*
* Sectors in order of premium /
discount to historical averages
BEST PERFORMERS MoM (%)
Research & Quant Team (Deven@MotilalOswal.com); +91 223982 5440
Highlights of November edition
WORST PERFORMERS MoM (%)  Market takes breather in November;
Nifty down 1.1%, after hitting a record-
high in October
 Real Estate, Technology, Media and PSU
Banks top outperformers
 Seven sectors deliver negative returns
 Midcaps outperform large caps by 2.7%
December 2017
Contents
 Strategy: Nifty consolidates in November; Earnings provide a breath of fresh air NOTES:
 Valuation deep dive for the month: Consumer  Prices as on Nov 30, 2017
 Indian equities: Nifty, sector performance and key valuation metrics  BULL icon:
 Global equities: Performance and valuation snapshot Sectors trading
at a premium to
 Valuations: Nifty/Midcap companies historical averages
 Sector highlights: Overview and sector valuations  BEAR icon:
 AUTO Sectors trading
 BANKS / FINANCIALS at a discount to historical
 CAPITAL GOODS averages
 CEMENT  Valuations are on
 CONSUMER 12-month forward basis
 HEALTHCARE unless otherwise
 MEDIA mentioned
 METALS  Sector valuations are
 OIL & GAS based on MOSL coverage
 RETAIL companies
 TECHNOLOGY
 Global equities data
 TELECOM
sourced from Bloomberg.
 UTILITIES
Sensex valuations based
on MOSL estimates
Investors are advised to refer to important disclosures made at the end of this report.

BULLS & BEARS | December 2017 2

Strategy: Nifty consolidates in November; Earnings provide a breath of fresh air
 Nifty consolidates in November after a stellar October: The Nifty consolidated (down by ~1%) in November, after a stellar 5.6% rally in October. FIIs were
net buyers for the second consecutive month (USD3b) and DII flows remained robust (USD1.4b) in November. Midcaps (+1.6% in November, after an 8%
upmove in October) outperformed the Nifty, led by robust DII flows, and continued to command a rich premium of 62% v/s large caps. In YTD CY17, India
recorded MF inflows of USD16.8b, exceeding full-year inflows of USD7.1b in CY16. FII inflows stand at USD8.5b for YTD CY17.
 Earnings – a reason to cheer; Consumption revival on the cards: After a long time, earnings did not disappoint. Sales, EBITDA and PAT for MOSL
Universe ex OMCs increased 10.4%, 13.9% and 9.2% v/s expectations of 10.9%, 10.9% and 11.7%, respectively. More importantly, the quality of
earnings was much superior compared to the previous few quarters. For example : a] Surprise/miss ratio was at a 16-quarter high, b] Breadth was
healthy, with 14 of the 17 sectors meeting or exceeding our EBITDA estimates. c] Upgrade/downgrade ratio improved sharply from 0.46x in 1QFY18 to
0.84x in 2QFY18. d] Number of companies reporting a YoY decline in earnings in our universe was at a 12-quarter low. Key takeaway from the 2QFY18
earnings season was the revival of consumption – especially rural – on the back of good monsoon, a recovery in real rural wage growth, healthy MSP
price hikes, and rising scope of DBT. 2HFY18 is also expected to benefit from normalization of supply chain post initial teething issues pertaining to
GST. Corporate commentaries in consumption-oriented sectors like Autos, FMCG, Durables, Discretionary Consumption clearly pointed toward a
consumption revival.
 India among the best-performing markets in YTD CY17: For CY17 YTD, MSCI EM (+30%), India-Sensex (+24%), Korea (+22%), Brazil (+19%) and Japan
(+19%) were the best performers among the key global markets in local currency terms. In dollar terms, India has delivered 31% returns in YTDCY17.
On the other hand, Russia (-15%) has delivered negative returns. Over the last 12 months, MSCI EM (+30%) has outperformed MSCI India (+23%).
However, over the last five years, MSCI India has outperformed MSCI EM by 62%.
 Sectoral performance trends – Real Estate, Technology and Media outperform: Real Estate (+6%), Technology (+4%), Media (+3%), PSU Banks (+2%),
Private Banks (+2%) and Consumer (+1%) were the top performers. Seven sectors delivered negative returns in November. In this edition of ‘Bulls &
Bears’, we take a deep dive into the valuation metrics of the Consumer sector.
 Earnings recovery ahead; Gujarat elections near-term trigger: Nifty has been consolidating in the 10,000-10,500 band. The 2QFY18 earnings season
has come as a breath of fresh air and rekindled hopes of earnings having troughed. Expectations of an earnings revival in 2HFY18 and FY19 will keep
sentiment positive, in our view. Meanwhile, crude has rallied and is now in the USD60-65 band, and can act as a source of worry if prices were to rally
further. Government does not have the fiscal room to manage any sudden spike in crude prices (fiscal deficit has reached 96% of budget estimates in
the first seven months of FY18). Nonetheless, India’s macros have remained healthy on balance. The key near-term trigger is the outcome of Gujarat
state elections – victory of BJP will be cheered by the markets, in our view. We expect consumption to revive in 2HFY18. We had outlined our thesis on
rural consumption revival in our recently released Volume II of Rural Strategy. Some of the themes that we like from the CY18 perspective are: a] Shift
from retail to corporate lenders. b] Consumption revival. c] Cyclical recovery in Infrastructure. d] Contra play in Pharma. e] Dawn in Telecom sector.
ICICI Bank, Sun Pharma, SBI, Coal India, Emami, Titan, SHTF, Bajaj Auto, RBL and IGL are some of our preferred bets.
BULLS & BEARS | December 2017 3
Valuation deep-dive for the month: Consumer
 After three years, the Consumer sector seems to be on a revival path Trend in Consumer PE (x) – one year forward
on the volumes growth front, led by rural growth, which is expected 46.0
Consumer P/E (x) 5 Yr Avg (x) 10 Yr Avg (x) 15 Yr Avg (x)
to spur overall volume growth for the next few quarters. In a 36.1
37.0 39.5
pleasant surprise, 2QFY18 results saw positive commentary from 30.2
managements of FMCG companies: rural growth already tracking 28.0
ahead of urban growth before the benefits of near-normal monsoon 26.8
19.0
started to come through.
10.0
 This is for the first time in many years that all the three levers of

Nov-02

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
sales for FMCG companies – volumes, pricing and premiumization –
are favourably aligned, unlike earlier years, where (a) rural volumes
were depressed, led by drought in FY15/FY16 and demonetization in Trend in Consumer v/s Sensex P/E (x)
FY17 and (b) commodity costs were deflationary. Consumer P/E (x) Sensex PE (x)
45.0 39.5
 Near-normal monsoon this year, extension of DBT, rising rural wages, 35.0
higher increase in MSP in the current year compared to the
25.0
preceding five-year average, and potential sops for rural consumers 18.9
ahead of general elections in 2019 all augur well for rural demand. 15.0
Urban discretionary demand also seems to be recovering, based on 5.0
the results and management commentary in 2QFY18.

Nov-02

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
 Adjusted PAT growth estimate for our coverage universe for FY19
and FY20, at a 17.1% CAGR (FY18-20), is the highest since FY13 and
far higher than the 9% average over FY14-18. While one-year Consumer P/E relative to Sensex P/E
Relative to Sensex PE (%) 15 Yr Avg (x)
forward multiples for the sector and the gap between sector 160
multiples and Sensex peers have expanded to all-time highs, strong 120 108.7
earnings growth in the sector over the next few years, on which
visibility is increasing, will burn off the high multiples. 80 67.0
40
 Consumer sector trades at 39.5x, above its historical 5/10/15-year
average P/E of ~36.1x/30.2x/26.8x. 0
Nov-02

