Investor’s Eye

April 03, 2020

Index
Stock Update - Cipla
Stock Update - Ratnamani Metals & Tubes
Sector Update - Automobiles

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 Stock Update
Cipla
Gaining traction

Cipla Limited (Cipla) has announced the successful completion of a

Sector: Pharmaceuticals
clinical study for Fluticasone Propionate and Salmeterol inhalation
Company Update powder. These drugs are the generic equivalents of the formulation
Advair Duskus and are indicated for treatment of asthma in patients
Change aged four years and above. Moreover, they are indicated to treat chronic
obstructive pulmonary disorder in the long term. Roads are now clear
Reco: Buy  for Cipla to file the product with the regulator – USFDA, which is likely
CMP: Rs. 449 to take place in the next 3-4 months. However, being a complex product,
the approval could take more than a year. Advair and its equivalents
Price Target: Rs. 540  have clocked sales of $2.9 billion in the past 12 months ending February
2020 as per the IQVIA, thus pointing at a substantial opportunity.
á Upgrade  No change â Downgrade
Being a product that sees low competition, it would provide sustainable
revenues once launched. The outlook for Cipla’s domestic business
Company details is also encouraging. The management’s efforts to merge the three
business (prescription, trade generics and consumer health) is expected
Market cap: Rs. 36,208 cr to yield synergies, which augur well for the company. New launches
lined up in the US in the near to medium term would also be growth
52-week high/low: Rs. 586 / 357
drivers. Moreover, the management is working closely with the USFDA
to resolve issues around its Goa plant (OAI indicated by the US FDA) and
NSE volume: (No of
shares)
33.1 lakh seems confident of a resolution.
Our Call
BSE code: 500087
Valuation - Maintain Buy with unchanged PT of Rs. 540: Cipla is expected
NSE code: CIPLA to file for Fluticasone Propionate and Salmeterol inhalation powder
(generics equivalents of Advair Duskus)with the USFDA around Q1FY2021,
Sharekhan code: CIPLA as the company has completed the clinical study. This is an important
milestone and is a testimony to Cipla’s strong respiratory capabilities and
Free float: (No of would strengthen the respiratory franchise in US.With the restructuring
51.1 cr of the domestic business largely behind and the management taking
shares)
concentrated efforts to correct the imbalance in the product portfolio,
domestic revenues are expected to gain traction over the near to medium
Shareholding (%) term. The international business is also expected to grow at a healthy
pace. In the US, a slew of new products approval and launches would be
Promoters 36.7 key growth drivers. However, the recent appreciation in the ZAR (South
African Rand) by around 13% in the past one month is likely to have an
FII 21.1 impact as South Africa was one of the fastest growing geographies for
DII 20.9 Cipla, recording a 20% y-o-y growth for the quarter ending December
2019. Cipla’s stock price corrected by ~22% in a little over the past eight
Others 21.4 months from its highs and is currently trading at a valuation of 19x / 14.2x its
FY2021E / FY2022E earnings, which is lower than the long-term historical
average multiple. We maintain our Buy recommendation on the stock with
an unchanged PT of Rs. 540.
Price chart
600 Key Risks
550
500
1) Currency fluctuations could hurt, as exports form ~60% of business, 2)
450
Delay in key product approvals / faster approvals for competitors’ products
400
and 3) Any regulatory changes in India, South Africa or the US could affect
350 business.
300
Aug-19

Dec-19
Apr-19

Apr-20

Valuation (Consolidated) Rs cr
Particulars FY18 FY19 FY20E FY21E FY22E
Net sales 15219.3 16362.4 17460.4 18605.3 20332.3
OPM (%) 18.6 18.9 19.1 19.4 21.4
Price performance Reported PAT 1416.6 1492.4 1712.6 1913.5 2551.7
(%) 1m 3m 6m 12m EPS (Rs) 17.6 18.7 21.2 23.7 31.6
PER (x) 25.6 24.0 21.2 19.0 14.2
Absolute 5.5 -4.5 7.4 -14.0 EV/Ebidta (x) 14.1 13.2 12.0 10.8 8.7
P/BV (x) 2.5 2.4 2.2 2.0 1.8
Relative to
34.0 28.9 35.0 15.0 ROCE (%) 9.7 11.1 12.3 13.0 15.4
Sensex
RONW (%) 11.2 10.3 10.9 11.0 13.1
Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

April 03, 2020 2

 Stock Update
Advair Filling on the cards; Cipla successfully completes clinical trials: Cipla has announced that it has
successfully completed Stage-III of the clinical trialsfor Fluticasone Propionate and Salmeterol inhalation
powder (100/50 mcg), which are generic versions of Advair Duskus. The study was extensive and was
conducted on over 1,400 Asthma patients. The treatment depicted therapeutic equivalence and there were
no safety concerns. The drug is indicated for treatment of Asthma in patients aged four and above. It is
also indicated to treat Chronic Obstructive Pulmonary Disorder in the long term, including chronic bronchitis,
emphysemaor both, for better breathing and fewer flare-ups. Post the successful trials, Cipla would now be
in a position to file the product with the USFDA, which is expected to be done over next 3-4 months. As the
product is a complex one and taking cues from industry players, there is a high probability of the approval
taking longer than one year. As per IQVIA, Advair Duskus alongwith its generic equivalents, has generated
USD 2.9 billion sales over 12 month ending February 2020. Further, considering the development cycle of
other players for Advair, the product is likely to face lesser competition atleast till CY2025. This points to a
substantially-sized opportunity for Cipla, once the drug is launched.
Domestic business restructuring done; to add to the topline growth: Cipla’s domestic business accounts for
around 40% of revenue.The India business primarily comprises of prescription, trade generics and consumer
health. Over the recent past the management has successfully merged three segments (Trade + prescription+
OTC) in the domestic business, to leverage the existing product portfolio and distribution reach.Moreover,
issues relating to realignment of distributors have been fully resolved. With the restructuring of the domestic
business largely done, the management is looking at a strong growth momentum from the India business,
leveraging the heathy growth in the prescription and generics space.

