Monthly Market Strategy December 2018

Transcription

1 AUGUST 2, 2017

2 Monthly Market Strategy December 2018 Sanjeev Zarbade MONTHLY OUTLOOK FOR DECEMBER 2018 Global markets bounced back strongly in November on lower crude prices and reduction in bond yields. Indian markets posted one of the best monthly returns after a long time as sharp correction in crude prices abetted macroeconomic worries. FIIs turned buyers after three consecutive months of selling. Despite the rebound in the market small and mid-cap indices, continue to underperform the broader indices. On the global economy front, we need to watch out for Fed action and pace of future rate hikes. Few other key events to watch are the G20 meet, trade talks between US and China, OPEC meeting and news flows on Brexit. So far as the Indian economy is concerned, Inflation has remained benign and there could be respite on the CAD (due to fall in crude prices). Data on credit growth and rising Capital goods order books suggests that the economic recovery is now gaining a foothold. From an Indian equity standpoint, the key event to watch out would be the Madhya Pradesh/Rajasthan/Chhattisgarh assembly elections. We believe these elections are important, as they will be seen as an indication of people's mood towards the ruling party and could also be a precursor to the upcoming general election scheduled somewhere in Apr- May 19. However, the impact of state elections could fade away after few weeks of election result as market participants will again focus on international developments and fundamentals. Based on Bloomberg consensus estimates, the one year Fw PE of Mid Cap Index has now come down to 15x as compared to 16x of Nifty. There is still a sizeable gap between the Equity PE and bond PE (refer chart 7) which could cap any big re-rating in equities (unless the 10 Yr G-Sec bond yields go to or below the 7% mark). With macros turning positive and after a 18% from fall from the peak, the overvaluation in mid cap Index has faded away. The risk-reward ratio has turned favourable for many mid and small cap stocks. Many of the mid & small cap stocks have gone closer to their historic low valuations. This provides enough comfort for bottom fishing at this level in the mid and small cap space. Any near term correction in the market due to political uncertainty should be viewed as a buying opportunity (provided crude & currency remain closer to the current levels). Investors need to have bottoms up approach and pick & choose good quality, beaten down stocks from respective sectors. To weather the on-going volatility which may remain till middle of next year (i.e. till Central elections), it is ideal to have higher allocation into high earnings growth large caps and mid-caps (with strong management pedigree, and reasonable valuations). One can re-access the situation and re-shuffle their holdings post-election outcome. The next few months could be very volatile filled with uncertainty, which will also offer good buying opportunity for Long term investors. Conservative investors may spread their buying across the next few months to average out any rise or fall in the market. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

3 Monthly Market Strategy December 2018 Chart 1 Market performance sector wise (November 2018) 9.0% 4.9% 4.4% 5.1% 5.8% 5.6% 6.0% 2.8% 4.9% 3.0% 1.5% 0.0% -3.0% -6.0% -9.0% -3.7% -0.1% -1.6% -3.1% -5.7% GLOBAL FACTORS US-China trade standoff As the G-20 finance leaders meet to discuss global policies in the Argentine capital of Buenos Aires on Nov. 30 and Dec. 1, one of the most pressing challenges will be the trade tariff dispute between the US and China. The outcome of meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping is likely to decide the future course of Sino-U.S. relations and global trade. One needs to watch whether US goes ahead with the increase in tariffs - from 10% to 25% on USD 200 bn of Chinese imports (as scheduled to take effect from 1 st Jan 19). Any negative outcome between the two sides could be harmful for global trade and emerging market currencies. Treasury bond yields have eased In its last meeting, the U.S. central bank left rates unchanged as expected, but maintained its plans to hike interest rates, saying it saw "further gradual increases" ahead. The bank did, however, note that business investment had "moderated from its rapid pace earlier in the year." As a result, bond yields eased off from their recent highs of 3.23%. Bonds also sold off following the U.S. midterm elections, which resulted in the Democrats winning the House of Representatives and the Republicans retaining the Senate. A split congress could stall plans for further tax cuts, which led to pressure on bond yields. Chart 2 US 10 year treasury yield Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 3

