ValueGuide. At Crossroads. October Trader s Edge. Regular Features. Intelligent Investing. Products & Services

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1 ValueGuide At Crossroads Intelligent Investing Regular Features Products & Services Trader s Edge Stock Updates Viewpoints Report Card Earnings Guide PMS Top Picks Wealth Creator MF Picks Advisory Technical View Currencies F&O Insights For Private Circulation only

2 TradeTiger better and faster every quarter What s new in the latest version of TradeTiger Marketwatch with sectors: Bifurcate stocks according to sectors and track performance easily Minimum margin display: Say good bye to punching orders repeatedly as required margin is now available upfront Draw on charts: Do free hand drawing or marking on any part of the chart for better analysis Ichimoku on scanner: The most reliable indicator, Ichimoku is now available on Stock scanner, go ahead make those technical calls! `% Net rupee change on HeatMap: You can now get both percentage as well as Net Rupee change on the HeatMap Dynamic OCF with moneyness filter: With moneyness (ITM, ATM, OTM) filter, option traders can now identify the moneyness of scanned contracts myaccount@sharekhan.com Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: Sharekhan Ltd.: SEBI Regn. Nos.: BSE: INB/INF / BSE-CD ; NSE: INB/INF/INE ; MSEI: INB/INF / INE ; DP: NSDL-IN-DP-NSDL ; CDSL-IN-DP-CDSL ; PMS-INP ; Mutual Fund-ARN ; Research Analyst: INH ; For any complaints at igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T & C on before investing. Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. read more

3 CONTENTS From Sharekhan s Desk The stock markets took a breather in September. While the damage to benchmark indices was limited, the Sensex fell 1.4%, while the Nifty slid 1.3% the carnage in broader markets was quite sharp and painful RESEARCH BASED EQUITY PRODUCTS PMS DESK Top Picks Basket 07 Wealth Creator Portfolio 11 WealthOptimizer PMS 29 ProPrime - Diversified Equity 30 ProTech - Index Futures Fund 31 ProTech - Trailing Stops 32 EQUITY FUNDAMENTALS REGULAR FEATURES Stock Update 12 Report Card 4 Viewpoints 22 Earnings Guide 36 TECHNICALS DERIVATIVES Nifty 25 View 26 ADVISORY DISK DERIVATIVES MID Trades 33 Derivatives Ideas 33 CURRENCY FUNDAMENTALS USD-INR 27 GBP-INR 27 EUR-INR 27 JPY-INR 27 TECHNICALS USD-INR 28 GBP-INR 28 EUR-INR 28 JPY-INR 28 MUTUAL FIND DESK Top MF Picks (equity) 34 Top SIP Fund Picks 35 Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: Sharekhan Ltd.: SEBI Regn. Nos.: BSE: INB/INF / BSE-CD; NSE: INB/INF/INE ; MSEI: INB/INF / INE ; DP: NSDL-IN-DP-NSDL ; CDSL-IN-DP-CDSL ; PMS-INP ; Mutual Fund-ARN ; Research Analyst: INH ; For any complaints at igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T & C on ; Investment in securities market are subject to market risks, read all the related documents carefully before investing. DISCLAIMER: This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. 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The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he nor his relatives has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. October June Compliance Officer: Ms. Namita Amod Godbole; Tel: ; For any queries or grievances kindly igc@sharekhan.com or contact: myaccount@sharekhan.com 3

4 REPORT CARD EQUITY FUNDAMENTALS STOCK IDEAS STANDING (AS ON OCTOBER 03, 2017) COMPANY CURRENT RECO PRICE AS ON 03-OCT-17 PRICE TARGET 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M Automobiles Apollo Tyres Buy Ashok Leyland Buy Bajaj Auto Buy Gabriel India Hold 194 ** Hero MotoCorp Buy M&M Buy Maruti Suzuki E Buy Rico Auto Industries Buy TVS Motor Buy BSE Auto Index Banks & Finance Axis Bank Buy Bajaj Finance Buy 1868 ** Bajaj Finserv Buy Bank of Baroda Hold Bank of India Hold Capital First Buy Federal Bank Buy HDFC Buy HDFC Bank E Buy ICICI Bank Buy LIC Housing Finance E Buy Max Financial Buy PTC India Financial Services Buy Punjab National Bank Hold Union Bank of India Hold 127 ** Yes Bank Buy BSE Bank Index Consumer goods Britannia Buy Emami Buy GSK Consumers Hold Godrej Consumer Products Buy Hindustan Unilever Hold ITC E Hold Jyothy Laboratories Buy Marico Hold Zydus Wellness Hold BSE FMCG Index IT / IT services Firstsource Solution Hold 41 ** HCL Technologies Buy Infosys Hold Persistent Systems Hold Tata Consultancy Services Hold Wipro Hold BSE IT Index Capital goods / Power CESC E Buy Crompton Greaves Hold Finolex Cable Hold 544 ** Greaves Cotton Buy Kalpataru Power Transmission Buy KEC International E Buy PTC India Hold Skipper Hold Thermax Hold NEW 4

5 EQUITY FUNDAMENTALS REPORT CARD STOCK IDEAS STANDING (AS ON OCTOBER 03, 2017) COMPANY CURRENT RECO PRICE AS ON 03-OCT-17 PRICE TARGET 52 WEEK ABSOLUTE PERFORMANCE RELATIVE TO SENSEX HIGH LOW 1M 3M 6M 12M 1M 3M 6M 12M Triveni Turbine Buy V-Guard Industries Buy Va Tech Wabag Buy BSE Power Index BSE Capital Goods Index Infrastructure / Real estate Gayatri Projects Hold 186 ** IRB Infra Buy Jaiprakash Associates Hold 18 ** Larsen & Toubro Hold NBCC Buy Sadbhav Engineering Buy CNX Infra Index BSE Real estate Index Oil & gas Oil India Hold 355 ** Reliance E Buy Selan Exploration Technology Hold BSE Oil and gas Index Pharmaceuticals Aurobindo Pharma Hold Cadila Healthcare Hold Cipla Hold Divi's Labs Hold Glenmark Pharmaceuticals Hold Lupin Reduce Sun Pharmaceutical Industries Reduce Torrent Pharma Reduce BSE Health Care Index Building materials Grasim Hold Shree Cement Hold The Ramco Cements Hold UltraTech Cement Hold Discretionary consumption Arvind Buy Century Plyboards (India) Hold Cox and Kings Buy Info Edge (India) Hold Inox Leisure Buy KKCL Hold Orbit Exports Hold Relaxo Footwear Buy Thomas Cook India Hold Wonderla Holidays Buy Zee Entertainment E Buy Diversified / Miscellaneous Bajaj Holdings Buy Bharat Electronics Hold Bharti Airtel Hold Gateway Distriparks Hold PI Industries Buy Ratnamani Metals and Tubes Hold 868 ** Supreme Industries Buy UPL E Buy BSE500 Index CNX500 INDEX CNXMCAP INDEX E In Top Picks basket ** Price target under review NEW NEW 5

6 FROM SHAREKHAN S DESK from sharekhan s desk At Crossroads The stock markets took a breather in September. While the damage to benchmark indices was limited, the Sensex fell 1.4%, while the Nifty slid 1.3% the carnage in broader markets was quite sharp and painful. Selling pressures intensified owing to a mix of unfavourable developments both in the country and the world over. To begin with, the North Korea-US rhetoric stumped markets, as did rating downgrades handed out to China and the UK. Most importantly, the US Federal Reserve s announcement to begin trimming its balance sheet sparked the selling spree in Dalal Street. To add to this, Europe seems to be under constant threat of terror attacks that could weaken the already fragile economy. Circumstances at home weren t encouraging either. The aftermath of demonetisation and the implementation of Goods and Services Tax (GST) continues to worsen. Glitches in GST implementation have hit small and mid-sized companies (SME) and exporters the most. This was aptly reflected in the muted growth seen in Index of Industrial Production (IIP), which grew just 1.2%, even as consumer price index-based inflation rose by 3.36% in August. News that the government is mulling a fiscal stimulus of Rs 40,000 crore to combat the slowdown further dented market sentiments. With the transition to GST casting a cloud over tax revenue and inhibiting private sector investments, the government s ability to raise funds for a stimulus without slipping on fiscal deficit targets seems doubtful. Fears of a possible fiscal slippages arising from a government stimulus drove up bond yields by basis points (bps) to almost 6.7%. This sent stocks of banks and non-banking financial companies tumbling the Bank Nifty slid almost 1.1% in September. Given that financial services stocks make up almost one-third of the benchmark indices, the effect on broader markets was pronounced. However, some green shoots are emerging. A growth of over 10% in exports during August is encouraging, as is a robust rise in automobile sales in September. Though an early festive season and restocking post GST could have contributed to this growth, a revival across segments (including commercial vehicles) suggests that the economy is recovering from the initial adverse impact of structural reforms. A sharp revival in core sector growth it bounced back to 4.9% in August is also good news. Manufacturing activity also rose for the second consecutive month in September, as new orders and output increased. Another meaningful data point is the sharp decline in interest rates on cash loans in the informal economy, as reported by a leading media house. With interest rates on cash loans slipping closer to interest rates in the formal economy, there would be little incentive for people to hold on to cash. The above trend would bring informal businesses into formal economy in line with the objectives of recent structural reforms. In terms of market internals, the sharp unwinding of long positions in the derivative expiry last month is a positive development. This essentially means that market positions are light and the downside can be limited from lows seen in the last week of September. On the other hand, corporate earnings are expected to remain weak in Q2 as well, as there are no other upside triggers in the near term. Moreover, the markets are unlikely to rally meaningfully ahead of the Gujarat state elections in early December. The Gujarat election assumes lot of importance and is seen as a litmus test for government policies. Thus, the Sensex and Nifty could remain rangebound over the next few weeks. Watch out for volatility in individual stocks during the result season. All eyes would be on how companies comment on growth outlook and a revival in demand rather than the results alone. It would be advisable for investors to use such volatility to accumulate shares of private banks, NBFCs, auto/auto ancillary companies along with the bottom-up picks from our research team. We also continue to advocate selective buying in power transmission segments (a play on government spending on infrastructure) and consumer stocks, which are also multi-year structural growth stories. 6

7 EQUITY FUNDAMENTALS Sharekhan Top Picks Sharekhan Top Picks As highlighted in our September 2017 market outlook note, Time for a breather, markets have hit the pause button, after rallying by almost 20% in Valuations are stretched and any support from earnings revival is absent. Mounting geo-political tensions and a fear of further earnings downgrades amid prolonged GST-related disruptions are also adding to Street s nervousness. In this backdrop, Sharekhan s Top Picks portfolio performed broadly in line with the benchmark indices during the month. Top Picks folio fell 1.8%, against a decline of 1.4% in Sensex and 1.5% in Nifty. The Nifty Midcap 100 index too declined by 1.8%. On a YTD basis CY2017 (9 Months period), Sharekhan s Top picks folio has delivered a superior return of 43.6%, handsomely outperforming benchmark indices Sensex and Nifty, which was up by 17.4% and 19.4% respectively. Further, Top Picks folio has also handily outperformed the CNX midcap index, which was up by 25.1% on a YTD basis. This month we are suggesting only one change in the folio, we are exiting CESC with a 4% gain and replacing it with UPL Ltd, where the risk-reward ratio is better in the current volatile environment. UPL, a recent entry in the Nifty 50, is a leading agrochemicals player; it will be among the prime beneficiaries as global agrochemical products worth $4 billion go off-patent in next three years. Consistent outperformance (absolute returns; not annualised) (%) (%) 1 month 3 months 6 months 1 year 3 years 5 years Sharekhan Top Picks Sensex Nifty CNX MIDCAP Absolute returns (Top Picks Vs Benchmark indices) (%) Name Sharekhan (Top Picks) Sensex Nifty CNX Midcap 100 YTD CY CY CY CY CY CY CY CY CY CMP* (Rs) Constantly beating Nifty and Sensex (cumulative returns since April 2009) Please note the returns are based on the assumption that at the beginning of each month an equal amount was invested in each stock of the Top Picks basket PER (x) RoE (%) Price FY17 FY18E FY19E FY17 FY18E FY19E target (Rs)# Upside (%) Godrej Industries HDFC Bank 1, ,950 9 IndusInd Bank 1, , ITC KEC International LIC Housing Finance Maruti Suzuki 7, ,500 8 Power Grid Corp Reliance Industries## Sundram Fasteners UPL Limited ZEE Entertainment *CMP as on September 28, 2017 # Price target for next 6-12 months ## Price and target adjusted for 1:1 bonus issue Apr-09 Aug-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Sharekhan Top Picks Sensex Nifty 7

8 Sharekhan Top Picks EQUITY FUNDAMENTALS Name CMP (Rs) PER ROE (%) PRICE UPSIDE FY17 FY18E FY19E FY17 FY18E FY19E TARGET (RS) (%) Godrej Industries Remarks: Godrej Industries (GIL) has a diversified portfolio of established businesses such as FMCG, real estate and agri, which have the potential to register strong double-digit growth in the short to medium term. GCPL (GIL has a 23.8% stake) and Godrej Properties (GIL has a 57.6% stake) constitute 87% of the company s total market capitalisation. This indicates that other businesses such as Godrej Agrovet, the chemical business, and Nature s Basket are available at a deep discount. Godrej Agrovet (GAL), a subsidiary of GIL, is a diversified agri company present in animal feed, agri inputs and palm oil businesses. GAL has a strong financial track record, with revenue and PAT (before exceptional items) reporting CAGR of 18% and 22%, respectively, over FY2011-FY2016. GAL s implied market cap comes to ~Rs. 8,800 crore on the upper price band of Rs. 460 per share. GIL is planning to raise about Rs. 300 crore through public offer of GAL, which would be utilised for reducing debt and future growth prospects. GIL is one of the largest players in the oleo chemicals and surfactant segments with a judicious blend of domestic and international operations. Nature s Basket is another emerging business under GIL s portfolio (present in the online and retail gourmet space) and has been growing consistently above 20% in recent times (FY2016 revenue at Rs. 270 crore). With businesses such as FMCG and real estate attaining a critical scale,gil is expected to witness a strong earnings growth trajectory. The value unlocking in GAL will further enhance GIL s overall market value. HDFC Bank 1, ,950 9 Remarks: HDFC Bank has a pre-eminent presence in the retail banking segment (~50% of loan book) and has been able to maintain strong and consistent loan book growth, gradually gaining market share. Going forward, an economic recovery and improvement in consumer sentiment would be positive growth drivers for the bank s loan growth, which will in turn drive its profitability. Backed by a current account and savings account (CASA) ratio of 40%+ and a high proportion of retail deposits, the bank s cost of funds remains among the lowest in the system, helping it to maintain higher net interest margin (NIM). In addition, the bank s loan book growth is driven by high-yielding retail products such as personal loans, vehicle loans, credit cards and mortgages, mostly to own customers (which also positively impacts NIMs). HDFC Bank has been maintaining near impeccable asset quality, with its non-performing asset (NPA) ratios consistently being among the lowest versus comparable peers. The bank has been able to maintain robust asset quality due to its stringent credit appraisal procedures and negligible exposure to troubled sectors. HDFC Bank is well poised to tap the growth opportunities going ahead due to strong capital ratios, healthy asset quality and steady revival in consumer spending. As lending and transactions through formal routes increase, HDFC Bank would benefit since it is a leading private sector bank and it is likely that it will gain market share in this segment. The bank is likely to maintain healthy RoE of 18-20% and RoA of 1.8% on a sustainable basis. Therefore, we expect it to sustain the valuation premium that it enjoys vis-à-vis other private banks. IndusInd Bank 1, , Remarks: IndusInd Bank is among the fastest-growing banks (25%+ CAGR over FY2012-FY2017), with a loan book of ~Rs1,164 billion and 1,200+ branches across the country. About 55% of the bank s loan book comprises retail finance, which is a high-yielding category, and is showing signs of growth. Given the aggressive measures taken by the management, the deposit profile has improved considerably (CASA ratio of ~38%). Going ahead, the bank would follow a differentiated branch expansion strategy (5% branch market share in identified centres) to help in ensuring healthy growth in savings accounts and retail deposits. IndusInd Bank has maintained its asset quality despite sluggish economic growth and higher proportion of retail finance in its loan book. The bank s asset quality is among the best in the industry, with total stressed loans (restructured loans + gross NPAs) forming less than 1.50% of the loan book. A likely revival in domestic economy will further fuel growth in the bank s consumer finance division, while strong capital ratios will support future growth plans. Though demonetisation has raised questions regarding delinquencies in certain lending segments, management expects asset quality to remain under control. The stock should continue to trade at a premium valuation, underpinned by strong loan growth, quality management, high RoAs and healthy asset quality. We have a positive outlook on IndusInd Bank. ITC Remarks: ITC s cigarette business, which contributes about 80% to the company s EBITDA, continues to be the cash cow. ITC endeavours to de-risk its business model by becoming an established player in the Indian FMCG market, and with successful brands such as Bingo, Sunfeast and Aashirwaad, it is already reckoned among the best in the Indian FMCG industry. With the new portfolio of personal care products gaining market share, its FMCG business promises to compete with large players in the category. The recent cess hike on cigarettes would put pressure on cigarette sales volume in the short term, but price hikes would help maintain margins of the cigarette business on a YoY basis. On the other hand, non-cigarette FMCG business is expected to maintain good growth momentum. ITC s other businesses of hotels, agri products and paper, paperboard and packaging are expected to provide good support to the company s revenue and profitability in the long run. The stock has corrected sharply post the hike in cess rate and is currently trading at 22.7x its FY2019E earnings. We believe the discounted valuations have priced in all the near-term negatives and do not expect substantial fall in the stock price from the current level. 8

9 EQUITY FUNDAMENTALS Sharekhan Top Picks Name CMP (Rs) PER ROE (%) PRICE UPSIDE FY17 FY18E FY19E FY17 FY18E FY19E TARGET (RS) (%) KEC International Remarks: KEC International (KEC) is a global power transmission infrastructure EPC major. The company has a presence in the verticals of power T&D, cables, railways, water, renewable (solar energy) and civil. Globally, the company has powered infrastructure development in more than 61 countries. KEC is a leader in power transmission EPC projects and has more than seven decades of experience. Management of KEC sounded very confident of delivering growth across all verticals such as T&D, railways, solar and cables. They are banking on state transmission companies, private sector under tariff-based competitive bidding (TBCB) route and overseas geographies for growth in the T&D segment. While management expects railway business to grow ~80% YoY to ~Rs.800 crore and solar EPC business to grow +3x to ~Rs.500 crore in FY2018. KEC is witnessing improved revenue mix with the execution of extra high voltage (EHV) cables, which has better profitability. Over the years, KEC has grown through the organic as well as inorganic route. We estimate the company s OPM to be maintained at the current high level of ~9.5% and the DE ratio is expected to improve to 0.7:1 by the end of FY2019E from 1.3:1 in FY2017. We expect earnings to report a CAGR of 35% during FY2017E-FY2019E with strong cash flows and a leaner balance sheet. Thus, we retain our positive outlook on the stock. LIC Housing Finance Remarks: LIC Housing Finance (LiCHF) is promoted by India s largest insurance company LIC India. LIC Housing Finance (LICHF) is among the top housing finance companies in India with over 10% share in the mortgage lending segment. Key segments in which LIC Housing finance operates is individual home loans, LAP and developer loans. The company has over 249 marketing of offices and strong network of DSA and Home loan agents. The Government s push towards affordable housing by way of providing interest subsidy on small home loans could help the company to take up opportunities in this segment as well. Demonetisation in all could also help the company as housing prices are expected to remain stable if not correct. Demonetization has also brought the lending rates down as liquidity was suddenly flushed into the system hence banks have reduced lending rates on account of lesser cost of funds and also G-sec yields have also fallen since past few months. This inturn will help the LICHF to borrow funds at a lesser rate and hence coushion margins. We expect LICHF to be among the better placed non-banking finance companies to grab a pie of the increased housing demand due to a favourable interest rate environment, the government s push for housing for all and a strong pan India network. Maruti Suzuki 7, ,500 8 Remarks: Maruti Suzuki India (Maruti) is India s largest passenger vehicle (PV) manufacturer with a strong 47% market share. Over the past two years, the company has been able to gain market share due to new product launches, a vast distribution network (with increased focus on rural markets) and a shift in consumer preference to petrol models from diesel models. The recently launched premium hatchback, Baleno, and upgrade of Dzire have received a strong response, which will help Maruti to expand its market share in the segment. The compact sports utility vehicle (SUV) Vitara Brezza has also received an encouraging response. All the three new launches command a waiting period of 2-5 months each. Maruti s parent company, Suzuki Motor Corporation, commissioned its Greenfield plant in Gujarat in February The company is speeding up production at the new Gujarat plant in wake of strong demand for recent launches. Maruti plans to produce 150, ,000 units in Gujarat in FY2018 as against earlier guidance of ~130,000 units. Enhanced production at Gujarat (Maruti initially will produce Baleno) will ease capacity constraints and enable Maruti to bring down the waiting periods for its models. Maruti has successfully established itself in the big car category (Ciaz, Vitara Brezza, Dzire and Baleno), led by strong product features and success of its premium distribution network Nexa, which offers a unique buying experience. Maruti continues to remain our top bet in the automotive space, given the sustained trend of outpacing the PV industry s growth. We retain our Buy rating on the stock with a PT of Rs. 8,500. Power Grid Corp Remarks: Power Grid Corporation of India Ltd. (PGCIL) is India s largest and the world s second-largest power transmission utility, deriving its revenue post capitalisation of the transmission line assets. Higher asset capitalisation will boost PGCIL s regulated equity base, on which it earns fixed returns, driving the company s earnings growth momentum. We expect PGCIL s regulated equity base to report a CAGR of 20% and translate into earnings CAGR of ~18% during FY2017E-FY2019E. PGCIL has a very healthy balance sheet, sustainable earnings visibility, positive cash flow from operations and stable return ratios. Nevertheless, after the infusion of equity through follow-on public offer in FY2014, PGCIL is now well capitalised to fund its equity side of the future capex. Therefore, we do not see any dilution risk as of now. PGCIL s stable, low-risk business model and healthy assured returns provide cushion to long-term investors. The spate of growth drivers and rub-off from the scheduled initial public offer of a private sector transmission company at possible lofty valuation should re-rate PGCIL. 9

