Axis Securities Equity Investment Strategy September 2022

TOP
TOP PICKS
PICKS October 2020
September 2022
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Naveen Kulkarni |naveen.kulkarni@axissecurities.in |
TOP PICKS September 2022
expectations by -0.7%/1% and stand conservative at 4%/7% below the

Macro Outlook Volatile; All Eyes on Festive Demand street expectation.
Axis Top Picks basket delivered an encouraging return of 6% in Aug'22, In the last one/two months, the market narrative has shifted from inflation
as it continued its outperformance streak for another month (up by 9% concern to a cool-off in inflation expectation in the next one or two
in Jul’22). The basket continues to beat the benchmark by a significant quarters. This change in narrative is responsible for the style rotation in
margin and has delivered astounding returns of 143% since its the market. Based on that, the Growth theme has outperformed all other
inception (May’20), significantly higher than the 93% returns delivered styles by a notable margin in the last three/six months from the oversold
by NIFTY50 over the same period. Keeping this performance in view, zone. While Growth stocks had suffered the most in the recent correction,
we continue to believe in our thematic approach in the Top Picks they also recovered rather rapidly over the last three months. This was all
selection. on account of a) A cool-off in commodity prices, b) Robust domestic
The Indian market performance showed resilience in the last one month demand, and c) Reasonable valuation post-correction.
with NIFTY 50 recovering by 16% from the bottom (since 17 th Jun’22). In the last two months, domestic-oriented themes like Banks, Auto, FMCG,
Both Mid and Small Cap indices, too, recovered by 22% and 18% for the Hospitals, Domestic Industrials, and Discretionary outperformed the
same period respectively. The recovery was led by positive FII flows export + cyclical oriented themes. Given the backdrop of rising concerns
and a robust earning season. Moreover, a normal monsoon, cool-off in over the global slowdown, aggressive tightening, and preference for
commodity prices, and healthy wage growth (especially in the Services domestic interests first, the export-oriented themes are likely to be muted
sector) are boosting the market confidence of a robust festival demand or perform conservatively in the near term. However, in the near term, the
around the corner. The current market setup is more edging towards market is eyeing the robust festival demand which stood muted for the
“Buy on Dips” strategy which was clearly reflected on the last working last two years due to intermittent Covid-19 disruptions. Also, some
day of Aug’22. Investors proactively capitalised on the opportunity of recovery is expected in the cyclical sectors in the second half with a pick-
global correction, which was witnessed after the US FED chairman's up in government spending.
speech at the Jackson Hole symposium. This signifies the resilience of
the Indian market which outperformed its global peers by superior To align with these latest developments in view, we have made certain
margins in the last one year. changes in our Top picks. This includes booking profits in Cipla and
Over the last one month, all sector indices closed on a positive note, adding Dalmia Bharat to the basket. Our modification reflects changing
except IT and Pharma. The biggest recovery was seen in Banks, market style and shift towards superior quality and growth stocks.
Energy, and Metals indices while the IT index underperformed primarily
owing to the supply-side constraints that posed challenges on growth Our Key Themes are as follows:
and margins. NIFTY50 companies in Q1FY23 witnessed better-than-
Macro factors continue to influence the market: We believe that the worst of
expected revenue performance with 45 companies (out of 50) either
the FIIs outflow is now behind us, as the strong earnings growth and economic
meeting or beating revenue expectations. However, the superior
recovery will play out for the remaining months of 2022. This has been already
revenue performance did not translate to profit outperformance due to
visible in the positive flows for Aug’22. The market is currently eyeing the central
margin pressures, especially amongst IT, Oil & Gas, and Consumer
banks’ guidance on the interest rates trajectory, as the US FED turned hawkish
names. On the profit front, 29 out of 50 companies either met or
in the recent Jackson Hole symposium which signalled that FED will continue to
exceeded market expectations. Management commentaries have been
raise the rate till inflation declines into a comfortable zone. Based on this, the
upbeat and have guided for ease in supply chain constraints with a
probability of a 75bps rate hike expectation in the Sep’22 meeting has risen
cool-off in commodity prices, expected recovery with the upcoming
sharply, making the direction of the bond yields critical at this juncture. The
festive season, and pick-up in the infra projects. We foresee FY23/24
NIFTY EPS at 820/929. After Q1FY23, we marginally change our FY23/24
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macroeconomic developments that follow after this meeting will continue to Style rotation is the key: Cool-off in the key commodity prices coupled with the
central bank's actions on front-loading the interest rates have changed the
influence the market in the near term and will limit its upside from the current
market style in the last two months. Growth as a theme has come back in the
levels. These include a) Ongoing Russia-Ukraine conflict; b) Trend of commodity market in the last three odd months. Growth stocks suffered the most in the
prices (including Oil); c) Direction of inflation, d) Growth in the developed world, recent correction but have also recovered rapidly over the last three months on
and e) Bond yields. Keeping these developments in view, we expect the market account of a) a Cool-off in commodity prices, b) Robust domestic demand, and
performance to remain range-bound in the near term. Furthermore, the market c) Reasonable valuation after the correction. On the positive side, given a
domestic interest first and India as a domestic consumption economy, local or
will look for the outcome of the RBI MPC which is scheduled towards the end of
domestic-oriented themes are likely to perform better in the near term. We
the month. believe that profitability will shift from commodity producers to commodity
consumers going forward. Keeping this in view, Banks, Automobiles, Hospitals,
Discretionary Consumption and domestic Industrial themes look attractive for the
Normal monsoon to support robust festival demand: Normal progress of
near term over Export and Commodity sector themes.
monsoon and the cool-off seen in the majority of the commodity prices from their
52W high bring confidence in the margin recovery for the majority of the
corporates going forward. We witnessed a sharp recovery in the services PMI in Maintain NIFTY Mar’23 target of 18,400: We continue to maintain a positive
Jun’22; supporting robust recovery in the economic activities in the post-Covid long-term outlook on the market, supported by a favourable structure emerging
world. We believe the Services sector is likely to do better in the upcoming with increasing Capex enabling banks to improve credit growth. Moreover, the
months as it did in Q1FY23 (QFY21 and Q1FY22 were painful times for the overall expenditure boost in the Union Budget 2022-23 will help deliver broad-
Services sector due to COVID 1.0 and COVID 2.0). Q1FY23 was the first full based growth in FY23. Strong earnings trajectory continues in the NIFTY 50
quarter in the last three years in which we haven't seen any disruption in universe, with FY21/22 NIFTY EPS growing by 15%/37% to 534/734
economic activities due to Covid-19. Keeping this in view, domestic-oriented respectively. We foresee FY23/24 NIFTY EPS at 820/929. After Q1FY23, we
themes are more likely to deliver superior performance with the upcoming marginally change our FY23/24 expectations by -0.7%/1% and stand
festival demand. conservative at 4%/7% below street expectations. We maintain our NIFTY
Mar’23 target of 18,400 by valuing it at 20X on FY24 earnings vs. 22X earlier.
We cut the NIFTY multiple to accommodate the rising interest rate scenario,
FIIs buying continued in Aug’22: FIIs turned net buyers for the first time in
which started after a 40bps rate hike in early May’22 and another 50bps rate
Jul’22 (after 9 months since Oct’21) which continued in Aug’22. FIIs bought $6.6
hike in Jun’22. We believe, though aggressive policy tightening will help in
Bn in the last one month while DIIs sold $0.9 Bn for the same time. FIIs have
curbing inflationary pressure, persistently elevated Oil and Commodity prices
pulled out the majority of the easy money from the Indian market which they
would continue to pose challenges to the market multiple in the next few
pumped in after the Covid-19 crisis in Mar’20. They have pulled $25 Bn in
quarters. The current level of India's VIX is below the long-term average
FY22/23 out of $37 Bn pumped in FY21. Nonetheless, the pace of selling has
indicating that the market is in a neutral zone (Not in a panic or exuberance
been reduced in the last 2 months and on a positive note, FIIs have turned into
zone). The current setup is a ‘Buy on Dips’ market. We recommend investors
net buyers since Jul’22.
use such dips in a phased manner to build a position in quality companies
(where the earnings visibility is very high) with an investment horizon of 12-18
months.
Based on the above themes, we recommend the following stocks: ICICI Bank, Tech Mahindra, Maruti Suzuki India, State Bank of India,
Dalmia Bharat, Federal Bank, Varun Beverages, Ashok Leyland, Astral Ltd (India), Bata India, APL Apollo Tubes, HealthCare Global Enterprises,
Praj Industries, CCL Products (India), Coal india and Bajaj finance
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Table of Contents
Axis Securities Top Picks ....................................................................................................................................................................................... 5
Sector Outlook ........................................................................................................................................................................................................... 6
Nifty Event Update .................................................................................................................................................................................................. 10
Style Indicator .......................................................................................................................................................................................................... 16
India’s performance is-à-vis Peers:.................................................................................................................................................................... 17
Market Indicators ..................................................................................................................................................................................................... 18
India Valuation Index .............................................................................................................................................................................................. 22
Macro Indicators ...................................................................................................................................................................................................... 34
India’s Nifty Index vs. VIX: Some recovery in VIX, trading around LTA ................................................................................................... 35
Other Macro Indicators .......................................................................................................................................................................................... 36
Q1FY23 Earnings Review ...................................................................................................................................................................................... 37
Company Section ...................................................................................................................................................................................................... 6
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INVEST IN ONE CLICK

Axis Securities Top Picks
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Upsid 12 TR
Stock Target Month Dividen TR TR TR
Category Company Name Sector e Month YTD
price Price Fwd d Yield 1M% 3M% 6M%
(%) Fwd PE %
P/BV
Large Cap ICICI Bank Ltd Financials 887 1,000 13% 20.8 2.9 0.6 7.2 17.3 18.9 19.3
Large Cap Coal India Ltd Energy 235 262 12% 5.4 2.6 1.3 10.1 19.5 38.1 65.3
Information
Large Cap Tech Mahindra Ltd 1,076 1,200 12% 17.3 3.3 1.4 1.0 -4.8 -22.6 -39.1
Technology
Consumer
Large Cap Maruti Suzuki India Ltd 9,082 10,270 13% 35.9 4.5 0.7 1.9 15.5 10.3 23.5
Discretionary
Large Cap State Bank of India Financials 531 665 25% 10.7 1.5 1.3 0.6 14.6 12.8 18.4
Large Cap Bajaj Finance Ltd Financials 7,306 8,250 13% 40.4 8.2 0.3 -0.8 20.3 3.3 3.7
Mid Cap Dalmia Bharat Ltd Materials 1,536 1,850 20% 35.7 1.8 0.7 -3.6 12.7 -2.0 -16.9
Mid Cap Federal Bank Ltd Financials 117 130 11% 9.5 1.2 1.5 9.9 33.8 23.2 43.9
Mid Cap Varun Beverages Ltd Consumer Staples 1,034 1,150 11% 48.5 12.8 0.2 11.5 39.6 63.8 74.3
Mid Cap Ashok Leyland Ltd Industrials 154 175 14% 27.1 5.9 0.6 3.7 15.2 35.8 31.6
Mid Cap Astral Ltd (India) Industrials 2,092 2,300 10% 78.6 15.3 0.1 13.1 17.8 9.9 -6.5
Consumer
Mid Cap Bata India Ltd 1,941 2,200 13% 58.8 17.4 0.2 -0.2 6.7 9.0 5.6
Discretionary
Mid Cap APL Apollo Tubes Ltd Materials 947 1,100 16% 39.3 9.4 0.3 1.6 1.7 17.8 0.2
Small Cap HealthCare Global Enterprises Ltd Health Care 274 330 21% 92.6 4.1 NA 3.0 -1.5 20.1 14.6
Small Cap Praj Industries Ltd Industrials 421 477 13% 35.6 7.4 0.6 7.6 27.2 26.8 28.5
Small Cap CCL Products (India) Ltd Consumer Staples 480 600 25% 24.8 4.5 0.4 8.7 31.2 7.2 12.5
Source: Company, Axis Securities, CMP as on 30th Aug 2022
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Sector Outlook
Sector Current View Outlook
The Indian Automobile sector has seen a significant demand improvement with most categories witnessing
encouraging traction. The long-term outlook for the auto industry remains positive as demand drivers are
intact and many companies may offer a decent upside from the current levels. In Q1FY23, Auto volumes
recovered across the segments as well as categories, thanks to the improvements in the supply-side
constraints of chips. We expect new product launches to help drive excitement among buyers with the SUV
segment retaining the consumer pulling power.
Automobiles Over Weight Demand momentum in the CV segment is likely to sustain and we expect the CV cycle to maintain its
momentum, driven by the pick-up in economic activities and the government’s focus on infrastructure.
Furthermore, the introduction of a duty on steel export may lead to gross margin improvement for
Automakers, which is expected to translate into earnings upgrades as most of the companies are likely to
retain the benefit. Furthermore, OEMs continue to take price hikes in the upcoming quarters across
segments to offset the adverse impact of commodities. Based on the current development and positive
outlook, we continue with an overweight stance on the sector.
FY23 appears promising for the BFSI sector as most of the Banks/NBFCs under our coverage remain well-
placed to capitalize on the growth opportunities. Outlook on the asset quality front remains encouraging with
expectations of slippages moderating and recoveries remaining healthy, thereby aiding asset quality
improvement. We believe the growth momentum to remain healthy but delays in the investment cycle may
Banking and Financial services Equal Weight impact the overall growth in the near term.
We believe with the asset quality pain being largely behind (barring certain segments) and the restructured
book behaving fairly well, a ramp-up in credit growth and the ability to maintain margins in an increasing
interest rate environment is likely to drive valuations for Banks/NBFCs moving forward. We maintained our
Equal Weight stance on the sector.
The Capital Goods sector normalised towards the end of FY22 and companies are now supported by a rise
in Gross fixed capital formation. The government’s Capex cycle continues to be robust and house
registrations in the Metro cities continue to witness strong traction. The private Capex cycle is expected to
Capital Goods Equal Weight pick up soon, further supporting the sector. Most of the companies are witnessing excellent growth traction
which was not the case for the past 8-10 years. They now command significant operating leverage, which
essentially means profit growth will be higher than the revenue growth in the upcoming years with
improvement in the Capex cycle. We maintained our Equal Weight stance on the sector.
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Sector Outlook (Cont’d)

Higher cost of power & fuel remains the key concern for cement companies as they are not able to pass
on the entire cost inflation to the final consumer. H1FY23 is expected to witness the impact of cost
inflation on margins. However, a hike in cement prices in Apr’22 and May’22 would help mitigate the
higher cost to some extent. On average, the price hike has been in the range of Rs 25-30/bag.
Cement Equal Weight
Sustainability in pricing remains a key monitorable. However, the long-term outlook remains positive as
demand drivers are intact. Cement prices have improved and are expected to remain elevated on the
back of higher costs barring a correction of Rs 5-10. The elevated cost remains a challenge in the near
term and we maintain our Equal Weight stance on the sector.
In the Consumer Staples space, demand is expected to remain weak for discretionary items (Personal
Care, Packaged Food, and Health Care) in the near term. Volume growth is likely to be muted on account
of subdued rural demand and inflationary pressure. On the positive side, the normal progression of
monsoon, increase in wages, higher crop realization, and output will be key attributes in rural demand
Consumer staples Equal Weight
revival which is expected to revive only in H2FY23. While the sector has strong earnings visibility and
best-in-class return ratios, the Hyperinflation across raw material prices crude/palm oil/ packaging will
weigh on margins in the near term and limit the upside potential. We maintain the FMCG sector to Equal
Weight.
While the Consumer Discretionary space is witnessing a strong revival and many categories are
normalizing, Elevated prices of RM remains a key challenge going forward. During FY22, the companies
already passed on some of the price hikes to the customer (~15-25 %+). Furthermore, price hikes will
Consumer Discretionary Equal Weight have to be calibrated as they may negatively impact the demand for high-ticket items. However, demand
for low-value items is expected to remain strong despite price hikes. Now all eyes are on the festive
demand which is likely to remain robust after two muted years of festival season. We continue with our
Equal Weight stance and remain watchful of developments in this space.
Indian IT companies reported a robust performance in FY22, registering strong broad-based growth,
backed by healthy business demand and favourable macros. Though the demand is on the rise, supply-
side challenges remain a key concern which may restrict revenue growth momentum moving forward.
Moreover, higher employee costs may negatively impact overall operating margins. Furthermore, rising
Information Technology Equal Weight
inflation and higher interest rates in North America (a major contributor to the revenue) would lead to
unfavourable macroeconomic conditions, contracting IT spending across verticals. We foresee a
downside risk to current earnings assumptions. Hence, we downgrade the sector to Equal-weight from
Overweight.
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Due to the introduction of a steel export duty of 15% by the GOI, steel prices are expected to decline
in the coming quarters. In the long term, key monitorable would be the way steel companies manage
their utilisation levels to stop the reduction in domestic steel prices if the export volumes get diverted
to the domestic market. Moreover, the capacity addition plans of steel companies with large Capex
Metals and Mining Equal Weight
plans will be the key challenge for the steel industry. If the government does not roll back the steel
export duty in the foreseeable future, the return on the Capex plans will come under pressure unless
the domestic demand increases to absorb the incremental volumes. Hence we downgraded the
sector to Equal Weight from Overweight earlier.
Oil Marketing Companies (OMCs) benefited from the inventory gain and better GRMs in Q4FY22.
Furthermore, OMCs, too, delivered better performance overall. However, the recent move by the
Government of India (GoI) to pass on excise duty cuts to the consumers has quashed all hopes of
OMCs' recovering their marketing margins. OMCs were the underperformers in the sector that
missed the consensus estimates led by poor-than-expected performance in the marketing segment
Oil &Gas Equal Weight during Q1FY23. On the other hand, upstream companies had a record quarter led by the high level of
Oil & Gas prices. However, the windfall taxes being introduced from the 1 st of July indicate the peak
of the earnings cycle. Given the government’s top priority clearly being inflation control, it seems
unlikely that auto-fuel retail prices will be raised anytime soon. We, therefore, do not see an
immediate recovery in the marketing margins of the OMCs. We continue with our Equal Weight
stance and remain watchful of the development in this space.
The Pharma sector reported mixed-bag results in Q1FY23, on account of weakness in the US
generic business which continues to witness price erosion. On the positive side, domestic-oriented
companies witnessed robust growth driven by price rise and volume growth in the chronic categories.
Pharmaceuticals Equal Weight We believe moderate recovery is likely to continue in the domestic Pharma, though significant
improvement in the operating metrics is needed for further re-rating of the sector. We foresee risks to
this and continue with an Equal Weight stance on the sector.
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The Real Estate sector is witnessing record registrations in metro cities. Demand has picked up as
Real Estate Equal Weight real estate prices are low and interest rates are very attractive. The sector is likely to witness more
traction in FY23 and hence, we maintain our Equal weight stance on the sector.
The Specialty Chemicals sector has been one of the sunrise sectors of the country. India has been
gaining a global market share in this space by leveraging its capabilities and supply chain
realignment from China to India. We believe Indian companies would gain further ground as
companies reduce their dependence on China after the COVID-19 pandemic and shift their supply
chains to India. Apart from the long-term supply chain shift theme, many specialty chemicals form a
Specialty Chemicals Over Weight
part of essentials and the facilities have started opening up post-lockdown relaxations. The decline in
raw material prices would support margins and reduce working capital needs further. However, input
costs are a pass-through for most companies and benefits may be limited. Overall, the Specialty
Chemicals industry is likely to continue performing well in the medium term. Keeping this in
perspective, we recommend an Over Weight stance on the sector.
Telecom has become the most critical sector during the current challenging times to keep businesses
up and running. The sector was seeing an improved pricing environment even before the COVID-19
Telecom Over Weight
outbreak. The industry is highly consolidated with two strong and one weak player in the wireless
space. We recommend an Over Weight stance on the sector.
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Nifty Event Update

Recovery continued in Aug'22 on account of FII inflow
 The Indian market performance showed resilience in the last one month in which Nifty 50 recovered by 16% from the bottom (since 17 th Jun’22), and
both Mid and Small Cap indices recovered by 22%/18% over the same period. However, the Nifty is still trading below 4% from the top (since 18th
Oct’21) and both Mid and Small Cap indices are 4%/7% below the 18th Oct levels.
 Similar to Jul’22, Aug'22 turned out to be a recovery month post a major selloff seen in Jun’22 on account of weaker global cues driven by higher
inflation print in the US market. Cool-off was seen in the majority of the commodity prices which has brought confidence in the recovery and corporate
margins.
 FIIs turned net buyers in the domestic market on the expectation of robust domestic recovery and bolstering confidence in the ‘India story.’
 The market dynamics have shifted towards the domestic-oriented themes which performed better in the last month while export-oriented themes will
continue to lag the market.
 Volatility is likely to continue for some more time before it concludes in a more concrete direction. Now, the market is eyeing macroeconomic
development and festival demand.
 The market performance is likely to be range-bound in the near term, primarily owing to weaker global cues as the Indian market has shown a
correlation of 90% with the US markets in the last one year.
Lifetime High:
18477 on 18th Oct’22
Nifty Performance since

18th Oct’22
Nifty down 4%
Mid Caps down 4%
Small Caps down 7%
Source: Bloomberg, Axis Securities

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What Happened Since 24th Feb – Consumption and Domestic Cyclical themes are outperforming the market
 Nifty made an all-time high of 18,477 on 18th Oct’21 and has since corrected by 4%.
 Since 24th Feb’22, a sharp recovery was seen in the Utility sector, which is now up 55%.
 The IT sector is down 11% since 24th Feb’22.
 Cyclicals have seen an excellent rally in the last couple of months but recently saw a correction in Metals after a cool-off seen in the
commodity prices from the 52W high.
 The broader market is still the clear winner in the last one year.
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All three indices moving in tandem; Recovery continued in Aug'22
In the volatile May/Jun’22, Small Caps suffered the most. Furthermore, weaker global sentiments pushed our domestic market to
decline once again during the time of the US inflation print in Jun’22. However, the recovery continued in Aug'22, signifying the
resilience of the market.
Source: Bloomberg, Axis Securities,
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Domestic-oriented themes are outperforming the export-oriented themes

