Post on 08-May-2023
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.
Contents
Special Reports
Theme Report
Banks: The price of populism
Daily Alerts
Results
Avenue Supermarts: 4QFY18: revenue misses estimates
Adani Ports and SEZ: Bulk and container both to drive share gains
Ambuja Cements: Volume disappoints
IIFL Holdings: Capital businesses shine; agency marginally weak
Castrol India: In-line results
PVR: Stepping up its game
Company alerts
L&T: Divestments: takeaways beyond valuation
INDIA DAILY May 7, 2018 India 4-May 1-day 1-mo 3-mo
Sensex 34,915 (0.5) 3.8 2.4
Nifty 10,618 (0.6) 2.8 1.4
Global/Regional indices
Dow Jones 24,263 1.4 1.4 (2.5)
Nasdaq Composite 7,210 1.7 4.3 2.2
FTSE 7,567 0.9 5.3 4.0
Nikkei 22,406 (0.3) 5.2 (3.7)
Hang Seng 29,927 (1.3) 0.3 (1.3)
KOSPI 2,461 (1.0) 1.3 2.7
Value traded – India
Cash (NSE+BSE) 322 343 355
Derivatives (NSE) 3,676 8,956 7,244
Deri. open interest 3,556 3,481 3,857
Forex/money market
Change, basis points
4-May 1-day 1-mo 3-mo
Rs/US$ 66.8 (8) 188 260
10yr govt bond, % 8.0 - 35 3
Net investment (US$ mn)
3-May MTD CYTD
FIIs (13) (65) 1,117
MFs 54 55 6,967
Top movers
Change, %
Best performers 4-May 1-day 1-mo 3-mo
NEST IN Equity 9,111 0.1 9.2 30.0
AL IN Equity 164 0.1 11.9 23.4
TTAN IN Equity 958 (0.1) 1.9 22.3
EXID IN Equity 249 0.2 4.0 21.7
SHTF IN Equity 1,600 1.6 0.9 20.7
Worst performers
PNB IN Equity 92 (0.5) (10.4) (41.5)
RCOM IN Equity 15 2.0 (37.0) (39.0)
HDIL IN Equity 31 0.6 (24.3) (38.7)
BOI IN Equity 100 (0.9) (11.4) (28.9)
UNBK IN Equity 91 (0.5) (10.6) (26.3)
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Another State election, another waiver
BJP’s new manifesto pledges that loan waivers are likely if the party is voted into power in
Karnataka. The party has announced `0.1 mn waiver on agriculture crop loans for borrowers
who have taken loans from nationalized banks and co-operatives. It is early to determine the
impact of this announcement, but we underscore the pattern of slippages reported by public
sector banks when UP, Rajasthan, Maharashtra and Punjab went into election mode or had to
address issues faced by farmers last year. Such loans are eventually recovered as ineligible
borrowers must repay to get loans renewed or sanctioned but such resolution takes time.
NPLs continue to rise and talk of waivers fuels the fire in the short term
Karnataka accounts for 8% of all agriculture loans in India and this news of waivers impacts
most banks. SBI’s share of agriculture loans has declined share while nationalized banks have
seen an increase (see Exhibit 2). Gross NPLs in this book have been gradually rising over the past
few years for all banks. Public banks have 15% NPLs in this book while private banks are at 3%
(see Exhibit 5). These issues take time to settle as we have seen in States like Maharashtra and
UP where such waivers have been announced in the past.
MFI business equally at risk; downgrade Ujjivan to REDUCE from ADD
Similar events in the past indicate that waivers have an immediate negative impact on the MFI
portfolios of banks and NBFCs. MFIs have just emerged from the demonetization-led crisis with
Karnataka having been keenly affected (see Exhibit 6 and 7); we watch closely to check the
impact of the latest waiver announcement. Ujjivan Financial Services and Bharat Financial have
~11-15% of their loan book in this State (see Exhibit 8). These portfolios are quite quick to
deteriorate. MFI stocks have seen stellar performance on the back of their recovery and we
would use current price points to lighten our positions in them. We downgrade Ujjivan Financial
Services to REDUCE from ADD (TP unchanged). Our multiples are unchanged at 2.5X FY2019E
book and 20X EPS for RoEs at ~13-15% in the medium term.
Pradhan Mantri Fasal Bima Yojana (PMFBY) on track; hopefully, will put paid to waivers
We have seen good progress on PMFBY with banks insisting on insurance protection measures
before loan disbursements (see Exhibit 9). The sums assured and farmers covered have
increased while the claim settlement process, barring the initial couple of years of bottlenecks,
appears easier. However, these schemes protect volume loss and not value at this stage and it is
likely that it is this value loss that fuelled the demand for loan waivers. Good monsoons in the
past few years have resulted in lower payouts. The government is trying to address the issue of
value loss through a new scheme that is linked to the cost of production. Hopefully, these two
measures will result in fewer loan-waiver announcements.
Banks India
The price of populism. The BJP’s manifesto for Karnataka, released prior to the
forthcoming election, includes the now-all-too--familiar agriculture loan waiver. The
waiver would apply to loans up to `0.1 mn from nationalized banks and co-operatives.
If the BJP does win, it would be a while before the details of any waivers are released or
put into effect; meanwhile, the temptation to default is likely to be high. Public banks
and MFIs are likely to bear the brunt of this impact. Ujjivan’s recent price performance
leaves negligible upside. Downgrade to REDUCE from ADD (TP unchanged).
ATTRACTIVE
MAY 07, 2018
THEME
BSE-30: 34,915
QUICK NUMBERS
Agriculture loan
waiver announced
in BJP manifesto for
Karnataka for up to
`0.1 mn
Bank NPLs in
agriculture
portfolio in
Karnataka are high
at 9% of loans
Downgrade Ujjivan
Financial Services to
REDUCE from ADD
(TP unchanged)
M B Mahesh CFA
Nischint Chawathe
Abhijeet Sakhare
Dipanjan Ghosh
Banks India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Exhibit 1: Karnataka sees 15% of total loans going to agriculture Composition of loans in Karnataka, March fiscal year-ends, 2005-17 (%)
Source: RBI, Kotak Institutional Equities
Exhibit 2: SBI has slowed agriculture loan disbursement in recent years; nationalized banks have gained share Market share and loan growth in agriculture loans in Karnataka, March fiscal year-ends, 2005-17 (%)
Source: RBI, Kotak Institutional Equities
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Composition of credit (%)
Agriculture 14.5 12.5 12.0 12.4 12.6 13.3 14.0 14.7 15.4 17.9 16.6 16.7 16.5
Industry 33.0 35.7 35.9 34.6 34.6 35.1 34.3 34.5 35.3 34.3 33.8 30.4 28.6
Transport operators 1.3 1.3 1.6 1.9 1.9 2.7 2.4 2.3 2.3 1.8 1.4 1.3 1.2
Professional and others 6.1 7.0 7.6 10.0 11.4 13.1 11.7 9.3 9.5 9.0 9.3 10.5 10.1
Personal loans 29.9 30.0 26.7 25.9 25.8 23.6 23.1 23.4 24.4 24.2 26.2 27.2 29.8
Housing 16.5 17.8 16.6 15.6 15.7 14.6 14.1 13.8 14.7 14.1 15.9 16.5 17.4
Vehicles — — — — 2.1 1.4 1.7 1.8 2.0 2.0 2.3 2.4 2.7
Others 13.4 12.2 10.2 10.2 8.0 7.6 7.3 7.8 7.7 8.1 8.0 8.3 9.7
Trade 6.3 5.7 7.4 6.7 6.7 6.5 6.2 8.2 8.6 6.8 6.8 6.5 7.2
Finance 3.1 3.4 5.7 3.6 4.2 2.6 4.6 4.1 3.0 4.2 4.1 5.1 3.8
Others 5.7 4.2 3.0 5.0 2.9 2.9 3.9 3.3 1.3 1.9 1.8 2.2 2.6
Growth in credit (%)
Agriculture 28.8 24.4 31.5 19.4 9.1 15.9 19.5 22.1 20.2 35.2 3.9 14.9 5.2
Industry 33.2 55.5 38.1 11.2 7.7 11.4 11.0 16.4 18.1 12.6 10.5 2.7 (0.1)
Transport operators 56.4 47.6 62.2 36.6 8.3 58.6 (1.2) 15.3 14.8 (11.0) (14.1) 6.3 2.0
Professional and others 38.5 64.5 48.2 53.0 21.4 27.1 1.1 (7.7) 18.0 10.1 15.8 28.1 2.5
Personal loans 47.7 44.4 22.3 11.8 7.0 0.7 11.3 17.1 20.4 15.0 21.7 18.0 16.6
Housing 52.6 54.8 28.0 9.2 7.5 2.1 9.8 13.4 23.5 11.1 26.5 17.8 12.2
Vehicles — — — — — (26.2) 40.2 20.6 29.3 14.7 29.0 18.3 20.8
Others 42.1 31.6 14.0 16.2 (15.9) 4.9 8.8 23.6 12.9 22.5 11.5 18.3 24.1
Trade 25.5 29.7 79.0 4.4 7.5 7.1 8.1 52.6 21.1 (8.0) 11.6 8.5 18.9
Finance 28.2 56.7 126.5 (27.3) 26.5 (32.0) 99.4 4.2 (14.4) 59.2 10.8 42.1 (21.5)
Others 2.6 5.8 (2.2) 92.6 (37.8) 11.0 49.9 (0.9) (53.7) 64.1 7.7 42.0 23.0
Total 34.1 43.7 37.2 15.7 7.4 9.8 13.8 15.6 15.4 16.2 12.1 13.9 6.3
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Market share across banks
SBI 22.3 24.1 25.2 25.2 27.1 27.7 25.0 22.1 23.4 19.4 19.9 18.2 17.3
Public banks 52.9 56.7 50.7 46.2 44.7 44.3 40.2 47.6 41.5 46.4 43.9 46.9 50.2
Private 7.2 5.7 6.6 11.0 11.3 9.4 13.9 14.3 15.9 12.6 15.3 15.1 15.5
RRB and foreign 17.7 13.6 17.5 17.7 16.9 18.6 20.8 16.0 19.2 21.6 20.9 19.8 17.1
Growth
SBI 25.1 34.3 37.7 19.4 17.3 18.6 7.9 7.8 27.1 12.3 6.6 4.7 0.2
Public banks 33.4 33.3 17.7 8.7 5.7 14.8 8.5 44.6 4.8 50.9 (1.6) 22.7 12.5
Private 2.0 (1.5) 53.2 97.8 12.4 (3.5) 77.2 24.9 33.7 7.7 25.7 13.8 7.5
RRB and foreign 34.4 (4.3) 69.1 20.8 4.4 27.2 34.0 (6.2) 44.7 51.6 0.5 8.9 (9.3)
India Banks
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: Karnataka consumes 8% of total agriculture loans Share of Karnataka in agriculture loans for all banks, March fiscal year-ends, 2007-17 (%)
Source: RBI, Kotak Institutional Equities
Exhibit 4: Loan growth has slowed in agriculture as well as in
Karnataka Growth in loans in Karnataka and industry, March fiscal year-ends, 2007-17 (%)
Source: RBI, Kotak Institutional Equities
7
8
8
9
9
10
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17 0
9
18
27
36
45
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Karnataka Industry
Banks India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 5
Exhibit 5: Break-up of loans across banks, March fiscal year-ends, 3QFY18
Source: Company, Public documents, Kotak Institutional Equities
Loans in
Karnataka Agriculture loans Gross NPL Agriculture NPL Gross NPL Agriculture NPL
(Rs mn) (Rs mn) (Rs mn) (Rs mn) (%) (%)
Public sector banks
Allahabad Bank 26,433 651 1,942 99 7.3 15.2
Andhrabank 63,412 3,571 3,261 175 5.1 4.9
Bank of Baroda 94,878 6,211 2,885 728 3.0 11.7
Bank of India 128,492 26,862 13,083 1,653 10.2 6.2
Bank of Maharastra 46,987 3,045 3,038 425 6.5 13.9
Canara Bank 629,399 172,199 54,001 12,857 8.6 7.5
Central Bank of India 46,894 5,958 2,646 454 5.6 7.6
Corporation Bank 268,628 78,827 24,060 2,618 9.0 3.3
Dena Bank 13,086 1,953 1,968 179 15.0 9.2
IDBI Bank 109,932 25,309 11,021 1,876 10.0 7.4
Indian Bank 68,952 6,947 1,175 337 1.7 4.9
Indian Overseas Bank 54,332 10,190 4,301 664 7.9 6.5
OBC 29,301 2,209 4,299 295 14.7 13.4
Punjab and Synd Bank 21,305 36 1,383 1 6.5 2.0
Punjab National Bank 105,159 4,063 31,312 444 29.8 10.9
S.Bk.of India 1,001,643 143,712 59,522 41,400 5.9 28.8
Syndicate Bank 365,704 113,661 20,544 5,681 5.6 5.0
UCO Bank 29,926 2,342 6,324 178 21.1 7.6
Union Bank Of India 126,010 23,900 6,448 29,941 5.1 NA
United Bank of India 21,477 350 3,216 2 15.0 0.4
Vijaya Bank 256,930 65,070 8,994 3,066 3.5 4.7
Total - public sector banks 3,508,878 697,065 265,424 103,070 7.6 14.8
Private banks
Karnataka Bk.Ltd 179,295 32,562 4,638 1,376 2.6 4.2
Kotak Mahendra Bank 116,604 8,106 1,165 306 1.0 3.8
Catholic Syrian Bank 4,898 702 253 9 5.2 1.3
City Union Bk. 13,066 1,076 279 40 2.1 3.7
Dhanalakshmi Bk. 4,333 191 346 — 8.0 —
Federal Bank Ltd.. 61,875 8,426 945 262 1.5 3.1
J & K Bank Ltd. 25,620 1,561 4,352 3 17.0 0.2
Karur Vysya Bank 25,982 2,694 483 123 1.9 4.6
Lakshmi Vilas Bk. 35,015 737 331 1 0.9 0.1
Ratnakar Bank 27,720 8,412 179 67 0.6 0.8
South Indian Bk. 30,373 2,752 190 — 0.6 —
Tamilnadu Merc. Bk. 5,553 376 329 16 5.9 4.3
HDFC Bank 59,109 5,508 481 69 0.8 1.3
ICICI Bank 378,421 29,165 2,751 712 0.7 2.4
AXIS Bank 270,955 22,393 7,383 484 2.7 2.2
IndusIndBank 264,735 25,231 5,666 787 2.1 3.1
Yes Bank 101,224 12,218 250 128 0.2 1.0
Total-private banks 1,604,776 162,111 30,019 4,384 1.9 2.7
Regional rural business
Cauvery Kalpatharu Gr. Bk. 59,669 37,819 3,520 1,525 5.9 4.0
Karnataka Vikas Gr Bk 131,912 98,530 5,850 2,243 4.4 2.3
Pragathi Krishna Gr Bk 100,791 66,988 6,831 2,140 6.8 3.2
Total-regional rural banks 292,372 203,337 16,200 5,907 5.5 2.9
Total 5,113,654 859,176 295,443 107,454 5.8 12.5
Total (Comm.Banks-ex RRB) 5,406,026 1,062,513 311,643 113,361 5.8 10.7
Co-operative sector
KSCARD Bk.Ltd 18,367 17,937 — — — —
K.S.Coop Apex Bank ltd 326,348 125,954 8,942 212 2.7 0.2
Indl.Co.Op.Bank ltd. 1,706 — — —
Total - co-operative sector 346,421 143,891 8,942 212 2.6 0.1
KSFC 17,333 — 3,375 — 19.5
Total 5,769,780 1,206,404 323,959 113,573 5.6 9.4
India Banks
6 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 6: Karnataka has among the largest MFI portfolios for banks and NBFCs Loans outstanding and PAR performance in Karnataka as of December 2017
Source: Public documents, Kotak Institutional Equities
Exhibit 7: Overall trends on MFI PAR portfolio in Karnataka have been declining PAR performance of MFI players in Karnataka, March fiscal year-ends, 4QFY16-3QFY18 (%)
Source: MFIN
Outstanding PAR
Borrowers
Loans
outstanding
Average
ticket size Borrowers
Loans
outstanding Borrowers
Loans
outstanding
(Rs) (Rs) (Rs) (Rs mn) (Rs mn) (%) (%)
Bengaluru (Urban) 766,007 15,698 20,494 407,113 6,185 53.1 39.4
Mysore 593,154 12,064 20,339 10,582 178 1.8 1.5
Belgaum 544,739 10,958 20,115 25,698 403 4.7 3.7
Tumkur 447,526 9,408 21,022 25,312 588 5.7 6.2
Shivmoga 333,914 8,217 24,607 11,773 192 3.5 2.3
Mandya 363,893 8,044 22,105 1,078 9 0.3 0.1
Davangere 355,437 7,368 20,729 33,423 393 9.4 5.3
Hassan 299,242 6,769 22,620 14,145 225 4.7 3.3
Dakshina Kannada 235,105 6,203 26,383 135 4 0.1 0.1
Chamarajapuranagara 273,679 5,776 21,105 5,137 59 1.9 1.0
Chitradurga 277,919 5,672 20,409 26,083 333 9.4 5.9
Ballary 287,204 5,622 19,573 27,239 503 9.5 9.0
Udupi 203,019 5,609 27,629 53 3 0.0 0.1
Kodagu 176,707 5,418 30,658 310 15 0.2 0.3
Chikkamagalur 207,093 5,323 25,705 4,549 65 2.2 1.2
Dharwad 252,157 4,833 19,166 32,204 444 12.8 9.2
Uttara Kannada 178,053 4,262 23,934 2,939 67 1.7 1.6
Haveri 221,533 4,041 18,239 17,346 228 7.8 5.6
Ramanagara 166,050 3,546 21,354 6,025 48 3.6 1.3
Raichur 186,929 3,404 18,210 5,061 67 2.7 2.0
Kolar 157,833 3,296 20,880 648 11 0.4 0.3
Vijaypura 193,302 3,122 16,150 27,004 413 14.0 13.2
Bengaluru (Rural) 164,319 3,096 18,842 24,644 264 15.0 8.5
Bagalkote 173,238 3,062 17,675 21,608 351 12.5 11.5
Bidar 190,664 2,835 14,870 17,092 243 9.0 8.6
Kalaburgi 188,584 2,826 14,985 27,796 380 14.7 13.5
Chikkaballapura 139,930 2,762 19,741 1,837 16 1.3 0.6
Koppal 162,711 2,746 16,873 4,851 82 3.0 3.0
Gadag 119,310 1,869 15,668 4,007 65 3.4 3.5
Yadgiri 86,290 1,155 13,384 451 0 0.5 0.0
Total 7,945,541 165,001 20,767 786,143 11,834 9.9 7.2
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
30 DPD 0.5 0.4 0.4 5.7 18.0 4.9 3.3 4.2
90 DPD 0.3 0.3 0.3 0.3 12.0 3.9 2.6 3.6
180 DPD 0.2 0.2 0.2 0.3 0.2 2.0 1.8 2.8
Banks India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 7
Exhibit 8: Karnataka contributes to ~12-15% of the loan portfolio for Ujjivan and Bharat Financial Contribution of Karnataka to overall loans, March fiscal year-ends, 1QFY17-3QFY18
Source: Company, Kotak Institutional Equities
Exhibit 9: Progress under government scheme Pradhan Mantri Fasal Bima Yojana Sums assured and farmers insured, March fiscal year-ends, 2017-18
Source: Public documents, Kotak Institutional Equities
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Ujjivan 16.0 16.0 15.9 15.4 15.3 14.9 14.7
Bharat Financial 13.8 13.6 13.3 12.4 11.9 11.7 11.6 11.3
2017 2018
Sum assured (Rs bn) Farmers insured ( mn) Farmers insured ( mn)
2015 2016 2017 2018 Loanee Non loanee Total Loanee Non loanee Total
1 Andaman and Nicobar Islands 0 0 0 — 0 — 0 — — —
2 Andhra Pradesh 21 81 86 103 2 0 2 2 0 2
3 Assam 2 2 2 1 0 0 0 0 0 0
4 Bihar 97 110 117 99 3 0 3 2 0 2
5 Chhattisgarh 36 33 72 73 1 0 2 1 0 1
6 Goa 0 0 0 0 0 — 0 0 — 0
7 Gujarat 43 35 123 123 2 0 2 0 1 1
8 Haryana 0 — 118 118 1 0 1 1 0 1
9 Himachal Pradesh 5 6 9 1 0 0 0 0 0 0
10 Jammu and Kashmir 0 — — 2 — — — 0 0 0
11 Jharkhand 7 10 20 14 0 1 1 0 1 1
12 Karnataka 30 37 113 91 2 2 3 1 1 1
13 Kerala 2 2 3 2 0 0 0 0 0 0
14 Madhya Pradesh 186 214 353 441 6 1 7 7 0 7
15 Maharashtra 81 141 245 199 4 8 12 2 8 10
16 Manipur 0 0 0 — 0 0 0 — — —
17 Meghalaya 0 0 0 0 0 — 0 0 — 0
18 Mizoram — — — — — — — — — —
19 Odisha 57 76 73 80 2 0 2 2 0 2
20 Puducherry 0 0 0 — 0 0 0 — — —
21 Rajasthan 70 98 172 141 9 0 9 8 0 8
22 Sikkim 0 0 0 0 — 0 0 0 0 0
23 Tamil Nadu 29 47 64 68 0 1 1 0 1 1
24 Telangana 54 73 55 75 1 0 1 1 0 1
25 Tripura 0 0 0 0 0 0 0 0 0 0
26 Uttar Pradesh 49 134 251 203 7 0 7 5 0 5
27 Uttarakhand 3 5 9 3 0 0 0 0 0 0
28 West Bengal 48 47 123 79 3 1 4 2 1 3
Total 820 1,151 2,010 1,916 44 14 57 35 13 48
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Slower revenue growth and lower margins lead to earnings miss
Dmart reported revenues of `38.1 bn (+23% yoy) in 4QFY18, lower than expectations. The fourth
quarter is indeed seasonally weak and tends to see a decline in sequential revenue, additionally,
deflation in prices of staples led to slower revenue growth. Lower revenues, coupled with
lower-than expected gross margins led to net profit coming in 13% lower than estimates. That
said, the company reported revenue growth of 26% yoy in FY2018, with margin expansion and
lower interest expense driving healthy 63% yoy increase in net profit in FY2018.
24 new stores added in FY2018, raises future target
Dmart added 24 new stores in FY2018, of which 14 became operational in 4QFY18. The company
is now present in 10 states/UTs, compared to only four states/UTs in 2012. The company’s
commentary suggests that it ‘underperformed’ its target in FY2018, leading us to believe that it
is looking to add more stores in the future. We thus increase our store addition estimate from
25/25 stores to 27/30 stores in FY2019-20.
SSSG moderates to 14.2%, partly on account of GST; proportion of food declines
SSSG moderated to 14.2% in FY2018, compared to 21.2% in the previous year. We believe the
moderation was on account of several factors: (1) GST implementation, which resulted in
~200 bps of reduction in SSSG, and (2) possible base effect, as the growth of mature stores
slows down. We believe normalized SSSG (excluding GST impact) for FY2018 would have been
16-16.5%. We note that after remaining stagnant at 53% for the past five years, the proportion
of food in Dmart’s product mix declined to 51.6%, with the contribution from the general
merchandise category increasing in proportion.
Retain SELL on expensive valuations
The increase in store count in FY2020 drives an increase of 1.4% in our EBITDA estimate,
though lower other income leads to an EPS cut. The EBITDA increase drives an increase in our
DCF-based TP from `810 to `835. Valuations at 73X FY2020E P/E remain expensive; retain
SELL.
Avenue Supermarts (DMART) Others
4QFY18: revenue misses estimates. Dmart’s 4QFY18 net profit of `1.7 bn was below
estimates due to slower-than-expected revenue growth of 22.5% yoy and lower
margins. FY2018 SSSG normalized to 14.2% from 21.2% in FY2017, partly on account
of GST. We increase our new store addition estimate to 27 stores in FY2019 and 30
stores in FY2020 from 25 stores earlier. This drives our 1.4% increase in FY2020
EBITDA, and fuels our new DCF-based target price of `835 (`810 earlier). SELL stays.
SELL
MAY 07, 2018
RESULT
Coverage view:
Price (`): 1,490
Target price (`): 835
BSE-30: 34,915
Garima Mishra
Avenue Supermarts
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 12.6 16.2 20.4
Market Cap. (Rs bn) EPS growth (%) 47.9 28.6 26.4
Shareholding pattern (%) P/E (X) 118.5 92.2 72.9
Promoters 82.2 Sales (Rs bn) 150.1 196.2 249.8
FIIs 3.6 Net profits (Rs bn) 7.8 10.1 12.8
MFs 3.4 EBITDA (Rs bn) 13.4 17.5 22.3
Price performance (%) 1M 3M 12M EV/EBITDA (X) 69.4 53.2 41.7
Absolute 9.6 31.2 92.6 ROE (%) 18.5 19.6 20.3
Rel. to BSE-30 3.6 31.8 66.2 Div. Yield (%) 0.0 0.0 0.0
Company data and valuation summary
1,535-692
929.6
Avenue Supermarts Others
KOTAK INSTITUTIONAL EQUITIES RESEARCH 9
Exhibit 1: Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn) Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 2: SSSG at 14% was lower than previous years SSSG trend, March fiscal year-ends, 2012-17 (%) xxxxxxxxxx
Source: Company, Kotak Institutional Equities
Exhibit 3: Revenue throughput continued to improve Revenue per sq. ft trend, March fiscal year-ends (Rs 000/sq. ft)
Source: Company, Kotak Institutional Equities
**
Yoy growth
4QFY18 4QFY18E 4QFY17 3QFY18 KIE yoy qoq FY2018 FY2017 (%)
Net revenues 38,100 39,489 31,106 40,948 (3.5) 22.5 (7.0) 150,112 118,811 26.3
Purchase of stock-in-trade (33,695) (33,368) (27,722) (31,867) 1.0 21.5 5.7 (128,651) (103,690) 24.1
Changes in inventory of stock in trade 1,263 — 1,025 (2,371) 23.2 (153) 2,139 2,730 (21.6)
Employee expenses (724) (742) (542) (704) (2.5) 33.7 2.8 (2,766) (1,895) 46.0
Other operational costs (1,999) (2,014) (1,790) (1,789) (0.8) 11.6 11.7 (7,461) (6,320) 18.1
Total expenses (35,155) (36,124) (29,029) (36,731) (2.7) 21.1 (4.3) (136,738) (109,175) 25.2
EBITDA 2,945 3,364 2,077 4,217 (12.5) 41.8 (30.2) 13,374 9,636 38.8
Finance costs (132) (113) (308) (110) 17.2 (57.1) 20.3 (594) (1,218) (51.2)
Depreciation and amortization expense (465) (419) (354) (393) 10.9 31.5 18.4 (1,547) (1,260) 22.7
Other income 149 138 99 137 7.9 51.1 9.1 726 313 132.0
PBT 2,497 2,971 1,515 3,851 (16.0) 64.8 (35.2) 11,959 7,471 60.1
Tax expense (826) (1,040) (548) (1,334) (20.6) 50.7 (38.1) (4,112) (2,645) 55.5
Net profit 1,671 1,931 967 2,518 (13.5) 72.9 (33.6) 7,847 4,826 62.6
Operational metrics
Period-ending retail trading area (mn sq. ft) 4.9 5.0 4.1 4.4 (1.2) 19.5 11.6 4.9 4.1 19.5
Revenue per sq. ft (Rs) 31,102 31,846 30,348 37,302 (2.3) 2.5 (16.6) 40,847 38,638 5.7
Store count (#) 155 156 131 141 (0.6) 18.3 9.9 155 131 18.3
Costs as proportion of revenue (%)
COGS 85.1 84.5 85.8 83.6 84.3 85.0
Employee expense 1.9 1.9 1.7 1.7 1.8 1.6
Other operational cost 5.2 5.1 5.8 4.4 5.0 5.3
Other ratios (%)
Gross margin 14.9 15.5 14.2 16.4 -62 bps 70 bps -151 bps 15.7 15.0 70 bps
EBITDA margin 7.7 8.5 6.7 10.3 -79 bps 105 bps -257 bps 8.9 8.1 80 bps
PAT margin 4.4 4.9 3.1 6.1 -50 bps 128 bps -176 bps 5.2 4.1 116 bps
Tax rate 33.1 35.0 36.2 34.6 -192 bps -311 bps -155 bps 34.4 35.4 -101 bps
Change (%)
20.3
31.6
26.1
22.4 21.5
21.2
14.2
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017 2018
(%) SSSG (%)
15
20
23
26
28
31 33
5
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017 2018
(Rs 000) Revenue per sq. ft (Rs 000)
Others Avenue Supermarts
10 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 4: Dmart added 24 new stores in FY2018 Year-ending store count of Dmart, March fiscal year-ends, 2012-18
Source: Company, Kotak Institutional Equities
Exhibit 5: Dmart is steadily adding stores in new states Geographic spread of Dmart's stores (#)
Source: Company, Kotak Institutional Equities
5562
75
89
110
131
155
10
30
50
70
90
110
130
150
170
2012 2013 2014 2015 2016 2017 2018
Store count (#)
31-Mar-12 31-Mar-16 31-Mar-17 31-Mar-18
Maharashtra 34 58 60 62
Gujarat 14 26 29 30
AP & Telangana 4 16 21 29
Karnataka 3 6 10 12
MP & Chattisgarh — 4 5 9
Rajasthan — — 3 5
Daman — — 1 1
NCR — — 1 1
Punjab — — — 3
Tamil Nadu — — 1 3
Total 55 110 131 155
Avenue Supermarts Others
KOTAK INSTITUTIONAL EQUITIES RESEARCH 11
Exhibit 6: Proportion of food declined, while that of general merchandise increased Category-wise revenue mix, March fiscal year-ends (%)
Source: Company, Kotak Institutional Equities
Other takeaways from the results release
Dmart’s consolidated results include a `200.4 mn loss from associates. We note that the
e-commerce entity was an associate till February 1, 2018 (Dmart’s stake: 49%). It appears
that the entity would have posted a loss of upwards of `400 mn in FY2018.
Dmart has elevated Ramakant Baheti to the post of Group CFO and has appointed Niladri
Deb as the CFO. Niladri Deb is a new hire within the company, and has earlier worked at
Kraft Heinz India (as MD) and ITC (where he was responsible for product costing,
budgeting etc.).
Dmart’s board has approved the issuance of `15 bn of NCDs. This is subject to
shareholder approval at the AGM. We believe the company is well capitalized for its
immediate capex plans, and hence may not look to raise money by way of NCDs in the
near future.