4 Monthly Market Strategy December 2018 Brexit deal In an important milestone for Britain, EU leaders have approved an agreement on the UK's withdrawal and future relations - insisting it is the "best and only deal possible". Now, the withdrawal agreement is lined up to be approved by the U.K. Parliament on 12th December In case the deal is voted down by the U.K, the government could try to extend the deadline of March 29 (when the U.K. is officially due to leave the European Union) or the country crashes out of the EU without a deal. Leaving the EU in March of next year without a deal would mean that World Trade Organization rules would apply. This would inevitably raise tariffs and costs for both producers and consumers. At the moment, the U.K. is a member of the EU single market of goods, meaning that trade is frictionless and with zero tariffs. There would be immense disruption and uncertainty, including in the energy market, the supply of medicines and medical devices, as well as in the car industry. A no deal exit could lead to a swift drop in the Pound, similar to that aftermath of the Brexit referendum in Economic momentum in China The Chinese economy is slowing down with most growth indicators barely in the expansion zone. Bloomberg Economics projects the Chinese GDP to be up by 6.4% in year. This will be the lowest growth figure since China has already embarked on fiscal and monetary measures (reduction of reserve requirements for large banks to 14.5% from 17%, VAT rate reduced to 16% from 17% for manufacturing and Personal income tax-free threshold raised to 5,000 yuan per month from 3,500 yuan etc) to support the economy but the Chinese government s efforts to support growth may be inadequate if ongoing China-US trade issues were to escalate into a full-blown trade war, which could result in further disruption in the Chinese economy. Other EMs could see collateral damage in the process although India would be relatively less affected given its low export dependence. Chart 3 State of Chinese economy 12 Retail sales growth (%) Consumer Confidence (x) Source: KIE, Bloomberg Crude Oil price decline brings some relief The recent decline in global crude oil prices reflects (1) higher oil production by several OPEC countries over the past few months and (2) temporary 180-day exemption granted by the US to eight countries to continue to import oil from Iran. However, the decline may be temporary as the US administration has unambiguously stated its intention to bring down Iran oil exports to zero eventually. Also, OPEC leaders will gather in Vienna on Dec. 6 to discuss how to manage the oil output, supply glut and demand slowdown. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 4

5 Monthly Market Strategy December 2018 Even so, the lower oil prices will result in stable macroeconomic conditions and from an election standpoint, (1) keep domestic retail auto fuel prices under check; steep increases in retail auto fuel prices before elections could spiral into an election issue and (2) provide the current government more fiscal freedom to spend before elections. Chart 4 Crude chart September ending quarter earnings Season Adjusted net profits of the BSE-30 Index and Nifty-50 Index increased 10% yoy in the September ending quarter. However, excluding banking stocks, net income of the BSE-30 Index and Nifty-50 Index grew 12% and 11%, respectively. A few banks reported significantly lower profits on yoy basis due to (1) high loan-loss provisions arising from the February 12, 2018 directive of the RBI on stress recognition and resolution and (2) lower other income (high capital gains in base quarter). However, almost all the banks reported a significant improvement in profits on a qoq basis on the back of lower loan-loss provisions. Chart 5 BSE-30 Earnings growth Mar_16 Jun_16 Sep_16 Dec_16 Mar_17 Jun_17 Sep_17 Dec_17 Mar_18 Jun_18 Sep_18 Source: Kotak Institutional Equities Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 5

6 Monthly Market Strategy December 2018 State elections harbinger to general elections In October, Election Commission of India (EC) announced polling schedule for Assembly elections in five states - Chhattisgarh, Madhya Pradesh, Mizoram, Rajasthan and Telangana. Chhattisgarh will vote in two phases, other states will vote in a single phase. Counting of votes in all the five states will be done on December 11. Past results in upcoming elections in 3 states Rajasthan has witnessed alternate government formations, while MP and Chhattisgarh have been ruled by BJP for the past 15 years. We believe these elections are important, as they will be seen as an indication of people's mood towards the ruling party and could also be a precursor to the upcoming general election scheduled somewhere in Apr-May 19. Election Schedule No of Incumbent State Assembly seats Government Election date Counting Rajasthan 200 BJP 7th Dec 11th December Madhya Pradesh 230 BJP 28 th Nov 11th December Chhattisgarh 90 BJP 12th and 20th November 11th December Telangana 119 TRS 7th Dec 11th December Mizoram 40 Congress 28th Nov 11th December Source: Media reports and Kotak Institutional Equities As of now, opinion polls indicate that the BJP will lose in Rajasthan but retain power in Chhattisgarh and Madhya Pradesh despite close contests in those states. The market expects a similar outcome. Thus, a 0-3 (BJP losing all the three states) or 1-2 (BJP losing Madhya Pradesh and Rajasthan) tally for the BJP may result in a correction in the market. In this scenario, market may take a dim view of the BJP s prospects in the general elections given the importance of the three states in the BJP s 2014 win. However, a 3-0 or 2-1 (any combination) score for the BJP may fortify the market s expectations about the current BJP-led government forming the next government post the April/May general elections Table Opinion Poll Results CVoter India TV-CNX Times Chhattisgarh BJP INC Others Madhya Pradesh BJP INC Others Rajasthan BJP INC Others Source: Media reports and Kotak Institutional Equities Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 6

