/May/2020
15/May/2020
22/May/2020
03/Jul/2020
10/Jul/2020
17/Jul/2020
24/Jul/2020
29/May/2020
Source: Covid19india.org, Kotak Institutional Equities Source: Ourworldindata.org, Kotak Institutional Equities
Consolidated revenues (Rs mn) 10,569 12,034 13,304 14,352 17,598 19,527
Revenue growth (%) 15.8 13.9 10.6 7.9 22.6 11.0
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Net revenues 4,517 5,579 6,596 7,913 9,124 10,569 12,034 13,304 14,352 17,598 19,527
Gross profit 3,544 4,403 5,204 6,184 7,153 8,309 9,410 10,317 10,072 13,610 15,231
EBITDA 977 1,386 1,560 2,097 2,365 2,640 2,936 3,436 3,361 4,706 5,183
Depreciation & amortisation (204) (272) (282) (283) (282) (331) (382) (728) (907) (982) (1,057)
EBIT 773 1,113 1,278 1,815 2,084 2,309 2,554 2,708 2,453 3,724 4,126
Net interest 29 79 119 193 249 304 452 397 563 467 712
Profit before tax 802 1,192 1,397 2,007 2,333 2,613 3,006 3,105 3,017 4,192 4,838
Tax and deferred tax (246) (389) (447) (675) (781) (895) (1,001) (829) (772) (1,073) (1,238)
Less: minority interest (5) (7) (8) (10) (10) (10) (13) (17) (16) (16) (16)
Net income 551 796 942 1,322 1,542 1,708 1,992 2,259 2,228 3,103 3,583
Net income (ex-ESOP) 725 901 1,107 1,328 1,542 1,708 1,992 2,259 2,228 3,103 3,583
Weighted avg. no. of shares (mn) 54.6 54.6 54.6 68.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5
Fully diluted number of shares 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5
EPS (Rs) 10.1 14.6 17.3 19.3 18.5 20.5 23.9 27.1 26.7 37.2 42.9
EPS (adjusted) (Rs) 13.3 16.5 20.3 19.4 18.5 20.5 23.9 27.1 26.7 37.2 42.9
FD EPS (adjusted) (Rs) 8.7 10.8 13.3 15.9 18.5 20.5 23.9 27.1 26.7 37.2 42.9
Balance sheet
Cash & equivalents 762 1,143 1,861 2,940 3,456 4,583 6,751 7,334 8,845 11,343 14,133
Debtors 198 252 310 363 418 412 532 514 786 771 856
Other current assets 207 309 646 935 792 1,235 853 1,079 902 1,039 1,097
Current assets 1,167 1,703 2,816 4,237 4,666 6,230 8,136 8,927 10,533 13,154 16,086
Fixed assets (incl. goodwill) 1,271 1,400 1,510 1,697 1,699 2,204 2,121 2,900 2,644 2,427 2,147
Other non-current assets 252 412 427 318 536 755 648 1,917 1,917 1,917 1,917
Total assets 2,690 3,515 4,753 6,252 6,901 9,189 10,905 13,744 15,095 17,498 20,150
Short-term loans 4 9 — — — — — — — — —
Creditors and other liabilities 887 965 1,118 915 848 1,012 1,089 2,274 2,049 2,264 2,392
Current liabilities 891 974 1,118 915 848 1,012 1,089 2,274 2,049 2,264 2,392
Secured loans — — — — — — — — — — —
Other liabilities (incl. deferred) 163 208 202 242 73 228 306 930 930 930 930
Total liabilities 1,053 1,182 1,319 1,157 921 1,240 1,395 3,204 2,979 3,194 3,322
Equity 1,637 2,333 3,434 5,095 5,980 7,949 9,510 10,540 12,116 14,304 16,828
Total equity and liabilities 2,690 3,515 4,753 6,252 6,901 9,189 10,905 13,744 15,095 17,498 20,150
Cash flow
CFO pre-WC changes 1,243 1,577 1,834 2,087 2,504 2,816 3,135 3,652 2,858 4,186 4,644
Working capital (28) (94) (321) 69 (81) 95 93 122 (321) 93 (15)
Tax (334) (503) (534) (687) (706) (940) (1,043) (935) (772) (1,073) (1,238)
Cash flow from operations 881 980 979 1,469 1,716 1,971 2,185 2,839 1,765 3,206 3,391
Capex (including acquisitions) (196) (328) (353) (441) (516) (625) (420) (1,060) (300) (400) (400)
Free cash flow 685 652 626 1,027 1,200 1,346 1,765 1,779 1,465 2,806 2,991
Key ratios (%)
Sales growth (% 23.5 18.2 20.0 15.3 15.8 13.9 10.6 7.9 22.6 11.0
EBITDA margin (%) 21.6 24.8 23.6 26.5 25.9 25.0 24.4 25.8 23.4 26.7 26.5
RoAE (%) 44.3 45.4 38.4 31.1 27.8 24.5 22.8 22.5 19.7 23.5 23.0
RoACE (post-tax, ex-cash) (%) 61.0 72.2 62.7 64.6 59.2 51.6 55.6 58.1 48.1 79.5 97.2
Net debt to equity (X) (0.5) (0.5) (0.5) (0.6) (0.6) (0.6) (0.7) (0.7) (0.7) (0.8) (0.8)
Prepared for opportunities ahead. 4QFY20 operating outperformance matters less in CMP (`): 22
the current context. A fully invested cash-rich Groupe ADP, opportunities to add assets Fair Value (`): 26
and ability to monetize/securitize mature/assets, all bode well for GMRI to expand its
BSE-30: 37,607
airport portfolio. It remains optimistic on swift recovery in air volumes based on safety
features introduced and being tested. We maintain our estimates and rating, which we
would revisit after incorporating the recent consultation paper for DIAL’s aero tariffs.
GMR Infrastructure
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 27-14 EPS (Rs) (3.1) (1.8) (0.8)
Mcap (bn) (Rs/US$) 132/1.8 EPS growth (%) (25.4) 40.9 55.9
ADTV-3M (mn) (Rs/US$) 295/4 P/E (X) (7.0) (11.9) (26.9)
Shareholding pattern (%) P/B (X) (4.9) (7.8) (6.0)
Promoters 65.3 EV/EBITDA (X) 16.3 19.1 17.0
FIIs 20.6 RoE (%) 106.6 55.8 25.2
MFs/BFIs 0.6/3.3 Div. yield (%) 0.0 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 82 75 86
Absolute 8 27 45 EBITDA (Rs bn) 23 17 25
Rel. to BSE-30 1 14 45 Net profits (Rs bn) (19) (13) (6)
4Q operating metrics beat estimates; meaningful decline in corporate debt on expected lines
GMR’s 4QFY20 EBITDA was 22% ahead of our estimate on a modest 8% yoy decline in
volumes versus 15% estimated and a higher other operating income. This was more than
negated by higher-than-expected net interest cost of Rs8.5 bn, up qoq in spite of receipt of the
first payout from Groupe ADP. This yielded a pre-tax loss of Rs4.8 bn versus the Rs3.6 bn loss
estimate. After the second payout coming from Groupe ADP, the corporate debt has fallen to
Rs30-35 bn in line with our expectation after adjusting for the Rs10.6 bn of deferral of payout.
Such Rs10.6 bn deferred payout would be paid in part or full depending on the EBITDA profile
over FY2022-24.
GMR expects the airport business to recover fast from current levels, which are at 20% of pre-
Covid levels. It emphasized steps taken to establish air travel as the safest mode of travel –
(1) setting up of bilateral air bubbles, (2) freshening of cabin air every two minutes and
(3) technologies coming up to detect Covid-19 in 30 seconds (refer). Internally, GMR is working
towards rescheduling capex, has reducing operating costs (closed terminals) and other overheads
without compromising on safety and security. Beyond airports, GMRI also expects fast-tracking
of arbitration and realization of proceeds for its highways and thermal power projects.
GMR has recently formally won two projects in (1) Bhogapuram (Andhra Pradesh) and (2) Ninoy
Aquino International Airport (Manila). It also highlighted six near-term opportunities in India
and expects more opportunities as government/private players monetize their investments. GMR Aditya Mongia
shared its ability to raise finances through (1) levering the recent Rs10 bn primary equity
infusion in GMR Airports, (2) funding support from cash-rich Groupe ADP, (3) prospects to Teena Virmani
monetize/securitize its mature airports assets and (4) Rs55 bn of potential earn-outs till FY2024.
We will revisit estimates after incorporating the DIAL consultation paper on tariffs; retain BUY
Our Rs26 FV has a 3-4% downside related to part collection of the second tranche of earn-outs
and higher-than expected corporate debt. We would incorporate the same and revise estimates
after incorporating details of target revenues from the recently released DIAL consultation paper. kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Transportation GMR Infrastructure
Exhibit 1: GMR’s 4QFY20 EBITDA was ahead of our estimates on account of a modest 8% yoy decline in combined passenger volumes
4QFY20 results of GMR Infrastructure (consolidated), March fiscal year-ends (Rs mn)
% change
4QFY20 4QFY20E 4QFY19 3QFY20 vs est. yoy qoq FY2020 FY2019 % change FY2021E FY2020 % change
Net Sales 19,479 17,510 18,905 19,908 11 3 (2) 75,152 71,131 6 75,556 75,152 1
Other Operating Income 4,009 2,057 1,031 2,057 10,403 4,629 — 10,403
Total Sales 23,488 19,567 19,936 21,965 20 18 7 85,555 75,760 13 75,556 85,555
Total Expenditure (16,942) (14,202) (16,736) (14,641) 19 1 16 (59,270) (58,703) 1 (58,064) (59,270)
Raw Material Consumed (1,218) (1,021) (961) (4,349) (5,043) — (4,349)
Stock Adjustment 58 (36) 22 156 (18) — 156
Purchase of Finished Goods (3,054) (2,161) (2,284) (8,305) (6,061) — (8,305)
Employee Expenses (2,365) (1,896) (2,022) (8,312) (7,599) — (8,312)
Loss on Forex Transaction — (35) — — (1,557) — —
Revenue share to concessionaire grantors (5,357) (4,528) (5,232) (20,372) (17,648) — (20,372)
Other Expenses (5,007) (7,060) (4,164) (18,089) (20,778) — (18,089)
EBITDA 6,545 5,365 3,201 7,324 22 104 (11) 26,285 17,056 54 17,492 26,285 (33)
Other Income 2,055 912 3,000 1,012 6,666 7,088 8,149 6,666
EBITDA (including other income) 8,600 6,278 6,201 8,335 37 39 3 32,951 24,144 36 25,641 32,951
Depreciation (2,974) (2,305) (2,505) (2,597) (10,643) (9,840) (9,094) (10,643)
EBIT 5,627 3,972 3,696 5,738 42 52 (2) 22,308 14,304 56 16,547 22,308
Interest (10,474) (7,611) (7,857) (8,584) (35,451) (26,842) (28,371) (35,451)
Profit before tax (4,847) (3,638) (4,161) (2,845) (13,143) (12,537) (11,824) (13,143)
Total tax expense 1,704 (86) 47 (188) — 874 (488) —
Tax 1,704 (86) 47 (188) — 874 (488) —
Fringe Benefit Tax — — — — — — — —
Deferred Tax — — — — — — — —
RPAT (3,143) (3,724) (4,114) (3,033) (13,143) (13,412) (11,336) (13,143)
Minority Interest After NP — (1,490) — — — — 18 —
Profit/Loss of Associate Company (1,320) (1,255) 2,711 242 (2,883) (879) (1,465) (2,883)
Net Profit after Minority Interest & P/L Asso.Co. (4,463) (6,470) (1,403) (2,792) (15,177) (12,542) (13,759) (15,177)
Extra-ordinary Items (6,809) — (22,123) — (6,809) (22,123) — (6,809)
Adjusted Profit (11,272) (6,470) (23,526) (2,792) (21,986) (34,665) (13,759) (21,986)
Key ratios
Operating expenses & stock / Sales 17.9 0.0 16.1 14.7 14.6 14.7 0.0 14.6
Empl / Sales 10.1 0.0 9.5 9.2 9.7 10.0 0.0 9.7
OE / Sales 21.3 0.0 35.6 19.0 21.1 29.5 0.0 21.1
OPM 27.9 27.4 16.1 33.3 30.7 22.5 27.4 30.7
EBIDT Margin 36.6 32.1 31.1 37.9 38.5 31.9 33.9 38.5
PBT Margin (20.6) (18.6) (20.9) (13.0) (15.4) (16.5) (15.6) (15.4)
Tax rate 35.2 (2.4) 1.1 (6.6) 6.5 7.0 (4.1) 6.5
PAT Margin (48.0) (33.1) (118.0) (12.7) (25.7) (45.8) (18.2) (25.7)
EPS (1.9) (1.1) (3.9) (0.5) (3.6) (5.7) (2.3) (3.6)
Exhibit 2: Delhi airport passenger traffic declined by 3% for FY2020 mainly due to Covid-19
Delhi airport passenger traffic details, March fiscal year ends (mn pax)
Domestic International
80
-3%
70
60 18.7 17.8
50
40
30
50.5 49.5
20 -7%
4.9 4
10
11.9 11.6
0
4QFY19 4QFY20 FY2019 FY2020
Domestic International
25
2%
20 3.9
3.9
15
10
17.4 17.8
-12%
5 1.0 0.8
4.5 4
0
4QFY19 4QFY20 FY2019 FY2020
Domestic International
3.5
11%
3.0
1.1
2.5 0.9
2.0
1.5
1.0 2 2.1
0.5
0.0
4QFY19 4QFY20
Exhibit 5: Non-aero revenues for Delhi airport were up 5% yoy for FY2020 on stable retail revenues
and healthy growth in cargo revenues
Delhi airport non-aero revenue segment wise, March fiscal year ends (%)
Non-aero revenue breakup of Rs22 bn for Delhi airport for FY2020 (%)
Others, 15
Retail (inc duty
free), 29
Ground Handling, 5
F&B, 7
Advertisement, 7
Exhibit 6: Non-aero revenues for Hyderabad airport were up by 15% for FY2020 on strong growth of
20% seen in retail and car park revenues and uptick of 6% in advertisement revenues
Hyderabad airport non-aero revenue segment wise, March fiscal year ends (%)
Car park, 20
Space Rentals, 15
F&B, 13
Advertisement, 10
300 Airport Energy Highways Others Corporate (Inc debt for PE exit)
250
90 66
200 91
86 5
5 25
150 2 26
5 26 27
27 26
100 26
27
110 123
50 93
81
0
1QFY20 2QFY20 3QFY20 4QFY20
Delhi Hyderabad
Passenger CAGR (%)
2014-19 13 20
2019-24E 4 6
2019-29E 7 9
Aero yield (Rs/pax)
Current 143 509
For the next control period 150 489
For the following control period 150 417
For the following control period 150 367
For the following two control periods (average) 150 359
Non-aero revenues CAGR (%)
2014-19 15 4
2019-24E 10 10
2019-29E 11 13
Duty-free spending per international pax (US$)
2019 10 6
2024 17 11
2029 22 17
Lumpy land monetization
Year 2023 NA
Quantum (Rs bn) 19 NA
Regulated RoE (%)
Current 16 16
For the next control period 16 16
For the following control period 14 14
Beyond two control periods 12 12
Cost of equity (%) 13.5 13
Exhibit 10: Summary financials of GMR Infrastructure (consolidated), March fiscal year-ends, 2018-22E (Rs mn)
Exhibit 11: Financial analysis for DIAL, March fiscal year-ends, 2017-2029E (Rs mn)
CAGR (%)
2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2014-19 2019-29E Comments
Gross revenues 56,242 36,810 32,627 37,353 36,995 41,112 49,015 54,949 61,444 68,446 75,970 84,355 93,711 (3.6) 11.1
True-up of aero-tariff leading to sharp revenue
Aero revenues 39,315 17,055 9,878 9,861 9,379 10,336 11,526 12,854 14,078 15,420 16,891 18,504 20,271 (18.8) 7.5
drop.
Non-aero revenue growth led by duty-free and
Non-aero revenues 15,285 17,988 20,909 21,682 21,701 24,754 28,734 33,340 37,984 43,017 48,443 54,587 61,549 15.4 11.4
F&B.
Income from We assume the 140 acres of monetization by
commercial property 1,642 1,767 1,839 5,810 5,915 6,021 8,755 8,755 9,382 10,009 10,636 11,263 11,891 FY2025E and then the remaining 70 acres of
development land to be leased at ~5 acres per annum.
Revenue share to AAI (26,348) (17,615) (15,913) (17,713) (17,450) (19,151) (22,735) (25,526) (28,663) (31,974) (35,467) (39,281) (43,532) Large 46% revenue share paid to AAI.
Net revenues True-up of aero-tariff leading to sharp
29,894 19,195 16,714 19,640 19,544 21,961 26,280 29,423 32,781 36,472 40,503 45,074 50,178 (4.3) 11.6
revenue drop from FY2018.
EBITDA 20,256 8,226 5,119 8,599 7,935 9,770 13,330 15,555 18,012 20,735 23,732 27,197 31,108 (16.4) 19.8
Depreciation (6,380) (6,459) (6,398) (6,381) (6,112) (5,562) (9,361) (13,080) (12,151) (11,291) (10,504) (9,816) (9,087)
EBIT (incl. other income) 16,945 5,386 4,027 5,323 4,354 5,600 5,056 3,920 8,179 12,293 16,260 20,155 24,485
Interest expense (5,273) (5,792) (6,296) (6,729) (6,822) (6,871) (10,582) (14,126) (13,659) (13,209) (12,799) (12,482) (12,120)
PBT 11,673 (406) (2,269) (1,406) (2,468) (1,271) (5,527) (10,206) (5,480) (916) 3,461 7,673 12,365
Tax expense (5,405) 789 1,151 — — — — — — — (886) (1,964) (3,165)
Recurring PAT 6,268 382 (1,118) (1,406) (2,468) (1,271) (5,527) (10,206) (5,480) (916) 2,575 5,709 9,200
Cash profit 12,648 6,842 5,281 4,975 3,644 4,291 3,834 2,874 6,671 10,375 13,079 15,524 18,287 Cash profit remains strong
Exhibit 12: Financial analysis for HIAL, March fiscal year-ends, 2017-2029E (Rs mn)
CAGR (%)
(Rs mn) 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2014-19 2019-29E Comments
Gross revenues 11,054 12,520 14,523 15,294 8,903 15,334 17,476 19,929 22,708 25,891 26,200 29,522 33,161 14.9 8.6
True-up at GHIAL will lead to a small
Aero revenues 8,179 9,323 10,852 11,516 5,104 10,982 12,405 14,017 15,846 17,920 17,038 18,987 21,161 20.7 6.9 drop in aero revenues after an expected
tariff order by FY2019.
Non-aero revenue growth led by duty-
Non-aero revenues 2,875 3,197 3,671 3,778 3,798 4,352 5,072 5,911 6,862 7,971 9,162 10,536 11,999 4.0 12.6
free and F&B.
Concession fee expense for GHIAL is
Concession fee (462) (530) (615) (649) (349) (601) (685) (781) (890) (1,015) (1,027) (1,157) (1,300) modest compared to the large revenue
share paid by DIAL.
Net revenues 10,592 11,991 13,907 14,645 8,554 14,733 16,791 19,147 21,817 24,876 25,173 28,365 31,861 14.9 8.6
EBITDA 8,022 8,837 9,926 10,259 3,935 9,673 10,583 12,271 14,166 16,322 15,625 17,665 19,820 20.4 7.2
Depreciation (2,038) (1,984) (1,390) (1,315) (1,029) (1,259) (3,921) (6,099) (5,685) (5,287) (4,896) (4,519) (4,330)
EBIT (incl. other income) 7,010 8,356 9,708 10,211 4,236 8,824 6,662 6,177 8,497 11,045 10,729 13,145 15,491
Interest expense (2,011) (1,983) (1,982) (2,416) (2,726) (4,158) (5,261) (4,914) (4,495) (4,339) (4,686) (5,466) (5,808)
PBT 5,000 6,374 7,726 7,795 1,510 4,666 1,400 1,264 4,002 6,706 6,044 7,679 9,683 52.3 2.3
Tax expense (1,510) (347) (399) (399) (75) (233) (70) (63) (200) (335) (1,511) (1,920) (2,421)
Modest concession fee allows GHIAL
Recurring PAT 3,490 6,027 7,328 7,396 1,434 4,433 1,330 1,200 3,802 6,371 4,533 5,759 7,262 68.3 (0.1)
to stay profitable
Cash profit 5,528 8,011 8,718 8,711 2,463 5,692 5,252 7,299 9,487 11,658 9,429 10,279 11,592
Holding-up. JSW Energy reported a resilient earnings performance with EBITDA of CMP (`): 46
Rs7.5 bn (-8% yoy) in 1QFY21 as lower generation (-16% yoy) was off-set by a decline Fair Value (`): 65
in fuel and O&M costs. JSW Energy continues to generate healthy cash flows and was
BSE-30: 37,607
able to reduce debt by another Rs4.5 bn in 1QFY21, despite weak short-term sales and
a receivable pile up seen across the sector. Maintain BUY with FV of Rs65/share.