Exhibit 7: Changes in estimates of Dmart (standalone), March fiscal year-ends, 2018-20E
Source: Kotak Institutional Equities estimates
53.0 52.9 53.3 52.8 53.1 53.3 51.6
21.0 21.2 21.5 21.2 20.6 19.9 20.0
26.0 25.8 25.2 25.9 26.4 26.8 28.4
0
20
40
60
80
100
2012 2013 2014 2015 2016 2017 2018
(% of total) Food Non-food FMCG General merchandise (incl. apparel)
2019E 2020E 2019E 2020E 2019E 2020E
Total
Revenue (Rs mn) 196,240 249,765 196,878 246,100 (0.3) 1.5
Revenue growth (%) 31 27 31 25
EBITDA (Rs mn) 17,492 22,286 17,571 21,973 (0.5) 1.4
EBITDA margin (%) 8.9 8.9 8.9 8.9
Net Profit (Rs mn) 10,087 12,753 10,393 13,057 (2.9) (2.3)
EPS (Rs) 16.2 20.4 16.7 20.9 (2.9) (2.3)
EPS growth (%) 29 26 32 26
SSSG (%) 18.0 17.5 20.0 18.0
New estimates Old estimates % revision
Others Avenue Supermarts
12 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: DCF valuation of Dmart, March fiscal year-ends, 2018-40E
Source: Kotak Institutional Equities
Exhibit 9: Key assumptions for Dmart, March fiscal year-ends, 2012-20E
Source: Company, Kotak Institutional Equities
x
2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2035E 2040E
Net Sales 150,112 196,240 249,765 312,856 387,075 471,187 563,561 663,925 770,465 883,436 1,000,681 1,125,277 1,251,047 1,948,121 2,633,415
Yoy growth (%) 26 31 27 25 24 22 20 18 16 15 13 12 11 8 5
EBIT 11,827 15,428 19,683 25,042 30,915 37,735 45,170 53,165 61,696 70,742 80,131 90,108 100,179 155,998 210,874
EBIT margin (%) 7.9 7.9 7.9 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0
EBIT*(1-tax rate) 7,760 10,028 12,794 16,277 20,095 24,528 29,360 34,557 40,102 45,983 52,085 58,570 65,117 101,399 137,068
Depreciation/Amortisation 1,547 2,064 2,603 3,215 3,918 4,698 5,534 6,428 7,384 8,399 9,475 10,616 11,821 13,796 15,694
(Inc.)/Dec. in working capital (3,404) (3,620) (3,983) (4,695) (5,523) (6,259) (6,874) (7,468) (7,928) (8,406) (8,724) (9,271) (9,359) (10,758) (9,436)
Capital expenditure (8,383) (10,131) (11,457) (13,027) (15,071) (16,141) (17,283) (18,502) (19,724) (20,859) (22,202) (23,443) (24,754) (6,702) (8,554)
Free cash flows (2,480) (1,659) (42) 1,771 3,419 6,826 10,737 15,015 19,835 25,115 30,634 36,472 42,825 97,734 134,772
Years discounted — — 1 2 3 4 5 6 7 8 9 10 11 16 21
Discount factor 1.00 0.90 0.81 0.73 0.66 0.59 0.53 0.48 0.43 0.39 0.35 0.32 0.19 0.11
Discounted cash flow — (1,659) (38) 1,437 2,500 4,497 6,372 8,028 9,554 10,898 11,976 12,845 13,588 18,403 15,060
Risk free rate (%) 6.0
Risk premium (%) 5.0
Beta (X) 1.0
Cost of equity (%) 11.0 580 10.0 10.5 11.0 11.5 12.0
WACC (%) 11.0 4.0 971 861 768 690 622
Terminal growth rate (%) 5.0 4.5 1,019 898 798 713 641
Sum of free cash flow (Rs mn) 258,420 5.0 1,078 943 832 740 662
Terminal value (Rs mn) 263,544 5.5 1,149 996 873 771 687
Enterprise value (Rs mn) 521,964 6.0 1,238 1,061 921 808 715
Investments (Rs mn) —
Net debt (Rs mn) 2,655
Equity value (Rs mn) 519,309
No. of shares (mn) 624
Equity value per share (Rs) 832
Number of new stores set-up (#) 24 27 30 30 35 35 35 35 35 35 35 35 35 — —
Cumulative number of stores (#) 155 182 212 242 277 312 347 382 417 452 487 522 557 557 557
WACC (%)
Terminal
growth
rate (%)
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E
Revenue
Net revenues (Rs mn) 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856
Yoy growth (%) 51 40 37 33 39 26 31 27 25
SSSG (%) 20 32 26 22 21 21 14 18 18 17
Revenue per sq. ft (Rs) 15,324 20,116 23,419 26,388 28,136 32,116 33,680 36,192 38,878 42,269
Margins
Gross margin (%) 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8
EBITDA margin (%) 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0
Capital expenditure
Period-ending store count (#) 55 62 75 89 110 131 155 182 212 242
New store additions (#) 10 7 13 14 21 21 24 27 30 30
Retail trading area (mn sq. ft) 1.6 1.8 2.1 2.7 3.3 4.1 4.9 5.9 6.9 7.9
Capital expenditure (Rs mn) 2,086 1,863 2,999 4,333 3,654 7,108 8,543 10,131 11,457 13,027
Working capital
Inventory days (#) 32 30 29 31 29 29 28 28 28 28
Debtor + loans and advances days (#) 10 10 8 8 8 7 7 7 7 7
Creditor days (#) 19 16 14 11 14 13 8 8 8 8
Avenue Supermarts Others
KOTAK INSTITUTIONAL EQUITIES RESEARCH 13
Exhibit 10: Consolidated income statement, balance sheet and cash flow, March fiscal year-ends, 2012-2020E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E
Income statement
Net revenues 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856
Gross profit 3,246 4,834 7,021 9,522 12,802 18,167 23,600 30,950 39,392 49,343
EBITDA 1,380 2,150 3,418 4,590 6,636 9,812 13,374 17,492 22,286 28,257
Depreciation (375) (458) (570) (815) (984) (1,278) (1,547) (2,064) (2,603) (3,215)
EBIT 1,006 1,692 2,848 3,775 5,652 8,534 11,827 15,428 19,683 25,042
Other income 139 143 158 183 179 286 726 510 253 244
Financial charges (260) (426) (557) (724) (913) (1,220) (594) (420) (315) (270)
Pre-tax profit 884 1,409 2,449 3,233 4,918 7,600 11,959 15,519 19,621 25,016
Taxation (282) (472) (835) (1,109) (1,715) (2,683) (4,112) (5,432) (6,867) (8,756)
Net income 602 937 1,614 2,124 3,203 4,917 7,847 10,087 12,753 16,260
Prior period items (7) 2 (0) (5) — — — — — —
Minority interest & associate profits — — — (0) (1) (129) — — — —
Reported net income 594 939 1,614 2,119 3,202 4,788 7,847 10,087 12,753 16,260
Year-ending number of shares - diluted (mn) 506 538 546 547 562 563 624 624 624 624
EPS (Rs) 1.2 1.7 3.0 3.9 5.7 8.5 12.6 16.2 20.4 26.1
Balance sheet
Shareholders' funds 6,811 7,890 9,550 11,989 15,204 38,418 46,427 56,514 69,268 85,528
Minority interest 3 3 0 1 1 1 — — — —
Total debt 3,807 5,261 6,408 9,043 11,923 14,973 5,837 3,500 3,500 2,500
Deferred tax liability 131 203 267 305 399 505 463 463 463 463
Total shareholders' funds + liabilities 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491
Net fixed assets 8,640 10,428 12,605 16,262 21,752 27,033 33,869 41,937 50,790 60,601
Investments 227 160 155 152 293 532 1,458 1,858 2,158 2,458
Cash balances 479 616 554 380 351 18,843 5,565 1,228 845 1,299
Net current assets excluding cash 1,406 2,153 2,911 4,542 5,220 7,579 10,983 14,602 18,585 23,280
Total assets 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491
Key ratios (%)
Revenue growth NA 51.3 40.3 37.4 33.3 38.6 26.2 30.7 27.3 25.3
EBITDA growth NA 55.8 59.0 34.3 44.6 47.9 36.3 30.8 27.4 26.8
EPS growth NA 48.5 69.4 31.1 47.2 49.1 47.9 28.6 26.4 27.5
Gross margin 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8
EBITDA margin 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0
Tax rate 31.9 33.5 34.1 34.3 34.9 35.3 34.4 35.0 35.0 35.0
Debt/equity (X) 0.6 0.7 0.7 0.8 0.8 0.4 0.1 0.1 0.1 0.0
RoE 13 19 20 24 18 18 20 20 21
RoCE 10 13 14 16 14 15 18 19 20
Cash flow
Operating profit before working capital changes 1,236 1,821 2,741 3,663 5,101 7,286 9,987 12,571 15,672 19,746
Change in working capital/ other adjustments (510) (746) (759) (1,631) (678) (2,358) (3,404) (3,620) (3,983) (4,695)
Capital expenditure (1,833) (2,246) (2,747) (4,473) (6,474) (6,559) (8,383) (10,131) (11,457) (13,027)
Free cash flow (1,106) (1,171) (765) (2,440) (2,052) (1,631) (1,800) (1,180) 232 2,024
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
ADSEZ to accelerate share gains to 100 bps+ in FY2019 from 40 bps run-rate
If not for client-specific and port-specific issues, Adani Ports would have shown a 100 bps+
share gain in FY2018 (versus the actual market share gain of 40 bps). Part of the 10 mn tons of
lost volumes at Mundra (HMEL, Adani Power) and Dhamra, coupled with start of several long-
term contracts in crude/bulk segments and strong container growth would drive material
outperformance for ADSEZ in FY2019. This coupled with acceleration of market growth to 6%
(4% for FY2018, ~8% in 4QFY18) would drive low-double-digit volume growth for Adani Ports.
Such growth momentum should sustain in FY2020 as the overhang of nil coal imports by
Mundra power plant would be in the base.
Balance sheet has started to reflect the cash-flow generation
ADSEZ has achieved its target (set a year back) of improvement in net debt/EBITDA to 2.5X
(from 3.3X) this year. This is after the build-up in receivables (port development income pending
from container JVs) and payment of second installment for the Kattuppali port transaction. This
coupled with a peaking out of capex spends, should drive a meaningful decline in net debt,
possibly towards lower levels of 2.2X. The key assumption here is no lending to related parties;
year-end financials hint at nil related party L&A as was the case a year ago. With recent bond
issuances, ADSEZ has been able to elongate the average debt maturity to >4 years. It has
sufficient cover in US$-denominated revenues (35% share) against US$ debt (65% share).
4QFY18: better-than-expected operational results driven by steady growth and improved margin
Adjusted for SEZ income, ADSEZ reported a steady 7%/7%/13%/23% yoy growth in 4QFY18
volume/revenue/EBITDA/PAT. Revenue/EBITDA growth would have been in double digits if JV
business was consolidated. This explains an outperformance on volumes and yet in-line revenue
and a modest 5%/7%/9% outperformance on EBITDA/PBT/PAT. The endgame in Mundra
power plant is still not known. We stick to our call that status quo is not a solution for the
Mundra power plant. We do not expect the endgame to materially impact ADSEZ’s business
and growth prospects.
Adani Ports and SEZ (ADSEZ) Infrastructure
Bulk and container both to drive share gains. Recent long-term contracts in the
bulk segment would accelerate share gains for ADSEZ to ~100 bps in FY2019 from 40
bps annual run-rate. This would have been visible in FY2018 but for client-specific and
port-specific issues. This bodes well in current times of acceleration in market growth.
Free cash generation for ADSEZ would further improve as capex spends moderate in
FY2019. The overhang of Mundra power plant remains intact and ADSEZ rejected the
option of promoter share sale for de-stressing the group asset. We build in the
outperformance in results in our revised `470 SoTP (from `450). BUY.
BUY
MAY 07, 2018
RESULT
Coverage view: Attractive
Price (`): 408
Target price (`): 470
BSE-30: 34,915
Aditya Mongia
Ajinkya Bhat
Adani Port and SEZ
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 20.0 20.0 23.0
Market Cap. (Rs bn) EPS growth (%) 6.1 (0.2) 14.7
Shareholding pattern (%) P/E (X) 20.4 20.4 17.8
Promoters 65.8 Sales (Rs bn) 113.2 115.1 131.5
FIIs 18.3 Net profits (Rs bn) 41.5 41.4 47.5
MFs 2.2 EBITDA (Rs bn) 71.5 71.9 78.9
Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.3 13.9 12.2
Absolute 11.0 (2.3) 20.3 ROE (%) 21.5 18.1 17.9
Rel. to BSE-30 5.0 (1.9) 3.8 Div. Yield (%) 0.5 0.6 0.8
Company data and valuation summary
452-325
845.5
Adani Ports and SEZ Infrastructure
KOTAK INSTITUTIONAL EQUITIES RESEARCH 15
FY2018 results—another year of outperformance over all India ports
Revenue growth led by sustained volume growth and SEZ income. Adani Ports
reported FY2018 consolidated revenues of `113 bn, up 34% yoy. Growth was led by 7%
volume growth as well as higher SEZ income of `25 bn during the year (port development
income, land leasing to Britannia and Concor). Port revenues grew 7% yoy and if the JV
terminals (CT-3, CT-4) had been consolidated, port revenues would have reported 12%
yoy growth.
Volume growth outperformed India’s ports, containers grew even faster. Total
cargo volumes for FY2018 stood at 180 mn tons, up 7% yoy compared to 4% growth in
all India ports. Container volumes grew 20% yoy, outperforming the 13% growth in all
India ports. Mundra port also reported 7% volume growth in FY2018 despite suffering an
impact of 8 mn tons due to shutdown at HMEL and lower coal imports by Adani Power at
Mundra power plant. Had those volumes been received as expected, Mundra port would
have reported 14% volume growth. ADSEZ also increase its cargo handling market share
to 15.2% (versus 14.8% in FY2017).
Port EBITDA margin improved further. ADSEZ reported consolidated EBITDA of `71 bn,
up 32% yoy in FY2018. Port EBITDA of `52 bn was up 10% yoy. Port EBITDA margin
improved to 70.4% (versus 68.6% in FY2017). The company has guided for ~100 bps
improvement every year on the back of automation and efficiency improvements, until it
caps out at ~73%.
Higher tax rate led to lower PAT growth. Recurring PAT excluding forex gains/losses
stood at `42 bn in FY2018, up 12% yoy. PAT growth was moderated by higher effective
tax rate as the key Mundra port came out of the 10-year tax holiday period under Section
80IA of the Income Tax Act.
Exhibit 1: Strong revenue growth in FY2018 led by sustained volume growth and SEZ income; port EBITDA margin improved further Adani Port and SEZ, consolidated - 4QFY18 - key numbers (Rs mn)
Source: Company, Kotak Institutional Equities estimates
4QFY18 4QFY18E 4QFY17 3QFY18 vs est. yoy qoq FY2018 FY2017 % change FY2019E FY2018 % change
Net operating income 31,829 23,358 22,315 26,889 36.3 42.6 18.4 113,230 84,394 34.2 115,134 113,230 1.7
Operating expenses (9,669) (6,067) (6,839) 59.4 41.4 (31,995) (21,679) — (31,995)
Employee costs (1,196) (1,135) (1,070) 5.3 11.7 (4,473) (3,831) — (4,473)
Admin and other exp. (1,650) (1,778) (1,137) (7.2) 45.1 (5,307) (4,736) — (5,307)
Total expenditure (12,515) (9,512) (8,979) (9,046) 31.6 39.4 38.3 (41,776) (30,247) 38.1 (43,273) (41,776) 3.6
EBITDA 19,314 13,846 13,335 17,842 39.5 44.8 8.2 71,454 54,147 32.0 71,862 71,454 0.6
Other income 3,044 2,862 3,233 2,360 6.4 (5.8) 29.0 10,109 10,401 (2.8) 10,189 10,109 0.8
Interest expense (3,296) (2,916) (3,956) (3,033) 13.0 (16.7) 8.7 (12,574) (12,812) (1.9) (12,204) (12,574) (2.9)
Depreciation (2,989) (3,159) (2,959) (2,937) (5.4) 1.0 1.8 (11,884) (11,602) 2.4 (13,803) (11,884) 16.2
PBT 16,073 10,634 9,654 14,233 51.2 66.5 12.9 57,106 40,134 42.3 56,044 57,106 (1.9)
Tax expense (3,961) (2,811) (119) (4,378) 40.9 (15,442) (2,866) 438.7 (14,577) (15,442) (5.6)
PAT 12,112 7,822 9,535 9,855 54.8 27.0 22.9 41,664 37,267 11.8 41,467 41,664 (0.5)
Extraordinary items (2,821) 2,078 155 (4,765) 1,655 — (4,765)
Share of minority interest (23) 56 (69) (163) 193 (32) (163)
Reported PAT 9,268 11,669 9,941 (20.6) (6.8) 36,736 39,115 (6.1) 41,435 36,736 12.8
Other comprehensive income 109 124 (1) 94 84 11.6 — 94
Total comprehensive income 9,377 11,793 9,939 (20.5) (5.7) 36,830 39,199 (6.0) 41,435 36,830 12.5
Reported port volume (mn tonnes) 45 44 42 48 3.8 7.3 (4.7) 180 169 6.5 188 180 4.3
Reported port revenue 19,470 16,615 18,340 19,400 17.2 6.2 0.4 73,930 68,800 7.5 82,944 73,930 12.2
Reported port EBITDA 13,710 NA 12,430 13,670 10.3 0.3 52,070 47,230 10.2 58,306 52,070 12.0
Port EBITDA margin (%) 70.4 NA 67.8 70.5 70.4 68.6 70.3 70.4
Key ratios (%)
Operating exp./ sales 30.4 27.2 25.4 28.3 25.7 - 28.3
Employee costs/ sales 3.8 5.1 4.0 4.0 4.5 - 4.0
Admin and other exp./ sales 5.2 8.0 4.2 4.7 5.6 - 4.7
EBITDA margin 60.7 59.3 59.8 66.4 63.1 64.2 62.4 63.1
PBT margin 50.5 45.5 43.3 52.9 50.4 47.6 48.7 50.4
PAT margin 38.1 33.5 42.7 36.7 36.8 44.2 36.0 36.8
Effective tax rate 24.6 26.4 1.2 30.8 27.0 7.1 26.0 27.0
EPS (Rs) 5.8 4.3 4.6 4.7 20.0 18.1 20.0 20.0
% change
Infrastructure Adani Ports and SEZ
16 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: Mundra port faced volume impact from lower coal imports at the Mundra power plant in 4QFY18 Quarterly trajectory of volumes of Adani’s port assets, March fiscal year-ends, 1QFY16-4QFY18 (mn tons)
Source: Company, Kotak Institutional Equities
Exhibit 3: Adani Ports has outperformed major ports in FY2018; targets cargo growth of 1.5X pan-India growth Volumes handled at major ports in the country and by ADSEZ, March fiscal year-ends, 4QFY18 and FY2018
Source: Company, Indian Ports Association, Kotak Institutional Equities
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Yoy (%)
Mundra Port 29.9 27.0 26.1 26.0 28.9 28.3 27.8 28.6 30.2 29.3 32.4 29.8 4.5
Dahej port 2.5 1.5 2.4 1.8 1.5 2.0 1.1 1.9 1.6 1.7 2.1 1.6 (11.9)
Hazira port 2.9 2.9 3.3 3.2 3.4 4.0 3.9 4.0 4.0 4.1 4.3 4.5 11.5
Dhamra port 3.2 3.8 3.8 3.9 5.4 5.2 5.4 5.5 5.3 5.0 5.4 5.8 5.9
Others 1.0 1.3 2.4 2.7 3.2 3.6 2.8 2.5 2.9 3.0 3.8 3.7 49.2
Total 39.5 36.5 38.0 37.5 42.4 43.0 41.0 42.3 44.0 43.0 48.0 45.4 7.2
YoY(%) 16.8 3.8 (2.3) 3.2 7.3 17.9 8.0 12.8 3.8 (0.0) 17.1 7.2
4QFY18 4QFY17 % chg. 4QFY18 4QFY17 % chg. FY2018 FY2017 % chg. FY2018 FY2017 % chg.
Kolkata 5 4 23.2 161 156 3.2 17 16 7.0 640 636 0.6
Haldia 11 9 20.1 39 47 (17.0) 40 34 18.3 156 136 14.7
Paradip 28 24 14.9 2 1 NA 102 89 14.7 7 2 250.0
Visakhapatnam 19 15 24.5 98 89 10.1 65 61 7.0 389 367 6.0
Ennore 9 8 9.7 — — NA 30 30 1.3 — — NA
Chennai 12 12 1.3 380 372 2.2 52 50 3.2 1,549 1,495 3.6
Tuticorin (Chidambarnar) 10 10 4.3 199 170 17.1 37 39 (5.2) 698 642 8.7
Cochin 7 7 (0.7) 148 124 19.3 28 25 12.4 556 491 13.2
New Mangalore 11 11 0.8 33 28 17.9 42 40 5.0 115 95 21.1
Mormugao 8 11 (25.3) 7 7 — 27 33 (19.0) 32 30 6.7
Mumbai 15 15 (0.4) 9 9 — 63 63 (0.3) 42 42 —
J.N.P.T 17 16 7.9 1,241 1,118 11.0 66 62 6.5 4,833 4,500 7.4
Kandla 29 24 18.4 48 6 NA 110 105 4.4 118 10 NA
Major ports total 180 166 8.7 2,365 2,127 11.2 680 648 4.9 9,135 8,446 8.2
Mundra 45 42 7.3 NA NA NA 180 169 6.5 NA NA NA
Total cargo (MMT) Container ('000 TEUs) Total cargo (MMT) Container ('000 TEUs)
Adani Ports and SEZ Infrastructure
KOTAK INSTITUTIONAL EQUITIES RESEARCH 17
Exhibit 4: Volumes estimates for Mundra and other related ports, March fiscal year-ends, 2014-21E
Source: Company, Kotak Institutional Equities estimates
Exhibit 5: Decline in share of coal and increase in share of high-value cargo handling (such as
containers and liquids) has been the sustained theme for the past three years Evolution of cargo handling composition for Adani Ports, March fiscal year-ends, 2015-18 (%)
Source: Company, Kotak Institutional Equities
2014 2015 2016 2017 2018E 2019E 2020E 2021E
Volumes (mn tons)
Mundra port
Bulk 47 52 46 42 39 30 32 33
Coal 36 39 34 31 27 18 18 19
Other bulk 10 13 11 11 12 13 13 14
Crude / POL / Liquid 23 22 26 28 28 32 35 38
Container ('000 TEUs) 2,642 2,913 3,238 3,459 4,062 4,647 5,368 5,996
Container (mn tons) 35 38 40 46 54 62 72 80
Mundra volumes 105 111 112 116 121 125 138 150
Other port assets
Dahej port 8 12 8 6 7 8 10 11
Hazira port 4 7 12 15 17 19 22 24
Mormugao port — 1 2 2 2 3 4 5
Vizag port — 1 1 1 — — — —
Kandla port — 0 4 4 4 4 5 6
Dhamra port 14 15 15 21 21 26 31 35
Ennore + Kattupalli port — — — 5 7 11 17 19
Vizhingam — — — — — — 3 7
Total of key ports 131 149 153 171 179 198 229 256
47
41
36
35 33 33 33
29
32
37
41 41 41 41
2427 27
2426 26 26
0
10
20
30
40
50
2015 2016 2017 1QFY18 1HFY18 9MFY18 FY2018
Coal Container Crude + others
Infrastructure Adani Ports and SEZ
18 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 6: Consolidated balance sheet for Adani Ports, March fiscal year-ends, 2014-18 (Rs mn)
Source: Company, Kotak Institutional Equities
4QFY18 analyst meet takeaways
Guidance for FY2019. The company expects overall volumes of ADSEZ to grow at 1.5X
the rate of all India volume growth and container volumes to grow at 2X the all India
container growth rate. The company has signed long-term contracts with guaranteed
annual volumes worth 7.7 mn tons in FY2018. The management expects port EBITDA
margin to improve to 71% (versus 70% in FY2018) and free cash flow of `17-20 bn
(versus `12-13 bn in FY2018). The company has guided for annual capex of ~`25 bn for
the next three years. The management expects annual SEZ income of `8-10 bn over the
next five years.
Cargo diversification will continue as the key theme. Cargo diversification is the key
pillar of ADSEZ’s strategy for sustainable growth as well as improvement in margins. The
achievements and plans on this front include:
Handling of new types of cargo at various ports such as rail locomotive at Mundra,
new liquid chemicals at Hazira, handling of fertilizers, gypsum, steel and agri-
commodities at Dahej, handling of fertilizer, gypsum, clinker and slag at Dhamra and
finally RoRo, TMT bars and cement at Kattupalli.
The company is also setting up liquid tank farms of 60 KL capacity at Kattupalli, and
expects faster growth of liquid cargo at Mundra and Hazira (up to 1,000 KL in 3 years).
Adani Ports is also setting up LPG terminals at Mundra (1.8 mn tons) and Dhamra (1.2
mn tons). The company also has commitments from certain key customers to ensure
sufficient volume offtake at these terminals.
Overseas expansion attempts are ongoing, having received shortlisting for a 0.5-0.7
mn TEU capacity terminal in Bangladesh in JV with a partner (~US$100 mn of equity
investment required by ADSEZ). The company is also exploring expansion in Indonesia.
2014 2015 2016 2017 2018
Shareholders funds 87,681 107,679 132,236 175,260 210,688
Share capital 4,168 4,168 4,170 4,142 4,142
Reserves & surplus 83,513 103,511 128,066 171,118 206,546
Loan funds 116,940 151,553 214,997 214,861 206,301
Deferred tax liability (net) 6,744 8,590 10,665 (17,759) (11,681)
Others (infra usage lease) 7,336 7,188 6,064 — —
Minority interest 1,437 1,590 1,429 1,392 1,496
Total sources of funds 220,137 276,600 365,390 373,755 406,804
Net fixed assets 151,475 192,027 208,384 237,319 253,832
Goodwill on consolidation 404 25,997 25,997 26,704 26,671
Investments 634 2,602 3,445 26,114 29,039
Cash & bank balance 5,139 6,338 12,910 19,768 29,676
Foreign currency translation diff.
Current assets 89,119 93,858 142,908 106,031 121,428
Inventories 1,694 2,592 2,137 6,571 5,203
Debtors 14,276 17,266 19,657 19,784 35,401
Loans & advances 63,327 62,339 100,327 35,545 33,208
Other current assets 9,822 11,660 20,787 44,131 47,617
Current liabilities & provisions 26,634 44,222 28,254 42,180 53,842
Current liabilities 19,690 36,495 26,524 41,198 52,818
Provisions 6,943 7,727 1,730 982 1,024
Net current assets 62,485 49,636 114,655 63,851 67,586
Total application of funds 220,137 276,600 365,390 373,755 406,804
Net debt (debt-cash-investments) 111,166 142,613 198,643 168,980 147,587
Consolidated
Adani Ports and SEZ Infrastructure
KOTAK INSTITUTIONAL EQUITIES RESEARCH 19
Strategy for Adani Logistics. Out of the `25 bn annual capex guidance, the capex on
logistics facilities will be limited to ~`1.5 bn. Unlike Concor that favors large facilities, the
company will set up small private freight terminals (PFTs) on area of 20-30 acres each
with expected land acquisition cost of `2-3 mn/acre. Also, unlike Concor, Adani Logistics
will not restrict itself to container cargo or rail mode of transport. The company is also
discussing with its key customers to finalize the locations of these PFTs (Baroda,
Bangalore, Kochi and Panipat terminals are in the offing).
Pushing up the average debt maturity profile. The company has been able to push
up its debt maturity profile to average 4.7 years (versus 4.1 years in FY2017). The
company also undertakes derivative contracts to swap INR liabilities for US$-denominated
liabilities so as to benefit from the natural hedge on account of dollar-denominated
container pricing. Expected improvement in FCF generation will keep the leverage ratios
in control.
Dividend distribution policy. The company has increased dividend payout ratio to 11%
in FY2018 (versus 7% in FY2017). From FY2019 onwards, ADSEZ targets to distribute up
to 15% of PAT in the form of dividends.
Exhibit 7: Adani Ports has consistently increased market share in cargo handling in the past few years Trend in Adani Ports' cargo handling volumes and market share, March fiscal year-ends, 2015-18
Notes:
(1) Acquisition of Kattupalli port drove market share gains in FY2017.
Source: Company, Indian Ports Association, Kotak Institutional Equities
144 152 169
180
13.7 14.1 14.9 15.2
0
4
8
12
16
-
40
80
120
160
200
2015 2016 2017 2018
Adani Ports volumes (LHS, mn tonnes) Market share (RHS, %)
Infrastructure Adani Ports and SEZ
20 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: Change in estimates for Adani Ports and SEZ, March fiscal year-ends, 2017-20E
Source: Company, Kotak Institutional Equities estimates
Exhibit 9: We arrive at an SoTP-based target price of Rs470/share for ADSEZ End-Mar-2019E DCF-based SoTP valuation of Adani Ports & SEZ
Source: Company, Kotak Institutional Equities estimates
2017 2018 2019E 2020E 2019E 2020E 2019E 2020E
Volumes (mn tons)
Mundra volume 116 121 125 138 119 130 4.8 6.1
Dahej port 6 7 8 10 8 10 — —
Hazira port 15 17 19 22 19 22 — —
Mormugao port 2 2 3 4 3 3 27.3 50.4
Vizag port 1 — — — — — NA NA
Kandla port 4 4 4 5 4 5 — —
Dhamra port 21 21 26 31 26 31 1.0 1.0
Ennore + Kattupalli 5 7 11 17 11 17 — (3.9)
Vizhingam — — — 3 — 3 NA —
Consolidated volumes 171 179 198 229 191 220 3.5 4.1
Consolidated financials
Revenues 84,394 113,230 115,134 131,490 121,985 131,814 (5.6) (0.2)
Port revenues 63,989 73,896 82,944 97,885 80,549 94,511 3.0 3.6
EBITDA 54,147 71,454 71,862 78,894 74,759 76,825 (3.9) 2.7
Port EBITDA 46,669 51,274 58,306 68,480 56,505 66,079 3.2 3.6
EBITDA margin (%) 64.2 63.1 62.4 60.0 61.3 58.3
Port EBITDA margin (%) 72.9 69.4 70.3 70.0 70.1 69.9 14 bps 4 bps
Interest expense (11,157) (12,574) (12,204) (12,418) (12,204) (12,522) — (0.8)
PBT 41,789 57,106 56,044 62,585 58,876 60,311 (4.8) 3.8
Net PAT 39,115 41,501 41,435 47,531 43,594 46,261 (5.0) 2.7
EPS (Rs) 18.9 20.0 20.0 23.0 21.1 22.3 (5.0) 2.7
New estimates Previous estimates % revision
Entity EV (Rs mn) Net debt Implied equity value Stake (%) Equity Value of stake Value/share Method
Mundra Port (excl. SEZ) 322,966 33,285 289,681 100% 289,681 140 FCFF
SEZ 73,002 — 73,002 100% 73,002 35 FCFF
CT3 (incl. CT-3 extension) 88,787 37,403 51,384 50% 25,692 12 FCFF
CT4 34,661 16,019 18,642 50% 9,321 5 FCFF
Dahej 59,317 746 58,571 74% 43,343 21 FCFF
Dhamra 200,753 38,257 162,495 100% 162,495 78 FCFF
Hazira 109,598 12,413 97,185 100% 97,185 47 FCFF
Vizhinjam 25,212 6,659 18,553 100% 18,553 9 FCFF
Kandla 8,868 13,867 (4,998) 100% (4,998) (2) FCFF
Murmugao 8,920 4,101 4,820 100% 4,820 2 FCFF
Ennore 12,982 8,191 4,792 100% 4,792 2 FCFF
Kattupalli 37,791 13,214 24,577 97% 23,839 12 FCFF
Adani Logistics 29,708 5,578 24,130 100% 24,130 12 15X EV/EBIDTA
Adani Harbour (marine revenues) 184,577 (19,818) 204,394 100% 204,394 99 15X EV/EBITDA
Total 1,197,141 169,913 1,027,228 976,249 471
Adani Ports and SEZ Infrastructure
KOTAK INSTITUTIONAL EQUITIES RESEARCH 21
Exhibit 10: Consolidated financials of Adani Ports & SEZ, March fiscal year-ends, 2012-21E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Income statement
Net sales 32,708 35,766 48,240 61,520 71,087 84,394 113,230 115,134 131,490 151,857
Total operating costs (12,056) (12,007) (19,036) (22,497) (24,843) (30,247) (41,776) (43,273) (52,596) (65,017)
EBITDA 20,653 23,760 29,204 39,023 46,243 54,147 71,454 71,862 78,894 86,840
EBITDA margin (%) 63.1 66.4 60.5 63.4 65.1 64.2 63.1 62.4 60.0 57.2
Other income 596 2,644 6,836 6,856 7,327 10,401 10,109 10,189 11,113 16,517
Depreciation (4,630) (4,220) (6,495) (9,117) (10,630) (11,602) (11,884) (13,803) (15,004) (16,569)
Financial charges (4,796) (5,418) (9,768) (11,751) (11,746) (11,157) (12,574) (12,204) (12,418) (10,760)
Pre-tax profit 11,822 16,766 19,777 25,012 31,194 41,789 57,106 56,044 62,585 76,028
Taxation (896) (1,231) (2,367) (12,715) (2,828) (2,866) (15,442) (14,577) (14,717) (14,792)
Adjusted PAT (before exceptional items) 10,927 15,535 17,410 12,297 28,366 38,922 41,664 41,467 47,868 61,236
Reported PAT post-minority interest 11,021 16,232 17,396 12,196 28,972 39,115 36,736 41,435 47,531 61,084
Adjusted EPS (Rs) 5.3 7.5 8.4 5.9 13.7 18.8 20.1 20.0 23.1 29.6
Balance sheet
Shareholders funds 48,385 63,963 87,681 107,679 135,055 175,260 210,688 245,927 285,713 337,559
Share capital 4,035 4,035 4,168 4,168 4,142 4,142 4,142 4,142 4,142 4,142
Reserves and surplus 44,350 59,928 83,513 103,511 130,913 171,118 206,546 241,786 281,571 333,417
Loan funds 175,650 115,858 128,895 177,313 189,535 205,271 206,301 182,058 150,814 160,686
Received/ receivable under LT lease 5,905 5,190 7,336 7,188 — — — — — —
Deferred tax liability (net) 15,179 5,286 6,744 8,590 (12,015) (17,759) (11,681) (9,981) (8,281) (6,581)
Total sources of funds 246,467 191,720 232,093 302,359 313,814 364,165 406,804 419,652 430,281 494,294
Total fixed assets 217,825 146,065 160,893 195,361 236,427 264,023 280,503 293,437 296,574 296,030
Investments 11,823 2,619 1,038 25,997 5,452 26,114 29,039 29,039 29,039 29,039
Cash and bank balance 11,184 8,306 4,694 8,940 12,782 19,768 29,676 31,591 34,154 92,573
Net current assests excl cash 5,635 34,730 65,468 72,061 59,153 54,261 67,586 65,585 70,514 76,652
Total application of funds 246,467 191,720 232,093 302,359 313,814 364,165 406,804 419,652 430,281 494,294
Cash flows
Cash flow from operations 11,997 13,791 11,319 30,651 23,805 40,019 39,675 61,107 60,998 68,055
Cash flow from investing activities (138,760) (46,898) (25,100) (24,931) (41,532) (25,794) (21,180) (16,548) (7,028) 492
Free cash flows (33,475) (24,523) 297 18,361 2,703 3,148 11,311 34,369 42,857 52,030
Cash flow from financing activities 129,763 42,111 7,725 (2,366) 21,704 (13,247) (12,851) (42,643) (51,408) (10,127)
Cash generated /utilised 3,000 9,004 (6,056) 3,353 3,978 978 5,644 1,916 2,563 58,419
Net cash at start of year 748 3,747 7,558 1,502 4,452 8,430 9,408 15,052 16,967 19,530
Net cash at end of year (excl. other cash) 3,747 12,752 1,502 4,855 8,430 9,408 15,052 16,967 19,530 77,949
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
1QCY18 results—volumes disappoint with 3% yoy growth, lower than peers’
ACEM reported standalone revenues of `28.6 bn (+13% yoy, +7% qoq), EBITDA of `5.1 bn
(+39% yoy, flat qoq) against our estimate of `29 bn and `4.6 bn, respectively. The volumes
increased 3% yoy to 6.2 mn tons (+6% qoq)—ACEM’s volume performance was weaker than
peers’ including Ultratech (+10% yoy excluding volumes of acquired capacities), Shree Cement
(+9% yoy) and its own subsidiary ACC (+8% yoy). The EBITDA/ton for the quarter declined 6%
qoq to `815/ton (+34% yoy) due to (1) flat realizations at `4,602/ton (+9% yoy) and impact of
(2) increase in costs. The total cost per ton increased 2% qoq to `3,787/ton (+5% yoy)—this
was led by higher raw-material costs (rise in fly-ash, gypsum costs), other expenses. Also, as per
the company, an amount of `276 mn was paid during the quarter to a subsidiary for renewal of
a technology and know-how agreement which increased costs for the quarter.
