Report

STRATEGY
21 MAR 2016
Top picks
Not so sweet 16, not quite 18
As we look back at FY16, rising hopes and realised
folly best describe investor emotions. Rising hopes
is apt because there is finally sustained evidence that
government policy economic and fiscal is getting
boldly reformist and predictably right-of-centre. This
bodes well for stock markets over the medium term.
Realised folly applies to FY16 because the rear view
mirror now affords us the obvious (and painful)
luxury of recognising that the Modi euphoria trade
ran into the harsh realities of a slowing global
economy, back-ended earnings growth and the
daunting NPA crisis in Indian banks.
The good news is that even as economists argue that
the world seems to be going nowhere, India is clearly
going somewhere desirable. We believe that good
macro print will emerge only around end-FY17 and
that FY18 can see the maturing of several policy and
administrative actions. Markets are most likely to
swing between scepticism and hope in the interim.
The focused infra spending, a mindful rural
Dipen Sheth, Head - Research

dipen.sheth@hdfcsec.com
+91-22-6171-7339
allocation hike, the tech-driven targeting of

subsidies, the increased devolution of taxes to
states, the ambitious adoption of green energy
and digital technologies and the no-nonsense
approach to fiscal discipline all indicate that the
government is mostly doing the right things.
Admittedly, this journey is an arduous grind, with
crucial reforms still at a nascent stage (such as
Uday Discom Yojana and stressed assets
resolution at PSU banks). The direction is mostly

right, even if the progress is gradual.
With soft inflation print, fiscal discipline (yes, there
are risks here) and now the governments courage

and rationality in slashing small savings rates, we
expect a rate cut of at least 25bps by Governor
Rajans team in RBIs 5-Apr policy statement.
The NIFTY has recovered recently from sub-7,000
levels, in line with global risk sentiment. Policy

announcements around interest rates, stressed
assets resolution, agriculture, irrigation, infra
spend (both rural and urban) and railways are
potential domestic market triggers.
FII inflows, while subject to overall global risk
appetite, are likely to distinguish between India

and other EMs hereon. As experience has
repeatedly shown, near-term market movements
will track FII flows. The progress of the monsoon
will be keenly watched.
Earnings growth will have to wait; the 4QFY16
season holds little or no promise. BUYers will place

faith on Indias structural promise getting clearer
with time, while SELLers will feed on scepticism
around political and global risks to the promised
outcomes. Our picks in this note attempt to
overcome this scepticism, even as they aim for
predictable alignment with what is visibly right in
India today.
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
STRATEGY : TOP PICKS
Valuation Summary
FINANCIALS
Bank of Baroda
Federal Bank
Kotak Mahindra Bank
Company
Mcap
(Rs bn)
CMP
(Rs)
TP
(Rs)
Reco
333
86
1,200
144
50
658
147
69
746#
BUY
BUY
NR
Mcap
(Rs bn)
CMP
(Rs)
TP
(Rs)
Reco
FY15
138.8
42.9
168.0
FY15
ABV (Rs)
FY16E FY17E
74.4
43.3
118.0
87.9
47.6
131.0
FY15
P/E (x)
FY16E
FY17E
FY15
9.4
8.5
13.3
NA
13.2
44.9
13.4
9.8
29.3
1.0
1.2
1.9
Diluted EPS (Rs)

FY16E FY17E FY18E
P/ABV (x)
FY16E FY17E
1.9
1.2
4.2
P/E (x)
FY15 FY16E FY17E FY18E FY15
AUTO
Atul Auto
11
497
699
BUY
18.0
22.9
28.4
34.9 27.6
21.7
Jamna Auto
10
132
185
BUY
3.7
7.8
10.2
12.2 35.6
16.9
Tata Motors
1,178
366
434
BUY
22.4
11.6
19.0
26.3 15.2
29.2
CONSUMER
Asian Paints
840
875
937
BUY
14.5
18.6
21.1
24.2 60.3
47.0
Gulf Oil Lubricants
23
466
685
BUY
15.6
20.0
23.1
28.8 29.8
23.2
IT
Infosys
2784 1,193 1,400 BUY
53.9
58.9
68.3
76.3 22.1
20.3
Zensar Technologies
38
855 1,070 BUY
59.6
72.1
82.6
97.5 14.3
11.9
Majesco *
13
566
915
BUY
NA
5.8
7.1
23.4
N.A
97.2
MATERIALS
Sanghi Industries
13
57
75
BUY
1.4
2.1
8.5
14.0 41.3
27.0
MOIL
37
220
241
BUY
25.5
12.5
11.7
15.8
8.7
17.6
OIL & GAS, CHEMICALS
IGL
73
520
610
BUY
31.3
30.1
32.8
38.4 16.6
17.3
Rallis India
34
175
200
BUY
8.1
6.9
8.9
11.9 21.6
25.4
Reliance Industries
3,324 1,027 1,155 BUY
70.2
83.9
95.2 112.9 10.3
8.6
CAPITAL GOODS &
POWER
Crompton Greaves
30
48
67
BUY
2.2
-1.4
-1.3
4.0
NA -35.2
Inox Wind
59
267
475
BUY
13.4
19.7
24.5
31.5 20.0
13.6
Power Grid
719
137 175#
UR
9.5
11.3
13.8
15.8 14.4
12.1
PHARMACEUTICALS
Cipla
424
528
709
BUY
14.7
21.5
26.4
32.2 35.9
24.6
INFRASTRUCTURE
ITD Cementation
16
103
137
BUY
-5.7
3.1
6.0
9.2 -18.3
33.2
KNR Constructions
14
497
800
BUY
26.0
27.3
39.7
48.3 39.6
37.6
NCC
40
72
95
BUY
2.0
3.4
4.0
4.9 35.6
21.0
Sanghvi Movers
12
270
444
BUY
1.9
23.9
30.2
38.1 144.8
11.3
* EV/EBITDA is EV/revenue for Majesco, # denotes fair value for stocks not currently under active coverage
1.6
1.1
3.6
FY15
ROAE (%)
FY16E FY17E
9.2
13.7
14.1
EV/EBITDA (x)
FY16E FY17E
-5.0
8.0
10.7
6.3
10.0
11.9
FY18E FY15
FY15
ROAA (%)
FY16E FY17E
0.5
1.3
1.9
-0.3
0.7
1.4
0.3
0.9
1.5
ROE (%)
FY16E FY17E
FY18E
17.5
13.0
17.9
14.2
10.8
12.9
18.4
11.7
4.0
13.2
8.0
4.9
10.6
6.5
4.1
8.7
5.4
3.6
36.6
15.5
23.8
36.3
28.6
19.0
35.0
30.7
20.0
33.8
30.3
19.1
41.5
20.2
36.1
16.2
37.3
18.1
29.4
14.4
25.6
12.4
22.1
9.5
31.7
41.4
33.8
46.0
31.2
41.2
29.6
40.5
17.5
10.3
79.5
15.6
8.8
24.1
15.3
9.4
NA
13.3
7.5
1.6
11.4
6.1
1.3
9.7
4.8
0.9
24.1
24.6
N.A
23.4
24.3
4.8
24.5
22.9
5.7
24.8
22.4
16.8
6.7
18.9
4.1
13.9
11.5
1.8
11.3
7.1
4.7
6.3
2.7
3.2
3.4
13.2
6.7
6.2
17.8
5.7
23.7
7.6
15.9
19.7
7.6
13.6
14.7
6.4
9.0
12.6
11.4
8.9
14.8
9.6
8.0
11.7
8.5
6.6
9.1
6.7
22.7
20.5
11.0
18.7
15.6
11.9
17.7
18.3
12.2
18.1
21.7
13.0
-37.8
10.9
9.9
11.9
8.5
8.7
8.2
14.3
11.0
13.8
9.0
10.2
14.5
7.1
9.3
7.2
5.7
8.6
3.7
32.6
13.7
-2.3
27.1
14.2
-2.2
25.9
14.8
7.0
26.7
15.1
20.0
16.4
20.1
15.7
12.3
10.0
11.3
15.0
16.0
16.9
17.1
25.8
17.7
8.9
11.3
21.3
14.6
7.1
25.7
11.0
9.0
8.2
10.7
9.5
8.4
5.1
8.0
7.3
7.6
4.0
5.6 -18.0
5.9 13.5
6.7
3.9
3.1
1.2
9.0
12.2
5.8
14.7
16.9
15.0
6.5
16.0
21.2
15.7
7.4
17.2
Page | 2
Refer to our latest report