Domestic and Exports revenue mix (FY2017 – FY2022E)

120.0

100.0

80.0

60.0

40.0

20.0

0.0
FY2018 FY2019 FY2020E FY2021E FY2022E

Exports (%) Domestic (%)

Source: Company, Sharekhan Research

April 03, 2020 3

 Stock Update
Financials in charts

Revenues on an increasing trend Operating Profit - Growth

25000 16 5000 25.0
14 4500
20000 4000 20.0
12
3500 15.0
15000 10
3000
8 2500 10.0
10000 6 2000
1500 5.0
4
5000 1000 0.0
2 500
0 0 0 -5.0
FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E

Sales (Rs Cr - LHS) Sales Growth (% - RHS) Operating Profit (Rs Cr -LHS) Growth (%- RHS)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

PAT - Growth Gross Margin Trends (%)

3000 50 66.0
40
2500 65.0
30
2000
20 64.0
1500 10
63.0
0
1000
-10 62.0
500
-20
61.0
0 -30
FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E
FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E
Profit (Rs cr - LHS) Growth (% - RHS) Gross margin

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

OPM - PAT Margin trends (%) Return Ratios improving (%)

25.0 16.0

20.0 14.0

15.0 12.0

10.0 10.0

5.0 8.0

0.0 6.0
FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E FY2017 FY2018 FY2019 FY2020E FY2021E FY2022E

OPM (%) PATM (%) RoCE (%) RoE (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

April 03, 2020 4

 Stock Update
Outlook
Cipla has completed the clinical study for Fluticasone Propionate and Salmeterol inhalation powder and the
stage is set for filing of the product. The immense size of the opportunity (as per IQVIA, Advair has combined
sales of $ 2.9 billion on an annual basis as of February 2020) offered by the product and limited competition
in the space augurs well for Cipla. Once launched, the medicine is likely to generate substantial revenues in
the first year and the traction is expected to continue. Cipla’s domestic business also would be a key growth
driver. The management’s concentrated efforts to generate synergies by merging all three businesses in India
is expected to yield significant benefits. Issues around the re-alignment of distributors have been resolved,
which in positive for the company.Businesses across other geographies also are well-set to capitalise on the
upcoming opportunities and are likely to gain traction.

Valuation
Maintain Buy with unchanged PT of Rs. 540: Cipla is expected to file for Fluticasone Propionate and
Salmeterol inhalation powder (generics equivalents of Advair Duskus)with the USFDA around Q1FY2021, as
the company has completed the clinical study. This is an important milestone and is a testimony to Cipla’s
strong respiratory capabilities and would strengthenthe respiratory franchise in US.With the restructuring of the
domestic business largely behind and the management taking concentrated efforts to correct the imbalance
in the product portfolio, domestic revenues are expected to gain traction over the near to medium term. The
international business is also expected to grow at a healthy pace. In the US, a slew of new products approval
and launches would be key growth drivers. However, the recent appreciation in the ZAR (South African Rand)
by around 13% in the past one month is likely to have an impact as South Africa was one of the fastest
growing geographies for Cipla, recording a 20% y-o-y growth for the quarter ending December 2019. Cipla’s
stock price corrected by ~22% in a little over the past eight months from its highs and is currently trading at a
valuation of 19x / 14.2x its FY2021E / FY2022E earnings, which is lower than the long-term historical average
multiple. We maintain our Buy recommendation on the stock with an unchanged PT of Rs. 540.

One-year forward P/E (x) band

50
45
40
35
30
P/E (x)

25
20
15
10
5
0
Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19
Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20

P/E (x) Avg. P/E (x) Peak P/E (x) Trough P/E (x)

Source: Sharekhan Research

April 03, 2020 5

 Stock Update
About company
Cipla is a global pharmaceutical company with a geographically diversified presence and products registered
in more than 170 countries. Indian branded formulations account for more than 40% of business and Cipla is
among the top three players in the market. In the past, the company believed in the partnership model for
international markets. However, in the past three years, the company is undergoing a strategic shift and has
started setting up its own front-end divisions. Cipla is also a well-known global player in inhalers and anti-
retrovirals. Going forward, the company is planning to launch combination inhalers in larger markets such as
the US and EU and is also setting up own front-ends to drive growth.

Investment theme
Cipla banks on its branded business in India and South Africa, both of which together contribute ~60% of
business. Despite the challenging environment in the US and Europe, Cipla is insulated from it as it has
limited exposure to these markets. The India and South Africa businesses are cash cows, the returns of which
it invests in developed markets to gain scale.Moreover, an improving product mix,operational efficiencies and
optimal capacity utilisation will help the company expand margins significantly in the next two years. With the
successful completion of clinical study for Fluticasone Propionate and Salmeterol inhalation powder, Generic
equivalent of Advair, Cipla would be filing for the product with the USFDA. This is an important milestone and
is a testimony to Cipla’s strong respiratory capabilities and will go a long way in strengthening the respiratory
franchise in the US.

Key Risks
Š Currency fluctuations could hurt, as exports form ~60% of business
Š Delay in key product approvals / faster approvals for competitors’ products
Š Any regulatory changes in India, South Africa or the US could affect business.