ACEM’s net-income declined 3% qoq to `2.7 bn (10% yoy)—lower than our estimate due to
decline in other income (`507 mn versus `1,423 mn in 3QFY18).
Subdued prices and rising costs to affect CY2018 earnings
Despite a seasonally strong period (construction activity picks up from January to March),
cement prices increased by mere `5/bag qoq in 1QCY18 (all-India prices at `327/bag). Cement
prices in April 2018 (`326/bag) were flat as well when compared to 1QCY18 prices. On the cost
side, we expect continued pressure due to rising fuel costs (higher pet-coke prices) as well as
the increase in diesel prices. The weaker INR:US$ rate will also impact costs for cement
companies adversely. The pet-coke prices increased to US$108/ton in 1QCY18 from US$98/ton
in 4QCY17—note that rising pet-coke prices have a lagged effect on earnings owing to
inventory on hand.
Maintain REDUCE rating on expensive valuations; revise TP to `245 (`260 earlier)
Ambuja’s valuations are rich at 13/10X CY2018/2019E EV/EBITDA (attributable), even after
factoring in EBITDA growth at 16% CAGR. We maintain our REDUCE rating and revise target
price to `245/share (`260 earlier) based on 10X EBITDA (on March 2020E financials). We cut
our EBITDA estimate by 3% for CY2018-2020E due to increase in our cost assumptions,
tweaking of volumes, realizations Our EPS estimate is cut by 3-4% to `8.1, `10.6 and `13.1 for
CY2018E, CY2019E and CY2020E. The stock trades at 29X/22X CY2018/2019E earnings.
Ambuja Cements (ACEM) Cement
Volume disappoints. ACEM reported 3% yoy growth in volumes—lower than peers’
(+9%-10%) and subsidiary ACC (+8% yoy). The earnings were weak due to flat
realizations and cost increase—rising fuel costs and weaker INR:US$ rate will continue
to exert cost pressure in ensuing quarters even as prices are yet to see a meaningful
uptick. Valuations are expensive at 13X/10X CY2018/2019E EV/EBITDA (attributable)
and 29X/22X earnings. REDUCE with revised TP of `245 (`260).
REDUCE
MAY 07, 2018
RESULT
Coverage view: Cautious
Price (`): 237
Target price (`): 245
BSE-30: 34,915
Murtuza Arsiwalla
Abhishek Poddar
Samrat Verma
Ambuja Cements
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 7.5 8.1 10.6
Market Cap. (Rs bn) EPS growth (%) 29.7 7.1 32.0
Shareholding pattern (%) P/E (X) 31.5 29.4 22.3
Promoters 63.1 Sales (Rs bn) 236.0 262.1 288.7
FIIs 17.8 Net profits (Rs bn) 14.9 16.0 21.1
MFs 3.8 EBITDA (Rs bn) 38.6 42.9 52.3
Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.6 9.8 7.6
Absolute 0.0 (8.8) (3.0) ROE (%) 7.4 7.6 9.6
Rel. to BSE-30 (5.4) (8.4) (16.3) Div. Yield (%) 1.5 1.5 1.5
Company data and valuation summary
292-223
470.0
Ambuja Cements Cement
KOTAK INSTITUTIONAL EQUITIES RESEARCH 23
Exhibit 1: Ambuja reported 3% yoy volume growth in 4QFY18; EBITDA/ton declined 6% qoq to Rs815 due to high cost, subdued prices Quarterly results for Ambuja Cements (Standalone), December year-ends (Rs mn)
Source: Company, Kotak Institutional Equities estimates
Changes in our estimates
Exhibit 5 highlights key changes in our estimates.
Ambuja standalone—cut estimate by close to 1%. We cut our volume estimate by
1% to 24.9 mn tons, 26.8 mn tons and 28.7 mn tons for CY2018E, CY2019E and
CY2020E. We broadly retain our realization assumption and tweak our cost
assumptions—this results in a cut in our standalone EBITDA estimate by 1% to `24.1 bn,
`27.7 bn and `31.6 bn for CY2018E, CY2019E and CY2020E. We estimate standalone
EPS of `8 , `9.6 and `11.1 for CY2018E, CY2019E and CY2020E.
Ambuja consolidated—estimate cut by 3% as incorporate revised estimates of
ACC. The above revision combined with our earlier change in ACC’s estimates results in a
3% cut in our EBITDA estimates. We estimate consolidated EBITDA of `42.8 bn, `52.3 bn
and `62.5 bn for CY2018E, CY2019E and CY2020E. We estimate consolidated EPS of
`8.1, `10.6 and `13.1 for CY2018E, CY2019E and CY202E.
Our target price of `245/share is based on March 2020E financials at 10X EV/EBITDA.
(% chg.)
1QCY18 1QCY18E 1QCY17 4QCY17 KIE yoy qoq CY2018E CY2017 (% chg)
Sales 28,626 29,222 25,334 26,796 (2) 13 7 119,143 104,469 14
Operating costs
Raw material costs (2,118) (2,561) (2,354) (1,102) (10,022) (8,465)
Employee costs (1,696) (1,846) (1,677) (1,627) (7,214) (6,614)
Freight costs (8,288) (8,058) (7,412) (7,816) (31,652) (28,720)
Power & fuel costs (6,351) (6,850) (5,388) (6,448) (25,818) (22,342)
Other costs (5,102) (5,243) (4,853) (4,728) (20,338) (18,927)
Total operating costs (23,555) (24,557) (21,684) (21,720) (95,045) (85,067)
EBITDA 5,071 4,665 3,651 5,076 9 39 (0) 24,099 19,401 24
EBITDA margin (%) 18 16 14 19 20 19
Other income 507 1,423 1,310 481 5,272 3,591
Interest (257) (239) (377) (217) (965) (1,072)
Depreciation (1,393) (1,475) (1,460) (1,427) (5,789) (5,729)
PBT 3,928 4,373 3,124 3,912 (10) 26 0 22,617 16,191 40
Current tax (expense)/income (1,211) (1,312) (658) (1,100) (6,785) (3,937)
Net income 2,718 3,061 2,465 2,812 (11) 10 (3) 15,832 12,255 29
Extraordinaries (net of taxes) — — — 572 — 241
Reported net income 2,718 3,061 2,465 3,384 (11) 10 (20) 15,832 12,496 27
EPS (Rs) 1.4 1.5 1.2 1.7 8.0 6.2
Per ton analysis
Despatches, '000 tons 6,220 6,402 6,020 5,870 (3) 3 6 24,557 22,950 7
Realization (Rs/ton) 4,602 4,565 4,208 4,565 1 9 1 4,852 4,552 7
Operating cost (Rs/ton) 3,787 3,836 3,602 3,700 (1) 5 2 3,870 3,707
Raw materials 340 400 391 188 (15) (13) 81 408 369
Employee costs 273 288 279 277 (5) (2) (2) 294 288
Freight costs 1,333 1,259 1,231 1,331 6 8 0 1,289 1,251
Power & fuel costs 1,021 1,070 895 1,098 (5) 14 (7) 1,051 974
Other costs 820 819 806 805 0 2 2 828 825
Profitability (Rs/ton) 815 729 606 865 12 34 (6) 981 845 16
Cement Ambuja Cements
24 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Key highlights from 1QCY18 results
Volumes—ACEM’s cement volumes increased by 3% yoy to 6.22 mn tons in 1QCY18
and follows an 8% yoy volume growth reported by ACC for the same quarter. As per the
company, the standalone capacity utilization improved to 85% in 1QCY18 versus 81% in
1QCY17. On a consolidated basis, volumes increased 6% yoy to 13.3 mn tons. ACEM is
seeing strong growth in the housing building segment (Individual houses) as well as
improvement in its infrastructure segment.
Realizations—ACEM’s standalone realizations increased 1% qoq to `4,602/ton (+9%
yoy). The company has large dependence on North (40%) and West markets (40%) and
the cement prices in these markets saw movement of (1) - 1% qoq in 1QCY18, per our
channel checks.
Profitability and costs—ACEM’s EBITDA/ton declined 6% qoq to `815/ton (+34% yoy)
in 1QCY18 due to an increase in costs. The total cost per ton increased 3% qoq to
`3,790/ton (+5% yoy). The company saw increase in (1) raw-material costs to `434/ton
(from `410/ton in 4QCY17) due to an increase in fly-ash, gypsum costs, (2) other
expenses increased to `820/ton (`806/ton in 4QCY17). The freight costs were flat qoq at
`1,330/ton while power & fuel costs declined to `1,020/ton (from `1,098/ton in
4QCY17)---note that the previous quarter was impacted due to a temporary adverse fuel
mix due to the ban on pet-coke in Rajasthan.
Also, an amount of `276 mn was paid during the quarter to a subsidiary for renewal of a
technology and know-how agreement.
Consolidated financials—strong improvement. On a consolidated basis, ACEM’s
EBITDA increased 38% yoy to `10 bn (+5% qoq) aided by strong earnings subsidiary
ACC (EBITDA: `4.2bn, +24% yoy, +16% qoq) on the back of 8% yoy volume growth;
consolidated volumes increased 6% yoy to 13.2 mn tons. ACEM’s net income increased
to `3.9 bn (+34% yoy, -5% qoq).
Greenfield project in Rajasthan. Ambuja is investing in a new greenfield project in
Rajasthan— the company will set up a 3.1 mtpa clinkerisation plant at Marwar Mundwa.
The project will be set-up in two phases, in the first phase Ambuja will invest `13.9 bn for
setting up a 1.7 mtpa clinkerisation capacity expected to be commissioned by 2HCY20.
We highlight that Ambuja’s standalone capacities operated at close to 78% utilization in
CY2017 and thereby provides potential for strong volume over the next three years
ACC—good volume growth, earnings beat attributable to lower overhead costs
ACC reported healthy volume growth of 8% yoy for 1QCY18—not aided by a de-
monetization base as volume growth in 1QCY17 was healthy at 4% yoy. The company
reported revenue of `35.5 bn (+15% yoy, +4% qoq), EBITDA of `4.2bn (+24% yoy, +16%
qoq) and PAT of `2.4 bn (+16% yoy, +20% qoq) against our estimate of `35.2 bn, `3.5 bn
and `1.9 bn respectively. Realizations remained largely flat at `4,626/ton (`4,569/ton in
4QCY17) reflecting the weak pricing environment during the quarter. Higher power and fuel
cost, owing to a combination of higher pet-coke prices as well as an increase in import duty
for pet-coke, was offset by lower employee and overhead expenses. Profitability for the
quarter improved to `550/ton (`483/ton in 1QCY17)—see Exhibit 3.
Ambuja Cements Cement
KOTAK INSTITUTIONAL EQUITIES RESEARCH 25
Exhibit 2: Ambuja's consolidated volumes increased 6% yoy aided by better performance at subsidiary ACC (+8% yoy) Quarterly results for Ambuja Cements (Consolidated), December year-ends (Rs mn)
Source: Company, Kotak Institutional Equities estimates
(% chg.)
1QCY18 1QCY17 4QCY17 yoy qoq CY2018E CY2017 (% chg)
Sales 64,596 56,319 61,377 15 5 262,071 235,984 11
Operating costs
Raw material costs (7,703) (6,977) (7,061) (31,499) (27,760)
Employee costs (3,764) (3,702) (3,758) (16,375) (15,112)
Freight costs (18,275) (15,680) (17,196) (68,820) (63,075)
Power & fuel costs (13,850) (11,876) (13,549) (55,787) (49,529)
Other costs (10,989) (10,811) (10,286) (46,702) (41,932)
Total operating costs (54,581) (49,045) (51,849) (219,183) (197,409)
EBITDA 10,015 7,274 9,528 38 5 42,887 38,576 11
EBITDA margin (%) 16 13 16 16 16
Other income 864 1,562 941 4,092 3,226
Interest (442) (619) (542) (1,718) (2,058)
Depreciation (2,882) (3,126) (3,021) (12,566) (12,195)
PBT 7,555 5,090 6,905 48 9 32,696 27,550 19
Current tax (expense)/income (2,447) (1,147) (2,732) (11,601) (8,470)
Net income 5,108 3,943 4,173 30 22 21,095 19,080 11
Extraordinaries (net of taxes) 36 27 572 - 241
Minority interest 1,245 1,055 655 5,107 4,158
Reported net income 3,899 2,915 4,090 34 (5) 15,988 15,164 5
EPS (Rs) 2.0 1.5 2.1 8.1 7.5
Per ton analysis
Despatches, '000 tons 13,330 12,620 12,780 6 4 51,701 48,674 6
Realization (Rs/ton) 4,846 4,463 4,803 9 1 5,069 4,848 5
Operating cost (Rs/ton) 4,095 3,886 4,057 4,239 4,056
Raw materials 578 553 552 609 570
Employee costs 282 293 294 317 310
Freight costs 1,371 1,242 1,346 1,331 1,296
Power & fuel costs 1,039 941 1,060 1,079 1,018
Other costs 824 857 805 903 861
Profitability (Rs/ton) 751 576 746 30 1 830 793 5
Cement Ambuja Cements
26 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: ACC's volumes increased 8% yoy in 1QCY18 and was ahead of parent Ambuja (+3% yoy) Quarterly results for ACC Limited (Standalone), December year-ends (Rs mn)
Source: Company, Kotak Institutional Equities estimates
Exhibit 4: Ambuja's volumes increased 3% yoy to 6.2 mn tons in 1QCY18 Volume (mn tons) and raw material cost (Rs/ton), December year-ends
Source: Company, Kotak Institutional Equities estimates
(% chg.)
1QCY18 1QCY18E 1QCY17 4QCY17 KIE yoy qoq CY2018E CY2017 (% chg)
Sales 35,570 35,202 30,997 34,171 1 15 4 142,486 129,310 10
Operating costs
Raw material costs (5,646) (5,584) (4,647) (6,058) (21,859) (19,676)
Employee costs (1,982) (2,110) (1,952) (2,048) (8,852) (8,190)
Freight costs (10,023) (9,773) (8,304) (9,419) (37,322) (34,510)
Power costs (7,488) (7,539) (6,477) (7,089) (29,927) (27,145)
Purchased cement (21) (2) (2) (1) (8) (8)
Other expenditure (6,175) (6,747) (6,197) (5,901) (26,364) (24,226)
Total operating costs (31,335) (31,755) (27,579) (30,515) (124,331) (113,755)
EBITDA 4,235 3,447 3,418 3,656 23 24 16 18,155 15,555 17
EBITDA margin (%) 11.9 9.8 11.0 10.7 12.7 12.0
Other income 1,144 1,105 1,101 1,231 4,398 4,853
Interest (193) (244) (252) (334) (790) (1,023)
Depreciation (1,474) (1,630) (1,650) (1,579) (6,713) (6,401)
PBT 3,712 2,677 2,617 2,975 39 42 25 15,050 12,984 16
Current tax (1,261) (803) (502) (930) (4,966) (3,511)
Deferred tax — — — — 150 (318)
Net income 2,451 1,874 2,115 2,045 31 16 20 10,234 9,155 12
Extraordinaries (net of tax) — — — — — —
Reported net income 2,451 1,874 2,115 2,045 31 16 20 10,234 9,155
EPS - adjusted (Rs) 13.0 10.0 11.3 10.9 54.3 48.7
Sales (mn tons) 7.1 7.0 6.6 6.9 2 8 3 27.7 26.2 6
Realization (Rs/ton) 4,626 4,680 4,348 4,569 (1) 6 1 4,760 4,564 4
Operating costs (Rs/ton) 4,407 4,549 4,179 4,410 4,485 4,340
Raw materials 794 800 704 875 789 751
Employee costs 279 302 296 296 319 312
Freight costs 1,410 1,400 1,258 1,361 1,346 1,317
Power & fuel costs 1,053 1,080 981 1,024 1,080 1,036
Purchased cement 3 — — — 0 0
Other expenditure 869 967 939 853 951 924
Profitability (Rs/ton) 550 494 483 473 11 14 16 655 593 10
400
600
800
1,000
1,200
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
1Q
CY14
2Q
CY14
3Q
CY14
4Q
CY14
1Q
CY15
2Q
CY15
3Q
CY15
4Q
CY15
1Q
CY16
2Q
CY16
3Q
CY16
4Q
CY16
1Q
CY17
2Q
CY17
3Q
CY17
4Q
CY17
1Q
CY18
Volumes- mn tons (LHS) Profitability- Rs/ton (RHS)
Ambuja Cements Cement
KOTAK INSTITUTIONAL EQUITIES RESEARCH 27
Exhibit 5: Ambuja Cements, Change in estimates, December year-ends, 2018-2020E (mn tons, Rs mn)
Source: Kotak Institutional Equities estimates
Exhibit 6: Our earnings assumptions factor 5-8% yoy growth in volumes and improved realizations Key assumptions in the profit model for Ambuja Cement, December year-ends, 2016-20E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
Revised estimate Previous estimate Change (%)
2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E
Ambuja Cement (Consolidated)
Volume and realizations (mn tons, Rs/ton)
Volumes (mn tons) 52.6 55.9 59.3 52.9 56.1 59.5 (0) (0) (0)
Realizations (Rs/ton) 4,978 5,168 5,356 5,000 5,189 5,382 (0) (0) (0)
EBITDA (Rs/ton) 815 936 1,055 839 960 1,079 (3) (3) (2)
Earnings estimates (Rs mn)
Revenue (Rs mn) 262,071 288,682 317,550 264,383 291,158 320,210 (1) (1) (1)
EBITDA (Rs mn) 42,887 52,288 62,542 44,378 53,871 64,230 (3) (3) (3)
PAT (Rs mn) 15,988 21,110 26,060 16,741 21,757 26,756 (4) (3) (3)
EPS (Rs/share) 8.1 10.6 13.1 8.4 11.0 13.5 (4) (3) (3)
Ambuja Cement (Standalone)
Volume and realizations (mn tons, Rs/ton)
Volumes (mn tons) 24.9 26.8 28.7 25.2 27.0 29.0 (1) (1) (1)
Realizations (Rs/ton) 4,852 4,948 5,045 4,851 4,948 5,044 0 0 0
EBITDA (Rs/ton) 981 1,048 1,114 984 1,051 1,117 (0) (0) (0)
Earnings estimates (Rs mn)
Revenue (Rs mn) 119,143 130,623 143,159 120,240 131,827 144,480 (1) (1) (1)
EBITDA (Rs mn) 24,099 27,670 31,617 24,389 27,997 31,982 (1) (1) (1)
PAT (Rs mn) 15,832 19,024 22,112 16,035 19,252 22,368 (1) (1) (1)
EPS (Rs/share) 8.0 9.6 11.1 8.1 9.7 11.3 (1) (1) (1)
2016 2017 2018E 2019E 2020E 2017 2018E 2019E 2020E
Ambuja—standalone (Rs mn)
Revenue 91,604 104,469 119,143 130,623 143,159 14 14 10 10
EBITDA 15,753 19,401 24,099 27,670 31,617 23 24 15 14
PAT 9,701 12,255 15,832 19,024 22,112 26 29 20 16
Key operating metrics
Volumes (mn tons) 21.1 23.0 24.6 26.4 28.4 9 7 8 8
Realization (Rs/ton) 4,267 4,480 4,780 4,880 4,980 5 7 2 2
Operating cost (Rs/ton) 3,520 3,634 3,798 3,832 3,866 3 5 1 1
Profitability (Rs/ton) 747 845 981 1,048 1,114 13 16 7 6
ACC—standalone (Rs mn)
Revenue 109,364 129,310 142,486 157,618 173,949 18 10 11 10
EBITDA 11,949 15,555 18,155 23,984 30,291 30 17 32 26
PAT 6,451 9,154 10,234 14,913 19,521 42 12 46 31
Key operating metrics
Volumes (mn tons) 23.0 26.2 27.7 29.1 30.5 14 6 5 5
Realization (Rs/ton) 4,757 4,934 5,140 5,417 5,696 4 4 5 5
Operating cost (Rs/ton) 4,237 4,340 4,485 4,593 4,704 2 3 2 2
Profitability (Rs/ton) 520 593 655 824 992 14 10 26 20
Consolidated
Revenue 200,940 235,984 262,071 288,682 317,550 17 11 10 10
EBITDA 28,693 38,576 42,887 52,288 62,542 34 11 22 20
PAT 11,509 14,922 15,988 21,110 26,060 30 7 32 23
Growth (%)
Cement Ambuja Cements
28 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 7: Our fair value of Rs245/share is based on March 2020E financials Fair value estimate of Ambuja Cement, March 2020E (Rs/share)
Source: Kotak Institutional Equities estimates
Exhibit 8: Profit model, balance sheet, cash model of Ambuja Cement (consolidated), December year-ends, 2015-20E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
March-2020E
Attributable EBITDA (Rs mn) 41,438
EV/EBITDA (X) 10
Attributable EV (Rs mn) 416,447
Attributable net cash (Rs mn) 70,981
Equity value (Rs mn) 487,428
No. of shares 1,986
Target price 245
2015 2016 2017 2018E 2019E 2020E
Profit model (Rs mn)
Net sales 93,880 200,940 235,984 262,071 288,682 317,550
EBITDA 14,489 28,693 38,576 42,887 52,288 62,542
Other income 4,466 7,680 3,226 4,092 5,308 5,935
Interest (925) (1,405) (2,058) (1,718) (1,462) (1,322)
Depreciation (6,298) (14,632) (12,195) (12,566) (13,038) (13,511)
Pretax profits 11,733 20,336 27,550 32,696 43,096 53,644
Tax (3,654) (5,760) (8,470) (11,601) (14,544) (17,843)
Net profits before minority 8,079 14,576 19,080 21,095 28,552 35,801
Minority interest — (3,067) (3,916) (5,107) (7,442) (9,741)
Net profit 8,079 11,509 15,164 15,988 21,110 26,060
Earnings per share (Rs) 5.2 5.8 7.5 8.1 10.6 13.1
Balance sheet (Rs mn)
Total equity 102,715 195,455 206,722 214,103 226,607 244,060
Total borrowings 236 239 259 259 259 259
Minority interest 7 43,778 46,080 48,942 54,139 61,635
Deferred tax liability 5,656 10,534 11,392 10,563 9,109 7,325
Currrent liabilities 32,714 77,325 90,551 88,996 99,215 110,065
Total liabilities and equity 141,328 327,330 355,004 362,863 389,328 423,343
Cash 28,532 16,962 62,316 50,940 71,643 99,798
Current assets 25,442 62,562 75,503 93,515 100,314 107,686
Total fixed assets 65,388 140,758 136,839 138,062 137,024 135,514
Goodwill 478 79,097 78,815 78,815 78,815 78,815
Investments 21,488 27,951 1,531 1,531 1,531 1,531
Total assets 141,328 327,330 355,004 362,863 389,328 423,343
Free cash flow (Rs mn)
Operating cash flow, excl. working capital 15,391 25,637 34,153 34,549 41,598 48,850
Working capital change 175 2,513 285 (19,567) 3,419 3,478
Capital expenditure (6,192) (8,853) (8,329) (13,789) (12,000) (12,000)
Free cash flow 9,374 19,298 26,109 1,194 33,017 40,328
Ratios
Book value (Rs/share) 66 98 104 108 114 123
RoAE (%) 8.5 7.7 7.4 7.6 9.6 11.1
RoACE (%) 8.4 5.9 7.4 7.6 9.6 11.1
CRoCI (%) 11.2 14.6 12.0 11.8 13.4 15.5
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Wealth business emerges to be the most attractive
Post the demerger of IIFL Holdings, we believe that IIFL Wealth will emerge as the most
attractive stock given its strong franchise in a niche segment, increasing and innovative
bouquet of products, investments in business by consistently adding new RMs and buoyancy
in financial savings in general. We expect the company to deliver 23% earnings CAGR during
FY2018-21E (somewhat lower than its guidance of 25%) on the back of 20% CAGR in AUA.
We expect IIFL Finance to deliver 16-17% RoE over the medium term on the back of 17-18%
loan book CAGR, translating into 19% CAGR in earnings. The company has delivered 31%
earnings growth in FY2018 on the back of 40% loan book growth translating into 2.2%
RoA and 15% RoE. The business has multiple growth drivers including mortgages, SME
loans, real estate, gold and CVs, which are all currently in a sweet spot. However, absence of
identifiable niche will likely put pressure on valuation multiples.
The capital market-linked business is relatively small with 14% contribution to overall
segmental PBT. Key concerns on this business include volatility in earnings due to high
dependence to capital markets, i.e. absence of stable revenue source, shrinking commission
yields and questionable prospects for the standalone broking business.
Revising estimates and valuation multiples; retain SELL
We are raising our pre-minority earnings estimates by 4-5% on the back of higher estimates in
the wealth and the NBFC businesses. Post the revision, we expect the company to deliver 19%
earnings CAGR during FY2018-21E and 19-20% RoE. A strong and growing franchise of the
wealth business will drive its valuations while concerns on long-term prospects of the broking
business will put pressure on the broking business; high loan book growth will support near-
term valuations of IIFL Finance even as long-term concerns on its differentiators remain. We are
revising our March 2020E-based TP for IIFL Holdings to `625 to reflect (1) 2.2X book to IIFL
Finance, (2) 20X earnings for the wealth business and (3) 12X earnings for the broking business.
IIFL Holdings (IIFL) NBFCs
Capital businesses shine; agency marginally weak. IIFL Holdings’ strong performance
was driven by high growth in the lending business across IIFL Finance and the Wealth
NBFC. Growth in capital market-linked income was weak, largely due to lower
commission yields from the intra-day business. The agency income realizations in the
wealth business were down as well. With a strong franchise in a niche (ultra HNI)
segment, wealth will emerge as the strongest business post demerger. This is already
factored in the current market price; we retain SELL with TP of `625 (up from `600).
SELL
MAY 07, 2018
RESULT
Coverage view: Neutral
Price (`): 743
Target price (`): 625
BSE-30: 34,915
QUICK NUMBERS
PAT increased 33%
yoy in 4QFY18
IIFL Finance’s AUM
up 40% yoy to `311
bn
39% yoy growth in
wealth AUA to `1.3
tn
Nischint Chawathe
M B Mahesh CFA
Abhijeet Sakhare
Dipanjan Ghosh
India Infoline
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 28.6 33.5 40.7
Market Cap. (Rs bn) EPS growth (%) 32.4 17.3 21.4
Shareholding pattern (%) P/E (X) 26.0 22.2 18.3
Promoters 29.0 NII (Rs bn) 21.9 25.6 29.5
FIIs 22.4 Net profits (Rs bn) 9.1 10.7 13.0
MFs 2.4 BVPS 158.8 183.9 214.4
Price performance (%) 1M 3M 12M P/B (X) 4.7 4.0 3.5
Absolute 2.8 (2.4) 53.3 ROE (%) 19.0 19.3 20.0
Rel. to BSE-30 (2.8) (2.0) 32.3 Div. Yield (%) 0.8 1.0 1.2
Company data and valuation summary
874-434
236.9
NBFCs IIFL Holdings
30 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: IFL Holdings – quarterly financial statements March fiscal year-ends, 4QFY17-4QFY18 (` mn)
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: IIFL Holdings: NBFC and wealth drive value SoTP-based valuation, March fiscal year-end, March 2020E
Source: Company, Kotak Institutional Equities estimates
Loan growth strong, realization and margins down
IIFL Holdings reported 33% yoy growth in consolidated PAT after minority interest to `2.48 bn,
4% below estimate.
IIFL Finance delivered 33% earnings growth on the back of 40% yoy growth in AUM to
`311 bn even as NIM declined 50 bps yoy.
IIFL Wealth delivered 12% yoy PBT growth on the back of 39% AUA growth to `1.3 tn
though retention yields declined to 65 bps from 77 bps in 4QFY18; 25% yoy growth in
NII and 85% yoy growth in wealth NBFC loan book supported earnings for this segment.
Capital market-linked revenue growth was lower at around 25% yoy as compared to
39% cash volume growth due to higher share of intra-day business.
4QFY18 4QFY18E 4QFY17 3QFY18 4QFY18E 4QFY17 3QFY18 FY2017 FY2018 (% chg.) FY2019E (% chg.)
Quarterly financials
Total income 17,636 17,385 14,044 16,868 1 26 5 49,248 65,208 32 76,664 18
Broking and related income 1,886 2,098 1,510 1,793 (10) 25 5 5,673 7,186 27 7,931 10
Distribution (insurance etc) 2,741 2,365 2,309 2,350 16 19 17 7,158 10,215 43 10,536 3
Insurance distribution 411 389 415 163 6 (1) 152 894 1,405 57 1,566 11
Wealth management 2,330 1,976 1,894 2,187 18 23 7 6,264 8,810 41 8,970 2
Financing income 13,298 12,861 10,190 11,977 3 30 11 36,294 46,868 29 58,037 24
Other income (290) 61 35 748 (572) (928) (139) 124 939 656 160 (83)
Operating expenses 6,229 6,282 4,658 5,410 (1) 34 15 15,523 21,901 41 23,828 9
Direct expenses 771 2,151 1,314 1,957 (64) (41) (61) 3,603 6,384 77 6,052 (5)
Employees expenses 3,099 3,130 2,275 2,774 (1) 36 12 7,840 10,602 35 12,199 15
Administration expneses 2,359 1,000 1,068 679 136 121 247 4,080 4,916 20 5,576 13
EBDITA 11,407 11,103 9,387 11,458 3 22 (0) 33,725 43,306 28 52,836 22
Depreciation 191 113 144 169 68 33 13 540 671 24 738 10
EBITA 11,216 10,990 9,243 11,289 2 21 (1) 33,185 42,635 28 52,098 22
Interest 6,730 6,280 5,611 6,992 7 20 (4) 20,922 25,954 24 32,470 25
PBT 4,486 4,710 3,633 4,297 (5) 23 4 12,263 16,681 36 19,628 18
Taxation 1,306 1,492 1,286 1,284 (12) 2 2 4,018 5,054 26 5,888 17
PAT bef. minority interest 3,180 3,224 2,347 3,013 (1) 36 6 8,245 11,620 41 13,740 18
Minority interest 697 626 482 655 11 45 6 1,361 2,508 84 3,052 22
PAT 2,483 2,598 1,865 2,358 (4) 33 5 6,884 9,112 32 10,688 17
Tax rate (%) 29.1 31.7 35.4 29.9 -257 bps -629 bps -77 bps 32.8 30.3 -247 bps 30.0 -30 bps
Average daily volumes and market share
IIFL - F&O (Rs bn) 159 92 135 73 18
Market - F&O (Rs bn) 7,040.0 2,920.7 6,812.9 141 3
Market share - F&O (%) 2.3 2.4 2.0 -9 bps 27 bps
IIFL - cash (Rs bn) 15.6 11.3 14.1 39 11
Market - cash (Rs bn) 386.5 207.0 358.9 87 8
Market share - cash (%) 4.0 4.1 3.9 -2 bps 11 bps
Overall margins (%) 1.7 2.2 1.9 -46 bps -19 bps
Loan under management (Rs bn) 343.2 299.9 229.0 290.5 14 50 18
Segmental results (Rs mn)
PBT 4,486 3,633 4,297 23 4 8,392 6,491 (23) 10,026 54
Broking and related income 365 433 558 (16) (35)
Finance 3,312 2,480 2,983 34 11
Distribution and marketing 804 723 403 11 99
(% chg.)
Valuation
(Rs mn) (Rs/ share) Comments
NBFC (85% stake) 109,750 344 2.2X PBR
Wealth management (53% stake) 62,680 196 20X PER
Broking 26,942 84 12X PER
Total 199,373 625
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 31
IIFL Wealth: relatively weak quarter
PBT growth of 12% yoy. IIFL Wealth delivered 12% yoy PBT growth as revenue growth
was 21% yoy, offset by 30% yoy growth in expenses. Lower tax rate due to higher share
of carry income led to 37% yoy PAT growth.
Fee income growth of 20% yoy; yields decline. Agency fee income growth was 20%
yoy, slower than 39% yoy AUA growth. Blended yields in agency business declined to 65
bps from 77 bps in 4QFY17 and 66 bps in 3QFY18. Yields on the distribution side are
55-60 bps net of direct costs and 65-70 bps on active asset management side.
