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For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy
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Wealth Maximizer Dec 23, 2017

Value Invest

Wealth Maximizer
Market Cap CMP* Target Price Upside
NSE Symbol Sector
(Rs. Mn.) (Rs.) (Rs.) (%)
CADILAHC Pharma 433350 423 506 20

HEROMOTOCO Automobiles 761663 3793 4422 17

HINDUNILVR FMCG 2911115 1357 1576 16

ICICIBANK Banking 2022137 317 409 29

ITC FMCG 3214640 263 316 20

LT Infrastructure 1775107 1266 1461 15

RELIANCE Oil & Gas 5951629 920 1073 17

SBIN Banking 2742835 320 380 19

VEDL Metal & Mining 1185785 317 367 16

YESBANK Banking 716049 310 480 55

*As on Dec 22, 2017, Time frame 9 - 12 Months

Value Invest
Market Cap CMP* Target Price Upside
NSE Symbol Sector
(Rs. Mn.) (Rs.) (Rs.) (%)
APARINDS Electrical Equipment 31518 811 935 15

GREAVESCOT Capital Goods 30135 131 161 23

JISLJALEQS Agriculture Machinery 59704 127 149 17

KPRMILL Textiles 57380 780 922 18

KRBL FMCG 144529 608 717 18

MIRZAINT Footwear 19369 161 205 27

MPSLTD Publishing 12008 648 777 20

NATCOPHARM Pharma 179873 985 1310 33

TATASPONGE Metal & Mining 14529 939 1140 21

VISAKAIND Construction Materials 10022 627 800 28

*As on Dec 22, 2017, Time frame 9 - 12 Months


Global Rally is On!!!
2017 was a historic year for the country in many yyIn December, 2017, Indian stock markets surged to
regards, be it the indirect taxation overhaul in the form all-time highs, as a result of the Gujarat and Himachal
of GST, decisive banking policies relating to Insolvency Pradesh state elections outcome.
& Bankruptcy Code and Bank Recapitalisation or India’s
In 2017 YTD, India ranks among the top 3 performers
sovereign rating upgrade by Moody’s. India’s economic
amongst the world indices (with Nifty rallying +27.6%),
performance for the year was a mixed bag of sorts,
despite the execution related hiccups associated with
witnessing several ups & downs:
GST and demonetisation. The structural reforms during
yyDemonetisation on Nov 8, 2016 took a toll on the the year have propelled the growth momentum for India
Indian markets, which spilled over to the early months entering into 2018.
of 2017 as well. The consistent strength of the ongoing global capital
yyInefficient implementation of the monumental GST market rally is fascinating: All 26 indices we track have
reform in July, 2017 had an adverse impact on the given positive returns in CY17 YTD. Several developed
buoyant economy. and emerging market indices such as Dow Jones and
yyGDP growth during the first quarter of FY18 slumped Nifty have reached all time highs during 2017. Global
to a three-year low of 5.7%, which later revived to markets are stepping into 2018 with confidence about the
6.3% in the second quarter. sustainability of the economic growth, which is expected
to grow at a steady pace with major thrust coming from
yyFor the first time ever, India jumped 30 positions to
the U.S, which would be furthered by the recent corporate
be listed in the top 100th country in terms of ease of
tax breaks announced by the Trump administration.
doing business ranking this year.

Equity Indices Performance - CY2017 YTD Change (%)










































US S&P 500


Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2017 till Dec 20, 2017


Amongst Asset Classes Further, with Dollar index weakening in 2017 YTD,
Equity markets are experiencing a strong bull run, so is currencies across the world have seen some appreciation
the case with Gold and Crude. Indian Equity has given with Indian Rupee strengthening significantly to Rs. 64.03/
the best return YTD amongst all the asset classes with dollar currently vis-a-vis Rs. 67.92/dollar in 2016 year-
+27.6%, while Gold and Crude have given +10.3% and end (resulting in 5.7% CY17 YTD gains). RBI’s herculean
+10.1% YTD returns respectively. Silver, however, gave war chest of forex reserves standing at record levels of
lacklustre return of 1.6% during YTD 2017. ~US$401 Bn will offer further stability to INR.

Asset Performance (%) in 2017 YTD


25 27.6


10.3 10.1
Nifty S&P 500 Gold Brent Crude Silver

Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2017 till Dec 21, 2017

In this report, we present some of the key national and for Indian markets against volatility associated with FII
international developments which can impact markets movements. This change in asset allocation by Indians
and also some of our top stock picks from large cap in has resulted in Mutual Fund AAUM (Average Assets
Wealth Maximizer and mid-cap stocks in Value Invest. under Management) to surpass Rs. 22.73 lakh crore.
(Rs. 22.73 Tn) as of November 2017, which is quite a
We believe India is presenting an extraordinary opportunity
substantial achievement. Out of which, equity AUM has
to investors for wealth creation. The Indian Government
surpassed Rs. 7.33 lakh crore.
is adopting several structural reforms, which may prove
to elevate Indian image at the global stage. Emergence of Further, booming IPO market is also quite encouraging
Indian investors’ confidence in increasing their allocation for new investors to enter the capital markets. The current
of their savings towards financial assets (as against exciting IPO market with series of quality IPOs is also
traditional physical assets like gold and real estate) is playing its constructive role in wealth creation for the
quite encouraging. investors.

Further, even amongst financial assets, Indians have We, at Karvy, congratulate all those who are participating
started to allocate more towards capital market equity in this feast of Indian wealth creation and invite those who
instruments such as Mutual Funds (as against traditional are waiting to join this party.
bank FDs), which is offering additional cushion and buffer



2017 has been a year of major tax reform when issues bonds and banks subscribe to it. These funds are
all important Goods and Services Tax (GST) was infused into banks which expand their capital base thereby
implemented. GST is perceived to be the most improving capital adequacy ratios. This allows banks
wide-ranging indirect tax reform which aims at making to lend fresh loans and raise funds from other sources
India a One-Nation, One-tax and One-market nation. It is at attractive rates. Thus, fresh capital made available to
widely expected that Indian economy would attract huge entrepreneurs would help generate productive assets,
investment post GST which will lead to faster economic jobs and create demand.
growth. The decision of implementing GST was preceded
Government initiatives like enhanced spending on
by the decision of demonetisation wherein high value
infrastructure (building highways, railways, inland water
notes of Rs.1000 and Rs. 500 were withdrawn, which
ways, sagarmala, bharatmala), Make-in-India, incentives
squeezed liquidity by 86%. Implementation of these
to SME sector, housing for all, building of 100 smart
two policies derailed economic activities momentarily,
cities, 100% FDI under automatic route, shipping subsidy,
bringing down GDP growth rate to 5.7% during Q1FY18.
incentive to coastal and inland water movements, port
Going forward, these policy changes are going to have with superior cargo handling infrastructure etc. create
far reaching impact on formalising the whole economy more employment opportunities which in turn will lead
ensuring long term sustainable economic growth. With to higher income and consumption. The policy decision
the implementation of GST, businesses are expected with regard to 100% FDI in most of the sectors including
to become more tax compliant and create a multiplier defence creates an investment friendly environment, which
impact on the overall revenue collection once the is expected to drive economy on the path globalisation.
policies are streamlined. Demonetisation has had its
There have been several developments on economic
share in formalising economy in terms of encouraging
front in the recent times which augur well for growth
digital payments and changing investment style of
prospects. First, capital raised from the primary market
investors. People for long have been investing in low
has increased significantly after several years of sluggish
yielding and less liquid physical assets. Now, financial
activities. As capital raised is deployed to set up new
instruments have become favourable investment tool.
projects, it will add to demand and boost the growth
The stock market boom, rise in bank deposits and rise
potential of the economy. Second, the improvement in
in equity and debt AUMs are towards confirmation of
the ease of doing business ranking should help sustain
shift in investment patterns. According to data from the
foreign direct investment in the economy. Third, large
Association of Mutual Funds in India (AMFI), the Assets
distressed borrowers are being referenced to the
Under Management (AUM) of the mutual fund industry
insolvency and bankruptcy code and public sector banks
touched an all-time high of Rs. 22.73 Tn in Nov, 2017.
are being recapitalised which should enhance allocation
The robust performance of the industry comes on the
efficiency. Besides, there has been some pick-up in
back of growing investor awareness, demonetisation and
credit growth in recent months and recapitalisation of
declining interest rate.
public sector banks may boost it further. While there has
Banks in India have been dealing with twin issues of been weakness in some components of service sectors,
low deposits and high NPAs which impacted their the RBI survey indicates that services and infrastructure
credit lending ability resulting in low capital formation. sectors are expecting some improvement in demand and
Post-demonetisation, banks witnessed a significant business situations. As regard to IIP (Nov 2017 at 2.2%)
surge in deposits resulting in higher CASA ratio. Further, and Manufacturing PMI (Nov. 2017 at 52.6), it has been
the government has taken decision with regard to a roller-coaster ride. Inflation, as measured by Consumer
recapitalising public sector banks by way of issuing Price Index (CPI) (Nov. 2017 at 4.9%), has been consistently
‘Recapitalisation Bonds’. Under this scheme, government picking up since June 2017. The Wholesale Price Index


(WPI) (Nov 2017 at 3.9%) too has shown signs of 7.4% for 2018E, while expressing confidence that GDP
up-trend in the recent months. The consistency in the rise could grow at 8.0% in the medium-term to long-term
of CPI and WPI data hints at an inflationary environment on the back of bold economic initiatives taken by the
going forward, which diminishes the chance of lowering government.
interest rate in the near future. In Q2FY18 GDP growth
Impressed by fundamentals of Indian economy, Moody
rate came in at 6.3%, which indeed marks reversal of a
- a leading global rating agency, revised the country’s
five consecutive quarter declining trend. This reversal in
sovereign ratings to Baa2 (which is an investment grade)
GDP trend has been powered by acceleration in industrial
in Sept, 2017 from Baa3. However, S&P, another global
activities. In terms of merchandise trade, exports during
rating agency, retained its sovereign rating on India at
Nov 2017 have exhibited positive growth of 30.5% YoY
‘BBB-’ signifying stable outlook and also emphasized on
in dollar terms. This is on the pattern of positive growth in
beneficial reforms, like fiscal consolidation taken by the
exports in last thirteen months with a dip of 1.1% in Oct
government in the last one year’.
2017 against same period last year. Imports during Nov
2017 rose 19.6% in dollar terms. Thus, trend shows a Global Perspective:
narrowing down of trade deficit, which is a positive sign. The present world economic order offers very conducive
The concern is at fiscal deficit front which is all set to economic environment. Global economic activity has
cross its budget target of 3.2% in view of lower revenue been gaining momentum mainly driven by advanced
realisation post GST implementation and agricultural loan economies. The U.S growth remained largely resilient and
wavering schemes. Trade deficit and Fiscal deficit are is expected to further surge with passing of tax reform
indicators of structural weakness of economy and their bill by Senate. The unemployment in U.S fell to 4.1% in
performance affect investors’ sentiment. Hence, there is the month of Oct 2017, the lowest in 17 years. In the
a greater need to bring fiscal prudence and avoid fiscal Euro Zone, economic activity has expanded on the back
profligacy. of accommodative monetary policy and strong job gains.
At political front, after long time, India has strong, stable The Japanese economy also continued to grow, largely
and investment-friendly government at the centre, which supported by external demand, which helped compensate
is very proactive in terms of taking policy decisions and for the slowing of domestic consumptions. Among major
remaining consistent with that. The government believes emerging market economies, the service sector remained
and practices the policy of minimum government and the main growth driver in China. The ambitious One Belt
maximum governance. It is trying to implement single One Road (OBOR) initiative comprising the land based
window for clearance. This rises the confidence amongst Silk Road Economic Belt (SREB) and Maritime Silk Route,
investor classes which is quite evident from significant places China in prime position of influence. Brazil has
inflow into equity and debt markets. The strong inflow of gained growth momentum backed by improvement in
funds has increased country’s foreign exchange reserve business and consumer sentiment. Economic activities
at very comfortable levels of ~$401 Bn in Dec 2017. in Russia moderated during Q3FY18 due to weakness
The current levels of Fx-reserve is sufficient to meet any in industrial production. The South African economy
contingencies arising at foreign exchange settlements. continued to face headwinds from weak manufacturing
activities, elevated level of unemployment and political
Officials from United Nations (UN) have described India’s
instability. The pleasant surprise has been that world
economic conditions to be very positive and favourable
economy until now has managed to weather out
to growth. The UN, in its latest report, projected India’s
Mr. Trump’s protectionist rhetoric, Brexit issues and
growth rate to be 7.2% in 2018E and 7.4% in 2019E. The
geo-political tensions in Middle East and Korean
UN officials asserted that India has the potential to grow
Peninsula. An upsurge in nationalist sentiment across the
at 8.0% for next two decades by promoting investment
Western world too, appears to be subsiding post failure
and improving living conditions of its people. The IMF,
of right wing organization to assume power in Germany
in its World Economic Outlook Report for October 2017
and France.
reduced India’s GDP growth rate to 6.7% for 2017 and


Global Financial Markets: This capital infusion (Rs 2.1 Tn) will be executed in a
phased manner over the next two years. The capital will
Global financial markets have remained buoyant,
be accumulated from three sources viz. (a) PSBs will raise
reflecting the improving economic outlook. European
~Rs. 580 Bn from the markets (b) the government will buy
Central Bank continues to follow accommodative policy.
~Rs. 180 Bn worth shares of PSBs through budgetary
Bank of Japan too has given impression that it is in no
allocations & (c) the government will issue Bank
hurry to increase rate despite growing signs of strength recapitalisation bonds worth ~Rs. 1.35 Tn. The bank
in the economy. However, the Federal Reserve has recapitalisation bonds issued by the government will
ventured on path of gradual tightening of interest rate be subscribed by the PSBs. The banks will purchase
amidst broader recovery in the economy. The fact that the recapitalisation bonds from the excess capital that
advanced economy suffers from common problem of the banks had accumulated during the demonetisation
low inflation, the accommodative policy is likely to be period, which according to RBI estimates in the range
pursued for longer period and situation of liquidity crunch of Rs. 2.8-4.3 Tn. The government, in turn, would use
is not likely to arise in near future. Stock markets have the funds raised by these bonds to increase the number
gained on improved corporate earnings and anticipation of shares it holds in the PSBs. This will give the banks
of reduction in corporate tax in the U.S.A. However, more capital, making it easier for them to offset the effect
of writing off bad loans. A more detailed execution plan
while bond yields in most advanced economies moved
of the recapitalisation scheme is still awaited from the
sideways in absence of inflation pressure, they have risen
across most emerging markets’ economies. In currency
markets, the U.S Dollar has gained while Euro lost some PSBs, which have a relatively strong balance sheet and are
momentum due to political uncertainty. Several emerging doing reasonably well, will reap the highest benefits from
markets currencies have weakened due to domestic the scheme. PSBs with a laggard performance record will
be subject to definite preconditions and commitments to
be eligible for the recapitalisation funds. It is expected that
a successful implementation of the scheme would enable
Bank Recapitalisation Bonds- Measure the banks to revive the lending growth rate from a 25-year
That Meets the Need of the Hour low.
In October, 2017, the government announced the bank
recapitalisation scheme wherein, Rs. 2.1 Tn would be Fiscal Impact of Recapitalisation Bonds:
infused into the banking sector over the next two years. The implication of bank recapitalisation on fiscal deficit
The broad purpose of the initiative is to recapitalise the will depend on the nature of the bonds and the institution
Public Sector Banks (PSBs) with new capital to enable that will issue the bonds (Government Vs Government
the banks to restructure their balance sheets. The agency). However, it is likely that the interest paid on
scheme will also help the banks to partially write off the the bonds will have an amplifying effect on the deficit
~Rs. 10 Tn bad loans sitting in their books. figure. By issuing recapitalised bonds, the government
will front-load capital injection, while staggering the fiscal
This will not be the first time a capital infusion will take place implications over a period of time.
through bank recapitalisation bonds. The government
issued similar bonds worth ~Rs. 200 Bn between It is expected that bank recapitalisation will be followed
1985 -1995 to improve the distressed balance sheets of by a series of banking reforms to restore the health of
banks. But, unlike the last recapitalisation scheme, the the Indian banking system. The medium and long term
RBI this time will play an active role in determining the impact of the scheme is expected to be positive and a
allocation of recapitalised funds to the PSBs, enabling an step towards safeguarding the country’s economic future.
effective & accountable execution of the scheme for the
benefit of the Indian banking system.


Impact of Elections on the Economy be the last full year budget from the current government
before the country heads for general elections in 2019.
The ruling party in the Centre emerged victorious in the
recently concluded state elections of Gujarat and Himachal The upcoming budget is expected to be populist in nature
Pradesh which can be seen as a sign of political stability with an increased focus on agriculture & rural economy
in the country and a continuous drive by the government and a larger budget allocation for infrastructure & social
towards the reform trajectory, which bodes well for the development schemes.
economy and markets. However, a closer than expected
race in the Gujarat elections has raised some concerns Disinvestment Execution on Track
over the policy directive of the government in future. It is For FY18, the government had set an ambitious
touted by many policy experts that the results of Gujarat
disinvestment target of Rs. 725 Bn, up by 58.0%
elections will lead the government to abandon the path of
from ~Rs. 462 Bn garnered in FY17. It plans to raise
fiscal prudence and pursue more populist policies in a bid
Rs. 465 Bn from disinvestment in PSUs, Rs. 150 Bn from
to retain power in the 2019 general elections.
strategic disinvestment and Rs. 110 Bn from the listing of
Adding to the fears of populist government policies is
general insurers this year. Total disinvestment proceeds
the fact that eight state elections are scheduled in 2018
as on December 4, 2017 stand at ~Rs. 524 Bn (72.0%
including Karnataka, Chhattisgarh, Madhya Pradesh and
of the target). On the back of efficient execution of the
disinvestment plan so far, the government is expecting
The recent state election results will also have an impact on
FY18 to be the first year in history where the disinvestment
the upcoming fiscal budget in February, 2018, which will
target is significantly overtaken.

India’s Infra Story Gaining Momentum

Bharatmala Project:
The Modi government has set an assertive goal to build and upgrade 83,677km of roads in the next five years under the
Bharatmala project. Bharatmala will replace the National Highway Development Project (NHDP), which is expected to be
completed this year, with only 10,000km of highway construction left under the scheme. It will increase total corridors
to 50 from the current 6 (four GQ, North-South, East-West). Currently, 40% of freight is carried on national highways,
which is expected to rise to 70-80%. Presently, only 300 districts are connected via four (or more) lane highways. Under
Bharatmala, the number of connected districts will cross 550.

