Golden Stocks Portfolio

Investment Rationale
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HDFC Bank (HDFBAN) Asian Paints (ASIPAI)
• HDFC Bank, India’s second largest private bank, has been consistent in its • APL is the industry leader in the decorative paint segment with 53% market
financial performance. It has grown its balance sheet at 23% CAGR over share and a dealer network of over 55,000 across India. It derives 89% of
FY07-13 maintaining its profit growth of 30% CAGR to | 6726 crore. Since its topline from the decorative segment while the rest comes from the
then, PAT growth had moderated but is still healthy at 20% YoY. We expect industrial segment. Further, a reduction in the GST rate from 28% to 18%
PAT to grow at 21.1% CAGR in FY18-20E to | 25626 crore would benefit organised players in the long run while rising tax compliance
• It has 53% retail (| 401500 crore) and 47% corporate book of | 349339 crore would hit the unorganised segment commanding ~25% of the total industry.
in loan book of | 750838 crore as on September 2018. It enjoys largest With the expansion in paints capacity in Andhra Pradesh and Karnataka,
market share in credit cards that fetches higher margins & returns. The bank APL is best placed to capture this additional demand, going ahead. We
is well placed to harness both retail and expected corporate pick-up. It has a model revenue CAGR of ~16% in FY18-20E led by volume CAGR ~13%
strong liability franchise with CASA of 41%. Retail term deposit comprises supported by sustained demand of decorative paints from tier II, tier III cities
>80% of total deposit. Expect credit, deposit growth at ~21%, 18.2% CAGR and a shorter repainting cycle
in FY18-20E to | 962742 crore, | 1101661 crore, respectively. CASA and fee • APL has witnessed a significant expansion in EBTIDA margin (by ~400 bps
based income from cross-selling continues to grow on a rising presence in in FY15-17) owing to lower raw material prices and rising proportion of
remote locations. This has led to manageable cost of funds and enabling premium products in the portfolio. However, a reversal was witnessed from
lucrative NIM >4% consistently FY18 onwards owing to inability to pass on a sudden rise in crude based
• GNPA and NNPA ratios have been stable around 1-1.5% in the last 25 raw material prices. We believe APL will absorb some inflationary pressure
quarters. Retail NPA had risen just once in the FY08 crisis to 2%. However, by taking a hit in gross margin in the near term (as the gross margin fell
being a seasoned portfolio, we factor GNPA & NNPA will be stable at ~1.3% ~330 bps in H1FY19 from its peak in FY17). We believe that being a market
& 0.3%, respectively, by FY20E leader in the decorative paint segment, any price hike in raw material would
• We expect superior quality of balance sheet with RoA at ~1.9%, RoE at 16- be easily passed on to its customers
17% expected to continue. The bank remains a portfolio stock with premium • We believe the current phase of slowing volumes is temporary while
valuations set to sustain. Risk related to top management change needs to demand for paints is structurally growing considering the lower per capita
be keenly watched paint consumption in India
Key Financials FY17 FY18 FY19E FY20E
Key Financials FY18 FY19E FY20E FY21E
Revenues (| crore) 15,062.0 16,824.6 19,208.9 22,627.0
NII (| crore) 40,094.8 47,820.6 56,645.2 66,495.0
EBITDA (| crore) 2,986.4 3,197.6 3,449.9 4185.0
PBT (| crore) 26,603.8 31,638.2 38,229.2 45,931.0
Adj. Net Profit (| crore) 1,998.8 2,097.5 2,183.7 2696.6
Adj. Net Profit (| crore) 17,486.7 20,786.3 25,116.6 30,176.6
Adj. EPS (| ) 21.0 21.9 22.8 28.1
Adj. EPS (| ) 67.4 76.4 92.3 110.9
PE(x) 64.0 61.3 58.9 47.8
PE(x) 30.9 27.3 22.6 18.8
P/BV (x) 16.9 15.3 13.9 11.9
P/BV (x) 5.4 4.0 3.5 3.1
ROE(%) 26.3 24.4 22.5 24.8
ROA (%) 18.1 16.8 16.3 17.1
ROCE(%) 32.8 31.6 28.7 32.0
ROE(%) 1.8 1.8 1.8 1.9

