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NOVEMBER 10, 2017

Equity
Economy News % Chg
9-Nov 1 Day 1 Mth 3 Mths
The plywood and laminates industry is in the doldrums as prices of phenol and
Indian Indices
other chemicals used by it are on the rise due to a surge in crude oil prices. A
SENSEX Index 33,251 0.1 4.2 5.5
high goods and services tax (GST) of 28 per cent on plywood was already
NIFTY Index 10,309 0.1 2.9 5.0
proving to be a drag on the industry. (BS) BANKEX Index 28,635 0.5 4.6 4.7
Farmers estimate they would lose about Rs 360 Bn due to lack of government BSET Index 10,756 0.2 5.2 4.7
action. It could be as much as Rs 2 trillion if the loss is estimated from the actual BSETCG INDEX 18,393 0.5 5.7 7.4
cost of production plus 50 per cent profit as assured by the ruling party in its BSEOIL INDEX 16,092 (0.0) 4.8 11.9
election manifesto of 2014. (BS) CNXMcap Index 19,595 1.2 4.9 12.2
BSESMCAP INDEX 17,631 0.8 4.4 17.0
The Airports Authority of India (AAI) plans spend Rs 200 Bn in the next five years World Indices
to upgrade existing and build new airports across the country. Dow Jones 23,462 (0.4) 2.8 7.4
Nasdaq 6,750 (0.6) 2.5 8.6
Corporate News FTSE 7,484 (0.6) (0.7) 1.3
NIKKEI 22,869 (0.2) 8.3 14.3
Data from the Telecom Regulatory Authority of India (Trai) show that Reliance
HANGSENG 29,137 0.8 2.3 6.2
owned, Reliance Jio added 4.09 million customers in August. This is the second-
lowest monthly incremental growth for the company since its launch. (BS) Value traded (Rs cr)
The performance of Taro, Sun Pharma's US subsidiary, for the quarter ending 9-Nov % Chg Day
September 2017 (Q2), while indicating that pricing pressure continues in the US Cash BSE 4,262 (75.4)
market, has some positives. The numbers show compared to the sharp fall in Cash NSE 33,373 (5.1)
Derivatives 1,194,239 49.1
sales, gross margins fell at a slower pace. (BS)
The National Company Law Tribunal (NCLT) asked Swedish telecom equipment Net inflows (Rs cr)
and services provider Ericsson to file bank certificate detailing the amount 8-Nov % Chg MTD YTD
telecom service provider Reliance Communications (RCom) owes it within seven FII 5,987 782 10,433 48,885
days. (ET) Mutual Fund (1,360) (1,038) (1,535) 93,876

The government on Thursday said it has asked state owned SAIL and the world's FII open interest (Rs cr)
largest steelmaker ArcelorMittal to expedite setting up of their proposed joint 8-Nov % Chg
venture for a Rs 50 Bnauto-grade steel plant. (ET) FII Index Futures 27,689 0.7
FII Index Options 86,241 (1.8)
A media report suggested that two domestic drug makers including Zydus
FII Stock Futures 69,383 1.6
Cadila are under the scanner of the pharmaceutical regulator Central Drug
FII Stock Options 8,183 6.2
Standards Control Organization (CDSCO) for allegedly launching a combination
drug to treat hypertension without mandatory prior approval. (ET)
Advances / Declines (BSE)
Reliance Industries Ltd may be looking at buying part of textile maker Alok 9-Nov A B T Total % total
Industries Ltd. The interest may be focused on the polyester yarn unit. Alok Advances 211 631 70 912 100
IndustriesBSE -4.78 % is one of 12 large accounts identified by the Reserve Bank Declines 129 453 65 647 71
of India in June for bankruptcy proceedings after having defaulted on loans. (ET) Unchanged 1 21 7 29 3

NTPC announced that consequent upon successful commissioning, 50 MW (25 Commodity % Chg
X 2 MW) Rojmal Wind Project at Rojmal, Gujarat is declared on commercial 9-Nov 1 Day 1 Mth 3 Mths
operation. With this, the commercial capacity of NTPC would become 43692 Crude (US$/BBL) 57.0 (0.2) 12.0 17.4
MW and that of NTPC Group would become 50908 MW. (ET) Gold (US$/OZ) 1,285 0.3 (0.2) (0.1)
Silver (US$/OZ) 17.0 (0.3) (0.6) (0.6)
IRB Infrastructure Developers Ltd (IRB Infrastructure), one of the country's largest
road developers, said it is in talks with long-term foreign investors, including
Debt / forex market
pension funds, for bidding for toll-operate-transfer (TOT) projects that the 9-Nov 1 Day 1 Mth 3 Mths
government is expecting to tender. (BL) 10 yr G-Sec yield % 6.9 6.9 6.8 6.5
BEML Ltd is looking to get into the manufacturing of underground mining Re/US$ 64.9 65.0 65.4 63.8
equipment.BEML mostly manufactures open cast mining equipment. According
to BR Viswanatha, Director, Mining and Construction, BEML, the plan is to use Sensex

the now closed mining machinery facility of Mining and Allied Machinery 34,000
Corporation (MAMC) in Durgapur for manufacture of these equipment. (BL)
31,750
Magma Fincorp is planning to raise Rs. 7.5 Bn through the issue of securities in
29,500
one or more tranches. According to a notification to the bourses, the company
will raise funds either through the issuance of equity shares, global depository 27,250
receipts, American depository receipts, warrants or convertible securities, or a
25,000
"combination thereof". The exact mode is yet to be decided. (BL) Nov-16 Feb-17 May-17 Aug-17 Nov-17

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, Source: Bloomberg
BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this
document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.
MORNING INSIGHT November 10, 2017

INITIATING COVERAGE QUESS CORP LTD


Sumit Pokharna PRICE: RS.820 RECOMMENDATION: BUY
sumit.pokharna@kotak.com
+91 22 6218 6438
TARGET PRICE: RS.1010 FY19E PE: 32.5X
Quess corp is one of the Indias leading integrated business service providers
(People & Services, Global Technology Solutions, Integrated Facility Management
and Industrial asset management) with an exceptional track record-Sales/PAT
grown at a 6 year CAGR of 57%/101% respectively. It is promoted by Fairfax
Stock details
Financial Holdings through its Indian subsidiary, Thomas Cook India Ltd (TCIL) and
BSE code : 539978 Mr. Ajit Isaac (Chairman and CEO). It operates in nine countries (across North
NSE code : QUESS
America, the Middle East and South East Asia) with 1700 clients base and an
Market cap (Rs bn) : 114
Free float (%) : 18.11 employee strength of 189,200. With 18 acquisitions/investments, Quess added
52 wk Hi/Lo (Rs) : 1068/516 new service line capabilities, client acquisition, and geographical expansion.
Avg daily volume (nos) : 91455 Considering, highly fragmented service market, its small size and huge growth
Shares (o/s) (mn) : 138.3 opportunities, we expect that a large part of Quess growth will be driven by
inorganic mode. Further, Quesss management has a strong pedigree of successful
acquisition with 4-5 years of payback period. As Quess has created a strong
Summary table
platform in the large business service space, so we expect growth momentum to
(Rs mn) FY17 FY18E FY19E
continue and estimate Sales/PAT CAGR of 31%/75% between FY17-19E.
Sales 41,574 56,084 70,994
Growth (%) 21.0 34.9 26.6 We initiate coverage on Quess Corp Ltd with a BUY rating and a target price of
EBITDA 2,225 3,353 4,737 Rs.1010/share, valuing the company at a P/E multiple of 40x on FY19E. We have
EBITDA margin (%) 5.4 6.0 6.7 assigned a higher PE multiple to Quess compared to its peers considering higher
PBT 1,652 2,951 4,341
growth predictability, headroom for margin improvement, strong growth history,
Net profit 1,118 3,099 3,494
EPS (Rs) 8.2 22.3 25.3
thrust on acquisitions, large size and huge growth opportunities. In India, every
Growth (%) 39.7 172.4 13.1 month ~1 million people are entering the workforce, generating sustainable
CEPS (Rs) 10.1 24.7 28.3 employment becomes an imperative which opens huge growth opportunities for
BV (Rs/share) 60 149 174 Quess. We believe that given the secular organic growth in the business, strong
DPS (Rs) - - -
promoter financial commitment and track record of the management, a multiple
ROE (%) 18.8 21.4 15.6
ROCE (%) 13.6 17.6 15.4
of 40x will likely sustain. From a long term perspective, we believe Quess is a
Net cash (debt) (6,040) (3,149) (1,734) compelling investment as numbers (FY19 onwards) do not factor in incremental
NW Capital (Days) 65 62 62 upside from acquisitions which remain fundamental to business model. Recently,
EV/Sales (x) 2.8 1.9 1.5 it raised Rs. 8.74 bn by way of institutional placement (@ Rs.800/share) for
EV/EBITDA (x) 52.3 31.7 22.2
acquisitions.
P/E (x) 100.0 36.7 32.5
P/Cash Earnings (x) 81.1 33.2 28.9
Key Investment Rationale
P/BV (x) 13.6 5.5 4.7
Source: Company, Kotak Securities Private Client
Leverage scale to bring in operating efficiency: The staffing industry requires
Research minimal capital investment but sees disproportionate increase in profitability
and return ratios on gaining scale/volume. The companys management is
Share holding pattern strategically focusing on client acquisition, mining existing clients (catering
Corp Public wider services to existing clients) to achieve scale and improving operating level
bodies 5%
6%
efficiency (such as higher associate to core employee ratio, reduction in
DII
2% receivable days). This is helping the company to grow its organic business,
FII expand operating margin and improve return ratios. The Company has guided
5% for EBITDA margin of 8% in the medium term supported by margin expansion
Promoter
82%
in the recent acquisitions like Brainhunter, MFX, profit contribution from
Manipal Integrated Solutions, and Comtel but we have conservatively assumed
6%/6.7% operating margin in FY18E/FY19E, respectively from 5.4% in FY17.
Source: Capitaline
Structural growth story: The evolution of Quess from an HR outsourcing
company to a business services juggernaut reveals that there exists a strong
structural growth opportunity. Further, with the rise in GDP, shift from
unorganized to organized sector, and continued consolidation in business
service sector, we expect Quess to grow exponentially. With GST, unorganized
players are unable to undercut the organized sector on pricing resulting in
improving prospects of market share gains by organized players.
Aggressive inorganic venture supporting growth: We believe inorganic
expansion is the back-bone to Quess to attain diversification, client penetration
and quick scaling up for growth/operating leverage (turnaround and increased
profitability in acquired companies). With this, the company got exposure to

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2
MORNING INSIGHT November 10, 2017

high margin segments such as GTS, IFM, and IAM. There is further scope for
margin expansion with turnaround of Brainhunter, MFX, Manipal intergrated
solutions, and Comtel. To fuel its growth, Quess has so far done 18
acquisitions/investments in various ventures. Acquisition of Comtel has set the
next stage of growth Quess has established IT staffing footprint in
Singapore and gained market-leading presence in SE Asia, a key geography.
We are optimistic (considering sound track record on integration of
acquisitions) that meaningful value will emerge for Quess from aggressive
inorganic expansion which are opening multiple avenues of growth and
bottom-line expansion.
We initiate coverage on Quest Corp Healthy Financials: Quess has grown its revenues and PAT at a CAGR of 57%
with a price target of Rs.1010 and 101% respectively over FY11-FY17. On a consolidated basis, we expect
Quesss Revenue/EBIDTA/PAT to grow at a CAGR of 31%/46%/75%
respectively between FY17-19E supported by both organic and inorganic
growth.

Key Risk and Concerns:


Acquisition and integration of future businesses remains the key risk.

Diversification of business verticals and optimal utilization is necessary to


sustain strong growth
Any major slowdown in economy can impact our growth assumption.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 3
MORNING INSIGHT November 10, 2017

RESULT UPDATE ASHOK LEYLAND LTD (ALL)


Arun Agarwal PRICE: RS.115 RECOMMENDATION: ACCUMULATE
Auto & Auto Ancillary
TARGET PRICE: RS.126 FY19E PE: 18.2X
+91 22 6218 6443
ALLs 2QFY18 results were broadly as per our estimates. ALLs 2QFY18 numbers
includes Hinduja Foundry Limited (HFL) results and thereby not comparable.
Revenue grew by 31% YoY on the back of 23% growth in sales volume. EBITDA
margin improved QoQ on higher volumes but was lower YoY. At 10.1%, EBITDA
margin was slightly below our estimate of 10.4%. PAT for the quarter grew by
14% YoY and came as per our estimate. Given government focus on infrastructure
activities, expected re-bound in economic activities and possible strict
implementation of overloading ban, truck demand in India will likely grow at
healthy rate in the next 2 years. ALLs EBITDA margin performance is expected to
witness gradual improvement on account of operating leverage from volume
growth, further improvement in HFLs EBITDA margin and possible reduction in
discounting levels. We retain ACCUMULATE with revised price target of Rs126
(earlier 110).