 In the last one month, domestic-oriented themes like Banks, Auto, FMCG, Hospitals, Domestic Industrials, and Discretionary
outperformed the export + cyclical-oriented themes
 Cyclical and export sectors: Oil & Gas, Metals, Building Materials, Agri & Chemicals, IT, and Pharma
Source: Bloomberg, Axis Securities,
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52W High Analysis

 The market has recovered from the low; now 65 stocks are trading at an all-time high vs. 9 stocks on 30th June.
 155 stocks (31%) are trading between 5%-20% below their 52W highs.
 Almost 57% of stocks are now trading below 20% from their 52W high.
 The broader market looks attractive at current levels.
 9 PSU stocks are now trading near their 52W high.
Current level of number of stocks as compared to 52W high

Sector No of Stocks Near to 52W high 5%-20% below 52W high 20%-30% below 52W high Below 30%
Agri & Chem 31 6 11 4 10
Auto & Anc 31 12 9 3 5
Banks 27 6 9 8 4
Build Mate 41 3 14 10 14
Discretionary 42 7 15 12 8
Healthcare 59 1 17 15 26
Industrials 35 9 16 4 6
IT 36 0 3 8 25
Metals &
Minerals 19 2 4 4 9
NBFC 52 5 19 13 15
Oil & gas 14 1 2 4 7
Others 47 4 8 7 28
Staples 27 4 13 5 5
Tele & Media 16 0 6 3 7
Transport 11 1 5 1 4
Utilities 12 4 4 4 0
Total 500 65 155 105 173
Large cap 100 19 35 19 27
Mid cap 150 25 47 33 39
Small cap 250 21 73 53 106
PSUs 55 9 13 16 11
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NSE 500 Universe (200-day moving average)

After volatile Feb’22 and Mar’22, the market recovered in Apr’22 but declined once again in May/Jun’22 on account of global weakness and
concerns over rising inflation. In Jun’22, we reached the levels of 18% of stocks trading above the 200-day moving average (DMA) (almost
equivalent to the historical low), indicating the market clearly being in the oversold zone. We have since seen a sharp recovery in the market and
now 56% of the stocks are trading above 200 DMA, indicating it to be out of the oversold zone. However, in the near term, the market will
continue to be driven by the macroeconomic data flow and performance is likely to be range bound at least for one quarter till the signs of
inflation moderating become visible.
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Style Indicator
Growth is the consistent performer; However, the Momentum theme gathered strength in the last one month
 Growth theme outperformed all other styles by a notable margin in the last three/six months from the oversold zone. However, the Momentum as a
theme gathered strength in the last one month from the oversold zone.
 While Growth stocks suffered the most in the recent correction, they recovered rapidly over the last three months on account of a) a Cool-off in
commodity prices, b) Robust domestic demand, and c) Reasonable valuation after the correction.
 For a longer duration (1Yr and 2 Yr), the Momentum and Growth themes have been the most dominating themes in the market.
 The growth theme looks attractive on account of domestic play of normal monsoon, cool-off in commodity prices, and the expectation of robust
consumption demand during the upcoming festival season.
 The selected Value stocks from the Metals, commodities, Utility, and Cement sectors are well-placed to deliver superior performance, especially
considering their recent correction. Though Value stocks in the BFSI space have underperformed other themes for the last couple of months, they are
expected to outperform moving forward. Furthermore, a structural growth play offering long-term earnings visibility will continue to do well even amidst
the prevailing challenging environment.
Performance (%)
Perf Value Growth Quality Momentum
2020 24.9% 10.2% 22.6% 6.6%
2021 34.1% 8.8% 22.2% 32.6%
1M 1.8% 3.8% 5.3% 12.8%
3M 4.3% 12.5% 10.6% 19.1%
6M 2.2% 16.9% 6.2% 12.5%
1YR 1.0% 13.0% 4.2% 21.1%
2YR 56.0% 52.8% 46.4% 53.9%
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India’s performance vis-à-vis Peers

India outperformed the US market on a 1-year basis
On a 1-year basis, India has outperformed the US and another major Emerging market. It was more resilient till Oct'21 and witnessed its indices
touching higher levels. However, Nifty has corrected by 4% from the top (Since 18th Oct'21) and both Mid and Small Caps, too, have corrected by
4%/7% from the top.
After a major sell-off on 24th Feb, Mar’22 turned out to be a recovery month. In Apr’22, recovery was seen in the beaten-down sectors such as Auto and
FMCG. In May’22, however, all sectors, except Auto and FMCG, went into deep red due to weaker global cues and persistent FII selling. In Jun’22,
Automobile is the only sector closed in green, led by a positive outlook on domestic demand. In Jul'22, recovery was seen across the board. Domestic-
oriented themes look attractive from current levels over export-oriented themes. In Aug’22, all sectors, except Pharma and IT are in green.
Positive Near-term Outlook: IT, Telecom, Auto, Rural and Domestic themes
Improving Outlook: BFSI, Discretionary
Mixed bag: FMCG
Near-term challenging but well-placed for longer time horizons: Metals, Commodity-linked stocks, and Selective Cyclicals (Cement)
National Index
International Index
Index Performance (%) 1M 3M 6M Since 01 Aug Since 18 Oct 1 YR
Index Performance (%) 1M 3M 6M Since 01 Aug Since 18 Oct 1 YR
Nifty 50 3.5% 7.1% 7.6% 12.7% -3.9% 4.0%
Shanghai Comp -0.8% 1.3% -7.3% -5.0% -9.6% -9.5%
Nifty Next 50 6.9% 12.1% 9.2% 11.0% -2.2% 4.3%
Bovespa 8.9% 0.9% -2.5% -7.8% -1.8% -5.9%
Nifty 500 4.5% 8.5% 8.4% 12.2% -3.5% 5.3%
Russia 6.7% -0.3% 28.6% -25.9% -35.8% -29.8%
Nifty Midcap 100 6.2% 11.3% 12.0% 13.2% -4.3% 10.0%
south Africa 0.0% -4.5% -11.8% -0.6% 3.8% 3.1%
Nifty SmallCap 250 5.6% 7.1% 3.8% 1.7% -7.3% 4.7%
Korea 0.0% -8.7% -10.8% -23.5% -18.5% -23.6%
Sector Index (%) 1M 3M 6M Since 01 Aug Since 18 Oct 1 YR
Mexico -3.1% -9.8% -12.8% -8.8% -12.2% -11.0%
NIFTY AUTO 5.4% 14.1% 28.8% 31.5% 11.9% 31.6%
Indonesia 3.0% 0.1% 4.2% 17.9% 7.5% 17.5%
NIFTY BANK 5.5% 11.4% 13.1% 14.3% -0.4% 8.1%
Argentina 17.4% 55.8% 57.1% 117.9% 73.6% 91.1%
NIFTY COMMODITIES 5.7% 7.1% 2.3% 8.9% -5.2% 7.4%
Japan 1.4% 3.4% 6.1% 3.3% -2.9% -0.9%
Nifty Financial Services 4.6% 10.7% 11.5% 10.7% -4.2% 1.1%
Hongkong -1.0% -6.8% -11.2% -23.2% -21.5% -23.4%
NIFTY ENERGY 8.0% 9.6% 12.6% 48.4% 11.8% 38.1%
Philipines 5.9% -1.2% -9.4% 6.7% -7.3% -1.4%
NIFTY FMCG 3.1% 13.2% 25.1% 21.6% 5.4% 10.5%
Taiwan -0.3% -11.0% -16.6% -13.3% -10.5% -14.4%
NIFTY IT -2.6% -4.3% -16.8% -6.8% -21.8% -16.7%
Singapore 0.9% 0.2% -0.4% 2.3% 2.1% 4.9%
NIFTY INFRA 4.8% 5.1% 8.1% 15.7% -3.2% 8.5%
Thailand 4.0% -1.4% -3.3% 7.7% -0.3% 0.3%
NIFTY MEDIA -0.5% 0.8% 0.6% 15.2% -11.3% 28.5%
Veitnam 6.1% -1.0% -15.0% -2.3% -8.3% -4.1%
NIFTY METAL 8.2% 11.3% -4.4% 2.8% -5.1% 5.7%
Dow -2.3% -2.7% -5.0% -8.1% -9.0% -9.1%
NIFTY PHARMA -0.6% 0.8% 0.4% -12.0% -13.0% -11.3%
Nasdaq -3.0% -0.5% -11.2% -18.1% -20.0% -21.5%
NIFTY PSU BANK 7.8% 16.6% 14.6% 23.0% 6.3% 27.5%
FTSE 100 INDEX 0.1% -2.3% 2.7% 5.7% 3.2% 4.0%
Nifty Private Banks 6.7% 12.2% 14.3% 13.0% -1.5% 7.4%
DAX INDEX -2.7% -8.8% -4.2% -15.6% -15.2% -17.1%
NIFTY REALTY 2.7% 12.5% 8.0% 16.2% -14.5% 13.4%
CAC 40 INDEX -2.5% -2.8% -1.4% -4.9% -5.8% -7.0%
NIFTY SERV SECTOR 3.8% 8.4% 6.0% 11.0% -4.8% 1.2%
S&P 500 Index -2.4% -2.5% -7.6% -8.3% -10.2% -10.9%
17
Market Indicators
Cool-off started in commodities except for Brent
Precious Metals: Gold prices corrected by 6% in the last 3 months on account of rising interest rates and recovery in the equity markets
Commodities: Over the last three months, steel prices have declined by 21%. Aluminium also witnessed significant moderation after touching an all-time high
level in Mar’22 and is down 30% in 3 months
Crude: Brent crude is now trading around $116/bbl. It stood highly volatile in recent times due to the rising geopolitical risk. It's been over six months since the
Russia-Ukraine conflict ensued, which has kept oil prices at an elevated level and has created upward inflation pressure.
6/30/202 Since 18
Market Indicator 1M ago 3M ago Jul-21 1 YR
2 Oct
Brent Crude
115.6 122.8 107.9 76.3 84.3 75.1
($/bbl)
Bond Yield (GOi
7.4 7.4 6.8 6.2 6.4 6.1
10Yr)
USD/INR 79.0 77.6 75.8 74.4 75.3 74.3
India VIX 21.8 20.5 20.6 12.8 17.2 13.0
Since 01 Since 18
Commodity Index 1M 3M 6M 1 YR
Aug Oct
Gold ($/OZ) -1.1% -6.2% -0.6% 0.2% 3.0% 2.7%
Steel ($/ton) -10.2% -21.0% -13.2% -29.8% -29.0% -27.9%
Aluminium ($/ton) -12.9% -30.0% -12.6% -6.6% -22.9% -2.8%
Copper ($/ton) -11.1% -19.0% -13.8% -13.4% -25.7% -10.2%
Zinc ($/ton) -14.3% -20.0% -6.1% 12.2% -10.6% 15.8%
18
Top 500 Stock Performance

 Mcap of Top 500 companies stood at Rs 239 Tn in Aug’22, up 5% MoM. Now, the entire Mcap is higher than the Sep’21 levels.
 On a MOM basis, the biggest recovery was seen in Utilities, Industrials, and Telecom.
 Utilities are up 98% YoY; Industrials by 21%, Telecom by 15%, while Pharma declined by 17% on a YoY basis.
 The BFSI looks attractive, especially after the recent correction (which was primarily driven by the FII selling).
 Banks have overtaken the IT sector in terms of market cap. In the pre-Covid era, Banks were 1.4X of the IT Market Cap.
No of Sectoral market cap of Top 500 stocks in Tn as of YoY MoM

companies 20th Feb 20 Mar-20 Aug-20 Jun-21 Jul-21 Aug-21 Sep-21 May-22 Jun-22 Jul-22 Aug-22 Chg (%) Chg (%)
Banks 35 23.7 13.8 19.2 28.3 27.9 29.1 30.2 28.6 27.0 30.1 31.9 10% 6%
IT 23 17.2 12.1 18.4 29.3 29.6 33.7 34.1 29.1 27.6 28.5 27.8 -17% -2%
Oil & gas 15 15.3 9.4 18.6 20.2 19.5 21.2 23.4 24.1 23.6 22.9 23.8 12% 4%
NBFC 49 15.2 8.2 11.4 17.4 18.1 19.9 20.2 16.6 15.2 18.0 18.8 -6% 5%
Staples 27 14.4 11.1 13.7 16.1 16.0 17.6 17.9 16.5 16.0 18.2 18.7 6% 3%
Discretionary 49 11.0 7.3 9.7 14.5 14.9 15.6 16.7 15.6 14.4 16.7 17.9 14% 7%
Auto &Anc 36 9.0 5.5 9.0 12.5 12.1 12.0 12.7 13.5 12.7 13.8 14.2 18% 3%
Pharma 35 7.2 5.6 9.1 11.4 11.7 11.6 11.7 9.7 9.4 10.0 9.7 -17% -3%
Industrials 47 6.1 3.8 5.3 8.8 9.0 9.6 9.8 10.0 9.4 10.6 11.6 21% 9%
Build Mate 33 6.0 3.8 5.1 8.5 9.5 9.4 10.1 8.2 7.6 8.7 9.1 -4% 4%
Metals & min 20 5.2 3.1 4.9 9.7 10.5 10.2 10.1 9.3 8.1 9.2 9.8 -4% 6%
Tele & Media 18 4.6 3.1 4.6 4.6 4.8 5.1 5.7 5.6 5.4 5.5 5.9 15% 7%
Insurance 6 4.0 2.2 3.6 4.6 4.6 4.8 4.9 4.2 3.8 4.2 4.4 -9% 5%
Utilities 12 3.9 2.7 3.9 7.2 6.7 7.8 8.6 11.7 11.5 13.1 15.4 98% 18%
Others 45 3.6 2.1 3.4 6.8 7.2 7.5 7.9 8.1 7.7 8.6 9.6 27% 12%
Agri&Chem 30 3.5 2.3 3.5 5.4 5.7 5.7 5.9 5.9 5.4 6.2 6.6 16% 7%
Transport 12 1.2 0.7 1.0 1.6 1.5 1.7 1.8 1.7 1.5 1.8 1.8 12% 5%
Healthcare 8 0.8 0.6 0.9 1.7 1.8 2.1 1.9 1.6 1.5 1.7 1.7 -16% 5%
Total 500 151.9 97.4 145.2 208.8 211.2 224.6 233.3 220.1 207.9 227.7 238.7 6% 5%
19
Market Turnover (% of the Top 500 Names)
 After declining in Jun’22 on account of volatility and weaker investor sentiments, the market turnover recovered in Aug’22 to Rs 48,000
Cr.
 Market turnover was inclined towards Large Caps during Jun’22. Since then, it has been shifting towards the broader market indicating a
resilience of the market
20
Non-Institutional turnover remains at average levels

 Non-Institutional (Retail) turnover is at 53%, slightly above the long-term average (51%) in Aug’22. It went down below LTA during mid-
Jun’22 followed by the recovery in the domestic market since 17th Jun’22.
 Retail participation is likely to improve further in the upcoming months as equity is the only asset class which can beat the current
inflationary scenario.
21
India Valuation Index

India Valuation Index: Trading above 1std; Earnings Upgrades Remain Critical
Our Market Valuation Index has retraced back to 1std after the recent correction. Current valuations provide a good entry point for long-term
investors. At current levels, stock picking and sector rotation would be keys to achieving outperformance. The calculation of the India Valuation
Index is based on four fundamental market parameters (12m fwd PE, 12m fwd PB, Bond Equity Earnings Yield Ratio, and Mcap to GDP Ratio).
22
In terms of Mcap to GDP, India is less expensive than the US market

 BEER: Factoring in the rate hike expectation by the RBI, the long-term bond yields have gone up 40bps in the last 5 months. After the
recent correction, some cool-off was seen in the BEER ratio. However, it is now trading above its LTA, indicating a slightly expensive
Equity market at current levels as against the Bond market.
 India’s Total Market Cap to GDP is trading at 115%, above its long-term average (Rebased after FY22 GDP of Rs 232 Tn released by
the government on 1st Feb’22). However, at FY23 projected nominal GDP levels, Mcap/GDP ratio translates into 105% (fairly valued).
FY23 GDP assumption is Rs 258 Tn.
 Historical perspective: Historically, similar upward earnings momentum was witnessed in FY10 earnings immediately after the GFC
crisis, leading to the Market Cap to GDP ratio of 95-98%. With a positive earnings momentum in the current cycle, we are likely to see
higher levels of the Mcap to GDP ratio in the upcoming quarters.
BEER Ratio (Dec’05-May’22) India’s Total Mcap to GDP Ratio (Sep’02-May’22)
23
Market Valuations: 12M Fwd PE Now Trading at 19.2x
Nifty is currently trading at 19.2x on a 12M fwd PE, at 1.3std to its long-term average while it is trading at 1stdev on a 12M Fwd PB.
The current valuation looks attractive (slightly above the 5-year average) as risk-reward has significantly improved in the last three
months with the earnings expectation for FY23 remains intact.
Nifty 12M Fwd PE Nifty 12M Fwd PB
24
Market Valuations: FTSE India rel. FTSE EM

 FTSE India is trading at 2stdev rel. to FTSE Em index on 12m fwd PE. Currently, FTSE India is trading at an 87% premium to
the EM index vs. a 39% average premium.
 Divergence is likely to continue on account of a) Robust economic growth, b) Strong earning's outlook, c) Robust demand
across the sector, d) Banking sector in better shape and e) Private Capex cycle expectation.
25
Nifty and Sectors

At current levels, PSU Banks, Energy, and the Metal Index are exhibiting valuation comfort. On the other hand, valuations for the IT, Pharma,
and Auto sectors appear expensive. However, the valuation of the IT sector is likely to persist on account of a strong structural theme emerging
in the sector.
Source: Bloomberg, Axis Securities, Note: 10 yr average means historical 10 yr average of 12m fwd PE
26
Nifty EPS Growth Expectation Remains Robust
The expectation of 20% CAGR over FY21-FY24 vs. 7% CAGR over FY09-FY21
27
Nifty EPS Remained Largely Unchanged
We foresee FY23/24 Nifty Earnings at 820/929. After Q1FY23, we change our FY23/24 expectations marginally by -0.7%/1% and stand
conservative at 4%/7% below the street expectations. Financials are the biggest contributor to the FY23 earnings. We maintain our Mar’23 Nifty
target at 18,400 by valuing it at 20x FY24 earnings vs. 22x earlier. We cut the Nifty multiple to accommodate the rising interest rate scenario,
which started with a 40bps rate hike in the unscheduled MPC meet in early May’22. We believe aggressive policy tightening would curb inflation.
However, the persistently elevated Oil and Commodity prices would pose challenges to the market multiple over the next few quarters.
FY24 EPS FY24 EPS

FY24 EPS FY24 EPS
Upgrade/Downgrade contribution Upgrade/Downgrade contribution
Sector Post Q3 Post Q4 Post Q1 Sector Post Q4 Post Q1
after Q1 after Q1
Financial 298 300 306 2.1% 37.3% Financial 344 350 1.6% 42.7%
IT 113 107 102 -5.0% 12.4% IT 112 112 -0.1% 13.7%
Oil & Gas 135 127 129 1.7% 15.7% Oil & Gas 138 142 3.0% 17.3%
FMCG 49 49 48 -2.5% 5.9% FMCG 57 55 -2.1% 6.8%
Power 37 41 37 -9.1% 4.5% Power 46 42 -10.1% 5.1%
Industrial 37 35 36 3.0% 4.4% Industrial 37 41 10.8% 5.0%
Pharma 30 30 31 1.5% 3.7% Pharma 35 36 3.3% 4.4%
Metals 80 79 76 -3.7% 9.3% Metals 68 68 0.6% 8.3%
Automobile 44 39 39 0.1% 4.7% Automobile 55 57 4.2% 7.0%
Cement 9 8 6 -19.4% 0.8% Cement 10 8 -15.1% 1.0%
Telecom 12 11 10 -10.4% 1.2% Telecom 19 18 -7.1% 2.1%
Total 844 826 820 -0.7% Total 920 929 1.0%
28
The last 4 quarters rolling profits for NSE 500 (Sum of the last 4 quarters' earnings)
A few interesting findings from our study: Sector-wise
 The last 4 quarters’ cumulative net profit has reached an all-time high, crossing Rs 10 Lc Cr in Q1FY23
 The Financials are now significantly contributing to the Net Profit as against their contribution in 2019
 Financials, Oil &Gas, Metals, and IT are now contributing 68% of the NSE 500 profitability
 Loss-making sectors have turned positive post witnessing significant disruption by the pandemic
Sector-wise Net profit for NSE 500 – Trailing 4 Quarters (In Cr)
Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23
Auto & Anc. 36,212 34,648 28,975 18,892 16,774 19,102 23,326 31,448 33,505 32,432 39,165 40,367
Staples 34,044 35,614 34,705 34,745 34,686 35,077 37,033 37,947 38,906 39,898 40,786 42,671
Discretionary 18,408 18,644 17,154 10,635 7,816 7,532 9,492 11,307 13,066 13,737 12,778 19,345
Financials 83,185 87,751 83,569 89,429 1,11,037 1,20,216 1,44,827 1,53,050 1,68,689 2,01,467 2,49,250 2,68,760
IT 81,462 82,965 82,387 82,322 82,967 86,267 89,398 94,947 99,377 1,01,155 1,04,604 1,04,752
Oil & gas 1,00,204 1,00,066 69,799 66,982 69,888 74,752 1,24,719 1,32,943 1,54,065 1,70,082 1,66,402 1,62,991
Metals & Mining 58,266 51,279 31,557 18,990 13,853 27,476 67,094 1,01,698 1,33,055 1,45,281 1,49,009 1,47,789
Industrials 31,188 27,506 21,567 16,733 19,543 21,798 26,535 30,604 27,913 26,718 29,022 33,017
Build Mate 22,387 21,725 21,114 17,339 18,214 20,914 25,089 29,967 31,286 30,927 31,649 32,439
Healthcare 28,133 25,734 24,580 23,333 24,786 32,230 34,998 38,964 39,791 38,245 34,575 34,139
Utilities 27,165 29,287 26,518 25,196 26,743 27,905 38,791 44,783 42,734 43,788 48,542 52,522
Transport 2,462 2,713 32 -4,815 -3,837 -5,147 -4,871 -5,289 -5,650 -4,357 -4,003 -353
Agri&Chem 12,424 13,976 14,142 14,060 15,001 15,127 16,737 18,898 19,085 20,570 22,468 24,891
Tele & Media -19,015 -20,239 -27,164 -41,669 -20,379 -18,345 -10,089 7,343 10,474 11,091 11,773 12,579
Others 12,486 12,017 9,266 7,004 6,395 7,355 9,466 12,286 21,966 22,569 24,611 25,240
Total 5,29,010 5,23,684 4,38,202 3,79,177 4,23,487 4,72,259 6,32,544 7,40,895 8,28,264 8,93,602 9,60,630 10,01,150
Growth (%) -2% -1% -16% -13% 12% 12% 34% 17% 12% 8% 7% 4%
Source: Bloomberg, Axis Securities, Note: Tata Motors and Vodafone are not included in the study
29
Return Ratios are Improving