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
BULLS & BEARS | December 2017 4
Key highlights
 Indian equities: Nifty down 1.1% in November amid negative cues from Asian indices
 After hitting a record-high in October, the Nifty took a breather in November to close at 10,227 (down by 1.1%
MoM).
 Real Estate (+6%), Technology (+4%), Media (+3%), PSU Banks (+2%), Private Banks (+2%) and Consumer (+1%)
were the sectors to deliver positive returns for November. Seven sectors delivered negative returns in November.
 FIIs bought stocks worth USD3b, a second consecutive months of inflows. DIIs bought stocks worth USD1.4b in
November.
 Stock performance: Breadth negative in November; only 15 stocks end higher
 Infosys (+6%), Zee Ent (+5%), M&M (+5%), SBI (+5%) and Maruti (+5%) were the top performers on an MoM basis. About the product
Lupin (-20%), Bharti Infratel (-13%), Vedanta (-11%), Hindalco (-10%) and Aurobindo (-9%) were the top laggards. As the tagline suggests,
 Global equities: India among best-performing markets for CY17 YTD BULLS & BEARS is a
 For CY17 YTD, MSCI EM (+30%), India-Sensex (+24%), Korea (+22%), Brazil (+19%), and Japan (+19%) were the best
handbook on valuations in
performers among the key global markets in local currency terms. On the other hand, Russia (-15%) has delivered
negative returns. India. Every month, it will
 Sector valuations: Technology, PSU Banks and Media top outperformers
cover:
 Technology sector trades at a P/E of 16.2x, a 2% premium to its historical average of 15.8x. The sector was among  Valuations of Indian
the best performers in November (+4% return MoM). With a stable USD/INR, operational efficiencies and cost markets vis-à-vis global
optimization have been reflecting in buoyant margins, as opposed to the trend seen over the last few quarters.
markets
 PSU Banks now trade at its historical average P/B. The sector was among the outperforming sectors in November
(+2% return MoM). 2Q results indicate that systemic stress has peaked out and incremental stress addition is likely  Current valuation of
to decline. This, along with the news of PSU bank recapitalization and the possibility of asset resolution, has companies in various
boosted investor confidence in PSU Banks.
sectors
 Nifty-50 highlights: Cement trades premium to historical average; Overhang of all-India petcoke ban  Sectors that are
remains
currently valued at
 Cement trades at an EV/EBITDA of 11.8x, at a 32% premium to the historical average. Overhang of all-India
petcoke ban remains. We estimate this will result in an increase in fuel cost by INR94/t for cement companies premium/discount to
operating out of the affected states, as alternative fuel of imported coal is ~15-20% costlier than petcoke on per their historical long-
kcal basis.
period averages

BULLS & BEARS | December 2017 5

Indian equities: Nifty down 1.1% in November amid negative cues from Asian indices
 After hitting a record-high in October, the Nifty Nifty MoM change (%) — Four months of negative return in CY17 so far
took a breather in November to close at 10,227 (-
Nifty MoM Change (%)
1.1% MoM).
10.8
 Domestic indices corrected by 1.3% on the last
trading day of the month, taking cues from
5.8 5.6
negative Asian markets. Also, markets saw high 4.0 4.2 4.6 3.7 3.3
3.4
volatility, as traders rolled over positions in F&O. 1.4 1.7 1.4
0.1 1.6
0.2
 The index is up 25% in CY17 so far. We note that
the 2QFY18 earnings season was notable in that it 0.5 1.0 1.6 1.3 1.1
1.6 2.0
concluded without any disruption, despite being 4.8 4.7
the first quarter post GST implementation. In fact, 7.6
the quarter exhibited improving internals in the

Dec-15

May-16

Dec-16

May-17
Apr-16

Apr-17
Mar-16

Jun-16

Aug-16

Mar-17

Jun-17
Nov-15

Jan-16

Oct-16

Aug-17
Nov-16

Jan-17

Oct-17
Nov-17
Feb-16

Jul-16

Sep-16

Feb-17

Jul-17

Sep-17
broader earnings mix, with more hits than misses.
 FIIs bought stocks worth USD3b, a second
consecutive months of inflows. DIIs bought stocks Nifty YoY change (%) — CY17 YTD return highest in last three years
worth USD1.4b in November.
4 years of negative return in 1990s cycle 2 year of negative return in 2000s cycle 2 year of negative return till
now in 2011 cycle
Institutional flows (INR b) 69 67 72 76
5.1 FIIs (USDb) DIIs (USDb) 55
36 37 36 40 31
3.2 3.0 28 25
2.5 20 18
13 11
1.6 1.4 1.5 1.5 1.4 3 7 3
0.7 0.7 0.61.0 0.7
0.1 0.4 0.3
-1 -4
0.0 -0.3 -18 -15 -16
-0.7 -23 -25
-2.0 -1.7 -52

CY17YTD
CY91
CY92
CY93
CY94
CY95
CY96
CY97
CY98
CY99
CY00
CY01
CY02
CY03
CY04
CY05
CY06
CY07
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
Jan Feb Mar Apr May June July Aug Sep Oct Nov
2017

BULLS & BEARS | December 2017 6

Indian equities: Real Estate, Technology, Media and PSU Banks top outperformers
 Real Estate (+6%), Technology (+4%), Media (+3%), PSU Banks (+2%), Private Banks (+2%) and Consumer (+1%) were the sectors to deliver positive
returns for November.
 Seven sectors delivered negative returns in November. Metals (-6%), Cement (-5%), Oil (-4%), NBFC (-2%), Healthcare (-2%), Utilities (-1%) and Auto (-
1%) were the top underperformers.
 Midcaps outperformed large caps on MoM and CYTD basis, with the Nifty Midcap 100 delivering 2% MoM and 39% CY17 YTD returns.
 For CY17 YTD, Real Estate (+93%), Telecom (+50%), Private Banks (+43%), PSU Banks (+42%) and Cement (+42%) are the top outperformers.
 Healthcare (-5%) is the only sector to deliver negative returns in CY17 YTD.

Sectoral performance – absolute and relative to Nifty (%): Seven sector close lower in November
CY17 CY17
MoM Abs. Performance (%) YTD MoM Relative Performance (%) YTD
Jan- Feb- Mar- Apr- May- Jun- Aug- Sep- Oct- Nov- Jan- Feb- Mar- Apr- May- Jun- Aug- Sep- Oct- Nov-
Sector Jul-17 Chg (%) Jul-17 Chg (%)
17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17 17
Real Estate 8 9 7 20 0 6 7 -2 -3 11 6 93 4 5 4 19 -3 7 1 -1 -2 6 7 69
Technology -6 8 0 -7 6 -4 6 -4 -1 4 4 5 -10 5 -3 -9 3 -3 0 -2 0 -1 5 -19
Media 7 12 7 4 -7 -2 4 -6 3 7 3 37 3 9 4 3 -10 -1 -2 -4 5 1 4 12
Nifty Midcap 7 7 4 5 -3 1 4 -1 -1 8 2 39 3 3 1 4 -7 2 -1 0 0 3 3 14
Banks-PSU 8 4 8 5 -3 -2 13 -11 -8 25 2 42 4 0 4 4 -7 -1 7 -10 -6 20 3 17
Banks-Pvt 6 6 3 5 8 0 6 -2 0 3 2 43 2 2 0 3 5 1 0 0 1 -3 3 18
Consumer 5 3 5 2 7 3 -3 1 -4 5 1 27 1 -1 2 0 4 4 -9 2 -3 -1 2 2
Cap. Goods 8 4 7 9 -2 -3 5 -4 -1 7 0 35 4 0 4 7 -5 -2 -1 -2 0 2 1 10
Telecom 19 5 -9 0 1 3 10 1 -10 26 0 50 15 2 -12 -1 -3 4 4 3 -9 20 1 25
Auto 8 -1 2 3 6 -3 5 -3 2 5 -1 24 3 -5 -1 2 3 -2 -1 -2 3 0 0 -1
Utilities 9 1 4 2 -5 0 4 -3 -2 6 -1 17 4 -2 0 1 -8 1 -1 -1 -1 1 0 -8
Healthcare 0 4 0 -2 -10 5 0 -7 3 6 -2 -5 -4 0 -4 -3 -13 6 -6 -6 4 0 -1 -30
NBFC 7 1 11 4 0 0 7 -1 -2 1 -2 29 3 -2 7 3 -3 1 1 1 -1 -4 -1 4
Oil 6 5 0 7 -1 -7 7 7 -2 12 -4 31 1 2 -3 5 -5 -6 2 9 -1 6 -3 6
Cement 11 3 5 8 -1 -1 9 4 -5 11 -5 42 6 -1 1 6 -4 0 3 5 -4 5 -4 17
Metal 15 2 -1 -4 0 1 9 7 2 9 -6 38 11 -2 -4 -6 -4 2 3 8 3 3 -5 13
Nifty-50 5 4 3 1 3 -1 6 -2 -1 6 -1 25

BULLS & BEARS | December 2017 7

Indian equities: Breadth negative in November; only 15 stocks end higher
 Nifty – best and worst performers in November: Infosys (+6%), Zee Ent (+5%), M&M (+5%), SBI (+5%) and Maruti (+5%) were the top performers on
MoM basis. Lupin (-20%), Bharti Infratel (-13%), Vedanta (-11%), Hindalco (-10%) and Aurobindo (-9%) were the top negative performers.
 Nifty – best and worst performers in CY17 YTD: Bajaj Fin (+106%), Indiabulls Hsg (+85%), Tata Steel (+78%), Reliance Inds (+71%) and Bharti Airtel (+63%)
were the top performers. Lupin (-45%), Dr Reddy’s (-25%), Sun Pharma (-14%), Tata Motors (-14%) and Coal India (-8%) were the worst performers.
Best and worst Nifty performers (MoM) in November 2017 (%) – Breadth negative; 70% of Nifty stocks traded lower
6 5 5 5 5
3 3 2 2 2 2 2
1 1 0

0 0 -1 -1 -1 -1 -2 -2
-2 -2 -2 -3 -3 -3 -3 -4 -4 -4 -4 -4
-5 -6 -6 -6 -6 -7 -7
-7 -7 -7 -8 -9
-10 -11-13
-20
Axis Bank

Hero Moto
TCS

Wipro

Reliance Ind.