Summary table Quarterly performance


(Rs mn) FY17 FY18E FY19E (Rs mn) 2QFY18 2QFY17* YoY (%) 1QFY18 QoQ (%)
Sales 200,187 233,197 276,884 Total Revenues 60,469 46,224 30.8 42,378 42.7
Growth (%) 5.7 16.5 18.7
Total expenditure 54,351 40,859 33.0 39,317 38.2
EBITDA 22,025 23,713 31,490
EBITDA margin (%) 11.0 10.2 11.4 RM consumed 43,074 31,337 37.5 29,425 46.4
PBT 13,301 18,404 26,578 Employee cost 4,825 3,692 30.7 4,376 10.2
Net profit 14,564 12,791 18,472 Other expenses 6,452 5,830 10.7 5,516 17.0
EPS (Rs) 5.1 4.4 6.3
EBITDA 6,118 5,365 14.0 3,061 99.9
Growth (%) 29.7 (14.6) 44.4
CEPS (Rs) 6.1 6.3 8.3 EBITDA margin (%) 10.1 11.6 - 7.2 -
Book value (Rs/share) 21.5 23.2 27.4 Depreciation 1,411 1,261 11.9 1,321 6.8
Dividend per share (Rs) 1.6 1.8 1.8 Interest cost 410 339 20.9 366 12
ROE (%) 25.3 19.8 24.9
Other Income 557 316 76.1 384 44.9
ROCE (%) 20.7 23.5 30.9
Net cash (debt) (3,557) (3,139) 8,854 Exchange gain / (loss) (26) 66 (27)
NW Capital (Days) 6 13 10 Exceptional income/(loss) - (126) -
P/E (x) 26.8 26.3 18.2 PBT 4,827 4,146 16.4 1,605 200.8
P/BV (x) 5.3 5.0 4.2
PBT margins (%) 8.0 9.0 - 3.8 -
EV/Sales (x) 1.7 1.5 1.2
EV/EBITDA (x) 15.0 14.3 10.4 Tax 1,484 1,202 23.4 492 201.4

Source: Company, Kotak Securities Private Client


Tax rate (%) 30.7 29.0 - 30.7 -
Research Reported PAT 3,343 2,944 13.5 1,112 200.5
PAT margins (%) 5.5 6.4 - 2.6 -
Other Comprehensive Income (174) 30.8 (35)
Total Comprehensive income 3,169 2,975 - 1,077 194.1
Reported EPS (Rs) 1.1 1.0 10.4 0.4 200.5
Source: Company; * does not include Hinduja Foundry Limited financials

Result Highlights
Results are not comparable as the company amalgamated Hinduja Foundry
Limited (HFL) with itself. Revenue during the quarter grew by 31% YoY to
Rs60.5bn and marginally higher than our estimate of Rs59.4bn. After
witnessing sharp volume decline in 1QFY18 (due to BSIV transition), demand
picked-up in 2QFY18. ALL reported 23% YoY increase in volumes. Product mix
related changes and HFL amalgamation translated into 7% improvement in
average selling price.
In 2QFY18, truck segment accounted for 65% of revenues and 10% came from
exports. Defence revenues in the quarter was Rs2bn (Rs2bn in 2QFY17 and
Rs2.7bn in 1QFY18). Spare sales in the quarter was at ~Rs3bn.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 4
MORNING INSIGHT November 10, 2017

Gross margins during the quarter declined YoY and QoQ on account of increase
in commodity prices. Given heavy discounting in the market, company could
not initiate a price hike to pass through the impact in 2QFY18.
Increase in employee cost on a YoY basis is on account of higher volumes,
annual increment and HFL merger. Increase in other expenses largely pertains
to merger with HFL.
EBITDA during the quarter grew by 14% YoY to Rs6.1bn and was in line with
our estimate of Rs6.2bn. EBIDA margin declined YoY on the back of multiple
reasons. Commodity price increase, cost absorption due to heavy discounting
by peers, weaker exports margins as against relatively higher margins in
2QFY18 and impact of lower benefit from Pantnagar plant post GST (company
awaits reimbursement from State Government).
Rise in interest cost and depreciation pertains to HFL inclusion in financials.

PAT grew by 14% YoY to Rs3.34bn. PAT for the quarter came in line with our
estimate of Rs3.35bn.

Conference Call Highlights


In 2QFY18, domestic MHCV volumes grew by 20% YoY and for ALL, the
growth was 22% YoY. All gained 0.4% market share during the quarter.
Management expects domestic MHCV industry to grow by 5-10% in FY18.
While growth in 3QFY18 is expected to healthy (lower base due to
demonization), in 4QFY18 growth will be challenged by high base (pre-buying
ahead of BSIV implementation). Exports are growing at a strong rate.
Truck demand received boost in 2QFY18 from strict implementation of
overloading ban in Rajasthan and Uttar Pradesh. Management expect
implementation on overloading ban pan India.
Company did not take any price hike in 2QFY18. In 1QFY18, price increase was
limited to increased cost on BSIV vehicles. In November 2017, company took
1% price increase in some models. Management highlighted that heavy
discounting from competitors is making price hikes challenging. Raw material
cost pressure is expected to stay in coming quarter.
HFL continues to improve its performance. In 2QFY18, HFLs EBITDA margin
was 8.5% and the company expects that in the next two years, HFL will be
EBITDA margin accretive to ALL.
Capex is expected to be in the range of Rs5-6bn per annum. Net debt as of end
2QFY18 is Rs2.1bn.

Outlook
In the past one year, MHCV demand has been disrupted on account of
demonetization, BSIV transition and GST implementation. Post significant
decline in 1QFY18, MHCV demand in 2QFY18 rebounded strongly. We expect
MHCV volume growth in 2HFY18 to stay healthy. Given government focus on
infrastructure activities, expected re-bound in economic activities and possible
strict implementation of overloading ban, truck demand in India will likely grow
at healthy rate in the next 2 years.
Revenue growth in other segments like defence, spare sales and exports are
expected to grow at a healthy rate.
ALLs EBITDA margin performance is expected to witness gradual improvement
on account of operating leverage from volume growth, further improvement in
HFLs EBITDA margin and possible reduction in discounting levels.
We marginally revise our estimates. For FY18, we have marginally revised our
estimates lower and for FY19, we have slightly increased our estimates.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 5
MORNING INSIGHT November 10, 2017

We retain ACCUMULATE rating on We retain ACCUMULATE rating on the stock with revised price target of Rs126.
Ashok Leyland Ltd with a price (earlier Rs110). We value the stock at a PE of 20x FY19E earnings (earlier 10x
target of Rs.126 EV/EBITDA). Our target price would imply EV/EBITDA of 11.4x on FY19
earnings.

Change in estimates
FY18E FY19E
(Rs mn) Old New % chg Old New % chg
Revenues 232,829 233,197 0.2 270,423 276,884 2.4
EBITDA margin (%) 10.3 10.2 11.4 11.4
Reported PAT 12,877 12,791 (0.7) 18,042 18,472 2.4
Source: Kotak Securities Private Client Research

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 6
MORNING INSIGHT November 10, 2017

RESULT UPDATE TATA MOTORS (TAMO)


Arun Agarwal PRICE: RS.440 RECOMMENDATION: BUY
Auto & Auto Ancillary
TARGET PRICE: RS.514 FY19E PE: 8.7X
+91 22 6218 6443
TAMO reported better than expected results in 2QFY18 driven by improved
operational performance in standalone business and at JLR. Consolidated revenue
increased by 11% YoY to Rs707bn. EBITDA margin at JLR came at 11.8%, 95bps
and 391 bps higher YoY and QoQ respectively. Adjusted consolidated PAT grew
by 50% YoY (reported PAT was up by 200% YoY). Going ahead, the company
indicated that margin pressure at JLR will continue in 2HFY18. Further JLR volumes
in 3QFY18 are expected to stay subdued on account of model run-out (ahead of
new launch) and weak demand in certain geographies. However, over the medium
to longer term, we expect JLR volume growth to stay healthy. Reduction in hedge
losses is expected to support JLR margins in FY19. In the standalone business, the
management remains focused on turning around the performance, which in our
view will take some more quarters. We retain BUY on the stock with unchanged
price target of Rs514.

Summary table Standalone Quarterly performance (Rs mn)


(Rs mn) FY17 FY18E FY19E (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Sales 2696,925 29,91,612 34,59,935 Revenues 138,878 102,822 35.1 90,943 52.7
Growth (%) (2.1) 10.9 15.7
Total expenditure 130,280 100,163 30.1 91,665 42.1
EBITDA 3,34,988 3,29,895 4,65,501
EBITDA margin (%) 12.4 11.0 13.5 RM consumed 103,081 74,225 38.9 64,202 60.6
PBT 93,148 1,45,527 2,06,501 Employee cost 8,854 8,817 0.4 8,886 (0.4)
Net profit 74,544 1,27,723 1,72,414 Other expenses 18,346 17,121 7.2 18,577 (1.2)
EPS (Rs) 22.0 37.6 50.8
EBITDA 8,598 2,659 223.3 (721) -
Growth (%) (32.4) 71.3 35.0
CEPS (Rs) 74.7 93.1 116.0 EBITDA margin (%) 6.2 2.6 - (0.8) -
Book value (Rs/share) 171.0 208.6 259.4 Depreciation 7,506 7,186 4.5 6,748 11.2
Dividend per share (Rs) - - - Interest cost 4,441 3,728 19.1 3,678 20.7
ROE (%) 10.7 19.8 21.7
Other Income 1,419 1,460 (3) 6,399 (78)
ROCE (%) 11.4 18.2 21.2
Net cash (debt) (2,33,701) (2,56,768) (2,40,736) Exceptional income / (loss) (728) 705 80
NW Capital (Days) (26) (29) (30) PBT (2,659) (6,089) (56.3) (4,669) (43.0)
P/E (x) 20.0 11.7 8.7 PBT margins (%) (1.9) (5.9) (5.1)
P/BV (x) 2.6 2.1 1.7
Tax 294 218 34.7 2 14,605
EV/Sales (x) 0.6 0.6 0.5
EV/EBITDA (x) 5.2 5.3 3.7 Tax rate (%) (11.1) (3.6) - (0.0) -

Source: Company, Kotak Securities Private Client


Reported PAT (2,953) (6,308) (53.2) (4,671) (36.8)
Research PAT margins (%) (2.1) (6.1) - (5.1) -
Reported EPS (Rs) (0.9) (1.9) - (1.4) -
Source: Company

Standalone result highlights


Standalone revenue grew by 35% YoY to Rs139bn. Company reported strong
22% YoY volume growth in domestic passenger car and commercial vehicle
segment. Average selling price increased 19% YoY on the back of product mix
change with passenger and commercial vehicle segment and higher share of
commercial vehicle volume in the mix. Discounts increased by 15-20% YoY in
the CV segment.
On account of rising input cost, higher discounts and product mix change, gross
margin declined during the quarter. From 27.8% in 2QFY17, reported gross
margins dipped to 25.8% in 2QFY18.
Employee cost remained flat YoY and QoQ. Other expenses during the quarter
remained broadly under control when compared YoY and QoQ as the company
focused on cost reduction.
Despite lower gross margins, the company reported increase in EBITDA margin.
Operational leverage from strong revenue growth led to EBITDA margin
expanding from 2.6% in 2QFY17 to 5.2% in 2QFY18. In 1QFY18, TAMO
reported negative EBITDA in its standalone business.
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 7
MORNING INSIGHT November 10, 2017

Loss for the quarter came from Rs6.3bn in 2QFY17 and Rs4.7bn in 1QFY18 to
2.9bn. Strong operational performance led to net loss coming down for the
company.

