12 Large Cap Blue Chip Stocks... IIFL's Recommendations

Size Matters
12 BlueChips to ride on
PowerGrid
India Strategy
Size Matters! - 12 Bluechips to ride on

We continue to believe that the long term upward trajectory for Indian
equities is intact. A consolidation around 8,000 levels on the Nifty is the
generalexpectation,given11%runupsinceelectionoutcomeandvaluations
(P/E) touching 15x FY16 earnings but our research team sees significant
upsidenotjustinselectmidcapsbutalsoanumberoflargecaps.Wehave
identified12bluechips,whichareextremelyattractiveevenatcurrentlevels
of the market. Each of these 12 large caps can potentially deliver 3545%
returnsoveraperiodoftwoyears.
Indian equities are significantly better placed than most emerging markets
today.IndiasequitymarketcapitalizationishigherthanthelikesofMexico,
Brazil, Russia and South Africa with a wide range of largesized companies
across industries to keep FIIs excited. A slowing China only adds to Indias
relative attractiveness. Little wonder that equities have already seen net FII
inflows of $13bn in 2014 and tipped to touch $20bn by end of this year.
Already rates have softened due to the liquidity in the system, even as RBI
maintains status quo on Repo. Notwithstanding below par monsoons, both
WPIandCPIareshowingsignsofmoderation.Wehaveachievedsignificant
control over fiscal and current account deficits and these twin deficits are
unlikelytoimpactthemarketintheforeseeablefuture.
Nifty:
Sensex:
PriceasonAugust26,2014
Niftychart
9,000
8,000
7,000
6,000
5,000
4,000
3,000
Aug09
Dec12
Aug14
35
29.3
24.5
25
20.0
17.6
15
12.6
5
(0.5)
(5) 2009 2010 2011 2012 2013 2014

YTD
Indiarelativevaluation
20.0
16.0
1YrfwdPE(x)
12.0
8.0
4.0
0.0
Taiwan
DowJones
Straits
FTSE
Mexico
Nasdaq
Shanghai
Sensex
DAX
S&P500
HangSeng
Thegovernmentactionsofar,hasntletdownthemarketeither.Whilealong
termroadmapisawaited,measurestakentoclearstalledprojects,continued
dieselderegulation,focusoninflationcontrol,openingupofFDIininsurance
anddefence,supportextendedtoAadhaarandrailwaypassengerfarehikes
are encouraging moves. The Budget also attempted to correct expenditure
withfocusoninvestmentrelatedspendingfromconsumptionrelatedfocusin
the past few years. Expected supply side reforms will result in a gradual
recoveryineconomicgrowth.TheIIPdatahasimprovedinlastthreemonths
andwillaidGDPgrowthrecovery.
Apr11
FIIflowsinequities(US$bn)
TheQ1FY15earningsseasondidntfailtoimpresswithdoubledigitgrowthin
turnover and profits, reaffirming a recovery in corporate earnings. A sharp
150bps expansion in EBIDTA margins was the big surprise. If this pace of
marginexpansioncontinuesinrestoftheyear,marginswouldreturntolong
termaveragefromtwodecadelowsinFY15itself.Marginexpansioncoupled
withmoderationininterestexpensegrowthhasresultedinanimprovement
infinancialhealthofcompanies.
7,905
26,443
Midcap ideas in our previous strategy piece (Double your stake, quadruple
your money) released on June 30th have delivered 14% return so far
(assumingequalinvestmentinallstocks).Itstimetoaddlargecapweightto
portfolios. Having these large companies in your portfolio will make its risk
profilemorepalatablewithoutdilutingthereturnpotentialmaterially.These
12recommendationsmanifestoursectoralpreferencefordomesticcyclicals
(Financials,Auto,Infra,etc)andamorecherrypickingapproachwithinother
sectors. The selected stocks are in sync with our timetested theme of
backing companies with strong managements, advantageous competitive
position, high earnings growth visibility, better corporate governance and
relativelyattractivevaluation.
AmarAmbani
research@indiainfoline.com
August27,2014
ThisreportispublishedbyIIFLIndiaPrivateClientsresearchdesk.IIFLhasotherbusinessunitswithindependentresearchteamsseparated
by'Chinesewalls'cateringtodifferentsetsofcustomershavingvaryingobjectives,riskprofiles,investmenthorizon,etc.Theviewsand
opinionsexpressedinthisdocumentmayattimesbecontraryintermsofrating,targetprices,estimatesandviewsonsectorsandmarkets.
ThemeReport
Size Matters! - 12 Bluechips to ride on

BUYrecommendationsummary
Sector
Company
Auto
Maruti
MothersonSumi Auto
L&T
CapitalGoods
ITC
FMCG
IT
HCLTech
Metals
HindustanZinc
TataSteel
Metals
RelianceInd
Oil&Gas
Lupin
Pharma
Powergrid
Power
Company
Sector
ICICIBank
Banking
IndusIndBank
Banking
Source:IndiaInfolineResearch
CMP
(Rs)
2,772
357
1,506
352
1,597
165
525
993
1,288
131
CMP
(Rs)
1,510
562
24m
Target
(Rs)
3,800
500
2,120
486
2,202
230
728
1,400
1,750
187
24m
Target
(Rs)
2,125
811
Upside
(%)
37.1
40.0
40.7
38.1
37.9
39.4
38.7
41.0
36.0
42.7
Upside
(%)
40.7
44.2
FY1417E
PATCAGR
(%)
27.6
31.7
9.1
16.3
14.3
10.6
31.7
26.6
19.1
18.0
FY1417E
PATCAGR
(%)
17.0
29.1
FY17E
P/E(x)
RoE(%) EV/EBIDTA
14.5
14.5
19.6
19.9
11.7
7.5
6.2
7.2
18.6
9.3
18.9
40.4
16.3
37.3
27.5
17.6
15.3
16.9
25.5
15.9
FY17E
7.7
5.8
14.7
14.0
7.1
2.9
4.8
5.8
10.6
8.2
P/ABV(x)
ROA(%)
ROE(%)
1.8
2.0
1.7
2.0
16.5
21.7
HCL Technologies Ltd.
Closing gap with larger peers

Revenue visibility at HCT Tech remains high thanks to huge deal backlog,
increasingpipelineandimprovingwinrate.Whilegrowthininfrastructure
services is expected to remain strong, pickup in core software services
would broad base the incremental growth mix. Over the past couple of
years,HCLTechhasstructurallyconvergedmarginprofilewithlargerpeers
through productivity gains and SG&A leverage. In an environment where
largerandsmallerpeershavewitnessedsomedisruptionsineithergrowth
or margins, HCL Tech has stood out as one of the most consistent
performers.Thisandasuperiorearningsgrowthtrajectorynotwithstanding,
company trades at lowest valuation of 13.7x FY16 P/E amongst the Top 5
players. Sustenance of high RoEs and robust free cash generation would
alsosupportvaluationreratingoverthemediumterm.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs2,202
Rs1,597
37.9%
Sector:
IT
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
1,630/940
Marketcap(Rscr):
111737
6mAvgvol(000Nos):
1,244
Bloombergcode:
HCLTIN
BSEcode:
532281
NSEcode:
HCLTECH
Robust foundation in place to sustain sector leading growth
FV(Rs):
Enabled by strong competence in infrastructure services, HCL Tech has

demonstrated impressive capability of winning large integrated deals in the
rebid market. The company has sustained a hefty deal win momentum of
US$1bn+TCVforthepast89quarters.InthefullyearendingJune2014,HCL
Tech signed 50+ large and complex deals aggregating US$5bn+ in TCV
(equivalenttoannualrevenues)whichwerewelldistributedacrossallservice
lines and geographies. Company has found itself in a sweet spot with
infrastructure services forming a significant proportion in renewal deals. As
per the company, the rebid market opportunity is close to US$5658bn, of
which, about 40% is the addressable market for HCL Tech. The pipeline is
strong not only in the rebid market but also in the firsttime outsourcing
market.Companyisbeinginvitedformoreandmorecomplex/largerdealsas
isalsoindicatedbyhigherdealclosuresinF6/14ascomparedtoF6/13.
Companyratinggrid
LowHigh
1
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
HCLT
Sensex
200
Therehasbeenapeculiarityaboutthenatureofgrowthbeingwitnessedby
HCLTechinrecentyears.Ithasbeenmainlydrivenbyinfrastructureservices
(2year CAGR of 35%) whose share in revenues has increased from 24% in
F6/12to34%inF6/14.Robustgrowthinthissegmentisledbyrampupson
largedealshavingsubstantialinfrastructureservicescomponent.
Source:Company,IndiaInfolineResearch
100
50
Aug13
Dec13
Apr14
Jul14
Shareholdingpattern
Financialsummary
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
RoE(%)
RoCE(%)
150
F6/14
329,180
27.9
86,670
26.3
63,710
57.9
91.1
17.5
5.6
11.8
37.1
23.8
F6/15E
360,882
9.6
92,384
25.6
71,046
11.5
101.6
15.7
4.4
10.7
31.4
21.3
F6/16E
419,634
16.3
106,841
25.5
81,741
15.1
116.9
13.7
3.6
8.8
29.0
20.5
F6/17E
488,722
16.5
123,815
25.3
95,086
16.3
136.0
11.7
2.9
7.1
27.5
19.8
Others
100
80
60
40
20
Institutions
Promoters
Sep13 Dec13 Mar14 Jun14
Research Analyst:
RajivMehta
The only hitch in companys growth story has been negligible participation
from the core software services (custom application, enterprise and
engineering/R&D)incrementalrevenueshareinF6/13at29%andinF6/14at
27%.However,withbroadeningexecutiononsomedealsandmorediversified
nature of deals won recently, growth in core software services (60% of
revenues)hasstartedtoreviveasmanifestedinanimproved2%+CQGRover
thepastthreequarters(incrementalrevenuesharehasalsoimprovedto40%).
So while growth in infrastructure services is expected to remain strong, core
softwareservicesislikelytowitnessanimproved1314%CAGRoverF6/1417
ascomparedtomuted6%CAGRoverthepasttwoyears.Notonlywouldthis
enable HCL Tech to outperform industry growth but will also improve its
growth mix. We estimate company to deliver 17% dollar revenue CAGR over
F6/1417 aided by huge deal backlog, increasing pipeline and improving win
rate.
SofargrowthhasbeendrivenbyIMS
Company
CSS
Onlyhitchincompanysgrowthstory
hasbeennegligibleparticipationfrom
coresoftwareservices
Coresoftwareservicesislikelyto
witnessanimproved1314%CAGR
overF6/1417
EstimateHCLTtodeliver17%dollar
revenueCAGRoverF6/1417
However,CSSparticipationtoimprovemarkedly
Company
IMS
12.0
40.0
9.0
30.0
6.0
CSS
IMS
(%)
20.0
3.0
10.0
0.0
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
F6/12 F6/13 F6/13 F6/13 F6/13 F6/14 F6/14 F6/14 F6/14
0.0
F6/12
F6/13
F6/14
F6/15
F6/16
F6/17
Operating margin resilience has been commendable
Apart from an impressive growth trajectory displayed by HCL Tech, it has

structurally converged margin profile with larger peers over the past three
years. Its F6/14 operating margin at 26.3% was much higher than Wipro and
just a shade below Infosys. Apart from rupee depreciation, the sharp margin
improvement at HCL Tech was driven by multiple structural levers of a)
transition towards fixed price projects/managed services contracts (includes
outcomebasedpricing)b)automationledproductivitygainsonsuchprojects
c) steep improvement in employee utilization levels and d) decline in SG&A
costasaproportionofsales.
Theshareoffixedpriceprojects/managedservicescontractshasincreasedby
substantial14pptsoverthepast12quarters.Thiswaspartiallyattributableto
10pptincreaseininfrastructureservicesrevenueshareintheaforementioned
period. While there are risks related to under pricing in such contracts, HCL
Techhasdemonstratedrarecapabilityofsqueezinggainsoutofitwhichinturn
has encouraged company to adopt this pricing model more widely. On the
utilization front, continuance of growth momentum and frugal hiring has
enabledthecompanytosustainitatelevatedlevels.
Convergedmarginprofilewithlarger
peersoverthepastthreeyearsaided
bymultiplestructurallevers
Keymarginleverswerea)shifttowards
fixedpriceprojectsb)automationled
productivitygainsc)improvementin
employeeutilizationandd)SG&A
leverage
HCLTechsSG&Acostat12.3%ofrevenuesinF6/14isoneofthelowestinthe
industry, therefore representing limited scope for further improvement. The
decline in recent years was driven by marked progress in client mining; over
the past 8 quarters company added 22 US$20mn+ (LTM basis) accounts, also
the revenue share of Top 20 clients has remained stable at 34%. With the
profitabilityprofileoflargedealssignednondilutive,weexpectthecompany
tomaintainoperatingmargininanarrowbandof2526.5%duringF6/1417.
Cash flow generation has remained substantial

Forthepastmanyyears,companyhasbeenconvertingmorethan100%ofits
earningsintooperationalcashflows.Thishasbeenaidedbyefficientworking
capital management as reflected in company sustaining debtors and unbilled
revenuescombinedinanarrowrangeof7585dayswhichisoneofthebestin
the industry. In the absence of substantial capex, robust free cash flows
(average1618%ofrevenuesinthepasttwoyears)haveshoredupHCLTechs
abilitytopaydividendsandcashonthebalancesheet.Cash&equivalentsasa
proportionoftotalassetshaveincreasedsignificantlyfrom13%attheendof
F6/12 to 32% at the end F6/14. Company has raised the dividend payout to
Rs22pershareinF6/14ascomparedtoRs12pershareinprevioustwoyears.
Valuation converging with larger peers; Buy for 24m target of Rs2,202
In an environment where larger and smaller peers have witnessed some

disruptionsoneithergrowthormargins,HCLTechhasstoodoutasoneofthe
most consistent performers. Companys progression into US$5bn+ revenue
clubshouldfurtherlendstabilityandpredictabilitytoitsperformance.Thisand
a superior earnings growth trajectory notwithstanding, company trades at
lowest valuation of 13.7x FY16 P/E amongst the Top 5 players. As we expect
revenue growth to accelerate and become more broadbased in coming
quarters,HCLTechsvaluationinlikelytoconvergewithInfosysandWiproin
the medium term and probably even exceed them in the longer term.
Sustenance of high RoEs and roust free cash generation would also support
valuationrerating.Keyriskstoourviewarea)slowerthananticipatedramp
uponlargedealsb)underpricing/executionrisksinfixedpricedprojectsandc)
sharprupeeappreciation.
Marginshaveimprovedsignificantly
GrossMargin(LHS)
34.0
35.2 35.2
32.6
35.8 36.0
OffersmostattractiveriskrewardamongtheTop5
FY16P/E(LHS)
OPM(RHS)
39.0
40.0
(%)
37.0
38.4 38.9 38.1
36.6
30.0
(%)
26.0
20.0
22.0
16.0
18.0
31.0
18.4
14.0
28.0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
F6/12 F6/12 F6/13 F6/13 F6/13 F6/13 F6/14 F6/14 F6/14 F6/14
FY1416EPSCAGR(RHS)
14.5
(%)
11.0
18.0
15.0
12.0
10.0
9.0
9.0
19.5
14.0
12.0
6.0
15.0
14.8
15.4
TechM
Wipro
Infosys
13.7
3.0
10.0
25.0
(x) 13.0
26.3 26.0 26.7 26.3
23.1
22.0 22.2 22.6 22.4
Limitedscopeforfurtherimprovement
in SG&A but productivity gains would
continue
Expectcompanytomaintainoperating
margininanarrowbandof2526.5%
Companyhasbeenconvertingmore
than100%ofitsearningsinto
operationalcashflows
Cash&equivalentshasincreasedfrom
13%oftotalassetsatendF6/12to
32%atendF6/14
HCLTechhasbeenoneofthemost
consistentperformersinrecentyears
Companytradesatlowestvaluation
amongsttheTop5playersdespitea
superiorearningsgrowthtrajectory
Expectvaluationtorerate;Buywith
24monthtargetofRs2,202
10.0
0.0
HCLTech
TCS
Financials
Incomestatement
Keyratios
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Otherincome
Profitbeforetax
Taxes
Netprofit
F6/14E
329,180
86,670
(7,320)
(160)
79,190
(15,480)
63,710
F6/15E
360,882
92,384
(8,052)
5,600
89,932
(18,886)
71,046
F6/16E
419,634
106,841
(8,857)
6,812
104,796
(23,055)
81,741
F6/17E
488,722
123,815
(9,743)
7,833
121,905
(26,819)
95,086
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
Profitabilityratios(%)
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios(x)
P/E
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
UnbilledRevenues
Balancesheet
Y/e31Mar(Rsmn)
EquityCapital
Reserves
Networth
CurrentLiabilities
Borrowings
OtherLiabilities
TotalLiabilities
TotalEquity&Liab
Assets
PropertyandEquip
IntangibleAssets
InvinEquity
Otherassets
NonCurrentAssets
Cashandequiv
Accountsreceivable
Unbilledrevenues
FixedDeposits
InvestmentSec
InvSecAFS
OtherCurrentAsset
CurrentAssets
TotalAssets
F6/14E
1,399
199,415
200,814
81,966
7,509
14,615
104,090
304,904
31,465
51,492
156
23,462
106,575
10,206
56,843
20,243
83,701
2,120
3,971
21,245
198,329
304,904
F6/15E
1,399
250,822
252,221
86,612
7,509
16,077
110,197
362,418
35,965
51,492
156
25,808
113,421
11,227
62,317
22,192
121,843
2,332
4,368
24,718
248,997
362,419
F6/16E
1,399
309,651
311,050
100,712
7,509
17,684
125,905
436,955
40,465
51,492
156
28,389
120,502
12,349
72,463
25,805
169,724
2,565
4,805
28,742
316,453
436,955
F6/17E
1,399
378,552
379,951
117,293
7,509
19,453
144,255
524,205
45,465
51,492
156
31,228
128,341
13,584
84,393
30,054
226,252
2,822
5,285
33,474
395,864
524,205
F6/14E
79,190
7,320
(15,480)
(951)
F6/15E
89,932
8,052
(18,886)
(6,251)
70,079
(13,413)
56,666
(1,292)
13
(18,003)
11,126
48,510
26.3
24.1
19.4
23.8
37.1
25.6
24.9
19.7
21.3
31.4
25.5
25.0
19.5
20.5
29.0
25.3
24.9
19.5
19.8
27.5
91.1
22.0
101.6
287.1
17.5
5.6
11.8
101.6
24.0
113.1
360.6
15.7
4.4
10.7
116.9
28.0
129.5
444.7
13.7
3.6
8.8
136.0
32.0
149.9
543.3
11.7
2.9
7.1
28.3
19.5
27.6
21.0
63
22
28.0
22.0
27.5
22.0
63
22
63
22
63
22
F6/14E F6/15E
0.80
0.79
1.00
1.00
0.24
0.25
1.23
1.08
1.56
1.47
37.1
31.4
F6/16E
0.78
1.00
0.25
1.05
1.42
29.0
F6/17E
0.78
1.00
0.25
1.02
1.39
27.5
Dupontanalysis
Cashflowstatement
Y/e31Mar(Rsm)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
OtherOp.items
Operatingcashflow
Capex
Freecashflow
Equityraised
Investments
Debtraised/repaid
Dividendspaid
Otheritems
Netincash
F6/14E F6/15E F6/16E F6/17E
27.9
9.6
16.3
16.5
48.5
6.6
15.6
15.9
48.9
13.6
16.5
16.3
55.6
11.5
15.1
16.3
F6/16E
104,796
8,857
(23,055)
(3,682)
F6/17E
121,905
9,743
(26,819)
(4,330)
86,916
(13,357)
73,559
(233)
1,608
(22,912)
(2,581)
49,440
100,499
(14,743)
85,756
(257)
1,768
(26,186)
(2,839)
58,244
Y/e31Mar(Rsm)
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
Financialleverage(x)
RoE(%)
72,847
(12,552)
60,295
(212)
1,462
(19,639)
(2,346)
39,560

