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15 CENTURY PLYBOARDS (INDIA) LTD BUY Last report at Rs.170 on 7 October 2015 Current Market Price (Rs) 175 Target Price (Rs) 230 Potential Upside (%) 31.4% 52 Week H/L (Rs) 262 / 131 Mkt Cap (Rs mn) INVESTMENT ARGUMENT Demand environment likely to revive in medium term - We expect the demand to recover at 10-12% every year going forward in medium to long term. GST implementation to be a game changer for the sector - With GST implementation, organized players would be able to tap the low cost segment captured by unorganized segment as it would bring both the segments on a level playing field Strong distribution network and branding to help in improving market share - Company has a strong dealer network of nearly 1500 dealers, 35 branch offices, 6 regional distribution centres and 7 manufacturing locations Volume expansion and strong margin to drive PAT growth going ahead- We expect revenues and net profits to grow at a CAGR of 19% and 27% respectively between FY15-FY17 Attractive valuations - We expect the stock to trade at higher multiples going forward also as the company is ideally positioned to capture the upcoming demand as well as increased consumption with its leadership position and strong branding. RISKS & CONCERNS Demand slowdown Forex volatility Delay in GST implementation Higher raw material prices COMPANY BACKGROUND Century Plyboards is the largest plywood manufacturer with more than 30% share in the India's organized plywood sector with an annual capacity of CBM in plywood and 4.8 mn sheets in laminates Dec-13 Feb-14 Apr-14 FII 10.7% 1 Year Performance Century Plyboards (India) Ltd Jun-14 Share Holding Pattern (%) DII 3.4% Aug-14 Oct-14 Others 12.5% Dec-14 Feb-15 Apr-15 Promoter 73.3% SECTOR BACKGROUND Indian panel products and laminate industry is estimated at nearly Rs 285 bn - of which plywood accounts for Rs 180 bn, laminates account for Rs 66 bn while rest is constituted by MDF. Revenue mix (%) FINANCIALS (RS MN) FY15 FY16E FY17E S ales 15,525 18,618 21, % Others CFS Laminate Plywood Growth (%) 21% 20% 18% 100.0% E BITDA 2,519 3,165 3,834 EBITDA margin (%) 16.2% 17.0% 17.5% 80.0% P BT 1,798 2,276 2, % N et profit 1,508 1,935 2, % E PS (Rs) % Growth (%) 125% 28% 26% C EPS (Rs) % Book value (Rs/share) FY14 FY15 FY16E FY17E Dividend per share (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Revenues (Rs mn) N et debt 4,848 4,426 3,940 Net Working Capital (Days) ROE (%) ROCE (%) 50.0 Jun-15 Nifty Aug-15 Oct-15 VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M 13.3 (14.9) (13.1), Company, Kotak Securities - Private Client Research FY14 FY15 FY16E FY17E Source: Company Investment Strategist November

16 CUMMINS INDIA LTD ACCUMULATE Last report at Rs.1184 on 10 August 2015 Current Market Price (Rs) 1074 Target Price (Rs) 1250 Potential Upside (%) 16.4% 52 Week H/L (Rs) 1248 / 721 Mkt Cap (Rs mn) INVESTMENT ARGUMENT CIL reported YoY revenue growth in FY15 exports revenues on back of recovery in key overseas markets. Company is well poised to benefit from recovery in the infrastructure spending in the country. Commencement of mega production site at Phaltan is likely to ease out capacity constraints and would add to cash flow generation in future. Company has committed a Capex of USD 300 mn funded mainly through internal accruals. We recommend 'BUY' on company's stock with a DCF based price target of Rs RISKS & CONCERNS Slowdown in industrial production and core sector growth Rising interest rate scenario can put further pressure on domestic capex cycle. COMPANY BACKGROUND A Cummins Inc subsidiary. Significant player in domestic market Diversified across power, industrial and automotive sector. SECTOR BACKGROUND Oil engines (backup power) sales is expected to grow with the overall economic growth going ahead. Indian Low KVA oil engines market is highly competitive. Mid/High KVA engines space is dominated by few players Dec-13 Feb-14 Apr-14 1 Year Performance Share Holding Pattern (%) DII 18.1% Cummins India Ltd Jun-14 FII 17.1% Aug-14 Oct-14 Others 13.8% Dec-14 Feb-15 Apr-15 Nifty Jun-15 Promoter 51.0% Aug-15 Oct-15 Export Sales (Rs bn) FINANCIALS (RS MN) FY15 FY16E FY17E S ales 44,058 52,506 62, G rowth (%) E BITDA 7,350 9,033 11, EBITDA margin (%) P BT 9,374 10,178 12, N et profit 6,954 8,041 9, E PS (Rs) G rowth (%) C EPS (Rs) B V (Rs/share) Q1 FY15 Q2 FY15 Q3FY15 Q4FY15 Q1FY16 Dividend/share (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Revenue mix (%) N et cash (debt) 799 1,684 2,424 NW Capital (Days) Distribution 32% VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M (1.3) , Company, Kotak Securities - Private Client Research Automotive 6% Source: Company Industrial 18% Power 44% Investment Strategist November