10 Sharekhan Top Picks EQUITY FUNDAMENTALS Name CMP (Rs) PER ROE (%) PRICE UPSIDE FY17 FY18E FY19E FY17 FY18E FY19E TARGET (RS) (%) Reliance Industries Remarks: We expect Reliance Industries Ltd. s (RIL) GRM to remain strong at $11.5/12.0 per bbl in FY2018/FY2019, given the robust global oil demand growth outlook for 2017 at 1.5 mbpd (International Energy Agency estimate). Moreover, a likely improvement in diesel cracks would help RIL to maintain a premium of $4bbl-5/ bbl over Singapore Complex GRM. Ethylene margin is also expected to remain firm at $ /mt, led by healthy demand and likely delay in the commissioning of incremental capacities in CY2018. RIL has commissioned the last crystallisation train (Train 3) of the paraxylene (PX) complex at Jamnagar. With this, RIL s PX capacity has almost doubled to 3.7 mmt (from 1.9 mmt earlier). RIL has also fully commissioned its Ethane import project and we expect the same to add $270 million to its EBITDA. Moreover, RIL is in the final stage to commission its ROGC and petcoke gasification projects. We expect EBITDA/PAT CAGR of 23%/12% over FY2017-FY2019E, driven by the commissioning of core downstream projects in FY2018. Any positive surprise in terms of better-than-expected financials of the telecom business would be an important re-rating trigger for RIL going forward. Sundram Fasteners Remarks: Sundram Fasteners (SFL) is the largest organised domestic player in the fasteners segment, commanding ~35% market share. The company manufactures products for CVs, Passenger Cars, Two Wheelers and Tractors. Fasteners constitute ~40% of sales while Motor Vehicle Parts & Accessories contributed the balance 60%. SFL has substantially diversified its product portfolio over the past few years with the introduction of new products. This has helped the company to shield itself from over-dependence on fasteners, besides helping it to increase the content per vehicle. This has enabled SFL to significantly move up the value chain. Exports too have exhibited traction and are expected to improve further, led by an uptrend in the US Passenger Vehicle market, enhanced supply of new products and overall market share gains. SFL s topline is expected to clock an 12% CAGR between FY2017 and FY2019 as against the likely industry growth of ~8%. SFL s consolidated OPM s expanded impressively by 630 BPS in FY2017 to 18.1% due to high share of value added products and improvement in subsidiary performance (subsidiary companies have reported a PAT of Rs22.7 Cr as against a Loss of Rs 16 cr in FY2016). We expect robust PAT CAGR of 17% over the next two years driven by sustained higher margins and lower interest expense. A consistently strong performance and improved business prospects gives us ample confidence on the future prospects of SFL. We believe that sustained higher margins would result in the company s return ratios remaining in excess of 25% going ahead. We have a positive view on SFL. UPL Limited Remarks: United Phosphorous Limited (UPL) is a global generic crop protection chemicals and seeds company. UPL is the largest producer of agrochemicals in India. The company is among the top five post-patent agrochemical manufacturers in the world. UPL has ~23 manufacturing sites, including nine in India four in France and two in Spain. The company operates in every continent and has a customer base in 123 countries with its own subsidiary offices. UPL s market share increased from ~3% in CY2014 to ~4% in CY2016, owing to increased contribution from new product launches. This was at a time when the global agrochemicals market was impacted by lower crop prices, high inventory, erratic weather conditions and lower farm incomes. We expect UPL to gain market share on account of introduction of new products and its focus on the high-growth herbicides and fungicides segments. We expect UPL s revenue and PAT to report a 14% and 20% CAGR, respectively, for FY2017-FY2019E. UPL s innovation turnover index improved by 100 bps to 15% in CY2016, owing to strong demand for its new product line such as Elixir, Banter, Avancer Gold, Moccasin and Wuxal. The innovation rate will increase going forward, owing to focus on high-growth herbicides and fungicides segments and new product introductions for key geographies such as India, North America and Latin America, which would drive revenue. UPL s long-term prospects remain positive, led by focus on branding, new product launches, synergy benefits post Advanta merger and stable working capital cycle. We expect revenue and PAT to post a 14% and 20% CAGR, respectively, for FY2017-FY2019E. In the recent revision of NIFTY 50 stocks, UPL has been included in the benchmark indices with 1% weightage, and changes will be effective from 29th September The stock has corrected close to 7% in the last one week and is currently trading at 15x FY2019E earnings, which provides a good opportunity to invest at current levels. We maintain our Buy rating on the stock with a PT of Rs.980. ZEE Entertainment Remarks: Zee Entertainment Enterprises (ZEEL) continues to lead the broadcasting industry in terms of growth in advertising revenue. ZEEL is one of the leading players in television broadcasting with a bouquet of 40+ TV channels across genres. ZEEL expects domestic subscriptions market to grow at mid-teens for at least the next three years. The company plans to announce its strategy around digital in the coming quarter and will continue to invest in over the top (OTT) content platform (revamping is underway). Owing to GST roll out, ZEEL s management has indicated that the months of June and July were soft in terms of advertising revenue and expects things to normalise by H2FY2018E. Nevertheless, for Q1FY2018, performance on both the advertisement and subscriptions revenue front was commendable, despite headwinds in the run up to GST rollout. ZEEL continues to focus on its five key pillars strategy to drive long-term growth. We believe the successful execution of this strategy will have a material impact on sustainable growth going forward. We continue to remain positive on ZEEL, as it is a structural India consumption theme. Moreover, the company continues to invest across the media spectrum, including movies, music, events, digital and international markets, to maintain its high-growth trajectory. We maintain our Buy rating on the stock. 10

11 EQUITY FUNDAMENTALS Wealth Creator Portfolio Wealth Creator Portfolio September 28, 2017 Wealth Creator: ahead of broader indices Objective: To build a balanced and actively managed portfolio of quality companies that will help create meaningful wealth for investors in the multi-year rally expected in the Indian equity market. In addition to some bottom-up picks, the portfolio contains stocks identified based on three key themes: Policy push: Stocks from sectors benefiting from improvement in the policy environment Early gainers: Beneficiaries of an economic recovery (stocks from auto, banking & financial services) Evergreen: Steady performers that provide stable and consistent returns including urban consumption plays Portfolio performance review Sharekhan s Wealth Creator portfolio continued to outperform the broader indices in September 2017, with cumulative weighted average returns of 42.0% as against 18.7%/23.8% returns in Sensex/Nifty. We are not making any changes in the current portfolio and expect it to maintain its leading performance in COMPARATIVE RETURNS Particulars Returns (as on September 28, 2017) Since inception (August 21, 2014) Wealth Creator folio (weighted average returns) 42 - Large-cap (64%) Mid-cap (36%) 42.4 Sensex 18.7 Nifty 23.8 CNX Mid-cap 60.5 UPDATE ON WEALTH CREATOR PORTFOLIO Sr No Scrip Weights Reco price (Rs) 28-September-2017 Price target (Rs) March-2020 Potential upside Large-caps (64 weightage; 8 each) 1 Axis Bank 8% Larsen & Toubro 8% Maruti Suzuki 8% Britannia 8% IndusInd Bank 8% Sun Pharmaceuticals 8% Tata Consultancy Services 8% TVS Motors 8% Mid-caps (36 weightage; 4 each) 9 Capital First 4% V-Guard Ltd 4% Indian Oil Corporation 4% IRB Infra 4% Network 18 Media 4% Gabriel India 4% Century Plyboard 4% Triveni Turbine 4% PI Industries 4% % * Please note we see scope for upward revision in target price (3-year) of some of the stock depending on the extent of economic recovery and will keep updating on the same. 11

12 Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): Arvind EQUITY FUNDAMENTALS Buy CMP: Rs. 366 September 25, 2017 Rs465 Rs9,462 cr Rs426/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Public & Others 18% Promoters 43% PRICE PERFORMANCE ARVIND ARVIND 14.8 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Cuts in duty drawback to affect earnings in the short run KEY POINTS Event - Duty drawback rate cut from % earlier to 2%: The Central Board of Excise and Customs (CBEC) modified duty drawback rates for exporters, which will be effective from 1st. The drawback rate announced for garments has been lowered to 2% as against % earlier. However, the decision on the 3.9% Rebate of State Levies (ROSL, effective from March 23, 2017) is still pending. Under the new tax regime, the cut in duty drawback was expected by the industry, as exporters are entitled to get input tax credit (which is still not received due to the initial emerging issues under GST). However, this cut to 2% has been higher than expected, and it also coincides with macro headwinds such as rise in cotton prices, rupee appreciation and increasing oversees competition. Revised downwards earnings by 3% for FY2018/FY2019: The effect of this reduction in duty drawback rate will be felt mostly in Arvind Limited s (Arvind) garment division, which contributes 10-12% to the consolidated revenue. Though the decision on reducing ROSL has not been taken, we have considered an overall impact of 5% (2.7-3% impact due to duty drawback and balance due to ROSL) in our earnings estimates for FY2018 and FY2019, which are reduced by 3% each. Outlook - Maintain Buy with a revised price target of Rs.465: Though recent events such as rupee appreciation and cut in duty drawback rate will impact Arvind s profitability in the short term, the company s faster shift from B2B to B2C will improve the growth prospects in the long run. According to management, July was weak in terms of volume growth due to GST transition impact, but pickup in sales was visible from August 2017 (especially in the branded and retail business). Arvind is playing big on its lifestyle brands and specialty retail brands which will help it in achieving strong revenue growth in the coming years. Further, revamped retail business would improve margin prospects over the next two to three years. Thus, in view of the longer term growth story being intact, we maintain our Buy recommendation with a revised price target of Rs.465 (in line with reduction in earnings estimates). For detailed report, please visit the Research section of our website, sharekhan.com. Bajaj Auto Buy CMP: Rs. 3,116 September 19, 2017 COMPANY DETAILS Price target: Rs3,470 Market cap: Rs90,115 cr 52-week high/low: Rs3,153/2,510 NSE volume (No of shares): 2.6 lakh BSE code: NSE code: BAJAJ-AUTO Sharekhan code: BAJAJ-AUTO Free float (No of shares): 14.7 cr SHAREHOLDING PATTERN Promoters 49% PRICE PERFORMANCE Foreign 25% Institutions 9% Corporate Bodies 7% Foreign 18% Public and Others 17% Institutions 14% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Volume outlook improves; Upgrade to Buy Export volumes picking up on recovery in key markets and low base; Company raises guidance: After two consecutive years of volume decline, Bajaj Auto has seen recovery in export volumes. Exports have grown 6% in YTD FY2018 (April 2017-August 2017). Growth in export markets is attributable to recovery in key markets of Africa and Latin America. In addition, favourable low base of exports is aiding export growth. Given the improving market scenario, Bajaj Auto has raised export volume guidance from 1.6 million units to 1.7 million units for FY2018. Domestic market growth to accelerate on improved rural sentiments and favourable base in H2FY2018: The domestic motorcycle industry s growth is expected to gain pace on account of normal monsoon for the second consecutive year and improvement in crop sowing. Moreover, post emission norms and GST-related blips, the motorcycle industry s growth has picked up with double-digit growth in July (17% growth) and August 2017 (13% growth). We expect the trend to continue as the industry will have low base benefit in H2FY2018. We expect the motorcycle industry s growth to be about 10% as against our earlier estimates of 8%. Given the improved domestic industry s scenario, we expect Bajaj Auto s volumes to improve and expect 5% growth in FY2018 as against earlier assumption of flat growth. Valuation - Raise estimates; Upgrade to Buy: Given the improved volume outlook in both the domestic as well as export markets, we have raised our volume estimates. We have increased our FY2018 and FY2019 earnings estimates by 2% and 3%, respectively. We upgrade our rating on the stock to Buy from Hold with a revised price target (PT) of Rs.3,470. For detailed report, please visit the Research section of our website, sharekhan.com. 12

13 EQUITY FUNDAMENTALS Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: Bajaj Holdings Investments Buy CMP: Rs. 2,878 September 28, 2017 Rs3,481 Rs32,028 cr Rs3,003/1,745 NSE volume (No of shares): 27,246 BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Promoters 44% Institutions 6% PRICE PERFORMANCE BAJAJHLDNG BAJAJHLDNG 6.26 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Associate Bajaj Auto s volume outlook improves; Maintain Buy with a revised PT of Rs. 3,481 KEY POINTS Bajaj Holdings and Investment Limited (BHIL) holds Bajaj Group s investments in two flagship companies - Bajaj Auto Limited (BAL; 31.54% stake) and Bajaj Finserv (BFS; 39.29% stake). BHIL also has an investment portfolio with a market value of ~Rs.6,926 crore in other equity and fixed income securities as of Q1FY2018. BAL s volume growth on anvil after sluggish performance for five years: Going ahead, BAL s volume growth is expected to pick up in the exports and domestic markets. Exports growth is attributable to recovery in key markets of Africa and Latin America. BAL has raised export volume guidance from 1.6 million units earlier to 1.7 million units for FY2018. The domestic motorcycle industry has also gathered momentum, growing in double digits for July and August We expect BAL s volume growth to improve and expect 5% growth in FY2018 as against earlier assumption of flat growth. Apparent traction across insurance and lending business to drive BFS s overall performance: BFS has shown healthy performance across all three of its businesses for Q1FY2018. Life insurance business, BALIC and general insurance business BAGIC have witnessed healthy growth in GWP. The lending arm, Bajaj Finance Limited (BAF) is expected to sustain healthy growth in loan book over next few years. Valuation: Given the strategic nature of BHIL s investments (BAL and BFS), we have given a holding company discount of 50% to its equity investments. Liquid investments have been valued at cost. Further, the outlook for BFS is encouraging as BAGIC and BAF are showing improved performances and are likely to maintain the high-growth trajectory. Secondly, visibility for BAL s volume growth has also improved for both the exports as well as domestic markets. Consequently, We maintain our Buy recommendation on the stock with a revised PT of Rs. 3,481. For detailed report, please visit the Research section of our website, sharekhan.com. Divi s Laboratories Hold CMP: Rs. 855 September 29, 2017 COMPANY DETAILS Price target: Rs1,040 Market cap: Rs22,775 cr 52-week high/low: Rs1356/533 NSE volume (No of shares): 18.9 lakh BSE code: NSE code: DIVISLAB Sharekhan code: DIVISLAB Free float (No of shares): 12.7 cr SHAREHOLDING PATTERN Public and others 16% Promoters 52% PRICE PERFORMANCE Corporate Bodies 11% Institutions 17% Foreign 16% Public and Others 23% Foreign 15% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Continuation of procedural lapses could delay resolution; maintain Hold KEY POINTS Fresh Form 483 letter indicates delay in resolution likely: Unit 2 of Divi s Laboratories (Divis) at Vishakhapatnam (which is under import alert 66-40) was re-inspected by the USFDA during 11-19th September 2017, to verify the remedial measures implemented by the company. With the re-inspection, the FDA has confirmed the resolution of Dec 16 observations but has issued fresh Form 483 with six observations. As per Divis, the observations in fresh Form 483 are procedural in nature (unrelated to Dec 16 Form483) and no further facility re-inspection will be required. However, the fresh Form 483 letter indicates continuation of procedural lapses which may elongate closure of fresh Form 483 for 1-2 quarters (against the earlier expected time frame of one quarter) and recovery should largely been seen in FY2019. Capacity constraint will push recovery to FY2019: Successful completion of Dec 2016 observations in short span of time is positive development. However growth concern persists due to capacity constraint at the facilities. As per the latest annual report, Divis is looking for an alternate site as the proposed Kakinada site continues to face delays. We expect the business to resume normalcy from FY2019, as two blocks at unit -1 will be commercialised. Also the new plant at Vizag is likely to be completed in FY2019. Maintain Hold with unchanged PT of Rs 1040: Taking a cue from the recent developments, we feel there is likely possibility of delay in resolution by one more quarter and hence focus shall be on FY2019 and FY2020 earnings (driven by capacity expansion and pending approvals). We maintain our Hold recommendation on the stock with unchanged PT of Rs 1040, as some remediation activity will still go on and closure of Import alert / getting Establishment Inspection Report may take longer than expected. Key Risk: Any adverse outcome of pending inspection of unit 1 (last inspected on June 2014) or delay in resolution of unit 2. For detailed report, please visit the Research section of our website, sharekhan.com. 13

14 Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): ICICI Bank EQUITY FUNDAMENTALS Buy CMP: Rs. 283 September 26, 2017 Rs330 Rs181,396 cr Rs314/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN PRICE PERFORMANCE Grasim Industries Hold CMP: Rs. 1,169 September 04, 2017 COMPANY DETAILS Price target: Rs1,226 Market cap: Rs76,806 cr 52-week high/low: Rs1238/626 NSE volume (No of shares): 14.0 lakh BSE code: NSE code: Grasim Sharekhan code: Grasim Free float (No of shares): 45.2 cr SHAREHOLDING PATTERN Public & others 23% MF & FI 17% PRICE PERFORMANCE (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Public & others 33% MF & FI 20% FII 29% Promoter 31% ICICIBANK ICICIBANK cr Foreign 47% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS KEY POINTS Valuation premium too high for ABCL ABCL lists on premium valuation: Aditya Birla Capital (ABCL) is the demerged financial services holding subsidiary of Grasim Industries (Grasim). ABCL is listed at a substantial premium (Mcap of Rs.55,000 crore), much higher than the valuation of Rs.32,000 crore for the acquisition of 2.2% stake (for Rs.700 crore) by Mr. Azim Premji earlier this year. Quality company but steep premium not justified: ABCL is a quality financial services company with a leading position in life insurance, asset management, wealth and lending businesses. Its reputed pedigree and industry-leading growth rates are also comforting. However, the valuation appears steep at 6.3x FY2017 adjusted book value (on expanded equity capital) and at a substantial premium to comparable peers. Thus, we value ABCL at Rs.42,000 crore in our SoTP-based price target (PT) for Grasim. Outlook: Business outlook for the cement, VSF and chemical divisions remains favourable, although the manufacturing division (merged from erstwhile AB Nuvo) remains a drag in the near term. The financial services division s (ABCL) operational performance is expected to remain strong, driven by NBFC and AMC segments. The telecom segment division is expected to remain under pressure in the near term due to increased competitive intensity led by a new entrant. Maintain Hold with a revised PT of Rs. 1,226: We have upwardly revised our valuation for ABCL, as highlighted above, leading to revision in our SoTP-based PT for Grasim to Rs. 1,226. We have maintained our Hold rating on the stock with near-term concern with respect to premium valuation of ABCL and rich valuation of its listed cement entity (considering near-term issues related to integration of the recently acquired cement assets). For detailed report, please visit the Research section of our website, sharekhan.com. Listing of subsidiaries, price correction provide opportunity ICICI Bank is selling 3.17 crore shares of ICICI Lombard General Insurance (ILGI) during the IPO, which is likely to fetch the bank ~Rs. 2,099 crore (at Rs. 661 per share of the upper price end). The sale proceeds will not only boost its other income stream (may be ~8% of FY2017 Pre- Provision Operating Profit) but would also result in value unlocking and better price discovery for the bank s subsidiaries. The insurance industry in India is shaping up well, but it is still at a relatively low penetration stage, which indicates sustainable high momentum growth for the next few years due to which it is likely to attract long-term investment. With the stake sale in IGLI via IPO, ICICI Bank would not only strengthen its own capital adequacy (total 17.8%; comfortable), more importantly the listing would free up the capital infusion pressure on the parent. Today, ICICI Bank is included in the Systemically Important (too big to fail) category by the RBI, indicating the strength (and relative market share) of its business franchisee. While increased provisioning requirement due to balance sheet cleanup may impact its bottom line in the near term, we expect operational performance to start showing improvement as and when the drag of slippages reduce on operating profit, thereby leading to better margins and faster growth. Since our last update (dated July 27, 2017, Hold rating), the stock price has corrected by ~9%, which we believe provides upside potential for the stock and factors most near-term negatives in our view. Thus, we have upgraded our rating to Buy with an unchanged price target of Rs.330 per share. For detailed report, please visit the Research section of our website, sharekhan.com. 14

