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For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES.

REFER TO THE END OF THIS MATERIAL.


INDIA DAILY
August 5, 2014
Kotak Institutional Equities Research
kotak.research@kotak.com . Mumbai: +91-22-4336-0000
India 4-Aug 1-day1-mo 3-mo
Sensex 25,723 1.0 (0.9) 14.8
Nifty 7,684 1.1 (0.9) 14.8
Global/Regional indices
Dow Jones 16,569 0.5 (2.9) 0.3
Nasdaq Composite 4,384 0.7 (2.3) 6.3
FTSE 6,678 (0.0) (2.7) (2.1)
Nikkei 15,481 0.0 0.3 7.1
Hang Seng 24,600 0.3 4.5 11.9
KOSPI 2,071 (0.4) 3.1 5.7
Value traded India
Cash (NSE+BSE) 174 211 241
Derivatives (NSE) 1,282 1,383 617
Deri. open interest 1,540 1,723 1,273


Forex/money market
Change, basis points
4-Aug 1-day 1-mo 3-mo
Rs/US$ 60.9 2 93 82
10yr govt bond, % 8.8 (2) 6 (27)
Net investment (US$mn)
1-Aug MTD CYTD
FIIs (183) (183) 11,673
MFs 132 133 (191)

Top movers
Change, %
Best performers 4-Aug 1-day 1-mo 3-mo
BHFC IN Equity 749.7 3.6 11.6 84.9
RCAPT IN Equity 582.2 0.6 (11.2) 70.8
UT IN Equity 25.9 3.2 (21.3) 62.9
SSLT IN Equity 289.6 2.7 (5.1) 60.5
AL IN Equity 35.1 3.4 (2.8) 56.3
Worst performers
UNSP IN Equity 2393.4 2.7 (2.5) (13.4)
CAIR IN Equity 319.3 2.1 (12.2) (4.7)
UBBL IN Equity 736.3 3.5 3.2 (4.6)
MMFS IN Equity 248.7 2.9 (8.7) 0.8
ACEM IN Equity 204.4 0.5 (8.6) 0.9


Contents
Special Reports
Strategy
Strategy: Smart beta using eXtractor - growth and profitability overshadow
other styles
Daily Alerts
Results
Power Grid: Steady on the growth path
Cummins India: Poised to outperform peers
Marico: 1QFY15 ahead, outlook positive; valuations full. REDUCE
Mphasis: Revenue growth challenges mount
Oriental Bank of Commerce: Lower provisions cushion a weak performance
Bajaj Corp.: 1QFY15 ahead of expectations; raise estimates a tad. ADD
Carborundum Universal: Margins to improve further; order flow is
encouraging
Results, Change in Reco
Petronet LNG: Weak results and full valuations
Company
Crompton Greaves: Annual report - broad demand recovery uncertain;
expects overseas demand in some pockets

For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
eXtractor, KIEs proprietary data analytics tool
KIEs proprietary data-analytics tool, eXtractor, mines a universe of Indian stocks based on nine
factors: value, relative value, growth, profitability, momentum, leverage, size, sentiment and our
proprietary factor iQ, or investment quotient. The data-mining is comprehensive in nature with iQ
deriving higher concepts from basic financial parameters by unifying various traditional investment
parameters under a single factor. This bridges the gap between data and inference. eXtractor is
part of our Quantools offerings and is available on our website (http://kie.kotak.com). Here, clients
can screen and test various investment styles, using their own parameters for universe, investment
horizons, churn periods, portfolio size and more.
Investment style guidegrowth and profitability outperform in July
Growth (+5.3%) and profitability (+3.7%) emerged as the best-performing investment styles in
July (see Exhibit 1). Value (-6.3%) and low leverage (-5.3%) were the worst-performing factors
even as sentiments (-2.2%) lagged the broader markets. Investment trends have been mixed since
May with growth and profitability experiencing mixed fortunes in CYTD14 (see Exhibit 2). While
SUNP and TCS assisted the growth portfolio over the month, consumer staples like HUVR and ITC
were the biggest boost to the profitability basket (see Exhibit 3). The value portfolio was affected
by corporate governance concerns in CAIR (-13.6%). Exhibit 4 showcases the August 2014
portfolios based on various investment styles. AXSB was added to the iQ portfolio for the month
on the back of growth, value and sentiments. AXSB, HUVR and APNT make up the sentiment-
based portfolio for August, having witnessed consensus target price upgrades of 10-12% over the
month.
Smart betaoptimized CNX Nifty 50 portfolio underperforms by 50 bps in July
We extend eXtractors framework to optimize the weights of the CNX Nifty 50 constituents by
exposing the broader portfolio to selected factors (see Exhibit 5). The strategy has consistently
outperformed the benchmark since CY2006 (see Exhibit 6) based on a set of assumptions (see
Exhibit 7). In July, the optimized portfolio underperformed the CNX Nifty 50 by 50 bps for the first
time since January 2014 (see Exhibit 8). While the overweight positions in materials like NMDC and
JSPL weighed upon portfolio performance, underweight positions in LT and SBIN assisted overall
portfolio returns (see Exhibit 9). Exhibit 10 showcases the optimized CNX Nifty 50 portfolio
performance for July.
August 2014 optimized CNX Nifty 50 portfolioprefers financials over healthcare and industrials
The optimized CNX Nifty 50 portfolio for August prefers financials, information technology,
materials and consumer discretionary over consumer staples, healthcare and information
technology (see Exhibit 11). PNB, CAIR, IIB and SBIN saw the highest additions in weight on a
mom basis while HMCL, ONGC and ITC were placed at the opposite end of the spectrum (see
Exhibit 12). Exhibit 13 showcases the optimized CNX Nifty 50 portfolio for August.


Strategy.dot

Strategy
India Quantitative
Smart beta using eXtractorgrowth and profitability overshadow other styles.
Growth and profitability were the best-performing investment styles in July despite their
mixed fortunes in CYTD14. The optimized CNX Nifty 50 portfolio for August prefers
financials, information technology and materials over consumer staples, healthcare and
industrials. PNB, CAIR and IIB are the biggest additions to the August portfolio.

INDIA
AUGUST 05, 2014
UPDATE
BSE-30: 25,723


QUICK NUMBERS
Growth and
profitability
supersede other
investment styles in
July 2014
AXSB gets added to
the iQ portfolio
Optimized portfolio
prefers financials,
information
technology and
materials
PNB, CAIR, IIB and
SBIN were the
biggest mom
addition











Saifullah Rais
saifullah.rais@kotak.com
Mumbai: +91-22-4336-0895


Strategy India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Exhibit 1: Growth and profitability are the only investment styles to outperform the CNX Nifty 50 in
July
Performance of the portfolios based on different investment styles, July 2014
Portfolio returns
Minimum Maximum Average
Investment style Company Returns (%) Company Returns (%) (%)
iQ ONGC (6.9) Tata Consultancy Services 6.4 (0.0)
Growth IndusInd Bank (2.1) Sun Pharmaceuticals 15.0 5.3
Value Cairn India (13.6) Bank of Baroda (0.5) (6.3)
Relative value Jindal Steel & Power (14.8) ITC 9.5 (2.3)
Profitability NMDC (6.8) Hindustan Unilever 10.7 3.7
Size State Bank of India (9.2) Tata Consultancy Services 6.4 (1.4)
Momentum Larsen & Toubro (11.7) Tata Steel 4.7 (3.4)
Sentiments BHEL (8.8) Maruti Suzuki India 3.5 (2.2)
Leverage Bajaj Auto (10.4) Infosys 9.5 (5.3)

Source: eXtractor, Factset estimates, Kotak Institutional Equities

Exhibit 2: Growth and profitability have seen mixed fortunes in CYTD14
Performance of various investment styles compared to CNX Nifty 50 (%), CYTD14
(10)
(5)
0
5
10
15
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
CNX Nifty 50 (%) Growth portfolio (%) Profitability portfolio (%)

Source: eXtractor, Factset estimates, Kotak Institutional Equities



India Strategy
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: SUNP and TCS dazzle in the growth portfolio; HUVR and ITC boost the profitability portfolio performance
The portfolios based on different investment strategies within the CNX Nifty 50 universe for July 2014
eXtractor factor ranks Price change MoM
Current Portfolio Growth Value Relative value Profitability Size Momentum Sentiments Leverage iQ (%)
iQ
HCL Technologies 1 28 26 10 25 21 27 9 1 3.7
NMDC 38 3 9 2 33 10 12 1 2 (6.8)
Oil & Natural Gas Corp. 30 4 21 17 2 11 30 21 3 (6.9)
Tata Motors 4 10 1 22 5 33 45 27 4 3.6
Tata Consultancy Services 3 41 25 5 4 22 41 13 5 6.4
Growth
HCL Technologies 1 28 26 10 25 21 27 9 1 3.7
Sun Pharmaceutical Industries 2 46 31 7 24 20 25 10 16 15.0
Tata Consultancy Services 3 41 25 5 4 22 41 13 5 6.4
Tata Motors 4 10 1 22 5 33 45 27 4 3.6
IndusInd Bank 5 34 23 37 43 27 11 41 22 (2.1)
Value
Bank of Baroda 16 1 11 41 14 18 17 48 11 (0.5)
Cairn India 47 2 4 6 31 36 47 11 29 (13.6)
NMDC 38 3 9 2 33 10 12 1 2 (6.8)
Oil & Natural Gas Corp. 30 4 21 17 2 11 30 21 3 (6.9)
Punjab National Bank 28 5 35 44 17 6 34 39 27 (3.6)
Relative value
Tata Motors 4 10 1 22 5 33 45 27 4 3.6
Infosys 22 19 2 14 16 43 43 4 18 9.5
ITC 19 44 3 3 10 48 24 16 30 9.5
Cairn India 47 2 4 6 31 36 47 11 29 (13.6)
Jindal Steel & Power 11 23 5 27 39 24 26 40 25 (14.8)
Profitability
Hindustan Unilever 21 49 43 1 23 46 48 15 47 10.7
NMDC 38 3 9 2 33 10 12 1 2 (6.8)
ITC 19 44 3 3 10 48 24 16 30 9.5
Hero MotoCorp 27 24 33 4 36 16 6 17 8 (1.4)
Tata Consultancy Services 3 41 25 5 4 22 41 13 5 6.4
Size
Reliance Industries 41 16 7 39 1 45 36 28 28 (0.9)
Oil & Natural Gas Corp. 30 4 21 17 2 11 30 21 3 (6.9)
State Bank of India 23 20 28 47 3 7 10 35 6 (9.2)
Tata Consultancy Services 3 41 25 5 4 22 41 13 5 6.4
Tata Motors 4 10 1 22 5 33 45 27 4 3.6
Momentum
Sesa Sterlite 37 13 48 26 18 1 14 29 20 (0.7)
Bharat Petroleum Corp. 46 12 39 48 7 2 1 36 9 (3.4)
Larsen & Toubro 25 43 38 30 11 3 22 43 32 (11.7)
Tata Steel 15 6 40 46 13 4 15 38 15 4.7
GAIL India 32 8 27 34 26 5 39 25 24 (5.9)
Sentiments
Bharat Petroleum Corp. 46 12 39 48 7 2 1 36 9 (3.4)
Bharat Heavy Electricals 49 25 37 43 30 17 2 3 40 (8.8)
Axis Bank 14 22 19 38 19 13 3 33 7 2.1
Maruti Suzuki India 24 31 42 24 27 14 4 12 23 3.5
Power Grid Corp of India 13 37 14 11 28 12 5 47 17 (4.4)
Leverage
Coal India 36 4 23 6 11 13 11 1 5 (4.5)
Infosys 15 14 2 11 13 32 32 2 11 3.4
Bharat Heavy Electricals 37 19 26 34 22 12 2 3 28 (8.8)
Ambuja Cements 31 25 35 19 35 29 4 4 33 (6.4)
Bajaj Auto 18 17 21 7 30 17 25 5 18 (10.4)
Notes:
(a) The ranks for a company may vary depending on the permissible universe used for analyzing a particular investment style.

Source: Factset estimates, eXtractor, Kotak Institutional Equities



Strategy India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 5
Exhibit 4: AXSB enters the iQ portfolio; NMDC gets added to relative value; ACEM, HUVR and APNT see positive change in sentiments
The portfolios based on different investment strategies within the CNX Nifty 50 universe for August 2014
eXtractor factor ranks
Current Portfolio Growth Value Relative value Profitability Size Momentum Sentiments Leverage iQ
iQ
Tata Motors 3 10 4 23 5 27 29 26 1
HCL Technologies 1 29 31 11 25 30 19 8 2
Axis Bank 14 23 15 38 19 4 9 33 3
NMDC 37 2 3 3 33 33 22 1 4
Tata Consultancy Services 5 42 36 4 4 22 20 14 5
Growth
HCL Technologies 1 29 31 11 25 30 19 8 2
Sun Pharmaceutical Industries 2 46 47 7 23 8 23 10 20
Tata Motors 3 10 4 23 5 27 29 26 1
IndusInd Bank 4 33 16 37 43 17 8 39 11
Tata Consultancy Services 5 42 36 4 4 22 20 14 5
Value
Cairn India 41 1 2 6 31 49 45 12 22
NMDC 37 2 3 3 33 33 22 1 4
Bank of Baroda 16 3 9 42 14 15 10 48 10
Oil & Natural Gas Corp. 32 4 14 17 2 28 37 21 6
Punjab National Bank 28 5 25 46 18 9 4 38 7
Relative value
Jindal Steel & Power 11 19 1 27 40 46 28 40 23
Cairn India 41 1 2 6 31 49 45 12 22
NMDC 37 2 3 3 33 33 22 1 4
Tata Motors 3 10 4 23 5 27 29 26 1
Infosys 23 26 5 14 15 44 17 4 13
Profitability
Hindustan Unilever 17 49 48 1 24 20 2 16 28
ITC 20 45 24 2 10 40 31 17 29
NMDC 37 2 3 3 33 33 22 1 4
Tata Consultancy Services 5 42 36 4 4 22 20 14 5
Hero MotoCorp 24 22 34 5 36 26 13 13 15
Size
Reliance Industries 42 17 8 39 1 42 41 29 24
Oil & Natural Gas Corp. 32 4 14 17 2 28 37 21 6
State Bank of India 25 16 11 47 3 21 16 34 9
Tata Consultancy Services 5 42 36 4 4 22 20 14 5
Tata Motors 3 10 4 23 5 27 29 26 1
Momentum
Hindalco Industries 38 18 49 49 22 1 7 43 21
Sesa Sterlite 36 12 45 26 20 2 27 28 17
Tata Steel 15 9 43 44 13 3 5 41 8
Axis Bank 14 23 15 38 19 4 9 33 3
IDFC 44 13 23 45 46 5 25 47 34
Sentiments
Ambuja Cements 43 30 29 19 48 43 1 6 32
Hindustan Unilever 17 49 48 1 24 20 2 16 28
Asian Paints 9 48 44 13 38 13 3 18 27
Punjab National Bank 28 5 25 46 18 9 4 38 7
Tata Steel 15 9 43 44 13 3 5 41 8
Leverage
Coal India 37 3 17 7 11 10 27 1 10
Bharat Heavy Electricals 38 19 21 35 23 20 9 2 35
Infosys 16 18 4 12 13 34 11 3 6
Bajaj Auto 19 15 12 8 30 37 38 4 29
Ambuja Cements 32 23 20 18 37 33 1 5 19
Notes:
(a) The ranks for a company may vary depending on the permissible universe used for analyzing a particular investment style.

Source: Factset estimates, eXtractor, Kotak Institutional Equities



India Strategy
6 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: Strategy showcases consistent outperformance
Optimized portfolio performance and factor exposure
Security-wise constraints
Upper bound stock ownership (%) 8
Stockwise deviation (%) 5
Composite factor style exposure (%)
Growth 15
Value 15
Relative value 25
Profitability 15
Size 0
Mometum 10
Sentiments 20
Leverage 0
Performance statistics
Average returns (%) 0.6
Avg. +ve returns (%) 1.8
Avg. -ve returns (%) (1.1)
Annualized outperformance (%) 7.1
Hit ratio (%) 59
Maximum drawdown (%) 11
Profit factor (X) 1.6
Avg. number of securities owned 26

Source: eXtractor, Kotak Institutional Equities

Exhibit 6: The optimized portfolio strategy has consistently outperformed since CY2008
Annual optimized CNX Nifty 50 portfolio outperformance over the CNX Nifty 50 (%)
(8)
(4)
0
4
8
12
16
CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CYTD14
Annual outperformance over the CNX Nifty 50 (%)

Source: eXtractor, Kotak Institutional Equities



Strategy India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 7
Exhibit 7: Maximum allowable deviation from benchmark weight is 5%
Key assumptions to consider liquidity and implementation constraints
Assumptions
AUM (US$ mn) - 100
Participation aggression - 25%
Days to set up position - 2 days
Security-wise maximum deviation from Nifty Index = 5%
Upper bound on ownership = 8%
No shorting allowed.

Source: eXtractor, Kotak Institutional Equities

Exhibit 8: Optimized portfolio underperforms benchmark in July
Mom performance of the optimized CNX Nifty 50 portfolio based on eXtractor's scoring model (%)
(6)
(4)
(2)
0
2
4
6
8
10
12
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
CNX Nifty 50 (%) Optimized CNX Nifty 50 portfolio (%)

Source: eXtractor, Kotak Institutional Equities

Exhibit 9: Portfolio performance negatively affected by excess exposure to materials like JSPL and NMDC
Positive and negative contributors to portfolio alpha, July 2014
Weight (+/-) Performance Weight (+/-) Performance
Company (%) (%) Company (%) (%)
Case VII (c ) 0.9
Lupin 6.0 12.8 Jindal Steel & Power 5.5 (14.8)
Larsen & Toubro 0.4 (11.7) HDFC 1.0 7.6
State Bank of India 0.0 (9.2) NMDC 5.6 (6.8)
HCL Technologies 6.6 3.7 Sun Pharmaceuticals (0.0) 15.0
Tata Motors 8.0 3.6 Oil & Natural Gas Corp. 6.2 (6.9)
Positive contributors Negative contributors

Source: eXtractor, KIE Quantools



India Strategy
8 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 10: The optimized portfolio underperformed the CNX Nifty 50 by ~0.5% in July
Optimized CNX Nifty 50 portfolio performance for July 2014
CNX Nifty 50 Optimized Difference Performance
Company GICS Sectors (%) (%) (+/-) (%)
Infosys Information Technology 6.2 8.0 1.8 3
Tata Motors Consumer Discretionary 3.1 8.0 4.9 4
Axis Bank Financials 2.5 7.5 5.0 2
ITC Consumer Staples 7.0 7.0 0.0 10
HCL Technologies Information Technology 1.6 6.6 5.0 4
ICICI Bank Financials 6.3 6.3 0.0 4
Hero MotoCorp Consumer Discretionary 1.2 6.2 5.0 (1)
Power Grid Corp of India Utilities 1.2 6.2 5.0 (4)
Oil & Natural Gas Corp Energy 2.9 6.2 3.2 (7)
Lupin Health Care 1.0 6.0 5.0 13
Bank of Baroda Financials 0.6 5.6 5.0 (1)
NMDC Materials 0.6 5.6 5.0 (7)
Jindal Steel & Power Materials 0.5 5.5 5.0 (15)
Tata Consultancy Services Information Technology 4.9 4.9 (0.0) 6
HDFC Bank Financials 6.0 4.6 (1.4) 2
Reliance Industries Energy 6.6 1.6 (5.0) (1)
Wipro Information Technology 1.4 1.4 (0.0) (0)
HDFC Financials 6.0 1.0 (5.0) 8
IndusInd Bank Financials 1.0 1.0 (0.0) (2)
Cairn India Energy 0.8 0.4 (0.4) (14)
Larsen & Toubro Industrials 5.4 0.4 (5.0) (12)
Performance (%) 1.44 0.94
eXtractor-based

Source: eXtractor, Kotak Institutional Equities

Exhibit 11: eXtractor recommends a high exposure to financials; allocations to healthcare drops
Portfolio sector-wise comparison of exposure as compared to previous month (%)
CNX Nifty 50 Weights Difference Weights Difference
GICS Sectors Original Optimized (+/-) Optimized (+/-)
Consumer Discretionary 9 11 2.3 14 5.3
Consumer Staples 10 3 (7.6) 7 (2.5)
Energy 12 10 (1.5) 8 (3.7)
Financials 29 43 14.3 26 (2.5)
Health Care 5 (5.6) 6 0.9
Industrials 6 (5.5) 0 (5.9)
Information Technology 15 20 4.2 21 5.6
Materials 9 12 3.7 11 2.2
Telecommunication Services 2 (1.7) (1.6)
Utilities 4 1 (2.6) 6 2.2
Performance (%) (0.49) 0.4 0.9
Alpha (%) 0.90 (0.5)
Portfolio 22 21
Current month Previous month

Source: eXtractor, Kotak Institutional Equities



Strategy India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 9
Exhibit 12: PNB, CAIR and IIB saw the highest mom increase in weights
Optimized CNX Nifty 50 portfolio mom change in weights, August 2014
Optimized
CNX Nifty 50 weights MoM change
Company GICS Sectors (%) (%) (%)
MoM weight increase (%)
Punjab National Bank Financials 0.6 5.6 5.6
Cairn India Energy 0.7 5.7 5.3
IndusInd Bank Financials 0.9 5.9 5.0
State Bank of India Financials 2.9 2.9 2.9
MoM weight reduction (%)
Lupin Health Care 1.1 (6.0)
Power Grid Corp of India Utilities 1.1 1.1 (5.1)
ITC Consumer Staples 7.6 2.6 (4.4)
Oil & Natural Gas Corp. Energy 2.7 2.7 (3.4)
Hero MotoCorp Consumer Discretionary 1.2 3.1 (3.2)

Source: eXtractor, Kotak Institutional Equities

Exhibit 13: TTMT, INFO, ICICI and AXSB have the biggest allocations in the portfolio
Optimized CNX Nifty 50 portfolio constituents and weights, August 2014
CNX Nifty 50 Optimized Difference
Company GICS Sectors (%) (%) (+/-)
Tata Motors Consumer Discretionary 3.1 8.0 4.9
Infosys Information Technology 6.2 8.0 1.8
ICICI Bank Financials 6.6 8.0 1.4
Axis Bank Financials 2.5 7.5 5.0
HCL Technologies Information Technology 1.6 6.6 5.0
HDFC Bank Financials 6.0 6.0 (0.0)
IndusInd Bank Financials 0.9 5.9 5.0
Cairn India Energy 0.7 5.7 5.0
Bank of Baroda Financials 0.6 5.6 5.0
Punjab National Bank Financials 0.6 5.6 5.0
NMDC Materials 0.5 5.5 5.0
Jindal Steel & Power Materials 0.4 5.4 5.0
Tata Consultancy Services Information Technology 5.1 5.1 (0.0)
Hero MotoCorp Consumer Discretionary 1.2 3.1 1.9
State Bank of India Financials 2.9 2.9
Oil & Natural Gas Corp Energy 2.7 2.7
ITC Consumer Staples 7.6 2.6 (5.0)
HDFC Financials 6.5 1.5 (5.0)
Tata Steel Materials 1.4 1.4 (0.0)
Reliance Industries Energy 6.3 1.3 (5.0)
Power Grid Corp of India Utilities 1.1 1.1
IDFC Financials 0.7 0.4 (0.3)
Performance (%) (0.49) 0.41
Portfolio 22
eXtractor-based

Source: eXtractor, Kotak Institutional Equities




For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Earnings lower than estimates owing to lower transmission revenues as well as other income
PWGR reported net sales of `39 bn (11% yoy, 0% qoq), operating profit of `34 bn (11% yoy, 2%
qoq) and net income of `11.6 bn (13% yoy, -2% qoq) against our estimates of `41 bn, `35 bn
and `12.3 bn, respectively.
The lower net income was (1) primarily on account of lower transmission revenues of `38 bn
against our estimates of `39 bn, (2) sequential decline in consultancy revenues at `610 mn in
1QFY15 compared to `1.6 bn in 4QFY14 and `965 mn in 1QFY14 and (3) lower other income of
`1.3 bn against our estimates of `2.3 bn.
Capitalization picks up in 1QFY15, investment approval of `73 bn given during the quarter
Asset capitalization for 1QFY15 was ~`49 bn (66% yoy), which adds up to `194 bn asset
capitalization in the trailing four quarters. PWGR achieved capitalization of `159 bn, which makes
our estimate of `287 bn for the current fiscal an uphill task, though comes with a promising start.
Investment approval during the quarter at `73 bn is the highest in the last three years, giving
visibility to sustenance of growth beyond the immediate capex plans. The last such chunky
investment approvals were seen in FY2012, the benefits of which were accrued over the past three
years. Ordering activity at `27 bn, although unexciting, is the highest in the trailing four quarters.
In our view, ordering activity will likely gain momentum owing to the recently accorded investment
approvals.
Maintain BUY on strong earnings momentum and reasonable valuations
We maintain our BUY rating on PWGR with a target price of `145. At 1.5X P/B and 10X P/E of
FY2016E, PWGR trades at reasonable multiples not fully taking cognizance of the step-up in
earnings as over `400 bn of CWIP will likely be capitalized over the next two years. We have
currently maintained our earning estimate for FY2015E at `9.5/share and for FY2016E at
`13/share and will review the same post the analyst meet.


Power Grid (PWGR)
Utilities
Steady on the growth path. Powergrid continues to report strong earnings13%
yoy growth in net income in 1QFY15, with asset capitalization of `49 bn for the
quarter. The performance gains significance owing to (1) tightening of operating
parameters by CERC and (2) absence of short-term open access earnings that were part
of the base quarter. Valuations may seem pricey at 1.5X P/B, but underlying growth
trajectory places PWGR among the preferred stocks in the utility space. Maintain BUY
with TP of `145.

Power Grid
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 8.6 9.5 13.0
Market Cap. (Rs bn) 692.9 EPS growth (%) (5.0) 9.8 37.5
Shareholding pattern (%) P/E (X) 15.3 14.0 10.2
Promoters 57.9 Sales (Rs bn) 151.5 189.0 232.2
FIIs 26.2 Net profits (Rs bn) 45.2 49.6 68.2
MFs 2.4 EBITDA (Rs bn) 128.8 167.6 207.7
Price performance (%) 1M 3M 12M EV/EBITDA (X) 11.7 9.5 7.7
Absolute (8.1) 26.7 45.0 ROE (%) 14.9 13.8 17.1
Rel. to BSE-30 (7.3) 10.3 8.0 Div. Yield (%) 1.9 2.1 2.9
Company data and valuation summary
147-88

BUY
AUGUST 05, 2014
RESULT
Coverage view: Cautious
Price (`): 132
Target price (`): 145
BSE-30: 25,723










Murtuza Arsiwalla
murtuza.arsiwalla@kotak.com
Mumbai: +91-22-4336-0870

Arun Bagaria
arun.bagaria@kotak.com
Mumbai: +91-22-4336-0871


Power Grid Utilities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 11
Exhibit 1: Lower net profit at Rs11.6 bn below estimates due to lower transmission revenues and lower other income
Interim results for PWGR, March fiscal year-ends (Rs mn)
(% Chg.)
1QFY15 1QFY15E 1QFY14 4QFY14 1QFY15E 1QFY14 4QFY14 FY2015E FY2014 (% Chg.)
Transmission 38,129 39,418 32,824 36,996 179,299 139,861
STOA 1,037 2,152
Telecom 645 749 730 649 2,832 2,761
Consultancy 610 965 946 1,695 6,392 6,266
Net sales 39,384 41,132 35,537 39,341 (4) 11 0 188,523 151,039 25
Employee cost (2,313) (2,411) (2,318) (2,343) (9,793) (9,417)
Other O&M (3,059) (3,455) (2,690) (3,489) (11,661) (13,323)
EBITDA 34,013 35,266 30,529 33,509 (4) 11 2 167,069 128,300 30
EBITDA margin (%) 86 86 86 85 89 85
Other income 1,367 2,372 803 2,496 6,887 5,687
Interest & finance charges (9,279) (8,595) (7,599) (8,189) (43,331) (31,675)
Depreciation (11,550) (11,420) (9,644) (10,750) (57,672) (39,957)
PBT 14,550 17,624 14,089 17,066 (17) 3 (15) 72,953 62,355 17
Provision for tax (net) (2,866) (5,287) (3,747) (5,107) (23,821) (17,663)
Net profit 11,684 12,337 10,343 11,959 (5) 13 (2) 49,132 44,691 10
Extraordinary (319) (60) (201) (205)
Reported PAT 11,365 12,337 10,282 11,758 49,132 44,486
Tax rate (%) 20 30 27 30 33 28
Key operating parameters
Capex (Rs mn) 59,000 50,000 58,180 18 1 191,889 223,000 (14)
Assets capitalized (Rs mn) 49,000 40,890 29,500 78,480 66 (38) 287,438 159,000 81

Source: Company, Kotak Institutional Equities

Exhibit 2: Asset capitalization of Rs49 bn in 1QFY15
Quarterly capex and capitalization for PGCIL, March fiscal year-ends, 1QFY11-1QFY15 (Rs bn)
10
30
50
70
1
Q

F
Y
1
1
2
Q

F
Y
1
1
3
Q

F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn) Capex Capitalisation

Source: Company, Kotak Institutional Equities





Utilities Power Grid
12 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: Revival in approvals as Rs73 bn investments approved during 1QFY15
Quarterly approvals and ordering for PGCIL, March fiscal year-ends, 1QFY11-1QFY15 (Rs bn)
10
50
90
130
170
1
Q

F
Y
1
1
2
Q

F
Y
1
1
3
Q

F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn)
Approvals Ordering

Source: Company, Kotak Institutional Equities

Exhibit 4: At 1.5X P/B and 10X P/E 2016E earnings trades reasonable owing to strong growth profile
Key valuation metrics for PGCIL, March fiscal year-ends, 2012-16E
2012 2013 2014E 2015E 2016
Valuations (at CMP) 130
Book value (Rs) 54 61 71 78 89
Net worth 250,887 281,986 369,026 410,517 464,306
P/B (X) 2.4 2.1 1.8 1.7 1.5
EPS 7.1 9.1 8.6 9.5 13.0
P/E (X) 18 14 15 14 10
RoE (%) 13.7 15.9 13.8 12.7 15.6
RoCE (%) 6.3 6.7 6.1 6.1 7.2
Net debt 508,130 659,637 746,940 825,885 813,178
EV 1,109,995 1,261,502 1,427,048 1,505,993 1,493,286
EV/EBITDA (X) 11.1 9.9 9.4 8.0 6.4

