Godrej Consumer Products Ltd (GCPL) CMP ` 863.8

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2 Godrej Consumer Products Ltd (GCPL) CMP ` GCPL is one of the leading Indian FMCG MNC having presence across 3 categories (Home Care, Personal Care and Hair Care) and 3 continents (Asia ex-japan, Africa and Latin America). The company is a market leader in India in Hair Care with brands like Renew, Kesh Kala, Expert, ColourSoft etc and Home Insecticides category with brands like GoodKnight, HIT etc and sthe econd largest in personal soaps category with well-established brands like Cinthol, Godrej No 1 etc. Presence in high growth category with healthy margins: The company has presence in categories such as hair colour, hair extension and home insecticides which are growing at the healthy rate of 20%+ across different geographies in which GCPL operates. All these categories are high margin categories with EBITDA margin of 15-20%. In addition, penetration of all these categories is very low in India, which can be taken advantage of by GCPL, over the next decade. The company has a presence in India, South Africa, UK, Middle East, Indonesia, Argentina, Nigeria and countries in Sub-Saharan Africa. The company is cross-selling products from variously acquired companies in different geographies and this strategy is paying off very well. Innovation is the key strength for survival of any organisation: GCPL has been at the forefront of innovation, with launch of innovative products like creambased hair colour and HIT Anti Roach GEL. Its latest innovation is a paper mosquito repellent, which is very cheap and can disrupt the whole home insecticides category. Vision of 10x in 10 years: GCPL, in 2010, has set a strong vision of growing 10x in 10 years and is on the path to achieve the same. The growth will be led by both organic and inorganic strategy. We believe till FY15-FY16, the growth will be aggressive in the band of 25-30% and then, due to high base, will cool off below 20% till FY20. Valuations: At CMP, the stock is trading at a consensus P/E of 35.6x and 28.7x based on FY14E and FY15E earnings respectively. The company has healthy return ratios with expected RoE of 22.4% and 23.7% in FY14E and FY15E respectively. Chart: GCPL vs. Sensex (In ` bn) E 2015E 140 Net Sales Operating Profit Net Profit EPS Book Value GCPL Return Source: Bloomberg Consensus, ABML Research 2

3 Gujarat Pipavav Port Limited (GPPL) CMP ` 50.2 The company has posted strong results in 9MCY13 on volume as well as profitability front. Over the past 2 quarters bulk as well as container volumes have rebounded and as the economy revives we would witness strong growth on the volume front. We expect a re-rating of the stock. Strong Long term growth story; Capacity constraint at major ports and transition towards containerization to further push the volumes to minor ports. As per Shipping Ministry Coefficient of correlation between GDP and Major and Minor Ports traffic is As per DP World container traffic has grown on an average at 1.6x of foreign trade and 2.6x multiple of GDP which portrays strong long term structural story in the sector. Containerization in is far under penetrated when compared to developed country s 65-70% and therefore there is huge long term potential and scope for margin expansion. Strong promoter background- Operational and Financial Muscle: GPPL India s first private sector port is promoted by APM Terminals, which is one of the largest container terminal operators in the world and is part of the AP Moller Maersk (APMM) Group. A.P. Moller - Maersk is a global conglomerate operating mainly in the shipping and energy industries. APM Terminals is the world s 4th largest global port operator with ~ 6% global market share in the container segment. GPPL not only benefits from financial strength of its parentage but also gets operational expertise and best practices helping it improve operational efficiency on a concurrent basis. Strategically located; Rail and Road Connectivity an added advantage. Port s strategic location and good rail and road infrastructure has made it connected to majority of the ICD s and hence it has moved from No. 5 position 3 years ago to No.1 position in terms of handling ICD cargo in December GPPL handled 250 trains (highest no. of trains handled in March Port Pipavav's location is ideally situated to take advantage of a rich hinterland (markets of Rajasthan, Delhi/NCR and Punjab, which are landlocked). The northwest markets generate ~60% of India s cargo, which means huge opportunities for GPPL. Chart: GPPL vs. Sensex (In ` mn) CY2012 CY2013E CY2014E Net Sales 4,160 5,007 5,547 Operating Profit 1,819 2,318 2,6 Net Profit 740 1,162 1,406 EPS Book Value GPPL Return Source: ABML Research 3