Bank of Baroda: In one fell swoop
FY15, BoB had revaluation reserves of just Rs

9.9bn. This suggests headroom to further revalue
properties given the banks vintage.
Financials
Bank of Baroda
(TP Rs 147, CMP Rs 144, MCap Rs 333bn, BUY)
Asset quality clean up done: BoB implemented
the entire AQR (RBIs asset quality review) in one

fell swoop in 3QFY16, vis-a-vis other banks that
spread it across two quarters. This, along with
conservative recognition of several weak loans as
NPAs and its smaller restructured book of 4.5%,
will help asset quality remain relatively clean
hereon.
Headroom from revised Basel-III regulations:
With strong Tier-I of 9.6% (Dec-15), there is no

need for equity dilution over the next 18-24
months. Further, the recent revision in Basel-III
norms (including revaluation reserves and foreign
currency translation reserves FCTR) will provide
enough headroom in improving its Tier-I. As of
Prudent new management: BoB is probably the

biggest beneficiary of government actions in the
sector, which include the appointment of (1) PS
Jayakumar (ex-MD & CEO of VBHC Value Homes
Pvt Ltd, also ex-Citigroup) as MD and CEO, and (2)
Ravi Venkatesan (currently Independent Director
at Infosys) as chairman. The new management has
been prudent in NPA recognition and is going slow
on loan growth in the current lending
environment.
View and valuation: BoB is well placed with the
one-time AQR impact and superior Tier-I. We

believe the new leadership has set the bank on the
path to gradual and sustained improvement in
profitability and asset quality. Our TP Rs 147 is
based on 1.3x Mar-18 ABV of Rs 113.
Financials Summary
(Rs mn)
Darpin Shah
darpin.shah@hdfcsec.com
+91 22 6171 7328
Siji Philip
siji.philip@hdfcsec.com
+91 22 6171 7324
Net Interest Income

PPOP
PAT
EPS (Rs)
Earnings Growth (%)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/E (x)
P/ABV (x)
Source: Company, HDFC sec Inst Research
FY14
FY15
FY16E
FY17E
FY18E
119,653
93,532
46,033
21.4
2.7
14.0
0.76
134.2
6.8
1.08
131,872
99,151
33,984
15.3
(26.2)
9.2
0.49
138.8
9.4
1.04
125,606
85,033
(19,461)
(8.4)
NA
(5.0)
(0.27)
74.4
NA
1.94
131,699
89,344
24,859
10.8
NA
6.3
0.32
87.9
13.4
1.64
152,663
108,575
39,808
17.2
60.1
9.4
0.46
112.9
8.4
1.28
Page | 3

Federal Bank: Its now or never
Federal Bank
Operating leverage likely: Given the higher
impaired assets and weak capital position (despite

the recent infusion announcement) in some PSBs,
FB is well placed to gain market share in the South
with its strong presence and well-capitalised
balance sheet (Tier-I 13.74%). This should help
deliver some much-needed operating leverage
over the next few years. With pick-up in loan
growth, we expect core C-I ratio to decline to
~55% (FY18E) vs. 60.5% in 3QFY16.
Asset quality bottoming out: FB has stumbled on
asset quality over the trailing three quarters, but
we think it has bottomed out. Higher coverage at
71.7% (despite the recent dip), a mere 2.3%
restructured book (ex-SEB), declining watch-list
(Rs 1bn), and adherence to RBIs AQR add to our
confidence.
CASA growth impressive: The bank has one of the
best liability profiles (98% retail deposits) across
regional players, giving us comfort on
sustainability of spreads. CASA ratio is running

above 32%. We expect further traction in CASA as
growth in non-Kerala branches picks up.
Loan growth to pick-up: A cautious stance in the
corporate book (Rs 167bn, 31% of loans) and

continued decline in gold loans led to muted loan
growth performance over the past few years.
However, the banks pet segments (SME and retail
ex-gold) continue to grow at 17-18%. We expect
corporate book growth to pick up with a strong
sanction pipe and the appointment of a new
Executive Director. We have factored in overall
loan growth of ~18% CAGR over FY16-18E.
View and valuation: FBs alignment with the
regulator on stress recognition, steady CASA, high

provision coverage, low restructured book (2.3%,
ex-SEB/AI), continued traction in SME book and
the expected pick-up in the corporate book will
drive up return ratios over the next few years. Our
TP of Rs 69 is based on 1.3x Mar-18 ABV of Rs 53.
Financials Summary
(Rs mn)
Darpin Shah
+91 22 6171 7328
Siji Philip
+91 22 6171 7324
Net Interest Income

PPOP
PAT
EPS (Rs)
ROAE (%) (ex revaluations)
ROAA (%)
Adj. BVPS(Rs)
P/ABV (x)
P/E (x)
FY14
FY15
FY16E
FY17E
FY18E
22,286
14,804
8,389
4.9
12.6
1.15
38.7
1.29
10.2
23,804
16,278
10,058
5.9
13.7
1.28
42.9
1.16
8.5
24,892
14,404
6,459
3.8
8.0
0.74
43.3
1.15
13.2
28,076
16,962
8,752
5.1
10.0
0.89
47.6
1.05
9.8
31,735
19,368
10,395
6.1
10.9
0.91
53.0
0.94
8.2
Page | 4
Kotak Mahindra Bank (KMB)

(CMP Rs 658, MCap Rs 1.20trn, Not Rated)
Granular loan book: KMB has a well-diversified
loan book (Rs 1.15trn) with a tilt towards granular

segments like retail, agri and SME (forming ~69%
of the loan book as of Dec-15). The bank has built
a niche in various high-yielding segments like selfemployed non-professional (SENP), tractors, cars,
etc.
Improving CASA: Post the liberalisation of saving
interest rates, KMB was one of the few private
banks to offer differential rates (6% on deposits
above Rs 1L and 5% < Rs 1L) on saving ACs. The
banks SA proportion grew at 41% CAGR during
FY12-15. CASA proportion improved from ~32% in
FY12 to ~36.4% in FY15. With the added branch
network of e-VYSB, its complete suite of products,
and improving productivities, we expect KMBs
CASA growth to be sustained.
Superior NIM: KMB enjoys one of the highest
NIMs (4.3%) in the industry, driven by a steady rise
in CASA proportion, diversified and superior asset
mix (high yielding), coupled with higher CRAR/Tier-
I. The bank is focused on SENP customers amongst

the various categories to generate relatively
higher yields vs. peers.
Stable asset quality: KMB has kept asset quality

under a tight leash even after the ING Vysya
merger. It has low exposure to stressed sectors
and has a short-term working capital tilt vs. term
loans. Net impaired assets are merely 1.3% (NNPA
1% + restructured book 0.3%) mainly on account
of the VYSB acquisition and buyouts of NPAs.
Unlike many of its peers, KMB has not availed of
additional regulatory forbearance like ARC sale,
5:25 restructuring and SDR. However, post the
acquisition, KMB has created a bad bank slice of
Rs 25bn, (2.3% of the merged entity).
Value-accretive subsidiaries: Kotak Prime, Kotak

Securities and other capital market subsidiaries
remain strong in their respective niches. AMC and
life insurance businesses, however, are still
relatively small and have scope for growth. With
liberalisation of insurance FDI, we foresee
increased scope for value unlocking. Our SOTPbased fair value is Rs 746.
Financials Summary
Darpin Shah
+91 22 6171 7328
Siji Philip
+91 22 6171 7324
(Rs mn)
Net Interest Income
PPOP
PAT
EPS (Rs)
Core ROAE (%)
Core ROAA (%)
Core ABV (ex. investments & 100% cover) (Rs)
Core P/E (x)
Core P/Adj BV (x)
FY14
37,200
25,772
15,025
19.5
13.8
1.76
146
20.30
2.71
FY15
42,237
29,975
18,660
24.2
14.1
1.94
168
13.30
1.91
FY16E
72,429
40,605
20,249
11.0
10.7
1.38
118
44.88
4.21
FY17E
85,140
52,877
29,576
16.1
11.9
1.45
131
29.26
3.61
FY18E
97,472
63,175
36,492
19.9
13.4
1.54
149
22.27
2.99
Page | 5

Atul Auto: Stellar performance
Automobiles
Atul Auto
(TP Rs 699, CMP Rs 497, Mcap Rs 11bn, BUY)
Atul Auto is a small, but fast growing 3W
manufacturer from Rajkot, Gujarat. Starting with

humble origins, Atul has rapidly gained market
share in the past few years on the basis of its
strong value offering (long warranty) and rugged,
reliable vehicles. Atul looks well set to continue
the good work over FY16-18E as it is rolling out a
gasoline/LPG variant developed in house and
doubling capacity.
Market share gain will continue owing to

increasing product acceptance, dealer network
expansion and the higher warranty period offered
by AAL. We expect AALs market share in the 3W
cargo and PVs to increase from 18% to 23% (5% to
9% (in PVs)) between FY15 and FY18E.
The 0.35T gasoline 3W will enable AAL to access
the remaining 34% (180K) of the domestic market
and ~95% (400K) of the export market. The

addressable market (opened up by the new
launch) increases by more than 60%.
Margins are set to expand driven by lower

commodity prices, in-house manufacturing of the
gasoline engine and volume benefits. We have
factored in ~430bps expansion in EBITDA margin
to 16% by FY18E.
The stock is currently available at ~14x on our

