[Kotak] India Daily, October 24, 2016 - Kotak Securities

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research [email protected] . Mumbai: +91-22-4336-0000

Contents

Daily Alerts

Results

Wipro: Waiting for the elusive turnaround

HCL Technologies: Steady and more of the same

Cairn India: Good results

ACC: The flat line

Biocon: Licensing and other income save the day

Oberoi Realty: 2Q records better pre-sales, but only relatively!

Mindtree: A perfect storm

DB Corp.: Ad growth decelerates

Company alerts

Cipla: Faces setback in DPCO case

Sector alerts

Real Estate: Ind-AS: Disruptive change, but only in reporting

INDIA DAILY October 24, 2016 India 21-Oct 1-day 1-mo 3-mo

Sensex 28,077 (0.2) (2.1) 1.0

Nifty 8,693 (0.1) (1.6) 1.8

Global/Regional indices

Dow Jones 18,146 (0.1) (0.6) (2.3)

Nasdaq Composite 5,257 0.3 (0.9) 3.1

FTSE 7,020 (0.1) 1.6 4.3

Nikkei 17,191 0.0 2.6 3.4

Hang Seng 23,374 0.3 (1.2) 6.2

KOSPI 2,044 0.5 (0.5) 1.7

Value traded – India

Cash (NSE+BSE) 232 257 256

Derivatives (NSE) 3,265 3,334 4,789

Deri. open interest 2,959 3,281 2,935

Forex/money market

Change, basis points

21-Oct 1-day 1-mo 3-mo

Rs/US$ 66.9 8 (13) (29)

10yr govt bond, % 7.0 - (11) (39)

Net investment (US$ mn)

20-Oct MTD CYTD

FIIs 51 (56) 7,454

MFs 97 711 2,828

Top movers

Change, %

Best performers 21-Oct 1-day 1-mo 3-mo

RECL IN Equity 139.3 2.6 11.8 33.3

RCAPT IN Equity 543.9 (0.2) (6.5) 33.2

CBK IN Equity 319.4 (0.8) 5.6 32.4

IDFC IN Equity 68.7 (0.7) 11.6 31.4

HZ IN Equity 249.7 (0.1) 9.8 28.7

Worst performers

IDEA IN Equity 80.0 2.2 (3.0) (25.0)

HDIL IN Equity 80.6 1.0 (5.4) (20.2)

UT IN Equity 6.4 5.8 4.1 (20.1)

BHARTI IN Equity 309.8 0.2 (5.3) (15.7)

DRRD IN Equity 3113.6 1.1 (2.2) (13.5)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000

Marginal revenue beat; flat EBIT margin surprises positively and leads to 6% net profit beat

Wipro reported 0.9% growth in c/c, 0.4% ahead of our estimate. We estimate organic yoy c/c

revenue growth rate at modest 2.7%. Revenue surprise was led by strong growth in the

healthcare vertical (+3.8% qoq), partly aided by strong growth in HPS acquisition. Wipro

surprised with flat qoq EBIT margin at 17.2% as compared to our estimate of 120 bps decline.

The company offset impact of wage revision through increase in utilization rate (+140 bps qoq),

offshore shift in revenues and lower subcontracting expenses. Guidance was muted at 0-2%

revenue growth. Guidance includes ~US$15 mn of revenues from the Appirio acquisition. On

organic basis, the company expects revenue decline to marginal revenue growth. Net profit of

₹20.7 bn declined 7.5% yoy and was 6% ahead our estimates.

Multiple initiatives yet to show in results

Wipro started large account focus in 2007. After 10 years, account mining remains a key

strategic priority. Wipro is also offering pricing concessions in accounts where it expects gain in

wallet share. Result up to now? Revenues from top client, top 5 and top 10 clients declined by

12.3%, 9.7% and 7.5% respectively on yoy USD comparison. Client metrics are worrying – # of

US$100 mn clients declined further, # of US$20 mn and US$50 mn accounts barely changed.

Besides being unlucky with cut in spending by a few large clients, this clearly shows that the

organization is not a cohesive unit. We like Wipro’s aggression to build digital business as

reflected in multiple interesting and strategic acquisitions. Effective integration of acquisitions

and strong positioning/marketing of capabilities will be critical for missing and elusive growth.

Little to cheer. Maintain REDUCE rating

We factor in weaker-than-estimated guidance and incorporate Appirio acquisition; it leads to

0.4-1.5% upgrade in revenue estimates over the next three years. Our EPS estimates remain

broadly unchanged. The stock trades at 13X FY2018E earnings. Valuations may appear

inexpensive but justified for the company whose growth rate has now fallen to mid-single-digit

levels with no immediate signs of revival. We maintain REDUCE rating with unchanged target

price of ₹485 valuing the stock at 12.5X FY2018E earnings.

Wipro (WPRO) Technology

Waiting for the elusive turnaround. Wipro’s revenue growth rate of 0.9% in c/c was

at the upper end of the guidance band. Flat EBIT margin despite wage pressures

surprised us positively. Guidance of 0-2% for Dec 2016 quarter includes about 0.8%

contribution from Appirio acquisition and is disappointing on organic basis. Client

metrics remain unimpressive. Turnaround remains elusive with the company struggling

on basics. Retain REDUCE with unchanged target price of ₹485.

REDUCE

OCTOBER 21, 2016

RESULT

Coverage view: Neutral

Price (`): 499

Target price (`): 485

BSE-30: 28,077

Kawaljeet Saluja [email protected]

Mumbai: +91-22-4336-0860

Jaykumar Doshi [email protected]

Mumbai: +91-22-4336-0863

Wipro

Stock data Forecasts/Valuations 2016 2017E 2018E

52-week range (Rs) (high,low) EPS (Rs) 36.0 34.4 38.5

Market Cap. (Rs bn) EPS growth (%) 2.8 (4.6) 12.1

Shareholding pattern (%) P/E (X) 13.9 14.5 13.0

Promoters 73.3 Sales (Rs bn) 516.3 560.2 603.8

FIIs 12.9 Net profits (Rs bn) 88.9 83.4 92.0

MFs 1.9 EBITDA (Rs bn) 113.0 116.3 127.4

Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.1 8.8 7.6

Absolute 3.2 (7.9) (13.6) ROE (%) 20.3 17.2 17.3

Rel. to BSE-30 4.8 (9.1) (16.0) Div. Yield (%) 1.2 1.0 1.0

Company data and valuation summary

607-470

1,213.4

Technology Wipro

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Despite all ingredients in place, why has Wipro struggled to grow?

On the face, Wipro has all the possible ingredients to grow above industry levels for the next

few years such as (1) excellent automation platform through Holmes, (2) high exposure to

fast growing infrastructure services, (3) a healthy BPO practice that has been strengthened

further with BPaaS acquisitions, and (4) identifying right acquisition candidates that can fill

gaps in portfolio and can have a multiplier effect.

Despite so many obvious strengths, the company has amazed with long stretches of

underperformance to be point of virtual stagnation. Slowdown in key market segments such

as Energy did have a role to play. However, we believe there are some other factors at play

as well.

An inward looking organization culture that believes in replicating the best practices of

competition instead of defining the agenda. This has been ongoing challenge that also

led to it missing out on some of the important market shifts.

Weak marketing/ positioning of solid capabilities and strengths in multiple dimensions of

service offerings, vertical and geos. Possessing capabilities is only half the job done but

getting the message out forcefully is equally important.

Organization that is not working as a cohesive unit which shows in weak client

engagement metrics despite the best effort put in by TK Kurien to break down silos

through personnel changes, reorganization and change in performance evaluation

metrics of the company.

Abidali’s experience in these areas will come in really handy. Abid has handled some of the

largest accounts of TCS, has strong operations orientation and understands the critical

success factors in scaling relationships to the next level. Growth in top 10 accounts and

increase in US$100 mn accounts will provide important cues on whether the sales and

delivery are in complete sync. For now, this appears to be low probability event. Till such

time underperformance will continue.

‘Play it safe’ strategy fails to enthuse; execution of it more important

The new CEO has outlined six major themes in pursuit of 2020 targets of US$15 bn in

revenues @23% EBIT margin. These themes are (1) digital, (2) improve client mining, (3)

capture opportunities in major markets, (4) non-linearity, (5) hyper automation and (6)

building healthy partner ecosystem. These themes are important but not unique to Wipro. In

fact these themes were detailed long after competitors have outlined growth strategy. While

strategy of every player has converged, the difference will be made in execution of the

strategy.

The bright spot—aggression and ability to acquire right companies, the worry—

integration of acquisitions

Wipro has never been shy of using acquisitions to bridge gaps in portfolio and create new

growth opportunities. We are impressed with company’s ability to spot and pursue right

acquisition candidates. A few pertinent points are visible from the recent acquisitions and

changes effected by the company.

BPaaS is big focus area. HealthPlan, a US health BPaaS provider and Viteos, a BPaaS

provider to the buy-side (deal was called off subsequently) indicate a big bet on BPaaS.

This is also evident from in-house development of BPaaS solutions.

Making aggressive digital bets. Acquisitions such as Appirio and Designit are

interesting. The company has also been investing in platforms and IP. The movement of

GK Prasanna towards heading marketing, innovations and technology (MIT) suggests a

big thrust towards platforms and IP creation. Wipro is playing quick catch up after initial

lag in digital with clear identifiable bets.

Wipro Technology

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Near-term sacrifice for longer-term gain. Some of the acquisitions will hurt the P&L

and lead to dilution of earnings. Wipro is willing to take the hit in order to create a more

sustainable growth engine and business model. Execution needs to follow a good

strategy. Progress on integration of acquisitions (mixed track record up to now) will be

the key variable to watch for.

Acquisitions are good but also require right integration. We find Wipro’s integration track

record patchy and hope it is able to make more out of the good targets that it has acquired.

Exhibit 1: Wipro 2QFY17 Results (IFRS)

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Wipro: Key changes to FY2017-19E estimates


Change

2QFY17 2QFY17E 1QFY17 2QFY16 2QFY17E 1QFY17 2QFY16 1HFY17 1HFY16 (%) FY2017E

IT services revenues (US$ mn) 1,916 1,921 1,931 1,832 (0.2) (0.8) 4.6 3,847 3,626 6.1 7,791

- IT Serv ices 131,366 128,507 131,092 120,428 2.2 0.2 9.1 262,458 236,201 11.1 530,455

- IT Products 7,666 5,823 5,930 5,442 31.7 29.3 40.9 13,596 13,616 (0.1) 30,025

- reconciling items (94) (46) (46) (202) (140) (443) (328)

Total revenues 138,938 134,284 136,976 125,668 3.5 1.4 10.6 275,914 249,374 10.6 560,152

Operating Income 22,971 21,099 22,851 24,289 8.9 0.5 (5.4) 45,822 48,311 (5.2) 93,374

- IT Serv ices 23,372 21,244 23,273 24,952 10.0 0.4 (6.3) 46,645 49,230 (5.3) 94,654

- IT Products (298) (87) (368) (208) 241.2 (19.0) 43.3 (666) (68) 879.4 (912)

- reconciling items (103) (58) (54) (455) (157) (851) (367)

Other income/ (expense) 3,677 4,418 3,864 4,605 (16.8) (4.8) (20.2) 7,541 8,561 (11.9) 14,975

PBT 26,648 25,516 26,715 28,894 4.4 (0.3) (7.8) 53,363 56,872 (6.2) 108,350

Income taxes (5,909) (5,906) (6,122) (6,486) 0.0 (3.5) (8.9) (12,031) (12,431) (3.2) (24,408)

PAT 20,739 19,610 20,593 22,408 5.8 0.7 (7.4) 41,332 44,441 (7.0) 83,942

Equity in earnings of affiliates — — — — — —

Minority interest (67) (127) (71) (54) (138) (210) (517)

Net income 20,672 19,483 20,522 22,354 6.1 0.7 (7.5) 41,194 44,231 (6.9) 83,425

EPS (Rs/share) 8.5 7.9 8.3 9.1 7.6 2.2 (6.2) 16.9 18.0 (6.2) 34.4

Operating margin

IT Services 17.8 16.5 17.8 20.7 17.8 20.8 17.8

IT Products (3.9) (1.5) (6.2) (3.8) (4.9) (0.5) (3.0)

Net Income Margin 14.9 14.5 15.0 17.8 14.9 17.7 15.4

Tax rates (%) 22.2 23.1 22.9 22.4 22.5 21.9 22.5

Wipro has guided to IT services revenues of US$1,916-1,955 mn in 3QFY17, a range of 0-2%

Change (%)

Rs mn 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

IT Services revenues (US$ mn) 7,791 8,434 9,077 7,763 8,312 8,946 0.4 1.5 1.5

Revenue growth (%) 6.1 8.3 7.6 5.7 7.1 7.6

Rupee/ US$ rate 67.5 68.0 68.0 68.5 68.5 68.5 (1.5) (0.7) (0.7)

EBITDA margin (%) 20.9 21.2 21.3 20.5 20.9 21.0

EBIT margin (%) (ex forex gains) 17.8 18.1 18.3 17.5 17.9 18.0

EPS (Rs/share) 34.4 38.5 41.3 34.5 38.3 41.0 (0.4) 0.7 0.7

Change (%)Revised Earlier

Technology Wipro


Exhibit 3: Growth rates across verticals, geographies and service lines


Exhibit 4: Key client metrics

Source: Company, Kotak Institutional Equities

Contribution to

Sep-16 QoQ YoY revenues (%)

Revenues (US$ mn) 1,916 (0.8) 4.6 100

Service line split of revenues

Global Infrastructure Serv ices 540 0.3 5.4 28.2

Wipro Analytics 140 (2.1) 1.8 7.3

Business Process Serv ices 257 3.1 43.0 13.4

Product Engineering 140 2.0 (3.3) 7.3

Application Serv ices 839 (2.7) (2.1) 43.8

Vertical split of revenues - new classification

Communications 144 (2.1) 3.2 7.5

Consumer 301 (1.4) 1.4 15.7

Energy, Natural Resources & Utilities 247 (3.0) (8.2) 12.9

F inance Solutions 489 (1.1) (0.1) 25.5

Healthcare, Life Sciences & Serv ices 307 3.8 46.8 16.0

Manufacturing & Technology 429 (1.2) 0.1 22.4

Geographical split of revenues

US 1,050 1.7 8.2 54.8

Europe 460 (6.2) (0.4) 24.0

India and Middle east business 199 (0.8) 2.6 10.4

Other emerging markets 207 0.2 0.9 10.8

Customer concentration

Top customer 50 3.2 (12.3) 2.6

Top 5 customers 194 (2.7) (9.7) 10.1

Top 10 customers 335 (1.3) (7.5) 17.5

Non top 10 1,581 (0.6) 7.6 82.5

Growth (%)

8 qtr CQGR

Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 (%)

Revenue (US$ mn)

Top client 62 68 67 59 57 59 51 48 50 (2.7)

Top 5 clients 229 228 224 219 214 211 207 199 194 (2.1)

Top 10 clients 381 377 366 361 363 355 343 340 335 (1.6)

ex- Top 10 clients 1,391 1,418 1,409 1,433 1,469 1,484 1,539 1,591 1,581 1.6

Growth (qoq %)

Top client (3.7) 10.0 (1.2) (12.2) (4.1) 3.6 (13.6) (5.0) 3.2

Top 5 clients (2.0) (0.2) (1.9) (2.1) (2.1) (1.4) (2.1) (3.9) (2.7)

Top 10 clients 0.4 (1.0) (3.0) (1.3) 0.6 (2.2) (3.5) (0.8) (1.3)

ex- Top 10 clients 2.2 2.0 (0.7) 1.7 2.5 1.0 3.8 3.3 (0.6)

Client buckets

US$100 mn+ 10 10 11 10 10 9 9 9 8

US$75 mn+ 15 16 15 17 17 17 18 19 19

US$50 mn+ 30 31 31 30 31 32 33 33 33

Wipro Technology


Exhibit 5: Attrition eases 70 bps


Exhibit 6: Wipro IT services EBIT margin trend


18.5

14.2 14.4 15.2

14.4

12.9 12.5 13.0

15.4 16.3

15.7

17.0 16.9 16.4 16.5 16.4 16.8 16.3

14.9

17.9 17.2

10

13

16

19

22

25

Sep-1

1

Dec

-11

Mar-

12

Jun-1

2

Sep-1

2

Dec

-12

Mar-

13

Jun-1

3

Sep-1

3

Dec

-13

Mar-

14

Jun-1

4

Sep-1

4

Dec

-14

Mar-

15

Jun-1

5

Sep-1

5

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

Voluntary attrition - quarterly annualized (%)

17.8

15

17

19

21

23

25

Sep-1

1

Dec

-11

Mar-

12

Jun-1

2

Sep-1

2

Dec

-12

Mar-

13

Jun-1

3

Sep-1

3

Dec

-13

Mar-

14

Jun-1

4

Sep-1

4

Dec

-14

Mar-

15

Jun-1

5

Sep-1

5

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

IT services EBIT margin (%)

Technology Wipro


Exhibit 7: Wipro: operating metrics


Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

IT services revenues (US$ mn) 1,772 1,795 1,775 1,794 1,832 1,838 1,882 1,931 1,916

Service line split of revenues (%) - new

Global Infrastructure Serv ices 27.2 27.7 27.9 28.0 28.0 28.1 28.9 27.9 28.2

Wipro Analytics 7.2 7.0 7.1 7.5 7.5 7.4 7.2 7.4 7.3

Business Process Serv ices 9.2 9.5 9.4 9.3 9.8 9.8 10.6 12.9 13.4

Product Engineering 7.0 7.1 7.6 7.7 7.9 8.0 8.0 7.1 7.3

Application Serv ices 49.4 48.7 48.0 47.5 46.8 46.7 45.3 44.7 43.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Vertical split of revenues (%) - new classification

Communications 7.4 7.6 7.7 7.7 7.6 7.5

Consumer 16.2 16.2 16.5 16.4 15.8 15.7

Energy, Natural Resources & Utilities 15.2 14.7 14.4 14.0 13.2 12.9

F inance Solutions 26.8 26.7 26.2 25.4 25.6 25.5

Healthcare, Life Sciences & Serv ices 11.2 11.4 12.0 13.3 15.3 16.0

Manufacturing & Technology 23.2 23.4 23.2 23.2 22.5 22.4

Geographical split of revenues (%)

US 51.0 51.4 51.7 52.5 53.0 52.8 52.5 53.5 54.8

Europe 27.8 27.6 26.3 25.6 25.2 24.8 25.6 25.4 24.0

India and Middle east business 9.2 9.6 10.7 10.6 10.6 11.0 11.0 10.4 10.4

APAC & other emerging markets 12.0 11.4 11.3 11.3 11.2 11.4 10.9 10.7 10.8

Client metrics

Customer size distribution (TTM)

Million dollar clients of which 524 526 542 537 533 536 550 565 571

> US$100 mn 10 10 11 10 10 9 9 9 8

US$75 mn - US$100 mn 5 6 4 7 7 8 9 10 11

US$50 mn - US$75 mn 15 15 16 13 14 15 15 14 14

US$20 mn - US$50 mn 55 53 55 56 55 53 56 58 58

US$10 mn - US$20 mn 65 69 64 65 68 69 71 79 80

US$5 mn - US$10 mn 75 73 81 93 90 93 88 82 87

US$3 mn - US$5 mn 67 74 80 70 77 78 83 84 83

US$1 mn - US$3 mn 232 226 231 223 212 211 219 229 230

Repeat business (%) 98.6 97.7 96.7 99.6 98.5 97.9 96.5 99.7 98.6

New client additions 50 44 65 36 67 39 119 50 47

Total active customers 1,018 1,018 1,054 1,071 1,100 1,105 1,223 1,208 1,180

Customer concentration (%)

Top customer 3.5 3.8 3.8 3.3 3.1 3.2 2.7 2.5 2.6

Top 5 customers 12.9 12.7 12.6 12.2 11.7 11.5 11.0 10.3 10.1

Top 10 customers 21.5 21.0 20.6 20.1 19.8 19.3 18.2 17.6 17.5

Employees (IT serv ices) 154,297 156,866 158,217 161,789 168,396 170,664 172,912 173,863 174,238

Utilization (%)

Global IT Serv ices excl IFOX-Gross (a) (b) 70.0 68.5 70.5 71.3 69.5 66.4 68.1 69.9 71.2

Global IT Serv ices excl IFOX-Net 77.5 75.9 78.0 79.4 77.2 73.8 76.1 78.8 80.2

Attrition (%)

Global IT Serv ices - Voluntary - Qtrly annualized 16.9 16.4 16.5 16.4 16.8 16.3 14.9 17.9 17.2

Revenues by project type (%)

F ixed price 53.1 55.1 55.5 54.5 53.4 55.9 56.9 56.0 56.4

Time and material 46.9 44.9 44.5 45.5 46.2 44.1 43.1 44.0 43.6

Onsite-offshore revenue split (%)

Onsite 53.7 54.3 53.7 54.6 53.9 53.8 54.2 54.4 53.9

Offshore 46.3 45.7 46.3 45.4 46.1 46.2 45.8 45.6 46.1

Wipro Technology


Exhibit 8: IT acquisitions made by Wipro


Date Target Country Business Description Consideration (mn) Sales (mn) Price/Sales P/E

Wipro

Oct-16 Appirio US Cloud serv ices provider $500.0 $198.0 2.5

Feb-16 HealthPlan Serv ices US BPaaS provider $460.0 $223.0 2.1

Dec-15 celllent AG Germany IT serv ices EUR 73.5 EUR 87.0 0.8

Jul-15 Designit Denmark Strategic design firm EUR 85.0 EUR 27.0 3.1

Mar-15 Drivestream Inc US Consulting in Oracle cloud serv ices $5.0 NM NM

Jul-14 ATCO I-Tek (a) Canada IT serv ices arm of ATCO $150.0 NM NM

Apr-11 SAIC US IT Serv ices - Oil & Gas $150.0 $188.0 0.8

Dec-08 Citos USInfrastructure Management Serv ices,

ADM for BFSI$127.0 $80.0 1.6

Aug-07 Infocrossing US Data centers, IMS $600.0 $237.6 2.5 61.6

Oct-06 3D Networks & Planet PSG Singapore Infrastructure Management Serv ices $73.0 $36.0 2.0

Jun-06 Saraware Oy Finland R&D Serv ices (Telecom) EUR 25.0 EUR 14.7 1.7

Jun-06 Enabler Portugal Retail Solutions EUR 41.0 EUR 29.3 1.4

May-06 Quantech Global Serv ices USMechanical Engineering Design &

Anaytics$10.0 NM NM

Feb-06 cMango Inc US IT consulting $32.0 $12.8 2.5

Dec-05 mPower & MPACT US Payments market $28.0 $18.0 1.6

Dec-05 NewLogic Austria Chip (SoC) Design EUR 47.0 EUR 13.8 3.4

Apr-03 NerveWire US IT Serv ices - BFSI, Hi-Tech $18.7 $20.8 0.9

Nov-02 AMS Global Energy Practice US IT Serv ices - Energy, Utilities $26.0 $23.6 1.1

Notes:

(a) ATCO I-Tek was not a standalone acquisition. Wipro signed a billion dollar 10-year IT outsourcing deal w ith ATCO group. This deal involved takeover of ATCO I-Tek, a subsidiary

of ATCO. Wipro paid upfront cash consideration of US$195 mn for (1) ATCO I-Tek and (2) committed savings.

Technology Wipro


Exhibit 9: Profit model, balance sheet, cash model of Wipro, March fiscal year-ends, 2013-2019E (Rs mn)


2013 2014 2015 2016 2017E 2018E 2019E

Profit model

Revenues 374,256 437,628 473,185 516,307 560,152 603,752 648,095

Cost of revenues (including depreciation) (260,665) (295,489) (321,328) (356,723) (393,940) (421,759) (452,385)

Gross profit 113,591 142,139 151,857 159,584 166,212 181,993 195,709

SG&A expenses (including depreciation) (46,245) (52,787) (56,434) (62,561) (72,838) (78,843) (83,918)

EBIT 69,972 89,352 95,423 97,023 93,374 103,150 111,791

Other income 8,624 11,653 16,260 17,698 14,975 17,062 17,547

Pre-tax profits 78,596 101,005 111,683 114,721 108,350 120,212 129,338

Provision for tax (16,912) (22,601) (24,624) (25,305) (24,408) (27,655) (30,130)

PAT 61,684 78,404 87,059 89,416 83,942 92,558 99,208

Equity in earnings of affiliates, minority interest (net) (337) (438) (531) (492) (517) (542) (570)

PAT from continuing operations 61,347 77,966 86,528 88,924 83,425 92,015 98,638

EPS (Rs) 24.9 31.7 35.1 36.0 34.4 38.5 41.3

Balance Sheet

Shareholders funds 283,812 343,499 407,982 466,078 506,743 559,198 643,515

Borrow ings 63,816 51,592 78,913 125,221 — — —

Minority interest 1,171 1,387 1,646 2,224 2,741 3,283 3,853

Other liabilities 9,153 10,053 13,669 20,697 20,697 20,697 20,697

Total liabilities 357,952 406,531 502,210 614,220 530,180 583,178 668,065

Net fixed assets 50,525 51,449 54,206 64,952 56,323 48,433 39,342

Cash and bank balances 84,838 114,201 158,940 99,049 (16,943) 32,229 114,077

Net current assets excluding cash 140,787 144,712 179,729 295,841 300,807 310,173 319,911

Other assets 81,802 96,169 109,335 154,378 189,992 192,343 194,734

Total assets 357,952 406,531 502,210 614,220 530,180 583,178 668,065

Cashflow statement

Operating profit before working capital changes 77,651 98,884 108,115 108,966 116,332 127,395 137,688

Tax paid (18,349) (21,772) (24,265) (26,935) (24,408) (27,655) (30,130)

Change in working capital/other adjustments 2,822 (10,282) (7,978) (6,151) (7,331) (11,716) (12,130)

Capital expenditure (10,145) (7,822) (11,272) (13,172) (14,329) (16,355) (16,806)

Acquisitions (3,074) (2,985) (11,574) (39,373) (33,250) — —

Other income 7,025 10,792 11,511 17,086 14,975 17,062 17,547

Free cash flow 55,930 66,815 64,537 40,421 51,990 88,732 96,169

Margins and ratios

Consolidated gross profit margin (%) 30.4 32.5 32.1 30.9 29.7 30.1 30.2

Consolidated EBIT margin (%) 18.7 20.4 20.2 18.8 16.7 17.1 17.2

IT serv ices EBIT margin (%) 20.7 22.6 22.0 20.5 17.1 17.5 17.6

RoAE (%) 21.6 24.9 23.0 20.3 17.2 17.3 16.4

RoACE (%) 19.3 22.1 19.8 17.3 14.9 14.9 14.3



Solid quarter; 2.8% c/c revenue growth and SG&A-led margin surprise; guidance reiterated

1.9% growth in revenues to US$1.722 mn was powered by IMS (+3.1%). IBM IP licensing deal

contributed 0.25% to revenues. EBIT margin of 20.1% beat our estimate by 60 bps led by 40

bps decline in SG&A costs as percentage of revenues. Net profit of ₹20.2 bn beat our estimate

by 2.8% led by margin outperformance. HCLT has retained 12-14% c/c revenue growth

guidance for FY2017; this implies CQGR of 1.3-3.6% over 2Q-4QFY17. Management has also

reiterated EBIT margin guidance of 19.5-20.5%. The guidance excludes revenues from (1)

proposed Geometric and Butler Aerospace acquisitions, and (2) new IP deal with IBM. This

guidance translates into 8-10% organic c/c revenue growth in FY2017.

Growth from IMS and ERD is well-known; applications needs investments to surprise positively

HCLT’s revenue growth potential over the next three years can be broadly segmented in four

buckets—(1) 12-15% growth in IMS where market share gains will power growth even as

greater public cloud adoption carries deflationary risks in the medium term, (2) excellent ERD

practice that can grow by 8-10% for the next 3-5 years, (3) middling applications practice,

which appears underinvested in digital capabilities and faces stiff competition. Above mid-single

digit growth would be difficult, and (4) BPO, which is weak. Aggregation of this implies 8-9%

c/c organic revenue growth potential. Medium-term growth story can become a lot more

powerful with bundled deals and new revenue sources such as platforms and products;

however, this is not HCLT’ strongest suite and prevents us from baking in revenues materially.

Wait for a better entry point. Maintain REDUCE rating

HCLT stock rerating will hinge on its success in broad-basing of growth from current

concentration towards IMS. The company’s bet on being a disruptive player in applications has

merits but faces competition from well-entrenched players; we do not expect any near-term

acceleration in growth. Concentration carries higher risks and consequently requires higher

margin of safety. Our broad concerns on margins have not changed, FY2017 guidance

notwithstanding. The primary source of deviation in our view versus Street is concern on

sustenance of IT Services margins. Sustaining this profitability level against the backdrop of

vulnerable portfolio, scale disadvantage and stiff competition is a challenge in our view. Our

below-consensus EPS estimates for FY2018-19 stays. Maintain REDUCE rating with unchanged

target price of ₹800 valuing the stock at 13X FY2018E earnings.