Hindustan
Zinc Ltd
Strong zinc prices to add zing

Hindustan Zinc Ltd (HZL) is one of world's largest integrated zinclead
producersanditsassetsareinthelowestquartileontheglobalcostcurve.
ThecompanyhasmanagedtoreportearningsCAGRof12%overtheperiod
FY1114 even though zinc prices have been subdued and integrated metal
production has remained flat over the same period. Over the next two
years, earnings growth for the company would be led by higher volumes
andstrongrealisations.Thezincmarkethasturnedintodeficitoverthelast
one year due to lower mined output (on account of mine closures) and
rising demand from the developed nations. We believe that the tight
marketconditioninzincglobalmarketwouldcontinuegoingforward.HZLs
minedmetaloutputisexpectedtojumpfromFY16duetoarampupinits
undergroundminingoperations.Integratedmetalproductionisestimated
to increaseby 15% over the period FY1417E. The SC ruling oncoal blocks
wouldnotimpactthecompanysearningsinthenearterm.AttheCMP,the
stock is trading at 8.5x P/E and 4.2x EV/EBIDTA on FY16E, which is lower
than the range of its international peers. We believe that the company
shouldtradeatapremiumtoitspeersduetoitslowcostoperations.We
recommendaBUYonthestockwith2yearpricetargetofRs230.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs230
Rs165
39.4%
Sector:
Metals & mining
Sector view:
Neutral
Sensex:
26,443
52Weekh/l(Rs):
184/107
Marketcap(Rscr):
69,718
6mAvgvol(000Nos):
1,940
Bloombergcode:
HZIB
BSEcode:
500188
NSEcode:
HINDZINC
FV(Rs):
Companyratinggrid
LowHigh
1
EarningsGrowth
Volume growth to resume from FY16
CashFlow
B/SStrength
Valuationappeal
Risk
HZLs mined metal output has been a bit lower than our estimate. The
underperformance was due to the change in its mining strategy from Open
pit to Underground at Rampura Agucha (RA) and also due to a change in
mining sequence wherein preference was given to primary mine
development. We believe that the companys mined metal output would
increase from FY16 with the ramp up of the underground mines at RA and
higher contribution from the newmines. Weexpect mined metal output to
remainflatinFY15at0.88mntonsandthenincreaseto0.93mntonsinFY16
and1mntonsinFY17.Anincreaseinminedmetalproductionwouldleadto
an increase in production of integrated metal production. Silver production
toowouldincreasewithariseinminedoutput.Integratedmetalproduction
isestimatedtoincreaseby15%overtheperiodFY1417E.
Sharepricetrend
HZL
170
150
130
110
90
70
50
Aug13
Sensex
Feb14
Aug14
Financialsummary
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
EV/EBITDA(x)
Cashpershare(Rs)
RoE(%)
RoCE(%)
Shareholdingpattern
FY14
136,361
7.4
69,616
51.1
69,046
0.1
16.5
10.0
6.3
60.4
20.0
22.2
FY15E
147,148
7.9
74,745
50.8
75,636
9.5
17.9
9.2
5.3
71.8
18.8
20.8
FY16E
155,645
5.8
81,239
52.2
81,942
8.3
19.4
8.5
4.2
84.6
17.7
19.7
FY17E
172,134
10.6
93,632
54.4
93,479
14.1
22.1
7.5
2.9
101.1
17.6
19.7
Others
100%
Institutions
Promoter
80%
60%
40%
20%
0%
Research Analyst:
TarangBhanushali
Hindustan Zinc Ltd
Zinc prices to remain strong
ZincpriceshavelargelyremainedabovetheUS$2,000/tonlevelformostpart
of2014.The3monthLMEzincpricehaslargelytradedbetweentherangeof
US$1,900 and $2,300 per ton. The quantum of the rise in zinc prices has
surpriseduspositivelyoverthelastoneyearandhasoutperformedotherbase
metals during the same period. The global zinc market, after remaining in
surplusstateforsixconsecutiveyears(20072012),turnedintodeficitin2013
andhasstayedinthedeficitstateforthefirstfourmonthsoftheyear.Adding
to the bullish sentiment was the sharp decline in zinc inventory levels. The
tightnessinthemarketwaswitnessedearlierthananticipated.Webelievethat
thetightmarketconditioninzincglobalmarketwouldcontinuein2014aswe
estimatedemandfromthedevelopednationsofUS,EuropeandJapanwould
be higher due to the ongoing monetary easing in the regions. This, coupled
withsteadydemandfromChinaandIndia,wouldleadtoastrongrecoveryin
zincdemand.Asaresult,weraiseourzincpriceestimatesforFY15andFY16to
US$2,100/tonandUS$2,200/ton,respectively.Duringtheyear,zincproducers
have been raising the premium they charge customers for refined metal as
shortfall begins to emerge due to mine closures and strong Chinesedemand.
PremiumschargesfordeliveryofzinchaverisentoaroundUS$180200/tonin
FY14fromUS$120130/tonlastyear.
Zincandleadpriceshavestayedabove
US$2,000/tonformostpartof2014
Zinc
3,000
2,800
Theglobalzincmarket,after
remaininginsurplusstateforsix
consecutiveyears(20072012),turned
intodeficitin2013andhasstayedin
thedeficitstateforthefirstfour
monthsoftheyear
Premiumsriseasshortfallbeginsto
emergeduetomineclosuresandrising
demandglobally
Zincandleadmarketshaveremainedindeficitover
thelastoneyear
Lead
400
(US$/ton)
Zinc
('000tons)
Lead
300
2,600
2,400
200
2,200
100
2,000
1,800
1,600
1,400
(100)
1,200
(200)
1,000
Jan09
Feb10
Apr11
May12
Jun13
Aug14
2009
2010
2011
2012
2013
JanApr
'14
Costs to decline from current levels
HZL, over the last one year, has witnessed a sharp increase in its costs on
account of lower strip ratio, lower byproduct credits and an increase in
consumptionofimportedcoal.WebelievethatCoPwouldpeakoutinH1FY15
and would decline from thereon due to higher volumes coupled with
operationalefficiencies.Wealsobelievethatbyproductpriceshavebottomed
outandwouldmarginallyincreasefromcurrentlevels.Pricesofinternational
coal too are expected to remain flat over the next one year. A jump in zinc
pricescoupledwithsteadyspotpremiumswouldmorethanoffsettheincrease
in costs due to the transformation of mining operations and higher power
costs.WeexpectOPMtodeclineinFY15duetoincreaseinroyaltyratesand
then increase sharply in the next two years. As a result, we expect operating
profittoincreaseby7.4%yoytoRs74.7bninFY15andby8.7%yoytoRs81.3bn
inFY16.
WebelievethatCoPwouldpeakoutin
H1FY15andwoulddeclinefrom
thereonduetohighervolumescoupled
withoperationalefficiencies
Hindustan Zinc Ltd
RevenuegrowthtoresumefromFY17E
180
Revenue
Operatingprofittojumpaidedbyhigherpricesand
costdeclines
yoychng
30
(%)
(Rsbn)
100
95
25
160
20
140
15
Operatingprofit
(%)
90
10
100
FY11
FY12
FY13
FY14
FY15E
FY16E
50
75
48
46
65
60
44
55
42
40
FY11
FY17E
FY12
FY13
HZLcontinuestogeneratehugefreecashfloweventhoughcommodityprices
remained weak during the year. Cash and cash equivalents increased at the
end of Q1 FY15 stood at Rs262bn (~38% of current market cap) and are
expectedtojumptoRs303bnbytheendofFY15andRs357.6bnbyFY16.Over
thenexttwoyears,earningsgrowthforthecompanywouldbeledbyhigher
volumes and strong realisations. We expect HZL to witness earnings CAGR of
10.6%overtheperiodFY1417despiteourassumptionofastrongerrupeein
FY16andFY17.AttheCMP,thestockistradingat8.5xP/Eand4.2xEV/EBIDTA
onFY16E,whichislowerthantherangeofitsinternationalpeers.Webelieve
the company should trade at a premium to its peers due to its low cost
operationsandrisingcontributionfromsilversales.WerecommendaBUYon
thestockwith2yearpricetargetofRs230.
CashbalancetoincreasefromRs255bninFY14to
427bninFY17E
90
(Rsbn)
(Rsbn)
450
2,400
2,300
70
350
2,200
60
300
2,100
50
250
2,000
40
200
1,900
30
150
1,800
20
100
1,700
10
50
1,600
1,500
FY12
FY13
FY14
FY15E FY16E FY17E
ZincLME
2,500
400
FY11
500
WeexpectHZLtowitnessearnings
CAGRof10.6%overtheperiodFY1417
despiteourassumptionofastronger
rupeeinFY16andFY17
Averagezincandleadpricestoriseduetodeficit
marketconditions
80
FY15E FY16E FY17E
High zinc prices coupled with increase in mined metal output to

boost earnings over FY15-17E
Netcashbalance(R)
FY14
Freecashflow(L)
56
52
80
50
80
58
54
85
70
120
100
OPM
(Rsbn)
LeadLME
(US$/ton)
FY10
FY11
FY12
FY13
FY14E FY15E FY16E FY16E
Hindustan Zinc Ltd
Financials
Incomestatement
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Adj.profit
Exceptionalitems
Netprofit
Keyratios
FY14
136,361
69,616
(7,846)
(449)
18,994
80,314
(10,651)
69,663
(617)
69,046
FY15E
147,148
74,745
(8,424)
(240)
21,118
87,200
(11,564)
75,636
75,636
FY16E
155,645
81,239
(9,290)
(240)
22,761
94,470
(12,528)
81,942
81,942
FY17E
172,134
93,632
(10,156)
(240)
24,536
107,771
(14,292)
93,479
93,479
FY14
8,451
365,726
374,176
16,581
390,757
106,882
225,064
28,497
11,982
3,995
38,529
(5,103)
(20,906)
30,314
390,757
FY15E
8,451
423,663
432,114
16,581
448,695
118,049
225,064
27,357
12,874
4,311
36,892
(5,507)
(21,213)
78,225
448,695
FY16E
8,451
486,431
494,882
16,581
511,463
128,759
225,064
25,068
13,617
4,560
35,337
(5,825)
(22,621)
132,571
511,463
FY17E
8,451
558,037
566,487
16,581
583,068
133,603
225,064
22,250
15,060
5,043
33,859
(6,442)
(25,270)
202,152
583,068
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Balancesheet
Y/e31Mar(Rsmn)
Equitycapital
Reserves
Networth
Deferredtaxliab(net)
Totalliabilities
Fixedassets
Investments
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Othercurrentliabilities
Cash
Totalassets
Cashflowstatement
Y/e31Mar(Rsmn)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Debtfinancing/disposal
Dividendspaid
Otheritems
Netincash
FY14
80,314
7,846
(10,651)
(3,413)
74,096
(19,173)
54,924
(326)
(79,665)
(4)
(17,302)
(617)
(42,990)
FY15E
87,200
8,424
(11,564)
1,140
85,199
(19,591)
65,609
(17,698)
47,911
FY16E
94,470
9,290
(12,528)
2,289
93,520
(20,000)
73,520
(19,174)
54,347
FY17E
107,771
10,156
(14,292)
2,818
106,454
(15,000)
91,454
(21,873)
69,580
FY14
7.4
7.4
2.7
0.7
FY15E
7.9
7.4
8.3
8.6
51.1
59.2
51.1
22.2
20.0
18.1
50.8
59.4
51.4
20.8
18.8
17.0
16.5
3.5
18.3
88.6
22.1
4.4
24.5
134.1
8.5
7.6
1.4
4.2
23.4
13.3
11
32
14
19.4
3.9
21.6
117.1
9.2
8.3
1.6
5.3
24.8
13.3
54.4
62.7
54.3
19.7
17.6
16.2
52.2
60.9
52.6
19.7
17.7
16.1
17.9
3.6
19.9
102.3
10.0
9.0
1.9
6.3
FY17E
10.6
15.3
14.0
14.1
FY16E
5.8
8.7
8.3
8.3
7.5
6.7
1.2
2.9
23.4
13.3
23.4
13.3
11
32
14
11
32
14
11
32
14
FY15E
0.87
1.00
0.59
0.33
1.11
18.8
FY16E
0.87
1.00
0.61
0.31
1.10
17.7
FY17E
0.87
1.00
0.63
0.30
1.09
17.6
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)
FY14
0.87
0.99
0.59
0.35
1.11
20.0
ICICI Bank
Set for an incremental re-rating

ICICI Bank has impressively delivered on its strategy of improving
profitability amid a highly testing period of FY1114. Banks focus on
altering its balance sheet profile (towards retail), improving its NIMs,
increasing cost productivity and mitigating credit risks have been the key
driversofRoAexpansion.Thoughthereislittleheadspaceforincremental
RoAimprovement,anaccelerationingrowth(estimate19%loanCAGRover
FY1417) should produce leveragedriven RoE improvement. Subsidiary
valuationhasbeensignificantlyenrichedbyFDIlimitincreaseinInsurance
and improvement in capital market condition. On a standalone basis, the
bankistradingatanattractivevaluationof1.3xFY17P/ABV.ReiterateBUY
onICICIBankandintroducea24monthSOTPtargetofRs2,125.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs2,125
Rs1,510
40.7%
Sector:
Financials
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
1,590/759
Marketcap(Rscr):
174,618
6mAvgvol(000Nos):
Bloombergcode:
3,529
ICICIBCIN
BSEcode:
532174
Loan book to witness a strong 19% CAGR over FY14-17
NSEcode:
AstrongfocusonretaillendinghasenabledICICIBanktogrowitsdomestic
loan book ahead of the system despite cyclical weakness in large corporate
segmentandselfimposedcautionintheSMEsegment.Inthedomesticcredit
(~75%ofoveralladvances),theshareofretailcredithasseeasharpincrease
from 47% in Q3 FY13 to 53% in Q1 FY15. Whereas the share of lumpy
corporateadvanceshasdeclinedto41%andthatofSMElendinghascome
off to marginal 6%. Within the retail franchise, home loans and auto loans
(excluding CV financing) have been the prime drivers of growth with their
combined share currently standing at 65%. As per the bank, the retail loan
bookwouldcontinuetogrowat20%+yoythusdrivingtheoverallgrowthfor
thebankinthenearterm.
FV(Rs):
ICICIBANK
10
Inthelongertermthrough,revivalincorporateandSMEloangrowthonthe
back of pickup in investment and trade activity will be a critical driver of
credit growth for the bank. ICICI Bank is also keen to advantage of the
recently permitted bond issuance by commercial banks for longterm
financing to infrastructure and affordable housing sectors without the
requirementsofSLR,CRRandPSL.Thebankhasjustannouncedasmallissue
totestthemarketbutcouldraiselargeramountsinthefuture.
Companyratinggrid
LowHigh
1
EarningsGrowth
B/SStrength
Valuationappeal
Risk
Sharepricetrend
ICICIBank
Sensex
200
150
100
50
Aug13
Dec13
Apr14
Jul14
Financialsummary
RoAProgression
Y/e31Mar(Rsm)
Totaloperatingincome
Yoygrowth(%)
Operatingprofit(preprovisions)
Netprofit
yoygrowth(%)
EPS(Rs)
Adj.BVPS(Rs)
P/E(x)
P/Adj.BV(x)
ROE(%)
ROA(%)
CAR(%)
FY14
269,034
21.1
165,945
98,105
17.8
84.9
605.3
17.8
2.5
14.0
1.7
17.7
FY15E
307,282
14.2
189,246
109,860
12.0
95.0
664.8
15.9
2.3
14.3
1.7
16.2
FY16E
357,935
16.5
219,832
128,364
16.8
111.0
739.5
13.6
2.0
15.1
1.7
14.9
FY17E
427,444
19.4
265,173
156,615
22.0
135.5
830.2
11.1
1.8
16.5
1.7
13.5
Shareholdingpattern
Others
100
80
60
40
20
Institutions
Promoters
Research Analyst:
RajivMehta
ICICI Bank
WeestimateICICIBanktowitnessastrong19%loanCAGRoverFY1417.Bank
remains wellcapitalized for growth with Tier1 ratio at 12.6% (including Q1
FY15profits)andthereforedoesnotenvisageequitycapitalraisinginthenext
threeyears.
NIM to remain sturdy
Overthepastthreeyears,ICICIBankhasdoneacommendablejobontheNIMs
front.Theblendedmarginofthebankhasimprovedby80bpslargelydrivenby
anearlyequivalentexpansionindomesticNIM.Herethemarginimprovement
has been driven by a) shift in loan mix towards betteryielding loans b)
improvement in loan/deposit ratio and c) benign cost of deposits aided by
stable CASA. Despite attractive rate differential of term deposits and much
higher savings rate offered by smaller private banks, ICICI Bank has been
successfulinsustainingitssavingsgrowthinahealthyrangetherebyenablingit
to maintain average CASA level in a narrow band of 3840%. With domestic
NIM at 3.8%, ICICI Bank has largely bridged the gap with its peers who earn
NIMs in excess of 4%. However,as incremental improvement looks tough for
hereon,bankexpectstosustainmarginaroundthecurrentlevelinthemedium
term. In our view, a material softening in wholesale funding rates will open
scopeforsomeadditionalmarginimprovement.
Loanbooktowitnessastrong19%
CAGRoverFY1417
Overthepastthreeyears,blendedNIM
ofthebankhasimprovedby80bps
Bankhasbeensuccessfulinsustaining
itssavingsgrowthinahealthyrange
Bankexpectstosustainmarginaround
thecurrentlevelinthemediumterm
Domesticloanmixhasshiftedtowardsretail
segment
Retail
100%
Corporate
6
NIMhasimprovedsignificantlydrivenbystructural
factors
4.0
SME
6
(%)
3.4
3.3 3.3 3.3 3.3 3.4
3.5
80%
46
44
44
44
43
41
3.0 3.0 3.0 3.1
41
3.0
60%
2.6
40%
20%
2.7
2.5
47
50
49
49
51
53
53
2.0
0%
Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
FY12 FY12 FY12 FY13 FY13 FY13 FY13 FY14 FY14 FY14 FY14 FY15
Fee growth to accelerate; cost/income ratio to be sustained
ICICI Banks fee growth was severely impacted during FY1113 due to sharp
slowdown in Corporate and SME lending. In the aforesaid period, fee growth
declined to low single digits and stood substantially below the overall credit
growth. However, supported by banks focus on strengthening retail fees
franchise and robust growth in the underlying portfolio, retail fees have
witnessed brisk traction over the past couple of years and its share in the
overallfeeincomeofthebankhasincreasedto50%+.Whilestronggrowthin
retailfeeswillcontinue,corporateandSMEfeegrowthisexpectedtomarkedly
improveinthelongertermthusreducingthegapbetweenloangrowthandfee
growth.
Feegrowthwasseverelyimpacted
duringFY1113buthasbeenonthe
mendaidedbystrongretailfeegrowth
RevivalincorporateandSMEfeesto
strengthenoverallfeegrowth
ICICI Bank
Managementsfocusonenhancingproductivityinaslowgrowthenvironment
has underpinned a restrained cost growth enabling the bank to improve its
cost/income ratio significantly. This was achieved despite substantial
investments on the distribution network; bank added 1000 branches during
FY1314,a36%growthoverFY12base.Weexpectthecost/incomeratiotobe
around3839%incomingyears.
Asset quality stress to ease gradually
Withtheretailportfolioholdingupwell,alowerSMEexposureandproactive
effortstowardscontainingrisksinlargecorporatesegment,ICCIBankhasbeen
able to resiliently navigate through the credit cycle. Loan workouts, forcing
defaultingpromoterstosaleassetsanddebtrefinancinghavebeenthekeyrisk
mitigation strategies in the corporate segment. On account of it, the stress
assets (slippages + new restructuring) addition rate was contained at 3.7% in
FY14. With restructuring pipeline modest at ~Rs15bn and economic
environment gradually improving, the influx of impaired assets would most
likely be lower in FY15. Thus the gross NPL ratio is estimated to be stable at
around 3% through the year and thereafter comeoff as asset quality stress
recedesandloangrowthaccelerates.
Valuation to re-rate as growth and RoE improves
ICICIBankhasimpressivelydeliveredonitsstrategyofimprovingprofitability
amid a highly testing period of FY1114. Banks focus on altering its balance
sheet profile (towards retail), improving its NIMs, increasing cost productivity
andmitigatingcreditriskshavebeenthekeydriversofRoAexpansion.Though
thereislittleheadspaceforincrementalRoAimprovement(inlinewithpeers
currently), an acceleration in growth should produce leveragedriven RoE
improvement.WeestimatethestandaloneRoEofthebanktoimprovefrom
14% in FY14 to 16.5% in FY17. A sharp improvement in capital market
conditions and FDI limit increase in Insurance has significantly enhanced
valuationofthebankssubsidiariesinthesesectors.Strippingoffthevaluation
ofsubsidiariesfromthecurrentprice,bankistradingatanattractive1.3xFY17
P/ABV.ICICIBankremainsoneofourpreferredpicksinBankingsector.
GrossNPLsandCreditCosttostabilize
GrossNPLs(LHS)
5.0
Focusonenhancingproductivityhas
underpinnedarestrainedcostgrowth
ICCIBankhasbeenabletoresiliently
navigatethroughthecreditcycle
Influxofimpairedassetswouldmost
likelybelowerinFY15
BankhasimpressivelyimproveditsRoA
amidahighlytestingperiodofFY1114
Nowaccelerationingrowthshould
produceleveragedrivenRoEexpansion
Thestandalonebankistradingatan
attractive1.3xFY17P/ABV
HigherRoAtobesustained,RoEtoimprove
ROA(LHS)
CreditCost(RHS)
(%)
(bps)
4.0
ROE(RHS)
150
2.0
125
1.7
17.0
100
1.4
14.0
75
1.1
11.0
50
0.8
8.0
25
0.5
5.0
20.0
(%)
(%)
3.0
2.0
1.0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
ICICI Bank
Financials
Keyratios
Incomestatement
Y/e31Mar(Rsmn)
Interestincome
Interestexpense
Netinterestincome
Noninterestincome
Totalopincome
Totalopexpenses
Opprofit(preprov)
Totalprovisions
Profitbeforetax
Taxes
Netprofit
FY14
441,781
(277,026)
164,755
104,279
269,034
(103,089)
165,945
(26,264)
139,681
(41,577)
98,105
FY15E
501,164
(310,674)
190,490
116,792
307,282
(118,036)
189,246
(32,302)
156,944
(47,083)
109,860
FY16E
562,588
(338,381)
224,207
133,727
357,935
(138,103)
219,832
(36,455)
183,377
(55,013)
128,364
Y/e31Mar
Growthmatrix(%)
Netinterestincome
Totalopincome
Opprofit(preprov)
Netprofit
Advances
Deposits
Totalassets
ProfitabilityRatios(%)
NIM
Nonintinc/Totalinc
ReturnonAvgEquity
ReturnonAvgAssets
Pershareratios(Rs)
EPS
Adj.BVPS
DPS
Valuationratios(x)
P/E
P/Adj.BVPS
Otherkeyratios(%)
FY17E
646,604
(376,290)
270,315
157,130
427,444
(162,271)
265,173
(41,437)
223,736
(67,121)
156,615
Balancesheet
Y/e31Mar(Rsmn)
Totalcash&equiv
Investments
Advances
Totalintearnassets
Fixedassets
Otherassets
Totalassets
Networth
Deposits
Borrowings
Totalintbearliab
Nonintbearingliab
Totalliabilities
Equity+Totalliab
FY14
FY15E
FY16E
FY17E
415,296
1,770,218
3,387,027
5,572,541
48,794
325,081
5,946,416
732,133
3,319,137
1,547,591
4,866,727
347,556
5,214,283
5,946,416
451,242
2,053,453
3,954,353
6,459,049
52,454
357,589
6,869,092
808,186
3,883,390
1,795,205
5,678,595
382,311
6,060,906
6,869,092
494,288
2,464,144
4,725,452
7,683,884
56,388
411,228
8,151,499
555,869
2,993,934
5,765,052
9,314,856
60,617
472,912
9,848,384
897,527
4,660,068
2,154,246
6,814,314
439,658
7,253,971
8,151,499
1,006,015
5,708,583
2,628,180
8,336,763
505,606
8,842,369
9,848,384
Credit/Deposits
Cost/Income
CASA
CAR
TierIcapital
GrossNPLs/Loans
Prov/Avgloans
NetNPLs/Netloans
Taxrate
Dividendyield
FY14
18.8
21.1
25.7
17.8
16.7
13.4
10.8
3.1
38.8
14.0
1.7
84.9
605.3
23.0
FY15E FY16E FY17E
15.6
17.7
20.6
14.2
16.5
19.4
14.0
16.2
20.6
12.0
16.8
22.0
16.8
19.5
22.0
17.0
20.0
22.5
15.5
18.7
20.8
3.2
3.2
3.2
38.0
37.4
36.8
14.3
15.1
16.5
1.7
1.7
1.7
95.0 111.0 135.5