JLR Quarterly performance (GBP mn)


(Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Revenues 6,322 5,668 11.5 5,599 12.9
Total expenditure 5,576 5,053 10.4 5,157 8.1
RM consumed 4,001 3,487 14.7 3,565 12.2
Employee cost 662 585 13.2 656 0.9
Other expenses (net) 913 981 (6.9) 936 (2.5)
EBITDA 746 615 21.3 442 68.8
EBITDA margin (%) 11.8 10.9 - 7.9 -
Depreciation 478 410 16.6 450 6.2
Foreign exchange gain/(loss) 69 50 - 100 -
Net Interest expense 13 7 85.7 12 8.3
Share of profit/(Loss) from Joint Venture 61 33 84.8 77 (20.8)
Exceptional item - (1) - 438 -
PBT 385 280 37.5 595 (35.3)
PBT margins (%) 6.1 4.9 10.6
Tax 77 36 113.9 123 (37.4)
Tax rate (%) 20.0 12.9 - 20.7 -
Reported PAT 308 244 26.2 472 (34.7)
PAT margins (%) 4.9 4.3 8.4
Volumes (nos) 131,334 124,192 5.8 117,916 11.4
Realization (GBP) 48,137 45,639 5.5 47,483 1.4
Source: Company

JLR Result Highlights


JLR reported better than expected operational performance in 2QFY18. JLR
revenue in the quarter was GBP6.322mn, 12% higher YoY. While volume grew
by 6%, average selling price moved up by 5.5% on account of product/market
mix.
Gross margins declined YoY from 38.5% in 2QFY17 to 36.7% in 2QFY18
probably due to higher raw material cost and also impacted by higher
incentives. Other expenses was lower YoY partly due to reduction in warranty
expense.
EBITDA margin for the quarter was 11.8%, higher YoY and QoQ. Lower
employee and other expenses supported margins during the quarter. Realized
hedge loss during the quarter was GBP343mn as against loss of GBP276mn in
2QFY17 and GBP454mn in 1QFY18. Margins also received support from
turnaround initiatives in the standalone business.
Depreciation charges increased led by new launches and capex. During the
quarter, JLR reported foreign exchange gain of GBP69mn (includes mark to
market of unrealized forex options and commodity hedges and revaluation of
long term foreign currency debt) as against forex gain of GBP50mn in 2QFY17.
JLR share of profit in China JV stood at GBP61mn as against GBP33mn in
2QFY17. Exceptional item of GBP438mn in 1QFY18 is credit relating to changes
made to the companys pension plans.
JLRs PAT grew by 26% YoY to GBP308mn and was ahead of expectation.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 8
MORNING INSIGHT November 10, 2017

Consolidated Quarterly performance (Rs mn)


(Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Revenues 706,907 635,376 11.3 584,934 20.9
Total expenditure 617,523 561,078 10.1 535,285 15.4
RM consumed 448,868 392,758 14.3 365,758 22.7
Employee cost 72,563 67,939 6.8 71,152 2.0
Other expenses 96,092 100,381 (4.3) 98,376 (2.3)
EBITDA 89,383 74,298 20.3 49,648 80.0
EBITDA margin (%) 12.6 11.7 - 8.5 -
Depreciation 49,699 44,540 11.6 45,256 9.8
Interest cost 11,473 10,249 12.0 11,089 3.5
Other Income 1,888 1,794 5.3 1,541 22.5
Exceptional gain / (loss) 715 (11,311) 42,525
PBT 30,814 9,993 208.4 37,370 (17.5)
PBT margins (%) 4.4 1.6 6.4
Tax 10,898 4,246 156.6 12,074 (9.7)
Tax rate (%) 35.4 42.5 - 32.3 -
PAT (bef minority int/associates pft) 19,916 5,747 - 25,295 -
Share of associates/Minority Interest 4,912 2,537 93.6 6,527 (24.7)
Reported PAT 24,828 8,284 199.7 31,823 (22.0)
PAT margins (%) 3.5 1.3 5.4
Reported EPS (Rs) 7.3 2.4 199.7 9.4 (22.0)
Source: Company

Consolidated Result
TAMOs consolidated results were better than expected. Standalone business and
JLR reported healthy revenue growth. On a consolidated basis, revenue grew by
11% YoY to Rs707bn. EBITDA margin at JLR and standalone business was better
than expectation. At the consolidated level, EBITDA margin improved YoY and
QoQ to 12.6%. PAT for the quarter increases strongly YoY.

Outlook
TAMOs standalone operations performance in 2QFY18 improved on the back
of strong performance in the commercial vehicle segment. While we expect
volume growth in the commercial vehicle business to remain healthy, the
growth rate witnessed in 2QFY18 (26% YoY growth) is not expected to
continue. In the passenger car business, company is trying to improve its
performance through new products. We expect the company will take more
quarters to meaningfully improve in its performance in the passenger vehicle
segment.
JLR volume growth will continue to be driven by new product launches.
Currently, certain markets are facing growth challenges. However company
remains optimistic on new products to support growth. Higher volumes will
provide positive operating leverage and help JLR witness margin improvement
over 1QFY18. Given weakness in US and UK, incentives at JLR is expected to
stay at elevated levels in the near to medium term.
We retain BUY rating on Tata On electric vehicle, JLR will launch its first battery EV in mid-2018. Further
Motors with a price target of company will also offer plug-in hybrids in 18MY Range Rover and Range Rover
Rs.514 Sport by the end of 2017. From 2020, all JLR vehicles will offer electric options
(mild hybrids/plug in hybrids/battery).
As of 2QFY18, total pre-tax hedge reserve was GBP1.09bn (of which
GBP793mn relates to next 12 months). Assuming GBP does not witness any
major movement, company is expected to witness improvement in EBITDA
margin and earnings for the company
We retain BUY on the stock with unchanged price target of Rs514. We have
valued the standalone business / JLR (including China JV) / other subsidiaries at
Rs57/ Rs433 /Rs24 respectively.
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MORNING INSIGHT November 10, 2017

RESULT UPDATE THE INDIA CEMENTS LTD


Teena Virmani PRICE: RS.174 RECOMMENDATION: BUY
teena.virmani@kotak.com
TARGET PRICE: RS.223 FY19E EV/EBITDA: 6.6X
+91 22 6218 6432
Results for the quarter were ahead of our expectations owing to better than
expected margins. Demand in the southern region continues to remain impacted
by sand unavailability which can continue to weigh on stock performance in near
term. However these issues are likely to get resolved soon with alternative options
of procuring sand.
Along with this, with upcoming election schedule in AP/Telangana, we expect
cement demand to report strong growth with governments push for infrastructure
development. We believe that India Cements is adequately positioned to cater to
upcoming demand with improved working capital and enhanced capacity. Post
revising our estimates to factor in H1FY18 performance, we arrive at a revised price
target of Rs 223 (as against Rs 234 earlier) based on average of 8x EV/EBITDA and
$80 per tonne on FY19 estimates. Maintain BUY.

Summary table Financial highlights


(Rs mn) FY17 FY18E FY19E (Rs mn) Q2FY18 Q2FY17 YoY (%)
Sales 50,669 54,400 60,275 Net Sales(adj with excise) 12,683 11,465 11
Growth (%) 19.9 7.4 10.8
Expenditure 10,868 9,221
EBITDA 8,613 8,775 10,150
EBITDA margin (%) 17.0 16.1 16.8 Inc/Dec in trade 110 150
PBT 2,602 2,871 4,364 RM 2,182 1,954
Net profit 1,736 1,924 2,924 As a % of net sales 17.2 17.0
EPS (Rs) 5.5 6.2 9.5
Staff cost 1,064 893
Growth (%) 22.0 14.4 52.0
CEPS (Rs) 13.8 15.3 18.7 As a % of net sales 8.4 7.8
Book value (Rs/share) 165.8 172.1 181.5 Power and fuel 2,974 2,074
Dividend per share (Rs) 0.0 0.0 0.0 As a % of net sales 23.4 18.1
ROE (%) 3.3 3.7 5.4
Transportation & Handling 2,966 2,508
ROCE (%) 7.7 7.6 9.2
Net cash (debt) (29,147) (27,495) (25,272) As a % of net sales 23.4 21.9
Net Working Capital (Days) 52 63 63 Other expenditure 1,574 1,642
EV/Sales (x) 1.4 1.3 1.1 As a % of net sales 12.4 14.3
EV/EBITDA (x) 8.2 7.9 6.6
Operating Profit 1,814 2,244 -19
P/E (x) 31.9 27.9 18.3
P/BV (x) 1.0 1.0 1.0 Operating Profit Margin 14.3 19.6
Depreciation 632 521
Source: Company, Kotak Securities Private Client
Research EBIT 1,182 1,723 -31
Interest 886 876
EBT(exc other income) 296 847
Other Income 66 69
Exceptional gains 0 0
EBT 362 916
Tax 125 293
Tax Rate (%) 34.6 31.9
PAT 237 624 -62
Extraordinary Items 0 0
Net Profit 237 624
NPM (%) 1.9 5.4
Equity Capital 3,081.5 3,071.8
EPS (Rs) 0.8 2.0
Source: Company

Revenue growth marginally ahead of our estimates


Companys revenues for the quarter are not comparable due to amalgamation of
Trinetra Cement and Trishul Concrete Ltd. Revenue growth of 11% YoY was led
by 12.6% YoY growth in cement dispatches and 1.2% YoY decline in cement
realizations. Cement dispatches (including clinker) in Q2FY18 stood at 2.701 MT
(up 12.6% YoY). Revenue from cement segment stood at Rs 12.59 bn while freight

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MORNING INSIGHT November 10, 2017

revenues stood at Rs 44 mn, infra revenues of Rs 33 mn and wind mill revenues at


Rs 46 mn for Q2FY18. On like to like comparison, including Trinethra volumes, the
growth in volumes was largely flat during the quarter.
Demand in the southern region was impacted by issues such as GST roll out, RERA
implementation as well as sand unavailability. Sand unavailability continues to
impact the construction activity in Tamil Nadu. Developers tried to use M-sand
(manufactured sand) as against river sand as an alternative option but it is not
accepted well by individual house buyers, thereby resulting in delay in construction
activities. River sand prices have almost doubled so far while M sand is available at
relatively cheaper rate. We believe these issues may continue to impact demand
scenario in Tamil Nadu for one more quarter and expect some resolution by
Q4FY18 as government is aware about the situation.
Overall demand growth during Q2FY18 stood at negative 14 percent in TN while
AP/Telangana witnessed +8 percent growth and Karnataka +4 percent growth. We
believe that with continued focus of government on infrastructure, low cost
housing and also significant demand from AP/Telangana, demand growth should
start reviving over medium to long term.
We maintain our estimates and expect revenues to grow at a CAGR of 9.1%
between FY17-19.

Operating margin decline is due to higher costs


Operating margin for Q2FY18 witnessed a decline on YoY basis mainly due to
higher power and fuel and freight costs. However, other expenditure has witnessed
a decline on both yearly and sequential basis due to lower advertising, overhead
expenses. Along with this, during Q1FY18, there was maintenance done at few
plants which was not seen during Q2FY18 and hence lower other expenditure.
EBITDA for cement division stood at Rs 1793 mn while for freight, EBITDA was 16
mn and for wind mill, EBITDA was Rs 46 mn, for infra the EBITDA was negative Rs
40.6mn. Thus, EBITDA per tonne for cement stands at Rs 664 as against Rs 892 in
Q2FY18.

Per tonne analysis


Q2FY18 Q2FY17
Dispatches (mn tonne) 2.701 2.399
YoY 12.6%
Pure Grey cem realisation/tonne 4662 4720
YoY (%) -1.2
Cost Per tonne
Inc/dec in material 41 63
Raw material 808 815
Staff cost 394 372
Power and fuel 1101 864
Transportation &Handling 1098 1045
Other expenditure 583 685
Total cost per tonne 4024 3844
Cement EBITDA per tonne 664 892
Source: Company, Kotak Securities Private Client Research

During H1FY18, company fulfilled nearly 81% of coal requirement via pet coke
with average price of around $90-95 per tonne and Q2FY18 average was $92 per
tonne. Current prevailing prices are around $105 per tonne. So this can result in
power and fuel cost per tonne remaining at similar levels going forward for the
company.
The staff cost has been moving up since Q1FY18 due to provisioning of ESOP cost
on the basis of difference between grant value and market value as at the end of
the quarter. Company would continue to make provisions for ESOPs every quarter
as per the norms of accounting standard.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 11
MORNING INSIGHT November 10, 2017

We revise our estimates to factor in H1FY18 performance which was impacted by


sand mining issues and low demand. We expect margins to be around
16.1%/16.8% for FY18/19 respectively. (17.5%/17.8% estimated for FY18/19
earlier). Any uptrend in cement prices is likely to provide margin improvement
going forward.

Net profit performance ahead of our estimates


Net profit performance came ahead of our estimates owing to lower than expected
reduction in margins. We revise our estimates to factor in H1FY18 performance
and expect net profits to grow to Rs 1.9bn/Rs 2.9 bn for FY18/19 respectively.

Valuation and recommendation


At current market price of Rs 174, stock is trading at 7.9x and 6.6x EV/EBITDA on
FY18 and FY19 estimates respectively. Though sand issues continue to impact the
We maintain BUY rating on The demand and pricing scenario in the southern region particularly Tamil Nadu, these
India Cements Ltd with a price issues are likely to get addressed by Q4FY18. Along with this, with upcoming
target of Rs.223 election schedule in AP/Telangana, we expect cement demand to report strong
growth with governments push for infrastructure development. We believe that
India Cements is adequately positioned to cater to upcoming demand with
improved working capital and enhanced capacity.
Post revising our estimates, we arrive at a revised price target of Rs 223 (as against
Rs 234 earlier) based on average of 8x EV/EBITDA and $80 per tonne on FY19
estimates. Maintain BUY.