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: We factor a capitalization of Rs287 bn in FY2015E and Rs238 bn in FY2016E
Key assumptions in the profit model of Powergrid (standalone), March fiscal year-ends, 2011-16E
2011 2012 2013 2014E 2015E 2016E
Capex (Rs bn) 134 146 238 268 192 119
Capitalization (Rs bn) 73 128 170 167 287 238
Regulated equity (Rs bn) 148 186 237 287 374 445
Growth rate (%)
Capex 33 9 63 13 (28) (38)
Capitalization 116 76 33 (2) 73 (17)
Regulated equity 17 26 27 21 30 19

Source: Company, Kotak Institutional Equities estimates




Power Grid Utilities
KOTAK INSTITUTIONAL EQUITIES RESEARCH 13
Exhibit 6: Profit model, balance sheet, cash model of PGCIL, March fiscal year-ends, 2011-17E (Rs mn)

2011 2012 2013 2014E 2015E 2016E 2017E
Profit model
Net revenues 83,887 100,353 127,095 151,527 189,011 232,152 273,960
EBITDA 70,513 83,824 108,880 128,788 167,557 207,700 247,308
Other income 6,709 7,497 6,193 5,687 6,887 7,313 8,536
Interest expense (17,339) (19,433) (25,352) (31,675) (43,331) (45,966) (52,799)
Depreciation (21,994) (25,725) (33,519) (39,957) (57,672) (72,113) (84,546)
Pretax profits 37,889 46,163 56,202 62,843 73,441 96,935 118,499
Tax (6,846) (8,911) (10,521) (12,741) (14,591) (19,280) (23,316)
Deferred taxation (4,432) (4,541) (3,583) (4,922) (9,230) (9,430) (12,851)
Net income 26,611 32,710 42,098 45,179 49,620 68,225 82,332
Extraordinary items 359 (161) 247 (205)
Reported profit 26,969 32,550 42,345 44,974 49,620 68,225 82,332
Earnings per share (Rs) 5.7 7.1 9.1 8.6 9.5 13.0 15.7
Balance sheet
Paid-up common stock 42,088 46,297 46,297 46,297 52,316 52,316 52,316
Total shareholders' equity 213,670 234,878 262,395 344,596 376,858 421,217 474,748
Deferred taxation liability 11,467 16,009 19,592 24,430 33,659 43,089 55,939
Income received on account of AAD 23,474 22,831 37,176 45,175 45,175 45,175 45,175
Total borrowings 408,828 538,950 681,876 794,902 907,265 920,754 911,557
Total liabilities and equity 657,439 812,668 1,001,038 1,209,103 1,362,957 1,430,235 1,487,420
Net fixed assets 372,240 476,623 614,006 776,892 970,438 1,136,288 1,390,714
Capital work-in progress 266,246 281,835 348,235 449,416 353,868 235,094 666
Investments 13,651 12,845 11,476 9,987 5,981 4,080 4,054
Miscellaneous expenses not w/o 24
Cash 36,801 23,369 16,620 44,175 79,426 107,521 152,088
Net current assets (excl. cash) (31,522) 17,997 10,701 (71,367) (46,754) (52,749) (60,102)
Net current assets (incl. cash) 5,279 41,366 27,320 (27,192) 32,671 54,772 91,986
Total assets 657,439 812,668 1,001,038 1,209,103 1,362,957 1,430,235 1,487,420
Free cash flow
Operating cash flow, excl. working capital 46,192 62,174 93,792 97,852 116,521 149,768 179,728
Working capital changes (5,910) (49,519) 7,296 82,068 (24,613) 5,995 7,353
Capital expenditure (134,204) (145,945) (237,784) (304,023) (155,669) (119,190) (104,544)
Free cash flow (93,922) (133,290) (136,695) (124,104) (63,761) 36,573 82,538
Ratios
Net debt/equity (%) 168 214 249 215 218 192 159
Return on equity (%) 13.5 13.7 15.9 13.8 12.7 15.6 16.5
Book value per share (Rs) 49 54 61 71 78 89 101
ROCE (%) 6.5 6.3 6.7 6.1 6.1 7.2 8.2

Source: Company, Kotak Institutional Equities estimates


For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Exportsscale-up in low hp and recovery of high-hp sales drive very strong growth
Cummins reported the second straight quarter of strength with 41% yoy growth in revenues.
This was driven by exports in (1) low-hp (`1.2 bn, up 128% yoy), (2) high-hp (`1.7 bn, up 20%
yoy) and (3) mid-range (`460 mn, 55% yoy) segments. Low and mid-hp exports continued to
benefit from a good response in seeded markets (Latin America) and high hp exports grew after
bottoming out in 1QFY14. For FY2015 Cummins expects exports to grow 30% yoy, driven by low
hp exports. We build in 30-35% growth for exports over FY2015-17.
Domesticsees demand bottoming out across sectors; guidance indicates recovery from 2HFY15
Cummins anticipates broad-based recovery in demand from 2HFY15, though 1QFY15 revenues
were sedatedown 16% yoy, led by industrials. Higher powergen realizations, on pass-through of
costs to comply with revised emission norms, will support revenues. The company raised its
revenue growth guidance to 0-5% from flattish guidance earlier and said its outlook was positive
for the follo0wing businesses(1) powergen (investment-led demand), (2) industrials
(construction, mining, railways and marine segments) and (3) distribution (increased customer
reach; higher demand in the revised emission regime).
Marginsexpects to overcome the impact of new emission norms and maintain margins
EBITDA margin of 17.2% included costs related to (1) higher-than-average corporate charges
(~40 bps impact), which are expected to normalize and (2) higher CSR spends (-40 bps impact),
which are expected to continue. The company said benefits of higher operational efficiencies and
a favorable product mix (higher low-hp exports) helped it to sustain margins in an otherwise weak
demand scenario. For FY2015 it aims to maintain margins, factoring in the negative near-term
impact of revised emission norms being offset by lower incremental corporate charges.
Estimateswe build in strong recovery in scale-up of new businesses; retain our REDUCE rating
We revise estimates marginally to `27.0 and `30.5 from `25.3 and `30.0 for FY2015 and FY2016 on
higher export growth. We revise our target price to `615 from `570 on roll-forward (19X June
2016E earnings). We build in 22% revenue CAGR and 100 bps margin expansion over FY2014-17.


Cummins India (KKC)
Industrials
Poised to outperform peers. After having added significant capacities and protecting
margins through the down-cycle, Cummins is well placed to outperform the market on
(1) an impending recovery in the domestic business, (2) growth in high-hp exports
(bottomed out a year ago) and (3) scale-up in its low-hp business (domestic and exports).
We build strong estimates of 22% sales CAGR, 100 bps margin expansion, though find it
hard to reconcile with market expectations (21X FY2016E EPS). We retain REDUCE and
revise target price to `615 from `570 on roll forward to June 2016E earnings.

Cummins India
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 21.3 27.0 30.5
Market Cap. (Rs bn) 173.7 EPS growth (%) (23.6) 26.6 13.1
Shareholding pattern (%) P/E (X) 29.4 23.2 20.5
Promoters 51.0 Sales (Rs bn) 39.0 46.3 57.1
FIIs 18.4 Net profits (Rs bn) 6.0 7.3 8.2
MFs 9.8 EBITDA (Rs bn) 7.0 8.5 10.9
Price performance (%) 1M 3M 12M EV/EBITDA (X) 24.4 19.9 15.5
Absolute (6.9) 19.5 57.1 ROE (%) 24.2 26.7 26.7
Rel. to BSE-30 (6.0) 4.1 17.0 Div. Yield (%) 1.6 2.0 2.2
Company data and valuation summary
706-365

REDUCE
AUGUST 05, 2014
RESULT
Coverage view: Cautious
Price (`): 627
Target price (`): 615
BSE-30: 25,723














Aditya Mongia
aditya.mongia@kotak.com
Mumbai: +91-22-4336-0883


Cummins India Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 15
Sharper-than-expected sales decline; margins hold on adjusted basis
Sales decline much worse than our expectation at 16% yoy. Cummins reported a
sharper-than expected 16% yoy decline in 1QFY15 sales to `10.3 bn, ~14% below our
estimate. While we had built in the impact of (1) pre-buying (was limited at 5% of
segment sales), (2) sequential growth in exports and (3) stable industrial sales (declined
~28% yoy).
Margin sustains at healthy levels. Adjusted EBITDA margin for 1QFY15 was healthy at
17.6% (adjusted for higher-than-average corporate cross-charges) and marginally below
our estimate of 17.8%. We note that pig iron prices (an indicator of raw commodity costs)
have increased further in 1QFY15 after declining materially for the previous 3-4 quarters.
One-off other income led to a 10% yoy decline in PBT. Lower tax rate (on lower capital
gains tax of one-off other income) led to PAT of `2.1 bn (up 18% yoy).
Exhibit 1: Flattish sales; margin miss and PAT beat on one-offs
Cummins - 1QFY15 standalone revenue model (` mn)
% change
1QFY15 1QFY15 1QFY14 4QFY14 1QFY15 1QFY14 4QFY14 FY2014 FY2013 yoy
Sales 10,451 12,223 10,493 9,716 (14.5) (0.4) 7.6 39,767 45,894 (13.4)
Expenses (8,653) (10,047) (8,737) (8,007) (13.9) (1.0) 8.1 (32,799) (37,545) (12.6)
Stock 50 (56) 187 52 (2) NA
Raw material (6,382) (6,487) (6,142) (1.6) 3.9 (24,293) (28,872) (15.9)
Employee (903) (831) (817) 8.7 10.6 (3,396) (3,386) 0.3
Other Exp (1,417) (1,363) (1,235) 3.9 14.7 (5,162) (5,285) (2.3)
EBITDA 1,799 2,176 1,756 1,709 (17.3) 2.4 5.2 6,967 8,349 (16.5)
Other income 1,067 431 668 315 147.4 59.8 239.3 1,777 2,067 (14.0)
Interest (13) (3) (12) (11) 354.5 2.5 17.9 (42) (46) (9.3)
Depreciation (186) (176) (117) (146) 5.9 58.4 27.6 (528) (473) 11.6
PBT 2,667 2,428 2,294 1,867 9.8 16.3 42.8 8,175 9,897 (17.4)
Tax (547) (631) (632) (450) (13.3) (13.5) 21.8 (2,175) (2,872) (24.3)
Net profit 2,120 1,797 1,662 1,418 18.0 27.6 49.5 6,000 7,025 (14.6)
EPS (RS) 7.6 6.5 6.0 5.1 21.6 25.3
Key ratios (%)
Raw material/Sales 60.6 62.4 61.3 61.0 62.9
Employee exp./Sales 8.6 7.9 8.4 8.5 7.4
Other exp./Sales 13.6 13.0 12.7 13.0 11.5
EBITDA margin 17.2 17.8 16.7 17.6 17.5 18.2
PBT Margin 25.5 19.9 21.9 19.2 20.6 21.6
Tax rate 20.5 26.0 27.6 24.1 26.6 29.0
PAT margin 20.3 14.7 15.8 14.6 15.1 15.3
% change

Source: Company, Kotak Institutional Equities estimates



Industrials Cummins India
16 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: Quarterly trajectory of Cummins' segment sales (` bn)
Power generation
3.5
3.3
2.7
3.2
4.3
3.7
4.0
4.4
3.2
2.4
3.0
2.7
2.9
0.0
1.0
2.0
3.0
4.0
5.0
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn)

Industrials
1.4
1.2
1.6
1.3
1.1 1.1
1.5
1.5
1.4
1.2
1.5
1.1
1.0
0.0
0.5
1.0
1.5
2.0
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn)

Export
2.7
3.1
2.6
3.3
4.2
3.0
2.5
3.0
2.7
3.0
2.8
3.4
3.9
0.0
1.0
2.0
3.0
4.0
5.0
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn)

Distribution
2.3
2.0
1.7
2.2
2.5
2.4
2.3
2.0
2.6
2.3
2.4
2.0
2.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
(Rs bn)

Source: Company, Kotak Institutional Equities

Exhibit 3: Sharp growth in low-hp sales in 1QFY15; high-hp sales also grow
Exports break-up for Cummins India, March fiscal year-ends (` mn)
Export sales breakup in 1QFY14 (Rs2.8 bn)
Mid range,
296
Heavy
duty, 357
HHP, 1,429
LHP, 522
Spares,
156
Export sales breakup in 1QFY15 (Rs3.9 bn)
Mid range,
460
Heavy
duty, 400
HHP, 1,720
Spares,
120
LHP, 1,190

Source: Company, Kotak Institutional Equities



Cummins India Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 17
Exhibit 4: Domestic high-hp sales possibly grew yoy in 1QFY15
Segmental break-up of sales for Cummins, March fiscal year-ends, 2013-1QFY15 (` mn)
Rating Yoy growth
Segment (kva) 2013 2014 (%) 1QFY15 2015 (annualized)
Low HP <160 4,611 4,150 (10.0) 1,480 5,920
Mid Range HP 160-380 8,046 7,000 (13.0) 1,840 7,360
Heavy Duty 450-625 4,019 4,300 7.0 880 3,520
High HP >750 18,243 13,500 (26.0) 3,710 14,840
Exports 7,119 1,720 6,880
Domestic 6,381 1,990 7,960
Distribution NA 9,250 9,250 0.0000 2,180 8,720
Total 44,169 38,200 (13.5) 10,090 40,360

Source: Company, Kotak Institutional Equities

Exhibit 5: Trends in raw material costs and currency, not supportive of margins
Impact of raw material cost and currency on margin, March fiscal year-ends, 2008-1QFY15
50
70
90
110
130
150
170
Q
3

F
Y
0
8
Q
1

F
Y
0
9
Q
3

F
Y
0
9
Q
1

F
Y
1
0
Q
3

F
Y
1
0
Q
1

F
Y
1
1
Q
3

F
Y
1
1
Q
1

F
Y
1
2
Q
3

F
Y
1
2
Q
1

F
Y
1
3
Q
3

F
Y
1
3
Q
1
F
Y
1
4
Q
3
F
Y
1
4
Q
1
F
Y
1
5
(X)
56
60
64
68
72
(%)
Raw material cost to sales [RHS]
Pig iron India wholesale price index [LHS]
Inverse USD INR index [LHS]

Source: Company, Kotak Institutional Equities
Concall takeawaysraises FY2015 guidance; operates at 50-60% utilization
Exportsguidance indicates 30% revenue growth, led by scale-up in the low-hp
segment. Cummins reported the second straight quarter of strength with sequential
improvement in revenues. On a yoy basis, sales grew by 41%. Growth was driven by (1)
low hp (`1.2 bn, up 128% yoy), (2) high hp (`1.7 bn, up 20% yoy) and (3) mid-range
segments (`460 mn, 55% yoy). High-hp sales reported good sequential growth for the
second consecutive quarter in 1QFY15, growing 20% yoy. For the full year, the company
expects exports to grow 30% yoy driven by low-hp exports (can grow 70% in FY2015
but maintaining the 1QFY15 run rate) and sustained recovery in high-hp sales.


Industrials Cummins India
18 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Domesticexpects recovery from 2HFY15; guidance indicates 0-5% sales growth.
Domestic sales declined 15-16% yoy with weakness seen across verticals (powergen,
industrials, and distribution). Lack of pre-buying demand for gensets made results look
weaker (would also have limited negative impact in coming quarters). While highlighting
weak on-ground demand, the company believes demand to have bottomed out: (1)
M&HCV operators now thinking of replenishing capacities as they see recent increase in
freight cost getting absorbed by market, (2) improving demand for mining equipment
and (3) government focus on railways and marine investments. For FY2015, it anticipates
a 0-5% growth in domestic sales (with flattish volumes).
Marginguidance indicates maintaining current margins. EBITDA margin of 17.2%
was impacted by higher than average corporate charges (~40 bps impact), which should
normalize going forward. The company also cited higher spending on donations as it aims
to comply with new Companies Acts target of higher CSR spend (2% of PBT). This
charge would sustain at `40-50 mn. For FY2015, company aims to maintain its margin at
current levels, factoring in the negative near-term impact of CPCB-II norms to get
compensated by lower corporate charges. Company said benefits from higher efficiencies
and favorable product mix (higher LHP exports) have helped it sustain reasonable margin
in an otherwise weak demand scenario.
Operates at capacity utilization of 50-60%. Cummins facilities are utilized to the
extent of 50-60%.
Incremental capex focus on office building and technical center. Cummins aims to
invest `5-6 bn in FY2015 (similar spend in FY2016). A large share of this spend would go
towards the setting up of an office complex. Out of the three towers, one is complete
and another is 60% complete. Each tower would cost about `3 bn.
Domestic low-hp business now significant. Cummins said material 1QFY15 domestic
powergen sales in the 7-40 kVA category were `700 mn (a third of overall domestic
powergen sales). It believes that there is strong potential to grow this segment.
We retain REDUCE on full valuations
We revise estimates marginally to `27.0 and `30.5 from `25.3 and `30.0 for FY2015 and
FY2016 on higher exports growth. We revise our target price to `615 from `570 on roll-
forward (19X June 2016E earnings). We build strong 22% revenue CAGR and 100 bps
margin expansion over FY2014-17E.


Cummins India Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 19
Exhibit 6: Key estimates for Cummins India, March fiscal year ends, 2014-17E (` mn)

2014 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E
Revenues 39,767 47,217 58,092 71,877 47,045 56,984 68,864 0.4 1.9 4.4
Power generation 10,942 13,130 15,100 17,365 12,912 14,848 17,076 1.7 1.7 1.7
Industrials 5,200 5,460 6,825 8,531 6,240 7,800 9,360 (12.5) (12.5) (8.9)
Auto 1,170 1,346 1,615 1,938 1,346 1,615 1,938 0.0 0.0 0.0
Distribution 9,300 10,229 11,764 13,528 10,694 12,299 14,143 (4.3) (4.3) (4.3)
Exports 11,979 16,171 21,831 29,472 14,973 19,465 25,305 8.0 12.2 16.5
EBITDA 6,968 8,454 10,906 13,592 8,518 10,655 12,987 (0.8) 2.3 4.7
EBITDA margin (%) 17.5 17.9 18.8 18.9 18.1 18.7 18.9 (-20 bps) (+10 bps) (0 bps)
PAT 6,000 7,290 8,215 10,155 6,827 8,074 9,755 6.8 1.7 4.1
Contribution from JVS (92) 192 248 315 192 248 315 0.0 0.0 0.0
Adjusted PAT 5,908 7,482 8,463 10,470 7,019 8,322 10,070 6.6 1.7 4.0
EPS (Rs) 21.3 27.0 30.5 37.8 25.3 30.0 36.3 6.6 1.7 4.0
Growth (%)
Revenues 18.7 23.0 23.7 18.3 21.1 20.8
Power generation 20.0 15.0 15.0 18.0 15.0 15.0
Industrials 5.0 25.0 25.0 20.0 25.0 20.0
Auto 15.0 20.0 20.0 15.0 20.0 20.0
Distribution 10.0 15.0 15.0 15.0 15.0 15.0
Exports 35.0 35.0 35.0 25.0 30.0 30.0
EBITDA 21.3 29.0 24.6 22.3 25.1 21.9
PAT 26.6 13.1 23.7 18.8 18.6 21.0
New estimates Old estimates % revision

Source: Company, Kotak Institutional Equities estimates



Industrials Cummins India
20 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 7: Standalone balance sheet, profit model and cash flow statement of Cummins, March fiscal year-ends, 2010-17E (` mn)

2010 2011 2012 2013 2014 2015E 2016E 2017E
Balance sheet
Shareholders funds 15,610 18,063 20,432 23,867 25,652 28,919 32,601 37,153
Loan funds 86 198 147 150 200 800 400
Total source of funds 15,696 18,261 20,579 24,345 26,117 29,119 33,401 37,553
Net block 3,337 3,564 4,649 4,934 9,192 12,608 16,068 17,443
Net fixed assets 3,337 4,210 5,146 6,142 10,149 13,358 16,318 17,693
Investments and goodwill 7,329 7,255 5,975 6,276 4,954 5,267 5,267 5,267
Cash balances 559 1,037 2,235 3,547 865 2,517 2,007 2,454
Net current assets excluding cash 4,301 5,571 7,153 8,381 10,149 7,977 9,808 12,139
Total application of funds 15,696 18,261 20,579 24,345 26,117 29,119 33,401 37,553
Profit model
Total operating income 29,027 40,425 41,172 46,012 39,767 47,217 58,092 71,877
Total operating costs (23,175) (32,791) (34,200) (37,545) (32,799) (38,763) (47,186) (58,285)
EBITDA 5,852 7,634 6,972 8,467 6,968 8,454 10,906 13,592
Other operational income 578 914 651 922 776 880 957 1,043
Other income 638 804 1,233 1,949 1,777 2,199 1,443 1,510
PBDIT 6,489 8,438 8,206 10,416 8,745 10,653 12,349 15,102
Financial charges (21) (48) (54) (46) (42) (11) (55) (66)
Depreciation (361) (366) (420) (473) (528) (791) (1,040) (1,126)
Pre-tax profit 6,108 8,024 7,732 9,897 8,175 9,851 11,254 13,910
Taxation (1,670) (2,114) (2,282) (2,872) (2,175) (2,561) (3,038) (3,756)
PAT 4,437 5,910 5,450 7,025 6,000 7,290 8,215 10,155
Adjusted PAT 4,497 6,166 6,111 7,732 5,908 7,482 8,463 10,470
Cash flow statement
Operating profit before working capital changes 4,819 6,324 5,924 7,544 6,570 8,092 9,310 11,346
Change in working capital / other adjustments 2,238 (1,270) (1,582) (1,229) (1,768) 2,173 (1,832) (2,331)
Cashflow from operating activites 7,056 5,054 4,342 6,315 4,802 10,264 7,479 9,015
Fixed assets (607) (1,240) (1,355) (1,469) (4,534) (4,000) (4,000) (2,500)
Investments (3,337) 75 1,279 (300) 1,322 (314)
Cash (used) / realised in investing activities (3,944) (1,166) (76) (1,769) (3,212) (4,314) (4,000) (2,500)
Borrowings (82) 94 67 401 (13) (265) 600 (400)
Dividend paid (2,775) (3,457) (3,544) (4,205) (3,311) (4,022) (4,533) (5,603)
Cash (used) /realised in financing activities (2,876) (3,411) (3,531) (3,851) (4,271) (4,299) (3,988) (6,069)
Cash generated /utilised 236 478 1,197 1,311 (2,681) 1,652 (509) 446
Cash at beginning of year 323 559 1,037 2,235 3,547 865 2,517 2,007
Cash at end of year 559 1,037 2,235 3,546 865 2,517 2,007 2,454
Key ratios (%)
EBITDA margin 22.4 20.9 19.9 22.6 22.0 22.6 21.3 21.0
PAT margin 15.3 14.6 13.2 15.3 15.1 15.4 14.1 14.1
RoE 30.0 35.1 30.7 34.5 24.2 26.7 26.7 29.1
RoCE 26.1 27.7 22.5 28.5 19.9 25.6 21.7 23.8
Net debt / equity (X) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EPS (`) 16.2 22.2 22.0 27.9 21.3 27.0 30.5 37.8

Source: Company, Kotak Institutional Equities estimates



For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
1QFY15 another quarter of strong earnings beat
Marico beat our expectations handsomely for the second quarter in a row. Reported consol
revenues (`16.2 bn, +25% yoy), EBITDA (`2.63 bn, +19% yoy) and recurring PAT (`1.85 bn,
+19% yoy) were 3%, 14%, and 23% ahead of our expectations, respectively. Earnings beat was
driven by better-than-expected EBITDA margin performance for both domestic as well as
international businesses. Higher-than-expected pricing component of growth was the primary
driver of margin outperformance as volume growth was broadly in line with our expectations.
We believe that the company also benefitted from lower-than-expected consumption cost average
for copra. ETR at 26.3% also came in lower than our expectation of 30%; the company has
lowered its ETR guidance for FY2015E to 28-29% from 30% earlier.
Impressive volume growth across the portfolio
Barring non-rigid Parachute CNO SKUs, Marico delivered solid volume growth across its brand
portfolio
Parachute CNO rigid volume growth of 6% came in despite weighted-average price hike of
35%; we are surprised with the resilient response to the price hikes from the consumers this
reflects the deeply ingrained habit of hair oil usage in India as also the strength of the Parachute
brand. We note that Maricos reported market share number do not suggest any MS gains for
the company; one typically expects Parachute to gain share in inflationary copra price
environment. The management did indicate that they believe there are problems with Nielsens
retain audit data and market growth may not be as weak as Nielsens numbers suggest.
Value-added hair oil portfolio rebounded and delivered 11% volume growth for the quarter.
We note that the company has taken meaningful price hikes (15%+) in this portfolio as well.
Saffola volume growth was 10% for the quarter.


Marico (MRCO)
Consumer Products
1QFY15 ahead, outlook positive; valuations full. REDUCE. Marico delivered a solid
quarter despite challenges from a soft growth environment and material inflation in
copra prices. Parachute volume growth despite sharp price hikes was impressive and so
was the double-digit volume growth in Saffola and VAHO portfolio. The companys
medium-term guidance (2X revenues in the next four years) reflects managements
confidence on growth. Stock at 25X FY2016E EPS, however, bakes in the impressive
facets of performance as well as the confident outlook. We retain REDUCE with a
revised target price of `250 (`235 earlier). Implied target PE is 24X FY2016E.

Marico
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 8.1 9.2 10.5
Market Cap. (Rs bn) 165.0 EPS growth (%) 43.3 13.6 14.3
Shareholding pattern (%) P/E (X) 31.7 27.9 24.4
Promoters 59.7 Sales (Rs bn) 46.8 57.0 64.4
FIIs 27.6 Net profits (Rs bn) 5.2 5.9 6.8
MFs 1.5 EBITDA (Rs bn) 8.1 9.7 11.1
Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.8 17.1 14.5
Absolute 2.7 17.7 25.3 ROE (%) 38.2 33.6 31.0
Rel. to BSE-30 3.6 2.5 (6.7) Div. Yield (%) 1.6 1.0 1.3
Company data and valuation summary
269-190

REDUCE
AUGUST 05, 2014
RESULT
Coverage view: Neutral
Price (`): 256
Target price (`): 250
BSE-30: 25,723










Rohit Chordia
rohit.chordia@kotak.com
Mumbai: +91-22-4336-0885

Anand Shah
anand.shah@kotak.com
Mumbai: +91-22-4336-0882


Consumer Products Marico
22 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Factor in the beat and raise our EPS estimates by 7-11% for FY2015/16E; retain
REDUCE as we find the stock fully valued at 25X FY2016E EPS
We have revised our revenue estimates by ~3% for both FY2015E and FY2016E as we
model in higher quantum of price-led growth in Parachute CNO (rigids) and VAHO portfolio
on account of fresh hikes initiated in June 2014. We have also revised our EPS estimates by
10.8% and 7.2% for FY2015E and FY2016E, respectively led by 40-60 bps upwards revision
in our EBITDA margin assumptions on account of better-than-expected gross margins and
higher operating leverage led by sustained price hikes across portfolio.
The stock at 25X FY2016E EPS, however, bakes in the impressive facets of performance as
well as the confident outlook. We retain REDUCE with a revised target price of `250 (`235
earlier) based on target PE of 24X FY2016E.
Exhibit 1: Key changes to consolidated earnings model, Marico, March fiscal year-ends, 2015-16E

2015E 2016E 2015E 2016E 2015E 2016E
Revenues (Rs mn) 57,027 64,424 55,284 62,510 3.2 3.1
EBITDA (Rs mn) 8,733 9,998 8,108 9,449 7.7 5.8
EBITDA (%) 15.3 15.5 14.7 15.1
PAT (Rs mn) 5,906 6,752 5,329 6,301 10.8 7.2
EPS (Rs/share) 9.2 10.5 8.3 9.8 10.8 7.2
Revised Earlier Change (%)

Source: Company, Kotak Institutional Equities estimates
Category-wise highlights
Parachute CNO. Rigid packs posted a robust 41% value growth led by ~35% price hikes
and a modest volume growth of 6%, marginally below our estimate of 8% volume
growth. Marico maintained its market share in CNO category at 56%however,
management did highlight that Nielsen audit numbers have been lagging behind and not
reflective of true picture of current hair oil growth environment. We note copra remains
inflationaryup 120% yoy in July and 7% mom. Consequently, Marico initiated another
round of price hikes in 1QFY15 taking cumulative price hike to 33% yoy. The company
expects Parachute volume growth to be maintained at 6-8% levels in the near term.
Saffola. Saffola posted a robust 10% volume growth, in line with our estimate, and 14%
value growth aided by several initiatives undertaken over the last few quarters(1)
restaged an existing variant as Saffola Total, which is priced at ~30% premium to Saffola
Gold and is pitched as an alternative to olive oil, (2) sustained investment in brand
communicationDil ka high science campaign launched a few quarters ago and
(3) focus on expanding rural distribution. Surprisingly, Marico indicated that Saffolas
marketshare declined by 200 bps yoy/stable qoq.
Value-added hair oils. Maricos VAHO portfolio registered a robust 11% volume growth,
ahead of our estimate of 8% growtha commendable performance given challenging
market context. Management highlighted that growth in VAHO portfolio has been broad-
based and it now has 4 strong brands with a turnover of `2 bn+. Maricos market share
remained stable sequentially at 28%, up 100 bps yoy, while Nihar Shanti Amla maintained
its market share at 30% in Amla hair oils categoryup 300 bps yoy. Value growth in
Maricos VAHO portfolio stood at 28% yoy driven by price hikes as the company initiated
another round of fresh price hikes to the tune of 6% during the quarter.