JSW Energy
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 80-35 EPS (Rs) 6.3 4.8 5.3
Mcap (bn) (Rs/US$) 76/1.1 EPS growth (%) 49.4 (24.8) 11.6
ADTV-3M (mn) (Rs/US$) 117/2 P/E (X) 7.2 9.6 8.6
Shareholding pattern (%) P/B (X) 0.6 0.6 0.6
Promoters 74.9 EV/EBITDA (X) 5.2 5.1 4.4
FIIs 7.5 RoE (%) 8.9 6.5 6.8
MFs/BFIs 4/5 Div. yield (%) 2.6 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 83 92 94
Absolute (3) 3 (33) EBITDA (Rs bn) 30 29 30
Rel. to BSE-30 (10) (8) (33) Net profits (Rs bn) 10 8 9
Weak sales in short-term market off-set by lower fuel cost and savings on overheads
JSW Energy reported revenues of Rs18 bn (-25% yoy, +1% qoq), EBTIDA of Rs7.5 bn (8% yoy,
+30% qoq) and PAT of Rs2.4 bn (flat yoy, +333% qoq) against our estimates of Rs21.3 bn,
Rs8.9 bn and Rs2.8 bn, respectively. The drop in revenues is attributable to lower generation of
4.9 BUs (-16% yoy) due to lower off-take from long-term customers and weak short-term sales.
Management highlighted that 95% of EBITDA (83% tied up capacity) for the company is
accounted by long-term PPAs while the remaining 5% by short-term sales reducing earnings
volatility, as the company supplies more power to group company JSW Steel.
Realizations for the quarter declined to Rs3.7/kwh (-11% yoy), though were off-set by (1) lower
fuel cost at Rs2.8/kwh (-18% yoy) and (2) lower O&M expenses at Rs0.3/kwh (-26% yoy)
leading to contribution of Rs1.52/kwh (+10% yoy).
De-leveraging continues despite the rise in receivables; GMR Kamalanga acquisition put off
JSW Energy has reduced its net debt by Rs4.5 bn in 1QFY21, after having already reduced the
net debt by Rs1 bn in FY2020. We note that the reduction in net debt is even more credible in
the backdrop of rising receivables over the past six months. We note that debtors increased to
Rs21 bn as of March 2020 compared to Rs14 bn as of March 2019.
JSW Energy has mutually terminated the share purchase agreement for GMR Kamalanga (1
GW) with elapsing of long stop date due to the Covid-19 pandemic. Resolution plan for Ind-
Barath (700 MW) remains on track and is awaiting approval from NCLT.
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Electric Utilities JSW Energy
Exhibit 1: Lower generation on account of lower off-take from PPAs, further deleveraging to help reduce finance costs
Interim results for JSW Energy (consolidated), March fiscal year-ends (Rs mn)
(% Chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq 2020 2019 (% chg.) 2021E
Net sales 18,051 21,268 24,122 17,934 (15) (25) 1 82,727 91,376 (9) 91,640
Cost of fuel (9,155) (9,946) (13,664) (9,963) (8) (33) (8) (44,605) (53,562) (53,610)
Purchase of power - (261) (39) (87) (100) (100) (100) (378) (785) (378)
O&M (1,441) (2,148) (2,326) (2,136) (33) (38) (33) (8,176) (8,498) (8,543)
EBITDA 7,455 8,913 8,093 5,748 (16) (8) 30 29,569 28,531 4 29,109
Other income 816 498 518 542 2,870 3,680 2,789
Interest & finance charges (2,404) (2,498) (2,698) (2,480) (4) (11) (3) (10,511) (11,924) (9,507)
Depreciation (2,895) (2,913) (2,913) (2,893) (294) (11,681) (11,637) (11,682)
PBT 2,972 3,999 3,000 917 (26) (1) 224 10,247 8,650 18 10,708
Provision for tax (net) (552) (1,200) (883) (564) (330) (2,124) (2,805)
Net profit before minority interest 2,421 2,799 2,117 354 (14) 14 584 9,917 6,526 52 7,903
Minority interest/share in profit of associates (53) — 256 193 468 426 (90)
Net profit 2,367 2,799 2,373 547 (15) (0) 333 10,385 6,951 49 7,814
Extraordinary - — — - 615 — —
EPS (Rs/share) 1.4 1.7 1.4 0.3 6.3 4.2 4.8
EBITDA margin (%) 41.3 41.9 33.5 32.1 35.7 31.2 31.8
Tax rate (%) 18.6 30.0 29.4 61.4 3.2 24.6 26.2
Key operating parameters
Net generation (mn units) 4,914 5,729 5,863 4,073 (14) (16) 21 21,181 21,928 (3) 23,703
Average realization (Rs/kwh) 3.67 3.67 4.11 4.38 0 (11) (16) 3.89 4.14 (6) 3.85
Fuel cost (Rs/kwh) 2.79 2.43 3.42 2.73 15 (18) 2 2.93 3.20 (9) 3.04
O&M (Rs/kwh) 0.29 0.37 0.40 0.52 (22) (26) (44) 0.39 0.39 (0) 0.36
Contribution (Rs/kwh) 1.52 1.56 1.38 1.41 (2) 10 7 1.40 1.30 7 1.23
Standalone earnings were impacted by lower generation at both Vijaynagar (-39% yoy,
23% PLF) and Ratnagiri (-29% yoy, 58% PLF). However, contribution per unit increased
to Rs0.97/kwh due to 8% yoy decline in fuel costs.
Hydro generation was at 1.6 BUs (-12.6% yoy as PLF was reduced to 58% during the
quarter due to lower water availability. Net generation at Barmer increased to 1.4 BUs
(+8% yoy) with PLF improving to 70% in 1QFY21 due to higher off-take by discoms.
During the quarter, JSW reduced its net debt by Rs4.5 bn to Rs85 bn (as of June 2020).
Average cost of debt now stands reduced to 8.44% due to reduction in MCLR as well as
repayment of higher cost debt as well fresh borrowings at lower rates. Consequently,
finance cost for the company reduced by 11% yoy to Rs2.4 bn in 1QFY21.
Exhibit 2: Generation at Vijaynagar and Ratnagiri remained weak on account of lower off-take
Interim results for JSW Energy (standalone), March fiscal year-ends (Rs mn)
(% chg.)
1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq 2020 2019 (% chg.) 2021E
Net sales 8,044 11,110 11,428 10,160 (28) (30) (21) 43,140 51,183 (16) 46,834
Fuel costs (5,586) (7,671) (8,206) (6,723) (30,744) (39,737) (35,420)
O&M (596) (892) (763) (1,038) (3,454) (3,403) (3,592)
EBITDA 1,862 2,546 2,459 2,400 (27) (24) (22) 8,942 8,043 11 7,821
EBITDA margin (%) 23 23 22 24 21 16 17
Other income 186 461 487 279 1,979 3,628 2,158
Interest & finance charges (667) (657) (864) (669) (3,220) (4,118) (2,855)
Depreciation (903) (921) (921) (914) (3,693) (3,650) (3,724)
PBT 478 1,429 1,161 1,096 (67) (59) (56) 4,009 3,903 3 3,399
Provision for tax (net) (46) (457) (254) (55) 739 (1,388) (948)
Net profit 433 972 907 1,041 (55) (52) (58) 4,748 2,515 89 2,451
Extraordinary — — — - 230 — —
EPS (Rs/share) 0.3 0.6 0.6 0.6 2.9 1.5 1.5
EBITDA margin (%) 23 23 22 24 21 16 17
Tax rate (%) 10 32 22 5 (18) 36 28
Key operating parameters
Net generation (mn units) 1,790 2,645 2,616 2,298 (32) (32) (22) 9,946 10,708 (7.1) 11,708
Average realization (Rs/kwh) 4.49 4.20 4.37 4.42 7 3 2 4.34 4.78 (9.3) 4.00
Fuel cost (Rs/kwh) 3.12 2.90 3.14 2.93 8 (1) 7 3.09 3.71 (16.7) 3.03
O&M (Rs/kwh) 0.33 0.34 0.29 0.45 (1) 14 (26) 0.35 0.32 9.3 0.31
Contribution (Rs/kwh) 1.04 0.96 0.94 1.04 8 11 (0) 0.90 0.75 19.7 0.67
Exhibit 3: Performance of power generation assets of JSW Energy, March fiscal year-ends, 2019-2021E
(% Chg.)
1QFY21 1QFY20 4QFY20 yoy qoq 2020 2019 (% chg.) 2021E 2022E 2023E
Standalone
Revenue (Rs mn) 8,229 11,914 10,439 (30.9) (21.2) 45,119 51,183 (12) 48,991 52,385 52,976
EBITDA (Rs mn) 2,048 2,946 2,680 (30.5) (23.6) 10,921 11,671 (6) 9,978 12,846 13,280
Operational performance
Net generation (MU) 1,790 2,616 2,298 (31.6) (22.1) 9,951 10,708 (7) 11,708 11,708 11,708
Realization (Rs/kwh) 4.6 4.6 4.5 0.9 1.2 4.5 4.8 (5) 4.2 4.5 4.5
Cost of production (Rs/kwh) 3.5 3.4 3.4 0.7 2.3 3.4 3.7 (7) 3.3 3.4 3.4
EBITDA (Rs/kwh) 1.1 1.1 1.2 1.6 (1.9) 1.1 1.1 1 0.9 1.1 1.1
RWPL
Revenue (Rs mn) 6,780 8,630 6,220 (21.4) 9.0 26,589 25,660 4 32,966 33,357 32,896
EBITDA (Rs mn) 2,760 2,510 2,420 10.0 14.0 10,444 9,930 5 12,400 12,151 11,029
Operational performance
Net generation (MU) 1,492 1,379 1,346 8.2 10.8 5,277 6,016 (12) 5,948 5,948 5,948
Realization (Rs/kwh) 4.5 6.3 4.6 (27.4) (1.7) 5.0 4.3 18 5.5 5.6 5.5
Cost of production (Rs/kwh) 2.7 4.4 2.8 (39.3) (4.6) 3.1 2.6 17 3.5 3.6 3.7
EBITDA (Rs/kwh) 1.8 1.8 1.8 1.6 2.9 2.0 1.7 20 2.1 2.0 1.9
HBPCL
Revenue (Rs mn) 3,570 3,900 1,520 (8.5) 134.9 12,753 12,430 3 12,934 13,105 13,142
EBITDA (Rs mn) 3,270 3,340 1,020 (2.1) 220.6 10,907 11,030 (1) 10,952 10,978 10,863
Operational performance
Net generation (MU) 1,632 1,868 429 (12.6) 280.4 5,953 5,204 14 6,046 6,201 6,201
Realization (Rs/kwh) 2.2 2.1 3.5 4.8 (38.3) 2.1 2.4 (10) 2.1 2.1 2.1
Cost of production (Rs/kwh) 0.2 0.3 1.2 (38.7) (84.2) 0.3 0.3 15 0.3 0.3 0.4
EBITDA (Rs/kwh) 2.0 1.8 2.4 12.1 (15.7) 1.8 2.1 (14) 1.8 1.8 1.8
Exhibit 4: Cost declined during the quarter due to decline in coal prices
Realization and fuel cost trend of JSW Energy, March fiscal year-ends, 1QFY18-1QFY21 (Rs/kwh)
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
Source: Company, Kotak Institutional Equities
Exhibit 5: JSW Energy has steadily reduced its net debt to Rs85 bn
Net debt and equity for JSW Energy, March fiscal year-ends, 3QFY19 - 1QFY21 (Rs bn, X)
Net worth (Rs bn) Net debt (Rs bn) Net debt/equity (X)
140 1.00
0.89
0.85 0.86
0.83 0.90
120 0.76 0.77
0.80
0.70
100 0.70
0.60
80
0.50
60 119 118 119 125 122
118 116 0.40
106 101 102 97 95 89 85 0.30
40
0.20
20
0.10
- -
3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21
Exhibit 6: Tariffs in merchant market have continued to remain subdued in recent months
Monthly clearing price on IEX, Jul 2017- Jul 2020
6.5
5.9
6.0
5.5
5.0 4.7 4.7
4.5
4.14.1 4.04.0
4.0 3.7
3.5 3.6
3.53.3 3.4
3.5 3.23.2 3.33.3 3.2 3.3 3.3
3.1
3.0 3.13.1 3.2
2.9 2.9
3.0 2.82.72.9 2.9
2.5 2.6
2.52.4 2.32.5
2.5
2.0
May-18
May-20
Mar-18
May-19
Mar-19
Mar-20
Nov-18
Jul-17
Nov-17
Sep-17
Jul-19
Nov-19
Sep-19
Jul-18
Sep-18
Jul-20
Jan-19
Jan-18
Jan-20
Source: IEX, Kotak Institutional Equities
12,000 7.0
6.0
10,000
5.0
8,000
4.0
6,000
3.0
4,000
2.0
2,000 1.0
- 0.0
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Dec-16
Dec-19
Dec-17
Dec-18
Dec-20
Sep-16
Sep-18
Sep-19
Sep-17
Sep-20
Jun-18
Jun-20
Jun-16
Jun-17
Jun-19
120 81.0
76.0
100
71.0
80
66.0
60
61.0
40 56.0
May-17
May-18
May-19
May-16
May-20
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Jul-19
Jul-15
Jul-16
Jul-17
Jul-18
Jul-20
Sep-16
Sep-17
Sep-18
Sep-19
Sep-15
Jan-19
Jan-20
Jan-16
Jan-17
Jan-18
Source: Bloomberg, Kotak Institutional Equities
Exhibit 9: Coal spreads have come off considerably in recent months despite decline in coal prices
Coal spreads (Rs/kwh)
5.00
4.00
3.00
2.00
1.00
-
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20
(1.00)
(2.00)
(3.00)
(4.00)
Exhibit 10: JSW Energy, change in estimates, March fiscal year-ends; 2021 - 23E
Exhibit 12: Profit model, balance sheet, cash model of JSW Energy, March fiscal year-ends, 2018-23E (Rs mn)
Headline weaker but focus on margin improvement a positive. TeamLease’s CMP (`): 1,850
1QFY21 results were weaker than expected with yoy revenue declines across both Fair Value (`): 2,000
general staffing and HR services segments. Cash generation improved to 80% of
BSE-30: 37,607
EBITDA (100%+ including tax refund) on strong collections. Various cost-rationalization
measures such as exit from unprofitable businesses and core employee headcount
reduction are positives. ADD with a revised SoTP-based FV of Rs2,000 (Rs1,875 earlier).
TeamLease Services
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 3,200-1,415 EPS (Rs) 20.5 49.3 67.2
Mcap (bn) (Rs/US$) 32/0.5 EPS growth (%) (64.3) 140.9 36.5
ADTV-3M (mn) (Rs/US$) 46/1 P/E (X) 90.4 37.5 27.5
Shareholding pattern (%) P/B (X) 5.5 4.8 4.1
Promoters 40.0 EV/EBITDA (X) 33.0 26.5 20.5
FIIs 40.8 RoE (%) 6.3 13.7 16.1
MFs/BFIs 9.4/1.5 Div. yield (%) 0.0 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 52 53 60
Absolute 10 16 (31) EBITDA (Rs bn) 1 1 1
Rel. to BSE-30 2 4 (31) Net profits (Rs bn) 0 1 1
TeamLease posted higher-than-expected revenue decline of 9.2% yoy driven by (1) slower-than-
expected revenue growth of the general staffing business due to decline in core associate
headcount by 10% yoy and (2) winding down of permanent hiring and government training
businesses. TeamLease witnessed 3% yoy improvement in PAPM (per person average monthly
mark-up) due to a change in mix favoring high mark-up accounts. Overall headcount declined
by 16% yoy to ~189,000 and may revive only by 2HFY21. NETAP trainee headcount saw a
steep decline of 37% yoy due to exposure to the manufacturing sector, which was completely
shut during the extended lockdown.
EBITDA margin increased 35 bps yoy to 2.2% on account of lower other expenses (down 39%
yoy) and core employee headcount rationalization. The decline in other expenses was primarily
due to lower core employee costs on account of sharp 14% qoq reduction in headcount,
deferment of incentives and lower training. The rationalization in core employee headcount was
largely driven by HR services segment’s restructuring. We believe these cost-control measures
can help boost future margin performance.
TeamLease is exiting the permanent hiring business and took a hit of Rs30 mn for the same in
1Q. It is also exiting the government training business with FY2021 revenues expected to be
Rs200 mn versus Rs550 mn in FY2020. Specialized staffing segment was on a strong trajectory
Garima Mishra
– while associate headcount declined by 9% qoq, EBITDA improved 34% qoq due to core
employee cost reduction, as well as healthy margins on higher contribution from IMSI.
Shubhangi Nigam
Expect gradual demand revival; retain ADD
General staffing headcount may remain flattish in 2Q, but we expect demand revival starting
2HFY21 from sectors such as e-commerce, ed-tech, FMCG and pharma. We modestly tweak
estimates as we bake in lower revenues but assume higher margins. Roll-forward and marginally
higher EPS drive an increase in our SoTP-based FV to Rs2,000 (Rs1,875 earlier). Retain ADD.
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Commercial & Professional Services TeamLease Services
Exhibit 1: Weak revenues but margin improvement driven by headcount and cost rationalization
Quarterly results snapshot of TeamLease, March fiscal year-ends
Change (%) Yoy growth
1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq FY2020 FY2019 (%) FY2021E
Revenue from operations 11,364 12,333 12,512 13,303 (7.9) (9.2) (14.6) 52,007 44,476 16.9 53,210
Employee benefits expense (10,907) (11,678) (11,936) (12,615) (6.6) (8.6) (13.5) (49,365) (41,972) 17.6 (51,003)
Other expenses (212) (450) (345) (488) (52.9) (38.6) (56.6) (1,692) (1,560) 8.4 (1,030)
Total Expenses (11,119) (12,128) (12,281) (13,104) (8.3) (9.5) (15.1) (51,056) (43,532) 17.3 (52,033)
EBITDA 246 205 232 199 19.9 6.1 23.3 951 944 0.7 1,177
Finance Costs (26) (5) (28) (37) 413.0 (8.0) (30.2) (123) (52) (94)
Depreciation and amortization expense (82) (28) (61) (83) 194.2 35.1 (0.8) (286) (105) (362)
Other income 41 45 35 147 (9.2) 18.0 (72.1) 308 181 70.8 121
PBT 179 217 178 227 (17.6) 0.7 (21.1) 851 968 (12.1) 842
Tax expense (5) - 15 (518) na na na (480) 16 -
Net profit 171 217 188 (294) (21.3) (9.0) (158.1) 371 984 (62.3) 842
Operational metrics
Number of associate employees 145,259 160,614 161,365 (9.6) (10.0) 161,365 154,095 155,000
Number of NETAP apprentices 35,888 57,292 50,620 (37.4) (29.1) 50,620 56,169 50,620
Number of specialized associates 7,461 6,858 8,225 8.8 (9.3) 8,225 5,947 8,585
Total associates and trainees 188,608 224,764 220,210 (16.1) (14.4) 220,210 216,211 1.8 214,205
Mark-up per general staffing associate per month 751 730 748 2.9 0.4 742 726 2.2 727
Key ratios (%)
Employee cost as proportion of sales 96.0 94.7 95.4 94.8 94.9 94.4 95.9
Other cost as proportion of sales 1.9 3.6 2.8 3.7 3.3 3.5 1.9
EBITDA margin 2.2 1.7 1.9 1.5 1.8 2.1 2.2
Tax rate (2.8) 0.0 8.6 -228.5 (56.4) 1.7 0.0
Segmental performance
Revenues
Staffing and allied services 10,234 11,000 11,306 11,954 (7.0) (9.5) (14.4) 46,813 40,115 16.7
Specialized staffing services 1,009 833 982 1,065 21.1 2.7 (5.3) 4,098 3,092 32.5
Other HR services 122 500 224 284 (75.7) (45.7) (57.2) 1,097 1,269 (13.6)
Total operating income 11,364 12,333 12,512 13,303 (7.9) (9.2) (14.6) 52,007 44,476 16.9
EBIT
Staffing and allied services 198 228 252 (13.2) (21.3) 878 781 12.3
Specialized staffing services 88 63 71 40.2 24.1 273 209 30.5
Other HR services (45) (63) (39) (30) 14.1 (100) 77
Unallocated (40) (27) (23) 47 71.1 (97) (51)
Total 202 201 260 0.6 (22.5) 953 1,016
Less: finance costs (26) (28) (37) (8.0) (30.2) (123) (52)
PBT 176 173 224 2.0 (21.3) 830 964
On a segmental basis, (1) temporary staffing revenues were down 9.5% yoy (vs KIE estimate
of 3% decline), (2) specialized staffing revenues were up 2.7% yoy aided by positive
contribution from IMSI and E-centric, both providing services to IT sector, and (3) HR services
segment revenues were down 57% yoy due to slow government business and phased wind-
up of permanent hiring business.