Net new money up 4% yoy. Net new money (NNM) in 4QFY18 was up 4% yoy. Over
FY2018, AUA growth of 39% yoy to `1.3 tn was driven by net new money flow of `250
bn and market returns of `117 bn. Adverse market movement in 4QFY18 offset the NNM
during the period leading to 3% qoq AUM growth. On a low base, advisory assets have
almost doubled, distribution assets were up 33% yoy and AMC up 39%.
Declining spreads in lending business. Wealth NBFC loan book grew 85% yoy and
15% qoq, driving 25% yoy growth in NII. Calculated NIM in 4QFY18 declined to 4.9%
from 6% in 3QFY18 and 7.5% in 4QFY17. Management expects to maintain lending
book at 5-7% of total AUM compared to 5% currently.
Expense growth remains high. Operating costs increased 30% yoy, compared with
~25% growth in 3QFY18. Staff expense grew 39% yoy. The company continues to add
relationship managers (RM) – number of RMs increased to 330 from 317 in 3QFY18 and
226 at FY2017 and 195 at FY2016; total employees including the investment team are
about 700. Period-end AUM per RM is ~`4.0 bn, down 5% yoy. Non-staff expense
growth was 13% yoy.
One-fourth of agency fee exposed to change in MF regulation. IIFL Wealth earned
nearly 25% of FY2017 agency fees from mutual fund distribution. This can potentially be
at risk if regulations mandate lower expense ratios on mutual funds, leading to pass-
through of lower revenues from asset managers to distributors. However, in the earnings
call, management highlighted that incrementally the ultra HNI segment has reduced focus
on mutual funds and is more into alternatives. As such, the impact of any such regulation
will be relatively lower.
Broking income at 5-6% of total agency income. IIFL Wealth has a separate in-house
broking license. Broking revenues contribute about 5-6% of its total revenue.
23% earnings CAGR over the medium term. We expect IIFL Wealth to deliver 27%
PAT growth in FY2019E followed by about 21% over the next two years. We expect AUA
growth to be about 20% annually with about 10% growth in distribution assets and
significantly higher growth in other segments. Net realizations will continue to decline
over time, i.e. 62 bps in FY2019E and 58 bps in FY2020E from 71 bps in FY2018; this
may be partially offset by reduction in cost to income ratio to 31% in FY2019E from 35%
in FY2018. Management has guided that the Wealth NBFC will remain at 5-6% of AUA
and earn about 200 bps of gross yields.
NBFCs IIFL Holdings
32 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: IIFL Wealth – strong earnings growth at 37% yoy in 4QFY18 Quarterly P&L summary, March fiscal year-ends, 4QFY16-4QFY18 (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 4: IIFL Wealth earns net commission of 65 bps Wealth assets and commission yields, March fiscal-year ends, 4QFY16-4QFY18
Source: Company, Kotak Institutional Equities
Exhibit 5: IIFL's market share in MF commissions continued to decline in FY2017 Income from mutual fund distribution, March fiscal year-end, 2013-17 (Rs mn)
Source: AMFI, Kotak Institutional Equities
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 YoY (%) QoQ (%)
Income statement
Income from operations 1,741 1,721 2,435 2,668 3,454 3,448 4,034 4,552 4,300 24 (6)
Agency 1,741 1,266 1,292 1,270 1,748 1,781 2,105 2,025 2,103 20 4
Interest income — 455 1,143 1,398 1,706 1,667 1,929 2,527 2,197 29 (13)
Other income 10 — — 157 — — — — —
Total income 1,751 1,721 2,435 2,825 3,454 3,448 4,034 4,552 4,300 24 (6)
Total expenses 1,117 810 925 1,195 1,219 1,153 1,409 1,499 1,580 30 5
Employee expenses 595 542 641 698 789 808 968 1,056 1,094 39 4
Other expenses 522 268 284 497 430 345 441 443 486 13 10
EBITDA 634 911 1,510 1,630 2,235 2,295 2,625 3,053 2,720 22 (11)
Interest 37 115 653 674 1,090 1,008 1,422 1,724 1,431 31 (17)
Provisions 11 53 25 21 26 47 23 41 38 46 (7)
PBT 586 743 832 935 1,119 1,240 1,180 1,288 1,251 12 (3)
Tax 125 216 260 283 366 376 225 287 219 (40) (24)
PAT before minority interest 461 527 572 652 753 864 955 1,001 1,032 37 3
Assets under advice (Rs bn) 622 654 749 812 949 1,126 1,175 1,282 1,318 39 3
Cost-income ratio (%) 64 47 38 45 35 33 35 33 37 145 bps 381 bps
PAT margin (%) 27 33 32 30 32 35 37 35 36 412 bps 57 bps
No. of RMs 195 211 176 220 226 253 283 317 330 46 4
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Wealth assets (Rs bn) 740 654 749 812 1,081 1,269 1,175 1,282 1,318
(% of total)
Distribution 70 69 68 65 68 68 68 63 65
AMC/Discretionary 9 10 10 11 10 9 9 11 10
Advisory 3 3 8 11 11 12 13 16 17
Discretionary (offshore) 18 18 16 13 11 11 10 10 8
Retention yield ex-FPI assets- KS (%)
Net commission/fees 0.73 0.74 0.65 0.74 0.61 0.69 0.66 0.65
Including fund based activities 0.23 1.02 1.02 1.00 0.83 0.85 0.92 0.88
2013 2014 2015 2016 2017 YoY (%)
IIFL group 753 1,356 3,036 1,712 1,819 6
Industry 23,886 26,027 47,293 36,476 49,867 37
Market share 3.2 5.2 6.4 4.7 3.6
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 33
Exhibit 6: High income from distribution for IIFL Wealth Mapping of income across business lines of IIFL Wealth, March fiscal year-end, 2017 (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 7: IIFL Wealth Management – key ratios and growth rates March fiscal year-ends, 2017-21E (%)
Source: Company, Kotak Institutional Equities estimates
Amount
Share in
revenues
(Rs mn) (%) Comments
Fund management revenues 1,525 20 Revenue on IIFL Asset Management and IIFL Asset Management (Mauritius)
Investment AUM (Rs bn) 199 AMC/discretionary and offshore discretionary AUM
NBFC- NII 2,170 28
Loan book (Rs bn) 36
NIM (%) 5.2
Distribution 4,051 52
MF commissions 1,574 20 Third party commission on mutual fund sales earned by IIFL Wealth
Other commissions 2,477 32 Balance revenues for IIFL Wealth
Distribution AUM (Rs bn) 649
Advisory AUM (Rs bn) 97
FPI (offshore, Rs bn) 130
Total 7,746
2017 2018 2019E 2020E 2021E
YoY (%)
Agency income (1) 44 12 11 13
Total income 83 59 21 18 16
PBT 60 37 28 21 19
PAT 48 54 27 21 19
AUA 53 39 20 19 20
Investments 96 (44) 10 10 10
Loan book 85 25 25 25
Key ratios (%)
Agency income/AAUA 0.7 0.7 0.6 0.6 0.6
Agency and capital income/AAUA 1.0 0.9 0.9 0.9 0.8
Cost-income ratio 40.4 34.5 31.3 30.0 28.5
PBT margin 45.9 46.1 50.0 51.5 53.5
PAT margin 24.0 23.6 24.7 25.3 26.1
Yield on loans/investments 14.2 12.5 12.5 12.5 12.0
Cost of funds 9.2 9.0 9.2 9.2 9.0
Spread 5.0 3.5 3.3 3.3 3.0
NIM 5.2 3.5 3.8 4.1 4.1
RoA 6.1 4.9 5.0 5.0 4.9
RoE 18.2 22.6 23.0 22.1 21.2
NBFCs IIFL Holdings
34 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: IIFL Wealth management – income statement and balance sheet March fiscal year-ends, 2017-21E (` mn)
Source: Company, Kotak Institutional Equities estimates
2017 2018 2019E 2020E 2021E
AUA break-up (Rs bn)
Total 949 1,318 1,576 1,871 2,237
Distribution 645 856 942 1,036 1,140
AMC/Discretionary 95 132 158 198 247
Advisory 104 224 381 552 773
Discretionary (offshore) 104 105 95 85 77
Income statement (Rs mn)
Income from operations 10,278 16,334 19,806 23,330 27,074
Agency 5,576 8,014 8,970 9,997 11,298
Interest income 4,702 8,320 10,836 13,333 15,776
Other income 157 — — — —
Total income 10,435 16,334 19,806 23,330 27,074
Total expenses 4,149 5,641 6,202 7,009 7,724
Employee expenses 2,670 3,926 4,230 4,800 5,250
Other expenses 1,479 1,715 1,972 2,209 2,474
EBITDA 6,286 10,693 13,603 16,321 19,350
Interest 2,532 5,585 7,071 8,432 9,915
Provisions 125 149 168 209 262
PBT 3,629 4,959 6,365 7,680 9,173
Tax 1,125 1,107 1,464 1,766 2,110
PAT 2,504 3,852 4,901 5,913 7,063
Balance sheet (Rs mn)
Fixed assets 565 806 1,048 1,257 1,446
Investments 19,343 10,761 11,837 13,021 14,323
Net Loans 36,166 67,011 83,764 104,705 130,881
Net Current Assets 12,969 10,594 10,594 10,594 10,594
Total assets 69,043 89,172 107,243 129,577 157,244
Share capital 156 160 160 160 160
Reserves and Surplus 15,086 18,736 23,637 29,550 36,613
Net worth 15,242 18,896 23,797 29,710 36,773
Minority Interest — — — — —
Borrowings 53,801 70,276 83,446 99,867 120,471
Total liabilities and net worth 69,043 89,172 107,243 129,577 157,244
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 35
IIFL Finance: 40% yoy AUM growth in FY2018 driven by home loans
AUM growth picks pace; up 40% yoy in 4QFY18. IIFL Finance reported AUM of `311
bn, up ~40% yoy and 14% qoq. Excluding the capital market loans, AUM growth was
marginally higher at 42% yoy in 4QFY18. Growth is driven by home loans, construction
finance and MSME loans. CV loans remained strong given the upsurge in demand in the
CV market. Additionally, gold loan growth revived momentum this quarter.
Strong earnings growth at 33% yoy in 4QFY18. IIFL Finance’s PAT growth of ~33%
yoy was driven by strong loan growth and margin expansion (reported NIM) by 40 bps
(flat yoy). Growth in expenses was high at 43% yoy in 4QFY18 leading to 510 bps
increase in cost-to-income ratio. Investment in infrastructure and focus on increasing
penetration (addition of 226 branches in 2HFY18) is driving spike in operating expenses.
Credit cost witnessed 66 bps qoq drop to 0.9% (down 40 bps yoy) on the back of
improved asset quality across most segments.
Steep jump in home loan growth at 61% yoy in 4QFY18. Retail home loans, being
the focus area going forward, grew by 61% yoy and 14% qoq. IIFL is positioned at the
lower end of the ticket size with average ticket size of ₹2.1 mn (down from ₹2.6 mn in
3QFY17) IIFL’s retail home loan business is directly linked to superior performance in the
construction finance business with the latter generating leads for the former. Going
ahead, this segment is expected to demonstrate robust growth.
MSME and micro-finance loans rally in 4QFY18. MSME and MFI loans increased by
1.6X yoy to `33.2 bn by 4QFY18. MSME loans increased 1.4X yoy to `24.8 bn by
4QFY18 whereas MFI loans witnessed rapid jump at 2.5X yoy to `8.4 bn on a low base.
As the economy stabilizes post demonetization and IIFL Finance increases its branch
penetration, this segment will see robust growth going ahead.
De-focus of LAP business continues. LAP growth was modest at 2% yoy and 3% qoq.
The company is gradually de-focusing this book owing to asset quality pressure faced in
the past few quarters. NNPL increased at a rapid rate to 1.9% by 2QFY18 from 0.9% in
4QFY17. NNPL ratio, however, improved in 4QFY18 (down 70 bps qoq to 1%). Target
segment is smaller-ticket LAP in the range of `7-8 mn largely spread across the country
with average portfolio yield of ~12-13%.
Significant improvement in asset quality. GNPL ratio dropped 40 bps qoq to 1.7%.
Provision coverage increased at a steep pace to 54% (from 44% qoq). Improvement in
collections led to the sharp improvement in asset quality. The major improvement was
seen across LAP, CV and construction finance segments where NNPL dropped 70 bps qoq
to 1%, 80 bps qoq to 1.5% and 90 bps qoq to 1.4% respectively in 4QFY18 Write-offs
were lower in 4QFY18 at 4% of GNPL compared to ~16-25% in the past three quarters.
Near-term margin compression. We project ~17% AUM CAGR over FY2018-21E
driven by retail loans, CV and growing MSME/ MFI loans on a low base. Over the
medium-to-long term NIM will trend down due to decline in loan yields on the back of
greater competition in the fast-growing home loan space (marginally offset from the high
yielding MSME and MFI products). Calculated yields will drop 70 bps yoy in FY2019E to
14.6% and decline further to 14.1% by FY2021E. Borrowing cost are also expected to
increase going ahead led by rise in bond yields and increase in MCLR rates by banks (the
company has 38% of borrowings in the form of term loans as of 4QFY18). Calculated
cost of borrowings is expected to increase to 9.3% by FY2021E from 9.1% in FY2018.
We hence expect NIM (calculated) to drop 90 bps yoy in FY2019E to 5.3% and further
moderate to 4.8% by FY2021E.
NBFCs IIFL Holdings
36 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 9: IIFL Finance - quarterly data March fiscal year-ends, 4QFY17-4QFY18 (` mn)
Source: Company, Kotak Institutional Equities
Exhibit 10: IIFL Finance has made high write-offs in 4QFY18 March fiscal year-ends, 1QFY17-4QFY18 (` mn)
Source: Company, Kotak Institutional Equities
4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 YoY (%) QoQ (%)
Income statement (Rs mn)
Interest income 8,056 8,004 8,861 9,186 19 (100) (100)
Interest expenses 4,476 4,544 4,848 5,087 14 (100) (100)
Net interest income 3,580 3,460 4,013 4,099 4,475 25 9
Other income 462 607 653 887 738 60 (17)
Provisions 618 709 958 898 563 (9) (37)
Operating expenses 1,572 1,588 1,671 1,898 2,254 43 19
PBT 1,852 1,770 2,037 2,190 28 (98) (99)
Tax 647 607 715 734 24 (96) (97)
PAT 1,205 1,163 1,322 1,456 1,602 33 10
Outstanding loan book (Rs bn) 193 204 230 236 276 43 17
Loans outside balance sheet (Rs bn) 30 29 30 37 35 17 (6)
Loans under management (Rs bn) 223 233 260 273 311 40 14
Home Loans 53 60 67 75 86 61 14
Loans Against Property 56 55 55 56 57 2 3
Construction & Real Estate 31 35 35 38 43 41 14
Gold 29 28 31 34 40 39 18
Commercial Vehicle 30 30 32 36 41 37 14
Capital Market 11 12 22 10 11 (4) 7
Micro-finance 2 3 4 6 8 47
MSME & Others 10 11 15 19 25 142 33
Key ratios (%)
NIM - KS Estimate 7.5 7.0 7.4 7.0 7.0
CAR 18.1 20.6 18.4 18.2 16.2
Asset quality
Gross NPL (%) 1.8 2.0 2.0 2.1 1.7
Net NPL (%) 0.6 0.9 1.1 1.2 0.8
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Gross NPL 3,323 3,452 3,410 3,509 4,158 4,489 4,948 4,722
Net NPL 1,535 1,532 1,231 1,118 1,916 2,509 2,780 2,182
Outstanding provisions 1,788 1,920 2,178 2,391 2,242 1,980 2,168 2,541
Provisions in the quarter 292 416 433 618 709 958 898 563
Implied write-offs 99 284 174 406 858 1,220 710 190
Write-off as % of open GNPL (%) 4 9 5 12 24 29 16 4
Credit cost (%) 0.7 0.9 0.9 1.3 1.4 1.8 1.5 0.9
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 37
Exhibit 11: Share of terms loans continue to trend downwards Borrowings mix, March fiscal year-ends, 2012-18 (%)
Source: Company, Kotak Institutional Equities
Exhibit 12: Performance metrics of IIFL Finance Product portfolio break-up, March fiscal year-end, 4QFY18
Source: Company, Kotak Institutional Equities
Exhibit 13: Significant improvement in asset quality across most segments Product-wise net NPL ratios, March fiscal year-ends, 3QFY17-3QFY18 (%)
Source: Company, Kotak Institutional Equities
51 46 45 47 4840 42 38 41 38
2020
33 34 3439 35
35 3228
29 3423 19 18 21 23 28 27
34
0
20
40
60
80
100
2012 2013 2014 2015 2016 2017 1QFY18 2QFY18 3QFY18 2018
Term loan NCD CP
Portfolio share Net NPL Yield
Average
ticket LTV
(%) (%) (%) (Rs mn) (%)
Home loan 28 0.3 9.8 2.1 68
Loan against property 18 1.0 12.8 7.2 49
Construction finance 14 1.4 14.8 107.0 46
Commercial vehicle finance 13 1.5 15.7 1.5 75
Gold loan 13 0.1 21.5 0.1 65
Capital market finance 3 — 11.2 7.1 42
MSME loan 8 1.4 16.6 0.7 54
Microfinance 3 — 25.1
Total 100 0.8 14.4
4QFY17 1QFY18 2QFY18 3QFY18 4QFY18
Home loan 0.3 0.3 0.3 0.3 0.3
Loan against property 0.9 1.1 1.9 1.7 1.0
Construction finance 0.1 0.2 1.4 2.3 1.4
Commercial vehicle finance 1.9 4.2 3.2 2.3 1.5
Gold loan — 0.2 0.2 0.2 0.1
Capital market finance — — — — —
MSME loan 1.7 2.3 1.2 1.3 1.4
Microfinance 0.5
Total 0.6 0.9 1.1 1.2 0.8
NBFCs IIFL Holdings
38 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 14: IIFL Finance – key ratios, growth rates and financial statements March fiscal year-ends, 2016-21E
Source: Company, Kotak Institutional Equities estimates
Yield pressure in broking business
Equity broking revenues grew 34% yoy compared to 39% yoy growth in cash equities ADV
and 73% yoy growth in derivatives ADV for IIFL. Consequently, blended yields declined 20
bps qoq and 50 bps yoy to 1.7%. This was driven by general pressure on yields as well as
lower share of delivery volumes during the quarter.
2016 2017 2018E 2019E 2020E 2021E
Key ratios (%)
Interest yield (%) 16.0 16.2 15.3 14.6 14.4 14.1
Interest cost (%) 11.5 10.7 9.1 9.3 9.3 9.3
Spread (%) 4.5 5.5 6.2 5.3 5.1 4.8
NIM (%) 6.1 6.6 7.0 6.2 6.1 5.8
Loan growth (%) 21.2 8.5 43.2 15.3 16.1 16.7
Income on investments (%) 2.0 2.0 2.0 2.0 2.0 2.0
Opex/ loans (%) 3.0 3.0 3.2 2.9 2.7 2.5
Credit cost/ loans (%) 0.7 1.0 1.3 1.0 0.9 0.9
PAT / average loans (%) 2.1 2.3 2.4 2.2 2.3 2.3
Du Pont Analysis (% of total assets)
NII/ assets 5.9 6.1 6.4 6.0 5.8 5.6
Other income/ assets 0.8 0.8 1.0 1.0 1.0 1.0
Provisions/ assets 0.6 0.9 1.2 1.0 0.9 0.9
Opex/ assets 2.9 2.8 2.9 2.8 2.6 2.4
PBT/ assets 3.1 3.3 3.3 3.2 3.4 3.4
(1-tax rate) 0.7 0.7 0.7 0.7 0.7 0.7
PAT/ assets 2.0 2.1 2.2 2.1 2.2 2.2
Average assets/ average equity (X) 8.2 7.1 6.9 7.5 7.6 7.8
PAT/ average equity 16.6 15.1 15.0 15.9 17.0 17.5
Profit and loss statement (Rs mn)
Interest income 25,947 30,064 35,952 43,326 49,379 56,568
Interest expenses 16,091 17,875 19,637 24,771 28,498 33,222
Net interest income 9,856 12,189 16,315 18,556 20,881 23,346
Other income 1,377 1,587 2,618 3,063 3,605 4,265
Other interest income 120 169 598 748 935 1,169
Provisions 1,087 1,760 3,130 2,973 3,096 3,605
Operating expenses 4,937 5,525 7,411 8,621 9,289 10,013
Employee expenses 2,690 3,010 4,038 4,697 5,061 5,456
Other opex 1,987 2,255 3,024 3,518 3,791 4,086
Depreciation 260 260 349 406 437 471
PBT 5,209 6,491 8,392 10,026 12,101 13,994
Tax 1,822 2,260 2,849 3,404 4,108 4,751
PAT 3,387 4,231 5,543 6,622 7,993 9,243
Balance sheet (Rs mn)
Fixed assets 655 1,241 919 1,149 1,436 1,795
Investments 2,475 14,365 10,898 7,629 7,629 7,629
Loan book 177,695 192,798 276,155 318,383 369,670 431,366
Total assets 179,358 218,934 290,943 330,876 383,163 446,073
Borrowings 153,127 181,044 249,059 283,644 329,217 385,232
Total liabilities 157,967 184,235 251,657 286,892 333,277 390,306
Networth 21,391 34,699 39,286 43,984 49,886 55,767
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 39
Exhibit 15: Cash equity market volume increased 30% yoy in 4QFY18 Average daily volumes on BSE and NSE, March fiscal year-ends, 2008-2018 (` bn)
Source: BSE, NSE, Kotak Institutional Equities
Exhibit 16: Equity market volumes were strong in FY2018 Volumes on BSE and NSE, March fiscal year-ends, 1996-4QFY18 (` bn)
Source: BSE, NSE, Kotak Institutional Equities
BSE NSE Total YoY F&O- NSE YoY Total vol. YoY
Period (Rs bn) (Rs bn) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%)
2008 62 144 205 78 530 77 735 77
2009 45 113 158 (23) 453 (15) 611 (17)
2010 56 168 224 41 717 58 941 54
2011 44 141 184 (18) 1,148 60 1,332 42
2012 26 113 139 (25) 1,269 11 1,408 6
2013 32 127 158 (15) 1,306 56 1,465 43
2014 21 112 133 2 1,530 21 1,663 19
2015 36 181 217 63 2,327 52 2,544 53
1QFY16 26 177 203 (10) 2,700 45 2,903 39
2QFY16 28 177 205 (5) 2,602 9 2,807 8
3QFY16 27 163 189 (4) 2,236 (5) 2,425 (5)
4QFY16 28 173 201 (12) 3,012 12 3,212 10
1QFY17 26 174 200 (2) 2,983 10 3,183 10
2QFY17 34 216 249 21 3,762 45 4,011 43
3QFY17 29 195 224 18 4,036 80 4,259 76
4QFY17 65 232 298 48 4,469 48 4,767 48
1QFY18 41 254 295 48 5,367 80 5,662 78
2QFY18 38 270 308 23 6,259 66 6,567 64
3QFY18 46 312 358 60 6,806 69 7,164 68
4QFY18 45 342 386 30 8,249 85 8,635 81
Volumes in cash market
(100)
-
100
200
300
400
500
-
1,500
3,000
4,500
6,000
7,500
9,000
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
4Q
FY1
7
1Q
FY1
8
2Q
FY1
8
3Q
FY1
8
4Q
FY1
8
Volumes (CM) (LHS) Volumes (F&O) (LHS)
Volume growth (CM) (RHS) Volume growth (F&O) (RHS)
NBFCs IIFL Holdings
40 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 17: IIFL Holdings is currently trading at 22.6X one-year forward EPS IIFL Holdings - Rolling PER (X)
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Exhibit 18: IIFL Holdings – summary of estimate changes March fiscal year-end, 2019E-21E (Rs mn)
Source: Kotak Institutional Equities estimates
-
5
10
15
20
25
Apr-
12
Oct
-12
Apr-
13
Oct
-13
Apr-
14
Oct
-14
Apr-
15
Oct
-15
Apr-
16
Oct
-16
Apr-
17
Oct
-17
Apr-
18
New estimates Old estimates New vs old (%)
2019E 2020E 2021E 2019E 2020E 2019E 2020E
Income (inclduing NII) 44,194 50,657 57,408 47,562 55,750 (7) (9)
Broking and related income 7,885 9,164 10,660 8,119 9,085 (3) 1
Insurance and wealth management 10,582 11,853 13,433 11,616 13,665 (9) (13)
Net interest income 25,566 29,480 33,156 27,667 32,840 (8) (10)
Other income 160 160 160 160 160 — —
Operating expenses 24,566 26,859 29,610 28,117 32,448 (13) (17)
Brokerage/ direct expenses 6,052 6,355 6,673 7,205 8,286 (16) (23)
Employee expenses 12,199 13,663 15,029 13,360 16,032 (9) (15)
Others expenses 6,314 6,841 7,908 7,552 8,130 (16) (16)
PBT 19,628 23,798 27,798 19,444 23,303 1 2
Tax 5,888 7,139 8,339 6,222 7,457 (5) (4)
PAT 13,740 16,658 19,459 13,222 15,846 4 5
Minority interest 3,052 3,683 4,353 2,623 3,198 16 15
PAT (after minority interest) 10,688 12,976 15,106 10,600 12,648 1 3
EPS (Rs/ share) 33.5 40.7 47.4 33.3 39.8 0 2
Loan book (Rs bn) 318 370 431 305 364 4 2
PBT/ total income (%) 44 47 48 41 42
Cost/ income (%) 56 53 52 59 58
IIFL Holdings NBFCs
KOTAK INSTITUTIONAL EQUITIES RESEARCH 41
Exhibit 19: IIFL Holdings – key ratios and growth rates March fiscal year-ends, 2016-21E (%)
Source: Company, Kotak Institutional Equities estimates
2016 2017 2018E 2019E 2020E 2021E
Key parameters
Volume in equity markets (Rs bn) 697,301 1,003,893 1,722,217 2,014,994 2,317,243 2,664,829
IIFL's volumes (Rs bn) 16,818 22,066 34,645 40,642 47,681 55,945
Per day (Rs bn) 74 96 163 192 225 265
Market share (%) 2.4 2.2 2.0 2.0 2.1 2.1
Commission yield (bps) 2.37 2.27 1.85 1.85 1.85 1.84
Key ratios
Yield on loans (%) 16.0 16.2 15.3 14.6 14.4 14.1
Cost of borrowings (%) 11.0 10.4 9.1 9.2 9.2 9.2
Spread (%) 5.0 5.8 6.3 5.4 5.2 5.0
Total operating costs/ total income (%) 58.0 48.1 46.6 45.5 43.6 41.9
PBT margins (%) 20.5 24.9 25.8 25.6 26.9 27.2
YoY growth (%)
Total revenues 12 20 31 19 15 15
Brokerage commission (5) 26 28 17 17 17
Life insurance distribution fees (9) (8) 94 1 15 15
Media income (16) (37) 22 15 15 15
Operating costs 5 (3) 32 12 10 9
EBIT 17 32 28 22 18 18
Interest and finance charges 17 25 24 25 16 18
Profit before tax 16 46 36 18 21 17
Net profit 14 34 33 17 21 16
Dividend 41 8 34 17 21 16
EPS 12 34 32 17 21 16
Growth in balance sheet line items
Total assets 18 31 32 16 17 19
Shareholders equity 14 50 16 16 17 17
Contribution to total revenues(%)
Commission on equity broking 9.7 10.2 9.9 9.8 10.0 10.1
Brokerage in commodities 0.1 0.1 0.1 0.1 0.1 0.1
Fees earned on distribution (MF) 0.3 0.2 0.1 0.1 0.1 0.1
Life insurance commissions 1.5 1.1 1.7 1.4 1.4 1.4
Other mortgage and loan distribution 13.7 12.7 12.4 11.7 11.3 11.1
Interest earned on margin trading/ finance income 72.5 73.7 74.1 75.7 76.0 76.2
Merchant banking income 0.5 1.0 1.1 0.4 0.3 0.3
Media and other income 1.3 0.7 0.6 0.6 0.6 0.6
Du pont analysis (% of average assets)
Net brokerage revenue 0.2 0.5 0.2 0.4 0.5 0.6
Income from distribution 3.0 2.6 2.6 2.4 2.3 2.2
Other income 14.5 14.1 14.1 13.8 13.8 13.5
Operating costs 13.7 12.6 12.1 12.0 11.7 11.5
(1-tax rate) 65.8 67.2 69.7 70.0 70.0 70.0
RoA (%) 2.6 3.1 3.3 3.2 3.4 3.3
Average assets/ average equity (X) 6.1 5.4 5.7 6.0 5.9 6.0
RoE (%) 16.0 16.9 19.0 19.3 20.0 19.9
NBFCs IIFL Holdings
42 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 20: IIFL Holdings – income statement and balance sheet March fiscal year-ends, 2016-21E (` mn)
Source: Company, Kotak Institutional Equities estimates
2016 2017 2018E 2019E 2020E 2021E
Consolidated income statement
Total revenues 41,016 49,248 64,591 76,664 88,401 102,015
Commission on equity broking 3,987 5,013 6,417 7,537 8,806 10,291
Brokerage in commodities 60 40 40 48 58 69
Fees earned on distribution (MF) 140 120 40 46 53 61
Life insurance commissions 613 564 1,095 1,103 1,271 1,462
Wealth management/ distribution 5,610 6,264 8,037 8,970 9,997 11,298
Interest income 29,754 36,294 47,861 58,037 67,224 77,762
Media income 526 330 402 463 532 612
Merchant banking income 210 500 700 300 300 300
Other income 116 124 (0) 160 160 160
Operating costs 14,045 13,627 18,013 20,101 22,103 24,052
Brokerage/ direct expenses 3,583 3,603 5,764 6,052 6,355 6,673
Business promotion and marketing 284 299 388 446 513 590
Staff expenses 7,045 7,840 10,608 12,199 13,663 15,029
Administrative expenses 3,133 1,885 1,253 1,403 1,571 1,760
Provisions 1,087 1,896 3,277 3,727 3,944 4,665
EBITDA 25,884 33,725 43,301 52,836 62,354 73,297
Depreciation/Amortization 661 540 671 738 812 893
EBIT 25,223 33,185 42,630 52,098 61,542 72,404
Interest and finance charges 16,800 20,922 25,954 32,470 37,744 44,606
Profit before tax 8,423 12,263 16,676 19,628 23,798 27,798
Taxation 2,878 4,018 5,056 5,888 7,139 8,339
Net profit 5,545 8,222 11,620 13,740 16,658 19,459
Minority interest in loss/profit 433 1,361 2,508 3,052 3,683 4,353
Net profit for appropriation 5,112 6,861 9,112 10,688 12,976 15,106
Dividend 1,345 1,449 1,945 2,286 2,775 3,230
Adjusted number of shares 317 318 319 319 319 319
EPS (Rs) 16.1 21.6 28.6 33.5 40.7 47.4
EPS -fully diluted (Rs) 14.8 19.8 26.2 30.8 37.4 43.5
DPS (Rs) 4.3 4.6 6.1 7.2 8.7 10.1
DPS -fully diluted (Rs) 3.9 4.2 5.6 6.6 8.0 9.3
Dividend payout ratio(%) 25 25 25 25 25 25
BVPS (Rs) 92.2 137.8 158.8 183.9 214.4 250.0
BVPS -fully diluted (Rs) 84.7 126.6 145.9 169.0 197.0 229.6
Consoidated balance sheet (Rs mn)
Goodwill (on consolidation) 578 637 — — — —
Net owned assets 4,805 6,766 7,899 3,648 4,087 4,643
Current Assets 25,607 27,446 21,815 25,042 26,906 34,693
Cash and bank balance 16,288 17,195 10,540 12,639 13,263 19,685
Loans and advances 177,695 228,962 343,167 402,147 474,375 562,246
Total assets 228,765 299,672 395,398 456,732 535,146 635,828
Borrowings 159,476 243,304 329,734 380,000 445,000 530,000
Current liabilities & prov. 28,332 — — — — —
Total liabilities 187,808 243,304 329,734 380,000 445,000 530,000
Shareholders equity 29,200 43,816 50,661 58,677 68,409 79,738
Paid-up capital 633 636 638 638 638 638
Reserves and surplus 28,566 43,180 50,023 58,039 67,771 79,100
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Muted 2.6% growth in volumes offset by robust EBITDA margins at 29.6%
Castrol’s results were broadly in line with our estimates in 1QCY18 as modestly lower-than-expected
2.6% yoy growth in volumes to 51.5 mn liters was offset by higher-than-expected EBITDA margins
at 29.6% (-200 bps qoq). Employee cost and other expenses were both below our estimate,
indicating cost controls amid a rising RM environment. A sharp 23% yoy jump in other income to
`228 mn was offset by a 16% yoy increase in depreciation to `143 mn. Reported net income was
in line with our estimate, increasing by 1.6% yoy to `1.82 bn (EPS of `1.8).
Subdued 2.6% growth in volumes. Castrol’s revenues increased by 5% yoy to `9.27 bn in
1QCY18, led by 2.6% yoy growth in volumes to 51.5 mn liters and 0.9% sequential increase
in realizations to `180/liter. Personal mobility and CVO segments recorded mid-single digit
growth in volumes, while industrial segment saw a decline. We expect the company to
deliver 3-4% growth in volumes in CY2018-19E, even as the quarterly print may look volatile
due to a sharply lower base of 2QCY17 and subsequent higher base of 2HCY17.