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MORNING INSIGHT November 10, 2017

RESULT UPDATE BAJAJ ELECTRICALS LTD (BAEL)


Ruchir Khare PRICE: RS.383 RECOMMENDATION: SELL
ruchir.khare@kotak.com
TARGET PRICE: RS.335 FY19E PE: 18.8X
+91 22 6218 6431
BAEL reported Q2FY18 result below our estimates due to margin contraction in
the E&P division. Profitability in consumer segment remained sedate vis--vis peer
group due to volumes affected by RREP rollout.
At 17.8 x FY19 PER, BAEL stock is trading at a significant discount to the peer
group (key players like Havells and Crompton Greaves consumer trading at PER of
over 30x FY19 earnings) due to 1) companys presence in EPC business (B2B) which
attract lower valuation, 2) sub-par margins vis--vis competitors in the consumer
durable business and 3) prolonged history of earnings disappointment.
We maintain SELL rating with SOTP based unchanged target price of Rs 335 on
companys stock

Summary table Q2FY18 Result


(Rs mn) FY17 FY18E FY19E (Rs mn) Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)
Sales 42617 46001 53660 Net Sales 9356 9966 (6.1) 10205 (8.3)
Growth % -7.6 7.9 16.7
Other Income 106 77 37.4 105 0.5
EBITDA 2427 3082 3864
EBITDA margin % 5.7 6.7 7.2 Raw material cost 1274 187 580.7 462 175.9
PBT 1681 2201 2982 Purchase of traded goods 4853 6320 (23.2) 6215 (21.9)
Net profit 1077 1497 2027 Employee cost 1307 1305 0.1 1682 (22.3)
EPS (Rs) 10.9 15.1 20.5
other expenditure 1492 1701 (12.3) 1394 7.1
Growth % 12.7 39.0 35.5
CEPS 13.9 18.5 23.9 Total expenditure 8926 9513 (6.2) 9753 (8.5)
Book value (Rs/share) 83.8 94.7 110.0 EBITDA 429 453 (5.1) 452 (5.0)
DPS (Rs) 2.2 3.2 4.2 Depreciation 88 71 24.4 80 9.9
ROE % 13.6 17.0 20.0
PBIT 447 459 (2.5) 477 (6.3)
ROCE % 9.6 12.0 15.1
Net cash (debt) (3821) (2399) (1780) Interest expense 141 200 (29.5) 150 (6.0)
Net Working Capital (Days) 31 23 23 PBT 306 259 18.3 327 (6.5)
EV/Sales (x) 0.9 0.9 0.7 Tax Expense 117 92 27.1 123 (4.7)
EV/EBITDA (x) 16.3 12.8 10.2
adj. PAT 190 167.0 13.5 205 (7.5)
P/E (x) 35.4 25.5 18.8
P/Cash Earnings 15.4 11.6 9.0 EPS (adj) 1.9 1.7 13.5 2.1
P/BV (x) 2.6 2.3 1.9 EBITDA% 4.6 4.5 4.4
Source: Company, Kotak Securities Private Client Tax% 38.1 35.5 37.4
Research RM/Sales % 65.5 65.3 65.4
Source: Company

Result Highlights
In Q2FY18, BAEL net revenues stood at Rs 9.3 Bn (de-grew 6.1% YoY, flat YoY
adjusted for GST) due to lower volumes in the consumer business. Company
reported operating margin at 4.6% against 4.5% in Q2FY17.
Consumer durable division reported revenues at Rs 5.1 Bn against Rs 5.6 Bn in
Q2FY17.
Sales in consumer division were adversely impacted by 1/ change in distributors
incentive systems (implementation of RREP; discussed below) and 2/ lack of
momentum at the dealer level due to GST transition. Lighting division continued
to observe transition from traditional lighting/CFL to LED based solutions.
EBIT Margin for the segment stood at 5.6% against 2% in Q2FY17. Management
mentioned that the RREP roll out has been encouraging so far and company would
likely report recovery from 2HFY18 onwards.
E&P segment, revenues stood at Rs 4.2 Bn (down 4.1% YY) with EBIT margins at
3.5% against 7.5% in Q2FY17. We note that most of the loss making legacy orders
in E&P segment is over and company would maintain superior margins in the
segment going ahead. However, in Q2FY18 execution/margins in the segment

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MORNING INSIGHT November 10, 2017

were affected by GST transition. Current order book in E&P segment stands at c.
33.8 Bn currently.

Segment Results
Q2FY18 Q2FY17 YoY% Q1FY18 QoQ %
Consolidated revenues
Consumer Durables 5141 5661 (9.2) 4695 9.5
Engg Projects 4213 4393 (4.1) 5598 (24.7)

PBIT
Consumer Durables 287 115 150 33 774.4
Engg Projects 146 330 (56) 398 (63.3)

PBIT%
Consumer Durables 5.6 2.0 0.7
Engg Projects 3.5 7.5 7.1

Source: Company, Q1FY17 and Q4FY16 financials not comparable due to reclassification of consumer numbers

Interest charges came down substantially to Rs141 mn in Q2FY18 vis--vis Rs 200


mn last year. Adjusted net profit in Q2FY18 stood at Rs 190 mn vis--vis Rs 167
mn in Q2FY17 mainly in back of lower interest cost.

RREP program should get implemented over the period of next two years
BAEL launched RREP (Retail reach expansion program) in FY16 to reach out to
dealers more efficiently as against traditional wholesaler based model of selling.
The RREP programs (TOC-Theory of constraints based model) is currently under
implementation and has had diminishing effect on companys primary sales over
the last few quarters. Management has earlier highlighted that TOC model would
start yielding benefits (partially) form FY18 onwards. However, full benefits from
TOC based distribution model are expected to materialize from FY18.
Management believes that TOC based RREP model would provide benefits in terms
of 1) improved engagement with dealers, 2) establish efficient feedback
mechanism, 3) expand product reach for premium/newly launched products and
4) achieve lower inventory levels.
Under RREP (where supply chain is highly centralized) company is optimistic of
seeking benefits from 1) improved purchases in terms of bulk buying, 2) savings
from lower investment in ideal inventory (slow moving products) and 3) reduction
in discounts offered to large wholesalers.
As a second step under TOC based selling, company would aim at increasing sales
and expect recovery from FY18 onwards. We suspect that the company has lost
market share in the past few quarters (reflected in companys poor sales in last few
quarters vis--vis competitors). As of now, TOC covers nearly 35% of distributors
and should reach 45-50% by the end of current fiscal. Management expects to
achieve over 90% TOC rollout by FY18.
We note that in the past, some of the other competitors have also made attempts
to realign the distributor discounts. For instance, in FY16 Havells too has averted
the practice of offering additional discounts to the large distributors and had
experiences temporary fall in sales. However, we fail to identify any major players
who have completely done away with wholesalers based selling. Most of the
players, we believe have resorted to a combination (40-60 or 50-50) of wholesalers
and direct selling model. We therefore believe that the company would have to be
swift and efficient in ramping up sales (by means of aggressive advertising
campaigns to create demand pull) post full commencement of RREP and regain
lost market share. We believe that the successful rollout of RREP is critical for the
company and remain watchful of the developments and progress made in this
direction.

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MORNING INSIGHT November 10, 2017

Valuation And Recommendation


At 18.8 x FY19 PER, BAEL stock is trading at a significant discount to the peer
group (key players like Havells and Crompton Greaves consumer trading at PER of
We maintain SELL on Bajaj over 30x FY19 earnings) due to 1) companys presence in EPC business (B2B) which
Electricals Ltd with a price target of attract lower valuation, 2) sub-par margins vis--vis competitors in the consumer
Rs.335 durable business and 3) prolonged history of earnings disappointment.
We maintain SELL rating with SOTP based unchanged target price of Rs 335 on
companys stock

Valuation
Rs mn FY19E
B2C
EBIT-Consumer Appliances 2553
EBIT B2C 2553
Interest (300.00)
Tax (743.58)
PAT 1510
Target PER 20
Target Market Capitalization (B2C) (a) 30194

EBIT B2B 1298


Interest (700)
Tax (197)
PAT 400
Target PER 7
Target Market Capitalization (B2B)(b) 2803
Target Market Capitalization (BAEL) (a+b) 32996
Target price per share (BAEL) 335
Source: Kotak-PCG Research

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MORNING INSIGHT November 10, 2017

RESULT UPDATE PETRONET LNG LTD (PLNG)


Sumit Pokharna PRICE: RS.267 RECOMMENDATION: ACCUMULATE
sumit.pokharna@kotak.com
TARGET PRICE: RS.285 FY19E PE: 17.7X
+91 22 6218 6438
PLNGs Q2FY18 result is better than our expectation. The company has reported a
PAT of Rs.5.9 bn up by 28.1% yoy and 35% qoq, resulting in a quarterly EPS of
Rs.3.93 and CEPS of Rs.4.6. In Q2FY18, PLNG has booked highest total volume
throughput of 220 TBTUs, 15% qoq and 17% yoy.
Dahej RLNG terminal operated at 110% capacity utilization (expanded capacity of
15 mmtpa) in Q2FY18. Kochi RLNG terminal operated higher at 15.4% capacity
utilization in Q2FY18 vs 11.6% capacity utilization in Q1FY18.
Expansion Plans: The company in order to expand business in India is planning to
acquire at least 26% stake in Indian Oil Corp.s Ennore LNG 5 MMTPA terminal in
south India expected to commission in 2018-19. IOC is scouting for a strategic
investor for Ennore terminal. Further, the company is expanding its footprints in
Summary table global market by setting up a 7.5 MMTPA LNG terminal in Bangladesh.
(Rs mn) FY17 FY18E FY19E
The company has plans to venture into retail LNG business and in this regard it will
Net Sales (Rs. Mn) 249,627 298,089 323,075
Growth (%) -8.0 19.4 8.4 test run LNG-fueled buses in Gujarat and Kerala.
EBIDTA 29,389 34,292 38,420
We expect LNG consumption to rise in India. Additionally, there is a strong
EBIDTA margin (%) 11.8 11.5 11.9
PBT 23,602 31,716 33,944 possibility of ban on furnace oil and petroleum coke in NCR, resulting in
Net profit 17,057 21,091 22,573 incremental demand on LNG.
EPS (Rs) 11.4 14.1 15.0
Growth (%) 4.0 23.7 7.0 We expect PLNG to report an EPS of Rs.14.1 for FY18E and an EPS of Rs.15 for
CEPS (Rs) 13.8 16.8 18.0 FY19E. We expect FY18E to be better driven by acceleration in volume growth,
Book value (Rs/share) 54 65 77 supported by expansion. At CMP, we believe that the stock is reasonably valued at
DPS (Rs) 2.5 3.1 3.5 17.7x FY19E earnings. We maintain accumulate rating on the stock with a revised
ROE (%) 22.9 22.1 19.6
price target of Rs.285/- (earlier Rs.240) including equity value of 26% stake in
ROCE (%) 17.5 20.9 20.2
Net Cash (Debt) 7,635 34,599 49,038 Dahej Port.
NW Capital (Days) 11.8 12.4 13.4
EV/Sales (x) 0.9 0.6 0.6 Results table
EV/EBIDTA (x) 7.5 5.6 4.7 Petronet LNG Ltd Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
P/E (x) 23.5 19.0 17.7
Net Sales 77,702 66,144 17.5 64,351 20.7
P/BV (x) 4.95 4.11 3.49
P/CEPS (X) 19.3 15.9 14.9 Total Expenditure 68,715 58,880 16.7 56,909 20.7
Source: Company, Kotak Securities Private Client EBIDTA 8,987 7,264 23.7 7,442 20.8
Research Depreciation 1,039 860 20.8 1027 1.2
EBIT 7,949 6,405 24.1 6,415 23.9
Other income 1,019 915 11 707 44
Interest-net 465 554 (16) 465 0
PBT 8,504 6,765 26 6,658 28
Tax 2,616 2,170 20.6 2,282 14.6
PAT 5,888 4,596 28.1 4,376 34.6
EPS (Rs) 3.93 3.06 28.1 2.92 34.6
Source: Company

Key Risks and Concerns


We believe the key risk to our valuation are as follows:
Geo-political risk: Any gas supply disruption from Qatar can have meaningful
impact on the earnings. Though current situation is under control.
Availability of LNG at reasonable prices on a long term basis has remained a key
worry.
Regulatory risk: Any capping of margins by PNGRB will negatively impact its
earnings and growth. However, management has indicated that imported LNG
does not fall under the preview of PNGRB.
Project execution risk.

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MORNING INSIGHT November 10, 2017

Result Analysis
Revenue and realization: PLNGs revenue for Q2FY18 was at Rs.77.7 bn which
is up 21% on sequential basis (lower LNG prices) and 17.5% yoy. In Q2FY18,
PLNG processed highest-ever quantity of RLNG at 220 TBTUs, higher by 14.6%
qoq and 16.5% yoy. Kochi terminal operated at 15.4% of its capacity with 10
TBTUs of LNG.
Raw material cost: Raw material cost (RLNG) for Q2FY18 was at Rs.67.4 bn
higher 22% sequentially and 17% yoy. Raw material as a percentage of sales
has increased 60 bps qoq to 86.8% due to higher spot RLNG prices. In Q2FY18,
average cost of gas under contract with RasGas was between $6-7/mmbtu.
Net-back (Net revenue less raw material cost): Net-back for Q2FY18 was at
Rs.10.3 bn up 16% qoq and 20% yoy mainly on account of significantly higher
volumes and better realisation.

