Diwali Picks 2020 - 301020

Sharekhan Diwali Picks - Consistent track record 0
Return (%)
Year
Diwali Picks vs. Diwali Picks vs.
Diwali Picks Nifty CNX Midcap
Nifty CNX Midcap
2015 18.0 8.2 20.1
2016 38.0 14.7 15.8
2017 4.0 3 -11
2018 8.0 10 -5.7
2019 6.6 2.9 8.9
- Outperformance
- Underperformance
Sharekhan Diwali Picks 2020 (Samvat 2077) 0
Samvat 2076 has witnessed more than a Black Swan event - the COVID-19 pandemic that has enormously affected the world
economy and taken an incalculable human and health toll. The unprecedented crisis has spooked the equity market, which
has faced heightened volatility during Samvat 2076 and turned out to be another difficult year for investors.
Though the CNX Nifty index has gained 2.9% (since our Diwali Picks report released in 2019), it has seen severe ups and
downs owing to COVID-19. On the other hand, the mid-cap and small cap segments, after going through tough times, has
handsomely bounced back in the last few months.
In that context, our Diwali Picks 2019 basket, which was a mix of both large-caps and mid-caps, has done well by delivering a
6.6% return, convincingly outperforming the CNX Nifty index and also reasonably outperforming the average combined
return of both the Nifty and CNX Midcap indices.
Stepping into Samvat 2077, the threat of the pandemic is not over yet and the fear of a second wave in big geographies is a
potential risk. Further, the overhang of US election outcome will keep equity market on its toes.
For Samvat 2077, we have hand‐picked 12 quality stocks to create a portfolio, which is a mix of both large-caps and quality
mid-caps. All the 12 companies in the portfolio have all the ingredients to outperform the broader market indices over the
next 12 months and at the same time withstand volatility and emerge stronger.
Wish you a Very Happy Diwali and a Prosperous New Year!

Sharekhan Diwali Picks 2020 (Samvat 2077) 0
EPS/BV (Rs.) PER /PBV (x) RoE (%)

Company CMP (Rs.)
FY21E FY22E FY21E FY22E FY21E FY22E
Amber Enterprises 2,197 15.7 42.5 - 51.7 3.9 8.7
APL Apollo 3,101 116.3 161.7 26.7 19.2 19.7 23.2
Asian Paints 2,219 28.0 35.5 79.1 62.6 24.8 27.3
Bharti Airtel 451 1.9 14.7 - 30.7 1.4 9.9
HDFC Life 587 117.7 140.1 5.0 4.2 17.2 17.5
Info Edge (India) 3,612 26.7 39.2 - 92.1 12.8 16.3
IPCA Labs 2,350 75.6 94.5 31.1 24.9 23.4 23.2
Kotak Mahindra Bank 1,571 327.2 364.4 4.8 4.3 9.7 10.6
L&T 935 53.5 67.9 17.5 13.8 10.2 11.3
SRF 4,446 164.0 211.0 27.1 21.1 17.9 19.3
Tata Consumer Products 491 9.6 11.9 51.1 41.4 7.3 8.1
Tech Mahindra 806 46.8 54.0 17.2 14.9 17.9 18.6
Note – BV and PV figures are for banks and financial services companies CMP is as on October 29, 2020
Source: Sharekhan estimates
Amber Enterprises Industry: Capital Goods
CMP: Rs. 2,197
0
• Amber has emerged as a market leader (in volume terms ) in the Indian room air-conditioner (RAC) original equipment
3R MATRIX
manufacturing/ original design manufacturing (OEM/ODM) industry with 70.7% in RAC OEM/ODM industry and 24.4% market share
in the overall RAC market in FY2020
+ = -
• Amber has strong growth tailwinds as RAC sales volumes in India are projected to clock a 13.7% CAGR over FY2020-FY2025 while RAC
OEM/ODM would record a 19.5% CAGR led by rising disposable incomes, urbanisation, lower RAC penetration (8%), extreme climatic RS 
conditions and rising construction activities RQ 
• The government recently banned imports of air conditioners with refrigerants which was amended from free to prohibited category RV 
providing opportunities for players like Amber in both completely-built units and component sourcing
• With a unique scalable and sustainable business model, we expect Amber to clock a 32%/54%/87% CAGR in Revenue/EBITDA/PAT
over FY2021E-FY2023E led by enhanced capacity, increased product offerings and customer penetration coupled with healthy Stock data
demand outlook for the electronic outsourcing industry.
Market Cap (Rs. cr) 7,401
• Key risks: Slowing demand in key categories, delay in launch of new products and increase in raw-material prices would act as key
risks to earning estimates in the near to medium term. 52-wk High-Low (Rs.) 2,545/911
NSE Volumes 1.9 lakh