664.8 739.5 830.2
26.0
30.0
37.0
17.8
2.5
15.9
2.3
102.0
38.3
42.9
17.7
12.8
3.0
0.8
1.0
29.8
1.6
13.6
2.0
101.8
38.4
44.5
16.2
11.8
3.1
0.9
1.0
30.0
1.8
11.1
1.8
101.4
38.6
45.5
14.9
10.9
3.0
0.8
0.9
30.0
2.0
101.0
38.0
46.5
13.5
10.0
2.8
0.8
0.8
30.0
2.5
IndusInd Bank
Growth to revive strongly

IndusindBanksloangrowthissettoacceleratefromFY16drivenbygrowth
revivalinitsconsumerfinancingsegment.Withunderlyingindustryvolume
growth incrementally improving, growth in vehicle financing portfolio is
likely to pickup over coming quarters. Though corporate and commercial
loan growth would remain healthy, a much faster growth in consumer
financing would shift the loan mix towards the latter segment from FY16.
NIMhasscopetoexpandfurtherinthelongertermaidedbytheloanmix
shift, persistent CASA gains, softening of wholesale funding rates and
structural resistance in lending yield. This along with buoyant fee growth
shouldenableIndusIndBanktosustaincost/incomeratiodespitecontinued
investmentsinnetworkexpansion.Banksassetqualityhasbeenresilientin
thiscreditcycleandwithdelinquenciesexpectedtomoderate,creditcostis
likely to ease. We estimate RoA to expand to 2% by FY17 thus driving a
robustearningsCAGRof29%.WithIndusIndBankofferingthebestgrowth
profitabilitytrajectory,itsvaluationshouldreratetowards3xFY17P/ABV
inthelongerterm.ReiterateBUYwitha24monthpricetargetofRs811.
Rating:
Target(2years):
CMP:
Upside:
Sector:
Financials
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
587/318
Marketcap(Rscr):
29,650
6mAvgvol(000Nos):
1,561
Bloombergcode:
IIBIB
BSEcode:
532187
NSEcode:
INDUSINDBK
10
FV(Rs):
Companyratinggrid
LowHigh
1
EarningsGrowth
RoAProgression
B/SStrength
Valuationappeal
Risk
Sharepricetrend
IndusInd
Sensex
200
150
100
50
Aug13
Dec13
Apr14
Jul14
Y/e31Mar(Rsm)
Totaloperatingincome
Yoygrowth(%)
Operatingprofit(preprovisions)
Netprofit
yoygrowth(%)
EPS(Rs)
Adj.BVPS(Rs)
P/E(x)
P/Adj.BV(x)
ROE(%)
ROA(%)
CAR(%)
Shareholdingpattern
Financialsummary
Rs811
Rs562
44.2%
Revival in consumer financing growth to accelerate overall loan

growth
IndusIndBanksloangrowthissettoacceleratefromFY16drivenbygrowth
revival in its consumer financing segment (43% of loan book). This segment
has witnessed a significant moderation in growth (from 48% yoy to 8% yoy
over the past two years) impacted by severe growth slowdown in vehicle
financing (segmental contribution at 75%) and equipment financing
(segmental contribution at 11%) portfolios. With the underlying industry
volume growth in passenger cars and 2Ws improving and demand for CVs,
UVsand3Wsexpectedtostrengthenonthebackofeconomicrecovery,the
vehicle financing portfolio growth is set to accelerate from current abysmal
levelof24%yoy.Similarly,improvementinconstructionandminingactivity
should drive growth in the equipment financing portfolio. Growth in other
consumerfinancingproductssuchascreditcards,LAP,etcwouldcontinueto
remainhighgivenabenignbaseandlowpenetrationamongstbanksclients.
BUY
FY14
47,636
32.5
25,783
13,904
31.0
26.4
168.4
21.3
3.3
16.7
1.7
13.8
FY15E
58,910
23.7
31,594
17,891
28.7
34.0
196.2
16.5
2.9
18.3
1.9
13.0
FY16E
74,213
26.0
39,796
23,013
28.6
43.8
232.7
12.8
2.4
20.0
1.9
12.6
FY17E
94,109
26.8
50,743
29,893
29.9
56.8
279.5
9.9
2.0
21.7
2.0
12.1
Others
100
80
60
40
20
Institutions
Promoters
Research Analyst:
RajivMehta
IndusInd Bank
DuringFY1214,whenthegrowthinconsumerbookwasweakening,IndusInd
Bankpushedgrowththroughitscorporate&commercialBankingsegment(2
yearCAGRat35%).Growthinthissegmentwaswelldistributedbetweenlarge
corporate (segmental contribution at 50%), mid corporate (segmental
contribution at 31%) and small corporate (segmental contribution at 19%)
lending.Thebankmainlyhasexposuretoshorttermworkingcapitalloans.We
estimatebanksadvancestowitnessarobust25%CAGRoverFY1417andthe
shareofconsumerfinancingsegment(currentlyatamultiquarterlowof43%)
toincreaseto45%byFY16and47%byFY17.
Deposit franchise will continue to improve; NIM to expand gradually
Substantialbranchadditions(nearlytriplednetworkoverFY1014)andhigher
savings rate offered have been driving strong savings deposits mobilization.
Savingsdepositsgrowthhasremainedrobustoverthepastmanyquartersand
itscontributionintotaldepositshasincreasedfrom11%attheendofFY12to
16%atend FY14. TheCASAratiohasimprovedby600bps overtheaforesaid
period to reach 33%. Improving productivity of young branches (<24 months
old)andcontinuanceofsignificantnetworkinvestments(planstodoubleover
FY1417)shoulddrivepersistentimprovementinCASAratio.
ThoughcurrentlyNIMisnearhistorichigh,ithasscopetoexpandfurtherinthe
longertermaidedbyloanmixshifttowardsbetteryieldingconsumerfinancing
segment, sustained CASA gains, softening of wholesale funding rates and
structuralresistanceinlendingyield(duetofixedratenatureofCFbook).We
estimatebanksNIMtobestableinFY15andimproveby10bpsoverFY1517.
LoangrowthtopickupoverFY1517drivenby
revivalinconsumerfinancing
40.0
30.0
4.3
34.0
27.3
NIMtograduallyclimbup;loanmixshifttowards
retailsegmentbeingthemaindriver
(%)
35.0
Loanbooktowitnessarobust25%
CAGRoverFY1417
ConsumerFinancingsharetoincrease
to47%byFY17fromcurrent43%
Savingsratiohasincreasedfrom11%
attheendofFY12to16%atendFY14
Significantnetworkinvestmentsto
drivefurtherCASAimprovement
NIM to be stable in FY15 and improve

by10bpsoverFY1517
(%)
4.0
27.5
26.4
25.0
3.7
3.6
3.4
25.0
24.3
3.7
3.7
3.8
FY14
FY15E
FY16E
3.9
3.5
3.4
22.0
20.0
3.1
15.0
2.8
10.0
2.5
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY11
FY12
FY13
FY17E
Cost/income ratio to remain in control despite significant network

investments
IndusInds fee growth has been buoyant over the past few years (FY1114
CAGR at 37%) supported by a strong balance sheet growth, strengthening of
feesourcesandadditionofnewstreams.Bankexpectsfeeincometogrowwell
ahead of the balance sheet in coming years. Opex growth is likely to remain
elevated driven by continued substantial investments on network expansion.
However,loangrowthacceleration,NIMexpansionandrobustfeegrowthare
likelytokeepthecost/incomeratioundercheck.
Feegrowthhasbeenbuoyantoverthe
pastfewyears
Cost/incomeratiotoremainnear46%
IndusInd Bank
Asset quality has displayed strong resilience
Banks asset quality has behaved resiliently in the current credit cycle with
Gross NPLs remain in a tight range of 11.2% (despite moderation in credit
growth). Annualized delinquencies have been in a manageable band of 12%.
WhileportfolioqualityhasseensomedeteriorationinCV,equipmentand2W
financing, slippages in other consumer financing products and in corporate &
commercialbankingsegmenthaveremainedbenign.Givenbanksgranularand
shorttermexposuretowellratedcorporates,outstandingrestructuredassets
are negligible at 0.4% of loans, one of the lowest in the industry. With
delinquencies likely to moderate in the consumer financing segment, credit
cost is expected to moderate over FY1417 thus driving a handsome pre
provisioningoperatingprofitCAGRof25%.
Improvement in growth-profitability matrix to enrich valuation
Notwithstanding the challenging operating environment during FY1114,

IndusInd Bank delivered an improvement of 30bps in RoA. The banks RoA is
set to expand further by another 30bps and reach 2% by FY17 aided by NIM
expansion, marginal improvement in cost/income ratio and moderation in
credit cost. The improvement in inherent profitability would drive a higher
thanbalance sheet earnings CAGR of 29% over FY1417. With IndusInd Bank
offeringthebestgrowthprofitabilitytrajectoryintheindustry,webelieveits
valuation would rerate from current 2x to 3x FY17 P/ABV over the longer
term.WereiterateBUYwith24monthpricetargetofRs811.
Assetqualityhasbehavedresilientlyin
currentcreditcycle
Restructuredassetsarenegligibleat
0.4%ofloans
Creditcostisexpectedtomoderate
RoAissettoexpandandreach2%by
FY17
IndusIndBankoffersthebestgrowth
profitabilitytrajectoryintheindustry
Improvementinassetqualitytodrivemoderationin Profitabilitytoimprovefurther;RoA/RoEtoreach
CreditCost
historichighs
GrossNPLs(LHS)
120
1.2
100
1.9
21.0
1.1
80
1.6
18.0
1.0
60
1.3
15.0
0.9
40
1.0
12.0
20
0.7
(%)
(bps)
0.8
FY11
FY12
FY13
FY14
ROE(RHS)
2.2
1.3
ROA(LHS)
CreditCost(RHS)
FY15E
FY16E
FY17E
(%)
(%)
24.0
9.0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
IndusInd Bank
Financials
Keyratios
Incomestatement
Y/e31Mar(Rsmn)
Interestincome
Interestexpense
Netinterestincome
Noninterestincome
Totalopincome
Totalopexpenses
Opprofit(preprov)
Totalprovisions
Profitbeforetax
Taxes
Netprofit
FY14
82,531
(53,628)
28,904
18,732
47,636
(21,853)
25,783
(4,676)
FY15E
98,485
(63,917)
34,568
24,342
58,910
(27,316)
31,594
(4,771)
FY16E
117,989
(74,851)
43,138
31,075
74,213
(34,418)
39,796
(5,294)
FY17E
143,964
(88,824)
55,140
38,969
94,109
(43,366)
50,743
(5,926)
21,107
(7,203)
13,904
26,823
(8,932)
17,891
34,502
(11,489)
23,013
44,817
(14,924)
29,893
FY14
FY15E
Y/e31Mar
Growthmatrix(%)
Netinterestincome
Totalopincome
Opprofit(preprov)
Netprofit
Advances
Deposits
Totalassets
ProfitabilityRatios(%)
NIM
Nonintinc/Totalinc
ReturnonAvgEquity
ReturnonAvgAssets
Pershareratios(Rs)
EPS
Adj.BVPS
DPS
Valuationratios(x)
P/E
P/Adj.BVPS
Otherkeyratios(%)
Balancesheet
Y/e31Mar(Rsmn)
Totalcash&equiv
Investments
Advances
Totalintearnassets
Fixedassets
Otherassets
Totalassets
Networth
Deposits
Borrowings
Totalintbearliab
Nonintbearingliab
Totalliabilities
Equity+Totalliab
FY16E
FY17E
67,700
77,663
89,830
215,630
266,303
332,879
551,020
672,244
840,306
834,350 1,016,210 1,263,015
10,160
10,668
11,735
25,750
28,325
32,574
870,260 1,055,203 1,307,323
90,440
105,580
124,925
605,020
744,175
933,939
147,620
174,192
212,514
752,640
918,366 1,146,453
27,180
31,257
35,946
779,820
949,623 1,182,398
870,260 1,055,203 1,307,323
103,471
422,756
1,071,390
1,597,617
12,908
37,460
1,647,985
150,232
1,190,772
265,642
1,456,415
41,337
1,497,752
1,647,984
Credit/Deposits
Cost/Income
CASA
CAR
TierIcapital
GrossNPLs/Loans
Prov/Avgloans
NetNPLs/Netloans
Taxrate
Dividendyield
FY14 FY15E FY16E FY17E
29.4
19.6
24.8
27.8
32.5
23.7
26.0
26.8
40.2
22.5
26.0
27.5
31.0
28.7
28.6
29.9
24.3
22.0
25.0
27.5
11.8
23.0
25.5
27.5
18.7
21.3
23.9
26.1
3.7
3.7
3.8
3.9
39.3
41.3
41.9
41.4
16.7
18.3
20.0
21.7
1.7
1.9
1.9
2.0
26.4
34.0
43.8
56.8
168.4 196.2 232.7 279.5
3.5
4.5
6.0
7.5
21.3
3.3
16.5
2.9
91.1
45.9
32.5
13.8
12.7
1.1
0.5
0.3
34.1
0.6
12.8
2.4
90.3
46.4
34.5
13.0
11.5
1.2
0.7
0.4
33.3
0.8
9.9
2.0
90.0
46.4
36.0
12.6
11.0
1.1
0.6
0.3
33.3
1.1
90.0
46.1
37.5
12.1
10.4
1.1
0.5
0.3
33.3
1.4
ITC
Dominance to continue
ITCremainsoneofourhighconvictionbuysinthesectorgiventhestrong
resilienceinitscorecigarettebusiness.Thestockistradingat20xFY17EEPS
of Rs17.4, a steep discount to large caps like HUL and Nestle. The current
valuationsignorepositivessuchasITCsdominantpositioninthecigarettes
businessandtheconsistentstrongperformanceofitsotherFMCGbusiness.
WeremainconfidentofITCspricingpowertopassonanytaxordutyhike
to consumers and deliver midteen EBIT growth in cigarettes business.
Further, strong cigarette revenue growth with healthy EBIT margins,
increasing profitability in otherFMCG business and steady ~16% CAGR in
earningsaretriggerstomaintainbuyinginterest.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs486
Rs352
38.1%
Sector:
FMCG
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
387/285
Marketcap(Rscr):
281,168
6mAvgvol(000Nos):
7,022
Bloombergcode:
ITCIB
BSEcode:
500875
Strong resilience in cigarette business
NSEcode:
ITC
ITCs cigarette business continues to display resilience with stable earnings

growth and healthy margin expansion despite heavy tax burden and
regulatory restrictions. In its FY15 budget, Government increased duties on
the 64mm cigarette segment by 72%, reducing its attractiveness vs. 69mm
segment.Excisedutiesonothersegmentswereincreasedby1120%(11%in
longs,17%inregular,~20%inkings).TheweightedaverageimpactonITCis
expectedtobe~20%(annualised)increaseintax.Itissteeperthanexpected
but is significantly lower than the fears of doubling the excise duty. We
believe ITC will be able to manage it in terms of delivering EPS growth as
microfiltercigarettes(64mm)accountformere~10%ofITCstotalcigarette
volumes. However, this being the third consecutive year of ~20% increase,
cigarettevolumescoulddeclineby~4%yoyinFY15.Ontheotherhand,most
stateshavenotincreasedVATthisyear,whichwouldboostbottomline.
Financialsummary
FV(Re):
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
FY14
3,28,826
11.1
1,24,548
37.9
87,852
18.4
11.0
31.3
10.5
21.8
0.0
36.2
49.5
FY15E
3,81,053
15.9
1,46,608
38.5
1,04,248
18.7
13.1
26.4
9.1
18.5
0.0
36.9
50.8
FY16E
4,33,391
13.7
1,68,923
39.0
1,20,445
15.5
15.1
22.8
8.0
16.0
0.0
37.2
51.4
FY17E
4,89,755
13.0
1,93,072
39.4
1,38,021
14.6
17.4
19.9
7.0
14.0
0.0
37.3
51.8
Companyratinggrid
LowHigh
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
ITC
150
Sensex
100
50
Aug13
Dec13
Apr14
Aug14
Shareholdingpattern
Promoters
Institutions
Others
100
50
0
Research Analyst:
Vanmala Nagwekar
ITC
ITCtheundisputedmarketleader*
Trendincigaretterevenues&EBITmargins
45,000
Others
Contraband 10%
cigarettes
4%
Illegal
cigarettes
8%
(Rsmn)
Cigaretterevenues
EBITMargins
(%)
70
65
35,000
60
VST
Industries
8%
25,000
ITC
70%
55
50
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
15,000
Source:Company,IndiaInfolineResearch*Volumemarketshare
Mgts focus more on profitability over volumes in adverse years
ITCs mgt has always focused on delivering EBIT growth in the cigarette
business over volumes in years of adverse taxation changes. FY08 and FY09
saw steep increases in cigarette taxation and ITC reacted by implementing
price hikes well beyond what was needed; it succeeded in passing on the
impact and expanded margins, even as it took a marginal hit on cigarette
volumes. We expect the mgt to continue with this strategy in future as well
whichwillshowhighervisibilityofearningsgrowthforITCgoingahead.ITChas
alreadystartedtakingpricehikesacrossitsbrandstomitigatethesteepduty
impact(ClassicandGoldFlakeKingsfromRs85toRs95forpacksof10,Bristol
Filter from Rs45 to Rs47, Capstan Filter from Rs39 to Rs47, Gold Flake Filter
fromRs39toRs48andGoldFlakeExcelFilterfromRs39toRs45).
Excisedutyincreases(Rsper'000sticks)postbudget
Exciserates
Rs/1,000cigarettes
Micros
Plains
SmallFilter
FilterRegular
FilterLong
FilterKing
FilterExtralarge
Length
(mm)
<65
6570
<65
<70
7075
7585
>85
FY10
819
1,323
819
1,323
1,759
2,163
FY11
669
1,473
669
969
1,473
1,959
2,363
FY12
669
1,473
669
969
1,473
1,959
2,363
FY13
669
1,718
669
1,194
1,718
2,309
2,788
FY14
669
2,027
669
1,409
2,027
2,725
3,290
FY15
1,150
2,250
1,150
1,650
2,250
3,290
3,290
Enters E-cigarettes segment with Eon
ITChasrecentlyforayedintotheElectronicVapingDevice(EVD)i.e.Ecigarette
segment with the launch of Eon. An ecigarette is a batterypowered device
containing a nicotinebased liquid that is vaporised and inhaled, to simulate
theexperienceofsmokingtobacco.Currently,ITChaslaunchedecigarettesin
HyderabadandKolkataandplanstorolloutpanIndiainphases.Theywillalso
besoldonline.ThisEVDwhichhasnotar,smokeandash,isavailableintwo
variantsRichFlavourandMenthol.EachEongives250puffs,measuredunder
standardlaboratoryconditions,andispricedatRs300.TheEVD,manufactured
inChina,hasbeendesignedbytheproductdevelopmentteamofITC.
ITC has raised the prices of select