• ROE is improving across the market caps. Smaller stocks, too, have been showcasing a significant improvement.
• ROE of cyclical sectors has improved in the last 1-2 years. Moreover, current ratios are higher than pre-pandemic levels.
• Significant improvement has been seen in the PSU banks in the last 3 years.
• The automobiles & Infra sectors' profitability has improved in the last couple of years based on the positive outlook
30
DIIs are continuously supporting the market led by increasing SIP contribution
• SIP contribution rose to its highest-ever level in FY22.
• Since Sep’21, it is more than 10,000 Cr/month
Source: Bloomberg, AMFI, Axis Securities
31
FIIs buying continued in Aug’22

FIIs turned net buyers for the first time in Jul’22 (after 9 months since Oct’21) which continued in Aug’22. FIIs bought $6.6 Bn in the last one
month while DIIs sold $0.9 Bn for the same time.
FIIs have pulled out the majority of the easy money from the Indian market which they pumped in after the Covid-19 crisis in Mar’20. They have
pulled $25 Bn in FY22/23 out of $37 Bn pumped in FY21. Nonetheless, the pace of selling has been reduced in the last 2 months and on a
positive note, FIIs have turned into net buyers since Jul’22.
32
Sector-wise FIIs flows

The pace of FII selling has reduced since Jul'22 and FIIs flows turned net positive in the last 2 months. Consumer discretionary has
seen the highest FII flows along with the financials in Aug’22
FII Flows in USD Mn Outflow

Sector Oct Nov Dec Jan Feb Mar April May June July August since Oct
Financials (173) (2132) (935) (1024) (1681) (3466) (1688) (1551) (1736) 129 838 (13419)
Cons Dics 128 3185 (553) (707) (660) (1467) 7 (779) (1168) 168 867 (979)
Cons Staples (241) (578) (379) (98) (304) 36 230 (73) (310) 537 246 (934)
Tech (1438) (366) (174) (2122) (1454) (177) (1096) (1739) (842) (563) 199 (9772)
Industrials 98 (135) 207 (136) (399) (773) (410) (131) 71 366 228 (1014)
Energy 95 (519) (43) (192) (498) 112 (159) (461) (463) (661) (19) (2808)
Materials (564) (662) (141) 222 99 241 47 (469) (808) (144) 257 (1922)
Healthcare 13 (83) (241) (444) 88 34 686 (91) (257) 25 (13) (283)
Utilities 271 (124) (208) 186 (80) 39 74 298 (347) 204 50 363
Telecom 146 64 (89) 51 60 38 57 (77) (485) 576 53 394
Real Estate (91) 524 (21) (130) (107) (52) (108) (63) (24) 7 (48) (113)
Others (57) 31 47 (42) 224 58 115 (23) (25) (10) 158 476
Total (1813) (795) (2530) (4436) (4712) (5377) (2245) (5159) (6394) 634 2816 (30011)
Source: Bloomberg, NSDL, Axis Securities Note: data as of 15th Aug’’22
33
Macro Indicators
Healthy Pick Up In the Economic Activities Continued in the Last Quarter
 GDP: GDP for Jun’22 quarter grew 13.5% (slightly below the consensus estimates). Base effects make it hard to read Jun’22 quarter GDP – in YoY
terms. However, momentum in net exports and investment on the demand side marginally slowed down. On the supply side, there is moderation in
manufacturing and all service segments, except for public administration and personal services. The outlook for growth in India is good since policy
intervention has ensured an adequate supply of inputs and lowered input costs
 Electricity generation & E-way bills: Healthy pick-up in the economic activities continued in Jul’22. Electricity generation posted an encouraging
growth indicating significant improvement in economic activities. Healthy momentum was also seen in E-way bills with 7.7 Cr bills generated in Jul’22,
higher than the pre-pandemic average.
 CPI: Jul’22 CPI rose by 6.7%, lower than street expectations. Sequential moderation was seen on account of some cool-off in food, and vegetable
prices. The impact of excise duty cut and export duty on key commodities are yet to be fully reflected in the CPI, indicating more moderation in the
upcoming months.
34
India’s Nifty Index vs. VIX: Some recovery in VIX, trading around LTA
 Similar to Jul’22, Aug’22 turned out to be a recovery month after a major selloff seen in Jun’22 on account of weaker global cues driven
by higher inflation print in the US market. Cool-off was seen in the majority of the commodity prices which brings confidence in the
recovery and corporate margins.
 FIIs turned net buyers in the domestic market on an expectation of robust domestic recovery and bolstering confidence in the ‘India
story.’
 The market dynamics have shifted towards domestic-oriented themes which performed better in the last month while export-oriented
themes will continue to lag the market.
 Volatility is likely to continue for some more time before it concludes in a more concrete direction. Now, the market is eyeing
macroeconomic development and festival demand.
 The market performance is likely to be range-bound in the near term, primarily owing to weaker global cues as the Indian market has
shown a correlation of 90% with the US markets in the last one year.
35
Other Macro Indicators

Macro will continue to drive near-term market fundamentals
 Fundamentally, the Indian market has entered into an upcycle of the earnings trajectory. However, the short-term behaviour of FII (in terms of equity
flow in the emerging market) has changed in line with the rise in three macro drivers – a) The US bond yields, b) The Dollar Index, and c) Aggressive
rate hike expectation
 The US bond yields went up 3.1% after a Jackson Hole meeting, on an expectation of a continuation of rate hikes till inflation is in a comfortable zone.
The Dollar Index has advanced to the level of 108.4, creating a weakness in the domestic market.
 The correlation between the Indian market and the US market remains high at 90%.
36
Q1FY23 Earnings Review

Revenue in line with the expectation while earnings miss in commodity and export themes
 45/50 Nifty companies either beat or were in line on revenue expectations, while 29/50 companies either beat or were in line at the
earnings front
 Top-tier IT companies posted a robust set of numbers, led by large deal wins and notable demand for digital transformation. However,
they reported a miss on the margin front on account of higher travel costs and wage hikes. Supply-side constraints continue to pose
growth challenges in the short term.
 ICICI posted a robust set of numbers, driven by growth in NII, and lower provisioning, which resulted in an all-around beat.
 HUL posted resilient performance ahead of the street expectation. The management expects RM cost inflation to start easing towards
Q3FY23.
 The overall earnings scenario is holding up reasonably well with most of the Nifty 50 companies either in line or posting beats on revenue
expectations while part of the input cost pressure is mitigated by calibrated price hikes.
 Management commentaries were upbeat and guided for ease in the supply chain constraints with a cool-off in commodity prices. The
expectation of recovery towards the upcoming festival season and pick-up in the infra projects.
Q1FY23 Performance
Beat results: ICICI bank, HDFC life, FMCG, Pharma
Missed results: OMCs, Metals, IT
Nifty Q1FY23 Earnings EBITDA Revenue
Results Out Beat In Line Miss Beat In Line Miss Beat In Line Miss
50 24 5 21 17 11 20 23 22 5
FY23 EPS
Key Upgrade: Coal India (+40%), Titan (+9%), M&M (+6%), ICICI Bank (+3.4%), Asian Paints (+3.4%), HDFC life (+3)
Key Downgrade: BPCL (-46%), IOCL (-30%), Tata motor (-26%), JSW steel (-19%), Shree Cement (-17%), Tech Mahindra (-10%)
37
Company Section
ICICI BANK – RE-RATING ON TRACK
ICICI Bank (ICICIBC) is one of the largest private sector banks in India with business operations spread across Retail, Corporate, and Industry view
Insurance, among others. It is supported by a strong liability franchise and a healthy retail corporate mix. The bank’s subsidiaries such as
ICICI Venture Funds, ICICI Pru AMC, ICICI Securities, ICICI Prudential, and ICICI Lombard stand among the leading companies in their
respective domains.
Key Rationale Equal Weight

 Strong traction in the loan book: The bank continued its growth  Operational performance strengthening: The bank’s reported
momentum, clocking a healthy advances growth of 21/4% YoY/QoQ, NIM has been stable at ~4% QoQ. The management is looking to
driven by robust growth in Retail/Business. The bank’s Banking/SME
maintain NIM between 3.95-4%. The steady mix of a high-yielding
segments grew by 24/45/32% YoY respectively. Retail growth was CMP
mainly driven by Mortgages (+22% YoY), Credit cards (+63% YoY), and portfolio (Retail/Business Banking) and a low-cost liability franchise
887
Personal loans (+38% YoY), while vehicle financing picked up the pace are supporting the bank in maintaining margins.
(+12% YoY). The credit card portfolio growth has been impressive,  Outlook & Valuation: The bank has been outperforming its peers
supported by robust spend, which was driven by the improvements in and has been firing on all cylinders. ICICIB has ticked most boxes Target Price
discretionary spending, higher activation rate through digital customer 1,000
on growth, margins, and asset quality. Higher loan growth,
onboarding, and diversification through commercial cards. The share of
unsecured loans inched up to ~11% against ~9% YoY. improving operating profits, and a strong provision buffer coupled
 Comfort on asset quality: Though slippages during Q1FY23 were with a strong deposit franchise will help the bank achieve Upside
marginally higher QoQ due to seasonal weakness in the KCC portfolio ROAE/ROAA expansion over FY23-25E. On the valuation front, we 13%
(annual slippage ratio of 2.7% vs. 3.9/2.0% YoY/QoQ), strong believe the bank continues to be on a comfortable footing. We
recoveries and upgrades of Rs 54.4 Bn aided asset quality
improvement. Moreover, the company has done significant work on pre- maintain a BUY on the stock with a revised target price of Rs
delinquency management, leading to healthy recoveries. Its 1,000/share (SOTP basis core book at 2.8x FY24E and Rs 168
restructured loans declined to ~0.8% of loans from 1% QoQ. A key Subsidiary value).
positive during the quarter has been the sharp fall in the BB and below  Key risks: a) Deterioration in the retail asset quality, b) Delay in the
book which has ranged between 1.5-3% over FY19-22, which has
resolution of stressed assets.
dropped to 0.9% in Q1FY23.
Key Financials (Standalone)

Y/E Mar NII PPOP PAT EPS ABV P/ABV ROAA NNPA
(Rs Bn) (Rs Bn) (Rs Bn) (Rs Bn) (Rs) (Rs) (x) (%) (%)
FY22P 475 393 233 33.6 225.7 3.9 1.7 0.8
FY23E 555 444 279 40.2 259.7 3.4 1.8 0.7
FY24E 661 541 336 48.4 297.3 3.0 1.9 0.6
FY25E 780 649 400 57.6 342.3 2.6 2.0 0.6
Source: Company, Axis Securities
38
Income Statement (RsBn) Balance Sheet (RsBn)

Y/E March FY22 FY23E FY24E FY25E Y/E March FY22 FY23E FY24E FY25E
SOURCES OF FUNDS
Net Interest Income 475 555 661 780
Share Capital 14 14 14 14
Other Income 185 209 249 293 Reserves 1,691 1,928 2,197 2,518
Shareholder's Funds 1,705 1,942 2,211 2,531

Total Income 660 764 910 1073
Total Deposits 10,646 12,306 14,382 16,753
Borrowings 11,718 13,607 15,862 18,400

Total Operating Exp 267 321 369 424
Other Liabilities & Provisions 690 776 873 982
PPOP 393 444 541 649 Total Liabilities 14,113 16,325 18,946 21,913
Provisions & Contingencies 86 71 92 113

APPLICATION OF FUNDS
Cash & Bank Balance 1,678 1,829 2,059 2,264

PBT 306 373 449 535
Investments 3,102 3,512 3,997 4,447
Provision for Tax 73 94 113 135 Advances 8,590 10,223 12,107 14,396
Fixed &Other Assets 742 761 784 807

PAT 233 279 336 400
Total Assets 14,113 16,325 18,946 21,913
Source: Company, Axis Research Source: Company, Axis Research
39
Valuation ratios (%) Balance Sheet Structure Ratios (%)

Y/E March FY21 FY22P FY23E FY24E Y/E March FY21 FY22P FY23E FY24E
Loan Growth (%) 17.1 19.0 18.4 18.9
EPS 33.6 40.2 48.4 57.6 Deposit Growth (%) 14.2 15.6 16.9 16.5
Earnings growth (%) 44 20 20 19 C/D Ratio (%) 80.7 83.1 84.2 85.9
Equity/Assets (%) 12.1 11.9 11.7 11.6
Adj. BVPS 225.7 259.7 297.3 342.3 Equity/Advances (%) 19.8 19.0 18.3 17.6
ROAA (%) 1.7 1.8 1.9 2.0 CASA (%) 48.7 48.9 48.4 47.3
Total Capital Adequacy Ratio 19.2 18.4 17.1 16.0
ROAE (%) 14.7 15.3 16.2 16.9 Tier I CAR 17.1 19.0 18.4 18.9
P/ABV (x) 3.9 3.4 3.0 2.6

ASSET QUALITY
Dividend Yield (%) 0.6 0.8 1.2 1.4 Gross NPLs 339.2 333.8 342.6 371.3
Net NPLs 69.6 71.6 80.6 89.6
Gross NPLs (%) 3.6 3.0 2.6 2.4
PROFITABILITY Net NPLs (%) 0.8 0.7 0.6 0.6
Yield on Advances (%) 8.3 8.3 8.4 8.4 Coverage Ratio (%) 79 79 76 76
Provision/Avg. Loans (%) 1.1 0.8 0.8 0.9
Cost of Funds (%) 3.7 3.7 3.8 3.8
Cost of Deposits (%) 3.5 3.6 3.7 3.7 ROAA TREE

Net Interest Income 3.6 3.6 3.7 3.8
NIM (%) 4.0 4.0 4.1 4.1 Non-Interest Income 1.4 1.4 1.4 1.4
Operating Cost 2.0 2.1 2.1 2.1
Provisions 0.7 0.5 0.5 0.6
OPERATING EFFICIENCY Tax 0.6 0.6 0.6 0.7
Cost/Avg. Asset Ratio (%) 2.0 2.1 2.1 2.1 ROAA 1.7 1.7 1.9 2.0
Leverage (x) 8.3 8.3 8.5 8.6
Cost-Income Ratio (%) 40.5 42.0 40.5 39.5 ROAE 14.7 15.3 16.2 16.9
40
COAL INDIA – VOLUME GROWTH & RICHER PRICING MIX TO DRIVE PROFITABILITY
Coal India Ltd (CIL) is the largest coal producer in the world. Its coal production share stood at 80% of the domestic coal production in FY22. It Industry view
has ~55% of India’s total coal resources under it. It has strategic importance in meeting India's energy requirement as ~51% of the country’s
power generation capacity is derived from coal-based thermal power plants. In FY22, ~80% of the coal dispatch from CIL was to the Power
sector. CIL’s coal production grew by 4% YoY in FY22 to 623 million tonnes (MT), while dispatch rose by 15% YoY to 662 MT. The company
has a production and dispatch target of 700 MT for FY23.
Key Rationale Key Rationale Over Weight
 Robust business profile with stable and healthy operating margins: However, E-auction volumes stood lower in Q1FY23. E-auction sales
The Company’s EBITDA margins have been healthy and stable averaging volume stood at 12% of total coal off-take from 15% in Q4FY22 and CMP
25% over the last decade. This has been on account of abundant coal 19% in Q1FY23. The drop in e-auction sales indicates a higher supply
235
resources, conducive geological conditions, the company’s improving to the power sector during the peak summer season. With the onset of
productivity in terms of output/man-shift due to manpower reduction monsoon, we expect the e-auction volumes to gradually increase as the
through the closure of underground mines, higher outsourcing, and Capex peak power demand subsides Target Price
on open cast mines and evacuation expenditure. However, the margins  Strong cash flows to keep the dividend yield high: CIL has a robust 262
dipped in FY18 (14%) as it undertook one-time expenses on provisions financial risk profile with healthy net cash and cash equivalents of Rs
towards wage revision. Wage revisions are due now and the company 25,870 Cr (as of Mar’22). Trade receivables have come down to Rs Upside
expects them to complete by the end of FY23. Keeping this in view, we 11,368 Cr in FY22 from Rs 19,623 Cr in FY21 leading to positive free
12%
model a 10% increase in the employee cost along with a 6% hike in cash flow in FY22 (post working capital changes). The company has a
blended average sales prices (ASP) to factor in higher e-auction prices and Capex plan of Rs 17,000 Cr for FY23, primarily on evacuation
an expected hike in FSA prices (option value). infrastructure. Despite the proposed Capex and high dividend payout,
Higher international coal prices lead to Higher e-auction coal prices: liquidity will remain robust over the medium term, backed by a robust
Higher international coal prices driven by heightened geopolitical tension capital structure and healthy cash accrual.
have led to lower imports and higher e-auction premiums for domestic  Valuation & Outlook: Higher international coal prices and volume
coal. In Q1FY23, FSA/e-auction/washed coal prices all stood higher YoY growth and CIL's focus on closing the non-profitable manpower
by 3%/177%/63% and on a sequential basis, FSA prices marginally intensive high cost underground coal mines and expanding the large
declined by 2% whereas, e-auction and washed coal prices jumped up open cast mines will drive the profitability. We recommend a BUY
78%/24% respectively. E-auction premium over FSA stood at a massive rating on the stock and value it at 4.3x FY24E EV/EBITDA to arrive
201% as against 65% in Q4FY22 and 13% in Q1FY22 at a TP of Rs 262. Key Risks: a) Low power demand, b) Fall in
international coal prices c) Input cost inflation and wage hike.