FY18 earnings estimates, which is attractive
considering (1) Expectation of market-share gain,
(2) Scope for margin expansion, (3) Higher volume
growth supported by expansion of dealership
network and new vehicle launch, (4) Robust
balance sheet (>35% return ratios, 4x asset
turnover and a debt-free status), and (5) Huge
opportunity to increase export volumes. We have
valued the stock at 20x FY18E EPS (implies 0.8x
PEG over the next three years).
Financials Summary
Rupin Shah
rupin.shah@hdfcsec.com
+91 22 6171 7337
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
4,301
454
298
13.6
36.6
23.5
(0.5)
35.3
33.4
FY15
4,928
579
394
18.0
27.7
18.4
(0.2)
36.6
35.0
FY16E
5,422
808
504
22.9
21.7
13.2
(0.3)
36.3
35.2
FY17E
6,538
1,002
624
28.4
17.5
10.6
(0.3)
35.0
33.9
FY18E
7,652
1,226
767
34.9
14.2
8.7
(0.3)
33.8
33.0
Page | 6

Jamna Auto: Margins spring a
positive surprise
Jamna Auto
boost medium-term volume growth prospects.
(TP Rs 185, CMP Rs 132, MCap Rs 11bn. BUY)
Dominant player in OEM segment: Jamna Auto
(JAI) is the third-largest player globally (in terms of

installed capacity) and the largest in India, with
66% OEM market share in leaf springs used in CVs.
We believe the company will be a key beneficiary
of the ongoing upcycle in MHCVs and nascent
recovery in LCVs.
Aiming to grow non-cyclical revenue streams:

While the aftermarket segment for leaf springs is
1.2x the OEM market, it is largely fragmented and
unorganised. We believe that GST could act as a
catalyst for lowering the pricing gap between the
organised and unorganised players (from Rs 1315k/MT to Rs 3-5k/MT). JAI has built up an
extensive aftermarket network with 1,300 direct
and 5,500 secondary dealers. We believe this can
Gaining traction in higher value-added product
segments: Parabolic springs account for ~20% of

JAIs volumes, which, we believe, will rise with
modernisation in trucks. The company has
witnessed healthy growth in lift axles, which
contribute almost 10% to revenues. We reckon
that adoption will continue to rise given the
relatively low pay-back for this product. Rising
share of value-added products will structurally
improve JAIs margins.
Valuations: The stock currently trades at 12.9x
FY17E, which is in line with its past five-year

average. The stock deserves to trade at higher
valuations given the healthy 49% CAGR in APAT
over FY15-18E, ~30% RoE, B/S turning net cash by
FY18, and consistent track record of FCF
generation. Our TP is of Rs 185.
Financials Summary
Navin Matta
navin. matta@hdfcsec.com
+91 22 6171 7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91 22 6171 7336
(Rs mn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
8,333
482
-26
-0.3
NM
23.9
0.6
7.8
NM
FY15
10,950
945
294
3.7
35.6
11.6
0.3
15.5
13.6
FY16E
12,185
1,426
643
8.1
16.3
7.7
0.2
29.6
25.0
FY17E
13,788
1,698
813
10.2
12.9
6.3
0.1
30.7
26.7
FY18E
15,745
1,962
981
12.3
10.7
5.2
-0.1
30.5
27.3
Page | 7

Tata Motors: JLR posts decent
show; India business steady
Tata Motors
(TP Rs 434, CMP Rs 366, MCap Rs 1,057bn)
JLR volume growth recovering: After a tepid
performance in 1HFY16, JLRs volume growth has

recovered in the past few months and YTD growth
stands at 15%. We believe volume momentum will
continue to remain healthy as upgraded XF/XJ and
F-Pace volumes reflect over the next few months.
We expect the benefits of its strong new product
cycle to continue in FY17, with the likely launch of
Discovery replacement and Evoque XL.
JLR's margins to recover: JLRs underlying margins
were impacted in 3QFY16 with hedging losses.

However, adjusted for this, margins actually came
in at 15.9%. We believe lower commodity prices,
improvement in utilisation of ingenium engines

and operating leverage will drive further
improvement in JLR's margins in 4QFY17.
Standalone business on recovery path: We expect
Tata Motors' standalone business to witness a

turnaround on the back of a cyclical upturn in
MHCV demand and new product cycle in the PV
business. Focus on cost control and improvement
in volume momentum will aid margin recovery.
Valuations: At current levels, Tata Motors trades
at 3.4x EV/EBITDA on FY17E basis, which is below

its historical mean. We believe valuations are fairly
attractive in the context of improving growth
prospects for JLR/standalone business. Our SOTPbased TP is Rs 434.
Financials Summary
Navin Matta
navin. matta@hdfcsec.com
+91 22 6171 7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91 22 6171 7336
(Rs bn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
2,328
348
150
46.5
7.9
3.5
0.1
29.0
16.8
FY15
2,628
395
145
45.0
8.1
3.2
0.2
23.8
13.6
FY16E
2,627
351
122
35.9
10.2
4.0
0.2
19.0
11.4
FY17E
2,985
421
159
46.8
7.8
3.4
0.2
20.0
12.4
FY18E
3,236
462
182
53.7
6.8
3.0
0.1
19.1
12.5
Page | 8

Asian Paints: Hues of growth
Consumer
Asian Paints
Despite stiff valuations, Asian Paints makes the cut
purely on account of its alignment with rural and

urban housing revival, consistent volume growth,
and pricing power. Additionally, with a 54%
market share, APLs clear leadership extends
across segments - economy, mid and premium.
Rains, govt initiatives to help: A normal monsoon
will release pent up demand, while incremental

government spend in rural areas will augment
purchasing power.
Housing and infra revival to aid growth: Ongoing

investments in infrastructure and housing are
likely to accelerate painting activities. In addition,
activities like urbanisation, kachha ghar to pakka
ghar will boost demand sustainably.
RM tailwinds to continue: As most RM costs are
linked to crude, benefits of benign crude prices
will help the company maintain its gross margins,

currently running at 47%.
Market-share gain expected: APL has a stronger
presence in rural markets compared to its peers. A
significant proportion of its incremental volume
growth is derived from tapping new geographies
in rural areas. With expected improvement in rural
macros, we believe that market-share gains will
accrue for APL.
Room for positive surprise: Our assumptions build
in a hefty hike in selling and distribution expenses
to 15.1% in FY18E from 14.2% in FY15 (highest in
17 years). A&P spends typically level off or decline
in a better demand environment. We believe
there are upside risks to our margin and profit
estimates.
Rich valuations: At CMP, the stock is trading at
41/36x FY17/18E EPS. We think potential earnings
upgrades and a favourable business environment
can drive up the stock. Our TP is Rs 937 based on
39x 1-year rolling forward.
Financials Summary
Sachin Bobade
sachin.bobade@hdfcsec.com
+91 22 6171 7329
Mehernosh Panthaki
mehernosh.panthaki@hdfcsec.com
+91 22 6171 7340
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
1,27,148
20,161
12,121
12.6
69.2
41.6
(0.1)
32.7
28.6
FY15
1,41,828
22,227
13,925
14.5
60.3
37.9
(0.2)
31.7
27.4
FY16E
1,54,992
28,050
17,856
18.6
47.0
29.8
(0.3)
33.8
29.3
FY17E
1,76,752
31,791
20,224
21.1
41.5
26.0
(0.3)
31.2
27.6
FY18E
2,04,909
36,312
23,228
24.2
36.1
22.4
(0.4)
29.6
26.5
Page | 9

Gulf Oil Lubricants: Smooth ride
Mehernosh Panthaki
mehernosh.panthaki@hdfcsec.com
+91 22 6171 7340
Sachin Bobade
sachin.bobade@hdfcsec.com
+91 22 6171 7329
Gulf Oil Lubricants
The recently launched entry-level synthetic engine

Consistently outperforming peers: Brand building
efforts, expansion of retail reach and product
innovations have helped GOL post 8.1% vol CAGR
over FY10-15. It outperformed leaders Castrol (1%) and Tide Water Oil (+2.8%) over this period.
In 9mFY16, GOLs volume growth improved to 9%,
better than the industry (flat to marginally
positive) and Castrol (-3% in CY15). GOLs volume
market share improved 260bps to 7% over FY1115 in the bazaar (retail) segment (70% of total
sales). GOL is likely to be a key beneficiary of the
cyclical revival in autos and GDP/IIP growth in
India. Its target of outpacing industry volume
growth 2-3x looks achievable. A new facility in
Chennai and tie-ups with OEMs will help boost
volumes and market share.
Presence in high-margin personal mobility space:
Apart from CVs (~45% of revenues), the company
plans to boost its presence in personal mobility,
which gives better margins. With strong branding,
marketing and distribution, improvement in 2Ws
is visible (revenue share up from 9% in FY09 to
18% in FY15; ~20% in 9mFY16).
Financials Summary (Rs mn)
Net Sales
EBIDTA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY15
9,675
1,294
774
15.6
29.8
18.1
0.2
41.4
21.9
oil 'Gulf Ultrasynth X' for mid-sized cars may help

gain market share (currently 3.5-4% in PVs). Gulf
Oil reported double-digit growth in PVs in 3QFY16.
Scope for margin gains: GOL's gross margins (GM)
improved from 38.7% in 1QFY15 to 45.9% in