Valuation summary Rs. crore
BSE code: 540902
Particulars FY19 FY20 FY21E FY22E FY23E
Revenue 2,752 3,963 3,196 4,275 5,562 NSE code: AMBER
OPM (%) 7.7 7.8 5.5 6.9 8.1
Promoter’s share (%) 44
Adjusted PAT 94 158 53 143 246
% y-o-y growth 50.3 69.1 -66.7 171.7 71.4
Adjusted EPS (Rs.) 29.8 50.4 15.7 42.5 72.9 Stock Performance
P/E (x) 68.5 40.5 - 51.7 28.0
P/B (x) 6.5 5.7 4.4 4.0 3.5 (%) 6M 12M
EV/EBIDTA (x) 31.0 21.4 39.1 23.3 15.7
Absolute 61 125
RoNW (%) 10.0 15.0 3.9 8.7 13.4
RoCE (%) 13.5 15.8 6.0 10.4 15.3 Relative to Sensex 24 124
APL Apollo Tubes Industry: Metals
CMP: Rs. 3,101
0
• APL Apollo Tubes (APL) is India’s largest structural tubes manufacturer with a market share of 50% (up from 40% in FY2020). 3R MATRIX
The company has consistently expanded its capacity from 53,000 tonnes per annum (tpa) in FY2006 to 2.6 mtpa in FY2020
through the organic and inorganic route. The company has distribution network of 800 and over 50,000 retailers.
+ = -
• Domestic structural steel tubes demand is expected to clock a 10% CAGR over FY2021E-FY2024E. APL’s management is
RS 
focused to expand market share would result in to 16% volume CAGR over FY2021E-FY2023E (well above the expectation of
industry growth of 10%). RQ 
• Rise in share of high-margin products, cost rationalisation and higher operating leverage would expand EBITDA margin sharply RV 
to Rs. 3,761/tonnes in FY2023E (versus Rs. 2,923/tonnes in FY2020).
• A superior growth outlook (expect EBITDA/PAT to register 25%/34% EBITDA/PAT CAGR over FY2021E-FY2023E), robust RoE of Stock data
23-25%, and strong balance sheet make it a strong re-rating candidate.
• Key risks: Delayed recovery in demand from construction and infrastructure projects and a substantial rise in steel prices Market Cap (Rs. cr) 7,730
could hurt earnings outlook. Any rise in competition could impact volume growth. 52-wk High-Low (Rs.) 3,199/1,025