HCL Technologies (HCLT) Technology

Steady and more of the same. HCLT reported a solid 2QFY17. C Vijayakumar, COO

of the company, has been elevated to the role of the CEO. Emphasis on IT services may

increase a little more although we do not expect any drastic changes to the strategy.

HCLT playbook is well known; leadership in IMS and ERD services and middling

presence in others. At the right price, these strengths are worth playing for. However,

with medium-terms risks to profitability, we believe that the stock price has to correct

more before we turn constructive. Maintain REDUCE rating.

REDUCE

OCTOBER 24, 2016

RESULT


Price (`): 832


BSE-30: 28,077


Mumbai: +91-22-4336-0860


Mumbai: +91-22-4336-0863

HCL Technologies



Market Cap. (Rs bn) EPS growth (%) (23.5) 48.0 2.4




MFs 5.1 EBITDA (Rs bn) 66.9 101.5 105.9


Absolute 4.9 15.0 (3.6) ROE (%) 21.3 27.1 24.3

Rel. to BSE-30 6.5 13.5 (6.3) Div. Yield (%) 2.0 3.0 3.5


890-706

1,173.4

HCL Technologies Technology


Corrective measures to revive application practice; a lot of work needs to be done

We like HCLT’s new CEO’s intent to drive broad-based growth across service lines.

The management indicated that it is taking steps to revive applications services practice:

(1) dedicated farming and hunting teams have been set-up for applications practice,

something which was missing, (2) expansion of client-partners program to top 50 accounts

from 30-40 accounts at present, (3) cross-selling application services in large IMS clients of

the company. These corrective measures indicate that the applications practice of HCLT is

sub-scale, perhaps due to underinvestment. HCLT would have to make significant investments

to turn around its apps practice, which could pose a near-term risk to margins in our view.

A deep dive into 2QFY17 numbers; sharp decline in other expenses; outsourcing

costs increase further

Organic c/c revenue growth for the quarter was 2.5% qoq and about 8.5% yoy (KIE

estimate). IMS contributed 66% and 85% to incremental revenues in the quarter on qoq

and yoy basis. EBIT margin surprised positively due to 40 bps decline in SG&A as percentage

of revenues. The company added 1,827 employees overall in the quarter.

Analysis of Ind-AS numbers (Exhibit 5) highlights sequentially flat employee costs despite the

wage revision possibly due to further offshore shift of large contracts. Outsourcing costs

increased further by 160 bps and now stands at an all-time high of 19.2%. Other expenses

decreased 22% qoq and 8%. Sequential decline could be partly due to lower visa costs. The

management indicated that its G&A is declining due to shift to its own facility from rented

facilities.

Client metrics impressed with addition of 1 client to the US$100 mn bucket (possibly Volvo)

but more importantly addition of 10 clients to the US$40 mn bucket and addition of 7

clients to the US$20 mn bucket.

Another acquisition; capital allocation in focus

HCLT has announced 9th

acquisition/inorganic initiative in the past 15 months. HCLT has

extended strategic IP–partnership to cover API/web service enablement for mainframes. The

company will invest US$55 mn in the deal. The company will get US$5 mn of revenues in

FY2017 and US$12 mn in FY2018 from the new IP deal. The approximate cash outflow

from these acquisitions stands at US$740 mn (including earn-outs and investment agreed

but yet to be paid) excluding the Geometric deal. While the P&L impact is in check through

smart deal structuring, these deals will impact RoICs. Acquisition seems to be concentrated

towards extending leadership in ERD. Acquisition, if in strategic area, is clearly better than

cash sitting in the balance sheet. HCLT appears to be moving in the right direction.

Acquisition in the quarter includes Butler America Aerospace, a provider of engineering and

design services to US aerospace and defense customers. Engineering design services

provided by Butler are in the areas of mechanical and structural design, electrical and tool

design and aftermarket engineering services. The acquisition provides 900 engineers. Butler

Aerospace reported revenues of US$85.4 mn and EBIT of 12.2%. HCLT will pay US$85 mn

in cash for the acquisition and will likely be EPS accretive.

Conference call highlights

Weak growth in Engineering and R&D (ERD) services. HCLT management attributed

muted growth of ERD practice to (1) offshore shift in one of the large programs, and (2)

absence of structured sourcing process akin IT services results in longer sales cycles.

Applications practice. HCLT’s applications practice comprises core ADM and support

and enterprise solutions. The indicated that revenue decline in the ERP segment is

dragging down growth of the entire practice even as digital, modern application services

and Application support and maintenance is growing well.

Technology HCL Technologies


Guidance. HCLT reiterated its guidance of revenue growth of 12-14% in c/c terms and

11-13% in USD terms for FY2017 at EBIT margin of 19.5-20.5%. Guidance does not

include—(1) revenues from US$55 mn IP licensing deal announced with IBM today. The

company will derive US$5 mn revenues in FY2017 (nothing in this quarter) and US$12

mn in FY2018, (2) Butler America Aerospace acquisition, and (3) Geometric acquisition.

Updates on completion of acquisitions. The management indicated that it has

received shareholders’ and the Board’s approval for Geometric acquisition. It awaits court

approval and expects to complete the acquisition in March 2017 quarter. HCLT expects to

complete Butler Aerospace acquisition by Dec 2016 subject to CFIUS approval. We have

not built these acquisitions in our estimates. We note that Geometric acquisition is likely

to be EPS neutral and Butler could be marginally EPS accretive.

Exhibit 1: HCL Technologies Sep 2016 quarter financial performance


(a) Change

Sep-16 Sep-16E Jun-16 Sep-15 Sep-16E Jun-16 Sep-15 1HFY17 1HFY16 (%) FY2017E

Revenues (US$ mn) 1,722 1,726 1,691 1,545 (0.2) 1.9 11.5 3,413 3,083 10.7 6,950

Revenues 115,190 115,482 113,360 100,970 (0.3) 1.6 14.1 228,550 198,740 15.0 468,882

Cost of Revenues (76,530) (76,888) (74,404) (67,437) (0.5) 2.9 13.5 (150,934) (131,813) 14.5 (310,955)

Gross profit 38,660 38,594 38,956 33,533 0.2 (0.8) 15.3 77,616 66,927 16.0 157,927

SG&A expenses (13,550) (14,067) (13,747) (12,629) (3.7) (1.4) 7.3 (27,297) (25,126) 8.6 (56,703)

EBIDTA 25,110 24,527 25,209 20,904 2.4 (0.4) 20.1 50,319 41,801 20.4 101,224

Depreciation (1,930) (1,947) (1,879) (1,354) (0.9) 2.7 42.6 (3,809) (2,596) 46.7 (7,864)

EBIT 23,180 22,579 23,330 19,550 2.7 (0.6) 18.6 46,510 39,205 18.6 93,360

Other Income 2,350 2,476 2,531 2,416 4,881 4,540 11,115

PBT 25,530 25,055 25,861 21,967 1.9 (1.3) 16.2 51,391 43,745 17.5 104,476

Provision for Tax (5,380) (5,450) (5,427) (4,726) (1.3) (0.9) 13.8 (10,807) (8,760) 23.4 (22,371)

Net Income (before extraordinaries) 20,150 19,606 20,434 17,241 2.8 (1.4) 16.9 40,584 34,984 16.0 82,104

EPS (Rs/share) 14.3 13.9 14.5 12.2 2.8 (1.4) 16.9 28.8 24.8 16.0 58.1

No of shares outstanding 1,411.6 1,411.6 1,411.6 1,411.6 1,411.6 1,411.6 1,414.0

Segmental revenues (US$ mn)

Software 957 948 921 1.0 4.0 1,905 1,837 3.7

Infrastructure 694 673 542 3.1 27.9 1,367 1,084 26.1

BPO 71 70 81 1.2 (13.1) 140 161 (12.7)

Margins (%)

Gross Profit margin 33.6 33.4 34.4 33.2 34.0 33.7 33.7

SG&A as % of revenues 11.8 12.2 12.1 12.5 11.9 12.6 12.1

EBITDA Margin 21.8 21.2 22.2 20.7 22.0 21.0 21.6

EBIT Margin 20.1 19.6 20.6 19.4 20.4 19.7 19.9

NPM 17.5 17.0 18.0 17.1 17.8 17.6 17.5

Notes:

(a) HCLT has moved to March-ending financial year from June-ending this year; 1HFY17 is compared with Apr-Sep 2015 period.

Change (%)



Exhibit 2: Key changes to our FY2017-19E estimates


Exhibit 3: Revenue growth across geographies, verticals and service lines (Sep 2016)


US$ mn 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

Revenues 6,950 7,563 8,265 6,950 7,562 8,263 (0.0) 0.0 0.0

Revenue growth yoy (%) 11.4 8.8 9.3 11.4 8.8 9.3

EBITDA 1,502 1,561 1,661 1,478 1,547 1,650 1.6 0.9 0.7

EBIT 1,385 1,439 1,528 1,362 1,425 1,517 1.7 1.0 0.7

Net Income 1,219 1,241 1,315 1,195 1,230 1,307 2.0 0.9 0.6

EBITDA margin (%) 21.6 20.6 20.1 21.3 20.5 20.0

EBIT 19.9 19.0 18.5 19.6 18.8 18.4

Re/ US$ rate 67.5 68.0 68.0 68.5 68.5 68.5 (1.5) (0.7) (0.7)

EPS Rs/ share 58.1 59.6 63.0 58.1 59.5 63.1 0.0 0.2 (0.1)

Notes:

(a) Geometric acquisit ion (largely EPS neutral) and Butler aerospace acquisit ion are not built in our estimates yet.

Change (%)Revised Old

Revenues Contribution to

(US$ mn) qoq yoy revenues (%)

Total revenues 1,722 1.8 11.5 100

Geographical split of revenues

US 1,066 5.2 17.6 61.9

Europe 505 (5.0) 3.1 29.3

Asia Pacific 152 3.0 2.2 8.8

Vertical split of revenues

Financial services 415 4.0 2.9 24.1

Manufacturing 554 (1.2) 10.5 32.2

Retail & CPG 179 5.9 31.8 10.4

Telecom, media, publishing, entertainment 162 5.2 9.2 9.4

Life sciences 217 7.8 13.3 12.6

Energy-utilities-public sector 188 (5.1) 21.5 10.9

Others 7 (18.5) (25.7) 0.4

Service line split of revenues

Application services 651 0.5 4.3 37.8

Engineering and R&D services 307 2.4 3.4 17.8

Infrastructure services 694 3.1 27.9 40.3

BPO services 71 1.8 (13.1) 4.1

Growth (%)



Exhibit 4: Acquisitions and investments announced by HCL Tech in the past fifteen months

Source: Company

Consideration Sales

Date Target Country Business Description (mn) (mn)

HCL Technologies

1 Oct-16 Strategic IP partnership with IBM Externded IP partnership to cover API/web service

enablement of mainframes $55.0 $12.0

2 Oct-16 Butler America Aerospace USProvider of engineering and design services to US

aerospace and defense customers$85.0 $85.4

3 Jun-16 Strategic IP partnership with IBM USTo invest in and grow workload Automation and

DevOps software of IBM$350.0 $100.0

4 Apr-16 Geometric India PLM and engineering services $195.0 $135.0

5 Feb-16 Volvo IT AB Sweden External IT services arm of Volvo $134.9 $190.0

6 Jan-16 Point to Point (P2P) UK Workplace engineering services $10.0 $11.5

7 Nov-15 Arrangement with CSC USTo operate and expand the existing Core Banking

business of CSC$53.4 NA

8 Oct-15 Powerteam LLC US Professional services for Microsoft Dynamics CRM $41.4 $37.00

9 Oct-15 C2SiS India Engineering services firm $1.9 NA

10 Aug-15 Trygstad Technical Services Inc US Turnkey solutions for a large ISV $9.9 NA

Total $936.4 $575+

Notes:

(a) Geometric acquisition is a share-swap deal (yet to be completed).

(b) HCLT has paid about US$207 mn for IP partnerships with IBM and balance US$200 mn would be paid over 2 years.



Exhibit 5: HCLT: Consolidated financials as per Ind-AS (Rs mn)


Sep-16 Jun-16 Sep-15 QoQ YoY

Revenues 115,192 113,363 100,968 1.6 14.1

Expenses

Purchase of traded goods 1,779 1,803 2,570 (1.3) (30.8)

Change in inventories of traded goods 624 (905) (558) (169.0) (211.9)

Employee benefits expenses 54,569 53,783 49,575 1.5 10.1

Outsourcing cost 22,106 19,944 16,240 10.8 36.1

Travel and conveyance 4,003 4,410 4,536 (9.2) (11.7)

Other expenses 7,083 9,088 7,654 (22.1) (7.5)

Total expenses 90,164 88,123 80,016 2.3 12.7

EBITDA 25,028 25,240 20,952 (0.8) 19.5

EBITDA margin (%) 21.7 22.3 20.8

Depreciation and amortization expense 1,826 1,766 1,234 3.4 48.0

EBIT 23,202 23,474 19,717

EBIT margin (%) 20.1 20.7 19.5

Other income 2,170 2,233 2,465

Exchange (gain)/ loss 311 660 205

Finance costs 107 282 258

PBT 25,575 26,085 22,129 (2.0) 15.6

Tax expenses 5,402 5,500 4,729

Share of (profit)/ loss in associates 10 65 0

Minority interest 7 (33) 2

Net profit 20,156 20,552 17,398 (1.9) 15.9

As % of sales

Hardware costs 2.1 0.8 2.0

Employee benefits expenses 47.4 47.4 49.1

Outsourcing cost 19.2 17.6 16.1

Travel and conveyance 3.5 3.9 4.5

Other expenses 6.1 8.0 7.6



Exhibit 6: IMS and ER&D services contributed ~75% to HCLT's revenue growth over past 4 years HCLT: Revenue and growth composition, March fiscal year-ends


Exhibit 7: Sharp rise in IMS growth (yoy) partly led by Volvo external IT acquisition and internal IT deal


2013 2014 2015 2016

Revenues (US$ mn)

Application services 2,282 2,364 2,495 2,519

Engineering and R&D services 809 866 1,028 1,172

Infrastructure services 1,248 1,721 2,007 2,214

BPO services 200 229 292 330

Total 4,538 5,180 5,822 6,236

Incremental revenues 506 642 642 414

Revenues mix (%)

Application services 50 46 43 40

Engineering and R&D services 18 17 18 19

Infrastructure services 27 33 34 36

BPO services 4 4 5 5

Total 100 100 100 100

Growth (%)





Total 13 14 12 7

Contribution to incremental revenues (%)





Total 100 100 100 100

28

0

10

20

30

40

50

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

IMS growth (yoy %)



Exhibit 8: Engineering and R&D services growth tapers


Exhibit 9: Application services business remains a drag on growth


3

0

6

12

18

24

30

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

ERD growth (yoy %)

4

0

3

6

9

12

15

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Application services growth (yoy %)



Exhibit 10: HCLT's attrition eases but still at high levels


Exhibit 11: Trends in segmental EBIT margins (%)


26.7

20

25

30

35

40

Mar-

10

Jun-1

0

Sep

-10

Dec-

10

Mar-

11

Jun-1

1

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Consolidated attrition (%, quarterly annualized)

21

23 24

25 25 26 26

23 21

22 21 21

20

20

22

26 25 26 25

24 24

22 20

19

20 21

21

20

6 6 6 5

12 13 13

8

11

8

18 19

9

12

5

10

15

20

25

30

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

IMS Software services BPO



Exhibit 12: Trend in EBIT margin (%)


Exhibit 13: Underinvestment in SG&A continues


12 14

15 14

15 15

19 19 19 20 21

24 24 25 24 24 24

21 20

19 20

21 21 20

5

10

15

20

25

Dec-

10

Mar-

11

Jun-1

1

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

EBIT margins (%)

11.8

10

12

14

16

18

Sep

-06

Mar-

07

Sep

-07

Mar-

08

Sep

-08

Mar-

09

Sep

-09

Mar-

10

Sep

-10

Mar-

11

Sep

-11

Mar-

12

Sep

-12

Mar-

13

Sep

-13

Mar-

14

Sep

-14

Mar-

15

Sep

-15

Mar-

16

Sep

-16

SG&A as % of revenues



Exhibit 14: Depreciation charge to rise led by amortization of software (IP partnership)


Exhibit 15: Tax rate helped earnings growth over FY2012-16; ETR to increase marginally in FY2017

Source: Companies, Kotak Institutional Equities

1.0

1.5

2.0

2.5

3.0

0

500

1,000

1,500

2,000

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Depreciation (Rs mn) (LHS) Depreciation as % of revenues (RHS

21.1

10

15

20

25

30

Mar-

11

Jun-1

1

Sep

-11

Dec-

11

Mar-

12

Jun-1

2

Sep

-12

Dec-

12

Mar-

13

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Effective tax rate (ETR) (%)



Exhibit 16: HCLT: quarterly metrics


Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Revenues (US$ mn) 1,361 1,407 1,434 1,491 1,491 1,538 1,545 1,566 1,587 1,691 1,722

Revenues (Rs mn) 83,490 84,240 87,350 92,830 92,670 97,770 100,970 103,410 106,980 113,360 115,190

Exchange rate 61.3 59.9 60.9 62.3 62.2 63.6 65.4 66.0 67.4 67.0 66.9

Geographical mix

US 55.4 54.3 56.3 57.4 57.5 58.6 58.7 61.0 62.5 59.9 61.9

Europe 31.8 33.0 32.3 31.7 31.0 30.4 31.7 29.9 28.4 31.4 29.3

Asia Pacific 12.8 12.7 11.4 10.9 11.5 11.0 9.6 9.1 9.1 8.7 8.8

Revenues by service offering

-Enterprise application services 17.2 16.8 15.7 15.4 14.2 14.4

- Custom application (Industry solutions) 27.7 27.4 27.7 27.0 27.3 26.5

Application services 44.9 44.2 43.4 42.4 41.5 40.9 40.4 40.4 39.9 38.3 37.8

Engineering and R&D services 16.1 16.2 17.1 18.3 18.9 18.7 19.2 18.6 18.7 17.7 17.8

Infrastructure services 34.4 34.5 34.5 34.4 34.5 35.3 35.1 35.5 36.2 39.8 40.3

BPO services 4.5 5.1 5.0 4.9 5.1 5.2 5.3 5.5 5.2 4.1 4.1

Revenue by contract type

Time and Material 44.3 43.5 43.7 44.2 43.7 43.9 43.8 43.0 43.2 39.1 38.7

Fixed price 55.7 56.5 56.3 55.8 56.3 56.1 56.2 57.0 56.8 60.9 61.3

Revenue by vertical (new classification)

Financial services 26.9 28.4 28.2 26.6 26.1 26.0 26.1 25.9 25.0 23.6 24.1

Manufacturing 33.3 31.6 32.3 32.9 33.4 32.7 32.5 31.5 31.4 33.2 32.2

Retail & CPG 8.5 8.5 9.5 9.7 8.4 8.8 8.8 9.5 9.2 10.0 10.4

Telecom, media, publishing, entertainment 8.4 8.9 8.7 8.4 9.0 9.5 9.6 9.7 9.9 9.1 9.4

Life sciences 10.4 10.2 9.8 11.1 11.2 12.0 12.4 12.2 12.8 11.9 12.6

Energy-utilities-public sector 10.1 10.1 9.3 9.5 10.4 9.7 10.0 10.6 11.1 11.7 10.9

Others 2.3 2.3 2.2 1.8 1.5 1.3 0.6 0.6 0.5 0.5 0.4

Number of million dollar clients (LTM)

50 Million dollar + 14 15 15 16 17 17 18 19 19 20 20

10 Million dollar + 109 114 115 121 122 124 133 140 144 146 146

5 Million dollar + 183 187 193 205 206 211 224 227 233 237 235

1 Million dollar + 432 429 428 450 468 476 486 494 482 482 494

Client contrubution to revenue

Top 5 clients 15.0 14.7 14.4 14.0 13.5 13.2 13.6 13.6 13.6 13.9 13.8

Top 10 clients 24.1 23.7 23.1 22.3 21.8 21.7 21.9 21.7 21.8 21.8 21.6

Top 20 clients 34.2 33.7 33.0 32.4 32.2 32.4 32.4 32.4 32.2 31.7 31.8

Utilization (consol)

Blended utilization 84.2 84.5 82.7 82.9 81.9 83.5 83.6 84.7 85.6 85.8 85.3

Manpower details

Consolidated manpower 90,190 91,691 95,522 100,240 104,184 106,107 105,571 103,696 104,896 107,968 109,795

Total gross addition 8,291 8,442 11,631 11,734 11,041 9,448 7,889 6,234 9,280 10,515 9,083

Total net addition 1,858 1,501 3,831 4,718 3,944 1,923 (536) (1,875) 1,200 3,072 1,827

Attrition - IT services (%) 16.9 16.9 16.6 16.4 16.2 16.5 16.3 16.7 17.3 17.8 18.6

Attrition - consol quarterly annualized (%) 28.8 30.5 33.3 28.7 27.8 28.6 31.8 31.0 31.0 28.0 26.7



Exhibit 17: Condensed consolidated financials for HCL Technologies, June/March fiscal year-ends, 2014-2019E (Rs mn)


2014 2015 2016 2017E 2018E 2019E

Profit model

Revenues 329,180 370,620 311,360 468,882 514,295 562,024

EBITDA 86,667 86,947 66,900 101,224 106,161 112,928

Depreciation (incl amortization of intangibles) (7,329) (4,505) (4,650) (7,864) (8,320) (9,010)

Other income (168) 9,114 7,978 11,115 11,413 12,978

Pretax profits 79,169 91,556 70,228 104,476 109,254 116,897

Tax (15,482) (19,074) (14,786) (22,371) (24,855) (27,471)

Profit after tax 63,688 72,483 55,442 82,104 84,399 89,426

Diluted earnings per share (Rs) 45.1 51.3 39.2 58.1 59.6 63.0

Balance sheet

Total equity 204,918 242,116 278,180 324,608 363,758 398,553

Deferred taxation liability 1,132 784 1,061 1,081 1,089 1,089

Total borrowings 7,662 4,584 9,734 9,912 9,988 9,988

Minority interest 5 6 2,115 2,153 2,170 2,170

Other non-current liabilities 14,206 11,783 11,576 13,212 14,257 15,329

Current liabilities 83,215 90,058 95,106 116,027 112,272 119,653

Total liabilities and equity 311,138 349,329 397,773 466,992 503,533 546,782

Cash 95,826 107,805 113,184 143,627 161,791 185,969

Other current assets 100,337 115,661 131,361 144,102 158,020 172,685

Goodwill and intangible assets 52,544 50,905 64,206 64,835 64,788 64,244

Tangible fixed assets 32,108 37,363 43,239 65,751 67,601 70,038

Investments 6,382 7,604 6,985 7,112 7,167 7,167

Other non-current assets 23,941 29,992 38,796 41,564 44,166 46,679

Total assets 311,138 349,329 397,773 466,992 503,533 546,782

Free cash flow

Operating cash flow, excl. working capital 71,049 67,092 53,975 78,969 81,305 85,458

Working capital changes (3,446) (10,661) (14,689) 8,205 (18,798) (8,724)

Capital expenditure (4,861) (12,111) (7,311) (29,049) (9,122) (10,903)

Acquisition — — (11,787) — — —

Other income (168) 9,114 7,978 11,115 11,413 12,978

Free cash flow 62,574 53,435 28,165 69,240 64,798 78,809

Key assumption and ratios (%)

US$ revenue growth (b) 14.4 11.1 6.4 11.4 8.8 9.3

EBITDA margin 26.3 23.5 21.5 21.6 20.6 20.1

EBIT margin 24.1 22.2 20.0 19.9 19.0 18.5

Notes:

(a) Financial year changed to March-end from June-end in FY2016.

(b) Growth rate on like-to-like basis adjusted for change in financial year.

(c) Geometric acquisition (largely EPS neutral) and Butler aerospace acquisition are not built in our estimates yet.



Results boosted by higher realizations, low operating cost, high other income and low tax rate

Cairn’s revenues were 2.4% above our estimate at `20.4 bn, increasing 8% qoq driven by

higher crude price realizations at US$42/bbl versus US$38/bbl in the previous quarter. EBITDA

was 18% ahead of our estimate at ₹10.4 bn, benefiting from a further 10% decline in blended

operating cost for the Rajasthan block to US$5.8/bbl. Net income at ₹7.8 bn was well above

our estimate of ₹3.9 bn, further boosted by higher other income, lower DD&A expense and

sharply lower effective tax rate at 7%. Reported other income was higher at `6 bn, due to a

forex-related gain of `0.64 bn. DD&A charges remained low at ₹7.8 bn. Capital expenditure

declined further to US$7 mn, with 86% of the amount spent on development. Free cash

generation was high at US$234 mn, which led to an increase in cash and cash equivalents to

US$3.7 bn. Cairn’s EPS increased to ₹6.1 in 1HFY17 from ₹4.4 in 1HFY16, despite 19% decline

in revenues and 22% decline in EBITDA, reflecting a sharp jump in other income, decline in

DD&A expense and lower effective tax rate at 5.6% as compared to 27.7%.

Stable volumes from Rajasthan, as declining inherent production was offset by EOR contribution

Gross production from DA-1 increased modestly to 151.9 kb/d in 1QFY17 from 150.7 kb/d in

1QFY17 despite significant contribution of 52 kb/d from Mangala EOR project, which implies a

sharp decline in inherent production from Mangala field raising concerns on production

trajectory. The production from Bhagyam field in DA-2 declined to 15.8 kb/d in 1QFY17 from

16.2 kb/d in 1QFY17. The company’s decision to reduce capex significantly, due to lower crude

price environment and uncertainty on PSC extension, may pose further downside risks to

Rajasthan production, even as it aims to maintain production at FY2016 levels. At Ravva, oil and

gas production declined 2% qoq and 20% qoq in 2QFY17. At CB-OS-2, oil production declined

5% qoq, while gas production increased 2% qoq.

Raise EPS estimates to factor in lower operating costs, DD&A expense and tax rate

We revise our EPS estimates to ₹12.8 in FY2017 and ₹15.8 in FY2018 from ₹9 and ₹11.3

previously, to factor in (1) lower discount for Rajasthan crude oil for FY2017, (2) modestly lower

production, (3) lower operating costs, (4) lower DD&A expenses from FY2018, assuming

extension of PSC in the near term and (5) lower effective tax rate. Cairn management indicated

in the conference call, that the merger with Vedanta will likely be effective by end-FY2017,

subject to necessary approvals from the jurisdictional High Courts and MOPNG.

Cairn India (CAIR) Energy

Good results. Cairn’s 2QFY17 results were well ahead of our estimates driven by

higher realizations, lower operating costs, higher other income and lower effective tax

rate. Persisting sharp decline in inherent production (ex-EOR) from the Rajasthan block

is worrying. We raise our estimates to factor in lower operating costs, DD&A and tax

rate and retain ADD with a revised TP of ₹260 (₹230 previously). The merger with

Vedanta is expected to be effective by end-FY2017, subject to statutory approvals.

ADD

OCTOBER 24, 2016

RESULT

Coverage view: Attractive

Price (`): 232


BSE-30: 28,077

Tarun Lakhotia [email protected]

Mumbai: +91-22-4336-0875

Cairn india







MFs 0.7 EBITDA (Rs bn) 36.2 41.0 40.6


Absolute 20.3 31.2 50.5 ROE (%) 4.0 4.8 5.8

Rel. to BSE-30 22.1 29.5 46.2 Div. Yield (%) 1.3 1.5 1.9


237-107

435.2

Energy Cairn India


Exhibit 1: Interim results of Cairn India (` mn)


Exhibit 2: Production from Rajasthan block remained steady in the recent quarter Gross production from various blocks for Cairn India (‘000 boe/d)


(% chg.)