15 EQUITY FUNDAMENTALS Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): Info Edge (India) Hold CMP: Rs. 1,150 September 18, 2017 Rs1,250 Rs13,958 cr Rs1,238/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Foreign 34% PRICE PERFORMANCE NAUKRI NAUKRI 7.0 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Challenges remain, maintain Hold with a revised PT of Rs.1,250 KEY POINTS Signs of improvement but pain persists: Info Edge s revenue contribution from the IT/ITES segment remains the highest. The company derived around 42% (30% revenue generated directly from IT/ITES clients and the remaining portion came from IT recruitment firms) of its total revenue from this segment in During Q1FY2018, revenue from this segment was adversely impacted by slowdown in hiring in the IT sector and lower collection attributed to GST rollout. Given the high dependence on the IT/ITES sector, weakness in the economy coupled with lower level of hiring by IT sector companies will impact the performance of the company s recruitment business. 99acres under pressure owing to sector headwinds: Info Edge s 99acres business has been underperforming over the past few quarters due to continued sluggishness in the real estate sector (especially in NCR region), higher inventory, demonetisation (from Q3FY2017) and introduction of RERA regulations. Zomato showing signs of growth: Zomato s cash burn rate has come down significantly, operating losses have squeezed (almost at breakeven level) and revenue growth has accelerated at a healthy pace. As per a recent media report, Zomato plans to raise funds up to $200 million from Alibaba and its affiliate Alipay, which may value Zomato at a higher premium to earlier valuation. Being a dominant player in Southeast Asia and Middle East regions, Zomato could fetch higher valuation from international investors, which could support Info Edge s overall valuation. Valuation Retain Hold: Internet companies in India are witnessing pain because of increasing competition from new and established global players. The recent run up in the stock price limits any material upside in the near term. We maintain our Hold rating on the stock with a revised SOTP-based price target (PT) of Rs. 1,250. For detailed report, please visit the Research section of our website, sharekhan.com. Infosys Hold CMP: Rs. 901 September 05, 2017 COMPANY DETAILS Price target: Rs1,000 Market cap: Rs206,980 cr 52-week high/low: Rs1,080/862 NSE volume (No of shares): 53.0 lakh BSE code: NSE code: INFY Sharekhan code: INFY Free float (No of shares): cr SHAREHOLDING PATTERN Foreign 55% Public and Others 10% Public and Others 12% PRICE PERFORMANCE Institutions 14% Promoters 13% Promoters 42% Institutions 20% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Back to square one, maintain HOLD with PT of Rs.1,000 KEY POINTS ABCL lists on premium valuation: Aditya Birla Capital (ABCL) is the demerged financial services holding subsidiary of Grasim Industries (Grasim). ABCL is listed at a substantial premium (Mcap of Rs.55,000 crore), much higher than the valuation of Rs.32,000 crore for the acquisition of 2.2% stake (for Rs.700 crore) by Mr. Azim Premji earlier this year. Quality company but steep premium not justified: ABCL is a quality financial services company with a leading position in life insurance, asset management, wealth and lending businesses. Its reputed pedigree and industry-leading growth rates are also comforting. However, the valuation appears steep at 6.3x FY2017 adjusted book value (on expanded equity capital) and at a substantial premium to comparable peers. Thus, we value ABCL at Rs.42,000 crore in our SoTP-based price target (PT) for Grasim. Outlook: Business outlook for the cement, VSF and chemical divisions remains favourable, although the manufacturing division (merged from erstwhile AB Nuvo) remains a drag in the near term. The financial services division s (ABCL) operational performance is expected to remain strong, driven by NBFC and AMC segments. The telecom segment division is expected to remain under pressure in the near term due to increased competitive intensity led by a new entrant. Maintain Hold with a revised PT of Rs. 1,226: We have upwardly revised our valuation for ABCL, as highlighted above, leading to revision in our SoTP-based PT for Grasim to Rs.1,226. We have maintained our Hold rating on the stock with near-term concern with respect to premium valuation of ABCL and rich valuation of its listed cement entity (considering near-term issues related to integration of the recently acquired cement assets). For detailed report, please visit the Research section of our website, sharekhan.com. 15

16 Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): Oil India EQUITY FUNDAMENTALS Hold CMP: Rs. 306 September 07, 2017 Rs325 Rs23,122 cr Rs367/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Public & others 16% DII 14% FII 4% PRICE PERFORMANCE Promoters 66% OIL OIL cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. IRB Infrastructure Developers Buy CMP: Rs. 213 September 29, 2017 COMPANY DETAILS Price target: Rs305 Market cap: Rs7,491 cr 52-week high/low: Rs272/177 NSE volume (No of shares): 24.7 lakh BSE code: NSE code: IRB Sharekhan code: IRB Free float (No of shares): 15.0 cr SHAREHOLDING PATTERN FII 27% Promoters 57% PRICE PERFORMANCE Institutions 8% Public & others 8% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Weak oil reserves and high capex in low oil and gas price environment KEY POINTS InvIT project transfer to ease liquidity for future opportunities; retain Buy KEY POINTS Transfer of Amritsar-Pathankot project to InvIT: IRB Infrastructure Developers (IRB) will transfer its Pathankot-Amritsar Highway project to the IRB InvIT by September 30, The project is expected to be transferred at an EV of Rs. 1,569 crore, valuing the project at 1.3x book value, fetching IRB Rs. 544 crore. The project formed 2% of net revenue, 0.03% of EBITDA and a Rs. 3 crore cash profit in IRB s consolidated financials for FY17. Salient benefits from asset transfer: The project transfer will knock off Rs943 crore in consolidated debt, reducing the debt-equity ratio to 1.6x from 2x now. The resultant increased liquidity from the project transfer will help infuse capital for new projects and provide it an opportunity to participate in future Toll-Operate-Transfer (ToT) projects. Outlook Expect bounce-back post recent blip: The roads sector has been underperforming in the past six months, ailed by issues related to GST, land acquisition, a new NHAI chief and banks reluctance to fund recently-awarded hybrid annuity projects, etc. However, our interaction with industry players suggests that ordering activity should pick up from H2FY2018. We estimate IRB s revenue and EBITDA to be flat in FY2018, project transfers to InVITs will help net profit to surge. Valuation - Maintain Buy with unchanged PT of Rs305: We have not incorporated the project transfer and will be doing it post IRB s Q2FY2018 results, where further clarity is expected. However, the transferred project s valuation does not materially affect our price target. At this stage, we maintain our Buy recommendation with an unchanged price target of Rs For detailed report, please visit the Research section of our website, sharekhan.com. Weak domestic oil reserve profile is a cause of concern: OIL s domestic 1P reserves base for oil and gas at 29 mmt and 77 mmtoe (as on March 31, 2017), respectively, provides production visibility of around nine years for oil and ~26 years for gas at FY2017 production rate. In our view, weak oil reserve profile is a cause of concern in case OIL is unable to convert its 2P oil reserves of 79mmt to 1P reserves in the coming years. Moreover, the 2P reserve mix in favour of gas (accounts for 61% of overall 2P reserves of 203mtoe) is also unfavourable as development of gas reserves would be difficult in the weak domestic gas price environment (current gas price of $2.48/mmbtu). Investment in Russian assets to add Rs.11/share to the valuation: The consortium led by OIL had acquired stakes in two hydrocarbon fields in Russia in 2016, namely Vankor (23.9% stake for consideration of $2billion) and Taas Yuryakh (29.9% stake for consideration of $1.12billion). We value the Russian assets at EV/boe (barrels of oil equivalent) of $3.5/boe and arrive at Rs. 11/share contribution to our SoTP-based price target for OIL. Outlook: We continue to believe that range-bound oil prices, weak oil and gas production outlook, continued high capex plan of Rs. 4,290 crore for FY2018 and negative value accretion from investment in Mozambique E&P assets, given low LNG prices, would remain an overhang on the stock in the near to medium term. Valuation: We have increased our price target to Rs.325 to factor: 1) Rs. 11/share value from investment in Vankor and Taas Yuryakh E&P assets and 2) higher value of investments. We maintain our Hold rating on OIL, given the muted earnings outlook and lower RoE of 7% over FY2018E-FY2019E. At the CMP, the stock trades at 11.3x FY2018E EPS and 10.7x FY2019E EPS. For detailed report, please visit the Research section of our website, sharekhan.com. 16

17 EQUITY FUNDAMENTALS Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: Relaxo Footwears Buy CMP: Rs. 500 September 22, 2017 Rs560 Rs6,007 cr Rs554/350 NSE volume (No of shares): 34,162 BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN PRICE PERFORMANCE RELAXO RELAXO 3.0 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Brand focus and distribution enhancement to drive strong growth KEY POINTS PTC India Hold CMP: Rs. 122 September 22, 2017 COMPANY DETAILS Price target: Rs130 Market cap: Rs3,700 cr 52-week high/low: Rs130/67 NSE volume (No of shares): 24.3 lakh BSE code: NSE code: PTC Sharekhan code: PTC Free float (No of shares): cr SHAREHOLDING PATTERN Others 23% DII 26% PRICE PERFORMANCE (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Public & Others 19% Foreign 4% Promoters 16% Institutions 2% Promoters 75% FII 35% KEY POINTS Strong volume outlook Rise in merchant prices to augment volumes: As per PTC India s management, the recent spike in merchant prices on energy exchanges was due to the abrupt rise in demand for electricity during the past one month. Management stated that the changed demand-supply scenario is mainly due to two reasons: 1) increased demand and 2) less availability of power from nonfossil fuels. Further, management stated that there has been a 64% increase in volume traded, while PTC India commands ~38% market share in the energy traded platform. Hence, on this backdrop, we have increased the volume assumption and expect it to grow by 15%/16% YoY to ~55/64BU in FY2018/2019, respectively. But margins to remain intact: However, management stated that despite the rise in volume, margin profile would be maintained by the company. Moreover, management expects merchant prices to stay at this elevated level for a short period and eventually cool off to levels of Rs. 3-4/ unit for the remaining FY2018. Hence, we maintain our margin of 6paise per unit for FY2018. Revise earnings estimates and maintain Hold with revised PT of Rs. 130: PTC India has delivered better volumes coupled with improved realisation in Q1. Further, management has guided for volumes to be at healthy levels on account of the recent hike in merchant prices and strong volume visibility from the domestic (MNRE and SECI) as well as international (crossborder trades) markets. However, we have maintained 6paise per unit margin and revised our earnings estimates accordingly for FY2018 and FY2019. We reiterate our Hold rating on the stock but revise our price target (PT) to Rs For detailed report, please visit the Research section of our website, sharekhan.com. Double-digit revenue growth expected in FY2018 after subdued FY2017: Relaxo registered double digit revenue growth in Q1FY2018 largely on account of pre-ponement of sales prior to implementation of GST. However, the same kind of growth is not expected in Q2FY2018 and is likely to revive in the subsequent quarters. Overall the management expects double digit revenue growth for FY2018 driven by improvement in sales volume and better realisation. Premiumisation and operating efficiencies to help gradual improvement in OPM going ahead: Relaxo will be focusing on its three main brands, Bahamas, Sparx and Flite and the women footwear category as a whole during FY2018. The GST benefit of lower taxes of 5% on products below Rs 500 will boost the margin of the company. Outlook Changing times by building brands and improving penetration: Though there would be some near term hiccups in terms of the recovery of the wholesale business due to GST headwinds, going ahead, the company is looking at consolidating its distributors and entering new markets. The company is also open to the idea of franchisee stores, after weighing all the pros and cons of the same. Valuation Growth prospects intact; maintain Buy: Relaxo s relentless focus on driving sales through the expansion of distribution and improving the brand presence augurs well for the company to achieve good growth in the backdrop of better demand environment. Also the company is planning to add more value added brands in its portfolio (largely catering to children and women) in the coming years. Implementation of GST will turn out to be a silver lining for the company as a large shift from unorganised players is expected to happen in near future. For detailed report, please visit the Research section of our website, sharekhan.com. 17

18 Stock Update COMPANY DETAILS Price target: Market cap: EQUITY Rico Auto Industries FUNDAMENTALS Buy CMP: Rs. 92 September 08, 2017 Rs117 Rs1,240 Cr 52-week high/low: 97 / 44 NSE volume (No of shares): lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Promoters 50% Institutions 7% PRICE PERFORMANCE Corporate Bodies 0% RICOAUTO RICOAUTO Foreign 0% Public and Others 43% 6.75 Cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Multiple growth levers Improved demand from OEMs coupled with foray into new segments to augment revenue growth: The demand outlook for the passenger segment has improved, as key concerns are behind us. The same is reflected in the strong 10% and 14% growth posted by the two-wheeler and passenger vehicle industry for April August Further, early onset of the festive season, positive rural sentiments, successful GST rollout and a slew of new product launches planned by auto OEMs provide ample visibility on auto sales growth going ahead. Further, RAI has charted out an aggressive growth plan as it has forayed aftermarkets for the two-wheeler and four-wheeler segments, has increased focus on the defence business and planned to re-enter the clutch segment. We expect RAI s revenue to post a 14% CAGR over FY2017-FY2019. Outlook Structural growth levers in place; Return ratios to leg-up leading to rerating: Demand from auto OEMs is expected to remain buoyant over the near to medium term and would have a positive rub-off effect on RAI s revenue. Further, the upcoming regulations for the auto industry and new growth avenues provide ample topline visibility. Moreover, concentrated cost-control efforts and a likely favourable product mix are expected to lead to margin improvement. Consequently, RAI s earnings are expected to grow at a 37% CAGR over the next two years, making it amongst the fastest-growing ancillary companies. In addition, RAI s ROE is estimated to improve from 9.5% in FY2017 to 14.4% in FY2019, which is the key catalyst for rerating. Maintain Buy with a revised PT of Rs. 117: We expect RAI s topline and earnings to report a 15% and 37% CAGR over FY2017-FY2019, respectively. We maintain our Buy recommendation on the stock with a revised PT of Rs For detailed report, please visit the Research section of our website, sharekhan.com. Selan Exploration Technology Hold CMP: Rs. 196 September 11, 2017 COMPANY DETAILS Price target: Rs220 Market cap: Rs330 cr 52-week high/low: Rs222/154 NSE volume (No of shares): 2.0 lakh BSE code: NSE code: SELAN Sharekhan code: SELAN Free float (No of shares): 1.2 cr SHAREHOLDING PATTERN Others, 70.4% PRICE PERFORMANCE Promoters, 27.9% Foreign, 1.3% Institutions, 0.4% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Huge potential but weak track record; retain Hold KEY POINTS Large 2P reserve base but poor track record of production ramp-up is a cause of concern: Selan holds 2P in-place reserves of 86.4 mmboe but the recovery rate is low at 2.9 mmboe. The company has chalked out a phased development plan for its major oil fields and targets additional production of 5.3 mmboe. The company has not been able to monetise its large reserve base and, thus, could not achieve its annual production target of 5lakh barrels. Thus, we remain cautious on production uptick in the near to medium term and maintain our Hold rating on Selan. Q1 results Implied volume growth offsets the decline in oil price: Selan s revenue increased by 3% QoQ to Rs.14.9 crore as implied volumes of 47,833 barrels (+15.2% QoQ; -4.4% YoY) offset the decline in Brent oil price to $50.8/bbl (-7% QoQ; +8% YoY). Operating profit declined by 16% QoQ to Rs. 7.8 crore due to higher operating expenses, but PAT increased by 4.1x QoQ to Rs. 3.4 crore on account of sharp decline in amortisation for development of hydrocarbon properties and lower effective tax rate. Outlook: Selan s current oil production run rate is much lower than expectation, as the company has struggled to increase production on account of ramp-up challenges in its major oil fields. Based on the above concern, we remain wary on any meaningful increase in oil production in the next couple of years. Moreover, range-bound oil prices and appreciation of Indian rupee would continue to act as an overhang on the stock. Valuation: We remain cautious on the production ramp-up given the poor track record to monetise large hydrocarbon reserves. Moreover, Selan trades at EV/boe of $6.5/boe on 1P reserves, which is at 9% premium to large domestic upstream PSUs. Thus, we maintain our Hold rating on Selan with a revised price target (PT) of Rs For detailed report, please visit the Research section of our website, sharekhan.com. 18

19 EQUITY FUNDAMENTALS Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): DIIs 11% FII 2% Others 17% Promoters 70% Skipper Hold CMP: Rs. 215 September 06, 2017 Rs240 Rs2,200 cr Rs240/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN PRICE PERFORMANCE SKIPPER SKIPPER 3.03 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Engineering business outlook intact Earnings grew by 52% YoY due to healthy execution: For Q1FY2018, Skipper reported betterthan-expected topline growth of 40% YoY due to spillover orders in the engineering segment from Q4FY2017. The engineering segment grew by 42% YoY while infrastructure segment showed robust growth with topline more than doubling to Rs. 24 crore. Adjusted OPM declined by 90BPS to 12.9% due to decline in the engineering segment s PBIT margin and higher other expenses (rise in export mix). Adjusted operating profit grew by 31% YoY to Rs. 52 crore despite fall in margins. Earnings showed a stellar performance during the quarter and came in line with our estimates, growing by 52% YoY to Rs.16 crore due to lower interest cost despite higher depreciation (up 59% YoY) and tax outflow. Order book provides revenue visibility of 1.6x: Skipper secured new orders worth Rs. 357 crore while order book stood at Rs. 2,640 crore at the end of Q1FY2018; reflecting Bookto-bill of 1.6x. Management stated that the bidding pipeline is Rs. 1,300 crore and expects order inflows to be similar to FY2017 sales, driven by orders from North East Transco, intrastate orders for monopoles, foray into solar structure manufacturing and recent entry in new geographies. Management also sees uptick in investment in the inter-state transmission line. Management expects significant pick-up in orders from domestic telecom companies for building of the tower. Maintain PT of Rs. 240 but revise our rating to Hold: Healthy order book provides revenue visibility of 1.6x its FY2017 revenue at the end of Q1FY2018. Further, management expects uptick in order inflows not only from the domestic market but also from export markets. We have marginally tweaked our earnings estimates for FY2018. The stock has run up since our last update in Q4FY2017, which provides limited upside. Hence, we downgrade our rating on the stock to Hold from Buy but maintain our price target (PT) of Rs. 240, given the strong earnings CAGR of 21% over FY2017-FY2019E, a leaner balance sheet and steady cash flows. For detailed report, please visit the Research section of our website, sharekhan.com. Thomas Cook India Hold CMP: Rs. 245 September 06, 2017 COMPANY DETAILS Price target: Rs262 Market cap: Rs9,095 cr 52-week high/low: Rs256/178 NSE volume (No of shares): 3.0 lakh BSE code: NSE code: THOMASCOOK Sharekhan code: THOMASCOOK Free float (No of shares): 11.9 cr SHAREHOLDING PATTERN Others 12% FIIs 7% Domestic institutions 13% PRICE PERFORMANCE Promoters 68% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Revival in business operations will drive growth KEY POINTS Thomas Cook India Limited s (TCIL) consolidated revenue grew by 41% and operating profit grew by 70% YoY in FY2017, largely driven by consolidation of acquired Kouni s international travel business and six acquisitions done by its non-travel services business (Quess Corp) during the fiscal. The domestic outbound travel business registered single-digit revenue growth despite a tough global environment and slowdown in the domestic market. Revenue of Quess Corp and Sterling Holidays (vacation ownership business) grew by 21% and 12%, respectively, during the current fiscal. Consolidated OPM improved to 3.6% in FY2017 from 3.0% in FY2016. TCIL s consolidated debt/equity stands at 1.1x in FY2017 as compared to 0.3x in FY2015 (and 1.0x its FY2016), which is mainly on account of slew of acquisitions done under its core travel business and Quess Corp. Working capital days remained negative at 9 days in FY2017 as against negative 12 days in FY2016. We believe improvement in the profitability of the core business in the coming quarters and better working capital management will help in reducing consolidated debt in the coming years. TCIL s stock price has seen good run-up in the recent past on account of improving business fundamentals and the company s sustained focus on inorganic initiatives to drive future growth. We maintain our Hold recommendation on the stock with a revised sum-of-the-parts (SOTP) price target of Rs. 262 (the increase in target price is largely to factor in better growth in the core travel and related businesses and increase in the valuation of Quess Corp due to the recent run-up in the stock price in which TCIL has 57.2% stake). For detailed report, please visit the Research section of our website, sharekhan.com. 19