Expected moderation in margins to 29.6%. EBITDA increased by 4% yoy to `2.7 bn, 1%
above our estimate, as sequential 110 bps moderation in gross margins was offset by lower-
than-expected employee cost and other expenses. Gross contribution declined 1.1% qoq to
`96.6/liter, as a 3.3% qoq increase in RM cost was offset by 1% increase in realization. The
company undertook a 3-4% price hike in February, which will be reflected fully in the current
quarter. Unit EBITDA declined by 5.5% qoq to `53.3/liter, 1.7% ahead of our estimate due
to lower employee cost and other expenditure.
Modest 1% cut in CY2018-19 EPS estimates; near-term risk from spike in crude/base oil prices
We cut our EPS estimates by ~1% for CY2018-19, as we factor in modestly lower volumes and
margins versus our earlier assumptions. We retain ADD with a revised TP of `215 (`220 earlier),
at 25X CY2019E EPS, expecting the company to deliver high single-digit growth in earnings in the
long term, driven by modest growth in volumes and enhancement of unit profitability. A sharp
spike in crude/base oil prices is a key risk to our near-term estimates and positive view on the
stock, although Castrol has established strong pricing power in the lubricants industry historically
by increasing or maintaining its unit profitability/margins even in adverse crude price environment.
Castrol India (CSTRL) Energy
In-line results. Castrol’s results were in line with our estimates, as modestly lower
growth in volumes was offset by slightly higher margins due to cost controls. We retain
ADD with a TP of `215 (`220 previously), expecting the company to deliver 11% CAGR
in EPS over the next three years and high single-digit growth in earnings in the long
term despite muted growth in volumes. Any sharp spike in base oil prices is a near-term
risk to our view, although Castrol has demonstrated strong pricing power historically.
ADD
MAY 07, 2018
RESULT
Coverage view: Attractive
Price (`): 185
Target price (`): 215
BSE-30: 34,915
Tarun Lakhotia
Akshay Bhor
Castrol India
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 6.9 7.8 8.7
Market Cap. (Rs bn) EPS growth (%) 3.3 13.6 10.9
Shareholding pattern (%) P/E (X) 26.9 23.7 21.3
Promoters 51.0 Sales (Rs bn) 35.8 39.9 43.5
FIIs 9.9 Net profits (Rs bn) 6.8 7.7 8.6
MFs 5.3 EBITDA (Rs bn) 10.3 11.6 12.9
Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.9 14.9 13.4
Absolute (11.1) 2.8 (14.9) ROE (%) 67.9 73.6 78.6
Rel. to BSE-30 (15.9) 3.2 (26.6) Div. Yield (%) 2.6 3.2 3.8
Company data and valuation summary
226-172
182.4
Energy Castrol India
44 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Interim results of Castrol, calendar year-ends (Rs mn)
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: Muted growth in volumes during 1QCY18 Quarterly volumes, Calendar year-ends, 2008-18YTD (mn liters)
Source: Company, Kotak Institutional Equities
(% chg.) yoy
1QCY18 1QCY18E 1QCY17 4QCY17 1QCY18E 1QCY17 4QCY17 CY2018E CY2017 (% chg.)
Net sales 9,271 9,281 8,822 9,703 (0.1) 5.1 (4.5) 39,904 35,843 11.3
Raw materials 4,294 4,240 4,042 4,388 1.3 6.2 (2.1) 18,654 16,660 12.0
Employees 469 520 498 507 (9.9) (5.8) (7.5) 2,044 1,956 4.5
Other expenses 1,765 1,814 1,649 1,742 (2.7) 7.0 1.3 7,574 6,897 9.8
Total expenditure 6,528 6,574 6,189 6,637 (0.7) 5.5 (1.6) 28,272 25,513 10.8
EBITDA 2,743 2,707 2,633 3,066 1.3 4.2 (10.5) 11,631 10,330 12.6
Other income 228 180 185 164 26.4 23.2 39.0 712 651 9.4
Interest 7 3 3 6 14 12
Depreciation 143 118 123 103 21.6 16.3 38.8 521 455 14.6
Pre-tax profits 2,821 2,767 2,692 3,121 1.9 4.8 (9.6) 11,808 10,514 12.3
Extraordinaries — — — — — 186
Current tax 1,020 977 917 1,026 4.4 11.2 (0.6) 4,183 3,651 14.6
Deferred tax (17) (20) (15) 128 (97) 131
Net income 1,818 1,810 1,790 1,967 0.5 1.6 (7.6) 7,721 6,918 11.6
Adjusted net income 1,818 1,810 1,790 1,967 0.5 1.6 (7.6) 7,721 6,798 13.6
Effective tax rate (%) 35.6 34.6 33.5 37.0 34.6 35.3
Adjusted EPS (Rs) 1.8 1.8 1.8 2.0 0.5 1.6 (7.6) 7.8 6.9 13.6
Other details
Sales volumes (mn liters) 51.5 51.7 50.2 54.4 (0.4) 2.6 (5.3) 211.8 204.6 3.5
Gross realization (Rs/liter) 180.0 179.5 175.7 178.4 0.3 2.4 0.9 188.4 175.2 7.5
Raw material (Rs/liter) 83.4 82.0 80.5 80.7 1.7 3.6 3.3 88.1 81.4 8.1
Contribution (Rs/liter) 96.6 97.5 95.2 97.7 (0.9) 1.5 (1.1) 100.3 93.8 7.0
EBITDA (Rs/liter) 53.3 52.4 52.5 56.4 1.7 1.5 (5.5) 54.9 50.5 8.8
Gross margin (%) 53.7 54.3 54.2 54.8 (63)bps (50)bps (109)bps 53.3 53.5 (27)bps
EBITDA margins (%) 29.6 29.2 29.8 31.6 42 bps (26)bps (201)bps 29.1 28.8 33 bps
1Q 2Q 3Q 4Q
Sales volumes (mn liters)
2008 54.3 63.9 50.6 46.0
2009 45.2 56.0 50.7 53.7
2010 54.6 60.2 50.4 53.8
2011 55.9 54.1 46.0 51.8
2012 52.6 56.7 46.1 48.5
2013 50.1 54.1 44.8 47.8
2014 48.8 53.3 45.6 48.2
2015 46.0 53.7 45.3 46.1
2016 50.1 56.5 45.7 47.0
2017 50.2 50.9 49.1 54.4
2018 51.5
Growth (% yoy)
2008 6 3 1 (17)
2009 (17) (12) 0 17
2010 21 8 (1) 0
2011 2 (10) (9) (4)
2012 (6) 5 0 (6)
2013 (5) (5) (3) (1)
2014 (3) (1) 2 1
2015 (6) 1 (1) (4)
2016 9 5 1 2
2017 0 (10) 7 16
2018 3
Castrol India Energy
KOTAK INSTITUTIONAL EQUITIES RESEARCH 45
Exhibit 3: Base oil prices have remained steady despite an increase in global crude prices in recent months Singapore base oil price (US$/ton)
Source: ICIS, Kotak Institutional Equities
Exhibit 4: We expect 3-4% growth in volumes and 29-30% EBITDA margins Key assumptions, calendar year-ends, 2012-19E
Source: Company, Kotak Institutional Equities estimates
-
200
400
600
800
1,000
1,200
1,400
Jan
-15
Feb-1
5
Mar-
15
Apr-
15
May-
15
Jun-1
5
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
Nov-
15
Dec-
15
Jan
-16
Feb-1
6
Mar-
16
Apr-
16
May-
16
Jun-1
6
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Nov-
16
Dec-
16
Jan
-17
Feb-1
7
Mar-
17
Apr-
17
May-
17
Jun-1
7
Jul-1
7
Aug
-17
Sep
-17
Oct
-17
Nov-
17
Dec-
17
Jan
-18
Feb-1
8
Mar-
18
Apr-
18
Bright Stock SN 500(US$/ton)
2013 2014 2015 2016 2017 2018E 2019E 2020E
Macro assumptions
Exchange rate (Rs/US$) 58.0 61.0 64.1 67.2 65.1 65.9 67.5 68.5
Global base oil (US$/ton) 1,032 1,029 705 565 667 742 752 762
Domestic base oil (Rs/liter) 62.9 66.0 47.5 39.9 45.6 51.4 53.4 54.9
Change (%) (2.4) 4.8 (28.0) (15.9) 17.9 11.3 1.3 1.3
Realization (Rs/liter)
Gross realization [A] 161.5 173.1 172.6 169.0 175.2 188.4 196.8 204.7
Change (%) 5.5 7.2 (0.3) (2.1) 3.7 7.5 4.5 4.0
Raw material cost [B] 93.0 98.1 82.6 77.6 81.7 88.1 91.6 94.9
Change (%) 3.8 5.5 (15.9) (6.1) 5.3 7.8 4.1 3.6
Gross contribution [A] - [B] 68.6 75.0 90.0 91.5 93.5 100.3 105.2 109.7
Gross margins (%) 42.4 43.3 52.2 54.1 53.4 53.3 53.4 53.6
EBITDA 34.9 36.6 46.8 50.1 50.5 54.9 58.2 61.3
EBITDA margin (%) 21.6 21.1 27.1 29.7 28.8 29.1 29.6 30.0
Volume (Kilo liters)
Non-automotive grades 26,718 27,974 26,015 27,706 27,249 27,522 28,623 29,768
Automotive grades 163,947 161,816 159,065 165,427 171,052 177,894 185,899 194,265
Traded items 6,155 6,140 6,035 6,277 6,277 6,402 6,690 6,991
Total 196,820 195,929 191,115 199,410 204,578 211,818 221,212 231,023
Growth (%) (3.5) (0.5) (2.5) 4.3 2.6 3.5 4.4 4.4
Energy Castrol India
46 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: Castrol is trading at a discount to FMCG sector stocks, given muted volume/earnings growth Valuation summary of consumer sector companies, March fiscal year-ends, 2018-20E
Source: Kotak Institutional Equities estimates
Exhibit 6: Castrol stock is trading at 23X forward EPS 12-month forward P/E for Castrol India (X)
Source: Bloomberg, Company, Kotak Institutional Equities estimates
4-May-18 Mkt cap.
Company Price (Rs) (US$ mn) 2018E 2019E 2020E 2018E 2019E 2020E
Asian Paints 1,190 17,071 6.1 14.5 14.7 56.0 48.9 42.6
Castrol India (a) 185 2,728 3.3 13.6 10.9 26.9 23.7 21.3
Colgate-Palmolive (India) 1,098 4,466 16.4 19.1 19.0 45.7 38.4 32.3
Dabur India 370 9,753 7.2 16.1 11.7 47.7 41.0 36.8
GlaxoSmithKline Consumer 5,901 3,710 2.0 14.5 11.5 37.1 32.4 29.0
Godrej Consumer Products 1,107 11,278 14.4 14.8 14.4 50.6 44.1 38.5
Hindustan Unilever 1,464 47,381 19.0 17.4 12.3 62.7 53.4 47.5
ITC 277 50,560 8.9 10.0 11.7 30.8 28.0 25.1
Jubilant Foodworks 2,567 2,532 172.6 58.2 35.7 89.6 56.7 41.8
Marico 317 6,115 7.4 16.7 13.7 50.6 43.3 38.1
Nestle India 9,111 13,133 21.1 28.1 13.5 71.7 56.0 49.3
Pidilite Industries 1,071 8,127 6.6 22.5 16.7 59.9 48.9 41.9
Tata Global Beverages 288 2,715 33.9 26.6 22.2 35.3 27.9 22.8
Titan Company 958 12,716 31.7 32.5 21.7 81.5 61.5 50.6
Median 11.6 17.1 14.0 50.6 43.7 38.3
Notes:
(a) Calendar year-ends, i.e. FY2018 represents CY2017.
EPS growth (%) P/E (X)
-
5
10
15
20
25
30
35
40
45
50
Jan
-10
Jul-1
0
Jan
-11
Jul-1
1
Jan
-12
Jul-1
2
Jan
-13
Jul-1
3
Jan
-14
Jul-1
4
Jan
-15
Jul-1
5
Jan
-16
Jul-1
6
Jan
-17
Jul-1
7
Jan
-18
CSTRL 12-month forward P/E(X)
Five-year average P/E
Castrol India Energy
KOTAK INSTITUTIONAL EQUITIES RESEARCH 47
Exhibit 7: Profit model, balance sheet, cash model, calendar year-ends, 2012-19E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Profit model (Rs mn)
Net sales 31,209 31,796 33,923 32,980 33,703 35,843 39,904 43,539 47,280
EBITDA 6,226 6,875 7,167 8,949 9,994 10,331 11,631 12,873 14,171
Other income 722 836 481 646 681 651 712 798 831
Interest (18) (17) (24) (8) (15) (12) (14) (17) (21)
Depreciation (266) (305) (361) (390) (450) (455) (521) (556) (590)
Pretax profits 6,663 7,390 7,263 9,197 10,210 10,515 11,808 13,098 14,391
Extraordinaries — 228 — 313 193 186 — — —
Current tax (2,278) (2,411) (2,606) (3,238) (3,880) (3,651) (4,183) (4,633) (5,086)
Deferred tax 89 (121) 89 (119) 181 (131) 97 100 105
Adjusted net profits 4,474 4,933 4,746 5,950 6,579 6,798 7,721 8,565 9,411
Earnings per share (Rs) 4.5 5.0 4.8 6.0 6.7 6.9 7.8 8.7 9.5
Balance sheet (Rs mn)
Total equity 6,492 7,514 4,968 5,756 9,815 10,202 10,780 11,012 11,494
Deferred taxation liability (651) (530) (618) (499) (672) 188 91 (9) (115)
Total borrowings — — — — — — — — —
Currrent liabilities 8,303 8,636 9,951 10,860 9,740 9,380 11,194 11,882 12,580
Total liabilities and equity 14,145 15,621 14,300 16,117 18,883 19,770 22,065 22,885 23,959
Cash 5,746 5,942 4,315 6,965 8,219 7,842 9,154 9,458 10,037
Current assets 6,828 7,925 8,108 7,300 8,822 9,965 11,081 11,751 12,437
Total fixed assets 1,571 1,753 1,877 1,853 1,842 1,962 1,831 1,675 1,485
Investments — — — — — — — — —
Total assets 14,145 15,621 14,300 16,117 18,883 19,770 22,065 22,885 23,959
Free cash flow (Rs mn)
Operating cash flow, excl. working capital 4,428 4,704 4,873 6,262 6,372 6,727 7,434 8,222 9,064
Working capital 223 (756) 580 1,128 252 (645) 698 18 11
Capital expenditure (348) (260) (504) (370) (358) (563) (390) (400) (400)
Free cash flow 4,303 3,688 4,950 7,020 6,266 5,519 7,742 7,840 8,676
Investments — — — — (492) 1,633 — — —
Other income 356 559 366 392 520 444 712 798 831
Ratios (%)
RoAE 79.0 79.3 83.7 128.1 93.1 70.8 72.6 78.3 84.1
RoACE 79.3 77.1 84.0 124.0 91.5 69.7 72.7 78.4 84.2
Assumptions
Volume (mn liters) 203.9 196.8 195.9 191.1 199.4 204.6 211.8 221.2 231.0
Gross realization (Rs/liter) 153.1 161.5 173.1 172.6 169.0 175.2 188.4 196.8 204.7
Gross contribution (Rs/liter) 63.4 68.6 75.0 90.0 91.5 93.5 100.3 105.2 109.7
EBITDA margins (%) 19.9 21.6 21.1 27.1 29.7 28.8 29.1 29.6 30.0
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
4QFY18—defying seasonal weakness; key metrics (except footfalls) tracking well
PVR reported its strongest March quarter in the past seven years thanks to the deferred release
of the blockbuster movie 'Padmaavat’ and good box office performance of a few other movies.
Most metrics that indicate PVR’s execution were solid—(1) ATP at `209 (+10% yoy), (2) SPH at
`87 (+12% yoy) and (3) ad revenues `720 mn (+37 yoy). Headline footfalls grew 4% yoy to 19
mn. The disappointing bit was the 2% yoy decline in footfalls on same-store basis despite a
solid movie line-up; PVR partly attributed it to a strike in South India during 4Q. EBITDA at `983
mn was 12% ahead of our estimate led by the revenue beat; EBITDA margin at 16.7%
(KIE15.5%) was up 490 bps yoy. Net profit was `262 mn as against a loss of `1 mn in 4Q last
year. For full year FY2018, EBITDA/PAT grew 17%/30% yoy whereas footfall growth was
modest at 1%.
Acceleration in screen addition and portfolio premiumisation
PVR has guided for (1) 90+ screen openings in FY2019E versus an average of 45 screens/year
over FY2014-18. The high screen addition rate can sustain for 2-3 years; it is driven by pickup in
mall development activity and more screens per mall, (2) accelerated upgradation of its screen
portfolio to increase premium format screens (such as Gold class) to 20%+ of total screens from
9% at present, (3) capex of `4-4.5 bn/year (50% above usual run rate) over the next two years
in view of #1 and #2. Further, PVR’s board has approved fund raising of upto `10 bn via NCDs
(enabling resolution). PVR is preparing for acquisition opportunities that come its way as the
multiplex industry goes through another round of consolidation over the next 1-2 years. It looks
like PVR is on track to meet its target of 1,000 screens (625 at present) in the next 3-4 years.
Upgrade EBITDA by 6% and tweak EPS. Stock is fairly valued; await better entry point
We raise PVR’s FY2019-20E EBITDA by 6% as we model: (1) higher screen openings (85
screens/year from 55 earlier), (2) higher convenience fee in view of upcoming renewals with
Bookmyshow and PayTM, (3) slightly higher ATP and ad revenues (benefit of premiumisation
drive). Our FY2020E EPS declines marginally as EBITDA upgrade is more than offset by higher
depreciation and interest costs. We value PVR at 12X FY2020E EV/EBITDA; raise TP to `1,425
from `1,350 (led by EBITDA upgrade). We like PVR’s execution and industry leadership, and
believe it may race ahead (expand lead over competition) over the next 2-3 years. However, we
do not see a case of re-rating given regulatory risks and threat from OTT platforms that the
business faces. Stock is fairly valued and we would wait for a better entry price.
PVR (PVRL) Media
Stepping up its game. PVR reported 68% yoy growth in EBITDA, 12% ahead of our
estimate, led by the success of the deferred blockbuster movie ‘Padmaavat’. The
company is stepping up the pace of screen additions, upgradation of its existing screen
portfolio and is gearing to participate in the final leg of industry consolidation. This
augurs well for revenue and EBITDA growth and can potentially expand PVR’s lead over
competition but push back FCF generation by 2-3 years. At 12X FY2020E, the stock is
fairly valued.
REDUCE
MAY 07, 2018
RESULT
Coverage view: Attractive
Price (`): 1,425
Target price (`): 1,425
BSE-30: 34,915
Jaykumar Doshi
PVR
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 26.8 37.5 50.0
Market Cap. (Rs bn) EPS growth (%) 25.5 39.8 33.2
Shareholding pattern (%) P/E (X) 53.1 38.0 28.5
Promoters 20.3 Sales (Rs bn) 23.5 27.9 33.1
FIIs 43.6 Net profits (Rs bn) 1.3 1.8 2.3
MFs 9.7 EBITDA (Rs bn) 4.2 5.1 6.3
Price performance (%) 1M 3M 12M EV/EBITDA (X) 17.7 14.6 12.1
Absolute 13.1 9.5 (7.4) ROE (%) 12.3 15.2 17.5
Rel. to BSE-30 6.9 9.9 (20.1) Div. Yield (%) 0.1 0.3 0.4
Company data and valuation summary
1,601-1,142
66.6
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 49
PVR’s expansion and premiumisation drive—understanding opportunities and
risks
Organic screen addition. As PVR is stepping up the pace of organic screen openings,
three questions that come up are:
(1) Quality/location of new screens and dilutive impact on ATP, SPH and ad
revenue/screen, if any? As 75% of the screen openings in FY2019E will be in tier-I or
tier-II cities and it is unlikely to put pressure on ATP, SPH or ad revenues/screen.
(2) Will it result in cannibalization of footfalls? About 45% of screens to be opened in
FY2019E are in South where penetration of multiplexes is relatively low and there is an
opportunity to gain share from single screens. That said, some cannibalization of
footfalls from PVR’s existing screens and other multiplexes cannot be ruled out.
(3) Will competitive intensity rise? We expect some pick up in organic screen additions
of INOX and Cinepolis as well, over the next 2-3 years. Given this, it has to be seen
whether acceleration in screen additions puts any pressure on occupancy of the
industry especially as we may see some change in consumption patterns with led by
digital (most movies will be available on OTT after 2 months of theatrical release).
Accelerated premiumisation of existing screen portfolio. PVR plans to upgrade its
screen portfolio and increase premium format screens (such as Gold class) to 20% of
total screens from 9% at present. The idea is to have a mix of Gold class (premium
services, recliner seats at about 2X price) and regular screens at all prominent properties
just the same way as airlines have ‘business class’ and ‘economy class’ sections on the
same flight. PVR’s experience indicates that demand for ‘premium class’ is higher than
the existing supply and RoI of premium screens justifies upgrade of 1 or 2 screens at
several multiplex properties. Two questions that come up are:
Is this a one-time exercise or will refurbishing cost/maintenance capex remain
elevated? We believe PVR may upgrade a few screens ahead of regular refurbishment
cycle (7-9 years) in view of this premiumisation drive. From long-term perspective,
refurbishment cycle may shorten if technology advancement happen at a rapid pace.
Is the demand for ‘premium’ experience big enough; what if all of the top-3 players
embark on similar premiumisation drives? We note that peer INOX has upped its game
and has upgraded several properties in the recent past. We will have to closely track
renovations of PVR, INOX and Cinepolis to better understand supply side dynamics of
‘premium formats’. If supply exceeds demand, it can put pricing pressure in the near
term.
Inorganic opportunities. Standalone multiplexes or smaller multiplex chains are finding
it difficult to operate profitably and compete with large chains. It is likely that several such
properties will be up for sale over the next 1-2 years especially as prevailing valuations are
tempting for a small player looking to exit. Key questions that come up are
How does PVR intend to fund acquisitions; are PVR’s promoters open to further equity
dilution. We believe that a small acquisition may be completely funded by debt (PVR
has passed enabling resolution to raise up to `10 bn through NCDs for acquisition and
some debt refinancing). In the event of a large acquisition (say about `6-7 bn+ or
multiple acquisitions), PVR promoters may dilute further (promoter shareholding is
about 20% at present).
The size of acquisitions and valuations that PVR may pay; will it generate value for
investors? We believe that other than SPI cinemas (Tamil Nadu’s premium multiplex
chain), consideration required to acquire most other small multiplex chains will be
Media PVR
50 KOTAK INSTITUTIONAL EQUITIES RESEARCH
under `5 bn. SPI cinemas acquisition can be around `1 bn or more (as per unauthentic
media articles, PVR had looked at this chain in the past and engaged with its owners).
We believe sellers owning good multiplex properties are expecting 10-12X 1-2 year
forward ‘potential’ EBITDA, just marginally lower than PVR’s prevailing valuations and
perhaps higher than INOX’s valuations. Acquisitions at such valuations may not create
any value for the investors in the near term.
To sum it up, we believe PVR may potentially race ahead of competition (widen revenue
and screen gap versus competition) over the next 2-3 years. Whether or not this strategy
pays off in terms of RoIs in medium-term will be a function of (1) theatrical consumption
trends as digital ecosystem evolves, and (2) response and strategy of PVR’s competition
(INOX and Cinepolis). Premiumisation gains can fall short of expectation if all the top
three multiplex players pursue aggressive upgradation thus competing for a relatively
small and limited premium audience segment.
Key highlights from 4QFY18 results and conference call
Footfalls grew 4% yoy to 19 mn (KIE 18.8 mn)—Comparable properties’ (SSG) footfalls
declined 2% yoy. Key movies during the quarter were ‘Padmaavat’, ‘Sonu Ke Titu Ki
Sweety’, ‘Raid’,’ Padman’, ‘Black Panther’ and spillover of ‘Tiger Zinda hain’ as against
‘Raees’, ‘Badrinath Ki Dulhania’, ‘Jolly LLB 2’, ‘Kaabil’ and spillover of ‘Dangal’ in 4Q last
year
Average ticket price (ATP) grew 10% yoy to `209; ATP growth for comparable properties
was 9%
F&B spends per head (SPH) increased 12% yoy to `87; F&B gross margin was steady at
73.6%
Ad revenues grew 37% yoy; ad revenue growth for comparable properties was solid
31% yoy partly driven by blockbuster movie ‘Padmaavat’
FY2018 roundup—Footfalls grew 1.1% (SSG -6%); ATP grew 7% to `210 (SSG 7%);
SPH was up 11% (SSG 10%) and ad revenue/screen increased 20% yoy. Revenues grew
9%, EBITDA growth was higher at 15% and net profit at `1.25 bn increased 33% yoy.
Balance sheet—net debt increased by `793 mn to `7.96 bn. Capex for the year was
about `3.5 bn. PVR added 46 screens (net of closure of three screens) during FY2018.
Screen addition guidance. PVR has guided 90+ screen additions in FY2019; break-up:
(1) tier-wise—40+ in tier-I (top 8-10 cities), 29+ in tier-II (next 30-35 cities) and 21+ in
tier-III, (2) region-wise—41+ in South, 34+ in North, 11+ in West and 4+ in East. We note
that PVR has missed screen addition guidance by 20%+ over the past 3-4 years due to
unanticipated delays (usually in license procurement). The management has indicated that
(1) 23 screens are ready and awaiting licenses, (2) 58 screens are under fit-out and
expected to be completed in the next 5-8 months, (3) 50-60 screens are expected to be
handed over for fit out in FY2019. It looks like the company has kept adequate buffer in
FY2019 guidance.
We note that PVR has not included state government subsidy (potentially `100-120 mn
over 2Q-4QFY18) pertaining to tax exemptions due to lack of clarity on the refund
mechanism under GST. PVR management has made representations to most state
governments and is awaiting response.
Average capex per new screen is about `30 mn. Upgradation (renovation) capex will be
around `1.25 bn; PVR renovated 17-18 properties in FY2018 and it intends to upgraded
about 12-15 properties in FY2019
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 51
Exhibit 1: Interim results of PVR, March fiscal year-ends (Rs mn)
Source: Company, Kotak Institutional Equities estimates
4QFY18 4QFY18E 4QFY17 3QFY18 KIE yoy qoq FY2018 FY2017 % chg. FY2019E % chg.
Total revenues 5,888 5,651 4,942 5,577 4 19 6 23,534 21,564 9 27,865 18
Ticket sales 3,124 3,027 2,646 2,931 3 18 7 12,481 11,172 12 14,541 17
F&B sales 1,571 1,547 1,285 1,438 2 22 9 6,077 5,505 10 7,719 27
Advertising 720 712 527 867 1 37 (17) 2,949 2,450 20 3,527 20
Convenience fees 145 150 147 143 (4) (2) 1 597 582 3 767 28
Other operating revenues 329 215 336 200 53 (2) 65 1,431 1,854 (23) 1,310 (8)
Total expenditure (4,905) (4,774) (4,358) (4,569) 3 13 7 (19,368) (17,991) 8 (22,716) 17
Film hire costs (1,271) (1,362) (1,118) (1,323) (7) 14 (4) (5,377) (4,639) 16 (6,301) 17
F&B consumption (414) (402) (335) (379) 3 24 9 (1,591) (1,402) 13 (1,930) 21
Employee expenses (653) (625) (538) (622) 4 21 5 (2,541) (2,205) 15 (3,002) 18
Rent (1,061) (1,030) (1,005) (994) 3 6 7 (4,111) (3,847) 7 (4,918) 20
Other expenses (1,506) (1,355) (1,362) (1,252) 11 11 20 (5,749) (5,899) (3) (6,565) 14
EBITDA 983 876 584 1,008 12 68 (2) 4,166 3,572 17 5,149 24
EBITDA Margin (%) 16.7 15.5 11.8 18.1 17.7 16.6 18.5
Other income 36 35 55 27 3 (35) 31 120 188 (36) 150 25
F inance costs (210) (200) (216) (212) 5 (3) (1) (837) (806) 4 (846) 1
Depreciation (394) (400) (363) (375) (2) 9 5 (1,491) (1,384) 8 (1,799) 21
Exceptional items — — (15) - (6) (41) -
Pretax profits 415 311 45 449 33 829 (8) 1,952 1,530 28 2,654 36
Taxes (153) (106) (45) (154) (704) (570) 24 (903) 28
Net profit before minorities 262 206 (0) 295 1,247 960 30 1,752 40
Minority interest (0) 1 (1) (7) (0) (1) —
Net profit 262 207 (1) 289 27 NA (9) 1,247 959 30 1,752 40
EPS (Rs/share) 6.2 4.4 - 6.2 27.1 20.4 33 37.5 38
Key operational metrics
Screens (#) 625 625 579 603 625 579 710 14
Footfalls (mn) 19.0 18.8 18.2 17.4 1 4 9 76.1 75.3 1.1 83.5 10
Average ticket price (ATP) (Rs) 209 203 190 212 3 10 (1) 210 197 7 224 7
F&B spends per head (SPH) (Rs) 87 87 78 92 0 12 (5) 89 81 11 97 9
Ad rev/screen (annualized) (Rs mn) 4.7 4.6 3.7 5.8 1 27 (19) 4.9 4.5 9 5.0 1
F ilm hire costs as % of ticket sales 40.7 45.0 42.3 45.1 43.1 41.5 43.3
Rent as % of sales 18.0 18.2 20.3 17.8 17.1 17.8 17.6
F&B COGS as % F&B sales 26.4 26.0 26.1 26.4 26.2 25.5 25.0
Occupancy (%) 31.5 30.0 31.7 29.1 31.3 32.9 32.0
Comparable properties (same store) growth (%)
Footfalls (2.0) 7.0 (7.0) (6.0) (3.0)
Average ticket price (ATP) 9.0 2.0 6.0 7.0 3.0
F&B spends per head (SPH) 11.0 4.0 12.0 10.0 8.0
Ad revenues 31.0 5.0 12.0 17.0 5.0
% chg.