Coal India
GAIL

IOC

Dr Reddy's

BPCL

Hindalco

Lupin
Zee Ent

Maruti

Nifty

Asian Paints

Bajaj Fin.
HUL

NTPC

Tata Steel

Kotak Mah.Bk

Vedanta
ICICI Bank

Bharti Airtel
L&T

HCL Tech

Cipla

Eicher Motors
IndusInd Bk

Adani Ports
Tata Motors

UPL
Infosys

Power Grid

Aurobindo
Yes Bank

UltraTech
M&M
SBI

HDFC Bank

Ambuja Cem.
HDFC

Bharti Infratel
Tech Mah.
Bajaj Auto

Sun Pharma

Indiabulls Hsg

Bosch

ITC

ONGC

HPCL
Best and worst Nifty performers (YoY) in CY17 YTD (%) – 42 companies in Nifty have delivered positive returns so far
106
85 78
71
63 62 55
54 54 50 49
43 42 39 37 37 35
33 33 33 30 29 28 27 26 26 25
23 21 20 19 19 19
13 12 12 11 10 6 6 4 2 0

-3 -4 -6 -8
-14 -14
-25
-45

Hero Moto
Axis Bank
Bajaj Fin.

Reliance Ind.

Hindalco

GAIL

Nifty
Wipro

BPCL

Coal India
IOC

TCS

Dr Reddy's
Lupin
Tata Steel

Bharti Airtel

Kotak Mah.Bk

Asian Paints
Maruti

NTPC
HUL

Eicher Motors
Vedanta
L&T

ICICI Bank

Zee Ent
IndusInd Bk
Adani Ports

UPL

Cipla

HCL Tech
Power Grid

Aurobindo

Infosys

Tata Motors
Yes Bank

UltraTech
Indiabulls Hsg

HDFC Bank

HDFC

SBI
Ambuja Cem.

M&M

Bharti Infratel
HPCL

Bajaj Auto

ITC

Tech Mah.
Bosch

ONGC

Sun Pharma
BULLS & BEARS | December 2017 8
Indian equities: Midcaps continue to outperform; premium to Nifty P/E climbs up
 Over the last 12 months, midcaps have delivered 33% returns, as against 24% by the Nifty. Also, over the last five years, midcaps have outperformed
the Nifty by 70%.
 Midcaps now trade at a 62% premium to the Nifty in terms of P/E.

Midcaps significantly outperformed large-caps in last 12 months Midcaps outperformed large-caps by 70% in last five years
Nifty Rebased Nifty Midcap 100 Rebased Nifty Rebased Nifty Midcap 100 Rebased
145 275 5 Year CAGR:
133 Nifty: 11.7% 244
130 225
124 Midcap: 19.6%
115 175 174

100 125

85 75

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17
Dec-16

May-17
Apr-17
Mar-17

Jun-17
Jan-17

Aug-17
Nov-16

Oct-17

Nov-17
Feb-17

Jul-17

Sep-17
12-month forward P/E (x) Midcaps trading at 62% premium to Nifty
Midcap PE (x) Nifty PE (x) Midcap Vs Nifty PE Prem/(Disc) (%)
35.0 85
Nifty Avg: 18.0x 29.3 62
30.0
Midcap Avg: 18.3x 55
25.0 Average: 1.5%
25
20.0
18.1 -5
15.0
10.0 -35
Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17
Mar-13

Mar-14

Mar-15

Mar-16

Mar-17
Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Source: MOSL, Bloomberg for Midcap valuation.

BULLS & BEARS | December 2017 9

Indian equities: Valuations above long-period averages
 Valuations of Indian equities remain rich. The Sensex trades at a 12-month forward P/E of 18.9x, at a 9% premium to the long-period average of
17.3x. Sensex P/B of 2.8x is also above its historical average.
 At the current trailing P/E of 23x and forward P/E of 18.9x, we see limited triggers for further re-rating, unless accompanied by a boost in earnings.

12-month forward Sensex P/E (x) 12-month forward Sensex P/B (x)
25 24.6 4.3 4.2

21 3.5
10 Year Avg: 17.3x 18.9 10 Year Avg: 2.6x 2.8
17 2.8

13 2.0
10.7 1.6
9 1.3
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
Trailing Sensex P/E (x) Trailing Sensex P/B (x)
28 5.0
25.2 4.8
23 23.0
4.0
10 Year Avg: 18.5x
10 Year Avg: 2.9x
18 3.0 3.1

13 2.0
10.8 1.8
8 1.0
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
BULLS & BEARS | December 2017 10
Indian equities: Market-cap-to-GDP at seven-year high
 The Sensex trades at a 12-month forward RoE of 14.7%, below its long-term average.
 Market-cap-to-GDP ratio is 86% (FY18E GDP), above its long-term average.

12-month forward Sensex RoE (%) Trend in Sensex RoE (%)

20.5 20.1 23.8
21.7
18.5
18.5
16.5 15.8 16.9 16.6 Average of 17%
10 Year Avg: 15.6% 16.1
14.7 15.3 15.4 14.9 15.2
14.5 14.1 13.6
12.9
12.5
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E
Trend in India’s market-cap-to-GDP (%)

103 Average of 78% for the period

95
88 86
83 81 80
71
64 66 69
55
FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E
BULLS & BEARS | December 2017 11
Global equities: India among best-performing markets for CY17 YTD
 For CY17 YTD, MSCI EM (+30%), India-Sensex (+24%), Korea (+22%), Brazil (+19%), and Japan (+19%) were the best performers among the key
global markets in local currency terms. On the other hand, Russia (-15%) has delivered negative returns.
 Indian equities are trading at 22.2x FY18E earnings.
 All key markets continue trading at a discount to India. However, India’s RoE remains superior to most EMs, an important differentiator for valuation
premium.

India (Sensex) v/s other markets

Prem / Disc to India CY17 YTD Chg (%)
CY17 YTD Chg (%) PE (x) PB (x) RoE (%)
PE (%) MSCI EM 30
Index Mkt Cap Local CY16 / CY17 / CY16 / CY17 / CY16 / CY17 / CY16 / CY17 /
In USD India 24
Value (USD T) Currency FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
Korea 22
India 33,149 2.3 24 31 24.6 22.2 3.2 3.0 12.9 13.6
US 2,648 29.1 18 18 24.4 19.8 -1 -11 3.5 3.2 13.1 16.3 Brazil 19
Japan 22,725 6.2 19 23 26.7 19.2 8 -13 2.0 1.9 8.5 9.9 Japan 19
Indonesia 5,952 0.5 12 12 26.0 17.4 5 -22 2.6 2.6 11.1 18.4 US 18
UK 7,327 3.7 3 12 35.7 14.9 45 -33 1.8 1.9 5.6 8.9
Taiwan 14
Taiwan 10,560 1.2 14 23 17.3 14.7 -30 -34 1.8 1.8 10.6 14.5
Indonesia 12
China 3,317 7.6 7 12 18.2 14.6 -26 -34 1.8 1.6 10.3 11.8
MSCI EM 1,121 9.9 30 30 18.4 13.8 -25 -38 1.9 1.7 10.9 10.4 China 7

Brazil 71,971 0.8 19 18 274.5 13.8 1014 -38 1.8 1.6 0.7 11.2 UK 3
Korea 2,476 1.7 22 36 20.0 10.7 -19 -52 1.1 1.1 6.0 11.2 Russia -15
Russia 4,185 0.6 -15 -11 7.4 6.6 -70 -70 0.6 0.7 8.9 7.3
Source: Bloomberg/MOSL

BULLS & BEARS | December 2017 12

Global equities: MSCI EM outperforms MSCI India in last 12 months
 Over the last 12 months, MSCI EM (+30%) has outperformed MSCI India (+23%). However, over the last five years, MSCI India has outperformed
MSCI EM by 62%.
 MSCI India P/E is at a premium of 48% to MSCI EM P/E, above its historical average premium of 44%.

MSCI EM outperforms MSCI India over 12 months MSCI India outperforms MSCI EM by 62% in last five years
MSCI India Rebased MSCI EM Rebased MSCI India Rebased MSCI EM Rebased
138 170 5 Year CAGR:
10 Year CAGR:
130 MSCI India: 4.3% MSCI India: 9.9% 152
126 135 MSCI EM: 2.2%
123 MSCI EM: -1.0%
114 100
90
102 65

90 30
Dec-16

May-17
Apr-17
Mar-17

Jun-17
Nov-16

Jan-17

Aug-17

Oct-17

Nov-17
Feb-17

Jul-17

Sep-17

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
MSCI India v/s MSCI EM trailing P/E (x) MSCI India v/s MSCI EM P/E premium (%)
MSCI India PE (x) MSCI EM PE (x) MSCI India Vs EM PE Premium (%)
33.0 100

26.0 22.9 75
MSCI India Avg: 19.3x Average of 44%
19.0 50 48
15.5

12.0 25
MSCI EM Avg: 13.5x
5.0 0 May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17
Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Source: Bloomberg

BULLS & BEARS | December 2017 13

Global equities: India’s share in world market cap drops below its historical average
 India’s share in the world market cap is at 2.3%, dropping below its long-term average of 2.4%.
 Over the last 12 months, world market cap has increased 47.6% (USD31.4t), while India’s market cap is up 45%.