20 Stock Update COMPANY DETAILS Price target: Market cap: TVS Motors EQUITY FUNDAMENTALS Buy CMP: Rs. 636 September 08, 2017 Rs700 Rs30,197 Cr 52-week high/low: 641 / 311 NSE volume (No of shares): 11.9 lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Promoters 57% PRICE PERFORMANCE Institutions 11% Corporate Bodies 1% Public and Others 10% TVSMOTOR TVSMOTOR Foreign 21% Rs20.7 Cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Earnings outlook improves 2W industry growth accelerates; TVS Motors to continue to outpace industry growth on new launches/refreshes: The 2W industry s outlook has improved with the industry coming out of GST transitory issues and robust rural sentiments on account of a second consecutive year of normal monsoon. Moreover, given the commencement of the festive season, we expect the industry to continue posting robust double-digit growth. Further, the 2W industry will have the benefit of favourable low base in H2FY2018. Given the above factors, we expect the 2W industry to grow by 12% in FY2018 as against earlier expectations of 10%. In addition, TVS Motors will introduce new products and refreshes in H2FY2018, which will enable it to continue outpacing the industry s growth. We expect TVS Motors volumes to grow by 16% in FY2018. Outlook - Robust double-digit earnings growth to continue: TVS Motors is well poised to outpace industry growth, given the success of recent launches and strong product pipeline. Further, realisation/vehicle would improve as share of the high-value non-moped segment rises. Moreover, TVS Motors margins are likely to reach the double-digit mark by FY2019, leading to a strong 37% earnings CAGR over the next two years. Retain Buy with a revised PT of Rs. 700: TVS Motors volume outlook has improved, given the acceleration in the 2W industry s growth and a strong product pipeline, which is likely to be unveiled in the ongoing festival season. We retain our Buy rating on the stock with a revised price target (PT) of Rs For detailed report, please visit the Research section of our website, sharekhan.com. UltraTech Cement Hold CMP: Rs. 4,164 September 21, 2017 COMPANY DETAILS Price target: Rs4,500 Market cap: Rs114,311 cr 52-week high/low: Rs4531/3052 NSE volume (No of shares): 2.2 lakh BSE code: NSE code: Ultracemco Sharekhan code: Ultracemco Free float (No of shares): 10.4 cr SHAREHOLDING PATTERN Foreign 22% MF & FI 6% Public & others 10% PRICE PERFORMANCE Promoter 62% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Pan-India cement prices remain favourable during Q2FY2018; Maintain Hold KEY POINTS Pan-India cement prices show resilience YoY in a seasonally weak quarter; Regional diversion continues: For Q2FY2018, average cement prices pan-india have risen by 2.5% YoY (down 2.4% QoQ) as per our channel check. West and East India outpace other regions with 15% YoY and 6% YoY growth for Q2FY2018, respectively. North, Central and Southern India witness 2-2.5% YoY decline in average cement prices for the same period. Pan-India pricing discipline witnessed during Q2FY2018 is likely to benefit pan-india cement players such as UltraTech, ACC and Ambuja in a seasonally weak quarter. However, our channel check suggests continued muted demand environment for the cement sector only benefitting from government-led infrastructure investment. Jaypee Cement Assets operational performance likely to be key near-term monitorable: UltraTech s management had guided to ramp-up utilisation of Jaypee Cement Assets (21.2 mtpa capacity) to 60% by FY2018-end and further to 70% in FY2019, as compared to utilisation rate of lower than 15% during Q1FY2018. During FY2018, improvement in utilisation and profitability (EBITDA/tonne) of the acquired Jaypee Assets would be key monitorable for further re-rating of UltraTech. Outlook Expect improvement in demand in H2FY2018 with favourable pricing environment: Post the monsoon season, the demand environment is expected to improve, while cement prices are likely to remain firm with improving capacity utilisation across regions. Management has guided for improvement in cement demand over FY2018-FY2019, driven by affordable housing in Eastern and Northern India and infrastructure development (Mumbai Metro, highways and coastal roads) in Western India. Valuation Maintain Hold with unchanged PT of Rs. 4,500: UltraTech is trading at a valuation of 17.2x FY2019E EV/EBITDA, which we believe largely factors in the uptick in sales volume from the recent acquisition, better demand outlook and current pricing discipline. We maintain our Hold rating on the stock with an unchanged price target (PT) of Rs. 4,500. For detailed report, please visit the Research section of our website, sharekhan.com. 20

21 EQUITY FUNDAMENTALS Stock Update COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): UPL Buy CMP: Rs. 771 September 27, 2017 Rs980 Rs39,172 cr Rs902/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN PRICE PERFORMANCE UPL UPL 36.6 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Recent correction provides an opportunity Gaining market share in global agrochemicals market: The market share of UPL increased from ~3% in CY14 to ~4% in CY16 owing to an increase in the contribution from new products launches. This was at a time when the global agrochemicals market was impacted due to lower crop prices, high inventory, erratic weather condition and lower farm incomes. We believe UPL to gain market share owing to the introduction of new products and its focus on high growth herbicides and fungicides segments. We expect revenues and PAT to report 14% and 20% CAGR for FY17-19E. Improved innovation rate to 15% in FY17: UPL s innovation turnover index improved by 100 BPS to 15% owing to the strong demand for its new line of products like Elixir, Banter, Avancer Gold, Moccasin and Wuxal. Strong foothold in international market: UPL has outpaced the agro chemical industry registering a growth of ~17% for FY2017 as against an industry de-growth of ~2.5%. Consequently the company has gained ~1% market share. Further, several patent expiry of significant agrochemicals, which pegged at close to ~$4 bn over next three years, augurs well for UPL to leverage the opportunity. Valuation: Reasonable valuation, strong growth prospects: UPL s long-term prospects remain positive, led by focus on branding, new product launches, synergy benefits post the Advanta merger and stable working capital cycle. We expect revenues and PAT to grow at 14% and 20% CAGR for FY17-19E. In the recent revision of NIFTY 50 stocks, UPL has been included in the benchmark indices. The stock has corrected close to 7% in last one week and currently trading at 15x FY19E earnings estimates, which provides a good opportunity to invest at current levels. We maintain our Buy rating on the stock with a PT of Rs For detailed report, please visit the Research section of our website, sharekhan.com. V-Guard Industries Buy CMP: Rs. 194 September 14, 2017 COMPANY DETAILS Price target: Rs215 Market cap: Rs8,195 cr 52-week high/low: Rs221/109 NSE volume (No of shares): 10 lakh BSE code: NSE code: VGUARD Sharekhan code: VGUARD Free float (No of shares): 14.8 cr SHAREHOLDING PATTERN DIIs 10% FII 12% Corporate Bodies 3% Institutions 11% Promoters 28% Others 13% PRICE PERFORMANCE Foreign 51% Public and Others 7% Promoters 65% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Overall guidance intact Restocking seen faster in the south market than non-south market: Management of V-Guard stated that restocking of trade channels is at a faster pace in southern market rather than in northern market. However, management expects restocking to continue in Q3 due to onset of the festive season. Management sees restocking across all product categories of the company. Price hike taken in select categories: Management stated that it has taken significant price hike in the wires and cables segment to offset commodity price inflation, while it has taken marginal price hike of 2-3% in rest of the product categories. Management expects good demand for the wires and cables and fan segments in Q2FY2018. New product launch in southern market: V-Guard launched gas stove in its home market on the festive occasion of Onam in Kerala. The company intends to stabilise new products in the southern market, post which the company would launch on pan-india basis. Further, the company is planning to launch modular switches in the dominant southern market as a natural extension of wire accessories and switchgear segment in the current year. Management expects Rs.65 crore-70 crore revenue from kitchen appliances category in FY2018. Reiterate Buy with revised PT of Rs. 215: Post interaction with the management, we have marginally tweaked our earnings estimate for FY2018 and FY2019 to factor the price hike undertaken by the company to combat commodity inflation. Moreover, management has reiterated its sales growth of 15% and EBITDA margin of 10% for FY2018 despite disruption of GST. Management expects uptick in sales growth in H2FY2018. The working capital cycle, which got elongated in Q1 due to increased inventory days, is expected to stabilise in future. We continue to assign premium valuation to V-Guard on account of de-leveraged balance sheet, better margin profile, high return ratios and prudent working capital management. We reiterate Buy on the stock with a revised price target (PT) of Rs For detailed report, please visit the Research section of our website, sharekhan.com. 21

22 VIEWPOINT COMPANY DETAILS Price target: Market cap: 52-week high/low: NSE volume (No of shares): Yes Bank EQUITY FUNDAMENTALS Buy CMP: Rs. 1,879 September 20, 2017 Rs2,100 Rs86,074 cr Rs1884/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Promoter 20% Public 80% PRICE PERFORMANCE YESBANK YESBANK cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. COMPANY DETAILS Market cap: Rs19,431 cr 52-week high/low: Rs700/364 NSE volume (No of shares): 4.7 lakh BSE code: NSE code: GODREJIND Sharekhan code: GODREJIND Free float (No of shares): 8.5 cr SHAREHOLDING PATTERN PRICE PERFORMANCE (%) 1m 3m 6m 12m Absolute Relative to Sensex Attractive franchise shaping up, good bet for long term KEY POINTS With most of the key retail offerings in place, Yes Bank has successfully completed its retail product bouquet Headed by veteran staff having rich experience of top private and MNC banks, Yes Bank is well placed to tap the growth opportunity in the retail segment. Given that, at present, the bank s market share is not yet in double digits, it can potentially grab market share from other banks. Yes Bank, with its corporate banking segment, is present at the back-end of the value chain. Further, the bank s growing retail presence gives it access to the complete ecosystem, which is not only positive for growth but also for credit quality monitoring and early warnings about probable overheating in segments. We believe this is an important ability, given the high chances of risk mispricing in the retail and SME segments. We believe that while intermittent asset quality hiccups may continue, the long-term trajectory appears positive. Despite regular capital raising, Yes Bank has been able to maintain a consistency in its ROE and ROA, which are strong indicators of a sustainably profitable business. Moreover, despite rate cycles, it has been able to maintain its NIMs at %, which indicates management s capability to weather interest rate cycles and asset quality cycles. Godrej Industries Limited At current valuations, Yes Bank is available at 2.9x FY2019E BV, which we believe is attractive as we opine most of the bad news is already discounted by the markets. Going forward, with its track record and business growth potential, we believe it can be an attractive franchise developing. We upgrade our rating to Buy with a revised price target of Rs. 2,100, valuing the bank at 3.4x FY2019E book value per share. For detailed report, please visit the Research section of our website, sharekhan.com. Viewpoint Positive CMP: Rs. 578 September 25, 2017 Public and others 8% Promoters 75% Foreign 13% Institutions 4% Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Agrovet s listing to boost core valuation; Potential upside of 12-15% KEY POINTS Recent correction provides good entry point: Godrej Industries Limited s (GIL) stock price has corrected by 11% in the past days due to weakness in the broader indices. The stock has hit the highs of Rs in recent times. The correction has come on the right point when Godrej Agrovet (GAL), subsidiary of GIL, is expected to hit the bourses soon, creating value for GIL s investors. Hence, we believe it is the right point for new investors to enter GIL with expected returns of 12-15% in the near term. Value unlocking in Agrovet to boost GIL s valuations: GAL, subsidiary of GIL (holds 63.7% stake), is in the last phase of preparations to get listed on the bourses. GAL s IPO comprises of fresh issue of shares worth Rs. 300 crore besides an offer for sale up to Rs. 300 crore by GIL and up to 1.23 crore shares by V-Sciences. At the upper end of the price band (proposed to be Rs. 440), GAL is valued at ~Rs.8,445 crore. In view of this, GIL s stake in GAL is valued at Rs. 4,000-4,100 crore (after considering holding company discount). Thus, we believe value unlocking in GAL will further add to GIL s valuations. GIL has a bouquet of good investment profiles: GIL has a bouquet of good investment profile companies such as Godrej Consumer Products (holds 23.8% stake), Godrej Properties (holds 56.7% stake) along with Godrej Agrovet, which has strong growth prospects in the near future. Some of the businesses such as Nature s Basket (holds 100% stake) is in the nascent stage but has immense growth prospects in the growing retail phenomena in India. Further, the core chemical business is expected to see improved performance in the coming years with better revenue growth and improving margins on account of better revenue mix. Maintain Positive view with 10-15% upside: Value unlocking in GAL is the near-term trigger for the stock. We expect the company s core value to improve in the long run on account of steady performance by some of the key investment companies and improvement in the performance of the chemical business. Hence, we maintain our positive view on the stock with a potential upside of 12-15% from current levels. For detailed report, please visit the Research section of our website, sharekhan.com. 22

23 EQUITY FUNDAMENTALS VIEWPOINT IndusInd Bank Viewpoint Positive CMP: Rs. 1,742 September 12, 2017 COMPANY DETAILS Market cap: Rs104,283 Cr 52-week high/low: Rs1818/1038 NSE volume (No of shares): 9.7 lakh BSE code: NSE code: INDUSINDBK Sharekhan code: INDUSINDBK Free float (No of shares): Cr SHAREHOLDING PATTERN Public & others, 83.2% PRICE PERFORMANCE (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS Jamna Auto Industries COMPANY DETAILS Market cap: 52-week high/low: NSE volume (No of shares): IndusInd s proposed acquisition of Bharat Financial to be value accretive IndusInd Bank planning to acquire Bharat Financial Inclusion Services: IndusInd Bank (IIB) has entered into an exclusivity agreement with Bharat Financial Inclusion Services (BFIN) to evaluate the possibility of a strategic deal (read takeover by IIB) between them. IIB s management indicated that the due diligence is presently on and a final decision is likely around a month s time. We believe the swap ratio will be an important thing to look at. Since our earlier update on the same issue (published in March 2017), IIB s share price has increased and, hence, presently the probable valuation is likely to be more favourable to IIB s shareholders. As per media reports, IIB will be exploring a share swap deal, wherein BFIN could be valued at Rs. 13,000-14,500 crore. At this valuation, the additional issue of IIB s shares to existing shareholders of BFIN could result in % expansion in the equity capital of IIB (the merged entity), which we believe is better suited for IIB s shareholders. Outlook: We believe the possible merger with BFIN would bring synergy benefits for IIB, like acquisition of high-yielding loans, enhanced priority sector lending and capital release from BFIN for the merged entity. However, these synergy benefits would accrue in the medium to long term. Valuation: IIB currently trades at 3.9x FY2019E Price-to-Book Value (P/BV), which we feel is reasonable for a bank in a high growth phase with high ROE, ROA and excellent asset quality. IIB s resilient asset quality is a key positive and a distinct differentiator among peers. We maintain our Positive stance and expect a potential 10-12% upside from current levels. For detailed report, please visit the Research section of our website, sharekhan.com. Viewpoint Positive CMP: Rs. 258 September 13, 2017 Rs2,056 Rs294/ lakh BSE code: NSE code: Sharekhan code: Free float (No of shares): SHAREHOLDING PATTERN Promoters 48% Institutions 4% PRICE PERFORMANCE Promoter, 16.8% Corporate Bodies 10% JAMNAAUTO JAMNAAUTO Foreign 6% Public and Others 32% 4.2 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex MHCV revival to spring growth; re-initiate coverage KEY POINTS Play on MHCV demand revival: Green shoots of revival in the MHCV industry are apparent with strong growth in July and August 2017 (7% and 28% growth, respectively). Businesses are gradually adapting to GST and demand for CVs is set to improve as business cycles and consumption cycles pick up. Moreover, government s focus on infrastructure spends and traction in mining activities provide comfort on growth going ahead. Economic growth traction coupled with low base of H2FY2017 (MHCV sales were flat) provides growth visibility going ahead. The company is set to benefit significantly from demand revival. New product introductions and ramp up in the after market space to aid growth: Parabolic springs have been gaining acceptance with the share likely to increase in the next four years from the current level of 20% to 30%. Further, JAI is targeting the after markets segment and plans to increase the contribution from ~20% of revenue currently to 30% over the next 3-4 years. JAI is expanding its distribution reach in the after market space and has formed a dedicated team to enhance after market revenue. Valuation: Reinitiate viewpoint coverage with a Positive view: In the last few quarters, demonetisation, transition to the new emission norms and uncertainties around GST rollout impacted the CV industry s performance and that of JAI. However, we expect the growth trend to pick up going ahead. JAI is a quality auto ancillary company having strong cash flows with return ratio in excess of 27%. JAI is the best stock to play the MHCV industry revival. We reinitiate our viewpoint coverage on JAI and expect 15% returns over the next 3-6 months. For detailed report, please visit the Research section of our website, sharekhan.com. 23

24 VIEWPOINT EQUITY FUNDAMENTALS KNR Constructions Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. COMPANY DETAILS Market cap: Rs577 Cr 52-week high/low: Rs327/140 NSE volume (No of shares): 58,531 BSE code: NSE code: TVVISION Sharekhan code: TVVISION Free float (No of shares): 1.9 Cr SHAREHOLDING PATTERN PRICE PERFORMANCE Viewpoint Positive CMP: Rs. 203 September 15, 2017 COMPANY DETAILS Market cap: Rs2,850 cr 52-week high/low: Rs229/125 NSE volume (No of shares): 76,577 BSE code: NSE code: KNRCON Sharekhan code: KNRCON Free float (No of shares): 6.0 cr SHAREHOLDING PATTERN Promoters 58% PRICE PERFORMANCE (%) 1m 3m 6m 12m Absolute Relative to Sensex TV Vision Ltd Public and Others, 53.7% Institutions, 0.6% FII 4% Institutions 28% Public & others 10% (%) 1m 3m 6m 12m Absolute Relative to Sensex Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. KEY POINTS A highly credited EPC player in an uprising sector Marquee road EPC player with distinct execution capabilities and track record: KNR Constructions (KNR) is a leading EPC service provider majorly operating in the roads and highways segment (85% of order book). KNR has exposure to two BOT projects. The company has over two decades of experience with execution of more than Rs. 6,000km road projects across 12 states in India. KNR has in-house construction capabilities which insures on-schedule project completion. Expect order inflow to pick up from H2FY2018: KNR bagged projects worth over Rs. 4,600 crore during FY2016-FY2017, taking its order book to Rs.3,339 crore (1.9x its TTM revenue). KNR expects tendering activity to pick up from H2FY2018 and targets Rs. 2,000 crore/ Rs. 2,500 crore worth of orders for FY2018/FY2019. Management targets to achieve Rs. 1,700-1,800 crore revenue for FY2018 and around Rs. 2,000 crore for FY2019 on conservative basis. Quality balance sheet A distinct trait in the sector: KNR s prudent capital utilisation has helped in maintaining its balance sheet quality. Standalone net debt/equity for FY2017 stands at just 0.14x. Tight working capital management, stable operating margins, capex financed through internal accruals and lower leverage have in aggregate helped in improving return ratios over the trailing two years. Valuation: We expect KNR to report a 15%+ CAGR for standalone revenue and EBITDA during FY2017-FY2019. Standalone net profit is expected to report a 4% CAGR on account of higher effective tax rate. We see intake of order inflow for KNR as a key re-rating trigger from here on. We have a positive view on the stock with 18-20% upside potential over the next 3-6 months. For detailed report, please visit the Research section of our website, sharekhan.com. Viewpoint Positive CMP: Rs. 165 September 11, 2017 Promoters, 45.8% Eyeing super growth, expect 20-25% upside KEY POINTS Niche channels, strong market positioning: TV Vision Ltd. (TVV) is in the television broadcasting business from the staple of renowned Shri Adhikari Brothers (SAB Group). The company operates five TV channels, namely Mastiii, Dabangg, Dhamaal, Maiboli and Dillagiii. Among the channels, Mastiii is the undisputed leader in the music and youth channel category since the past two years and continues to command strong viewer loyalty. On a robust growth path, net income CAGR of 58% over FY2017-FY2020E: We expect a 14% revenue CAGR over FY2017-FY2020E and net income CAGR of 58%. Our estimate does not include financials from the new channel launch. Further, absence of major capex in existing channels will increase free cash flow and improve the return ratio (RoE to touch 17% in FY2020 from 7% in FY2017 and RoCE will be 24.5% from 14% in FY2017). There could be some impact on Q1FY2018 earnings performance owing to GST implementation; nevertheless, we expect growth to catch over the next three quarters. Valuation: Attractively valued, expect 20-25% return: TVV is the right stock to bet on India s rural-semi urban consumption theme, as the company is on a high growth phase. The current valuation on a price earning multiple (PER) basis appears relatively high; however, given the 58% earnings CAGR over FY2017-FY2020E, PEG works out to be 0.4/0.3x in FY2019E/ FY2020E, which looks very attractive as compared to other media companies. Further, at 8.7/6.8x EV/EBITDA based on FY2019E/FY2020E coupled with significant jumps in return ratio merit re-rating of multiples going forward. We initiate our viewpoint note on TVV with a positive view and expect upside of 20-25% in the next 8-12 months. For detailed report, please visit the Research section of our website, sharekhan.com. 24

25 EQUITY TECHNICALS TREND & VIEW Daily view on Nifty The index broke the support and witnessed a sharp fall. Currently, it is witnessing a pullback of the previous fall from the highs of 10,179. So far, the index has retraced 38.2% of the previous fall. The bounce can extend towards 9,939-10,000 i.e., 50% and 61.8% of the recent fall. However, it has multiple hurdles in the zone of 9,939-10,000, and the bulls may find it difficult to cross the hurdle. From a short-term perspective, rise towards the hurdle zone shall be seen as a selling opportunity as long as it is trading below the swing high of 10,179. The momentum indicator on the daily chart is in a bearish mode. Crucial support level for the index will be at 9,775 and 9,685, while resistance will be at 9,939 and 10,000. Weekly view on Nifty The index is trading in a rising channel. It found resistance at the Weekly Upper Bollinger Band and witnessed a sharp fall. It witnessed five wave fall from the highs of 10,179. Currently, the index is in a pullback mode. The benchmark index should resume is downward once the pullback is completed. From the Elliot wave perspective, the index has completed Wave (III) and Wave (IV) is in progress. In Wave (IV), it is forming expanded flat pattern, wherein Wave (i) of (C) is completed and Wave (ii) of (C) is in progress. A break below the recent low of 9,687 will indicate that the pullback is completed and the index should drift lower towards 9,500 9,448 levels. On the way down, the benchmark index has major support around 9,400-9,448 levels i.e., 40-Week Exponential Moving Average (WEMA) and Weekly Lower Bollinger Band. The momentum indicator on the weekly chart is in a bearish mode. Crucial support will be at 9,685 and 9,448. Whereas, crucial resistance will be at 10,179 and 10,350. Monthly view on Nifty On the monthly chart, the index is making higher top higher bottom, indicating an uptrend in the long term. From a longterm perspective, the index continues to trade in a rising channel. Currently, the benchmark index is in Wave (IV), indicating a possibility of correction/consolidation. However, we maintain our bullish stance on the index for the long term as long as it does not overlap the high of Wave (I) i.e., 8,968. A break above 10,179 would indicate that the index has completed Wave (IV) and the next leg of the up move has started. On the benchmark index, we have a longer term target of 10,960-11,335. From a long-term prospective, dips shall be seen as buying opportunity as long as it is trading above 8,968. The momentum indicator on the monthly chart is in a bullish mode. Crucial support will be at 8,968 and resistance will be at 10,960-11,335. Trend Trend reversal Support Resistance Target Up Nifty Corrective mode 25