7 Monthly Market Strategy December 2018 Declining crude price to mitigate macro risks With 30% decline in crude prices, the rising macro risks to the Indian economy have begun to abate. The benefit is on several fronts. We look at some of them: Indian Rupee - With the crash in crude, India's CAD will not aggravate further as the market feared earlier. Hence, the INR has appreciated by a good margin to below 70 from levels. Since the US 10 Year treasury bond yield has corrected to 3.06% from high of 3.23%, it has resulted in reduction in foreign fund outflows from Indian debt market. Taking note of the reduction in macro risks and easing of market valuations, FIIs stopped selling and have turned buyers in November. Inflation - CPI inflation eased to 3.31% in October from a downward revised print of 3.7% in September. This was primarily led by contraction of 0.9% in food inflation amid sharp drop in prices of vegetables and pulses. Food inflation is likely to remain benign, especially as most kharif crop prices remain well below the MSP prices. This coupled with reversal in crude prices in November, Inflation is likely to remain under control in the coming months, we believe. Interest rates - Given the strong focus of the Monetary Policy Committee on the headline inflation print, which should remain benign for the rest of 2HFY19 (we expect it in the range of %), the RBI is unlikely to (1) change the repo rate, (2) keep CRR unchanged and (3) maintain the policy stance at calibrated tightening Signs of economic recovery gaining strength We are seeing early signs of uptick in economic growth. Some of the key parameters like credit growth, capacity utilisation and order intake for capital goods companies have started to show traction. Job outlook has started to improve as reflected by some momentum in IT sector hiring. Credit growth - On a year-on-year (y-o-y) basis, non-food bank credit increased by 11.3 per cent in September 2018 as compared with an increase of 6.1 per cent in September Table - Macro snapshot Dec-07 May-13 Oct-13 Capacity Utilisation (Mar-18) Credit Growth (as on 30 Sept 2018) ROE Nifty 50 (Oct 18) IIP - Aug GDP Growth (Apr - Jun 18) Yrear Govt Bond Yield Source: RBI Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 7

8 Monthly Market Strategy December 2018 Investment Cycle - Demand for heavy equipment by Indian companies, an indirect measure of economic growth, is showing signs of rebound driven by government spending on railways, roads and smart cities ahead of the next general election. Siemens India Ltd., ABB India Ltd., Thermax Ltd. and Cummins Ltd. beat quarterly sales and operating income estimates. While mega/big ticket projects are yet to start, several consumer oriented industries have begun investing in capacity expansion/capacity optimisation projects, which is leading to better order book number for companies. Table - Growth in Quarterly Order intake for key Capital Goods makers (in Q2FY19) Company YoY (%) L&T 46 Thermax -3 Siemens 37 ABB 21 Praj 38 Source: BSEIndia.com Fund flows FIIs turn positive. MF flows remain resilient Overseas funds have turned net buyers in November so far. Two main factors that have led to FIIs reversal include INR appreciation against the USD and steep fall in crude price. YTD in this calendar year FIIs have sold stocks worth USD 5.5 bn whereas domestic Mutual Funds have bought stocks worth USD 16.3 bn. Other emerging markets like South Korea, Taiwan, Indonesia & Thailand have seen YTD outflows ranging between USD 4bn to USD 10 bn. However, on a monthly basis, FII flows have turned positive at USD 720 mn in Nov 18. In fact, this will be one of the few months when FII flow has been higher than MF flows (USD 353 mn). Valuations have turned favorable for overall market India s overall market valuations have become reasonable as compared to its 10 year average but is still slightly expensive when compared to the Bond PE. Current valuations factor in a strong recovery in earnings over FY E. At 16x FY2020E EPS the Nifty 50 trades slightly below its 10 year average Fw PE valuations. Earnings growth of ~14-15% in FY19E will be highest in the last 4 years. Going forward our house is building in earnings growth of ~25% in FY20E mainly led by high earnings growth in the banking sector. Any disappointment in earnings of banking sector in FY20 could lead to sharp correction in the FY20E of Nifty EPS. Based on Bloomberg consensus estimates, the one year Fw PE of Mid Cap Index has now come down to 15x as compared to 16x of Nifty. The above average gap between the Equity PE and bond PE could cap any big re-rating in equities (unless the 10 Yr G-Sec bond yields go to or below the 7% mark). With macros turning positive and after a 18% from fall from the peak, the overvaluation in mid cap Index has faded away. The risk-reward ratio has turned favourable for many mid and small cap stocks. Many of the mid & small cap stocks have gone closer to their historic low valuations. This provides enough comfort for bottom fishing at this level in the mid and small cap space. Any near term correction in the market due to political uncertainty should be viewed as a buying opportunity (provided crude & currency remain closer to the current levels). Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 8

9 Monthly Market Strategy December 2018 Table Valuation Comparison BSE Sensex BSE Mid cap P/BV (x) as on 16-Jan Y Avg Price to Book Ratio Current Price to Book Ratio Price to Book Ratio Premium 13% 37% P/BV (x) as on Y Avg Price to Book Ratio Current Price to Book Ratio Price to Book Ratio Premium 6% 23% Chart 6 - One Yr Fw PE chart: Nifty Vs Mid Cap Index 30.0 NSE Mcap Nifty Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Jan-18 Jun-18 Chart 7 - Bond PE Vs Fw Equity PE of Nifty Bond PE Nifty Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Jan-18 Jun-18 Economic Calendar for December Date Event Remark 30-Nov G20 meet Trade talks between China and US 4-Dec Monetary Policy meet Rate hike unlikely given that inflation remains benign 30-Nov Q2 FY19 India GDP data Important to gauge the strength of economic growth 6-Dec OPEC meet Supply cut likely in crude output 11-Dec State Election Results Election results in MP 16-Dec Fed rate Fed may hike rate but more important is the glide path from thereon Source: CNBC, RBI and MOSPI Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 9