Trend in India's contribution to world market cap (%) Market cap change in last 12 months (%)
India's Contribution to World Mcap (%) Mkt cap chg 12M (%) Curr Mcap (USD Tr)
3.5
3.3

3.0 India 45 2.3

Average of 2.4%
2.5
Korea 41 1.7
2.3
2.0
Japan 24 6.2
1.5
May-08

Dec-10
May-11

Dec-13
May-14

Dec-16
Apr-15
Mar-09

Mar-12

Jun-17
Nov-07

Oct-08

Aug-09
Jan-10

Oct-11

Nov-14

Nov-17
Jul-10

Sep-12
Feb-13
Jul-13

Sep-15
Feb-16
Jul-16
Taiwan 24 1.2

UK 3.7
23
Global market-cap-to-GDP (%)
Indonesia 21 0.5
Current mkt cap to GDP (%)
157
140 29.1
126 121 US 17
101
68 Brazil 16 0.8
53 45 46

China 12 7.6
Indonesia
Korea

India

China
Japan

Brazil

Russia
US

UK

Russia 10 0.6
* Based on GDP for Dec 2016

Source: Bloomberg

BULLS & BEARS | December 2017 14

Nifty: Cement trades at premium to historical average EV/EBIDTA; Overhang of all-India petcoke ban remains
 Cement trades at EV/EBITDA of 11.8x, at a 32% premium to the historical average. Overhang of all-India petcoke ban remains. We estimate this will
result in increase in fuel cost by INR 94/t for cement companies operating out of the affected states, as alternative fuel of imported coal is ~15-20%
costlier than petcoke on per kcal basis.
Snapshot: Nifty companies’ valuations
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Name Sector Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Bajaj Auto Auto 18.7 14.6 28 -1 -16 4.6 5.2 -11 67 98
Bosch Auto 36.6 29.8 23 94 72 6.0 5.1 18 116 93
Eicher Motors Auto 30.6 20.2 52 62 16 9.4 5.1 86 240 93
Hero MotoCorp Auto 19.1 16.2 18 1 -6 5.7 7.0 -18 105 165
Mahindra & Mahindra Auto 17.2 15.6 10 -9 -10 2.7 3.0 -9 -1 14
Maruti Suzuki Auto 24.6 17.0 44 30 -2 5.6 2.9 93 100 10
Tata Motors Auto 7.9 10.1 -22 -58 -42 1.7 2.3 -26 -39 -13
Axis Bank Banks - Private 20.1 15.3 31 6 -12 1.9 2.0 -8 -33 -23
HDFC Bank Banks - Private 23.3 20.3 15 23 17 4.3 3.4 27 56 30
ICICI Bank Banks - Private 19.4 16.9 15 2 -3 2.3 2.1 6 -19 -19
IndusInd Bank Banks - Private 22.9 16.3 40 21 -6 3.9 2.4 59 39 -8
Kotak Mahindra Bank Banks - Private 26.1 23.1 13 38 33 3.9 2.9 32 39 12
Yes Bank Banks - Private 14.3 11.8 22 -25 -32 2.5 2.2 15 -10 -17
State Bank Banks - PSU 14.1 13.4 5 -26 -23 1.3 1.3 4 -52 -52
Bajaj Finance Banks - NBFC 30.0 14.5 107 58 -16 5.4 2.2 146 94 -17
HDFC Banks - NBFC 30.4 24.9 22 61 44 5.3 4.8 11 90 82
Indiabulls Housing Banks - NBFC 12.3 9.2 33 -35 -47 3.4 2.3 49 24 -12
Larsen & Toubro Capital Goods 22.3 23.7 -6 18 37 2.9 3.4 -15 5 31
Ambuja Cements Cement 33.2 24.5 36 76 41 2.5 2.7 -7 -11 1
Ultratech Cement Cement 31.9 21.8 46 68 26 4.0 2.9 39 43 9
Asian Paints Consumer 47.0 32.6 44 148 88 12.7 10.2 25 357 287
Hind. Unilever Consumer 49.0 33.0 48 159 90 40.1 28.2 42 1343 973
ITC Consumer 26.3 25.3 4 39 46 6.4 7.1 -10 131 172

BULLS & BEARS | December 2017 15

Nifty: Technology trades near its historical average P/E
 Companies trading at a significant premium to their historical averages: Bharti Airtel (+140%), Eicher Motors (+52%), HUL (+48%), Ultratech (+46%),
Maruti Suzuki (+44%) and Asian Paints (+44%).
 Companies trading at a significant discount to their historical averages: Tata Steel (-30%), Power Grid (-26%), ONGC (-25%), Tata Motors (-22%),
NTPC (-19%) and Vedanta (-14%).
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Name Sector Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Aurobindo Pharma Healthcare 14.4 12.3 17 -24 -29 3.0 2.6 13 7 0
Cipla Healthcare 24.0 25.9 -7 27 49 3.2 3.5 -9 14 32
Dr Reddy’ s Labs Healthcare 23.6 26.9 -12 25 55 2.7 3.8 -29 -2 46
Lupin Healthcare 20.0 21.3 -6 6 23 2.4 4.5 -48 -15 72
Sun Pharma Healthcare 26.9 27.6 -2 42 59 3.2 4.8 -34 14 84
Zee Ent. Media 40.2 28.1 43 113 62 5.5 4.1 34 98 56
Hindalco Metals 10.1 9.8 3 -47 -44 1.5 1.5 -2 -47 -43
Tata Steel Metals 11.0 15.7 -30 -42 -9 1.7 2.2 -21 -38 -17
Vedanta Metals 7.8 9.0 -14 -59 -48 1.6 2.2 -29 -44 -17
BPCL Oil & Gas 10.2 10.4 -2 -46 -40 2.4 1.5 63 -13 -43
GAIL Oil & Gas 15.3 13.9 11 -19 -20 1.8 1.9 -4 -34 -27
HPCL Oil & Gas 10.3 8.6 19 -46 -50 2.4 1.1 115 -15 -58
IOCL Oil & Gas 9.3 10.1 -8 -51 -42 1.5 1.2 29 -46 -56
ONGC Oil & Gas 8.4 11.1 -25 -56 -36 1.0 1.6 -39 -65 -39
Reliance Inds. Oil & Gas 15.3 14.2 8 -19 -18 1.7 1.6 2 -40 -37
HCL Technologies Technology 12.8 13.2 -4 -33 -24 3.1 3.1 2 13 17
Infosys Technology 14.7 16.9 -13 -23 -3 3.2 4.0 -21 15 54
TCS Technology 18.2 17.4 5 -4 0 5.7 5.8 -2 104 121
Tech Mahindra Technology 13.2 12.4 7 -30 -29 2.3 2.9 -21 -18 9
Wipro Technology 14.8 14.6 1 -22 -16 2.4 3.0 -20 -15 13
Bharti Airtel Telecom 89.3 37.2 140 372 115 2.8 2.7 4 2 4
Bharti Infratel Telecom 20.8 23.8 -12 10 37 4.5 3.5 31 63 32
Coal India Utilities 14.1 15.2 -7 -26 -12 6.5 5.9 9 133 126
NTPC Utilities 12.1 15.0 -19 -36 -14 1.4 1.8 -24 -51 -32
Power Grid Corp. Utilities 10.6 14.4 -26 -44 -17 1.7 2.0 -13 -38 -25
Sensex 18.9 17.3 9 2.8 2.6 6

BULLS & BEARS | December 2017 16

Midcaps outperform Nifty by 2.7% in November
 In November 2017, Nifty Midcap100 was up 1.6%, as against Nifty’s fall of 1.1%.
 Best midcap performers in November: Team Lease (+37%), Rain Inds (+31%), Sadbhav Engg (+20%), Ashoka Buildcon (+19%) and Tata Elxsi (+13%).
 Worst midcap performers in November: Trident (-14%), India Cements (-11%), MCX (-9%), Blue Star (-8%) and Capital First (-7%).

PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%) Price Chg (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg MoM CY17YTD
Team Lease Serv. 37.7 25.6 47 99 48 7.1 4.4 62 157 68 37 144
Rain Industries 10.3 3.1 233 -46 -82 2.6 0.7 267 -7 -73 31 547
Sadbhav Engg. 26.2 26.8 -2 39 55 3.2 2.6 23 15 -1 20 39
Ashoka Buildcon 47.2 19.7 139 150 14 2.4 1.5 62 -12 -43 19 59
Tata Elxsi 24.8 18.4 35 31 6 7.4 5.2 43 164 96 13 34
Ajanta Pharma 22.7 12.4 84 20 -29 5.3 3.7 42 91 42 12 -23
SRF 19.2 8.5 126 1 -51 2.8 1.3 116 0 -51 8 19
GE T&D India 39.9 62.9 -37 111 263 8.3 7.4 13 200 181 8 42
CEAT 17.0 7.9 114 -10 -54 2.4 1.1 126 -12 -59 7 54
Sanofi India 29.3 26.3 12 55 51 5.1 4.2 20 84 62 5 3
DCB Bank 18.9 15.8 19 0 -9 2.0 1.5 33 -26 -41 4 72
Alembic Pharma 21.8 16.4 33 15 -5 4.0 4.5 -11 45 73 3 -13
Jubilant Life 12.8 13.3 -4 -33 -23 2.2 1.7 34 -20 -37 2 4
Ipca Labs. 22.7 23.8 -5 20 37 2.4 3.0 -20 -14 14 2 2
Birla Corpn. 23.1 12.4 87 22 -29 2.3 1.1 105 -16 -57 -2 78
Delta Corp 36.0 38.1 -6 90 120 4.1 2.3 79 48 -13 -2 137
Strides Shasun 13.4 51.7 -74 -29 198 2.1 3.4 -39 -26 30 -3 -24
Prime Focus 19.4 31.8 -39 3 84 3.9 3.5 11 39 32 -4 50
Jyothy Lab. 36.5 31.4 16 93 81 6.3 3.4 84 126 30 -4 12
Shilpa Medicare 24.8 19.9 24 31 15 4.3 2.7 57 54 4 -5 -7
Kaveri Seed 14.1 13.4 5 -26 -23 3.6 3.2 11 28 22 -5 33
PVR 34.7 42.0 -17 84 142 5.1 2.9 74 82 11 -6 14
Ent.Network 43.6 32.2 36 130 85 3.7 3.0 25 33 13 -6 -7
Capital First 17.5 22.6 -22 -7 30 2.4 1.7 45 -13 -36 -7 23
Blue Star 33.9 24.6 38 79 42 8.3 8.0 4 198 204 -8 55
Multi Comm. Exc. 25.5 33.3 -24 35 92 3.5 3.9 -11 25 49 -9 -24
India Cements 19.4 20.9 -7 2 21 1.0 0.8 24 -65 -70 -11 49
Trident 9.2 8.5 7 -52 -51 1.3 1.0 30 -51 -60 -14 54

BULLS & BEARS | December 2017 17

Sector valuations: Technology, PSU Banks and Media top outperformers
 Technology sector trades at a P/E of 16.2x, a 2% premium to its historical average of 15.8x. The sector was among the best performers in November
(+4% return MoM). With a stable USD/INR, operational efficiencies and cost optimization have been reflecting in buoyant margins, as opposed to the
trend seen over the last few quarters.
 PSU Banks now trade at its historical average P/B. It was among the outperforming sectors in November (+2% return MoM). 2Q results indicate that
systemic stress has peaked out and incremental stress addition is likely to decline. This, along with the news of PSU bank recapitalization and the
possibility of asset resolution, has boosted investor confidence in PSU Banks.
 Infrastructure trades at a 15% premium to its historical P/B average and a 28% premium to its historical P/E average. Recent announcement of INR7t
capex by the Indian government (to be incurred on road infrastructure development under the Bharatmala program) provides strong opportunity for the
road infrastructure players. We recently initiated coverage on the Road sector, with a Buy on Sadbhav Engg, Ashoka Buildcon and KNR Construction.
 Cement trades at EV/EBITDA of 11.8x, at a 32% premium to the historical average. Overhang of all-India petcoke ban remains. We estimate this will
result in an increase in fuel cost by INR 94/t for cement companies operating out of the affected states, as alternative fuel of imported coal is ~15-20%
costlier than petcoke on per kcal basis.

Snapshot: Sector valuations

Relative to Sensex Relative to Sensex
PE (x) PB (x)
Sector P/E (%) P/B (%)
Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Auto 18.0 15.1 19.3 -5 -15 3.9 3.1 24.2 39 19
Banks - Private 21.3 16.7 28.0 13 -5 2.9 2.2 29.9 4 -15
Banks - PSU 14.0 3.6 289.4 -26 -73 1.0 1.0 -4.4 -66 -62
NBFC 23.1 17.7 30.8 22 1 3.8 3.0 28.9 38 14
Capital Goods 28.7 26.4 8.6 52 48 3.2 3.8 -16.9 13 42
Cement 25.6 18.4 39.2 35 5 3.0 2.3 35.3 10 -14
Consumer 39.5 30.2 30.6 109 75 11.6 9.5 21.6 317 271
Healthcare 22.5 22.8 -1.0 19 31 3.3 3.9 -16.7 17 50
Infrastructure 17.1 13.4 27.8 -10 -24 2.0 1.7 15.4 -28 -34
Media 28.2 23.6 19.2 49 34 4.8 3.8 27.5 74 44
Metals 11.2 11.9 -5.6 -41 -32 1.6 1.5 4.1 -43 -43
Oil & Gas 11.9 11.7 1.3 -37 -31 1.6 1.6 1.3 -43 -40
Retail 46.3 25.9 79.1 145 48 9.3 6.6 40.7 236 154
Technology 16.2 15.8 2.2 -15 -8 3.8 4.1 -7.7 37 57
Telecom Loss - - - - 2.9 2.5 14.9 5 -2
Utilities 11.7 15.1 -22.3 -38 -10 1.6 2.0 -20.0 -43 -24

BULLS & BEARS | December 2017 18

Autos: Retail momentum mixed bag for 2Ws and CVs; PV strong
The Auto sector is trading at a P/E of 18x, at a 19% premium to
its historical average of 15.1x.

In November 2017, our channel checks indicated muted retail

growth for 2Ws and PVs post a strong festive season. 2W
demand remains mixed, as healthy demand from the wedding
season in northern belt is partially negated by untimely rains in
key markets like Maharashtra. PVs, led by MSIL, witnessed
healthy retail sales growth on new launches. CV demand
remains sluggish with discounting increasing sequentially.

Healthy demand is expected to continue with the ongoing

wedding season and improvement in rural sentiment, and as
temporary effect of untimely rain wears off.

Sector Performance
MoM: -1%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Amara Raja Batt. 24.8 16.2 53 31 -6 4.1 3.5 19 49 33
Ashok Leyland 20.9 18.5 13 10 7 4.7 2.7 74 68 2
Bajaj Auto 18.7 14.6 28 -1 -16 4.6 5.2 -11 67 98
Bharat Forge 29.3 29.0 1 55 67 6.0 3.9 56 116 47
Bosch 36.6 29.8 23 94 72 6.0 5.1 18 116 93
CEAT 17.0 7.9 114 -10 -54 2.4 1.1 126 -12 -59
Eicher Motors 30.6 20.2 52 62 16 9.4 5.1 86 240 93
Escorts 16.9 12.0 41 -11 -31 2.8 0.9 205 1 -65
Exide Inds. 22.6 20.4 11 19 18 3.0 3.2 -7 8 23
Hero Motocorp 19.1 16.2 18 1 -6 5.7 7.0 -18 105 165
M&M 17.2 15.6 10 -9 -10 2.7 3.0 -9 -1 14
Maruti Suzuki 24.6 17.0 44 30 -2 5.6 2.9 93 100 10
Tata Motors 7.9 10.1 -22 -58 -42 1.7 2.3 -26 -39 -13
TVS Motor Co. 32.4 15.3 112 71 -12 9.5 3.3 189 240 25

BULLS & BEARS | December 2017 19

Private Banks: Retail banks continue to do well
Private Banks are trading at 2.9x P/B, above their long-period
average valuations (30% premium), as investors continue to
show confidence in their fundamentals and visibility of
continued superior performance compared to PSU banks.
Private banks continue to gain market share from PSU banks
with higher-than-system credit growth, at 25%+ for mid-
sized private banks and ~15% for larger banks. A benign
interest rate environment with healthy CASA inflows has
enabled banks maintain low cost of funds, protecting
margins.
Asset quality trends for corporate lenders – ICICI, AXSB and
YES – will remain a key monitorable in FY18. As NCLT
resolution deadline draws closer, the outlook on resolution
of key accounts and also stressed sectors (such as power,
other infra and metals) is likely to be a trigger for larger
corporate lenders.