Exhibit: Bharatmala Phase I- Components and Outlay

S.No Components Length-KM Outlay (Rs Cr) Remarks
1 Economic corridor development 9,000 120,000 Around 44 corridors have been identified for development.
Roads linking economic corridor will be developed for first
2 Inter-corridor & feeder roads 6,000 80,000
and last mile connectivity.
National Corridors efficiency Includes lane expansion and decongestion of six existing
3 5,000 100,000
improvements corridors.
Border & International connectivity Providing connectivity to border areas and neighbour
4 2,000 25,000
roads countries such as Nepal, Bangladesh, Myanmar etc.
Coastal and port connectivity
5 2,000 20,000 Roads will be built to provide link to ports & coastal areas.
6 Express ways 800 40,000 Green field express ways will be constructed.
7 Balance road works under NHDP 10,000 150,000
Total 34,800 535,000
Source: Bharatmala, Karvy Research


In addition to Rs. 535,000 Cr for Bharatmala phase I, 185 such nodes have been identified. Therefore, plans
there is a requirement of Rs. 157,324 Cr for the ongoing to construct 28 ring roads, 45 bypasses and 34 lane
schemes under implementation in highway sector. Thus expansions are under progress. Additional 60 nodes will
overall outlay for Bharatmala and all existing schemes be added and strategies to resolve traffic woes around
put together will be Rs. 692,324 Cr over a period of them will be executed in future.
5 years. With these definite set of goals, the challenges before
Financial Aspect: Gross budgetary support for the government are quite overwhelming. In the last fiscal,
Bharatmala program and existing schemes from 8,600km of roads were built at a pace of 22Km /day which
2017-22 will be restricted to Rs. 237,024 Cr from the shows a huge improvement compared to the previous
Central Road Fund (CRF), Rs. 59,973 Cr as budgetary UPA government regime which struggled to touch even
support, Rs.34,000 Cr from expected monetisation a double digit figure. However, current pace of execution
through ToT route and Rs.46,048 Cr collected as presents a challenging task to execute the goal of 83,677
Permanent Bridge Fee Fund (PBFF) by NHAI. Km in a 5 year period which implies that the execution rate
ought to be 45km/day. Roads Transport and Highways
Initiatives for road development and maintenance have
minister, Nitin Gadkari hopes to cross the speed of
been sorted besides that, the government has planned to
40km/day, contributing 2-3% to GDP and expects to
remove potential and existing traffic choke points where
create 2 Cr jobs.
Sagarmala Project:
Sagarmala is a calculated initiative of the government of India to develop a model of port-led-development by harnessing
country’s 7,500Km long coastline, 14,500Km of potentially navigable waterways and strategic locations on key
international trade routes. In simple words, it is recreating the major ports in coastal area and connecting it directly with
all the major trade routes to benefit the economy.
SagarMala Vision

Lowering logistics cost of bulk commodities by

Reducing the cost of transporting domestic
Reduction of locating future industrial capacities near the
cargo through optimising modal mix
logistics cost for coast
EXIM and domestic
trade with minimal
infrastructure Improving export competitivensess
Optimising time/cost of EXIM* container
investment by developing port proximate discrete
manufacturing clusters
Source: Bharatmala, Karvy Research, *EXIM- Export Import

Rs. 4 Lakh Cr Infrastruture Investment mobilisation

Impact of Sagaramala project

Double (2x) Share of waterways-inland and costal-in modal mix from 6%

Rs. 35,000 -
Logistics cost saving per annum
40,000 Cr

US$ 110 Bn Boost to exports

Rs. 40 Lakh New direct jobs and 60 Lakhs indirect jobs

Source: Bharatmala, Karvy Research


Coastal shipping potential by 2025:
12 330-420
MMTPA, 2025 10-40 12
12-22 10 90
35-45 12

50 329

Thermal Coal POL Iron Ore & Steel Cement Others Total

Source: Bharatmala, Karvy Research Base Case Optimistic Case

National Perspective Plan: to evacuate large volumes of coal in Odisha, freight

friendly express ways to enable efficient movement
A National Perspective Plan (NPP) is prepared for
of containers, and development of inland waterways
the entire coast line identifying potential geographical
through jalmark vikas programme.
regions to be called Coastal Economic Zones (CEZ). The
sagarmala project will be executed through 150 projects yyPort-led-industrialisation: This will be realised
and initiatives in four broad areas: through 14 Coastal Economic Zones (CEZ) along
the coastline, each of which will house a number of
yyModernise India’s port Infrastructure: Adding
industrial clusters.
up 6-8 new ports and enhancing capacity. Over
40% capacity enhancement of existing ports will be yyDevelopment of coastal communities: The
taken up. Beside increasing capacity, these projects potential of coastal communities will be harnessed
will result in modern port infrastructure with latest by focusing on skill development to support
technologies. port-led-industrialisation as a part of Deen Dayal
Upadhyaya Grameen Yojana (DDU-GKY) and marine
yyPort connectivity: Over 80 projects are planned for
fishermen skill development projects.
connecting infra projects like heavy rail line corridor

Capacity build up at the ports to meet the 2025 demand

466 3000+

MTPA, 2025



Existing Major ports Ongoing Additional Capacity Future

New ports
FY15 efficiency expansion at capacity from expansion FY25
capacity improvement major ports masterplan at nonmajor capacity
projects in ports
Source: Bharatmala, Karvy Research major ports

Sagarmala is an ambitious project, geared towards making domestic manufacturing and EXIM more competitive
and uplifting coastal communities. The programme will have a profound impact and could act as a model for India’s


Booming IPO Markets:
The IPO market in India has had a fabulous run in recent with SEBI for approval to list on stock exchanges.
years. 41 IPOs with cumulative issue size of ~Rs.744 Bn 2017 was one of the busiest years in recent times for
were listed on the bourses since Oct 1, 2016. The IPO IPOs in India owing to upbeat economic sentiment,
markets for 2018 seem promising as pipeline of 14 IPOs pro-business political regime, continuing regulatory
with cumulative value of ~Rs. 114 Bn (estimate) have reforms and an overall positive investment climate. With
already been approved by SEBI and will hit the markets positive macroeconomic indicators and robust investor &
soon. Also, 6 other companies having cumulative issue business sentiment, 2018 promises to be a healthy IPO
size of ~Rs. 70 Bn (estimate) have filed the draft papers year as well.

Indian IPO Market

672 60
59 670
448 31 40
20 21 30
224 10 20
255 264
193 3 5
58 10
0 0
13 12
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Issue Size (Rs. Bn) No. Of IPOs Listed During the Year

Source: NSE, Karvy Research, * Up to Dec 20, 2017

Firsts in IPO Markets in India: Leading IPOs for which SEBI Approval Received, yet to
yyGovernment of India, towards its disinvestment be Listed
policy, came out with the IPO of General Insurance
Sr. No Company
Corporation (GIC) in 2017. GIC is the first PSU
insurer to tap the capital markets. The issue size was 1 ACME Solar
~Rs. 114 Bn, making it the third largest IPO of India. 2 Hindustan Aeronautics
Also, the IPO was the first instance of public offering by
3 Reliance General Insurance Ltd
a reinsurance player in the country.
yyThe shares of ICICI Lombard General Insurance Co. 4 Aster DM Healthcare Ltd.
were listed on the bourses in September 2017, making 5 CMS Info Systems
it the first non-life insurance company to list on the
6 Nakshatra World
stock exchange.
yyIRB Infrastructure-backed IRB InvIT Fund came out 7 Gandhar Oil Refinery (India) Ltd
with an IPO this year, which made it the first Real 8 Amber Enterprises
Investment Trust (ReIT) to list on stock exchange.
9 Genesis Colors Ltd.
yyBSE Ltd, the oldest bourse in Asia, came out with its
IPO in 2017 making it the first ever stock exchange to 10 Newgen Software Technologies Ltd
be listed in India. The issue was oversubscribed by 51 11 G.R.Infraprojects Ltd.
12 HG Infra Engineering
yyCentral Depository Services Ltd (CDSL) became the
first depository in India to get its shares listed on the 13 Apollo Micro Systems
stock exchange. The issue had a 170 times over 14 Astron Paper & Board Mill*
subscription. Source: SEBI, Karvy Research, *Issues are open, but yet to be listed


Leading IPOs that Listed on the Stock Exchange Since October 1, 2016
Sr. Date of Issue Price CMP* Return Issue Size
Name of the issue
No Listing (Rs.) (Rs.) (%) (Rs. Mn)
1 Apex Frozen Foods 04/09/17 175 867 395.2 1,523
2 Shankara Building Products Ltd 05/04/17 460 1,830 297.9 3,450
3 Avenue Supermarts Ltd 21/03/17 299 1,143 282.3 18,700
4 Endurance Technologies Ltd 19/10/16 472 1,275 170.2 11,617
5 Salasar Techno Engineering Ltd 25/07/17 108 284 163.2 359
6 PSP Projects Ltd 29/05/17 210 536 155.1 2,117
7 Central Depository Services (India) Ltd 30/06/17 149 358 140.1 5,240
8 Sheela Foam Ltd 09/12/16 730 1,692 131.7 5,100
9 Dixon Technologies (India) Ltd 18/09/17 1,766 3,835 117.1 5,993
10 AU Small Finance Bank Ltd 10/07/17 358 685 91.3 19,125
11 PNB Housing Finance Ltd 07/11/16 775 1,355 74.8 30,000
12 Capacité Infraprojects Ltd 25/09/17 250 409 63.7 4,000
13 Tejas Networks Limited 27/06/17 257 398 54.7 7,767
14 Security & Intelligence Services (India) Ltd 10/08/17 815 1,184 45.3 7,796
15 MAS Financial Services Ltd 18/10/17 459 632 37.6 4,601
16 Prataap Snacks Ltd 05/10/17 938 1,290 37.5 4,819
17 Housing and Urban Development Corporation Ltd 19/05/17 60 80 33.6 12,244
18 HDFC Standard Life Insurance Company Ltd 17/11/17 290 375 29.4 86,950
19 Eris Lifesciences Limited 29/06/17 603 776 28.8 17,412
20 Cochin Shipyard Ltd 11/08/17 432 547 26.5 14,681
21 Laurus Labs Ltd 19/12/16 428 536 25.3 13,318
22 Godrej Agrovet Ltd 16/10/17 460 564 22.7 8,573
23 Varun Beverages Ltd 08/11/16 445 536 20.3 11,125
24 ICICI Lombard General Insurance Company Ltd 27/09/17 661 776 17.4 57,009
25 Music Broadcast Ltd 17/03/17 333 377 13.1 4,885
26 BSE Ltd 03/02/17 806 891 10.5 12,434
27 Reliance Nippon Life Asset Management Ltd 06/11/17 252 275 9.0 15,422
28 Mahindra Logistics Ltd 10/11/17 429 442 3.1 8,294
29 Future Supply Chain Solutions Ltd 18/12/17 664 682 2.6 6,497
30 SBI Life Insurance Company Ltd 03/10/17 700 697 (0.4) 84,000
31 GTPL Hathway Ltd 04/07/17 170 167 (2.1) 4,848
32 Indian Energy Exchange Ltd 23/10/17 1,650 1,589 (3.7) 10,007
33 Bharat Road Network Ltd 18/09/17 205 195 (4.7) 6,007
34 Matrimony.com Ltd 21/09/17 985 935 (5.1) 5,011
35 Khadim India Ltd 14/11/17 750 672 (10.3) 5,431
36 Shalby Ltd 15/12/17 248 219 (11.6) 5,048
37 General Insurance Corporation of India 25/10/17 912 785 (13.9) 113,726
38 S Chand & Company Ltd 09/05/17 670 520 (22.3) 7,286
39 The New India Assurance Company Ltd 13/11/17 800 615 (23.1) 96,000
40 HPL Electric and Power Ltd 04/10/16 202 138 (31.5) 3,610
41 CL Educate Ltd 31/03/17 502 290 (42.3) 2,390
Total 744,414
Source: NSE, Karvy Research, *CMP as on Dec 20, 2017


Leading IPOs for which Offer Document is Filed with MUTUAL FUNDS: HIGHLIGHTS
SEBI, Awaiting Approval yyAverage Assets Under Management (AAUM) of Indian
Sr. No. Company Mutual Fund Industry for the month of November
1 ICICI Securities 2017 stood at Rs. 22.73 lakh crore.
2 Lemon Tree Hotels Ltd
yyThe AUM of the Indian MF Industry has grown
3 Galaxy Surfactants
from Rs. 3.26 lakh crore as on March 31, 2007 to
4 Seven Islands Shipping Ltd Rs. 22.73 lakh crore as on November 30, 2017, nearly
5 Prince Pipes & Fittings Ltd 7-time increase in a span of little over 10 years.
6 Barbeque Nation
yyIndividual investors now hold a higher share of
Source: SEBI, Karvy Research
industry’s assets, i.e. 48.8% in November 2017, as
compared with 44.6% in November 2016.
Leading IPOs in Pipeline
yyThe value of assets held by individual investors in
Sr. No. Company
mutual funds increased from Rs. 7.56 lakh crore in
1 GMR Airports November 2016 to Rs. 11.1 lakh crore in November
2 NSE India 2017, an absolute increase of 46.94%.
3 HDFC Asset Management Company
Mutual Fund SIP: Emerged as a Powerful
4 National Insurance Company
5 Bandhan Bank
yyIndian Mutual Funds have currently about 1.80 Cr
6 Lodha Developers
(18 Mn) SIP accounts in November 2017, through
7 UTI Mutual Fund which investors regularly invest in Indian Mutual Fund
8 ReNew Power schemes.

9 Mazagon Dock Shipbuilders Ltd yyMF industry has been adding about 9.05 lakh SIP
accounts each month on an average during the
10 TCNS Clothing
current financial year, with an average SIP size of about
11 Energy Efficiency Services Ltd Rs. 3,250 per SIP account in November 2017.
12 Aakash Education Services yyTotal amount collected through SIP per month during
Source: Karvy Research
November 2017 was at Rs. 5,893 Cr. (Rs. 58.93 Bn).

India Mutual Fund Assets and Folios Count

22.9 6.2 6.2 6.2

5.8 6.2
5.8 5.8
5.5 5.5
18.6 5.3 5.3 5.3
4.9 5.1 5.1 5.1
4.9 4.9
4.8 4.8 4.8 5.1
4.6 4.6 4.6
























10 4

















Total Assets (Rs. Tn) Folios Count (No. Crs)* (RHS)

Source: Association of Mutual Funds in India (AMFI), Karvy Research, *Data available in quarterly intervals


Top 20 Mutual Funds by Average AUMs (as of Sep 2017)
Sr. Jul-Sep 2017 Quarterly Average AUM
Mutual Fund
No. (in Rs. Cr)*
1 ICICI Prudential Mutual Fund 279,066

2 HDFC Mutual Fund 269,781

3 Reliance Mutual Fund 231,425

4 Aditya Birla Sun Life Mutual Fund 224,650

5 SBI Mutual Fund 188,030

6 UTI Mutual Fund 150,669

7 Kotak Mahindra Mutual Fund 110,630

8 Franklin Templeton Mutual Fund 94,747

9 DSP BlackRock Mutual Fund 77,819

10 Axis Mutual Fund 69,088

11 IDFC Mutual Fund 66,361

12 L&T Mutual Fund 52,749

13 Tata Mutual Fund 44,897

14 Sundaram Mutual Fund 33,150

15 DHFL Pramerica Mutual Fund 25,191

16 Invesco Mutual Fund 25,167

17 LIC Mutual Fund 22,871

18 JM Financial Mutual Fund 13,952

19 Motilal Oswal Mutual Fund 12,967

20 Canara Robeco Mutual Fund 11,845

21 All Other Funds 89,798

Grand Total 2,094,852

Source: AMFI, Karvy Research, * Data for the period b/w Jul’17-Sep’17, Note: Excluding Fund of Funds (Domestic), but including Fund of Funds (Overseas)


designed to calm the market are also triggered. The
Bitcoin- Hard to Ignore CBOE contracts, soon to be followed by similar offerings
Bitcoin is a decentralised digital currency and there is no from Chicago Mercantile Exchange (CME Group) and
authority that controls it. Bitcoin connects buyers and NASDAQ, should make it easier for mainstream investors
sellers through encryption keys. Owners of Bitcoin are to bet on the cryptocurrency.
anonymous. In contrast to traditional currency rather,
Bitcoin is “mined” by powerful computers connected Institutional money managers were avoiding it till now,
through the internet. Mining a bitcoin requires a while others were exposed to the risk of hacks and market
combination of advanced math and record-keeping. breakdowns. Proponents of regulated bitcoin derivatives
When Bitcoin trade hands, the network records that say the contracts will increase market transparency and
transaction and all of the others made over a certain boost liquidity, but there are people who have an opinion
period of time, in a “block.” Computers, known as ‘Miners’ otherwise.
running special software record these transactions in China’s government has cracked the whip on
huge digital ledger. These blocks are known, collectively, cryptocurrency exchanges this year. The Futures Industry
as the ‘blockchain’ which is an openly accessible record Association (a group of major banks, brokers and traders)
of all the transactions that have ever been made. Using has observed that contracts in the U.S. were rushed
specialized software and increasingly powerful hardware, without pre-empting a plethora of risks.
miners convert these blocks into sequences of code,
Compared to the well known futures, traders observed
known as a “hash.” When a new hash is generated, it is
that the volume was quite high for a new contract and
placed at the end of the blockchain, which is then publicly
that the trading halts took effect just as CBOE had
updated and propagated. For his or her trouble, the miner
outlined its rules to relax the market. Globally, about $1.1
currently gets 12.5 Bitcoins, which, in December 2017,
Bn of bitcoin traded against the U.S. dollar during the
is worth more than $225,000. Note that the amount of
same period.
awarded Bitcoins decreases over time as it is finite in
number. Because of lack of unanimous support of brokers, some
traders had trouble accessing the market. Participation
Ultimately, the value of a Bitcoin is determined by demand
may also be limited because of higher capital requirements
and supply which is quite similar to how stocks are priced.
and tighter risk limits. Considering that the Bitcoin futures
The protocol established by Satoshi Nakamoto, inventor
are in the nascent stages here, and there is no sufficient
of Bitcoin, has limited the market for Bitcoins to 21 Mn
liquidity from the institutions that can provide depth and
Bitcoins and about 12 Mn Bitcoins have been mined
hold in the movements.
so far, but there is no real intrinsic value. This makes
Bitcoin different from stocks, which usually have some During 2017, bitcoin rallied more than 17 times. The
relationship to a company’s actual or potential earnings. surge has been driven largely by demand from market
individuals. The new derivatives contracts should thrust
Without a government or central authority at the helm,
bitcoin more squarely into the realm of regulators, banks
controlling supply, ‘value’ is totally open to interpretation.
and institutional investors. Both CBOE and CME on
This process of ‘price discovery,’ the primary driver of
Dec 1, 2017 got permission to offer the contracts after
volatility in Bitcoin’s price, leads to speculation.
pledging to the U.S. Commodity Futures Trading.
Current Times (Listing of Bitcoin Futures) As per the Futures Industry Association, U.S, not all
Bitcoin has debuted on Wall Street with all pomp with market participants are happy with the expedited roll
the futures surging about 26.0% from the opening price out of Bitcoin Futures. Exchanges failed to get enough
on Chicago Board Options Exchange (CBOE) Global feedback from market participants on margin levels,
Markets Inc.’s exchange. Initial volume were much trading limits, stress tests and clearing. Bitcoin’s large
more than what the markets had expected, while traffic price swings mean its futures contracts shouldn’t be
on CBOE’s website was so heavy that it caused delays allowed on platforms that clear other derivatives.
in execution. Two temporary trading halts, which were


The start of futures trading is an important milestone for Electric Vehicles (EV)- A Buzz to Stay
bitcoin’s shift to the mainstream, but it could be some
In 2016, China overtook the U.S, becoming the largest
time before the cryptocurrency becomes a key part of
electric car manufacturer, accounting for one-third of
investor portfolios - if it ever does. the total global market. With more than 200 Mn electric
two-wheelers, 3-4 Mn low-speed electric vehicles (LSEVs)
Indian Outlook for Bitcoin
and more than 0.3 Mn electric buses, China is also by far
The Indian income tax department surveyed the major
the global leader in the electrification of other transport
bitcoin exchanges in India to collect information about modes.
transactions and check whether there was a risk of tax
evasion. Recently, it was reported that the income tax Battery (Research & Development):
department has issued notices to about 5,00,000 HNIs Research, Development & Deployment (RD&D) and
trading on the Bitcoin platform across India. This comes mass production prospects are leading to rapid
at a time when there are still no clear regulations on decline in cost and increase in energy density. Signs of
cryptocurrencies and bitcoin exchanges. continuous improvements from technologies currently
being researched confirm that this trend will continue
The RBI has so far issued three notifications pertaining
narrowing the cost competitiveness gap between EVs
to bitcoin and other cryptocurrencies (VC). In all these,
and Internal Combustion Engines (ICEs). Assessments of
starting since Dec 2013, the RBI has cautioned users,
country targets, Original Equipment Manufacturer (OEM)
holders and traders on the risk of these currencies and
announcements and scenarios on electric car deployment
clarified that it has not given any licence or authorisation seem to confirm these positive signals, indicating a good
to any entity or company to operate such schemes or chance that the electric car stock will range between 9-20
deals. Other than cautioning the public, the RBI hasn’t Mn by 2020 and between 40-70 Mn by 2025 validated by
taken any regulatory stance on cryptocurrencies yet. the International Energy Association (IEA).
In April 2017, the government had set up an
inter-disciplinary committee to examine the existing
Role of Government Policy Globally:
Despite this positive outlook, it is undeniable that the
framework of cryptocurrencies. Objective of the
current electric car market uptake is largely influenced
committee was to take stock of the present status of
by the policy environment. Key support mechanisms
cryptocurrencies both in India and globally, examine the
currently adopted in leading electric car markets target
existing global regulatory and legal structures governing
both the deployment of electric cars and changing
virtual currencies, suggest measures for dealing with such
cryptocurrencies, including issues relating to consumer
protection, money laundering and examine any other yyEV support typically takes the form of RD&D on
matter related to cryptocurrencies that may be relevant. innovative technologies, mandates and regulations,
In December 2017, the Finance Minister made it clear that financial incentives and other instruments (primarily
enforced in cities) that increase the value proposition
the government doesn’t consider bitcoin as a legal tender
of driving electric. Public procurement (leading by
and is considering recommendations for such currencies.
example) is also well suited in facilitating early EV
Meanwhile, Securities Exchange Board of India (SEBI) said uptake.
that if bitcoin is considered as a commodity derivative, yyDeployment of charging points for EVs is supported by
then SEBI might regulate it. In countries such as the U.S, the development of standards ensuring interoperability,
the SEBI-equivalent regulatory bodies are looking into financial incentives, regulations (including building
cryptocurrencies. codes) and permits.
Though there is no mention of cryptocurrencies in the Given the high mileage of shared vehicles, these concepts
Income Tax Act, the Tax department has made it clear have strong synergies with transport electrification. Policy
that income tax will still have to be paid on any gains support will remain indispensable at least in the medium
accruing from cryptocurrency transactions. term for lowering barriers to electric car adoption.


