Mid-cap Sector. Institutional Equities. December 2017 Quarter Result Preview

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1 December 2017 Quarter Result Preview Institutional Equities Mid-cap Sector 4 January 2018 Growth Likely To Pick Up From our mid-cap coverage universe, we expect double-digit pick-up in growth for all companies except Crisil and ICRA. We expect healthy top-line growth for Vinati Organics on account strong offtake of new products and likely increase in market share of one of its key products, ATBS. Shaily Engineering Plastics, which has a high engineering injection-moulded plastic business, has shown strong growth momentum over the past three quarters and is expected to continue growth in the December 2017 quarter as well. CCL Products is expected to continue its strong show with volume growth of above 20%. Its plants in India (freeze dried and spray dried) are expected to run at almost full capacity for the rest of FY18. Supreme Industries growth is expected to pick up following the implementation of Goods and Services Tax or GST. On the margins front, we believe the company has touched its peak in FY17. Bata India and Mold-Tek Packaging are also expected to post healthy growth on GST implementation. While V-Mart Retail is expected to post 15% top-line growth, it is not expected to be as healthy as it was in 3QFY17 (high-base effect because of demonetisation). Apart from this, our mid-cap universe comprises rating agencies Crisil, CARE Ratings and ICRA. The rating business is largely dependent on cyclical recovery in corporate capex and bank credit growth, both of which have started showing signs of a pick-up. Industrial credit growth, which was in negative territory for some time, has finally turned positive. Also, we believe that heightened debt market acitivity on account of increased issuance of Commercial Papers or CPs will result in higher rating revenues for these companies (following the mandatory requirement of dual ratings for CPs). Against this backdrop and the base effect of demonetisation, we expect CARE Ratings, CRISIL and ICRA to report high single-digit rating revenue growth for 3QFY18. Overall, our mid-cap universe is expected to grow its sales/ebitda/pat by 13.3%/8.6%/8.6%, respectively. Vinati Organics, a speciality chemicals company with market leader status in Isobutylbenzene (IBB), Acrylamido Tertiary Butyl Sulphonic Acid (ATBS) and Isobutylene (IB), is expected to report double digit top-line growth led by strong volume growth in ATBS and healthy offtake of new products. We expect sales/ebitda/pat to grow 13.8%/1.7%/6.3%, respectively. Sub-par growth at EBITDA and PAT level is because of the drop in margins on YoY basis. We expect Shaily Engineering Plastics sales/ebitda/pat to grow 22%/66%/270%, respectively. The difference in sales and EBITDA growth is because 3QFY17 was a washout quarter for the company. Sales for CCL Products is expected to grow 16.8%. However, EBITDA and PAT are expected to decline 6.7% and 3.6%, respectively, on YoY basis. Margins in 3QFY17 had peaked at 27% and are not expected to touch that level in the near term. Supreme Industries growth is expected to pick up during the quarter (low base effect of 3QFY17 because of demonetisation). However, we believe that margins for the company peaked out in FY17. As a result, we expect EBITDA/PAT to grow 5.4%/11.8%, respectively. Bata India is expected to grow its sales/ebitda/pat by 13%/15%/60.6%, respectively. The strong spike in PAT growth likely is on account of extraordinary loss of Rs217mn which the company reported in 3QFY17. Mold-Tek Packaging is expected to report strong growth of 22% (low base effect of 3QFY17). Its EBITDA and PAT are expected to grow 63%/67%, respectively. We expect the contribution from IML - Food & FMCG - to continue growing at a healthy pace. The management of V-Mart Retail, at the 2QFY18 conference-call, had hinted that it is witnessing some slowdown in the market. We expect its sales/ebitda/pat to grow 15%/14.5%/18.4%, respectively. Market leader Crisil, which derives ~30% of its revenues from the rating space, is expected to report rating revenue growth of 8.7% backed by a positive economic scenario coupled with higher activity in corporate debt market. Research business, contributing ~64% to its revenues, is expected to grow 6.9% while the advisory business is likely to witness 31.6% growth. At a consolidated level, we expect revenue/ebitda/pat growth of 8.5%/8.6%/7.4%, respectively. CARE Ratings, being a pure play on the rating business and hence the biggest beneficiary of a cyclical upturn, we expect its revenue/ebitda/pat to post growth of 10%/9.7%/1.9%, respectively. PAT growth is likely to be be muted on account of lower other income and a higher tax rate compared to the same quarter last year. This will be the first quarter of ICRA s performance being compared on YoY basis, that is, ex-it business. After the sale of its IT business, ICRA's rating segment s contribution to total revenues increased to ~75%. The company's rating business performance has been the most consistent compared to peers and we expect 9% increase in rating revenues for the quarter considering the fact that it has a dominant status in debt market rating. At a consolidated level, the company is expected to report revenue/ebitda/pat growth of 7.7%/26.9%/30.8%, respectively, taking into account a good rating and dismal non-rating business perfomance. Akhil Parekh Research Analyst akhil.parekh@nirmalbang.com Girish Pai Research Analyst girish.pai@nirmalbang.com Abhishek Navalgund Research Associate abhishek.navalgund@nirmalbang.com Sara Jaffer Research Associate sara.jaffer@nirmalbang.com Shreesh Chandra Research Associate shreesh.chandra@nirmalbang.com (Rsmn) Rating CMP TP Sales EBITDA EBITDA margin (%) PAT Vinati Organics Sell , Shaily Eng. Plastics Buy (14.1) (13.8) (19.4) CCL Products Acc , (6.7) (3.6) 32.1 Supreme Industries Buy 1,290 1,309 12, , , Bata India Acc , Mold Tek Buy V-Mart Retail Buy 1,506 1,797 3, ,071.9 Crisil Acc 1,864 1,785 4, , Care Ratings Buy 1,323 1, (20.3) (26.7) (4.8) ICRA Acc 3,980 4, (15.0) (33.7)