Additional Data
Key management personnel
Mr. Umang Vohra Managing Director & Global Chief Executive Officer
Dr. R. Ananthanarayanan Global Chief Operating Officer
Mr. Kedar Upadhye Global Chief Financial Officer
Dr. Raju Mistry Global Chief People Officer
Dr. Ranjana Pathak President - Global Quality, Medical Affairs & Pharmacovigilance
Ms. Geena Malhotra President &Global Head – Mfg Operations & Respiratory Centre
of Excellence
Source: Company Website

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 ICICI Prudential Asset Management 6.39
2 Life Insurance Corp of India 3.48
3 First State Investments ICVC 3.12
4 HDFC Asset Management Co Ltd 3.08
5 Aditya Birla Sun Life Asset Manage 2.16
6 Reliance Capital Trustee Co Ltd 1.66
7 Vanguard Group Inc/The 1.46
8 BlackRock Inc 1.4
9 GOVERNMENT PENSION FUND - GLOBAL 1.22
10 Norges Bank 1.16
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

April 03, 2020 6

 Stock Update
Ratnamani Metals & Tubes
Rattled by Corona, but not for long

With the entire country in a lockdown owing to spread of the Coronavirus,

Sector: Capital Goods Ratnamani Metals & Tubes (RMTL) temporarily closed its three
Company Update manufacturing plants since March 23, 2020. As a result, the company
lowered its FY2020 revenue guidance to Rs. 2,600 crore (deviation of +/-
Change Rs. 50 crore) from Rs. 2,700 crore (deviation of +/- Rs. 100 crore) earlier.
This implies a decline of -4% to -7% in revenue in FY2020. However, the
Reco: Buy  company retained its EBITDA margin guidance at 16-18% (with a minor cut
in profitability owing to lower revenue in Q4FY2020). Management expects
CMP: Rs. 897 that production in its manufacturing units would restart from April 15, 2020
onwards, after relaxation of lockdown mandates, which is confirmed by the
Price Target: Rs. 1,250 â Cabinet Secretary.The order book currently remains at around Rs. 1,300-
á Upgrade  No change â Downgrade 1,400 crore, of which export orders are close to at Rs. 300 crore and orders in
the stainless steel segment stays in the range of Rs. 500-550 crore.Impact
of Coronavirus would be felt in – (i)delay in the trial run of its expanded
Company details manufacturing facilities by 1-2 months owing to travel restrictions and (ii)
delay in order intake on government projects from the start of FY2022E
Market cap: Rs. 4,193 cr given the deteriorating financial position of central and state governments
owing to recent economic implications from the Coronavirus outbreak.
52-week high/low: Rs. 1383/715 Order inflows likely to normalise from Q2FY2021E: The management
indicated that the current order book remains healthy at around Rs. 1300-
NSE volume: (No of 1400 crore.The impact on order inflows would be pronounced in the nearterm
0.2 lakh
shares) due to lockdown measures. However, the management expects order inflows
to normaliseduring Q2FY2021E as lot of orders are in the pipeline, pending
BSE code: 520111 final discussions and lot of tenders are in the stage of finalisation. Further,
the company has major exposure in Saudi Arabia and the company does
NSE code: RATNAMANI not see any major cut down of capex plan by clients in thisregion. However,
management highlighted that there could be an impact on order inflows
Sharekhan code: RATNAMANI from Africa and Middle East region if the crude price remains low for a longer
period.
Free float: (No of Our Call
1.86 cr
shares)
Valuation: Cut EPS by 5-9%, but maintain Buy with revised PT of Rs.
1,250: We cut our earnings estimates by 5%/9%/6% for FY2020E/FY2021E/
FY2022Eto factor in i) temporary shutdown of manufacturing plants, ii)
Shareholding (%) lowering of revenue growth guidance for FY2021E, iii) travel restrictions likely
to lead to delay in commissioning of additional capacity and iv) lack of order
Promoters 60 intake visibility for FY2022 owing to stress on the government’s financial
position. We remain Positive on Ratnamani, led by a strong balance sheet
FII 10 and its ability to generate superior return ratios despite capacity expansions.
DII 13 At CMP, the stock is trading at 14x/12x of its FY2021E/FY2022E earnings. The
stock price of RMTL has corrected by more than 30% in last one month and
Others 17 offers good entry point to long-term investors. Hence, we maintain our Buy
rating on RMTL with a revised PT of Rs. 1,250.
Key Risks
Price chart Š Weak demand offtake or delay in commissioning of plants might impact
revenue growth momentum.
1,375
1,250
Š Inability to take adequate and timely price hikes to mitigate volatility in
input costs might impact margins.
1,125
1,000
875
750 Valuation Rs cr
Apr-19

Apr-20
Aug-19

Dec-19

Particulars FY18 FY19 FY20E FY21E FY22E

Revenues 1,766.8 2,754.9 2,576.2 2,799.3 3,174.3
OPM (%) 15.1 14.8 16.0 16.1 16.3
Adjusted PAT 151.8 252.9 288.2 298.8 341.8
Price performance
% YoY growth 5.1 66.6 13.9 3.7 14.4
(%) 1m 3m 6m 12m Adjusted EPS (Rs.) 32.5 54.1 61.7 63.9 73.2
P/E (x) 27.6 16.6 14.5 14.0 12.3
Absolute -33 -19 -5 -1 P/B (x) 3.2 2.8 2.4 2.1 1.8
EV/EBITDA (x) 16.0 10.1 9.4 8.2 6.7
Relative to
-4 15 23 28 RoNW (%) 12.2 17.9 17.5 15.7 15.6
Sensex
RoCE (%) 15.4 22.5 20.1 19.1 19.2
Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