As electric car sales keep growing, governments will need The Indian auto industry was also warned by the
to reconsider their policy tools. Even if differentiated taxes government in September 2017, to switch to production
based on environmental performance, fuel economy of vehicles running on non-polluting alternative fuels or
regulations and local measures (such as differentiated risk being overtaken by inevitable policy change.
access to urban areas) are likely to remain important,
the need for vehicle purchase incentives will diminish, India’s Lithium Dilemma:
and subsidies for electric cars will not be economically Despite the euphoria surrounding India’s EV programme,
sustainable with large sales volumes. Revenues collected there are hurdles for the policy. Firstly, India does not have
from conventional fuel taxes will also shrink, requiring a enough lithium reserves for manufacturing lithium-ion
transition in the way revenues aiming to develop the road batteries. This could lead to a substantial change in the
transport infrastructure are collected. country’s energy security priorities, with securing lithium
supplies, a key raw material for EV batteries, becoming as
EV charging could also have a sizeable impact on the
important as buying oil and gas fields overseas.
loads applied to the grid at certain times and locations.
The resulting consequences on the adequacy & quality of This is easier said than done, given that Chinese firms
power supply and the risk of cost increase for consumers are already acquiring assets in countries such as Bolivia,
could lead to a negative feedback on transport Australia and Chile, which have substantive lithium
electrification prospects. reserves, trying to establish a monopoly on lithium
reserves. With China overtaking the U.S last year as the
Large-scale electric car charging and demand response
world’s biggest electric car market, there have been
will require the joint optimisation of the timing and duration
concerns about supply shocks. In 2010, China exploited
of recharging events, the modulation of power delivered
its monopoly on the global production of rare-earth
by charging outlets (defining the speed of charge) and
minerals and banned exports of rare earth minerals to
may involve a reliance on vehicle-to-grid solutions. For
fast chargers, managing power demand is also likely to
require the deployment and use of stationary storage at Indian firms have also warned about the EV story going
the local or grid level. the solar module way with most solar power developers
sourcing modules and equipment from countries such as
India’s Roadmap for EVs: China, where they are cheaper.
State-run firm Energy Efficiency Services Ltd (EESL) has
But some believe that the limited availability of lithium in
been given the responsibility of facilitating early adoption
India will not be a deal breaker. Lithium (cost) constitutes
of electric vehicles. The newly start up, whose claim to
only 7% of the total battery cost. In another 10 years’
fame was by reducing the price of LED lights for home
time, there will be some recycling of lithium surely.
lighting by 86%, floated a tender for procuring 10,000
electric cars, the largest such procurement in the world. Supply concerns have, however, been reinforced given
India’s recent military standoff with China in the Doklam
Tata Motors Ltd won the EESL contract, with Mahindra
region of Bhutan. There have been instances in the
and Mahindra Ltd matching its bid and winning 30% of
past when India stopped giving clearances to telecom
the order. The vehicles will be procured at a per-unit price
equipment imported from China over security concerns.
of Rs. 1.1 Mn with the aim of laying the foundation for
a mass conversion to EVs by 2030. EESL’s business Policy Scope:
model is to make these vehicles available on lease to the
An effective charging infrastructure and the necessary
government and its agencies for ~Rs. 45,000 per month,
regulations around creating the ecosystem for electrical
which is Rs. 5,000 less than what is currently paid for
vehicles to operate smoothly are required.
petrol and diesel cars.
Also as per the regulations for electricity sales in the
Sending a clear signal that India is firmly moving towards
country, under The Electricity Act, 2003, a distribution
electric vehicles, the Good and Services Tax (GST)
licence is required to distribute power from respective
Council has set a tax rate of 12% for electric vehicles,
State Electricity Regulatory Commissions (SERCs). Given
compared with 28% plus cess for petrol and diesel cars
the number of regulators involved, it makes sense for a
and hybrid vehicles.
pan-India license, but that would require a lot of heavy


lifting, including a comprehensive review of existing laws Lower Taxes on Overseas Profits:
and regulations. Senate Republicans have passed a sweeping overhaul of
Presently, India has distribution networks which are the U.S tax code, placing Donald Trump on marking his
owned by the discoms (distribution companies) primarily. first major legislative achievement.
In some cities, it is privately owned and you would need The bill was passed in accordance with the party
some sort of a protocol to establish how a private player agenda, with every Senate Republican present voting in
can participate in that. its favour and all Democrats voting against it. Although
The government is conscious of the uphill task and the bill was evident, anxiety was rife, as Democrats were
is setting in place liberal rules for charging stations to not in acceptance with the Republicans for bill as it is
power electric vehicles. According to the norms under supposed to disproportionately benefit the wealthy and
preparation, government and private institutions that set corporates. After the House vote, Trump congratulated
up charging stations for captive use need not possess an House Republican leadership for delivering the $1.5tn tax
electricity retailing licence. cut plan.

Another related risk is that of EV charging leading to a The bill also includes tax cuts for individuals and families
surge in electricity demand, which in turn may put at risk of all income levels, with the largest breaks going to the
India’s already stretched electricity distribution networks. wealthiest Americans. The individual tax cuts are slated
The utility, which distributes electricity in North Delhi, to expire in 2025; a move to comply with Senate budget
plans to invest Rs. 1 Bn to set up 1,000 charging stations rules, but Republicans said a future Congress would
in the next five years. extend them.

This calls for careful planning in the backdrop of India’s Democrats were excluded from the sessions where the
worst blackout that left nearly 620 Mn people across 19 plan was crafted. They have sharply criticised the measure
states and three union territories without electricity for as a benefit bias to the wealthy and corporations, and
hours together in July and August of 2012. promised to use it as a whip lash against Republicans in
the 2018 midterms.
While the NDA government plans to put an EV policy in
place by the year end, its overtures to electric car maker Republicans have long pushed tax reform as a way to
Tesla Inc. to set up a factory in the country have failed simplify the U.S tax code, but the proposal would keep
to deliver results. The Palo Alto, U.S-based company, all seven existing tax brackets for individuals. The bill
which has been cool to India’s offer of land near a major has faced significant criticism because it would limit tax
port to facilitate exports, has decided to set up its own deductions for home mortgages and state and local
manufacturing facility in China. taxes, as well as adding over a trillion dollars to the
budget deficit.
Beneficiaries & Others:
Effects: The tax reform is a good news for businesses, particularly
yyCorporate taxes now at 21%, compared to a previous multinational corporations and the commercial property
rate of 35%. industry. The extremely wealthy are set to benefit.
However, families living in high-tax, high-cost states
yyThe bill will also lower individual tax rates temporarily.
could lose out, so could those paying for their own health
insurance. In the immediate future, the plan will see the
Other key elements include:
vast majority of tax payers having lower tax bills, but the
yyLess inheritance tax. cuts expire in 2025.
yyAn expanded child tax credit.
Near Future:
The Senate approved the $1.5 trillion tax bill, which
The bill’s final passing hit a last-minute hurdle when it was
includes permanent tax breaks for corporations and
found that three procedural rules had been violated. As
temporary tax cuts for individuals.
small changes to the words were made, it has return to
the House of Representatives and has been approved.


Indian Context - U.S Tax Bill: payments made by the U.S. companies to their overseas
This could also see significant changes in the transfer affiliates.
pricing policies adopted by the U.S. MNCs in As per the House Bill, there would be an excise tax of
remunerating the Indian subsidiaries. Similarly, for Indian 20.0% on all payments, other than interest, made by a U.S
MNCs operating in the U.S., especially in the information entity to overseas related entities. This provision will apply
technology space, would want to keep more profits in the only to payments above a particular threshold, which
U.S. rather than in India, to minimise the overall tax burden currently appears to be $100 Mn per year. The Senate
and use those profits to expand globally. Reduction in the Bill proposes a 10.0% minimum tax on certain payments
U.S. corporate tax rates may also prompt other countries, (which includes interest) to overseas related parties if the
including India, to look at their domestic tax rates to retain payments exceed 50% of the taxable income of the U.S.
their competitive positions in the world, keeping in mind entity. Also, it seems that the Excise Tax or BEAT levied
to balance the need of controlling the fiscal deficit. in the U.S. would not be available as a credit in the other
country and hence would be an additional tax cost.
The need to reduce Tax on Offshore Profits
If enacted, either version of the above tax will increase
Presently, the U.S. follows global basis of taxation i.e.
the costs of off-shoring and outsourcing outside the U.S.
profit earned by overseas entities remitted back to the
This change would significantly affect India and reduce
U.S. is taxed in the U.S. This prompted many notable
the cost arbitrage it currently presents, especially in the IT
U.S. corporations to create complex structures and
and pharmaceutical industry, where a significant amount
retain profits outside the U.S. As a part of the tax reforms,
of back-office or R&D work is outsourced to India. This
the U.S. will move to a destination-based tax system,
could also effect the U.S. companies that have contract
where profits earned by overseas entities from overseas
manufacturing operations in India or China leading to
operations will not be taxed in the U.S. i.e. 100%
higher operations costs.
exemption for overseas profits distributed as dividends.
As a transitionary measure, the U.S. proposed to impose Lumpy Crude Inventories
a deemed profit repatriation tax. In simple terms, the U.S.
U.S crude inventories fell by 6.5 Mn barrels in the early
will compulsorily - as a one-time measure - tax profits
part of December, 2017. Overall crude stocks, excluding
retained overseas at a concessional tax rate ranging
the U.S Strategic Petroleum Reserve, fell to 436 Mn
between 7.0%-14.5%, depending on the nature of assets
barrels, the lowest since October, 2015. The rebalancing
(liquid/illiquid) in which the overseas profits are presently
of supply and demand is a result of OPEC and Russian
retained. Taxpayers are also provided an option to pay
led voluntary production cuts.
this tax in equal installments over an 8 year period.
Despite this, the energy minister of Saudi Arabia, the
The deemed profit repatriation tax could see a substantial
world’s top crude exporter and OPEC’s de-facto leader,
movement of capital from overseas entities to U.S.
said it would take more time to rein in the global supply
entities, as the tax reasons for retaining profits overseas
overhang, which was created by strong global production
no longer remain. This could make a significant cash pool
increases in the years up to 2015.
available to the U.S. entities and among other things, the
treasury management and investment functions could OPEC’s and Russia’s efforts to rebalance markets and
become more prominent. prop up prices are being undermined by rising production
in the United States, which does not participate in the
Anti Abuse Tax on Overseas Payments: deal to cut production.
For all those who are wondering where the money will The U.S. crude production hit 9.8 Mn BPD in the early
come from to fund the largesse, the answer lies with part of December, 2017, it’s highest since the early
an introduction of Excise Tax (under the House version)
1970s, and the only time American production breached
or Base Erosion and Anti Abuse Tax (BEAT) (under the
10 Mn bpd. This brings the U.S output close to that of the
Senate version).
top producers viz. Saudi Arabia and Russia, which pump
While both House and Senate differ significantly on the around 10-11 Mn BPD respectively.
rate and mode of the levy, essentially this proposal will tax


The U.S. tax will weigh on crude prices in the longer term. market participants, though not by much as there are
The policies are likely to reduce demand for gas and oil other events speculators watching, such as the growth in
and raise supplies as the tax bill preserves renewable the U.S. shale production and international politics.
energy tax credits, a tax credit for EVs (electric vehicles),
and opens up drilling in the Arctic National Wildlife Refuge. Industry experts expect a consistent increase in the
U.S. production, which may well undermine OPEC and
Yet traders are not only watching crude oil inventory Russia’s production cut efforts.
movements: gasoline stockpiles last week jumped by 1.2
Mn barrels. This could dampen the bullish mood among


Cadila Healthcare Ltd
Bloomberg Code: CDH IN

India Research - Stock Broking

Well-Positioned to Monetise Robust U.S Pipeline Recommendation (Rs.)

CMP (as on Dec 22, 2017) 423
gTamiflu Suspension & Capsules - A Significant Opportunity: Target Price 506
Cadila Healthcare (CDH) is the first to receive ANDA approval for gTamiflu Upside (%) 20
suspension in U.S in Sept 2017, annual sales of innovator is about
Stock Information
$312 Mn for suspension alone. This is a limited competition product
Mkt Cap (Rs.Mn/US$ Mn) 433350 / 6764
because the only other generic player is Natco/Alvogen, leading to smaller
52-wk High/Low (Rs.) 560 / 329
price erosion. Also, about 85% of annual sales happen during the flu season
3M Avg.daily volume (Mn) 1.1
(Nov to Apr). For gTamiflu capsules, there are 3 other generics players in
Beta (x) 0.7
U.S - Amneal, Macleods Pharms, and Natco/Alvogen. We expect CDH to
Sensex/Nifty 33940 / 10493
generate significant revenues and profits from gTamiflu both suspension O/S Shares(mn) 1023.7
and capsules. Face Value (Rs.) 1.0

Strong Traction in gLialda to Continue During Excl. Period: Shareholding Pattern (%)
We expect strong sales from gLialda during Q3FY18E, just like during Promoters 74.8
Q2FY18. The 180-day exclusivity of CDH ends in Jan 2018. Teva is FIIs 9.8
the sole player having tentative approval and is expected to launch in DIIs 7.4
Jan 2018. We expect gLialda to remain a limited competition product Others 8.0
during FY19E because of difficult and lengthy litigation process and since Stock Performance (%)
already two generics are approved, U.S FDA may not fast track approval 1M 3M 6M 12M
of another generic. This would lead to leading to a smaller price erosion. Absolute (4) (13) (19) 19
Relative to Sensex (5) (19) (26) (9)
Increasing Focus on Complex and Differentiated Generics:
Source: Bloomberg
CDH has approx. 157 ANDAs pending approval, of which about 65 are
Para IV filings. Of these 30 are oral modified release, 12 injectables, 7 Relative Performance*
transdermal and 15 topicals and 4 oral controlled substances. These are
all complex products and thus are expected to have limited competition. 113
Some near term opportunities are gToprol XL and gPrevacid ODT. 90
Another significant product is gExelon Patch (transdermal) because only







one generic is approved (Alvogen), CDH expects approval is H1CY18 and

Cadila Healthcare Ltd Sensex
launch in H2CY18.
Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 86,513 96,169 96,253 127,060 144,246
EBITDA 17,556 23,304 19,036 31,619 35,708
EBITDA Margin (%) 20.3 24.2 19.8 24.9 24.8
Adj. Net Profit 11,503 19,338 15,168 20,975 24,806
EPS (Rs.) 11.3 18.9 14.8 20.5 24.2
RoE (%) 29.1 38.8 22.5 25.4 24.8
PE (x)* 30.8 16.8 29.9 20.6 17.5
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Founded in 1952 by Late Mr. Ramanbhai B. Patel, a first-generation entrepreneur, CDH is one of the stalwarts of the
Indian Pharmaceutical Industry. In 1995, the group restructured its operations and Cadila Healthcare came into being
under the aegis of the Zydus group. Today, CDH is the third largest Indian pharma company by market cap and has a
market share of 4.3% in Indian pharmaceutical market and one of the large players in U.S generic marketplace with a
prescription market share of 2.9%. Business operations are spread across human health, animal health and consumer/
wellness products. CDH has about 159 approved ANDAs and another 157 ANDAs pending approval. CDH has about
32 manufacturing facilities spread across India, U.S, Germany and Brazil.

Valuation and Outlook

Based on significant opportunities like gTamiflu suspension /capsules, gLialda and expected launches of some complex
generics – gToprol XL , gPrevacid ODT and gExelon Patch, we believe that CDH is expected to generate significant
revenues and profits from U.S in FY18E and FY19E. At CMP of Rs. 423, CDH is currently trading at 17.5x FY19E EPS of
Rs. 24.2. We maintain a “BUY” recommendation with target price of Rs. 506 based on 20.9x FY19E EPS of Rs. 24.2.
The target of Rs. 506 represents a potential upside of 20%.

Key Risks
yyDelay in launches of significant opportunities in U.S. Steep pricing pressure in U.S market.
yyU.S FDA inspection with an adverse outcome.

CADILAHC: Technical View

CADILAHC for the year as on date, the stock has gained nearly 20%, and has significantly outperformed its sectoral
benchmark of NIFTY PHARMA, which has lost nearly 10%, indicating that CADILA is one of the strongest stocks in
the weakest space. During the first half of the year, the stock has seen a strong rally from the lows of sub Rs. 320
to the June-July highs of Rs. 560, thereby giving a move of near 75% from the said levels. However, over last few
months the stock has retraced most part of the said move and has approached to the levels of its previous major
swing highs or break out zone of Rs. 380-400. The said support levels also coincide with the medium and long term
moving averages on the weekly charts. The two thirds retracement levels of the above stated move also coincide
with the current zone of Rs. 400. Over last few days price and volume action suggest that some kind of value buying
is seen. Hence, investors with a long term view may look to add into their portfolio as one of the preferred picks from
Pharma space and may look for target of all time highs zone. For now the stock has support at Rs. 370-390 levels
and below it at Rs. 310-320 zones, while resistance can be assumed at Rs. 520-530 levels and above it at all time
highs to Rs. 600 levels.


Hero MotoCorp Ltd
Bloomberg Code: HMCL IN

India Research - Stock Broking

Super Star of MotorBikes Recommendation (Rs.)

CMP (as on Dec 22, 2017) 3793
Sustains the no.1 Position in Domestic MotorCycles Segment: Target Price 4422
The total domestic sales volume for HMCL for YTD FY18 stands at 4.9Mn
Upside (%) 17
vehicles posting a growth of 8.6% as compared to YTD FY17 driven by
Stock Information
new launches and capacity additions. This has led to an increase in their
Mkt Cap (Rs.Mn/US$ Mn) 761663 / 11891
market share to 51.3% during YTD FY18 as compared to 50.3% during
52-wk High/Low (Rs.) 4200 / 2957
YTD FY17 in the motorcycle segment, while their overall 2W market share
3M Avg.daily volume (Mn) 0.4
is retained at 36.2%. On the exports side, HMCL has sold 115,635 units
during YTD FY18, up by 4.1% YoY as compared to YTD FY17. Beta (x) 1.1
Sensex/Nifty 33940 / 10493
New Launches to Strengthen Domestic Presence: HMCL O/S Shares(mn) 199.7
launched three new bikes, 125cc Super Splendor, 110cc Passion PRO Face Value (Rs.) 2.0
and Passion XPRO, which will be launched in a phased manner during
Shareholding Pattern (%)
the next few months. With these launches HERO aims at consolidating
Promoters 34.6
its position in the 100-125cc segment. Also, the company is steadily
FIIs 42.1
upgrading its in-house facilities in order to enhance product development.
DIIs 11.6
During Q2FY18, the festive season proved a great deal for HERO as Others 11.6
they sold ~2.0Mn+ vehicles driven by rural demand, which could be
Stock Performance (%)
attributed to normal monsoons for the last two years. For H1FY18,
1M 3M 6M 12M
HMCL posted net revenue of Rs. 163336 Mn, up by 7.4% QoQ by selling
Absolute 4 0 2 26
~3.9 Mn units as against 3.5 Mn units in H1FY17. EBITDA margin stood
Relative to Sensex 2 (6) (6) (3)
at 16.8% as compared to 17.1% in H1FY17 due to increasing commodity
Source: Bloomberg
prices. PAT grew by 2.0% YoY during H1FY18 at Rs. 192453 Mn.
Relative Performance*
Future Prospects Look Promising: The overall 2W industry posted 150

a growth of 9.6% and 17.5% YoY during YTD FY18 in the domestic and 130
export segment respectively. Further, the domestic motorbike segment
grew at 7.6%, which constitutes ~62.1% of the overall 2W domestic sales






volume. Going ahead, government initiatives like financial inclusion and

other infrastructure development programs are expected to be key drivers Hero MotoCorp Ltd Sensex
for the 2W industry. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 284427 284750 319745 355479 385910
EBITDA 44550 46348 52762 57660 61529
EBITDA Margin (%) 15.7 16.3 16.5 16.2 15.9
Adj. Net Profit 31602 33771 37607 41058 44156
EPS (Rs.) 158 169 188 206 221
RoE (%) 41.1 35.7 34.6 32.2 30.7
PE (x) 18.6 18.6 20.1 18.4 17.2
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Company Background
Incorporated in the year 1984 as Hero Honda Motors Ltd and currently known as Hero MotoCorp Ltd, the company
manufactures 2-wheelers predominantly catering to the motorcycle segment with a 51% domestic market share. They
have 5 manufacturing facilities in India, one each in Columbia and Bangladesh catering to ~35 countries spanning
across three continents. The product portfolio caters to motorcycles ranging from 75cc to 150cc and scooters in the
100cc-125cc range. HMCL’s cumulative sales since inception have been more than 70 Mn vehicles under the leadership
of Mr. Pawan Munjal, (Managing Director, HMCL). Their key strategies include capacity addition through higher geographic

Valuation and Outlook

With robust sales volume growth through increased geographic presence and new launches, HMCL is poised to take
full advantage of the demand domestically and in other emerging markets. The stock is currently trading at 17.2x P/E
FY20E EPS and we value the stock at 20.1x P/E FY20E EPS for a target price of Rs. 4422 having an upside potential of
17% with a “BUY” recommendation, for a time frame of 9-12 months.