3QFY16, aided by a sharp crude-driven decline in
base oil prices (down ~40% over the past year).
While soft RMs should persist as margin levers in
the near term, structural levers like pricing power,
improving sales mix and operating leverage (from
upcoming capacity in Chennai) will drive margins
over the long term. We expect GOLs GM to
improve 710bps to 46% and EBITDA margins to
expand 430bps to 17.7% over FY15-18.
Valuation and recommendation: We expect GOLs
revenues and PAT at 11.8% and 22.7% CAGR over

FY15-18E. At CMP, the stock trades at 17x 1-yr
forward rolling EPS (28% discount to Castrol). We
feel GOL is undervalued despite low leverage,
superior return ratios (~40.5% RoE FY18E), steady
market share gains, healthy dividend payout (35%)
and growth prospects. Our TP is Rs 685 (25x 1year forward rolling EPS).
FY16E
10,209
1,605
994
20.0
23.2
14.4
0.0
46.0
26.5
FY17E
11,460
1,907
1,146
23.1
20.2
12.3
0.2
41.2
26.4
FY18E
13,520
2,393
1,429
28.8
16.2
9.5
(0.1)
40.5
27.6
Page | 10

Infosys: A hat-trick (of
outperformance)!
IT
Infosys
(TP Rs 1400, CMP Rs 1193, MCap Rs 2,728bn)
Under Dr Vishal Sikka, Infosys has taken initiatives
to grow its digital practice, reduce delivery cost
through automation, and drive sales effectiveness
by targeting its top15 customers. This strategic
approach is bearing fruit, which is evident in the
third consecutive quarter of OPF. We believe the
managements long-term vision to touch US$ 20bn
in revenue, 30% EBIT margin and US$ 80,000
revenue/employee by 2020 is on track.
Increase in guidance reaffirms faith: The upgrade
in CC and USD revenue guidance to 12.8-13.2%
(10-12% earlier) and 8.9-9.3% (6.4-8.4% earlier),
respectively, suggest strong growth momentum
and near-term visibility. Continuing deal
momentum, and focus on automation, digital
platforms and innovation have reaffirmed our
faith in Infosys revenue trajectory. We expect its
US$ revenue growth to accelerate to 11.5/13.4%
in FY17E/FY18E vs. 9.1% in FY16E.
Impressive deal wins: Infosys large deal TCV
increased from a quarterly average of ~US$
500mn in FY15 to ~US$ 900mn at present. The

management expects it to touch US$ 1.5bn
quarterly. Infosys won nearly US$ 1bn TCV of large
deals, including US$ 600mn renewals.
Efficient cash utilisation: Infosys acquired (1)
Kallidus Inc (Digital solutions) and (2) Noha

(Consulting) in 2015, which is in line with the longterm strategy and will boost RoE. Higher dividend
of 50% and its second bonus issue of 1:1 in the
past two years also signify greater willingness and
intent to use the cash and reserves more
efficiently.
Continued OPF vs. peers: Our positive view on
Infosys is based on its strong deal pipeline,

improved deal wins, strong volume-led growth (5th
consecutive quarter of double-digit growth) and
strong automation capabilities (which is easing
pricing pressure on the legacy business). Infosys
current valuation of 15.6x FY18E EPS, dividend
yield of nearly 3.5%, improving revenue/EPS
growth and healthy 24% RoE make it an attractive
buy in the IT space. Our TP is Rs 1,400 at ~18x
FY18E EPS.
Financials Snapshot Consolidated
Amit Chandra
amit.chandra@hdfcsec.com
+91 22 6171 7345
(Rs mn)
Net Sales
EBIT
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY15
533,190
138,320
123,310
53.9
22.1
15.3
(0.6)
24.1
19.3
FY16E
620,402
154,712
134,570
58.9
20.3
13.3
(0.6)
23.4
19.3
FY17E
699,283
175,938
156,047
68.3
17.5
11.4
(0.6)
24.5
19.8
FY18E
792,796
201,521
174,442
76.3
15.6
9.7
(0.6)
24.8
20.2
Page | 11

Zensar Technologies: Zen and the
art of Digital
revenue (Oracle revenue should be US$ 100mn,

over 2x from current run rate).
Zensar Technologies
(TP Rs 1,070, CMP Rs 855, MCap Rs 38bn, BUY)
Zensar Technologies is an RPG Group company,
with strong IT services and digital capabilities. Its

key focus area is digital, which has risen from 5%
of revenues to 26% over three years. It has a solid
track record of growth 23/22/19% rev/EBITDA/EPS
CAGR over the past four years.
All-time high deal pipeline: The deal pipeline is at
an all-time high at US$ 592mn (around 25%

digital), giving comfort on revenue visibility (we
expect 12% USD revenue CAGR over FY16-18E and
70bps EBITDA margin expansion to 16% in FY18E
vs. 15.3% in FY16E).
Oracle e-commerce to be growth driver: Zensar
has a strong relationship with Oracle, aided by PA
acquisition and strength in cloud-based Oracle
ERP. Zensar meets all of Oracles criteria for
diamond partnership (the highest level) except
Apax Partners has bought 23.23% stake in Zensar
for Rs 8.59bn (Rs 830/sh). This is likely based on

confidence that sales will rise at Zensar, with a
focus on scaling up the digital business.
Two key management changes: Sandeep Kishore
has taken over as CEO and MD and Pinaki Kar is

head of the IMS business.
Margins to improve, led by IMS: We expect
Zensars margin profile to improve with higher

services focus in IMS. It is hiving off the lossmaking product business. EBITDA margin should
rise from 14.7% in FY15 to 16% in FY18E.
Maintain BUY, TP of Rs 1,070/sh. We expect

13/16% revenue/EPS CAGR over FY16-FY18E.
Zensar trades at only 10.3/8.8x FY17/FY18E EPS
(~40% discount to peers like Mindtree and
Hexaware).
Financials Summary - Consolidated
Amit Chandra
+91 22 6171 7345
(Rs mn)
Net Revenues
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
Source: Company, HDFC sec Inst research
FY14
23,350
3,581
2,375
53.5
16.0
10.2
(0.1)
27.6
18.2
FY15
26,558
3,917
2,645
59.6
14.3
9.4
(0.1)
24.6
17.2
FY16E
30,095
4,617
3,174
72.1
11.9
7.5
(0.2)
24.3
17.6
FY17E
34,018
5,312
3,636
82.6
10.3
6.1
(0.3)
22.9
16.9
FY18E
38,178
6,126
4,298
97.5
8.8
4.8
(0.4)
22.4
16.9
Page | 12

Majesco Ltd: Order book powers
up
Majesco Ltd
Majesco Ltd is a spin-off of the insurance business
unit of Mastek. Majesco US (listed in NYSE) is a
70% subsidiary of Majesco Ltd. It provides core
software solutions to the US P&C, and L&A
insurance companies. In FY15, Majesco Ltd had
consol revenues of US$ 106mn, ~155 customers
and 2,164 employees. The business has grown
strongly in the past three years (22% CAGR), while
the P&C segment has clocked a CAGR of 36% over
FY12-FY15.
Strong order backlog: Majesco registered
excellent growth in the 12-month order backlog,
up 17.4% QoQ to Rs 4.2bn, led by four new client
wins and cross sell. We expect healthy order wins
by insurance clients across tiers to drive revenue
growth in FY17E and FY18E (our estimate 30% and
27%, respectively)
Cloud offering to be major growth driver:
Majesco has built cloud, big data, analytics and
business intelligence capabilities, which we expect

will be the key revenue growth drivers over the
next several years. This can be a key differentiator
as its major competitor, Guidewire, does not have
a comprehensive cloud offering. Deal wins remain
strong in the cloud space; MMG and QBE are
major Tier-1 additions and can be used as strong
reference points.
Highly rated product: The addressable market is
huge at US$ 9.25bn, with only 10-15% penetration

by third-party vendors. High ranking of Majescos
P&C suite by industry analysts will improve
acceptance and cross-selling opportunities.
Maintain BUY, TP of Rs 915/sh: Our positive
stance on Majesco is backed by strong revenue

growth (30/27% for FY17E/FY18E) and cheap
valuation vs. Guidewire (1-year forward EV/rev
~7x, Majesco ~1.3x, >80% discount). Our TP is Rs
915 based on 2.4x EV/revenue, implying 62%
upside (65% discount to Guidewires EV/rev).
Financials Summary (Consolidated)

(Rs mn)
Amit Chandra
+91 22 6171 7345
3QFY16
2QFY16
QoQ (%)
9MFY16
FY16E
FY17E
FY18E
Net Revenues
1,980
EBITDA
(27)
APAT
86
Diluted EPS (Rs)
3.8
P/E (x)
EV / Revenue (x)
Net D/E (x)
RoE (%)
RoCE (%)
Source: Company, HDFC sec Inst research
1,874
13
14
0.6
5.6
NM
506.4
506.4
5,355
72
135
2.2
N.M.
1.7
(0.3)
N.M.
N.M.
7,481
111
133
5.8
97.2
1.6
(0.3)
4.8
N.M.
9,618
545
162
7.1
79.5
1.3
(0.3)
5.7
3.5
12,193
1,313
534
23.4
24.1
0.9
(0.4)
16.8
10.4
Page | 13

Sanghi Industries: Delivering in a
tough quarter
Materials
Sanghi Industries
SNGI
has multiple levers of profitability

improvement: product mix, volume growth, and
transportation. While product mix shift (towards
PPC) and improvement in coastal transportation
will take a while to play out, improvement in
volumes should be visible in the near future (YTD
14% growth). SNGI commissioned a 1.2mTPA
grinding unit (at the existing location) in Jul-15,
which is driving volume growth.

