Apr 11, 2018
KARVY INVESTMENT STRATEGY
3
Analyst Contact
Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY<GO>)
040 - 3321 6296
vivekr.misra@karvy.com
Vivek Ranjan Misra
KARVY INVESTMENT STRATEGY
4
Wealth Maximizer
&
Value Invest
Wealth Maximizer - April 2018
Company Name NSE Symbol Sector
Market Cap
(Rs. Bn.)
CMP*
(Rs.)
Target
Price (Rs.)
Upside
(%)
Adani Ports & Special
Economic Zone Ltd
ADANIPORTS Marine Port & Services 802 387 474 22
Aurobindo Pharma Ltd AUROPHARMA Pharmaceuticals 356 608 826 36
Bharti Airtel Ltd BHARTIARTL Telecommunications 1541 386 573 49
Hindalco Industries Ltd HINDALCO Metals 516 230 310 35
Indiabulls Housing Finance Ltd IBULHSGFIN NBFC 565 1325 1561 18
Indian Oil Corp Ltd IOC Oil Marketing & Distribution 1741 179 247 38
State Bank of India SBIN Banking 2350 263 360 37
Tata Motors Ltd TATAMOTORS Automobiles 1122 353 479 36
Tata Steel Ltd TATASTEEL Metals 690 602 835 39
UPL Ltd UPL Agrochemicals 383 751 1003 34
*As on Apr 10, 2018, Please CLICK HERE for previous Wealth Maximizer report
Value Invest - April 2018
Company Name NSE Symbol Sector
Market Cap
(Rs. Bn.)
CMP*
(Rs.)
Target
Price (Rs.)
Upside
(%)
Astra Microwave Products Ltd ASTRAMICRO Defence 7.3 84 109 30
Gabriel India Ltd GABRIEL Auto Ancillary 23.3 163 189 16
Greaves Cotton Ltd GREAVESCOT Industrial Machinery 29.8 122 154 26
GMDC GMDCLTD Coal 43.0 135 170 26
KRBL Ltd KRBL Food Processing 105.0 446 635 42
Manpasand Beverages Ltd MANPASAND Beverages 44.0 385 507 32
Menon Bearings Ltd MENONBE Auto Ancillary 5.8 104 150 44
Mirza International Ltd MIRZAINT Footwear 16.2 134 154 15
Natco Pharma Ltd NATCOPHARM Pharmaceuticals 144.2 782 1107 42
Trident Ltd TRIDENT Textiles 37.7 74 98 32
*As on Apr 10, 2018, Please CLICK HERE for previous Value Invest report
KARVY INVESTMENT STRATEGY
5
Dividend Maximizer
Dividend Maximizer - April 2018
Company Name Sector
Market
Cap
(Rs. Bn)
CMP*
(Rs.)
Dividend
Per Share
(Rs.)**
Dividend
Yield
(%)**
Average 5
Yr Yield (%)
Castrol India Ltd Chemicals 205 208 6.6 3.2 2.5
Greaves Cotton Ltd Machinery 30 122 5.2 4.3 3.6
Hero MotoCorp Ltd Automobiles 743 3718 102.2 2.7 3.1
Hindustan Petroleum Corp Ltd Oil, Gas & Consumable Fuels 556 365 16.7 4.6 4.9
Indiabulls Housing Finance Ltd Thrifts & Mortgage Finance 565 1325 52.8 4.0 5.5
Infosys Ltd IT Services 2432 1113 33.5 3.0 2.0
The Karnataka Bank Ltd Banks 47 125 4.5 3.6 3.7
Power Finance Corp Ltd Diversified Financial Services 233 88 7.4 8.4 6.3
PTC India Ltd Independent Power Trading 28 96 4.0 4.2 2.9
VST Industries Ltd Tobacco 48 3108 110.0 3.5 4.3
*As on Apr 10, 2018, **Bloomberg Estimates, Please CLICK HERE for previous Dividend Maximizer report
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KARVY INVESTMENT STRATEGY
6
Introduction
FY18 was a year of transition, where the Indian economy
suffered disruption on account of the implementation
of the Goods and Services Tax. In addition, the central
bank adopted a more aggressive stance on resolution
of non-performing loans. There were a few positive
developments, in November international credit rating
agency, Moody’s upgraded India’s sovereign rating from
Baa3 to Baa2. Also, India made significant progress in
World Bank's ease of doing business ranking, jumping by
30 ranks to the 100th spot in last year.
More importantly the Indian economy is accelerating;
while GDP growth for FY18E is expected to be 6.6%,
GDP growth in Q3FY18 was 7.2%. This is a reversal of
the downward momentum the economy experienced
earlier in the year.
Indian markets peaked in January 2018, since then
markets have experienced a bout of weakness, however,
we believe this is temporary and markets are likely to
make gains over an investment horizon of 12 months. We
will address this later in the write-up.
All 26 indices we track have given positive returns in the
calendar year 2017. In 2018 returns have been mixed,
with Brazil Bovespa being the best performing index.
Market Outlook
In this report, we present three different investment
strategies and also some of our top stock picks. The
large cap space ideas are presented in the Wealth
Maximizer and mid-cap stocks in Value Invest. In addition
we also present high dividend yield stocks in the Dividend
Maximizer report.
We believe that looking past the current correction, the
prospects for the Indian market is bright on account of
multiple reasons. Firstly, Indian demographics are at a
transition point, the dependency ratio of nation is set to fall
below 50% over the next few years. While the importance
of the “demographic dividend” on the economy is well
known, the impact on equities is important as well. Firstly,
there is the direct impact via the economy, on account
Growth Story is Still Intact
of rising consumption as well as investment. Secondly,
a lower dependency ratio means a higher savings rate,
which will have an impact across all asset classes. It is
quite simple higher savings rate means a lower discount
rate, this can lead to good returns. We believe this will
have a strong impact on returns over the next decade and
provide an opportunity to investors for wealth creation.
However, the economy needs significant reforms for
the positive impact of the demographic dividend to
be realized. However, the current government has
implemented a number of significant reforms. While the
implementation of the Goods and Services Tax is a long
awaited and significant reform, which can improve the
fiscal balance of the government, there are a number of
other reforms that deserve mention.
The Insolvency and Bankruptcy code has now become
the medium for banks to tackle non-performing loans in
the banking system. Similarly, the Real Estate Regulatory
Authority (RERA) Act is also quite significant. The shift of
the Reserve Bank of India to an inflation targeting regime
for monetary policy is a critical development, low and
predictable inflaltion is important for sustainable growth
and the RBI target of maintaining inflation at 4% with a
band of +/- 2% is welcome.
As a result of reforms, Indian ranking in the World Economic
forum’s competitiveness Index has been upgraded from
71 in 2015 to 40, a significant improvement. This also
enhances India’s attractiveness among international
investors.
India Dependency Ratio
Source: United Nations, Karvy Research
50
60
70
80
90
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
World
India
KARVY INVESTMENT STRATEGY
7
Equity Indices Performance - CY2018 YTD Change (%)
Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2018 till Apr 10, 2018
5.5
1.3
0.7
(0.1)
(0.9)
(1.4)
(2.5)
(3.0)
(4.2)
(4.7)
(5.1)
(6.1)
(6.4)
(7.4)
-10
-8
-6
-4
-2
0
2
4
6
8
10
BRAZIL BOVESPA
ITALY MIB
MALAYSIA BURSA KLCI
TAIWAN TAIEX
SINGAPORE STRAITS
TIMES
HONGKONG HANGSENG
US NASDAQ
NEW ZEALAND 50
THAILAND SE THAI
NETHERLANDS AEX
FRANCE CAC 40
SOUTH KOREA KOSPI
INDIA NSE NIFTY
INDONESIA JAKARTA
US S&P 500
EURO STOXX 50
MEXICO BOLSA
SPAIN IBEX35
AUSTRALIA ASX 200
SWEDEN OMX 30
JAPAN NIKKEI 225
CHINA SHANGHAI
GERMANY DAX
CANADA TSX
UK FTSE100
SWISS MARKET INDEX
Asset Performance (%) in 2017 YTD
Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2018 till Apr 10, 2018
OECD Leading indicator shows economy likely to accelerate
Source: OECD, Karvy Research
4.5
2.5
(1.4)
(2.3)
(2.7)
-4
-3
-2
-1
0
1
2
3
4
5
Brent Crude
Gold
Nifty
S&P 500
Silver
97
99
101
103
Jun-94
Jan-95
Aug-95
Mar-96
Oct-96
May-97
Dec-97
Jul-98
Feb-99
Sep-99
Apr-00
Nov-00
Jun-01
Jan
-02
Aug
-02
Mar-03
Oct-03
May-04
Dec-04
Jul-05
Feb-06
Sep-06
Apr-07
Nov-07
Jun-08
Jan-09
Aug-09
Mar-10
Oct-10
May-11
Dec-11
Jul-12
Feb-13
Sep-13
Apr-14
Nov-14
Jun-15
Jan-16
Aug-16
Mar-17
Oct-17
KARVY INVESTMENT STRATEGY
8
KEY DEVELOPMENTS IN THE INDIAN ECONOMY
The RBI monetary policy stance has been neutral for
the last four rate decisions in maintaining the repo and
the reverse-repo rate at 6.0% and 5.75% respectively.
The idea for this neutral stand-point is to maintain the
buoyancy in the economy with an endeavor to boost
the GDP growth rate which is expected to be ~6.6% for
FY18E. Despite the last inflation print (4.4% Vs consensus
of 4.7%), RBI remains cautious on account of potential
upside risks to inflation from volatility in the price of crude
as well as potential increase in minimum support price of
farm products.
Bond Yield
Bond yields moved downwards (from the last week of
March) after the government announced lower than
expected borrowing plan of Rs. 2.88 Lakh Cr for H1FY19
as compared to Rs. 3.72 Lakh Cr during the previous
year. The demand is higher for bonds in the 1-5 year
bucket as both banks and FIIs prefer buying short-term
duration bonds, while majority of the state and central
government bonds are for 10-year tenure. For yields to
drop further there needs to be a clear indication that
India Manufacturing PMI
Source: Bloomberg, Karvy Research
10-Year G-Sec Yield (%)
Source: Bloomberg, Karvy Research
Capacity Utilization (%)
Source: Bloomberg, Karvy Research
On the flip side, we believe that policy tightening is not
far off, considering that the core inflation is still sticky at
5.0%. Further, the survey on the manufacturing sector
by the RBI indicates improving yet low capacity utilization
rate at 74.1% in Q3FY18 as compared to 71.8% during
Q2FY18, which implies inflationary pressures are slowly
building up. New orders received by the companies in
Q3FY18 recorded a substantial increase at 54.9% YoY,
indicating demand and better earnings visibility in the
coming quarters.
appetite for duration is returning. Furthermore, RBI’s
decision to increase bond investment limit for foreign
portfolio investors may trigger a drop in bond yields. 10-
Year GSEC is likely to trade in the range of 7-7.3% for
H1FY19 based on consensus. However, yields may pick
up based on fiscal trends, domestic inflation and FPI’s
appetite for G-Sec.
3
6
9
12
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar
-17
Mar-18
47
49
51
53
55
7000
8000
9000
10000
11000
Mar-15
Jun-15
Sep-
15
Dec-15
Mar-16
Jun-16
Sep-16
Dec
-16
Mar-17
Jun-17
Sep
-17
Dec-17
Mar-18
Nifty ( Avg Monthly fig ures)
Manufactur ing PM I ( RHS)
India CPI & Core CPI
Source: Bloomberg, Karvy Research
0.0
2.5
5.0
7.5
10.0
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
CPI (%)
Core CPI (%)
3M Moving Avg CPI (%)
72.0
71.0
74.6
71.2
71.8
74.1
0.1
-1.8
2.8
-2.3
-1.4
2.4
-4.0
-2.0
0.0
2.0
4.0
69
71
73
75
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Capacity Utlization
Quarterly IIP Manufacturing
KARVY INVESTMENT STRATEGY
9
GDP growth rebounds to 7.2% in Q3FY18
Indian economy recorded a real growth rate of 7.2%
YoY in Q3FY17-18 and this is above consensus estimate
(Reuters) of 6.9%. For FY17-18, CSO is projecting a
growth rate of 6.6%. Nominal growth rate was 11.9%
in comparison to a revised YoY growth of 6.5% in the
previous quarter. Growth in Gross Value Added or GVA
was 6.7% YoY.
The growth in agriculture, forestry and fishing sector in
terms of GVA for Q3FY18 at constant prices came in
at 4.1% YoY% as compared to 7.5% YoY growth in
Q3FY17. In Q2FY18, growth was 2.7% YoY.
Mining & Quarrying sector declined, registering -0.1%
growth in Q3FY18 compared to a growth of 12.1% in
Q3FY17. In Q2FY18, growth was 7.1% YoY.
The manufacturing sector growth for Q3FY18 grew
by 8.1% YoY as compared to growth of 8.1% YoY in
Q3FY17. In Q2FY18, growth was 6.9% YoY.
Electricity, gas, water supply & other utility services
sector in terms of GVA recorded 6.1% growth during
Q3FY18 as compared to 9.5% in Q3FY17. In Q2FY18,
growth was 7.7% YoY.
Construction sector growth for Q3FY18 came in
at 6.8% YoY as compared to 2.8% in Q3FY17. In
Q2FY18, growth was 2.8% YoY.
Trade, hotels, transport, communication and services
related to broadcasting sector recorded 9% growth in
Q3FY18 YoY as compared to 7.5% YoY in Q3FY17.
In Q2FY18, growth was 9.3% YoY.
Financial, insurance, real-estate & professional
services sector growth in Q3FY18 came in at 6.7%
YoY in terms of GVA as compared to 2.8% YoY in
Q3FY17. In Q2FY18, growth was 6.4% YoY.
Public administration, defence and other service
sector recorded a growth rate of 7.2% YoY in terms
of GVA in Q3FY18 as against 10.6% in Q3FY17. In
Q2FY18, growth was 5.6% YoY
GST Collections
Total taxpayers registered under GST reached
1.05 Cr as on March 2018. Only 69% of the total assesses
registered under GST filed returns for February 2018.
Going forward, the government is expecting an increase
in GST collections with increase in level of compliance
and implementation of e-way bill.
Quarterly GDP Growth (%)
Source: Bloomberg, Karvy Research
Monthly GST Collection (Rs. Bn)
Source: Karvy Research
941
907
922
833
808
867
863
851
700
750
800
850
900
950
Jul-
17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Disinvestment Execution on Track
The government achieved the revised disinvestment target
of Rs. 1000 Bn during FY18. This is the first instance in
the last 7 years when the disinvestment target was met.
For FY19, the government has set a disinvestment target
of Rs. 800 Bn. On the back of efficient execution of the
disinvestment plan in FY18, the government is expecting
the FY19 disinvestment target to be achieved, given the
various PSU IPOs in pipeline and divestment from Air
India.
Disinvestment Execution by Government So Far
Year
Original
Disinvestment
Target (Rs. Bn)
Actual
Divestment
(Rs. Bn)
Variance
(%)
2010-11 400 221 (45)
2011-12 400 139 (65)
2012-13 300 240 (20)
2013-14 400 158 (61)
2014-15 434 243 (44)
2015-16 695 240 (65)
2016-17 565 462 (18)
2017-18 725 1001 38
Source: Karvy Research
0%
5%
10%
15%
20%
25%
30%
0
5
10
15
Jun-97
Aug-98
Oct-99
Jan-01
Mar-02
May-03
Jul-04
Sep-05
Nov-06
Jan-08
Mar-09
May-10
Jul-11
Sep-12
Nov-13
Jan-15
Mar-16
Real GDP g rowth YoY
Nominal GDP growth YoY (RHS)
KARVY INVESTMENT STRATEGY
10
Government Initiatives: Spending for growth
As expected the budget has largely focused on the
rural sector and on social spending. The focus on rural
sector will have a positive impact by reducing rural
stress; certainty of income should increase consumer
confidence and thus rural consumption. Policy initiatives
to lower volatility of product price should reduce inflation
for consumers as well.
Steps include:
Target to have Minimum Support Price (MSP) 50%
above cost in the Kharif season.
Creation of institutional mechanism for farmers to
lower volatility of product price and is positive for
futures market.
Agricultural market infrastructure to be created to
improve cold chain as well as enable access to the
market for marginal farmers.
In addition, there is an emphasis on “ease of Living”
which is the focus on the social sector. These include the
following steps:
Rashtriya Swasthya Bima Yojana coverage enhanced
to 5 Lakh per family from Rs. 30,000 per family, to
cover 10 crore families or 50 Cr people.
Electricity connections for poor (4 Cr households)
under Saubhagya Yojna.
Providing gas connections to 8 Cr women under
Ujjwala Yojana.
In addition, the government has taken steps to support
the MSME sector and thus help in job creation. Steps to
this include:
Target of 3 lakh crore for lending under MUDRA
scheme for 2018-19.
Government of India has identified 372 specific
business reform actions under which government
will work with the states for implementation. These
should facilitate ease of doing business throughout
the country.
Infrastructure Push:
Total spend of Rs. 597,000 Cr.
Railways capex is pegged at Rs. 148528 Cr and focus
is more towards capacity creation. Gauge conversion,
electrification & modernization of railway stations are
the other things in focus.
Mumbai rail network is allocated with Rs. 11,000 Cr
and allocation of 17,000 Cr to Bangalore.
Allocation of Rs. 2.04 lakh Cr to 99 cities under smart
cities.
Airport capacity to be increased to more than 5 times
to handle a billion trips a year.
Reiterated investment for Bharatmala of Rs. 5,35,000
Cr until FY22 in phase I.
However, there are a few concerns:
Introduction of Long-term capital gains: saving grace
only for gains above Rs. 1 lakh and grandfathering of
investment till January 31, 2018. We believe this is a
negative factor and the only factor that can outweigh
it will be a higher growth in corporate earning’s leading
to buoyancy in markets.
Fiscal deficit slippage to 3.5% of GDP in current year
and estimated to be 3.3% of GDP next year.
Corporate tax rate reduced to 25% only for firms with
turnover less than Rs. 250 Cr, no reduction for large
firms, we believe this will be a focus in later budgets.
Impact of Elections in Economy
The ruling party in the Centre emerged victorious in the
recently concluded state elections of Gujarat and Himachal
Pradesh, which can be seen as a sign of political stability
in the country and a continuous drive by the government
towards the reform trajectory, which bodes well for the
economy and markets. However, a closer than expected
race in the Gujarat elections has raised some concerns
over the policy directive of the government in future. The
ruling party made gains in the North-East, however, the
political outlook has been clouded by recent reversals in
Lok Sabha bypolls in Uttar Pradesh.
The state elections are due in Karnataka, Chhattisgarh,
Madhya Pradesh and Rajasthan. With the general
elections approaching uncertainty will increase, which
may cap returns during this period.
KARVY INVESTMENT STRATEGY
11
Looking beyond the correction
Normalization of volatility: In the past couple of months,
markets have witnessed a rise in volatility; however,
volatility is still below 20 year historical average of 22%.
We believe that the volatility regime is shifting to a more
normal one.
A correction, not a crash: We believe that the market
is experiencing a correction (Sensex down 8.4% from
recent high), but not a crash. This is on account of the
following reasons:
The Indian economic data is likely to improve over
the coming months. In Q3FY2017-18, the economy
grew at 7.2%, compared to an estimate of 6.9%, in
Q2FY2017-18, the GDP growth rate was 6.5%.
IMF in its latest update forecasts a growth rate of
7.4% for FY18-19 and 7.8% in FY19-20. Leading
indicators also point to a pickup in the months ahead.
The OECD leading indicator has picked up after its
bottom in March 2017.
Global growth remains supportive. Growth is
forecasted to pick up to 3.9% in CY-18 from 3.7% in
CY-17 and 3.2% in CY-16.
Though it is early, IMD has indicated that the
probability of an unfavorable monsoon is low.
However, the following factors are likely to limit upside:
Beginning of trade disputes around the world,
especially the prospect of escalation between the
US and China, the two largest economies.
Ongoing process of resolution of NPA’s in the
banking sector.
State elections in Karnataka, Mizoram, Rajasthan,
Chhattisgarh and Madhya Pradesh in the run up
to the general elections which need to be held by
May 2019.
The rise in volatility in itself should not be alarming.
Volatility had declined to abnormally low levels and recent
events should be viewed as a return to normalcy. This
in itself is not so bad, as sharp moves can occur in both
directions, up and down.
Outlook
Though volatility is likely to rise, we believe that the
markets will move up and deliver decent returns during
the year, we forecast Sensex to end year 2018 at 37,500.
However, we believe that the market is still on upward
trajectory and offers a favorable risk reward profile to
investors. We believe there are factors that are supportive
of a continuing rise in markets.
