Happy Diwali 2014

Dear Investor,

Greetings from PhillipCapital !!!

We wish you a very happy Diwali and a prosperous and successful year ahead. Equity markets
have rallied over 25% since last Diwali, largely led by improving corporate earnings, expectations of tough
reforms from the new government and reviving macroeconomic variables. The government has already
initiated several confidence building measures and taken key decisions.
Though volatility is expected to prevail on the global front as central banks across the globe recalibrate
liquidity levels, India, with its higher growth rate and least political instability among major emerging
markets, will remain in a sweet spot and continue to attract global investors.
We feel that under a revived investment environment and with expectation of further policy changes and
initiatives on the fiscal front by the government, the sentiments are likely to improve further. To gain
advantage of this brighter side of equity market, we present to you our investment ideas across sectors that
you can choose to invest and hold as a portfolio for a period ranging between 9 12 months.

TOP DIWALI MUHURAT PICKS- 2014

Sr No
1
2
3
4
5
6
7
8
9
10

Stock
Bank of India
Axis Bank
Crompton Greaves
Exide
Maha Seamless
Power Grid
Reliance IND
Motherson Sumi
Larsen & Toubro
India Cement

Industry
CMP (Rs) Expected Target (Rs)
Banking
257
320
Banking
401
470
Heavy Electrical Equipment
190
235
Auto Parts & Equipment
164
220
Const & Engg
306
430
Electric Utilities
134
185
Oil & Gas
938
1160
Auto Parts & Equipment
374
510
Const & Engg
1453
2100
Cement
104
145

FUNDAMENTAL RATIONALE
Bank of India

Target: Rs 320

RATIONALE:
PSU Banks such as Bank of India (BOI) are expected to be among the beneficiaries of an improved
economic and policy environment. Further with inflation consistently declining and gross domestic
savings once again entering into financial savings such as deposits, we expect interest rates to
decline going forward. This is expected to improve the operating performance of banks such as BOI
on all fronts including credit growth, asset quality and treasury gains.
Benchmark 10-year bond yield has fallen to 8.46% and is expected to fall further due to the
softening trend in inflation, which is expected to contribute to substantial treasury gains for banks
such as BOI.
In the last ten years, BOI has traded at an average P/ABV multiple of 1.1x and in the range of 0.7x to
1.4x. Currently it is trading close to its bottom average trading range in the last 10 years and at an
attractive valuation of 0.5x FY2016E P/ABV, which is at a 44.4% discount to its closest peer like Bank
of Baroda. Expect the valuation gap to narrow with improving fundamentals. Hence can buy Bank
of India for mid to long term investment with a target price of Rs 320.

Axis Bank

Target: Rs 470

RATIONALE:
Axis Bank, the third largest private sector bank in India, has been focusing on retail business in the
past few years. It has increased its branch network at a 24% CAGR from 1,035 in FY2010 to 2,421
branches as of 1QFY2015, which has aided the bank to maintain healthy growth in its low cost
deposits (CASA ratio at 42% in 1QFY2015). The strong point of Axis Bank is that banks 88% of retail
loans are secured. Focusing on secured retail products has also aided the bank to maintain its
relatively better asset quality with a Net NPA ratio of 0.44% as of 1QFY2015, which is one of the
lowest in the industry.
Axis Bank is well capitalized with a capital adequacy ratio (CAR) of 16.09% and Tier I CAR of 12.64%
as in 1QFY2015. Strong capital adequacy combined with branch expansion has positioned the bank
to benefit from growth opportunities in the up-cycle and further improve its market share of
advances and low cost deposits.
The bank earnings expected to grow at a CAGR of 17.2% over FY2014-16E. On the valuation front,
Axis Bank is trading at 1.8x FY2016 P/ABV, ie at a 47.0% discount to HDFC Bank, which is trading at
FY2016 P/BV of 3.4x. Hence can buy Axis Bank for mid to long term investment with a target price
of Rs 470.