April 03, 2020 7

 Stock Update
Coronavirus prompts temporary closure of plants,delays order intake in FY2022E: With the Coronavirus
outbreak and the nationwide lockdown, Ratnamani Metals & Tubes (RMTL) has temporarily shut down three
manufacturing plants from March 23, 2020. Management expects production to resume from April 15, 2020
onwards post relaxation of the lockdown as confirmed by the Cabinet Secretary. Further, there could be delay
in the trial run of its expanded manufacturing plants by 1-2 months, owing to non-arrival of technicians due
to travel restrictions. Hence, the trial run is now expected in May-June against April-May earlier. However,
the management remains confident that the commercial production of this expanded facility would start
as scheduled in October and the facility would available for production for the whole of H2FY2021E. We
envisage there could be some delay in order intake on government projects from the starting of FY2022E
given deteriorating financial position of central and state governments owing to recent economic implications
fromthe virus outbreak.
Lowered revenue growth guidance for FY2020E, retains margin guidance: The management reduced its
FY2020E revenue growth guidance to Rs. 2,600 crore (+/- Rs. 50 crore) from Rs. 2,700 crore (+/- Rs. 100 crore)
earlier. For the 9MFY2020, the company clocked a revenue of Rs. 1,954 crore. The management also cited
that it does not see any liquidity issue or any impact on receivables from the customer side (PSUs or private
players) as of now. The company also expects to get approval for movement of material, which has been
manufactured/ ready for dispatch within a week. The company is also making efforts to get approval for
partial production of stainless steel as a lot of export orders are lined-up. Management retained its EBITDA
margin guidance at 16-18% for FY2020E, though it indicated that there could be minor cut in profitability owing
to lower revenue in Q4FY2020. We have cut our revenue estimates by 4%/10%5% for FY2020E/FY2021E/
FY2022E respectively owing to business disruption due to the Coronavirus.
Well-placed on raw material sourcing: RMTL may not witness anyproblems on sourcing of raw materials
from international or domestic vendors.The management highlighted that its key international vendors that
are located in South Korea have started their operation. Though the company imports some raw material
from European vendors, it would have a minor impact on its production as it only imports few specialised
products from these locations. In the domestic market, steel manufacturing is considered an essential and
priority item hence it doesn’t see any concern for sourcing of raw material. However, we expect that cargo
movements via ports will be impacted in the nearterm due to travel restrictions.
Order book remains healthy, expect order inflow to pickup from Q2FY2021E: Management indicated that
the current order book remains at Rs. 1300-1400 crore, of which export orders is close to Rs. 300 crore
and stainless steel orders stays at Rs. 500-550 crore.The impact on order inflows would be pronounced in
the nearterm due to the lockdown. However, management expects normalcy of order inflow likely to return
during Q2FY2021E as lot of orders are in pipeline pending final discussion and lot of tenders are in the stage
of finalisation. However, sustenance of lower crude prices for a longer period would impact order intake
from the overseas market (especially Middle East and Africa). Note that the company has major exposure
in Saudi Arabia and the company does not see any major cut down of capex plan by clients in thisregion.
We expected that governments spending on infrastructure projects (Jal se Nal, expansion of the National
Gas Grid and among others) would enhance the overall demand for the pipes. However, we believe that the
current implications on the economy owing to the Coronavirus outbreak would defer government spending on
these projects and subsequently result in a delay in the order intake for RMTL from the starting of FY2022E.

April 03, 2020 8

 Stock Update
Financials in charts

Revenue (Rs. Cr) and growth (%) EBITDA (Rs. Cr), PAT (Rs. Cr) and growth (%)
4,000 100 600 80

540
3,272

489
3,007
2,755
80 60

2,576

412
407
3,000 450

357
60

312
55.9 40

Rs. crore

%
288
1,767

266
258

253
Rs. crore

300
1,412

2,000 40

%
20

152
144
16.7
25.1 8.8 20 150
0
1,000
(6.5)
0
(17.8) 0 -20
0 (20) FY17 FY18 FY19 FY20E FY21E FY22E

FY17 FY18 FY19 FY20E FY21E FY22E EBITDA (Rs crore) Adj. PAT (Rs crores)
Revenue (Rs Crore) Growth (%) EBITDA Growth (%) Adj. PAT Growth (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Gross margin (%), EBITDA Margin (%) & net profit margin (%) Order book (Rs. cr)

40 35.3 35.4 1,600

34.1 33.3 33.5 1,403
35 30.9 1,400
30 1,200 1,055
25 1,000
Rs. crore

18.2
20 15.1 16.0 16.3 16.5 800
14.8
15 552
600 452 438 437
378
10 400 278 301 317
10.2 11.2 10.4 10.9
5 8.6 9.2 200
0 0
FY17 FY18 FY19 FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19

Gross Margin (%) EBITDA Margin (%) PAT Margin (%) CS SS

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

RoCE (%) trend RoE (%) trend

25 23.1 20.0
22.5
17.9
20.7 17.5
20.1 18.0 17.0
19.9 16.3 16.2
20
17.4 16.0
15.4
14.0 13.0
15 12.2
12.0

10 10.0
FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Return on equity (%)