Rise in policy uncertainty likely to support rise in volatility
Source: www.policyuncertainty.com, Karvy Research
Volatility
Source: Bloomberg, Karvy Research
0
50
100
150
200
250
300
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0%
10%
20%
30%
40%
50%
60%
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
Jan-18
Volatility
Average
KARVY INVESTMENT STRATEGY
12
Booming IPO Markets:
A strong equity market has led to a significant increase
in capital raising activities via IPO’s and secondary
issuance. 50 IPOs with cumulative issue size of ~Rs. 861
Bn were listed in the bourses since Jan 2017. The IPO
markets for 2018 seem promising as ~Rs. 191 Bn has
already been raised till date and pipeline of 7 IPOs with
cumulative value of ~Rs. 75 Bn (estimate) have already
been approved by SEBI and will hit the markets soon.
2017 was one of the busiest years in the recent times
for IPOs in India, owing to upbeat economic sentiment,
pro-business political regime, continuing regulatory
reforms and an overall positive investment climate. With
positive macroeconomic indicators and robust investor &
business sentiment, 2018 promises to be a healthy IPO
year as well.
Indian IPO Market
Source: NSE, Karvy Research, * Up to Apr 09, 2018
Firsts in IPO Markets in India:
Government of India, towards its disinvestment policy,
came out with the IPO of Bharat Dynamics Ltd. &
Hindustan Aeronautics Ltd, which raised nearly Rs.
6000 Cr in the first such IPOs in the defense sector
after nearly three decades.
The shares of ICICI Lombard General Insurance Co.
were listed on the bourses in September 2017, making
it the first non-life insurance company to list on the
stock exchange.
BSE Ltd, the oldest bourse in Asia, came out with its
IPO in 2017 making it the first ever stock exchange
to be listed in India. The issue was oversubscribed 51
times.
Central Depository Services Ltd (CDSL) became the
first depository in India to get its shares listed on
the stock exchange. The issue had 170 times over
subscription
Leading IPOs which received SEBI approval and are yet
to be listed
Sr. No Company
1
ACME Solar
2 CMS Info Systems
3 Nakshatra World
4 Gandhar Oil Refinery (India) Ltd
5 Genesis Colors Ltd.
6 G.R.Infraprojects Ltd.
7 IndoStar Capital Finance Limited
Source: SEBI, Karvy Research
255
193
358
58
67
13
12
114
264
670
191
39
20
59
31
10
3
5
21
26
36
14
-10
14
38
62
0
230
460
690
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Issue Size (Rs. Bn)
No. Of IPOs Listed During the Year
KARVY INVESTMENT STRATEGY
13
Leading IPOs that Listed on the Stock Exchange Since Jan 1, 2017
Sr.
No
Name of the issue
Date of
Listing
Issue Price
(Rs.)
CMP*
(Rs.)
Return
(%)
Issue Size
(Rs. Mn)
1 Avenue Supermarts Ltd 21-Mar-17 299 1441 381.8 18700
2 Shankara Building Products Ltd 05-Apr-17 460 1845 301.1 3450
3 Apex Frozen Foods 04-Sep-17 175 688 293.3 1523
4 Salasar Techno Engineering Ltd 25-Jul-17 108 344 218.5 359
5 Astron Paper & Board Mill Limited 29-Dec-17 50 128 155.4 698
6 PSP Projects Ltd 29-May-17 210 528 151.3 2117
7 Dixon Technologies (India) Ltd 18-Sep-17 1766 3669 107.8 5993
8 Central Depository Services (India) Ltd 30-Jun-17 149 304 103.8 5240
9 AU Small Finance Bank Ltd 10-Jul-17 358 677 89.1 19125
10 HDFC Standard Life Insurance Company Ltd 17-Nov-17 290 492 69.7 86950
11 Godrej Agrovet Ltd 16-Oct-17 460 714 55.2 8573
12 Prataap Snacks Ltd 05-Oct-17 938 1311 39.8 4819
13 Bandhan Bank Limited 27-Mar-18 375 514 37.2 44730
14 Security & Intelligence Services (India) Ltd 10-Aug-17 815 1114 36.7 7796
15 Capacité Infraprojects Ltd 25-Sep-17 250 341 36.3 4000
16 MAS Financial Services Ltd 18-Oct-17 459 619 34.8 4601
17 Amber Enterprises India Limited 30-Jan-18 859 1145 33.2 6000
18 Tejas Networks Limited 27-Jun-17 257 342 32.9 7767
19 Eris Lifesciences Limited 29-Jun-17 603 795 31.8 17412
20 Lemon Tree Hotels Limited 09-Apr-18 56 72 27.9 10387
21 H.G. Infra Engineering Limited 09-Mar-18 270 332 23.0 3000
22 Cochin Shipyard Ltd 11-Aug-17 432 529 22.4 14681
23 Housing and Urban Development Corporation Ltd 19-May-17 60 71 18.9 12244
24 Music Broadcast Ltd 17-Mar-17 333 391 17.6 4885
25 ICICI Lombard General Insurance Company Ltd 27-Sep-17 661 768 16.1 57009
26 Mahindra Logistics Ltd 10-Nov-17 429 497 15.8 8294
27 Mishra Dhatu Nigam Limited 04-Apr-18 80 90 12.5 4350
28 Sandhar Technologies Limited 02-Apr-18 332 344 3.6 5125
29 Reliance Nippon Life Asset Management Ltd 06-Nov-17 252 259 2.6 15422
30 BSE Ltd 03-Feb-17 806 817 1.4 12434
31 Future Supply Chain Solutions Ltd 18-Dec-17 664 667 0.4 6497
32 Indian Energy Exchange Ltd 23-Oct-17 1650 1632 (1.1) 10007
33 Newgen Software Technologies Limited 29-Jan-18 245 240 (2.1) 4250
34 Khadim India Ltd 14-Nov-17 750 731 (2.6) 5431
35 SBI Life Insurance Company Ltd 03-Oct-17 700 679 (3.0) 84000
36 GTPL Hathway Ltd 04-Jul-17 170 162 (5.0) 4848
37 Galaxy Surfactants Limited 08-Feb-18 1480 1405 (5.1) 9370
38 Apollo Micro Systems Limited 22-Jan-18 275 261 (5.3) 1560
39 Karda Constructions Limited 02-Apr-18 180 169 (5.9) 774
KARVY INVESTMENT STRATEGY
14
Leading IPOs for which Offer Document is Filed with
SEBI, Awaiting Approval
Sr. No. Company
1 Prince Pipes & Fittings Ltd
2 Barbeque Nation
3 Devi Seafoods Limited
4 TCNS Clothing Co. Limited
5 Sandhya Marines Limited
6 SembCorp Energy India Limited
7 John Energy Limited
8 Capricorn Food Products India Limited
9 RITES Limited
10
India Renewable Energy Development Agency
Limited
11 HDFC Asset Management Company
Source: SEBI, Karvy Research
MUTUAL FUNDS: HIGHLIGHTS
Average Assets Under Management (AAUM) of Indian
Mutual Fund Industry for the month of March 2018
stood at Rs. 23.05 lakh Cr.
The AUM of the Indian MF Industry has grown
from Rs. 3.26 lakh Cr as on March 31, 2007 to
Rs. 23.05 lakh Cr as on March 31, 2018, nearly 7
times increase in a span of little over 10 years.
Individual investors now hold a higher share of
industry’s assets, i.e. 51% in February 2018 as
compared with 45% in February, 2017.
The value of assets held by individual investors
in mutual funds increased from Rs. 8.3 lakh Cr in
February, 2017 to Rs. 11.74 lakh Cr in February,
2018, an absolute increase of 41.2%.
Mutual Fund SIP: Emerged as a Powerful
Instrument
Indian Mutual Funds have currently about 2.05 crore
(20.5 Mn) SIP accounts in February 2018, through
which investors regularly invest in Indian Mutual Fund
schemes.
MF industry has been adding about 9.72 lakh SIP
accounts each month on an average during FY18,
with an average SIP size of about Rs. 3,130 per SIP
account.
Total amount collected through SIP per month during
February 2018 was Rs. 6,425 Cr. (Rs. 64.25 Bn).
Leading IPOs in Pipeline
Sr. No. Company
1
GMR Airports
2 NSE India
3 National Insurance Company
4 Lodha Developers
5 UTI Mutual Fund
6 ReNew Power
7 Mazagon Dock Shipbuilders Ltd
8 Energy Efficiency Services Ltd
9 Aakash Education Services
Source: Karvy Research
40 Bharat Road Network Ltd 18-Sep-17 205 189 (7.8) 6007
41 Bharat Dynamics Limited 23-Mar-18 428 390 (8.9) 9600
42 Aster DM Healthcare Limited 26-Feb-18 190 173 (9.1) 9801
43 Hindustan Aeronautics Limited 28-Mar-18 1215 1104 (9.1) 42000
44 Shalby Ltd 15-Dec-17 248 217 (12.3) 5048
45 The New India Assurance Company Ltd 13-Nov-17 800 672 (16.0) 96000
46 ICICI Securities Limited 04-Apr-18 520 436 (16.1) 40170
47 General Insurance Corporation of India 25-Oct-17 912 738 (19.0) 113726
48 Matrimony.com Ltd 21-Sep-17 985 791 (19.7) 5011
49 S Chand & Company Ltd 09-May-17 670 400 (40.3) 7286
50 CL Educate Ltd 31-Mar-17 502 201 (60.1) 2390
Total 861459
Source: NSE, Karvy Research, *CMP as on April 9, 2018
KARVY INVESTMENT STRATEGY
15
India Mutual Fund Assets and Folios Count
Source: Association of Mutual Funds in India (AMFI), Karvy Research, *Data available in quarterly intervals
Top 20 Mutual Funds by Average AUMs (as of March 2018)
Sr.
No.
Mutual Fund
Jan-Mar 2018 Quarterly Average AUM
(in Rs. Cr)*
1 ICICI Prudential Mutual Fund 305,739
2 HDFC Mutual Fund 300,549
3 Aditya Birla Sun Life Mutual Fund 247,529
4 Reliance Mutual Fund 244,904
5 SBI Mutual Fund 217,649
6 UTI Mutual Fund 154,939
7 Kotak Mahindra Mutual Fund 124,691
8 Franklin Templeton Mutual Fund 103,152
9 DSP BlackRock Mutual Fund 86,326
10 Axis Mutual Fund 77,325
11 IDFC Mutual Fund 69,919
12 L&T Mutual Fund 65,932
13 Tata Mutual Fund 46,977
14 Sundaram Mutual Fund 34,306
15 Invesco Mutual Fund 26,203
16 DHFL Pramerica Mutual Fund 23,595
17 LIC Mutual Fund 20,118
18 Motilal Oswal Mutual Fund 17,735
19 JM Financial Mutual Fund 16,365
20 Mirae Asset Mutual Fund 15,756
Others 105,502
Grand Total 2,305,212
Source: AMFI, Karvy Research, * Data for the period b/w Jan’18-Mar’18, Note: Excluding Fund of Funds (Domestic), but including Fund of Funds (Overseas)
13.5
13.5
13.6
14.5
15.7
16.1
16.9
17.8
18.6
19.5
20.4
21.8
22.6
23.3
23.2
23.1
4.6
4.6
4.6
4.8
4.8
4.8
4.9
4.9
4.9
5.1
5.1
5.1
5.3
5.3
5.3
5.5
5.5
5.5
5.8
5.8
5.8
6.2
6.2
6.2
6.6
6.6
6.6
6.6
4.00
5.00
6.00
7.00
10
15
20
25
Dec-15
Jan
-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Total Assets (Rs. Tn)
Folios Count (No. Crs)* (RHS)
KARVY INVESTMENT STRATEGY
16
THE U.S.-CHINA TRADE CONFLICT
President Trump has adopted a toough stance on trade,
responding to concerns of American workers. While
President Xi Jinping has promised to open up the Chinese
economy further, we fear it will be hard for both parties to
back down. In January 2018, President Trump approved
a 30% tariff on solar panels and a 20% tariff on washing
machines. Further in February 2018, USA imposed import
tariff of 24% on steel and 7.7% on aluminum. The tariffs
were seen as aimed at China, the world’s largest steel
maker.
Further, USA announced annual tariffs on $50 Bn worth of
goods from China to which China retaliated by imposing
tariffs on $3 Bn worth of American goods. In April 2018,
China fixed tariffs of upto 25% on 128 American products
in continued action. China proposed $50 Bn in tariffs
on more American products. President Trump hit back
by stating that they are considering additional tariffs on
US$100 Bn worth of goods.
Impact of Trade War on India
India has been highlighted as a concern by US trade
representaitives. the US has lodged a complaint with
the WTO regarding what it calls unfair export subsidies
provided by Indian government to exporters. India has
has a surplus of USD 24 bn with the US. However, we
believe India is lower on the lsit of priorities compared
to countires like China and Germany which have a
significantly larger trade surplus, hence the probability of
a significant trade war with the US is low.
Higher tariffs on imported products within the US
domestic economy would mean higher consumer prices
as the importers pass on the cost of raw materials to the
consumers. This would induce the Fed Reserve to raise
rates faster than usual. An increase in interest rates in
the US has implications for emerging economies such as
India, both for the equity and debt markets.
Higher US rates will lead to outflows from emerging bonds
and equities market, as US investors will look to chase
higher returns in their domestic market. Higher interest
rates will induce investors borrowing cheap money in
the US, which will make investing in Indian equities less
attractive.
In the long run, a full-fledged trade war is detrimental to
globalization. It might lead to a higher inflationary and low
growth scenario, which in turn would have a negative
impact on the currency and some sectors in the equity
market.
KARVY INVESTMENT STRATEGY
17
KARVY INVESTMENT STRATEGY
18
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 387
Target Price 474
Upside (%) 22
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 802.0 / 12.3
52-wk High/Low (Rs.) 452 / 318
3M Avg.daily value (Rs. Mn)
1545.5
Beta (x) 1.6
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 2071.0
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 65.8
FIIs 18.0
DIIs 12.1
Others 4.1
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 (9) (2) 10
Relative to Sensex 1 (7) (8) (4)
Source: Bloomberg
Bloomberg Code: ADSEZ IN
Adani Ports & Special Economic Zone Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 71087 84340 103610 113874 127182
EBITDA 46273 54182 68147 74310 82128
EBITDA Margin (%) 65.1 64.2 65.8 65.3 64.6
Adj. Net Profit 28794 38858 37418 42390 48824
EPS (Rs.) 18.8 19.1 20.5 23.5 31.8
RoE (%) 29.0 23.0 23.7 24.0 25.5
PE (x)* 13.2 17.7 17.3 16.4 12.1
Source: Bloomberg, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
95
110
125
140
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
-18
Feb-18
Mar-18
ADSEZ
Sensex
Expansion and Mundra Port Legacy to Drive Growth
A very unique port, one of its kind: The Mundra port managed by
APSEZ is the largest among all and has handled 91.95MMT of cargo for
9MFY18 and is expected to cross 115MT by FY18E. Mundra port has
given exceptional performance by growing revenue 10 times during last
decade and marked itself as one of the fastest growing ports. Mundra
port is a multipurpose port and at present manages 26 berths and two
single point mooring with an installed annual capacity of 228MT. The cargo
handled at Mundra port includes coal, container, crude, fertilizers, steel
and project cargo. Mundra also contains India’s largest Special Economic
Zone (SEZ) with 8300 hectares which acts as a value addition to Mundra
port. The company is aiming a tonnage growth of 15-20% CAGR over the
next few years.
Expansion to drive the growth: Expansion of Dhamra to make it
handle containers and making Kattupalli port a multipurpose cargo
port could be the growth driving factors. Coal handling is expected to
increase on the back of higher electricity demand and lower inventory at
different power plants. Ennore terminal has also started operations from
Jan’18, therefore the increasing volume can be factored in coming
quarters, to make all the sites operational company plans to incur a capex of
Rs. 25000 -28000 Mn. As a result of above strategies company expects
the container and cargo volume to grow by 20% and 12% respectively.
Diversification aiding overall improvement: APSEZ is consistently
delivering growth with gaining market share. Total cargo volumes grew by
7% for 9MFY18 to 135MMT. Container volume has also grown across all
ports. Growth was realized across ports with cargo volumes at Mundra,
Hazira, and Katupalli up 8%, 10% and 45%.
Valuation and Risks: Healthy growth of container and cargo volumes,
coming in from the expansion plans are the key positives. Stock is currently
trading at 12.1x. The consensus values the company at 14.9x for a target
price of Rs. 474, representing an upside potential of 22%.
KARVY INVESTMENT STRATEGY
19
Company Background
Incorporated as Gujarat Adani Port Ltd on May 26, Adani Ports and Special Economic Zone (APSEZ) is India’s largest
private multi-port operator, post entering concession agreement with GMB to build, operate and maintain the port for a
period of 30 years till 2031 extendable by another 20 years. The port is into providing cargo handling services for bulk,
crude and container cargo. While the company is also bidding for other domestic and international port projects, it has
also invested in value added services like logistics support, providing container rail services and inland container depots
to diversify from its core port business.
ADANIPORTS: Technical View
ADANIPORTS is India’s largest ports developer and operator company promoted by the Adani group. They have
built, acquired and developed an unparalleled portfolio of ports infrastructure and services across India. In the
secondary market, ADANIPORTS has fallen over 20% from its all time high which it made in the month of January
2018 and has plunged down which placed it below all its major moving averages on daily chart. On daily chart,
the stock is in correction phase and may plunge downside in near future as it has breached its long term moving
average of 200 DEMA placed around 385-386 levels. On the oscillator front, 14 period RSI is indicating weakness
and is placed near the oversold region indicating a reversal in the counter. While on weekly chart, the stock has
breached its support zone of 380-385 levels and has plunged downside. On the Bollinger band, the stock is on the
verge of breaching its lower band and is expected to plunge downside in near future. However, the stock is having
multiple supports placed around the levels of Rs. 325-330 levels, which would be a crucial zone for the counter to
look upon. If it is able to sustain above the same mentioned levels then a reversal can be seen in the counter. Also
the 14 week RSI is near to bottom out at its oversold area. On monthly chart, the stock is still in uptrend making
higher highs and higher lows indicating inherent strength in the counter from medium to long term perspective. Even
the Parabolic SAR (Stop and Reverse) is placed below the price indicating buying in the counter is still intact from
long term perspective. On the flip side, the immediate resistance is placed around the previous support i.e Rs. 405-
415 levels, breaching which the stock might surge towards its all time high levels of Rs. 450 and even further. At
current juncture and considering all the data mentioned above one may go long in the counter on any dip towards
the mentioned support zone for an immediate upside of its all time high, breaching which the stock might move in
the uncharted territory from long term perspective.
KARVY INVESTMENT STRATEGY
20
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 608
Target Price 826
Upside (%) 36
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 356.1 / 5.5
52-wk High/Low (Rs.) 809 / 503
3M Avg.daily value (Rs. Mn)
1714.6
Beta (x) 1.0
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 585.9
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 51.9
FIIs 18.9
DIIs 15.6
Others 13.7
Stock Performance (%)
1M 3M 6M 12M
Absolute 3 (10) (17) (7)
Relative to Sensex 1 (8) (22) (19)
Source: Bloomberg
Bloomberg Code: ARBP IN
Strong US Drug Pipeline to Drive Growth
Volumes to drive injectables segment in US: The US injectables
business has grown at 39% and 67% in FY16 and FY17 to USD157Mn.
However, recent USFDA inspection was a minor setback but with the
observations being largely procedural, company expects to clear the
same, and launch new products in the next fiscal. Overall, 35 to 40 new
launches in the injectables business are expected in the next fiscal and
management has guided the business to grow to US$ 240Mn.
USFDA observations on Unit 4 largely procedural: The recent
observations by USFDA post the plant inspections on Unit 4 (injectables)
are mostly procedural (not quality related). USFDA has requested rework
on the monitoring of implementation process. The issues are expected
to be resolved in FY19E. The company has also undertaken a de-risking
strategy of mapping other units as manufacturing options for its major
drugs to ensure least disruption in sales in case of any plant issues.
European business thriving: European business (26% revenues),
continues to post strong growth (16% YoY, constant currency). The top
5 countries in the region - Italy, Germany, UK, Spain and France, posted
double-digit growth in Q3FY18. Auro also managed to turn around the
Actavis business, which was loss making at the time of acquisition to
profitability on the back of shifting manufacture of products to India. As
of Q3FY18, manufacture of 78 out of 112 drugs have been shifted to
India. Going forward, management expects 8%- 10% growth on constant
currency basis from the region.