26 MONTHLY VIEW EQUITY DERIVATIVES 9,700 holds on; Nifty likely to touch 10,000 Nifty started the first half of September series on a positive note and moved in the northward direction and made new lifetime high at around 10,182 level. However, in the second half and especially in the last week of expiry, Nifty gave away all its gain and closed the series with loss of around 1.50%. In this whole journey, the index has seen a significant amount of addition in open interest (OI), which is a mix of long and short. The rollover in the next series is slightly on the higher side at around 69.87% compared to its threemonth average of 66%, indicating a mix of long and short have got carried forward to the next series. However, going ahead, with geopolitical tension rising between North Korea and the U.S., the market has been seeing wild swings; and unless and until the issue between them does not cool off, volatility in the market will be higher. On the other hand, FIIs have not been so positive on Indian markets in September series also. They were net sellers (worth Rs. 23,970 crore) in the cash market segment, which is quite huge. While in October series, so far, they have net sold Rs. 1,325 crore in the cash market segment. On the derivatives front, they have been net sellers in index futures, which itself shows their participation is very less at the current Nifty level. MARKET WIDE VS NIFTY ROLLOVER ACTIVITY: 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 69.87% Oct 84.98% 57.96% Sep 83.94% Rollover highlights:- Nifty 68.41% Aug 79.66% Market Wide Nifty futures started October F&O series with an OI of 2.05 crore shares vs crore shares at the start of September series. In rupee terms, it started the new series with Rs. 20,095 crore of OI in Nifty futures vs. Rs. 16,308 crore OI in September. In stock futures, OI stood at Rs. 95,438 crore vs. Rs. 91,226 crore OI in September. Index options started the October series with Rs. 139,037 crore of OI vs. Rs. 124,737 crore OI in September. While OI in stock options stood at Rs. 10,817 crore in October vs. Rs. 11,909 crore in September % Jul 83.82% 74.09% Jun 82.58% 66.33% May 79.75% At the start of the October series, the rollover in Nifty futures was quite low at 69.87%, compared to the previous month s rollover of 57.96%. Market wide rollover stood at 84.98%, which was bit higher compared to its previous month s rollover of 83.98%. Top 5 stock futures with the highest OI in current series STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR) HDFCBANK INFY RELIANCE ICICIBANK SBIN Top 5 stock options with the highest OI in current series STOCK FUTURES (SHAREKHAN SCRIP CODE) OPEN INTEREST (RS CR) RELIANCE SBIN MARUTI TATASTEEL INFY View for Septmeber series: On the options front in October series, 9,700 PE stands with the highest number of shares in OI, followed by 9,500 strike price. Whereas on the call side, 10,000 CE stands with the highest number of shares in OI, followed by 9,900 strike price. PCR has been trading above 1.00 throughout the September series and touched the high of 1.57 levels in this series. However, soon after it, Nifty showed a sharp decline. Nevertheless, in October series, it started on the higher side at 1.24, which is a positive sign for the market. On the other hand, volatility index has been trading at levels despite several geopolitical tensions between North Korea and the U.S. Seeing the above data and with high rollover, we feel, Nifty, after seeing the sharp fall last week, bounced back from its important support level of 9,680-9,700. Hence, if this level is held on, Nifty could see more short covering in the coming trading sessions and one can expect a bounce back at least till 9,900 in the first half of October series. 26

27 CURRENCY FUNDAMENTALS MONTHLY VIEW Currencies: Pound surges on Bank of England rate hike bets and hawkish comments from policymaker Key points India CPI rose by 3.36% in August 2017 compared to 2.36% in July 2017 India WPI rose by 3.24% in August 2017 compared to 1.88% in July 2017 Bank of England kept its benchmark interest rates unchanged at 0.25% and asset purchase facility at 435B US Federal Reserve kept its interest rates unchanged but announced plans to reduce $4.5 trillion balance sheet September 2017 contract price movement USDINR JPYINR 59.4 CURRENCY LEVELS IN SEPTEMBER 2017 (IN RS) Currency High Low Close Monthly chg (%) USDINR EURINR GBPINR JPYINR September 2017 contract price movement EURINR GBPINR Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep USDINR CMP: Rs(65.55) Indian rupee depreciated by 2.15% in the previous month on account of strong dollar and continued FII outflows from local shares. Dollar gained strength after US Federal Reserve signaled one more rate hike this year. Further, Fed said it will begin reduction of $4.5 trillion balance sheet in October. Foreign investors sold net $1,752 million in local shares in September 2017 as per data from NSDL. Rupee was also hurt on reports of likely increase in Indian Federal government s spending. Disappointing macro economic data damaged rupee. Outlook: Indian rupee is expected to trade with a negative bias on account of strong dollar and rise in geopolitical tensions. Further, continued FII outflows from local shares will hurt rupee. Investors are worried over slowdown in economic growth and expectation of widening of fiscal deficit. Traders will remain cautious ahead of Reserve Bank of India s (RBI) monetary policy meeting outcome. Central bank is likely to keep its benchmark interest rates unchanged. More focus will be on statements from RBI on inflation and economic outlook. As per REER, based on a basket of currencies of 36 trading partners, rupee is overvalued. Expected trading range in the near term is EURINR CMP: Rs(76.94) Euro depreciated by 0.81% in the previous month on account of strong dollar and as German election results showed increasing support for far-right party. European Central Bank President, Mario Draghi, said that central bank will keep as much as stimulus as euro area economy needs when policy makers decide to adjust their 2.3 trillion euro bond buying programme. Outlook: Euro currency is expected to trade with a negative bias on strong dollar and worries over political uncertainty in Eurozone countries. After Germany traders are focusing on Spain and Italy. Demand for dollar may go up on upbeat economic data from the US and as US President, Donald Trump, proposed US tax reform offering to cut taxes for most Americans. Traders will remain cautious ahead of European Central Bank s monetary policy. If the central bank decides on tapering bond buying programme, then we may see a sharp upside in single currency. Expected trading range in the near term is GBPINR CMP: Rs(86.88) British pound appreciated by 6.29% in September 2017 as Bank of England (BOE) signaled rate hike in the coming months. BOE said economy is doing little better than expectations and inflation is likely to exceed 3% in October. Further, Britain s Brexit secretary, David Davis, said that considerable progress had been made on Brexit talks. Outlook: Pound is expected to trade with a negative bias on account of strong dollar and as traders will remain alert ahead of Brexit negotiations. Further, disappointing manufacturing and construction PMI data will hurt pound. Data showed that the activity in both the sectors will slow down. Traders will remain cautious ahead of inflation data and inflation report hearing. However, sharp downside may be prevented as BOE signaled rate hike in the coming months. Expected trading range in the near term is JPYINR CMP: Rs(57.94) The Yen depreciated by 2.30% on account of strong dollar and divergence in monetary policy. Further, disappointing economic data from Japan weighed on the currency. US Federal Reserve signaled one more rate hike this year, whereas Bank of Japan (BOJ) kept its monetary policy unchanged. BOJ indicated that the bank is in no hurry to end quantitative easing. Outlook: Yen is expected to trade with a negative bias on account of strong dollar and divergence in monetary policy. A batch of mixed economic data from Japan will hurt Yen. Japan s Prime Minister, Shinzo Abe, has called a snap general election next month. Prime Minister Abe s win will extend his Abenomics era, which favours weaker Yen. Traders will remain cautious ahead of BOJ s monetary policy meeting. BOJ is forecast to continue with its loose monetary policy. Any dovish statements from BOJ officials will further hurt Yen. Expected trading range in the near term is CMP as on October 03,

28 TREND & VIEW CURRENCY TECHNICALS USDINR: Recovery mode USDINR, after a significant multi-month decline, witnessed a sharp recovery in the month gone by. Monthly chart shows that the currency pair found support near the junction of 40 MEMA and monthly lower Bollinger Band. The weekly momentum indicator has been showing positive divergence and is assisting the bulls on the way up. On the higher side, and will be the key levels from a short to medium term perspective. EURINR: Rally looks exhausted EURINR, in the month gone by, posted a sixth consecutive monthly positive close. On the way up, it has surpassed multiple short-term as well as mediumterm hurdles. The currency pair has now reached near a crucial swing high of However, bears seem to have created a strong resistance zone in the range of Even the daily and weekly momentum indicators are no longer in favour of the bulls. Thus, there is scope for a descent correction from a short to medium-term perspective. MACD ( ) 1.0 KST ( ) % 23.6% 38.2% 50.0% 61.8% 100.0% USDINR - INDIAN RUPEE ( , , , , ) 100.0% 78.6% 61.8% 50.0% 38.2% 23.6% 0.0% % 23.6% 38.2% 50.0% 61.8% 78.6% 100.0% EURINR ( , , , , ) M A M J J A S O N D 2015 M A M J J A S O N D 2016 M A M J J A S O N D 2017 A M J J A S O N D 2018 M A M J GBPINR: Hurdles ahead In terms of Fibonacci retracement, GBPINR had retraced 61.8% of the multi-month rally, which proved to be a crucial support. Thereon, the currency pair formed a well channelised pullback over the last few months. In the last month, the currency pair tested the upper channel line as well as the key monthly moving averages. These parameters, however, are acting as strong hurdles. Thus, unless the level of is surpassed, GBPINR is likely to head lower. O N D 2015 M A M J J A S O N D 2016 M A M J J A S O N D 2017 M A M J J A S O N D 2018 M A M J J JPYINR: Stuck in a range JPYINR has been trading in range bound manner for the last several months. On the downside, 61.8% retracement mark and the weekly lower Bollinger Band are providing support to the price action. Whereas, on the higher side, key monthly moving averages and the weekly upper Bollinger Band are acting as tough barriers. On the monthly chart, JPYINR has formed a bearish outside bar. The weekly momentum indicator has given a fresh Sell signal. Thus, bears seem to be having an upper hand at present. Relative Strength Index ( ) 70 KST ( ) % 23.6% 38.2% 50.0% 61.8% 78.6% GBPINR ( , , , , ) 100.0% 61.8% 50.0% 38.2% 23.6% 0.0% % 23.6% 38.2% 50.0% 61.8% 78.6% JPYINR ( , , , , ) % % M A M J J A S O N D 2016 M A M J J A S O N D 2017 M A M J J A S O N D 2018 Currency View Reversal Supports Resistances Target USD-INR Up / / GBP-INR Down / / EUR-INR Down / / JYP-INR Down / /

29 PMS DESK WEALTHOPTIMIZER WEALTHOPTIMIZER PMS The Indian equity market presents an excellent opportunity for the long-term investors. Sharekhan offers you solutions to meet your financial objectives. WealthOptimizer is a portfolio management product that involves enhancing wealth over the long term. The goal is to not only outperform the market but also generate superior returns. Strategy To invest in the most undervalued stocks of growing companies on the basis of reported financial performance How the product works Fundamental analysis is performed on more than 5,000 companies Stocks with sound fundamentals are picked, subject to strategy conditions Top 10 stocks are selected each day based on the maximum scope to grow No particular sector forms more than 20% of the client s portfolio Fundamentals of stocks held are reviewed every quarter based on quarterly results Automated decision making system for transparent and disciplined investing Key product specifications Minimum investment amount: Rs25 lakh Recommended investment duration: Two years or more Phone: / 2261 / 2363 / pms@sharekhan.com Disclaimer: Product is offered by Sharekhan Ltd (Registered Portfolio Manager with SEBI Regn. Nos. INP CIN No. U99999MH1995PLC087498) and having registered office at 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: igc@sharekhan.com, pms@sharekhan.com. This information does not purport to be an invitation or an offer for services, client is required to take independent advise before opting for any service. Securities investments are subject to market and other risks and client should refer to the risk disclosure document carefully. Past performance is no indication of future results. Future performance may vary. Detailed disclaimers and risk disclosure document is available on our website please acquaint yourself with these before investing. 29

30 PMS FUNDS PMS DESK Portfolio Management Service We are pleased to introduce you to Sharekhan s Portfolio Management Service (PMS) in which we completely manage your investment portfolio so that you stop worrying about the market volatility and focus your energy on things that you like to do! We have a wide range of strategies that you can choose from. Our strategies are based on fundamental research and technical analysis. We have the following strategies on offer: ProPrime (based on fundamental research) Diversified Equity ProTech (based on technical analysis) Index Futures Fund Trailing Stops PROPRIME - DIVERSIFIED EQUITY OVERVIEW The ProPrime Diversified Equity PMS strategy is suitable for long-term investors looking to create an equity portfolio through disciplined investments that will lead to a growth in the portfolio s value with medium to high risk Product performance as on September 30, 2017 DE (In %) Strategy Sensex Nifty Nifty Month Month INVESTMENT STRATEGY 6 Month Disciplined investment decisions are taken in specific stocks based on thorough fundamental research. Investments are made primarily in the Nifty Fifty or the BSE 100 scrips. Attempts to have an exposure of minimum of 70% in the Nifty Fifty stocks and that of minimum of 90% in the BSE 100 stocks. Endeavours to create a core portfolio of blue-chip companies with a proven track record and have partial exposure to quality companies in the mid-cap space 1 Year Year Year *Note : Net of Quarterly AMC Fees Disclaimer: Returns are based on a client s returns since inception and may be different from those depicted in the risk disclosure document. PRICING Minimum investment of Rs25 lakh Charges ¾ 2% per annum; AMC fee charged every quarter ¾ 0.5% brokerage ¾ 20% profit sharing after the 12% hurdle is crossed at the end of every fiscal Top 10 stocks Britannia Industries HDFC Bank Indusind Bank Larsen & Toubro LIC Housing Finance Maruti Suzuki India Petronet Lng Reliance Industries Zee Entertainment Enterprises Federal Bank FUND OBJECTIVE A good return on money through long-term investing in quality companies 30

31 PMS DESK PMS FUNDS PROTECH - INDEX FUTURES FUND OVERVIEW The ProTech Index Futures Fund PMS strategy is suitable for long-term investors who desire to profit from both bullish and bearish market conditions. The strategy involves going long (buying) or going short (selling without holding) on Nifty futures by predicting the market direction based on a back-tested automated model. INVESTMENT STRATEGY The strategy has the potential to generate profits irrespective of the market direction by going long or short on Nifty futures. An automated basic back-testing model is used to predict the market direction for the Nifty which then decides the strategy to be deployed in terms of going long or short. The portfolio is not leveraged, ie its exposure never exceeds its value. PRICING Product performance as on September 30, 2017 (In %) NT Strategy Sensex Nifty 1 Month Months Fy Fy Fy Fy Fy Fy Fy Minimum investment of Rs25 lakh Charges ¾ AMC fees: 0% ¾ Brokerage: 0.05% ¾ Profit sharing: Flat 20% charged on a quarterly basis Fy Since Inception* Best Month Worst Month Best Quarter Worst Quarter *01-Feb-2006 FUND MANAGER S VIEW The index futures fund generated another positive month with 0.86% returns for the month. The market continues to be trending for the last one year, which is good news. We are seeing a slow appreciation in NAV. What is missing is a faster and larger windfall, and that is mostly due to the low volatility in the market. An expansion of volatility would put us on track for double-digit annual returns. However, given that we are out of the range-bound moves is a good start. Disclaimer: Returns are based on a client s returns since inception and may be different from those depicted in the risk disclosure document. Investments in Nifty Index Our market view remains that we are at the end of a nine-month rally in Nifty; and at the fag end, we are seeing weak breadth and lot of rotation between stocks and sectors diverging up and down from each other. This divergent environment is going on and on and not coming to an end even after months of range-bound moves in midcap indices. This is the longest such period that we recall, and it is always a signal of a coming market reversal. Thus, we expect volatility to pick up in the coming months. Fund Manager: Rohit Srivastava FUND OBJECTIVE Absolute returns irrespective of market conditions. 31

32 PMS FUNDS PMS DESK PROTECH - TRAILING STOPS OVERVIEW Our ProTech Trailing Stops PMS strategy is ideal for Traders and Investors looking for Regular Income from trading and desire to make profits in both bullish and bearish market conditions. It is designed to payout book profits on monthly basis.* It is also for those investors who are looking for better income than Fixed Income or Deposits. This strategy involves going Long (buying) or Short (selling without holding) on stock futures. * Terms and conditions apply INVESTMENT STRATEGY Product performance as on September 30, 2017 (In %) TS Strategy Sensex Nifty 1 Month Months Fy Fy This strategy spots the winning trades based on technical analysis vs time framebased portfolios, basically the momentum calls. A risk model has been developed for stock portfolio allocation that reduces the risk and portfolio volatility through staggered building of positions. It is non-leveraged the exposure will never exceed the value of the portfolio. Fy Fy Fy Fy Fy PRICING Fy Minimum investment of Rs25 lakh Charges ¾ AMC fees: 0% ¾ Brokerage: 0.05% ¾ Profit sharing: Flat 20% charged on a quarterly basis Since Inception* Best Month Worst Month Best Quarter Worst Quarter *09th May 2011 FUND MANAGER S VIEW The trailing portfolio has been hit by what is now four months of range-bound moves in the index causing stock-specific rotation and, therefore, trades that are based on market trend and direction are stopping out. Losses are not big but neither are gains. But this action signals a coming market reversal, and we remain alert to it to benefit from it when it happens. When it does, returns should expand and we should be able to better achieve our objectives of higher returns and monthly returns. The stock rotation has causing mixed moves in individual counters against the index, causing stops to be hit. Our market view remains that we are at the end of a nine-month rally in Nifty; and at the fag end, we are seeing weak breadth and lot of rotation between stocks and sectors diverging up and down from each other. This divergent environment is going on and on and not coming to an end even after months of range-bound moves in mid-april indices. This is the longest such period that we recall and it is always a signal of a coming market reversal. Thus, we expect volatility to pick up in the coming months and our portfolio remains positioned for the coming change in trend as well. Disclaimer: Returns are based on a client s returns since inception and may be different from those depicted in the risk disclosure document. Investments in Nifty Index Stock futures Fund Manager: Rohit Srivastava FUND OBJECTIVE Absolute returns irrespective of market conditions. 32

33 ADVISORY DESK MONTHLY PERFORMANCE The Advisory Desk is a central desk consisting of a Mumbai-based expert team that runs various sample model portfolios (for illustrative purposes only) for clients of all profiles, be they traders or investors. These products are different from Sharekhan s research-based technical and fundamental offerings as these essentially try to capture the trading opportunities in stocks where momentum is expected before or after some event including the announcement of results or where some news/ event is probable. Advisory products are ideal for those who do not have time to either monitor the market tick by tick or shift through pages of research for data or pour over complex charts to catch a trend. However, all these products require perfect discipline and money management. For investors PORTFOLIO DOCTOR Advisory Products and Services It is a service under which the Portfolio Doctor reviews an existing portfolio based on various parameters and suggests changes to improve its performance. To avail of this service please write to the Portfolio Doctor at portfoliodoctor@sharekhan.com. NEW ALPHA DELIVERY PICKS This is a long only, cash market delivery product where stock ideas will be rolled out based on short-term triggers with proper fundamental rationale. Recently we revised certain features of Alpha Delivery Picks to incorporate ideas from both the Fundamental research desk and the Market analysis team. The time frame of the stock ideas in New Alpha Delivery Picks will be a maximum of two months. Stop loss will be 5-10% and profit potential will be 10-20%. We will report the old series performance data separately. For more details please write to us at alphapicks@sharekhan.com New Alpha Delivery Picks Rules Ideas Weightage (%) 7 Ideas based on Stock Ideas, Viewpoints, Stock Updates, Market analysis Stop Loss (%) Maximum 10, minimum 5 For traders Profit Potential (%) Maximum 20, minimum 10 SHAREKHAN S PRE-MARKET ACTION These ideas are put out in Sharekhan s Pre-market Action report along with stop loss and targets valid for a day. There is a market watch list of stocks with positive and negative bias for intra-day traders. For more details please write to us at premarket@sharekhan.com. MID DERIVATIVE CALLS These calls are based on the analysis of open interest, implied volatility and put-call ratio in the derivative market. It is a leveraged product and ideal for aggressive traders. These calls have pre-defined stop loss, targets, time frame and quantity to execute. For details of the product please write to us at derivative@sharekhan.com. Time Frame Trail Stop loss Exit Rules Performance Reporting Maximum 2 months 5% trailing Stop loss on 5% rise in stock price A) Pre defined / Trail stop loss is hit B) Unexpected event/news/ outcome C) Time frame Daily Report Card MID performance* Product New Alpha Delivery Picks Month September 2017 FY No. of calls 11 48* Open 2 2 Profit booked 9 25 Stop loss hit 6 21 Strike rate (%) * we had 8 open calls in April (not considered) MID Derivative Calls performance* Ticket size (Rs) 100,000 Month September 2017 FY No. of calls Profit booked Stop loss hit Strike rate (%)