Sector Performance
MoM: +2%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Axis Bank 20.1 15.3 31 6 -12 1.9 2.0 -8 -33 -23
DCB Bank 18.9 15.8 19 0 -9 2.0 1.5 33 -26 -41
Federal Bank 17.6 11.0 60 -7 -36 1.6 1.1 46 -41 -57
HDFC Bank 23.3 20.3 15 23 17 4.3 3.4 27 56 30
ICICI Bank 19.4 16.9 15 2 -3 2.3 2.1 6 -19 -19
IndusInd Bank 22.9 16.3 40 21 -6 3.9 2.4 59 39 -8
J & K Bank 10.4 8.7 19 -45 -50 0.7 0.9 -25 -76 -66
Kotak Mah. Bank 26.1 23.1 13 38 33 3.9 2.9 32 39 12
South Ind.Bank 10.5 7.0 51 -44 -60 1.1 0.9 30 -59 -67
Yes Bank 14.3 11.8 22 -25 -32 2.5 2.2 15 -10 -17

BULLS & BEARS | December 2017 20

PSU Banks: Significant improvement in investor sentiment
PSU Banks now trade at its historical average P/B. It was
among the outperforming sectors in November (+2% return
MoM).
Bulky account resolutions in key sectors such as steel and
power remain a key monitorable. Time-bound resolution
process under IBC, along with the right steps taken by the
RBI to prevent re-entry of willful defaulters, may cause
near-term pains but is a structural positive for the sector
and overall risk management.
2Q results indicate that systemic stress has peaked out and
incremental stress addition is likely to decline. This, along
with the news of PSU bank recapitalization and the
possibility of asset resolution, has boosted investor
confidence in PSU Banks.
A benign rate environment has enabled low-cost funding for
banks, protecting margins against any drop in yields from
excess competition in the retail lending space. Core
revenue growth is expected to improve in the future Sector Performance
quarters, as balance sheet growth picks up.
MoM: +2%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Bank of Baroda 8.0 7.7 4 -58 -56 1.0 1.1 -10 -66 -60
Bank of India NA 7.9 - -54 0.9 0.9 -1 -67 -65
Canara Bank 14.6 7.8 86 -23 -55 0.7 0.8 -5 -73 -70
IDBI Bank 7.7 9.2 -16 -59 -47 0.5 0.7 -30 -82 -72
Indian Bank 9.4 5.9 60 -50 -66 1.1 0.8 41 -60 -70
Punjab Natl.Bank 14.9 8.9 66 -21 -48 0.9 1.0 -9 -67 -62
St Bk of India 14.1 13.4 5 -26 -23 1.3 1.3 4 -52 -52
Union Bank (I) NA 7.6 - -56 0.6 0.8 -32 -79 -68

BULLS & BEARS | December 2017 21

NBFCs: Watch out for GSec yields
NBFCs trade at a P/B of 3.8x, above their historical average
(29% premium).
Over the past few months, GSec yields have hardened about
50bp to 7%. A key thing to watch out for is whether this
sustains or not. If it does, it could meaningfully impact
spreads of NBFCs, especially HFCs.
Despite the impact of RERA on the real estate sector, most
HFCs have reported healthy disbursement growth in
2QFY18.
Vehicle financiers have witnessed strong growth in the car
and tractor segments. M&HCV sales have picked up in the
last 2-3 months, giving some respite to CV financiers.
Gold financiers are showing signs of slowing loan growth,
due to which they are looking to diversify into different
segments like microfinance and affordable housing.
MFIs are witnessing a turnaround in terms of disbursements
and collections. We believe credit Sector Performance
cost will be elevated in 1HFY18,
post which it should decline. MoM: -2%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Bajaj Finance 30.0 14.5 107 58 -16 5.4 2.2 146 94 -17
Bharat Financial 23.6 20.9 13 25 21 3.9 3.6 8 39 36
Capital First 17.5 22.6 -22 -7 30 2.4 1.7 45 -13 -36
Chola. Invst. & Fin. 19.2 15.0 28 1 -14 3.5 1.9 85 25 -29
Dewan Housing 14.3 7.3 96 -24 -58 2.0 1.1 80 -28 -57
GRUH Finance 44.3 22.1 101 134 27 13.2 6.4 105 375 145
HDFC 30.4 24.9 22 61 44 5.3 4.8 11 90 82
Indiabulls Housing 12.3 9.2 33 -35 -47 3.4 2.3 49 24 -12
L&T Fin.Holdings 18.7 16.4 13 -1 -5 3.1 1.9 59 10 -27
LIC Housing Fin. 13.1 10.4 25 -31 -40 2.1 1.9 13 -24 -29
M & M Financial 25.2 16.3 55 33 -6 3.4 2.2 54 21 -17
Muthoot Finance 10.5 8.1 30 -45 -53 2.0 1.5 33 -27 -42
PNB Housing 21.7 23.4 -7 15 35 3.3 3.4 -2 19 28
Shri.City Union. 15.1 13.6 12 -20 -22 2.2 2.1 7 -21 -22
Shriram Trans. 102.2 31.8 221 440 83 2.1 2.1 2 -23 -20

BULLS & BEARS | December 2017 22

Capital Goods: Capex cycle relying heavily on government spending
Capital Goods trades at 17% discount to its historical P/B
average, but at a 9% premium to its historical P/E average.

Capex cycle continues to be supported by government

spending. Spending in the roads, railways, Power T&D and
Defence continues to drive capex cycle, whereas private
sector participation continues to remain muted, given (a)
weak end-market demand, resulting in capacity
underutilization, (b) high leverage with companies in sectors
like steel, power, and infrastructure, which constrains new
borrowings and resultant capex, and (c) recent structural
reforms temporarily impacting the utilization of the
companies.

Sector Performance
MoM: 0%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
ABB 53.9 62.9 -14 185 263 7.4 7.0 5 165 167
BHEL 30.8 20.9 47 63 21 1.0 3.0 -67 -64 16
Blue Star 33.9 24.6 38 79 42 8.3 8.0 4 198 204
CG Power & Indl. 43.4 13.1 232 129 -25 1.2 1.1 9 -55 -56
Cummins India 27.3 23.2 18 44 34 5.7 5.6 1 103 112
GE T&D India 39.9 62.9 -37 111 263 8.3 7.4 13 200 181
Havells India 38.2 25.3 51 102 46 7.9 5.3 49 185 103
K E C Intl. 19.5 15.8 24 3 -9 3.9 2.3 73 40 -14
Larsen & Toubro 22.3 23.7 -6 18 37 2.9 3.4 -15 5 31
Siemens 43.9 47.7 -8 132 175 5.2 6.5 -20 87 149
Solar Inds. 39.1 18.9 107 106 9 2.0 3.5 -42 -27 33
Thermax 33.7 25.2 33 78 46 4.2 4.3 -3 50 65
Voltas 33.6 20.8 62 78 20 5.2 3.4 52 87 30

BULLS & BEARS | December 2017 23

Cement: Overhang of all-India petcoke ban remains
Cement trades at EV/EBITDA of 11.8x, at a 32%
premium to the historical average.
Demand in north grew ~4-5% led by IHB segment,
Gujarat up 4% due to significant boost to
infrastructure. East exhibited a recovery in demand due
to the end of monsoon season. Demand in south
declined 2% YoY in October, as 18% YoY improvement
in AP/Telangana was largely offset by ~26% YoY decline
in Tamil Nadu. Demand in central remained muted due
to sand mining ban, which has been now resolved in
the last week of November.
Environment Ministry issued directions to the states of
UP, Haryana and Rajasthan to prohibit usage of petcoke
on 17th November 2017. We estimate this will result in
increase in fuel cost by INR 94/t for cement companies
operating out of these states, as alternative fuel of
imported coal is ~15-20% costlier than petcoke on per
kcal basis.
Sector Performance
MoM: -5%

Relative to Sensex P/E Relative to Sensex P/B

PE (x) PB (x)
(%) (%)
Prem/Disc Prem/Disc
Company Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg
(%) (%)
ACC 25.8 23.7 9 36 37 3.3 2.9 15 18 10
Ambuja Cem. 33.2 24.5 36 76 41 2.5 2.7 -7 -11 1
Birla Corpn. 23.1 12.4 87 22 -29 2.3 1.1 105 -16 -57
Grasim Inds 11.1 8.5 31 -41 -51 1.4 1.0 37 -49 -60
India Cements 19.4 20.9 -7 2 21 1.0 0.8 24 -65 -70
Shree Cement 34.8 21.1 65 84 22 5.8 3.8 55 110 44
UltraTech Cem. 31.9 21.8 46 68 26 4.0 2.9 39 43 9