2QFY17 2QFY17E 2QFY16 1QFY17 2QFY17E 2QFY16 1QFY17 1HFY17 1HFY16 (% chg.) FY2017E

Income from operations 20,386 19,899 22,421 18,851 2.4 (9.1) 8.1 39,237 48,692 (19.4) 84,944

Total expenditure (9,984) (11,059) (12,596) (10,901) (9.7) (20.7) (8.4) (20,885) (25,284) (17.4) (43,908)

Inc/(Dec) in stock 186 218 (71) 115 126 —

Operating expenses (4,645) (5,093) (5,171) (5,051) (8.8) (10.2) (8.0) (9,695) (10,038) (3.4) (19,089)

Staff cost (178) (295) (275) (289) (39.6) (35.3) (38.4) (467) (564) (17.2) (961)

Government taxes (4,951) (5,159) (6,780) (5,014) (4.0) (27.0) (1.3) (9,965) (13,691) (27.2) (21,741)

Other expenditure (396) (513) (588) (477) (22.7) (32.6) (16.9) (873) (1,116) (21.8) (2,117)

EBITDA 10,402 8,840 9,825 7,950 17.7 5.9 30.8 18,352 23,409 (21.6) 41,036

Other income 5,993 5,321 3,233 4,036 12.6 85.4 48.5 10,029 6,145 63.2 18,865

Interest (193) (163) (155) (179) 18.6 24.4 7.5 (372) (285) 30.6 (750)

Exploration costs written off (11) (38) (94) (13) (70.4) (88.2) (15.9) (24) (150) (83.8) (100)

DD&A (7,818) (8,127) (9,017) (8,103) (3.8) (13.3) (3.5) (15,921) (17,682) (10.0) (32,450)

Pretax profits 8,373 5,834 3,792 3,691 43.5 120.8 126.9 12,064 11,436 5.5 26,601

Extraordinaries — — — — — — —

Tax (586) (1,983) (536) (95) (682) (3,168) (3,806)

Deferred taxation — — — — — — 1,176

Net income 7,787 3,850 3,256 3,596 102.3 139.2 116.6 11,383 8,269 37.7 23,972

Adjusted net income 7,787 3,850 3,256 3,596 102.3 139.2 116.6 11,383 8,269 37.7 23,972

Adjusted EPS (Rs) 4.2 2.1 1.7 1.9 6.1 4.4 12.8

Other comprehensive income (3,079) 8,545 6,839 3,760 14,387

Total comprehensive income 4,708 11,801 10,434 15,143 22,656

Income tax rate (%) 7.0 34.0 14.1 2.6 5.6 27.7 9.9

Production, selling price data

Production volume, gross ('000 boepd) 196.4 200.0 205.4 196.9 (1.8) (4.4) (0.2) 196.6 207.5 (5.3) 195.6

Production volume, net ('000 boepd) 125.6 127.4 128.0 125.4 (1.4) (1.9) 0.1 125.5 129.3 (2.9) 124.6

Rajasthan oil 115.4 116.9 115.9 115.2 (1.3) (0.5) 0.2 115.3 117.7 (2.0) 113.8

CB-OS-2 4.0 4.1 4.5 4.1 (4.3) (11.6) (3.9) 4.0 4.0 0.1 4.0

Oil 3.3 3.5 3.8 3.5 (6.1) (13.6) (5.0) 3.4 3.5 (2.1) 3.4

Gas (mn cf/d) 3.6 3.5 3.6 3.6 2.3 — — 3.6 3.2 12.5 3.5

Ravva 4.2 4.4 5.9 4.4 (3.0) (27.8) (4.1) 4.3 6.1 (29.6) 4.3

Oil 3.8 3.8 5.1 3.8 0.4 (25.6) (1.6) 3.8 5.4 (29.3) 3.8

Gas (mn cf/d) 2.9 3.6 4.7 3.6 (19.8) (38) (18.8) 3.3 4.6 (29.3) 3.2

Selling price, oil (US$/bbl) 41.7 40.3 43.7 37.9 3.5 (4.6) 10.0 39.8 50.1 (20.6) 44.9

Selling price, oil - Rajasthan (US$/bbl) 41.6 39.1 43.3 37.4 6.3 (3.9) 11.2 39.5 49.6 (20.3) 43.5

Discount to Dated Brent (US$/bbl) 4.3 6.4 7.2 8.2 (32.5) (40.3) (47.6) 6.3 6.7 (7.1) 6.5

Exchange rate (Rs/US$) 67.0 67.0 65.0 66.9 66.9 64.2 67.5

FY2013 FY2014 FY2015 1QFY16 2QFY16 3QFY16 4QFY16 FY2016 1QFY17 2QFY17

Rajasthan (oil and gas)

Development Area 1 148.7 156.7 147.6 149.7 147.4 150.5 150.9 149.6 150.7 151.9

EOR volumes 19.0 32.0 42.0 52.0

Development Area 2 20.7 24.9 27.6 22.6 20.7 19.9 16.7 20.0 16.2 15.8

Gross production 169.4 181.5 175.1 172.2 168.1 170.4 167.7 169.6 166.9 167.7

Ravva

Oil ('000 b/d) 21.8 21.3 22.6 25.2 22.5 19.1 16.6 20.8 17.0 16.7

Gas (mcf/d) 44.0 36.0 21.0 20.0 21.0 16.0 15.0 18.0 16.0 13.0


Cambay

Oil ('000 b/d) 4.5 7.7 8.5 7.8 9.6 9.1 8.9 8.8 8.7 8.3

Gas (mcf/d) 13.0 12.0 12.0 7.0 9.0 9.0 9.0 8.0 9.0 9.0


Cairn India Energy


Exhibit 3: Sharp increase in FCF over the past two quarters Financial details of Cairn India, March fiscal year-ends, 2014-17YTD


Exhibit 4: Key assumptions for Cairn India, March fiscal year-ends, 2012-19E


Exhibit 5: We value Cairn India stock at ₹260 EV and equity value of Cairn (US$ mn)

Source: Kotak Institutional Equities estimates

FY2014 FY2015 1QFY16 2QFY16 3QFY16 4QFY16 FY2016 1QFY17 2QFY17

Capex (US$ mn)

Exploration 246 440 21 12 17 4 55 2 1

Development 355 660 83 50 41 20 193 9 6

Total 601 1,100 104 62 58 24 248 11 7

FCF (Rs bn)

CFO 110.9 87.7 12.7 9.9 6.9 11.9 41.3 7.4 NA

Capex 6.6 4.0 3.9 1.8 16.3 0.7 0.5

FCF 24.9 15.2 15.7

FCF (US$ mn) 379 226 234

Closing cash and equivalent 229 169 165 179 185 195 195 234 243

Closing cash and equivalent (US$ bn) 3.8 2.7 2.6 2.7 2.8 2.9 2.9 3.5 3.7

Rupee funds (%) 60 75 72 68 68 69 69 68 68

Dollar funds (%) 40 25 28 32 32 31 31 32 32

Related-party loan (US$ bn) 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

2012 2013 2014 2015 2016 2017E 2018E 2019E

Pricing assumptions

Exchange rate (Rs/US$) 47.8 54.4 60.5 61.1 65.5 67.5 69.0 69.0

Dated Brent crude price (US$/bbl) 114.4 110.5 107.6 85.5 47.5 50.0 55.0 60.0

Discount of Rajasthan crude (US$/bbl) 10.6 12.2 12.4 9.1 7.2 6.5 8.3 9.0

Volume assumptions ('000 b/d)

Gross production (RJ-ON-90/1) 128 169 180 175 170 166 161 156

Net production (RJ-ON-90/1) 90 119 126 123 119 116 113 109

Gross production (O+OEG) 174 206 218 213 204 196 186 176

Net production (O+OEG) 102 128 136 133 128 125 120 115

RJ-ON-90/1 1,942

CB-OS-2 84

Ravva 31

Total 2,057

Net debt (5,013)

Equity value 7,070

Equity shares (mn) 1,876

Equity value per share (Rs/share) 260

Energy Cairn India


Exhibit 6: Profit model, balance sheet, cash model of Cairn, March fiscal year-ends, 2012-19E (₹ mn)


2012 2013 2014 2015 2016 2017E 2018E 2019E

Profit model (Rs mn)

Net sales 143,279 211,238 243,573 193,806 109,895 90,558 91,865 103,786

EBITDA 95,533 134,880 140,981 96,207 36,249 41,036 40,641 51,973

Other income 9,380 10,362 15,027 18,093 20,084 18,865 18,918 20,255

Interest (2,258) (687) (415) (203) (270) (750) (750) (750)

DD&A (17,391) (23,008) (27,097) (36,675) (33,672) (32,550) (24,393) (26,431)

Pretax profits 85,263 121,548 128,496 77,421 22,392 26,601 34,416 45,047

Extraordinary items (1,028) 1,367 — (26,330) (116,738) — — —

Tax (3,732) (2,986) (1,463) (933) (1,663) (3,806) (6,615) (8,945)

Deferred taxation (1,126) 636 (2,715) (5,362) 1,690 1,176 1,913 1,380

Adjusted net profits 80,406 119,197 124,318 65,410 21,450 23,972 29,713 37,483

Earnings per share (Rs) 42.2 62.4 65.2 34.9 11.4 12.8 15.8 20.0

Balance sheet (Rs mn)

Total equity 482,921 476,994 574,377 588,702 487,926 504,032 523,617 545,344

Deferred tax liability 6,738 4,641 7,356 12,718 11,028 9,852 7,939 6,559

Total borrowings 12,518 — — — — — — —

Currrent liabilities 32,255 58,377 75,190 66,923 66,002 66,165 66,496 66,522

Total liabilities and equity 534,432 540,012 656,922 668,343 564,956 580,048 598,052 618,426

Cash 73,963 57,381 66,542 18,066 47,252 86,588 112,462 134,132

Current assets 25,099 37,748 40,069 33,178 119,833 118,658 118,746 119,546

Total fixed assets 105,145 104,862 117,561 118,540 92,122 78,120 64,711 43,703

Net producing properties 30,207 33,366 38,644 25,336 33,111 24,044 29,495 48,406

Investments 18,356 103,823 163,638 152,334 150,541 150,541 150,541 150,541

Goodwill 253,193 151,522 151,522 151,522 37,626 37,626 37,626 37,626

Other non-current assets 28,470 51,311 78,946 169,366 84,471 84,471 84,471 84,471

Total assets 534,432 540,012 656,922 668,343 564,956 580,048 598,052 618,426

Free cash flow (Rs mn)

Operating cash flow, excl. working capital 69,417 115,336 124,947 89,142 36,159 36,381 32,926 41,929

Working capital changes (29) (5,730) (14,099) 5,938 4,882 1,338 244 (774)

Capital expenditure (29,558) (16,313) (27,010) (55,744) (16,491) (9,381) (16,085) (23,985)

Investments/Goodwill (196) (117,506) (57,423) (9,127) (11,297) — — —

Other income 2,449 3,238 3,142 5,458 6,106 18,865 18,918 20,255

Free cash flow 42,083 (20,974) 29,558 35,667 19,360 47,202 36,003 37,425

Key assumptions

Gross production ('000 boe/d) 174 206 218 213 204 196 186 176

Net production ('000 boe/d) 102 128 136 133 128 125 120 115

Gross production from Rajasthan block ('000 boe/d) 129 169 180 175 170 166 161 156

Dated Brent (US$/bbl) 114 111 108 86 48 50 55 60

Discount of Rajasthan crude to Dated Brent (US$/bbl) 11 12 12 9 7 7 8 9



Volume decline of 10% yoy, cost-side benefits beginning to abate

An unexpected 10% yoy decline in cement sales marked a new low for ACC, which has been

struggling for lack of volume growth for the past five years. Improvement in cement realizations

(+3% qoq) was largely in line with our expectations although EBIDTA at ₹426/ton was down

6% yoy and 36% qoq. Power and fuel costs spiked up 24% qoq, although should be seen in

context of the corresponding 26% qoq decline in raw material costs reflecting an inventory

build-up (dispatches lagging production). During the quarter, freight costs raised the cost of

production (+8% yoy, +11% qoq) due to higher lead distances as well as higher inter-unit

clinker transfer. Overall, a combination of very weak volumes and higher production costs

implied that ACC reported an EBITDA of ₹2.2 bn (-15% yoy, -45% qoq), meaningfully lower

than our estimate of ₹4.2 bn.

Volume struggle continues for the fifth year counting, capacity commissioning keeps hope alive

A quarterly sales of 5 mn tons in 3QCY16 (last seen in 3QCY09) marks a new low for ACC, that

has struggled to go convincingly past the 24 mn tons of annual sales mark for the past five

years. ACC’s capacity crossed the 30 mtpa mark in CY2012 but the company’s volumes have

remained largely stagnant since and meaningfully lagged the moderated volume growth trends

of the industry. The Street and the company continue to peg its hopes on (1) improved volume

trends for the industry, as well as (2) recovery of market share by ACC as they commission

another 2.5 mtpa of grinding capacity in the current year.

Maintain SELL with revised target price of ₹1,350/share

We maintain our SELL rating on ACC with a revised target price of ₹1,350/share (from

₹1,400/share) factoring the 16%/19% downward revision in EBITDA for CY2016/CY2017

factoring a lower volume trajectory. The revision in target price would have been more severe

but for the roll-forward of fair value estimate to September 2018 earnings (from March 2018).

Purported reduction in production costs and the high price leverage for ACC compared to peers

remain the key risk to our call.

ACC (ACC) Cement

The flat line. ACC will likely end CY2016 with flat-line volumes for the fifth consecutive

year, a strong start in 1QCY16 (+9% yoy) kindled hopes taken away with a 10% yoy

decline reported in the current quarter. Absence of realization growth and the receding

benefit of lower power and fuel costs also make it the fifth consecutive year of earnings

decline. We push back our growth expectations by another year, while maintaining

SELL rating with a revised target price of ₹1,350/share (from ₹1,400).

SELL

OCTOBER 24, 2016

RESULT

Coverage view: Cautious

Price (`): 1,566

Target price (`): 1,350

BSE-30: 28,077

Murtuza Arsiwalla [email protected]

Mumbai: +91-22-4336-0870

Abhishek Poddar [email protected]

Mumbai: +91-22-4336-0861

ACC



Market Cap. (Rs bn) EPS growth (%) (13.3) (1.1) 44.8




MFs 3.5 EBITDA (Rs bn) 11.5 14.0 18.6


Absolute (3.9) (8.3) 13.6 ROE (%) 8.9 8.5 11.7

Rel. to BSE-30 (2.4) (9.5) 10.4 Div. Yield (%) 1.1 1.1 1.1


1,736-1,173

294.1

Cement ACC


Exhibit 1: ACC's volumes declined 10% yoy in 3QCY16; realizations increased 3% qoq Quarterly results for ACC (standalone), December year-ends (Rs mn)


Exhibit 2: ACC’s volumes have struggled to cross the 24 mn tons mark for the past five years Trailing 12-month cement volumes of ACC, 1QCY12- 3QCY16 (mn tons)


(% chg.)

3QCY16 3QCY16E 3QCY15 2QCY16 3QCY16E 3QCY15 2QCY16 9M2016 9M2015 (% chg) CY2016E CY2015 (% chg)

Sales 24,706 28,098 27,400 28,698 (12) (10) (14) 82,678 85,867 (4) 114,172 114,139 0

Operating costs

Raw material costs (2,903) (4,120) (3,726) (4,738) (12,087) (12,378) (17,209) (17,398)

Employee costs (1,929) (1,981) (1,660) (1,874) (5,695) (5,372) (7,753) (7,699)

Freight costs (5,993) (5,722) (6,129) (6,539) (19,864) (20,385) (25,964) (27,230)

Power costs (5,362) (5,225) (6,183) (5,222) (16,256) (18,498) (23,338) (23,941)

Purchased cement (195) (242) (225) (233) (641) (866) (992) (1,083)

Other expenditure (6,076) (6,595) (6,838) (6,001) (18,099) (18,798) (24,885) (25,246)

Total operating costs (22,458) (23,885) (24,762) (24,607) (72,642) (76,297) (100,141) (102,597)

EBITDA 2,247 4,213 2,638 4,092 (47) (15) (45) 10,035 9,569 5 14,031 11,542 22

EBITDA margin (%) 9.1 15.0 9.6 14.3 12.1 11.1 12.3 10.1

Other income 744 657 678 686 2,552 3,990 3,272 5,023

Interest (197) (185) (150) (183) (544) (519) (754) (673)

Depreciation (1,529) (1,503) (1,607) (1,410) (4,373) (4,962) (6,177) (6,521)

PBT 1,265 3,181 1,559 3,185 (60) (19) (60) 7,670 8,079 (5) 10,373 9,371 11

Current tax (424) (795) (389) (806) (2,129) (1,657) (3,423) (2,588)

Deferred tax — — — — 415 664

Net income 841 2,386 1,170 2,378 (65) (28) (65) 5,541 6,422 (14) 7,365 7,447 (1)

Extraordinaries (net of tax) — — — — — (1,532) — (1,532)

Reported net income 841 2,386 1,170 2,378 (65) (28) (65) 5,541 4,890 7,365 5,916

EPS - adjusted (Rs) 4.5 12.7 6.2 12.7 29.5 34.2 39.1 39.6

Sales (mn tons) 5.1 5.7 5.6 6.1 (11) (10) (17) 17.6 17.6 (0) 24.0 23.6 1

Realization (Rs/ton) 4,462 4,460 4,530 4,341 0 (1) 3 4,711 4,870 (3) 4,474 4,505 (1)

Operating costs (Rs/ton) 4,430 4,172 4,414 4,021 4,139 4,328 4,180 4,344

Raw materials 572 720 664 774 689 702 718 737

Employee costs 381 346 296 306 324 305 324 326

Freight costs 1,182 1,000 1,093 1,068 1,132 1,156 1,084 1,153

Power & fuel costs 1,058 913 1,102 853 926 1,049 974 1,014

Purchased cement 38 40 40 38 37 49 41 46

Other expenditure 1,198 1,153 1,219 980 1,031 1,066 1,039 1,069

Profitability (Rs/ton) 426 736 452 662 (42) (6) (36) 572 543 5 586 489 20

Notes:

(a) The realisations have been adjusted for RMC sales, the costs do not reflect the same.

20

21

22

23

24

25

26

27

28

1Q

CY

12

2Q

CY

12

3Q

CY

12

4Q

CY

12

1Q

CY

13

2Q

CY

13

3Q

CY

13

4Q

CY

13

1Q

CY

14

2Q

CY

14

3Q

CY

14

4Q

CY

14

1Q

CY

15

2Q

CY

15

3Q

CY

15

4Q

CY

15

1Q

CY

16

2Q

CY

16

3Q

CY

16

ACC Cement


Volumes—monsoon and sand shortage play spoilsport

ACC reported one of its worst quarterly volumes in the past five years at 5.07 mn tons (-

9.6% yoy, -17% qoq) in an environment where industry volumes also moderated though

fared better at 1-2% yoy growth. Management attributed the weakness to heavy rainfall

and flood situation in Bihar, Jharkhand and Uttar Pradesh besides the sand shortage in Uttar

Pradesh. Management remains hopeful that commissioning of 2.5 mtpa of cement

capacities in East will likely help the company report better volumes going forward.

Realizations—improvement in North and Central augurs well for earnings

ACC reported a 3% qoq improvement in cement realizations, reflective of the trend

observed for the average cement prices in India that moved up to ₹326/bag for 2QFY17,

from ₹322/bag in 2QFY16 and ₹318/bag in 1QFY17. Cement prices remained weak in East

and West even as prices in North, Central and South improved by ~₹10/bag qoq. ACC also

benefitted from a higher proportion of sales of premium products during the quarter (0.67

mn tons in 3QCY16 from 0.57 mn tons in 3QCY15). We highlight that cement prices,

especially in West, have spiked up by ₹24/bag mom that will help further raise all-India

prices for players such as ACC.

Costs—higher lead distances, waning benefit of fuel costs

Management attributed the increase in freight costs to (1) increase in lead distances by

21 km (+₹32/ton), and (2) increase in inter-unit clinker movement (+₹35/ton). Overall road-

freight remained at 60% of overall sales mix.

Elevated levels of pet-coke usage (63%) coupled with lower pet-coke prices helped keep

overall power and fuel cost in control, though the same should be seen in conjunction with

raw material costs that declined reflecting a higher inventory build-up during the quarter.

We highlight that the sharp increase in pet-coke prices will start to impact earnings of

cement companies from 1QCY17.

Exhibit 3: ACC's cement volumes declined by 10% yoy to 5 mn tons in 3QCY16 Quarterly cement volumes of ACC, 1QCY11- 3QCY16 (mn tons)


(15)

(10)

(5)

-

5

10

15

20

25

0

1

2

3

4

5

6

7

8

1Q

CY

11

2Q

CY

11

3Q

CY

11

4Q

CY

11

1Q

CY

12

2Q

CY

12

3Q

CY

12

4Q

CY

12

1Q

CY

13

2Q

CY

13

3Q

CY

13

4Q

CY

13

1Q

CY

14

2Q

CY

14

3Q

CY

14

4Q

CY

14

1Q

CY

15

2Q

CY

15

3Q

CY

15

4Q

CY

15

1Q

CY

16

2Q

CY

16

3Q

CY

16

Despatch (mn tons) (LHS) Growth (%, yoy) (RHS)

Cement ACC


Exhibit 4: ACC's fuel costs continued to benefit from lower pet-coke prices; higher lead distance resulted in increase in freight costs Comparison of ACC’s cement capacity, volumes with Industry, December year-ends, 1QCY15 - 3QCY16 (Rs/ton, %)


Exhibit 5: ACC Cement, changes in estimates, December year-ends, 2016-18E


Exhibit 6: Our assumptions factor a healthy improvement in profitability coupled with volume growth Key assumptions in the profit model for ACC, December year-ends, 2014-18E (Rs mn)


1QCY15 2QCY15 3QCY15 4QCY15 1QCY16 2QCY16 3QCY16 yoy qoq

Power cost (Rs/ton) 1,061 978 1,096 900 887 848 1,051 (4) 24

Power mix (%)

Thermal power 72 74 77 76 73 69 67

Grid power 25 23 NA NA 23 27 29

WHRS, DG and Wind mill 3 3 NA NA 4 4 4

Fuel mix (%)

Domestic coal 56 56 57 41 35 28 26

Pet coke 7 15 13 27 50 60 63

Imported coal 37 29 30 32 15 12 9

Freight cost (Rs/ton) 1,144 1,160 1,057 1,105 1,119 1,029 1,136 7 10

Mode of transport (%)

Rail 42 44 43 44 44 40 40

Road 58 56 57 56 56 60 60

Change (%)

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Volume and realizations (mn tons, Rs/ton)

Cement sales (mn tons) 24.0 25.2 26.7 24.8 26.3 28.1 (3) (4) (5)

Realization (Rs/ton) 4,765 5,150 5,423 4,861 5,305 5,528 (2) (3) (2)

EBITDA (Rs/ton) 586 739 888 676 877 968 (13) (16) (8)

Earnings estimates (Rs mn)

Revenues 114,172 129,783 144,576 120,512 139,511 155,225 (5) (7) (7)

EBITDA 14,031 18,620 23,682 16,769 23,073 27,176 (16) (19) (13)

PAT 7,365 10,664 14,657 9,611 13,997 17,321 (23) (24) (15)

EPS 39.1 56.7 77.9 51.1 74.4 92.1 (23) (24) (15)

Change (%)Previous estimateRevised estimate

2014 2015 2016E 2017E 2018E 2015 2016E 2017E 2018E

Key Standalone financials (Rs mn)

Revenue 114,611 114,139 114,172 129,783 144,576 (0) 0 14 11

EBITDA 12,301 11,542 14,031 18,620 23,682 (6) 22 33 27

PAT 8,591 7,447 7,365 10,664 14,657 (13) (1) 45 37

Key operating metrics

Volumes (mn tons) 24.2 23.6 24.0 25.2 26.7 (2) 1 5 6

Realization (Rs/ton) 4,734 4,832 4,765 5,150 5,423 2 (1) 8 5

Operating cost (Rs/ton) 4,226 4,344 4,180 4,411 4,535 3 (4) 6 3

Profitability (Rs/ton) 508 489 586 739 888 (4) 20 26 20

Growth (%)

ACC Cement


Exhibit 7: ACC Cement, Valuation details, September 2018E


Exhibit 8: ACC Cement, Profit model, balance sheet and cash flow model, December year-ends, 2013-18E (Rs mn)


Multiple EV

(Rs mn) (X) (Rs mn) (Rs/share)

Valuation

September 2018E EBITDA (Rs mn) 22,417 10 224,167 1,192

Cash & cash equivalents (Rs mn) 29,785 158

Equity value (Rs mn) 253,952 1,350

TP (Rs/share) 1,350

2013 2014 2015 2016E 2017E 2018E

Profit model (Rs mn)

Net sales 108,920 114,611 114,139 114,172 129,783 144,576

EBITDA 13,518 12,301 11,542 14,031 18,620 23,682

Other income 5,006 5,454 5,023 3,272 3,681 4,527

Interest (517) (828) (673) (754) (679) (611)

Depreciation (5,740) (5,576) (6,521) (6,177) (6,389) (6,660)

Extraordinary item — — (1,532) — — —

Profit before tax 12,268 11,352 7,840 10,373 15,234 20,939

Current tax (3,631) (2,622) (2,588) (3,423) (5,027) (6,910)

Deferred tax 2,319 2,953 664 415 457 628

Reported net income 10,956 11,683 5,916 7,365 10,664 14,657

Adjusted PAT 8,788 8,591 7,447 7,365 10,664 14,657

Earnings per share (Rs) 46.7 45.7 39.6 39.1 56.7 77.9

Balance sheet (Rs mn)

Equity 78,248 82,356 84,430 87,948 94,762 105,570

Deferred tax liability 5,073 5,356 4,692 4,277 3,820 3,192

Borrowings 350 — 355 — — —

Current liabilities 37,265 39,002 38,931 38,919 42,938 47,646

Total liabilities 120,936 126,713 128,408 131,143 141,520 156,407

Fixed assets 63,236 75,130 76,559 78,383 77,994 77,334

Investments 21,940 15,730 14,757 14,757 19,757 24,757

Cash 5,034 3,043 916 2,615 4,597 10,679

Other current assets 30,726 32,810 36,176 35,389 39,172 43,637

Total assets 120,936 126,713 128,408 131,143 141,520 156,407

Free cash flow (Rs mn)

Operating cash flow excl. working capital 13,659 13,789 14,258 13,128 16,596 20,689

Working capital changes (1,929) 428 579 775 236 242

Capital expenditure (9,478) (15,270) (11,681) (8,000) (6,000) (6,000)

Free cash flow 2,253 (1,053) 3,156 5,903 10,831 14,931

Ratios

Book value (Rs/share) 416 438 449 467 504 561

RoAE (%) 11.6 10.7 8.9 8.5 11.7 14.6

RoACE (%) 9.0 8.6 4.8 6.5 9.4 11.9

CRoCI (%) 16.3 15.3 12.7 10.8 12.1 14.1



Licensing and other income to the rescue

Biocon’s 2QFY17 results were largely in line on revenues and EBITDA, though EBITDA of

₹2.25 bn was aided by higher than expected licensing income of ₹320 mn (versus `170mn KIE).

Revenues at ₹9.4 bn were 1.4% lower than our estimates, while gross margins of 58.3% were

ahead of our estimates by 230bps (+290bps qoq) primarily aided by higher licensing income.

EBITDA at ₹2.25 bn (+41% yoy) was in line with our estimates of `2.2 bn, despite higher

licensing income. Higher other income (`520 mn versus `250 mn KIE) led to PAT of `1.47 bn,

exceeding our estimates by 27%.

R&D capitalization remains high

In 1QFY15, Biocon restarted its practice of capitalizing R&D expenses for late-stage programs,

capitalizing `964 mn in FY2015, `1,373 mn in FY2016, and another ₹880 mn in 1HFY17,

reflecting biosimilar Lantus and Herceptin Phase III trials. Apart from R&D expenses, operating

expenses incurred at the Malaysia facility (~₹1 bn in FY16) too continue to be capitalized.

Capitalized R&D expenses in 2QFY17 accounted for ~50% of Biocon’s EBITDA and adjusting for

capitalization and licensing income in the quarter, BIOS’ ex-Syngene PAT was ~`200 mn in

2QFY17 as against reported PAT of ₹720 mn for the ex-Syngene business. Following a

significant capex round from FY2017-19, we expect BIOS’ gross block to increase by ₹47 bn to

₹80 bn (currently ₹22 bn in CWIP), thereby incurring incremental depreciation impact of

₹2-3 bn.

Re-iterate sell with a revised target price of ₹585/share

We largely retain our FY2017-19 EBITDA, though raise our FY2017 EPS by 10% due to higher

other income. However, we point to the significant weakening of the balance sheet with BIOS

now in a net debt situation as compared to a net cash situation back in FY2015. BIOS is

currently trading at ~37x FY2018 EPS, though stripping out biosimilar franchise, the base

business is currently trading at ~29x FY2018 EPS. We roll forward our valuation to Sept’18, and

raise our SOTP valuation to ₹585/share from ₹525/share. Even ascribing a 100% probability of

success for biosimilar insulin and biosimilar Herceptin programs will take our valuation to

~`660/share. SELL stays.

Biocon (BIOS) Pharmaceuticals

Licensing and other income save the day. BIOS reported a poor operational quarter,

with revenues and EBITDA in line with our estimate, though helped by a significant

₹320 mn boost from licensing income (KIE: ₹170 mn). Adjusting for this, EBITDA missed

our estimates by 6%. Higher non-operating income in Syngene resulted in PAT surge of

27%. However, capitalization costs remain high and as BIOS is already a net debt

company with a significant round of capex slated for FY2017 to FY2019, we expect

further deterioration of the balance sheet. SELL with a revised target price of

₹585/share.

SELL

OCTOBER 24, 2016

RESULT


Price (`): 1,008


BSE-30: 28,077

Chirag Talati, CFA [email protected]

Mumbai: +91-22-4336-0871

Kumar Gaurav [email protected]

Mumbai: +91-22-4336-0872

Biocon



Market Cap. (Rs bn) EPS growth (%) 2.0 43.8 (4.3)




MFs 3.1 EBITDA (Rs bn) 7.2 9.4 11.2


Absolute 6.6 43.9 122.8 ROE (%) 10.2 12.6 11.0



1,020-431

201.6

Biocon Pharmaceuticals


Exhibit 1: Biocon 2QFY17 interim results March fiscal year-ends (Rs mn)


Highlights from 4QFY16 results

Syngene updates: Syngene reported revenue growth of 16%, significantly down from

23-25% reported yoy growth rate in the past few quarters, and validates our view that

constant currency sustainable growth for Syngene will likely be in the 15-17% range. The

management guidance pointed to softness in the development and manufacturing

segment, but is optimistic that this trend is unlikely to be a structural factor. EBITDA

margin of 35% was boosted by 200bps due to ₹60 mn hedging gain.