Valuation and Risks: Backed by strong pipeline of launches,
and continued improvements in European performance, consensus
expectations for revenue and PAT stoods at 10% CAGR over the
FY17-20E. As per bloomberg consensus, Auro is valued at 16x on
FY20E EPS of Rs. 52.8 and recommend “BUY” with a target price of
Rs. 826, an upside potential of 36%. Key risks are delay in clearing USFDA
observations and further price erosions.
Aurobindo Pharma Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 137097 148448 166491 183745 199863
EBITDA 31931 34406 39545 43016 46994
EBITDA Margin (%) 23.3 23.2 23.8 23.4 23.5
Adj. Net Profit 20242 23060 25338 27895 30647
EPS (Rs.) 34.6 39.4 43.5 48.0 52.8
RoE (%) 32.6 27.6 23.4 20.9 19.2
PE (x)* 21.3 17.0 14.1 12.6 11.5
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
65
80
95
110
125
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
-18
Feb-18
Mar
-18
ARBP
Sensex
KARVY INVESTMENT STRATEGY
21
Company Background
Aurobindo Pharma Ltd (Aurobindo) is one of India’s leading manufacturer of generic pharmaceuticals and active
pharmaceutical ingredients. Company has presence in over 150 countries, majorly spread in USA (44% of revenues)
and Europe (with key focus markets being US and Europe). It has significant presence in USA (44% of revenues) and
Europe (26% of revenues). Its product portfolio spans across categories such as antibiotics, anti-retrovirals (ARV), CVS,
CNS, gastroenterological, pain management and anti-allergic. Aurobindo is amongst the top-5 ARV suppliers to global
funding agencies.
AUROPHARMA: Technical View
AUROPHARMA has been under tremendous selling pressure from the past few months owing to the overall bearish
trend in the entire pharmaceuticals space. The shorter term chart structure of the stock indicates formation of
lower tops and lower bottoms. However, the longer term chart patterns indicate that the stock is consolidating in a
wide range between Rs. 500 - Rs. 800 on weekly charts and is currently hovering around the lower end of the said
trading band. The stock has immediate supports pegged around Rs. 520 - Rs. 500 below which the next meaningful
support zone for the stock lies around Rs. 480 - Rs. 470. Whereas on the upside, the stock has its immediate
supply zone around Rs.630 - Rs.650 crossing which a surge towards a potential upside target zone around
Rs. 780 - Rs. 800 levels may also be seen in the counter. Technical parameters like the RSI and ADX do not indicate
a rosy picture for the stock at the current juncture. However, things may get better for the market leader in Semi-
Synthetic Penicillins, if it manages to hold and sustain above the immediate support levels as mentioned above.
The monthly chart structure of the stock suggests formation of cycles of higher highs and higher lows, which clearly
indicates that the long term chart structure is still bullish and the current decline in the price of the stock is a normal
technical correction. In the past, it has also been observed that every time the stock has made a cycle of higher low
preceded by a higher high, it has always seen value buying from such levels, which gives investors with a longer
term horizon a brilliant break to go long in the counter at current levels with a stop loss placed below Rs. 430 for the
aforesaid target levels in about a year’s time.
KARVY INVESTMENT STRATEGY
22
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 386
Target Price 573
Upside (%) 49
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1541.2 / 23.7
52-wk High/Low (Rs.) 565 / 333
3M Avg.daily value (Rs. Mn)
3803.1
Beta (x) 0.9
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 3997.4
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 67.1
FIIs 18.8
DIIs 12.0
Others 2.1
Stock Performance (%)
1M 3M 6M 12M
Absolute (4) (24) 0 12
Relative to Sensex (6) (23) (6) (3)
Source: Bloomberg
Bloomberg Code: BHARTI IN
Emerging as a Major Player Post Consolidation
Continues to grow its network in the consolidation phase:
Bharti Airtel (Airtel) has emerged as one of the 3 major players post the
regulatory changes and the entrance of Reliance Jio. The company has a
subscriber base of 290.1mn and data subscriber reach of 70.8mn. It was
also an early entrant into the 4G spectrum and now commands a pan India
presence. While the price wars and regulatory issues disturbed the smaller
players, Bharti moved to acquire players such as Tata Teleservices (TTSL)
and Telenor. With increased presence (pan India) post consolidation,
regulatory hurdles at its final leg, and Reliance Jio’s discounting of tariff
beginning to diminish, Bharti stands to significantly gain in the long term.
African operations a key to long term growth: The African
operations continue to see increased profitability (post the sale of Ghana
operations). EBITDA margins in Q3FY18 stood at of 35.5%, up 220bps.
African business contributes nearly 24% of the consolidated EBITDA (as of
Q3FY18). The management sees African business as a key growth driver in
the long term and thus is ramping up the business in the region. Capex in
Africa for Q3FY18 stood at US$ 75mn vs less than US$100mn in H1FY18.
In the last leg of regulatory hurdles: Cut in interconnect usage
charges (ICU) for international calls had eroded average revenue per user
(ARPU) by Rs. 16 (in Q3FY18) but regulatory issues have eased off. As the
industry moves past these hurdles, and Jio’s tariff discounting continues to
diminish, ARPU (Rs. 123 for Q3FY18) will move up from the current levels.
Valuation and Risks: The breadth of Bharti’s telecom business,
improving overseas operations and diversified services such as the tower
digital business has helped Airtel consolidate during this phase, while
many of the smaller players moved out of business. The stock is valued at
39x on Bloomberg consensus FY20E EPS of Rs. 14.7 and recommend
“BUY” with a target price of Rs. 573, a potential upside of 49%. Key risks
are continued aggressive pricing by peers, further regulatory hurdles.
Bharti Airtel Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 965321 954683 854365 904564 1017954
EBITDA 339842 353298 308809 337719 399993
EBITDA Margin (%) 35.2 37.0 36.1 37.3 39.3
Adj. Net Profit 45363 40284 16405 28760 57136
EPS (Rs.) 11.3 10.1 3.8 7.5 14.7
RoE (%) 8.5 9.4 5.7 2.3 4.4
PE (x)* 30.5 34.4 105.0 51.3 26.1
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
85
105
125
145
165
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
BHARTI
Sensex
KARVY INVESTMENT STRATEGY
23
Company Background
Bharti Airtel India, headquartered in New Delhi, India, along with its subsidiaries, is a leading telecommunications services
company with operations across 20 countries including India, Bangladesh, Srilanka, and Africa. Its operations pan
across all 22 telecom circles and has a total subscriber base of 290.1Mn (market share of ~24%) in India. It has namely
4 verticals - Airtel business - provides voice, data, video, network integration, data center, and managed services, Tower
Infrastructure Services business that engages in setting up, operating, and maintaining wireless communication towers,
Homes Services business that provides voice and data communications through fixed-line network and broadband
technology, and Digital TV business offers digital broadcasting services under the direct-to-home platform.
BHARTIARTL: Technical View
Bharti Airtel Ltd is an Indian global telecommunications services company based in New Delhi, India. It operates in
16 countries across South Asia and Africa. Airtel provides GSM, 3G, 4G LTE and VoLTE mobile services, fixed line
broadband and voice services depending upon the country of operation. It is the largest mobile network operator
in India and the third largest in the world with over 386 million subscribers. Airtel was named India’s second most
valuable brand in the first ever Brandz ranking by Millward Brown and WPP Plc. Technically, Bharti Airtel was in a
secular uptrend since 2003 forming higher highs and higher lows as seen on the monthly charts. However, from
2007 the stock is strictly trading in a range of Rs. 276 to Rs. 564 levels and is holding the same. The 55 day CCI is
in the monthly chart is trading above the zero levels indicating that the stock is poised to trade with a positive bias.
Similarly, the MACD (12, 26, 9) is in the monthly charts are plotting above zero line indicating the bullishness in the
stock. Even the Parabolic SAR (Stop and Reverse) is placed below the price indicating buying in the counter is still
intact from a long-term perspective. On the momentum setup, 14-period weekly RSI managed to sustain above
40-levels during recent price correction, which indicates that bulls are in control and price correction in the stock is
being utilized as a buying opportunity by long-term investors in the counter. In the current scenario, considering all
the data mentioned above, one may go long in the counter on dips towards the mentioned floor support zone for
an immediate upside target towards the said range ceiling levels, breaching which the stock might move towards its
all-time highs in the long-term perspective.
KARVY INVESTMENT STRATEGY
24
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 230
Target Price 310
Upside (%) 35
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 516.3 / 7.9
52-wk High/Low (Rs.) 284 / 179
3M Avg.daily value (Rs. Mn)
2572.3
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 2245.0
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 34.7
FIIs 29.7
DIIs 28.5
Others 7.1
Stock Performance (%)
1M 3M 6M 12M
Absolute 4 (14) (9) 18
Relative to Sensex 3 (13) (14) 3
Source: Bloomberg
Bloomberg Code: HNDL IN
One of the Largest Aluminium Producers
Growing Demand for Aluminium Sheets will Trigger Sales: The
growing demand for rolled aluminum sheets will considerably be accretive
to the topline of Hindalco. Carmakers are using more of Lightweight metal
in vehicles to help meet stricter fuel efficiency targets. Novelis, plans to
further expand the Automotive-products share of its portfolio, from 18% in
fiscal 2017. The acquisition of Novelis made Hindalco the world’s largest
producer of rolled-aluminium products.
Push in Aluminium Capacity Growth: “Make in India” push is
likely to drive manufacturing expansion and infrastructure spending. And
Hindalco, now is more focused on capacity expansion of Utkal Alumina
(100% subsidiary of Hindalco industries). This would help fuel the nation’s
surging growth in aluminium capacity. The capacity for 2017 has likely
increased as new projects were completed, and Hindalco Industries Ltd
will be one of major beneficiary.
Focus on Premium goods for better profitability: Novelis,
(wholly owned subsidiary of Hindalco) which converts primary aluminium
into flat-rolled products, aims to improve its mix to produce higher
value-added product in order to boost profitability. The downstream
producer has increased Research and Development spending over the
past three financial years, to raise conversion charges and lift the share of
higher-margin products such as automotive sheets. These measures have
contributed to boost Novelis’ EBITDA in the three years through the fiscal
year ended March. Novelis is the largest producer of rolled-aluminium
products, accounting for about 14% of global supply.
Valuation and Risks: The company is trading at 8.9x on (Bloomberg
Consensus) FY20E EPS of Rs. 25.64 and is valued at 12x with a “BUY”
recommendation and a target price of Rs. 310, an upside potential of
35%. Any slowdown in US auto demand would affect the Novelis (wholly
owned subsidiary of Hindalco) Profitability is the risk factor.
Hindalco Industries Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 981276 995990 1172008 1217820 1258300
EBITDA 84200 127370 142680 151550 154960
EBITDA Margin (%) 8.6 12.8 12.2 12.4 12.3
Adj. Net Profit (2500) 21890 45750 53640 57000
EPS (Rs.) (1.3) 11.0 21.0 23.8 25.6
RoE (%) (0.7) 4.5 9.7 10.2 10.3
PE (x)* NA 17.7 10.1 9.6 8.9
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
80
103
126
149
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov
-17
Dec-17
Jan-18
Feb
-18
Mar-18
HNDL
Sensex
KARVY INVESTMENT STRATEGY
25
Company Background
Hindalco Industries Ltd, the metals flagship company of the Aditya Birla Group is the world’s largest aluminium
rolling company and one of the biggest producers of primary aluminium in Asia. Hindalco was founded in 1958 and
commissioned its aluminum facility at Renukoot in eastern Uttar Pradesh, India in 1962. Later acquisitions and mergers,
with Indal, Birla Copper and the Nifty and Mt. Gordon copper mines in Australia strengthened its position in value-added
alumina, aluminium and copper products. The acquisition of Novelis Inc. in 2007 positioned the company among the
top five aluminium majors worldwide and the largest vertically integrated aluminium company in India. The company’s
aluminium units across the globe encompass the entire gamut of operations, from bauxite mining, alumina refining
and aluminium smelting to downstream rolling, extrusions, foils, along with captive power plants and coal mines. The
company’s copper unit, Birla Copper, produces copper cathodes (used to make copper wires), continuous cast copper
rods and other by-products, such as gold, silver and DAP fertilizers.
HINDALCO: Technical View
HINDALCO: The stock has been in a secular bull trend from last one year making higher highs & higher lows on
the longer term charts, clearly indicating overall strength in the counter. After clocking a high of Rs. 184 odd levels
in January 2018, stock has been witnessing a profit taking move or is in a short term corrective phase, which is a
normal phenomenon in bull markets. The stock is currently available to be bought near to its 100-week Exponential
Moving Average, which is placed around Rs. 200-202 levels, and such dips in the stock should be utilized as
good opportunity for long term investors to accumulate the stock at current levels. Also key swing supports for the
Aluminium major rests around Rs. 180 levels, indicating good demand around those levels from where value based
buying can come in. Technical indicators are moving towards the oversold region on the weekly charts and any
positive crossover like the RSI cutting the RSI average from below with substantial delivery volume is likely to bring
in a fresh round of buying in the counter. Relative Strength Index (RSI) is trading towards the 26-points mark on
weekly chart. The Stochastic Oscillator, which has entered the oversold region, accompanied by the RSI, can be
expected to change in line with the overall trend in the market. However, MACD which has crossed-over for a bullish
indication is giving a glimmer of hope to the bulls on monthly charts. Considering the current price volume activity
in the counter, HINDALCO is expected to trade with a bullish bias in positive terrain in the coming weeks, having
said that, the stock may witness selling pressure at higher levels, owing to regular profit taking. The first resistance
is pegged around the zone of Rs. 260-265 followed by all time high zone of Rs. 285-290. On the flip side, the first
support is pegged around Rs. 185-190 and the further downside support is around Rs. 150-155.
KARVY INVESTMENT STRATEGY
26
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 1325
Target Price 1561
Upside (%) 18
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 565.0 / 8.7
52-wk High/Low (Rs.) 1440 / 920
3M Avg.daily value (Rs. Mn)
2535.4
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 426.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 22.8
FIIs 55.3
DIIs 11.9
Others 9.9
Stock Performance (%)
1M 3M 6M 12M
Absolute 10 10 3 42
Relative to Sensex 9 12 (3) 24
Source: Bloomberg
Bloomberg Code: IHFL IN
Focus on Home Loans and Cost Profile to Improve Margins
Improvement in cost profile segment: The company intends to
diversify more into retail lending. The company expects the home loans
to contribute 66% of total loan book from 54% currently. Also company
expects the bank borrowing to come down from 39% to 30% level and
increase in the issue of bonds. The company is currently AA+ rated by two
rating agencies (AAA by other two) would reduce the cost of borrowings
due to shift from bank borrowings to bonds. It has been noted that over
last 9 months close to 64% of the borrowings is through issue of bonds.
Steady Loan growth and stable margins: IHFL continues to
diversify in the retail home loan segment which accounted for 54% of loan
book. The company’s loan assets have shown a strong growth of 28%
over FY11-9MFY18, whereas the revenues have shown a growth of CAGR
29%. The company has consistently shown an improvement in cost to
income ratio which is declining by averagely 126bps every year. With GST
and RERA issues being resolved, construction finance book growth have
also picked up as demands have been normalized.
Strong Structural drivers and Government focus: Under Pradhan
Mantri Awaas Yojana (PMAY) subsidiy eligibility cover up to 12 lakh of
home loan reduces home loan rates to 0.30% for mid-income affordable
housing. Budget 2016-17 has provided a 100% tax exemption on profits
from construction of affordable housing would be attracting organized
players. The PMAY projects have been kept out of purview of GST. Service
tax exemption on construction of affordable housing projects will lead to
reduction in prices indeed increasing affordability.
Valuation and Risks: The company fundamentals are on strong footing
and as per consensus, the operating performance will be strong which
derives a valuation of 3.5x price/book value for a target price of Rs. 1561
representing an upside potential of 18%.
Indiabulls Housing Finance Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Interest Income 30848 43905 51385 65475 82126
Net Interest Margin (%) 5.2 5.3 5.0 5.1 5.3
PAT 23447 29064 38568 47545 57350
EPS 58.8 68.0 91.0 111.2 132.4
BV/Share 253.8 286.0 328.2 396.8 450.3
P/BV 2.4 3.4 3.7 3.0 2.7
P/E 10.4 14.2 13.6 11.9 10.0
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
80
100
120
140
160
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-
17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-
18
IHFL
Sensex
KARVY INVESTMENT STRATEGY
27
Company Background
IBHF started operations in 2000 as a Non Banking Finance Company (NBFC). In early 2013, the company was reverse
merged into housing finance company. IBHF is one of the leading housing finance company in India. The company has
also launched E-Home Loans, one of its kind in the home loan industry. It has credit rating of AAA from CARE and AA+
from CRISIL and is among very few who enjoy such rating from the rating agencies. It has the presence pan India with
a strong hold in tier 1 and tier 2 cities. IBHF is one of the largest housing finance company with AUM of more than 1trn.
IBULHSGFIN: Technical View
IBULHSGFIN being from the BFSI sector has faced heat of the market which dragged it from its all time high of
Rs. 1440 levels which it made in the month of January 2018 towards its long term moving average on the lower
side. The stock is primarily in uptrend making higher highs and higher bottoms in all time frame of technical chart
indicating inherent strength in the counter. On daily chart, the stock is placed around its short and medium term
moving averages and is placed just above its 200 DEMA, suggesting a strong support for the counter. The overall
structure of the stock is positive supported by the technical indicators. Also the stock is placed just below the
mean of the Bollinger Band (20, 2) having support of lower band at Rs. 1125-1130 levels and upper band at
Rs. 1380-1400 levels, breaching which it might surge higher on the daily chart, as volatility burst can be expected
above the mentioned range on weekly chart. Even the 14 period RSI is near to bottoming out and a reversal in the
trend can be expected in near future. On daily chart, the stock is placed around its 200 DEMA and is able to sustain
above it, even it is also its lower band of the Bollinger (20, 2) on daily chart which might act as a strong support for
the counter and it might surge higher towards the immediate resistance of Rs. 1400, followed by Rs. 1500-1530
levels from short to medium term perspective. Looking at the trend of the chart from long term perspective, the
stock is having multiple support zones of Rs. 1100-1130 followed by Rs. 1040-1050 levels, sustaining which a bull
move can be expected from long term perspective. Considering all the data points mentioned above, one may go
long in the counter on any dip towards the mentioned support zone for an immediate upside of the its all time high,
breaching which the stock might move in the uncharted territory from long term perspective.
KARVY INVESTMENT STRATEGY
28
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 179
Target Price 247
Upside (%) 38
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1741.3 / 27
52-wk High/Low (Rs.) 231 / 164
3M Avg.daily value (Rs. Mn)
2579.5
Beta (x) 0.8
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 9711.8
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 57.0
FIIs 7.1
DIIs 10.7
Others 25.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (7) (8) (13) (13)
Relative to Sensex (9) (6) (18) (24)
Source: Bloomberg
Bloomberg Code: IOCL IN
Healthy Performance and Product Quality Upgra-
dation in Refining Segment
IndianOil refineries have achieved highest crude throughput of 65.1 Mn
tons during FY16-17 as against a 56.69 Mn tons in FY15-16. The company
has reported higher GRM of US$ 12.32/bbl during Q3FY18 compared to
GRM of US$ 7.7/bbl on the back of inventory gain during this quarter. The
refineries also have achieved the best performance in energy parameters.
The Paradip Refinery has commenced its operations in a phase manner
and achieved capacity utilization of 54.9% in FY16-17. From May 2017
onwards, Paradip refinery is operating at 100% capacity.
Marketing margins yet to improve: The company has 42.9%
market share in the domestic market and sold 74.11 Mn tons of petroleum
products during FY16-17 compared to 72.60 Mn tons during FY15-16.
During Q3FY18 domestic volume growth was driven by Aviation Turbine
Fuel (ATF) and Liquefied Petroleum Gas (LPG) sales. Margins were diluted
due to sharp increase in the crude prices. The company has managed to
add 881 retail outlets during FY16-17 taking their total number of outlets
to 26212.
Expansion in Petrochemical segment to meet the growing
demand:
IOC is planning to invest Rs. 320 Bn in petrochemicals to
increase their capacity in order to meet the increasing demand for
plastics and polymers. This investment is part of the overall Rs. 1.8 Tn
Capex planned for the next 5-7 years. During FY16-17, the company has
recorded highest sales of 2.585 MMT (Million Metric Tons) during FY16-17
as against 2.528 MMT in FY15-16.
Valuation and Risks: IndianOil with its vast presence and expansion
strategies is planning to grow further. At CMP of Rs. 169, the stock
trades at 7.9x FY20E EPS. We value the stock at 11.0 FY20E EPS
based on the Bloomberg consensus and recommend a target price of
Rs. 247, representing an upside potential of 38%. However, fluctuations
in commodity prices, exchange rates and global petroleum rates are the
key risks to the company.