Quarterly financials
Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Margin (%)
EBITDA Margin 11.6 11.0 0.6 11.6 0.0
EBIT Margin 10.2 9.7 0.5 10.0 0.3
Adj PAT Margin 7.6 6.9 0.6 6.8 0.8
Other Income/PBT 12.0 13.5 (11.4) 10.6 1.4
Tax/PBT 30.8 32.1 (0.0) 34.3 (3.5)
Expenses (Rs. Mn)
Raw Material consumption
(Incl. Forex loss or gain on RM) 67,427 57,613 17.0 55,467 21.6
Staff costs 194 180 7.5 268 (28)
Other Expenditure 1,094 1,086 0.7 1175 (6.9)
Total 67,427 57,613 17.0 55,467 21.6
Expenses Ratio (%)
RM/Sales 86.8 87.1 (0.3) 86.2 0.6
Employee Cost to Sales 0.25 0.27 (0.0) 0.42 (0.2)
Other Expenditure/Sales 1.41 1.64 (0.2) 1.83 (0.4)
Source: Company

Staff cost: Employee cost decreased significantly 28% qoq (base effect) to
Rs.194 mn (7.5% yoy). Employee cost for Q1FY18 includes one-time provision.
Other expenditure decreased meaningfully 7% qoq (despite lower base) to
Rs.1.1 bn (+1% yoy). Other expenditure as a percentage of sales decreased
40bps qoq and 20 bps yoy to 1.41%.
Operating profit (EBIDTA): For Q2FY18, the operational profit increased 21%
qoq to Rs.8.99 bn (+24% yoy). The company recorded EBIDTA margin of
11.6% increased 60 bps yoy but flat sequentially.
Depreciation: In Q2FY18, PLNGs depreciation cost has increased by 1% qoq
and 21% yoy to Rs.1 bn. The company had earlier capitalized Dahej phase-III A
storage tanks.
In Q2FY18, finance cost reduced 16% yoy to Rs.465 mn (flat qoq) mainly due
to debt repayment. Earlier, PLNG has replaced its rupee loan of ~Rs 10.32 bn
(average cost 11% annually) with lower cost unsecured bonds of Rs 10 bn
(~9% annually) placed in the Indian market. We expect interest cost to come
down further due to debt reduction.
PBT for Q2FY18 was at Rs.8.5 bn up 28% on sequential basis and 26% yoy on
account of higher operating income and other income.
Income tax: The Company paid tax of Rs.2.6 bn (at an average rate of 30.8%
in Q2FY18 v/s 34% in Q2FY17 and 32.1% in Q2FY17). This includes deferred
tax liability of Rs.356 mn.

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MORNING INSIGHT November 10, 2017

PAT for Q2FY18 was at Rs.5.9 bn significantly up by 35% qoq and 28% yoy on
account of higher revenues, higher other income and lower taxes. The
Company reported quarterly EPS of Rs.3.93 and CEPS of Rs.4.6.

Valuation & Recommendation


We maintain ACCUMULATE rating We expect PLNG to report an EPS of Rs.14.1 for FY18E and an EPS of Rs.15 for
on Petronet LNG with a price target FY19E. We expect FY18E to be better driven by acceleration in volume growth,
of Rs.285 supported by expansion. At CMP, we believe that the stock is reasonably valued at
17.7x FY19E earnings. We maintain accumulate rating on the stock with a revised
price target of Rs.285/- including equity value of 26% stake in Dahej Port.

Company back ground:


Petronet LNG is India's largest importer of liquefied natural gas (LNG) at its Dahej
plant. It has expanded the Dahej capacity to 15 mmtpa.
PLNG has a firm supply contract with Qatar's RasGas for 8.5 mmtpa for which it
has a back-to-back sales contract. It also imports LNG on a spot basis depending
on its ability to market the same in domestic market.
Similarly, it also imports cargos on behalf of other importers for a fee. The company
currently charges Rs 42.57 per MMBTU as regasification charges, which are set to
go up 5% every year in January.

Petronet LNG terminal

Dahej terminal expansion from 10 to 15 mmtpa LNG terminal at Kochi

Source:

Notes:
LNG is natural gas in its highly compact liquid form. When natural gas is cooled to
minus 260 degrees Fahrenheit (or minus 162 degrees Celcius), it is reduced to one
six-hundredth of its original volume and becomes a clear, non-toxic liquid. LNG
offers a safe and economical means for transporting natural gas over long
distances to locations beyond the reach of pipelines. LNG is loaded on specialized
ships and delivered to a regas- sification terminal where it is reheated, turned into
gas and distributed to customers through a pipeline network.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 18
MORNING INSIGHT November 10, 2017

RESULT UPDATE MAHANAGAR GAS LTD (MGL)


Sumit Pokharna PRICE: RS.1157 RECOMMENDATION: SELL
sumit.pokharna@kotak.com
+91 22 6218 6438
TARGET PRICE: RS.1033 FY19E PE: 22.4X
MGLs Q2FY18 result is marginally lower than our expectations. PAT has increased
22% yoy but flat sequentially to Rs.1.25 bn (vs. our expectation of Rs.1.26 bn).
Gross margin has decreased 1% qoq (partly base effect) to Rs.2.97 bn (+19% yoy)
due to lower realization. Another important factor to monitor is EBIDTA per unit
of sales. The same has decreased 7.5% qoq (partly base effect) to Rs.8.05/scm
(+21% yoy).
We expect MGL to book CNG gas volume of ~1.92 mmscmd and PNG volume of
0.83 mmscmd in FY18E. Similarly, we model CNG gas volume of ~2.0 mmscmd
and PNG volume of 0.84 mmscmd in FY19E. MGL will set up 20 new CNG stations
in FY18E. We expect an EPS of Rs.49.3 & cash EPS of Rs.62.8 for FY18E and an EPS
of Rs.51.7 & cash EPS of Rs.66.7 for FY19E. Based on our estimates, the stock at
current market price is trading at 11.8x EV/EBIDTA and 22.4x P/E on FY19E
earnings. We maintain SELL recommendation on MGL with a DCF based price
target of Rs.1033 (earlier Rs.1006).

Summary table Quarterly performance


(Rs mn) FY17 FY18E FY19E (Rs mn) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Sales 20,198 22,523 23,665 Sales 5,880 5,714 2.9 5,829 0.9
Growth (%) (2.2) 11.5 5.1
Add: Closing Stock 0.20 0.20 (0.10)
EBITDA 6,441 7,900 8,336
EBITDA margin (%) 31.9 35.1 35.2
Less: Excise duty 543 533 2 520 4
PBT 6,006 7,375 7,736 Less: Raw Material 2,369 2,692 (12) 2,312 2
Net profit 3,934 4,868 5,106 Gross Margin 2,969 2,489 19.3 2,997 (0.9)
EPS (Rs) 39.8 49.3 51.7
Gross Margin (%) 11.94 10.41 14.7 12.83 (7.0)
Growth (%) 15.3 23.7 4.9
CEPS (Rs) 51.3 62.8 66.7
Less: Opex 966 902 7.1 964 0.2
BV (Rs/share) 186 209 232 Salaries, Wages & Bonus 167 150 11.0 175 (4.5)
DPS (Rs) 19.0 21.7 23.9 Other Mfg. Expenses 800 752 6.4 789 1.3
ROE (%) 23.4 24.9 23.4
EBIDTA 2,003 1,587 26.2 2,033 (1.5)
ROCE (%) 23.4 24.9 23.4
Net cash (debt) 1,454 4,157 5,404
EBIDTA Margin (%) 34.1 27.8 6.3 34.9 (0.8)
NW Capital (Days) (5.5) (2.8) (2.7) Add: Other Income 139 178 (22.2) 120 15.4
EV/Sales (x) 5.0 4.4 4.1 Less: Depreciation 259 231 11.9 246 5.0
EV/EBITDA (x) 15.8 12.6 11.8
EBIT 1,883 1,534 22.7 1,906 (1.2)
P/E (x) 29.0 23.5 22.4
P/Cash Earnings (x) 22.6 18.4 17.3
Less: Interest - 1 2
P/BV (x) 6.2 5.5 5.0 PBT 1,883 1,533 22.8 1,904 (1.1)
Source: Company, Kotak Securities Private Client Less: Tax 635 511 24.4 661 (3.9)
Research PAT 1,248 1,023 22.0 1,243 0.4
PAT (%) 21.2 17.9 3.3 21.3 (0.1)
EPS 12.6 10.4 22.0 12.6 0.4
Source: Company

Key Risk and Concerns:


In CNG - majority of outlets are owned and operated by OMC's in which
company shares Rs.2.74/kg margins to OMC's
Any meaningful slowdown in CNG conversion can impact the earnings

In PNG - cheaper availability of alternative fuels in industrial/commercial


segment can affect the margin and volume growth.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 19
MORNING INSIGHT November 10, 2017

Result Analysis
Revenue: Revenue for Q2FY18 stands at Rs. 5.88 bn, up 1% sequentially and
3% yoy basis, reflecting higher sales volume. Combined gas sales volume has
increased 6.5% qoq to 249 mmscm. Blended average realization has decreased
5.3% qoq to Rs.23.64/scm (-1% yoy) mainly due to lower realization in both
CNG and PNG segment.
Sales Volume: During Q2FY18, MGL sold ~135 mn kg of CNG thereby
registering a growth of 7% on sequential basis and 3% yoy. MGL sold 65
mmscm of PNG in Q2FY18 showing growth of 5% qoq and 6% yoy.
Segment wise revenue analysis: In Q2FY18, CNG segment registered a revenue
of Rs.4.3 bn, up 2.4% qoq but flat yoy due to lower realization. Similarly, PNG
segment has registered revenue of Rs.1.6 bn resulting in a revenue de-growth
of 2.5% qoq but growth of 10% yoy.
Raw Material Cost: The raw material cost has increased 2% qoq to Rs.2.37 bn
(-12% yoy) partly due to higher imported gas. The raw material cost as a
percentage of revenue is up 60 bps qoq to 40.3% (-680 bps yoy).
In order to meet the rising domestic demand of natural gas, MGL not only
sources KG-D6 gas and Administered price mechanism (APM) gas but also
sources higher priced long-term RLNG as well as spot RLNG. Decline in RLNG
and domestic gas prices yoy basis led to decline in raw material cost. We would
like to highlight here that the gas supplied by RIL and ONGC is fixed by
government in US dollar terms. Hence, any rupee depreciation increases the
cost for MGL and vice-a-versa.
Employee expenses: In absolute terms, employee cost has decreased 4.5% qoq
(partly base effect) to Rs.167 mn (+11% yoy). We believe staff cost is within
acceptable range.
Other expenses: Other expenses has increased 1.3% qoq to Rs.800 mn (6.4%
yoy) presumably due to higher maintenance activity, higher volumes and partly
higher base.
Operating profit: In absolute terms, EBIDTA stands at Rs.2 bn down 2% qoq
mainly due to lower gross margin. Another important factor to monitor is
EBIDTA per unit of sales. The same has decreased 7.5% qoq (partly base effect)
to Rs.8.05/scm (+21.4% yoy).
Operating Margins: In Q2FY18, the EBIDTA margin stood at 34.1%, which is
up 660 bps qoq and 80 bps sequentially.

Ratio's
(%) Q2FY17 Q2FY17 YoY (%) Q1FY18 QoQ (%)
RW/Net Sales (Excise) 40.3 47.1 (6.8) 39.7 0.6
Staff Cost 2.8 2.6 0.21 3.0 (0.2)
Other Mfg Expenses Excl Excise 13.6 13.2 0.4 13.5 0.1
Cash EPS (Rs/share) 15.3 12.7 20.2 15.1 1.1
Other Income/PBT 7.4 11.6 (4.3) 6.3 1.1
Tax rate 33.7 33.3 0.4 34.7 (1.0)
Source: company

Other income of the company has increased 15% qoq to Rs.139 mn (-22%
yoy). Other income consist of interest income and tax-free dividend.
Non-cash charges: The depreciation cost has gone up 5% qoq to Rs.259 mn.
Net fixed assets stands at Rs.13 bn as on 31st Mar17 as against Rs.11.6 bn as
on 31st Mar16. MGL will invest Rs. 2.5 bn in FY18E and FY19E each for
expansion of network.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 20
MORNING INSIGHT November 10, 2017

PBT for Q2FY18 is at Rs.1.9 bn down 1% qoq but up 23% yoy mainly on
account of lower realization and higher other expenses.
Bottom line for Q2FY18 is at Rs. 1.24 bn up 22% yoy and 0.4% qoq
sequentially thereby translating into Q2FY18 EPS of Rs.12.6 and CEPS of
Rs.15.3.