BULLS & BEARS | December 2017 24

Consumer: Trades at 31% premium to LPA
Consumer sector P/E remains above its historical average
(31% premium). Post GST, the trade channels are getting
back to normal, and consumer offtakes have improved.
Consumer companies expect the wholesales channel to
return back to normal levels by end of CY17.
Rural outlook appears buoyant, with companies like HUL,
Marico and Dabur reporting either similar or faster growth
in rural sales compared to urban sales after a long time.
We believe volume growth prospects for 2HFY18 are
brighter than they have been for many years. Another
factor likely to boost sales is the end of commodity cost
deflation, bringing back the price-led part of sales growth.
We continue to like rural recovery plays owing to their
robust earnings prospects. For urban recovery plays
(outlook on which is hazy) and companies facing growth
issues due to flawed strategy and/or structural disruptions,
valuations remain uncomfortably high.
Sector Performance
MoM: +1%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Asian Paints 47.0 32.6 44 148 88 12.7 10.2 25 357 287
Britannia Inds. 48.1 28.3 70 154 63 15.2 10.9 40 448 315
Colgate-Palm. 38.6 31.8 21 104 84 20.2 24.8 -19 626 845
Dabur India 39.5 29.0 37 109 67 10.0 9.0 12 260 241
Emami 42.0 26.7 58 122 54 13.0 9.3 40 369 255
GlaxoSmith C H L 34.8 27.3 28 84 57 7.4 7.3 1 166 179
Godrej Consumer 41.1 28.4 45 117 64 8.8 6.4 38 216 144
Hind. Unilever 49.0 33.0 48 159 90 40.1 28.2 42 1343 973
ITC 26.3 25.3 4 39 46 6.4 7.1 -10 131 172
Jyothy Lab. 36.5 31.4 16 93 81 6.3 3.4 84 126 30
Marico 41.0 29.0 41 117 67 14.1 9.1 55 409 248
Nestle India 53.8 39.5 36 184 128 20.6 23.8 -14 642 808
P & G Hygiene 55.8 34.5 62 195 99 32.5 13.0 151 1068 394
Page Industries 59.6 32.6 83 215 88 25.7 14.7 74 824 461
Pidilite Inds. 43.0 27.5 56 127 59 9.4 6.7 39 238 157
United Breweries 64.4 72.3 -11 240 317 9.8 8.2 20 251 211
United Spirits 69.3 91.1 -24 266 426 14.0 10.1 39 402 284

BULLS & BEARS | December 2017 25

Healthcare: Pricing pressure in US and push to generics in India are key concerns
Healthcare trades at a P/E of 22.5x – near its historical
average P/E of 22.8x.
Strides Shasun and Glenmark trade at 74% and 54%, a
significant discount to historical average P/E, while
Ajanta Pharma, Biocon, Aurobindo, Granules, Torrent
Pharma and Shilpa Medicare are trading at a premium
to their historical averages.
 Although outlook for FY18 remains negative,
companies expect price erosion to come down from
high-double-digits to low-double-digits.
 Post implementation of GST, with inventory at near-
pre-GST levels, domestic business of Indian pharma
companies is expected to bounce back in 2HFY18.
Pricing pressure in the US and the new Draft
Pharmaceutical Policy 2017 are the key concerns in the
medium term for Indian Sector Performance
pharma companies.
MoM: -2%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Aurobindo Pharma 14.4 12.3 17 -24 -29 3.0 2.6 13 7 0
Ajanta Pharma 22.7 12.4 84 20 -29 5.3 3.7 42 91 42
Biocon 47.7 22.8 109 152 31 4.8 2.6 83 73 0
Cadila Health. 19.8 19.8 0 5 14 4.6 4.8 -6 64 84
Cipla 24.0 25.9 -7 27 49 3.2 3.5 -9 14 32
Divi's Lab. 26.1 21.4 22 38 23 4.9 5.1 -3 78 93
Dr Reddy's Labs 23.6 26.9 -12 25 55 2.7 3.8 -29 -2 46
Fortis Health. 37.1 41.8 -11 96 141 1.1 1.7 -32 -59 -36
Glaxosmit Pharma 48.3 43.2 12 155 149 13.5 10.1 34 386 284
Glenmark Pharma. 13.7 29.7 -54 -28 71 2.6 4.6 -44 -7 74
Granules India 12.9 11.0 17 -32 -36 2.1 1.5 38 -26 -43
Ipca Labs. 22.7 23.8 -5 20 37 2.4 3.0 -20 -14 14
Jubilant Life 12.8 13.3 -4 -33 -23 2.2 1.7 34 -20 -37
Lupin 20.0 21.3 -6 6 23 2.4 4.5 -48 -15 72
Sanofi India 29.3 26.3 12 55 51 5.1 4.2 20 84 62
Sun Pharma.Inds. 26.9 27.6 -2 42 59 3.2 4.8 -34 14 84
Strides Shasun 13.4 51.7 -74 -29 198 2.1 3.4 -39 -26 30
Shilpa Medicare 24.8 19.9 24 31 15 4.3 2.7 57 54 4
Torrent Pharma. 22.4 15.5 44 18 -10 4.1 3.9 5 47 48

BULLS & BEARS | December 2017 26

Infrastructure: Opportunity abundant in the road infrastructure segment
Infrastructure trades at a 15% premium to its historical P/B
average and 28% premium to its historical P/E average.

Government has recently announced capex of INR7t to be

incurred in road infrastructure development under the
Bharatmala program.
Bharatmala program envisages to award road projects
worth INR5.3t over the next two years and execute the
same by 2022.
This provides strong opportunity for the road infrastructure
players in the sector.
We have initiated coverage on the sector with Buy rating on
Sadbhav, Ashoka and KNR. We have Neutral rating on the
IRB Infra.

IRB Infra trades at a discount to historical P/B, whereas

Ashoka, KNR and Sadbhav trade at a premium.

PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Ashoka Buildcon 47.2 19.7 139 150 14 2.4 1.5 62 -12 -43
IRB Infra.Devl. 9.9 13.0 -23 -47 -25 1.3 1.9 -35 -55 -26
KNR Construct. 19.9 8.0 149 5 -54 3.2 1.2 174 16 -55
Sadbhav Engg. 26.2 26.8 -2 39 55 3.2 2.6 23 15 -1

BULLS & BEARS | December 2017 27

Media: Recovery in national advertiser spend supporting growth
The Media sector trades at a one-year forward P/E of
28.2x, at a 19% premium to historical average of 23.6x.

Ad market is witnessing mixed performance as we

understand that large national advertisers’ spend is
improving, benefiting the TV ad market. However, local
retail and real estate sectors having high contribution
to print and radio are impacted.

Digitization remains the key theme in the sector.

Subscriber-level ARPU improvement in Phase I/II
markets and uptick in Phase III/IV digitization are the
key triggers on the subscription front.

The implementation timelines of non-discriminatory

content pricing regulation on the media value chain
remains a key monitorable.
Sector Performance
MoM: +3%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Ent.Network 43.6 32.2 36 130 85 3.7 3.0 25 33 13
H T Media 8.7 21.0 -59 -54 21 0.9 1.8 -51 -69 -33
Jagran Prakashan 13.0 15.8 -17 -31 -9 2.3 3.6 -36 -16 38
PVR 34.7 42.0 -17 84 142 5.1 2.9 74 82 11
Prime Focus 19.4 31.8 -39 3 84 3.9 3.5 11 39 32
Sun TV Network 26.3 20.3 30 39 17 7.4 5.1 43 165 96
Zee Entertainmen 40.2 28.1 43 113 62 5.5 4.1 34 98 56

BULLS & BEARS | December 2017 28

Metals: Market awaiting more clarity on extension of Chinese winter cuts
Metals trade at a historical average P/B of 1.6x.
EV/EBITDA is at 6.4x, 11% discount to historical
average.
The market is awaiting clarity on impact of demand
slowdown in China, as suggested by a fall in
momentum of growth in real estate sales and clarity on
the extension of winter cuts. Steel prices in China have
improved marginally, but the domestic market remains
sluggish. Aluminum and alumina prices have corrected
on expectation of lower-than-expected winter cuts.
We remain positive on JSW Steel, as it benefits from
higher steel spreads. Hindalco is well placed to benefit
from higher aluminum prices and low-cost captive raw
material. NMDC is likely to benefit from premium for
high-grade ore and strong steel demand in China.
Sector Performance
MoM: -6%
Relative to Sensex P/E Relative to Sensex P/B
PE (x) PB (x)
(%) (%)
Prem/Disc Prem/Disc
Company Current 10 Yr Avg (%) Current 10 Yr Avg Current 10 Yr Avg (%) Current 10 Yr Avg
Hind.Zinc 10.0 8.5 18 -47 -51 3.6 2.0 82 31 -24
Hindalco Inds. 10.1 9.8 3 -47 -44 1.5 1.5 -2 -47 -43
Jindal Steel NA 14.9 -14 0.6 2.0 -73 -80 -22
JSW Steel 10.9 14.0 -22 -42 -19 2.0 1.3 53 -28 -50
Natl. Aluminium 15.2 17.7 -14 -20 2 1.4 1.4 1 -49 -46
NMDC 9.9 15.1 -35 -48 -13 1.6 3.9 -60 -43 50
Rain Industries 10.3 3.1 233 -46 -82 2.6 0.7 267 -7 -73
SAIL NA 14.4 -17 0.9 1.2 -25 -68 -54
Tata Steel 11.0 15.7 -30 -42 -9 1.7 2.2 -21 -38 -17
Vedanta 7.8 9.0 -14 -59 -48 1.6 2.2 -29 -44 -17