Indian Oil Corporation Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 3383125 3486317 3952124 4352741 4654436
EBITDA 250511 340132 362592 380141 407637
EBITDA Margin (%) 7.4 9.8 9.2 8.7 8.8
Adj. Net Profit 120225 198495 197789 205164 221493
EPS (Rs.) 10.1 21.0 19.7 20.7 22.4
RoE (%) 15.1 20.7 20.6 21.4 23.1
PE (x)* 15.5 9.2 8.9 8.6 7.9
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
95
103
111
119
127
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb
-18
Mar-18
IOCL
Sensex
KARVY INVESTMENT STRATEGY
29
Company Background
Indian Oil Corporation (IOC), India’s flagship national oil company and petroleum major, was incorporated in 1959.
IndianOil accounts for nearly half of India’s petroleum products market share, with sales of 83.5 Mn tons in 2016-17.
Over 35% national refining capacity and 71% downstream sector pipelines throughput capacity are with IndianOil. IOC
is an integrated energy major with presence in almost all the streams of oil, gas, petrochemicals and alternative energy
sources. The Indian Oil Group owns and operates 11 of India’s 23 refineries, with a combined refining capacity of
80.7 million metric tons per annum (MMTPA). The IndianOil’s cross–country pipeline network of crude oil and finished
products is spread over 12,800 km in an efficient, economical and environment–friendly manner. Its throughput capacity
of 93.7 MMTPA for crude oil & petroleum products and 9.5 MMSCMD (Million Metric Standard Cubic Meter per Day) for
gas makes it one of the largest pipeline networks in the world.
IOC: Technical View
IOC: The stock has been in an uptrend since Rs. 73.85 levels made in February 2016 and rallied to its recent
high of Rs. 214.40 levels registered in the month of August 2017, a spectacular gain of 140 percent in a span of
around one and a half year. Thereafter, the stock corrected lower towards Rs. 173.33 levels clocked in the month
of January 2018. On the daily chart, the stock has been trading in the upward sloping channel drawn from the high
of Rs. 88.05 levels made on September 2014 to the high of Rs. 208.35 levels clocked in the month of May 2017
to the low of Rs. 168.63 levels clocked in the month of January 2014. On the price chart, the stock is trading in the
sideways range of Rs. 168-214 levels from past 6 months which appears to be just a passing by correction in its
larger uptrend as it appears to be a fourth wave correction within its larger wave three of one higher degree. Once
this wave four corrective phase is over one may expect wave five on the higher side. The stock is flirting with its
200-day Exponential moving average which is currently placed around Rs. 182 levels; the stock hasn’t traded below
8-10% of the moving average value indicating that institutional buying is present at lower levels. On the weekly chart,
the stock found support near its weekly lower Bollinger band (20, 2, S) set up in its recent correction from the highs
of Rs. 214.41 levels and bouncing back higher towards its upper weekly Bollinger band. Also on the monthly charts,
the monthly mean of monthly Bollinger band (20, 2, S) is placed around 173 levels. The 14 period RSI on the weekly
chart is currently pegged at sub Rs. 42.74 levels, indicating the stock is in bull market range. On the quarterly charts,
prices are above its quarterly Parabolic SAR indicating long-term uptrend intact in the counter. Technical support
for the stock is placed around Rs. 160-163 levels followed by Rs. 140-145 levels while resistances are placed at
Rs. 195-200 levels followed by Rs. 225-230 levels.
KARVY INVESTMENT STRATEGY
30
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 263
Target Price 360
Upside (%) 37
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 2349.8 / 36.1
52-wk High/Low (Rs.) 352 / 232
3M Avg.daily value (Rs. Mn)
7470.7
Beta (x) 1.4
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 8924.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 58.0
FIIs 10.9
DIIs 22.3
Others 8.8
Stock Performance (%)
1M 3M 6M 12M
Absolute 4 (13) 2 (9)
Relative to Sensex 2 (11) (3) (21)
Source: Bloomberg
Bloomberg Code: SBIN IN
Stronger and Bigger Financial Conglomerate
Huge Deposit Base, Diverse Loan Book: SBI, the largest Indian
Bank, enjoys a diverse market base and has a healthy market share of
23% in deposits & 21% of advances. SBI enjoys a multi sector exposure,
highest being home loans (18%) followed by infrastructure (16), thus
mitigating the concentration risk. Going forward, the management is
positive about maintaining a double digit growth in loan book, owing to
traction in personal segment (home loans + auto loans) where it has the
highest market share. SBI has a strong operational infrastructure in place
making it future ready.
Rationalization to Aid Improved Profitability: SBI has a balance-
sheet with deposits of ~Rs. 26.6 Tn & advances of ~Rs. 18.5 Tn. With its
huge branch network, SBI is well positioned to tap the incremental deposits
and maintain double digit growth in retail deposits and also to maintain
higher share of CASA above ~45% for quality growth. Management
expects the merger synergies to leverage through FY18E & FY19E.
Recovery in Asset Quality & Stable NIM’s: Management sees an
improvement in asset quality due to lower retail slippages, higher recoveries
& efforts to regulate stressed sector credit. As on Dec 31, 2017, GNPA &
NNPA were at 10.4% & 5.6%. As per BASEL III guidelines, SBI has a CAR
of 12.7% with a tier-1 capital of 10.3% and CET 1(Common Equity Tier 1)
capital of 9.6%. Historically, SBI was able to maintain a net interest margin
of over 3% in the last 4 years. Strong growth in retail deposits, coupled
with over ~45% CASA, provides a case for up-tick in NIM.
Valuation and Risks: SBI with its focus on loan book growth, CASA
share in deposits, sustained NIMs of over 3% along with focus on reducing
NPAs and fresh slippages augur well in the long term. Merged SBI presents
a case for biggest and diversified balance sheet that mirrors the domestic
economy available at bargain valuations from a long term investment
perspective. Currently, SBI is trading at 1.0x PBV to consensus estimate
of FY19E BV. Rising bond yields, higher provisioning and headwinds in
realizing the synergies through merger may pose threat to the call.
State Bank of India
Relative Performance*
Source: Bloomberg; *Index 100
80
95
110
125
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
SBIN
Sensex
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Interest Income 573576 625481 758504 868300 971187
Net Profit 99507 104841 22390 165005 273387
EPS (Rs.) 13.0 13.4 4.5 18.8 31.1
BVPS (Rs.) 185.9 236.1 242.7 254.6 281.7
P/E (x)* 20.4 21.8 55.5 13.9 8.4
P/BV (x)* 1.4 1.2 1.0 1.0 0.8
RoE (%) 7.3 6.3 1.9 7.5 11.0
RoA (%) 0.5 0.4 0.1 0.5 0.7
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
KARVY INVESTMENT STRATEGY
31
Company Background
State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate banking and NRI
banking with a consolidated balance sheet close to Rs. 33.8 lakh crore (Rs. 33.8 Tn). SBI employs over 269,219
employees and operates through a network of 24017 branches and over 58916 ATMs serving over 420 Mn customers.
SBI, along with its merged subsidiaries, provides various services like deposits, retail loans for Home, Automobile,
Education, other personal loans and corporate loans. SBI has various non-banking subsidiaries: SBI Life insurance
Company, SBI Capital Markets, SBI Funds Management and SBI Cards & Payments.
SBIN: Technical View
SBIN has been witnessing a profit taking move from its recent 52 week highs (Rs.351) clocked in October 2017
and has reached its medium term support zone around Rs. 220 - Rs. 230. The overall long term chart structure of
the stock is positive and looks good at current levels for long term investment. The stock being the premier PSU
Bank in the country is one of the most sought after banking stocks when it comes to investing and this decline
from the said highs gives investors an excellent opportunity to go long for potential upside technical targets of
Rs. 340 - Rs. 350 in about a year or so. As far as the technical setup of this stock is concerned, weekly charts
indicate strong support around Rs. 220 - Rs. 230 zone below which the next levels to watch out for will be
Rs. 190 - Rs. 200, where the stock has very strong support. Whereas on the upside, the immediate resistance
zone around Rs. 265 - Rs. 270 will test the patience of investors. However, if the stock manages to cross and
sustain above the mentioned immediate resistance zone, then a quick rally towards the next resistance zone around
Rs. 300 - Rs. 320 could be seen. Technical parameters such as ADX (20.65) on weekly charts suggest that the
stock is under selling pressure at the moment. However, things could get better for the stock once it surpasses the
above mentioned resistance zone with reasonable volumes coupled with the ADX and DMI+ pointing upwards. As
far as the weekly RSI (33.42) is concerned, it is also indicating a similar scenario as it is trading below the RSI Avg.
(40.32) and the positive momentum is likely to be revived once there is a positive crossover with the RSI cutting the
RSI Avg. from below. The monthly chart structure of the stock depicts formations of cycles of higher tops and higher
bottoms which is a positive sign in itself for the long term. Hence, we recommend long term investors to go long in
the counter at current levels, average in case of declines towards Rs. 200 and hold with a stop loss placed below
Rs. 175 for the above mentioned target levels in the stipulated time frame.
KARVY INVESTMENT STRATEGY
32
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 353
Target Price 479
Upside (%) 36
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1121.6 / 17.2
52-wk High/Low (Rs.) 488 / 324
3M Avg.daily value (Rs. Mn)
3707.5
Beta (x) 1.5
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 2887.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 36.4
FIIs 21.4
DIIs 17.1
Others 25.1
Stock Performance (%)
1M 3M 6M 12M
Absolute 3 (18) (17) (26)
Relative to Sensex 2 (17) (21) (35)
Source: Bloomberg
Bloomberg Code: TTMT IN
Jaguar Land Rover (JLR) witnesses strong growth in China:
China reported strong volume growth in the JLR retail and wholesale
segment at 14.6% and 14.0% YoY respectively in Q3FY18 and ~23.0%
growth YoY during 9MFY18 driven by better performance from models like
“Discovery”, “F-Pace” and “RR Sport”. On the other hand, there was some
decline in the UK and Europe due to economic and cyclicality reasons
which is expected to turn-around on the back of investments in newer
models and technology as indicated by the management.
Good response to new products results in market share gain:
TATA Motor’s (TML) new launch Nexon has performed well in the utility
segment. TATA’s total domestic utility vehicles sales volume stood at
44,138 units during YTD FY18 (Apr 2017 - Feb 2018) as compared to
16,251 vehicles in the previous period posting a growth of 171%. This led
to an increase in market share from 2.37% to 5.32% in the utility segment.
Therefore, resulting in the overall passenger vehicle segment market share
to increase from 5.62% to 6.27%. In the commercial vehicle segment,
TML’s sales volume grew at 21.6% YoY during YTD FY18 which led to a
market share gain of 83bps to 44.1%.
Future growth measures in the domestic market: After TATA
motors delivered the first batch of Tigor electric vehicles to EESL, they won
the tender to supply electric buses (~190 electric buses across 6 cities) to
FAME (Faster Adoption and Manufacturing of Electric Vehicles), indicating
faster market prominence.
Valuation and Risks: At CMP of Rs. 331, the stock is trading at P/E
7.2x for FY20E EPS. The Bloomberg consensus target price for TATA
Motors is Rs. 479 which is valued at P/E 9.7x for FY20E EPS based
on future growth prospects. However, increasing aluminum prices and
slowdown in the UK and European markets for JLR can be viewed as the
possible downside risks.
Tata Motors Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 2673201 2639995 2910930 3307281 3674698
EBITDA 371520 344314 351842 444989 508949
EBITDA Margin (%) 13.9 13.0 12.1 13.5 13.9
Adj. Net Profit 107498 79842 83290 136799 166514
EPS (Rs.) 32.0 23.0 25.7 41.0 49.1
RoE (%) 17.1 10.9 12.3 16.8 17.5
PE (x)* 12.2 19.8 12.7 8.6 7.2
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
60
81
102
123
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-
18
TTMT
Sensex
KARVY INVESTMENT STRATEGY
33
Company Background
Tata Motors Group, is an automobile manufacturer with a portfolio that includes a wide range of cars, sports vehicles,
trucks, buses and defence vehicles, spread across 175 countries around the globe. TATA Motor’s Jaguar Land Rover
Automotive PLC is the holding company of Jaguar Land Rover Limited, a British multinational automobile company
with its headquarters in Coventry United Kingdom. Models under the Jaguar Series include XF, XJ, F-Pace, XE etc, and
models under the Land Rover series are Defender, Discovery and Range Rover (RR) series with most prominence in the
UK, Europe, North American and Chinese regions.
TATAMOTORS: Technical View
Tata Motors Limited headquartered in Mumbai is an Indian multinational automotive manufacturing company and
a member of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses, sports cars,
construction equipment and military vehicles. Since Sep’17, Tata Motors is correcting from the highs at Rs. 598
levels and is currently trading close to its support zone at Rs. 315-332 levels. The stock is finding a cluster of supports
at the current levels with the mentioned swing supports being in coincidence with the 78.6% Fibonacci ratio of the
previous upside move from Rs. 265-598 levels. On the other hand, 55 day CCI is showing bullish divergence at
current levels indicating that the bearish momentum has been decreasing and there are more chances for rebound
in the stock price from current levels. The stock is also forming a downward sloping channel with the ceiling line
connecting the swing highs at Rs. 598, Rs. 552 and Rs. 443 levels while the floor line connecting the swing lows at
Rs. 468 and Rs. 370 levels. This channel pattern coupled with the 55 day CCI reading may help the stock to bounce
from current levels towards Rs. 420 levels and above towards Rs. 520 levels. On the oscillator front, 14 period RSI
is indicating weakness and is placed near the oversold region indicating a reversal in the counter. On the monthly
chart, the stock is still in uptrend making higher highs and higher lows indicating inherent strength in the counter
from medium to long term perspective. In the current scenario, considering all the data mentioned above one may
go long in the counter on any dip towards the mentioned support zone for an immediate upside targets towards the
said resistance zones, breaching which the stock might move towards its all-time highs in the long-term perspective.
KARVY INVESTMENT STRATEGY
34
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 602
Target Price 835
Upside (%) 39
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 690.3 / 10.6
52-wk High/Low (Rs.) 748 / 403
3M Avg.daily value (Rs. Mn)
6077.3
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 1126.5
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 31.4
FIIs 15.7
DIIs 29.7
Others 23.2
Stock Performance (%)
1M 3M 6M 12M
Absolute (1) (17) (8) 29
Relative to Sensex (2) (16) (13) 13
Source: Bloomberg
Bloomberg Code: TATA IN
Steady Performance From TSI; Outlook Remains Strong
Healthy growth in domestic sales volume: Tata Steel reported
good earning in 9MFY18E driven by significantly higher EBITDA/ton from
Indian operations. Considering a realization per ton of Rs. 46205 as
Kalinganagar steel plant is close to full ramp-up, EBITDA/ton came in at
~Rs. 12000 and the increase in the margin was mainly due lower other
expenses and operating leverage due to higher volumes.
Organic expansion in India and restructuring of European
business is a big positive:
Restructuring of TATA Steel Europe (TSE)
and increased focus on Indian operations with a goal to double the capacity
(through organic and inorganic route) in next five years strengthens Tata
Steel further. In case of Europe, EBITDA/ton was ~Rs. 2600 Vs ~Rs. 2900
in Q2FY18 mainly due to maintenance shut down for business upgrades,
lower spread and higher coking coal prices and quarter ending December
is seasonally weak for Europe.
TATA is the highest bidder for Bhushan Steel: TATA officially
confirmed that the company’s bid for Bhushan Steel has been identified
as the highest evaluated Compliant Resolution Plan. With the strongest
presence by Tata Steel in domestic environment and Bhushan’s
exposure in downstream, value-added and Auto steels, the acquisition
further increase TATA’s market share in the Auto and value-added steels
market; and delivers the opportunity for further growth. Augmenting the
capacity of Kalinganagar by 5MnT at a capex of Rs. 23500 Mn and JV
with ThyssenKrupp for European operations on track and expected to
complete Q3FY19E.
Valuation and Risks: Based on Bloomberg Consensus and considering
risks of weak European business margins, delay in the ramping up of new
facilities, volatile raw material cost, we value the company at 10.7x FY20E
P/E for both India and international operations with a “BUY” rating and
arriving at a target price of Rs. 835 representing an upside potential of
39%.
Tata Steel Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 1019647 1122994 1293457 1325783 1320372
EBITDA 79683 170078 209217 223663 227618
EBITDA Margin (%) 7.8 15.1 16.2 16.9 17.2
Adj. Net Profit (18333) 39476 65949 82216 87985
EPS (Rs.) (19.0) 41.0 62.3 72.8 78.0
RoE (%) (4.2) 10.3 16.1 16.0 14.9
PE (x)* (16.8) 11.8 10.9 8.2 7.7
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
75
100
125
150
175
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
TATA
Sensex
KARVY INVESTMENT STRATEGY
35
Company Background
Established in Jamshedpur in 1907, Tata Steel, a company that took shape from the vision of Jamsetji N. Tata, is among
the top global steel company with an annual crude steel capacity of 27.5 million tons per annum (MTPA). It is the world’s
second-most geographically-diversified steel producer, with continuous improvement in product and service portfolio,
along with success in value creating initiatives for customers. Today, Tata Steel operates in 26 countries and have a
commercial presence in over 50 countries with employees across five continents. In India, its downstream business
activities are structured into strategic business units such as Ferro-alloys and Minerals, Tubes, Wires, Bearings, Agrico,
Industrial By-products Management & Tata Growth Shop.
TATASTEEL: Technical View
TATASTEEL: Stock has seen a correction of over 22%-24% from its all time high levels of Rs. 754.60 in past three
months. However, the stock is in stellar bull run and making higher highs & higher lows on the chart. The counter has
generated strong returns for the medium to long term investors where the stock has rallied from Rs. 200 levels and
made all time highs of Rs. 754.60 levels in the month of January 2018. On the other hand, after making all time highs
of Rs. 754.60 levels, the stock has witnessed a steep round of profit booking which dragged the stock towards
the lower support zone of Rs. 590-600 levels which may be utilized to enter the counter for long term period.
Technically, stock price is hovering near its 21 DEMA which is currently placed near Rs. 600-605 levels on weekly
chart, while stock is well poised above its long term moving average 100-DEMA (525). As far as the weekly RSI
(38.13) is concerned, it is also indicating a similar scenario as it is trading below the RSI Avg. (50.09) and the positive
momentum is likely to be revived once there is a positive crossover with the RSI cutting the RSI Avg. from below.
The supports for the stock is placed at Rs. 540-550 followed by Rs. 500 levels on the lower side while resistance is
pegged around Rs. 660-670 followed by Rs. 720-730 levels. Medium to long term investors may enter the stock at
current levels and utilize any dips as a buying opportunity. Hence, considering all the factual data mentioned above
the stock is looking pretty decent and is expected to surge towards its all time high once again, sustenance of which
it may move to the uncharted territory of Rs. 800-850 levels.
KARVY INVESTMENT STRATEGY
36
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 751
Target Price 1003
Upside (%) 33
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 382.7 / 5.9
52-wk High/Low (Rs.) 903 / 673
3M Avg.daily value (Rs. Mn)
1423.1
Beta (x) 1.1
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 509.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 27.8
FIIs 43.1
DIIs 12.2
Others 16.9
Stock Performance (%)
1M 3M 6M 12M
Absolute 6 (4) (8) 3
Relative to Sensex 4 (2) (14) (10)
Source: Bloomberg
Bloomberg Code: UPLL IN
Long Term Outlook Intact on back of high future
Global demand in Agrochemicals
High Diversification across Segments & Geographies Keep the
Growth Story Kicking:
The global agrochemical segment generated a
value of US$ 4.4 bn in FY15 and is expected to grow at 7.5% p.a to reach
US $6.3bn by FY20 with India being the 4th largest global producer in the
world after US, Japan and China. UPL is now 2nd largest post-patent crop
protection chemical company and the 9th largest agrochemical company
in the world. It has done 25+ acquisitions since its inception to increase
distribution, brands and registrations. Crop protection market has entry
barriers because, high investments, R&D Cost and strict regulations.
The overall process of product registration remains difficult where UPL
has about 5934 registrations globally with over 1415 formulations, 200+
granted patents and a presence in over 130 countries, all of which add to
the topline of UPL.
Backward Integration to bring economies of scale: UPL is
consistently outperforming the global crop protection chemical industry
for the last 5 consecutive years. 60-65% of manufacturing takes place
in-house for UPL giving it a significant upper hand over players who are
dependent on China as a supplier of raw materials. Due to increasingly
stringent environmental norms in China, their supply to the global market
is reducing. UPL has outperformed the global crop protection chemical
industry by reporting revenue growth of 17% this year against the broad
sectors’ de-growth of 2.5%.