Y/E March Net Sales EBITDA Net Profit EPS PER EV/EBIDTA ROE ROCE
(Rs Cr) (Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (x) (%) (%)
FY22A 1,09,714 24,691 17,358 28.2 5.5 2.5 43.58% 17.48%
FY23E 1,27,981 32,087 22,843 37.1 6.2 3.4 47.86% 21.85%
FY24E 1,30,746 29,893 20,413 33.1 7.0 3.9 36.20% 18.07%
FY25E 1,31,883 29,033 18,990 30.8 7.5 3.9 29.55% 15.65%
41
Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)

Y/E March FY 22A FY 23E FY 24E FY 25E Y/E March FY 22A FY 23E FY 24E FY 25E
Total Income From Operations 1,09,714 1,27,981 1,30,746 1,31,883 Net Block 42,698 51,019 62,598 72,987
CWIP 12,714 17,000 17,000 12,000
Total Expenditure 85,023 95,894 1,00,853 1,02,849 Intangible assets 289 289 289 289
EBITDA 24,691 32,087 29,893 29,033 Investments 9,706 9,706 9,706 9,706
Adj EBIDA (Exl Overburden) 28,463 36,997 33,542 32,818 Inventories 7,076 8,254 8,432 8,505
Depreciation and Amortization 4,429 4,392 5,421 6,611 Trade Receivables 11,368 15,778 16,119 16,259
EBIT 20,262 27,695 24,472 22,422 Cash / Bank balance 29,179 20,319 16,576 18,648
Misc. Assets 67,214 67,214 67,214 67,214
Other Income 3,905 4,283 4,239 4,310 Total assets 1,80,243 1,89,580 1,97,934 2,05,608
Share Of P/L Of Associates (9) (24) - -
Less: Interest & Fin Chg. 541 398 331 331 Equity capital 6,163 6,163 6,163 6,163
Less: Exceptional Items - - - - Reserves 36,980 46,143 54,308 61,904
Profit before tax 23,616 31,555 28,380 26,401 Borrowings 3,310 3,310 3,310 3,310
Provision for Tax 6,238 8,711 7,966 7,411 Def tax Liabilities 811 811 811 811
Minority Interest (20) (1) - - Other Liabilities 52,349 52,349 52,349 52,349
Attr Reported PAT 17,358 22,843 20,413 18,990 Provisions 72,039 72,039 72,039 72,039
Trade Payables 8,592 8,766 8,955 9,033
EPS (Rs/sh) 28.2 37.1 33.1 30.8 Capital employed 1,80,243 1,89,580 1,97,935 2,05,608
DPS (Rs/sh) 17.0 22.2 19.9 18.5 Source: Company, Axis Research
Source: Company, Axis Research
42
Cash Flow (Rs Cr) Ratio Analysis (%)

Y/E March FY 22A FY 23E FY 24E FY 25E Y/E March FY 22A FY 23E FY 24E FY 25E
Profit before tax 23,616 31,555 28,380 26,401 Operational Ratios
Depreciation 4,429 4,392 5,421 6,611 Sales growth (% YoY) 22% 17% 2% 1%
Interest Expenses 541 398 331 331 EBITDA growth (% YoY) 42% 30% -9% -2%
Non-operating / EO item 1,337 24 - - Op. profit growth (% YoY) 36% 37% -12% -8%
Change in W/C 17,448 (5,415) (330) (136) Net Profit growth (% YoY) 37% 32% -11% -7%
income Tax (Paid)/Refund (6,284) (8,711) (7,966) (7,411) EBITDA Margin % 26% 29% 26% 25%
Operating Cash Flow 41,088 22,244 25,836 25,797 Net profit Margin % 16% 18% 16% 14%
Capital Expenditure (12,023) (17,000) (17,000) (12,000) Tax Rate % 26% 28% 28% 28%
Free cash Flow 29,064 5,244 8,836 13,797 Efficiency Ratios
Other Investments (14,458) - - - Total Asset turnover (x) 0.6 0.7 0.7 0.7
Investing Cash Flow (26,481) (17,000) (17,000) (12,000) Sales/Gross block (x) 1.8 1.8 1.5 1.3
Proceeds / (Repayment) of
(2,573) - - - Sales/Net block(x) 2.7 2.7 2.3 1.9
Borrowings
Finance cost paid (85) (398) (331) (331) Working capital/Sales (x) 0.06 0.09 0.09 0.09
Dividend paid (10,783) (13,706) (12,248) (11,394) Valuation Ratios
Other Financing activities - - - - PER (x) 5.5 6.2 7.0 7.5
Financing Cash Flow (13,441) (14,104) (12,579) (11,725) P/BV (x) 2.2 2.7 2.4 2.1
Change in Cash 1,165 (8,860) (3,743) 2,072 EV/Adj Ebitda (x) 2.5 3.4 3.9 3.9
Opening Cash 5,112 29,179 20,319 16,576 EV/Sales (x) 0.6 1.0 1.0 1.0
Closing Cash 6,278 20,319 16,576 18,648 Dividend Yield (%) 11% 10% 9% 8%
Source: Company, Axis Research Return Ratios
ROE 43.6% 47.9% 36.2% 29.5%
ROCE 17.5% 21.9% 18.1% 15.6%
ROIC 86.3% 56.8% 37.3% 30.6%
43
TECH MAHINDRA – ROBUST BROAD-BASED GROWTH

Tech Mahindra is India’s leading IT services provider to many business conglomerates. Tech Mahindra is headquartered in Mumbai (India) Industry view
and has a strong presence across geographies such as North America, Europe, the Middle East, Australia, etc. The company provides
specialized IT services to its clients across verticals like Communications, Healthcare, and BFSI, among others.
Key Rationale Key Rationale Equal Weight

 Strong Q1FY23 performance tech Mahindra Ltd (Tech M Tech Mahindra  On the services line front, CME delivered a strong recovery at 4.1% growth
Ltd (Tech M) reported better-than-expected results in Q1FY23. The on a QoQ basis. Enterprise services grew by 5.4% QoQ, IT services by 4.7%
company’s revenue for the quarter stood at Rs 12,708 Cr, delivering a QoQ, and BPS by 9.7% QoQ. All Services witnessed robust demand and the
growth of 4.9% QoQ. However, despite the revenue growth, the company’s momentum is expected to continue in the forthcoming quarters.
 Initial traction in 5G; may pick up in FY23-FY24: The management sees
operating margins declined 220bps to 11%, primarily owing to higher
initial traction in 5G both on (a) Communications side where traction is visible CMP
operating costs and employee wage hikes which were only partially offset
by cross currency tailwinds. The company’s net income for the quarter stood
in modernization IT, network, process and systems, and (b) Enterprise side 1,076
where it signed 3 Manufacturing 5G solutions in Europe and 1 in the US.
at Rs 1,132 Cr, down 16% YoY and 25.7% QoQ. On a brighter note, the While the timing of pickup is difficult to predict, the management expects 5G
ramp-up in new deal wins enabled Tech Mahindra to generate strong
volume growth. The Communication vertical grew 6.7% QoQ while the
growth to pick up in FY22 or at most in FY23and FY24. We expect initial Target Price
traction and pipeline build-up to aid network and core modernization for 5G
Enterprise vertical showcased a growth of 6.3% QoQ in CC terms. within Communications in FY22. We see 5G for Enterprise as a long-term 1,200
 Strong deal wins and pipeline reflects demand acceleration: The deal opportunity and expect it to pick up in FY23 and beyond.
pipeline, too, remained robust during the quarter at TCV of $805 Mn, which  Strengthening capabilities: Tech Mahindra has done tuck in acquisition to
is broad, based. The management is expecting strong improvements in strengthen the capabilities which are Cloud-focused asset having expertise in Upside
supply-side constraints and expects recovery with the ramp-up in new deal Cloud Consulting, Enablement, Application Development, and Data 12%
wins. Moreover, the deal pipeline is trending at an all-time high led by (a) Analytics. The acquisition will bolster Tech M’s consulting capabilities in the
Advanced stage discussions within the network and core transformation Cloud transformation space and will enable Tech Mahindra to drive the
growth of Cloud-related IT services in the North American market
within Communications and (b) Data and Digital within Enterprise. This
 Valuation: We believe Tech Mahindra has a superior services mix and
reflects demand acceleration. multiple long-term contracts that are well-spread across the verticals,
 Posted robust broad-based growth. On the vertical front, BFSI de-grew by reducing its dependency on any one vertical. Furthermore, we foresee
2.9% QoQ and Manufacturing improved by 3.9% QoQ. Technology healthy tractions in Communications and Enterprise verticals which will
improved by 6.4% QoQ. Furthermore, Retail Transport & Logistics reported greatly accelerate the company’s revenue growth moving forward. We
a growth of 5.5% QoQ while Others grew at 0.2% QoQ.. recommend a BUY rating on the stock and assign a 14x P/E multiple to
 On the geographical front, North America (48% of revenue) grew by 4.4% the company’s FY24E earnings of Rs 83.7/share to arrive at a TP of Rs
QoQ, Europe (26% of revenue) de-grew by 1.9% QoQ and the Rest of the 1,200/share. TP implies an upside of 14% from CMP.
World (25% of revenue) de-grew by 0.4% QoQ (in CC terms). All Services
witnessed robust demand and the momentum is expected to continue in the
forthcoming quarters.
Key Financials (Consolidated)
Y/E Mar Net EBIDTA Net FDEPS Change PER RoE RoCE
(Rs Cr) Sales (Rs) (Rs) Profit (Rs) (Rs) (%) (x) (%) (%)
FY20 36,354 5,832 4,130 48.0 8 34.0 20% 19%
FY21 37,548 7,150 4,353 50.9 6% 26.0 21% 19%
FY22E 44,646 8,020 5,137 63.3 24% 12.3 23% 19%
FY23E 51,343 10,945 6,112 72.8 15% 10.3 26% 21%
44

Net sales 37,548 44,646 51,343 59,044 Cash & bank 1,043 2,848 7,299 16,816
Growth, % 3% 19% 15% 15% Debtors 7,778 9,225 10,647 12,268
Other income 1,232 1,112 1,561 1,750 Other current assets 6,590 6,590 6,590 6,590
Total income 3,878 4,576 5,290 6,079 Total current assets 22,134 25,689 31,570 42,392
Employee expenses 20,767 29,243 24,089 24,206 Net fixed assets 1,243 431 431 431
Other Operating expenses 7,611 7,383 9,588 10,661 CWIP 276 276 276 276
EBITDA (Core) 7,150 8,020 10,945 16,833 Other Non-current assets 752 752 752 752
Growth, % 23% 12% 36% 54% Differed tax assets 609 609 609 609
Margin, % 19% 18% 21% 29% Total Non-Current Assets 288 207 207 207
Depreciation 1,434 1,623 1,580 1,697 0 0 0 0
EBIT 5,240 6,397 9,365 15,136 Total assets 33,252 36,613 42,100 52,357
Growth, % 18% 22% 46% 62% 0 0 0 0
Margin, % 14% 14% 18% 26% Creditors 2,795 2,971 3,247 3,406
Interest paid 133 104 95 95 Provisions 395 395 395 395
Pre-tax profit 5,953 7,452 10,831 16,790 Total current liabilities 9,763 9,939 10,215 10,374
Tax provided 1,599 2,009 3,349 4,421 Other liabilities 42 42 42 42
Profit after tax 4,353 5,630 7,482 12,369 Paid-up capital 433 433 433 433
Net Profit 4,353 5,137 6,112 7,274 Reserves & surplus 22,492 25,718 30,930 41,028
Growth, % 5% 18% 19% 19% Shareholders’ equity 2,293 2,615 3,136 4,146
Net Profit (adjusted) 4,353 5,137 6,112 7,274 Total equity & liabilities 33,252 36,613 42,100 52,357
45

Y/E March FY21 FY22E FY23E FY24E
Y/E March FY21 FY22E FY23E FY24E
Per Share data
Pre-tax profit 3,513 7,507 10,831 16,790 EPS (INR) 50.9 63.3 72.8 83.7
Growth, % 6% 24% 15% 15%
Depreciation 1,434 1,267 1,580 1,697 Book NAV/share (INR) 260.5 297.2 356.4 471.1
FDEPS (INR) 42 46 46 46
Chg in working capital -748 -1,750 -1,430 -1,305 CEPS (INR) 67.2 77.5 103.6 160.4
CFPS (INR) 43.8 42.8 42.8 42.8
Total tax paid 1,667 2,009 3,349 4,421 DPS (INR) 21 24 24 24
Cash flow from operating Return ratios
4,043 6,853 10,900 17,157
activities Return on assets (%) 13% 15% 18% 24%
Return on equity (%) 21% 23% 26% 34%
Capital expenditure 662 673 777 896
Return on capital emp. (%) 9% 21% 24% 30%
Cash flow from investing Turnover ratios
-662 -673 -777 -896
activities
Asset turnover (x) 31.6 74.2 65.0 65.0
Free cash flow 4,043 6,853 10,900 17,157 Sales/Total assets (x) 31.6 74.2 65.0 65.0
Receivables Days 102.4 102.4 102.4 102.4
Dividend (incl. tax) 2,112 2,323 2,323 2,323 Cash conversion cycle 34.5 5.0 4.7 2.7
Liquidity ratios
Cash flow from financing
-281 -42 24 24
activities Current ratio (x) 2.2 2.5 3.0 3.9
Quick Ratio 1.4 1.6 2.0 2.8
Net chg in cash -679 1,805 4,450 9,517
Net debt/Equity (%) 0 0 0 0
Source: Company, Axis Research Leverage Ratio 1 1 1 1
Valuation
PER (x) 26.0 20.0 18.0 18.0
Price/Book (x) 3.0 5.1 4.3 3.2
EV/Net sales (x) 2.9 2.8 2.8 2.8
EV/EBITDA (x) 7.3 6.4 6.4 6.4
Dividend Yield 2.9 4.4 4.4 4.4
46
MARUTI SUZUKI INDIA LTD – SUPERIOR PORTFOLIO MIX AND FESTIVE SEASON TO DRIVE GROWTH
Maruti Suzuki India Ltd (MSIL) is the market leader in the domestic passenger car industry commanding a market share of about 45%. Industry view
Suzuki Motor Corporation (SMC) currently holds 56.37% of its equity stake.The Company has two state-of-the-art manufacturing facilities
located in Gurugram and Manesar in Haryana, capable of producing ~1.5 Mn units per annum. Suzuki Motor Gujarat Private Limited (SMG),
a subsidiary of SMC, was set up in Hansalpur, Gujarat to cater to the increasing market demand for the Company’s products and has been
operational since 2017. Through this new facility, an additional annual production capacity of 0.75 Mn units has been made available,
thereby taking the combined production capability to~2.25Mn units.
Over Weight
Key Rationale
 Focus on SUV segment: MSIL has recently launched All-New Brezza along with improved product mix. As per the Management, the exports
in compact SUV segment and Grand Vitara in Mid-SUV segment . Main numbers are sustainable and spread across varied geographies.
features of Vitara include electric/ smart hybrid power-train giving  Valuation: MSIL has a stronghold in the entry-Level segment and with
superior mileage of ~27 kmps. The order bookings have already recent launches in the compact (All-New Brezza) & mid SUV (Grand
CMP
crossed 70k and 20k respectively as per last management conference Vitara) segment it seems to be moving towards regaining lost market 9,082
call. share by FY25E. We expect a rise in demand from new launches along
 Boost to Margins: We expect gross margin to improve going forward, with upgradation of existing product portfolio, softening commodity Target Price
driven by (1) fall in the price of commodities (2) Yen being devalued in inflation and improving ECU shortages to support recovery in the 10,270
comparison to Rupee/Dollar. In addition, volume ramp-up will bring in margins. The company would gain further market share, driven by an
operating leverage. expected shift towards petrol, CNG and hybrid vehicles. Looking at the
Upside
 Increasing CNG Penetration: The higher fuel price has led to very existing order book we expect the company’s volumes to witness strong
strong demand for CNG, supported by good expansion in the CNG growth H2FY23 onwards. We expect a recovery of both market share 13%
network (currently covering ~250 cities with 3800 stations v/s 1400 and margins in FY23 and FY24, led by a favourable product lifecycle,
stations covering 150 cities 3-4 years back). CNG volumes consist of operating leverage, and product mix as well as price action/cost-cutting.
20% of total sales volumes. We maintain our BUY rating on the stock with a TP of Rs 10,270
 Exports Outlook: The company reported its highest ever exports valuing the stock at 28x (from 27x) its FY24E EPS. TP implies an
volume of 69.5k units in Q1FY23 and management expects to sustain upside of 13% from the CMP 9,051.
the run rate going forward in FY23. The exponential growth in exports  Key Risks: New product launches from competitors especially in EV
was led by the large network presence of parent company Suzuki, Segment.

Y/E March Net Sales EBITDA Net Profit EPS ROE P/E Ratio P/BV EV/ EBITDA
(Rs Cr) (Rs Cr) (Rs Cr) (Rs Cr) (Rs) (%) (x) (x) (%)
FY21A 70,333 5,404 4,278 141.6 8.3% 48.4 4.0 37.9
FY22P 83,798 5,662 3,766 124.7 7.1% 69.8 5.1 46.4
FY23E 1,06,790 11,189 7,562 250.3 13.5% 35.1 4.7 23.6
FY24E 1,19,910 14,709 11,077 366.7 17.7% 23.9 4.1 17.6
47

Y/E Mar FY21A FY22P FY23E FY24E Y/E Mar FY21A FY22P FY23E FY24E
Net revenues 70,333 88,296 1,11,915 1,25,665 Equity capital 151 151 151 151
Operating expenses 64,928 82,634 1,00,726 1,10,956 Reserves & surplus 51,216 52,074 56,729 64,898
EBIDTA 5,404 5,662 11,189 14,709 Shareholders’ funds 51,367 52,225 56,880 65,049
EBIDTA margin (%) 7.7 6.41% 10.00% 11.70% Total Loans 531 531 531 531
Deferred tax liability 385 385 385 385

Other income 2,946 1,833 1,651 2,682
Total Liabilities and Equity 52,282 53,141 57,795 65,964
Interest 101 126 133 137
Gross block 31,701 37,293 42,393 47,393
Depreciation 3,032 2,787 2,988 3,232
Depreciation 16,446 19,233 22,221 25,453
Profit Before Tax 5,159 4,582 9,719 14,021
Net block 15,255 18,060 20,172 21,940
Tax 930 816 2,156 2,944
Capital WIP 1,192 11,000 1,000 1,000
Reported Net Profit 4,230 3,766 7,562 11,077
Investments 41,787 42,887 43,987 45,487
Net Margin (%) 6.0 4.27% 6.76% 8.81%
Inventory 3,050 3,396 4,139 4,560
Adjusted Net Profit 4,278 3,766 7,562 11,077
Debtors 1,277 2,177 2,760 3,099
Cash & Bank Bal 3,036 2,318 1,628 6,524
Loans & Advances 4,471 5,632 6,813 7,500
Current Assets 11,834 13,523 15,340 21,682
Sundry Creditors 10,162 13,131 13,406 14,847
Other Current Liability 7,624 9,298 9,298 9,298
Current Liability& Provisions 17,785 22,429 22,704 24,145
Net current assets (5,951) (8,906) (7,364) (2,462)

Total Assets 52,282 53,141 57,795 65,964
48

Y/E Mar FY21A FY22P FY23E FY24E Key Ratios FY21A FY22P FY23E FY24E
EBIT 2,373 2,875 8,201 11,476 Revenue Growth (7.0) 25.54% 26.8 12.3
Other Income 2,946 1,833 1,651 2,682 EBITDA Margin 7.7 6.41% 10.0 11.7
Depreciation & Amortisation 3,032 2,787 2,988 3,232 Net Profit Margin 6.1 4.27% 6.8 8.8
Interest paid(-) (101) (126) (133) (137) ROCE (%) 8.4 7.14% 13.5 17.7
Tax paid(-) (930) (816) (2,156) (2,944) ROE (%) 8.3 7.07% 13.5 17.7
Extra Ord Income (59) - - - EPS 141.6 124.7 250.3 366.7
Operating Cash Flow 7,261 6,553 10,551 14,309 P/E (x) 48.4 70.4 35.1 23.9
Change in Working Capital 4,587 2,236 (2,232) (6) P/ BV (x) 4.0 5.1 4.7 4.1
Cash flow from Operations 11,848 8,789 8,318 14,303 EV/ EBITDA (x) 37.9 46.5 23.6 17.6
Capex (2,360) (5,500) (5,000) (5,000) Fixed Assets Turnover ratio(x) 4.3 4.6 5.3 5.5
Strategic Investment 1,878 - - - Debt / Equity (x) 0.0 0.01 0.0 0.0
Non Strategic Investment (7,197) (1,100) (1,100) (1,500) EV/ Sales (x) 2.9 0.06 2.4 2.1
Cash flow from Investing (7,679) (6,600) (6,100) (6,500)
Change in borrowing 360 - - -
Others 1,394 - - 0
Dividends paid(-) (2,908) (2,908) (2,908) (2,908)
Cash flow from Financial
(1,154) (2,908) (2,908) (2,908)
Activities
Change in Cash 3,015 (719) (689) 4,895
Opening cash 21 3,036 2,318 1,628
Closing cash 3,036 2,318 1,628 6,524
49
STATE BANK OF INDIA – RIPE FOR RE-RATING

State Bank of India (SBIN) is the largest public sector bank in terms of assets, deposits, branches, number of customers, and Industry view
employees and has a pan-India presence as well. The RBI has designated SBI as a Domestic Systemically Important Bank (D-
SIB), underscoring its continued functioning as critical for the Indian economy.
Key Rationale Equalweight

 Strong Loan Growth Performance: The bank’s loan growth remained  Outlook: The bank’s asset quality performance has been consistently
strong and was up 16%/3% YoY/QoQ in Q1FY23 compared to 11%/6% ahead of expectations including eventually stressed asset accruals CMP
YoY/QoQ in Q4FY22. Wholesale book registered excellent growth and was which resulted in credit cost normalization. We believe SBIN’s
531
up 11% YoY. Both SME and Agri were up 10% YoY each. The bank’s retail unsecured lending profile is strong with over 90% of lending belonging
book growth remained healthy at 19% YoY, led by growth across the to salaried government employees. Retail book traction remained
segments – Home Loans (up 14% YoY) and Xpress Credit (up 32% YoY). healthy at 15%, supported by home loans and Xpress credit cards and Target Price
With strong growth in retail, SME, and international loan book, advances in we expect further improvement in the coming quarters. Currently, the 665
Q1FY23 grew by 16% YoY and 3% QoQ. Strong growth in advances led to Bank’s market share in Home and Auto Loans is over 20%.
NII growth of 13% YoY. Normalization in credit costs and improvement in the growth outlook Upside
 Continued Strong Asset quality: For Q1FY23, Asset quality improved should lead to strong return ratios with ROA/ROE of ~0.8%/14.5% over
25%
YoY with G/NNPAs declining by 140/80bps and remained stable QoQ at FY23-FY24E.
3.9%/1%. Net Slippage Ratio improved by 120bpsYoY from 2.0% to 0.8%.  Valuation: Amongst the PSU banks, SBI remains the best play on the
However, the bank's gross slippages were up Rs 101 Bn QoQ. gradual recovery of the Indian economy on account of its healthy PCR,
Restructured book of Rs 287 Bn remained at ~0.9% of the loans robust capitalization, strong liability franchise, and an improved asset
 Non-banking subsidiaries to boost overall performance: Apart from the quality outlook. We believe normalization in credit costs and improved
core banking, SBI’s subsidiaries are expected to continue adding further growth outlook should lead to double-digit ROEs of ~14.5% over FY23-
value. The bank has a strong presence in various financial services 24E. In this backdrop, we maintain a BUY rating on the stock with a
operations such as credit cards, insurance (life and general), asset target price of Rs 665/share (SOTP basis core book at 1.3x FY24E and
management, pension funds, investment banking, institutional, and retail subsidiaries at Rs 190)
broking, among others. Most of these financial services are generating  Key risks: a) A slower-than-expected recovery cycle
stable returns and support the overall performance of the bank.
NII PPOP Net Profit EPS ABV P/ABV ROAA NNPA
Y/E Mar
(Rs Bn) (Rs Bn) (Rs Bn) (Rs) (%) (%) (%) (%)
FY21 1,107 716 204 22.9 243.4 2.2 0.5 1.5
FY22 1,207 679 317 35.5 282.7 1.9 0.7 1.0
FY23E 1,385 768 415 46.5 317.4 1.7 0.8 1.0
FY24E 1,546 883 491 55.0 366.3 1.4 0.8 1.1
Source: Company, Axis Securities.
50
Profit & Loss (Rs Bn) Balance Sheet (Rs Bn)