34 MF PICKS MUTUAL FUNDS DESK Sharekhan s top mutual fund picks (equity) September 12, 2017 Data as on September 01, 2017 Scheme name NAV (Rs) Returns (%) Absolute 6 Compound annualised months 1 yr 3 yrs 5 yrs Since inception Large Cap Funds IDFC Classic Equity Fund - Reg - Growth Aditya Birla Sun Life Top 100 Fund - Growth ICICI Prudential Focused Bluechip Equity Fund - Growth BNP Paribas Equity Fund - Growth Franklin India Bluechip - Growth Indices BSE Sensex 31, Mid & Small Cap Funds Reliance Small Cap Fund - Growth Kotak Emerging Equity Scheme - Reg - Growth Aditya Birla Sun Life Mid Cap Fund - Plan A - Growth DSP BlackRock Small and Midcap Fund - Reg - Growth HDFC Mid-Cap Opportunities Fund - Growth Indices BSE MID CAP 15, Multi Cap Funds SBI Magnum Multi Cap Fund - Growth Kotak Select Focus Fund - Reg - Growth Aditya Birla Sun Life Equity Fund - Growth DSP BlackRock Opportunities Fund - Reg - Growth BNP Paribas Dividend Yield Fund - Growth Indices BSE , Tax-saving Funds (ELSS) Aditya Birla Sun Life Tax Relief 96 - Growth IDFC Tax Advantage (ELSS) Fund - Reg - Growth DSP BlackRock Tax Saver Fund - Growth Reliance Tax Saver (ELSS) Fund - Growth Franklin India Taxshield - Growth Indices Nifty 500 8, Thematic Funds DSP BlackRock Natural Resources & New Energy Fund - Reg - Gth ICICI Prudential Banking and Financial Services Fund - Retail - Growth L&T Infrastructure Fund - Reg - Growth Franklin Build India Fund - Growth Aditya Birla Sun Life Special Situations Fund - Growth Indices Nifty 50 9, Balanced Funds Aditya Birla Sun Life Balanced 95 - Growth HDFC Balanced Fund - Growth ICICI Prudential Balanced - Growth Franklin India Balanced Fund - Growth SBI Magnum Balanced Fund - Growth Indices Crisil Balanced Fund Index BNP Paribas Mutual Fund Equity schemes Scheme name NAV (Rs) Returns (%) Absolute 6 months Compound annualised 1 yr 3 yrs 5 yrs Since inception BNP Paribas Mid Cap Fund - Growth BNP Paribas Dividend Yield Fund - Growth BNP Paribas Long Term Equity Fund - Growth BNP Paribas Equity Fund - Growth Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individual s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article. 34

35 MUTUAL FUNDS DESK MF PICKS Sharekhan s top sip fund picks September 12, 2017 Data as on September 01, 2017 Investment period 1 year 3 years 5 years Total amount invested (Rs) 12,000 36,000 60,000 Funds would have grown to (Rs) NAV Present value (Rs) Avg annual return (%) Present value (Rs) Avg annual return (%) Present value (Rs) Avg annual return (%) Large-Cap Funds IDFC Classic Equity Fund - Reg - Growth 43 13, , , Aditya Birla Sun Life Top 100 Fund - Growth 56 13, , , ICICI Prudential Focused Bluechip Equity Fund - Growth 38 13, , , BNP Paribas Equity Fund - Growth 82 13, , , Franklin India Bluechip - Growth , , , BSE Sensex , , , Mid & Small Cap Funds Reliance Small Cap Fund - Growth 39 13, , ,35, Aditya Birla Sun Life Mid Cap Fund - Plan A - Growth , , ,11, DSP BlackRock Small and Midcap Fund - Reg - Growth 52 13, , ,11, Kotak Emerging Equity Scheme - Reg - Growth 37 13, , ,15, HDFC Mid-Cap Opportunities Fund - Growth 54 13, , ,12, BSE Midcap , , ,04, Multi-Cap Funds Aditya Birla Sun Life Advantage Fund - Growth , , ,10, DSP BlackRock Opportunities Fund - Reg - Growth , , ,01, Kotak Select Focus Fund - Reg - Growth 32 13, , ,02, SBI Magnum Multi Cap Fund - Growth 45 13, , ,02, Franklin India High Growth Companies Fund - Growth 37 13, , ,01, BSE , , , Tax-saving funds (ELSS) IDFC Tax Advantage (ELSS) Fund - Reg - Growth 53 14, , ,01, DSP BlackRock Tax Saver Fund - Growth 45 13, , ,01, Reliance Tax Saver (ELSS) Fund - Growth 61 13, , ,04, Aditya Birla Sun Life Tax Relief 96 - Growth 28 13, , ,00, Franklin India Taxshield - Growth , , , Nifty , , , BNP Paribas Mutual Fund Equity schemes Funds would have grown to (Rs) Category Present value (Rs) Compounded annualised return (%) Present value (Rs) Compounded annualised return (%) Present value (Rs) Compounded annualised return (%) BNP Paribas Mid Cap Fund - Growth Mid Cap 13, , ,08, BNP Paribas Dividend Yield Fund - Growth Multi Cap 13, , , BNP Paribas Long Term Equity Fund - Growth ELSS 13, , , BNP Paribas Equity Fund - Growth Large Cap 13, , , Every individual has a different investment requirement, which depends on his financial goals and risk-taking capacities. We at Sharekhan first understand the individual s investment objectives and risk-taking capacity, and then recommend a suitable portfolio. So, we suggest that you get in touch with our Mutual Fund Advisor before investing in the best funds. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the mutual funds mentioned in the article. 35

36 EARNINGS GUIDE EQUITY FUNDAMENTALS Sharekhan Earnings Guide Prices as on October 03, 2017 Company CMP (Rs) Sales Net profit EPS (%) EPS growth PE (x) RoCE (%) RoNW (%) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY19/FY17 FY17 FY18E FY19E FY18E FY19E FY18E FY19E Automobiles Apollo Tyres , , , , , % Ashok Leyland , , , , , , % Bajaj Auto 3,162 21, , , , , , % Gabriel India 194 1, , , % Hero Motocorp 3,806 28, , , , , , % M&M 1,264 41, , , , , , % Maruti Suzuki 7,888 68, , , , , , % Rico Auto Industries 93 1, , , % TVS Motor , , , , % Banks & Financials Axis (UTI) Bank , , , , , , % Bajaj Finance 1,868 5, , , , , , % Bajaj Finserv 5, Bank of Baroda , , , , , , % Bank of India , , ,594.7 (1,558.3) , Capital First 734 1, , , % Federal Bank 113 4, , , , % HDFC 1,762 9, , , , , , % HDFC Bank 1,809 45, , , , , , % ICICI Bank , , , , , , % LIC Hsg. Fin , , , , , , % Max Financial PTC India Fin. Ser % PNB , , , , , , % Union Bank of India , , , , % Yes Bank 351 9, , , , , , % Consumer Goods Britannia 4,340 9, , , , , % Emami 1,085 2, , , % GSK Consumers* 5,047 4, , , % GCPL 954 9, , , , , , % Hindustan Unilever 1,186 34, , , , , , % ITC , , , , , , % Jyothy Laboratories 398 1, , , % Marico 308 5, , , , % Zydus Wellness % IT / IT services FSL 41 3, , , % HCL Technologies , , , , , , % Infosys , , , , , , % Persistent Systems 663 2, , , % TCS 2,448 1,17, ,21, ,32, , , , % Wipro , , , , , , % Cap goods / Power CESC 997 7, , , , % Crompton Greaves 78 6, , , % Finolex cable 544 2, , , % Greaves Cotton 134 1, , , % Kalpataru Power 365 4, , , % KEC International 310 8, , , % PTC India , , , % DPS Rs. Div Yld(%) 36

37 EQUITY FUNDAMENTALS EARNINGS GUIDE Company CMP (Rs) Sales Net profit EPS (%) EPS growth PE (x) RoCE (%) RoNW (%) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY19/FY17 FY17 FY18E FY19E FY18E FY19E FY18E FY19E Skipper 207 1, , , % Thermax 935 3, , , % Triveni Turbine % V-Guard Industries 186 2, , , % Va Tech Wabag 592 3, , , % Infra / Real Estate Gayatri Projects 186 2, , , % IRB Infra 210 5, , , , , % Jaiprakash Asso 18 6, (4,841.9) Larsen & Toubro 1,135 1,10, ,25, ,40, , , , % NBCC 213 6, , , % Sadbhav Eng , , , % Oil & gas Oil India 355 9, , , , , , % Reliance 798 3,05, ,27, ,55, , , , % Selan Exp % Pharmaceuticals Aurobindo Pharma , , , , , , % Cadila Healthcare 474 9, , , , , , % Cipla , , , , , , % Divi's Labs 856 4, , , , , % Glenmark Pharma 597 9, , , , , , % Lupin 1,021 17, , , , , , % Sun Pharma , , , , , , % Torrent Pharma 1,246 5, , , , % Building Materials Grasim 1,159 36, , , , Shree Cement 18,592 8, , , , , , % The Ramco Cements 694 3, , , % UltraTech Cement 3,895 23, , , , , , % Discretionary Arvind 367 9, , , % Century Ply (I) 253 1, , , % Cox and Kings 277 2, , , % Info Edge (India) 1, , % Inox Leisure 229 1, , , % KKCL 1, % Orbit Exports % Relaxo Footwears 520 1, , , % Thomas Cook India 252 8, , , % Wonderla Holidays % ZEEL 522 6, , , , , , % Diversified / Miscellaneous Bajaj Holdings 2, , Bharat Electronics 164 9, , , , , , % Bharti Airtel , , ,09, , , , % Gateway Distriparks % PI Industries 753 2, , , % Ratnamani Metals 868 1, , , % Supreme Industries 1,099 4, , , % UPL , , , , , , % Note: Crompton Greaves is in the process of selling its overseas power system business by Q4FY2016. Hence, we have not estimated the FY2017 numbers Aurobindo Pharma post 1:1 bonus Divis Labs post 1:1 bonus Cadila Healthcare post stock split from Rs 5 to Rs 1 Godrej Consumer Products post 1:1 bonus DPS Rs. Div Yld(%) 37

38 EARNINGS GUIDE EQUITY FUNDAMENTALS Apollo Tyres Ashok Leyland Bajaj Auto Gabriel India Hero MotoCorp Remarks Automobiles Apollo Tyres (ATL) is the market leader in Truck and Bus tyre segments with a 28% market share in India. The company had invested $600 million in the past to set up a greenfield facility in Hungary and Rs. 4,000 crore for the expansion of capacity at its Chennai facility. The expanded capacities are likely to come on stream by FY The performance for Q1FY2018 was a temporary blip for ATL, as topline growth was impacted by GST-related destocking and drop in MHCV OEM sales. Also sudden surge in RM lead to a steep drop in margins. Going ahead ATL s topline is expected to recover sharply. Domestic operations are likely to witness healthy growth, backed by dealer restocking, a pick-up in MHCV OEM volumes and ATL regaining its market share from Chinese players post the likely imposition of anti-dumping duty. In addition, given the commencement of ATL s Hungary plant, we expect ATL s European operations to gain traction. ATL is more than doubling its capacity in Europe (Its Hungary plant will reach full capacity of 18,000 tyres per day by FY2019-end) and has already tied up with OEMs for supply. Further given the benign RM prices and benefits of operating leverage, we expect ATL s margin to improve from 8.3% in Q1FY2018 to 11.9% in FY2018 and reach 13.3% in FY2019. We retain our Buy recommendation on the stock with a revised price target (PT) of Rs Ashok Leyland Limited (ALL), the second largest CV (commercial vehicle) manufacturer in India, is a pure play on CV. The CV industry is poised for healthy growth in FY2018 on account of improving economic growth, led by factors such as successful GST rollout, government s thrust on infrastructure and mining, improved festive demand and low base of the corresponding quarter last year (Q2FY2017 MHCV volumes were down 14% YoY). Improved fleet operator profitability would also lead to better industry growth. Further, the company has planned a slew of new product launches in the light commercial vehicle (LCV) segment. In addition, favourable acceptance of the new IEGR technology in the medium and heavy commercial vehicle (MHCV) segment coupled with network expansion has driven market share gains for ALL, and we expect it to outpace industry growth in FY2018. We expect ALL to report a 10% volume CAGR over FY2017-FY2019. We retain our Buy recommendation on the stock with a revised price target (PT) of Rs Bajaj Auto (BAL) is a leading Motorcycle and Three Wheeler (3W) manufacturer with a significant presence in the export markets. In the domestic market, it is a leader in the premium motorcycle segment. After two consecutive years of volume decline, Bajaj Auto has seen recovery in export volumes. Exports have grown by 6% in YTD FY2018 (April 2017-August 2017). Growth in export markets is attributable to recovery in key markets of Africa and Latin America due to stabilisation of crude oil prices, improving dollar availability and gradual recovery in economy. Given the improving market scenario, Bajaj Auto has raised export volume guidance from 1.6 million units to 1.7 million units for FY2018. The domestic motorcycle industry s growth is also expected to gain pace on account of normal monsoon for the second consecutive year and improvement in crop sowing. We expect the trend to continue as the industry will have low base benefit in H2FY2018 (as industry volumes had dropped post demonetisation announcement in November 2016), while Bajaj Auto s volumes are likely to grow by 5% in FY2018 as against earlier assumption of flat growth. We upgrade our rating on the stock to Buy from Hold with a revised price target (PT) of Rs. 3,470. Gabriel India (GIL) is one of India s leading manufacturers of shock absorbers and front forks with a diversified customer base. The overall demand situation for the passenger segment (2W and passenger cars) has improved significantly, as key concerns around GST rollout have been addressed. The transitory impact of new emission norms (for 2w) is also behind. Going ahead, a well-progressing monsoon season, new product launches by OEMs and an upcoming festive season are likely to spur business from OEMs. Further, business from railways is gaining traction and Gabriel is ramping supplies. Gabriel has secured new contracts with 2W OEMs, which would enable it to outpace industry growth. Secondly, Gabriel s consistent focus on cost-control measures and improving product mix leading to operational efficiencies are expected to result in margin expansion going ahead. Gabriel s stock price has run up steeply which largely factors the strong double-digit earnings growth. We downgrade our recommendation on the stock from Buy to Hold with a revised price target (PT) of Rs Hero MotoCorp (HMCL) is the largest Two Wheeler (2W) manufacturer in the world with sales of over 6.6 million vehicles in FY2017 and a domestic market share of 39%. The outlook for the domestic two-wheeler industry is encouraging, driven by the forecast of a normal monsoon leading to positive rural sentiments, the upcoming festive season and the successful roll out of GST. Also, buoyant rural sentiments on account of higher farm incomes and liquidity reaching normal levels post demonetization, would be the key demand driver for Hero. The company has also lined up a slew of new launches in the scooters and premium motorcycle segment during FY2018, which would boost volume growth. We have factored a 9% CAGR in domestic volumes for FY2017-FY2019 and expect the company to grow in line with the industry. Additionally, aggressive plans for exports markets, which include tapping markets of Asia and LATAM, coupled with scaling up of production at its Bangladesh and Columbia plants provides visibility on the pickup in volumes. We expect Hero s exports volumes to reach 4.2 lakh units by FY2019 from 1.8 lakh units as of FY2017. Going ahead, given the improved rural demand, slew of new product launches and improving export volumes (due to penetration in new markets) would lead to strong double-digit volume growth of ~11% for FY2018. We retain our Buy rating on the stock with an unchanged price target of Rs. 4,100. M&M M&M is a leading maker of Tractors and Utility Vehicles (UV) in India. M&M s tractor volumes grew impressively by 23% for FY2017. A well progressing and evenly spread out monsoon, increase in sowing acreages and farm loan waivers in select states are expected to drive tractor volumes. Also new tractor launches and sustained demand for existing products would boost the tractor sales. We expect M&M s tractors volumes to report a 12% CAGR over FY2017- FY2019. Under the GST regime, prices of utility vehicles (UV) have come off by 2-7%. As UV constitutes half of M&M s auto portfolio, it is likely to be a major beneficiary of GST rollout. M&M has planned two new products in the UV space over the next two years. Further, given the pickup in economic growth and improved rural demand, we expect LCV growth to remain strong for M&M. Cumulatively, we expect M&M s auto segment s volumes to report a 8% CAGR over FY2017- FY2019. We maintain our Buy recommendation on the stock with an SOTP-based price target of Rs. 1,

39 EQUITY FUNDAMENTALS EARNINGS GUIDE Maruti Suzuki Rico Auto Inds. TVS Motor Maruti Suzuki is India s largest Passenger Vehicle (PV) maker with a strong 47% market share as of FY2017. It has been able to gain market share over the last two years on the back of a diverse product portfolio, a large distribution network with an increased focus on rural markets and a shift in consumer preference to petrol models from diesel. The demand outlook for passenger vehicles is encouraging, given the strong festive season demand and new product launches lined up. The market leader, Maruti is likely to continue to outpace industry growth, as four of its models (Baleno, Brezza, Ignis and Dzire), which form ~35% of the vehicle portfolio, command a waiting period of 2-5 months. Further, to curtail the waiting period for its cars, Maruti is speeding up production at its new Gujarat plant. Maruti targets to manufacture 150, ,000 units at Gujarat plant in FY2018, up from the earlier estimate of ~130,000 units. With supply constraints expected to ease out significantly, we expect Maruti to post strong double-digit volume growth at a ~12% CAGR over the next two years, which is substantially higher than the 8-10% growth expected for the passenger vehicle industry. We expect Maruti to sustain its trend of outpacing the industry, given the robust order book for its existing models. We maintain our Buy recommendation on the stock with a revised PT of Rs. 8,500. Rico Auto (Rico) is one of the largest producers of high-pressure non-ferrous die castings for the auto sector. The significant cash inflow due to stake sale in a JV company has enabled it to deleverage its balance sheet. Additionally, a lower interest burden will result in a growth in the earnings and free cash flow. The demand outlook for the passenger segment (2wheeler and passenger vehicles) has improved as the key concerns are behind us. Further, early onset of the festive season, positive rural sentiments, successful rollout of GST and slew new product launches planned by the auto OEM s, provide ample visibility on the auto sales growth going ahead. Cumulatively this bodes well for Rico which derives about 85% revenues from the OEM space. Given the robust OEM outlook coupled with new growth avenues, we expect Rico s revenues to grow at a 14% CAGR over FY period. Rico focus on high margin areas viz defence and after market is likely to improvise margins. Also, the company s ongoing exercise to curtail cost and improve operational efficiencies coupled with better pricing on incremental orders would drive margin expansion going ahead. Basis the above triggers, we have factored in a 150 BPS OPM expansion for Rico over FY2017-FY2019. We maintain Buy recommendation on the stock with a revised price target of Rs TVS Motor (TVSM) is the fourth largest 2W manufacturer in the country with a strong presence in the Scooter segment. Over the past couple of years, the Scooter segment s growth has surpassed the growth rate of the Motorcycle segment. Currently, it contributes ~30% to the company s total 2W volumes. With industry coming out of the GST transitory issues and robust rural sentiments on back of a second consecutive year of normal monsoon, the 2W industry outlook has improved. Also, given the commencement of festive season we expect the industry to continue posting robust double digit growth. Further, 2W industry will have benefit of favourable low base in H2FY18 (industry growth was severely impacted in latter part of H2FY2017 due to demonetization). Given the above factors, we expect 2W industry to grow at 12% in FY2018 as against earlier expectations of 10%. Also the company will introduce new products and refreshes in H2FY18 which will enable it to continue outpacing the industry growth. TVSM is likely to report 15% volume CAGR over FY as against estimated industry growth of about 10%. Also, TVSM s margins are likely to reach the doubledigit mark by FY2019, leading to a strong 37% earnings CAGR over the next two years. We retain Buy rating on the stock with a revised PT of Rs Axis Bank Bajaj Finance Bajaj Finserv Bank of Baroda Bank of India Banks & Finance Axis Bank is the third-largest private sector bank, which continues to grow faster than the industry and has diversified its book in favor of the retail segment (~40% of loans in retail segment). The bank s liability profile has improved significantly, which would help to sustain the margins at healthy levels. We expect the earnings growth to remain reasonably strong driven by healthy operating performance. Though asset quality pressures have emerged as pain points due to exposure in the infrastructure and steel sectors, we expect the stress to persist in near term. Bajaj Finance, owned by Bajaj Finserv, is a fast growing, well-diversified leading NBFC in the country. It has assets spread across products, viz loans for consumer durables, two-wheelers and three-wheelers, loans to small & medium enterprises (SME), mortgage loans and commercial loans. Apart from its strong loan growth, the asset quality and provisioning remain among the best in the system. Given the strong growth rate, high margins and return ratios, its premium valuations within the NBFC space are justified. Bajaj Finserv is a financial conglomerate that has a presence in the financing business (vehicle finance, consumer finance and distribution) and is among the top players in the life insurance and general insurance segments. Its consumer finance (Bajaj Finance) and general insurance businesses continue to report a robust performance, while the life insurance business is showing signs of pick-up after being affected by a change in regulations. Bank of Baroda is among the top public sector banks (PSBs) having a sizeable overseas presence (over 100 offices in 24 countries) and a strong network of more than 5,000 branches across the country. It has a stronghold in western and eastern India. Its performance metrics remain better than that of the other PSBs and asset quality has deteriorated in-line with the RBI s directive to clean the balance sheet. Bank of India has a network of more than 4,800 branches, spread across the country and abroad, along with a diversified product and services portfolio, and steadily growing assets. The operating performance and earnings have eroded significantly due to margin deterioration and a sharp rise in NPAs. Given the rise in the number of incremental stressed loans and the relatively weaker capital position, its valuations may remain subdued. Capital First Capital First (erstwhile Future Capital Holdings) had been acquired by global private equity firm, Warburg Pincus (a 36% stake). The present management has taken several initiatives to tap the high-growth retail product segments, like gold loans, loan against property and loan against shares. It has a strong CAR and sound asset quality. Its loan book is expected to sustain a 25-30% growth over the next three years. As a result of several initiatives taken in the recent past, the operating leverage will play out and may lead to significant pick-up in profitability over the medium term. 39

