Value Guide

aIue
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JuIy 2014
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WALK THE TALK

July 2014 Sharekhan ValueGuide 2
Sharekhan ValueGuide July 2014 3
June is among the dullest
months for the stock
markets. Yet the Sensex
built on the May surge to
amass gains of close to
1,200 points in June this
year. The market
continues to celebrate
the decisive mandate to the National Democratic Alliance led by Narendra
Modi, who has a reformist track record and made all the right noises in
the first month of his tenure.
REGULAR FEATURES
Report Card 4
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From Sharekhans Desk
EQUITY
06
Time to walk the talk
FUNDAMENTALS
DERIVATIVES
View 27
TECHNICALS
Crude Oil 28
Gold 29
Silver 29
Copper 29
FUNDAMENTALS
Lead 29
Zinc 29
Nickel 30
Gold 31
Silver 31
Crude Oil 31
Copper 32
Lead 32
Dhaanya NCDEX 32
TECHNICALS
FUNDAMENTALS
USD-INR 34
EUR-INR 34
GBP-INR 34
JPY-INR 34
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CONTENTS
REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON JULY 03, 2014)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 03-JUL-14 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
AUTOMOBILES
Apollo Tyres Buy 204.4 210 217 59 17.6 26.8 101.8 250.4 11.8 8.3 60.3 157.7
Ashok Leyland Buy 36.3 39 39 12 6.3 53.9 91 94.6 1.1 31.5 51.8 43.1
Bajaj Auto Buy 2349.8 ** 2365 1680 17.3 15.8 23.9 25.2 11.6 -1.1 -1.5 -7.9
Gabriel Industries Buy 54.3 56 55 16 9.4 61.2 121.4 187.2 4.1 37.7 75.9 111.2
M&M Buy 1219.8 1400 1279 740 0.8 23.1 36.6 27.1 -4.1 5.2 8.6 -6.5
Maruti Suzuki Buy 2642 2740 2665 1215 11.4 37.1 46.9 70.7 5.9 17.1 16.7 25.5
TVS Motor Buy 168 175 175 28 28.3 87.4 118.2 432.9 22 60.1 73.4 291.9
BSE Auto Index 15966.3 16175.6 9709.1 9 21.8 34.5 51.2 3.7 4.1 6.9 11.2
BANKS & FINANCE
Allahabad Bank Buy 140.9 160 150 65 1.9 51.6 50.2 63.7 -3.1 29.5 19.3 20.4
Andhra Bank Hold 101.5 104 110 47 -4.3 57.2 63.3 33.4 -9 34.3 29.7 -1.9
Axis (UTI) Bank Buy 1926.9 2135 1990 763 1.6 37 55.1 56.8 -3.3 17 23.3 15.3
Bajaj Finance Buy 2099.9 2560 2335 965 8.2 30.1 47.1 62.5 2.9 11.1 16.8 19.5
Bajaj Finserv Buy 958.7 1075 978 561 3.5 21.3 30.1 49.4 -1.5 3.6 3.4 9.9
Bank of Baroda Buy 880.9 1062 1010 429 -0.5 17.2 38.7 65 -5.4 0.1 10.2 21.3
Bank of India Buy 304.1 363 357 127 -5.5 30.8 29.6 38.5 -10.1 11.7 2.9 1.9
Capital First Buy 212.7 231 233 111 -2.5 14.9 44.6 41.5 -7.3 -1.8 14.9 4
Corp Bank Hold 400.2 437 418 220 12.6 46.2 57.9 19.8 7.1 24.9 25.5 -11.9
Federal Bank Buy 130.8 142 136 44.3 7.2 38.8 56.1 67.3 1.9 18.6 24 23.1
HDFC Hold 1007.8 1042 1017 632.2 13.9 14.7 29.8 20.5 8.3 -2 3.2 -11.3
HDFC Bank Hold 839.9 868 859 528 5.8 19.1 30.3 31.9 0.6 1.7 3.5 -3
ICICI Bank Buy 1452 1728 1593 757 1.1 20.8 39.3 39.7 -3.8 3.2 10.7 2.7
IDBI Bank Hold 106.9 115 117 52 -3.6 66.4 65.5 63.2 -8.3 42.1 31.5 20
LIC Housing Finance Buy 327.7 373 353 152 -2.9 34.7 52.1 41.1 -7.6 15 20.8 3.8
PTC India Financial Services Buy 35.2 44 38 9 25.3 162.4 166.1 193 19.2 124.1 111.4 115.5
Punjab National Bank Buy 990 1160 1068 400 -1.7 30.4 61.4 61 -6.5 11.4 28.2 18.4
SBI Buy 2702.3 3100 2835 1453 0.6 42.6 59.2 44.1 -4.3 21.8 26.5 6
Union Bank of India Hold 233.1 250 260 97 -1 61.8 82.3 35.2 -5.9 38.2 44.9 -0.6
Yes Bank Buy 568.9 637 599 216 -4.1 33.6 52.9 20.3 -8.8 14.1 21.5 -11.6
BSE Bank Index 17744.6 18019.4 9535.8 2.3 25.3 41.2 39 -2.7 7.1 12.2 2.2
CONSUMER GOODS
Bajaj Corp Reduce 240.6 180 287 179 10.8 10.4 17.1 0 5.4 -5.7 -7 -26.5
GSK Consumers Hold 4622.1 4682 5675 3801 4.4 9.4 7.6 -15.3 -0.7 -6.6 -14.5 -37.7
Godrej Consumer Products Hold 809.6 860 986 667 3.1 -3.3 -1.4 0.8 -1.9 -17.4 -21.7 -25.9
Hindustan Unilever Reduce 631.2 520 725 536 4.6 4.5 12 7.2 -0.5 -10.7 -11 -21.1
ITC Buy 329.4 369 388 285 0.7 -1.6 7.8 0.2 -4.2 -15.9 -14.3 -26.3
Jyothy Laboratories Buy 179.5 250 231 141 -4.2 -12.9 -6.7 2.3 -8.8 -25.6 -25.8 -24.8
Marico^ Hold 246.1 255 264 190 1.9 18.7 17.1 24.3 -3.1 1.4 -7 -8.6
Mcleod Russel India Hold 320.2 340 330 238 13.8 10.7 -0.5 16 8.2 -5.5 -20.9 -14.7
TGBL (Tata Tea) Reduce 174.4 135 177 131 9.7 10.3 7.4 17 4.3 -5.8 -14.7 -14
Zydus Wellness Reduce 621.9 464 737 435 18.1 27.4 15.7 -4.3 12.4 8.9 -8.1 -29.6
BSE FMCG Index 6773.9 7600.1 5922.2 1.3 0.5 6.5 2.2 -3.7 -14.1 -15.4 -24.8
IT / IT SERVICES
CMC Buy 1987.6 ** 2050 1091 27.9 36.7 22.6 52.3 21.7 16.8 -2.6 12
Firstsource Solutions Buy 40.1 51 42 10 16.6 37.7 75.1 236.6 10.9 17.7 39.1 147.6
HCL Technologies Buy 1480.3 1632 1590 790 13.2 6.2 18.2 87.4 7.6 -9.3 -6.1 37.8
Infosys Buy 3215.3 3550 3850 2438 8.8 -0.7 -7.6 34.3 3.4 -15.2 -26.6 -1.2
NIIT Technologies Hold 464.2 470 480 234 17.6 13.6 23.3 76.3 11.8 -3 -2 29.6
Persistent Systems Hold 1061 1150 1227 485 3.9 1.3 13.8 126.7 -1.2 -13.4 -9.6 66.7
Tata Consultancy Services Buy 2401.6 2684 2445 1495 16.5 13.8 9.7 59.2 10.8 -2.8 -12.8 17
Wipro Buy 540.9 612 611 346 11.1 -1.2 -1.3 57.2 5.7 -15.6 -21.6 15.6
BSE IT Index 9263.3 9853.6 6213.1 11.9 5.8 1.9 51.4 6.4 -9.6 -19 11.4
CAPITAL GOODS / POWER
Bajaj Electricals Hold 350.7 ** 385 150 19.4 36.3 60.6 110.1 13.5 16.4 27.6 54.5
BHEL Hold 259.4 270 292 100 2.1 43.3 60.2 55.2 -2.9 22.4 27.3 14.1
CESC Buy 720.6 878 764 271 26 49.6 71.2 117.7 19.8 27.8 36 60.1
Crompton Greaves Buy 206.6 225 220 75 -1.9 32.2 67.2 137.9 -6.7 12.9 32.9 74.9
Finolex Cables Buy 199.5 285 209 50 21.4 78.9 131.9 291.8 15.4 52.8 84.2 188.2
Greaves Cotton^ Reduce 123.5 85 128 53 27.6 65 93.1 114.6 21.3 40.9 53.4 57.8
Kalpataru Power Transmission Buy 193.1 200 198 56 3.9 92.5 109.1 194.5 -1.2 64.4 66.1 116.6
PTC India Buy 98.4 107 104 33 8.2 43.9 61.2 106.5 2.9 22.9 28.1 51.9
Thermax Reduce 980 825 997 526 4.6 28.2 35 62.2 -0.5 9.5 7.3 19.3
N
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REPORT CARD EQUITY FUNDAMENTALS
STOCK IDEAS STANDING (AS ON JULY 03, 2014)
COMPANY CURRENT PRICE AS ON PRICE 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX
RECO 03-JUL-14 TARGET HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M
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In Top Picks basket ** Price target under review
V-Guard Industries Buy 591.9 600 686 403 16 41.7 38.4 40.8 10.3 21.1 10 3.6
BSE Power Index 2369.8 2403.9 1315.6 4.7 37.6 46.4 50.4 -0.5 17.5 16.3 10.6
BSE Capital Goods Index 16680.9 16753.6 6718.8 5.1 39.5 69.9 86.1 -0.1 19.2 35 36.9
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects Buy 167.6 180 187 46 21.6 197 189.9 184.1 15.7 153.7 130.4 109
ITNL Buy 213.2 284 232 93 6.7 73.4 66.2 64.6 1.5 48.2 32.1 21.1
IRB Infra Buy 247.8 280 260 52 23.5 128.4 176.6 184.7 17.5 95.1 119.8 109.4
Jaiprakash Associates Hold 75.5 80 90 28 -11 38.3 39.3 40.7 -15.3 18.1 10.7 3.5
Larsen & Toubro Buy 1754 1840 1777 677 4.1 36.5 72.2 89.3 -1 16.6 36.8 39.2
Pratibha Industries Reduce 62.2 33 65 17 45.2 144.9 122.6 138.7 38.1 109.2 76.9 75.5
Punj Lloyd Reduce 52.4 30 61 20 16.4 73.1 67.9 57.6 10.7 47.8 33.4 15.9
CNX Infra Index 3457.1 3524.1 1829.8 3.1 32 45 54.4 -2 12.8 15.2 13.6
BSE Real Estate Index 2106.8 2272.7 1126.8 4.4 37.7 45.8 40.5 -0.7 17.6 15.9 3.3
OIL & GAS
Oil India Buy 588.8 670 634 415 3.8 20.7 29.3 9 -1.3 3.1 2.8 -19.8
Reliance Ind Buy 1018.3 1190 1145 764 -4.2 10.2 20.5 20.8 -8.9 -5.8 -4.3 -11.1
Selan Exploration Technology Buy 610.7 700 677 226 -3.2 11.7 105.7 152.1 -8 -4.6 63.4 85.4
BSE Oil and Gas Index 11198.3 12132 7552.2 0.3 17.8 33 30.6 -4.6 0.6 5.6 -3.9
PHARMACEUTICALS
Aurobindo Pharma Buy 750.7 771 782 138 22.2 35.8 94.2 317.8 16.3 16 54.3 207.3
Cipla Buy 444.3 470 453 367 15 11.2 14.7 14.4 9.3 -5 -8.9 -15.8
Cadila Healthcare Buy 1071.2 1200 1144 629 20.7 8.5 42.4 42.2 14.8 -7.3 13.1 4.6
Dishman Pharma Buy 134.6 146 143 37 32 46.3 34.8 143.4 25.5 24.9 7.1 79
Divi's Labs Buy 1514.1 ** 1546 905 23.6 13.3 22.3 61.3 17.5 -3.2 -2.8 18.7
Glenmark Pharmaceuticals Buy 575.4 670 641 488 11.7 2.5 16.7 4.8 6.2 -12.4 -7.3 -22.9
JB Chemicals Buy 166.8 189 169 73 9.7 19.2 17.4 124.4 4.3 1.8 -6.7 65
Ipca Laboratories Buy 878.8 919 907 609 10.4 5.9 25.7 29.5 5 -9.6 -0.1 -4.7
Lupin Buy 1074.2 1100 1104 742 17.7 11.4 17.1 29 12 -4.8 -7 -5.1
Sun Pharmaceutical Industries Buy 693.4 750 720 475 19.1 24.1 22.4 38.3 13.3 6 -2.7 1.7
Torrent Pharma Buy 716.8 761 725 385 13.6 24.8 51 69.7 8 6.6 20 24.8
BSE Health Care Index 11632.6 11901.8 8338.9 16.2 13.8 18.2 32.8 10.5 -2.8 -6.1 -2.3
BUILDING MATERIALS
Grasim Buy 3434.8 3941 3789 2106 1.4 20.4 28.9 22.2 -3.6 2.9 2.4 -10.1
The Ramco Cements Buy 296.5 310 315 135 3.5 47.8 65.2 43.5 -1.6 26.2 31.3 5.5
Shree Cement Buy 7209.5 7800 8000 3400 1 28.5 65.5 60.5 -3.9 9.8 31.5 18.1
UltraTech Cement Buy 2643.3 2868 2872 1402 1.1 21 50.6 37 -3.8 3.3 19.6 0.8
DISCRETIONARY CONSUMPTION
Eros International Media Hold 239.3 256 245 107 23.1 38.9 41 79.9 17.1 18.6 12 32.3
Indian Hotel Company Hold 105.6 ** 112 38 12.6 42.4 80 123.2 7.1 21.6 43 64.2
KKCL Buy 1704.6 ** 1775 700 24.3 47.9 48.6 131.2 18.2 26.3 18.1 70.1
Raymond Buy 415.5 430 458 176 22.6 49.3 55.6 84.9 16.6 27.5 23.6 36
Relaxo Footwear Buy 396 430 417 132 -0.1 37.9 63.5 153.3 -5 17.8 29.9 86.3
Speciality Restaurants Hold 149.4 160 165 101 -3.3 1.1 16.5 -0.8 -8 -13.7 -7.4 -27
Sun TV Network Buy 464.4 515 488 324 10.1 15.8 27.6 24.6 4.7 -1.1 1.4 -8.3
Zee Entertainment Buy 298 367 305 208 9.2 8.4 6.5 24.8 3.8 -7.4 -15.4 -8.2
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo Buy 1405.3 1550 1516 996 1.3 31.6 16.5 37.1 -3.6 12.4 -7.4 0.8
Bajaj Holdings Buy 1384.8 1473 1402 744 14.3 28.4 52.2 73.1 8.7 9.6 21 27.3
Bharti Airtel Buy 338.2 370 374 279 -4.1 7.3 3 12.7 -8.8 -8.4 -18.2 -17.1
Bharat Electronics Buy 2183.1 2650 2270 893 26.1 92.4 116.8 78.7 19.9 64.3 72.2 31.4
Gateway Distriparks Buy 242.9 250 254 98 7.1 56.4 71 145.8 1.9 33.6 35.9 80.8
Max India Buy 294.3 376 347 150 -9.8 46.6 36.8 43.7 -14.2 25.2 8.7 5.7
Ratnamani Metals and Tubes Buy 398.3 400 450 116 13.9 79.8 216.9 205.1 8.3 53.6 151.8 124.4
United Phosphorus Buy 337.2 354 359 121 14.5 74.1 76.2 161.8 8.9 48.7 40 92.5
Supreme Industries** Hold 556.9 ** 578 290 9.5 12.8 31.9 65.8 4.2 -3.7 4.8 21.9
BSE500 Index 9956 10005 6301.3 5.7 20.8 30.3 41.5 0.6 3.2 3.5 4
CNX500 Index 6276.9 6301.7 3937.7 5.8 21 31 41.7 0.6 3.4 4.1 4.2
CNXMCAP Index 11345.7 11446.2 6330.8 7.7 32.5 44.4 57.7 2.4 13.2 14.7 15.9
Time to walk the talk
FROM SHAREKHANS DESK
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June is among the dullest months for the stock markets. Yet the Sensex built on the May surge
to amass gains of close to 1,200 points in June this year. The market continues to celebrate the
decisive mandate to the National Democratic Alliance led by Narendra Modi, who has a reformist
track record and made all the right noises in the first month of his tenure. The new government
has taken some bold decisions, though some are unpopular like the rail fare hikes, and is focusing
on reviving investments in the infrastructure sector.
The new government is all set to present its first budget and naturally, expectations are rife that
the budget will take some tough decisions to bring the economy back on track. In fact, it is the
first policy initiative for the government to show its resolve to take forward its promise of a
reformist and development focused agenda for the economy. In addition to the budget, the other
factors that are likely to drive market sentiment in the days ahead are monsoon and inflation.
Right now, ignoring the other two factors the market is rallying on budget expectations. The
new finance minister has already indicated that the budget for FY2014-2015 will not shy away
from dishing out some bitter pills. Besides, Mr Modi while commenting on the United Progressive
Alliance-2 governments last budget in 2013 had said that the budget had played safe, allocated
a meagre amount for infrastructure development and resorted to gimmicks. Thus, it can be
hoped that in the first budget of his government Mr Modi will walk the talk and avoid populism
and gimmicks. He is also expected to propose appropriate measures to tackle the fiscal imbalances
in the economy. Our special pre-budget report on page 11 discusses in detail our expectations
of the Modi sarkar.
Monsoon has played truant so far. In June it was 43% below average, making the month
among the worst in 100 years in terms of rainfall. A deficient monsoon will not only increase
food prices by affecting the kharif crop but also affect growth by hurting rural demand. Though
the overall impact of the monsoon on the economy has declined to around 14% as against 20%
a decade ago, but a weak monsoon will have a serious bearing on inflation. More so because
the consumer inflation fell to 8.28% in May this year, the lowest in three months, but the
Wholesale Price Index climbed up to a five-month high of 6.01% in the same period. However,
unpredictable weather patterns seem to be a sign of times. Thus, a delayed monsoon or winter
in India could also be part of the changing global weather pattern caused by climatic change.
The raging war in Iraq has caused crude oil prices to firm up in recent times posing a serious
threat to inflation again. Iraq is the second largest exporter of oil in the Organization of Petroleum
Exporting Countries and has over 11% of the worlds proved resources. As India is a net
importer of crude oil, the rising prices of the commodity will also exert pressure on the
governments finances.
When all is said and done, the progress of the monsoon is not in our hands. It can only be hoped
that July and August may receive abundant rainfall making up for the deficit in May. As for the
budget, it will show the new governments ability to fight inflation and the market is already
factoring in a few bitter pills. The market faces the highest risk from inflation, which the
government may find difficult to anchor given the weak monsoon and the unrest in Iraq.
Fortunately, the US economy, another driver of market sentiment, has seen a terrific recovery of
late, with the unemployment rate unexpectedly falling to a six-year low in June this year and the
stock market surging to an all-time high. Since the central banks of the USA and Europe have both
reaffirmed their commitment to support growth, the outlook for the global economy remains good.
Considering everything, we continue to believe that the Indian stock market is on the cusp of a
multi-year bull run. Any correction in the near term should, thus, be looked upon as an
opportunity to increase ones exposure to equities. For the next couple of years, equities are set
to comprehensively outperform all the other asset classes especially gold and fixed income.
Sharekhan Top Picks
SHAREKHAN TOP PICKS
After the run-up following the general election outcome the
benchmark indices were largely stuck in a consolidation range in
the last month, ie June 2014. During the month the Sensex and
Nifty appreciated by 3.4% and 3.7% respectively whereas
Sharekhans Top Picks basket appreciated by 7.8%, which is largely
in line with the movement in the CNX Mid-cap Index during the
same month.
The strong performance of Sharekhans Top Picks basket was aided
by superlative gains in TVS Motor Company (up 25.8%) and
Gabriel India (up 17.2%) both of which were added in the previous
month. The other smart movers were Lupin, Zee Entertainment
and Federal Bank.
*CMP as on July 01, 2014 # Price target for next 6-12 months ** Under review
NAME CMP* PER ROE (%) PRICE UPSIDE
(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS)# (%)
Apollo Tyres 203 10.5 9.9 8.7 25.2 21.4 19.9 ** -
Crompton Greaves 203 52.1 23.7 18.0 6.7 13.4 15.6 225 11%
Federal Bank 131 13.4 12.7 10.2 12.6 12.2 13.7 142 8%
Gabriel India 52 19.3 10.9 8.3 14.9 20.6 22.6 56 9%
Gateway Distriparks 234 17.9 16.5 14.0 17.5 18.0 20.3 250 7%
ICICI Bank 1,438 16.9 15.1 12.7 14.0 14.5 15.7 1,728 20%
Larsen & Toubro 1,725 32.5 28.3 23.7 15.6 16.0 17.4 1,840 7%
LIC Housing 325 12.4 10.4 8.7 18.8 19.4 19.9 373 15%
Lupin 1,051 25.7 22.3 18.7 26.5 24.1 22.8 ** -
UltraTech Cement 2,630 35.2 25.6 22.2 12.0 14.3 14.3 2,868 9%
Zee Entertainment 300 32.3 28.0 22.1 20.6 20.6 23.1 367 22%
ABSOLUTE OUTPERFORMANCE
CONSISTENT OUTPERFORMANCE (ABSOLUTE RETURNS; NOT ANNUALISED) (%)
1 month 3 months 6 months 1 year 3 years 5 years
Top Picks 7.8 19.6 31.2 44.4 60.9 148.6
Sensex 3.4 14.1 20.8 30.4 36.5 80.7
Nifty 3.7 14.0 21.2 29.3 36.7 83.8
CNX Mid-cap 7.7 29.7 37.6 48.7 33.9 103.0
CONSTANTLY BEATING NIFTY AND SENSEX (CUMULATIVE RETURNS) SINCE
APRIL 2009
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
This month we are making two changes in the Top Picks basket.
We are booking profits in TVS Motor Company and replacing it
with Apollo Tyres (a beneficiary of the revival in the commercial
vehicle segment and soft rubber prices). The other change relates to
UltraTech Cement replacing Reliance Industries, which could
languish due to the deferment of gas price hikes by the government
and other negative news flow on the counter. On the other hand,
UltraTech Cement is among the beneficiaries of improving cement
prices in the western and southern regions. The new governments
thrust on infrastructure investments should also keep investors
interested in the cement sector.
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CY2014 CY2013 CY2012 CY2011 CY2010 CY2009
Sharekhan (Top Picks) Sensex Nif ty CNX Mid-cap
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
NAME CMP PER ROE (%) PRICE UPSIDE
(RS) FY14 FY15E FY16E FY14 FY15E FY16E TARGET (RS) (%)
APOLLO TYRES 203 10.5 9.9 8.7 25.2 21.4 19.9 ** -
Remarks: Apollo Tyres is a leading player in the domestic passenger car and truck tyre segments. The tyre industrys volume has been subdued
given the weak macro environment. We expect the demand to improve in H2FY2015 with a pick-up in the economy.
The profitability of the tyre companies has improved given the soft natural rubber prices and this benefit is expected to continue for a
couple of quarters.
Apollos European operations too have reported a strong performance with a strong volume growth and high profitability. The company
will be investing EUR200mn for setting up a greenfield facility in Eastern Europe which will start production in Q4FY2017 and cater to
the long-term growth in Europe.
We like the stock for its consistent performance and long-term growth prospects (expansion in Europe and Chennai). We have a Buy
recommendation on the stock.
CROMPTON GREAVES 203 52.1 23.7 18.0 6.7 13.4 15.6 225 11%
Remarks: Crompton Greaves deals in industrial and power systems, which hold high potential, given the prospective turnaround in the investment
cycle, with higher focus on the power transmission & distribution sector. It also has a strong presence in domestic consumer products
which is expected to witness a high growth, thanks to brand leverage, deep presence and stable demand.
Though the power system business in the USA and the subsidiaries in Canada are still not out of the woods, the overall performance
of the international subsidiaries would improve backed by a recovery in the European business, which was hit by a restructuring
exercise. A reversal in the outlook for domestic demand would improve sentiment too. Consequently, we expect a sharp improvement
in its margin, earnings and return ratios which would be the key driver of a re-rating. We remain positive on the stock.
GABRIEL INDIA 52 19.3 10.9 8.3 14.9 20.6 22.6 56 9%
Remarks: Gabriel India (Gabriel), a leading manufacturer of shock absorbers is perfectly set to reap the benefit of strong growth in two-wheeler
segment and revival in the passenger and CV segments. The management is focusing on increasing the revenue share from the after-
sales (high margin segment) and export segments.
Additionally, the revenue share with Hondas two-wheeler business (the fastest growing two-wheeler company) is expected to increase
as it starts to ramp-up production at its new Karnataka facility. No major capex, strong free cashflow generation would help to reduce
debt burden going forward. Consequently, it would lead to higher margins and return ratios.
In recent time, the stock has generated healthy return of 40% and almost achieved our target price of Rs46. We continue to remain firm
on companys fundamental, given the fact of strong market share across business verticals, improving outlook of CV/PV segments and
recent restructuring exercise to concentrate on each of the business verticals (two-wheeler, PV and CV) to improve the product-mix,
after the sales service as well as to improve the exports, which would lead better financial performance.
FEDERAL BANK 131 13.4 12.7 10.2 12.6 12.2 13.7 142 8%
Remarks: Federal Bank undertook structural changes in the balance sheet, viz increasing the proportion of the better rated assets and improving
the retail deposit base, and is thus better prepared to ride the recovery cycle. As the economy is gradually showing signs of a revival,
the bank is much better capitalised (tier-1 capital adequacy ratio of 15%) compared with its peer banks to expand the balance sheet.
Asset quality has improved substantially over the past three to four quarters and is likely to improve further in the coming period.
Higher provision coverage of 84% and a possibility of recovery from one large-ticket account (likely in the next two to three quarters)
would further increase the comfort on asset quality.
The valuation of 1.4x FY2016 BV is attractive when compared with the regional banks and other old private banks. The expansion in
the return on equity (RoE) led by a better than industry growth (FY2014-16) will lead to an expansion in the valuation multiple. We have
a Buy rating on the stock with a price target of Rs142.
GATEWAY DISTRIPARKS 234 17.9 16.5 14.0 17.5 18.0 20.3 250 7%
Remarks: An improvement in exim trade along with a rise in port traffic at the major ports are signalling an improving business environment for
the logistic companies. Gateway Distriparks being a major player in the CFS and rail logistic segments is expected to witness an
improvement in the volumes of its CFS and rail divisions going ahead.
The improving trend in the rail freight and cold chain subsidiaries would sustain on account of the recent efforts to control costs and
improve utilisation.
We continue to have faith in GDLs long-term growth story based on the expansion of each of its three business segments, ie CFS, rail
transportation and cold storage infrastructure segments. First, we believe the listing of SLL will unlock the inherent value and the
potential of the cold chain operations. Second, the coming on stream of the Faridabad facility and the strong operational performance
will further enhance the performance of the rail operations. Third, the expected turnaround in the global trade should have a positive
impact on the CFS operations. We maintain our Buy rating with a price target of Rs250.
ICICI BANK 1,438 16.9 15.1 12.7 14.0 14.5 15.7 1,728 20%
Remarks: With an improvement in the liability profile, ICICI Bank is better positioned to expand its market share especially in the retail segment.
We expect its advances to grow at 18.7% compound annual growth rate (CAGR) over FY2014-16 leading to a CAGR of 17.0% in the
net interest income.
ICICI Banks asset quality had shown some stress in recent results due to rise in restructured loans. However, the banks asset quality
is significantly better than public sector banks (PSBs) and has improved in the past few years. We believe the strong operating profits
should help the bank to absorb the stress which anyway is expected to recede due to an uptick in economy.
Led by a pick-up in the advance growth and a significant improvement in the margin, the RoE is likely to expand to ~16% by FY2016
while the return on assets (RoA) is likely to improve to 1.8%. This would be driven by a 15.3% growth (CAGR) in the profit over
FY2014-16.
The stock trades at 1.9x FY2016E BV. Moreover, given the improvement in the profitability led by lower NPA provisions, a healthy
growth in the core income and improved operating metrics, we recommend a Buy with a price target of Rs1,728.
LARSEN & TOUBRO 1,725 32.5 28.3 23.7 15.6 16.0 17.4 1,840 7%
Remarks: Larsen & Toubro (L&T), the largest engineering and construction company in India, is a direct beneficiary of the strong domestic
infrastructure development and industrial capital expenditure (capex) revival now.
L&T continues to impress us with its order inflow growth achievement and good execution skills even in a slowdown. Now it is looking
at better days ahead with the domestic environment improving. We believe in such a situation, L&T would be a major beneficiary as it
is placed much ahead of its peers with a strong balance sheet. Moreover, monetisation of various assets would help the company to
improve the RoE.
A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T. We believe
it is one of the best bets to play the cyclicals now.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
LIC HOUSING 325 12.4 10.4 8.7 18.8 19.4 19.9 373 15%
Remarks: LIC Housing Finance being the second largest housing finance company (a loan book of over Rs90,000 crore) will benefit from the
recovery in the housing market. The company has strong brand recall (due to the LIC parentage) and widespread distribution network
which will aid expansion in the business.
The re-pricing of the fixed rate loans to floating rate loans over FY2015 and FY2016 coupled with a moderation in the interest rates will
boost margins. The companys gross and net NPAs are at 0.67% and 0.39% respectively, amongst the best in the system.
Currently, it trades at 1.6x FY2016E book value, which seems attractive considering the stable RoE of around 18-20% and healthy
asset quality. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggers for the stock. We
have a Buy rating on the stock with a price target of Rs373.
ULTRATECH CEMENT 2,630 35.2 25.6 22.2 12.0 14.3 14.3 2,868 9%
Remarks: We expect the demand environment to improve with a cyclical upturn in the economy aided by policy push driving investments in the
infrastructure sector. The cement prices across India have risen recently which can boost the OPM of pan-India players like UltraTech.
UltraTech being an industry leader with a strong balance sheet is placed comfortably to grow inorganically by acquiring assets at
reasonable valuations and maintaining its dominant position. The company is slated to increase its current capacity to 70MMT by 2016
from 55MMT currently.
We like UltraTech on account of its pan-India presence and a strong balance sheet. The current valuation of cement companies is on
the cusp of a re-rating considering the past cement cycles. UltraTech trades at a 39% discount to its peak cyclical valuation. Consequently,
we maintain our Buy recommendation on the stock with a price target of Rs2,868.
ZEE ENTERTAINMENT 300 32.3 28.0 22.1 20.6 20.6 23.1 367 22%
Remarks: Among the key stakeholders of the domestic TV industry, we expect the broadcasters to be the prime beneficiary of the mandatory
digitisation process initiated by the government. The broadcasters would benefit from higher subscription revenues at the least incremental
capex as the subscriber declaration improves in the cable industry.
On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6%
preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemable
from the fourth year till the eighth year.
ZEELs management acknowledged that the recent TRAI recommendation of capping the advertisement time at 12 minutes per hour
would have an adverse impact on its advertisement volume. The company will take adequate hikes in the advertisement rates in order
to negate the impact of reduced volumes. Thus, we expect a very minimal impact on the blended advertisement growth in FY2015 and
FY2016.
ZEEL is well placed to benefit from the ongoing digitisation theme and the overall recovery in the macro economy. Additionally, phase-
wise rate hikes in the channel rates would augur well for the subscription revenues. We have incorporated potential tax benefits from
a merger of DMCL in FY2016. We maintain our Buy rating on the stock with a price target of Rs367.
LUPIN 1,051 25.7 22.3 18.7 26.5 24.1 22.8 ** -
Remarks: A vast geographical presence, focus on niche segments like oral contraceptives, ophthalmic products, para-IV filings and branded
business in the USA are the key elements of growth for Lupin. The company has remarkably improved its brand equity in the domestic