2 Vinati Organics: The specialty chemicals company with market leader status in IBB, ATBS and IB, has launched all its new products that were a part of its FY16/FY17 capex plan. Vinati Organics or VOL launched a synthetic product (for the US and Japanese clients), TB Amine (used as a rubber accelerator to modify the rate of vulcanisation of rubber), PTBBA (used in perfume industry) and PTBT (used to manufacture PTBBA). PTBBA is witnessing good traction in domestic as well as export markets. Excess PTBT (after utilising for the manufacture of PTBBA) will be sold in domestic market. All these new products have been commercialised in FY17/FY18. We expect healthy traction for all these new products to continue and drive the company s volume growth. Apart from this, the management had given guidance in 1QFY18 that one of VOL s biggest competitors in ATBS has stopped commercial production of ATBS. As a result, the company expects to further strengthen its leadership status in global ATBS market. We expect sales/ebitda/pat to grow 14%/2%/6%, respectively. However, margins were at their peak in 2QFY17/3QFY17. Operating margin is expected to decline by 350bps to 28.8%. The decline in margins can mainly be attributed to change in the product mix and rise in crude oil prices on YoY basis. Vinati Organics Sell , Shaily Engineering Plastics or SEPL: SEPL, a manufacturer of injection-moulded plastic components, has been growing at a healthy pace over the past three quarters. We expect healthy growth to remain during the quarter as SEPL is likely to continue executing new orders (worth Rs600mn) from a Swedish home furnishing major (SHFM). SEPL is expected to grow sales/ebitda/pat by 22%/67%/270%, respectively. EBITDA margin is likely to marginally improve by 10bps to 18.3% on QoQ basis. Shaily Engineering Plastics Buy (14.1) (13.8) (19.4) CCL Products: It is the second-largest green coffee bean processor in India. The management has given guidance of above 20% volume growth for the rest of FY18. Led by volume growth, CCL Products is expected to grow its top-line by 17%. Coffee exports (industry) from Vietnam have witnessed volume decline of 20% and sales decline of ~4% in For the first two months (October/November) of 3QFY18, volume hit a three-year low. Given that CCL Products has grown well above the industry in the past, we believe its sales from Vietnam will grow 5%. The management had reiterated during the past two conference calls that for the next one to two years, the company s focus will be on volume growth even if it comes at the cost of margins. Though we anticipate margins to improve on QoQ basis, they will stay well below peak margins of 26.9% that CCL Products clocked in 3QFY17. CCL Buy , (6.7) (3.6) Mid-cap Sector