Biosimilar updates: The management expects approval for filings of trastazumab and

peg-filgrastim in the next 12-18 months in Europe, and expects to file for trastuzumab

and insulin glargine in the US in FY2017. For Biosimilar Lantus, as there are existing

formulation patents running until Jan-2024, Sanofi is expected to sue BIOS/MYL

applicants to delay biosimilar launches as was seen with Lilly’s 505(b)(2) filing. Factoring

in a 60-day acceptance window by the FDA, filing of the patent infringement suit by

Sanofi and the mandatory 30-month stay, extends the potential approval and launch to

H1’CY2019 or FY2020. This is also predicated on it being able to successfully prove non-

infringement on Lantus formulation patents, failing which the launch could be delayed to

2024. The Phase III glargine trial timelines also imply earliest EU launches by H1CY18 /

H2FY18 given the process for national licenses and reimbursement approvals in individual

EU countries. For biosimilar Herceptin, we expect EU launches in CY2018, with US launch

likely in CY2019 given the Cabilly patents. However, we remain cautious on the

addressable market for Herceptin as sales in the EU are widely diversified across countries

with Germany the largest contributor at 15% of EU sales, and EU-5 contributing ~54%

or US$1.1 bn in sales in CY2015. However, this figure is highly misleading as it also

includes sales from the sub-cutaneous formulation which has rapidly taken up market

share in EU-5 countries. We estimate this now accounts for almost one-third of Herceptin

sales in EU-5 countries, reducing the addressable market size in these countries to less

than US$800 mn.

(% chg.)

2QFY17 2QFY17E 1QFY17 2QFY16 2QFY17E 1QFY17 2QFY16 1HFY17 1HFY16 (% chg.) FY2017E

Sales 9,400 9,534 9,810 7,860 (1.4) (4.2) 19.6 19,210 15,970 20.3 39,522

Gross profit 5,480 5,339 5,430 4,200 2.6 0.9 30.5 10,910 8,660 26.0 22,338

Employee expenses (1,660) (1,680) (1,640) (1,300) (1.2) 1.2 27.7 (3,300) (2,650) 24.5 (6,603)

R&D expenses (650) (650) (520) (570) 0.0 25.0 14.0 (1,170) (1,070) 9.3 (2,767)

Other expenses (920) (780) (730) (740) 17.9 26.0 24.3 (1,650) (1,370) 20.4 (3,571)

EBITDA - adjusted 2,250 2,229 2,540 1,590 0.9 (11.4) 41.5 4,790 3,570 34.2 9,397

Other income 520 250 500 330 108.0 4.0 57.6 1,020 630 2,000

Interest (70) (60) (60) (30) 16.7 16.7 133.3 (130) (70) (263)

Depreciation (680) (700) (660) (610) (2.9) 3.0 11.5 (1,340) (1,200) (2,749)

Exceptional items 0 0 0 (1,080) 0 (1,080) 0

Pretax profits - adjusted 2,020 1,719 2,320 1,280 17.5 (12.9) 57.8 4,340 2,930 48.1 8,385

Tax (420) (413) (540) (290) (960) (670) (2,012)

Minority interest (130) (148) (110) (20) (240) (50) (617)

Net income - adjusted 1,470 1,159 1,670 970 26.8 (12.0) 51.5 3,140 2,210 42.1 5,756

Adjusted EPS (Rs) 7.3 5.8 8.3 4.8 26.8 (12.0) 51.5 15.7 11.0 42.1 28.7

Segment wise sales

Branded formulations - India 1,370 1,380 1,580 1,200 (0.8) (13.3) 14.2 2,950 2,320 27.2 5,468

Biopharmaceuticals 4,850 5,029 5,430 4,140 (3.6) (10.7) 17.1 10,280 8,250 24.6 19,849

Pharma 6,220 6,410 7,010 5,340 (3.0) (11.3) 16.5 13,230 10,570 25.2 25,316

Contract research 2,860 2,955 2,630 2,500 (3.2) 8.7 14.4 5,490 4,740 15.8 13,505

Licensing income 320 170 170 20 490 660 (25.8) 700

Total 9,400 9,534 9,810 7,860 (1.4) (4.2) 19.6 19,210 15,970 20.3 39,522

% margin

Gross margin 58.3 56.0 55.4 53.4 56.8 54.2 56.5

Staff cost (17.7) (17.6) (16.7) (16.5) (17.2) (16.6) (16.7)

R&D expenses (6.9) (6.8) (5.3) (7.3) (6.1) (6.7) (7.0)

Other expenditure (9.8) (8.2) (7.4) (9.4) (8.6) (8.6) (9.0)

EBITDA 23.9 23.4 25.9 20.2 24.9 22.4 23.8

Pharmaceuticals Biocon


Branded formulations business: Biocon has provided a weak outlook for its branded

formulations business for FY2017 due to (1) discontinuation of in-licensed Abraxane

product which will impact annual revenues by `750 mn, (2) delay in payments of

government institutions business in India and UAE, and (3) impact of DPCO as 5% of

branded formulation business is under price control.

Aggressive capex, though all in CWIP: Biocon will continue to incur significant capex

over the next 2-3 years. The company is planning to set up a new mAb facility which is

likely to cost US$150mn gross (includes Mylan’s share, which we expect will be minimal)

over next 2-3 years. Malaysia plant has received local approvals but commercial

production from the facility is yet to commence. Biocon will provide more clarity on

expenses and depreciation from the facility over coming quarters. Syngene capex remains

at elevated levels of US$150 mn over the next 2-3 years. Among others, insulin

formulation line set up in India will incur incremental capex of `400-500 mn in this fiscal

while solid dosage facility will incur `800 mn capex in FY2017. Additional maintenance

capex is expected to be ~`1-1.2 bn. This incremental capex will take BIOS’s gross block

up by ₹47 bn to ₹80 bn, thereby incurring incremental depreciation impact of ₹2-3 bn,

once the facilities are commissioned.

Japan glargine update: Biocon received approval for its insulin glargine biosimilar in

Japan during 4QFY16 and the company guided for good traction in the market post

commercialization by its partner Fujifilm last quarter, with positive feedback on the pen

device used in the product.

Small molecules and biologics: The management expects biologics segment to

continue to show robust growth rates. The small molecules division is expected to grow

at high single-to-low-double digits. Biocon also expects to get decent market share for

rosuvastatin in the US and the EU despite the market being crowded with around 30

generic players in the EU and over 10 players in the US. Biocon has filed 7-8 ANDAs in the

US on a cumulative basis and plans to file 5-6 ANDAs every year. The company has filed

for both 20mg and 40mg of generic Copaxone, though it has received a query on 20mg

and declined to comment on approval timelines (earlier guidance of FY2017 approval).

R&D capitalization overstating true profitability

In 1QFY15, Biocon restarted its practice of capitalizing R&D expenses for late-stage

programs by capitalizing `964 mn in FY2015, `1,373 mn in FY2016, and another ₹880 mn

in 1HFY17, reflecting biosimilar Lantus and Herceptin Phase III trials. Biocon is capitalizing

the expenses based on the proof of concept achieved in the India market. However, given

the significant uncertainties in the US/EU market, apart from the fact that the product itself

is technically different, we see the accounting treatment as aggressive. As a case in point,

even Dr. Reddy’s does not capitalize the R&D spend on biosimilar Rituxan despite having an

approved and highly successful product in the Indian market. The capitalized and netted-off

R&D expenses in 2QFY17 accounted for ~50% of Biocon’s EBITDA and adjusting for the

capitalization and licensing income in the quarter, BIOS’ ex-Syngene PAT falls to ~`200 mn

in 2QFY17 as against reported PAT of ₹720 mn for the ex-Syngene business.

Exhibit 2: Variance between reported and total R&D spend increasing materially Rs mn


1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

As reported -310 -350 -467 -560 -499 -570 -679 -998 -520 -650

-capitalized -165 -387 -311 -348 -395 -319 -187 -471 -400 -480

-charged to deferred revenues -65 -70 -73 -88 -35 -16 -46 -55

Total R&D -540 -807 -851 -996 -929 -905 -912 -1,524 -920 -1,130

% variance over reported R&D 74 130 82 78 86 59 34 53 77 74

Capitalized + deferred as % of revenues 3 6 5 1 5 4 3 6 4 5

Capitalized + deferred as % of EBITDA 36 58 52 16 49 58 53 85 36 50



Balance sheet coming under stress

We point to the significant weakening of the balance sheet with BIOS now in a net debt

situation as compared to a net cash situation in FY2015. This is despite ~₹5.5 bn of the

proceeds going to Biocon from selling 10% stake in Syngene at the time of the IPO in

CY2015. We expect further stress on BIOS’ balance sheet due to a combination of

aggressive capex plans (₹6-7 bn annually until FY2019) and high R&D spend.

Exhibit 3: BIOS is now a net debt company despite Syngene IPO proceeds March fiscal year-ends (Rs mn)


Exhibit 4: Biocon - changes to estimates March fiscal year ends, (Rs mn)


Re-iterate SELL with a revised target price of ₹585/share

BIOS is currently trading at ~37x FY2018 EPS, though stripping out biosimilar insulin,

Herceptin, the base business is currently trading at ~29x FY2018 EPS, which is not justified

as its business model suffers from scalability issues. We roll forward our valuation to Sept’18,

with our SOTP valuation increasing to ₹585/share from ₹525/share. Ascribing 100%

probability of success to biosimilar insulin and Herceptin programs would take our valuation

to ~`660/share. We are skeptical of BIOS getting a substitutability rating for biosimilar

Lantus, and see several commercial hurdles to branded biosimilar insulin franchise in the US.

This due to intensifying competition between Novo, Lilly and Sanofi, resulting in pricing

pressure on insulin analogues. Our analysis suggests significant execution risks to biosimilar

Herceptin opportunity given the ongoing shifts in the HER-2+ franchise to Perjeta/Kadcyla as

well as the rapid conversion of Herceptin infusion to sub-cu formulation.

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E

2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

Sales 39,554 44,937 52,576 39,522 44,907 52,214 (0.1) (0.1) (0.7)

Gross profits 22,348 25,917 30,426 22,338 25,908 30,210 (0.0) (0.0) (0.7)

Staff cost (6,603) (7,726) (8,955) (6,603) (7,726) (8,955) 0.0 0.0 0.0

R&D (2,769) (2,842) (2,839) (2,767) (2,840) (2,837) (0.1) (0.1) (0.1)

Other expense (3,678) (4,075) (4,765) (3,571) (4,105) (4,800) (2.9) 0.7 0.7

EBITDA 9,297 11,274 13,868 9,397 11,237 13,619 1.1 (0.3) (1.8)

PBT 7,535 8,099 9,751 8,385 8,062 9,502 11.3 (0.5) (2.6)

Tax (1,808) (1,944) (2,340) (2,012) (1,935) (2,281) 11.3 (0.5) (2.6)

PAT (adjusted) 5,221 5,535 6,626 5,756 5,514 6,452 10.2 (0.4) (2.6)

EPS (adjusted) 26.0 27.6 33.0 28.7 27.5 32.1 10.2 (0.4) (2.6)

Old Estimates New Estimates Changes %

Pharmaceuticals Biocon


Exhibit 5: SOTP target price at ₹460/share


US$ mn Rs mn Rs/share

Biocon base business 1,256 84,126 420

Insulin franchise US/EU Various Various ≥2018 340 22,747 114

Biosimilar Herceptin US/EU Phase III 75% ≥2018 189 12,642 63

Neulasta US/EU Various Various ≥2018 75 5,025 25

Pipeline products 603 40,414 202

Technology valuation 1,859 124,540 622

Net debt/(cash) 115 7,692 37

SOTP value 1,974 132,232 585

rNPV

Product Status Probability Launch



Exhibit 6: Profit model, balance sheet, cash model of Biocon March fiscal year-ends, 2012-19E, Rs mn


2012 2013 2014 2015 2016 2017E 2018E 2019E

Net revenues 20,490 24,277 28,673 30,898 33,370 39,522 44,907 52,214

Gross Profit 11,004 12,404 15,189 16,570 18,570 22,338 25,908 30,210

Staff costs (2,866) (3,584) (4,663) (5,334) (5,580) (6,603) (7,726) (8,955)

R&D expenses (1,366) (1,640) (1,310) (1,688) (2,740) (2,767) (2,840) (2,837)

Other expenses (1,974) (2,326) (2,445) (2,590) (3,050) (3,571) (4,105) (4,800)

EBITDA 4,798 4,854 6,271 6,958 7,200 9,397 11,237 13,619

Depreciation & amortisation (1,744) (1,793) (2,036) (2,210) (2,490) (2,749) (4,149) (5,078)

EBIT 3,054 3,061 4,235 4,748 4,710 6,648 7,088 8,541

Net Interest (122) (81) (17) (89) (250) (263) (276) (289)

Other income 993 1,103 559 531 1,230 2,000 1,250 1,250

Profit before tax 3,925 4,083 4,777 5,190 5,690 8,385 8,062 9,502

Tax & Deferred Tax (541) (975) (1,069) (957) (1,340) (2,012) (1,935) (2,281)

Less: minority interest 0 (39) (170) (310) (350) (617) (613) (770)

Net Income (adjusted) 3,384 3,069 3,538 3,923 4,000 5,756 5,514 6,452

EPS adjusted (Rs) 16.9 15.3 17.7 19.6 20.0 28.7 27.5 32.1

Balance sheet

Equity 22,762 27,599 31,090 34,428 43,668 48,026 52,224 57,187

Total borrow ings 2,571 2,488 8,497 10,306 24,673 24,473 24,273 24,073

Deferred tax liability 0 412 528 417 346 346 346 346

Other liabilities 14,117 13,662 17,391 18,603 16,129 15,191 14,850 14,886

Total liabilities 39,450 44,161 57,506 63,754 84,816 88,036 91,692 96,492

Net fixed assets 16,600 18,229 27,308 33,065 39,101 46,352 52,203 57,125

Investments 5,563 5,866 7,649 2,303 4,285 4,285 4,285 4,285

Cash 5,233 6,729 8,044 9,375 19,213 14,362 10,429 7,962

Other current assets 12,054 13,337 14,505 19,011 22,217 23,037 24,776 27,120

Total assets 39,450 44,161 57,506 63,754 84,816 88,036 91,692 96,492

Cashflow statement

Operating profit before working capital 5,400 7,575 6,717 6,981 8,180 9,809 10,886 13,255

Tax paid (739) (940) (1,487) (1,334) (2,468) (2,012) (1,935) (2,281)

Change in working capital 980 (1,923) 377 (3,540) (448) (433) (755) (983)

Capital expenditure (2,745) (3,586) (7,885) (8,381) (8,106) (8,000) (8,000) (8,000)

Free cash flow 2,896 1,126 (2,278) (6,274) (2,842) (636) 196 1,991

Margins and ratios

Gross profit margin (%) 53.7 51.1 53.0 53.6 55.6 56.5 57.7 57.9

EBITDA margin (%) 23.4 20.0 21.9 22.5 21.6 23.8 25.0 26.1

Tax rate (%) 13.8 23.9 22.4 18.4 20.0 24.0 24.0 24.0

RoAE (%) 15.6 20.2 11.4 15.2 14.0 12.6 11.0 11.8

RoACE (%) 10.4 9.0 9.7 9.8 6.9 9.3 9.5 10.9



Results review: 2QFY17 and 1HFY17

Gross debt reduced on account of NCD payments, but net debt increased as construction

expenditure picked up at Borivali. Reported EBITDA margins for 1HFY17 remain low on account

of higher sales contribution from Oberoi Esquire and lower margins at Commerz 2.

Operations review: Sold more units, in a traditionally weak quarter; but only relatively

2Q is usually a weak quarter for real estate owing to many inauspicious days for new purchase.

Further, Mumbai recorded strong rainfall this season. Additionally, we believe the Mumbai

market has slowed down since Apr 2016 (versus recording volume growth in FY2015 and

FY2016). In light of this, Oberoi recorded pre-sales of ₹5 bn during 2QFY17.

But 60% of sales value was contributed by Three Sixty West (TSW), reflecting pent up

demand getting converted into sales. 2QFY17 was the first quarter of positive cash flow for

the project. We believe sales at TSW will turn out to be better than our estimates for the year

(0.2 mn sq. ft estimates, 1HFY17 sales at 0.12 mn sq. ft). Sales at Oberoi Eternia, Enigma and

Esquire were better than the average quarterly run-rate, but still at a slow run-rate

considering the size of the projects and Oberoi’s fast pace of construction.

A large deal (0.1 mn sq. ft) was concluded at Oberoi Commerz 2 during 2QFY17. With this,

the office building stands 27% leased.

Views and expectations from management conference call

For Oberoi, strong pre-sales achieved at launch of the projects (Goregaon, Mulund and

Borivali) provide comfort on cash flows while large projects offering dearer units make us

retain our long sales estimates (sales much beyond construction completion). With all existing

land parcels actively being offered for sale, average sales run-rate per quarter has gone up.

Banking on response from TSW, FY2017 too might match FY2016 pre-sales value.

Oberoi has been participating in several land deals, but yet to close any. Business

development remains the key issue as Oberoi has been unable to add multiple projects, thus

pace of growth, particularly holding the strongest balance sheet in real estate. New business

development guidance remains the key, along with comfort on sales improvement.

Oberoi Realty (OBER) Real Estate

2Q records better pre-sales, but only relatively! On a consolidated basis, Oberoi had

a good quarter with ₹5 bn of pre-sales, 60% from the Worli project alone. Sales at most

projects were relatively better than the average run-rate, especially 2Q being a seasonally

weak quarter. Gross debt reduced marginally and construction progress remains strong.

As we remain confident on our longish sales estimates, only new business development

remains the trigger for the stock from CMP.

BUY

OCTOBER 24, 2016

RESULT


Price (`): 332


BSE-30: 28,077

QUICK NUMBERS

Oberoi recorded

₹5 bn of pre-sales in

2Q, 60% of which is

from Worli

Commerz 2 closed

0.1 mn sq. ft of new

leasing

Samar Sarda [email protected]

Mumbai: +91-22-4336-0874

Oberoi Realty







MFs 0.7 EBITDA (Rs bn) 6.7 5.6 15.8


Absolute 11.7 11.7 22.7 ROE (%) 8.6 6.7 17.3



349-210

112.6

Oberoi Realty Real Estate


Results review: 2QFY17 and 1HFY17

Around 43% of the revenue was contributed by Oberoi Esquire, which has average

realization on cumulative sales until now at ₹14,400 /sq. ft. Overall contribution of

residential projects to revenues was 70%, reflecting in lower EBITDA margins. As per the

management, reported EBITDA from the residential business stood at 48.5% for 1HFY17

versus 59.9% for 1HFY16. EBITDA for annuity projects has fallen to 90% during the same

period from 95%, as leasing at Commerz 2 is still to pick up. Oberoi also repaid over ₹1 bn

of debt during 2QFY17.

Exhibit 1: Esquire margins still low Oberoi: 2QFY17 and 1HFY17 results snapshot, March fiscal year-ends (Rs mn)


Operations review: 1HFY17

Consolidated pre-sales for 2Q stood at ₹5 bn, with 60% contribution from Three Sixty West,

Worli. Sales at other projects were also better, but relatively.

Exhibit 2: Oberoi sold Rs5 bn worth of area in 2QFY17 Oberoi: Quarterly sales, value and collections, March fiscal year-ends, 1QFY15-2QFY17


2QFY17 2QFY17E 2QFY16 1QFY17 2QFY17E 2QFY16 1QFY17 1HFY17 1HFY16 % change FY2017E

Financials snapshot

Net sales 2,520 2,998 1,908 3,200 (16) 32 (21) 5,720 4,019 42 11,256

Operating costs (1,262) (1,581) (800) (1,534) (20) 58 (18) (2,797) (1,627) 72 (5,676)

EBITDA 1,258 1,417 1,107 1,666 (11) 14 (24) 2,924 2,393 22 5,580

Other income 127 105 129 103 20 (2) 23 229 211 8 422

Interest costs (13) (4) (17) (14) 255 (25) (9) (26) (33) (20) (46)

Depreciation (124.4) (124) (122) (123) 1 2 1 (248) (244) 1 (471)

PBT 1,248 1,395 1,097 1,631 (11) 14 (24) 2,879 2,326 24 5,485

Taxes (417) (386) (357) (553) 8 17 (25) (969) (769) 26 (1,810)

PAT 831 1,008 740 1,079 (18) 12 (23) 1,910 1,557 23 3,675

EPS (Rs/share) 2.4 3.0 2.2 3.2 5.7 4.7 10.8

Key ratios

EBITDA margin (%) 49.9 47.3 58.0 52.1 51.1 59.5 49.6

PAT margin (%) 33.0 33.6 38.8 33.7 33.4 38.7 32.6

Effective tax rate (%) 33.4 27.7 32.5 33.9 33.7 33.1 33.0

Operations snapshot

Area sold (mn sq. ft) 0.18 0.06 0.15 0.3 0.1 126 0.9

Value (Rs mn) 5,134 1,409 4,063 9,233 3,117 196 19,547

Collections (Rs mn) 2,954 2,574 2,374 5,328 5,782 (8) 14,160

% change

-

0.2

0.4

0.6

0.8

1.0

1.2

-

2

4

6

8

10

12

14

16

18

20

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

Sales value (Rs bn) (LHS) Collections (Rs bn) (LHS)

Area sold (mn sq. ft) (RHS)

Real Estate Oberoi Realty


High pre-sales of the projects at launch provide cash flow comfort for Oberoi. Most projects

are sold over 50% of the launched area and provide value to complete either the structure

or complete projects. Three Sixty West, Worli, for the first time has turned operating cash

flow positive in 2QFY17 with collections crossing over ₹1 bn. But with project approvals in

place and launched for over 18 months, collections from Mulund projects remain low, we

await clarity.

Exhibit 3: High pre-sales at the launch provide cash flow comfort Oberoi: Sales, collections from ongoing projects, March fiscal year-ends, 2QFY14-2QFY17


2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

Oberoi Exquisite, Goregaon (E) (a)

Sales 1,010.4 10.8 14.6 23.7 34.6 50.1 58.2 49.1 38.6 13.5 14.4 18.2 16.9

Sales value 13,571 226 352 564 869 1,220 1,402 1,173 898 319 377 401 407

Collections 12,793 223 261 420 573 836 1,333 2,097 978 613 505 297 631

(%) received 94 94 94 93 92 90 90 96 96 98 98 98 99

Oberoi Esquire, Goregaon (E) (a)

Sales 985.3 17.6 17.6 44.1 6.6 25.2 2.1 8.9 4.4 28.0 22.6 8.0 25.1

Sales value 13,382 349 435 795 117 467 40 168 84 643 464 168 535

Collections 4,558 75 536 722 556 226 946 764 520 925 1,233 649 572

(%) received 34 34 36 39 43 43 49 53 56 60 65 68 70

Oberoi Prisma

Sales — — — — — 72.7 25.1 8.6 9.2 12.2 5.2 20.2 11.4

Sales value — — — — — 1,264 466 152 164 220 88 348 195

Collections — — — — — 202 402 255 147 115 167 237 305

(%) received 16 35 46 49 50 55 56 63

Oberoi Eternia, Mulund (W)

Sales — — — — — — 405.4 11.0 7.0 1.9 6.7 5.0 15.4

Sales value — — — — — — 5,978 166 106 32 32 83 237

Collections — — — — — — 1,180 56 563 44 51 27 53

(%) received 20 20 29 29 30 30 30

Oberoi Enigma, Mulund (W)

Sales — — — — — — 282.0 3.1 (6.1) 6.1 7.5 13.5 10.7

Sales value — — — — — — 4,131 50 (93) 93 93 226 178

Collections — — — — — — 790 31 2 295 104 88 33

(%) received 19 20 20 27 29 29 29

Oberoi Sky City, Borlivali (E)

Sales — — — — — — — — — 947.0 83.3 27.0 28.5

Sales value — — — — — — — — — 15,672 1,336 463 458

Collections — — — — — — — — — 2,892 1,279 694 229

(%) received 18 25 28 28

Three Sixty West, Worli (a)

Sales 114.7 — 9.6 — — — — — 9.6 9.6 — 55.3 68.3

Sales value 3,178.9 — 312 — — — — — 250 400 — 2,410 3,097

Collections 770.7 — 102 231 741 268 115 5 363 314 348 383 1,105

(%) received 25 32 53 61 64 64 69 70 79 56 49

Const. spend 6,786.6 956 1,031 1,249 1,240 1,200 777 640 495 571 892 725 406

Cash flow (b) (12,222)

Notes:

(a) Cummulative numbers till 2QFY14.

(b) Excluding the refundable deposits.

Oberoi Realty Real Estate


Exhibit 4: High pre-sales and construction progress reflects in strong revenue growth estimates Oberoi: Profit model, balance sheet, cash flow model, March fiscal year-ends, 2013-19E (Rs mn)


2013 2014 2015 2016 2017E 2018E 2019E

Profit model

Net sales 10,476 7,985 9,227 14,081 11,256 33,872 26,297

EBITDA 6,121 4,330 5,138 6,675 5,580 15,811 14,393

Other income 999 571 175 362 422 378 774

Interest (4) (3) (18) (2) (46) (47) (42)

Depreciation (285) (271) (403) (490) (471) (498) (510)

Pre-tax profits 6,831 4,626 4,892 6,545 5,485 15,644 14,616

Tax (1,714) (1,461) (1,697) (2,300) (1,810) (5,163) (4,823)

Deferred taxation (69) (72) (24) 14 — — —

Net income 5,048 3,092 3,171 4,259 3,675 10,482 9,792

Adjusted net income 5,048 3,092 3,171 4,259 3,675 10,482 14,662

Earnings per share (Rs) 15.4 9.4 9.7 12.6 10.8 30.9 43.2

Balance sheet

Total equity 41,621 43,964 46,343 53,043 55,901 65,565 79,411

Non-current liabilities 674 1,855 8,401 5,660 8,332 7,333 6,332

Current liabilities 10,595 9,051 16,456 18,895 17,823 8,043 5,725

Total liabilities and equity 52,890 54,870 71,200 77,598 82,056 80,941 91,468

Net fixed assets 13,368 13,649 13,019 12,964 13,265 15,638 18,163

Other non-current assets and advances 12,465 12,417 12,532 13,789 9,165 10,919 10,553

Current assets 27,057 28,309 45,649 50,100 46,030 50,306 58,672

Investments — 496 — 744 13,596 4,079 4,079

Total assets 52,890 54,870 71,199 77,598 82,056 80,941 91,468

Free cash flow

Operating cash flow excl. working capital 5,402 3,436 3,597 4,735 4,165 10,979 15,172

Working capital changes (5,694) (8,126) (13,843) (3,125) 13,233 (8,856) (5,698)

Capital expenditure (1,149) (1,048) 723 (1,179) (13,624) 6,647 (3,035)

Free cash flow (1,441) (5,738) (9,523) 431 3,775 8,769 6,439

Ratios (%)

Debt/equity — 1.7 19.5 12.1 13.5 9.9 7.0

Net debt/equity (25.8) (9.6) 13.1 6.0 0.4 (11.8) (16.8)

RoE (%) 12.7 7.2 7.0 8.5 6.7 17.2 20.2

RoCE (%) 7.3 3.6 3.6 4.2 3.3 10.1 8.0

Book value per share (Rs) 127 134 141 156 165 193 234



Revenues decline by 3% sequentially; revenue growth from top client the only bright spot

Revenues declined 3% qoq to US$193 mn (1.7% in c/c). Barring top client that grew 6.4%, all

other client buckets declined sequentially. Revenues declined across most of the verticals and

service offerings. EBITDA margin declined 170 bps qoq and 600 bps yoy to 12.5% (KIE 14.2%).

Decline was due to wage revision, rupee appreciation and weaker absorption of costs owing to

revenue decline. Net profit at ₹976 mn missed our estimate by 11% and declined 35% yoy.

Revenues decline— client portfolio the primary reason, execution slippage a minor one

Mindtree’s client portfolio faced the following challenges—(1) exposure to two large accounts

in financial services that have curtailed spending, (2) high exposure to retail that have pulled

back spending, even as Mindtree has maintained relative share. We note that retail vertical has

been soft for other IT companies as well and (3) revenue decline of Bluefin. We also suspect

slippage in sales execution though large chunk of the decline is related to client spending cut.

We do not expect any quick fix to growth and accordingly cut revenue estimates.

Profitability—continuous decline a worrying pattern

Mindtree’s EBITDA margin has declined to 12.5% from 20% in FY2015. Multiple factors have

influenced this—(1) 150 bps impact from Bluefin acquisition, (2) contract renewals that have

faced intense pricing pressure. We note that Mindtree’s offshore realization has declined 15%

over the last two years, (3) deterioration in mix of business where clients have pulled back

spending in the profitable areas of Mindtree and (4) growth slowdown has its own consequences

on profitability. Part of the decline is structural in nature. We find management’s 18-19%

EBITDA target grounded in hope. Margins will recover for sure, especially by capturing low-

hanging fruit, but requires perfect execution to go back to management’s aspirational band.