BSE code: 533758
Revenue 7,152 7,723 7,819 9,284 11,077 NSE code: APLAPOLLO
OPM (%) 5.5 6.2 6.9 7.4 7.6
Promoter’s share (%) 39.5
Adjusted PAT 148 256 289 402 517
% y-o-y growth -6.3 72.7 13 39 28.5
P/E (x) 50.4 30.5 26.7 19.2 15.1
P/B (x) 8.1 5.7 4.9 4.1 3.4 (%) 6M 12M
EV/EBIDTA (x) 21.5 17.8 14.5 10.9 8.5
RoNW (%) 16.5 22.1 19.7 23.2 24.7 Absolute 117 110
Asian Paints Industry: Consumer goods
CMP: Rs. 2,219
0
• With a strong distribution reach of over 65,000 dealers/over 6,00,000 retailers across India, Asian Paints (APL) is market leader in the
3R MATRIX
decorative paints segment with a 55% market share. Decorative paints forms ~85% of the overall domestic market, which is makes it
a consistent play among peers.
+ = -
• Consumer shifting to trusted brand in post-pandemic era; rapid urbanisation, sustained innovation with high quality products and
uptick in rural demand will help Asian paints to deliver consistent volume growth of high single digit to low double digit in the near RS 
term RQ 
• Management’s vision is to become a top player in the home décor space. Through organic/ inorganic initiatives, the company RV 
ventured into bathroom fittings and modular kitchen space. It has recently introduced products in home furnishing, furniture and
lighting products to expand its portfolio.
• With a sturdy balance sheet, consistent cash flows and cheery dividends, APL remains one of the better picks among consumer Stock data
players with a ~14% earning CAGR over FY20-23E. The stock is trading at 52x its FY2023E.
Market Cap (Rs. cr) 2,12,884
• Key risks: Slowing demand in key categories, delay in launch of new products and increase in raw-material prices would act as a key
risk to earning estimates in the near to medium term. 52-wk High-Low (Rs.) 2,233/1,432

BSE code: 500820
Revenue 19,248 20,211 19,428 23,477 27,030 NSE code: ASIANPAINT
OPM (%) 19.6 20.6 21.3 21.8 22.5
Adjusted PAT 2,214 2,779 2,690 3,403 4,090
% y-o-y growth 9.2 25.5 -3.2 26.5 20.2
Adjusted EPS (Rs.) 23.1 29 28 35.5 42.6 Stock Performance
P/E (x) 96.2 76.6 79.1 62.6 52.1
P/B (x) 22.5 21 18.4 16 13.5 (%) 6M 12M
EV/EBIDTA (x) 53.2 47.6 48.2 39.1 32.8
RoNW (%) 24.8 28.4 24.8 27.3 28.1 Absolute 25.5 1.9
RoCE (%) 22.1 22.2 19.7 21.8 22.5 Relative to Sensex 4.0 2.2
Bharti Airtel Industry: Telecom services
CMP: Rs. 451
0
• Bharti Airtel is India’s second-largest telecom player, with a diversified strategic non-telecom business (homes, enterprise and 3R MATRIX
DTH), strong digital capabilities and robust network coverage. It has a stake in Bharti Infratel and also has a presence in Africa.
• We believe Bharti is well-positioned given a favourable market structure (moving towards a two-player market) and continued + = -
weakness in Vodafone Idea (losing market share). Bharti is expected to hugely benefit from consolidation in the sector, given
RS 
increasing ARPU and a low smartphone mix.
RQ 
• Greater 2G to 4G upgrades, digital strategies, greater postpaid subscribers and bundling of other services (DTH and
broadband) would help Airtel drive ARPU. Digital strategies have been helping the company to acquire quality customers, RV 
increase wallet share, reduce churn rate and eliminate waste.
• We remain positive on Bharti, considering its strong EBITDA performance, continued growth in 4G subscriber base and Stock data
potential improvement in free cash flows.
• Key risks: Increasing competition could keep up the pressure on realisations. Any slowdown in data volume growth could Market Cap (Rs. cr) 2,45,937
affect revenue growth. 52-wk High-Low (Rs.) 611/350