Exhibit 2: 35 bps yoy margin expansion led primarily by the specialized staffing segment
Segmental revenue and margin snapshot of TeamLease, March fiscal year-ends (Rs mn)
Yoy growth
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 (%)
Revenues
Staffing and allied services 8,165 8,350 8,404 8,830 9,161 9,773 10,617 10,565 11,306 11,392 12,161 11,954 10,234 (9)
Specialized staffing services 246 268 587 728 750 756 792 794 982 1,005 1,046 1,065 1,009 3
O ther HR services 118 137 190 217 303 377 314 275 224 282 306 284 122 (46)
Total 8,530 8,756 9,181 9,775 10,213 10,907 11,723 11,634 12,512 12,679 13,514 13,303 11,364 (9)
EBITDA
Staffing and allied services 133 144 176 162 156 184 221 247 234 208 197 265 206 (12)
Specialized staffing services 31 38 59 52 53 55 45 49 63 63 76 65 87 38
O ther HR services 8 (3) 7 27 24 40 3 16 (62) (2) 6 (30) (40) (35)
Unallocated (42) (28) (62) (17) (32) (39) (23) (57) (8) (39) (9) (100) (7) (13)
Total 130 151 180 224 201 240 246 255 227 230 270 200 246 8
EBITDA margin (%)
Staffing and allied services 1.6 1.7 2.1 1.8 1.7 1.9 2.1 2.3 2.1 1.8 1.6 2.2 2.0 -6 bps
Specialized staffing services 12.6 14.2 10.1 7.1 7.1 7.3 5.7 6.2 6.4 6.3 7.3 6.1 8.6 221 bps
O ther HR services 6.8 (2.2) 3.7 12.4 7.9 10.6 1.0 5.8 (27.7) (0.7) 2.0 (10.6) (32.9) -519 bps
Total 1.5 1.7 2.0 2.3 2.0 2.2 2.1 2.2 1.8 1.8 2.0 1.5 2.2 35 bps
Exhibit 3: IMSI and IT staffing drive revenue and EBITDA growth in1QFY21
Specialized staffing revenue and EBIDTA break-up, March fiscal year-ends (Rs mn)
Qoq growth
4QFY19 1QFY20 3QFY20 4QFY20 1QFY21 (%)
Revenues
IT Staffing 365 553 541 520 491 (6)
Telecom Staffing 429 429 433 412 384 (7)
IMSI Staffing — — 73 133 134 1
Total 794 982 1,047 1,065 1,009 (5)
EBITDA
IT Staffing 35 49 55 40 60 50
Telecom Staffing 13 14 10 12 8 (30)
IMSI Staffing — — 11 14 19 36
Total 48 63 76 66 87 32
EBITDA margin (%)
IT Staffing 9.6 8.9 10.2 7.7 12.2 453 bps
Telecom Staffing 3.0 3.3 2.3 2.9 2.2 -73 bps
IMSI Staffing 15.1 10.5 14.2 365 bps
Total 6.0 6.4 7.3 6.2 8.7 246 bps
Temporary staffing. 10% yoy loss of associates was lower than expectations of 15-18%
yoy decline as the company was able to add 87 new clients. PBT margin was manageable
even as several amounts of discounts were passed on to clients but are likely to go away
Specialized staffing. The segment saw 5% qoq dip in revenues and improved PBT from
5.2% to 7.6% on a qoq basis due to cost-optimization efforts taken 4QFY20 onwards.
The company has made shared services unit to support all three units-IT staffing, telecom
staffing and IMSI. It also has managed to add 10 large logos. TeamLease expects to
maintain 8-9% margin for FY2021 with all the team and cost correction undertaken.
Government business. The company has been looking to exit the government training
business and has substantially reduced headcount for the same. It has also stopped taking
any new mandates and is preparing for phased exit by FY2022. Revenue recognition has
been low on the government training business in 1QFY21 as most services couldn’t be
delivered to students via classrooms.
Permanent hiring. The company will exit this business owing to the reduced demand as
clients aren’t currently looking to hire. Impact of shutdown of this business will be felt in
2QFY21 as well, after which it will be completely removed from the portfolio.
Other HR services. Services like compliance and payrolls also fall under this. Both have
been profitable in 1QFY21 and are expected to continue to stay profitable for FY2021.
Cash position. Overall cash conversion improved to 80% with efficient working capital
management and core employee overheads’ cost control. Having a low deduction
certificate (LDC) helped the company to withhold taxes, which in turn reduced cash
outflow. LDC is necessary to be obtained for zero tax companies at the start of the fiscal
year, otherwise 10% of TDS is deducted. Rs80 mn of TDS refund for a subsidiary was
already received and Rs300 mn of refund is expected to be received in 2QFY21. Free cash
stands at Rs700 mn as of June 30, 2020. Moving to new tax regime, no MAT tax is
applicable and hence further savings on cash outflow. The company has opening balance
of Rs1600 mn from Section 80JJAA benefit accumulated.
Pricing pressure. Price will always remain an important parameter and managing
realizations is the focus of the company. Management highlighted that pricing didn’t
decline much; there was some discounting in certain cases. Most of these discounts have
been negotiated for fixed periods of time and will be rolled back by 2QFY21 or 3QFY21.
180
165
161
161
170
154
153
145
145
160
138
150
132
131
130
128
126
140
124
115
130
114
109
109
120
105
101
110
100
90
80
70
1QFY16
3QFY16
4QFY16
2QFY17
3QFY17
4QFY17
1QFY18
3QFY18
4QFY18
2QFY19
4QFY19
1QFY20
3QFY20
1QFY21
2QFY16
1QFY17
2QFY18
1QFY19
3QFY19
2QFY20
4QFY20
(#, 000) Cumulative apprentice count (#, LHS) Quarterly net addition (#, RHS) (#, 000)
70 10
60 5
50
-
40
(5)
30
(10)
20
10 (15)
- (20)
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY21
2QFY17
3QFY17
4QFY17
1QFY18
1QFY20
2QFY20
3QFY20
4QFY20
Source: Company, Kotak Institutional Equities
Exhibit 6: Core employee productivity has improved majorly due to reduced core employees
Associates and trainees handled per core staffing employee, March fiscal year-ends
80 160
1QFY17
3QFY17
1QFY18
3QFY18
1QFY19
3QFY19
1QFY20
3QFY20
1QFY21
2QFY17
4QFY17
2QFY18
4QFY18
2QFY19
4QFY19
2QFY20
4QFY20
Description Rs/share
DCF-based valuation of general and IT staffing businesses 1,706
Valuation of Evolve (telecom vertical staffing) at 7X EV/EBITDA 159
Valuation of Schoolguru at 1X invested capital 8
Net debt (cash) as of March 2022 - (4) (127)
SOTP based target price 2,000
Exhibit 10: Consolidated income statement, balance sheet and cash flow, March fiscal year-ends, 2011-23E (Rs mn)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Income statement
Total operating income 6,868 9,258 12,507 15,296 20,071 25,049 30,413 36,241 44,476 52,007 53,210 59,555 70,133
Associate employee expenses (6,351) (8,627) (11,755) (14,432) (18,990) (23,773) (28,643) (33,833) (40,903) (47,996) (49,755) (55,818) (65,903)
Gross profit 518 632 752 865 1,081 1,276 1,770 2,408 3,573 4,011 3,455 3,737 4,230
EBITDA (390) (207) (111) 120 241 258 370 688 944 951 1,177 1,460 1,812
Depreciation (66) (38) (36) (19) (27) (30) (61) (92) (105) (286) (362) (371) (381)
EBIT (456) (245) (147) 101 213 228 309 596 839 665 815 1,089 1,432
O ther income 115 83 110 79 114 154 217 156 181 308 121 164 269
Financial charges (2) (3) (5) (2) (1) (4) (11) (25) (52) (123) (94) (103) (114)
Pre-tax profit (343) (165) (43) 178 326 378 515 728 968 851 842 1,150 1,587
Taxation — — — — (18) (130) 61 9 16 (480) — — —
Net income (recurring) (343) (165) (43) 178 308 248 576 737 984 371 842 1,150 1,587
Exceptional items (53) — — — — — — — — — — — —
Net income (reported) (395) (165) (43) 178 308 248 576 737 980 350 842 1,150 1,587
Weighted average number of shares (mn) 12 15 15 15 15 16 17 17 17 17 17 17 17
EPS (Rs) (33.2) (10.8) (2.8) 11.6 20.1 15.9 33.7 43.1 57.3 20.5 49.3 67.2 92.8
Balance sheet
Equity share capital 4 5 5 5 5 171 171 171 171 171 171 171 171
Reserves & surplus 215 1,042 1,005 1,183 1,483 2,945 3,493 4,246 5,220 5,550 6,392 7,542 9,129
Shareholders funds 219 1,047 1,010 1,188 1,488 3,116 3,663 4,417 5,391 5,721 6,563 7,713 9,300
Loan funds 29 81 121 8 — 194 11 73 106 762 522 574 631
Total source of funds 247 1,127 1,131 1,197 1,488 3,309 3,686 4,490 5,497 6,958 7,560 8,761 10,406
Net fixed assets 211 195 107 107 95 111 1,069 1,378 1,578 2,360 2,065 1,769 1,471
Investments — 0 0 0 0 0 103 593 414 253 253 253 253
Cash balances 180 822 780 847 1,147 2,590 1,602 1,424 1,230 970 950 2,295 4,176
Current assets 574 952 1,355 1,478 1,827 3,039 3,224 4,045 5,384 5,959 7,005 7,840 9,041
Inventories 15 9 5 2 2 2 — — — — — — —
Sundry debtors 345 543 618 595 813 1,205 1,729 2,235 2,643 2,959 3,936 4,405 4,996
O ther current assets 76 114 340 367 498 1,054 1,062 1,283 2,064 2,324 2,378 2,661 3,134
Loans and advances 139 286 392 515 514 778 433 527 676 676 692 774 911
Current liabilities and provisions 718 842 1,112 1,236 1,638 2,476 3,091 4,371 5,398 5,595 5,724 6,407 7,545
Total application of funds 247 1,127 1,131 1,197 1,488 3,309 3,686 4,490 5,497 6,958 7,560 8,761 10,406
Cash flow statement
O perating cash flow before WCchanges (390) (207) (111) 120 222 45 351 137 160 404 1,177 1,460 1,812
Change in working capital/ other adjustments 144 (255) (133) 1 53 (150) (19) 656 (285) (307) (917) (153) (62)
Capital expenditure (408) (21) 51 (19) (15) (74) (896) (814) (4) (667) (68) (75) (82)
Free cash flow (654) (483) (193) 103 261 (178) (563) (22) (129) (570) 193 1,232 1,668
June raises hopes of swift normalization in business levels. 1Q bore the brunt of CMP (`): 298
Covid disruptions and related additional costs of doing business. Swift recovery in Fair Value (`): 305
business levels in June in execution, new project starts and order wins bode well for a
BSE-30: 37,607
swift move towards pre-Covid levels. Key imponderable – whether, when and to what
extent Covid-19 improves the relevance of 3PL in logistics. We maintain our 25X multiple;
increase FV to Rs305 (from Rs280) on 5% higher estimates and roll-forward. ADD.
Mahindra Logistics
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 458-195 EPS (Rs) 8.9 5.3 10.9
Mcap (bn) (Rs/US$) 22/0.3 EPS growth (%) (29.0) (40.8) 106.4
ADTV-3M (mn) (Rs/US$) 26/0 P/E (X) 33.5 56.6 27.4
Shareholding pattern (%) P/B (X) 3.9 3.7 3.4
Promoters 58.4 EV/EBITDA (X) 13.8 17.1 11.4
FIIs 17.8 RoE (%) 12.2 6.7 12.9
MFs/BFIs 8.7/0.8 Div. yield (%) 0.0 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 35 31 38
Absolute 8 14 (26) EBITDA (Rs bn) 2 1 2
Rel. to BSE-30 1 2 (26) Net profits (Rs bn) 1 0 1
1QFY21 marred by Covid-19 disruptions; mix benefit on gross margin limited by volume decline
MLL reported a higher-than-expected 54% yoy decline in revenues, leading to a nil EBITDA prior
to ESOP/RSU expenses and a negative Rs2/share adjusted EPS. Key auto business declined more
than 60% while non-auto declined by ~20%. Warehousing and VAS revenue declined lesser at
~14% on support of storage income. Gross margin was broadly flat qoq despite the support of
a lower share of M&M revenues and higher ~40% share of warehousing and VAS in non-M&M
revenues. Management attributed this to a mix of on-site costs (fixed) for auto and
warehousing businesses as well as increase in cost of sanitation during the period.
Swift recovery in key business metrics in June bodes well for swift normalization
June revenues breached 70% of pre-Covid levels and recent NHAI toll-collection data suggests
more than 85% of pre-Covid levels of commercial vehicles in transportation. MLL shared new
business wins becoming comparable in the second half of 1Q. It attributed the swift recovery to
a combination of business gains from competition as well as acceptance of new solutions.
Recent customer acquisitions have been well spread across bulk and engineering (steel, glass),
e-commerce (grocery) and freight-forwarding (PPE). It also highlighted new business
opportunities in setting up short-term capacities for select players from surge in demand.
We like (1) MLL’s exposure towards select sectors that may benefit in the post-Covid world
(auto, e-commerce) and (2) increasing relevance of 3PL in such context. We understand select
clients are now working with MLL, it being considered a more responsible service provider.
Beyond such anecdotal gains, we would be keen to see a more structural shift to 3PL providers Aditya Mongia
before revising our growth assumptions. In this context, the increasing relevance of omni-
channel presence by consumer/pharma companies can drive the needs for redesigning and Teena Virmani
moving towards more intricate supply chains. In MLL’s assessment, the focus of majority such
potential client for now is still on gaining control of the supply chain rather than changing it.
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Mahindra Logistics Transportation
Focused towards new customer acquisition and new launches. Customer acquisition
was strong during the second half of the quarter and the company added a few accounts
from a leading steel company, largest decorative and automotive paint company, e-
commerce center fulfillment and expanded in FMCG. It has also seen strong growth in
terms of setting up short-term processing facilities by the clients in managing existing
projects by clients and MLL intends to add more such facilities during 2QFY21-3QFY21.
MLL also supported clients on new launches such as BS VI, inbound and outbound
solutions for large elevator company and bagged new transportation contracts.
Gross margin intact. The lockdown resulted in sharp decline in transportation revenues
during the quarter. However, gross margins were intact during the quarter on better
margins on warehousing. Negative operating leverage and Covid-related costs impacted
gross margins of the transportation sector, which should improve on improving volumes
going forward.
Exhibit 1: MLL reported a miss on revenues by 13% and posted loss at EBITDA level on negative operating leverage
Quarterly income statement of Mahindra Logistics (consolidated), March fiscal year-end, 1QFY21 (Rs mn)
% change
1QFY21 1QFY21E 1QFY20 4QFY20 vs est. yoy qoq FY2021E FY2020 % change
Net revenue 4,105 4,705 8,990 8,118 (13) (54) (49) 31,457 34,711 (9)
Total expenses (4,127) (4,161) (8,590) (7,738) (1) (52) (47) (30,209) (33,129) (9)
Employee benefit expense (732) (717) (745) 2 (2) 2,241 (2,946)
RSU/ESOP charges (21) (28) (11) (60) (120)
Freight and other expenses (3,374) (7,844) (6,982) (57) (52) (32,390) (30,062)
EBITDA (22) 17 401 380 NM NM NM 1,248 1,583 (21)
Other income 28 35 70 31 110 140
Depreciation & Amortization (184) (197) (149) (220) (751) (734)
EBIT (178) (145) 322 191 NM NM NM 606 988 (39)
Interest expense (46) (41) (36) (57) (164) (176)
PBT (224) (186) 286 134 NM NM NM 443 812 (45)
Tax expense 59 47 (100) (36) (112) (257)
Recurring PAT (165) (139) 187 98 NM NM NM 331 554 (40)
Exceptional items and prior period items (net) — — — — — —
Reported PAT (165) (139) 187 98 NM NM NM 331 554 (40)
Associate profits (2) — (1) (2) — (6)
Minority interest 8 1 1 1 3 3
Reported PAT for equity holders (158) (138) 186 97 NM NM NM 334 551 (39)
Adjusted EPS (excluding ESOPs and RSU cost) (2.0) (1.8) 2.9 1.5 12 (171) ### 5.3 9.0 (41)
Key ratios
Employee expense / sales 17.8 8.0 9.2 (7.1) 8.5
Other expenses / sales 82.2 87.3 86.0 103.0 86.6
EBITDA margin (%) (0.5) 0.4 4.5 4.7 4.0 4.6
Adjusted EBITDA margin (%) (0.0) 0.7 4.8 4.8 4.2 4.9
Effective tax rate (%) 26.4 25.2 34.8 27.0 25.2 31.7
PAT margin (%) (4.0) (3.0) 2.1 1.2 1.1 1.6
Exhibit 2: SCM segment reported lower-than-expected segmental profit; PTS reported another weak quarter
Quarterly segmental financials of Mahindra Logistics (consolidated), March fiscal year-end, 1QFY21 (Rs mn)
% change
1QFY21 1QFY21E 1QFY20 4QFY20 vs est. yoy qoq FY2021E FY2020 % change
Revenues from customers
SCM 3,926 4,317 8,010 7,304 (9) (51) (46) 28,517 31,035 (8)
PTS 178 388 980 813 (54) (82) (78) 2,940 3,675 (20)
Adjustments and eliminations — — — — — —
Total 4,105 4,705 8,990 8,118 (13) (54) (49) 31,457 34,711 (9)
Gross profit (Rs mn)
SCM 405 777 768 (48) (47) 3,079 3,181 (3)
PTS (7) 93 73 (108) (110) 270 337 (20)
Total 398 870 841 (54) (53) 3,348 3,518 (5)
Gross margin (%)
SCM 10.3 9.7 10.5 10.8 10.2
PTS (3.9) 9.5 9.0 9.2 9.2
Total 9.7 9.7 10.4 10.6 10.1
Segment profit (Rs mn)
SCM 241 281 642 571 (14) (63) (58) 2,153 2,529 (15)
PTS (7) 27 95 73 (125) (107) (109) 182 338 (46)
Total 234 308 737 644 (24) (68) (64) 2,335 2,867 (19)
Segment profit margin (%)
SCM 6.1 6.5 8.0 7.8 7.5 8.1
PTS (3.8) 7.0 9.7 8.9 6.2 9.2
Total 5.7 6.5 8.2 7.9 7.4 8.3
Exhibit 3: Warehousing revenues have been resilient; transportation revenues have fallen
meaningfully
Split of non-M&M revenues for MLL, March fiscal year-ends (Rs mn)
Exhibit 4: SCM business margin was impacted in 1QFY21 due to lower revenues
Trend in share of non-Mahindra Group clients in SCM revenues and corresponding segmental gross margin,
March fiscal year-ends, 2013-23E (%)
Share of non-Mahindra Group clients in SCM revenues (LHS, %) SCM EBIT margin (RHS, %)
60 10.8 10.6 10.8 12
10.2 10.3
50 10
7.9 8.2
7.7
40 7.0 7.2 8
6.3
5.7
30 57 6
49 47 49
41 44
20 40 39 4
29
10 21 2
10 11
0 0
1Q21
2022E
2023E
2021E
2013
2015
2017
2019
2014
2016
2018
2020
Exhibit 5: We increase our estimates for 2022/23 by ~5% on marginal increase in revenue and margin estimates
Change in estimates of Mahindra Logistics (consolidated), March fiscal year-ends, 2018-23E (Rs mn)
New estimates Old estimates Revision (%)
2018 2019 2020 2021E 2022E 2023E 2021E 2022E 2023E
2023E 2021E 2022E 2023E
Segmental financials
Revenues
SCM segment 30,761 34,658 31,036 28,517 34,582 39,141 29,379 34,023 38,524 (3) 2 2
Yoy growth (%) 30 13 (10) (8) 21 13 (5) 16 13
Mahindra group 18,177 20,998 17,243 14,657 18,321 20,153 15,519 17,847 19,631 (6) 3 3
Yoy growth (%) 28 16 (18) (15) 25 10 (10) 15 10
Non-Mahindra group 12,583 13,660 13,793 13,861 16,262 18,989 13,861 16,176 18,893 — 1 1
Yoy growth (%) 32 9 1 0 17 17 0 17 17
PTS segment 3,400 3,855 3,675 2,940 3,234 3,557 2,940 3,234 3,557 — — —
Yoy growth (%) 15 13 (5) (20) 10 10 (20) 10 10
Segmental profit
SCM segment 2,263 2,649 2,529 2,153 2,818 3,268 2,218 2,773 3,217 (3) 2 2
EBIT margin (%) 7.4 7.6 8.1 7.5 8.1 8.3 7.5 8.1 8.3 0 bps 0 bps 0 bps
PTS segment 316 405 338 182 298 334 256 297 334 (29) 0 0
EBIT margin (%) 9.3 10.5 9.2 6.2 9.2 9.4 8.7 9.2 9.4 (250) bps 0 bps 0 bps
Other unallocable expenditure (1,521) (1,685) (1,879) (1,729) (1,974) (2,118) (1,810) (1,983) (2,127)
Overall EBIT 1,059 1,369 988 606 1,142 1,485 663 1,088 1,424 (9) 5 4
EBIT margin (%) 3.1 3.6 2.8 1.9 3 3 2.1 3 3 (12) bps 10 bps 9 bps
Key financials
Net revenue 34,161 38,513 34,711 31,457 37,816 42,699 32,319 37,257 42,081 (3) 2 1
EBITDA 1,197 1,512 1,583 1,248 1,792 2,161 1,331 1,755 2,118
Adjusted EBITDA 1,294 1,568 1,703 1,308 1,853 2,221 1,391 1,815 2,178 (6) 2 2
Adjusted EBITDA margin (%) 3.8 4.1 4.9 4.2 4.9 5.2 4.3 4.9 5.2 (15) bps 3 bps 3 bps
Depreciation (197) (220) (734) (751) (802) (876) (789) (841) (918)
PBT 1,021 1,334 812 443 978 1,321 499 924 1,260 (11) 6 5
Tax expense (368) (468) (257) (112) (246) (333) (126) (233) (317)
Effective tax rate (%) 36.1 35.1 31.7 25.2 25.2 25.2 25.2 25.2 25.2
Reported PAT 640 856 551 334 734 991 376 694 945
Adjusted PAT 708 896 636 376 777 1,033 419 736 987 (10) 5 5
Adjusted EPS 9.9 12.5 8.9 5.3 10.9 14.5 5.9 10.3 13.8 (10) 5 5
Exhibit 6: Trade receivables for non-M&M clients stand at much higher level than the M&M business