Valuation & Recommendation


We maintain SELL on Mahanagar We expect MGL to book CNG gas volume of ~1.92 mmscmd and PNG volume of
Gas Ltd with a price target of 0.83 mmscmd in FY18E. Similarly, we model CNG gas volume of ~2.0 mmscmd
Rs.1033 and PNG volume of 0.84 mmscmd in FY19E. We expect an EPS of Rs.49.3 & cash
EPS of Rs.62.8 for FY18E and an EPS of Rs.51.7 & cash EPS of Rs.66.7 for FY19E.
Based on our estimates, the stock at current market price is trading at 11.8x
EV/EBIDTA and 22.4x P/E on FY19E earnings. We maintain SELL recommendation
on MGL with a DCF based price target of Rs.1033.

Business Background:
Mahanagar Gas Ltd (MGL) was incorporated on 8th May 1995 with the objective
of supplying natural gas as compressed natural gas (CNG) and piped natural gas
(PNG) in Mumbai and the adjoining areas. MGL is a joint venture between GAIL
(India) Ltd and BG Group, UK. Recently, Royal Dutch Shell acquired BG group plc.
Hence, Shell has become the ultimate holding company of all the BG Group
companies, including that of BG Asia Pacific Holdings Pte. Limited (BGAPH). MGLs
IPO came in June16 and was entirely an offer for sale of 24.7 mn shares (25%
stake) by the promoters GAIL and BG Asia Pacific Holdings PTE Ltd (12.3 mn shares
each).

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 21
MORNING INSIGHT November 10, 2017

RESULT UPDATE INDRAPRASTHA GAS LTD (IGL)


Sumit Pokharna PRICE: RS.310 RECOMMENDATION: SELL
sumit.pokharna@kotak.com
+91 22 6218 6438
TARGET PRICE: RS.291 FY19E PE: 24.1X
IGLs result is marginally lower than our estimates. IGLs PAT for Q2FY18 is at
Rs.1.69 bn (as against our estimate of Rs.1.75 bn) up 5% qoq and 17% yoy thereby
translating into Q2FY18 EPS of Rs.2.4 and CEPS of Rs.3.1 mainly due to higher
volumes and higher other income. IGL has 50% stake in CUGL and MNGL each.
The combined profit of both the entities for Q2FY18 is Rs. 410 mn. (IGL Share is
Rs. 210 mn). During Q2FY18, IGL sold 257 mn kg of CNG thereby registering a
growth of 9% yoy and 4% on sequential basis. IGL sold 120 mmscm of PNG in
Q2FY18 showing growth of 18% yoy and 11% qoq. The Company has sub-divided
face value of Rs.10/- into 5 equity share having a face value of Rs.2/-. We have
adjusted the same in our model.
We expect demand for CNG to increase due to the odd-even scheme that will be
brought in Delhi from November 13-17. This decision comes in the wake of rising
pollution and breathing problems in Delhi.
We expect IGL to book CNG gas volume of ~1032 mn Kgs and PNG volume of 477
Summary table
mmscm in FY18E. We model CNG gas volume of ~1145 mn Kgs and PNG volume
(Rs mn) FY17 FY18E FY19E
of 549 mmscm in FY19E. We expect an EPS of Rs.11.1 & cash EPS of Rs.13.7 for
Sales 42,060 49,249 58,420
FY18E and an EPS of Rs.12.9 & cash EPS of Rs.15.6 for FY19E. Based on our
Growth (%) 3.8 17.1 18.6
EBIDTA 9,637 11,378 13,086
estimates, the stock at current market price of Rs.310 is trading at 15x EV/EBIDTA
EBIDTA margin (%) 22.9 23.1 22.4 and 24.1x P/E on FY19E earnings. We believe that stock is expensively valued at
PBT 8,414 10,319 12,186 current price and hence we maintain SELL rating on IGL with DCF based revised
Net profit 5,438 6,862 8,104 price target of Rs.291 reflecting better sales volume booked in H1FY18 and
EPS (Rs) 8.7 11.1 12.9
potential rise in CNG demand due to re-introduction of odd-even scheme.
Growth (%) 45.7 28.0 16.0
CEPS (Rs) 11.0 13.7 15.6
Quarterly performance
BV/Share (Rs.) 43.0 50.6 59.8
DPS (Rs) 1.7 1.9 2.0 (Rs mn) Q2FY17 Q2FY17 YoY (%) Q1FY18 QoQ (%)
ROE (%) 21.8 23.1 22.8 Net Sales 12,455 10,709 16 11,610 7.3
ROCE (%) 21.8 23.2 22.9
Add: Closing Stock 0.3 2.0 (1.4)
Net Cash/(Debt) 6,086 12,994 20,522
NW Capital (days) -6.1 -9.0 -9.9 Less: Raw Material 5,931 5,350 10.9 5,485 8.1
EV/Sales (x) 5.0 4.1 3.4 Less: Excise 1,194 1,044 14.4 1,118 6.8
EV/EBIDTA (x) 21.9 17.9 15.0 Gross Margin 5,331 4,317 23.5 5,006 6.5
P/E (x) 35.8 28.0 24.1
Gross Margin (%) 11.10 10.25 8.2 11.24 (1.2)
P/BV (x) 7.2 6.1 5.2
P/CEPS (X) 28.1 22.7 19.9 Less: Opex 2515 1928 30.5 2,233 12.6
Source: Company, Kotak Securities Private Client Salaries, Wages & Bonus 259 235 10 251 3.1
Research Other Mfg. Expenses Excl Excise 2,256 1,693 33 1,982 13.8
EBIDTA 2,816 2,390 18 2,773 1.5
EBIDTA Margin (%) 22.6 22.3 0.3 23.9 (1.3)
Add: Other Income 250 211 18 179 40
Less: Depreciation 450 421 7.0 439 2.6
EBIT 2615 2179 20 2,513 4.1
Less: Interest 4 3 44 4 0.0
PBT 2,612 2,177 20 2,509 4.1
Less: Tax 923 735 25.6 897 2.9
PAT 1,689 1,442 17 1,613 4.7
PAT (%) 13.6 13.5 0.1 13.9 (0.3)
EPS 2.4 2.1 17.1 2.3 4.7
Ratio's (%)
RW/Net Sales (Excise) 47.6 50.0 (2.3) 47.2 0.4
Staff Cost 2.1 2.2 (0.1) 2.16 (0.1)
Other Mfg Expenses Excl Excise 18.1 15.8 2.3 17.1 1.0
Cash EPS (Rs/share) 15.3 13.3 14.8 14.7 4.3
Other Income/Net Sales 9.6 9.7 (0.1) 7.1 2.4
Tax rate 35.3 33.8 1.6 35.7 (0.4)
Source: Company

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 22
MORNING INSIGHT November 10, 2017

Result Analysis
Net Revenue: Net revenue for Q2FY18 stands at Rs. 12.5 bn, up 7%
sequentially and 16% yoy basis. Combined gas sales volume has increased 8%
qoq and 14% yoy to 480 mmscm. Blended average realization has increased
by 2% yoy to Rs. 25.9/scm (-0.5% qoq).
Sales Volume: During Q2FY18, IGL sold 257 mn kg of CNG thereby registering
a growth of 9% yoy and 4% on sequential basis. IGL sold 120 mmscm of PNG
in Q2FY18 showing growth of 18% yoy and 11% qoq.
Segment wise revenue analysis: In Q2FY18, CNG segment registered revenue
of Rs.9.6 bn, 7% qoq and 14% qoq supported by volume growth. Similarly,
PNG segment has registered revenue of Rs. 2.8 bn resulting in a revenue growth
of 24% yoy and 9% sequentially supported by significant increase in volumes.
Raw Material Cost: The raw material cost has increased 8% qoq to Rs.5.9 bn
(+11% yoy) mainly on account of rise in RLNG prices and higher offtake. The
raw material cost as a percentage of revenue is up 40 bps qoq to 47.6% (-230
bps yoy). In order to meet the rising domestic demand of natural gas, IGL not
only sources KG-D6 gas and Administered price mechanism (APM) gas but also
sources higher priced long-term RLNG as well as spot RLNG. We would like to
highlight here that the price of gas supplied by RIL and ONGC is fixed by
government in US dollar terms. Hence any rupee depreciation increases the cost
for IGL and vice-a-versa.
Employee expenses: The staff cost (as a percentage of sales) has decreased 10
bps qoq/yoy basis to 2.1%. In absolute terms, employee cost has increased
3.1% qoq and 10% sequentially to Rs.259 mn. We believe staff cost is within
acceptable range.
Other expenses: Other expense has increased by 14% qoq (partly base effect)
and 33% yoy to Rs. 2.3 bn mainly due to mainly due to implementation of GST
w.e.f. 1st July 2017 and increase in minimum wages in March17 by Rs. 140
mn each.
Operating profit: In absolute terms, EBIDTA stands at Rs.2.8 bn up 1.5% qoq
(base effect) and 18% yoy. Sequential increase in operating profit is mainly due
to higher revenues. Another important factor to monitor is EBIDTA per unit of
sales. The same has decreased 6% qoq to Rs.5.86/scm (+3.3% yoy).
Operating Margins: In Q2FY18, the EBIDTA margin stood at 22.6%, which is
down 130 bps qoq but up 30 bps yoy due to meaningful increase in volume.
Other income of the company has increased significantly by 40% qoq (partly
base effect) and 18% yoy to Rs.250 mn. Other income consists of interest
income and tax-free dividend.
Non-cash charges: The depreciation cost has increased 3% qoq (base effect)
and 7% yoy to Rs.450 mn.
PBT for Q2FY18 is at Rs.2.6 bn up 20% yoy and 4% on a sequential basis mainly
on account of higher operating profit.
Bottom line for Q2FY18 is at Rs.1.69 bn up 5% qoq and 17% yoy thereby
translating into Q2FY18 EPS of Rs.2.4 and CEPS of Rs.3.1. IGL has 50% stake
in CUGL and MNGL each. The combined profit of both the entities for Q2FY18
is Rs. 410 mn. (IGL Share is Rs. 210 mn).

Valuation & Recommendation


We maintain SELL on We expect IGL to book CNG gas volume of ~1032 mn Kgs and PNG volume of 477
Indraprastha Gas Ltd with a mmscm in FY18E. We model CNG gas volume of ~1145 mn Kgs and PNG volume
price target of Rs.291 of 549 mmscm in FY19E. We expect an EPS of Rs.11.1 & cash EPS of Rs.13.7 for
FY18E and an EPS of Rs.12.9 & cash EPS of Rs.15.6 for FY19E. Based on our
estimates, the stock at current market price of Rs.310 is trading at 15x EV/EBIDTA
and 24.1x P/E on FY19E earnings. We believe that stock is expensively valued at
current price and hence we maintain SELL rating on IGL with DCF based revised
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 23
MORNING INSIGHT November 10, 2017

price target of Rs.291 reflecting better sales volume booked in H1FY18 and
potential rise in CNG demand due to re-introduction of odd-even scheme.

Business Background
Indraprastha Gas (IGL) is a City Gas Distribution company with rights to distribute
CNG and PNG in Delhi and its adjoining areas. IGL was incorporated in 1998 as a
JV between GAIL and Bharat Petroleum Corp. (BPCL). The government of Delhi
owns another 5% stake. The company later took over the Delhi gas distribution
project from GAIL. At present, IGLs gas distribution network spans over Delhi,
Noida and Greater Noida, and Ghaziabad. The company supplies compressed
natural gas (CNG) to the auto sector, piped natural gas (PNG) to households and
commercial establishments, and R-LNG (re-gasified LNG) to industrial
establishments.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 24
MORNING INSIGHT November 10, 2017

RESULT UPDATE MIRZA INTERNATIONAL LTD


Pankaj Kumar PRICE: RS.166 RECOMMENDATION: REDUCE
pankajr.kumar@kotak.com
TARGET PRICE: RS.173 FY19E PE: 16.3X
+91 22 6218 6434
Mirza International Ltd Q2FY18 results were below our estimates on weak exports.
Net revenue for the quarter declined 4% YoY to Rs 2.4 bn on account of 20% yoy
decline in footwear exports business while domestic branded business grew by
77% yoy. MIL is focused on growing its domestic brand business through Redtape
sports, mid-range products under Bond Street brand and a new brand to be
launched in ladies sports shoes segment. The company has maintained its guidance
to double its revenue in domestic brand business (Redtape exiting+ Bondstreet +
Redtape sports) to Rs 4.5 bn in FY18. The exports for the quarter declined sharply
by 20% primarily due to weak demand in UK market. The management expects
improvement in exports business in coming quarter based on orders for Q3FY18
and targets to close FY18 exports revenue with marginal decline of 2-4%. We are
positive on long term growth story of the company based on increasing focus on
domestic market, but near term challenges in exports business is impacting the
overall growth of the company. We also need to watch the performance of
Bondstreet and Redtape sports shoes for FY18 which would play key role in
achieving FY18 guidance. We maintain our EPS estimates and Reduce rating on
the stock with revised target price of Rs 173 (Vs Rs 163 earlier) (assigned 17x on
FY19E EPS of Rs 10.2).