4 Infosys CMP ` In Q2, Infosys registered second consecutive quarter of strong revenue growth and revised its FY14 guidance to 9-10% vs 6-7%. The management commentary is a lot more confident and positive over the last 6 months. Back on Track: Balanced Infosys s 3.0 strategy is bringing back the company on the growth track. Even though, it will take little more time to catch up with peers, a favourable rupee is allowing Infosys to strengthen its sales force, increase the employee morale and re-invest the benefits in business without much turbulence on financials. We believe the company is on the right track and taking necessary steps (re-investing rupee benefits) with a medium term perspective. Reduction in volatility of the company s business prospects and the management s forecasts would bring back investor s confidence in the company. We believe Infosys is on track of beating its guidance and close near NASSCOM s estimates. Of the entire IT pack, Infosys is best placed with enough operating levers to boost up the margins from the current levels. Exodus concerns: Post-Narayana Murthy s return, Infosys has faced several high profile exits, which has brought apprehension among investors. However, we believe that Infosys has a strong leadership base to cover up those exits. Valuation: Currently, Infosys is trading at 15.5x on FY15E EPS, which is at ~17% discount to the market leader TCS. We believe that the relatively lower valuation and recent underperformance makes the stock attractive. We expect the valuation gap to reduce in the medium term. Chart: Infosys vs. Sensex (In ` bn) E 2015E Net Sales Operating Profit Net Profit EPS Book Value Infosys Ltd Return Source: ABML Research 4

5 ITC CMP ` ITC is one of the best plays in FMCG space currently due to its price inelastic Cigarette Business. This business contributes 40% to the topline and 84% to the EBIT. Due to steep increase in taxes/duties by various state government along with the central government, cigarette volume growth for FY14 may be in a negative 2-3% range. To boost volume growth, ITC has launched smaller size cigarettes (64 mm, which attracts lower taxes) and the response has been very encouraging. We believe, for FY14E, overall Cigarette division is likely grow by ~15%, led by negative 2-3% volume growth and 17-18% price/mix led growth. ITC is aggressively building Other FMCG businesses (personal care and food), with various strong brands like Fiama di Wills, Vivels, Bingo, Sunfeast etc and has hit quarterly sales run rate of Rs mn. We expect this business to grow at healthy 15-20% and is likely to break even soon. This will be next big trigger for the stock to move up. In the short to medium term, the stock may continue to attract investors attention due to prevailing domestic and international macro uncertainties. During uncertain times, defensives would continue to be the preference of investors. Valuations: The stock is trading at P/E multiple of 30.7x, 25.9x and 22.3x FY14E, FY15E and FY16E earnings respectively. We recommend investors to buy the stock with 1-yr perspective and likely returns of ~15-20%. Chart: ITC vs. Sensex (In ` bn) E 2015E 130 Net Sales Operating Profit Net Profit EPS Book Value ITC Return Source: Bloomberg Consensus, ABML Research 5

6 KPIT Technologies CMP ` KPIT Tech is a niche IT service player in the mid-cap space. The company is specialized in areas such as Automotive & Transportation (~36% of sales), Manufacturing (~40% of sales) and Energy & Utilities (~14% of sales). Over the period, KPIT has reduced its Cummins s (top client) concentration from ~40% of sales in FY08 to 16.5% in Q2FY14. Impressive CAGR (FY07-13): Over the same period, KPIT has grown at an impressive of CAGR of 30% (revenue), 31% (EBITDA) and ~26% (PAT). This includes both organic and inorganic mode. KPIT is one of the few and unique companies, who have been able to extract synergy benefits successfully. Vision & Guidance: KPIT has set a $1bn revenue milestone by 2017 ($410 mn in FY13), through productized solutions, verticalization of go-to-market and deeper penetration into strategic accounts. KPIT maintained its full year guidance (13-15%) and expect H2 to ramp-up based upon 2 large deals signed in Q2. Valuation: Currently, KPIT is trading at ~9x on FY15E EPS, which is relatively cheap considering the growth prospects and proven history of strong execution. We believe the current underperformance and strong H2 would make the stock attractive. We expect the stock to be re-rated gradually in the medium term. Chart: KPIT Technologies vs. Sensex (In ` mn) E 2015E Net Sales Operating Profit Net Profit EPS Book Value KPIT Technologies Return Source: ABML Research 6