Key Risks
yyVolatility in raw material costs.
yyStiff competition in pricing.
yyRising commodity prices may impact operating margins.

HEROMOTOCO: Technical View

HERO MOTOCORP witnessed a strong uptrend from the low of Rs. 3410 levels forming higher highs and higher
lows in the daily chart, it can be clearly ascertained that the stock has seen cycles of higher highs and higher lows
on the weekly charts and a breakout above the recent swing high at Rs. 3700 levels can take the stock towards new
52 week high. For the month, the stock has traded in the positive territory generating return of over 3%. Correction
from the higher levels of Rs. 4090 was witnessed in the stock in September. However, the stock has held firmly to its
support level of Rs. 3380-3400 and rebounded from that level making higher highs and higher lows. On the weekly
and monthly charts the stock is trading above all its major moving averages (21, 50, 100 and 200 DEMA), indicating
inherent strength is still intact in the counter. Upside, it has a strong resistance at Rs. 4050-4080, which can restrict
it from rising further. If it breaches this level, it can further move to Rs. 4,500 levels. Downside, Rs. 3,400 is the
immediate support we recommend that declines in the price of the stock must be utilized to average long positions.


Hindustan Unilever Ltd
Bloomberg Code: HUVR IN

India Research - Stock Broking

Healthy Performance on the Back of Better Trade Recommendation (Rs.)

CMP (as on Dec 22, 2017) 1357
Conditions and Stabilized Wholesale Channels Target Price 1576
Growth Prospects on the Back of Revival in Rural Demand: HUL Upside (%) 16
is India’s largest consumer packaged goods company. HUL has delivered Stock Information
improved volume growth in Q2FY18 despite the short term challenges. Mkt Cap (Rs.Mn/US$ Mn) 2911115/45448
HUL managed to continue its strong growth momentum in Home Care 52-wk High/Low (Rs.) 1368 / 782
and Refreshment segments. While Personal Care and Foods segments 3M Avg.daily volume (Mn) 1.2
are managed to recover from the sluggish demand scenario by passing Beta (x) 0.9
on the benefits to the consumers, despite being affected in GST transition
Sensex/Nifty 33940 / 10493
by thinning of trade pipelines. The company managed to maintain healthy
O/S Shares(mn) 2164.5
margins on the back of optimised spending and lower input cost.
Face Value (Rs.) 1.0
Focus on New Innovations, Premiumisation and Expansion Shareholding Pattern (%)
Plans: HUL is continuously investing in research and development Promoters 67.2
facilities for new innovations and new range of products to strengthen FIIs 13.3
its core portfolio, which will help the company to accelerate product DIIs 5.8
innovations in new categories and pick up further growth. The company is Others 13.7
also moving strategically to premiumise its products and penetrate more Stock Performance (%)
into rural markets, to grow in rural areas and gain market share.
1M 3M 6M 12M
Distribution and Supply Chain to Aid the Growth: HUL is investing Absolute 7 9 24 72
in automation and modernisation of its warehouses. HUL’s centralised Relative to Sensex 6 3 14 32
ultra control tower to manage logistics operations will help the company in Source: Bloomberg

optimisation of cost and to provide better service. HUL managed to recover Relative Performance*
quickly from the GST transmission without any major disruption in trade 170
channels on the back of its vast distribution and supply chain network. 145
Tactical Move by Entering into E-commerce Business: HUL is 95
planning to enter into the E-commerce business by selling premium tea







and teaware. The company is offering premium range of gourmet teas and
Hindustan Unilever Ltd Sensex
exquisite teaware. The Refreshment segment, including tea and coffee,
Source: Bloomberg; *Index 100
accounts for about 14.0% of the company’s total sales.

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 311997 314610 323670 362241 406131
EBITDA 54137 60200 63400 73245 85584
EBITDA Margin (%) 17.4 19.1 19.6 20.2 21.1
Adj. Net Profit 43631 41390 44760 51129 60377
EPS (Rs.) 20.2 19.0 21.4 23.6 27.9
RoE (%) 115.4 78.1 67.2 76.8 90.7
PE (x) 43.3 45.4 44.0 57.4 48.6
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Hindustan Unilever Limited (HUL) is engaged in fast-moving consumer goods (FMCG) business comprising Home Care,
Personal Care, Foods and Refreshments. The company has over 35 brands spanning 20 distinct categories, including
soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream,
frozen desserts and water purifiers. The company’s Home Care segment includes detergent bars, detergent powders,
detergent liquids, scourers, water business etc. Personal Care segment includes products in the categories of oral care,
skin care (including soaps), hair care, deodorants, talcum powder, colour cosmetics, salon services etc. Food segment
includes branded staples (atta, salt, bread, etc.) and culinary products (tomato based products, fruit based products,
soups, etc). Refreshment segment includes tea and coffee and frozen desserts. Others include exports, infant care
products etc. Its brands include leading household brands such as Lux, Lifebuoy, Surf excel, Rin, Wheel, Fair & Lovely,
Pond’s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality
Wall’s and Pureit.

Valuation and Outlook

HUL, with more than 400 brands focused on health and well-being, is touching many families in India. HUL, with its
improving operational efficiencies, focuses on diversification and aggressive strategies in expanding its distribution, is
moving up the value chain and capturing more market share. We expect the company’s total revenue and margins would
continue to grow further on the back of revival in demand scenario, softer raw material prices and improved operational
efficiencies. At CMP of Rs. 1357 per share, the stock is trading at 48.6x FY19E EPS. We value the company at 56.5x
and arrive at target price of Rs. 1576 with a potential upside of 16% with “BUY” rating.

Key Risks
1). Increase in raw material prices. 2). Competition from other players.

HINDUNILVR: Technical View

The stock has given a breakout on the charts in the month of July 2017 from the consolidation between the range
of Rs. 767-980 levels. Since then the stock has been in an upward journey on the charts. The stock is marking
higher high and higher low on the charts, which suggest that technically the stock has some inherent strength in it.
The stock is currently trading above all of the major moving averages (short, medium and long term), which suggest
that the stock’s uptrend is still intact. When looked in the shorter term time frame the stock has taken a support
around its 21-DEMA in the past, which means that this particular average acts as a strong support for the stock so
any correction towards the levels of Rs. 1050 levels from a short to medium term perspective can be used as an
opportunity to add fresh longs in the counter. Moreover, Hind Unilever is also at a striking distance from its all time
high RSI level of 83.80 levels, currently pegged at 81 levels, after which the stock might witness some correction
on the charts. So any correction between Rs. 1250-1050 levels can be used for an accumulation in the said stock.


ICICI Bank Ltd
Bloomberg Code: ICICIBC IN

India Research - Stock Broking

Spanning the Spectrum of Financial Services Recommendation (Rs.)

Strong retail franchise, leadership in technology: With retail CMP (as on Dec 22, 2017) 317
segment constituting more than ~43%, ICICI bank enjoys sustained growth Target Price 409
in granular deposits combined with robust loan portfolio growth and healthy Upside (%) 29
fee income along with rationalised asset book. Improving macro economic Stock Information
conditions, strong momentum in digital services and scope for increased Mkt Cap (Rs.Mn/US$ Mn) 2022137/31571
penetration of financial services are well complemented by ICICI bank’s 52-wk High/Low (Rs.) 332 / 224
product mix spanning across financial sector and its huge presence in 3M Avg.daily volume (Mn) 18.8
semi-urban and rural areas. Beta (x) 1.6
Diversified loan portfolio with strong capital position: ICICI Sensex/Nifty 33940 / 10493
Bank’s healthy loan mix & growth favoring retail loans, selective corporate O/S Shares(mn) 6421.5
lending, continuous use of predictive models for stress identification may Face Value (Rs.) 2.0
augur well in near future. Retail loan segment has witnessed a phenomenal Shareholding Pattern (%)
22% CAGR over last 3 years and increased its pie in total loan portfolio Promoters 0.0
to 54% as on Sept 2017. During the same period, total loan portfolio has FIIs 45.9
grown at 12.5% CAGR to reach Rs. 4.8Tn from Rs. 2.9Tn. We expect the
DIIs 42.4
advances to grow at 14.6% during FY18-FY20E. Also, its strong capital
Others 11.7
position with 14.85% Tier-1 capital and 17.89% CAR leaves enough
headroom for further loan book growth. Stock Performance (%)
1M 3M 6M 12M
Robust funding profile, stable net interest margins: Retail Absolute (1) 14 9 38
deposits contribute ~74% of the total deposits with an average CASA of
Relative to Sensex (2) 7 1 5
45.2%. CASA grew at 18% CAGR between FY10-H1FY18 aiding lower cost Source: Bloomberg
of deposits. We expect the CASA to constitute around 45.9% of deposits
Relative Performance*
by FY20E, thus reducing the deposit cost. Strong control on operating
expenses is expected to result in improved NIM of 3.4% by FY20E. 135
Asset quality to improve: Significant recoveries from non-performing 105
loans, continued focus on recovery aided in GNPA declining from 7.99%





to 7.87% in Q2FY18. During the same period NNPA declined from 4.86%
to 4.43%. With increased focus from both the government and the ICICI Bank Ltd Sensex

management, we expect GNPA & NNPA to reach 4.5% & 1.8% by FY20E. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Interest Income 212240 217373 242585 289519 341048
Net Profit 97263 98011 58111 75874 170422
EPS (Rs.) 15.0 15.0 9.0 12.0 27.0
BVPS (Rs.) 140 156 163 173 195
P/E (x)* 19.8 19.7 33.2 26.4 11.7
P/BV (x)* 1.4 1.2 1.2 1.8 1.6
RoE (%) 11.4 10.3 5.7 6.9 14.5
RoA (%) 1.6 1.4 0.8 0.9 1.7
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Improvement in Core fee income growth: The core fee income growth has shown improvement to ~11% for
Q2FY18 as against a reading of 2% in Q2FY17. With retail now contributing ~73% YTD to the fee income pie, we
estimate fee income growth to hold ~10% in FY18E and improve to 13% in FY19E led by continued momentum in retail
fee and some pick up in the corporate fee.

Company Background
ICICI Bank is India’s largest private sector bank with total consolidated assets of Rs. 10.2 Tn as on Sept 31, 2017 and
profit after tax of Rs. 98.01 bn for the year ended Mar 31, 2017. ICICI Bank currently has a network of 4,850 Branches
and 14,164 ATM’s across India. It offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its group companies. ICICI Bank was originally promoted in
1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI bank subsidiaries include
ICICI prudential life insurance, ICICI Lombard, ICICI securities, ICICI AMC, ICICI Housing finance etc.

Valuation and Outlook

We admire core operating performance and business franchise of the ICICI Bank. We believe improved outlook on
assets quality, better operating performance along with market based valuation of its life insurance & general insurance
subsidiaries along with announcement of initial public offer of ICICI Securities, it may augur well for the Bank. At CMP of
Rs. 317, ICICI Bank is trading at 1.8 P/BV at standalone level to its FY19E BV. We recommend a “BUY” rating with a
SOTP-based Target Price of Rs. 409 (valuing parent at 2.0x FY19E BV implying standalone value at Rs. 306 and valuing
subsidiaries at Rs. 103) for a period of 9-12 months.

Key Risks
yyPolicy Risk & Regulatory Risk.
yySlower than anticipated economic revival.

ICICIBANK: Technical View

The stock has clocked a fresh life time high of Rs. 332.35 levels on Nov 17, 2017, and thereafter the stock witnessed
profit taking at the higher levels, which dragged the stock towards Rs. 300 levels. The overall chart structure of
ICICIBANK suggests formation of cycles of higher tops and higher bottoms on the weekly time-frame, clearly
indicating that the stock is in an uptrend. In the recent past, the stock has also witnessed good buying activity
around consolidation zone Rs. 210-220, suggesting that market participants are expecting the stock to rally towards
Rs. 400-420 over the next few month, once the immediate resistance of Rs. 330 is taken out on a sustainable basis.
As far as technical parameters are concerned, the 14 period RSI on the monthly charts is currently at 64 levels,
showing positive divergence over RSI Average. Technically, the stock is trading above its 50/100/200-DEMA on
the daily, weekly & monthly charts, indicating strength in the counter. It seems that it is undergoing a consolidation
before breaking through its next crucial resistance level at Rs. 325-330. Upside, if it breaches the Rs. 325-330 level
decisively, it can go up to Rs. 400-410 levels. Downside, Rs. 280 is the immediate major support for it.


Bloomberg Code: ITC IN

India Research - Stock Broking

Subdued Volumes, Impacted by Higher Cess on Recommendation (Rs.)

CMP (as on Dec 22, 2017) 263
Cigarettes; Focus on Packaged Foods Segment
Target Price 316
Realisation from cigarette segment is expected to rise up: Upside (%) 20
During Q2FY18, ITC has posted a negative volume growth from Cigarette
Stock Information
segment. Sharp hike in prices of cigarette as result of higher Cess has
Mkt Cap (Rs.Mn/US$ Mn) 3214640/50187
adversely affected volume growth for ITC. Revenue growth during the year
52-wk High/Low (Rs.) 368 / 222
was majorly driven by price hike undertaken by the company to match
3M Avg.daily volume (Mn) 10.9
higher Cess on cigarettes. However, stress in the cigarette value chain of
Beta (x) 1.1
the country intensified due to additional tax burden caused by increase in
compensation cess rate. ITC has increased cigarette price of its 3 brands Sensex/Nifty 33940 / 10493

and is planning to increase it further to compensate for increased cess, O/S Shares(mn) 12188.2
thereby increasing per cigarette realisation & cigarette segment revenue. Face Value (Rs.) 1.0
Shareholding Pattern (%)
Aggressive expansion and focus on Packaged Foods Segment: Promoters 0.0
ITC is aggressively planning to expand in Packaged Foods segment with
FIIs 19.1
numerous variants of small value packs for better penetration and wider
DIIs 36.4
accessibility. ITC is working with an internal target to reach Rs. 1000 Bn
Others 44.5
from Non-Cigarette and Packaged Goods revenues by 2030, of which , it
is expected that contribution from Packaged Foods could reach to Rs. 650 Stock Performance (%)
Bn by FY30. ITC is also planning to strengthen its portfolio in the existing 1M 3M 6M 12M
categories by expanding into adjacent areas and into new food categories Absolute 2 (2) (15) 16
with innovative new products as well to ramp up growth in its branded Relative to Sensex 1 (8) (22) (11)
Packaged Foods segment. It is also entering into Fruits, Vegetables and Source: Bloomberg

other perishable goods. ITC had already come up with Frozen Prawns Relative Performance*
under its Master Chef brand. 150
Investment in new hotels may drag return ratios: ITC is planning 110
to invest in 40 new hotels, which includes both company owned as well as 90
managed hotels, adding around 5000 rooms to strengthen the hospitality






business. In next three and half years span, ITC is investing Rs. 250 Bn
ITC Ltd Sensex
under this expansion program across different verticals. ITC is expected to
Source: Bloomberg; *Index 100
bid for ‘Taj Mansingh’, which could require further investments.

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 384333 388042 423600 458947 511355
EBITDA 141492 144509 154359 165598 189096
EBITDA Margin (%) 36.8 37.2 36.4 36.1 37.0
Adj. Net Profit 96632 93445 102894 113430 129618
EPS (Rs.) 8.1 8.2 8.5 9.4 10.7
RoE (%) 32.8 25.1 23.1 25.5 29.1
PE (x) 26.9 42.4 33.0 28.1 24.6
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
ITC Ltd is one of India’s foremost diversified businesses and a market leader in cigarettes in India. The company has wide
range of products in its portfolio ranging from Cigarettes, Non Cigarette FMCG - Packaged Foods & Personal Care, Agri
Business, Paperboards & Speciality Papers, Packaging, Hotels and Information Technology. Its popular brands include -
‘Gold Flake’, ‘Bristol’, ‘NavyCut’, ‘Aashirvad’, ‘Sunfeast’, ‘Bingo’, ‘B Natural’, ‘Yippee’, ‘Kitchens of India’, ‘Candyman’,
‘mint-o’, ‘Wills Lifestyle’, ‘John Players’, ‘Fiama Di Wills’, ‘Vivel’, ‘Classmate’, ‘Paperkraft’, ‘Fortune’ and ‘ITC Hotels’.
The company is into more than 40 categories of FMCG products and serving more than 0.1 Mn markets with over
2 Mn outlets. At present, ITC has more than 4.5 Mn sq.ft of warehousing space and it has more than 200 factories. ITC
Foods is the 3rd largest and fastest growing segment; and ITC hotels is one of the fastest growing hospitality chains in
India. ITC is the market leader in Paperboard & Packaging segment; it has most environmental friendly pulp mill in Asia.

Valuation and Outlook

ITC is a market leader in Cigarettes segment and strengthening its leadership position going forward. Wits its strategic
investment plans and steady performance, the company is expanding its position in other FMCG segments. Going
forward, margins from FMCG business along with growth from core business are likely to boost the profits of the
company further. At CMP of Rs. 263, the stock trades at 24.6x FY19E EPS. We value the stock at 29.5x FY19E EPS
and recommend “BUY” for a target price of Rs. 316, representing an upside potential of 20%.

Key Risks
yyAny increase in excise duty could affect volumes and realisations.
yyAny weakness in the other verticals of the business could affect the total profit margins of the business.

ITC: Technical View

The stock has been unable to surpass the resistance placed around Rs. 312 levels, which it made after touching
its all time high of Rs. 367 levels. The overall trend on the charts for the stock is showing that stock is having
some inherent strength in it. ITC has currently taken support around Rs. 249 levels, which is also acting as a
decent short term support on the charts. It has also once again tested the consolidation range placed in between
Rs. 182-268 levels from which it had given a breakout on the charts in the month of February 2017. From a long
term perspective Rs. 190 levels is acting a good support for the stock. So any dips from the current levels to
Rs. 190 levels from a medium to long term perspective should be taken as an opportunity to go long in the counter.
If the stock is able to breach Rs. 289 levels and closes above it with above average volumes then one might see
the stock crossing its all time highs.


Larsen & Toubro Ltd
Bloomberg Code: LT IN

India Research - Stock Broking

Key Beneficiary of the India Infrastructure Boom Recommendation (Rs.)