and international generic markets to occupy a significant position in the branded formulation business. Its inorganic growth strategy
has seen a stupendous success in the past.
While most of the geographies have recorded an impressive growth for the company in FY2014, Japan (due to restructuring at the
step-down subsidiary, Irom Pharma) and India (due to the impact of the new drug pricing policy) saw a weaker performance during the
fiscal. However, we expect the Indian business to bounce back, as the pricing related issues are gradually getting settled.
Lupin is expected to see stronger traction in the US business on the back of the key generic launches in recent months and a strong
pipeline in the US generic business (over 91 abbreviated new drug approvals pending approval including 86 first-to-files) to ensure the
future growth. The key products that are going to provide a lucrative generic opportunity for the company include Nexium (market size
of $2.2 billion), Lunesta (market size of $800 million) and Namenda (market size of $1.75 billion) that will be going out of patent
protection in FY2015. We expect revenue and profit CAGR of 22% and 17% over FY2014-16.
SHAREKHAN TOP PICKS
EQUITY FUNDAMENTALS
Union Budget Preview (2014-15)
SHAREKHAN BUDGET SPECIAL JUNE 30, 2014
Amid heightened hopes of acche din, in contrast with bitter
ground realities, the Union Budget would be the first policy
announcement from the newly elected government and consequently
a big test for its resolve to walk to talk.
Mindful of the limited options to manoeuvre a host of issues in a
single budget, the market would be looking at a pragmatic budget
with credible numbers and intent of the government on critical
reforms (tax reforms, subsidies, divestment, foreign direct
investment [FDI] etc) from medium-to-long-term perspective. Some
of the critical areas of focus for the investor community would be:
Roadmap to address fiscal imbalances (ie rein in subsidies,
improve delivery of social schemes and curtail fiscal deficit)
Measures to revive growth and curtail inflation in spite of a
weak onset of monsoon
Timeline for the roll-out of the Goods and Services Tax (GST)
and other critical reforms
Our 10 picks to play the budget rally are
Arvind, Bharat Electronics, CMC, Cox & Kings, Fortis Healthcare,
Gateway Distriparks, Jain Irrigation, Titan Industries, Va-Tech
Wabag and LIC Housing Finance.
Some key proposals expected in Union Budget
Tax proposals
Extension of benefits under section 80IA and/or reduction in
minimum alternate tax rate
Tax incentives for low-cost housing and special economic zone projects
Increase in tax exemptions under 80C for personal income tax
by additional Rs50,000-1,00,000 for investment in
infrastructure related bonds
Tax sops for textiles and some of the other large employment
generating manufacturing sectors
BUDGET SPECI AL
EQUITY FUNDAMENTALS
Roadmap for implementation of uniform GST
Industry related proposals
Intent to ease concerns regarding the Land Acquisition Act
Roadmap to improve agriculture productivity through focus
on better technology for irrigation, hybrid seeds and right usage
of agri inputs
Higher allocations for skill development (vocational skills) and
defence sector
Measures to attract foreign capital in infrastructure especially
roads and railways; permission to banks to issue infrastructure
bonds and/or other long-term sources of funds
Development of water transport infrastructure; and revitalising
rivers and other water resources
Correcting fiscal imbalances; likely revision in deficit targets: In
view of the deteriorating state of public finances, the governments
initial focus will be on correcting the fiscal imbalances by taking
steps to rein in the subsidies especially the fuel subsidy bill. Secondly,
the government could announce the rationalisation of the social sector
schemes with focus on plugging leakages and improving the delivery
mechanism. The fiscal deficit target of 4.1% for FY2015 (as per the
interim budget) seems quite tall (due to the roll-over of subsidies in
FY2015) and, therefore, may be revised slightly upwards. But the
same may be backed by credible numbers on income and expenditure.
The government borrowings are likely to be maintained at about
Rs6 trillion, similar to that in the interim budget.
Affirmative steps to address growth-inflation concerns: The
governments intent is quite clear on certain areas, such building
infrastructure, boosting manufacturing sector and increasing
consumption. Hence, most of the announcements could be
pertaining to these areas. The low hanging fruits, like fast-tracking
GOVERNMENT FINANCES Rs '00 cr
Particulars FY08 FY09 FY10 FY11 FY12 FY13 FY14RE FY15BE
Gross tax revenues 5,931.5 6,053.0 6,245.3 7,930.7 8,891.8 10,362.4 11,589.1 13,792.0
Growth (YoY,%) 25.3 2.0 3.2 27.0 12.1 16.5 11.8 19.0
Direct Tax 2,955.6 3,194.4 3,770.4 4,452.7 4,931.6 5,578.1 6,353.7 7,574.7
Growth (YoY,%) 34.7 8.1 18.0 18.1 10.8 13.1 13.9 19.2
Corporation tax 1,929.1 2,134.0 2,447.3 2,986.9 3,228.2 3,563.3 3,936.8 4,510.1
Growth (YoY,%) 33.7 10.6 14.7 22.1 8.1 10.4 10.5 14.6
Income tax 1,026.4 1,060.5 1,323.2 1,465.9 1,703.4 2,014.9 2,416.9 3,064.7
Growth (YoY,%) 36.7 3.3 24.8 10.8 16.2 18.3 20.0 26.8
Indirect Tax 2,975.9 2,858.6 2,474.9 3,478.0 3,960.2 4,784.2 5,235.4 6,217.3
Growth (YoY,%) 17.1 -3.9 -13.4 40.5 13.9 20.8 9.4 18.8
Indirect tax/gross tax revenues (%) 50.2 47.2 39.6 43.9 44.5 46.2 45.2 45.1
Excise 1,236.1 1,086.1 1,036.2 1,383.0 1,456.1 1,765.4 1,795.4 2,005.9
Growth (YoY,%) 5.1 -12.1 -4.6 33.5 5.3 21.2 1.7 11.7
Import duty 1,041.2 998.8 833.2 1,358.1 1,493.3 1,653.5 1,750.6 2,013.1
Growth (YoY,%) 20.6 -4.1 -16.6 63.0 10.0 10.7 5.9 15.0
Service tax 513.0 609.4 584.2 710.2 975.1 1,326.0 1,649.3 2,154.8
Growth (YoY,%) 36.4 18.8 -4.1 21.6 37.3 36.0 24.4 30.7
Other tax revenues 185.6 164.2 21.2 26.7 35.7 39.4 40.2 43.5
Growth (YoY,%) 47.8 -11.5 -87.1 25.9 33.9 10.3 2.0 8.3
BUDGET SPECI AL
EQUITY FUNDAMENTALS
the delayed projects, arrangement for single window clearances and
sops for specific industries, could be worked upon to revive growth.
The continuation of excise duty benefits for the auto sector suggests
that more incentives could be worked out to revive the
manufacturing sector especially the export sector. On the other hand,
given the weak monsoon and fuel price volatility (due to the Iraq
crisis) that threaten inflation, the government may announce some
measures on this front also.
Dependence on non-tax revenues to continue: Given the limited
scope to manoeuvre the revenues in the near term, the reliance on
non-tax revenues (divestments, spectrum auctions) will continue in
FY2015. Moreover, the recent buoyancy in the capital markets
and improved business confidence makes divestment easier
compared with the past couple of years. With respect to tax revenues
(a 20% year-on-year growth budgeted for FY2015) clearly needs
to be backed by a recovery in the economy or may be revised
downwards. The government may outline the road map and the
timeline to implement tax reforms like GST while it is also expected
to clarify its position on General Anti Avoidance Rule and
retrospective tax amendments.
KEY SECTORWISE EXPECTATIONS
Agri Inputs (1) Increase in subsidy to meet the arrears of around Rs30,000 crore in FY2014 (2) Reduction
of excise duty and uniform rate of VAT for agro chemcials (3) Increase in spending related
to irrigation projects (4) Allowing further usage of hybrid seeds
Positive UPL, Jain Irrigation, Monsanto India, Kaveri
Seeds and Dhanuka Agritech
Autos/Auto
Ancilaries
(1) Incentives for electric/hybrid vehicles (2) Withdrawal of the National Calamity Contingent
Duty (NCCD) (3) Scrappage scheme for old vehicles
Positive M&M, Ashok Leyland and
TVS Motors
Banking/NBFC (1) Long term infra bonds for infra sector funding (2) Raise exemption limit under section 80
C (3) Income tax benefit on provisioning for NBFCs (4) Recapitalisation of PSBs (5) Increase
FDI in insurance
Positive ICICI, SBI, BoB, Federal Bank, LIC Housing,
Bajaj Finance and Max India among NBFCs
Capital Goods (1) Increase in allocation to Infrastructure sector (2) Relaxing of ECB limits and CCI limit for
faster project clearance (3) increase in allocation for water related projects (4) Increase in
capital allocation for upgradation and connectivity of railways network
Positive L&T, Crompton Greaves, Finolex Cables, VaTech
Wabag, Texmaco, Titagarh Wagons, Kernex
Microsystems, Kalpataru Power and KEC
Cement (1) Excise duty is likely to remain at current levels (2) Abatement on Excise duty, currently
abatement of 30% on retail price is allowed (3) Customs Duty on pet coke be abolished
Neutral The Ramco Cements and Shree Cement
Defence (1) Increase in allocation for defence spends (2) Increase in FDI limit in defence sector from
26% currently
Positive BEL, Astra Microwave and L&T
FMCG (1) Increase in tax slabs to Rs3 lakhs from Rs2 lakhs (2) Increase in excise duty on cigarette
(3) Interest subvention on loans for re-plantation of tea
Neutral Jyothy Laboratories and McLeod Russel
Healthcare/Hospitals (1) Grant infrastructure status under section 80 IA (2) Exemption on replacement of old
equipment / machinery in hospitals
Positive Fortis Healthcare and Apollo Hospitals
Hospitality/Tourism (1) Grant infrastructure status under section 80 IA (2) FHRAI has proposed to increase the
depreciation rate to 20% (3) The proposal is to grant export industry status to the tourism
sector
Positive Cox & Kings (India), Indian Hotels and Taj GVK
Sector Key sectorwise expectations
Potential budget
impact
Companies impacted
Infrastructure/
Construction
(1) Ten year tax holiday about to expire in 2015-16, to extend to another 10 years (2) MAT
could get abolished or reduced during tax holiday period under Section 80IA. (3) 100%
refinancing of existing debt by ECB
Positive ITNL, IRB and Mahindra Lifespace
Information
Technology
Increase in budget allocation for e-governance projects
Neutral CMC and TCS
Logistics (1) A defined time line on rollout of GST (2) extension of IT benefits u/s 35AD
Positive Gateway Distriparks and Container Corporation
of India
Media (1) GST rollout roadmap to be set (2) Waiver of entertainment tax for DTH companies
engaged in migration from analogue to digital (3) Basic custom duty on STBs should be
relaxed to zero until the 4 phases of digitization are complete.
Neutral Dish TV
Oil and Gas Extension of benefit under section 80-IB(9) from 7 to 10 years,
Neutral Not specific
Pharma (1) Extend the benefits of EoUs, the provisions of section 10B, which provides certain tax
concessions for Export Oriented Units, should be continued (2) Deduction with respect to
R&D expenditure u/s 35(2AB) for expenditure incurred on products registration, clinical
trials, bioequivalence study etc
Power (1) Incentives for Renewables Energy in terms of accelerated depreciation, tax benefits,
fulfillment of renewables purchase obiligation
Retail (1) Reduction in custom duty for gold (2) GST rollout roadmap to be set (3) Increase in tax
slabs to Rs3 lakhs from Rs2 lakhs
Positive Titan Industries, Muthoot Finance and
Mannapuram Finance
Textiles Subsidy and additional allocation under Technology Upgradation Fund Scheme (TUFS) for
the textile industry
Positive Arvind Mills and Vardhaman
Source: Industry expectations; Sharekhan Research
STOCK UPDATE
EQUITY FUNDAMENTALS
Bumper performance in Q4, growth
to sustain in FY2015
COMPANY DETAILS
Price target: Rs771
Market cap: Rs18,685 cr
52 week high/low: Rs678/138
NSE volume (no. of shares): 42.2 lakh
BSE code: 524804
NSE code: AUROPHARMA
Sharekhan code: AUROPHARMA
Free float (no. of shares): 13.2 cr
(%) 1m 3m 6m 12m
Absolute 16.9 27.8 128.2 296.0
Relative to Sensex 8.0 11.1 94.9 218.9
PRICE PERFORMANCE
BUY CMP: RS639 JUNE 2, 2014
AUROBINDO PHARMA
KEY POINTS
Aurobindo Pharma reported a strong performance for Q4FY2014 with the
adjusted net profit surging by 324% YoY to Rs466 crore on the back of a
130% increase in the US formulation business. The core OPM (excluding the
dossier income) expanded by 1,775BPS to 31% in Q4 while the net sales
jumped by 48.4% to Rs2,330 crore.
The strong performance can be attributed to the launch of generic Cymbalta
in December 2013 under shared exclusivity coupled with the other key launches
during Q3 and Q4 of FY2014. Though the benefit of Cymbalta exclusivity
will not extend beyond June 2014, but the management expects to maintain
the growth in the top line and an OPM of 22-23% on the back of the integration
of the newly acquired API business of Actavis and an improvement in the
base business.
We revise our earnings estimates up by 27% and 23% for FY2015 and FY2016
to factor in the improvement in the base business and the integration of the
newly acquired API business of Actavis. Accordingly, our price target stands
revised up by 23% to Rs771. We maintain Buy rating on the stock.
SHAREHOLDING PATTERN
Sharekhan Limited, its analyst or dependant(s) of the analyst might be
holding or having a postition in the companies mentioned in the article.
For detailed report, please visit the Research section of our website, sharekhan.com.
Annual report review
COMPANY DETAILS
Price target: Rs2,135
52 week high/low: Rs1,990/764
BSE code: 532215
NSE code: AXISBANK
Sharekhan code: AXISBANK
(%) 1m 3m 6m 12m
Absolute 2.1 32.2 42.0 40.0
Relative to Sensex -2.8 13.7 15.4 4.8
PRICE PERFORMANCE
BUY CMP: RS1,839 JUNE 17, 2014
AXIS BANK
KEY POINTS
Axis Banks FY2014 annual report highlights the structural changes in the
business which include increasing the granularity in deposits and asset base,
and diversifying the fee income further. This should result in a sustainable
improvement in the operating performance going ahead.
The bank has contained its exposures to risky sectors such as power (5.5% of
book in FY2014 vs 6.8% in FY2013). Moreover, the rating profile of corporate
loans (61% are rated as A and above) and SME loans (80% are rated as
SME-3 and above) remains healthy. The proportion of secured loans
increased to 83.4% from 82.8% in FY2013 due to focus on secured retail
loans.
With a stable net interest margin, healthy asset quality, steady growth in fee
income and strong capital adequacy (tier-1 CAR of 12.6%), we expect the
bank to sustain the strong earnings performance (15.5% CAGR over FY2014-
16). Therefore, the bank is likely to maintain its superior return ratios (RoA
1.8% and RoE of 17.5%). The stock currently trades at 1.7x FY2016E book
value which is a discount of about 20% to the mean valuation. We maintain
our Buy rating on the stock with a price target of Rs2,135 (2x FY2016E book
value).
Promoters
34%
Institutions
14%
Non-promoter
corporate
3%
Foreign
34%
Public and
others
15%
Promoter
30%
Foreign
48%
MF & FI
10%
Public &
others
12%
STOCK UPDATE
EQUITY FUNDAMENTALS
Asset quality to remain healthy, maintain Buy
COMPANY DETAILS
52-week high/low: Rs2,225/966
NSE volume (No of shares): 0.4 lakh
BSE code: 500034
NSE code: BAJFINANCE
Sharekhan code: BAJFINANCE
Free float (No of shares): 1.9 cr
(%) 1m 3m 6m 12m
Absolute 7.3 20.4 36.7 38.0
Relative to Sensex -3.7 2.5 12.6 2.0
PRICE PERFORMANCE
BAJAJ FINANCE
KEY POINTS
In response to recent media reports suggesting a fraud in Bajaj Finances
mortgage lending business, the companys management has clarified that the
accounts in question are very few in number (10-12 accounts) and that such
accounts would require additional provisioning of Rs5 crore in the worst case.
Moreover, it does not expect any risk of delinquencies as the said advances are
backed by strong collaterals. Traditionally also, the NPAs in SME mortgages
have been quite low at below 10BPS (5-7BPS) of the advances.
The company has sacked the erring employees and replaced the business head
(internal transfer) immediately to avoid any loss of business. It has also
maintained the guidance of a 20-25% growth in the advances in FY2015.
We believe that given the group pedigree (Bajaj group), this incident could be
taken as a one-off event with no material impact on the companys financials.
We also derive comfort from the conservative accounting and provisioning
practices followed by the company. We, therefore, maintain our rating and
price target for Bajaj Finance (price target: Rs2,315) and Bajaj Finserv (price
target: Rs1,075).
Price target revised to Rs1,850
COMPANY DETAILS
NSE volume (no. of shares): 52,448
BSE code: 500049
NSE code: BEL
Sharekhan code: BEL
(%) 1m 3m 6m 12m
Absolute 32.8 72.8 53.1 25.2
PRICE PERFORMANCE
HOLD CMP: RS1,672 JUNE 2, 2014
BHARAT ELECTRONICS
KEY POINTS
In Q4FY2014, Bharat Electronics Ltd (BEL)s revenues stood at Rs3,131 crore,
an increase of 18% largely on account of aggressive execution of orders. The
total order book stood at Rs23,200 crore (close to 4x its revenues) at the end
of Q4FY2014. The company declared a total dividend of Rs23.3 per share in
FY2014 including an interim dividend of Rs6 per share (a yield of 1.4%).
The operating profit margin during the quarter improved by 320 basis points
year on year (YoY) to 24.5% on account of a favourable currency impact and
a better product mix (higher sales from the defence segment). Consequently,
the earnings for the quarter improved by 12% to Rs663.2 crore (lower than
the revenue growth on account of a lower other income and a higher tax rate).
Currently, there is positive news flow on the defence sector: as per a Department
of Industrial Policy & Promotion draft note, the department has proposed to
allow up to 100% foreign direct investment in the defence sector to boost
domestic manufacturing.
A niche public sector player like BEL has already been significantly re-rated.
Though we would not recommend buying the stock at the current levels due to
a limited upside to our price target from these levels, but we believe that dips
should be used to accumulate the stock with a two-year perspective. We have
marginally revised our earnings estimate upward. Consequently, our revised
price target works out to Rs1,850. We maintain our Hold rating on the stock.
FIIS
4%
Government
75%
MFs, Fis,
Insurance
17%
Others
4%
Promoter
61%
Foreign
12%
MF & FI
8%
Public &
others
19%
Limited upside; downgraded from Buy to Hold
COMPANY DETAILS
Price target: Rs370
BSE code: 532454
NSE code: BHARTIARTL
Sharekhan code: BHARTIARTL
(%) 1m 3m 6m 12m
Absolute 13.0 24.5 7.1 20.6
Relative to Sensex -0.4 4.8 -12.3 -8.8
PRICE PERFORMANCE
HOLD CMP: RS356 JUNE 9, 2014
BHARTI AIRTEL
KEY POINTS
Monetisation of African tower assets to deleverage balance sheet: As per media
reports, Airtel Africa is in an advanced stage of selling its tower assets for a
combined value of $1.8-2.0 billion. The development is on expected lines and
seeks to monetise assets and delever the balance sheet. Bharti Africa collectively
holds around 15,000 towers and at the stated valuation the enterprise value
per tower comes to Rs75-77 lakh. That is a premium to the Indian tower
valuations and would also aid in deleveraging the balance sheet. Hence, it
would be positive for the company.
Book partial profit; downgraded to Hold from Buy: Despite the concerns related
to a higher than expected pay-out by the telecom operators in the spectrum
auction held in February 2014, Bharti Airtel has fared fairly well due to pricing
discipline and an improving operating environment (in line with our positive
stance and expectations). In the last three months the stock has given a return
of over 25% and is currently trading close to our price target (Rs370), offering
meagre 4% returns. Hence, we advise investors to book partial profits in the
stock. In view of the limited upside from the current levels we downgrade our
rating on the stock from Buy to Hold.
Strong fundamentalscompetitive environment a key monitorable: We remain
positive on the long-term prospects of Bharti Airtel (and the telecom sector)
and would keep a keen watch on the emerging competitive environment to
review our rating and price target on the stock.
Play on revival in auto sector;
price target revised to Rs56
COMPANY DETAILS
Price target: Rs56
Market cap: Rs657 cr
52-week high/low: Rs50/16
BSE code: 505714
NSE code: GABRIEL
Sharekhan code: GABRIEL
(%) 1m 3m 6m 12m
Absolute 44.2 89.8 99.8 163.8
PRICE PERFORMANCE
GABRIEL INDIA
KEY POINTS
Gabriel India is a play on the revival of growth in the passenger vehicle and
commercial vehicle segments as it is likely to be an early beneficiary of the
expected pick-up in the economy going ahead. We are also enthused by the
signals coming from the new government including the media reports about
its plans to provide incentives for heavy vehicles used for public transport
services.
A revival of revenue growth coupled with an expansion in the margin resulting
from operating leverage (higher capacity utilisation) and a favourable revenue
mix is expected to lead to an exponential growth in the earnings over the next
two years. This will improve the return ratios and aid the re-rating of the
stock.
Despite a 41% appreciation in the stock in less than two months since we
initiated coverage on it (on April 16, 2014), the valuation is still comfortable
at close to 7.4x FY2016 estimated earnings. Thus, we retain our Buy rating on
the stock but revise its price target to Rs56.
DII
0.4%
Public & Others
39.2%
Promoters
54.6%
Foreign
5.8%
Foreign
22%
Promoters
65%
Public & Others
1%
Institutions
8%
Non-promoter
corporate
4%
STOCK UPDATE
EQUITY FUNDAMENTALS
Regional stability to improve business outlook;
COMPANY DETAILS
Price target: Rs180
Market cap: Rs398 cr
NSE volume (no. of shares): 79,588
BSE code: 532767
NSE code: GAYAPROJ
Sharekhan code: GAYAPROJ
(%) 1m 3m 6m 12m
Absolute 111.4 130.0 132.9 75.0
PRICE PERFORMANCE
GAYATRI PROJECTS
KEY POINTS
In Q4FY2014 the earnings of Gayatri Projects were affected by Telangana
related issues that resulted in weak execution of infrastructure projects in the
two newly formed states (especially irrigation projects worth about Rs3,000
crore out of Rs7,250 crore of projects in bag). However, the company posted
an improvement in margins limiting the impact of slow execution on the
earnings. The management expects the execution of irrigation projects to start
from Q2FY2015 contributing meaningfully to the revenues of FY2015.
With political stability returning in Seemandhra and Telangana, project
execution is expected to pick up along with the opportunity of increasing the
order book for future growth. The other power project with Sembcorp
Industries is on track with the first phase (660MW) slated to get commissioned
in Q2FY2015. The company completed the Hyderabad-Karimnagar road
project during the quarter. A positive development in its power project in
joint venture with NCC in the form of Sembcorp Industries buying a strategic
stake would ease concerns related to its power generation business.
The improving visibility of all its three businesses and positive developments
in terms of the commissioning of the first phase of the power plant are resulting
in the re-rating of the stock. Our revised price target price of Rs180 factors in
the bulk of these positives. We maintain Buy on the stock.
FII
28%
Institutions
6%
Public &
others
16%
Promoters
50%
Annual report review, Reduce maintained due to
premium valuation
COMPANY DETAILS
Price target: Rs520
BSE code: 500696
NSE code: HINDUNILVR
Sharekhan code: HINDUNILVR
(%) 1m 3m 6m 12m
Absolute 10.6 16.0 15.3 10.3
Relative to Sensex 5.3 -0.2 -6.3 -17.4
PRICE PERFORMANCE
REDUCE CMP: RS619 JUNE 18, 2014
HINDUSTAN UNILEVER
KEY POINTS
HULs domestic business was affected by persistent inflationary pressures and
weak consumer sentiment that moderated its revenue growth from mid teens
to high single digits in FY2014. The volume growth of the domestic consumer
business moderated to 4% in FY2014 from about 7% in FY2013. The OPM
improved by about 60BPS to 14.2% due to efficient procurement of the key
inputs, stringent cost management and cut in promotional spending (in the
second half of the year).
The companys operating cash cycle improved by five days with a reduction in
the debtor days. The return ratios remained strong with RoE and RoCE standing
at 99% and 135.7% in FY2014 respectively. The dividend pay-out remained
strong at 83.4% during the year.
HUL is one of the largest FMCG companies in India with a strong distribution
reach in the urban and rural markets. It has one of the strongest balance sheets
with negative working capital and is also known for its consistent strong
dividend payout. Banking on sustained innovation and premiumisation the
company wants to derive better revenue growth in the long run. The current
valuation of 30.6x the FY2016E earnings is at a stark premium to its historical
average. Hence, we maintain our Reduce rating on the stock with an unchanged
price target of Rs520.
FIIs
14%
Others
14%
Promoters
68%
Domestic
Institutions
4%
STOCK UPDATE
EQUITY FUNDAMENTALS
Annual report reviewon a strong footing
COMPANY DETAILS
BSE code: 532174
NSE code: ICICIBANK
Sharekhan code: ICICIBANK
(%) 1m 3m 6m 12m
Absolute -1.2 15.2 31.3 39.7
Relative to Sensex -4.2 -0.3 8.1 1.1
PRICE PERFORMANCE
ICICI BANK
KEY POINTS
The FY2014 annual report of ICICI Bank highlights the strategic shift in its
loan book with the proportion of the retail loans rising to 39% in FY2014 led
by a strong growth in the mortgage and auto loan disbursements (27% and
52% respectively). On the other hand, the banks efforts to increase granularity
in the fee income are yielding positive results which could sustain a healthy fee
income growth.
The qualitative improvement in the deposit profile resulted in an increase in the
margins during FY2014 and we expect the margin to sustain around the current
level. On asset quality side, while stress increased in the corporate loan book
(especially infrastructure loans), the retail NPAs continued to decline. Therefore,
we expect the provisioning to be within the guided levels (of about 90BPS).
ICICI Bank remains among our top picks in the banking sector due to a steady
earnings growth, improving return ratios and healthy capital adequacy ratio.
Given the qualitative improvement in its liability base, fee income and a gradual
revival in the economy we expect the bank to trade at a premium to its average
valuation. We maintain our Buy rating on the stock with an SOTP-based price
target of Rs1,728.
holding or having a postition in the companies mentioned in the article. For detailed report, please visit the Research section of our website, sharekhan.com.
Better days ahead; maintain Hold
COMPANY DETAILS
Price target: Rs98
Market cap: Rs7,348.3 cr
BSE code: 500850
NSE code: INDHOTEL
Sharekhan code: INDHOTEL
(%) 1m 3m 6m 12m
Absolute 24.5 29.4 86.6 77.3
PRICE PERFORMANCE
HOLD CMP: RS91 JUNE 2, 2014
INDIAN HOTELS COMPANY
KEY POINTS
Indian Hotels Company Ltd (IHCL)s Q4FY2014 and FY2014 stand-alone
performance was affected by a bleak macro environment (that reduced the
room demand) and incremental room supply in the key domestic markets. At
the consolidated level the performance was little better with under 10% revenue
growth and a marginal decline in the OPM. However, the management has
hinted at a better operating performance in the years to come driven by better
room demand in the domestic markets in a better macro environment. Also,
increased room supply in the key markets will provide a breather.
IHCL has a stable balance sheet and strong room inventory. The company
would be a key beneficiary of any improvement in the domestic tourism and
hospitality business environment in the coming years. However, we will get
more clarity on the same in the second half of the year. In the last four months
IHCLs stock price has already surged by 45%. We maintain our Hold
recommendation on the stock with a revised price target of Rs98. The stock is
currently trading at Rs0.73 crore FY2016E EV/room.
Key risk: Any significant drop in the occupancy rate or the average room
rental would act as a key risk to our earnings estimates.
Foreign
18%
Institutions
22%
Promoters
37%
Others
23%
Foreign
40%
MF & FI
23%
Public &
others
37%
STOCK UPDATE
EQUITY FUNDAMENTALS
Soft outlook, attractive valuation
COMPANY DETAILS
52 week high/low: Rs3,847/2,343
BSE code: 500209
NSE code: INFY
Sharekhan code: INFY
(%) 1m 3m 6m 12m
Absolute -2.9 -19.3 -7.9 26.1
Relative to Sensex -13.3 -31.7 -23.5 -3.0
PRICE PERFORMANCE
INFOSYS
KEY POINTS
In a recent meeting with investors, Infosys management primarily touched