10 Apollo Tyres Ltd Analyst: Nishit Jalan / Hitesh Goel CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 307 / Key Highlights: Domestic revenues increased by 25.3% yoy in 2QFY19 led largely by volume growth. Truck-bus radial tire volumes grew by almost 35% yoy driven by strong industry growth and continued market share gains for the company. RM cost per kg increased by 2.5% qoq in 2QFY19 and will inch up further in 3QFY19 due to delayed impact of increase in crude prices and rupee depreciation. The company has taken 2.5% price hike across segments in end- September/early October and has announced similar increase in November as well. Hungary plant is ramping up quite well and exports from India have come down significantly. The company plans to incur capex of Rs65bn over the next three years (1) Rs55 bn in India, which will be towards greenfield plant in Andhra (Rs38 bn), de-bottlenecking of passenger vehicle capacity from current capacity of 35,000 tires per day (10% capacity addition), conversion of truck bias tire capacity to OHT tires, setting up of small two-wheeler radial tire capacity and maintenance capex and (2) Rs.10 bn in Europe towards completion of capex in Hungary plant and maintenance capex in the Netherlands plant. On the issue related to promoter s compensation, based on the inputs from an independent report by Ernst & Young (EY), the Nominations & Remuneration Committee of the company has decided to cap promoter s salary at 7.5% of PBT (from 10% of PBT earlier); FY2018 promoter s salary was 9.3% of consolidated PBT. The committee has further suggested lowering the salary cap in coming years from 7.5% of PBT set currently. We expect Apollo s outperformance in the India business (compared to peers) to sustain over the next few years Going ahead, even as India business remains on a strong footing, we expect performance of Europe business to improve over the next two years. Financials (Rs mn)* FY18 FY19E FY20E Price Performance (3 Years) Sales 148, , ,771 Growth (%) Apollo Tyres Ltd Nifty EBITDA 16,513 21,872 27, EBITDA margin (%) PBT 10,123 13,099 17, Adjusted Net profit 7,239 9,574 12, Adjusted EPS (Rs) Growth (%) (38.0) P/E (x) BV (Rs/share) Net debt/equity (x) ROE (%) ROCE (%) Free cash flow (14,798) (11,011) (7,057) Source: Kotak Insitutional Equities; *Consolidated Nov-15 Feb-16 May-16 Aug-16 Share Holding Pattern (%) Others 15.0% Nov-16 Feb-17 May-17 Nov-17 Feb-18 May-18 Aug-18 Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 47,892 61, EBITDA 4,776 7, EBITDA Margin (%) 10.0% 12.7% Adjusted PAT 1,947 3, Adjusted PAT Margin (%) 4.1% 6.3% Adjusted EPS (Rs) DII 22.2% FII 21.4% Promoter 41.3% Source: Kotak Insitutional Equities; *Consolidated This one pager on the company is extracted from last KIE update dated November 13, 2018 and it does not contain events beyond that date. We take no obligation to update the KIE recommendations. Above company recommendation is of KIE which has a different rating system than Kotak PCG as disclosed in the end of the report (before Disclaimer). While source of all other information is taken from Kotak Institutional Equities, the price performance and shareholding pattern chart is inputted by Kotak PCG research team (with source as Bloomberg). It is advisable to read the full KIE report before taking any investment decision on the above company recommendation.