ROCE (%)
Source: Company, Sharekhan Research Source: Company, Sharekhan Research

April 03, 2020 9

 Stock Update
Outlook
Lowered revenue guidance, capacity expansion is on track: Owing to the temporary closure of its plants
on account of the nationwide lockdown, the management lowered its FY2020E revenue growth guidance to
Rs. 2600 crore (deviation of +/- Rs. 50 crore) from Rs. 2700 crore (deviation +/- Rs. 100 crore) earlier, while it
retained its EBITDA guidance of 16-18% with a minor cut in profitability owing to lower revenue in Q4FY2020.
The company expects that its manufacturing plants would be operational from April 15, 2020once the
lockdown ends as confirmed by the Cabinet Secretary. Though the order inflow could be impacted in the
nearterm owing to business disruption, management expects order inflow to normalise during Q2FY2021E
as a lot of orders are in the pipeline pending final discussion and lot of tenders are in their final stages.RMTL
is adding capacities in both the carbon steel (CS)and stainless steel (SS) divisions, which are expected to be
commissioned H2FY2021E and aid in grabbing significant opportunities which come underway in the coming
years.
Valuation
Cut EPS by 5-9%, but maintain Buy with a revised PT of Rs 1,250: We cut our earnings estimates by 5%/9%/6%
for FY2020E/FY2021E/FY2022Eto factor in i) temporary shutdown of manufacturing plants, ii) lowering
of revenue growth guidance for FY2021E, iii) travel restrictions likely to lead to delay in commissioning of
additional capacity and iv) lack of order intake visibility for FY2022 owing to stress on the government’s
financial position. We remain Positive on Ratnamani, led by a strong balance sheet and its ability to generate
superior return ratios despite capacity expansions.At CMP, the stock is trading at 14x/12x of its FY2021E/
FY2022E earnings. The stock price of RMTL has corrected by more than 30% in last one month and offers
good entry point to long-term investors. Hence, we maintain our Buy rating on RMTL with a revised PT of
Rs. 1,250.

One-year forward P/E (x) band – Trades at reasonable valuations and offers healthy upside

30

25

20
P/E (x)

15

10

0
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19
Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20
Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

P/E (x) Avg. P/E (x) Peak P/E (x) Trough P/E (x)

Source: Sharekhan Research

April 03, 2020 10

 Stock Update
About company
Incorporated in 1983, Ratnamani Metals & Tubes is a key player in piping solutions in India. It is the largest
manufacturer of Nickel Alloy/stainless steel Seamless and Welded tube/pipe and Titanium Welded Tubes
in India in India. It is also one of the leading manufacturers of Carbon Steel Welded Pipes (ERW, L-SAW and
H-SAW), Stainless Steel / Carbon Steel Pipes with 3 Layer PE / PP Coating in India. The company has two
manufacturing plants located in Gujarat and manufactures various products in Stainless steel and Carbon
steel along with value added products in each segment having capacity of 28,000 mtpa and 3,50,000 mtpa.
It caters to clients in refineries, petrochemicals, oil & gas, thermal power, nuclear power energy, fertilizers,
water distribution, chemicals, aerospace etc.

Investment theme
The company is expected to maintain its growth momentum on the back of robust demand outlook coupled
with a healthy order book. The company is expanding capacities in a calibrated manner through a mix of
internal accruals and debt. RMTL is a net debt free company with stable margin profile (EBITDA margin
~15%,PAT margin ~7.5%)& healthy return ratios (RoCE>17.5% and RoE > 12.5%).

Key Risks
Š Softness in demand offtake or delay in commissioning of plant might impact the revenue growth
momentum.
Š Inability to take adequate and timely price hikes to mitigate adverse volatility in input cost material might
impact margin profile.

Additional Data
Key management personnel
Prakash Misrimal Sanghvi
Jayantilal Mistrimal Sanghvi
Shantilal Mishrimal Sanghvi
Vimal Katta
Jigar Harshadkumar Shah
Source: Bloomberg
Executive Chairman
Executive Director
Executive Director
Chief Financial Officer
Company Secretary

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Nalanda India Fund Ltd 6.10
2 L&T Mutual Fund Trustee Ltd 4.98
3 L&T Investment Management 3.23
4 Nalanda India Equity Fund Ltd 3.13
5 Vaghela Divya 3.00
6 Kotak Mahindra Asset Management Co 2.65
7 DSP Investment Managers Pvt Ltd 2.44
8 SAIF India V FII Holdings Ltd 1.67
9 BNP Paribas Asset Management India Pvt 0.42
10 Investor Education & Protection Fund 0.32
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

April 03, 2020 11

 Sector Update
Automobiles
Coronavirus puts brakes on autos

Sector: Automobiles A confluence of unfavourable events hit the automotive industry

in March 2020. To prevent the spread of Coronavirus in India, the
View: Neutral government announced nationwide lockdown from March 24, 2020.
The entire automotive ecosystem, including manufacturing plants
(both OEM and auto ancillary players) and dealerships, was shut.
The month of lockdown coincided with transition from BS-IV to BS-VI
emission norms, as March 2020 was the last month for sales of BS-
Our coverage universe IV compliant vehicles. Automotive OEMs resorted to clearing channel
Companies CMP Reco. PT (Rs) inventory, resulting in lower wholesales during the month. Moreover,
(Rs) supply chain issues (import of certain components) at select OEMs
Maruti 4,012 Hold 5,500
such as Mahindra & Mahindra (M&M) were impacted on account of
Suzuki Coronavirus, which further dented the performance. As anticipated by
Hero 1,584 Buy 2,200
us as well as street, most OEMs registered volume decline ranging
Motocorp from 40-80%. However, the retail performance was far better as all
Bajaj Auto 2,020 Buy 2,625
automotive segments (except the two-wheeler) have largely cleared
BS-IV stocks. Two wheeler segment volumes declined by a third. Bajaj
TVS Motors 252 Hold 350
Auto volumes dropped 35% while Hero Motocorp and TVS Motors
M&M 281 Buy 435 volumes dropped 42% and 57% respectively. PV segment volumes
Ashok 38 Hold 50 halved with Maruti’s PV volumes declining by 46% yoy. M&M and Tata
Leyland Motors were most impacted (due to supply chain issues) with volumes
Apollo 79 Buy 116 dipping by 68% and 88%. CV segment was worst hit with volumes
Tyres declining by 90% yoy.
Greaves 67 Hold 90
Cotton Sector Outlook
Balkrishna 776 Positive 1150 Demand to be under pressure in the near term; Expect recovery from
Industries
FY2022: To prevent the spread of Coronavirus, the government has
Exide 129 Positive 185 announced a lockdown for three weeks (March 24, 2020 to April 14,
Industries 2020) and the economy has come to a standstill. CRISIL has lowered
Sundram 261 Neutral - India’s FY2021 economic growth forecast sharply by 170 BPS to 3.5%. The
Fasteners economy is likely to take time to return to normalcy once the lockdown
Alicon 181 Positive 223 is lifted. Further, consumers tend to defer discretionary purchases such
Castalloy as automobiles when economic growth is severely impacted. We believe
Limited
Coronavirus is likely to impact sales across automotive segments (two
Mayur 150 Positive 240 wheelers, passenger vehicles and commercial vehicles) in H1FY2021. We
Uniquoters
expect recovery from FY2022, as long-term growth triggers such as lower
vehicle penetration and favourable demographics are intact. Moreover,
pent-up demand (automotive volumes have been under pressure for the
past six quarters) and pick-up in economic growth (post normalisation)
would lead to recovery from FY2022.
Price chart Sector View
120
100
Retain Neutral view; Prefer selective approach: Nifty Auto Index has
80 corrected by about 35% in the past three weeks (compared to Nifty
60
40
correction of about 28%) after the Coronavirus outbreak and lockdown
20
announced by the Indian Government. While most automotive stocks
0 are trading close to the multiples seen during the global financial crisis
(GFC), we reckon the time is not yet ripe to turn positive on the sector. The
Sep-19