upon four issues: the revival of revenue growth, margin trajectory, rising
attrition and a slew of top-level exits. The management stated that getting
back on growth track is the top priority. It indicated it is aggressively chasing
large traditional IT outsourcing deals (by being more competitive on pricing
and innovation). It will strengthen its sales team by about 400 people in FY2015.
The attrition rate is expected to come down gradually (currently at a concerning
level of 18.7%), though it will remain at elevated levels in the near term. On
the search for a new CEO the management said that it is reviewing a potentially
large set of internal and external candidates and refrained from giving out any
specific timeline for the completion of the process.
The concerns over the several top-level exits in the last one year, the suspense
over the new CEO and the predictability of growth are weighing on the stocks
performance. The stock has fallen by 22% in the last three odd months. We
believe it will be a long road ahead before we see Infosys earnings performance
catching up with that of the bigger IT companies. Given the volatility in the
counter, it will be futile to take an investment call based on the quarterly
earnings performance of the company. At the current level, the stock is available
at a reasonable valuation of 13x FY2016E earnings coupled with a strong
cash balance restricts any major downside. We maintain our Buy rating on the
stock with a price target of Rs3,550.
Smoked-out valuations; use declines to accumulate
COMPANY DETAILS
Price target: Rs369
BSE code: 500875
NSE code: ITC
Sharekhan code: ITC
(%) 1m 3m 6m 12m
Absolute 0.3 -4.0 8.4 5.9
Relative to Sensex -3.2 -17.4 -9.8 -22.3
PRICE PERFORMANCE
ITC
KEY POINTS
In bid to curb the consumption of tobacco products (including cigarettes) in
India, the health minister, Dr Harsh Vardhan, has proposed to increase the
excise duty on cigarettes by 100% in the upcoming union budget. This will
have a negative impact on the sales volume and earnings of the cigarette
companies (including ITC) in the near term.
The excise duty per cigarette stick stood at about Rs1.3 for ITC in FY2014. Our
sensitivity analysis indicates that in FY2015 the companys earnings would decline
by 13-23% if the excise duty increases by 44-76% and the cigarette sales volume
decline by 3.5-6.0%. We have assumed an excise duty hike of 10% and a volume
growth of 3.5% in our current earnings estimate for FY2015. We will revise the
estimate after the announcement of the union budget 2014-15.
ITCs stock price has corrected by about 15% in the last four to five weeks which
has largely factored in the likely steep excise duty hike on cigarettes and its impact
on the earnings in the near term. We believe the stock price will languish at the
current levels but the risk-reward ratio for the investors with a long-term view is
quite favourable now. Hence, we maintain a Buy recommendation on the stock
(and advise accumulating it on declines with a time horizon of 12-18 months) for
a gain of 20-25% from the current level. The stock is currently trading at 25.0x
the FY2015E earnings per share (EPS) of Rs12.6
Possible risk to our rating: If the government raises the excise duty on cigarettes
by more than 100% the stock price may decline by another 10-12%.
Non-
promoter
corporate
0.5%
Institutions
13.7%
Promoters
15.9%
Foreign
59.4%
Public &
Others
10.6%
Domestic
Institutions
35%
FIIs
50%
Others
15%
STOCK UPDATE
EQUITY FUNDAMENTALS
Re-rating sustainable on improving growth outlook
COMPANY DETAILS
Price target: Rs200
BSE code: 522287
NSE code: KALPATPOWR
Sharekhan code: KALPATPOWR
(%) 1m 3m 6m 12m
Absolute 51.0 112.5 121.5 148.3
PRICE PERFORMANCE
KALPATARU POWER TRANSMISSION
KEY POINTS
In Q4FY2014 the revenues of Kalpataru Power & Transmission Ltd (KPTL)
grew by 12% YoY to Rs1,152 crore with a healthy performance in the T&D
segment. The OPM of KPTL remained flat at 9.5% in Q4FY2014 but due to
higher depreciation and interest charges the adjusted PAT declined by 3%
YoY to Rs47 crore. For FY2014 the PAT grew by 6% YoY, backed by a 22%
growth in sales and a steady margin in the stand-alone entity.
JMC Projects (its listed construction subsidiary) reported significant margin
expansion for Q4FY2014 to 6.2% (up 147BPS) even though its sales declined
by 8%, as efforts to improve the margin and streamline the balance sheet are
bearing fruits now. Another subsidiary, Shree Shubham Logistics, reported a
very strong net profit growth with incremental capacity and better OPM of
about 17.5%. In FY2014 also the PAT of SSL grew by 52% YoY.
The management has maintained a top line guidance of 15% for KPTL, backed
by a healthy order book of 1.6x FY2014 revenues with expectations of a
stable margin. But the profitability in the subsidiariesis expected to look up.
However, in case of JMC Projects, the development of its road BOOT projects
should be the key monitorable as FY2015 and FY2016 would be the first two
years of tolling revenue collection. We have fine-tuned our estimates and revised
our price target primarily by revising upward the valuation multiple, given the
overall better outlook. Hence, we retain Buy on the stock with a revised price
target of Rs200 (based on SOTP method).
Annual report review
COMPANY DETAILS
Price target: Rs430
BSE code: 500330
NSE code: RAYMOND
Sharekhan code: RAYMOND
(%) 1m 3m 6m 12m
Absolute 13.1 35.6 44.2 38.0
PRICE PERFORMANCE
RAYMOND
KEY POINTS
FY2014cost rationalisation yielded results; efficiency improvement the key:
In FY2014 Raymonds top line grew at 12% YoY to Rs4,558 crore led by a
growth in the denim & shirting segment (up 30.8% YoY) and the garmenting
segment (up 33.4% YoY). The textile business grew at a soft pace of 7.5%
YoY, as the demand remained muted. During the year the entire focus was on
cost rationalisation and supply chain management which started yielding results
in the form of margin expansion. For the year the operating profit grew by
31.8% while the margin expanded by 164BPS YoY from 9.1% in FY2013 to
10.8% in FY2014.
Strong brand equity and improved environment coupled with embedded asset
value keep us positive; we maintain Buy with revised price target of Rs430:
Raymonds business being a levered play on consumption is likely to witness
an improvement with a revival in the demand environment. This expectation
of an improved macro environment coupled with the embedded asset value in
Raymond keeps us positive on the stock. Hence, we maintain our Buy rating
on the stock with a revised price target of Rs430 (valued at SOTP; with 5.7x
EV/EBITDA to the core business + 50% value for the land parcel).
Promoters
59%
Foreign
10%
Institutions
23%
Others
8%
Promoters
40%
Foreign
10%
Institutions
15%
Non-promoter
corporate
5%
Public & Others
27%
STOCK UPDATE
EQUITY FUNDAMENTALS
Huge capex to build economic moat, price target
revised to Rs1,190
COMPANY DETAILS
BSE code: 500325
NSE code: RELIANCE
Sharekhan code: RELIANCE
(%) 1m 3m 6m 12m
Absolute -7.9 17.9 16.8 32.1
Relative to Sensex -9.7 1.8 -2.4 -2.6
PRICE PERFORMANCE
RELIANCE INDUSTRIES
KEY POINTS
In FY2014, the consolidated earnings of Reliance Industries Ltd (RIL) grew
by 8% YoY largely driven by the petrochemical business. A decline in the
earnings from the exploration business was compensated by higher earnings
from the retail, US shale gas and refining businesses. A growth in the EBITDA
of the retail venture and a significant ramp-up in the US shale business were
the positive surprises in FY2014. RIL managed to impressively convert almost
100% of its EBITDA into operating cash flow and operate on negative working
capital during FY2014. However, due to large capex, the free cash flow has
turned negative for the first time in four to five years, as RIL is going through
a mega capex cycle.
We believe the RoE of RIL would remain around the current level, given the
huge capex planned. But such investments are likely to create a long-term
economic moat through scale and place it ahead of competition which should
eventually create shareholder value in the long run. We have fine-tuned our
earnings estimates and added value for the broadband business in the SOTP
valuation. Consequently, we have retained Buy rating on RIL with a revised
price target of Rs1,190.
Annual report review; maintain Buy with a revised
price target of Rs175
COMPANY DETAILS
Price target: Rs175
BSE code: 532343
NSE code: TVSMOTOR
Sharekhan code: TVSMOTOR
(%) 1m 3m 6m 12m
Absolute 22.0 61.0 147.4 325.1
PRICE PERFORMANCE
TVS MOTOR COMPANY
KEY POINTS
TVS Motor Company (TVS)s annual report for FY2014 highlights the category
shift in the two-wheeler industry from motorcycles to scooters. The report
states that with more male buyers coming in the scooter market, there is a
preference for larger scooters. TVS witnessed a fall in demand for its Scooty
range and addressed the gap in its offerings by launching the Jupiter.
The TVS management is looking to leverage on a complete scooter portfolio
in FY2015. It also expects motorcycle volumes, which were lacklustre in
FY2014, to pick up in FY2015 aided especially by the launch of the TVS StaR
City +. The momentum in three-wheeler exports is expected to continue and
the companys domestic three-wheeler volumes are expected to rise with the
launch of the diesel variant.
Since our initiation on TVS (on May 2, 2013) the stock has delivered an
impressive return of 55%. Our positive stance on the company was due to its
strong product offering in the scooter segment and an expectation of margin
improvement going forward. We remain positive on the stock and expect the
company to deliver earnings CAGR of 28% over FY2014-17. We are taking a
long-term view on the stock and retaining a Buy recommendation on it with
an 18-month revised price target of Rs175 (vs Rs142 earlier) based on 15x
FY2017E earnings.
FII
19%
DII
11%
Others
25%
Promoters
45%
Institutions
17%
FII
5%
Bodies corporate
5%
Promoters
58%
Public & Others
15%
STOCK UPDATE
EQUITY FUNDAMENTALS
Re-rating to sustain aided by improving outlook
COMPANY DETAILS
Price target: Rs354
BSE code: 512070
NSE code: UPL
Sharekhan code: UPL
(%) 1m 3m 6m 12m
Absolute 12.2 67.2 88.7 92.6
PRICE PERFORMANCE
UPL
KEY POINTS
The new government will focus on agriculture by launching a nation-wide
rural irrigation programme and an insurance scheme to protect farmers income.
The governments focus will be on improving the condition of the marginal
farmers (liquidity position, removal of middle man and reducing their
dependency on rainfall) which will be a big positive for the agri-input
companies. Hence, United Phosphorus Ltd (UPL) being one of the major players
in the Indian fertilisers market will be the biggest beneficiary of the reforms in
the agriculture sector.
Big agricultural reforms in the domestic market coupled with a strong demand
environment across geographies will improve the companys prospects and
help it to easily achieve the higher end of the guided growth range. In view of
the companys focus on improving its balance sheet and maintaining a high
growth, we have assigned a higher multiple to the stock. Hence, our revised
price target is Rs354 and we maintain our Buy rating on the stock.
Well capitalised to grow ahead,
COMPANY DETAILS
Price target: Rs720
BSE code: 532648
NSE code: YESBANK
Sharekhan code: YESBANK
(%) 1m 3m 6m 12m
Absolute 32.0 70.2 50.1 15.9
Relative to Sensex 16.3 43.2 23.0 -12.4
PRICE PERFORMANCE
YES BANK
KEY POINTS
The recent equity capital raising has taken Yes Banks CAR to 18% (tier-I
CAR to ~14% levels from 9.8%) which gives significant opportunity to the
bank to expand the balance sheet (advances book) amid signs of a recovery in
the economy. Thus, we expect the earnings growth trajectory to return to
25%-plus range after the cautious growth seen in the past couple of years.
In our view there are multiple structural drivers for the margin (a rising CASA
ratio, improved priority sector lending, stabilisation in interest rates) apart
from leveraging of the equity capital. This should result in an expansion of 20-
30BPS in the net interest margin over the next couple of years. The asset quality
of the bank remains among the best in the system.
Despite equity dilution we expect the return ratios to remain strong (RoE of
about 20% and RoA of about 1.7%) led by a strong earnings growth. We
have revised our price target upwards (to factor in the improvement in the
margin, lesser than expected dilution in the equity and increase in the book
value by 11% for FY2015 and by 22% for FY2016). This has resulted in a
new price target of Rs720 (2x FY2016E book value, which is close to its five-
year mean valuation multiple). We maintain our Buy rating on the stock.
Promoter
22%
Foreign
46%
MF & FI
20%
Public &
others
12%
MF & FI
7%
Foreign
46%
Promoter
30%
Public &
others
17%
Q1FY2015 IT earnings preview
IT JULY 04, 2014
KEY POINTS
Pick-up in revenue growth expected as seasonally strong
period sets in: The first quarter of FY2015 is expected to be
better than Q4FY2014 driven by seasonality. We expect the
revenue growth in reported currency for the tier-1 Indian IT
companies to be closer to 4% QoQ as against 1.6% reported
in Q4FY2014. TCS (a 5.3% revenue growth QoQ) and HCL
Tech (a 4.0% growth QoQ) are expected to lead the revenue
growth in Q1FY2015 while Infosys (a 2.5% revenue growth
QoQ) and Wipro (a 1.5% revenue growth QoQ) would be
behind the pack (though the revenue growth for both is
expected to catch up post-Q2FY2015). During the quarter
the rupee appreciated against the dollar by 2.5% sequentially
while favourable cross-currency movements are expected
result in a positive impact of 50BPS on an average basis. We
expect a fairly soft quarter for most of the tier-2 companies
under our coverage including NIIT Tech, Persistent Systems
and CMC.
Wage hike and rupee appreciation to hit margins: After two
consecutive quarters of a strong margin performance a
moderation in the margin could be expected on the back of
head winds like wage hikes, visa related costs and an
appreciating rupee. TCS and Infosys have indicated an impact
of about 250BPS on their margins due to wage hike while
Wipro will absorb a one-month impact of wage hike (an
impact of 80-100BPS) while HCL Techs margins are
expected to be affected by 30BPS due to a staggered wage
hike policy. Overall, the margin performance is expected to
remain soft due to an appreciating rupee and wage hikes.
Going ahead, the margins for tier-1 Indian IT companies
are expected to remain stable over FY2014 as the impact of
wage hikes will be reversed in the coming quarters leveraging
other tail winds like utilisation and cost optimisation.
Key monitorables: (1) commentary on demand environment
(expected to remain positive); (2) European business, which
is expected to continue to outperform the US business (driven
by outsourcing led demand); and (3) outlook on re-investing
currency-led gains in the business.
Valuation: the CNX IT Index has underperformed the
broader market indices in the last six months, led by
rebalancing of portfolio towards cyclical stocks, though in
the last one month the IT index has outperformed the market
with an 11% gain and the relative valuation has got attractive
after a sharp underperformance. We believe that given the
earnings predictability coupled with strong return ratios and
impressive cash flows, the IT sectors valuation will catch
up with the broader market indices. We maintain our positive
stance on the sector and our order of stock preference in the
large-cap space will be TCS, HCL Tech, Wipro and Infosys
and in the mid-cap space we like FSL.
Valuation and changes in price target
Given the upsurge in the broader market indices and
divergence in the valuation multiples, we have marginally
increased the target multiple for our coverage universe and
consequently changed the price targets.
We have downgraded NIIT Technology (NIIT) and Persistent
Systems to Hold and recommend investors to book some
profit in both the stocks and wait for favorable entry points.
JUNE 2014 QUARTERS EARNING ESTIMATES RS CR
Particulars Revenues QoQ (%) YoY (%) EBITDA (%) QoQ (BPS) YoY (BPS) Net profit QoQ (%) YoY (%)
Infosys 12,871.9 - 14.2 26.4 (183) (3) 2,790.2 (6.7) 17.5
TCS^ 22,140.5 2.7 23.1 29.4 (144) 78 5,004.5 (5.5) 31.8
Wipro 11,477.4 (1.5) 18.0 21.3 (44) 313 2,203.2 (1.0) 35.7
HCL Tech* 8,476.9 1.5 21.4 26.2 (58) 301 1,677.2 3.3 40.6
NIIT Tech 580.5 (1.4) 7.1 14.6 (54) 17 50.2 (19.0) (5.4)
Persistent Systems 440.9 (1.3) 23.4 25.5 (156) 371 69.2 3.0 21.3
CMC 583.8 (3.4) 20.0 15.6 (116) (23) 69.6 (22.2) 31.0
FSL 772.4 (3.0) 7.4 12.1 (31) 91 54.1 (8.1) 31.7
*June ending ^TCS: net income for the quarter includes one-off expense related to change in depreciation policy to straight line method from earlier WDM
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or
having a position in the companies mentioned in the article.
SECTOR UPDATE EQUITY FUNDAMENTALS
KEY POINTS
Since time immemorial India has been known to be an
agricultural economy with second ranking worldwide in
terms of farm output, providing jobs to more than 50% of
the countrys population. However, over the last decade and
a half, the scenario of Indias agricultural sector has
deteriorated with a declining share in the gross domestic
product (GDP) from an average of 25% in 1998 to 14% in
2014, with an average growth of a meagre 3% in the last
ten years.
The problems pertaining to the agricultural sector are plenty:
(1) inadequate irrigation systems and conservation of water
resources; (2) low land productivity and product yields; (3)
huge price mismatch between farmer and end- consumer
(value destruction for farmers); (4) access of farmers to
markets hampered by poor roads, inadequate market
infrastructure (storage facilities) and excessive regulation.
In this context, the pertinent question is: Can India regain
its glory in the agricultural sector in the next decade? The
answer is probably Yes as we do not have much choice,
given its poor economic growth and rising inflation. So if
India has to go back to 7-8% GDP growth path, then the
agricultural sector will need to grow faster.
Incidentally, the new government led by Narendra Modi has
acknowledged the issues pertaining to the sector and strongly
emphasised the need to unleash a second Green Revolution
Reap a rich harvest
AGRICULTURE AND AGRI-ANCILLARIES JUNE 13, 2014
with the agricultural sector as one of the top most priorities
of the government. Mr Modi has already led a green
revolution in Gujarat where he has achieved a much higher
growth in the sector compared with the national average.
The key initiatives and reforms that the government would
undertake to revive the growth are: (a) improve the land
productivity using high-yield seeds; (b) achieve a sustainable
increase in productivity with better soil conservation; (c)
focus on irrigation projects and conservation of water
resources; (d) create greater wealth for farmers and farm
labourers by increasing the minimum support price; (e) and
offer higher value addition to agricultural produce and
exports.
Based on the potential reforms and investments in the
agricultural sector, we have identified a few niche companies
that are likely to benefit from the governments focus on the
sector over the next two to three years.
(a) Use of higher yielding seeds for productivity: Monsanto
India and Kaveri Seed Company
(b) Sustainable increase in productivity with better soil
conservation through use of agri inputs: UPL and
Dhanuka Agritech
(c) Focus on irrigation projects and conservation of water
resources through river linking projects: Finolex
Industries and Jain Irrigation Systems.
VALUATIONS
Company CMP Revenue (Rs cr) EPS (Rs) PE (x) RoE (%)
(Rs) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E
Agro-chemicals
UPL 296 10,771 11,910 13,377 23.6 25.7 30.8 12.5 11.5 9.6 20.6 20.0 20.9
Dhanuka Agritech 380 745 912 1,063 18.6 23.1 27.8 20.4 16.5 13.7 28.0 27.0 25.5
Seeds
Kaveri Seed 648 1,002 1,226 1,561 30.7 38.2 49.0 21.1 17.0 13.2 40.6 34.4 31.2
Monsanto India 2,130 582 786 1,060 75.2 91.7 123.5 28.3 23.2 17.3 37.7 36.3 38.0
Irrigation
Jain Irrigation 112 5,834 6,725 7,869 4.1 5.4 9.0 27.3 20.7 12.4 8.2 10.1 14.4
Finolex Industries 262 2,453 2,719 2,991 13.7 18.4 22.5 19.1 14.3 11.6 20.2 22.2 22.4
SECTOR REPORT EQUITY FUNDAMENTALS
KEY POINTS
The Indian tyre manufacturers have been riding the twin
benefits of soft raw material prices (especially rubber prices
and the largely stable prices of crude derivatives like nylon
cord) and expectations of an improvement in the demand
environment. Consequently, their reported gross profit
margin (GPM) at close to 35% is much higher than the
historic trend. This has resulted in a strong growth in their
earnings coupled with a jump in the free cash and the
deleveraging of their balance sheet which is reflected in the
significant re-rating of the valuation multiples of their stocks.
Though the prices of rubber remain soft (down 40% from
peak of Q1FY2012), but the recent geopolitical disturbances
globally are threatening to push up the prices of some of the
other critical raw materials like synthetic rubber and carbon
black. However, the impact of the same would take a couple
of quarters to reflect on the GPMs of these companies.
In terms of demand, we remain positive. The demand from
the truck & bus segment, which contributes half of the
SECTOR REPORT
Get a grip on it
TYRES JUNE 25, 2014
EQUITY FUNDAMENTALS
revenues for the domestic tyre industry, is expected to revive
as the segment gains from the expected pick-up in the
economy. Also, the major tyre companies witnessing an
improving trend in their overseas operations (exports) would
add to the overall growth in the earnings.
Going ahead, we believe that the OPMs are unlikely to sustain
at the current levels of 12% and we expect a correction of
50-100BPS due to a gradual recovery in the natural rubber
prices and the lag impact of the prices of the other raw
materials that are a derivative of crude oil. Thus, the bulk of
re-rating is behind us. However, we still see scope for
reasonably handsome gains in market leader, Apollo Tyres,
while we would advise accumulating Ceat and Balkrishna
Industries only on declines for 10-12% gains from the current
levels. We are more positive on JK Tyres & Industries purely
because of its valuation and relatively higher exposure to
the commercial vehicle segment.
VALUATIONS
Company CMP Revenue (Rs cr) FD EPS (Rs cr) PE (x) EV/EBITDA (x)
(Rs) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E
Apollo Tyres* 200 133,378 146,008 166,435 19.2 20.5 23.3 10.3 9.7 8.6 6.3 5.4 4.9
Balkrishna Industries 723 35,767 41,813 48,513 50.8 60.9 68.5 14.2 11.9 10.6 10.1 7.8 6.4
Ceat* 717 55,540 62,300 73,714 78.1 91.0 104.1 9.0 7.9 6.9 5.2 5.2 4.5
JK Tyre & Industries* 320 74,387 82,261 93,086 71.0 76.5 86.8 4.5 4.2 3.7 4.4 4.8 4.3
GLOBAL NATURAL RUBBER DATA
Source: IRSG, Sharekhan Research
INDIAN TYRE INDUSTRY: PRODUCT MIX
Source: Bloomberg, Company and Sharekhan Research
Truck & Bus
50%
Passenger
Vehicles
12%
LCVs
6%
Tractor
11%
Industrial
4%
2/3 Wheelers
15%
OTR
2%
1000
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Production Consumption
Inventory Avg. Rubber Price Rs/kg (RHS)
Sharp appreciation; book profits
SUPRAJIT ENGINEERING
VIEWPOINT CMP: RS106 JUNE 27, 2014
Key points
Though we continue to believe in the long-term secular
growth story of Suprajit Engineering due to its strong
positioning and dominant leadership in the auto cable
space, but the sharp run-up of close to 45% in the stock
price (the stock was recommended by Sharekhan at Rs73
on April 9, 2014) in less than three months leaves little
scope for any material re-rating of multiples from here.
Thus, it is advisable to take home profits.
Fundamentally, the company posted a robust earnings
growth of 21.2% in FY2014 in spite of tough market
conditions. The company is gaining market share with
Indias fastest growing two-wheeler manufacturer,
Honda Motorcycle & Scooter India, and increasing after-
EQUITY FUNDAMENTALS
VIEWPOINT
No more pain, better time ahead
ESSEL PROPACK
VIEWPOINT JUNE 3, 2014 CMP: RS95
Key points
Essel Propack Ltd (EPL), a leading manufacturer of
laminated and plastic tubes globally (35% market share),
is expected to see better times ahead with a turnaround
of its European operations (after seven years), shifting
focus towards non-oral care high-margin industry
(particularly personal care, skin care and hair care
segments), a revival in the US market and a strong growth
in the AMESA region. We expect the company to register
a revenue growth of 15% (CAGR) in FY2013-16.
EPL is well positioned in the global markets (covers 12
countries) with a strong R&D set-up, wide range of
products and marquee clientele. It is aggressively focusing
on the Chinese and Indian markets, particularly the
pharmaceutical and cosmetics categories, which will
provide the dual benefit of revenue accretion and margin
expansion. Further, it is more keen to increase its presence
in the high-margin products and is targeting revenue
having a postition in the companies mentioned in the article.
having a postition in the companies mentioned in the article.
contribution of up to 50% from the non-oral care
category till FY2016 (vs 39% in FY2014).
We believe that EPL has entered into a new growth orbit
where it could see a tremendous improvement in the
margins and return ratios, mainly due to a restructuring
exercise, improvement in the product mix and revival in
the international market. Further, no major capex, better
operational efficiency and continuous efforts to de-
leverage the balance sheet (D/E ratio to reduce from 1.2x
in FY2014 to 0.7x in FY2016) would enhance the overall
financial performance. Therefore, we expect the earnings
to grow at a CAGR of 34% over FY2013-16. Currently
the stock trades at 10x FY2015E and 8x FY2016E
earnings, and offers scope for 20-25% appreciation in
the stock price (a rough target of Rs115-120) over the
next few quarters.
market sales to sustain a healthy growth trend. It will be
investing about Rs60 crore to increase its consolidated
capacity to 225 million cables per annum.
At a valuation multiple of 13.6x FY2016E earnings, the
stock is trading at a 50-55% premium to its historical
average valuation and is largely discounting the near-
term positives. However, any serious investor should keep
the stock on his radar (in order to enter at a better price
point) as it is one of the finest stocks in the auto ancillary
sector.
It's going to be a sixer
The Sensex has provided a fresh break-out from a downward
sloping parallel channel which indicates that the fresh leg on
the way up has started.
Currently, the index has started its wave III up, a wave of minor
degree which has an equality target of 26571. The support
exists at 25021, ie the swings low of wave II.
The daily momentum indicator has given a positive cross-over.
Crucial supports for the index will be around 25021 and 24878
while crucial resistance will be faced around 26571 and 27200.
The Sensex has come out of the congestion phase which lasted
for three weeks. Now, with a positive weekly close bulls seem
to be back.
According to the Elliott wave theory, the index has completed
both waves I and II, so now wave III has already started for a
target of 26571 and above that one can see the index zooming
till 27200 levels. The index has almost formed a Marubozu
candlestick pattern which indicates that it traded in one direction
throughout the week gone by.
On the weekly chart the momentum indicator has a positive
cross-over.
A crucial support would be around 24878 and resistance would
be around 27200.
The Sensex has closed in positive territory for the fifth
consecutive month which clearly shows that the bulls have an
upper hand in the market since it has taken off its 2008 swings
high. It is expected to close positive for the sixth consecutive
month.
The Sensex is trading above the upper Bollinger Band which
indicates that the up trend is intact.
As per the Elliott wave theory, the index is trading in its wave
3 of (3) which is the fastest and longest.
A crucial support will be around 24200 and a crucial resistance
will be around 27200.
Daily view on Sensex
Weekly view on Sensex
Monthly view on Sensex
Trend Trend reversal Support Resistance Target
Up 24150 24150 27200 27200
Medium term
EQUITY TECHNICALS
TREND & VIEW