Marico Consumer Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH 23
Youth brands. Maricos acquired youth brands portfolio of Set Wet, Zatak and Livon
posted `550 mn revenue, a flattish growth yoy due to high basewe note Marico had
re-launched its deodorants portfolio under Zatak brand in the base quarter. Maricos
market share in hair gels, post-wash leave-on conditioner and deodorants stood at 42%,
82% and 5%, respectively both hair gels and serums registered modest market share
gains during the quarter. Management is confident of sustaining 15-20%+ growth rates
in the youth brands portfolio in the near term.
Other key brands. Saffola oats continues to do well, led by Saffola savory oats. Marico
has emerged as the No2 player in the category with 17% value market share overall and
51% share in flavoured oats market. Marico launched two new sweet variants during the
quarter and its oats offerings are now available in eight different flavours. Management
highlighted its ambition of making Saffola foods business `0.75 bn size product segment
in FY2015E and `1 bn portfolio in FY2016E. Parachute Advansed Body Lotion also
witnessed healthy growth during the quarter and now enjoys 6% market share in the
body lotion category.
International business. Maricos international business posted revenue of `3.4 bn, a
reported growth of 16.3% yoy aided by 6.7% translation gains, 4.6% price-led growth
and a 5% volume growth. Geography-wise highlights
Bangladesh Bangladesh reported a topline growth of 14% (constant currency) led
by 5% volume growth and market share gains across categories. Management
highlighted that it plans to invest significant marketing spends to diversify its
portfolio beyond coconut oils and expects more than 80% of incremental growth
from FY2016E onwards from non-CNO portfolio. We note Marico had launched
several new products in Bangladesh market in last several quarters, including Saffola
Active, Set Wet deodorants, Livon hair serum and HairCode Keshkala.
MENA MENA region sustained its recovery delivering 18% growth on constant
currency basis driven by strong recovery in Middle East business. Management
highlighted that post several initiatives like distribution transition, restructuring of
business model and SKU rationalisation, business in MENA is stabilizing and is poised
for full recovery in FY2015E.
South Africa Reported a modest 9% topline growth (constant currency) in a
challenging macro environment.
South East Asia South East Asia, predominantly Vietnam revenues were flat yoy
impacted by high base and sluggish economy. Management highlighted that it
maintains its leadership position in shampoos in Vietnam and expects growth to
recover in 2HFY15, albeit at slower rates versus historical growth rates witnessed
over last few years.
Other key highlights
Comments on medium-term strategic plan. Marico shared its medium-term strategic
plan (1) it plans to double its revenues over the next four years driven by a mix of
organic and inorganic growth, (2) it plans to become an emerging market MNC with
focus on Asia and Africa in key categories of hair care, skin nourishment and male
grooming and (3) it has identified give key areas of transformationinnovation, GTM,
Talent Value Proposition, IT & Analytics and Cost Management.
Near-term guidance. Management has guided for 7-8% volume growth and 14.5-15%
EBITDA margin band for FY2015E though it expects next two quarters to witness margin
pressure on account of sustained copra inflation.


Consumer Products Marico
24 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Current quarter international margins unsustainable. Management highlighted that
current quarter EBITDA margin of 18.2% in international business (improvement of 490
bps yoy, 60 bps qoq) reflects a structural shift in international margins achieved through a
series of cost management projects undertaken last year. However, it has guided for a
threshold level of 14-15% band in medium term as it expects to plough back gains from
cost-savings measures to drive volume growth and create multiple pillars of growth across
core international markets.
Focus on distribution expansion continues. Marico has initiated on a go to market
(GTM) distribution strategy to expand its direct distribution reach in urban market beyond
general trade to other channels like MT, chemists stores and cosmetic stores in order to
support its youth brands portfolio and new launches in foods and skin care. It has also
initiated a new initiative called Project One aimed at expanding direct coverage in top 6
metros over the last 6 months the project has expanded direct coverage in these cities
by ~60%. Overall, Marico expects to yield ~3% revenue benefits in medium term from
better assortment segmentation, optimized spends based on analytics and its GTM
initiatives.
Exhibit 2: Interim consolidated results of Marico, March fiscal year-ends (Rs mn)

1QFY15 1QFY15E 1QFY14 4QFY14 KIE Est yoy qoq FY2014 FY2013 (chg %.) FY2015E
Net sales 16,192 15,657 12,927 10,698 3 25 51 46,762 45,843 2 57,027
Material cost (8,911) (8,967) (6,595) (5,597) (1) 35 59 (23,992) (22,067) 9 (30,118)
Gross Profit 7,281 6,690 6,332 5,101 9 15 43 22,770 23,777 (4) 26,908
Gross Margin (%) 45.0 42.7 49.0 47.7 223 bps -402 bps -272 bps 48.7 51.9 -318 bps 47.2
Employee cost (854) (796) (711) (651) 7 20 31 (2,847) (3,781) (25) (3,375)
Advertising and promotion (1,922) (1,674) (1,700) (1,219) 15 13 58 (5,612) (5,979) (6) (6,819)
Other expenditure (1,878) (1,923) (1,714) (1,710) (2) 10 10 (6,935) (7,886) (12) (7,982)
Total expenditure (13,565) (13,360) (10,719) (9,178) 2 27 48 (39,385) (39,713) (1) (48,294)
EBITDA 2,628 2,297 2,207 1,520 14 19 73 7,377 6,130 20 8,733
OPM (%) 16.2 14.7 17.1 14.2 155 bps -85 bps 201 bps 15.8 13.4 240 bps 15.3
Other operating income 39 25 27 22 56 44 74 103 118 (13) 175
Other income 183 170 142 128 8 29 43 579 349 66 753
Interest (70) (65) (100) (68) 8 (30) 4 (345) (545) (37) (283)
Depreciation (204) (215) (178) (215) (5) 14 (5) (769) (866) (11) (886)
Pretax profits 2,576 2,212 2,098 1,388 16 23 86 6,946 5,187 34 8,491
Tax (678) (664) (500) (281) 2 36 142 (1,560) (1,462) 7 (2,420)
Minority Interest (44) (40) (44) (28) 11 1 59 (187) (98) 91 (165)
Recurring PAT (after MI) 1,853 1,508 1,554 1,080 23 19 72 5,199 3,627 43 5,906
Extraordinary items (192) (345) 332
Net profit (reported) 1,853 1,508 1,554 888 23 19 109 4,854 3,959 23 5,906
EPS 2.9 2.3 2.4 1.7 23 19 72 8.1 5.6 43 9.2
Income tax rate (%) 26.3 30.0 23.8 20.2 -366 bps 249 bps 612 bps 22.5 28.2 -573 bps 28.5
Costs as a % of sales
Material cost 55.0 57.3 51.0 52.3 -224 bps 401 bps 271 bps 51.3 48.1 317 bps 52.8
Employee cost 5.3 5.1 5.5 6.1 19 bps -23 bps -82 bps 6.1 8.2 -216 bps 5.9
Advertising and promotion 11.9 10.7 13.1 11.4 117 bps -128 bps 47 bps 12.0 13.0 -105 bps 12.0
Other expenditure 11.6 12.3 13.3 16.0 -69 bps -167 bps -440 bps 14.8 17.2 -238 bps 14.0
(% change)

Source: Company, Kotak Institutional Equities









Marico Consumer Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH 25
Exhibit 3: Interim standalone results of Marico, March fiscal year-ends (Rs mn)

1QFY15 1QFY15E 1QFY14 4QFY14 KIE Est yoy qoq FY2014 FY2013 (chg %.) FY2015E
Net sales 13,487 12,692 10,554 8,503 6 28 59 36,748 33,988 8 45,643
Material cost (8,046) (7,781) (5,677) (4,740) 3 42 70 (20,047) (18,300) 10 (25,982)
Gross Profit 5,441 4,911 4,876 3,762 11 12 45 16,701 15,688 6 19,661
Gross Margin (%) 40.3 38.7 46.2 44.2 164 bps -587 bps -391 bps 45.4 46.2 -72 bps 43.1
Employee cost (526) (470) (444) (346) 12 19 52 (1,713) (1,557) 10 (2,083)
Advertising and promotion (1,384) (1,206) (1,206) (947) 15 15 46 (4,097) (3,822) 7 (4,929)
Other expenditure (1,535) (1,523) (1,384) (1,337) 1 11 15 (5,372) (5,182) 4 (6,249)
Total expenditure (11,491) (10,979) (8,711) (7,370) 5 32 56 (31,230) (28,861) 8 (39,243)
EBITDA 1,996 1,713 1,843 1,133 17 8 76 5,518 5,128 8 6,400
OPM (%) 14.8 13.5 17.5 13.3 130 bps -267 bps 147 bps 15.0 15.1 -8 bps 14.0
Other operating income 36 20 16 19 78 118 87 77 83 (7) 140
Other income 103 105 94 1,174 (2) 10 (91) 2,344 478 391 601
Interest (61) (55) (92) (56) 11 (33) 9 (304) (402) (24) (243)
Depreciation (114) (130) (102) (127) (12) 12 (10) (462) (331) 39 (504)
Pretax profits 1,959 1,653 1,759 2,143 19 11 (9) 7,173 4,955 45 6,394
Tax (515) (496) (379) (180) 4 36 187 (1,056) (1,129) (6) (1,840)
PAT 1,444 1,157 1,381 1,963 25 5 (26) 6,117 3,826 60 4,554
Extraordinary items (192) (345) 465 373
Net profit (reported) 1,444 1,157 1,381 1,771 25 5 (18) 5,772 4,291 35 4,927
EPS 2.2 1.8 2.1 3.0 25 5 (26) 9.5 6.1 56 7.6
Income tax rate (%) 26.3 30.0 21.5 8.4 -373 bps 476 bps 1789 bps 14.7 22.8 -807 bps 28.8
Costs as a % of sales
Material cost 59.7 61.3 53.8 55.8 -165 bps 586 bps 390 bps 54.6 53.8 71 bps 56.9
Employee cost 3.9 3.7 4.2 4.1 20 bps -31 bps -17 bps 4.7 4.6 8 bps 4.6
Advertising and promotion 10.3 9.5 11.4 11.1 76 bps -117 bps -88 bps 11.1 11.2 -10 bps 10.8
Other expenditure 11.4 12.0 13.1 15.7 -62 bps -174 bps -434 bps 14.6 15.2 -63 bps 13.7
(% change)

Source: Company, Kotak Institutional Equities

Exhibit 4: Domestic volume growth trends (yoy %)

10
7
4
3
6
10
15
14
17
16
16
14
15
10
10
12
16
2
5
8
11
14
17
20
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities





Consumer Products Marico
26 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: Parachute volume growth was 6% yoy
Parachute (rigid) volume growth (%)
14
10
5 5
10 10
13
11
18
9
6
5
4
10
6
2
1
-
2
4
6
8
10
12
14
16
18
20
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities

Exhibit 6: Parachute market share flattish
Parachute CNO market share trends (%)
52
53
54
55
56
57
58
59
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities


Exhibit 7: Saffola posts volume growth of a healthy 10%
Saffola volume growth trends (in %)
18
18
13
12
15
11
15
3
12
6
4
5
10
7
9
11
10
-
4
8
12
16
20
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities

Exhibit 8: Saffola market share flattish qoq, down yoy
Saffola market share trends (in %)
53
55
57
58
58
59
58 58
57
57 57
55
55
52
53
54
55
56
57
58
59
60
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities









Marico Consumer Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH 27
Exhibit 9: Value-added hair oils volume at 11% yoy
Value-added hair oils volume growth trends (in %)
27
15
31
21
32
26
20
18
25
20
30
24
16
15
8
5
11
-
5
10
15
20
25
30
35
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities

Exhibit 10: Value-added hair oils market share up yoy, flat qoq
Value-added hair oils market share trends (in %)
23
23
24
24
24
25
26
27 27
28 28 28 28
22
23
24
25
26
27
28
29
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities























Consumer Products Marico
28 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 11: Consolidated profit model, balance sheet of Marico, March fiscal year-ends, 2011-17E

2011 2012 2013 2014 2015E 2016E 2017E
Profit model
Net sales 31,260 39,682 45,843 46,762 57,027 64,424 72,640
EBITDA 4,091 4,729 6,139 7,377 8,733 9,998 11,492
Other income 303 440 494 682 928 1,139 1,394
Interest expense (410) (424) (580) (345) (283) (233) (185)
Depreciation (708) (725) (866) (769) (886) (992) (1,095)
Pretax profits 3,275 4,021 5,187 6,946 8,491 9,912 11,606
Tax (850) (783) (1,462) (1,560) (2,420) (2,974) (3,598)
Minority Interest (50) (50) (98) (187) (165) (186) (210)
Net income 2,375 3,189 3,627 5,199 5,906 6,752 7,798
Extraordinary items 489 (18) 332 (345)
Reported Net income 2,864 3,171 3,959 4,854 5,906 6,752 7,798
Earnings per share (Rs) 3.9 5.2 5.6 8.1 9.2 10.5 12.1
Balance sheet
Total shareholder's equity 9,155 11,430 19,815 13,606 17,578 21,815 26,517
Total borrowings 7,742 7,848 8,719 6,798 5,798 4,798 3,798
Minority interest 219 249 351 358 523 709 919
Total liabilities and equity 17,115 19,527 28,885 20,762 23,899 27,322 31,235
Net fixed assets 3,362 3,678 6,089 5,993 6,247 6,512 6,815
Goodwill 5,192 5,296 12,091 2,927 2,927 2,927 2,927
Investments 889 2,957 1,516 3,105 3,105 3,105 3,105
Cash 2,206 1,321 2,668 4,064 5,782 8,039 10,627
Net current assets 5,168 6,053 6,580 4,769 5,933 6,835 7,856
Deferred tax asset (Net) 299 223 (58) (96) (96) (96) (96)
Total assets 17,115 19,527 28,885 20,762 23,899 27,322 31,235
Free cash flow
Operating cash flow (excl. working capital) 3,419 3,808 5,271 5,727 6,488 7,216 8,106
Working capital changes (980) 194 (952) 878 (1,164) (902) (1,021)
Capital expenditure (4,595) (1,198) (9,783) (829) (1,141) (1,256) (1,398)
Free cash flow (2,156) 2,804 (5,464) 5,776 4,183 5,058 5,687
Ratios
Sales growth (%) 17.5 26.9 15.5 2.0 22.0 13.0 12.8
EPS growth (%) -2.4 33.2 9.2 43.3 13.6 14.3 15.5
EBITDA margin (%) 13.1 11.9 13.4 15.8 15.3 15.5 15.8
Gross margin (%) 48.3 46.3 51.8 48.7 47.2 48.1 48.5
A&SP % of sales 11.1 10.7 13.0 12.0 12.0 12.4 12.5
RoE (%) 25.9 27.9 18.3 38.2 33.6 31.0 29.4
RoCE (%) 19.1 19.9 18.1 31.6 32.6 32.8 33.1

Source: Company, Kotak Institutional Equities estimates






For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Revenue growth outlook challenging
Revenue growth outlook for Mphasis appears challenging across its business segments. HP channel
revenues have declined 53% in the past 12 quarters and the decline shows no sign of easing up.
The management indicated that it expects HP channel to continue declining at this rate in the
immediate future. DR declined a sharp 16% in 1QFY15 due to weakness in the US mortgage
market, where mortgage originations are down ~40%, according to the management. In a rising
interest rate environment, this is unlikely to change in the near future. Mphasis reported US$45 mn
TCV of deal wins in the organic direct business. It is a start, but deal wins need to be larger and
more consistent to even offset the drag from other segments. We expect 0.8% revenue decline in
FY2015E and 3.5% revenue growth in FY2016E.
Margin pressure imminent
Mphasis has stepped up its S&M spending in the last few quarters in a bid to revive its growth in
the direct channel. This has had some early results in terms of deal wins. But more investments in
broadening service capability and market reach are essential for Mphasis growth engine to revive.
The company will have to trade margins for growth. Also, near-term margin headwinds include
(1) wage hikes to be given effective 3QFY15, which will have a 150-170 bps impact and
(2) DR weakness, which will push its EBITDA margin into high single digits from the low double-
digit levels it operated at previously. With limited operational levers to offset these pressures, we
expect Mphasis EBITDA margin to decline 100 bps in FY2015E and 60 bps in FY2016E.
Cut revenue and earnings estimates. SELL with a TP of `370
We cut our revenue estimates for Mphasis by ~3% for the next two years. Cut in margins
assumptions drives ~5% cut in earnings estimates for FY2015E-16E. We retain our SELL rating
with a target price of `370 (`390 earlier), valuing Mphasis at 11X FY2016E earnings. The stock
currently trades at 13.3X FY2016E earnings, expensive in our view. The current stock price is
driven by expectations of an eventHP stake sale rather than business fundamentals, which are
clearly challenged.



Mphasis (MPHL)
Technology
Revenue growth challenges mount. With the sharp decline in Digital Risk (DR) in
1QFY15, Mphasis revenue growth challenges have become steeper. The HP channel
decline shows no sign of letting off while growth in the direct organic business is not
strong enough to offset the drag from HP and DR. We cut revenue estimates by ~3%
for FY2015E-16E. Margin impact from DR decline and S&M investments drive ~5% cut
in EPS estimates. Retain SELL with a TP of `370 (`390 earlier).

Mphasis
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 14.7 33.7 33.4
Market Cap. (Rs bn) 92.9 EPS growth (%) (58.4) 128.7 (0.6)
Shareholding pattern (%) P/E (X) 30.0 13.1 13.2
Promoters 60.5 Sales (Rs bn) 25.9 60.2 61.0
FIIs 26.1 Net profits (Rs bn) 3.1 7.1 7.0
MFs 1.3 EBITDA (Rs bn) 4.4 9.6 9.4
Price performance (%) 1M 3M 12M EV/EBITDA (X) 21.3 9.3 9.2
Absolute 3.2 6.8 8.1 ROE (%) 6.1 13.4 12.6
Rel. to BSE-30 4.1 (7.0) (19.4) Div. Yield (%) 1.6 3.8 3.8
Company data and valuation summary
477-362

SELL
AUGUST 05, 2014
RESULT
Coverage view: Attractive
Price (`): 442
Target price (`): 370
BSE-30: 25,723






Kawaljeet Saluja
kawaljeet.saluja@kotak.com
Mumbai: +91-22-4336-0860

Rohit Chordia
rohit.chordia@kotak.com
Mumbai: +91-22-4336-0885

Shyam M.
shyam.m@kotak.com
Mumbai: +91-22-4336-0862


Technology Mphasis
30 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Key changes to FY2015-16E estimates (Rs mn)
Mar-15E Mar-16E Mar-15E Mar-16E Mar-15E Mar-16E
Revenues (US$ mn) 1,016 1,051 1,044 1,087 (2.7) (3.3)
Revenues 60,176 60,975 62,090 63,019 (3.1) (3.2)
EBITDA 9,636 9,387 10,387 10,009 ( 7.2) ( 6.2)
Depreciation ( 1,136) ( 1,226) (1,274) (1,316) ( 10.8) ( 6.9)
EBIT 8,500 8,161 9,113 8,693 ( 6.7) ( 6.1)
Net Profit 7,070 7,026 7,460 7,370 (5.2) (4.7)
Recurring EPS (Rs / s hare) 33.7 33.4 35.5 35.1 (5.2) (4.7)
Margins (%)
EBITDA 16.0 15.4 16.7 15.9
EBIT 14.1 13.4 14.7 13.8
Re/US$ rate 59.2 58.0 59.5 58.0 ( 0.4) 0.0
Revis ed es timates Old es timates %change

Source: Kotak Institutional Equities estimates

Exhibit 2: Mphasis' consolidated quarterly performance quarter-ending June 2014 (Rs mn)
2 months Normalized growth (%)
J ul-13 Mar-14 J un-14 qoq yoy J un-14E Deviation (%)
Revenues (US$ mn) 265.3 171.8 249.8 (3.1) (5.8) 250.0 (0.1)
Effective Re/US$ 58.0 59.9 59.6 59.7
Revenues 15,398 10,299 14,902 (3.5) (3.2) 14,925 (0.2)
Cos t of revenues ( 11,136) ( 7,368) ( 10,759) ( 2.7) ( 3.4) ( 10,671) 0.8
Gros s profits 4,262 2,931 4,143 (5.8) (2.8) 4,254 (2.6)
SG&A expens es ( 1,463) ( 1,170) ( 1,669) ( 4.9) 14.1 ( 1,696) (1.6)
EBITDA 2,799 1,761 2,474 (6.3) (11.6) 2,558 (3.3)
Depreciation ( 365) ( 210) (263) ( 312)
EBIT 2,434 1,551 2,211 (5.0) (9.2) 2,246 (1.6)
Forex gain/( los s ) , net 61 23 40
Other income/( los s ) 233 198 316 314
Interes t income / ( expens e) ( 101) ( 43) (77) ( 40)
PBT 2,627 1,729 2,490 (4.0) (5.2) 2,520 (1.2)
Provis ion for tax ( 701) ( 508) (742) ( 706) 5.2
PAT 1,926 1,221 1,748 (4.6) (9.2) 1,814 (3.7)
Extraordinaries
Reported PAT 1,926 1,221 1,748 (4.6) (9.2) 1,814 (3.7)
Recurring EPS (Rs /s hare) 9.2 5.8 8.3 (4.6) (9.2) 8.6 (3.7)
Margins (%)
Gros s margin 27.7 28.5 27.8 28.5
EBITDA margin 18.2 17.1 16.6 17.1
EBIT margin 15.8 15.1 14.8 15.0
PAT margin 12.5 11.9 11.7 12.2
SG&A expens es ( % of revenue 9.5 11.4 11.2 11.4
Tax rate ( as % of PBT) 26.7 29.4 29.8 28.0
Notes :
( 1) Mphas is ' accounting year-end has changed from October to March.

Source: Company, Kotak Institutional Equities estimates



Mphasis Technology
KOTAK INSTITUTIONAL EQUITIES RESEARCH 31
Exhibit 3: HP and DR a drag on growth, organic direct business growth decent
J ul-11 Oct-11 J an-12 Apr-12 J ul-12 Oct-12 J an-13 Apr-13 J ul-13 Oct-13 J an-14 Mar-14 J un-14
Revenues (US$ mn)
Total revenues 287.0 276.2 270.6 265.8 251.9 248.0 236.8 262.8 265.3 259.7 254.9 171.8 249.8
HP channel 191.3 170.2 157.8 155.3 138.4 134.3 122.0 119.7 109.5 103.5 95.0 62.1 89.9
Non-HP channel 95.7 105.9 112.8 110.5 113.6 113.6 114.8 143.1 155.9 156.2 159.9 109.7 159.9
Direct channel - organic 95.7 105.9 112.8 110.5 113.6 113.6 114.8 108.7 113.0 110.5 114.6 79.8 122.2
Digital Ris k 34.4 42.9 45.7 45.3 29.9 37.7
Growth, qoq (%)
Total revenues 2.3 (3.8) (2.0) (1.8) (5.2) ( 1.6) (4.5) 11.0 1.0 (2.1) (1.9) 1.1 ( 3.1)
HP channel 2.3 (11.0) (7.3) (1.6) (10.9) (2.9) (9.2) (1.9) (8.6) (5.5) (8.2) (1.9) (3.5)
Non-HP channel 2.4 10.7 6.5 (2.1) 2.8 0.1 1.0 24.7 8.9 0.2 2.3 2.9 ( 2.8)
Direct channel - organic 2.4 10.7 6.5 (2.1) 2.8 0.1 1.0 (5.3) 3.9 (2.2) 3.7 4.5 2.1
Digital Ris k NM 24.6 6.6 (0.9) (1.0) (15.9)
Contribution (%)
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
HP channel 66.7 61.6 58.3 58.4 54.9 54.2 51.5 45.5 41.3 39.8 37.3 36.2 36.0
Non-HP channel 33.3 38.4 41.7 41.6 45.1 45.8 48.5 54.5 58.7 60.2 62.7 63.8 64.0
Direct channel - organic 33.3 38.4 41.7 41.6 45.1 45.8 48.5 41.4 42.6 42.6 44.9 46.4 48.9
Digital Ris k 13.1 16.2 17.6 17.8 17.4 15.1
Notes :
(1) Period ending March 2014 is for two months . Revenues are normalized to compute growth

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: Condensed P&L and BS for Mphasis (Rs mn)
Oct-13 Mar-14 Mar-15E Mar-16E Mar-17E
Profit model
Revenues 57,963 25,939 60,176 60,975 63,388
EBITDA 10,335 4,397 9,636 9,387 9,831
Depreciation (incl amortization of intangibles ) ( 1,446) (504) ( 1,136) ( 1,226) ( 1,249)
Other income 1,062 389 1,320 1,530 1,723
Pretax profits 9,951 4,282 9,820 9,691 10,306
Tax ( 2,514) ( 1,191) ( 2,749) ( 2,665) ( 2,834)
Recurring profit after tax 7,437 3,091 7,070 7,026 7,472
Extraordinaries ( 64)
Net income 7,437 3,027 7,070 7,026 7,472
Recurring diluted earnings per s hare (Rs 35.4 14.7 33.7 33.4 35.6
Balance s heet
Total equity 49,344 51,150 54,084 57,000 60,101
Total borrowings 5,600 5,555 5,555 5,555 5,555
Current liabilities 16,013 13,044 12,564 12,516 12,695
Total liabilities and equity 70,957 69,749 72,203 75,071 78,352
Cas h 5,886 4,670 8,416 11,684 14,853
Other current as s ets 20,174 21,852 20,794 20,736 21,208
Goodwill 22,499 21,865 21,865 21,865 21,865
Inves tments 18,995 18,154 18,154 18,154 18,154
Tangible fixed as s ets 2,388 2,240 2,006 1,665 1,304
Deferred tax as s ets 1,015 968 968 968 968
Total as s ets 70,957 69,749 72,203 75,071 78,352
Ratios (%)
EBITDA margin 17.8 17.0 16.0 15.4 15.5
EBIT margin 15.3 15.0 14.1 13.4 13.5
Cas hflow s tatement
Operating profit before WC changes 9,951 4,282 9,820 9,691 10,306
Change in WC/other adjus tments 645 ( 4,647) 578 10 ( 293)
Capital expenditure (including acquis itions ) ( 10,866) (339) (903) (884) ( 887)
Taxes paid ( 2,514) ( 1,191) ( 2,749) ( 2,665) ( 2,834)
Free cas h flow (2,784) (1,895) 6,745 6,152 6,292
Notes :
(1) Mphas is ' accounting year-end has changed from October to March. Period ending Mar 2014 is for five months .

Source: Company, Kotak Institutional Equities estimates


For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
A few one-offs support earnings
Oriental Bank of Commerce (OBC) posted muted 1QFY15 earnings growth of 3% yoy despite one-
off (1) reversal in staff expenses, (2) gains on loans sold to ARCs and (3) write-back in investment
depreciation, as provisions for NPLs were high. Fresh impairments remained highunchanged qoq
at 6.6%. High slippages hurt NIM as they declined ~15 bps qoq to 2.6%. Focus on impairments
slowed loan growth, which was 8% yoy, primarily in the large-corporate segment.
Fresh impairments remain high at ~6% of loans
1QFY15 was a weak quarter on the impairments front with gross NPLs increasing 30 bps qoq to
4.3% of loans and restructured loans increasing 20 bps qoq to 7.8% of loans (30% of the
restructured loans are in the discom and aviation segments). Slippages in the quarter were 4% of
loans and fresh restructuring was 2.5% of loans (power and construction sectors). Nearly 40% of
fresh slippages came from priority-sector loans and slippages in other segments were driven by a
few large accounts in the iron and steel and construction segments. About 20% of the slippages
were from restructured loans. Loan-loss provisions were 1.4% of loans.
NIM moderates, led by higher interest reversals
NIM moderated by ~15 bps qoq to 2.6% of loans, primarily as high slippages led to reversal of
interest while costs showed a marginal sequential increase. Given the softness in interest rates as
well as better current trends on impairment, we are optimistic about the NIM outlook.
Maintain ADD as valuation expansion is expected to be driven by macro-economic improvement
After our upgrade about a year ago, we have made no material change to our estimates and are
comfortable retaining our positive rating. With the economy showing signs of possible revival, we
expect credit costscurrently 1.5X our earnings estimatesto materially decline, which is
expected to support earnings and RoE improvement. Also, a possible decline in interest rates is
expected to give headroom for NIM expansion. We value the bank at `330 (`350 earlier), which
implies 0.8X book and 6X FY2016E EPS for RoEs of 11-12%.



Oriental Bank of Commerce (OBC)
Banks/Financial Institutions
Lower provisions cushion a weak performance. 1QFY15 was a weak quarter with
one-off reversal of staff provisions and write-back from investments supporting flat
earnings. Fresh impairments were high at 6.6% of loans. Apart from inexpensive
valuations and better tier-1 ratios than peers, which are driving our positive rating, we
derive comfort from the fact that OBC is one of the few banks with greater focus on
NPLs than growth. We maintain ADD with a target price of `330 (`350 earlier).