11 Coal India Limited Analyst: Murtuza Arsiwalla, Samrat Verma CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 317 / Key Highlights: Coal India has started FY2019 on a firm footing with 1HFY19 delivering 153% YoY growth in earnings on the back of 21% YoY growth in revenue. We expect the earnings momentum to continue on the back of double-digit growth in realizations and healthy volume growth. Coal India reported 3.6% YoY growth in coal dispatches at 50 mn tons in October 2018 with all but two subsidiaries reporting positive volume growth. Production volumes were healthy with a growth of 7.9% YoY in October Overall YTD performance remains healthy with 7.4% YoY growth in dispatches and 10.2% YoY growth in production volumes. Coal inventory has decreased to six days for October 2018, from a nine day average in 2QFY19. As many as 19 plants with critical/super-critical inventories are located in the West out of a total of 28 plants across India. East has no plants with critical inventory while North and South have four and five plants each. E-auction premiums increased to 102% in September 2018 from 93% seen in August Premiums are still well above those seen in FY2018, and should also be seen in the context of the price increase taken in January CIL continued to maintain an elevated capex with Rs85 bn incurred in FY18, almost similar to Rs87 bn incurred in FY17 though meaningfully higher than the 4-year average capex of Rs68 bn. The long awaited railway lines are being commissioned in parts, with two railway lines in Tori-Shivpuri and Jharsaguda-Barpali having been commissioned during the year. Financials (Rs mn)* FY18 FY19E FY20E Price Performance (3 Years) Sales EBITDA PBT Adjusted EPS (Rs) 964, , , ,041, , , ,101, , , Growth (%) EBITDA margin (%) Net profit Growth (%) , , , Coal India Limited Nifty P/E (x) BV (Rs/share) ROE (%) ROCE (%) Free Cash Flow 28, ,57,694 2,18,068 Share Holding Pattern (%) Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Nov-17 Feb-18 May-18 Aug-18 Source: Kotak Insitutional Equities; *Consolidated Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 358, , EBITDA 33,258 64, EBITDA Margin (%) 9.3% 15.0% PAT 27,201 68, PAT Margin (%) 7.6% 15.9% EPS (Rs) Source: Kotak Insitutional Equities; *Consolidated FII 5.7% DII 13.0% Others 3.0% Promoter 78.3% This one pager contains information like company background, risks & concerns, graphs and tables inputed by Kotak PCG research team. The price target is that of KIE (kindly refer to the Rating Scale of KIE at the end of this report). The Investment Arguments are extracted from KIE updates dated September 21, October 3, November 2, and November, 12, 2018 and Financial estimates are extracted from last KIE update dated November 12, 2018 and it does not contain events beyond that date. We takeno obligation to update the KIE recommendations.

12 Cochin Shipyard Limited (CSL) Analyst: Amit Agarwal CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 579 / Key Highlights: Cochin Shipyard (CSL) is a Government company, incorporated on March 29, 1972 and was conferred the 'Miniratna' status in 2008, by the Department of Public Enterprise. It is the largest public sector shipyard in India in terms of dock capacity The company caters to clients engaged in the defence sector in India and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair CSL also offer marine engineering training. CSL currently has two docks - dock number one, primarily used for ship repair (Ship Repair Dock) and dock number two, primarily used for shipbuilding (Shipbuilding Dock). CSL currently has a shipbuilding order book of Rs bn which gives investors revenue visibility of only one year. The company is also a L1 bidder for an order worth Rs 54 bn for 8 Anti-Submarine Warfare- Shallow water vessel from the Indian navy. Management of Cosh expects to convert this L1 bid to actual orders within FY19 post completion of formalities with the Indian Navy. CSL currently has an order-book of Rs 3.5 bn in the ship-repair segment. The company intends to expand in ship-repair segment with an international ship-repair center and increased geographical reach. CSL would be ramping up its capacity with a third dry-dock (measuring 310 x 75 x 13 Meters) and an international shiprepair center at Kochi. The capacity addition will enable the company to construct bigger and complex vessels as well as undertake repairs of vessels like LNG carriers, semi-submersibles CSL is one of the best companies to invest to play in the India's defence sector. We estimate company to report sales CAGR of 8.1% over FY18 to FY20E to Rs 27.9 bn and report earnings CAGR of 3.3% over the same period to Rs 4.26 bn. Diversified offering, recurring orders from the defence, focus on ship repair segment and strong BS gives us comfort with the stock. Recommend BUY with a TP of Rs 520 at 16x FY20 earnings. Financials (Rs mn)* FY18 FY19E FY20E Sales 23,922 26,514 27,921 Growth (%) Nifty EBITDA 4,979 5,437 5, EBITDA margin (%) PBT Adjusted EPS (Rs) 6, , , Net profit Growth (%) 3, , , P/E (x) BV (Rs/share) Dividend / share (Rs) ROE (%) ROCE (%) Net cash (debt) 26,913 22,713 20,376 Source: Kotak Securities - Private Client Research; *Consolidated Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 11,766 14, EBITDA 2,456 3, EBITDA Margin (%) 20.9% 20.8% PAT 1,915 2, PAT Margin (%) 16.3% 17.4% EPS (Rs) Source: Kotak Securities - Private Client Research; *Consolidated Price Performance (Since August 2017) Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 DII 10.8% Cochin Shipyard Limited (CSL) FII 2.7% Share Holding Pattern (%) Others 11.5% Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Promoter 75.0% This one pager on the company is extracted from last Kotak Securities Private Client Research update dated October 29, 2018 and it does not contain events beyond that date. Above company recommendation is of Kotak Securities Private Client Research which has a different rating system than Kotak Institutional Equities as disclosed in the end of the report (before Disclaimer). It is advisable to read the full Kotak Securities Private Client Research report before taking any investment decision on the above company recommendation