17 GRASIM INDUSTRIES LTD Y BUY Last report at Rs.3661 on 30 October 2015 Current Market Price (Rs) 3712 Target Price (Rs) 4242 Potential Upside (%) 14.3% 52 Week H/L (Rs) 4025 / 3301 Mkt Cap (Rs mn) INVESTMENT ARGUMENT VSF prices started recovering during H1FY16 along with volume improvement and cost reduction which led to good performance of VSF division. Capacity expansion in VSF and chemical division to translate into increased volumes during FY16 and FY17. Cement division volumes are also likely to increase on demand improvement, capacity expansion, higher dispatch from JCCL plants. We expect revenues to grow at a CAGR of 15% between FY15- FY17. We expect margins to improve to 16.4% and 20.5% for FY16 and FY17 respectively. Profits are likely to grow at a CAGR of 42% between FY We recommend BUY on the stock Dec-13 Feb-14 Apr-14 1 Year Performance Grasim Industries Ltd Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Nifty Aug-15 Oct-15 RISKS & CONCERNS Further decline in VSF prices may impact revenues and margins of VSF division Steep increases in pulp and sulphur prices may increase costs for VSF division COMPANY BACKGROUND Grasim Industries is a diversified player in cement, viscose staple fibre (VSF) and chemicals Company is expanding its capacity in cement to enhance its overall markets share in cement and in VSF division to capture higher demand. Share Holding Pattern (%) Others 23.5% DII 20.2% Promoter 29.7% FII 26.5% Cement industry capacity (MT) FINANCIALS (RS MN) FY15 FY16E FY17E S ales 324, , , Growth (%) 12% 14% 16% 400 E BITDA 47,348 60,536 87,571 EBITDA margin (%) 14.6% 16.4% 20.5% 300 P BT 34,433 43,109 69,199 N et profit 17,438 22,498 35, E PS (Rs) G rowth (%) (15.8) C EPS (Rs) FY09 FY10 FY11 FY12 FY13 FY14 FY15 Book value (Rs/share) 2, , ,092.7 Dividend per share (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Segmentwise Revenue breakup Net cash (debt) (13,968) (12,176) 22,876 Others Net Working Capital (Days) % Textiles Chemicals Cement VSF VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M 3.6 (1.6) 1.8, Company, Kotak Securities - Private Client Research 80% 60% 40% 20% 0% FY10 FY11 FY12 FY13 FY14 FY15 Source: Company Investment Strategist November

18 ICICI BANK LTD BUY Last report at Rs.277 on 2 November 2015 Current Market Price (Rs) 277 Target Price (Rs) 400 Potential Upside (%) 44.4% 52 Week H/L (Rs) 393 / 248 Mkt Cap (Rs mn) INVESTMENT ARGUMENT We like the quality of liability franchise - CASA mix at 45.1% (Q2FY16), one of the best in the industry. NIM has been strong on back of strong accretion to low cost deposits as well as better ALM. Lower risk on SME portfolio (~5% of total portfolio). While retail piece has witnessed insignificant net slippage, corporate segment continues to perform well. RoA is likely to remain stronger at 1.8% (FY16/17), driving up the RoE to 15%+ (FY17). Management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock. Incremental stress build-up is front-loaded and likely to be lower in FY16 as compared to the same seen during FY15. We have used SOTP method to value the stock, where standalone business comes to Rs.323 (2.0x FY17E ABV) and subsidiaries are valued at Rs.77 (holding co discount: 20%). RISKS & CONCERNS Retail book stands at ~44% of total book, highly vulnerable to systemwide deterioration in retail asset quality. Deregulation of interest rates on saving deposits (~32% of deposits) might increase the funding costs and in turn impacting its NIM Dec-13 Feb-14 Apr-14 1 Year Performance Jun-14 ICICI Bank Ltd