Trend in receivables of M&M and non-M&M clients and operating working capital, March fiscal year-ends,
2013-22E (days of sales)
60
40 26 26 26 26
19 18 21 21
16
20 11 11
22
13 16 21 22
5 9 11
-
(7) (7) (3)
(20)
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Exhibit 8: Income statement of Mahindra Logistics (consolidated), March fiscal year-ends, 2013-23E (Rs mn)
I-GAAP Ind-AS
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Net revenue 15,321 17,507 19,309 20,639 26,666 34,161 38,513 34,711 31,457 37,816 42,699
Total expenses (14,956) (16,994) (18,739) (20,116) (25,903) (32,964) (37,001) (33,129) (30,209) (36,024) (40,538)
Employee benefit expenses (688) (882) (1,228) (1,509) (1,883) (2,291) (2,582) (2,946) 2,241 2,974 3,487
Fixed term consultant fees — — (25) (62) (206) (97) (56) (120) (60) (60) (60)
(1)
Other expenses (14,268) (16,112) (17,486) (18,546) (23,815) (30,576) (34,363) (30,062) (32,390) (38,938) (43,965)
Freight and other related expenses (13,111) (14,862) (15,889) (16,555) (20,940) (26,785) (29,780) (25,284) (27,242) (32,749) (36,977)
Labor and other related expenses (584) (592) (775) (967) (1,421) (1,872) (2,375) (2,720) (2,930) (3,523) (3,978)
Rent including lease rentals (157) (228) (295) (337) (399) (645) (674) (338) (365) (438) (495)
Warehouse and related expenses (123) (102) (125) (169) (265) (241) (416) (563) (607) (729) (823)
Legal and other professional costs (35) (52) (78) (137) (285) (172) (143) (136) (146) (176) (198)
Miscellaneous expenses (257) (275) (324) (382) (505) (861) (976) (1,022) (1,101) (1,323) (1,494)
EBITDA 365 513 570 523 762 1,197 1,512 1,583 1,248 1,792 2,161
Adjusted EBITDA 365 513 595 585 968 1,294 1,568 1,703 1,308 1,853 2,221
Other income 35 63 87 132 97 59 76 140 110 151 200
Depreciation & amortization (31) (32) (60) (83) (146) (197) (220) (734) (751) (802) (876)
EBIT 369 544 596 573 713 1,059 1,369 988 606 1,142 1,485
Interest expense (7) (1) (4) (13) (35) (38) (35) (176) (164) (164) (164)
PBT 362 543 592 559 678 1,021 1,334 812 443 978 1,321
Tax expense (117) (177) (207) (200) (218) (368) (468) (257) (112) (246) (333)
Reported PAT prior to associated income and minority interest 244 366 385 360 461 653 867 555 331 731 988
Minority interest — — 7 6 (5) (13) (8) 3 3 3 3
Reported PAT 244 366 393 365 456 640 856 551 334 734 991
Adjusted PAT 244 366 402 399 600 708 896 636 376 777 1,033
Adjusted EPS 3.4 5.1 5.6 5.6 8.4 9.9 12.5 8.9 5.3 10.9 14.5
Key ratios
Employee expenses/sales 4.5 5.0 6.4 7.3 7.1 6.7 6.7 8.5 (7.1) (7.9) (8.2)
Other expenses/sales 93.1 92.0 90.6 89.9 89.3 89.5 89.2 86.6 103.0 103.0 103.0
EBITDA margin (%) 2.4 2.9 3.0 2.5 2.9 3.5 3.9 4.6 4.0 4.7 5.1
Adjusted EBITDA margin (%) 2.4 2.9 3.1 2.8 3.6 3.8 4.1 4.9 4.2 4.9 5.2
Effective tax rate (%) 32.5 32.6 35.0 35.7 32.1 36.1 35.1 31.7 25.2 25.2 25.2
PAT margin (%) 1.6 2.1 2.0 1.7 1.7 1.9 2.2 1.6 1.1 1.9 2.3
Yoy growth (%)
Net sales NA 14.3 10.3 6.9 29.2 28.1 12.7 (9.9) (9.4) 20.2 12.9
Adjusted EBITDA NA 40.7 16.0 (1.7) 65.5 33.7 21.2 8.6 (23.2) 41.6 19.9
Adjusted PAT NA 49.9 9.7 (0.5) 50.3 17.9 26.5 (29.0) (40.8) 106.4 33.1
Exhibit 9: Balance sheet and cash flow details of Mahindra Logistics (consolidated), March fiscal year-ends, 2013-23E (Rs mn)
I-GAAP Ind-AS
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Shareholders' funds 859 1,243 2,646 3,018 3,477 4,196 4,982 5,447 5,720 6,321 7,133
Share capital 577 591 598 598 680 711 715 715 715 715 715
Reserves & surplus 282 653 2,048 2,420 2,797 3,485 4,268 4,731 5,005 5,606 6,418
Minority interest — — 35 29 48 70 57 54 52 49 46
Debt and liabilities related to leased assets — — 40 236 280 346 377 1,490 1,490 1,490 1,490
Total sources of funds 859 1,243 2,721 3,283 3,805 4,612 5,416 6,991 7,262 7,860 8,669
Net block 101 156 216 452 572 616 670 2,266 1,815 1,681 1,473
Investments and goodwill — — 1,147 724 624 544 856 279 279 279 279
Cash and bank balances 557 892 1,121 1,106 502 660 700 995 1,523 2,385 3,147
Net working capital (ex-cash) 164 141 147 866 1,953 2,626 2,959 3,081 3,425 3,296 3,551
Deferred tax assets 34 53 71 88 128 141 187 200 200 200 200
Non-current assets held for sale — — 19 19 19 19 19 19 19 19 19
Total application of funds 859 1,243 2,721 3,283 3,805 4,612 5,416 6,991 7,262 7,860 8,669
Free cash flow
Cash flow from operations before wcap. changes 277 423 439 166 295 602 1,215 1,507 1,139 1,549 1,831
Change in working capital / other adjustments 207 64 (171) (645) (589) (483) (265) (653) (344) 129 (254)
Net cashflow from operating activites 484 487 268 (479) (293) 119 950 855 795 1,678 1,576
Fixed assets (52) (99) (108) (353) (243) (376) (342) (617) (300) (668) (668)
Cash (used) / realised in investing activities (18) (39) (1,648) 10 534 1 (797) 355 (40) (517) (468)
Free cash flow (CFO + net capex) 432 387 160 (832) (536) (257) 608 238 495 1,010 908
Ratios
Debt/equity — — — 0.1 0.1 0.1 0.1 0.3 0.3 0.2 0.2
Net debt/equity (0.6) (0.7) (0.4) (0.3) (0.1) (0.1) (0.1) 0.1 (0.0) (0.1) (0.2)
Book value per share (Rs) 12 17 37 42 49 59 70 76 80 88 100
RoAE (%) NA 35 21 14 18 18 20 12 7 13 15
RoAE (adj., %) NA NA 90 40 34 26 30 17 11 25 34
RoACE (%) NA 31 17 9 12 15 17 9 5 10 12
Challenging quarter. Jagran reported 76% yoy decline in print ad revenues, 32% CMP (`): 38
decline in circulation revenues and 79% decline in radio revenues, all weaker than our Fair Value (`): 37
estimates. EBITDA loss of Rs342 mn was broadly in line with estimates on account
BSE-30: 37,607
aggressive cost management. Covid would likely accelerate disruptive trends— we now
see structural risks to circulation revenues and radio advertising in addition to print
advertising. We raise our margin forecast and increase FY2021/22E EPS by 17%/5%
and FV to Rs37 (Rs35 earlier), valuing Jagran at 5X FY2022E PE. REDUCE.
Jagran Prakashan
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 89-32 EPS (Rs) 7.0 3.9 7.3
Mcap (bn) (Rs/US$) 11/0.2 EPS growth (%) (20.9) (43.6) 86.7
ADTV-3M (mn) (Rs/US$) 30/0 P/E (X) 5.5 9.8 5.2
Shareholding pattern (%) P/B (X) 0.6 0.5 0.5
Promoters 65.0 EV/EBITDA (X) 1.7 2.1 1.3
FIIs 4.4 RoE (%) 10.3 5.7 10.3
MFs/BFIs 18/1.9 Div. yield (%) 11.7 5.2 13.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 21 15 20
Absolute (3) (9) (54) EBITDA (Rs bn) 4 3 4
Rel. to BSE-30 (10) (18) (54) Net profits (Rs bn) 2 1 2
1QFY21— print ad revenues decline 76% yoy, circulation down 32% and radio down 79%
JAGP’s print ad revenues declined 76% yoy (KIE 70% decline) on account of significant decline
in revenues during the lockdown and weak demand thereafter. Circulation revenues declined
32% yoy (KIE 20% decline); it looks like recovery in circulation post the lockdown is weaker
than anticipated. Radio revenues declined 79% yoy indicating weaker underlying demand
environment for the medium. RM costs declined 65% yoy on account of a dip in circulation
(about 30%), decline in newsprint prices (about 10%) and about 40-45% cut in pagination.
Employee costs declined 9% yoy and other expenses declined 59% yoy. EBITDA loss stood at
Rs342 mn and net loss stood at Rs396 mn (KIE Rs486 mn loss).
Per our channel checks, print/radio ad revenues declined 75-85% in 1QFY21 as compared to
60-65% decline in TV advertising revenues and a much lower decline in digital advertising. In
our view, the lockdown would have compelled a few advertisers of print/radio to consider
digital options and shift print/radio ad spends to digital. A part of these ad spends may not
return to print/radio. Small local advertisers contribute significantly to print/radio advertising;
this segment may see higher economic impact compelling them to aggressively cut back on ad
spends.
Jaykumar Doshi
We tweak estimates and revise fair value to Rs37 (Rs35 earlier), maintain REDUCE
We tweak revenue estimates for FY2021-22 and reduce cost assumptions. This results in a
sharp 17%/5% increase in FY2021/22E EPS. Covid would accelerate print’s and radio’s ad share
loss to digital and could perhaps mark the saturation of print circulation revenues. We maintain
REDUCE and revise fair value to Rs37 (Rs35, valuing Jagran at 5X FY2022E PE.
kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Jagran Prakashan Media
Exhibit 1: Consolidated Ind-AS financials of Jagran Prakashan (JAGP), March fiscal year-ends (Rs mn)
% chg.
Consolidated financials 1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq FY2021E FY2020 % chg.
Total revenues 1,911 2,414 5,843 4,456 (20.8) (67.3) (57.1) 15,242 20,973 (27.3)
Print advertising revenues 852 1,052 3,505 2,593 (19.0) (75.7) (67.1) 8,364 12,325 (32.1)
Circulation revenues 740 869 1,086 991 (14.8) (31.8) (25.3) 3,590 4,224 (15.0)
Radio revenues 144 244 698 459 (41.2) (79.4) (68.7) 1,735 2,478 (30.0)
Digital ad revenues 92 109 109 109 (15.4) (15.7) (15.6) 522 435 20.0
Other operating revenues 83 141 445 304 (41.2) (81.4) (72.8) 1,032 1,512 (31.7)
Total expenditure (2,253) (2,731) (4,432) (3,912) (17.5) (49.2) (42.4) (12,419) (16,646) (25.4)
Raw material costs (642) (1,018) (1,807) (1,273) (36.9) (64.5) (49.5) (4,411) (6,206) (28.9)
Employee expenses (979) (862) (1,077) (1,021) 13.6 (9.1) (4.1) (3,608) (4,171) (13.5)
Other expenses (632) (851) (1,548) (1,618) (25.7) (59.2) (60.9) (4,400) (6,269) (29.8)
EBITDA (342) (317) 1,411 544 8.1 (124.3) (162.9) 2,824 4,327 (34.7)
EBITDA margin (%) (17.9) (13.1) 24.1 12.2 -479 bps -4207 bps -3012 bps 18.5 20.6
Other income 134 50 40 40 168.1 235.2 237.0 425 322 31.8
Interest expense (77) (80) (92) (81) (3.8) (16.5) (5.5) (300) (333) (10.0)
D&A expenses (323) (370) (355) (371) (12.6) (9.0) (12.9) (1,350) (1,458) (7.4)
Pretax profits (609) (717) 1,004 131 (15.1) (160.6) (565.0) 1,599 2,859 (44.1)
Extraordinaries — — — — — 781
Tax provision 163 181 (349) (53) (9.7) (146.7) (410.7) (408) (830) (50.9)
Minority interest 50 50 (11) 35 (87) (75)
Reported PAT (396) (486) 644 113 (18.6) (161.5) (449.2) 1,104 2,735 (59.7)
Recurring PAT (396) (486) 644 113 1,104 1,955 (43.5)
Recurring EPS (Rs/share) (1.4) (1.7) 2.3 0.4 (18.6) (161.5) (449.2) 3.9 7.0 (43.5)
Tax rate (%) 26.8 25.2 34.8 40.1 25.5 29.0
Exhibit 2: Revised earnings estimates of JAGP, March fiscal year-ends (Rs mn)
Exhibit 3: Financial summary of JAGP, March fiscal year-ends, FY2014-23E (Rs mn)
2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Profit model
Net sales 17,027 17,698 21,065 22,830 23,040 23,627 20,973 15,242 19,684 20,261
EBITDA 3,664 4,464 5,896 6,396 5,836 5,337 4,326 2,824 4,126 4,435
Other income 628 321 345 412 467 408 323 425 475 525
Interest (345) (369) (523) (350) (271) (259) (333) (300) (225) (150)
Depreciation (789) (1,035) (1,044) (1,289) (1,361) (1,279) (1,458) (1,350) (1,450) (1,450)
Pretax profits 3,158 3,380 4,674 5,169 4,671 4,207 2,858 1,599 2,926 3,360
Extraordinary items (101) 803 1,163 — — — 781 — — —
Current tax (795) (1,102) (1,390) (1,675) (1,557) (1,470) (830) (408) (761) (874)
Deferred taxation — — — — — — — — — —
Net income 2,262 3,080 4,447 3,476 3,003 2,606 2,736 1,104 2,061 2,361
Adjusted net income 2,337 2,538 3,400 3,476 3,003 2,606 1,955 1,104 2,061 2,361
Adjusted EPS (Rs) 7.5 8.0 10.4 10.6 9.6 8.8 7.0 3.9 7.3 8.4
Balance sheet
Total equity 9,616 11,342 15,812 21,548 20,397 18,757 19,185 19,699 20,171 20,965
Deferred taxation liability 851 707 726 1,702 1,999 2,248 1,460 1,460 1,460 1,460
Total borrowings 4,897 6,480 5,120 3,834 1,476 3,439 2,041 2,041 2,041 2,041
Current liabilities 3,889 4,005 4,028 5,032 6,046 6,571 6,823 4,016 4,597 4,597
Total liabilities and equity 19,253 22,534 25,686 32,116 29,918 31,015 29,509 27,216 28,270 29,064
Cash 325 4,931 493 3,491 1,640 3,421 3,968 5,198 5,772 7,363
Other current assets 6,560 5,576 7,449 7,600 8,627 9,769 9,267 6,628 8,158 8,410
Total fixed assets 9,048 8,454 14,676 15,678 14,885 14,966 14,634 13,684 12,634 11,584
Investments (largely cash equivalent) 3,320 3,573 3,068 5,347 4,765 2,859 1,707 1,707 1,707 1,707
Total assets 19,253 22,534 25,686 32,116 29,918 31,015 29,575 27,216 28,270 29,064
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Pharmaceuticals Sun Pharmaceuticals
Divisional sales
US (US $ mn) 282 340 424 375 (17.1) (33.5) (24.8) 1,487 1,526 (2.6) 1,394
- Taro US 98 130 126 145 (24.9) (22.7) (32.6) 499 541 (7.8) 443
- Ex-Taro US 184 210 298 230 (12.2) (38.1) (19.9) 967 985 (1.8) 951
Domestic formulations (Rs. mn) 23,884 24,500 23,137 23,648 (2.5) 3.2 1.0 97,102 73,483 32.1 103,256
RoW (Rs mn) 23,460 24,982 25,077 24,741 (6.1) (6.4) (5.2) 100,394 88,178 13.9 111,983
API 5,537 4,841 4,610 4,830 14.4 20.1 14.6 19,160 17,300 10.8 20,118
Global specialty sales (US$ mn) 78 105 94 126 (25.7) (17.0) (38.1) 429 322 33.2 463
% margin
Gross margin 74.0 72.0 70.7 71.8 71.9 72.9 72.1
R&D 5.5 6.2 5.0 6.4 5.9 6.8 6.1
SG&A 45.3 47.4 41.8 47.1 44.8 44.1 42.8
EBITDA 23.3 18.4 23.8 18.4 21.2 22.0 23.2
Exhibit 3: Global specialty sales declined US$4 mn qoq due to Exhibit 4: Ilumya WW sales (incl. Ilumetri) reached ~US$100 mn
seasonality in ordering patterns for Absorica and Levulan in FY2020
March fiscal year-ends (US$ mn) March fiscal year-ends (US$ mn)
Exhibit 5: FY2021 to be a cliff year for SUNP – further in-licensing deals critical to drive incremental growth beyond FY2022
March fiscal year-ends, 2013-25E (US$ mn)
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
DUSA 55 72 111 105 130 92 92 99 65 99 102 106 109
Absorica 131 165 151 193 186 129 130 115 48 37 33 34
BromSite 4 25 32 38 46 23 12 6 3
Odomzo 4 12 17 27 37 46 58 71 87
Ilumya 13 75 121 177 214 238 265
Yonsa 25 15 10 5 5 5 5
Xelpros 5 15 25 35 35 35 35
Cequa 11 43 65 81 99 99
Key US brands 55 203 275 256 330 315 313 411 463 497 543 592 637
- as a % of US sales 5 13 12 12 16 23 21 28 33 34 34 36 37
- % growth 271 36 -7 29 -5 -1 31 12 7 9 9 8
Ilumya milestone + royalties 9 17 24 29 34 39 44
Global specialty franchise 55 203 275 256 330 315 322 428 486 526 576 630 681
- % growth 271 36 -7 29 -5 2 33 14 8 10 9 8
Exhibit 8 Specialty R&D dipped in FY2019 and FY2020, though, likely to increase post initiation of pivotal trials for Ilumya in PsA
March fiscal year-ends, 2015-23E (Rs mn)
2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
US Sales (Rs mn) 137,198 135,170 137,588 87,466 106,713 105,245 103,163 112,364 121,395
- Generics 67,594 56,701 56,628 24,342 38,376 30,276 24,302 28,308 33,762
- Specialty 16,844 16,765 22,102 20,364 21,779 29,190 34,226 37,765 41,241
- Taro 52,760 61,704 58,858 42,760 46,558 45,779 44,634 46,291 46,393
Sales 275,390 287,953 315,784 264,895 290,659 328,375 343,923 376,639 406,752
R&D expenses (Rs mn) (18,373) (23,025) (21,459) (20,669) (19,850) (20,929) (20,927) (22,771) (22,734)
- Generics (11,455) (12,168) (10,934) (9,816) (11,864) (12,425) (12,210) (12,540) (12,160)
- Specialty (2,913) (6,238) (5,641) (6,304) (3,591) (4,260) (4,736) (6,551) (7,263)
- Taro (4,005) (4,618) (4,884) (4,549) (4,395) (4,244) (3,981) (3,680) (3,312)
R&D as a % of sales (6.7) (8.0) (6.8) (7.8) (6.8) (6.4) (6.1) (6.0) (5.6)
- of which generics 62 53 51 47 60 59 58 55 53
- of which Specialty 16 27 26 31 18 20 23 29 32
- of which Taro 22 20 23 22 22 20 19 16 15
Exhibit 9: Sun Pharma - consolidated profit and loss, balance sheet, cash model
March fiscal year-ends, 2015-23E (Rs mn)
2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Net revenues 275,390 287,953 315,784 264,895 290,659 328,375 343,923 376,639 406,752
Gross Profit 207,998 223,121 234,477 190,648 211,969 236,071 247,884 272,903 294,822
Staff costs (45,026) (47,971) (49,023) (53,671) (59,671) (63,624) (67,759) (71,825) (77,211)
R&D expenses (18,373) (23,025) (21,459) (20,669) (19,850) (19,252) (20,927) (22,771) (22,734)
Other expenses (64,462) (63,630) (63,103) (60,227) (68,441) (83,454) (79,555) (88,393) (93,125)
EBITDA 80,136 88,494 100,893 56,081 64,008 69,742 79,644 89,914 101,752
Depreciation & amortisation (11,947) (10,135) (12,648) (14,998) (17,533) (20,528) (23,763) (24,413) (25,063)
EBIT 68,189 78,359 88,245 41,083 46,475 49,214 55,880 65,501 76,689
Net Interest (5,790) (4,769) (3,998) (5,176) (5,553) (3,027) (2,463) (2,378) (2,333)
Other income 4,008 914 6,232 8,388 10,255 6,360 7,831 9,034 12,190
Exceptional items (2,378) (6,852) — (9,505) (12,144) (2,606) (36,333) — —
Profit before tax 63,904 74,486 90,578 44,062 50,231 52,554 61,248 72,157 86,545
Tax & Deferred Tax (9,147) (9,349) (12,116) (8,452) (6,009) (8,228) (9,845) (12,366) (14,542)
Less: minority interest (9,363) (11,126) (8,819) (4,468) (5,424) (4,070) (4,080) (4,299) (4,348)
Net Income (adjusted) 45,394 54,011 69,644 33,665 38,798 40,256 47,323 55,491 67,655
EPS adjusted (Rs) 18.9 22.4 28.9 14.0 16.1 16.7 19.7 23.1 28.1
Balance sheet
Equity 293,582 354,901 404,305 419,847 427,736 471,757 488,709 541,701 604,521
Total borrowings 75,963 83,381 80,910 97,518 98,934 75,783 79,283 77,783 76,283
Deferred tax liability 985 616 3,148 2,190 1,043 581 581 581 581
Other liabilities 92,561 80,263 112,321 118,846 89,689 101,571 112,361 117,232 121,040
Total liabilities 490,279 542,196 614,102 643,028 646,938 682,525 703,937 760,300 825,429
Net fixed assets 110,201 133,606 149,403 157,111 172,919 175,858 152,265 137,852 122,789
Investments 5,989 5,933 16,062 31,572 39,518 50,028 50,028 50,028 50,028
Cash 131,155 147,045 153,717 140,200 112,263 113,849 125,574 178,172 240,520
Other current assets 215,576 225,287 287,360 286,061 283,535 299,260 332,541 350,719 368,562
Total assets 490,279 542,196 614,102 643,028 646,938 682,525 703,937 760,300 825,429
Cashflow statement
Operating profit before working capital 71,765 84,923 95,485 48,621 57,789 70,021 48,678 96,570 111,608
Tax paid (17,404) (19,885) (20,571) (7,417) (8,864) (13,459) (9,845) (12,366) (14,542)
Change in working capital 1,796 2,656 (4,092) (2,123) (26,960) 8,986 (22,491) (13,306) (14,036)
Capital expenditure (23,419) (33,825) (36,929) (19,608) (32,128) (15,420) (10,000) (10,000) (10,000)
Free cash flow 32,739 33,869 33,894 19,473 (10,164) 50,128 6,342 60,897 73,031
Margins and ratios
Gross profit margin (%) 75.5 77.5 74.3 72.0 72.9 71.9 72.1 72.5 72.5
EBITDA margin (%) 29.1 30.7 31.9 21.2 22.0 21.2 23.2 23.9 25.0
Tax rate (%) 14.3 12.6 13.4 19.2 12.0 15.7 16.1 17.1 16.8
RoAE (%) 20.2 16.3 20.5 5.8 6.7 8.7 2.4 11.3 12.4
RoACE (%) 31.4 25.9 24.6 9.4 10.1 9.4 10.2 11.8 13.9
Blow-out quarter demonstrates underlying operating leverage. Laurus’ 1QFY21 CMP (`): 934
numbers impressed, with revenues, EBITDA and EPS all surpassing estimates by a wide Fair Value (`): 870
margin. Continued formulations scale-up, sharp growth in other APIs, and re-bound in
BSE-30: 37,607
ARVs aided revenue growth. Better realizations and forex benefits led to sharp gross
margin expansion, with operating leverage, driving EBITDA margins up to 28.6%. We
raise our FY2021-23E EPS by 45-50%, though, the recent run-up leaves limited room
for further re-rating. Downgrade to REDUCE with revised fair value of Rs870/share.