Summary table - Standalone Quarterly performance


(Rs mn) FY17 FY18E FY19E Year to March (Rs Mn.) Q2FY18 Q2FY17 % Chg Q1FY18 % Chg
Revenue 9357 10861 12900 Net Revenues 2,404 2,503 (3.9) 2,521 (4.6)
Growth (%) 1.1 16.1 18.8
Raw Materials Cost 1,187 1,459 (18.7) 1,309 (9.3)
EBITDA 1605 1943 2409
EBITDA margin (%) 17.2 17.9 18.7 Gross Profit 1,217 1,044 16.6 1,212 0.5
PBT 1064 1381 1836 Employee Expenses 217 159 36.5 213 2.3
PAT 712 924 1229 Other Expenses 575 505 14.0 562 2.4
EPS 5.9 7.7 10.2
Operating Expenses 1,980 2,123 (6.8) 2,084 (5.0)
EPS Growth (%) (9) 30 33
CEPS (Rs) 8 10 13 EBITDA 424 380 11.8 437 (2.9)
Book value (Rs/share) 42 48 57 EBITDA margin 17.7% 15.2% 17.3%
Dividend per share (Rs) 0.9 1.2 1.6 Depreciation 75 71 5.9 72 5.3
ROE (%) 15.0 17.0 19.5
Other income 0 1 (90.0) 0.6
ROCE (%) 19.7 23.2 26.4
Net cash (debt) (1424) (1309) (1300) Net finance expense 53 65 (18.6) 59 (10.4)
NW Capital (Days) 129 133 135 Profit before tax 296 244 21.4 307 (3.6)
P/E (x) 28.0 21.6 16.3 Provision for taxes 102 79 29.5 106 (2.9)
P/BV (x) 4.0 3.4 2.9
Reported net profit 193 165 17.5 201 (4.0)
EV/EBITDA (x) 13.3 11.0 8.8
EV/Sales (x) 2.3 2.0 1.6 As % of net revenues
COGS 49.4 58.3 51.9
Source: Company, Kotak Securities Private Client
Research Employee cost 9.0 6.4 8.4
Other Expenses 23.9 20.2 22.3
Operating expenses 82.3 84.8 82.7
EBITDA 17.7 15.2 17.3
Reported net profit 8.0 6.6 8.0
Tax rate (% of PBT) 34.6 32.5 34.4
Source: Company

Q2FY18 revenue missed estimates on weak exports


Net revenue for the quarter declined by 4% yoy to Rs 2.4 Vs estimates of Rs 2.8
bn on account of 20% yoy decline in footwear exports business while domestic
branded business grew by 77% yoy. The overall exports (including Redtape brand
sales in exports) for the quarter declined sharply by 20% yoy primarily due to weak
demand in UK, while other markets it improved. Poor performance of Redtape
brand business in exports also affected the exports revenue. Redtape exports
revenue in the quarter declined by 44% yoy to Rs 200 mn as against last years Rs
360 mn. The management expects improvement in exports business in coming

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 25
MORNING INSIGHT November 10, 2017

quarter based on pickup in orders and maintained guidance of 2-4% decline in


FY18 exports.

Domestic branded business remained robust


Domestic brand business witnessed 77% yoy growth in Q2FY18 on strong
performance in shoes and apparel segment. Besides this, new products and brands
also contributed to the domestic brand sales. MIL has launched new products in
sport segment under brand name Redtape and mid-range products under brand
name Bondstreet. The company has not shared numbers for Bondstreet and
Redtape exports in the quarter and would report the same at the end of the year.
These products are expected to pick-up further in the coming quarters, as the
company targets over Rs 1.5 bn of sales from these two. The company has
maintained its guidance to double its revenue of domestic brand business (Redtape
existing+ Bondstreet + Redtape sports) in FY18 to Rs 4.5 bn. The new
products/brands are expected to contribute meaningfully from Q3FY18. Further, it
is also planning to launch new brand in ladies sports footwear category (Price range
Rs 3500-4000) in Q4FY18.

Guided for over 18% EBITDA Margins in FY18


EBITDA for the quarter grew by 12% yoy to Rs 424 mn (Vs estimates of Rs 491
mn) with EBITDA margins at 17.7 (vs estimates of 17.5%). The EBITDA margins
improved on a low base of last year. The EBIT margins in branded shoes business
was strong at 21.3% (Vs 16.6% in Q2FY17). Even in non-branded business also it
remained strong at 19.4% (Vs 18.3% in Q2FY17). Further, the employee expenses
also grew by 36.5% yoy on account of job work charges on certain processes
booked under other expenses has been executed in-house and shifted to employee
expenses. The company is targeting EBITDA margins to be over 18% in FY18. The
margins in exports business is 17-18% while in domestic, it is higher at 20% which
would help in further improvement in EBITDA margins in a longer run.

PAT for the quarter grew by 17.5%


PAT for the quarter grew 17.5% to Rs 193 mn and was below our estimates on
lower sales. The finance expenses for the quarter declined by 18.6% yoy to 53 mn
but may increase in Q3 as the debt at the end of the quarter grew to Rs 2.05 bn
in Q2FY18 (Vs 1.5 bn in Q1FY18) due to increased working capital. Further, it has
Rs 1.8 bn limit for receivable discounting on exports side. The company has Rs
200mn of capex budget for H2FY18 including maintenance capex at the existing
units. It has 144 EBOs and intends to take it to 180-190 outlets by FY18 end.

Outlook and valuation


We are positive on long term growth story of the company based on increasing
focus on domestic market with new products/brands introduced in recent time.
But its exports business is facing challenges and is impacting the overall growth of
the company. We also need to watch the performance of Bondstreet and Redtape
sports shoes in H2FY18 which would key role in achieving FY18 guidance. We
maintain our EPS estimates.
Based on FY18E and FY19E EPS of Rs 7.7 and Rs 10.2, the stock is trading at PE of
We maintain REDUCE rating on 21.6x and 16.3x respectively and is available at a discount to its peers in the
Mirza International Ltd with a price footwear business. There is scope for re-rating in the stock, if exports business
target of Rs.173 recovers to normal growth and domestic brand business grows as per estimates.
We maintain our Reduce rating on the stock considering limited upside over our
revised target price of Rs 173 (Vs Rs 163 earlier), based on 17x (Vs 16x earlier, due
to strong performance in domestic business) on FY19E EPS of Rs 10.2.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 26
MORNING INSIGHT November 10, 2017

CHHOTA (TO) MOTA IDEAS VENKYS INDIA LTD


Ritwik Rai PRICE: RS.2371 RECOMMENDATION: BUY
ritwik.rai@kotak.com
TARGET PRICE: RS.3000 FY19E PE: 12.7X
+91 22 6218 6426
Venkys India 2QFY18 earnings surprised positively, as gross margins came in
higher than estimates, and the sharp decline in debt led to lower interest expense
outgo. Reported EBITDA/ PAT came in 22%/33% ahead of estimates. Gross margin
outlook for the company continues to be favorable as: 1/ input prices (maize, and
soya) continue to be favorable, 2/ output prices continue to be robust, and 3/
product mix continues to improve (higher sale of chicks versus broilers). We raise
our FY18/FY19 EPS estimates by 8%/5%. We also think that the sharp net debt
reduction affected by the company (over Rs 1.5 Bn net debt reduced over the past
six months, helped by profit generation as well as more efficient working capital
management) provides reason for greater comfort in earnings, and also provides
the company a better platform to explore options of greater B2C play over the
medium/ long-term. We raise our target valuation multiple to~ 16X FY19E PER
(15X earlier), and arrive at a fresh (August, 2018) price target of Rs 3000. Maintain
BUY.

Quarterly Financials
Rs mn, FY Ends Mar 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg y/y % chg q/q
Revenues from Operations 5952 6174 6190 6635 5879 -1.2% -11.4%
Cost of Goods 4718 4315 4110 4504 4252 -9.9% -5.6%
Gross Profit 1235 1859 2080 2131 1627 31.8% -23.7%
Gross Margin 20.7% 30.1% 33.6% 32.1% 27.7%
Employee Expenses 355 366 392 391 410 15.5% 4.8%
Other expenses 692 650 768 654 659 -4.7% 0.8%
EBITDA 188 843 920 1086 558 196.6% -48.6%
Margin 3.2% 13.7% 14.9% 16.4% 9.5% 200.3% -42.0%
Depreciation and Amortization 71 71 70 70 70 -0.6% 0.3%
EBIT 118 772 850 1016 488 315.0% -52.0%
Interest Expenses 204 208 147 137 111 -45.7% -19.3%
Other Income 98 81 69 57 56 -42.6% -1.2%
PBT 12 645 772 936 434 NM -53.7%
Provision for Tax 8 228 355 417 162 NM -61.1%
PAT 3 417 417 519 271 NM -47.7%
Source: Company Reports

Segmental table
2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg y/y % chg q/q
Segment Revenues
Poultry and Poultry Products 2771 3143 3192 3541 2843 2.6% -19.7%
Animal Health Products 533 451 374 502 487 -8.8% -3.1%
Oilseeds 2839 2685 2690 2773 2725 -4.0% -1.7%
Segment Results
Poultry and Poultry Products -18 541 691 782 313 NM -60.0%
Animal Health Products 85 71 107 108 95 12.0% -11.8%
Oilseeds 129 268 213 215 165 27.6% -23.5%
Total Segment Profit 195.7 880 1011 1104.4 572.4 192.5% -48.2%
Source: Company

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 27
MORNING INSIGHT November 10, 2017

Results Summary
At the outset, we would like to note that 2Q is a seasonally weak quarter for
Venkys, as certain religious events tend to depress prices of chicken in the
quarter. As such, only y/y comparisons are useful for the company.
Venkys reported revenues Rs 5.88 Bn, marginally below our estimates.
Summary table
Revenues in oilseeds declined 4% (we expect, on account of decline in soya
(Rs mn) FY17 FY18E FY19E
prices); revenues in animal health and poultry and poultry products were lower
Sales 24,756 25,730 30,181 than our estimates we expect changing product mix (greater contribution of
Growth (%) 16.7 3.9 17.3
chick sales rather than broiler sales) has led to the miss in poultry segment.
EBITDA 2,774 3,859 4,403
EBITDA margin (%) 11.2 15.0 14.6 However, this has a positive impact on margins (since the margins in sales of
PBT 2,059 3,317 4,068 chicks are higher).
PAT 1,248 2,046 2,624
EPS 88.6 145.3 186.3 Raw material expenses in the quarter declined 10% y/y. Gross margin expanded
Growth (%) 317.2 64.0 28.2 6.9 ppt, and came in ahead of our estimates. Reported gross profit for the
CEPS (Rs) 108.8 167.2 210.0 quarter registered 32% y/y growth. Gross margin gains are attributable to a
Book value (Rs/share) 377.0 510.8 680.0 better product mix, as also stronger broiler/ chick prices in the quarter (y/y
Dividend per share (Rs) 6.0 10.0 15.0
comparison). Employee expenses were in line with expectations. Other
ROE (%) 26.3 32.7 31.3
ROCE (%) 24.0 28.1 27.2 expenses declined 5% y/y and contributed further to EBITDA outperformance
Net cash (debt) -2,910 -996 1,009 (relative to estimates). Reported EBITDA, Rs 558 mn, came in 22% ahead of
NW Capital (Days) 33.2 27.4 24.7 estimates.
P/E (x) 26.8 16.3 12.7
P/BV (x) 6.3 4.6 3.5 Venkys balance sheet shed ~Rs 1.5 Bn net debt over the past six months
EV/Sales (x) 1.5 1.3 1.1 (September, 2017 over March, 2017). This has led to the interest expenses
EV/EBITDA (x) 13.1 8.9 7.4 coming in lower than our estimates. Reported PAT, Rs 271mn, was 33% ahead
Source: Company, Kotak Securities Private Client of our estimates.
Research
Outlook and Investment View
Venkys continues to benefit from a favorable gross margin environment. Recent
data on rates indicates that prices of chicks continues to be relatively high. Rates
of broilers present a mixed picture while Punjab broiler rates have risen 12% in
October, Mumbai rates have declined about 7%. Prices of chicks in the last two-
three months indicate that there is an expectation that the prices of broilers shall
rise in the near-term. On an aggregated basis, we expect price changes to be
positive, along with healthy volume growth. Soya prices/ corn prices continue to
be benign.