cigarette brands like Classic and Gold
Flake Kings to mitigate the steep duty
impact
InitsFY15budget,Government
increasedexcisedutyoncigarettesby
1172%acrossvariousslabs,withthe
sharpest72%hikein64mmsegment
Unlikeconventionaltobacco
cigarettes,ecigarettesreleasevapour
andnotsmoke
Thevapourdoesnotcontaintar,the
mainharmfulcomponentin
conventionaltobaccocigarettes
ITChasalsoforayedintothenicotine
replacementtherapy(NRT)market
with'Kwiknic'inOct13
ITC
Segmentwiserevenuemix(FY14)
Loweringdependenceoncigarettesbusiness
Paper&
Packaging
13%
100
Cigarettes
Paper&Packaging
(%)
AgriBusiness
Hotels
FMCG Others
80
Cigarettes
41%
AgriBusiness
21%
60
40
Hotels
3%
20
FMCG
Others
22%
0
FY10
FY11
FY12
FY13
FY14
FY15E FY16E FY17E
Business mix continues to evolve
WhilecigarettesremainthemainprofitcenterforITC,investmentsinthenon
cigarette businesses such as FMCG, hotels and paperboards have given the
company a strong foothold in the respective businesses. With improving
profitability in the foods segment (65%+ of FMCG business) driven by higher
marginsinbiscuitsandstaplessegment,theotherFMCGsegmentisemerging
stronger(~22%revenueCAGRoverFY1014).Personalcareproductsarealso
gaininggoodtractioninkeycategoriesandwithinashortspanoftime,ITChas
emergedasastrongcompetitorinthepersonalcaresegment.Overtheyears,
ITC has demonstrated its ability to absorb losses to build its FMCG business
(achievedbreakeveninFY14)drivenbyi)bettermarginsinbrandedpackaged
foodsbusinessledbyhigheroperatingleverageandeconomiesofscaleacross
categories and ii) consistent benefits of inhouse sourcing, packaging and
distribution.ITCisinvestingheavilyinbrandbuildingandplanstoenternew
categories (dairy, juices, tea, coffee, chocolates etc), which will further drive
growth.Themanagementtargetstogenerate~Rs1trnrevenuesfromitsnon
cigaretteFMCGbusinessby2030from~Rs80bninFY14.
Valuations attractive recommend Buy
ITC remains one of our high conviction buys in the sector given the strong
resilience in its core cigarette business. At current market price, the stock is
tradingat20xFY17EEPSofRs17.4,asteepdiscounttolargecapslikeHULand
Nestle.ThecurrentvaluationsignorepositivessuchasITCsdominantposition
inthecigarettesbusinessandtheconsistentstrongperformanceofitsother
FMCGbusiness.WeremainconfidentofITCspricingpoweranditsabilityto
passonanytaxordutyhiketoconsumersanddelivermidteenEBITgrowthin
cigarettesbusiness.Therecentdutyhikeimpactissteeperthanexpectedbut
we believe it is manageable in terms of delivering EPS growth. Given this
wouldbea thirdconsecutiveyearof~20%increase,cigarettevolumescould
declineby~4%yoyinFY15.Ontheotherhand,moststateshavenotincreased
VATthisyear,whichwouldboostthebottomline.WeexpectITCtowitnessa
revenue/PATCAGRof~14%/16%respectivelyoverFY1417.
AashirvaadandSunfeastbrandsare
worthRs20bneachwhileBingo!and
CandymanareoverRs5bneach
Thestationeryproductsbrand
Classmateisnowworth~Rs10bn
Targetstogenerate~Rs1trnrevenues
fromitsnoncigaretteFMCGbusiness
by2030from~Rs80bninFY14
ITCiscurrentlytradingatasteep
discounttolargecapslikeHULand
Nestle
ITC
Financials
Incomestatement
Y/e31Mar(Rsm)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Adj.profit
Exceptionalitems
Netprofit
Keyratios
FY14
3,28,826
1,24,548
(8,999)
(30)
11,071
1,26,591
(38,739)
87,852
87,852
FY15E
3,81,053
1,46,608
(9,684)
(50)
13,124
1,49,998
(45,749)
1,04,248
1,04,248
FY16E
4,33,391
1,68,923
(10,644)
(75)
15,099
1,73,302
(52,857)
1,20,445
1,20,445
FY17E
4,89,755
1,93,072
(11,604)
(75)
17,199
1,98,592
(60,570)
1,38,021
1,38,021
Y/e31Mar(Rsm)
Equitycapital
Reserves
Networth
Debt
Def.taxliab(net)
Totalliabilities
FY14
7,953
2,54,667
2,62,620
511
12,970
2,76,101
FY15E
7,953
2,93,779
3,01,732
511
12,970
3,15,213
FY16E
7,953
3,37,455
3,45,409
511
12,970
3,58,890
FY17E
7,953
3,87,077
3,95,030
511
12,970
4,08,511
Fixedassets
Investments
Networkingcap
Inventories
Sundrydebtors
Othercurr.assets
Sundrycreditors
Othercurr.Liab.
Cash
Totalassets
1,43,085 1,58,400 1,72,756

88,234
96,234 1,06,234
11,889
19,688
32,661
73,595
85,606
97,364
21,654
25,056
28,497
32,832
36,832
43,832
(19,876)
(23,490)
(26,716)
(96,317) (1,04,317) (1,10,317)
32,894
40,890
47,238
2,76,101 3,15,213 3,58,890
1,86,152
1,16,234
50,555
1,10,027
32,203
53,832
(30,190)
(1,15,317)
55,569
4,08,511
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios(x)
P/E
P/CEPS
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Balancesheet
Cashflowstatement
Y/e31Mar(Rsm)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Debtfin./disposal
Dividendspaid
Otheritems
Netincash
FY14
1,26,591
8,999
(38,739)
(10,033)
86,818
(25,113)
61,706
7,719
(17,631)
(153)
(55,829)
932
(3,256)
FY15E
1,49,998
9,684
(45,749)
(7,799)
1,06,133
(25,000)
81,133
(8,000)
(65,137)
7,997
FY16E
1,73,302
10,644
(52,857)
(12,973)
1,18,116
(25,000)
93,116
(10,000)
(76,768)
6,348
FY17E
1,98,592
11,604
(60,570)
(17,894)
1,31,731
(25,000)
1,06,731
(10,000)
(88,400)
8,331
FY14
11.1
17.2
17.6
18.4
37.9
38.5
26.7
49.5
36.2
24.0
11.0
6.0
12.2
33.0
31.3
28.4
10.5
21.8
63.5
30.6
24
82
22
FY15E
15.9
17.7
18.5
18.7
38.5
39.4
27.4
50.8
36.9
25.0
13.1
7.0
14.3
37.9
26.4
24.1
9.1
18.5
62.5
30.5
24
82
23
FY16E
13.7
15.2
15.5
15.5
39.0
40.0
27.8
51.4
37.2
25.7
15.1
8.3
16.5
43.4
22.8
21.0
8.0
16.0
63.7
30.5
24
82
23
FY17E
13.0
14.3
14.6
14.6
39.4
40.6
28.2
51.8
37.3
26.3
17.4
9.5
18.8
49.7
19.9
18.4
7.0
14.0
64.0
30.5
24
82
23
FY14
0.69
1.00
0.39
0.90
1.51
36.2
FY15E
0.70
1.00
0.39
0.91
1.48
36.9
FY16E
0.70
1.00
0.40
0.92
1.45
37.2
FY17E
0.70
1.00
0.41
0.93
1.42
37.3
DuPontAnalysis
Y/e31Mar(Rsm)
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)

Larsen
& Toubro Ltd
Infra behemoth to reap new India benefits

Larsen and Toubro Ltd (LT) is India's largest Engineering & Construction
(E&C) and is a proxy play to the domestic infrastructure theme. The
company is rightly placed given its strong business model, superior
executioncapabilityandexposuretodiversebusinesses.Withtheeconomy
likely bottoming and prospects for reinvestment in infrastructure
improving,webelieveL&Thasamultiyeargrowthopportunityahead.We
see earnings cycle bottoming out in FY15 and new orders improving from
FY16.Attheconsolidatedlevel,thecompanyhasgivenaFY15guidanceof
20%orderinflowgrowth,15%growthintoplineandmarginriskof50100
bps (consolidated entity ex of services business). We believe revenue
growthwouldbeloweraswedonotexpectexecutionratetopickupgiven
the slow revival in macroeconomic conditions. We see an expansion in
margins from endFY15 as the share of domestic orders increases and
execution rate picks up. Asset monetization steps taken by the company
wouldreduceneartermbalancesheetstress.Onaconsolidatedbasis,we
believelowerlossesinnewbusinesseslikeshipbuilding,heavyengineering
and higher contribution from real estate and IT business could see an
improvementincontributionfromsubsidiaries.Wevaluethecompanyona
SOTPbasisandarriveatafairvalueofRs2,120onatwoyeartimeframe.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs2,120
Rs1,506
40.7%
Sector:
Capital Goods
Sector view:
Neutral
Sensex:
26,443
52Weekh/l(Rs):
1,775/678
Marketcap(Rscr):
139,885
6mAvgvol(000Nos):
2,520
Bloombergcode:
LTIB
BSEcode:
500510
NSEcode:
LT
FV(Rs):
Companyratinggrid
LowHigh
1
EarningsGrowth
CashFlow
Strong guidance maintained
B/SStrength
Valuationappeal
Risk
InatoughenvironmentinFY14,LTsconsolidatedorderinflowincreased23%
yoytoRs1.3tnledbystrongorderinflowsintheinfrastructuresegment.This
was higher than the 1520% guidance given by the company. For FY15, the
company reiterated its guidance of 20% yoy order inflow growth at the
consolidatedlevel.Ithasalsoguidedforconsolidatedrevenuegrowthof15%
yoy with a margin risk of 50100bps for the year. We believe, the company
would manage to meet its order guidance, but would continue to
underperformontherevenuefront.Executionrisks,bothinthedomesticand
international market, persist and would lead to lower growth in topline.
However,withariseintheshareofdomesticordersandfasterclearancefor
stuckprojects,weexpectexecutiontopickuppacefromendFY15.
FY14
565,989
9.7
66,671
11.8
54,936
25.3
52.9
28.5
22.4
0.3
15.6
18.5
Sharepricetrend
LT
300
Sensex
250
200
150
100
50
Aug13
Feb14
Aug14
Financialsummary(Standalone)
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
FY15E
616,861
9.0
66,907
10.8
46,579
(15.2)
50.3
30.0
22.4
0.3
13.2
16.1
FY16E
736,657
19.4
80,761
11.0
57,089
22.6
61.6
24.5
18.4
0.3
14.6
17.7
FY17E
879,020
19.3
99,716
11.3
71,380
25.0
77.0
19.6
14.7
0.2
16.3
20.0
Shareholdingpattern
Others
100%
Institutions
Promoter
80%
60%
40%
20%
0%
Research Analyst:
TarangBhanushali
Larsen & Toubro Ltd
Order book at Rs1.95tn, implying BTB of 2.9x
LTsorderbookattheendofQ1FY15stoodatRs1.95tn,implyingaBooktoBill
of 2.9x. The strong growth in order book has been achieved even after the
company had cancelled slow moving orders worth Rs150bn in FY14 and
Rs170bnin FY13.Thejumpintheorderbook inthelastoneyearhaslargely
beenduetoanincreaseinshareofexportorders.Exportordersaccountedfor
26%ofthetotalorderbookattheendofQ1FY15and44%oftheorderinflows
duringthequarter.Themanagementhasguidedforanorderinflowgrowthof
20%yoyinFY15fortheconsolidatedentityonthebackofhugeopportunities
from the MiddleEast and on expectations of a revival in the domestic
infrastructure spending. The company is also expecting orders for the
hydrocarbonsegmenttojumpinFY15largelyduetohugecapexinKuwait.LT
islookingatoverallinflowof~US$25bninthecurrentyear,withinfrastructure
segment accounting for more than 50% of the orders. The company expects
~US$11bn orders from infrastructure, US$5bn from power, US$1bn from
metals&mining,US$3bnfromhydrocarbonandUS$5bnfromothersegments.
Exportordersaccountedfor26%ofthe
totalorderbookattheendofQ1FY15
and44%oftheorderinflowsduring
thequarter
Orderinflowandorderbooktrend
1,800
1,600
Orderinflow
Shareoforderinflowfrominternationalmarkets
hasgrownto33%inFY14
Orderbook
100%
(Rsbn)
Domestic
10
International
17
18
33
80%
1,400
1,200
60%
1,000
800
40%
90
83
82
600
67
400
20%
200
0%
FY10
FY11
FY12
FY13
FY14
FY11
FY12
FY13
FY14
Revenue growth to strengthen from FY16
LTsrevenuegrowthhasbeenbelowexpectationsoverthelastoneyeardueto
lackofregulatoryclearancesatthecustomersendinthedomesticmarket.We
believetheunderperformanceinrevenuegrowthwouldextendtillendFY15;
we do not expect the execution rate to pick up given the slow revival in
macroeconomicconditions.Executioncycleforthecompanyisexpectedtobe
longerthantheaverageasthecompanyinFY14haswoncertainmultiyearbig
ticket orders like Doha Metro (Rs45bn), Riyadh Metro (Rs82.5bn) and DFC
order(Rs67bn).However,postFY15,toplinegrowthissettopickup,primarily
driven by the infrastructure segment, railways, real estate and international
markets. The current Government is focused on reviving investments in the
countryandhasannouncedmanystepsforthesame.Webelievethebenefits
ofthesewouldbewitnessedinFY16.Themanagementexpectsminorreforms
to revive projects worth Rs800bn in the domestic market. We estimate LT to
report a ~19% CAGR in topline over FY1517. We expect the change in
geographical mix (higher export market share) to hurt L&Ts standalone
business operating margins in FY15. We see an expansion from FY16 with an
increaseinshareofdomesticorders.
ThecurrentGovernmentisfocusedon
revivinginvestmentsinthecountryand
hasannouncedmanystepsforthe
same.Webelievethebenefitsofthese
wouldbewitnessedinFY16
We see an expansion from FY16 with

anincreaseinshareofdomesticorders
andmomentuminexecutionpicksup
Larsen & Toubro Ltd
RevenuegrowthtogainmomentumfromFY16
1,000
900
Revenue
yoygrowth
(%)
(Rsbn)
OperatingmargintoexpandpostFY15withan
increaseinexecutionofdomesticorder
25
20
800
700
120
Operatingprofit
OPM
(Rsbn)
(%)
100
15
80
10
60
40
20
(5)
13
12
600
500
14
11
400
300
200
10
100
FY17E
FY16E
FY15E
Performance of other segments to improve
Except the infrastructure and housing segments, most segments have been
underperforming.TheHydrocarbon,shipbuildingdivisionandthedevelopment
projects business dented the companys profitability in FY14. Hydrocarbon
reported an operating margin of just 3% vs 11.6% yoy in FY14. The
underperformance increased further in Q1 FY15 when the company took
~Rs9bnofcostprovisiontoaccountforanyfuturelossesandduetoreversalof
past profits. The company believes that they have fully provided for the
variations and have incorporated this experience while bidding for future
projects.Theshipbuildingbusinesstooisexpectedtoimproveonthebackof
rising utilization levels. Bottomline growth would be aided by an increase in
contributionfromtherealestatebusiness.InFY14,revenuesgrewby3.3xto
Rs13bn and operating profit margin increased to 63% in FY14 from 56.4% in
FY13.Onaconsolidatedbasis,webelievelowerlossesinnewbusinesseslike
shipbuilding,heavyengineeringandhighercontributionfromrealestateand
ITbusinesscouldseeanimprovementincontributionfromsubsidiaries.
Asset monetisation to reduce balance sheet stress
Toreducethestressonthecompanysbalancesheet,LToverthelastoneyear
has taken many steps. LT has recently sold its stake in Dhamra port to Adani
Ports for an enterprise value of Rs55bn. The company booked a gain/loss
reversalofRs13.5bninQ1FY15duetotheabovesales.Itfurtherplanstoraise
~Rs40bninnext2yearstofundprojectsinIDPL.LTinkedanagreementwith
Canada Pension Plan Investment Board for an initial investment of Rs10bn,
whichwillbefollowedbyasecondtrancheofRs10bnwithin12monthsafter
the initial investment. The company reduced its stake in its financial services
subsidiary, L&T Finance Holdings Ltd in June 2014. It also intends to list IT
business subsidiaries by July 16, as part of value unlocking initiative. We
expectnetworkingcapitalcycletodeclinefromFY16duetoeasingofliquidity
inthedomesticmarket.
FY14
FY13
FY12
FY11
FY17E
FY16E
FY15E
FY14
FY13
FY12
FY11
Onaconsolidatedbasis,webelieve
lowerlossesinnewbusinesseslikeship
building,heavyengineeringandhigher
contributionfromrealestateandIT
businesscouldseeanimprovementin
contributionfromsubsidiaries
Thecompanybookedagain/loss
reversalofRs13.5bninQ1FY15dueto
thesaleofDhamraPort.Itfurther
planstoraise~Rs40bninnext2years
tofundprojectsinIDPL
Larsen & Toubro Ltd
Financials (Standalone)
Keyratios
Incomestatement
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Adj.Profit
Exceptionalitems
Netprofit
FY14
FY15E
FY16E
565,989 616,861 736,657
66,671 66,907 80,761
(7,924)
(9,905) (10,500)
(10,761) (11,622) (11,041)
18,809 19,313 20,069
66,794 64,693 79,290
(17,743) (18,114) (22,201)
49,051 46,579 57,089
5,885
0
0
54,936 46,579 57,089
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
FY17E
879,020
99,716
(11,235)
(10,489)
21,146
99,139
(27,759)
71,380
0
71,380
Balancesheet
Y/e31Mar(Rsmn)
Equitycapital
Reserves
Networth
Debt
Deferredtaxliab
(net)
Totalliabilities
Fixedassets
Investments
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Othercurrent
liabilities
Cash
Totalassets
FY14
1,854
334,765
336,618
114,589
FY15E
1,854
368,709
370,563
119,589
FY16E
1,854
410,528
412,381
109,589
FY17E
1,854
463,001
464,855
99,589
4,099
4,099
4,099
4,099
455,307 494,251 526,070
568,544
82,372
80,843
80,343
79,109
192,146 222,146 257,146
292,146
162,332 174,824 166,533
167,451
19,825
21,607
25,803
30,790
367,773 388,804 427,167
484,233
102,472 111,682 126,703
143,630
(303,608) (320,969) (383,303) (457,378)
(24,131)
18,456
455,307
(26,300)
16,438
494,251
(29,837)
22,048
526,070
(33,824)
29,838
568,544
FY16E
79,290
10,500
(22,201)
8,292
75,880
(10,000)
65,880
(35,000)
(10,000)
(15,270)
5,610
FY17E
99,139
11,235
(27,759)
(918)
81,696
(10,000)
71,696
(35,000)
(10,000)
(18,906)
7,790
Cashflowstatement
Y/e31Mar(Rsmn)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Dividendspaid
Otheritems
Netincash
FY14
66,794
7,924
(17,743)
(91,794)
(34,819)
(1,277)
(36,095)
3,471
15,540
26,247
(13,216)
7,562
3,510
FY15E
64,693
9,905
(18,114)
(12,493)
43,992
(8,376)
35,616
(30,000)
5,000
(12,635)
(2,019)
FY15E
9.0
0.4
(1.3)
(4.4)
11.8
13.7
8.7
18.5
15.6
6.5
10.8
12.4
7.6
16.1
13.2
5.7
52.9
14.3
61.5
363.2
19.6
16.9
3.0
14.7
26.7
28.0
230
13
190
7.2
0.3
1.4
24.5
20.7
3.4
18.4
27.1
28.0
237
13
196
77.0
20.4
89.1
501.5
61.6
16.5
72.9
444.9
30.0
24.7
3.8
22.4
26.9
26.6
11.3
12.5
8.1
20.0
16.3
7.1
11.0
12.3
7.7
17.7
14.6
6.4
50.3
13.6
60.9
399.8
28.5
24.5
4.1
22.4
FY17E
19.3
23.5
21.4
23.8
FY16E
19.4
20.7
18.3
20.9
26.5
28.0
212
13
190
201
13
190
6.6
0.3
1.5
8.2
0.2
1.1
10.5
0.2
0.7
FY15E
0.72
0.85
0.12
0.76
2.30
13.2
FY16E
0.72
0.88
0.12
0.83
2.27
14.6
FY17E
0.72
0.90
0.12
0.88
2.28
16.3
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)
FY14
9.7
21.8
16.9
18.6
FY14
0.73
0.86
0.14
0.75
2.40
15.6