Feb-20
Jan-20

Mar-20
Jun-19

Dec-19
Jul-19

Aug-19

Oct-19

Oct-19
Apr-19

May-19

Nov-19

duration and extent of the Coronavirus is not yet known; and if it persists,
Nifty 50 Nifty Auto
we would have to further lower our estimates. Moreover, valuations
during the GFC were optically low as government stimulus measures
post GFC had led to a significant jump in volumes and profitability of
automotive companies. Hence, we stay Neutral on the automobile sector
and prefer a selective approach.
Preferred picks:
We like companies which are relatively less impacted by CONVID-19
such as Balkrishna Industries and M&M (67% and 35% revenues from
agri). We also prefer companies have strong balance sheet and cash
position and are leaders in respective segments like Hero Motocorp,
Exide Industries and Mayur Uniquoters.
Key Risks :
1) Prolonged Coronavirus infection in India;and 2) Delayed recovery in
economic growth and consumer sentiments.
April 03, 2020 12
 Sector Update
Valuation
EPS P/E (x)
Company Reco CMP (Rs.) PT (Rs)
FY20E FY21E FY22E FY20E FY21E FY22E
Maruti Suzuki Hold 4,012 5,500 191.9 174.0 218.4 20.9 23.1 18.4
Hero Motocorp Buy 1,584 2,200 156.9 156.9 156.9 10.1 10.1 10.1
Bajaj Auto Buy 2,020 2,625 168.5 162.9 174.9 12.0 12.4 11.5
TVS Motors Hold 252 350 13.4 12.8 15.3 16.5 17.2 14.4
M&M Buy 281 435 28.6 21.6 24.2 5.5 7.3 6.5
Ashok Leyland Hold 38 50 2.1 1.2 2.8 18.4 30.7 13.4
Apollo Tyres # Buy 79 116 9.3 11.1 12.9 8.5 7.1 6.1
Greaves Cotton Hold 67 90 7.2 5.5 5.9 9.4 12.2 11.4
Soft coverage
Balkrishna Industries Positive 776 1150 49.9 51.9 63.9 15.5 14.9 12.1
Exide Industries Positive 129 185 9.4 8.5 9.6 9.3 10.3 9.1
Sundram Fasteners # Neutral 261 - 16.5 12.9 15.9 15.8 20.2 16.4
Alicon Castalloy Limited # Positive 181 223 26.3 18.8 24.9 6.9 9.6 7.3
Mayur Uniquoters Positive 150 240 17.0 16.5 19.9 8.8 9.1 7.5
# Consolidated numbers; Source: Company, Sharekhan Estimates

Key takeaways from March 2020

Two-wheeler volumes decline by a third; Bajaj Auto less impacted; Hero and TVS Motors maximum
hit: Thetwo-wheeler industry’s volumes dipped by 36% y-o-y. Plant lockdowns due to COVID-19 impacted
sales. Moreover, March 2020 was the last month of clearing BS-IV inventory, which led to lower wholesales
(dispatches from manufacturers). Bajaj Auto was the least impacted as slowdown in the domestic market was
offset by healthy export performance. BajajAuto performed in line with the industry with volumes dropping
by 35%. Hero and TVS Motors with higher domestic exposure underperformed with volumes dropping by 42%
and 57%, respectively.
PV volumes halve; Maruti less impacted; M&M and Tata Motors worst hit: The PV segment’s volumes halved
to 1.33 lakh units in March 2020. Plant lockdown due to COVID-19 coupled with strategy ofdiesel-based OEMs
to clear unsold inventory impacted volumes. Further, supply chain impact at players such as M&M impacted
volumes. Maruti Suzuki, owing to lower BS-IV inventory, was less impacted, reporting a 46% drop in volumes
compared to industry drop of 50%. Tata Motors’ volumes dipped by 68% as the company resorted to clearing
diesel BS-IV inventory.M&M was the worst hit as clearing of unsold inventory coupled with supply chain
restrictions due to COVID-19 impacted volumes, which fell by 88% y-o-y.
CV volumes worst hit; Tata Motors and Ashok Leyland bear maximum damage; Eicher less impacted: The
CV segment was the worst impacted with volumes dropping by 88% y-o-y. With the lockdown, economic
activity was severely impacted, which hit sales. Closure of manufacturing operations coupled with CV players
resorting to clearing BS-IVinventory impacted wholesales. CV volumes dipped 89% y-o-y. Volumes of market
leader Tata Motors and incumbent Ashok Leyland dropped by 90% each, falling in line with the industry.
Eicher Motors was relatively less impacted with volumes dropping by 72% y-o-y.
Tractors too witness a drop: Impacted by lockdown of manufacturing facilities due to COVID-19, tractor sales
dipped by 40% y-o-y. M&M was relatively less impacted, posting 31% y-o-y drop in volumes, while volumes
of Escorts halved to 5,444 units.