7 14
tober
21 28 5 11
November
25 2 9 16
December
23 6
2014
13 20 27 3 10 17
February
24 3 10
March
18 24 31 7
April
15 28 5
May
12 19 26 2 9
June
16 23 30 7
July
14 2
-3
-2
-1
0
1
2
3
4
5
6 KST (2.07783)
19000
19500
20000
20500
21000
21500
22000
22500
23000
23500
24000
24500
25000
25500
26000
26500

18 25 3 8 14
November
22 29 6 13 20
December
27 3 10
2014
17 24 31 7 14 21
February
28 7 14
March
22 28 4 11
April
17 25 2 9
May
16 23 30 6 13
June
20 27 4 11
July
18 25 1 8
August
15 22 29 5 12 19
September
0
5
10
KST (11.9161)
20500
21000
21500
22000
22500
23000
23500
24000
24500
25000
25500
26000
26500
27000

Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Mar Apr May Jun
-5
0
5
10
15
20
KST (23.4456)
15500
16000
16500
17000
17500
18000
18500
19000
19500
20000
20500
21000
21500
22000
22500
23000
23500
24000
24500
25000
25500
26000
26500
27000
27500
28000
28500
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
161.8%
Derivative View: Bulls flying like birds
The five-month winning streak of the market continued in June
this year when the market hit an all-time high again, rising above
the 7700 mark. The market welcomed the new government with
open arms and since May 16, 2014 (on the day the election results
were announced) the Nifty has moved from 7200 to over 7750.
That is a move of close to 8% in anticipation of an economic revival
led by right policy decisions.
Soon after hitting a life-time high at the beginning of the last month,
the market traded in a narrow range and consolidated despite
multiple negative domestic as well as international factors, such as
a delayed monsoon, the depreciation of the rupee to below 60
against the dollar, low participation by foreign institutional
investors, rising crude oil prices due to violence in Iraq and volatile
global equity markets.
On the other hand, there were positive factors too, such as a drop
in the Consumer Price Index, good Index of Industrial Production
numbers and a reduction in the statutory liquidity ratio by the
Reserve Bank of India, which helped the market to hold on to its
gains throughout the month. Finally, June of 2014 concluded on a
positive note with the market gaining an astonishing 5.28% to close
at 7635 odd levels.
ROLL-OVER: MARKET-WIDE VS NIFTY
EQUITY DERIVATIVES MONTHLY VIEW
STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
HDFCBANK 2929.90
RELIANCE 2303.48
ICICIBANK 1701.66
MCDOWELL-N 1700.34
SBIN 1286.44
Top 5 stock futures with highest OI in current series
Top 5 stock options with highest OI in current series
STOCK OPTIONS (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR)
RELIANCE 659.52
MCDOWELL-N 599.19
LT 495.46
INFY 486.55
SBIN 430.23
After trading in a narrow range in the last month, yesterday the 50-
share index, Nifty, gave a break-out and hit a life-time high at
around 7750 levels. Ahead of the budget the market is making
fresh highs and the Nifty can move towards 8000 levels.
On the options front, call option strike of 8000 stands with the
highest number of shares in OI followed by strikes of 7800 and
7700 whereas on the put option side, the strike of 7500 stands
with the highest number of shares in OI followed by the strike of
7000 with a put/call ratio of 0.79, which has seen a marginal up
move in the last few trading sessions.
The Volatility Index was in the range of 15-18% throughout the
series and going forward we expect volatility to increase ahead of
the announcement of the union budget followed by the
announcement of the quarterly results of the majority of the Indian
companies which would decide the pace and direction of the market.
However, any favourable outcome of the budget will boost market
sentiment and we might see 7900-8000 levels on the higher side
while 7500 may act as a decent support on the downside.
View
With all eyes on the first budget of the National Democratic Alliance
government which will be announced on July 10, 2014, the July
series commenced the first trading session on a positive note. It
started the month with Rs11,109 crore in Nifty futures vs Rs11,650
crore in the previous series; Rs55,183 crore in stock futures vs
Rs52,276 crore in the previous series; Rs59,847 crore in index
options vs Rs61,208 crore in the previous series; and Rs4,725 crore
in stock options vs Rs4,239 crore in the previous series.
The roll-over in Nifty stood at 71.39%, which is significantly higher
than the previous months roll-over of 59.70% and significantly
higher than the 3-month and 6-month average roll-overs of 58.47%
and 63.44% respectively. The market-wide roll-over stood at
83.99%, which is marginally higher than the previous months roll-
over of 82.50% as well as the 3-month and 6-month average roll-
overs of 80.31% and 80.53% respectively. We have seen that the
majority of the positions were rolled on to the long side as the
Nifty future prices increased significantly on a month-on-month
basis with a significant rise in open interest (OI).
Commodities: Industrial metals to outperform barring geo-political concerns
Key points
US added robust 288k jobs in June; 5th straight monthly gain of
over 200k
US jobless rate falls to 6.1%, the lowest level since the fall of 2008
A full-blown civil war feared in Iraq as ISIS continues to advance
The USA warns Russia of sanctions as unrest simmers in East
Ukraine
Ukrainian troops resume attack against rebels after truce ends
Commodities climb to the highest level since August last as oil
rallies on Iraq
Syria hands over remaining chemical weapons to OPCW
World Bank cuts global growth forecast for 2014 to 2.8% from 3.2%
IMF lowers estimate of US economic growth for 2014 to 2%
from 2.7% earlier
US data continues to be patchy Feds stance remains dovish
US economy shrinks by a shocking 2.9% in first quarter; forecast
-1.8%
Treasuries rise in first half on Ukraine, Iraq to almost erase last
years loss
US Philadelphia Fed survey, indicates production tops the forecast
US-ISM manufacturing PMI, retail sales, leading indictors
construction and personal spending below forecast
Yellen says rate policy shouldnt change over instability
Consumer sentiment in USA unexpectedly fell to three-month
low in June
US housing markets show little improvement, Freddie Mac says
Chinese local debt growth, beige book show economic expansion
cooling
Chinas new loans top estimates to boost economic growth in May
Chinas factory output climbed 8.8% in May from a year earlier,
8.7% in April
COMMODITY PRICES IN JUNE 2014 (IN $)
Commodity High Low Close Mon chg %
Copper 7025.0 6614.8 7015.0 2.5%
Zinc 2219.5 2045.0 2217.0 7.9%
Lead 2192.0 2070.0 2173.0 3.7%
Nickel 19575.0 18700.0 19040.0 -1.1%
Gold 1329.5 1240.7 1327.3 6.2%
Silver 21.2 18.6 21.0 11.8%
Crude oil 107.7 101.6 105.4 2.6%
MONTHLY CHANGE IN SHFE STOCKS (MAY-JUN 2014)
Copper Lead Zinc
Change (in tonne) -12972 -3416 -7326
29-May-14 91947 70821 217166
Change (in %) -14.11 -4.82 -3.37
MONTHLY CHANGE IN DOE PETROLEUM STOCKS (MAY-JUN 2014)
Crude oil Dist. Gasoline
Change in (000' bbls) -1433 2473 3192
30-May-14 389523 118093 211785
Change in (%) -0.37 2.09 1.51
Refinary utlisation rate was at 88.5% in the last week of June
MONTHLY CHANGE IN LME STOCKS (MAY-JUN 2014)
Copper Lead Zinc Nickel
Change (in tonne) -16675 3325 -43425 20454
30-May-14 171350 190475 711900 284436
Change (in %) -9.73 1.75 -6.10 0.07
NoteLME: London Metal Exchange , SHFE: Shanghai Futures Exchange, DOE: Department of Energy (US)
Macro-economy
Crude oil: Geopolitical issues pose upside risk
Key points
OPEC agrees to hold oil production steady
WTI crude rises to eight-month high on escalating Iraq conflict
Net long speculative position in Brent crude oil largest since August last
Brent crude backwardation shrinks to least since April 2014 on supply
Japans crude imports fell 3.3% YoY in May to 16.11mn kl
Oil cooling off a bit as Iraq violence seen sparing production from south
US crude oil export ruling seen limited
Brent falls to three-week low as Libyan rebels say ports will reopen
EIA reports cushioning stockpiles at 5-year low
Crude oil prices rallied 2.59% in June this year on supply concerns as the Islamic State in Iraq and Levant (ISIS) stormed Iraq. Iraqs oil
production was at 3.3mbpd in April, which was compensating for the 90% production loss in Libya to some extent. This attack on Iraq
comes at a time when the Russia-Ukraine issue continues to simmer. The West Texas Intermediate (WTI) crude oil slipped after rising to
nearly $108 level as the fighting in Iraq has been concentrated in mostly the north region. Fighting in Iraq hasnt spread to the south, which
is home to more than three-quarters of the countrys output. At the same time, some of the Libyan supply concerns eased as the country will
start shipping from Es Sider and Ras Lanuf at full capacity after taking back control of the ports from the rebels. On the bullish side, the
hurricane season (June-November) in the USA and encouraging US job report could support the prices. As such, experts predict a slightly
below-average hurricane season in the Atlantic this year. Crude oil is likely to trade between $102 and $108 with a bullish bias with major
focus on the developments on geo-political issues.
WTI NYMEX crude oil CMP: $104
MONTHLY VIEW
COMMODITY FUNDAMENTALS
Gold CMP: $1322 (spot)
Bullions: Likely to fall unless geopolitical tensions flare up
Silver CMP: $21.15(spot)
Encouraging macro-economic indicators out of China and the USA are positive for the metal as industrial demand would pick up;
however, gold bearish factors are applicable to silver too. We look for a range of $19.80 to $21.85 with a downward bias.
Copper CMP: Rs434 (August contract)
Base metals: Buy the dips
Key points
Qingdao Port probe unlikely to break copper market as affected tonnage small
Refined lead and zinc market seen by Study Group in deficit in April this year
LME copper stockpiles in South Korea jump most since October 2012
Zinc-to-lead balance flips by most since 2010 as zinc trades at a premium
China's nickel ore imports down 36% in May this year
Chinese steel mills cut NPI prices for July, spot prices down
Copper records steepest rally in three quarters
Zinc inventories down 50% in two years as prices reach three-year high
Nickel volatile as inventories at all-time high amid expected deficit next year
The London Metal Exchange (LME) three-month copper prices rose nearly $400 from the low of the month as Qingdabo Port probe was
seen having a limited impact on the market since the affected tonnage was small relative to the copper market size. Traders turned their
focus on the fast dwindling LME stockpiles and the Chinese economy. The LME inventories fell sharply by around 10% in June this year.
The Chinese governments minor stimulus measures have supported the economy which is positive for the metal. The US demand is
expected to bounce back in the second half after weather-related issues in the first half. Tightness in scrap supply continues but should
ease in the medium term. Chinas Strategic Reserve is rumored to have been buying copper this year. The agency can buy more. The base
metals are entering a seasonally weak demand period. The focus would be on Asian inventories. We expect the metal to trade between
Rs420 and Rs448.
Lead CMP: Rs129.50 (July contract)
The global refined lead market is likely to tighten from the second half of 2014. Robust auto sales in China, Europe, Japan, and the USA
are likely to provide support while most of the emerging markets are facing a weaker demand for the metal. The metal is likely to be in
deficit of 60,000 tonne in 2015. We look for a range of Rs127-132 in the near term.
Gold prices rallied by over 6% in June this year helped by geo-political concerns coming from Iraq fighting and the Russia-Ukraine tiff. Gold got
the support from the US Federal Reserve (Fed)s low rate stance and the sharp rally in palladium and platinum. The US treasuries too followed
the same macro fundamentals to rally sharply in the first half of the year to almost erase all the losses of the last year. Gold has risen 9.7% in this
year. Hedge funds boosted bullish gold bets to the highest since March in the week to June 24. It means that gold has seen mostly speculative
buying amid lacklustre physical demand from Asia which makes the metal vulnerable. As Indias physical demand is virtually non-existent,
traders would be closely watching if the Indian government relaxes import curbs in its budget to be presented on July 10, 2014. While easing
curbs would bring down gold prices in rupee terms, the metal can get support from an increase in Indian demand eventually. We suggest selling
into rallies on account of a strong US job report, expected weakness in the euro and weak physical demand. Only heightened geo-political issues
would help gold rise sharply from the current levels. The range is likely to be $1,260-1,345 with a downward bias.
Key points
Bullions rise on Feds low rate stance, Iraq and Ukraine issues
China Q1 direct gold imports almost 150 tonne, doubled YoY
Gold rally obscures fund outflow as investors target shares
Gold investor index falls to 4-year low as rally spurs selling
Indias H1 gold imports tumble 77% on curbs
China finds $15 billion of loans backed by false gold trades
Gold physical demand remains subdued above $1,300 as China on sidelines
LBMA expects market consensus on new silver price in early July
MONTHLY VIEW COMMODITY FUNDAMENTALS
Zinc CMP: Rs133.50 (July contract)
Zinc rallied by nearly 8% in June this year as traders focused on the sharply falling LME inventories. Chinas zinc financing activity
bolstered imports which supported zinc prices. A risk to the zinc rally can come from the unreported stocks. We look for a range of
Rs128-137 in the near term.
Events watch: Major economic events in July 2014
CMP as on July 03, 2014
Date Region Event Survey Actual Prior Impact
1/7/2014 China Manufacturing PMI 51 51 50.8 PMI rose to five-month high; expanding manufacturing growth remains supportive for
industrial commodities, though HSBC data portrays somewhat bearish picture
1/7/2014 Euro zone Markit Manufacturing PMI 51.9 51.8 51.9 Manufacturing sector slowed in June, but still above the 50 mark, thus in expansion;
of late, European data mostly disappointing; the ECB needs to ease further, hence
bearish for euro
1/7/2014 USA Markit US Manufacturing PMI 57.5 57.3 57.5 Manufacturing activity rose to highest level since May 2010; data supportive for
industrial commodities
2/7/2014 USA Factory orders -0.30% -0.50% 0.70% Lower than the expected, so somewhat bearish for industrials; however, strong job
data counters it
3/7/2014 Euro zone ECB main refinancing rate 0.15% 0.15% 0.15% ECB cut the rates in June, no change this time but ECB stated TLTRO size could be
EUR1tn; ECB's current balance sheet is of EUR1tn; thus, euro to fall in case ECB
acts on its intention
3/7/2014 Euro zone ECB deposit facility rate -0.10% -0.10% -0.10% ECB introduced negative interest rates for the first time to discourage banks from
keeping idle funds with ECB; ECB says further technical adjustments possible; this is
a bearish development for the euro
3/7/2014 USA Trade balance -$45.0B -$44.4B -$47.2B A lower deficit is dollar bullish and gold bearish
3/7/2014 USA Change in non-farm payrolls 215K 288k 217K Strong reading from ADP raised expectations for the monthly payrolls report;
employment reached milestone in topping US pre-recession peak in May; better than
expected data is bearish for bullions, bullish for dollar and industrial commodities
3/7/2014 USA Unemployment rate 6.30% 6.10% 6.30% The jobless rate fell sharply but due to a drop in participation rate; thus only
statistically important; however, US jobless rate now lower than the UK's; overall
bullish implication for dollar
4/7/2014 Germany Factory orders MoM -1.10% -- 3.10% Lower than forecast order signals slowing domestic demand, negative for euro and
8/7/2014 Japan Trade balance BoP basis -- -- -780.4B A higher than estimated deficit would weigh on yen
10/7/2014 China Trade balance $35.90B -- $35.92B Trade surplus rose to the highest in five years in May; the data is overall supportive
for industrial commodities but traders taking trade balance with a pinch of salt due to
invoicing related issues
10/7/2014 UK Trade balance -- -- -2543 A higher deficit would be bearish for pound, however the markets are currently
focusing only on other macro-economic indicators which remain largely supportive for
the pound
10/7/2014 UK BoE asset purchase target -- -- 375B No change is expected
15/7/2014 USA Retail sales ex auto and gas -- -- 0.00% Better than expected data would support the dollar and the industrials
15/7/2014 USA Import Price Index YoY -- -- 0.40% Lower than estimated weighs on gold, however notion of easy macro-economic policy
would eventually support the yellow metal
16/7/2014 China Industrial production YTD YoY -- -- 8.70% A key indicator to gauge the demand for industrial commodities; a higher number
would be supportive for base metals and crude oil
16/7/2014 China GDP YoY 7.50% -- 7.40% Q1 growth came in at slowest pace in 18 months; stimulus measures taken by China
showing results; thus, data is expected to be good which would be supportive for
16/7/2014 Euro zone Trade balance SA -- -- 15.8B Larger surplus would be supportive for euro as euro has continued to benefit on surplus
16/7/2014 USA Industrial production MoM -- -- 0.60% Positive figure would be supportive for industrials
17/7/2014 Euro zone CPI MoM -- -- -0.10% Far below than the target rate of ECB's 2%; pressure mounting on ECB to take
further measures to counter deflationary pressure; euro to fall when the ECB acts
22/7/2014 USA CPI ex food and energy YoY -- -- 2.00% Subdued inflation would force the Fed to remain accommodative for longer which
would be bearish for the dollar
24/7/2014 USA New home sales -- -- 504K Pick-up in housing sector would boost industrial commodities and the dollar
25/7/2014 Germany GfK Consumer Confidence -- -- 8.9 Better than expected data supportive for the euro and industrials
25/7/2014 UK GDP QoQ -- -- 0.80% UK growth looks promising; higher than forecast would be supportive for GBP and
25/7/2014 USA Durables ex transportation -- -- -0.10% Higher than forecast would support industrials and be bearish for gold
30/7/2014 USA GDP annualized QoQ -- -- -2.90% US economy contracted severely in Q1, the worst decline since 2009; slowing growth
leads to lower demand and is bearish for industrial commodities; however, the market
expects the US economy to gain traction in H2
30/7/2014 USA Fed pace of treasury purchases -- -- $20B Fed cut asset purchases for the fifth straight time on recovery of US economy; further
cut in asset purchases to continue, however low rate stance still hurting the dollar
30/7/2014 USA FOMC rate decision 0.25% -- 0.25% Fed plans to keep its interest rate target low for a considerable time after it ends
bond-buying; this is weighing on the dollar and is supporting gold prices
MONTHLY VIEW
COMMODITY FUNDAMENTALS
Nickel CMP: Rs1,178 (July contract)
Nickel prices were slightly down in June this year as a lumpy delivery of 19,000 tonne and overall stocks rising to a fresh record high
reminded that the market is not that tight in the near term. Still the metal is likely to be volatile considering that traders look for a deficit
by the end of the year due to nickel ore export ban in Indonesia. We look for a price of Rs1,120-1,220.
Gold: Rallying smartly
Gold is in an up trend over the short term as well as the medium
term. It is trading above the key daily moving averages (MAs),
which will now act as short-term supports ($1,292).
The yellow metal has also crossed the weekly MAs, which are
providing extra support.
The recent low of $1,240 will act as a medium-term support.
The short-term target on the upside will be $1,370, ie the falling
trend line; whereas the medium-term target will be $1,460, ie
the equality target.
Silver: Hurdle crossed
Silver has been rallying for the last few weeks.
On the way up it has crossed the medium-term falling trend
line. The short-term as well as medium-term momentum
indicators are in line with the rally.
Thus, the white metal seems to have bottomed out from the
medium-term perspective.
The level of $20 will act as a short-term support whereas a
medium-term support is at $18.60.
The long-term falling trend line, which is near $24, will be the
target from the medium-term perspective.
Trend Trend Supports Resistances Target
reversal
Up $18.60 $20.00, $19.00 $22.16, $23.06 $24
NYMEX crude oil has broken out from a multi-week triangular
pattern.
After breaking out it has come down to retest the pattern break-
out line.
It is also trading near multiple trend line supports.
Thus, from hereon the oil is expected to resume the larger up
trend. The $101.60-101.00 level will be the key support zone
for crude oil.
The channel target on the upside will be $110.
reversal
Up $101 $103, $101.60 $106, $108 $110
reversal
Up $1,240 $1,292, $1,258 $1,370, $1,433 $1,460
Crude oil: A bearish structure
TREND & VIEW COMMODITY TECHNICALS

g Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
1170
1180
1190
1200
1210
1220
1230
1240
1250
1260
1270
1280
1290
1300
1310
1320
1330
1340
1350
1360
1370
1380
1390
1400
1410
1420
1430
1440
1450
1460
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
100.0%
1292
1370
1460
1240
0
5 KST (3.17206)

May Jun Jul Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
28.5
20.00
24
18.60
SILVER [CASH] (21.0100, 21.2700, 20.8900, 21.0900, +0.08000)
-10
-5
0
5
10
KST (5.83483)

September November 2014 February April May June July
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
101.60
110
101
LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (105.210, 105.530, 104.100, 104.480, -0.85999)
-5
0
KST (-0.10268)
reversal
Up $3.10 $3.18, $3.14 $3.32, $3.42 $3.34,
$3.54
Lead: A bullish break-out
MCX lead has broken out of a large bullish wedge pattern.It
has also crossed the medium-term falling trend line.
Thus, the short-term as well as the medium-term trend for the
base metal is positive.
The short-term and medium-term momentum indicators are in
line with the price action.
The short-term support is at Rs126.75 whereas the medium-
term support is at Rs121.85.
On the other hand, the 50% retracement mark (Rs138) and
the 61.8% retracement mark (Rs142) will be the short-term
and medium-term targets respectively.
reversal
Up Rs121.85 Rs127.80, Rs134.50, Rs138,
Rs127 Rs140 Rs142
Dhaanya NCDEX Future Index: Tumbling down
After a channelised fall Dhaanya-NCDEX Futures Index
retraced the same till the 78.6% retracement mark.
From that key Fibonacci level the index has started tumbling
once again.
The short-term momentum indicator has triggered a fresh
bearish cross-over whereas the medium-term momentum
indicator is already in bearish mode.
The recent high of 2687 will act as a strong hurdle.
On the downside the index can test the low of 2512 and attempt
the equality target, ie 2480.
reversal
Down Rs2,687 Rs2,561, Rs2,650, Rs2,512,
Rs2,500 Rs2,674 Rs2,480
Copper: A positive trend
COMEX copper has recently crossed a crucial swings high of
$3.192 and gone into the extension on the upside.
The rise is unfolding in a channelised manner and the red metal
is about to cross the upper end of the channel.
The short-term as well as medium-term momentum indicators
are in line with the rally.
As long as copper trades above the key daily MAs ($3.10) on a
closing basis the bullish potential shall remain intact.
The equality target on the upside is $3.34 whereas the extended
Fibonacci target is $3.54.
COMMODITY TECHNICALS TREND & VIEW

cember 2014 February March April May June July Aug
2.80
2.85
2.90
2.95
3.00
3.05
3.10
3.15
3.20
3.25
3.30
3.35
3.40
3.45
3.50
3.55
3.60
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
161.8%
3.10
3.34
3.54
HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.20400, 3.26650, 3.18300, 3.26500, +0.06100)
-5
0
KST (3.65189)

Jul Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
115
120
125
130
135
140
145
150
155
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
138
126.75
142
121.85
LEAD - 1 KG - 1 MONTH (128.850, 131.500, 128.050, 131.350, +2.55000)
-5
0
5
KST (2.23866)

10 17 24 31 7
April
14 21 28 5
May
12 19 26 3 9
June
16 23 30 7
July
14 21 28 4
Augu
2410
2420
2430
2440
2450
2460
2470
2480
2490
2500
2510
2520
2530
2540
2550
2560
2570
2580
2590
2600
2610
2620
2630
2640
2650
2660
2670
2680
2690
2700
2710
2720
2730
2740
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
100.0%
2687
2512
2480
* DHAANYA- NCDEXFUTURE INDEX(2,629.27, 2,636.07, 2,597.69, 2,604.30, -27.8398)
0
KST (1.51471)
CurrenciesDollar likely to strengthen
Key points
ECB seen buying assets within a year; open on QE and rate reduction
ECB gives details of extra liquidity from TLTRO
Rupee weakens beyond 60 for first time in a month on oil concern
Dollar rose to 60.9% of known Q1 global reserves, IMF says
Bullard says yuan could challenge dollar as reserve currency
Carney sees scope to absorb more slack before BoE rate increase
CURRENCY LEVELS IN JUNE 2014 (IN RS)
Currency High Low Close Monthly chg (%)
INR-USD 60.91 59.25 60.55 -2.35
INR-EUR 82.75 80.64 82.38 -2.23
INR-GBP 103.50 99.15 103.00 -3.77
INR-JPY 59.78 59.42 59.57 -2.57
INR-USD CMP: RS59.74 (SPOT)
The Indian Rupee (INR) fell in June this year as a sharp spike in oil prices due to the Iraq crisis raised concerns that high oil prices would
widen the deficit, increase inflation and reduce the possibility of rate cuts. High oil prices would strain both the deficit and the budget.
The country relies on imports for about 80% of the oil it uses. Rating agency CARE estimates that every $10 rise in oil prices would add
100 basis points (BPS) to inflation. A weaker monsoon is an added worry for the currency. The domestic currency has covered some of
the lost ground ahead of the budget in anticipation of positive developments. A recovery in the global equities markets aided by a low rate
stance of the US Federal Reserve (Fed) has also supported the INR. In the meanwhile, the US job data has been pretty strong as the
economy registered 200,000-plus jobs for five straight months. Currency Strategist Brown Brothers Harriman noted that such a streak
has not been recorded since the period September 1999-January 2000. This is surely a dollar bullish development. The Reserve Bank of
India buying dollar at lower levels to increase its reserves would support the US Dollar (USD). We look for a range of 59-61 with an
upward bias for the dollar.
INR-GBP CMP: RS102.41 (SPOT)
The GBP-USD pair appreciated nearly 2.50% in June this year on optimism about the UK economy and speculation that the Bank of
England (BoE) would hike rates sooner than the Fed. The sterling appreciated to the strongest level since 2008 versus the dollar. However,
the pair looks overvalued now as the US unemployment rate has fallen below that of the UK and the US employment gain string in the
past five months is really impressive. The $1.72 mark is a strong hurdle for the pound as it served as a resistance level from 1997 to 1998.
We look for a range of Rs100-104.50 for the GBP-INR pair.
INR-JPY CMP: RS58.53 (SPOT)
The USD-JPY pair continues to trade in a narrow range of 101.20-103.30. A break on either side would generate momentum for a
trend. The Japanese Yen (JPY) is getting support from the notion that the Bank of Japan is unlikely to ease any time soon. Prime
Minister Shinzo Abe said the deflation that wiped out much of Japans growth in the past 15 years has ended and will be thwarted by
new government policies designed to encourage business expansion. The JPY-INR pair is likely to trade in the Rs57.80-60.15 range.
July 2014 contract price movement July 2014 contract price movement
CMP as on July 03, 2014
The EUR-INR pair gained in June this year mainly on the rupees weakness against the dollar. The EUR-USD pair traded in a narrow
range of 1.35-1.37 in June and barely moved on a monthly closing basis. The pair has remained on defensive ever since Mario Draghi
opted for negative deposit rates for banks and took further easing measures to support the economy at the European Central Bank
(ECB)s June meeting. In the July meeting, Mr Draghi discussed targeted longer-term refinancing operation (TLTRO) saying that that
banks would be able to borrow up to Eur1 trillion from the central bank, should they smash targets, or benchmarks, set by the ECB. This
is a considerable amount bearing in mind that the ECBs balance sheet is currently close to Eur2 trillion and TLTRO would considerably
affect the ECB/Fed balance sheet ratio. The EUR-USD pair is expected to fall to 1.33 while 1.37 remains a strong resistance. The EUR-
INR pair is likely to trade in the Rs80-82 range with a downward bias.
CURRENCY FUNDAMENTALS
INR-EUR CMP: RS81.21 (SPOT)
MONTHLY VIEW
59.2
59.7
60.2
60.7
61.2
2
9
-
M
a
y
-
1
4
5
-
J
u
n
-
1
4
1
2
-
J
u
n
-
1
4
1
9
-
J
u
n
-
1
4
58
58.5
59
59.5
60
USDINR JPYINR
80
81
82
83
84
85
2
9
-
M
a
y
-
1
4
2
-
J
u
n
-
1
4
6
-
J
u
n
-
1
4
1
0
-
J
u
n
-
1
4
1
4
-
J
u
n
-
1
4
1
8
-
J
u
n
-
1
4
2
2
-
J
u
n
-
1
4
99
100
101
102
103
104
EURINR GBPINR
Currency View Reversal Supports Resistances Target
USD-INR Up 58.94 59.60/59.00 60.53/61.00 61.19
GBP-INR Up 101.00 102/101.30 103.20/104 104.80
EUR-INR Up 79.90 81.05/80.00 82.38/83.00 83.81
JPY-INR Up 0.5750 0.5850/0.5800 0.5945/0.6000 0.6071
JPY-INR: Bullish potential
The JPY-INR formed a deep retracement of the previous rally,
ie the 78.6% retracement mark.
In terms of price pattern, the currency pair has formed an Ending
Diagonal and broken out on the upside.
The short-term as well as the medium-term momentum
indicators are in bullish mode.
The currency pair can stretch till 0.5985-0.6071.
A major support is at 0.5750, ie the junction of the daily lower
Bollinger Band and a crucial swings low.
USD-INR: Scope for extension
The USD-INR has broken out from a medium-term falling
channel. The currency pair is trading above its key daily moving
averages (MAs).
The short-term momentum indicators are in bullish mode.
In terms of wave structure, the currency pair has the potential
to form an extension on the upside.
The daily lower Bollinger Band along with the swings low of
58.94 will act as a strong support.
On the other hand, 61.19 will be the target from the short-to-
medium-term perspective.
CURRENCY TECHNICALS TREND & VIEW
EUR-INR: Keep an eye
The EUR-INR is trading between the key daily MAs and the
key weekly MAs.
Thus the key support is at 81.34 whereas the key resistance is
at 82.69.
The currency pair is likely to trade in this range over the short
term.
Overall, the EUR-INR can test the level of 83.81 over the short
to medium term.
On the flip side, a major support is at 79.90, ie the junction of
the daily lower Bollinger Band and a crucial swings low.
GBP-INR: Near key level
The GBP-INR has broken out from a medium-term falling
channel.
It has reached near a falling trend line from the previous highs.
The falling trend line (103) and the 61.8% retracement mark,
ie (103.20), form a key resistance zone.
If bulls manage to cross the resistance zone, then the currency
pair can stretch till 104.80, ie the 78.6% retracement mark.
The key support is at 101, ie the junction of the upper channel
line and the key daily MAs.

eptember November 2014 February April May June July Augus
57.5
58.0
58.5
59.0
59.5
60.0
60.5
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
65.0
58.94
61.19
USDINR - INDIAN RUPEE (60.0700, 60.1850, 60.0450, 60.0450, +0.0000)
-0.5
0.0
0.5
1.0
MACD (0.17681)

Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
94.5
95.0
95.5
96.0
96.5
97.0
97.5
98.0
98.5
99.0
99.5
100.0
100.5
101.0
101.5
102.0
102.5
103.0
103.5
104.0
104.5
105.0
105.5
106.0
106.5
107.0
107.5
108.0
108.5
109.0
109.5
110.0
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
00.0%
101
103.20
104.80
GBPINR (102.713, 103.073, 102.655, 102.965, +0.27000)
0
1
2
MACD (0.70751)

Jul Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
77.0
77.5
78.0
78.5
79.0
79.5
80.0
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
88.0
88.5
89.0
89.5
90.0
90.5
91.0
91.5
92.0
92.5
93.0
93.5
79.90
83.81
EURINR (82.2080, 82.3810, 82.1060, 82.1360, -0.07200)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
MACD (0.22632)