Sanghi Industries (SNGI) operates a 4mTPA cement
(3.3mTPA clinker) capacity in Kutch, Gujarat. It has
soft marine limestone mines spread over ~1,500
hectares (containing ~1bn tonnes of limestone
reserves). The operations are fully integrated with
captive power (63MW) and can use lignite/petcoke/coal in both kiln and CPP. SNGI has a captive
jetty within 1km of the cement grinding plant. The
company also exports clinker from Kutch,
opportunistically tapping the cement markets in the
Middle East and Africa.
The stock trades at ~5.3-3.1x EV/EBITDA and ~US$
55/t. Net debt for FY15-end was ~Rs5.3bn (D/E:

0.58x, FCFE yield ~12%), even as earnings/RoEs
appear depressed owing to high asset base and
resultant depreciation. Cash flows (at existing
profitability levels) are strong enough to pay the
debt in the next two years. The next phase of
capacity build-out can now begin, truly exploiting
the billion-tonne limestone reserves.
SNGIs profitability is driven by low-cost raw
material, essentially surface mined limestone. The

proximity to lignite mines of GMDC, ability to
import coal at its captive jetty and excess captive
power allow low energy costs. On the flipside, low
blending (FY15 C:C ratio at 1.1x) and a very high
proportion of road transport eat into profitability.
We have a BUY with a TP of Rs 75/sh (5.0x Sep-17

EBITDA, US$ 75/t).
Financials Summary
Ankur Kulshrestha
ankur.kulshrestha@hdfcsec.com
+91 22 6171 7346
Anuj Shah
anuj.shah@hdfcsec.com
+91 22 6171 7321
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
10,459
1,948
496
2.3
25.3
9.3
0.7
5.7
4.8
FY15
9,310
1,561
306
1.4
41.0
11.1
0.6
3.4
3.5
FY16E
7,499
1,168
353
1.6
26.6
10.9
0.5
5.1
6.2
FY17E
12,711
2,804
1,394
6.3
9.0
5.5
0.3
13.7
13.1
FY18E
15,817
3,925
2,417
11.0
5.2
3.3
0.1
20.0
17.6
Page | 14
Refer to our latest report on

MOIL: Floor in sight?
MOIL
to US$ 3.59/dmtu. This jump, driven by restocking

demand, may be short-lived once the short-term
demand from mills in Hebei dies down.
(TP Rs 241, CMP Rs 220, Mcap Rs 37bn, BUY)

Manganese (Mn) is a critical steel input and a source
of important mechanical properties in finished steel.
It is mostly used in the alloy form such as Silicomanganese (~65%) and Ferro-manganese (~35%).
With China consuming ~60% of the global output in
contained metal terms, the slowdown in its economy
has hit Mn ore prices. India imports >50% of its
domestic requirement, as domestic ores are of a
lower grade.
However, Mn ore prices had dropped considerably
near Dec-end and early-Jan (bottom of US$

1.74/dmtu) and rendered ~70-75% of the global
capacity unremunerative (CRU estimated only 2530% capacity to be C1 cash profitable at January
prices).
Riding on the recent jump in Mn ore pricing, MOIL
recently removed discounts. This sharp jump may

enable MOIL to further increase prices when it
next announces pricing in early April.
MOIL is attractively positioned because (1) It is the
only domestic producer of high-grade ores, (2) 1st

quartile cash costs, (3) Long reserve life (30+
years), and (4) Cash on balance sheet (~Rs 170/sh).
The Metal Bulletin recently reported a sharp jump
We have a BUY with a TP of Rs 241 (5.0x FY
EV/EBITDA). Cash on books currently represents

~80% of the market cap.
in Mn ore prices (44% Mn content, CIF ex-Tianjin)
Financials Summary
Ankur Kulshrestha
ankur.kulshrestha@hdfcsec.com
+91 22 6171 7346
Anuj Shah
anuj.shah@hdfcsec.com
+91 22 6171 7321
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
10,213
5,546
5,096
30.3
7.3
1.4
NM
17.3
17.3
FY15
8,233
4,159
4,280
25.5
8.6
1.9
NM
13.2
14.0
FY16E
5,264
1,048
2,106
12.5
17.6
7.2
NM
6.2
6.2
FY17E
6,604
1,336
1,963
11.7
18.8
6.3
NM
5.7
5.7
FY18E
7,932
2,513
2,657
15.8
13.9
3.3
NM
7.6
7.6
Page | 15

IGL: Falling in place
Oil & Gas, Chemicals

IGL
gas prices, and (2) Price hike in May-15 to

compensate for weaker INR.
We see several positives building up for IGL: (1)
Negotiations with RasGas have brought the prices

of long-term RLNG closer to spot. IGL's industrial
segment (~20% volume) will benefit as RLNG
prices were higher than fuel oil, (2) Delhi
governments focus on reducing pollution should
lead to increase in CNG-run public and private
transport and (3) CNGs competitiveness over
petrol/diesel will increase. CNG prices will reduce
from 1-Apr-16 in line with the decline in domestic
gas prices. However, petrol/diesel prices (driven
by crude and taxes) are unlikely to fall hereon.
Robust business model: IGL has a secular and
monopolistic business model. A favourable

judgement in the tariff dispute with PNGRB has
removed the overhang from the stock. A series of
actions by IGL demonstrate its pricing power: (1)
Lower-than-matching reduction in CNG prices in
Apr-15 and Oct-15 following a drop in domestic
Strong financials despite muted past: IGL had a
volume growth of only 2.3% over FY13-16E.

Margin pressure further resulted in EBITDA CAGR
of mere 0.7%. Despite this, IGL remains a net cash
company with RoCE of ~18%. It had an operating
cash flow of ~Rs 6bn in FY15, which is ~8% of the
current market cap.
Investments in fast growing areas: IGL owns 50%
stake in CUGL (Kanpur/Bareilly) and 50% in MNGL

(Pune and nearby areas). The combined entity will
have a volume of ~0.6 mmscmd in FY16 and is
likely to grow in double digits. We expect it to
contribute ~10% to IGLs consolidated profits.
Attractive valuation: IGL is likely to generate free
cash flow of ~Rs 4bn/year over FY16-18E. At CMP,

OCF yield is ~7.5% and FCF is ~5%. Margins have
bottomed out and are expected to improve with
rising volumes. Our TP is Rs 610/sh (15x 12
months rolling fwd EPS).
Financials Summary
Satish Mishra
satish.mishra@hdfcsec.com
+91 22 6171 7334
Deepak Kolhe
deepak.kolhe@hdfcsec.com
+91 22 6171 7316
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
39,138
7,824
3,603
25.7
20.2
9.3
0.0
22.1
18.9
FY15
36,810
7,930
4,377
31.3
16.6
9.3
(0.1)
22.7
20.0
FY16E
37,989
7,732
4,215
30.1
17.3
9.9
(0.2)
18.7
17.1
FY17E
37,167
8,296
4,592
32.8
15.9
9.6
(0.2)
17.7
16.6
FY18E
40,832
9,445
5,373
38.4
13.5
8.8
(0.3)
18.1
17.2
Page | 16

Rallis India: Waiting for a sign
Rallis India
Indian agriculture proxy: Rallis is a direct
beneficiary of the Indian agriculture growth story.