April 03, 2020 13

 Sector Update
Company-wise dispatches for March 2020 (units)
Maruti Suzuki Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
India Limited (%)
Total domestic 79,080 1,47,613 (46.4) 1,36,849 (42.2) 14,61,126 17,53,700 (16.7) Sales drop sharply
PV due to lockdown
on account of
the Coronavirus
outbreak. Also,
clearing of old BS-IV
inventories led to
drop in wholesale
volumes.
Export 4,712 10,463 (55.0) 10,261 (54.1) 1,02,171 1,08,749 (6.0) Exports also
dipped sharply due
to a production
shutdown amid
the Coronavirus
outbreak.
Total Sales 83,792 1,58,076 (47.0) 1,47,110 (43.0) 15,63,297 18,62,449 (16.1)
Tata Motors Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
Total CV 5,336 50,917 (89.5) 25,572 (79.1) 3,10,855 4,68,692 (33.7) Subdued economic
activity due
to lockdown
announcement and
clearance of BS-IV
inventory as March
being the last month
permissible to sell
BS-IV stocks led
to steep fall in the
volumes.
Total PV 5,676 17,810 (68.1) 12,430 (54.3) 1,31,197 2,10,143 (37.6) BS-IV inventory
correction efforts
coupled with
impact of lockdown
on account of
coronavirus led to
steep decline in
volumes.
Total Domestic 11,012 68,727 (84.0) 38,002 (71.0) 4,42,052 6,78,835 (34.9)
Sales
Export Sales 1,912 5,952 (67.9) 2,632 (27.4) 28,122 47,628 (41.0) Export volumes
remain weak.
Total Sales 12,924 74,679 (82.7) 40,634 (68.2) 4,70,174 7,26,463 (35.3)
Mahindra & Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
Mahindra (%)
Total domestic 6,130 59,012 (89.6) 30,637 (80.0) 4,48,300 5,70,001 (21.4) Clearance of
automotive BS-IV inventory
and impact of
lockdown due to
the Coronavirus
outbreak hit
volumes. Supply
chain constraints
on account of the
Coronavirus also
affected sales.
Exports 1,271 3,940 (67.7) 1,839 (30.9) 27,743 38,595 (28.1) Export demand
remains weak.
Total 7,401 62,952 (88.2) 32,476 (77.2) 4,76,043 6,08,596 (21.8)
automotive

April 03, 2020 14

 Sector Update
Tractors - 13,418 18,446 (27.3) 21,877 (38.7) 2,91,901 3,16,742 (7.8) Tractor sales
domestic were impacted
as manufacturing
plants and dealers
were shut amid the
lockdown due to
the Coronavirus
outbreak.
Tractors - 195 1,242 (84.3) 684 (71.5) 10,014 13,694 (26.9) Tractor exports
exports were impacted due
to the shutdown
of manufacturing
plants due to
the Coronavirus
outbreak
Total tractors 13,613 19,688 (30.9) 22,561 (39.7) 3,01,915 3,30,436 (8.6)
Total Sales 21,014 82,640 (74.6) 55,037 (61.8) 7,77,958 9,39,032 (17.2)
Escorts Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
Domestic 5,228 11,431 (54.3) 8,049 (35.0) 82,252 93,323 (11.9) Tractor sales more
than halved as
manufacturing
plants and
dealers were shut
on account of
lockdown due to
the Coronavirus
outbreak.
Exports 216 474 (54.4) 552 (60.9) 3,766 3,089 21.9 Tractor exports more
than halved due
to the shutdown
of manufacturing
plants due to
the Coronavirus
outbreak.
Total Sales 5,444 11,905 (54.3) 8,601 (36.7) 86,018 96,412 (10.8)
Ashok Leyland Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
MHCV 1,831 16,034 (88.6) 7,368 (75.1) 78,607 1,42,858 (45.0) Subdued economic
activity due
to lockdown
announcement and
clearance of BS-IV
inventory as March
is the last month
permissible to sell
BS-IV stocks led
to steep fall in the
volumes.
LCV 348 5,501 (93.7) 4,107 (91.5) 46,646 54,508 (14.4) Subdued economic
activity due
to lockdown
announcement and
clearance of BS-IV
inventory as March
is the last month
permissible to sell
BS-IV stocks led
to steep fall in the
volumes.
Total Sales 2,179 21,535 (89.9) 11,475 (81.0) 1,25,253 1,97,366 (36.5)