Current quarter unmasks continued deterioration in underlying growth quality

Top account growth has masked challenges in continuously slipping growth from other

accounts. Growth recovery from here is dependent on recovery in spending from large accounts

and success of multiple initiatives taken by the company. We cut FY2017-19E revenue estimates

by 2-5% and EPS by 9-16%. Maintain REDUCE with revised target price of ₹460, down from

₹540 earlier valuing the stock at 13X FY2018E earnings (14X earlier).

Mindtree (MTCL) Technology

A perfect storm. Mindtree missed lowered estimates due to a combination of pullback

in spending by large accounts, deterioration in performance of Bluefin acquisition and

curtailment of large profitable programs by a few clients. While the portfolio of clients

that cut spends in the quarter had a large role to play, the company needs to tighten

down on execution (sales and operations), else it faces the risk of frittering inherent

strengths of the model. We cut FY2017-19E EPS by 9-16% and TP by 15% to ₹460

(from ₹540) valuing the stock at 13X FY2018E earnings (14X earlier). REDUCE stays.

REDUCE

OCTOBER 24, 2016

RESULT


Price (`): 479


BSE-30: 28,077


Mumbai: +91-22-4336-0860


Mumbai: +91-22-4336-0863

Mindtree







MFs 6.9 EBITDA (Rs bn) 8.3 7.3 8.9


Absolute (6.1) (15.4) (35.0) ROE (%) 27.4 17.8 20.1

Rel. to BSE-30 (4.7) (16.5) (36.8) Div. Yield (%) 2.2 1.5 1.9


805-464

80.4

Mindtree Technology


Multiple initiatives to drive revenue growth recovery though it could take time

While increase in client’s IT spending is the easiest way to hope for revenue recovery,

the company is not banking on this alone. Pipeline of deals is the highest ever since the

company started tracking this actively. The company has fined tuned client engagement

process and has far more rigorous attack plan for new deals. Large deal pipeline is

encouraging though delay in deal closures is a worry. Expansion of alliance ecosystem has

been accelerated.

While the above mentioned steps are encouraging, this does not guarantee a quick

turnaround. We also suspect some slippage in sales execution; this can go unnoticed in a

high new project velocity business such as Mindtree.

Replacement for Radha R and Veeraraghavan still work progress

Mindtree has two senior departures in the month of September— Radha, Head of Digital

and Veeraraghavan, Head of Technology and Media business. The company is in the process

of identifying the replacements. Senior leadership of the company has stepped in to manage

the gap in the interim.

Core business positioning intact

While the recent slippages is worrying, we believe that the core competencies and

positioning remains strong. High exposure to digital and product engineering services and

low exposure to legacy services shall ensure outperformance. However, continuity of the

team and execution will be critical to outperform peers on growth.

Exhibit 1: Mindtree, 1QFY17 interim results (Ind-AS), March fiscal-year ends (Rs mn)


Change

2QFY17 2QFY17E 1QFY16 2QFY16 2QFY17E 1QFY16 2QFY16 1HFY17 1HFY16 (%) FY2017E

Revenues (US$ mn) 193.0 196.0 199.0 180.3 (1.5) (3.0) 7.0 392 335 16.9 789.3

Revenues 12,954 13,106 13,276 11,657 (1.2) (2.4) 11.1 26,230 21,432 22.4 53,227

Direct costs (8,526) (8,462) (8,366) (6,794) 0.8 1.9 25.5 (16,892) (12,555) 34.5 (34,482)

Gross profit 4,428 4,643 4,910 4,863 (4.6) (9.8) (8.9) 9,338 8,877 5.2 18,745

SG&A expenses (2,807) (2,785) (2,959) (2,668) 0.8 (5.1) 5.2 (5,766) (5,010) 15.1 (11,412)

EBITDA 1,621 1,858 1,951 2,195 (12.8) (16.9) (26.2) 3,572 3,867 (7.6) 7,333

Depreciation (463) (489) (468) (409) (5.3) (1.1) 13.2 (931) (748) 24.5 (1,927)

EBIT 1,158 1,370 1,483 1,786 (15.5) (21.9) (35.2) 2,641 3,119 (15.3) 5,405

Interest (47) — (51) (45) (98) (54) (98)

Other income 198 97 198 232 396 562 (29.5) 614

Profit before tax 1,309 1,467 1,630 1,973 (10.8) (19.7) (33.7) 2,939 3,627 (19.0) 5,922

Tax (333) (367) (395) (465) (728) (836) (1,380)

Net profit 976 1,100 1,235 1,508 (11.3) (21.0) (35.3) 2,211 2,791 (20.8) 4,541

EPS (Rs/ share) 5.6 6.5 7.3 9.0 (13.8) (23.1) (37.0) 13.0 16.6 (21.8) 27.0

Shares outstanding (mn) 168 168 168 168 168 168 168

Margins (%)

Gross margin 34.2 35.4 37.0 41.7 35.6 41.4 35.2

SG&A as % of revenues 21.7 21.3 22.3 22.9 22.0 23.4 21.4

EBITDA margin 12.5 14.2 14.7 18.8 13.6 18.0 13.8

Tax rate (%) 25.4 25.0 24.2 23.6 24.8 23.0 23.3

Notes:

(a) Prior period financials are restated as per Ind-AS.

Change (%)

Technology Mindtree


Exhibit 2: Key changes to estimates, March fiscal year-ends, 2017E-2019E


Exhibit 3: EBITDA margins have declined 800 bps over the last seven quarters


2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

Revenues (Rs mn) 53,227 59,533 67,085 55,106 62,156 71,048 (3.4) (4.2) (5.6)

Revenues (US$ mn) 789 875 987 804 907 1,037 (2.0) (3.5) (4.9)

Growth (%) 10.3 11.0 12.7 12.5 12.8 14.3

EBITDA (Rs mn) 7,333 8,878 10,340 8,661 10,050 11,377 (15.3) (11.7) (9.1)

Net Profit (Rs mn) 4,541 5,816 6,946 5,430 6,558 7,601 (16.4) (11.3) (8.6)

Fully diluted EPS (Rs/share) 27.0 34.6 41.3 32.3 39.0 45.2 (16.4) (11.3) (8.6)

Re/ $ rate 67.5 68.0 68.0 68.5 68.5 68.5 (1.5) (0.7) (0.7)

EBITDA margin (%) 13.8 14.9 15.4 15.7 16.2 16.0

Change (%)New Old

20.9

22.1

20.4

19.0 18.4

20.8

19.5

21.5

20.0 19.8 20.5

19.5

17.6 18.5

17.7 17.1

14.7

12.5

10

13

16

19

22

25

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

EBITDA margin (%)

Mindtree Technology


Exhibit 4: Revenue growth across geographies, verticals and service lines (Sep-16)


Exhibit 4: Strong growth from the top account continues


Revenues

(US$ mn) QoQ YoY % of total

Total revenues 193 (3.0) 7.0 100

Revenue by geography

USA 130 (1.7) 14.5 67.6

Europe 41 (10.3) (13.9) 21.4

India 7 9.1 17.1 3.5

Rest of the world 14 3.1 14.7 7.5

Revenue by verticals

Hi-Tech & Media Serv ices 71 (1.4) 15.2 36.7

BFSI 48 (3.8) 3.3 24.7

Retail, CPG & Manufacturing 47 (2.4) (0.7) 24.2

Travel & Hospitality 28 (6.6) 8.6 14.4

Revenue by service offerings

Development 42 (6.2) 1.5 22.0

Engineering 19 (3.4) 22.0 9.8

Maintenance 34 (0.3) (9.3) 17.8

Consulting 7 (10.1) 45.3 3.8

Package implementation 25 (8.5) 5.4 13.1

IP led revenue 2 20.0 (1.2) 1.2

Independent testing 24 (5.9) 3.7 12.4

IMS & Tech support 38 5.1 25.3 19.9

Growth (%)

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 4 qtr 8 qtr 12 qtr

Revenues (US$ mn)

Top client 9.8 9.9 10.9 12.3 13.4 14.2 14.9 17.0 19.3 20.0 22.9 26.1 27.8 9.6 9.6 9.1

Top-5 clients 39.2 41.1 44.0 45.6 47.6 48.0 47.7 51.4 57.3 59.2 58.1 59.0 57.9 0.2 2.5 3.3

Top-10 clients 58.9 62.2 65.3 69.2 71.8 71.0 69.9 75.1 81.9 85.2 83.6 84.7 82.0 0.1 1.7 2.8

Non Top-10 accounts 65.1 64.9 67.5 72.1 75.3 76.7 77.9 79.8 98.4 99.2 112.0 114.3 111.0 3.0 5.0 4.5

Growth (%)

Top client 6.7 1.2 9.8 12.9 8.9 6.0 5.3 14.1 13.2 3.9 14.1 14.2 6.4

Top-5 clients 6.7 4.8 7.1 3.8 4.4 0.8 (0.5) 7.7 11.5 3.3 (1.8) 1.5 (1.8)

Top-10 clients 8.8 5.5 5.1 6.0 3.6 (1.0) (1.6) 7.5 9.0 4.0 (1.9) 1.3 (3.1)

Non Top-10 accounts 2.4 (0.2) 3.9 6.8 4.5 1.8 1.6 2.4 23.4 0.8 12.9 2.1 (2.9)

CQGR (%)

Technology Mindtree


Exhibit 5: Attrition eases 200 bps in the September quarter


Exhibit 6: Offshore billing rates have declined substantially in the past few quarters


15.7

0

10

20

30

40

Jun-1

0

Sep-1

0

Dec

-10

Mar-

11

Jun-1

1

Sep-1

1

Dec

-11

Mar-

12

Jun-1

2

Sep-1

2

Dec

-12

Mar-

13

Jun-1

3

Sep-1

3

Dec

-13

Mar-

14

Jun-1

4

Sep-1

4

Dec

-14

Mar-

15

Jun-1

5

Sep-1

5

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

Quarterly annualized attrition (%)

17.1

15

17

19

21

23

25

Mar-

11

Jun-1

1

Sep-1

1

Dec

-11

Mar-

12

Jun-1

2

Sep-1

2

Dec

-12

Mar-

13

Jun-1

3

Sep-1

3

Dec

-13

Mar-

14

Jun-1

4

Sep-1

4

Dec

-14

Mar-

15

Jun-1

5

Sep-1

5

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

Offshore billing rates (US$/hour)

Mindtree Technology


Exhibit 7: Mindtree: Key operational metrics


Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Revenues (US$ mn) 147.1 147.7 147.8 154.9 180.3 184.4 195.6 199.0 193.0

Revenue by geographical segment (%)

USA 60.4 63.1 64.9 67.5 63.2 63.5 65.9 66.7 67.6

Europe 26.1 24.2 23.7 21.9 26.6 26.4 24.5 23.1 21.4

India 4.0 4.1 3.6 3.4 3.2 2.7 2.8 3.1 3.5

Rest of the world 9.5 8.6 7.8 7.2 7.0 7.4 6.8 7.1 7.5

Revenue by service offering (%) - new classification

Development 24.0 23.7 23.2 24.4 23.2 23.7 23.0 22.7 22.0

Engineering 9.4 10.3 10.0 9.0 8.6 8.3 9.8 9.8 9.8

Maintenance 21.2 21.4 20.8 21.7 21.0 19.8 18.0 17.3 17.8

Consulting 4.2 4.1 3.9 3.7 2.8 2.6 4.0 4.1 3.8

Package implementation 5.4 5.8 7.5 7.2 13.3 12.9 13.6 13.9 13.1

IP led revenue 1.6 1.6 1.7 1.4 1.3 1.8 1.3 1.0 1.2

Independent testing 15.5 15.4 15.4 14.9 12.8 12.8 12.6 12.8 12.4

Infrastructure management & Tech support 18.7 17.6 17.5 17.7 17.0 18.1 17.5 18.4 19.9

Revenue by industry (%) - new classification

Hi-Tech & Media Serv ices 32.7 32.7 32.6 35.4 34.1 30.2 35.3 36.1 36.7

BFSI 22.8 23.5 25.0 26.9 25.6 25.1 24.4 24.9 24.7

Retail, CPG & Manufacturing 21.6 22.2 21.7 22.1 26.1 20.3 23.8 24.1 24.2

Travel & Hospitality 17.1 16.2 16.0 15.6 14.2 15.6 16.4 15.0 14.4

Others 5.8 5.4 4.7 8.7

Revenue by project type (%)

F ixed price 43.6 46.5 46.5 48.9 49.7 50.0 47.7 48.7 50.6

Time & materials 56.4 53.5 53.5 51.1 50.3 50.0 52.3 51.3 49.4

Effort mix (%)

Onsite 17.6 18.2 18.5 18.6 20.0 21.1 22.3 22.9 23.3

Offshore 82.4 81.8 81.5 81.4 80.0 78.9 77.7 77.1 76.7

Revenue mix (%)

Onsite (%) 45.6 45.8 47.1 48.1 52.4 54.5 57.6 59.5 59.2

Offshore (%) 54.4 54.2 52.9 51.9 47.6 45.5 42.4 40.5 40.8

Effort and Utilization

Onsite - Billled hours 865,381 880,982 909,540 976,426 1,152,159 1,193,345 1,320,161 1,387,455 1,387,696

Offshore - Billed hours 4,046,150 3,957,435 4,019,146 4,265,360 4,613,339 4,469,299 4,606,976 4,681,805 4,573,034

Total 4,911,531 4,838,417 4,928,686 5,241,786 5,765,498 5,662,644 5,927,138 6,069,260 5,960,730

Fee revenues (US$ mn)

Onsite 66.3 67.0 68.9 73.7 93.7 99.2 111.6 117.2 113.4

Offshore 79.2 79.3 77.4 79.7 85.0 82.9 82.0 79.6 78.1

Utilization (%)

Including trainees 73.5 71.8 70.2 70.3 71.4 68.5 69.4 71.4 71.4

Excluding trainees 74.2 74.2 71.1 71.9 73.3 69.9 70.6 72.0 73.1

Client metrics

Number of active clients 200 201 217 218 296 294 348 343 337

New clients added 8 5 8 16 18 23 37 17 18

US$1 mn clients 77 83 88 88 92 93 101 98 107

US$5 mn clients 27 27 28 28 29 29 31 31 30

US$10 mn clients 13 13 14 13 13 13 15 16 16

US$20 mn clients 7 6 6

US$25 mn clients 6 6 6 5 6 5 6

US$30 mn clients 4 4 4

US$50 mn clients 1 2 2 2 2 2 2

Client contribution to revenue (%)

Top customer 9.1 9.6 10.1 11.0 10.7 10.9 11.7 13.1 14.4

Top 5 customers 32.4 32.5 32.3 33.2 31.8 32.1 29.7 29.6 30.0

Top 10 customers 48.8 48.1 47.3 48.5 45.4 46.2 42.7 42.6 42.5

Revenue from repeat business 99.7 99.4 99.2 98.9 98.9 98.5 96.0 98.2 97.8

Total Contract Value signed (TCV), US$ mn

Renewals 102 106 114 120 130 153 209 184 119

New 63 46 50 88 63 51 72 36 65

Total 165 152 164 208 193 204 281 220 184

Expiring w ithin 1 year 157 159 157 180 247 209 152

Expiring >1 year 7 49 36 24 34 11 31

Digital 63 105 82 82 93 64

Employee metrics

Software professionals 12,204 12,500 13,350 13,560 14,655 15,296 15,623 15,092 15,189

Sales and support 814 823 852 867 927 947 1,000 1,018 1,030

Total 13,018 13,323 14,202 14,427 15,582 16,243 16,623 16,110 16,219

Gross addition 810 1,016 1,517 900 1,801 1,306 1,020 210 744

Net addition 173 305 879 225 1,155 661 380 (513) 109

Attrition (LTM) (%) 15.7 18.1 18.2 18.4 17.1 16.0 15.7 16.5 16.4

Quarterly annualised attrition (%) 19.7 21.6 18.5 18.9 17.2 16.2 15.6 17.7 15.7

Technology Mindtree


Exhibit 8: Condensed consolidated financials for Mindtree, March fiscal year-ends, 2013-2019E (Rs mn)


2013 2014 2015 2016 2017E 2018E 2019E

Profit model

Revenues 23,618 30,316 35,619 46,896 53,227 59,533 67,085

EBITDA 4,860 6,100 7,092 8,299 7,333 8,878 10,340

Interest (expense)/income (10) (4) (1) (4) (98) - -

Depreciation (624) (809) (1,018) (1,332) (1,927) (2,022) (2,181)

Other income 10 496 835 810 614 627 840

Pretax profits 4,236 5,783 6,908 7,773 5,922 7,484 8,999

Tax (847) (1,275) (1,545) (1,741) (1,380) (1,668) (2,053)

Profit after tax 3,389 4,508 5,363 6,032 4,541 5,816 6,946

Diluted earnings per share (Rs) 20.4 26.8 31.9 35.9 27.0 34.6 41.3

Balance sheet

Total equity 13,137 16,405 20,128 23,956 27,026 30,957 35,653

Deferred taxation liability (360) (402) (449) (602) (602) (602) (602)

Total borrow ings 249 27 23 433 433 433 433

Current liabilities 3,524 4,562 6,398 9,013 8,259 9,087 10,077

Total liabilities and equity 16,551 20,593 26,101 32,801 35,117 39,876 45,561

Cash 1,238 1,184 3,763 2,331 4,931 8,410 12,243

Other current assets 7,881 10,141 11,077 15,846 16,742 18,832 21,340

Tangible fixed assets 3,160 3,932 5,909 4,857 4,202 3,920 3,816

Total assets 16,551 20,593 26,101 32,801 35,118 39,876 45,561

Free cash flow

Operating cash flow, excl. WC 4,933 6,081 7,218 8,407 7,333 8,878 10,340

Tax paid (969) (1,297) (1,539) (1,939) (1,380) (1,668) (2,053)

Working capital changes (1,022) (1,766) 28 (2,243) (1,650) (1,262) (1,519)

Capital expenditure (1,057) (1,517) (1,987) (1,315) (746) (1,213) (1,525)

Free cash flow 1,885 1,501 3,720 2,910 3,556 4,736 5,243

Ratios (%)

EBITDA margin 20.6 20.1 19.9 17.7 13.8 14.9 15.4

EBIT margin 17.9 17.5 17.1 14.9 10.2 11.5 12.2

Net debt/equity (0.4) (0.4) (0.5) (0.2) (0.2) (0.3) (0.4)

RoAE 29.8 30.5 29.4 27.4 17.8 20.1 20.9

RoACE 29.0 27.7 25.8 24.3 16.0 18.1 18.7



2QFY17— print ad revenue growth decelerates, EBITDA boosted by one-offs

Print ad revenue growth decelerated to 7.3% yoy in 2Q from 20% yoy in 1Q and was below

our lowered expectation of 10%. Growth was impacted by early 'Pitru paksha' (two-week

period of subdued advertising), heavy monsoon and more importantly and worryingly,

resistance of a large FMCG advertiser to pricing. DB Corp’s print ad revenue at `3.3 bn in

2QFY17 was the same as that of two years ago. Digital ad revenue growth of 21% yoy was

weak considering the low base. Operating performance in other areas was good— circulation

and radio revenues grew 13% and 25% yoy. EBITDA at `1.5 bn was boosted by (1) MTM

gains/provision reversal of `103 mn pertaining to an old ad-for-equity deal with Gitanjali jewels,

and (2) provision reversal of `58 mn on the settlement of music royalty cost as per the SC’s

verdict.

Regional print media is not immune to digital threat

We believe the threat from digital is imminent and real even for regional print. We expect print

ad growth to decelerate further over the next 5 years. Key arguments—(1) internet penetration

in regional print’s core reader base is on the rise, (2) key categories of print such as auto, real

estate and education are rapidly adopting digital, (3) lack of creditable measurement data works

against print medium, and (4) Shift towards live consumption of news (‘Breaking news’) and

social media have blunted print’s engagement with its audience and is likely driving a drop in

time spent on newspapers. Globally, publishers with strong digital offerings have participated in

digital advertising but digital has not made up for the loss of print ad revenues. On the flip side,

the rise in rural consumption in India would support regional print’s ad growth for a few years,

albeit at lower growth rates, notwithstanding continued loss in market share.

Low confidence on long-term growth makes ‘re-rating’ argument weak

Good monsoon this year, elections in key markets over the next two years and the

management’s decision to further focus on cost optimization augur well for DB Corp. We also

like DB Corp’s focus on content and early-investments in digital and believe it is better-placed

than its peers. However, with likely deceleration in growth in print business (85% of revenues)

over the next few years, it is difficult to argue for re-rating. Our P/E multiple of 14X implies 10%

growth for 5 years, 2% terminal growth beyond that and cost of equity of 13%. PE re-rating

hinges on confidence on long-term growth (terminal growth rate) which in turn depends on the

success of digital. We would prefer to watch the progress in digital before taking a constructive

call.

DB Corp. (DBCL) Media

Ad growth decelerates. DB Corp’s print ad revenue missed our lowered expectation

and was at the same level as two years ago. Continued weakness in print ad revenues

and resistance from select advertisers to pricing are worrying trends and raise concerns

around potential structural decline in pricing power of DB Corp and positioning of print

media. We cut print ad revenues and EPS by 1-4% for FY2018-19E, roll-over to Sep-18

and revise TP to `380 (from `365). We value DB Corp at 14X PE given the uncertainty

of print ad growth rate beyond five years. REDUCE.

REDUCE

OCTOBER 24, 2016

RESULT


Price (`): 397


BSE-30: 28,077


Mumbai: +91-22-4336-0863

DB Corp







MFs 7.4 EBITDA (Rs bn) 5.3 7.2 8.0


Absolute (0.7) (1.6) 25.3 ROE (%) 22.5 28.5 28.9

Rel. to BSE-30 0.8 (2.9) 21.8 Div. Yield (%) 2.8 2.8 3.5


448-283

72.9

Media DB Corp.


Exhibit 1: EBITDA beat was entirely driven by one-off gains that boosted EBITDA by about 12% Interim results of DB Corp (DBCL), March fiscal year-ends (Rs mn)


Exhibit 2: Increase in FY2017E earnings estimates is entirely due to lower SG&A on account of one-offs MTM gains in 2Q and 3QE

pertaining to old ad-for-equity with Gitanjali jewels and provision reversal in radio business; (aggregate one-off benefits of Rs260 mn) Revised earnings estimates of DBCL, FY2016E-19E (Rs mn)


chg (%)

2QFY17 2QFY17E 2QFY16 1QFY17 2QFY17E 2QFY16 1QFY17 1HFY17 1HFY16 chg (%) FY2017E

Total revenues 5,287 5,412 4,783 5,704 (2.3) 10.5 (7.3) 10,991 9,517 15.5 23,527

Advertising revenues 3,303 3,387 3,079 3,734 (2.5) 7.3 (11.5) 7,037 6,186 13.8 15,083

Circulation revenues 1,179 1,200 1,057 1,176 (1.7) 11.5 0.3 2,355 2,079 13.3 5,009

Other revenues 805 825 647 794 (2.4) 24.4 1.4 1,599 1,252 27.7 3,435

Total expenditure (3,782) (3,952) (3,666) (3,892) (4.3) 3.2 (2.8) (7,674) (7,181) 6.9 16,301

Raw material costs (1,634) (1,600) (1,495) (1,600) 2.1 9.4 2.2 (3,234) (2,943) 9.9 6,626

Employee expenses (1,074) (1,100) (968) (1,068) (2.4) 11.0 0.6 (2,142) (1,898) 12.9 4,472

Other expenses (1,073) (1,252) (1,203) (1,225) (14.3) (10.8) (12.4) (2,298) (2,341) (1.8) 5,204

EBITDA 1,505 1,460 1,117 1,812 3.1 34.7 (16.9) 3,317 2,336 42.0 7,226

EBITDA margin (%) 28.5 27.0 23.4 31.8 30.2 24.5 30.7

Other income 41 45 53 41 (7.8) (22.4) 0.8 83 122 (32.1) 201

Interest expense (6) (30) (27) (34) (81.4) (80) (83.6) (40) (49) (18.8) 91

D&A expenses (216) (211) (215) (211) 2.3 0.3 2.4 (427) (423) 0.9 953

PBT 1,325 1,264 928 1,608 4.9 42.8 (17.6) 2,933 1,986 47.7 6,383

Extraordinaries — — — — — — —

Tax provision (440) (436) (337) (568) 0.9 30.6 (22.5) (1,009) (730) 38.2 (2,304)

Minority interest — — — — — — —

Reported PAT 885 828 591 1,040 6.9 49.7 (14.9) 1,925 1,256 53.3 4,080

Adjusted PAT 885 828 591 1,040 6.9 49.7 (14.9) 1,925 1,256 53.3 4,080

EPS (Rs/share) 4.8 4.5 3.2 5.7 10.5 6.8 53.3 22.2

Tax rate (%) 33.2 34.5 36.3 35.3 34.4 36.8 36.1

Revised Previous Change (%)

2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

Print ad revenue 15,083 16,530 18,199 15,238 16,692 18,373 (1.0) (1.0) (0.9)

Circulation revenue 5,009 5,660 6,340 5,009 5,761 6,625 — (1.7) (4.3)

Other revenue 3,435 4,071 4,781 3,435 4,103 4,783 — (0.8) (0.0)

Total revenues 23,527 26,261 29,320 23,682 26,555 29,781 (0.7) (1.1) (1.5)

Production cost 9,093 9,737 10,443 9,093 9,737 10,443 — — —

Employee cost 4,472 5,176 5,835 4,472 5,176 5,835 — — —

SG&A expenses 2,736 3,374 3,792 3,003 3,437 3,868 (8.9) (1.8) (2.0)

Total expenditure 16,301 18,287 20,069 16,568 18,350 20,146 (1.6) (0.3) (0.4)

EBITDA 7,226 7,974 9,251 7,115 8,205 9,635 1.6 (2.8) (4.0)

EPS (Rs) 22.2 25.2 29.7 21.8 26.0 31.0 1.8 (3.1) (4.3)

Key assumptions

Ad revenue growth (yoy %) 13.6 9.6 10.1 14.7 9.5 10.1

Circulation revenue growth (yoy %) 15.0 13.0 12.0 15.0 15.0 15.0

Newsprint price (yoy %) 2.0 2.5 2.5 2.0 2.5 2.5

EBITDA margin (%) 30.7 30.4 31.6 30.0 30.9 32.4

DB Corp. Media


Exhibit 3: KPMG FICCI: Print media advertising revenue forecast (Rs bn)


Exhibit 4: Trends in advertising revenue growth of DBCL, (yoy %)


Exhibit 5: Trends in circulation revenue growth of DBCL, (yoy %)


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2009 115 124 137 154 174

2010 103 114 127 141 158 176

2011 110 126 143 162 183 208 236

2012 110 126 139 154 172 193 215 241

2013 110 126 139 150 162 179 200 222 248

2014 110 126 139 150 163 179 199 222 248 275

2015 110 126 139 150 163 176 193 212 233 255 280

2016 110 126 139 150 163 176 189 204 222 242 263 286

Forecast for the year (Calendar year-end)

Fo

reca

st in

th

e y

ear

(beg

inn

ing

of

CY

)

20

16

7 5

(1)1

11 13

20

18 18

13

7 7 5

1

(7)

(1) (0)

20

7

(10)

-

10

20

30

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

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

6

13

17 16 15 16 16

18 17

14 14 15 15 15

17 17

15 16

18

15 15

12

-

5

10

15

20

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

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

Media DB Corp.