Y/E MAR FY21 FY22E FY23E FY24E
SOURCES OF FUNDS
Net Interest Income 1,107 1,207 1,385 1,546
Share capital 9 9 9 9
Other Income 435 331 199 239 Reserves and surplus 2,530 2,792 3,207 3,697
Shareholders' funds 2,539 2,801 3,140 3,631

Total Income 1,542 1,539 1,584 1,784
Total Deposits 36,813 40,515 44,162 48,136
Total Operating Exp. 827 860 816 901
Total Borrowings 4,173 4,260 5,829 6,654
Staff expenses 509 501 542 596 Other Liabilities, provisions 1,820 2,299 2,483 2,682
Total 45,344 49,876 55,614 61,103

Other operating expenses 317 358 274 305
PPOP 716 679 768 883

Provisions & Contingencies 440 245 208 220 Cash & Bank Balance 3,430 3,946 4,346 4,172
Investments 13,517 14,814 16,296 17,925

PBT 276 434 560 663
Advances 24,495 27,340 30,894 34,601
Provision for Tax 71 117 146 172
Fixed Assets & Other Assets 3,902 3,776 4,078 4,405
PAT 204 317 415 491 Total assets 45,344 49,876 55,614 61,103
51
KEY RATIOS (%) Balance Sheet Structure Ratios (%)

Y/E MAR FY21 FY22E FY23E FY24E Y/E MAR FY21 FY22E FY23E FY24E
VALUATION RATIOS
Loan Growth (%) 5.3 11.6 13.0 12.0
EPS 22.9 35.5 46.5 55.0
Deposit Growth (%) 13.6 10.1 9.0 9.0
Earnings Growth (%) 43.0 55.0 30.9 18.3
DPS 4.6 7.1 7.5 7.5 C/D Ratio (%) 66.5 67.5 70.0 71.9
BVPS 284.6 314.0 352.1 407.1 CASA 46.3 45.3 45.0 45.0
Adj. BVPS 243.4 282.7 317.4 366.3
Tier 1 11.4 11.4 11.9 12.1
ROAA (%) 0.5 0.7 0.8 0.8
CAR 13.7 13.8 13.7 13.7
ROAE (%) 8.8 11.9 14.0 14.5
P/E (x) 23.2 14.9 11.4 9.7
P/ABV (x) 2.2 1.9 1.7 1.4 ASSET QUALITY
Dividend Yield (%) 0.9 1.3 1.4 1.4

Gross NPLs (%) 5.0 4.0 4.1 4.1
Net NPLs (%) 1.5 1.0 1.0 1.1

PROFITABILITY
PCR 70.9 75.0 75.0 75.0
NIM (%) 3.0 3.1 3.1 3.1
Cost-Income Ratio 53.6 55.9 51.5 50.5 Credit costs 1.1 0.6 0.7 0.6
52
BAJAJ FINANCE – FIRING ON ALL CYLINDERS

Bajaj Finance (BAF) is one of India’s largest NBFCs for consumer finance with a wide product portfolio comprising loans for Industry view
two/three-wheelers, consumer durables, housing, and small businesses, among others. The company caters to a customer base
of 60.3 Mn and operates its business through 1,368 urban and 2,218 rural lending branches with over 1.3 Lc distribution points.
Key Rationale Equal weight

 Growth prospects remain buoyant: BAF reported a robust AUM  Strong Operating Performance: In Q1FY23, the company’s
growth of 28/3% YoY/QoQ in Q1FY23, driven by continued traction in operational performance was robust driven by strong growth and CMP
the rural segment (+38/10% YoY/QoQ), SME loans (+31/6% improved NIMs (+102bps YoY), even as Opex ratios remained 7,306
YoY/QoQ) and mortgages (+28/6% YoY/QoQ). The customer addition elevated. Going forward, though BAF is expected to witness a slight
momentum remained strong with the highest-ever customer addition margin compression, improving cost ratios with operating leverage
Target Price
during the quarter, leading to customer base growth of 20/5% kicking in along with stable credit costs should drive the company’s
YoY/QoQ. BAF plans to scale up its gold financing business moving RoA growth. We expect BAF to deliver an RoA/RoE of 4.7-4.8%/23-
8,250
forward by expanding its geographic reach and aims to improve its 24% over FY23-25E.
contribution to the overall portfolio. Moreover, the launch of non-  Outlook & Valuation: The company’s digital initiatives and Upside
captive two-wheeler financing in Jul’22 along with plans to foray into business transformation are key positives to look forward to and are 13%
new auto loans in FY24 would further support AUM growth. Thus, with currently progressing well with sequential improvement visible
multiple new product launches lined up along with sustained growth across metrics. With the digital transformation journey likely to be
momentum in the existing products, we expect BAF to deliver a robust completed by FY23, we believe it should contribute meaningfully to
26% CAGR AUM growth over FY23-25E. overall growth. We believe the marginal compression in NIMs will be
 Asset Quality remains pristine: Asset quality improvement has been offset by improved fee income, improving Opex ratios, and stable
remarkable with GNPA/NNPA improving to 1.25/0.5% in Q1FY23. credit costs, thereby enabling BAF to deliver superior return ratios.
Similarly, the restructured book tapered to 0.2% of AUM vs. 0.4% QoQ. We recommend a BUY on Bajaj Finance with a target price of Rs
With asset quality stress well-managed, we believe the company’s 8,250 (7.7x FY24E ABV)
credit costs trend to remain benign in the range of 1.6-1.7% over  Key risks: a) Moderation in growth momentum, b) Margin
FY23-25E. compression
NII PPOP Net Profit EPS ABV P/ABV ROAA NNPA
Y/E Mar
(Rs Cr) (Rs Cr) (Rs Cr) (Rs) (Rs) (%) (%) (%)
FY22 17,522 14,307 7,028 116.5 702.3 10.4 3.7 0.7
FY23E 23,177 18,544 11,104 184.1 866.0 8.4 4.7 0.6
FY24E 28,522 23,181 14,144 234.4 1071.6 6.8 4.8 0.6
FY25E 35,127 28,932 17,633 292.3 1329.2 5.5 4.8 0.6
53

SOURCES OF FUNDS
Net Interest Income 17,522 23,177 28,522 35,127
Share capital 121 121 121 121
Other Income 4,371 5,513 6,722 8,224 Reserves and surplus 43,592 53,586 66,315 82,185
Shareholders' funds 43,713 53,706 66,436 82,306

Total Income 21,892 28,690 35,244 43,351 Borrowings 1,65,232 2,06,776 2,57,952 3,17,271
Other Liabilities, provisions 3,561 4,095 4,709 5,415

Total Operating Exp. 7,585 10,147 12,063 14,419
Total 2,12,505 2,64,577 3,29,097 4,04,992
PPOP 14,307 18,544 23,181 28,932

Provisions & Contingencies 4,803 3,697 4,269 5,355
Investments 12,246 11,807 11,395 9,973

PBT 9,504 14,847 18,912 23,577
Advances 1,91,423 2,43,490 3,07,407 3,83,582
Provision for Tax 2,476 3,743 4,768 5,944 Fixed Assets & Other Assets 5,156 5,756 6,406 7,056
Total assets 2,12,505 2,64,577 3,29,097 4,04,992

PAT 7,028 11,104 14,144 17,633 Source: Company, Axis Research
54
KEY RATIOS (%) Balance Sheet Structure Ratios (%)

VALUATION RATIOS
Loan Growth (%) 30.5 27.2 26.3 24.8
EPS 116.5 184.1 234.4 292.3
Borrowings Growth (%) 25.4 25.1 24.7 23.0
Earnings Growth (%) 58.6% 58.0% 27.4% 24.7%
BVPS 724.6 890.2 1101.2 1364.3 CRAR 27.2 25.1 24.0 23.3
Adj. BVPS 702.3 866.0 1071.6 1329.2
Tier I 24.8 22.7 21.6 20.9
ROAA (%) 3.7% 4.7% 4.8% 4.8%
ROAE (%) 17.4% 22.8% 23.5% 23.7%
P/E (x) 62.7 39.7 31.2 25.0

ASSET QUALITY
P/ABV (x) 10.4 8.4 6.8 5.5
Gross NPLs (%) 1.6 1.3 1.3 1.4
Dividend Yield (%) 0.1 0.3 0.3 0.4
Net NPLs (%) 0.7 0.6 0.6 0.6
PROFITABILITY
PCR 54 52 53 59
NIM (%) 9.4 9.9 9.8 9.7
Cost-Income Ratio 34.6 35.4 34.2 33.3 Credit costs 2.8 1.7 1.6 1.6
55
DALMIA BHARAT LIMITED – CAPACITY EXPANSION AND STRONG MARKET POSITION TO DRIVE GROWTH
Dalmia Bharat Limited (DBL) – established in 1939, has emerged as one of the fastest-growing players in the Indian cement Industry view
sector. It commands a 5% share of Indian cement capacity in the areas where it operates. DBL has a total cement production
capacity of 37 mtpa, clinker capacity of 20.9 mtpa, and a power generation capacity of 315 MW including WHRS & Solar power.
The company’s operations span across 14 locations in India through its 10 integrated plants and 4 grinding units along with a
robust distribution network of 35,000 channel partners spread across the country.
Key Rationale Over Weight

 Capacity expansion to sustain growth: DBL is expanding its cement grinding  Outlook: The company reported encouraging Q1FY23 results with
capacity by 32% to 49 million tonnes per annum (mtpa) from the current 37 mtpa Revenue/Volume growth of 28%/27% YoY respectively. It reported healthy
which is expected to be operational in phases over FY23E & FY24E. These EBITDA Margins of 17.7% and EBITDA/Tonne of Rs 945 despite severe cost
CMP
capacities would be created in the company’s home markets of East and South 1,536
headwinds. We believe the company is well-positioned to grow its revenue and
India. This along with a ramp-up of recently commercialized new capacities would
provide a notable growth impetus to the company moving forward. We expect DBL profitability moving forward, supported by a) A revival of cement demand in its
key markets in both trade and non-trade segments, b) Cost optimization
to deliver revenue CAGR of 16% over FY22-FY24E, driven by a volume CAGR of
measures, and c) Increasing premium cement sales aided by capacity
Target Price
12% over the same period.
 Efficient operations with focus on reducing costs further: DBL’s integrated expansions. 1,850
operations, superior cement/clinker ratio, introduction of portland composite cement,  Valuation: The stock is currently trading at 12x FY23E and 9x FY24E
digitisation of sales channel, and effective utilization of resources makes it one of the EV/EBITDA respectively. We recommend a BUY rating on the company and
lowest-cost producer of cement in India. Moreover, various cost optimization Upside
value the stock at 11x FY24E EV/EBITDA to arrive at a target price of Rs
exercises initiated at its operating facilities will add to margin improvement going
1850/share, implying an upside potential of 20%. 20%
forward. Furthermore, it plans to increase its share of green energy in the overall
power mix to 35-45% which will help reduce the company’s Power & Fuel costs  Key risks: a) Lower demand and contraction in Cement prices impacting
further. Backed by cost optimization measures and price realization, we expect realization; b) Further rise in input prices hampering margin profile.
DBL’s EBITDA Margin to improve to 21.5% in FY24 and EBITDA/tonne to Rs1,157
over the same period.
 Diversified & strong market presence in its key market of South, East and
North-East India: The company’s capacity is geographically diversified (East: 47%,
South: 33%, North-East: 12% and West 8%) which keeps it relatively insulated from
regional demand-supply fluctuations. Furthermore, the acquisition of Murali
Industries gives the company the opportunity to explore Western markets as well.
With the commissioning of extended capacity, the company plans to consolidate its
position further in its key markets.
Key Financials
Net Sale EBITDA Net Profit EPS Per EV/EBITDA ROE ROCE
Y/E Mar
(Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (X) (%) (%)
FY22 11,286 2,426 1,144 61 24 11 7% 7
FY23E 13,401 2,374 765 41 37 12 5% 6
FY24E 15,174 3,254 1,318 71 22 9 7% 9
56

Y/E MAR FY22 FY23E FY24E
Y/E MAR FY22 FY23E FY24E
Net sales 11,286 13,401 15,174
Other operating income 0 0 0 Total assets 24,871 26,230 27,793
Total income 11,286 13,401 15,174 Net Block 14,942 17,022 19,386
CWIP 1,036 500 500

Raw Material 1,472 1,734 1,891
Investments 1,305 1,305 1,305
Power & Fuel 2,570 3,814 4,043
Wkg. cap. (excl cash) 768 785 890
Freight & Forwarding 2,355 2,781 3,031
Cash / Bank balance 160 308 145
Employee benefit expenses 744 786 833
Other Expenses 1,719 1,911 2,121 Misc. Assets 6,660 6,310 5,567
EBITDA 2,426 2,374 3,254 Capital employed 24,871 26,230 27,793

Other income 155 156 197
Equity capital 37 37 37
Reserves 15,650 16,387 17,675

PBIDT 2,581 2,531 3,452
Depreciation 1,236 1,270 1,430 Minority Interests 72 72 72
Interest & Fin Chg. 197 189 202 Borrowings 3,119 3,262 3,363
E/o income / (Expense) 2 - - Def tax Liabilities 2,034 2,034 2,034
Pre-tax profit 1,146 1,071 1,820 Source: Company, Axis Research
Tax provision -14 277 473

RPAT 1,160 794 1,347
Minority Interests 29 29 29
Associates 13 - -
APAT after EO item 1,144 765 1,318
57

Y/E MAR FY22 FY23E FY24E Y/E MAR FY22 FY23E FY24E
Operational Ratios
Profit before tax 1,156 1,071 1,820
Sales growth 12% 19% 13%
Depriciation 1,237 1,270 1,430 OPM 21% 18% 21%
Interest Expenses 193 189 202 Op. profit growth -12% -2% 37%
COGS / Net sales 57% 62% 59%
Non operating/ EO item -157 -156 -197
Overheads/Net sales 22% 20% 19%
Change in W/C -515 -17 -105
Depreciation / G. block 7.7% 6.3% 6.0%
Income Tax -24 -277 -473 Effective interest rate 6% 6% 6%
Operating Cash Flow 1,937 2,067 2,663

Efficiency Ratios
Capital Expenditure -1,769 -3,350 -3,793
Total Asset turnover (x) 0.45 0.51 0.55
Investments 545 1,350 900 Sales/Gross block (x) 0.67 0.67 0.64
Others 123 156 197 Sales/Net block(x) 0.76 0.79 0.78
Working capital/Sales (x) 0.23 0.08 0.01
Investing Cash Flow -1,048 -1,844 -2,696
Borrowings -1,236 143 101

Valuation Ratios
Interest Expenses -232 -189 -202 P/BV (x) 1.77 1.74 1.61
Dividend paid -100 -28 -30 PER (x) 24 37 22

EV/Ebitda (x) 10.9 12.1 9.2
Others -35 - -
EV/Sales (x) 2.4 2.1 2.0
Financing Cash Flow -160 -7 -13
EV/Tonne $ (x) 100 97 83
Change in Cash -53 148 -163 Source: Company, Axis Research
Opening Cash 195 140 288
Closing Cash 140 288 125

58
FEDERAL BANK – ROA EXPANSION LEVERS IN PLACE

Federal Bank (FB) is a Kerala-based private sector bank with a pan-India presence. It has exposure to Insurance and Industry view
NBFC business through its joint venture with IDBI and wholly-owned subsidiary FedFina. The bank continues to
proactively execute its strategy of a branch-light and distribution-heavy franchise.

 Improved Loan-mix Balance: FB’s credit growth regained momentum  Outlook: FB is cautiously building a loan mix toward high-
and remained robust in Q1FY23 with advances growing at 16% YoY rated corporate and retail loans. The bank’s liability franchise
during Q1FY23. We expect the book to grow at a 16% CAGR over FY22- remains strong with CASA plus Retail TD of +90% and one of
25E, driven by strong growth in newer segments like credit cards, and the highest Liquidity Coverage Ratios (LCR) amongst banks. CMP
personal loans along with ample opportunities in the core segments. The 117
Restructuring levels are also in control. The management
bank is also keenly focused on neo-banking tie-ups to reach the
country’s under-banked population and expects these partnerships to
indicated the possibility of the bank reporting RoA
improvement to 1.1% as it exits FY23 and another 10-15bps
contribute meaningfully to the overall business growth moving forward.
improvement by FY24E. This will be led by NIM expansion of
Target Price
We believe this will not only keep the bank’s customer acquisition costs
low but will also help FB augment its business growth as well. ~5-7bps with a change in loan mix, stable credit costs, and 130
 Improving Liability Franchise: FB has been amongst the few mid-tier improving cost ratios with employee costs moderating (~Rs
banks that have consistently improved their deposit base. Though 500-510 Cr quarterly run rate in FY23) and the Fintech Upside
deposits growth was muted in Q1FY23 at ~8% YoY, CASA deposits partnerships yielding results. The management has revised
registered a healthy growth of 15% YoY, improving the CASA ratio to the bank’s overall credit growth guidance upwards to 18% 11%
36.8%. The share of Retail deposits remained steady QoQ at ~94%. and it will strive to accelerate growth where appropriate
 Manageable Asset Quality: Similar to the frontline banks, FB has opportunities are available.
managed COVID-19 stress quite well. In Q1FY23, asset quality improved  Valuation: Key positives are increasing retail focus, strong
by 11bps on a sequential basis with GNPA at 2.7%, aided by healthy
fee income, adequate capitalization, and prudent
recoveries while slippages were marginally higher QoQ. PCR stood
provisioning. We expect steady provision requirements along
largely stable at ~66%. The restructured book has declined QoQ to Rs
3,366 Cr (2.2% of advances) vs. Rs 3,536 Cr (2.4% of advances) QoQ.
with healthy growth in the balance sheet and NIMs to deliver
~43% of the restructured book has started billing and expects ~15-18% RoA/RoE of 1.1%/13.3% by FY24E. We maintain a BUY with
of the restructured pool to slip into NPA. The management has guided a revised target price of Rs 130/share (1.25x FY24E ABV).
for slippages for FY23 to mirror FY22’s performance and stand at ~Rs  Key risks: a) Asset quality trends in the upcoming quarters,
1,800 Cr. b) Loan growth moderation

Y/E Mar NII PPOP Net Profit EPS ABV P/ABV ROAA NNPA
FY22 5,962 3,758 1,889 9.0 82.8 1.4 0.9 1.0
FY23E 6,833 4,552 2,425 11.5 92.4 1.3 1.0 0.8
FY24E 7,935 5,400 2,907 13.8 102.5 1.1 1.1 0.8
FY25E 9,169 6,337 3,465 16.5 115.4 1.0 1.1 0.7
59
Profit & Loss (RsCr) Balance Sheet (RsCr)

SOURCES OF FUNDS
Net Interest Income 5,962 6,833 7,935 9,169 Share Capital 421 421 421 421
Reserves 18,373 20,378 22,654 25,489

Other Income 2,089 2,343 2,692 3,087
Shareholder's Funds 18,794 20,798 23,075 25,909
Total Deposits 1,81,701 2,04,567 2,33,543 2,67,425

Total Income 8,051 9,176 10,627 12,256
Borrowings 15,393 24,185 34,197 43,514
Total Operating Exp 4,293 4,624 5,226 5,919 Other Liabilities & Provisions 5,059 5,463 5,737 6,023
Total Liabilities 2,20,946 2,55,014 2,96,552 3,42,872

PPOP 3,758 4,552 5,400 6,337
Provisions & Contingencies 1,222 1,310 1,513 1,704 APPLICATION OF FUNDS

PBT 2,536 3,242 3,887 4,633
Investments 39,179 47,179 55,029 64,349
Advances 1,44,928 1,69,633 1,98,085 2,29,002

Provision for Tax 646 817 980 1,168
Fixed Assets & Other Assets 15,828 18,994 22,793 27,351
PAT 1,890 2,425 2,907 3,465 Total Assets 2,20,946 2,55,014 2,96,552 3,42,872
60
Key Ratios (%) Balance Sheet Structure Ratios (%)

Loan Growth (%) 7.9 9.9 15.4 15.1
VALUATION RATIOS
Deposit Growth (%) 13.4 5.2 15.1 15.4
EPS 9.0 11.5 13.8 16.5
C/D Ratio (%) 78.2 78.1 79.9 79.8
Earnings Growth (%) 12.8% 28.3% 19.9% 19.2% CAR 14.4 15.8 15.2 14.7
DPS 0.7 1.0 1.5 1.5 CAR Tier I 13.5 14.4 13.9 13.4
BVPS 89.4 98.9 109.7 123.2

ASSET QUALITY
Adj. BVPS 82.8 92.4 102.5 115.4
Gross NPLs (%) 2.8 2.4 2.2 2.1
ROAA (%) 0.9 1.0 1.1 1.1 Net NPLs (%) 1.0 0.8 0.8 0.7
ROAE (%) 10.8 12.2 13.3 14.1 Coverage Ratio (%) 66.3 66.8 66.2 66.6
P/E (x) 13.0 10.2 8.5 7.1

ROAA Tree
P/ABV (x) 1.4 1.3 1.1 1.0
Net Interest Income 2.8 2.9 2.9 2.9
Dividend Yield (%) 0.7 1.0 1.0 1.0 Non-Interest Income 1.0 1.0 1.0 1.0
Operating Cost 2.0 1.9 1.9 1.9
Provisions 0.6 0.6 0.5 0.5
Tax 0.3 0.3 0.4 0.4
PROFITABILITY ROAA 0.9 1.0 1.1 1.1
NIM (%) 3.2 3.3 3.3 3.3 Leverage (x) 12.1 12.0 12.6 13.1
Cost-Income Ratio 53.3 50.4 49.2 48.3 ROAE 10.8 12.2 13.3 14.1
61
VARUN BEVERAGES – GEARED FOR GROWTH

VBL is the 2nd largest franchisee of PepsiCo in the world (outside the USA). Products manufactured by VBL include Carbonated Industry view
Soft Drinks - Pepsi, Mountain Dew, Seven Up, Mirinda; Non-Carbonated Beverages - Tropicana Slice, Tropicana Frutz; and
Bottled water – Aquafina. The company operates in India and is also the exclusive bottler for PepsiCo in Nepal, Sri Lanka,
Morocco, Zambia, and Zimbabwe.