Lower penetration of agrochemicals in the country
and its cost advantage underpin long-term growth.
A strong brand, complete portfolio, extensive
distribution network and strong balance sheet will
help Rallis gain market share when the wind
changes direction.
Long-term drivers intact: (1) Focus on new 9(3)
product launches, (2) Robust growth potential in

the seeds business. The company may go the
inorganic route to complete its portfolio, and (3)
Likely pick-up in custom synthesis revenues from

FY17.
Challenging FY16 is discounted: FY16 has been a
washout year for Rallis because of (1) The second
consecutive year of rain deficit in India, (2) Weaker
Latin American and European currencies, (3)
Muted international prices of agri-commodities,
and (4) Unfavourable weather conditions in Brazil.
Attractive valuation: The stock has corrected by
~30% in the past year. With fundamental triggers
intact, a good monsoon in 2016 may turn things
around. Rallis is trading at 14.6/3.0x FY18E
EPS/BV. Attractive valuation, no leverage, strong
RoE/RoCE and new product launches are key
positives for the stock. Our TP is Rs 200 (18x 12
months rolling forward EPS).
Satish Mishra
+91 22 6171 7334
Deepak Kolhe
+91 22 6171 7316
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
17,466
2,613
1,519
7.8
22.4
13.3
0.1
22.7
20.1
FY15
18,218
2,771
1,572
8.1
21.6
12.7
0.1
20.5
17.8
FY16E
15,937
2,326
1,334
6.9
25.5
14.9
0.1
15.6
13.9
FY17E
18,306
2,909
1,722
8.9
19.8
11.7
0.0
18.3
16.3
FY18E
21,636
3,659
2,310
11.9
14.7
9.1
(0.1)
21.7
20.0
Page | 17

Reliance Industries: Laggard to
leader
Reliance Industries
(TP Rs 1,155 CMP Rs 1,027, MCap Rs 3,328bn, BUY)
Our positive stance on RIL is based on the US$
17bn capex in its core refining and chemicals

business. Visibility is high and execution risk is
negligible, given that this is Reliances core
business (unlike its foray into telecom). About 60%
of the benefits accruing from this capex will come
in FY17 (boosting EBITDA by 42% over FY15) and
the rest in FY18.
We believe the company has crossed the
underperformance phase and is now poised to

deliver sustainable EBITDA growth. RIL will surpass
FY11 EBITDA in FY16 and this core capex will lead
to ~15% CAGR in EBITDA over FY15-18E.
Refining and petchem margins are likely to remain
strong, led by robust incremental demand at lower

prices. RIL with its superior operational
capabilities, ability to tweak crude mix and
product slate will sail through any near-term
pressure.
RIL plans to invest about US$ 18bn in R-Jio. It is
difficult to ascertain returns on the investment.

However, RIL is expected to gain significant market
share in the telecom sector after rolling out its
affordable services. R-Jio is likely to contribute to
EBITDA from the fourth year of its launch.
Our SOTP target for Reliance Industries is Rs
1,155/sh. We have given 20% discount to

investments made in shale (~US$ 8.5bn) and
telecom (~US$ 13bn) assets as of Dec-15.
Financials Summary - Standalone
Satish Mishra
+91 22 6171 7334
Deepak Kolhe
+91 22 6171 7316
(Rs bn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
3,901
309
220
67.9
15.0
10.6
0.1
11.7
9.1
FY15
3,291
316
227
70.2
14.5
10.4
0.1
11.0
8.0
FY16E
2,435
399
272
83.9
12.1
8.2
0.2
11.9
8.6
FY17E
2,517
448
308
95.2
10.7
7.3
0.2
12.2
9.0
FY18E
2,834
528
365
112.9
9.0
6.2
0.1
13.0
10.0
Page | 18

Crompton Greaves: Lower
valuation, higher visibility
Capital Goods & Power

Crompton Greaves
(TP Rs 67, CMP Rs 48, MCap Rs 30bn)
With the sale of its international power business
and closure of the projects business in the

remaining geographies, Crompton is well geared
to turn profitable in international operations.
is likely to be non-cash in nature. Potentially, these

write-offs could also bring in a tax shield for the
company. We await clearer understanding on this
issue from the management.
For the balance business (ex-sold/shutdown), we
business, where visibility continues to be robust

given Power Grids capex plans and likely increase
in SEB/Discom capex post the UDAY scheme.
build in ~7.6% revenue CAGR over the FY16-18E

period and steady state margins of 7.7%. We
expect Crompton to clock EBITDA of Rs 4.5bn in
FY18E. Assuming the company to be debt free
(net) in FY17, the implied EV/EBITDA stands at 6.4x
for FY18E.
The sale of the international operations will also
We believe this is quite attractive in light of the
The company can now focus on the domestic
enable the company to be net cash (on

consolidated basis) by the end of FY17E. Over the
next 2-3 quarters, Crompton will recognise
losses/write-offs on the transaction. However, this
exit from businesses that dragged overall

performance. Also, Crompton now has fewer
moving parts with the residual businesses being
cash flow positive. Our TP is Rs 67/sh.
Financials Summary
Pawan Parakh
pawan.parakh@hdfcsec.com
+91 22 6171 7314
(Rs mn)
FY14
FY15
FY16E
FY17E
FY18E
Net Sales
134,806
140,131
118,282
95,189
105,055
Adjusted EBITDA
6,820
5,950
3,795
3,273
7,053
APAT
2,443
1,367
(850)
(791)
2,521
Diluted EPS (Rs)
3.9
2.2
(1.4)
(1.3)
4.0
P/E (x)
NA
NA
(35.2)
(37.8)
11.9
EV / EBITDA (x)
NA
NA
13.8
14.5
7.2
Net D/E (x)
0.4
0.5
0.6
0.5
0.6
RoE (%)
6.8
3.7
(2.3)
(2.2)
7.0
RoCE (%)
5.8
3.4
(0.7)
(5.4)
5.6
Note: FY14-15 P/E not comparable post the consumer business demerger. The estimates for international business would be revised post
clarity on timelines on the sale transaction
Page | 19

Inox Wind: Late entrant, but
meaningful presence
Inox Wind
After a disappointing 3QFY16, our interaction with
Inox Wind suggests that the company has

recouped the lost volumes in 4QFY16.
Consequently, we expect a strong performance in
this quarter.
The interaction at our recent 360-degree
Renewables Forum paints a positive picture on the

long-term opportunity for the wind sector. Inox
has built a strong clientele of IPPs and institutional
investors to capture the upcoming growth
opportunity. Its order book stands robust at
~1,200MW.
Inox recently commissioned its new facility in
Madhya Pradesh, taking its annual capacity to

1,600MW. This will help in driving up volumes to
1,050MW and 1,250MW in FY17E and FY18E,

respectively. With the new 113m rotor diameter
WTG receiving type certification, realisations are
set to improve (Rs 65mn/MW vs. blended
realisations of Rs 60mn/MW).
Inox also secured the licence to manufacture ECS
systems locally (up to 45%), which will help in

rationalising costs and reducing dependence on an
external supplier.
What drives our high conviction on Inox is its
asset-light business model and a strong balance

sheet. Inox earns an impressive 27% ROE with
fixed asset turns of ~10x while maintaining a very
comfortable leverage of just 0.2x net D/E. This
clearly reflects the high quality of its business,
available at 8.4x FY18E EPS and 5.7x FY18E
EV/EBITDA. Reiterate BUY with a TP of Rs 475
based on 10x FY18E EV/EBITDA.
Financials Summary
Pawan Parakh
pawan.parakh@hdfcsec.com
+91 22 6171 7314
(Rs mn)
Net Sales
Adjusted EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
15,668
1,763
1,323
6.6
40.2
33.1
1.2
36.6
27.1
FY15
27,099
4,259
2,964
13.4
19.9
14.3
0.1
32.6
27.8
FY16E
43,647
7,009
4,361
19.7
13.5
9.0
0.2
27.1
24.1
FY17E
53,632
8,710
5,442
24.5
10.9
7.1
0.1
25.9
21.7
FY18E
64,631
10,865
6,990
31.5
8.4
5.7
0.1
26.7
22.8
Page | 20
Power Grid
targeting capitalisation of R s300bn in FY16E (Rs

268bn for 9mFY16) and Rs 260-280bn for FY17E.
(CMP Rs 137, MCap Rs 716bn)
Our confidence on PGCIL is based on (1) It is a pure
play on regulated transmission business with RoE

of 15.5%, (2) Significant pick-up in capitalisation
will result in healthy EPS growth (EPS CAGR of 18%
over FY15-FY18E), (3) Strong capex momentum
will sustain with the governments thrust on
expanding and strengthening T&D infrastructure,
and (4) PGCILs assured RoE business model with
cost pass through is compelling in an easing
interest rates scenario.
Strong 3QFY16: PGCILs 3QFY16 PAT at Rs16.1bn

was up 28% YoY. 9mFY16 PAT at Rs44.3bn was up
by 22%YoY.
Healthy capitalisation: Capitalisation in 3QFY16
was Rs172bn (140% YoY growth), driven by the

commissioning of a large part of the North EastAgra HVDC line (Rs 90bn). The management is
Healthy capex trend will sustain: PGCIL is
targeting capex of Rs 225bn each in FY16E