Aug-14 Share Holding Pattern (%) Others 12.7% Oct-14 Dec-14 Feb-15 Promoter 0.0% Apr-15 Nifty Jun-15 Aug-15 Oct-15 COMPANY BACKGROUND Largest private sector banks (4054 branches in Q2FY16) with 4.2% market share in domestic loans. After conscious strategy of de-growing their B/S post Lehman collapse, bank has started focusing on profitable growth DII 33.5% FII 53.9% SECTOR BACKGROUND Easing bond yield is positive for wholesale funded entities and is likely to result into higher trading gains for banks. Retail segment continues to drive loan growth. Prefer private sector banks and remain cautious on PSU banks. Trend in earnings (Rs bn) FINANCIALS (RS MN) FY15 FY16E FY17E I nterest income NII PAT Interest expense Net interest income Growth (%) 15.6% 13.0% 14.4% O ther income G ross profit N et profit Growth (%) 13.9% 10.4% 16.3% 0.0 G ross NPA (%) N et NPA (%) Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Net interest margin (%) Source: Company, Kotak Securities - Private Client Research C AR (%) R oe (%) Trend in Asset Quality R oaa (%) Dividend per share (Rs) Gross NPA (Rs bn - LHS) E PS (Rs) Gross NPA (% - RHS) 150 Adjusted BVPS (Rs) VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) PRICE PERFORMANCE (%) 1M 3M 6M 4.4 (7.8) (15.8), Company, Kotak Securities - Private Client Research Source: Company Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY Investment Strategist November

19 KANSAI NEROLAC PAINTS LTD ACCUMULATE Last report at Rs.256 on 26 October 2015 Current Market Price (Rs) 250 Target Price (Rs) 275 Potential Upside (%) 10.0% 52 Week H/L (Rs) 269 / 186 Mkt Cap (Rs mn) INVESTMENT ARGUMENT KNPL is the market leader in the Industrial Paint Segment with 42% market share, with automotive segment contributing 75% of the industrial segment revenues. Company which currently has 15% market share in the decorative paint segment is also looking to expand aggressively in the segment. We expect revival in auto sales and capex cycle to pick up from here We estimate margins of the company to improve over FY15 to FY17E by 240 bps RISKS & CONCERNS Prolong slowdown in the automotive segment Prolong slowdown in the economy leading to weak capex cycle impacting industrial demand Increase in competition COMPANY BACKGROUND Kansai Nerolac Paints Ltd. (KNPL), a subsidiary of Kansai Paint, Japan, is one of India's leading paint companies and the largest player in the industrial segment. The company is the market leader in the automotive coating segment in India with a dominant market share SECTOR BACKGROUND The paint sector is broadly divided into two areas: Decorative segment with 80% market share and Industrial Segment with 20% market share Dec-13 Feb-14 Apr-14 1 Year Performance Share Holding Pattern (%) DII 8.2% FII 7.5% Kansai Nerolac Paints Ltd Jun-14 Aug-14 Others 15.1% Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Promoter 69.3% Nifty Aug-15 Oct-15 Volume in million litres for KNPL FINANCIALS (RS MN) FY15 FY16E FY17E 350 Sales 35,421 39,227 43, Growth (%) EBITDA 4,449 5,636 6, EBITDA margin (%) PBT 3,989 5,200 6, Net profit 2,716 3,536 4, EPS (Rs) Growth (%) CEPS (Rs) Book value (Rs/share) FY14 FY15 FY16E FY17E Dividend per share (Rs) Source: Company, Kotak Securities - Private Client Research ROE (%) ROCE (%) Average price increase for KNPL in % Net cash (debt) 2,216 2,609 2,846 Net Working Capital (Days) VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M 3.6 (2.9) 11.1, Company, Kotak Securities - Private Client Research Source: Company FY14 FY15 FY16E FY17E Investment Strategist November

