BERGER PAINTS NIGERIA PLC
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- Anna Parker
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1 NSE: BERGER; Bloomberg: BERGER NL BERGER PAINTS NIGERIA PLC Declining Profitability Threatens Shareholder Value In its recently released annual scorecard, Berger Paints Nigeria Plc. declared revenue of NGN3.08bn, representing a 13.72% growth in turnover from FY2013. Breakdown of revenue into quarters showed 60.72% growth in stand-alone revenue for Q4:2014 relative to Q4:2013. We consider this a major feat for the paint company, as BERGER had suffered a significant slowdown in demand in the first three quarters of 2014, having posted a 5.37% Year-on-Year (YoY) decline in turnover as at Q3:2014. Owing to greater YoY revenue, cost of sales came in 11.11% higher compared to the erstwhile period. The company however sustained its recent production cost efficiency drive, as cost to sales ratio settled lower at 56.31% from 57.64% in FY2013. Operating expense on the other hand, grew by 27.97% largely due to a 53.77% increase in selling and distribution expenses. Profit after tax (PAT), which amounted to NGN0.15bn (42.23% lower YoY), was also pressured by higher finance and taxation expenses during the period. Using a blend of absolute and relative valuation models, we arrived at a 2015 target price of NGN8.19 (as against previous TP of NGN8.48). This implies that the stock is trading at a 9.03% premium to our target price, hence we recommend a HOLD. 4 th quarter sales drive YoY revenue growth for 2015: BERGER grew its top line by 13.72% to NGN3.08bn in FY2014. The company recorded stand-alone turnover of NGN1.27bn in Q4:2014 as against NGN0.054bn in Q3:2014. This suggests that Berger enjoyed relatively higher demand, and possibly increased production volumes in the last quarter. We are of the opinion that the company may not have reached its optimal production potential and may still be struggling with production inefficiency and sub-optimal capacity utilisation in its old factory plants. We believe that the introduction of the proposed automated factory in 2015 will help cut down wastages, increase supply and help the company tap into the growing demand for building materials such as paints, in the medium to long term. Given the expected slowdown in construction activities in 2015, owing to reduced government and consumer spending, we pegged 2015 paint sales at NGN3.30bn, implying a YoY growth of 7%. We expect the lower growth level to be driven by consumer loyalty, improved factory efficiency and the growing distribution network. Selling and distribution expenses impede cost efficiency drive: FY2014 numbers showed a slower growth in cost of sales of 11.11% relative to revenue growth, which resulted in a cost margin of 56.31% in the period versus 57.64% in the previous year. We attribute the cost savings to stable prices of key raw materials and reduced dependence on alternative power. Operating expense, on the other hand, continued to spike, as operating expense ratio settled higher at 37.62% compared to 33.43% in erstwhile year. This could be traced to the 53.77% increase in selling and distribution expenses as BERGER worked to increase product visibility and access to consumers. We envisage continued growth in operating expenses as the company expands its distribution network while production costs are expected to further moderate with improvement in production efficiency. We therefore forecast OPEX to sales and cost to sales ratios at 40.1% and 56.1% respectively. PAT drops 42.23% YoY despite growth in revenue. The paint maker reported profit after tax of NGN149mn, 42.23% down from FY2013. In addition to higher operating costs, PAT was also pressured by a 38.26% increase in finance costs coupled with a higher tax rate (40.3% vs 24.9% in 2013) in FY2014 EARNINGS UPDATE TP NGN8.19 Rating: HOLD Key Metrics Current price 9.00 Current TP 8.19 Actual P/E 12.27x Forward P/E 12.73x Fundamental Key Metrics EPS 0.51 BVPS 8.49 Net Margin 4.83% ROAE 6.03% ROAA 4.10% Leverage 1.48 Key Price Metrics Today s change 0.00% WtD 0.00% MtD 13.25% QtD 13.25% YtD 0.67% 52-Week Return -5.84% 52-Week Hi Week Lo 7.60 Year Hi Year Lo 8.00 Beta Week Share Price Trajectory 1.60 NSE ASI BERGER M-14 M-14 J-14 S-14 N-14 J-15 M-15 Source: NSE, Bloomberg, Meristem Research Analyst: Adetutu Adegbayibi adetutuadegbayibi@meristemng.com