April 03, 2020 15

 Sector Update
Eicher Motors Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
CV's - Total 1,499 8,676 (82.7) 4,586 (67.3) 48,721 72,969 (33.2) Subdued economic
Sales activity due
to lockdown
announcement and
clearance of BS-IV
inventory as March
is the last month
permissible to sell
BS-IV stocks led
to steep fall in the
volumes.
Two-wheelers 35,814 60,831 (41.1) 63,536 (43.6) 6,95,947 8,26,098 (15.8) Volumes drop on
(Royal Enfield) account of closure
of manufacturing
plants and
dealerships due
to lockdown
announced for
the Coronavirus
outbreak.
Overall sales 37,313 69,507 (46.3) 68,122 (45.2) 7,44,668 8,99,067 (17.2)
Hero Motocorp Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
Total Sales 3,34,647 5,81,279 (42.4) 4,98,242 (32.8) 64,09,719 78,20,739 (18.0) Volumes drop on
account of closure
of manufacturing
plants and
dealerships due
to lockdown
announced for
the Coronavirus
outbreak. Also,
clearing of BS-IV
inventory lead to
steep fall in the
volumes.
Bajaj Auto Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
Limited (%)
Motorcycles 98,412 2,20,213 (55.3) 1,46,876 (33.0) 20,78,348 25,41,320 (18.2) Domestic
Domestic motorcycle sales
dropped sharply on
account of closure
of manufacturing
plants and dealers
due to lockdown
announced for
the Coronavirus
outbreak. Further,
clearing of BS-IV
inventory lead to fall
in the volumes.
Motorcycles 1,12,564 1,03,325 8.9 1,63,346 (31.1) 18,69,220 16,95,553 10.2 Sturdy growth in
Export volumes due to a
strong demand in
key export markets
CV Domestic 18,129 38,972 (53.5) 21,871 (17.1) 3,65,759 3,99,453 (8.4) Lockdown due to
the Coronavirus
outbreakand
inventory correction
ahead of transition
to BS-VI emission
norms impacted the
volumes

April 03, 2020 16

 Sector Update
CV Export 13,470 30,841 (56.3) 22,820 (41.0) 3,01,885 3,83,177 (21.2) Regulatory
issues in Egypt
and production
constraints due to
the Coronavirus
outbreak impacted
three-wheeler
exports
Total Sales 2,42,575 3,93,351 (38.3) 3,54,913 (31.7) 46,15,212 50,19,503 (8.1)
Domestic 1,16,541 2,59,185 (55.0) 1,68,747 (30.9) 24,44,107 29,40,773 (16.9)
Exports 1,26,034 1,34,166 (6.1) 1,86,166 (32.3) 21,71,105 20,78,730 4.4
TVS Motors Mar-20 Mar-19 y-o-y (%) Feb-20 m-o-m FY20 FY19 y-o-y (%) Comments
(%)
Motorcycle 66,673 1,41,086 (52.7) 1,18,514 (43.7) 13,63,579 15,59,297 (12.6) Inventory correction
efforts ahead of
BS6 transition
norms coupled with
production loss due
to coronavirus led
lockdown halved
the volumes.
Mopeds 33,124 71,322 (53.6) 56,744 (41.6) 6,50,759 9,08,348 (28.4) BS-IV inventory
correction coupled
with production
loss due to the
Coronavirus-led
lockdown halved
the volumes.
Scooters 34,191 98,477 (65.3) 60,633 (43.6) 10,75,219 13,01,006 (17.4) Inventory correction
efforts ahead of
BS-VI transition
norms coupled with
production loss due
to coronavirus led
lockdown impacted
the demand.
Total two- 1,33,988 3,10,885 (56.9) 2,35,891 (43.2) 30,89,557 37,68,651 (18.0)
wheelers
Three-wheelers 10,751 14,438 (25.5) 17,370 (38.1) 1,73,911 1,56,428 11.2 Production impact
due to lockdown
on account of
the Coronavirus
outbreak led to a
fall in the volumes.
Total Sales 1,44,739 3,25,323 (55.5) 2,53,261 (42.8) 32,63,468 39,25,079 (16.9)
Domestic (incl 94,542 2,48,940 (62.0) 1,70,384 (44.5) 24,22,650 31,63,363 (23.4)
above)
Exports (from 50,197 76,405 (34.3) 82,877 (39.4) 8,40,818 7,61,738 10.4
above)

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

April 03, 2020 17

 Sharekhan Stock Ideas

Automobiles Infrastructure / Real estate

Apollo Tyres ITNL
Ashok Leyland Jaiprakash Associates
Bajaj Auto Larsen & Toubro
Gabriel India Sadbhav Engineering
Greaves Cotton
Hero MotoCorp Oil & gas
M&M Oil India
Maruti Suzuki Petronet LNG
Rico Auto Industries Reliance Industries
TVS Motor
Pharmaceuticals
Banks & Finance Aurobindo Pharma
Axis Bank Cipla
Bajaj Finance Cadila Healthcare
Bajaj Finserv Divi’s Labs
Bank of Baroda Lupin
Bank of India Sun Pharmaceutical Industries
Capital First Torrent Pharmaceuticals
Federal Bank
Housing Development Finance Corporation Building materials
HDFC Bank Grasim Industries
ICICI Bank The Ramco Cements
LIC Housing Finance Shree Cement
Punjab National Bank UltraTech Cement
SBI
Union Bank of India Discretionary consumption
Arvind Ltd
Century Plyboards (India)
Consumer goods Inox Leisure
Britannia Info Edge (India)
Emami Relaxo Footwear
GSK Consumers Titan Company
Godrej Consumer Products Wonderla Holidays
Hindustan Unilever
ITC Diversified / Miscellaneous
Jyothy Laboratories Aditya Birla Nuvo
Marico Bajaj Holdings & Investment
Zydus Wellness Bharti Airtel
Bharat Electronics
IT / IT services Gateway Distriparks
HCL Technologies Max Financial Services
Infosys PI Industries
Persistent Systems Ratnamani Metals and Tubes
Tata Consultancy Services Supreme Industries
Wipro UPL

Capital goods / Power

CESC
Finolex Cables
Kalpataru Power Transmission
KEC International
Thermax
Triveni Turbine
V-Guard Industries
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