40 EARNINGS GUIDE EQUITY FUNDAMENTALS Federal Bank HDFC HDFC Bank ICICI Bank LIC Housing PNB PFS Union Bank Yes Bank Britannia Emami GSK Consumer Federal Bank is among the better performing old private sector banks in India with a strong presence in south India, especially Kerala. Under the new management, the bank has taken several initiatives, which would improve the quality of its earnings and asset book. The asset quality has shown stress in the past few quarters, though we expect a gradual improvement in the NPAs and the operating performance to pick up gradually. The valuations seems attractive over the medium to long term. HDFC is among the top mortgage lenders providing housing loans to individuals, corporates and developers. It has interests in banking, asset management and insurance through its key subsidiaries. As these subsidiaries are growing faster than HDFC, the value contributed by them would be significantly higher going forward. Due to a dominant market share and consistent return ratios, it should continue to command a premium over the other NBFCs. Any unlocking of value from its insurance business will be positive for the stock. HDFC Bank is among the top performing banks in the country having deep roots in the retail segments. Despite the general slowdown in credit growth, the bank continues to report a strong growth in advances from retail products. Its relatively high margins (compared with its peers), strong branch network and better asset quality make HDFC Bank a safe bet with a scope for expansion in its valuations. ICICI Bank is India s largest private sector bank with a network of over 4,850 branches. The bank has made inroads into retail loans (~45% of the book) and significantly improved its liability franchisee. The operating profit improved significantly though its exposure to some troubled sectors (infrastructure, steel, etc.) has increased pressure on the asset quality. However, a healthy growth in the operating income and proceeds from the monetization of its stake in various subsidiaries will help to deal with the NPA challenges. LIC Housing Finance is the third largest mortgage financier (including banks) in India with a market share of 11% and loan book of over Rs. 1,00,000 crore. It is promoted by Life Insurance Corporation of India, which is among the most trusted brands in the country. With more than 200 branches, 1,241 direct sales agents, 6,535 home loan agents and 782 customer relationship associates, the company has among the strongest distribution structures in India to support business expansion. Going ahead, a revival in the economy and moderation in the borrowing rates could be the key triggers for the stock. Therefore, considering stable RoE of ~20%, sound asset quality and healthy growth outlook, the company s fundamentals are strong. Punjab National Bank has one of the best liability mixes in the banking space, with low-cost deposits constituting more than 44% of its total deposits. This helps it to maintain one of the highest margins among PSBs. However, in view of the weakness in the economy and relatively higher exposure to troubled sectors, the asset quality stress has increased and NPA issues that are likely to persist over the next few quarters. PTC India Financial Services, owned by PTC India, is focused on providing financial solutions to projects in the energy value chain. Given the robust lending opportunities in the renewable energy segment and the likely reforms in the thermal power segment, the loan growth is expected to remain strong over the next two to three years. The proceeds from exits in investments would add to the profitability. The asset quality despite some deterioration is manageable. Union Bank of India has a strong branch network and an all-india presence. The bank aspires to become the largest retail and MSME bank. Hence, it has ramped up its manpower and infrastructure to ramp up retail, SME lending. The bank s asset quality challenges have come to fore (mainly from the corporate portfolio) whereas low tier-1 CAR also remains an area of concern. Yes Bank, a new generation private bank, started its operations in November 2004 and has emerged as one of the top performing banks. It follows a unique business model based on knowledge banking, which offers product depth and a sustainable competitive edge over established banking players. The bank is suitably poised to ride the recovery in the economy and the retail deposit franchise is showing a sharp improvement, which will support the margins in the medium to long term. Consumer goods Britannia is the second largest player in the Indian biscuit market with ~30% market share. Under a new leadership, Britannia has been able to leverage and monetise its strong brand and premium positioning in the biscuits and snacks segments. The company is well placed to sustain its higher-than-industry growth rate with an improving distribution reach, deepening penetration in rural India, enhanced international business, entry into newer categories and focus on cost efficiency. Britannia s management is confident of regaining double-digit growth at standalone level in the coming quarters. We recommend a Buy on the stock with a revised price target of Rs. 4,665. Emami is one of the largest players in the domestic FMCG market with a strong presence in the under-penetrated categories such as Cooling Oil, Antiseptic Cream, Balm and Men s Fairness Cream. The recently acquired Kesh King brand has improved the product and margin profile of the company. The management expects volume growth to recover to 14-15% in the short to medium term, as most of its products are in low-penetrated categories, and to enhance the company s direct distribution reach to about eight lakh outlets by end of FY2018. Boroplus cream, Kesh King and Zandu range of healthcare products will be some of the key volume drivers going ahead. On the international front, the MENAP region is expected to see a recovery in the revenue performance. GSK Consumer Healthcare is a leading player in the MFD segment with ~70% share in the domestic market. GSK Consumer s management has undertaken various initiatives to drive volume growth such as: 1) Price strategy to penetrate 40

41 EQUITY FUNDAMENTALS EARNINGS GUIDE GCPL HUL ITC Jyothy Labs Marico Zydus Wellness Firstsource HCL Tech Infosys deeper into the rural areas/ small towns; 2) Media efficiency to create awareness in the urban markets; 3) Various programmes have been announced to connect with the urban consumers in a better way, and 4) Optimisation of costs in the supply chain. GSK Consumer is a dominant player in the HFD category with volume market share of 52.3%. With a strong cash kitty, it has the potential to revive growth in the coming years. Godrej Consumer Products is a major player in personal wash, hair colour and household insecticide market segments in India. The recent acquisitions, i.e. Strength of Nature, Darling Group, Tura, Megasari and Latin American companies, have helped the company to expand its geographic footprint and improve growth prospects. GCPL s strategy of sustained new product additions and enhancing its distribution reach in the domestic market bode well for the company to achieve double-digit revenue growth and stable OPM. Further, the company s international business is expected to post a better performance, underpinned by the revival in Indonesia and expectations of strong revenue growth and improvement in profitability in Africa. The recent correction in the stock price provides limited downside risk. Hence, we upgrade our rating on the stock to Buy (from Hold earlier) with an unchanged price target of Rs. 1,075. Hindustan Unilever is India s largest FMCG Company. The company expects re-stocking at CSD level by the midst of Q2FY2018. Moreover, the company s distributors are explaining small retailers about the GST impact so that they can get back in trade. This should help HUL to see recovery in sales in early H2FY2018. Additionally, the second consecutive year of better monsoon should drive rural consumption, thus resulting in better revenue growth in the coming quarter. Further, the company is banking on operating efficiencies through various initiatives and cost-saving activities at supplychain/distribution level to see gradual improvement in OPM. ITC has a strategy of effectively utilising the excess cash generated from its cash cow, the cigarette business, to strengthen and enhance its other non-cigarette businesses. The recent cess hike on cigarettes will keep cigarette sales volume under pressure in the near term. The non-cigarette FMCG business would see better growth in the coming years, with an expected pick-up in rural demand. This however will not add substantially to the profitability of the company. Hence in view of near term concern on cigarette business we have a Hold recommendation on the stock. Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration of Henkel it has transformed itself from a one-brand wonder to an aggressive FMCG player. We expect JLL to see an early recovery (Post demonetisation) because of its strong presence in South India, which has high penetration of non-cash transactions. Moreover, the company is focusing on enhancing its direct distribution reach. Jyothy Laboratories is the market leader in the fabric whitener segment in India. With the successful integration of Henkel it has transformed itself from a one-brand wonder to an aggressive FMCG player. We expect JLL to see an early recovery (Post demonetisation) because of its strong presence in South India, which has high penetration of non-cash transactions. Moreover, the company is focusing on enhancing its direct distribution reach. Zydus Wellness has small product portfolio, consisting of just three brands (Nutralite, Sugar Free and Everyuth) that cater to a niche category. Zydus has a strong portfolio of leading brands, which are largely placed in low penetrated categories. Hence, most brands are likely to report double-digit revenue growth in a stable market environment. However, in view of the expected late recovery in performance, we have downgraded our rating on the stock to Hold with a revised price target of Rs IT/IT services Firstsource Solutions is a specialized BPO service provider. The management remained cautious on the demand trajectory for FY2018 due to a sharp deterioration in its mortgage business, and softness in the Collection Business. Overall, FSL foresees industry level growth of 6-8% in CC terms in FY2018 and its OPM to improve by bps on CC basis for FY2018. The health of its balance sheet is improving gradually, as the company is reducing its debt burden consistently through internal accruals. We expect the ongoing macro overhang to restrict the stock s outperformance in the near-to- medium term. HCL Technologies has a leadership position in ERD and IMS space, that together account for ~58% of the company s total revenue. The management expects higher acceleration of revenues due to a healthy order book and strong pipeline in the Mode 2 (Digital, Next Gen & Cloud) and Mode 3 services (Product & Platform). However it foresees a slowdown in IMS services (38.6% of total revenues) to continue for the near-term owing to ongoing delays in the decision-making process. Further, the company has extended the Intellectual Property (IP) agreement with IBM by investing ~$140 million during Q1FY18, cumulatively taking total investment of $780 million on these deals for revenues of over ~ $210 million. The company has not shied away from taking the inorganic route to strengthen its offerings. In addition, the management has made investments in digital technologies (DRYiCE), which will catapult the company to the next level of growth during the ongoing digital transition. We remain positive on the company in view of its large order wins, aggressive bets in ERD space,, accelerated pace of investments in products segment and superior earnings visibility. Infosys is India s premier IT and IT-enabled Services Company that provides business consulting, technology, engineering and outsourcing services. After the appointment of Mr. Nandan Nilekani as the non-executive chairman of the board and the resignations of four board members (Mr. Seshasayee, Mr. Sikka, Mr. Lehmann, and Mr. Etchemendy), we see some respite in the ongoing tussle between founder and board. However, we are concerned about the delay in the digital transformations strategy in the same enthusiasm as before. Further, failure in finding a proper replacement for Dr. Sikka will also deepen the crisis and prolong growth recovery given the massive digital transformation in the sector. The buyback that is a good opportunity for the retail investors could also support the valuation in the near term. 41

42 EARNINGS GUIDE EQUITY FUNDAMENTALS Persistent TCS Wipro Persistent Systems has proven expertise and a strong presence in newer technologies, strength to improve its IP base and a decent margin profile, which sets it apart from the other mid-cap IT companies. PSL is focusing on the development of IoT products and platforms, as it sees significant traction from Industrial Machinery, SmartCity, Healthcare and Smart Agriculture verticals. Further, led by the alliance with IBM to build IoT solutions for IBM s Watson platform and re-sell agreement with IBM, we expect the revenue momentum to accelerate in FY2018/FY2019 and the margins are likely to improve in FY2018 on the back of the initiatives taken by the company. Tata Consultancy Services is among the pioneers of the IT services outsourcing business in India and is the largest IT service firm in the country. Its management expects the digital revenues to grow much faster in the coming years; these grew by 29% YoY to $3 billion in FY2017. Given the macro headwinds, ongoing industry transition, and modest earnings growth over FY E, we do not see enough merits for an upgrade in TCS on a longer term basis. Our preference in TCS is due to its diversified portfolio and its headstart in the digital space. Wipro is among the top five IT companies in India but in the last few years it has been lagging the industry in terms of growth. We believe, owing to weakness in verticals like healthcare and telecom, it is unlikely to show material improvement in FY2018 earnings. The management is hopeful the company will deliver industry level revenue growth by Q4FY2018. Further, the management has given an ambitious target of $15 billion revenues and 23% margin by We see the target of new CEO Abid Ali Neemuchwala as an uphill task looking at the current growth trajectory. We remain skeptical, as anecdotal evidence on Wipro in the last two to three years does not inspire confidence. BHEL CESC Capital goods/power Bharat Heavy Electricals (BHEL), India s biggest power equipment manufacturer, has been the prime beneficiary of the multi-fold increase in the investments made in the domestic power sector over the last few years. However, the order inflow has been showing signs of slowing down which would remain a major concern for the company. Hence, on weak order outlook and slower execution we close our call and recommend book out on the stock. CESC is the power distributor in Kolkata and Howrah (backed by 1,225MW of power generation capacity) which is a strong cash generating business. Further, 600MW of regulated generation capacity (to serve Kolkata distribution) has come on stream recently in Haldia. Moreover, its 600MW thermal power project at Chandrapur has signed PPA and started operating. The losses in the retail business are coming down gradually over the past and it is expected to break-even soon. The BPO subsidiary, Firstsource, is performing well in-line with expectations. However, the recent diversification into unrelated businesses like IPL franchisee would hurt its valuations. CESC has announced the demerger of the business into four verticals namely Power Distribution, Power Generation, Retail and IT Outsourcing. The restructuring looks beneficial for minority shareholders optically. However, we await clarity on the financials of the demerged companies till October 1, Crompton Greaves Crompton Greaves key businesses - Industrial and Power Systems - are going through a rough patch and are potential beneficiaries of the upcoming investment cycle revival. Also, the company is looking to unlock value by selling its international subsidiaries. Finolex Cables Greaves Cotton Kalpataru KEC Finolex Cables, a leading manufacturer of Power and Communications Cables, is set to benefit from an improving demand environment in its core business of cables. It is leveraging its brand strength to build a high-margin consumer product business. It has recently launched Fans and Switch Gears. Further, it is planning to launch Water Heaters soon. The addition of new products in the product portfolio could be the next growth driver. We anticipate a healthy earnings growth, return ratios in high teens and superior cash flows, which bode well for the stock. Therefore, we remain positive on the stock. Greaves Cotton (GCL) is a mid-sized and well-diversified engineering company. Its core competencies are in Diesel/ petrol Engines, Power Gensets, Agro Engines, Pump Sets (engine segment) and Construction Equipment (infrastructure equipment segment). The management has taken a strategic call to close and hive off the loss-making infrastructure equipment division. The outlook has improved substantially with key concerns of GST roll out and transition to new emission norms left behind. Improvement in rural sentiments and better economic growth would lead to revival in the automotive segment. Further, GST rollout is expected to result in significant re-stocking in the aftermarkets business and a demand shift in favour of organised players, resulting in strong growth. Also GCL has launched two new power tillers in the agri-equipment segment. Cumulatively, we expect GCL s revenue to grow at a 10% CAGR over FY2017- FY2019. We retain our Buy recommendation on the stock with an unchanged price target (PT) of Rs Kalpataru Power Transmission is a leading EPC player in the Power Transmission & Distribution space in India. Opportunities in this space are likely to grow significantly, thereby providing healthy growth visibility. The OPM of the standalone business is likely to remain around 10%, while the OPM of JMC Projects (a subsidiary) is showing signs of improvement. We see some value unlocking potential from the sale of assets or listing of new business in future. We remain positive. KEC International is a Global Power Transmission Infrastructure EPC major. It has presence in the verticals of Power T&D, Cables, Railways, Water, Renewable (Solar Energy) and Civil. Globally, the company has powered infrastructure development in more than 61 countries. KEC is a leader in Power Transmission EPC projects and has more than seven decades of experience. Over the years, it has grown through the organic as well as inorganic route. We estimate the company s OPM to improve to ~ 10% and D-E ratio to improve to 0.6:1 by the end of FY2019E, we retain our positive outlook on the stock. 42

43 EQUITY FUNDAMENTALS EARNINGS GUIDE PTC India Skipper Thermax Triveni Turbines V Guard Ind Va Tech Wabag PTC India is a leading power trading company in India with a market share of 35-40% in the short-term trading market. Over the last few years, the company has made substantial investments in areas like power generation projects and power project financing, which will start contributing to its earnings. We retain our positive stance on expected healthy volume uptick, with an increasing share of long-term contract business. Skipper is uniquely placed to exploit the growing opportunities in two lucrative segments: power (transmission tower manufacturing and EPC projects) and water (PVC pipes). It had a comfortable order book of Rs. 2,640 crore orders at the end of Q1FY2018 in the transmission business, which looks promising given the huge investments proposal by the government in the power T&D segment in the next five years. It has expanded the PVC capacity manifold (4x) and aspires to turn into a national player from a regional player. The Energy and Environment businesses of Thermax are direct beneficiaries of the continuous rise in India Inc s capex. Thermax group s order book stands at around its consolidated revenues. However, the company has shown an ability to maintain double-digit margins in a tough macro-economic environment. We retain Hold on the stock due to its rich valuation. Triveni Turbines (TTL) is a market leader in 0-30MW steam turbine segment. TTL is at an inflexion point with a strong ramp-up in the after-market segment and overseas business while the domestic market is showing distinct signs of a pick-up. The company has also formed a JV with GE for steam turbines of MW range which is likely to grow multifold in the next 4-5 years. TTL is virtually a debt-free company with a limited capex requirement and an efficient working capital cycle, reflected in very healthy return ratios. Further, boosted by the expected uptick in the domestic capex cycle, the company s earnings are likely to grow by 15-16% per annum over the next two years. V-Guard Industries is an established brand in the electrical and household goods space, particularly in south India. Over the years, it has successfully ramped up its operation and network to become a multi-product company. The company has a strong presence in the south region. It is also aggressively expanding in non-south markets and is particularly focusing on the tier-ii and III cities where there is a lot of pent-up demand for its products. We remain positive. VA Tech Wabag (VTW) is one of the world s leading companies in the water treatment field with eight decades of plant building experience. Given the rising scarcity of fresh water availability, we expect flow of huge investments in water segment both globally and domestically. With rising urbanisation and industrialisation in India, we expect substantial investments in this space. Given the large opportunity ahead and inherent strengths of VTW, like professional management, niche technical expertise and global presence, we remain positive on the stock. Gayatri Proj IRB Infra Infrastructure/Real estate Gayatri Projects is a Hyderabad-based infrastructure company with a very strong presence in irrigation, road and industrial construction businesses. The order book stands at Rs. 12,932 crore, which is 6.1x its FY2017 revenue. It has completed its power and road BOT portfolio and plans to unlock value by offloading stake to private equity. The company has potential to transform itself into a bigger entity. IRB Infrastructure Developers is the largest toll road BOT player in India and the second largest BOT operator in the country with all its projects being toll based. It has an integrated business model with an in-house construction arm which provides a competitive advantage in bidding for the larger projects and captures the entire value from the BOT asset. Further, it has a profitable portfolio as majority of its operational projects have become debt-free and has presence in high-growth corridors, which provides healthy cash flow. Thus, it is well poised to benefit from the huge opportunity in the road development projects on the back of its proven execution capability and the scale of its operations. Jaiprakash Asso Jaiprakash Associates has been facing earnings pressure across business verticals. Further, it has just concluded its cement asset sale worth Rs. 16,000 crore and transferred 1,000 acres worth Rs. 13,000 crore to an SPV, which will reduce its debt burden. The company, going ahead, will be focusing primarily on EPC business and balance portfolio of business verticals and aim to reduce its debt further. The current business restructuring has led to a cautious view on the stock. L&T NBCC Sadbhav Eng Larsen & Toubro, being the largest engineering and construction company in India, is a direct beneficiary of the domestic infrastructure capex cycle. Further, backed by its sound execution track record and healthy order book, the company is expected to perform well. Monetisation of the non-core businesses will continue for some time, leaving scope for further value unlocking. Measures planned by the company to improve its return ratios augur well. Hence, we remain positive on the stock. NBCC (India), a Navratna public sector enterprise is notified as a Public Works Organization (PWO), which gives it a unique eligibility to bag orders on a nominated basis from government departments and PSUs. NBCC has already amassed a huge order book, which gives it a strong revenue visibility for the next five years. Moreover, future prospects look much brighter given the opportunities from multiple areas, like redevelopment of old government colonies in Delhi, Rajasthan & Odisha, development of government lands, Smart Cities, Housing for All 2022 and Amrut. Considering the huge competitive advantage, a unique business model, high return ratios and healthy cash flows, we remain positive on the stock. SEL is engaged in 1) EPC business for Transport, Mining and Irrigation sectors, and 2) Development of Roads & Highways on BOT basis through SIPL. SEL has a healthy order book of Rs. 8,377 crore (2.8x its FY2017 revenue, with presence in 11 states. The company has robust in-house integrated execution capabilities with qualified human resource and owned equipment. We expect SEL to benefit from an improvement in order execution, enhanced order inflows (particularly from the Transport segment) and resolution of working capital issues, resulting in a sturdier balance sheet. Further, the improving outlook for the Indian road sector and limited competitive intensity augur well for SEL since it is present in both, asset creation and EPC verticals. 43