Valuation and Risks: The company posted decent set of numbers by
FY17. Sales increased by 16%; EBITDA grew at 24.6% while net profit
jumped 73% aided by other income. Going ahead we expect UPL will
continue to keep its profitability to high diversification across segments
and geographies. At CMP Rs. 751, As per consensus estimates, we
recommend ‘BUY’ for a price target of Rs. 1003 valuing UPL at 18x
FY20E EPS representing an upside potential of 33%.
UPL Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 138340 160750 176983 199220 224072
EBITDA 23950 29850 34993 39905 45812
EBITDA Margin (%) 17.3 18.6 19.8 20.0 20.4
Adj. Net Profit 13070 17273 20403 23789 28327
EPS (Rs.) 30.5 34.1 40.1 47.1 56.2
RoE (%) 16.0 26.2 25.0 23.6 23.3
PE (x)* 25.8 21.3 18.1 15.9 13.3
Source: Bloomberg, Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
90
102
114
126
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-
17
Jan-18
Feb-18
Mar-18
UPLL
Sensex
KARVY INVESTMENT STRATEGY
37
UPL: Technical View
UPL: The stock has been in an uptrend since Rs. 354.88 levels made in February 2016 and rallied to its recent high
of Rs. 902.50 levels registered in the month of July 2017, a whopping gain of 153.60 percent in a span of around
one and a half year. Thereafter, the stock went into correction mode and corrected lower towards Rs. 684 levels
initially clocked in the month of December 2017 and rallied again to make a lower low at Rs. 828.50 levels which
was registered in the month of January 2018; thereafter the stock again went into correction mode and traded lower
towards Rs. 672.50 levels clocked in the month of February 2018. The correction from the highs of Rs. 900 levels
to the low of Rs. 672.50 levels is just around 33.84 percent from the top which is a normal correction in any bull
market. The price high at Rs. 902.50 made a full square of 30(30*30=900), which indicates that stock is respecting
Gann Square of Nine principle, which was again reaffirmed by the stock in recent price correction, where stock
made a swing low near Rs. 672.50 which happens to be another Gann square out number of 26 (26*26=676),
and noticeably it has also completed 720 degrees circle correction, which depicts power of Gann square of nine.
On the price chart, the stock is trading in the sideways range of Rs. 672.50-828.50 levels from past 11 weeks
indicating sideways corrective phase in a larger bull market. The stock is flirting with its 200-day Exponential moving
average which is currently placed around Rs. 754 levels; with the stock currently trading below it by around 12%.
On the weekly chart, the stock appears to be finding support near its weekly lower Bollinger band (20, 2, S) which is
currently placed around Rs. 680.50 levels. Also on the monthly charts, the monthly mean of monthly Bollinger band
(20, 2, S) is placed around Rs. 745 levels. The 14 period RSI on the weekly chart is currently pegged at sub 41.86
levels, indicating the stock is in bull market range. On the quarterly and monthly charts, prices are above its quarterly
and monthly Parabolic SAR indicating long-term uptrend intact in the counter. Technical support for the stock is
placed around Rs. 660-665 levels followed by Rs. 580-600 levels while resistances are placed at Rs. 820-840 levels
followed by all time high zone of Rs. 900 levels.
Company Background
With over 1415 formulations, 200+ granted patents, US$ 2.56 Bn revenue in FY17 and a presence in over 130 countries
United Phosphorus, under the leadership of Mr. Rajnikant Devidas Shroff (Chairman, MD, Promoter-Director) started
with the manufacture of Red Phosphorus in 1969 and entered into the agrochemical exports business for the first time
in 1976. UPL Ltd. manufactures phosphorus & phosphorus-based compounds and its products include herbicides,
fungicides, insecticides, fumigants and rodenticides. United Phosphorus also manufactures industrial chemicals, specialty
chemicals and chloralkaline products. The company is engaged in the business of agrochemicals, industrial chemicals,
chemical intermediates and specialty chemicals. The Agro activity segment includes the manufacture and marketing
of conventional agrochemical products, seeds and other agricultural related products. The Non-agro activity segment
includes manufacture and marketing of industrial chemical and other non-agricultural related products. It offers fungicides,
herbicides, insecticides, plant growth and regulators, rodenticides, industrial and specialty chemicals, and nutrifeeds.
KARVY INVESTMENT STRATEGY
38
KARVY INVESTMENT STRATEGY
39
KARVY INVESTMENT STRATEGY
40
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 84
Target Price 109
Upside (%) 30
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 7.3 / 0.1
52-wk High/Low (Rs.) 149.4/74.75
3M Avg.daily value (Rs. Mn)
65.7
Beta (x) 0.9
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 86.6
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 13.1
FIIs 2.4
DIIs 31.1
Others 53.4
Stock Performance (%)
1M 3M 6M 12M
Absolute (2) (29) (34) (28)
Relative to Sensex (3) (28) (38) (37)
Source: Bloomberg
Bloomberg Code: ASTM IN
Earnings to Revive in FY19E
Order book pipeline encouraging: Lower order booking and
slower execution to impact earnings growth in FY18E and we expect
Astra Microwave (ASTM) EPS for FY18E to drop by 8.3% y/y to
Rs. 5.7. However, this trend could reverse in next two years on the back
of large order inflows and earnings are expected to grow at 13.2% CAGR
to Rs. 6.1 in FY19E and to Rs. 7.3 in FY20E; despite, higher share of
low margin export orders. Hence, we assign ‘BUY’ rating for a target of
Rs. 109 representing an upside potential of 30%.
Substantial revision to FY18E guidance; Introduces FY19E
guidance:
ASTM estimates revised down due to delay in ordering
for Akash sub-systems (Rs. 1,350mn), Off-set contract from ELTA
(Rs. 1,900mn) and order from BEL Ghaziabad (Rs. 360mn) which it
expects to receive by H1FY19 and close the FY19E with Rs. 6,500mn of
orders. We expect the order book to reach to Rs. 5,797mn in FY19E and
Rs. 6,696mn in FY20E.
Revenue and EPS to improve in FY19E-20E: 9MFY18 revenue
was lower by 18.6% due to delay in execution of R&D projects related
to defence, lower off-take of Akash sub-systems and space programs.
However, due to lower share of exports (~3.7% of revenue) EBITDAM
and PATM improved to 35% and 16.5%, which could moderate by year
end. Our FY18E and FY19E revenue is revised down by 4.7% and 3% to
Rs. 3,761mn and Rs. 4,326mn due to lower order book and slower
execution. However, EPS is revised upwards by 16.6% to Rs. 5.7 in FY18E
due to lower exports order and the same for FY19E is revised downwards
by 5.4% to Rs. 6.1.
Valuation and Risks: We assign ‘BUY’ rating by valuing ASTM at 18x
of FY19E EPS of Rs. 6.1 for a target of Rs. 109 representing an upside
potential of 30% from a 12 months perspective. Our estimates reasonably
weigh against inert temporality risks to order booking and execution.
However, spillage in order booking could impact our margin estimates
going forward.
Astra Microwave Products Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 4188 4250 3761 4326 5122
EBITDA 958 972 980 1016 1173
EBITDA Margin (%) 22.9 22.9 26.1 23.5 22.9
Adj. Net Profit 564 539 495 524 634
EPS (Rs.) 6.5 6.2 5.7 6.1 7.3
RoE (%) 16.4 12.7 10.5 10.3 11.4
PE (x)* 16.2 17.8 13.5 13.8 11.5
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
70
86
102
118
134
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
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Feb-18
Mar-18
ASTM
Sensex
KARVY INVESTMENT STRATEGY
41
Company Background
ASTM is one of the leading designers and manufacturers of high quality radio frequency (RF) and microwave components
and sub-systems in India. Astra Micro’s products find application in Defence, Space and Civil communication systems.
ASTM’s major products include radar, telemetry, ground surveillance antenna and electronic counter measures for
defence applications, ground based generators and S-level (on-board) for space application. Telecom products include
MSS terminals, industrial security system and civil telecom products. Meteorology products are met towers & automatic
weather stations.
ASTRAMICRO: Technical View
The company is a small cap company with presence in niche areas of defence like sub systems for RF and micro
wave systems used in defence, space, meteorology and telecommunication with very few competitors and it can be
one of the major beneficiaries of the Indian government’s effort to modernize Indian defence forces. ASTRA MICRO
WAVE LTD has been under a prolonged consolidation phase for around 46 months in a very broad range of Rs.
96 to Rs. 160 before giving breakdown from the consolidation owing to the tremendous selling pressure for the
past few months on account of bearish trend in the overall broader markets. The shorter term chart structure of the
stock indicates formation of lower tops and lower bottoms. However, the longer term chart patterns indicate that
the stock is nearing major support levels around Rs. 78.5 levels which is around 61.8% Fibonacci retracement level
for the stock’s steep rally from Rs. 28 levels to Rs. 159.9 levels. The 14 period RSI (Relative Strength Index) of the
stock is trading at 24.92 below its 9 period averages of 31.35 in weekly charts. It suggests that stock is in negative
momentum however it is over sold in long term which means that the stock may bounce from these levels and
there is a possible reversal if the stock breaches next resistance levels. Another oscillator MACD suggests positive
divergence in daily chart. The stock has immediate supports pegged around Rs. 78.5 - Rs. 76 levels below which
the next meaningful support zone for the stock lies around Rs. 59 - Rs. 56 levels. Whereas on the upside, the stock
has its immediate supply zone around Rs. 93 - Rs. 97 levels crossing which a surge towards a potential upside
target zone around Rs. 110 - Rs. 113 levels may also be seen in the counter.
KARVY INVESTMENT STRATEGY
42
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 163
Target Price 189
Upside (%) 16
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 23.3 /0.4
52-wk High/Low (Rs.) 223 / 121
3M Avg.daily value (Rs. Mn)
26.9
Beta (x) 0.7
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 143.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 54.0
FIIs 11.1
DIIs 2.4
Others 32.5
Stock Performance (%)
1M 3M 6M 12M
Absolute 16 (17) (18) 30
Relative to Sensex 14 (16) (23) 14
Source: Bloomberg
Bloomberg Code: GABR IN
Future Growth to be Propelled by Burgeoning
Market Share & Strong Order Book
New Business with HMSI: The company recently won a Letter of Intent
(LoI) from Honda Motorcycles & Scooters India (HMSI) to supply front fork
for their largest selling scooter “Activa”. This is a new business opportunity
for Gabriel as the company currently supplies only shock absorbers to
HMSI. The supply will take place for the Gujarat and Karnataka plant of
HMSI and would commence in early 2019. Given that HMSI commands
~57.3% of the total scooter market in India, Gabriel is expected to have a
scalable opportunity of the front fork business with HMSI.
CVs & Railways to Push the Growth Agenda: The company
continues to be the market leader in supplying shock absorbers to the CV
segment, accounting for ~85% of the total market share. CV’s volumes are
expected to surge with the pick-up of infra-spending and mining activities
in coming quarters. Sales from railways are growing at more than 100%
YoY and Gabriel being the first mover in supplying new generation shock
absorbers to the railways, stands to significantly benefit from the ongoing
railway modernization.
Auto Industry Outlook Promising: We are bullish on the growth
prospects of the automotive industry, going forward. Higher allocation
for the rural sector in the Budget 2018-19 fares well for the two-wheeler
segment. The industry has recovered from the unsettling impact of
demonetization & GST and is set on the growth track.
Valuation and Risks: Gabriel is currently trading at 17.7x FY20E EPS.
Our positive view on the company is on the basis of robust track record
of growth, continuous order acquisition and improving market share. We
value the company at 20.5x FY20E EPS for a target price of Rs. 189,
which implies an upside potential of 16%. However, factors like industry
cyclicality and commodity price fluctuations may be the potential risks.
Gabriel India Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 14382 15291 17793 19720 22077
EBITDA 1276 1440 1623 1919 2283
EBITDA Margin (%) 8.9 9.4 9.1 9.7 10.3
Adj. Net Profit 752 816 888 1082 1321
EPS (Rs.) 5.2 5.7 6.2 7.5 9.2
RoE (%) 21.3 19.7 18.4 19.5 20.3
PE (x)* 17.1 21.4 22.1 21.7 17.7
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
90
115
140
165
190
Mar-17
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Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
GABR
Sensex
KARVY INVESTMENT STRATEGY
43
Company Background
Established in 1961, Gabriel India Limited is the flagship company of ANAND and the company provides the widest range
of ride control products in India including Shock Absorbers, Struts and Front Forks across all automotive segments i.e. 2&3
wheelers, passenger cars, commercial vehicles and railways with over 300 product models to offer. The manufacturing
facilities of the company are located across India in Chakan, Nashik, Hosur, Dewas, Khandsa, Parwanoo, and Sanand.
Four of its satellite plants are located in Malur, Aurangabad, Kumbalgodu and Manesar.
GABRIEL: Technical View
The stock is in strong uptrend and making higher highs and higher lows on weekly charts. The strong buying in
the stock has placed the stock to the life time high of Rs. 222.50 levels. Thereafter, the price action in the sock
has made bearish engulfing pattern of weekly charts before resuming its down move. The fall in the price has seen
notable volume formation and placed the stock to the low of around Rs. 139 levels. The historical price action in the
stock suggests that any fall in the stock attracts market participants and stock resumes its up move. The immediate
support for the stock is placed around Rs. 130 levels and below that is around Rs. 100 levels whereas resistance
is placed around Rs. 180 levels and above that is Rs. 195-200 and Rs. 225-230 levels. However, any sustainable
move above Rs. 232 will open upside room for the stock towards unchartered territory. On technical indicators, 14
period RSI is trading near 36 indicating comfortable placement of stock. The stock price is rolling on lower band of
Bollinger band with expanding band width which indicates increase in volatility. Going forward, any reversal in the
stock will easily place the stock towards upper band of Bollinger band. The Parabolic SAR is trading below the price
on quarterly charts which indicates up move in the stock will remain intact for long term time frame. The stock is
trading below all its major moving averages near its support and historical price action in the stock suggest that any
meaningful dip in the stock attract buyers which help stock to maintain it’s up move.
KARVY INVESTMENT STRATEGY
44
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 122
Target Price 154
Upside (%) 26
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 29.8 / 0.6
52-wk High/Low (Rs.) 179 / 112
3M Avg.daily value (Rs. Mn)
130.9
Beta (x) 0.9
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 244.2
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 51.0
FIIs 7.3
DIIs 22.1
Others 19.6
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 (16) (10) (27)
Relative to Sensex 0 (15) (15) (36)
Source: Bloomberg
Bloomberg Code: GRV IN
Market Leader Greaves Prepares for BS-VI World
Over three-fourths of Market is Served by Greaves: Greaves has
manufactured 5 mn diesel engines over the years and has market share
of ~78.0% in the 3 Wheeler (3w) diesel engines market. Greaves’ cost
leadership enables it to be a major source of 3w auto engines in India with
partnerships over 35 auto manufacturers. Greaves products for Agri and
Auxiliary power segment crossed 3mn pump sets and 1 mn generator
sets mark recently.
Greaves Prepares for a BS-VI World: Greaves has signed-up
with major Original Equipment Manufacturers (OEM) for development
of Bharat Stage 6 (BS-VI) compliant engines, which may come to force
in next 25 months. Management has commented that they had signed
these arrangements based on initial simulation data and is working
towards developing Proof-of-Concept (PoC) and Total Cost of Ownership
(ToC) models demonstrating value proposition for both OEMs and end
customers of OEMs as these initiatives range from multi-fuel to Hybrid
to retrofit solutions. However, management refrained from quantifying the
opportunity size for Greaves and competition thereof.
Growth Crawls Back; Revenues to grow by 8.8% in FY17-20E:
Post several disruptions in the market place, revenue grew by 5.0% on a
YoY basis to Rs. 13,059 mn in 9MFY18. We believe the improvement in
3w market, higher traction for agri equipments and powergen sales boost
revenue growth by 8.8% CAGR during FY17-20E to Rs. 21,068mn. Stable
material costs and other cost saving initiatives could improve EBITDA and
PAT margin reaching to 15.2% and 10.7% by FY20E.
Valuation and Risks: Greaves domestic market to turn robust with
new product launches, new geographical presence, potential addition of
customers. ‘Greaves Auto Care’-new service offering and fructification
of R&D efforts for BSVI engines could all shape into FY19E, FY20E and
beyond. We base our valuation on FY19E estimates and arrive at a
target price of Rs. 154 valuing Greaves at 20x of FY19E EPS of Rs. 7.7
representing an upside potential of 26%.
Greaves Cotton Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 16161 16344 17227 18760 21068
EBITDA 2674 2434 2455 2752 3209
EBITDA Margin (%) 16.5 14.9 14.3 14.7 15.2
Adj. Net Profit 2009 1807 1668 1877 2249
EPS (Rs.) 8.2 7.4 6.8 7.7 9.2
RoE (%) 23.0 19.9 17.8 19.5 22.4
PE (x)* 15.0 19.4 16.7 15.8 13.3
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Greaves Cotton Ltd. (GCL) is a leading diversified engineering company manufacturing machinery and equipment.
Greaves business is organised into Auto engines, Auxiliary Power Solutions, Farm Equipment Business and After-Market
business. The company has 6 manufacturing facilities and 3,500+ customer touch points spread across India. Over
the years, Greaves has increased its investments in R&D and the spending has averaged to the tune of ~1.5% of sales
during FY08-17 peaking in the fiscals before CPCB norms came into force. In future, Greaves is committed to transform
itself into fuel agnostic engineered solutions provider encompassing both manufacturing and service business lines.
GREAVESCOT: Technical View
The stock is trading in broad range of Rs. 110- 155 levels from couple of months. The stock has seen profits taking
from all time high of Rs. 178.55 levels. This dragged the stock to the low of around Rs. 112 levels. The fall in the
stock from the above said levels has seen supportive volume formation on daily charts. However, fall in stock got
protected near Rs. 112 levels and wherein from it witnessed sharp bounce. The bounce in the stock has retraced
61.8% of retracement levels drawn from the life time high of Rs. 178.55 levels to the low of Rs. 112.35 levels.
Thereafter, the price action in the stock has made bearish engulfing pattern of weekly time frame and reverse its up
move. The historical price action in the stock suggest that the stock attracts market participants at low levels around
Rs. 110-115 levels which helps stock to maintain it’s up move. The stock is trading near its support of Rs. 110
levels which is attractive price levels for investors. The immediate support for the stock is placed around Rs. 110
levels and below that is Rs. 90-95 zone. On the higher side, resistance is pegged around Rs. 140-145 zone and
above it around Rs. 165-170 levels. On technical indicators, 14 period RSI is trading near 41 indicating comfortable
placement of stock. The stock is trading near lower band of Bollinger on weekly charts and expected to bounce
towards upper band of Bollinger band. The Parabolic SAR is trading above the price action indicating short term
weakness in the stock which can be used for buying opportunity. The stock is trading below all its major moving
averages near its support and historical price action in the stock suggest that any meaningful dip in the stock will
attract buyers which will help stock to maintain it’s up move.
KARVY INVESTMENT STRATEGY
46
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 135
Target Price 170
Upside (%) 26
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 43.0 / 0.7
52-wk High/Low (Rs.) 181 / 120
3M Avg.daily value (Rs. Mn)
41.1
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 318.0
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 74.0
FIIs 4.0
DIIs 12.0
Others 10.0
Stock Performance (%)
1M 3M 6M 12M
Absolute 7 (20) (10) 8
Relative to Sensex 6 (19) (15) (6)
Source: Bloomberg
Bloomberg Code: GMDC IN
Running High on Lignite Demand & Future Projects
Reduced Tax Incidence and other factors to drive Lignite
Demand: Going forward, factors like sound financials, vast array of
mineral products, several upcoming mines and power projects; and
increasing commodity prices brighten the prospect for mining and power
business. The company reported an impressive performance in Q3FY18,
wherein top line grew by 33.1%, while bottom line grew by 68.8% on
YoY basis, due to lignite becoming price competitive to coal following the
fixation of GST rate of 5% for lignite and other minerals.
Upcoming Projects to Boost Sales Performance: GMDC has 6
operational lignite mines. The Ministry of Coal has allotted 3 lignite blocks,
collectively these 3 mines have estimated 34 Mn tons of lignite reserves.
Apart from lignite, the company is also into bauxite, fluorspar, manganese,
silica sand, limestone and betonies mining. The company is in process
of setting up of Fluorspar Benefication Plant, setting up a Silica Sans
Benefication Plant and Lignite based 500 MW Power Plant.
Valuation and Risks: Strengthening of commodity prices and increased
demand for power, following implementation of schemes like, UDAY,
Deen Dayal Yojana and Saubhagya augur very well for the company.