Lupin
Best play on US generics
Lupin represents the best bet among large cap pharma to play the robust
growth in US generics expected over the next 23 years driven by new
launches in FY14 and large opportunity size linked to pending ANDA
approvals.Domesticformulationsbusinesswithgrowthinhighteenswould
easily outpace the industry supported by increasing share of chronic
therapies and rise in market share. Margin profile would undergo a
transformationfrom23.5%inFY13to>28%byFY17withsustainablerange
seen at 2830% according to the management. We forecast 19% EPS cagr
over FY1417 driven by 17% revenue cagr and ~160bps margin expansion
andrecommendBUYfor2yrtargetofRs1,750.
Rating:
Target(2years):
CMP:
Upside:
Sector:
BUY
Rs1,750
Rs1,288
36%
Pharmaceuticals
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
1,308/742
Marketcap(Rscr):
57,732
3mAvgvol(000Nos):
587
Bloombergcode:
LPCIN
BSEcode:
500257
US momentum to sustain on recent launches and large untapped

potential
NSEcode:
LUPIN
Lupin launched 19 new products in FY14, including generic versions of

Zymaxid (antibiotic, October 2013), Trizivir (antiviral) and Cymbalta (anti
depressant, December 2013) and in current fiscal, company plans to launch
another 20+ products. Although Cymbalta pricing has descended largely to
generic levels and Niaspan, launched in Q4 FY14, would see additional
competition, we believe latter would be large enough opportunity to boost
USgrowthinthecurrentyear.OtherproductslikeDoxycycline(antiinfective,
March 2014) and Yaz (under launch process in the oral contraceptive
portfolio) would also support growth. Lupins pending ANDAs imply an
addressable opportunity of over US$80bn of which 30 are firsttofile (FTF)
addressingamarketsizeof~US$14bn;italsohas15exclusiveFTFaddressing
amarketsizeofUS$1.5bn.
FV(Rs):
Companyratinggrid
LowHigh
1
EarningsGrowth
B/SStrength
Valuationappeal
Risk
Sharepricetrend
Lupin
90
Aug13
FY16E
155,967
17.3
43,203
27.7
26,207
19.9
FY17E
180,546
15.8
50,914
28.2
31,003
18.3
41.7
31.4
8.3
19.2
0.1
30.8
39.8
49.6
26.4
6.6
15.7
0.1
28.2
39.2
59.3
22.0
5.2
12.8
0.1
26.8
38.1
70.1
18.6
4.2
10.6
0.0
25.5
36.7
Sensex
130
FY15E
132,998
17.8
36,175
27.2
21,854
19.0
Overall we believe companys existing US portfolio remains robust and

growthwouldaccruefromeitherpriceincreasesoradditionalmarketshare
gains. The recent consolidation in US distribution channels would have a
mixed impact as in some cases the sheer scale of buying customers might
entailpriceconcessionswhileinothersLupincangainadditionalvolumes.
FY14
112,866
17.1
30,028
26.6
18,363
39.7
CashFlow
170
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
Financialsummary
Feb14
Aug14
Shareholdingpattern
Others
100
FIIs
Promoters
80
60
40
20
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
0
Research Analyst:
BhaveshGandhi
Lupin
Chronic therapies to drive domestic formulations growth
Indiaformulationbusinesshasrecordedarobust17%cagroverthelastfive
yearsandthecompanyisamongstthefastestgrowingplayersinhighgrowth
therapysegmentslikeCardiology(23%revenueshare),AntiDiabetics(15%),
AntiAsthma(10%),CentralNervousSystem(CNS),Gynecology,AntiInfective
and GastroIntestinal (8%). The company hasshifted from a dependence on
acutetherapiestothehighermarginchronictherapysegmentslikeCVS,CNS,
antiasthma etc which now account for 64% of domestic formulations
revenues.InQ1themomentumcontinuedwithrevenuegrowthof29%yoy
compared to 9% yoy growth for the industry. Company indicated that July
2014 NPPA decision on price control would have negligible impact (~Rs100
120mn).
WebelieveLupiniswellpositionedtogrowitsrelativelylowmarketshareof
2.8%(asofMarch2014)supportedbyaportfolioof21brandswithsalesin
excess of Rs300mn each. Company has launched 23 inlicensed products in
the past four years of which 9 were first to be introduced in the domestic
market. A robust field force of ~5,450 (~4,800 are sales reps) and 16 new
product launches in Q1 FY15 is expected to drive a strong 1617% growth
overnext23years.
Japan: large opportunity but steady revenues in near term

Japan is the 3rd most important market accounting for 10.4% of revenues
afterUSandIndia.Japangenericsofferavastopportunityfrombothhigher
genericspenetration(govttargetof60%vscurrent44%)andpatentexpiries.
Higherpenetrationwouldtranslatesintoanadditional3035%ofthepharma
volumes open to generics in the next 4 years while patent expiries of key
molecules to the tune of US$17bn by 2017 would also add to the growth
pool. Irom (niche injectable player acquired in FY12 and 25% of Japan
revenues)salesdeclined4%yoyinQ1(6%yoyforFY14)duetofallinout
licensingbusinessandcompanyindicatedinitsearningscallthatturnaround
wouldtakesomemoretime.Kyowa,itsothersubsidiary,grewbyJPY14%in
FY14withaportfolioof350products.AlthoughmarginsinJapanesebusiness
are below overall corporate level but company expect to sustain them. We
factorin~711%INRgrowthdrivenbyKyowaoverthenext23years.Besides
Japan, South Africa accounted for 2.6% of the formulation revenues in Q1
FY15 and Lupins subsidiary Pharma Dynamics remains the largest player in
cardiovascular segment. Overall generics market growth remained muted in
FY14(2%/6%byvolume/value)andweexpectsteadygrowthforLupinonthe
backof6newproductlaunchesinthepreviousfiscal.
Q1 results reaffirm our confidence on underlying business
Highermarketshareandincreased
contributionfromchronictherapy
portfoliotosupportrobustdomestic
growth,muchaheadofindustryrunrate
Japanoffersalargegenericopportunity
onthebackofhigherpenetrationand
keypatentexpiriesovernext34years
AstellargrowthinUS(+35%)andIndia(+29%)inQ1FY15wasaccompanied
bysignificantmarginexpansionto33.4%(+950bpsyoy).Marginpictureata Betterrevenuemixandoperating
leveragetailwindwouldsupportmargin
sustainable 2830% has changed dramatically from 23.5% in FY13. Although expansionoverFY1417
neartermmarginsmayvarydependingontheproductmix,forexratesand
extentofpreemptiveR&Dspending,overallweremainpositiveonsustained
improvement in margin over FY1417 and have factored in FY17 margin at
lowerendoftheguidedsustainablerange.Yieldimprovementandincreasing
throughput on same cost base would support margins in the mediumterm.
Lupin
Growth visibility + margin expansion = top large cap pharma pick
Lupin offers a robust play on US generics given the slew of launches in the
previous fiscal and opportunity size of the pending ANDA approvals. India
businesswouldalsoeasilyoutpacethedomesticgrowthasthemarketshare
improves and higher margin chronic therapy segment continues to gain
traction. As compared to other pharma peers, we remain much more
confident on Lupins growth visibility especially in the key US market. R&D
spendislikelytotrendintherangeof~910%ofsalesascompanyrampsup
its capabilities on respiratory, dermatology and complex injectables. On
inorganic growth, company has expressed its intention to build a robust
injectablespipelineinUStocomplementitsgenericportfolioandisonlook
out for acquisitions/partnerships which would provide capabilities in the
injectables space (similar to Nanomi acquisition in Feb 2014 which provides
platformforcomplexinjectables).
Lupinisourpreferredbetinlargecap
pharmaonthebackofrobustgrowth
visibilityandmarginexpansion
We project a 160bps rise in margins over FY1417 which would support

valuationsinthemediumterm.Forecast17%and19%revenueandPATcagr
respectivelyduringthesameperiodandrecommendBUYwitha2yearprice
targetofRs1,750.Keyriskstoourbullishstanceincludehighercompetitionin
USgenericsanddelayinlaunchofanticipatedproducts.
Gynaecology
Others
FY15E
10.0
5.0
FY17E
FY16E
FY12
FY13
0.0
US$revenuecagrprojectedat~21%overFY1417
US$ mn
1,200
1,000
800
600
400
200
0
FY17E
GastroIntestinal
FY14
15.0
FY16E
15
20.0
1,400
CNS
15
25.0
AntiTB
10
30.0
1,600
AntiBiotics+Caphalosporin
OralandInj
AntiDiabetic
8
35.0
FY15E
RoE
40.0
CVS
AntiAsthma
RoCE
FY14
FY13
23
45.0
FY12
Cardiovascularhasthelargestshareofdomestic
formulationsrevenues
13
Highercashbalancestorestrainreturnratiosbut
stillseenat2535%
FY17E
FY16E
FY15E
FY14
FY13
FY12
FY17marginsatlowerendofguidedsustainable
rangeof2830%
OPM
EBITmargin
30.0 %
25.0
20.0
15.0
10.0
5.0
0.0
Lupin
Financials
Incomestatement
Y/e31Mar(Rsm)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Minorityinterest
Netprofit
Keyratios
FY14
112,866
30,028
(2,610)
(267)
1,165
28,316
(9,622)
(331)
18,363
FY15E
132,998
36,175
(2,946)
(270)
1,223
34,183
(11,964)
(364)
21,854
FY16E
155,967
43,203
(3,282)
(270)
1,284
40,935
(14,327)
(401)
26,207
FY17E
180,546
50,914
(3,618)
(270)
1,348
48,375
(16,931)
(441)
31,003
Balancesheet
Y/e31Mar(Rsm)
Equitycapital
Reserves
Networth
Debt
Minorityinterest
Def.taxlia
Totalliabilities
FY14
897
68,419
69,316
5,992
669
2,487
78,464
FY15E
897
87,099
87,996
5,992
669
2,487
97,144
FY16E
897
109,338
110,235
5,992
669
2,487
119,383
FY17E
897
135,843
136,740
5,992
669
2,487
145,888
Goodwill
Fixedassets
Investments
Networkingcap
Inventories
Sundrydebtors
Cash
Othercurrassets
Sundrycreditors
Othercurrliab
Deftaxassets
Totalassets
6,579
30,019
21
41,138
21,295
24,641
7,975
10,824
(15,941)
(7,655)
708
78,464
6,579
33,073
21
56,764
25,506
29,150
15,817
13,300
(18,219)
(8,791)
708
97,144
6,579
35,791
21
76,284
29,912
34,185
28,265
15,597
(21,365)
(10,309)
708
119,383
6,579
38,173
21
100,407
34,625
39,572
44,821
18,055
(24,732)
(11,933)
708
145,888
FY15E
34,183
2,946
(11,964)
(7,784)
(364)
17,016
(6,000)
11,016
(3,174)
7,842
FY16E
40,935
3,282
(14,327)
(7,072)
(401)
22,417
(6,000)
16,417
(3,968)
12,449
FY17E
48,375
3,618
(16,931)
(7,567)
(441)
27,053
(6,000)
21,053
(4,497)
16,556
Cashflowstatement
Y/e31Mar(Rsm)
Profitbeforetax
Depreciation
Def.tax(net)
Taxpaid
Workingcapital
Otheropitems
OperatingCF
Capitalexp
Freecashflow
Equityraised
Minorityint
Debtfin/disp
Dividends
Netincash
FY14
28,316
2,610
146
(9,622)
(6,132)
(331)
14,987
(6,098)
8,889
2,096
75
(4,248)
(3,186)
3,626
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
FY14
FY15E
FY16E
FY17E
17.1
32.3
45.4
39.7
17.8
20.5
20.5
19.0
17.3
19.4
19.6
19.9
15.8
17.8
18.1
18.3
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
26.6
25.3
16.6
39.8
30.8
21.0
27.2
25.9
16.7
39.2
28.2
21.0
27.7
26.4
17.1
38.1
26.8
20.4
28.2
26.9
17.4
36.7
25.5
19.7
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
41.7
6.0
47.5
154.6
49.6
6.0
56.1
196.2
59.3
7.5
66.7
245.8
70.1
8.5
78.2
305.0
Valuationratios(x)
P/E
P/BV
MCap/Sales
EV/EBIDTA
31.4
8.3
5.1
19.2
26.4
6.6
4.3
15.7
22.0
5.2
3.7
12.8
18.6
4.2
3.2
10.6
34.0
14.6
35.0
14.5
35.0
15.1
35.0
14.5
80
69
52
80
70
50
80
70
50
80
70
50
107.3
(0.0)
(0.1)
127.8
(0.1)
(0.3)
152.8
(0.2)
(0.5)
180.4
(0.3)
(0.8)
Y/e31Mar(Rsm)
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
FY14
0.66
0.99
0.25
1.27
1.47
FY15E
0.65
0.99
0.26
1.26
1.35
FY16E
0.65
0.99
0.26
1.20
1.31
FY17E
0.65
0.99
0.27
1.13
1.29
RoE(%)
30.8
28.2
26.8
25.5
Payout(%)
Taxpayout
Dividendpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
DuPontAnalysis
Maruti Suzuki
Accelerating times
MSIL is one of the best proxyplay on the expected economic recovery in

the country. Macro headwinds in the past couple of years had weakened
demandforpassengercars.However,duringthisphaseMSILhasemerged
strongerwith1)marketsharegains,2)lineupofnewlaunches,3)increased
localization and 4) deeper presence in domestic markets. While economic
recoveryandexistinglatentdemandwillresultinrobustvolumegrowthfor
MSIL,itsprofitabilitywillimprovefurtherwith1)increaseinlocalization,2)
reduction in discounts and 3) weakening of Yen. We expect MSIL to see
revenue and PAT CAGR of 17% and 27% respectively during FY1417E. At
P/Eof14.5xonFY17EEPSofRs191.5wefindthevaluationsattractive.
Passenger car demand to revive
Passenger car demand in India has been weak during FY1214 due to high
costofownershipowingtorisingfuelprices,firminterestratesandincrease
in vehicle prices. In the meanwhile wage increases were stunted leading to
poorconsumersentiment.Webelievethereisalotoflatentdemandinthe
systemandwitheconomicgrowthonthemendincreaseinwagerateswould
exceed rise in cost of ownership. Car penetration in India is still lower than
other emerging markets and the developed world. For FY15, SIAM expects
thepassengercardemandtoriseby58%,whichwebelieveisaconservative
estimate.Weexpect810%growthinFY15andstrengtheningfurtherto15%
CAGR during FY1617. A point worth noting here is that during previous
strongeconomicgrowthphasepassengercardemandgrewby2025%.
Rating:
Target(2years):
CMP:
Upside:
InFY14,MSILsmarketshareinthedomesticpassengercarmarketincreased
to 49.8% from 46% in FY13 while its share in the total passenger vehicle
marketincreasedfrom39.4%to42.1%.YTDFY15,MSILsmarketinsharein
passengercarandpassengervehiclemarketshaveincreasedby351bpsand
394bps respectively. In FY14, gains were across all segments most
noteworthybeingxxbpsgaininthesupercompactcarsegmentinspiteofthe
launchofAmaze.Italsostrengtheneditspositioninthecompactcarsegment
throughasuccessfullaunchofCelerio.Thegainshavebeenonthebackofa
strongergrowthinruralareaswhichaccountfor~40%ofMSILsvolumes.
Sector:
Automobiles
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
2,825/1,215
Marketcap(Rscr):
83,749
6mAvgvol(000Nos):
436
Bloombergcode:
MSILIS
BSEcode:
532500
NSEcode:
MARUTI
FV(Rs):
Companyratinggrid
LowHigh
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
FY15E
485,003
11.0
12.5
33,431
20.1
110.7
25.0
3.5
13.5
14.9
18.5
FY16E
584,741
20.6
12.9
44,600
33.4
147.6
18.8
3.0
10.3
17.2
21.5
FY17E
704,391
20.5
13.2
57,853
29.7
191.5
14.5
2.5
7.7
18.9
23.9
Maruti
270
Sensex
220
170
120
70
Aug13
Dec13
Apr14
Jul14
Shareholdingpattern
Financialsummary
FY14
437,006
0.3
11.7
27,831
16.3
92.1
30.1
4.0
16.6
14.1
17.6
Rs3,800
Rs2,772
37.1%
Market share gains in a weak market
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
RoE(%)
RoCE(%)
BUY
Others
100 %
80
60
40
20
Institutions
Promoters
Research Analyst:
Prayesh Jain
Maruti Suzuki
New model launches will allow further market share gains
To strengthen its leadership position MSIL has lined up new launches in the
next 15 months. These models were showcased at the Auto Expo 2014 and
show a lot of promise viz Sedan Ciaz, MUV, LCV. Also the company is
expected to introduce new diesel engines and introduce its automatic gear
technologyfromCelerioinothermodels.Refreshesofexistingmodelsarealso
lined up. While MSIL has host of new launches, we believe competition is
laggingbehindinthisrespectenablingMSILtogainfurthermarketshare.
MSILexpectedtolaunch3new
productsandmanyrefreshmentsof
existingproductsinthenext12months
Deepestpresenceinthedomestic
market,whichwebelieveisdifficultfor
competitiontoreplicate
Wide service network difficult to replicate for competition
Over the years, MSILs competitors in the domestic market have expanded
theirdealershipandservicenetworkbutstillremainfarbehindMSIL.Thishas
enabledMSILtobethetopofthemindrecallbrandforpassengercars.With
dealers earning good chunk of revenues from servicing, dealers ensure good
qualityservicing.ThishasenabledMSILtotopJDPowerCustomerSatisfaction
survey consistently for many years. This is also supported by lowest
maintenancecostforMSILCars.Webelievecompetitionwillfinditdifficultto
matchMSILsmarketreachandbrandpositioning.
Indiacarpenetrationstillverylow
RisingproportionofruralsalesforMSIL
700
476
500
25%
385
400
270
300
15%
147
10%
93
Italy
Germany
Japan
US
SKorea
Russia
Mexico
Brazil
5%
Thailand
China
39
17
India
20%
294
196
200
100
30%
526
500
UK
600
35%
588
Passcars/1000 population
SalesOutlets
FY09
FY10
FY11
FY12
FY13
FY14
DeepeningpresenceofMSILindomesticmarkets
1,430
0%
Cities
Increasingmarketshare
55
Nos
1,230
Passengervehicle
Passengercars
50
1,030
830
45
630
40
430
35
230
30
30
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY08
FY09
FY10
FY11
FY12
FY13
FY14
YTD
FY15
Maruti Suzuki
Margin expansion on the cards
Amidst the weak macro environment for the sector, MSIL has been able to
improveitsmarketingmarginsindicating1)increasinglocalizedcontentand2)
benefitsofcostcuttinginitiativestakenbythecompany.Webelieve,margins
wouldcontinuetoheadnorthashighervolumeswilltranslateintobenefitsof
operatingleverage.Furthermore,thereisfurtherscopeofincreasinglocalized
content which will not only lower costs but also improve supply chain
management. Weakening of Yen against the Greenback would provide
additional upsides to margins. Current high margins are in spite of historical
high discounting levels. As demand scenario improves we believe discounts
wouldnormalizeleadingtohighermargins.
OPMtoimprovefromhereon
%
12.0
10.0
8.0
6.0
4.0
2.0
FY17E
FY16E
FY15E
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
0.0
Upsides to earnings and valuations exist
Duringthepreviouseconomicupcyclepassengercardemandsurgewasinthe
rangeof2025%.Currently,weareforecastingtheindustrytogrowby810%
in FY15 and 1518% growth in FY16 and FY17. We believe if the macro
economic factors turn around faster than expectations, upsides exist to our
estimates. For MSIL we expect revenue CAGR of 17.2% and a PAT CAGR of
27.6%duringFY1417E.Withsuchstrongearningsgrowth,robustcashflows,
strong balance sheet and healthy return ratios, valuations do not look
expensiveatP/Eof14.5xFY17EEPS.
Returnratiosbackonrisingtrend
RoE(%)
Givenprevious2025%growthin
passengercardemandinpreviousup
cycleourestimatesareconservative
Strongcashflowgeneration
RoCE(%)
Operatingcashflow
100,000
Rs mn
80,000
70.0
%
Capitalexpenditure
Freecashflow
60,000
50.0
40,000
40.0
20,000
30.0
FY17E
FY16E
FY15E
FY14
FY13
FY12
FY11
FY09
FY06
FY17E
FY16E
FY15E
FY14
FY13
FY12
FY11
FY10
FY09
(60,000)
FY08
0.0
FY07
(40,000)
FY06
(20,000)
10.0
FY08
20.0
FY07
60.0
Increaseinlocalization,costcutting
initiatives,weakeryenandlower
discountswouldaidmarginexpansion
FY10
14.0
Maruti Suzuki
Financials
Incomestatement
Y/e31Mar(Rsm)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Adj.profit
Keyratios
FY14
FY15E
FY16E
FY17E
437,006
50,959
(20,844)
(1,759)
8,229
36,586
(8,755)
27,831
485,003
60,625
(24,253)
(1,385)
9,000
43,988
(10,557)
33,431
584,741
75,432
(25,663)
(1,085)
10,000
58,684
(14,084)
44,600
704,391
92,980
(27,073)
(785)
11,000
76,122
(18,269)
57,853
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/BV
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
Balancesheet
Y/e31Mar(Rsm)
Equitycapital
Reserves
Networth
Debt
Totalliabilities
Fixedassets
Investments
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Cash
Totalassets
FY14
1,510
208,270
209,781
16,851
5,866
232,498
134,118
101,179
(9,097)
17,060
14,137
32,567
(48,975)
(23,885)
6,297
232,498
FY15E
1,510
237,489
238,999
13,851
6,116
258,966
127,895
111,179
(12,432)
18,933
15,689
32,140
(54,354)
(24,840)
32,324
258,966
FY16E
1,510
277,876
279,387
10,851
6,366
296,604
117,233
121,179
(15,966)
22,827
18,916
33,657
(65,532)
(25,834)
74,159
296,604
FY17E
1,510
331,517
333,027
7,851
6,616
347,494
105,160
131,179
(20,275)
27,497
22,786
35,250
(78,941)
(26,867)
131,430
347,494
FY14
FY15E
FY16E
FY17E
36,586
20,844
(8,755)
16,919
65,594
(37,548)
28,045
373
(30,396)
2,959
(4,212)
1,779
(1,452)
43,988
24,253
(10,557)
3,335
61,018
(18,030)
42,989
(10,000)
(3,000)
(4,212)
250
26,026
58,684
25,663
(14,084)
3,534
73,797
(15,000)
58,797
(10,000)
(3,000)
(4,212)
250
41,835
76,122
27,073
(18,269)
4,308
89,234
(15,000)
74,234
(10,000)
(3,000)
(4,212)
250
57,271
Cashflowstatement
Y/e31Mar(Rsm)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Dividendspaid
Otheritems
Netincash
FY14
FY15E
FY16E
FY17E
0.3
20.5
20.5
16.3
11.0
19.0
18.3
20.1
20.6
24.4
31.7
33.4
20.5
23.3
28.7
29.7
11.7
8.8
6.4
17.6
14.1
9.7
12.5
9.4
6.9
18.5
14.9
10.4
92.1
12.0
161.1
694.5
15.1
23.9
12.6
24.0
12
14
41
9.4
24.0
12
14
41
21.8
0.1
0.2
18.8
11.9
3.0
10.3
147.6
12.0
232.6
924.9
25.0
14.5
3.5
13.5
12
14
41
32.8
(0.1)
(0.3)
13.2
10.9
8.2
23.9
18.9
13.8
12.9
10.2
7.6
21.5
17.2
12.3
110.7
12.0
191.0
791.2
30.1
17.2
4.0
16.6
55.1
(0.2)
(0.8)
191.5
12.0
281.1
1,102.4
14.5
9.9
2.5
7.7
7.3
24.0
12
14
41
98.0
(0.4)
(1.3)
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)
FY14
FY15E
FY16E
FY17E
0.76
0.95
0.09
1.53
1.45
14.1
0.76
0.97
0.09
1.51
1.43
14.9
0.76
0.98
0.10
1.61
1.40
17.2
0.76
0.99
0.11
1.67
1.37
18.9
Motherson Sumi
Best in Class
Motherson Sumi is now a leading global auto component player with