Laurus Labs
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 945-295 EPS (Rs) 23.9 54.6 55.3
Mcap (bn) (Rs/US$) 101/1.4 EPS growth (%) 117.9 128.6 1.2
ADTV-3M (mn) (Rs/US$) 1,253/17 P/E (X) 39.1 17.1 16.9
Shareholding pattern (%) P/B (X) 5.6 4.2 3.4
Promoters 32.0 EV/EBITDA (X) 19.6 11.1 10.4
FIIs 11.3 RoE (%) 15.3 24.8 20.1
MFs/BFIs 3.9/0.1 Div. yield (%) (0.4) 0.0 0.0
Price performance (%) 1M 3M 12M Sales (Rs bn) 28 38 43
Absolute 80 82 178 EBITDA (Rs bn) 6 10 10
Rel. to BSE-30 67 63 177 Net profits (Rs bn) 3 6 6
Blow-out quarter
Laurus’s 1QFY21 revenues grew 77% yoy and were 20% ahead of our estimates led by strong
performance across all segments. ARV APIs recorded growth of 19% yoy (+27% vs KIE), with
3TC (lamivudine) capacity additions aiding growth. Formulations continued its strong growth
trajectory with revenues of Rs3.5bn (+10% vs KIE), while also benefitting from HCQ sales in US.
Other APIs segment grew 2X yoy (+40% vs KIE) on account of macro tailwinds with increased
demand across products, including for contract manufacturing, as benefits of INR depreciation.
Synthesis segment grew 37% yoy (+20% vs KIE). A combination of higher formulations
revenues, and higher realizations in other API segment meant that gross margins expanded
400bps qoq to 54.2% (+370 bps vs KIE). Higher employee cost was offset by lower other
expenses, leading to EBITDA exceeding our estimates by 67% with EBITDA margin at an all-time
high of 28.6%. Despite the higher tax rate, PAT was 73% ahead of our estimates.
Formulations and API scale-up demonstrates operating leverage
We have viewed Laurus as a unique business model offering a hybrid of rapidly growing
synthesis business, an emerging formulations business along with a steady ARV business. Over
the past few quarters, formulations business has scaled up to its potential, with other APIs and
synthesis business still in growth mode. Formulations growth has been led by the LMIC markets
for ARV products (US$1.5 bn first-line market), where we expect incremental growth to be
aided by TLE600, TLE400 and TEE. Laurus has made meaningful investments in capacities with
Unit-2 (FDF unit) operating costs of ~Rs1.6 bn in FY2019, and 1QFY21 performance
demonstrates the operating leverage benefits as the formulation segment is now operating at
full capacity (total 5 bn). Even as additional capacities are likely to be available from 2QFY21, we
expect meaningful capacity additions only from 2HFY22, with eventual FDF capacities likely to Chirag Talati, CFA
reach ~8 bn tablets. We expect other APIs to continue to benefit from supply disruptions in the
industry, with capacity additions of ~20% in FY2022 likely to further aid growth. Kumar Gaurav
Recent run-up leaves limited room for immediate upside – downgrade to REDUCE
We upgrade our FY2021-23 EPS by 45-50%, though, we caution against fully extrapolating
current quarter EPS, given the operating leverage in the business. Given the recent sharp run-
up, the stock trades at 10X FY2022E EV/EBITDA, and 17X P/E, with limited scope for further re-
rating, given that half of the profits are likely to turn ex-growth (ARV and formulations) by
FY2023. Downgrade to REDUCE with revised fair value of Rs870/share. kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Laurus Labs Pharmaceuticals
Exhibit 4: Laurus – profit and loss, balance sheet, cash flow model
March fiscal year-ends, 2015-23E (Rs mn)
Ujjivan SFB reported the trend on collection ratio to give a perspective of the underlying
improvement it is witnessing as the lockdown is gradually being lifted across geographies.
Collection rates on the overall book improved to ~60% in July compared to ~15% in April as the
moratorium book declined to 47% in June from 80% in May. The bank has ~2.5% of provisions
on the AUM. Given the nature of the book and customer segment, the bank needs to see
collection rates improve to 90%+ levels by the end of the moratorium and pre-Covid levels by Abhijeet Sakhare
the end of the year. The operationally intensive nature of collections in the context of further
lockdowns and recent floods in home states add to credit risks over the near to medium term. M B Mahesh, CFA
We value Ujjivan SFB at 2X book and 18X June 2022E EPS with RoEs of ~15% in the medium-
term. We value the holding company’s stake of 83% in the bank for Ujjivan at Rs345.
The holding company is trading at a discount of ~50% of current market price (~45% to our
fair value). kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Ujjivan Small Finance Bank Banks
Lack of visibility of the merger with the promoter company. While we don’t
disagree with this concern, we are not too worried on the same as we believe that this is
likely to happen at some point in the near future.
Leakage in value can be high. We note that the leakage in value is primarily on
account of any taxes. At this point, we don’t see it as a big concern for a few reasons. (1)
Dividends declared by the bank are not taxed again at the promoter level as long as the
dividends declared by the parent are higher while the stake in the bank is greater than
50%. The holding company has negligible business operations and hence, the dividends
would be mostly passed to the shareholder. Value loss, if any, would be negligible. Note
that the dividend distribution tax has been removed in the current budget. (2) The issue is
a bit more acute when the holding in the bank is below 50%. Here again, we think, that
our initial hypothesis will play out wherein the bank would look to merge at the earliest.
Hence, the loss, if any is likely to be lower.
Promoter is fully invested in the bank and no other line of businesses which can
result in commingling of cash flows. Note that the promoter entity is not engaged in
other forms of business. Hence, the interest of the shareholder of the bank and the
holding company is similar. The issue of holding company discount is a lot more serious
when the holding company has multiples lines of business and investors don’t get full
access to cash flows from the subsidiary.
Indirect rather than direct control of the bank. Investors have argued that the
shareholders in the holding company don’t have the same degree of control as
shareholders of the bank. While we agree to this, we do need to point out that the
promoter is engaged and aligned to the interest of the bank.
65
58
51
44
37
30
21-Jan-20
14-Jan-20
28-Jan-20
12-May-20
26-May-20
19-May-20
2-Jun-20
9-Jun-20
7-Jan-20
17-Dec-19
24-Dec-19
31-Dec-19
5-May-20
14-Jul-20
21-Jul-20
28-Jul-20
3-Mar-20
17-Mar-20
10-Mar-20
24-Mar-20
31-Mar-20
7-Apr-20
4-Feb-20
16-Jun-20
7-Jul-20
21-Apr-20
23-Jun-20
30-Jun-20
14-Apr-20
28-Apr-20
11-Feb-20
25-Feb-20
18-Feb-20
Exhibit 3: We prefer to play through Ujjivan Financial Services than Ujjivan SFB at this point
Ujjivan Financial Services valuation, March fiscal year-ends, 2022-2023 (%)
KIE estimates
2022 2023
RGM based fair value per share for SFB (Rs) 37 43
Number of shares (mn) 1,728 1,728
RGM based fair value for SFB (Rs mn) 64,433 73,709
Adj. book value per share for SFB (Rs) 18 22
Target multiple for SFB (X) 2.0 2.0
Holding company's stake in SFB (%) 83 83
Fair value of holding company's stake in SFB (Rs mn) 53,686 61,414
Target holding company discount (%) 25.0 25.0
Fair value of holding company (Rs mn) 40,264 46,061
Holding company NOSH 121.2 121.2
Fair value per share of holding company (Rs) 332 380
Current market price of holding company (Rs) 236 236
Upside to current maret price (%) 41 61
AUM growth at ~22% yoy in 1QFY21. AUM growth has fallen sharply reflecting a
slowdown in disbursements and shorter tenor of the book. AUM grew 22% on yoy and
~2% on qoq basis. Microfinance loans comprising c.70% of loans grew 10% yoy. Other
segments such as micro individual loans, MSME and housing grew by c.50% yoy off a
low base. Disbursements declined c.90% yoy across the board reflecting the impact of
the lockdown across several parts of the country.
The bank is taking a cautious stance of starting disbursements again. First quarter
disbursements are towards the existing good quality customers and these customers are
not under moratorium currently.
The company has piloted and intends to roll out digital disbursement products to existing
customers including ‘loan-on-phone’. The company also intends to extend the benefit of
the government’s relief package to its MSE and affordable housing customers after
evaluating the details of the package.
Continuous focus on geographic diversification. The share of the top four states
(Karnataka, Tamil Nadu, West Bengal and Maharashtra) stood at ~55% of AUM as of
1QFY21, however, maximum concentration from a single state is not too high (15.8% for
Tamil Nadu). The company is focused on diversification and has been increasing the share
of newer markets including UP, Bihar, Haryana, Rajasthan and Gujarat.
54.7
120 51.3 56
46.2 45.7
90 42
31.8
28.1
24.7
60 21.9 28
20.6
30 14
4QFY19
1QFY20
4QFY20
1QFY21
2QFY19
3QFY19
2QFY20
3QFY20
Source: Company, Kotak Institutional Equities
220 196 88
65 165
60
165 142 66
146
44 46
110
110 44
76 28
64
54 18 18 19
55 33 14 22
11 16 3
- -
2020E
2021E
2022E
2023E
2013
2014
2015
2016
2017
2018
2019
Source: Company, Kotak Institutional Equities estimates
Exhibit 7: Micro-banking share of AUM has been on a gradual decline to ~66% as of 4QFY20
AUM mix, March fiscal year-ends, 1QFY19-1QFY21 (%)
40 81 81 78 75 73 70 68 66 66
20
0
1QFY19
3QFY19
4QFY19
2QFY20
4QFY20
2QFY19
1QFY20
3QFY20
1QFY21
Exhibit 8: Newer segments to drive growth for Ujjivan Exhibit 9: Share of MFI to decrease gradually
AUM mix, March fiscal year-ends, 2013-2023E (Rs bn) AUM mix, March fiscal year-ends, 2013-2022E (%)
2021E
2022E
2023E
2013
2014
2015
2016
2017
2018
2019
2020E
2021E
2022E
2023E
2013
2014
2015
2016
2017
2018
2019
Notes: Notes:
(1) Individual loans include MSE, micro-individual and other loans. (1) Individual loans include MSE, micro-individual and other loans.
Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates
Strong headline asset quality numbers; ~45% of the loan book under moratorium
Gross NPL and net NPL ratio remained flat at ~1% and 0.2% in 1QFY21. PAR>0 declined
20bps qoq to 1.8%. The moratorium book has declined to ~45% as of June end from
80% as of May end. The bank has created further provisions of Rs1.3bn in 1Q which
takes the overall provisions to Rs3.7bn i.e. about 2.5% of AUM.
Collection efficiency as defined by collections for the period as against dues for the period
improved to ~60% in July from ~15% in May. We note than improvement in July versus
June is not as drastic indicating continuing challenges due to lockdowns and challenges
on the ground.
We remain cautious on the near-term outlook on credit costs given the ask rate for
collections to improve back to business-as-usual. We are building in credit costs of ~2.5%
for FY2021-22E to account for the impact of the pandemic. This compares to ~1.4% in
FY2020.
Exhibit 10: About 50% of loans are under moratorium as of June end
Source: Company
Source: Company
9.9 PAR>0
10.0
8.8
8.0
6.7
6.0 5.4
4.0
4.0 3.3 3.3
2.4 2.1
1.8 2 1.8
1.6 1.6
2.0
0.0
4QFY17
3QFY18
4QFY18
3QFY19
4QFY19
3QFY20
4QFY20
1QFY18
2QFY18
1QFY19
2QFY19
1QFY20
2QFY20
1QFY21
Source: Company, Kotak Institutional Equities
Exhibit 13: We expect credit costs to remain high over the next two years
Gross NPL and credit cost, March fiscal year-end, 2013-2023E (%)
4.4 4.0
2.8
3.3 2.5 3.0
2.2 2.0
1.4
1.2 1.2
0.8 0.9
1.1 0.6 0.6 1.0
0.5
0.1 0.1 0.1 0.2 0.0 0.7 0.3 0.2 2.8 2.6 1.0
0.0 0.0
2020E
2021E
2022E
2023E
2013
2014
2015
2016
2017
2018
2019
10.2
8.5 8.5 8.5 8.5 8.4 8.1
8.8 7.9 7.7 10.2
4.4 9.6
2QFY19
4QFY19
2QFY20
4QFY20
1QFY21
3QFY19
1QFY20
3QFY20
Governmen TASC, 5
East, 15 Semi-urban, Rural, 1
t, 4
15 Corporate,
7
South, 30
Metro, 42 Individuals,
45
West, 20
Banks, 39
Urban, 42
North, 35
Other highlights
Tight cost control led by lower non-staff costs. Operating expenses declined 7%
yoy led by non-staff costs decline of 35% yoy. Cost-income ratio declined sharply
to 56% from 65% qoq. Part of the non-staff cost decline was driven by rent
negotiations. The bank had seen a sharp rise in its cost structure since inception
primarily on account of higher investments required to transition its asset centers to full-
fledged banking outlets. As branch expansion and investments in technology and people
started to moderate cost ratios witnessed an improvement from ~75% in FY2019 to
~67% in FY2020.
Capital adequacy ratio at comfortable levels. USFB is reasonably well capitalized from
a regulatory perspective with total CAR at 29% post the IPO, of which the Tier-1 ratio is
at 28% as of 1QFY21. As per the current regulations, the bank has to maintain a
minimum capital adequacy ratio of 15% and a leverage ratio of 4.5%.
70
72 53
50 56
37 38 40
64 36 42
56 28
15
14
48
(7) 0
72 77 78 78 64 69 71 65 56
40 (14)
3QFY19
4QFY19
3QFY20
4QFY20
1QFY19
2QFY19
1QFY20
2QFY20
1QFY21
Source: Company, Kotak Institutional Equities
Exhibit 19: Branch expansion largely complete Exhibit 20: Employee addition remains strong
Number of banking outlets, March fiscal year-ends, 2018-1QFY21 Number of employees, March fiscal year-ends, 2018-1QFY21
480 464
11,000 11 11 14
440
11,242
14,752
17,783
17,841
17,370
16,776
15,626
8,000 7
400
5,000 -
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2018
2019
2QFY20
3QFY20
1QFY21
1QFY20
4QFY20
2018
2019
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities
EWIs signal stable phase. The key readings from the 20F filings: (1) impaired loans in CMP (`): 347
the corporate book decline further but trends marginally weak on the retail side, Fair Value (`): 470
(2) early warning indicators (EWIs), however, are stable and less worrisome given that
BSE-30: 37,607
we have now entered into a post-Covid era and (3) historical trends show much lower
write-off in retail as compared to corporate NPLs. We maintain BUY rating on the bank
with an unchanged FV of Rs470.
ICICI Bank
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 552-268 EPS (Rs) 12.3 23.0 26.9
Mcap (bn) (Rs/US$) 2,246/30.1 EPS growth (%) 134.9 88.0 16.6
ADTV-3M (mn) (Rs/US$) 17,209/230 P/E (X) 28.3 15.1 12.9 QUICK NUMBERS
Shareholding pattern (%) P/B (X) 2.1 1.9 1.7
Promoters 0.0 BVPS (Rs) 164.9 185.6 204.6 Net NPL in the
FIIs 54.9 RoE (%) 7.7 12.2 12.9
MFs/BFIs 22.4/11.9 Div. yield (%) 0.0 1.3 1.5 corporate book
Price performance (%) 1M 3M 12M NII (Rs bn) 333 355 390 declined ~150 bps
Absolute (1) (9) (18) PPOP (Rs bn) 281 334 321
yoy to 2.2%
Rel. to BSE-30 (8) (18) (19) Net profits (Rs bn) 79 149 174
Working capital and better risk-rated loans take a larger share of loan growth
ICICI Bank reported ~9% yoy loan growth (consolidated) with a larger share of growth coming
from the retail space. Within the corporate portfolio, the growth was slower at ~3% yoy with
working capital loan growth at 8% yoy. Working capital is ~45-50% of the overall corporate
loan book. The investment grade portfolio has grown ~10% yoy while the below investment
grade portfolio declined ~20% yoy. ~70% of the overall fees came from the retail business, of M B Mahesh, CFA
which ~60% came from transaction banking (payment, deposit, etc.).