Apr May Jun Jul Aug Sep Oct Nov Dec 2014 Feb Mar Apr May Jun Jul Aug
0.52
0.53
0.54
0.55
0.56
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.71
0.72
0.0%
23.6%
38.2%
50.0%
61.8%
78.6%
100.0%
0.5750
0.5985
0.6071
JPYINR (0.59240, 0.59340, 0.59100, 0.59140, -0.00110)
-0.005
0.000
0.005
0.010
0.015
MACD (0.002537)
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Fund Manager: Gaurav Dua
FUND OBJECTIVE
A good return on money through long-term investing in quality companies
PRICING
Minimum investment of Rs25 lakh
Charges
2% per annum; AMC fee charged every quarter
0.5% brokerage
20% profit sharing after the 12% hurdle is crossed at the end of
every fiscal
PROPRIME - TOP EQUITY
OVERVIEW
The ProPrimeTop Equity PMS strategy is suitable for the long-term investors looking
to create an equity portfolio through disciplined investments that will lead to a growth
in the portfolios value with low to medium risk.
Top 10 stocks
Apollo Tyres
Axis Bank
ICICI Bank
Larsen & Toubro
Reliance Industries
State Bank of India
Sun Pharmaceuticals
Tata Motors
Wipro
Zee Entertainment Enterprises
Product performance
as on June 30, 2014
(In %) Scheme Sensex Nifty
1 Month 6.1 4.9 5.3
3 Month 21.7 13.5 13.5
6 Month 27.4 20.0 20.7
1 Year 37.7 31.0 30.3
Best Month 12.9 11.2 12.4
Worst Month -10.4 -8.9 -9.3
Best Quarter 21.7 13.5 14.5
Worst Quarter -12.9 -6.1 -10.4
*26-Sep-11
Disclaimer: Returns are based on a clients
returns since inception and may be different from
those depicted in the risk disclosure document.
We have the following strategies on offer:
ProPrime (based on fundamental research)
Top Equity Diversified Equity
ProTech (based on technical analysis)
Index Futures Fund Trailing Stoploss
PMS FUNDS PMS DESK
PMS FUNDS PMS DESK
INVESTMENT STRATEGY
Disciplined investment decisions are taken in specific stocks based on thorough
fundamental research.
A balanced mix of value and growth stocks (mid-cap and small-cap) is created
that represents investment opportunities across sectors and market capitalisation.
Invests in quality value and growth stocks with good earnings visibility and healthy
balance sheet.
The fund manager, with the help of extensive, in-house, superior research,
identifies fundamentally sound companies to invest in.
The fund manager strives to capture the short-term trading opportunities to
maximise the potential of the swings in specific stocks.
FUND OBJECTIVE
A good return on money through long-term investing regardless of short-term volatility
PRICING
Charges
2% per annum; AMC fee charged every quarter
0.5% brokerage
20% profit sharing after the 12% hurdle is crossed at the end of every
fiscal
PROPRIME - DIVERSIFIED EQUITY
OVERVIEW
The ProPrimeDiversified Equity PMS strategy is suitable for long-term investors
looking to create an equity portfolio through disciplined investments that will lead to a
growth in the portfolios value with medium to high risk.
Top 10 stocks
Apollo Tyres
Bank of Baroda
Federal Bank
ICICI Bank
IL&FS Transportation Networks
Reliance Industries
Reliance Infrastructure
Sesa Sterlite
Southern Petrochem
Zee Entertainment Enterprises
Product performance
as on June 30, 2014
(In %) Scheme S&P CNX 500
1 Month 10.6 6.4
3 Month 45.7 18.2
6 Month 47.6 25.6
1 Year 65.6 36.9
Since Inception* 324.8 356.2
Best Month 50.9 34.4
Worst Month -23.2 -27.2
Best Quarter 71.1 51.2
Worst Quarter -28.5 -28.6
*27-Aug-04
PMS FUNDS PMS DESK
Fund Manager: Rohit Srivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
Profit sharing: Flat 20% charged on a quarterly basis
OVERVIEW
The ProTechIndex Futures Fund PMS strategy is suitable for long-term investors
who desire to profit from both bullish and bearish market conditions. The strategy
involves going long (buying) or going short (selling without holding) on Nifty futures
by predicting the market direction based on a back-tested automated model.
Product performance
as on June 30, 2014
1 month 0.9 4.9 5.3
3 months 0.5 13.5 13.5
FY 13-14 8.8 18.9 18.0
FY 12-13 3.7 8.2 7.3
FY 11-12 13.1 -10.5 -9.2
FY 10-11 9.2 10.9 11.1
FY 09-10 14.7 80.5 73.8
Since inception* 177.1 151.0 151.9
Best month 28.9 -23.9 -26.4
Worst month -17.1 0.0 0.6
Best quarter 33.3 49.3 42.0
Worst quarter -11.7 17.3 22.3
*01-Feb-2006
FUND MANAGERS VIEW
The Index Futures Fund (IFF) portfolio returned 0.85% for June 2014 which was
good considering there were numerous up and down movements in the market in the
month. We are now into the budget month and should get a clear move as the market
has consolidated for over a month. The IFF strategy has increasingly faced whipsawing
in the recent months. Therefore, its returns have narrowed down but are still in
positive. We expect this scenario to improve as participation in the market picks up.
Overall, however, we see the net asset value rising consistently for quite some time,
so we are out of the weak period seen before.
Investments in
Nifty Index
INVESTMENT STRATEGY
The strategy has the potential to generate profits irrespective of the market
direction by going long or short on Nifty futures.
An automated basic back-testing model is used to predict the market direction
for the Nifty which then decides the strategy to be deployed in terms of going
long or short.
The portfolio is not leveraged, ie its exposure never exceeds its value.
If you were searching for "Nifty Thrifty" then you are in the right place,
the name of the fund has been changed to "Index Futures Fund",
to represent the product better; everything else remains the same.
PROTECH - INDEX FUTURES FUND
Fund Manager: Rohit Srivastava
FUND OBJECTIVE
Absolute returns irrespective of market conditions.
PRICING
Charges
AMC fees: 0%
Brokerage: 0.05%
Profit sharing: Flat 20% charged on a quarterly basis
PROTECH - TRAILING STOPS
Product performance
as on June 30, 2014
1 month 1.3 4.9 5.3
3 months 3.0 13.5 13.5
FY 13-14 -1.1 18.9 18.0
FY 12-13 14.9 8.2 7.3
FY 11-12 29.0 -6.1 -4.6
FY 10-11 - - -
Fy 09-10 - - -
Since inception* 51.0 37.2 37.1
Best month 9.1 11.3 12.4
Worst month -4.4 -2.0 -1.7
Best quarter 9.9 -12.7 -12.5
Worst quarter -8.2 9.2 9.9
*09th May 2011
FUND MANAGERS VIEW
Trailing Stops has turned the corner in the last two months and in June it returned
1.27%. July has started well as the market is trending up again and the bull run is
helping. We were cautious ahead of the general election but now there is little event
risk. The trend is strong and that should augur well for the returns going forward.
Our outlook on the market is currently positive though there could be corrections
along the way. The trending nature of the market is very encouraging from a trading
perspective.
Investments in
Nifty Index
Stock futures
INVESTMENT STRATEGY
This strategy spots the winning trades based on technical analysis vs time frame-
based portfolios, basically the momentum calls.
A risk model has been developed for stock portfolio allocation that reduces the
risk and portfolio volatility through staggered building of positions.
It is non-leveragedthe exposure will never exceed the value of the portfolio.
OVERVIEW
Our ProTechTrailing Stops PMS strategy is ideal for Traders and Investors look-
ing for Regular Income from trading and desire to make profits in both bullish and
bearish market conditions. It is designed to payout book profits on monthly basis.*
It is also for those investors who are looking for better income than Fixed Income
or Deposits. This strategy involves going Long (buying) or Short (selling without
holding) on stock futures.
* Terms and conditions apply
PMS FUNDS PMS DESK
MONTHLY PERFORMANCE ADVISORY DESK
Advisory Products and Services
The Advisory Desk is a central desk consisting of a Mumbai-based
expert team that runs various sample model portfolios (for illustrative
purposes only) for clients of all profiles, be they traders or investors.
These products are different from Sharekhans research-based
technical and fundamental offerings as these essentially try to capture
the trading opportunities in stocks where momentum is expected
before or after some event including the announcement of results or
where some news/event is probable.
Advisory products are ideal for those who do not have time to either
monitor the market tick by tick or shift through pages of research for
data or pour over complex charts to catch a trend. However, all
these products require perfect discipline and money management.
For investors
PORTFOLIO DOCTOR
It is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggests
changes to improve its performance. To avail of this service please write to the Portfolio Doctor at
portfoliodoctor@sharekhan.com.
ALPHA DELIVERY PICKS
This is a long only, cash market delivery product where stock ideas are rolled out based on short-term triggers with
proper fundamental rationales. The buying price range, stop loss and probable target are clearly defined at the time of
initiation. These ideas are for a maximum period of one to two months for the medium-term investor and for one to
seven trading sessions for swing traders. For more details of this product please write to us at alphapicks@sharekhan.com.
For traders
SHAREKHANS PRE-MARKET ACTION
These ideas are put out in Sharekhans Pre-market Action report along with stop loss and targets valid for a day. There
is a market watch list of stocks with positive and negative bias for intra-day traders. For more details please write to us
at premarket@sharekhan.com.
MID DERIVATIVE CALLS
These calls are based on the analysis of open interest, implied volatility and put-call ratio in the derivative market. It is
a leveraged product and ideal for aggressive traders. These calls have pre-defined stop loss, targets, time frame and
quantity to execute. For details of the product please write to us at derivative@sharekhan.com.
MID Derivative Calls performance*
Ticket size (Rs) 100,000
Month June 2014 YTD FY2015
No. of calls 39 112
Profit booked 28 69
Stop loss hit 11 43
Strike rate (%) 72 62
MID performance*
Product Alpha Delivery Picks
Alpha Swing Alpha Medium-term
Month June 2014 YTD FY2015 June 2014 YTD FY2015
No. of calls 5 23 9 32
Profit booked 4 19 7 27
Stop loss hit 1 4 2 5
Strike rate (%) 80 83 78 84
Report Card
Please note we have discontinued MID Intra-day Calls *Based on closed calls
MF PICKS
MUTUAL FUNDS DESK
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
SHAREKHANS TOP MUTUAL FUND PICKS (EQUITY) JUNE 12, 2014
Data as on June 6, 2014
Scheme name Star NAV (Rs) Returns (%)
rating Absolute Compounded annualised
6 months 1 year 3 years 5 years Since inception
Large-cap funds
Birla Sun Life Top 100 Fund - Growth 36.7 32.0 45.5 17.6 16.6 16.3
Birla Sun Life Frontline Equity Fund - Plan A 137.2 28.5 38.6 16.5 16.0 24.9
ICICI Prudential Focused Bluechip Equity Fund - Ret 25.2 25.1 36.6 15.7 17.9 16.5
Principal Large Cap Fund 41.0 31.8 41.7 13.3 15.5 17.9
HSBC Equity Fund 140.8 30.3 37.3 11.5 11.0 25.9
Indices
BSE Sensex 25,396.5 21.0 30.1 11.3 10.94 16.9
Mid-cap funds
Axis Midcap Fund 19.5 44.4 52.7 23.8 - 22.5
Mirae Asset Emerging Bluechip Fund 21.0 45.7 58.4 23.0 - 20.9
Religare Invesco Mid N Small Cap Fund 26.1 39.8 52.4 22.2 26.7 16.7
HDFC Mid-Cap Opportunities Fund 28.1 43.5 55.9 21.0 25.4 16.0
Principal Emerging Bluechip Fund 49.5 44.8 51.9 20.4 19.6 33.3
Indices
BSE MID CAP 9,098.5 42.4 41.6 9.8 10.95 23.0
Multi-cap funds
ICICI Prudential Value Discovery Fund 88.8 47.9 63.7 22.1 25.9 24.9
Birla Sun Life Equity Fund 405.9 41.6 54.9 17.3 14.8 26.4
HSBC India Opportunities Fund 54.2 36.1 48.3 16.0 14.4 17.9
HDFC Equity Fund 418.1 40.7 48.4 14.6 18.8 21.2
HDFC Top 200 313.3 35.1 42.7 14.6 16.6 22.9
Indices
BSE 500 9,715.8 26.3 31.3 10.6 10.98 16.0
Tax saving funds
Reliance Tax Saver (ELSS) Fund 36.2 51.1 58.3 20.4 19.7 16.0
Principal Tax Savings Fund 122.1 36.9 50.3 19.4 15.6 17.4
ICICI Prudential Taxplan 228.8 34.0 53.9 17.8 20.8 23.5
HDFC Taxsaver 353.5 39.8 53.6 15.1 19.0 30.2
HDFC Long Term Advantage Fund 209.0 30.6 40.9 15.0 18.0 25.4
Indices
CNX500 6,130.0 26.9 31.7 11.1 10.55 9.6
Thematic funds
Franklin Build India Fund 20.1 42.0 55.1 20.7 - 15.9
Birla Sun Life Infrastructure Fund - Plan A 22.8 50.2 58.1 12.9 10.4 10.6
DSP BlackRock India Tiger Fund - Reg 61.5 47.8 48.4 12.1 9.1 19.9
Canara Robeco Infrastructure Fund 31.1 49.9 46.6 11.7 11.1 14.2
HDFC Infrastructure Fund 14.7 58.4 55.9 8.9 11.0 6.2
Indices
S&P Nifty (CNX Nifty) 7,583.4 21.1 28.1 11.1 10.57 14.8
Balanced funds
ICICI Prudential Balanced 76.3 26.4 36.1 18.1 17.4 14.9
Tata Balanced Fund - Plan A 130.7 27.1 32.3 16.5 16.7 16.7
HDFC Prudence Fund 332.4 38.2 42.8 15.9 19.3 20.3
HDFC Balanced Fund 88.2 30.6 40.6 15.8 19.3 17.2
Birla Sun Life 95 457.0 26.9 31.8 13.9 14.8 21.9
Indices
Crisil Balanced Fund Index -- 16.2 19.2 10.4 9.6 13.5
MF PICKS
MUTUAL FUNDS DESK
SHAREKHANS TOP SIP FUND PICKS JUNE 12, 2014
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article.
Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan
first understand the individuals investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest
that you get in touch with our Mutual Fund Advisor before investing in the best funds.
Data as on June 6, 2014
Investment period 1 year 3 years 5 years
Total amount invested (Rs) 12,000 36,000 60,000
Funds would have grown to (Rs) NAV Present Avg. annual Present Avg. annual Present Avg. annual
value (Rs) return (%) value (Rs) return (%) value (Rs) return (%)
Large-cap funds
Birla Sun Life Top 100 Fund 36.7 15,954.0 36.6 54,701.8 15.4 97,031.2 10.3
Birla Sun Life Frontline Equity Fund - Plan A 137.2 15,519.8 32.6 53,444.1 14.5 94,018.7 9.6
Principal Large Cap Fund 41.0 15,738.8 34.3 51,942.4 13.4 89,475.9 8.5
ICICI Prudential Focused Bluechip Equity Fund - Ret 25.2 15,159.4 29.2 51,487.8 13.0 93,388.1 9.4
HSBC Equity Fund 140.8 15,572.6 33.1 50,229.3 12.1 85,040.5 7.3
BSE Sensex 25,396.5 14,620.7 23.93 48,837.4 11.00 83,435.0 6.93
Multi-cap funds
ICICI Prudential Value Discovery Fund 88.8 17,808.2 54.1 60,935.5 19.7 110,875.7 13.3
Birla Sun Life Equity Fund 405.9 17,032.0 46.8 57,140.5 17.1 96,150.1 10.1
HDFC Equity Fund 418.1 17,036.7 46.8 55,145.9 15.7 96,283.6 10.1
HSBC India Opportunities Fund 54.2 16,369.4 40.5 54,027.7 14.9 93,820.4 9.5
HDFC Top 200 313.3 16,461.3 41.4 53,471.9 14.5 93,157.3 9.4
BSE 500 9,715.8 15,219.8 29.46 49,252.4 11.32 82,974.1 6.81
Mid-cap funds
Principal Emerging Bluechip Fund 49.5 17,085.7 47.3 59,233.8 18.6 101,396.3 11.3
Religare Invesco Mid N Small Cap Fund 26.1 16,896.7 45.5 58,522.5 18.1 109,973.5 13.1
HDFC Mid-Cap Opportunities Fund 28.1 17,185.5 48.2 58,194.5 17.9 109,169.7 12.9
Sundaram Select Midcap - Reg 246.0 17,187.0 47.7 56,470.7 16.6 99,710.4 10.9
IDFC Premier Equity Fund - Reg 53.6 15,753.7 34.8 53,223.9 14.3 98,790.9 10.7
BSE Midcap 9,098.5 17,022.5 46.70 51,576.9 13.10 83,660.2 6.99
Tax saving funds
Reliance Tax Saver (ELSS) Fund 36.2 18,017.3 56.1 58,980.7 18.4 104,830.2 12.0
Principal Tax Savings Fund 122.1 16,576.7 42.5 57,270.0 17.2 97,715.9 10.4
ICICI Prudential Taxplan 228.8 16,460.2 41.4 55,980.2 16.3 99,885.0 10.9
HDFC Taxsaver 353.5 17,089.9 47.3 55,348.4 15.9 96,290.7 10.1
HDFC Long Term Advantage Fund 209.0 15,764.0 34.9 53,042.2 14.2 94,082.0 9.6
CNX Nifty 7,583.4 14,651.1 24.46 48,382.9 10.65 82,905.5 6.79
Sharekhan ValueGuide
July 2014
43
Prices as on July 03, 2014
FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)
EQUITY FUNDAMENTALS
EARNINGS GUIDE
Sharekhan Earnings Guide
Note: For Grasim and Apollo Tyres we have shifted our estimates to consolidated
AUTOMOBILES
Apollo Tyres 204.4 13337.8 14600.8 16643.5 977.6 1044.9 1187.8 19.4 20.5 23.3 10% 10.5 10.0 8.8 22.8 22.5 21.4 19.9 0.8 0.4
Ashok Leyland 36.3 9735.7 12213.8 16383.7 -476.3 58.7 664.8 -1.8 0.2 2.5 - - 164.4 14.5 5.6 14.1 1.3 13.9 0.0 0.0
Bajaj Auto 2349.8 19717.6 22280.6 25073.9 3295.7 3683.3 4171.5 113.9 127.3 144.2 13% 20.6 18.5 16.3 48.2 45.8 35.2 33.3 50.0 2.1
Gabriel Industries 54.3 1286.6 1505.0 1780.9 38.4 67.7 88.7 2.7 4.7 6.2 52% 20.3 11.5 8.8 21.3 24.1 20.6 22.6 0.9 1.6
M&M 1219.8 38817.1 44369.8 50132.6 3852.3 4114.9 4626.8 65.3 69.7 78.4 10% 18.7 17.5 15.6 21.0 20.8 21.8 20.9 14.0 1.1
Maruti Suzuki 2642.0 42644.8 47539.1 55882.9 2783.0 3515.4 4614.0 92.1 116.4 152.7 29% 28.7 22.7 17.3 19.8 22.5 15.7 17.8 12.0 0.5
TVS Motor 168.0 7857.7 9614.9 11147.8 261.5 361.5 449.0 5.5 7.6 9.5 31% 30.5 22.1 17.8 22.6 24.7 23.3 24.0 1.4 0.8
BANKS & FINANCE
Allahabad Bank 140.9 7477.1 8198.3 9233.3 1172.0 1354.4 1557.7 21.5 24.9 28.6 15% 6.5 5.7 4.9 - - 11.0 11.6 2.5 1.8
Andhra Bank 101.5 5070.2 5615.0 6375.6 435.6 780.1 1057.3 7.4 13.2 17.9 56% 13.7 7.7 5.7 - - 8.6 10.9 1.1 1.1
Axis (UTI) Bank 1926.9 19356.9 22461.9 25849.0 6217.7 7125.6 8291.2 132.3 151.7 176.5 15% 14.6 12.7 10.9 - - 17.3 17.5 20.0 1.0
Bajaj Finance 2099.9 2215.3 2727.8 3448.9 719.0 870.4 1098.0 144.5 174.9 220.7 24% 14.5 12.0 9.5 - - 20.0 21.1 16.0
Bajaj Finserv 958.7 6021.0 - - 1544.1 - - 97.0 - - - 9.9 - - - - - - 1.8 0.2
Bank of Baroda 880.9 16428.1 19211.9 22739.9 4541.1 5035.1 6178.7 105.4 116.9 143.5 17% 8.4 7.5 6.1 - - 13.3 14.6 21.5 2.4
Bank of India 304.1 15122.4 17264.3 20015.9 2729.3 3160.1 3602.3 42.4 49.1 56.0 15% 7.2 6.2 5.4 - - 10.2 10.7 5.0 1.6
Capital First 212.7 328.2 434.8 560.0 58.4 85.9 132.7 7.1 10.5 16.2 51% 29.9 20.3 13.1 - - 7.1 10.3 2.0 0.9
Corp Bank 400.2 5431.4 6202.3 7267.4 561.7 974.3 1291.3 33.5 58.2 77.1 52% 11.9 6.9 5.2 - - 9.3 11.4 6.8 1.7
Federal Bank 130.8 2922.5 3431.7 4042.9 838.9 974.8 1180.1 9.8 11.4 13.8 19% 13.3 11.5 9.5 - - 13.3 14.5 2.0 1.5
HDFC 1007.8 6803.0 8204.1 9733.6 5440.2 6350.9 7402.6 34.8 40.7 47.4 17% 28.9 24.8 21.3 - - 20.0 20.5 14.0 1.4
HDFC Bank 839.9 26402.3 31459.7 37627.4 8478.4 10520.9 13154.2 35.3 43.9 54.8 25% 23.8 19.2 15.3 - - 22.1 23.3 6.9 0.8
ICICI Bank 1452.0 26903.4 30556.1 35687.7 9810.5 10997.8 13052.2 84.9 95.2 113.0 15% 17.1 15.2 12.8 - - 14.5 15.7 23.0 1.6
IDBI Bank 106.9 9000.2 9564.8 10831.5 1121.4 1754.7 2102.6 7.0 10.9 13.1 37% 15.3 9.8 8.2 - - 7.2 8.2 1.0 0.9
LIC Housing Finance 327.7 1898.9 2398.3 2879.6 1317.2 1578.1 1885.9 26.1 31.3 37.3 20% 12.6 10.5 8.8 - - 19.4 19.9 4.5 1.4
PTC India Financial 35.2 211.6 318.7 436.5 207.7 219.7 296.1 5.1 5.4 7.3 20% 6.9 6.5 4.8 - - 15.4 18.5 1.0
Punjab National Bank 990.0 20722.7 23633.7 27316.6 3342.6 4583.2 5674.8 92.3 126.6 156.7 30% 10.7 7.8 6.3 - - 12.1 13.5 10.0 1.0
SBI 2702.3 67835.1 76389.4 88875.8 10891.5 13762.4 17058.3 145.9 184.3 228.5 25% 18.5 14.7 11.8 - - 11.1 12.6 30.0 1.1
Union Bank of India 233.1 10700.9 12237.8 13934.0 1696.2 1936.2 2224.3 26.9 30.7 35.3 15% 8.7 7.6 6.6 - - 10.1 10.7 4.0 1.7
Yes Bank 568.9 4437.8 5511.7 6810.6 1617.8 1960.6 2395.1 44.9 47.3 57.8 14% 12.7 12.0 9.8 - - 20.9 19.1 8.0 1.4
CONSUMER GOODS
Bajaj Corp 240.6 671.7 721.1 833.7 162.2 150.1 178.4 11.0 10.2 12.1 5% 21.9 23.6 19.9 41.4 43.7 34.7 36.4 6.5 2.7
GSK Consumers* 4622.1 4682.9 4319.6 4995.1 674.8 622.3 729.5 160.4 148.0 173.4 4% 28.8 31.2 26.7 47.3 46.2 31.2 30.5 45.0 1.0
Godrej Consumer 809.6 7582.6 8870.9 10590.4 753.7 925.0 1170.2 22.1 27.2 34.4 25% 36.6 29.8 23.5 21.1 24.4 24.1 25.3 5.3 0.6
Hindustan Unilever 631.2 28539.0 32858.9 36912.5 3717.0 3904.6 4372.5 17.2 18.1 20.2 8% 36.7 34.9 31.2 126.8 103.2 92.4 75.0 13.0 2.1
ITC 329.4 33238.6 37899.0 44518.0 8785.2 10021.9 11955.8 11.1 12.6 15.0 16% 29.7 26.1 22.0 44.0 44.0 35.2 35.3 6.0 1.8
Jyothy Laboratories 179.5 1323.9 1607.3 1949.1 85.2 176.0 217.9 4.7 9.6 11.8 58% 38.2 18.7 15.2 13.9 18.5 23.1 26.2 3.5 1.9
Marico^ 246.1 4686.5 5519.6 6384.6 485.4 522.7 650.6 7.5 8.1 10.1 16% 32.8 30.4 24.4 37.2 37.2 32.8 30.7 3.5 1.4
Mcleod Russel India 320.2 1754.2 1957.6 2176.3 259.3 312.5 371.4 23.7 28.5 33.9 20% 13.5 11.2 9.4 16.3 17.5 14.1 15.0 7.0 2.2
TGBL (Tata Tea) 174.4 7737.6 8388.2 9292.6 421.0 415.2 492.5 6.8 6.7 8.0 8% 25.6 26.0 21.8 8.2 9.3 6.9 7.8 2.3 1.3
Zydus Wellness 621.9 403.6 437.5 495.5 98.3 104.1 119.4 25.2 26.7 30.6 10% 24.7 23.3 20.3 31.2 29.3 28.7 26.8 6.0 1.0
IT / IT SERVICES
CMC 1987.6 2212.6 2598.8 3003.8 280.5 301.1 359.1 92.6 99.4 118.5 13% 21.5 20.0 16.8 29.0 28.5 23.1 22.8 22.5 1.1
Firstsource Soluation 40.1 3105.9 3271.2 3576.3 193.0 259.2 334.7 2.9 3.9 5.0 31% 13.8 10.3 8.0 11.4 13.2 11.7 13.3 0.0 0.0
HCL Technologies** 1480.3 32790.3 36256.8 41051.1 6136.1 6962.9 7681.7 85.7 98.6 108.8 13% 17.3 15.0 13.6 40.8 35.9 34.2 29.7 12.0 0.8
Infosys 3215.3 50133.0 53795.8 61507.0 10861.0 11698.3 13096.8 189.9 204.5 229.0 10% 16.9 15.7 14.0 33.1 32.5 24.4 23.9 63.0 2.0
NIIT Technologies 464.2 2305.0 2500.2 2757.3 230.5 255.7 285.1 38.1 42.1 47.0 11% 12.2 11.0 9.9 25.9 25.2 18.4 17.9 9.0 1.9
Persistent Systems 1061.0 1669.2 1907.3 2193.6 249.3 309.5 363.4 62.3 77.4 90.8 21% 17.0 13.7 11.7 32.3 31.4 23.3 22.9 12.0 1.1
TCS 2401.6 81809.4 92620.8 106247.7 19116.9 21872.5 23875.4 97.9 111.8 122.0 12% 24.5 21.5 19.7 41.2 37.0 32.1 28.7 32.0 1.3
Wipro 540.9 43426.9 47411.9 52142.0 7796.7 8910.6 9671.1 31.5 36.4 39.5 12% 17.2 14.9 13.7 21.3 20.4 23.3 22.0 8.0 1.5
CAPITAL GOODS / POWER
Bajaj Electricals 350.7 4029.8 4822.0 5603.1 -5.3 140.4 195.3 -0.5 14.0 19.5 - - 25.0 17.9 28.9 32.0 18.4 21.9 1.5 0.4
BHEL 259.4 38388.8 34036.6 33232.2 3460.8 3705.7 3904.1 14.1 15.1 16.0 6% 18.3 17.1 16.3 15.3 14.7 10.1 9.9 2.8 1.1
CESC 720.6 5510.0 6232.9 6656.3 652.0 683.5 722.2 51.9 54.4 57.5 5% 13.9 13.2 12.5 7.9 7.8 9.4 9.2 8.0 1.1
Crompton Greaves 206.6 13480.6 14822.7 16498.7 244.3 537.9 706.2 3.9 8.6 11.3 70% 53.0 24.1 18.3 14.5 17.0 13.4 15.6 0.4 0.2
Finolex Cable 199.5 2359.0 2790.6 3273.6 197.3 229.0 257.3 12.9 15.0 16.8 14% 15.5 13.3 11.9 22.4 23.5 19.1 18.3 1.6 0.8
Greaves Cotton^ 123.5 1718.9 1873.6 2098.4 118.7 136.6 156.6 4.9 5.6 6.4 15% 25.4 22.1 19.2 22.1 23.1 15.5 16.2 0.6 0.5
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%)
July 2014 44
FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY16/FY14 FY14 FY15E FY16E FY15E FY16E FY15E FY16E (Rs)
EQUITY FUNDAMENTALS EARNINGS GUIDE
^Marico estimates excluding Kayas financials
*GSK Consumer FY2014 financial numbers are estimated for 15 months as the company changed its accounting year end to March 2014, hence not comparable
#We have annualised these ratios to make them comparable
** June year ended
Kalpataru Power 193.1 7090.3 7691.6 8410.8 122.2 172.3 209.6 8.0 11.2 13.7 31% 24.2 17.2 14.1 10.3 11.4 8.0 9.1 1.5 0.8
PTC India 98.4 11510.7 12756.9 15102.6 164.7 196.5 228.1 5.6 6.6 7.7 18% 17.7 14.8 12.8 11.2 12.3 7.5 8.2 2.0 2.0
Thermax 980.0 4302.2 4721.9 5292.2 220.4 316.8 378.6 18.5 26.6 31.8 31% 53.0 36.9 30.8 20.9 22.6 14.9 16.0 6.0 0.6
V-Guard Industries 591.9 1517.6 1751.9 2028.5 70.2 86.7 105.4 23.5 29.0 35.3 23% 25.2 20.4 16.8 30.0 30.1 24.6 24.4 4.5 0.8
INFRASTRUCTURE / REAL ESTATE
Gayatri Projects 167.6 1812.5 2148.3 2659.2 64.8 85.3 115.7 21.4 28.2 38.3 34% 7.8 5.9 4.4 12.1 12.5 12.1 14.5 2.0 1.2
ITNL 213.2 6587.0 7199.0 7933.1 391.7 455.5 523.8 20.2 18.5 21.2 3% 10.6 11.5 10.0 9.0 9.4 8.4 8.6 4.0 1.9
IRB Infra 247.8 3731.9 4364.1 4926.8 459.1 464.6 506.7 13.8 14.0 15.2 5% 17.9 17.7 16.3 10.6 11.6 12.5 12.5 4.0 1.6
Jaiprakash Associates 75.5 12973.1 14383.9 15914.7 101.6 386.4 698.9 0.5 1.8 3.3 162% 158.1 41.6 23.0 7.7 8.7 2.8 4.8 0.0 0.0
Larsen & Toubro 1754.0 56598.9 67269.3 77546.2 4904.6 5618.9 6717.7 53.1 60.9 72.8 17% 33.0 28.8 24.1 18.1 20.8 16.0 17.4 14.3 0.8
Pratibha Industries 62.2 2283.6 2613.4 3020.3 39.0 38.1 61.0 3.9 3.8 6.0 25% 16.1 16.5 10.3 12.5 14.2 5.7 8.6 0.2 0.3
Punj Lloyd 52.4 10845.3 12719.5 NA -702.2 24.1 NA -21.1 0.7 - - - 72.1 - 8.2 - 1.0 - 0.0 0.0
OIL & GAS
Oil India 588.8 9613.0 11461.0 12989.0 2981.0 3330.0 4047.0 49.6 55.4 67.3 16% 11.9 10.6 8.7 15.5 17.7 15.4 17.2 21.5 3.7
Reliance Ind 1018.3 434460.0 438977.6 438977.6 22493.0 23854.5 26637.1 69.6 73.8 82.4 9% 14.6 13.8 12.4 9.8 9.9 11.4 11.5 9.5 0.9
Selan Exploration 610.7 101.3 155.7 199.3 44.5 72.4 92.7 27.2 44.2 56.5 44% 22.5 13.8 10.8 29.9 31.1 24.3 24.8 5.0 0.8
PHARMACEUTICALS
Aurobindo Pharma 750.7 8099.8 11295.0 12535.4 1375.9 1660.2 1871.8 47.2 57.0 64.2 17% 15.9 13.2 11.7 27.5 27.2 36.6 30.1 3.0 0.4
Cipla 444.3 10100.4 11535.9 13502.7 1388.4 1654.7 1977.7 17.3 20.6 24.6 19% 25.7 21.6 18.0 18.7 20.3 15.3 15.8 2.0 0.5
Cadila Healthcare 1071.2 7224.0 8400.6 9828.0 803.5 1100.1 1442.3 39.2 53.7 70.4 34% 27.3 19.9 15.2 21.9 24.8 23.3 23.9 9.0 0.8
Dishman Pharma 134.6 1373.2 1572.8 1724.8 109.2 150.1 196.1 13.5 18.6 24.3 34% 9.9 7.2 5.5 13.3 15.4 11.5 13.8 1.2 0.9
Divi's Labs 1514.1 2525.4 3053.5 3556.6 810.5 902.2 1047.8 61.1 68.0 78.9 14% 24.8 22.3 19.2 34.2 32.7 27.3 26.0 20.0 1.3
Glenmark Pharma 575.4 5983.9 7044.2 8301.3 759.8 879.4 1194.1 28.0 32.4 44.0 25% 20.5 17.7 13.1 18.9 23.3 23.2 24.3 4.0 0.7
JB Chemicals 166.8 1000.6 1137.5 1310.4 108.3 128.5 158.0 12.8 15.2 18.6 21% 13.0 11.0 8.9 14.4 16.2 11.7 13.0 3.0 1.8
Ipca Laboratories 878.8 3181.8 3792.7 4434.5 477.4 618.6 733.7 37.8 49.0 58.2 24% 23.2 17.9 15.1 29.1 28.6 27.2 25.2 2.5 0.3
Lupin 1074.2 11086.6 13875.5 16500.7 1836.3 2110.4 2526.4 41.0 47.1 56.3 17% 26.2 22.8 19.1 34.7 34.4 24.1 22.8 6.0 0.6
Sun Pharma 693.4 16004.4 18349.2 21121.5 5721.8 5809.5 6468.2 27.6 28.0 31.2 6% 25.1 24.7 22.2 32.9 30.6 25.8 23.0 0.0 0.0
Torrent Pharma 716.8 4036.0 5000.7 5650.4 664.0 778.2 858.1 39.2 46.0 50.7 14% 18.3 15.6 14.1 33.2 30.4 33.2 27.2 5.0 0.7
BUILDING MATERIALS
Grasim 3434.8 29004.2 33371.5 37713.0 1946.8 2548.1 3065.9 212.0 277.5 333.9 25% 16.2 12.4 10.3 14.9 15.8 10.3 10.7 22.5 0.7
The Ramco Cements 296.5 3761.2 4426.4 5078.3 123.0 224.9 328.8 5.2 9.5 13.8 63% 57.4 31.4 21.5 8.8 11.8 6.0 7.2 1.0 0.3
Shree Cement** 7209.5 5866.3 6905.3 7956.8 857.9 1036.8 1309.3 246.2 297.6 375.8 24% 29.3 24.2 19.2 20.3 21.2 20.0 20.4 20.0 0.3
UltraTech Cement 2643.3 20205.9 24925.7 28113.7 2048.9 2819.3 3240.3 74.8 102.9 118.3 26% 35.3 25.7 22.4 16.5 17.8 14.3 14.3 9.0 0.3
DISCRETIONARY CONSUMPTION
Eros International Media239.3 1134.6 1308.5 1494.7 199.7 239.4 276.4 21.7 26.0 30.1 18% 11.0 9.2 7.9 18.4 19.2 18.0 17.4 0.0 0.0
Indian Hotel Company 105.6 3743.4 4058.3 4550.6 0.2 81.4 113.5 0.0 1.0 1.4 - - - 75.4 2.4 2.6 4.0 6.2 0.8 0.8
KKCL 1704.6 367.2 431.8 512.2 67.0 78.5 92.4 54.4 63.7 75.0 17% 31.3 26.8 22.7 33.6 35.8 26.3 27.7 21.0 1.2
Raymond 415.5 4558.0 5243.0 5806.0 130.2 133.6 160.9 21.2 21.8 26.2 11% 19.6 19.1 15.9 11.9 12.9 8.7 9.6 2.0 0.5
Relaxo Footwear 396.0 1205.8 1491.4 1837.6 65.6 93.1 128.3 10.9 15.5 21.4 40% 36.3 25.5 18.5 29.4 28.9 21.9 26.5 0.5 0.1
Speciality Restaurants 149.4 226.9 261.5 319.1 23.4 23.9 33.2 5.0 5.1 7.1 19% 29.9 29.3 21.0 11.1 14.8 8.0 10.4 1.0 0.7
Sun TV Network 464.4 2223.6 2477.4 2859.0 748.0 853.6 996.2 19.0 21.7 25.3 15% 24.4 21.4 18.4 36.2 37.5 25.7 26.5 9.5 2.0
Zee Entertainment 298.0 4421.7 5104.3 5881.5 893.1 1024.6 1304.0 9.3 10.7 13.6 21% 32.0 27.8 21.9 30.5 31.8 20.6 23.1 2.0 0.7
DIVERSIFIED / MISCELLANEOUS
Aditya Birla Nuvo 1405.3 7950.5 9237.3 10260.1 656.9 538.3 584.2 50.5 41.4 44.9 - 27.8 33.9 31.3 8.6 8.7 6.9 6.9 6.5 0.5
Bajaj Holdings 1384.8 385.2 - - 1987.6 - - 178.6 - - - 3.0 - - - - - - 30.0 2.2