Media PVR
52 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: Revised earnings estimates of PVR, FY2019E-20E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2019E 2020E 2019E 2020E 2019E 2020E
Ticket sales (net) 14,541 17,140 14,276 16,059 1.9 6.7
F&B sales 7,719 9,442 7,627 9,032 1.2 4.5
Ad revenues 3,527 4,197 3,496 4,083 0.9 2.8
Other operating income 2,078 2,281 1,941 2,169 7.0 5.2
Total revenues 27,865 33,059 27,340 31,342 1.9 5.5
Film hire charges (6,301) (7,444) (6,388) (7,226) (1.4) 3.0
F&B consumption (1,930) (2,360) (1,945) (2,258) (0.8) 4.5
Employee costs (3,002) (3,563) (2,927) (3,349) 2.5 6.4
Rent (4,918) (5,839) (4,759) (5,343) 3.3 9.3
Other operating costs (6,565) (7,594) (6,459) (7,264) 1.6 4.5
Total operating costs (22,716) (26,800) (22,479) (25,440) 1.1 5.3
EBITDA 5,149 6,259 4,861 5,902 5.9 6.0
PAT 1,752 2,334 1,741 2,427 0.6 (3.9)
EPS (Rs/share) 37.5 50.0 37.3 52.0 0.6 (3.9)
Key assumptions
EBITDA margin (%) 18.5 18.9 17.8 18.8
Screen additions (#) 85 85 60 55 41.7 54.5
Footfalls (mn) 84 93 85 91 (1.6) 1.7
ATP gross (Rs) 224 237 216 226 3.5 5.0
SPH gross (Rs) 97 107 100 110 (2.8) (2.8)
Ad revenue growth (%) 18 19 17 17
Occupancy (%) 32.0 32.0 32.0 32.0
Change (%)PreviousRevised
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 53
Exhibit 3: Net box office collections (NBOC) of promising movies, March fiscal year-ends (Rs mn)
Source: boxofficeindia.co.in, Kotak Institutional Equities
NBOC NBOC NBOC NBOC
Movie (Rs mn) Movie (Rs mn) Movie (Rs mn) Movie (Rs mn)
Holiday 1,100 Tanu Weds Manu Returns 1,510 The Jungle Book (All) 1,802 Bahubali 2 (Hindi) 5,058
2 States 1,020 ABCD 2 1,042 Fan (Shah Rukh Khan) 835 Bahubali 2 (Regional) 5,500
Ek V illan 989 Fast And Furious 7 979 Housefull 3 1,068 The Fate Of The Furious 831
Humshakals 557 Gabbar Is Back 788 Baaghi 743 Half Girlfriend 557
The Amazing Spider-Man 2 510 Piku 778 Udta Punjab 573 Hindi Medium 633
Heropanti 507 Jaurassic World 767 Captain America : Civ il War 541 Tubelight 1,170
Mein Tera Hero 506 Dil Dhadakne Do 763 Sairat 800
The Amazing Spider-Man 2 510 Avengers: Age of Ultron 731
X-Men: Days of Future Past 420
Total 6,119 Total 7,357 6,362 13,749
Bhoothnath Returns 355 Hamari Adhuri Kahani 323 Ki & Ka 487 Sachin: A Billion Dreams 408
Revolver Rani Detective Byomkesh Bakshy! 251 Begum Jaan 186
Bombay Velvet 221
Total 355 Total 795 Total 487 Total 594
Kick 2,140 Bajrangi Bhaijaan 3,168 Sultan (Salman Khan) 3,000 Toilet Ek Prem Katha 1,350
Singham Returns 1,397 Bahubali (a) 2,604 Kabali 2,065 Baadshaho 665
Humpty Sharma ki Dulhania 752 Welcome Back 902 Rustom (Akshay Kumar) 1,221 Spider-Man: Homecoming 577
Entertainment 628 Brothers 788 Dishoom 646 Mubarakan 531
Mary Kom 559 Drishyam 751 PINK 563 Annabelle: Creation 450
Phantom 500
Mission Impossible - 5 480
Total 5,476 Total 8,212 7,495 3,573
Mardaani 350 Terminator Genisys (3D / Imax 3D)234 Mohenjo Daro (Hrithik Roshan) 537 Jab Harry Met Sejal 577
Finding Fanny 276 Hero 293 Baar Baar Dekho 269 Jagga Jasoos 506
Daawat-e-Ishq 248 Katti Batti 181 Happy Bhag Jayegi 261 Shubh Mangal Saavdhan 350
Khoobsurat 248 The Fantastic Four (Imax) 63 Akira 258 MOM 337
Great Grand Masti 128 Simran 161
Total 1,122 Total 770 Total 1,452 1,931
PK 3,243 Prem Ratan Dhan Payo 1,875 Dangal (Aamir Khan) 1,923 Tiger zinda hain 2,030
Happy New Year 1,884 Bajirao Mastaani 1,698 M.S. Dhoni 1,201 Golmaal Again 2,045
Bang Bang 1,449 Dilwale (SRK, Kaajol) 1,439 Ae Dil Hai Mushkil 1,116 Judwaa 2 1,333
Action Jackson 576 Singh Is Bling 740 Shivaay (Ajay Devgan) 1,006 Fukrey returns 747
Haider 501 Tamasha 672 Dear Zindagi 673 Secret Superstar 596
Befikre 579 Thor: Ragnarok 569
Total 7,652 Total 6,423 Total 6,497 7,320
The Shaukeens 209 Spectre (Imax) 369 Force 2 313 Tumhari Sulu 330
Shaandaar 359 Kahaani 2 314 Star Wars: The Last Jedi 89
Jazbaa 233 Rock On 2 87
Total 209 Total 961 Total 714 419
Baby 788 Airlift (Akshay Kumar) 1,248 Dangal (Contd.) 1,823 Tiger Zinda Hai (Contd.) 1,280
MSG: The Messenger 672 Neerja 696 Raees (SRK) 1,311 Padmaavat 2,823
Kapoor & Sons 709 Kaabil (Hrithik Roshan) 927 Sonu Ke Titu Ki Sweety 1,050
Jolly LLB 2 (Akshay Kumar) 1,068 Raid 1,019
Badrinath Ki Dulhaniya 1,135 Padman 813
Black Panther 503
Baaghi 2 (2 days) 450
Total 1,460 Total 2,653 Total 6,265 7,938
Roy 406 Rocky Handsome 215 Rangoon 202 Hichki 425
Tevar 372 Fitoor 173 The Ghazi Attack 182 Hate Story IV 201
Badlapur Don't Miss The Beginning356 Wazir 378 Commando 2 244 Pari 242
NH 10 293 Jai GangaaJal 306 Logan 246
Batman v Superman: Dawn of Justice317 xXx: Return of Xander Cage 310
Total 1,425 Total 1,389 Total 1,184 Total 868
4Q
Hits
Flops
2Q
Hits
Flops
3Q
Hits
Flops
Hits
1Q
Flops
FY2018FY2017FY2016FY2015
Media PVR
54 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 4: Expect better year from Hollywood; Bahubali 2 (Hindi) creates high base for FY2019 Comparison of key Bollywood and Hollywood movies, March fiscal-year end, 2018-19
Source: Box Office data, Kotak Institutional Equities estimates
NBOC Potential NBOC
Movie titles (FY2018) Big star / Franchise (Rs mn) Movie titles (FY2019E) Big star / Franchise (Rs mn)- KIE
Blockbusters Potential blockbusters
1 Baahubali 2 Baahubali 2 (Hindi) 5,058 Thugs of Hindostan Aamir Khan, Amitabh Bacchan 3500+
2 Tiger Zinda Hain Salman Khan 3,310 Dabangg 3 Salman Khan; (Tentatively in FY2018) 3000+
3 Padmaavat Ranveer Singh | Deepika Padukone 2,823 Race 3 Salman Khan 2000+
4 Golmaal Again Ajay Devgan 2,045 Zero Shah Rukh Khan 2000+
5 Toilet: Ek Prem Katha Akshay Kumar 1,350 Gold Akshay Kumar 1500+
6 Judwaa 2 Varun Dhawan 1,333 Kesari Akshay Kumar 1500+
7 Tubelight Salman Khan 1,170 Baaghi 2 (a) Tiger Shroff 1,350
8 Sonu Ke Titu Ki Sweety Pyar Ka Punchnama franchise 1,050 Simbaa Ranveer Singh 1000+
9 Raid Ajay Devgan 1,019 2.0 (Hindi version) Rajinikanth + Akshay Kumar 1000+
10 Padman Akshay Kumar 813 Student of the Year 2 Tiger Shroff 1000+
11 Fukrey returns Pulkit Samrat | Richa Chadha 718 Total Dhamaal Ajay Devgan 750+
12 Secret Superstar Aamir Khan productions 596 Thackeray Nawazuddin Siddiqui 500+
13 Hindi Medium Irrfan Khan 633 Sanju Ranbir Kapoor 500+
14 Jab Harry Met Sejal Shah Rukh Khan 577 Manikarnika Kangana Ranaut 500+
15 Baadshaho Ajay Devgan 665 Raazi Alia Bhatt 500+
Top-15 Bollywood 23,159 Top-15 Bollywood 21,000+
11 The Fate Of The Furious Fast & Furious 8 831 Avengers: Infinity war Marvel 2000+
12 Spiderman : Homecoming Spiderman 577 Jurassic World: Fallen Kingdom 900+
13 Thor : Ragnarok Marvel 569 Mission Impossible : 6 Tom Cruise 650+
14 Jumanji: Welcome To The JungleJumanji 540 Captain Marvel Marvel 650+
15 Black Panther Marvel 503 Aquaman DC Comics 300+
Top-5 Hollywood 3,019 Top-5 Hollywood 4,500+
Total 26,179 Total 25,000+
Notes:
(a) Baaghi 2's garnered Rs1.8 bn at box office (net) of which Rs450 mn (first two days) was in FY2018.
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 55
Exhibit 5: Movie pipeline in FY2019E
Source: Kotak Institutional Equities
Rel. Date Movie Cast
Bollywood- key titles
30-Mar-18 Baaghi 2 Shraddha Kapoor, Disha Patani, Tiger Shroff
6-Apr-18 Blackmail Irrfan Khan , Kirti Kulhari
13-Apr-18 October Varun Dhawan, Banita Sandhu
20-Apr-18 Omerta Rajkummar Rao
27-Apr-18 Baazaar Saif Ali Khan, Radhika Apte, Chitrangda Singh
11-May-18 Raazi Alia Bhatt, V icky Kaushal, Jaideep Ahlawat
1-Jun-18 Veere Di Wedding Kareena Kapoor, Sonam Kapoor
14-Jun-18 Race 3 Salman Khan
29-Jun-18 Sanju Ranbir Kapoor
29-Jun-18 Soorma Taapsee Pannu, Diljit Dosanjh, Angad Bedi
13-Jul-18 Fanney Khan Aishwarya Rai, Anil Kapoor
3-Aug-18 Manikarnika : The Queen Of Jhaansi Kangana Ranaut, Sonu Sood, Danny Denzongpa
15-Aug-18 Gold Akshay Kumar
28-Sep-18 Sui Dhaga - Made In India Varun Dhavan, Anushka Sharma
2-Oct-18 Vishal Bhardwaj Next Irfan Khan, Deepika Padukone
19-Oct-18 Ajay Devgan Luv Ranjan Next Ajay Devgan, Kajol
19-Oct-18 Junglee V idyut Jamwal
7-Nov-18 Thugs Of Hindstan Amitabh Bachchan, Aamir Khan, Katrina Kaif
23-Nov-18 Student Of The Year 2 Tiger Shroff, Tara Sutaria, Sara Ali Khan, Ananya Pandey
7-Dec-18 Namastey England Arjun Kapoor, Parineeti Chopra
21-Dec-18 Zero Shahrukh Khan, Katrina Kaif, Anushka Sharma
21-Dec-18 Dabangg 3 (Tentative) Salman Khan
7-Dec-18 Total Dhamaal Riteish Desmukh, Ajay Devgan, Madhuri Dixit, Anil Kapoor
21-Dec-18 Kedarnath Sushant Singh Rajput, Sara Ali Khan
21-Dec-18 Simmba Ranveer Singh
25-Jan-19 Thackeray Nawazuddin Siddiqui
25-Jan-19 Super 30 Hrithik Roshan
14-Feb-19 Gully Boy Alia Bhatt, Ranveer Singh
20-Mar-19 Kesari Akshay Kumar
TBD Robot 2.0 Rajinikanth, Akshay Kumar, Mayur Bansiwal
Hollywood (English)
27-Apr-18 Avengers: Infinity War Karen Gillan, Pom Klementieff, Tessa Thompson
18-May-18 Blumhouse'S Truth Or Dare Horror film
25-May-18 Solo: A Star Wars Story (3D) Emilia Clarke, Alden Ehrenreich, Paul Bettany
8-Jun-18 Jurassic World Fallen Kingdom Chris Pratt, Bryce Dallas Howard
15-Jun-18 Ocean's Eight Richard Armitage, Oliv ia Munn, Matt Damon, Caate Blanchett
6-Jul-18 Ant Man And The Wasp (3D Imax) Paul Rudd, Evangeline Lilly , Michelle Pfeiffer, Judy Greer, Michel Pena
27-Jul-18 MI: 6 - Mission Impossible (Imax) Tom Cruise, Jeremy Reener, Rebecca Ferguson
24-Aug-18 Cadaver Horror film
19-Oct-18 Mowgli Andy Serkis, Benedict Cumberbatch, Christian Bale, Cate Blanchett, Frida Pinto
2-Nov-18 X Men : Dark Phoenix Sophie Turner
14-Dec-18 Spiderman Animated (3D) Live Schreiber, Mahershala Ali
21-Dec-18 Aquaman (3D Imax) Jason Momoa, Amber Heard, Nicole Kidman
28-Dec-18 Transformers 6
6-Mar-19 Captain Marvel Marvel Studios
Media PVR
56 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 6: Comparable properties' footfalls have declined in 4 out of the past five years Trends in PVR's footfalls, March fiscal year-ends
Source: Company, Kotak Institutional Equities
Exhibit 7: PVR: Gross box office collections (GBOC) from Bollywood movies, March fiscal year-ends
Source: Company, Kotak Institutional Equities
19.0 16.0
(6.0)
(13.0)
11.0
(3.0)(6.0)
(20)
(10)
0
10
20
30
40
20
30
40
50
60
70
80
2012 2013 2014 2015 2016 2017 2018
Footfalls (mn) Comparable properties footfalls growth (%) (SSG)
73 72
63 58 58
61
0
15
30
45
60
75
0
2,000
4,000
6,000
8,000
10,000
2013 2014 2015 2016 2017 2018
PVR's GBOC from Bollywood (LHS, Rs mn) As % of PVR's total GBOC (RHS, %)
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 57
Exhibit 8: PVR: Gross box office collections (GBOC) from Hollywood movies, March fiscal year-ends
Source: Company, Kotak Institutional Equities
Exhibit 9: PVR: Gross box office collections (GBOC) from regional movies, March fiscal year-ends
Source: Company, Kotak Institutional Equities
19
16
19
21
24
20
0
5
10
15
20
25
0
1,000
2,000
3,000
4,000
5,000
2013 2014 2015 2016 2017 2018
PVR's GBOC from Hollywood (LHS, Rs mn) As % of PVR's total GBOC (RHS, %)
9
12
18
22
19 19
0
5
10
15
20
25
0
1,000
2,000
3,000
4,000
5,000
2013 2014 2015 2016 2017 2018
PVR's GBOC from Regional movies (LHS, Rs mn) As % of PVR's total GBOC (RHS, %)
Media PVR
58 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 10: Footfalls grew 4% yoy and declined 2% yoy for comparable properties Trends in PVR's footfalls, March fiscal year-ends (mn)
Source: Company, Kotak Institutional Equities
Exhibit 11: ATP grew 10% yoy and 9% yoy for comparable properties Trends in PVR's average ticket price (ATP), March fiscal year-ends
Source: Company, Kotak Institutional Equities
15 16 16
12
19 19
1715
21
19 18 18
21
1917
19
1
(5)
12
(12)
25
20
3
25
9
(2)
8
19
1 1 (3)
4
(20)
(10)
0
10
20
30
0
4
8
12
16
20
24
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
3Q
FY18
4Q
FY18
Footfalls (LHS, mn) Growth (RHS, yoy %)
176181 184
168
183187
200
182
195202 199
190
214
204212 209
(3)
0
3
6
9
12
140
160
180
200
220
240
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
3Q
FY18
4Q
FY18
ATP (LHS, Rs) Growth (RHS, yoy %)
PVR Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 59
Exhibit 12: SPH grew 12% yoy and 11% for comparable properties Trends in PVR's F&B spends per head (SPH), March fiscal year-ends
Source: Company, Kotak Institutional Equities estimates, Kotak Institutional Equities estimates
Exhibit 13: Ad revenues grew 37% yoy and 31% yoy for comparable properties Trends in PVR's ad revenues, March fiscal year-ends
Source: Company, Kotak Institutional Equities
48.446
48 48
54 54 5456
64 6367
62
74
68
74 73
78
8482
78
8791 92
87
0
10
20
30
40
50
40
50
60
70
80
90
100
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
3Q
FY18
4Q
FY18
SPH (LHS, Rs) Growth (RHS, yoy %)
15 14
28
16
27
13
29
19
13
35
13 16
31
10 11
37
0
10
20
30
40
50
0
200
400
600
800
1,000
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
3Q
FY18
4Q
FY18
Ad revenues (LHS, Rs mn) Growth (RHS, yoy %)
Media PVR
60 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 14: Condensed consolidated financials for PVR, March fiscal year-ends, 2012-21E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Profit model
Revenues 5,177 8,064 13,475 14,813 18,688 21,628 23,535 27,865 33,059 38,841
EBITDA 761 1,169 2,117 2,044 3,306 3,570 4,212 5,149 6,259 7,516
Other income 123 91 113 46 283 189 119 150 205 250
Depreciation (365) (560) (944) (1,168) (1,252) (1,384) (1,537) (1,799) (2,113) (2,430)
Interest expense (185) (368) (795) (783) (839) (806) (837) (846) (815) (792)
Pretax profits 310 319 523 118 1,432 1,528 1,952 2,654 3,536 4,543
Tax (57) 124 (19) (8) (232) (570) (704) (903) (1,202) (1,545)
PAT before minority interest 253 443 504 110 1,200 958 1,247 1,752 2,334 2,999
Minority interest 1 2 57 11 (5) (1) (—) — — —
PAT 254 445 561 121 1,194 958 1,247 1,752 2,334 2,999
Diluted EPS (Rs) 9.5 14.9 13.7 2.9 25.6 20.5 26.7 37.5 50.0 64.2
Balance sheet
Total equity 2,791 6,427 3,993 4,092 8,695 9,650 10,754 12,294 14,348 16,986
Deferred taxation liability 106 (10) 4 11 93 9 6 6 6 6
Total borrowings 2,035 6,566 6,134 7,470 6,623 8,196 8,305 9,055 9,055 8,555
Minority interest 139 854 771 383 401 405 8 8 8 8
Current liabilities 986 1,939 2,600 2,309 3,276 3,926 4,316 5,073 5,986 6,996
Total liabilities and equity 6,126 15,852 13,533 14,288 19,108 22,257 23,488 26,537 29,503 32,651
Cash and cash equivalents 211 732 495 261 2,674 309 339 432 209 357
Other current assets 2,038 3,229 3,763 4,605 5,763 5,363 5,880 6,592 7,587 8,685
Tangible fixed assets 2,621 5,710 6,990 7,523 8,824 10,447 11,270 13,536 15,750 17,674
Goodwill and Intangibles 374 4,712 1,466 1,273 1,262 4,640 4,629 4,606 4,585 4,564
CWIP 876 1,453 806 611 570 1,056 1,017 1,017 1,017 1,017
Total assets 6,126 15,852 13,533 14,288 19,108 22,257 23,488 26,537 29,503 32,651
Cash flow
Operating cash flow, excl. w-capital 679 1,429 2,003 2,170 3,169 3,442 3,502 4,246 5,056 5,971
Working capital changes (193) (239) 128 (617) 204 (246) (127) 45 (82) (88)
Capital expenditure (1,160) (7,704) (1,273) (2,064) (2,334) (6,324) (2,810) (4,041) (4,306) (4,332)
Other income (90) 47 76 22 43 29 119 150 205 250
Interest expense (net) (207) (430) (812) (827) (797) (730) (837) (846) (815) (792)
Free cash flow (971) (6,896) 123 (1,317) 284 (3,830) (152) (446) 58 1,008
Key ratios and assumptions
Footfalls (mn) 24.7 37.2 59.9 59.1 69.6 75.2 76.1 83.5 92.9 102.0
Average ticket price (ATP) (Rs) 156 163 168 177 188 196 210 224 237 251
Screens (#) 166 360 421 464 516 579 625 710 795 880
EBITDA margin (%) 14.7 14.5 15.7 13.8 17.7 16.5 17.9 18.5 18.9 19.3
Net debt 1,824 5,835 5,638 7,209 3,949 7,887 7,967 8,623 8,846 8,198
RoAE (%) 8.2 9.7 10.8 3.0 18.7 10.4 12.2 15.2 17.5 19.1
RoACE (%) 7.0 10.0 10.3 7.8 14.4 9.1 9.4 11.2 12.4 13.9
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Three deals coming for closure will be 3% EPS accretive and 50 bps RoE accretive
Roads invIT (US$0.8 bn EV): L&T investing in the platform. The proposed roads invIT would
transfer L&T’s equity stake at assumptions of 5%/13.5% traffic CAGR/cost of equity. The
valuation is 25% below our base case (with 6%/13.5% assumptions) and ~45% below the
quantum suggested by the EY valuation report (~6.8% /13.5% assumptions). The InvIT will
provide a small 1%/20 bps consolidated EPS/RoE accretion in FY2020. Quantum would be
higher at 3.5%/60 bps if all road assets get transferred at a similar 1.8X multiple to invested
book.
E&A (US$2 bn EV): Doesn’t reflect premium for strategic fit for buyer. The proposed sale
of E&A business to Schneider Electric would enable the global major to get a foothold into the
key business of low and medium voltage switchgear in India. The valuations however fall short
of reflecting any premium to account for filling up of such gap in the buyer’s portfolio. The
transaction would be slightly EPS/RoE accretive for L&T in FY2020.
Kattupalli (US$0.3 bn EV): Doesn’t reflect premium for strategic fit for buyer. The deal
valuation was likely finalized in 2016 at a modest 10-11X forward EV/EBITDA multiple in spite
of it enabling Adani Ports and SEZ to compete with a large and congested Chennai port.
Checkered history of selling non-core assets would deter recycling of proceeds
In the five key transactions (US$200mn to US$2 bn EV) done over the past four years, L&T has
been unable to get fair valuations. This is in spite of three of these five assets being of good
strategic value to the buyer (Dhamra port, Kattupalli port, E&A business). The fate of the other
asset in Seawoods was even worse with L&T having to take a hit against book value. Beyond
the impending closure of the recent deals, the remaining assets in Nabha Power and Hyderabad
Metro would take much longer to elicit investor interest. We expect the past four years of
history to deter L&T from recycling proceeds of impending asset sales.
Stage set for core E&C prowess to reflect more in financials and increase dividend payout ratio
Sale of E&A business, roads invIT and Kattupalli port can improve FY2020 RoE to 17.5%. Apart
from reflecting the E&C business more in the results, this may set the stage for L&T’s dividend
payout ratio (incl. dividend tax) to cross the already high 35% current levels.
L&T (LT) Industrials
Divestments: takeaways beyond valuation. L&T would cede the better part of its
road portfolio at a modest 1.8X invested book, a hit possibly taken to create a platform
for future asset monetization. Coupled with the Kattupalli port and E&A deals, the InvIT
would be marginally EPS/RoE/SoTP accretive. The remaining large non-core assets would
take longer to get monetized. Difficulties in selling non-core assets may deter L&T from
recycling proceeds, paving the way for the strength of a good EPC business to reflect
more in operating results and may increase the already high dividend payout ratio.
BUY
MAY 07, 2018
UPDATE
Coverage view: Neutral
Price (`): 1,369
Target price (`): 1,505
BSE-30: 34,915
Aditya Mongia
Ajinkya Bhat
Larsen & Toubro
Stock data Forecasts/Valuations 2018 2019E 2020E
52-week range (Rs) (high,low) EPS (Rs) 55.9 63.6 76.6
Market Cap. (Rs bn) EPS growth (%) 32.1 13.8 20.4
Shareholding pattern (%) P/E (X) 24.5 21.5 17.9
Promoters 0.0 Sales (Rs bn) 1,208.7 1,365.1 1,540.7
FIIs 18.5 Net profits (Rs bn) 78.2 89.0 107.2
MFs 15.5 EBITDA (Rs bn) 140.7 171.4 197.4
Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.6 17.8 15.9
Absolute 5.6 (3.3) 18.6 ROE (%) 16.0 16.5 18.0
Rel. to BSE-30 (0.1) (2.9) 2.3 Div. Yield (%) 1.5 1.7 2.0
Company data and valuation summary
1,470-1,108
1,917.9
Industrials L&T
62 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Road InvIT – modest valuations mask larger purpose
Reasonable profile of assets. L&T’s recently launched InvIT, named IndInfravit, has
started small with only five projects in its fold namely (1) Krishnagiri-Thopur, (2) BPP
Tollway, (3) Devihalli-Hassan, (4) Krishnagiri-Walajahphet and (5) Western Andhra
Tollways. Cumulatively, the set of these five projects made a loss of `2.9 bn in FY2017,
mainly led by a similar quantum of loss in L&T BPP Tollway. The other four projects were
close to breakeven in FY2017 or generated a small profit.
Equity transferred at ~2X invested book. The transaction represents a valuation of 2X
invested equity in these five projects. The InvIT will provide a small 1-2% consolidated EPS
accretion and 20-30 bps consolidated ROE accretion in FY2019 and FY2020.
IndInfravit will provide a platform to L&T for future divestments. Our analysis
suggests that if all the operational road projects are sold to the InvIT at ~2X book, the
total consolidated EPS accretion would be 2.5% and ROE accretion would be 40 bps in
FY2020.
Cumulative impact of recent transactions will partially hide losses in Hyderabad
Metro. The cumulative impact of the InvIT, Kattupalli and E&A divestment will lead to
3% or `2/share consolidated EPS accretion and 50 bps ROE accretion in FY2020. The EPS
accretion will partially reduce the estimated `6/share negative EPS impact of Hyderabad
Metro in FY2020.
Exhibit 1: Summary financials of L&T's roads InvIT projects, March fiscal year-ends, 2016-17 (Rs mn)
Source: Company, Kotak Institutional Equities
Length (kms) Project cost FY2016 FY2017 FY2016 FY2017 FY2016 FY2017
InvIT projects
L&T Krishnagiri Thopur Toll Road 86 6,821 1,529 1,573 1,029 1,031 (23) 204
L&T BPP Tollway 244 24,720 2,424 3,075 2,016 2,522 (2,231) (2,912)
Devihalli-Hassan 77 3,745 377 481 238 290 (115) (35)
Krishnagiri-Walajahpet 148 12,983 1,397 1,508 917 938 6 (251)
L&T Western Andhra Tollways 56 3,092 632 667 453 463 6 98
Total 611 51,361 6,358 7,303 4,652 5,244 (2,356) (2,895)
Revenue PATEBITDA
FY2016 FY2017 FY2016 FY2017 FY2016 FY2017 FY2016 FY2017
InvIT projects
L&T Krishnagiri Thopur Toll Road (405) (394) 382 598 3,463 3,413 788 788
L&T BPP Tollway (353) (434) (1,878) (2,478) 19,323 19,434 2,472 2,472
Devihalli-Hassan (44) (58) (71) 23 2,854 2,787 900 900
Krishnagiri-Walajahpet (49) (51) 55 (200) 7,735 10,184 900 900
L&T Western Andhra Tollways (194) (156) 201 254 2,214 2,146 565 565
Total (1,046) (1,093) (1,310) (1,803) 35,589 37,964 5,625 5,625
Depreciation Debt Equity investedCash loss
Takeaways from
section 1:
L&T Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 63
Exhibit 2: As per the InvIT regulations, L&T as the sponsor will retain 15% stake in the post-issue
InvIT fund Components of offer for L&T Roads InvIT
Source: InvIT DRHP, Kotak Institutional Equities
Exhibit 3: L&T will transfer its equity stake at 1.8X multiple to historical invested book value Valuation multiple of the Roads InvIT
Source: InvIT DRHP, Kotak Institutional Equities
Exhibit 4: Equity valuation implied by the invIT is much lower than our and EY's estimate Valuation of L&T's equity stake in the proposed InvIT (Rs bn)
Source: Company, InvIT DRHP, Kotak Institutional Equities estimates
(Rs mn) % of total
New offering 27,909 73.4
Offer for sale by L&T 4,391 11.6
Residual holding by L&T as sponsor 5,700 15.0
Total InvIT fund size 38,000 100.0
(Rs mn)
Offer for sale by L&T 4,391
Add: value of 15% shareholding in InvIt 5,700
Total value of equity for L&T 10,091
Invested book 5,625
Implied multiple (X) 1.8
10
16
21
-
5
10
15
20
25
Valuation offered by the InvIT KIE valuation EY valuation report of DRHP
Industrials L&T
64 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: The transfer/KIE/EY valuation build in sub-5%/6%/7% traffic CAGR at 13.5% cost of equity Sensitivity of equity valuation of L&T's stake in the five road projects
Source: Company, Kotak Institutional Equities estimates
Exhibit 6: Roads InvIT will lead to only 1-2% consolidated EPS accretion and 20-30 bps consolidated ROE accretion in FY2019 and FY2020 Pure impact of Roads InvIT on L&T's consolidated metrics, March fiscal year-ends, 2017-20E
Notes:
(1) Since the InvIT transaction has happened in FY2019, pro-forma numbers show the impact in FY2019 and FY2020 only.
Source: Company, Kotak Institutional Equities estimates
5.0 5.5 6.0 6.5 7.0
12.5 12.8 15.4 18.1 21.0 24.0
13.0 12.0 14.4 17.0 19.7 22.6
13.5 11.2 13.5 16.0 18.5 21.2
14.0 10.5 12.7 15.0 17.4 20.0
14.5 9.8 11.9 14.1 16.4 18.8
Traffic CAGR (%)
Cost of
equity
(%)
Equity valuation of
five projects (Rs bn)
42.3
56.3 63.9
76.9
42.3
56.3
65.3
77.9
-
20
40
60
80
100
2017 2018E 2019E 2020E
Consolidated EPS (Rs) Pro-forma consolidated EPS (Rs)
12.5
15.0 15.6 17.1
12.5
15.0 15.9
17.3
-
4
8
12
16
20
2017 2018E 2019E 2020E
Consolidated RoE (%) Pro-forma consolidated RoE (%)
L&T Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 65
Exhibit 7: The combined effect of all the recently announced transactions of InvIT, Kattupalli and
E&A divestment will lead to ~3% EPS accretion in FY2020 Pro-forma estimates of consolidated EPS in FY2020, March fiscal year-ends (Rs/share)
Source: Company, Kotak Institutional Equities estimates
Exhibit 8: The combined effect of all the recently announced transactions of InvIT, Kattupalli and
E&A divestment will lead to ~50 bps ROE accretion in FY2020 Pro-forma estimates of consolidated ROE in FY2020, March fiscal year-ends (%)
Source: Company, Kotak Institutional Equities estimates
Checkered history of selling non-core assets may deter recycling of proceeds
L&T has found it difficult to sell non-core assets in the past
For assets with strategic value to the buyer, L&T has not been able to get a valuation
premium. In case of its roads portfolio, it has had to lower the valuation in order to set up
an investment platform in the form of an invIT.
For the sale of the Seawoods retail asset, the company had to absorb the cost overruns
and thus had to sell the asset at less than book value.
76.9 79.0
89.2
1.0 0.5 0.7 0.2
3.6 1.2
5.6
70
75
80
85
90
95
Conso
lidat
edEP
S
Road
s In
vIT
Kat
tupal
li port
div
estm
ent
E&A
div
estm
ent
Pro-f
orm
aco
nso
lidate
dEP
S
L&T
valv
es
div
estm
ent
Ship
bui
ldin
gdef
ence
ord
ers
Work
ing c
apital
impro
vem
ent
Hyd
erab
adm
etro
bre
ak-e
ven
Pro-f
orm
aco
nso
lidate
dEP
S
Base estimate
Estimate after announced divestments
Pro-forma estimate
17.1 17.5
20.9
21 bps 11 bps 15 bps -5 bps 127 bps
74 bps
138 bps
10
15
20
25
Conso
lidat
edRoE
Road
s In
vIT
Kat
tupal
li port
div
estm
ent
E&A
div
estm
ent
Pro-f
orm
aco
nso
lidate
dRoE
L&T
valv
es
div
estm
ent
Ship
bui
ldin
gdef
ence
ord
ers
Work
ing
capital
impro
vem
ent
Hyd
erab
adm
etro
bre
ak-e
ven
Pro-f
orm
aco
nso
lidate
dRoE
Base estimate
Estimate after announced divestments
Pro-forma estimate
Takeaways from
section 2
Industrials L&T
66 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 9: L&T has faced difficulties in selling its non-core assets Recent key sale transactions of L&T's non-core assets
Source: Company, Kotak Institutional Equities estimates
Modest impact of recent transactions on SOTP
From an SOTP perspective, the five roads InvIT projects, Kattupalli port and E&A division
represented `8/share (2X book), `7/share (2X book) and `85/share (assuming no debt on
E&A, 18X P/E multiple) in our target price. After the divestment, these components will be
removed from SOTP and the corresponding consideration (cash + residual InvIT units)
equivalent to `10/share, `14/share and `100/share will accrue to the valuation. The net
impact thus will be a negligible `24/share or ~1.6% accretion in our SOTP of `1,505/share.