2 Following the massive decline in PAT, Net margin moderated to 4.8% from 9.5% in Other key indicators also reflected the decline in profitability as earnings per share fell to NGN0.51 from 0.89 with Return on Equity decreasing to 6.03% from 12.23% in prior year. Given our outlook on 2015 revenue coupled with expectations of production efficiency, we forecast PAT of NGN0.186bn indicating a 25.3% YoY growth in PAT. Recommendation remains a HOLD: Using our blend of absolute and relative valuation models, coupled with our expectations of slower economic growth, higher costs and risky operating environment, we arrived at a 2015 target price of NGN8.19 (as against previous TP of 8.48) which suggests that the stock is currently trading at a 9.03% premium to target price, and we maintain our HOLD recommendation. Trend in Revenue and Revenue growth Trend in PAT and PAT growth Millions 5,000 4,000 3,000 2,757 2,000 1,000 Turnover 2,574 2,711 2,514 3,083 Turnover Growth 3,955 3,596 3,299 4,351 20% 15% 10% 5% 0% -5% Millions PAT PAT Growth % 40% 20% 0% -20% -40% f 2015f 2016f 2017f 2018f -10% f 2015f 2016f 2017f 2018f -60% Source: Company results, Meristem Research Financial Highlights (NGN billion) BERGER PAINTS NIGERIA PLC FY:2014 Result Profit & Loss Account FY:2014 FY:2013 y/y Growth FY2015 Revenue % Cost of Sales % Gross Profit % OPEX % Other Income % Finance Costs % Investment Income % PBT % PAT % Balance Sheet Inventories % Trade and Other Receivables % Cash and bank % Total Assets % Shareholders' fund % Short term borrowings % Ratios RoAE 6.03% Dividend NGN0.75 RoAA 4.10% Closure Date 15th -17th June 2015 Financial Leverage 1.48 AGM Date 21st July 2015 Cost of Sales Margin 56.31% Payment Date 23rd July 2015 Net Margin 4.83% Dividend Yield 8.33%
3 Analyst s Certification and Disclaimer This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each research analyst hereby certifies, with respect to each security or issuer covers in this research that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers (the Issuer); and (2) no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Research analysts compensation is determined based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the Firm s employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues from other business units within the Firm. (3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting non-material non-public or material public market information. As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected to research analysts compensations. In the case of non-currency of the date of this report, the views and contents may not reflect the research analysts current thinking. This document has been produced independently of the Issuer. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees, shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Investment Banking. Investment Ratings Fair Value Estimate We estimate stock s fair value by computing a weighted average of projected prices derived from discounted cash flow and relative valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firm s peculiar business model and what in the opinion of our analyst is considered as a key driver of the stock s value from a firm specific as well as an industry perspective. However, we attach the most weight to discounted cash flow valuation methodology. Ratings Specification BUY: HOLD: SELL: Fair value of the stock is above the current market price by at least 20 percent Fair value of the stock ranges between -10 percent and 20 percent from the current market price. Fair value of the stock is more than 10 percent below the current market price. Definitions Price Targets: Price targets reflect in part the analyst s estimates for the company s earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or market, and may not occur if the company s earnings fall short of estimates. Asset allocation: The recommended weighting for equities, cash and fixed income instrument is based on a number of metrics and does not relate to a particular size change in one variable.