Nischint Chawathe
Not everything moves in a straight line but the direction looks promising overall
We maintain our BUY rating with an unchanged FV of Rs470, valuing at ~2X book and 15X Abhijeet Sakhare
June 2022E EPS for lower RoEs in the medium term. The key takeaway from the 20F filings on
asset quality trends confirms our hypothesis of the bank’s underwriting. The slippages are not Ashlesh Sonje
too different as compared to the best-in-class players despite FY2020 having two unexpected
slippage from the corporate book. The retail has a larger proportion of secured loan portfolio,
Dipanjan Ghosh
where the impact of moratorium is likely to have a lower credit cost. In short, ICICI Bank has
come into this crisis with a much slower growth and less emphasis on market share, superior
underwriting partly given the challenges faced on the corporate side, and a stronger liability
book that delivers superior NIM. The strong operating profit ratios, value in subsidiaries, and
comfortable CAR should augur well to manage any unexpected stress that is less understood
today. We believe that the credit costs would be closer to the best-in-class players in this cycle. kspcg.research@kotak.com
Contact: +91 22 6218 6427
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Banks ICICI Bank
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Retail finance 8.3 6.7 4.6 2.6 1.8 1.7 1.4 1.6 1.6 1.9
Power 0.0 0.1 0.0 0.3 0.3 6.2 20.5 36.8 34.6 24.2
Mining - 0.7 1.0 1.4 2.0 0.9 36.4 85.2 80.2 44.1
Iron and steel 0.1 0.7 1.1 1.9 4.2 24.1 34.3 34.8 23.7 10.4
Construction 1.4 1.5 3.0 5.4 12.9 20.7 35.7 52.6 48.1 53.5
Services - non finance 0.3 0.2 3.8 5.9 9.0 13.0 18.7 23.7 15.9 13.0
Services - finance 0.8 0.8 0.0 0.4 0.4 0.3 - - 0.7 2.2
Other infrastructure 0.0 0.1 0.1 3.6 8.7 10.8 9.6 12.4 9.4 11.2
Crude petrol/others 0.0 3.6 2.6 2.1 2.0 2.8 4.4 15.2 13.4 16.8
Electronics and eng`ing 0.6 2.8 4.1 3.5 10.8 4.6 3.3 15.1 14.1 17.1
Shipping 5.1 1.0 0.8 1.1 22.2 31.8 45.4 44.6 46.0 42.0
Food and beverages 5.1 4.7 5.0 8.7 7.9 8.1 9.4 11.7 25.7 19.1
Manufacturing products (excluding metal)
Wholesale/retail trade 5.1 2.1 5.9 4.9 3.5 4.0 5.3 4.2 5.3 10.0
Cement 1.4 - - 0.4 0.3 - 70.7 - - -
Chemicals and fertilizers 5.9 3.5 4.1 4.5 5.7 4.6 2.1 2.4 4.3 4.5
Metal & products 2.9 2.0 2.1 1.4 1.5 1.8 1.1 2.0 2.1 1.8
Other industries
Total 4.2 3.6 3.2 3.1 3.9 5.8 8.6 9.7 7.2 6.0
Exhibit 3: Nearly all segments of the business is now showing stable performance
Ageing analysis of 20F filings of the overall loan portfolio of the bank, March fiscal year-ends, 2012-20 (%)
2012 2013 2014 2015 2016 2017 2018 2019 2020
All loans
Current 96.8 95.1 95.1 93.3 93.5 94.9 98.5 98.8 99.0
31-60 days 2.0 3.4 3.4 5.7 5.2 2.5 0.9 0.6 0.5
61-90 days 1.0 0.9 0.9 0.7 0.4 1.0 0.2 0.3 0.2
Above 90 days 0.1 0.6 0.6 0.3 0.9 1.6 0.3 0.3 0.3
All delayed 3.2 4.9 4.9 6.7 6.5 5.1 1.5 1.2 1.0
Commercial loans
Current 95.5 92.8 92.8 87.9 87.3 90.6 98.2 99.2 99.9
31-60 days 2.9 4.9 4.9 10.6 10.6 4.4 1.7 0.5 0.1
61-90 days 1.4 1.4 1.4 1.0 0.4 1.5 0.1 0.2 0.0
Above 90 days 0.2 0.9 0.9 0.5 1.7 3.5 0.0 0.0 -
All delayed 4.5 7.2 7.2 12.1 12.7 9.4 1.8 0.8 0.1
Working capital
Current 98.1 95.4 95.4 95.2 93.8 91.9 99.1 99.5 99.7
31-60 days 1.5 3.9 3.9 4.3 4.3 4.4 0.6 0.3 0.2
61-90 days 0.4 0.4 0.4 0.2 0.9 1.9 0.1 0.2 0.0
Above 90 days - 0.4 0.4 0.3 1.0 1.8 0.2 0.0 0.0
All delayed 1.9 4.6 4.6 4.8 6.2 8.1 0.9 0.5 0.3
Mortgage loans
Current 98.6 99.0 99.0 99.4 99.4 99.4 99.4 99.4 99.3
31-60 days 0.7 0.5 0.5 0.3 0.4 0.3 0.4 0.3 0.5
61-90 days 0.6 0.4 0.4 0.2 0.2 0.3 0.2 0.3 0.3
Above 90 days 0.1 0.0 0.0 0.0 0.0 0.0 0.0 - -
All delayed 1.4 1.0 1.0 0.6 0.6 0.6 0.6 0.6 0.7
Other secured loans
Current 98.4 97.6 97.6 97.1 97.9 97.4 96.3 96.0 95.9
31-60 days 0.8 1.2 1.2 1.3 0.9 0.9 1.4 1.3 1.4
61-90 days 0.4 0.8 0.8 0.9 0.5 0.6 0.6 0.6 0.6
Above 90 days 0.4 0.4 0.4 0.7 0.7 1.1 1.7 2.1 2.2
All delayed 1.6 2.4 2.4 2.9 2.1 2.6 3.7 4.0 4.1
Credit cards
Current 97.9 98.1 98.1 98.5 98.5 98.6 98.4 98.0 97.1
31-60 days 1.1 1.4 1.4 1.0 1.1 1.0 1.1 1.3 1.4
61-90 days 1.0 0.5 0.5 0.6 0.4 0.4 0.5 0.7 1.5
Above 90 days - - - - - 0.0 0.0 0.0 0.0
All delayed 2.1 1.9 1.9 1.5 1.5 1.4 1.6 2.0 2.9
Other unsecured loans
Current 99.0 99.7 99.7 99.4 99.4 99.3 99.4 99.4 99.4
31-60 days 0.6 0.2 0.2 0.4 0.4 0.3 0.4 0.4 0.4
61-90 days 0.4 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2
Above 90 days 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0
All delayed 1.0 0.3 0.3 0.6 0.6 0.7 0.6 0.6 0.6
Total
Current 96.8 95.1 95.1 93.3 93.5 94.9 98.5 98.8 99.0
31-60 days 2.0 3.4 3.4 5.7 5.2 2.5 0.9 0.6 0.5
61-90 days 1.0 0.9 0.9 0.7 0.4 1.0 0.2 0.3 0.2
Above 90 days 0.1 0.6 0.6 0.3 0.9 1.6 0.3 0.3 0.3
All delayed 3.2 4.9 4.9 6.7 6.5 5.1 1.5 1.2 1.0
Notes:
(a) All loans up to 30 days past due is considered to be current.
Exhibit 4: Fresh provisions increased ~100% in FY2009 Exhibit 5: LLP increased to ~2.5% for FY2009-11 for ICICI Bank
Provisions and growth-retail loans, March fiscal year-ends, 2008-20 Loan loss provisions, March fiscal year-ends, 2008-20
3.5 3.3
(Rs bn) Fresh provisions Growth (%)
40 120
106 2.8
94
32 80 2.3
2.1
54 2.1
24 40
33
1.4
17 17 18
1.4 1.1
16 0
-8
0.7 0.7
-30 -35 0.7 0.5
8 -45 -45 -40 0.4 0.4
0.3 0.3 0.3
0 -80 0.0
2008
2010
2011
2012
2013
2014
2015
2016
2017
2019
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2020
2009
2018
2020
2014
2019
Source: US GAAP filings, Kotak Institutional Equities Source: US GAAP filings, Kotak Institutional Equities
Exhibit 6: NPLs touched 8% in the previous cycle Exhibit 7: Slippages remained high for FY2008-10
NPL and ratio in retail loans, March fiscal year-ends, 2008-19 Slippages, March fiscal year-ends, 2008-19 (%)
5.0
(Rs bn) Amount (% of loans) (%) 4.5
80 9.0
7.9
7.3 4.0
64 6.5 7.2
5.9
3.0
2.5
48 5.4
4.2
3.9 2.0 1.9 2.0
2.0
32 3.6 1.4
2.3 2.2 1.2
1.61.6 1.8 1.0 1.1 0.9 1.0 1.0
1.3 1.41.2 1.41.4 1.0 0.7
16 1.1 1.8
0 - 0.0
2005
2006
2007
2008
2010
2011
2012
2013
2015
2016
2017
2018
2020
2008
2009
2010
2011
2012
2013
2015
2016
2017
2018
2020
2004
2009
2014
2019
2014
2019
Source: US GAAP filings, Kotak Institutional Equities Source: US GAAP filings, Kotak Institutional Equities
Exhibit 8: Fresh provisions peaked in FY2018-19 Exhibit 9: LLP declined to ~4% in FY2020
Provisions and growth-corporate loans, March fiscal year-ends, 2008- Loan loss provisions for corporate loans, March fiscal year-ends, 2008-
20 20
7.0 6.6
(Rs bn) Fresh provisions Growth (%) 6.3
250 120
112 5.6
102 5.6
95
200 80
74
4.2 3.8
150 40
32
2.8
19
2.8
100 1 0
-10
1.5
50 -37-40 1.4 0.8 0.9
0.6 0.5
0.0 0.0 0.0
0 -80 0.0
2011
2012
2013
2014
2016
2017
2018
2019
2008
2010
2011
2012
2013
2015
2016
2017
2018
2020
2015
2020
2009
2014
2019
Source: US GAAP filings, Kotak Institutional Equities Source: US GAAP filings, Kotak Institutional Equities
Exhibit 10: NPLs touched 18% in the previous cycle Exhibit 11: Slippages are coming from high levels
NPL and ratio in corporate loans, March fiscal year-ends, 2008-20 Slippages – corporate loans, March fiscal year-ends, 2008-20 (%)
12.0 11.3
(Rs bn) Amount (% of loans) (%)
600 17.7 20
9.6 9.2
480 14.8 16
13.6
7.2
11.1 5.9
360 12
9.0
8.3
4.8
240 8
5.3 5.4 3.1 3.0 3.1
3.6 1.9
120 2.6 2.72.3 2.6 4 2.4 1.5
2.0 1.1 1.0
0.9
- -
0 0 0.0
2005
2006
2007
2008
2010
2011
2012
2013
2015
2016
2017
2018
2020
2011
2012
2013
2014
2015
2016
2018
2019
2020
2004
2009
2014
2019
2017
Source: US GAAP filings, Kotak Institutional Equities Source: US GAAP filings, Kotak Institutional Equities
Exhibit 12: Recovery and upgrade in the retail loans have been quite strong so far while write-offs have been higher in corporate
Break up of exposure and net NPLs across sectors, March fiscal year-ends, 2012-20 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Retail loans
Opening gross NPL 69,462 71,778 67,356 49,156 32,968 25,504 26,757 28,062 40,483 51,409
Add: Slippages 18,535 18,604 9,927 12,759 13,030 16,979 15,940 28,777 29,181 50,815
Less: 16,219 23,026 28,127 28,947 20,494 15,726 14,635 16,356 18,255 28,313
Upgrade 5,817 4,927 3,995 3,314 4,425 6,323 5,337 4,107 5,386 6,834
Recovery 9,785 11,461 8,793 6,049 7,505 6,626 7,192 8,105 11,224 14,725
Write-off 617 6,638 15,339 19,584 8,564 2,777 2,106 4,144 1,645 6,754
Total 71,778 67,356 49,156 32,968 25,504 26,757 28,062 40,483 51,409 73,911
Ratios (as a share of opening loans)
Slippages 1.9 2.0 1.0 1.1 0.9 1.0 0.7 1.2 1.0 1.4
Reductions (as a share of opening gross NPLs)
Upgrade 8.4 6.9 5.9 6.7 13.4 24.8 19.9 14.6 13.3 13.3
Recovery 14.1 16.0 13.1 12.3 22.8 26.0 26.9 28.9 27.7 28.6
Write-off 0.9 9.2 22.8 39.8 26.0 10.9 7.9 14.8 4.1 13.1
Corporate loans
Opening gross NPL 36,359 39,797 39,768 58,009 90,026 148,366 266,459 430,862 534,841 440,499
Add: Slippages 14,561 17,183 28,992 40,841 77,915 161,423 332,341 267,192 91,612 100,608
Less: 11,123 17,212 10,751 8,824 19,575 43,330 167,938 163,213 185,954 170,725
Upgrade 1,765 3,485 4,083 1,055 1,500 5,181 4,741 34,561 12,882 4,708
Recovery 7,806 7,995 3,947 5,200 7,434 8,727 39,209 39,998 51,372 55,771
Write-off 1,552 5,732 2,721 2,569 10,641 29,422 123,988 88,654 121,700 110,246
Total 39,797 39,768 58,009 90,026 148,366 266,459 430,862 534,841 440,499 370,382
Ratios (as a share of opening loans)
Slippages 1.1 1.0 1.5 1.9 3.1 5.9 11.3 9.2 3.0 3.1
Reductions (as a share of opening gross NPLs)
Upgrade 4.9 8.8 10.3 1.8 1.7 3.5 1.8 8.0 2.4 1.1
Recovery 21.5 20.1 9.9 9.0 8.3 5.9 14.7 9.3 9.6 12.7
Write-off 4.3 14.4 6.8 4.4 11.8 19.8 46.5 20.6 22.8 25.0
Exhibit 13: Retail is dominating the loan book at ~60% while the share of stressed sectors is declining consistently
Break up of loan exposure (gross) across sectors, March fiscal year-ends, 2011-20 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Retail finance 38.0 39.4 38.1 40.9 43.4 46.8 50.2 54.0 57.8 60.9
Power 4.2 5.1 5.9 6.0 5.8 5.6 5.8 4.8 3.1 2.9
Mining 2.1 2.9 2.5 1.7 1.8 1.6 2.1 1.8 1.2 0.5
Iron and steel 4.1 4.4 5.1 5.1 5.2 5.3 4.7 3.6 2.6 1.8
Construction 1.9 2.0 2.2 1.5 1.5 2.2 2.0 2.1 1.9 1.6
Services - non finance 8.8 7.8 7.2 6.7 6.4 5.5 4.4 3.9 2.8 2.7
Services - finance 6.1 5.1 4.6 3.2 3.3 3.2 5.1 5.8 6.9 5.8
Other infrastructure 5.7 6.5 6.7 6.9 5.8 5.6 4.5 3.7 4.4 4.1
Crude petrol/others 6.0 2.6 2.8 3.2 3.1 2.1 1.6 2.4 2.5 2.6
Electronics and eng`ing 2.3 2.2 2.2 2.4 1.8 1.6 1.9 1.7 1.8 1.6
Shipping 0.9 1.4 1.3 1.5 1.5 1.2 0.6 0.4 0.3 0.3
Food and beverages 3.2 2.9 2.7 2.1 1.7 1.6 1.7 1.3 1.0 0.9
Manufacturing products (excluding metal)
Wholesale/retail trade 2.0 1.8 2.1 2.1 3.0 2.9 2.5 2.5 2.6 2.4
Cement 0.9 1.6 2.1 2.0 2.1 1.7 1.4 1.1 0.9 0.4
Chemicals and fertilizers 1.2 1.4 1.3 1.0 0.7 0.9 1.0 1.1 1.1 1.1
Metal & products 1.7 2.3 1.9 2.3 2.5 2.3 1.8 0.9 0.9 1.2
Other industries 10.9 10.7 11.3 11.5 10.5 9.9 8.8 8.9 8.2 9.0
Exhibit 14: Share of working capital lending has been rising Exhibit 15: Working capital loans are growing at ~20% CAGR
Break-up of term and working capital loans in the corporate sector, Growth in working capital and term loans in the corporate sector,
March fiscal year-ends, 2010-20 (%) March fiscal year-ends, 2011-20 (%)
21 20 19 22 23 27 28 30
80 35
43 45 47
20
60
10
40 79 80 81 78 77 73 72 0
65
57 55 53
20
-10
0 -20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Company 20F filings, Kotak Institutional Equities Source: Company 20F filings, Kotak Institutional Equities
Exhibit 16: Share of investment grade portfolio on the rise for the bank
Break-up of the overall loan book, March fiscal year-ends, 2011-20 (%)
AAA AA+ AA AA- 1 2A-C A+ A A- 3 A-C BBB+ BBB and BBB- 4A-C
Below investment grade Unrated
100 4 4
10 11 11 12 14 9
9 19
80 28 28
28
29 34 36 29
37 35 28
60
22 22
20
19
40 28 20 21
29 24 23
20 42 45 45
38
29 28 30 32
25 25
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Exhibit 17: The investment grade portfolio grew slower but the reduction in below investment grade has been higher
Growth in loan book in each rating profile, March fiscal year-ends, 2012-20 (%)
2012 2013 2014 2015 2016 2017 2018 2019 2020
Investment grade 16.0 12.5 17.3 11.7 5.8 10.5 16.1 20.5 10.4
AAA AA+ AA AA- 1 2A-C 0.4 13.0 30.4 22.2 19.3 23.1 22.5 21.2 7.9
A+ A A- 3 A-C 14.8 (3.6) 9.0 1.4 15.8 (6.0) 18.0 25.5 26.0
BBB+ BBB and BBB- 4A-C 32.7 25.8 13.8 10.0 (11.7) 8.2 6.3 16.0 2.1
Below investment grade 27.6 23.8 18.6 23.1 71.3 (21.5) (28.2) (45.5) (20.8)
Unrated (46.3) (17.6) 13.1 26.1 (60.6) (15.8) 34.5 (43.1) 52.8
Net loans 14.1 13.0 17.4 13.2 12.6 4.4 10.0 14.1 9.2
Exhibit 18: Retail fee, ~70% of the overall fees, grew 17% yoy, ~22% yoy growth in transaction banking and 30% yoy in lending
Retail banking fees, March fiscal year-ends, 2019-20 (Rs mn)
2019 2020
Commercial
banking Commercial
1% banking
2%
Lending
18%
Transaction
Lending banking Transaction
16% 61% banking
63%
Exhibit 19: Muted growth of 3% yoy in overall fee income on the corporate side
Corporate banking fees, March fiscal year-ends, 2019-20 (Rs mn)
2019 2020
Lending
linked fee
Lending 38%
linked fee
38%
Commercial
banking fee Commercial
55% banking fee
56%
Exhibit 24: ICICI Bank, growth rates, key ratios and Du Pont analysis
March fiscal year-ends, 2018-23E (%)
2018 2019 2020E 2021E 2022E 2023E
Total interest income 549,659 634,012 747,983 783,333 835,018 926,423
Interest on advances 408,662 479,426 575,511 594,729 631,133 695,501
Interest on investments 115,682 127,969 146,732 160,821 168,290 190,152
Total interest expense 319,400 363,864 415,313 428,562 444,921 501,923
Deposits from customers 234,288 265,247 326,878 363,980 403,964 450,516
Net interest income 230,258 270,148 332,671 354,770 390,097 424,500
Loan loss provisions 145,216 170,670 120,020 133,503 87,248 97,687
Net interest income (after prov.) 85,042 99,478 212,651 221,267 302,849 326,814
Other income 174,196 145,122 164,486 190,339 165,262 189,629
Net fee income 87,894 102,319 116,451 95,982 110,772 127,961
Net capital gains 63,059 13,007 19,011 58,000 12,000 12,000
Miscellaneous income 834 918 (1,771) 400 500 625
Operating expenses 157,039 180,891 216,144 211,184 234,383 257,197
Employee expense 59,140 68,082 82,712 86,115 94,891 104,038
DMA 13,036 15,971 17,683 12,452 17,432 20,861
Pre-tax income 74,346 37,769 140,480 200,422 233,728 259,246
Tax provisions 6,570 4,140 61,172 51,308 59,834 66,367
Net profit 67,776 33,629 79,308 149,114 173,894 192,879
% growth (30.8) (50.4) 135.8 88.0 16.6 10.9
PBT+provision-treasury gains 165,583 217,812 248,892 275,926 308,976 344,932
% growth (4.0) 31.5 14.3 10.9 12.0 11.6
Balance sheet (Rs mn)
Cash and bank balance 625,036 700,095 528,133 766,668 854,444 961,050
Cash 80,448 87,039 99,438 110,455 123,360 138,586
Balance with RBI 250,576 291,541 253,402 463,391 518,979 589,149
Balance with banks 4,849 7,693 1,688 1,856 2,042 2,246
Outside India 289,163 313,821 173,606 190,966 210,063 231,069
Net value of investments 2,029,942 2,077,327 2,495,315 2,398,110 2,647,505 2,946,860
Investments in India 1,962,100 2,013,776 2,415,591 2,319,122 2,569,239 2,869,302
Govt. and other securities 1,391,853 1,479,231 1,883,319 1,768,333 1,998,604 2,277,368
Shares 23,781 18,840 24,622 24,622 24,622 24,622
Subsidiaries 61,489 61,202 61,202 61,202 61,202 61,202
Debentures and bonds 153,889 142,328 119,853 131,838 145,022 159,524
Net loans and advances 5,123,953 5,866,466 6,452,900 6,897,449 7,643,854 8,637,230
Corporate loans 2,184,003 2,247,106 2,290,730 2,500,178 2,768,086 3,180,981
Total retail loans 2,939,950 3,619,360 4,162,170 4,397,271 4,875,767 5,456,249
Fixed assets 79,035 79,314 84,103 75,677 68,179 59,795
Net leased assets 2,415 2,415 2,740 748 636 541
Net owned assets 76,620 76,900 81,363 74,928 67,543 59,255
Other assets 796,303 897,836 759,777 835,754 919,330 1,011,263
Total assets 8,654,268 9,621,038 10,320,227 10,973,658 12,133,310 13,616,199
Fiscal situation remains frail. Even as June GST revenues were lower, we note that it
did not have much upsides from arrears as was the case in May. Though it is early to be
sure, CGST+IGST shortfall for FY2021E is likely to be around Rs1.5-2 tn. We maintain
our FY2021E GFD/GDP at 7.2% (with some internal changes) with gross G-Sec
issuances at Rs12 tn and T-bill borrowing at Rs1.8 tn. In our view, given the nature of
the crisis and the yield curve, additional borrowings, if any, should be through T-bills.