BULLS & BEARS | December 2017 29

Oil & Gas: Brent crude oil prices remain elevated
Oil & Gas trades near its historical average P/B at 1.6x
and P/E of 11.9x (v/s 10-year average of 11.7x).
Brent crude oil price remained elevated at USD64/bbl
ahead of OPEC meeting on 30 November.
Rising crude price is positive for ONGC/OIL; their stock
prices have moved up, led by an increase in crude oil
prices.
GAIL’s positive stock performance is also because of
the rising crude prices.
Though Singapore complex GRMs remained above
USD7/bbl during the month, rising crude prices
affected the stock performance of OMCs.
Petronet continued its strong utilization at Dahej
facility.
IGL also appears to have witnessed strong volume
growth.
Sector Performance
MoM: -4%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
BPCL 10.2 10.4 -2 -46 -40 2.4 1.5 63 -13 -43
GAIL (India) 15.3 13.9 11 -19 -20 1.8 1.9 -4 -34 -27
Guj.St.Petronet 16.4 12.4 32 -13 -29 2.2 1.9 18 -21 -29
HPCL 10.3 8.6 19 -46 -50 2.4 1.1 115 -15 -58
IOCL 9.3 10.1 -8 -51 -42 1.5 1.2 29 -46 -56
Indraprastha Gas 30.0 10.5 187 58 -40 5.9 2.2 165 112 -15
MRPL 11.4 10.6 8 -40 -39 1.7 1.8 -2 -37 -33
ONGC 8.4 11.1 -25 -56 -36 1.0 1.6 -39 -65 -39
Petronet LNG 15.5 10.5 48 -18 -39 3.5 2.1 66 24 -21
Reliance Inds. 15.3 14.2 8 -19 -18 1.7 1.6 2 -40 -37

BULLS & BEARS | December 2017 30

Retail: Rich valuations of 56x do not factor in downside risk
The Retail sector trades at a P/E of 46.3x, at a 79%
premium to historical average.
Regulations governing the jewellery industry, including
identity proofs for all transactions over INR 200,000,
GST implementation and crackdown on black money,
have tilted trade decisively in favor of organized
players, among which TTAN has benefitted the most –
there has been a strong revival and market share gain
in Jewellery. Management is confident of healthy
growth after GST implementation as well. If GST is
implemented well, GST can be a longer-term positive,
particularly for TTAN.
JUBI’s recent initiatives are admirable, but have come
slightly late and will take time to bear fruit, in our view.
The company is facing challenges to stay relevant amid
competition from online and offline players. JUBI has,
in fact, lagged other QSR peers like Westlife on SSSG
for the last seven quarters and Yum India for the last
four quarters. Every quarter of delay in SSSG recovery
leads to further EPS cuts because of high fixed cost
intensity. Double-digit SSSG is essential for sustained
margin growth for a business with 6-7% cost inflation.
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Jubilant Food 69.8 67.2 4 269 287 13.6 12.4 9 389 374
PC Jeweller 22.9 12.8 79 21 -26 3.7 2.0 83 32 -23
Titan Inds. 55.5 30.7 81 193 77 13.0 8.7 48 366 233

BULLS & BEARS | December 2017 31

Technology: Expecting more from margins
Technology sector trades at a P/E of 16.2x, a 2%
premium to its historical average of 15.8x. The sector
was among the best performers in November (+4%
return MoM).
Recent upward movement in stock prices has been a
result of improved expectations on the margin
performance of companies across the board. While
2QFY18 revenue growth was largely in line with
estimates, the sector managed to beat expectations on
the margin front.
With a stable USD/INR, operational efficiencies and
cost optimization have been reflecting in buoyant
margins, as opposed to the trend seen over the last
few quarters.
Barring HCL Tech and Infosys, all companies are trading
at a premium to historical valuations. Premiums for
Tier-II are steeper compared to
the large caps. Sector Performance
MoM: +4%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Cyient 14.4 11.4 26 -24 -34 2.6 1.9 39 -7 -29
HCL Technologies 12.8 13.2 -4 -33 -24 3.1 3.1 2 13 17
Hexaware Tech. 20.0 12.3 62 6 -29 4.5 2.7 69 62 2
Infosys 14.7 16.9 -13 -23 -3 3.2 4.0 -21 15 54
KPIT Tech. 12.8 9.9 29 -32 -43 1.7 1.9 -10 -38 -27
MphasiS 16.3 11.0 48 -14 -36 2.7 2.0 33 -2 -22
NIIT Tech. 13.3 8.6 54 -30 -50 2.0 1.5 40 -26 -44
TCS 18.2 17.4 5 -4 0 5.7 5.8 -2 104 121
Tech Mahindra 13.2 12.4 7 -30 -29 2.3 2.9 -21 -18 9
Wipro 14.8 14.6 1 -22 -16 2.4 3.0 -20 -15 13
Zensar Tech. 12.9 7.5 71 -32 -56 2.1 1.6 33 -24 -40

BULLS & BEARS | December 2017 32

Telecom: Jiophone not disruptive, but IUC impact to burden EBITDA
The recent launch of RJio’s Jiophone does not remain
disruptive. However, the next 1-2 quarters should see
the following impact:
(1) Revenue and EBITDA to remain under pressure,
given that the revised IUC rate is applicable from 1
October 2017.
(2) The key monitorables will be (i) RJio’s revised price
plans (~15% increase), and (ii) RJio’s feature phone
aggression.
We believe the sector should bottom out by FY18 in
terms of both competitive and capex intensity. Further,
constant revision in RJio’s price plans should drive
ARPU-led value accretion and healthy FCF generation.
We believe EV/EBITDA of 9.1x, a 14% premium to
historical average, does not fully capture EBITDA
growth potential beyond FY18. Sector Performance
MoM: 0%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
Bharti Airtel 89.3 37.2 140 372 115 2.8 2.7 4 2 4
Idea Cellular NA 27.9 - - 61 2.3 2.1 9 -16 -19
Tata Comm 49.3 71.1 -31 161 310 10.8 7.6 41 289 191

BULLS & BEARS | December 2017 33

Utilities: Short-term prices decline MoM on slower demand growth
Utilities trade at a P/B of 1.6x, at a 20% discount to
historical average.
Coal India and CESC trade at a premium to historical
average P/B, while NTPC, Power Grid, Tata Power and
JSW Energy trade at a discount to historical average
P/B.
Short-term power prices were down MoM to
INR3.5/kWh on lower demand.
Conventional electricity generation grew 3.1% YoY in
October 2017. YTD growth was ~4s% YoY.

Sector Performance
MoM: -1%
PE (x) Relative to Sensex P/E (%) PB (x) Relative to Sensex P/B (%)
Company Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg Current 10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
CESC 10.4 18.5 -44 -45 7 1.1 1.0 13 -61 -63
Coal India 14.1 15.2 -7 -26 -12 6.5 5.9 9 133 126
JSW Energy 23.7 15.6 52 25 -10 1.3 1.7 -23 -54 -37
NTPC 12.1 15.0 -19 -36 -14 1.4 1.8 -24 -51 -32
Power Grid Corpn 10.6 14.4 -26 -44 -17 1.7 2.0 -13 -38 -25
Tata Power 12.7 20.1 -37 -33 16 1.8 2.2 -17 -35 -18

BULLS & BEARS | December 2017 34

 Motilal Oswal Securities Limited
MEMBER OF BSE AND NSE
Motilal Oswal Tower, Sayani Road, Prabhadevi, Mumbai 400 025, INDIA
BOARD: +91 22 3982 5500 | WEBSITE: www.motilaloswal.com
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business
of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service
Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a
registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is
Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of
financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf
Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:
SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI
regulations to hold inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause
Notice and also sought personal hearing. The matter is currently pending.
MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or
more securities in the subject company at the end of the month immediately preceding the date of publication of the Research Report. MOSL and its associate company(ies), their directors and Research
Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no
bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though
there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month
period. MOSL and/or its associates may have received any compensation from the subject company in the past 12 months.
In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:
a)managed or co-managed public offering of securities from subject company of this research report,
b)received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,
c)received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.
d)Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.
MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has
incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do
business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may
affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

BULLS & BEARS | December 2017

Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and
information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to
be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information
and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities
or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by
virtue of their receiving this report.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will
be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement Companies where there is interest
Analyst ownership of the stock No
A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical
Research. Proprietary trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an
independent view with regards to subject company for which Research Team have expressed their views.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No.
INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional
Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional
investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who
compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws
in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not
available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC
(henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this
document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S.
Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors
based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to
this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such
research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a
subject company, public appearances and trading securities held by a research analyst account.

BULLS & BEARS | December 2017

For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with
the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any
other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer
document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any
investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own
investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all
investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No
representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement
incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any
prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and
the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform
investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of
each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or
developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely
for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or
intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would
be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors,
employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with
the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and
agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs,
damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address:
Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact
No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD);
MSE(Cash): INB261041231; MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment
Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd.
(MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO
products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity
Investment Advisors Pvt. Ltd. offers Private Equity products

BULLS & BEARS | December 2017

Quant Research & India Strategy Gallery