4 Movements in Price Target Company Name: BERGER Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 07/04/ HOLD HOLD New Recommendation Company disclosures Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the analyst(s) have with companies or in securities discussed in this report, are disclosed below: Company Berger Paints Plc Disclosure k a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company. b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company c. Meristem beneficially owns 1% or more of the equity securities of the company d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the past 12 months. e. Meristem beneficially holds a major interest in the debt of the company f. Meristem has received compensation for investment banking activities from the company within the last 12 months g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next 3 months h. The content of this research report has been communicated with the company, following which this research has been materially amended before its distribution i. The company is a client of the stock broking division of the Meristem group. j. The company is a client of the investment banking division of the Meristem group. k. The company is a client/prospective client of other divisions of the Meristem group. l. The company owns more than 5% of the issued share capital of Meristem m. Meristem has other financial or other material interest in the company.
5 Conflict of Interest It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as Meristem ) that research analysts may not be involved in activities that suggest that they are representing the interests of Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in Meristem s Investment Banking or Sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analysts published research. Therefore, the proprietary interests of those Sales and Trading departments may conflict with your interests. Important Disclosure For U.S. persons only: This research report is a product of Meristem Securities, which is the employer of the research analysts who has prepared the research report. The research analysts preparing the research report are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analysts are not subject to supervision by a U.S. broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Mersitem Securities only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Meristem Securities has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. Legal entity disclosures Meristem Securities Limited is a member of The Nigerian Stock Exchange and is authorized and regulated by the Securities and Exchange Commission to conduct investment banking and financial advisory business in Nigeria. However, the company through its subsidiaries carries out stock broking, wealth management, trustees and registrars businesses which are regulated by the SEC and ICMR.
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Healthy operating performance in Q2 November 28, 2016 Rohan Korde rohankorde@plindia.com +91 22 66322235 Rating BUY Price Rs65 Target Price Rs115 Implied Upside 76.9% Sensex 26,316 Nifty 8,114 (Prices
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Near term outlook muted, working on building a strong base November 11, 2016 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating Accumulate Price
More informationEicher Motors. Continues to ride high! Accumulate. Source: Company Data; PL Research
Continues to ride high! Accumulate November 14, 2017 Saksham Kaushal sakshamkaushal@plindia.com +91 22 66322235 Poorvi Banka poorvibanka@plindia.com +91 22 66322426 Rating Accumulate Price Rs30,083 Target
More informationIndraprastha Gas. Growth traction continues. Source: Company Data; PL Research
Growth traction continues June 28, 216 Avishek Datta avishekdatta@plindia.com +91 22 66322254 Rating BUY Price Rs65 Target Price Rs632 Implied Upside 4.5% Sensex 26,43 Nifty 8,95 (Prices as on June 27,
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(SJET IN) Rating: BUY CMP: Rs80 TP: Rs107 February 12, 2019 Q3FY19 Result Update Change in Estimates Target Reco Change in Estimates Current Previous FY20E FY21E FY20E FY21E Rating BUY BUY Target Price
More informationCrompton Greaves Consumer Electricals (CROMPTON IN) Rating: BUY CMP: Rs195 TP: Rs276