Source: Bloomberg ICICIdirect.com Research

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Titan Company (TITIND)
• Titan Company is a major player in the organised jewellery market with a
share of ~ 5%. Tanishq’s penetration is still at a nascent stage in the Indian
jewellery market. This provides an immense opportunity for Titan to
enhance its market share. Recent regulatory changes such as gold
hallmarking & GST have been highly favourable for organised players like
Titan, leading to market share gains from unorganised players
• The wedding segment accounts for ~ 60% of the jewellery market in India (|
150,000 crore of the total | 2,50,000 crore), of which Tanishq’s market share
is ~ 3%. Titan is aiming to increase its wedding jewellery share in total
revenues from 35% in FY18 to 50% by FY23. Its sustained efforts towards
enhancing its share in the wedding jewellery space is proving to be fruitful
as it is growing at a much faster pace compared to the non-bridal jewellery.
Since the average ticket size for the wedding jewellery is higher than
adornment jewellery, Titan’s aggressive foray in the wedding space is
expected to enhance asset turnover and return ratios, going forward
• Despite headwinds like fewer wedding dates in H1FY19, surge in gold
prices & tightening of regulatory policy, Titan continued to gain market
share. The management remains upbeat on growth outlook with the aim to
grow jewellery segment revenue at a CAGR of 20% till FY23E. High asset
turnover with positive operating leverage are expected to translate to 33%
RoCE by FY20E from 29% in FY18. We believe Titan’s growth story will
remain multi-pronged and drawn over a longer time frame
Nestlé India (NESIND)
• Nestlé India (NIL) is the market leader in instant noodles and baby food
products in India and No. 2 player in instant coffee & chocolates segment.
NIL launched 40+ products in the last two years across segments, including
new launches as well as variants to boost volume growth and market share
gain. The company has witnessed a volume surge in CY17 in all categories
after volume de-growth of three consecutive years. NIL has been benefited
from a considerable decline in milk prices as the milk products segment
contributes more than 45% of sales. The company is keen on bringing a few
global brands to India, which may provide further thrust to volumes
• NIL has successfully worked towards rebuilding its core and regaining its
position for brand Maggi. Maggi has gained 600 bps market share in the
past two years and was successful in gaining 61% market share (pre-ban
level: ~75%). In terms of value sales & distribution, Maggi has reached its
erstwhile peak achieved in 2014. However, in volume terms, it is still 10%
away from peak volume levels.
• We remain positive on NIL’s growth prospects as the company is
aggressively launching new products and variants in existing brands that
would perk up growth, going forward. We expect earnings growth at 23%
CAGR in CY17-20E led by strong sales growth CAGR of 13% over the
same period

Key Financials FY17 FY18 FY19E FY20E Key Financials CY17 CY18E CY19E CY20E
Revenues (| crore) 13,260.8 16,119.8 19,520.0 23348.9 Revenues (| crore) 10,135.3 11,317.2 12,858.8 14632.1
EBITDA (| crore) 1,155.5 1,644.7 2,108.2 2661.8 EBITDA (| crore) 2,248.4 2,752.8 3,118.3 3683.5
Adj. Net Profit (| crore) 711.5 1,101.9 1,426.1 1846.8 Net Profit (| crore) 1,225.4 1,689.6 1,917.8 2286.5
Adj. EPS (| ) 8.0 12.7 16.1 20.8 EPS (| ) 127.1 175.2 198.9 237.1
PE(x) 116.7 73.5 58.2 44.9 PE(x) 76.3 55.4 48.8 40.9
P/BV (x) 19.6 16.3 13.5 11.3 Mcap/Sales 9.2 8.3 7.3 6.4
ROE(%) 16.8 22.2 23.2 25.2 ROE(%) 37.6 45.5 41.7 41.2
ROCE(%) 24.7 29.3 31.5 33.6 ROCE(%) 34.9 43.4 42.5 44.2

Source: Bloomberg ICICIdirect.com Research

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Hindustan Unilever (HINLEV)
• HUL’s premium products continue to witness higher growth compared to
mass segments. The company has been concentrating on leveraging
premium brands by launching new products like Indulekha in shampoo,
Magnum in ice-creams and relaunching of liquid Domex in South India. As
on date, only 25% of revenue comes from premium products. Given that
about nine of 10 households in the country consume HUL’s product on a
daily basis, this provides it a huge potential to increase the mix of
premium product in total revenue. Additionally, HUL has continued its
strategy to drive premiumisation and higher market penetration through
affordable SKUs. The company launched Lifebuoy hand wash at | 5
access pack in three geographies to drive penetration
• An uptick in crude oil prices along with rupee depreciation has resulted in
high packaging costs across HUL’s segments warranting a 3-5% price hike
by HUL recently to mitigate input cost pressure. We believe the current
rise in material costs is not alarming as around 20% correction in palm oil
prices (used as a key raw material in soaps) will provide some cushion in
addition to recent price hikes and HUL’s cost saving initiatives
• We believe HUL is well placed to fulfil rural demand through its product
innovation, speed and agility to cater to evolving consumer needs. We
estimate HUL will report revenue and PAT CAGR of 13% and 20.7%,
respectively, in FY18-20E with 260 bps operating margin expansion to
23.3% in FY20E

Key Financials FY17 FY18 FY19E FY20E

Revenues (| crore) 33,895.0 34,619.0 38,114.1 43,598.4
EBITDA (| crore) 6,046.8 7,276.0 8,564.0 10,261.1
Net Profit (| crore) 5,036.7 5,237.0 6,233.9 7,626.2
Adj. EPS (| ) 22.5 24.5 29.2 35.3
PE(x) 78.3 75.3 63.2 51.7
Mcap/Sales (x) 11.6 11.4 10.3 9.0
ROE(%) 74.9 74.7 90.0 103.8
ROCE(%) 74.9 79.9 94.4 120.0

Source: Bloomberg ICICIdirect.com Research

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