Based on the monthly PIB release, total GST collection was at Rs875 bn for June compared to QUICK NUMBERS
Rs909 bn in May. Gross GST collections in 4MFY21 were at Rs2.7 tn—a contraction of 35%
over 4MFY20. CGST collection for June was Rs161 bn (May: Rs190 bn), SGST was Rs214 bn June GST collections
(Rs240 bn), IGST at Rs426 bn (Rs403 bn), and compensation cess was at Rs73 bn (Rs77 bn) at Rs909 bn
(Exhibit 1). After allocations from IGST, CGST for June was Rs395 bn (May: Rs323 bn) and SGST
was Rs403 bn (May: Rs351 bn). We note that May collections had the positive impact of Expect Rs1.5-2 tn of
delayed filings of March-April. June would have much lesser impact (may be late filings of May). CGST+IGST shortfall
Expenditure in 1QFY21 was around 27% of budget estimates with revenue expenditure growth
of around 10% and capital expenditure growth of 40%. GFD continued to increase (83% of
budget estimates) given large revenue shortfalls (though central government maintained a high
devolution to states) (Exhibit 3). Key areas for spending growth in 1QFY21 has been agriculture
(74%), health (29%), roads (34X; last year spend was near zero), rural development (2.5X), and
transfer to states (62%). Sharp decline in spends was seen in defense ((-)7%) and subsidies as
expected: food subsidy ((-)43%) and petroleum subsidy ((-)50%).
With gradual reopening of the economy, tax collections will improve over the next few months. Suvodeep Rakshit
We have already seen some improvement in the activity levels though recently they have been
stagnating. We continue to factor in (1) shortfall of Rs4.9 tn in FY2021E in overall receipts (we Upasna Bhardwaj
now factor in slightly better GST revenues and lower direct taxes), (2) Covid-related expenditure
of around Rs3 tn (announcement of Rs2.7-3.2 tn with fiscal impact of Rs1.8 tn till now), and (3) Avijit Puri
overall expenditure cuts of Rs1.7 tn while increasing spending in railways and roads (Exhibits 4-
5). We retain FY2021E GFD/GDP estimate at 7.2%. If the government were to spend around
Rs1.2 tn (further stimulus) without any expenditure cuts, the GFD/GDP is likely at around 8.1%.
In case of no further stimulus and some expenditure cuts, GFD/GDP could be around 6.6%. We
believe that additional borrowing (in excess of our estimated Rs13.8 tn of gross G-Sec and T-bill
borrowing), if any, should ideally be through T-Bills to ensure that short-term risks are funded
by short-term borrowings and takes advantage of lower rates (given the steepness of the curve).
kspcg.research@kotak.com
Contact: +91 22 6218 6427
Compensation Total
CGST SGST IGST IGST (imports) cess Total GST filings (mn)
Jul-17 151 230 481 213 73 936 5.9
Aug-17 148 216 486 238 80 930 5.9
Sep-17 145 219 505 247 82 951 5.7
Oct-17 157 230 448 223 79 913 5.0
Nov-17 136 193 428 218 81 837 5.3
Dec-17 145 205 453 231 86 889 5.6
Jan-18 145 204 447 229 85 880 5.8
Feb-18 157 214 445 232 77 893 6.0
Mar-18 187 257 505 212 86 1,035 6.0
Apr-18 159 217 491 244 73 940 6.2
May-18 160 220 495 245 81 956 6.5
Jun-18 159 223 500 249 84 965 6.6
Jul-18 153 212 499 265 76 940 6.7
Aug-18 153 211 501 253 80 944 6.7
Sep-18 165 228 534 269 80 1,007 6.7
Oct-18 168 231 497 241 80 976 7.0
Nov-18 164 225 479 236 79 947 7.2
Dec-18 178 248 512 241 87 1,025 7.3
Jan-19 176 242 470 214 85 972 7.3
Feb-19 204 275 504 235 83 1,066 7.6
Mar-19 212 288 547 233 92 1,139 7.2
Apr-19 178 245 499 249 81 1,003 7.2
May-19 184 253 478 220 85 999 7.4
Jun-19 179 250 506 242 86 1,021 7.6
Jul-19 177 242 490 248 73 982 7.6
Aug-19 166 226 451 221 76 919 7.6
Sep-19 176 237 465 214 76 954 7.4
Oct-19 196 271 490 209 77 1,035 7.8
Nov-19 200 268 481 213 83 1,032 8.1
Dec-19 209 282 530 235 86 1,108 8.3
Jan-20 206 273 485 207 89 1,054 8.4
Feb-20 192 256 445 181 83 976 7.7
Mar-20 323
Apr-20 620
May-20 190 240 403 157 77 909
Jun-20 161 214 426 203 73 875
Exhibit 2: Required run-rate for FY2021 CGST revenues at Rs580 bn to meet FY2021BE
Summary of GST collections, March fiscal year-ends (Rs bn)
Exhibit 3: Tax collections growth remains weak though some improvement from April-May levels
Monthly tax receipts of central government, March fiscal year-ends (Rs bn)
Notes:
(a) FY2021E is Kotak estimates.
Exhibit 4: GFD/GDP likely be 6.6-8.1% depending on the extent of stimulus and spending cuts
Break-up of GFD/GDP gains and losses, March fiscal year-ends (%)
Banks Attractive 13,579 181.5 43.1 96.5 42.4 33 16.6 11.7 1.5 1.3 1.2 4.4 7.6 9.9 0.1 0.8 1.1 1,423
Building Products
Astral Poly Technik SELL 965 765 (21) 145 1.9 151 16.4 18 25 25.6 11.7 37.7 59 53 38 32.8 29.0 21.6 9.7 8.3 6.9 17.8 17.0 19.8 0.1 0.2 0.3 2.1
Building Products Cautious 145 1.9 26.6 11.7 37.7 59 52 38 32.8 29.0 21.6 9.7 8.3 6.9 16.5 15.8 18.2 0.1 0.2 0.3 2.1
Capital goods
ABB SELL 895 840 (6) 190 2.5 212 18 9 21 46.3 (50.0) 140.4 51 102 42 32.7 66.1 27.4 5.4 5.3 4.9 9.9 5.3 12.1 0.5 0.6 0.8 2.7
Ashoka Buildcon BUY 51 130 157 14 0.2 281 13.8 8.5 11.5 16.2 (38.0) 34.7 3.7 5.9 4.4 2.5 4.1 3.1 0.5 0.5 0.5 16.1 8.9 11.1 0.0 2.7 3.6 1.3
Bharat Electronics BUY 96 110 15 234 3.1 2,437 7.5 6.2 6.8 (3.3) (16.5) 8.6 12.8 15.3 14.1 7.9 9.2 8.2 2.3 2.1 2.0 18.9 14.5 14.5 2.9 2.4 2.6 21
BHEL REDUCE 36 28 (21) 125 1.7 3,482 -4.2 -1.5 2.5 (221.0) 64.0 263.0 NM NM 14.5 (47.7) (286.8) 5.7 0.4 0.4 0.4 NM NM 3.0 (5.7) (1.9) 2.8 38
Carborundum Universal ADD 248 285 15 47 0.6 189 14.4 12.1 15.2 9.9 (15.9) 26.0 17.2 21 16.3 11.2 11.3 8.9 2.5 2.3 2.1 15.2 11.8 13.7 1.6 1.4 1.7 0.9
Cochin Shipyard BUY 329 550 67 43 0.6 132 48 39 47 32.5 (19.7) 19.7 6.8 8.4 7.1 3.2 3.9 3.8 1.2 1.1 1.0 18.1 13.2 14.4 4.6 3.6 3.9 2.8
Cummins India BUY 402 460 15 111 1.5 277 26 16 24 (3.2) (35.4) 48.7 15.7 24 16.4 17.7 29.4 16.8 2.7 2.6 2.5 17.0 10.8 15.5 3.5 2.2 3.3 8.7
Dilip Buildcon BUY 280 495 77 38 0.5 137 30 27 45 (45.3) (10.8) 64.8 9.2 10.3 6.3 4.4 5.0 3.1 1.1 1.0 0.8 12.2 9.8 14.2 0.2 0.2 0.3 1.6
IRB Infrastructure BUY 121 150 24 42 0.6 351 21 15 11 (15.2) (27.9) (22.9) 5.9 8.2 10.6 3.5 6.4 6.1 0.6 0.6 0.6 11.1 7.6 5.6 4.1 3.2 2.1 4.8
Kalpataru Power Transmission BUY 229 470 105 35 0.5 153 25 25 39 (16.4) 0.1 53.3 9.0 9.0 5.9 4.0 4.0 3.3 1.0 1.0 0.8 12.0 11.1 15.2 1.4 1.4 2.0 1.8
KEC International BUY 275 342 24 71 0.9 257 22.0 25 31 16.3 13.4 24.4 12.5 11.0 8.9 7.3 6.6 5.4 2.5 2.1 1.7 22 21 22 1.2 1.0 1.2 1.6
L&T BUY 913 1,220 34 1,282 17.1 1,403 63 35 67 3.3 (44.4) 89.2 14.4 26 13.7 15.6 18.8 13.3 2.2 1.9 1.7 15.8 7.9 13.1 2.0 1.7 2.3 71
Sadbhav Engineering BUY 43 113 164 7 0.1 172 4.2 5.3 11.4 (61.4) 26.0 115.4 10.2 8.1 3.8 6.0 5.6 3.5 0.3 0.3 0.3 3.5 4.2 8.6 — — — 0.4
Siemens SELL 1,161 1,000 (14) 414 5.5 356 26 33 38 (14.9) 28.2 14.7 45 35 30 29.9 23.2 20.4 4.3 4.0 3.6 9.9 11.8 12.5 0.6 0.8 0.9 67
Thermax BUY 745 820 10 89 1.2 113 19 15 31 (48.8) (22.5) 109.8 39 51 24 21.2 33.1 17.1 21.2 33.1 17.1 7.0 5.4 10.7 0.9 0.7 1.3 0.8
Capital goods Attractive 2,743 36.7 (17.1) (26.8) 69.7 18.4 25 14.8 1.9 1.7 1.6 10.4 6.9 10.9 1.4 1.4 2.0 1,423
Commercial & Professional Services
SIS BUY 361 395 9 53 0.7 149 15 14 19 5.0 (10.2) 36.2 24 27 19.5 11.1 12.0 10.1 3.9 3.4 2.9 17.1 13.6 16.1 1.0 0.2 0.3 0.5
TeamLease Services ADD 1,850 2,000 8 32 0.4 17 20 49 67 (64.3) 140.9 36.5 90 38 28 33.0 26.5 20.5 5.5 4.8 4.1 6.3 13.7 16.1 — — — 0.6
Commercial & Professional Services Attractive 85 1.1 (16.7) 10.1 36.3 32 29 22 14.5 14.8 12.2 4.3 3.8 3.2 13.3 12.8 15.0 0.7 0.1 0.2 1.1
Commodity Chemicals
Asian Paints REDUCE 1,716 1,800 5 1,646 22.0 959 27.2 21.9 36.1 20.7 (19.4) 64.9 63 78 48 39.3 46.1 30.9 16.2 14.6 12.6 27 19.7 29 0.7 0.6 1.0 66
Berger Paints SELL 527 410 (22) 511 6.8 971 6.8 5.8 9.2 32.2 (15.1) 60.2 78 92 57 48.3 53.3 35.9 19.2 16.8 14.3 26 19.6 27 0.4 0.3 0.6 11.4
Kansai Nerolac ADD 434 485 12 234 3.1 539 9.9 7.0 12.5 14.6 (29.5) 78.1 44 62 35 29.3 37.8 22.9 6.2 5.9 5.4 14.8 9.7 16.1 0.7 0.7 1.0 1.5
Tata Chemicals ADD 306 320 5 78 1.0 255 31.7 31.0 37.5 (26.2) (2.1) 21.0 9.7 9.9 8.1 4.7 4.6 3.8 0.6 0.6 0.6 6.4 6.0 7.0 3.6 3.6 4.3 7.9
Commodity Chemicals Neutral 2,468 33.0 9.2 (16.9) 56.4 54 65 41 31.0 34.8 24.5 8.4 7.8 7.0 15.6 12.1 17.1 0.7 0.6 1.0 86
Construction Materials
ACC BUY 1,425 1,550 9 268 3.6 188 72.3 61.4 79.5 35.8 (15.1) 29.5 19.7 23 17.9 9.2 10.4 8.0 2.3 2.2 2.1 12.3 9.8 12.0 1.0 2.2 2.8 24
Ambuja Cements BUY 220 235 7 437 5.8 1,986 10.6 9.5 12.4 49.1 (10.2) 31.0 21 23 17.7 7.5 8.1 6.0 1.8 1.7 1.6 9.0 7.6 9.2 0.7 0.7 0.7 13.3
Dalmia Bharat BUY 761 1,000 31 142 1.9 192 14.0 2.0 19.2 (12.1) (85.4) 844.0 55 374 40 7.5 8.1 6.0 1.4 1.4 1.3 2.5 0.4 3.4 — — — 2.3
Grasim Industries ADD 633 735 16 416 5.6 657 52.6 40.6 71.6 (21.1) (22.9) 76.5 12.0 15.6 8.8 7.6 8.3 5.4 0.7 0.7 0.7 6.0 4.6 7.6 0.6 0.2 0.5 21
J K Cement ADD 1,500 1,525 2 116 1.5 77 64.2 51.8 92.2 83.6 (19.4) 78.1 23 29 16.3 11.3 11.7 8.2 3.8 3.5 2.9 17.3 12.5 19.4 0.5 0.7 0.7 1.7
JK Lakshmi Cement BUY 294 330 12 35 0.5 118 23.5 10.7 23.3 478.2 (54.5) 118.0 12.5 28 12.6 5.6 7.4 5.2 2.1 1.9 1.7 17.4 7.2 14.3 0.8 0.5 1.2 1.6
Orient Cement ADD 64 75 17 13 0.2 205 4.2 3.7 6.3 82.1 (12.9) 72.1 15.2 17.5 10.2 6.5 6.3 5.1 1.2 1.1 1.1 8.0 6.6 10.8 1.2 3.1 3.1 0.9
Shree Cement SELL 21,711 16,000 (26) 783 10.5 36 435.2 382.0 651.5 34.6 (12.2) 70.5 50 57 33 21.3 23.0 16.0 6.1 5.6 4.9 13.9 10.3 15.8 0.5 0.5 0.5 18.6
UltraTech Cement BUY 4,125 4,600 12 1,190 15.9 289 132.9 133.7 219.9 45.2 0.6 64.4 31 31 18.8 14.6 14.0 9.5 3.0 2.8 2.5 10.5 9.4 13.9 0.3 0.4 0.5 33
Construction Materials Attractive 3,401 45.5 21.1 (13.9) 62.7 25 29 18.0 10.9 11.4 7.9 2.1 2.0 1.8 8.4 6.8 10.1 0.5 0.6 0.7 116
Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 31-Jul-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn)
Consumer Durables & Apparel
Crompton Greaves Consumer SELL 244 210 (14) 153 2.0 627 7.9 6.9 8.8 33.1 (12.8) 27.1 31 35 28 26 26 21 10.4 7.9 6.5 39 26 26 0.8 0.0 1.0 2.9
Havells India SELL 583 490 (16) 365 4.9 626 11.8 8.7 13.8 (6.6) (26.1) 58.5 50 67 42 34 44 29 8.5 7.9 7.1 17.3 12.2 17.7 1.8 0.5 0.8 21
Page Industries REDUCE 19,818 16,000 (19) 221 3.0 11 308 277 397 (12.9) (10.0) 43.5 64 72 50 41 45 33 27.0 23.3 19.1 43 35 42 0.8 0.8 1.1 10.4
Polycab ADD 820 875 7 122 1.6 149 52 40 53 53.2 (21.5) 30.7 15.9 20 15.5 11 14 10 3.2 2.8 2.4 23 14.7 16.8 0.9 0.7 0.9 3.6
TCNS Clothing Co. REDUCE 330 380 15 20 0.3 66 11 4 15 (47.7) (64.3) 302.6 31 86 21 12 16 8.2 3.3 3.0 2.5 10.9 3.6 12.8 — — — 0.2
Vardhman Textiles ADD 665 720 8 38 0.5 57 85 25 90 (34.1) (70.8) 260.6 7.8 27 7.4 5.9 10.5 4.9 0.6 0.6 0.6 8.3 2.3 8.0 2.6 1.9 3.0 0.2
Voltas SELL 598 440 (26) 198 2.6 331 16.2 10.3 17.8 3.4 (36.5) 73.0 37 58 34 30 56 28 4.6 4.4 4.0 12.8 7.7 12.5 0.6 0.4 0.8 21
Whirlpool SELL 2,073 1,580 (24) 263 3.5 127 38 26 47 17.0 (32.0) 82.8 55 81 44 37 54 31 10.3 9.5 8.6 20 12.2 20 0.2 0.4 0.9 1.5
Consumer Durables & Apparel Cautious 1,381 18.5 2.3 (30.4) 35 51 31 24 32 21 5.8 5.3 16.3 10.5 15.3 1.0 0.5 61
Consumer Staples
Bajaj Consumer Care ADD 176 200 14 26 0.3 148 12.5 12.8 13.1 (16.6) 2.1 2.7 14.0 13.7 13.4 10.5 10.4 10.0 4.0 3.4 3.1 33 27 24 1.1 3.4 4.6 2.7
Britannia Industries ADD 3,824 4,150 9 920 12.3 240 59 81 86 22.1 36.7 6.3 65 47 45 50 35 34 20.9 17.3 13.7 32 39 34 0.9 0.7 0.9 46
Colgate-Palmolive (India) ADD 1,423 1,550 9 387 5.2 272 28 31 36 5.9 8.1 18.0 50 46 39 31.9 29.7 25.5 24.3 24.1 22.9 51 52 60 2.0 2.0 2.4 21
Dabur India REDUCE 514 415 (19) 907 12.1 1,767 8.6 9.5 11.0 6.1 10.2 15.3 60 54 47 50 44 37 13.7 12.6 11.5 25 24 26 0.6 1.2 1.4 24
Godrej Consumer Products ADD 692 750 8 707 9.5 1,022 13.8 15.4 18.7 (4.8) 11.6 21.7 50 45 37 34 31 25 9.0 7.9 7.1 18.6 18.7 20 0.9 1.1 1.4 16.2
Hindustan Unilever ADD 2,210 2,500 13 5,188 69.4 2,343 31 35 45 10.9 12.3 28.1 71 63 49 53 44 35 59.4 12.0 11.4 86 32 24 1.1 1.4 1.9 209
ITC BUY 194 260 34 2,387 31.9 12,308 11.6 10.5 12.3 14.4 (9.4) 17.9 16.8 18.5 15.7 11.5 13.3 11.0 3.7 3.6 3.5 21 18.9 22 5.2 4.6 5.5 80
Jyothy Laboratories ADD 123 135 10 45 0.6 367 4.7 5.2 5.7 (15.5) 11.0 8.2 26 24 22 19.0 15.7 14.6 3.7 3.5 3.3 13.6 15.3 15.7 2.4 2.8 3.2 1.0
Marico ADD 363 390 7 469 6.3 1,290 8.1 8.7 9.7 12.4 7.7 11.2 45 42 37 32 29 26 15.5 14.4 13.4 35 36 37 1.8 1.9 2.1 16.4
Nestle India REDUCE 16,522 16,000 (3) 1,593 21.3 96 204 227 270 22.6 10.9 19.1 81 73 61 56 48 42 82.4 64.8 51.8 70 100 94 2.1 1.0 1.2 41
Tata Consumer Products ADD 428 385 (10) 392 5.2 922 8.0 8.2 10.9 13.9 2.9 33.2 54 52 39 29 27 23 2.9 2.8 2.7 6.9 5.4 6.9 0.6 0.8 1.0 24
United Breweries ADD 952 1,180 24 252 3.4 264 16.2 2.5 21.8 (24.0) (84.4) 760.7 59 376 44 29 61 23 7.1 7.2 6.2 12.8 1.9 15.2 0.3 0.1 0.6 10.9
United Spirits ADD 581 620 7 422 5.6 727 11.5 8.6 14.0 21.7 (25.0) 62.8 51 67 41 29 36 26 10.5 9.3 7.6 23 14.6 20 — — — 39
Varun Beverages BUY 708 800 13 204 2.7 289 16.2 14.4 29.1 51.9 (11.3) 102.1 44 49 24 16 16 11 6.1 5.4 4.5 17.6 11.7 20 0.1 0.2 0.3 3.2