presenceacross25countries.Inthedomesticmarket,whenautosaleswere
declining in the past two years, Motherson weathered the storm through
increasing content per car. Its acquisitions SMR and SMP have reported
outstanding recovery from the strained levels seen when they were
acquired. Going ahead, domestic business will see strong traction as
demand recovery is seen from H2 FY15. Recovery in US and stability in
Europe are expected to benefit SMR and SMP substantially which are
alreadysittingonnewordersworth4bn.Withtrackrecordofmeetingits
fiveyeartargets,wewillbekeenlywatchingFY20targetsitwillsetforitself
attheendofFY15.ForFY1417E,weexpectMothersontoreportearnings
CAGRof41%.
Well placed to play the domestic automobile sector recovery theme
Duringthepastcoupleofyears,automobilemarketinIndiasawtoughtimes
with volumes declining across segments. With diesel price hikes behind us,
interest rate not expected to increase from here on, hopes of recovery in
industrial activity and a positive consumer sentiment, we expect auto
volumestorecoverfromH2FY15andgainfurtherstrengthinFY16andFY17.
DuringthelullphaseofautoOEMsinIndia,Mothersonwasabletoprotectits
revenue base and profitability as it increased its market share by enrolling
newcustomersandincreasingcontentpercarbyaddingnewproductstoits
profile. Going ahead too, we expect Motherson with its strong OEM
relationshipswillpostahigherthanindustryaveragetoplinegrowth.
Inorganic route has been a critical part of MSSL growth strategy
Oneofthekeydriversforthe47.8%10yearCAGRinconsolidatedrevenues
has been the sound acquisition strategy of the company. Mothersons
strategy is to acquire assets with high growth potential with their existing
customercontractsandrelationships.Further,itimprovesandstabilizestheir
businessthroughenhancedqualityanddeliveryparametersandengineering
support,coupledwithitsmanagementknowhowandexperience.
Rating:
Target(2years):
CMP:
Upside:
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE
RoCE
Rs500
Rs357
40%
Sector:
Auto Ancillary
Sector view:
Positive
Sensex:
26,443
52Weekh/l(Rs):
391/124
Marketcap(Rscr):
31,490
6mAvgvol(000Nos):
1,475
Bloombergcode:
MSSIS
BSEcode:
517334
NSEcode:
MOTHERSUMI
FV(Re):
Companyratinggrid
LowHigh
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
MothersonSumi
370
Sensex
270
170
70
Aug13
Financialsummary
BUY
Dec13
Apr14
Jul14
FY14
307,210
21.4
28,781
9.4
7,650
72.1
10.8
33.0
10.6
12.3
1.3
36.3
28.5
FY15E
346,848
12.9
35,887
10.3
12,552
64.1
14.2
25.1
8.5
9.7
1.1
37.6
32.5
FY16E
395,885
14.1
44,483
11.2
16,982
35.3
19.3
18.5
6.7
7.6
0.7
40.2
37.2
FY17E
457,820
15.6
54,992
12.0
21,780
28.3
24.7
14.5
5.2
5.8
0.5
40.4
41.9
Shareholdingpattern
Others
100 %
80
60
40
20
Institutions
Promoters
Research Analyst:
Prayesh Jain
Motherson Sumi
Large business opportunities and margin expansion scope for SMP
SMPcontributes~50%ofrevenuesforMSSLattheconsolidatedlevel.Owing
tostarklylowermarginsofSMP(5.5%inFY14),ascomparedtoSMR(9.7%in
FY14) and standalone business (19.1% in FY14), the EBIT contribution from
SMPislargelydepressed.Anyincrementalimprovementinmarginswillcome
againstalargerevenuebase,andtherebywilladdsignificantlyatconsolidated
EBIT level. Progress is seen and also the company is implementing measures
such as 1) plant level cost cutting, 2) diversification of customer base, 3)
building capacities in emerging market and 4) insourcing from Motherson
standaloneoperations.Sinceacquisitionasteadyuptickhasbeenseenonthis
front and OPM has risen from 3.7% Q2 FY13 to 6% in Q1 FY15. Revenue
growth will come from repeat orders from existing clients, new orders from
existingclientsandadditionofnewcustomers.
RevenuegrowthforSMPwillcome
fromrepeatordersfromexisting
clients,newordersfromexistingclients
andadditionofnewcustomers
Marginswillcontinuetoimprovedue
toseveralmeasuresadoptedbythe
company
NewplantstodriverevenuesforSMR
andvalueadditionwillbetocoreto
furthermarginexpansion
SMR to sustain on growth trajectory
SMR,sinceitsacquisitioninFY09hasseenstrongrevenuetractioninspiteof
theglobalfinancialcrisisimpactingautosalesinEuropeseverely.Marginshave
surgedfrom4.9%inFY12to9.7%inFY14.OneofthekeystrengthsofSMRs
sustained growth momentum is its innovation capabilities. As a technology
leader, SMR has been able provide its customers with significant advantages
by offering differentiated and valueadded products. This has ensured SMRs
competitiveadvantageleadingtostrongpricingpower.AsglobalOEMsaccept
newertechnologytooffertheircustomersbettervalue,demandforhighend
mirrorswillcontinuetorisegivingrobustbusinessopportunitiesforSMR.With
newcapacitieshavingcommencedoperationsintherecentpast,SMRiswell
placedtoseefurthermarginexpansionthroughbenefitsofoperatingleverage.
OPM
Revenue
10,000
4%
5,000
2%
Q1FY15
Q3FY14
Q1FY14
Q3FY13
Q1FY13
Q3FY12
Q1FY12
Q3FY11
Q1FY11
Q3FY10
Q1FY10
0%
4%
3%
2%
1%
0%
Q1FY15
6%
Q4FY14
15,000
5%
Q3FY14
8%
Q1FY14
20,000
6%
Q4FY13
10%
7%
Q3FY12
25,000
OPM
Rsmn
Q3FY13
Rsmn
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Q2FY13
12%
Q1FY13
30,000
Q4FY12
Revenue
SMPrecoveredfromlows
Q2FY14
SteadyimprovementinSMRperformance
Stoneridges wiring harness business provides synergy benefits
Mothersons latest acquisition is that of Stoneridges wiring harnessbusiness

forasumofUS$65.7mn.InCY13,thecompanyhadaturnoverofUS$300mn
and made a loss at PBT level. As in previous acquisitions Motherson was
requested by its customers to take over the business. With Mothersons
capability of turning around acquisitions and expertise in wiring harness
businessweseestrongtractioninrevenuesandprofitabilityforthisdivision.
AlsoitwillprovidelargeopportunitieswithinUSmarketsforitsotherdivisions.
AcquisitionofStoneridgesswiring
harnessdivisionwillgiveMotherson
accesstocustomersinUSforitsother
divisions
Motherson Sumi
Exemplary track record of meeting financial targets
Motherson Sumi (MSSL) sets for itself five year targets for revenue growth,
RoCE,exportsanddividendpayout.Thetargetssetintheyear2000werefully
metby2005andmostofthetargetssetintheyear2005werecloselymetby
2010.For2015,MSSLhassetatargetofachievingUS$5bnrevenues,70%of
whichwillbefromexports,aRoCEof40%anddividendpayoutof40%.With
largeacquisitionsofVisiocorpandPeguforminplace,weexpecttherevenue
and export sales target to be on track. However, RoCE and dividend payout
targetscouldbemissedowingtohighdebtusedtofundPeguformacquisition.
AttheendofFY15,thecompanywillbeannouncingitstargetsforFY20,which
we expect to be aggressive and assign high probability to the company
achievingitduringthatperiod.
AttheendofFY15,thecompanywill
beannouncingitstargetsforFY20,
whichweexpecttobeaggressiveand
assignhighprobabilitytothecompany
achievingitduringthatperiod
Managementfocusoncapitalefficiency:Fiveyeartargets
Year
Revenue
ROCE
Exports
Divpayout
Target Achieved
Target Achieved
2005
2010
Rs10bn Rs10.3bn USD1bn USD1.5bn
40%
39%
40%
22%*
30%
29%
60%
70%
40%
43%
40%
32%
Target
USD5bn
40%
70%
40%
Current(FY14)
2015
USD5.1bn~
26%
84%
34%
*Visiocorpacquisitionin2009,~includesonlyonequarterrevenuesofSMP
Financials to gain further strength
Benefitsofinsourcing,strongpricingpowerindomesticmarkets,recoveryin
passengercardemandandfavorablechangeinproductmixtowardspremium
cars will ensure that MSSLs standalone revenues will witness 18% revenue
CAGR over FY1417E. SMR revenues will be driven by robust volume growth
backedbynewcapacities.SMPrevenuegrowthisexpectedtoinchupinFY15E
as new plants commence operations in new markets. Operating margins will
expandacrossallentitiestranslatingintoearningsCAGRof41%overthenext
three years. Balance sheet strength will only improve as cash flows see
sustained rise. RoCE should head towards companys target of 40% and
surpass it in the next few years. Given the strength in financials we believe
premiumvaluationsarejustified.
StrengthinRoEandRoCE
RoE
45
40
StrongearningsCAGRof41%
estimatedforFY1417E.RoCEtomove
beyondthetargeted40%mark
AlmostnetdebtfreebyFY17E
RoCE
Netdebt/equity
5.0
4.5
Netdebt/op.profit
4.0
35
3.5
30
3.0
25
2.5
20
2.0
15
1.5
10
1.0
0.5
0.0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY12
FY13
FY14
FY15E
FY16E
FY17E
Motherson Sumi
Financials
Incomestatement
Y/e31Mar(Rsm)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Minoritiesandother
Adj.profit
Exceptionalitems
Netprofit
Keyratios
FY14
307,210
28,781
(8,172)
(2,944)
176
17,842
(4,995)
(3,317)
9,530
(1,880)
7,650
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/BV
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
FY15E
FY16E
FY17E
346,848 395,885 457,820
35,887 44,483
54,992
(8,803) (9,453) (10,103)
(3,196) (2,376) (1,956)
200
225
250
24,089 32,880
43,183
(7,227) (9,864) (12,955)
(4,310) (6,034) (8,448)
12,552 16,982
21,780
0
0
0
12,552 16,982
21,780
Balancesheet
Y/e31Mar(Rsm)
Equitycapital
Reserves
Networth
Minorityinterest
Debt
Totalliabilities
Fixedassets
Investments
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Cash
Totalassets
FY14
FY15E
FY16E
882
882
882
28,711 36,242 46,431
29,592 37,123 47,312
7,896 12,206 18,241
39,946 39,946 33,946
496
496
496
77,931 89,772 99,995
73,832 81,879 87,967

749
749
749
2,450
1,216
(148)
32,822 37,057 42,296
32,384 36,562 41,731
11,763 14,115 16,939
(40,917) (46,196) (52,727)
(33,602) (40,322) (48,387)
899
5,927 11,427
77,931 89,772 99,995
FY17E
882
59,499
60,381
26,688
27,946
496
115,511
90,818
749
(1,541)
48,913
48,260
20,326
(60,976)
(58,064)
25,485
115,511
Cashflowstatement
Y/e31Mar(Rsm)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Dividendspaid
Otheritems
Netincash
FY14
17,842
8,172
(4,995)
10,290
31,309
(25,375)
5,934
2,113
(32)
(8,610)
(3,060)
(1,389)
(5,044)
FY15E
24,089
8,803
(7,227)
1,234
26,898
(16,850)
10,049
(1,196)
(3,825)
5,028
FY16E
32,880
9,453
(9,864)
1,364
33,833
(15,540)
18,293
(1,319)
(6,000)
(5,473)
5,500
FY17E
43,183
10,103
(12,955)
1,393
41,724
(12,954)
28,770
(1,658)
(6,000)
(7,054)
14,058
FY14
FY15E
FY16E
FY17E
21.4
94.9
91.8
72.1
12.9
24.7
31.3
64.1
14.1
24.0
29.2
35.3
15.6
23.6
28.0
28.3
9.4
6.8
3.1
28.5
36.3
6.8
10.3
7.9
3.6
32.5
37.6
7.6
10.8
3.0
20.1
33.6
18.5
11.9
6.7
7.6
30.5
30.0
38
39
49
14.5
9.9
5.2
5.8
32.2
30.0
38
39
49
24.7
8.5
36.2
68.5
19.3
6.6
30.0
53.6
25.1
14.7
8.5
9.7
32.1
28.0
12.0
9.9
4.8
41.9
40.4
10.0
11.2
8.9
4.3
37.2
40.2
9.0
14.2
4.9
24.2
42.1
33.0
17.8
10.6
12.3
32.4
30.0
38
39
49
38
39
49
7.1
1.3
1.4
8.5
0.9
0.9
14.8
0.5
0.5
23.1
0.0
0.0
FY14
0.53
0.86
0.07
2.20
5.33
36.3
FY15E
0.52
0.88
0.08
2.11
4.93
37.6
FY16E
0.52
0.93
0.09
2.10
4.47
40.2
FY17E
0.50
0.96
0.10
2.10
4.05
40.4
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)