 Strong off take in summer portfolio: After a dull period of two years due to  Outlook: VBL could emerge as a winner in the long term due to 1)
COVID-19 vagaries VBL in Q1CY22 has reported strong growth in volumes (up aggressive placement of visi-coolers in acquired territories of South & West
18%) as there is robust demand in both domestic and international markets, and underpenetrated East India, 2) consolidating existing distributors and CMP
also supported by the early onset of summer in India, translated to healthy increasing distribution in underpenetrated regions, 3)scale-up of new 1034
volumes during the quarter. Further in Q2CY22 we expect VBL to post product launches (energy drink, juices, nectars) across territories, 4)
exceptional results led by uptick in volumes on account of peak summer penetrating new geographies through inorganic expansion. Further, CY22 is
season as consumers started moving out. Moreover sudden reported heat likely to be a normal operational year and company's strategic measures to Target Price
waves in most parts of the country will further boost the out of home use light-weight PET bottles would aid in mitigating RM pressures as it's a 1150
consumption SKUs (250 ml). VBL has posted a sales volume CAGR of 20% strategic and structural cost optimization measure initiated by VBL.
from 279mn unit cases in 2017 to 569mn unit cases in 2021.  Valuation: We believe all near-term challenges (RM inflation, top-line
 New upcoming plants at Bihar and Jammu &Kashmir: Bihar and Jammu growth) are behind the company and VBL is expected to perform well going Upside
plants are now operational: During Q1CY22, the new beverage manufacturing ahead on account of 1) Newly acquired territories that will see normalcy of
plant in Bihar and the new backward integration plant in Jammu & Kashmir operations and market share gains post COVID-19 disruptions, 2) The
11%
commenced commercial production. Per capita consumption in Bihar at 8-9 management's continued focus on the efficient go-to-market execution in
bottles versus the India average of 24 bottles would enable VBL to penetrate acquired and underpenetrated territories as can been seen from its recently
and deliver healthy volume growth in the medium term. Both these plants will commissioned Bihar plant operations (it has started gaining market share)
grow their presence closer to customers, increase penetration, garner a higher 3) Expand distribution reach by 8-10% from current 3 Mn outlets as it
market share, build cost efficiencies and also help improve profitability. penetrates further into weaker territories, 4) Robust growth in the
 Favorable macro indicators: India’s per-capita soft drink consumption of 24 International geographies, and 5) Sustenance of healthy double-digit
bottles stands much lower than 271 bottles in China, 1,496 bottles in the USA, volume growth in the medium to longer term. we factored in
and 1,489 bottles in Mexico, offering a massive growth headroom. The soft Revenue/EBITDA/ PATCAGR of 25%/30%/45% over CY21-24E and arrive
drinks industry in India is expected to report healthy growth across categories at a revised TP of Rs 1,150/share
on the back of better demographics, improving retail penetration across
markets, better macroeconomics, and a rising trend of in-home consumption.

Y/E Dec Net Net EPS PER EV/EBITDA ROE ROCE
EBITDA
(Rs Cr) Sales Profit (Rs) (x) (x) (%) (%)
CY21 8,642 1,655 694 16.0 60.0 28.2 18.3 14.8
CY22E 12,357 2,593 1,410 21.7 47.6 26.4 26.5 22.3
CY23E 14,921 3,210 1,838 28.3 36.5 20.9 26.3 23.6
CY24E 16,921 3,640 2,128 32.8 31.6 17.9 23.7 22.4
Source: Company, Axis Securities; * OOH – Out-of-Home
62

Y/E DEC CY21 CY22E CY23E CY24E Y/E DEC CY21 CY22E CY23E CY24E
Net sales 8,642 12,357 14,921 16,921 Cash & bank 337 1,074 2,503 4,282
Growth, % 35.9 43.0 20.8 13.4 Debtors 221 316 354 415
Other operating income 181 199 219 241 Inventory 1,448 2,071 2,500 2,835
Total income 8,823 12,556 15,140 17,162 Loans & advances 9 9 9 9
Raw material expenses -4,035 -5,891 -7,010 -7,956 Other current assets 531 531 531 531
Employee expenses -1,008 -1,370 -1,658 -1,874 Total current assets 2,546 4,001 5,897 8,073
Other Operating expenses -2,126 -2,702 -3,262 -3,692 Investments 0 0 0 0
EBITDA (Core) 1,655 2,593 3,210 3,640 Gross fixed assets 9,310 9,980 10,580 11,180
Growth, % 37.7 56.7 23.8 13.4 Less: Depreciation -2,999 -3,571 -4,180 -4,825
Margin, % 19.1 21.0 21.5 21.5 Add: Capital WIP 497 497 497 497
Depreciation -531 -572 -609 -645 Net fixed assets 6,807 6,905 6,897 6,852
EBIT 1,123 2,021 2,602 2,995 Non-current assets 184 184 184 184
Growth, % 66.9 79.9 28.7 15.1 Total assets 9,582 11,135 13,022 15,153
Margin, % 13.0 16.4 17.4 17.7
Other Income 68 75 82 90 Current liabilities 3,020 3,326 3,537 3,702
Non-recurring Items 0 0 0 0 Provisions 209 209 209 209
Pre-tax profit 1,007 1,902 2,480 2,872 Total current liabilities 3,229 3,535 3,746 3,911
Tax provided -261 -492 -642 -743 Non-current liabilities 2,156 2,156 2,156 2,156
Net Profit 746 1,410 1,838 2,128 Total liabilities 5,385 5,691 5,902 6,067
Growth, % 76.0 89.0 30.4 15.8 Paid-up capital 433 650 650 650
Net Profit (adjusted) 694 1,410 1,838 2,128 Reserves & surplus 3,647 4,677 6,353 8,319
Unadj. shares (Cr) 43 65 65 65 Shareholders’ equity 4,197 5,444 7,119 9,085
Source: Company, Axis Research Total equity & liabilities 9,582 11,135 13,022 15,153
63

Cash Flow CY21 CY22E CY23E CY24E Key Ratios CY21 CY22E CY23E CY24E
Per Share data
Pre-tax profit 1,007 1,902 2,480 2,872
EPS (INR) 16.0 21.7 28.3 32.8
Depreciation 531 572 609 645
Growth, % 17.4 26.0 30.4 15.8
Chg in working capital -57 -412 -256 -232 Book NAV/share (INR) 94.2 82.0 107.8 138.1
Total tax paid -167 -492 -642 -743 FDEPS (INR) 17.2 21.7 28.3 32.8
Cash flow from operating CEPS (INR) 29.5 30.5 37.7 42.7
1,314 1,570 2,191 2,542
activities CFPS (INR) 32.0 23.0 32.5 37.7
Capital expenditure -863 -670 -600 -600 DPS (INR) 2.5 2.5 2.5 2.5
Chg in marketable securities 21 221 0 0 Return ratios
Return on assets (%) 10.3 15.5 16.9 16.6
Cash flow from investing activities -843 -449 -600 -600
Return on equity (%) 18.3 26.5 26.3 23.7
Free cash flow 472 1,121 1,591 1,942
Return on capital employed (%) 14.8 22.3 23.6 22.4
Equity raised/(repaid) 144 217 0 0 Turnover ratios
Dividend (incl. tax) -108 -162 -162 -162 Asset turnover (x) 1.3 1.8 2.1 2.3
Sales/Total assets (x) 9.3 9.3 8.7 9.0
Cash flow from financing activities -78 54 -162 -162
Sales/Net FA (x) 61.2 61.2 61.2 61.2
Net chg in cash 393 1,176 1,428 1,779 Working capital/Sales (x) 36.2 37.3 37.6 37.6
Opening cash balance 190 337 1,074 2,503 Receivable days (34.2) (11.8) (3.5) 1.9
Closing cash balance 337 1,074 2,503 4,282 Inventory days 1.3 1.8 2.1 2.3

Payable days 9.3 9.3 8.7 9.0
Working capital days 61.2 61.2 61.2 61.2
Liquidity ratios
Current ratio (x) 0.8 1.2 1.7 2.2
Quick ratio (x) 0.4 0.6 1.0 1.4
Net debt/Equity (%) 6.1 10.4 12.8 14.0
64
ASHOK LEYLAND – WELL POSITIONED TO RIDE THE ECONOMIC RECOVERY

Ashok Leyland (AL) – a flagship company of Hinduja Group, is the third-largest commercial vehicle manufacturer in India. AL’s key products Industry view
comprise buses, trucks, engines, defence, and special vehicles. The company has 6 manufacturing plants across 4 locations in India —
Ennore (Tamil Nadu), Hosur (Tamil Nadu), Alwar (Rajasthan), Bhandara (Maharashtra,) and Pantnagar (Uttaranchal) with a capacity of 164k
units for Medium & Heavy Commercial Vehicles (M&HCV) and 72k units for Light Commercial Vehicles (LCVs). It focuses on the M&HCV
segment and has a significant presence in the bus segment. A separate EV mobility business with headquarters in UK has been established
under name “Switch Mobility”.
Key Rationale Key Rationale Over Weight

 Market share gains: In Q1, the company’s MHCV truck volume growth  Focus on Electrification: AL has structured their Electric Vehicles
outpaced the industry growth, resulting in market share improvement to 31% business in bus and LCV segment as a separate business entity called
(in Q1FY22 – 26.2%). During the quarter, LCV volumes, which were Switch Mobility, through which significant progress has been made in CMP
India, UK and Spain. Dana Incorporated (Dana) made a strategic 154
impacted by semiconductor shortages, improved by 66% YoY. International investment in Switch Mobility and will also be a preferred supplier of
operations sales reported 76% YoY growth. Market share gain is being electric drive train components to the company (e-Axles, gearboxes,
driven by well-performing products (particularly MHCV doing well both in motors, inverters, software & controls, and electronics cooling).
tippers and multi-axle) and increasing network in North and East India.  Hinduja Leyland Finance (HLFL): HLFL has a diverse portfolio across
Target Price
 Growth in the LCV segment: AL is improving its LCV business and is 2W, 3W tractors and the CV segment; as a result, the risk is spread. On 175
targeting market share gains with the launch of new products. LCV demand HLFL listing the company will update the market shortly. HLFL
is supported by the demand from Agri and allied sectors, and the upswing in Consolidated AUM is at Rs 30,720Cr, disbursement is at Rs 3,484Cr,
e-commerce also aided the demand. The LCV segment is expected to grow
PAT stood at Rs 97Cr, GNPA at 3.7% and is at NPA 2.3% Upside
 Valuation And Outlook: AL is focusing on reducing its dependence on
by 8-10% in FY23. the cyclical truck business by increasing the revenue share of Exports, 14%
 MHCV Demand: MHCV truck volumes are expected to grow by 15-20% in Defence, Power Solutions, LCV, and the Parts business. Moreover, it is
FY23 (as per ICRA) led by the government spending on Infra along with the focusing on enhancing CV exports by introducing new products,
pickup in the construction and Mining sectors. The MHCV passenger network expansion, and increasing revenue from replacement by
segment is expected to grow by 30-35% as demand continues to improve driving more digitization and network enhancement. The RM cost
pressures are likely to subside leading to margin improvement in the
gradually with the opening up of schools and offices. coming quarters.AL remains well-positioned to benefit from the cyclical
 SWITCH Mobility: Switch Mobility continues to bag EV orders from STUs recovery, especially in buses and higher tonnage trucks where it has a
under the GCC contract. AL has ~600 bus orders in SWITCH India, spread higher market share. We maintain our BUY rating on the stock,
across BMTC and BEST and a couple of private orders. The company is arriving at the TP of Rs 175, valuing the stock at 19x its FY24E
doing well and the product is getting well accepted. SWITCH strategy – AL is EPS, implying an upside of 13% from the CMP.
not participating in low-margin bids. On SWITCH Mobility fund raining – the  Key risks: a) Protracted pick-up in demand, b) Competitive pressures,
company was waiting for the right valuation and right partner, however, the and c) Higher discounting.
finalisation of investors is expected to happen soon.

FY21A 15,301 535 (324) (1.1) - 67.7 (4.5) (0.8)
FY22P 21,688 995 17 0.1 1997 37.1 0.2 2.9
FY23E 31,528 2,460 1,170 4.0 37.9 18.8 14.4 11.6
FY24E 39,914 4,391 2,696 9.2 19.8 11.8 23.5 18.6
65

Y/E Mar FY21A FY22P FY23E FY24E Y/E Mar FY21A FY22P FY23E FY24E
Net revenues 15,301 21,688 31,528 39,914 Equity capital 294 294 294 294
Operating expenses 14,766 20,694 29,068 35,523 Reserves & surplus 6,684 7,043 7,929 10,332
EBIDTA 535 995 2,460 4,391 Shareholders’ funds 6,977 7,337 8,223 10,626
EBIDTA margin (%) 3.5 4.6 7.8 11.0 Total Loans 3,729 3,507 3,307 2,907
Deferred tax liability 171 144 144 144

Other income 94 76 138 190
Total Liabilities and Equity 10,877 10,988 11,674 13,677
Interest 307 301 274 265
Gross block 10,460 10,612 11,091 11,936
Depreciation 2,923 3,452 4,219 4,987
Profit Before Tax (412) 528 1,570 3,548
Net block 7,537 7,160 6,873 6,949
Tax (98) (14) 391 851
Capital WIP 372 194 465 620
Reported Net Profit (314) 542 1,180 2,696
Investments 3,069 4,820 4,920 5,920
Net Margin (%) (2.1) 2.5 3.7 6.8
Inventory 2,142 2,075 3,451 4,374
Adjusted Net Profit (324) 17 1,170 2,696
Debtors 2,816 3,111 4,578 5,796
Cash & Bank Bal 823 1,047 939 872
Loans & Advances 1,691 1,927 3,149 4,391
Current Assets 7,472 8,160 12,118 15,433
Sundry Creditors 5,165 6,875 9,557 11,679
Other Current Liability 2,408 2,470 3,144 3,565
Current Liability& Provisions 7,573 9,345 12,701 15,244
Net current assets (101) (1,185) (583) 188

Total Assets 10,877 10,988 11,674 13,677
66

Y/E Mar FY21A FY22P FY23E FY24E Key Ratios FY21A FY22P FY23E FY24E
EBIT (213) 242 1,694 3,623 Revenue Growth (12.4) 41.7 45.8 18.2
Other Income 94 76 138 190 EBITDA Margin 3.5 4.6 7.8 10.4
Depreciation & Amortisation 748 753 766 769 Net Profit Margin (2.1) 0.1 3.6 5.8
Interest paid(-) (307) (301) (274) (265) ROCE (%) (0.8) 2.9 11.6 18.6
Tax paid(-) 98 14 (391) (851) ROE (%) (4.5) 0.2 14.4 23.5
Extra Ord Income 13 511 13 - EPS (1.1) 0.1 3.9 7.4
Operating Cash Flow 434 1,295 1,946 3,465 P/E (x) (102.9) 1,997.3 37.9 19.8
Change in Working Capital (738) 1,308 (710) (838) P/ BV (x) 4.8 4.7 5.3 4.3
Cash flow from Operations (304) 2,603 1,236 2,627 EV/ EBITDA (x) 67.7 37.1 18.8 11.8
Capex (443) (198) (750) (1,000) Fixed Assets Turnover Ratio (x) 2.6 3.9 6.2 7.8
Investment (349) (1,751) (100) (1,000) Debt / Equity (x) 0.5 0.5 0.4 0.3
Cash flow from Investing (792) (1,949) (850) (2,000) EV/ Sales (x) 2.4 1.7 1.5 1.2
Change in borrowing 664 (222) (200) (400)
Others (67) (32) - -
Dividends paid (-) - (176) (294) (294)
Cash flow from Financial
597 (430) (494) (694)
Activities
Change in Cash (500) 224 (108) (67)
Opening cash 1,322 823 1,047 939
Closing cash 823 1,047 939 872
67
ASTRAL LTD – HIGH VOLUME GROWTH VS. INDUSTRY ALBEIT; UPGRADE TO BUY
Astral has reported volume growth of ~10% in the piping segment which is the highest among peers in the last 4 years, reflecting that Astral Industry view
is gaining market share. Astral is maintaining EBITDA margins of ~17.8% despite taking a hike in realizations as commodity inflation is
denting the profitability of the industry.
Key Rationale Key Rationale Equal weight

 Astral has reported volume growth of ~10% in the piping segment  Astral reported Q4FY22 consolidated revenue growth of 23.3% YoY,
which is the highest among peers in the last 4 years, reflecting that majorly led by growth in segments plastic (+22.3% YoY) and Adhesive
Astral is gaining market share. Astral is maintaining EBITDA margins of (+27% YoY). In the plastic segment, the company reported Q4FY22
~17.8% despite taking a hike in realizations as commodity inflation is and FY22 volume growth of 11% YoY and 9.5% respectively. The
CMP
denting the profitability of the industry. Furthermore, Astral's foray into volume growth stood above the industry growth while other peers 2,092
Valves, Resins, Sanitary ware, and Tanks would add revenue growth in reported flat to negative growth, indicating that Astral gained market
the upcoming years. share in FY22. Target Price
 Astral has invested Rs 1,000 Cr in Capex segments like tanks,  Key risks: a) Increase in crude prices from current levels, b) Fall in 2,300
drain-pro, ball-valve, sanitary ware and faucets, and paint business in demand for new housing due to increase in interest rates
the last 5 years. The utilization of the same will be in the coming few
Upside
years. Therefore, the company is confident that it will be able to grow
not only in its existing product portfolio but also, projects additional 10%
revenue of Rs 1,500 Cr in the next 4 -5 years from the following new
products and categories.
 In Apr’22, the company entered into a definitive agreement to
acquire a controlling 51% stake in the operating business of Gem
Paints Private Limited. ‘Gem’ paints has been manufacturing high-
performance industrial and decorative coatings in South India

Y/E Mar Net Sales EBITDA Net Profit EPS PER EV/EBIDTA ROE ROCE
FY21 3,176 637 404 20 86.1 53.9 21.1 32.49
FY22E 4,394 755 490 24 70.9 45.3 20.7 33.55
FY23E 4,907 854 568 28 61.2 39.5 19.7 36.53
FY24E 5,445 1,056 718 36 48.5 31.4 20.2 45.33
68

Net Sales 3,176 4,394 4,907 5,445 Share Capital 20 20 20 20
Growth (%) 23.2% 38.4% 11.7% 11.0% Reserves & Surplus 1,897 2,344 2,862 3,530
Net Worth 1,917 2,364 2,882 3,550
Total Expenditure 2,539 3,639 4,053 4,389
Total Loan funds 53 98 53 53
Raw Material Consumed 1,898 3,030 3,190 3,485
Deferred Tax Liability 40 40 40 40
Gross margins (%) 38.0% 33.4% 35.0% 36.0%
Long Term Provisions 3 2 3 3
Employee Expenses 191 245 275 305 Other Long Term Liability 0 0 0 0
% of sales 6.0% 5.6% 5.6% 5.6% Capital Employed 2,673 3,387 3,985 4,763
Other Expenses 379 465 589 599 Gross Block 1,768 2,076 2,226 2,376
% of sales 11.9% 10.6% 12.0% 11.0% Less: Depreciation 453 580 714 856
EBIDTA 637 755 854 1,056 Net Block 1,315 1,496 1,512 1,520
EBITDAM (%) 20.1% 17.2% 17.4% 19.4% Investments 0 0 0 0
Sundry Debtors 277 269 336 373
Cash & Bank Bal 476 642 1,071 1,704
% of GB 6.6% 6.1% 6.0% 6.0%
Loans & Advances 0 0 0 0
EBIT 521 628 720 914
Inventory 472 733 807 895
EBITM (%) 16.4% 14.3% 14.7% 16.8% Other Current Assets 44 100 113 125
Interest 13 13 7 7 Total Current Assets 688 941 1,035 1,145
Other Income 25 35 40 45 Curr Liab & Prov 1,269 1,745 2,327 3,097
Share of P/L of Associates 4 -2 -2 -3 Net Current Assets 581 804 1,291 1,952
PBT 529 649 751 949 Total Assets 2,673 3,387 3,985 4,763
Source: Company, Axis Research **FY22E Equity includes QIP proceeds
Tax Rate (%) 23.6% 24.4% 24.4% 24.4%
Tax 125 158 183 232
Reported PAT 404 490 568 718
69
Key Ratios (Rs Cr) Balance Sheet Structure Ratios (%)

Sales growth 23.2 38.4 11.7 11.0
PBT 529 649 751 949
OPM 20.1 17.2 17.4 19.4
Add: depreciation 117 127 134 143
Oper. profit growth 44.4 18.5 13.0 23.7
Add: Interest 13 13 7 7 COGS / Net sales 62.0 66.6 65.0 64.0
Cash flow from operations 659 788 892 1,099 Overheads/Net sales 17.9 16.2 17.6 16.6
Depreciation / G. block 6.6 6.1 6.0 6.0
Change in working capital (102) 78 27 28
Effective interest rate 23.6 24.4 24.4 24.4
Taxes 125 158 183 232
Net wkg.cap / Net sales 0.1 0.1 0.1 0.1
Net cash from operations 636 552 681 839 Net sales / Gr block (x) 1.8 2.1 2.2 2.3
Capital expenditure (188) (375) (150) (150) RoCE 32.5 33.5 36.5 45.3
Debt / equity (x) 0.0 0.0 0.0 0.0
Net cash from investing (188) (375) (150) (150)
Effective tax rate 23.6 24.4 24.4 24.4
Increase/Decrease in debt (79) 45 (45) 0
RoE 21.1 20.7 19.7 20.2
Dividends (15) (45) (50) (50) Payout ratio (Div/NP) 75.1 224.4 248.8 248.8
Proceedings from equity 5 0 0 0 EPS (Rs.) 20.1 24.4 28.3 35.7
EPS Growth 62.9 21.4 15.8 26.4
Interest (13) (13) (7) (7)
CEPS (Rs.) 25.9 30.7 34.9 42.8
Others 0 2 0 0
DPS (Rs.) 0.8 2.2 2.5 2.5
Net cash from financing (102) (11) (102) (57) Source: Company, Axis Research
Net Inc./(Dec.) in Cash 346 166 429 633
Opening cash balance 130 476 642 1,071
Closing cash balance 476 642 1,071 1,704

70
BATA INDIA – IN A SWEET SPOT TO RIDE THE ECONOMIC RECOVERY

Bata IndiaLtd. (Bata) stands among the most trusted branded footwear company in India. Having an extensive presence of over 85 years in the Industry view
industry, the company offers footwear and accessories for the entire family. Its products are available across all price points from mass and
mid-premium to premium.The company has a robust brand portfolio that comprises Bata, Bata Comfit, Bubblegummers, Hush Puppies,
Scholl, Power, Weinbrenner and Naturalizer and Disney. Bata has a market share of 15% in the organized market and is present across
1500+ retail stores. Moreover, it sells through 25,000 MBOs and e-commerce platforms.