13 Mold-Tek Packaging (MTPL) Analyst: Jatin Damania CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 374 / Key Highlights: Mold Tek Packaging stands to gains in the coming years from the increasing share of IML, backward integration and expansion in the food and FMCG industry. MTPL was the first company to offer IML technology in 2011, while others were focusing on screen printing and heat transfer labelling (HTL). IML is a high margin ( bps higher) technology compared to the traditional methods. Emerged as one of the leading manufacturers and suppliers of high quality airtight and pilfer containers/pails in India for paints, lubricants and FMCG (includes Edible Oil) industry. Mysore/Vizag plants to be operational from Dec-2018/Feb-2019 and business to start from April The management expects these capacities will help the company to continue to grow at 20% annually for the next 2-3 years. The Q-packs of edible oil and ghee, witnessed robust demand from various companies across Madhya Pradesh, Gujarat and Rajasthan and numbers are even better in the month of Oct and Nov, In addition, the company is also planning to introduce a range of ghee packs for retail packs, which will further increase the contribution of F&F in overall revenue share. The management is confident to achieve 20% share from F&F in FY19 and increase it further in the coming years. The company recently on board HUL, as it customers for ice cream packs, which can add incremental revenue of Rs40-50 mn annually, this will further strengthen the contribution from F&F segment. Expect MTPL to continue delivering strong growth in the coming years on the back of integrated facilities and increasing revenue from the high margin FMCG industry. Financials (Rs mn)* FY18 FY19E FY20E Price Performance (3 Years) Sales 3,577 4,404 5,017 Growth (%) Mold-Tek Packaging (MTPL) 300 EBITDA EBITDA margin (%) PBT Net profit Adjusted EPS (Rs) Growth (%) P/E (x) BV (Rs/share) Dividend / share (Rs) ROE (%) ROCE (%) Share Holding Pattern (%) Net cash (debt) (845) (1,019) (1,048) Source: Company; Kotak Securities - Private Client Research *Consolidated Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 1,670 2, EBITDA EBITDA Margin (%) 17.8% 17.0% PAT PAT Margin (%) 8.5% 7.6% EPS (Rs) Source: Kotak Securities - Private Client Research; *Consolidated Nov-15 Feb-16 May-16 Others 43.6% Aug-16 Nov-16 DII 12.6% Feb-17 May-17 Nov-17 FII 8.3% Feb-18 May-18 Nifty Promoter 35.6% Aug-18 This one pager on the company is extracted from last Kotak Securities Private Client Research update dated November 27, 2018 and it does not contain events beyond that date. Above company recommendation is of Kotak Securities Private Client Research which has a different rating system than Kotak Institutional Equities as disclosed in the end of the report (before Disclaimer). It is advisable to read the full Kotak Securities Private Client Research report before taking any investment decision on the above company recommendation.

14 MRPL Analyst: Sumit Pokharna CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 137 / Key Highlights: MRPL (Mini-Ratna status) is a pure play crude oil refiner with strong promoter backing of ONGC (India's biggest government owned exploration Company). MRPL has transformed itself into a large and complex refinery with phase-iii capacity expansion and has emerged into a much stronger player in the industry. With the recent correction in crude oil price, we believe the margins should improve in the medium term. The company's management has indicated that it aims to achieve crude throughput of 16 mmtpa in FY19. In the medium to long term, the key factors to watch out are GRMs, rupee movement, oil prices and product demand. Further, investors are waiting for an announcement of swap ratio for merger of MRPL with HPCL. Marketing initiatives: Direct marketing has increased MRPL's market presence for Petcoke, Sulphur and Polypropylene. It is also increasing its product grades of Polypropylene to enhance Polypropylene (PP) market share which will improve margins. The Company has bagged the prestigious "FieldComm group 2018 Plant of the Year" Global award conferred by FieldComm group. The Company is the first Indian company to receive this International award. New expansion plans in place - Growth is a process: MRPL has set-up the next milestone and is planning to enhance its refining capacity to 25 mmtpa as against current capacity of 15.5 mmtpa. Additionally, the company is planning to scale up its petrochemical capacity to boost its margins. The Company will invest Rs.110 bn in this expansion. We like the sharpened focus of the company on its growth strategy. The expansion is seen as a major margin driver as it will help the company to process cheaper, heavier crudes into high-value products like diesel, liquefied petroleum gas and propylene. Re-commencing retail outlets: The Company has commissioned COCO (company owned and company operated) retail outlet in Mangalore and also commissioned its DODO (dealer owned dealer operated) retail outlet. In Karnataka, this is the sixth RO for MRPL. MRPL has drawn up plans for opening over 100 retail outlets which will improve its overall margins due to addition of marketing margins. Auto fuel up-gradation: MRPL is in the process of upgrading its facilities to produce BS-VI grade MS& HSD by April Going ahead, MRPL's profitability will be supported by i). Improved product mix, ii). Better margins iii). Economies of scale, iv). Forward integration - Polypropylene plant and v). Various tax benefits. Financials (Rs mn)* FY18 FY19E FY20E Price Performance (3 Years) Sales 490, , , MRPL Nifty Growth (%) EBITDA 45,020 38,747 44,907 EBITDA margin (%) PBT 28,713 22,303 29, Net profit 19,926 15,612 19, Adjusted EPS (Rs) Growth (%) (42.6) (21.7) P/E (x) BV (Rs/share) Dividend / share (Rs) ROE (%) ROCE (%) Net cash (debt) (99,073) (87,822) (72,456) Source: Company; Kotak Securities - Private Client Research *Consolidated Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 269, , EBITDA 14,909 9,574 (35.8) EBITDA Margin (%) 5.5% 2.8% PAT 7,379 2,819 (61.8) PAT Margin (%) 2.7% 0.8% EPS (Rs) (60.6) Source: Kotak Securities - Private Client Research; *Standalone Nov-15 Feb-16 May-16 FII 1.6% Aug-16 Share Holding Pattern (%) DII 3.2% Nov-16 Feb-17 May-17 Others 6.6% Nov-17 Feb-18 May-18 Promoter 88.6% Aug-18 This one pager on the company is extracted from last Kotak Securities Private Client Research update dated October 29, 2018 and it does not contain events beyond that date. Above company recommendation is of Kotak Securities Private Client Research which has a different rating system than Kotak Institutional Equities as disclosed in the end of the report (before Disclaimer). It is advisable to read the full Kotak Securities Private Client Research report before taking any investment decision on the above company recommendation