BSE code: 532454
Revenue 80,780 87,539 1,03,582 1,18,150 1,26,219 NSE code: BHARTIARTL
OPM (%) 32 41.7 45.8 48.5 52.8
Adjusted PAT -3,977 -3,630 1,048 8,008 12,898
% y-o-y growth NM NM NM NM 61.1
Adjusted EPS (Rs.) -10 -7 1.9 14.7 23.7 Stock Performance
P/E (x) NM NM - 30.7 19.1
P/B (x) 3.4 3.2 3.9 2.7 1.5 (%) 6M 12M
EV/EBIDTA (x) 13.9 9.2 7.8 6.0 4.9
RoNW (%) NM NM 1.4 9.9 9.9 Absolute (7.1) 25.4
RoCE (%) 2.4 4.5 8.6 12.2 13.2 Relative to Sensex (31.4) 25.2
HDFC Life Industry: Bank & Finance
CMP: Rs. 587
0
• HDFC Life (HLIC) is the leading life insurance player, promoted by HDFC Ltd (50.14% stake). HLIC offers a wide and balanced 3R MATRIX
range of individual and group insurance solutions for protection, pension, savings, investment etc. HLIC has a pan-India reach
with over 400 branches and stable partnerships with new age tie-ups and partnerships, including with HDFC Bank.
+ = -
• The enviable combination of brand + distribution supplemented by product and technological innovations, make it one of best
RS 
Insurance franchises in India.
RQ 
• The insurance sector has a huge growth potential in India, due to factors like a large protection gap, the expanding per capita
income etc. Capable players like HLIC, armed with right mix of products, services and distribution mix are likely to gain RV 
disproportionally from it.
• The stock trades at a valuation of 4.1x/3.4x its FY2022E/FY2023E EVPS. A well-diversified product bouquet (no segment Stock data
contributing more than 30% of the APE), strong brand image and strong metrics make HLIC attractive.
• Key risks: A slowdown in business operations and higher slippages/bond downgrades due to economic weakness may impact Market Cap (Rs. cr) 1,18,371
earnings outlook. 52-wk High-Low (Rs.) 648/339

BSE code: 540777
EV 18,301 20,650 23,748 28,260 33,629 NSE code: HDFCLIFE
New Business Margins (%) 24.6 25.9 23 24 24
Net worth 5,660 6,992 7,981 9,129 10,335
PAT 1,278 1,295 1,373 1,594 1,676
P/BV (x) 20.4 16.5 14.4 12.6 11.1 Stock Performance
P/EPS (x) 90.2 89 83.9 72.3 68.7
P/EV (x) 6.3 5.6 5 4.2 3.4 (%) 6M 12M
ROE (%) 22.6 18.5 17.2 17.5 16.2
ROA (%) 1 1 0.9 0.9 0.8 Absolute 12.9 -6.1
Source: Sharekhan estimates Relative to Sensex -14.8 -9.9

Info Edge Industry: Internet & New media
CMP: Rs. 3,612
0
• Info Edge is India’s largest listed Internet technology player, operating in online recruitment, real estate, matrimony and other 3R MATRIX
businesses. It also invests in start-ups and has been successfully aiding growth of companies such as Zomato and Policybazaar.
• The COVID-19 outbreak has created a shift in consumer behaviour, which would drive significant online adoption across + = -
categories (insurance, food delivery, e-commerce, gaming, online education and tele-medicines). Despite a slowdown, RS 
business momentum at Zomato and PolicyBazaar remains stable.
RQ 
• With its dominant market share and strong cash-flow generation capabilities, any slowdown in the economy would provide RV 
the company an opportunity to gain market share among close peers.
• With the recent QIP, Info Edge has a cash balance of Rs. 33 billion that would be largely used for big-ticket M&As in one of its
Stock data
operating businesses.
• Key risks: Intense competition from both international and domestic players in the recruitment business could affect the Market Cap (Rs. cr) 46,439
growth trajectory and margins of the recruitment business. 52-wk High-Low (Rs.) 3,784/1,580