7 M&M CMP ` Saving Grace: In FY14, Tractors (40% of revenues & 50% PBIT) would be the saving grace for M&M (22.3% growth on YTD) and expect to contribute bulk of the incremental revenues (~95% of the incremental revenues and EBITDA were from Tractors segment in Q114). On the other hand, UV segment which grew at a rapid pace at ~30% in FY13 would face a rough ride in FY14, due to increasing competition (Ford Ecosport & Renault Duster) and 3% hike in excise duties (except Quanto ~6% of UV volumes, all other brands are under this hike). UV concern overdone: We witnessed signs of UV coming under pressure (~10% down, YoY) and planned production cuts to align the demand-supply mismatch confirmed the trend. However, we believe that the healthy monsoon would kick start the rural demand and shore up sales of Bolero (40% of UV volumes and 31% of UV revenues). In addition, M&M is making adjustments to its various products to align with excise duties norms. Excellent subsidiary performance: M&M s subsidiaries such as Ssangyong (1st quarterly profit), Tech Mahindra and M&M financial services which put together contribute ~40% of M&M s valuation and doing extremely well. Valuation: Currently, M&M is trading at ~10x on FY15E EPS, which is cheap considering the strong subsidiaries and tractor performance. The core business is available at an attractive valuation. We believe that the market apprehension on UV segment is overdone and expect the UV volume to pick-up on rural demand. Chart: M&M vs. Sensex (In ` bn) E 2015E Net Sales Operating Profit Net Profit EPS Book Value M&M Return Source: ABML Research 7

8 Yes Bank CMP ` Strong Q2FY14 results despite a challenging macro & various concerns on its liability profile Yes Bank's Q2FY14 net profit rose 21.3% YoY (decline of 7.4% QoQ) at Rs 3.7 bn, significantly above consensus estimate of Rs 3.3 bn. This was on account of lesser-than-expected contraction in margins and one-off MTM gain of Rs 1.1 bn, related to interest rate swaps. Besides this the bank during the quarter reported stable asset quality, robust growth in non interest income & continued traction in CASA ratio. Growth in customer assets moderated during the quarter at 12.7% YoY (decline of 0.6% QoQ). However, going forward the management expects the bank to achieve a growth rate of ~20% in the current fiscal with the onset of the festival & agricultural season. On the deposit side the bank continues to witness strong traction in CASA (growth of 52.5% YoY, 4.7% QoQ) taking the CASA ratio to 20.4% up from 17.3% YoY & 20.2% QoQ. Recent decline in wholesale deposits rates augurs well for the bank s margins: Reported NIMs came better than expected at 2.9% in Q2FY14 (declined 10 bps QoQ, flat on a YoY basis) as mainly supported by increase in base rate by 25 bps and better liability management by the bank. With a gradual reversal of RBI stance from significant tight liquidity to comfortable liquidity, we expect the pressure on NIMs to ease in H2FY14. is a significant positive for the bank. Healthy asset quality: Yes Bank has so far been able to manage its asset quality well. The asset quality has been preserved well with GNPA at 0.28% and NNPA at 0.04% at end Q2FY14. Further, the bank has reduced the restructured assets to 0.26% of advances from 0.29% QoQ and 0.46% YoY. There were no fresh restructurings during the quarter. The stock currently trades at 1.8x FY14E BV and 8.9x FY14E EPS which is attractive, considering the bank s strong earnings growth, structural shift in bank s ROE to around ~25% currently from ~20-22% in the past on the back of improving retail franchise & resilient asset quality. We advice investors to buy the stock at CMP and accumulate at every fall. Chart: Yes Bank vs. Sensex (In ` bn) E 2015E 140 Net Sales Operating Profit Net Profit EPS Book Value Yes Bank Return Source: Bloomberg Consensus, ABML Research 8

9 Research Team Vivek Mahajan Hemant Thukral Head of Research Head Derivatives Desk Fundamental Team Akhil Jain Metals & Mining Sunny Agrawal FMCG/Cement Sumit Jatia Banking & Finance Shreyans Mehta Construction/Real Estate Dinesh Kumar Information Technology/Auto Pradeep Parkar Database Analyst Quantitative Team Jyoti Nangrani Sr. Technical Analyst Sudeep Shah Technical Analyst Advisory Support Indranil Dutta Advisory Desk HNI Suresh Gardas Advisory Desk Sandeep Pandey Advisory Desk ABML research is also accessible in Bloomberg at ABMR 9

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