India │ July 21, 2023 Morning Note

India sneak peek Key Metrics

Nifty Index

21,000
20,000
Published research
19,000
18,000
Finolex Industries (REDUCE - Maintained, TP: Rs177) - PVC price fall: Good
17,000
for pipes, bad for resins
16,000
Havells India (ADD - Maintained, TP: Rs1,488) - Weak 1Q; 2HFY24F holds lot Apr-23 May-23 Jun-23
of promise
Day Low CMP Day High
Heidelberg Cement India Ltd (HOLD - Maintained, TP: Rs181) - Limited 19,758 19,979 19,992
growth options; maintain HOLD
Hindustan Unilever Ltd upside (HOLD – Downgrade, TP: Rs2,700) - Soft DXY 100.8 USDvsINR 82.0
US10YR (%) 3.85 IND10YR (%) 7.08
quarter; rich valuation limits Brent Crude ($/bbl) 80 WTI ($/bbl) 76
Gold ($/oz) 1,970 Aluminum ($/MT) 2,191
Polycab India (ADD - Upgrade, TP: Rs4,793) - Fourth consecutive quarter of
earnings beat
Flows (Rs m)
Strategy Note - Macro tailwinds to drive EPS momentum DII FII
(1,930) 33,709
Top Investment Idea
FII Derivatives Action
Pharmaceuticals (Neutral - Maintained) - 1QFY24 results preview
Amount OI
praful.bohra@incredcapital.com Instrument
(Rs m) Change (%)
INDEX FUTURES 9,964 (8.5)
• 1QFY24 earnings are important as they will be a crucial validation (or
INDEX OPTIONS 4,09,775 (10.0)
invalidation) of investors' expectations regarding the anticipated STOCK FUTURES 19,817 1.1
improvement in generics pricing dynamics in the US and margin STOCK OPTIONS 3,195 (0.0)
performance.
• We expect coverage companies to post a 10%/15% YoY rise in
revenue/EBITDA, respectively, and a 70bp YoY/80bp QoQ rise in margins. Futures Price and Open Interest
We expect strong earnings from Zydus, Dr. Reddy's Labs & Torrent Pharma. Future Price OI Chg OI
Price Chg (%) (%) (Rs m)
• With Nifty Pharma currently trading at a premium compared to Nifty (vs. a NIFTY 19,979 0.7 7.5 2,79,008
five-year average of 20.3%) the margin for error is slim. We remain selective. BANKNIFTY 46,151 1.0 13.1 1,45,661
Top picks: Sun Pharmaceutical Industries, Torrent Pharma and Aurobindo POLYCAB 4,690 9.1 (22.0) 9,465
Pharma. HDFCAMC 2,509 4.2 3.1 6,976
RBLBANK 219 2.8 (3.4) 9,938
What’s in the news (Click on news for more information)
• JLR appoints Adrian Mardell as CEO for three-year term; Richard Molyneux
named CFO.
• 202 national highway projects worth Rs 79,787 crore under implementation:
Nitin Gadkari
• Japan becomes second Quad partner to sign semiconductor pact with
India.
• Reliance’s financial unit valued at over US$ 20 bn.
• US labor market still tight; housing market slump persists
Expert speak
• Ajit Venkataraman, CEO – Finolex Industries
• MC Garg, CMD Chairman – Goodluck India
• Hiral Chandrana, Global CEO – Mastek
• Jitendra AdhiaV, VP Finance – Atul Auto Actionable Ideas
• Shachindra Nath, Executive CMD – Ugro Capital InCred coverage universe
Recent published research

InCred Institutional Equities Research

T (91) 22 4161 1500
E inst.research@incredcapital.com

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 India sneak peek │ July 21, 2023

Alternative research desk (Click here for detailed report)

• Nifty was just short of the 20000 marks in yesterday session with a high of
19991. Nifty saw a strong long addition with an increase in the OI by 7.5%.
Nifty closed the day near the high point of the day. Resistance for Nifty will
be at the psychological mark of 20000, while support will be at 19600.
• Bank Nifty continues to outperform the Nifty and did make a fresh life high of
46256 with fresh long addition of 13%. Bank nifty will have strong support at
45400. Both the PSU as well as the Private bank index saw gains of more
than 0.70%. For the Next week Bank Nifty will lead the rally with 46500-46700
as possible targets.
• FII's have maintained their Index futures long short ratio at 71% on the long
side. India VIX is currently at 11.79. Call Option writers did have to cover their
positions as nifty went beyond the 19800 levels where there was maximum
option writing. For the monthly expiry 20000 CE and PE has seen writing
worth 4.48mn and 7.20mn shares respectively.
Trading desk

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India sneak peek │ July 21, 2023

Published research Top

Finolex Industries (REDUCE - Maintained, TP: Rs177) - PVC price fall: Good
for pipes, bad for resins
rahul.agarwal@incredcapital.com
• Lower PVC prices aided strong pipe and fittings sales volume growth of 28%
yoy while negatively impacting the resin segment’s profits (EBIT: NIL) in 1Q.
• PVC resin FG-RM price spreads fell sharply by 15-25% qoq, which led to sub-
par EBIT(<Rs1/kg). Pipe EBIT stood at Rs13.7/kg. Agri pipe mix was at 70%.
• Resin spreads improved in Jul 2023. No decision yet on capex or free cash
distribution. Retain REDUCE rating. Family legal settlement is key upside risk.