BSE code: 532777
Revenue 1,098 1,272 1,162 1,566 1,847 NSE code: NAUKRI
OPM (%) 31.1 31.6 37.4 40.9 42.2
Adjusted PAT 315 328 343 504 607
% y-o-y growth 15.1 4.4 4.4 46.8 20.4
P/E (x) 140.7 134.8 134.9 92.1 76.3
P/B (x) 18.9 18.1 17.2 14.9 12.8 (%) 6M 12M
EV/EBIDTA (x) 127.5 107.7 105.6 71.6 58.6
Absolute 45.7 45.3
RoNW (%) 13.6 13.5 12.8 16.3 16.8
RoCE (%) 18.6 17.9 17 21.5 22.3 Relative to Sensex 23.7 45.6
Ipca Labs Industry: Pharmaceuticals
CMP: Rs. 2,350
0
• Ipca Labs (Ipca) is a fully-integrated Indian pharmaceutical company, manufacturing more than 350 formulations and 80 APIs 3R MATRIX
for various therapeutic segments. Ipca is a therapy leader in India in the anti-malarial segment. The company has consistent
financial record with revenues and PAT clocking a 13% and 60% CAGR over FY2016-2020 (OPM improved remarkably from
11.5% in FY2016 to 19% in FY2020). + = -
RS 
• Ipca sees a double-digit growth trajectory to sustain for both API and Formulations segment. Ipca is witnessing strong demand
traction in the API segment and is implementing de-bottlenecking to ease out the capacity constraints, which would drive RQ 
growth over the next two years.
RV 
• The formulations business to is expected to grow at a healthy pace. The domestic formulations segment too is expected to
improve. IPCA sees margin expansion in FY2021, to be driven by favorable mix, operating leverage and lower costs.
Stock data
• Strong revenue growth and margin expansion, almost near-nil remedial costs, a sturdy balance sheet and healthy return ratios
augur well for Ipca. Sales and PAT are expected to grow by 18% /41% CAGR for FY2020-FY2022. Market Cap (Rs. cr) 29,798
• Key risks: Regulatory risk including delay in regulatory clearance of Pithampur and Pipariya plants 52-wk High-Low (Rs.) 2,455/967

BSE code: 524494
Revenue 3,284 3,773 4,649 5,473 6,452 NSE code: IPCALAB
OPM (%) 13.8 18.3 19.5 24.2 25.2
Adjusted PAT 239 442 603 953 1192
% y-o-y growth 23.1 84.7 36.5 58 25
Adjusted EPS (Rs.) 19 35.1 47.8 75.6 94.5 Stock Performance
P/E (x) 123.8 67 49.1 31.1 24.9
P/B (x) 11 9.5 8.2 6.5 5.1 (%) 6M 12M
EV/EBIDTA (x) 66.4 43.3 33.2 22.4 17.7
RoNW (%) 9.5 15.3 18.1 23.4 23.2 Absolute 47.7 139
RoCE (%) 9.1 15.4 18.6 24.6 25.3 Relative to Sensex 26.2 138
Kotak Mahindra Bank Industry: Bank & Finance
CMP: Rs. 1,571
0
• Kotak Mahindra Bank is one of India’s leading financial services conglomerates. The group has a wide distribution network 3R MATRIX
through branches and franchisees across India and offers a wide range of financial services including commercial banking,
stock broking, mutual funds, insurance, investment banking, etc.
+ = -
• Improving liability profile augurs well for long-term sustainability; CASA ratio of ~57% (highest among peers) indicates the
RS 
strength of bank’s liability franchise. Going forward, bank is to shift focus on growth which augurs well.
RQ 
• KMB has been able to consistently grow and gain market share in advances as well as its deposits in last 5 years. This is despite
maintaining a cautious stance (a key differentiator) of the bank’s quality of management which has been able to side-step and RV 
calibrate its sector wise growth much ahead of the industry.
• KMB’s strong operating metrics, prudent and agile leadership team, well capitalized balance sheet, as well as the quality of its Stock data
subsidiaries (formidable players in own segments) provide long-term value. The recent capital issue, provides the bank with
wherewithal to pursue inorganic opportunities as well. Market Cap (Rs. cr) 3,10,973
• Key risks: A prolonged lockdown and consequent rise in NPAs can pose risks to profitability 52-wk High-Low (Rs.) 1,740/1,000