(9mFY16 capex at Rs 169bn) and FY17E. Further,
the company has Rs 1250bn of work for the next
4-5 years. Hence, average annual capex run rate
will sustain at Rs 250bn for the next five years.
North East-Agra HVDC overhang cleared: CERC
has
directed
that
the
North
EastNorthern/Western Interconnector-I project is of
strategic and national importance and has also
approved the provisional tariff.
Valuation is comfortable as the stock currently

trades at P/E of 9.3x and P/B of 1.3x of Sep-17E.
We remain confident on PGCIL and will resume
coverage soon. Our fair value of Rs 175 for PGCIL
is based on 1.6x FY18E BV of Rs 109.5/sh.
Financials Summary
(Rs mn)
FY14
FY15
FY16E
FY17E
FY18E
Net Sales
150,390
171,772
202,691
241,202
271,353
EBITDA
128,800
149,127
175,970
211,164
240,727
44,974
49,792
59,279
71,999
82,694
PAT
Diluted EPS (Rs)
Maulik Doshi
maulik.doshi@hdfcsec.com
+91 22 6171 7325
8.6
9.5
11.3
13.8
15.8
P/E
15.9
14.4
12.1
9.9
8.7
EV/EBITDA
11.7
11.0
10.2
9.3
8.6
Net D/E
2.3
2.4
2.4
2.4
2.3
RoE (%)
14.8
13.7
14.2
14.8
15.1
5.8
6.1
6.4
6.7
6.9
RoCE (%)
Page | 21

Cipla: Better days ahead
Pharmaceuticals
Cipla
Cipla is our top pick in the pharma space because
of its (1) Strong regulatory track record, (2) Clear
visibility of earnings growth over the next few
years, (3) Technical capabilities to turn around
complex generics and (4) Attractive valuations.
Generic Seretide MDI approval in the UK is the key
trigger. However, its delay is probably because of

Cipla seeking Q1/Q2 (qualitative and quantitative)
sameness with GSK. Once approved, Cipla's
generic will have an advantage over Mylan's,
which is not fully interchangeable as it does not
have Q1/Q2 sameness.
In the 3QFY16 earnings call, the management said
they were close to receiving the approval. Since

the company regularly receives complex generic
approvals in regulated markets (Pulmicort in the
US, Ipratromium and Salmeterol Inhalers in the
UK), we are confident about Ciplas capability to
turn around the opportunities like Seretide MDI.
Ciplas 3QFY16 numbers took a hit owing to (1)

One-time impact of change in distribution policy in
the domestic business, (2) Earlier-than-expected

erosion in Nexium, (3) Increase in R&D spend and
(4) Currency devaluation in South Africa.
However, we expect a significant recovery in 4Q
(18.5% EBITDA margin and 37% EPS growth) on
account of Pulmicort in the US and recovery in the
domestic business.
Consolidation of Invagen, full-year sales of
Pulmicort in the US, launch of Seretide MDI in the

UK, a few niche launches (US$ 15-20mn potential)
by the company's own front-end in the US and
recovery in domestic business on a low base of
FY16 are the key earnings drivers in FY17.
Renvela/Renagel and Fosrenol from Invagen,
unfolding of the oncology pipeline and smaller

respiratory opportunities (like Tobi inhalation
solution, some nasal sprays and single-drug
inhalers) should drive earnings in FY18.
We forecast ~22% EPS CAGR over FY16-18E and

our earnings estimates for FY16E/17E/FY18E are
Rs 21.5/26.4/32.2. Our TP is Rs 709 (22x FY18E
EPS). At CMP, Cipla is trading at 20/16.4x on
FY17E/FY18E EPS.
Financials Summary
Vivek Agrawal
vivek.agrawal@hdfcsec.com
+91 22 6171 7331
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
99,708
20039.7
13,630
17.3
30.5
21.5
0.1
14.6
16.9
FY15
113,454
21616.9
11,808
14.7
35.9
20.0
0.1
11.3
14.2
FY16E
138,688
29220.5
17,249
21.5
24.6
15.5
0.2
15.0
17.1
FY17E
170,254
36437.9
21,164
26.4
20.0
12.2
0.1
16.0
17.7
FY18E
197,093
42647.2
25,867
32.2
16.4
10.1
0.0
16.9
20.1
Page | 22

ITD Cementation: A new start
Infrastructure
ITD Cementation
in JNPT project are the key reasons for the sharp

improvement. Consolidated net D/E reduced to
0.9x YoY.

ITD Cementation (ITDC) has emerged from nearinsolvency through an equity fund raise and timely
recovery of overdue receivables from NHAI. It is now
gearing up to capture niche and profitable growth
opportunities. The managements focus is on
improving bid success rate in high-margin, low
competitive intensity and specialist segments. The
approach is asset light and JV driven, with strong
emphasis on cash flows.
Margins improvement will be the next key trigger
and we believe significant expansion to play out

from 3QCY16E. The current order book (Rs 52bn)
has blended margins of 7.5%, while L1 orders (Rs
40bn) stack up with 10-11% margins.
Potential to tap large-scale infra projects: ITD is
looking for international tie-ups to bid for bigticket infrastructure projects like Mumbai Transharbour link, coastal roads, Metro and airports
projects. This will incrementally add to the order
and envisage limited capital requirement owing to
the EPC nature of the projects.
Strong order backlog: ITD currently has an order
book of Rs 52bn (1.7x CY15 revenue), excluding L1

orders of Rs 40bn. L1 includes Rs 12bn of
Udangudi Port Project, Rs 12bn Mumbai Metro
Line III (the scope may get revised to Rs 18bn as
ITD may take up JV partner execution), Rs 3.5bn
increase in scope from existing Kolkata Metro and
Rs 7bn in other orders.
Maintain BUY, TP of Rs 138/sh: The balance sheet
is in the repair mode and working capital intensity

is improving. We have a positive stance on ITD and
maintain BUY rating. We value the core EPC
business at Rs 138/sh (15x one-year forward Dec17 EPS).
WC cycle/earnings quality improves: Debtor cycle
has improved from 94 days in CY14 to 40 in CY15.

NHAI claims settlement and better payment terms
Parikshit Kandpal
parikshit.kandpal@hdfcsec.com
+91 22 6171 7317
Prabhat Anantharaman
prabhat.anantharaman@hdfcsec.com
+91 22 6171 7319
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoIC (%)
CY13
15,841
1,625
72
0.6
165.3
10.8
1.8
1.8
4.1
CY14
17,189
911
(877)
(5.7)
(18.3)
23.1
1.3
(18.0)
2.7
CY15
30,709
1,916
483
3.1
33.2
9.5
0.9
9.0
11.8
CY16E
35,354
2,661
936
6.0
17.1
7.1
0.9
16.9
17.4
CY17E
40,127
3,689
1,425
9.2
11.3
4.9
0.6
21.2
19.2
Page | 23

KNR Constructions: Gearing up
KNR Constructions
KNR has more than two decades of experience as a
pure play road EPC contractor, with 95% of the order
book in the roads segment (Rs 35bn). Strong
execution skills, cautious bidding approach and low
net D/E (0.13x) make it a compelling growth story.
More so with the NHAI bid pipeline of Rs 4trn over
the next five years.
KNRCs FY15-end order book of Rs 13bn is
expected to grow ~3.4x to Rs 45bn (end-FY18E).

This will be driven by NHAI and state EPC road
projects. Strong and profitable order booking will

continue to drive further stock re-rating
Revenue growth to pick up over FY16-18E:
Despite weak ordering and muted revenue
growth, KNRC has maintained profitability during
FY11-15. With the recent ramp-up of the order
book, revenue growth will be back on track with
FY15-18E revenue CAGR of 22.8%.
Maintain BUY, SOTP of Rs 800/sh: We expect
strong order intake to deliver 22.8/14.8% FY1518E sales/net profit CAGR. Our SOTP-based TP is
Rs 800/sh (standalone business at 15x FY18E EPS,
BOTs at 0.5x P/BV). At CMP, KNRC trades at 10.3x
FY18E EPS.
Parikshit Kandpal
+91 22 6171 7317
+91 22 6171 7319
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)
FY14
8,398
1,308
610
21.7
23.0
11.3
0.2
12.6
17.3
FY15
8,843
1,344
730
26.0
19.2
11.0
0.1
13.5
13.6
FY16E
8,588
1,376
767
27.3
18.2
9.5
(0.1)
12.2
15.2
FY17E
13,231
1,940
1,118
39.7
12.5
7.3
0.0
15.0
16.6
FY18E
16,386
2,388
1,359
48.3
10.3
5.9
0.0
15.7
19.6
Page | 24
Refer to our latest report on

NCC: Ready to take off
Asset monetisation to aid growth: NCC is close to
NCC
monetising Rs 5bn of its assets (power: Rs 2.1bn,

roads: Rs 2bn and real estate: Rs 1bn). Asset
monetisation will improve the quality of earnings,
as other income will reduce and the proceeds
utilised to shore up cash flows.