Exhibit 6: DB Corp management expects newsprint price to inch up further, marginally though Trends in effective newsprint price for DBCL


Exhibit 7: Trends in DBCL EBITDA margins (%)


32.3 33.1 33.5 32.8 33.2

34.9

37.2 37.9 37.2 36.2

35.3 34.4

33.6 33.3 33.3 33.6 34.0 34.8

6 6 5 3 3

5

11

16

12

4

(5)

(9) (10)(8)

(6)(2)

1 4

(15)

(10)

(5)

0

5

10

15

20

20

25

30

35

40

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

Newsprint price (Rs/Kg) Growth (yoy %)

28.4

21.5

26.3

19.3

22.5 21.5

28.0

23.4

30.0

25.7

29.7

23.0

27.5

25.7

33.3

24.6 25.7

23.4

31.9

22.2

31.8

28.5

15

20

25

30

35

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

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

DB Corp. Media


Exhibit 8: Financial summary of DB Corp Limited, FY2012-19E (Rs mn)


2012 2013 2014 2015 2016 2017E 2018E 2019E

Profit model

Net sales 14,515 15,923 18,598 20,096 20,519 23,527 26,261 29,320

EBITDA 3,465 3,821 5,003 5,622 5,346 7,226 7,974 9,251

Other income 139 153 239 257 281 201 352 484

Interest (92) (80) (75) (76) (92) (91) (91) (91)

Depreciation (506) (581) (642) (881) (878) (953) (1,022) (1,113)

Pretax profits 3,006 3,313 4,524 4,923 4,657 6,383 7,214 8,531

Extraordinary items — — — — — — — —

Current tax (932) (1,044) (1,406) (1,759) (1,690) (2,304) (2,589) (3,081)

Deferred taxation (51) (88) (51) — — — — —

Net income 2,023 2,181 3,066 3,163 2,966 4,080 4,625 5,450

Adjusted net income 2,021 2,181 3,066 3,163 2,966 4,080 4,625 5,450

Earnings per share (Rs) 11.0 11.9 16.7 17.2 16.1 22.2 25.2 29.7

Balance sheet

Total equity 9,271 10,292 11,467 12,882 13,466 15,202 16,843 18,669

Deferred taxation liability 746 834 885 832 842 842 842 842

Total borrowings 2,100 1,593 1,506 983 1,135 1,135 1,135 1,135

Current liabilities 3,320 3,598 3,837 4,349 4,553 5,565 6,340 7,114

Total capital 15,452 16,327 17,695 19,046 19,996 22,743 25,160 27,760

Cash 1,896 1,279 1,135 1,780 898 3,183 4,943 7,093

Other current assets 5,069 5,780 7,248 8,377 9,040 9,537 10,468 11,350

Total fixed assets 7,933 8,383 8,526 8,203 9,370 9,335 9,061 8,629

Investments 460 807 724 686 688 688 688 688

Total assets 15,452 16,327 17,695 19,046 19,996 22,743 25,160 27,760

Free cash flow

Operating cash flow, excl. working capital 2,662 2,969 3,878 4,289 3,852 5,119 5,583 6,366

Working capital changes (421) (618) (1,387) (77) (459) 515 (155) (108)

Capital expenditure (1,215) (605) (1,058) (715) (1,588) (918) (749) (681)

Income from investments 116 95 79 100 281 201 352 484

Free cash flow 1,142 1,840 1,512 3,598 2,086 4,918 5,031 6,061

Ratios (%)

Net debt/equity 2 3 3 (6) 2 (13) (22) (31)

ROAE (%) 21 21 26 24 21 27 27 29

ROACE (%) 20 19 24 23 20 28 31 37



Background to the case

In a judgment issued last Friday, the Supreme Court of India overturned the Allahabad High

Court ruling in the ongoing DPCO 1995 overcharging case against Cipla. Cipla has two

ongoing cases against the Government of India pertaining to an original ₹3.6 bn penalty on

overcharging on 8 drugs included under DPCO 1995 until July’03. Over time, additional ₹4.5 bn

was added on account of overpricing and along with compounded interest, the litigated

amount now stands at ₹17.7 bn (see Exhibit 1). The Allahabad High Court case pertained to the

mechanism of fixing prices and periodic notifications, while the Mumbai High Court case

pertains to the inclusion of theophylline, salbutamol, ciprofloxacin and norfloxacin (the bulk of

penalty amount) under DPCO 1995. In 2003, the Allahabad High Court had issued a decision in

favor of Cipla and last week’s Supreme Court ruling was a decision on an Appeal.

The Supreme Court setback

The Supreme Court judgment does not quantify the penalty amount but only ruled on the

specifics of the price fixing mechanism and periodic notifications (or the lack of it). The Supreme

Court also ruled that the government was within its rights to issue notifications without any

revisions, and this could not be judged as “mechanical,” essentially over-turning the Allahabad

High Court judgment. Though relying on the provisions of DPCO 1995, the Essential Medicines

Act and various committee reports, the Supreme Court came down heavily on the industry for

time and again failing to disclose pertinent information to the government, which would have

enabled it to fix prices and issue notifications in a more transparent manner.

What does it mean in numbers?

In our view, last week’s ruling clears the price fixing notification. We believe the penalty amount

is likely to be contingent on the outcome of the Mumbai High Court case, as well as the

interest component. We note that in July’16, the Supreme Court had directed Cipla to pay 50%

of the original penalty to NPPA. Thus, we believe that the range of penalty stands anywhere

between the ₹1.75 bn (₹2/share) paid by Cipla to NPPA and ₹17.6 bn (₹20/share) claimed by

the Government. We note that Cipla has net debt of ₹37 bn, and believe that the balance

sheet is strong enough to withstand the worst case penalty amount.

Cipla (CIPLA) Pharmaceuticals

Faces setback in DPCO case. The Supreme Court of India passed a ruling against Cipla

in the ongoing drug overcharging case, setting aside the Allahabad Court order of

Mar’04, on the norms of fixing prices including the process of periodic notifications.

The Supreme Court judgment does not mention the quantum of penalty, which can

range from ₹1.75 bn to ~₹17.7 bn, depending on the outcome of the ongoing

litigation in Mumbai High Court, where Cipla has challenged the inclusion of

theophylline, salbutamol, ciprofloxacin, and norfloxacin under DPCO 1995.

BUY

OCTOBER 24, 2016

UPDATE


Price (`): 583


BSE-30: 28,077

Chirag Talati, CFA [email protected]

Mumbai: +91-22-4336-0871

Kumar Gaurav [email protected]

Mumbai: +91-22-4336-0872

Cipla



Market Cap. (Rs bn) EPS growth (%) 14.4 23.1 34.8




MFs 9.1 EBITDA (Rs bn) 24.8 27.5 37.2


Absolute (3.0) 13.1 (14.0) ROE (%) 11.7 13.0 15.7

Rel. to BSE-30 (1.5) 11.6 (16.4) Div. Yield (%) 0.6 0.7 1.0


705-457

468.7

Cipla Pharmaceuticals


Exhibit 1: Original amount of ₹3.6 bn has gone up to ₹17.6 bn Cumulative penalty amount (Rs bn)


Timeline Penalty amount (Rs bn) Comments

July'03 3.6

Original demand notice for overcharging penalty for 8 drugs (salbutamol,

theophylline, ciprofloxacin, cloxacillin, norfloxacin, cefadroxil,

trimethoprim and sulphamethoxazole)

Apr'07 7.5 100% of original demand notice amount plus interest

May'07 9.4 Additional demand notice pertaining to Aug'03 to Mar'06 time period

Mar'08 11.1 Additional demand notice for overcharging until Mar'07

July'09 11.7 Additional demand notice for salbutamol overpricing upto June'09

Mar'12 16.5 Amount revised to include compounded interest until Jan'12

Mar'15 17.7 Amount revised to include compounded interest until Mar'15



Key changes relating on real estate accounting

Reporting of borrowings: We believe this is a key change as debt on JVs will be taken off

the balance sheet, versus proportionate disclosures earlier. As debt moves off reported

books, evaluating developer liabilities will become more difficult. Developers are not liable

now to report their proportionate liabilities in JVs.

Revenue recognition from Joint Development Agreement (JDA) projects: Most

developers will shift revenue recognition from net to gross basis. While change is only

restricted to accounting, reported margins in the income statement will come down (please

see Exhibit 1). Some developers have chosen to continue on net accounting basis only

(difference in views of auditors too).

Revenue recognition from Joint Venture (JV) projects: JVs will now be accounted by the

equity method. Top-line will reduce, but net income will reflect income from such projects.

Accounting is dependent on substance, rights and control of contracts. But there are cases

where developers have a 50% JV or partnerships with financial institutions and have guided

to continue with the consolidation method. Also, net income contribution of such JVs will be

impacted by the amount of debt and operating expenses loaded.

Reporting of rental income: Rental income will be recognized on a straight-line basis.

Though it does not make a big difference to most listed companies, this will also shift to

non-cash accounting like residential, unlike before. The catch though, is that some

developers will straight-line only for the lock-in period, while others will do so for the entire

lease tenure, which again changes the dynamics. With potential REIT listings to begin over

the next 15-24 months, adjustments of straight-lining to Net Operating Income (NOI) and for

recognizing lease deposits will have to be done.

Other changes: There are changes on account of measurement of financial liability of

different structured investments, types of redevelopment and SRS projects, buy-back

agreements and others, which we detail on a case-by-case basis. We will exclude some

(minor) changes on accounting for employee benefits, deferred taxes or deposit accounting

while building our estimates.

Stakeholders continue to differ, thus comparison is difficult. Cash flow evaluation remains the

key

After multiple interactions with auditors, we conclude that adapting new accounting policies

will involve several issues on estimating, as we do project-wise build-up in our models. Various

options to recognize /reflect financials further make it difficult to make meaningful comparisons

of listed developers’ financials. We continue to believe that evaluating developers’ cash flows

remains the best way to value and compare real estate, with our first filter remaining positive

operating cash before land payments. While we briefly highlight changes in the note, we will

detail developer specific changes in our subsequent notes.

Real Estate India

Ind-AS: Disruptive change, but only in reporting. After multiple interactions with

auditors and developers, we detail changes and impact of Ind-AS regulations on real

estate accounting. We continue to value the sector on cash flows only, but estimating

and comparing financial statements will become more complex as developers adapt to

differing opinions on accounting. Importantly, some liabilities will go off books despite

developers running projects, which we believe is a key negative.

ATTRACTIVE

OCTOBER 24, 2016

UPDATE

BSE-30: 28,077

QUICK NUMBERS

Changes in revenue

recognition to make

projections and

comparisons

difficult

Certain liabilities

will go off books

Evaluating cash

flows is the best

way to value and

compare developers

Samar Sarda [email protected]

Mumbai: +91-22-4336-0874

Real Estate India


Detailing Ind-AS changes for real estate developers

Companies having net worth of over `5 bn have to shift to Ind-AS accounting. All listed real

estate developers under our coverage fall under this category. Application of Ind-AS will

result in significant changes to revenue recognition, transactions with buy-back obligations,

structured sales, convertible debt, interest free loans from promoters and JDA and JV

projects.

Revenue recognition will still continue on Percentage of Completion Method (POCM). Three

listed developers, who used to follow Project Completion Method (PCM), Ashiana Housing,

HDIL land Sunteck Realty, Sunteck has shifted accounting policy to POCM. But unlike the

threshold guided by the ICAI for recognition of revenue, Sunteck has adopted different

thresholds, 40% of construction amount spent (as against guidance of 25%), 25% of sales

done and 25% of amount collected (as against 10% of amount collected from area sold).

Changes in revenue recognition

We believe that EPS does not matter for a real estate developer, as the income statement is

mostly non-cash. Two things which an income statement of a developer tells you are (1)

how well the construction is progressing on ongoing projects and (2) changes in budgeted

costs for a particular project (only if one is covering projects separately to analyze the

contribution to the revenue stream). As we build our models on a project-by-project basis,

there will be many changes to our estimates for developers under our coverage.

For Joint Development Agreement (JDA) projects: Accounting for JDA projects is

now going to be recognized on gross basis, versus net earlier. This will lead to ‘reported

margins’ being lower than actual, front ending of revenue recognition. As illustrated in

Exhibit 1, a developer will now recognize cost to construction for land owner plus a

margin, for instance `2,310/sq. ft in the illustration below in topline and cost of goods

sold. The absolute project margin remains the same, but reported gross margins will

drop. By shifting to such accounting, revenue recognition in JDA projects is likely to be

up-fronted. For instance, the share of the land owner (considered as sales) is above the

threshold limit for commencing revenue recognition. Thus, if the developer intends to

launch the project post a certain stage of construction, revenue recognition could happen

even before actual units are sold to third parties.

Exhibit 1: Reported margins to drop JDA accounting: Changes between gross and net

Source: Kotak Institutional Equities

Further, such book costs will be recorded in the balance sheet as well. The estimated cost of

construction for the land owner will be recorded under Trade payables (as land cost payable)

on the liability side and as land cost under inventory on asset side. These costs reduce as

revenue and costs are recognized in the income statement, but Sobha has adopted to retain

such book costs till the project is delivered.

Assumptions

Project area (sq. ft) 1,000,000

Selling price (Rs /sq. ft) 6,000

Construction and related costs (Rs /sq. ft) 3,000

JDA share to developer (%) 70

Margin on land owner construction (%) 10

Recognition extract

Old

accounting

Under Ind-AS

accounting

Revenue recognized (Rs /sq. ft) 4,200 6,510

Cost recognized (Rs /sq. ft) 3,000 5,310

Gross profits (Rs /sq. ft) 1,200 1,200

Gross profit margins (%) 29 18

Revenue recognition

for JDA projects now

on gross basis for

most.

India Real Estate


Many developers have high proportion of JDA projects on their books. Prestige Estates and

Sobha have the most number of JDA projects (see Exhibit 2). Among our coverage universe,

Godrej Properties has decided to continue accounting on net basis. In our interaction with

auditors, some people advise on continuing with net accounting. Certain large unlisted

developers have also decided to continue with net accounting only.

Exhibit 2: Many JDA projects will result in massive change in revenue recognition Developers: Total projects and those in JDA


Some issues where minor confusion still exists are: (1) revenue recognition before actual

third party sales. For instance, a developer has 50% JDA share in a project and the project is

nearly 100% complete, without reaching 25% of sales threshold. As the land owner, the

share is 50%, and revenue recognition should already have commenced and (2) a developer

has a JDA for a project built for annuity income, for instance an office or mall put up for

rent. All the construction cost is shifted to gross block post construction, should /will there

be any revenue recognition on account of land cost (construction cost + margin for

constructing land owner share). Prestige has projects under this structure too.

In Mumbai, there are various redevelopment and slum rehabilitation schemes (SRS) which

usually have little or no land cost. Developers’ get free sale area in lieu of constructing for

existing tenants (a structure similar to area sharing JDAs). Such accounting changes are likely

to affect accounting of redevelopment and SRS too, we believe. In north too, there is a

concept of ‘acreage scheme’ during land acquisition which results in developer giving certain

area to land owners.

We still await clarity on the above from companies.

Joint Ventures (JVs): JVs will now be accounted using equity method of accounting,

showing just the net income form JVs. Such a decision is based on the substance of the

agreement with the partner, rights and control amongst other things. JVs can be with

land owners /companies /other developers and /or investments from Private Equity (PE)

players.

But developers are adopting different ways of accounting for the same. For instance,

DLF’s and Sobha’s project with financial institutions will now shift to equity method of

accounting while Brigade is continuing to proportionately consolidate revenues and cost

in projects which have financial investors or are JVs with other companies /individuals.

Oberoi has certain projects in JVs (with developers and individuals’). It too will shift to

equity method of accounting.

Developer

Total num. of

ongoing projects

Projects

under JDAs

Impact from Ind-AS

on JDA accounting

DLF (a) 18 NA Some

Godrej Properties (b) 50 12 High

Oberoi Realty (b) 6 1 None

Prestige Estates (b) 101 49 High

Sobha Ltd 28 17 High

Sunteck Realty 5 0 None

Brigade Enterprises 12 6 High

HDIL (c) 10 7 None

Mahindra Lifespaces 14 2 High

Puravankara Projects 18 10 High

Notes:

(a) DLF also has certain JDA projects. Details pending.

(b) Includes forthcoming and planned projects too. Ongoing and Forthcoming for Prestige.

(c) Assuming accounting for redevelopment and SRS projects as that of JDA.

Godrej Properties has

decided to continue

with net accounting

for JDA projects.

Consolidation of joint

venture can only

happen in single

control model

Real Estate India


Exhibit 3: Debt and opex assumptions key in estimating profits from JVs Illustration on JV accounting


The catch in our illustration above is the assumption of no debt and other operating

expenses. Many of these projects have debt /convertible instruments, which now have to be

realized as complete liability. Such liabilities go off developer books and are difficult to factor

in. Ideally, developers should continue to show their share of liabilities, which is not a

compulsion as per current norms. In the absence of indicative operating expenses or debt

figures for the project, projecting net income from JVs becomes difficult. Our estimates will

be affected by the amount of debt (internal and external) loaded on the project and

operating expenses taking for the same.

We list the number of ongoing and certain forthcoming projects under JVs (profit sharing) of

developers under our coverage. Our discussion with Godrej Properties revealed, the

developer takes debt on its parent’s balance sheet (given its strong rating and hence lower

cost of capital) and funds most of its SPVs. Unlike others, where JV company debt goes off

consolidated books, GPL will continue to show debt, even if used for JVs /associates (if any).

Exhibit 4: Developers having projects under JVs


Assumptions for a JV project

Project area (sq. ft) 1,000,000

Selling price (Rs /sq. ft) 6,000

Construction and related costs (Rs /sq. ft) 3,000

JV share to developer (%) 50

Other operating expenses (%) 15

Tax (%) 34

Assumption of debt for example (Rs mn) -

Recognition extract

Old

accounting

Under Ind-AS

accounting

Revenue recognized (Rs /sq. ft) 3,000 -

Cost recognized (Rs /sq. ft) 1,500 -

Gross profits (Rs /sq. ft) 1,500 -

Gross profit margins (%) 50 NA

EBITDA (Rs /sq. ft) 1,275 -

Net income 842 -

Profits from associates, Joint Ventures - 842

Developer

Total num. of

ongoing projects

Projects

under JVs Remarks

DLF (a) 18 4 Forthcoming launch in Delhi

Godrej Properties (b) 50 17 High

Oberoi Realty (b) 6 2 One ongoing project yet to reach revenue recognition

Prestige Estates 101 5 Certain projects now to be treated as JVs

Sobha Ltd 28 1 One project w ith PE partner

Sunteck Realty 5 1 Low as of now

Brigade Enterprises 12 2 Continuing the consolidation approach

HDIL 10 0 None

Mahindra Lifespaces 14 4 Certain projects now to be treated as JVs

Puravankara Projects 18 0 High

Notes:

(a) Changes in shareholding of certain JV projects w ill be completed by Mar'17.

(b) Includes forthcoming and planned projects too.

Certain liabilities go

off books in JV

accounting.

India Real Estate


Other revenue recognition adjustments:

Adjustments need to be made for buy-back options (resulting in possible delay in

revenue recognition) and timely payment rebates offered by developers (net

accounting of unit sale post adjustment of rebate value from the time of booking).

Developers also offer various payment schemes to buyers, for instance 20:80 where

20% is paid upfront and the rest at possession of the unit.

Several real estate projects are delayed beyond committed period for which developers

have to compensate buyers. Earlier, such cases booked costs at completion. Developers

will now have to estimate the charge due to delay and account for it in revenue

calculations.

There are also changes for managing leases for investors (sub-leasing) and any

guarantee offered to the investors on the same. Prestige has many commercial projects

sold to investors, where it leases back the area sold for sub-leasing it to tenants.

Recognition for lease income: Rental income was accounted on accrual basis until

now. Such accounting has shifted to straight-lining. Here too, there remains a choice for

straight-lining for the lock-in period or for the entire lease period. From our discussions

with auditors, the decision on the period of straight-lining is based on developers’

experience on the longevity of the tenants at their premises. Office assets are likely to see

straight-lining for the entire lease term, while mall assets will be for the lock-in period.

Exhibit 5: Impact of straight-lining for lease period can by upto 20% Illustration on change in accounting for rental income


Currently, the impact of such change on accounting will be limited as the quantum of rental

income for most listed developers is small, excluding DLF, Phoenix Mills and Prestige. But,

certain large unlisted developers /sponsors eying REITs will also require adjustments on

account of straight-lining. From our discussions with the managements, Prestige, Oberoi and

Brigade have decided to go for the lock-in period while DLF for the entire lease period.

Exhibit 6: For DLF, impact can be over 10% Lease income of listed developers, as on FY2016 (Rs mn)


Years # 1 2 3 4 5 6 7 8 9

Actual rental income 100.0 105.0 110.3 115.8 121.6 127.6 134.0 140.7 147.7

Straight-lining

For lock-in period 105.1 105.1 105.1 115.8 121.6 127.6 134.0 140.7 147.7

For entire lease 122.5 122.5 122.5 122.5 122.5 122.5 122.5 122.5 122.5

Notes:

(a) Assuming a yearly escalation of 5%.

Lock-in period

Developers Rental income Lease deposits

DLF 23,107 19,808

Oberoi 1,708 1,581

Prestige 4,468 5,122

Brigade 1,606 1,152

Phoenix Mills (a) 7,071 2,741

Notes:

(a) Only long-term deposits shown.

Straight-lining of

rental income can

have sizeable changes

for large unlisted

sponsors eying REITs.

Real Estate India


Accounting for refundable deposits will now be as financial instruments:

Refundable deposits for JDA projects (assets) and refundable deposits from tenants

(liabilities) will also change. Part of the lease deposit will be considered as land cost and

moved to inventory. Such amount will be booked as cost each year and also as interest

income. As data on quantum of lease deposits paid for individual JDA projects or that got

from leases isn’t available, we won’t take the impact of such accounting in our estimates.

Exhibit 7: Illustration of change in accounting for refundable deposits


Accounting for financial instruments: Convertible instruments, like CCDs/OCDs

/Preference shares have to be accounted for debt at its fair value. The interest on such

instruments will be accrued. DLF, Godrej Properties, Prestige Estates, Sobha Ltd, Sunteck

Realty, all have project level investments from financial institutions. We adjust our

estimates on individual cases and stage of the project.

Other changes:

Real estate developers acquiring land from land owning companies /others higher than

book value, used to show goodwill. Now, it the acquisition is of an asset and not

business, the entire cost will be shown as land cost, thus impacting reported margins

when the project comes under revenue recognition. As land cost increases, this will

also affect the timing of revenue recognition.

The cost for raising money /processing fees will now be amortized over the loan

period, versus being booked in the year the amount was raised.

Interest free loans from promoters will have to be valued at fair value and have a

notional interest paid at market value. The difference between the loan amount and

fair value will be treated as investments. We have observed that in certain cases, such

loans from promoters, if classified as ‘payable when able’, doesn’t carry any changes in

accounting.

Developers have assets for annuity income will now have to disclose fair value of the

assets. While this doesn’t have any accounting impact, costs incurred for such exercise

will go up.

The liability for dividend payments and related tax will now have to be recognized in

the period of the payment, versus the period in which they were announced.

There are also changes on account on accounting for employee benefits, deferred

taxation.

Annual report FY2017 of developers will detail many changes and provide incremental

clarity /display on financial statements. While our forthcoming notes, will include impact

changes on account of Ind-AS, there might be changes post AR2017 too.

Refundable deposit (Rs mn) 100.0

Period of deposit (years) 6.0

Present value of repayment (Rs mn) 56.0

Interest income and interest to be booked over the period 7.3

Under IGAAP

Loans and advances: Refundable deposits 100.0

Re-classification under Ind-AS

Inventory: land cost 44.0

Loans and advances: Refundable deposits 56.0

Refundable deposits

will also flow through

income statement

now.

K

OTA

K IN

STIT

UTIO

NA

L EQ

UIT

IES R

ESEA

RC

H

62

In

dia

Da

ily S

um

ma

ry - O

ctob

er 2

4, 2

01

6

Ind

ia D

aily

Su

mm

ary

- Octo

be

r 24, 2

01

6

September 2016: Results calendar

Source: Bloomberg, NSE India

Mon Tue Wed Thu Fri Sat Sun

24-Oct 25-Oct 26-Oct 27-Oct 28-Oct 29-Oct 30-Oct

Adani Enterp. Adani Ports Ajanta Pharma A B B Bajaj Auto J K Cements

Adani Pow er Alembic Pharma Cadila Healthcare Bajaj Finance Bajaj Holdings

Bharti Infra. Arvind Ltd Canara Bank Bajaj Finserv Bharat Financial

Idea Cellular Asian Paints Cummins India Bharat Electron Carborundum Universal

Mahindra CIE Automotive Axis Bank Dabur India Castrol India Century Textiles

Rallis India Bharti Airtel Dalmia Bharat Cholaman.Inv.&Fn Colgate-Palmolive

Reliance Capital Dr Reddy's Labs Exide Industries Emami Dish TV

HDFC Bank H D F C Glaxosmit Pharma Eicher Motors

Hexaw are Tech. Hero Motocorp Glenmark Pharma. Grasim Inds

IDBI Bank Hind. Unilever I O C L I D F C

IDFC Bank IIFL Holdings Info Edge (India) Kansai Nerolac

Jyothy Laboratories ITC Jubilant Life Marico

Kotak Mah. Bank JK Lakshmi Cement Karur Vysya Bank NTPC

L&T Fin.Holdings JSW Energy Maruti Suzuki SPARC

M & M Fin. Services Jubilant Foodw orks MRF Strides Shasun

Ortel Communications Just Dial O N G C UPL

P I Inds. Torrent Pharma. Piramal Enterp. Vedanta

Shriram Trans. PVR

Zee Entertainmen Shri.City Union.

Supreme Inds.

Tata Elxsi

Tech Mahindra

Torrent Pow er

TVS Motor Co.

United Spirits

31-Oct 1-Nov 2-Nov 3-Nov 4-Nov 5-Nov 6-Nov

Ambuja Cem. Titan Company Amara Raja Batteries

Berger Paints Union Bank (I) Punjab Natl.Bank

Dr Lal Pathlabs

MphasiS

7-Nov 8-Nov 9-Nov 10-Nov 11-Nov 12-Nov 13-Nov

Britannia Inds. WABCO India Apollo Tyres Aditya Bir. Nuv. M & M Hindalco Inds. Suprajit Engineering

Godrej Consumer Godrej Properties Motherson Sumi

ICICI Bank Lupin Page Industries

Sanofi India The Ramco Cement Thermax

Shree Cement

14-Nov 15-Nov 16-Nov 17-Nov 18-Nov 19-Nov 20-Nov

Godrej Inds. Container Corporation

Welspun India

In

dia

Da

ily S

um

ma

ry - O

ctob

er 2

4, 2

01

6

63

K

OTA

K IN

STIT

UTIO

NA

L EQ

UIT

IES R

ESEA

RC

H

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Target O/S

Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo

Company Rating 21-Oct-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E (US$ mn)

Automobiles

Amara Raja Batteries SELL 1,025 800 (22.0) 175,160 2,619 171 34.0 38.6 44.3 18.8 13.3 14.9 30.1 26.6 23.1 17.4 15.6 13.9 6.9 5.8 4.8 0.7 0.8 0.9 25.0 23.6 22.7 6.2

Apollo Tyres BUY 213 230 8.0 108,397 1,621 509 20.7 22.6 28.5 2.8 9.0 26.2 10.3 9.4 7.5 6.5 5.9 4.6 1.6 1.4 1.2 0.9 1.0 1.2 16.1 15.5 16.9 12.2

Ashok Leyland SELL 87 75 (13.8) 247,734 3,704 2,846 4.5 5.2 5.7 29.6 14.1 10.1 19.2 16.9 15.3 10.5 9.6 9.0 3.9 3.4 3.0 1.6 1.8 2.0 21.7 21.6 20.8 16.8

Bajaj Auto REDUCE 2,802 2,850 1.7 810,908 12,126 289 141.2 160.1 189.2 11.9 13.4 18.2 19.8 17.5 14.8 14.1 12.1 9.8 5.6 4.8 4.1 2.0 2.3 2.7 30.5 29.5 29.8 12.5

Balkrishna Industries ADD 1,046 950 (9.2) 101,144 1,512 97 63.3 72.5 84.2 6.2 14.6 16.2 16.5 14.4 12.4 10.1 8.6 7.1 3.0 2.6 2.2 0.6 0.6 0.7 20.0 19.2 18.9 1.4

Bharat Forge SELL 890 835 (6.1) 207,105 3,097 237 25.3 34.6 44.1 (7.6) 37.0 27.3 35.2 25.7 20.2 17.4 13.6 11.0 5.3 4.6 3.9 0.7 0.9 1.2 15.8 19.1 21.0 15.5

Eicher Motors SELL 25,122 14,500 (42.3) 682,347 10,204 27 646.6 736.0 835.2 37.4 13.8 13.5 38.9 34.1 30.1 30.7 26.8 23.0 19.0 13.1 9.7 0.1 0.1 0.1 49.8 45.5 37.1 18.4

Exide Industries SELL 204 155 (24.0) 173,443 2,594 850 7.8 8.5 9.2 6.5 8.5 8.6 26.2 24.1 22.2 15.6 14.4 12.9 3.6 3.3 3.0 1.2 1.5 1.5 14.3 14.2 14.2 10.8

Fag Bearings BUY 4,388 5,000 13.9 72,917 1,090 17 132.3 162.5 197.5 11.4 22.8 21.6 33.2 27.0 22.2 19.6 16.3 13.1 4.9 4.3 3.8 0.3 0.7 1.4 15.9 17.0 18.3 0.3

Hero Motocorp SELL 3,360 2,950 (12.2) 670,920 10,033 200 183.8 194.6 205.3 17.2 5.8 5.5 18.3 17.3 16.4 12.1 11.3 10.6 7.1 6.1 5.3 2.7 2.9 3.1 42.3 38.2 34.8 22.1

Mahindra CIE Automotive ADD 195 205 5.2 63,048 943 323 7.8 9.9 12.5 77.2 27.5 26.3 25.1 19.7 15.6 11.4 8.2 6.9 2.8 2.0 1.8 - - - 11.8 12.5 11.9 0.9

Mahindra & Mahindra REDUCE 1,327 1,370 3.3 824,034 12,322 569 65.2 74.2 83.6 12.5 13.8 12.8 20.4 17.9 15.9 13.6 12.1 10.7 3.0 2.7 2.4 1.2 1.4 1.6 15.6 15.9 16.0 23.8