Bharti Airtel 338.2 85746.0 94784.0 105102.0 3935.0 5455.0 6307.0 9.8 13.6 15.8 27% 34.5 24.9 21.4 11.0 12.0 8.3 8.7 1.8 0.5
Bharat Electronics 2183.1 6275.5 6673.6 7509.7 931.6 1027.0 1215.6 116.5 128.4 151.9 14% 18.7 17.0 14.4 15.0 15.4 11.3 11.6 22.3 1.0
Gateway Distriparks 242.9 1008.1 1121.2 1269.8 142.0 154.5 181.8 13.1 14.2 16.7 13% 18.6 17.1 14.5 14.8 17.4 18.0 20.3 7.0 2.9
Max India 294.3 11683.0 - - 139.5 - - 5.2 - - - 56.5 - - - - - - 1.8 0.6
Ratnamani Metals 398.3 1326.1 1669.5 1999.4 142.8 202.5 260.1 30.6 43.4 55.7 35% 13.0 9.2 7.1 30.1 32.1 23.9 25.0 4.0 1.0
United Phosphorus 337.2 10770.9 11910.3 13377.2 1028.6 1097.4 1293.7 23.6 25.7 30.8 14% 14.3 13.1 10.9 20.0 20.9 18.1 18.1 2.5 0.7
Supreme Industries** 556.9 3404.0 3857.0 4512.0 268.0 276.0 344.0 21.1 21.7 27.1 13% 26.4 25.7 20.5 29.3 31.3 26.8 27.7 7.5 1.3
Company CMP Sales Net profit EPS (%) EPS PE (x) RoCE (%) RoNW (%) DPS Div
(Rs) growth yield
(%)
July 2014
45
Remarks
Automobiles
Apollo Tyres Apollo Tyres is the market leader in truck and bus tyre segments with a 28% market share. The management is
expecting strong demand traction in the European operations (particularly the summer tyre segment) and is
gaining a market share in Europe. Further, the domestic operations would see a pick-up in the demand in H2FY2015.
The margins may sustain at higher levels due to subdued raw material prices. The company will be investing
$560mn over the next three years to set up a greenfield facility in Eastern Europe and expand capacity at Chennai
facility. We maintain our Buy recommendation on the stock with a price target of Rs210.
Ashok Leyland Ashok Leyland, the second largest CV manufacturer in India, is a pure CV play. The company has ventured into
LCV space with the launch of Dost in collaboration with Nissan. The MHCV volumes have been under pressure
over the past two years due to a subdued economic environment. The discounts in the system have come down
and the company has managed to take price hikes which propped up margins in Q4FY2014. A strong government
at the centre is expected to focus on growth led by manufacturing and infrastructure sectors which will improve
CV segments volumes. The company has raised Rs660 crore via QIP and is in the process of selling non-core
assets to pare its debts. We have a Buy recommendation on the stock with a price target of Rs39.
Bajaj Auto Bajaj Auto, a leading two-wheeler maker, is moving up the value chain by concentrating on the executive and
premium motorcycle segments. The company has focused on its Pulsar and Discover brands to establish a strong
presence especially in the premium segment. Additionally, it derives a third of its volumes from exports and has a
strong presence in the SAARC region and Africa. After a loss of market share in FY14, we expect it to claw back
market share in FY15 with the launch of the new Discovers. Exports will continue to drive its overall volumes.
Profitability meanwhile remains strong with industry leading EBITDA margin.
Gabriel India Gabriel is one of Indias leading manufacturers of shock absorbers and front forks with a diversified customer
base. A pick-up in the volumes post-election in both the PV and CV segments as well as higher growth in the two-
wheeler segment, increase in market share with HMSI and continued growth in the aftermarket sales are expected
to drive the revenue growth going forward. Moreover, with increasing utilization levels and higher proportion of
revenues from the profitable CV segment, the OPM is expected to expand from 6.6% in FY2013 to 7.9% in
FY2016. Further, a reduction in debt level would lead to higher return ratios, going forward. Therefore, we
recommend a Buy with a price target of Rs56.
M&M M&M is a leading maker of tractors and UVs in India. Though the automotive demand is under pressure due to
declining demand for UVs and LCVs, but the demand for tractors is growing in strong double digits, thanks to a
normal monsoon and higher minimum support prices. We expect demand for the automobile segment to pick up
with an improvement in customer sentiment. Additionally, new launches especially in the compact UV space will
drive volume growth. Also the tractor segment is expected to grow at 8-10% over the next few years which will
benefit M&M. The value of its subsidiaries adds to its sum-of-the-parts valuation. Higher farm income, strong
rural positioning and lower vulnerability to interest rates make it a proxy play on food inflation.
Maruti Suzuki Maruti Suzuki is Indias largest small car manufacturer. Though the demand for diesel cars is witnessing pressure
due to a hike in diesel prices, but the petrol segment is witnessing a recovery due to the narrowing differential
between petrol and diesel prices. It is planning to launch 14 new models over the next five years (including in the
high-value UV space) which would boost its volumes and realisation both. The recent launch of Celerio has been
well received by the market and the vehicle has garnered bookings of 30,000 plus units. The new automatic
manual transmission (AMT) has especially enthused the market. We expect customer sentiment to improve on the
back of a strong government at the centre. Additionally the PV segment is expected to benefit from the pent-up
demand over the past two years and will benefit Maruti Suzuki most due to its high market share in the entry level
segment. We remain positive on the stock with a price target of Rs2,740.
TVS Motor TVS Motor is the fourth largest two-wheeler manufacturer in the country with a strong presence in the scooter
segment. The scooter segment has grown at a CAGR of 25% over the past five years as opposed to 12% CAGR
in motorcycles and currently contributes 25% of the total two-wheeler volumes. With the launch of the Jupiter in
October 2013, the company has balanced its scooter portfolio and witnessed incremental volumes. Exports,
especially of three wheelers, are doing extremely well. We expect a margin expansion of 40-50BPS over FY2014-
16. We have a Buy on the stock with a price target of Rs175.
Banks & Finance
Allahabad Bank With a wide network of over 2,800 branches spread across India, Allahabad Bank enjoys a stronghold in north and east
India. But it has reported a rise in slippages resulting in deterioration of its asset quality. The bank has relatively higher
proportion of stressed loans among its peers and low tier-I CAR is also a cause for concern.
Andhra Bank Andhra Bank, with a wide network of over 2,100 branches across the country, has a strong presence in south
India especially in Andhra Pradesh. Though it is trading at an attractive valuation, but the concerns on asset
quality front and the political situation within the state could affect its operations.
Axis Bank Axis bank continues to grow faster than the industry and is diversifying its book in favour of retail segment. The
banks liability profile has improved significantly which would help to sustain margins at healthy levels. We
expect the earnings growth to remain reasonably strong driven by a healthy operating performance while asset
quality pressures will be manageable.
EQUITY FUNDAMENTALS
EARNINGS GUIDE
July 2014 46
Remarks
Bajaj Finance Bajaj Finance, owned by Bajaj Finserv, is one of the most diversified NBFCs in the country and biggest bank
assurance partner for Bajaj Allianz Insurance. It has assets spread across products, viz loans for consumer durables,
two- and three-wheelers, loans to small and medium enterprises (SMEs), mortgage loans, commercial loans etc. It
has a dominant market share in the consumer finance segment.
Bajaj Finserv Bajaj Finserv is a financial conglomerate having presence in financing business (vehicle finance, consumer finance
and distribution) and is among the top players in life insurance and general insurance. Its consumer finance
business (Bajaj Finance) and general insurance business reported a robust performance. The life insurance business
is showing signs of a pick-up after being affected by a change in regulations.
Bank of Baroda Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (102 offices in 24
countries) and a strong network of over 4,800 branches across the country. It has a stronghold in western and
eastern India. Its performance metrics remain superior to that of the other PSBs, though the asset quality trends
will be the key monitorable.
Bank of India Bank of India has a network of over 4,600 branches, spread across the country and abroad, along with a diversified
product and services portfolio, and steadily growing assets. The operating performance has weakened due to
margin deterioration. Further, the rising stress on the asset quality and relatively weaker capital position constrain
balance sheet growth.
Capital First Capital First (erstwhile Future Capital Holdings) has been acquired by global private equity firm, Warburg Pincus
(a 72% stake). The present management has taken several initiatives to tap the high-growth retail product segments,
like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Its
loan book is expected to more than double to over Rs10,000 crore in the next three years. However, the shift to
conservative accounting and investment in new businesses could affect the profitability over the next few quarters.
Corp Bank Corporation Bank is a mid-sized PSB having a relatively higher presence in south India. It is predominantly
exposed to the corporate segment, which constitutes about 44% of its book. Due to a higher dependence on the
wholesale business and a low CASA ratio, it lags its peers in terms of operational performance. Also, the rise in
NPAs could keep provisioning high and weaken earnings performance.
Federal Bank Federal Bank is among the better performing old private sector banks in India with a strong presence in south
India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve
the quality of its earnings and asset book. The asset quality has consistently improved in past few quarters and the
operating performance is picking up gradually.
HDFC HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It
has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are
growing faster than HDFC, the value contributed by them would be significantly higher going forward. Due to
dominant market share and consistent return ratios, it trades at a premium to the other NBFCs.
HDFC Bank HDFC Bank was established in 1994 as part of the liberalisation of the Indian banking industry by the RBI. The
bank continues to report a strong growth in advances with focus on the retail segment. Its relatively high margins
(compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet. However,
delay in FIPB approval for increase in foreign investment limit remains a near-term concern.
ICICI Bank ICICI Bank is Indias largest private sector bank with a network of over 3,700 branches in India and a presence in
around 18 countries. The bank has once again entered an expansionary mode after making a conscious effort to
contract its advances book due to asset quality concerns. The operating profit improved significantly and is the
key driver of the earnings growth. The bank offers substantial value unlocking opportunities from the insurance
and securities businesses.
IDBI Bank IDBI Bank is one of leading PSBs of India. It is gradually working towards improving its liability base and expanding
the retail book which is likely to reflect in the form of better margins and return ratios. However, due to rising
asset quality risks, low tier-I CAR and slower business growth, the stock is likely to underperform in the near term.
LIC Housing LICHFL is the third largest mortgage financier (including banks) in India with a market share of 11% and loan
book of over Rs90,000 crore. It is promoted by Life Insurance Corporation of India, which is the largest insurance
provider in India. With over 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782 customer
relationship associates, the company has among the strongest distribution structures in India to support business
expansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggers
for the stock. Therefore, considering stable RoE of 18-20%, sound asset quality and healthy growth outlook, the
valuation seems reasonable.
PNB Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constituting
around 40% of its total deposits. This helps it to maintain one of the highest margins in the sector. A strong
liability franchise and technology focus will help the bank to increase its core lending operations and fee income
related-businesses. In view of the weakness in the economy and relatively higher exposure to troubled sectors, the
asset quality stress may remain in the near term.
July 2014
47
Remarks
EQUITY FUNDAMENTALS
EARNINGS GUIDE
PFS PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in the
energy value chain. Given the robust lending opportunities in the renewable energy segment and likely reforms in
thermal power segment, the company expects to double its loan book over next 12-15 months. With nil net NPAs,
its asset quality remains among the best in the system.
SBI State Bank of India is the largest bank of India with loan assets of over Rs12 lakh crore. The loan growth for
FY2014 was in line with the industry average while the core operating performance was relatively strong. The
successful merger of the associate banks and value unlocking from insurance business could provide further upside
for the bank. While the bank is favourably placed in terms of liability base and the operating profits is also
improving, the asset quality would remain a key monitorable in the near term.
Union Bank Union Bank of India has a strong branch network and an all-India presence. The bank aspires to become the
largest retail bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending.
However, rising stressed loans and weak capital ratios remain concerns with the bank.
Yes Bank Yes Bank, a new generation private bank, started its operations in November 2004 and is the only greenfield bank
approved by the RBI in the last decade. The bank is promoted by Rana Kapoor and Ashok Kapur. It follows a
unique business model based on knowledge banking, which offers product depth and a sustainable competitive
edge over established banking players. While the operating performance remains healthy, recent capital raising
will increase the balance sheet growth over the next couple of years.
Consumer goods
Bajaj Corp Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the
premium light hair oil category with its Almond Drops hair oil. The company recently acquired the Nomarks
brand. The acquisition will add value to its product portfolio and help it upgrade from a single-brand company to
a multi-brand company, thereby improving its growth prospects in the long run. Currently Bajaj Corp is bearing
the brunt of limited product portfolio and overall slowdown in the light hair oil market.
GSK Consumers GSK Consumer Healthcare is a leading player in the MFD segment with a close to 70% share in the domestic market.
Judicious new launches and brand extensions, and the expansion of its distribution reach have helped it to stay ahead
of the competition and maintain its pricing power over the years. In a bid to de-risk its business model, it has expanded
its product portfolio by entering into new categories such as biscuits, noodles, energy bars, sports drinks and oats in
the recent years. With cash balance of close to Rs1,700 crore the company can invest in growth initiatives as well as
reward its investors with a healthy dividend payment.
GCPL Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market
segments in India. The recent acquisitions of Darling Group, Tura, Megasari and Latin American companies have
helped the company to expand its geographic footprint. We believe the decent sales volume growth in the domestic
business coupled with a strong growth in the Indonesian, African and Argentine businesses would help it to
achieve 18% CAGR top line growth and 20% bottom line growth over FY14-16.
HUL Hindustan Unilever is Indias largest FMCG company. The subdued volume growth due to the uncertain and
inflationary environment is likely to sustain the pressure on its profitability in the near term. Overall, we expect its
bottom line to grow at a CAGR of around 10% over FY14-16. The stocks current premium valuation does not
justify the true business fundamentals of the company. Hence we recommend a Reduce rating on the stock. In the
long term, it will be one of the key beneficiaries of the Indian consumerism story.
ITC ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to
strengthen and enhance its other non-cigarette businesses. This would nurture the growth of these businesses some
of which are at a nascent stage. Thus, the company will deliver a sustained and steady growth in the coming years.
Jyothy Labs Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration of
Henkel and the induction of a new management team led by S Raghunanadan, it is transforming itself from a one-
brand wonder to an aggressive FMCG player. We expect its top line to grow at a CAGR of 22%. A strong
improvement in the OPM would help the company to achieve an exponential growth in bottom line over FY2013-
16. We have a Buy rating on the stock with a price target of Rs250.
Marico Marico is among Indias leading FMCG companies. Its core brands, Parachute and Saffola, have a strong footing
in the market. It follows a three-pronged strategy which hinges on expansion of its existing brands, launch of new
product categories (especially in the beauty and wellness space) and growth through acquisitions. While the domestic
product portfolio is likely to achieve a steady growth in volumes, the international business is now gaining
momentum on the back of an increase in distribution and strong performance by the core brands.
Mcleod Russel Mcleod Russel is the worlds largest tea producer with an annual tea production of close to 100mn kg having tea
estates in India and Africa. Its FY14 performance was affected by a flat realisation due to excess production of tea
in India and Africa. However, in FY15 the realisations are expected to go up due to expectations of lower tea
production in Africa which might result in a better earnings growth. We currently have a Hold on the stock and
keenly monitor the tea production in Africa and India.
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TGBL Tata Global Beverages (formerly Tata Tea) is in the process of transforming itself from a commoditised tea and
coffee company into a high-margin beverage company. With regards to this it has undertaken several strategic
initiatives (including a 50:50 JV with PepsiCo and a tie-up with Kerala Ayurveda). Also, its JV with Starbucks
would help it to explore opportunities in the coffee retailing space. The company has aggressive plans but we
believe it will take sometime for it to mould itself into a high-margin and high-RoE FMCG company. We have a
Reduce rating on it.
Zydus Wellness Zydus Wellness is bearing the brunt of a limited product portfolio of three brands (Nutralite, Sugar Free and
Everyuth) that cater to a niche category. Though the new distribution system is expected to bring a better revenue
performance from H2FY2015, we do not expect the revenue growth rates to improve significantly due to the
limited product portfolio and competitive pressures. We expect Zydus Wellness top line and bottom line to grow
at a CAGR of 9% and 7% over FY2013-16 respectively. We have a Reduce rating on it.
IT/IT services
CMC Over the years, CMC has gradually transformed itself from a low-margin equipment provider into a well-diversified
IT services and solutions provider. Its joint-go-to-market strategy with TCS is also playing a big role in the business
transformation, with CMC gaining a strong traction in the international markets. We believe CMC has already set
the stage for the next level of growth and is likely to witness a much stronger growth in the coming years.
Firstsource Firstsource Solutions is a specialized BPO service provider. It has scripted a remarkable turn-around from being
on the brink of a financial burn-out to being an operationally sound company with a large scope for further
improvement. The health of its balance sheet (which was one of the prime concerns) is improving gradually as the
company is gradually reducing its debt burden through internal accruals. The revenue visibility remains strong as
the existing top clients continue to be in good shape while operational efficiencies and reduction in interest expenses
due to lower debt augur well for the earnings growth trajectory in FY15 and FY16.
HCL Tech HCL Technologies is one of the leading Indian IT service vendors. It has reported consistent financial performance
in the past several quarters on the back of a ramp-up in business from the large deals bagged earlier and strong
momentum in the IMS space. It continues to demonstrate a strong growth visibility with a robust backlog of deals
and successful execution with market share gain strategy through vendor churns/consolidation. We remain positive
on the company in view of its order wins and superior earnings visibility. The company remains the least affected
by the impending US immigration bill as compared with its large-cap peers.
Infosys Infosys is India's premier IT and IT-enabled services company. We believe that top level exits and lower predictability
of growth (currently lagging peers) is weighing on the companys performance. Nevertheless, the valuations seem
reasonable at the moment and a much better operating environment in the USA and Europe give us confidence of an
improved growth momentum post the completion of transition period.
NIIT Tech With its strong domain expertise in a few niche verticals and competitive advantage in terms of significant
contribution from its non-linear initiatives, NIIT Technologies is well placed to benefit from the overall improvement
in the demand environment. In order to leverage opportunities from the improving operating environment, the
company has made nine senior level recruitments in the last two years. Under the new COO (Sudhir Chaturvedi)
it has shifted its focus from hardware intensive and margin dilutive deals to strengthening the key verticals of
travel and transport and BFSI which will augur well for its revenue trajectory and margins in FY2015-16.
Persistent Persistent Systems has proven expertise in the OPD space, a strong presence in the newer technologies, strength to
improve its IP base and the best-in-the-class margin profile which sets it apart from the other mid-cap IT companies.
We maintain our confidence due to an optimistic management outlook driven by acceleration in the product
engineering services business, new technologies and increased momentum in the IP space after consolidating the
HP Client Automation revenues.
TCS Tata Consultancy Services pioneered the IT services outsourcing business in India and is the largest IT service firm
in the country. It is a leader in most service offerings and has further consolidated its leadership through the
inorganic route. With a strong base it is well placed to garner incremental deals across sectors. Its consistent
quarterly performance (better than peers) coupled with the higher predictability of its earnings would keep it the
Streets favourite counter in the IT space.
Wipro Wipro is one of the leading Indian IT service companies. It has lagged the other IT biggies in terms of performance
for several quarters. The leadership and organisational changes that the company had adopted a couple of years
ago have just started to show tangible results which is reflected in the positive management commentary.
Additionally, the overall improvement in the demand environment bodes well for the companys revenue visibility.
Capital goods/Power
Bajaj Electricals Bajaj Electricals, a lighting and consumer goods company, suffered heavily in the past due to loss in the E&P business.
However, this business is showing signs of a turn-around, with the induction of a new head and several steps taken to
improve profitability. The loss in the E&P business was very high and it was relatively capital intensive, so recovery in
the E&P business would have a dramatic impact on its earnings growth and return ratios. The earnings could grow by
7x and RoE could swell from 4% to 22% during FY2013-16. Therefore, there is scope for re-rating and recommend a
Hold with a price target of Rs350. In the meanwhile, the consumer and lighting segments would continue to see a
healthy growth, though the margin will remain soft.
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BHEL Bharat Heavy Electricals, Indias biggest power equipment manufacturer, has been the prime beneficiary of the multi-
fold increase in the investments made in the domestic power sector over the last few years. However, the order inflow
has been showing signs of slowing down which would remain a major concern for the company. The key challenge
before the company now would be to maintain a robust order inflow and margin amid rising competition and lower
order inflow. The current order book of Rs101,538 crore stands at around 2.5x FY2014 sales.
CESC CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which
is a strong cash generating business. Further, it is adding 1,200MW of generation capacity which would be on
stream by FY2015. However, on account of the concerns related to the losses from its retail business (Spencers),
the stock is trading at a discount to its peers. On the contrary, the retail business has started exhibiting a store-
level profit since FY11 and is likely to break even at the operating level in FY15 which is a silver lining. Again, its
new subsidiary, FirstSource, is expected to do well. We remain positive on CESC and retain our Buy recommendation.
Crompton Greaves Crompton Greaves key businessesindustrial and power systemshold a high potential in view of the investment
opportunities in the power transmission and distribution sector. Its consumer products segment is expected to
witness a high growth. Though the domestic operations remain relatively stable, but the international operations
went through a restructuring. While the European subsidiaries are on recovery path post-restructuring, the
subsidiaries in Canada and the USA are yet to turn positive. However, the management expects a turn-around
soon. Hence, we remain positive on this stock.
Finolex Cables Finolex Cables, a leading manufacturer of power and communications cables, is set to benefit from an improving
demand environment in its core business of cables and leveraging its brand strength to build a high-margin consumer
product business (of switchgears, lamps etc). However, due to its derivative exposure in the past, it suffered losses