Power
Grid Corp. of India Ltd
Stable and strong compared to IPP players

PowerGridCorporationofIndiaLtd(PWG),aNavratnacompany,isIndias
largest power transmission utility transmitting ~50% of power generated.
The company is in a regulated business which guarantees reasonable
profitability along with steady returns. PWG provides investors an
opportunity to participate in the nations power sector reforms as the
company is the indirect beneficiary and offers relatively defensive and
stablegrowthcomparedtoIPPs.Thecompanyhasreportedstronggrowth
in capitalization in FY15 YTD at Rs85bn, more than 50% of the projects
commissioned in FY14. We expect the momentum to remain strong over
thenexttwoyearsandestimateFY15capitalizingatRs202bn,26.8%higher
on a yoy basis. The company has diversified into broadband and telecom
services and is also into consultancy for T&D projects. A jump in
capitalizationandincreaseinrevenuesfromdiversifiedbusinesswouldlead
toearningsCAGRof15.7%overtheperiodFY1417.Withaslewofreforms
beingimplementedforthestateSEBS,anyrestructuringofSEBswouldlead
toareratingforthecompany.Wevaluethecompanyat2xFY17P/Band
recommendaBUYratingwitha2yearpricetargetofRs187.
Rating:
Target(2years):
CMP:
Upside:
Power Grid achieved capitalization of Rs159bn in FY14, lower than the

management guidance due to a weeks delay in capitalization of project
worth Rs18.5bn. On account of this, capitalization as a % of capex in FY14
declinedto71%belowourestimateof78%andanaverageof72%overthe
periodFY1114.InFY15,webelievethisratiowouldincreasesharplydueto
(a) commissioning of projects worth Rs18.5bn, which was fully executed in
FY14(b)shareofinstalledCWIPoftotalCWIPat60%(c)Strongexecutiontill
July provides comfort. Power Grid capitalized assets worth Rs18.5bn in the
first week of April 14 which was completed in March 14. Due to a
combinationoftheabovepoints,wehaverevisedupwardsourcapitalization
asa%ofcapexto90%inFY15(previousestimate80%)andquitehigherthan
71% achieved in FY14. We estimate FY15 capitalizing at Rs202bn, 26.8%
higheronayoybasis.
Sector:
Utilities
Sector view:
Neutral
Sensex:
26,443
52Weekh/l(Rs):
147/92
Marketcap(Rscr):
68,533
6mAvgvol(000Nos):
Bloombergcode:
7,650
PWGRIN
BSEcode:
532898
NSEcode:
POWERGRID
FV(Rs):
10
Companyratinggrid
LowHigh
1
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
PowerGrid
170
150
130
110
90
70
50
Aug13
Sensex
Feb14
Aug14
Financialsummary
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
Rs187
Rs130
42.9%
Capitalisation as a % of capex to remain high
BUY
FY14
152,303
19.4
129,563
85.1
44,974
6.2
8.6
15.2
2.0
2.2
14.7
8.7
FY15E
187,536
23.1
160,812
85.7
57,274
27.3
10.9
12.0
1.8
2.3
15.4
9.2
FY16E
216,114
15.2
186,062
86.1
65,595
14.5
12.5
10.4
1.6
2.3
15.8
9.3
FY17E
244,082
12.9
210,646
86.3
73,817
12.5
14.1
9.3
1.4
2.3
15.9
9.2
Shareholdingpattern
Others
100%
Institutions
Promoter
80%
60%
40%
20%
0%
Research Analyst:
TarangBhanushali
Power Grid Corp. Of India Ltd
AspercompanysFY14presentation,CWIPincreasedby32.8%yoytoRs533bn
fromRs401.1bnattheendofFY13.Inadditiontothis,shareofinstalledCWIP
ofthetotalhasincreasedfrom48%inFY13to60%inFY14.InstalledCWIPis
equipment that is physically present on site and is in the process of being
erectedorhasbeenalreadyerected.InQ1FY15,capitalizationwasRs48.8bn,
82%higheronayoybasis.Thestrongperformancehascontinuedtilldateas
thecompanytillAugust14hasmanagedtocapitalizeprojectsworthRs85bn,
more than 50% of the projects commissioned in FY14. In physical terms, the
company has managed to achieve ~36% of the 15,000 ckm transmission line
targetsetforFY15.Onthebackofthestrongperformancewitnessedtilldate,
we have revised upwards our capitalization as a % of capex to increase from
71%inFY14to90%inFY15.WeestimateFY15capitalizingatRs202bn,26.8%
higheronayoybasis.
Capextoremainhighasperplanat~224bnyearly
overthenextthreeyears
Planned
250
Actual
(Rsbn)
200
%ofplannedcapex
101.5
(%)
101
PowerGridtillAugust14has
managedtocapitalizeprojectsworth
Rs85bn,morethan50%oftheprojects
commissionedinFY14
Capitalisationasa%ofcapextojumpto90%in
FY15EatRs202bn
Capitalisation
250
Capex
(Rsbn)
Capitalisation/capex
100
(%)
200
80
100.5
150
100
150
60
100
99.5
100
40
50
20
99
50
98.5
98
FY10
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
FY11
FY12
FY13
Capex to remain higher over the next three years

th
PGCILreviseditscapextargetin12 FiveYearPlaninFY14toRs1,100bnfrom
Rs1,000bnduetoadditionofadditionalbiddingbasedprojectsworthRs100bn
for Green Energy Corridors and other projects. The Rs1,100bn capex involves
setting up 40,000 ckm of transmission lines, 65 new substations with a
transformation capacity of 106,000 MVA. Investments worth Rs1,016bn have
alreadybeenapprovedandwebelievetherewouldbemanyotherprojectsto
be executed under the smart grid and gasinsulated substations technology.
The company in FY15 plans to add 15,000ckm transmission lines and 15 sub
stationswithacapacityof30,000MVA.FY15guidanceisquitehigherthanFY14
performance,whereinitmanagedtoadd10,076ckmtransmissionlinesand17
substationswithacapacityof41,160MVA.PowerGridinQ1FY15,registereda
capex of Rs58.4bn, higher by 15.2% yoy over Rs50.7bn achieved in Q1 FY14.
Capex remained strong in the month of July 14, as total capex during the
periodAprilJuly14wasRs75.3bn.Withaslewofpowergeneratingprojectsto
be commissioned over the next two years, demand for transmission lines is
expectedtoincrease.ThecompanyhasguidedforacapexofRs1,000bnforthe
13th Five Year Plan, marginally lower than the capex for 12th year plan. We
believe the management is quite conservative in estimating the demand for
transmissionlinesin13thPlan.
PowerGridinQ1FY15,registereda
capexofRs58.4bn,higherby15.2%yoy
overRs50.7bnachievedinQ1FY14
Diversification; a long term strategy in place
Thecompanyisleveragingitsvastexperienceintransmissionrelatedservices,
byprovidingconsultancyservicestoIndiaandabroad.Thecompanyisalsoin
the telecom space, which has a presence in two business activities (a) Fibre
opticbusiness,and(b)Towerleasingbusiness.Thecompanyleasesbandwidth
on this network to more than 106 customers, including major telecom
operators. PWG is also partnering with the Government of India in the
implementationoftheNationalKnowledgeNetworkprojectandtheNational
Optic Fibre Network project, but the projects are still in nascent stage. The
companyisalsointoSmartGridtechnology.SmartGridfacilitatesefficientand
reliable endtoend intelligent twoway delivery system from source to sink
through integration of renewable energy sources, smart transmission and
distribution.Webelieveoverthenextthreeyears,shareofotherbusinessesis
expectedtoriseandwouldderiskthecompanysearnings.
Toplinegrowthtoremainstrongduetohigher
capitalizationinFY15
Revenue
300
Webelieveoverthenextthreeyears,
shareofotherbusinessesisexpectedto
riseandwouldderiskthecompanys
earnings
EarningsCAGRof15.7%overFY1417E
yoygrowth
PAT
30
(Rsbn)
(%)
25
250
80
yoygrowth
(Rsbn)
(%)
70
30
60
200
20
150
15
10
100
25
50
20
40
15
30
10
20
50
0
FY11
FY12
FY13
FY14
FY15E FY16E FY17E
10
0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
Earnings growth to remain strong
Operationalperformancehasimprovedoverthelastfiveyears.Availabilityhas
beenhigherthan99.6%overthelastfiveyearsandsystemreliabilitytoohas
improvedastrippingsperlinetoohavedeclinedsharplyfrom2.56inFY08to
0.56inFY14.PowerformostofitsprojectsearnsanassuredposttaxRoEof
15.5% on equity invested in its capitalized transmission projects along with
network availability linked incentives and early commissioning incentives for
projects.Accordingtothemanagement,changeinCERCnormshasnotmajorly
impactedthecompanysearningstilldate.CapitalisationinFY15YTDhasbeen
quite strong, and we expect the momentum to remain strong over the next
two years. We estimate FY15 capitalizing at Rs202bn, 26.8% higher on a yoy
basis. A jump in capitalization and increase in revenues from diversified
businesswouldleadtoearningsCAGRof15.7%overtheperiodFY1417.With
unutilizedequityfromlastyearsequityraisingandstronginternalcashflows,
webelievefurtherequitydilutionwouldnotberequiredoverFY1517.Witha
slewofreformsbeingimplementedforthestateSEBS,furtherrestructuringof
SEBswouldleadtoareratingforthecompany.Wevaluethecompanyat2x
FY17P/BandrecommendaBUYratingwitha2yearpricetargetofRs187.
35
WeestimateFY15capitalizingat
Rs202bn,26.8%higheronayoybasis
Ajumpincapitalizationandincreasein
revenuesfromdiversifiedbusiness
wouldleadtoearningsCAGRof15.7%
overtheperiodFY1417
Withaslewofreformsbeing
implementedforthestateSEBS,
furtherrestructuringofSEBswould
leadtoareratingforthecompany
Financials
Incomestatement
Keyratios
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Minoritiesandothers
Netprofit
FY14
152,303
129,563
(39,957)
(31,675)
4,911
62,843
(17,663)
(205)
44,974
FY15E
187,536
160,812
(49,928)
(35,371)
5,156
80,668
(23,394)
0
57,274
FY16E
216,114
186,062
(58,789)
(40,299)
5,413
92,387
(26,792)
0
65,595
FY17E
244,082
210,646
(67,136)
(45,227)
5,684
103,967
(30,150)
0
73,817
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
Balancesheet
Y/e31Mar(Rsmn)
Equitycapital
Reserves
Networth
Debt
Totalliabilities
Fixedassets
CWIPand
Constructionstores
Investments
Otherlongterm
assets&researves
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Othercurrent
liabilities
Cash
Totalassets
FY14
FY15E
FY16E
FY17E
52,316
52,316
52,316
52,316
298,067 338,718 385,274 437,665
350,383 391,034 437,590 489,981
772,282 884,282 1,007,482 1,130,682
61,690
68,950
77,265
86,622
1,184,355 1,344,266 1,522,336 1,707,285
752,642 904,314 1,029,204 1,141,268

392,883
12,845
415,283
12,845
455,603
12,845
500,403
12,845
17,163
17,163
17,163
17,163
(36,950) (40,034) (48,217) (57,748)
6,618
7,611
8,753
10,066
18,643
22,372
25,728
29,587
95,360 108,325 119,157 131,073
(143,282) (161,909) (182,957) (206,742)
(14,289) (16,432) (18,897)
(21,732)
45,773
34,695
55,738
93,354
1,184,355 1,344,266 1,522,336 1,707,285
Cashflowstatement
Y/e31Mar(Rsmn)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Debtfinancing/
disposal
Dividendspaid
Otheritems
Netincash
FY14
FY15E
FY16E
FY17E
62,843
80,668
92,387
103,967
39,957
49,928
58,789
67,136
(17,663) (23,394) (26,792) (30,150)
9,275
3,084
8,183
9,531
94,411 110,286 132,567
150,484
(223,240) (224,000) (224,000) (224,000)
(128,829) (113,714) (91,433) (73,516)
58,682
111,620
(15,667)
4,717
30,522
112,000
(16,624)
7,260
(11,078)
123,200
(19,039)
8,315
21,043
123,200
(21,425)
9,357
37,615
FY14
19.4
18.5
15.9
6.2
FY15E
23.1
24.1
22.8
27.3
85.1
62.1
29.5
8.7
14.7
3.7
85.7
61.9
30.5
9.2
15.4
4.0
8.6
2.6
16.2
67.0
9.3
7.9
1.4
8.2
29.0
29.0
44
15
315
3.0
2.1
5.6
10.4
7.9
1.6
8.8
29.0
29.0
45
16
343
14.1
3.5
26.9
93.7
12.5
3.1
23.8
83.6
12.0
7.9
1.8
9.5
34.8
28.1
86.3
61.1
30.2
9.2
15.9
4.0
86.1
61.4
30.4
9.3
15.8
4.0
10.9
2.7
20.5
74.7
15.2
9.3
2.0
10.9
FY17E
12.9
13.2
12.4
12.5
FY16E
15.2
15.7
14.3
14.5
29.0
29.0
43
15
309
44
15
309
3.3
2.2
5.3
3.3
2.2
5.1
3.3
2.1
4.9
FY15E
0.71
0.70
0.62
0.13
3.86
15.4
FY16E
0.71
0.70
0.61
0.13
3.92
15.8
FY17E
0.71
0.70
0.61
0.13
3.95
15.9
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)
FY14
0.72
0.66
0.62
0.12
4.00
14.7
Reliance Industries
Good times ahead
With flat earnings profile in the past three years, RIL stock has grossly
underperformed the broader indices. However, over the next three years
we expect RILs EBIDTA from refining and petrochemicals business to
double.E&Pprofitabilityshouldalsoimproveonthebackofgaspricehike,
gradual increase in production and traction in shale gas production. Retail
business turned around in FY14 and profits are expected to grow at a
decent pace in years to come. Improvement in earnings profile entails a
valuationreratingtheme.
Rating:
Target(2Years):
CMP:
Upside:
BUY
Rs1,400
Rs993
41%
Sector:
Oil & Gas
Sector view:
Neutral
Sensex:
26,443
52Weekh/l(Rs):
1145/764
Marketcap(Rscr):
321,241
6mAvgvol(000Nos):
3,692
RIL GRMs to outperform global benchmarks
Bloombergcode:
Incremental global demand for petroleum products and refining capacity

additionsareexpectedtokeeppacewitheachotheroverthenextcoupleof
years. This would mean muted trend in global GRMs. For RIL though, we
expect substantial improvement in GRMs leading to widening of its spread
when compared with international benchmarks. The key drivers for this
growth include 1) commencement of petcoke gasification project in FY17,
which would replace expensive RLNG with gas produced from petcoke
leadingtoincrementalUS$2/bblGRM(managementguidanceofUS$2.5/bbl),
2) efficient crude sourcing, 3) high complexity at its refineries allowing it to
meet the rising demand for cleaner fuels and 4) amongst the lowest
operatingcostsintheworld.
BSEcode:
500325
NSEcode:
RELIANCE
Petrochemical segment to see strong traction
In recent times, petrochemical segment performance has been under

pressure owing to weak domestic demand environment, rising feedstock
prices and surplus capacity situation globally. While these are expected to
correctinduecourse,RILisdoingitsbittogarnerfurtherbenefitsfromthe
revival in the cycle. It is expanding capacities across products and is also
setting up a large off gas cracker. The cost dynamics of this cracker will be
similartogasbasedplantsinMiddleEast.Resultantly,themarginprofileof
this plant would be substantially better than RILs existing petrochemical
assets.
FY14
3,901,170
8.3
308,770
7.9
219,840
4.7
68.1
14.6
1.6
12.0
0.4
11.7
11.5
FV(Rs):
10
Companyratinggrid
LowHigh
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
RelianceInd
170
Sensex
120
70
Aug13
Dec13
Apr14
Jul14
Financialsummary(Standalone)
Y/e31Mar(Rsmn)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
RILIS
FY15E
4,093,217
4.9
339,138
8.3
249,939
13.7
77.4
12.8
1.5
10.8
0.4
12.0
11.0
FY16E
4,236,264
3.5
405,675
9.6
296,718
18.7
91.9
10.8
1.3
9.4
0.4
12.8
11.9
FY17E
4,454,038
5.1
607,498
13.6
446,172
50.4
138.2
7.2
1.1
5.8
0.4
16.9
15.8
Shareholdingpattern
Others
100 %
80
60
40
20
Institutions
Promoters
Research Analyst:
Prayesh Jain
Reliance Industries
E&P segment will only get better
Domestic E&P business of RIL has seen pressure from all ends including 1)
dwindlingproductionrates,2)delayingaspricehikes,3)penaltiesintheform
of disapproval of capex for cost recovery and 4) delays in budget approvals.
Declineinproductionhasbeenarrestedandislikelytoseeagradualincrease
(subject to timely government approvals). Price hike, while quantum is
uncertain, will eventually come across. Pace of approvals is also expected to
gather pace under the new government. Additional momentum for the
businesswillarisefromcommencementinproductionfromnewconventional
fields such as NEC25 and CBM blocks. In the meanwhile, shale gas revenue
has surpassed domestic E&P revenue and is gaining prominence in terms of
RILsE&Pstrategy.
Wewouldliketohighlightthefollowingfacts:
1) E&Psegmentcontributedonly1.3%ofrevenuesin9mFY14andonly7.2%
ofthestandaloneEBIT.Eveninthenextcoupleofyearsthecontributionis
expected to remain at 22.5% for revenues and 1014% for EBIT. This
indicateslowmaterialityofE&PsegmenttoneartermearningsforRIL.
2) Arbitration and gas price hike issues are only with regards to the KGD6
block. RIL is slated to commence production from other key assets like
NEC25andCBMblocksoverthenextcoupleofyears.
Gaspricehike,revivalinproductionat
KGD6,commencementofproduction
atCBMblocksandothernewfieldsto
improveperformanceofE&Psegment
CurrentconcernsarearoundtheKGD6
gasfieldonlyanditiscurrentlynot
materialtooverallSOTPvaluations
Retail business to grow in all aspects
WeakeconomicbackdropinthepastcoupleofyearshasledtostressinIndias
organisedretailindustry.RIL,however,usedthisasanopportunitytocutflab
byclosingdownlossmakingstoresandgettingintomorelucrativesegments.
It is now well placed to gain substantially from the expected increase in
penetration of organized retail in India. While costs have been cut, RIL has
marginalized its stores enabling it to improve profitability. With a superior
supply chain management, RIL has been able to outperform peers and is
expectedtogainfurthermarketshareinyearstocome.
SteadyoutperformanceofRILGRMstoSingapore
GRMs
RILGRM
SingaporeGRM
Liquid
45
US$/bbl
30
25
20
15
10
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
Q3FY11
Q2FY11
Q1FY11
Gas
35
Condensate
bcfe
40
10
Shalegasproductioncontinuetosurge
Q2FY12
12
Retailbusinessrevenuesand
profitabilitytoimproveonthebackof
economicrevivalinthecountry
Reliance Industries
Telecom segments asset light strategy bodes well
In the recently concluded spectrum auction round, RIL bids were not too
aggressiveandthecompanyacquiredcontiguousspectrumin14circlesoutof
15circleswithcontiguousspectrum.ThecompanywillhavetospendRs110bn
(33% upfront and remaining in 10 equal annual installments with two year
moratorium)forthesame.TheseinvestmentsareinadditiontotheRs128bn
paid to get panIndia Broadband Wireless Access (BWA) spectrum in FY11.
Sincethenthecompanyhasfollowedanassetlightstrategybyenteringinto
tower sharing agreements with RelianceCommunications and BhartiInfratel.
Theseagreementswillhavethreeprongedbenefits1)fastercommencement
of operations as compared to setting up all facilities organically, 2) market
sharegainsatafasterclipand3)reducedcosts.Whileweexpectthecompany
to breakeven at the EBIDTA level by FY17E, profits at PAT level should arise
onlybeyondFY20.
Trading below historical averages
SinceJanuary2010,RILstockpricehasfallenby8.4%ascomparedtoSensex
returnof47.4%.Thegrossunderperformancewasdrivenbyriskstoearnings
as global economic slowdown impacted refining margins and petrochemical
spreads.Furthermore,itsE&Psegmentwhichwasthen(2009)expectedtosee
significant growth in earnings contribution saw its profitability dwindle.
However, over the next three years standalone earnings will grow
meaningfully on the back of 1) slow but steady global economic recovery, 2)
commencement of new value creating downstream projects of RIL and 3)
recovery in E&P operations. In spite of the expected growth in earnings
valuations are substantially below historical average. We maintain our BUY
ratingwitha2yearpricetargetofRs1,400.
Largeunderperformancecomparedtobroadermarkets
160
140
120
100
80
RIL
60
Sensex
40
20
Source:Bloomberg,IndiaInfolineResearch
Jul14
Jan14
Apr14
Jul13
Oct13
Apr13
Jan13
Oct12
Jul12
Apr12
Jan12
Jul11
Oct11
Jan11
Apr11
Oct10
Jul10
Apr10
Jan10
WeexpectRILstelecombusinessto
breakevenattheEBIDTAlevelby
FY17E,profitsatPATlevelshouldarise
onlybeyondFY20
SinceJanuary2010,RILstockpricehas
fallenby8.4%ascomparedtoSensex
returnof47.4%
Revivalinearningstrajectorytodrive
valuationreratingclosertohistorical
averages
Reliance Industries
Financials (Standalone)
Incomestatement
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Adj.profit
Keyratios
FY14
FY15E
FY16E
FY17E
3,901,170 4,093,217 4,236,264 4,454,038
308,770 339,138 405,675 607,498
(87,890) (89,967)
(99,999) (127,980)
(32,060) (18,096)
(19,096)
(20,096)
89,360
89,360
93,828 112,594
278,180 320,435 380,408 572,015
(58,340) (70,496)
(83,690) (125,843)
219,840 249,939 296,718 446,172
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/BV
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
Balancesheet
Y/e31Mar(Rsbn)
Equitycapital
Reserves
Networth
Debt
Deferredtaxliab
(net)
Totalliabilities
Fixedassets
Investments
Networkingcapital
Inventories
Sundrydebtors
Othercurrent
assets
Sundrycreditors
Othercurrent
liabilities
Cash
Totalassets
FY14
FY15E
FY16E
FY17E
32,490
32,490
32,490
32,490
1,938,420 2,150,850 2,408,183 2,813,094
1,970,910 2,183,340 2,440,673 2,845,584
854,810 904,810 954,810 1,004,810
122,150 122,150 122,150
122,150
2,947,870 3,210,300 3,517,633 3,972,544
1,511,220 1,619,623 1,919,625 1,941,644