15 State Bank of India Analyst: MB Mahesh, CFA/ Nischint Chawathe/ Dipanjan Ghosh CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 335 / Key Highlights: SBI reported a profit of Rs 9.5 bn in 2QFY19, as provisions declined 40%. Revenue declined 12% YoY despite NII growth of 12% YoY, primarily due to weak fee income growth and lower contribution from treasury book. 2QFY19 saw the second consecutive quarter of improvement in gross and net NPL ratios. Gross NPLs declined 75 bps QoQ to less than 10% while net NPLs declined 45 bps QoQ on to 4.8% of loans. Slippages for the quarter declined to 2.3% of loans with most of the corporate slippages coming from the watch-list. SBI has negligible exposure to IL&FS and subsidiaries. The bank reported Rs 2.5 bn exposure to the holding company and Rs 35 bn (0.01% of loans) of exposure to the group via SPVs (around 14 in number). Overall loan growth (net) improved to 9% YoY driven by robust growth in retail loans and gradual revival in corporate loan growth; albeit at a muted pace. On gross basis, retail loans saw robust increase at 14% YoY. SME growth stood at 5% YoY. Retail segment constitutes ~28% of the loan book (up 120 bps YoY). Corporate book comprises 36% of loan book (up 70 bps QoQ). Bank will look at maintaining the share of corporate book in 36-40% range based on the opportunities in the corporate segment. CASA ratio stood at 44% in 2QFY19 (up 50 bps YoY and 20 bps QoQ) led by strong growth in SA balances. SA growth improved to 9% YoY while CA revived to 6% YoY. Bank has benefitted from higher average balances in savings accounts post demonetization, greater traction in corporate salary packages and new current accounts. CAR and CET-1 stood comfortable at 12.6% and 9.7%, respectively. We expect the stock to re-rate as we believe - the bank has embarked on a favorable journey of NPL resolution; loan growth is accelerating; NIM has scope for expansion; Operating expenses are not showing any negative surprises. Financials (Rs mn)* FY18 FY19E FY20E Net Interest Income 748, ,160 1,011,236 Non-interest Income 446, , ,846 Total Income 1,194,544 1,250,443 1,495,083 Growth (%) 1.4% 4.7% 19.6% PBT (155,282) 95, ,653 Net profit (65,475) 66, ,157 EPS (Rs) (7.7) Book Value (Rs) P/B (x) Nov-15 Feb-16 Price Performance (3 Years) State Bank of India Nifty May-16 Aug-16 Nov-16 Feb-17 May-17 Nov-17 Feb-18 May-18 Aug-18 Slippages (%) 6.0% 2.5% 1.5% Gross NPL (%) 10.7% 8.3% 6.8% Net NPL (%) 5.7% 3.9% 2.6% Share Holding Pattern (%) ROE (%) -3.2% 3.0% 14.5% Others RoA (%) -0.2% 0.2% 0.9% 7.5% Source: Kotak Insitutional Equities Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Net Interest Income 361, , % Non-Interest Income 240, , % Total Income 602, , % PBT 38,063 (54,425) % PAT 35,871 (39,310) % Slippages (%) 4.2% 2.6% Source: Kotak Insitutional Equities; *Consolidated DII 23.8% FII 10.2% Promoter 58.6% This one pager on the company is extracted from last KIE update dated November 13, 2018 and it does not contain events beyond that date. We take no obligation to update the KIE recommendations. Above company recommendation is of KIE which has a different rating system than Kotak PCG as disclosed in the end of the report (before Disclaimer). While source of all other information is taken from Kotak Institutional Equities, the price performance and shareholding pattern chart is inputted by Kotak PCG research team (with source as Bloomberg). It is advisable to read the full KIE report before taking any investment decision on the above company recommendation.