Maruti Suzuki BUY 5,650 6,500 15.0 1,706,813 25,523 302 240.2 312.2 372.8 58.7 30.0 19.4 23.5 18.1 15.2 13.7 10.4 8.5 5.3 4.4 3.7 1.1 1.4 1.6 24.6 26.7 26.4 56.4

Minda Corp. REDUCE 114 110 (3.7) 23,903 357 209 5.5 6.9 8.9 19.6 24.9 28.1 20.6 16.5 12.9 10.3 8.5 6.9 3.6 3.0 2.5 0.5 0.5 0.6 18.8 19.7 21.0 0.8

Motherson Sumi Systems SELL 334 260 (22.2) 468,943 7,012 1,323 11.8 14.6 17.1 21.8 23.8 17.7 28.4 22.9 19.5 11.9 9.7 8.3 8.4 6.8 5.5 1.1 1.3 1.5 32.8 32.8 31.3 15.4

SKF REDUCE 1,410 1,400 (0.7) 74,353 1,112 53 48.1 56.0 64.8 (0.2) 16.4 15.7 29.3 25.2 21.8 19.3 16.4 13.9 4.3 3.9 3.5 1.0 1.2 1.4 15.4 16.2 16.8 0.2

Suprajit Engineering REDUCE 212 190 (10.3) 27,818 416 131 7.6 9.1 10.8 39.5 18.9 19.0 27.7 23.3 19.6 15.4 13.3 11.4 5.3 4.5 3.8 0.7 0.8 1.0 20.6 20.8 21.1 0.3

Tata Motors BUY 545 650 19.4 1,753,329 26,219 3,396 47.6 57.9 66.7 22.9 21.7 15.3 11.4 9.4 8.2 4.6 3.9 3.3 1.9 1.6 1.3 - - - 18.2 18.4 17.7 61.3

Timken ADD 617 630 2.0 41,983 628 68 16.2 21.2 26.4 17.4 30.5 24.7 38.1 29.2 23.4 22.0 17.0 13.9 6.8 5.6 4.9 0.3 0.3 1.3 19.3 21.1 22.4 0.3

TVS Motor SELL 396 235 (40.6) 188,087 2,813 475 11.6 14.3 16.8 50.7 24.1 17.4 34.2 27.6 23.5 19.5 16.2 14.0 9.6 7.7 6.3 0.8 0.9 1.1 31.0 31.0 29.5 11.6

WABCO India BUY 5,817 7,200 23.8 110,335 1,650 19 158.1 182.2 209.0 46.5 15.2 14.8 36.8 31.9 27.8 23.7 20.1 17.1 8.3 6.7 5.5 0.2 0.3 0.3 25.2 23.3 21.8 0.8

Automobiles Neutral 8,532,719 127,595 24.2 19.5 15.8 19.0 15.9 13.7 9.6 8.0 6.8 3.8 3.2 2.7 0.9 1.1 1.3 19.9 20.0 19.6 288.3

Banks

Axis Bank REDUCE 526 530 0.7 1,255,673 18,777 2,383 32.0 38.0 47.8 (7.2) 18.4 26.0 16.4 13.9 11.0 — — — 2.3 2.0 1.7 0.9 1.1 1.4 13.6 14.3 15.9 102.2

Bank of Baroda REDUCE 156 150 (3.9) 359,679 5,378 2,310 6.7 18.4 25.0 128.7 174.0 36.2 23.3 8.5 6.2 — — — 1.6 1.6 1.4 0.9 2.4 3.2 4.2 10.9 13.5 22.7

Bank of India ADD 113 120 5.9 119,550 1,788 817 (8.4) 32.3 42.7 88.8 486.9 32.2 (13.6) 3.5 2.7 — — — 0.9 0.7 0.5 (1.5) 5.7 7.5 (2.6) 9.9 12.0 10.6

Canara Bank REDUCE 319 260 (18.6) 173,431 2,593 543 17.5 56.2 55.8 133.8 221.4 (0.6) 18.3 5.7 5.7 — — — 1.5 1.4 1.0 — — — 3.0 9.4 8.9 21.0

City Union Bank ADD 144 135 (6.4) 86,259 1,290 598 8.7 10.2 11.5 17.5 16.7 12.4 16.5 14.1 12.6 — — — 2.6 2.3 2.0 1.0 1.1 1.3 16.0 16.4 16.1 1.1

DCB Bank ADD 128 140 9.3 36,460 545 284 6.7 8.0 10.8 (2.0) 18.6 36.0 19.1 16.1 11.8 — — — 2.0 1.8 1.6 — — — 10.4 11.1 13.3 2.9

Equitas Holdings REDUCE 183 180 (1.8) 61,474 919 270 6.0 7.3 7.9 (3.3) 22.7 7.7 30.6 24.9 23.2 — — — 2.8 2.6 2.4 — — — 11.1 10.3 10.0 5.3

Federal Bank BUY 73 80 9.4 125,685 1,879 1,719 5.1 6.7 7.5 85.5 31.3 10.5 14.2 10.8 9.8 — — — 1.6 1.4 1.3 1.8 2.3 2.6 10.5 12.7 12.8 9.3

HDFC Bank ADD 1,271 1,350 6.2 3,217,084 48,107 2,528 58.9 69.7 83.1 21.1 18.3 19.2 21.6 18.2 15.3 — — — 3.9 3.3 2.9 0.9 1.1 1.3 19.0 19.4 19.8 26.6

ICICI Bank BUY 277 340 22.6 1,613,614 24,129 5,849 17.5 24.7 28.6 5.4 41.1 15.7 15.8 11.2 9.7 — — — 2.0 1.8 1.5 1.9 2.7 3.1 11.0 14.3 15.0 69.3

IDFC Bank ADD 76 75 (1.8) 259,366 3,878 - 2.6 4.0 5.6 113.4 54.9 40.7 29.8 19.2 13.7 — — — 1.8 1.7 1.5 0.7 1.0 1.5 6.2 9.1 11.8 11.0

IndusInd Bank ADD 1,224 1,350 10.3 729,471 10,908 595 49.3 56.8 65.6 28.4 15.2 15.4 24.8 21.5 18.7 — — — 3.7 3.3 2.9 0.5 0.6 0.7 16.0 15.9 16.1 20.1

J&K Bank BUY 70 85 21.8 33,838 506 485 4.9 13.0 16.2 (42.9) 166.3 24.2 14.2 5.3 4.3 — — — 0.8 0.6 0.4 1.4 3.8 4.7 3.6 9.2 10.6 3.0

Karur Vysya Bank BUY 498 600 20.5 60,184 900 122 52.2 56.3 79.2 12.0 8.0 40.5 9.5 8.8 6.3 — — — 1.2 1.1 1.0 2.6 2.8 4.0 13.3 13.0 16.5 1.5

Oriental Bank of Commerce ADD 132 120 (9.0) 45,625 682 321 12.8 27.1 45.5 163.6 111.9 67.6 10.3 4.9 2.9 — — — 1.2 1.0 0.7 1.9 4.1 6.9 2.7 5.6 8.9 9.1

Punjab National Bank REDUCE 148 125 (15.3) 313,982 4,695 1,964 3.8 23.2 26.0 118.8 509.6 11.8 38.7 6.3 5.7 — — — 2.2 1.2 0.9 0.5 3.2 3.5 2.1 11.9 12.1 32.7

Ujjivan Financial Services REDUCE 456 400 (12.3) 53,954 807 101 18.9 15.0 14.9 7.7 (20.4) (1.1) 24.2 30.4 30.7 — — — 3.1 2.8 2.6 0.3 0.3 0.3 15.1 9.7 8.8 13.7

State Bank of India BUY 259 280 8.3 2,006,678 30,007 7,763 16.7 31.7 41.4 30.6 89.6 30.6 15.4 8.1 6.2 — — — 1.4 1.2 1.0 1.1 1.2 1.2 7.9 12.5 14.4 74.8

Union Bank ADD 147 145 (1.3) 101,019 1,511 687 22.0 37.6 46.3 11.8 71.2 23.1 6.7 3.9 3.2 — — — 0.8 0.7 0.5 1.5 2.5 3.1 7.2 11.2 12.4 12.2

YES Bank REDUCE 1,317 1,275 (3.2) 554,623 8,294 421 69.6 77.5 93.1 15.3 11.4 20.1 18.9 17.0 14.1 — — — 3.5 3.0 2.6 0.9 1.0 1.2 19.6 18.7 19.2 78.0

Banks Attractive 11,207,650 167,594 92.5 59.4 23.1 18.7 11.7 9.5 1.6 1.5 1.3 1.0 1.4 1.7 8.7 12.5 13.7 527.3

NBFCs

Bajaj Finserv REDUCE 3,275 2,440 (25.5) 521,219 7,794 159 144.4 169.4 199.5 18.0 17.3 17.8 22.7 19.3 16.4 — — — 3.6 3.1 2.7 0.4 0.4 0.4 16.5 17.3 17.6 10.3

Cholamandalam REDUCE 1,193 1,010 (15.3) 186,323 2,786 156 47.5 58.2 71.6 31.3 22.5 23.0 25.1 20.5 16.7 — — — 4.6 3.9 3.3 0.5 0.6 0.7 18.7 19.4 20.2 6.4

HDFC ADD 1,337 1,430 7.0 2,113,039 31,597 1,580 52.3 58.0 66.7 10.7 10.8 15.0 25.5 23.1 20.0 — — — 5.2 4.6 3.7 1.4 1.5 1.8 21.9 21.2 20.8 53.4

IDFC BUY 69 80 16.5 109,561 1,638 1,594 4.5 6.2 8.4 176.1 39.2 35.7 15.4 11.1 8.1 — — — 1.0 0.9 0.8 0.4 0.5 0.6 10.1 13.6 17.0 7.4

IIFL Holdings ADD 279 310 11.1 88,345 1,321 317 19.2 23.3 27.4 18.9 21.3 17.8 14.5 12.0 10.2 — — — 2.1 1.8 1.6 0.9 1.1 1.3 20.2 19.1 19.7 1.4

L&T Finance Holdings ADD 102 90 (11.9) 179,110 2,678 1,754 5.2 6.4 7.9 6.0 24.6 23.2 19.8 15.9 12.9 — — — 2.2 2.0 1.7 0.5 0.7 0.9 11.9 13.0 14.3 12.4

LIC Housing Finance ADD 600 670 11.8 302,545 4,524 505 42.3 51.7 62.1 16.5 22.3 20.0 14.2 11.6 9.7 — — — 2.6 2.1 1.8 1.1 1.3 1.6 19.4 22.2 22.2 17.9

Mahindra & Mahindra Financial REDUCE 362 320 (11.7) 206,064 3,081 565 13.3 16.9 20.7 11.3 27.1 22.8 27.3 21.5 17.5 — — — 3.3 2.9 2.7 1.0 1.2 1.5 11.8 13.7 15.2 11.7

Max Financial Services NR 562 - - 150,013 2,243 267 7.0 7.1 7.2 62.8 1.5 1.5 80.0 78.8 77.6 — — — 0.5 0.5 0.5 10.9 10.5 10.0 6.7

Muthoot Finance ADD 346 370 6.9 138,095 2,065 399 28.1 30.4 35.2 38.6 8.2 15.5 12.3 11.4 9.8 — — — 2.2 1.9 1.7 2.4 2.6 3.0 18.8 18.0 18.5 7.3

PFC REDUCE 128 100 (21.7) 337,006 5,039 2,640 16.5 20.7 25.6 (28.7) 25.5 23.5 7.7 6.2 5.0 — — — 1.3 1.1 0.9 2.6 3.3 4.0 10.9 12.5 13.9 9.0

Rural Electrification Corp. ADD 139 130 (6.6) 275,007 4,112 1,975 23.9 17.2 19.4 (16.1) (27.9) 12.9 5.8 8.1 7.2 — — — 1.0 1.4 1.3 3.7 2.6 3.0 16.0 10.8 11.2 17.4

Shriram City Union Finance REDUCE 2,300 1,900 (17.4) 151,632 2,267 66 94.1 127.1 160.7 17.4 35.0 26.5 24.4 18.1 14.3 — — — 3.1 2.8 2.4 0.5 0.6 0.8 12.8 15.3 16.8 2.3

Shriram Transport ADD 1,151 1,385 20.3 261,244 3,907 223 75.1 93.8 110.7 42.2 25.0 18.0 15.3 12.3 10.4 — — — 2.4 2.2 1.9 0.9 1.1 1.3 15.4 16.8 17.2 11.8

NBFCs Neutral 5,145,724 76,947 8.0 11.9 19.8 16.8 15.0 12.5 2.6 2.3 2.0 1.3 1.4 1.6 15.6 15.6 16.2 527.3

Price/BV (X) Dividend yield (%) RoE (%)

K

OTA

K IN

STIT

UTIO

NA

L EQ

UIT

IES R

ESEA

RC

H

64

In

dia

Da

ily S

um

ma

ry - O

ctob

er 2

4, 2

01

6

Ind

ia D

aily

Su

mm

ary

- Octo

be

r 24, 2

01

6



Target O/S



Cement

ACC SELL 1,566 1,350 (13.8) 294,103 4,398 188 39.1 56.7 77.9 (1.1) 44.8 37.4 40.0 27.6 20.1 19.9 14.6 11.0 3.4 3.1 2.8 1.1 1.1 1.1 8.5 11.7 14.6 8.1

Ambuja Cements SELL 247 230 (6.9) 490,454 7,334 1,552 8.2 10.9 14.4 47.7 32.3 32.1 30.1 22.7 17.2 12.7 9.2 6.9 2.1 2.0 1.9 1.4 1.4 1.4 9.6 9.2 11.4 9.7

Dalmia Bharat ADD 1,937 1,600 (17.4) 172,004 2,572 89 57.1 91.9 112.9 165.8 60.9 22.9 33.9 21.1 17.2 11.1 8.9 7.7 4.0 3.3 2.8 0.1 0.1 0.1 12.4 17.2 17.8 3.1

Grasim Industries RS 972 — — 453,574 6,783 467 79.3 94.8 105.9 44.3 19.5 11.8 12.3 10.3 9.2 5.7 4.4 3.4 1.5 1.4 1.2 0.5 0.5 0.5 13.4 14.1 13.8 14.7

India Cements REDUCE 155 92 (40.5) 47,490 710 307 6.6 9.0 11.1 43.7 36.3 23.5 NM 17.2 13.9 8.8 7.7 6.8 1.3 1.2 1.1 1.4 1.4 1.4 5.5 7.1 8.3 11.8

J K Cement BUY 963 850 (11.7) 67,326 1,007 70 40.0 74.9 97.8 368.4 87.2 30.6 24.1 12.9 9.8 11.0 7.8 6.4 3.6 2.9 2.2 0.4 0.4 0.4 16.0 24.7 25.4 0.5

JK Lakshmi Cement ADD 499 480 (3.7) 58,676 877 118 20.2 33.4 48.0 921.6 65.3 44.0 24.7 15.0 10.4 12.0 8.0 6.1 3.8 3.1 2.4 0.4 0.4 0.4 16.3 22.6 25.8 0.9

Orient Cement ADD 180 230 28.0 36,805 550 205 6.8 16.6 21.0 124.3 143.9 26.1 26.4 10.8 8.6 12.3 7.2 5.9 3.3 2.6 2.0 1.0 1.0 1.0 13.1 27.0 26.8 0.9

Shree Cement SELL 17,200 12,000 (30.2) 599,200 8,960 35 625.3 719.9 825.4 442.0 15.1 14.7 27.5 23.9 20.8 18.3 14.3 12.1 7.3 5.6 4.5 0.1 0.1 0.1 30.2 26.5 23.9 3.6

UltraTech Cement SELL 3,981 3,000 (24.6) 1,092,510 16,337 274 123.8 149.3 175.7 56.3 20.6 17.7 32.1 26.7 22.7 17.9 15.0 12.8 4.6 4.0 3.4 0.2 0.2 0.2 15.3 15.9 16.2 15.1

Cement Cautious 3,312,142 49,528 80.1 27.6 20.4 25.5 20.0 16.6 12.4 9.7 7.9 3.1 2.8 2.4 0.5 0.5 0.5 12.3 13.8 14.5 68.4

Consumer products

Asian Paints REDUCE 1,154 950 (17.6) 1,106,435 16,545 959 21.5 25.4 29.3 14.9 18.1 15.2 53.6 45.4 39.4 33.9 28.6 24.6 16.7 14.2 12.1 0.8 1.0 1.1 33.7 33.8 33.2 16.5

Bajaj Corp. BUY 406 475 17.1 59,819 895 148 17.6 19.7 21.7 10.7 12.0 10.4 23.1 20.6 18.7 19.3 16.5 14.2 11.9 11.3 10.8 3.1 3.7 4.1 52.6 56.3 59.2 0.8

Britannia Industries ADD 3,311 3,650 10.2 397,240 5,940 120 79.5 99.3 118.6 16.9 24.9 19.4 41.6 33.3 27.9 27.7 22.0 18.4 16.8 12.7 9.8 0.8 0.9 1.1 46.2 43.4 39.7 10.3

Coffee Day Enterprises ADD 228 290 27.4 46,876 701 206 2.6 6.2 7.3 809.8 138.0 18.2 87.5 36.8 31.1 12.4 10.7 9.7 2.1 2.0 1.9 — — — 2.5 5.6 6.3 0.5

Colgate-Palmolive (India) ADD 955 1,060 11.0 259,637 3,883 272 23.6 27.9 33.5 11.2 18.4 20.0 40.5 34.2 28.5 24.2 20.5 17.1 20.2 15.9 12.6 1.2 1.3 1.6 55.7 52.0 49.4 4.7

Dabur India REDUCE 285 305 7.0 501,619 7,501 1,759 7.8 8.9 10.2 10.9 14.6 14.4 36.7 32.0 28.0 30.0 25.5 22.0 10.2 8.6 7.4 1.0 1.1 1.3 30.1 29.2 28.4 7.0

GlaxoSmithKline Consumer ADD 6,125 6,650 8.6 257,590 3,852 42 171.5 195.3 220.3 10.9 13.9 12.8 35.7 31.4 27.8 23.9 20.7 17.9 9.3 8.3 7.4 1.3 1.6 1.8 27.7 28.0 28.2 0.9

Godrej Consumer Products SELL 1,615 1,375 (14.9) 549,962 8,224 341 39.9 45.9 52.1 13.4 15.0 13.6 40.5 35.2 31.0 29.2 24.8 21.4 9.3 7.7 6.4 0.4 0.4 0.4 24.7 23.9 22.5 5.4

Hindustan Unilever REDUCE 851 885 4.0 1,842,206 27,548 2,164 21.0 23.3 25.7 8.8 11.1 10.4 40.6 36.5 33.1 27.9 24.6 21.8 29.9 30.6 31.9 2.1 2.3 2.6 73.0 82.7 94.3 17.8

ITC ADD 240 270 12.4 2,898,805 43,347 12,104 8.6 9.7 10.9 11.0 13.1 12.9 28.0 24.8 22.0 18.2 16.0 14.0 8.2 7.6 7.2 2.2 2.6 3.2 27.3 29.9 32.8 35.9

Jubilant Foodworks REDUCE 1,098 1,000 (8.9) 72,281 1,081 66 20.4 29.3 39.7 28.0 43.8 35.6 53.9 37.5 27.7 20.8 15.5 11.9 8.7 7.4 6.2 0.4 0.5 0.8 17.2 21.4 24.5 12.6

Jyothy Laboratories NR 356 — — 64,606 966 181 9.9 11.1 11.5 36.0 11.9 3.9 36.0 32.2 31.0 25.3 21.6 18.8 8.1 7.4 7.0 1.4 1.7 2.0 27.1 24.0 23.2 0.9

Manpasand Beverages REDUCE 723 630 (12.9) 41,363 619 50 15.3 20.4 28.7 51.8 33.2 40.8 47.2 35.4 25.2 25.7 19.9 14.7 5.4 4.8 4.1 0.2 0.3 0.4 12.1 14.3 17.5 1.1

Marico REDUCE 285 270 (5.2) 367,634 5,497 1,290 6.8 7.9 8.8 19.9 15.2 12.5 41.8 36.3 32.2 28.5 24.7 21.8 14.6 12.3 10.5 1.1 1.2 1.4 38.2 36.9 35.2 5.1

Nestle India SELL 6,858 5,650 (17.6) 661,219 9,888 96 121.3 149.8 173.3 30.9 23.5 15.6 56.5 45.8 39.6 31.5 26.3 23.3 20.6 18.0 16.0 0.9 1.2 1.5 38.9 42.1 42.9 3.4

Page Industries SELL 16,475 11,500 (30.2) 183,761 2,748 11 251.5 309.7 382.9 20.6 23.2 23.6 65.5 53.2 43.0 41.2 33.7 27.3 27.9 21.3 16.0 0.6 0.6 0.6 48.2 45.4 42.5 2.7

PC Jeweller ADD 510 450 (11.7) 91,269 1,365 179 26.2 30.7 37.5 22.0 17.3 22.3 19.5 16.6 13.6 10.2 8.2 6.8 3.1 2.6 2.2 0.8 0.9 1.1 17.7 17.6 17.6 2.5

Pidilite Industries REDUCE 714 690 (3.4) 366,255 5,477 513 17.6 20.1 23.1 19.4 14.1 15.2 40.6 35.6 30.9 26.4 22.9 19.8 10.8 9.0 7.6 0.7 0.8 1.0 29.2 27.6 26.7 7.0

S H Kelkar and Company REDUCE 302 260 (13.9) 43,654 653 145 8.8 10.1 11.5 51.2 15.6 13.4 34.4 29.8 26.3 22.0 19.1 16.8 5.1 4.6 4.1 0.7 0.9 1.1 15.7 16.3 16.5 0.7

Speciality Restaurants SELL 90 75 (16.5) 4,219 63 47 (0.3) 0.8 1.9 (642.3) 373.3 136.1 (299.2) 109.5 46.4 21.0 12.3 9.4 1.4 1.4 1.3 — — — (0.5) 1.2 2.9 0.1

Tata Global Beverages ADD 153 150 (1.6) 96,247 1,439 631 6.1 7.0 8.2 22.3 14.6 17.0 25.1 21.9 18.7 12.7 11.3 9.8 1.6 1.6 1.5 1.5 1.6 2.0 6.6 7.3 8.1 6.3

Titan Company REDUCE 379 380 0.2 336,826 5,037 888 9.9 12.2 13.9 26.5 23.9 13.7 38.4 31.0 27.3 25.7 20.5 17.5 8.4 7.1 6.2 0.8 1.0 1.2 23.3 24.9 24.2 7.4

United Breweries SELL 918 730 (20.5) 242,684 3,629 264 13.5 17.3 21.4 20.4 28.3 23.9 68.2 53.2 42.9 30.5 25.7 22.0 10.1 8.7 7.5 0.2 0.3 0.3 15.8 17.6 18.8 5.2

United Spirits ADD 2,387 2,800 17.3 346,955 5,188 145 34.4 53.8 73.1 180.9 56.4 35.8 NM 44.3 32.7 30.5 22.9 18.4 11.4 7.6 6.2 — — — 20.7 20.6 20.8 15.1

Consumer products Cautious 10,839,163 162,084 15.3 16.3 14.6 37.7 32.5 28.3 24.2 20.7 18.0 10.8 9.6 8.6 1.4 1.6 1.9 28.7 29.5 30.2 169.9

Energy

BPCL REDUCE 668 660 (1.2) 966,402 14,451 1,446 57.3 54.6 58.3 11.5 (4.7) 6.7 11.7 12.2 11.5 7.5 7.3 6.9 3.0 2.6 2.3 2.6 2.5 2.6 27.8 22.6 21.0 28.2

Cairn India ADD 232 260 12.0 435,156 6,507 1,875 12.8 15.8 20.0 11.7 24.0 26.1 18.2 14.7 11.6 8.5 7.9 5.8 0.9 0.8 0.8 1.5 1.9 3.0 4.8 5.8 7.0 12.8

Castrol India ADD 467 450 (3.7) 231,133 3,456 495 14.3 15.4 16.5 19.1 7.7 6.8 32.6 30.3 28.3 21.5 19.9 18.6 36.6 33.9 30.6 2.4 2.6 2.7 117.4 116.2 113.3 19.7

GAIL (India) ADD 440 480 9.1 558,067 8,345 1,268 27.3 33.0 37.5 52.4 20.7 13.6 16.1 13.3 11.7 9.9 8.3 7.3 1.7 1.5 1.4 1.7 2.3 2.7 10.8 12.0 12.7 13.8

GSPL ADD 159 170 6.8 89,661 1,341 563 9.0 11.1 12.2 14.4 23.5 9.3 17.6 14.3 13.1 8.9 7.2 6.5 2.1 1.9 1.8 1.6 2.1 3.1 12.3 13.9 14.0 1.1

HPCL REDUCE 450 460 2.3 456,740 6,830 1,017 48.8 42.0 43.0 28.4 (13.9) 2.4 9.2 10.7 10.5 6.7 7.6 7.7 2.1 1.9 1.7 3.3 2.8 2.9 24.9 18.7 17.1 33.4

Indraprastha Gas ADD 865 870 0.5 121,149 1,812 140 47.0 51.0 55.1 41.8 8.4 8.1 18.4 17.0 15.7 10.7 9.7 8.9 4.3 3.8 3.4 1.5 1.9 2.3 25.3 23.9 23.0 11.4

IOCL ADD 324 365 12.6 1,574,770 23,548 4,856 32.3 30.8 32.0 65.4 (4.7) 4.0 10.0 10.5 10.1 6.1 5.9 5.7 1.9 1.7 1.5 3.0 2.9 3.0 19.9 16.9 15.8 29.2

Mahanagar Gas ADD 790 715 (9.4) 77,985 1,166 99 40.1 42.5 45.0 28.2 6.2 5.9 19.7 18.6 17.5 11.6 10.8 10.1 4.5 4.1 3.7 2.2 2.4 2.9 24.3 23.1 22.1 -

ONGC SELL 280 230 (17.8) 2,393,826 35,796 8,556 19.8 22.6 26.8 (2.2) 14.0 18.6 14.1 12.4 10.4 5.5 5.0 4.3 1.2 1.2 1.1 2.5 2.9 3.4 8.8 9.6 10.7 21.8

Oil India SELL 414 370 (10.7) 249,111 3,725 601 35.9 37.9 43.0 (7.5) 5.6 13.7 11.6 10.9 9.6 6.7 6.3 5.7 1.1 1.0 1.0 3.0 3.6 4.1 9.4 9.4 10.2 3.2

Petronet LNG ADD 389 370 (4.9) 291,825 4,364 750 19.0 24.0 26.8 69.4 26.1 11.7 20.5 16.2 14.5 12.8 10.0 8.6 3.9 3.4 3.0 1.0 1.7 2.3 20.6 22.3 21.7 10.5

Reliance Industries ADD 1,064 1,150 8.1 3,133,482 46,857 3,240 91.1 98.7 102.4 7.7 8.3 3.7 11.7 10.8 10.4 10.6 8.4 7.6 1.3 1.2 1.1 1.1 1.3 1.5 11.7 11.5 10.9 63.6

Energy Attractive 10,579,307 158,198 16.2 5.8 8.8 12.1 11.5 10.5 7.7 6.9 6.2 1.5 1.3 1.2 2.1 2.3 2.6 12.0 11.7 11.8 248.7


In

dia

Da

ily S

um

ma

ry - O

ctob

er 2

4, 2

01

6

65

K

OTA

K IN

STIT

UTIO

NA

L EQ

UIT

IES R

ESEA

RC

H



Target O/S



Industrials

ABB SELL 1,124 950 (15.5) 238,227 3,562 212 18.4 27.6 36.9 29.7 50.3 33.7 61.3 40.8 30.5 29.4 22.4 17.7 7.3 6.5 5.6 0.4 0.6 0.8 12.4 16.8 19.7 1.0

BHEL SELL 142 100 (29.4) 346,825 5,186 2,448 2.3 5.0 7.8 161.2 118.6 55.4 62.0 28.4 18.3 29.1 11.9 6.0 1.0 1.0 1.0 0.3 0.9 1.4 1.7 3.6 5.4 21.8

Carborundum Universal REDUCE 282 250 (11.5) 53,189 795 188 10.4 13.6 16.8 36.7 30.5 23.7 27.1 20.8 16.8 14.5 11.5 9.5 4.0 3.6 3.2 1.1 1.4 1.8 15.7 18.3 20.0 1.0

Crompton Greaves REDUCE 76 75 (1.8) 47,883 716 627 2.4 3.8 5.7 3.4 57.9 50.1 31.7 20.1 13.4 10.4 7.2 5.7 1.0 1.0 0.9 0.6 0.8 1.5 3.2 5.0 7.2 4.7

Cummins India REDUCE 852 850 (0.2) 236,105 3,531 277 28.5 32.6 36.1 7.7 14.4 10.6 29.9 26.1 23.6 27.8 23.9 20.9 6.8 6.1 5.5 1.7 2.0 2.2 23.7 24.6 24.6 4.3

Havells India REDUCE 412 370 (10.3) 257,690 3,853 624 10.2 11.8 13.5 31.8 15.1 14.8 40.3 35.0 30.5 27.1 22.9 19.5 8.1 7.2 6.5 1.0 1.1 1.5 21.1 21.7 22.3 11.1