CMP (as on Dec 22, 2017) 1266
Large Order Book Led by Infrastructure to Drive Revenues: Target Price 1461
Current order book stands at Rs. 2575 Bn at end of H1 FY18, of which Upside (%) 15
about 74% are domestic orders. Infrastructure segment makes up 74% of Stock Information
total order book and Hydrocarbon constitutes 10%. During H1 FY18, order Mkt Cap (Rs.Mn/US$ Mn) 1775107/27714
inflow was about Rs. 551 Bn, of which about 67% were domestic. Majority 52-wk High/Low (Rs.) 1275 / 868
of the order inflow was from Infrastructure segment (49%), followed by 3M Avg.daily volume (Mn) 2.4
Services (22%) and Hydrocarbon (10%). We expect that the proven Beta (x) 1.3
execution abilities of L&T will drive revenue and profit going forward. During Sensex/Nifty 33940 / 10493
H1 FY18, order inflows fell by 9% YoY primarily due to GST transition. O/S Shares(mn) 1400.5
Face Value (Rs.) 2.0
Rising Public Sector Capex Expected to Increase Order Inflow:
Shareholding Pattern (%)
We believe that the government’s push on infrastructure particularly on
Promoters 0.0
roads and bridges through the ambitious Bharatmala project which aims to
FIIs 17.2
build about 83,677 km of roads by 2022 at a total investment of Rs.6.92Tn.
DIIs 40.1
We expect that L&T could grab a significant share of the Bharatmala project
Others 42.7
primarily because, L&T is not only the largest infrastructure company in
Stock Performance (%)
India, but is also known for quality in construction and timely execution.
Government’s reforms in the power sector and defense sector are also 1M 3M 6M 12M
Absolute 4 7 9 44
expected to increase order inflows in the future.
Relative to Sensex 2 1 1 11
Diversity in Order Book mitigates cyclical volatility: The Source: Bloomberg

current order book of Rs. 2575 Bn is well diversified across 6 segments - Relative Performance*
Infrastructure (74%), Hydrocarbon (10%), Heavy Engineering (5%), Power 145
(4%), Electrical & Automation (1%) and Others (6%). Any downturn in a 125
particular industry would not significantly hit order inflows and revenues
across business cycles. Also, international orders make up 26% of order







book and generated 35% revenues in H1FY18.

Larsen & Toubro Ltd Sensex

Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 895,897 1,013,361 1,100,110 1,208,484 1,359,910
EBITDA 114,464 125,041 110,747 130,250 152,932
EBITDA Margin (%) 12.8 10.5 10.3 10.8 11.2
Adj. Net Profit 42,572 41,933 60,287 68,776 78,780
EPS (Rs.) 34.0 30.2 43.1 49.1 56.2
RoE (%) 12.1 9.9 12.8 13.0 13.7
PE (x) 33.7 26.9 24.4 25.8 22.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price,


Company Background
L&T is India’s largest Engineering & Construction company with interests in Design & Engineering, EPC Projects,
Financial Services, IT, Real Estate, Manufacture & Fabrication and Construction. It undertakes contracts in Buildings,
Transportation Infrastructure like Airports, Metros, Heavy Civil Infrastructure, Power, Water & Renewable energy, Ship
building, Defence, Nuclear, Machinery and Industrial products. L&T, through its subsidiaries, associates and JVs, operates
in financial services, Infotech, Infrastructure, and Hydrocarbon, Special Purpose Vehicles (SPVs) for manufacturing,
fabrication and other services. Infrastructure presently contributes around 48% of revenue. Services and Hydrocarbon
segments contribute around 17% and 9% of total revenue respectively and the remaining part of revenue is contributed
by Electrical and Automation (E&A), Power and Heavy Engineering (HE) businesses.

Valuation and Outlook

L&T is well positioned to ride the infrastructure boom in the Indian economy through its excellent execution capabilities
in diverse sectors like Infra, Oil & Gas, Defence, Metals & Mining, Railways etc. coupled with its balance sheet strength
when compared to the highly stressed balance sheets of its many smaller competitors in the sector. At CMP of Rs. 1266,
L&T is currently trading at 22.5x FY19E EPS of Rs.56.2. We maintain a “BUY” recommendation with target price of
Rs.1461 based on 26x FY19E EPS of Rs.56.2. The target of Rs.1461 represents a potential upside of 15%.

Key Risks
yySignificant slowdown in the economy could lead to decline in the order book.
yyAny stress in Middle East adversely impacts its Hydrocarbon business.

LT: Technical View

LT is in a strong uptrend marking higher highs and higher lows on the weekly charts. The counter has generated more
than 40% returns in 2017 till date, indicating strong bullish trend. Stock has witnessed ascending triangle pattern
breakout in the quarterly chart and after retesting the breakout levels started to move again, indicating a fresh leg of
rally in the counter. On the weekly chart, the stock is sustaining above all of its major moving averages suggesting
the strength in the counter for all major time frames. On the other hand, leading indicators such as parabolic
SAR and Heiken candlesticks suggest positive trend in the weekly charts. The supports for the stock is placed at
Rs. 1050-1080 followed by Rs. 950-970 levels on the lower side, while resistance is pegged around Rs. 1600
followed by Rs. 1720 levels. Medium to long term investors may enter the stock at current levels and utilise any dips
as a buying opportunity.


Reliance Industries Ltd
Bloomberg Code: RIL IN

India Research - Stock Broking

Energy & Consumer Business Profitability Set to Recommendation (Rs.)

Rise Going Forward CMP (as on Dec 22, 2017) 920
Target Price 1073
Robust core business to deliver sustainable margin profile:
Upside (%) 17
Higher Heavy-Light differential, optimised crude diet, favourable product
mix entailed margin expansion by maintaining ~$3-6 premium over Stock Information
Singapore benchmark in the previous cycle. Going forward in a high oil Mkt Cap (Rs.Mn/US$ Mn) 5951629/92918
price scenario, ramp-up of Ethane Imports, Pet coke gasifiers and RoGC 52-wk High/Low (Rs.) 960 / 506
could aid EBITDA margin expansion installing a unique annuity model 3M Avg.daily volume (Mn) 7.2
of cash flows for the core business which could be rare at this scale Beta (x) 0.9
elsewhere. Gasifier project alone is estimated to deliver perpetual cost Sensex/Nifty 33940 / 10493
saving to the extent of $1.5/bbl. Commissioning of downstream Pet chem O/S Shares(mn) 6332.5
capacities place RIL among top 10 petrochemical producers globally. In Face Value (Rs.) 10.0
the upstream business, CBM blocks had been commissioned and RIL is
Shareholding Pattern (%)
buying all of its own CBM gas at market determined prices underscores
Promoters 47.6
the synergistic approach in maintaining cost competitiveness in energy and
materials business. RIL continues to monetise shale assets in pursuance FIIs 23.6

to preserve cash and is working with partner BP for development of KG DIIs 11.7
basin with $6bn of fresh investments. Others 17.1

Jio – delivers mostly on all counts; best is yet to come: Stock Performance (%)
138.6mn subscriber base, Rs.156 of ARPU and depreciation & amortisation 1M 3M 6M 12M
being charged proportional to network utilisation has all contributed Absolute (1) 13 28 75
for Jio to turn EBIT positive in Q2FY18. RIL has invested ~$36bn into Relative to Sensex (2) 6 18 34
telecom expecting to deliver higher teen RoE’s at world betting time with Source: Bloomberg

over 50% of revenue market share and EBITDA margins of over 50%; Relative Performance*
which seems distant at the moment. Nevertheless, phase of subscriber 190
addition and incremental ARPUs are encouraging so far. Management has 165
given indications of diversifying revenue base from pure mobile telephony 115
play to digital platform spanning mobile, broadband, entertainment and 90

e-commerce. We believe one of the key monitorable for Jio is sustainable








FCF in the future. Media speculation indicates listing of Jio in FY18-19,

Reliance Industries Ltd Sensex
which could aid market determined equity value for telecom investment
Source: Bloomberg; *Index 100
by RIL.

Valuation Summary
YE Mar - Consolidated (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 3754350 2739990 3566579 3994676 4166893
EBITDA 376010 417040 615814 759478 818084
EBITDA Margin (%) 10.0 15.2 17.3 19.0 19.6
Adj. Net Profit 213172 279043 335390 388450 428657
EPS (Rs.) 33.7 44.1 53.0 61.3 67.7
RoE (%) 11.3 13.2 11.5 12.1 12.5
PE (x)* 10.3 10.4 17.4 15.0 13.6
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Reliance Retail (RR) enters next phase of growth: With Petroleum retailing under RR, RIL has set an aggressive
growth target of 30% each year for next decade. In H1FY18, turnover crossed Rs. 262bn which is a 77.8% YoY growth
and EBIT margin reach to 2.4% higher by 30bps on YoY basis. Revenue share for consumer electronics, grocery, petro
retailing and fashion & lifestyle stands at 46.9%, 22.8%, 18% and 12.3% respectively in H1FY18. Reliance Market
& Reliance Smart witness strong SSS and own brands account for about 23% of revenue. In terms of geographic
penetration Tire 2 & 3 cities account for 2/3rds of revenues.

Company Background
RIL is India’s largest private sector enterprise with businesses in the energy, material and consumer value chain. Its key
business activities span exploration and production of oil & gas, petroleum refining & marketing, petrochemicals, textiles,
retail, telecom, SEZs and others. It operates one of the world’s largest oil-refinery complex at Jamnagar, Gujarat with a
capacity of 1.3 Mn BPD and has Petchem facilities at Jamnagar, Hazira, Patalganga, Vadodara, Nagothane and Nagpur.
It is the second largest producer of polyester fibre/ yarn and 4th largest producer of PTA globally. It operates retail stores
across the country in value and specialty formats. RIL’s subsidiary Reliance Jio provides pan-India 4G telecom services.
It has built next generation all-IP data network with latest 4G LTE technology.

Valuation and Outlook

RIL is expected to maintain profitability in its core business (Petcheml capcity, gasifiers , RoGC and Ethane imports) by
improving operational efficiency and volumes across the refining & petchem business, which are expected to add to
operating profits in FY18-20E, while new businesses like Reliance Jio and retailing are likely to trigger the next level of
growth and boost revenues in FY19-20E. At CMP Rs. 920, RIL is trading at 15x FY19E EPS, we recommend ‘BUY’ for
a price target of Rs. 1073 valuing RIL at 17.5x FY19E EPS of Rs. 61.3 representing an upside potential of 17%.

Key Risks
1) Volatility in crude & its derivative could impact realisations. 2) Capex on new verticals could affect consolidated returns.

RELIANCE: Technical View

Reliance has moved nearly 70% this year YTD, as the stock was seen breaking out from its 2009 highs placed at
around Rs. 620-630 levels (post bonus) and clocked a one sided move from there on. The stock has fallen into a
consolidation range from the beginning of November 2017 with the upper band at Rs. 950-960 while the lower end
is at the Rs. 850-860 levels. The price structure has remained above it 100 and 200 day moving averages for most
part of the year and has maintained the higher high and higher low price pattern reiterating the long term secular
trend, as observed on the weekly chart. The stock has immediate support placed at Rs. 850-860 and below that at
Rs. 800-820, while resistance comes in near the all time high of Rs. 960 and above that the psychological level of
Rs. 1000-1020 would open up. At current levels, the stock looks poised to continue its positive momentum making
current levels attractive for accumulation from a medium to long term perspective


State Bank of India Ltd
Bloomberg Code: SBIN IN

India Research - Stock Broking

Stronger and superior Financial Conglomerate Recommendation (Rs.)

CMP (as on Dec 22, 2017) 320
Diverse Loan Book, Deposit Base & Prospective Future Ahead:
Target Price 380
SBI, the largest Indian Bank, which enjoys a diverse market base, has a
Upside (%) 19
phenomenal market share of 23.3% & 21.1% of deposits and advances
respectively. SBI enjoys an exposure to all the sectors, highest being Stock Information
home loans (18.1%) followed by infrastructure (15.8), thus mitigating the Mkt Cap (Rs.Mn/US$ Mn) 2742835/42822
concentration risk. Going forward, we expect the personal segment (home 52-wk High/Low (Rs.) 352 / 241
loans + auto loans) to drive the loan book growth where it has the highest 3M Avg.daily volume (Mn) 24.9
market share. SBI has a strong operational infrastructure in place making it Beta (x) 1.6
future ready. We expect the merger synergies to leverage through FY18E Sensex/Nifty 33940 / 10493
& FY19E and business metrics to improve by FY19E. O/S Shares(mn) 8632.1
Face Value (Rs.) 1.0
Healthy Growth in Loan Book: SBI is expected to maintain double
digit growth rate in loan book amid an up-tick in economy. Loan book is Shareholding Pattern (%)
expected to be driven mainly by home loans, auto loans, other retail loans, Promoters 58.0
agri loans, trade and services as well as higher spending in infrastructure FIIs 10.9
sector. We expect SBI to register a CAGR growth of over 10% in loan DIIs 22.3
book in the next 3 years. Others 8.8

Stock Performance (%)

Rationalisation Drive to Aid Improved Profitability: SBI has a
balance-sheet with deposits of ~Rs. 26Tn & advances of ~Rs. 18Tn. With 1M 3M 6M 12M
its enormous branch network, SBI is well positioned to tap the incremental Absolute (5) 22 9 28
deposits and maintain double digit growth in retail deposits and also to Relative to Sensex (6) 15 0 (2)
Source: Bloomberg
maintain higher share of CASA above ~45% for quality growth.
Relative Performance*
Expected Recovery in Asset Quality: Asset quality is expected to
improve in the next few quarters due to the lower retail slippages, higher 125
recoveries and SBI’s efforts to regulate credit towards the stressed 110
sectors, which is expected to yield results. As on Sept 30, 2017, GNPA & 95

NNPA were at 9.8% & 5.4%. As per BASEL III guidelines, SBI has a capital







adequacy ratio of 13.9% with a tier-1 capital of 10.8%, which could aid
State Bank of India Sensex
loan book growth plans over the next couple of years.
Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Interest Income 556923 573576 625481 767947 866755
Net Profit 131016 99507 104841 104506 189857
EPS (Rs.) 17.6 13.0 13.4 12.7 22.1
BVPS (Rs.) 172.0 185.9 236.1 250.4 267.0
P/E (x)* 11.7 20.4 21.8 25.3 14.5
P/BV (x)* 1.2 1.4 1.2 1.3 1.2
RoE (%) 10.6 7.3 6.3 5.7 8.7
RoA (%) 0.5 0.5 0.4 0.3 0.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Stable Net Interest Margins (NIMs): SBI was able to maintain a net interest margin of over 3% in the last 4 years;
and in a downward rate cycle, NIMs are expected to sustain above 3%. Strong growth in retail deposits, coupled with
over ~45% CASA, provides a case for up-tick in NIM. In view of improved recoveries, pick up in loan growth & declining
cost of deposits we expect a 10-15 bps improvement in NIMs going forward.

Company Background
State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate banking and NRI
banking with a consolidated balance sheet close to Rs. 33.8 lakh crore (Rs. 33.8 Tn). SBI employs over 269,219
employees and operates through a network of 24017 branches and over 58916 ATMs serving over 420 Mn customers.
SBI, along with its merged subsidiaries, provides various services like deposits, retail loans for Home, Automobile,
Education, other personal loans and corporate loans. SBI has various non-banking subsidiaries: SBI Life insurance
Company, SBI Capital Markets, SBI Funds Management and SBI Cards & Payments.

Valuation and Outlook

SBI with its focus on quality loan book growth, CASA share in deposits, sustained NIMs of over 3% along with emphasis
on reducing NPAs and fresh slippages augur well in the long term. Merged entity of SBI presents a case for biggest
and well diversified balance sheet that mirrors the domestic economy available at bargain valuations from a long
term investment perspective. We value the standalone business at 1.2x FY19E BVPS and investments at Rs. 60 and
recommend a “BUY” rating for a target price of Rs. 380.

Key Risks
yyPolicy & regulatory risks.
yyHeadwinds in realizing the synergies through associated merger.

SBIN: Technical View

SBI after clocking an all time high of Rs. 351.30 levels on October 26, 2017, the stock witnessed sharp correction
towards Rs. 300.40 levels on December 18, 2017. The stock slipped more than 14% in a span of two and a half
months. The stock took support around Rs. 300-304 levels and bounced back sharply. The counter stayed stuck
in a range of Rs. 300-350 levels for around two months. The stock is trading well above all of its major moving
averages, which indicate long term up trend remains intact in the counter. On indicator front, 14 periods monthly
RSI is trading above its 9 period signal line, which indicates bullish bias in the long term. On the longer term charts,
the stock has shown no sign of weakness in the mentioned up move, indicating any minor correction in the counter
may be utilised as a buying opportunity for the medium to long term perspective. The stock has support placed at
Rs. 280 and below that at Rs. 260, while resistance comes in near the all time high of Rs. 351.50 and above that
the around Rs. 380 would open up. Thus, the stock is likely to continue the positive trend and we recommend
accumulating the scrip from a medium to long term perspective.


Vedanta Ltd
Bloomberg Code: VEDL IN

India Research - Stock Broking

Commodity Price Rally to Widen Growth Prospects Recommendation (Rs.)

CMP (as on Dec 22, 2017) 317
Capacity expansion: Contributed by global tightness and concentrated
Target Price 367
supplies coupled with mine supply cuts in China have been driving
Upside (%) 16
the price rally for Zinc where average Zinc LME prices during H1FY18
increased by 33.0% YoY to US$ 2,784 per tonne. VEDL’s integrated zinc Stock Information
metal production was 219KT during Q2FY18 recording 14.0% YoY growth Mkt Cap (Rs.Mn/US$ Mn) 1185785/18512
driven by higher ore production across all mines and is set to expand the 52-wk High/Low (Rs.) 347 / 205
mined metal (Zinc) capacity in India to 1.2MT by FY20E. In the international 3M Avg.daily volume (Mn) 9.4
front, Gamsberg (South Africa) project for mining Zinc is likely to be set-in- Beta (x) 1.7
motion by mid-CY18 initially at 100KT for FY19E and further ramp up to Sensex/Nifty 33940 / 10493
250KT by FY20E. O/S Shares(mn) 3717.2
Face Value (Rs.) 1.0
New Exploration through prudent capital allocation to improve
Shareholding Pattern (%)
efficiency: Oil production with Cairn India merger, for H1FY18 stood at
Promoters 50.3
184,062 boepd where Rajasthan contributed 156,278 boepd, which is
expected to be ramped-up to 165,000 boepd by FY18E as 15 wells for FIIs 18.0

infill drilling has commenced. DIIs 13.0

Others 18.7
VEDL’s iron ore business produced 10.9MT in FY17 as compared to 5.2MT
in FY16 and is likely to benefit due to higher consumption following the Stock Performance (%)
Supreme Court’s consideration on iron ore mining allocation in southern 1M 3M 6M 12M
India, as they operate in regions of Karnataka and Goa. Absolute 2 3 35 46
Relative to Sensex 1 (3) 24 12
Cost restructuring to strengthen balance sheet: Vedanta has Source: Bloomberg
reduced its gross debt by ~Rs. 199Bn (US$ 3.1Bn) to Rs. 966Bn (US$
Relative Performance*
15.1Bn) as on Sept 30, 2017 from Rs. 11864 Bn (US$ 18.2Bn) as on
31st March, 2017. Further, in order to de-leverage and lengthen average 150
maturity period, the company has issued dollar-denominated bond worth
US$ 1.0Bn in August 2017, proceeds of which would be used to redeem 90

US$ 752Mn bonds having maturity dates during 2019 and 2021. This is







collectively expected to extend average maturity by 0.5 years and lower

Vedanta Ltd Sensex
cost of funds by ~40bps where VEDL’s current value of cash and liquid
Source: Bloomberg; *Index 100
investments stand at Rs.391 Bn (US$ 6.1Bn) as on Sept 30, 2017.

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 687226 737286 887529 1006303 1099230
EBITDA 149530 204230 254813 308305 332777
EBITDA Margin (%) 21.8 27.7 28.7 30.6 30.3
Adj. Net Profit 22678 56294 99454 135887 164378
EPS (Rs.) 6.5 16.2 28.6 39.1 47.3
RoE (%) 5.2 10.5 16.2 19.7 20.7
PE (x)* 14.1 17.0 11.1 8.1 6.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price,


Company Background
Vedanta, headed by Mr. Anil Agarwal (Chairman), is a globally diversified natural resource company focusing on
Zinc-Lead-Silver, Oil& Gas, Iron Ore, Copper, Aluminum and commercial power. Their operations span across India,
South Africa, Namibia, Ireland and Australia having about 28 operation sites overall (India+Overseas). An important
milestone was the Vedanta-Cairn merger to strengthen their oil and gas business segment. Consolidated revenue
for FY17 stood at Rs. 722 Bn, where India contributes ~58.2%, China and Middle East make up 13.0% and 8.0%

Valuation and Outlook

We believe that increasing commodity prices on the back of strong global demand will improve earnings sustained
with capacity expansion through new and diversified exploration sites. ~US$ 1.1 Bn capex is expected to be deployed
in FY18E across all segments where US$0.3Bn has been utilized in H1FY18. Therefore, on the back drop of positive
industrial growth we value Vedanta on SOTP basis for a target price of Rs. 367 with an upside potential of 16%.