Exhibit 10: L&T- SoTP-based target price of Rs1,505/share
Source: Company, Kotak Institutional Equities estimates
Asset class (Rs bn) (Rs bn) (%)
Dhamra Port May-14 28 35 -21 11X forward EV/EBITDANo strategic premium paid by the
bidder for filling gap in its portfolio
Kattupalli Port Nov-16 20 23 -13 11X forward EV/EBITDANo strategic premium paid by the
bidder for filling gap in its portfolio
L&T
SeawoodsRetail mall May-17 11 15 -27
Adding back Rs4 bn of
hit taken through
decapitalization
L&T had to absorb the cost
overruns in selling a reasonable
retail asset
E&AIndustrial
switchgearsApr-18 140 146 -4
20% discount to fair
24X EV/EBITDA multiple
for ABB
No strategic premium paid by bidder
for filling gap in its portfolio
Roads invITRoads
portfolioMay-18 10 16 -37
DCF at 6% traffic CAGR
and 13.5% equity
L&T has likely had to lower the
valuation with an aim to set up a
perpetual platform for monetizing
remaining assets
Total 209 235 -11
Fair valuation
methodology Inference
DeviationTimeline of
deal terms
Deal value
(equity)
Fair value
(equity)
March-19 March-20
Earnings/Book Target multiple Value Valuation basis Stake Value Per share Per share
(Rs mn) (X) (Rs bn) (%) (Rs bn) (Rs) (Rs)
Core E&C business (consolidated) 68,254 18.0 1,229 P/E 100.0 1,229 878 1,039
L&T Finance Holdings 275 (at KIE TP) 66.7 183 131 149
L&T Infotech 243 (at KIE TP) 84.3 205 147 167
L&T Technology Services 7,934 17.0 135 P/E 89.8 121 87 103
IDPL- Roads, Transmission 31,881 2.0 64 P/B 97.4 62 44 51
Hyderabad Metro 41,268 1.0 42 P/B 100.0 42 30 34
Kattupalli port (held for sale) 3,880 2.0 8 P/B 97.0 8 5 6
Power development 47 P/B 100.0 47 33 38
Total subsidiaries 651 15% holding co. disc. 534 406 466
Grand total 1,284 1,505
One-year-forward SoTP 1,505
Takeaways from
section 3
L&T Industrials
KOTAK INSTITUTIONAL EQUITIES RESEARCH 67
Exhibit 11: Consolidated financials of L&T, March fiscal year-ends, 2012-20E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Income statement
Revenues 643,131 744,980 851,284 906,546 1,019,753 1,100,110 1,208,746 1,365,059 1,540,692
Expenditure (555,711) (646,894) (743,986) (806,690) (915,125) (989,363) (1,068,073) (1,193,671) (1,343,320)
EBITDA 87,420 98,087 107,298 99,856 104,628 110,747 140,673 171,388 197,372
EBITDA margin (%) 13.6 13.2 12.6 11.0 10.3 10.1 11.6 12.6 12.8
Other income 8,290 10,959 9,818 10,072 9,044 14,010 15,451 19,575 22,031
Interest & finance charges 11,019 20,950 31,380 28,507 16,551 13,398 15,051 26,216 27,822
Depreciation 15,523 16,371 14,458 26,225 17,867 23,699 20,704 23,320 26,368
PBT 69,167 71,725 71,277 55,195 79,254 87,659 120,369 141,427 165,213
Tax 22,826 23,855 26,284 20,876 24,848 20,066 34,019 44,916 51,873
PAT 47,151 48,976 45,468 32,631 41,387 59,198 78,199 88,977 107,172
EPS (Rs) 33.7 35.0 32.5 23.3 29.6 42.3 55.9 63.6 76.6
Reported PAT 47,719 53,124 49,020 47,648 42,329 60,412 81,432 90,786 108,981
Balance Sheet
Share holder's funds 311,402 365,126 408,908 459,077 470,732 537,801 583,607 634,674 695,976
Capital 1,225 1,231 1,854 1,859 1,863 1,866 1,866 1,866 1,866
Reserves and surplus 292,643 337,366 375,262 407,232 439,941 500,299 546,105 597,172 658,474
Minority interest 17,535 26,529 31,792 49,986 28,928 35,636 35,636 35,636 35,636
Loan funds 471,501 619,937 803,304 905,714 881,355 939,763 1,067,020 1,221,724 1,320,909
Deferred tax liability 818 1,837 3,375 (1,846) (7,364) (11,252) (11,252) (11,252) (11,252)
Total sources of funds 827,898 986,900 1,250,405 1,393,267 1,344,861 1,481,268 1,654,330 1,860,102 2,020,589
Gross block 257,568 382,216 414,765 457,586 165,705 170,056 244,615 392,697 419,732
Acc. depreciation 63,560 77,884 90,790 110,206 23,948 39,317 60,021 83,341 109,709
Net block 194,008 304,332 323,975 347,381 141,757 130,739 184,595 309,356 310,023
Cash & bank balances 35,221 36,312 41,353 58,555 53,899 55,725 81,581 89,753 97,155
Investments 87,895 87,675 81,090 96,121 154,651 231,828 250,374 250,374 250,374
Loans & advances towards financing activities247,732 320,021 438,517 553,669 665,946 720,612 840,115 947,911 1,073,168
Net current assets 113,915 125,492 223,686 182,304 203,069 191,156 217,271 246,215 273,375
Total application of funds 827,898 986,900 1,250,405 1,393,267 1,344,861 1,481,268 1,654,330 1,860,102 2,020,589
Yoy growth (%)
Revenues 23.5 15.8 14.3 6.5 12.5 7.9 9.9 12.9 12.9
EBITDA 25.2 16.4 15.0 8.4 13.4 8.1 8.0 11.8 12.5
PAT 10.0 3.9 (7.2) (28.2) 26.8 43.0 32.1 13.8 20.4
68 KOTAK INSTITUTIONAL EQUITIES RESEARCH
KO
TA
K IN
STIT
UTIO
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L EQ
UIT
IES R
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H
68
Ind
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18
March 2018: Results calendar
Source: BSE, NSE, Kotak Institutional Equities
Mon Tue Wed Thu Fri Sat Sun
7-May 8-May 9-May 10-May 11-May 12-May 13-May
Exide Industries ABB India Arvind Apollo Tyres Aditya Birla Fashion J K Cements
ICICI Bank Godrej Consumer Products Eicher Motors Asian Paints Canara Bank Vardhman Textiles
Tata Chemicals Jubilant Foodw orks Federal Bank Laurus Labs Gillette India
Kajaria Ceramics Jindal Steel & Pow er MphasiS GlaxoSmithkline Consumer
SKF India Jubilant Life Sciences Tata Communications Havells India
Whirlpool of India Magma Fincorp Titan Co. Oracle Financial
SIS Ujjivan Financial Services Procter & Gamble
Union Bank of India Sun TV Netw ork
Zee Entertainment Enterprises Tata Global Beverages
14-May 15-May 16-May 17-May 18-May 19-May 20-May
Dr Lal Pathlabs Britannia Industries AIA Engineering Bajaj Finance Amara Raja Batteries
Godrej Agrovet Crompton Greaves Consumer Hindalco Industries Bajaj Finserv Ashok Leyland
Hindustan Unilever Karnataka Bank JK Lakshmi Cement Coffee Day Enterprises Bajaj Auto
South Indian Bank Lupin JSW Steel Escorts Bajaj Holdings & Investment
P I Industries TVS Motor Co. Voltas Manappuram Finance
WABCO India Thermax
21-May 22-May 23-May 24-May 25-May 26-May 27-May
Colgate-Palmolive Bata India Godrej Industries GlaxoSmithkline Pharma Cadila Healthcare
Timken Cipla Grasim Industries Pidilite Industries PC Jew eller
Dr Reddys Laboratories L&T Infotech United Spirits Tech Mahindra
HCG Motherson Sumi Systems
Indian Oil Corp. The Ramco Cements
28-May 29-May 30-May 31-May 1-Jun 2-Jun 3-Jun
Bharat Heavy Electricals Info Edge
Mahindra & Mahindra
Suprajit Engineering
KOTAK INSTITUTIONAL EQUITIES RESEARCH 69
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Automobiles
Amara Raja Batteries REDUCE 859 780 (9.2) 147 2.2 171 29 34 39 1.7 20.2 14.5 30.2 25.1 21.9 16.1 13.7 12.0 4.9 4.2 3.7 17.4 18.1 17.9 0.5 0.6 0.7 6.2
Apollo Tyres BUY 286 335 16.9 164 2.4 541 13 20 25 (39.9) 52.7 25.7 22.1 14.5 11.5 12.0 8.6 7.0 1.7 1.6 1.4 8.4 11.6 13.1 1.0 0.9 0.9 13.0
Ashok Leyland ADD 164 165 0.6 481 7.2 2,926 5.5 6.7 9.1 9.4 23.3 34.9 30.1 24.4 18.1 17.4 14.1 10.6 6.7 5.7 4.8 24.0 25.3 28.7 1.0 1.2 1.7 38.4
Bajaj Auto SELL 2,889 2,900 0.4 836 12.5 289 147 166 182 11.4 12.6 9.8 19.6 17.4 15.9 13.6 11.8 10.3 4.3 3.8 3.4 23.5 23.4 22.8 2.0 2.3 2.5 14.4
Balkrishna Industries ADD 1,250 1,290 3.2 242 3.6 193 40 53 64 7.2 30.8 22.0 31.0 23.7 19.4 16.6 13.1 10.7 5.7 4.7 3.9 20.1 21.8 21.9 0.4 0.4 0.4 8.5
Bharat Forge SELL 733 650 (11.3) 341 5.1 466 20 24 27 33.2 25.0 10.8 37.4 30.0 27.0 20.3 16.9 15.1 7.1 6.1 5.2 20.5 21.9 20.8 0.6 0.8 0.9 13.8
CEAT ADD 1,507 1,770 17.5 61 0.9 40 65 103 118 (29.5) 59.4 14.7 23.3 14.6 12.7 11.3 9.2 7.7 2.3 2.1 1.8 10.4 15.0 15.3 0.8 1.1 1.2 16.4
Eicher Motors SELL 29,208 24,000 (17.8) 796 11.9 27 781 907 1,087 27.4 16.2 19.9 37.4 32.2 26.9 26.5 22.1 18.2 14.2 10.6 8.1 44.7 37.7 34.0 0.1 0.1 0.1 19.8
Escorts BUY 972 1,140 17.3 83 1.8 89 38 53 67 69.6 37.8 26.7 25.3 18.4 14.5 14.4 10.9 8.7 3.4 3.0 2.5 13.6 16.2 17.6 0.6 0.8 1.0 19.1
Exide Industries SELL 249 205 (17.5) 211 3.2 850 8 10 11 1.6 14.7 11.1 30.0 26.1 23.5 17.2 14.9 13.2 4.0 3.6 3.3 13.7 14.5 14.7 1.2 1.2 1.2 6.1
Hero Motocorp SELL 3,660 3,500 (4.4) 731 10.9 200 185 204 228 9.5 10.2 11.6 19.8 17.9 16.1 12.4 11.1 9.8 6.2 5.4 4.8 33.7 32.3 31.7 2.6 2.8 3.1 18.6
Mahindra CIE Automotive ADD 239 275 15.3 90 1.4 378 10 13 15 107.0 35.8 12.9 24.9 18.3 16.2 12.3 9.3 8.1 2.4 2.1 1.9 10.4 12.5 12.4 — — — 1.5
Mahindra & Mahindra BUY 854 945 10.6 1,062 15.9 1,138 39 43 49 19.9 9.5 13.2 21.7 19.8 17.5 15.1 13.1 11.4 3.2 2.9 2.6 15.9 15.4 15.5 0.9 1.0 1.1 28.5
Maruti Suzuki ADD 8,678 9,700 11.8 2,622 39.2 302 256 330 395 5.1 29.2 19.6 33.9 26.3 22.0 18.8 14.7 11.8 6.3 5.4 4.6 19.8 22.0 22.6 0.7 1.0 1.1 72.2
Motherson Sumi Systems SELL 335 265 (20.8) 704 10.5 2,105 8 11 14 9.3 30.4 24.3 39.7 30.4 24.5 14.8 11.9 9.7 7.5 6.5 5.5 20.1 22.9 24.4 0.7 1.0 1.2 19.3
MRF REDUCE 75,694 77,000 1.7 321 4.8 4 2,669 3,914 4,501 (23.9) 46.7 15.0 28.4 19.3 16.8 12.9 9.4 8.0 3.3 2.8 2.4 12.3 15.7 15.5 0.1 0.1 0.1 9.6
Schaeffler India BUY 5,394 6,000 11.2 90 1.3 17 143 171 207 22.0 19.4 21.1 37.7 31.5 26.1 22.2 19.1 15.4 5.3 4.7 4.1 15.0 15.8 16.9 0.3 0.6 0.8 0.5
SKF REDUCE 1,830 1,700 (7.1) 94 1.4 51 59 69 81 28.5 15.8 18.2 30.8 26.6 22.5 19.7 16.9 14.1 5.2 4.6 4.1 17.0 17.5 18.2 1.0 1.1 1.3 0.8
Suprajit Engineering SELL 286 235 (17.9) 40 0.6 140 9 11 12 0.5 20.3 17.6 32.5 27.0 22.9 18.2 15.7 13.4 6.5 5.4 4.6 21.8 22.0 21.6 0.5 0.6 0.7 0.2
Tata Motors BUY 334 465 39.1 1,136 15.9 3,396 22 36 42 (22.2) 65.2 18.1 15.5 9.4 7.9 4.6 3.9 3.6 1.6 1.4 1.2 11.5 16.1 16.2 — — — 56.7
Timken SELL 682 660 (3.2) 46 0.7 68 14 22 27 1.4 50.2 25.0 47.0 31.3 25.1 26.3 17.7 14.2 6.6 5.8 5.1 14.9 19.7 21.6 0.2 1.0 1.2 0.4
TVS Motor SELL 616 410 (33.4) 293 4.4 475 14 18 22 31.4 30.3 18.8 43.6 33.4 28.1 24.1 18.9 16.3 11.0 9.1 7.5 27.6 29.9 29.3 0.7 0.9 1.0 9.5
WABCO India SELL 7,870 6,130 (22.1) 149 2.2 19 134 176 215 18.7 31.5 22.4 58.9 44.8 36.6 38.6 29.2 23.6 10.0 8.3 6.9 18.3 20.2 20.6 0.1 0.2 0.2 0.7
Automobiles Neutral 10,739 160 1.5 30.0 17.6 26.6 20.5 17.4 12.1 9.8 8.4 4.3 3.7 3.2 16.2 18.2 18.4 0.8 1.0 1.1 374.4
Banks
Axis Bank ADD 520 600 15.3 1,336 20.0 2,567 1 19 38 (93.0) 1,711.8 93.0 484.4 26.7 13.9 — — — 2.5 2.3 1.9 0.5 7.6 13.2 - 0.6 1.1 75.4
Bank of Baroda NR 140 — — 370 5.5 2,310 4 27 30 (40.4) 647.6 11.1 39.2 5.2 4.7 — — — 1.4 1.1 0.8 2.2 15.5 15.3 0.5 3.8 4.2 39.9
Bank of India ADD 100 140 39.8 175 2.6 1,341 (21) 19 30 (42.8) 191.0 54.3 (4.7) 5.2 3.4 — — — 2.3 1.6 1.1 (10.5) 9.2 13.1 (4.2) 3.8 5.9 19.4
Canara Bank ADD 256 350 36.9 187 2.8 733 2 51 63 (91.8) 3,202.9 23.5 166.6 5.0 4.1 — — — 1.1 0.9 0.7 0.3 8.9 10.0 — 1.1 1.3 36.4
City Union Bank ADD 187 180 (3.5) 124 1.9 661 8 10 11 1.0 19.3 11.6 22.1 18.5 16.6 — — — 3.3 2.9 2.6 14.7 15.6 15.4 0.8 1.0 1.1 2.9
DCB Bank ADD 191 210 9.8 59 0.9 308 8 10 12 13.8 24.7 25.9 24.0 19.3 15.3 — — — 2.4 2.2 2.0 10.9 11.4 12.8 — 0.5 0.6 5.8
Equitas Holdings BUY 169 190 12.5 57 0.9 340 0.9 4.4 8.3 (80.4) 374.7 88.2 182.6 38.5 20.4 — — — 2.6 2.5 2.2 1.4 6.4 11.0 — — — 4.2
Federal Bank BUY 100 140 39.9 197 2.9 1,832 5.4 7.8 9.0 13.0 43.1 15.2 18.4 12.8 11.1 — — — 1.6 1.4 1.3 9.4 11.2 11.8 1.1 1.5 1.8 14.9
HDFC Bank REDUCE 1,989 1,900 (4.5) 5,164 77.2 2,595 67 78 94 18.7 15.7 20.7 29.5 25.5 21.1 — — — 4.9 3.7 3.3 17.9 16.7 16.1 0.5 0.6 0.7 41.5
ICICI Bank BUY 283 400 41.4 1,818 27.2 6,408 9 16 25 (40.3) 70.0 58.9 31.0 18.2 11.5 — — — 2.2 1.9 1.6 5.8 9.2 13.4 0.6 1.1 1.7 93.3
IDFC Bank NR 46 — — 158 2.4 3,404 2.5 1.6 3.3 (16.0) (38.5) 109.8 18.4 29.9 14.2 — — — 1.0 1.0 1.0 5.7 3.4 6.9 1.1 0.7 1.4 5.9
IndusInd Bank REDUCE 1,891 1,800 (4.8) 1,135 17.0 600 60 72 87 25.3 19.1 22.0 31.5 26.4 21.7 — — — 4.9 4.0 3.5 16.7 17.7 17.0 — 0.5 0.6 30.1
J&K Bank BUY 55 110 100.2 31 0.5 521 5 15 17 115.9 210.7 11.0 11.0 3.6 3.2 — — — 0.7 0.6 0.5 4.5 13.1 13.1 1.9 5.9 6.6 0.5
Karur Vysya Bank ADD 104 135 29.9 76 1.1 728 5 8 15 (52.7) 75.9 80.4 22.1 12.6 7.0 — — — 1.6 1.4 1.2 6.1 9.4 15.5 1.1 2.0 3.6 1.9
Punjab National Bank ADD 92 150 63.8 253 3.8 2,426 (13) (5) 20 (308.0) 62.3 516.2 (7.1) (18.7) 4.5 — — — 1.2 0.9 0.7 (7.9) (2.9) 11.5 (3.1) (1.2) 4.8 82.0
RBL Bank SELL 524 450 (14.0) 220 3.3 420 15 20 25 27.3 32.9 21.8 34.6 26.0 21.4 — — — 3.4 3.1 2.8 11.5 12.0 13.2 0.4 0.6 0.7 9.0
State Bank of India BUY 242 380 57.1 2,159 32.3 8,632 (0) 22 45 (100.1) NM 108.5 NM 11.1 5.3 — — — 2.1 1.6 1.1 (0.0) 8.5 15.9 1.2 1.3 1.3 97.5
Ujjivan Financial Services REDUCE 420 420 (0.1) 51 0.8 119 (2) 18 21 (110.1) 1,153.9 14.9 (239.6) 22.7 19.8 — — — 3.0 2.6 2.4 (1.2) 12.0 12.4 (0.0) 0.4 0.5 6.5
Union Bank ADD 91 150 64.6 107 1.6 726 (55) 20 34 (776.6) 136.2 73.3 (1.7) 4.6 2.7 — — — 3.1 2.4 0.8 (20.2) 7.8 12.3 — 3.3 5.6 15.1
YES Bank SELL 345 325 (5.8) 795 11.9 2,303 18 18 21 25.7 (0.2) 14.5 18.8 18.9 16.5 — — — 3.2 2.8 2.5 17.5 15.4 15.5 0.9 0.9 1.0 76.1
Banks Attractive 14,472 216 (47.2) 213.4 59.5 54.9 17.5 11.0 1.9 1.7 1.5 3.4 9.5 13.4 0.5 0.9 1.2 658.3
Dividend yield (%)P/B (X) RoE (%)
70 KOTAK INSTITUTIONAL EQUITIES RESEARCH
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
NBFCs
Bajaj Finance REDUCE 1,857 1,750 (5.8) 1,073 16.0 573 44 61 76 31.5 37.7 25.4 42.1 30.6 24.4 — — — 6.5 5.5 4.6 19.5 19.6 20.6 1.3 1.8 2.3 27.0
Bajaj Finserv ADD 5,348 5,600 4.7 851 12.7 159 184 222 274 20.3 20.5 23.2 29.0 24.1 19.5 — — — 4.1 3.5 3.0 16.1 15.8 16.7 0.3 0.3 0.3 12.7
Bharat Financial Inclusion NA 1,158 — — 161 2.4 139 33 43 54 55.5 31.1 27.2 35.4 27.0 21.3 — — — 5.4 4.4 3.6 16.7 17.9 18.5 — — — 11.4
Cholamandalam REDUCE 1,636 1,510 (7.7) 256 3.8 156 62 76 92 35.5 22.3 20.8 26.3 21.5 17.8 — — — 5.2 4.4 3.6 20.6 21.0 21.2 0.4 0.6 0.7 7.4
HDFC ADD 1,910 2,075 8.6 3,202 47.9 1,676 75 58 67 52.1 (23.1) 15.2 25.3 33.0 28.6 — — — 5.0 4.4 4.0 23.9 14.3 14.5 1.0 1.1 1.2 85.9
HDFC Standard Life Insurance SELL 500 405 (19.1) 1,007 15.0 2,007 6 6 7 24.4 14.8 10.9 90.5 78.8 71.1 — — — 23.4 20.9 18.7 27.3 28.0 27.7 0.3 0.3 0.4 12.3
ICICI Lombard SELL 720 600 (16.6) 327 4.9 454 19 26 30 22.0 36.4 17.0 37.9 27.8 23.7 — — — 7.2 6.1 5.1 20.8 23.7 23.5 0.6 0.9 1.1 3.5
ICICI Prudential Life BUY 434 500 15.2 623 9.3 1,436 11 12 13 (3.7) 3.8 7.6 38.5 37.1 34.4 — — — 9.5 7.9 6.7 25.0 23.2 20.9 1.3 0.5 0.5 10.0
IIFL Holdings SELL 743 625 (15.8) 237 3.5 319 29 34 41 32.4 17.3 21.4 26.0 22.2 18.3 — — — 4.7 4.0 3.5 19.0 19.3 20.0 0.8 1.0 1.2 4.2
L&T Finance Holdings REDUCE 176 160 (9.2) 352 5.3 1,895 7 9 10 33.7 25.3 12.8 24.0 19.1 17.0 — — — 3.7 3.2 2.8 16.4 18.1 17.8 1.0 1.2 1.2 11.0
LIC Housing Finance ADD 518 605 16.9 261 3.9 505 44 50 58 3.2 13.8 17.5 11.9 10.4 8.9 — — — 2.0 1.7 1.4 14.5 14.3 14.4 1.3 1.5 1.8 14.8
Mahindra & Mahindra Financial REDUCE 505 475 (6.0) 312 4.7 614 15 22 26 105.0 53.5 16.6 34.8 22.7 19.4 — — — 3.6 3.2 2.9 11.3 14.0 14.8 0.8 1.2 1.4 13.3
Max Financial Services BUY 509 650 27.7 137 2.0 267 6 6 6 4.0 7.0 0.5 84.9 79.3 78.9 — — — — — — 8.6 8.7 8.4 0.5 0.5 0.5 5.3
Muthoot Finance ADD 442 500 13.0 177 2.6 400 41 37 41 39.3 (10.0) 11.8 10.8 12.0 10.7 — — — 2.3 2.0 1.7 23.0 17.7 17.3 1.9 1.7 1.9 4.7
PNB Housing Finance REDUCE 1,406 1,375 (2.2) 234 3.5 167 50 61 77 57.8 23.0 25.3 28.3 23.0 18.3 — — — 3.7 3.4 3.0 14.0 15.2 16.8 0.6 0.2 0.2 3.2
SBI Life Insurance ADD 702 815 16.1 702 10.5 1,000 12 15 18 20.8 26.0 22.9 60.9 48.3 39.3 — — — 10.9 9.2 7.7 19.4 20.6 21.3 0.3 0.3 0.4 4.9
Shriram City Union Finance ADD 2,362 2,550 8.0 156 2.3 66 101 140 174 19.6 39.4 23.8 23.5 16.8 13.6 — — — 3.0 2.6 2.3 12.5 15.5 16.7 0.8 0.7 0.9 1.1
Shriram Transport REDUCE 1,600 1,600 0.0 363 5.4 227 69 105 125 24.7 52.1 18.7 23.2 15.2 12.8 — — — 3.1 2.7 2.3 13.1 17.6 18.0 0.7 0.9 1.1 18.6
NBFCs Neutral 10,479 157 37.5 7.4 18.4 29.2 27.2 23.0 5.2 4.5 3.9 17.9 16.5 17.1 0.7 0.7 0.8 658.3
Cement
ACC SELL 1,528 1,560 2.1 287 4.3 188 49 54 84 41.9 11.8 54.6 31.4 28.1 18.2 16.7 15.3 10.5 3.1 2.9 2.6 10.2 10.6 14.9 1.1 1.1 1.1 7.9
Ambuja Cements REDUCE 237 245 3.5 470 7.0 1,986 8 8 11 29.7 7.1 32.0 31.5 29.4 22.3 10.6 9.8 7.6 2.3 2.2 2.1 7.4 7.6 9.6 1.5 1.5 1.5 10.3
Dalmia Bharat ADD 2,858 2,980 4.3 255 3.8 89 65 117 160 68.5 78.8 36.6 43.7 24.4 17.9 13.7 9.9 7.7 4.2 3.6 3.0 10.5 15.7 18.1 0.1 0.1 0.1 7.7
Grasim Industries ADD 1,074 1,275 18.7 706 10.6 657 52 49 67 (22.9) (5.5) 35.7 20.5 21.7 16.0 9.0 7.4 6.8 1.2 1.1 1.1 7.6 5.3 6.9 0.5 0.5 0.5 16.4
India Cements REDUCE 135 165 21.9 42 0.6 308 4 8 11 (24.2) 84.0 44.0 31.5 17.1 11.9 9.2 7.3 6.0 0.8 0.8 0.7 2.6 4.6 6.3 0.8 0.8 0.8 8.1
J K Cement REDUCE 993 1,020 2.7 69 1.0 70 41 66 84 18.2 61.2 28.3 24.3 15.1 11.8 11.9 10.2 9.5 3.5 2.9 2.4 15.3 21.2 22.4 0.8 0.8 0.8 0.8
JK Lakshmi Cement ADD 408 450 10.3 48 0.7 118 9 26 39 34.4 181.2 47.7 43.7 15.5 10.5 12.0 8.0 6.1 3.2 2.7 2.2 7.6 19.0 23.0 0.5 0.5 0.5 0.8
Orient Cement ADD 139 165 19.1 28 0.4 205 2 8 12 237.8 250.7 64.8 64.2 18.3 11.1 13.3 8.6 6.3 2.8 2.5 2.1 4.4 14.3 20.6 0.5 1.1 1.4 0.3
Shree Cement SELL 16,334 13,360 (18.2) 569 8.5 35 397 497 672 3.4 25.1 35.1 41.1 32.9 24.3 22.1 16.4 12.8 6.4 5.5 4.5 16.7 17.9 20.4 0.3 0.3 0.3 5.1
UltraTech Cement SELL 3,986 3,125 (21.6) 1,095 16.4 275 89 119 160 (7.0) 32.4 34.8 44.5 33.6 25.0 20.6 16.2 13.0 4.2 3.8 3.3 9.9 11.9 14.2 0.3 0.3 0.3 12.9
Cement Cautious 3,569 53 11.1 20.5 37.0 32.9 27.3 19.9 13.3 10.6 8.8 2.5 2.4 2.1 7.7 8.7 10.8 0.6 0.6 0.6 70.2
Dividend yield (%)P/B (X) RoE (%)
KOTAK INSTITUTIONAL EQUITIES RESEARCH 71
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Consumer products
Asian Paints REDUCE 1,190 1,100 (7.6) 1,142 17.1 959 21 24 28 6.1 14.5 14.7 56.0 48.9 42.6 34.7 30.2 26.3 13.7 12.6 11.5 25.6 26.8 28.2 1.0 1.2 1.4 14.5
Bajaj Corp. ADD 456 520 14.1 67 1.0 148 14 17 19 (10.5) 18.7 10.5 32.2 27.1 24.6 25.6 21.9 18.7 13.7 13.2 12.6 42.3 49.4 52.4 2.6 2.9 3.1 0.4
Britannia Industries ADD 5,385 5,350 (0.6) 646 9.7 120 85 105 127 15.0 24.2 21.0 63.5 51.1 42.3 42.2 34.0 28.1 19.4 15.8 13.0 33.8 34.1 33.8 0.5 0.7 0.8 10.0
Coffee Day Enterprises REDUCE 340 340 0.1 72 1.1 206 4 9 14 77.3 136.5 51.5 85.5 36.1 23.9 — — — 3.0 2.8 2.5 3.6 7.9 10.9 — — — 1.9
Colgate-Palmolive (India) ADD 1,098 1,225 11.5 299 4.5 272 24 29 34 16.4 19.1 19.0 45.7 38.4 32.3 26.3 22.4 19.1 19.7 16.9 14.4 46.8 47.3 48.1 1.2 1.5 1.7 5.7
Dabur India REDUCE 370 350 (5.5) 652 9.8 1,762 8 9 10 7.2 16.1 11.7 47.7 41.0 36.8 40.2 34.8 30.5 11.4 11.5 10.0 25.9 27.9 29.1 2.0 1.0 1.2 9.6
GlaxoSmithKline Consumer ADD 5,901 6,500 10.1 248 3.7 42 159 182 203 2.0 14.5 11.5 37.1 32.4 29.0 25.2 21.0 18.1 7.3 6.8 6.2 20.6 21.7 22.3 1.4 1.6 1.9 2.1
Godrej Consumer Products REDUCE 1,107 980 (11.5) 754 11.3 681 22 25 29 14.4 14.8 14.4 50.6 44.1 38.5 36.6 31.3 27.2 12.3 10.7 9.2 26.1 25.9 25.6 0.7 0.8 0.9 8.7
Hindustan Unilever REDUCE 1,464 1,300 (11.2) 3,169 47.4 2,160 23 27 31 19.0 17.4 12.3 62.7 53.4 47.5 43.6 37.7 33.2 44.9 41.9 39.5 74.5 81.1 85.5 1.2 1.4 1.6 22.8
ITC ADD 277 315 13.7 3,382 50.6 12,235 9 10 11 8.9 10.0 11.7 30.8 28.0 25.1 20.5 18.5 16.4 7.0 6.7 6.4 21.8 23.4 25.6 2.1 2.4 2.8 44.5
Jubilant Foodworks BUY 2,567 2,500 (2.6) 169 2.5 66 29 45 61 172.6 58.2 35.7 89.6 56.7 41.8 37.0 26.9 20.8 18.4 15.4 12.7 21.9 29.7 33.5 0.4 0.6 0.8 33.0
Jyothy Laboratories ADD 375 405 8.1 68 1.0 182 9 12 14 34.8 34.6 14.6 42.6 31.7 27.6 27.4 21.7 18.9 6.1 5.8 5.4 14.5 18.7 20.3 1.6 1.9 2.1 0.7
Manpasand Beverages BUY 382 450 17.9 44 0.7 114 9 12 17 39.5 32.0 43.8 43.1 32.6 22.7 21.9 15.1 11.0 3.5 3.2 2.8 8.4 10.2 13.2 0.1 0.2 0.4 1.0
Marico ADD 317 345 8.9 409 6.1 1,291 6 7 8 7.4 16.7 13.7 50.6 43.3 38.1 35.6 29.9 26.0 16.1 14.9 13.8 33.2 35.7 37.5 1.3 1.5 1.7 7.1
Nestle India ADD 9,111 9,000 (1.2) 878 13.1 96 127 163 185 21.1 28.1 13.5 71.7 56.0 49.3 39.3 31.2 27.4 25.7 23.7 21.9 36.6 44.1 46.2 0.9 1.2 1.4 10.0
Page Industries SELL 23,636 18,200 (23.0) 264 3.9 11 299 358 438 27.2 20.0 22.3 79.2 66.0 53.9 50.9 41.7 34.4 31.7 25.6 20.7 44.5 42.9 42.5 0.5 0.6 0.8 6.6
PC Jeweller REDUCE 175 520 197.7 69 1.0 394 15 19 23 29.9 25.9 17.5 11.4 9.1 7.7 5.2 3.9 3.1 1.6 1.4 1.2 15.7 16.3 16.6 0.9 1.1 1.7 69.5
Pidilite Industries NR 1,071 — — 544 8.1 513 18 22 26 6.6 22.5 16.7 59.9 48.9 41.9 38.7 32.5 27.6 13.7 11.7 10.0 24.5 25.8 25.7 0.6 0.7 0.8 8.4
S H Kelkar and Company BUY 242 325 34.3 35 0.5 145 8 10 11 4.0 26.3 20.7 32.1 25.4 21.1 19.5 15.5 12.8 3.9 3.5 3.1 12.8 14.6 15.6 0.7 0.7 0.8 0.6
Tata Global Beverages ADD 288 300 4.2 182 2.7 631 8 10 13 33.9 26.6 22.2 35.3 27.9 22.8 18.8 15.8 13.6 2.7 2.6 2.4 8.0 9.5 10.9 0.9 1.1 1.3 15.3
Titan Company SELL 958 670 (30.1) 851 12.7 888 12 16 19 31.7 32.5 21.7 81.5 61.5 50.6 53.9 40.5 32.8 17.3 14.6 12.3 22.8 25.8 26.5 0.4 0.5 0.6 36.2