BSE code: 500247
NII 11,259 13,500 13,966 15,008 16,511 NSE code: KOTAKBANK
PPoP 8,348 10,021 10,335 11,369 12,792
PAT 4,865 5,947 6,064 7,388 8,133
EPS (Rs) 25.5 30.9 31.8 38.8 42.7
BVPS (Rs) 224.7 256.2 327.2 364.4 405.4 Stock Performance
PE (x) 61.6 50.9 49.3 40.5 36.8
P/B (x) 7 6.1 4.8 4.3 3.9 (%) 6M 12M
RoE (%) 11.3 12.1 9.7 10.6 10.5
RoA (%) 1.6 1.7 1.4 1.5 1.5 Absolute 8.6 -11.1
Source: Sharekhan estimates Relative to Sensex -17.9 -13.4

Larsen & Toubro Industry: Capital Goods
CMP: Rs. 935
0
• Larsen and Toubro (L&T) is a best-in-class EPC company, and dominates the domestic EPC market along with consistent 3R MATRIX
revenue growth, large room to grow in absolute revenue terms, business diversification, and operating profitability and an
early beneficiary to benefit from the revival in the capex cycle
+ = -
• The company remains at the forefront to reap benefits from the recently-announced Atma Nirbhar Bharat scheme from the
RS 
government with its diversified businesses across sectors like defence, infrastructure (roads, railways, metros, DRC), heavy
engineering, IT (digitalisation). RQ 
• Order inflow pipeline remains robust and provides healthy visibility for bagging orders ahead. It also remains focussed to RV 
divest its non-core assets which will enhance the balance sheet and aid the RoCE expansion further.
• L&T is better poised to ride any uncertainties owing to multiple levers such as strong business model, diversified order book, Stock data
and healthy balance sheet. We expect L&T revenues and PAT to clock a CAGR of 11% and 22% over CY2021-23E.
• Key risks: Slowdown in domestic macro-economic environment or weakness in international capital investment can affect Market Cap (Rs. cr) 1,31,221
business outlook and earnings growth. 52-wk High-Low (Rs.) 1,491/661

BSE code: 500150
Revenue 1,35,220 1,45,452 1,43,897 1,62,247 1,76,053 NSE code: LT
OPM (%) 11.3 11.2 11 11.5 11.8
Adjusted PAT 8,905 9,549 7,502 9,519 11,257
% y-o-y growth 22.9 7.2 -21.4 26.9 18.3
Adjusted EPS (Rs.) 63.4 68 53.5 67.9 80.3 Stock Performance
P/E (x) 14.7 13.8 17.5 13.8 11.6
P/B (x) 2.1 2 1.6 1.5 1.4 (%) 6M 12M
EV/EBIDTA (x) 13 12.7 13.1 11.1 10.2
RoNW (%) 14.2 13.8 10.2 11.3 12.4 Absolute -17 -27
RoCE (%) 7.5 7.3 6.6 7.7 8.4 Relative to Sensex -20 -32
SRF Limited Industry: Speciality Chemm
CMP: Rs. 4,446
0
• SRF is chemical-based multi-business entity that manufactures industrial and specialty intermediates. The company’s diversified
3R MATRIX
businesses cover Technical Textiles, Chemicals (fluorochemicals and specialty chemicals) and packaging films. The company has 11
manufacturing plants in India, two in Thailand, one in South Africa and an upcoming facility in Hungary.
+ = -
• The company is expected to deliver healthy growth in the chemical business led by the opportunities created by the China Plus one
strategy adopted by global players coupled with government thrust on Aatma Nirbhar Bharat initiative so as to reduce import RS 
dependence and be self-reliant. RQ 
• SRF’s focus to expand share of speciality chemicals and add niche products in the chemicals segment and value-added products In RV
packaging film business to bodes well for margins. 
• Calibrated expansion in the right segments (chemicals and packaging films) will help the company deliver a healthy revenue/PAT
CAGR of 16%/22.6% over FY2020-23E. The company’s balance sheet is likely to strengthen further despite expansion plans as strong Stock data
cash-flow generation to support capex.
Market Cap (Rs. cr) 26,339
• Key risks: Slowdown in off-take from user industries and concerns over product price correction can impact revenue growth. Input
cost price volatility might hit margins. 52-wk High-Low (Rs.) 4,550/2,492