860,620 910,620 960,620 1,010,620
209,790 237,936 271,524
306,143
429,320 450,455 466,197
490,163
106,640 111,890 115,800
121,753
401,790 441,503 485,187
(686,290) (720,075) (745,239)
533,240
(783,550)
(41,670)
(45,837)
(50,421)
(55,463)
366,240 442,121 365,864
714,137
2,947,870 3,210,300 3,517,633 3,972,544
Cashflowstatement
Y/e31Mar(Rsbn)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Debtfinancing/
disposal
Dividendspaid
Otheritems
Netincash
FY14
FY15E
FY16E
278,180
320,435
380,408
87,890
89,967
99,999
(58,340) (70,496) (83,690)
(51,630) (28,146) (33,588)
256,100
311,761
363,128
(310,470) (198,370) (400,000)
(54,370)
113,391 (36,872)
(13,496)
(0)
0
(335,530) (50,000) (50,000)
FY17E
572,015
127,980
(125,843)
(34,619)
539,533
(150,000)
389,533
0
(50,000)
309,580
50,000
50,000
50,000
(35,634)
220
(129,230)
(37,510)
0
75,881
(39,385)
0
(76,257)
(41,261)
0
348,272
FY14
FY15E
FY16E
FY17E
8.3
0.3
5.8
4.7
7.9
8.0
5.6
11.5
11.7
6.4
68.1
9.6
95.3
610.4
14.6
10.4
1.6
12.0
16.2
21.0
10.0
40.2
64.2
9.7
0.2
1.6
4.9
9.8
9.1
13.7
8.3
8.3
6.1
11.0
12.0
6.5
77.4
10.1
105.3
676.2
12.8
9.4
1.5
10.8
15.0
22.0
10.0
40.2
64.2
18.7
0.2
1.4
3.5
19.6
18.0
18.7
9.6
9.4
7.0
11.9
12.8
7.2
91.9
10.6
122.9
755.9
10.8
8.1
1.3
9.4
13.3
22.0
10.0
40.2
64.2
20.9
0.2
1.5
5.1
49.7
48.2
50.4
13.6
13.3
10.0
15.8
16.9
9.8
138.2
11.1
177.8
881.3
7.2
5.6
1.1
5.8
9.2
22.0
10.0
40.2
64.2
29.5
0.1
0.5
FY14
0.79
0.9
0.1
1.1
1.8
11.7
FY15E
0.78
0.9
0.1
1.1
1.8
12.0
FY16E
0.78
1.0
0.1
1.0
1.8
12.8
FY17E
0.78
1.0
0.1
1.0
1.7
16.9
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)

Tata
Steel Ltd
Ready for take off

Tata Steel has managed to get back on its growth trajectory over the last
one year following improved performance in domestic business and a
turnaround at operating level in Europe. We believe the turnaround in
EuropeanoperationswouldgainsteaminFY15ledbyarevivalinEuropean
demand, impact of the various cost saving initiatives and subdued raw
material prices. Domestic performance is expected to get better with the
commissioning of the new plant at Kalinganagar. Domestic margins are
expectedtoincreasefromcurrentlevelsduetolowercokingcoalcostsand
higherproductionefficiency.Netdebtisexpectedtodecline11%overFY14
17 on account of higher cash flows in India, European operations turning
freecashflowpositivefromFY16,reducingcapexintensityandcompanys
persistentefforttounlockvaluebysellingnoncoreassets.WebelieveTata
SteelwouldfurtherwitnesssomereratingastheEuropeanrecoverygains
momentum. The SC ruling on coal blocks allocated post 1993 would not
impactthecompanysearningsasmineswereallocatedpriorto1993.Tata
Steel remains our preferred pick in the steel sector on the back of strong
performanceregisteredinthelastoneyearandduetothevariousearnings
driver for the company over the next two years. We recommend a BUY
ratingonthestockwitha2yearpricetargetofRs728.
Domestic operating profit to surge from H2 FY15
Tata Steels domestic operations have been persistently delivering strong

operational performance even though both the domestic as well as
internationaldemandscenariohasbeensubdued.Thecompanyhasmanaged
toraiseitssteelsalesfrom6.6mntonsinFY12to8.5mntonsinFY14ledby
thecommissioningofthe2.9mtpaplantinFY14.Goingforward,weexpecta
volume CAGR of 9.8% led by full utilisation of current capacities and the
commissioning of the Kalinganagar plant by the end of FY15. EBIDTA/ton in
FY14, which was flat on a yoy basis, is expected to improve due to lower
coking coal prices, operational efficiencies, superior product mix and stable
steel prices. Led by a combination of higher volumes and expansion in
margins,weexpectoperatingprofittojump45.5%overFY1417E.
Rating:
Target(2years):
CMP:
Upside:
BUY
Rs728
Rs525
38.7%
Sector:
Metals & Mining
Sector view:
Neutral
Sensex:
26,443
52Weekh/l(Rs):
579/265
Marketcap(Rscr):
50,958
6mAvgvol(000Nos):
6,731
Bloombergcode:
TATAIN
BSEcode:
500470
NSEcode:
TATASTEEL
FV(Rs):
10
Companyratinggrid
LowHigh
1
EarningsGrowth
CashFlow
B/SStrength
Valuationappeal
Risk
Sharepricetrend
TataSteel
250
Sensex
200
150
100
50
Aug13
Feb14
Aug14
Financialsummary
Y/e31Mar(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
PreexceptionalPAT
ReportedPAT
yoygrowth(%)
EPS(Rs)
P/E(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)
FY14
1,486,136
10.3
163,833
11.0
35,949
35,949
37.0
14.2
7.7
1.9
9.6
9.4
FY15E
1,539,366
3.6
185,495
12.1
38,052
64,302
78.9
39.2
13.4
6.9
1.7
8.8
9.8
FY16E
1,623,441
5.5
212,202
13.1
54,257
54,257
(15.6)
55.9
9.4
5.9
1.5
11.3
11.1
FY17E
1,791,479
10.4
246,288
13.7
82,208
82,208
51.5
84.6
6.2
4.8
1.2
15.3
13.2
Shareholdingpattern
Others
100%
Institutions
Promoter
80%
60%
40%
20%
0%
Research Analyst:
TarangBhanushali
Tata Steel Ltd
VolumegrowthtoremainstrongoverFY1417E
EBIDTA/ton
13
FCFtoincreasesharplyduetodecliningcapex
intensityandjumpinoperatingprofit
Salesvolume
(Rs/ton)
(mntons)
19,000
12
18,000
11
17,000
16,000
10
15,000
14,000
13,000
12,000
11,000
10,000
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
200
Operatingcashflow
FreeCashFlow
FY11
FY14
(Rsbn)
150
100
50
(50)
(100)
FY10
FY12
FY13
FY15E FY16E FY17E
European region turnaround gaining momentum
Steel demand in the European region has been gradually improving over the
lastoneyear.Afterregisteringa10%yoydeclinein2012,steelconsumptionin
Europe remained flat at 0.4% yoy in 2013. However in Q1 CY 2013, led by
strong automobile sales and rising domestic consumption, steel consumption
intheregionincreased4.2%yoy,quitehigherthanmarketestimates.Thishas
promptedEuropessteelassociation(EUROFER)intheirlatestquarterlyupdate
to up its steel consumption forecasts for CY1415E vs its previous forecast
released in January 14. The association now expects CY14 apparent steel
consumptiongrowthat3.4%(vs3.2%earlier)andCY15at3%(vs2.9%earlier).
It also mentions that European domestic demand is seen strengthening,
primarilydrivenbyareboundininvestmentinmachineryandequipmentbut
alsoowingtoamodestrecoveryofconstructionequipment.Webelievethata
strongerdemandrecoveryprovidesupsideriskstoourestimateinFY16.
EUROFERexpectsCY14apparentsteel
consumptiongrowthat3.4%(vs3.2%
earlier)andCY15at3%(vs2.9%
earlier).
EBIDTA/tonfromtheEuropean
operationsisexpectedtoimproveto
US$50/toninFY16fromUS$31/tonin
FY14ledbyimprovementinsteel
demand,highersteelspreadsand
risingvolumes
European operations to turn FCF positive in FY16
The European operations over the last two years have managed to register
positive EBIDTA/ton on account of the cost saving measures implemented by
thecompany.Therecoveryhasalsobeenaidedbyamarginalimprovementin
the demand scenario in the region. European operations are expected to
benefit from the sharp decline in raw material costs over the last one year.
SpreadsintheregionhavestayedhighinQ1FY15asthedeclineinsteelprices
hasbeenlowerthanthefallinrawmaterialprices.Demandestimatesforthe
region have been revised upwards over the last one quarter indicating the
changeinsentimentintheregion.EBIDTA/tonfromtheEuropeanoperationsis
expected to improve to US$50/ton in FY16 from US$31/ton in FY14 led by
improvement in steel demand, higher steel spreads and rising volumes. As a
result,weexpectEuropeanoperationstobeFCFpositivefromFY16.
Tata Steel Ltd
EBIDTA/tontoimprovetoUS$50/toninFY16E
EBIDTA/ton
17
Netdebt/equitytodeclinefrom1.9xinFY14to1.2x
inFY17E
Salesvolume
(US$/ton)
(mntons)
16
15
100
2.0
1.8
80
1.6
60
1.4
1.9
1.7
1.7
1.5
1.4
1.2
1.2
1.2
14
40
13
20
12
11
(20)
1.0
0.8
0.6
0.4
10
(40)
FY10
FY11
FY12
FY13
0.2
FY11
FY12
FY13
FY15E
FY16E
FY17E
Net debt to peak in FY15
TataSteelsnetdebthasincreased46.7%overtheperiodFY1114toRs752bn
duetothecapexincurredinincreasingitscapacityby2.9mtpaatJamshedpur,
Kalinganagar plant green field project and Port Talbrot modernisation. Debt
has also increased due to the negative FCF at the European operations. The
company has incurred a capex of Rs163bn till date out of the total capex of
Rs250bnfortheKalingangarplantandhasfundedthismostlythroughinternal
accruals.
WebelievethatnetdebtwouldpeakoutinFY15asa)thecapexisexpectedto
easeoutfromFY16,b)EuropeansubsidiaryisexpectedtobeFCFpositiveand
c)incremental FCF from the domestic operations. The companys persistent
efforttounlockvaluebysellingnoncoreassetswouldalsoreducedebtforthe
company.TataSteel,overthelastoneyear,hasannouncedassetsalesinTata
International (Australia), land parcel at Borivali, Mumbai, and stake sale in
Dhamraport.Thesethreecombinedareexpectedtogeneratecashof~Rs16bn
inFY15andwouldaidthecompanyisreducingitsdebt.Weexpectnetdebtto
decreaseby10.7%overtheperiodFY1417toRs673bnandnetdebt/equityto
declinefrom1.85xto1.2xoverthesameperiod
Merger of subsidiary company has increased current value of
investments to ~Rs94bn
TataSteelmergeditsinvestmentsubsidiary(100%),KalimatiInvestments,with
itself in FY14. As a result, Tata Steels holdings in some of the group
companies/associate companies increased. The merger has resulted in the
companygettingadirectstakeinTitan,apartfromincreaseddirectholdingin
fewotherssuchasTataPowerandTataMotors.ThecompanysholdinginTata
Motors at current prices is now valued at ~Rs77bn, while Titans holding
standsatRs13.4bnandTataPowersholdingisatRs3.3bn.Currentvalueofall
the investments (excluding the stake in Tata Sons) stands at ~Rs94bn
(Rs97/share).IfweincludethestakeofTataSons,thevalueofinvestmentsper
share increases to Rs239. However, we have not includedthe above value of
investmentsinourtargetpricecalculation.
FY14
Webelievethatnetdebtwouldpeak
outinFY15asa)thecapexisexpected
toeaseoutfromFY16,b)European
subsidiaryisexpectedtobeFCF
positiveandc)incrementalFCFfrom
thedomesticoperations.
Currentvalueofalltheinvestments
(excludingthestakeinTataSons)
standsat~Rs94bn(Rs97/share)andif
weincludethestakeofTataSons,the
valueofinvestmentspershare
increasestoRs239
Tata Steel Ltd
Financials
Incomestatement
Y/e31Mar(Rsmn)
Revenue
Operatingprofit
Depreciation
Interestexpense
Otherincome
Profitbeforetax
Taxes
Minoritiesandother
Adj.profit
Exceptionalitems
Netprofit
Keyratios
FY14
FY15E
FY16E
FY17E
1,486,136 1,539,366 1,623,441 1,791,479
163,833
185,495
212,202
246,288
(58,412) (63,686) (71,107)
(74,232)
(43,368) (53,177) (52,528)
(48,631)
5,168
6,202
6,822
7,504
67,221
74,834
95,389
130,929
(30,582) (36,037) (40,327)
(47,850)
(691)
(746)
(806)
(870)
35,949
38,052
54,257
82,208
0
26,250
0
0
35,949
64,302
54,257
82,208
Y/e31Mar
Growthmatrix(%)
Revenuegrowth
Opprofitgrowth
EBITgrowth
Netprofitgrowth
OPM
EBITmargin
Netprofitmargin
RoCE
RoNW
RoA
Pershareratios
EPS
Dividendpershare
CashEPS
Bookvaluepershare
Valuationratios
P/E
P/CEPS
P/B
EV/EBIDTA
Payout(%)
Dividendpayout
Taxpayout
Liquidityratios
Debtordays
Inventorydays
Creditordays
Leverageratios
Interestcoverage
Netdebt/equity
Netdebt/op.profit
Balancesheet
Y/e31Mar(Rsmn)
Equitycapital
Preferencecapital
Reserves
Networth
Minorityinterest
Debt
Totalliabilities
Fixedassets
Intangibleassets
Investments
Deferredtax
Networkingcapital
Inventories
Sundrydebtors
Othercurrentassets
Sundrycreditors
Othercurrent
liabilities
Cash
Totalassets
FY14
FY15E
FY16E
FY17E
9,714
9,714
9,714
9,714
200
0
0
0
395,606 449,709 493,257
564,221
405,520 459,423 502,971
573,935
17,377
17,004
16,601
16,166
838,837 818,835 808,833
748,831
25,958
26,477
27,006
27,547
1,287,691 1,321,739 1,355,412 1,366,479
812,057 883,808 902,701

898,469
205,237 205,237 205,237
205,237
50,935
40,935
40,935
40,935
408
408
408
408
133,010 135,459 138,347
145,812
268,800 278,428 293,635
324,028
160,058 165,791 174,846
192,943
132,906 133,377 134,121
135,609
(304,855) (315,774) (333,021) (367,491)
(123,898) (126,362) (131,233)
(139,278)
86,045
55,892
67,784
75,619
1,287,691 1,321,739 1,355,412 1,366,479
Cashflowstatement
Y/e31Mar(Rsmn)
Profitbeforetax
Depreciation
Taxpaid
Workingcapital
Operatingcashflow
Capitalexpenditure
Freecashflow
Equityraised
Investments
Debtfinancing/
disposal
Dividendspaid
Otheritems
Netincash
FY14
FY15E
FY16E
67,221
74,834
95,389
58,412
63,686
71,107
(30,582) (36,037) (40,327)
(13,659)
(2,450)
(2,888)
81,392 100,034 123,282
(252,924) (135,437) (90,000)
(171,532) (35,403)
33,282
37,363
0
0
(18,358)
10,000
0
FY17E
130,929
74,232
(47,850)
(7,464)
149,846
(70,000)
79,846
0
0
155,331
(20,202)
(10,002)
(60,002)
(9,713)
(5,643)
(12,552)
(10,199)
25,650
(30,153)
(10,709)
(679)
11,892
(11,244)
(765)
7,835
FY14
10.3
33.0
53.1
FY15E
3.6
13.2
15.8
5.9
11.0
7.4
2.4
9.4
9.6
2.3
12.1
8.3
2.5
9.8
8.8
2.2
37.0
10.0
97.1
417.2
19.7
42.3
39
66
75
13.7
36.5
39
66
75
2.4
1.7
4.1
6.2
3.3
0.9
4.8
2.6
1.9
4.6
9.4
4.1
1.0
5.9
26.8
48.2
39
66
75
84.6
11.6
161.0
590.8
55.9
11.0
129.1
517.8
13.4
5.0
1.1
6.9
27.0
45.5
13.7
10.0
4.6
13.2
15.3
4.5
13.1
9.1
3.3
11.1
11.3
3.0
39.2
10.5
104.7
472.9
14.2
5.4
1.3
7.7
FY17E
10.4
16.1
21.4
51.5
FY16E
5.5
14.4
15.5
42.6
39
66
75
2.8
1.5
3.5
3.7
1.2
2.7
DuPontAnalysis
Y/e31Mar
Taxburden(x)
Interestburden(x)
EBITmargin(x)
Assetturnover(x)
RoE(%)

0.53
0.51
0.57
0.63
0.61
0.58
0.64
0.73
0.07
0.08
0.09
0.10
0.93
0.88
0.91
0.97
4.26
4.02
3.72
3.43
9.6
8.8
11.3
15.3
Recommendationparametersforfundamentalreports:
BuyAbsolutereturnofover+15%
AccumulateAbsolutereturnbetween0%to+15%
ReduceAbsolutereturnbetween0%to10%
SellAbsolutereturnbelow10%
CallFailureIncaseofaBuyreport,ifthestockfalls20%belowtherecommendedpriceonaclosingbasis,unlessotherwisespecified
bytheanalyst;or,incaseofaSellreport,ifthestockrises20%abovetherecommendedpriceonaclosingbasis,unlessotherwise
specifiedbytheanalyst
Publishedin2014.IndiaInfolineLtd2014
Thisreportisforthepersonalinformationoftheauthorisedrecipientandisnotforpublicdistributionandshouldnotbereproducedorredistributedwithoutprior
permission.
Theinformationprovidedinthedocumentisfrompubliclyavailabledataandothersources,whichwebelieve,arereliable.Effortsaremadetotryandensureaccuracy
of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from use of this document. India
Infolineand/oranyofitsaffiliatesand/oremployeesmayormaynotholdpositionsinanyofthesecuritiesmentionedinthedocument.
Thereportalsoincludesanalysisandviewsexpressedbyourresearchteam.Thereportispurelyforinformationpurposes anddoesnotconstruetobeinvestment
recommendation/adviceoranofferorsolicitationofanoffertobuy/sellanysecurities.Theopinionsexpressedareourcurrentopinionsasofthedateappearinginthe
materialandmaybesubjecttochangefromtimetotimewithoutnotice.
Investorsshouldnotsolelyrelyontheinformationcontainedinthisdocumentandmustmakeinvestmentdecisionsbasedontheirowninvestmentobjectives,risk
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IndiaInfolineand/oritsaffiliatecompaniesmaydealinthesecuritiesmentionedhereinasabrokerorforanyothertransactionasaMarketMaker,InvestmentAdvisor,
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ThisreportispublishedbyIIFLIndiaPrivateClientsresearchdesk.IIFLhasotherbusinessunitswithindependentresearchteamsseparatedby'Chinesewalls'catering
todifferentsetsofcustomershavingvaryingobjectives,riskprofiles,investmenthorizon,etcandtherefore,mayattimeshave,differentandcontraryviewsonstocks,
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Thisreportisnotdirectedorintendedfordistributionto,oruseby,anypersonorentitywhoisacitizenorresidentoforlocatedinanylocality,state,countryorother
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Size Matters

Size Matters! - 12 Bluechips to ride on

(5) 2009 2010 2011 2012 2013 2014

Size Matters! - 12 Bluechips to ride on

HCL Technologies Ltd.

Closing gap with larger peers

Robust foundation in place to sustain sector leading growth

Enabled by strong competence in infrastructure services, HCL Tech has

Sep13 Dec13 Mar14 Jun14

HCL Technologies Ltd.

Operating margin resilience has been commendable

Apart from an impressive growth trajectory displayed by HCL Tech, it has

HCL Technologies Ltd.

Cash flow generation has remained substantial

In an environment where larger and smaller peers have witnessed some

38.4 38.9 38.1

26.3 26.0 26.7 26.3

HCL Technologies Ltd.

F6/14E F6/15E F6/16E F6/17E

Strong zinc prices to add zing

Metals & mining

Volume growth to resume from FY16

Hindustan Zinc Ltd

Zinc prices to remain strong

Costs to decline from current levels

Hindustan Zinc Ltd

FY15E FY16E FY17E

FY15E FY16E FY17E

High zinc prices coupled with increase in mined metal output to

FY14E FY15E FY16E FY16E

Hindustan Zinc Ltd

Set for an incremental re-rating

Loan book to witness a strong 19% CAGR over FY14-17

Sep13 Dec13 Mar14 Jun14

NIM to remain sturdy

3.0 3.0 3.0 3.1

Fee growth to accelerate; cost/income ratio to be sustained

Asset quality stress to ease gradually

Valuation to re-rate as growth and RoE improves

FY15E FY16E FY17E

95.0 111.0 135.5

Growth to revive strongly

Revival in consumer financing growth to accelerate overall loan

Sep13 Dec13 Mar14 Jun14

Deposit franchise will continue to improve; NIM to expand gradually

NIM to be stable in FY15 and improve

Cost/income ratio to remain in control despite significant network

Asset quality has displayed strong resilience

Improvement in growth-profitability matrix to enrich valuation

Notwithstanding the challenging operating environment during FY1114,

FY14 FY15E FY16E FY17E

Strong resilience in cigarette business

ITCs cigarette business continues to display resilience with stable earnings

Mgts focus more on profitability over volumes in adverse years

Enters E-cigarettes segment with Eon

ITC has raised the prices of select

FY15E FY16E FY17E

Business mix continues to evolve

Valuations attractive recommend Buy

1,43,085 1,58,400 1,72,756

Infra behemoth to reap new India benefits

Strong guidance maintained

Larsen & Toubro Ltd