Key Risks
yyCommodity price changes.
yyExchange rate fluctuations.
yyHighly leveraged.

VEDL: Technical View

VEDL has witnessed a huge recovery in the prices in past 2 years and has generated over 5.5x from its low
of 58.15 levels. After the surge it has witnessed a consolidation breakout around 245-250 levels from where it
showed one side movement to reach its fresh 52 weeks high of Rs. 346.40 levels. However in the recent past the
stock corrected approximately 18% from its recent high and has taken support near its previous swing high of
Rs. 275-280 levels and started to surge higher, indicating it to be a strong support for the counter. On the daily
chart, the stock has reverted after testing is 200 DEMA placed around Rs. 275-280 levels and is currently placed
above all its major moving averages making it a very good opportunity for accumulation. Technically, the stock is
placed around its upper band of the Bollinger (20,2) which is even supported by the parabolic SAR. The immediate
resistance for the counter is placed around Rs. 346-348 levels, sustaining which it is expected to surge higher
towards Rs. 360 levels from medium to long term perspective.


Yes Bank Ltd
Bloomberg Code: YES IN

India Research - Stock Broking

Continuing to Grow in Size and Strength Recommendation (Rs.)

CMP (as on Dec 22, 2017) 310
Advances growth led by retail and corporate segments: In FY17
Target Price 480
advances grew by 34.7% YoY, led by retail and corporate segments.
Upside (%) 55
Increasing share of advances in total assets which is 61.5% in FY17 vs.
59.4% YoY signals enhanced productivity of the balance sheet and is Stock Information
reflective of management efforts in utilising more funds towards the core Mkt Cap (Rs.Mn/US$ Mn) 716049 / 11179
business of lending. In terms of the key earnings drivers, Yes Bank’s net 52-wk High/Low (Rs.) 383 / 218
interest margin is at 3.2% in FY17 and expect margins to move up in future 3M Avg.daily volume (Mn) 12.0
between 3.5-3.6% in FY18E-20E. Beta (x) 1.1
Sensex/Nifty 33940 / 10493
Steady growth in Net Interest Income, Stable NIMs: Yes Bank
O/S Shares(mn) 2297.6
posted strong operational performance in H1FY18 boosted by strong
business growth. In Q2FY18, NII grew by 33.5% YoY to Rs. 18851 Mn Face Value (Rs.) 2.0

on the back of robust loan book growth of 34.9% and NIM expansion of Shareholding Pattern (%)
30 bps YoY. We expect the bank’s CASA ratio to touch ~38% by FY19E, Promoters 20.1
which could aid the bank to compete and gain market share in the lower FIIs 46.0
yield/low risk segment of corporate market. DIIs 24.6
Others 9.4
Asset quality divergence remains a key challenge: For the past
five years, Yes Bank has increased its loan book at a CAGR of 28.4% while Stock Performance (%)
maintaining lowest nonperforming loan (NPL) ratio. However, the bank’s 1M 3M 6M 12M
asset quality has deteriorated in the last one year, with its gross NPLs Absolute 0 (14) 7 38
increasing 170% in FY17. Slippages increased to ~Rs. 20 Bn, as accounts Relative to Sensex (1) (19) (2) 5
worth ~Rs. 12.2 Bn were recognized as NPA on divergence with RBI’s Source: Bloomberg

inspection, driving GNPA ratio higher to 1.8% in Q2FY18 from 0.8% YoY. Relative Performance*
Rapidly expanding franchise, focusing on corporate banking: 170
Over the past few years, Yes Bank has focused on building its branch 130
network and its retail banking franchise. As of the end of Sep 2017, the 90
bank had 1040 branches, which expanded from 109 in 2009. Yes Bank’s







largest exposures in to large corporate banking, which covers 67.4% of its

loan book as of the end of Sep 2017, with the remaining 32.6% consisting Yes Bank Ltd Sensex

of loans to retail, SME, micro SME and mid-sized corporate. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Interest Income 45,667 57,973 75,573 99,988 126,951
Net Profit 25,394 33,301 37,834 51,626 68,309
EPS (Rs.) 12.0 15.0 17.0 23.0 30.0
BVPS (Rs.) 66 97 110 129 153
P/E (x)* 25.6 21.2 18.6 13.5 10.3
P/BV (x)* 4.7 3.2 2.8 2.4 2.0
RoE (%) 1.8 1.9 1.7 1.8 1.8
RoA (%) 19.9 18.6 16 18.9 21.2
Source: Company, Karvy Research, *Represents multiples for FYFY16 & FY17 are based on historic market price


Company Background
YBL is a private sector bank set up in 2004. Over the years, the bank’s strong business growth, healthy net interest
margins, stable profitability, healthy capitalisation have made it one of the top five private sector banks in India. As on
Sept 30, 2017, the bank had a network of 1,040 branches and 1,823 ATMs. This network will cover major cities and
towns across India to service your needs at any location in the country. Yes Bank has steadily built a Corporate, Retail
& SME Banking franchise, with a comprehensive product suite of Financial Markets, Investment Banking, Corporate
Finance, Branch Banking, Business and Transaction Banking, and Wealth Management business lines across the
country. YES BANK has adopted Knowledge driven approach to offer financial solutions, which go beyond the traditional
realm of banking. The bank’s regulatory capital adequacy ratio (Basel III) stood at 17.8% (CET 1 of 11.4% and Tier 1 of
13.2%) as on September 30, 2017.

Valuation and Outlook

While RBI’s divergence on NPA recognition has been a concern, Yes Bank has been delivering a strong performance over
a decade now. We are positive on the stock as we expect that with the system getting past the peak NPA recognition,
the operational performance of the banks particularly at the liabilities and retail end would come to the fore. We have
valued the bank at 3.7x FY19E BV with “BUY” rating and have arrived at fair value of Rs. 480 per share representing an
upside potential of 55% in next 9-12 months.

Key Risks
yySignificantly higher-than-expected deterioration in the asset quality.
yyLow proportion of retail loan book.

YESBANK: Technical View

The stock is trading in the broad range of Rs. 330- 296 levels from last couple of weeks. Prior to that, the stock
has seen profits taking from life time high of Rs. 382.90 levels, which has dragged the stock to the low of around
296 levels. Thereafter, the stock entered in the consolidation phase. The stock is in an uptrend and historical price
action suggests that every dip in the stock attract market participants. Currently, the stock is trading near 200
DEMA on the daily charts and bounce above the said rage of Rs. 330 levels will be fresh trigger for the stock. On
technical setup, the 14 period RSI is pointing northwards and showing comfortable trade on the daily charts. The
parabolic SAR is trading below the price, which reflects strength in the consolidation range. Going ahead the stock
is expected to find immediate support around Rs. 296 levels below that Rs. 275 levels. Whereas, resistance is
placed at Rs. 330 levels and above that is around Rs. 380- 400 levels.


Apar Industries Ltd
Bloomberg Code: APR IN

India Research - Stock Broking

Short Term Disruptions to Fade Away - Bright Future Recommendation (Rs.)

CMP (as on Dec 22, 2017) 811
Govt focus on T&D: India’s power sector is all set to take-off with
Target Price 935
government’s strong focus on 24x7 power to all, revival of Discoms
Upside (%) 15
through UDAY scheme. Govt launches Rs. 160000mn Saubhagya
scheme for supplying free power connections to towns which have no Stock Information
power access. The scheme is set to improve energy demand and benefit Mkt Cap (Rs.Mn/US$ Mn) 31518 / 492
capital goods industry, especially the distribution segment. Power grid 52-wk High/Low (Rs.) 909 / 553
set to invest heavily in local power transmission infrastructure of states. 3M Avg.daily volume 29581
The 24x7 power for all scheme alone envisages an investment of Rs. 12 Beta (x) 0.9
lakh crore. With the government thrust, Apar (with 70% of revenues from Sensex/Nifty 33940 / 10493
the power sector and leading presence in T&D segment) could witness O/S Shares(mn) 38.3
significant traction in order booking. The company has built a strong Face Value (Rs.) 10.0
product basket focusing on high efficiency in T&D segment. Shareholding Pattern (%)
Onetime hiccups: The company has suffered a onetime disruption in Promoters 58.0
the business due to de-stocking ahead of GST rollout. Impact of GST roll FIIs 9.2
out was on order book and sales which were lull in H1FY18. However, DIIs 19.2
management, is confident of recovery in order booking post GST. Others 13.6

Focus on premium products to propel growth: The company is Stock Performance (%)
majorly focusing on premium products like High Efficiency Conductors 1M 3M 6M 12M
(HEC) in conductors segment, auto lubes in specialty oil segment and Absolute 5 6 3 43
elastomeric cables in cables segment. All these products are premium Relative to Sensex 4 (0) (5) 10
products and high margin earning products. Apar has suffered a dip Source: Bloomberg

in conductor segment margin due to aggressive pricing in domestic Relative Performance*

and international market and absorption of excess overhead cost due 161
to capacities lying idle at newly added Jharsaguda plant. The capacity
utilisation at Jharsaguda plant was at 60-65% level and by FY18 it is
expected to reach 70-75% level. Conductor segment order book was also






high due to aggressive bidding in domestic tenders. The cables segment

has shown a robust growth of 27.2% in H1FY18 on the back of growth in Apar Industries Ltd Sensex
power cables (52.0%) and Optical Fire cables (36.0%) on YoY basis. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 51219 55514 52888 53018 60692
EBITDA 2520 3620 4037 3817 5037
EBITDA Margin (%) 4.9 6.5 7.6 7.2 8.3
Adj. Net Profit 495 1202 1763 1424 2335
EPS (Rs.) 12.9 31.2 45.8 37.4 61.4
RoE (%) 6.8 14.1 17.0 11.0 15.9
PE (x)* 28.8 14.9 16.4 21.7 13.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Apar Industries (Apar) is a leading manufacturer of conductors, transformer oils and cables for the domestic and overseas
power T&D sector. Apar operates in diverse field of electrical, metallurgical and chemical engineering. Apar’s business
can be divided into three segments namely Conductors, Cables and Oils & Lubricants. Apar is market leader in the
transformer oil segment standing at 4th position globally. In the lubricants segment, Apar is known for marketing the
world renowned ENI brand (eni S.P.A of Italy) of lubricants. Apar has been recognised as a registered export house for
conductors by Indian ministry of commerce and is the fifth largest manufacturer of conductors globally. More than 50%
of revenues come from conductors segment followed by 35% of contribution from specialty oils and lubricants segment.
Apar was the first company to introduce HEC in the market and is consistently growing the conductor volumes.

Valuation and Outlook

At CMP of Rs. 811, Apar is trading at 13.2.x FY19EPS, in our view the one time disruptions due to GST and raw material
pricing will be vanished and thereafter recovery in demand will be visible. With accruing benefits of UDAY and other
government policies Apar stands at a very strong place. Considering the above factors, we maintain our “BUY” rating
valuing the company at 15.2x FY19E EPS of Rs. 61.4 for a target price of Rs. 935 representing a upside potential of

Key Risks
yyCyclical nature of power business.
yyProject delays from customer side.
yyVolatility in raw material prices mainly with respect to exports.

APARINDS: Technical View

APAR Industries’ stock price over the last few years has seen a vertical rally from the levels of sub Rs. 82 in the month
of August 2013 to the recent life time highs of Rs. 908 in the month of May 2017, making it as one of the multi baggers
in the recent times. The said price move has generated a whopping 10x returns over the last few years. However, in
the recent past, the stock after clocking its life time high of Rs. 908 in the month of May 2017 has corrected nearly
18% from the said highs and was trading in the range of Rs. 760-770 levels and given breakout from the same in the
month of December 2017. In its recent consolidation the stock was finding support near 100 and 200 simple moving
averages, indicating long term bullish bias. Going forward, the stock has support near Rs. 700-750 zone where it
consolidated for 2-3 months and below it at around Rs. 650-670 levels, while resistances are placed at Rs. 900- 930
zone and above it at around psychological Rs. 1000 -1050 zone.


Greaves Cotton Ltd
Bloomberg Code: GRV IN

India Research - Stock Broking

Market Leader Greaves Prepares for BS-VI World Recommendation (Rs.)

CMP (as on Dec 22, 2017) 131
Over three-fourths of Market is Served by Greaves: Greaves has
Target Price 161
manufactured 5mn diesel engines over the years and has market share of
Upside (%) 23
~78.0% in the 3w diesel engines market. Greaves’ cost leadership enables
it to be a major source of 3w auto engines in India with partnerships over Stock Information
35 auto manufacturers. Greaves products for Agri and Auxiliary power Mkt Cap (Rs.Mn/US$ Mn) 30135 / 470
segment crossed 3mn pump sets and 1mn generator sets mark recently. 52-wk High/Low (Rs.) 179 / 112
3M Avg.daily volume (Mn) 0.6
Greaves Prepares for a BS-VI World: Greaves has signed-up with
Beta (x) 0.9
major Original Equipment Manufacturers (OEM) for development of Bharat
Sensex/Nifty 33940 / 10493
Stage 6 (BS-VI) compliant engines, which at the moment may come in
O/S Shares(mn) 244.2
force in next 27 months. Management has commented that they had
Face Value (Rs.) 2.0
signed these arrangements based on initial simulation data and is working
towards developing Proof-of-Concept (PoC) and Total Cost of Ownership Shareholding Pattern (%)
(ToC) models demonstrating value proposition for both OEMs and end- Promoters 51.0
customers of OEMs as these initiatives range from multi-fuel to Hybrid FIIs 7.3
to retrofit solutions. However, management refrained from quantifying the DIIs 25.6
opportunity size for Greaves and competition thereof. Others 16.1

Growth Crawls Back Post Three Major Disruptions; Revenues Stock Performance (%)
1M 3M 6M 12M
to grow by 8.8% in FY17-20E: Post demonetisation, switch from
Absolute 7 (5) (19) 9
BSIII to BSIV emission standards and GST, revenue grew by 2.3% on a
Relative to Sensex 6 (11) (26) (16)
YoY basis to Rs. 8,587mn in H1FY18. We believe the same is estimated
Source: Bloomberg
to grow by 8.8% during FY17-20E to Rs. 21,068mn with EBITDA and PAT
margin reaching to 15.2% and 10.7% by FY20E. Relative Performance*
Strengthening of Distribution Network and New Service Line 130

Design: ‘Greaves Auto Care’ - A one stop shop is being shaped-up and 110
the estimated market size for spare parts business is at Rs. 140 bn to





Rs. 150 bn which constitutes of 35%-40% of unorganised market. Greaves,

at present, uses a mix of manufacturing and purchase of parts for sale in its Greaves Cotton Ltd Sensex

multi-brand spare parts business segment, which at present stands at 65% Source: Bloomberg; *Index 100

of the eco system and envision taking it to 80% in a phased manner.

Valuation Summary
YE Mar - Consolidated (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 16161 16344 17227 18760 21068
EBITDA 2674 2434 2455 2752 3209
EBITDA Margin (%) 16.5 14.9 14.3 14.7 15.2
Adj. Net Profit 2009 1807 1668 1877 2249
EPS (Rs.) 8.2 7.4 6.8 7.7 9.2
RoE (%) 23.0 19.9 17.8 19.5 22.4
PE (x)* 15.0 19.4 19.3 17.0 14.2
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Returns Ratio and Dividend Payouts attractive: Greaves payout crossed 80% during FY16 & FY17 yet maintains
~50% of Net Worth as investments which translate to Rs. 18.7/share limiting return ratios to 19.9% (RoE) and 27.2%
(RoCE) in FY17. However, once adjusted for non-core investments return ratios are more than just attractive which we
believe could be a key trigger for re-rating going forward.

Company Background
Greaves Cotton Ltd. (GCL) is a leading diversified engineering company manufacturing machinery and equipment.
Greaves business is organised as Auto engines, Auxiliary Power Solutions, Farm Equipment Business and After-Market
business. The company has 6 manufacturing facilities and 3,500+ customer touch points spread across India. Over the
years Greaves has increased its investments in R&D and the spending has averaged to the tune of ~1.5% of sales during
FY08-FY17 peaking in the fiscals before CPCB norms came into force. In future, Greaves is committed to transform itself
into fuel agnostic engineered solutions provider encompassing both manufacturing and service business lines.

Valuation and Outlook

Greaves domestic market to turn robust with new product launches, new geographical presence, potential addition of
customers, ‘Greaves Auto Care’-new service offering and fructification of R&D efforts for BSVI engines could all shape
into FY19E, FY20E and beyond. We base our valuation on FY19E estimates and arrive at a target price of Rs. 161 valuing
Greaves at 20.9x of FY19E EPS of Rs. 7.7 representing an upside potential of 23%.

Key Risks
yySlowdown in the revival of economic activity could significantly impact volumes.
yyRising costs could reduce margins further.

GREAVESCOT: Technical View

GREAVESCOT has been in a secular bull trend from last many years making higher highs & higher lows on the
chart, indicating strength in the counter. After clocking a high of Rs. 175 odd levels in April 2017, stock has been
on a corrective phase & is currently available near to its 200-weekly moving average, which is placed around
Rs. 125 levels, which should be utilised as good opportunity for long term investors to accumulate the stock at
current levels. Also key swing support rest around Rs. 100 levels, indicating bullish bias. Technically, the stock has
support around Rs. 100-90 zone and resistance around Rs. 135 -145 zone. Going forward, the corrective phase
in the stock might get arrested around current levels & stock may again continue its long term bullish trend & head
towards its all time high levels. We believe the stock at current levels provides excellent opportunity & long term
investors can consider accumulating the stock.


Jain Irrigation Systems Ltd
Bloomberg Code: JI IN

India Research - Stock Broking

Lingering Impact of Demonetisation and GST Recommendation (Rs.)

CMP (as on Dec 22, 2017) 127
Rollout on Retail Business Target Price 149
Promising Project and Agro Business: Jain Irrigation System has Upside (%) 17
witnessed its revenue from operation growing at CAGR of 7.1% over the Stock Information
period of FY12-17. It has registered an impressive improvement in operating Mkt Cap (Rs.Mn/US$ Mn) 59704 / 932
performance in FY17 wherein its revenue, EBITDA and PAT have grown at 52-wk High/Low (Rs.) 129 / 80
7.0%, 14.9% and 262.0% helping it record increase in EBITDA, EBIT and 3M Avg.daily volume (Mn) 8.5
PAT margin by 93, 154 and 179 bps respectively YoY basis. The company Beta (x) 1.2
has demonstrated a positive growth across all business verticals. However, Sensex/Nifty 33940 / 10493
from H1FY18 perspective, revenue and EBITDA grew at moderate rate of O/S Shares(mn) 460.2
4.3% and 1.2% respectively on YoY basis. PAT registered contraction in Face Value (Rs.) 2.0
growth by 33.1%. The growth in topline was mainly led by newly acquired
Shareholding Pattern (%)
dealer AVI and IDC in U.S.A and increase in MIS and tissue culture exports.
Promoters 28.5
However, subdued growth in domestic MIS business as a result of lingering
FIIs 35.9
impact of demonetisation and GST slowed down growth momentum. Going
DIIs 7.8
forward, the management has given top-line guidance of 20.0% growth on
Others 27.8
FY16 turnover. The confidence of management emanates from good size
of order in hand, pro-irrigation policy of the government and fast subsiding Stock Performance (%)
impact of demonetisation and GST. 1M 3M 6M 12M
Absolute 11 27 16 53
Promising Food Processing Business: The food processing business Relative to Sensex 10 19 7 17
has grown in terms of profitability. The company has sound domestic as well Source: Bloomberg
as exports order book which will ensure double digit growth in forthcoming
Relative Performance*
years. Further, management has planned to come out with IPO for food 152
processing business which would provide big push to business. 132
Robust Global Orders: The company order book in hand is of about
Rs. 39000 Mn and out of that about Rs. 19000 Mn is for Hi-tech Agri Input






Division, about Rs. 7700 Mn for Plastic division and more than Rs. 10000Mn
is for Food Processing Division. Jain Irrigation Systems Ltd Sensex

Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 61527 64865 69393 74951 81910
EBITDA 7797 8183 9402 9744 10648
EBITDA Margin (%) 12.4 12.6 13.5 13.0 13.0
Adj. Net Profit 554 487 1762 1874 2297
EPS (Rs.) 1.2 1.1 3.3 3.9 4.8
RoE (%) 1.9 1.3 4.3 4.4 5.2
PE (x)* 51.4 57.4 28.5 32.4 26.4
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Jain Irrigation Systems Ltd (JISL) incorporated in the year 1986, is Indian multinational company engaged in the business
of Hi-tech Agri Input Products (Drip & Spinkler irrigation), Plastic Piping & Products (PE/PVC pipes and PVC sheets),
Agro Processing (De-hydrated onions/vegetables and processed foods) and Other Business divisions (Solar thermal
products, solar photovoltaic grid and off-grid products, Bio-gas and Solar Power generation). The micro irrigation
system (MIS) is flagship product of the company, wherein, company offers end-to-end water solution projects. The
company has ushered in large scale Integrated Irrigation Projects (IIP). The company does not merely sells MIS but also
provides Agronomic Extension support, after sales services and all technical supports for getting better crop returns. It is
one-stop-shop for total agricultural needs. The company has manufacturing plants in 29 locations and more than 11000
associates worldwide. Such large distribution network has helped company to emerge as largest MIS Company in the
country and second largest globally. Further, the company has in-house R&D to capitalise on opportunities arising in
MIS, tissue culture and agro processing industries.