20 MARUTI SUZUKI INDIA LTD ACCUMULATE Last report at Rs.4497 on 28 October 2015 Current Market Price (Rs) 4449 Target Price (Rs) 4934 Potential Upside (%) 10.9% 52 Week H/L (Rs) 4763 / 3249 Mkt Cap (Rs mn) INVESTMENT ARGUMENT MSIL is expected to benefit from multiple earnings growth lever in the next 2-3 years. On the back of expected recovery in the economy, the domestic passenger car industry is likely to grow on a strong note. MSIL, being the market leader will be the key beneficiary of this expected revival in car demand. Factors such as expected recovery in small car demand, preference shift towards petrol cars due to fall in fuel prices and strong urban centric new product pipeline should lead to healthy market share for the company. MSIL's operating margins is likely to stay healthy on the back of favorable currency, reduction in discounts on demand recovery and benefits of operating leverage from expected strong volume growth outlook. RISKS & CONCERNS Lower than anticipated growth will jeopardize our revenue and profit estimates. MSIL benefits from yen depreciation. Any unfavorable movement of yen can have significant impact on the company's profitability. COMPANY BACKGROUND MSIL, India's largest passenger car company, is a subsidiary of Suzuki Motor Corporation of Japan. Formed as a government owned company (Maruti Udyog Limited), it entered into a JV with Suzuki Motor Corporation. Over the years the company has been one the most successful player in the Indian car market. SECTOR BACKGROUND India s passenger vehicle industry sold ~3mn vehicles in FY14. While 80% of sales happened in the domestic market, balance 20% were exported. Top five players account for ~80% of industry sales volumes Dec- Feb-14 Apr-14 1 Year Performance Maruti Suzuki India Ltd Share Holding Pattern (%) DII 14.4% FII 22.1% Jun-14 Aug- Oct-14 Dec- Others 7.3% Feb-15 Apr-15 Nifty Jun-15 Promoter 56.2% Aug- Oct-15 Sales Volumes (Units) FINANCIALS (RS MN) FY15 FY16E FY17E 1,400,000 S ales 499, , ,413 1,200,000 G rowth (%) E BITDA 67,129 96, ,542 1,000,000 EBITDA margin (%) ,000 P BT 48,639 74,900 92, ,000 N et profit 37,069 54,677 67, ,000 E PS (Rs) ,000 G rowth (%) C EPS (Rs) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Book value (Rs/share) ,096.4 Dividend per share (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Market Share (%) Net cash (debt) 121, , , Net Working Capital (Days) (7.2) (7.9) (10.2) 48.0 VALUATION PARAMETERS FY15 FY16E FY17E P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M (2.2) , Company, Kotak Securities - Private Client Research 35 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Source: Company Investment Strategist November

21 NAGARJUNA CONSTRUCTION COMPANY LTD BUY Last report at Rs.83 on 31 July 2015 Current Market Price (Rs) 80 Target Price (Rs) 101 Potential Upside (%) 26.3% 52 Week H/L (Rs) 118 / 52 Mkt Cap (Rs mn) INVESTMENT ARGUMENT Company s numbers for Q1FY16 were ahead of our estimates with strong revenue growth coupled with improvement in margins. Borrowings have further come down during the quarter post rights issue. Net profit performance was thus boosted by strong revenues and lower than expected interest expenses. With the recent order inflows coming in at higher margins, company expects to improve margins from current levels going forward. We maintain our estimates and recommend BUY on the stock. RISKS & CONCERNS Delays in order inflow across verticals may impact revenue growth going forward Delays in stake sale in road/power/real estate may keep debt at higher levels COMPANY BACKGROUND Order book currently is diversified across roads, building, oil and gas (45%), water and railways (20%), irrigation (4%), electrical (7%), mining (1%), international (16%), metals (nil) and power (6%). Company had an order inflow of Rs 73 bn for FY15 SECTOR BACKGROUND Order inflow is likely to increase going forward during the fiscal due to improvement in macro-economic climate. We expect buildings, water supply, and irrigation to continue to witness increased activity thereby leading to better order inflows. On road side, EPC is likely to see higher interest as compared to BOT projects Dec-13 Feb-14 1 Year Performance Nagarjuna Construction Company Ltd Apr-14 Jun-14 Share Holding Pattern (%) Others 38.4% Aug-14 DII 14.5% Oct-14 Dec-14 Feb-15 Apr-15 Promoter 20.6% FII 26.6% Jun-15 Aug-15 Nifty Oct-15 Order book break up (%) FINANCIALS (RS MN) FY15E FY16E FY17E S ales 82,918 87,064 94,029 Internatnal Power 16% 6% Growth (%) E BITDA 6,442 6,965 7,522 Mining Roads,building EBITDA margin (%) % 45% P BT 1,590 2,443 3,670 Electrical N et profit 1,118 1,613 2,422 7% E PS (Rs) Irrigation Growth (%) % Water and C EPS (Rs) railways 20% Book value (Rs/share) Dividend per share (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Segmentwise Revenue Break up (%) Net cash (debt) (19,470) (18,908) (18,623) Power Metals Internatnal Net Working Capital (Days) Mining Electrical Irrigation Water and railways Roads,building VALUATION PARAMETERS FY15E FY16E FY17E 100 P /E (x) P /BV (x) E V/Sales (x) E V/EBITDA (x) PRICE PERFORMANCE (%) 1M 3M 6M 4.2 (5.8) (14.5), Company, Kotak Securities - Private Client Research 0 Source: Company FY13 FY14 FY15 Investment Strategist November