Consumer Staples Attractive 13,902 185.8 13.0 2.4 23.4 44 43 34 31 30 24 11.2 8.4 7.8 26 19.7 23 1.8 1.8 2.2 534
Diversified Financials
Bajaj Finance REDUCE 3,251 2,800 (14) 1,959 26.2 600 104 74 131 49 (28) 77 31 44 25 — — — 6.0 5.4 4.5 20 13.0 19.8 0.3 0.2 0.4 468
Bajaj Finserv BUY 6,206 7,600 22 988 13.2 159 212 252 402 5 19 60 29 25 15.4 — — — 3.2 2.8 2.4 12.2 12.1 16.8 0.2 0.2 0.2 100
Cholamandalam BUY 203 300 48 166 2.2 820 12.8 13.9 20.2 (15) 8.5 45.0 15.8 14.5 10.0 — — — 2.2 2.0 1.7 14.7 13.1 16.7 0.8 0.8 1.1 39
IIFL Wealth ADD 1,070 1,200 12 93 1.2 88 23.8 37.0 53.7 (47) 55.8 45.1 45 29 19.9 — — — 3.1 3.0 2.9 7.0 10.7 15.1 0.9 2.2 3.3 0.3
L&T Finance Holdings ADD 60 90 50 120 1.6 2,005 8 5 9 (24.1) (44) 84.9 7.1 12.7 6.9 — — — 0.8 0.8 0.7 14.7 6.3 10.9 3.2 2.4 2.7 18.6
LIC Housing Finance ADD 263 350 33 132 1.8 505 47.6 36.2 66.6 4 (24.0) 84.1 5.5 7.3 3.9 — — — 0.9 0.9 0.7 13.9 9.6 16.0 3.0 2.3 4.3 24
Muthoot Finance ADD 1,274 1,025 (20) 511 6.8 401 75 69 85 52.3 (7) 22.8 17.0 18.4 15.0 — — — 4.4 3.7 3.1 28 22 23 1.2 1.1 1.3 47
Shriram City Union Finance BUY 659 1,250 90 43 0.6 66 152 84 158 1.2 (44) 87.1 4.3 7.8 4.2 — — — 0.6 0.6 0.5 14.7 7.5 12.8 0.9 1.6 3.6 0.6
Electric Utilities
CESC BUY 550 810 47 73 1.0 133 99 102 114 9 3.3 11.8 5.6 5.4 4.8 5.0 4.7 4.2 0.6 0.5 0.5 10.7 10.4 10.7 2.3 2.3 2.4 4.3
JSW Energy BUY 46 65 42 75 1.0 1,640 6.3 -2.2 -2.4 49 (136) (5.6) 7.2 NM NM 4.7 8.3 7.2 0.6 0.7 0.7 8.9 NM NM — — — 1.6
NHPC ADD 20 26 28 204 2.7 10,045 2.8 3.0 3.2 10.7 6 8.7 7.2 6.8 6.3 7.3 8.0 7.1 0.7 0.6 0.6 9.2 9.3 9.7 7.2 8.6 9.2 1.5
NTPC BUY 87 140 61 861 11.5 9,895 11.1 13.2 15.4 (0.9) 18.7 16.8 7.8 6.6 5.6 9.7 7.6 6.0 0.8 0.7 0.6 10.0 11.1 11.9 3.6 4.6 5.3 21
Power Grid BUY 178 220 23 933 12.5 5,232 20.7 22 25 9 6.3 16.1 8.6 8.1 7.0 6.8 6.5 5.8 1.4 1.3 1.2 17.5 17.0 18.1 5.6 6.0 6.9 28
Tata Power BUY 49 55 13 132 1.8 2,705 4.4 4.9 6.5 110 11 31.8 11.0 9.8 7.5 7.4 6.5 5.9 0.7 0.7 0.6 6.9 7.1 8.7 — — — 22
Electric Utilities Attractive 2,278 30.4 8.2 5.7 16.3 8.1 7.6 6.6 0.9 0.8 0.8 11.2 11.1 11.9 4.4 5.0 5.7 78
Fertilizers & Agricultural Chemicals
Bayer Cropscience SELL 5,553 3,400 (39) 250 3.3 45 129.3 134.2 149.9 64.7 3.8 11.7 43 41 37 33 30 26 9.7 8.2 6.9 24 21 20 0.5 0.5 0.5 2.5
Dhanuka Agritech SELL 792 650 (18) 38 0.5 48 29.7 37.0 40.8 25.7 24.4 10.4 26.6 21.4 19.4 21.3 16.0 14.1 5.3 4.5 3.9 21 23 21 3.0 1.2 1.5 1.6
Godrej Agrovet SELL 459 375 (18) 88 1.2 192 11.5 12.9 17.0 0.8 11.8 32 40 36 27 23 19 15 4.0 3.7 3.3 10.4 10.7 12.9 1.2 1.0 1.3 1.6
Rallis India SELL 291 265 (9) 57 0.8 195 9.0 11.3 14.8 7.4 25.0 30.9 32.1 25.7 19.6 22.0 17.3 13.5 4.0 3.6 3.1 13.1 14.7 17.0 0.9 0.9 1.0 4.3
UPL SELL 478 390 (18) 365 4.9 765 23.2 31.9 36.5 22.7 37.6 14.2 21 15.0 13.1 9.1 7.8 7.1 2.2 2.0 1.8 11.5 14.2 14.6 1.3 1.7 2.0 41
Fertilizers & Agricultural Chemicals Cautious 1,064 14.2 26.7 26.9 16.7 31 25 21.1 14.4 12.2 10.9 4.1 3.6 3.2 13.2 14.8 15.3 0.9 1.0 1.2 56
Gas Utilities
GAIL (India) BUY 97 150 55 436 5.8 4,510 13.2 9.5 11.6 (5.5) (28.2) 22.2 7.3 10.2 8.4 5.6 7.4 6.0 1.0 0.9 0.9 13.5 9.4 10.9 6.6 4.1 5.2 22
GSPL SELL 205 210 3 116 1.5 564 17.2 12.8 11.8 21.9 (25.7) (7.6) 11.9 16.1 17.4 5.4 6.5 6.6 1.7 1.6 1.5 15.5 10.2 8.7 1.0 0.9 1.2 2.4
Indraprastha Gas SELL 404 380 (6) 283 3.8 700 16.7 16.0 20.8 38.6 (4.1) 29.8 24.2 25.2 19.4 17.2 17.8 13.7 5.6 4.8 4.1 25 20 23 0.7 0.7 1.0 27
Mahanagar Gas ADD 974 1,175 21 96 1.3 99 74.6 61.9 82.8 32.8 (17.1) 33.9 13.1 15.8 11.8 8.9 10.3 7.4 3.3 2.9 2.6 28 19.6 24 3.6 3.1 4.6 14.0
Petronet LNG BUY 248 300 21 372 5.0 1,500 17.6 18.7 22.2 17.3 6.2 18.5 14.1 13.2 11.2 7.8 7.4 6.4 3.4 3.2 3.0 25 25 28 5.0 5.7 7.2 12.8
Gas Utilities Attractive 1,302 17.4 6.8 (16.9) 20.5 11.4 13.7 11.3 7.4 8.5 7.1 1.9 1.7 1.6 16.5 12.8 14.3 4.2 3.5 4.5 78
Health Care Services
Apollo Hospitals BUY 1,675 1,700 1 233 3.1 139 18.4 1 44 9 (97) 6,877 90.8 ##### 38.4 16.6 25.5 14.6 7.0 7.0 6.3 7.7 0.3 17.2 0.7 0.0 1.0 19.3
Dr Lal Pathlabs SELL 1,889 1,300 (31) 157 2.1 83 27.1 26.7 37.2 13.4 (1.4) 39.2 69.8 70.8 50.8 43.7 44.2 31.0 15.3 13.3 11.2 23 20 24 0.4 0.4 0.6 3.2
HCG BUY 126 140 11 11 0.1 143 (12.0) (8.7) (2.4) (258) 28 73 NM NM NM 10.4 9.4 5.2 2.9 1.9 1.9 NM NM NM — — — 0.8
Metropolis Healthcare SELL 1,574 1,300 (17) 80 1.1 51 30.0 28.9 40.1 25.3 (3.6) 39 52.5 54.4 39.3 33.3 32.4 24.3 15.2 12.9 10.6 32 26 30 0.5 0.6 0.8 3.7
Narayana Hrudayalaya BUY 292 360 23 60 0.8 204 5.8 -3.0 8.3 101.0 (152) 376 50.1 NM 35.2 15.4 31.9 12.6 5.2 5.5 4.8 10.7 NM 14.6 — — — 0.8
Health Care Services Attractive 607 8.1 3 (81) 817 64.4 331.9 36.2 16.6 22.3 13.3 6.3 5.8 5.2 9.7 1.8 14.4 0.4 0.2 0.7 28
Hotels & Restaurants
Jubilant Foodworks ADD 1,720 1,750 2 227 3.0 133 24 9 30 (2) (62.3) 240 73.0 193.6 56.9 25.1 32.7 19.8 20.1 19.8 15.2 26 10.3 30 0.3 0.2 0.6 28
Lemon Tree Hotels BUY 24 38 61 19 0.2 790 -0.1 -0.9 0.6 (118) (655) 161 NM NM 42.6 14.0 28.6 11.1 2.3 2.5 2.4 NM NM 5.7 — 0.0 0.9 1.4
Hotels & Restaurants Attractive 246 3.3 (18) (85) 868 81.2 531.8 54.9 22.7 32.1 17.9 12.6 12.9 10.7 15.5 2.4 19.6 0.3 0.2 0.6 30
Insurance
HDFC Life Insurance REDUCE 627 560 (11) 1,266 16.9 2,010 6.4 6.8 7.4 1.4 5.8 8.2 97 92 85 — — — 18.0 16.6 15.2 20 18.8 18.7 0.0 0.3 0.3 46
ICICI Lombard SELL 1,301 950 (27) 591 7.9 454 26.3 31.9 35.8 14 21 12 50 41 36 — — — 9.6 7.9 6.8 21 21 20 0.3 0.2 0.6 18.1
ICICI Prudential Life BUY 452 500 11 649 8.7 1,436 7.4 8.5 9.6 (6) 14.4 13.2 61 53 47 — — — 8.6 7.6 6.8 14.8 15.2 15.2 0.1 0.3 0.4 16.9
Max Financial Services NR 558 - (100) 151 2.0 343 10.1 9.5 26.7 452 (6) 180 55 59 21 — — — — — — 12.7 13.5 38 — 0.2 1.1 10.6
SBI Life Insurance BUY 913 1,050 15 913 12.2 1,001 14.2 15.5 16.6 7.2 8.9 7.4 64 59 55 — — — 11.4 9.8 8.6 18.4 18.0 16.7 — 0.3 0.3 18.7
Insurance Attractive 3,570 47.7 8.4 12.8 21.3 68.0 60.3 50 11.5 10.1 8.3 17.0 16.7 16.7 0.0 0.2 0.2 110
Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 31-Jul-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn)
Internet Software & Services
Info Edge SELL 3,194 2,185 (32) 391 5.2 122.3 26.9 19.8 36.7 4.2 (26.5) 85.4 118.7 161.5 87.1 93.9 141.1 69.8 16.1 14.9 13.2 13.8 9.6 16.1 0.3 0.2 0.3 17.8
Just Dial BUY 367 420 15 24 0.3 61.8 42.0 24.3 33.0 31.4 (42.2) 35.9 8.7 15.1 11.1 3.1 7.7 4.2 1.8 1.9 1.7 24 12.2 16.1 — — — 16.7
Internet Software & Services Cautious 415 5.6 15.2 (34.9) 66.5 69.1 106.0 63.7 57.2 95.2 52.5 11.2 11.0 9.6 16.2 10.4 15.1 0.2 0.1 0.3 35
IT Services
HCL Technologies ADD 705 670 (5) 1,914 25.6 2,716 40.8 42.2 46.4 11.4 3.4 9.9 17.3 16.7 15.2 10.9 9.9 8.8 3.9 3.2 2.8 24 21 19.7 0.7 1.5 1.9 50
Hexaware Technologies REDUCE 382 375 (2) 114 1.5 302 21.2 23.3 24.6 9.9 9.7 5.8 18.0 16.4 15.5 13.1 10.9 9.6 4.2 3.6 3.1 25 23 22 2.2 2.1 2.6 5.5
Infosys BUY 966 950 (2) 4,114 55.0 4,259 38.9 40.5 45.2 10.0 4.0 11.7 24.8 23.8 21.4 17.6 15.8 14.2 6.3 5.7 5.3 25 25 26 1.8 2.7 3.1 140
L&T Infotech ADD 2,417 2,350 (3) 421 5.6 176 86.6 91.0 110.6 0 5.1 21.5 27.9 26.6 21.8 20.0 17.1 14.9 7.8 6.7 5.6 30 27 28 1.1 1.3 1.4 4.7
Mindtree REDUCE 1,083 890 (18) 178 2.4 165 38.3 54.9 62.5 (16) 43 14 28.3 19.7 17.3 15.6 11.6 10.2 5.7 4.8 4.0 19.5 26 25 2.8 1.5 1.7 16.3
Mphasis REDUCE 1,158 1,100 (5) 216 2.9 187 63.5 64.3 70.6 13 1.1 9.9 18.2 18.0 16.4 12.4 11.6 10.3 3.7 3.4 3.1 21 19.6 19.6 3.0 3.0 3.0 5.7
TCS REDUCE 2,281 2,040 (11) 8,561 114.4 3,752 86.2 83.6 94.1 4 (3.0) 12.5 26.5 27.3 24.2 19.3 19.2 17.3 9.9 9.3 8.6 36 35 37 2.9 2.9 3.3 114
Tech Mahindra BUY 682 770 13 594 7.9 880 45.9 40.8 51.3 (3.9) (11.0) 25.7 14.9 16.7 13.3 9.3 9.2 7.1 2.7 2.5 2.3 19.2 15.7 17.9 2.3 2.3 2.5 44
Wipro ADD 281 265 (6) 1,605 21.5 5,703 16.6 17.0 18.2 11.1 2.4 7.1 16.9 16.5 15.4 10.7 9.9 9.0 2.9 2.5 2.3 17.3 16.2 15.7 0.5 0.7 3.0 41
IT Services Attractive 17,718 236.8 4.3 0.1 12.0 22.8 22.8 20.3 15.8 15.0 13.4 6.0 5.3 4.9 26 23 24 2.1 2.4 3.0 421
Media
DB Corp. REDUCE 73 81 11 13 0.2 175 15.7 5.3 14.1 0.4 (66.5) 166.7 4.6 13.8 5.2 2.7 4.4 2.1 0.8 0.7 0.7 15.7 5.4 14.3 17.1 2.7 16.4 0.4
Jagran Prakashan REDUCE 38 37 (4) 11 0.1 281 7.0 3.9 7.3 (20.9) (44) NA 5.5 9.8 NA 1.7 2.1 NA 0.6 0.5 NA 10.3 5.7 10.3 11.7 5.2 13.0 0.4
PVR BUY 1,085 1,625 50 56 0.7 51 29.0 -32.7 59.3 (33) (213) 281 37.4 NM 18.3 11.5 33.8 7.7 2.5 3.2 2.8 8.5 NM 16.2 0.2 (0.3) 0.5 41
Sun TV Network REDUCE 387 435 12 152 2.0 394 35.5 34.9 39.7 (2) (1.6) 13.6 10.9 11.1 9.7 7.4 7.1 6.3 2.7 2.6 2.5 25 24 26 6.5 6.5 7.1 14.8
Zee Entertainment Enterprises REDUCE 139 145 4 133 1.8 960 11.1 11.2 15.2 (32.5) 0.0 36.7 12.5 12.4 9.1 7.4 7.3 5.4 1.4 1.4 1.3 11.7 11.2 14.5 2.5 4.0 4.0 60
Media Cautious 365 4.9 (17.7) (19.6) 52.4 11.8 14.7 9.6 6.9 8.0 5.5 1.7 1.7 1.6 14.8 11.8 16.9 4.6 4.4 5.5 117
Metals & Mining
Hindalco Industries BUY 163 225 38 366 4.9 2,220 17.8 10.5 20.0 (28.2) (41.1) 91 9.2 15.6 8.2 5.3 6.6 4.9 0.6 0.6 0.6 6.8 3.9 7.1 0.6 0.6 0.6 34
Hindustan Zinc BUY 210 225 7 888 11.9 4,225 16.1 11.9 16.2 (14.5) (26.1) 36.1 13.0 17.7 13.0 7.6 9.4 6.9 2.2 2.7 2.7 18.4 13.7 21 7.9 5.7 7.7 4.1
Jindal Steel and Power BUY 185 250 35 189 2.5 1,020 (7.7) 6.6 16.7 (343) 187 152 NM 27.9 11.0 7.0 6.1 5.1 0.6 0.6 0.5 NM 2.1 5.1 — — — 36
JSW Steel ADD 220 225 2 532 7.1 2,402 10.1 5.3 19.0 (68.3) (47) 257.3 21.8 41.4 11.6 9.6 9.9 6.4 1.4 1.4 1.3 6.8 3.5 11.6 1.0 1.0 1.0 32
National Aluminium Co. SELL 33 24 (27) 61 0.8 1,866 0.7 (0.4) 1.4 (91) (154) 461.1 44.2 NM 22.6 7.8 14.3 6.8 0.6 0.6 0.6 1.4 NM 2.7 4.6 0.0 2.2 7.1
NMDC ADD 84 105 25 257 3.4 3,062 14.6 11.9 11.1 (0.7) (18.8) (7) 5.7 7.1 7.6 4.0 4.9 5.3 0.9 0.9 0.8 16.7 12.8 11.2 6.6 7.1 6.6 7.7
Tata Steel BUY 366 400 9 416 5.6 1,146 35.2 (20.8) 63.3 (61) (159) 404 10.4 NM 5.8 8.2 10.1 5.3 0.6 0.6 0.6 5.9 NM 10.4 2.7 1.9 3.1 66
Vedanta BUY 114 120 5 423 5.7 3,717 6.5 5.5 12.3 (57) (16) 125.0 17.4 20.8 9.2 4.7 6.2 4.7 0.8 0.8 0.8 4.2 3.8 8.7 3.4 10.7 7.5 42
Metals & Mining Attractive 3,132 41.9 (45.5) (46.7) 164.9 13.3 25.0 9.4 6.6 7.8 5.5 0.9 1.0 0.9 7.1 3.9 9.7 3.9 4.1 4.4 44
Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo
Company Rating 31-Jul-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn)
Telecommunication Services
Bharti Airtel BUY 555 710 28 3,027 40.5 5,456 (6.7) 4.8 13.8 NM NM NM NM 115.4 40.1 10.7 8.3 6.8 3.9 5.0 4.7 NM 3.8 12.1 0.4 1.1 1.1 186.4
Bharti Infratel ADD 192 215 12 355 4.7 1,850 16.5 16.3 17.5 25.7 (1.1) 7.4 11.6 11.8 11.0 4.8 4.6 4.4 2.6 2.6 2.6 21.7 22.2 23.7 5.6 8.3 8.8 32.7
Vodafone Idea RS 8 — — 241 3.2 28,735 (25.7) (3.6) (5.9) NM NM NM NM NM NM 8.0 6.8 5.5 4.0 -5.5 (1.1) NM NM 132 — — — 88
Tata Communications BUY 760 975 28 217 2.9 285 16.0 29.9 37.3 47.5 87.3 24.5 47.5 25.4 20.4 9.5 7.3 6.3 NM NM 54.5 NM NM NM 0.5 0.5 0.8 1.2
Telecommunication Services Attractive 3,840 51.3 NM 55.8 67.3 NM NM NM 9.3 7.5 6.2 4.0 5.5 6.7 NM NM NM 0.8 1.7 1.7 308.2
Transportation
Adani Ports and SEZ BUY 315 390 24 640 8.6 2,032 26.9 18.7 21.9 34.7 (30.5) 16.9 11.7 16.8 14.4 11.4 12.2 10.5 2.5 2.2 2.0 21.8 14.0 14.5 4.1 1.1 1.0 18.9
Container Corp. SELL 451 390 (14) 275 3.7 609 17.3 8.0 13.0 5.7 (53.6) 62.2 26 56 35 15.1 26.7 18.4 2.7 2.7 2.6 10.3 4.8 7.6 0.7 1.0 1.6 12.7
Gateway Distriparks BUY 82 135 64 9 0.1 125 4.2 4.2 3.6 (37.5) 0.4 (15.1) 19.4 19.3 22.8 6.8 5.5 5.7 0.7 0.7 0.7 3.5 3.8 3.0 4.2 3.7 3.7 0.2
GMR Infrastructure BUY 22 26 20 131 1.8 7,147 (3.1) (1.8) (0.8) (25.4) 40.9 55.9 NM NM NM 16.3 19.1 17.0 (4.9) (7.8) (6.0) 106.6 55.8 25.2 — — — 3.9
Gujarat Pipavav Port BUY 75 106 42 36 0.5 483 6.0 4.5 5.8 42.2 (25.1) 28.0 12.4 16.6 12.9 6.7 7.1 6.2 1.7 1.7 1.7 14.2 10.5 13.5 7.5 5.7 7.2 0.9
InterGlobe Aviation SELL 980 900 (8) 377 5.0 383 (6.5) (200.9) 62.1 (258.9) (2,999.1) 130.9 NM NM 15.8 4.4 (6.8) 2.0 6.4 (54.4) 2.0 NM NM 477.2 — — — 41
Mahindra Logistics ADD 298 305 2 21 0.3 71 8.9 5.3 10.9 (29.0) (40.8) 106.4 33 57 27 13.8 17.1 11.4 3.9 3.7 3.4 12.2 6.7 12.9 — — — 0.4
Transportation Attractive 1,490 19.9 17.6 (191.6) 269.0 31 NM 20.0 10.6 22.8 8.8 3.5 3.7 3.2 11.2 NM 16.1 2.1 0.8 0.9 78
KIE universe 113,675 1519.6 (14.2) 4.9 48.3 29 27.6 18.6 12.8 12.7 9.7 2.7 2.5 2.3 9.2 8.9 12.1 1.4 1.6 1.9
Notes:
(a) We have used adjusted book values for banking companies.
(b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies.
(c) Exchange rate (Rs/US$)= 74.81
60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided
50%
45.3% investment banking services within the previous 12 months.
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
Our Ratings System does not take into account short-term volatility in stock prices related to movements in the market. Hence, a particular Rating may not
strictly be in accordance with the Rating System at all times.
Other definitions
Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and fair value, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in effect for this stock
and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.