Oriental Bank of Commerce
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 38.0 48.9 56.4
Market Cap. (Rs bn) 84.6 EPS growth (%) (16.5) 28.7 15.3
Shareholding pattern (%) P/E (X) 7.4 5.8 5.0
Promoters 59.1 NII (Rs bn) 51.3 53.8 61.7
FIIs 9.9 Net profits (Rs bn) 11.4 14.7 16.9
MFs 9.4 BVPS 341.6 368.4 407.1
Price performance (%) 1M 3M 12M P/B (X) 0.8 0.8 0.7
Absolute (12.5) 11.4 105.2 ROE (%) 8.7 10.5 11.2
Rel. to BSE-30 (11.7) (3.0) 52.9 Div. Yield (%) 2.7 3.5 4.0
Company data and valuation summary
378-121

ADD
AUGUST 05, 2014
RESULT
Coverage view: Neutral
Price (`): 282
Target price (`): 330
BSE-30: 25,723


QUICK NUMBERS
NII declined 5% yoy;
earnings grew 3%
yoy
Gross NPLs 4.3%;
restructured loans
7.8%
Maintain ADD;
target price of `330
(`350 earlier)




M.B. Mahesh, CFA
mb.mahesh@kotak.com
Mumbai: +91-22-4336-0886

Nischint Chawathe
nischint.chawathe@kotak.com
Mumbai: +91-22-4336-0887

Geetika Gupta
geetika.gupta@kotak.com
Mumbai: +91-22-4336-0888


Oriental Bank of Commerce Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 33
Other highlights of the quarter
Non-interest income increased 9% yoy, driven by income from sale of written-off NPLs to
asset reconstruction companies (ARCs). Income from recovery of written-off accounts
increased 120% yoy to `1.8 bn, of which `1.4 bn was from sale to ARCs. Forex income
declined 9% yoy. Fee income declined 3% yoy. Treasury contribution remained weak,
declining 40% yoy.
Tier-1 is at 8.9% and overall capital adequacy at 11%.
The bank has made a negligible contribution for unhedged foreign exposure at `34 mn
and has estimated the full impact at `140 mn.
Exhibit 1: Gross NPLs increased 30 bps qoq to 4.3%
NPLs and provision coverage, March fiscal year-ends, 1QFY12-1QFY15
(%)
-
0.9
1.8
2.7
3.6
4.5
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
-
20
40
60
80
100
Gross NPL (LHS) Net NPL (LHS)
Provision coverage (RHS)

Source: Company, Kotak Institutional Equities

Exhibit 2: Overall restructured loans increased 20 bps qoq to
7.8%
Restructured loans to total loans, March fiscal year-ends, 2007-
1QFY15 (%)
-
2
4
6
8
10
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities


Exhibit 3: Old and new estimates
March fiscal year-ends, 2015-17E (` mn)
New Estimates Old Estimates % change
2015E 2016E 2017E 2015E 2016E 2015E 2016E
Net interest income 53,793 61,731 71,928 56,286 65,140 (4.4) (5.2)
Advances (Rs bn) 1,534 1,752 1,994 1,569 1,792 (2.2) (2.2)
NIM (%) 2.4 2.5 2.6 2.5 2.5
Loan loss provisions 21,939 23,004 25,286 22,236 23,526 (1.3) (2.2)
Other income 25,317 27,523 30,978 24,294 26,478 4.2 3.9
Fee income 9,730 10,752 12,042 8,492 9,511 14.6 13.0
Treasury income 5,000 5,500 5,500 5,000 5,500
Operating expenses 32,347 36,859 41,140 33,866 38,507 (4.5) (4.3)
Employee expenses 18,062 20,368 22,101 19,450 21,931 (7.1) (7.1)
Investment depn (1,500) (1,200) (1,000) (1,200) (1,000) 25.0 20.0
PBT 20,923 25,591 32,480 21,105 26,011 (0.9) (1.6)
Net profit 14,666 16,915 20,168 14,794 17,192 (0.9) (1.6)

Source: Company, Kotak Institutional Equities estimates



Banks/Financial Institutions Oriental Bank of Commerce
34 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 4: OBC - rolling PBR and PER
One-year forward rolling PER and PBR, 2007-14 (X)
-
2.4
4.8
7.2
9.6
12.0
A
u
g
-
0
7
F
e
b
-
0
8
A
u
g
-
0
8
F
e
b
-
0
9
A
u
g
-
0
9
F
e
b
-
1
0
A
u
g
-
1
0
F
e
b
-
1
1
A
u
g
-
1
1
F
e
b
-
1
2
A
u
g
-
1
2
F
e
b
-
1
3
A
u
g
-
1
3
F
e
b
-
1
4
A
u
g
-
1
4
0.0
0.3
0.6
1.0
1.3
1.6
Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

Source: Company, Bloomberg, Kotak Institutional Equities

Exhibit 5: OBC is trading at a discount to its long-term discount
to peers
OBC trading premium to public banks, 2007-14 (X)
0.3
0.5
0.7
0.9
1.1
A
u
g
-
0
7
A
u
g
-
0
8
A
u
g
-
0
9
A
u
g
-
1
0
A
u
g
-
1
1
A
u
g
-
1
2
A
u
g
-
1
3
A
u
g
-
1
4

Source: Company, Bloomberg, Kotak Institutional Equities


Exhibit 6: NIM declined 15 bps qoq to 2.6%
NIM and cost of deposits, March fiscal year-ends, 1QFY11-1QFY15 (%)
4.0
5.0
6.0
7.0
8.0
9.0
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5
2.0
2.4
2.8
3.2
3.6
4.0
Cost of deposits (LHS) NIM (RHS)

Source: Kotak Institutional Equities




Oriental Bank of Commerce Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 35
Exhibit 7: OBC, quarterly results
March fiscal year-ends, 1QFY14-1QFY15 (` mn)
1QFY15 1QFY15E 1QFY14 4QFY14 1QFY15E 1QFY14 4QFY14 FY2015E FY2014 (% chg.)
Interest income 49,878 50,707 47,177 49,008 (1.6) 5.7 1.8 204,683 190,175 7.6
Loans 37,898 39,239 36,348 37,165 (3.4) 4.3 2.0 157,323 145,640 8.0
Investments 11,389 11,368 10,453 11,147 0.2 8.9 2.2 46,139 43,110 7.0
Balance with RBI & banks 505 50 304 226 909.8 66.1 123.7 1,221 1,424 (14.3)
Others 87 50 71 470 74.6 23.0 (81.4)
Interest expense 37,451 36,673 34,106 35,921 2.1 9.8 4.3 150,890 138,904 8.6
Net interest income 12,428 14,034 13,070 13,087 (11.4) (4.9) (5.0) 53,793 51,271 4.9
Non-int.income 5,882 4,905 5,381 7,545 19.9 9.3 (22.0) 25,317 19,453 30.1
Other income ex treasury 4,640 3,826 3,325 7,279 21.3 39.5 (36.3) 20,317 16,975 19.7
Sale of invts. 1,242 1,078 2,056 267 15.2 (39.6) 365.8 5,000 2,478 101.8
Total income 18,310 18,939 18,451 20,632 (3.3) (0.8) (11.3) 79,109 70,724 11.9
Op. expenses 6,892 8,394 7,568 6,795 (17.9) (8.9) 1.4 32,347 29,169 10.9
Employee cost 3,706 5,023 4,504 3,864 (26.2) (17.7) (4.1) 18,062 16,767 7.7
Other cost 3,186 3,371 3,064 2,931 (5.5) 4.0 8.7 14,285 12,402 15.2
Operating profit 11,417 10,545 10,883 13,837 8.3 4.9 (17.5) 46,762 41,555 12.5
Provisions and cont. 5,416 5,381 5,327 9,307 0.6 1.7 (41.8) 25,839 25,751 0.3
Investment depreciation (1,402) (300) 318 294 367.3 (541.3) (577.4) (1,500) 1,241 (220.9)
NPLs 5,873 4,369 3,450 7,281 34.4 70.2 (19.3) 21,939 18,455 18.9
PBT 6,001 5,164 5,555 4,530 16.2 8.0 32.5 20,923 15,804 32.4
Tax 2,356 1,544 2,022 1,427 52.6 16.5 65.1 6,257 4,410 41.9
Net profit 3,645 3,619 3,534 3,103 0.7 3.2 17.5 14,666 11,394 28.7
Tax rate (%) 39.3 29.9 36.4 31.5 29.9 27.9
Key balance sheet items (Rs bn)
Deposits 1,865 1,763 1,935 5.8 (3.6)
CASA ratio (%) 24.1 23.7 24.3
Advances 1,383 1,280 1,408 8.1 (1.7)
Retail loans 161 145 161 10.9 (0.3)
Large corporates 728 652 742 11.7 (1.8)
Mid corporates 281 249 275 12.8 2.2
Investments 596 576 615 3.5 (3.0)
Other details
Asset quality details
Gross NPLs (Rs bn) 59.8 43.0 56.2 39.0 6.5
Gross NPLs (%) 4.3 3.4 4.0
Net NPLs (Rs bn) 42.3 29.4 39.0 44.0 8.3
Net NPLs (%) 3.1 2.3 2.8
Provision coverage (%) 29.3 31.8 30.5
Provision coverage (%, w/o) 59.1 63.9 60.2
Restructured loans (Rs bn) 107.4 102.7 106.6 4.6 0.7
% of loan book 7.8 8.0 7.6
Yield management measures (%)
Yield on advances 11.7 12.0 11.7
Yield on investments 7.5 7.4 7.5
Cost of deposits 7.8 7.7 7.7
Net interest margin 2.6 2.9 2.7
(% chg.)

Source: Company, Kotak Institutional Equities







Banks/Financial Institutions Oriental Bank of Commerce
36 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: OBC, growth rates and key ratios
March fiscal year-ends, 2012-17E (%)
2012 2013 2014 2015E 2016E 2017E
Growth rates (%)
Net loan 16.8 15.2 7.9 10.3 14.2 13.8
Investments excld. CPs and debentures growth 5.0 13.0 0.9 10.4 4.6 11.3
Net fixed assets 1.6 (13.6) 2.3 9.0 8.1 7.4
Cash and bank balance (24.9) (1.6) 66.1 (9.9) (2.1) (2.6)
Total Asset 10.0 13.0 9.8 8.6 10.2 11.9
Deposits 12.2 12.8 10.0 9.3 11.0 12.8
Current (0.2) 24.4 1.9 5.7 7.3 8.9
Savings 14.2 11.6 11.5 7.8 9.4 11.2
Fixed 12.8 12.1 10.3 9.9 11.7 13.4
Net interest income 0.9 11.5 9.1 4.9 14.8 16.5
Loan loss provisions 27.6 41.0 5.8 18.9 4.9 9.9
Total other income 29.2 33.4 17.6 30.1 8.7 12.6
Net fee income 15.0 15.0 15.0 12.5 10.5 12.0
Net capital gains 125.9 (1.0) 47.1 101.8 10.0 -
Net exchange gains 43.9 (30.7) 32.8 (5.0) 15.0 15.0
Operating expenses 22.4 15.1 9.4 10.9 13.9 11.6
Employee expenses 29.4 16.2 6.4 7.7 12.8 8.5
Key ratios (%)
Yield on average earning assets 9.6 9.6 9.3 9.2 9.0 8.9
Yield on average loans 11.6 11.4 10.9 10.8 10.5 10.3
Yield on average investments 7.3 7.0 7.3 7.2 7.1 7.0
Average cost of funds 7.6 7.5 7.2 7.2 6.9 6.7
Interest on deposits 7.6 7.6 7.2 7.2 7.0 6.7
Difference 2.1 2.1 2.1 2.0 2.1 2.3
Net interest income/earning assets 2.6 2.6 2.5 2.4 2.5 2.6
New provisions/average net loans 1.2 1.4 1.4 1.5 1.4 1.4
Interest income/total income 77.3 74.0 72.5 68.0 69.2 69.9
Fees income to PBT 50.9 49.9 54.7 46.5 42.0 37.1
Operating expenses/total income 42.4 41.9 41.2 40.9 41.3 40.0
Operating expenses/assets 1.4 1.4 1.4 1.4 1.5 1.5
Operating profit /AWF 0.9 0.7 0.7 0.6 0.8 1.0
Tax rate 19.9 13.5 27.9 29.9 33.9 37.9
Dividend payout ratio 20.2 20.2 20.0 20.0 20.0 20.0
Share of deposits
Current 6.0 6.6 6.1 5.9 5.7 5.5
Fixed 75.9 75.4 75.7 76.1 76.6 77.0
Savings 18.1 17.9 18.2 17.9 17.7 17.4
Loans-to-deposit ratio 71.8 73.3 71.9 72.6 74.7 75.3
Equity/assets (EoY) 6.7 6.4 6.1 6.1 6.0 5.8
Asset quality trends (%)
Gross NPL 3.2 3.2 4.0 4.2 3.9 3.3
Net NPL 2.2 2.3 2.8 2.9 2.6 2.0
Slippages 4.1 2.9 3.1 3.0 2.7 2.5
Provision coverage 31.3 30.6 30.5 34.2 35.0 43.1
Dupont analysis (%)
Net interest income 2.5 2.5 2.4 2.3 2.5 2.6
Loan loss provisions 0.7 0.9 0.9 1.0 0.9 0.9
Net other income 0.7 0.9 0.9 1.1 1.1 1.1
Operating expenses 1.5 1.7 1.7 1.6 1.7 1.7
(1- tax rate) 80.1 86.5 72.1 70.1 66.1 62.1
ROA 0.7 0.7 0.5 0.6 0.7 0.7
Average assets/average equity 14.7 15.3 16.1 16.5 16.6 16.9
ROE 9.9 10.7 8.7 10.5 11.2 12.2

Source: Company, Kotak Institutional Equities estimates




Oriental Bank of Commerce Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 37
Exhibit 9: OBC, income statement and balance sheet
March fiscal year-ends, 2012-17E (` mn)
2012 2013 2014 2015E 2016E 2017E
Income statement
Total interest income 158,149 177,048 190,175 204,683 221,944 244,444
Loans 120,746 137,581 145,640 157,323 172,634 192,239
Investments 36,709 38,538 43,110 46,139 48,419 51,336
Cash and deposits 693 929 1,424 1,221 890 869
Total interest expense 115,991 130,036 138,904 150,890 160,213 172,516
Net interest income 42,158 47,012 51,271 53,793 61,731 71,928
Loan loss provisions 12,367 17,439 18,455 21,939 23,004 25,286
Net interest income (after prov.) 29,791 29,572 32,816 31,854 38,727 46,642
Other income 12,402 16,547 19,453 25,317 27,523 30,978
Net fee income 7,258 7,658 8,649 9,730 10,752 12,042
Net capital gains 1,703 1,685 2,478 5,000 5,500 5,500
Net exchange gains 1,775 1,230 1,633 1,552 1,785 2,052
Operating expenses 23,155 26,652 29,169 32,347 36,859 41,140
Employee expenses 13,568 15,761 16,767 18,062 20,368 22,101
Depreciation on investments 2,854 (757) 1,241 (1,500) (1,200) (1,000)
Other Provisions 1,928 4,863 6,055 5,400 5,000 5,000
Pretax income 14,258 15,361 15,804 20,923 25,591 32,480
Tax provisions 2,842 2,081 4,410 6,257 8,677 12,311
Net Profit 11,416 13,280 11,394 14,666 16,915 20,168
% growth (24.0) 16.3 (14.2) 28.7 15.3 19.2
Operating profit 15,409 12,920 14,567 14,423 18,891 25,980
% growth (25.2) (16.2) 12.8 (1.0) 31.0 37.5
Balance sheet
Cash and bank balance 87,270 85,896 142,689 128,550 125,791 122,547
Net value of investments 521,013 585,547 614,722 674,167 703,438 778,213
Govt. and other securities 393,487 440,768 462,474 522,413 551,685 626,459
Shares 5,002 6,205 6,380 6,380 6,380 6,380
Debentures and bonds 19,813 19,229 43,166 43,166 43,166 43,166
Net loans and advances 1,119,777 1,289,551 1,390,798 1,534,422 1,751,828 1,994,199
Fixed assets 14,207 12,274 12,556 13,690 14,805 15,893
Other assets 33,080 33,705 42,259 42,259 42,259 42,259
Total assets 1,775,346 2,006,972 2,203,025 2,393,088 2,638,122 2,953,112
Deposits 1,559,649 1,758,975 1,934,890 2,114,174 2,346,675 2,646,610
Borrowings and bills payable 53,334 77,689 79,210 79,210 79,210 79,210
Other liabilities 42,938 42,552 54,619 54,619 54,619 54,619
Total liabilities 1,655,921 1,879,217 2,068,718 2,248,003 2,480,504 2,780,439
Paid-up capital 2,918 2,918 2,998 2,998 2,998 2,998
Reserves & surplus 116,507 124,838 131,308 142,087 154,620 169,675
Total shareholders' equity 119,425 127,755 134,307 145,085 157,618 172,673

Source: Company, Kotak Institutional Equities estimates




For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Slightly ahead on all parameters; volume decline in ADHO arrested to 1% yoy
Bajaj Corp beat expectations on all parametersrevenue at `1.91 bn (+12%; KIE: `1.83 bn),
EBITDA at `534 mn (up 11% yoy; KIE: `497 mn) and recurring PAT at `514 mn (up 9% yoy; KIE:
`486 mn). Adjusted for NOMARKs (registered a revenue of `141 mn, up 40% qoq), organic
revenues grew 4% yoy. Reported PAT declined 16% yoy to `396 mn due to extraordinary
expenses of `117 mn on account of NOMARKs brand amortization charge.
ADHO volume decline was arrested to just 1% yoy, ahead of our estimate of 5% volume decline,
as this quarter did not witness any inventory correction at distributor and retail level, a trend that
was visible for the past few quarters. Management also highlighted that adjusted for a large
institutional sales order in the base quarter, ADHO volumes grew ~4% yoydecent performance
in a challenging market environment. Overall hair oil volumes declined 1.5% yoy while price/mix-
led growth in ADHO improved to 6.1% yoy driven by price hikes and better mix.
Margins maintained despite jump in LLP aided by lower advertising spends
EBITDA margin contracted 30 bps yoy to 28% impacted by 80 bps drop in gross margins and
120 bps jump in other expenditure. However, 190 bps cut in advertising spends helped arrest
EBITDA margin contraction. GMs were impacted due to higher LLP prices (up 17% yoy, 9% qoq).
We note Bajaj Corp has cut its combined A&SP expenditure (as % of sales) to 16% versus ~16-
18% spent over last several quarters, a response to weak market conditions, in our view.
Expect volumes to stabilize; retain ADD with revised TP of `255 (`230 earlier)
We have raised our revenue estimates by ~2% for both FY2015E and FY2016E, respectively as we
bake in marginally higher volume growth in ADHO and better traction in NOMARKS. We now
bake in 5.5% volume growth (5% earlier) and `580 mn revenues for NOMARKS (`500 mn earlier)
in FY2015E. We have also raised our EPS estimates by ~3-4% as we increase EBITDA margin
forecast by 40 bps aided by lower A&SP spends. We retain our ADD rating on the stock with
revised target price of `255 (`230 earlier) based on 16X March FY2016E EPS. We believe
reasonable valuations at 14.5X FY2016E EPS amply bake in any challenges on volume frontwe
believe volumes have stabilized and expect them to inch up in ensuing quarters.




Bajaj Corp. (BJCOR)
Consumer Products
1QFY15 ahead of expectations; raise estimates a tad. ADD. Bajaj Corps 1QFY15
results beat our expectations on the back of better volumes and lower-than-expected
A&SP intensity. Our EPS estimates for FY2015/16E go up 3-4% on the back of this beat
and we raise our target price to `255 (`230 earlier; now end-FY2016 target versus Sep
2015 earlier). Challenging operating environment (subdued volume growth and
inflationary LLP) is factored into the CMP, in our view. We retain ADD.

Bajaj Corp.
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 12.0 13.9 15.9
Market Cap. (Rs bn) 33.8 EPS growth (%) 6.8 15.1 14.5
Shareholding pattern (%) P/E (X) 19.1 16.6 14.5
Promoters 75.0 Sales (Rs bn) 6.7 7.8 9.0
FIIs 13.5 Net profits (Rs bn) 1.8 2.0 2.3
MFs 1.9 EBITDA (Rs bn) 1.9 2.2 2.5
Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.9 14.4 12.0
Absolute (5.9) 10.7 (7.0) ROE (%) 33.2 31.4 30.8
Rel. to BSE-30 (5.0) (3.6) (30.8) Div. Yield (%) 2.8 2.8 3.3
Company data and valuation summary
287-179

ADD
AUGUST 05, 2014
RESULT
Coverage view: Neutral
Price (`): 229
Target price (`): 255
BSE-30: 25,723










Rohit Chordia
rohit.chordia@kotak.com
Mumbai: +91-22-4336-0885

Anand Shah
anand.shah@kotak.com
Mumbai: +91-22-4336-0882


Bajaj Corp. Consumer Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH 39
Exhibit 1: Key changes to earnings model, Bajaj Corp, March fiscal year-ends, 2015-16E

2015E 2016E 2015E 2016E 2015E 2016E
Revenues (Rs mn) 7,831 9,039 7,678 8,852 2.0 2.1
EBITDA (Rs mn) 2,090 2,389 2,019 2,305 3.5 3.7
EBITDA (%) 26.7 26.4 26.3 26.0
PAT (Rs mn) 2,044 2,340 1,975 2,256 3.5 3.7
EPS (Rs/share) 13.9 15.9 13.4 15.3 3.5 3.7
Revised Earlier Change (%)

Source: Company, Kotak Institutional Equities estimates
Key highlights from management concall
Overall hair oil market growth continues to witness deceleration. Management
highlighted that overall hair oils growth, as per Nielsen, continues to witness deceleration
across segments with 1QFY15 registering 4.9% decline in overall hair oil volumes and
5.3% decline in LHO volumes. However, we note several managements in their recent
commentary have indicated that Nielsens retail audit is not accurately reflecting the pick-
up in volume growth, which companies have reported in their quarterly results (i.e.
primary sales) and expect same to correct with a lag.
Rural growth ahead of urban growth. Management highlighted that ADHO posted
4.4% growth in rural markets while urban and rural growth combined stood at negative
2.7%, indicating sharp decline in urban markets. Rural sales now account for ~40% of
total sales for ADHO. Rural growth has picked up due to higher growth in sachets,
indicative of downtrading management highlighted that sachets now contribute 19%
of ADHO volumes.
No inventory correction witnessed in current quarter. Management highlighted that
it did not witness any inventory correction (i.e. down stocking at distributor level) over last
2 months and expects same to stabilize in ensuing quarters. Number of stock days at
distributor level has reduced from peak of 40-45 days to 30-32 days, at similar levels to
4QFY14.
Update on NOMARKS. Management highlighted that both creams and face washes
under NOMARKS brand have witnessed good offtake post re-launch and initial signs of
trade acceptance, especially from wholesalers, are very positive. Key monitorables in
medium term are (1) retailer stocking, (2) stock at each level (i.e. retail, wholesale and
distributor) and (3) volume of sales and mix. NOMARKS brand is currently available in
350,000 outlets from initial 150,000 outlets and near-term target is to reach 500,000
outlets.





Consumer Products Bajaj Corp.
40 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: Interim standalone results of Bajaj Corp, March fiscal year-ends (Rs mn)

1QFY15 1QFY15E 1QFY14 4QFY14 KIE Est yoy qoq FY2014 FY2013 (% chg.) FY2015E
Net sales 1,911 1,832 1,700 1,842 4 12 4 6,707 6,057 11 7,831
Material cost (780) (760) (680) (758) 3 15 3 (2,688) (2,577) 4 (3,219)
Gross Profit 1,131 1,072 1,021 1,084 5 11 4 4,019 3,480 16 4,612
Gross Margin (%) 59.2 58.5 60.0 58.9 66 bps -83 bps 32 bps 59.9 57.5 247 bps 58.9
Employee cost (96) (90) (83) (86) 7 16 12 (342) (295) 16 (399)
Advertising (132) (137) (150) (102) (4) (12) 29 (464) (418) 11 (542)
Other expenditure (368) (348) (307) (372) 6 20 (1) (1,364) (1,052) 30 (1,581)
Total expenditure (1,376) (1,335) (1,220) (1,317) 3 13 4 (4,857) (4,342) 12 (5,741)
EBITDA 534 497 481 524 8 11 2 1,849 1,714 8 2,090
OPM (%) 28.0 27.1 28.3 28.5 85 bps -29 bps -50 bps 27.6 28.3 -74 bps 26.7
Other operating income 2 2 2 3 24 31 (26) 10 11 (1) 11
Other income 91 95 121 83 (5) (25) 10 401 401 0 409
Interest (0) (0) (0) (16) 15 81 (99) (59) (1) (1)
Depreciation (9) (10) (8) (10) (10) 10 (11) (43) (40) 9 (47)
Pretax profits 619 584 595 584 6 4 6 2,159 2,085 4 2,462
Tax (105) (98) (125) (84) 7 (16) 26 (384) (423) (9) (418)
Recurring PAT 514 486 470 501 6 9 3 1,775 1,662 7 2,044
Extraordinary items (117) (117) (117) (286) (470)
Net profit (reported) 396 369 470 383 7 (16) 3 1,489 1,662 (10) 1,574
Recurring EPS 3.5 3.3 3.2 3.4 6 9 3 12.0 11.3 7 13.9
Income tax rate (%) 17.0 16.8 21.0 14.3 23 bps -399 bps 268 bps 17.8 20.3 -254 bps 17.0
Costs as a % of sales
Material cost 40.8 41.5 40.0 41.1 -67 bps 82 bps -33 bps 40.0 40.0 0 bps 40.0
Employee cost 5.0 4.9 4.9 4.7 14 bps 15 bps 37 bps 5.0 5.0 0 bps 5.0
Advertising 6.9 7.5 8.8 5.6 -61 bps -192 bps 133 bps 8.3 8.3 0 bps 8.3
Other expenditure 19.3 19.0 18.1 20.2 28 bps 122 bps -90 bps 18.8 18.8 0 bps 18.8
(% chg.)

Source: Company, Kotak Institutional Equities

Exhibit 3: ADHO volume decline arrested to 1% yoy; significant improvement qoq

13
21
25
17
23
20
19
24
19
23
21
19
16
(1)
(10)
(1)
12
(15)
(10)
(5)
0
5
10
15
20
25
30
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities




Bajaj Corp. Consumer Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH 41
Exhibit 4: Gross margins dip 80 bps yoy due to spike in LLP prices

57.6
56.3
53.7
52.9
53.7
54.2
53.0
55.6
57.7
57.9
58.3
60.0
60.5 60.5
58.9
59.2
60.6
50
53
56
59
62
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities

Exhibit 5: A&SP moderated to 16% (as % of sales)

12.8
10.9
11.5
11.8
12.5 12.6
16.8
12.6
13.8
14.5
16.5
16.8
17.6
17.9
16.0
15.5
10.0
8
10
12
14
16
18
20
1
Q
F
Y
1
1
2
Q
F
Y
1
1
3
Q
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities










Consumer Products Bajaj Corp.
42 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 6: Consolidated profit model, balance sheet, cash model of Bajaj Corp, March fiscal year-ends, 2011-17E (Rs mn)

2011 2012 2013 2014 2015E 2016E 2017E
Profit model
Net revenues 3,587 4,722 6,057 6,707 7,831 9,039 10,344
EBITDA 1,081 1,154 1,714 1,849 2,090 2,389 2,769
Other income 178 385 411 412 420 531 631
Interest expense (1) (1) (59) (1) (1) (1)
Depreciation (18) (26) (40) (43) (47) (53) (58)
Pretax profits 1,240 1,512 2,085 2,159 2,462 2,867 3,341
Tax (210) (311) (423) (384) (418) (527) (726)
Net income 1,031 1,201 1,662 1,775 2,044 2,340 2,615
Extraordinary items (190) (286) (470) (470) (184)
Reported profit 841 1,201 1,662 1,489 1,574 1,870 2,431
Recurring Earnings per share (Rs) 7.0 8.1 11.3 12.0 13.9 15.9 17.7
Balance sheet
Total shareholder's equity 3,763 4,278 4,826 5,192 6,114 7,160 8,049
Total borrowings
Deferred tax liability 0 10 15 4 4 4 4
Total liabilities and equity 3,764 4,288 4,840 5,196 6,118 7,164 8,053
Net fixed assets 220 389 791 812 921 1,004 1,101
Investments 3,301 3,135 1,845 1,575 1,575 1,575 1,575
Cash 813 275 1,892 1,292 2,602 4,063 5,074
Net current assets (571) 59 (118) (37) (64) (93) (127)
Miscellaneous expenditure 1
Goodwill/intangibles 0 430 430 1553 1084 614 430
Total assets 3,764 4,288 4,840 5,196 6,118 7,164 8,053
Free cash flow
Operating cash flow, excl. working capital 875 868 1,300 1,408 2,142 2,332 2,226
Working capital changes 140 28 (70) (150) 28 28 35
Capital expenditure (62) (196) (111) (1,467) (157) (136) (155)
Free cash flow 953 700 1,118 (208) 2,013 2,225 2,106
Ratios (%)
Revenue growth 21.8 31.7 28.3 10.7 16.8 15.4 14.4
Gross margin 56.3 53.4 57.5 59.9 58.9 58.9 58.8
EBITDA margin 30.1 24.4 28.3 27.6 26.7 26.4 26.8
EPS growth 22.8 16.5 38.4 6.8 15.1 14.5 11.8
ROE 41.5 25.6 26.4 33.2 31.4 30.8 30.8
ROCE 47.7 26.4 24.7 33.4 31.9 30.8 30.7

Source: Company, Kotak Institutional Equities estimates



For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Resultsa tad below estimates; however, underlying trends are encouraging
CUMI reported 1QFY15 consolidated sales at `5.2 bn (+3% yoy; -3% qoq), which were a tad
below our estimates. Underperformance on the sales front flowed through to the EBITDA level;
the company reported 1QFY15 consol EBITDA at `744 mn (+16% yoy; +10% qoq). However,
1QFY15 EBITDA margins at 14.3% were 170 bps higher yoy, indicating continuing improvement
in operations driven by rising sales volumes. Even as 1QFY15 is a seasonally weaker quarter versus
4QFY14, margins improved (qoq) by 160 bps, pointing towards strong underlying trend of
improving volumes/mix. The company reported consol 1QFY15 PAT at `274 mn.
Order inflow/mix is improving; should reflect in better margins going forward
As per the management, order inflow is improving across business segments, which should reflect
in better sales/margin trajectory in the coming quarters. 1QFY15 results reflect improvement in
operations of subsidiaries with the standalone entity reporting subdued growth in sales and a
decline in EBITDA (margins as well) yoy, implying that the recovery in operations led by the India-
centric business is yet to play out. As per the management, apart from positive trend in volumes,
which are helping margins in all business segments, margins in abrasive and ceramic segments
should also benefit on improving mix. In the abrasive segment, order inflow of higher margin
products, used by industries that require value-added services and hence avoid cheap imports (for
example, auto/auto-ancillary industry), is increasing. Similar trend is playing out in the ceramics
segment also; order inflow of wear-and-tear-resistant tiles (partly through Australian subsidiary) is
improving on normalizing maintenance spends. Positive mix trends in order inflow should reflect in
better margins in the respective businesses going forward.
Maintain BUY with unchanged target price of `200 (16X FY2016E EPS)
In our view, CUMI is well-positioned to ride the trends of (1) recovery in manufacturing activity in
India and (2) recovery in global capex/maintenance spends, specifically in power/coal/ferrous and
non-ferrous metals space. During the downturn, the company has made significant efforts
towards rationalizing costs, winning approvals for new products and repositioning unused
capacities to cater to changing market conditions. Also, capacities are available (~75% utilization
in most of the businesses) to scale up volumes with small incremental capex spends.



Carborundum Universal (CU)
Others
Margins to improve further; order flow is encouraging. CUMIs results were a tad
below estimates led by lower (~5%) sales. However, improvement (yoy) in EBITDA
margins was encouraging. As per the management, the improvement reflects rising
volumes across businesses; the trend can accelerate further. Also, order flow implies
better mix going forward, specifically in abrasives. Better mix and operating leverage
should be a tailwind for margins going forward. BUY with an unchanged TP of `200.