Valuation and Outlook

We believe that the lingering impact of demonetisation and GST roll out could get smoothen out soon benefiting retail
side of business, while project and export business would remain strong. Further, introduction of products such as
spices & citrus juice concentrate and robust global order book of Rs. 39190 Mn to fuel overall growth. Considering
optimistic business environment, we have valued stock at 31.0x of FY19E EPS and arrived at target price of Rs. 149
which translates to potential upside of 17% in next 9-12 months

Key Risks
yyMIS and Agro Processing business are subject to risk associated with the vagaries of nature.
yyFx-fluctuation risk.

JISLJALEQS: Technical View

JISLJALEQS has continued to move higher from the levels of Rs. 74-75 and the stock is exhibiting a strong upward
momentum. For the month the stock has generated over 7% return and continues to move higher on significant
volume. The recent breakout from the lower level of Rs. 110 to the higher level of Rs. 128-129 and come on above
average volume. After breakout, consolidation is witnessed in the stock on the account of minor profit bookings
from the higher levels. Overall, the stock is in upward trajectory and the medium and long term moving averages
suggest the same as JISLJALEQS is trading above all medium and long term moving average. Immediate support
of the stock is seen around Rs. 122 followed by Rs. 110. Immediate resistance for the stock is witnessed at
Rs. 132 and above that it could scale levels of Rs. 160 Investors should utilise any dip in the stock to take fresh
position or accumulate the stock.


K.P.R. Mill Ltd
Bloomberg Code: KPR IN

India Research - Stock Broking

Growth to be led by Increased Focus on Garment Recommendation (Rs.)

CMP (as on Dec 22, 2017) 780
Division Target Price 922
Increasing share of value added products: KPR Mill Ltd has, in Upside (%) 18
recent years, increased the share of higher margin fabric and garments Stock Information
segments in its portfolio. The focus continues to be on its garment business Mkt Cap (Rs.Mn/US$ Mn) 57380 / 896
and to that extent, the company recently doubled processing capacity to 52-wk High/Low (Rs.) 884 / 530
18,000 Mt. As of FY17, Fabric & Garments segments contribute ~39.0% 3M Avg.daily volume 36663
of consolidated revenues, up by 9.5% from FY14. As a result, EBITDA
Beta (x) 0.9
margins also improved 230bps to ~20% during the period. Management
Sensex/Nifty 33940 / 10493
is targeting further penetration into U.S, Europe and Japan for its garments
O/S Shares(mn) 73.9
division. Exports currently contribute 37.5% of revenues.
Face Value (Rs.) 5.0
Operating expenses to decline: KPR Mill Ltd meets its power Shareholding Pattern (%)
requirements through green power via wind mill (75% power requirements) Promoters 74.9
and co-gen cum sugar factory (capacity of 30 MW and 5,000 tons of cane FIIs 3.6
per day). Additionally, improvement in capacity utilisation and declining DIIs 12.3
finance costs will further aid margin improvements. We factor EBITDA Others 9.2
margin improvement of 100bps over FY17-19E.
Stock Performance (%)
Debt repayment and declining D/E ratio: The increased cash 1M 3M 6M 12M
flow on the back of change in business model has been utilised for Absolute 10 3 (7) 29
pre-payment of high cost debt. Going forward, with no major capex Relative to Sensex 9 (3) (14) (1)
planned, the management intends to continue with this trend. We expect Source: Bloomberg

net Debt/Equity to drop to ~0.2x by FY19E from 0.5x (FY17). Relative Performance*
Govt’s increasing focus on textile exports: Government of India 156
has taken steps recently to promote the industry via permission for 100% 112
Foreign Direct Investment (FDI) under the automatic route, Rs. 60,000 Mn 90
package to boost textile exports and road shows in India, U.S.A and UK to






aid increased collaboration between global textile manufacturers, investors

and buyers. On the back of these measures, Government expects exports K.P.R. Mill Ltd Sensex

Source: Bloomberg; *Index 100

to increase to $45bn by FY18E.

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 25765 26005 28166 31972 33113
EBITDA 4373 4696 5633 6322 6947
EBITDA Margin (%) 17.0 18.1 20.0 19.8 21.0
Adj. Net Profit 1735 2107 2868 3322 3781
EPS (Rs.) 23.1 28.0 38.8 44.9 51.2
RoE (%) 16.1 17.0 17.7 20.4 20.0
PE (x)* 20.9 29.7 17.0 17.4 15.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price,


Company Background
KPR Mill Ltd. is an apparel manufacturing company engaged in the production of yarn, knitted fabric and ready made
garments. It has one of the largest vertically integrated manufacturing capacities in India, enabling the company to utilise
and customise the products as per client specifications. Building on its maiden business in 1984, the company currently
has 0.35 Mn spindles to produce 90,000 MT of yarn per annum, knitting facility to produce 27,000 MT per annum and
garmenting facility to produce 95 Mn pieces per annum (one of the largest garment manufacturers in India). The power
requirements are met through the company owned 66 wind mills and through green power through a Co-gen Cum
Sugar Factory with capacity of 30 MW and 5000 Tons Crushed per Day (TCD). The board, including Chairman Mr. K.P.
Ramasamy and Mr. K.P.D. Sigamani, the Managing Director, has vast experience in the textile industry, which has aided
in the company’s evolution into fabric and garment segments.

Valuation and Outlook

Growth in business and profitability (as a result of strategic shift), led to improvement in valuations in the past 4 years and
we expect continued growth in the two key segments (garment and fabric). The stock is currently trading at 17.4x and
15.2x on FY18E and FY19E EPS of Rs. 44.9 and Rs. 51.2 respectively. We factor revenue and PAT growth of 8.4% and
14.8% CAGR over FY17-19E, valuing K.P.R Mill at 18.0x FY19E EPS of Rs. 51.2 and recommend “BUY” with a target
price of Rs. 922 for an upside potential of 18%.

Key Risks
yyVolatility in price of raw materials.
yyDelay in the implementation of the strategy for Thane land bank.

KPRMILL: Technical View

KPRMILLS has seen a correction of over 22%-23% from its all time high levels of Rs. 884 in past half year.
However, the stock is in stellar Bull Run and has generated over 36%-37% of return on yearly basis inspite
of the correction in between. The stock has consolidated near its recent swing low and has reverted back
towards the higher levels. On the Fibonacci retracement drawn from its all time of Rs. 884 to the recent
swing low of Rs. 685 level, the stock has retraced over 38.20% and is looking strong. Also the price volume
chart is placed at the upper band of the Bollinger (20, 2) suggesting inherent strength in the counter. On
the oscillator front, 14 period RSI has bounced from the lows of 41-48 levels and is currently placed around
50-56 levels suggesting more upside room in the counter. Even the counter has tested its 200 DEMA (around
Rs. 700-710) on the daily chart and surged higher, suggesting it to be a strong support and affirming our
bullish stance in the counter. Hence, considering all the factual data mentioned above the stock is looking
pretty decent and is expected to surge towards its all time high once again, sustenance of which it may move
to the uncharted territory of Rs. 900 levels.


Bloomberg Code: KRB IN

India Research - Stock Broking

Improving Domestic and Global Demand Situation Recommendation (Rs.)

CMP (as on Dec 22, 2017) 608
to Drive Top-line Growth
Target Price 717
Robust demand for branded basmati rice: KRBL has experienced Upside (%) 18
revenue, EBITDA and net profit growth at CAGR of 10.9%, 21.7%
Stock Information
and 32.4% respectively during FY13-17. From H1FY18 performance
Mkt Cap (Rs.Mn/US$ Mn) 144529 / 2256
perspective, revenue, EBITDA and net profit of the company grew at
52-wk High/Low (Rs.) 675 / 270
10.5%, 35.1% and 20.9% on YoY basis respectively. In the process,
3M Avg.daily volume (Mn) 0.1
EBITDA margin and net profit margin expanded by 448 bps and 117 bps
Beta (x) 0.9
on respectively on YoY basis. The growth trend is likely to continue on the
Sensex/Nifty 33940 / 10493
back of rise in rice consumption demand in general and basmati rice in
O/S Shares(mn) 235.4
particular at global and domestic levels.
Face Value (Rs.) 1.0
The company witnessed to good jump in domestic market sales in Q2FY18
Shareholding Pattern (%)
whereas exports could not keep pace with on account of roller coaster
Promoters 58.8
ride in price. Importers are waiting for price to stabilise while resisting
FIIs 7.2
current high price. India Gate Classic of KRBL is the most popular brand
DIIs 0.3
in the largest basmati rice consuming regions such as Saudi Arabia, Iran,
Kuwait, Qatar, Oman, Bahrain and UAE. The company has been getting Others 33.7

regular orders from these countries except Iran whose policy has not been Stock Performance (%)
very consistent. However, there is likelihood that Iran might start importing 1M 3M 6M 12M
rice from India around Dec’17 which could be big positive for KRBL on Absolute (5) 28 55 117
being one of the largest players in the region. Relative to Sensex (6) 21 43 66
Source: Bloomberg
Integrated business model: The company follows backward
Relative Performance*
integration through partnership with farmers which enable company to
have control on quality and quantity of produce. 195
Diversified sources of earnings: The company is also into renewable 125
energy of solar power, wind power and bio-mass. It uses rice husks for






captive power plant. Energy contributes about 4% in total revenue of the

company. Given the backdrop of thrust on power, energy demand is KRBL Ltd Sensex

expected to pick up. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 31597 33628 31490 33045 35318
EBITDA 4882 4468 6435 7404 8390
EBITDA Margin (%) 15.5 13.3 20.4 22.4 23.8
Adj. Net Profit 3217 2931 3994 4740 5416
EPS (Rs.) 13.7 12.5 17.0 20.1 23.0
RoE (%) 27.6 21.1 23.5 22.4 21.0
PE (x)* 12.2 17.9 24.3 30.2 26.4
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Founded in 1889 in Faisalabad, Pakistan and incorporated in 1993, KRBL is the world’s largest Basmati rice exporting
company with multi-brand presence both in domestic as well as overseas markets. Over the years, the company
has developed rice brands such as India Gate, Nur Jahan, Telephone, Train, Unity and Bawabat Al-hind to meet the
requirements of different categories of consumers. Being an integrated player, the company also deals in value added
by-products like Bran Oil and De-oiled Cakes. It has got Energy business vertical as well, wherein it uses rice husks for
captive power plant. Its energy portfolio comprises of Bio-Mass, Solar and Wind energy. KRBL has strong presence
in export markets with 51% market share of Basmati Rice market of U.S.A, dominant presence in Middle East and
expanding its export base to Africa and Europe. The KRBL is ISO 9002, HACCP (Hazard Analysis and Critical Control
Points), KOSHER (approved by Jewish Dietary Law) and FDA (Food and Drug Administration) certified.

Valuation and Outlook

KRBL Ltd. is a dominant player in the largest basmati rice consuming region - Saudi Arabia and Iran with export and
domestic market shares at 25.0% and 31.0% respectively. Dominance of the company in terms of brand recall and
presence in major regions makes it an attractive investment proposition. We have valued stock at P/E 31.2x of FY19E
EPS and have arrived at target price of Rs. 717 with ‘BUY’ recommendation, reflecting potential upside of 18% in next
9-12 months.

Key Risks
yyCompetition risk.
yyFx-fluctuations risk.
yyEconomic slowdown risk.

KRBL: Technical View

The stock is in a secular uptrend. The stock is continuing its stellar rally from the levels of around 20 towards Rs.
675 levels in a span of less than five years. KRBL has given a spectacular return, multiplying almost 34 times to what
it was half a decade ago. The stock after clocking fresh highs, witnesses profit booking and takes support around
the lower levels. The accumulation and consolidation in the counter is witnessed in the stock before resuming its
fresh up move. In the recent rally, the stock witnessed profit booking around Rs. 675 levels which dragged the stock
towards Rs. 587 levels. The stock has been consolidating since then and is all set to resume its fresh up move
sooner than later. The stock is trading above its 100/200-DEMA on the daily and weekly charts. The stock is trading
with decent volumes, suggesting accumulation in the counter around the current levels. The support for the stock is
seen to be around Rs. 550 levels below which it may slip towards Rs. 490. Whereas, on the higher side, the stock
is likely to move in the uncharted territory towards Rs. 750-800 on sustaining and closing above Rs. 675 mark.


Mirza International Ltd
Bloomberg Code: MRZI IN

India Research - Stock Broking

Sprinting ahead with Branded Footwear Recommendation (Rs.)

CMP (as on Dec 22, 2017) 161
Betting big on Ladies Footwear; Bond Street, Physical/
Target Price 205
Online Stores & Warehouses in Simultaneous Focus: Mirza
Upside (%) 27
international known for RedTape gained prominence after the merger with
Genesis Footwear in 2016. The Ladies’ sports shoes launched last year Stock Information
had garnered a lukewarm response. So, a new ladies fashion brand will Mkt Cap (Rs.Mn/US$ Mn) 19369 / 302
be launched by the year ended FY18E which will mark the re-entry in 52-wk High/Low (Rs.) 184 / 81
Womens’ footwear. The women’s sport shoes are priced in the range of 3M Avg.daily volume (Mn) 0.6
Rs. 2,000-2,500 per pair. Operating margins will continue to expand with Beta (x) 1.1
the growth in domestic business due to higher gross margins. Branded Sensex/Nifty 33940 / 10493
sales would overtake exports in FY19E given its healthy growth in the O/S Shares(mn) 120.3
domestic market. Online presence in all major portals like Flipkart, Jabong, Face Value (Rs.) 2.0
Myntra and Amazon is still continued with. Online platform has also started Shareholding Pattern (%)
contributing significantly to the topline. They have also launched a store Promoters 73.8
in Ambala where they will have online prices and customers can buy
FIIs 0.6
through any portal and pick-up delivery at the store at the same price.
DIIs 0.0
Management continues to guide for revenues of Rs.1.5-2.0 Bn for FY18E
Others 25.6
from the newly launched Bond Street and sports shoes which contributed
double digit growth to the revenues for H1FY18. The effective tax rate post Stock Performance (%)
GST and the Rs. 2,600 Cr package announced by the Government shall 1M 3M 6M 12M
prove to be a boon for this company. Absolute (1) 1 3 93
Relative to Sensex (2) (5) (5) 47
Improved Margins; Growth is on track with Online Sales Source: Bloomberg

contributing significantly: Mirza International revenue for Q2FY18 Relative Performance*

came in at Rs. 2404 Mn, registering 4.7% QoQ decrease, and by 4.0 % 210
YoY. EBITDA for the quarter increased by 12.2% YoY and decreased by 170

3.9% QoQ to Rs. 424 Mn with a corresponding margin expansion of 254 130
bps YoY on the back of increased Indian Branded Footwear (RedTape)






Sales at Rs. 1700 Mn for H1FY18 increasing by 95% YoY and further
aided by favourable changes in inventories. UK, U.S, RoW (Rest of the Mirza International Ltd Sensex
World) sold 90 Mn, 25 Mn and 5 Mn pairs. PAT for Mirza International rose Source: Bloomberg; *Index 100
by 18.3% YoY to Rs. 193 Mn in Q2FY17 as against Rs. 164Mn on YoY.

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 9190 9287 9357 10932 12429
EBITDA 1426 1735 1605 2163 2612
EBITDA Margin (%) 15.5 18.7 17.2 19.8 21.0
Adj. Net Profit 512 781 712 1090 1364
EPS (Rs.) 5.5 7.2 5.9 9.1 11.3
RoE (%) 17.1 20.6 15.0 19.6 20.3
PE (x)* 15.7 13.4 27.2 17.7 14.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Mirza International was established in 1979 (promoted by Mr. Irshad Mirza, Chairman and Mr. Rashid Ahmed Mirza,
Managing Director) is spread across 30 countries. The in-house design development team manufactures high quality
products, which are stylish and comfortable, in the integrated facilities assuring Mirza as a reliable supplier to leading
international brands. Mirza International is the leading Indian supplier of leather footwear to global brands since last
15 years. Approximately 75% of total revenue generated is derived from exports. 85% of the total overseas sales are
private label goods supplied to leading international footwear companies. These international labels come to Mirza due
to the ability to have quick deliveries, offer great build quality and maintain economic prices. At present, the company
operations span across 30 countries around the globe. The main overseas markets are UK, France, Germany and U.S.A.
In UK, the company has garnered a 25% share in the men’s leather footwear in the mid-segment category, due to the
high market penetration underlining the strong acceptance for its products.

Valuation and Outlook

We have maintained our estimates taking into account slowdown in unbranded footwear segment along with the
re-attempt to foray in Ladies’ fashion segment including a capex of Rs. 250-270 Mn towards advertisement. We maintain
a “BUY” recommendation, valuing at 18.1x FY19E EPS with an upwardly revised target price of Rs. 205 representing
an upside potential of 27%.

Key Risks
yySlowdown in U.S and UK economies due to political risks.
yyLower realizations.
yyIncrease in price of raw materials.

MIRZAINT: Technical View

MIRZAINT gave breakout from the downward sloping trend line in the month of April this year and since then the
stock has been in upward trajectory. Year to date, the stock has generated the return of over 90% and in the past
six months the stock has seen upside of over 6%. The stock has largely remained in the range of Rs. 170-150
over past six months. Overall, the stock is looking positive from medium to long term perspective. On the weekly
chart, it is trading above all near term moving averages providing credence to the upward momentum. Immediate
resistance is seen around 165 followed by Rs. 170. Above the level of Rs. 170, the stock could clock the levels of
Rs. 177-180. Immediate support is seen around Rs. 156 followed by Rs. 148.


Bloomberg Code: MPS IN

India Research - Stock Broking

Recommendation (Rs.)
Inorganic Growth an Appropriate Path Ahead CMP (as on Dec 22, 2017) 648
Zero Debt, Strong Balance sheet with Healthy Free Cash Flows: Target Price 777
MPS Ltd’s ability to maintain its high operating margins, with minimal Upside (%) 20
Capex requirements, has lead to healthy free cash flows, resulting in the Stock Information
strong financial position for the company over the years. The company has Mkt Cap (Rs.Mn/US$ Mn) 12008 / 187
zero debt on its book and we expect the company to maintain the same 52-wk High/Low (Rs.) 775 / 554
during FY18E-19E. 3M Avg.daily volume 27626

Expecting Healthy revenue growth and margin expansion in Beta (x) 0.5
Sensex/Nifty 33940 / 10493
FY18-FY19E: MPS has posted 16.2% revenue CAGR along with 900 bps
O/S Shares(mn) 18.6
margin expansion over FY13-16. In FY17, the margins witnessed pressure
Face Value (Rs.) 10.0
due to operating loss in Magplus. We believe company to continue the
growth momentum and expect to post 8-9% CAGR over FY17-FY19E Shareholding Pattern (%)
mainly driven by its U.S business and acquisitions. We expect 90-100 bps Promoters 67.8

margin expansion, profitability at a CAGR of ~8% and EPS will expand to FIIs 7.5
DIIs 5.7
Rs. 40-45 for the period of FY18E-19E.
Others 19.0
Underwent restructuring, post acquisition: Successful turnaround
Stock Performance (%)
with improved operating efficiency by downsizing its service locations and
1M 3M 6M 12M
increasing the employee count at its low cost Dehradun facility benefited
Absolute 10 12 9 (5)
MPS. Overall, the building blocks are in place and is poised to capture
Relative to Sensex 9 5 0 (27)
incremental opportunities in the outsourced publishing space. Source: Bloomberg

Development of new platform with increased focus on diverse Relative Performance*

market: MPS provides majority of their products and services to large 130

publishing houses such as Macmillan, Cengage Learning, McGraw-Hill, 110

Elsevier and Wolters-Kluwer. MPS intends to expand its reach to small and
medium publishers, which forms part of traditional markets and which has





not been served through different platforms. MPS has developed a broad
MPS Ltd Sensex
range of customized products and service offerings in order to address
Source: Bloomberg; *Index 100
the varied and expanding requirements of small and medium publishers.