44 EARNINGS GUIDE EQUITY FUNDAMENTALS Oil India Reliance Ind Selan Exploration Oil & gas Oil India has several hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. The company holds 2P (proved and probable) reserves of 79 mmt for oil and 124 mmtoe for gas. Its reserve- replacement ratio is also healthy. Though weak global crude oil prices are weighing on its performance currently, operational performance is healthy and offers high dividend yield. Reliance Industries has one of the largest and complex refining businesses in India, which enjoys a substantially higher refining margin over the benchmark GRM. Further, its petrochemical business is also highly efficient, where RIL is expanding capacity. We expect the GRM to remain healthy and the petrochem margin to be maintained in the medium term on an uptick in the domestic demand. Capex in downstream business (incremental capacity in the petchem business and petcoke gasification in refining) would be the key earnings driver in the coming years. Large investment in Reliance Jio could add value in long term. Selan Exploration Technology is an oil E&P company with five oil fields in the oil-rich Cambay Basin of Gujarat. The initiatives taken to monetise the oil reserves in its Bakrol and Lohar oil fields are likely to improve production. Based on this, we expect it to ramp up production significantly, subject to approval for the new wells. However, weak global oil prices are likely to be an overhang on the stock in the medium term. Aurobindo Pharma Cadila Cipla Divi s Labs Pharmaceuticals Aurobindo Pharma is set to post a healthy growth on the back of a ramp-up in the US and European markets, thanks to a strong product pipeline built over a period and focus on niche segments like injectibles, hormones, penems and sterile products. The expected increase in the export-led business and a favorable tilt in the revenue mix are likely to boost the margin, resulting in a faster growth in the earnings as compared to the revenues. Pricing pressure, USFDA inspections and appreciating rupee warrant a caution in the near term. The USFDA inspected Cadila Healthcare s Moraiya facility and gave a clearance without any 483 observations. This cleared the big overhang on the growth prospects of the company s US business (which was affected due to delayed product approvals by the USFDA), as the pace of approval will improve going ahead. We feel that several high-value products like generic Toprol XL, Lialda, Transdermal, Respiratory products, etc. would receive approval in the near to medium term. This would be a key catalyst for growth and margin expansion over FY Cipla has brought about a paradigm shift in its business strategy. To revive growth it has (1) enhanced focus on technologyintensive products in the inhalation and nasal spray segments; (2) established front-end presence in the key markets like South Africa, USA and Europe; (3) developed an appetite for inorganic expansions; and (4) invested in future growth areas like biosimilars. The UK approval for gseretide comes at a crucial time for Cipla, as it will help the company to gain traction in its business across global markets. The Cipla management sounded confident of ramping up USA and EU businesses with new product launches, and expects benefits from cost- control initiatives to drive the company s earnings from FY2018 onwards. The company has recently received EIR s for Indore, Goa and InvaGen plants. rollout (to educate the channel partners on the regulatory requirements). Unit 2 of Divi s Laboratories (Divis) at Vishakhapatnam (which is under import alert 66-40) was re-inspected by the USFDA during September 11-19, 2017 to verify the remedial measures implemented by the company. With the re-inspection, the FDA has confirmed the resolution of December 2016 observations but has issued fresh Form 483 with six observations. As per Divis, the observations in fresh Form 483 are procedural in nature (unrelated to December 2016 Form 483) and no further facility re-inspection will be required. However, the fresh Form 483 letter indicates continuation of procedural lapses, which may elongate closure of fresh Form 483 for 1-2 quarters (against the earlier expected time frame of one quarter) and recovery should largely be seen in FY2019. Given the overhang on the timeline of a resolution, we continue to maintain our Hold rating. Glenmark Pharma The management has guided for a 12-15% revenue growth for FY2018 with flattish OPM as there is significant pressure in the US base business (10-12% price decline) due to consolidation of players and increasing competition.. Although few more significant opportunities fall in FY2018, we feel the pricing pressure in the US base business, limited visibility on margin expansion and lower than-expected debt reduction will remain the key headwinds in the near term. Timely monetisation of Para IV opportunities (like gwelchol and grenvela) (FY2018/FY2019) and big licensing deals in the R&D business will be the key catalysts to keep an eye on. Lupin Sun Pharma The Lupin management has indicated that the next months will be difficult, as the US, Japan and India businesses are undergoing structural changes. Mounting pricing pressure due to the consolidation of distribution channels, increasing competition in gfortamet and gglumetza, slow ramp up of Gavis portfolio and appreciating rupee will add to the pressure on US business and delay in key product approvals are likely to persist going forward. ggrenvela opportunity for the US market is also lost due to entry of another generic player, with many other players in fray. Therefore, we feel that Lupin will continue to witness pressure on its US business and margins over the next few quarters. Moreover, management has further reduced its already-weak operating margin guidance of 24-26% to 21-23% for FY2018. The USFDA has classified the company s Halol facility under the Official Action Indicated (OAI) post the re-inspection done in December This indicates further delay in the resolution of the Halol plant issue (expect remediation to be over by the end of FY2018 post which the USFDA will again re-inspect the plant), and till then the company will not receive any new product approval. The management has confirmed site transfer of some NDAs and key products to 44

45 EQUITY FUNDAMENTALS EARNINGS GUIDE Torrent Pharma mitigate the risk from delayed approvals. However, taking into consideration uncertainties like pricing pressure, GST roll-out, price cuts in the domestic business in the near term, the management has guided for a single digit de-growth in sales for FY2018. R&D spend will be in the range of 9-10% of sales in FY2018 (v/s. 7.6% in FY2017), and the tax rate will also increase, thereby exerting more pressure on the profitability. Two key geographies, namely the US and India (contributing 32% each to the company s total sales) are going through challenging times due to rising competition and price cuts, respectively. Torrent Pharma is re-filing grenagel in the US, which could mean delay in its approval. In the India business, the management is focusing on improving profitability by building larger brands. The management guided for growth above Indian pharma market (IPM) going forward, as it strengthened its gynecology franchise by adding some brands from Novartis in 4QFY17 which shall see traction in H2FY2018. Overall we feel few more key ANDA approvals in the US market, Dahej facility ramp up and pick up in domestic business will be a key near-term trigger to watch out for. Grasim Building materials Grasim is better placed compared with the other large players in the cement space due to its strong balance sheet, comfortable debt/ equity ratio, attractive valuation and diversified business. The full ramp-up of Vilayat plant (increasing capacity to 804,000 tonne) is likely to aid VSF volumes going ahead, though prices may soften in the near term. Further, the merger of ABCIL and expansion in caustic division are likely to maintain a strong performance in the chemical division. On the cement front, the company expects demand to pick up in the near term while a slow execution of government projects and surplus inventory remain areas of concern. The Ramco Cements The Ramco Cements, one of the most cost-efficient cement producers in India, will benefit from the capacity addition carried out ahead of its peers in the southern region. The company is mulling over the expansion of its satellite grinding capacity from 4MTPA to 7.1MTPA at a cost of Rs1,095 crore. The expansion aims to strengthen reach in Andhra Pradesh, West Bengal and North Eastern states.. The company has reaped the benefits through cost-saving measures, besides constantly reducing its debt, leading to improved profitability. In a nutshell, better volumes, cost efficiencies and reducing leverage have yielded benefits for the company. Shree Cement UltraTech Cement Arvind Shree Cement s expansion plan to reach 40MT by FY2020 (currently 27.2 mtpa) and increasing geographical footprint in the Eastern and Southern region is likely to aid in better volumes growth going ahead. The cement pricing discipline should help in improving realization for FY However, the increased cost structure (power and freight cost) affecting operating margins and higher effective tax rate is likely to limit net earnings growth in the near term. UltraTech Cement is India s largest cement company with expected capacity to reach 95.4 mtpa by the end of FY2019. We expect UltraTech to report industry-leading volume growth on the back of timely capacity expansion (acquisition of Jaypee Group s cement assets) and likely revival in demand (with the start of affordable housing projects and enhanced spending on infrastructure development). However, the rise in the cost of Petcoke and Diesel along with integration of Jaypee Group s cement asset integration pose a near term risk to OPM. Discretionary consumption Arvind is one of the India s leading vertically integrated textile companies with an experience of more than eight decades in the industry. The company has switched itself into branded retail space by enhancing its branded portfolio. Arvind is a licensee for marketing various marquee global brands in India like Arrow, US Polo, Tommy Hilfiger, Calvin Klein. It also operates Specialty Retail stores under the licensee brands like GAP, The Children s Place, Aeropostale and Sephora. The company also has presence in retail space through Unlimited and The Arvind stores. Arvind has registered a decent financial background with revenue CAGR growth of 15% and PAT CAGR growth of 23% over past five years. The longterm growth story remains intact. With the branded and retail business expected to grow strongly and improvement in the scale of garment business on account of commencement of new unit in Ethiopia, near to medium-term growth prospects are intact.. We have maintained Buy recommendation on the stock with a price target of Rs.465. Century Plyboards Century Plyboards is a leading player in the organised plywood industry with a market share of 25%. A strong growth in the sector, Century s premium positioning and brand equity strength, and the successful GST roll-out would enable it to post a revenue growth (CAGR) of 19.2% over FY E. On the back of a revenue growth and better absorption of fixed costs, the earnings are likely to grow at a rate of 23.2% CAGR over FY E We believe that the structural growth triggers for Century Plyboards are becoming visible due to 1) The implementation of GST (expected to result in a shift of market share to the organised players from the unorganised players, as they lose the cost advantage); 2) The government s relentless focus on affordable housing; 3) The MDF unit getting operational in tandem with GST implementation. Cox & Kings: Cox & Kings is an integrated player in the tourism & travel industry, with a strong presence in the global leisure travel segment and the education tourism segment in Europe. It has a 30% market share in the global outbound tourism market. Domestic leisure travel and Meininger have maintained strong revenue growth momentum for the past few quarters. However the margins of both the business are expected to remain lower on y-o-y basis due to high operating expenses to improve business prospects. Operating performance of the education business is expected to revive in the coming quarters. Reduction in debt continues to reduce stress on the balance sheet and makes it a better play in the travel and tourism space. Hence, we upgrade our earnings rating on the stock from Hold to Buy with a revised price target of Rs

46 EARNINGS GUIDE EQUITY FUNDAMENTALS Info Edge (India) INOX Leisure KKCL Orbit Exports Relaxo Footwear Info Edge is India s premier online classified company in the recruitment, matrimony, real estate, education and related service sectors. Naukri is a quality play on the improving macro environment and is directly related to the GDP growth and Internet/mobile penetration. Further, prevailing lower competitive intensity in the real estate space is positive in terms of profitability. We continue to derive comfort on Info Edge s business strength, with leading market share in key businesses. We expect its earnings trajectory to catch up, as macro headwinds subside. INOX Leisure (ILL), India s second largest multiplex operator with 119 properties and 476 screens across 58 cities (accounting for about 27% of the multiplex screens in India) is scripting a blockbuster growth story through a mix of inorganic and organic expansion plans to scale up the total screen count to 976 screens over the next months. The ILL mega show is supported by an improving content quality in the Indian mainstream and regional cinema with its movies regularly hitting the Rs100-crore or Rs200-crore box-office collection mark. FY2017 was a difficult year for ILL, and the management expects FY2018 to be a better year, underpinned by a strong content pipeline, GST implementation and improvement in other operating metrics. We continue to remain positive on ILL from a long-term perspective, given its pan-india growth plans, healthy balance sheet (lower financial leverage) and potential benefits from GST rollout. Kewal Kiran Clothing (KKCL) is a branded apparel play with four brands in its kitty. Killer, its flagship denim brand, has created a niche space in the minds of consumers. Q1FY2018 was dull because of inventory de-stocking by various trade channels. Management is confident of regaining growth in H2FY2018 as consumer demand is expected to improve on account of stable inflation and better macro environment. In view of near-term GST headwinds and slow recovery in discretionary categories we maintain our Hold recommendation on the stock. Orbit Exports (Orbit) is a leading manufacturer and exporter of novelty fabrics, exporting its products to over 32 countries. It is a recognised star export house and operates in the niche area of high-end fancy fabrics, which are mainly used by designers in women s fashion apparels. The Orbit management indicated that the Latin American business has started recovering and a good performance can be expected in the coming quarters. The Middle East business is however expected to remain under pressure. The high-margin Ribbons & Made-ups business is expected to grow in strong double digits. Overall, the management is confident of growing in mid-to-high teens in the short to medium term. Further, Orbit has one of the better balance sheets in the Textile industry and we expect it to improve further in the coming years. However, in view of near-term concerns in the export markets, we maintain our Hold rating on the stock. Relaxo Footwear is present in the fast-growing footwear category, wherein it caters to customers with its four top-ofthe-mind-recall brands, viz, Hawaii, Sparx, Flite and Schoolmate. It has emerged as an attractive investment opportunity due to its growing scale, strong brand positioning and healthy financial performance. Relaxo has a superior portfolio of footwear brands and its relentless focus on driving sales through the expansion of distribution and improving the brand presence augurs well for the company to achieve good growth in the backdrop of better demand environment. Moreover, GST implementation will be a key growth lever for Relaxo, as a large part of the Indian footwear market is unorganised (~60%). Thomas Cook (I) Thomas Cook India Limited (TCIL), owned by the legendary value investor Prem Watsa, is an integrated leisure travel and human service management company in India. FY2017 was a year of integration for TCIL s travel and HR businesses. Though the momentum in revenue growth will sustain going forward, margins are likely to improve in a gradual manner, as benefit from the integration of recent acquisitions will take some time to fructify. Further, the company is planning to re-brand its VO business and, therefore, investment in the VO brand will increase. We have a Hold rating on the stock due to limited upside. Wonderla Holidays Zee Entertainment Wonderla Holidays Ltd (WHL) is the largest amusement park company in India with over a decade of successful and profitable operations. It owns and operates two amusement parks under the brand name Wonderla in Kochi and Bengaluru, and came up with a third park in Hyderabad in Q1FY2017. The setting up of a new park in Chennai will make WHL one of the strongest players in the South Indian market. Though the performance is likely to be muted due to significant ticket price hikes in all the parks, long-term growth prospects remain intact as WHL is considered one of the better weekend entertainment options and the new park in Chennai will further add on to revenue and cash flows. Hence, we maintain our Buy recommendation on the stock with a revised price target of Rs Zee Entertainment Enterprises (ZEEL), part of the Essel group, is one of India s leading TV media and entertainment companies. It has a bouquet of more than 40 channels across Hindi, regional, sports and lifestyle genres. ZEEL continues to outperform the broadcasting advertising market and expects to continue the momentum with an improvement in the macro economy. ZEEL s ad growth could be impacted in the near-term led by GST implementation, as the largest ad revenue sources are currently turned tightfisted on ad spends. We expect growth in the ad spends to bounce back to earlier level from Q3FY2018. Given ZEEL s consistent focus on the five key pillars to drive growth, we believe that successful execution of this strategy will have a material impact on sustainable growth going forward. We continue to see ZEEL as the prime beneficiary of macro revival and digitisation. Bajaj Holdings Diversified/Miscellaneous Bajaj Holdings & Investment (BHIL, erstwhile Bajaj Auto) was demerged in December 2007, whereby its manufacturing business was transferred to the new Bajaj Auto Ltd (BAL) and its strategic business consisting of the wind farm and financial services businesses was vested with Bajaj FinServ (BFS). All the businesses and properties, assets, investments and liabilities of erstwhile Bajaj Auto, other than the manufacturing and strategic ones, now remain with BHIL. BHIL is a 46

47 EQUITY FUNDAMENTALS EARNINGS GUIDE BEL Bharti Airtel GDL Max India PI Industries primary investment company focused on new business opportunities. Given the strategic nature of BHIL s investments (namely BAL and BFL), we have given a holding company discount of 50%to BHIL s equity investments. The liquid investments and investments in other group companies have been valued at cost. Further, the outlook for BFS is encouraging as BAGIC and BAF are showing improved performances and are likely to maintain the high-growth trajectory. Secondly, visibility for BAL s volume growth has also improved for both the exports as well as domestic markets. So, we have revised upwards BAL s price target (PT) to Rs. 3,470. Consequently, we have revised our PT for BHIL upwards to Rs. 3,481. We maintain our Buy recommendation on the stock. Bharat Electronics, a PSU manufacturing electronic, communication and defense equipment, stands to benefit from the enhanced budgetary outlay for strengthening and modernising the country s security equipment. The Make in India initiative of the government will support the earnings growth in the coming years, as it is the only player with strong research and manufacturing units across the country. The company s current order book of around Rs. 41,052 crore provides revenue visibility for the next three to four years. Bharti Airtel is the leader in the Indian mobile telephony space. With Reliance Jio s shift from free to deep discounted price, Airtel has also rolled out its aggressive pricing strategy accordingly to counter Reliance Jio s offerings and is able maintain its market share. Going forward, from a long-term perspective, explosive growth in the data segment, strong network and reach will help Bharti emerge stronger, but the near-term intensifying competitive intensity in the sector would continue to impact the company s earnings performance. We maintain our Hold rating on the stock with a price target of Rs With its dominant presence in the Container Freight Station segment the Rail Freight and Cold Chain businesses, Gateway Distriparks has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the Rail Freight and Cold Storage businesses have started bearing fruits. It is one of the largest players in the CFS business and has also evolved as the largest player in the Rail Freight business as well as the Cold Storage business. The proposed capex for all the three segments will strengthen its presence in each of the segments and increase its pan-india presence going forward. Max India has demerged into three different entities of which Max Financial Services will hold Max Life Insurance (new Max India will hold Max Healthcare, Max Bupa Health Insurance and Antara businesses). Max Life Insurance (held by Max Financial Services) is among the leading private sector insurers, has gained the critical mass and enjoys the best operating parameters in the industry. As the insurance sector is showing signs of stabilisation, the company s favorable product mix and a strong distribution channel will result in healthy growth in the premiums and profits. PI Industries (PII), a leading agro-chemical company, has a differentiated business model with focus on the fast-growing custom synthesis and manufacturing (CSM) business, which contributes 60% of its revenues. PII is gradually ramping up production at Jambusar facility. PI has introduced three new products (one maize herbicide and two rice fungicides) during the quarter and has lined up two new product launches during FY2018. Further, utilization of the new plant at Jambusar (phase 3) is likely to ramp up over the next 2-3 quarters. Also, significant re-stocking is likely post the GST rollout in anticipation of a good demand for agro chemicals. Secondly, the CSM business is exhibiting early signs of revival, as channel inventory in global markets is correcting as well as prices for select commodities have shown signs of firming up. We expect FY2019 to witness the full impact of the revival in the CSM business. We expect PI s revenue to report a 12% CAGR over the next two years. We maintain a Buy recommendation on the stock with a price target of Rs Ratnamani Metals Ratnamani Metals & Tubes (RMTL) is the largest stainless steel tube and pipe maker in India. Despite the challenging business environment due to increasing competition, we remain positive on RMTL on the back of its strong balance sheet, the company s ability to generate superior return ratios in the coming years and expansion of Seamless SS Tube capacity in the next few years. Further, the management has maintained a strong outlook on the potential opportunities in the Oil & Gas sector and inter-connection of the rivers across the country. Supreme Ind UPL Supreme Industries is a leading manufacturer of plastic products with a significant presence across piping, packaging, industrial and consumer segments. We remain positive on its new launches of value-added products and capacity expansion plans, which are largely funded by its robust internal accruals. The company enjoys superior return ratios with low gearing levels. With diversified products, an extensive distribution network, improved capital structure and government thrust s on better infrastructure, Supreme has emerged as one of the best proxy play on the increasing use of plastic consumption in India. Hence, we remain positive on the stock. UPL is a leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals. It has presence across agricultural inputs segment ranging from seeds to crop protection products and postharvest activities. It has also started to focus on premium products in agro-chemicals Outlook for the Indian business is strong given the sharp increase in cotton acreages, forecast of a normal monsoon and new product introductions. Further, post the rollout of GST substantial re-stocking is likely to happen, which would boost the volumes in Q2FY Secondly, the North American operation too are expected to witness improved traction due to Increase in cotton acreages, high insect infestation likely due to wet conditions and ban on Xtent technology (competitors product), which has spurred up the demand for UPL s herbicides in few states in the US and the same is likely to sustain. We expect UPL s topline to grow in double digits at 14% CAGR over the next 2 years. Considering the benefits of operating leverage and a better product mix, the OPM is expected to improve by 94 bps in FY2018. We retain our buy recommendation on stock with a PT of Rs

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50 Sharekhan Top Picks celebrates 100 months of outperformance! 7.2%* 1 to 1.5%* Sensex and Nifty Sharekhan Top Picks *Performance in April 2017 Delivered handsome returns of 7.2% in April, while the benchmark indices, the Nifty and Sensex, appreciated in the range of 1-1.5% in the same period. Outperformed the CNX Midcap index in April as well as over the longer timeframe of three years and five years. Consistent performance with its track record of continued outperformance for eight consecutive years. What is Sharekhan Top Picks Portfolio? Carefully chosen 12 companies from the Sharekhan fundamental research coverage universe. Comprises mostly large-cap companies plus 30% exposure to quality mid-cap companies. Reviewed at the end of every month; revisions, if any, are intimated with a detailed explanation. Simple to follow and ideal for investors looking to create wealth over a period of time. Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: Sharekhan Ltd.: SEBI Regn. Nos.: BSE: INB/INF / BSE-CD; NSE: INB/INF/INE ; MSEI: INB/INF / INE ; DP: NSDL-IN-DP- NSDL ; CDSL-IN-DP-CDSL ; PMS-INP ; Mutual Fund-ARN ; Research Analyst: INH ; For any complaints at igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T & C on before investing.

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53 Like they say, Health is wealth. Get your portfolio back in shape with the Portfolio Doctor - a system based advisory service that evaluates your portfolio to enhance its performance. Your returns are optimized by certain stocks that are advised for selling or buying as well as suggesting a balance in your portfolio across sectors. Once the Doctor is in, you ll find that a dose of robust knowledge can do wonders. For more info call, Shaji Nair portfoliodoctor@sharekhan.com The Portfolio Doctor will only advise. Actual buying / selling of securities, will be at the client s behest. Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: harekhan Ltd.: SEBI Regn. Nos.: BSE: INB/INF / BSE-CD; NSE: INB/INF/INE ; MSEI: INB/INF / INE ; DP: NSDL-IN-DP-NSDL ; CDSL-IN-DP-CDSL ; PMS- NP ; Mutual Fund-ARN ; Research Analyst: INH ; For any complaints at igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & elevant exchanges and the T & C on before investing. Distributors of IPOs & Mutual Funds Discliamer. This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees ( SHAREKHAN and affiliates ) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information and should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Recipient of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN.

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