Carborundum Universal
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 4.9 8.2 12.4
Market Cap. (Rs bn) 31.5 EPS growth (%) 1.7 69.0 50.3
Shareholding pattern (%) P/E (X) 34.4 20.3 13.5
Promoters 42.2 Sales (Rs bn) 21.5 24.0 26.6
FIIs 22.5 Net profits (Rs bn) 0.9 1.5 2.3
MFs 7.2 EBITDA (Rs bn) 2.5 3.5 4.5
Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.0 10.0 7.6
Absolute (9.5) 18.1 60.0 ROE (%) 7.2 12.9 17.5
Rel. to BSE-30 (8.7) 2.9 19.2 Div. Yield (%) 0.7 1.3 1.9
Company data and valuation summary
201-97

BUY
AUGUST 05, 2014
RESULT
Coverage view:
Price (`): 168
Target price (`): 200
BSE-30: 25,723














Jasdeep Walia
jasdeep.w@kotak.com
Mumbai: +91-22-4336-0877


Others Carborundum Universal
44 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Margin improvement was led by higher volumes and better mix
Interim results of CUMI, consolidated, March fiscal year-ends (Rs mn)
1QFY15 1QFY15E 1QFY14 4QFY14 KIE est yoy qoq
Total Income 5,219 5,481 5,077 5,364 (4.8) 2.8 (2.7)
Total Expenditure (4,475) (4,690) (4,436) (4,685) (4.6) 0.9 (4.5)
Raw materials (1,676) (1,711) (1,942)
Employee expense (718) (670) (814)
Power and fuel (892) (782) (816)
Other expenditure (1,189) (1,272) (1,112)
EBITDA 744 791 642 679 (6.0) 15.9 9.5
EBITDA (%) 14.3 14.3 12.6 12.7
Depreciation (259) (280) (203) (270)
Interest (66) (75) (64) (75)
PBT (excl. other income) 419 436 375 334 (3.8) 11.8 25.5
PBT (%) 8.0 8.0 7.4 6.2
Other income 32 20 82 46
PBT 451 451 457 380 0.0 (1.2) 18.6
Exceptional items (27) 16 15
Tax expense (135) (150) (184) (134)
PAT 289 306 288 262
Add: Share of profits from associate
Less: Minority interest (15) (10) (11) (12)
PAT 274 296 276 249 (7.4) (1.0) 9.7
Margins (%)
RM/sales 32.1 33.7 36.2
Employee cost/sales 13.8 13.2 15.2
Power and fuel/sales 17.1 15.4 15.2
Other expenditure 22.8 25.1 20.7
Change (%)

Source: Company, Kotak Institutional Equities

Exhibit 2: Margins have been improving with each passing quarter
Trend in quarterly EBITDA margins for CUMI, consolidated, March fiscal year-ends (%)
19.6
18.5
17.1
10.7
12.9
16.7
17.6
12.6
14.7
14.6
20.8
18.0
14.3
12.7
8.3
22.3
9.1
5
8
11
14
17
20
23
26
Q
1
F
Y
1
1
Q
2
F
Y
1
1
Q
3
F
Y
1
1
4
Q
F
Y
1
1
1
Q
F
Y
1
2
2
Q
F
Y
1
2
3
Q
F
Y
1
2
4
Q
F
Y
1
2
4
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
4
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
1
Q
F
Y
1
5

Source: Company, Kotak Institutional Equities





Carborundum Universal Others
KOTAK INSTITUTIONAL EQUITIES RESEARCH 45
Exhibit 3: Sequential improvement in margins was visible across businesses even as 1QFY15 is seasonally weaker
Segmental results for CUMI, consolidated, March fiscal year-ends (Rs mn)
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 yoy qoq
Segment revenues
Abrasives 2,021 2,098 1,976 1,999 2,061 2,255 2,129 2,155 2,121 3% -2%
Ceramics 1,184 1,332 1,193 1,283 1,115 1,240 1,115 1,237 1,149 3% -7%
Electro-minerals 1,835 1,855 1,322 1,674 1,950 2,162 2,044 1,943 2,021 4% 4%
Others 101 102 95 91 94 94 83 94 85
Less: intersegment (161) (166) (148) (263) (214) (226) (212) (178) (215)
Total revenues 4,980 5,222 4,438 4,784 5,005 5,524 5,159 5,251 5,160
Segment EBIT
Abrasives 214 233 188 196 203 220 90 89 123 -39% 39%
Ceramics 247 250 134 158 153 148 116 172 172 13% 0%
Electro-minerals 201 186 (79) (71) 259 224 158 166 264 2% 59%
Others 31 32 27 8 13 15 3 (1) 5
EBIT 693 700 270 291 627 607 367 425 564
EBIT (%)
Abrasives 10.6 11.1 9.5 9.8 9.8 9.8 4.2 4.1 5.8
Ceramics 20.9 18.8 11.2 12.3 13.7 11.9 10.4 13.9 15.0
Electro-minerals 11.0 10.0 (5.9) (4.3) 13.3 10.4 7.7 8.5 13.1
Others 30.3 31.4 28.7 8.3 14.0 15.7 3.1 (1.5) 5.3
% change

Source: Company, Kotak Institutional Equities
Some disappointments versus earlier expectations
Even as overall trend in growth in sales and margins is encouraging, there have been a few
disappointments versus some of our earlier expectations:
At Foskor (51% sub), the company is finding it difficult to scale up the new bubble
zirconia plant (~5,000 tons capacity per annum) on account of technical challenges. As
per earlier guidance of the management, the plant was estimated to produce close to
3,000 tons in the first year (FY2015) and would have gradually scaled up to near-full
utilization levels in the subsequent years. However, now on account of some technical
difficulties, the company is not able to scale up production levels to more than 200 tons
per month. As per the management, the new plant cannot be profitable at current levels
of production and it expects the situation to remain unchanged at least for the next two
quarters. However, on account of a general pick-up in the economy, the erstwhile
capacity of 5,000 tons has started producing at optimum utilization levels and hence is
offsetting subdued performance of the new capacity.
At Thukela (100% sub), the company is finding it difficult to scale up fusion volumes
(capacity is close to 22,000 tons). As per the management, most of the fused material
manufactured by this facility hitherto used to service the refractory industry, which is not
doing well as of now. Hence, capacity utilization has been hovering in the range of 30-
40%. As per the management, scaling up volumes has proved to be much harder versus
earlier expectations and the company will have to reposition/re-engineer the product slate
to cater to other industries to increase off-take.


Others Carborundum Universal
46 KOTAK INSTITUTIONAL EQUITIES RESEARCH
At VAW Russia, ongoing issue involving Ukraine has halted the mix improvement, which
was underway at this facility. In the last few quarters, proportion of crystalline silicon
carbide (Sic) was increasing (versus metallurgical grade) in the sales mix on account of
pick-up in user industries of abrasive/ceramics, which in turn were benefitting out of
improving global economy. Most of the incremental demand of crystalline grade has been
originating from Europe. As per the management, on account of the current turmoil
involving Ukraine and Russia, the company will not be able to further increase sales of
crystalline Sic to Europe. Most of the consumers of crystalline Sic in Europe are small
manufacturers of abrasives/ceramics, who are now reluctant to buy incremental supplies
from a Russian company. To solve the problem, CUMI will have to create a front-end
presence in Europe, which will take time. Hence, at least for the next one year, mix of
Russian operation would remain static (60% sales of metallurgical grade) and margin
benefits, which we were expecting on improving mix, wont materialize in FY2015.
Exhibit 4: Standalone business should also start contributing to improvement in operations in the
coming quarters
Interim results of CUMI, standalone, March fiscal year-ends (Rs mn)
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 % chg yoy % chg qoq
Total Income 2,736 3,040 2,699 3,011 2,723 0% -10%
Total Expenditure (2,364) (2,599) (2,437) (2,636) (2,396) 1% -9%
Raw materials (1,214) (1,406) (1,172) (1,339) (1,183) -3% -12%
Employee cost (300) (325) (310) (324) (315) 5% -3%
Power and fuel (281) (269) (311) (320) (307) 9% -4%
Other expenditure (569) (599) (643) (653) (591) 4% -9%
EBITDA 372 441 262 375 327 -12% -13%
EBITDA (%) 13.6 14.5 9.7 12.5 12.0
Depreciation (121) (122) (123) (126) (141)
Interest (30) (31) (32) (37) (24)
EBIT 222 288 108 212 162
EBIT (%) 8.1 9.5 4.0 7.0 5.9
Other income 77 15 4 76 61
PBT 299 303 112 288 223 -26% -23%
Exceptional items 19 9 1 (7) (5)
Tax expense (92) (100) (40) (65) (63)
PAT 226 212 73 217 155 -32% -29%
Margins (% of net sales)
RM 44.4 46.2 43.4 44.5 43.4
Employee cost 10.9 10.7 11.5 10.8 11.6
Power and fuel 10.3 8.9 11.5 10.6 11.3
Other expenditure 20.8 19.7 23.8 21.7 21.7

Source: Company, Kotak Institutional Equities





Carborundum Universal Others
KOTAK INSTITUTIONAL EQUITIES RESEARCH 47
Exhibit 5: EM margins were lower yoy as power generation from captive hydro power plant declined yoy on lower rainfall
Segmental results for CUMI, standalone, March fiscal year-ends (Rs mn)
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 yoy qoq
Segment revenues
Abrasives 1,490 1,547 1,500 1,536 1,517 1,687 1,576 1,619 1,551 2% -4%
Ceramics 841 877 703 845 712 828 670 849 744 5% -12%
Electro-minerals 502 533 465 466 613 639 573 583 548 -11% -6%
Less: intersegment (126) (125) (119) (133) (150) (164) (151) (123) (153)
Total revenues 2,706 2,832 2,548 2,714 2,692 2,989 2,668 2,928 2,689
Segment EBIT
Abrasives 186 201 190 216 181 178 120 117 129 -29% 10%
Ceramics 117 128 46 130 80 115 28 120 99 24% -17%
Electro-minerals 33 65 5 (30) 80 104 69 34 55 -31% 63%
EBIT 335 393 241 317 340 397 216 271 283
EBIT (%)
Abrasives 12.5 13.0 12.7 14.1 11.9 10.5 7.6 7.2 8.3
Ceramics 13.9 14.6 6.5 15.4 11.2 13.9 4.2 14.1 13.3
Electro-minerals 6.5 12.1 1.1 -6.3 13.0 16.4 12.0 5.8 10.1
% change

Source: Company, Kotak Institutional Equities
Other highlights
The company has spent `190 mn on capex in 1QFY15, 50% of which has been incurred
in the standalone business (remaining mostly in Russia). The company has maintained its
capex guidance at `700-800 mn for FY2015.
As per the management, order inflow (ceramics) has improved for the Australian
subsidiary (51%) led by pick-up in maintenance spends in power plants and mining
industries. Also, the Australian subsidiary of the company has won a couple of project
orders in Middle East and South East Asia.
The company is hopeful of scaling up refractory volumes in VAW, Russia. As per the
management, VAWs refractory material has been approved by the largest aluminum
producer in Russia (RUSAL) and a couple of large aluminum smelters in Middle East.
In the standalone business, EM segment margins were lower yoy, as power generation
from the companys Maniyar hydropower plant (power is consumed by the EM business)
declined versus last year on account of much lower quantum of rains.
Gross debt has declined from `4.6 bn in 4QFY14 to `4.4 bn in 1QFY15.
After restructuring of Russian abrasive business in 2HFY14, it is no longer losing money.
In the consolidated abrasive operations, only the Chinese abrasive operation is still making
losses. The company is trying to position the Chinese abrasive capacity to cater to local
market rather than for exports to India. Initial results from this strategy are positive and
losses have been coming down gradually.
Uttarakhand abrasive (thin wheels) plant, which was commissioned last year, is running at
60% utilization. Thin wheels are used extensively in the construction industry (for cutting
purposes) and since construction activity has not picked up in India as of now, the
utilization remains at suboptimal levels.




Others Carborundum Universal
48 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 6: Summary financials: Carborundum Universal
Profit and loss model, cash flow statement and balance sheet for CUMI, consolidated, March fiscal year-ends (Rs mn)
2010 2011 2012 2013 2014 2015E 2016E 2017E
Profit model (Rs mn)
Net sales 13,121 16,452 19,950 19,714 21,253 23,914 26,502 28,767
EBITDA 2,438 3,091 3,895 2,372 2,515 3,506 4,462 5,136
Other income 22 29 127 130 220 81 93 97
Interest (308) (271) (250) (272) (282) (309) (253) (151)
Depreciation (445) (504) (569) (711) (911) (939) (971) (1,004)
Profit before tax 1,707 2,345 3,203 1,519 1,543 2,338 3,331 4,078
Exceptional items 7 235 24
Tax expense (560) (742) (908) (619) (592) (772) (966) (1,183)
Add: share of profits from associates 3 (2) 11 30 30 30
Less: minority interest (140) (129) (137) (2) (36) (50) (70) (70)
PAT 1,017 1,708 2,193 898 915 1,547 2,325 2,855
EPS 5 9 12 4.8 4.9 8 12.4 15
Balance sheet (Rs mn)
Equity 5,929 7,455 9,470 10,592 11,060 12,134 13,749 15,732
Total borrowings 4,391 4,085 3,986 4,342 4,563 4,263 2,963 1,363
Minority interest 490 594 775 738 699 749 819 889
Deferred tax liability 449 477 490 503 500 500 500 500
Current liabilities 1,915 2,275 2,916 2,856 3,034 3,477 3,881 4,192
Total liabilites 13,173 14,886 17,636 19,031 19,856 21,123 21,913 22,676
Net fixed assets 5,316 5,525 6,500 8,273 8,260 8,121 8,000 7,846
Goodwill 849 832 944 1,002 1,105 1,105 1,105 1,105
Investments 779 749 400 256 373 373 373 373
Cash 469 698 1,105 855 754 844 599 505
Other current assets 5,761 7,082 8,687 8,645 9,364 10,680 11,836 12,847
Total assets 13,173 14,886 17,636 19,031 19,856 21,123 21,913 22,676
Free cash flow (Rs mn)
Operating cash flow 1,701 2,293 2,807 1,632 1,751 2,455 3,273 3,832
Working capital changes 65 (509) (705) 49 (774) (873) (751) (701)
Caital expenditure (590) (771) (1,536) (2,070) (775) (800) (850) (850)
Free cash flow 1,175 1,012 566 (389) 202 782 1,672 2,281
Ratios
EBITDA margin (%) 19 19 20 12 12 15 17 18
Net debt/equity (X) 66 45 30 33 34 28 17 5
Book value (Rs/share) 32 40 51 57 59 65 73 84
RoAE (%) 18 25 25 8 7 13 17 19
RoACE (%) 12 15 17 6 6 10 14 16

Source: Company, Kotak Institutional Equities



For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Dismal marketing margins take the sheen off moderate volume growth
PLNG reported 1QFY15 EBITDA at `3.58 bn (-7.5% qoq, -10.1% yoy) and net income at `1.57 bn
(-7.5% qoq, -30.5% yoy), lower than our estimates of `4.4 bn and `1.8 bn, respectively despite
higher-than-expected LNG volumes, reflecting a sharp decline in marketing margins on short-
term/spot LNG cargoes. Overall re-gasification volumes across two LNG terminals increased 18%
qoq and 7% yoy to 138.7 tn BTUs. However, implied tariff on LNG volumes declined 21% qoq
and 11% yoy to `33.3/mn BTU, reflecting a sharp decline in marketing margins to a modest
US$0.2/mn BTU versus US$1/mn BTU in FY2014.
We were expecting margins to decline, but not so fast and so soon
We were skeptical of high marketing margins earned by the company over the past few years and
were expecting it to decline, albeit more gradually in 2-3 years, led by an increase in LNG
availability in the country. However, a sharp decline in marketing margins during the quarter
reflects either an enhanced competition from the tolling contracts of GAIL and GSPC or a negative
impact from pricing risk (lack of back to back contracts for some spot cargoes) borne by the
company in light of declining spot prices; we note that the management has categorically denied
the latter in the conference call, which implies that the margins are likely to remain subdued on a
sustainable basis henceforth.
Downgrade to REDUCE on full valuations
We revise our rating on PLNG stock to REDUCE from ADD previously as the stock is trading above
our DCF-based target price of `175 (`165 previously), post 24% rally over the past three months.
Our assumptions of stable long-term tariffs, post 5% annual escalation for three years and low
marketing margins of US$0.3/mn BTU yield a reasonable 19% CROCI for the company in the long
term, which factors in potential regulatory/competitive risks to domestic LNG business.
Cut EPS estimates to factor in lower marketing margins
We cut our EPS estimates for PLNG to `8.9, `11.3 and `15.6 for FY2015E, FY2016E and FY2017E
from `10, `12.4 and `15.9 previously to reflect (1) lower marketing margins on short-term/spot
volumes, (2) modestly lower volumes and (3) other minor changes.


Petronet LNG (PLNG)
Energy
Weak results and full valuations. PLNG reported lower-than-expected EBITDA and
net income in 1QFY15 despite a moderate volume growth, reflecting a sharp decline in
marketing margins. We downgrade the stock to REDUCE from ADD previously with a
revised DCF-based target price of `175 (`165 previously) noting weaker earnings
outlook in FY2015-16 given subdued volumes and margins, full valuations with the
stock trading near our fair value and lack of positive triggers to justify further rerating.

Petronet LNG
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 9.5 8.9 11.3
Market Cap. (Rs bn) 135.2 EPS growth (%) (38.1) (5.8) 26.4
Shareholding pattern (%) P/E (X) 19.0 20.2 15.9
Promoters 50.0 Sales (Rs bn) 377.5 404.2 417.7
FIIs 19.9 Net profits (Rs bn) 7.1 6.7 8.5
MFs 4.3 EBITDA (Rs bn) 15.0 14.6 17.2
Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.4 10.9 9.2
Absolute 1.1 24.1 55.4 ROE (%) 13.2 10.9 12.3
Rel. to BSE-30 2.0 8.1 15.8 Div. Yield (%) 1.1 1.2 1.8
Company data and valuation summary
190-103

REDUCE
AUGUST 05, 2014
RESULT, CHANGE IN RECO.
Coverage view: Neutral
Price (`): 180
Target price (`): 175
BSE-30: 25,723


QUICK NUMBERS
138.7 tn BTUs of
volumes; `33.3/mn
BTU of implied
tariffs
US$0.2/mn BTU of
estimated
marketing margins
on short-term/spot
volumes
Stock trading at 16X
FY2016E EPS








Tarun Lakhotia
tarun.lakhotia@kotak.com
Mumbai: +91-22-4336-0875

Vinay Kumar
vinay.h.kumar@kotak.com
Mumbai: +91-22-4336-0876


Energy Petronet LNG
50 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Key highlights from 1QFY15 results
Exhibit 1 gives the details of PLNGs 1QFY15 results and compares the same with 4QFY14
and 1QFY14 results.
Exhibit 1: Interim results of Petronet LNG, March fiscal year-ends (` mn)

(% chg.) yoy
1QFY15 1QFY15E 1QFY14 4QFY14 1QFY15E 1QFY14 4QFY14 FY2014 FY2013 (% chg.) 2015E
Net sales 101,608 105,986 84,442 104,278 (4.1) 20.3 (2.6) 377,476 314,674 20.0 404,221
Total expenditure (98,031) (101,562) (80,464) (100,410) (3.5) 21.8 (2.4) (362,491) (295,287) 22.8 (389,618)
Raw material (96,995) (100,550) (79,593) (99,344) (3.5) 21.9 (2.4) (358,495) (292,098) 22.7 (385,216)
Staff cost (122) (88) (86) (195) 38.2 42.1 (37.5) (466) (370) 26.0 (513)
Other expenditure (913) (924) (785) (871) (1.1) 16.3 4.9 (3,530) (2,819) 25.2 (3,890)
EBITDA 3,578 4,424 3,978 3,868 (19.1) (10.1) (7.5) 14,985 19,388 (22.7) 14,603
Other income 353 225 152 308 57.0 131.8 14.8 838 865 (3.2) 1,084
Depreciation (771) (1,116) (467) (1,000) (31.0) 65.0 (22.9) (3,081) (1,866) 65.1 (3,288)
Interest (784) (802) (240) (786) (2.2) 226.5 (0.3) (2,196) (1,184) 85.4 (2,429)
Profit before tax 2,376 2,731 3,423 2,389 (13.0) (30.6) (0.5) 10,545 17,203 (38.7) 9,969
Extraordinary/prior-period items
Current tax (810) (928) (1,170) (696) (3,426) (5,710) (2,090)
Deferred tax liabilities/assets (1,174)
Profit after tax 1,566 1,803 2,253 1,693 (13.1) (30.5) (7.5) 7,119 11,493 (38.1) 6,706
Adjusted Profit after tax 1,566 1,803 2,253 1,693 (13.1) (30.5) (7.5) 7,119 11,493 (38.1) 6,706
Adjusted EPS (Rs) 2.1 2.4 3.0 2.3 9.5 15.3 8.9
Tax rate (%) 34.1 34.0 34.2 29.1 32.5 33.2 32.7
Re-gasification volumes (tn BTU) 138.7 128.0 129.5 117.2 8.3 7.1 18.3 493.3 524.6 (6.0) 557.4
Contracted 96.4 94.0 92.3 92.0 2.5 4.5 4.8 374.5 376.2 (0.5) 374.1
Spot 17.4 22.0 19.0 20.8 (20.8) (8.2) (16.0) 65.1 103.1 (36.8) 66.2
Tolling 24.9 12.0 18.3 4.5 107.3 36.1 451.4 53.7 45.2 18.6 117.1
Implied tariff (Rs/mn BTU) 33.3 42.5 37.4 42.1 (21.7) (11.2) (21.0) 38.5 43.0 (10.6) 34.1
Estimated marketing margins (US$/mn BTU) 0.2 0.8 1.1 (76.5) (81.7) 1.0 1.2 (14.9) 0.3
Notes:
(a) The re-gasification tariff computed here is different from actual tariffs due to inclusion of direct re-gasification and associated costs.

Source: Company, Kotak Institutional Equities estimates
Strong growth in re-gasification volumes. PLNG reported higher re-gasification
volumes at 138.7 tn BTU versus 117.2 tn BTU in 4QFY14 and 129.5 tn BTU in 1QFY14.
Long-term contracted LNG volumes increased to 96.4 tn BTU versus 92 tn BTU in 4QFY14
and 92.3 tn BTU in 1QFY14. The company reported (1) higher tolling volumes at 24.9 tn
BTU versus 4.5 tn BTU in 4QFY14 and 18.3 tn BTU in 1QFY14 and (2) lower spot volumes
at 17.4 tn BTU in 1QFY15 versus 20.8 tn BTU in 4QFY14 and 19 tn BTU in 1QFY14.
Sharply lower implied tariffs led by weak marketing margins. We compute sharply
lower implied tariffs at `33.3/mn BTU in 1QFY15 versus `42.1/mn BTU in 4QFY14 and
`37.4/mn BTU in 1QFY14. We highlight that estimated marketing margins on PLNGs
short-term/spot LNG volumes declined sharply to US$0.2/mn BTU from US$1.1/mn BTU in
4QFY14 and US$0.8/mn BTU in 1QFY14 (see Exhibit 2).
Decline in depreciation expense; stable interest cost. PLNG reported lower
depreciation expense at `771 mn (-23% qoq), led by change in rates of depreciation as
per provisions of the Companies Act 2013. Interest cost remained stable at `784 mn (-
0.3% qoq). The sharp yoy increase in depreciation and interest cost reflects capitalization
of Kochi terminal from September 2013.
1QFY15 operating loss of ~`150 mn from Kochi terminal. The management
indicated that the company incurred an operating loss of `150 mn on Kochi terminal in
1QFY15. The company highlighted that it is likely to incur a PBT loss of ~`5 bn at Kochi,
if the terminal continues to operate at the current utilization. The company has received
necessary approvals from the Board to utilize Kochi terminal as a temporary storage
facility for global players and it expects to initiate activity in the current quarter.


Petronet LNG Energy
KOTAK INSTITUTIONAL EQUITIES RESEARCH 51
Exhibit 2: PLNGs marketing margins on spot LNG volumes declined sharply in 1QFY15
Calculation of implied margins for PLNG's spot volumes, March fiscal year-ends, 2012-15YTD (` mn)
FY2012 FY2013 1QFY14 2QFY14 3QFY14 4QFY14 FY2014 1QFY15
Volumes (tn BTU)
Dahej
Contracted 372.1 376.2 92.3 98.4 91.9 92.0 374.5 96.4
Spot 103.6 103.1 19.0 12.4 10.6 20.5 62.5 16.8
Tolling 72.7 45.2 18.3 12.0 17.8 3.8 51.8 24.8
Total volumes 548.4 524.6 129.5 122.8 120.2 116.3 488.8 138.0
Kochi
Contracted
Spot 0.1 2.3 0.3 2.6 0.6
Tolling 0.1 1.1 0.7 1.9 0.0
Total volumes 0.2 3.4 1.0 4.5 0.7
Tariffs (Rs/mn BTU)
Dahej re-gasification tariffs 33.8 35.5 36.8 36.8 36.8 38.6 37.2 38.6
Kochi re-gasification tariffs 62.0 62.0 65.1 62.7 65.1
Implied tariff 37.8 43.0 37.4 37.6 37.6 42.1 38.5 33.3
Computation of marketing margins
Total reported contribution 20,712 22,577 4,849 4,619 4,650 4,934 18,981 4,613
Contribution from contracted volumes 12,564 13,340 3,392 3,616 3,379 3,552 13,942 3,723
Reported revenues from tolling volumes 2,452 1,705 672 446 720 193 2,031 961
Internal consumption loss 2,250 3,021 804 907 894 999 3,604 966
Implied contribution from spot volumes 7,946 10,553 1,589 1,464 1,445 2,188 6,612 895
Re-gasification charges on spot volumes 3,499 3,655 698 462 531 808 2,491 690
Remaining contribution from spot volumes 4,447 6,898 891 1,002 915 1,379 4,121 206
Implied margins for spot cargoes (Rs/mn BTU) (a) 42.9 66.9 47.0 80.0 71.1 66.5 63.3 11.8
Implied margins for spot cargoes (US$/mn BTU) 0.9 1.2 0.8 1.3 1.1 1.1 1.0 0.2
Notes:
(a) We have computed implied margins before internal consumption loss on spot volumes;
net marketing margins will be lower.

Source: Company, Kotak Institutional Equities estimates
Other updates from conference call
Second jetty at Dahej. PLNG has commissioned the second jetty at Dahej terminal on
April 10 and has started servicing the long-term tolling contract of 1.25 mtpa with GSPC.
The company has accounted a depreciation expense of ~`65 mn for the second jetty in
1QFY15.
Gangavaram terminal. The company has received necessary approvals from the Andhra
Pradesh government for its LNG import terminal at Gangavaram. The management
indicated that it will tie up LNG sources and consumers before going ahead on the project.
The company expects to commission the terminal within three years from the award of
EPC contracts.
Expansion of Dahej terminal. The management highlighted that the expansion of
Dahej terminal to 15 mtpa capacity remains on track for completion by end-CY2016.
Key assumptions behind our earnings model
We discuss the key assumptions underlying our earnings model below (see Exhibit 3).


Energy Petronet LNG
52 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: We model slow ramp-up in PLNG's volumes
Key assumptions for Petronet LNG, March fiscal year-ends, 2010-18E
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Volume assumptions (mn tons)
Contract LNG volumes 7.1 7.5 7.3 7.4 7.4 7.4 7.6 8.5 9.0
Spot LNG volumes 0.4 0.6 2.0 2.0 1.3 1.3 1.4 1.6 0.8
Tolling volumes 0.3 0.6 1.4 0.9 1.1 2.3 2.7 3.5 7.7
Total volumes 7.9 8.7 10.8 10.3 9.7 11.0 11.7 13.6 17.4
Dahej 7.9 8.7 10.8 10.3 9.6 10.8 11.2 12.2 15.0
Kochi 0.1 0.2 0.5 1.4 2.4
Total volumes 7.9 8.7 10.8 10.3 9.7 11.0 11.7 13.6 17.4
Price assumptions (US$/mn BTU)
LNG purchase price (FOB) 4.6 5.6 8.1 10.1 12.3 13.4 13.5 13.6 13.3
Landed cost (incl. import tariff) 5.2 6.3 8.9 11.1 13.3 14.5 14.7 14.7 14.5
Re-gasification charges for Dahej 0.65 0.71 0.70 0.65 0.62 0.66 0.71 0.74 0.77
Re-gasification charges for Dahej (Rs/mn BTU) 30.6 32.2 33.8 35.5 37.2 39.1 41.1 43.1 44.7
Re-gasification charges for Kochi 1.04 1.11 1.19 1.25 1.30
Re-gasification charges for Kochi (Rs/mn BTU) 62.8 65.9 69.2 72.7 75.4
Blended sales price 5.8 7.0 9.7 11.7 14.0 15.2 15.4 15.5 15.4
Marketing margins on spot LNG 0.9 0.9 1.2 1.1 0.3 0.3 0.3 0.3
Other assumptions
Exchange rate (Rs/US$) 47.4 45.6 47.9 54.4 60.5 59.5 58.0 58.0 58.0

Source: Company, Kotak Institutional Equities estimates
LNG volumes. We model gradual ramp-up in LNG volumes to 17.4 mn tons in FY2018E
versus 9.7 mn tons in FY2014 and 10.3 mn tons in FY2013 led by (1) completion of
ongoing expansion project at Dahej terminal by end-CY2016, (2) recent commissioning of
second jetty at Dahej terminal and (3) gradual increase in utilization of Kochi terminal.
Dahej. We have assumed LNG import volumes at 10.8 mtpa, 11.2 mtpa and 12.2
mtpa in FY2015E, FY2016E and FY2017E for Dahej terminal. We have assumed
further ramp-up in volumes to 15.5 mtpa by FY2020E following completion of
ongoing expansion project at Dahej terminal by end-CY2016.
Kochi. We have assumed LNG import volumes at 0.2 mtpa, 0.5 mtpa and 1.4 mtpa
in FY2015E, FY2016E and FY2017E for Kochi terminal. We have assumed a gradual
ramp-up to 5 mtpa (full capacity utilization) at Kochi terminal by FY2022E.
Re-gasification tariffs. We model re-gasification tariff for Dahej terminal to increase by
5% annually in CY2015-17E to `44.7/mn BTU and expect it to remain flat until FY2024E,
the terminal year of our DCF model (see Exhibit 4). We model re-gasification tariff for
Kochi terminal to increase by 5% annually in CY2015-17E to `75.4/mn BTU and expect it
to remain flat thereafter. Higher re-gasification tariffs may sustain in the near term in the
absence of regulations for open access of LNG terminals.
Marketing margins. We have assumed lower marketing margins on short-term/spot
LNG volumes at US$0.3/mn BTU from FY2015 onwards versus implied margins of
US$1.1/mn BTU in FY2014.
Exchange rate. We have assumed Rupee-Dollar exchange rate for FY2015E, FY2016E
and FY2017E at `59.5/US$, `58/US$ and `58/US$.