Crompton Greaves Consumer Electricals (CROMPTON IN) Rating: BUY CMP: Rs195 TP: Rs276 October 26, 2018 Q2FY19 Result Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E
More informationSBI Life Insurance Company (SBILIFE IN ) Rating: BUY CMP: Rs673 TP: Rs840
(SBILIFE IN ) Rating: BUY CMP: Rs673 TP: Rs840 July 20, 2018 Q1FY19 Result Update Continued improvement in biz yielding results Quick Pointers Company focuses to grow in protection (both segments) and
More informationHindalco Industries. Source: Company Data; PL Research
Beats its own best; building up for next leg of growth May 08, 2018 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Amit Khimesra amitkhimesra@plindia.com +91 22 66322244 Rating BUY Price Rs239
More informationPersistent Systems. Growth led by Enterprise Retain BUY. Source: Company Data; PL Research
Growth led by Enterprise Retain BUY October 26, 20 Govind Agarwal govindagarwal@plindia.com +91 22 66322300 Hussain Kagzi hussainkagzi@plindia.com +91 22 66322242 Rating BUY Price Rs669 Target Price Rs780
More informationAsian Paints. Source: Company Data; PL Research
Premium Valuations to sustain, Accumulate May, 17 Amnish Aggarwal amnishaggarwal@plindia.com +91 Gaurav Jogani gauravjogani@plindia.com +91 8 Rating Accumulate Price Rs1,18 Target Price Rs1,171 Implied
More informationMphasis. Source: Company Data; PL Research
Setting path for growth in Direct Channel, Retain Accumulate June 18, 2015 Shashi Bhusan shashibhusan@plindia.com +91 22 66322300 Hussain Kagzi hussainkagzi@plindia.com +91 22 66322242 Rating Accumulate
More informationJindal Steel & Power
Good show in tough environment; well placed for long term BUY May 05, 2016 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Rating Accumulate Price
More informationNavneet Education. ILL loss hurts consolidated earnings growth. Source: Company Data; PL Research
ILL loss hurts consolidated earnings growth May 14, 2018 Keyur Pandya keyurpandya@plindia.com +91 22 66322247 R Sreesankar rsreesankar@plindia.com +91 22 66322214 Rating Accumulate Price Rs140 Target Price
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Guaranty Trust Bank Plc Nigeria Equities Financial Services May 08, 2018 Foreign Exchange Revaluation Gain Drives Earnings INVESTMENT SUMMARY The first quarter result released by Guaranty Trust Bank shows
More informationJK Lakshmi Cement. Source: Company Data; PL Research
Expansions on schedule; lower costs to aid margins June 28, 2016 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Rating BUY Price Rs385 Target
More informationLIC Housing Finance. Source: Company Data; PL Research
High prepayment remains a drag; earnings momentum to sustain April 20, 2016 Nitin Kumar nitinkumar@plindia.com / +91 22 66322236 Pritesh Bumb priteshbumb@plindia.com / +91 22 66322232 Vidhi Shah vidhishah@plindia.com
More informationDangote Cement Plc. Improved Product Pricing Boosts Earnings. Nigeria Equities Industrial Goods April 3, 2018
Dangote Cement Plc Nigeria Equities Industrial Goods April 3, 2018 Improved Product Pricing Boosts Earnings INVESTMENT SUMMARY Dangote Cement Plc reported a stellar performance in its FY 17 audited account.
More informationFlour Mills of Nigeria Plc
Capital Bancorp Plc (Member of the Nigerian Stock Exchange) 114135 Nigeria Equities Consumer Goods April 12, 2017 High Finance Costs Continue To Pressure Profit Margins Investment Summary Flour Mills of
More informationCapital First. Continuing to grow strong. Source: Company Data; PL Research
Continuing to grow strong May 07, 2018 Pritesh Bumb priteshbumb@plindia.com / +91 22 66322232 R Sreesankar rsreesankar@plindia.com / +91 22 66322214 Shweta Daptardar shwetadaptardar@plindia.com / +91 22
More informationNIIT Technologies. Strong growth in core services. Source: Company Data; PL Research
Strong growth in core services October 19, 2015 Govind Agarwal govindagarwal@plindia.com +91 22 66322300 Hussain Kagzi hussainkagzi@plindia.com +91 22 66322242 Rating BUY Price Rs494 Target Price Rs625
More informationTata Motors. Source: Company Data; PL Research
JLR margin disappoints, Standalone turning around; Accumulate February 06, 2018 Saksham Kaushal sakshamkaushal@plindia.com +91 22 66322235 Poorvi Banka poorvibanka@plindia.com +91 22 66322426 Rating Accumulate
More informationUltratech Cement. Source: Company Data; PL Research