Furthermore, the company enjoyed robust financials in FY17 with zero
debt, EBITDA margin of 26.4%, PAT margin of 20.5%, BV/share of
Rs. 126 and cash & cash equivalent of Rs. 500 Mn make this stock a
value buy. We value the stock on 1yr forward PE 8x of FY20E EPS, which
is inching towards MSCI Energy India Index average PE of 8.9 with TP of
Rs. 170 with potential upside of 26%. However, likely auctioning of coal
mines for commercial use is a risk.
Gujarat Mineral Dev. Corp. Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 12153 15824 19973 24592 29289
EBITDA 2888 4174 5608 7097 8623
EBITDA Margin (%) 23.8 26.4 28.1 28.9 29.4
Adj. Net Profit 2190 3241 4433 5601 6790
EPS (Rs.) 6.9 10.2 13.9 17.6 21.4
RoE (%) 6.0 8.4 10.6 12.2 13.3
PE (x)* 9.2 12.0 8.9 7.7 6.3
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Gujarat Mineral Development Corporation (GMDC) was incorporated in 1963 and is engaged in business of mining and
power. The company started its operations with a small sand crushing facility which is majorly used by sodium silicate
and glass manufacturers. Then it entered into beneficiation of fluorspar which is a rare mineral and has applications
in industries like steel, aluminum, hydrochloric acid, foundry flux and welding electrodes. In 1970, the company
commissioned mining of lignite which is a cheaper substitute of coal to supply it to textile industries. Since then GMDC
has emerged as one of the largest merchant sellers of lignite in the country. Apart from lignite, the company also mines
bauxite and has power divisions consisting of Thermal Power, Wind Power and Solar Power plants. The company is also
into exploration activities. The company first implemented ISO-9001 at corporate office in 2010 and aims at obtaining
it for all the mines in operation with Occupational Health and Safety Systems (OHS-18000) along with Environmental
Management Systems (ISO-14000).
GMDCLTD: Technical View
Gujarat Mineral Development Corporation Ltd: The stock price made an all time high of 316 in Nov’07, post which
it witnessed significant price correction towards Rs. 25 levels made in Dec’08. After placing a low of 25 stock
rebounded, but eventually it entered into a long consolidation mode. The stock price after placing a swing low of
52.30 in Feb’16 witnessed smart recovery, gains of 246% in span of last two years time frame, which indicates that
possibly long consolidation mode is over and fresh leg of rally has been started and going forward after completion
of intermediate price correction, bulls will take the charge of the counter. The stock price made a 52-week high of
180.90 in Oct’17 post which it witnessed profit booking from higher levels. In the month of Jan’18, stock attempted
to retest its 52-week high, but failed by margin after making a lower swing high of 174 and tumbled in last couple
of weeks. On projecting Fibonacci Retracement from swing low of 52 to high of 181, till date stock price has
retraced more than 38.2% of move, while it’s 50% retracement lies near Rs. 116.60 levels and its Golden Fibonacci
Ratio 61.8% lies near Rs. 101.50 levels going forward which should act as a strong support. Technically, stock
is holding marginally above its 200-Weekly Exponential Moving Average (WEMA) which is currently placed near
Rs. 122.50 levels. On the momentum setup. 14-period weekly RSI managed to sustain above 35-levels during
recent price correction, which indicates possibility of renewed buying in the counter can’t be overruled. On the
downside stock has a key support near Rs. 115 levels, followed by Rs. 90-95 levels. While on the higher side,
immediate resistance is pegged around Rs. 155-160 levels, above which price could extend to retest its 52-week
high near Rs. 180-185 levels.
KARVY INVESTMENT STRATEGY
48
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 446
Target Price 635
Upside (%) 42
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 105.0 / 1.6
52-wk High/Low (Rs.) 675 / 371
3M Avg.daily value (Rs. Mn)
177.5
Beta (x) 0.7
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 235.4
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 58.8
FIIs 7.3
DIIs 0.3
Others 33.6
Stock Performance (%)
1M 3M 6M 12M
Absolute 1 (29) (23) 9
Relative to Sensex (0) (28) (28) (5)
Source: Bloomberg
Bloomberg Code: KRB IN
Growth Story Continues…
Supportive global and domestic conditions for basmati rice:
KRBL Limited posted consolidated revenue of Rs. 7835 mn in Q3FY18
which is down by 1.8% as against Q3FY17 on YoY basis. The shift in
preference for branded rice, increased restaurant cultures and rise in
personal income contributed in domestic sales’ growth, while export
growth remains subdued amidst volatile international price. However,
basmati exports could rise in FY18E-19E due to steady global demand
and strengthening of economies in Gulf region following rise in crude oil
price. We believe that global and domestic conditions are supportive for
basmati rice. Hence, we rate “BUY” on the stock with TP of Rs. 635
which gives a potential upside of 42%.
Domestic Demand getting stronger: India’s agri business in Q3FY18
registered a flattish growth. India’s agri business contributed 67% while
rest of the world contributed 33% in total agri business in Q3FY18 on YoY
basis. The company witnessed a good pickup in the domestic demand,
while export demand did not pickup proportionately mainly because of
volatile international price.
Energy business to stimulate on the back of Government’s
thrust on Power:
Energy business is purely a domestic play which stood
at Rs. 503 mn in Q3FY18 registering a growth of 74.7% on YoY basis.
Further, government’s thrust on power is expected to stimulate demand
for energy. The company has long term contract with state governments
for Solar and Wind power.
Valuation and Risks: With growing demand amidst lower harvest, value
added products, extensive distribution channel and sound financials, likely
export order from Iran and improving gulf economies - the key basmati rice
consuming region price realization for the company will further improve. The
stock is currently trading at P/E of 19.4 FY19EPS which is at discount to
industry P/E of 35. Seeing business potential, we value the stock at 1 Yr
Forward P/E 24x of FY20E EPS which gives TP of Rs. 635 with potential upside
of 42% and rate “BUY” on stock for next 9-12 months. However, already high
basmati rice price may prove to be deterrent to the overall demand.
KRBL Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 33628 31490 33045 35318 37406
EBITDA 4468 6435 7404 8390 9634
EBITDA Margin (%) 13.3 20.4 22.4 23.8 25.8
Adj. Net Profit 2931 3994 4740 5416 6228
EPS (Rs.) 12.5 17.0 20.1 23.0 26.5
RoE (%) 21.1 23.5 22.4 21.0 20.0
PE (x)* 17.9 24.3 21.7 19.4 16.9
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Founded in 1889 in Faisalabad, Pakistan and incorporated in 1993, KRBL is the world’s largest Basmati rice exporting
company with multi-brand presence both in domestic as well as overseas markets. Over the years, the company
has developed rice brands such as India Gate, Nur Jahan, Telephone, Train, Unity and Bawabat Al-hind to meet the
requirements of different categories of consumers. Being an integrated player, the company also deals in value added
by-products like Bran Oil and De-oiled Cakes. It has got Energy business vertical as well, wherein it uses rice husks for
captive power plant. Its energy portfolio comprises of Bio-Mass, Solar and Wind energy. KRBL has a strong presence
in export markets with 51% market share of Basmati Rice market of U.S.A, dominant presence in Middle East and
expanding its export base to Africa and Europe. The KRBL is ISO 9002, HACCP (Hazard Analysis and Critical Control
Points), KOSHER (approved by Jewish Dietary Law) and FDA (Food and Drug Administration) certified.
KRBL: Technical View
KRBL: On the monthly charts, the stock is in the cycle of making higher high and higher low which suggests bullish
bias on the stock from a medium to long term perspective. The stock after facing a resistance placed around
Rs. 650 levels has witnessed selling pressure on the charts and has fallen to the levels of Rs. 440 levels which is a
30% fall from the higher levels and is a decent correction for the stock, which makes the stock a good one to buy at
current levels. The stock started its upward journey after giving a breakout from Rs. 29.06 levels in 2013 since then
the stock has been given a stellar rally. On the monthly charts, the stock is trading above all the long term moving
averages which suggest that the stock has some inherent strength in it. From the short term perspective on the daily
charts the stock has once again tested the consolidation zone, from which the stock had started rallying, the zone
had a range of around 40 points from Rs. 437-477 levels any breakout on the charts the stock might see some
rally towards 505 levels and the next resistance is placed around Rs. 517 levels and if we see the downside then
the stock has a support placed around Rs. 418 levels and the next support is placed around Rs. 397 levels which
would be good level to accumulate the stock from a medium term perspective. The volumes on the charts from the
past several months have not seen a significant upsurge. Currently, the 14-day RSI is trading below the 9-DEMA
which suggests that the downward trend is likely to continue, but if the stock is able to breach Rs. 520-550 levels
in the medium term then one might see the scenario changing. On the weekly charts, if we see the trend of the
past 3-week fall in the stock then the previous trading week managed to close above the levels of 439 with decent
amount of volume on the charts and during the previous trading week it also tried to move upwards above Rs. 480
levels which it failed to do so. From a medium term perspective, the support is placed around Rs. 366 levels below
which the stock might test Rs. 300 levels, on the higher side if we see the stock has a resistance placed around
Rs. 550 levels above which the stock might test Rs. 650 levels.
KARVY INVESTMENT STRATEGY
50
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 385
Target Price 507
Upside (%) 32
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 44.0 / 0.7
52-wk High/Low (Rs.) 512 / 336
3M Avg.daily value (Rs. Mn)
74.3
Beta (x) 0.8
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 114.5
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 44.1
FIIs 21.9
DIIs 11.5
Others 22.5
Stock Performance (%)
1M 3M 6M 12M
Absolute 3 (20) (17) 9
Relative to Sensex 1 (19) (22) (5)
Source: Bloomberg
Bloomberg Code: MANB IN
Strategic Synergies in FMCG Sector to Augur
Revenue
Manpasand-Parle Tie up- a formidable synergy in the FMCG
Sector:
Under the partnership, Manpasand Beverages will have access to
Parle’s 4.5 Mn outlets across India for its flagship brand ‘Mango Sip’ juice
which will be sold under the brand name Mango Sip Gold. The company
has planned to target 1000 distributors and 5 Lakh outlets by March ’18.
Thereafter, the company plans to focus on UP, Gujarat and Maharashtra
where Parle has 15 lakh outlets.
Increased capacity utilization to strengthen margins: The
company has set up four new plants which will double its production
capacity from 1.70 lakh cases per day. Further, the company is expected
to launch a new health-based product in FY18 to aid utilization. With
increasing distribution network, it is estimated that the company will be
able to increase its capacity utilization and operate at 55% by the end of
FY19 which will help the company to reduce its per unit cost and increase
its margins.
Tie up with Havmor Ice Cream Ltd: With this foray, the company’s
flagship brand Mango Sip, which is mainly available in rural and semi-rural
regions, will now be available in urban areas through 210 food outlets
of Havmor. This tie-up will also give a boost to ‘Fruits Up’ brand, which
consists of a range of carbonated fruit drinks and premium fruit drinks in
different flavours, that is primarily targeted at urban markets.
Valuation and Risks: Manpasand Beverages has continuously been
growing by increasing its capacity and is on track with its plan of doubling
its capacities. Currently, the stock is trading at a P/E of 19.8x FY20EPS.
Seeing the stellar performance and expecting the revenue to grow at a
CAGR of 36.5% over 2 years, we value the stock at 25x (3 years’ average)
FY20EPS with a “BUY” rating arriving at a target price of Rs. 507 with
an upside of 32%. Competition from MNCs and 20% of the company’s
revenue coming from IRCTC are the key risks to the call.
Manpasand Beverages Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 5211 7015 9111 12419 16952
EBITDA 1103 1398 1913 2608 3560
EBITDA Margin (%) 21.2 19.9 21.0 21.0 21.0
Adj. Net Profit 505 726 1204 1604 2225
EPS (Rs.) 10.8 12.7 10.5 14.0 19.4
RoE (%) 8.4 6.3 9.1 11.0 13.3
PE (x)* 21.6 27.7 35.2 27.5 19.8
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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KARVY INVESTMENT STRATEGY
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Company Background
Manpasand Beverages Limited is an India-based company engaged in the business of manufacturing of fruit juices in
the beverages segment. The company’s flagship brand is ‘Mango Sip’, a mango based fruit drink which is strategically
focused towards customers primarily based in semi urban and rural markets. Its other brands include Fruits Up and
Manpasand ORS. Under the Fruits Up brand, the company offers differentiated carbonated fruit drinks with real fruit
content and fruit drink with relatively higher fruit content of pulp. Carbonated fruit drinks are available in grape, orange and
lemon flavors while fruit drinks are available in mango, apple, guava, litchi, orange and mixed fruits flavors. Manpasand
ORS is a fruit drink with energy replenishing qualities with a primary focus on North East India containing rehydration salts
and fruit contents, and is available in two flavors, apple and orange. The company offers fruit drinks in mango and other
flavours and carbonated fruit drinks, in different packaging types and sizes.
MANPASAND: Technical View
Manpasand Beverages Ltd: Since its listing date, stock price has witnessed steady rally, with intermittent price
correction in between bullish trend remaining intact. At the time of listing, stock price made an all time low of
Rs. 142.85, wherein from the stock made a high of Rs. 388.50, gain of more than 170% in span of fifteen months.
Post that stock retraced 50% of move projected from all time low to swing high of Rs. 388.50, in span of just three
months; after placing a swing low of Rs. 253 made in end of Dec’16 stock reversed back and resumed its northward
journey. From the swing low of Rs. 253, stock price made an all time high of Rs. 512 in the mid of Sept’17, gain of
more than 100% in span of nine months. After reaching all time high, stock price retraced its golden ratio 61.8% in
less than four months time by making a swing low of Rs. 349 in end of Dec’17. Noticeably, prices after making a
swing low of Rs. 349 rebounded in last couple of weeks, attempted to retest its all time high, but failed by margin
by making a lower swing high of Rs. 499 in the start of Jan’18, post that stock price witnessed profit booking from
higher levels and tumbled. Currently, stock price is hovering above its previous swing low Rs. 349. Technically, stock
price is trading below its major and medium term moving averages. On the momentum setup, 14-period weekly RSI
managed to sustain above Rs. 40-levels during recent price correction, which indicates that bulls are in control and
price correction in the stock is being utilized as a buying opportunity by long term investors in the counter. On the
downside, stock has a key support near Rs. 348-350 levels, followed by Rs. 300-310 levels. While on the higher
side immediate resistance is pegged around Rs. 435-440 levels, above which price could extend gains to retest it’s
all time high near Rs. 512 levels.
KARVY INVESTMENT STRATEGY
52
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 104
Target Price 150
Upside (%) 44
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 5.8 / 0.1
52-wk High/Low (Rs.) 127 / 66
3M Avg.daily value (Rs. Mn)
22.4
Beta (x) 1.1
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 56.0
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 74.7
FIIs 0.0
DIIs 1.1
Others 24.2
Stock Performance (%)
1M 3M 6M 12M
Absolute 7 (6) 17 41
Relative to Sensex 5 (5) 11 23
Source: Bloomberg
Bloomberg Code: MEN IN
Expansion Plans to Complement Higher Demand
Improved demand scenario: Board has given a nod for a fresh
investment of Rs. 220 Mn in engine bearing & bushes plant which is
expected to be completed by FY19E. The facility will enhance the capacity
by 40% to cater to the increased order book from bimetal parts. Also, capex
of Rs. 400 Mn is invested in aluminum division & the facility is expected to
be ready by FY20E. It will enhance the capacity in higher tonnage to cater
to increased customer demand. We expect revenue from engine bearing
& bushes plant from FY20E & the aluminum division from FY21E onwards.
Top line growth & improved margins: Menon enjoys a marquee
list of clientele like TATA, VOLVO, Mahindra, Greaves & Piaggio and
boasts about its superior manufacturing capabilities. Menon undertakes
designing, testing, validation & manufacturing of bearings, bushes &
thrust washers for a wide range of applications. On account of new client
addition together with incremental revenue from its investments made for
expansions along with the shift in market dynamics in favor of BS IV, we
expect the margins to stabilize by FY20E with EBITDAM reaching 27.0%
levels coupled with PATM reaching 14.0% levels.
Robust balance sheet to aid gain market share & profitability:
Net debt to equity of 0.1x, zero debt levels, net working capital to sales at
less than 25%, cash per share of Rs. 3.0 and interest coverage multiple of
24.6x indicate Menon’s balance sheet strength to remain debt free in near
future while maintaining operational superiority in gaining market share. The
company is expected to meet its capex through internal accruals & debt.
Historically, Menon Bearings has been consistently recording a healthy
profitability & return ratios; we expect the trend to continue in future with
RoE reaching 24.0% & RoCE of 29.0% levels by FY20E.
Valuation and Risks:
At CMP of Rs. 104, Menon Bearings is trading
at 20.0x to FY20E EPS. We ascribe a multiple of 29.0x which is a 3 year
average of one year forward PE to FY20E EPS and recommend a “BUY”
rating for a target price of Rs. 150 representing an upside of 44%. Threat of
counterfeit products which mainly cater to aftermarket segment along with
a slowdown in industrial & automotive segments may pose risk to the call.
Menon Bearings Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 1109 1229 1494 1610 1969
EBITDA 286 327 373 423 537
EBITDA Margin (%) 25.7 26.6 24.9 26.3 27.3
Adj. Net Profit 149 192 208 238 290
EPS (Rs.) 3.2 3.4 3.7 4.3 5.2
RoE (%) 28.7 30.0 26.3 24.5 24.0
PE (x)* 15.5 21.3 26.5 24.2 20.0
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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Company Background
Incorporated in 1991 & headquartered at MIDC in Kolhapur, Maharashtra, the company is engaged in manufacturing
automobile components like bushes, bearings, thrust washers, aluminum die cast and bimetal strips. These products are
customized according to the clients’ requirements in various specifications. Different varieties of bearings supplied by the
company include flanged bearings, tri-metal bearings and copper-bronze & aluminum-tin bearings for crankshafts. The
products find applications in light & heavy commercial vehicles, passenger vehicles, compressors, combustion engines
and electrical appliances such as refrigerators and air conditioners. The company caters to OEMs, replacement market
and the export market. Its products are exported to countries across the globe such as USA, UK and Middle East.
MENONBE: Technical View
Menon Bearings Ltd has been in a secular uptrend forming higher highs and higher lows since the day of its listing
indicating the underlying strength in the stock. The stock has rallied from a low of Rs. 20.05 on March 24, 2015 to
an all time high of Rs. 126.50 on January 29, 2018 which is 517% and has corrected to Rs. 90.60 levels i.e. nearly
28.4% from its all time high and settled around Rs. 102 levels. The stock is trading above all of its 21/50/100/200
period exponential moving averages in weekly chart as well as in daily chart suggesting the overall strength in
this counter. As far as the technical setup of this stock is concerned, the 14 period RSI (relative strength index) is
trading above the 9 period averages in daily chart (54.8, 51.46) suggesting positive momentum in the counter. The
overall long term chart structure of the stock is positive and looks good at current levels for long term investment.
Leading indicator Heiken candlesticks suggests beginning of a fresh leg of rally in weekly chart. Another leading
indicator Parabolic SAR (stop and reverse) suggests positive trend in daily chart. The stock has outperformed the
broader indices in the current quarter showing its bullishness despite a broad based selling across the indices. On
the Bollinger bands, the stock took support near lower band and moving towards upper band and the bands are
expanding in weekly chart and suggesting a fresh leg of rally towards its all time high levels. On monthly chart, the
stock has witnessed consolidation for nearly one year followed by breakout with good volume. In the past, it has also
been observed that every time the stock has made a cycle of higher low preceded by a higher high, it has always
seen value buying from such levels, which gives investors with a longer term horizon a brilliant opportunity to go long
in the counter at current levels for the above mentioned target levels in about a year’s time. The stock has immediate
supports pegged around Rs. 90 - Rs. 92 levels below which the next meaningful support zone for the stock lies
around Rs.74 - Rs.78 levels. On the upside, the stock has its immediate supply zone around Rs. 125 - Rs. 127.
KARVY INVESTMENT STRATEGY
54
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 134
Target Price 154
Upside (%) 15
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 16.2 / 0.2
52-wk High/Low (Rs.) 184 / 84
3M Avg.daily value (Rs. Mn)
41.9
Beta (x) 1.1
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 120.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 73.5
FIIs 4.0
DIIs 2.7
Others 19.8
Stock Performance (%)
1M 3M 6M 12M
Absolute 9 (16) (17) 55
Relative to Sensex 8 (15) (22) 35
Source: Bloomberg
Bloomberg Code: MRZI IN
Red Tape Ladies’ and Domestic Branded Segment
to take the Growth Story Forward
Foray into Ladies Footwear & steadily increasing Domestic
branded Segment to give a fresh breath of air:
Women’s shoes
under MIL will offer both formal and sportswear for women probably under
the same brand. Given its experience in successfully building the ‘Red
Tape franchise’, the entry into women’s footwear is expected to be value
accretive to the company. The management is targeting around 5 lakh
pairs of women’s shoes to be sold in 2 years post launch. For Q3FY18
domestic footwear revenue was up 70% to Rs. 900 Mn on the back of 92%
growth in online sales while wholesale channel sales were up 87%. The
new products of Bond Street and Sports ‘Athleisure’ Shoes contributed
to bulk of the growth for period ended 9MFY18 and they are on track to
achieve sales of Rs. 1.5 Bn for FY18.