Crompton Greaves

Target: Rs 235

RATIONALE:
Crompton Greaves (CG) is among the leading players in the power transmission & distribution,
industrial equipment, and consumer products and solutions segments in India. The company
derives more than 50% of its revenue from international operations (as of FY2014).
The company has proposed to de-merge its consumer business into a separate listed entity. In the
consumer business, CG is a market leader in the fans and pumps segments with 26% and 14%
market shares, respectively. This proposed demerger would unlock value for share holders as the
consumer business is expected to deliver strong growth in the near future with higher margins and
better return ratios. Thus, Crompton Greaves consumer business would command a higher
valuation multiple, in line with its peers in the space.
The overseas operations as in Belgium, Hungary, Canada and US have become profitable at the
EBITDA level but are still showing losses at the net profit level owing to higher interest liabilities.
CG's Management expects margins to improve as the new orders bagged are relatively higher
margin orders.
The stock trades at an attractive valuation of 0.9x FY2016E EV/sales; offer a positive bias for the
stock. Hence can buy Crompton Greaves for mid to long term investment with a target price of Rs
235.

Exide IND

Target: Rs 220

RATIONALE:
Exide Industries is the largest battery manufacturer in India and largest supplier of batteries for
motorcycles, passenger vehicles, trucks and tractors. With the estimated registered vehicles in India
nearly doubling to 12.3 crore during FY03-10 (up 83%), ~9 crore batteries are likely to be sold from
FY15-17E (considering three cycle replacement). Exides enviable network of >20,000 retail touch
points is the major factor in maintaining the leadership position in the burgeoning replacement
segment.
Exides performance has been improving in the past couple of quarters after about three years of
underperformance in financials with low utilisation levels. Going ahead, with expectation of a
strong pick-up in demand from the automotive segment and higher levels of industrial activity
leading to higher volumes and therefore utilisation levels, Exides operating margins are likely to
improve.
With strong replacement demand likely to continue and OEM demand also likely to pick up, Exides
financial performance is likely to remain on an uptrend, with top line, bottom line growth of ~17%,
~30% CAGR in FY14-17E. Consequently, RoCE and RoE are also likely to improve to ~26%, ~19%,
respectively, by FY17E. Hence can buy Exide Industries for mid to long term investment with a
target price of Rs 220.

Maharashtra Seamless

Target: Rs 430

RATIONALE:
Maharashtra Seamless (MSL) is a leading manufacturer of seamless and ERW pipes in India. In
addition to the large diameter seamless pipe plant, MSL also manufactures higher value-added
products, such as drill pipes used in the oil & gas sector.
The company is likely to be a key beneficiary of the imposition of safeguard duty on import of
seamless pipe and tubes. The central government has imposed a safeguard duty on imported
seamless pipes and tubes which is as follows: a) 20% duty ad valorem when imported during August
13, 2014 to August 12, 2015, b) 10% duty ad valorem when imported during August 13, 2015 to
August 12, 2016 and c) 5% duty ad valorem when imported during August 13, 2016 to February 12,
2017. This move is likely to help Maharashtra Seamless in augmenting its sales realisations in the
domestic market. Furthermore, the sales volume is also likely to witness healthy traction, going
forward.
Going forward improvement in capacity utilisation levels and realisations is expected for
Maharashtra Seamless. Maharashtra Seamless also has a strong balance sheet, healthy cash flow
and net cash status, which augur well for the company. Hence can buy Maharashtra Seamless for
mid to long term investment with a target price of Rs 430.

Power Grid
185

Target: Rs

RATIONALE:
Power Grid Corporation of India Ltd , a Navratna company, is Indias largest power transmission
utility transmitting approx 50% of power generated. The company is in a regulated business which
guarantees reasonable profitability along with steady returns. Power Grid provides investors an
opportunity to participate in the nations power sector reforms as the company is the indirect
beneficiary and offers relatively defensive and stable growth. The company has reported strong
growth in capitalization in FY15 YTD at Rs85bn, more than 50% of the projects commissioned in
FY14.
The momentum to remain strong over the next two years and estimate FY15 capitalizing at
Rs202bn, 26.8% higher on a yoy basis. Power Grid has diversified into broadband and telecom
services and is also into consultancy for T&D projects. A jump in capitalization and increase in
revenues from diversified business would lead to earnings CAGR of 15.7% over the period FY1417.
With a slew of reforms being implemented for the state SEBS, any restructuring of SEBs would lead
to a rerating for the company.
Power Grid can be valued at 2x FY17 P/B. Hence can buy Power Grid Corporation for mid to long
term investment with a target price of Rs 185.