Higher realisations drove the show; Price led recovery still away April 25, 2018 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Amit Khimesra amitkhimesra@plindia.com +91 22 66322244 Rating Accumulate
More informationASHAKACEM. Vetiva Research. Q3 10 Earnings Release. Margins under pressure? 4 November Fair Value Range N21.76 N24.05
Q3 10 Earnings Release Margins under pressure? We maintain our neutral rating on AshakaCem despite its unimpressive performance in its Q2 and Q3 quarterly earnings this year. Since our last Earnings Release
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Sustains momentum; Input cost gains peaked out November 09, 2015 Amnish Aggarwal amnishaggarwal@plindia.com +91 22 66322233 Gaurav Jogani gauravjogani@plindia.com +91 22 66322238 Rating Accumulate Price
More informationAsian Paints. CMP: INR2,722 TP: INR3,161 Buy
BSE SENSEX S&P CNX 16,739 5,049 Bloomberg APNT IN Equity Shares (m) 95.9 52-Week Range (INR) 3,366/2,395 1,6,12 Rel. Perf. (%) -5/-3/14 M.Cap. (INR b) 261.1 M.Cap. (USD b) 4.9 23 January 2012 3QFY12 Results
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Guaranty Trust Bank Plc Nigeria Equities Financial Services August 23, 2018 Result Meets Expectation as Non-Interest Income Lifts Earnings INVESTMENT SUMMARY In line with our projection, the H1 18 audited
More informationLarsen & Toubro. Decent performance! Source: Company Data; PL Research
Decent performance! July 30, 2016 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating BUY Price Rs1,558 Target Price Rs1,590 Implied Upside 2.1%
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Realisations for the quarter hit by a weak demand March 26, 2015 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Sensex v/s PL Cement Index 180
More informationHindustan Zinc. Source: Company Data; PL Research
Earnings in line; best placed in the base metal pack July 21, 2016 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Rating Accumulate Price Rs193
More informationSonata Software. Strong growth, reasonable valuations. Source: Company Data; PL Research
Strong growth, reasonable valuations August 16, 2017 Madhu Babu madhubabu@plindia.com +91 22 66322300 Rating BUY Price Rs160 Target Price Rs200 Implied Upside 25.0% Sensex 31,771 Nifty 9,897 (Prices as
More informationEquity Research Report
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More informationZenith Bank Plc. Earnings Below Expectation: Lower Provision for Loan Loss Saves the Day. Nigeria Equities Financial Services August 15, 2018
Zenith Bank Plc Nigeria Equities Financial Services August 15, 2018 Earnings Below Expectation: Lower Provision for Loan Loss Saves the Day INVESTMENT SUMMARY The recently released H1 18 audited result
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(KECI IN) Rating: BUY CMP: Rs370 TP: Rs425 June 15, 2018 Analyst Meet Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating BUY - Target Price 425 -
More informationCummins India. Focusing on growth in core segments. Source: Company Data; PL Research
Focusing on growth in core segments June 07, 2018 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Shreyans Jain shreyansjain@plindia.com +91 22 66322256 Rating BUY Price Rs681 Target Price Rs857 Implied
More informationLIC Housing Finance. Stable performance. Source: Company Data; PL Research
Stable performance October 21, 2016 R Sreesankar rsreesankar@plindia.com / +91 22 66322214 Pritesh Bumb priteshbumb@plindia.com / +91 22 66322232 Vidhi Shah vidhishah@plindia.com / +91 22 66322258 Rating
More informationTech Mahindra. Source: Company Data; PL Research
Margin beat driven by Headcount reduction November 01, 2017 Madhu Babu madhubabu@plindia.com +91 22 66322300 Rating BUY Price Rs489 Target Price Rs535 Implied Upside 9.4% Sensex 33,600 Nifty 10,441 (Prices
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On track for a strong H2FY16 November 09, 2015 Nishna Biyani nishnabiyani@plindia.com +91 22 66322239 Keyur Pandya keyurpandya@plindia.com +91 22 +91 22 66322247 Rating BUY Price Rs668 Target Price Rs1,000
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(LT IN) Rating: BUY CMP: Rs1,321 TP: Rs1,566 July 25, 2018 Company Report Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating BUY BUY Target Price 1,566
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