16 Supreme Industries Ltd Analyst: Pankaj Kumar CMP (Rs) Target Price (Rs) Potential Upside (%) 52 Week H/L (Rs) Mkt Cap (Rs mn) % 1490 / Key Highlights: Supreme Industries Ltd (SIL) is the major player in the plastic pipes business with established brand equity and diverse presence across other business segments such as packaging, industrial products, plastic furniture, etc. The company manufactures and sells diverse range of plastic products broadly categorized across 5 different verticals, plastic piping system, consumer products, industrial products, packaging products and composite products. SIL has track record of generating high ROCE of ~30-35% with low debt/equity and strong positive operating cash flows driven by 1) efficient utilization of assets 2) diverse products mix with increasing share of high margins value added products 3) better working capital management v/s its peers. SIL management has guided for 10% growth in volume with % EBITDA margin in FY19E driven by robust plastic demand across most of the segments and increased contribution from high margin and value added products. SIL has 25 manufacturing units spread across geographies with pastic processing capacity of 567,850 tonnes per annum. The company is increasing capacity across segments which would help in maintaining volume growth. It is adding 50,000 tonne per annum capacity every year in FY19E-FY21E with total capex of Rs bn funded largely through internal accruals. The company is positive on composite cylinder business and expects order from domestic as well as international market in FY19E. We expect earnings to grow at faster pace in the next two years on improved volume growth outlook for the company, focus on increasing share of value added products and its ability to pass on increase in raw material prices. Financials (Rs mn)* FY18 FY19E FY20E Price Performance (3 Years) Sales 49,663 57,656 67,243 Growth (%) Supreme Industries Ltd EBITDA 7,871 8,781 10, EBITDA margin (%) PBT 6,028 6,731 8, Net profit 3,971 4,434 5, Adjusted EPS (Rs) Growth (%) P/E (x) BV (Rs/share) Dividend / share (Rs) ROE (%) ROCE (%) Net cash (debt) (2,164) (1,702) 86 Source: Company; Kotak Securities - Private Client Research *Consolidated Nov-15 Feb-16 May-16 Aug-16 Share Holding Pattern (%) Others 21.1% Nov-16 Feb-17 May-17 Nov-17 Feb-18 May-18 Nifty Aug-18 Financials (Rs mn)* 1H-FY18 1H-FY19 % Chg Revenues 22,167 26, EBITDA 3,026 3, EBITDA Margin (%) 13.7% 15.0% PAT 1,351 2, PAT Margin (%) 6.1% 8.8% EPS (Rs) DII 22.0% FII 7.2% Promoter 49.7% Source: Kotak Securities - Private Client Research; *Consolidated This one pager on the company is extracted from last Kotak Securities Private Client Research update dated October 30, 2018 and it does not contain events beyond that date. Above company recommendation is of Kotak Securities Private Client Research which has a different rating system than Kotak Institutional Equities as disclosed in the end of the report (before Disclaimer). It is advisable to read the full Kotak Securities Private Client Research report before taking any investment decision on the above company recommendation.

17 RATING SCALE (KOTAK SECURITIES PRIVATE CLIENT RESEARCH) Definitions of ratings BUY We expect the stock to deliver more than 12% returns over the next 12 months ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 12 months REDUCE We expect the stock to deliver 0% - 5% returns over the next 12 months SELL We expect the stock to deliver negative returns over the next 12 months NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, 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. NOTE Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark. RATING SCALE (KOTAK INSTITUTIONAL EQUITIES) Ratings and other definitions/identifiers Definitions of rating 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 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.

18 FUNDAMENTAL RESEARCH TEAM (PRIVATE CLIENT RESEARCH) Rusmik Oza Arun Agarwal Amit Agarwal Nipun Gupta Deval Shah Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Information Tech, Midcap Research Associate Sanjeev Zarbade Ruchir Khare Jatin Damania Cyndrella Carvalho Ledo Padinjarathala Cap. Goods & Cons. Durables Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Research Associate Teena Virmani Sumit Pokharna Pankaj Kumar Krishna Nain K. Kathirvelu Construction, Cement, Buildg Mat Oil and Gas, Information Tech Midcap M&A, Corporate actions Support Executive TECHNICAL RESEARCH TEAM (PRIVATE CLIENT RESEARCH) Shrikant Chouhan Amol Athawale DERIVATIVES RESEARCH TEAM (PRIVATE CLIENT RESEARCH) Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe Disclosure/Disclaimer Kotak Securities Ltd Following analysts: Nishit Jalan, Hitesh Goel, Murtuza Arsiwalla, Samrat Verma, M.B. Mahesh, Nischint Chawathe, Dipanjan Ghosh of Kotak Institutional Equities and Amit Agarwal, Pankaj Kumar, Jatin Damania & Sumit Pokharna of Kotak Securities Private Client Research hereby certify that all of the views expressed in this report accurately reflect their personal views about the subject company or companies and its or their securities. They also certify that no part of their compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. 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 Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). 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