Petronet LNG Energy
KOTAK INSTITUTIONAL EQUITIES RESEARCH 53
Exhibit 4: Our DCF-based fair value for PLNG is `175
Calculation of equity value of PLNG using discounted cash flow (` mn)
2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E
EBITDA 14,603 17,219 21,941 29,934 33,283 35,603 37,088 37,882 37,060 36,187 36,187 36,187
Adjusted tax expense (2,372) (2,895) (3,812) (6,116) (8,786) (9,914) (10,685) (11,165) (11,049) (10,878)
Change in working capital (1,217) (721) (1,557) 122 (317) (1,409) (1,278) (962) (986) (1,146)
Operating cash flow 11,014 13,602 16,572 23,939 24,180 24,280 25,125 25,755 25,024 24,162
Capital expenditure (10,254) (9,400) (9,032) (1,250) (1,250) (1,250) (1,250) (1,250) (1,250) (5,429)
Free cash flow 760 4,202 7,540 22,689 22,930 23,030 23,875 24,505 23,774 18,733 18,733 18,733
Discounted cash flow-now 704 3,458 5,516 14,753 13,252 11,827 10,899 9,944 8,575 6,004
Discounted cash flow-1 year forward 3,892 6,205 16,597 14,909 13,310 12,261 11,187 9,647 6,757 6,004
Discounted cash flow-2 year forward 6,983 18,671 16,772 14,974 13,799 12,585 10,853 7,602 6,757 6,004
Now + 1-year + 2-years
Discount rate (%) 12.5% 12.5% 12.5%
Total PV of free cash flow 84,933 100,769 115,000
Terminal value assumption
Growth in perpetuity 0.0% 0.0% 0.0%
FCF in 2024E 18,733 18,733 18,733
Exit FCF multiple (X) 8.0 8.0 8.0 174 -1.0% -0.5% 0.0% 1.0% 1.5%
Exit EV/EBITDA multiple (X) 4.1 4.1 4.1 11.5% 186 189 193 201 205
Terminal value 149,864 149,864 149,864 12.0% 177 180 183 190 194
PV of terminal value 48,034 48,034 48,034 12.5% 169 172 174 181 184
Total company value 132,967 148,804 163,035 13.0% 162 164 166 172 175
13.5% 155 157 159 164 167
Net debt 22,139 24,858 24,839
Equity value 110,829 123,946 138,196
Shares outstanding (mn) 750 750 750
Equity value of regasification business (Rs) 148 165 184
Equity value of 26% stake in Dahej Port (Rs) 8 9 10
Fair value of PLNG (Rs) 156 174 195
Fiscal Year end (March 31, XXXX) March-15 March-16 March-17 March-18 March-19 March-20 March-21 March-22 March-23 March-24
Today 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14 5-Aug-14
Days left 238 604 969 1,334 1,699 2,065 2,430 2,795 3,160 3,526
Years left 0.65 1.65 2.65 3.65 4.65 5.66 6.66 7.66 8.66 9.66
Discount factor at WACC 0.93 0.82 0.73 0.65 0.58 0.51 0.46 0.41 0.36 0.32
Sensitivity of 12-month fair value to WACC and perpetual growth
Perpetual growth (%)
W
A
C
C

(
%
)

Source: Kotak Institutional Equities estimates



Energy Petronet LNG
54 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: Petronet LNG: Profit model, balance sheet, cash model March fiscal year-ends, 2010-18E (` mn)

2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Profit model (Rs mn)
Net sales 106,491 131,973 226,959 314,674 377,476 404,221 417,662 472,439 460,876
EBITDA 8,465 12,161 18,292 18,436 14,984 14,603 17,219 21,941 29,934
Other income 978 684 849 1,817 838 1,084 666 461 670
Interest (1,839) (1,934) (1,774) (1,184) (2,196) (2,429) (1,828) (904) (798)
Depreciation (1,609) (1,847) (1,842) (1,866) (3,081) (3,288) (3,406) (3,756) (4,481)
Extraordinary items
Pretax profits 5,995 9,064 15,525 17,203 10,545 9,969 12,651 17,742 25,325
Tax (1,410) (2,650) (4,800) (5,430) (1,806) (2,090) (2,652) (3,719) (6,086)
Deferred taxation (540) (218) (150) (280) (1,620) (1,174) (1,523) (2,312) (2,522)
Net profits 4,045 6,196 10,575 11,493 7,119 6,706 8,476 11,711 16,717
Earnings per share (Rs) 5.4 8.3 14.1 15.3 9.5 8.9 11.3 15.6 22.3
Balance sheet (Rs mn)
Total equity 22,349 26,802 35,198 44,497 49,861 54,542 60,093 67,980 79,747
Deferred taxation liability 3,262 3,480 3,630 3,910 5,530 6,704 8,227 10,539 13,061
Total borrowings 24,998 32,160 32,762 30,342 34,965 31,538 28,375 24,199 15,687
Currrent liabilities 9,006 12,170 20,521 32,080 28,771 32,240 32,833 35,648 34,340
Total liabilities and equity 59,614 74,612 92,110 110,828 119,127 125,024 129,529 138,366 142,836
Cash 3,405 1,575 9,839 12,685 12,327 6,182 3,037 1,634 10,765
Current assets 8,811 14,241 22,758 29,860 33,951 38,637 39,951 44,323 42,893
Total fixed assets 42,012 47,146 58,115 66,884 71,450 78,807 85,142 91,010 87,779
Investments 5,386 11,649 1,399 1,399 1,399 1,399 1,399 1,399 1,399
Total assets 59,614 74,612 92,110 110,828 119,127 125,024 129,529 138,366 142,836
Free cash flow (Rs mn)
Operating cash flow, excl. working capital 5,513 7,418 10,378 11,094 9,963 9,693 12,399 16,726 23,051
Working capital 3,026 (1,717) (985) 4,037 (7,400) (1,217) (721) (1,557) 122
Capital expenditure (15,757) (7,485) (10,979) (8,406) (6,627) (10,254) (9,400) (9,032) (1,250)
Investments (2,339) (6,263) 10,381
Free cash flow (9,556) (8,046) 8,794 6,725 (4,064) (1,778) 2,278 6,137 21,922
Other income 452 587 803 721 838 1,084 666 461 670
Ratios (%)
Debt/equity 98 106 84 63 63 51 42 31 17
Net debt/equity 84 101 59 36 41 41 37 29 5
RoAE 16.8 22.2 30.6 26.3 13.7 11.5 13.1 16.0 19.5
RoACE 20.1 24.4 39.6 45.4 18.0 10.5 12.0 13.6 17.1
Adjusted CROCI 17.7 23.7 34.5 38.5 13.4 11.3 12.9 12.6 16.8

Source: Company, Kotak Institutional Equities estimates


For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research
kotak.research@kotak.com
Mumbai: +91-22-4336-0000
Powernon-committal on market recovery; banking on internal improvements for growth
FY2014 was another challenging year for Crompton, marred by (1) sedate market conditions and
(2) production losses continuing in Canada and Hungary. It is cautious about broad demand recovery
expectations and aims to grow business by leveraging (1) internal improvements (stabilization of
overseas power transformer facilities, qualifications for its switchgears), (2) improving demand for
distribution automation (European opportunity, entry-level orders in emerging markets, opening of
India facility) and (3) build-up of references from recently commissioned systems orders.
Looks beyond mainstay domestic business in industrials; outpaces market in consumer business
The company expects growth in industrials to be driven by (1) the export of motors (new capacities
commissioned, approvals received from GE and other global OEMs), (2) domestic demand for low-
voltage drives (commissioned a new unit using Emotron technology) and (3) strong growth
prospects in the traction motors business. Cromptons consumer business has grown ahead of the
market in key segments (fans, lightings and pumps). It aims to leverage increasing reach, product
launches and growing customer reach to grow its consumer business.
Belgium, Hungary, US, UK and Canada losses continue; ZIV business scale-up partly compensates
We note sustained losses in the Belgian (`1.2 bn), Hungarian (`0.8 bn), US (possibly `0.6 bn), UK
(`0.4 bn) and Canadian (`0.7 bn) facilities. Commissioning of the Saudi Arabian facility added `0.5
bn of losses. The losses were partly compensated by (1) business scale-up in ZIV (sales doubled yoy,
`0.5 bn PAT) and (2) strong growth in PT Indonesia (~30% growth in sales and PBT).
Sells investments to fund subsidiary losses; increasing low-cost share of business
Crompton sold its standalone investments to invest `4 bn in its subsidiaries (investments`2.5 bn;
L&A`1.5 bn). Exports in key markets (Asia, Africa, Europe) recovered in FY2014. The share of
sourcing from low-cost countries increased to 32% in FY2014 from 12% in FY2012. Crompton
also plans to hire/select senior managers for the next decade of growth. CRG (consolidated)
reported a modest decline in operating cash to `3.2 bn.


Crompton Greaves (CRG)
Industrials
Annual report broad demand recovery uncertain; expects overseas demand in
some pockets. Crompton was non-committal about its expectations of a broad
recovery in demand; but it aims to grow through (1) stabilization of the overseas power
business, (2) bets on pockets of overseas demand (systems business, distribution sub-
station) and (3) new domestic capacity additions (motor exports, AC drives, fans).
Bleeding overseas units (Belgium, Hungary) and a stagnating domestic non-consumer
business are concerns.

Crompton Greaves
Stock data Forecasts/Valuations 2014 2015E 2016E
52-week range (Rs) (high,low) EPS (Rs) 4.1 7.5 11.3
Market Cap. (Rs bn) 127.5 EPS growth (%) 215.8 80.9 51.4
Shareholding pattern (%) P/E (X) 49.3 27.2 18.0
Promoters 42.7 Sales (Rs bn) 134.8 152.4 171.7
FIIs 19.3 Net profits (Rs bn) 2.6 4.7 7.1
MFs 15.6 EBITDA (Rs bn) 6.8 8.8 11.8
Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.3 14.3 10.7
Absolute (2.0) 23.4 146.5 ROE (%) 7.2 12.2 16.6
Rel. to BSE-30 (1.1) 7.5 83.7 Div. Yield (%) 0.6 0.9 1.0
Company data and valuation summary
220-75

BUY
AUGUST 05, 2014
UPDATE
Coverage view: Cautious
Price (`): 203
Target price (`): 220
BSE-30: 25,723














Aditya Mongia
aditya.mongia@kotak.com
Mumbai: +91-22-4336-0883


Industrials Crompton Greaves
56 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Consumer segment drives standalone sales growth
Break-up of standalone sales suggests a flattish trajectory for the key transformer/reactor
and motors/drives segments over the past four years. Switchgear sales have been flattish
over 2011-13 with double-digit growth in FY2014. Growth was driven by the consumer
segment.
Exhibit 1: Broad-based growth in consumer categories; power and industrial sales are flattish yoy
Product-wise break-up of Crompton Greaves standalone sales, March fiscal year-ends, 2011-14 (%)
Yoy change CAGR
2011 2012 2013 2014 (%) (%)
Transformers/reactors 17,360 18,031 18,154 18,262 1 1
Motors, Alternators, Drives Panels 13,200 13,898 13,331 12,982 (3) (0)
Switchgears 7,059 7,317 7,431 8,574 15 5
Fans, Ventilation and Pollution Control Systems 9,097 9,122 11,138 12,848 15 9
Electric Lamps 5,703 6,667 7,689 9,010 17 12
Power driven pumps 5,217 5,019 5,869 5,790 (1) 3
Appliances 967 1,211 2,120 1,817 (14) 17
Traction Electronic,Drives and SCADA 569 1,209 1,480 1,897 28 35
Others 3,168 5,666 8,130 7,530 (7) 24
Total 62,339 68,140 75,342 78,710 4 6

Source: Company, Kotak Institutional Equities
Powermarket challenging; company banks on internal improvements
The global power business continued to be impacted by a combination of market-related
issues. Demand situation has continued to be sedate across key geographies of Europe and
North America. Against this, competitive intensity has remained high (began in FY2011,
intensified in FY2012 and has sustained in FY2013 and FY2014), especially in the US and
Europe. In addition, many customers are delaying taking physical deliveries across key
regions (Europe, Middle East, North Africa and India). For this, customers have used several
means, including (1) invocation of storage clause, (2) demanding short-circuit testing and
(3) insistence on extended series of tests for each transformer of a series.
Apart from market factors, company has also been impacted by production-related issues at
its Canadian and Hungarian plants (had impacted in FY2013 as well).
Aims to leverage internal improvements and business references
While remaining cautious in market demand, company is still positive on growth led by
internal improvements. It mentioned (1) stabilization of overseas power transformer facilities
(Belgium, Hungary), (2) new qualifications (extra-high voltage switchgears, 765 kV circuit
breaker, new design for 765 kV GIS) and (3) scale-up in automation business (European
opportunity, entry-level orders in EMs, opening of India facility).
Crompton is also aiming to leverage prior work in the domain of integrated power systems.
It has now commissioned 4-5 large wind-offshore projects over the past few years and
mentioned new large systems orders (EUR52 mn).
Power transformers overseas plants stabilizing; Canada a concern. The annual report
carries positive takeaways in terms of (1) improvement in gross margin in new orders for
Belgium plant, (2) capacity expansion for Hungarian plant (to 10,000 MVA) and (3) cost-
savings/stabilization at the Belgian plant. The key challenge remains the Canadian plant.
Here, the company has made management changes and reorganized workforce. The
order book for the plant remains healthy and so do sales (delivered 7,000 MVA in FY2014
versus 4,200 MVA in FY2013).


Crompton Greaves Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 57
Distribution transformer subdued business. Distribution transformer business has
remained sedate across geographies barring US. Essentially business has been impacted
by weak demand in Europe and severe margin pressures in India. Company has a capacity
of close to 25,000 MVA for this business.
Switchgears new qualifications enthuse. On the extra-high voltage side, CRG has
full-fledged plants in India and Hungary and manufactures medium-voltage switchgear
from India. The company has cited positive developments including (1) introduction of
new design for 765 kV GIS in India, (2) on-site qualification for 765 kV circuit breaker for
PGCIL and (2) development of 245 kV gas-insulated switchgear at Hungarian plant (plant
has also received full-type test certification from Korea Electro-technology Research
Institute for the 245 kV GIS).
Power systems aims to expand presence by leverage demand and references.
The power systems business fared well in Belgium and Indonesia while reported reduced
business in UK and losses in India (cost overruns). At a global level, company aims to
expand its systems business by leveraging recently completed large wind-farm projects
(Belwind, Northwind, Butendiek, Amrumbank, Humber Gateway). It cited receiving a
large EUR52 mn order from Netherlands (includes off-shore wind park, onshore
substation and electrical grid substation).
Automation business wins key entry orders; starts India plant. Crompton has won
automation orders in key markets of (1) Iraq, (2) Saudi Arabia and (3) India (PGCIL). It has
also commissioned its Bengaluru facility, which is capable of producing 10,000 smart
devices per annum (`80 mn investment). The facility would bid for tenders in India, South
Asia and the SEAP (South East Asia and Pacific). The automation group has also secured
product approvals from PGCIL, Federal Grid in Russia, Mexico, Philippines and Energy
Networks Association in UK.
Belgian, Hungarian, Canadian losses continue; ZIV scale-up partly compensates
The overseas subsidiaries have contributed a total implied PBT loss of about `2 bn for FY2014.
Our analysis of the individual subsidiaries yields a combined PBT loss of about `1.5 bn. Key
loss-making units were the ones in Belgium (power systems), Canada (power systems), Ganz
(electric systems), United Kingdom (power solutions) and Middle East (power systems). This
accumulated to a loss of `3.6 bn and was partly compensated by profits of about `2.1 bn
from facilities in Indonesia (power systems), Sweden (power automation) and ZIV
(distribution automation).
CG Power Systems Belgium (loss `1.2 bn) sales decline on contracted base. CG
Power Systems Belgium reported a marginal yoy decline in sales to `12.5 bn despite a low
FY2013 base (had productivity-related losses. Losses at `1.2 bn have declined by about
`2 bn yoy, reflecting the one-off restructuring charge of `1.2 bn in FY2013 and `0.8 bn
of potential benefit from lower employee cost.
CG Power Systems Canada (loss - `0.7 bn) large losses despite bounce-back in
sales. CG Power Systems Canada reported a sharp pull-back in sales to `3.8 bn (versus
`2.7 bn in FY2013). Despite the recovery in sales, PBT losses remained significant at
`0.7 bn or 19% of sales.
CG Electric Systems Hungary (loss - `0.8 bn) sales and losses scale-up. The Hungary
unit has increased reported third-year of large losses (double-digit negative PBT margin).
This is despite a strong 30%+ growth in sales. Essentially the plant is still in stabilization
phase. Its capacity has further increased to 10,000 MVA (from 8,000 MVA earlier).


Industrials Crompton Greaves
58 KOTAK INSTITUTIONAL EQUITIES RESEARCH
CG Middle East FZE (loss - `0.5 bn) - initial start-up losses. This unit manufactures
power transformers for supply to the key Middle East region. In its initial year, it reported
sales of `2 bn and loss of `535 mn. The facility for power transformers is now fully
operational and has set up sales and marketing forces in Belelux (Belgium, Netherlands,
Luxumberg), France, UK and Algeria.
ZIV Spain (profit - `0.5 bn) positive surprise on sales-scale-up. ZIV Spain reported
scale-up in sales to about `8 bn (more than 2X of FY2013 value). PBT at `533 mn in
FY2014 improved significantly (had reported losses in FY2013).
CG Power Systems Indonesia (profit - `0.6 bn) sales and profits increase. Indonesian
entity reported a strong ~28% growth in sales and a similar growth in PAT.
CG Power USA (includes US$10 mn losses of Power Solutions). CG has likely
combined three of its key US subsidiaries (Power Solutions, Power Systems and
Automation Solutions) into one subsidiary by the name CG Power USA. The subsidiary
reported revenues of `11.2 bn (marginal yoy decline) and PAT of `310 mn (`410 mn last
year). Key loss-making business is CG Power Solutions (has incurred US$10 losses in each
of the past two years).


Crompton Greaves Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 59
Exhibit 2: Overseas power entities making losses; automation fares better
Key overseas subsidiaries key numbers, March fiscal year-ends, 2008-14 (` mn)
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Pauwels 34,140 34,913 41,266 41,341 44,567 1,861 2,698 780 (3,918) (1,371) 1,335 2,119 627 (3,392) (1,617)
CG Power Systems Belgium 16,848 15,414 14,278 12,899 12,513 (79) 701 (772) (3,280) (1,186) (61) 492 (765) (3,280) (1,186)
CG Power Systems Ireland 4,505 4,555 4,845 5,408 5,912 37 304 8 106 62 29 298 10 92 49
CG Power Systems USA 3,363 4,262 6,190 8,216 11,174 139 5 170 495 345 63 34 52 341 311
CG Power Systems Canada 4,604 4,384 3,228 2,719 3,844 742 662 (387) (1,022) (727) 542 517 (87) (887) (727)
CG Power Systems Indonesia 3,796 3,818 4,807 5,742 7,384 998 902 657 697 927 745 685 162 505 640
CG Power Solutions UK 787 1,292 3,183 2,669 70 860 (246) (445) 49 70 836 (246) (445)
Ganz 5,482 6,007 4,794 6,077 7,941 659 840 (632) (624) (786) 621 840 (632) (624) (787)
CG Electric Systems Hungary 5,362 5,990 4,762 6,053 7,918 559 829 (657) (642) (803) 526 829 (657) (642) (803)
CG Holdings Hungary Kft. 121 17 33 24 23 100 11 25 19 17 96 11 25 18 16
Automation 8,487 12,365 409 1,189 476 1,033
CG Drives and Automation Sweden 2,462 2,717 406 613 244 491
CG Drives and Automation Netherlands 473 574 (7) 15 (4) 11
CG Drives and Automation Germany 1,064 1,296 6 29 0 19
CF Automation Solutions USA 1,019 212 178 -
ZIV 3,470 7,778 (207) 533 57 512
ZIV Aplicaciones y Tecnologia 295 1,418 (112) 531 51 459
ZIV Metering Solutions 1,308 3,269 122 238 57 253
ZIV Grid Automation 1,072 1,923 (95) (153) 21 (38)
ZIV Communication 488 865 (83) (51) (31) (129)
ZIV USA 26 10 (4) (0) (6) 0
ZIV DO Brazil 176 119 (25) (39) (25) (39)
ZIV I+D Smart Energy Networks 106 173 (11) 6 (11) 6
CG Middle East FZE 2,165 (514)
Source: Company, KIE
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Pauwels (0.5) 7.7 1.9 (9.5) (3.1) 3.9 6.1 1.5 (8.2) (3.6)
CG Power Systems Belgium (0.5) 4.5 (5.4) (25.4) (9.5) (0.4) 3.2 (5.4) (25.4) (9.5)
CG Power Systems Ireland 0.8 6.7 0.2 2.0 1.1 0.6 6.5 0.2 1.7 0.8
CG Power Systems USA 4.1 0.1 2.7 6.0 3.1 1.9 0.8 0.8 4.2 2.8
CG Power Systems Canada 16.1 15.1 (12.0) (37.6) (18.9) 11.8 11.8 (2.7) (32.6) (18.9)
PT, CG Power Systems Indonesia 26.3 23.6 13.7 12.1 12.5 19.6 18.0 3.4 8.8 8.7
Ganz 12.0 14.0 (13.2) (10.3) (9.9) 11.3 14.0 (13.2) (10.3) (9.9)
CG Electric Systems Hungary 10 14 (14) (11) (10) 10 14 (14) (11) (10)
CG Holdings Hungary Kft. 83 66 76 78 75 79 66 76 74 71
Automation 4.8 9.6 5.6 8.4
ZIV (6.0) 6.9 1.7 6.6
Notes
Key profitable entities
Key less-making entities
Revenues PBT PAT
PAT margin (%) PBT margin (%)

Source: Kotak Institutional Equities
Industrialsexpects benefit from new capacity additions and approvals
While FY2014 carried the negative impact of slowdown in order inflows, higher material
costs and severe pricing pressures, company is optimistic about business incrementally. Its
optimism is based on addition of capacities at Mandideep, which it intends to use for
supplying motors and drives for exports. Its aim to expand exports has received a further
boost as it has received approvals from ten global OEMs and four large end-users. The low
voltage and medium voltage motors plant at Mandideep has been approved by GE Oil and
Gas for global sourcing.
It has also commissioned another facility at Mandideep for low voltage AC drives in July
2013. This facility uses Emotrons technology and has capacity to produce 6,000 drives per
annum per shift.
The company is also optimistic on in its transportation business. During FY2014, it developed
its integrated power supply system for railway signaling systems.


Industrials Crompton Greaves
60 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Consumer segmentproduct launches help Crompton to outpace market
Key segments of fans and lighting have continued to grow at strong 15-17% rates in
FY2014, supported by new product launches. Pumps business has remained flat (in a
declining market) and appliances business has declined in double digits.
Exhibit 3: Fans and lighting sustain strong growth trajectory
Product-wise break-up of CG's consumer sales, March fiscal year-ends, 2011-14 (` mn)
Yoy change
2011 2012 2013 2014 (%)
Fans, Ventilation and Pollution Control Systems 9,097 9,122 11,138 12,848 15
Electric Lamps 5,703 6,667 7,689 9,010 17
Power driven pumps 5,217 5,019 5,869 5,790 (1)
Appliances 967 1,211 2,120 1,817 (14)
Total 20,984 22,018 26,816 29,465 10

Source: Company, Kotak Institutional Equities
We note that fans and lighting are the key segments in Cromptons consumer business.
These account for about 75% of total sales. These also drive the profitability for the business
as Crompton has low value add content in other products (pumps and appliances).
Exhibit 4: Fans and lighting account for dominant share of portfolio
Sales break-up of Crompton's consumer business for year-ending March 2014
FY2014 revenues (Rs28 bn)
Fans, Ventilation
and Pollution
Control Systems
43%
Electric Lamps
31%
Power driven
pumps
20%
Appliances
6%

Source: Company, Kotak Institutional Equities
Fans. CGs net sales have grown ahead of the market at 15% for FY2014 (versus 10%
growth for the market). This has led to a 3.3% increase in CGs market share to 26.6%.
The second plant at Baddi is now operational and has a capacity of 1 mn fans per annum.
Company said 30% of its business in FY2014 is being contributed by new product
launches.
Lighting (#3 player). CGs net sales grew ahead of the market at 17% versus 12%
growth for the market. CG is the number three player in the segment with a portfolio of
about 180 SKUs. New products accounted for 17% of the total segment sales and 24%
for luminaries. Key segments in LED and CFL have done well. In LED, companys growth
was 4X that of the market (driven by product launches). In CFL too, it grow 24% versus
market growth of 15-16%.


Crompton Greaves Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 61
Pumps (#2 player). The pumps business was negatively impacted by good monsoons last
year, which raised water levels. Company still did better than the market and reported
flattish sales (industry declined by 10%). CG now has a 27% market share. Business earns
healthy margin.
Appliances. This is a relatively small business for Crompton where its value addition is
also low (comprises mostly traded goods). The business unit achieved sales of `1.8 bn in
FY2014.
Other takeaways from the annual report
Working capital remains steady on an adjusted basis. Companys working capital (at
a standalone level) has increased to 63 days of sales at end-FY2014 versus 48 days as of
end-FY2013. Adjusted for the `5.5 bn loan given by the standalone entity to subsidiaries,
working capital marginally increased on a yoy basis. At a consolidated level, working
capital has remained steady at 30 days of sales.
Exhibit 5: Modest increase in working capital on an adjusted
basis
Standalone working capital for CG, March fiscal year-ends, 2005-14
39
27
24
18
7
5
31
37
48
63
-
15
30
45
60
75
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
(Days of
sales
Rs 4 bn new loan given in
FY2013 to CG International
B.V. and increased to 5.5 bn
in FY2014

Source: Company, Kotak Institutional Equities

Exhibit 6: Consolidated working capital remains steady
Consolidated working capital for CG, March fiscal year-ends, 2005-14
32
30
28
17 17
31
35
30 30
42
-
9
18
27
36
45
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
(Days of
sales)

Source: Company, Kotak Institutional Equities

Company still generates strong operating cash at consolidated level. Crompton has
reported strong adjusted cash flows of `3.6 bn at a standalone level and `3.2 bn on a
consolidated level. Note that we have adjusted the standalone cash flows for `1.5 bn of
additional loans and advances given to subsidiaries.