22 SUN PHARMACEUTICALS LTD BUY Last report at Rs.842 on 12 August 2015 Current Market Price (Rs) 890 Target Price (Rs) 1055 Potential Upside (%) 18.5% 52 Week H/L (Rs) 1201 / 795 Mkt Cap (Rs mn) INVESTMENT ARGUMENT Sun has registered resilient growth year over year in the domestic formulations segment led by strong branding and core focus on the chronic ailments. Along with Ranbaxy, though the initial quarters are showing signs of lower growth, we expect the trajectory to pick up in FY17E led by product launches, marketing tie ups and better penetration. We expect Sun to post ~17% CAGR in the segment over FY15-17E. Sun's US revenues are split between Sun (ex-taro) and Taro (the acquired subsidiary). The recent quarters have seen slowdown in both segments of US revenues. However, with interesting opportunities like ggleevec gangiomax and gabilify in near term as well certain price increases taken by Taro, we expect both segments to see revival in revenues in FY17E (we expect 38% growth in US revenues in FY17E). Though FY16E will be a challenging year for SUNP, we believe with better outlook for FY17E coupled with lower valuations (at current valuations SUNP trades at 21.5x FY17E EPS) Sun looks poised for good run up over the next 9-12 months. Factoring for strong FY17E, lower valuations and few initial indications of rescaling of supplies from Halol plant, we recommend Buy with a target price of Rs. 1055, 25x FY17E EPS and an NPV of Rs. 70 (for MK-3222, a novel molecule). RISKS & CONCERNS Sun s largest USFDA approved plant, Halol, is currently under compliance issues. Though management remains confident is resolving the same, in adverse events, it can significantly impact our assumptions. Sun expects Ranbaxy integration benefits to be ~US$ 350mn by FY18E, any issues in integration can impact the valuations of the company. COMPANY BACKGROUND Sun Pharma was established in 1983 with a portfolio of five products to treat psychiatry ailments and a manufacturing facility in Vapi, Gujarat. Over the last 30 years, Sun Pharma has become one of the most profitable pharmaceuticals manufacturers. Sun Pharma's growth has been dirven by both organic as well inorganic expansion SECTOR BACKGROUND The Indian Pharma Market (IPM) stood at ~US$ 14.0 bn and is expected to post 13-15% CAGR over the next 4-5 years. Moreover, US, is the largest pharma market at ~US$390 bn, is expected to witness US$ 44bn worth drugs going off patent which will provide further fillip to Indian companies Dec-13 Jan-14 Feb-14 Mar- 1 Year Performance Sun Pharmaceuticals Ltd Share Holding Pattern (%) DII 15.8% FII 19.8% Apr-14 May- Jun-14 Others 9.7% Jul-14 Aug-14 Sep-14 Oct-14 Nifty Nov- Promoter 54.7% Dec-14 Jan-15 US revenues to post 18% CAGR FINANCIALS (RS MN) FY15 FY16E FY17E US $ mn Growth (%) S ales 274, , ,127 3,500 G rowth (%) ,000 E BITDA 80,636 77, ,661 2,500 EBITDA margin (%) ,000 P BT 64,041 63, ,526 1,500 N et profit 47,909 51,442 94,710 1,000 E PS(Rs) G rowth(%) (26.0) C EPS(Rs) FY13 FY14 FY15 FY16E FY17E B VPS(Rs) D PS (Rs) Source: Company, Kotak Securities - Private Client Research R OE (%) R OCE (%) Rev/PAT to post 16%/16% CAGR over FY14-17E N et debt (18,817) (64,572) (135,398) Revenues (Rs mn) Net Income (Rs mn) EBIDTAM (%) Net working capital(days) , ,000 VALUATION PARAMETERS FY15 FY16E FY17E 300,000 P /E (x) ,000 P /BV (x) ,000 E V/Sales (x) ,000 E V/EBITDA (x) ,000 50,000 0 PRICE PERFORMANCE (%) 1M 3M 6M (3.1) 5.0 (8.0), Company, Kotak Securities - Private Client Research Source: Company FY13 FY14 FY15 FY16E FY17E 60% 50% 40% 30% 20% 10% 0% Investment Strategist November

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