Topline to be Driven by Online/Offline Stores: MIL has opened its
first such ‘Online Store’ outside Ambala city and plans to recreate the format
in few more cities. The initial response to the first store outside Ambala
city has been encouraging. The company has set up 2 warehouses one
each in Bangalore and Mumbai to meet the rising e-commerce demand. 5
such stores had already been opened by Q3FY17 and have been a huge
hit. The count should go upto 20 by end of FY18E. The target is 180 by
FY18 end and 230 by FY19 end. Capex should be Rs. 3.5-5 Mn per store
and another Rs. 35-50 Mn on inventory. Management is focusing on the
online-offline store which they plan to scale up to 70-100 stores. These
stores would be 3-5K sqft and are expected to achieve average sales of
Rs. 5 Mn/Month/Store with capex of mere Rs. 3 Mn/store.
Valuation and Risks: We take into account slowdown in unbranded
footwear and exports segment along with the re-attempt to foray in Ladies’
fashion segment including a capex of Rs. 300 Mn on online-offline stores
for increasing demand from the domestic segment. We maintain a “BUY”
recommendation, valuing at 14.6x FY20E EPS with an upwardly revised
target price of Rs.154 representing an upside potential of 15%.
Mirza International Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 9287 9357 10141 12306 14328
EBITDA 1735 1605 1758 2105 2635
EBITDA Margin (%) 18.7 17.2 17.3 17.1 18.4
Adj. Net Profit 781 712 777 955 1286
EPS (Rs.) 7.2 5.9 6.5 7.9 10.7
RoE (%) 20.6 15.0 14.4 15.4 17.8
PE (x)* 13.4 14.6 19.3 17.0 12.5
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
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Nov-17
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Feb-18
Mar-18
MRZI
Sensex
KARVY INVESTMENT STRATEGY
55
Company Background
Mirza International was established in 1979 (promoted by Mr.Irshad Mirza, Chairman and Mr.Rashid Ahmed Mirza,
Managing Director) is spread across 30 countries. The in-house design development team manufactures high quality
products, which are stylish and comfortable, in the integrated facilities assuring Mirza as a reliable supplier to leading
international brands. Mirza International is the leading Indian supplier of leather footwear to global brands since last
15 years. Approximately 75% of total revenue generated is derived from exports. 85% of the total overseas sales are
private label goods supplied to leading international footwear companies. These international labels come to Mirza due
to the ability to have quick deliveries, offer great build quality and maintain economic prices. At present, the company
operations span across 30 countries around the globe. The main overseas markets are UK, France, Germany and USA.
In UK, the company has garnered a 25% share in the men’s leather footwear in the mid-segment category, due to the
high market penetration underlining the strong acceptance for its products.
MIRZAINT: Technical View
MIRZAINT is in an uptrend on the monthly, quarterly and yearly charts. The stock has given a negative return during
the month so far, where it has slipped more than 17%. The stock began its rally from the levels of around Rs. 6.50
levels in the month of March 2009. The stock gradually continued to trade higher and ultimately clocked life high of
Rs. 183.65 levels in the month of September 2017. The stock has grown 30x to what it was in the year 2009 in
a span of 8 years. Post clocking life highs, the stock has been gradually slipping lower and has already corrected
around 38% from its all time high levels. The trend on the daily and weekly charts is negative but on the higher time
frame, the trend of the stock remains intact. Retracement when drawn from the low of 6.70 and the high of 183.65
on the monthly charts, the 50% retracement for the stock comes around Rs. 90-95 levels and 61.80% retracement
levels are seen around Rs. 74 levels. The stock is likely to find support around the said retracement levels and stage
a bounce. The immediate resistance in the stock is seen to be around Rs. 145-150 levels, above which Rs. 170-180
would act as the next meaningful one. Any sustenance above Rs. 150 levels may take the stock once again towards
its all time high levels of around Rs. 180 in the longer time frame. Adding to it, it has also been noticed, that the stock
is falling with decreasing volumes on the monthly charts, suggesting strong hands are holding the stock and are not
willing to exit at the current levels and waiting for reversal to happen in the counter.
KARVY INVESTMENT STRATEGY
56
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 782
Target Price 1107
Upside (%) 42
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 144.2 / 2.2
52-wk High/Low (Rs.) 1090 / 671
3M Avg.daily value (Rs. Mn)
338.8
Beta (x) 1.1
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 184.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 48.4
FIIs 24.9
DIIs 5.3
Others 21.5
Stock Performance (%)
1M 3M 6M 12M
Absolute 9 (21) (21) (8)
Relative to Sensex 7 (20) (26) (20)
Source: Bloomberg
Bloomberg Code: NTCPH IN
Specialty Generics in U.S Market to Deliver Profits
gCopaxone and gTamiflu to Drive Large Cash Flows: Mylan
(Natco’s marketing partner) is the first to launch a generic of Copaxone
40 mg in Oct 2017 and is expected to capture a significant market share
of the US$ 800 Mn (quarterly sales) drug. Sandoz launched gCopaxone
40mg in Feb 2018. There are only 2 generics of both Copaxone 20mg and
40mg in the US market. Our estimates indicate that Natco could generate
Rs. 6,667 Mn and Rs.9,742 Mn in profit share from both 20mg and 40mg
during FY18E and FY19E respectively.
gFosrenol and gDoxil to Generate Substantial Profits: Natco’s
partner Lupin became the first to launch gFosrenol in Q2 FY18 & is
expected to be the sole generic in the foreseeable future. According to our
estimates, Natco is expected to make Rs. 444 Mn and Rs. 761 Mn in profit
share for FY18E and FY19E respectively. Natco’s partner Dr.Reddy’s is
the second generic in the difficult-to-manufacture gDoxil. Our estimates
indicate that Natco could make Rs. 1168 Mn and Rs. 1123 Mn in profit
share for FY18E and FY19E respectively.
Valuation & Outlook:
We reiterate a “BUY” recommendation with Rs. 1107 target price based
on 18x FY20E EPS of Rs. 49 and cash flow per share of Rs. 224 for
FTF/Para IV opportunities (primarily gRevlimid).The target of Rs.1107
represents a potential upside of 42%.
Key Risks:
U.S Court’s ruling against Mylan on any of the 5 Copaxone patents.
Early approvals and launch of both gCopaxone 20 mg and 40 mg in
U.S by Reddy’s and Synthon/Pfizer.
Form 483 with major observations on any of the Natco’s facility upon
inspection by U.S FDA.
Natco Pharma Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 8253 11416 20650 26458 32913
EBITDA 2134 2697 6834 10024 12433
EBITDA Margin (%) 25.9 23.6 33.1 37.9 37.8
Adj. Net Profit 1195 1552 4860 7293 9035
EPS (Rs.) 8.1 9.1 27.8 39.6 49.0
RoE (%) 17.0 14.4 32.9 38.0 35.8
PE (x)* 51.9 45.3 27.1 19.7 16.0
Source: Company, Karvy Research, *Represents multiples for FY16, FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
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100
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Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
NTCPH
Sensex
KARVY INVESTMENT STRATEGY
57
Company Background
Founded in 1981 and headquartered in Hyderabad, Natco is a specialty generics pharma manufacturer. It is the market
leader in India in Oncology and Hepatitis C therapeutic areas. In Indian market, Natco offers 28 oncology medicines (11
for blood cancers + 17 for solid tumors) and 5 medicines in the hepatitis therapeutic area. Six brands in the oncology
segment have INR 100 mn+ sales. Natco typically pursues a pipeline of niche and complex generics products in U.S with
Para IV and Para III filings and has over 20 approved ANDAs. Natco has 5 finished dosages facilities one each in Kothur,
Nagarjuna Sagar, Guwahati and two in Dehradun. There are 2 API facilities in Mekaguda and Chennai.
NATCOPHARM: Technical View
NATCOPHARM has witnessed stellar rally from the low of Rs. 500 levels till it clocked its life time high of Rs. 1090
levels on June 9, 2017. Thereafter, the rally took pause, on account of profit taking; price corrected and made a
52 week low of Rs. 671 levels on August 10, 2017. Post which the stock has rallied more than 56% in a very short
span of 2 months and made a high of Rs. 1050 levels. The stock faced resistance twice around Rs. 1050 levels
and corrected again more than 33%, made a low of Rs. 697 levels on March 7, 2018. Among the indicators and
oscillators front, 14 period RSI is pointing northwards and poised with bullish bias, clearly indicating the bullish
trend in the stock is likely to continue and the counter is expected to head higher in the near term. The Parabolic
SAR (Stop & Reverse) is comfortably trading below the price on daily chart, which reflects buying will remain intact
in the counter. On the weekly Bollinger Band (20,2) stock price has pierced its lower band in the earlier week and
witnessed smart rebound during the week passed by, and formed strong Bullish reversal candle, which indicates
stock price is likely to revert back to its mean in the weeks to come. The MACD has given positive crossover in
negative territory and inching towards equilibrium line, reflecting strength in the up move. The immediate support for
the stock is placed around its 52 week low of Rs. 670 levels followed by Rs. 600-610 levels, while the higher side
the stock may face resistance near Rs. 1050 levels followed by its all time high of Rs. 1090 levels, breach above the
said levels may take the stock towards Rs. 1130-1135 levels in the medium term. From the above observations, it is
evident that stock is likely to surge higher and outperform its peers in the near to medium term perspective.
KARVY INVESTMENT STRATEGY
58
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Apr 10, 2018) 74
Target Price 98
Upside (%) 32
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 37.7/ 0.6
52-wk High/Low (Rs.) 110 / 59
3M Avg.daily value (Rs. Mn)
61.4
Beta (x) 1.1
Sensex/Nifty 33880 / 10402
O/S Shares(mn) 509.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 67.8
FIIs 1.6
DIIs 2.2
Others 28.4
Stock Performance (%)
1M 3M 6M 12M
Absolute 10 (18) (28) (10)
Relative to Sensex 9 (17) (32) (21)
Source: Bloomberg
Bloomberg Code: TRID IN
Robust Manufacturing Capacity; Focusing on
Increasing Asset Utilization
Margins are likely to improve on back of higher utilization
levels in home textile segment:
The current utilizations between
40-50% for Bath & Bed Linen are expected to break-even in FY19E
and the utilization levels would increase to optimum level of ~85% by
FY20E-21E. EBITDA margins could be in a range of ~18-22% in FY19E
& FY20E which could be possible by rising captive consumption of yarn,
rising share of high-margin home textiles. However, cheaper raw material
and stronger realizations have led to margins improving to 39% in FY18E.
Muted performance from home textiles due to multiple
headwinds:
Due to uneven procurement cycle & destocking by some
of large customers in US, the industry saw pressure in volumes in FY18E,
due to which terry towel utilization fell further in this year from 50% in FY17
to 45%. In case of Yarn, utilization increased further to 95% with lower
captive consumption leading to higher yarn sales which also impacted
margins negatively. Apart from de-stocking, stronger rupee and higher
cotton price continue to remain key headwinds for the textile industry.
Expecting Sustainable Profitability: Challenges like uneven vendor
procurement cycle, higher commodity price are expected to overcome in
FY19E and anticipating sustainable profitability through higher utilization
levels in home textile segment and margin expansion through value added
products. Considering limited capex of Rs. 1000 Mn each year, the cash
generated by the operations is to be used to deleverage the balance
sheet, management expecting a reduction of debt by Rs. 4000Mn every
year for FY19E-20E.
Valuation and Risks: Considering risks of INR appreciation, rough
cotton season is expected to be overcome in FY19E. At the current
inexpensive valuation of 7.2x FY20E P/E, we have given “BUY” rating
with a target price of Rs. 98, based on 9.5x P/E FY20E, representing an
upside potential of 32%.
Trident Ltd
Valuation Summary
YE Mar (Rs. Mn) FY17 FY18 FY19E FY19E FY20E
Net Sales 37112 47438 47540 52895 57892
EBITDA 7297 8883 8530 9923 11725
EBITDA Margin (%) 19.7 18.7 17.9 18.8 20.3
Adj. Net Profit 2421 3372 3157 4030 5268
EPS (Rs.) 4.8 6.6 6.2 7.9 10.3
RoE (%) 10.4 13.0 10.8 12.2 13.8
PE (x)* 10.8 13.0 9.6 9.4 7.2
Source: Company, Karvy Research, *Represents multiples for FY17 & FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Please CLICK HERE for previous report
75
90
105
120
135
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan
-18
Feb-18
Mar-18
TRID
Sensex
KARVY INVESTMENT STRATEGY
59
Company Background
Headquartered in Ludhiana (Punjab), the company operates in two major business segments of home textiles and
paper; with manufacturing facilities located in Punjab and Madhya Pradesh. Keeping in view the increasing requirements
of continuously expanding operations, the company has manufacturing capacities of Terry towels with 688 looms,
bed sheets with an operating capacity of 500 looms, yarn capacity of ~0.56 Mn spindles and 5504 rotors. Trident is
generating captive power to meet the demands of the industry with the production capacity of 50 MW. The company has
a customer presence in more than 75 countries spread across six continents. The company’s prominent international
customers include nine of ten largest American retailers, six leading European retailers and five of the seven largest
Australia and New Zealand-based retailers.
TRIDENT: Technical View
Trident Ltd is in a strong uptrend in the longer time frame say, Monthly, Quarterly and Yearly charts. The stock is
down around 8% for the month as on date. The stock has been part of a massive rally where it has moved from the
levels of around 6 towards Rs. 110 levels. The rally began sometime in July 2013 and it took just a tad more than
4 years to clock its life time highs of Rs. 109.50 levels in the month of September 2017. The stock has witnessed a
stellar rally and has been a multi bagger, growing more than 18 times in a span of just 4 years. Since the beginning
of its rally in 2013, the stock has been continuously heading higher with minor corrections. The stock has a tendency
to resume its fresh up move once the minor correction is over in the counter. The stock after clocking fresh highs in
September 2017 has been under correction mode, slipping more than 40% from its highs. The immediate supports
for the stock is seen to be around Rs. 60 levels, sustaining below which it may extend its downward journey towards
Rs. 52-53 levels in the near term. Though the stock is looking weak on the daily and weekly charts, the upward
trend is intact in the longer time frames. Retracement when drawn from the low of 6 and the high of Rs. 109.50 on
the monthly charts, the 50% retracement for the stock comes around Rs. 55 levels and 61.80% retracement levels
are seen around Rs. 45-46 levels. The stock is likely to find support around the said retracement levels and stage a
bounce. The immediate resistance in the stock is seen to be around Rs. 84-85 levels, sustaining above which it may
rally towards 102-105 in the short to medium term. Any sustenance above Rs. 86 levels, will take the stock towards
Rs. 100-105 levels in the longer time frame.
KARVY INVESTMENT STRATEGY
60
KARVY INVESTMENT STRATEGY
61
DIVIDEND MAXIMIZER
APRIL 2018
DIVIDEND MAXIMIZER
APRIL 2018
KARVY INVESTMENT STRATEGY
62
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 9 13 (4)
Relative to Sensex (0) 11 6 (16)
Source: Bloomberg
Exhibit: Key Financials
YE Dec - Consolidated (Rs. Mn) CY13 CY14 CY15 CY16 CY17
Net Sales 31796 33923 32980 33579 38515
EBITDA 6875 7167 8949 10049 10330
EBITDA Margin (%) 21.6 21.1 27.1 29.9 26.8
Net Profit 5086 4746 6153 6749 6918
EPS (Rs.) 5.1 4.8 6.2 6.8 7.0
RoE (%) 72.6 76.0 114.7 115.2 85.6
PE (x) 30.5 52.3 35.5 27.9 27.6
Source: Bloomberg
Exhibit: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Castrol is one of the leading manufacturers of engine lubricants in India.
The company has pan India presence with its 3 manufacturing plants
located at Silvassa, Patalganga and Paharpur and a strong distribution
network reaching out to over 150,000 customers through retail outlets,
which are serviced through 420 distributors nationally. Their main brands
include: Castrol Edge, Castrol Magnatec, Castrol GTX, Castrol Power1,
Castrol Activ and Castrol CRB. About 40-43% of the volume contributed by
personal mobility segment comprising of 2-wheelers and passenger cars
has grown at a CAGR of 8.0% and 10.0% respectively during CY12-17,
where there is a substantial scope for marketing premium lubricants and
the commercial vehicle segment (incl. agricultural equipment) constitutes
~47-50% of volumes. During CY17, the company actively focused on
distribution expansion which led to ~1% market share gain to ~21.0% in
the automotive segment. Castrol has ended CY17 with highest ever sales
volume, clocking 205 mn Litres, gaining most of it in the last Q4CY17.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 208
Dividend/share* 6.6
Dividend Yield (%)* 3.2
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 205.3 / 3.1
52-wk High/Low (Rs.) 227 / 172
3M Avg. daily value (Rs.mn)
383.8
Beta (x) 0.8
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 988.1
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 51.0
FIIs 10.3
DIIs 16.8
Others 21.9
68.1
78.2
72.3
80.6
100.1
81.1
81.0
0
21
42
63
84
105
CY13
CY14
CY15
CY16
CY17
CY18E
CY19E
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: CSTRL IN
Castrol India Ltd
3.5
3.8
4.5
4.5
7.0
6.1
6.6
2.5%
2.6%
1.9%
2.6%
2.8%
2.9%
3.2%
0%
1%
2%
3%
4%
0
2
4
6
8
CY13
CY14
CY15
CY16
CY17
CY18E
CY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
2.5%
80
90
100
110
120
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
CSTRL IN Equity
Sensex
KARVY INVESTMENT STRATEGY
63
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 (16) (10) (27)
Relative to Sensex 0 (15) (15) (36)
Source: Bloomberg
Exhibit: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 19061 17359 16977 16102 16311
EBITDA 2406 1877 2850 2674 2434
EBITDA Margin (%) 12.6 10.8 16.8 16.6 14.9
Net Profit 1480 1234 836 2009 1807
EPS (Rs.) 6.1 5.1 3.4 8.2 7.4
RoE (%) 21.7 15.9 10.2 23.4 19.9
PE (x) 10.6 16.0 25.6 14.8 23.1
Source: Bloomberg
Exhibit: Dividend/Share & Yield
Source: Bloomberg
Exhibit: Dividend Payout (%)
Source: Bloomberg
Greaves Cotton Ltd. (GCL) is a leading diversied engineering company
manufacturing machinery and equipment. Greaves business is
organised into Auto engines, Auxiliary Power Solutions, Farm Equipment
Business and After-Market business. The company has 6 manufacturing
facilities and 3,500+ customer touch points spread across India. Over the
years, Greaves has increased its investments in R&D and the spending
has averaged to the tune of ~1.5% of sales during FY08-17 peaking in
the scals before CPCB norms came into force. In future, Greaves is
committed to transform itself into fuel agnostic engineered solutions
provider encompassing both manufacturing and service business
lines. Greaves has manufactured 5 mn diesel engines over the years
and has market share of ~78.0% in the 3 Wheeler (3w) diesel engines
market. Greaves’ cost leadership enables it to be a major source of 3w
auto engines in India with partnerships over 35 auto manufacturers.