followed by valuation de-rating. More importantly, there is no more exposure hence the overhang of the derivative
should fade away. Further supported by margin improvement and expected earnings growth of 14% (CAGR)
during FY14-16, could trigger re-rating. Hence, we are valuing the core business at 12x the average of FY2016
and FY2017 earnings estimates and valuing the company's stake in Finolex Industries at Rs60 a share (a 30%
holding discount)to arrive at a revised price target of Rs285. We maintain Buy recommendation on the stock.
Greaves Cotton Greaves Cotton is a mid-sized and well-diversified engineering company. Its core competencies are in diesel/petrol
engines, power gensets, agro engines, pump sets (engine segment) and construction equipment (infrastructure
equipment segment). The engine business accounts for 85% of its revenues while the rest comes from infrastructure
equipment. The foray in the mini tractor segment and international markets would open new growth avenues.
Though the near-term performance could remain weak, we expect a considerable improvement in the earnings on
the back of a revival in the automobile and industrial engine segments in H2FY15. We are downgrading Greaves
Cotton to Reduce rating (near-term pain and heady valuations) with the price target of Rs85.
Kalpataru Kalpataru Power Transmission is a leading EPC player in the transmission & distribution space in India.
Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility (also current
consol order book is 1.6x its FY2014 sales). The OPM of the stand-alone business is likely to remain around 9%.
The OPM of JMC Projects (a subsidiary) is showing signs of improvement after a significant drop in the last two
years. We retain our Buy rating.
PTC India PTC India is a leading power trading company in India with a market share of 39% in FY2013 in the short-term
trading market. In the last few years, the company has made substantial investments in areas like power generation
projects and power project financing which will start contributing to its earnings. There is a major positive
development as pending receivables from UPSEB was received by the company recently. Pending receivables was
one of the drags on the companys balance sheet and returns ratios. We retain Buy due to positive developments
and attractive valuation.
Thermax The energy and environment businesses of Thermax are direct beneficiaries of the continuous rise in India Incs
capex. Thermax group book stands at Rs6,121 crore, which is 1.2x its FY2014 consolidated revenues. However,
the company has shown its ability to maintain a double-digit margin in a tough environment. The management
sounded positive with a likely recovery in industrial capex cycle. However, the current valuation is ahead of
fundamentals at 31x FY16 EPS.
V Guard Ind V-Guard Industries is an established brand in the electrical and household goods space, particularly in south
India. Over the years, it has successfully ramped up its operation and network to become a multi-product company.
It has recently also forayed into regions other than the south and is particularly focusing on the tier-II and III cities
where there is a lot of pent-up demand for its products. We expect a CAGR of 23% in its earnings over FY2014-
16 and RoE of 24% during this period.
Infrastructure/Real estate
Gayatri Proj Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and
industrial construction businesses. The order book stands at Rs 7,206 crore, which is 3.6x its FY2013 revenues. It
is also expanding its power and road BOT portfolio and plans to unlock value by offloading stake to private
equity. The company has potential to transform itself into a bigger
IL&FS Trans IL&FS Transportation Networks is Indias largest player in the BOT road segment with a pan-India presence and
a diverse project portfolio. The fair mix of annuity and toll projects, and state and NHAI projects along with the
geographical diversification across 12 states reduce the risk to a large extent and provide comfort. Further, a
strong pedigree along with the outsourcing of civil construction activity helps it to scale up its portfolio faster.
Thus, it is well equipped to capitalise on the huge and growing opportunity in the road infrastructure sector.
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IRB Infra IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator in
the country with all its projects being toll based. It has an integrated business model with an in-house construction
arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from
the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free
and it has presence in high-growth corridors which provides healthy cash flow. Thus, it is well poised to benefit
from the huge opportunity in the road development projects on the back of its proven execution capability and the
scale of its operations.
Jaiprakash Asso Jaiprakash Associates, Indias leading cement and construction company, is all set to reap the benefits of Indias
infrastructure spending. The company has also monetised very well the real estate properties of Yamuna Expressway.
The marked improvement in the macro environment has improved accessibility to capital and thus eased the
concerns of liquidity to some extent. However, higher leverage could act as drag on the valuation.
L&T Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the
domestic infrastructure capex cycle. The strong potential of its international business, its sound execution track record
and bulging order book, and the strong performance of subsidiaries further reinforce our faith in it. Recent measures
planned by the company to improve its return ratios augur well. Hence, we remain positive on the stock.
Pratibha Ind Pratibha Industries is a dominant player in water & irrigation and urban infrastructure segments. It has also diversified
into other high-margin areas like road BOT, power and oil & gas. The current order book stands at Rs8,000 crore,
which is 3.7x its FY2013 revenues. The company is facing margin pressure and higher interest expenditure on account
of the rising debt to finance working capital needs. We currently remain cautious and await positive developments
in terms of debt and working capital requirements.
Punj Lloyd Punj Lloyd is the second largest EPC player in the country with a global presence. However, since FY2009 the
profitability has come under severe pressure due to cost overruns/ liquidated damages in some of Simon Carves (a
subsidiary) projects. Thus, it has put Simon Carves under administration. Further, Libyan projects will take another
few quarters to begin execution. Therefore, the successful execution of its projects along with debt reduction and
working capital management will drive its growth as it enjoys a robust order book.
Oil & gas
Oil India Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India.
The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 473 million barrels (mmbbls)
and 941mmbbls respectively in June 2013. In addition to the huge oil reserves, the companys reserve-replacement
ratio is quite healthy at 1.6x, which implies a comfortable level of accretion of oil reserves through new discoveries.
Further, it offers healthy dividend yield, which provides comfort to investors. The recent policy reforms in terms
of partial deregulation of diesel prices and a likely revision in gas prices augur well for the company.
Reliance Ind Reliance Industries holds a great promise in E&P business with gas production from the KG basin. Further, a likely
revision in the natural gas prices will be a positive trigger. In the refining space, we expect its GRM to pick up with
a likely improvement in the light-heavy crude oil price differential. The company is likely to fetch a premium over
Singapore Complex GRM due to its superior refinery complexity and captive use of KG-D6 gas. We expect the
petrochem margins to be maintained in the medium term on an uptick in the domestic demand. Currently, the decline
in gas output from the KG-D6 basin is weighing on the stock price; however, incremental capacity in the petchem
business would be the earnings driver in the coming years.
Selan Exploration Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat.
The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production.
Further, it intends to explore its next field, Indrora, which is the most prolific one with significant reserves. Based
on this, we expect it to ramp up production significantly, subject to approval for the new wells. We expect
production ramp-up in FY2015 and hence we expect the earnings to grow significantly in the next two years.
Pharmaceuticals
Aurobindo Pharma Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the USA and the European market,
thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones,
penems and sterile products. The expected increase in the export-led business and a favourable tilt in the revenue
mix are likely to boost the margin, resulting in a faster growth in the earnings as compared with the revenues. It
has recently acquired the commercial operations (revenue size EUR320mn)of Actavis Plc in seven western European
countries, which is a strategic fit . We expect the revenues and net profit to grow at a CAGR of 25% and 17% over
FY2014-16E respectively.
Cadila Cadila Healthcares performance in the US generic vertical is likely to improve on the back of new approvals
which was stagnant during FY2013. Besides, its consumer business and exports to the emerging markets will help
it to achieve its target of generating revenues of $3 billion by FY2016. It got USFDAs clearance for its Moraiya
plant in FY2013, which removes one of the vital concerns for the company. Recently, it got DCGI approval for its
first NCE called Lipaglyn to treat type-II diabetes; this will add value to its R&D pipeline. Recently, it has announced
to exit from loss making subsidiary in Japan, which is expected to help improve margins.
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Cipla Cipla has brought about a paradigm shift in its business strategy. To revive growth, it has (1) enhanced focus on
technology intensive products in the inhalation and nasal spray segments; (2) established front-end presence in the
key markets like South Africa and Europe; (3) developed an appetite for inorganic expansions; (4) decided to tap
the FTF opportunities through collaboration with major generic players in the regulated markets and (5) invested
in future growth areas like biosimilars. Though consolidation of CiplaMedpro would hurt earnings in the short
term, but the base business would continue to grow steadily, the growth would be fast-tracked in H2FY2015 on
the back of the launch of combination inhalers in Europe, ramp-up in generics in the USA and synergy from
consolidation.
Dishman Pharma Dishman Pharmaceuticals and Chemicals is a key player engaged in CRAMS and specialty chemical businesses. It
has invested heavily over the past four years (over Rs1,000 crore capex during FY2008-11) to establish a strong
foothold in the CRAMS, API and vitamin-D businesses. After witnessing four years of sluggish performance due
to a global slowdown (that affected the CRAMS business) and heavy capex (that resulted in a sharp rise in the
fixed costs), it is all set to record a strong operating performance on the back of enhanced capacities, the up cycle
in the CRAMS business and a substantial reduction in the debt/equity ratio due to stronger free cash flow.
Divis Labs The new DSN SEZ facility at Vishakhapatnam that started in June 2011 augurs well for Divis Laboratories. The
company is likely to see an improvement in economies of scale which will also lead to tax benefits after USFDA
approvals for three additional production blocks expected to come in Q2FY2015. A near debt-free balance sheet
and strong cash flow are likely to help build a war chest for pursuing strategic investments (biosimilars) and
exploit the growth opportunities in niche segments, like oncology and steroids for contraceptives.
Glenmark Pharma Glenmark Pharmaceuticals exhibited an impressive operating performance during FY2013 in the core business on
key generic launches. Though, higher R&D expenses and tax payments restricted the profit growth. Through the
successful development and out-licencing of six molecules in a short span of eight years, it has become Indias best
play on research-led innovation. It has built a pipeline of 14 molecules and clinched six out-licencing deals worth
$1,672 million (active deals worth $938). It has received over $200 million as initial milestone payment. Its core
business has seen stupendous success due to its focus on niche specialties. We are confident of its long-term
growth prospects.
Ipca Lab Ipca Laboratories has successfully capitalised on its inherent strength of producing low-cost drugs to tap the
export markets. Its ongoing efforts in the branded formulations business in the emerging economies, the revival in
the UK operations, the pan-European initiatives, the likely approval of one additional product under institutional
business and a significant scale-up in the US business will drive its formulation exports. It has received USFDAs
approval for the Indore SEZ (US supplies expected in Q1FY2015) which would help ramp up the sales in the USA.
J B Chemicals Two years after selling the OTC business in Russia and CIS, JB Chemicals and Pharmaceuticals has reestablished
itself in the export market while retaining leadership in the domestic branded formulation market. A major chunk
of the proceeds from the sale of the OTC business has stayed in its balance sheet while the operating performance
of the company has improved in recent quarters. We expect the company to fast forward growth rates on the back
of focus on regulated markets like the USA. The utlisation of surplus cash of over Rs480 crore would provide the
key trigger to the stock.
Lupin The expected ramp-up in the launch of oral contraceptives, ophthalmic products, branded franchise (with addition
of in-licenced product-Alinia and Locoid lotion) in the USA and a robust pipeline of new launches in the domestic
and overseas markets provide strong growth visibility for Lupin. Further, with an expanded field force and therapy
focused marketing division, its formulation business in the domestic market has been performing better than the
industry. The deal with Eli-Lilly to distribute human insulin would open an incremental revenue stream for Lupin
in the Indian market.
Sun Pharma The combination of Sun Pharmaceuticals, Taro, Dusa Pharma and the generic business of URL Pharma offers an
excellent business model, as has been reflected in the 42% Y-o-Y revenue growth and 59% profit growth in
FY2014.It has recently announced plans to acquire Ranbaxy Laboratories for $4 billion through a share swapping
deal. The acquisition augurs well for the company as it will help establish a leadership position in key markets
including India, apart from leading to synergy of $250 million in next two years. With a strong cash balance, it is
well positioned to capitalise on the growth opportunities and inorganic
Torrent Pharma A well-known name in the domestic formulation market, Torrent Pharmaceuticals has been investing in expanding
its international presence. With the investment phase now over, it should start gaining from its international
operations in the USA, Russia and Brazil. The impending turnaround of its German acquisition, Heumann, will
also drive its profitability. Better field force productivity, focus on developed market and stronger balance sheet
would result in a sustainable earnings growth. It has recently acquired the domestic formulation business of Elder
Pharma which is a strategic fit in long run.
Building materials
Grasim Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet,
comfortable debt/equity ratio, attractive valuation and diversified business. The demand for VSF products remains
strong in the global market and Grasim being a leading domestic player is well placed to capture the incremental
demand.
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The Ramco Cements The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity
addition carried out ahead of its peers in the southern region. The 3mtpa expansion will provide the much-needed
volume growth in the future. The regional demand remains lacklustre but on account of the improvement in the
realisation due to supply discipline and a likely change in the market mix its profitability will improve (marginally)
in FY2015.
Shree Cement Shree Cements cement grinding capacity has grown to 18.2mtpa which will support its volume growth in the
coming years. It has set up 300MW power plant entirely for merchant sale which is expected to support its
revenue growth going ahead. Thus, a volume growth of the cement division and the additional revenue accruing
from the sale of surplus power will drive the earnings of the company.
UltraTech Cement UltraTech Cement is Indias largest cement company with approximately 52mtpa cement capacity. It has benefited
from an improvement in its market mix. Further, the ramping-up of the new capacity and savings accruing from
the new captive power plants will improve its cost efficiency.
Discretionary consumption
Eros Intl Media Eros International Media is one of the largest integrated film studios in India with multi-platform revenue streams
and a well-established distribution network across the globe. With its proven track record, an impressive movie
slate and alliance with HBO coming into foray, it is well poised to gain from the rising discretionary spending on
film entertainment driven by the countrys favourable demographics. Recently post the listing of its parent company
in the US the company has upped its ante in acquiring big budget A star movies. Thus, it is a compelling value
play on the Indian media and entertainment industry.
Indian Hotels Co Indian Hotels is the largest hotelier in India with a vast portfolio of hotel properties around the globe. Though, the
macro-economic environment remains challenging for the hotel industry in the immediate term, we are enthused by
IHCLs efforts to control costs and reduce debts on its books. Over the long term it would benefit from the increase
in tourism and corporate travel in India. Also, a turnaround in profitability of its overseas properties would boost its
earnings.
KKCL Kewal Kiran Clothing is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has
created a niche space in the minds of consumers. With a gross market turnover of over Rs300 crore, Killer is ahead
of its rival, Spykar. A strong brand profile, a disciplined management and a consistent track record coupled with
a robust balance sheet position put it in a sweet spot.
Raymond Raymond is present in the fast-growing discretionary & lifestyle category of branded textiles and apparels. With
growing incomes, rise in aspirations to lead a luxurious life, greater discretionary spending and favourable
demographics, the segment of branded apparels & fabrics presents a good growth opportunity and Raymond with
its brands and superior distribution set-up is very well geared to encash the same. Any development with regard to
the Thane land in the form of either joint development or disposal would lead to value unlocking and provide
significant cash to the company.
Relaxo Footwear Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-
of-the-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment
opportunity due to its growing scale, strong brand positioning and healthy financial performance.
Speciality Rest. Speciality Restaurants is a leading player in the fine-dining space with a portfolio of well-established brands such
as Mainland China and Sigree. It is a good proxy on the Indian consumption story as several factors such as
demographics, increasing disposable income and the trend of nuclear families are playing in its favour. Given the
strong brand franchisee, an improving outlook on the margin and a broadening of the valuation gap with comparable
listed peers, we maintain our Hold rating on the stock.
Sun TV Network Sun TV is the undisputed leader in the south Indian TV entertainment market. The broadcasters are one of key
beneficiaries of the mandatory digitisation process initiated by the government as its implementation is expected
to lead to a six-fold increase in ARPU of cable subscribers from Rs4 currently to Rs15-20 post-DAS regime. The
company also enjoys a 30% market share of the total south Indian advertising market making it one of the
dominant players in the industry. Given the upside potential from the DAS regime and a gradual recovery in
advertising, we believe Sun TVs growth prospects look favourable going ahead.
Zee Entertainment Zee Entertainment Enterprises, part of the Essel group, is one of India's leading TV media and entertainment
companies. It has a bouquet of 34 channels across Hindi, regional, sports and lifestyle genres. It is best placed to benefit
from the digital addressable system regime rolled out by the government. The recent demerger of the media business
of Diligent Media Corporation Ltd (a group company) and its vesting with ZEEL gives the company access to one
additional GEC licence for a nominal consideration of Rs2.6 crore (which is an outgo related to preferential allotment)
and tax assets worth Rs314 crore, which have potential to reduce the companys tax rates in the next two to three
years from the present rate of 33%. The recent regulatory change of capping the advertising time on TV to 12 minutes
per hour remains a neutral development for the company as it will be able to increase its advertisement rates to negate
the fall in advertisement volumes.
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Diversified/Miscellaneous
Aditya Birla Nuvo We like the strong positioning that Aditya Birla Nuvos businesses enjoy in their respective fields. It is amongst the
top five players in the insurance, asset management and telecom (Idea Cellular is the fastest growing telecom company,
third in ranking) segments. Madura Garments, with its marquee brands, and consistent and resilient growth, is a
profitable set-up. In an improving macro-economic environment the company would be well placed to grow.
Bajaj Holdings Bajaj Holdings & Investment Limited (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby its
manufacturing undertaking was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business undertaking
consisting of the wind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses
and properties, assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing undertaking
and the strategic business undertaking, now remain with BHIL. BHIL is a primary investment company focused on
new business opportunities. It holds more than 30% stake each in BAL and BFS. We have a Buy recommendation on
the stock with a price target of Rs1,473.
Bharti Airtel Bharti Airtel is the leader in the Indian mobile telephony space. With the regulatory overhang receding and the industry
as well as the company focusing on the quality of revenues rather than volume, better times can be expected ahead
for the sector and hence the company. We remain optimistic about the company.
BEL Bharat Electronics, a PSU manufacturing electronic, communication and defence equipment, is benefiting from the
enhanced budgetary outlay for strengthening and modernising the countrys security. The growth in revenues is also
expected to be aided by the civilian and export orders. The companys current order book of around Rs23,500 crore
provides revenue visibility for the next three to four years. The huge cash reserve would also support the stock.
GDL With its dominant presence in the container freight station segment and recent forays into the rail freight and cold
chain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cow
while its investments in the rail and cold storage businesses have started bearing fruits. It is one of the largest
players in the CFS business and has also evolved as the largest player in the rail freight business as well as the cold
storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments
and increase its pan-India presence. We expect its revenue and net profit to grow at 20% and 16% CAGR respectively
over FY13-15.
Max India Max India is a unique investment opportunity providing direct exposure to two sunrise industries of insurance
and healthcare services. Max New York Life, its life insurance subsidiary, is among the leading private sector
players, has gained the critical mass and enjoys some of the best operating parameters in the industry. As the
insurance sector is showing signs of stablisation, the companys favourable product mix and a strong distribution
channel will result in a healthy growth in the annual premium equivalent. The company has turned profitable on
a consolidated basis and has announced dividend in past couple of years.
Supreme Ind Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging,
industrial and consumer segments. Despite the decline in volume growth, we expect double-digit volume growth
in plastic business. In addition, the incremental volumes from the composite cylinder segment would act as a key
growth driver (executing the first order of 50,000 cylinders in Q1FY2015). The stock price has appreciated to our
price target of Rs550 (up 32% since January 2014). Consequently, we downgrade our rating to Hold. We will
take a call on the price target after the announcement of the companys Q4 results (we also await the volume
growth guidance for FY2015 from the company).
Ratnamani Metals Ratnamani Metals & Tubes is the largest stainless steel tube and pipe maker in India. In spite of the challenging
business environment due to increasing competition, the stock is attractively valued. The management has maintained
a strong outlook on the potential opportunities in the oil & gas sector and inter connection of the rivers across the
country.
United Phos A leading global producer of crop protection products, intermediates, specialty chemicals and other industrial
chemicals, United Phosphorus has presence across value-added agricultural inputs ranging from seeds to crop
protection products and post-harvest activities. A diversified geography and the recent acquisition of DVA Agro
Brazil will help the company to have a strong presence in the Brazilian market and aid in inorganic growth. Its
revenues are likely to grow at 12-15% and EBIDTA margin is expected to remain at 18-20% in FY2015. It has
also started to focus on premium products in agro-chemicals and will slowly stop selling commodities and low-
margin products.

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