Reliance IND
185

Target: Rs1190

RATIONALE:
With flat earnings profile in the past three years, RIL stock has grossly underperformed the broader
indices. The gross underperformance was driven by risks to earnings as global economic slowdown
impacted refining margins and petrochemical spreads. Furthermore, its E&P segment which was
then (2009) expected to see significant growth in earnings contribution saw its profitability dwindle.
However, over the next three years expect RILs EBIDTA from refining and petrochemicals business

to double. E&P profitability should also improve on the back of gas price hike, gradual increase in
production and traction in shale gas production. Retail business turned around in FY14 and profits
are expected to grow at a decent pace in years to come. Improvement in earnings profile entails a
valuation rerating theme.
Currently, the stock trades at the FY17E PE multiple of 8.9x and 1.3x P/BV. In spite of the expected
growth in earnings valuations are substantially below historical average. Hence can buy Reliance
Industries for mid to long term investment with a target price of Rs 1190.

Motherson Sumi
185

Target: Rs 510

RATIONALE:

Motherson Sumi is now a leading global auto component player with presence across 25 countries.
In the domestic market, when auto sales were declining in the past two years, Motherson
weathered the storm through increasing content per car. Its acquisitions SMR and SMP have
reported outstanding recovery from the strained levels seen when they were acquired. Going
ahead, domestic business will see strong traction as demand recovery is seen from H2 FY15.
Recovery in US and stability in Europe are expected to benefit SMR and SMP substantially which are
already sitting on new orders worth 4bn.
During the past couple of years, automobile market in India saw tough times with volumes
declining across segments. With diesel price hikes behind us, interest rate not expected to increase
from here on, hopes of recovery in industrial activity and a positive consumer sentiment, expect
auto volumes to recover from H2 FY15 and gain further strength in FY16 and FY17. During the lull
phase of auto OEMs in India, Motherson was able to protect its revenue base and profitability as it
increased its market share by enrolling new customers and increasing content per car by adding
new products to its profile. Going ahead too, we expect Motherson with its strong OEM
relationships will post a higher than industry average top line growth.
Benefits of insourcing, strong pricing power in domestic markets, and recovery in passenger car
demand and favourable change in productmix towards premium cars will ensure that MSSLs
standalone revenues will witness 18% revenue CAGR over FY1417E. SMR revenues will be driven
by robust volume growth backed by new capacities. For FY1417E, we expect Motherson to report
earnings CAGR of 41%. Hence can buy Motherson Sumi for mid to long term investment with a
target price of Rs 510.

Larsen & Toubro

Target: Rs 2100

RATIONALE:
Larsen and Toubro Ltd (LT) is India's largest Engineering & Construction (E&C) and is a proxy play to
the domestic infrastructure theme. The company is rightly placed given its strong business model,
superior execution capability and exposure to diverse businesses. With the economy likely
bottoming and prospects for reinvestment in infrastructure improving, we believe L&T has a
multiyear growth opportunity ahead.
In a tough environment in FY14, LTs consolidated order inflow increased 23% yoy to Rs1.3tn led by
strong order inflows in the infrastructure segment. This was higher than the 1520% guidance given
by the company. For FY15, the company reiterated its guidance of 20% yoy order inflow growth at
the consolidated level. It has also guided for consolidated revenue growth of 15% yoy with a margin
risk of 50100bps for the year. It is expected that the company would manage to meet its order
guidance, but would continue to underperform on the revenue front. Execution risks, both in the
domestic and international market, persist and would lead to lower growth in topline. However,
with a rise in the share of domestic orders and faster clearance for stuck projects, execution
expected to pick up pace from endFY15.
Expansion in margins is expected from endFY15 as the share of domestic orders increases and
execution rate picks up. Asset monetization steps taken by the company would reduce near term
balance sheet stress. On a consolidated basis, lower losses in new businesses like ship building,
heavy engineering and higher contribution from real estate and IT business could see an
improvement in contribution from subsidiaries. Hence can buy Larsen & Toubro for mid to long
term investment with a target price of Rs 2100.