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 2239 2572 2887 3075 3383
EBITDA 804 910 931 984 1120
EBITDA Margin (%) 35.9 35.4 32.2 32.0 33.1
Adj. Net Profit 614 712 700 725 815
EPS (Rs.) 33.0 38.3 39.8 39.0 43.8
RoE (%) 35.3 26.6 23.6 18.9 17.7
PE (x)* 28.6 17.2 17.2 16.6 14.8
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
MPS Ltd is engaged in the business of providing publishing solutions viz, typesetting and data digitalisation services
for the overseas publishers and supports international publishers through every stage of the author-to-reader
publishing process and provides a digital-first strategy for the publishers across content production, enhancement
and transformation, delivery and customer support. It offers diverse geographic spread catering to U.S and European
countries. Earlier, in the year 2011, the company was acquired by the Adi BPO services Ltd from the HM Publishers
holding Ltd. Under the current management, the company successfully witnessed turnaround in a span of four years.
The company has expanded through inorganic expansion and acquired three companies in U.S.A namely Elements
LLC, Electronic Publishing Service Inc and TSI evolve Inc under its U.S subsidiary MPS North America LLC.

Valuation and Outlook

MPS Ltd’s commitment to the inorganic approach for growth is evident by its decision to withhold the dividend payout
during the year. We expect the operating performance continue to be impacted in the near term due to the recent
acquisition until the associated costs get streamlined. We maintain our positive view on the company and assign
“BUY” recommendation with the target price of Rs. 777 resulting an upside potential of 20% on consolidated FY19E
EPS of Rs. 43.8 for a period of 9-12 months.

Key Risks
yyConcentration risk due to dependability on few clients.
yyCurrency volatility could impact revenue estimates.
yyOutcome of inorganic growth.

MPSLTD: Technical View

MPSLTD is in a structural bullish trend making repeated cycles of higher highs and higher lows on the weekly charts.
The counter has generated strong returns for the medium to long term investors where the stock has rallied from
40 odd levels and made all time highs of 1095 levels in the month of April 2015 in a short term time frame of three
years. On the longer term charts, the stock has shown no sign of weakness in the mentioned up move indicating
any correction in the counter may be utilised as a buying opportunity for the medium to long term perspective.
On the other hand, after making all time highs of Rs. 1095 levels, the stock has witnessed a steep round of profit
booking which dragged the stock towards the lower support zone of Rs. 570-600 levels which may be utilised to
enter the counter for long term period. The supports for the stock is placed at Rs. 600-620 followed by Rs. 550
levels on the lower side while resistance is pegged around Rs. 730-750 followed by Rs. 900 levels. Medium to long
term investors may enter the stock at current levels and utilize any dips as a buying opportunity.


Natco Pharma Ltd
Bloomberg Code: NTCPH IN

India Research - Stock Broking

Specialty Generics in U.S Market to Drive Profits Recommendation (Rs.)

CMP (as on Dec 22, 2017) 985
gCopaxone and gTamiflu to Drive Large Cash Flows: Mylan Target Price 1310
launched gCopaxone both 20mg and 40mg. All patents expired for 20mg Upside (%) 33
but 40mg patent litigation is ongoing, thus 40mg is an “at-risk” launch. The
Stock Information
40mg version is protected by 5 orange book patents, claims of 4 of these
Mkt Cap (Rs.Mn/US$ Mn) 179873 / 2808
patents were held invalid by District Court and litigation of the fifth patent 52-wk High/Low (Rs.) 1090 / 555
issued in Aug 2016 was dismissed with prejudice. Teva has appealed all 3M Avg.daily volume (Mn) 0.3
decisions in Appellate Court. Mylan is the sole generic in 40mg and is Beta (x) 0.7
expected to capture a significant market share of the $800 Mn (quarterly Sensex/Nifty 33940 / 10493
sales) drug. We are assuming a second 40mg generic from Sandoz in Feb O/S Shares(mn) 184.3
2018, post resolution of warning letter on Pfizer’s Kansas facility. In 20mg Face Value (Rs.) 2.0
there are only 2 generics – Sandoz and Mylan. Natco’s partner Alvogen
Shareholding Pattern (%)
is the first to launch gTamiflu suspension in Nov 2017. The market size Promoters 51.2
is $312 Mn and about 85% of the sales happen in flu season (Nov to FIIs 21.5
Mar). Limited competition in large products would lead to smaller price DIIs 5.4
erosion and substantial cash flows. Our estimates indicate that Natco Others 21.9
could generate Rs.7317 Mn and Rs.9742 Mn in profit share from both
Stock Performance (%)
20mg and 40mg during FY18E and FY19E respectively. Profit share from
1M 3M 6M 12M
gTamiflu is estimated to be Rs.2198 and Rs.833 during FY18E and FY19E
Absolute 9 24 2 66
Relative to Sensex 8 16 (6) 27
gFosrenol and gDoxil to Generate Substantial Profits: Natco’s Source: Bloomberg

partner Lupin became the first to launch gFosrenol in Q2 FY18. Lupin Relative Performance*
is expected to be the sole generic in the foreseeable future. The market
size is $122 Mn. According to our estimates, Natco is expected to 140
make Rs.444 Mn and Rs.761 Mn in profit share for FY18E and FY19E 80
respectively. Natco’s partner Dr.Reddy’s is the second generic in the





difficult-to-manufacture gDoxil. Our estimates indicate that Natco could

Natco Pharma Ltd Sensex
make Rs.1168 Mn and Rs.1123 Mn in profit share for FY18E and FY19E
Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 8,253 11,416 20,650 27,367 33,142
EBITDA 2,134 2,697 6,834 10,612 12,504
EBITDA Margin (%) 25.9 23.6 33.1 38.8 37.7
Adj. Net Profit 1,195 1,552 4,860 7,751 9,091
EPS (Rs.) 8.1 9.1 27.8 42.1 49.3
RoE (%) 17.0 14.4 32.9 39.9 35.3
PE (x) 51.9 45.3 30.6 23.4 20.0
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price


Company Background
Founded in 1981 and headquartered in Hyderabad, Natco is a specialty generics pharma manufacturer. It is the market
leader in India in Oncology and Hepatitis C therapeutic areas. In Indian market, Natco offers 28 oncology medicines (11
for blood cancers + 17 for solid tumors) and 5 medicines in the hepatitis therapeutic area. Six brands in the oncology
segment have INR 100mn+ sales. Natco typically pursues a pipeline of niche and complex generics products in U.S with
Para IV and Para III filings and has over 20 approved ANDAs. Natco has 5 finished dosages facilities one each in Kothur,
Nagarjuna Sagar, Guwahati and two in Dehradun. There are 2 API facilities in Mekaguda and Chennai.

Valuation and Outlook

Natco recently did a QIP (Qualified Institutional Placement) of Rs.9150 Mn (10 Mn shares issued @ Rs.915 per share).
Natco is expected to invest this money to build complex generics pipeline in the long-term because gestation period
is typically longer for these products and investing early is crucial to be one of the first generic firms to get approvals
and launch products. We reiterate a “BUY” recommendation with Rs.1310 target price revised upwards based on 22x
FY19E EPS of Rs.49.3 and cash flow per share of Rs.224 for FTF/Para IV opportunities (primarily gRevlimid).The target
of Rs.1310 represents a potential upside of 33%.

Key Risks
yyU.S Courts ruling against Mylan on any of the 5 Copaxone patents.
yyEarly approvals and launch of both gCopaxone 20mg and 40mg in U.S by Reddy’s and Synthon/Pfizer.
yyEarly approvals and launch of gTamiflu suspension by Lupin, Amneal Pharms and MacLeods Pharms.
yyForm 483 with major observations on any of the Natco’s facility upon inspection by U.S FDA.
DAAWAT: Technical View
NATCOPHARM: Technical View

NATCOPHARMA has witnessed a V-shaped recovery of its fall from the all time high of Rs. 1090 to Rs. 671 levels
which is around 61.8% Fibonacci retracement level from its rally which started around Rs. 389 levels on the weekly
charts and settled above a huge runway gap (Rs. 813-929). The counter has generated more than 68 % returns
in 2017 till date, indicating strong bullish trend. On the weekly chart, the stock is sustaining above all of its major
moving averages suggesting the strength in the counter in all the major time frames. On the other hand, leading
indicators such as parabolic SAR and Heiken candlesticks suggest a positive trend in the weekly charts. The
supports for the stock is placed at Rs. 760-790 followed by Rs. 670-690 levels on the lower side while resistance is
pegged around Rs. 1308 followed by Rs. 1420 levels. Medium to long term investors may enter the stock at current
levels and utilise any dips as a buying opportunity.


Tata Sponge Iron Ltd
Bloomberg Code: TTSP IN

India Research - Stock Broking

Recommendation (Rs.)
Increased Infrastructure Spending and Improving
CMP (as on Dec 22, 2017) 939
Global Macro to Revive Steel Sponge Demand Target Price 1140

Robust Domestic Demand and Protectionist Measure to Upside (%) 21

Stimulate Sale: Tata Sponge Iron Limited generated higher volume and Stock Information
higher operating profit in FY17 on the back of its continuous efforts to Mkt Cap (Rs.Mn/US$ Mn) 14529 / 227
enhance the value of the product and efficient business and operating 52-wk High/Low (Rs.) 989 / 540
processes. The company produced 3,90,000 MT Sponge iron in FY17 3M Avg.daily volume (Mn) 0.3
as compared to 3,60,446 MT in FY16 which is higher by 8.2% and in Beta (x) 1.2
the process achieved 100% capacity utilisation. Power generation at Sensex/Nifty 33940 / 10493
185.47 MKWH in FY17 vs. 162.83 MKWH in FY16 was higher by 13.9%. O/S Shares(mn) 15.4

The turnover of Rs. 6152 Mn in FY17 has been lower by 2.8% than the Face Value (Rs.) 10.0

previous FY16 turnover. However, with improved margin, the net profit Shareholding Pattern (%)
increased by 84.0% to Rs. 588 Mn. Going forward, the various policy Promoters 54.5
measures announced by the government such as increased spending in FIIs 7.0
infrastructure, affordable housing, smart cities, etc. will generate positive DIIs 0.8
demand for steel and sponge iron. Given this backdrop, we believe that Others 37.7

revenue and net profit margin for TSIL may grow at CAGR of 8.0% and Stock Performance (%)
10.2% respectively during FY17-20E. 1M 3M 6M 12M
Absolute (0) 7 15 70
Greater Collaboration with Tata Steel: The company uses Relative to Sensex (1) 1 6 30
coke-coal and iron ore for production of sponge iron. While it sources Source: Bloomberg

close to 100% of iron ore requirements from its parent company called Relative Performance*
Tata steel, it imports good quality coke-coal from South Africa. In view 175
of firming imported Coking-coal prices, the company might follow blend 135
strategy with semi-coking coal which is sourced domestically without 115
compromising on quality. The company generates surplus power which






is sold out to Tata Steel and thus, realization in power business, is given.
Tata Sponge Iron Ltd Sensex

Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 6330 6152 7375 7511 7755
EBITDA 240 616 761 778 801
EBITDA Margin (%) 3.8 10.0 10.3 10.4 10.3
Adj. Net Profit 319 588 746 762 787
EPS (Rs.) 20.7 38.2 48.4 49.5 51.1
RoE (%) 3.9 7.0 8.4 8.0 7.8
PE (x)* 22.6 18.3 19.0 19.0 18.4
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Company Background
TSIL with manufacturing facility at Beliepada in Odisha, was initially set up as a joint venture between Tata Steel and the
Industrial Promotion and Investment Corporation of Orissa (IPICOL) in the name of Ipitata Sponge Iron Limited. In 1991,
Tata Steel acquired IPICOL’s stake in the company making it an associate company of Tata Steel. Following acquisition,
the name of the company was changed to Tata Sponge Iron Ltd. To cater to the growing demand of sponge iron, the
company increased its capacity by adding kiln, over the period. Presently, the company has total sponge iron production
capacity of 390000 TPA (tones per annum) from three kilns. In May 2017, the company received an approval from the
Ministry of Environment for enhancing production capacity by 35,000 MT. The company also has two captive power plants
that generate 26 MW of power from the waste heat of exit gases from kilns. Tata Sponge Iron limited is the first company to
CDM (Clean Development Mechanism) certificate. It has also been accredited with ISO 9001 and ISO 14001 certifications.

Valuation and Outlook

TSIL enjoys leadership position in the industry with sound financial in terms of zero debt and high cash balance. Besides,
company’s decision to bid for Iron Ore and Coal Mines and foray into steel making would provide good synergies
to business in coming years. AT CMP of Rs. 939 the stock of the company is trading at EV/EBITDA 13.1x of FY20E
EBITDA. We value stock at EV/EBITDA 17x of FY20E EBITDA, which gives the target price of Rs. 1140 with potential
upside of 21% and assign ‘BUY’ rating for next 9-12 months.

Key Risks
yySponge iron industry has to compete against relatively cheaper scrap.
yyNon-availability of suitable grade raw materials.

TATASPONGE: Technical View

The stock has resumed its strong up move after making low of around Rs. 338 levels. The uptrend from the said
lower levels has seen making higher high and higher lows on daily charts. Currently the stock is trading in the broad
range of Rs. 900-985 levels with a positive bias. The stock is sustaining well above all its major moving averages
of 50, 100 and 200 DEMA on the daily charts. On technical setup, the 14 period RSI is pointing northwards and
showing comfortable trade on the daily charts. Going ahead the stock is expected to find support around Rs. 900
levels and below that are Rs. 777 levels. Whereas, the resistance is placed around Rs. 985 levels and above that is
Rs. 1020-1050 levels. The recent price action in the stock suggests that every dip in the stock attract market
participants and sustainability above the Rs. 980-985 levels will enhance the confidence amongst the market


Visaka Industries Ltd
Bloomberg Code: VSKI IN

India Research - Stock Broking

Change in Product Mix, New Age Markets to Aid Recommendation (Rs.)

CMP (as on Dec 22, 2017) 627
Profitability Target Price 800
Well Diversified Product Portfolios: The company enjoys a Upside (%) 28
strong position in cement asbestos, V-board and yarn business. Stock Information
During FY17, adverse market conditions caused by demonetisation Mkt Cap (Rs.Mn/US$ Mn) 10022 / 156
and destocking ahead of GST implementation had negative bearing 52-wk High/Low (Rs.) 734 / 172
on its sales. However, operational efficiency helped the company to 3M Avg.daily volume 0.1
generate operating profit and net profit margins at 11.9% and 4.2% Beta (x) 1.5
respectively. The company has recently launched new roofing product Sensex/Nifty 33940 / 10493
called “ATUM”- a new age eco-friendly, energy efficient and energy O/S Shares(mn) 15.9
generating roof, which will help increase the sales in upcoming years. Face Value (Rs.) 10.0
Further, overall improvements in macro-economic environment will Shareholding Pattern (%)
contribute to significant rise in sales in years to come. Promoters 41.2
FIIs 6.5
Implementation of GST - Positive for the business: The
DIIs 0.9
implementation of GST would place VIL at an advantageous position
Others 51.4
as tax compliance will become must for all the players in the industry.
The total indirect tax incidence in cement sheet and V-Next product Stock Performance (%)
has come down to 18.0% post GST regime, which was about 28.0% 1M 3M 6M 12M
pre-GST. The management has given impression that it would pass on Absolute (3) 2 23 257
tax benefits to customers in terms of lowering the product price, which Relative to Sensex (4) (4) 14 174
Source: Bloomberg
will have positive bearing on sales in years to come.
Relative Performance*
Capacity Expansion in V-Board business division to stimulate 400
growth: The company has started expanding V-Board business from 320
existing capacity of 120000 MTPA by adding 50000 MTPA capacity. 160
The process is to be completed by the end of FY18E. For capacity 80





expansion, the company has allocated capex outlay of Rs. 1000 Mn,
which will be funded largely through internal accruals. With this, the Visaka Industries Ltd Sensex

company will be able to take care of growing demand in this segment. Source: Bloomberg; *Index 100

Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 10049 9667 10130 10960 12145
EBITDA 952 1148 1247 1450 1645
EBITDA Margin (%) 9.5 11.9 12.3 13.2 13.5
Adj. Net Profit 244 408 436 592 739
EPS (Rs.) 15.4 25.7 27.4 37.2 46.5
RoE (%) 7.0 10.5 10.2 12.3 13.4
PE (x)* 6.9 10.5 22.9 16.8 13.5
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price


Company Background
Hyderabad based Visaka Industries Ltd was founded by Dr. G. Vivekanand in 1981. The company has two main business
verticals i.e., Building Products (including Cement asbestos & fibre cement boards like V-Boards & V-Panels) and Synthetic
Yarn. The total installed capacity of asbestos and fiber cement boards are 8,02,000 and 1,29,000 tons respectively. Of
these, the company has 36 depots and more than 6000 dealer outlets pan-India to ensure smooth & timely supply of
products. Synthetic yarn with 41 Murata-Twin-Spun (MTS) machines, which are equivalent to 82560 ring spindles with the
capability to produce 12500 tons yarn per annum. Of 12500 tons, about 3000 tons are exported to 17 countries around
the globe. The company is the second largest manufacturer of cement fibre roofing sheet and is largest player in V-Board
business. It is the market leader in twin Air Jet technology in the textile synthetic yarn business. The company’s exports
accounted for 7.2% of the total revenue. The company has 11 manufacturing facilities and 13 marketing offices across India.

Valuation and Outlook

Visaka enjoys strong presence in building products and yarn business. It has been expanding its capacities to cater to
emerging opportunities. Urbanisation, in particular, would lead to greater demand for housing related products, while
yarn business will receive great push as there is growing preference for branded garment. We are of the view that the
company will be a big beneficiary of these developments in medium to long term. We are also of the view that the sales of
the company would register growth at CAGR of 7.9% over FY17-20E. At CMP of Rs. 627, the stock is currently trading
at a P/Ex of 13.5 of FY20E EPS of Rs. 46.5. We value the company on a P/Ex of 17.2 and arrive at a price target of
Rs. 800 for an upside potential of 28% for next 18- 24 months with “BUY” rating.

Key Risks
yyStiff competition from alternative products like colour coated sheets, etc.
yySlowdown in industry.
yyShortage of raw materials & currency fluctuation.

VISAKAIND: Technical View

The stock price witnessed stellar rally from the lows of 88 levels to an all time high of Rs. 734 made in recent
past, mid of Oct’17, gained more than seven times in less than two years time frame, exhibiting extraordinary
performance of the stock. After placing an all time high stock price entered in to a consolidation mode wherein price
correction remained limited. Technically, stock price is hovering near its 21 & 50-DEMA which is currently placed near
Rs. 630-633 levels, while stock is well poised above its long term moving average 200-DEMA (518). On the weekly
momentum setup 14-period RSI tested 90-levels, post which in recent price correction it managed to holds above
equilibrium levels, which depicts that bulls are still in control of the counter, and possibly accumulation happening
at lower levels. Technically, stock has an immediate support near Rs. 580 levels, followed by Rs. 500-520 levels,
below which next support lies near Rs. 400-410 levels. While on the higher side stock may find immediate resistance
near its all time high of Rs. 734, above which it will march in an uncharted territory over Rs. 780-800 levels where it
is likely to find next resistance, over coming months.


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Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to
change without notice. Actual results may differ materially from those set forth in projections.
yy Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated
by the subject company for any other assignment in the past twelve months.
yy Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding
twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company
in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker,
merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty
services, data processing, profiling and related services or in any other capacity.
yy KSBL encourages independence in research report preparation and strives to minimize conflict in preparation of research report.
yy Compensation of KSBL’s Research Analyst(s) is not based on any specific merchant banking, investment banking or brokerage service
yy KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or
derivatives of any companies that the analysts cover.
yy KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the
report as of the last day of the month preceding the publication of the research report.
yy KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in
connection with preparation of the research report and have no financial interest in the subject company mentioned in this report.
yy Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report.
yy It is confirmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this
report have not received any compensation from the subject company mentioned in the report in the preceding twelve months.
yy It is confirmed that J K Jain, Research Analyst did not serve as an officer, director or employee of the companies mentioned in the report.
yy KSBL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
yy Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.
yy We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst


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