NCC is the largest mid-cap listed infrastructure
company (by revenue) with expertise in buildings,
roads, water, power, EPC, irrigation, metals and
mining segments. The company is well placed to
deliver strong growth and profitability with the NDA
governments push for infra.
EBIDTA margins expansion augurs well: NCC
reported EBIDTA margins improvement for

3QFY16 163bps YoY and 23bps QoQ to 9.0%. For
9mFY16, NCC reported 136bps improvement in
EBIDTA margins. The expansionary trajectory
augurs well for FY15-18E PAT CAGR of 34.6%.
Strong 9mFY16 order inflows: NCC secured
9mFY16 new orders worth Rs 66bn (vs. Rs 80bn

guidance), driven by the buildings and water
segments. It is exploring projects in coal
MDO/hybrid annuity roads. FY17E order intake
guidance is Rs 100bn.
Maintain BUY, SOTP of Rs 95/sh: Investments in
the infrastructure sector will drive NCC stock

performance. With strong EPC credentials, the
company will benefit from the pick-up in ordering
activity. We adopt SOTP methodology and value
NCC at Rs 95/sh.
We expect NCCs FY15-end order book of Rs 193bn

to grow ~1.1x to Rs 215bn (end-FY18E).
Parikshit Kandpal
+91 22 6171 7317
+91 22 6171 7319
(Rs mn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoIC (%)
FY14
61,173
4,049
405
1.6
45.0
10.4
1.0
1.6
5.5
FY15
82,969
6,493
1,118
2.0
35.3
9.0
0.6
3.9
9.4
FY16E
81,006
7,027
1,896
3.4
20.8
8.4
0.6
5.8
9.9
FY17E
87,548
7,900
2,243
4.0
17.6
7.6
0.6
6.5
10.1
FY18E
96,492
9,000
2,728
4.9
14.5
6.6
0.5
7.4
11.3
Page | 25

Sanghvi Movers: On the cusp
Sanghvi Movers
Sanghvi Movers Ltd (SGM) is a crane rental/leasing
company that derives ~57% of its revenues from the
wind power space. With the Modi-led governments
thrust on promoting renewable energy and reducing
dependence on fossil power, we believe SGM is a
proxy play for the wind power story.
SGM delivered a robust 9mFY16 performance as
revenues/EBITDA grew by ~85/136% to Rs

3.7bn/2.5bn, on account of increased crane
utilisation rates of ~83% (~62% in 3QFY15) and
yields of ~3.06% (~2.37% in 3QFY15).
With a turnaround in the capex cycle, we expect
SGM to register a healthy revenue CAGR of ~30%

over FY15-18E, with ~963bps expansion in EBITDA
margins, as a strong momentum in wind asset
creation will drive demand for SGMs cranes.
According to the management, while FY16 could
see 3,300MW of wind capacity additions,

FY17/18E should see 4,000/4,500MW of fresh
wind capex, which translates into Rs 14.1bn
opportunity in the medium term. With 75%
Financials Summary
+91 22 6171 7319
(Rs mn)
Net Sales
EBIDTA
APAT
EPS (Rs.)
P/E (x)
EV/EBITDA
Net D/E (x)
RoE (%)
ROIC (%)
FY14
2,417
1,365
-145
-4.1
-66.2
11.8
1.1
-2.2
1.0
market share, we estimate SGM's revenues from

this segment to grow 2.4x over FY15-18E to Rs
4.0bn.
The company is also witnessing strong growth in
the refineries and thermal power space. The

management envisages strong growth in orders
from the thermal power space over the next 6-9
months, mostly from revived projects and UMPPs.
SGM is also planning a capex of Rs 5bn in FY16-17E
by adding ~55 cranes. Despite the ~Rs 2.7bn

additional debt, we expect SGMs FY18E-end net
D/E to remain comfortable at 0.2x. This, coupled
with the NWC cycle improving to 121 days in
FY18E from ~265 in FY14, should increase cash
flow from operations to Rs 3.6bn from Rs 2.0bn
over the same period.
With increasing focus on optimum utilsation,
strong working capital management and wellfunded capex plans, SGM is well positioned to ride
a cyclical recovery in the infra sector. At CMP, the
stock trades at a FY18E FCF yield of ~18%. We rate
SGM as a BUY with P/E-based TP of Rs 444/sh
(valuing at 13x average FY17-18E EPS).
FY15
3,060
1,785
81
0.5
501.4
8.3
0.8
1.2
2.0
FY16E
5,040
3,394
1,035
23.9
11.3
5.1
0.7
14.7
9.9
FY17E
6,080
4,096
1,306
30.2
9.0
4.0
0.5
16.0
12.3
FY18E
6,724
4,569
1,650
38.1
7.1
3.1
0.7
17.2
14.8
Page | 26
Disclosure:
Company
ACC
ACC
Asian Paints
Asian Paints
Atul Auto
Bank of Baroda
Bank of Baroda
Cipla
Crompton Greaves
Federal Bank
Federal Bank
Gulf Oil Lubricants
Gulf Oil Lubricants
IGL
IGL
Infosys
Inox Wind
ITD Cementation
ITD Cementation
Jamna Auto
Jamna Auto
KNR Constructions
Analyst
Ankur Kulshrestha
Anuj Shah
Sachin Bobade
Mehernosh Panthaki
Rupin Shah
Darpin Shah
Siji Philip
Vivek Agrawal
Pawan Parakh
Darpin Shah
Siji Philip
Mehernosh Panthaki
Sachin Bobade
Satish Mishra
Deepak Kolhe
Amit Chandra
Pawan Parakh
Parikshit Kandpal
Navin Matta
Sneha Prashant
Parikshit Kandpal
Holding
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Company
KNR Constructions
Kotak Mahindra Bank
Kotak Mahindra Bank
Majesco
MOIL
MOIL
NCC
NCC
NMDC
NMDC
Power Grid
Rallis India
Rallis India
Reliance Industries
Reliance Industries
Sanghi Industries
Sanghi Industries
Sanghvi Movers
Tata Motors
Tata Motors
Zensar Technologies
Analyst
Darpin Shah
Siji Philip
Amit Chandra
Ankur Kulshrestha
Anuj Shah
Parikshit Kandpal
Ankur Kulshrestha
Anuj Shah
Maulik Doshi
Satish Mishra
Deepak Kolhe
Satish Mishra
Deepak Kolhe
Ankur Kulshrestha
Anuj Shah
Navin Matta
Sneha Prashant
Amit Chandra
Holding
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Yes
No
No
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Page | 27
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STRATEGY

The focused infra spending, a mindful rural

Dipen Sheth, Head - Research

allocation hike, the tech-driven targeting of

resolution at PSU banks). The direction is mostly

With soft inflation print, fiscal discipline (yes, there

are risks here) and now the governments courage

The NIFTY has recovered recently from sub-7,000

levels, in line with global risk sentiment. Policy

FII inflows, while subject to overall global risk

appetite, are likely to distinguish between India

Earnings growth will have to wait; the 4QFY16

season holds little or no promise. BUYers will place

STRATEGY : TOP PICKS

Diluted EPS (Rs)

STRATEGY : TOP PICKS

Refer to our latest report

FY15, BoB had revaluation reserves of just Rs

Asset quality clean up done: BoB implemented

the entire AQR (RBIs asset quality review) in one

Headroom from revised Basel-III regulations:

With strong Tier-I of 9.6% (Dec-15), there is no

Prudent new management: BoB is probably the

View and valuation: BoB is well placed with the

one-time AQR impact and superior Tier-I. We

Net Interest Income

STRATEGY : TOP PICKS

Refer to our latest report

Operating leverage likely: Given the higher

impaired assets and weak capital position (despite

sustainability of spreads. CASA ratio is running

Loan growth to pick-up: A cautious stance in the

corporate book (Rs 167bn, 31% of loans) and

View and valuation: FBs alignment with the

regulator on stress recognition, steady CASA, high

Net Interest Income

STRATEGY : TOP PICKS

Kotak Mahindra Bank (KMB)

Granular loan book: KMB has a well-diversified

loan book (Rs 1.15trn) with a tilt towards granular

I. The bank is focused on SENP customers amongst

Stable asset quality: KMB has kept asset quality

Value-accretive subsidiaries: Kotak Prime, Kotak

STRATEGY : TOP PICKS

Refer to our latest report

Atul Auto is a small, but fast growing 3W

manufacturer from Rajkot, Gujarat. Starting with

Market share gain will continue owing to

The 0.35T gasoline 3W will enable AAL to access

the remaining 34% (180K) of the domestic market

and ~95% (400K) of the export market. The

Margins are set to expand driven by lower

The stock is currently available at ~14x on our

STRATEGY : TOP PICKS

Refer to our latest report

boost medium-term volume growth prospects.

(TP Rs 185, CMP Rs 132, MCap Rs 11bn. BUY)

Dominant player in OEM segment: Jamna Auto

(JAI) is the third-largest player globally (in terms of

Aiming to grow non-cyclical revenue streams:

Gaining traction in higher value-added product

segments: Parabolic springs account for ~20% of

Valuations: The stock currently trades at 12.9x