 Post pandemic, organized players will come out stronger: sales are  Digital and Omni channel to provide growth impetus: Post
expected to start kicking in due to overall pent-up demand and the opening pandemic, most companies have focused on reaching out to consumers
up of the economy as large part of pent up demand still pending. Weaker through the omnichannel strategy including digital (e-commerce). Bata’s CMP
unorganized players are expected to lose market share due to higher RM omnichannel initiatives allow consumers to get home delivery from 1,941
inflation and the pandemic has made them weaker on account of which stores. Its endless aisle initiative makes all of the 7000+ styles available
organized players such as Bata are likely to get the benefit. to the consumer, thus ensuring no sales loss for want of size or SKU.
 Low per-capital annual footwear consumption: India’s per capita Apart from its own website, Bata’s products are also available on other Target Price
annual footwear consumption is very low at ~1.9 pairs compared to leading e-com platforms such as Amazon, Myntra, and Flipkart. 2,200
countries like China (3.3 pairs), Brazil (4.3 pairs), the USA (8.1 pairs) and  Key risks: a) Decline in discretionary spends, b) RM pressures, c)
the UK (6.2 pairs). The global average per capita annual consumption Higher discounting, and d) higher competition.
stood ~3.2 pairs for 2019, providing significant growth headroom.  Valuation & Outlook: Bata has maintained healthy operating Upside
 Strong growth in India's Footwear Industry: India is the 2ndlargest cashflows and EBITDA Margins over the years, making it a capital- 13%
global producer of footwear after China, accounting for 13% of global efficient business. In Q4FY22, the company’s operations witnessed a
footwear production. The Indian Footwear market is estimated to grow at healthy revival along with higher throughput per store and efficient
8%/17% CAGR in volume/value terms over FY20-25E, driven by rising capital allocation. We believe a strong balance sheet with efficient
disposable income, increased consumer spending, healthy growth in working capital should help Bata to sail through the current situation
ASPs, and modernization of the shopping experience. This growth will smoothly. We expect the company to be a beneficiary of market share
further be driven by the branded retail footwear market which currently has gains given store expansion in lower-tier cities where the unorganized
a share of 45% while unorganized players' share is 55%. segment is dominant and who would face pressure on passing on RM
 Aggressive distribution expansion to drive growth: Bata has been inflation through price hikes. We remain positive on the stock from a
guided to expand its footprint across channels. It currently has 1500+ long-term perspective given its immense growth potential. Maintain
EBOs (1250+ company stores and 250+franchise stores) with ~33% of BUY with TP of Rs 2,200/share and assign a PE of 43x FY24E EPS.
sales coming from the top 10 metros. The company has expanded its MBO
reach to 1000+towns (retail footprint in over 400-500 towns) and currently
reaches out to 30-35% of the total MBO outlet universe of 80k–100k.
Furthermore, it targets to add 500 asset-light franchise outlets over the
next 2-3 years.
FY21 1,708 162 -89 (6.9) NM 146.8 (4.8) 1.1
FY22E 2,388 418 103 8.0 242.2 57.2 5.7 7.4
FY23E 3,725 977 495 38.5 50.4 24.2 21.9 20.2
FY24E 4,507 1,208 655 50.9 38.1 19.1 22.9 21.6
71

Y/E Mar FY21 FY22E FY23E FY24E Y/E Mar FY21 FY22E FY23E FY24E
Net sales 1,708 2,388 3,725 4,507 Cash & bank 1,097 969 1,275 1,874
Growth, % -44 40 56 21 Marketable securities at cost 31 26 26 26
Total income 1,708 2,388 3,725 4,507 Debtors 79 72 112 135
Raw material expenses -837 -1,087 -1,663 -1,979 Inventory 608 871 1,359 1,644
Employee expenses -340 -379 -432 -522 Other current assets 41 62 62 62
Other Operating expenses -369 -504 -654 -798 Total current assets 1,858 2,000 2,834 3,742
EBITDA (Core) 162 418 977 1,208 Investments 117 123 123 123
Growth, % (80.5) 158.0 133.4 23.7 Gross fixed assets 1,693 1,828 1,968 2,108
Margin, % 9.5 17.5 26.2 26.8 Less: Depreciation -574 -602 -878 -1,173
Depreciation -265 -242 -275 -296 Add: Capital WIP 34 5 5 5
EBIT -102 177 701 913 Net fixed assets 1,153 1,231 1,096 940
Growth, % (119.1) (272.3) 297.4 30.1 Non-current assets 10 8 8 8
Margin, % (6.0) 7.4 18.8 20.3 Total assets 3,332 3,525 4,224 4,976
Interest paid -104 -93 -97 -102
Other Income 94 56 64 74 Current liabilities 760 817 1,073 1,131
Non-recurring Items -5 0 0 0 Provisions 2 2 2 2
Pre-tax profit -117 140 668 884 Total current liabilities 762 819 1,075 1,133
Tax provided 27 -37 -174 -230 Non-current liabilities 813 891 891 982
Profit after tax -89 103 495 655 Total liabilities 1,575 1,710 1,966 2,115
Growth, % (125.9) (221.7) 380.2 32.3 Paid-up capital 64 64 64 64
Source: Company, Axis Research Reserves & surplus 1,694 1,750 2,194 2,797
Shareholders’ equity 1,758 1,815 2,258 2,861
Total equity & liabilities 3,333 3,525 4,224 4,976
72

Y/E Mar FY21 FY22E FY23E FY24E Y/E Mar FY21 FY22E FY23E FY24E
Pre-tax profit -117 140 668 884 EPS (INR) (6.9) 8.0 38.5 50.9
Depreciation 265 242 275 296 Growth, % (125.9) (221.7) 380.2 32.3
Chg in working capital 782 -187 -272 -251 Book NAV/share (INR) 136.8 141.2 175.7 222.6
Total tax paid -158 45 -174 -139 FDEPS (INR) (6.6) 8.0 38.5 50.9
Other operating activities 0 0 0 0 CEPS (INR) 14.4 26.8 59.9 73.9
Cash flow from operating CFPS (INR) 53.5 14.1 33.7 55.7
772 239 497 790
activities Return ratios
Capital expenditure -1,418 -320 -140 -140
Return on assets (%) 0.8 5.7 15.3 16.4
Other investing activities 0 0 0 0
Return on equity (%) (4.8) 5.7 21.9 22.9
Cash flow from investing
-1,566 -321 -140 -140 Return on capital
activities 1.1 7.4 20.2 21.6
employed (%)
Free cash flow -794 -82 357 650
Turnover ratios
Dividend (incl. tax) 0 0 0 0
Asset turnover (x) 12.4 5.3 5.7 5.8
Other financing activities 0 0 0 0
Sales/Total assets (x) 1.0 0.7 1.0 1.0
Cash flow from financing
264 0 0 0 Sales/Net FA (x) 3.0 2.0 3.2 4.4
activities
Net chg in cash -530 -82 357 650 Working capital/Sales (x) (0.0) 0.1 0.1 0.2
Opening cash balance 0 1,097 969 1,275 Receivable days 17.0 11.0 11.0 11.0
Closing cash balance 1,097 969 1,275 1,874 Inventory days 130.0 133.1 133.1 133.1
Source: Company, Axis Research Payable days 103.8 84.5 94.5 95.3
Working capital days (6.4) 28.7 45.1 57.6
Liquidity ratios
Current ratio (x) 2.4 2.4 2.6 3.3
Quick ratio (x) 1.6 1.4 1.4 1.9
Interest cover (x) (1.0) 1.9 7.2 8.9
Valuation
PER (x) (294.7) 242.2 50.4 38.1
PEG (x) - y-o-y growth 2.3 (1.1) 0.1 1.2
Price/Book (x) 14.2 13.7 11.0 8.7
73
APL APOLLO TUBES (APAT) - SALES VOLUME GROWTH TO DRIVE PROFITABILITY

APL Apollo Tubes (APAT) is a leading structural steel tube brand, operating with 14 brands in 4 product categories. It has 55% Industry view
market share in structural steel tubes in India with 2.6MTPA structural steel tube capacity. APL Apollo Tubes has a strong
distribution network with 800+ distributors across India
Key Rationale Equalweight

 Q1 Hit Largely Anticipated, Growth Outlook Intact: APAT reported view to maintain its ROCE to the north of 30% (FY22 at 34.5% vs
weak Q1FY23 numbers which was largely expected because the industry 26.5% in FY21, Q1FY23 at 27.2%) across the volatile steel cycle.
witnessed channel de-stocking (~60kt lost in sales volumes) due to the Further, to protect its margins in the steel downcycle, the company has
CMP
domestic steel prices correction (~21% drop in Q1FY23). Revenues stood maintained Capex discipline and lean working capital with efficient 947
ahead of ours and consensus estimates but declined by 18% QoQ (up inventory management leading to robust free cash flows. The balance
37% YoY). EBITDA stood below consensus estimate (missed by 4%) and sheet has net debt to EBITDA at a healthy 0.2x as of FY22, which may
declined 27% QoQ and 24% YoY mainly due to higher raw material costs go down further post the cash flow accruals from the Raipur plant as it
Target Price
and inventory build-up. The Company is confident of recovering the lost ramps up in FY24. The volume expansion plan from the current 2.6 1100
volumes in Q1 over the rest of the year as steel prices stabilize and the MTPA to 4 MTPA would aid in market share gains from the unorganized
channel starts restocking in the upcoming quarters. players. The company’s focus on marketing its new innovative value
 Sales volumes outlook intact: Despite the loss in sales volume in added products and market creation efforts much in advance prior to
Upside
Q1FY23, the company has maintained its sales volume target for FY23. It production of its new products, along with its investment in its key 16%
expects to achieve sales volume of ~2.4 MT in FY23 (guidance unchanged distribution channel partner (Shankara investment) will help in securing
from Q1FY23) with 1.0-1.1 MT in H1FY23 and 1.2-1.3 MT in H2FY23. the off take of its new products.
With the start of the Raipur plant in Q3FY23 the volume recovery is tilted  Valuation: We expect the company to deliver steady improvement in
towards H2FY23. The Company has maintained its FY25 target of volumes and profitability moving forward. We retain a BUY rating on the
achieving 4 MT sales volume intact. stock with a TP of Rs 1,100/share (unchanged from the previous TP)
 Outlook: The Capex from internal cash accruals targeting capacity and continue to value it at 30x PE of FY24E EPS.
addition (Raipur plant with value added portfolio), value addition at other  Key risks: Key risks: 1) Fall in demand for the company’s products 2)
low margin plants and cost savings augurs well for the company in our Delay in Raipur plant ramp up 3) Lower offtake for the value added
products.

Y/E Mar Revenues PBT Net Profit EPS PE Div. Payout RoE
(RsCr) (Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (%) (%)
FY21 8,500 546 408 28.8 34.7 0% 24%
FY22 13,063 832 619 22.3 41.1 16% 28%
FY23E 14,638 1,042 779 28.3 32.1 7% 27%
FY24E 18,234 1,347 1,007 36.6 24.8 5% 26%
74
Profit & Loss (Rs’Cr) Balance Sheet (Rs’Cr)

Y/E March FY21 FY22 FY23E FY24E Y/E March FY21 FY22 FY23E FY24E
Total Sales 8,500 13,063 14,638 18,234 Equity Share Capital 25 50 50 50
Total Raw Materials 7,165 11,223 12,457 15,499 Reserves 1,670 2,214 2,943 3,900
Total Expenditure 7,691 11,965 13,306 16,574 Net worth 1,695 2,264 2,993 3,950
EBITDA 679 945 1,156 1,440 Total loans 441 581 431 231
Depreciation 103 109 129 146 Deferred tax liability (Net) 111 119 119 119
Interest & Finance charges 66 44 47 25 Capital Employed 2,479 3,256 3,916 4,789
Other Income 36 41 62 77 Net block 1,501 1,604 1,755 1,909
EBT (as reported) 546 832 1,042 1,347 Investments 1 86 146 182
Tax 138 213 263 339 Inventories 760 847 1,203 1,499
RPAT 408 619 779 1,007 Sundry debtors 131 342 602 749
Cash and cash equivalents 16 164 282 868
Total Current assets 1,399 1,827 2,540 3,596
Total Current liabilities 920 1,196 1,604 1,998

Net Current assets 479 631 936 1,598
Capital Deployed 2,479 3,256 3,916 4,789
75
Cash Flow (Rs’Cr) Ratio Analysis (%/x)

Y/E March FY21 FY22 FY23E FY24E Ratios FY21 FY22 FY23E FY24E
PBT 546 832 1,042 1,347 Growth (%)
Depreciation & Amortization 103 109 129 146 Sales 10.1 53.7 12.1 24.6
Incr/(Decr) in Deferred Tax Liability - - - - EBITDA 42.2 39.3 22.3 24.6
(Incr)/Decr in Working Capital 412 (115) (186) (76) APAT 51.4 54.7 27.2 29.3
Net Cash Flow from Operating 977 652 708 1,025 Profitability (%)
EBITDA Margin 8.0 7.2 7.9 7.9
(Incr)/ Decr in Gross PP&E incl Capital Adj. Net Profit Margin 4.2 4.3 4.8 5.0
(287) (597) (400) (300)
Advances
ROCE 25.4 30.4 29.6 30.6
(Incr)/Decr In Work in Progress - - - -
ROE 23.6 28.2 27.0 26.4
(Incr)/Decr In Investments - (82) (60) (36)
Per Share Data (Rs.)
(Incr)/Decr in Other Non-Current Assets - - (24) (21)
AEPS 28.8 22.3 28.3 36.6
Cash Flow from Investing (647) (530) (412) (255)
Reported CEPS 41.6 29.4 36.3 46.1
BVPS 135.7 90.5 119.6 157.8

(Decr)/Incr in Borrowings (246) 60 (150) (200)
Valuations (x)
Dividend (1) - (50) (50)
PER (x) 34.7 41.1 32.1 24.8
Cash Flow from Financing (359) 26 (177) (185)
PEG (x) 0.7 -1.8 1.2 0.8
Cash at the Start of the Year 46 16 164 282
P/BV (x) 7.4 10.1 7.6 5.8
Cash at the End of the Year 16 164 282 868
EV/EBITDA (x) 19.3 25.0 20.3 16.2
Dividend Yield (%) 0.0 0.4 0.2 0.2
Turnover days
Inventory Days 36.6 24.5 28.1 29.7
Debtor Days 13.5 6.8 12.2 14.0
Payable Days 43.2 32.3 38.4 39.7
Gearing Ratio
D/E 0.3 0.3 0.1 0.1
76
HEALTHCARE GLOBAL ENTERPRISES LTD (HCG) – ATTRACTIVE VALUATIONS
HCG is the largest provider of cancer care in India under the HCG brand. It owns and operates comprehensive cancer diagnosis and
Industry view
treatment services (radiation therapy, medical oncology, and surgery). HCG has a network consisting of 25 comprehensive cancer centers,
including the center of excellence in Bengaluru, and 1 center in Africa. Each of the comprehensive cancer center offers comprehensive
cancer diagnosis and treatment services at a single location.

 Oncology opportunity growing faster than the Healthcare market:  On the cusp of turning around the company's operating
Oncology, with a 13% CAGR over FY16-19, is the fastest growing profitability: HCG is expected to turn around its operating profitability
industry in the Healthcare market. The size of the Oncology industry is with Operating EBITDA Margins improving by 680bps over FY21-FY24E,
CMP
~Rs 165 Bn and reports 1.5 Mn new cases every year. HCG has been majorly driven by a) Operating leverage driven by the increase in 274
outpacing the industry growth with revenue CAGR of 19% and new Average Occupancy rates (53%-58%) b) Increase in ARPOB led by the
patients’ registration CAGR of 24.6% over FY16-FY19. The company increase in international patients and high end works, and c) Operating
has set up a strong network of 25 centers across the country which leverage in new centers that have already achieved breakeven. Given
Target Price
stands 2x the capacity of the immediate competitor. We believe HCG is variable and fixed costs comprise 35% and 65% in hospitals 330
well-placed to grow new patient registrations backed by its competitive respectively, we believe strong operating leverage in new centers may
strengths such as high-end works, strong brand recall, easily access to improve margins to 12%-15% over FY21-FY24E.
centers, and reasonable prices.
Upside
 High-End Work leads to an increase in ARPOB for HCG: HCG’s 21%
ARPOB reached Rs 38,345 (+21.9% Q3FY22 YoY) due to high end
works such as robotic surgery and Cyberknife in Oncology verticals of
Head & Neck, Urology, Bone Marrow transplantation, Liver Surgery and
complicated tumours. Furthermore, the increase in the volume of
international patients may improve ARPOB (Waned Covid-19 impact) in
the upcoming quarters. (International patients comprise 2% of the sales
now which was 6% before the Covid-19 pandemic). We believe the
current ARPOB are sustainable and may report a CAGR of 10% over
FY21-FY24E.
Y/E Mar Sales EBITDA Net Profit EPS PER EV/EBITDA P/BV ROE
(Rs Cr) (Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (x) (x) (%)
FY21 1,013 127 -221 -17.6 - 34.3 4.9 -
FY22E 1,347 206 -37 -2.7 - 21.6 4.8 -
FY23E 1,576 273 32 2.3 117.3 16.1 4.6 3.9%
FY24E 1,807 349 100 7.2 33.1 10.9 3.6 10.8%
77

Share Capital 125 139 139 139
Net Sales 1,013 1,347 1,576 1,807
Reserves & Surplus 572 654 687 787
Growth (%) -7.5% 32.9% 17.0% 14.6% Shareholders Fund 697 793 826 926
Total Expenditure 887 1,141 1,303 1,458 Minority Interest 17 21 27 33
Raw Material Consumed 238 306 350 392 - Long Term Borrowings 815 735 655 575
- Deferred Tax Liabilities(Net) 4 4 4 4
% of sales 23.7% 22.7% 22.2% 21.7%
- Other Long Term Liabilities 28 37 43 50
Gross margins (%) 76.3% 77.3% 77.8% 78.3% - Long Term Provisions 9 9 9 9
Employee Expenses 196 256 300 343 Total Non Current Liabilities 856 785 711 638
% of sales 19.3% 19.0% 19.0% 19.0% - Short Term Borrowings 162 162 162 162
- Trade Payables 146 185 216 248
Other Expenses 451 579 654 722
- Other Current Liabilities 147 185 194 198
% of sales 44.5% 43.0% 41.5% 40.0% - Short Term Provisions 10 10 10 10
EBIDTA 127 206 273 349 Total Current Liabilities 465 541 583 618
EBITDAM (%) 12.5% 15.3% 17.3% 19.3% Total Liabilities 2,036 2,141 2,147 2,214
Gross Block 1,256 1,241 1,291 1,341
EBIT -33 52 114 186 Depreciation 403 508 618 732
EBITM (%) -3.2% 3.8% 7.2% 10.3% % of GB 32.1% 41.0% 47.9% 54.6%
Interest 119 103 92 81 - Fixed Assets 1,433 1,312 1,252 1,188
Other Income 17 10 12 14 - Non Current Investments 6 6 6 6
- Deferred Tax Asset(Net) 34 34 34 34
Exceptional Items -93 0 0 0
- Long Term Loans & Advances 45 45 45 45
Share of P/L of Associates -0 4 6 6 - Other Non Current Assets 82 81 95 108
PBT -229 -37 40 125 Total Non Current Assets 1,600 1,478 1,432 1,382
Tax Rate (%) 3.3% 0.0% 20.0% 20.0% - Inventories 21 28 33 38
- Trade Receivables 187 240 281 322
Tax -8 0 8 25
- Cash & Cash Equivalents 41 223 202 246
Reported PAT -221 -37 32 100 - Short Term Loans & Advances 10 10 10 10
Source: Company, Axis Research - Other Current Assets 177 162 189 217
Total Current Assets 436 663 715 832
TOTAL ASSETS 2,036 2,141 2,147 2,214
78