BSE code: 503806
Revenue 7,100 7,209 7,943 9,821 11,263 NSE code: SRF
OPM (%) 18.3 20.2 22.3 22.4 22.5
Adjusted PAT 614 812 960 1,234 1,495
% y-o-y growth 33.2 32.1 18.2 28.6 21.1
Adjusted EPS (Rs.) 105 138.8 164 211 255.5 Stock Performance
P/E (x) 42.3 32 27.1 21.1 17.4
P/B (x) 6.3 5.3 4.5 3.7 3.1 (%) 6M 12M
EV/EBIDTA (x) 22.4 19.9 16.3 12.9 11.2
RoNW (%) 3.4 1.7 11.9 13 14.6 Absolute 20 59
Tata Consumer Products Industry: Consumer Goods
CMP: Rs. 491
0
• Tata Consumer Products (TCPL) is one of largest player in the branded tea space in domestic and international markets such as 3R MATRIX
Europe and Canada. With the merger of Tata Chemicals’ consumer business, it has become a household name in India with
strong portfolio of brands in branded tea, salt and pulses.
+ = -
• The merger of Tata Chemical’s consumer business brings a lot of synergistic benefits in the form of expansion of product
RS 
portfolio, scale-up in distribution reach and rise in contribution of domestic business to 60%. These synergies provide a large
scope to achieve sustainable growth in the coming years (along with margin expansion of 2-3% over the next 2-3 years). RQ 
• In-the-Kitchen segment is worth Rs. 21 lakh crore in India. Post the COVID-19 outbreak, consumers increasingly preferred RV 
home cooked food and are shifting to branded products, which augurs well for TCPL from long term perspective.
• The integration of TCL’s consumer business with TCPL heightens sustainable revenue and PAT growth visibility owing to Stock data
multiple growth levers. We expect consolidated revenue and PAT to grow at CAGR of 12% and 20% over FY2020-23E.
• Key risks: Slowdown in the domestic consumption; heightened competition from new players and spike in the key input prices Market Cap (Rs. cr) 45,262
would act as a key risk to our earnings estimates in the near term 52-wk High-Low (Rs.) 592/214

BSE code: 500800
Revenue 7,252 9,637 10,758 11,910 13,195 NSE code: TATACONSUM
OPM (%) 10.8 13.4 14.8 15.1 15.5
Adjusted PAT 479 661 887 1,093 1,264
% y-o-y growth -16 37.9 34.2 23.2 15.7
P/E (x) 64.7 68.5 51.1 41.4 35.8
P/B (x) 4.2 3.3 3.1 3 2.9 (%) 6M 12M
EV/EBIDTA (x) 38 33.6 26.9 23.4 20.2
RoNW (%) 6.9 7 7.3 8.1 8.8 Absolute 38.7 72.4
RoCE (%) 8.8 9 8.8 10 11 Relative to Sensex 17.3 72.6
Source: Sharekhan estimates * Estimates are including financials of Tata Chemicals’ consumer biz
Tech Mahindra Industry: IT & ITeS
CMP: Rs. 806
0
• Tech Mahindra (TechM) is India’s fifth-largest IT outsourcing company. Over the past decade, Tech Mahindra has successfully 3R MATRIX
transformed from a telecom-focused player to a company with a wide portfolio of differentiated offerings in the enterprise
segment.
+ = -
• TechM is well-placed to capitalise opportunities from three mega-trends i.e 5G, connected devices and telecom-media
RS 
convergence, given its early investments in network capabilities, investments in IPs, platforms and partnerships to develop an
ecosystem play. RQ 
• Management expects double-digit growth over next couple of years on the back of anticipated growth in enterprise segment, RV 
potential 5G opportunities and strong deal wins
• We prefer TechM on the back of anticipated improvement in growth in enterprise segment, 5G opportunity and scope for a Stock data
rise in margins. We expect TechM’s USD revenue/earnings to clock a CAGR of 10.5%/15.5% over FY2021-FY23E.
• Key risks: Any hostile development with respect to the current visa regime would affect employee expenses. Further, a delay Market Cap (Rs. cr) 77,883
in pick-up of 5G-related spends would affect revenue estimates. 52-wk High-Low (Rs.) 887/470