Industrials Crompton Greaves
62 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 7: Crompton generates strong operating cash
Standalone operating cash for CG, March fiscal year-ends, 2005-14
2.5
5.7
3.6
1.3
2.5
2.4
4.4
5.7
6.9
3.9
-
2
4
6
8
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
(Rs bn)

Notes:
(a) FY2013 data is adjusted for Rs4 bn increase in loans and
advances to subsidiaries and associates.
(b) (b) FY2014 data is adjusted for Rs1.5 bn increase in loans and
advances to subsidiaries and associates
Source: Company, Kotak Institutional Equities

Exhibit 8: Crompton (consolidated) also generates operating
cash in spite of margin issues
Consolidated operating cash for CG, March fiscal year-ends, 2005-14
5.6
4.1
4.4
3.2
1.9 2.0
3.8
5.8
9.4
10.6
-
3
6
9
12
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
(Rs bn)

Source: Company, Kotak Institutional Equities

Sells standalone current investments to fund `4 bn to subsidiaries. We note
related party investments amounting to `4 bn into Cromptons subsidiaries.
Essentially company has increased its funding to (1) CG International BV
(combination of `2.5 bn of new investment and `0.5 bn of additional loans and
advances) and to (2) CG Power Solutions (`0.8 bn of additions loans and advances).
Exhibit 9: Crompton provided Rs4 bn of additional funding to subsidiaries in FY2014
Consolidated and standalone balance sheet of Crompton, March fiscal year-ends, 2011-2014 (` mn)
2011 2012 2013 2014 2010 2011 2012 2013 2014
Shareholders funds 32,747 36,109 35,615 36,446 17,647 23,041 27,009 30,569 33,561
Share capital 1,283 1,283 1,283 1,254 1,283 1,283 1,283 1,283 1,254
Reserves & surplus 31,464 34,826 34,332 35,192 16,364 21,758 25,726 29,286 32,307
Minority interest 157 157 95 118
Loan funds 4,703 10,400 20,336 21,930 268 134 73 141 305
Secured loans 4,554 9,793 20,215 21,930 138 82 73 141 305
Unsecured loans 149 607 121 130 52
Deferred tax liabilities (net) 160 (513) (1,681) (1,532) 834 735 432 498 736
Total sources of funds 37,767 46,153 54,365 56,962 18,749 23,910 27,514 31,207 34,602
Fixed assets 19,417 22,575 30,664 34,591 5,668 9,230 6,755 7,753 8,226
Investments 6,747 7,864 7,908 2,989 6,881 7,816 10,525 10,549 8,263
Current 5,005 206
Non-current 5,546 8,057
Cash & bank balance 2,984 4,976 5,834 8,150 5,485 1,509 3,211 2,888 4,428
Current assets 42,512 50,368 53,974 61,019 16,717 22,341 25,214 31,505 34,947
Inventories 11,893 12,233 16,367 16,714 3,035 4,057 4,496 5,485 5,578
Sundry debtors 25,427 32,913 33,789 35,913 12,128 15,102 17,845 18,904 19,750
Other current assets
Loans & advances 5,192 5,222 3,818 8,392 1,554 3,182 2,873 7,117 9,619
CG International B.V. 922 923 833 4,699 5,287
CG Power Solutions 319 1,104
Current liabilities & provision 33,892 39,630 44,014 49,787 16,002 16,986 18,191 21,489 21,263
Current liabilities 29,595 35,843 39,792 45,723 14,466 15,293 16,688 19,629 19,541
Provisions 4,298 3,787 4,222 4,064 1,536 1,693 1,503 1,860 1,722
Net current assets (excl. cash) 8,619 10,738 9,960 11,232 715 5,355 7,023 10,017 13,684
Total application of funds 37,767 46,153 54,365 56,962 18,749 23,910 27,514 31,207 34,602
Consolidated Standalone
Rs2.5 bn increase in
investments in CG
International B.V., more
than compensated by sale
of financial investments
Rs1.5 bn increase in L&A to
subsidiaries
Sells current investments to
fund subsidiaries

Source: Company, Kotak Institutional Equities


Crompton Greaves Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 63
Exports: Asia, Africa and Europe bounce back; rest remains steady. Exports for the
company (overseas sales from the standalone entity) have recovered in FY2014 on
contracted base. Essentially business from Asia, Africa and Europe have bounced back
and from Americas has remained steady.
Exhibit 10: Exports pick up to FY2011 levels
Exports of CG standalone, March fiscal year-ends, 2005-14 (Rs bn)
10.9
10.4
9.1
7.8
7.6
9.1
-
2
4
6
8
10
12
2009 2010 2011 2012 2013 2014
(Rs bn)

Source: Company, Kotak Institutional Equities

Exhibit 11: Asia and Africa bounce back; rest remains steady
Exports for CG standalone, March fiscal year-ends, 2009-14 (Rs bn)
-
1
2
3
4
5
6
Asia - ex
India
Africa Americas Europe Australia
(Rs bn)
2009
2010
2011
2012
2013
2014
Source: Company, Kotak Institutional Equities

We note sharp recovery in exports from a quarterly perspective.
Exhibit 12: Exports have scaled up for CRG after bottoming out in 1QFY14
Power exports for Crompton, March fiscal year-ends (` bn)
Power exports
1.6
2.5
2.0
1.5
1.0
2.4
2.9
3.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1
Q
F
Y
1
3
2
Q
F
Y
1
3
3
Q
F
Y
1
3
4
Q
F
Y
1
3
1
Q
F
Y
1
4
2
Q
F
Y
1
4
3
Q
F
Y
1
4
4
Q
F
Y
1
4
(Rs bn)

Source: Company, Kotak Institutional Equities




Industrials Crompton Greaves
64 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Geographical break-up of sales. Domestic sales accounted for 50% of the consolidated
sales in FY2014 with Europe being the next largest region (contributed 20% of
consolidated sales).
Exhibit 13: Europe - 45% of subsidiary revenues, 20% of consol.
Geographical break-up of Crompton's revenues (consolidated, standalone and private), March fiscal year-end, 2013 (` mn)
Consolidated revenues (Rs121 bn)
India
50%
Africa
3%
North
America
11%
South
America
3%
Europe
20%
Australia
1%
Asia - ex
India
12%
Standalone revenues (Rs71 bn)
South
America
3%
India
88%
Asia - ex
India
5%
Africa
3%
North
America
0%
Europe
1%
Australia
0%
Subsidiary revenues (Rs49.6 bn)
India
0%
Asia - ex
India
22%
Africa
3%
North
America
24%
South
America
3%
Europe
45%
Australia
3%

Source: Company, Kotak Institutional Equities
Majority of Europe revenues booked are from local sales. We note that majority of
the sales from the European facility service local demand. A small 24% share of
production goes as exports to Africa, Asia and possibly South America.
Exhibit 14: 76% of revenues booked in European subsidiaries is from actual sales within Europe
Likely geographical break-up of revenues and sales of Crompton subsidiaries for year-ending March 2014
North America
Production: Rs15bn
Sales: Rs15 bn
100% of production
Europe
Production: Rs35 bn
Sales: Rs27bn
76% of production
Asia
Production: Rs9 bn
Sales: Rs13 bn
20% of production
to Australia
6% of production
to Africa and
South America
South America
Production: Rs1 bn
Sales: Rs2 bn
Africa
Production: NIL
Sales: Rs1.8 bn
Australia
Production: NIL
Sales: Rs1.3bn
15% of production -
to Asia (Middle East)
80% of production
3% of production
to South America

Source: Company, Kotak Institutional Equities



Crompton Greaves Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 65
Exhibit 15: Estimates build in steady growth in standalone business and overseas margin improvement of 300 bps over next two years
Estimates for Crompton, March fiscal year-ends, 2014-17E
2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E
Financials (Rs mn)
Net sales 134,806 152,407 171,766 193,446 74,896 83,786 94,864 107,507 59,910 68,621 76,902 85,939
Expenses (128,192) (142,922) (159,492) (178,200) (68,237) (75,988) (85,303) (96,320) (59,955) (66,935) (74,189) (81,880)
Stock 511 0 0 0 128 0 0 0 383 0 0 0
RM + purchase of traded goods (92,114) (102,875) (115,942) (130,576) (56,107) (62,434) (70,689) (80,111) (36,006) (40,440) (45,253) (50,466)
Employee (19,522) (18,711) (19,502) (20,541) (4,765) (5,061) (5,866) (6,806) (14,757) (13,650) (13,636) (13,735)
Other Exp (17,067) (21,337) (24,047) (27,082) (7,492) (8,492) (8,747) (9,403) (9,575) (12,845) (15,300) (17,679)
EBITDA 6,613 9,484 12,274 15,246 6,659 7,798 9,561 11,187 (45) 1,686 2,713 4,059
Other income 1,923 1,456 1,705 1,907 1,139 1,381 1,630 1,832 783 75 75 75
EBIDT 8,536 10,941 13,979 17,153 7,798 9,180 11,191 13,018 738 1,761 2,788 4,134
Interest (967) (1,273) (1,218) (1,163) 220 (254) (254) (254) (1,187) (1,019) (964) (909)
Depreciation (2,622) (2,641) (2,770) (2,923) (894) (907) (1,054) (1,213) (1,729) (1,734) (1,715) (1,709)
PBT 4,947 7,028 9,992 13,067 7,125 8,020 9,883 11,552 (2,178) (992) 109 1,516
Tax (2,361) (2,335) (2,918) (3,574) (1,914) (2,085) (2,668) (3,119) (447) (250) (250) (455)
Net profit 2,587 4,692 7,073 9,494 5,211 5,935 7,214 8,433 (2,624) (1,242) (141) 1,061
Extraordinary items 0 0 0 0 0 0 0 0 0 0 0 0
RPAT 2,436 4,692 7,073 9,494 5,211 5,935 7,214 8,433 (2,624) (1,242) (141) 1,061
EPS 4.1 7.5 11.3 15.1 8.3 9.5 11.5 13.5 (4.2) (2.0) (0.2) 1.7
Key ratios (%)
RM / Sales 68.0 67.5 67.5 67.5 74.7 74.5 74.5 74.5 59.5 58.9 58.8 58.7
OE / Sales 12.7 14.0 14.0 14.0 10.0 10.1 9.2 8.7 16.0 18.7 19.9 20.6
EBITDA margin 4.9 6.2 7.1 7.9 8.9 9.3 10.1 10.4 (0.1) 2.5 3.5 4.7
PBT Margin 3.7 4.6 5.8 6.8 9.5 9.6 10.4 10.7 (3.6) (1.4) 0.1 1.8
EBIDT Margin 0.6 6.0 10.4 0.3 10.4 11.0 11.8 12.1 1.2 2.6 3.6 4.8
EBIT Margin (4.6) 3.3 9.6 (4.7) 9.6 9.6 10.4 10.7 (3.6) (1.4) 0.1 1.8
Subsidiaries Consolidated Standalone

Source: Company, Kotak Institutional Equities estimates



Industrials Crompton Greaves
66 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 16: Revenue growth and margin assumptions for Crompton, March fiscal year-ends, 2011-17E (` mn)

2011 2012 2013 2014E 2015E 2016E 2017E
Standalone power
Revenues 25,542 27,470 27,250 28,235 30,494 33,544 36,898
Growth (%) 1.8 7.5 (0.8) 3.6 8.0 10.0 10.0
EBIT 4,602 3,106 2,306 2,585 2,897 3,522 3,874
EBIT margin (%) 18.0 11.3 8.5 9.2 9.5 10.5 10.5
Consumer products
Revenues 20,212 21,336 25,927 28,471 32,741 37,652 43,300
Growth (%) 25.4 5.6 21.5 9.8 15.0 15.0 15.0
EBIT 2,928 2,629 2,781 3,375 3,929 4,518 5,196
EBIT margin (%) 14.5 12.3 10.7 11.9 12.0 12.0 12.0
Industrial systems
Revenues 14,066 15,201 14,995 14,889 17,123 20,119 23,640
Growth (%) 19.8 8.1 (1.4) (0.7) 15.0 17.5 17.5
EBIT 2,626 2,254 2,130 1,529 2,140 2,817 3,546
EBIT margin (%) 18.7 14.8 14.2 10.3 12.5 14.0 15.0
Standalone (total)
Revenues 59,515 64,854 71,353 74,896 83,786 94,864 107,507
Growth (%) 12.6 9.0 10.0 5.0 11.9 13.2 13.3
EBITDA 9,325 7,207 5,946 6,658 7,832 9,591 11,213
EBITDA margin (%) 15.7 11.1 8.3 8.9 9.3 10.1 10.4
Overseas
Revenues 40,536 47,632 49,591 59,910 68,646 76,800 85,687
Growth (%) 5.1 17.5 4.1 20.8 14.6 11.9 11.6
EBITDA 4,113 830 (2,114) 161 1,004 2,203 3,030
EBITDA margin (%) 10.1 1.7 (4.3) 0.3 1.5 2.9 3.5
Consolidated
Revenues 100,051 112,486 120,944 134,806 152,432 171,664 193,194
Growth (%) 9.5 12.4 7.5 11.5 13.1 12.6 12.5
EBITDA 13,438 8,036 3,832 6,820 8,836 11,794 14,244
EBITDA margin (%) 13.4 7.1 3.2 5.1 5.8 6.9 7.4
PAT 9,191 3,676 838 2,587 4,680 7,084 9,427
EPS (Rs) 14.3 5.7 1.3 4.1 7.5 11.3 15.0
EPS growth (%) 11.5 (60.0) (77.2) 215.8 80.9 51.4 33.1
We build weak
estimates for
power business in
FY2014 -15E
Domestic growth
to be led by
consumer business
We build 3%
EBITDA margin in
FY2016E

Source: Company, Kotak Institutional Equities estimates







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June 2014: Results calendar
4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 9-Aug 10-Aug
AIA Engineering Ajanta Pharma Adani Ports Aurobindo Phar Birla Corp Adani Enter
DFL Infra Bata India ADANI POWER Balrampur Chini Chambal Fert Dena Bank
Indraprastha Gas Crompton Greav Amara Raja Bombay Dyeing Corporation Bank Godrej Inds
Kalpataru Power EIH Apollo Tyres Gujarat State Pet Gujarat state Sudarshan Chem
Marico Gateway Distr City Union Bank IL&FS Invest Mgrs J indal Stainless
Oriental Bank Hero MotoCorp Glaxosmithkl Cons India Cements Mahindra & Mahindra
Petronet LNG J ubilant IDBI Bank J UBL FOOD PC J eweller
Power Grid Mahindra Ugine J indal Steel Nestle India Power Finance
Punj Lloyd NHPC J ubilant Inds Neyveli Lignite SBI
Tata Comm Tata Chemicals Maharashtra Seam Puravankara Proj Sobha Dev
TBZ Tata Invest Tube Invest ZEE MEDIA Sun TV Network
11-Aug 12-Aug 13-Aug 14-Aug 15-Aug 16-Aug 17-Aug
Eicher Motors Aditya Birla Nuv GMR Infra Hindalco
Gail India Apollo Hosp GVK Power Page Inds
J et Air India BPCL J yothy Lab
National Alum Britannia Inds Siemens
SAIL Coal India SundaramClayton
Glaxosmithkl Phar Tata Steel
HPCL
Motherson Sumi
NMDC
REC
Sun Pharma
Tata Power

Source: BSE, NSE, Kotak Institutional Equities



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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs)
Target
price Upside Mkt cap.
O/S
shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) RoE (%)
ADVT-
3mo
Company Rating 4-Aug-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn)
Automobiles
Amara Raja Batteries ADD 486 505 3.9 83,006 1,363 171 21.5 23.9 29.5 28.2 10.9 23.8 22.6 20.4 16.4 14.4 12.7 10.4 6.1 5.0 4.0 0.7 1.0 1.2 30.3 26.8 27.0 2.0
Apollo Tyres BUY 177 220 24.0 89,426 1,468 504 19.9 21.5 22.7 63.7 8.0 5.6 8.9 8.3 7.8 5.3 5.0 4.5 1.8 1.5 1.3 0.5 0.5 0.5 26.0 22.2 19.3 14.6
Bajaj Auto ADD 2,088 2,250 7.8 604,296 9,919 289 112.1 116.1 136.4 6.6 3.6 17.5 18.6 18.0 15.3 13.4 14.0 12.1 6.2 5.2 4.4 2.4 2.2 2.6 36.5 31.6 31.4 13.9
Bharat Forge SELL 750 620 (17.3) 177,892 2,920 237 22.0 27.7 34.8 110.7 26.1 25.6 34.1 27.0 21.5 19.3 13.9 11.5 6.6 5.6 4.6 0.4 0.7 0.9 21.0 22.4 23.4 10.3
Eicher Motors REDUCE 8,427 6,150 (27.0) 227,853 3,740 27 145.7 236.6 334.8 21.3 62.4 41.5 57.8 35.6 25.2 30.0 21.0 14.1 11.1 8.7 6.6 0.4 0.3 0.4 19.2 25.4 28.3 3.5
Exide Industries REDUCE 165 160 (3.2) 140,463 2,306 850 5.7 7.2 8.7 (6.8) 25.3 21.6 28.8 23.0 18.9 17.0 14.3 12.0 3.8 3.4 3.1 1.4 1.5 1.5 13.6 15.6 17.1 8.6
Hero Motocorp ADD 2,601 2,850 9.6 519,400 8,526 200 105.6 139.4 177.3 (0.4) 32.0 27.2 24.6 18.7 14.7 17.6 13.2 10.1 9.4 7.3 5.6 2.5 1.9 2.4 39.7 44.1 43.3 20.2
Mahindra & Mahindra ADD 1,186 1,310 10.5 666,370 10,938 562 68.5 63.9 74.3 8.7 (6.7) 16.2 17.3 18.5 16.0 13.0 12.7 11.1 3.8 3.5 3.2 1.7 1.0 1.3 23.2 12.2 14.9 29.0
Maruti Suzuki BUY 2,646 3,000 13.4 799,213 13,119 302 92.8 111.0 172.3 17.1 19.7 55.2 28.5 23.8 15.4 16.9 14.2 9.1 3.7 3.3 2.8 0.5 0.5 0.7 13.8 14.6 19.5 16.7
Motherson Sumi Systems ADD 348 350 0.6 306,892 5,037 882 8.7 12.3 18.1 72.1 41.9 47.1 40.1 28.3 19.2 12.8 10.2 6.6 10.4 7.4 5.1 0.7 1.1 1.6 34.2 29.4 30.0 9.1
Tata Motors BUY 447 575 28.8 1,437,090 23,589 3,218 46.5 43.5 59.3 51.4 (6.6) 36.3 9.6 10.3 7.5 5.0 4.7 3.9 2.2 1.8 1.5 0.4 28.7 19.3 21.4 45.0
WABCO India ADD 3,269 4,000 22.3 62,012 1,018 19 61.9 77.7 133.0 (10.2) 25.4 71.2 52.8 42.1 24.6 36.4 26.4 15.6 8.2 7.1 5.9 0.2 0.4 1.0 16.7 18.1 26.1 0.4
Automobiles Attractive 5,207,301 85,476 23.3 4.6 33.9 17.4 16.6 12.4 9.3 8.4 6.6 3.6 3.1 2.6 1.1 0.8 1.0 20.9 18.6 20.6 186.3
Banks/Financial Institutions
Axis Bank ADD 391 430 10.0 918,194 15,072 2,349 26.5 29.7 34.5 19.6 12.3 16.1 14.8 13.2 11.3 2.4 2.1 1.9 1.0 1.3 1.5 17.4 17.0 17.2 40.9
Bajaj Finserv BUY 951 1,175 23.6 151,275 2,483 159 96.4 102.3 111.1 (6.6) 6.1 8.6 9.9 9.3 8.6 1.6 1.5 1.3 1.4 1.4 1.4 17.9 17.0 16.3 1.8
Bank of Baroda ADD 899 1,050 16.9 386,984 6,352 431 105.4 118.2 138.3 (0.6) 12.1 17.0 8.5 7.6 6.5 1.2 1.1 1.0 2.4 2.7 3.1 13.8 13.8 14.5 28.8
Bank of India ADD 279 320 14.5 179,655 2,949 643 42.4 61.9 66.7 (7.9) 45.7 7.8 6.6 4.5 4.2 0.8 0.8 0.6 1.8 2.6 2.8 11.2 14.3 13.6 29.4
Canara Bank REDUCE 405 370 (8.7) 186,948 3,069 461 52.9 67.1 81.1 (18.5) 26.9 20.9 7.7 6.0 5.0 0.9 0.9 0.8 2.8 3.6 4.4 8.9 10.1 11.3 32.7
DCB Bank BUY 80 90 12.4 20,051 329 250 6.0 6.9 7.9 48.2 13.5 15.1 13.2 11.7 10.1 1.9 1.7 1.4 14.8 14.5 14.4 2.2
Federal Bank BUY 120 145 21.3 102,252 1,678 855 9.8 12.2 14.7 0.1 24.6 19.9 12.2 9.8 8.2 1.5 1.4 1.2 1.7 2.1 2.5 12.6 14.2 15.2 12.9
HDFC ADD 1,027 1,060 3.2 1,602,946 26,312 1,561 34.9 40.8 47.4 11.3 16.8 16.3 29.4 25.2 21.7 5.7 5.1 4.6 1.4 1.6 1.9 20.6 21.0 22.8 58.2
HDFC Bank REDUCE 813 800 (1.6) 1,950,428 32,015 2,399 35.3 42.9 51.1 25.0 21.5 18.9 23.0 18.9 15.9 4.5 3.9 3.3 0.8 1.0 1.2 21.3 21.7 21.8 32.2
ICICI Bank BUY 1,491 1,660 11.3 1,722,634 28,276 1,155 84.9 92.5 107.0 17.7 8.9 15.7 17.6 16.1 13.9 2.4 2.2 2.0 1.5 1.9 2.2 14.0 13.9 14.7 82.3
IIFL Holdings BUY 135 175 29.9 39,913 655 296 9.4 13.0 16.1 1.6 38.4 24.2 14.4 10.4 8.4 1.8 1.6 1.4 2.3 2.5 3.1 14.0 17.2 18.8 0.5
IndusInd Bank ADD 555 610 9.9 291,625 4,787 526 26.8 32.2 38.7 32.0 20.1 20.3 20.7 17.2 14.3 3.4 2.9 2.5 0.6 0.8 0.9 18.0 18.3 18.6 12.2
ING Vysya Bank BUY 615 720 17.1 116,168 1,907 189 34.8 42.3 51.6 (12.0) 21.4 22.1 17.7 14.5 11.9 1.7 1.6 1.5 1.0 1.2 1.4 11.4 11.0 12.2 2.2
J&K Bank REDUCE 1,618 1,550 (4.2) 78,435 1,287 48 243.9 226.8 222.5 12.1 (7.0) (1.9) 6.6 7.1 7.3 1.4 1.2 1.1 3.1 2.9 2.8 22.3 17.9 15.5 5.4
Karur Vysya Bank BUY 474 535 12.9 50,793 834 107 40.1 57.8 70.6 (21.9) 44.1 22.2 11.8 8.2 6.7 1.6 1.4 1.2 2.8 3.0 3.7 13.4 17.5 18.8 1.5
LIC Housing Finance BUY 291 375 28.9 146,915 2,412 505 26.1 30.5 35.2 28.8 16.7 15.7 11.2 9.6 8.3 2.0 1.7 1.5 1.5 1.8 2.1 18.8 18.9 18.8 19.2
L&T Finance Holdings SELL 68 60 (12.0) 117,198 1,924 1,718 3.5 5.8 5.4 (18.5) 68.9 (8.3) 19.7 11.7 12.7 2.0 2.0 1.8 1.1 2.3 1.3 10.5 18.3 15.2 10.4
Magma Fincorp BUY 98 125 27.8 18,582 305 190 7.2 9.4 10.9 15.6 30.9 16.6 13.7 10.4 9.0 1.2 1.1 1.0 1.3 1.5 1.7 9.7 11.1 12.2 0.5
Mahindra & Mahindra Financial SELL 249 240 (3.5) 140,149 2,300 564 15.7 16.9 20.7 0.4 7.3 22.7 15.8 14.7 12.0 2.9 2.5 2.2 1.5 1.6 2.0 18.6 17.5 18.8 8.5
Muthoot Finance BUY 175 250 42.9 69,486 1,141 397 21.0 20.7 22.9 (22.3) (1.3) 10.6 8.3 8.4 7.6 1.6 1.3 1.2 3.2 3.6 3.9 19.0 17.3 16.5 1.3
Oriental Bank of Commerce ADD 282 330 17.0 84,587 1,388 300 38.0 48.9 56.4 (16.5) 28.7 15.3 7.4 5.8 5.0 0.8 0.8 0.7 2.7 3.5 4.0 8.7 10.5 11.2 11.6
PFC ADD 267 380 42.5 351,799 5,775 1,319 41.1 43.5 43.5 22.6 5.9 0.1 6.5 6.1 6.1 1.3 1.4 1.2 3.4 3.6 3.6 21.1 19.4 17.0 28.1
Punjab National Bank REDUCE 968 960 (0.8) 350,339 5,751 362 92.3 145.5 166.1 (31.3) 57.6 14.1 10.5 6.7 5.8 1.3 1.2 1.0 1.0 1.6 1.9 10.2 14.3 14.4 22.5
Rural Electrification Corp. ADD 305 400 31.2 300,956 4,940 987 47.4 52.0 52.0 22.7 9.6 0.1 6.4 5.9 5.9 1.5 1.4 1.2 3.1 3.4 3.6 24.6 22.5 19.1 18.2
Shriram City Union Finance REDUCE 1,688 1,550 (8.2) 110,936 1,821 66 86.2 91.4 115.8 6.2 6.1 26.7 19.6 18.5 14.6 3.8 2.6 2.3 0.5 0.6 0.8 19.8 16.9 16.8 1.3
Shriram Transport REDUCE 872 840 (3.7) 194,667 3,195 223 56.7 69.2 85.8 (7.1) 22.1 24.1 15.4 12.6 10.2 2.4 2.1 1.8 0.8 1.1 1.4 16.3 17.3 18.5 10.4
SKS Microfinance ADD 279 305 9.2 35,165 577 126 6.5 13.0 19.8 123.6 101.5 52.1 43.2 21.4 14.1 6.4 3.5 2.8 16.5 22.2 21.8 7.2
State Bank of India ADD 2,461 3,000 21.9 1,837,607 30,164 747 146.0 200.8 234.6 (29.2) 37.6 16.8 16.9 12.3 10.5 2.0 1.8 1.6 1.2 1.3 1.4 10.0 12.1 12.7 105.3
Union Bank ADD 201 220 9.3 126,881 2,083 630 26.7 40.5 46.1 (25.7) 51.6 13.6 7.5 5.0 4.4 0.9 0.8 0.7 2.0 3.0 3.4 10.3 14.1 14.2 23.1
Yes Bank ADD 542 575 6.0 224,643 3,687 414 44.9 42.2 45.5 23.7 (5.9) 7.9 12.1 12.9 11.9 3.2 2.0 1.7 1.3 1.4 1.5 25.0 18.8 15.4 48.8
Banks/Financial Institutions Neutral 12,235,540 200,841 2.1 20.2 14.3 14.6 12.2 10.7 2.2 2.0 1.8 1.4 1.7 1.9 15.3 16.6 16.6 693.9
Price/BV (X) Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates



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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs)
Target
price Upside Mkt cap.
O/S
shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) RoE (%)
ADVT-
3mo
Company Rating 4-Aug-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn)
Cement
ACC SELL 1,375 1,250 (9.1) 258,241 4,239 188 46.0 48.7 64.7 (37.6) 5.8 33.0 29.9 28.2 21.2 17.1 15.4 11.1 3.1 2.9 2.7 2.6 1.7 1.7 11.6 11.3 13.8 8.9
Ambuja Cements SELL 204 195 (4.6) 311,174 5,108 1,522 6.8 9.7 11.2 (34.6) 44.0 15.6 30.2 21.0 18.2 17.2 12.2 10.3 3.1 2.9 2.7 1.3 1.5 1.7 10.5 14.2 15.2 9.3
Grasim Industries ADD 3,212 3,500 9.0 295,013 4,843 92 214.4 209.2 244.3 (21.3) (2.4) 16.8 15.0 15.4 13.1 8.3 8.0 6.2 1.4 1.3 1.2 1.1 1.1 1.1 9.6 8.7 9.4 6.6
India Cements REDUCE 107 90 (15.5) 32,730 537 307 (2.3) 4.7 7.0 (133.4) 307.4 48.9 (47.2) 22.7 15.3 9.9 7.2 5.9 0.8 0.8 0.7 2.5 2.5 2.5 (1.8) 3.5 5.2 5.6
Shree Cement SELL 7,348 4,520 (38.5) 255,987 4,202 35 230.4 302.6 365.1 (20.1) 31.4 20.7 31.9 24.3 20.1 18.4 15.3 12.0 5.8 4.8 3.9 0.3 0.3 0.3 19.7 21.6 21.4 2.3
UltraTech Cement SELL 2,471 2,000 (19.0) 677,809 11,126 274 74.8 78.4 98.9 (26.2) 4.8 26.2 33.0 31.5 25.0 18.6 16.7 12.3 3.5 3.1 2.8 0.4 0.4 0.4 12.7 11.9 13.4 16.6
Cement Cautious 1,830,953 30,054 (29.7) 15.2 22.3 27.6 23.9 19.6 14.3 12.4 9.6 2.7 2.5 2.3 1.0 0.9 0.9 9.8 10.4 11.5 49.3
Consumer products
Asian Paints SELL 630 515 (18.2) 604,152 9,917 959 12.8 15.3 17.7 10.3 19.7 15.2 49.2 41.1 35.7 29.6 24.9 21.5 14.1 12.0 10.3 0.8 1.0 1.2 33.1 33.5 33.0 10.1
Bajaj Corp. ADD 229 255 11.1 33,844 556 148 12.0 13.9 15.9 6.8 15.1 14.5 19.1 16.6 14.5 17.6 14.9 12.5 6.5 5.5 4.7 2.8 2.8 3.3 33.2 31.4 30.8 0.7
Britannia Industries BUY 1,115 1,220 9.4 133,714 2,195 120 33.0 39.3 48.3 51.8 19.1 23.1 33.8 28.4 23.1 21.1 17.6 14.4 16.7 11.4 9.0 1.1 1.3 1.7 58.3 47.8 43.7 2.5
Colgate-Palmolive (India) REDUCE 1,553 1,600 3.0 211,211 3,467 136 36.1 40.9 48.0 (1.2) 13.5 17.3 43.0 37.9 32.3 31.4 25.1 20.9 36.3 34.2 32.1 1.7 2.1 2.4 90.1 90.2 99.7 2.5
Dabur India ADD 204 215 5.3 356,084 5,845 1,744 5.2 6.2 7.3 19.0 17.8 18.6 38.9 33.0 27.9 31.8 26.9 22.4 13.4 10.8 8.9 0.9 1.2 1.4 38.5 36.1 34.9 4.5
GlaxoSmithKline Consumer REDUCE 4,860 4,250 (12.6) 204,388 3,355 42 160.4 145.9 169.0 54.5 (9.1) 15.8 30.3 33.3 28.8 27.1 30.4 25.2 11.9 9.8 8.2 0.9 1.0 1.2 42.5 30.7 29.8 0.8
Godrej Consumer Products REDUCE 849 800 (5.8) 289,085 4,745 340 22.1 25.6 31.0 9.3 15.5 21.2 38.3 33.2 27.4 27.0 23.1 19.0 7.2 6.2 5.3 0.6 0.7 0.9 21.3 21.3 22.2 2.4
Hindustan Unilever REDUCE 700 630 (10.0) 1,513,133 24,837 2,163 16.4 18.8 21.0 8.4 14.1 12.1 42.6 37.3 33.3 33.3 28.1 24.3 48.6 42.8 36.1 1.9 2.0 2.1 119.5 116.3 112.9 15.4
ITC ADD 355 370 4.4 2,869,982 47,110 8,096 10.8 12.0 13.9 15.7 11.2 15.6 32.8 29.5 25.6 23.8 20.6 17.4 10.4 9.5 8.5 1.7 2.1 2.4 35.6 35.1 36.9 48.2
Jubilant Foodworks SELL 1,214 1,000 (17.6) 80,488 1,321 66 18.0 22.5 30.7 (9.9) 25.1 36.7 67.6 54.0 39.5 32.2 25.2 18.9 14.6 11.5 9.1 0.3 24.1 23.8 26.0 5.0
Jyothy Laboratories REDUCE 180 205 13.6 32,657 536 181 4.7 10.6 11.8 21.4 123.7 11.8 38.2 17.1 15.3 24.5 17.6 13.5 4.4 3.8 3.2 1.7 1.7 1.9 12.4 23.9 22.9 0.7
Marico REDUCE 256 250 (2.3) 164,965 2,708 645 8.1 9.2 10.5 43.3 13.6 14.3 31.7 27.9 24.4 22.8 18.9 16.2 11.8 9.1 7.3 1.6 1.0 1.3 38.2 33.6 31.0 1.5
Nestle India SELL 5,209 4,300 (17.4) 502,218 8,244 96 114.4 118.6 138.5 3.3 3.7 16.7 45.5 43.9 37.6 25.3 24.2 21.1 19.4 16.4 13.9 0.9 1.1 1.4 56.4 46.7 45.4 4.1
Page Industries REDUCE 7,873 6,100 (22.5) 87,814 1,441 11 137.3 186.4 222.8 36.1 35.8 19.5 57.3 42.2 35.3 35.3 27.2 22.7 29.8 21.7 16.2 0.8 1.0 1.1 61.0 60.5 53.2 0.9
Speciality Restaurants BUY 143 170 18.5 6,734 111 47 4.0 4.8 6.7 (19.3) 20.3 38.2 35.7 29.6 21.4 19.5 15.1 10.4 2.3 2.1 1.9 0.7 0.9 1.0 6.4 7.2 9.2 0.2
Tata Global Beverages REDUCE 156 150 (3.5) 98,141 1,611 631 6.0 6.5 7.5 (1.0) 8.0 15.9 25.9 24.0 20.7 14.0 12.9 11.2 1.4 1.4 1.3 1.4 1.4 1.6 7.0 6.9 7.6 11.8
Titan Company REDUCE 342 310 (9.4) 303,800 4,987 888 8.4 9.7 10.7 3.1 15.4 9.7 40.6 35.2 32.1 29.0 23.8 20.6 12.0 9.8 8.4 0.6 0.8 1.2 33.3 30.7 28.1 9.4
United Breweries SELL 736 650 (11.7) 194,668 3,195 264 8.5 10.5 14.5 31.2 22.4 38.7 86.1 70.4 50.7 34.9 27.2 22.3 12.4 11.3 9.5 0.2 0.2 0.3 14.3 16.3 19.8 2.4
United Spirits BUY 2,393 3,000 25.3 347,827 5,709 145 22.2 42.8 71.2 145.3 92.4 66.4 107.6 55.9 33.6 41.5 25.5 20.6 4.4 5.1 4.5 0.1 0.1 0.3 5.1 8.5 14.3 54.4
Consumer products Neutral 8,034,906 131,889 15.7 14.7 17.5 38.8 33.9 28.8 27.2 23.1 19.5 11.5 10.4 9.1 1.3 1.6 1.8 29.6 30.7 31.6 177.3
Energy
Aban Offshore RS 794 44,728 734 56 83.9 91.2 98.3 117.2 8.7 7.8 9.5 8.7 8.1 8.6 7.3 7.1 1.1 0.8 0.7 0.5 0.6 0.7 10.0 10.0 9.4 27.8
Bharat Petroleum ADD 600 615 2.4 434,137 7,126 723 56.2 43.1 42.9 53.7 (23.3) (0.5) 10.7 13.9 14.0 7.3 8.3 8.1 2.1 1.9 1.8 2.8 2.2 2.1 19.9 13.8 12.5 18.5
Cairn india REDUCE 319 330 3.4 598,432 9,823 1,874 65.2 55.3 48.2 4.4 (15.1) (12.8) 4.9 5.8 6.6 3.8 4.3 4.6 1.0 0.9 0.9 4.0 3.8 3.8 23.4 14.4 13.6 16.8
Castrol India SELL 330 260 (21.2) 163,180 2,679 495 10.0 9.5 10.3 10.3 (4.8) 8.5 33.1 34.7 32.0 22.9 23.0 21.2 23.4 37.0 37.0 2.1 2.4 2.6 76.9 82.5 115.6 3.0
GAIL (India) BUY 424 520 22.6 538,153 8,834 1,268 32.6 35.3 38.5 (9.4) 8.2 9.0 13.0 12.0 11.0 8.5 7.3 6.2 1.8 1.6 1.5 2.5 2.6 2.9 13.9 13.5 13.2 14.3
GSPL ADD 87 91 4.7 48,930 803 563 7.4 7.5 8.6 (22.1) 1.2 13.8 11.7 11.5 10.1 6.1 6.0 5.4 1.3 1.2 1.1 1.2 1.7 3.9 11.9 10.9 11.4 2.9
Hindustan Petroleum REDUCE 423 425 0.4 143,469 2,355 339 51.1 36.2 38.6 106.4 (29.2) 6.4 8.3 11.7 11.0 8.1 7.7 6.7 0.8 0.7 0.7 3.7 2.6 2.8 9.1 6.0 6.0 13.9
Indian Oil Corporation ADD 344 370 7.7 834,122 13,692 2,428 23.2 29.8 36.0 38.1 28.3 20.7 14.8 11.5 9.5 9.6 6.7 5.2 1.2 1.1 1.1 2.5 3.0 3.5 8.1 9.8 10.9 7.5
Oil India BUY 569 700 22.9 342,319 5,619 601 49.6 61.4 72.6 (16.9) 23.8 18.2 11.5 9.3 7.8 5.2 3.7 2.9 1.6 1.4 1.3 3.8 4.4 5.3 12.5 14.3 15.5 5.2
Oil & Natural Gas Corporation ADD 393 440 12.0 3,360,180 55,156 8,556 31.2 34.9 43.4 6.2 12.1 24.4 12.6 11.2 9.0 5.7 4.7 3.8 1.6 1.5 1.3 2.4 2.8 3.6 12.7 12.7 14.3 50.9
Petronet LNG REDUCE 180 175 (2.9) 135,150 2,218 750 9.5 8.9 11.3 (38.1) (5.8) 26.4 19.0 20.2 15.9 10.4 10.9 9.2 2.4 2.2 2.0 1.1 1.2 1.8 13.2 10.9 12.3 6.2
Reliance Industries ADD 985 1,090 10.7 2,892,945 47,486 2,937 68.0 73.6 74.7 4.6 8.2 1.4 14.5 13.4 13.2 10.8 10.2 9.5 1.4 1.3 1.2 1.0 1.1 1.1 11.0 10.8 10.0 72.6
Energy Neutral 9,535,746 156,525 7.4 5.2 10.8 11.7 11.1 10.0 7.5 6.5 5.6 1.5 1.3 1.2 2.1 2.3 2.7 12.6 12.1 12.2 239.5
Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates



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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs)
Target
price Upside Mkt cap.
O/S
shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) RoE (%)
ADVT-
3mo
Company Rating 4-Aug-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn)
Industrials
ABB SELL 1,040 750 (27.9) 220,344 3,617 212 8.3 15.6 25.1 25.5 86.6 61.1 124.6 66.7 41.4 58.8 39.4 27.1 8.2 7.5 6.5 0.3 0.3 0.3 6.7 11.8 16.9 2.2
Bharat Heavy Electricals SELL 229 150 (34.5) 560,378 9,198 2,448 14.1 12.3 13.6 (47.7) (13.1) 10.9 16.2 18.6 16.8 12.2 12.7 10.8 1.7 1.6 1.5 1.3 1.1 1.3 10.9 8.8 9.1 34.4
Crompton Greaves BUY 203 220 8.2 127,481 2,093 627 4.1 7.5 11.3 215.8 80.9 51.4 49.3 27.2 18.0 20.3 14.3 10.7 3.5 3.2 2.8 0.6 0.9 1.0 7.2 12.2 16.6 18.8
Cummins India REDUCE 627 615 (1.9) 173,707 2,851 277 21.3 27.0 30.5 (23.6) 26.6 13.1 29.4 23.2 20.5 27.4 22.2 17.0 6.8 6.0 5.3 1.6 2.0 2.2 24.2 26.7 26.7 2.9
Kalpataru Power Transmission ADD 160 190 18.9 24,529 403 153 8.1 12.2 12.5 (7.9) 51.7 2.4 19.8 13.0 12.7 8.6 7.0 5.8 1.2 1.1 1.0 0.9 0.9 0.9 6.0 7.4 7.4 1.0
KEC International ADD 107 125 16.6 27,569 453 257 3.3 6.7 10.4 30.4 102.5 54.9 32.4 16.0 10.3 9.6 7.6 6.2 2.2 1.8 1.6 0.6 1.4 2.2 6.9 12.4 16.4 1.4
Larsen & Toubro ADD 1,494 1,675 12.1 1,384,742 22,730 927 49.0 47.7 78.4 (6.6) (2.5) 64.3 30.5 31.3 19.1 19.9 18.9 14.0 3.6 3.1 2.7 0.9 1.0 1.2 12.5 10.7 15.1 65.4
Siemens SELL 887 510 (42.5) 315,932 5,186 356 12.9 20.7 24.5 183.6 61.2 18.3 69.0 42.8 36.2 36.1 24.4 20.8 7.4 6.6 5.8 0.4 0.6 0.7 11.1 16.2 17.0 5.7
Thermax REDUCE 858 800 (6.8) 102,243 1,678 119 20.6 22.2 34.0 (23.2) 7.6 53.0 41.6 38.6 25.3 26.9 28.1 17.5 5.0 4.7 4.2 0.7 0.9 1.3 12.6 12.5 17.4 1.6
Voltas REDUCE 201 210 4.3 66,603 1,093 331 6.8 9.4 11.5 15.0 39.1 21.6 29.7 21.3 17.6 24.5 14.1 11.2 3.6 3.3 2.9 1.1 1.4 1.7 12.9 16.1 17.6 11.1
Industrials Cautious 3,003,528 49,302 (23.7) 4.3 39.1 29.6 28.4 20.4 19.7 18.0 13.8 3.3 2.9 2.6 0.9 1.0 1.2 11.1 10.3 12.9 144.6
Infrastructure
Adani Port and SEZ ADD 265 245 (7.7) 553,224 9,081 2,084 8.3 9.6 13.4 3.7 14.5 40.4 31.8 27.8 19.8 21.2 16.6 12.8 6.2 4.8 4.0 0.7 0.6 0.7 22.5 19.4 21.9 28.2
Container Corporation ADD 1,271 1,325 4.3 247,787 4,067 195 49.5 58.7 70.5 2.6 18.7 20.1 25.7 21.6 18.0 20.2 16.6 13.3 3.5 3.2 2.8 0.9 1.1 1.3 14.5 15.5 16.5 3.1
Gujarat Pipavav Port REDUCE 145 140 (3.5) 70,171 1,152 483 6.5 8.8 11.4 80.1 34.0 30.3 22.2 16.6 12.7 16.9 13.0 9.3 4.0 3.2 2.5 23.3 25.6 26.4 3.3
IRB Infrastructure REDUCE 255 210 (17.5) 84,637 1,389 332 13.8 14.3 17.1 (17.4) 3.2 20.2 18.4 17.8 14.9 9.8 8.6 7.3 2.3 1.9 1.7 1.6 1.6 1.6 13.1 11.6 12.0 30.3
Sadbhav Engineering BUY 203 225 10.7 30,805 506 152 8.3 7.2 9.3 69.1 (13.5) 29.6 24.5 28.3 21.8 15.5 12.3 10.4 3.2 2.9 2.6 0.3 0.3 0.3 12.7 10.0 11.5 1.0
Infrastructure Attractive 986,625 16,195 7.1 15.1 31.1 27.1 23.6 18.0 17.4 14.1 11.1 4.4 3.6 3.1 0.7 0.8 0.9 16.4 15.4 17.3 66.1
Media
DB Corp ADD 322 350 8.7 59,082 970 183 16.7 18.6 23.0 40.5 11.0 23.7 19.3 17.4 14.0 11.7 9.9 8.1 5.2 4.6 4.0 2.2 2.8 3.4 28.2 27.9 30.3 0.8
DishTV ADD 58 60 3.4 61,770 1,014 1,065 (0.4) 0.0 1.5 68.2 105.0 7,286.5 (147.2) 2,938.1 39.8 11.3 10.3 8.3 (19.8) (19.9) (40) 17.9 (0.7) (67) 10.9
Jagran Prakashan ADD 111 135 21.3 34,644 569 311 7.6 7.7 9.7 50.2 1.5 26.1 14.7 14.4 11.4 9.3 7.5 6.2 3.6 3.3 2.9 2.8 3.6 4.5 25.0 23.8 27.1 0.7
Sun TV Network ADD 408 420 2.9 160,883 2,641 394 18.0 21.6 24.3 0.1 19.8 12.8 22.7 18.9 16.8 13.5 11.4 10.1 5.0 4.6 4 2.4 3.2 3.9 24.1 26.5 28 5.1
Zee Entertainment Enterprises REDUCE 287 300 4.4 276,083 4,532 960 9.2 9.7 11.4 21.7 5.7 17.8 31.3 29.6 25.1 22.5 20.0 17.6 5.8 5.2 4.6 1.0 1.4 1.7 20.6 21.3 21.9 12.9
Media Neutral 592,462 9,725 25.1 19.6 22.8 28.3 23.7 19.3 15.3 13.3 11.4 6.1 5.5 4.9 1.5 2.0 2.5 21.5 23.1 25.2 30.4
Metals & Mining
Coal India ADD 359 392 9.1 2,270,417 37,268 6,316 23.9 27.9 32.5 (12.9) 16.4 16.8 15.0 12.9 11.0 9.8 7.8 6.4 5.4 4.6 3.9 7.1 4.0 4.6 32.4 38.4 38.3 37.8
Hindalco Industries REDUCE 191 135 (29.3) 394,130 6,469 2,065 12.5 12.8 12.9 (15.1) 2.8 0.8 15.3 14.9 14.8 11.2 9.1 7.6 1.0 0.9 0.9 0.7 0.7 0.7 6.8 6.3 6.0 34.2
Hindustan Zinc ADD 164 180 10.0 691,633 11,353 4,225 16.5 16.5 17.0 0.7 0.2 3.1 9.9 9.9 9.6 6.3 5.9 4.9 1.8 1.6 1.4 2.1 2.1 2.1 20.1 17.5 15.9 6.9
Jindal Steel and Power REDUCE 275 260 (5.5) 251,643 4,131 915 20.9 21.5 22.8 (32.9) 3.0 6.0 13.2 12.8 12.1 10.6 8.3 7.2 1.1 1.0 1.0 0.6 0.7 0.7 8.9 8.6 8.4 20.9
JSW Steel BUY 1,183 1,450 22.6 285,919 4,693 242 66.2 102.1 137.4 22.0 54.3 34.6 17.9 11.6 8.6 6.9 6.3 5.4 1.3 1.2 1.1 0.9 0.9 0.9 8.1 10.7 13.0 12.9
National Aluminium Co. SELL 59 38 (35.1) 150,897 2,477 2,577 2.7 3.1 3.0 16.7 15.0 (3.4) 21.8 19.0 19.6 10.5 8.0 8.3 1.2 1.2 1.2 2.6 2.6 2.6 5.8 6.5 6.1 5.9
NMDC ADD 176 180 2.5 696,003 11,425 3,965 16.1 17.7 17.8 (1.8) 10.3 0.4 10.9 9.9 9.8 6.6 5.8 6.0 2.3 2.1 1.9 4.8 4.8 4.8 22.3 22.3 20.4 11.1
Sesa Sterlite REDUCE 290 280 (3.3) 858,517 14,092 2,965 16.9 27.1 21.3 (32.2) 60.1 (21.4) 17.1 10.7 13.6 5.8 5.1 4.9 1.2 1.1 1.0 1.1 1.1 1.1 7.1 9.2 7.8 46.5
Tata Steel REDUCE 552 505 (8.5) 536,073 8,799 971 37.1 44.9 47.1 986.0 20.8 5.1 14.9 12.3 11.7 7.6 7.3 7.0 1.3 1.2 1.1 1.8 1.4 1.4 9.7 10.2 9.9 57.3
Metals & Mining Cautious 6,135,231 100,707 (6.3) 18.3 5.2 14.0 11.8 11.2 7.8 6.8 6.1 1.9 1.7 1.6 3.9 2.7 3.0 13.7 14.7 14.2 233.3
Pharmaceutical
Biocon SELL 457 360 (21.2) 91,557 1,503 200 20.9 22.5 24.0 34.8 7.3 6.7 21.8 20.4 19.1 12.9 11.8 10.4 3.0 2.7 2.5 1.1 1.5 1.6 14.5 13.8 13.5 9.5
Dr Reddy's Laboratories ADD 2,768 2,930 5.9 469,446 7,706 170 126.8 131.7 147.8 23.2 3.8 12.2 21.8 21.0 18.7 18.5 16.7 14.2 5.2 4.3 3.6 0.6 0.7 0.8 23.7 20.3 19.1 22.0
Lupin BUY 1,178 1,370 16.3 529,920 8,698 450 40.8 46.4 56.2 39.0 13.7 21.1 28.9 25.4 21.0 17.8 15.7 12.7 7.6 6.0 4.8 0.4 0.5 0.6 28.1 30.0 28.0 10.6
Pharmaceuticals Cautious 1,090,923 17,907 4.2 24.1 15.8 32.6 26.3 22.7 20.6 17.8 15.2 6.4 5.2 4.4 0.5 0.6 0.6 19.5 19.8 19.2 109.7
Real Estate
DLF ADD 201 220 9.5 358,072 5,878 1,781 5.6 3.0 4.9 24.8 (46.6) 63.8 35.9 67.2 41.0 22.7 20.5 17.3 1.2 1.2 1.2 1.0 1.0 1.0 3.5 1.8 3.0 46.7
Godrej Properties REDUCE 228 225 (1.5) 45,280 743 198 8.0 10.2 12.4 (8.8) 27.0 20.9 28.4 22.4 18.5 22.0 15.8 11.2 2.5 2.3 2.1 0.9 0.9 1.1 9.9 10.8 12.0 1.2
Oberoi Realty BUY 253 325 28.4 83,109 1,364 328 9.5 16.3 28.9 (38.4) 72.4 77.1 26.7 15.5 8.8 18.1 12.2 5.8 1.9 1.7 1.5 0.8 0.8 0.8 7.3 11.6 17.9 2.8
Prestige Estates Projects ADD 250 230 (7.9) 87,430 1,435 350 10.2 14.2 19.4 24.3 40.3 36.0 24.6 17.5 12.9 14.0 11.1 8.7 2.9 2.5 2.1 0.5 0.5 0.5 12.3 15.2 17.8 1.8
Sobha Developers ADD 437 520 18.9 42,883 704 98 24.0 27.3 42.5 8.2 13.8 55.7 18.2 16.0 10.3 9.3 8.3 6.5 1.9 1.7 1.5 1.6 1.6 1.6 10.6 11.2 15.7 1.9
Sunteck Realty ADD 331 410 24.0 19,834 326 60 25.2 10.7 81.2 3,653.8 (57.4) 656.9 13.1 30.8 4.1 9.2 26.8 3.3 3.1 2.9 1.7 0.6 0.6 0.6 26.8 9.7 52.7 0.5
Real Estate Attractive 636,607 10,450 17.1 (5.8) 74.9 28.4 30.2 17.2 18.4 16.1 11.1 1.5 1.5 1.4 0.9 0.9 0.9 5.4 4.9 8.1 54.9
Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates



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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs)
Target
price Upside Mkt cap.
O/S
shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) RoE (%)
ADVT-
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Company Rating 4-Aug-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn)
Technology
HCL Technologies REDUCE 1,555 1,450 (6.8) 1,100,940 18,071 708 89.8 97.5 102.3 57.8 8.5 4.9 17.3 16.0 15.2 11.6 10.9 10.0 5.4 4.4 3.7 1.4 1.4 1.4 36.0 31.0 26.9 27.4
Hexaware Technologies SELL 141 130 (7.8) 42,547 698 302 12.6 10.4 11.4 14.5 (18.1) 9.7 11.2 13.6 12.4 7.1 9.0 8.2 3.5 4.3 3.7 7.8 5.1 4.0 31.6 28.4 32.0 3.9
Infosys ADD 3,466 3,650 5.3 1,980,215 32,504 571 186.3 209.1 228.1 13.0 12.2 9.1 18.6 16.6 15.2 12.6 11.4 9.9 4.4 3.8 3.3 1.8 2.1 2.3 26.3 24.9 23.5 67.4
Mindtree ADD 1,019 950 (6.7) 85,546 1,404 84 53.7 61.1 66.8 31.4 13.9 9.4 19.0 16.7 15.2 13.8 11.9 10.5 5.2 4.3 3.6 1.2 1.5 1.6 30.5 28.2 25.5 3.5
Mphasis SELL 441 370 (16.1) 92,644 1,521 210 14.7 33.7 33.4 (58.4) 128.7 (0.6) 30.0 13.1 13.2 21.2 9.3 9.2 1.8 1.7 1.6 1.6 3.8 3.8 6.1 13.4 12.6 1.5
TCS ADD 2,526 2,550 0.9 4,947,774 81,216 1,959 97.6 113.4 125.0 37.4 16.2 10.2 25.9 22.3 20.2 18.9 16.6 14.7 8.9 7.9 6.5 1.3 2.5 2.0 39.7 37.6 35.3 46.3
Tech Mahindra ADD 2,167 2,300 6.1 516,788 8,483 238 128.0 138.0 153.7 25.6 7.7 11.4 16.9 15.7 14.1 11.5 11.0 9.6 5.6 4.5 3.7 1.0 1.2 0.8 33.5 28.6 25.8 28.7
Wipro ADD 549 620 13.0 1,351,325 22,181 2,463 31.7 35.2 38.6 27.1 11.2 9.6 17.3 15.6 14.2 12.0 10.1 8.8 3.9 3.3 2.8 1.5 1.6 1.8 24.9 23.1 21.5 19.6
Technology Attractive 10,117,780 166,079 29.6 13.1 9.2 21.1 18.7 17.1 14.8 13.2 11.7 5.9 5.1 4.3 1.4 2.1 1.9 27.9 27.1 25.1 198.3
Telecom
Bharti Airtel ADD 377 415 10.1 1,506,620 24,731 3,997 8.3 14.1 16.7 39.0 69.8 18.0 45.3 26.6 22.6 8.0 7.1 6.1 2.5 2.3 2.2 0.5 0.5 0.9 6.0 9.1 9.9 30.2
Bharti Infratel REDUCE 267 250 (6.5) 505,042 8,290 1,889 8.0 10.7 11.8 51.4 33.1 10.4 33.3 25.0 22.6 11.2 10.2 9.3 2.8 2.8 2.8 1.6 3.6 3.2 8.6 11.2 12.3
IDEA BUY 164 185 13.1 588,199 9,655 3,595 5.9 7.8 8.9 94.4 30.9 14.3 27.6 21.1 18.5 9.7 8.5 7.1 3.6 2.6 2.3 0.2 0.4 0.5 12.8 14.2 13.2 22.1
Reliance Communications SELL 132 95 (27.9) 325,144 5,337 2,467 3.2 3.8 6.6 (0.4) 17.1 74.0 40.6 34.7 19.9 10.0 7.8 7.1 1.2 1.0 0.9 2.4 3.1 4.7 21.4
Tata Communications BUY 378 380 0.5 107,801 1,770 285 (3.7) 4.1 4.5 87.5 211.5 9.6 (102.8) 92.2 84.1 7.4 7.1 6.6 13.4 11.6 10.0 (9.4) 13.5 12.7 5.3
Telecom Neutral 3,032,807 49,782 103.6 56.2 20.2 41.1 26.3 21.9 8.8 7.7 6.7 2.5 2.2 2.0 0.6 0.9 1.1 6.0 8.2 9.2 79.0
Utilities
Adani Power SELL 56 38 (32.4) 161,402 2,649 2,872 (9.4) (2.8) (0.7) (4.9) 70.5 75.6 (5.9) (20.1) (82.6) 17.1 10.8 9.7 4.8 6.3 6.8 (70.7) (26.9) (7.9) 14.0
CESC ADD 681 695 2.0 85,119 1,397 125 39.3 56.2 69.9 14.9 42.8 24.4 17.3 12.1 9.7 13.2 9.0 7.1 1.1 1.0 0.9 1.1 1.1 1.2 6.8 8.8 10.1 6.5
JSW Energy SELL 77 62 (19.2) 125,870 2,066 1,640 6.9 8.6 7.6 2.9 24.0 (11.7) 11.1 9.0 10.2 6.9 6.0 5.7 1.9 1.6 1.4 17.7 19.3 14.4 4.3
NHPC REDUCE 22 24 7.1 247,983 4,071 11,071 1.7 2.2 2.4 (12.6) 30.5 7.5 13.2 10.1 9.4 11.4 9.7 8.6 0.9 0.9 0.8 1.9 2.6 2.8 6.5 8.7 8.8 7.0
NTPC REDUCE 141 135 (4.5) 1,165,084 19,124 8,245 13.3 11.2 12.4 6.8 (15.5) 10.0 10.6 12.6 11.4 9.4 10.0 8.6 1.4 1.3 1.2 4.1 2.4 2.6 13.2 10.4 10.7 31.2
Power Grid BUY 132 145 9.5 692,925 11,374 5,232 8.6 9.5 13.0 (5.0) 9.8 37.5 15.3 14.0 10.2 11.7 9.5 7.7 2.0 1.8 1.6 1.9 2.1 2.9 14.9 13.8 17.1 19.3
Reliance Infrastructure BUY 751 580 (22.8) 197,588 3,243 263 72.0 68.9 84.3 1.7 (4.4) 22.4 10.4 10.9 8.9 12.3 11.9 10.5 0.7 0.7 0.6 1.0 1.5 1.5 9.5 8.9 8.9 40.7
Reliance Power SELL 92 62 (33) 257,931 4,234 2,805 3.7 4.0 4.1 1.5 9.4 2.3 25.1 23.0 22.5 27.4 26.4 13.2 1.3 1.3 1.2 5.4 5.6 5.4 20.3
Tata Power ADD 96 115 19.4 269,630 4,426 2,800 2.1 6.9 6.4 (46.6) 221.4 (6.9) 44.9 14.0 15.0 8.3 6.3 6.2 2.1 1.7 1.5 1.1 1.2 1.2 4.1 13.3 10.6 14.8
Utilities Cautious 3,203,532 52,585 (1.9) 15.8 17.0 16.2 14.0 12.0 11.1 9.9 8.3 1.4 1.3 1.2 2.2 1.8 2.0 8.8 9.4 10.2 158.0
Others
Carborundum Universal BUY 168 200 18.8 31,599 519 188 4.9 8.2 12.4 1.7 69.0 50.3 34.5 20.4 13.6 14.1 10.0 7.6 2.6 2.4 2.1 0.7 1.3 1.9 7.2 12.9 17.5 0.2
Coromandel International SELL 238 210 (11.9) 67,468 1,107 283 12.6 18.1 20.2 (17.5) 43.4 11.8 18.9 13.2 11.8 10.1 8.0 7.2 3.0 2.5 2.2 1.9 1.9 1.9 15.0 19.8 19.0 0.7
Havells India ADD 1,157 1,260 8.9 144,383 2,370 125 40.0 47.3 57.3 19.9 18.3 21.0 28.9 24.5 20.2 18.0 15.0 12.6 8.4 7.2 6.1 1.3 1.6 1.9 31.2 31.7 32.5 6.0
Info Edge BUY 701 750 7.0 76,571 1,257 109 8.4 11.7 17.0 (20.1) 39.4 45.7 83.5 59.9 41.1 70.5 56.7 33.6 9.4 8.8 7.9 0.4 0.6 0.9 12.8 15.2 20.2 1.2
Jaiprakash Associates REDUCE 62 60 (3.1) 150,547 2,471 2,432 (5.4) 4.7 6.9 (373.8) 187.3 46.5 (11.5) 13.2 9.0 11.4 7.5 6.4 1.3 1.1 1.0 (9.9) 9.0 11.5 48.1
Just Dial ADD 1,820 1,650 (9.4) 127,421 2,092 70 17.1 20.6 32.6 69.2 20.4 57.8 106.2 88.2 55.9 84.9 69.2 40.8 23.8 20.5 16.9 0.3 0.4 0.6 25.0 25.0 33.1 12.9
Rallis India BUY 211 230 8.9 41,082 674 194 7.8 10.5 12.6 27.6 34.4 20.4 27.1 20.1 16.7 15.9 11.9 9.6 5.7 4.7 3.9 1.1 1.2 1.2 22.1 25.4 25.2 1.9
Tata Chemicals BUY 364 400 10.0 92,704 1,522 255 (40.5) 29.4 35.6 (357.7) 172.7 21.0 (9.0) 12.4 10.2 8.5 6.3 5.5 1.4 1.3 1.1 2.7 2.7 2.7 (15.9) 10.3 11.2 4.9
UPL ADD 334 370 10.7 143,239 2,351 429 22.0 27.5 31.6 26.0 24.6 15.2 15.2 12.2 10.6 7.8 6.7 5.8 2.6 2.2 1.8 0.7 0.7 0.7 19.1 20.0 19.3 14.0
Others 798,444 13,106 (98.9) 14,789.6 27.6 2,462.6 16.5 13.0 11.8 8.6 7.3 2.6 2.2 1.9 1.0 1.1 1.3 0.1 13.2 14.9 89.9
KIE universe 65,313,394 1,072,091 5.7 15.1 15.2 18.2 15.8 13.7 11.0 9.6 8.2 2.6 2.3 2.1 1.7 1.7 1.9 14.3 14.8 15.2
KIE universe ex-energy 55,777,648 915,566 5.2 18.0 16.4 20.1 17.0 14.6 12.3 10.7 9.1 3.0 2.7 2.4 1.6 1.6 1.8 14.9 15.7 16.3
KIE universe ex-energy & ex-commodities 47,811,463 784,804 9.4 18.0 18.4 21.0 17.8 15.1 13.7 11.9 10.0 3.2 2.9 2.5 1.3 1.5 1.7 15.4 16.2 16.9
Notes:
(a) We have used adjusted book values for banking companies.
(b) 2014 means calendar year 2013, similarly for 2015 and 2016 for these particular companies.
(c) EV/EBITDA excludes banking Sector.
(d) Exchange rate (Rs/US$)= 60.92
Dividend yield (%)

Source: Company, Bloomberg, Kotak Institutional Equities estimates


73 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Disclosures

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is
responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies
and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed in this report: Kawaljeet Saluja, Rohit Chordia, Murtuza Arsiwalla, M.B. Mahesh, Jasdeep Walia, Tarun Lakhotia, Saifullah
Rais, Aditya Mongia."


Kotak Institutional Equities Research coverage universe
Distribution of ratings/investment banking relationships
Source: Kotak Institutional Equities As of June 30, 2014
Percentage of companies covered by Kotak Institutional
Equities, within the specified category.
Percentage of companies within each category for which
Kotak Institutional Equities and or its affiliates has provided
investment banking services within the previous 12 months.
* The above categories are defined as follows: Buy = We
expect this stock to deliver more than 15% returns over the
next 12 months; Add = We expect this stock to deliver
5-15% returns over the next 12 months; Reduce = We
expect this stock to deliver -5-+5% returns over the next
12 months; Sell = We expect this stock to deliver less than -
5% returns over the next 12 months. Our target prices are
also on a 12-month horizon basis. These ratings are used
illustratively to comply with applicable regulations. As of
30/06/2014 Kotak Institutional Equities Investment Research
had investment ratings on 149 equity securities.
15.4%
23.5%
35.6%
25.5%
2.0%
0.7%
2.0%
0.7%
0%
10%
20%
30%
40%
50%
60%
70%
BUY ADD REDUCE SELL


Ratings and other definitions/identifiers
Definitions of ratings
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
Our target prices are also on a 12-month horizon basis.
Other definitions
Coverage view. The coverage view represents each analysts overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable
regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic
transaction involving this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.










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