India Cement

Target: Rs 145

RATIONALE:
India Cements is the largest cement player in south India and the fifth largest player in India, with
an installed capacity of 13.1 MTPA in south India and overall total capacity of 15.6 MTPA (pan
India). The company derives 85-90% of its revenue from south India. Due to excess capacity in
south India and political instability in Andhra Pradesh, the demand for cement in the south region
had been weak in the past couple of years. Now, with the Telangana issue being resolved and
demand picking up in the region, expect overall utilization levels to improve going forward.
The pricing environment in south India continues to remain stable despite a sharp increase in the
previous quarter. As per the Management, prices are expected to increase further post monsoons,
which should lead to an improvement in margins in future.
At the current market price the stock is available at trailing EV/tonne of $63, which is at a large
discount to its other midcap peers. Given the improving macroeconomic scenario, stable pricing
and expected pickup in demand. Hence can buy India Cement for mid to long term investment
with a target price of Rs 145.

Disclaimer
This is a Technical and Fundamental research report prepared by our analysts based on their study of certain charts, statistical data and their
interpretation of the same. Accordingly, the views and opinions expressed in this document may or may not match or may be contrary at times with
the views, estimates, rating, target price of the other research reports / materials issued by PhillipCapital India Pvt. Ltd..
This report is issued by PhillipCapital India Pvt. Ltd. which is regulated by SEBI. This report is prepared and distributed by PHILLIPCAPITAL INDIA PVT.
LTD for information purposes only and the information contain herein nor any opinion expressed should be construed or deemed to be construed as
solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions
contained in the Report were considered by PHILLIPCAPITAL INDIA PVT. LTD to be valid only when issued / published. The report also contains
information provided to PHILLIPCAPITAL INDIA PVT. LTD by third parties. The source of such information will usually be disclosed in the report. Whilst
PHILLIPCAPITAL INDIA PVT. LTD has taken all reasonable steps to ensure that this information is correct, PHILLIPCAPITAL INDIA PVT. LTD does not offer
any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely
at his or her own risk and PHILLIPCAPITAL INDIA PVT. LTD does not accept any liability as a result. Securities and Derivatives markets may be subject to
rapid and unexpected price movements and past performance is not necessarily a guide to future performance.
This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may
receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the
appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer
to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services
and other sources, which we believe are reliable. PhillipCapital India Pvt. Ltd.. or any of its group companies do not guarantee that such information is
accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without
notice.
Important These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the
research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this
research report may be available on request on the discretion of the company.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately
reflect the research analysts personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and
no part of the research analysts compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in
this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report.
Independence: PhillipCapital India Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for
investment banking services from, the subject issuers in the past twelve (12) months, and the Firm does not anticipate receiving or intend to seek
compensation for investment banking services from the subject issuers in the next three (3) months. The Firm is not a market maker in the securities
mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. The Firm does not hold more
than 1% of the shares of the company(ies) covered in this report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation
or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain
investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the
legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its
investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by
other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results.
Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that the Firm and the research analyst
believe to be reliable, but neither the Firm nor the research analyst represents or guarantees that the information contained herein is accurate or
complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material or time of
issuance and are subject to change without notice. Furthermore, the Firm is under no obligation to update or keep the information current.
Copyright: The copyright in this research report belongs exclusively to the Firm. All rights are reserved. Any unauthorized use or disclosure is
prohibited. No reprinting or reproduction, in whole or in part, is permitted without the Firms prior consent, except that a recipient may reprint it for
internal circulation only and only if it is reprinted in its entirety.
Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience,
objectives, financial resources and other relevant circumstances.