Greaves products for Agri and Auxiliary power segment crossed
3 mn pump sets and 1 mn generator sets mark recently.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 122
Dividend/share* 5.2
Dividend Yield (%)* 4.3
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 29.8 / 0.4
52-wk High/Low (Rs.) 179 / 112
3M Avg. daily value (Rs.mn)
130.9
Beta (x) 0.9
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 244.2
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 51.0
FIIs 7.3
DIIs 22.1
Others 19.6
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: GRV IN
Greaves Cotton Ltd
26.4
25.7
43.9
66.3
66.3
99.7
85.1
0
20
40
60
80
100
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
1.6
1.3
2.5
5.5
5.5
5.3
5.2
3.8%
1.7%
1.5%
7.9%
3.0%
4.4%
4.3%
0%
2%
4%
6%
8%
10%
0
2
4
6
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
3.6%
50
70
90
110
130
Apr-17
May
-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
GRV IN Equity
Sensex
KARVY INVESTMENT STRATEGY
64
Stock Performance (%)
1M 3M 6M 12M
Absolute 4 (0) 1 16
Relative to Sensex 2 1 (5) 1
Source: Bloomberg
Exhibit 3: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 235827 251249 273033 282189 282814
EBITDA 32870 35392 35086 43977 45760
EBITDA Margin (%) 13.9 14.1 12.9 15.6 16.2
Net Profit 21182 21027 23647 31420 35843
EPS (Rs.) 106.1 105.3 118.4 157.3 179.5
RoE (%) - 39.6 38.9 40.9 37.4
PE (x) 14.5 21.6 22.3 18.7 18.0
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Hero Moto Corp Ltd manufactures 2-wheelers predominantly catering to the
motorcycle segment with 51% domestic market share. Its product portfolio
caters to motorcycles ranging from 75cc-150cc and scooters in the 100cc-
125cc range. Hero recorded sales growth of 13.8% and total volume at 7.58
mn vehicles. Hero is continually expanding its presence across various
countries like Colombia, Bangladesh and also across African, Middle
East, Asian and American countries. Hero sees a scalable opportunity in
Bangladesh due to low penetration in the 2W segment and has setup new
facility at Jessor, Bangladesh, as a joint venture with ‘Nitol Niloy Group’
with an initial annual capacity of 1,50,000 units. Hero has stabilised
operations at their Colombia plant to ramp up capacity to 1,50,000 units,
whose location is logistically advantageous to export to Andean and Latin
American Countries. In addition to this, the company has indicated a capex
of Rs. 25 bn to be deployed over the next two years to ramp up existing
facilities and also for a new facility at Andhra Pradesh taking the capacity to
10 mn units from the current capacity of ~9.0 mn units.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 3718
Dividend/share* 102.2
Dividend Yield (%)* 2.7
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 742.6 / 11.4
52-wk High/Low (Rs.) 4200 / 3179
3M Avg. daily value (Rs.mn)
1327.7
Beta (x) 0.9
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 199.7
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 34.6
FIIs 42.3
DIIs 11.5
Others 11.6
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: HMCL IN
Hero MotoCorp Ltd
56.6
61.8
50.7
45.8
47.4
50.4
50.3
0
16
32
48
64
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
60.0
65.0
60.0
72.0
85.0
93.5
102.2
3.4%
2.9%
3.9%
2.5%
2.8%
2.5%
2.7%
1.0%
2.0%
3.0%
4.0%
5.0%
0
22
44
66
88
110
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
3.1%
90
100
110
120
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
HMCL IN Equity
Sensex
KARVY INVESTMENT STRATEGY
65
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 (14) (16) 1
Relative to Sensex 0 (13) (21) (12)
Source: Bloomberg
Exhibit 3: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 2158936 2339494 2163903 1776017 1871084
EBITDA 35677 55467 54380 82786 108121
EBITDA Margin (%) 1.7 2.4 2.5 4.7 5.8
Net Profit 5013 10804 14986 46747 82358
EPS (Rs.) 3.3 7.1 9.8 10.2 54.0
RoE (%) 3.8 7.8 10.7 30.6 43.7
PE (x) 19.3 9.7 14.7 17.1 6.5
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Hindustan Petroleum Corporation Ltd, a Fortune 500 company, is one
of the major integrated oil rening and marketing companies in India.
The company, a Mega Public Sector Undertaking (PSU) with Navaratna
status, renes crude oil and manufactures petroleum and petroleum
products. The company’s products, which are sold via outlets throughout
India, include lube products, lubricating oil, aviation fuel, hydraulic brake
uid, greases, liqueed petroleum gas and insecticides. The Government
of India is a majority shareholder of the company. The company operates
through two coastal reneries, one at Mumbai (West Coast) of 6.5 million
Metric Tonnes per annum (MMTPA) and the other at Visakhapatnam
(East Coast) with a capacity of 8.3 MMTPA. In the decade ending FY17,
earnings grew by 19.7% CAGR and RoCE reached 21.2% by end of
FY17. Government of India as a part of scal management divested its
51.11% stake in HPCL to ONGC for Rs. 369 bn for which ONGC raised
debt from market.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 365
Dividend/share* 16.7
Dividend Yield (%)* 4.6
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 555.7 / 8.5
52-wk High/Low (Rs.) 493 / 324
3M Avg. daily value (Rs.mn)
1691.9
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 1523.8
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 51.1
FIIs 24.8
DIIs 12.0
Others 12.1
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: HPCL IN
Hindustan Petroleum Corp Ltd
57.4
48.6
55.4
24.9
37.0
38.2
36.6
0
20
40
60
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
1.9
3.4
5.4
7.7
20.0
17.1
16.7
3.8%
3.4%
2.8%
6.1%
8.6%
4.7%
4.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0
5
10
15
20
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
4.9%
90
106
122
138
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov
-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
HPCL IN Equity
Sensex
KARVY INVESTMENT STRATEGY
66
Stock Performance (%)
1M 3M 6M 12M
Absolute 10 10 3 42
Relative to Sensex 9 12 (3) 24
Source: Bloomberg
Exhibit: Dividend/Share & Yield
Source: Bloomberg
Exhibit: Dividend Payout (%)
Source: Bloomberg
Indiabulls Housing Finance Ltd (IBHF) is one of the leading housing nance
company in India. The company has launched e-home loans, one of its kind
in the home loan industry. It has credit rating of AAA from CARE and AA+
from CRISIL and is among very few who enjoy such rating from the rating
agencies. It has pan India presence with a strong hold in tier 1 and tier 2 cities.
IBHF is one of the largest housing nance company with AUM of more than
1 tn. By Q3FY18, IBHF’s borrowings were balanced between debentures
& securities (53%), bank loans (34%), sell downs (10%) and ECB’s (3%).
Its Yield on Assets (11.14%), Cost of funds (7.92%) and Interest Spreads
(3.22%) are industry leading. In terms of loan asset composition, Mortgage
Loans account for 79% and Corporate Mortgage Loans constitute the rest.
Its FY17 Return on Assets (RoA) and Return on Equity (RoE) to the tune of
3.6% and 26% respectively. Its FY17 Capital Adequacy Ratio (CAR) stood
at 20.91% splitting into Tier I of 17.25% and Tier II of 3.66%. Loan asset
quality measured as a per cent of loan assets reached 0.77% and 0.31% at
gross and net level respectively by Q3FY18.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 1325
Dividend/share* 52.8
Dividend Yield (%)* 4.0
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 565.0 / 8.7
52-wk High/Low (Rs.) 1440 / 920
3M Avg. daily value (Rs.mn)
2535.4
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 426.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 22.8
FIIs 55.3
DIIs 12.0
Others 9.9
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: IHFL IN
Indiabulls Housing Finance Ltd
49.7
61.9
48.6
80.9
39.4
50.3
47.5
0
21
42
63
84
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Exhibit: Key Financials
YE Mar-Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Interest Income 18622 20572 22066 30848 43905
Net Profit 12584 15642 19011 23447 29064
EPS (Rs.) 40.3 48.0 55.0 59.8 68.8
BVPS (Rs.) 166 171 187 254 286
P/E (x) 7.0 5.0 10.2 10.9 14.5
P/BV (x) 1.7 1.4 3.0 2.6 3.5
RoE (%) 24.8 28.7 30.8 27.1 25.5
RoA (%) 3.2 3.7 3.7 3.5 3.2
Source: Bloomberg
20.0
29.0
26.0
45.0
27.0
45.8
52.8
0.0%
10.5%
7.2%
5.9%
3.7%
3.5%
4.0%
0.0%
3.0%
6.0%
9.0%
12.0%
0
18
36
54
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
5.5%
90
110
130
150
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov
-17
Dec-17
Jan-18
Feb
-
18
Mar-18
Apr-18
IHFL IN Equity
Sensex
KARVY INVESTMENT STRATEGY
67
Stock Performance (%)
1M 3M 6M 12M
Absolute (4) 6 19 17
Relative to Sensex (6) 8 12 2
Source: Bloomberg
Exhibit 3: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 403520 501330 533190 624410 684840
EBITDA 113000 131850 144260 170790 186040
EBITDA Margin (%) 28.0 26.3 27.1 27.4 27.2
Net Profit 94210 106480 123290 134890 143530
EPS (Rs.) 41.2 46.6 53.9 59.0 62.8
RoE (%) 25.7 24.4 24.1 23.2 22.0
PE (x) 17.5 17.6 20.6 20.6 16.3
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Infosys is India’s second-largest software services company, with US$
10.7 bn in revenues in FY17. The company is an end-to- end IT and BPO
services provider, oering services ranging from software development,
maintenance, technology and management consulting, testing, systems
integration, engineering services, BPO and package implementation. INFY
oers these services to a variety of industry verticals, namely Banking,
Financial Services and Insurance group (BFSI-33%), Manufacturing &
Hi-tech group (22%), Retail, Life Sciences, Transportation & CPG group
(23%) and Telecommunications, Energy & Utilities group (22%). INFY
derives a majority of its revenues from the North American market (60.7%).
Beginning April 2015, INFY adopted new higher value oerings which are
categorised into new services (9.7% of revenue) and new products (1.7%
of revenue). In the last decade, INFY’s per employee revenue grew by
6.4% CAGR and prot per employee grew by 3.4%. With net additions at
1,327 till Q3FY18, total employee count in INFY stands at 2,01,691.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 1113
Dividend/share* 33.5
Dividend Yield (%)* 3.0
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 2431.8 / 37.4
52-wk High/Low (Rs.) 1221 / 860
3M Avg. daily value (Rs.mn)
5975.2
Beta (x) 0.7
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 2184.1
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 12.9
FIIs 34.9
DIIs 21.7
Others 30.5
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: INFO IN
Infosys Ltd
25.6
34.0
41.5
41.1
41.0
46.0
47.6
0
10
20
30
40
50
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
10.5
15.8
29.8
24.3
25.8
31.1
33.5
1.8%
1.6%
1.8%
2.1%
2.5%
2.8%
3.0%
0%
1%
2%
3%
4%
0
9
18
27
36
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
2.0%
85
95
105
115
125
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
INFO IN Equity
Sensex
KARVY INVESTMENT STRATEGY
68
Stock Performance (%)
1M 3M 6M 12M
Absolute 8 (22) (15) (14)
Relative to Sensex 6 (21) (20) (25)
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Karnataka Bank is one of India’s region focused private sector bank.
Major business area for the bank is the state of Karnataka. The bank was
originally incorporated in year 1924 at Mangalore. Over the years, the bank
has merged with Sringeri Sharada Bank Ltd, Chitladurg Bank Ltd, and
Bank of Karnataka. The bank has crossed business turnover of Rs.1.02
trillion in Q3FY18. The bank heavily relies on retail deposits (70.8%) and
CASA standing at only 22.4% by Dec’17. The bank generates Yield on
Advances of 10.05% while incurring Cost of funds at a rate of 6.16% while
maintaining spread at 3.89% and NII of 3.07%. The bank maintains CAR
of 12.26% with Tier I at 11.14% and Tier II at 1.12%. Bank’s asset quality
in terms of gross and net NPA stood at 3.97% and 2.98% by Q3FY18. It
operates 781 branches of which ~45% are in rural and semi-urban areas.
It has entered into a joint venture agreement and holds equity investments
to the extent of 15% in Universal Sompo General Insurance.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 125
Dividend/share* 4.5
Dividend Yield (%)* 3.6
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 47.1 / 0.7
52-wk High/Low (Rs.) 181.2 / 107.0
3M Avg. daily value (Rs.mn)
546.6
Beta (x) 1.3
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 282.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 0.0
FIIs 18.0
DIIs 11.8
Others 70.2
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: KBL IN
The Karnataka Bank Ltd
21.6
24.2
20.9
22.7
25.0
28.9
22.4
0
10
20
30
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Exhibit 3: Key Financials
YE Mar-Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Interest Income 10181 10561 11688 13029 14906
Net Profit 3481 3110 4515 4153 4523
EPS (Rs.) 15.1 13.4 19.5 18.0 19.4
BVPS (Rs.) 124 132 146 160 182
P/E (x) 7.1 7.1 5.2 4.7 7.3
P/BV (x) 0.9 0.7 0.7 0.5 0.8
RoE (%) 12.8 10.5 14.0 11.7 10.2
RoA (%) 0.9 0.7 0.9 0.8 0.7
Source: Bloomberg
3.3
3.3
4.1
4.1
4.0
4.4
4.5
3.1%
3.8%
3.5%
5.2%
3.0%
3.5%
3.6%
0%
2%
4%
6%
0
1
2
3
4
5
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
3.7%
70
90
110
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
KBL IN Equity
Sensex
KARVY INVESTMENT STRATEGY
69
Stock Performance (%)
1M 3M 6M 12M
Absolute (5) (29) (28) (42)
Relative to Sensex (7) (28) (33) (49)
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 88
Dividend/share* 7.4
Dividend Yield (%)* 8.4
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 233.2 / 3.6
52-wk High/Low (Rs.) 169 / 83
3M Avg. daily value (Rs.mn)
686.2
Beta (x) 1.2
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 2640.1
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 65.9
FIIs 14.5
DIIs 13.0
Others 6.6
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: POWF IN
Power Finance Corp Ltd
20.8
21.8
20.0
29.7
59.0
32.9
30.3
0
20
40
60
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Exhibit 3: Key Financials
YE Mar-Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Interest Income 60807 81347 94836 109967 102789
Net Profit 44377 54618 60044 61840 22361
EPS (Rs.) 16.8 20.7 22.7 23.4 8.5
BVPS (Rs.) 74 82 101 121 140
P/E (x) 5 5 6 4 17
P/BV (x) 1.2 1.2 1.4 0.7 1.0
RoE (%) 22.7 26.5 24.8 21.1 6.5
RoA (%) 2.9 3.0 2.8 2.6 0.9
Source: Bloomberg
3.5
4.5
4.6
7.0
5.0
8.1
7.4
5.1%
6.2%
3.8%
9.0%
7.3%
9.2%
8.4%
0%
2%
4%
6%
8%
10%
0.0
3.0
6.0
9.0
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
6.3%
50
70
90
110
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
POWF IN Equity
Sensex
Power Finance Corporation Ltd (PFC) is a state-owned Navratna NBFC
engaged in business of nancing companies in power sector related
activities, particularly generation activities. PFC oers fund-based and
non fund-based nancial assistance apart from oering consultancy and
capital advisory services. By 9MFY18, PFC’s borrowing composition was
bonds (89%), short term loans (6%) and term loans (5%) of which 94%
is rupee denominated loans and rest is foreign currency loans. Yield on
Assets and Cost of funds averaged to 11.02 % & 8.21% respectively. The
loan assets composition in terms of sanctions to activities like generation
(58%), transmission (10%), distribution (16%) and others (16%) allowing
for Interest Spreads and Net Interest Margin averages to 2.81% and
3.84% respectively. PFC generates annualised Return on Assets (RoA)
and Return on Equity (RoE) to the tune of 2.47% & 17.22% respectively.
The company remains well capitalised with Capital Adequacy Ratio (CAR)
at 20.75%. Loan asset quality measured as a % of loan assets reached to
5.71% & 4.23% at gross and net level respectively by 9MFY18. The same
without considering Govt. loans stands at 3.32% & 1.16% respectively.
KARVY INVESTMENT STRATEGY
70
Stock Performance (%)
1M 3M 6M 12M
Absolute 6 (20) (21) 0
Relative to Sensex 4 (19) (26) (12)
Source: Bloomberg
Exhibit 3: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 91687 120991 139012 134474 153106
EBITDA 4426 8262 9977 11493 13899
EBITDA Margin (%) 4.8 6.8 7.2 8.5 9.1
Net Profit 1983 3608 2563 3225 4147
EPS (Rs.) 6.7 12.2 8.7 10.9 14.0
RoE (%) 7.7 13.0 8.6 9.7 11.2
PE (x) 8.9 5.6 9.3 5.9 6.7
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
PTC India is India’s largest power trading company with over ~40% of
market share in the power trading market. PTC has traded 327 billion units
of power since inception and generated cumulative revenue of US$16.7
bn over the years. PTC’s cross-border trade (7.9bu in FY17) is with
countries like Nepal, Bhutan and Bangladesh and domestic operations
(17.9bu in FY17) include supply of power to 22 state utilities and 500+
industrial & commercial clients. In FY17, PTC traded short term contracts
of 25.9bu and rest were traded under long term contracts. These are back-
to-back buy and sell contracts with suppliers and customers. PTC thrives
on spread (Rs.0.48/unit). PTC operates two subsidiaries; PTC Financial
Services which funds power projects predominantly renewable energy
sector and PTC Energy owns and operates a portfolio of renewable
energy projects totalling over 290MW.
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 96
Dividend/share* 4.0
Dividend Yield (%)* 4.2
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 28.3 / 0.4
52-wk High/Low (Rs.) 130 / 83
3M Avg. daily value (Rs.mn)
201.0
Beta (x) 1.3
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 296.0
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 16.2
FIIs 34.5
DIIs 26.3
Others 23.0
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: PTCIN IN
PTC India Ltd
28.4
16.4
25.4
22.9
21.4
32.9
37.0
0
10
20
30
40
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
1.6
2.0
2.2
2.5
3.0
3.3
4.0
2.9%
2.6%
2.7%
3.6%
2.7%
3.4%
4.2%
0%
1%
2%
3%
4%
5%
0
1
2
3
4
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
2.9%
80
100
120
140
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
PTCIN IN Equity
Sensex
KARVY INVESTMENT STRATEGY
71
Stock Performance (%)
1M 3M 6M 12M
Absolute 5 (3) 4 7
Relative to Sensex 3 (1) (2) (7)
Source: Bloomberg
Exhibit 3: Key Financials
YE Dec - Consolidated (Rs. Mn) FY13 FY14 FY15 FY16 FY17
Net Sales 6637 7847 8300 8789 9441
EBITDA 1821 2222 2424 2570 2839
EBITDA Margin (%) 27.4 28.3 29.2 29.2 30.1
Net Profit 1262 1502 1464 1531 1672
EPS (Rs.) 81.8 97.2 98.6 99.2 108.3
RoE (%) 42.5 47.5 45.1 42.7 36.9
PE (x) 18.5 16.9 15.9 16.7 26.5
Source: Bloomberg
Exhibit 1: Dividend/Share & Yield
Source: Bloomberg
Exhibit 2: Dividend Payout (%)
Source: Bloomberg
VST Industries an associate arm of British American Tobacco Plc (32.16%
stake in the company) is a Hyderabad based cigarette manufacturing
company incorporated in the year 1930. Company’s principal activities
involve manufacturing and sale of cigarettes, unmanufactured and cut
tobacco. Company is the 3rd largest player in the Indian cigarette market
with 8% market share in terms of volume. Major brands include Charminar,
Charminar Special Filter, Charms Mini Kings, Charms Virgina Filter, XL
Filter, Vijay, Shaan etc. VST’s products are targeted at lower income
segment where it has dominance. Large chunk of revenue (~87%) comes
from the sale of cigarettes while unmanufactured tobacco contributes
to (~13%) of total revenue. It enjoys strong presence in Southern and
Eastern India and is also increasing its presence in few northern states
such as Uttar Pradesh and Bihar. VST is cash rich and has zero debt.
It enjoys high returns on equity (36.9%), on asset (20.6%) and capital
employed (54.4%).
Dividend Information (Rs.)
CMP (as on Apr 10, 2018) 3108
Dividend/share* 110.0
Dividend Yield (%)* 3.6
* Bloomberg Estimates
Stock Information
Mkt Cap (Rs.bn/US$ bn) 48.0 / 0.7
52-wk High/Low (Rs.) 3875 / 2591
3M Avg. daily value (Rs.mn)
8.0
Beta (x) 0.7
Sensex/Nifty 33880 / 10402
O/S Shares (mn) 15.4
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 32.2
FIIs 9.5
DIIs 14.7
Others 43.6
Relative Performance*
Source: Bloomberg; *Index 100
India Research - Stock Broking
Bloomberg Code: VST IN
VST Industries Ltd
76.4
72.0
71.0
70.6
69.3
72.5
75.2
0
20
40
60
80
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
62.5
70.0
70.0
70.0
75.0
90
110
5.1%
4.4%
4.9%
4.5%
2.5%
2.9%
3.5%
0%
2%
4%
6%
0
55
110
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
Dividend/Share (Rs.)
Dividend Yield (%)
5yrs avg. Yield (%)
4.3%
85
100
115
130
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov
-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
VST IN Equity
Sensex
KARVY INVESTMENT STRATEGY
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KARVY INVESTMENT STRATEGY
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NOTES
KARVY INVESTMENT STRATEGY
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NOTES
KARVY INVESTMENT STRATEGY
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