Havells India (ADD - Maintained, TP: Rs1,488) - Weak 1Q; 2HFY24F holds lot
of promise
rahul.agarwal@incredcapital.com
• Havells posted weak consolidated 1QFY24 results. EBITDA/PAT missed
estimates by 10-17%. C&W dominated while other segments underperformed.
• India is seeing extraordinary capex execution by the public and private sectors.
B2B demand continues to be robust, with B2C showing early signs of revival.
• We retain our estimates assuming B2C demand recovery in 2HFY24F on the
back of consistent real estate offtake. Maintain target price and ADD rating.

Heidelberg Cement India Ltd (HOLD - Maintained, TP: Rs181) - Limited

growth options; maintain HOLD
nishant.bagrecha@incredcapital.com
• 1QFY24 EBITDA stood at Rs929m, down 2% yoy, but 20% above our
estimate, led by lower-than-expected operating costs.
• We broadly maintain our FY24F-25F EBITDA and introduce FY26F estimates.
Merger with Zuari Cement and Gujarat plant expansion remain key triggers.
• Maintain HOLD rating on the stock with a Sep 2024F target price of Rs181, set
at a one-year forward EV/EBITDA of 7.5x.

Hindustan Unilever Ltd upside (HOLD – Downgrade, TP: Rs2,700) - Soft

quarter; rich valuation limits
harsh.shah@incredcapital.com
• HUVR’s 1Q sales/EBITDA/APAT grew by 6.5%/8.4%/9% below our estimates
by 2-3%. Volume growth stood at 3%. Pricing is likely to be flat in 2QFY24F.
• The EBITDA margin was flat on a qoq basis as the benefits from gross margin
expansion (up 120bp qoq) were invested in ad spending (up 110bp qoq).
• Gradual volume recovery with limited margin expansion at current valuation
caps the upside. Downgrade to HOLD with a lower target price of Rs2,700.

Polycab India (ADD - Upgrade, TP: Rs4,793) - Fourth consecutive quarter of

earnings beat
rahul.agarwal@incredcapital.com
• Polycab again beat our/Bloomberg consensus estimates, and this time more
sharply by 25-50%. C&W sales volume grew 50%+ yoy, albeit on a low base.
• We raise revenue/EBITDA/PAT estimates by 10-25% for FY24F-25F. C&W
enjoys very high domestic demand. Fourth consecutive quarter of EPS beat.
• Despite FMEG being a drag, C&W performance can extend the stock’s P/E
rerating. FCF will be similar to Havells over FY24F-25F. Upgrade to ADD
rating.

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India sneak peek │ July 21, 2023

Strategy Note - Macro tailwinds to drive EPS momentum

pramod.amthe@incredcapital.com
• Monsoon rainfall improving, food inflation risk easing, rural recovery hopes
improving and the macroeconomic uptick continue to favour EPS momentum.
• Bloomberg consensus Nifty-50 index’s 1Q EPS growth estimate at 25% yoy
(highest in last six quarters) is on a low base and sales growth expectation.
• Rally in Nifty-50 from Mar 2023 low is impressive. In the short term, it may
consolidate but the recent EPS upgrade led us to raise Nifty target to 21,103.

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 India sneak peek │ July 21, 2023

Actionable Ideas Top

Figure 1: Top Buys (All ADD Ratings)

Bloomberg Market Capital Up/down

Company Price Target Price Analyst Name
Ticker (Rs bn) (%)