Kalpataru Power Transmission BUY 253 300 18.5 38,841 581 153 12.5 13.8 21.9 63.8 10.3 58.3 20.2 18.3 11.6 7.3 6.8 5.3 1.6 1.5 1.3 0.6 0.6 0.6 8.0 8.2 11.9 0.7

KEC International ADD 126 160 26.6 32,496 486 257 9.4 13.1 16.3 26.5 38.6 24.9 13.4 9.7 7.7 6.6 5.6 4.9 1.9 1.6 1.4 1.0 1.4 1.7 15.0 18.1 19.3 0.9

L&T REDUCE 1,511 1,500 (0.7) 1,408,124 21,056 930 55.5 72.8 87.8 9.0 31.1 20.6 27.2 20.8 17.2 19.7 17.4 15.0 3.5 3.2 2.8 1.5 1.4 1.7 13.4 16.1 17.4 36.6

Siemens SELL 1,228 900 (26.7) 437,351 6,540 356 26.6 32.3 40.3 45.2 21.8 24.5 46.2 38.0 30.5 28.7 23.5 18.7 6.2 5.8 5.4 1.1 1.3 1.6 13.8 15.8 18.3 4.3

Thermax REDUCE 877 770 (12.2) 104,512 1,563 119 25.8 28.4 35.7 11.7 9.9 25.9 34.0 30.9 24.6 22.2 19.8 16.8 4.1 3.7 3.3 0.7 0.7 0.8 12.5 12.5 14.2 0.9

Voltas ADD 395 360 (8.8) 130,650 1,954 331 12.6 15.7 17.8 21.0 24.6 13.1 31.3 25.1 22.2 24.9 19.3 16.7 4.9 4.4 4.0 1.0 1.4 1.8 16.5 18.4 18.8 9.5

Industrials Cautious 3,331,894 49,824 38.6 32.8 24.9 33.4 25.1 20.1 20.5 17.1 14.1 3.1 2.9 2.7 1.1 1.3 1.6 9.4 11.6 13.3 96.8

Infrastructure

Adani Port and SEZ ADD 286 255 (10.8) 591,774 8,849 2,085 14.7 13.0 13.2 6.9 (11.3) 1.2 19.4 21.9 21.7 15.6 13.9 13.6 3.7 3.3 2.9 0.5 0.7 0.8 21.0 16.0 14.3 20.6

Ashoka Buildcon BUY 165 220 33.1 30,926 462 188 4.7 3.5 3.5 49.6 (24.3) 0.5 35.5 46.9 46.7 9.3 8.7 7.9 1.6 1.6 1.6 0.9 1.2 1.3 4.6 3.4 3.4 0.7

Container Corporation REDUCE 1,346 1,350 0.3 262,494 3,925 195 42.7 49.5 57.7 5.7 16.0 16.6 31.5 27.2 23.3 20.4 16.7 14.0 3.1 2.9 2.7 1.1 1.2 1.4 10.0 10.9 11.8 3.7

Gateway Distriparks ADD 252 305 21.1 27,389 410 109 10.8 12.3 16.4 7.2 13.7 33.6 23.3 20.5 15.3 10.4 8.0 6.0 2.1 2.0 1.8 1.3 1.5 2.0 9.2 9.9 12.3 0.6

Gujarat Pipavav Port ADD 169 200 18.1 81,871 1,224 483 5.3 6.5 9.0 55.1 22.8 37.9 31.8 25.9 18.8 17.8 13.9 10.9 4.1 3.9 3.5 1.9 2.3 2.1 13.2 15.5 19.8 2.5

IRB Infrastructure BUY 249 275 10.4 87,511 1,309 351 19.7 19.5 22.9 8.6 (0.7) 17.2 12.7 12.7 10.9 7.4 7.6 6.6 1.5 1.3 1.3 1.5 1.5 — 12.7 10.7 11.9 9.4

Sadbhav Engineering ADD 278 315 13.2 47,729 714 172 11.1 12.8 13.9 37.8 15.8 8.0 25.1 21.7 20.1 16.2 13.2 11.2 2.9 2.6 2.3 — — — 12.2 12.7 12.3 0.6

Infrastructure Attractive 1,129,694 16,893 10.0 (2.5) 9.7 21.6 22.1 20.2 13.3 12.0 10.8 3.0 2.7 2.5 0.8 1.0 1.0 14.0 12.4 12.5 38.1

Internet

Info Edge ADD 899 960 6.8 108,698 1,625 121 16.2 21.3 27.2 38.3 31.3 27.7 55.5 42.3 33.1 41.4 29.4 21.9 5.7 5.2 4.7 0.5 0.6 0.8 10.7 12.9 15.0 1.3

Just Dial REDUCE 449 460 2.4 31,219 467 69 18.4 20.8 22.6 (9.7) 12.7 8.8 24.4 21.6 19.9 16.2 11.8 10.1 4.0 3.4 3.0 — 0.5 0.5 17.6 17.0 16.0 15.9

Internet Attractive 139,916 2,092 14.3 24.0 20.9 43.2 34.8 28.8 31.9 23.1 18.2 5.2 4.7 4.2 0.4 0.6 0.7 12.1 13.4 14.4 17.2

Media

DB Corp. REDUCE 397 380 (4.2) 72,861 1,090 184 22.2 25.2 29.7 37.5 13.4 17.8 17.9 15.8 13.4 9.7 8.6 7.2 4.8 4.3 3.9 2.8 3.5 4.3 28.5 28.9 30.7 0.6

DishTV BUY 96 115 20.0 102,160 1,528 1,066 2.5 3.6 5.0 (61.9) 45.4 38.6 NM 26.6 19.2 9.2 7.8 6.8 6.1 6.1 6.1 — — 1.0 15.8 23.0 31.9 10.0

Jagran Prakashan REDUCE 206 195 (5.3) 67,327 1,007 327 12.6 14.1 16.4 21.0 11.7 16.9 16.4 14.6 12.5 9.6 8.2 7.0 3.8 3.5 3.1 2.9 3.4 3.4 24.7 24.9 25.9 0.9

Ortel Communications BUY 149 190 27.9 4,512 67 30 5.0 6.7 13.6 28.5 33.9 102.4 29.5 22.0 10.9 8.3 6.9 5.3 2.9 2.6 2.1 — — — 10.4 12.4 21.1 0.0

PVR BUY 1,228 1,175 (4.3) 57,376 858 47 26.3 35.0 44.6 (2.2) 33.4 27.3 46.8 35.1 27.5 16.3 13.4 11.3 5.9 5.1 4.4 0.2 0.3 0.4 13.3 15.6 17.2 3.7

Sun TV Network ADD 532 500 (6.0) 209,574 3,134 394 27.0 29.9 34.2 15.3 10.6 14.6 19.7 17.8 15.5 12.4 10.8 9.3 5.4 4.9 4.5 2.8 3.2 3.6 28.7 29.0 30.1 14.6

Zee Entertainment Enterprises BUY 523 560 7.1 502,171 7,509 960 14.0 17.8 20.5 48.9 27.4 14.7 37.4 29.3 25.6 23.6 18.2 16.0 5.3 4.8 4.4 0.5 0.7 0.8 17.1 17.3 18.0 16.8

Media Attractive 1,015,981 15,193 10.3 20.7 18.2 28.0 23.2 19.6 14.7 12.3 10.6 5.2 4.8 4.3 1.2 1.5 1.8 18.7 20.7 22.1 46.5

Metals & Mining

Coal India REDUCE 313 315 0.5 1,978,917 29,592 6,316 22.1 25.6 28.6 (2.5) 15.8 11.7 14.2 12.2 11.0 9.0 8.0 7.2 5.4 5.0 4.6 4.9 5.7 6.4 38.0 42.6 44.0 18.4

Hindalco Industries SELL 152 110 (27.6) 313,568 4,689 2,065 9.0 10.9 12.6 230.6 21.4 15.6 17.0 14.0 12.1 7.6 7.0 6.5 0.8 0.7 0.7 0.7 0.7 0.7 4.7 5.5 6.0 26.0

Hindustan Zinc ADD 250 265 6.1 1,055,062 15,777 4,225 19.4 21.6 23.2 0.3 11.0 7.7 12.8 11.6 10.7 8.4 6.5 5.3 2.4 2.1 1.8 1.8 1.8 1.8 20.4 19.5 18.2 8.1

Jindal Steel and Power SELL 76 60 (21.2) 69,670 1,042 915 (13.2) (0.5) 5.2 27.7 96.3 1,151.0 (5.8) (155.2) 14.8 10.8 7.9 6.8 0.2 0.2 0.2 — — — (4.4) (0.1) 1.3 20.9

JSW Steel ADD 1,735 2,015 16.1 419,460 6,272 242 150.6 170.9 211.3 1,530.8 13.4 23.7 11.5 10.2 8.2 6.7 6.0 5.2 1.9 1.6 1.4 0.5 0.5 0.5 16.6 17.2 18.0 17.3

National Aluminium Co. SELL 51 36 (29.3) 98,483 1,473 2,577 2.2 2.9 3.2 (20.1) 33.6 10.5 23.6 17.7 16.0 4.9 3.4 2.9 1.0 1.0 0.9 2.0 2.0 2.0 4.3 5.6 5.9 0.8

NMDC SELL 124 75 (39.4) 490,435 7,334 3,965 7.2 7.6 8.0 (9.5) 5.5 5.3 17.2 16.3 15.5 11.9 10.5 9.8 1.6 1.6 1.6 4.9 4.9 4.9 9.5 10.0 10.4 5.6

Tata Steel ADD 427 470 10.0 414,903 6,204 971 26.2 54.8 61.7 211.8 109.3 12.6 16.3 8 6.9 8.2 6.3 5.9 1.6 1.3 1.1 1.9 1.9 1.9 9.2 18.5 17.9 43.7

Vedanta ADD 203 230 13.2 602,129 9,004 2,965 16.3 21.4 26.2 107.9 30.8 22.5 12.4 9.5 7.8 6.4 5.1 4.2 1.2 1.1 1.0 1.4 1.4 1.4 11.5 12.4 13.7 35.6

Metals & Mining Cautious 5,442,628 81,387 53.6 26.4 14.7 14.1 11.2 9.8 8.0 6.6 5.8 1.8 1.6 1.5 3.0 3.3 3.6 12.5 14.5 15.1 176.5

Pharmaceutical

Apollo Hospitals REDUCE 1,370 1,270 (7.3) 190,622 2,850 139 22.6 32.0 42.1 4.0 41.6 31.7 60.7 42.9 32.6 26.3 21.3 17.6 5.2 4.8 4.3 0.4 0.6 0.8 8.8 11.6 13.9 4.1

Biocon SELL 1,008 585 (42.0) 201,630 3,015 200 28.7 27.5 32.1 43.8 (4.3) 16.9 35.1 36.7 31.4 20.8 17.1 13.9 4.2 3.9 3.5 1.0 1.0 1.1 12.6 11.0 11.8 21.2

Cipla BUY 583 590 1.2 468,681 7,008 805 20.6 27.8 37.4 23.1 34.8 34.6 28.3 21.0 15.6 18.1 13.1 9.9 3.5 3.1 2.7 0.7 1.0 1.4 13.0 15.7 — 16.9

Dr Lal Pathlabs REDUCE 1,122 925 (17.6) 92,862 1,389 83 19.0 22.4 26.3 19.2 18.0 17.8 59.2 50.2 42.6 36.1 30.4 25.6 14.7 11.8 9.6 0.3 0.3 0.4 27.7 26.1 25.0 2.1

Dr Reddy's Laboratories SELL 3,114 2,500 (19.7) 515,916 7,715 171 80.1 118.6 150.0 (42.5) 48.0 26.5 38.9 26.3 20.8 18.4 13.3 10.5 4.2 3.7 3.2 0.4 0.6 0.7 10.5 14.9 16.5 18.8

HCG BUY 237 250 5.5 20,159 301 85 1.9 1.9 4.0 1,171.4 0.7 117.1 127.9 127.0 58.5 23.6 18.8 14.4 3.7 3.6 3.3 — — — 2.9 2.8 5.9 0.5

Lupin REDUCE 1,500 1,600 6.7 676,304 10,113 450 62.1 69.5 81.4 23.0 12.0 17.1 24.2 21.6 18.4 15.1 13.1 10.9 5.0 4.2 3.5 0.6 0.7 0.8 22.9 21.2 20.8 28.8

Sun Pharmaceuticals SELL 748 715 (4.4) 1,799,606 26,911 2,406 29.6 32.6 37.5 33.9 10.1 15.2 25.3 22.9 19.9 14.6 12.8 10.7 4.7 4.0 3.4 0.8 0.9 1.0 20.5 18.8 18.3 34.9

Torrent Pharmaceuticals REDUCE 1,583 1,260 (20.4) 267,825 4,005 169 59.0 66.1 80.6 (42.4) 12.1 21.9 26.8 23.9 19.6 17.1 15.3 13.0 6.4 5.3 0.9 1.0 1.2 26.5 24.4 22.5 5.6

Pharmaceuticals Cautious 4,233,606 63,307 7.8 16.9 20.3 28.3 24.2 20.1 16.5 13.8 11.3 4.6 4.0 3.4 0.7 0.8 1.0 16.4 16.5 17.0 132.9


K

OTA

K IN

STIT

UTIO

NA

L EQ

UIT

IES R

ESEA

RC

H

66

In

dia

Da

ily S

um

ma

ry - O

ctob

er 2

4, 2

01

6

Ind

ia D

aily

Su

mm

ary

- Octo

be

r 24, 2

01

6



Target O/S



Real Estate

DLF BUY 156 180 15.3 278,533 4,165 1,801 2.8 1.5 3.0 (9.2) (44.6) 98.7 56.4 101.8 51.3 17.2 15.7 14.1 1.0 1.0 1.0 1.3 1.3 1.3 1.7 1.0 1.9 21.0

Godrej Properties REDUCE 362 280 (22.7) 78,384 1,172 216 9.7 10.3 11.3 (9.3) 6.2 9.8 37.4 35.2 32.1 61.7 48.8 29.7 3.4 3.1 2.9 — 0.7 0.7 9.3 9.2 9.5 1.1

Oberoi Realty BUY 332 350 5.4 112,632 1,684 339 10.8 30.9 43.2 (13.7) 185.2 39.9 30.7 10.7 7.7 20.2 6.6 6.9 2.0 1.7 1.4 0.6 0.6 0.6 6.7 17.3 20.2 1.4

Prestige Estates Projects BUY 190 250 31.4 71,363 1,067 375 7.0 8.4 8.9 (24.8) 18.7 6.3 27.0 22.8 21.4 12.9 12.5 11.9 1.6 1.6 1.5 0.8 0.8 0.8 6.2 7.0 7.1 1.5

Sobha BUY 290 440 51.6 27,957 418 98 14.1 17.3 21.2 (9.9) 22.7 22.8 20.6 16.8 13.7 11.7 10.6 9.4 1.1 1.1 1.0 2.4 2.4 2.4 5.3 6.4 7.5 0.4

Sunteck Realty BUY 278 360 29.3 17,527 262 60 82.0 53.3 — 201.9 (34.9) (100.0) 3.4 5.2 - 2.5 0.6 — 0.8 0.7 0.7 0.7 — 26.2 14.1 — 0.5

Real Estate Attractive 586,395 8,769 5.1 19.3 19.2 29.8 25.0 20.9 15.6 12.7 12.6 1.3 1.2 1.2 1.0 1.0 1.0 4.3 4.9 5.9 25.9

Technology

HCL Technologies REDUCE 832 800 (3.8) 1,173,397 17,546 1,413 58.1 59.6 63.0 48.0 2.6 5.8 14.3 14.0 13.2 10.2 9.6 8.8 3.6 3.2 3.0 3.0 3.5 4.0 27.2 24.5 23.5 23.3

Hexaware Technologies ADD 197 215 9.1 59,456 889 304 13.2 15.7 17.6 2.1 18.6 12.6 14.9 12.6 11.2 9.9 8.1 7.0 3.9 3.6 3.2 4.4 4.4 4.5 27.2 29.8 30.0 3.2

Infosys ADD 1,038 1,175 13.2 2,384,918 35,663 2,286 61.8 69.2 76.7 4.8 12.0 10.8 16.8 15.0 13.5 10.8 9.4 8.2 3.7 3.3 3.0 2.6 2.9 3.4 23.1 23.1 23.0 59.9

Mindtree REDUCE 479 460 (4.0) 80,391 1,202 168 27.0 34.6 41.3 (24.7) 28.1 19.4 17.7 13.9 11.6 10.1 7.9 6.4 3.0 2.6 2.3 1.5 1.9 2.3 17.8 20.1 20.9 5.6

Mphasis SELL 518 460 (11.3) 108,955 1,629 210 38.1 40.0 41.1 10.7 4.9 2.7 13.6 13.0 12.6 8.1 7.4 7.0 1.6 1.6 1.5 3.7 3.9 4.0 12.4 12.4 12.1 1.0

TCS REDUCE 2,429 2,325 (4.3) 4,785,480 71,560 1,970 132.4 142.3 156.4 7.8 7.4 9.9 18.3 17.1 15.5 13.2 11.8 10.5 5.5 4.7 4.1 2.2 2.3 2.6 32.6 29.8 28.2 48.9

Tech Mahindra BUY 434 540 24.4 421,427 6,302 872 36.3 41.5 47.2 1.5 14.2 13.9 12.0 10.5 9.2 8.0 6.6 5.4 2.3 2.0 1.7 2.8 1.4 1.7 20.7 20.3 19.6 14.9

Wipro REDUCE 499 485 (2.8) 1,213,419 18,145 2,467 34.4 38.5 41.3 (4.6) 12.1 7.2 14.5 13.0 12.1 8.8 7.6 6.5 2.4 2.1 1.9 1.0 1.0 1.0 17.2 17.3 16.4 15.8

Technology Neutral 10,227,442 152,937 8.1 8.8 9.5 16.6 15.3 13.9 11.2 9.9 8.7 3.9 3.4 3.0 2.3 2.4 2.7 23.6 22.6 21.8 172.7

Telecom

Bharti Airtel BUY 310 365 17.8 1,238,195 18,515 3,997 9.1 7.9 12.5 (6.5) (12.9) 57.7 33.9 39.0 24.7 6.2 6.4 5.5 1.8 1.8 1.8 0.7 0.8 1.5 5.4 4.6 7.2 20.0

Bharti Infratel ADD 364 400 10.0 672,610 10,058 1,897 15.7 17.0 18.9 25.2 8.3 11.2 23.1 21.4 19.2 11.0 10.1 9.3 4.0 3.9 3.7 3.0 3.2 3.6 16.5 18.4 19.7 10.9

IDEA BUY 80 105 31.3 288,064 4,308 3,601 1.1 (2.7) (2.5) (87.1) (341.5) 7.1 72.7 (30.1) (32.4) 6.5 7.1 6.4 1.2 1.3 1.4 1.9 2.6 3.8 1.6 (4.1) (4.1) 14.1

Tata Communications ADD 680 515 (24.3) 193,814 2,898 285 11.2 17.3 23.5 584.3 54.4 35.4 60.6 39.2 29.0 8.9 7.9 7.2 (102.7) 63.2 19.8 1.0 1.0 1.0 (105.4) 838.2 104.2 10.3

Telecom Cautious 2,392,683 35,779 (22.7) (19.4) 41.5 32.9 40.8 28.8 6.9 7.0 6.2 2.2 2.2 2.2 1.4 1.6 2.3 6.7 5.4 7.5 55.3

Utilities

Adani Power SELL 28 26 (6.1) 94,663 1,416 3,334 2.8 4.7 4.5 93.8 64.2 (2.5) 9.8 5.9 6.1 6.6 5.7 5.3 1.1 0.9 0.8 — — — 12.1 17.1 14.2 2.6

CESC ADD 616 685 11.1 81,695 1,222 133 56.2 72.6 93.9 101.1 29.2 29.3 11.0 8.5 6.6 7.0 6.5 5.7 0.9 0.8 0.7 1.7 1.7 1.8 8.1 9.9 11.8 3.4

JSW Energy ADD 71 80 12.8 116,362 1,740 1,640 7.4 8.7 7.9 (2.4) 17.5 (8.8) 9.6 8.1 8.9 5.7 5.1 5.0 1.2 1.1 1.0 2.8 2.8 2.8 13.6 14.4 12.0 4.0

NHPC REDUCE 26 24 (7.2) 286,177 4,279 11,071 2.8 3.4 3.6 4.1 22.1 7.2 9.3 7.7 7.1 7.6 6.1 5.3 0.9 0.9 0.8 6.1 7.5 7.9 9.6 11.3 11.7 1.8

NTPC BUY 150 180 20.4 1,232,697 18,433 8,245 11.5 14.3 15.8 (0.2) 24.7 10.2 13.0 10.4 9.5 11.1 9.1 7.4 1.3 1.2 1.1 2.3 2.9 3.2 10.3 12.0 12.2 10.0

Power Grid BUY 177 210 18.7 925,730 13,843 5,232 13.8 15.1 17.8 20.7 10.0 17.9 12.9 11.7 9.9 9.5 8.2 7.1 1.9 1.7 1.5 1.6 1.7 2.0 15.8 15.5 16.1 13.4

Reliance Power SELL 48 36 (25.6) 135,768 2,030 2,805 4.8 5.3 5.9 (1.1) 11.1 10.1 10.1 9.1 8.2 9.1 8.0 7.6 0.6 0.6 0.5 - - - 6.2 6.5 6.7 2.8

Tata Power ADD 84 80 (4.3) 226,107 3,381 2,800 5.5 6.2 6.8 0.9 12.1 9.6 15.1 13.4 12.3 9.3 8.7 8.0 1.5 1.3 1.2 1.4 1.4 1.4 10.0 10.4 10.5 6.7

Utilities Attractive 3,099,199 46,344 9.2 20.0 10.8 12.1 10.1 9.1 9.1 7.8 6.9 1.3 1.2 1.1 2.2 2.6 2.9 10.6 11.7 11.9 44.7

Others

Astral Poly Technik REDUCE 437 425 (2.8) 52,385 783 120 11.1 14.8 19.1 31.7 34.2 28.5 39.5 29.5 22.9 19.9 15.6 12.3 5.8 4.9 4.0 0.1 0.1 0.2 15.7 17.9 19.3 0.4

Cera Sanitaryware REDUCE 2,540 2,050 (19.3) 33,035 494 13 73.7 93.2 112.2 14.9 26.4 20.4 34.5 27.3 22.6 20.1 16.0 13.4 6.6 5.4 4.5 0.4 0.4 0.4 20.8 21.8 21.7 0.8

Dhanuka Agritech BUY 645 780 20.9 32,263 482 50 25.9 31.0 38.0 19.9 19.6 22.7 24.9 20.8 17.0 18.5 15.3 12.3 5.6 4.7 4.0 1.0 1.2 1.5 24.7 24.8 25.5 0.7

Godrej Industries REDUCE 459 390 (15.0) 154,220 2,306 336 17.6 20.6 21.7 22.4 17.0 5.0 26.0 22.2 21.2 19.9 17.8 17.8 3.9 3.3 2.9 0.4 0.4 0.4 15.8 16.1 14.7 3.0

HSIL ADD 351 345 (1.7) 25,362 379 72 14.6 19.1 25.7 18.9 30.6 34.3 24.0 18.3 13.7 9.8 8.1 6.8 1.8 1.6 1.5 1.1 1.1 1.1 7.5 9.2 11.4 0.7

InterGlobe Aviation ADD 936 1,020 9.0 337,366 5,045 351 53.2 73.9 93.4 (6.2) 38.8 26.4 17.6 12.7 10.0 11.5 8.1 6.4 13.6 9.5 6.9 2.8 3.9 5.0 92.0 88.4 79.4 7.3

Kaveri Seed BUY 437 460 5.2 30,184 451 69 28.9 39.7 48.4 15.2 37.4 22.0 15.1 11.0 9.0 12.0 8.3 6.4 2.9 2.5 2.1 2.0 2.7 3.9 20.5 24.4 25.6 4.4

PI Industries ADD 813 840 3.4 111,436 1,666 136 28.6 33.4 39.9 26.5 16.9 19.4 28.4 24.3 20.4 20.7 17.2 14.3 7.5 6.0 4.8 0.5 0.6 0.7 29.6 27.3 26.1 1.3

Rallis India ADD 234 240 2.4 45,564 681 194 10.2 12.8 15.7 38.7 25.8 22.6 23.0 18.3 14.9 14.8 11.6 9.3 4.4 3.8 3.2 1.3 1.4 1.5 20.6 22.4 23.4 1.4

SRF BUY 1,914 1,980 3.5 109,880 1,643 57 94.2 106.5 123.6 27.9 13.1 16.0 20.3 18.0 15.5 11.7 10.4 9.1 3.5 3.0 2.6 0.6 0.6 0.7 18.6 18.0 17.9 7.9

Tata Chemicals ADD 581 560 (3.5) 147,911 2,212 255 40.9 54.4 50.5 33.5 33.0 (7.0) 14.2 10.7 11.5 8.3 6.9 6.2 2.2 1.7 1.5 1.7 1.7 1.7 16.3 17.8 13.9 8.7

TeamLease Services ADD 1,011 1,175 16.2 17,287 258 16 22.2 29.3 37.6 39.2 32.2 28.3 45.6 34.5 26.9 33.7 22.7 16.8 4.9 4.3 3.7 — — — 11.5 13.4 14.9 0.5

UPL ADD 718 660 (8.1) 364,144 5,445 429 36.2 43.5 51.4 13.9 20.1 18.1 19.8 16.5 14.0 12.0 10.2 8.7 3.8 3.1 2.6 0.6 0.7 0.8 22.4 20.7 20.2 18.1

Vardhman Textiles ADD 1,088 1,190 9.4 69,215 1,035 63 109.5 116.8 125.3 18.3 6.6 7.3 9.9 9.3 8.7 6.1 5.8 5.1 1.5 1.3 1.2 1.4 1.9 1.9 16.1 14.8 14.2 0.8

Whirlpool REDUCE 1,148 900 (21.6) 145,592 2,177 127 24.6 29.8 35.8 26.8 21.1 20.3 46.7 38.5 32.0 29.0 24.4 20.5 9.9 8.2 6.9 — 0.5 0.6 23.6 23.3 23.4 0.8

Others 1,617,446 24,187 19.3 25.1 15.7 20.2 16.1 13.9 12.5 10.3 8.8 4.3 3.5 3.0 1.2 1.5 1.8 21.4 21.9 21.5 55.2

KIE universe 82,891,988 1,239,530 24.1 20.3 15.7 18.8 15.6 13.5 10.6 9.2 8.1 2.5 2.3 2.0 1.5 1.7 2.0 13.4 14.5 15.1

KIE universe (ex-energy) 72,312,681 1,081,332 26.2 23.8 17.1 20.4 16.5 14.1 11.5 9.9 8.6 2.8 2.5 2.2 1.4 1.7 1.9 13.7 15.3 16.0

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2017 means calendar year 2016, similarly for 2018 and 2019 for these particular companies.

(c) Exchange rate (Rs/US$)= 66.87

Price/BV (X) RoE (%)Dividend yield (%)

Disclo

sure

s


Disclosures

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Kawaljeet Saluja, Chirag Talati, Murtuza Arsiwalla, Tarun Lakhotia, Samar Sarda, Jaykumar Doshi."

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 universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of September 30, 2016

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 30/09/2016 Kotak Institutional

Equities Investment Research had investment ratings on 186

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.

18.8%

34.9%

29.0%

17.2%

0.5%

4.8% 4.3%

0.5%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Corporate Office Overseas Affiliates

Kotak Securities Ltd.

27 BKC, Plot No. C-27, “G Block”

Bandra Kurla Complex, Bandra (E)

Mumbai 400 051, India

Tel: +91-22-43360000

Kotak Mahindra (UK) Ltd

8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20-7977-6900

Kotak Mahindra Inc

369 Lexington Avenue

28th Floor, New York

NY 10017, USA

Tel:+1 212 600 8856

Copyright 2016 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved.

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected].

This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore.

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.

Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), MSEI and United Stock Exchange of India Limited (USEIL). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time.

We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us

Details of Associates are available on our website i.e. www.kotak.com

Research Analyst has served as an officer, director or employee of subject company(ies): No

We or our associates may have received compensation from the subject company(ies) in the past 12 months.

We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES

We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report.

Our associates may have financial interest in the subject company(ies).

Research Analyst or his/her relative's financial interest in the subject company(ies): No

Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: YES

Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.

A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart).

Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +91-22 43360 000, Fax No.: +91-22- 6713 2430. Website: www.kotak.com. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, Research Analyst INH000000586, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP-NSDL-23-97. CDSL: IN-DP-CDSL-158-2001.

Compliance Officer Details: Mr. Manoj Agarwal. Call: +91-22-4285 6825, or Email: [email protected].

In case you require any clarification or have any concern, kindly write to us at below email ids:

Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292

Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on +91-22-4285 8445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on +91-22-4285 8208.

Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Manoj Agarwal) at [email protected] or call on +91-22-4285 6825.

Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on +91-22-6652 9160.

First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes.

[Kotak] India Daily, October 24, 2016 - Kotak Securities

Documents

Transcript of [Kotak] India Daily, October 24, 2016 - Kotak Securities