BSE code: 532755
Revenue 34,742 36,867 38,103 42,231 46,559 NSE code: TECHM
OPM (%) 18.2 15.5 17 17.5 17.9
Adjusted PAT 4,297 4,250 4,117 4,749 5,495
% y-o-y growth 13.1 -1.1 -3.1 15.3 15.7
Adjusted EPS (Rs.) 47.7 45.9 46.8 54 62.5 Stock Performance
P/E (x) 16.9 17.6 17.2 14.9 12.9
P/B (x) 3.5 3.2 2.9 2.6 2.3 (%) 6M 12M
EV/EBIDTA (x) 11 12.4 10.7 8.9 7.5
RoNW (%) 22 19.2 17.9 18.6 19.3 Absolute 62.0 16.8
RoCE (%) 24 20.5 18.8 20.1 21.2 Relative to Sensex 34.3 12.6
The 3R Research Philosophy 0
Understanding the Sharekhan 3R Matrix
Right Sector
Strong industry fundamentals (favorable demand-supply scenario, consistent industry growth), increasing investments, higher entry barrier, and favorable
Positive
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental investments by Government/private companies
Unable to recover from low in the stable economic environment, adverse government policies affecting the business fundamentals and global challenges (currency
Negative
headwinds and unfavorable policies implemented by global industrial institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Sector leader, Strong management bandwidth, Strong financial track-record, Healthy Balance sheet/cash flows, differentiated product/service portfolio and Good
Positive
corporate governance.
Macro slowdown affecting near term growth profile, Untoward events such as natural calamities resulting in near term uncertainty, Company specific events such
Neutral
as factory shutdown, lack of positive triggers/events in near term, raw material price movement turning unfavourable
Weakening growth trend led by led by external/internal factors, reshuffling of key management personal, questionable corporate governance, high commodity
Negative
prices/weak realisation environment resulting in margin pressure and deteriorating balance sheet
Right Valuation
Strong earnings growth expectation and improving return ratios but valuations are trading at discount to industry leaders/historical average multiples, Expansion in
Positive
valuation multiple due to expected outperformance amongst its peers and Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in valuation multiples.
Trading at premium valuations but earnings outlook are weak; Emergence of roadblocks such as corporate governance issue, adverse government policies and bleak
Negative
global macro environment etc warranting for lower than historical valuation multiples.
Disclaimer 0
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customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data
and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and
employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates
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Diwali Picks 2020 - 301020

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Sharekhan Diwali Picks - Consistent track record 0

2016 38.0 14.7 15.8

2017 4.0 3 -11

2018 8.0 10 -5.7

2019 6.6 2.9 8.9

Wish you a Very Happy Diwali and a Prosperous New Year!

EPS/BV (Rs.) PER /PBV (x) RoE (%)

NSE Volumes 1.9 lakh

NSE Volumes 0.8 lakh

NSE Volumes 26.6 lakh

NSE Volumes 231.1 lakh

NSE Volumes 40.6 lakh

Source: Sharekhan estimates Relative to Sensex -14.8 -9.9

NSE Volumes 4.8 lakh

NSE Volumes 3.6 lakh

NSE Volumes 50.4 lakh

Source: Sharekhan estimates Relative to Sensex -17.9 -13.4

NSE Volumes 56.9 lakh

NSE Volumes 2.7 lakh

NSE Volumes 50.0 lakh

NSE Volumes 55.5 lakh

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