Large Cap
Reliance Industries RIL IN 19,228 2,842 3,369 19% Satish KUMAR
HDFC Bank HDFCB IN 12,729 1,689 2,000 18% Jignesh SHIAL
Maruti Suzuki MSIL IN 2,952 9,773 11,061 13% Pramod AMTHE
Sun Pharmaceutical Industries SUNP IN 2,634 1,098 1,095 0% Praful BOHRA
UltraTech Cement Ltd UTCEM IN 2,374 8,224 8,530 4% Nishant BAGRECHA
Mid-cap
Bharat Electronics Ltd BHE IN 921 126 140 11% Dipen Vakil
Torrent Pharmaceuticals Ltd TRP IN 653 1,930 2,135 11% Praful BOHRA
Ashok Leyland AL IN 516 176 181 3% Pramod AMTHE
Container Corp of India Ltd CCRI IN 418 686 940 37% Rajarshi MAITRA
Dalmia Bharat Ltd DALBHARA IN 379 2,021 2,250 11% Nishant BAGRECHA
Bharat Forge BHFC IN 396 852 918 8% Pramod AMTHE
Mahindra & Mahindra Finance MMFS IN 397 321 430 34% Jignesh SHIAL
Kajaria Ceramics Kjc in 233 1,464 1,376 -6% Rahul AGARWAL
KEC International Ltd KECI IN 154 600 615 2% Arafat Saiyed
Small-cap
Home First Finance company HOMEFIRS IN 71 810 950 17% Mayank Agarwal
Spandana Sphoorty Financial SPANDANA IN 52 735 850 16% Jignesh SHIAL
Camlin Fine Sciences CFIN IN 26 157 300 91% Satish KUMAR
Globus Spirits Ltd GBSL IN 34 1,182 3,014 155% Nitin AWASTHI
BCL Industries Ltd BCLIL IN 12 482 790 64% Nitin AWASTHI
SOURCES: INCRED RESEARCH, BLOOMBERG

Figure 2: Top Sells (All REDUCE Ratings)

Bloomberg Market Capital Up/down

Company Price Target Price Analyst Name
Ticker (Rs bn) (%)

Large Cap
Tata Steel TATA IN 1,429 117 70 -40% Satish KUMAR
InterGlobe Aviation Ltd INDIGO IN 1,053 2,731 1,600 -41% Rajarshi MAITRA
Mid-cap
Clean Science and Technology CLEAN IN 140 1,317 660 -50% Satish KUMAR
SOURCES: INCRED RESEARCH, BLOOMBERG

InCred coverage universe

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 India sneak peek │ July 21, 2023

Recent published research Top

Figure 3: Report links

Date Analyst Report Title
21 Jul 2023 Rahul Agarwal Finolex Industries - PVC price fall: Good for pipes, bad for resins (REDUCE-Maintained)
21 Jul 2023 Nishant Bagrecha Heidelberg Cement India Ltd - Limited growth options; maintain HOLD (HOLD-Maintained)
21 Jul 2023 Rahul Agarwal Havells India - Weak 1Q; 2HFY24F holds lot of promise (ADD-Maintained)
21 Jul 2023 Harsh Shah Hindustan Unilever Ltd - Soft quarter; rich valuation limits upside (HOLD-Downgrade)
20 Jul 2023 Rahul Agarwal Polycab India - Fourth consecutive quarter of earnings beat (ADD-Upgrade)
20 Jul 2023 Pramod Amthe Strategy Note - Macro tailwinds to drive EPS momentum
18 Jul 2023 Nitin Awasthi Agribusiness - Food crisis looms over the horizon (Neutral-Maintained)
18 Jul 2023 Nitin Awasthi Som Distilleries & Breweries Ltd - All eyes on Rajasthan (ADD-Maintained)
18 Jul 2023 Jignesh Shial IndusInd Bank - Riding on the favourable cycle (ADD-Maintained)
17 Jul 2023 Jignesh Shial HDFC Bank - Better among equals (ADD-Maintained)
16 Jul 2023 Mayank Agarwal Aavas Financiers Ltd - FY23 AR Analysis: Execution is key (HOLD-Maintained)
15 Jul 2023 Rahul Agarwal Health Care Providers & Svs - Quality protocols are not easily replicable (Underweight-Maintained)
Cholamandalam Investment and Finance Company - FY23 AR Analysis: Changing the ecosystem (ADD-
15 Jul 2023 Jignesh Shial Maintained)
14 Jul 2023 Rahul Agarwal Healthcare - Overall - 1QFY24 diagnostics sector results preview (Underweight-Maintained)
13 Jul 2023 Abhishek Shindadkar Tata Consultancy Services - 1Q largely in line; retain HOLD rating & TP (HOLD-Maintained)
13 Jul 2023 Abhishek Shindadkar HCL Technologies - Not a good start to FY24F (HOLD-Maintained)
13 Jul 2023 Nitin Awasthi Avanti Feeds Ltd - Forays into pet care business (REDUCE-Maintained)
12 Jul 2023 Rahul Agarwal Industrial - Overall - 1Q preview: Durables and building materials (Overweight-Maintained)
12 Jul 2023 Pramod Amthe Auto & Parts - Overall - 1QFY24 results preview (Overweight-Maintained)
11 Jul 2023 Jignesh Shial Finance Companies - Volatile equity inflow; debt outflow (Overweight-Maintained)

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 India sneak peek │ July 21, 2023

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 India sneak peek │ July 21, 2023

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