Venkys - Price Change in Output versus Inputs

% chg y/y Poultry % chg y/y Soyabean


% chg y/y Maize % cg y/y Soyabean oil
20%

10%

0%

-10%

-20%

-30%

Source: WPI data, Kotak Securities Private Client Research

We raise our EBITDA estimates upward to account for the positive surprise in
2QFY18, and higher gross margins over FY18/FY19. Our FY18/FY19 EBITDA
estimates are revised upward by 5%/4%. Due to lower interest expenses (relative
to prior estimates, sharp reduction in debt), our EPS estimates are revised upward
by 8%/5% for FY18/FY19.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 28
MORNING INSIGHT November 10, 2017

We are encouraged by the sharp reduction in debt that the company has affected
over the past two quarters. The net debt has declined by over Rs 1.5 Bn since March
2017, financed by profits generated (PAT generated for 1HFY18 is Rs 791 mn) as
well as a significant reduction in working capital (working capital requirement has
been reduced by Rs 852 mn). Since initiation on Venkys, we have pointed that the
company high debt over the period 2011-2016 has been a cause of concern for
investors. Further, in our opinion, high debt of the company over these years had
led to a rise in perceived volatility of earnings, and also stunted the companys
efforts to experiment with a B2C model. 2QFY18 balance sheet provides further
reasons to believe that the company shall be debt-free by FY-19 end. We believe
the sharp reduction in debt affected by the company in FY17, and now further in
1HFY18, augurs well for the valuation of the stock.
Longer-term potential for Venkys (secular growth in chicken consumption,
We maintain BUY on Venkys India possible curtailments on beef consumption, and movement towards a higher B2C,
with a price target of Rs.3000 processed chicken mix), is combining well with consistent earnings momentum (on
a y/y basis) in the near/ medium term. Institutional ownership of the stock remains
low (c. 3.6%, as of September), providing further reason to believe there is room
for expansion in valuations, likely to 16X FY19E PER, over the next 6-9 months. We
raise our target multiple on Venkys to ~16X FY19E PER (earlier ~15X FY19E PER).
Our price target stands revised to Rs 3000 (Rs 2650 earlier), on the back of an
expectation of further re-rating and an upward revision in earnings estimates.
Risks include industry level risks such as sharp rise in input/ decline in output prices,
and adverse news-flow on avian flu and the like. We further note that the
companys annual report states that the downside to financial statements, if any,
that may arise from the proceedings initiated against the company by the IT
department in May, 2017, is not ascertainable.

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 29
The Pitch
10 November 2017 For private circulation only

BOMBAY BURMAH TRADING CORPORATION RESULT UPDATE


RECOMMENDATION BUY
CMP Target Price Investment 52 Week Market Cap 3 Months
(Rs) (Rs) Horizon High/Low (Rs) (Rs mn) Avg daily Vol. (Nos)
1,621 2,025 6-12 Months 1,735 / 453 111,309 0.38 mn

Key Highlights of Bombay Burmah Trading Corps (BBTC) Q2FY2018 Results:


On standalone basis, BBTC reported a loss of Rs.110.2 million in Q2FY2018 as compared to a loss of Rs.99.7 million
in Q2FY2017;
At Operating levels, its loss rose by 136.5% yoy to Rs.88.7 million in Q2FY2018 from a loss of Rs.37.5 million in
Q2FY2017;
Net Sales came down by 24.6% yoy to Rs.554.4 million in Q2FY2018 from Rs.735.4 million in Q2FY2017;

BBTC (Rs.mn)
Q2FY2018 Q2FY2017 yoy (%) Q1FY2018 qoq (%)
Net Sales 554.4 735.4 -24.6% 541.1 2.5%
Operating Profit -88.7 -37.5 23
Other Income 56 45.2 23.9% 72.2 -22.4%
Finance Costs 61.6 89.2 -30.9% 95.2 -35.3%
PAT -110.2 -99.7 -16.9
EPS -1.58 -1.43 -0.24
Source

Quarter-on-quarter performance is not relevant for this company as it is engaged in plantation business, which normally
makes maximum losses in the September quarter;
Losses of BBTC on standalone basis should not be a cause of concern to the investors as this company didnt make any
significant profits in the last 4 years. In fact, in the last two financial years (FY2016 and FY2017), it made significant
losses, still the stock price of BBTC moved up almost 4-fold since April 2015. This is mainly due to the fact that the
market cap of BBTC is highly correlated with that of Britannia, rather than on its standalone business performance. BBTC
stock has become a play on growing value of its rich investments in Britannia;
BBTC publishes consolidated results (incorporating the profits of Britannia) only along with the March quarterly results.
Since Britannia profit accounts for over 90% of consolidated profits of BBTC, we expect very impressive growth in
consolidated net profit of BBTC for the whole of FY2018 on improved earnings from Britannia with recovery in rural
spending this year;
We have been banking on BBTC primarily for its investments in Britannia and value of its land bank. Now BBTC trades
at around 61% discount to its investments in Britannia as against the average of holding companies (HCs) discount
which stands at around 50%. We continue to believe that this discount would come down further or there could be
unlocking potential in the long-term and hence, we continue to suggest a BUY on this stock.
The Pitch 10 November 2017

An Update on Investments in Listed Companies


Investments in Listed Companies No of Shares (in mn) % Stake Market Value (Rs. Mn)
Britannia Ltd 60.9 50.75 2,91,100
Bombay Dyeing 31.5 15.28 6,490
Total Value of Investments 2,97,590
Enterprise Value of BBTC 1,15,660
EV of BBTC as % of Discount to Market Value of total Investments 61%
Source:

Why be believe BBTC deserves less discount?


95% of BBTCs total investment value comes from Britannia. For most HCs, they come from several companies
theoretically speaking, unlocking possibility from a single investment is relatively higher;
Most HCs hold shares of firms engaged in diversified and cyclical businesses. However, Britannia is engaged in
consistently growing FMCG business, which enjoys much higher premium in markets;
While many HCs do not have any assets on their own, BBTC has rich assets like huge plantations, and also reportedly
significant land parcels;

Outlook and Valuation


Assuming 50% discount (which is at par to the industry average of around 50%), to the market value of investments it
holds in Britannia and Bombay Dyeing, we arrive at a target price of around Rs.2,025 in the next 6 to 12 months for
BBTC.

Risk to our View


Risk to our view is if there is any possible governance issue in terms of divestment of holdings in Britannia in favour of
any promoters or other Group entities. However, considering the track record of promoters and also the Indias regulatory
environment, we firmly believe that such risk is too low.

Financial Summary
FY Ended (Rs Mn) (Consolidated) Net Sales Change PAT Change EPS Change P/E
(Rs Mn) (%) (Rs Mn) (%) (Rs) (%) (x)
FY2017 96,093 7.7 8,582 7.6 123.04 7.6 13.1
FY2018E 1,05,700 10.0 9,434 9.9 135.26 9.9 11.9
FY2019E 1,18,390 12.0 10,109 7.2 144.94 7.2 11.2
Source: Company, Equinomics Research and Advisor
MORNING INSIGHT November 10, 2017

Bulk deals Bulk deals


Date Scrip name Name of client Buy/ Qty of Avg
Sell Shares Price
09-Nov AIML Mani Enterprise S 81,001 167.6
09-Nov AMFL Pinalben R. Shah B 48,000 16.0
09-Nov AMMLTD Leela Merchants Private Limited B 82,000 71.0
09-Nov AMMLTD Bhavishya Ecommerce Private Limited S 82,000 71.0
09-Nov ASHIKACR Indra Pratap Singh (Huf) S 70,150 26.3
09-Nov CROWNTOURS Rupal Bhansali S 25,000 8.5
09-Nov CROWNTOURS Joshi Jahnviben C B 22,000 8.5
09-Nov DARJEELING Pears Marcantiles Private Limited S 29,040 11.6
09-Nov DARJEELING Rupal Bhavin Shah B 27,280 11.6
09-Nov DWEKAM Sanjeev Burman Jhaveri S 32,444 10.6
09-Nov DWEKAM Hardasbhai Babubhai Patel S 41,357 10.5
09-Nov FRANKLININD Rathod Manoj Chhaganlal Huf B 1,30,300 25.0
09-Nov FRANKLININD Pratyakshya Sharebrokers Pvtltd S 1,30,300 25.0
09-Nov IBULHSGFIN Europacific Growth Fund S 31,00,000 1,190.2
09-Nov IBULHSGFIN Bnp Paribas Arbitrage B 27,42,373 1,190.0
09-Nov KIRANVYPAR Delhi Iron And Steel Company Private LimitedB 1,75,000 164.1
09-Nov KIRANVYPAR Amrit Steels Private Limited S 1,83,102 163.5
09-Nov KOCL Database Software Technology Pvt Ltd B 98,600 1.2
09-Nov LAKSHMIO Bankmuscat India Fund S 5,58,723 35.7
09-Nov MEERA Uttam Singh B 21,000 210.7
09-Nov OTCO Snehalatha Singhi S 20,778 25.3
09-Nov OTCO Rahul Anantrai Mehta B 19,833 25.3
09-Nov PANACHE Geetha Jain S 25,000 41.0
09-Nov PANACHE Meenakshi Enterprises Ltd . B 25,000 41.0
09-Nov SAGAR Popatlal Tarachand Jain B 66,000 29.1
09-Nov SHAILJA Faithful Cloth Marchants Pvt Ltd S 70,000 12.5
09-Nov SHAILJA R2v Business Solutions Private Limited B 1,00,193 12.5
09-Nov SHISHIND Lakhani Jignesh Jasmatbhai(Huf) B 56,000 28.0
09-Nov SHISHIND Pinalben R. Shah S 48,000 28.0
09-Nov SPRAYKING Rikhav Securities Limited B 18,000 29.0
09-Nov STAMPEDE Sarvapratham Investment Limited S 13,50,000 6.0
09-Nov STAMPEDE Shaktiman Steel Casting Pvt Ltd. B 13,50,000 6.0
09-Nov TAHL Pramod Kumar Sultania B 17,000 27.3
09-Nov TIRIN Veena Manwani S 41,837 12.5
09-Nov VAL Mukesh Commotrade Ltd S 48,000 21.0
Source: www.bseindia.com

Gainers & Losers Nifty Gainers & Losers


Price (Rs) chg (%) Index points Volume (mn)
Gainers
Indiabulls Housing 1,235 3.3 NA 2.56
Bosch Ltd 21,199 2.1 NA 0.01
Asian Paints 1,196 2.0 NA 0.88
Losers
ITC Ltd 260 (2.0) NA 20.25
Coal India Ltd 283 (1.7) NA 3.81
ONGC 190 (1.5) NA 7.53
Source: Bloomberg

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 30
MORNING INSIGHT November 10, 2017

RATING SCALE
Definitions of ratings
BUY We expect the stock to deliver more than 12% returns over the next 9 months
ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 9 months
REDUCE We expect the stock to deliver 0% - 5% returns over the next 9 months
SELL We expect the stock to deliver negative returns over the next 9 months
NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for
information purposes only.
RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there
is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing,
an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA Not Available or Not Applicable. The information is not available for display or is not applicable
NM Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.

FUNDAMENTAL RESEARCH TEAM


Sanjeev Zarbade Ruchir Khare Amit Agarwal Nipun Gupta K. Kathirvelu
Capital Goods, Engineering Capital Goods, Engineering Logistics, Paints, Transportation Information Technology Production
sanjeev.zarbade@kotak.com ruchir.khare@kotak.com agarwal.amit@kotak.com nipun.gupta@kotak.com k.kathirvelu@kotak.com
+91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 6427

Teena Virmani Ritwik Rai Jatin Damania Jayesh Kumar


Construction, Cement FMCG, Media Metals & Mining Economy
teena.virmani@kotak.com ritwik.rai@kotak.com jatin.damania@kotak.com kumar.jayesh@kotak.com
+91 22 6218 6432 +91 22 6218 6426 +91 22 6218 6440 +91 22 6218 5373

Arun Agarwal Sumit Pokharna Pankaj Kumar Ashini Shah


Auto & Auto Ancillary Oil and Gas Midcap Midcap
arun.agarwal@kotak.com sumit.pokharna@kotak.com pankajr.kumar@kotak.com ashini.shah@kotak.com
+91 22 6218 6443 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 5438

TECHNICAL RESEARCH TEAM


Shrikant Chouhan Amol Athawale
shrikant.chouhan@kotak.com amol.athawale@kotak.com
91 22 6218 5408 +91 20 6620 3350

DERIVATIVES RESEARCH TEAM


Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT
sahaj.agrawal@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com prasenjit.biswas@kotak.com
+91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 31
MORNING INSIGHT November 10, 2017
Disclosure/Disclaimer
Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.
Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock
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Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual
Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However
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Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their
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The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research
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of publication of Research Report: No.
Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of
publication of Research Report: No
Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.
"A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from
the list on the browser and select the "three years" icon in the price chart)."
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43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya
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260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered
as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to
risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully
before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative
contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: ks.compliance@kotak.com.
Level 1: For Trading related queries, contact our customer service at 'service.securities@kotak.com' and for demat account related queries contact us at ks.demat@kotak.com
or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292
Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on 022-42858445 and if you
feel you are still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on 022-42858208.
Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal ) at
ks.compliance@kotak.com or call on 91- (022) 4285 8484.
Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at ceo.ks@kotak.com or call on 91-
(022)
Kotak 4285 8301.
Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 32

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