3 Supreme Industries or SIL: The market leader in PVC pipes in India, SIL is expected to grow its sales/ebitda/pat by 14%/5%/12%, respectively. Operating margin is expected to improve 190bps (on QoQ basis) to 15.5%. SIL registered strong volume/sales growth of 18%/20%, respectively, in 2QFY18. However, weakness in PVC resin prices (key raw material for PVC pipes) and subdued growth in agricultural pipes led to a drop in margins by 160bps to 13.6%. The management has given guidance of improvement in margins for 2HFY18 to 14%-15%. Rsmn) Rating CMP TP Revenues EBITDA EBITDA margin (%) PAT Supreme Industries Buy 1,290 1,384 12, , , Bata India: The largest footwear retailer in India is expected to post a decent growth of 13% in top-line, with EBITDA/PAT growth of 15% and 60%, respectively. The strong spike in PAT growth likely is on account of extraordinary loss of Rs217mn which the company reported in 3QFY17. Operating margin is expected to marginally improve by 20bps to 12.7% (versus 11.0% in 2QFY18). Bata India Acc , Mold-Tek Packaging: A pioneer in pail manufacturing business in India, it is expected to post strong growth of 22% in top-line, with EBITDA/PAT growth of 63%/67%, respectively. The high growth is on account of the low base of 3QFY17 (demonetisation impact) and pick-up in growth post GST implementation. Operating margin is expected to improve further to 20.1% (versus18.9% in 2QFY18). The improvement in operating margin will be led by higher contribution from food & FMCG (F&F) segment. Mold-Tek Buy V-Mart Retail: For V-Mart Retail, the third quarter is usually the strongest of all quarters because of the festive season. However, following early Diwali this year (October 2017), the management does not expect 3QFY18 to be very strong. Also, VRL had registered stupendous growth of 23% in 3QFY17 because of the positive impact of demonetisation. On a high base of 3QFY17, we expect VRL to clock sales growth of 15%, with EBITDA/PAT growth of 15%/18%, respectively. V-Mart Buy 1,506 1,797 3, ,072 3 Mid-cap Sector

4 CRISIL: Market leader Crisil, which derives ~30% of its revenues from the rating business, is expected to report rating revenue growth of 8.7% backed by positive economic scenario coupled with higher activity in corporate debt market. Research, which is also Crisil's core business contributing ~65% to its revenues, is expected to grow 8.7% while advisory business is likely to witness 31.6% growth. At a consolidated level, we expect revenue/ebitda/pat growth of 8.5%/8.6%/7.4%, respectively. Margin is likely to remain flattish at 26.6%. Company (Rs) (Rs) 4QCY17 YoY (%) QoQ (%) 4QCY17 YoY (%) QoQ (%) 4QCY17 3QCY17 4QCY16 4QCY17 YoY (%) QoQ (%) Crisil Acc. 1,864 1,785 4, , CARE Ratings: The company, being a pure play in the rating business and also taking into account the current investment scenario, we expect it to report revenue growth of 10%. EBITDA is expected to grow 9.7%, with flattish margin at 67%. PAT is expected to post a growth of 1.9% on account of lower other income and higher tax rate compared to same quarter last year. CARE Ratings Buy 1,323 1, (20.3) (26.7) (4.8) ICRA: This will be the first quarter that the company s performance is compared on YoY basis, that is, ex-it business. After the sale of its IT business, ICRA's rating segment s contribution to total revenues increased to ~75%. The company is in a transitionary phase after IT business sell-off and its rating performance has been the most consistent among peers. We expect a 9% increase in rating revenues for the quarter, considering that it has dominance in debt market rating business and has also taken a strategic call to remain selective in low ticket size BLR instruments and SME ratings. Non-rating business includes outsourcing and consultancy services and this segment is likely to report a growth of 4.5% owing to the sale of IT business. At a consolidated level, the company is expected to report revenue/ebitda/pat growth of 7.7/26.9/31.4%, respectively. Margins are expected to expand by 416bps owing to sale of low-margin IT business. PAT growth will be fuelled by higher other income and a lower tax rate. ICRA Acc. 3,980 4, (15.0) (33.7) 4 Mid-cap Sector

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