United Breweries SELL 1,128 850 (24.7) 298 4.5 264 14 18 21 64.4 25.3 19.1 78.9 63.0 52.9 34.3 30.1 26.5 11.3 9.9 8.7 15.2 16.8 17.5 0.2 0.3 0.4 6.5
United Spirits SELL 3,478 2,800 (19.5) 506 7.6 145 38 56 73 39.7 47.1 30.3 91.1 61.9 47.5 49.7 37.1 29.8 19.5 13.3 9.7 24.5 25.5 23.6 — — 0.3 19.1
Varun Beverages ADD 720 750 4.2 131 2.0 183 12 17 22 377.8 45.4 29.8 62.5 43.0 33.1 19.1 15.4 13.2 7.4 6.4 5.4 12.1 16.0 17.7 — — 0.1 0.7
Consumer products Cautious 14,880 222 14.9 17.6 15.0 48.4 41.2 35.8 31.0 26.5 23.0 12.0 10.9 9.9 24.7 26.6 27.7 1.2 1.3 1.6 335.0
Energy
BPCL REDUCE 380 410 7.8 825 12.3 1,967 36 37 40 (11.9) 2.3 7.4 10.6 10.3 9.6 8.1 7.6 7.1 2.3 2.1 1.9 22.6 20.9 20.4 4.2 4.3 4.6 35.5
Castrol India ADD 185 215 16.4 182 2.7 989 7 8 9 3.3 13.6 10.9 26.9 23.7 21.3 16.9 14.9 13.4 17.9 16.9 16.6 67.9 73.6 78.6 2.6 3.2 3.8 5.3
GAIL (India) BUY 330 400 21.3 744 11.1 2,255 22 24 27 31.5 9.5 10.2 15.0 13.7 12.4 9.4 8.7 7.9 1.8 1.7 1.5 12.5 12.7 13.0 2.2 2.4 2.6 19.8
GSPL SELL 180 180 0.3 101 1.5 564 12 12 14 41.1 0.4 8.7 14.4 14.4 13.2 7.4 6.9 6.0 2.0 1.8 1.6 14.7 13.3 13.1 1.4 1.4 1.5 2.2
HPCL REDUCE 295 350 18.7 449 6.7 1,524 39 32 33 (10.4) (16.8) 2.0 7.6 9.2 9.0 6.9 7.9 8.1 1.9 1.8 1.6 27.0 20.1 18.6 5.6 4.7 4.7 25.2
Indraprastha Gas SELL 273 250 (8.3) 191 2.9 700 10 12 14 20.3 16.7 12.4 26.2 22.4 19.9 16.1 13.8 12.2 5.6 4.9 4.4 23.1 23.4 23.2 0.9 1.2 1.6 11.1
IOCL REDUCE 162 175 8.4 1,568 23.4 9,479 19 17 18 (28.8) (11.6) 7.3 8.3 9.4 8.8 4.9 5.5 5.1 1.4 1.3 1.2 17.7 14.5 14.6 6.2 5.0 5.3 36.1
Mahanagar Gas SELL 867 910 4.9 86 1.3 99 50 53 54 26.7 4.1 2.0 17.2 16.5 16.2 9.9 9.4 9.0 4.1 3.7 3.4 25.4 23.7 22.0 2.4 3.0 3.1 8.6
ONGC ADD 180 215 19.3 2,313 34.6 12,833 20 21 22 17.2 7.5 3.3 9.1 8.5 8.2 4.9 4.3 4.0 1.0 0.9 0.9 11.2 11.4 11.1 3.3 3.9 4.2 14.5
Oil India SELL 221 220 (0.5) 251 3.8 1,135 23 23 23 15.6 0.3 0.1 9.5 9.5 9.4 6.6 6.1 6.1 0.8 0.8 0.8 9.0 8.8 8.5 4.7 4.8 4.8 4.5
Petronet LNG BUY 219 290 32.1 329 4.9 1,500 14 16 17 21.4 12.5 12.0 15.9 14.1 12.6 10.3 9.1 7.7 3.5 3.0 2.6 23.4 22.6 22.1 1.6 2.1 2.8 11.1
Reliance Industries REDUCE 954 930 (2.5) 5,645 84.4 5,922 59 67 76 16.9 14.2 12.2 16.1 14.1 12.6 12.5 10.2 8.7 1.9 1.7 1.5 11.6 11.9 11.9 0.6 0.7 0.7 97.3
Energy Attractive 12,685 190 1.9 4.7 8.0 12.2 11.6 10.8 8.1 7.3 6.6 1.6 1.5 1.4 13.3 12.8 12.7 2.4 2.4 2.6 271.2
Dividend yield (%)P/B (X) RoE (%)
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside shares 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Industrials
ABB SELL 1,286 1,100 (14.5) 273 4.1 212 20 27 34 12.1 34.1 29.2 64.9 48.4 37.5 35.8 29.0 22.5 7.6 6.9 6.1 12.2 14.9 17.3 0.3 0.7 0.7 1.9
BHEL SELL 84 80 (5.2) 310 4.6 3,671 2.5 3.8 5.9 86.2 53.0 52.4 33.6 21.9 14.4 20.1 9.0 5.4 0.9 0.9 0.9 2.8 4.2 6.2 0.8 1.2 1.8 9.4
Carborundum Universal SELL 374 325 (13.2) 71 1.1 189 11 15 18 23.5 28.4 22.4 32.7 25.4 20.8 17.6 13.1 11.2 4.6 4.1 3.7 14.9 17.2 18.7 0.9 1.2 1.4 0.9
CG Power and Industrial REDUCE 81 87 7.9 51 0.8 627 1.3 4.3 6.0 (56.2) 234.8 40.0 62.6 18.7 13.4 14.2 8.7 6.6 1.5 1.4 1.3 2.1 7.6 10.1 0.3 1.1 1.5 2.4
Crompton Greaves Consumer SELL 245 210 (14.3) 154 2.3 627 5.1 6.1 7.5 8.3 21.4 22.1 48.4 39.9 32.7 29.2 24.6 20.5 16.8 11.8 8.9 43.7 34.8 31.0 0.4 0.4 0.4 4.1
Cummins India REDUCE 752 715 (5.0) 209 3.1 277 25 30 34 (5.1) 20.1 13.9 30.2 25.1 22.1 26.8 21.7 18.3 5.2 4.8 4.5 17.8 20.0 21.1 1.8 2.1 2.4 5.1
Havells India SELL 540 450 (16.7) 338 5.1 625 11 14 17 14.8 26.0 20.8 49.6 39.3 32.6 32.2 24.8 20.5 9.3 8.4 7.6 19.7 22.4 24.5 0.8 1.1 1.5 9.2
Kalpataru Power Transmission BUY 500 575 15.0 77 1.1 153 17 28 40 21.7 62.4 42.5 28.9 17.8 12.5 9.6 7.9 6.2 2.9 2.6 2.2 10.5 15.3 18.7 0.4 0.4 0.4 0.9
KEC International ADD 425 455 6.9 109 1.6 257 16 23 30 37.1 39.8 32.8 26.2 18.7 14.1 13.0 10.3 8.2 5.6 4.5 3.6 23.7 26.8 28.2 0.5 0.7 1.0 5.2
L&T BUY 1,369 1,505 10.0 1,918 28.7 1,399 56 64 77 32.1 13.8 20.4 24.5 21.5 17.9 20.6 17.8 15.9 3.7 3.4 3.1 16.0 16.5 18.0 1.5 1.7 2.0 46.5
Siemens SELL 1,024 975 (4.8) 365 5.5 356 24 29 36 20.0 23.4 23.5 43.2 35.0 28.4 24.7 19.7 15.7 4.5 4.2 3.9 10.7 12.4 14.3 0.9 1.2 1.4 3.9
Thermax REDUCE 1,133 1,065 (6.0) 135 2.0 113 27 34 43 24.2 28.9 24.4 42.6 33.1 26.6 28.7 23.2 19.3 4.6 4.2 3.7 11.3 13.3 14.9 0.5 0.7 0.7 1.1
Voltas SELL 615 526 (14.5) 203 3.0 331 17 18 21 11.9 6.0 14.5 35.8 33.7 29.5 29.2 24.7 21.0 5.4 4.9 4.3 16.1 15.2 15.5 0.6 0.7 0.8 15.3
Industrials Neutral 4,211 63 26.1 22.1 24.6 31.1 25.5 20.4 21.6 17.4 14.7 3.5 3.2 2.9 11.2 12.7 14.4 1.1 1.3 1.6 105.8
Infrastructure
Adani Ports and SEZ BUY 408 470 15.1 845 12.6 2,071 20 20 23 6.1 (0.2) 14.7 20.4 20.4 17.8 14.3 13.9 12.2 4.0 3.4 3.0 21.5 18.1 17.9 0.5 0.6 0.8 20.7
Ashoka Buildcon BUY 281 310 10.2 53 0.8 188 12 13 13 18.9 9.0 4.5 24.2 22.2 21.2 17.4 14.9 13.2 2.6 2.3 2.1 11.2 10.9 10.2 0.7 1.1 0.8 1.7
Container Corp. SELL 1,364 1,265 (7.3) 332 5.0 244 35 42 51 7.3 20.0 21.4 38.6 32.1 26.5 25.6 19.9 15.8 3.5 3.3 3.0 9.4 10.6 11.9 1.3 1.3 1.6 6.9
Dilip Buildcon BUY 1,164 1,365 17.3 159 2.4 137 44 62 76 68.3 40.6 21.6 26.3 18.7 15.4 13.1 9.2 7.5 6.5 4.7 3.6 28.1 29.1 26.5 — — — 6.6
Gateway Distriparks BUY 164 270 64.7 18 0.3 109 6 10 14 (7.8) 55.8 41.9 26.3 16.9 11.9 19.5 15.6 12.3 1.7 1.6 1.5 6.5 9.6 12.7 1.1 1.8 2.5 0.6
Gujarat Pipavav Port BUY 144 180 24.7 70 1.0 483 4.4 6.3 8.2 (15.0) 43.2 29.9 32.9 23.0 17.7 16.7 12.7 10.0 3.4 3.3 3.1 10.4 14.4 18.0 2.4 3.3 4.3 1.0
IRB Infrastructure BUY 266 330 24.1 93 1.4 351 23 31 33 10.8 36.8 7.1 11.8 8.6 8.0 7.9 7.4 7.8 1.6 1.4 1.2 14.5 17.6 16.3 0.9 1.2 1.5 11.2
Mahindra Logistics BUY 490 540 10.2 35 0.5 71 10 14 19 16.2 44.3 32.0 50.0 34.6 26.2 28.8 19.2 14.4 8.3 6.9 5.7 18.2 21.8 23.8 — — — 0.7
Sadbhav Engineering ADD 371 475 27.9 64 1.0 172 15 19 20 33.2 31.1 5.0 25.4 19.4 18.5 18.3 14.4 10.9 3.4 2.9 2.5 14.1 16.1 14.7 — — — 0.7
Infrastructure Attractive 1,669 25 10.5 13.3 15.7 23.1 20.4 17.6 14.3 12.6 11.0 3.6 3.1 2.7 15.7 15.4 15.6 0.7 0.8 1.0 50.0
Internet
Info Edge REDUCE 1,206 1,290 7.0 147 2.2 121 22 28 33 32.1 23.3 19.1 54.0 43.8 36.8 40.0 31.4 25.7 6.1 5.6 5.1 12.4 13.3 14.4 1.0 0.6 0.7 2.2
Just Dial SELL 436 500 14.7 29 0.4 67 20 23 25 16.0 14.0 8.5 21.5 18.9 17.4 11.4 9.4 8.0 3.1 2.7 2.4 14.8 15.4 14.6 — 0.5 0.6 18.8
Internet Cautious 176 3 24.7 20.2 15.7 43.4 36.1 31.2 30.4 24.4 20.5 5.3 4.8 4.3 12.2 13.2 13.7 0.9 0.6 0.7 20.9
Media
DB Corp. REDUCE 301 360 19.5 55 0.8 184 18 23 27 (10.0) 26.4 14.3 16.3 12.9 11.3 8.8 6.9 6.0 3.3 3.2 3.1 20.8 25.2 27.6 4.3 5.3 6.6 0.7
DishTV ADD 75 84 12.1 138 2.1 1,066 (0.4) 0.5 0.9 (134.5) 248.3 70.8 NM 143.0 83.8 17.4 15.2 14.1 17.6 15.7 13.2 (8.0) 11.6 17.1 — — — 8.6
Jagran Prakashan REDUCE 168 190 13.4 52 0.8 311 11 14 15 3.6 26.7 10.3 15.2 12.0 10.9 7.4 6.1 5.5 2.5 2.4 2.3 16.3 20.6 21.4 2.4 5.1 5.4 0.8
PVR REDUCE 1,425 1,425 (0.0) 67 1.0 47 27 38 50 25.5 39.8 33.2 53.1 38.0 28.5 17.7 14.6 12.1 6.2 5.4 4.6 12.3 15.2 17.5 0.1 0.3 0.4 4.9
Sun TV Network REDUCE 864 975 12.9 340 5.1 394 29 36 40 10.8 22.8 12.6 29.8 24.3 21.6 20.4 16.5 14.5 7.4 6.6 5.9 — — — 1.4 2.0 2.3 20.5
Zee Entertainment Enterprises ADD 586 625 6.7 563 8.4 960 13 18 21 (7.9) 38.4 17.2 45.6 33.0 28.1 25.8 21.2 17.9 7.2 6.2 5.4 17.0 20.1 20.6 0.6 0.8 0.9 12.5
Media Attractive 1,215 18 (4.8) 33.7 16.0 38.6 28.9 24.9 19.1 15.8 13.8 6.9 6.1 5.4 17.8 21.1 21.9 1.0 1.4 1.6 48.1
Dividend yield (%)P/B (X) RoE (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside shares 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Metals & Mining
Coal India RS 271 — — 1,684 25.2 6,207 19 24 25 25.4 26.7 5.8 14.5 11.4 10.8 9.0 6.9 6.2 5.5 5.1 4.7 39.5 46.3 45.1 4.8 6.1 6.5 17.1
Hindalco Industries BUY 232 315 36.0 520 7.8 2,227 21 26 30 147.9 21.2 16.5 10.9 9.0 7.7 6.6 5.7 4.9 1.0 0.9 0.8 9.7 10.5 11.1 0.4 0.4 0.4 45.9
Hindustan Zinc REDUCE 304 325 7.0 1,284 19.2 4,225 22 24 28 9.3 13.6 13.8 14.1 12.4 10.9 8.8 7.3 6.0 3.6 3.0 2.6 27.2 26.4 25.6 2.6 2.6 2.7 14.4
Jindal Steel and Power REDUCE 241 250 3.9 233 3.5 915 (9) 8 17 56.4 191.0 106.9 (26.5) 29.1 14.1 10.1 7.2 6.2 0.8 0.8 0.7 (2.8) 2.7 5.3 — — — 40.2
JSW Steel ADD 318 315 (0.8) 768 11.5 2,417 19 23 25 27.4 21.4 10.2 17.1 14.1 12.8 8.9 8.1 7.8 2.8 2.4 2.0 17.6 18.2 17.2 0.7 0.7 0.7 25.1
National Aluminium Co. ADD 78 85 8.5 151 2.3 1,933 6 7 7 54.4 19.3 10.3 13.8 11.6 10.5 6.3 5.1 4.4 1.4 1.3 1.2 10.3 11.5 12.0 3.8 3.8 3.8 13.5
NMDC SELL 121 125 3.6 382 5.7 3,164 13 10 11 55.4 (24.0) 8.8 9.5 12.5 11.5 5.8 8.0 7.2 1.6 1.5 1.4 17.1 12.2 12.7 4.6 4.6 4.6 7.7
Tata Steel ADD 581 750 29.1 666 10.0 1,205 66 66 73 59.3 0.5 10.9 8.8 9 7.9 5.6 5.9 5.5 1.4 1.3 1.1 18.9 15.4 15.0 1.7 1.7 1.7 90.7
Vedanta BUY 282 435 54.4 1,047 15.7 3,717 22 36 45 9.6 67.6 23.9 13.0 7.8 6.3 6.5 4.9 4.0 1.6 1.5 1.3 12.9 20.1 22.1 2.8 3.9 4.8 57.5
Metals & Mining Attractive 6,734 101 40.4 25.2 14.5 13.4 10.7 9.4 7.4 6.3 5.5 2.1 1.9 1.7 15.6 17.5 17.9 2.8 3.3 3.5 312.1
Pharmaceutical
Apollo Hospitals ADD 1,101 1,230 11.7 153 2.3 139 13 23 30 (19.7) 81.8 30.6 86.3 47.5 36.4 21.5 18.1 15.4 4.0 3.8 3.5 4.8 8.2 10.1 0.3 0.5 0.7 6.9
Aurobindo Pharma ADD 612 690 12.7 359 5.4 584 43 46 50 9.6 7.4 7.9 14.2 13.2 12.2 9.9 9.1 8.2 3.0 2.5 2.1 23.9 20.8 17.2 0.4 0.5 0.6 24.5
Biocon SELL 626 300 (52.1) 375 5.6 601 6 8 15 (39.2) 26.8 86.5 101.0 79.7 42.7 45.3 33.4 21.8 6.7 6.2 5.6 6.9 8.1 13.8 0.3 0.4 0.8 26.4
Cipla BUY 597 720 20.6 481 7.2 805 21 31 38 64.6 49.6 22.1 29.0 19.4 15.9 16.0 11.5 9.5 3.4 3.0 2.6 12.2 16.3 17.4 0.7 1.1 1.3 19.0
Dr Lal Pathlabs REDUCE 839 880 4.9 70 1.0 83 21 24 29 7.7 18.7 18.5 40.7 34.3 29.0 24.7 20.8 17.3 8.7 7.2 6.0 23.5 23.0 22.6 0.4 0.4 0.5 0.6
Dr Reddy's Laboratories SELL 2,107 2,250 6.8 349 5.2 166 62 96 136 (15.1) 55.5 42.3 34.2 22.0 15.5 15.0 10.1 7.4 2.6 2.4 2.1 8.0 11.4 13.7 0.4 0.7 1.0 18.0
HCG REDUCE 308 305 (0.8) 27 0.4 85 2 3 5 (35.5) 87.1 58.0 182.9 97.7 61.9 26.4 20.2 17.1 5.4 5.1 4.7 3.1 5.4 7.9 — — — 0.6
Laurus Labs ADD 506 540 6.7 54 0.8 106 17 23 34 (3.5) 34.3 45.1 29.1 21.7 15.0 14.6 12.1 9.1 3.5 3.0 2.5 12.9 15.1 18.4 — — — 1.0
Lupin REDUCE 795 840 5.7 359 5.4 450 30 37 47 (46.5) 20.1 27.7 26.1 21.8 17.0 11.9 10.4 8.4 2.4 2.2 2.0 9.7 10.7 12.4 0.6 0.7 0.9 19.9
Narayana Hrudayalaya ADD 268 320 19.5 55 0.8 204 3 4 7 (32.8) 61.7 68.7 98.1 60.6 35.9 27.6 19.4 14.5 5.4 4.9 4.3 5.6 8.5 12.8 — — — 0.6
Sun Pharmaceuticals REDUCE 518 500 (3.5) 1,243 18.6 2,406 13 20 26 (55.0) 54.0 30.8 39.8 25.8 19.8 19.8 13.2 10.2 3.3 2.9 2.6 8.4 11.9 14.0 0.3 0.8 1.0 51.8
Torrent Pharmaceuticals NR 1,394 — — 236 3.5 169 40 59 73 (28.0) 47.3 25.0 35.1 23.8 19.0 19.3 14.1 11.8 4.8 4.2 3.6 14.6 17.6 18.8 0.7 1.0 1.2 4.8
Pharmaceuticals Neutral 3,760 56 (30.1) 37.4 27.9 33.1 24.1 18.8 16.9 12.8 10.3 3.4 3.0 2.7 10.3 12.6 14.2 0.4 0.7 0.9 173.9
Real Estate
Brigade Enterprises BUY 273 340 24.7 37 0.6 136 10 10 10 (26.4) 0.7 (3.7) 27.5 27.3 28.3 11.9 12.1 11.9 1.6 1.6 1.5 6.7 5.8 5.4 0.9 0.9 0.9 0.5
DLF RS 211 — — 377 5.6 1,784 47.0 1.8 2.1 1,107.8 (96.3) 20.6 4.5 120.5 100.0 21.4 16.5 16.7 1.2 1.2 1.2 29.4 1.0 1.2 0.9 0.9 0.9 22.8
Godrej Properties SELL 810 400 (50.6) 175 2.6 216 8.0 8.7 15.5 (15.8) 8.2 77.9 100.6 93.0 52.3 108.8 392.8 74.5 8.0 7.4 6.5 8.3 8.3 13.2 — — — 2.1
Oberoi Realty REDUCE 515 535 4.0 175 2.6 340 14 57 50 21.4 318.9 (12.7) 38.0 9.1 10.4 28.2 9.8 14.5 2.9 2.2 1.8 7.8 27.5 19.2 0.4 0.4 0.4 4.6
Prestige Estates Projects ADD 291 315 8.3 109 1.6 375 9 12 13 (6.7) 30.0 5.9 30.9 23.8 22.4 16.5 14.5 14.4 2.3 2.1 2.0 7.7 9.3 9.1 0.5 0.5 0.5 1.4
Sobha REDUCE 529 510 (3.5) 50 0.7 96 21 23 26 25.6 9.1 13.4 25.2 23.1 20.4 14.1 13.5 12.6 1.8 1.8 1.7 7.5 7.8 8.3 1.3 1.3 1.3 2.9
Sunteck Realty REDUCE 423 330 (22.0) 62 0.9 140 17 16 17 19.3 (6.4) 2.6 24.3 26.0 25.3 17.8 21.4 21.4 2.2 2.1 1.9 10.9 8.2 7.8 0.3 0.2 0.2 1.6
Real Estate Neutral 985 15 357.3 (65.1) 0.7 9.9 28.4 28.2 22.3 16.6 17.5 1.8 1.8 1.7 18.7 6.2 5.9 0.6 0.6 0.6 35.7
Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%)
74 KOTAK INSTITUTIONAL EQUITIES RESEARCH
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside shares 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Technology
HCL Technologies REDUCE 930 975 4.9 1,295 19.4 1,409 62 67 70 5.3 7.3 4.4 14.9 13.9 13.3 10.5 9.0 8.3 3.6 3.1 2.8 24.8 23.8 22.0 0.9 3.1 3.3 32.7
Hexaware Technologies SELL 388 400 3.1 115 1.7 304 16 19 22 19.8 18.6 11.6 23.6 19.9 17.8 16.7 14.4 12.2 5.9 5.1 4.4 26.6 27.5 26.5 1.0 2.1 2.1 9.4
Infosys ADD 1,173 1,250 6.6 2,562 38.3 2,175 65 69 75 3.0 6.5 8.6 18.2 17.0 15.7 12.4 11.5 10.4 3.9 3.7 3.4 21.8 22.4 22.7 2.4 3.7 3.3 86.2
L&T Infotech ADD 1,489 1,100 (26.1) 256 3.8 175 65 70 80 15.9 8.4 14.4 23.0 21.3 18.6 19.2 15.4 13.3 6.8 5.7 4.8 32.3 29.1 28.1 1.3 1.6 1.7 6.2
Mindtree ADD 1,011 910 (10.0) 166 2.5 165 35 42 49 37.8 20.5 18.7 29.3 24.3 20.5 21.3 15.2 12.8 6.1 5.2 4.5 21.4 23.1 23.6 1.1 1.2 1.5 35.6
Mphasis SELL 977 650 (33.5) 189 2.8 193 42 46 48 9.0 9.2 5.7 23.4 21.4 20.3 16.5 14.6 13.4 3.5 3.2 3.0 14.0 15.7 15.4 2.0 2.0 2.0 5.0
TCS REDUCE 3,481 3,100 (10.9) 6,663 99.6 1,914 135 153 165 1.1 13.1 8.3 25.8 22.8 21.1 19.0 16.4 15.0 7.6 7.1 6.6 29.4 32.3 32.6 1.4 2.9 3.1 130.2
Tech Mahindra ADD 663 685 3.4 585 8.7 883 39 42 48 22.3 7.9 12.4 16.9 15.7 13.9 11.4 9.2 7.9 3.1 2.7 2.4 19.6 18.5 18.0 1.4 1.4 1.4 30.5
Wipro REDUCE 270 280 3.7 1,221 18.3 4,507 17 19 21 (3.1) 10.3 11.5 15.9 14.4 12.9 10.0 8.6 7.6 2.5 2.2 2.0 16.0 16.2 16.2 0.4 0.6 3.7 15.7
Technology Cautious 13,052 195 1.0 8.5 8.7 20.5 18.9 17.4 14.7 12.8 11.6 4.8 4.4 4.0 23.6 23.2 23.1 1.5 2.7 3.1 351.7
Telecom
Bharti Airtel ADD 397 470 18.5 1,585 23.7 3,997 5 (4) 0 (42.9) (187.4) 104.6 83.8 (95.8) ###### 8.5 9.7 7.8 2.3 2.4 2.4 2.8 (2.4) 0.1 1.3 0.3 0.0 44.3
Bharti Infratel SELL 322 285 (11.6) 596 8.9 1,850 14 13 11 (7.4) (8.7) (9.0) 23.4 25.7 28.2 8.6 9.4 9.9 3.5 3.7 3.7 15.7 14.0 13.1 4.5 3.1 2.9 24.7
IDEA REDUCE 63 75 20.0 272 4.1 4,359 (10) (15) (14) (656.8) (54.9) 6.4 (6.5) (4.2) (4.5) 12.9 23.5 17.4 1.0 1.3 1.8 (16.0) (26.9) (34.0) — — — 17.6
Tata Communications ADD 617 740 19.9 176 2.6 285 1 5 10 (94.2) 751.3 95.6 1,019 119.7 61.2 11.0 9.6 8.4 15.9 13.9 11.3 1.3 12.4 20.4 1.1 1.1 1.2 4.4
Telecom Cautious 2,630 39 (95.2) (2,079.6) 36.8 923.3 (46.6) (73.7) 9.2 10.9 9.1 2.3 2.5 2.7 0.2 (5.4) (3.6) 1.8 0.9 0.7 90.9
Utilities
CESC ADD 1,035 1,140 10.1 137 2.1 133 87 98 115 66.5 12.8 17.7 11.9 10.6 9.0 7.3 6.9 6.1 0.9 0.8 0.8 7.7 8.2 9.0 1.1 1.1 1.2 8.2
JSW Energy REDUCE 75 80 6.3 123 1.8 1,640 3.1 5.9 8.2 (19.2) 92.2 38.7 24.5 12.8 9.2 7.4 5.9 4.8 1.1 1.1 1.0 4.7 8.5 11.0 2.7 2.7 2.7 2.6
NHPC ADD 28 30 7.7 286 4.3 10,259 2.9 3.1 3.4 (3.4) 10.2 7.4 9.8 8.9 8.2 9.1 7.4 6.4 1.0 0.9 0.9 9.9 10.5 10.9 5.7 6.1 6.6 2.8
NTPC BUY 171 190 11.2 1,409 21.1 8,245 12 17 17 (2.6) 38.1 4.8 14.2 10.3 9.8 11.1 8.3 7.1 1.4 1.3 1.2 9.9 12.7 12.3 2.2 2.9 3.1 12.7
Power Grid BUY 207 250 20.5 1,085 16.2 5,232 16 19 21 11.7 17.3 13.4 12.9 11.0 9.7 8.7 7.5 6.9 2.0 1.8 1.6 16.0 16.9 17.1 2.3 2.7 3.1 20.0
Reliance Power SELL 37 40 9.1 103 1.5 2,805 3.5 5.1 5.2 (16.4) 45.6 2.7 10.5 7.2 7.0 8.1 7.0 6.8 0.5 0.4 0.4 4.5 6.1 5.9 — — — 5.8
Tata Power REDUCE 85 83 (2.9) 231 3.5 2,705 6.4 6.6 8.3 8.1 3.8 25.1 13.4 12.9 10.3 11.5 10.1 9.2 1.7 1.5 1.3 13.7 12.5 13.7 — — — 7.0
Utilities Attractive 3,374 50 3.2 26.0 10.3 13.2 10.5 9.5 9.6 7.9 7.0 1.3 1.2 1.1 10.2 11.9 12.0 2.3 2.8 3.0 59.1
P/B (X) RoE (%) Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)
KOTAK INSTITUTIONAL EQUITIES RESEARCH 75
In
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S ADVT
Price (Rs) price Upside shares 3mo
Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn)
Others
Astral Poly Technik SELL 950 570 (40.0) 114 1.7 120 15 19 23 22.8 24.9 22.0 63.7 51.0 41.8 37.5 28.8 23.1 11.2 9.3 7.6 19.2 19.8 20.0 0.1 0.1 0.1 1.3
Avenue Supermarts SELL 1,490 835 (43.9) 930 13.9 624 13 16 20 47.9 28.6 26.4 118.5 92.2 72.9 69.4 53.2 41.7 20.0 16.4 13.4 18.5 19.6 20.3 — — — —
Bayer Cropscience ADD 4,436 4,450 0.3 175 2.6 34 96 115 134 17.2 19.1 16.9 46.0 38.6 33.0 37.5 30.0 23.9 8.5 7.3 6.2 17.2 20.3 20.3 0.4 0.5 0.6 0.8
Cera Sanitaryware REDUCE 3,037 2,950 (2.9) 39 0.6 13 82 100 116 7.3 22.7 15.3 37.1 30.2 26.2 22.6 18.4 15.5 6.4 5.3 5.3 18.9 19.3 20.3 0.3 0.3 0.2 0.6
Dhanuka Agritech REDUCE 595 690 16.0 29 0.4 49 25 28 31 3.3 11.5 14.3 24.1 21.6 18.9 16.7 14.1 12.0 4.8 4.2 3.6 21.5 20.7 20.5 1.0 1.2 1.3 0.2
Godrej Agrovet ADD 708 615 (13.2) 136 2.0 189 12 16 21 (1.6) 34.4 25.5 58.1 43.2 34.5 30.2 24.0 19.6 7.5 6.5 5.5 15.1 16.3 17.4 0.3 0.3 0.4 4.0
Godrej Industries RS 585 — — 197 2.9 336 15 16 20 6.8 8.9 24.2 40.1 36.9 29.7 36.0 30.5 33.2 5.4 4.8 4.2 14.4 13.9 15.1 0.3 0.3 0.3 5.0
HSIL REDUCE 379 390 2.9 27 0.4 72 11 18 23 (19.3) 56.0 27.4 33.0 21.2 16.6 12.2 9.3 7.7 1.8 1.7 1.6 5.6 8.4 10.0 1.1 1.1 1.1 0.4
InterGlobe Aviation BUY 1,182 1,500 26.9 454 6.8 383 59 79 107 27.2 35.0 34.9 20.2 14.9 11.1 11.8 8.6 6.0 6.4 4.6 3.4 41.3 36.0 35.4 0.5 0.7 0.9 24.0
Kaveri Seed SELL 503 470 (6.5) 33 0.5 66 32 34 36 19.8 5.9 5.0 15.5 14.7 14.0 13.1 11.9 10.7 4.3 3.5 3.0 23.8 26.3 23.3 1.2 1.6 2.0 4.2
PI Industries BUY 870 940 8.0 120 1.8 138 27 34 43 (18.1) 23.3 27.3 32.0 25.9 20.4 22.5 18.0 14.1 6.2 5.1 4.2 21.1 21.6 22.7 0.4 0.5 0.6 1.7
Rallis India ADD 218 235 8.0 42 0.6 195 9 11 13 (1.5) 26.4 19.7 25.2 20.0 16.7 16.1 13.2 11.2 3.6 3.2 2.9 14.6 16.9 18.1 1.5 1.7 1.8 0.9
SIS REDUCE 1,311 1,100 (16.1) 96 1.4 73 25 35 41 90.9 39.2 18.6 52.7 37.8 31.9 29.8 23.9 20.2 8.9 7.3 6.0 22.5 21.4 20.6 — — — 0.4
SRF BUY 2,315 2,185 (5.6) 133 2.0 57 83 102 129 (7.8) 23.2 26.4 28.0 22.7 18.0 15.7 12.2 10.0 3.7 3.3 2.8 14.0 15.3 16.8 0.5 0.6 0.6 5.5
Tata Chemicals ADD 766 760 (0.8) 195 2.9 255 45 43 50 (6.6) (3.8) 15.9 17.0 17.6 15.2 6.6 6.9 5.8 1.8 1.7 1.6 12.3 10.0 10.9 1.7 2.0 2.2 8.7
TeamLease Services SELL 3,078 1,700 (44.8) 53 0.8 17 43 57 74 9.9 34.5 28.3 72.2 53.7 41.8 75.7 52.6 40.7 11.6 9.5 7.8 17.5 19.5 20.5 — — — 2.6
UPL ADD 704 850 20.8 358 5.4 507 43 47 53 20.9 9.0 13.5 16.4 15.0 13.2 11.2 9.8 8.3 3.9 3.2 2.7 26.4 23.6 22.4 1.1 1.3 1.5 15.9
Vardhman Textiles ADD 1,210 1,400 15.7 69 1.0 55 106 138 140 (5.5) 30.6 1.6 11.4 8.8 8.6 10.2 7.0 6.6 1.4 1.2 1.1 12.9 15.1 13.7 1.7 1.7 2.5 0.5
Whirlpool SELL 1,543 1,150 (25.5) 196 2.9 127 27 36 44 8.7 30.4 23.7 56.6 43.4 35.1 32.9 26.1 21.0 11.1 9.2 7.7 21.3 23.2 23.9 0.3 0.4 0.6 1.5
Others 3,331 50 13.8 20.3 22.1 32.9 27.3 22.4 20.1 16.6 13.6 6.0 5.0 4.3 18.1 18.5 19.0 0.5 0.6 0.7 77.1
KIE universe 108,028 1,614 2.7 24.2 21.4 24.3 19.6 16.1 12.2 10.6 9.3 3.0 2.7 2.4 12.2 13.7 15.0 1.2 1.5 1.7
KIE universe (ex-energy) 95,342 1,425 2.9 30.1 24.7 28.1 21.6 17.3 13.6 11.7 10.1 3.3 3.0 2.7 11.9 14.0 15.6 1.1 1.4 1.6
Notes:
(a) We have used adjusted book values for banking companies.
(b) 2018 means calendar year 2017, similarly for 2019 and 2020 for these particular companies.
(c) Exchange rate (Rs/US$)= 66.89
Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%)
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Ratings and other definitions/identifiers
Definitions of ratings
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
Our target prices are also on a 12-month horizon basis.
Other definitions
Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.
Kotak Institutional Equities Research coverage universe
Distribution of ratings/investment banking relationships
Source: Kotak Institutional Equities As of March 31, 2018
Percentage of companies covered by Kotak Institutional
Equities, within the specified category.
* The above categories are defined as follows: Buy = We
expect this stock to deliver more than 15% returns over
the next 12 months; Add = We expect this stock to
deliver 5-15% returns over the next 12 months; Reduce
= We expect this stock to deliver -5-+5% returns over
the next 12 months; Sell = We expect this stock to deliver
less than -5% returns over the next 12 months. Our
target prices are also on a 12-month horizon basis.
These ratings are used illustratively to comply with
applicable regulations. As of 31/03/2018 Kotak
Institutional Equities Investment Research had
investment ratings on 207 equity securities.
Percentage of companies within each category for
which Kotak Institutional Equities and or its affiliates has
provided investment banking services within the
previous 12 months.
16.9%
33.8%
25.6%23.7%
2.4% 3.9% 3.9%1.4%
0%
10%
20%
30%
40%
50%
60%
70%
BUY ADD REDUCE SELL
Corporate Office Overseas Affiliates
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