PBT -229 -37 40 125 Sales growth -7.5% 32.9% 17.0% 14.6%
Add: depreciation 159 155 159 163

OPM 12.5% 15.3% 17.3% 19.3%
Add: Interest 119 103 92 81
Oper. profit growth -26.4% 63.1% 32.3% 27.8%
Cash flow from operations 50 220 291 369
COGS / Net sales 23.7% 22.7% 22.2% 21.7%
Change in working capital 286 -42 39 46
Overheads/Net sales 44.5% 43.0% 41.5% 40.0%
Taxes -8 0 8 25
Depreciation / G. block 12.7% 8.0% 8.0% 8.0%
Miscellaneous expenses 0 0 0 0 Effective interest rate 12.7% 8.0% 8.0% 8.0%
Net cash from operations -229 262 244 298
Capital expenditure 127 -34 -99 -99 Net wkg.cap / Net sales 18.0% 10.4% 11.4% 12.5%
Change in Investments 2 0 0 0 Net sales / Gr block (x) 0.8 1.1 1.2 1.3
Net cash from investing 129 -34 -99 -99

RoCE -2.2 3.7 8.4 14.3
Increase/Decrease in debt -277 -80 -80 -80
Debt / equity (x) 1.4 1.1 1.0 0.8
Dividends 0 0 0 0
Effective tax rate 0.0 0.0 0.2 0.2
Proceedings from equity 37 14 0 0
RoE -31.7 -4.7 3.9 10.8
Interest -119 -103 -92 -81
Payout ratio (Div/NP) 1.0 2.0 3.0 4.0
Others 468 124 6 6
Net cash from financing 109 -45 -166 -155 EPS (Rs.) -17.6 -2.7 2.3 7.2
Net Inc./(Dec.) in Cash 8 182 -21 44 EPS Growth 25% -85% -186% 211%
Opening cash balance 32 41 223 202 CEPS (Rs.) -4.9 8.5 13.8 19.0
Closing cash balance 40 223 202 246 DPS (Rs.) 0.0 0.0 0.0 0.0
79
PRAJ INDUSTRIES LTD – WELL-PLACED TO GROW, LESS IMPACT OF GLOBAL GEO-POLITICAL VOLATILITY ON BUSINESS
Praj Industries Ltd, incorporated in 1985 and headquartered in Pune is a supplier/constructor of ethanol plants, a global company Industry view
providing various engineering solutions with a focus on the environment, energy, and agri-process industry. Praj has a presence across
the globe with more than 750 references in more than 75 countries. It is the Indian market leader in the Ethanol Plant market and among
the top ZLD players in the country.
Key Rationale Overweight

 Strong Demand for Domestic Grain: During Q4FY22, 66% of the new  Improving demand for CPS and ZLD business: Praj CPS business is
order book was for Grain-based capacity (starchy feedstock), indicating expected to do well with the increasing focus on Hydrogen based
momentum in Grain-based distilleries. This will ensure a wide spread of energy development we shall see good traction. Increasing
CMP
Ethanol across the country and help in achieving preponed EBP-20 Environmental focus shall abode well for ZLDS business. 421
targets. During the current quarter, the company received orders worth  Praj is witnessing strong growth in its key segment Bioenergy in
433 Cr from grain-based distilleries. The BSPD has announced the Domestic business, the overall demand-supply gap of Ethanol,
availability of 17 MMT of surplus grains which will help the company Target Price
increased interest in grain-based distilleries and decarbonization
continue its starchy feedstock momentum. 477
 Key Business Updates: India has achieved the highest-ever Ethanol impetus is auguring well for Praj along with development in other key
blend of ~10% in 2022. The government announced a cap of 10 MMT on verticals such as CPS, ZLD & High Purity gaining traction. Praj is a key
Sugar Exports which will help to improve the availability of sugar in the beneficiary of multiple tailwinds provided by the bio-economic Upside
country. On the International front, the company is seeing good revolution, giving strong growth &revenue visibility for the next 3-5 13%
momentum in capacity building in North and South America (the company
years. The company's key growth levers remain strong & therefore we
commissioned its first plant in Brazil).
 Strong Execution: The company is witnessing more growth in Grain- maintain our BUY rating with a Target Price of Rs 477 valuing the
based distilleries which has reduced the seasonality of the business which company at 22xFY24 EPS.
was predominantly based on the sugar cycle. This has led to year-round  Key risks: a) Raw material cost pressure in steel; b) Volatile RM
utilisation of assets resulting in an improved asset turnover ratio from 0.98 weighing on operating profitability in the near term; c) Russia-Ukraine
to 1.23 in FY22. This has also led to less strain on the supply chain.
crisis to dampen business in the Euro region.
 CBG Update: The government hiked the price of CBG from Rs 46 to Rs
54 and has indexed it to the price of CNG. This, along with the positive
traction in the co-product development, shall improve the overall
commercial feasibility of the CBG plant.
Net sales EBITDA Net Profit EPS PER EV/EBIDTA ROE ROCE
Y/E Mar
(Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (x) (%) (%)
FY21 1,305 112 81 4.42 44.0 24.9 10.7% 14.7%
FY22E 2,333 194 150 8.18 43.9 33.5 17.5% 23.3%
FY23E 3,667 355 282 15.35 23.4 18.3 26.7% 34.8%
FY24E 3,772 506 395 21.52 16.7 12.8 28.3% 37.1%
80

Net sales 1,305 2,333 3,667 3,772 Share Capital 37 37 37 37
Raw Material 736 1,454 2,310 2,216 Reserves & Surplus 765 879 1,161 1,556
Employee benefit expenses 172 218 243 257 Total Equity 803 916 1,198 1,594
Other Expenses 284 468 759 792 Total Non-Current Liabilities 27 32 32 32
Trades Payable 342 425 829 795

EBITDA 112 194 355 506
Other Current Liabilities 376 776 776 776
Other income 26 36 45 45
Total Current Liabilities 764 1,265 1,669 1,635
PBIDT 138 230 400 552
Total Capital Employed 1,594 2,213 2,899 3,260
Interest & Fin Chg. 3 3 3 3

Net Block 206 209 208 204
E/o income / (Expense) - - - -
Goodwill 63 63 63 63
Pre-tax profit 113 205 376 527
Total Non-Current Assets 358 372 371 368
Tax provision 32 55 94 132
Cash 101 107 212 590
RPAT 81 150 282 395 Inventory 129 345 361 334
Receivables 453 512 1,075 1,085
Investments 295 398 398 398
Total Current Assets 1,235 1,841 2,528 2,892

Total Assets 1,594 2,213 2,899 3,260
81

Operational Ratios
Net Profit before Tax 113 205 376 527
Gross profit margin 38% 37% 41% 38%
Depreciation 22 23 22 22 EBITDA margin 8% 10% 13% 8%
Working Capital Changes 116 9 -181 -24 PAT margin 6% 8% 10% 6%
Tax Paid -15 -45 -94 -132

Growth Indicators
Cash From Operating Activities 225 175 80 351
Sales growth 79% 57% 3% 79%
Cash From Investing Act -164 -127 24 27 EBITDA growth 72% 83% 43% 72%
Cash Flow from Financing -6 -44 -2 -2 PAT growth 85% 88% 40% 85%
Change in Cash 54 4 102 375

Efficiency Ratios
Opening Cash 46 101 107 212 Total Asset turnover (x) 1.2 1.4 1.2 1.2
Closing Cash 101 107 212 590 Inventory turnover (x) 6.1 6.5 6.4 6.1
Source: Company, Axis Research Sales/Working Capital 4.2 4.9 6.0 4.2
Sales/ Total Assets
Liquidity Ratios
Total Debt/Equity(x) 0.00 0.00 0.00 0.00
Total Asset/Equity(x) 2.42 2.21 1.94 2.42
Current Ratio(x) 1.46 1.51 1.77 1.46
Quick Ratio(x) 1.18 1.30 1.56 1.18
Interest Cover(x) 77.21 124.29 177.24 77.21
82
CCL PRODUCTS LTD – WELL-PLACED TO GROW

CCL Products (CCLP) was incorporated in 1994 as an Export Oriented company engaged in the manufacture of Instant Coffee globally. It can Industry view
import green coffee into India from any part of the world, and export the same to any part of the world, free of all duties. CCL Products
manufactures Soluble Instant Spray Dried Coffee Powder, Spray Dried Agglomerated / Granulated Coffee, Freeze Dried Coffee, as well as
Freeze Concentrated Liquid Coffee. Today, the company is India’s largest manufacturer and exporter (36% market share) of instant coffee and
the largest player in the private label market (with a 10% market share).
Key Rationale Overweight

 Post Q4FY22 guidance strong: The management remains confident of  Domestic business on a strong footing: Domestic business on a
achieving its guidance of 15% volume, 15-20% bottom-line growth, robust footing: The company’s overall domestic sales reported revenue
consistent 40% annual growth in the Domestic branded business and
CMP
of Rs 200 Cr in FY22 (vs. Rs 140 Cr in FY21). The branded business 480
sustaining healthy per/Kg EBITDA profitability driven by operating
leverage, superior product mix and realization growth in FY23. Key comprises ~70% of the domestic sales. In Q1FY23, the domestic
volume growth drivers are 1) Robust order book, 2) Capex doubling business grew ~55% YoY and the company aims at ~30-40% topline
production capability in Vietnam, and 4) Penetration-led gain in the growth with breakeven in FY23 as it is looking for large distribution Target Price
domestic B2C business. expansion beyond south markets. We expect domestic business to 600
 Russia-Ukraine impact behind: Russia contributes ~20% of the sales, grow 2x from the current 4,000 tonnes in the next 2-3 years. The
which were impacted for the first 30 days of the war with the supply chain company’s gross margins in the domestic bulk and branded business
being completely disrupted. However, the situation has gradually
Upside
currently stand at 20% and 35%. Recently launched plant-based meat 25%
improved and has revived back to ~75-80% normalcy. Moreover, the
management stated that the company is infact getting fresh enquiries from protein is in a trial stage in three cities to gauge customer feedback.
existing clients as South American countries are refusing to supply coffee  Valuation: We remain positive on CCL Products given 1) Strong
to Russia under current geo-political tensions. footing in the International markets as it continues to gain market share
 Vietnam Capacity expansion: Vietnam's capacity will be enhanced from and access new business, 2) Cost-efficient business model; 3)
13,500 tonnes to 30,000 tonnes and expected commercialisation by Doubling of Vietnam's capacity from the current 13,500 MT to 30,000
Q4FY23. The new capacity will be entirely spray dried. The current MT and new capacity expansion in India leading to strong volume
capacity in Vietnam is working at optimum levels of (80-85%). Vietnam growth visibility for the next 2-3 years; 4) Capacity addition in the
reported Revenue/EBITDA/PAT of Rs 450 Cr/130 Cr/104 Cr in FY22. Key value-added products (FDC and small packs), and 5) Foray into high-
reasons for doubling Vietnam's capacity are 1) Freeing India's capacity to margin branded retail business (Continental Coffee, Plant-based meat
cater to strong growth in domestic biz along with market share gains, 2) protein). We expect CCLP’s Sales/EBITDA/PAT to grow at
Growth in the Instant Coffee market with higher growth for CCLP due to 26%/23%/19% CAGR over FY21-24E and maintain a high conviction
diverse product portfolio (economy to premium IC blends), 3) Capability to BUY rating on the stock with a revised TP of Rs 600/share.
customize blends.
Net sales EBITDA Net Profit EPS PER EV/EBIDTA ROE ROCE
Y/E Mar
(Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (x) (%) (%)
FY21 1,242 298 182 13.7 35.0 22.6 16.8 15.6
FY22E 1,462 331 204 15.4 31.2 20.3 16.3 16.1
FY23E 2,051 451 277 20.8 23.0 15.1 18.8 19.6
FY24E 2,477 551 347 26.1 18.4 12.3 20.0 21.5
83

Y/E Mar, Rs Cr FY21 FY22E FY23E FY24E As at 31st Mar, Rs Cr FY21 FY22E FY23E FY24E
Net sales 1,242 1,462 2,051 2,477 Cash & bank 120 110 -24 -27
Growth, % 9 18 40 21
Marketable securities at cost 0 0 0 0
Total income 1,242 1,462 2,051 2,477
Debtors 299 351 493 595
Raw material expenses -590 -723 -1,106 -1,327
Inventory 320 376 528 637
Employee expenses -80 -98 -122 -148
Other current assets 52 52 52 52
Other Operating expenses -275 -310 -372 -451
Total current assets 791 890 1,049 1,258
EBITDA (Core) 298 331 451 551
Growth, % 4.1 11.2 36.1 22.3 Investments 0 0 0 0
Margin, % 24.0 22.6 22.0 22.3 Gross fixed assets 996 1,096 1,196 1,296
Depreciation -49 -57 -63 -68 Less: Depreciation -198 -255 -318 -386
EBIT 248 274 388 483 Add: Capital WIP 149 149 149 149
Growth, % 4.0 10.2 41.8 24.6 Net fixed assets 947 990 1,027 1,059
Margin, % 20.0 18.7 18.9 19.5 Non-current assets 50 50 50 50
Interest paid -17 -16 -18 -20 Total assets 1,788 1,930 2,126 2,367
Other Income 3 4 5 5
Pre-tax profit 235 261 375 469 Current liabilities 469 512 532 548
Tax provided -53 -57 -97 -122
Provisions 1 1 1 1
Profit after tax 182 204 277 347
Total current liabilities 470 514 533 550
Growth, % 9.8 12.1 35.7 25.1
Non-current liabilities 231 161 121 81
Net sales 1,242 1,462 2,051 2,477
Total liabilities 701 674 654 631
Growth, % 9 18 40 21
Paid-up capital 27 27 27 27
Reserves & surplus 1,061 1,229 1,446 1,709
Shareholders’ equity 1,087 1,255 1,472 1,736
Total equity & liabilities 1,788 1,930 2,126 2,367
84

Y/E Mar (Rs Cr) FY21 FY22E FY23E FY24E Y/E Mar FY21 FY22E FY23E FY24E
Pre-tax profit 235 261 375 469 EPS (INR) 13.7 15.4 20.8 26.1
Depreciation 49 57 63 68 Growth, % 9.8 12.1 35.7 25.1
Chg in working capital 115 -66 -274 -195 Book NAV/share (INR) 81.7 94.4 110.7 130.5
Total tax paid -50 -57 -97 -122 FDEPS (INR) 13.7 15.4 20.8 26.1
Other operating activities -178 -40 -10 -10 CEPS (INR) 17.4 19.7 25.6 31.2
Cash flow from operating activities 171 156 56 210 CFPS (INR) 14.5 11.4 3.9 15.4
Capital expenditure -173 -100 -100 -100 DPS (INR) - - - -
Other investing activities 19 0 0 0 Return ratios
Cash flow from investing activities -153 -100 -100 -100 Return on assets (%) 12.1 11.9 14.6 16.3
Free cash flow 18 56 -44 110 Return on equity (%) 16.8 16.3 18.8 20.0
Other financing activities 136 3 -40 -59 Return on capital employed (%) 15.6 16.1 19.6 21.5
Cash flow from financing activities 64 -37 -50 -69 Turnover ratios
Net chg in cash 82 20 -94 41 Asset turnover (x) 0.9 1.0 1.2 1.2
Opening cash balance 39 120 110 -24 Sales/Total assets (x) 0.8 0.8 1.0 1.1
Closing cash balance 120 110 -24 -27 Sales/Net FA (x) 1.4 1.5 2.0 2.4
Source: Company, Axis Research Working capital/Sales (x) 0.2 0.2 0.3 0.3
Receivable days 87.7 87.7 87.7 87.7
Inventory days 93.9 93.9 93.9 93.9
Payable days 7.7 7.5 7.5 7.5
Working capital days 59.3 66.9 96.4 108.5
Liquidity ratios
Current ratio (x) 1.7 1.7 2.0 2.3
Quick ratio (x) 1.0 1.0 1.0 1.1
Interest cover (x) 14.6 16.7 21.6 24.4
Total debt/Equity (%) 0.4 0.4 0.3 0.2
85
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Depository participant services &
distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC,
Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available on www.axisbank.com.
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corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, authors (Research team) and the name/s subscribed to this report, hereby certify that all of the views expressed in thi s research report accurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of
my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL or its Associate does not have any financial interest in the subject company. Also I/we or my/our relative or
ASL or its Associates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various financial service businesses,
they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. I/we or my/our relative or ASL or its associate does not have any material conflict of interest. I/we have not served as
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Sr. No Name Designation E-mail
1 Naveen Kulkarni Chief Investment Officer naveen.kulkarni@axissecurities.in
2 NeerajChadawar Quantitative Head neeraj.chadawar@axissecurities.in
3 PreeyamTolia Research Analyst preeyam.tolia@axissecurities.in
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6 Ankush Mahajan Research Analyst ankush.mahajan@axissecurities.in
7 Dnyanada Vaidya Research Analyst dnyanada.vaidya@axissecurities.in
8 Aditya Welekar Research Analyst aditya.welekar@axissecurities.in
9 PrathameshSawant Research Analyst prathamesh.sawant@axissecurities.in

10 SumitRathi Research Analyst sumit.rathi@axissecurities.in
11 Hiren Trivedi Research Associate hiren.trivedi@axissecurities.in
12 SikhaDoshi Research Associate Sikha.doshi@axissecurities.in
13 Dhananjay Choudhury Research Associate dhananjay.choudhury@axissecurities.in
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15 Bhavya Shah Research Associate bhavya1.shah@axissecurities.in
5. ASL or its Associates has not received any compensation from the subject company in the past twelve months. I/We or ASL or its Associate has not been engaged in market making activity for the subject company.
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86
Disclaimer:
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TOP

expectations by -0.7%/1% and stand conservative at 4%/7% below the

Axis Securities Top Picks ....................................................................................................................................................................................... 5

Sector Outlook ........................................................................................................................................................................................................... 6

Nifty Event Update .................................................................................................................................................................................................. 10

Style Indicator .......................................................................................................................................................................................................... 16

India’s performance is-à-vis Peers:.................................................................................................................................................................... 17

Market Indicators ..................................................................................................................................................................................................... 18

India Valuation Index .............................................................................................................................................................................................. 22

Macro Indicators ...................................................................................................................................................................................................... 34

Other Macro Indicators .......................................................................................................................................................................................... 36

Q1FY23 Earnings Review ...................................................................................................................................................................................... 37

Company Section ...................................................................................................................................................................................................... 6

INVEST IN ONE CLICK

Sector Outlook (Cont’d)

Sector Outlook (Cont’d)

Sector Outlook (Cont’d)

Nifty Event Update

Nifty Performance since

Source: Bloomberg, Axis Securities

Source: Bloomberg, Axis Securities

All three indices moving in tandem; Recovery continued in Aug'22

Source: Bloomberg, Axis Securities,

Domestic-oriented themes are outperforming the export-oriented themes

Source: Bloomberg, Axis Securities,

52W High Analysis

Current level of number of stocks as compared to 52W high

NSE 500 Universe (200-day moving average)

Source: Bloomberg, Axis Securities

Perf Value Growth Quality Momentum

2020 24.9% 10.2% 22.6% 6.6%

2021 34.1% 8.8% 22.2% 32.6%

1M 1.8% 3.8% 5.3% 12.8%

3M 4.3% 12.5% 10.6% 19.1%

6M 2.2% 16.9% 6.2% 12.5%

1YR 1.0% 13.0% 4.2% 21.1%

2YR 56.0% 52.8% 46.4% 53.9%

Source: Bloomberg, Axis Securities

India’s performance vis-à-vis Peers

USD/INR 79.0 77.6 75.8 74.4 75.3 74.3

India VIX 21.8 20.5 20.6 12.8 17.2 13.0

Gold ($/OZ) -1.1% -6.2% -0.6% 0.2% 3.0% 2.7%

Steel ($/ton) -10.2% -21.0% -13.2% -29.8% -29.0% -27.9%

Aluminium ($/ton) -12.9% -30.0% -12.6% -6.6% -22.9% -2.8%

Copper ($/ton) -11.1% -19.0% -13.8% -13.4% -25.7% -10.2%

Zinc ($/ton) -14.3% -20.0% -6.1% 12.2% -10.6% 15.8%

Source: Bloomberg, Axis Securities

Top 500 Stock Performance

No of Sectoral market cap of Top 500 stocks in Tn as of YoY MoM

Market Turnover (% of the Top 500 Names)

Source: Bloomberg, Axis Securities

Non-Institutional turnover remains at average levels

Source: Bloomberg, Axis Securities

India Valuation Index

Source: Bloomberg, Axis Securities

In terms of Mcap to GDP, India is less expensive than the US market

BEER Ratio (Dec’05-May’22) India’s Total Mcap to GDP Ratio (Sep’02-May’22)

Source: Bloomberg, Axis Securities

Market Valuations: 12M Fwd PE Now Trading at 19.2x

Nifty 12M Fwd PE Nifty 12M Fwd PB

Source: Bloomberg, Axis Securities

Market Valuations: FTSE India rel. FTSE EM

Source: Bloomberg, Axis Securities

Nifty and Sectors